The blacklist that is supposed to prevent rogue companies from being commissioned by the EU is malfunctioning. For example, a consultancy firm that won hundreds of millions of euros worth of European contracts was guilty of ‘grave professional misconduct’. The firm was suspended, but three months later, it had already started working for the European Commission again.
- Brussels is increasingly commissioning external consultancies. In 2014, consultancy contracts worth 423 million euros were issued, but by 2021, it was 749 million. Critics are worried about the risk of conflicts of interest.
- To prevent such problems, the European Commission maintains a blacklist. It includes companies found guilty of misusing EU funds, fraud, corruption and/or other criminal activities.
- But this list – the so-called EDES list – functions poorly. For instance, it does not include policy areas on which the EU shares competence with Member States (about 70 per cent of the EU budget). Only five companies appear on the blacklist at present.
- Follow the Money investigated consultancy firm IBF. Over the past two decades, this firm performed work for the EU worth hundreds of millions of euros.
- IBF was added to the EDES list in 2020. The consultancy firm was supposed to be banned from working for the EU for the next 18 months, but it won European tenders again after only three months.
- To regain eligibility for EU contracts, IBF owner Frédéric André stepped down as CEO. However, he returned a year later without any hindrance.
412 million euros: that is how much IBF International Consulting collected between 2007 and 2021 from its main client, the European Union. In fact, the Belgian company was the second-largest private company doing consultancy work for the European Commission between 2014 and 2021. Only Germany’s GFA Consulting Group did better.
IBF mainly implements EU projects in developing countries. And that may be interpreted in the broadest sense: it deploys people on-site, writes evaluation reports, and helps with communication strategies. These range from promoting gender equality in Cambodia to evaluating anti-corruption measures in Albania to make their legal system more transparent.
But when IBF commits transgressions, transparency at the firm and at the Commission is nowhere to be found. Moreover, the consultancy firm apparently easily manages to mitigate the penalty imposed for their misconduct.
More and more consultancies
Brussels is increasingly enlisting consultants: from 423 million euros worth of consultancy contracts issued by the Commission in 2014 to 749 million euros by 2021. ‘For temporary tasks or for tasks that require particular ad hoc expert knowledge, using external service providers is more cost-effective than recruiting statutory staff on a permanent basis,’ says the European Budget Commissioner Johannes Hahn.
But this frequent use of consultancies raises a lot of eyebrows. Last year, Euractiv, a news service specialising in EU policy, revealed that the Commission had awarded contracts worth 462 million to the Big Four between 2016 and 2019. In response, 73 MEPs sent a letter to the President of the European Commission, Ursula von der Leyen, to express their concerns. ‘These contracts, which grew exponentially over the past years, raise potential issues of conflict of interests,’ they wrote.
One example of such a conflict of interest mentioned by MEPs concerns PricewaterhouseCoopers (PwC). This consultancy firm helped Belgium in 2019 to implement tax reforms the Commission had imposed on the country. At the same time, as the authors of the letter pointed out, PwC was, in fact, advising hundreds of multinationals on how they could evade as much tax as possible.
‘We saw a mix of different exclusion methods at member state level’
In June 2022, the European Court of Auditors released a report scrutinising the Commission’s use of consultancies. ‘Outsourcing some tasks can be useful and sometimes necessary,’ said François-Roger Cazala, the ECA member responsible for the audit. ‘But the European Commission should make sure it maximises the value obtained for the amount of money it disburses.’
The report criticises the Commission for not sufficiently checking that it does not become too dependent on just a handful of companies by constantly hiring the same parties. Furthermore, clear rules on what work the Commission is allowed to outsource ae lacking. And finally, the Commission does not sufficiently evaluate whether it would be cheaper to recruit its own staff for repetitive tasks that are being outsourced repeatedly.
A flawed blacklist
Not that the European Commission lacks any system at all to ensure that companies do not do unduly crazy things with the tax money paid to them. The Commission operates a blacklist: EDES, short for the Early Detection and Exclusion System. When Brussels finds companies guilty of, for example, a conflict of interest, non-payment or fraud, their name is added to this pillory. They are then often also temporarily banned from carrying out projects on behalf of the Commission. It is one of the toughest measures Brussels can implement before resorting to the courts. Unfortunately, this blacklist appears to have many snags.
European Accounting Officer, Helga Berger, summarises the sore points as follows: ‘The blacklist is a good concept to prevent EU funds from falling into the wrong hands. In practice, however, the EU blacklist is currently not working well to keep fraudsters at bay because it suffers from a number of weaknesses. We saw a mix of different exclusion methods at member state level. In addition, relevant data is often inaccessible to the European Commission’s authorising officers who manage the EU’s blacklisting system.’
Additionally, the number of published names on the list is remarkably low. At the time of this article’s publication, only five companies were listed. The most notable is an Italian branch of KPMG that ended up on the list under the heading of ‘grave professional misconduct’.
According to the European Court of Auditors, the number of names that appeared on a similar list in the United States over the years is about 50 times higher. The Court nuances that this might be comparing apples to oranges somewhat but argues that such a large difference nevertheless suggests that the Commission is failing in some respects.
Along with Helga Berger, Nick Aiossa of the anti-corruption NGO Transparency International also sees a more fundamental problem with the blacklist: ‘At the moment, all policy areas for which the EU shares management with the Member States are not covered by EDES. As a result, about 70 per cent of the EU budget is, by definition, not eligible for an EDES sanction. It is precisely these policy areas, such as agriculture and cohesion, that are the most vulnerable to fraud.’
The European Commission recognises the problems raised by the Court and has submitted a series of proposals to improve the list. These are currently being discussed by the European Parliament and Member States.
A short-lived press release
Nevertheless, the EDES list proved a handy starting point for Follow the Money for an interesting case study: the sanctioning of IBF International Consulting.
The search began when we noticed that IBF’s profit, for years the most prominent consultancy firm for EU development projects, suddenly took a nosedive with 66 per cent in 2020. That year, the firm secured just 4.3 million euros in EU contracts, compared to sixfold that amount in 2019. A note in IBF’s 2019 financial statements offers insight: ‘The European Commission has banned IBF from participating in new projects for a period of 18 months starting on 23 January 2020.’
When the European Commission suspends one of its favourite consultancies, you would expect this to be big news in ‘Brussels’. Nevertheless, the only publication about this was an article by Devex, a news site covering the development sector. In May 2020, Devex reported that a press release stating that IBF had been added to the EDES list was posted on the Commission’s website for only a brief period.
The press release was taken offline only a few hours after the Commission had published it. Why is unclear; the Commission only provided a vague statement saying that a mistake had been made with its publication. Further investigations by Follow the Money reveal that IBF was listed under the classification ’grave professional misconduct’.
When Follow the Money asked for more related information via a European Freedom of Information request, it soon became evident just how elusive the EDES list is in practice. The request was only answered after involvement from the European Ombudsman: the Commission then replied that it does not want to release the documents.
It argues that releasing them would harm IBF’s privacy and commercial interests. Moreover, the Commission claims, EDES rules simply do not allow sharing more information other than the limited snippets that the list now provides, and to do otherwise would damage its reputation. The Commission stated that Follow the Money’s plea for transparency in the spending of public money does not outweigh this.
‘IBF received information continuously throughout the process’
In the end, a public EDES evaluation report made it possible to identify where IBF went wrong. The document discusses the various EDES cases anonymously, but all the information collected by Follow the Money made it possible to identify which case concerned IBF.
That shows that IBF was blacklisted because it acquired information through a conflict of interest, giving it an unfair advantage in public tenders. The firm also lied to the Commission about this conflict of interest.
The information is confirmed by a European source closely involved in the case. This source explains that, under the influence of IBF CEO and majority shareholder Frédéric André, a corporate culture had developed that relied on winning European tender contracts with the help of information leaks. ‘In IBF’s case, this meant there was no longer a fair tendering process for competitors. They received information continuously throughout the process.’
That IBF was blacklisted for unfair information gathering says a lot about the seriousness of the conflict of interest. ‘It is very difficult to legally define the line between what is and is not allowed in terms of information extraction during the tendering process,’ says David D’Hooghe, an administrative law professor and lawyer. He specialised in national and European tendering law at the Stibbe law firm. ‘In doing so, you quickly end up in a grey zone. Being fed information about the competitor’s pricing clearly crosses the line. On the other hand, it is understandable that a company would want to check whether its pricing is competitive,’ says D’Hooghe.
But according to the European source, IBF’s slip-up exceeded far beyond this grey zone: ‘We clearly recognised a system here: they were the first to be notified that a tender was underway, then they were the first to see the specifications and, in addition, tenders were drawn up in IBF’s favour.’
The European source would not explicitly confirm whether someone from within the Commission fed IBF this information.
Forgive and forget
IBF wasn’t benched for very long. Officially, it was banned from carrying out projects for the Commission for 18 months (until May 2021). However, the Commission’s financial statements show that IBF was already winning new tender contracts three months after its exclusion took effect. For example, on 28 April 2020, the company signed a contract for 140 thousand euros to map the weaknesses of the electoral system in Burundi.
How was this even possible? Well, the EDES rules state: if a sanctioned company can demonstrate that it has taken measures to resolve the misconduct, the Commission can remove that company from the list sooner. IBF has cleverly taken advantage of the Commission’s forgiving stance. The European source says: ‘IBF had to take such measures twice before its exclusion could be revoked. The main measure it had to take was curtailing the CEO’s influence on the tendering process.’
Merely a year later, the IBF board reappointed André as CEO
A Commission spokesperson confirmed that, after CEO Frédéric André had resigned, IBF was taken off the blacklist sooner. In addition, the Commission appointed an independent trustee ‘to prevent exercise he former manager’s control over IBF through the voting rights attached to the majority shares he held in the company’. The firm also had to appoint new non-managing directors.
The EDES list does not reflect any of this. Nothing about the misconduct at IBF, the measures taken, or its premature removal from the list. Even the fact that IBF was on the list is nowhere to be found.
Publications in the Belgian Staatsblad show that Frédéric André did indeed resign as CEO the summer after the blacklisting period. But merely a year later, the board reappointed André as CEO. Responding to questions from Follow the Money, the Commission says it will check whether this is in violation of the agreements to be removed from the list sooner.
On several occasions, IBF has ignored Follow the Money’s request for an explanation: ‘We reiterate, hereby, our no comment statement. We would appreciate it if you could abstain from soliciting Ibf’s staff further on this matter.’
If there is one theme at the centre of this investigation into the Brussels blacklist, it is the lack of transparency. ‘You can hardly call it a blacklist the way the system works right now,’ says Hungarian MEP Katalin Cseh (Renew Europe), who is addressing the EDES file on behalf of the Parliament. ‘The information that the list discloses barely tells you anything.’
Cseh understands that for ongoing investigations, it is better not to publish all of the information. But when an investigation has been wrapped up, she does not see why the public should not know exactly what a sanctioned company did wrong. ‘Especially because it concerns public money, and it is only the most serious cases that are published on EDES.’
Moreover, the Hungarian MEP believes tougher sanctions should be implemented: ‘What you are saying right now is: “Just give it a try to make money fraudulently, worst case scenario you just have to promise that you will stop.” So why not just take a risk as a company?’
Follow the Money asked the European Commission whether the premature removal of companies from the list would lead to impunity. The Commission responded by saying: ‘It should be highlighted that remedial measures can never apply for the most serious types of misconducts such as corruption, money laundering, and child labour.’ For less serious misconduct, such as conflicts of interest, the possibility of early removal from the list would actually be good, according to the Commission, as it ‘encourages’ companies to come up with their own solution for the misconduct.
In the meantime, it’s business as usual at IBF. In 2021, the consultancy firm secured another 34 million euros in contracts from the Commission. It seems that CEO Frédéric André also considers this malaise to be over: last year, he paid himself 660,000 euros in dividends.
Written with the help of Jesse Pinster and Lise Witteman
Translation: Delia Burggraaf