Memorandum by OLAF
1. THE REMIT,
ORGANISATION AND
POWERS OF
OLAF
OLAF is both a Directorate General within the
Commission with general responsibility for assisting the Commission
in developing anti-fraud policy and legislation and an operational
anti-fraud service, which conducts administrative investigations
in full independence, into cases of fraud, corruption and any
other illegal activity within the Community Institutions, offices
and agencies as well as into fraud or irregularities affecting
the EC budget. It provides the Member States with assistance in
organising regular and close cooperation between their competent
authorities in order to coordinate their activities for the purpose
of protecting the European Community's financial interests against
fraud.
This submission concentrates mainly on OLAF's
functions as an independent service.
OLAF would refer to the report published by
the European Committee of the House of Lords, Sub-Committee E
(Law and Institutions) on 13 July 2004 entitled "Strengthening
OLAF, the European Anti-Fraud Office", which looked at the
Commission's initial proposal to amend Regulation 1073/1999 made
in February 2004.
It should be noted that the Commission adopted
on 24 May 2006 a proposal for a regulation amending regulation
1073/1999 concerning investigations conducted by OLAF, thus replacing
its proposal of February 2004. The new proposal is intended to
clarify OLAF's accountability, in particular political governance
and cooperation between the Institutions and the OLAF Supervisory
Committee. Improvements are to be made to the efficiency of investigative
activities, respect for procedural and individual rights at all
stages of the investigation and the flow of information relating
to investigations, while OLAF's independence and the confidentiality
of its investigations are preserved.
The main elements of the proposal
The Commission proposes including in the Regulation
a set of basic guarantees applicable to all OLAF investigations.
The aim of these provisions is to secure full respect for procedures
and for the rights of persons under investigation and to provide
for review by an independent Review Adviser who can receive and
scrutinise requests for opinion at all stages of an internal or
external investigation, thus ensuring that a rapid administrative
review scheme applies across the board to all OLAF's investigative
activities.
The OLAF Supervisory Committee is an existing
group of independent experts who guarantee the independence of
OLAF's investigations. The Commission proposes that the Supervisory
Committee meet regularly with representatives of the European
Parliament, the Council and the Commission in a structured dialogue
to review OLAF's strategic priorities for investigation, to ensure
good relations between the Institutions and to ensure the effectiveness
of the Office's investigation work. This dialogue is to provide
an opportunity for the Office's Director-General and the Supervisory
Committee to report on their programmes and activities.
Provisions are proposed to enable the Office
to concentrate on its priorities for action and to clarify the
procedures for opening and closing investigations (proportionality
and appropriateness principles). To improve the efficiency of
OLAF's investigations, new measures are proposed for monitoring
long-term investigations.
The Commission proposal reflects certain parties'
"need to know", while preserving the confidentiality
of investigations. In particular, Community Institutions concerned
by an OLAF investigation must be informed by OLAF that an investigation
is in motion so that they can take appropriate measures to protect
the European Union's interests. As part of the enhanced protection
of procedural rights, people who are directly implicated in an
investigation will be informed that an investigation has been
opened and will be able to make their views known on the conclusions
before OLAF's report is sent to the relevant authorities, unless
this would prejudice the investigation.
The proposal also provides for measures relating
to transparency as regards the findings of the Office's investigations.
Member States will be required to inform OLAF of the follow-up
action they take when OLAF passes cases to them. This provision
is aimed both to allow OLAF to assess the value of the information
it passes on, and to ensure that Member States take appropriate
follow-up action in line with their Treaty obligations.
2. THE LEVEL
OF FRAUD
IN THE
UNION, TOGETHER
WITH THE
INFORMATION ON
HOW YOU
COLLECT THIS
INFORMATION
OLAF does not have an overall estimate of total
fraud. There is no reason, however, to suppose that the level
of fraud against the Community budget is higher than the level
of fraud against Member States' own expenditure with an equivalent
level of risk.
It is important to distinguish between fraud
and irregularities. Fraud is defined as an irregularity that is
committed intentionally and constitutes a criminal act that only
a judge may define as such.[1]
Much of what is sometimes described as "fraud" is not
in fact "fraud" in the sense of criminal offences committed
against the budget, but other types of "irregularity".
Irregularities can range from gross negligence and serious mistakes
to minor technical errors. The actual financial impact of fraud
can be confirmed only at the end of legal proceedings. Only a
small proportion of irregularities are likely to constitute fraud;
probably less than one fifth.
The relevant figures published in the Commission's
anti-fraud report for 2005 are summarized below. These should
be interpreted with caution for a number of reasons; they relate
only to information provided by the Member States to irregularities
identified by the Member States; the reference year is the year
in which the irregularity was identified rather than the year
in which it was committed; and the level of fraud is based on
OLAF's statistical analysis, not on the outcome of judicial proceedings,
some of which could not be concluded for many years.
As regards own resources, suspicions of fraud
notified by Member States account for no more than approximately
20 per cent of the cases of irregularities notified in 2005 and
involve an amount of some €95 million. For agricultural expenditure,
suspicions of fraud account for approximately 13 per cent of the
cases of irregularities notified and involving an amount of some
€21.5 million, equivalent to 0.05 per cent of the total EAGGF
Guarantee Section appropriations. For the Structural Funds, approximately
15 per cent of the irregularities notified and involving an amount
of €205 million were attributed to fraud and accounted for
some 0.53 per cent of the total appropriations for the Structural
Funds and the Cohesion Fund. For pre-accession funds, fraud accounted
for approximately 18 per cent of the irregularities notified and
involving an amount of some €1.77 million, equivalent to
0.06 per cent of the total appropriations under the PHARE[2],
SAPARD[3]
and ISPA[4]
funds.
Table—Number of irregularities and
amounts—year 2005
| TOTAL 2005 |
| Sector | Number of
irregularities
communicated
| Total financial
impact (amounts
in millions of €)
|
| Own resources | 4,982 | 322
|
| EAGGF-Guarantee | 3,193 |
102 |
| Structural Funds and Cohesion fund | 3,570
| 601 |
| Pre-accession Funds | 331 |
17 |
| Total | 12,076 | 1,042
|
| | |
3. THE METHODS
OLAF USES TO
INVESTIGATE CASES
OF SUSPECTED
FRAUD
OLAF would again refer to the previously mentioned report
of the House of Lords entitled "Strengthening OLAF, the European
Anti-Fraud Office" and in particular to its chapter 2, which
has illustrative OLAF case studies, one of which relates to expenditure.
In addition, OLAF would refer to its own sixth Activity Report
for the period ending December 2005 and in particular its section
2 on operational activities, paragraphs, 2.2.2, 2.2.3, 2.2.4,
2.2.5 and 2.2.6 of which are particularly relevant. The link to
the report in question is http://ec.europa.eu/anti_fraud/reports/olaf/2005/en.pdf
OLAF carries out administrative investigations either on
its own or in cooperation with national authorities to detect
and prevent cases of fraud or irregularities affecting the EC
budget (revenue and expenditure). This investigation and collaboration
takes place not only in the Member States of the EU, but also
in third countries. Frauds and irregularities in respect of EC
expenditure can occur anywhere in the world. One example is EU
humanitarian aid, which is at particular risk given the nature
of the circumstances in which it has to be disbursed. The results
of OLAF's investigations are passed to the parts of the Commission
responsible for the expenditure programmes concerned so that money
which has been irregularly used can be recovered, and so that
any weaknesses in programmes or related legislation can be eradicated.
Where evidence of possible criminal activity is discovered, it
is passed to the appropriate judicial authorities for their action.
OLAF also investigates fraud, corruption and any other illegal
activity within the Institutions, offices and agencies established
by the Treaties with a view to ensuring that any officials involved
can be made liable to disciplinary or criminal proceedings.
OLAF divides its cases into 5 different types: (i) internal
investigations, (ii) external investigations, (iii) coordination
cases, (iv) assistance cases and (v) the monitoring of national
cases.
Internal investigations
OLAF carries out administrative inquiries within the Community
Institutions, bodies, offices and agencies under its own responsibility
and on its own initiative or following a request from the Institution
concerned.
External investigations
These administrative investigations are carried out by OLAF
outside the Community Institutions, bodies, offices and agencies
for the purposes of detecting fraud or other irregular conduct
of natural or legal persons detrimental to the EC's financial
interests, ie resulting in loss of revenue or expenditures from
the EU budget, under either general horizontal or sectoral (eg
agricultural) legislation.
Coordination cases
Coordination cases are cases that could be the subject of
an external investigation but where OLAF's role is to contribute
to investigations being carried out by other national or Community
services by, among other things, facilitating the gathering and
exchange of information and ensuring operational synergy among
the relevant national or Community services; the main investigative
input is provided by other authorities. OLAF acts here as a service
platform to provide added value to the Member States, in particular
by facilitating contacts and encouraging the responsible authorities
to work together.
Criminal assistance cases
These are cases in which the competent authorities of a Member
State, candidate country or third country carry out a criminal
investigation and request OLAF's assistance or OLAF offers its
assistance.
Monitoring cases
These are cases where OLAF would be competent to conduct
an external investigation but where a Member State or other authority
is better placed to do so (and is usually already doing so). Monitoring
cases are passed directly to the authority judged competent to
handle them. No OLAF investigation resources are required but,
as EU interests are at stake, OLAF follows up the cases by asking
for reports on developments at regular intervals.
4. ANY RECOMMENDATIONS
YOU HAVE
FOR IMPROVING
OR SIMPLIFYING
THE MANAGEMENT
AND CONTROL
OF EUROPEAN
FUNDS
OLAF is directly responsible for preparing some EU legislation
relating to the duty for Member States to communicate irregularities
relating to EU funds they implement. In this area, as regards
anti-fraud legislation in the field of shared management, the
Commission (OLAF and the Directorates General responsible for
the policy areas concerned) has started a comprehensive review
of various regulations (1290/2005, 1681/94, 595/91) as well as
of the black-list (exclusion) of beneficiaries in the area of
Agriculture, dealing with reporting obligations for Member States
and Candidate Countries, as regards communications of irregularities
and frauds affecting the EU budget. The overall purpose is to
harmonize and simplify the reporting obligations, thus limiting
the administrative burden, and at the same time improving the
relevance of the information received for the purpose of (intelligence)
analysis. Generally speaking, OLAF's experience suggests that
simple legislation which is clear about responsibilities and accountability
is more likely to be proof against fraud than complex legislation.
OLAF has also suggested improvements in information exchange
to facilitate debarment of fraudulent contractors in the Member
States and third countries. The aim is to allow for sharing of
information and prevention of repetitive fraudulent behaviour.
It is further proposed to establish a legal basis for exchange
of information with other international donors who often co-finance
projects together with the Commission and have their own debarment
procedures to protect their interests and prevent fraud. This
has been incorporated in the Commission's proposal for a new Financial
Regulation for the EU budget.
In 2004 the Commission submitted a proposal on mutual administrative
assistance for the protection of the financial interests of the
Community against fraud and any other illegal activities, which
is currently in the legislative process. In particular complex
trans-national fraud schemes in the areas of VAT fraud, laundering
of the proceeds of EC fraud and structural fund fraud, the criminal
activity is carried out by organised crime taking advantage of
the freedoms provided by European integration. This initiative
aims at creating a framework for general administrative mutual
assistance necessary to strengthen the protection of the financial
interests of the Community. The fight against fraud affecting
the Community financial interests is a shared competence of the
Community and the Member States and OLAF's powers are limited
to administrative investigations. For this purpose the Member
States and the Commission shall cooperate, coordinate and assist
each other and exchange information to allow swift investigations
and appropriate action. An improved cooperation and access to
information would indeed contribute to better results.
Fraud proofing; improving the legal instruments in the various
budget sectors
The Commission put in place in 2001 a mechanism to improve
the quality of legislation and the management of contracts in
order to make them more "fraud proof". The prevention
mechanism (fraud-proofing) focuses on legislation.
OLAF contributes at the early drafting stage of legislation
in all sectors.
An inter-departmental group was set up to identify each year
legislative initiatives and model contracts in the process of
being drawn up that could present a major risk to the Community's
financial interests. An examination of the Commission's work programme
makes it possible to determine, in agreement with every DG concerned,
the projects which call for upstream co-operation with OLAF.
The lead Directorates-General have the duty to involve OLAF
in the preparation of drafts selected by the inter-departmental
group as early as possible, by communicating to OLAF a preliminary
draft (in advance of the interservice consultation).
After four years of implementation, the fraud-proofing exercise
has been shown to be effective and has strengthened the protection
of the Community's financial interests.
The European Transparency Initiative
Transparency supports in general a better management of European
funds. Enhancing accessibility of information on beneficiaries
of EU funds will improve its management.
The Commission adopted a Green Paper on the European Transparency
Initiative on 3 May 2006[5],
in which it proposes that information on beneficiaries of EU funds
should be disclosed in order to enhance transparency.
The Commission already provides this information for the
EU-funded policies which it manages centrally and directly and
has given a commitment to do so in a more user-friendly manner.
However, the majority of the EU budget is not spent centrally
and directly by the Commission but in partnership with the Member
States ("shared management"). The Common Agricultural
and Fisheries Policies, the Structural Funds, the Cohesion Fund
and the European Refugees Fund are implemented under this shared
management formula.
In order to allow better scrutiny of use of EU funds under
centralized management, a dedicated internet site, providing easy
access to existing information about the beneficiaries of projects
and programs, is being created. The site will also contain links
to websites of the Member States where data on the beneficiaries
of EU funds under shared management can be found.
17 August 2006
1
See the definition in Article 1 of the Convention on the protection
of the European Communities' financial interests of 26 July 1995
(OJ C 316, 27.11.1995). Back
2
Poland-Hungary: assistance for economic restructuring, Regulation
(EC) No 3906/89, OJ L 375, 23.12.1989. Back
3
SAPARD (Agricultural Pre-accession Instrument), Regulation (EC)
No 1268/1999, OJ L 161, 26.6.1999. Back
4
ISPA (Structural Pre-accession Instrument), Regulation (EC) No
1267/1999, OJ L 161, 26.6.1999. Back
5
COM (2006) 194 final. Back
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