COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the

Proposal for a Council Regulation

on the establishment of the European Public Prosecutor's Office

Table of Contents

1........... Introduction. 5

2........... Procedural issues and consultation of interested parties. 8

2.1........ Consultation and expertise. 8

2.2........ Internal consultation and scrutiny of the Impact Assessment 10

3........... Problem Definition. 10

3.1........ What is the problem?. 10

3.2........ Which are the drivers behind the problem?. 12

3.3........ Problem definition: conclusions. 22

4........... Right to act, subsidiarity and fundamental rights. 24

4.1........ Legal basis. 24

4.2........ Subsidiarity and need for EU action. 25

4.3........ Fundamental Rights. 27

5........... Objectives. 27

6........... Policy options and their impact 30

6.1........ Overview of policy options. 30

6.2........ Policy option 1: Base-line scenario - No policy change. 30

6.3........ Policy option 2: No new regulatory actions at EU level 32

6.4........ Policy option 3: Strengthening of the powers of Eurojust 32

6.5........ Policy option 4a: Creation of an EPPO entity within Eurojust 34

6.6........ Policy option 4b: Creation of a College-type EPPO.. 35

6.7........ Policy option 4c: Creation of a decentralised integrated EPPO.. 35

6.8........ Policy option 4d: Creation of a centralised EPPO.. 36

6.9........ Horizontal issues for options 4a-4d. 37

7........... Assessment of policy options. 38

7.1........ Status quo (policy option 1) – Baseline scenario. 40

7.2........ No new regulatory actions at EU level (policy option 2) 42

7.3........ A strengthened Eurojust (policy option 3) 44

7.4........ Creation of an EPPO entity within Eurojust (policy option 4a) 46

7.5........ College-type EPPO (policy option 4b) 49

7.6........ EPPO with decentralised integrated organisation (policy option 4c) 52

7.7........ EPPO with centralised hierarchical organisation (policy option 4d) 56

7.8........ Horizontal issues. 58

8........... Comparative assessment 59

9........... Enhanced cooperation. 61

10......... Monitoring and evaluation. 62

Executive Summary Sheet

Impact assessment on the Regulation of the Council on the establishment of a system of European Prosecution for protecting the union's financial interests: the European Public Prosecutor's Office (EPPO)

A. Need for action

Why? What is the problem being addressed?

The Union's financial interests are still not protected sufficiently: fraud, corruption and other offences affecting the Union's budget have reached disturbing levels in some areas and the lack of vigorous enforcement has helped a sense of impunity to emerge among fraudsters. The Union's current actions to protect its financial interests include administrative investigations, controls and audits, as well as legislative action, including the Commission's proposal for a Directive on the fight against fraud to the Union's financial interest by means of criminal law and the reform of OLAF, but do not address the deficiencies identified with respect to the investigation and prosecution of criminal offences related to the protection of the EU's financial interests. For the purpose of this impact assessment it has been assumed that about 3 billion euro per year could be at risk from fraud. The most affected stakeholders are the law enforcement and prosecutorial authorities in the Member States.

What is this initiative expected to achieve?

The initiative is expected to strengthen the protection of the Union's financial interests through establishing a European Public Prosecutor's Office. Its establishment is expected to lead to a more consistent prosecution policy for crimes against the EU's financial interests, ending the current fragmentation. This will lead to an increase in the number of prosecutions of the perpetrators of crimes affecting the financial interests, leading to a higher number of convictions, a higher level of recovery of illegally obtained funds and increased deterrence. In addition, its independence will ensure that investigations and prosecutions of the relevant crimes will be taken forward and brought before national courts, without direct influence of national authorities.

What is the value added of action at the EU level?

The added value of establishing a European Public Prosecutor's Office is mainly to be found in a more consistent prosecution policy, as well as an increased number of prosecutions of crimes affecting the Union's financial interests. This is expected to increase the level of deterrence and therefore improve the overall respect for the applicable rules, as well as the level of recoveries of funds unduly paid. The EPPO will direct investigations and prosecutions in the Member States, ensure effective coordination of investigations and prosecutions, and reduce problems related to different applicable legal systems. The current system, where the Member States are solely responsible for such investigations and prosecutions, supported by Eurojust and Europol, is not efficient enough to deal with the high levels of relevant crime and associated damages.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why?

Seven policy options have been considered, of which four involve the establishment of a European Public Prosecutor's Office. Maintaining the status quo, taking non-regulatory actions only or improving the functioning of Eurojust have all been considered to be not effective enough in addressing the problems identified – only the options for establishing an EPPO have been assessed as providing effective and efficient action. The options for establishing an EPPO vary with respect to their institutional set-up, ranging from creating a unit within Eurojust (4a), a college-type EPPO (4b), a decentralised integrated EPPO (4c) to a centralised EPPO (4d). According to the impact assessment, setting up the EPPO as a decentralised integrated European organisation, based on the national judicial systems (4c), offers the most benefits.

Who supports which option?

Consultations with stakeholders have demonstrated differences of views with respect to the different options for establishing the EPPO. Most agree that other actions would neither be efficient nor effective enough to address the problems identified. The exact institutional set-up of the EPPO has been the subject of discussions ranging back to the 90's, and these discussions have not led to a common view amongst practitioners on the preferred option. The main difficulties relate to the integration of the EPPO and its actions within national judicial systems, the law applicable to investigations and prosecutions under the authority of the EPPO, as well as the integration of the EPPO's work with existing institutions, in particular Eurojust and OLAF.

C. Impacts of the preferred option

What are the benefits of the preferred option (if any, otherwise main ones)?

All four options for establishing the EPPO are expected to bring benefits in terms of an increase in the number of prosecutions brought forward in national courts. Of these four options, only the decentralised and the centralised options are expected to bring significant benefits, with the decentralised option doubling the current number of convictions, and the centralised option reaching almost that number. In addition to an increase in recovery, the impact assessment conservatively assumes that a doubling of the number of convictions will lead to a reduction in damage of around 10%. This means that the decentralised option is expected to provide the most benefits: over twenty years these are projected to total €3 200 million. The centralised option is a close second with expected benefits of about €2 900 million over the same period. The benefits of the other options are much more limited than that.

What are the costs of the preferred option (if any, otherwise main ones)?

The costs of the different options for establishing the EPPO vary quite considerably. The most expensive option is the centralised one, which assumes that all investigations and prosecutions will be handled at the European level, leading to a higher number of required EU staff. The decentralised option does not entail as much costs, also because use is made to a large extent of resources existing in the Member States, at Eurojust and at OLAF. The costs for the centralised option over twenty years are expected to be over €800 million, whereas the costs for the decentralised option are expected to be about €375 million. These costs include all costs expected to arise from establishing a new European body.

How will businesses, SMEs and micro-enterprises be affected?

Businesses, SME's and micro-enterprises will not be directly affected through establishing a European Public Prosecutor's office.

Will there be significant impacts on national budgets and administrations?

Yes – the increase in the number of prosecutions will lead to an increase in the costs for court cases, legal assistance etc. In addition, national law enforcement authorities will need to get used to working together with the EPPO and its staff. However, no significant new investments in investigation or prosecution staff will be needed: the currently available staff is expected to work more efficiently and effectively under the EPPO's direction.

Will there be other significant impacts?

Yes. The EPPO must be established with full regard to the fundamental rights of the defendants, witnesses and other participants in its investigations and procedures. This includes a system of judicial review of its actions. There will also be an impact on relations with third countries, since the EPPO will need to cooperate with them in the course of its investigations.

D. Follow up

When will the policy be reviewed?

A statistical review of the policy is foreseen to take place within two to four years after the establishment of the EPPO.

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the

Proposal for a

Council Regulation on the establishment of a system of European Prosecution for protecting the Union's financial interests: the European Public Prosecutor's Office

1. Introduction

In times of fiscal consolidation the protection of the European Union budget is of special political, legal and economic relevance. Both the Union and the Member States have a duty "to counter fraud and any other illegal activities affecting the financial interests of the Union" as well as to "afford effective protection" to such interests.[1] Despite this clear obligation directly imposed by subsequent EU treaties and already referred to in 1989 by the European Court of Justice[2], the Union's financial interests are still not protected sufficiently by many Member States: fraud, corruption and other offences affecting the Union's budget have reached disturbing levels in some areas and the lack of vigorous enforcement has helped a sense of impunity to emerge among fraudsters. Recent analyses[3] confirm that hundreds of millions of euros of taxpayers' money continue to disappear due to such criminal activities. This concerns notably structural funds, the cohesion fund and areas of highly taxed products (e.g. cigarettes, alcohol etc.). Besides the Union itself, many citizens and companies are adversely affected by these offences, and the current budgetary restraint efforts undertaken by the Member States and the Union seem less credible to them if the Union and the Member States are unable to prevent such damage to the EU budget and effectively prosecute fraudsters.

Whereas both the Union and the Member States have an obligation to protect the Union's budget, in reality the Union has little control over the expenditure by Member States and virtually no power to intervene in cases of criminal misuse of the EU's funds. The vast majority of the EU budget is managed by national authorities (for example when they award public procurement grants financed through the EU budget) and any criminal investigations or prosecutions concerning offences affecting the Union's budget are within the competence of the Member States. Criminal investigations into fraud and other crimes against the EU budget are often hampered by divergent legislation and uneven enforcement efforts in the Member States. National law enforcement authorities, prosecutors and judges in the Member States decide in accordance with priorities set by national criminal policy and on the basis of national criminal law competences and procedural rules whether and, if so, how they intervene to protect the Union's budget. Consequently, the level of protection of the Union's financial interests differs significantly from one Member State to another. The fact that the rate of successful prosecutions concerning offences against the EU budget varies considerably across the EU from one Member State to another (from 19,2% to 91,7%[4]) shows a gap in the existing protection mechanisms and calls for corrective measures.

Links between crimes affecting the Union's financial interests and organised crime should also be considered. In accordance with the findings of the 2011 OCTA report[5], organised crime is a threat to the citizens and the economy of Europe, to its businesses and state institutions. Criminals operate easily across borders, and organised crime is becoming increasingly diverse in its methods, groups structures, and its impact on society. Crimes affecting the Union's financial interests both at the national and the EU level attract organised criminal groups due to the low levels of detection and prosecution of cases, as discussed further below.

The scale of fraud against the EU budget Data collected and analysed by the Commission identify “suspected fraud” averaging about €500 million in each of the last three years, but there are good reasons to believe that the actual amount of fraud is significantly higher. Rather obviously, figures on reported fraud cannot include fraud that is not detected. Moreover, not all Member States distinguish between “irregularities” and “fraud” – indeed, six Member States reported zero fraud affecting the spending of EU funds during in the area of Cohesion Policy for the programming period 2007-2013.[6] The preparatory study for this impact assessment (see annex 3) examines the potential size of this “dark figure”. On the revenue side, VAT fraud and cigarette smuggling have been estimated to each cost the EU budget some €1 billion per year. As regards spending, the preparatory study for this impact assessment estimates that in a “low-risk” scenario, damages in the area of agricultural and structural funds could amount to €4.1 billion each year. Taking into account the weaknesses in the available data, for the purposes of this Impact Assessment it has been assumed that about €3 billion per year could be at risk from fraud. Given the weaknesses in the available data and the difficulties inherent in measuring the scale of the criminal activities that are undetected, the true figure, however, cannot be calculated precisely.

The Union's current actions to protect its financial interests are manifold, but they have a single aim: to ensure that the limited financial resources of the Union are used in the best interests of EU citizens. This is indispensable for the legitimacy of its expenditure and for ensuring public trust in the Union. Such actions include administrative investigations, controls and audits, as well as legislative action. The most recent of these actions is the Commission's proposal for a Directive on the fight against fraud to the Union's financial interest by means of criminal law.[7] This proposal addresses the side of substantial criminal law on fraud and aims at ensuring, in particular, an appropriate level of sanctions. However, in order to ensure the functioning of the EU system to prevent and sanction fraud, it is also indispensable to ensure that these actions are actually applied in practice. Even the most efficient controls and the best possible legal framework will not produce results without effective investigation and prosecution measures which ensure that the perpetrators of the crimes concerned are actually brought to trial and sanctioned.

The previous initiatives do not serve that purpose. In particular, the reform of the European Anti-fraud Office (OLAF) only aims at improving the efficiency and transparency of the current administrative investigations but cannot be expected to have any substantial impact on the level of criminal investigation and prosecution of offences in the area of EU fraud.[8]

There is currently therefore a significant gap in the "enforcement cycle" (see picture on page 12). This is the focus of the current report.

This Impact Assessment report will demonstrate that addressing these issues requires the setting up of a strong, effective and integrated European enforcement regime against fraud and other illegal activities affecting the Union's financial interests. The Union's actions should seek to put an end to the fragmented enforcement regime in the Member States and ensure a coherent approach to dealing with European fraud cases throughout the Union, from detection to investigation, and from prosecution to judgment. Only by overcoming the current legal and institutional barriers to fighting crimes against the EU's budget by national law enforcement authorities and justice systems will the Union be able to ensure efficient protection of its budget. The gaps identified in the enforcement cycle need to be closed.

Actors at European and national level involved in actions to fight offences against the EU's financial interests.

Eurojust || Established in 2001, Eurojust is the European Union agency for cross-border judicial cooperation in criminal matters. It plays an important role in cross-border cases involving the financial interests of the EU. Eurojust does not have the power to start criminal investigations or prosecutions in the Member States. Eurojust’s role is to stimulate and improve the coordination of investigations and prosecutions between the competent authorities in the Member States and to improve the cooperation between the competent authorities of the Member States. Eurojust supports in any way possible the competent authorities of the Member States to render their investigations and prosecutions more effective when dealing with cross-border crime. Eurojust may ask the competent authorities of the Member States concerned: · to investigate or prosecute specific acts; · to coordinate with one another; · to accept that one country is better placed to prosecute than another; · to set up a Joint Investigation Team; or · to provide Eurojust with information necessary to carry out its tasks. The operation of Eurojust is the responsibility of the College of Eurojust, which is composed of one National Member from each of the EU’s Member States. National Members are seconded in accordance with their respective legal systems. The exact status and powers of each National Member is defined by the national legislation of their appointing Member State, which also determines how long they serve.

Europol || Established in 1997, the European Union's agency for law enforcement cooperation supports investigations into offences affecting the EU’s financial interests through its analysis tools and information exchange networks. Europol has no operational powers – its staff cannot by themselves conduct criminal investigations.

OLAF || OLAF was established in 1999 as the European body responsible for protecting the financial interests of the Union by combating fraud, corruption and other illegal activities. OLAF exercises its mission by conducting administrative anti-fraud investigations and supporting the Commission in the implementation of fraud prevention and detection policies. OLAF is a central office within the European Commission, which receives reports on fraud[9] and irregularities[10] inter alia from the Member States' authorities and conducts administrative investigations into suspected cases of fraud and other offences affecting the EU’s financial interests, either on its own initiative, using factual information, including from private sources, or on request by a member state or EU institution. It also collects data on these cases. However, OLAF does not have competence with respect to criminal investigations.

Member State authorities || Investigate and prosecute these offences, as well as bring offenders to judgment.

2. Procedural issues and consultation of interested parties

2.1. Consultation and expertise

Discussions on how to best strengthen the investigation and prosecution of offences against the Union's financial interests, for example through the creation of a European Public Prosecutor's Office (EPPO), have been going on for more than a decade. There are already numerous institutional documents, studies and independent analyses of the relevant issues available.[11] To a large extent, the current report builds on this research. However, these studies, much as the Treaty itself, leave a number of technical, legal and political issues open. Therefore, two studies conducted by an external contractor were carried out on behalf of the Commission with the objective to prepare this impact assessment.[12] Preparatory consultations in view of the current report have therefore covered these issues, based upon a large panoply of options as regards the institutional, organisational and operational set-up of a European system for investigation and prosecution of the relevant offences.

1.

2.

2.1.

At the beginning of 2012, two questionnaires were published and distributed, one to justice professionals and another to the general public, respectively. A large number of detailed replies were sent to the Commission. In general, the replies were positive towards taking new actions to strengthen the material and procedural framework to counter offences affecting the EU’s financial interests, and most also expressed support for the idea to set up an EPPO. A number of more detailed suggestions, concerns and questions were also voiced (see Annex 1), in particular on the relationship between the EPPO and national prosecution authorities, the competence of the EPPO to direct and coordinate investigations at national level, or the possible difficulties with any harmonised European rules of procedure in the EPPO's proceedings.

In parallel, field research has been conducted in a number of Member States, as part of the external study in support of this report.[13]

In addition, throughout 2012 and at the beginning of 2013, a number of discussions or meetings took place at European level:

· The network of Public Prosecutors or equivalent institutions at the Supreme Judicial Courts of the Member States, Budapest, 25-26 May 2012.

· Conference: A Blueprint for the European Public Prosecutor's Office? Luxembourg, 13-15 June 2012. The conference gathered experts and high level representatives from academia, EU institutions and Member States.

· Vice-President Reding's consultation meeting with Prosecutors General and Directors of Public Prosecution from Member States, Brussels, 26 June 2012. The meeting permitted an open discussion on specific issues regarding the protection of the Union's financial interests.

· On 18 October 2012, the Commission organised a consultation meeting on issues relating to a possible reform of Eurojust, in which questions related to the setting up of an EPPO were also discussed with representatives of Member States. The meeting generally supported establishing a close link between Eurojust and the EPPO.

· The 10th OLAF Conference of Fraud Prosecutors, Berlin, 8-9 November 2012, was an opportunity to explore the ways in which national prosecutors would interact with the EPPO, if set up.

· The informal consultation held on 26 November 2012 with defence lawyers (CCBE and ECBA) looked at procedural safeguards for suspects and made useful recommendations in that regard.

· ERA seminar "Towards the European Public Prosecutor's Office (EPPO)", 17 and 18 January 2013.

· Meeting of the Commission Expert Group on European Criminal Policy, Brussels, 23 January 2013.

· Further consultation meeting with ECBA and CCBE, Brussels, 9 April 2013.

Also, numerous bilateral consultation meetings with Member States’ authorities have taken place over the second half of 2012 and the beginning of 2013.

2.2. Internal consultation and scrutiny of the Impact Assessment

An Interservice Steering Group was created involving representatives from DG Justice, OLAF, DG DEVCO, DG AGRI, DG BUDG, DG EAC, DG EMPL, DG ENTR, DG HOME, DG MARKT, DG MOVE, DG RTD, DG SANCO, the Secretariat-General and the Legal Service. ISSG meetings were held on 17 September 2012, 26 November 2012 and on 30 January 2013. At the meetings and in subsequent communication with individual DGs, comprehensive feedback was received which has been taken into account throughout this report.

This Impact Assessment was examined by the European Commission's Impact Assessment Board on 10 April 2013. Further to the IAB's recommendations, additional information, explanations and data were introduced in this document. In particular, the problem definition has been redrafted to focus more on the core problems of inadequate investigation and prosecution of offences against the Union's financial interests, and the reasons why these are not addressed through current initiatives. Also, the objectives have been simplified, and the cost-benefit analysis has been further explained to show more clearly the reasons underlying the differences in the benefits of the various options. In addition, more information was included on consultation of stakeholders, information on a discarded option was added, and some horizontal issues which did not affect the assessment and comparison of the options were taken out to make the intervention logic easier to understand, while the contribution of others to addressing the problems has been clarified. Finally, a separate Annex 2 was added which better explains the relations between the problems, the objectives and the options.

3. Problem Definition

1.

3.1. What is the problem?

As shown under point 1, every year at least several hundred million euros are fraudulently diverted from their intended purpose. Only a small fraction of these losses are ever recovered from the criminals. These figures show that the financial interests of the European Union are insufficiently protected from fraud. In fact, the Commission's annual statistics (including those of OLAF) demonstrate that while fraud against the Union's financial interests is pervasive and causes substantial damage every year to the tax payer, national criminal enforcement efforts lag behind. In particular, OLAF's cases which are transferred to national investigation and judicial authorities are not always equally effectively followed-up.

The issues described in the introduction to this report can be visualised through a simple diagram, which shows the relations between the various issues – the enforcement cycle referred to above. This diagram clarifies how these different issues reinforce each other, leading to a vicious cycle in the current organisational and institutional structure: there are high levels of crimes against the financial interests of the Union, of which only a certain amount is detected. A low level of detection leads to an even lower level of investigation, since not all detected crimes will be investigated. A low level of successful investigations leads to an even lower level of prosecution, since not all investigated cases will be prosecuted. Finally, not all prosecuted cases lead to convictions and recovery of the proceeds of crime. Low levels of recovery lead to low levels of deterrence of criminal activities, leading to a higher level of EU-fraud, and so on. In order to break this vicious cycle and achieve higher rates of recovery and deterrence, it is therefore crucial to convict a larger number of offenders, through more effective investigation and prosecution of offences against the EU’s financial interests.

Figure 3.1. Enforcement cycle

Key areas for potential direct impact of EU Action

3.

3.1.

Clearly not all of these issues can be tackled through action at the EU level: detection remains within the remit of national law enforcement and adminstrative authorities, and convictions remain under the sole power of national courts. However, detection levels could increase if detected offences were to be investigated and prosecuted in a consistent and systematic manner, thereby generating better knowledge of the fraud phenomenon by the investigators and the prosecutors. Likewise, it can safely be assumed that larger amounts of money will be recovered if more cases are brought before national courts (for example by the EPPO), even if the rate of successful prosecution to dismissals would stay the same. Whilst these factors are important, and will be considered in the cost-benefit analysis of the different options, they will only be influenced partly through EU action. The remainder of this Section will therefore mainly focus on the drivers of the problem which need to be considered, and which are identified in the investigation and prosection phases of the enforcement cycle.

3.2. Which are the drivers behind the problem?

3.2.1. Limits of existing measures

The main reasons why enforcement is often weak or deficient are the absence of a European enforcement structure, the lack of continuity in enforcement action and the lack of an underlying common European prosecution policy. Whereas offences affecting the EU’s financial interests are genuine European crimes, the current institutional and legal framework suffers from a fragmented enforcement regime almost solely based on national responses, which depend on the priorities and resources of national investigation, prosecution and judicial authorities. The sections below identify the reasons why this is the case, provide further details on the actions already taken by the Commission to address these issues, and explain why these actions alone do not suffice.

3.2.

3.3.

3.3.1.

Commission anti-fraud strategy

Prevention plays an important role in the protection of EU’s financial interests. Preventive measures may take the form of audits, ex-ante controls, fraud proofing of legislation and better coordination.

In June 2011, the Commission adopted the Commission Anti-fraud strategy (CAFS) which focuses on improving prevention, detection and the conditions for investigations of fraud. It also aims at achieving adequate reparation and deterrence, with proportionate and dissuasive sanctions. The CAFS is targeted at striking a balance between cost-effective control and simplification and adapting the anti-fraud measures in place to counter new fraud schemes. The Commission makes use of the experience derived from OLAF's investigations into alleged fraud and will develop anti-fraud strategies for specific Directorates-General.

Prevention efforts and actions through controls can be effective, but they need to be proportionate and in accordance with the objectives of simplification. They need to be complemented by an effective sanctioning system which reduces the temptation of fraud.

Finally, not all fraud can be prevented. This leaves the challenge of better criminal investigation and more efficient prosecution in cases involving the financial interests of the Union.

Limits of the current legal framework

A number of instruments are in place at EU level in order to ensure the protection of the financial interests across the Member States, among which the 1995 Convention on the protection of the EU's financial interests and its protocols[14], Regulation 1073/1999 on investigations conducted by OLAF, and Regulation 2185/1996 concerning on-the-spot checks and inspections.

However, in time, these instruments have shown their limits: reports[15] demonstrate a fragmented implementation of the 1995 Convention and its protocols by the Member States. Experience in investigations accumulated over the last 14 years since OLAF’s establishment has shown that certain aspects needed improvements.

Anti-fraud Directive

In July 2012 the Commission adopted a proposal for a Directive on the protection of the Union's financial interests by means of criminal law in order to address the limits identified above. The Directive will replace the 1995 Convention and aims at further approximation of definitions of relevant offences and of sanctions levels. This includes: definitions of offences (fraud, corruption, money laundering), harmonising definitions of additional offence types, minimum imprisonment ranges for particularly serious offences and harmonising the prescription period. However, whilst a sufficient level of sanctions and procedural rules to allow the application of these sanctions are essential, they can only be effective if they are complemented by measures ensuring that they are also effectively applied in practice. These measures are not part of the proposed Anti-fraud Directive.

Eurojust

Eurojust's mandate only allows it to coordinate and encourage investigations and prosecutions, and assist with information exchange. This means that Eurojust in general only becomes active where Member States themselves take the initiative on a certain case.

In the context of this impact assessment we are however looking particularly at the problem that such action often simply is not taken. And if a Member State prosecution service is reluctant to investigate or prosecute a case, Eurojust cannot compel it to do so. The National Members of Eurojust often lack the powers to ensure effective follow-up in the Member States, or if they do, they usually refrain from using the powers which they derive from national laws – most decisions on these sort of issues are arrived at through consensus.

As will be discussed in more detail below, even the most far-reaching reform of Eurojust is limited by the TFEU. Article 85 TFEU, which provides the legal basis for the establishment of Eurojust and lays down its mission does not provide the possibility to entrust Eurojust with conducting investigations: at the maximum, Eurojust could be given the power to initiate investigations, but not conduct them. The prosecution of cases before the national courts cannot be entrusted to Eurojust under Article 85 TFEU, which means that the current disparities and fragmentation of national prosecution efforts would not be solved.

Europol

The role of Europol is limited to providing intelligence and support to national law enforcement activities. It cannot ensure follow-up to its analyses in the Member States, nor direct national investigations. The powers of Europol are also limited by the TFEU. Under Article 88 TFEU Europol cannot independently investigate crime, and any operational action must be carried out by Europol in liaison and with the agreement of the national law enforcement authorities. Whilst the support functions of Europol are certainly important, these cannot substitute for the powers to independently investigate criminal behaviour.

A proposal for a Regulation on Europol was adopted by the Commission in March 2013, focusing on aligning Europol’s competences with the TFEU and to make it a hub for information exchange, while granting new responsibilities regarding training. It does not comprise police investigation and law-enforcement powers in the area of the protection of EU’s financial interests.

OLAF – administrative investigations

The powers of OLAF are limited to administrative investigations, and OLAF thus cannot directly lead investigations into crime sensu stricto, nor access information on criminal investigations. This may be a source of delays in the investigation of fraud and of shortcomings in the efficient use of resources. It also leads to problems concerning the use of evidence collected in administrative proceedings by OLAF in subsequent criminal proceedings, since evidence collected in administrative proceedings may not always be recognised as valid under the criminal procedural laws of the Member States. Investigation efforts therefore may need to be duplicated, performing evidence collection twice.[16] Moreover, OLAF has no enforcement powers. OLAF may make a recommendation to a Member State for judicial action to be taken but it is for the national authorities to decide whether they take any action or not.

A proposal to amend Regulation 1073/1999 concerning investigations conducted by OLAF (OLAF reform) is under inter-institutional negotiation. This proposal improves the information exchange between OLAF and EU institutions bodies, agencies and offices (IBOA), as well as with the Member States and it provides better governance for OLAF and a set of procedural guarantees for the persons concerned by investigations, rendering its work more efficient and transparent. However, it does not provide OLAF with any additional means of action, in particular criminal investigation powers.

Table 3.1 Powers of EU actors

Limits of the powers of actors at EU level

Eurojust || The role of Eurojust is limited to support and coordination of the work of national judicial authorities. Whilst it may ask for the initiation of investigations, it cannot ensure follow-up at the Member State level, nor direct national investigations or prosecutions.

Europol || The role of Europol is limited to providing intelligence and support to national law enforcement activities. It cannot ensure follow-up to its analyses in the Member States, nor direct national investigations.

OLAF || OLAF does not have any competences with respect to criminal investigations, nor is it able to ensure follow-up to its administrative investigations at the national level.

As regards cooperation at Union level, mixed experiences have been reported regarding the cooperation with Eurojust and Europol, and between the Member States and OLAF. As indicated above, Eurojust and Europol do not always receive the information they need to be able to support the Member States. OLAF provides support to Member States through its ability to grant specialised technical and operational assistance as required by Article 7 of second Protocol to the Convention on the Protection of the European Communities’ Financial Interests.[17] At the same time, OLAF's investigations are conducted subject to specific conditions, in particular when it comes to transmitting information to the national judiciary, including applicable data protection rules. For this reason, the cooperation with OLAF has also been criticised on occasion, in particular with respect to the long time it sometimes takes for OLAF to share information with national prosecutors.[18] Some Member States also restrict the cooperation with non-judicial bodies like OLAF based on rules of judicial secrecy.

3.2.2. Low levels of investigation and prosecution of offences against the EU budget

Inconsistent follow up to OLAF investigations by Member States' authorities

OLAF's annual statistics demonstrate that the cases transferred to national investigation and judicial authorities are not equally effectively and efficiently prosecuted across the EU. In its eleventh operational report, OLAF analysed the judicial follow-up given by Member States to its cases over 12 years and found "very substantial differences between countries with respect to their capacity to bring EU-budget related judicial investigations and prosecutions to a conviction within a reasonable time".[19] By the end of 2011, national judicial authorities had decided on 471 of a total of 1030 actions transferred to them by OLAF in the period between 2006 and 2011, whereas judicial follow-up was still pending regarding 559 cases.[20] Of these 471 decisions, only 199 were a conviction by a criminal court. All other cases were either dismissed or a decision of acquittal was taken. In addition, there are very significant disparities between the Member States. In the period from 2006-2011, conviction rates at national level ranged from 19,2% to 91,7% (not including Member States with rates of 0% and 100%).

The table below indicates that only a few really well performing Member States such as Finland or Lithuania have a conviction rate over 90%[21], while many other Member States have a much lower prosecution (lower than 40%) and conviction rate (lower than 35%), thereby leading to a lack of effectiveness and of equivalence of the protection of EU’s financial interests across the Member States.

The fact that the average prosecution rate lies under 50% indicates that there are serious difficulties in achieving overall effectiveness of investigation and prosecution in the Member States.

The reasons why many Member States have an overall weak performance when it comes to investigating and prosecuting crimes affecting the Union's financial interests may be found in the comparatively limited chances of the national prosecutors to exercise their function within the national jurisdiction and come to a successful prosecution within a reasonable period of time. This is partly due to the complexity of the facts, which requires an in-depth understanding of the whole legal and administrative framework applicable to the EU fraud cases. It may also be explained by the fact that evidence collected outside of the national territory is frequently needed, requiring that instruments of international cooperation (MLA) are used, with a considerable risk of delay in the investigation. All these factors, including linguistic challenges, together lead to a situation with slowly functioning and less efficient prosecution systems.

At the same time, the success of the best performing Member States may come at a price for the protection of the EU’s financial interests as a whole: sometimes Member States achieve quick results by limiting the investigation and prosecution of the cases to the national territory, addressing the underlying criminal conduct only partially and negatively affecting the investigation of cross-border cases. It may also be noted that those Member States which achieve the highest conviction rates are relatively small in terms of population. Accordingly, the number of cases transmitted to them by OLAF for judicial action represents a relatively low percentage within the overall number of cases transmitted by OLAF to the Member States judicial authorities. Therefore, the challenges (at least in terms of number of cases) with which some of the best performing Member States have to deal with may be less complex than in the case of other Member States which have to prosecute a much higher number of fraud cases.

The differences which can be noted between the Member States when it comes to the performance of their judicial systems when prosecuting fraud may therefore be related to a number of factors, from the number and complexity of cases they have to cope with, to the degree of complexity of the procedural framework each Member State applies, the experience of the prosecutors in dealing with complex cases, or the resources they allocate to crimes affecting the EU's financial interests.[22] It has to be noted that it is very difficult to assess the performance of the judicial systems of the Member States first of all because the data in the table below is limited to cases transmitted by OLAF (excluding Member States own investigations and prosecutions) and also because such analysis would imply an in-depth study of the overall performance of each judicial system, including the legal procedural framework applicable in each Member State, and of the crime situation on the ground. However, it is expected that an EPPO functioning on the basis of a common set of rules and guidelines would contribute to approximating the judicial practices of the Member States in the area of crimes affecting the EU's financial interests and to achieve a higher degree of performance of prosecution in such cases.

Table 3.2. Member States’ follow-up of cases transferred to them by OLAF, 2006-2011

The available data thus indicates strongly varying outcomes of judicial proceedings involving offences against the EU’s financial interests. These findings are mainly based on experience that OLAF has gained in its own investigative practice. OLAF investigations (about 500 cases per year) represent only a minority of cases out of the total number of cases (around 2500 per year) affecting the EU's financial interests which Member States investigate. There are, however, no indications that in cases where OLAF was not involved, the record of the Member States is more satisfactory than the one presented in the table above. In fact, OLAF cases should present higher chances of successful prosecution due to the fact that an administrative investigation into the facts has already been carried out.[23] The fact that cases previously investigated by OLAF produce such modest results in terms of prosecution and conviction rates shows that a system where EU bodies only have administrative investigation powers is not fully effective and cannot achieve satisfactorily the objective of deterrence.

The sections below explain why these outcomes occur, and the issues related to investigation and prosecution.

Weak motivation to prosecute crimes affecting the EU’s financial interests

Prosecuting offences against the EU budget is considered too burdensome and therefore of secondary importance by the authorities in a number of Member States. As the chances of successful achievement of investigations within a reasonable short time are considered low, direct national, regional or local interests may take priority over European interests.

There are a number of factors which can lead the national authorities to have weak incentives to prosecute crimes against the Union’s financial interests:

· Authorities are often reluctant to comprehensively prosecute offences against the EU’s financial interests when the case has international components requiring evidence to be collected abroad; there is a perceived tendency to put complex European fraud cases involving cross-border cooperation on offences affecting the EU’s financial interest "at the bottom of the pile";

· It is sometimes difficult to identify a clear priority jurisdiction, and therefore both negative and positive conflicts of jurisdiction may arise;

· There may also be a lack of sense of ownership of such cases, as national authorities may wrongly count on authorities in other Member States to deal with the case.

Case example: National judiciary declines jurisdiction A Member State which from a European perspective appeared to offer the most appropriate jurisdiction, ultimately declined jurisdiction in a case forwarded by OLAF – in close collaboration with Eurojust – because the "relevant acts" were all committed outside its territory even though the potential suspect was a national of the respective Member State. The difficulty in this case was that it concerned a fraud with multiple transnational elements. The suspected person, alleged to have requested payments for services never provided, was residing in various Member States while committing the offence. The suspect was also working for several companies which were carrying out EU funded projects and those were based in different EU Member States. The projects were carried out in non-EU Member States. Further, the suspected person received payments in yet another Member State.

The majority of the experts consulted (57%) consider that cases involving the EU’s financial interests are not fully discovered by the national authorities and that they are neither investigated nor prosecuted adequately (64%). Sixty per cent of the experts felt that cases were sometimes hampered by the European dimension. This ratio is significantly higher than for other areas of crime.[24] Probably as a consequence of this, 54 % admitted to sometimes limiting their investigation to the national aspects of a case even though they recognised its European dimension.

Case example: National judiciary restricts prosecution to national elements OLAF experienced that national judicial authorities put aside the transnational dimension to facilitate the investigation. This prevents the investigation from identifying the complete EU dimension of the offences committed. In one of its cases, OLAF forwarded information on traffic of Chinese products via Norway into the EU territory to a national judicial authority for prosecution. However, the prosecutor in charge (initially) decided to prosecute only the traffic within his Member State. He did not take into account the subsequent important traffic into several other Member States, because it was faster to close the case if leaving out the cross-border dimension.

In addition, stakeholders have reported that the institutional guarantees to ward off any undue interference in prosecution work, also required to properly investigate and prosecute offences affecting the EU’s financial interests, are not always at hand. For example, interviewees in some Member States where public governance issues exist have indicated that on the expenditure side of the EU budget conflicts of interests exist in the authorities implementing the funds and this may have further adverse effects. They assert that close networks of public administration officials, political leaders and business people exist, especially at the local and regional level, which hamper the effective protection of public money.

“Prosecutors cannot win the battle when national and commercial interests are involved that are too strongly intertwined.”[25]

Insufficient and ineffective cooperation and information exchange

Tackling cross-border fraud cases requires closely coordinated and effective investigations and prosecutions. Current levels of information exchange and coordination at national and European level are not sufficient to effectively prosecute offences affecting the EU’s financial interests, despite the efforts of Union bodies, such as Eurojust and Europol. Regularly, investigations are undertaken in parallel in different countries, with limited coordination efforts. Even more importantly, the proceedings in one State can be blocked if part of the case has already been finally disposed of in another. Coordination, cooperation and information exchange problems occur at different levels and between different authorities and are a major impediment to the effective investigation and prosecution of offences affecting the EU’s financial interests. There is no authority that can deal with these obstacles and ensure continuity in the investigation and prosecution process.

At national level, there is often insufficient information exchange on suspected offences involving EU funds between the authorities responsible for monitoring and control, those dealing with administrative investigations and law enforcement bodies. This partly arises as a result of loopholes in the procedural framework referred to above hampering efficient multidisciplinary investigations involving judicial as well as administrative, customs and tax authorities in the Member States. Agencies managing and controlling the disbursement of EU funds sometimes focus solely on getting their money back through administrative and civil law procedures even if there are strong suspicions that a criminal act has occurred.[26] This may lead to neglecting criminal prosecutions, and with that deterrence and general prevention.

The effective investigation and prosecution of offences against the EU’s financial interests is, furthermore, hampered by the fact that law enforcement authorities and prosecutors do not always transmit information about criminal offences to their colleagues in other Member States, or to Eurojust or Europol. In interviews, various prosecutors reported cases where they had information they thought would have been interesting for their colleagues abroad, but which they did not share proactively.[27] As there is no obligation to share the information in all cases, practical problems such as lack of contact points, language barriers, and time constraints constitute real obstacles that prevent the proactive sharing of relevant information. Whilst both Eurojust and Europol can provide important support to deal with these issues, they are dependent on the willingness of national authorities to make use of their services.

Case example: Obstacles to information exchange between Member States OLAF had been notified by one Member State authority of possible irregularities at import into the EU of chicken breast fillets from South America. There was a suspicion that this meat trader had abused the import pricing system in order to evade payment of the additional duties at import of South American poultry meat. While judicial procedures had been launched in one Member State, an important amount of evidence was to be gathered in other Member States. In one of those other Member States the judicial authorities were prevented to send evidence gathered by them to the other Member State pending a decision by the Supreme Court. According to the national law, MLA requests may not be executed before exhaustion of all local remedies, despite the fact that there are remedies available in the requesting State. This had an impact on the further transmission of this evidence and on the administrative recovery procedures.

In addition, the classical ways of international cooperation via mutual legal assistance (MLA) requests or via joint investigation teams (JITs) are often not functioning well enough to allow for the effective investigation and prosecution of these offences despite the efforts of European bodies such as Eurojust and Europol. Responses to MLA requests are often very slow and police and judicial authorities experience practical difficulties in contacting and cooperating with colleagues abroad due to language problems and differences in legal systems.[28] In some States, slow and ineffective international cooperation has frequently resulted in the impossibility to pursue the case due to the fact that the prescription period had expired. In addition, cases affecting the EU’s financial interests are particularly complex: 34% of interviewed practitioners reported that such cases fail in a European context because of legal cross-border issues.[29]

"Obstacles to effective international cooperation are the insufficient synchronising of procedural rules according to which evidence is collected; different timeframes to conduct certain actions within different Member States, and language problems: a different meaning is attributed to the legal terminology used in different States – there are conceptual terminological differences."[30]

“Diagonal” cooperation between administrative and criminal investigation authorities and multidisciplinary investigations

There are also a number of gaps and loopholes in the procedural framework applying to the investigation of offences affecting the EU’s financial interests which are related to the multidisciplinary character of these investigations involving not only criminal investigation authorities, but also administrative, customs and tax authorities in the Member States.

These difficulties arise mainly because of the lack of a level playing field in administrative procedural law. For example, there are currently no rules regulating cross-border cooperation between an administrative authority in one Member State and a criminal investigation authority in another Member State (known as "diagonal cooperation").

Other legislative gaps concern the access to information and the exchange of information between the Commission and the Member States’ competent authorities, in particular with their criminal investigation authorities.

Concerning horizontal administrative cooperation between Member States' competent authorities, the EU rules governing Mutual Administrative Assistance (MAA) have developed over time on the basis of specific needs in the individual policy field: this explains why different instruments have been established for administrative assistance in customs matters and agricultural/fisheries[31] matters on the one hand and in tax matters[32] on the other hand. Therefore the legal framework in this domain is very fragmented.

At the same time, the difference between mutual assistance in criminal matters and administrative cooperation poses a problem as regards Joint Investigation Teams (JITs), which are foreseen only between judicial authorities. At EU level, the participation of the Commission in joint administrative investigation teams may currently be established only in the customs field (Naples II Convention).

Other problems arise from the fact that there are no specific provisions concerning the use and recognition of evidence gathered in the context of multidisciplinary investigations by administrative authorities – including the Commission - in judicial proceedings, therefore it often happens that investigative acts are duplicated. Sometimes, information gathered in the pre-trial phase remains unused in criminal proceedings and the levels of admissibility of such information vary to a large extent throughout the EU.

“Fraudsters play on the asymmetry of information within the EU.”[33]

International cooperation with third countries can also be a significant problem affecting the effective investigation and prosecution of fraud and other offences affecting the EU's financial interests, because such offences often have a transnational dimension that reaches beyond the EU. These cases usually require cross-border cooperation to obtain evidence, as well as coordination of law enforcement actions, but in practice such actions are frequently limited to a single State. Jurisdictions which prosecute these cases are not necessarily the ones which are best placed to prosecute while some Member States are clearly reluctant to prosecute them.

3.2.3. Low level of deterrence

Deterrence is often considered to be the ultimate objective of any criminal legislation, and is specifically mentioned in Article 325 TFEU as a core objective of actions to counter fraud and any other illegal activities affecting the financial interests of the Union. For deterrence to be effective, persons committing offences need to be punished, and their punishment needs to be publicised as well. The conviction demonstrates to other people that crime does not go unpunished and, coupled with the recovery of illegally obtained advantages, that crime does not pay. A well-functioning criminal justice system in which any potential offender can expect to face investigation and prosecution has a significant effect on deterrence which can be higher than in case of administrative sanctions.

However, as a consequence of the weaknesses described above, the deterrent effect of the current enforcement regime is insufficient, in particular as regards actions conducted by Member States to investigate and prosecute offences against the EU’s financial interests.

The first sections of this problem definition show that the deficiencies in the enforcement regime lead to impunity to a considerable extent or give the false impression of tolerance of offences affecting the EU’s financial interests. Potential perpetrators may think that the likelihood of their offence being detected and prosecuted, let alone of them being convicted, is very low. As a result, they may not be dissuaded from committing offences against the Union's financial interests or from re-offending if their previous crimes have gone unpunished.

3.3. Problem definition: conclusions

The law on offences affecting the Union's financial interests is generally not enforced to a sufficient degree by the Member States. There is no European body that is responsible for investigating and prosecuting crimes affecting the EU's financial interests. Consequently, whilst many cases have cross-border elements, these are not sufficiently pursued. Law enforcement efforts are fragmented, and Member States do not take all the actions necessary to tackle crimes against the EU budget.

The preceding paragraphs outline the many issues which negatively influence the enforcement cycle for these specific types of offences. As stated before, action at the EU level can in particular address problems related to investigation and prosecution, as well as cross-border coordination and cooperation. Indirect effects of such action could include a higher level of detection, as well as a higher number of successful prosecutions due to more effective follow-up of reported offences.

This is especially relevant since the research performed demonstrates that the main reasons why enforcement is often weak or deficient are the absence of a European enforcement structure, the lack of continuity in enforcement action and the lack of an underlying common European prosecution policy. Whereas offences affecting the EU’s financial interests are genuine European crimes, the current institutional and legal framework suffers from a fragmented enforcement regime almost solely based on national responses, which depend on the priorities and resources of national investigation, prosecution and judicial authorities.

In addition, whilst Eurojust and Europol can and do assist the Member States in dealing with these cases, neither of these organisations can address all of the issues identified, in particular due to the fact that they cannot direct national investigations and prosecutions. They are also dependent on information received from the Member States, but cannot compel them to gather the information needed to follow up suspected crimes effectively.

Although OLAF is a key player at EU level in the fight against fraud and irregularities, it is limited in its activities to administrative investigations, and submitting the results to national authorities, who may decide against any criminal law follow-up. This means that in its current set-up, OLAF is also unable to bring criminal cases to their conclusion.

Stakeholder views This analysis is supported by the results of the EuroNEEDS study[34], which identify a number of points regarded as problematic from a European perspective. A majority of prosecutors testify being hampered by European dimension of cases, with financial interest experts indicating that legal complexities pose particular problems for them. Around half of the prosecutors interviewed furthermore reported limiting their cases work to aspects of national relevance meaning the European nature of cases goes neglected. Finally the study indicates that the current criminal justice response to European cases is not comprehensive and unlikely to be consistent (dependant as it is upon national prosecutor’s circumstances). This is a clear argument supporting the need for a structural change such as the EPPO. A figure of this kind should guarantee full investigations, not hindered by national borders in what is investigated thereby providing the necessary informational basis for comprehensive prosecution. Furthermore, the House of Lords has recently published a Report on the fight against fraud on the EU’s finances, following an extensive inquiry into this topic and a number of interviews carried out both at EU level (Commission, OLAF, European Parliament, Eurojust, Europol), as well as with representatives of the UK government.[35] The House of Lords notes that if OLAF were to be seen as a body whose recommendations are never followed up, it will remain hamstrung in its ability to protect the EU's financial interests. The House of Lords also states that if the UK government rules out a participation in the EPPO at this stage, it should explain how they propose to tackle the shortcomings in the system for combating fraud against the EU's finances discussed in the Report without participating in any EPPO.

Whilst Member States recognise these problems in terms of efficiency, the research performed in preparation of this impact assessment shows that they sometimes find it more difficult to be precise on the exact nature of the problems in their own administrations, which may be due to the fact that they perceive these problems only within the context of their national systems. This may also partly explain why the consultations on this topic have resulted in divergent views on the solutions to these problems, and therefore focussed more on the different models for solving the issues.

A consequence of these problems is that only a very small part of the total amount of fraud is ever recovered from criminals[36]: expert opinions and available data show that recovery rates are currently very low, below 10%.[37] This is ultimately due to the relatively small number of successful prosecutions in these cases. A conviction for criminal activities increases the chances of a successful financial recovery as it provides an additional tool to ensure successful enforcement; it prevents the individuals concerned from committing further criminal acts, and generates wider deterrent effects. The more successful enforcement authorities are in bringing offenders before the courts and securing their conviction, the greater the chances of recovering more of the proceeds of crime, and the greater the deterrent effect.

Diagrams explaining the relations between the problems identified in this Section, the objectives identified in Section 5 and the options can be found in Annex 2.

3.4.

4. Right to act, subsidiarity and fundamental rights

4.1. Legal basis

One of the fundamental innovations introduced by the Lisbon treaty in the Area of Freedom, Security and Justice is the legal basis for the establishment of the European Public Prosecutor's Office (EPPO). For the first time the founding Treaty foresees the creation of a Union body with prosecutorial powers.

The current legal basis for establishing an EPPO is laid down in Article 86 of the TFEU, which states that the EPPO:

· will have to combat crimes against the financial interests of the EU;

· would be established ‘from Eurojust’; and

· shall be responsible for investigating, prosecuting and bringing to justice the perpetrators of these offences.

Article 86 TFEU specifies a special legislative procedure for setting up of a European Prosecutor’s Office: the Council needs to decide this unanimously after obtaining the consent of the European Parliament. Article 86 TFEU limits the initial competence of the EPPO to offences against the Union’s financial interests, but does foresee that this limitation of its powers may, at the same time or afterwards, be extended by the European Council, after obtaining the consent of the European Parliament and after consulting the Commission.

Article 86 (1) TFEU also specifies the possibility of establishing the EPPO on the basis of enhanced cooperation: in the absence of unanimity in the Council, a group of at least nine Member States may request that the draft regulation be referred to the European Council, leading to a suspension of work in the Council. If a consensus is reached within four months, the European Council will refer the draft back to the Council for adoption. Within the same timeframe, if at least nine Member States wish to establish enhanced cooperation, they must notify the European Parliament, the Council, and the Commission thereof, after which authorisation to proceed with enhanced cooperation referred to in Article 20 (2) TEU and Article 329 (1) of the TFEU shall be deemed to be granted and the respective provisions shall apply.

Denmark, Ireland and the UK do not take part in the adoption of measures in the justice field (Protocols 21 and 22 to the TFEU). However, Ireland and the UK have the possibility to opt in.

4.2. Subsidiarity and need for EU action

The traditional subsidiarity test requires a demonstration that the proposed measure's objective may be better achieved at Union level than at the level of individual Member States. For establishing this, it needs to be assessed how the main objective, i.e. effectively protecting the Union's financial interests and “countering fraud and other illegal activities” affecting such interests, has been met thus far, particularly taking into account the results of efforts by Member States and the reasons for any shortcomings. As the establishment of a European Public Prosecutor's Office specifically seeks to enhance criminal prosecutions related to EU fraud and other illegal activities affecting the Union's financial interests by introducing a direct European enforcement regime, to be implemented and coordinated by a European prosecution office, it also needs to be demonstrated that criminal prosecutions conducted by national authorities do not and cannot achieve the results expected from such a Union-level enforcement regime.

There is a clear need for EU action to protect the EU's financial interests for the following reasons:

· As set out above, Article 86 TFEU provides for the establishment of a European Prosecutor's Office. Also, Article 325 TFEU imposes a general obligation to counter fraud and other illegal activities affecting the Union's financial interests, an obligation which applies equally to the Union, its institutions, and to the Member States. The Union's competence to counter these forms of crime is thus unambiguously stipulated by the Treaty and this competence is not accessory to that of Member States.

· The Treaty also limits the possibilities to address the identified issues through reforms of the current European actors. The activities of both Eurojust and Europol are limited by their respective legal bases: Articles 85 and 88 TFEU. Even reforming these organisations to the maximum possible under the Treaty would not address these issues: neither Eurojust nor Europol can be given the power to conduct investigations, and Eurojust cannot be given the power to prosecute cases before the national courts. Under the Treaty, such powers can only be given to a European Public Prosecutor's Office.

· As the EU is best placed to protect its own financial interests, taking into account the specific EU rules which apply in this field, it is also best placed to ensure the prosecution of offences against these interests. A coherent Union-level prosecution regime is not only justified but also necessary considering the cross-border elements involved in European fraud cases: national prosecution authorities often cannot, and sometimes do not want to, deal with the "foreign" elements involved, such as a witness, a bank account, or a shell-company located abroad. This entails the risk of prosecuting systematically only narrow "national" elements of European fraud cases instead of the entire case with its cross-border dimension. Only a European prosecution regime can cover this dimension. By doing so it will also help prevent that safe havens develop in the Union for defrauding it.

· As indicated above in Section 3.2, current measures and initiatives taken by the Commission are not sufficient to deal with the problems identified, since these are not targeted on the problems related to investigations and prosecutions. In addition, possible reforms of Eurojust, OLAF and Europol cannot address these issues either, due to limitations in their mandates stemming from the TFEU.

· Eurojust's annual reports confirm that there is a need for coordination and support in the area of cross-border fraud investigations at the level of the EU: for 2011, for example, fraud-related crime ranked second in the areas of crime where Eurojust provided support, just after drugs trafficking. These reports also confirm that relatively few cases of fraud against the financial interests of the Union were forwarded by OLAF to Eurojust for their support – no doubt due to the fact that in principle the national authorities first need to take a decision on whether or not to prosecute such cases before they decide on seeking assistance from Eurojust.

· As indicated above, action at national level cannot achieve the objectives under the Treaty. OLAF's annual reports provide clear indications that criminal investigations limited to the national territory do not allow for effective and equivalent protection of the Union's financial interests. The degree of protection strongly varies from Member State to Member State. A large number of cases forwarded by OLAF to national authorities do not reach the prosecution or judicial phase, and other types of enforcement (fiscal, administrative) do not lead to sanctions either. OLAF’s annual reports clearly support the conclusion that Member States' criminal investigation and prosecution authorities are currently unable to achieve an equivalent level of protection and enforcement.[38] As explained under section 3, there are various reasons for this, including lack of prioritisation, inadequate coordination or cooperation with Union agencies and other Member States, and legal obstacles. This variation in the enforcement level is demonstrated by the differences in the number of successful prosecutions and the amounts of financial recovery. The lack of equivalent enforcement in Member States signifies a generally weak enforcement framework, which is both legally fragmented and subject to national priorities. Whilst the legal fragmentation on the substantial law side may be partially addressed through the Commission's proposal for a harmonised sanction system[39], this proposal will not address the issues related to the investigation or prosecution gaps in the enforcement cycle.

· Against this background, it is clear that the Union not only has the competence but also the obligation to act. The Union's finances are by nature dealt with at the EU level. As such, they are even more "EU-centred" than other policy areas subject to harmonisation of rules in the Member States. As a result, they cannot reasonably be dealt with by the Member States alone.

· Moreover, according to the principle of proportionality EU action should leave as much scope for national decision as possible and should respect well established national arrangements and legal systems. In that sense this principle can also be understood to imply decentralisation: actions should be taken as closely as possible to where they intend to produce effects. The gravity of the problem, as defined in Section 3, clearly shows that the often unsynchronised actions of Member States and the missing continuity in measures countering the relevant offences do not effectively tackle the common challenge, i.e. the uniform protection of the EU budget. Given the great differences between some of the policy options, the principles of proportionality and decentralisation have been taken into consideration while defining each single option.

4.3. Fundamental Rights

Since Article 86 TFEU provides for the establishment of an EPPO, this provision must be read, interpreted and implemented in full compliance with the Charter of Fundamental Rights of the EU (‘The Charter’). In accordance with the Communication from the Commission on the Strategy for the effective implementation of the Charter by the European Union[40], this impact assessment examines, as far as relevant, the impact of the options proposed on Fundamental Rights, in particular in the light of the 'fundamental rights check list' presented in the Communication.

The establishment of an EPPO may raise several issues as regards the Charter, depending on the nature and scope of the powers and prerogatives attached to this new EU body. Any investigation powers conferred on the EPPO could have some impacts on the right to privacy (domicile, correspondence, phone conversations, etc.) and the right to the protection of personal data (Articles 7 and 8 of the Charter). The right to property (Article 17 of the Charter) could also be at stake, if the EPPO's powers include the possibility to freeze assets or seize other kinds of belongings. The right to liberty may also be affected, if the EPPO's interventions entail some restrictions or deprivations of individual freedom (Article 6 of the Charter).

Finally, any involvement of the EPPO in judicial proceedings has to be assessed with regard to Articles 47, 48 and 50 of the Charter: access to justice, fair trial, rights of the defence, presumption of innocence and the application of the ne bis in idem principle.

5. Objectives

Objectives:

General || · To contribute to the strengthening of the protection of the Union's financial interests and further development of an area of justice, and to enhance the trust of EU businesses and citizens in the Union’s institutions, while respecting all fundamental rights enshrined in the Charter.

Specific || · To establish a coherent European system for investigation and prosecution of offences affecting the EU’s financial interests. · To ensure a more efficient and effective investigation and prosecution of offences affecting the EU’s financial interests. · To enhance deterrence of committing offences affecting the EU’s financial interests.

Operational || · To increase the number of prosecutions, leading to more convictions and recovery of fraudulently obtained Union funds. · To ensure close cooperation and effective information exchange between the European and national competent authorities.

Figure 5.1. Relation between problem, problem drivers and objectives

This diagram shows the relation between the problem identified, the problem drivers and the objectives. Diagrams explaining the relations between the problems identified in Section 3, the objectives identified in Section 5 and the options can be found in Annex 2.

6. Policy options and their impact

6.1. Overview of policy options

6.1.1. Assessed policy options

The following seven policy options have been assessed in detail: 1. Retention of the status quo; 2. Non-regulatory actions only; 3. Strengthening of the powers of Eurojust; 4a. Creation of an EPPO entity within Eurojust; 4b. Creation of a College-type EPPO; 4c. Creation of a decentralised EPPO with a hierarchical structure; 4d. Creation of a centralised EPPO with a hierarchical structure.

Whichever policy option is chosen, Eurojust’s role as the Union’s coordination agency for cross-border judicial cooperation in criminal matters will remain unaffected. This coordination role is of a general and horizontal nature, which has proven its value over the years for Member States and Union institutions.

4.

5.

6.

6.1.

6.1.1.

6.1.2. Discarded options

Other policy options were discarded at an early stage of preparations. In particular, this included the setting up of an EPPO with a large scope of competence in accordance with Article 86 (4) TFEU, i.e. including serious cross-border crimes as listed in Article 83 (1) TFEU. The main reason for this decision was that fraud affecting the EU budget is a unique problem, both in terms of financial costs and in terms of damage to the image of the Union. As indicated above, under paragraph 4.1, the Treaty acknowledges this fact. Moreover, Article 86 TFEU does not permit the scope of the EPPO to encompass all forms of crime from the outset without a unanimous decision to this effect taken by the European Council.

Options not establishing a European Public Prosecutor's Office

6.2. Policy option 1: Base-line scenario - No policy change

No new action would be taken at EU level. Offences affecting the EU’s financial interests would continue to be prosecuted solely at national level. This would mean that the Union would retain its current administrative competences, but that the fight against these offences would continue to fall under the criminal law competence of national authorities, with Eurojust playing a coordinating and supporting role. OLAF and Europol would continue to work in accordance with their current mandate. The Commission's proposal for a Directive on the fight against fraud to the Union's financial interests by means of criminal law would address the current fragmentation of the substantive criminal law applicable to the relevant offences, but it cannot address the problems identified with respect to investigating and prosecuting the relevant offences. Whilst the reforms of existing EU bodies will address more general issues with respect to the functioning of these organisations, this reform is limited by the Treaty as explained above. These reforms would therefore also not address the problems related to investigation and prosecution of cases affecting the Union's financial interests.

Current situation – pattern of an OLAF investigation OLAF carries out administrative investigations into cases of fraud against the EU financial interests. The OLAF investigators may carry out administrative on-the-spot checks and inspections in the Member States to collect the necessary evidence. These on-the-spot checks are carried out in cooperation or jointly with the competent authorities in the Member States. OLAF may not use any enforcement powers but it is on the national authorities, acting in accordance with national law, to take the necessary measures. At the end of the administrative investigation OLAF draws up a final report. The Director-General may make a recommendation based on a final report for judicial action to be taken in a Member State and send the report with his recommendation to this Member State. It is then on the judicial authorities of the Member State to decide whether they take any action or not. They are however under the duty to cooperate in good faith, meaning that they have to examine the received information carefully and on that basis take the appropriate action (see judgment of the Court of First Instance of 4 October 2006 in Case T-193/04 Tillack v Commission).

6.3. Policy option 2: No new regulatory actions at EU level

No legislative action would be taken at EU level, and no new bodies would be set up. However, national and Union-level actions to fight the relevant offences would be strengthened through non-legislative measures. This would include capacity building for specialists in law enforcement and judicial authorities, enhanced cooperation and information exchange between national authorities and with EU agencies based on existing tools, as well as efforts to improve the implementation of the existing mechanisms concerning the admissibility and mutual recognition of evidence. Member States would also be encouraged to strengthen their efforts to control the use of Union money, including through regulatory changes where appropriate. New non-legislative arrangements for cooperation between responsible EU bodies, in particular OLAF, Eurojust and Europol, would also be introduced, which would improve their information sharing and promote joint actions in suitable cases.

6.4. Policy option 3: Strengthening of the powers of Eurojust

This option would mean that Eurojust would be given new powers to trigger investigations throughout the Union.[41] Eurojust and its national members would have the right to give binding instructions to national prosecution services to initiate investigations and propose prosecutions in Member States in accordance with Article 85 TFEU. Eurojust and its national members would not actually direct the investigations and the prosecutions, which would continue to be administered by national services in accordance with national law. There would not be an institution in charge of investigations of crimes affecting the EU’s financial interests nor responsible for their outcomes, since it is not allowed under the Treaty to provide such powers to Eurojust as explained above.

The organisation of Eurojust would also be improved in order to give it a stronger focus on this task, including an improved focus on information exchange at all levels. In parallel, the current system of administrative investigations at Union-level (OLAF) would continue to be applicable, and Eurojust and national authorities would continue to be supplied by OLAF with investigative reports for judicial action. This option would also integrate the non-regulatory actions described under policy option 2 above.

Options for establishing a European Public Prosecutor's Office

The following paragraphs outline the four main options considered for establishing an EPPO. All of these options provide for a slightly different way of establishing the EPPO "from Eurojust", as required by the Treaty.

A proposal on the establishment of the EPPO will be accompanied by a proposal on the reform of Eurojust which will align it with the common approach on European agencies agreed by the Council, the Parliament and the Commission, and will establish a link between Eurojust and the EPPO. This reform might lead to more efficient information exchange and better cooperation between the national authorities. However, it would not affect the powers of Eurojust to deal with offences affecting the Union’s financial interests, and it therefore could not contribute in a tangible way to a more uniform protection of the EU budget.

Complementary rules on exchange of information, mutual assistance and cooperation between Member States competent authorities for the investigation of offences against the EU budget are mentioned in the Commission Communication on the protection of the financial interests by criminal law means and administrative investigations[42], as part of the measures reinforcing the protection of the EU financial interests. This issue concerns administrative investigations and is not directly linked to the creation of the European Public Prosecutor's Office. It should therefore be addressed separately. Pending the OLAF legislative reform, these measures relating to administrative investigations should be considered at a later stage, once the outcome of the on-going negotiations on the new OLAF Regulation becomes known.

All options for establishing the EPPO have been based on a comparable approach with respect to how investigations would be brought forward. Minimum EU rules would set out the powers the EPPO would have, the conditions for opening, conducting and closing investigations, as well as prosecuting the case, and would provide for minimum procedural guarantees, leaving other procedural aspects (notably the execution of investigative measures ordered) to national law. These EU rules would also set European standards for the admissibility of evidence, addressing the problems identified with respect to this issue referred to in Section 3.2.2. Only the essential aspects for the conduct of investigations which correspond to a common standard would be unified – other issues would continue to be regulated by national law. With regards to fundamental rights, this mixed regime will enhance rights protected under the Charter.

6.5. Policy option 4a: Creation of an EPPO entity within Eurojust

This option would entail the creation of a central EPPO entity within Eurojust, which would thus become the EPPO's holding structure as a "parent agency". In institutional terms this option would mean that Eurojust would effectively host the EPPO by providing infrastructure and support services to the EPPO entity. Eurojust could also make available its coordination capacity in cross-border cases affecting the EU’s financial interests, as well as in such cases which are connected to other offences falling within Eurojust's competence. The EPPO entity would have exclusive power to direct the prosecution of cases affecting the EU’s financial interests.

This EPPO entity would be composed of prosecutors and investigators specialised in financial crimes. In these cases they would exercise certain powers (initiation of investigation, review of evidence and indictment, coordination and direction), in full compliance with the Charter.

The EPPO entity would have a limited number of own staff to autonomously carry out investigations at central level. For the rest it would rely for this on local law enforcement authorities, which would be directed by local prosecutors in their investigations. Decisions to initiate prosecutions in national courts would require the approval of the Eurojust College of National Members. The EPPO entity would not prosecute suspects before national Courts, but leave this to local prosecutors employed by Member States under the direction of the EPPO.

The EPPO would be organically part of Eurojust and use its support functions (human resources, finance, IT, case-analysis etc.). A limited number of staff would be transferred from OLAF to Eurojust but Member States would also need to allocate additional resources to the Unit. Europol's role would remain unchanged: it would support the work of Eurojust and the EPPO unit within it.

6.6. Policy option 4b: Creation of a College-type EPPO

Similar to how Eurojust is organised, the EPPO would be organised in the form of a College of national members appointed by the Member States, but with a clearer and stronger mandate for all members.[43] The EPPO college would take majority decisions as regards investigations and prosecutions of offences affecting the EU’s financial interests throughout the EU. Consequently, national members would be granted more incisive powers, as they would need to be able to provide national prosecutors with binding instructions. This policy option is thus very closely linked to national judicial systems. This is the main element which sets it apart from option 4c.

The EPPO will be directly in charge of investigation and prosecution of the relevant offences. The trial phase would in practice be run by delegated national prosecutors, acting in the name of the EPPO. Eurojust’s coordination function relating to investigation and prosecution of offences against the EU’s financial interests would be transferred to the EPPO, and a specialised investigative department working directly for the EPPO would also be created.

The EPPO would be a separate legal entity from Eurojust, but linked to it through the joint use of operational, administrative and management resources. The EPPO will also benefit of OLAF's specialised staff which would be transferred to it in order to provide for investigative, prosecutorial and administrative resources, whilst the remaining OLAF staff would continue to deal with functions that will not fall into the EPPO competence.

Europol would support the EPPO in line with its current mandate through its analysis, intelligence and general support functions.

6.7. Policy option 4c: Creation of a decentralised integrated EPPO

In this option, based on the concept of decentralisation, the EPPO would consist of an EU prosecutor's office at central level with a Chief Public Prosecutor exercising hierarchical supervision and decentralised European "Delegated" Prosecutors belonging to the national systems and therefore located in the Member States, having full prosecutorial authority under national law. The European Public Prosecutor would have the hierarchical power of instruction over European Delegated Prosecutors, who would be a genuine part of the EPPO.

In most cases, investigations and prosecutions would be led at decentralised level, but with the involvement of the European Public Prosecutor on opening the investigation and participation in bringing charges to the Court. Investigative measures would be normally executed at the national level, led by the European Delegated Prosecutors. A specialised investigative department at central level would also be created in order to coordinate investigative activities and to conduct itself, when necessary, investigative actions for the European Public Prosecutor, as well as for the European Delegated Prosecutors.

The European Delegated Prosecutors would work with the national police for carrying out their tasks. The European Public Prosecutor would have the possibility to give instructions to the European Delegated Prosecutors, which would need to cooperate with different national (administrative and judicial) authorities in order to carry out these instructions. The EPPO (acting through the European Delegated Prosecutors) would be normally responsible for bringing cases to trial. All powers of the European Public Prosecutor and the European Delegated Prosecutors must be in full compliance with the Charter.

The EPPO would be a separate legal entity from Eurojust, but linked to it through the joint use of operational, administrative and management resources. The EPPO will also benefit of OLAF's specialised staff which would be transferred to it in order to provide for investigative, prosecutorial and administrative resources, whilst the remaining OLAF staff would continue to deal with functions that will fall outside the remit of the EPPO.

All prosecutors and other staff working within the office of the EPPO would be directly employed by it, whereas European Delegated Prosecutors and national investigators would continue to be employed by national authorities. However, any additional costs incurred as a consequence of them being employed by the EPPO, such as travel, training, interpretation and translation costs would be borne by the EPPO.

Europol would support the EPPO in line with its current mandate through its analysis, intelligence and general support functions.

Future situation decentralised integrated EPPO The EPPO carries out criminal investigations into cases of fraud against the EU financial interests. The European Delegated Prosecutors, subject to hierarchical instructions of the European Public Prosecutor, direct the investigative work carried out either by national law-enforcement officers, or by joint teams composed of national law-enforcement officers and investigators from the specialised investigative department of the EU office. At the end of the investigation, the European Delegated Prosecutors, with the participation of the European Public Prosecutor, issue an indictment which is then sent to the competent court in one of the Member States. The European Delegated Prosecutor will be the competent prosecutor during the trial, having the same role as any national prosecutor.

6.8. Policy option 4d: Creation of a centralised EPPO

This option would entail the creation of a central EPPO possessing the full legal and practical capacity required to conduct investigations and prosecutions of the relevant offences, without depending on the national prosecution and investigation services. The EPPO's investigation staff would be empowered to take the necessary investigative measures within the Member States, only referring to national judicial authorities in cases where prior judicial authorisation is required. As for options 4b and 4c, Eurojust’s coordination function relating to investigation and prosecution of offences against the EU’s financial interests would be transferred to the EPPO.

This authority would be composed of a chief prosecutor, several prosecutors and staff at the central level, acting throughout the whole EU. The centralised EPPO would act directly, bringing suspects to judgment before national Courts. In contrast to options 4b and 4c, this would not be done through European Delegated Prosecutors embedded in the Member States. These powers must be exercised in full compliance with the Charter. All prosecutors and other staff working within the EPPO would be directly employed by it.

The EPPO would be organisationally linked to Eurojust, through a joint use of technical supporting functions such as human resources, finance and IT. In addition, part of OLAF's and Eurojust’s staff would be transferred to the EPPO in order to provide for investigative and prosecutorial resources, reflecting the transfer of the corresponding responsibilities from OLAF and from Eurojust.

Europol would support the EPPO in line with its current mandate through its analysis, intelligence and general support functions.

6.9. Horizontal issues for options 4a-4d

6.2.

6.3.

6.4.

6.5.

6.6.

6.7.

6.8.

6.9.

6.9.1. Cooperation between the EPPO and Eurojust

The four options which entail the setting up of the EPPO need to address the matter of its relationship with Eurojust since – as indicated above – the Treaty requires that the EPPO is set up "from Eurojust". Under all four options, Eurojust and the EPPO will need to co-exist and cooperate, but in a way that their relationship takes into account the differences in their respective functions and powers.

There are various options for organising this working relationship. These include as a minimum the sharing of administrative services and, at the other end of this range, the sharing of functional (coordination and cooperation) services, including those located in the Member States (National Contact Points in the Eurojust National Coordination System (ENCS)) or at Eurojust's Headquarters, based on the EPPO Regulation and service-level agreements. Such sharing of services would limit the deployment of additional resources, notably in terms of staffing, to a minimum.

The participation of the EPPO in the operational work and/or in the management structures of Eurojust is also an option. Regular coordination meetings between the EPPO and Eurojust could also be called by either organisation in order to ensure maximum effectiveness of both organisations, including the coordination of cross-border investigations or prosecutions of relevance for both. Such coordination could be particularly useful in cases where the EPPO’s investigations involve connected offences or third countries.

Besides this, the partial transfer or secondment of non-administrative staff (for example staff currently working in the Legal Service or the Case-Analysis Unit) from Eurojust to the headquarters of the EPPO would enhance functional links.

Even stronger functional links could be created at central level (SNEs or Eurojust National Members involved in the EPPO's casework). Eurojust’s National Members (or their Deputies or SNEs) could function as associated prosecutors within the EPPO structure, thus ensuring a very close coordination of efforts in cases affecting the EU’s financial interests, as well as in cases concerning associated crimes outside the competence of the EPPO.

6.9.2. Investing OLAF resources in the setting-up of the EPPO

Currently OLAF conducts administrative investigations for the protection of EU's financial interests. OLAF has specialised staff with significant experience in cooperating with national criminal authorities. Many members of OLAF staff have a relevant background in their national enforcement and judicial administrations (police, customs, and prosecutorial functions).

A part of OLAF's resources would thus be used in order to set up the EPPO, taking into account their experience in the conduct of administrative investigations and the objective of avoiding duplication of administrative and criminal investigations. Another important aspect is that of using the current networks which OLAF has developed over the years in the area of anti-fraud investigations.

Finally, OLAF would contribute to the setting up of the EPPO with specialised support to facilitate forensic analysis and technical and operational support to investigations and for the establishment of evidence in criminal cases affecting the Union's financial interests.

6.9.3. Cooperation with third countries

The different options identified for establishing the EPPO will also have to take account of