article

07.07.12

The Mafia-Built Highway That Could Cost Italy $471 Million

A 307-mile highway built by corrupt contractors is falling apart, and now the EU wants its grant money back. Barbie Nadeau on how one botched road could pummel Italy's economy.

The A3 Autostrada that slices through Italy’s southernmost regions from Naples to Reggio Calabria is 307 miles of very bad road. The dual-lane highway often slims to a narrow ribbon of pocked pavement due to accidents, road construction, or for no real reason at all. It is common to see giant trucks spilling tomatoes, tractors pulling heavy equipment, and helmetless motorcyclists slaloming around cars, passing on perilous turns and causing what can only be described as automotive terrorism for less-seasoned drivers. Where the road is good – there are three marked lanes on about 30 miles of it – the traffic is often blocked, creating a giant parking lot under the blazing sun.

The highway, which was started in 1929 but not completed until 1974, has been the subject of decades of controversy and criticism within Italy because of questionable contracts and allegations of corruption. Now, the European Union is making Italy pay back $471 million in grant money after its anti-fraud arm found what it calls “widespread irregularities” in how the grant contracts were awarded by the Italian regional governments of Campania, Basilicata, and Calabria.

But because the grant money is gone, it will be Italian citizens who will have to shoulder the repayment. “This money had already been spent, so the Italian state is obliged to give it back to the EU with the burden subsequently falling on taxpayers,” said Giovanni Kessler, head of the European Commission’s Anti Fraud Office (OLAF).

The Italian grant is the largest ever fraud-related refund in the EU’s history. In 2011, the EU revoked just under $850 million in fraudulent grants. Italy’s highway fiasco accounts for over half the total sum. Kessler told reporters that it's the Italian government’s fault for turning a blind eye to the known corruption surrounding highway works and pointed to mafia infiltration as a key element in the mismanagement of funds. Kessler also expressed concern that the massive repayment during an economic recession when Italy is introducing austerity measures could actually result in more fraud. “The fight against fraud is even more crucial in a time of economic crisis,” he said.

In one case, money was paid in cash to a contractor who used a fictitious company name on the invoice.

The fraud took place between 2007 and 2010, when large sections of the highway were scheduled for repair. OLAF authorities worked with Italy’s finance and tax police and anti-mafia authorities with the help of a local prosecutor. The irregularities were identified through two separate investigative operations, and included phantom projects like closing sections of the road to mimic an actual repair job without any work being done. In one case, money was paid in cash to a contractor who used a fictitious company name on the invoice. 

Italy’s highway authority ANAS denied any wrongdoing and said that the EU funds were not funneled to the mafia, as OLAF charges. Instead, they say the funds were moved between ANAS accounts, creating a misunderstanding. “This is about transfers of funds of equal amounts from projects concerning the Salerno Reggio Calabria highway to other projects in progress,” ANAS said in a statement. 

Italy now has to somehow come up with the massive amount of money to repay the EU, likely by raising road tolls and taxes or digging deeper into the country’s nearly depleted coffers. Italy budget deficit now stands at $2.3 trillion and the country’s technocrat prime minister Mario Monti has recently announced massive spending cuts that will see the closure of hospitals and the depletion of some social services over the next several months. Coming up with an additional $471 million won’t be an easy road to travel.