The fight against fraud and the protection of the EU’s financial interests

The European Union’s action in the field of budgetary control is centred around two principles: firstly budgetary control itself, and secondly protecting the Union’s financial interests and combating fraud.

Legal basis

  • Article 325 of the Treaty on the Functioning of the European Union (TFEU);
  • Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, Title IX, chapters 1 and 2, and Title X;
  • Interinstitutional Agreement of 2 December 2013 between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, Part III;
  • Parliament’s Rules of Procedure, Rule 48; Title II, Chapter 8, Rules 93, 94 and 95; Title V, Chapter 1, Rule 121, Chapter 2, Rule 125, Chapter 4, Rule 132; Annex VI.

Objectives

Protection of the financial interests of the European Union is a key element of the EU policy agenda to strengthen and increase the confidence of citizens and ensure that their money is used properly. The Treaty of Lisbon has substantially strengthened the instruments available to protect the financial interests of the EU, requiring both the EU and its Member States to combat all forms of illegal activity affecting the financial interests of the EU. There is also a need to supervise the work of the European Anti-Fraud Office (OLAF) and to support its action where necessary, to combat fraud and irregularities in the implementation of the EU budget, to be involved in measures aimed at preventing and prosecuting such cases, and to strengthen the strict protection of the Union’s financial interests and the relevant actions by the European Public Prosecutor in this field.

Background

At national level, Member States retain 25% of traditional own resources[1] by way of a collection fee. Collection of traditional own resources is nevertheless a matter of great importance to EU institutions. It was in that connection that Parliament established a Committee of Inquiry on Transit. Operational expenditure under the European Agricultural Guarantee Fund (EAGF), the European Agricultural Fund for Rural Development (EAFRD) and the Structural Funds is also controlled in the first instance by the Member Statesʼ authorities.

At EU level, it is necessary to investigate fraud and irregularities in the implementation of the EU budget, to adopt measures to prevent and prosecute fraud and irregularities in such cases, and to protect the EU’s financial interests in general. In December 1995, Parliament exercised for the first time its right under the Treaty to set up a committee of inquiry, subsequently reporting on allegations of fraud and maladministration in the Community transit system. The committee’s recommendations received wide support at the time.

In the last four years, legislative texts and recommendations on fraud and the protection of the Union’s financial interests have multiplied, reflecting both a need for effective action at Union level to respond to emergencies, and the fact that the European legislature is taking into consideration the questions and concerns of European citizens about the use of public money. Indeed, the Commission estimates that tax fraud in all its forms amounts to EUR 1 000 billion in the EU, or EUR 2 000 per European citizen.

These texts seek essentially to improve OLAF’s governance and reinforce procedural safeguards in investigations by means of a step-by-step approach to accompany the establishment of the European Public Prosecutor’s Office, and to reform Eurojust[2], to improve the protection of the Union’s financial interests, but also to guarantee the protection of those interests by means of criminal law and administrative investigations through an integrated policy to safeguard taxpayers’ money, and through the Commission’s anti-fraud strategy[3]. Four other important communications were also published in 2012 and 2013 concerning an Action Plan to strengthen the fight against tax fraud and tax evasion[4], the protection of the European Union budget to end 2012, and the application of net financial corrections on Member States for Agriculture and Cohesion Policy[5].

Two directives were also adopted in 2013, one on the common system of VAT concerning an optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud, the other concerning a quick reaction mechanism against VAT fraud[6]; a draft regulation was also proposed in 2014 to establish a programme to promote activities in the field of the protection of the European Union’s financial interests (‘Hercule III’ programme). Lastly, there was the proposal for a directive on the fight against fraud to the Union’s financial interests by means of criminal law[7] and the report from the Commission to the Council and the European Parliament entitled ‘EU Anti-Corruption Report’[8].

a.Anti-fraud measures: by OLAF

The European Anti-Fraud Office (OLAF) is competent to carry out investigations independently of the Commission. Its role is to protect the EU’s financial interests, with responsibility for combating fraud involving EU funds in all institutions and for coordinating the bodies responsible in the Member States. On 25 May 1999, in connection with the regulations on OLAF investigations, Parliament, the Council and the Commission signed an interinstitutional agreement regarding internal investigations. That agreement stipulated that each institution should establish common internal rules to ensure that OLAF’s investigations ran smoothly. Some of those rules, now incorporated into the Staff Regulations of Officials of the European Union, require staff to cooperate with OLAF and provide a degree of protection for staff members who reveal possible fraud or corruption. Reform of OLAF was first mooted in 2003. Finally, after some 10 years of discussions and negotiations, the trilogue stakeholders (Parliament, the Council and the Commission) agreed on a compromise representing significant progress and ensuring that OLAF is effective and efficient and retains its responsibilities while safeguarding its investigative independence.

In November 2008, Parliament adopted the Gräßle report, drawn up in collaboration with the working group of the Committee on Budgetary Control, by an overwhelming majority. The Commission’s original proposal was heavily amended, and the current regulation was introduced some years later.

The new text provides substantial improvements, i.e. a clearer definition of the legal framework for anti-fraud investigations: definitions of ‘irregularity’ and ‘fraud, corruption and any other illegal activity affecting the financial interests of the Union’ and the notion of ‘economic operator’ have been incorporated into the regulation. The regulation also contains clear references to particular investigative measures under other EU regulations (thus improving coordination between the relevant legal instruments in the area concerned), plus references to the Charter of Fundamental Rights: the rights of defence and procedural guarantees of persons concerned by a matter under investigation by OLAF, the rights of witnesses and of whistleblowers, and right of access to records, etc. will be ensured at all times in connection with OLAF investigations.

In addition, there are provisions introducing specific requirements to be met by Member States, such as the requirement to share relevant information with OLAF on cases of fraud involving EU funds.

Lastly, a new interinstitutional procedure has been set up so that all institutions can hold transparent discussions on best practices, outcomes and outstanding issues with a bearing on the effectiveness of anti-fraud operations. That will make it possible, for the first time, for Parliament to discuss combating fraud in Member States with the Council.

Parliament is also calling for an improvement in OLAF’s governance through the continual revision and consolidation of its core investigative processes.

It should also be pointed out that Article 325 TFEU requires close and regular cooperation between Member States and the Commission and allows for specific Council measures to afford equivalent and effective protection in the Member States for the EU’s financial interests.

b.Strengthening anti-fraud mechanisms

At the request of the European Parliament, the Commission has recently taken major initiatives concerning strategic anti-fraud measures; however, in view of the scale of fraud and tax avoidance and of corruption in the EU, Parliament is calling for an integrated approach, including strategies for fighting fraud and corruption by means of legal and effective measures throughout the Union, particularly at a time of budgetary constraint.

The European Parliament also supports the Action Plan devised by the Commission to step up the fight against tax fraud[9] and tax evasion, while taking the view that the Commission and the Member States should continue to give absolute priority to combating these two scourges, for which it is necessary to develop a strategy for strengthened and multidimensional cooperation and coordination between Member States themselves and with the Commission. This should allow for better use of existing instruments, consolidation of existing legislation, adoption of pending proposals and administrative cooperation. Enhanced cooperation between the tax, police and legal authorities within a single country is likewise essential. Particular attention should also be paid to the development of mechanisms for prevention, early detection and customs transit monitoring, this being one of the areas still affected by the highest rates of systemic corruption in Europe. Finally Parliament takes the view that the major European actors should be more active at international level so as to establish standards of cooperation based chiefly on the principles of transparency, good governance and exchange of information.

On recovery, in agriculture, it should be noted that the recovery rate of 43% is significantly affected by the low recovery rates (below 27%) displayed by six Member States. Cohesion policy has, over several years, proven to be the most critical sector, with regional development policy in particular being affected, though the number of irregularities reported as fraudulent has been stable for the past three years. Furthermore, the proportion of cases of established fraud, 4% over the period 2008-2012, is lower than the overall average.

Parliament also underlines the fact that greater transparency allowing for proper scrutiny is key to detecting fraud schemes; in previous years it urged the Commission to take action to ensure one-stop transparency for all beneficiaries of EU funds from all Member States by publishing on the Commission’s site a list of all beneficiaries. It also calls on the Member States to cooperate with and provide full and reliable information to the Commission regarding the beneficiaries of the EU funds managed by them.

c.New-look European anti-fraud policy and programmes

In its policy aimed at combatting corruption, Parliament considers that as corruption has an impact on the financial interests of the EU, it should be considered as fraud for the purposes of Article 325(5) TFEU and should be included in the Commission’s annual report on the protection of the European Union’s financial interests — fight against fraud.

The Commission’s first EU anti-corruption report, published in February 2014, which was welcomed by Parliament, noted that corruption affected all Member States differently, and was costing the EU economy EUR 120 billion per year. Parliament also welcomes all of the suggestions for intensifying exchanges of current good practice and identifying relevant new measures to be taken at EU level; European citizens require guarantees of total integrity and transparency in public spending, especially given the current challenges arising from the underlying economic and financial crisis.

It regrets, however, that the content of the report presented only a limited overview of corruption in the EU, and calls for further efforts to be made, commensurate with the major social and economic issues at stake, to prevent and sanction efficiently corruption, which corrodes the European economy and social model, harms Member States’ revenue from taxation and undermines citizens’ trust in their institutions.

d.The establishment of the European Public Prosecutor’s Office

The rules governing the creation of the European Public Prosecutor’s Office are contained in Article 86 TFEU, which lays down that: ‘In order to combat crimes affecting the financial interests of the Union, the Council, by means of regulations adopted in accordance with a special legislative procedure, may establish a European Public Prosecutor’s Office from Eurojust.’

The European Public Prosecutor’s Office will be a decentralised prosecution office of the European Union with exclusive competence for investigating, prosecuting and bringing to judgment crimes against the EU budget. It will have uniform investigation powers throughout the Union based on and integrated into the national law systems of the Member States.

Parliament welcomed the proposal for a regulation on the establishment of the European Public Prosecutor’s Office, and stressed the need to establish a consistent, complementary system for protecting the Union’s financial interests. It also urged the Commission to provide a clear EU-level definition of the roles of the future European Public Prosecutor’s Office, Eurojust and OLAF, delimiting their respective remits.

Role of the European Parliament

Parliament’s Committee on Budgetary Control holds hearings for Members-designate of the Court of Auditors as well as the shortlisted candidates for the post of Director-General of OLAF. Those posts cannot be filled without Parliament’s hearings being held. It should be noted, lastly, that the Director-General of OLAF is appointed by the Commission, after consultation of Parliament and the Council, and that the members of the OLAF Supervisory Committee are appointed by common accord by Parliament, the Council and the Commission.

[1]The current system will nevertheless continue to apply until the new decision that the Council adopted on 26 May 2014 is approved by each Member State (in most cases it will be ratified by the national parliaments). The new rules on own resources will then be applied retroactively with effect from 1 January 2014.

[2] COM(2013) 0532 and COM(2013) 0533 of 17 July 2013.

[3] COM(2011) 0293 of 26 May 2011 and COM(2011) 0376 of 24 June 2011.

[4] COM(2012) 0722 of 6 December 2012.

[5]COM(2013) 0682 of 30 September 2013 and COM(2013) 0934 of 13 December 2013.

[6]Directives 2013/43/EU and 2013/42/EU of 22 July 2013 (OJ L 201, 26.7.2013, p. 4; OJ L 201, 26.7.2013, p. 1).

[7] COM(2012) 0363 of 11 July 2012.

[8] COM(2014) 0038 of 03 February 2014.

[9]Fraud is a deliberate unlawful act, which may constitute a criminal offence, while an irregularity is a failure to comply with a rule.

Jean-Jacques Gay

03/2016