In a withering indictment to be released next week, the European Commission accuses Bulgaria of high-level corruption and maladministration in the handling of EU funds. The report outlines measures to freeze further aid.
New European Union member Bulgaria has already crossed the bloc's ruling powers just over eighteen months after joining the EU.
As a result of investigations into the management of EU funds in the bloc's most recent and poorest newcomer, the EU report will confirm that it has banned four Bulgarian agencies from handling EU funds because of corruption, freezing nearly 1 billion euros ($1.6 billion) in pre-accession aid and threatening future payments.
In leaked statements reprinted earlier this week, EU investigators said that, among other discrepancies, they had found that Bulgaria had misused money from EU farm aid projects worth some 32 million euros.
The EU report described a "criminal network" of more than 50 Bulgarian companies and foreign-based firms, centered on two businessmen with alleged ties to top Bulgarian politicians, the Focus news agency reported.
Deputy Prime Minister Meglena Plugchieva, the Bulgarian official overseeing EU funds, said she was angered that the confidential report by the European Anti-Fraud Office (OLAF) to her government was leaked. "The OLAF report was not meant for the media," she said.
European Commission spokesman Mark Gray told reporters: "I am not going to deny the existence of a report on EU funding. This is work that is ongoing. The document that I have seen circulated is not the latest draft. The only report that matters is the one adopted on July 23."
Problems exacerbated by organized crime and corruption
Much of Bulgaria's EU's funding has gone unaccounted for
The report, described by EU officials as the most scathing ever written about a member state, describes the endemic corruption which is undermining Bulgarian efforts to fully integrate and efficiently operate within the EU: "High level corruption and organized crime exacerbates these problems of general weakness in administrative and judicial capacity.
"Bulgaria is not able to reap the full benefits of this assistance because of critical weaknesses in administrative and judicial capacity, be it at local, regional or central levels," said the report. "Urgent action is needed because deadlines for contracting some of the funds are approaching, after which the funds will be lost to Bulgaria," it added.
The final figure for frozen funds may be smaller because some of the money has already been spent, but Bulgaria stands to lose nearly half a billion euros by the end of the year unless it can remedy flaws in its payments agencies, an EU statement released on Friday said.
Unpaid funding to be suspended
The European Commission intends to stop paying out
The report said payments to two key implementing agencies had been suspended, estimating the amount of funds effected to be around 610 million euros, of which 250 million euros has not been contracted.
"As a consequence, these agencies will not be allowed to contract until they can guarantee that effective, functioning management and control systems are in place," it said.
Other effected agencies include the National Authorizing Officer for the SAPARD agricultural marketing program, with 210 million euros yet to be paid, and the National Road Infrastructure Fund, for which funding for road building worth 144 million euros has been frozen.
Bulgaria hires PR firms to polish image
Corruption has tainted Bulgaria's EU membership
In a bid to polish its image, Bulgaria has taken the unusual step of hiring US and Austrian public relations companies to handle the fallout from the accusations of organized crime and corruption.
According to data available from the website of the Bulgarian public procurement agency, Sofia signed a contract with Austrian Hochegger Kommunikationsberatung for 1.87 million levs ($1.53 million) in taxpayers' money last December for "a campaign for strengthening the positive image of Bulgaria across the European Union."
Hochegger, which said it won the PR contract on a competitive tender, has since organized and in some cases paid for European journalists to visit Sofia and interview Prime Minister Sergei Stanishev and other government officials.
In an emailed statement to Reuters, Hochegger spokesman Martin Jenewein said: "Hochegger's assignment for the Bulgarian government includes integrated communication services for the Republic of Bulgaria. The scope of our consulting services is in communication enhancement and media relations."
Press visits to Bulgaria organized and paid for by agencies
Journalists have been flown in to interview PM Stanishev
The Austrian agency is an associate of US-based PR consultancy Burson-Marsteller, which said it had done a small amount of work for the Bulgarian government in Brussels under the contract, mostly involving "outreach" to journalists.
Robert Mack, director of Burson-Marsteller in Brussels, said that among those services was to arrange media appointments for Rachel Ehrenfeld, director of the New York-based American Center for Democracy, who has written articles saying Bulgaria is being unfairly treated by the Commission.
Ehrenfeld visited Bulgaria in May at the invitation of Stanishev to conduct what she called "an independent study of Bulgaria's efforts to fight organized crime and corruption", according to an article she wrote for the Washington Times. "Penalizing Bulgaria will be counter-productive," she concluded.