Select Committee on European Union Fiftieth Report


CHAPTER 6: Developments in the fight against fraud

126.  As we commented in our ninth report of session 1998-99, we continue to take "a close interest in the protection of the European Union's financial resources"[60]. We are pleased to see that we not alone in our concern. The European Parliament has, through the Budgetary Control Committee, put perennial pressure on the Commission. The Parliament was also instrumental in the establishment and expansion of UCLAF and its successor OLAF; and played a significant role in the fall of the Santer Commission. The Commission too has sought to reduce the level of fraud in the Community and has issued an annual report on the fight against fraud since 1993.

The rate of fraud

127.  The issue of the rate of fraud against the Budget has proved to be a controversial issue throughout our inquiry. Underpinning this is the difficulty that the rate cannot currently be established with any certainty. Mr Nicholas Ilett, the Deputy Director of OLAF, told us that estimates of fraud depend on data transferred to OLAF from the Member States. This is complicated in that there are differences in reporting behaviour between Member States (Q 566) and in "the quality of public administration within Member States" (Q 567).

128.  According to the Commission, frauds accounted for €323 million in 2005. Although a significant amount, this is a little over 0.3% of the budget[61]. By comparison to the United Kingdom this is a very low rate: Ivan Lewis MP told us that fraud recorded against the Department of Work and Pension's budget was £0.9 billion (Q 57). For Commissioner Kallas such a low rate means that "fraud has not penetrated the European budget" (Q 185). Ivan Lewis MP gave us a slightly different figure: according to his data, "in agriculture we are talking about 11 million euro/£7 million; in structural funds we are talking about 118 million euro/£80 million" (Q 43).

129.  Mr Ilett from OLAF argued that this was "about the same order of magnitude as one sees quoted in relation to other types of public sector expenditure" (Q 562). His experience and that of his colleagues from across the Union was that things are no worse in Brussels than they are in the Member States' own accounts. Indeed in some cases "it is rather better" (Q 572).

130.  Mr Ilett went on to detail where he understood these frauds to be taking place. He felt that of the two biggest spending areas the overall level of fraud in the structural funds was higher than in agriculture. Furthermore, OLAF had evidence to suggest that the level of agricultural fraud had been falling since the mid-1990s (Q 565).

131.  Any fraud committed against the European Budget is a problem which should be addressed seriously by the Commission and the Member States. We conclude that, while the level of fraud is no higher than in comparable public expenditure programmes, including in the UK, the fight must go on. We consider that efforts should be made to convey these messages to Europe's citizens more effectively.

PROBLEMS ESTIMATING THE RATE OF FRAUD

132.  The difficulties with these estimates of the level of fraud is that they rely on self-reporting by the Member States who are then obliged to recover the sums fraudulently claimed through their own law enforcement systems. Irrespective of their individual capacities of detection which vary considerably, there is little incentive for Member States to discover fraudsters unless it affects the national budget (as it would do in the case of VAT fraud and fraud against jointly funded programmes), or where there was a chance the Commission would discover the fraud via an OLAF investigation.

133.  We are concerned that estimates of the level of fraud rely on self-reporting by the Member States. We consider that the Commission should bring forward proposals for a new, more objective, method of determining the rate of fraud.

OLAF's powers and activities

134.  In the evidence we received from Ashley Mote MEP was the allegation that "OLAF is a deeply compromised organisation" and that during the seven years that Mr Brüner has been President of the organisation it "has not yet succeeded in a single successful prosecution and the recovery of the monies involved" (Q 230). This, it seems to us, is built on a misunderstanding of the role of OLAF. As their evidence to us states, "OLAF investigators aim to determine to the standards of criminal proof in the relevant jurisdiction whether or not a case should be brought against a specific natural or legal person" (Q 561). OLAF has no role in pursuing the prosecution of those it has investigated as this is the responsibility of the relevant Member State.

135.  OLAF does, however, make recommendations on the basis of its reports. According to OLAF's most recent report on its activities[62], in 2005 of the 233 cases closed by OLAF 133 were recommended for follow-up by the relevant competent authority. The remaining 100 were closed with no follow-up recommendation

136.  Mr Ilett told us that he is "happy that most of the cases which [OLAF] refer[s] to national jurisdictions lead to prosecutions" (Q 576). In support of this view Mrs Rosalind Wright QC, the Chair of OLAF's Supervisory Committee, told us that a "pretty impressive" three out of four of OLAF's reports reach trial (Q 591).

137.  We were further encouraged to hear from Mrs Wright that the Supervisory Committee has made the suggestion to OLAF that it conduct a survey within the Member States on how its reports are received. This would give OLAF information on whether the Member States are able to use OLAF's reports; whether these reports can form the basis of prosecutions; and whether there are any additions which Member States would like to see in them.

138.  We are content with the extent of the investigations which OLAF has undertaken. We consider that OLAF should conduct a survey of the uses to which Member States put its reports. On the basis of the results of this survey OLAF will be able to improve the relevance of the information it passes relevant authorities in the Member States.

OLAF's independence

139.  We reported on OLAF in Session 2003-04 against a background of dissatisfaction with the organisation stemming from the Eurostat affair. Our report made a number of proposals to amend the Commission Regulations governing OLAF[63]. We took the view that the Commission's proposals would do little to strengthen either the independence or effectiveness of OLAF, and recommended that the Council should take no decision on the proposed amendments until the Court of Auditors had reported on OLAF.

140.  The Court of Auditors has now issued this report on OLAF[64]. On the question of OLAF's independence from the Commission, the Court concluded that OLAF's "hybrid" status of investigative autonomy but reporting to the Commission for other duties was positively advantageous, and that no change was needed. This was reinforced in evidence to us, including from Mrs Wright who argued that "there is nothing to suggest to my mind that there is anything damaging to OLAF's interest in being part of the Commission" (Q 594). At a practical level Mr Ilett told us of the benefits OLAF gains from being inside the Commission's administration including access to information, contacts and expertise. Crucially he stressed that he had never "been subjected to any kind of pressure by the Commission either to open or not to open an investigation or to take any other action otherwise affecting" OLAF's operations (Q 575).

141.  The Court did, however, find weaknesses in the legal framework of OLAF investigations and in the "regulatory provisions concerning the governance of the Office" (essentially the relations between the Office and its Supervisory Committee were difficult). The Court considered that the latter needed to be re-examined.

142.  The Court also recommended that OLAF focus its activities on investigative work to the exclusion of the other tasks such as the development of the Commission's fraud prevention strategy or the preparation of legislative and regulatory anti-fraud measures. At the operational level, the Court recommended a setting and respecting of deadlines for the completion of investigations; more effective cooperation with the relevant Member State authorities; the strengthening of the system for assessing results and improved staff training.

143.  We are convinced by the arguments presented in favour of keeping OLAF administratively within the Commission. On the basis of the evidence we have received we emphatically refute claims that OLAF is too close to the Commission or that the Commission seeks to divert and influence OLAF's investigative activities.


60   European Union Committee, 9th Report (1998-99): Prosecuting fraud on the Communities' finances-the Corpus Juris (HL 62), paragraph 105. Back

61   Figures from the Commission cited in Europolitics, no. 3126, 14 July 2006. Back

62   Report of the European Anti-Fraud Office, Sixth Activity Report for the period 1 July 2004 to 31 December 2005. Back

63   See European Union Committee, 24th Report (2003-04): Strengthening OLAF, the European Anti-fraud Office (HL 139). Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1073/99 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1074/99 concerning investigations conducted by the European Anti-Fraud Office (OLAF). Back

64   European Court of Auditors, Special Report no. 1/2005 concerning the management of the European Anti-Fraud office (OLAF), together with the Commission's replies, Official Journal of the European Union, C 202, 18 August 2005, pp 1-32. Back


 
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