2019.11.29 09:00

EU rural development funds for private mansions - LRT Investigation

Jurga Tvaskienė, LRT Investigation Team, LRT.lt2019.11.29 09:00

Lithuania's Ministry of Agriculture distributed 40 million euros of EU funds to support rural tourism between 2007 and 2013, but some of the money went to well-connected businessmen seeking to upgrade their private residences, LRT Investigation Team has found.

LRT looked into a number of cases where EU-funded rural tourism establishments do not seem to offer any services. While abuse is a risk, the ministry, lobbied by a business association, cut oversight period last year.

In Markininkai, a sleepy village is home to a residence owned by Andrius Kantauskas, the CEO of one of the biggest meat processing companies in the Baltic states, Biovela Group.

The luxurious white-columned house is fenced by a tall metal gate and overlooks Lake Margis. What looks like the residence of a wealthy businessman is actually listed as a rural tourism hotel Smilga, according to the State Consumer Protection Authority's (VVTAT) website.

Kantauskas' rural tourism business was built with public subsidies from an EU programme aimed at promoting entrepreneurship in the countryside. The programme is available to individual farmers seeking to develop rural tourism.

And so Kantauskas registered himself as a farmer in 2009 and, the following year, applied for the EU funding. In 2011, he was granted almost 200,000 euros, although the project was flagged as risky by the National Paying Agency (NMA) which administers the funds.

The Agency distributed almost 40 million euros of EU funding under the rural tourism development programme between 2007 and 2013. Overall, 346 individuals received the support. To prevent abuse, the NMA was obliged to monitor the businesses for five years or seven years if the projects were deemed risky.

The main risk is that the EU money may be used to upgrade private residencies without any intention of developing rural tourism.

When LRT Investigation Team tried to book rooms at Smilga hotel in Markininkai, Kauntauskas himself answered the phone given on the VVTAT website. He gave the phone number of another person who confirmed that the rural villa was in business, but could not give information about rates and availability.

In fact, there is no rural tourism business in Kantauskas' property. The NMA has told LRT that it started investigated the project in 2017 – five years after the funding had been granted – and decided last year that the businessman would have to return the money.

Kantauskas has already paid back part of the sum, according to the NMA, but the decision has been contested in courts. “While legal disputes continue, I cannot comment any further,” said Genovaitė Beniulienė, a senior adviser at the Rural Development and Fishing Department of the NMA.

Kantauskas' own written statement to LRT maintains that the project was flagged due to issues with the quality of construction work.

“I turned to court to find a solution for the situation. After reviewing the circumstances, I later decided to discontinue the [rural tourism] activities and return the support. As of today, the funding has been paid back to the NMA in full, including interest, and the court has been asked to stop the case. At the moment, we do not offer services in Markininkai,” according to Kantauskas' statement.

Similar cases

Kantauskas' case isn't an isolated incident. LRT Investigation Team has looked into four other cases where wealthy businessmen and politicians may have used EU funds to upgrade their residencies.

In 2012, Linas Vytautas Karlavičius, the owner of the Viada petrol station chain, received over 151,000 euros from the EU programme to develop rural tourism business in his property near Trakai. He was later asked to return 38,000 euros back due to breaches to the contract. However, the project's monitoring period was not extended and ceased after five years in 2017.

Karlavičius has refused to comment whether his rural tourism business is still open. The property is also his declared place of residence.

The businessmen brothers Darius and Artūras Nacickas from Šiauliai secured 200,000 euros each for their rural tourism businesses. The monitoring period for both ended in 2017 and neither continues rural tourism activities.

Kęstutis Komskis, a son of the well-known politician from Pagėgiai Kęstas Komskis, received almost 43,000 euros in EU support to upgrade his house in the village of Mociškės. Despite reports in the local media that the venue was not used for tourism, the NMA stopped monitoring the project after five years, in 2016. Komskis has told LRT that he did engage in rural tourism, but discontinued the business soon after the monitoring period expired.

Several weeks ago, the Financial Crime Investigation Service searched the offices of Alfredas Astikas, a politician from Širvintos District, and seized documents linked to his EU-supported rural tourism project. Astikas is suspected of forging documents in his application for a 145,000-euro funding in 2010.

Cutting oversight

All rural tourism establishments have to register with the State Consumer Protection Authority (VVTAT), which makes the data public. However, the Authority tells LRT that it is not responsible for monitoring whether all the registered establishments actually offer the services they were funded to develop.

The National Paying Agency (NMA) under the Ministry of Agriculture is tasked with inspecting the businesses set up with the EU support in 2007–2013. It says that the commitments to engage in rural tourism expire with the end of the monitoring period, five or seven years.

However, even this relatively short period was further reduced by the Ministry of Agriculture last year, after lobbying from a business association.

The Lithuanian Confederation of Employers campaigned for shorter oversight, insisting that the seven-year period was too burdensome both for businesses and regulators. However, the previous minister of agriculture, Bronius Markauskas, insisted that it was necessary to precent fraud.

“We were seeing a lot of cases when rural tourism villas didn't function and, after a short while, would be turned into residences,” Markauskas told LRT.

But soon after a new minister, Giedrius Surplys, took over, the ministry's Rural Development Project Oversight Committee decided to cut the observation period from seven to five years for all projects, including the ones deemed to be a risk.

Surplys, who headed the ministry until last August, told LRT that the decision was not motivated by the lobbying from the business association. However, the Ministry of Agriculture said in a written statement that “the Rural Development Project Oversight Committee decided to accept the proposal from the Confederation of Employers to shorten the period of observation to five years for all projects that were put under seven-year observation”.

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