Focus chapter: the growing threat of environmental fraud

The OLAF report 2019
3. Focus chapter: the growing threat of
environmental fraud
With the EU’s political agenda focused clearly on
environmental issues and the creation of a sust ainable
future, increasing amounts of EU funding are being
invested in environme nt-related policies and projects.
However, as these investments in environmental and
sustainability projects increase, so does the risk of
potential fraud. At the same time, fraudulent and illegal
activity risks seriously undermining Europe’s efforts to
cut emissions and improve air or water quality, as well
as potentially increasing the impact of global w arming
and the danger to people’s health .
Over the past few years, OLAF has investigated an
increasing number of cases of fraud or oth er illegal
activities with an environmental or sustainability
element, underlining that, as sustainability has risen up
the EU agenda, so it has sadly become a new avenue
for fraudsters. From misspending of EU funds intended
for green products to counterfeiting and smuggling of
products with the potential to harm the environment
and health, a selection of these cases can be found
3.1. Volkswagen, EIB and Dieselgate
Perhaps the most well-known case with an
environmental impact in which OLAF has been involved
was the so-called Dieselgate scandal. This centred
around ‘defeat devices’ that the German automobile
manufacturer Volkswagen AG (VW) was found to have
installed in its cars to effectively bypass strict EU rules
on emissions by making the vehicle respond differently
in testing from actual driving conditions. This effectively
meant that VW was undermining EU efforts to improve
air quality by enabling its diesel cars to produce higher
than permitted levels of emissions and deliberately
rigging the engines to allow these emissions to go
undetected .
OLAF got involved after allegations in the press in
October 2015 about the possible misappropriation of
European Investment Bank (EIB) funds by VW in the
development of these defeat devices. A €400 million
loan from the EIB had been awarded to a VW project
called Antrieb RDI, which was designed to support
the car maker’s research on how to reduce emissions.
OLAF’s investigation established that, rather than
spending the EU funding on the vitally important task
of improving vehicle technology to reduce emissions, it
was instead partially spent on designing VW’s EA 189
engine, on which the defeat device was deployed.
One of the primary conditions imposed by the EIB ahead
of granting the loan in 2008 was the sharing of specific
information on the environmental impact and on all
important circumstances or important risks that could
influence the operational results of the project. OLAF’s
investigation established that, at the time the loan was
granted, some of the VW managers and staff involved
in the project were fully aware of the difficulties faced
by the new EA 189 engine in reaching the stringent
emissions standards, and of the deve lopment and use
of the defeat device to overcome the problems by
cheating the tests.
However, this information was never shared with the
EIB, either before the loan was approved or at any
time during which EU money was being used in the
development of the project. Had it been so, the EIB
confirmed, it would never have granted the loan or
would have requested full repayment in advance of the
due date. By failing to share this vital information with
the EIB, VW was found to be in breach of its contractual
obligations towards the bank.
The bank reached a settlement with VW in November
2018, which closely followed OLAF’s recommendations,

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