VISITING EXPERTS’ PAPERS
FIGHTING FRAUD AND CORRUPTION:
HOW THE EUROPEAN UNION PROTECTS ITS PUBLIC FUNDS
Johan Vlogaert*

I. INTRODUCTION
The Millennium Development Goals which have been agreed among the world’s leading development
institutions set very ambitious targets and challenges for the international donor community, to be achievedby the year 2015. The European Union, as one of the key players in the field of external aid, is actively
participating in this unprecedented effort to meet the needs of the world’s poorest peoples by stimulating,supporting and financing numerous development projects. This constantly growing development effort,
which aims to distribute the development funds coherently, transparently and in the most effective way,
aggravates at the same time the risk of fraud and irregularities, since in parallel the number of payments ofdevelopment aid is also steadily rising.
The European Anti-Fraud Office, OLAF, was created with the aim of helping the European institutions
fight fraud and financial irregularities, which also occur with funds paid out as development assistance. At
the same time, one of its major tasks is to ensure that the contributions made by the Member States in theframework of the European Union’s development assistance are properly spent. OLAF plays an active rolein the field of administrative investigations, and in performing its investigations it co-operates with theMember States concerned. Moreover, in the field of external aid, it requests the assistance of and seeks toenhance its co-operation with multiple actors, including the international donors, auditors, international
investigative bodies and authorities of the states benefiting from the EU’s external aid.
Aware of the complexity of development assistance policies and based on its operational experience,
OLAF acknowledges the problems resulting from different legal systems in the beneficiary countries and the
difficulties generated by insufficient collaboration between the investigative services of the countries
concerned. Last but not least, OLAF emphasizes the urgent need for enhanced co-operation between thedonor institutions, in order to exchange data, share know-how (i.e. regarding observed and discovered modi
operandi) and put strong emphasis on training and mutual, joint co-operation.
This article will present OLAF’s overall structure, legal basis, competencies and operational network, andwill also give an insight into day-to-day investigative activities. Given that our team performs investigationsin the external aid field we will try to present an outline of its activities and challenges in the field ofdevelopment and humanitarian aid as well as to indicate the problems that OLAF is currently facing ininvestigations in this area.
We hope that this article will make a modest contribution to the task in hand and serve as an invitation to
co-operate with the European Union departments in the fight against fraud in the field of development andhumanitarian aid.

II. OLAF’S MISSION
From the moment of its creation on 1 June 1999, OLAF was given a hybrid status. It is formally part of theEuropean Commission, enabling it to exercise Commission powers, but it enjoys budgetary and administrativeautonomy, designed to make it operationally independent. Its mission is to protect the financial and otherinterests of the Community against fraud and irregular conduct liable to result in administrative or criminal* Head of Unit A.4, Investigations and Operations I, External Aid, European Anti-Fraud Office (OLAF), European Commission,

Belgium.

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proceedings. To that end, the Office exercises in complete independence the powers of investigation
conferred on the Commission by Community legislation. It conducts administrative investigations.
EU Regulation 1073/99 provides that OLAF is to exercise the powers conferred on the Commission in orderto step up the fight against fraud, corruption and any other illegal activities detrimental to the Communities’
financial interests. This remit covers all Community revenues and expenditures. It includes the general budget,
budgets administered by the Communities or on their behalf and certain funds not covered by the budget,
administered by the Community agencies for their own account. It also extends to all measures affecting or
liable to affect the Communities’ assets. Finally, it covers other, non-financial interests.1

A. OLAF’s Powers and Tasks
OLAF’s core activity is performing administrative investigations; it conducts internal and external
administrative investigations, as defined in Article 2 of Regulation 1073/99. It may also perform its coordination and assistance tasks by conducting criminal assistance cases, co-ordination cases, and monitoringcases. Moreover, OLAF assigns priority to developing effective co-operation with the Member States,making them more aware of their responsibilities and encouraging them to develop their own controls forcombating fraud. It offers them assistance in conducting investigations by providing them with information
gathered at Community level and co-ordinates the operational activities of the national authorities intransnational cases. It maintains direct contact with national judicial, law-enforcement and administrative
authorities. OLAF has established the Anti-Fraud Information System (AFIS), a secure network forcorresponding with the Member States and providing mutual assistance. Co-ordination is also facilitated by
the Advisory Committee for the Co-ordination of Fraud Prevention (COCOLAF). Regarding intelligence,
OLAF provides support at both Member State and Community level. It provides assistance with respect tospecific operations and strategic analysis and risk assessment in order to target resources at the area ofgreatest risk.2
In addition, OLAF has started entering into what are referred to as “co-operation agreements” with otherinternational investigation services, such as the Integrity Department of the World Bank, but also withauthorities in non-EU countries that have responsibility for controlling/monitoring/auditing/investigating
financial crime and incoming donor funds.

B. Staffing of OLAF
The Director-General of OLAF exercises the functions of appointing authority (AIPN) under the Staff
Regulations of officials of the European Communities, and of the authority authorized to conclude contractsof employment under the conditions of employment of other servants. OLAF staff comprise Commission
employees who are subject to the Staff Regulations and other general rules applicable to Commission staff.
In mid-2007, there were approximately 420 persons employed at OLAF, of whom nearly 120 were employed
as investigators working in diverse fields of EU expenditure.
OLAF is divided into four Directorates: Directorates A and B perform operational and investigative activities,
Directorate C is charged with intelligence and follow-up of OLAF investigations (disciplinary, financial, judicial
and administrative), and Directorate D incorporates conceptualization of the policy work, preparation of antifraud legislation and provision of logistical support to other units of OLAF. Many of the investigators and other
OLAF employees are former prosecutors, judges, police investigative officers, tax inspectors, auditors or
representatives of other anti-fraud investigative or supervisory organizations from the Member States.
Contrary to other Commission DGs, where usually permanent officials are in the majority, many OLAF
colleagues work on a temporary basis: as temporary agents, contract staff or seconded national experts. Thissituation is due to the very specific tasks performed by the investigators and the qualifications required,
which cannot be easily found among regular EC staff. Nevertheless, a trend can currently be observed
whereby the investigative experience of OLAF colleagues is being retained in-house, and simultaneously
the number of the permanent OLAF staff is steadily growing.

1 OLAF Manual, p. 13.
2 OLAF Manual, p. 16.

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III. TYPES OF OLAF CASES, FIELDS OF INVESTIGATION AND OPERATIONSIN WHICH OLAF IS ACTIVE
As already explained above, OLAF undertakes investigations when it discovers that the financial interests ofthe EU are endangered. OLAF classifies its cases under four administrative categories: internal investigations,external investigations, co-ordination cases and criminal assistance cases. If the recommendation is not to open acase, the matter should be classified in one of three categories: monitoring cases, non-cases, and prima facie
non-cases.3
As shown below (Fig. 1), much of the information received by OLAF is classed within the category of
non-cases (45%), whereas decisions to open, for instance, an external investigation account for 24% of thedecisions undertaken.

Figure 1: Decisions taken in 20064

Non Case
210 (45%)

Co-ordination Case
26 (6%)
Criminal Assistance Case
20 (4%)

External Investigation Case112 (24%)

Monitoring Case
59 (13%)

Internal Investigation Case
37 (8%)

A. Internal Investigations
Internal investigations are administrative investigations within the Community bodies for the purpose of
detecting fraud, corruption or any other illegal activity affecting the financial interests of the European
Communities. Additionally, internal investigations cover serious matters relating to the discharge ofprofessional duties that constitute a dereliction of the obligations of officials and other servants, members of
the institutions and bodies, heads of offices and agencies, or members of staff, liable to result in disciplinary
or criminal proceedings. (Individuals who work inside Community bodies but are not subject to the Staff
Regulations, such as temporary agency staff, cannot be the subject of an internal investigation.) Units A1 andA2 are in charge of internal investigations. In addition, Unit A2 has a special assignment to deal with mostcases related to financing by the European Investment Bank (EIB).
B. External Investigations
External investigations are administrative investigations outside the Community bodies for the purposeof detecting fraud or other irregular conduct by natural or legal persons. They may be carried out undereither horizontal or sectoral legislation. Such cases are classified as external investigations where OLAF
provides most of the investigative input.
There are various ways in which OLAF can undertake its anti-fraud activities. As it cannot carry out
preventive checks on EU-funded projects on its own initiative, OLAF has to start looking into a matter in
response to information or allegations indicating the possible existence of a serious irregularity or fraud.
This kind of information can be received by OLAF in various ways: it can for example reach OLAF in the
3 OLAF Manual, p. 75.
4 OLAF Seventh Activity Report, http://ec.europa.eu/anti_fraud/reports/olaf/2006/summary_en.pdf.

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form of a letter or an e-mail from a concerned citizen or anonymous informant. Sometimes it can come froma whistleblower working in one of the EU institutions or agencies. It can furthermore be information
discovered by the media, or simply any information picked up by OLAF in the course of its duties. It should
be stressed that information indicating serious irregularities in the field of external aid is often discovered
primarily by other Commission bodies, i.e. EuropeAid (AIDCO) or an EU Delegation in the country
concerned, which manages the project and maintains contact with the beneficiary. In such cases EuropeAidor the EU Delegation forwards information once it becomes aware of the irregularities during theimplementation of the project (for example serious irregularities or mismanagement that comes to lightthanks to the audits performed). Apart from audit results, there are other symptoms indicating that there isa serious problem with the funding disbursed. The EU as a contracting authority can also encounter
problems with communication and interim or final reports which should prove that the activity financed by
the EU has taken place. Cases of NGOs that fail to submit any data or report after having received funding,by simply “vanishing into thin air”, are also referred to OLAF. It is worth mentioning that there is also a
special telephone number in every EU Member State, called the “OLAF Freephone”, which allows EU
citizens to report fraud to the Commission departments.
Once an allegation is received by OLAF, the information is registered and then forwarded to thecompetent investigation unit. The Head of Unit appoints one or two evaluators who are from then on
responsible for evaluating and presenting an assessment of the initial information. During the assessment
phase, which initially lasts two months (but can be extended if necessary), the evaluators undertake various
activities, one of the most important of which is checking whether EU finances are concerned. Subsequently,
they communicate with the source of the information in order to verify the facts and obtain any clarifications
that are needed and at the same time request the files concerning the projects in question from the EU
bodies managing and supervising them (AIDCO, ECHO, EU Delegations). In some specific cases, theevaluator also contacts the OLAF Intelligence Unit in order to request background, supplementary
information and data analysis from the operational intelligence analysts.
Once the evaluator has gathered all the necessary information related to the allegation and project inquestion, he or she proceeds to draft the initial assessment. In this internal OLAF document the evaluator
describes the allegation, assesses its importance and financial impact, gauges the reliability of the source,
and puts forward a proposal as to whether or not an investigation should be opened. Where opening of aninvestigation is proposed, the evaluator also presents a workplan setting out the steps to be taken in the
future investigation, the legal basis applicable, and suggestions for the staffing of the investigation team.
The assessment of the initial information is discussed and appraised by the OLAF Board, which makes
recommendations to the Director, who decides whether or not to open an external investigation.
1. Types of External Investigation
The Directorates for Investigations and Operations (Directorates A and B) are responsible for carryingout investigations and other operational tasks at OLAF. They are headed by Directors, who, in addition totheir standard managerial roles, also chair the weekly meetings of the Executive Board. The Directorates
are organized according to a flexible arrangement in which the teams (within the EU institutions referred to
as “units”) are in charge of specific areas of investigative and operational activity. Within the team structure,
Heads of Unit (HoUs) are responsible for ensuring the quality and effectiveness of work carried out under
their authority by teams or individuals. A Head of Unit may also carry out other activities, or manage suchactivities, if empowered to do so by senior management. Heads of Unit may appoint Heads of Operations toassist them in their operational work and represent them as required. While they may at times be required
to carry out some managerial tasks, Heads of Operations are essentially investigators and continue to handle
their own casework.
The main role of investigators is to conduct investigations and other operational activities on behalf of
OLAF and under the responsibility of the Heads of Unit. Investigators carry out the work provided for in thecase workplan in accordance with the applicable rules and regulations, including the receipt and assessmentof information, investigation activities, make contact at appropriate level with relevant authorities and the
preparation of notes and reports. They also make recommendations as to follow-up, lessons learned andfraud-proofing.

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An overview of the investigative and operational units, broken down by the field of activities related tothe part of the EU budget concerned with their investigations, is presented below.

(i) Direct Expenditure
Unit A.3 is responsible for investigations and operational activities in relation to direct expenditure andexternal Phare and Tacis aid (enlargement cases and financial aid to the former Soviet republics). The
activity of the Unit is divided approximately equally between these two areas.
Cases in the external Phare and Tacis aid sector are allocated on the basis of specified geographic areas.
This is designed to ensure that expertise is developed in the specific geographic area, a consistent approachis taken, contacts and information flow are facilitated and working priorities and investigation strategies are
established.

(ii) External Aid
Unit A.4 is responsible for investigations and operational activities in relation to external aid except
Phare and Tacis. Its activities include investigations relating to EU humanitarian and development aid to
non-EU countries (Asia, including the Middle East, Africa, Latin America, and the Pacific). Such aid may fallprey to complex and well organized financial fraud, facilitated by the large number of public and otherinstitutional donors, the lack of co-ordination in their planning, monitoring and auditing activities, andcomplexity in their accounting and reporting. The investigators working in this unit possess extensive
knowledge in the field of external aid funds and development financial mechanisms, as well as a goodcommand of several languages; moreover, they spend approximately 60 days per year performing missions
and on-the-spot checks in the countries concerned. Since the aim of this article is to present the activities of
OLAF in the field of external aid, these matters will be discussed in detail in part IV, below.
(iii) Structural Funds
OLAF’s Unit B.4 is responsible for investigations and operational activities in relation to “structuralactions”, for which management is shared with the national authorities in Member States. The Funds
concerned are:
•
•
•
•
•

the European Regional Development Fund (ERDF);
the European Social Fund (ESF);
the Financial Instrument for Fisheries Guidance (FIFG);
the Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF —Guidance);
the Cohesion Fund.

The main responsibilities for managing and monitoring structural funds expenditures remain with theMember States. When allegations of serious irregularities or fraud are brought to OLAF’s knowledge, theOffice may, after careful assessment, decide to intervene. Unit B.4 works closely with the Commission
departments performing checks on the systems established by the Member States to comply with theprinciples of sound financial management (DG REGIO, DG EMPL, DG AGRI, DG FISH), as well as with the
management and supervisory authorities in the Member States.

(iv) Agriculture
Unit B.1 is responsible for investigations and operational activities in relation to:
•

•
•
•
•

application of the agricultural legislation and all activity in the framework of the common organizationof agricultural markets with implications for the EU budget (agricultural trade as well as agricultural
aid and subsidies). Agricultural trade cases concern import activities (related to the payment ofcustoms duties) and/or export operations (involving customs activities and financial responsibility inthe area of export refunds);
the application of customs legislation concerning specified products;
food aid for non-EU countries;
application of the Washington Convention (CITES);
public and animal health matters.

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Units B.2 and B.3 are responsible for investigations and operational activities, undertaken in coordination with partners in the Member States and non-EU countries, to combat fraud in the areas ofcustoms, cigarettes, VAT, alcoholic beverages, mineral oils and the diversion of precursor chemicals. The
customs investigations shared by the two units tackle fraud relating to:•••customs and precursors: all types of customs fraud related to industrial products, textile products
and fish, including smuggling, false declaration of goods or value, false declaration of origin, andevasion of anti-dumping duties. These units are also responsible for combating attempts to obtain
illegal supplies of precursor chemicals;
cigarettes and alcohol: smuggling, diversion and counterfeiting of these products;
VAT and mineral oils: international VAT carousel fraud and other intra-Community VAT fraud. Units
B.2 and B.3 also provide assistance in combating the smuggling, mis-description and diversion ofmineral oils.

Where the OLAF Board decides not to open either an external or an internal investigation, it can decideto deal with the matter in one of the following ways:(a) Co-ordination Cases
Co-ordination cases are cases that could be the subject of an external investigation, but cases inwhich OLAF’s role is to contribute to investigations being carried out by another national or
Community body by, among other things, facilitating the gathering and exchange of information andensuring operational synergy among the relevant national and Community departments; the maininvestigative input is provided by other authorities. OLAF’s role includes facilitating contacts andencouraging the responsible authorities to work together.
(b) Criminal Assistance Cases
Criminal assistance cases are cases within the legal competence of OLAF in which the competentauthorities of a Member State, candidate country or non-EU country carry out a criminal
investigation and request OLAF’s assistance or OLAF offers its assistance.

C. Monitoring Cases, Non-Cases and Prima Facie Non-Cases
1. Monitoring Cases
These are cases where OLAF would be competent to conduct an external investigation, but in which a
Member State or other authority is in a better position to do so (and is usually already doing so). Monitoringcases are passed directly to the authority deemed competent to handle them. No OLAF investigation
resources are required, but, as the interests of the EU are at stake, OLAF will follow up the case, via theappropriate follow-up unit.
2. Non-Cases
A matter is classified as a non-case where there is no need for OLAF to take any investigation, coordination, assistance or monitoring action. Non-cases result from assessments that conclude that EUinterests appear not to be at risk from irregular activity, or other relevant factors indicate that no case shouldbe opened. This would occur, for example, if only one Member State is concerned, and is already dealing
with a matter in a satisfactory manner or where an irregularity observed does not have any impact on thefinances of the EU. This process may result in the transmission to Member States of information about
possible offences not related to the protection of EU interests.
3. Prima Facie Non-Cases
This is where information is received which clearly and unequivocally does not fall within thecompetence of OLAF, and the responsible Head of Unit proposes not to refer the information forassessment.5

D. Sanctioning and Recommendations Resulting from OLAF Actions
OLAF has no powers to impose sanctions. At the closure of an investigation, and even in the course of an
5 OLAF Manual, p. 75.

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investigation, OLAF can make recommendations, based on its findings, to those authorities that have thenecessary powers to impose sanctions. These recommendations may be of a financial nature (e.g. a
recommendation to recover funds), administrative (i.e. a recommendation to improve contractual provisions
or legislation, a recommendation to change and improve distribution of the funds or a suggestion as to how
to improve overall control and effectiveness), disciplinary (i.e. a recommendation to the competent EU bodythat a disciplinary procedure be launched against a staff member), or judicial (e.g. a recommendation totransmit the relevant facts to a judicial/law-enforcement service in a Member State or non-EU country witha view to launching criminal proceedings against individuals or companies).

IV. OLAF AND EXTERNAL AID INVESTIGATIONS
A. Introduction: Importance of EU Development and Humanitarian Aid
By providing almost 10 billion euros worth of aid each year, the EC is one of the most important players
in the field of development and humanitarian aid. Moreover, Europe has expressed a strong commitment toincrease and strengthen its involvement in the years ahead.
Whereas in the past aid was often project-based, the future will see a move towards targeted and nontargeted budget assistance for the countries concerned.
The aid is channelled via a variety of financial instruments, including the financing of charities, associations
and NGOs, financing via other international donors like the UN or the World Bank, or as budget aid: directly tothe country concerned.
While at the beginning of 2000 only a very few cases were reported to OLAF, we currently have a caseload of some 58 ongoing investigations and 46 initial assessments of information, covering all developing
regions and countries receiving aid funds from the EU.
In view of this situation, OLAF is reinforcing its contacts with the EU bodies concerned, especiallyEuropeAid, but also with the monitoring bodies of other major donors. These may be agencies in Member
States, non-EU countries, or other international institutions.
It is indeed our belief, based on experience, that only by working together will we be able to tackle major
fraud in this area. To be an investigator in the field of development and humanitarian aid requires substantial
financial investigative training and experience. Such an investigator also needs to have intuitive, communicationand diplomatic skills allowing him or her to discuss very sensitive issues and to facilitate discussions at technicallevel but very often at the highest political level too. Colleagues boasting these qualities are welcome to join us.

Figure 2: External aid cases opened in 2006 by geographic region6

6 Source: OLAF Seventh Activity Report, http://ec.europa.eu/anti_fraud/reports/olaf/2006/report_en.pdf.

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B. Types of Financing Mechanisms
1. European Development Fund (EDF)
The European Development Fund (EDF), created by the Treaty of Rome in 1957, is the main instrument
providing Community aid for development co-operation in the ACP (African, Caribbean and Pacific) States
and Overseas Countries and Territories (OCT). The EDF is currently not under the Community’s generalbudget. Funded by the Member States, it is subject to its own financial rules and is managed by a specificcommittee. It consists of several instruments, including grants, risk capital and loans to the private sector.
The ninth EDF has been allocated 13.5 billion euros for the period 2000-2007, and for the period 2008-2013
the aid granted to ACP States and OCTs will continue to be funded by the EDF.
Most of the current caseload of OLAF’s Unit A.4 relates to projects and bodies financed by the EDF, witha strong emphasis on ACP countries.

Figure 3: How much does each region get from the EU?
The EU, including Member States’ individual disbursements, contributes approximately €30 billion peryear in external assistance. This accounts for over half of global development aid. In 2005, external
assistance amounted to €10.4 billion. Of this, EuropeAid managed €7.5 billion. The geographic breakdownof the aid managed by EuropeAid is as follows:7

Africa, Caribbean and Pacific: €3 660 million
Mediterranean and Middle East: €1 080 million
Asia: €830 million
Eastern Europe, Central Asia and Caucasus: €520 million
Latin America: €330 million
Horizontal programmes: €1 090 million

7 http://ec.europa.eu/europeaid/promotion/know/article_3958_en.htm.

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2. Neighbourhood Policy and MEDA, ALA and other Financing Instruments
The MEDA programme is the principal financial instrument of the European Union for the implementationof the Euro-Mediterranean Partnership. The programme is conducted by DG EuropeAid and offers technicaland financial support measures to accompany the reform of economic and social structures in the
Mediterranean partner countries.
Examples of projects financed by MEDA are: structural adjustment programmes in Morocco, Tunisia andJordan; the Syrian-Europe Business Centre; the social fund for employment creation in Egypt; rehabilitationof the public administration in Lebanon; rural development in Morocco.
Currently OLAF cases cover most of this region, including Syria, Lebanon, the Palestinian Territories,
Israel, Tunisia, Algeria and Morocco.
3. European Investment Bank (EIB)The European Investment Bank, the financing institution of the European Union, was created by the Treatyof Rome. The members of EIB are the Member States of the European Union, which have all subscribed to the
Bank’s capital. The EIB enjoys its own legal personality and financial autonomy within the Community
system. The EIB’s mission is to further the objectives of the European Union by providing long-term
finance for specific capital projects in keeping with strict banking practice. As an institution of the EU, theEIB continuously adapts its activities to developments in Community policies. As a Bank, it works in close
collaboration with the banking community both when borrowing on the capital markets and when financing
capital projects. The EIB grants loans mainly from the proceeds of its borrowings, which, together with“own funds” (paid-in capital and reserves), constitute its “own resources”. Outside the European Union,
EIB financing operations are conducted principally from the Bank’s own resources but also, under mandate,from the Union or Member States’ budgetary resources.8

C. Legal Basis for OLAF’s Operations and Investigations in the Field of External Aid
OLAF must always have a legal basis for opening an investigation. Community law empowers OLAF to
conduct investigations and establishes its investigative powers. OLAF undertakes administrative
investigations, rather than audits. Audits are checks on the regularity and sound application of the relevant
legislative provisions with the objective of detecting any administrative malfunctioning or irregularities; incontrast, administrative investigations consist of more detailed inquiries with the objective of discoveringfacts or irregular behaviour liable to give rise to administrative or criminal proceedings against individuals orcompanies, and the recovery of money evaded or unduly obtained. Anomalies detected during a routine
check or audit can give rise to the need for an investigation to be conducted by OLAF.
European Parliament and Council Regulation (EC) No 1073/1999 and Council Regulation (Euratom) No
1074/1999 confer on OLAF powers to perform internal investigations, as well as all of the Commission’s
powers to carry out external investigations. They require OLAF to conduct investigations with full respectfor human rights and fundamental freedoms, including the principle of fairness, the rights of persons
involved to express their views on the facts concerning them, and the principle that conclusions of aninvestigation may be based solely on elements that have evidential value. The Regulations stipulate that
OLAF must exercise the powers of the Commission in order to step up the fight against fraud, corruption
and any other illegal activities detrimental to the Communities’ financial interests.
Other legislation applies, such as Council Regulation (Euratom, EC) No 2185/96, which empowers theCommission to conduct on-the-spot external investigations on the premises of economic operators(commercial companies, charities, associations, NGOs, etc.) that may have been involved in, or concernedby, an irregularity, when “there are reasons to think that irregularities have been committed” and when (1)the presumed irregularities involve economic operators acting in several Member States, (2) the situation in
the Member State requires such a check to be strengthened in a case, or (3) a Member State so requests.
As far as expenditure in the field of external aid is concerned, the EC’s rights to carry out checks are
regulated by the financial agreements signed with the government of the country concerned. In the
8 http://www.eib.org/about/the-eib,-the-eus-financing-institution.htm.

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framework of these agreements the National Authorising Officer (NAO) manages further distribution of the
EU funds, which are part of the broader legal framework (ACP multilateral agreements, e.g. Lomé
Convention). These provisions allowing OLAF checks are additionally described as part of the contract
between the EC and the beneficiary. The abovementioned agreements and contracts provide for OLAF
investigations and for the right of access to all files connected with the EU funding. Moreover, thebeneficiary consents to keep documents available for EU verifications, for a certain period depending on theprovisions of the contract (i.e. up to five years from the end-date of the activity).

D. OLAF’s Investigative Action: On-the-Spot Checks, Interviews, Analysis, Satellite Imaging, etc.
Once an external investigation is opened, a team of investigators is assigned to the case. The following
investigative steps can be undertaken:
1. Broad Intelligence Analysis
With help of OLAF intelligence analysts, checks can be performed in various databases, both internal to
the EU institutions and external ones. OLAF has access to all Commission data with regard to financing andcontracts. Currently OLAF is successfully using and further developing a search tool based on Commission
sources and databases, which is constantly being improved and updated by the EC’s Joint Research Centre(JRC) in Ispra. This useful tool allows us also to obtain information on other possible donors (from the open
sources) that could have financially supported the same project. This method has already enabled us several
times to uncover situations of double financing of projects by different donors.
2. Verifications with the Donor Agencies
Apart from the abovementioned method, if double financing is suspected OLAF contacts other donor
agencies, foundations or governments and proposes that they cross-check information on financing
disbursed for the activities of the beneficiary in question in order to determine whether a particular donor
has financed an activity similar to or the same as the EU.
3. Satellite Imaging
Again thanks to co-operation with the JRC, investigators are able, when circumstances so require, to use
satellite images, something which is especially useful when for example a number of direct beneficiaries
need to be assessed (i.e. within the area of humanitarian aid) and the investigators want to scrutinize andexamine the data provided to the EC.
4. Co-operation with Investigative Bodies in Member States and Non-EU Countries
Whenever possible OLAF seeks the co-operation of investigative bodies in the country concerned. Thisis especially vital and crucial in countries where civilization, cultural and linguistic barriers might seriously
hamper the investigative process. Familiarity with and understanding of the local realities as well as
knowledge of local criminal law prove to be indispensable assets on which OLAF can rely while co-operatingwith the authorities of the country concerned. In cases of parallel ongoing investigations in several
countries, co-ordination of the investigative activities is often proposed, providing information for the lawenforcement agency/prosecutor body which is investigating the entity in question.
5. Co-operation with Auditors and Additional Audits
When an audit precedes the investigation, additional analysis and collaboration with the auditor who
performed the audit is usually sought. Joint analysis of the findings by the investigators and auditors
increases the effectiveness of the investigation as such. Additional or forensic audits can be also requested
and they can be financed from OLAF’s budget. When the OLAF investigation concludes that certain tenders
were forged by using false bids, the auditors will be tasked to look into all contracts (often numbering
several hundred) in order to check for the existence of fraud. In the framework of their investigation OLAF
investigators can accompany the auditors while they perform their duties; such joint actions proveextremely effective thanks to the combined experience of the auditors and investigators.
6. On-the-Spot Checks
According to Regulation 2185/96 on OLAF’s powers in the field of on-the-spot checks, OLAF investigators
in co-operation with the authorities of the Member State can perform checks in the premises of thebeneficiary or economic operator receiving EU funds. Such checks prove to be a very effective investigative

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tool since they can allow the investigators to seize documents and hard disks and analyse paper and electronic
data and other information related to the case involving the EU funds.
7. Other Direct Investigative Activities
These include interviews with different persons involved: informants, persons concerned, witnesses and anyother person in possession of information or knowledge relevant to the case under investigation. Moreover, on
the basis of the verification of the invoices and other financial documentation, visits to the companies whichissued them can be carried out by the investigator in order to verify their reliability and validity.
It has to be stressed that OLAF’s coercive powers, especially in non-EU countries, are fairly limited andcannot be compared to those enjoyed by the mainstream investigative bodies in the Member States. However,the fact that any lack of co-operation with OLAF investigations may eventually lead to freezing of EC financing
and possibly recovery of funds prompts a rather high level of access and co-operation. Furthermore, as anadministrative investigating body, OLAF is not bound by unwieldy mutual legal assistance arrangements, but
can speak directly to government representatives and private partners. This facilitates and speeds up
considerably OLAF’s operations on the spot.

E. OLAF’s Operational Networks
Not being bound by sometimes cumbersome arrangements for co-operation with law-enforcement bodies
and judicial authorities, OLAF manages to build its own networks in the law-enforcement community ingeneral.
The basic text creating OLAF provides for the possibility of direct contact with law-enforcement andjustice officials, and OLAF therefore works closely on a daily basis with prosecution offices, investigating
judges, police and customs bodies both in Member States and in non-EU countries.
Development agencies and foreign ministries in some Member States have identified, together with
OLAF, the need for a joint rethink of what we do, what we can do better if we work together and how to findlong-term solutions to problems. An informal group of interested partners will meet for the first time inautumn 2007 to launch a brainstorming exercise. OLAF has entered into co-operation agreements with
Interpol, Europol and Eurojust and is a full member of the European Judicial Network (EJN).
What is less widely known is that, for several years now, there has been closer co-operation between
what are called “international investigators”. Investigative services of the UN, the World Bank, the EIB, theregional development banks and OLAF meet on a regular basis to improve co-operation both in the sharing
of information and with regard to the creation of Joint Investigation Teams. OLAF recently took part in sucha joint team with investigators from the UNDP in an African country and the experience was successful. An
annual conference of international investigators looks into common subjects and potential solutions. Staff areexchanged between OLAF and the UN and World Bank. OLAF provides the permanent secretariat for thisco-operation.
Looking at the challenges ahead, OLAF has started, in close co-operation with EuropeAid and the EIB, tobuild its own network of partners in Africa. With the co-operation of the Inspectorate General of Finance of
Morocco, a meeting of attorney generals, presidents of Courts of Auditors, state inspectors and financeinspectors, as well as specialized anti-fraud bodies of 27 southern Mediterranean and sub-Sahara countries,
took place for the first time in May 2007 in Morocco. These authorities have competence at national level forverifying, monitoring, auditing and investigating incoming donor money. This will be the start of a strong
partnership between national administrative, law-enforcement and judicial bodies and OLAF. Networks ofinspectors, such as the Association of State Inspections (FIGE), which currently represents ten African
nations, as well as individual countries, will very soon enter into co-operation agreements with EuropeAid and
OLAF, providing each other with the required mutual assistance in order to achieve successful optimization of
public spending in those countries. OLAF and EuropeAid are committed to continuing this effort, already inspring 2008, with the other African nations. Subsequently, similar partnerships will be proposed to thecountries of Latin America and Asia benefiting from EU development aid.
It is worth mentioning that several prosecution offices in Latin America have already signed or asked to

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sign similar agreements with OLAF. Together with the anti-corruption prosecutors of Argentina, inNovember 2007 OLAF will host a regional conference for prosecutors.

F. Problems and Solutions
1. Multiple Modi Operandi : Double Funding and Need for Enhanced Donor Co-operation
There are some typical modus operandi encountered by OLAF investigators in certain cases in the fieldof external, development and humanitarian aid that display the features and characteristics of organizedfraud. One of the biggest problems that make this fraud possible is the shortcomings in and sometimes total
absence of co-ordination of grant award procedures, auditing, monitoring, evaluation and early warning
systems between the different, global and international donor organizations. The abundance of different
projects, programmes and beneficiaries combined with the large number of different legal environments andfinancial systems makes it a very challenging task to co-ordinate and supervise the donation and spending of
the funds. Moreover, the fact that the same projects obtain financing from multiple sources creates a risk ofabuse. Unfortunately, there are no standardized, universal and commonly approved ways of reporting or any
stable verification systems that would prevent the donor organizations from over-funding the same activity.
OLAF will therefore engage actively in looking for long-term solutions with the aim of improving theexchange of information, enhancing co-ordination and adopting joint approaches to tackle all the problems.
2. On-the-Spot Checks in Non-EU Countries: Need for Administrative Co-operation with Countries
Receiving EU Aid
One of the key problems that emerge when investigating fraud in non-EU countries (especially countries
in more distant regions such as Africa) is the fact that the European Commission, and OLAF in particular,
are not very well known. This might cause difficulties for performing on-the-spot checks. The EU inspectors
perform the checks at the premises of the beneficiaries according to the contractual provisions and theclauses included in the financial agreements. However, as experience has shown in the past, these checks
are not fully effective unless performed in close co-operation with the authorities of the beneficiary country.
In order to overcome this problem it is necessary to establish a network of operational relations (the current
co-operation in investigations and controls with the Moroccan authorities serves as a perfect example). This
process is currently ongoing and considerable results have already been achieved so far, mainly thanks to thethree international conferences devoted to fraud involving aid funds held in recent years.
3. Administrative Issues
OLAF A.4, as a unit dealing with investigations into external aid funds, is situated at the centre of a very
complex institutional environment. Interacting on a daily basis with several EU bodies (AIDCO, ECHO,
Delegations, RELEX, Cabinets), the authorities of Member States and non-member countries, beneficiaries
of development aid, donor agencies, diplomatic representations and other investigative bodies, OLAF is wellplaced to co-ordinate its administrative investigations. Alas, the fact that there are so many actors involved
often risks causing considerable delays that would slow down the pace of the investigation. To that end, itshould be stressed that the OLAF team dealing with external aid handles an impressive amount ofinvestigative work (58 active investigations and 46 evaluations). These figures are even more remarkable
when it is borne in mind that this team’s investigative activities (including missions and on-the-spot checks)
cover Africa, South America, Oceania, Asia and the Middle East. In order to improve this situation certain
measures concerning staffing have already been implemented.
Another important issue is the need for OLAF to explain and provide information on its activities andcompetences to other colleagues within the European institutions in order to ensure proper and effective cooperation in the framework of investigations already at internal level. This is why OLAF also actively
participates in training for other EU officials dealing with external aid and colleagues posted to EU
Delegations in the countries receiving EU development aid.

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VISITING EXPERTS’ PAPERS

V. CONCLUSIONS
Development and humanitarian aid investigations currently receive a great deal of attention. A lot stillneeds to be achieved, starting with better communication and joint co-operation among all actors (not only
investigators). This collaboration, as well as mutual trust, openness and understanding, are important preconditions for success.
Based on its operational experience, OLAF will endeavour to help colleagues in this process to build atrue partnership. The fact that within the relatively short period of its existence OLAF has managed to lay
the foundations for broad international co-operation in the fight against fraud involving aid funds is apromising development.
Future developments will include co-operation agreements, as well as technical support for our partners.
This technical support may take the form of better training or provision of the necessary tools andconditions to help our partners pursue their investigations and act in accordance with their mandate. Last
but not least, we will work closely with our colleagues in the planning and contracting units in order totransform our operational experience into better fraud-proofing of aid.
OLAF is at all times open to any kind of mutual collaboration. OLAF colleagues at all levels arecommitted to enlarging and strengthening their network of operational partners and contacts. We hope that
this article will serve as an incentive for prospective partners to set up the basis for our future co-operation.

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USEFUL LITERATURE
A considerable amount of material used in the above article was based on the OLAF Manual: the set ofinternal rules of the European Anti-Fraud Office (OLAF) which govern its investigations and operations.
An electronic version of the OLAF Manual is available free of charge on the EU Bookshop website(http://bookshop.europa.eu).
Additional information regarding OLAF, its foundation, structure and competences can be found on
OLAF’s website: http://ec.europa.eu/anti_fraud/index_en.html.
Readers who are particularly interested in OLAF’s current activities and its achievements are referred to
OLAF’s Seventh Activity Report covering the year 2006:
http://ec.europa.eu/anti_fraud/reports/olaf/2006/report_en.pdf.

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