The European Commission has taken aggressive steps in its effort to reign in subsidy corruption in new Member States by cutting off millions of Euros worth of subsidies to Romania and Bulgaria. The decision came after scathing reports on both countries detailed high-level corruption and improper administration of European funds.

In all, the Commission froze almost €500 million in farming and structural aid to Bulgaria and €28 million in agricultural aid to Romania.

Since they both joined the EU on 1 January 2007, corruption and the function of their judicial systems have been the subject of concern by the Commission as the two countries are in line to receive tens of billions of Euros in EU aid by 2013.

A 23 July report by the Commission to the EU parliament, “On the Management of EU-funds in Bulgaria”, declared that urgent action was needed in the country to deal with organized crime, corruption and a lack of transparency.

In particular, the report pointed to unattractive administrative salaries, hesitation of authorities to punish fraud, and a lack of independence in the national audit authority as leading reasons for the continuance of subsidy fraud.

On the same day, the Commission issued a report on Romania which found that though the country had set up the “fundamental elements of a (judicial) system,” the politicization of corruption cases and the failure of the judicial system to deliver sentences in these cases had weakened the public respect for the rule of law.

The report concludes that “Adequate administrative capacity and effective control of conflict of interest, fraud and financial irregularities is a necessary condition for Romania to fully benefit from EU pre-accession and structural funds.”

Despite the harsh conclusions, both reports were said to have been scaled down due to pressure by the two nations.

Bulgaria’s corruption problems have been highly publicized in the past. In January 2008 the EU froze €144 million in infrastructure subsidies after reports surfaced that Veselin Georgiev, CEO of Bulgaria's National Road Infrastructure Fund, granted millions of euro’s worth of contracts to a company owned by his brother. The scandal led to Mr. Georgiev’s firing, but he was never convicted of any crime.

Meanwhile, Bulgaria’s interior minister, Rumen Petkov, resigned in April when a taped conversation revealed his ministry was leaking information on investigations to organized crime groups.

Transparency International’s 2007 corruption perception’s index listed Bulgaria 64 out of 180 countries, four places ahead of Romania, the lowest-ranked EU member. The two countries are also the poorest members of the bloc.

However, subsidy fraud in Europe is not limited to new member states. In July 2008 the Commission announced it would claim back over  €400 million for violations of Common Agricultural Policy (CAP) rules. The main targets in the CAP-fund recall were Italy, the UK, and Greece, while France, Germany and the Netherlands were also implicated.