The European Anti-Fraud Office (OLAF) says Italian fraudsters stole 1.4 million euros from the EU after an elaborate scam involving a fake hovercraft invention.
The gang, who teamed up with criminals in Britain, France and Romania, claimed to be building two hovercraft prototypes which could help emergency response teams reach remote areas hit by catastrophic flooding or earthquakes.
Investigators discovered the Italian fraudsters had done little or no work on the prototype and had lied about having the resources required to finish the job.
British Company 'Only Existed on Paper'
The gang had claimed to be an international consortium but their British partner was a company that existed only on paper and had been set up by an Italian couple.
The crooked consortium created a fraudulent paper trail, claiming to have paid out for a series of parts and services which were entirely fictional.
Having received the paperwork the EU released the funds to the Italians, who then siphoned off the money into their own bank accounts.
Money Used to Pay Off Mortgage on Italian Castle
Some of the money had been used to pay off a mortgage on a castle in Italy which was facing foreclosure. The castle, which was owned by the fictional British company, has now been seized by OLAF.
Operation Paper Castle investigators analysed 12,000 financial transactions and payments and found the Italian couple had also set up a US company in Delaware, which was used as a vehicle for their machinations.
In November last year, OLAF passed their report to the Public Prosecutor's Office of Genoa and to the City of London Police in the UK.
They also made recommendations to the Directorate-General for Research and Innovation of the European Commission about how they could tighten up their procedures.
The Guardia di Finanza is investigating several people on suspicion concerned for embezzlement and fraud against the EU, false accounting, fraudulent bankruptcy and making fraudulent statements.
OLAF has not named any of the suspects.