Category Archives: Protecting the European Union’s financial interests

The European Union (EU) has its own budget to finance Europe’s policies. The revenue side is made up of customs duties, value added tax and a share of the gross national income of EU countries. The Union’s financial interests are protected not only by OLAF, but by a battery of anti-fraud regulations.

Overall strategic approach

Overall strategic approach

Outline of the Community (European Union) legislation about Overall strategic approach

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Overall strategic approach

Document or Iniciative

Commission communication of 28 June 2000 – Protection of the Communities’ financial interests – The fight against fraud – For an overall strategic approach [COM (2000) 358 final – Not published in the Official Journal].

Summary

Given that the protection of the Community budget is the responsibility of the European institutions and the Member States, the Commission’s aim in this communication is to develop an overall strategic approach based on coordination, the key concept of Article 280 of the EC Treaty, with a view to affording effective and equivalent protection of financial interests Community-wide.

Since 1994, the Community approach to the fight against fraud has been pro-active and designed to develop a legislative framework covering all areas of protection of financial interests. This framework includes:

  • the convention on the protection of the European Communities’ financial interests (1995) and its Protocols of 1996 and 1997;
  • the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union (1997);
  • the Regulation relating to the protection of the European Communities’ financial interests (1995) and the Regulation concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities’ financial interests against fraud and other irregularities (1996);
  • the establishment of the European Anti-Fraud Office (OLAF) in 1999.

In addition, the Commission, in response to its White Paper on reform, has decentralised the financial control function, set up an internal audit service and established working groups involving OLAF and all Commission departments.

Enlargement, the area of freedom, security and justice referred to in the Treaty of Amsterdam and the gradual abolition of national borders call for an overall and integrated approach based on a strengthened culture of cooperation.

Strategic guidelines

As part of this overall approach, the Commission is proposing a multiannual strategy around four main strategic guidelines to meet the principal challenges.

The first of these relates to an overall legislative anti-fraud policy in four parts:

  • prevention by means of clear and easily applicable legislation and including sufficiently dissuasive provisions. The Commission also hopes to increase the accountability of officials and is proposing that OLAF, the national authorities and professional circles be involved in prevention;
  • 0detection by strengthening the means and legal instruments for detection, controls and sanctions. The Commission therefore recommends continuing the effort to define precisely irregular conduct and illegal activities with a view to facilitating cooperation and the effective application of penalties. At the same time, it advocates extending information exchanges and control measures, in particular in connected or especially vulnerable sectors such as money laundering, public procurement and the granting of subsidies. This is to be backed up by an extended system of administrative penalties;
  • follow-up by ensuring more effective management of administrative and financial follow-up in order inter alia to improve the recovery of unduly received or evaded amounts. The financial correction instruments at the Community’s disposal should also be applied with the aim of motivating Member States to put in place effective national control systems;
  • cooperation in order to establish a single legal basis for combating fraud with a view to simplifying and clarifying the rules on participation in national investigations. Provision also needs to be made for a cooperation and mutual assistance system to fight fraud that is similar to that which already exists in certain areas such as the agricultural and customs policies, while cooperation with applicant countries and non-member countries needs to be strengthened.

The second challenge is to create a new culture of operational cooperation. The Commission is attempting to become more pro-active in its activities on the ground. This involves having an overall view of the economic and criminal environment and enhancing the exploitation and analysis of intelligence. For that purpose, technology and the information sources available must be improved and, in particular, OLAF must serve as a crossroads for gathering and analysing information and as a Community platform of services. Strengthened cooperation with the applicant countries is mentioned again. Lastly, the Commission undertakes to pursue a policy of permanent evaluation of anti-fraud action in order to measure the progress made.

The third challenge is to adopt an inter-institutional approach to prevent and combat corruption. The credibility of Community policies must be strengthened by safeguarding the integrity of the European public service and of the members of the institutions. OLAF must:

  • cooperate closely on the basis of loyal cooperation and consistency of the duties of each of the participants in the fight against fraud;
  • contribute more to training measures focusing on training and awareness-raising activities involving all staff, in particular those responsible for procurement or grants and providing a system of values;
  • encourage transparency and the duty to communicate;
  • complement its task of conducting administrative investigations with fair and effective penalties. Office action will have to be geared to the objective of “zero tolerance” and compliance with information obligations will be crucial for its effectiveness.

The fourth and last challenge is to enhance the criminal judicial dimension. National criminal policies should be adapted to the new Treaty provisions and assistance sought from the European institutions to improve the cooperation function. The Community already possesses the legal instruments to improve the detection of offences and provide the national judicial authorities with the means to process cases of fraud under criminal law. However, they are often not used because of obstacles such as the non-compatibility of national legal systems or technical specifications.

Lastly, in order to resolve problems arising from the various national systems regarding criminal offences linked to fraud, the conditions under which judicial assistance operates must be improved. OLAF must therefore develop its liaison and expertise function in this area.

Related Acts

Commission report to the European Parliament and the Council of 6 July 2007 – Protection of the European Communities’ financial interests – Fight against fraud – Annual report 2006 [COM(2007) 390 final – Not published in the Official Journal].
This report, which has been produced by the Commission in cooperation with the Member States, presents the measures taken in 2006 to meet the obligations provided for in Article 280 of the EC Treaty. It contains statistics concerning irregularities reported by Member States and gives an account of the measures taken and results obtained in preventing and fighting fraud and in recovering amounts not collected or wrongly paid. In particular, the report covers four specific areas: risk analysis and management; debarment and early-warning databases; warning systems involving internal informers; and mechanisms for recovery by offsetting.

Commission report to the European Parliament and the Council of 12 July 2006 – Protection of the Communities’ financial interests – Fight against fraud – Annual report 2005 [COM(2006) 378 final – Not published in the Official Journal].
In this report the European Commission evaluates its overall strategic approach for the protection of the Communities’ financial interests in the five years 2001-2005. Overall, implementation of the programmed objectives and actions was satisfactory. The report summarises the statistics on fraud and other irregularities notified by the Member States and records the measures taken by the Member States in 2005 and the Commission’s efforts to improve the effectiveness of OLAF. It also contains a section on improving the recovery of amounts not levied or wrongly paid out. The report also covers the issue of certifying the accounts.

Commission report to the European Parliament and the Council of 19 July 2005 – Protection of the European Communities’ financial interests – Fight against fraud – Annual report 2004 [COM(2005) 323 final/2 – Not published in the Official Journal].
This report presents the activities of the European Community and its Member States in combating fraud. To make the report easier to read, Community and national measures are now set out in parallel by topic (rather than in two separate parts). The report covers the salient features of the year’s activities, such as enlargement of the EU and the reform of OLAF. It sums up the statistical situation regarding irregularities reported and the position as regards public information on the fight against fraud. Part of the report is devoted to mutual assistance in customs and agricultural matters. And the Commission presents measures to improve the recovery of sums not collected or paid unduly.

Action Plan 2004-2005

Action Plan 2004-2005

Outline of the Community (European Union) legislation about Action Plan 2004-2005

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These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Action Plan 2004-2005

Document or Iniciative

Communication from the Commission of 9 August 2004 on Protecting the Communities’ financial interests – Fight against fraud – Action Plan for 2004-2005 [COM(2004) 544 final – Not published in the Official Journal].

Summary

The 2004-2005 action plan corresponds to the second stage of implementation of the overall strategic approach adopted in June 2000. It testifies to the Commission’s ongoing commitment to the fight against fraud and constitutes one of its responses to the new challenges linked to the development of the Union in 2004 and 2005.

The action plan draws its legitimacy from Article 280 EC introduced by the Amsterdam Treaty. On that basis, on 15 May 2001 the Commission adopted a first action plan that saw a highly satisfactory rate of implementation.

Over the period 2001-2003, the legal framework for protecting the Community’s financial interests and fighting fraud and all other illegal activities adversely affecting those interests was supplemented in order to enable effective action to be taken in the fields of fraud prevention and fraud-proofing of legislation, protecting the euro, making public procurement procedures more secure and setting up coordination structures in the ten new Member States and the candidate countries. Cooperation between the relevant administrations was enhanced, thanks in particular to the capacity for analysis of fraud and irregularities and the magistrates unit set up within the European Anti-Fraud Office (OLAF); such cooperation is assessed each year in the report provided for by Article 280 of the EC Treaty. In addition to various measures to prevent and counter corruption, the Commission performed an evaluation of OLAF’s activities and put forward seventeen recommendations for reinforcing its structure and operations, while the Court of Justice confirmed on several occasions the legality and consistency of the inter-institutional framework for internal investigations. The criminal-law protection of the Community’s financial interests was strengthened with the entry into force in October 2002 of the first Convention instruments for the fight against fraud. Major steps were also taken towards setting up a European Public Prosecutor’s Office, and the objective was written into the constitutional treaty.

The new action plan follows the four main lines of action laid down in 2000 for the ensuing five years:

  • an overall anti-fraud legislative policy: making regulations more effective and consistent;
  • a new culture of cooperation: full participation of and collaboration between national and Community authorities;
  • an inter-institutional approach to preventing and fighting corruption: making the European institutions more credible;
  • strengthening the criminal-law dimension: adapting the legal and judicial framework for the protection of the financial interests of the European Union.

It also takes into account the new guidelines set out in the progress report on the activities of OLAF and the measures announced in the State of the Union Address delivered by the Commission President before the European Parliament on 18 November 2003.

In the context of an overall anti-fraud legislative policy, the action plan provides for the development of a culture of prevention and the tightening-up of legal texts through the following measures:

  • defining OLAF’s objectives and reinforcing its legal framework in order to consolidate its structure;
  • stepping up cooperation with the Member States, with special reference to money laundering and VAT fraud;
  • assessing the black list mechanism in the EAGGF Guarantee Section;
  • definitively setting up the European Technical and Scientific Centre (ETSC) for protecting the euro against counterfeiting;
  • continuing and adapting the Pericles programme.

Still within the same context, the aim is also to strengthen means of detection, controls and sanctions. To that end, the Commission plans to:

  • clarify fraud investigation powers at Community level, particularly in the area of direct expenditure;
  • extend the administrative penalty system, in particular to the areas of customs, the Structural Funds, direct expenditure and OLAF investigations;
  • issue technical guidelines to national authorities wishing to supervise the authentification of euro coins in their territory.

Lastly, the plan is aimed at ensuring more effective management of administrative and financial follow-up, and thus provides for the following action:

  • proposing amendments to the Regulation on the financing of the CAP in order to improve the recovery of sums wrongly paid under the EAGGF Guarantee Section;
  • clearing the backlog of cases concerning irregularities reported before 1999.

As part of the second line of approach, which focuses on a new culture of cooperation, the intention is to enhance the use and analysis of information (“intelligence”). The Commission aims to establish better operational cooperation between customs administrations and to simplify the procedure for notifying irregularities in the areas of the Structural Funds, the Cohesion Funds and the EAGGF Guarantee Section.

In addition, to develop a closer partnership with Member States and non-member countries, the Commission plans to:

  • strengthen relations with Member States by updating the Decision establishing the Advisory Committee for the Coordination of Fraud Prevention (COCOLAF);
  • improve information from Member States on the follow-up given to OLAF’s investigations;
  • enhance synergy by drawing up an inventory of the services that the Commission and OLAF can provide to the institutions and Member States and implementing the multidisciplinary service platform;
  • help the new Member States to reinforce their capacity for fighting fraud;
  • reinforce anti-fraud coordination services in candidate countries;
  • conclude negotiations with Switzerland on the fight against fraud;
  • negotiate international agreements on mutual assistance in customs matters with non-member countries;
  • include anti-counterfeiting clauses in cooperation and association agreements.

Rounding off this second line of approach, the Commission will evaluate anti-fraud measures on an ongoing basis through an inventory of new measures at Community and Member State level.

The third line of action, an inter-institutional approach to prevent and combat corruption, includes the following measures aimed at developing a culture of cooperation at all levels:

  • examining the usefulness of adopting a memorandum of understanding between OLAF and the Commission and between the Commission and the other institutions;
  • re-examining the memorandum of understanding between OLAF and the Investigation and Disciplinary Office (IDOC);
  • setting up a high-level interdepartmental group to improve transparency and the flow of information between OLAF and other directorates-general.

To improve the legal framework for administrative investigations, the Commission intends to amend certain provisions in the interests of clarity and harmonisation.

The fourth and last line of approach focuses on enhancing the criminal-law judicial dimension. Here, the Commission plans to:

  • draft a White Paper on strengthening the effectiveness of criminal prosecutions by establishing a European Public Prosecutor ;
  • bring out a report on implementation of the Convention on the protection of the European Community’s financial interests by the Member States;
  • conclude a protocol with Europol;
  • draw up with the Member States a practical guide for cooperation with criminal prosecution authorities.

To sum up, the new action plan highlights three top-priority objectives:

  • reinforcing the regulatory framework of May 1999 for OLAF’s activities and competencies;
  • improving the flow of information between the Member States and the Commission;
  • developing the criminal-law protection of the Community’s financial interests with the Member States, following the proposal to create a European Public Prosecutor with competence for protecting the financial interests of the Union.

The measures planned for the period 2004-2005 take into account the findings of the progress report on the activities of OLAF and comprise actions that were not completed in the previous period as well as measures designed to respond to specific needs and reinforce OLAF’s legal framework, in particular in the light of the weaknesses revealed by the Eurostat case.

In the document, the Commission also assesses the overall results of the 2001-2003 action plan, which can be regarded as positive.

 

A common legal framework for combating fraud in Community policies

A common legal framework for combating fraud in Community policies

Outline of the Community (European Union) legislation about A common legal framework for combating fraud in Community policies

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Fight against fraud > Protecting the European Union’s financial interests

A common legal framework for combating fraud in Community policies

Document or Iniciative

Council Regulation (EC, EURATOM) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests.

Summary

This regulation establishes provisions to combat fraud against the financial interests of the European Communities. It provides for homogenous checks in all Member States and administrative measures and penalties concerning irregularities with regard to Community law.

Irregularity: an economic operator prejudices the Community budget

“Irregularity” means any infringement of a provision of Community law resulting from an act or omission by an economic operator that has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.

Economic operators are considered to be natural or legal persons and other entities on which national law confers legal capacity and to whom penalties are applied when they commit an irregularity. Penalties can also apply to those who have been involved in an irregularity, as well as those who are under a duty to take responsibility for or to ensure the non-commission of an irregularity.

Establishing a set of legal rules for all areas covered by Community policies

More than half of Community expenditure is paid to beneficiaries via Member States. This decentralised administration and monitoring of the use of the expenditure are governed by detailed rules that are subject to specific provisions depending on the Community policy concerned. This regulation establishes a set of legal rules for all areas covered by Community policies to protect the financial interests of the European Communities, notably through checks and administrative measures and penalties.

Member States are responsible for taking the necessary measures to ensure the regularity and reality of the transactions involving the Communities’ financial interests. Measures regarding checks must be in proportion to the objectives pursued so as not to entail excessive economic constraints or administrative costs and must take account of Member States’ administrative practices and structures.

The European Commission has responsibility for checking that:

  • administrative practices conform with Community rules;
  • the necessary substantiating documents exist and that they concord with the Communities’ revenue and expenditure;
  • financial transactions are carried out and checked in appropriate circumstances.

In addition, the European Commission may carry out checks and inspections on the spot.

Withdrawal of the wrongly obtained advantage

In general, any irregularity will result in the withdrawal of the wrongly obtained advantage with, where appropriate, interest determined on a flat-rate basis. This may consist of:

  • an obligation to pay or repay the amounts due or wrongly received;
  • the total or partial loss of the security provided in support of the request for an advantage granted or at the time of the receipt of an advance.

Intentional irregularities or irregularities caused by negligence may lead to administrative penalties, such as:

  • payment of an administrative fine;
  • payment of an additional sum, which may not exceed the level strictly necessary to constitute a deterrent;
  • total or partial removal of an advantage granted, even if the operator wrongly benefited from only a part of that advantage, or exclusion from or withdrawal of the advantage for a period subsequent to that of the irregularity;
  • other penalties of a purely economic type provided for by Community law.

General principles

Administrative checks, measures and penalties must be effective, proportionate and dissuasive. They must take account of the nature and seriousness of the irregularity, the advantage granted or received and the degree of responsibility.

An administrative penalty may only be imposed if, prior to the irregularity, a Community act has made provision for it.

The limitation period for proceedings is four years, starting from the date on which the irregularity was committed. For continuous or repeated irregularities, the limitation period runs from the date on which the irregularity ceases. In the case of multiannual programmes, the limitation period runs until the programme is terminated.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Regulation (EC, EURATOM) No 2988/95

26.12.1995

OJ L 312, 23.12.1995

Convention on the protection of the European Communities' financial interests

Convention on the protection of the European Communities’ financial interests

Outline of the Community (European Union) legislation about Convention on the protection of the European Communities’ financial interests

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Fight against fraud > Protecting the European Union’s financial interests

Convention on the protection of the European Communities’ financial interests

Document or Iniciative

Council Act of 26 July 1995 drawing up the Convention on the protection of the European Communities’ financial interests [Official Journal C 316 of 27.11.1995].

Summary

With this act, the Council has drawn up a convention to tackle fraud affecting the financial interests of the European Communities. Under the convention, fraud affecting both expenditure * and revenue * must be punishable by effective, proportionate and dissuasive criminal penalties in every European Union (EU) country.

The convention requires each EU country to take the necessary measures to ensure that the conduct referred to above, as well as participating in, instigating, or attempting such conduct, are punishable by effective, proportionate and dissuasive criminal penalties. In cases of serious fraud, these penalties must include custodial sentences that can give rise to extradition.

Each EU country must also take the necessary measures to allow heads of businesses or any persons having power to take decisions or exercise control within a business to be declared criminally liable, in accordance with the principles defined by its national law, in cases of fraud affecting the European Communities’ financial interests.

Each EU country must take the necessary measures to establish its jurisdiction over the offences it has established in accordance with its obligations under the convention.

If a fraud constitutes a criminal offence and concerns at least two EU countries, those countries must cooperate effectively in the investigation, the prosecution and the enforcement of the penalties imposed by means, for example, of mutual legal assistance, extradition, transfer of proceedings or enforcement of sentences passed in another EU country.

In the event of disputes between EU countries as to the interpretation or application of the convention, the case must first be examined within the Council. If the Council has not found a solution within six months, a party to the dispute may petition the Court of Justice of the European Union. The Court of Justice also has jurisdiction over disputes between EU countries and the Commission.

Background

Adopted under Title VI of the Treaty on European Union (following the entry into force of the Treaty of Lisbon on 1 December 2009, the provisions now fall under Title V of the Treaty on the Functioning of the European Union), the convention and its protocols are aimed at creating a common legal basis for the criminal-law protection of the European Communities’ financial interests.

The convention entered into force on 17 October 2002, along with its first protocol and the protocol on its interpretation by the Court of Justice. The second protocol entered into force on 19 May 2009. The convention and its protocols are open for signing by any country that joins the EU.

Key terms used in the act
  • Expenditure fraud: any act or deliberate omission involving the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities, non-disclosure of information in violation of a specific obligation, with the same effect; the misapplication of such funds for purposes other than those for which they were originally granted.
  • Revenue fraud: any act or deliberate omission involving the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities, non-disclosure of information in violation of a specific obligation, with the same effect; misapplication of a legally obtained benefit, with the same effect.

Related Acts

Council Act of 19 June 1997 drawing up the Second Protocol of the Convention on the protection of the European Communities’ financial interests [Official Journal C 221 of 19.7.1997].
This protocol is aimed at the liability of legal persons, confiscation, money laundering and cooperation between EU countries and the Commission for the purpose of protecting the European Communities’ financial interests and personal data related thereto. This protocol entered into force on 19 May 2009.

Council Act of 29 November 1996 drawing up, on the basis of Article K.3 of the Treaty on European Union, the Protocol on the interpretation, by way of preliminary rulings, by the Court of Justice of the European Communities of the Convention on the protection of the European Communities’ financial interests [Official Journal C 151 of 20.5.1997].
This protocol allows national courts to petition the Court of Justice for preliminary rulings interpreting the Convention on the protection of the European Communities’ financial interests and its Protocols. It entered into force on 17 October 2002.

Council Act of 27 September 1996 drawing up a Protocol to the Convention on the protection of the European Communities’ financial interests [Official Journal C 313 of 23.10.1996].
This protocol focuses on the definition of the concepts of “official” and “active and passive corruption”, as well as on the harmonisation of penalties for corruption offences. An explanatory report to this protocol was adopted on 19 December 1997. The protocol entered into force on 17 October 2002.

Council Decision 2008/40/JHA of 6 December 2007 concerning the accession of Bulgaria and Romania to the Convention, drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests, the Protocol of 27 September 1996, the Protocol of 29 November 1996 and the Second Protocol of 19 June 1997 [Official Journal L 9 of 12.1.2008].
With this decision, Bulgaria and Romania acceded to the convention and its protocols.

Reports

Second Report from the Commission – Implementation of the Convention on the Protection of the European Communities’ financial interests and its protocols [COM(2008) 77 – Not published in the Official Journal].
Following up the first report, drawn up in 2004, the Commission examines the progress made by the 27 EU countries in ratifying and implementing the instruments for protecting the European Communities’ financial interests. The report highlights the problems arising from the frequent delays in ratification and cases of incorrect implementation.

Report from the Commission – Implementation by Member States of the Convention on the Protection of the European Communities’ financial interests and its protocols [COM(2004) 709 – Not published in the Official Journal].
This report focuses on the implementation of the convention and its protocols by the 15 EU countries prior to the enlargement of 1 May 2004. It considers that progress has been made in the criminal-law protection of the European Communities’ financial interests thanks to the national legislation adopted in EU countries, but regrets that none of them have taken all the measures needed to fully comply with the convention. The Commission recommends that the Council invites EU countries to step up their efforts to strengthen national criminal legislation and ratify the second protocol without delay.

On-the-spot checks and inspections on the premises of economic operators

On-the-spot checks and inspections on the premises of economic operators

Outline of the Community (European Union) legislation about On-the-spot checks and inspections on the premises of economic operators

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

On-the-spot checks and inspections on the premises of economic operators

Document or Iniciative

Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to detect fraud and irregularities affecting the European Communities’ financial interests.

Summary

1.The Regulation applies to the on-the-spot checks and inspections carried out by the Commission in order to counter fraud, in particular where there are grounds for suspecting that irregularities * have been committed against the Community budget by economic operators *. The regulation, which establishes additional general provisions to Regulation (EC, Euratom) No 2988/95, applies to all areas of the Community’s activities. It does not affect the Member States’ powers to prosecute criminal infringements under national law.

Carrying out on-the-spot checks and inspections

The European Commission is to carry out on-the-spot checks and inspections on the premises of economic operators:

  • to investigate possible serious or cross-border irregularities or irregularities involving economic operators acting in several Member States;
  • to reinforce on-the-spot checks and inspections in a Member State in order to protect the Community’s financial interests more effectively and ensure an equivalent level of protection within the European Union;
  • at the request of a Member State.

Prior to the on-the-spot checks and inspections the Commission is required to inform the Member State(s) concerned in good time in order to obtain all the assistance required. The on-the-spot checks and inspections are to be prepared and carried out by the Commission in close cooperation with the competent authorities of the Member State concerned. They will be carried out under the authority and responsibility of “Commission inspectors”, i.e. duly authorised officials or other staff, who will comply with the rules of procedure in the Member State concerned.

The economic operators must allow the inspectors access to their premises, land and other places used for business purposes, and means of transport. If an economic operator resists an on-the-spot check or inspection, the Member State concerned will give the Commission’s inspectors such assistance as they need to allow them to discharge their duty. This assistance will be given by the competent authorities of the Member State in compliance with national law.

In the interests of efficiency, the Commission will ensure that similar checks and inspections are not carried out at the same time in relation to the same matters on the premises of the economic operators concerned under sectoral rules. It will take into account inspections that are being or have been carried out by the Member State under national law.

Ensuring access to the necessary information and documentation under national law

Commission inspectors are to have access, in compliance with national criminal procedure law, to all the information on the operations concerned which are required for the proper conduct of the checks and inspections. They may avail themselves of the same inspection facilities as national administrative inspectors and in particular copy relevant documents.

On-the-spot checks and inspections may concern, in particular:

  • business books and documents such as invoices, lists of terms and conditions, pay slips, statements of materials used and work done, and bank statements,
  • computer data;
  • production, packaging and dispatching systems and methods;
  • physical checks as to the nature and quantity of goods or completed operations;
  • the taking and checking of samples;
  • the progress of works and investments for which financing has been provided, and the use made of completed investments;
  • budgetary and accounting documents;
  • the financial and technical implementation of subsidised projects.

Where necessary, it will be for the Member States, at the Commission’s request, to take the appropriate precautionary measures under national law, in particular in order to safeguard evidence.

Information acquired in relation to the on-the-spot checks and inspections is covered by professional secrecy and by the Community provisions on data-protection.

The Commission inspectors’ reports constitute admissible evidence in administrative or judicial proceedings of the Member State in which their use proves necessary.

Key terms used in the act
  • economic operator means: natural or legal person or any other entity on which national law confers legal capacity (Article 7 of Regulation No 2988/95);
  • “irregularity”: any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure (Article 1(2) of Regulation No 2988/95).

References

Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Regulation (EC) No 2185/96. 18.11.1996 OJ L 292 of 15.11.1996

Criminal-law protection of the Community's financial interests

Criminal-law protection of the Community’s financial interests

Outline of the Community (European Union) legislation about Criminal-law protection of the Community’s financial interests

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Criminal-law protection of the Community’s financial interests

Proposal

Proposal for a Directive of the European Parliament and of the Council on the criminal-law protection of the Community’s financial interests [Official Journal C 240 E of 28.08.2001].

Amended proposal for a Directive of the European Parliament and of the Council on the criminal-law protection of the Community’s financial interests [COM(2002) 577 final – Official Journal C 71 E of 25.03.03].

Summary

The Community institutions and the Member States acknowledge the importance of effective protection for the Community’s financial interests. In order to combat fraud and other illegal activities affecting those interests, the Member States signed the Convention of 26 July 1995 on the protection of the European Communities’ financial interests and several additional protocols which provide for measures aimed in particular at aligning national criminal laws. As these instruments have still not been ratified by all the Member States, the Commission has presented a proposal for a Directive on the basis of new Article 280 of the EC Treaty introduced by the Amsterdam Treaty, which incorporates a large proportion of their provisions.

After first defining certain key terms such as Community official, national official and legal person, the proposal requires Member States to make fraud, corruption and money laundering affecting the financial interests of the Community a criminal offence in their national law.

Fraud involving expenditure as well as revenue

Fraud affecting the Community’s financial interests can involve expenditure as well as revenue. Fraud can consist of any intentional act or omission relating to:

  • the use or presentation of false, incorrect or incomplete statements or documents;
  • non-disclosure of information in violation of a specific obligation;
  • the misuse of such funds for purposes other than those for which they were originally granted.

The acts in question must have the effect of reducing the resources of the Community budget or retaining Community funds. Member States may fix the minimum amount in order to define serious fraud. The minimum amount may not, in any event, be more than EUR 50 000.

Active and passive corruption

Passive corruption consists of the deliberate act on the part of an official of requesting or receiving advantages or accepting a promise of such an advantage as inducement to breach their official obligations and carry out or refrain from carrying out an official duty or an act in the course of their official duties in a way that damages or is likely to damage the Community’s financial interests. Active corruption is the deliberate act of promising or giving an advantage of any kind to officials as inducement for them to breach their official obligations and carry out or refrain from carrying out an official duty or an act in the course of their official duties in a way that damages or is likely to damage the Community’s financial interests.

In accordance with the principle of equal treatment, Member States must guarantee that acts of fraud and corruption committed by Community officials are treated in the same way as those committed by their national officials.

Money laundering

Money laundering includes acts committed deliberately in order to:

  • convert or transfer property derived from criminal activity;
  • conceal the source, true nature or location of goods derived from criminal activity as well as the acquisition, possession or use of the above-mentioned property.The deliberate nature of the unlawful conduct must be established on the basis of objective factual circumstances.

Criminal liability and penalties within the Union

Member States are to take the necessary measures to allow persons having power to take decisions or exercise control within a business to be declared criminally liable. They will also have to define the liability of bodies corporate as well as the criminal liability of natural persons committing, instigating or being an accessory to the unlawful act. Member States will have to provide for penalties on bodies corporate such as disqualification from engaging in business activities or placing under judicial supervision.

Member States are to take the necessary measures to impose criminal penalties for the conduct referred to above (fraud, corruption, money laundering) as well as for conduct as an accessory or instigator and, with the exception of corruption, the attempted commission of such acts. In cases of serious fraud, they must provide for custodial sentences. In the case of minor fraud (involving a total of less than 4 000), they may provide for penalties other than criminal penalties.

Member States must take the necessary measures to enable the instruments and proceeds of the unlawful conduct covered by the proposal to be seized in accordance with national law.

Final provisions

The Member States must ensure that the Commission is able to provide all the technical and operational assistance required to facilitate the coordination of investigations undertaken by the relevant national authorities.

Member States will be free to adopt or maintain more stringent provisions in order to provide effective protection for the financial interests of the Community.

References And Procedure

Proposal Official Journal Procedure
COM (2002) 577 Official Journal C 71 E of 25.03.2003 COD/2001/0115
COM (2001) 272 Official Journal C 240 E of 28.08.2001 COD/2001/0115

Action plan 2001 – 2003

Action plan 2001 – 2003

Outline of the Community (European Union) legislation about Action plan 2001 – 2003

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Action plan 2001 – 2003

1) Objective

To lay down the priority measures to be implemented by the Commission departments in the next three years.

2) Community Measures

Protection of the Communities’ financial interests. Fight against fraud. Action plan for 2001-2003.

3) Contents

In June 2000, the Commission presented a Communication on an overall strategic approach for the protection of the Communities’ financial interests and the fight against fraud, which identifies the major challenges to be tackled in the next five years. This action plan proposes to translate the overall strategic approach into a number of specific measures over the next three years.

In order to combat economic and financial crime against the Community budget, the plan outlines four challenges:

  • Developing an overall anti-fraud policy;
  • Fostering a culture of cooperation between all authorities responsible;
  • An inter-institutional approach to preventing and fighting fraud and corruption;
  • Strengthening the criminal law dimension.

A summary table of the measures to be undertaken is attached to the proposal.

Developing an overall anti-fraud policy

The Commission notes that illegal activities affecting the Communities’ financial interests often exploit shortcomings in legislation. Thus, the Commission proposes to:

  • Develop the prevention dimension by analysing the risks and filtering out the highly sensitive cases (such as legislation relating to contracts, public procurement and the protection of the euro against counterfeiting);
  • Boost awareness amongst the most vulnerable categories of staff;
  • Strengthen legal instruments for detecting, controlling and penalising fraud. Administrative cooperation and mutual assistance should lead to more effective prevention of indirect tax fraud, in particular with regard to the EAGGF.

In addition, the Commission does not rule out the possibility of reviewing the provisions relating to on-the-spot checks and inspections, which serve as a basis for OLAF’s involvement in investigations by the Member States.

Strengthening operational cooperation between all competent authorities

5.OLAF is a powerful instrument in the fight against fraud. OLAF can help organise better use of information (operational and legal) and define innovative working methods. OLAF’s aim should be to collect, analyse and make available to the Member States all information of use in the fight against fraud against the Communities’ financial interests.

In addition, the Commission proposes to

  • Redefine COCOLAF’s internal working methods while considering an amendment to Article 280 of the EC Treaty;
  • Use the synergy between the Commission and various external bodies such as : Eurojust, Europol and Interpol;
  • Improve partnership with the Member States in order to fight all forms of transnational crime effectively (tax fraud, money laundering , corruption…) and to organise judicial, cooperation more proactively.

Cooperating at inter-institutional level to prevent and combat fraud and corruption

The Commission emphasises that OLAF’s task, when acting as an internal investigation service, is not to investigate systematically but to process information supplied to it by the members of the institutions as part of their duty to cooperate. Moreover, it recalls that a clear breakdown of tasks will be necessary between OLAF and the future Investigation and Disciplinary Office (IDO) to be set up in the Directorate-General for Personnel and Administration of the European Commission.

Strengthening the criminal judicial dimension

Before the end of 2001, the Commission will relaunch discussion of its proposal in the form of a Green Paper on establishing a European Public Prosecutor with jurisdiction for internal and external investigations relating to the protection of the Communities’ financial interests (the proposal was not taken up at the Nice European Council).

With regard to judicial cooperation in criminal matters, it will be essential to:

  • Simplify judicial assistance procedures and procedures for letters rogatory;
  • Improve judicial coordination by the mutual recognition of judgements. With regard to cooperation between judicial authorities, the Commission notes that negotiations relating to Eurojust are under way within the Council and that a provisional unit for judicial cooperation was set up on 14 December 2000.

On the question of police cooperation, Europol’s mandate has been extended to cover money laundering. The Commission actively supports the extension of Europol’s powers in all domains relating to the fight against organised crime and it envisages strengthened cooperation with OLAF with regard to the protection of the Communities’ financial interests.

4) Deadline For Implementation Of The Legislation In The Member States

Not applicable

5) Date Of Entry Into Force (If Different From Previous Date)

Not applicable

6) References

COM(2001) 254 final
Not published in the Official Journal

7) Follow-Up Work

8) Commission Implementing Measures

 

Fraud proofing of legislation and of the management of contracts

Fraud proofing of legislation and of the management of contracts

Outline of the Community (European Union) legislation about Fraud proofing of legislation and of the management of contracts

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Fraud proofing of legislation and of the management of contracts

Document or Iniciative

Commission Communication on fraud proofing of legislation and of the management of contracts [SEC(2001) 2029 of 07.11.2001 – Not published in the Official Journal]

Summary

The Commission Communication is the result of the work of an informal interdepartmental working party chaired by OLAF and made up inter alia of representatives of the Secretariat-General, the Legal Service, and the Directorates-General for Budget, Justice and Home Affairs, External Relations, Agriculture, Regional Policy, and Taxation and Customs Union. Its aim is to develop an overall strategic approach to fraud prevention which also takes account of the Commission’s White Paper on administrative reform and a fraud prevention culture. The new cooperation system will be targeted at new draft legislation with significant financial implications in areas of Community activity deemed most sensitive to fraud.

Provisions are also made in the 2001-03 action plan for mechanisms for cooperation from the stage of drafting legislation between the Commission departments and OLAF. As a result of its experience in conducting investigations and in drawing up legislation, OLAF will be able to help in analysing texts before they reach the stage of interdepartmental consultation by identifying loopholes which might hamper fraud prevention.

Legislative aspect

A horizontal unit has been created within OLAF (Unit OLAF/A/3) one of whose “fraud proofing” tasks will be to work with an ad hoc interdepartmental working party in defining criteria for identifying areas of competence which might be deemed highly sensitive from the point of view of their exposure to fraud risks. The outcome of this analysis will be communicated to the departments responsible and to the Directorates-General for Budget and for Administration.

This unit’s activities will be limited to the most sensitive draft legislation in areas themselves deemed high-risk. The procedure in question will apply to initiatives proposed by the Commission in its 2003 legislative work programme, adopted on 30 October 2002. Further to the decisions adopted within the interdepartmental working party, OLAF will launch a dialogue with the lead Directorates-General, who will have designated a correspondent for that purpose. OLAF and the Directorates-General will at any time be able to review the criteria validated by the interdepartmental working party.

The first meeting of this working party took place on 10 December 2002. This meeting was the first stage in the procedure leading to:

  • the determination of the criteria required to identify risk sectors;
  • the determination of risk areas of Community legislation;
  • the identification of sensitive draft legislation falling within risk areas, which will be specifically analysed by OLAF;
  • consultation of OLAF prior to interdepartmental consultation.

For the purposes of this analysis and prevention activity, departments will communicate draft legislation to OLAF as early as possible.

Contractual aspect

With regard to fraud prevention in the area of contracts, the Communication proposes two measures (which appear in the Commission’s White Paper on administrative reform), i.e.:

  • the adoption of standard contracts harmonised for the whole Commission (most frequently used clauses, types of contract, etc.);
  • the introduction of a central database of contracts and contractors.

OLAF, acting via its specific unit, will be involved at a very early stage in the process of defining and drafting clear clauses with a view to protecting not only the Community’s financial interests but also those of beneficiaries. Standard clauses concerning checks and penalties will have to be included in contracts.

Centralisation of information will enable all Commission departments to be quickly informed via the Intranet.

Hercule programme

Hercule programme

Outline of the Community (European Union) legislation about Hercule programme

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Hercule programme

Document or Iniciative

Decision No 804/2004/EC of the European Parliament and of the Council of 21 April 2004 establishing a Community action programme to promote activities in the field of the protection of the Community’s financial interests (Hercule programme) [See amending acts].

Summary

The Hercule programme was established by Decision 804/2004/EC for the period 2004-06. By Decision 878/2007/EC, the programme was extended for the period 2007-13.

HERCULE (2004-06)

With a budget of nearly 12 million, the Hercule programme was designed to support the following measures:

  • the organisation of seminars and conferences;
  • the promotion of scientific studies and discussions on Community policies in the field of the protection of the Community’s financial interests;
  • the coordination of activities relating to the protection of the Community’s financial interests;
  • training and awareness;
  • promoting exchanges of specialised staff;
  • the dissemination of scientific information;
  • the development and supply of specific IT tools;
  • technical assistance;
  • promoting and enhancing the exchange of data. On condition that they were located in one of the 25 Member States, in the EFTA/EEA countries, on the basis of the EEA Agreement (Iceland, Liechtenstein, Norway and Switzerland), in Bulgaria, Romania or Turkey, three types of organisation were eligible to receive a grant in 2004-06:
  • national or regional administrations;
  • research and education institutes with legal personality;
  • non-profit-making bodies with legal personality. Aid applications were assessed on the basis of the criteria set out in the annex to the Decision. These criteria were, inter alia, consistency of the proposed activity with the objectives of the programme, complementary nature with respect to other activities receiving support and feasibility, i.e. the specific possibilities of implementation through the means proposed.

The aid amount could not exceed the following rates:

  • 50 % of eligible expenditure for technical support;
  • 80 % of eligible expenditure for training measures, promoting exchanges between specialised staff and organising seminars and conferences;
  • 90 % of eligible expenditure for organising seminars, conferences and other events.

In addition, the amount of an operating grant awarded to finance a body’s operating expenditure could not exceed 70 % of the body’s eligible expenditure for the calendar year. If operating grants were renewed, they were degressive.

HERCULE II (2007-13)

The Hercule II programme covers the period from 1 January 2007 to 31 December 2013. The financial envelope for that period is 98.5 million.

The programme provides for Community financing through the granting of aid, but is also available for public procurement contracts. The rules for Community financing are laid down in Regulation (EC, Euratom) No 1605/2002 as subsequently amended. In contrast to the previous programme, “operating” grants can no longer be awarded. Consequently, all the funds available for 2007-013 are to be used for activity promotion through grants for activities or public procurement.

The main objectives of the Hercule II programme are:

  • to enhance cooperation between the actors in the fight against fraud damaging to the Community’s financial interests, i.e. the competent authorities in the Member States, the Commission and the European Anti-Fraud Office (OLAF);
  • to reinforce the networks for exchange of information between Member States, the accession countries and the candidate countries;
  • to provide operational and technical support to law enforcement agencies in the Member States, particularly the customs authorities.

The Hercule II programme is designed to multiply and reinforce measures against cigarette smuggling and counterfeiting.

The organisations which are eligible for grants are the same as in the previous period, provided they are located in one of the 27 Member States, in the EFTA-EEA countries, on the basis of the EEA Agreement (Iceland, Liechtenstein and Norway) or in one of the EU candidate countries, on the basis of a memorandum of understanding. In addition, the western Balkan states, Russia and the countries covered by the European neighbourhood policy are also eligible for aid in respect of expenditure relating to participation by their representatives.

The Commission assesses applications on the basis of criteria such as the consistency of the proposed activity with the programme objectives, the relationship between the costs and benefits of the measure, the scope of the public targeted, etc. However, the aid granted cannot cover all the expenditure. The maximum rates of aid, which are the same as those that were in force for 2004-06, are as follows:

  • 50 % of eligible expenditure for technical support;
  • 80 % of eligible expenditure for training measures, promoting exchanges between specialised staff and organising seminars and conferences, in respect of national or regional administrations:
  • 90 % of eligible expenditure for organising seminars, conferences and other events, in respect of research and education institutes or non-profit-making organisations.

Throughout the period of the contract or agreement and up to five years after the final payment, the Commission may carry out inspections on the use of the Community financing. If necessary, the Commission may decide to recover the grant paid. The Commission and the persons authorised by it have the right to access the places in which the measure is implemented as well as all the information required in order to carry out the inspection. The European Court of Auditors and OLAF have the same rights.

References

Act Entry into force – Date of expiry Deadline for transposition in the Member States Official Journal
Decision 804/2004/EC 01.5.2004 OJ L 143, 30.4.2004
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Decision 878/2007/EC 26.7.2007 OJ L 193, 25.07.2007

Anti-tax fraud measures

Anti-tax fraud measures

Outline of the Community (European Union) legislation about Anti-tax fraud measures

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Fight against fraud > Protecting the European Union’s financial interests

Anti-tax fraud measures

Document or Iniciative

Commission Communication, dated 31 May 2006, to the Council, the European Parliament and the European Economic and Social Committee concerning the need to develop a coordinated strategy to improve the fight against fiscal fraud [COM(2006) 254 – Not published in the Official Journal].

Summary

This communication seeks to trigger a debate based on lines of reflection regarding the factors to be taken into account in the context of developing a coordinated strategy at European level to improve the fight against fiscal fraud.

Administrative cooperation between Member States

With a view to improving administrative cooperation between Member States, the Commission proposes to:

  • strengthen not merely the legislation but also the practical measures employed regarding cooperation in the field of direct and indirect taxation and assistance in the recovery of taxes;
  • improve risk management so as to enable Member States to focus their inspection efforts on the sectors and companies considered to represent a major fraud risk;
  • create a permanent Forum for administrative cooperation at Community level for all direct and indirect taxes.

Cooperation with third countries

Given that tax fraud does not stop at the external borders of the European Union (EU), the Commission is proposing the adoption of a Community approach to cooperation with third countries.

Modifications to existing VAT and excise systems

With a view to reducing the cases of fraud, the Commission is launching a debate on possible modifications that could be made to the existing common VAT and excise systems.

Among the potential avenues to be explored in the VAT sector are the possibility not only of strengthening the principle of joint and several liability for the payment of VAT but also of extending the use of the reverse charge mechanism. In all the cases cited, the Communication lays down the conditions to be met by the new VAT system.

In the excise sector, thought is being given to the current tobacco taxation structure.

Other avenues to be explored

The Commission is also proposing that the discussions should include a range of more specific measures such as:

  • increasing tax declaration obligations for companies considered to represent a risk;
  • reducing these obligations for companies which obtain an authorisation by entering into a partnership with the tax authorities;
  • using standardised, high-performance IT tools for the rapid exchange of information.

BACKGROUND

In 2004, tax revenues (total tax take plus compulsory social security contributions) represented 39.3% of GDP (gross domestic product) in the EU. Tax fraud accounts for approximately 2 to 2.5% of GDP, i.e. between 200 billion and 250 billion. Tax fraud constitutes an obstacle to the smooth operation of the internal market inasmuch as it leads to significant distortion of competition among taxpayers.

Related Acts

Commission Communication, dated 25 October 2005, to the Council and the European Parliament – The Contribution of Taxation and Customs Policies to the Lisbon Strategy [COM(2005) 532 final – Not published in the Official Journal].

This Communication launches a plan for EU-wide taxation and customs measures that would help the EU to achieve its Lisbon objectives. The Commission is in favour of a more concerted and coordinated approach at Community level so as to enable the Member States to combat tax fraud more efficiently.

Commission Communication, dated 27 September 2004, to the Council and the European Parliament on preventing and combating corporate and financial malpractice [COM (2004) 611 final – Not published in the Official Journal].

This Communication seeks to provide a global method for reducing the risk of corporate and financial malpractice, combining in equal measure the fiscal, judicial and law enforcement dimensions.

Proposal for a Regulation of the European Parliament and of the Council of 20 July 2004 on mutual administrative assistance for the protection of the financial interests of the Community against fraud and any other illegal activities [COM(2004) 509 final – Not published in the Official Journal] [COD/2004/0172 procedure].

Amended by:

Amended Proposal for a Regulation of the European Parliament and the Council on mutual administrative assistance for the protection of the financial interests of the European Community against fraud and any other illegal activities [COM(2006) 473 final – Not published in the Official Journal] [COD/2004/0172].

Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) No 218/92 [Official Journal L 264, 15.10.2003].

This Regulation establishes a common system of administrative cooperation and exchange of information between the competent authorities of the Member States to ensure proper application of VAT and to combat fraud.

Decision No 1152/2003/EC of the European Parliament and of the Council of 16 June 2003 on computerising the movement and surveillance of excisable products [Official Journal L 162, 1.7.2003, p. 5].

Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments [Official Journal L 157, 26.6.2003].

The ultimate aim of this Directive is to enable savings interest received in one Member State by natural persons who are resident for tax purposes in another Member State to be made subject to effective taxation in accordance with the laws of the latter Member State.

Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums [Official Journal L 336, 27.12.1977].

With a view to combating international tax evasion and avoidance, this Directive strengthens collaboration between the Member States’ tax administrations, while at the same time facilitating the exchange of information that appears relevant for the correct assessment of taxes on income and on capital.