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Finland’s legislators are responding to a high-profile IT-linked public procurement controversy with a fresh review of rules and regulations governing state-awarded procurement contracts.
Departments, including Justice and Economic Affairs, are leading the initiative. The review is taking place against the backdrop of the embezzlement of €9m from education project funds earmarked to purchase IT equipment for first- and second-level schools in Helsinki.
The fraud case, which rocked the civil service, is the biggest in monetary value and scale in the history of Finland’s public procurement system.
Those charged and under investigation by Finland’s State Prosecutor’s Office (SPO) include senior officials employed by the Municipality of Helsinki’s Department of Education and Support Services.
The SPO is expected to file aggravated fraud and abuse of public office charges against the primary subjects under investigation. Such action was recommended by investigating police from Helsinki’s Economic Crime Unit (ECU).
The ECU’s preliminary investigation found that the Municipality of Helsinki’s (MoH) head of IT Services managed to evade routine scrutiny by the city’s contracts and budgeting auditors. This was mainly achieved by limiting individual item IT-equipment purchases to under €30,000.
IT-equipment acquired, which was earmarked for supply to public schools, was sold-on for cash by the IT Service’s department chief to both colluding and unsuspecting buyers across Finland.
The IT Services’ unit in question operates in the MoH’s Department of Education and Support. The equipment illegally sold comprised devices such as computers, mobile telephones and customised school entertainment systems.
Public procurement in Finland is regulated by the Public Contracts and Concessions Act. Although this act was updated in January 2017, legislators are concerned that the act may lack sufficient checks and balances to curb all forms of corruption, and in particular the low-level fraud documented in the MoH embezzlement case.
Legislators will also want to close loop-holes that could potentially be used to defraud those state organisations tasked with running public procurement schemes. Under the Public Contracts and Concessions Act, only IT-acquisitions with a value of €30,000 and over are required to be put out to tender.
The ECU’s investigation revealed that the MoH’s IT Service’s head had been defrauding various IT-equipment public procurement budgets and educational programmes for 10 years.
The embezzlement was first discovered by the MoH’s audit department in 2016. Following an internal inquiry, the senior executive was dismissed in 2017 to face the full weight of a police investigation.
The SPO is also considering issuing formal fraud and official abuse of public office charges against four other MoH executives connected to the IT Services unit, and who are suspected of profiting financially from the embezzlement. Some 10 other MoH employees are also under investigation for committing lesser misconduct transgressions.
“The low-level nature of the fraud served to conceal the purchase and misappropriation of IT equipment,” said Urpo Mäkelä, the ECU’s lead investigator in the case.
“The IT Services’ department chief in question was also able to continue to commit fraud over a prolonged period of time due to the failure by senior managers in the department to intervene. Other staff were complicit in not reporting the abuses of public office that took place over the 10-year period.”
Although many of the buyers in the criminal enterprise were unwitting private individuals and victims of the wider fraud, the IT Service’s unit chief had developed unlawful relationships with a number of IT equipment suppliers. Out of these, just a handful were licensed to conduct business with state organisations and public agencies.
As a result, the SPO is also expected to bring charges of aggravated fraud against up to eight IT equipment suppliers who are suspected of being colluders in the MoH embezzlement affair. The majority of these suppliers face charges of fraud concealment, assisting in aggravated fraud and aggravated money laundering.
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Other aspects of the MoH IT-equipment embezzlement also pose challenges for legislators.
The ECU’s investigation established that the IT Services’ unit had purchased IT equipment in breach of the MoH’s own internal procurement rules and guidelines. These same rules and guidelines are almost universally applied and employed by Finland’s 310 municipalities.
The ECU’s investigation uncovered €900,000 in cash. This was returned to the MoH. Additionally, police recovered IT-equipment valued at €340,000 from “buyers” who were part of the criminal enterprise and aware that the items bought were tainted by fraud.
The IT-equipment fraud at the MoH is an exceptional case in a country that prides itself with enjoying a low risk of corruption across both its public and private sectors.
In Finland, procurement systems and methods are generally transparent in a political culture that prioritises legal certainty and frowns upon abuses of office by public officials.
This zero-tolerance policy was on display in 2017 when Matti Nissinen, Finland’s prosecutor general, was suspended indefinitely from his position amid an investigation into whether he had personally lobbied for the purchase of educational services from a company owned by his brother.
High-profile IT-related fraud cases are rare, but not completely unknown in Finland.
In 2015, the head of Helsinki’s anti-drug police bureau, Jari Aarnio, was convicted on charges of aggravated fraud and abuse of office. Aarnio was found guilty of using his senior executive position at the Helsinki Police Department to purchase IT equipment and software from a company in which he was an investor with decision-making powers. Aarnio received a 10-year prison sentence after the case went to trial in September 2017.
“A healthy public procurement system is one where the contracting authority is allowed to exclude from tendering providers that try to influence the procurement’s content in an inappropriate way, or whose connections with the procuring entity create conflicts of interests,” said Mika Lintilä, Finland’s Economic Affairs and Employment minister.
For legislators, the MoH IT-procurement case is certain to influence structural and technical amendments to the Public Contracts and Concessions Act. Changes to tighten the tendering and transparency requirements of public procurement rules are expected.
The primary objective will be to further reduce the scope for corruption connected with public procurements. The eventual outcome of the judicial review may see the Finnish Competition and Consumer Authority (FCCA/Kilpailu ja Kuluttajavirasto), which is currently responsible for monitoring public procurement legislation, obtain greater powers of surveillance.
One proposal is to strengthen the FCCA’s role to enable it to intervene in particularly problematic corruption-related situations where public procurement contracts may not be put out for tender at all. Such oversight – accidental or deliberate – runs contrary to Finnish and EU rules, regulations and best practice.