4 The fight against fraud
| (a)
(25891)
11890/04
COM(04) 544
(b)
(25925)
11981/04
+ ADDs 1 and 2
COM(04) 573
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Commission Communication: Protecting the Communities' financial interests — Fight against fraud — Action Plan for 2004-2005
Commission Report: Protection of the Communities' financial interests and the fight against fraud — Annual report 2003
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| Legal base | — |
| Document originated | (a) 9 August 2004
(b) 30 August 2004
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| Deposited in Parliament | (a) 20 August 2004
(b) 8 September 2004
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| Department | HM Treasury |
| Basis of consideration | EM of 7 October 2004
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| Previous Committee Report | None
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| To be discussed in Council | 21 October 2004
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| Committee's assessment | Politically important
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| Committee's decision | (Both) For debate in European Standing Committee B
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Background
4.1 The Commission is required by the Amsterdam Treaty to report
annually on protection of the Communities' financial interests
and on the fight against fraud. These reports are to cover measures
taken by Member States as well as by the Commission.
4.2 In May 2001 the Commission adopted an action
plan for the period 2001-2003. This was in the context of an overall
approach in June 2000 to protection of the Communities' financial
interests and on the fight against fraud for 2001-2005. This approach
had four guidelines, to:
- promote an anti-fraud policy;
- promote a new culture of cooperation with Member
States;
- encourage an inter-institutional approach to
prevent and combat corruption; and
- strengthen the criminal judicial dimension resulting
from the Treaties.[13]
The documents
4.3 Document (b) is the 2003 edition of the Commission's
annual report on protecting the Communities' financial interests
and fighting fraud. The report examines the action taken by national
authorities and the Commission to prevent and fight against economic
and financial crime. It is divided into two sections:
- an evaluation of the Community's
activities in 2003; and
- measures taken by Member States pursuant to Article
280 EC.
The report is supplemented by two annexes:
- the first covering follow-up
to the Action Plan 2001-2003 and measures taken by the Member
States together with an inventory of Member State activity; and
- the second containing statistical and technical
analyses.
4.4 In the first section of the report the Commission
highlights:
- anti-fraud policies promoted
by the Commission, including specific recommendations to Member
States in relation to the Structural Funds, a joint recovery task
force comprising agents of OLAF (the European Anti-Fraud Office)
and the Commission's Agriculture Directorate-General set up in
relation to the Guarantee Funds and implementation of a fraud-proofing
policy;
- strengthening by the Commission of a culture
of cooperation by extending the anti-fraud information system
(AFIS) to the candidate countries and some third countries, activity
relating to protection of the euro against counterfeiting and
establishing the "Hercules" programme for the promotion
of activities such as training, information-exchange and technical
assistance;
- inter-institutional developments to prevent and
fight against corruption, including developing anti-fraud policy
through preparation of legislation to improve OLAF and, in response
to the Eurostat case, revising the code of conduct on the relations
between Commissioners and their services; and
- action taken by the Commission to strengthen
the criminal judicial dimension resulting from the Treaties, including
promoting debate on the creation of a European Public Prosecutor
(EPP) at the Inter-Governmental Conference, setting out a "vision"
of the development of OLAF in the context of an EPP with the former
being an "auxiliary of justice" in the service of the
latter, developments in cooperation between the Commission and
judicial and police bodies, through extension of the Europol mandate
and signature of an agreement on close coordination between OLAF's
magistrates unit and Eurojust members.
4.5 The second section of the report gives an account
of the measures taken by Member States in accordance with Article
280 EC to protect the Communities' financial interests. The section
summarises:
- the principal legislative developments
in Own Resources,[14]
agricultural expenditure and structural measures;
- the organisation of departments
responsible for the protection of the Communities' financial interests
in relation to the Structural Funds;
- measures taken to combat fraud and irregularity
and to strengthen coordination and information exchange between
departments within Member States; and
- the administration of recovery procedures linking
civil action to criminal proceedings.
4.6 The first of the two annexes describes in detail
implementation during 2003 of the Action Plan 2001-2003 and measures
taken by Member States in 2003 in implementation of Article 280
EC. This section contains the replies of Member States to the
questionnaire sent to them in the preparation of this annual report.
4.7 The second annex contains a statistical analysis
of irregularities, including fraud, in 2003. It also examines
trends in the three main budget sectors. The annex shows that
the total number of frauds and other irregularities notified in
2003 decreased, with the exception of the Own Resources sector.
The budgetary implications of the irregularities were:
- Own Resources — down
21% — from €342 million to €270 million;
- the agricultural guarantee fund — down
21% — from €198 million to €169 million); and
- Structural Funds — down 14% — from
€614 million to €482 million.
These figures need careful interpretation —
not all irregularity is fraud, most irregularities are the result
of simple errors, and the outcome of one big case or the identification
of a large-scale suspected fraud could skew the figures considerably
from year to year.
4.8 Document (a) is the Commission's action plan
for 2004-2005 — the remainder of the period covered by the
2000 overall strategy for 2001-2005. The document includes a
summary of the overall results of the Action Plan 2001-2003, notably:
- promotion of anti-fraud legislative
policy;
- development of a new culture of co-operation;
- encouraging inter-institutional measures to prevent
and combat corruption, including implementation of the new Financial
Regulation and evaluation of OLAF; and
- strengthening the criminal judicial dimension
through legislation, including entry into force of the first Fraud
Convention.
4.9 In setting out the second phase of the 2001-2005
programme the Commission follows the four guidelines in the overall
approach and also takes into account new guidelines from an evaluation
report on the activities of OLAF and measures announced by the
Commission President in November 2003 to prevent and fight against
economic and financial crime. The action plan has a timetable
for 2004-2005 for matters it was not possible to deal with in
the previous period and actions still to be completed, in particular
the strengthening of the operational partnership with the Member
States and policy developments related to the Eurostat case and
to an EPP.
4.10 The new action plan also has the following guidelines
and priorities:
- reinforcing the 1999 regulatory
framework for OLAF's activities and competencies;
- improving the information flow between Member
States and the Commission; and
- developing the criminal-law protection of financial
interests, "for example [by] following up the decision of
the Inter-Governmental Conference to establish, in the constitutional
treaty, the legal basis for creating a European Prosecutor with
competence for protecting the financial interests of the European
Union".
The Government's view
4.11 The Financial Secretary to the Treasury (Mr
Stephen Timms) says:
Annual report 2003
"This report is, as usual, comprehensive and
informative. The Government notes that the levels of fraud and
irregularity reported in 2003 slowed and decreased in all areas
(partly due to the closure of the 1994-99 Structural Fund programming
period) with the exception of own resources sector, which reported
a small increase of cases, although the amounts against this figure
has decreased on 2002.
"The report shows the Commission continues to
take seriously the need to improve the financial management of
the Communities' funds and taking preventative measures to reduce
the amount of fraud and irregularity against the budget. The Government
particularly supports the emphasis in this report on shared knowledge
and co-operation between the Commission and Member States to combat
fraud.
"The 2001-2003 Action Plan shows a great deal
of work has been carried out and demonstrates the commitment of
the Commission in, particularly, working closely with Member States
for the prevention of fraud. The report shows that much has been
achieved in the form of new legislation, initiatives and specific
ongoing improvements highlighted in the report, all of which have
been positive. The Government will continue to support further
measures to be taken to fight fraud.
"The Government supports the efforts of OLAF
and the cooperation of Member States in the detection of fraud
and welcomes many of the measures and proposals in the Report;
but remains unconvinced that creating a European Public Prosecutor
would be necessary or desirable.
Action Plan for 2004-2005
"The 2004-2005 Action Plan is a continuation
of the Commission's ongoing commitment to fight against fraud
and its response to new challenges following enlargement. The
action plan follows-up several areas of development from the previous
action plan; incorporates recent developments; and new initiatives
to further improve the Commission, Member States systems and assist
applicant countries in their preparations. These are all sensible
plans and the Government will monitor progress."
Conclusion
4.12 It is our custom to recommend the Commission's
Annual Report on protecting the Communities' financial interests
and fighting fraud for debate in European Standing Committee B
together with the Annual Report of the European Court of Auditors
and other relevant documents. Accordingly we recommend that both
of the current documents be debated in European Standing Committee
B once we have reported on the 2003 Annual Report of the European
Court of Auditors. We expect to have that report before us early
in 2005.
4.13 Such a debate will allow Members to consider
issues of fraud and other irregularities against the Communities'
financial interests and to discuss existing and proposed preventative
measures. In the context of proposed preventive measures we note
again the Commission's continued persistence in promoting the
creation of a European Public Prosecutor, and suggest particular
attention be paid to this matter in the debate. We note also the
Government's somewhat benign view of progress in improving financial
management and reducing irregularities — the debate could
examine the basis for this view.
13 See (21444) 10020/00: HC 23-xxvii (1999-2000), para
17 (25 October 2000) and (22438) 9207/01 (22439) 9208/01: HC 152-xii
(2001-02), para 2 (16 January 2002). Back
14
The Community budget is financed from own resources, comprising:
customs duties, including those on agricultural products; sugar
levies; the yield from applying a notional rate of VAT of 1% to
an assessment base in each Member State which is "capped"
at 0.5% of gross national income (GNI); and a fourth resource
based on shares in GNI, the rate of which is determined by what
is required (given all other revenue) to balance the budget. Back
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