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Committee of Independent Experts
First report on allegations regarding fraud, mismanagement
and nepotism in the European Commission
15 March 1999

· Introduction · Tourism · MED Programmes · ECHO · Leonardo da Vinci · Security Office ·
· Nuclear Safety · Allegations of Favouritism · Concluding Remarks · Annexes ·


2.0. Introduction
2.1. Legal framework and budget allocations
2.2. Organisational structure
2.3. Chronology of events and detection of irregularities
2.4. Disciplinary measures
- The case against the Head of Unit
- The case against the temporary staff member
2.5. Euroconseil
2.7. The problems encountered by the Commission
2.8. The management of the crisis
2.9. Conclusions

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2.0.1. The tourism file is the oldest of the files which calls the Commission's actions into question. It began in 1989 with the launch of the European Year of Tourism (EYT). In 1999, 76 bodies or individuals were the subject of criminal proceedings in the Member States or of additional inquiries within the Commission. This file gave rise to severe criticisms of the Commission's management by the European Parliament and the Court of Auditors as well in a number of press reports.

2.0.2. Because of the number of proceedings involved, the Committee of Independent Experts has given detailed consideration to three specific matters which have not been dealt with in sufficient depth or with the appropriate care: disciplinary measures and the contracts with Euroconseil and IPK.

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2.1. Legal framework and budget allocations

2.1.1. In the wake of the resolutions adopted by the European Parliament and the Council in 1983 and 1984 on a Community tourism policy, then of the European Parliament resolution of 22 January 1988 on the promotion and financing of tourism, the Commission proposed to the Council an action programme designed to highlight the economic significance of tourism in the Community and to integrate tourism policy more closely into other Community policies.

2.1.2. On 21 December 1988, the Council designated 1990 as European Year of Tourism (Council Decision 89/46/EEC). That decision laid down that the Commission, in consultation with a Steering Committee, would take the measures required for the implementation of the action programme, with particular regard to the coordination of private and public tourism organisations in the Member States. For their part, the Member States would be responsible for pre-selecting the projects and monitoring their implementation. They were also required to report to the Commission.

2.1.3. Article 3 of the Council Decision provided for a budget of ECU 5 million for the organisation of the European Year of Tourism. To that amount was added ECU 0.8 million to cover administrative costs. At the same time, ECU 7.5 million was entered in the budget to fund activities, especially studies, in the tourism sector. Those activities began in 1990 and continued in 1991 and 1992.

2.1.4. On 13 July 1992, the Council adopted a three-year action plan to assist tourism (covering the period from 1 January 1993 to 31 December 1995) (Council Decision 92/421/EEC) which entrusted the Commission with the implementation thereof and its coordination with the various Community policies through the directorates-general concerned. The Commission was to be assisted by a committee consisting of representatives of the Member States and chaired by a representative of the Commission. In the light of the opinion of that committee, it would adopt measures which would apply immediately.

2.1.5. The volume of Community funds required for the implementation of the plan was estimated at ECU 18 million.

2.1.6. This action plan constituted the final decision adopted in this field.

2.1.7. Other Community policies, covering, for example, the social sector, the environment, transport, the trans-European networks, research, training and education, cooperation and cultural activities, were endowed with budgets designed to finance projects having an impact on tourism.

2.1.8. In all, according to the Court of Auditors' Special Report No 3/96, apart from the appropriations allocated to EYT, the budgetary authority granted:

- ECU 15.9 million for actions to assist tourism from 1989 to 1992
- ECU 1.750 million to promote Europe as a holiday destination in third countries
- ECU 21.7 million from 1993 to 1995 for the plan of action to assist tourism

i.e. a total of ECU 39.350 million.

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2.2. Organisational structure

2.2.1. From 1988 to 1995, the Commissioners with special responsibility for tourism were:

- from 1989 to January 1993: Mr Cardoso e Cunha
- from January 1993 to January 1995: Mr Vanni d'Archirafi
- since January 1995: Mr Papoutsis.

2.2.2. With regard to both direct actions and the coordination of indirect actions, responsibility for implementation of tourism policy lay with DG XXIII - Directorate A: Action to assist enterprises and improve the business environment.

2.2.3. Within Directorate A, a unit was set up with specific responsibility for the implementation of Community tourism policy. According to the Establishment Plan in force in June 1990, that unit had the following staff: 1 A3, 2 A7-A4, 1 B and 1 C, i.e. five officials, five auxiliary staff members (three A category and 2 C category), three detached national experts and one member of staff recruited from an employment agency. In order to offset the impact of a lack of staff in the unit, the firm Euroconseil was selected after a call for tenders to take responsibility for the technical management of European Year of Tourism from May 1989 to October 1990.

2.2.4. The authorising officers responsible for the commitment of expenditure were the Director-General and the Director of Directorate A, the other directors and the assistant to the Director-General being authorised to sign payment orders. Day-to-day management of the appropriations, i.e. the preparation of commitments of expenditure and payment orders, the checking of invoices, etc., was carried out by a B category official from the Tourism Unit and by a unit headed by an official in the same category under the direct responsibility of the Director-General. In practice, the assistants to the Director and to the Director-General were closely involved in the management of the appropriations allocated to tourism policy.

2.2.5. The Steering Committee provided for in the Council's resolution was set up and met from March 1989 to February 1991. Local committees, which were not provided for but were deemed to be essential to the success of EYT, were also set up in each Member State. In actual fact, decisions were taken bilaterally, with the Steering Committee being simply informed thereof.

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2.3. Chronology of events and detection of irregularities

2.3.1. In order to carry out the tasks entrusted to the Commission by the Council, DG XXIII issued:

- calls for tenders which, except for the consultancy contracts with Euroconseil, generally related to contracts for studies, with particular regard to statistics. Like all calls for tender, they were subject to the financial provisions applicable, i.e. the Financial Regulation, its implementing provisions and the Commission's internal rules, the contracts being subject, in accordance with their nature and amount, to strict rules for tendering with a view to ensuring the transparency of the operations, equal treatment for bidders and sound financial management. Selections were made by the authorising officer and the managing services, after consultation of the ACPC and subject to the approval of the Financial Controller. However, the Court of Auditors' report submitted in September 1992 refers to serious irregularities and unjustified payments, not least in connection with actions subject to strict procedures (see the Euroconseil file);

- calls for proposals for specific actions subsidised from the Community budget. This procedure is not covered by any rules and concerns subsidies.. It enables interested associations and individuals to apply for a subsidy and obliges the authorising officer's staff to compare requests with each other.

2.3.2. In fact, DG XXIII above all granted ad hoc subsidies to projects put forward, unsolicited, by the recipients of the subsidies and which were not covered by a call for proposals. This instrument was used on a massive scale for EYT and involved half the projects for the period 1991-1992, then a quarter for the action plan.

2.3.3. However, according to the Court of Auditors' Special Report No 3/96, in the context of the action plan the selection procedure carried out on the basis of a call for tenders and a call for proposals opened in 1994 suffered from technical problems, with particular regard to the registration of bids, while the procedure introduced in 1995, although an improvement on its predecessors, was not able to guarantee equal treatment of bidders on a regular basis.

2.3.4. At the same time, the Head of the Tourism Unit, as the Court of First Instance confirmed in the judgment it handed down on 19 March 1998 in Case T-74/94, knowingly and persistently engaged in unauthorised outside activities which completely negated guarantees of his independence and were such as to give rise to serious conflicts of interest in the performance of his duties ... seriously neglected his duty, as senior official called upon, within the institution, to perform important managerial duties in a specific, sensitive, sector, to act responsibly, independently and with integrity and ... by deliberately and continuously failing to inform the Commission of the real nature of his activities and the links which he had formed with companies operating in the sector covered by his own duties within the Commission, committed a serious breach of his duty of loyalty to the institution and furthermore, in so doing, infringed Article 12 of the Staff Regulations of Officials. Those breaches caused serious damage to the image, reputation and interests of the Commission (paragraph 178 of the judgment).

2.3.5. In other words, the Head of the Tourism Unit was engaging in unauthorised external activities in his sphere of responsibility, giving rise to embezzlement, corruption and favouritism.

2.3.6. Another grade A4 temporary staff member in the Tourism Unit, a former detached national expert, was involved in one of the national committees responsible for identifying projects eligible to receive Community funding, a process for which he himself was responsible at Community level. Furthermore, according to the audit carried out by the Commission in July 1998, another detached national expert was also involved in a conflict of interests of the same type during the EYT programme.

The warning signals

2.3.7. Since 1989, three written questions, subsequently withdrawn, have been tabled by a Member of the European Parliament on the management of EYT and the selection of Euroconseil and certain aspects of the contract.

2.3.8. On 9 April 1990, the European Parliament expressed its concern at the management of the project and possible irregularities relating to activities undertaken under EYT and called on the Court of Auditors to deliver an opinion.

2.3.9. In June 1992, the Chairman of the European Committee on Tourism wrote to the Commission to complain about the Head of the Tourism Unit, who was alleged to have favoured the selection of an extremely dubious firm called Demeter. After consulting the Head of the Unit, the Director-General and the Director concerned in DG XXIII took the view that the approach was designed to discredit a competitor and decided to disregard the letter.

2.3.10. On 30 September 1992, the Court of Auditors' report requested by the European Parliament identified irregularities in the procedures followed for the award of contracts and their implementation, the granting of subsidies and the use thereof, failure to respect the budgetary and accounting rules and, in general terms, criticised the financial management of the European Year of Tourism as a whole. Furthermore, the report noted the inadequacy of the Financial Controller's checks from the point of view of both the commitment of expenditure and the disbursement of payments.

2.3.11. Those signals should have alerted not only the Commissioner and the Director-General responsible, but also, where appropriate, the Commission as a body as to the management of tourism policy. Nothing of the sort. It was not until the second half of 1993 that DG IX revealed the existence of serious problems in the Tourism Unit.

Internal inquiries within the institution and referral to the courts

2.3.12. In March and April 1993, DG XXIII carried out an internal inquiry and, in July, asked for assistance from DG XX - Financial Control. From mid-1993 onwards, the internal inquiry was extended to cover all of DG XXIII. It resulted in the identification of irregularities which had occurred since 1989 that were likely to give rise to recovery orders and to the risk of fraud. After discussion with the Secretariat-General and DG IX - Personnel and Administration) the appointing authority decided to transfer the Head of Unit in the interests of the service with effect from 15 March 1994.

2.3.13. The file was forwarded on 8 July 1994 to the Commission's coordination unit for the prevention of fraud (UCLAF) which, given the nature of the presumed irregularities (fraud and corruption), immediately started investigating the matter with a view to possible legal proceedings. UCLAF joined some of the audit missions carried out in the Member States by DG XX.

2.3.14. In December 1994, on the basis of that information, the Commission referred the matter to the French and Belgian courts in order to have a preliminary inquiry started in France and judicial investigations opened in Belgium, where appropriate. In February 1995, a Member of the European Parliament lodged a complaint with the Belgian judicial authorities, and in March 1995, the Greek judicial authorities were asked to start preliminary inquiries.


2.3.15. On 22 June 1995, the Director-General of DG IX, acting in his capacity as appointing authority, dismissed the Head of Unit without reduction or abolition of pension rights in accordance with the opinion of the Disciplinary Board adopted unanimously on 23 May 1995. On 28 July 1995, he terminated the contract of the temporary staff member with effect from 1 August 1995, departing from the unanimous opinion of the Disciplinary Board of 30 June 1995 recommending that the authority entitled to conclude recruitment contracts punish the person involved by ordering a relegation in step.

Further inquiries at an internal level and in the Member States, and information from the audit bodies

2.3.16. In February and November 1995, with a view to furthering their inquiries, the Belgian judicial authorities requested waiver of immunity in respect of certain officials and Commission authorisation to interrogate others. After carrying out the standard verification procedure, the Commission granted their request for waiver of immunity and lifting of the professional security requirement.

2.3.17. In April 1996, pursuant to Article 6 of Council Decision 92/421/EEC, the Commission submitted to Parliament a report drawn up by an outside firm on the evaluation of the Community action plan to assist tourism (1993-1995). That report gave a critical analysis of the decisions taken and the guidelines followed, but noted, nevertheless, that a number of projects had been successfully implemented.

2.3.18. In June 1996, the Belgian judicial authorities requested waiver of immunity in respect of the Director-General of DG XXIII, the Director responsible for tourism policy and a member of their staff. DG IX requested additional justification, and the Commission as a body replied on 12 September that it was not in a position to approve that request. According to the Commission, the reasons put forward by the Belgian Public Prosecutor were insufficient, and the internal inquiries had not revealed any reasons why waiver of immunity should be granted. On 16 October 1996, the Commission, acting in its capacity as appointing authority, applied Article 50 of the Staff Regulations of Officials (retirement in the interests of the service) to the Director-General of DG XXIII. That decision took effect on 1 December 1996.

2.3.19. In November 1996, the Court of Auditors submitted its Special Report No 3/96 on tourism policy and the promotion of tourism. In December 1996, the new Director-General of DG XXIII set up a task force involving DG XX, DG XXIII and UCLAF with the aim of reviewing all the issues relating to tourism.

2.3.20. In June 1997, the Commission acted as private party supporting the Public Prosecutor in legal proceedings against the Head of Unit, and in November 1997, the Belgian authorities renewed their request for waiver of immunity in respect of the Director-General, the Director and a member of their staff. The Commission approved their request on 13 November.

2.3.21. In 1998, DG XX resumed the inquiries it had begun in 1993; on the basis of the De Luca and Wemheuer reports, the European Parliament adopted two critical resolutions (A4-0040/98 and A4-0049/98) on the follow-up measures taken by the Commission in the tourism sector and on its attitude to the presumed cases of fraud and irregularities.

2.3.22. On 14 July 1998, the task force set up by DG XXIII published an audit of the past management of tourism policy, addressed to the European Parliament and the Court of Auditors, which showed that 236 cases of undue payment had been identified and 193 recovery orders issued for a total of ECU 3.1 million. Another 24 recovery orders representing a total of ECU 1.3 million were being drawn up; the remainder - amounting to ECU 0.4 million - constituted various cases requiring further investigation or relating to a situation where the recipient no longer existed (associations, etc.). Finally, 61 recipient had repaid ECU 0.56 million. As regards the period 1990-1995, the task force audit estimated excess payments at ECU 4.5 million out of ECU 31.4 million concerning 718 actions entered on the expenditure side. In most cases, excess payments resulted from fraudulent activities. In 1998, the actions concerned 76 bodies or individuals who, in some cases, were facing legal proceedings in the Member States, the others requiring further investigation.

2.3.23. The number of cases being queried demonstrates, after the event, the extent of the irregularities and the risks of fraud.

2.3.24. Investigations are still being conducted by the judicial authorities of the Member States.

2.3.25. At the end of this chronology of events, reference should be made to the passivity of the committees set up by the Council Decisions of 21 December 1988 and 13 July 1991. Those committees, consisting of representatives of the Member States and chaired by the representative of the Commission, were supposed to be consulted by the Commission on the implementation of the action programmes in the tourism sector. Within the context of EYT, the committee was informed of the decisions taken by DG XXIII in conjunction with the local committees. It was not consulted in advance. As for the committee set up under the 1993-1995 action plan, its role is never referred to.

2.3.26. The same comment applies to the Member States which, as part of EYT, were responsible for identifying the projects and monitoring their implementation, with the requirement that they should report to the Commission. However, the Member States failed to identify a large number of irregularities and instances of fraud subsequently brought to light by the Commission.

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2.4. Disciplinary measures

2.4.1. The irregularities noted in the management of the tourism-related projects concerned errors of administrative, budgetary and financial management as well as instances of fraud and misuse of Community funds. The investigations concluded that, within the Commission, the Head of Unit and his temporary staff member were largely responsible for the instances of fraud and misuse of Community funds.

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The case against the Head of Unit

2.4.2. Unbeknownst to the appointing authority, and while he was in charge of the Tourism Unit, the Head of Unit retained an interest in several companies, either directly as a manager or by transferring his shares to close relatives (his partner or her mother) or by accommodating companies at his place of residence. The companies involved were Immoflo, Lex Group, Groupe Dynamique (Greece) and Groupe Dynamique (Belgium), two of which participated in Community programmes and received subsidies as a result.

2.4.3. The Head of Unit also made significant ineligible payments to 01-Pliroforiki, granted subsidies exceeding the Commission's obligations in extremely dubious - not to say extraordinary - conditions of legal and financial certainty to Demeter and Etoa, granted unsubstantiated subsidies, artificially inflated the subsidy budget for WES with a view to funding a subcontractor that he had appointed himself, without any services being provided in return, granted subsidies to contractors claiming false status or using false identities, and amended the budget for the subsidy granted despite the failure of Wainfield Consultants to complete the project, etc.

2.4.4. It was during the second half of 1993 that DG XX uncovered problems in the management of the Tourism Unit. Early in 1994, a press report pointing the finger of suspicion at the Head of Unit, which had appeared in Greece in July 1993, was brought to the attention of his superiors.

2.4.5. On 15 March 1994, the Head of Unit was transferred in the interests of the service.

2.4.6. Subsequently, disciplinary proceedings were instituted against him. The timetable of those proceedings was as follows:

12 July 1994:Notification to the official concerned that disciplinary proceedings were being instituted against him
20 July 1994:Hearing
3 August 1994:Suspension from duty on half-pay
4 December 1994:Restoration of full salary but maintenance of the suspension, since no decision had been taken in his case
8 December 1994:Further hearing
22 December 1994:Referral to the Disciplinary Board
9 March 1995:Disciplinary Board suspended its proceedings so that light could be shed on the workings of the tourism sector
14 March 1995:Official heard for a third time with a view to clarifying his links with a number of companies, links of which the appointing authority became aware only at the end of February
5 April 1995:Forwarding by the appointing authority to the Disciplinary Board of an additional report
23 May 1995:Opinion of the Disciplinary Board delivered unanimously recommending dismissal without forfeiture of pension rights
1 June 1995:Opinion notified to the official concerned
12 June 1995:Final hearing by the appointing authority
22 June 1995:Decision of the appointing authority to deem proven all the accusations it had referred to the Disciplinary Board and to dismiss the person concerned without withdrawal in whole or part of entitlement to retirement pension The official concerned was notified of that decision on 23 June 1995
1 August 1995:Date on which the decision to dismiss the official took effect

2.4.7. This case gives rise to two problems:

2.4.8. Roughly two years elapsed between the discovery of the instances of fraud by DG XX and the date when the official concerned was dismissed. Four months elapsed between the official's transfer and the appointing authority's decision to institute disciplinary proceedings, and five months between the first hearing and the referral of the case to the Disciplinary Board.

2.4.9. As regards the Disciplinary Board, it failed to comply with the time-limits laid down in Article 7 of Annex IX to the Staff Regulations of Officials: it delivered its opinion not at the end of March 1995, as it should have done, but only two months later, on 23 May 1995.

2.4.10. The Director-General of Personnel, as the appointing authority, did comply with the time-limits laid down in the Staff Regulations of Officials, but the disciplinary procedure proper lasted one year. Finally, it would have been possible for the decision to dismiss the official, notified on 23 June 1995, to take effect on that date, or at the latest on 1 July 1995, instead of being deferred to 1 August 1995, although the official concerned had been suspended from his duties for a year.

2.4.11. The tardiness of the procedure may be explained, firstly, by the complexity of the matter and the need to undertake an investigation and, secondly, by the cautious approach which the Community institutions are required to take in disciplinary matters in order to avoid the Court of First Instance overturning their decisions. Nevertheless, the Disciplinary Board should have stepped up the pace of its activities, and the appointing authority need not have waited for more than a month before imposing the penalty.

2.4.12. Given the seriousness of the accusations made against the official concerned, the Director-General of DG IV, as the appointing authority, could have:

- ignored the opinion of the Disciplinary Board and dismissed the Head of Unit, withdrawing his pension rights in full, or

- brought into play his liability under Article 22 of the Staff Regulations of Officials, pursuant to which an official may be required to make good, in whole or in part, any damage suffered by the Communities as a result of serious misconduct on his part in the course of or in connection with the performance of his duties.

2.4.13. During his hearing by the Committee of Experts the Secretary-General of the Commission explained that

- the Commissioner with special responsibility for personnel, and the Commissioners in charge of the DG in which the officials concerned were employed, had been consulted on the penalties imposed before the appointing authority had adopted the relevant decision;

- the need to give very clear grounds for any decision to depart from the penalty proposed by the Disciplinary Board led the appointing authority to follow that opinion and not to impose a heavier penalty.

The Committee takes the view that that argument is not pertinent.

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The case against the temporary staff member

2.4.14. The accusations made against this member of staff are similar to those levelled against his Head of Unit, but narrower in scope.

2.4.15. At issue are unauthorised outside activities in the tourism sector likely to damage the Community's activities, accepting airline tickets for his partner from a body with which he was working and whose documentation he was appraising for the Commission, thereby calling into question his independence and impartiality.

2.4.16. The timetable of the disciplinary proceedings is as follows:

29 June 1994:Notification to the person concerned that disciplinary proceedings were to be opened against him and preliminary hearing
7 July 1994:Decision to suspend the person concerned on half-pay
8 November 1994:Restoration of fully salary but maintenance of the suspension
29-30 November and 6 December 1994:Hearings
25 January 1995:Referral to the Disciplinary Board
30 June 1995:Opinion of the Disciplinary Board, notified to the appointing authority on 12 July, recommending relegation in step (A4 step 4 to A4 step 1)
28 July 1995:Decision of the appointing authority to ignore the opinion of the Disciplinary Board and to terminate the temporary contract of the person concerned
1 August 1995:Date on which the decision took effect

2.4.17. The appointing authority took seven months, from the date of the hearing of the temporary staff member, to refer the matter to the Disciplinary Board, which then took five months to deliver an opinion. Unlike in the previous case, the appointing authority chose to depart from the opinion and increased the penalty with immediate effect.

2.4.18. On his departure, the temporary staff member received a sum of BEF 3 833 807, which breaks down as follows:

- amounted deducted as his contribution to the pension scheme plus the employer's contribution: BEF 1 720 955;
- compensation for termination of contract (Article 47 of the Conditions of Employment of Other Servants): BEF 1 964 838;
- amount in respect of leave not taken: BEF 270 870;

i.e. a total of BEF 3 955 663, from which amount BEF 122 856 was deducted in respect of settlement of remuneration and travel expenses.

2.4.19. The Commission paid its former temporary staff member a total of BEF 1 984 838 which was not due to him. The termination of a fixed-term contract without notice on disciplinary grounds differs from that of the fixed-term contract referred to in Article 47 and gives no grounds for the payment of the compensation for termination of contract. That interpretation was confirmed by the Commission's Legal Service in a note dated 8 July 1998. It would appear that, on the departure of the temporary staff member, DG IX asked for the Legal Service's opinion on this matter and, when it did not receive that opinion, decided that, in the absence of any specific rules precluding a derogation from the application of Article 47, the compensation for termination of contract was due to the person concerned, even in this case.

2.4.20. The temporary staff member should actually have received BEF 1 848 969 instead of BEF  3 833 807.

2.4.21. Consideration in parallel of these two cases - relating to the Head of Unit and to the temporary staff member - demonstrates the slowness of the investigations and of the work of the Disciplinary Board and emphasises the concern shown by the appointing authority towards the Head of Unit, to the extent that it did not depart from the opinion delivered by the Disciplinary Board and delayed the application of the decision, and towards the temporary staff member, to whom it applied the most favourable interpretation possible of the Conditions of Employment of Other Servants, although that interpretation was not compatible with the spirit of those Conditions, by paying him a total of BEF 1 964 838 which was not due to him.

2.4.22. Finally, during his hearing by the Committee of Independent Experts, Commissioner Papoutsis stated that he had not been informed of the penalties imposed on the Head of Unit and the temporary staff member and did not deem it necessary to give his views on those penalties. As for the Secretary-General, he informed the Committee of Experts that a recovery order had been issued with a view to recovering the sums paid unduly to the temporary staff member.

2.4.23. Despite the statements made by Commissioner Papoutsis, the Committee is not convinced that sufficient reorganisation efforts have been made, given the number of irregularities detected.

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2.5. Euroconseil

2.5.1. In 1988, the Commission proposed to the Council an action programme to assist tourism and, with a view to its participation in the development of the projects, especially those connected with EYT, it decided to seek assistance from an outside consultant which would provide it with the services of experts and qualified staff, premises and all the requisite infrastructure. That firm would also keep detailed accounts of the expenditure committed.

2.5.2. The predecessor of the Head of Unit referred to in point 2 drew up the file. The relevant Director in DG XXIII submitted the file to the Contracts Board and concluded the contract, monitoring of which he entrusted to his assistant, under his authority, frequently in conflict with the Head of Unit.

Calls for tenders

2.5.3. Three calls for tender were required before the co-contractor could be selected. The call for tenders, which was not published in the Official Journal despite the recommendations set out in the ACPC's Vademecum in force during that period, was sent to sixty firms. Six submitted bids. According to the report from the authorising officer to the ACPC, 'the tender from Euroconseil showed a clear understanding of the tasks to be undertaken and proposed a well-structured and imaginative approach to the work. They have office space available close to the Commission and can supply highly trained staff with experience in both tourism, management and office equipment at very competitive rates. The cost per day of the ain expert is between ECU 125 and ECU 200 (see Annex 4) which is the lowest quote received. The overall cost of the tender for the 7 months preparation phase in 1989 was ECU 285 833 and for the 12 months execution phase in 1990 was ECU 490 000.'

2.5.4. Because of the amount of the contract, the tender ought to have stipulated that a deposit be lodged, in accordance with Article 56 of the Financial Regulation in force until 1990. Furthermore, the tender specifications had provided for the assessment of the technical and financial capacity of the tenderers. This was not done.

Implementation and renewals of the contract

2.5.5. The first contract, covering the seven months from May to December 1989, complied with the tender specifications. Nevertheless, as from September 1989, the network of correspondents provided for in the Member States was abolished with the agreement of DG XXIII in order to increase the experts' unit rates. ECU 50 000 was paid for this network to the consultant, but the correspondents were not remunerated. In 1990, a new network was set up on the basis of a specific commitment for an amount of ECU 248 000.

2.5.6. Furthermore, no supervision of consultants was carried out (no records of attendance, for example), and, according to the 1992 report of the Court of Auditors, those consultants performed managerial duties incumbent on officials and played an important role in the selection and monitoring of projects.

2.5.7. The renewals of the contract for the period from 15 January 1990 to 15 June 1990, then that from 16 June 1990 to 31 January 1991, did not correspond to the terms of the original bid submitted by Euroconseil:

2.5.8. In so far as they involved substantial changes, the renewals should have been submitted to the ACPC, as provided for in the implementing provisions of the Financial Regulation, all the more so since the contract had been awarded principally on the grounds of the level of the daily rates applied to the experts. The ACPC's opinion would certainly have revealed the conflict of interests constituted by the clause concerning sponsorship.

2.5.9. As from 15 January 1990, the staff of the consultant involved in EYT occupied offices on the premises of the Commission, without paying rent for those offices, a breach of the terms of the tender specifications.

2.5.10. The unjustified payments made to Euroconseil under the terms of these contracts are as follows:

Conflicts of interest

2.5.11. Apart from the clause concerning sponsorship, it appears that the consultant proposed his assistance, in return for payment, to an applicant for Community subsidies when he himself was responsible for registering applications and recommended projects to the Commission with a view to their being adopted. He also proposed to a supplier of promotional material for EYT that he would pay him royalties for the use of the logo which was the property of the Commission.

2.5.12. Even if Euroconseil received an amount lower than the one set out in the ACPC's opinion, it should be recalled that that contract had been terminated early in October 1990, i.e. three months before it expired, since the company was not longer solvent. If we bear in mind the unjustified payments, the clause relating to sponsorship and the failure to supervise the implementation of the contract, to the extent that neither the firm's staff nor the products were properly monitored, the budget devoted to that company cannot be said to have remained within the authorised limits.

2.5.13. DG XX's audit report dated 18 June 1998 indicates that consideration of the possibility of instituting disciplinary proceedings against the Commission officials who had concluded and implemented the contract with the consultant should be postponed pending receipt of the conclusions of the investigation conducted by the Belgian judicial authorities.

2.5.14. Since this matter did not fall within the remit of the dismissed Head of the Tourism Unit, it is regrettable that a thorough administrative inquiry was not launched immediately with a view to identifying possible instances of fraud and to establishing the responsibility of officials for the irregularities, including those at the upper level of the hierarchy (Director and Director-General) in respect of whom the Commission as a body acts as the appointing authority.

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2.6.1. When the budget for the financial year 1992 was finally adopted, the European Parliament decided that an amount of at least ECU 530 000 would be used to support the establishment of an information network on ecological tourism projects in Europe.

2.6.2. On 26 February 1992, DG XXIII published in the Official Journal a call for proposals with a view to supporting projects in the field of tourism and the environment.

2.6.3. On 22 April 1992, IPK submitted a project for the creation of a database on ecological tourism in Europe (ECODATA). IPK, which would be responsible for the coordination of the work, proposed to cooperate with three partners: a French company, Innovence, an Italian company, Topconsult, and a Greek company, 01-Pliroforiki. There was no information in the proposal as to how the tasks would be allocated among the various companies

2.6.4. On 4 August 1992, DG XXIII granted ECU 530 000 to IPK as aid for the ECODATA project.

2.6.5. On 23 September 1992, IPK signed the relevant declaration.

2.6.6. In November 1992, the Head of the Tourism Unit invited IPK and one of its subcontractors, 01-Pliroforiki, to attend a meeting where, according to the testimony given by IPK to the Court of First Instance and not challenged by the Commission, the Head of Unit proposed that the bulk of the work and most of the subsidy be awarded to 01-Pliroforiki (paragraph 9 of the judgment).

2.6.7. At a further meeting held on 19 February 1993, IPK was asked to accept the participation in the project of SFT, a German company, which had not been referred to in the proposal for the project drawn up by IPK, since that company was active in an ecological tourism project known as ECOTRANS.

2.6.8. In paragraph 47 of the judgment it handed down on 15 October 1997 the CFI states the following: 'Even though the applicant has provided some evidence that one or more officials of the Commission did interfere in the project between November 1992 and February 1993 ...'.

2.6.9. On 12 March 1993, in a note to his Director-General, the Head of Unit pointed out that SFT had not put forward proposals in connection with the call for tenders concerning ECODATA, that the Commission did not have the right to impose its participation on an external partner, that SFT had received subsidies from the Commission in the past, that DG XXIII could not continue to subsidise the same persons indefinitely and that SFT had gone too far in exerting pressure on the Commission. He stated that, since he had been unable to convince his Director-General, and in accordance with the latter's instructions, he had orally requested IPK to include SFT in its project. According to allegations, SFT formed a powerful lobby in Germany in order to convince DG XXIII to pay over to it a majority of the Community funds or, should it fail in that aim, to cancel the project and the contract.

2.6.10. The Head of Unit included in his file on the irregularities committed by certain officials three documents (71-72-73) backing up his accusations.

2.6.11. IPK submitted an initial report in April 1993, followed by a second in July 1993 and a final report in October 1993. IPK also invited the Commission to attend a presentation of the work already completed, which took place on 15 November 1993.

2.6.12. By letter of 30 November 1993 the Commission informed IPK that the report on the ECODATA project showed that the work carried out in the period to 31 October 1993 did not properly correspond to that envisaged in the proposal of 22 April 1992 and that it could therefore not pay the remaining 40% of the contract. IPK expressed its disagreement by letter of 28 December 1993, whilst continuing to develop the project and present it to the public.

2.6.13. On 15 March 1994, the Head of Unit was transferred in the interests of the service.

2.6.14. On 29 April 1994, a meeting was held between IPK and DG XXIII and on 3 August 1994, that DG informed the firm that no payment would be made in respect of the project. Following that decision, IPK brought an action before the Court of First Instance (Case T-331/94), an action which was rejected and is now the subject of an appeal.

2.6.15. Following the judgment handed down by the CFI on 15 October 1997, the director responsible for tourism policy wrote to suggest that the financial audit of the ECODATA project should be completed promptly. He pointed out that the sums to be recovered should be determined and drew attention to the fact that, when it carried out an audit on 24 September 1993, DG XX had noted that there were supporting documents to justify a Community contribution of only ECU 76 303, whereas ECU 300 018 had been paid over at the beginning of 1993. By letter of 10 November 1997 the same director referred the matter to UCLAF, asking for its views as to whether fraud had been committed in the IPK case.

2.6.16. The Commission's general audit of tourism measures, submitted on 14 July 1998, mentions the ECODATA affair only in connection with the judgment handed down by the Court of First Instance.

2.6.17. In connection with this case, the Committee regards it as regrettable that an administrative inquiry failed to determine the source and nature of any pressure exerted on IPK to accept SFT as a partner or 01-Pliroforiki as a virtually exclusive partner or to establish whether IPK's refusal to accept SFT prompted the decision by DG XXIII to withhold the payment of the balance of the financial assistance.

Accordingly, the responsibilities of each of the officials concerned, and in particular those of the Director-General, could not be determined, most notably as regards the pressure which may have been exerted on IPK.

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2.7. The problems encountered by the Commission

Staff problems

2.7.1. The Commission proposed to the Council of Ministers the implementation of projects in which it intended to play an active role (for example EYT) without having the human resources needed to organise them.

2.7.2. The following staff problems were noted:

Numerically inadequate staff resources and differences in status among staff

2.7.3. Responsibility for managing Community tourism policy, i.e. firstly EYT and then the action plans, was entrusted to 11 persons subject to the Staff Regulations, one person recruited from an employment agency and an external consultancy. Most of these staff members could not be awarded contracts for periods longer than one year, renewable twice, unless they were appointed to a temporary post. In principle, the detached national experts and the consultants assist the institution in its work by providing expertise in a specific area, but responsibility for administrative and financial management rests not with them, but rather with officials. However, despite the differences in status which should have led their superiors to define and hierarchise the responsibilities of each category of staff, tasks such as the selection or supervision of projects, or even the preparation of answers to written questions by MEPs, were carried out by staff who were not officials or by the external consultancy.

Questionable appointments and postings

2.7.4. Persons appointed to a post at the level of a head of unit (A3), a director (A2) or a director-general (A1) must display the highest degree of competence, efficiency and integrity. In the case in point, the Head of the Tourism Unit clearly showed that he did not meet these criteria. For their part, the Director and the Director-General failed to exercise correctly their responsibilities as superiors and as authorising officers.

2.7.5. The Committee of Experts wonders about the institution's ability to appoint or promote the best candidates and to earmark the 'right' person for the 'right' post. The appointment and posting of officials in grades A1 and A2 is the responsibility of the College of Commissioners.

Failure by officials to observe the requirement that they should be independent

2.7.6. The obligation to work completely independently and solely in the interests of the Community, the unifying force which should bind staff together, failed to act as a counterweight to the various forms of interference and the patronage which may result. That patronage gives those who accept it a feeling of impunity.

Instances of administrative negligence

2.7.7. The shortage of human resources and inconsistencies in their management were likely to produce management weaknesses and errors culminating in conflicts of interest and fraudulent operations.

2.7.8. Successive reports highlight serious administrative shortcomings: incomplete files, belated notifications, inefficient registration of mail, vague invitations to tender and to submit proposals, inadequate and 'arranged' monitoring and assessment of projects, failure to carry out checks, etc.

2.7.9. The tourism file also raises the problem of the award of ad hoc subsidies falling outside the scope of tendering arrangements which entail advertising, the comparison of proposals with a view to ensuring equal treatment of tenderers and checks by the relevant control bodies. As the Court of Auditors has pointed out, ad hoc subsidies constitute a high-risk procedure for the institution, because, even if they are awarded with the requisite degree of rigour and impartiality, they make mounting a defence against criticism difficult.

2.7.10. This also raises the issue of the granting of approval, in that all the irregular operations were given the green light by the internal control bodies, and even approval after the event in some cases. Finally, attention should be drawn to the problems DG XX - Financial Control - faces in auditing a sector when it has previously approved each of that sector's operations.

The role of the EYT Steering Committee

2.7.11. The EYT Steering Committee, comprising representatives of the Member States and chaired by the Commission, played a passive role. It agreed to be informed of the decisions taken by DG XXIII in conjunction with the national committees, even though the rules stipulated that it should be consulted in advance. Likewise, the Steering Committee for the implementation of the 1993-1995 plan does not seem to have played a significant role.

Failings on the part of the Member States

2.7.12. All or some of the Member States, which were responsible for supervising and implementing the project, disregarded the requirement to report to the Commission in the context of EYT.

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2.8. The management of the crisis

The discovery and punishment of the irregularities

2.8.1. The Commission was slow in checking whether the accusations levelled against the Tourism Unit and its Head were well founded and in bringing the irregularities and instances of fraud to light. These checks were not only belated, but also incomplete, in that administrative inquiries were not conducted sufficiently quickly, and above all exhaustively, in connection with the Euroconseil and IPK cases. Moreover, the tourism file was only belatedly entrusted to UCLAF, in July 1994, and the IPK case was referred to it again in 1997.

Not all the blame for the slowness of the disciplinary proceedings rests with the Commission. It is also due in large part to the concern to protect the decisions taken against the criticisms which would be made by the CFI should an action be brought. However, due emphasis should be given to the inadequate and tardy nature of the penalty imposed on the Head of Unit and the failings on the part of the administrative departments (DG IX), which led the institution to pay BEF 2 000 000 too much to a temporary member of staff.

2.8.2. The criticism which can be levelled against the College of Commissioners, and, in particular, the Commissioner responsible, is that of having protected the senior hierarchy by not ensuring that the inquiries were taken to their conclusion, given that members of that hierarchy might be involved, and of having waited several months before agreeing to the request from the Belgian authorities to waive the immunity of A2 and A1 officials. The institution resolved the problem involving the Tourism Unit by imposing disciplinary penalties on two persons and applying Article 50 of the Staff Regulations (retirement in the interests of the service) to the Director-General concerned.

2.8.3. The failure to bring into play at any time the financial liability, pursuant to the Financial Regulation and Article 22 of the Staff Regulations, of the officials involved in these irregularities can also be criticised.

Forwarding of the file to the judicial authorities and notification of the supervisory authorities

2.8.4. Once the evidence of fraud and irregularities had been gathered, the Commission referred the matter to the judicial authorities, since problems involving those authorities in the Member States are not its responsibility. By that stage, the Court of Auditors and the European Parliament had already intervened.

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2.9. Conclusions

2.9.1. As regards the responsibilities of the College of Commissioners as a whole or individual Commissioners, whether the current College and the current Commissioners are concerned or those in office when the events took place:

(i) to have proposed to the Council, in 1988, the implementation of projects actively involving the Commission's departments without having the requisite human resources. Given that the tourism sector has to deal with an exceptionally large number of undertakings and issues, in an area where the intangible nature of the services to be provided makes the management of contracts extremely difficult, the feasibility of a policy of distributing Community subsidies in this sector should have been examined more closely.

(ii) to have failed, between April 1990 and July 1993, to take any action despite the serious warning signals constituted by the European Parliament's misgivings and the Court of Auditors' report of 30 September 1992.

(iii) to have accepted, in June 1995, that the appointing authority, i.e. the Director-General of DG IX - Personnel and Administration - failed to increase the penalty proposed by the Disciplinary Board (Commissioners responsible for personnel and tourism - Mr Liikanen and Mr Papoutsis respectively).

(iv) to have been slow, between September 1996 and November 1997, in agreeing to waive the immunity of the Director-General, the Director and a member of their staff and to have applied, in October 1996, Article 50 to a Director-General who had failed to exercise his responsibilities as a superior and an authorising officer and, possibly, exerted pressure on a firm in order to advance the claims of another firm.

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