Archive for the ‘EU Insider’ Category
Question marks over EP new buildings deal
Posted by: Stephen Gardner in EU Insider on October 9th, 2009
In March, the European Parliament proudly inaugurated two new Brussels buildings, needed to house the ever-expanding travelling circus of members, assistants and bureaucrats. But the Parliament is less happy to talk about some of the financing arrangements behind the buildings’ construction.
The Parliament leases the buildings, known as the Willy Brandt and József Antall buildings. It signed in 2004 a whopping €284 million deal with a Belgian developer which, shortly before, exercised an option to buy the land on which the buildings now stand. Under the deal, the developer was to raise the finance to fund the construction.
Because of this, according to the Parliament, a public procurement process was not required for the financing bids. The developer oversaw it all, soliciting bids for the financing under which the buildings would be constructed, leased and eventually sold to the European Parliament. This is rather like buying a house and asking the seller to arrange the mortgage for you. Whose best interests will the seller look after?
The Parliament has so far refused to release documents related to the deal. Many documents are held by the developer, and, the Parliament says, cannot therefore be made public. However, the Parliament holds a report, done by KPMG, on the financing bids assembled by the developer. But the Parliament will not release this either, citing commercial confidentiality.
The EU Ombudsman has now weighed in, saying the Parliament should release the report and other documents, or “give convincing explanations for not doing so” — the implication being that explanations so far have not been convincing. Will the Parliament clear up these muddy waters? It has until October 31 to respond to the Ombudsman.
[A version of this article was published in Private Eye magazine].
EIB: funding development through tax havens
Posted by: Stephen Gardner in EU Insider on August 25th, 2009
The European Commission and big member states like France and Germany are planning a crack down on tax havens (while Britain is pretending to). So it might come as a surprise that the EU’s house bank, the European Investment Bank (EIB), is busily lending to companies established in tax havens.
Particularly notable is EIB lending for supposed development projects in poor countries. In reality, this ‘development assistance’ is a way to channel low-cost public capital to private equity firms that look for projects with juicy returns of 20 percent or more, before remitting the proceeds to low or no-tax and minimum transparency jurisdictions such as Mauritius.
For example, the EIB has recently (16 June) agreed a $15 million loan to Shorecap International Limited, a private equity outfit specialising in microfinance. The firm, which boasted in its 2007 report of an average 23 percent rate of return, is incorporated in the Cayman Islands.
Another beneficiary is Africap, a Mauritius-based investment company, which received €5 million from the EIB in 2007. Mauritius, a tiny Indian Ocean island with 1.3 million people, is a favourite haunt of so-called development funds, including Adlevo Capital, Africinvest Limited, GroFin and Leapfrog Investments. These firms alone have shared €65 million of EIB money in the last 12 months. Mauritius is the source of an extraordinary 44 percent of foreign investment in India – underlining the extent to which development assistance has become a tax avoidance scam.
The EIB also during 2008 agreed loans totalling €53 million for funds run by Aureos Capital Limited, also Mauritius-registered. Until it was sold to its managers at a knock-down price (an issue covered extensively in Private Eye magazine), Aureos was a joint venture between CDC (the UK’s development finance institution) and Norway’s development fund Norfund, which has imitated CDC’s strategy of channelling public money to funds registered in tax havens.
The difference between CDC and Norfund, however, is that the Norwegian government has now told Norfund to stop investing in tax havens. Counter Balance, a campaign group that has analysed EIB lending to tax dodgers, noted that Norway finally came round to following “the logic that development funds should not support tax evasion.” When will Britain, and the EIB, take the same approach?
Note: a version of this article was originally published in Private Eye. The Counter Balance group is campaigning for more openness on the part of the EIB, which remains a relatively non-transparent EU institution.
Structural funds cashback
Posted by: Stephen Gardner in EU Insider on July 16th, 2009
The European Commission yesterday (15 July) rather quietly slipped out its 2008 report on protection of the European Communities’ financial interests – in other words an assessment of whether or not the money is going to the places it should be going to. Last year there was a press release and announcements in the midday press conference. This year it was all a bit hush-hush, with a small mid-afternoon briefing attended by just a handful of hacks.
Is there something in there this year they want to hide, I wonder? Well, if so, I haven’t found it yet. The report itself is a digestible 30-page affair, but it is accompanied by two hefty annexes that will take a while to chew through.
Figures on Structural Fund irregularities make interesting reading though. These are sums of money committed to projects by authorities in member states, that later realise they shouldn’t have committed them. This can be for many reasons: incorrect paperwork, projects that later turn out not to be eligible, simple mistakes. “Irregularity” can also cover fraud, though this is only demonstrated in a very small number of cases.
Once member states spot an irregularity they are first required to tell the Commission, then they must get the money back. This is where problems start. Getting the cash back can take time, but if member states fail to recover it within two years, they must pay the money back to the Commission anyway, and the taxpayers of the country in question end up footing the bill.
So one could argue that member states have an interest in declaring a relatively low “irregular” payments amount, so that they are less exposed to losses later on. This certainly seems to be the case with France, which consistently declares unrealistically tiny numbers: for the Structural Funds, €4.6 million in 2007, and €5 million in 2008.
Compare this with 2008 figures for Germany (€20.9 million), the Netherlands (€28.7 million) and Italy (€74.9 million). Either the French are amazingly good at dotting the i’s and crossing the t’s on EU-funded projects or there is some under-reporting going on somewhere.
However, if a low number for irregular payments indicates competence on the part of the member state authorities that manage EU funds, then the champions of incompetence must be the British (though of course one can also argue they are most rigorous in declaring irregular payments). In 2007, for Structural Funds, the UK declared €161 million of irregular payments (more or less 10 percent of the UK’s Structural Funds pot for that year). In 2008, the figure was €123 million.
The UK has form for “significantly higher” than normal error rates in Structural Fund payments, especially when it comes to paying authorities in the north of England. Last year, for failings in the north-west of England, around €25 million had to be paid back to the Commission.
Surely there is a case here for some cross-border good practice exchange that will deepen EU integration: send the Mancunians and Liverpudlians to Paris for a bit so they can learn how it should be done!
