EUROPEAN ANTI-FRAUD OFFICE GIVES BULGARIA MIXED

C O N F I D E N T I A L SECTION 01 OF 02 SOFIA 000573

SIPDIS

DEPARTMENT ALSO FOR INL

E.O. 12958: DECL: 08/21/2018
TAGS: PGOV ECON BU
SUBJECT: EUROPEAN ANTI-FRAUD OFFICE GIVES BULGARIA MIXED
REVIEWS

REF: SOFIA 0499

Classified By: Ambassador Nancy McEldowney for reasons 1.5 (b) and (d).


1. (C) Summary: After issuing a stinging report on
Bulgaria in July, the head of the European Anti-Fraud Office
(OLAF) Franz-Herman Bruener returned to Sofia August 21-22 to
assess the Government's strategy to stem the country's
chronic misuse of EU Funds. Bulgaria stands to lose
permanently more than USD 700 million in pre-accession
funding if the Government cannot convince the European
Commission and OLAF by the end of the year that it has the
structures and safeguards in place to manage EU funds. On a
positive note, Bruener told the Ambassador that Bulgaria has
done more in the past five months to improve its record than
it had in the last three to four years, and he welcomed the
Ambassador's call for close coordination of U.S. and EU
anti-corruption efforts. He gave new Deputy Prime Minister
in charge of EU Funds Meglena Plugchieva high marks for
consolidating responsibility and decision-making on EU funds.
He said high-level government officials are now openly
discussing the need for party financing reform and noted that
Customs and Law Enforcement entities are now cooperating with
OLAF. The Bulgarian Achilles heel remains the judiciary, an
institution that "hides behind the law" instead of working
with it, as evidenced by the extreme dearth of prosecutions
and convictions on cases related to organized crime,
corruption and fraud. Bruener reported that Prosecutor
General Velchev is not convinced he can produce the results
the Commission and OLAF are demanding given the daunting
network between shady businessmen and political figures.
End Summary.


2. (C) Ambassador met with head of the European Anti-Fraud
Office (OLAF) Franz-Herman Bruener and his three-member
delegation August 22 to discuss OLAF's assessment of
Bulgarian efforts to answer the criticism contained in the
harshly-worded EU monitoring reports released in July
(reftel). Bruener gave Bulgaria mixed reviews. While
Bulgaria had done more in the last five months to improve its
handling of EU funds than it had in the last several years,
severe systemic problems remain. Bruener praised new Deputy
Prime Minister in charge of EU Funds Meglena Plugchieva for
her ability to bring order to Bulgaria's EU funds management
systems and for her willingness "to be unpopular." He
welcomed the "new generation" of employees being hired into
the state administrative system and noted a new spirit of
cooperation in OLAF's dealings with Customs and Law
Enforcement.


3. (C) At the same time, Bruener described what he termed a
"highly-organized effort" not only to allow well-connected
companies -- some of them patrons of high ranking politicians
-- to defraud EU funding mechanisms, but also to cover-up
these unlawful schemes. To break this cozy relationship
between shady business and politics, political party
financing had to be overhauled. Bruener noted with relief
that Prosecutor General Velchev seemed to support the
introduction of a new party financing law. Bruener described
Velchev as open and willing to cooperate, but, given the web
of relationships between business and politics in Bulgaria,
Velchev himself was skeptical that he would be able to
produce the results demanded by OLAF and the Commission.


4. (C) Bruener said the judiciary remains Bulgaria's
weakest institution. Instead of working with the law and
interpreting it to get needed prosecutions and convictions,
prosecutors and judges hide behind the law and use it as an
excuse for inaction. Bruener said OLAF is in a difficult
position because it cannot demand the prosecutions or
convictions of specific individuals, but it was only through
such high-level convictions that Bulgaria would be able to
show it is serious about reform and capable of handling ever
larger sums of EU funding. Bruener sympathized with Prime
Minister Stanishev when the PM lamented that Bulgaria was
getting conflicting advice on reform. In his August 21
meeting with OLAF, the PM complained that once Bulgaria
amended one law to conform to EU recommendations, two more
would inevitably have to be rewritten. Since the judiciary
can't keep up with the steady stream of new legislation,
Bruener told Ambassador he may recommend that the Commission
emphasize training of the judiciary rather than more
legislative overhaul. To this end, he said, he would pursue
with various member states, specifically Germany, the
placement of experts to train the Bulgarian judicial system.
Bruener also welcomed U.S. efforts to provide further

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training to prosecutors and promised to coordinate so that
are our efforts are not duplicative.


5. (C) Comment: Bruener was open, candid and seeking to
build a closer relationship with us, which would amplify his
calls for reform as well as advance our rule of law agenda.
We will continue to work with OLAF and the Commission
representatives with whom we have established close, if
informal, relations, in order to coordinate our efforts on
training of the judiciary, money-laundering, conflict of
interest and campaign financing. For Bulgaria, the stakes
are high. When issuing the July monitoring reports, the
Commission suspended more than USD 700 million in
pre-accession funding. If Bulgaria does not show real
progress -- by mid-November according to Bruener -- much of
that funding will be lost forever. Still, it is unclear what
exactly Bulgaria must do to secure that funding. The GOB's
80-point action plan, which has not yet been translated into
English or transmitted to the Commission, seems unwieldy and
unachievable in the near-term. Our message to the Bulgarians
will be to undertake a handful of broad, tangible reforms
that can be accomplished quickly and completely. Most
important, it is not enough just to fire or suspend
wrongdoers -- they must be arrested and prosecuted.


McEldowney