REPORT on the recovery of Community funds
22.9.2006 - (2005/2163(INI))
Committee on Budgetary Control
Rapporteur: Paulo Casaca
MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION
on the recovery of Community funds
The European Parliament,
– having regard to the Commission’s white paper on administrative reform and, in particular, the part thereof relating to the action of 1996 concerning the most effective management of improperly received funds,
– having regard to the Commission communication entitled 'improving the recovery of Community entitlements arising from direct and shared management of Community expenditure' (COM(2002)0671),
– having regard to the report from the Commission to the Council and the European Parliament on the use of the provisions on mutual assistance for the recovery of claims relating to certain levies, duties, taxes and other measures (COM(2006)0043),
- having regard to its resolution of 8 April 2003 on the discharge for 2001[1], especially paragraphs 39 to 43 thereof,
- having regard to its resolution of 29 January 2004 on the follow-up to the discharge for 2001[2], especially paragraphs 7 to 9 thereof,
- having regard to its resolution of 21 April 2004 on the discharge for 2002[3], especially paragraph 7 thereof,
- having regard to its resolution of 12 April 2005 on the discharge for 2003, especially paragraphs 83 to 85 thereof,[4]
- having regard to its resolution of 7 June 2005 on the protection of the Communities’ financial interests and the fight against fraud,[5]
- having regard to the Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities[6], especially its Article 72, and to the proposal for its amendment pursuant to its Article 184,
- having regard to the Commission Regulation (EC, Euratom) No 2343/2002[7] laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002, and particularly Article 78(3)(f) and Article 84 thereof,
- having regard to the report of the Commission to the Council and the European Parliament on the application of the implementing rules for the new Financial Regulation,
- having regard to the proposal for a Council regulation amending Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the budget of the European Communities (COM(2005)0181),
- having regard to Regulation (EEC) No 595/91[8] (especially Articles 3 and 5 thereof as regards irregularities and fraud) and to the subsequent Regulations (EC) Nos 1469/95[9], 515/97[10] and 1258/99[11] ,
- having regard to Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural policy[12] (the new CAP Regulation), especially Article 32 thereof,
- having regard to the judgment of the Court of Justice of the European Communities in the case Commission v. C.C.R.E.[13],
- having regard to Article 256 of the EC Treaty,
- having regard to Rule 45 of its Rules of Procedure,
– having regard to the report of the Committee on Budgetary Control (A6‑0303/2006),
A. whereas the Commission has still not implemented the detailed action plan for quantifying, identifying and explaining the use of the sums actually paid in interest and penalty fees to the agricultural payment agencies, as Parliament called for in paragraphs 39 to 43 of its above mentioned resolution on the discharge for 2001,
B. whereas Parliament noted with concern in its above mentioned resolution on the follow-up to the discharge for 2001 the absence of any such detailed plan; whereas the amounts of the Community funds recovered on a basis of shared management are not regularly entered in the Community budget,
C. having regard to the joint seminar organised in Bled, Slovenia, on 30 March 2006 by the Slovenian customs authorities and the European Anti-fraud Office (OLAF), which brought together veterinarians, health experts and anti-fraud investigators to discuss the action to be taken to combat illegal trade in agricultural products and the resultant health risks to consumers,
The Financial Regulation
1. Recalls that the Financial Regulation states that the recovery of sums owing to the EU may, should the debtor not voluntarily effect the reimbursement, be secured by judicial means or by an enforcement order obtained pursuant to Article 256 of the EC Treaty;
2. Welcomes, as far as recovery is concerned, the three proposals submitted by the Commission in the framework of the 2002 reform of the Financial Regulation, whose main features are as follows:
- recognition of the privileged nature of debts owed to the Community, on the grounds of equivalence to Member States’ tax debts;
- a five-year deadline for recovery of sums owed to the Community, subject naturally to the possibility of prolonging this deadline where active steps are being taken to secure recovery; this would create greater security for the institutions and for debtors;
- making sums owed to the Community equivalent to sums owed in the civil sphere, in line with the instruments adopted in the field of civil judicial cooperation (cf. Articles 72(2), 73a and 73b of above mentioned COM(2005)0181);
3. Calls on the Commission to prepare a revision of the Financial Regulation, especially its implementing rules, with a view to clarifying the exact classification in accrual terms of the sums owed in the context of different types of Community payment;
4. Recalls that this proposal is covered by Article 3(1) of the implementing rules in respect of the Financial Regulation; recalls further that Article 105 of the implementing rules distinguishes between pre-financing, interim payments and closure of the expenditure and that a distinction is also made between pre-financing paid to Member States in performance of a contract within the meaning of Article 88 of the Financial Regulation or under pre-accession instruments and advances pursuant to Article 265 of the implementing rules in respect of the Financial Regulation;
5. Notes that arrangements must be made to recover advance payments in cases where a project has to be discontinued owing to force majeure or for other reasons; notes also that such cases can be dealt with not by recovering the sum owed, but rather by offsetting it against a due and certain claim on the European Union by the contractual partner under another contract;
6. Takes the view that the legitimate expectations of the beneficiary should as a rule be protected where he has used the monies or made arrangements relating to the monies which cannot be cancelled or can be cancelled only subject to unreasonable penalties; is of the opinion that the beneficiary cannot invoke legitimate expectations where:
a) he has obtained authorisation of expenditure through deliberate deception, threat or bribery;
b) the authorisation of expenditure has been obtained by supplying information which in essential respects was incorrect or incomplete;and
c) the beneficiary was aware of the illegal nature of the measures on which the authorisation was based or was unaware thereof owing to gross negligence;
7. Considers that the Commission should submit to Parliament, at regular intervals, an overview of outstanding amounts to be recovered broken down by the total owed per directorate-general and the length of time for which each amount has been outstanding;
8. Considers that the principles of budget universality and accuracy, as embodied in the Treaty and the Financial Regulation, must be respected by the implementing rules and the sectoral legislation;
9. Considers, furthermore, that the Member States need above all to prove their compliance with international accounting standards, and that it needs to be asked whether that could be used by the EU in order to develop a common approach in the matter;
10. Points out that, pursuant to Article 78(1)(c) of the Financial Regulation, the authorising officer may ascertain whether expenditure is consistent with the provisions of the contract, and that, before the authorising officer can forward the recovery order to the accounting officer, he must consider whether the beneficiary could legitimately expect that the expenditure would be authorised and whether those expectations should be protected given the public interest in the recovery of the sums owed;
11. Notes that too little use is made of the possibility of granting the debtor additional time for payment against the lodging of a guarantee and payment of default interest pursuant to Article 85 of the implementing rules in respect of the Financial Regulation with a view to recovering at least a part of the sum owed;
12. Notes that, in most cases, recovery is effected by offsetting the sum owed against a debt payable to the contractual partner, if the conditions governing offsetting have been met; notes also that in cases where offsetting is not possible, the sum owed can ultimately be recovered only by telling the contractual partner that his services will not be used in future unless he repays the sum owed;
13. Considers it important to point out that the authorising officer should inform OLAF immediately if he establishes that the expenditure is not consistent with the contract or that authorisation was obtained by deceit, threat or bribery;
Procedures
14. Notes that, seven years after the outbreak of the ‘Italburro’ scandal over adulterated butter and despite the attention paid to the matter by the EU institutions, notably Parliament and the Commission (OLAF):
a) the sum recovered is less than 0,1% of the estimated amount of the fraud;
b) the action of the Italian authorities, thanks to which it was possible to dismantle the criminal network, bring dozens of perpetrators to justice, confiscate hundreds of tonnes of adulterated products and collect proofs of trafficking in tens of thousands of tonnes of adulterated butter sent to other Member States, has had almost no follow-up, and the level of EU cooperation has been particularly disappointing, if not non-existent;
c) the Member States have different and mutually incompatible procedures, and the very fact that trafficking in adulterated substances is a crime in one Member State and a purely administrative problem in another has meant that the sum recovered has been a mere one-tenth of that expected;
d) public health has been neglected, with no-one to date having analysed the possible contamination of the butter by the use of substances prohibited for food products in the wake of the BSE crisis;
15. Notes that although the Commission has acknowledged the existence of wrongdoing in the so-called Blue Dragon affair and has decided to cut EU funds corresponding to the fraud, it considers it to be the sole responsibility of the Member State that shares the management of these funds to investigate the full extent of the alleged irregularity, to pursue its culprits, and/or to seek compensation for the victims of the fraud; notes also the fact that the Blue Dragon affair falls between two Member States, Spain and France, which makes the attribution of responsibility more difficult and which gives it a more obviously European character; considers that the Commission is a public authority with direct responsibilities concerning European citizens, on whose trust it depends - through the European Parliament - and that, therefore, the Commission should not only seek to recover European funds from a Member State where they have been misused, but should also use its best endeavours to see that wrongdoers are prosecuted and their victims compensated; ;
16. Recalls that the procedure for recovery of sums owed by legal means by an enforcement order, which may be obtained under Article 256 of the EC Treaty, has thus far been used only in exceptional circumstances, essentially for the recovery of fines imposed in competition cases; notes the Commission’s intention, pursuant to the Financial Regulation, to widen the scope of the procedure in future;
17. Stresses that the procedure currently followed by the Commission with regard to recovery, which is of an institutional nature and consists, in the absence of voluntary payment, of addressing the national authorities, is far too long-winded, and that the forced recovery of the sum owed cannot in that case be effected or, in the best of cases, is subject to delays which are contrary to the Communities’ financial interests;
18. Considers, with regard to enforcement orders, that communications between the Commission and the Member States would have to be simplified and that closer links need to be established between the Commission's services and those responsible in the Member States;
Reform of OLAF
19. Believes, in addition, that it is necessary to reflect on how to compensate for the lack of means on the part of the national authorities responsible for legal proceedings in order to reach a correct estimate of the complexity of the fraud problem in the EU, and also to consider how the Union bodies responsible should best deal with the national control authorities, in order to alert them and involve them in investigating fraud-related cases; recalls that by their nature the national fraud authorities are not under a binding obligation to involve those bodies;
20. Believes, furthermore, that the possibility of closer cooperation with Eurojust and Europol needs to be explored in order to strengthen the real protection of the Union’s financial interests, as well as an evaluation of the possibility of OLAF’s full administrative independence from the Commission and the other institutions;
21. Notes that the Court of Auditors' Special Report Nº 1/2005 described the present organisation of OLAF in regard to the independence of its investigative activities and its administrative cooperation with the Commission as functioning well, and that, in particular, the report noted that independence was guaranteed in practice, since the Commission had not interfered in OLAF's work; ;
22. Notes that, despite the measures already decided, the issue of the clarification of the rules on opening and closing OLAF inquiries, as well as on their extension, will require further legislative initiatives, which should also involve strengthening the link between the Parliament and OLAF;
23. Awaits with interest the Commission’s proposal for a regulation on the reform of OLAF;
Public health
24. Recalls that under the rules in force only legal, healthy and market-friendly products are eligible for refunds, and that products not meeting those conditions are ineligible for aid of any kind;
25. Observes, as the Director of OLAF pointed out at the above mentioned meeting in Bled, that fraud in trade in agricultural products is a clear potential risk to human and animal health;
26. Stresses the need to make the national and international control services more aware of this problem, and that only close cooperation at international level, also involving third countries, can in the long term ensure the better protection of the consumer and of the Union’s financial interests;
27. Stresses that the various illegal practices analysed reveal the urgent need for closer cooperation between the national customs authorities, the veterinary services and EU authorities such as OLAF;
28. Stresses that the Commission has no powers of control as regards product analysis in relation to consumer health in the Union;
29. Recalls that in the adulterated butter case the initial fraud concerned not a health matter but the composition of the incriminated products, which were from a sector receiving large amounts in Community subsidies;
30. Believes that the Commission and OLAF must be able to ensure that the Member States, through their para-public bodies, are able to carry out a sufficient number of controls;
31. Stresses that the Commission, unlike the Member States, has no powers of control in the area of product analysis;
32. Stresses the need to find means of ensuring that the Member States, through their para-public bodies, are able to carry out a sufficient number of properly effective controls using genuinely independent inspectors;
33. Considers that, where a fraud could at a given moment have health repercussions, the health services responsible should be informed and have access, in the context of a properly conducted procedure, to samples, and that such samples should be kept for a considerably longer period;
OLAF inquiries and national procedures
34. Notes that OLAF does not possess suitable information on the quantities of incriminated products, while undertaking the inquiries in a criminal law context has proved disastrous from the viewpoint of recovery, even if it is true that in strictly legal terms OLAF is entitled, on behalf of the Commission, to contest a national decision;
35. Recalls that, while in some countries recovery proceedings may be initiated even if a criminal action is under way, in others the criminal law has precedence over the civil law, so that the existence of an action on the part of a judicial authority makes it impossible to recover the disputed sums;
36. Deplores the fact that in some Member States irregularities and frauds are admitted only in respect of individually proven sums, that is, lot by lot, and that where no lot is present the operator is automatically deemed innocent;
Notification and recording of irregularities and recoveries
37. Regrets the Commission’s failure to implement the action plan referred to in paragraphs 39 to 43 of the above mentioned resolution on the discharge for 2001 and in the resolution on the follow-up to the discharge;
38. Considers it essential that the regulatory framework should include the provision of full accounts regarding all sums owed arising from irregularities, the sums recovered and any interest or penalty payments actually paid to third party bodies from Community funds on the basis of the principles of budget universality and accuracy, as laid down in the Treaty and the Financial Regulation; calls on the Commission to take action to ensure this;
39. Considers that the Commission must ensure that the principle of independence regarding the activities of authorisation, auditing and certification required for directly managed Community expenditure is also followed for Community expenditure subject to shared responsibility;
40. Notes that it is not the Commission but the Member States which ensure, in accordance with the shared management principle, that the same principles regarding the independence of authorisation, auditing and certification are applied to Community expenditure subject to shared responsibility as are applied to directly managed Community expenditure; notes further that this applies in particular to the establishment of accredited payment agencies with an internal audit service and the setting-up of independent certifying bodies within the meaning of Regulation (EC) No 1663/95[14] for the European Agricultural Guidance and Guarantee Fund, Guarantee Section (EAGGF-G) and the setting-up of independent bodies within the meaning of Article 38(1)(f), of Regulation (EC) No 1260/1999[15] in conjunction with Article 15 of Regulation (EC) No 438/2001[16]; notes that these bodies are also active as independent bodies within the meaning of Articles 4 and 10 of the above mentioned Regulation No 438/2001;
41. Considers that recovery should be carried out by public authorities, where the Community budget can finance the costs of recovery, or else by profit-making entities; considers that, in the latter case, there should of course be a call for tenders;
42. Believes that, in all circumstances, the revision of the regulatory framework must ensure that rules of transparency apply and conflicts of interest are avoided with regard to the motivation, the sums concerned and the end use of the sums arising from penalty payments, interest payments or recovery of Community funds;
The European Public Prosecutor
43. Recalls the case Commission v. CCRE, in which the Court of Justice found that, from the moment when the enterprise concerned established its headquarters in a Member State, that implied that the law of that Member State should prevail over the Commission, given that the supremacy of Community law does not justify a legal interpretation under which the Commission would prevail over the judge of the Member State concerned;
44. Considers that the creation of the office of European Public Prosecutor will be a decision of major importance, since it will facilitate direct access to the national public prosecutor’s offices, thus working in the interests of a more ‘joined-up’ procedure; believes that this should help reduce complexity, since the result should be a converged use of the European Prosecutor’s services; recalls that, while OLAF enjoys powers of intervention in the context of its inquiries, it does not enjoy judicial powers;
45. Notes that the project to establish a European Public Prosecutor must be regarded more as a long-term undertaking, and that, in order to achieve an improvement in the short term, coordination between Member States' public prosecutors must be central to plans to create added value, reducing OLAF's workload and protecting the financial interests of the Community; ;
°
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46. Instructs its President to forward this resolution to the Council, the Commission, the Court of Justice, the Court of Auditors, the OLAF Surveillance Committee and OLAF.
- [1] OJ C 64 E, 12.3.2004, p. 199.
- [2] OJ C 96 E, 21.4.2004, p. 112.
- [3] OJ C 104 E, 30.4.2004, p. 640.
- [4] OJ C 33 E, 9.2.2006, p. 169.
- [5] Texts Adopted, P6_TA(2005)0218.
- [6] OJ L 248, 16.9.2002, p. 1.
- [7] OJ L 357, 31.12.2002, p. 1.
- [8] OJ L 92, 13.4.1991, p. 43.
- [9] OJ L 145, 29.6.1995, p. 1.
- [10] OJ L 82, 22.3.1997, p. 1.
- [11] OJ L 160, 26.6.1999, p. 103.
- [12] OJ L 209, 11.8.2005, p. 1.
- [13] ECR 2003, p. I-07617.
- [14] OJ L 158, 8.7.1995, p. 6.
- [15] OJ L 161, 26.6.1999, p. 1.
- [16] OJ L 63, 3.3.2001, p. 21.
EXPLANATORY STATEMENT
I - The Commission’s action in the area of recovery
1. The EU’s expenditure per inhabitant at constant prices have increased considerably over the last ten years, while when tasks are conferred on the Commission they often involve the management of funds. One important area of such management is the recovery of sums owed to the Community or the Member States, in cases of shared management of Community funds, for reasons relating to the regularisation of advance payments or in the wake of errors, formal or substantial irregularities or - more rarely - fraud.
2. Sums owed of this nature accounted, as at 30 June 2002, for a total of just over EUR 3.5 bn, relating to agricultural expenditure, Structural Fund payments and a number of other headings. At the same date, the amounts outstanding were in the region of EUR 2.3 bn for the EAGGF (Guarantee), 387 m for the Structural Funds, and 337 m in areas under direct management.
3. The bulk of the sums owed thus concern shared management, and it is on this dimension that the present report will concentrate. It is also necessary to clarify our definitions and basic concepts, which are all too often lacking in clarity despite the importance of having sound theoretical definitions.
4. According to the Commission, the recovery of sums owing to the Community generally has a success rate of 80-90% . The issue is, however, complex and can give rise to misunderstandings, given that the term ‘recovery’, in its accounting sense, can have four different senses, i.e.:
- recovery of sums unduly paid by the Member States to agricultural organisations or bodies participating in structural actions, in the wake of diverse errors arising from negligence or, occasionally, deliberate in nature;
- recovery of fines imposed by the Commission on organisations or Member States;
- recovery of own resources from the Member States, under the normal procedure for recovery of sums due;
- recovery of sums from beneficiaries of Community funding where the contract or subsidy agreement has not been respected.
5. The white paper on the administrative reform of the Commission tackled the subject of recovery via its Action 96 concerning ‘better management of unduly paid funds’. In its communication of December 2002, COM(2002)671, the Commission replied to the requests of Parliament, the Council and the Court of Auditors for detailed information on the progress made regarding Action 96 of the white paper on reform concerning ‘better management of unduly paid funds’. This document presented a progress report on the state of affairs since 2000 regarding the recovery of funds paid in the framework of both direct and shared management of Community expenditure and needing to be recovered in the context of the regularisation of advance payments or in the wake of errors, irregularities, or, in some cases, fraud.
6. In its special report No 3/2004, concerning the recovery of irregular payments under the common agricultural policy, the Court of Auditors stated that since 1971 the total of irregular payments notified stood at EUR 3.1 bn, of which 75% was still ‘pending’.
7. This report of the Court of Auditors was highly critical over the situation as regards recovery, pinpointing, in particular, the ‘incomplete and inconstant’ quality of information about irregular payments, the ‘low rate of recovery’, the lack of any clear principles to underpin the Commission’s decisions, the ‘poor quality of information provided by Member States’, ‘significant errors in the data recorded’, and, finally, the failure to clearly delimit responsibilities within the Commission.
II - Accounting and the Financial Regulation
8. In general terms, the new accounting method in use since mid-January 2005 is intended to achieve greater transparency and to ensure that transactions are recorded as soon as they take place, that is, at the exact moment of the financial action (‘accrual accounting’), and not as in the past, where what was recorded was what was received; this should make it possible to determine whether there are more sums to be recovered and how the funds are used between the moment of legal commitment and that of payment.
9. It also appears legitimate to ask by what means it is possible to ensure the more systematic control of financial actions; if one is to act in advance, the issue of the Commission’s increased responsibility arises. Furthermore, now that this new accounting method has been in place for a year, we need to ask whether the rules governing it need to be improved.
10. Your rapporteur wishes to stress that the lack of clarity as regards amounts and responsibilities in respect of sums owed starts out from, precisely, the level of the regulation laying down the implementing rules for the Financial Regulation, in respect of two key points.
11. Article 2 of the Financial Regulation states:
‘Any provision concerning the implementation of the revenue and expenditure of the budget, contained in another legislative act, must comply with the budgetary principles set out in Title II’.
12. Further, Article 5(1) (in Chapter 1, ‘Principles of unity and of budget accuracy’) states:
‘No revenue shall be collected and no expenditure effected unless booked to a line in the budget’.
Article 5 includes an initial reservation within its text, which refers to Article 74. That article states: ‘Revenue received by way of fines, periodic penalty payments and other penalties and any accrued interest shall not be finally recorded as budgetary revenue as long as the decisions imposing them may be annulled by the Court of Justice’.
However, the implementing rules for Article 5 state exactly the contrary of what is affirmed in Articles 2 and 5:
13. ‘Pre-financing within the meaning of Article 105 shall remain the property of the Communities, unless the basic act, within the meaning of Article 49(1) of the Financial Regulation, provides otherwise.’
14. The system of ‘accrual accounting’, as the term indicates, is based, precisely, on the concept of accrual. That concept, however, is at no moment clearly defined in the Financial Regulation, and is, indeed, undermined by this provision of the implementing rules.
15. Article 81 of the Financial Regulation epitomises the Regulation’s ambiguity as regards property - a question which is obviously central to an accounting system which is based on ‘accrual accounting’ and recognises the existence of ‘pre-financing’, ‘interim payments’ and ‘payment of the balance’, but without clarifying the property situation of those various accounting movements and referring the issue back to the accounts as such (paragraph 2).
16. It follows that the great majority of expenditure of expenditure under the Community budget is not clearly defined as being a part or otherwise of the Community’s end-of-year assets, and that - an even more serious problem - the final decision on the matter is taken by reference to certain sectoral ‘basic acts’.
17. The reality is that the provisions of the implementing rules which confer their powers on the basic acts are ignored, and the question of the definition in terms of accrual of Community funds will now be governed by Commission regulations.
18. One may easily imagine the impact of this lack of clarity on the fundamental concepts of a system of ‘accrual accounting’.
19. The question of whether interest should be applied to ‘pre-financing’ and ‘interim payments’ thus ceases to have a clear, universal or objective answer, and the same happens to the status of sums owed arising from incorrect use of each payment type.
20. The Financial Regulation stipulates, albeit in the context of a somewhat cumbersome procedure, in its Article 72 (the same point is made in Article 78(3)(f) of the implementing rules), that the recovery of sums owed may, in the absence of voluntary reimbursement by the debtor, be secured by judicial means or via an enforcement order obtained pursuant to Article 256 of the EC Treaty.[1]
21. According to that Treaty article, Commission decisions entailing a financial obligation on a person other than a Member State shall constitute an enforcement order in the Member States, and may, therefore, give rise to enforcement measures (seizures) under the same conditions as a judgment delivered by that Member State.
22. However, even if this procedure has been used to date only in exceptional circumstances, essentially for the recovery of fines imposed in competition cases, the Commission intends, pursuant to the Financial Regulation, to extend its scope considerably in future.
23. The decisions which may be enforced under Article 256 of the Treaty are the following: decisions of the Commission fining companies under competition law, pursuant to Articles 81 to 83 of the EC Treaty; Commission decisions cancelling a Community recruitment competition; and decisions to recover entailing a pecuniary obligation and adopted by the Commission under Article 256 of the EC Treaty. Also enforceable are judgments of the European Court of Justice and the Court of First Instance, pursuant to Article 244 of the EC Treaty[2].
24. The procedure currently followed by the Commission, which is institutional in nature, is as follows: in the absence of voluntary payment, the permanent representation of the Member State concerned is asked to serve the enforcement order via the appropriate national authority. The decision, together with the enforcement order, is then forwarded to the Commission by the same route.
25. This is a very complicated procedure which takes about six months on average, while some dossiers can take years. Recovery of the sum owed cannot then be enforced, and in the best of cases will be delayed, to the detriment of the Communities’ financial interests. Article 256 meanwhile makes it clear that the only controls that the Member State may carry out are those concerning ‘verification of the authenticity of the decision’.
26. It should be recalled here that the Commission may adopt its decisions by oral procedure, written procedure, mandating of a Commissioner or delegation to a Director-General (Article 13 of its internal rules).
27. Communications between the Commission and the Member States in this area need to be simplified. It would be desirable to set up direct links between the Commission’s services and the relevant national service.
28. In order not to delay recovery - which could become impossible if, for instance, the debtor filed for bankruptcy in the meantime - one may suppose that the enforcement order should in future be served within a reasonable time from the Commission’s first request. Once the deadline had passed, the Commission would initiate the proceedings for failure to act: this procedure should remain exceptional given that the creation of direct links between the Commission’s services and the national services will ensure that the great majority of problems are dealt with upstream. The Member States should also supply the contact details of the national service responsible for serving execution orders.
The proposal for the amendment of the Financial Regulation of 2002
29. Every three years, in accordance with its Article 184, the Financial Regulation is revised. On the subject of recovery, the Commission has put forward three proposals which deserve to be studied.
- The first proposal is that privileged status should be applied to sums owed to the Community by analogy with fiscal indebtedness to the Member States. This would mean that the Institutions would no longer be sidelined when debtors file for bankruptcy. There is a certain logic to such an analogy: this is the case with sums owing to the ECSC, in respect of the ECSC levy on the coal and steel industry, and for the Community budget it should be recalled that it is financed from own resources, which are largely national and, therefore, fiscal in nature.
- The second proposal is that there should be a five-year time-bar on the recovery of sums owed to the Community. This limit could be extended in cases where active steps are being taken to secure recovery. As things stand, there is no general time-limit of a ‘Community’ nature (such a limit exists in certain sectoral regulations e.g. those concerning the Staff Regulations: 5 years, the regulation on the protection of the communities’ financial interests: 4 years). However, there is interference with the national legislation, where the contract refers to national law or where the judge is a national one applying his own law as the law of procedure. This could give rise to total chaos in those Member States where institutions’ right to collect debts is time-barred (after 3 or 10 years), or where, quite simply, no information is given on whether the deadline has lapsed until the case comes before the judge. Nor is it clear whether after the period has elapsed it is possible to accept compensation or spontaneous payment by the debtor. In brief, this proposal would introduce legal certainty for both the institutions and the debtors.
- The third proposal is that sums owed to the Community should be considered equivalent to civil debts on the basis of the instruments adopted in the area of judicial cooperation in the civil sphere. In this field, immense progress has been made with a view to facilitating the recovery procedures for crossborder debts: there are Community regulations which now make it possible to know which court is competent and how a judgment of that court can be executed in another Member State.
III - Funds irregularly received and public health
30. On 30 March 2006 in Bled (Slovenia), anti-fraud investigators, veterinarians and public health experts from different EU Member States debated the measures to be taken, in a seminar organised by the Slovenian customs authorities and OLAF, with a view to combating illegal trading in agricultural products and the potential health risks to the consumer. As the director of OLAF recalled, fraud in trade in agricultural products is a risk to human and animal health, and it appears necessary to make the national and international control services more aware of the problem: only close international cooperation can ensure the best possible protection of the consumer and of the Union’s financial interests.
31. The seminar examined the legal and scientific aspects of the illegal trade. A number of examples of the practices concerned were analysed, and the importance was pointed up of developing closer cooperation between national customs services, veterinary services and EU bodies such as OLAF. The experts recalled the well-known case of the dismantling in 2000 of a Franco-Italian-Belgian network, with ramifications in Germany, which had produced and manufactured 21 000 tonnes of adulterated butter containing beef suet and fats intended for the cosmetics industry.
32. Fortunately, that affair did not have health repercussions, but much needs to be learnt from it.
The case of the adulterated butter
a) Apparently there was no real possibility of influencing developments as regards the judgment or the recovery from the Member State concerned.
b) the budgetary and financial data are not very explicit, and it would be more helpful to know the exact sums involved. However, it would be extremely difficult to obtain and calculate them, since it is the paying bodies that themselves receive files - normally of an exhaustive nature - from the interested parties. In addition, in this affair the incriminated sum, EUR 35 m (or 51 m) can only be broken down by regulation. A dichotomy has also been noted in the case between the size of the sums claimed in France and the much lower ones claimed in Germany (EUR 84 000). One may also legitimately ask whether this arises under the Treaty, when the measures concerned are 100% of a Community nature and are governed by Community regulations.
33. This affair of the adulterated butter came to light, it should be recalled, following a criminal investigation. The public prosecutor had asked whether it might not have public health implications, and the Commission’s services made an on-the-spot visit. Two questions were raised, related to invoicing and to sealed products.
34. The fraud operated at two levels: the butyric fat was replaced by suet and lard (pork fat) at the first stage, while at the second the fraudsters added quantities of fatty acids used to make cosmetics (action by chemical reactions). Butter was obtained by chemical synthesis. When a compositional analysis was carried out, however, this aspect proved extremely difficult to interpret. The operators in the two Member States are aware of the situation and know each other, but this is especially hard to prove, as things stand at present and in terms of establishing good or bad faith.
It should be stressed that the Commission has no powers of control in the area of product analysis.
35. As far as the legal proceedings are concerned, at present all is under seals. Thus, in, for instance, one of the Member States concerned there is no intervention from either the fraud investigation office or the veterinary services. Legal confidentiality is also an obstacle in France, Italy and Belgium. Only in Belgium has a study of the products been carried out, but this went no further than stating that ‘the products did not contain certain substances’: what they did contain was not specified.
36. Only the Member States may carry out health checks: in a country such as France, even if the AFSA or the Directorate-General for Administration respond to a request, in reality they can do nothing if the matter is already before the courts. This is not the case in, for example, the UK.
37. At the meetings of the various Standing Committees the Commission has drawn the attention of the Member States to the situation, but has never had a response, nor have there been any repercussions at the DG for Health and Consumer Affairs.
38. It is known that fatty acids were produced in another of the Member States under investigation; one may, indeed, ask whether the lard used might have come from BSE-infected cattle.
39. However, for the moment there is nothing to prove that the lard was a health risk. In addition, cosmetic products are in no sense intended as food products.
40. The initial fraud concerned not health but the composition of products eligible for Community subsidies. The fraudsters’ underlying idea was to obtain the highest possible amount in refunds, given that the biggest sums payable are for butter. Consequently, it was a matter for the Commission’s DG Agriculture.
41. It also has to be asked what safeguards there can be that the Member States, through their parapublic bodies, actually carry out the checks in sufficient numbers.
42. In general terms, fraud is likeliest in the sectors where refunds are highest. One has to ask under what circumstances butter is butter. Once a definition has been made and criteria are established, the control bodies need to remain, or to become, extremely efficient, while at the same time the issue arises of the inspectors’ real degree of independence.
Suggestions
43. Where a fraud may, at a given moment, have health repercussions, the relevant health services should be informed and should have access, under a properly organised procedure, to samples. They should be involved in one way or another in the analysis of the adulterated products and the possible health risks. There already exist a support framework and tools for action, in the form of Regulation No 178 (2002), but a catalyst is still needed to put them into action. It also appears that there is no obligation to provide and circulate information in relation to the Commission and the Member States.
44. The creation of the office of European Public Prosecutor will be a decision of major importance, since it will facilitate direct access to the national public prosecutor’s offices, thus working in the interests of a more ‘joined-up’ procedure. This should help reduce complexity, since the result should be a convergence on the European prosecutor’s: while OLAF enjoys powers of intervention in the context of its inquiries, it does not enjoy judicial powers.
IV. Legal practices and obstacles in the Member States
45. In the context of OLAF’s activities, it is important to distinguish between controls and inquiries, on the one hand, and administrative and criminal inquiries on the other (e.g. in cases of adulterated food products).
46. In the legal systems of some Member States, such as France, Germany and Belgium, the criminal law has precedence over the civil law. Consequently, as things stand, in the adulterated butter case the recovery of the irregular payments has been suspended and all the documentation has been retained (confiscated, one might say) by the legal authorities.
47. By contrast, in the UK it is possible to carry out recovery even if there is a criminal action under way. In a country such as Belgium, however, the case has been dragging on since 1999 - in other words, for seven years - thanks to a number of reasons, among them the time required to translate an investigation dossier of several thousand pages and the fact that the judge has been changed.
48. It should be recalled that, while the Commission is in possession of the aggregate data, it is the ministers who furnish the details: in agriculture, 98% of the funds granted are managed by the agencies and payment bodies of the Member States. When one tries to determine the exact figures, the national judge typically claims not to know. OLAF’s services have written to the national services asking them for as much detail as possible: they have been told in reply that this information cannot be divulged, on grounds of judicial confidentiality. A total of EUR 51 m is thus being blocked by the legal proceedings in France: we are in a situation in which, although OLAF wished to apply the penal law to the case, the Union’s financial interests are being subordinated to a to-and-fro game.
49. All in all, OLAF is not in possession of appropriate information on the amounts involved as regards the incriminated products, while applying the penal law to the inquiries has proved disastrous for recovery. It is true that in legal terms OLAF could contest a national decision on behalf of the Commission: but it has never yet done so.
50. It may also be stressed that expenditure is a matter for the relevant agencies in the Member States. OLAF may ask one of those payment agencies to take out proceedings as a civil party: here, indeed, under the Financial Regulation the Commission is not responsible for expenditure. Should the judge throw the case out, the national agency will have to be persuaded to complain or to lodge an appeal (in Germany, however, this appears not to be possible).
Other obstacles:
51. Both the composition of the incriminated products and the trafficking in them as a whole have been organised in an extremely cunning fashion that militates against technical detection. We are dealing with true professional, and some of the companies concerned are still receiving EU aid:
- None of the analyses carried out to date has established the proportion of pollutants present in the products concerned: only with a binary analysis will it be possible to divide the product analyses into two categories, and even so there is no evidence that this would necessarily help much;
- Regarding export refunds, the operator is not obliged to keep samples. For butter used for baking purposes, the samples only have to be kept for four years. It is clear that the samples need to be kept longer. Here, though, some claim - in some cases justifiably - that samples become unstable after a while. In Germany, the law dictates that the samples be subsequently destroyed.
52. As to why the sums involved should be so low in Germany, it has been replied that this Member State only recognises irregularity or fraud in the case of individually proven amounts, i.e. lot by lot. In the absence of a lot, the operator is deemed innocent, and this circumstance is, inevitably, exploited by lawyers in other Member States.
53. Notification of irregularities (under Regulation No 595/91) is considered the slow route, since no deadline applies (see Articles 3 and 5 of Regulation 595/91) to irregularities or fraud. On grounds of individual protection, a Member State may refuse to give the operator’s name. It is therefore now proposed to revise Regulation 595/91 in order to make it obligatory to hand over the necessary personal information.
54. Clearance of accounts: by this route, OLAF could demonstrate by what means each Member States ‘protects’ the Union’s financial interests: this may be called the fast track, and if the point of reference is Regulation 1258/99 it appears correct to apply a maximum time-limit of two years for the clearance of the accounts from expenditure to audit.
55. At present, a case lasts, on average, eight years from the opening of proceedings, and, in case of appeal, a further three years. One can thus easily reach a total of 11-12 years. Member States systematically prefer to go to the Court of Justice in order to contest clearances. In addition, especially in long-drawn-out cases, the benefits of the preventive approach can often go by the board, as the operator has time enough to disappear, perhaps after arranging bankruptcy.
56. It should scarcely be necessary to add that the EU is paying a heavy price for not having created the European Public Prosecutor’s office which would have been introduced under the Constitution. The result is a blockage of cases and an inequality of treatment, to the fraudsters’ benefit.
57. Originally there would have been two kinds of blacklist, but Regulation 1469/95 is being highly incorrectly applied by the Member States. The principle is that a Member State informs the Commission, which in its turn informs the rest of abusive practices, etc. Such action should involve a sum of at least EUR 100 000 and should concern export refunds or market support (intervention purchases or aid for marketing, as in the case of butter for bakery purposes).
58. The blacklist issue is a question that deserves posing, but here too there is a Member State which says it cannot agree, given the risk of its citizens going before the national Constitutional Court in order to determine whether the authorities have replied and supplied the information requested and, therefore, whether they themselves have been personally exposed.
59. Under Regulation 515/97, the Member States national customs authorities inform the Commission, which in its turn notifies the other Member States. Here, the Commission sends the details on its own initiative. This procedure could be taken into account with a view to drawing up a blacklist.
60. The Commission is, of course, dependent on the information which it has to enter a given operator on the list of suspect operators.
61. However, there will be a new regulation (1290/2005) in force from 16 October 2006, governing the new financial provisions concerning the CAP, including the management of financial irregularities under the EAGF (the guidance section henceforth falling under the Structural Funds) and the EAFRD (European Agricultural Regional Development Fund).
62. The main elements of the existing system will be retained, notably the possibility of paying up to 20% of the actually recovered sums owed to the Community as a flat-rate reimbursement of the costs of recovery. There are also innovations, such as shared-interest status (as between the Member State and the Commission) for the losses faced where recovery cannot be carried out within a maximum of four years (where the procedures are purely administrative) or eight years (where the irregularity is the object of legal proceedings).
63. Your rapporteur nonetheless fears that the new regulatory set-up may conceal a desire to impose an ‘automatic solution’ for the problem of non-recovered sums, without ensuring that the money irregularly advanced is returned to the Community’s coffers.
64. The existence of such a regulation could lead to the disappearance of almost all the sums owing to the Community in the wake of the adulterated butter affair and the irregularities identified in 1993 - as of 2003 and, at the latest, 2007 - without the fraudsters being punished or the European taxpayer being reimbursed for the improperly advanced sums.
65. In view of the regulation’s lack of clarity vis-à-vis its consistency with the basic budgetary principles of Article 268 of the Treaty and Articles 2 and 17 of the Financial Regulation, your rapporteur believes that the following points must be stressed:
(1) given that Article 268 of the Treaty calls for all Community expenditure to be entered in the budget and that Articles 2 and 17 of the Financial Regulation prohibit the compression of expenditure and revenue, the maximum flat-rate ‘retention’ of 20% referred to in Article 32(2) of Regulation 1290/2005 should be considered an advance and should not be an obstacle to entry in the budget on the usual basis as Community payment;
(2) the flat-rate character of the reimbursement of recovery costs should be taken as referring to the reimbursement of the individual costs of each recovery, but should under no circumstances lead to it being supposed that the Community expenditure concerned should be exempt from justification and control on the same basis as any other expenditure.
66. In other words, the regulation should lay down the arrangements for control in respect of this item of Community expenditure, whether for the year concerned or for the programming period.
67. It may of course be asked whether a Member State may justifiably be asked to pay half of the disappeared sums, especially in view of the risk of disturbing situations, with certain Member States risking having to reimburse the irregularly sums while the cases are before their courts.
Direct expenditure managed by the Commission
68. The EWS (European Watching System) is a centralised database controlled by DG BUDG and supplied with data by the other DGs: the amendment of the Financial Regulation now under way will enable the authorising officer of each institution or agency to undertake on-line research, thus facilitating the flow of information. Until now, everyone was working in a closed circuit.
69. From OLAF’s point of view, as things stand the anti-fraud legislation appears to be sufficient.
Conclusions
70. Some proposals for improvement:
- ‘Accrual accounting’ makes it obligatory to undertake a major clarification of the accrual status of each sum at each moment; this clarification should be a priority in the forthcoming revision of the Financial Regulation and its implementing rules, with a view to ensuring respect for the fundamental budgetary principles;
- A proper definition of the accrual status of the sums concerned will lead to a sound understanding of the responsibilities of all agents concerned (administrative bodies at European, national, regional, local or other level);
- There is a lack of the necessary cooperation between Community and national levels, compounded by highly disparate situations as regards the recovery of funds and responsibilities concerning discharge as between the Member States;
- For the national agencies, there is a problem of competence and responsibility right across the chain: who are the payment authorities and who are the audit authorities in the Member States?
- There is a confusion between functions (project evaluation, payment, auditing, administrative judgment and penalisation, and recovery of funds by a single body - which may even have bank status, as in the case of the agricultural structural payments agency in Portugal). This tends to legitimate non-transparency, jeopardise the rights of Europe’s citizens and taxpayers, and provoke the type of grave dysfunctioning which we have observed;
- The fact that these payment authorities, according to the Commission’s interpretation under Regulation 595/91, are not even expected to have to communicate the amounts of the interest payments and penalties actually paid under the appropriate headings - when they could have been entered in the Community budget under Article 268 of the Treaty and Articles 2 and 17 of the Financial Regulation - is unacceptable;
- The establishment of a European Public Prosecutor’s office - or, if this proves politically impossible, of an equivalent arrangement - is a sine qua non for the application of Article 280 of the Treaty, which is still a dead letter as far as the recovery of Community monies is concerned, as the case of the adulterated butter has shown.
- Instructs its President to forward this resolution to the Council, the Commission, the European Court of Justice, the European Court of Auditors, the OLAF Surveillance Committee and OLAF.
- [1] ‘Decisions of the Council or of the Commission which impose a pecuniary obligation on persons other than States, shall be enforceable.
Enforcement shall be governed by the rules of civil procedure in force in the State in the territory of which it is carried out. The order for its enforcement shall be appended to the decision, without other formality than verification of the authenticity of the decision, by the national authority which the government of each Member State shall designate for this purpose and shall make known to the Commission and to the Court of Justice.
When these formalities have been completed on application by the party concerned, the latter may proceed to enforcement in accordance with the national law, by bringing the matter directly before the competent authority.
Enforcement may be suspended only by a decision of the Court of Justice. However, the courts of the country concerned shall have jurisdiction over complaints that enforcement is being carried out in an irregular manner.’ - [2] Judgments of the Court of Justice are enforceable under the conditions laid down in Article 256.
PROCEDURE
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Title |
The recovery of Community funds |
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Procedure number |
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Committee responsible |
CONT |
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Committee(s) asked for opinion(s) |
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Not delivering opinion(s) |
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Enhanced cooperation |
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Rapporteur(s) |
Paulo Casaca |
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Previous rapporteur(s) |
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Discussed in committee |
3.5.2006 |
13.7.2006 |
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Date adopted |
13.9.2006 |
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Result of final vote |
+ - 0 |
18 0 0 |
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Members present for the final vote |
Antonio de Blasio, Herbert Bösch, Paulo Casaca, Petr Duchoň, Szabolcs Fazakas, Ingeborg Gräßle, Jan Mulder, José Javier Pomés Ruiz, Bart Staes, Margarita Starkevičiūtė, Jeffrey Titford, Kyösti Virrankoski |
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Substitute(s) present for the final vote |
Jens-Peter Bonde, Robert Goebbels, Christopher Heaton-Harris, Ashley Mote, Bill Newton Dunn, Ralf Walter |
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Substitute(s) under Rule 178(2) present for the final vote |
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Date tabled |
22.9.2006 |
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Comments |
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