EUROPEAN COMMISSION 
Brussels, 19.12.2011 
SEC(2011) 1611 final 
  
COMMISSION STAFF WORKING PAPER 
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  
Accompanying the document 
Proposal for a European Par liament and Council Regulation 
on the Hercule III programme to promote activi ties in the field of the protection of the 
European Union's financial interests  
{COM(2011) 914 final} 
{SEC(2011) 1610 final} 
This report commits only the Commission’s servi ces involved in its preparation and does not 
prejudge the final form of any deci sion to be taken by the Commission.
 
 EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT ON THE HERCULE PROGRAMME. ............. 3  
1. POLICY CONTEXT AND CONTRI BUTION TO EU PRIORITIES ............................................................... 3  
2. CONSULTATION OF INTERESTED PARTIES.......................................................................................... .... 3 
3. PROBLEM DEFINITION AND INTERVENTION LOGIC ............................................................................. 3  
4. PROGRAMME OBJECTIVES ........................................................................................................ .................. 4  
5. SUBSIDIARITY AND EU ADDED VALUE............................................................................................. ....... 4  
6. DESCRIPTION OF POLICY OPTIONS ............................................................................................... ............ 5  
7. ANALYSIS OF IMPACTS BY OPTION ............................................................................................... ........... 5  
8. LINKS WITH OTHER POST 2013 INITIATIVES ...................................................................................... ..... 6 
9. SIMPLIFICATION AND REDUCTION OF THE ADMINISTRATIVE BURDEN ........................................ 6  
10. MONITORING AND EVALUATION .................................................................................................. .......... 6  
 
 Executive summary of the Impact Assessment on the Hercule programme  
 
1. Policy context and contribution to EU priorities  
 
The Hercule programme is the only instrument  specifically dedicated to fighting fraud, 
corruption and any other illegal ac tivities affecting the financial interests of the Union. It is 
administered by OLAF.   The Treaty provides for the principle of effec tive and equivalent prot ection of EU financial 
interests across the Member States and EU institutions and close cooperation in the achievement of that objective.  Spending under Hercule II over 2007/2013 is € 98.5 million. The proposal is to continue this 
spending under Hercule III at the present rate of € 15 million annually.   Hercule II spending is divided between:  
1. Technical assistance (60%)  2. Specialist antifraud training (35%)  3. Support of the Associations for European Criminal Law and the Protection of 
the EU Financial Intere sts (European Lawyers associations, ELA) (5%) 
 
In addition, a minimum of € 6 million annually mu st be spent from within 1 and 2 above on 
the suppression of the illegal cigarette trade. Th is reflects consistency with the specific anti-
fraud, anti-smuggling and anti-coun terfeiting objectives subscribed to in the Agreements with 
4 major international cigarette manufacturers under which the latter will pay US$ 2.3 billion 
into national and EU budgets  over a 20 year period. 
 
2. Consultation of interested parties
 
 
The impact assessment reflects consultation with  stakeholders, especially in Member State 
operational services, other Commission servic es and other EU bodies; and also OLAF's 
operational experience and OLAF's  experience with the management of the programme. It 
incorporates material from the intermediate re view on the achievement of the objectives of 
Hercule II programme completed in late 2010.  
3. Problem definition and intervention logic
 
 
Scale  
The Commission's annual report under Article 325 on the protection of the financial interests 
for 2010 emphasises the need for further action to deal with fraud. The Commission's Anti-
Fraud Strategy addresses this need and underlin es the importance of the Hercule programmes. 
Statistics in the Article 325 report and in OL AF's independent operational report give an 
indication of the scale of fra ud and of OLAF's caseload. Th e overall financial impact of 
reported irregularities for 2010 was € 1.8 billi on of which suspected instances of fraud 
accounted for € 0.5 billion (out of an amount of € 141 billion spent and approximately € 17 billion of customs duties on the traditional own resources (income) side). OLAF completed 
 
 4more than 1500 of its own investigations  between 1999 and 2011 (360 are currently ongoing) 
leading to a recovery of more than one billio n € via OLAF investigations on fraud cases and 
other irregularitie s until mid 2011.  
 Fraud has significant financial cons equences, and negative social and economic effects. It also 
involves reputational risk  to the EU project. 
 
Drivers 
 
The impact assessment identifies 5 key drivers
 which Hercule III should address: 
 
 1. Fraudsters adapt quickly to new circumst ances at EU level, operate across borders 
and exploit the weakest points. 
 2. The Commission and the Members States have committed themselves to intensify the 
fight against cigarettes smuggling.  
 3. Pressures on public finance require increas e in the cost-efficient protection of EU 
financial interest through impr oved detection and prevention. 
 4. The large number and varied nature of co mpetent authorities in Member States and 
candidate or associated countries. The vast ma jority of resources av ailable to fight EU 
budget fraud are at national not EU levels.  
 5. Differences in incentives and capacities between Member States impede equivalence 
in the protection of financial interests.  
 
Problems 
 
Under each driver, specific problems  are identified. These include deficiencies in specialist 
knowledge and technical equipment, the changing threat from organised crime, lack of public 
confidence, lack of awareness of EU fraud, inad equate risk analysis and information sharing, 
inadequate capacity of national competent authorities to coopera te with each other and with 
OLAF, incompatibility of tec hnical and communication equipment, the absence of a uniform 
administrative and judicial environment to inve stigate and prosecute fr audsters, and gaps in 
the skills and sharing of best pr actice among national authorities.  
 
4. Programme objectives  
 
The general objective  is to protect the financial intere st of the Union t hus enhancing the 
competitiveness of the European economy and ensuring the protection of the taxpayers' 
money".  The specific objective
 of the programme is to prevent and combat fraud, corruption and any 
other illegal activities against the financial in terests of the Union. 
 Further operational objectives have been defined in the annex to the regulation. 
 
5. Subsidiarity and EU added value
 
 
 The Treaty (Articles 317, 325 TF EU) makes the Commission in cooperation with the Member 
States responsible for the implementation of th e budget and the countering of fraud. The latter 
is a policy of shared competence of the EU. Ther efore the EU has a speci fic responsibility to 
 
 5foster close and regular cooperation between al l competent authorities by granting assistance 
and support.  Furthermore, some Hercule actions ta ke place at the level of the EU Institutions.  
 Clear added value is obtained from facil itating cooperation between Member States 
authorities, from cost savings from joint proc urement, and through strengthening weak points 
where national authorities are pa rticularly exposed to crimin al action organised from the 
territory of neighbour ing countries. There are also benefits to national finances in as much as 
many of the EU expenditure is spent under a re gime of co-financing and smuggling frequently 
has detrimental effects both on the customs duties and on national (i ndirect) taxes. The 
programme addresses the problem of the lack of incentive for some Member States to deal 
with issues which have little im pact on their own finances but which impact negatively on the 
EU-budget or on the national budgets of other Me mber States, particularly in times of 
budgetary stringency (e.g. cigare tte smuggling and counterfeiting). 
 Also, the programme fosters ne tworking and exchange of best  practice between Member 
States' administrations, and improves compliance w ith EU law, by training national specialists 
in joint events attended by many nationalities.  
6. Description of Policy Options
 
 
The baseline scenario  is continuation of the status quo (option 1 ). 
 Option 2
 would build on the status quo, but impr oving the methodology of the programme, 
notably by raising maximum co-financing ceilings so as to address the growing problems of 
matching finance in Member States, which is  particularly important if protection in 
geographical zones which are particularly at ri sk and weak points in EU defences against 
fraud are to be strengthened.  Option 3
 would be a radical shift towards the support of immediat e operational activities at 
the expense of longer term objectives such as increased complian ce, better information 
exchange, and the development of legal thought  on EU-wide criminal law issues affecting 
protection of EU funds.    Option 4
 is to discontinue the programme. 
 Two other options have not been further taken into account:  
• An option 
to increase spending above present levels is rejected as inconsistent with the 
Multiannual Financial Framework  planning as proposed by the Commission in  its 
communication (COM(2011)500 ‘A Budget for Europe 2020’. 
• An option  to combine the programme with Pericles  (protection agains t counterfeiting of 
the euro) is not viable becau se the respective legal bases foresee different legislative 
procedures for the adoption (see Articles 133 and 325 TFEU respectively). 
 
7. Analysis of impacts by option  
 
The impact of the options is analysed by firs t examining the impact achieved under Hercule II 
(baseline, option 1 ) and then by comparing the impact wh ich the other options would have.  
  
 
 6The discussion of option 4  considers the effect of disconti nuation by sector of the programme 
and therefore also serves as a basis for cons idering possible changes in the distribution of 
spending between sectors. Option 4 is rejected because the cost in terms of reduced effectiveness and efficiency in the fight ag ainst fraud would greatly exceed the financial 
savings. The possibility of transferring some actions to ot her EU programmes is rejected 
because of the inevitable loss of focus on EU Budget protection.  Option 3 
would have as its undesirable possible effect to generate a disbalance in the overall 
anti-fraud approach at an EU-level. In acco rdance with the Commission Anti-Fraud Strategy 
(CAFS, COM (2011) 376) a distinct effort needs to be maintained and even further developed 
on specific actions aimed at the prevention an d detection of fraud, including an improved 
exchange of best practices and training.   The preferred choice is therefore Option 2
 (basically an improved status quo). This would 
permit a more cautious move than under Opti on 3 to be made towards more emphasis on 
operational support, if it is so decided in the light of developing circumstances and 
stakeholder views.  
 
8. Links with other post 2013 initiatives 
 
 
Other initiatives in the areas of law enfor cement and Customs cooperation will have positive 
indications for the protection of EU financial interests. Equally, init iatives under Hercule will 
have positive implications for other law enforcem ent, customs and security policies; a scanner 
provided primarily to detect il licit cigarette consignments can  also identify other illicit 
consignments with revenue, crim inal or security implications. 
 Nevertheless these initiatives follow distin ct policy objectives and may not continuously 
support specific anti-fraud actions . It is indeed essential to maintain the focus of a programme 
targeted specifically at the prot ection of financial interests at EU level to allow for specialised 
projects aimed at improving fra ud prevention, detection and inve stigation, including projects 
which require multidisciplinary involvement of services which belong to different 
administrations. Anti-fraud is a multidisciplinary objective requiring an effective and transnational cooperation between many different partner authorities.  
 The necessary coordination has taken place between  OLAF and other DGs to avoid overlap or 
confusion between programmes.   
9. Simplification and reduction of the administrative burden 
 
 
Some technical improvements are suggested to  reflect experience a nd consultations in 
accordance with the rules under the Financial Regul ation, such as more flexible procedures 
for the financing of projects below a certain ceiling (50 000 €), reduced requirements in terms 
of breakdown of costs and estimates, the use of  simplified requirements for application as 
well as for reporting on outcomes, and an increa sed use of working groups to accelerate feed 
back and improve the targeting of the spending.  
10. Monitoring and evaluation
 
 
 
 7There will be annual and mid-te rm evaluations. OLAF officials attend many of the events 
financed in order to ensure prop er monitoring of the quality a nd the target oriented character 
of the actions. This provides an adequate ex-ante control of the financing of the projects and is 
an important aspect of the implementation of the mandate of the Commission (OLAF) to 
assist Member States in the or ganisation of a close and regula r cooperation. Output data and 
feedback will be systematically  collected and analysed. SMART indicators will be developed 
wherever possible to measure th e impact of actions  under the programme. Where this is not 
possible because of the nature of the action, fo r example for some training actions, there will 
be close monitoring of quality and of output indicators.  The re-organisation of OLAF early in 2012 wi ll reinforce OLAF's capacity to manage and 
evaluate the Hercule programme.