One of the vague and enduring ideas about EU accession is that it will boost a new member’s prosperity and increase opportunities for the country’s businesses and people.

A new report by a think tank in Sofia shows that, to whatever extent that idea holds up in the legitimate economy, it has certainly been true for criminals in Bulgaria.

Although organized crime accounts for a smaller percentage of the country’s GDP than it did before EU accession, some schemes have either benefited from or actually been spurred by the closer links to the western part of the continent. VAT fraud, the fraudulent trade in oil products, and an old favorite, illegal cigarette sales, boomed after Bulgaria joined the EU in January 2007. That might not surprise you, but it is at least ironic given Brussels’ steady pressure on the Bulgarian government to tackle organized crime and the corruption that allows it to flourish.

“Bulgaria’s accession to the EU in 2007 opened a wide range of new opportunities for criminals, such as tax crimes, which prompted part of the criminal networks to shift their focus towards these new illegal activities,” reads the report, by the Center for the Study of Democracy (which, by the way, was a broader look at organized crime in Bulgaria).

According to the report, the share of VAT fraud losses that came from international schemes more than doubled, from 8 percent in 2006, to 19 percent in 2009. In those schemes, a trader might, for instance, cook up phony records of exports, on which VAT is not payable, take tax credits for his costs associated with the sale, and then sell the goods, undocumented, on the domestic market. Or he might just overstate his actual exports.

Citing estimates by international oil companies, the report says illegal sales make up from 20 percent to 40 percent of the market and are worth between 800 million and 1.8 billion euros. Although they offer no “before and after” look at the effects of EU membership, the report’s authors say the hike in Bulgaria’s excise taxes to EU levels, combined with rising oil prices, make the products expensive enough to spur demand for illegal fuel.

Something similar happened with illegal cigarette sales. When excise taxes went up, the report says, “Cigarettes in Bulgaria became, in relative terms, the most expensive in the EU.” The illegal market accounts for 30 percent to 40 percent of all cigarettes sold, and is worth probably around 250 million euros, the report says. It estimates that about 500,000 packs of illegal cigarettes are sold every day in Bulgaria. Given that taxes from tobacco products make up about 10 percent of budget revenues (compared with about 1.4 percent in many EU countries), this market is a serious threat to the country’s finances.

The report ends with a warning that the economic turmoil in neighboring Greece will spur demand for illegal sales of tobacco and oil products.

Still, it’s obviously not EU membership per se that fuels these trends. After all, Bulgaria’s numbers are well above those for many EU members. These illegal markets feed and rely on the corruption that plagues the country. “In some cases entire shifts of customs officers, security police officers, [and] mid- and high-level police officers receive additional monthly payments from the illegal trade in tobacco products,” the report notes.

It also cites the culture of oligarchs in Bulgaria (and the rest of Eastern Europe) who control legitimate businesses and “may be directly involved in criminal activities (VAT or excisable goods fraud, etc.) and rely heavily on illicit lobbying and corruption.” “In some municipalities,” the authors write, “organized crime leaders have either established their own political parties, or managed to become members of local municipal councils. These political posts are then used to trade in influence or to exert influence over local law-enforcement or judiciary, as well as to rig public tenders.”

Illustration by marvelous_blue/flickr.

Barbara Frye

Barbara Frye is Transitions Online’s managing editor. Email: barbara.frye@tol.org

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