This year the EU plans to spend an additional 70 million euro to help Kosovo work its way towards the goal of becoming a Member State. But it has no plan to dig further in the alleged misuse of European taxpayers’ money that has been unresolved for the last 10 years. Audit reports, criminal findings and judicial cases were hampered and not properly followed-up, our investigation found out.
The EU injected a record aid amounting to over 2 billions euro in the post-war recovery and state-building operation led, between 1999 and 2008, by the United Nations Mission in Kosovo (UNMIK). This figure equates to 2/3 of the total funding provided by the international community. And yet, the promised results are far to be achieved. The former Serbian province still scores one of the highest poverty and corruption rates in South-East Europe. This failure is partly due to mismanagement by UN-contracted officials that were tasked to handle donors’ money on behalf of the provisional self-government of Kosovo.
Ineffective control by the EU over UNMIK’s expenditure and a widespread unaccountability frustrated the work of both European auditors and investigators. In the wake of Kosovo’s declaration of independence, UNMIK’s Department of Justice closed in a rush and without any trial sensitive cases on abuses and misappropriations exposing collusion between international and local UN staff. That happened right before the EU deployed its Rule of Law Mission (EULEX) to take over UNMIK’s judicial and institutional responsibilities during the summer 2008.
“We transferred all completed cases to local courts and all pending cases to the Kosovo Special Prosecution Office in compliance with UNMIK-EULEX agreement”, said Annunziata Ciaravolo, former Chief International Prosecutor at UNMIK. “Technically, if an investigation was not properly carried out and if the (local) prosecutor is unwilling or unable to reopen an it, EULEX international prosecutors could do it, provided that a proper assessment of the available evidence is made”, explained Kai Mueller-Berner, justice specialist at EULEX Public Information Office.
“The Kosovo Special Prosecution Office directed by EULEX needs to clarify how it intends to deal with cases that were not properly tackled by UNMIK’s prosecutors, through improving its coordination with local courts”, said Bart Staes, Head of the Delegation of the European Parliament’s Budget Oversight Committee that recently visited Kosovo to enquiry on the efforts made to protect the EU financial interests.
The European Court of Auditors sounded an unheard warning in its early annual reports on the financial statements of the European Reconstruction Agency (EAR). The Agency channelled all major EU disbursements until 2008, before being replaced by the European Commission Liaison Office that is in charge of current support programmes. The European Auditors’ reported that “where UNMIK is directly managing the contracts, the Agency was faced with an absence of sufficient justification for the expenditure”, that “audits on a number of projects confirmed that funds had to be recovered” and that often “owing to the lack of requisite information on the final use of funds, the Court is unable to express an opinion on the regularity of the underlying payments”. The Court is about to start an extensive review of all EU-funded activities since 2007.
EU funding was primarily committed to support Publicly Owned Entreprises (POEs). All these former Serbian state companies were managed by the international staff of the Kosovo Trust Agency (KTA), created in 2002 within UNMIK’s Department for Reconstruction and Economic Development. Salaries and running costs were paid directly by the European Commission, as part of the agreement with the UN administration.
In 2005 the independent consultancy KPMG concluded that POEs had no proper bookkeeping, thus being largely exposed to frauds. One year later the Kosovo’s Auditor General couldn’t find any trace of how POEs used the subsidies regularly received from KTA. Based on documents we got from the Kosovo Ministry of Finance, those subsidies included also 366.000 euro provided by EAR. In 2008 the UN Office of Internal Oversight Services (OIOS) published an assessment report on UNMIK mandate, criticizing KTA for neglecting the monitoring of POEs’ accounts in breach of its own regulations and auditors’ recommendations.
Donors’ offered the largest grants to UNMIK to rescue the Kosovo Electric Corporation (KEK) and Prishtina International Airport. Both POEs became the main focus of the Investigation Task Force, a joint team set up by the OIOS, the Financial Investigation Unit (consisting of agents of the Italian Guardia di Finanza) and the European Anti-Fraud Office (OLAF). Between 2003 and the end of its mandate in 2008, the ITF coordinated 50 investigations on UNMIK-managed money flows, most of which came to nothing.
“The ITF did not have sufficient personnel and technical know how to gather the evidence that had allowed for indictments or court convictions”, commented a high-ranking adviser at Unmik. “It was difficult to get hold of international officials and interrogate them due to their short term contracts”, backed up an OLAF top official, “Some of them had already left Kosovo and we couldn’t open cross-border investigations based on our ITF mandate”.
The European investigators had tied hands. In 2005 the European Court of Justice ruled out the possibility for EU-paid KTA officials to have status of EU employees, thus formally excluding OLAF’s competence to enforce sanctions against suspected individuals. Also, ITF members were obliged to report exclusively to the Head of UNMIK (depending from the UN Secretary General), the only authority entitled to lift diplomatic immunity, remove undisciplined personnel, authorize requests for recovery of funds or defer cases to competent judicial bodies
OLAF was only successful when it could operate outside the ITF, namely in cases where the EAR directly organized tenders and awarded project contracts rather than transferring budget contributions to UNMIK or leaving to KTA managers the choice of sub-contractors. EAR sub-contracted companies are required by EU regulations to keep financial records for 5 years to enable investigators checks. OLAF didn’t have the same power when POEs’ management spent mix funding from different donors without complying with EU procurement rules.
All four investigations independently conducted by OLAF between 2005 and 2008 brought to reimbursements and disciplinary measures, including dismissal of EAR’s staff. One of them, initially started by the ITF, had also a judicial follow-up: former KEK manager Joe Trutschler, appointed by UNMIK, was convicted in Germany in 2003 for stealing 4.5 million out of the 20 million euro allocated in 2001 by the EAR to subsidize urgent electricity imports.
Trutschler seems to be just the top of the iceberg. “He went to jail only because we convinced the German press to make noise,” said Augustin Palokaj, EU correspondent of Koha Ditore, the largest Kosovo-Albanian newspaper. The bulk of financial scandals still lays underground. “I can confirm that mismanagement of tenders and procurement frauds occurred frequently within KEK”, revealed Dick van der Wijk, former Head of Internal Audit at KTA.
ITF investigations files are UN classified documents and even OLAF is bound to confidentiality. “We have repeatedly asked UNMIK for ITF-related information, but were refused”, said Ruud van Enk, expert on Kosovo issues at the DG Enlargement in Brussels. In its previous field mission report, in 2008, the European Parliament’s delegation blamed “the UN unwillingness to cooperate on questions of transparency and financial control with EU representatives”.
According to ITF final report, of which we got a confidential copy, the task-force “investigated a total number of 13 cases regarding allegations of fraud and irregularities in the development and management of KEK contained in the Deloitte and Touche (D&T) Forensic Review” and “a total number of 37 cases related to Prishtina International Airport based on allegations of fraud and irregularities contained in an audit by the firm De Chazal Du Mee”. Eventually, the ITF shortlisted 11 cases containing evidence of criminal conduct and involving over 60 million euro. All of them were submitted to the Head of Unmik for further referral to the Department of Justice.
“We expected that the prosecutors would request the ITF to pursue the investigations rather than dismissing the cases. They probably got the files too late in 2008 when they were about to leave”, deplored Roberto Magni, Guardia di Finanza’s agent and former Head of the Financial Investigation Unit that piled hundreds of archived files until its staff was resized within EULEX framework.
In 2009 lack of evidence forced EULEX to suspend its investigation on the dealings between KEK and Radoniqi Hydro-System where Trutschler was formerly Head of Board. EULEX spokesmen confirmed that no other cases on KEK are pending. Just one case on a fraudulent tender for Prishtina Airport is still ongoing, along with a couple of cases on the Post and Telecommunication of Kosovo (PTK) in connection to which a third case has been closed last year with the conviction of Ove Johanssen, former Superior Officer at KTA.
The EU mission has one year left to fulfil its mission. “We will ask the Member States to extend EULEX mandate beyond June 2012 and approve new funding for the judges and prosecutors contracts”, Staes announced, “It’s crucial that extra-time is allowed to settle discontinued UNMIK cases related to misuse of taxpayers’ money”.