TABLE OF CONTENTS

1 Introduction.................................................................................................................... 1

2 Procedural issues and consultation of interested parties................................... 2

2.1 Identification............................................................................................................... 2

2.2 Organisation and Timing............................................................................................. 2

2.3 Consultation of the IAB.............................................................................................. 2

2.4 Consultation and Expertise........................................................................................ 3

2.4.1 Member States customs authorities................................................................................. 3

2.4.2 World Shipping Council............................................................................................... 3

2.4.3 Data Protection bodies................................................................................................. 4

2.4.4 Other expertise used..................................................................................................... 5

3 Problem definition.......................................................................................................... 6

3.1 Problem introduction and measures in place.......................................................... 6

3.2 Current legal instruments and structure of the system...................................... 7

3.3 Problem description..................................................................................................... 7

3.3.1 Core problem.............................................................................................................. 7

3.3.2 Other problems.......................................................................................................... 12

3.4 Overview - Problem description................................................................................. 16

3.5 Coherence with other Commission policies............................................................. 16

3.6 Main actors affected by the current situation.................................................... 17

3.7 Baseline scenario........................................................................................................ 18

3.8 Subsidiarity, proportionality and fundamental rights...................................... 19

4 Objectives....................................................................................................................... 20

4.1 General objectives...................................................................................................... 20

4.2 Specific and operational objectives......................................................................... 21

5 Policy options................................................................................................................ 21

5.1 Options addressing the core problem (operational objective 1, 2 and 3).............. 21

5.2 Options addressing other problems (Objective 4).................................................... 25

6 Assessment of impacts of the policy options........................................................... 26

6.1 Impact related to operational objectives 1, 2 and 3.............................................. 29

6.1.1 Option 0: Status Quo.................................................................................................. 29

6.1.2 Option 1: Soft law...................................................................................................... 30

6.1.3 Option 2: EU centralised approach (Commission is responsible and uses a central database). 31

6.1.4 Option 3: National approach (Member States are responsible and use national databases)... 36

6.1.5 Option 4: Mixed approach (shared responsibility between the MS and the EU).................... 38

6.1.6 Assessment and comparison of the proposed options........................................................ 39

6.2 Impact related to operational objective 4 (speed up OLAF investigations)......... 41

6.2.1 Option 0: Status quo.................................................................................................. 41

6.2.2 Option 1: Soft law...................................................................................................... 41

6.2.3 Option 2: Direct access............................................................................................... 42

6.2.4 Option 3: Increase resources........................................................................................ 43

6.2.5 Option 4: Returning to pre-2010 situation..................................................................... 43

6.2.6 Overview of costs per option........................................................................................ 43

6.2.7 Overview assessment and comparison of the proposed options........................................... 44

6.3 Conclusions on preferred options............................................................................ 45

7 Monitoring and Evaluation......................................................................................... 45

7.1 Monitoring................................................................................................................... 46

7.2 Evaluation.................................................................................................................. 46

Annex 1: Glossary.................................................................................................................. 48

Annex 2: Scale of the problem............................................................................................. 49

Annex 3: Working document: Commission requirements for the Container Status Messages 50

Annex 4: Anti-fraud Information System (AFIS).................................................................. 54

Annex 5: Need for Container Status Messages and the ways to obtain them.............. 59

Annex 6: References to official documents:...................................................................... 60

Annex 7: List of formal consultations with Member States conducted in preparation of the Impact Assessment.............................................................................................................................. 62

Annex 8: Questionnaire.......................................................................................................... 63

1 Introduction

Financial fraud has existed and evolved throughout the economic history, adapting to the changing environment and trading conditions. Therefore, it is important to continuously apply a zero-tolerance policy and alleviate consequences of fraud by reducing the profitability of committing fraud and the likelihood for it to go unpunished.

It is no different in the context of the EU and its resource-generating activity of applying customs duties to trade crossing the EU borders. Customs duties and the need to practically implement them create both possibility and opportunity to reap unlawful benefits by circumventing the applicable rules. To mitigate this phenomenon, the EU and its Member States have put various measures in place in order to detect, prosecute and deter fraudulent behaviour.

· Importance of cooperation with regard to fighting customs-related fraud and protecting the Union's financial interests

Customs fraud is a growing phenomenon which causes serious damage to the Union's financial interests because customs duties are own resources of the EU budget. Customs fraud also has negative consequences for the Internal Market because it creates an unfair advantage for operators who avoid duties. The rapid growth of international trade and the increased need for acceleration of trade flows has strengthened the role and importance of cooperation (mutual assistance) between Member States and the Commission in fighting customs-related fraud. The damage resulting from the three most common types of customs-related fraud (i.e. mis-declaration of origin, mis-description of goods and misuse of the transit system, see: Problem Definition) is estimated at around 185 million EUR per year.[1]

· OLAF as a service platform for national customs authorities

Already in its Communication of June 2000[2] on "The fight against fraud", the Commission had recognized the need for a "new culture of operational cooperation" with Member States. Specifically, the need was acknowledged for an enhanced exploitation of intelligence in partnership with Member States. To achieve this strategic objective in line with Regulation 515/97, designed to ensure the correct application of customs legislation, and in accordance with Article 1 of Regulation 1073/1999, which lays down the objectives and tasks of OLAF, OLAF is expected to provide services and assistance to the relevant national bodies or authorities in organising close and regular cooperation, coordinating their activities and contributing to the design and development of methods of fighting fraud and any other illegal activity affecting the financial interests of the Member States as well as the EU.

· Background of this initiative

One of the main tools used by customs authorities to detect customs-related fraud is a risk assessment. The customs officers analyse various pieces of information in order to develop risk profiles that can help them to ultimately identify suspicious consignments. The mutual assistance between the Commission and the Member States to combat customs-related fraud is mainly based on the exchange and sharing of information. Today, various types of information are used to combat customs fraud. For the fullest exchange of information and proper functioning of mutual assistance, a central database (the so-called CIS[3]) was created as a platform for Member States and it helps to prevent, investigate and prosecute breaches of Union customs legislation. This system is complemented by the FIDE[4], a database put in place to facilitate investigations carried out by the national competent authorities as well as the Commission. These databases include information on customs fraud cases and on-going cross-border investigations[5] and are considered by its users (Member States) as being useful. Nonetheless, recent pilot projects show that there are other types of information that could further facilitate the work of customs officers and investigators across the EU, by increasing the possibilities of threat assessment and identification of suspicious shipments. Hence, even though customs cooperation in the EU is generally considered to be successful, there is a great potential for further fraud prevention and more efficient investigation based on novel means.

The focus of this Impact Assessment lays on analysing alternative and complementary measures that can be used to further improve the detection, investigation and ultimately prosecution of the customs-related fraud. Furthermore, the problem of delays in OLAF investigations is examined and possible solutions are assessed.

Based on a careful analysis of the drivers behind these problems and the objectives, possible solutions are identified. Finally, the Impact Assessment presents policy options designed to address these objectives and compares their expected impacts.

2 Procedural issues and consultation of interested parties 2.1 Identification

Title: Impact Assessment on the Amendment of Council Regulation (EC) No 515/97 on mutual assistance in the area of customs.

2.2 Organisation and Timing

The Impact Assessment process for the review of Regulation 515/97 commenced in autumn 2011 with the submission of the IA Roadmap.

The inter-service steering group was convened for the first time on 2 March 2012 and met again on 20 April, 12 July and 5 September 2012. The following Commission services participated in the steering group chaired by OLAF: SG, SJ, HOME, JUST, TAXUD, BUDG, AGRI, JRC and MOVE.

2.3 Consultation of the IAB

The Commission's Impact Assessment Board met on 3 October 2012. The comments received on 5 October 2012 were incorporated into the new version of the document and were resubmitted on 18 October 2012. The Impact Assessment Board provided its second opinion on 15 November 2012. Additional recommendations from the Impact Assessment Board have been taken into account in this revised version of the Impact Assessment. The main changes are: strengthening the problem definition; presenting clearer intervention logic; better distinguishing between the issues regulated at the EU level and those addressed at the Member State level; reinforcing the baseline scenario and clearly defining the scope of the initiative. In addition, the proposed options were redesigned. Finally, the assessment of the options has been strengthened.

Final comments from the Impact Assessment Board were received on 23 July 2013. Following the Impact Assessment Board's recommendations, a number of issues were further improved. With regards to the description of the policy options substantial effort was put into presenting the exact scope and practical implications of each option. The report now also discusses the risks related to data security and legal implications of requiring data from operators that have contractual obligations not to disclose it. In addition, the assessment and comparison of the proposed options has been strengthened. In particular, the assumptions made when estimating the costs and benefits of different options are clarified. Finally, the presentation of the views of stakeholders was improved and all the abbreviations and technical terms were explained.

2.4 Consultation and Expertise 2.4.1 Member States customs authorities[6]

Member States expressed their views regarding the proposed amendment of Regulation 515/97 in a questionnaire.[7] The questionnaire asked Member States about their needs for access to customs data (import, transit and export) concerning transactions in other Member States and about the perceived usefulness of information such as Container Status Messages (CSMs) [see Glossary], etc. Furthermore, Member States' views on the preferred way of collecting, storing and analysing such information were gathered. The main results of the consultation are as follows:

· 22 out of 24 Member States stated that they need access to customs-related data (import, export and transit) relative to transactions which occurred in a different Member State and 18 out of 19 Member States were in favour of creating a central repository on import, export and transit data as opposed to the alternative of connecting 27 different national customs systems;

· 23 out of 25 Member States were of the opinion that timely access to CSMs would improve fraud detection and 22 out of 24 Member States were in favour of creating a centralised EU repository of CSMs

2.4.2 World Shipping Council

About 90% of the world's cargo is transported in maritime containers. Therefore, this Impact Assessment focuses in particular on combating fraudulent activity involving movements of maritime containers. Since the Members of the World Shipping Council (WSC) are individual shipping companies which represent approximately 90% of the global liner vessel capacity, it was considered appropriate to include the WSC in the consultation process.[8] A meeting in March 2012 was a major consultation of the shipping industry, since not only the association representatives but also the WSC's Member Lines participated. The aim was to inform carriers about the envisaged changes to Regulation 515/97 and to obtain their feedback on the possible provision of CSMs to the Commission. The outcome of the discussions is summarised in a working document[9] addressing the following: minimum data that container carriers shall provide to the European Commission; events to be reported; time limits for reporting; time period of reporting; content of messaging; message formats; and methods of transmission of CSMs.

For all these issues, the Commission was able to secure general agreement with the industry. The only aspect still flagged by the industry as problematic concerns the reporting obligation in case of a container that is already laden when the reporting starts. While the shipping companies consider it additional burden to report also about the period from the time when the container was laden, such information is crucial for the Commission. For the sake of the analysis and better fraud detection, it is important to use the information about the container (and goods) movements from the beginning of their movement until its end. This is critical information for establishing the real route to be compared with the one declared. The solution to this concern expressed by the industry is that the shipping lines send the required data by way of the (recommended) global submission of data, the so-called “global dump” (global dump involves the submission of all information including irrelevant data; selection of what is relevant is to be done by the Commission). In those cases, the issue of excessive burden would no longer be relevant because the companies would "dump all data" including data relating to the period from the time when the container was laden.

During the discussions, the industry also emphasised the need to ensure that both financial and administrative burdens triggered by the obligation be minimised to all possible extent. In particular, they expressed their support to the idea of one centralised database of CSMs as it would allow them to submit data in question only once. The industry also specifically requested that, once the information is transmitted, it should be up to the Commission to disseminate it to MS and to EU organisations, so that they would not need to re-submit the data.

The intention of the Commission was to involve the industry in the consultation process, so as to ensure that the voice of the industry affected is carefully considered and an easy implementation of its proposal can be swiftly achieved[10]. For that reason the opinion of the industry has been consolidated and is reflected in the above-mentioned internal working document.

2.4.3 Data Protection bodies

Because of different legal bases, the CIS system is split into two parts, one containing information relating to the exclusive EU competence, supervised by the EDPS, based on Regulation 515/97; and one containing information relating to the Member State competence, in the context of law enforcement cooperation, supervised by the Customs Joint Supervisory Authority (CJSA), based on Council Decision 2009/917. Meetings[11] with both bodies responsible for the data protection in this area were organised and their views have been taken into account in the preparation of this Impact Assessment. The discussion focused primarily on the need to ensure better cooperation between the two bodies. The EDPS suggested as a best option the so-called 'coordinated supervision' referring to the example of Eurodac (i.e. large database of fingerprints of applicants for asylum and illegal immigrants found within the EU).

2.4.4 Other expertise used

Additional expertise used for the purposes of this Impact Assessment was derived from two initiatives: (1) the ConTraffic project and (2) ATIS (Anti-Fraud Transit Information System). Both initiatives were launched to examine the problems which are within the scope of this report (i.e. customs fraud in the area of transit and customs fraud related to goods origin). The experience gathered on the basis of these initiatives and the results available provided major input for this Impact Assessment.

In particular, the ConTraffic project confirmed the usefulness of the so-called Container Status Messages (CSM), information crucial to the success of this initiative. It also revealed that the situation under Regulation 515/97 can be further improved. While the current Article 18a of Regulation 515/97 empowers the Commission to "establish and manage a directory of data received from public or private service providers active in the international supply chain", it does not legally oblige the companies/economic operators to provide the Commission with CSM. The feedback from the relevant companies was that in general they would be able to provide this information but only in response to an explicit obligation in the legislation.

ATIS, on the other hand, illustrates the importance of information on transit for detecting customs-related fraud. The engagement of the Member States in the project (see below) confirms its usefulness.

2.4.4.1 ConTraffic

· A joint-intelligence exercise conducted by OLAF together with the Joint Research Centre (JRC), and with the participation of several national customs authorities;

· Aims to detect new cases of commercial fraud of the type "false declaration of origin";

· ConTraffic-SAD automatically verifies the origin of goods using i) import declarations (SAD)[12] for containerised cargo which are voluntarily provided by some Member States and ii) CSMs where the status and location of a container is registered along with the time and date;[13]

· "Potentially suspicious" transactions are automatically identified based on discrepancies between the origin of the goods declared by the importer and the respective origin derived from trace & tracking of the physical movements of the container(s);[14]

· In the two years of its operational phase (2011-2012), ConTraffic-SAD has identified 338 suspicious transactions related to EU importation of containerised cargo, leading to 14 investigation cases being opened by Member States. Out of these 338 suspicious importations, 80 proved to be related to existing OLAF cases to which the project provided support. These results from ConTraffic-SAD clearly demonstrate that risk-analysis based on container-movements is effective in what concerns the detection of fraud of the type "false declaration of origin";[15]

· The project proves the usefulness of import declarations and the CSMs. As regards the latter, the Commission's current approach[16] only yields information on the movements of less than 30% of containers crossing the EU external border. As a consequence, a large part of the necessary information (i.e. CSMs) is still missing. This fact prompted further reflections on the current framework.

2.4.4.2 Anti-Fraud Transit Information System (ATIS)

· A joint project between OLAF, DG TAXUD and Member States operated by OLAF;

· Used for analysis of transit-related data in order to detect abnormal patterns in the transit movement and diversion of destination;[17]

· Operational since 1st July 2009, originally with sensitive goods data (1%) and extended to all goods as of 1st September 2011 – with ca. 11 million movements / year (~30.000/day);

· As a fully automated system, it collects transit-related information on sensitive and non-sensitive goods. This information is obtained through information transfer (copy) from a TAXUD environment[18] directly to OLAF; hence creates no costs for Member States;

· ATIS is a non-binding agreement currently based on Art. 15(2) and Art. 17(1)(a) third indent of Regulation 515/97 and Art. 13 of Regulation 2913/92. However, some Member States question whether these articles in fact provide sufficient legal basis;[19]

· While ATIS provides useful analysis in support of fight of the customs fraud in the area of transit, it reveals some shortcomings, which served as one of the reasons for further reflection on the current framework.[20]

3 Problem definition 3.1 Problem introduction and measures in place

Various measures have been adopted by both the EU and Member States in order to detect, prosecute and deter fraud. However, as it will be demonstrated in the following chapters, these measures have some shortcomings which render the EU's and Member States' efforts to combat fraud sub-optimal. The main problems identified by this Impact Assessment are instances of customs related fraud that continue to go undetected.

OLAF has analysed the identified cases of fraudulent behaviour, which can be broadly categorized into three types: (1) mis-declaration of origin; (2) mis-description of goods; and (3) misuse of the transit system. These three types of customs fraud[21] are well known to the Commission and the alarming effects they create call for further action. The losses to the EU budget resulting from these illegal activities are substantial.[22]

Further to the issues raised above, this document addresses also additional problem of the existing regulatory set up causing delays in OLAF investigations. This issue is not included in the core problem but is presented in a separate chapter.

The assessment conducted in the preparation of this document revealed also other shortcomings. In particular, as regards the databases (i.e. CIS and FIDE), there is currently no technical possibility to restrict inserted information to selected group of users, which creates an obstacle when using a database. As regards the data protection supervision, the recommendations issued by two different competent supervisory bodies overlap and create inefficiencies. Additionally, there is a need to clarify the use of information exchanged via mutual assistance and its respective admissibility in the national courts. These problems are however not addressed in this Impact Assessment as they are considered to be matters of mere clarification.

The problems identified and discussed in this Impact Assessment relate only to the customs domain and not to the agricultural domain which is also covered by Regulation 515/97.

3.2 Current legal instruments and structure of the system

The main legal instrument[23] to address breaches of customs legislation in the context of international cooperation is the Council Regulation 515/97 on mutual assistance between the administrative authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters. It is accompanied by the Council Decision 2009/917/JHA on the use of information technology for customs purposes. While both instruments aim to assist in preventing, investigating and prosecuting serious breaches in customs (and agriculture), the Regulation governs matters of the exclusive EU competence (breach of EU legislation), whereas the Decision addresses matters of Member States' competence (breach of national laws in the area of customs).

3.3 Problem description 3.3.1 Core problem

To fight customs-related fraud, i.e. to early detect and successfully investigate potential fraud cases, it is imperative to have indications about trends and changes of import, export and transit behaviour, analysis of the profiles of suspected traders, effective risk management, etc. The following sub-chapters describe the shortcomings of the currently available measures, which hamper the detection of customs related fraud in the form of mis-declaration of goods origin, mis-description of goods and misuse of the transit system.

3.3.1.1 Mis-declaration of goods origin

· What does mis-declaration of goods origin entail?

Several fiscal and economic EU policies, such as custom duties and quantitative importation restrictions, depend on the origin of the imported goods. Mis-declaration of goods origin can give significant undue market advantages to economic operators implicated in the fraudulent transactions, such as: i) circumvention of anti-dumping levies; ii) illegitimate use of low rates of customs duty intended for products originating from a preferential country; iii) and avoidance of quantitative limits imposed by importation quotas.

Example: Mis-declaration of origin of textile products

In 2007, OLAF was informed about doubts relating to the origin of textile products imported into the EU. The subsequent investigation revealed that textile products originating from country B were wrongly declared as originating from country A. By claiming false origin, the economic operators involved could fraudulently enjoy a 0% preferential rate of duty instead of 12%.[24] In March 2007, an OLAF-led EU administrative cooperation together with the support and cooperation of the local authorities identified around 1.400 forged or invalid proofs of origin declarations. The estimated amount of EU own resources (customs duties alone) evaded on these consignments was 5 million EUR.[25]

These examples show how important it is for the EU to detect and investigate cases of mis-declaration of origin, resulting ultimately in financial losses to the EU budget.

Yet another example on customs fraud of type ‘false declaration of origin’ is provided below.

Example of usefulness of import declarations when combating breach of customs legislation of type ‘false declaration of origin’

Fasteners other than stainless steel are subject to an Anti-Dumping Duty (ADD) for imports from the People’s Republic of China to the EU since February 2009. Once this measure had entered into force, imports of such goods from China declined substantially, while at the same time statistics reported a considerable increase of imports from another ASEAN Member Country (Asian country 1). This is shown in the graph below. Investigations carried out by OLAF in the second half of 2010 caused a subsequent shift of imports from Asian country 1 to Asian country 2. A full follow-up on Import-Export information proved the shift and hence the false declaration of origin.

Effects of introduced Anti-Dumping Measures

Figure 2: Effects of introduced Anti-Dumping Measures Legend: · Imports from China · Imports from Asian country 1 · Imports from Asian country 2

· What are the loopholes in the current system?

In order to verify the authenticity of the declared origin of the goods, customs authorities perform a document-based check, relying on supporting documentation such as the invoice, certificate of origin and bill of lading. However, none of these documents contain detailed information about the full transport-logistic steps followed by the sea-container transporting the goods; hence the customs officers do not have the means to verify whether the declared origin of goods is consistent with the route actually followed by the sea-container which transported the imported goods. This makes the identification of potential cases of mis-declaration of origin very difficult. In order to make a full use of the existing risk assessment methods, one needs to know ‘who is moving what, to whom, from where’. Data on the real parties behind the transaction and the movement of goods (buyer and seller or owner), and on the precise goods involved, is essential but so is information on the routing of the goods throughout the supply chain.[26]

· Scale

While Member States reported 186 cases of detected fraud and irregularities amounting to a damage of 17.6 million EUR, related to incorrect origin or country of dispatching in 2011[27], in reality such breaches of the customs rules are likely to be considerably more numerous. Analysis for evaded duties indicates that there must have been in 2011, for EU27, more than 1.500 cases of false declarations of origin which resulted in loss of revenue for the EU for the total value of at least 25 million EUR and likely to exceed 100 million EUR[28].

Example: Preliminary results of ConTraffic

After a quick automatic analysis of a huge number of declarations (over 230.000 import declarations – ca. 30% of the 2011 import declarations for containerised goods for one MS) 42 highly suspicious cases have been identified. The total evaded duties for these cases were estimated at around 3 million EUR. The cases found involved evasion of import duties, anti-dumping duties and VAT payment.

The values provided above illustrate the magnitude of the problem. Overall estimation of losses incurred due to the relevant type of the customs-related fraud is provided under the scale of the problem analysis.

· Drivers: Gaps in the existing system for the detection of mis-declaration of origin.

There exist various duties, taxes, rates and quantitative limits which have to be respected by traders in order to carry out legitimate trade in the EU. The financial benefits resulting from the avoidance of these charges constitute an incentive for fraudsters to commit fraud in the form of mis-declaration of origin. As already explained, there are currently limited means of checking true origin of imported goods and it is not possible for the customs officers to verify whether the declared origin of goods is consistent with the route followed by the sea-container transporting the imported goods. Such information is crucial for detecting cases of mis-declaration of origin.

3.3.1.2 Mis-description of goods

· What does mis-description of goods entail?

“Mis-description of goods” means that the goods are classified incorrectly. The classification of different goods largely determines what duties and controls will apply to them. Member States use commodity codes found in the TARIC[29] to classify individual products. The correct description of goods ensures that correct amounts of duty and VAT are paid. Many goods are subject to specific controls – e.g. those falling under the Common Agricultural Policy of the EU or those subject to anti-dumping duties or tariff quotas. Incorrect classification has a negative impact on the EU budget as illustrated by the examples below.

Examples: Mis-description of goods

In 2010, OLAF received information that fresh garlic of the species Allium Sativum was suspected to have been mis-declared as Allium Ampeloprasum. More than 1.200 tons of fresh garlic had been mis-declared for an estimated loss of 1.5 million EUR to the EU budget.[30] In 2011, six containers containing a total of 144 tons of smuggled fresh garlic disguised as onions have been intercepted in Poland. The financial impact on the EU budget of the garlic seized is 180.000 Euro in terms of customs’ duties - this loss has been prevented. However, the total impact, in terms of evaded customs’ duties for garlic declared as onions in this way, is estimated at more than 1 million EUR.[31]

· What are the loopholes in the current system?

In order to verify the authenticity of the declared description of the goods, customs authorities perform a document-based check, relying on visual check of goods as well as supporting documentation such as the invoice and the bill of lading. The selection of suspicious cases is based on possible notifications received from various sources (such as for example other customs authorities or economic operator) and analysis based on limited data available. The main drawback of the current procedure is that the targeting of such controls is not systematically based on broad analysis using global data. For this reason the investigations in this area can only be performed sub-optimally. In order to strike the right balance between the security and trade facilitation, the customs authorities cannot check every single consignment and therefore they must base their work on the risk assessment. This risk assessment approach helps to select the suspicious cases. However, in order to create risk profiles, different Commission services make currently repetitive requests for the same data. This creates an unnecessary burden for the Member States and negatively influences their efficiency.

· Scale

Member States reported 1.905 cases of detected fraud and irregularities amounting to a damage of 107.7 million EUR, related to mis-description of goods in 2011[32]. This is, however, only a damage detected by the Member States and the Commission. The actual losses are most likely substantially higher.

The values provided above to illustrate the magnitude of the problem may to a certain extent overlap with the numbers provided in the examples illustrating the problem.

· Drivers: Gaps in the existing system for the detection of mis-description of goods.

As already explained, classification of goods constitutes a basis upon which the applicable duties and controls are determined. Therefore, similarly to the cases of mis-declaration of origin, there is a great scope for undue financial benefits resulting from incorrect classification of goods. Fraudsters have a great incentive to profit from the existing gaps in the system which unless addressed will continue to be used to commit mis-description of goods.

3.3.1.3 Misuse of the transit system

· What does the misuse of the transit system entails?

The main risk related to the misuse of the transit system is that goods are incorrectly declared or partially or completely unloaded or loaded without authorisation. Misuse of the transit system can take place at the start of the transit procedure, during the transport and at the end of the transit procedure.

Example: Misuse of the transit system

In recent years, significant quantities of fresh garlic of Chinese origin had entered the European Union and had been declared for transit to consignees in third countries. It was established that a large number of these consignments were unlawfully cleared at customs offices located at the external borders of the European Union and that these consignments in fact remained within the European Union with the aim of evading the applicable customs duties. Based on transit data received from Member States, OLAF discovered more than 1.400 suspicious shipments which included more than 300 concerning garlic. The standard average of 30.000 EUR per truck results in the loss of 9 million EUR to the EU budget.[33]

· What are the loopholes in the current system?

In order to verify the goods in transit customs authorities perform a document-based check and visual check. However, these methods are limited, as far as their effectiveness and efficiency is concerned, by the available man-power. They also miss the opportunity to profit from the technical development allowing automatic analysis, as demonstrated by ConTraffic. Without proper analysis it is necessary to carry out more controls which in turn may lead to serious disruptions of trade flows and would encounter staff constraints. It is certainly an advantage that Member States and OLAF can use ATIS which is a system for the analysis of transit-related data in order to detect abnormal patterns in the transit movement and diversion of destination (as described in chapter 2.4.4.2). This system suffers, however, from two main shortcomings. Firstly, information available is limited to movements between Member States and does not include the movements inside one Member State (national movements). This means that a suspect movement of a transit consignment inside a Member State cannot be detected. For instance, goods from third countries can be temporarily imported at Marseille without paying duties and put in transit to Le Havre where they can be exported from the EU. A suspicious movement inside the country could mean that part of the shipment has been unloaded and duties were avoided. Secondly, the administrative arrangement in place provides only for the insertion of the initial transit information, thus important subsequent information is missing, such as modifications in the routing schedule or results of controls. These messages exist already and are stored in the national databases.

· Scale

The overall results of cases detected in transit by OLAF from 2006 to 2010 show for EU27 more than 3.800 breaches of customs legislation related to the transit movements which resulted in loss of revenue for the EU. The total value of those detected cases appears to be around 60 million EUR. On average, this would imply a loss of more than 12 million EUR per year. Importantly, this sum represents only the losses that can be traced back to detected cases of misuse of the transit services as identified by Commission Services. The scale of the actual damage caused by the misuse of transit system is arguably much higher.[34]

The values provided above to illustrate the magnitude of the problem may to a certain extent overlap with the numbers provided in the examples illustrating the problem.

· Drivers: Gaps in the existing system for the detection of misuse of transit

As is the case with two previous problems, also here the main drivers behind the misuse of the transit system are the existing loopholes in the procedure.

3.3.2 Other problems 3.3.2.1 Delays in OLAF investigations

Until recently, the documentation related to the customs operations has been kept by the responsible national authorities. From 2011 on, to simplify the customs processes and communication, e-Customs[35] has been introduced. Since then, a substantial part of these documents (i.e. declarations) is recorded and shared in the electronic customs database[36] and the other part – the so-called supporting documents – is kept by the economic operator for 3 years.[37] Up until now, if needed in the course of OLAF investigations, OLAF approached Member States to receive the necessary documentation (supporting documents - i.e. invoice, certificate of origin, etc.) and received it in due time as it was already in possession of the Member States. However, since 2011, the procedure is prolonged by several months as the national authority is no longer keeping those supporting documents, and has to approach the economic operator first to be able to provide them to the Commission/OLAF. Importantly, the fact that Member States are no longer in possession of the supporting documents means that they are often unable and sometimes even reluctant (due to the fact that they may not be directly involved in the investigation in question) to assist OLAF in obtaining them.

There are several examples, demonstrating the difficulties related to obtaining supporting documents which prolong the process of investigation and hence hinder the possibility to recover the amounts related to relevant fraud. One example is the difficulty to retrieve the information in cases where several Member States and several companies are involved, often further complicated by the involvement of subcontractors or forwarding companies. In such cases not only a lot of time may be lost but the relevant information may not become available at all.

Example: Problem of obtaining supporting documents

A company established in MS1 imported aluminium road wheels from Malaysia, allegedly evading anti-dumping duties. The goods were declared by a customs agent for free circulation in MS2. OLAF requested documents related to the importation, but customs authorities from MS2 were not able to provide them because the customs agent did not possess them. In this case, there is of course a possibility to send a request to MS1 authorities but since they have no knowledge about the importation in question it will further prolong the whole procedure.

The importance of fast procedures for obtaining supporting documents is linked to the possibility of proving the breach of legislation and recovering financial losses before they are time-barred. To be successful, the investigation related to customs area must be closed within three years from the moment the fraud is discovered.[38] The first challenge is the fact that the allegation often comes to the attention of OLAF only about a year after the fraud has happened. Thus, one of the three years has passed already. The next problem with the current system is that, for the time being, OLAF investigators have to wait 3 to 7 months out of this three year period for obtaining supporting documents from the Member States.[39] This is because OLAF cannot obtain this information directly from the private companies. Additionally, several more months are needed for obtaining translations of the relevant documents once they have been provided to OLAF. Moreover, as the examples demonstrate, Member States may finally not be in the position to assist OLAF in obtaining the documents in question because the importing company is established in a different Member States. In view of the above, sometimes a case might not even be opened because the prospects of closing it before the deadline are small.

The established practice of OLAF investigators is to respect the time limits by calculating approximately how long the investigation is likely to last. They then focus on the fraudulent activity that will fall within the prescribed time frame by deducting from the time limit period time to be spent on the investigation. This assumption as to the length of the investigation takes into account the time needed for obtaining supporting documents. Hence, the time lost with Member States for obtaining supporting documents is actually money lost to the EU budget because the longer the investigation the shorter the period of the actual fraud that can be addressed.

· Scale

OLAF's experience shows that obtaining documents supporting imports and exports takes between 3 to 7 months. The European Court of Auditors, in a 2010 audit[40] , found that “In the 274 declarations checked, 49 errors[41] were found, giving rise to 558 000 EUR of loss of duty. These amounts are time-barred and therefore can no longer be recovered and are definitively lost for the Community budget.”

· Drivers: No legal provision accommodating the need for faster procedures relating to OLAF investigations

The recent introduction of the e-Customs provides that the import supporting documents (i.e. invoice, certificate of origin, etc.) are kept by the economic operators and not by the customs administrations. This introduces a time loss since a variety of actors need to contribute/respond to the request before the documents become available to OLAF. There is currently no provision in the legal framework which could be used to accelerate procedures related to OLAF investigations.

3.3.2.2 Issues requiring further clarification

As mentioned in the introduction, other issues were identified that would need further clarification. Due to their technical nature and/or being formal clarifications, they will not be discussed in this Impact Assessment. Nevertheless, the main points concerning these issues are briefly explained below.

· Restricted visibility as a technical feature in databases

Feedback from the database users revealed the lack of possibility for the user to select who will be able to access the data inserted in databases established on the basis of Regulation 515/97. However, given the fact that this is a problem of a purely technical nature which requires technical changes of the already existing system, it is not further considered in this report. For the sake of clarification and to raise awareness, an explicit reference to the possibility of the so-called "restricted visibility"[42] will be inserted in the modified legislation.

· Data protection supervision and related recommendation

As already described in chapter 2.4.3, the central databases CIS[43] and FIDE[44] are split into two parts and governed by different supervisory bodies. Applying recommendations of one of the two bodies affects both databases. Consequently, the approval of the other supervisory body needs to be sought before any recommendation can be implemented. This causes inefficiency and generates additional costs in terms of resources and time. Carrying out the recommendations can continue even one year after the audit took place. Given the fact that this problem is of a purely internal nature, it will be addressed via encouraging a closer collaboration of the two supervisory bodies. Therefore, this problem will not be discussed further in this Impact Assessment.

· Admissibility of evidence in national courts

The objective of mutual assistance is to provide other Member States with information and documents. This, as a matter of principle, should include the possibility of using such information and documents as evidence in criminal proceedings. However, on a number of occasions OLAF was informally notified that there are cases of reluctance to use documents obtained via mutual assistance channels as evidence in criminal proceedings because the provisions of Regulation 515/97 are not sufficiently clear on this point. This inevitably causes delays in proceedings or may even result in the dismissal of the case due to time barring. Importantly, it also undermines the principle of legal certainty given the fact that relevant provisions of Regulation 515/97 are subject to differing interpretations. In particular, Article 12 of Regulation 515/97 which merely provides that "Findings, certificates, information, documents, certified true copies and any intelligence obtained […] may be invoked as evidence by the competent bodies of the Member States of the applicant authority". It appears that the term "competent bodies of the Member States" needs clarification. Consequently, this issue will be addressed in the proposal for the amendment of the regulation but will not be furthered discussed in this Impact Assessment.

3.4 Overview - Problem description

Below is an overview of problems which will be discussed in this Impact Assessment.

Figure 1: Overview of drivers, problems and consequences

Source: Analysis by OLAF (2013)

The problems of mis-declaration of origin, mis-description of goods and misuse of the transit system are interlinked in the above graph because they essentially concern instances of customs fraud (albeit in a different form).

3.5 Coherence with other Commission policies

Action against customs fraud is an important part of the Union’s overall activities against fraud and contributes to the overarching objective of protecting the Union’s financial interests as enshrined in Article 325 of the TFEU. The customs cooperation is premised on Article 33 TFEU.

This Impact Assessment has been drafted in line with various Commission policies in order to ensure complementary approach across the Commission's departments.

· Risk analyses in the area of customs fraud

Strategic objectives of the EU Customs Strategy include, inter alia, developing effective risk assessment (in order to contribute to the fight against terrorist and criminal activity) and enhancing effective and systematic sharing of risk information.[45] The proposal discussed in this Impact Assessment would complement the work of the Commission in the area of risk analysis.

Furthermore it is in line with the recent Directive 2010/65/EU on reporting formalities for ships arriving in and/or departing from ports of the Member States and provides for a more complete data picture.

· Protection of the EU's financial interests

The protection of the EU's financial interests is an important element of the Commission's political agenda, in order to consolidate and to increase public trust and give assurance that taxpayers' money is being used correctly.[46] Importantly, information on transit declarations can be helpful in ensuring that Member States' procedures comply with the relevant regulations and that traditional own resources (TOR) have been properly calculated, established and accounted. For the time being, information on transit declarations is available to OLAF only partially and is usable for strategic or operational analysis only. Broadening availability and sharing collected information within the scope of the cooperation in this area (protection of the financial interests) would lead to more efficient and effective use of resources for both, the Member States and the Commission which would contribute to the overall aim of protecting the EU's financial interests.

· Interoperability of electronic systems

Rationalisation of reporting formalities required by EU legislation is an important consideration not only for OLAF but for the whole Commission. In view of this, a careful consideration was given to the way in which the possible new databases could be linked with the already existing ones and how they may supplement each other.

3.6 Main actors affected by the current situation

· Industry & economic operators

The customs controls are time-consuming for both the controller and the controlee. It is necessary to concentrate on improving the risk-assessment approach because otherwise the controlees who are compliant with the existing rules unnecessarily lose time and therefore also money on controls that should rather be targeted at the suspicious cases/consignments. The current situation is problematic not only for the shipping lines but also for the economic operators/customers whose consignments might be delayed due to these controls. It is also important to note that by suffering from inefficient control measures, the compliant controlees might perceive fraud as a relatively 'attractive and safe' method of doing business. Therefore it is critical to ensure that the system serves as a successful disincentive for potential fraudsters and protects traders from unfair competition.

· Member States

Fraud not only affects the EU budget but it is also a matter of great importance for the Member States' national resources. Member States directly lose revenue in cases when fraudsters avoid customs duties (and subsequently also the inadequately paid VAT) by mis-description of origin, mis-declaration of goods and misuse of the transit system.

· The European Union

The main reason behind anti-fraud legislation is the need to protect the Union's financial interests. Mis-declaration of origin, mis-description of goods and misuse of the transit directly affect the EU budget by circumventing different types of duties that should normally be collected by the EU such as for example anti-dumping duties. The amount of money that is lost yearly due to these illegal activities is substantial.[47] However, it is also important to note that the protection of financial interests has a much broader dimension in a sense that each euro lost because of fraud can then not be invested into growth and jobs, which is the main objective of the EU budget. In addition, benefits to EU citizens and business, whether it is through blocking unsafe or illegal imports, facilitating smooth trade and a strong Internal Market cannot be realised. Therefore, ineffective detection, investigation and ultimately prevention of customs fraud not only undermine the budget of the EU but also have a negative effect on the policies and initiatives of the Union that are designed to benefit all European citizens.

· Commission (OLAF)

OLAF makes a substantial contribution to the protection of the financial interests of the EU and Member States' budgets every year by ensuring, through administrative investigations and policy initiatives, that EU and national budgets are well protected against fraudulent activities. However, as the preliminary results of different pilot projects (e.g. ConTraffic) illustrate, there is a great potential for more effective and efficient investigations.

3.7 Baseline scenario

If no action is taken, problems in the current situation are expected to evolve as follows:

· Customs-related breach of legislation would continue to remain partially undetected, causing the continuing financial losses to the EU and allowing a lower degree of implementation of related legislation.

· Fraud related to mis-declaration of origin will further increase. ConTraffic proved the usefulness of the Container Status Messages but as a research project will arrive to its end soon. Until a new method helping to detect mis-declaration of origin is adopted, fraud will continue to occur. One can even expect that fraud will be growing with fraudsters gaining experience. Hence the above mentioned 100 million EUR linked to the mis-declaration of origin will not only remain but will most likely grow even further.

· Similarly, no improvement in the fight against the mis-description of goods and misuse of the transit system is to be expected. The financial losses of about 110 million EUR for mis-description and 60 million EUR for cases involving misuse of transit might even be growing.

· As regards the transit, the current solution - ATIS, despite being very useful, reveals also some shortcomings. Apart from the fact that large parts of data remain outside its scope, the most important shortcoming is that several Member States request that this arrangement between OLAF and the Member States is formalised and based on an appropriate legal basis, possibly in Regulation 515/97[48]. Not respecting this request could eventually lead to the annulment of the current arrangement and thus an interruption of the functioning of the database. With less means, the detection success may decrease; hence undetected fraud will inevitably grow.

· The delays in OLAF investigations and the related time-barring depend on each particular case. There are various factors which affect the time devoted to a particular investigation, including timely responses to OLAF requests. Unless a change to the existing procedure is made, no improvement is to be expected in the near future. It is unlikely that the situation will change without any action being taken.

3.8 Subsidiarity, proportionality and fundamental rights

· Subsidiarity and proportionality

The need for EU legislation on mutual administrative assistance and customs co-operation was already recognized by the European legislator with the adoption of Regulation 515/97 and Council Decision 2009/917/JHA. The necessity of action at EU level continues to the extent that the transfer of goods happens across borders of more than one Member States. Consequently, Member States alone cannot efficiently observe, detect and mitigate risks of breach of customs legislation; nor are they capable of pursuing investigations properly if cross-border transfer of goods is involved. Organising activities in the area of customs cooperation at national level would further create significant practical challenges, lacking coherence and coordination of activities.

It is also important to note that the EU has an exclusive competence in fraud prevention and protection of its financial resources in customs matters. Customs fraud has a cross-border character and is a problem common to all Member States. Therefore, it needs to be tackled collectively. The EU is best placed to serve as a driving force behind such collective action because it already possesses the necessary experience, systems and expertise to ensure proper gathering, communication and sharing of information. It is also important to note that the fight against customs-related fraud requires a broader European approach given its international dimension. This view is shared by a majority of Member States as confirmed by the questionnaire carried out by the Commission in which most of them opted for the creation of necessary databases at the EU level.[49]

More specifically the following should be mentioned:

· The establishment of trends by using transit information or CSM is only possible by means of centralised processing, in order to ensure the pan-EU view and an analysis free from national interests.

· EU-wide information on import, export and transit which is needed for the global analysis and identification of trends is by definition more efficiently collected centrally than at national level.

Effective sharing of information and large-scale fight against breach of customs legislation cannot, at a reasonable cost, be conducted by national customs authorities alone. Indeed, obtaining the data necessary for the detection of fraud and identification of fraud patterns would be of disproportional effort to 28 individual Member States and, if achieved, of lower effectiveness and efficiency, compared to such action at EU level.

Following these arguments and given the EU's exclusive competence in customs union matters, it can be concluded that the EU is both entitled to and better placed to act than the Member States.

· Value added

Action at EU level would enable a significant improvement in the fight against customs-related fraud, by increasing the available evidence, improving the possibilities for detection and repression of fraud and rendering the action more efficient and effective.

· Relations with Fundamental Rights

The initiative examined in this Impact Assessment concerns in particular the fundamental right of the protection of personal data. This right is enshrined in the Charter of Fundamental Rights of the European Union (the Charter) and Article 16 TFEU, based on Directive 95/46/EC as well as in Article 8 of the European Convention on Human Rights.

Article 8 of the Charter reads that "everyone has the right to the protection of personal data concerning him or her". The Article lays down a number of criteria for the processing of personal data. First of all, personal data must be processed fairly and lawfully. The processing of personal data should also take place on the basis of legislation defining in sufficient detail appropriate data protection conditions and requirements. Moreover, personal data must be collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes. The processing of personal data must also be adequate, relevant and not excessive in relation to the purposes for which they were collected and/or further processed. Finally, one of the requirements is that personal data must also be accurate and, where necessary, kept up to date. To guarantee the observance of all these requirements, individuals enjoy legally enforceable rights, notably the right to access and rectify personal data relating to them.

The respect for the protection of personal data has already been duly considered and applied in Regulation 515/97 and Council Decision 2009/917/JHA through rigorous rules as regards the content, coverage of data, data preservation and data protection supervision.

4 Objectives 4.1 General objectives

· Reinforce the protection of the financial interests of the EU (fraud detection and investigation).

· Strengthen customs cooperation between Members States and between the latter and the Commission by ensuring the correct application of law on customs.

4.2 Specific and operational objectives

Figure 2: Overview –From problems to operational objectives

Problem || Specific Objective || Operational Objective ||

Mis-declaration of origin and related financial losses || Increase the detectability, prevention and prosecution of customs–fraud by enhanced collaboration between the MS and between the MS and the Commission (when fighting fraud related to mis-declaration of goods origin, mis-description of goods and misuse of transit system) || 1. Create conditions for improved fighting of customs fraud related to mis-declaration of goods origin

Mis-description of goods and related financial losses || 2. Create conditions for improved fighting of customs fraud related mis-description of goods

Misuse of the transit system and related financial losses || 3. Create conditions for improved fighting of customs fraud related to misuse of the transit system

Delays in OLAF investigations (and time-barring) || Improve the process relating to OLAF investigations linked to R. 515/97 || 4. Speed-up OLAF investigations

5 Policy options 5.1 Options addressing the core problem (operational objective 1, 2 and 3)

The breaches of customs legislation mentioned in chapter 3 (mis-declaration of origin, mis-description of goods and misuse of transit) are often interlinked, and so are the means to fight them. Hence they will be addressed together. Nevertheless a distinction is made between three separate operational objectives to demonstrate through the analysis of impacts to which extent and how each of the problems will be solved. Several options proposed are presented and analysed below.

· Option 0: Keep status quo[50]

This option follows a description of the baseline scenario. The detection of fraud related to mis-declaration of origin will profit from (limited) information available in ConTraffic, and the ATIS arrangement might be additionally used to help to fight fraud related to misuse of transit. No additional measures are envisaged as regards the mis-description of goods. The work load of the customs officers and OLAF investigators is expected to remain at the same level.

· Option 1: Soft law - With appropriate recommendations increase the detectability, of customs fraud related to mis-declaration of goods origin, mis-description of goods and misuse of transit

This option involves the introduction of soft law measures (i.e. recommendations issued by the Commission to the Member States) to achieve the objectives.

As regards objective 1 (mis-declaration of origin), the difficulty is premised on the verification of the necessary documents. The control requires a check of relevant documents which is a manual process involving a cumbersome procedure vulnerable to human mistakes. A common method used by fraudsters is to mis-declare the true origin of the goods by "trans-shipping" containers via a third country. Therefore, as demonstrated by ConTraffic results described earlier on, tracking the real movements of containers transporting the goods can be an effective way of identifying potentially fraudulent operations.

Data considered useful/necessary for the analysis of container movements can be received from ocean (deep sea) carrier companies. It is data on the status of the fleet of containers they handle. The companies store this information in the form of CSMs where the status and location of a container is registered along with the time and date. The companies use this information for their own logistics as well as to inform their customers of the whereabouts of booked containers.

The recommendation to Member States would focus on inviting Member States to support the Commission in its attempts to obtain CSMs from economic operators. It would be left to the Member States to decide on specific measures that could be taken. For instance, Member States could adopt national rules which would require shipping lines to provide the information in question either to the Commission directly or to the Member State that would then forward it to the Commission. It is also important to note in this context, that for the time being contractual obligations vis-à-vis their clients prevent economic operators from disclosing certain information which may also include the required CSMs. In order to respond to this risk, Member States would be invited to adopt relevant statutory obligation that would prevail over any contractual duty of confidentiality.

In relation to objectives 2 and 3 the recommendation would invite Member States to provide the Commission (OLAF) with the respective data. In reality this means authorising OLAF to access/copy the data, provided by Member States, which is currently available in another Commission platform[51] in a similar fashion to what is done for transit data as illustrated by ATIS example. However, the recommendation concerning the transit data would also include additional data (on national transit and other subsequent transit information, such as modifications in the routing schedule or results of controls), i.e. ATIS arrangement would be enlarged.

· Option 2: Responsibility to increase the detectability of customs fraud related to mis-declaration of goods origin, mis-description of goods and misuse of transit is vested in the EU (Commission)

This option involves the creation of an EU central database for CSM and data related to import, export and transit as a tool to achieve the objectives 1, 2 and 3. The central database should be the basis for the analysis related to the detection, prevention and prosecution of the three main types of customs fraud by exchange of necessary data, new analysis, identification of trends and international collaboration.

This database would build on experience gained from ConTraffic and from ATIS. The national transit and other subsequent transit information, such as modifications in the routing schedule or results of controls would also be included in the EU central database.

The responsibility to collect and analyse the data would be allocated to the Commission, which would be obliged to regularly provide the Member States with the results of the analysis and support them by targeting national controls of customs-related fraud. It is envisaged that the new databases will have analytical and reporting services available to the competent Commission services and to the Member States via the AFIS platform.

The use of the AFIS platform also guaranties the appropriate level of security for data storage and transfer. AFIS implements a security policy approved by the Member States and relies in the CCN network for secure data transmission to the Member States customs authorities. In addition, AFIS is regularly audited by the relevant data protection supervisory bodies (i.e. EDPS, CJSA).

The data would be obtained from the following data sources: CSMs – container tracking systems operated by the shipping lines. Transit declarations – New Computerized Transit System ("NCTS"). Import declarations – Surveillance II. Export declarations – Export Control System ("ECS").[52] It should be noted that, because the ECS does not contain data on direct export, these data would have to be supplied by the Member States in addition to what is already included in ECS. Centralised implementation of the system would avoid any direct impact on the infrastructure of the Member States. Option 2 is the preferred option both by the industry and by the Member States. In particular, the industry recognises that formal obligation at the EU level would resolve an issue of confidentiality which is currently preventing them from sharing CSM data. In addition, it is envisaged that under option 2, specific provision would be inserted in Regulation 515/97 providing for a transitional period for economic operators which would give them additional time to re-negotiate their existing contracts and change standard contract clauses in full conformity with the new EU obligation.

· Option 3: Responsibility to increase the detectability of customs fraud related to mis-declaration of goods origin, mis-description of goods and misuse of transit is vested in the Member States

This option involves, contrary to the above, entrusting the Member States with the responsibility for collection and analysis of additional data (CSM, import, export and transit data). Therefore, each Member State would create its own national databases for CSM, import, export and transit related data. Regular exchange and open access should allow Member States to communicate and exchange data and to prepare regular analysis. This option is contrary to the wishes expressed both by the industry and the Member States,

This option would require Member States to make it obligatory for the economic operators to provide CSMs to national databases. Such obligation would most likely be enshrined in a statutory provision at national level and it would override the confidentiality obligations which currently prevent businesses from disclosing this type of information. Consequently, the risk related to legal implications of requiring data (i.e. CSMs) from operators who have contractual obligation not to disclose it would be mitigated. Under this option, carriers would have to submit CSM data to 28 Member States. Since some carrier may opt for selective reporting, each Member State would then have to forward the CSM data received to other Member States in order to achieve an EU-wide national CSM data repository.

It is expected that Member States would rely also on the CCN network[53] for secure data transmission and that the security of the databases would be guaranteed by applying the IT security standards in place for national customs IT systems.

Each Member State would have to adapt and extend its national systems for import, export and transit data in order to forward to other 27 Member States its own data on a regular basis and to integrate the data received. The case of transit is even more complex due to the involvement of non-Member States. Potential overlaps could be avoided if Member States would rely on the existing IT systems operated by the Commission (e.g. ECS or Surveillance II) to partially lower the risk and cost of implementing this option. In any case, Member States would have to implement their own reporting, alerting and analysis system to exploit data. The use of different analytical tools would represent a challenge when it comes to the exchange of results of the analysis.

· Option 4: Shared responsibility between the Commission and the Member States to increase the detectability of customs fraud related to mis-declaration of goods origin, mis-description of goods and misuse of transit

There are several possibilities how such a 'mixed' option could be realised and there are various ways in which the responsibility between the national authorities and the EU could be shared. Among those possibilities, some involve a very disproportionate burden for MS and are manifestly inefficient and undesirable; such are the possibilities that involve parallel creation of systems all doing global analysis (for example one Contraffic per MS). These combinations were not further considered.

To illustrate the possible operation of this option the following mix of responsibilities is considered. The CSM and transit data would be collected at the EU level and the Member States would be responsible for data related to import and export. This is the most plausible mixture because it takes into account the current settings (Commission handling the ConTraffic and ATIS) hence, allocates the responsibility accordingly. The responsibilities retained by the Commission would be implemented according to the principles of option 2, whereas the considerations made under option 3 would apply to the implementation of the competencies retained by Member States. The data security considerations under options 2 and 3 are also applicable.

This option would require the Commission to make it obligatory for the economic operators to submit CSMs. Such requirement would take a form of legal obligation included in Regulation 515/97 and it would prevail over any contractual duty of confidentiality.

· Option 5: Baseline scenario plus

This option suggests increasing (doubling) the man-power assigned to the detection and prevention of the relevant customs fraud. The necessary controls are carried out by a number of customs authorities using varying techniques. By relying upon more control officers and more investigators, it is expected that more fraud would be detected and possibly also prevented. The proposed doubling of resources could concern both Member States and the Commission (OLAF).

After thorough analysis this option is discarded at this stage. First of all, suggestion of increasing the number of staff in Member States as well as in the Commission, working on controls and investigations, appears delicate in the time of the economic crisis and global resource constraints. In addition, this option would inevitably impose a substantial financial burden on both the Member States and the Commission. Finally, the main drawback of this option is that it would not improve the efficiency of controls (by improved targeting of controls) but it would rather increase the amount of controls and investigations as such.

5.2 Options addressing other problems (Objective 4)

Difficulties related to the length of the investigation procedures and the related time-barring of OLAF investigated cases contribute to the continuous misuse of the existing rules and provide unfair advantages to fraudsters, while causing financial losses to the Member States as well as to the EU budget. Several options as to how this problem should be addressed are presented below.

· Option 0: keep status quo

As already explained in the baseline scenario (chapter 3.6), OLAF investigations cannot be conducted faster without additional measures and human resources. Therefore no improvement can be expected in the near future. On the contrary, due to "resource crunch" in public administration it is expected that the situation may further deteriorate. Moreover, a reduction of 2% in the overall number of available posts in Commission was implemented in 2012. Further reductions are foreseen for the future.

· Option 1: Soft law - Issue a recommendation to speed up the procedure and request Member States to provide the supporting documents within a deadline

This option suggests issuing a recommendation inviting Member States to contribute to a faster procedure. A recommendation is a non-binding instrument, which can be understood as an appeal to Member States to improve the current practice and contribute to the process of speeding up the investigations and fraud detection. The Member States would be invited to speed up their national procedures in order to ensure that the Commission receives the requested documentation in due time. It would be left up to the Member States to decide how to meet the deadline imposed by the Commission. One solution would be, for instance, to oblige the companies at the national level to provide requested documents within a specified period of time so that the Member State could meet its deadline.

· Option 2: Speed up the investigation procedure by empowering the Commission to directly ask economic operator for supporting documents

Similar to sectoral rules relevant for other OLAF investigations, the Commission would be empowered to request supporting documents directly from the economic operators. This option involves a change of the role of the Member States in the communication chain. (Member States would be informed but would not play an active role.) In practice, this option enables the Commission to directly address the private sector operators with the request for the provision of relevant documentation without the need for Member States' intermediation.

· Option 3: Increase number of investigators in Commission/OLAF

This option suggests the improvement of the working flow at OLAF by increasing the number of investigators employed by OLAF. It is assumed that by increasing the number of investigators working in OLAF, the time spent on investigation should be shortened. It is expected that speedier work at OLAF would alleviate the problem of lengthy investigations. This option presents a different solution as compared to options 1 and 2 because it focuses on shortening the time spent by OLAF on investigations, rather than shortening the time spent on obtaining relevant documentation.

· Option 4: Request economic operators to additionally provide information at national level through a modification in the relevant EU legislation[54]

This option implies the return to the situation from before 2010 (i.e. before e-Customs was introduced). Under this option, economic operators would be obliged to provide information and all supporting documents to their respective national authorities, as they did before e-Customs was implemented. Hence, when OLAF investigators would need such information, the national authority should be in position to provide it immediately without the need to contact relevant private sector operators.

· Option 5: Impose a deadline for providing the supporting documents

This option suggests the imposition of a specific deadline for Member States to provide the Commission with the relevant documents. However, such a requirement may be considered by the Member States as too intrusive. Moreover, a single deadline for all cases will fail to take into account the fact that each investigative case is different; there are various degrees of complexity of cases and therefore the types of documents and the volume differ from one case to another. It is also assumed that the Member States provide the requested documents as soon as they are available to them but the national procedures, depending also on the above mentioned complexity of any given case, can vary. Not respecting the deadline for justifiable reasons, would nevertheless create the obligation for the Commission to start infringement procedure against the Member State in question, resulting in additional administrative burden on both sides. Therefore, this option was discarded at this early stage as bringing fewer benefits than potential disadvantages and/or costs.

6 Assessment of impacts of the policy options

Common considerations

· Fundamental rights

All the options under this initiative respect the fundamental rights, freedoms and principles contained in the Charter of Fundamental Rights of the Union and in particular protection of personal data, as described in the chapter 3.8. In this context it is important to note that the envisaged CSM database would contain no nominal data. Databases on import, export and transit would contain personal data and protection of this data is to be monitored by EDPS according to already applicable standards laid down in Regulation 515/97.

· Environmental impact[55]

There are no environmental impacts associated with any of the options within this initiative. In theory there is a possibility, under options 3, 4 and 5 addressing the operational objective 1, that shipping lines may shift a burden associated with additional reporting obligation on their clients by increasing the prices for the services they provide and this price increase may arguably initiate changes in trade patterns (i.e. a modal shift from sea to less environmentally friendly means of transport such as road or rail). However, such modal shift may occur only if the relative price of shipping by sea increases sufficiently to cause shippers to look for shorter sea routes and move more cargo by land. Since port infrastructure is also a large determinant of freight costs, it may take significant changes in relative freight rates to cause any modal shift.[56] In any case, given the fact that proposal presented in this Impact Assessment should not in practice result in freight rates changes, it is considered that no environmental impacts would be caused by this initiative.

· Impact on SMEs

The impact on SMEs is relevant only for that part of the options addressing the operational objective 1. However, the ocean carrier companies are already obliged to submit similar data to the US authorities.[57] Therefore, in principle these companies should not be burdened with additional costs. In any case, it appears that no SMEs are present in the relative branch of industry (i.e. shipping lines). WSC which represents 90% of global liner vessel capacity is composed of 29 companies none of which can be considered as SMEs. However, there are also freight forwarders companies (sometimes renting containers from the shipping lines) that may be also burdened with the new obligation. Therefore, in order to avoid potentially negative impacts on SMEs in freight forwarding sector, it is envisaged that the only obligation which directly affects economic operators (i.e. obligation to provide CSM related data) should apply exclusively to economic operators who already possess this data. Since all companies other than SMEs are already producing this information (for their own analysis and for their clients) such condition would ensure that SMEs are not negatively affected by the proposal.

For all other objectives, the impact on SMEs is out of the scope, as the SMEs are not concerned.

· Social impact

No specific social impacts can be associated with any of the options under this initiative. The proposal will neither lead to new job creation nor to job losses. In other words, the proposal will not affect the functioning of the labour market.

However, some general positive impact created by the reduction of smuggled goods onto the EU market could be envisaged. Such reduction may result from an increased targeting of customs-related fraud (in particular IPR related infringements). An in-depth analysis related to this phenomenon was conducted by DG ENTR. It is important to note that original products must pass a number of quality controls to ensure their conformance with safety measures. These controls are in most cases not respected by fake products, therefore counterfeit goods do not offer any guarantee for public health; they in fact can even be dangerous for the consumers.

In particular, one could speak of potential aspect of health hazard, especially in the context of smuggled food products, medicines and cosmetics. They may cost less, but they can have serious adverse effects as they can be of poor quality, made of the wrong components/ingredients and have questionable effectiveness, if any. An increased risk can also be associated with the products where the risk is less obvious, for example car parts, toys or even shoes and garments.

Last but not least, it is also recognised that trade in counterfeit goods also increases citizens’ tax bills; EU residents pay taxes and get public services in exchange, but their honest contribution is increased because of counterfeit goods. Therefore, the increased and better targeted actions against customs fraud (related to IPR) would have a broad positive social impact.

· Impact on sector competitiveness

No negative impacts on sector competitiveness are expected to arise from this initiative. The proposal does not affect in any way the costs of doing business or the international competitiveness. As already explained, the only obligation affecting directly the industry (i.e. obligation to provide CSMs) should not in principle impose additional financial burdens on the companies, as there is a way for a quasi no cost option, building on the experience these companies have with the reporting of the CSMs to the US authorities. In addition, no impact on international competitiveness can be associated with this proposal because the obligation to provide CSMs would not only be limited to companies in the EU. In addition, the obligation to provide CSMs also applies in the US.

It is expected that less fraud will have a positive impact on the fair competition of the market, in particular thanks to better targeting of customs fraud related to IPR infringements. This is because counterfeit products do not usually follow the requirements of the internal market resulting in a situation whereby the economic operators and fraudsters compete under unequal conditions.

· Simplification potential

Simplification potential is the main reason behind the proposal addressing delays in OLAF investigations. Faster procedures would simplify the current system for conducting OLAF investigations as much as the administrative burden on Member States would be decreased as the Commission would take care of obtaining the necessary documents directly. In addition, albeit to a lesser extent, the successful achievement of objectives 1, 2 and 3 would create a simplification potential in the process of identifying customs fraud, which is mentioned below, where pertinent, under the option-specific assessment of impacts.

Final assessment

In relation to the objectives, the criteria for assessing the policy options used include:

· effectiveness – the extent to which options are expected to achieve the objectives. In particular, this criterion measures the expected contribution to achieving operational objectives. If an option contributes more effectively, it will receive a higher score.

· efficiency – the extent to which objectives can be achieved for a given level of resources/at least cost (cost-effectiveness).

· coherence – the extent to which options are coherent with the overarching EU objectives, strategies and priorities (e.g. Strategy for the evolution of the Customs Union, Better Regulation initiative).

In addition to the above described common impacts, the options were assessed according to the economic impacts they are deemed to generate and their simplification potential.

6.1 Impact related to operational objectives 1, 2 and 3 6.1.1 Option 0: Status Quo

Overall: While no additional costs would be created, one could not expect any positive evolution as regards losses to national and European budgets. Furthermore, it is important to bear in mind the need to continuously expand the existing processes for the fight against fraud. The option of keeping the status quo could result in a situation whereby fraudsters would increasingly take unfair advantages from the loopholes in the current procedures. In addition, this option fails to take into account the need for simplifying the processes as envisaged by the Better Regulation initiative. Furthermore, it is incoherent with the Strategy for the evolution of the Customs Union which recognises, inter alia, the need for continuous adaptations and improvements in the common working methods for customs and the fact that only continuous development and strategic investment in resources can maintain customs efficiency and effectiveness.

· Objective 1: Create conditions for improved fighting of customs fraud related to mis-declaration of goods origin

Without any intervention, no improvement of the current situation can be expected. On the contrary, ConTraffic, being a research project, will at certain point come to an end (depending on the achievements, progress as well as financial resources). In general, economic operators expressed their reluctance to provide the Commission with CSMs on a voluntary basis (as envisaged in Article 18a of Regulation 515/97). Indeed, the representatives of the companies argue that contractual obligations with their clients (obligation of confidentiality) do not allow the disclosure of these data. Nevertheless, there is some information about container movements freely available online, depending on shipping carrier. There is however a growing trend to limit the availability of this information, which already creates a burden for the project. While, during the years of the ConTraffic project, a number of cooperating companies remained stable, there is a significant risk that the lack of progress in creating a solid legal framework would discourage companies from allowing the Commission to obtain the data necessary for the functioning of the ConTraffic project.

The financing of the ConTraffic would continue as long as the initiative is still on-going.[58] The effectiveness of this solution is therefore limited in the long-run by the fact that the project would end at some point in time.

· Objective 2: Create conditions for improved fighting of customs fraud related to mis-description of goods

Due to the currently prevailing financial constraints, there is no indication that the existing practice will change. Therefore, no improvement in the achievement of objective 2 can be expected. The mis-description of goods would continue to be addressed by document-based check, visual check of goods as well as the examination of supporting documentation such as the invoice and the bill of lading. The selection of suspicious cases would continue to be premised on risk assessment systems founded on incomplete information and porous risk profiling.

· Objective 3: Create conditions for improved fighting of customs fraud related to misuse of the transit system

As is the case with the achievement of objective 2, also here the current global economic situation would imply that there will be no improvement in the existing practices. For the time being, there is no indication of any planned changes that could be introduced into the customs procedure in order to facilitate the fight against misuse of the transit system. Nonetheless, the ATIS system would continue its operation at least for a certain period of time. However, without any additional action being taken, there is a substantial risk that the situation would deteriorate given the fact that six Member States have expressed strong disagreement on the current legal basis of the ATIS arrangement (see chapter 2.4.4.2).

6.1.2 Option 1: Soft law

Overall: This option is expected to have a positive economic impact since it would create some conditions for an improved fight against customs fraud and recuperation of the customs induced financial losses. It is nevertheless estimated that this economic impact will be lower than in the best-case scenario (option 2 as described below) as it is likely that not all Member States would commit themselves to follow the recommendation.

As far as simplification is concerned, the positive impact in this context is similarly reduced. Such partial contributions would additionally create a risk of incomplete data picture, which would hamper the effectiveness of the entire initiative. This option has a positive impact as far as the coherence with overarching EU strategies is concerned. Assuming that at least some of the Member States decide to follow the recommendation, this option would contribute to Better Regulation initiative and would be in line with the Strategy for the evolution of customs which, inter alia, aims at enhancing effective and systematic sharing of risk data.

With regard to the operational objectives that this option should aim to satisfy, the following specific benefits, costs and impacts can be identified:

· Objective 1: Create conditions for improved fighting of customs fraud related to mis-declaration of goods origin

The main drawback of this option, as mentioned above, is the fact that such recommendation would most likely be followed only by some of the Member States. Also, the Member States would face similar difficulties in obtaining data from the companies which would create a risk of incomplete data sets. On the other hand, however, the introduction of a soft law is a relatively straightforward and inexpensive solution; this option would not imply substantial costs on the part of the Member States; the only cost would relate to the actual implementation of the recommendation.[59]

· Objective 2: Create conditions for improved fighting of customs fraud related to mis-description of goods

The same considerations related to the take up of the recommendation by the Member States apply to Objective 2. And just as above, this option constitutes a relatively fast solution that can be quickly and easily incorporated by the Member States. Moreover, the supply of relevant information would not create any costs as this information already exists and is exchanged among Member States in another Commission's platform[60]. However, despite of this possibility, the information in question cannot be accessed by OLAF because currently OLAF lacks the legal bases for doing so. Therefore, the supply of data would simply take the form of the Member States' consent to copy the existing data, similarly as was done in the ATIS case. Importantly, there is still a risk that the Member States might feel dissatisfied with the adoption of only a temporary solution. [61]

· Objective 3: Create conditions for improved fighting of customs fraud related to misuse of the transit system

Currently ATIS is based on a voluntary agreement and so far it has proved to be a useful and effective method of detecting customs fraud related to misuse of the transit system. Member States certainly use ATIS in their investigations, and currently a PCA is taking place for which the ATIS is used. However, as it was already explained in the problem description (section 3.3.1.2), the experience gained since the creation of ATIS reveals certain shortcomings which to a certain extent impede its effectiveness (i.e. unavailability of data on national movements and subsequent transit information). Moreover, under this option a clear need expressed by several Member States to formalise ATIS by giving it a legal base would be disregarded. For this reason, soft law approach does not appear to be in line with the wishes of the Member States.

· Costs

Figure 3: Overview – Costs related to option 1 (objectives 1, 2 and 3)

Actor || Objective 1 || Objective 2 || Objective 3

MS || Costs of implementing recommendation - negligible || None – MS provide solely their assent to copy/use data managed by TAXUD || None – MS provide solely their assent to copy/use data managed by TAXUD. Costs for providing remaining data (on national transit) are negligible as the data exist on national level already

Commission || Administrative cost of issuing a recommendation || Administrative cost of issuing a recommendation || Administrative cost of issuing a recommendation

Economic operators || If global dump: no costs If selective reporting[62]: 3.000 to 200.000 EUR[63] || n.a. || n.a.

6.1.3 Option 2: EU centralised approach (Commission is responsible and uses a central database)

Overall: This option is expected to have strongly positive economic impact, since it would maximise the opportunity for an improved and effective method of detecting customs fraud and recuperation of the customs induced financial losses. The estimated revenue recuperation is detailed below under each of the operational objectives that this option aims to achieve.

The adoption of a centralised (EU-level) approach will also provide a substantial simplification in the area of customs. One centralised system with common features and interface would significantly improve the processes and both the collection and utilisation of relevant data. In addition, it is also sound to collect data centrally given the fact that trade is usually trans-national and so it requires a global overview. Centralised approach would also ensure that EU customs legislation is applied in a uniform way, so that treatment of traders, fraud prevention, and legal obligations do not vary. Importantly, centralised approach is considered by the Member States as well as the industry as the most efficient and least burdensome option.

Moreover, this option offers a solution which is coherent with the overarching EU objective of ensuring Better Regulation and reducing the "red tape" by creating centralised databases and eliminating the encumbrance on Member States and the industry. The creation of centralised databases on CSMs, import, export and transit data is also coherent with the Strategy for the evolution of the Customs Union which recognises the need to improve the capacity in the fight against customs-related fraud by, inter alia, streamlining and improving current IT systems. In particular, the Strategy stipulates that an approach must be developed to further adapt and advance the common working methods for customs.

With regard to the operational objectives that this option should aim to satisfy, the following specific benefits, costs and impacts can be identified:

· Objective 1: Create conditions for improved fighting of customs fraud related to mis-declaration of goods origin

The Commission has proved to be in a good position to collect data and maintain the ConTraffic database which can be considered as a basis for tracking the container movements and should provide the possibility to verify the declared origin of the goods. Based on the results of ConTraffic project, the JRC has estimated that if all EU imports were cross-checked using the full range of CSM data more than 100 million EUR could be recovered per year from the importers that have mis-declared the origin of goods.

Furthermore, from the experience of OLAF and of national customs authorities, it has been proven that the use of CSM data