For an in-depth analysis of recovery and financial corrections in the CAP, see section 2.1.1.3.3 of the Annual Activity Report of DG AGRI and the Communication of the Commission to the Parliament on the protection of the EU budget.

If only the "decided" cases are taken into account (established fraud cases and dismissals

Table NR20: Number of cases of suspected and established fraud and ratio of established fraud – cases reported between 2009-13 in the CAP

Table NR20, therefore, updates the table already published in the last two Reports indicating that the "ratio of established fraud" has slightly increased in comparison to last year (from 10% to 11%). Likewise, the dismissal ratio increased from 12% to 14%.

Since the PIF Report 2014, the analysis has also tried to focus on the rate of irregularities reported as fraudulent by Member States for which a final decision was taken, establishing that fraud really occurred. By comparing updated data with those published in 2014, it is also possible to identify how many cases have been dismissed (initially reported as fraudulent and then "declassified" or cancelled).

A part of these irregularities are not exclusively referred to rural development, but the reporting authority may have also included in the budget post affected also direct payments and/or market measures. As it is not possible to attribute the specific amount to each individual budget post, they have been included in their full value.

Combining FDR and IDR, rural development interventions have been the object of significant detections, equalling 2.6% of the payments, by national authorities in all Member States over the last years.

Table NR19 shows the IDR per Member State, which therefore, refers to irregularities detected and reported as non-fraudulent.

A part of these irregularities are not exclusively referred to rural development, but the reporting authority may have also included in the budget post affected also direct payments and/or market measures. As it is not possible to attribute the specific amount to each individual budget post, they have been included in their full value.

FDR in rural development is similar to that recorded in relation to the Cohesion policy. It is worth underlying that EAFRD functions in a way similar to that of the other ESI funds and therefore this finding is not surprising.

There is, however, a wider distribution among Member States and no real distortive effect by individual cases involving high amounts. 25 Member States have reported potential fraudulent cases detected in relation to EAFRD during the period under consideration, as showed in Table NR18. Detections are measured against the expenditure over the same period to calculate the FDR.

Fraud and Irregularity Detection Rates concerning EAFRD over the last five years show overall similar results (2.6% of the payments paid out during the period 2012-2016) to those already described for market measures.

A part of these irregularities are not exclusively referred to market measures, but the reporting authority may have also included in the budget post affected also direct payments and/or rural development. As it is not possible to attribute the specific amount to each individual budget post, they have been included in their full value.

Combining FDR and IDR, market measures have been the object of significant detections, equalling 2.6% of the payments, by national authorities in several Member States over the last years.

Table NR17 shows the IDR per Member State, which therefore, refers to irregularities detected and reported as non-fraudulent.

Furthermore, a part of these irregularities are not exclusively referred to market measures, but the reporting authority may have also included in the budget post affected also direct payments and/or rural development. As it is not possible to attribute the specific amount to each individual budget post, they have been included in their full value.

Individual cases involving significantly high amounts can produce a distortive effect on the overall analysis. This is particularly the case for Denmark and, even more, the Netherlands, which show the highest FDR despite the low number of detections. The case reported from the Netherlands is also referred to events dating back almost ten years.

Table NR16 shows the Member States which have detected and reported potentially fraudulent irregularities in the period 2012-2016. Detections are measured against the expenditure over the same period to calculate the FDR. 16 Member States have detected and reported potential fraudulent cases in this area.

Market measures present FDR and IDR that are significantly higher than those concerning direct payments, as already seen in paragraph 3.3.2.

Romania, Poland, Italy and Hungary are the countries which have reported the highest numbers.

Only Finland notified no irregularity as fraudulent; the majority of countries (22) reported less than 100 fraudulent irregularities; one (1) country reported between 100 and 200; two (2) Member States notified between 201 and 300 and other two (2) more than 300.

Table NR17 offers an overview of the irregularities reported as fraudulent by Member States between 2012 and 2016. It also shows the related amounts, overall payments for the agricultural policy and the FDR.

Romania, Poland and Bulgaria are the three countries which have reported the highest numbers.

Belgium, Cyprus, Finland, Ireland, Malta, the Netherlands and Slovenia have notified no irregularity as fraudulent; seventeen (17) Member States reported less than 30 fraudulent irregularities; one (1) country reported between 30 and 60; two (2) Member States more than 60.

Table NR16 offers an overview of the irregularities reported as fraudulent by Member States in 2016. It also shows the related amounts, overall payments for the agricultural policy and the FDR.

Taking into account only those irregularities which have been protracted in time, their average duration is almost 20 months (i.e. almost 1 year and 8 months). For the irregularities reported as fraudulent, this average is just one month less: 19.

Of the 37 110 detected irregularities (fraudulent and non-fraudulent) reported by Member States in relation to the programming period 2007-13, 18 142 (47% of the total) involve infringements that have been protracted during a given span of time. For the 1 750 irregularities reported as fraudulent this percentage is higher at 60%. The remaining part of the datasets refers to irregularities/breaches which consisted of a single act identifiable on a precise date (19% of the whole dataset and 26% of that represent exclusively by the fraudulent irregularities) or for which no information has been provided (34% of the whole dataset, but only 14% of the irregularities reported as fraudulent).

(4)the ratio of cases of established fraud on the total number of irregularities reported as fraudulent.

(3)the fraud and irregularity detection rates over the last five years (the ratio between the amounts involved in cases reported as fraudulent and the payments occurred in the financial years 2012 to 2016);

(2)the number of irregularities reported as fraudulent by each Member State (in 2016 and over a five years’ time period);

(1)duration of irregularities (fraudulent and non-fraudulent). No analysis by Member State is presented in this section;

The present paragraph aims at examining some aspects linked to the anti-fraud activities and results of Member States. Four elements are analysed and taken into account:

Previous paragraphs have examined the trend and main features and characteristics of the irregularities reported as fraudulent.

As showed in Table NR13, market measures show high FDR and IDR. Table NR14 shows the number and financial amounts linked to fraudulent irregularities detected by market measure for the period 2012-2016, while Table NR15 shows those not reported as fraudulent.

A part of the irregularities used for these calculations are not referred exclusively to a specific policy measure, but the reporting authority may have also included several budget posts as affected, referring to different measures. As it is not possible to attribute the specific amount to each individual budget post, they have been included in their full value for each policy measure. However, the total has been calculated on the total amounts reported by Member States and therefore no double counting has occurred.

Looking at the overall detection rate (FDR + IDR), direct payments clearly show a very low level of detections. This confirms previous findings of the Commission audit services that the level of errors (and consequently of the possible detections) represent only a marginal part of the resources available. The situation is different for market measures, in particular for the FDR, which is the highest of all shared management policy measures. Interestingly, the "Total detection rate" is equal to that of rural development and to that of the cohesion policy. Rural development, for its part, shows results that are exactly aligned to those of the other Cohesion policy measures (see chapter 4.2).

Table NR13 shows the FDR and the IDR per type of policy measure. Further details about this calculation can be found in paragraph 3.4.2.

Via its two funds (EAGF and EAFRD) the CAP acts on two main paths to support agriculture across Europe. The EAGF itself has two components with different aims: direct payments to farmers and measures regulating or supporting agricultural markets.

IB 2 reported the case to State Attorney’s Office and criminal proceedings were initiated against a person who was an employee of an EU funds consultancy. It was found that this person had scanned an older Certificate, changed the dates and sent the forged document along with other necessary data via e- application (AGRONET) on behalf of the agricultural cooperative. It was determined that the responsible person in the agricultural cooperative was not involved in this criminal act. The person concerned (employee of the EU funds consultancy) was convicted for committing criminal act of Forgery of an Official Document and was sentenced to eight months imprisonment, but was given a two-year suspended sentence according to Article 56 (2) & (3) of the Criminal Code on condition of not repeating the crime. Should he commit a criminal act within the period of two years he would be imprisoned for eight months.

During the review of documents received by the agricultural cooperative and before the payment, Intermediate body level 2 (IB2) suspected that one of documents (Certificate of No Tax Due), a document which is issued only by Tax Administration, was forged. The suspicion was related to mismatch of dates within the document. Namely, the date of issue was 1.1.2015 but the document stated that the agricultural cooperative did not have tax debt on 1.2.2015. Therefore, the date of issue of Certificate and the date of the tax debt were different. IB2 contacted the Tax Administration to check the validity of the Certificate. The Tax Administration determined that the Certificate was issued by the Tax Administration.

On the basis of a call for the implementation of the agriculture measure: "Supporting the development of small farms", an agricultural cooperative applied for subsidies. In the e-application (via AGRONET), the agricultural cooperative sent all necessary documents needed for the call.

Case study: Croatia, EAFRD - Forgery of an official document when applying for projects co-financed by EU funds

Table NR12: Types of irregularities not reported as fraudulent in relation to EAFRD

When looking at the irregularities not reported as fraudulent, showed in Table NR12, the most frequently detected category is related to 'non-action' ('action not completed', 'failure to respect deadlines', 'action not implemented', 'irregular termination, sale or reduction'), which occurred in 39% of the cases not reported as fraudulent affecting the EAFRD in 2016. It is followed by 'documentary proof' representing 17% of the non-fraudulent cases ('Documents missing and/or not provided', 'documents incomplete', 'documents incorrect' and 'documents provided tool late'). 10% of the cases belongs to the category 'Beneficiary' ('Operator/beneficiary not having the required quality'). These three categories together represent 66% of the cases reported in 2016.

In 2016, 61 irregularities reported as fraudulent indicated that breaches had occurred in relation to ‘Ethics and Integrity’ appearing as the most frequently detected. In the period 2012-2016 this category is the third most frequently detected, although the greatest majority of cases have been reported mainly over the last two years. The remaining detected typologies more frequently are in line with those reported in previous years and relate to the ‘documentary proof (supporting documents provided), the ‘request for aid’, the ‘quality of the beneficiary’, the 'implementation' of the action.

Table NR11 shows the most frequently categories of irregularity linked to fraudulent cases detected in relation to the EAFRD in 2016 and the financial amounts linked to them. It also presents how these most recurrent categories have featured from 2012 to 2016 (included).

Table NR10: Types of irregularities not reported as fraudulent in relation to EAGF

When looking at the irregularities not reported as fraudulent, the situation is rather consistent with that presented in Table NR9 for those reported as fraudulent, with the top-10 categories represented in almost the same positions, as showed in Table NR10.

For 12 of the 128 cases reported (10%), irregularities related to ‘Ethics and Integrity’ were specified. This typology refers to cases of ‘corruption’ and ‘conflict of interest’ in particular. In the previous four years taken into account for the analysis, other 31 cases had been reported.

The most recurrent modus operandi is related to infringements linked to the documentary proofs requested, and in particular, to the use of 'false or falsified declarations', 'false or falsified documents' and 'false or falsified request for aid', ‘declaration of fictitious product, species and/or land’ in line with what reported in general for the whole period 2011-2015. ‘Quantities outside permitted limits, quotas or thresholds (related, respectively to products, species or land)’ remained a significant reported type of breach.

Table NR9 shows the most frequently categories of irregularity linked to fraudulent cases detected in relation to the EAGF in 2016 and the financial amounts linked to them. It also presents how these most recurrent categories have featured from 2012 to 2016 (included).

Table NR8: Financial amounts linked to irregularities not reported as fraudulent by Fund – 2012-16 for the CAP

The irregular financial amounts related to the EAFRD have also been progressively increasing until 2015.

Unlike the fraudulent irregularities, the largest share, in terms of numbers, is for the EAFRD since 2012, and in the two last years of the period 2012-16 the number of irregularities linked to this fund have been at least the double of those affecting the EAGF.

Table NR7: Irregularities not reported as fraudulent by Fund – 2012-16 for the CAP

Only a marginal share of the irregularities not reported as fraudulent relates to infringements reported as affecting both funds (1% in 2016 and even less on the analysed period, see Table NR8).

Regarding irregularities not reported as fraudulent, the number of those reported relating to EAFRD has been constantly increasing until 2015 (see Table NR7), while those related to EAGF remained relatively stable or recorded minor variations. Consistently with this trend, also the irregular financial amounts linked to the rural development instrument have been constantly increasing until 2015 (as highlighted in Table NR8).

The Sofia City Prosecutor’s Office initiated a check and asked the Directorate General of the National Police to carry out an audit, which confirmed the above facts. It also found that the managers of two of the applicant companies live as unmarried partners and use different companies to participate in the same tenders as different persons. It was established that the companies/individuals concerned had concluded contracts for the supply of eight units of agricultural machinery for a total of EUR 1 800 000 (unit price EUR 225 000). The real unit price quoted by the official representative was USD 135 000. The Sofia City Prosecutor’s Office initiated pre-trial proceedings and asked AFCOS-MVR to check, via OLAF, what the unit price of the equipment in question is in the Netherlands. This check is currently being implemented.

That involved the creation of a special e-mail address used to receive an offer from the Bulgarian supplier that quoted a unit price of USD 160 000, including the possibility for a discount to be applied in the event of purchase of more than one unit. A study of the dynamics of the BGN/USD exchange rate during the relevant period did not show any significant changes. Consequently, the conclusion was drawn that the tender offers submitted for the six projects were intentionally inflated and used unreasonable prices to illegally benefit from EU funds and the national budget. The State Fund Agriculture referred the case to the Supreme Cassation Prosecutors’ Office.

Family relations were established between two of the tenderers, while three of the tenderers' managers were found to be members of the Management Board of a non-governmental sectorial organisation. Since the tenders and sale/purchase contracts concluded between the tenderers and the Bulgarian supplier quoted a price of EUR 225 000 per unit of machinery, a study of the market environment was carried out using a particular macroeconomic approach called 'control purchase'.

While carrying out checks on projects under RDP 2014-2020, the State Fund Agriculture (DFZ) found six applications which indicated the existence of artificially created conditions for support, particularly operation of a market by the same suppliers and customers. In the cases concerned, six applications were submitted for the same investment (purchase of a certain type of agricultural machinery) to three offices of the State Fund Agriculture regarding investments to be implemented in four different regions of the country. A pointer to the existence of a corrupt scheme was the fact that in all six cases the tenderers’ bids for the supply of equipment were submitted by the same three companies, with the same date and validity, and that contracts for the sale and purchase of equipment in all six cases were signed with the same company, on the same date. It was established that the manufacturer of that particular type of agricultural machinery was a US company with an official dealer for Europe based in the Netherlands, and that the Dutch company had only one official representative for Bulgaria, namely the company mentioned as supplier of the equipment in all six bids.

The trend analysis about the financial amounts can be misleading as it can be greatly influenced by single observations of significant value. For instance, the 'distance' observed in 2013 between the two funds, finds entire explanation in very few cases involving high amounts linked to the EAGF, which determine the divergence from the trend highlighted in Table NR5. In the period 2012-16, the share of the EAFRD on the total is 54%, well above the share of the resources allocated to the fund on the total of the CAP resources over the same period.

Table NR6: Financial amounts involved in irregularities reported as fraudulent by Fund – 2012-16 for the CAP

Table NR6 provides in the same form of Table NR5 information about the trends linked to the financial amounts involved in cases reported as fraudulent, which have decreased by 57% in comparison with the previous. For the monetary value, the largest share in 2016 is still represented by the EAFRD, which is predominant also if one takes into account the whole analysed period 54% of the total amount.

The first ten countries taken together have reported 378 potential fraudulent cases, which represents 91% of the total (in 2013 they had reported 94% and in 2015 92% of the total fraudulent irregularities).

The irregularities notified by three Member States (Romania, Poland and Bulgaria) represent about 55% of the total number of irregularities reported as fraudulent. This concentration is far lower than in previous years.

Despite these contrasting trends, for the third consecutive year in the analysed period, the irregularities reported as fraudulent related to the EAFRD have the highest share on the total (69%) and reaching 60% on the whole reference period 2012-16 (up from 47% in the previous analysis for 2011-15). The share of irregularities committed by beneficiaries of both funds appeared in only 1 occurrence.

Table NR5 presents the trend of the irregularities reported as fraudulent by Member States for the period 2012-16 in relation to the fund concerned. This shows a situation which is stable in comparison to 2015 (-3.5%). However, while the fraudulent irregularities related to the EAGF have decreased by 28%, those linked to the EAFRD have increased by 17%.

The trend analysis about the financial amounts can be misleading as it can be greatly influenced by single observations of significant value. The continuous growth of the financial value of irregularities related to the EAFRD until 2015 is, however, in line with the general trend of irregularities reported showed in Table NR3.

Table NR4: Financial amounts involved in reported irregularities by Fund – 2012-16 for the CAP

The impact of the financial amounts involved in irregularities on payments is also very different between the two funds, as it is 0.20% for the EAGF and 1.50% for the EAFRD (0.48% on the overall 2016 CAP expenditure).

Table NR4 provides in the same form of Table NR3 information about the trends linked to the financial amounts involved in cases of reported irregularities, which have decreased by 59% in comparison with the previous year. For the monetary value, the largest share in 2016 is still represented by the EAFRD component, which becomes relatively predominant, if one bears in mind that it represents between 20% and 30% of the total resources for the CAP and the financial value of the irregularities reported counts for 67% of the total amount in 2016 and for the period 2012-2016.

The irregularities notified by a minority of Member States (Romania, Italy, Spain, Poland, Hungary, Portugal and France) represent about 70% of the total number of reported irregularities in 2016.

It should be noted that the two funds function very differently, with the EAGF following an annual implementation, while programmes financed by the EAFRD have a multiannual logic, which resembles that of the ESI Funds. The trend of irregularities detected and reported further highlights those similarities and therefore appears physiological.

This shows a decrease between 2015 and 2016 by 16% and an increase by 76% between 2012 and 2016. However, while the irregularities affecting EAGF have remained relatively stable over time (-12% in comparison with 2015 and +20% with 2012), those related to the EAFRD have been constantly increasing until 2015 and then declined in 2016, as showed by the chart below (-18%% in comparison with 2015 and +117% in comparison with 2012).

Table NR3 presents the trend of the irregularities (fraudulent and non-fraudulent) reported by Member States for the period 2012-16 in relation to the funds concerned.

Table NR2 shows the financial resources available for the CAP.

Apart from a difference in scope and objectives, the two funds also function differently. While entitlements and measures supported under the EAGF follow a yearly flow, those under the EAFRD are implemented through multi-annual programmes, very much like the interventions financed through the other ESI funds.

The expenditure made by the paying agencies is then reimbursed by the Commission to the Member States, in the case of the EAGF on a monthly basis and in the case of EAFRD on a quarterly basis. Those reimbursements are, however, subject to possible financial corrections which the Commission may make under the clearance of accounts procedures.

The paying agencies are, however, not only responsible for making payments to the beneficiaries. Prior to doing so, they must, either themselves or through delegated bodies, satisfy themselves of the eligibility of the aid applications. The exact checks to be carried out are laid down in the different sectorial regulations of the CAP and vary from one sector to another.

Under the basic rules for the financial management of the CAP, the Commission is responsible for the management of the EAGF and the EAFRD. However, the Commission itself does not make payments to beneficiaries. According to the principle of shared management, this task is delegated to the Member States, who themselves work through national or regional paying agencies. Before these paying agencies can claim any expenditure from the EU-budget, they must be accredited on the basis of a set of criteria laid down by the Commission.

The CAP is financed by two funds, EAGF and EAFRD, which form part of the EU's general budget.

For the last 50 years the Common Agricultural Policy (CAP) has been the European Union's (EU) most important common policy. This explains why traditionally it has taken a large part of the EU's budget, although the percentage has steadily declined over recent years.

However, in light of their belonging to the ESIF family, EFF and EMFF will be treated together with the other structural funds. EAFRD, also part of ESIF, will be analysed separately from the EAGF, with the exception of a general introduction.

Table NR1 shows the financial resources available for this policy area.

The EMFF is the successor of the European Fisheries Fund (EFF), for which the full resources have been committed by the end of 2014.

EAFRD and EMFF are among the five European Structural and Investment Funds (ESIF or ESI funds) which complement each other and seek to promote a growth and job based recovery in Europe.

·The European Maritime and Fisheries Fund (EMFF) which provides funding and technical support for initiatives that can make the fishery industry more sustainable.

·The European Agricultural Fund for Rural Development (EAFRD) which finances the rural development programmes of the Member States.

·The European Agricultural Guarantee Fund (EAGF) which finances direct payments to farmers and measures to respond to market disturbances, such as private or public storage and export refunds.

Success in previous decades in guaranteeing sufficient food production, has led to a shift in emphasis to, producing higher quality food for consumers, increasing farms' profitability, diversifying the rural economy and protecting the natural environment. There is a direct management component but the majority of expenditure is disbursed by Member States under the following shared management funds.

If TOR are not established because of an administrative error by a Member State, the Commission applies the principle of financial liability. Member States have been held financially liable in 2016 for over EUR 32 million, and new cases are being given appropriate follow-up.

Considering the fraud diversion and spreading of specific fraud mechanism, EU-wide and international cooperation in detection of irregular cases is more and more required.

One general conclusion drawn by the Commission from its inspections in Member States in recent years is that their control strategies are increasingly shifting from customs controls at the time of clearance of goods to post-clearance customs controls. The customs controls before or at the time of clearance of goods remain however indispensable for addressing undervaluation and the detection of new types or patterns of fraud or irregularities. Therefore, the customs controls strategy should be frequently reviewed taking into account recent detections or new risks.

The Commission is taking appropriate actions to ensure an effective follow up of the recommendations of the European Anti-fraud Office's investigation report and of the DG BUDG's inspection findings.

These elements led the Director-General of DG BUDG to make a reservation in the 2016 Annual Activity report on the inaccuracy of the TOR amounts transferred to the EU budget by the United Kingdom since 2013.

OLAF also has concluded in March 2017 an investigation on the undervaluation of textiles and footwear imported in the United Kingdom from the People's Republic of China. This report indicates that the United Kingdom failed, even after repeated warnings and requests to that effect by OLAF, to apply the appropriate measures to prevent systematically undervalued imports of textiles and footwear from P.R. China from entering the EU through the United Kingdom, resulting in very significant losses to the EU budget between 2013 and 2016. The related fraud/irregularities were only partially reflected in the OWNRES figures reported since 2013.

The on-the-spot inspection carried out in the United Kingdom found significant weaknesses in the management and control of undervalued imports of textiles and footwear and concluded, on the basis of the evidence available at the time of the inspection, that the United Kingdom had wrongly cancelled a very significant amount of customs debts concerning undervalued imports.

In 2016, "Tariff suspensions and quotas", "Preferential tariff measures", "Reliability of the normal and separate accounts statements" and "Control strategy in the field of customs value" were the main inspection themes of the on-the-spot customs inspections by the Commission services in Member States.

In its TOR inspections, the Commission has put a special emphasis on Member States’ customs control strategies and closely monitors their actions and follow-up in relation to the observations made during the inspections. Member States generally show their willingness to adapt their control strategies and to progressively implement systems that provide for efficient and effective risk analysis to protect the EU’s financial interests. However, budgetary constraints and the increase of tasks related to security have led to cuts in the number of customs officials in charge of duty collection control in many Member States. Coupled with continuing trade facilitations and simplification of procedures and controls, this may undermine the control efficiency and thus pose risks to the protection of the EU financial interest.

Examination of Member States’ diligence in write-off cases constitutes a very effective mechanism for gauging their activity in the field of recovery. It encourages national administrations to step up the regularity, efficiency and effectiveness of their recovery activity, since any lack of diligence leading to failure to recover results in individual Member States having to foot the bill.

In 2016, 17 Member States submitted 92 new write-off reports to the Commission. In 2016, the Commission assessed 219 cases totalling EUR 88 million. In 92 of these cases amounting to EUR 46 million, the Commission's view was that the Member States did not demonstrate satisfactorily that the TOR was lost for reasons not imputable to them so they were considered financially responsible for the loss.

The HRR confirms that in the long term recovery in cases reported as fraudulent is generally much less successful than in cases not reported as fraudulent (see table TOR4). Classification of a case as fraudulent is thus a strong indicator for forecasting short- and long-term recovery results.

OWNRES shows that on the cut-off date, on average 37 % (1989-2016) of the initially established amount in relation to cases not reported as fraudulent has been corrected (cancelled) since 1989. The RR for non-fraudulent cases reported for 2016 is 42%. On the cut-off date, the annual RR for the last five years has varied between 42 % and 83 %. The overall RR for all years (1989-2016) for all cases not reported as fraudulent is 71 %.

Over the 1989-2016 period, OWNRES shows that, on average, 21 % of the initially established amount was corrected (cancelled). The recovery rate (RR) for all years (1989-2016) is 36 %. The RR for cases reported as fraudulent and detected in 2016 was 23 % which is below the average rate of 40% for fraudulent cases for the 2012-2016 period. In general, the RR in cases reported as fraudulent is clearly much lower than that for cases not reported as fraudulent.

There are large differences between Member States’ classifications, which may partly depend on their classification practices. This can influence the comparison of the amounts involved in cases reported as fraudulent and as non-fraudulent by Member States. Moreover, individual bigger cases detected in a specific year may affect annual rates significantly. Factors such as the type of traffic, type of trade, the level of compliance of the economic operators, the location of a Member State can influence the rates significantly. Bearing in mind these variable factors, the rates of incidence can also be affected by the way a Member State’s customs control strategy is set up to target risky imports and to detect TOR-related fraud and irregularities.

The total estimated and established amount affected by irregularities was more than EUR 454 million which indicates an irregularity incidence of 1.81 %. The highest percentages can be seen in Latvia (5.82 %), the Netherlands (4.96 %) and the Greece (4.34 %).

In 2016, the total estimated and established amount affected by fraud in the EU was EUR 83 million and the overall incidence of fraud was 0.33 %. For 2016, the highest percentages can be seen in Greece (2.83 %), Austria (2.14 %) and Denmark (2.04 %).)

For 2016, Member States reported 513 cases as fraudulent out a total of 4 647 cases reported via OWNRES, which indicates a Fraud Frequency Level (FFL) of 11 %. The differences between Member States are relatively large. In 2016 most Member States categorised between 10-50 % of all cases reported as fraudulent. However, Portugal and Slovenia did not categorise any cases reported as fraudulent. Six Member States categorised less than 10 % of cases as fraudulent. Five Member States registered more than 50 % of cases as fraudulent.

The total estimated and established amount in non-fraudulent cases where the amount at stake was above EUR 50 000 amounted to EUR 393 million (87 % of the total estimated and established amount for non-fraudulent cases).

In 2016, the established amount was below EUR 50 000 in 3 185 non-fraudulent cases (77 % of all irregularity cases), whereas it was above EUR 50 000 in 949 cases (23 %).

Last year we reported on the coordination group on solar panels. In 2016, a number of successful results were reported. Due to the coordination group, DG Trade was informed about companies that were involved in the misuse of the Minimum Import Prices of solar panels (MIP). We confiscated in one case 43 containers with solar panels and in the same investigation, €4 million in anti-dumping was recovered. In several cases of solar panels a total of €27 million was involved and another 27 containers with solar panels were blocked as a guarantee for payment. The working method with a dedicated group on a specific issue, e.g. antidumping on solar panels, worked well, also due to the fact that specialists of several disciplines/units (import, physical checks, administrative controls) worked jointly in this group.

In 2016, solar panels originating in China were especially vulnerable to non-fraudulent irregularities in monetary terms. About 21 % (EUR 97 million) of the total amount that was established in non-fraudulent irregularities concerned this type of goods. Incorrect country of origin or dispatching country was the main pattern of the infringement reported. The Netherlands and the United Kingdom were particularly affected by this type of goods and infringement. Other 11 Member States reported also cases related to solar panels to a smaller extent. Following Mutual Assistance notices issued by OLAF 59 cases totalling to 32 million were detected. This underlines the importance of investigations conducted by OLAF in this particular field.

In 15 Member States, more than 50 % of all non-fraudulent cases — in amounts — were detected by post-clearance controls. In France and Romania more than 50 % of the amounts relating to non-fraudulent cases were detected by anti-fraud services. Significant amounts were reported as non-fraudulent following voluntary admission by the United Kingdom (EUR 13 million) and Germany (EUR 12 million). In 16 Member States voluntary admission was keyed in as a method of detection of cases reported as non-fraudulent.

Considering the estimated or established amounts, around 70 % of all irregularity cases registered for 2016 were discovered during a post-clearance control, 9 % were related to voluntary admission, 8 % were found during a control at the time of clearance of goods, whereas 7 % related to a tax audit, and 6 % to an inspection by anti-fraud services.

CHART TOR7: Method of detection 2016 – Cases not reported as fraudulent – by number of cases

In 2016, most non-fraudulent cases (54 %) were revealed during post-clearance customs controls. Other methods of detection for non-fraudulent cases that featured frequently were voluntary admission (18 %), clearance controls (13 %), tax audits (9 %), followed by anti-fraud services (5 %).

All risks are present at the same time and can have fiscal consequences.

The above situation is highly relevant where there is a risk that the customs value of goods has been underdeclared. In such cases the importer's claims that changes to the prices result from slumps in the market, which it itself largely controls, should be treated with caution (Ukraine - Moldova). In the case of customs declarations concerning apple concentrate, the real risks are aggravated by additional risk factors:

There are cases where one of the group presents, in the declaration for release for free circulation, invoices, transfers and contracts relating to companies in the chain, whereas it is actually selling the goods to itself (moving between the establishments from UA/MD to PL).

• to avoid challenges from the Ukrainian tax and customs authorities regarding fraudulent VAT evasion (overdeclaration of the value of the goods at export) or irregularities linked to corporate income tax.

• to avoid challenges from the EU customs authorities concerning direct links between the exporter and the importer that might affect the value of the goods entered in the declaration of release for free circulation;

The aim of creating trading scenarios in which the major player in the production of apple concentrate in Ukraine and Moldova does not appear as the actual exporter of the goods from Ukraine and creates a chain of purchases/sales is, inter alia:

The market for concentrate produced in Ukraine and Moldova (for export to the EU) is dominated by factories belonging to a single group. The group transports concentrate from its factories in Ukraine and Moldova to factories in Poland and on to Western Europe. Following its release for free circulation some of the concentrate is exported from the EU (USA, Canada, Russia). Before actually entering the EU the goods are subject to purchase/sale (chain transactions). In most transactions the exporters to the EU are companies registered in Great Britain.

Of all cases reported as non-fraudulent about 49 % concern electrical and mechanical machinery, vehicles, mechanical appliances, plastics, articles of iron and steel and textiles. In monetary terms those groups of goods represent about 46 % of all amounts estimated or established for cases reported as non-fraudulent. China, USA, Taiwan, Brazil, Russia are - in monetary terms - the most important countries of origin of goods affected by irregularities.

In 2016 most of the estimated and established amounts in OWNRES in the EU-28 (72 %) for cases reported as non-fraudulent related to the customs procedure ‘release for free circulation’. In all, 19 % of all amounts estimated or established in cases not reported as fraudulent in 2016 involved customs warehousing, 8 % of all amounts estimated or established related to inward processing. Other customs procedures are only marginally affected in 2016.

Not all customs procedures are equally susceptible to irregularities; their vulnerability may change in the course of time as certain economic sectors are briefly targeted. The customs procedure ‘release for free circulation’ is the customs procedure mostly affected by irregularities since at the time of release for free circulation the non-compliance in the customs declaration may relate to a large number of irregularities, e.g. to the tariff, CN code, (preferential) origin, incorrect value, etc. On the other hand, in customs suspension regimes (like warehousing, transit, etc. - where the payment of duties is suspended) the sole irregularity that might occur is the subtraction of the goods from customs supervision. Thus it is normal, and indeed to be expected, that most fraud and irregularities be reported in connection with the procedure ‘release for free circulation’.

A breakdown of irregularities by mechanism type shows that most cases of irregularity relate to incorrect declarations (incorrect classification, customs value or country of origin or dispatch) and formal shortcomings (incorrect use of preferential arrangements or failure to fulfil obligations or commitments).

The total estimated and established amount in cases reported as fraudulent, where the amount at stake was above EUR 50 000, amounted to EUR 66 million (79 % of the total estimated and established amount for cases reported as fraudulent).

In 2016, the estimated and established amount was below EUR 50 000 in 378 cases reported as fraudulent (74 % of all fraud cases), whereas it was above EUR 50 000 in 135 cases (26 %).

The highest number of cases was reported by Poland (29) and Greece (27). The highest amount was reported by Greece (EUR 13.3 million). No cases were reported by ten Member States.

In 2016, there were 147 cases of smuggled cigarettes registered (CN code 24 02 20 90) involving estimated TOR of around EUR 25 million. In 2015 the number of cases of smuggled cigarettes was 241, totalling around EUR 31 million.

On the basis of the evidence gathered, on 19 January 2016 the AT sent the information to OLAF, in accordance with Council Regulation (EC) No 515/97 of 13 March 1997, so that an on-site visit to Vietnam could take place. In the course of the investigation carried out by OLAF in Vietnam, and with the full cooperation of the Member States’ authorities, and particularly the AT, and with the help of the Vietnamese Ministry of Industry and Trade (MOIT) and the Vietnamese Chamber of Commerce and Industry (VCCI), it was proven that the goods imported into the EU were Chinese and that anti-dumping and countervailing duties had indeed been avoided.

This transiting of goods involved the fraudulent use of Vietnamese companies as the supposed producers of the goods, and traders based in Hong Kong and Singapore were used to export the goods to importers in the EU. In short, once trade measures began to be applied to Chinese goods, the imports were then brought into the EU through intermediaries (and not directly from the Chinese companies, as had previously been the case). The intermediaries were the link between the two Vietnamese companies (the ‘fraudulent’ suppliers) and the EU importers.

As part of the nationwide investigation, the documents seized and information gathered were analysed (relating to the companies involved and the products traded), including commercial documentation, contracts, electronic communications between the Portuguese companies and the Chinese supplier and the product references (same type and price before and after the imposition of the anti-dumping duties). This led to the conclusion that the case under investigation was a specific type of commercial fraud, whereby the goods are transited through countries for which the EU does not have trade measures in place, meaning that the true origin of the goods traded is artificially ‘lost’, and, as a result of this illicit practice, the duties due are avoided.

In 2015, the Portuguese customs authorities (Tax and Customs Authority – AT) opened an investigation into a complaint concerning suspicions that, in 2013 and 2014, Portuguese companies had been making fraudulent declarations of imports of ‘flat-rolled products of non-alloy and alloy steel which are painted, varnished or coated with plastics on at least one side’. The companies were declaring the origin of the goods as Vietnam, when in fact they were from China, to avoid paying anti-dumping and countervailing duties.

In Cyprus and Austria the greatest part (89% and 69 % respectively) of all estimated and established amounts in fraudulent cases were detected by an inspection by services or bodies other than customs.

In 8 Member States more than 50 % of all estimated and established amount in fraudulent cases were detected by anti-fraud services. As regards amounts, controls at the time of clearance of goods were the most important method for detecting fraudulent instances in Greece, Croatia, Latvia, Lithuania, Finland and the United Kingdom whereas post-clearance controls were in Bulgaria, Hungary, Poland and Slovakia.

In monetary terms, of the EUR 83 million estimated or established in fraudulent cases registered for 2016, around 53 % were discovered during an inspection by anti-fraud services, 16 % during a post-clearance control, 15 % during a control at the time of clearance of goods.

In 2016, inspections by anti-fraud services (30 %) and customs controls carried out at the time of clearance of goods (29 %) and post-clearance controls (28 %) were almost equally successful methods of detecting fraudulent cases.

Of all cases reported as fraudulent about 72 % concern such goods as tobacco, textiles, articles of iron and steel, electrical machinery and equipment, and vehicles. In monetary terms those groups of goods represent about 71 % of all amounts estimated and established for cases reported as fraudulent. China, Morocco, United Arab Emirates and Malaysia are the most important - in monetary terms - countries of origin of goods affected by fraud.

In 2016, the customs procedure ‘release for free circulation remained the procedure most vulnerable to fraud (79 % of the number of cases and 84 % of the estimated and established amount). A total of 13 % of all cases reported as fraudulent and 8 % of all estimated and established amounts in OWNRES cases registered as fraudulent for 2016 fall under the category "Other". A total of 7 % of all cases reported as fraudulent and 8 % of all estimated and established amounts in OWNRES cases registered as fraudulent for 2016 involve the transit procedure.

A breakdown of frauds by mechanism type reveals that most fraudulent cases relate to smuggling of goods. Incorrect value, country of origin, country of dispatch, or incorrect classification are frequently mentioned in 2016.

On the cut-off date, the overall recovery rate for all years 1989-2016 was 61 %.

Recovery rates vary among the Member States. The highest recovery rates for 2016 are in Estonia (100%), Slovenia (100%), Sweden (97%), Germany (92 %), Czech Republic (88 %) and Finland (84%). Differences in recovery results may arise from factors such as the type of fraud or irregularity, or the type of debtor involved. Because recovery is ongoing, it can be expected that the recovery rate for 2016 will also go up in the future.

The overall recovery rate is a correlation between the detection, the established amount and the current recovery stage of individual cases (high additional duty claims are more frequently associated with long lasting administrative and criminal procedures).

Over the past five years the annual recovery rate has varied between 39 % and 78 % (see Chart TOR4). The recovery rate for 2016 is currently 39 %. In other words, out of every amount over EUR 10 000 of duties established and reported for 2016 in OWNRES as irregular/fraudulent, approximately EUR 3 900 has already been paid.

In addition, Member States continued their recovery actions related to the detected cases of previous years. The EU-28 recovered EUR 139 million in 2016 related to cases detected between 1989 and 2015.

The fraud and irregularity cases detected in 2016 correspond to an established amount of EUR 525 million. Nearly EUR 189 million of this was recovered in cases where an irregularity was at stake and EUR 17 million in fraudulent cases. In total EUR 205 million was recovered by all Member States for all cases which were detected in 2016. In absolute numbers, Germany recovered the highest amount in 2016 (EUR 66 million) followed by the United Kingdom (EUR 32 million). This is a starting point for the recovery. Analysis shows that lengthy recovery procedures spread over several years are usually required due to administrative and judicial procedures in complex cases or cases with huge financial impact.

TOR MAP1: Showing the percentage of established and estimated amounts in OWNRES of established TOR for 2016

For the seven Member States which established and made available most of the TOR amounts, the percentage of the estimated and established OWNRES amounts to established TOR for 2016 was equal to 2.13 %. In comparison with the previous year, this represents an increase of 0.38%. For Belgium, the proportion of estimated and established OWNRES amounts to established TOR remained almost stable in 2016 compared to the previous year, while for Germany it has decreased. For other five Member States, the proportion of estimated and established OWNRES amounts to established TOR increased in 2016 compared to the previous year.

The total estimated and established amount reported in OWNRES represent 2.14 % of the total collected TOR (gross) amount in 2016. This proportion has increased compared with 2015 when it was 1.71 %. A percentage of 2.14 % indicates that of every EUR 100 of TOR (gross) established, an amount of EUR 2.14 is registered as irregular (fraudulent or non-fraudulent) in OWNRES. There are differences among the Member States. In 11 Member States, the percentage is above the average of 2.14 %. The highest percentage for 2016 can be seen in Latvia, Greece and Austria with 7.35 %, 7.14 % and 6.07 % respectively.

In 2016, the total established amount of TOR (gross) was EUR 25.7 billion and more than 98 % was duly recovered and made available to the Commission via the A-account. According to the OWNRES data, around EUR 537 million has been established or estimated by the Member States in connection with cases reported as fraudulent/not fraudulent where the amount at stake exceeds EUR 10 000.

Annex 3 of the summary tables shows the situation on the cut-off date for years 2012-2016.

CHART TOR3: OWNRES cases not reported as fraudulent and the related estimated and established amount (2012-2016)

Cyprus, Luxemburg and Malta did not report any case of irregularity exceeding an amount of EUR 10 000 for 2016.

The total estimated and established amount of TOR (EUR 454 million) was 28 % higher than the average estimated and established amount for the years 2012-2016 (EUR 355 million).

At the same time, the number of cases not reported as fraudulent communicated via OWNRES for 2016 (4 134) was 9 % lower than the average number reported for 2012-2016 (4 532).

Annex 2 of the summary tables shows the situation on the cut-off date for years 2012-2016.

On the cut-off date, 11 % of all cases detected in 2016 were classified as fraudulent. The percentage remained quite stable in comparison to 2015.

For 2016, Luxemburg, Portugal and Slovenia did not communicate any fraudulent case exceeding an amount of EUR 10 000.

The total estimated and established amount of TOR involved (EUR 83 million) represents a decrease of 30 % of the average estimated and established amount for the years 2012-2016 (EUR 119 million).

The number of cases reported as fraudulent registered in OWNRES for 2016 (513) is currently 32 % lower than the average number of cases reported for the 2012-2016 period (749).

Annex 1 of the summary tables shows the situation on the cut-off date (5 April 2017) for the years 2012-2016.

In 2016, 5 big cases for a total amount of about EUR 115 million were reported compared to 2015, when 2 big cases with a total amount of about EUR 31 million affected the total estimated and established amount. Luxemburg did not communicate any case exceeding an amount of EUR 10 000.

The total estimated and established amount of TOR involved (EUR 537 million) is about 13 % higher than the average estimated and established amount for years 2012-2016 (EUR 474 million).

The number of cases reported via OWNRES for 2016 (4 647) is about 12 % lower than the average number of cases of irregular cases reported for the 2012-2016 period (5 281).

The following analysis is based on the data available on the cut-off date (5 April 2017) and aims to provide an overview of the reported cases of fraud and irregularities reported for 2016 together with their financial impact.

The technical explanations and the statistical approach are explained in the accompanying document 'Methodology regarding the statistical evaluation of reported irregularities for 2015'.

11 Annexes complement the information and data of this document, providing a global overview of the irregularities reported according to the relevant sector regulations. Annexes from 1 to 10 concern Traditional Own Resources, Annex 11 covers all the expenditure sectors for which Member States and beneficiary countries have a reporting obligation.

The document is completed by 28 country factsheets, which summarise, for each Member State, the main indicators and information that have been recorded throughout the analyses.

The section dedicated to shared management, covers agriculture, cohesion policy and fisheries. Decentralised management refers to the pre-accession policy, while the centralised management section mainly deals with internal and external policies for which the Commission directly manages the implementation.

The second part, concerning the expenditure part of the budget, is composed of three sections, dedicated, respectively, to shared, decentralised and centralised management modes.

The first part is dedicated to the analysis of irregularities reported in the area of the Traditional Own Resources (Revenue).

The methodology (including the definition of terms and indicators), the data sources and the data capture systems are explained in detail in the Commission Staff Working Document – Methodology for the Statistical Evaluation of Irregularities accompanying the Annual Report on the Protection of the EU financial interests for the year 2015.

For this reason, this document should be regarded as an analysis of the achievements of Member States.

The document accompanies the Annual Report adopted on the basis of article 325 of the Treaty on the Functioning of the European Union (TFEU), according to which “The Commission, in cooperation with Member States, shall each year submit to the European Parliament and to the Council a report on the measures taken for the implementation of this article”.

The present document is based on the analysis of the notifications provided by national authorities of cases of irregularities and suspected or established fraud. The reporting is performed in fulfilment of a legal obligation enshrined in sectoral European legislation.

Web application for communication of irregularities in the field of Traditional Own Resources

The fifteen Member States of the EU before the 2004 accession

The twelve Member States having acceded the EU between 2004 and 2007

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

EUROPEAN COMMISSION Brussels, 20.7.2017 SWD(2017) 266 final COMMISSION STAFF WORKING DOCUMENT Statistical evaluation of irregularities reported for 2016

Own Resources, Natural Resources, Cohesion Policy, Pre-accession and Direct expenditure Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union's financial interests - Fight against Fraud

Annual Report 2016 {COM(2017) 383 final}

{SWD(2017) 267 final}

{SWD(2017) 268 final}

{SWD(2017) 269 final}

{SWD(2017) 270 final}



TABLE OF CONTENTS COMMISSION STAFF WORKING DOCUMENT Statistical evaluation of irregularities reported for 2016 Own Resources, Natural Resources, Cohesion Policy, Pre-accession and Direct expenditure 4.The European Structural and Investment Funds (ESIF) 4.1.Trend analysis 4.1.1.Irregularities reported as fraudulent 4.1.2.Irregularities not reported as fraudulent 4.2.Specific Analysis – Irregularities reported in relation to the Programming Period 2007-13 4.2.1.Objectives concerned by the reported irregularities 4.2.1.1.Irregularities reported as fraudulent by Objective 4.2.1.2.Fraud and Irregularity Detection Rates by Objective 4.2.2.Priorities concerned by the reported irregularities 4.2.2.1.Irregularities reported as fraudulent (fisheries not included) 4.2.2.2.Irregularities not reported as fraudulent (fisheries not included) 4.2.2.3.Irregularities related to the priority 'R&TD' 4.2.2.4.Types of irregularities / modus operandi detected related to the priority 'R&TD' 4.2.2.5.Geographical distribution of irregularities (fraudulent and non-fraudulent) detected in relation to the 'R&TD' priority 4.3.Anti-fraud activities by Member States – programming period 2007-13 4.3.1.Duration of irregularities

4.3.2.Detection of irregularities reported as fraudulent by Member State in relation to the programming period 2007-13 4.3.3.Fraud detection rate 4.3.4.Irregularity Detection Rate 4.3.5.Ratio of established fraud (programming period 2007-13) 5.Pre-Accession Policy (Pre-Accession Assistance and Instrument for Pre-Accession I and II) 5.1.The Pre-accession Assistance (PAA), 2000-06 5.2.The Instrument for Pre-accession 2007-13 – IPA I 5.3.The Instrument for Pre-accession 2014-20 – IPA II 5.4.General analysis – Trend analysis 5.4.1.Trend analysis – Pre-accession assistance (PAA) 5.4.2.Trend analysis Instrument for Pre-Accession (IPA I) 5.5.Specific analysis – Financial year 2015 5.5.1.Pre-Accession Assistance (PAA) 5.5.2.Instrument for Pre-Accession (IPA) 6.Direct Management 6.1.Introduction 6.2.General analysis 6.2.1.Five year analysis 2012-2016 6.3.Specific analysis 6.3.1.Recoveries according policy areas

6.3.2.Recoveries according to legal entity residence 6.3.3.Method of detection 6.3.4.Types of irregularity 6.3.5.Time delay 6.3.6.Recovery COUNTRY FACTSHEETS Belgium - Belgique/België Bulgaria - България Czech Republic - Česká republika Denmark - Danmark Germany - Deutschland Estonia - Eesti Ireland - Éire Greece - Ελλάδα Spain - España France Croatia - Hrvatska Italy - Italia Cyprus - Κύπρος Latvia - Latvija

Lithuania - Lietuva Luxembourg Hungary - Magyarország Malta Netherlands - Nederland Austria - Österreich Poland - Polska Portugal Romania - România Slovenia - Slovenija Slovakia - Slovensko Finland – Suomi-Finland Sweden - Sverige United Kingdom ANNEXES European Structural and Investment Funds 4.The European Structural and Investment Funds (ESIF) Over half of EU funding is channelled through the 5 European structural and investment funds (ESIF). They are jointly managed by the European Commission and the EU countries. The purpose of all these funds is to invest in job creation and a sustainable and healthy European economy and environment.

The ESIF mainly focus on 5 areas: –research and innovation –digital technologies –supporting the low-carbon economy –sustainable management of natural resources –small businesses. The European structural and investment funds are: –European regional development fund (ERDF) – promotes balanced development in the different regions of the EU. –European social fund (ESF) - supports employment-related projects throughout Europe and invests in Europe’s human capital – its workers, its young people and all those seeking a job. –Cohesion fund (CF) – funds transport and environment projects in countries where the gross national income (GNI) per inhabitant is less than 90% of the EU average. In 2014-20, these are Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia and Slovenia. –European agricultural fund for rural development (EAFRD) – focuses on resolving the particular challenges facing EU's rural areas. –European maritime and fisheries fund (EMFF) – helps fishermen to adopt sustainable fishing practices and coastal communities to diversify their economies, improving quality of life along European coasts. Due to the rules of functioning of the EMFF and EFF, which are very similar to those of the other structural funds, irregularities reported by Member States in relation to fisheries policies are treated in this chapter jointly with the funds for cohesion and economic convergence. All these funds are managed by the EU countries themselves, by means of partnership agreements. Each country prepares an agreement, in collaboration with the European Commission, setting out how the funds will be used during the current funding period 2014-20. Partnership agreements lead to a series of investment programmes channelling the funding to the different regions and projects in policy areas concerned. For 2014-2020, EUR 454 billion in ESIF funding has been allocated to promote job creation and growth. National co-financing is expected to amount to at least EUR 183 billion, with total investment reaching EUR 637 billion. These resources will contribute to: ·Strengthening Research and Innovation ·Supporting the digital single market

·Supporting the growth of Europe’s small and medium-sized enterprises (SMEs) ·Supporting the energy union and the low-carbon economy ·Investing in environmental protection and resource efficiency ·Climate change and risk prevention ·Supporting sustainable transport ·Promoting sustainable and quality employment ·Promoting social inclusion ·Investing in education and training ·Support youth employment ·Strengthening institutional capacity and efficient public administration However, the following paragraphs will be mainly dealing with previous programming periods, as only a very limited part of irregularities detected and reported refer to the period 2014-2020. 4.1.Trend analysis In comparison with the other budget sectors, the analysis of Cohesion policy poses a higher level of complexity, given the fact that the information received is related to different programming periods, which are regulated by different rules. Table CP1 offers an overview of the irregularities (both fraudulent and non-fraudulent) reported from 2012 to 2016, by programming period. The table also details, for each programming period, the funds to which irregularities were related. The chart does not suggest any major diversion from known trends and patterns in detection and reporting of irregularities, with the exception of the year 2015 (see next page). Table CP1: Trend of the number of irregularities reported between 2012 and 2016 by programming period – Cohesion and Fisheries Policies There is a sudden increase from 2014 to 2015 in the number of reported irregularities, which have doubled, but then it decreases in the following year. Two elements can be pointed out in this respect: 1)The increase is mainly related to the programming period 2007-13.

a.This increase is for the greatest part linked to the reporting of irregularities from one Member State (Spain), which covers almost half of the total number of irregularities reported in 2015. b.As already clarified in the PIF Report 2015, the Spanish anomalous increase is due to belated reporting of irregularities detected throughout the programming period. If they are excluded, the number of reported irregularities would still be higher than in 2014. However, this increase would follow the natural behaviour of the programming cycle of the funds. 2)A minor, yet still striking increase of reporting is observed in relation to the irregularities related to the programming period 2000-06, whose numbers have also almost doubled between 2014 and 2015. In this respect, the explanation is again linked to a belated reporting by a single Member State (Ireland). Table CP2 highlights the trends in terms of financial value of the irregularities detected and reported to the Commission over the last five years. The only significant aspect to be highlighted in this respect is that, despite the minor decrease between 2015 and 2016 (-5%), the average financial amount per irregularity is significantly higher for the year 2016 (i.e. EUR 229 725 against EUR 195 496 of 2015, 17.5% more). This is mainly due to the high value of the irregularities affecting the Cohesion Fund, which finances infrastructure projects of very high value and in relation to which, sometimes, individual cases of irregularities involving very high amounts can be detected. Table CP2: Trend of the financial amounts related to irregularities reported between 2012 and 2016 by programming period – Cohesion and Fisheries Policies 4.1.1.Irregularities reported as fraudulent 4.1.1.1.Trend by programming period Table CP3 analyses the trend linked to the communication of the irregularities reported as fraudulent in the last five years (2012-2016), making a distinction by Fund involved and the relevant programming period. In the last five years, while the fraudulent irregularities linked to the PP2000-06 have been decreasing, those linked to the PP2007-13 follow an increasing trend, albeit inconsistent, as they have been decreasing between 2013 – 2014, and 2015 - 2016. These trends are linked to the current implementation of the latter period and the closure of the previous. Irregularities reported as fraudulent have increased by 62% since 2012 and they have decreased by 10% in comparison with 2015. This decrease is due to the reclassification of cases initially reported as non-fraudulent in 2015. Table CP3: trend of the number of irregularities reported as fraudulent between 2012 and 2016 by programming period – Cohesion and Fisheries Policies Table CP3 and its associated chart do not include irregularities reported as fraudulent related to programming periods previous to 2000-06. Table CP4 provides in the same form of Table CP3 information about the trends linked to the amounts involved in cases reported as fraudulent. As already indicated on several occasions, the trend of the financial amounts is far less consistent, resulting from fluctuations which can be significant as individual cases involving high amounts can distort the overall picture. Between 2012 and 2016 the financial amounts involved in irregularities reported as fraudulent have been decreasing by 20% and by 54% in comparison to 2015. However, in 2012 the financial amounts linked to irregularities reported as fraudulent were significantly high due to cases detected in relation to projects co-financed by the Cohesion Fund, which affect, in general, high financial amounts, as already mentioned. Table CP4: Trend of financial amounts linked to the irregularities reported as fraudulent between 2012 and 2016 by programming period – Cohesion and Fisheries Policies

4.1.1.2.Trend by Fund The analysis of the same data presented in Table CP4 but focussed on the distribution of the irregularities reported as fraudulent by Fund (Table CP5), highlights the following situations: (1)The highest number of cases relates to the ERDF. The trend increases overall , despite two years when it slowed down: 2014 and 2016; (2)Cases related to the ESF have been constantly increasing until 2015 and their share on the total is significant; (3)Potential frauds affecting the Cohesion fund are now reported regularly (since 2010), and they are quite stable from one year to another. Fluctuations of the amounts, however, can be particularly significant in respect of these cases. Table CP5: Trend of the number of irregularities reported as fraudulent between 2012 and 2016 by Fund – Cohesion and Fisheries Policies Table CP6 analyses the trends related to the financial amounts linked to the irregularities reported as fraudulent in the reference period. The year 2015 appears as a special year, considering the high financial volume of irregularities linked to the most represented funds: ERDF and ESF. Considering that the number of the irregularities reported as fraudulent is only slightly lower in 2016 than in 2015, the average financial value of the detected fraudulent irregularities is indeed significantly higher in 2015. Table CP6: Trend of financial amounts linked to the irregularities reported as fraudulent between 2012 and 2016 by fund – Cohesion and Fisheries Policies 4.1.2.Irregularities not reported as fraudulent Table CP7 analyses the trend linked to the communication of the irregularities not reported as fraudulent in the last five years (2012-2016), making a distinction by Fund involved and the relevant programming period. The reasons behind the increases related to both periods 2000-06 and 2007-13 between 2014 and 2015 have already been explained under paragraph 4.1. Table CP7: Trend of the number of irregularities not reported as fraudulent between 2012 and 2016 by programming period – Cohesion and Fisheries Policies

The sum between the totals of Tables CP7 and CP5 differ by one unit in comparison with the total showed in Table CP1. Table CP8 shows the trend related to the financial amounts linked to the irregularities not reported as fraudulent. Once more, as already mentioned several times in relation to the trends of the financial amounts, fluctuations can happen more often, as they are linked to individual irregularities or groups of irregularities of significant value, which produce distortive effects from one year to the next. In 2016, for instance, financial amounts linked to irregularities not reported as fraudulent is higher than in 2015, despite the significant decrease in the number of notified cases. For the Cohesion Fund, programming period 2007-13, the related financial amounts have almost doubled in comparison with the previous years. They have significantly increased also for the ESF, while, in relation to the ERDF, they have remained stable despite the decrease of reported irregularities. Considering the fact that irregularities reported as fraudulent usually imply higher financial amounts, one may wonder whether some of the cases notified as non-fraudulent will be reclassified later as potentially fraudulent. Table CP8: Trend of financial amounts linked to the irregularities not reported as fraudulent between 2012 and 2016 by programming period – Cohesion Policy 4.2.Specific Analysis – Irregularities reported in relation to the Programming Period 2007-13 This section of the analysis focuses on the irregularities reported in relation to the programming period 2007-13 exclusively. The closure for the programming period started in March 2017; it therefore offers an ideal opportunity to present a complete overview of what has happened. Consequently, the analysis will cover a greater time span than the previous paragraph (2012 to 2016), to examine all information available, which dates back to 2008. It will cover the following aspects: ·Objective; ·Priorities and themes affected; ·Types of irregularity 4.2.1.Objectives concerned by the reported irregularities The trend by objective of the reported irregularities follows a foreseeable pattern as showed in Table CP9. The majority of the irregularities were notified over the last three years of the reference period and mainly concern the Convergence objective (70% of the total), in line with the fact that this is the objective to which the greatest financial resources are allocated and in relation to which higher risks are associated. The anomaly concerning the year 2015 has already been explained. Table CP9: Trend of the number of irregularities reported in relation to the programming period 2007-13 by objective – Cohesion Policy

180 irregularities do not correctly indicate the objective. Table CP10 analyses the trend followed by the financial amounts linked to the reported irregularities, which broadly follows the same line as that showed in Table CP9, with the exception of the amounts linked to the Convergence objective reported in 2012, which exceed those related to the following two years, and those related to 2016, which are higher than those reported in 2015. In 2016, irregular amounts reported in relation to the Cohesion Fund are significantly high, as already showed in Table CP8 and highlighted in section 4.1. Table CP10: Trend of the financial amounts linked to irregularities reported in relation to the programming period 2007-13 by objective – Cohesion and Fisheries Policies 4.2.1.1.Irregularities reported as fraudulent by Objective Table CP11 and CP12 show the trends presented in the previous paragraph taking into consideration only the irregularities reported as fraudulent during the programming period 2007-13. The trends are similar, although in relation to the financial amounts reported it is more evident the distorting impact that high profile cases can have. The higher share represented by the Convergence objective in comparison with that presented in the previous paragraph is also significant. Table CP11: Trend of the number of irregularities reported as fraudulent in relation to the programming period 2007-13 by objective – Cohesion and Fisheries Policies Irregularities reported as fraudulent represent about 5% of the total number of irregularities reported for the programming period 2007-13. The highest share (Fraud Frequency Level – FFL) is related to the Fisheries (8.1%), the European Territorial Cooperation (7.5%) and to the Convergence (5.7%) objectives. Regional competitiveness and Employment has the lowest FFL (2.9%). Table CP12: Trend of the financial amounts linked to the irregularities reported as fraudulent in relation to the programming period 2007-13 by objective – Cohesion and Fisheries Policies Financial amounts linked to irregularities reported as fraudulent represent about 17% of the total reported for the programming period 2007-13. The highest share (Fraud Amount Level – FAL) is related to the Fisheries (19.3%), the Convergence (18.5%) and the European Territorial Cooperation (17.8%) objectives. Regional competitiveness and Employment has the lowest FFL (6.1%).

The difference between FFL and FAL, almost three times higher, indicates the higher financial impact of fraudulent irregularities compared to the non-fraudulent infringements. As a matter of fact, the average financial value linked to the irregularities reported as fraudulent is almost four times higher than that related to the non-fraudulent types. Case study: Criminal investigation in Latvia about possible misuse of structural funds Criminal case No. XX was started in 2014 by ECED, classified under Article 177 clause 3 of the Criminal Law (for fraud, if committed on a large scale, or in an organised group), by examining the submission of the Latvian Rural Support Service (RSS) regarding possible fraudulent activities of the Latvian company (Ltd.) responsible officials during project implementation, in order to embezzle EU structural funds on a large scale. In 2016 the criminal proceedings were transferred to the Riga District Court Prosecutor’s Office for criminal prosecution according to the Article 15 clause 4 (for an attempted crime), Article 177 clause 3 and Article 275 clause 2 (falsification of documents for the purpose of acquiring property by an organized group) of the Criminal Law against two suspect. Loss was prevented (EUR 140 000 was to be paid in funding). Conditions of the case: In 2012 Ltd. X officials submitted a project for the purchase of metal processing equipment to the RSS to receive financial support amounting to EUR 140 000. When evaluating the submitted project documentation RSS employees doubted that the documents submitted were genuine. RSS sent the obtained documentation for further inspection to ECED. Police investigation showed and proved that Ltd. X officials had provided false information about the company’s financial condition – forged bank documentation was submitted for the project (including from a bank which is located in Russia) on the company’s financial resources in order to acquire necessary equipment and receive co-financing from EU structural funds. 4.2.1.2.Fraud and Irregularity Detection Rates by Objective Table CP13 shows the FDR and the IDR per objective. Further details about this calculation can be found in paragraph 4.4.2. Looking at the overall detection rate (FDR + IDR), Regional competitiveness and employment programmes show a low level of detections. European Territorial Cooperation programmes, however, show an anomalously low level of detections (four times lower than the previous objective), especially if one considers that the previous two indicators (FFL and FAL) were high. The situation is different for Convergence, Multiobjective and Fisheries programmes. Interestingly, the "Total detection rate" is almost equal to that of rural development and market measures in the agricultural policy. (see chapter 3.3.2). Table CP13: FDR and IDR by Objective 4.2.2.Priorities concerned by the reported irregularities 4.2.2.1.Irregularities reported as fraudulent (fisheries not included) The operational programmes financed by the Cohesion Policy are implemented in relation to the already mentioned objectives, but also along identified Priorities and Themes. The information provided by Member States allows for an analysis of the priority areas in relation to which Member States have identified projects affected by potentially fraudulent practices. Table CP14 shows the number of reported fraudulent irregularities by priority area since the beginning of the programming period 2007-13, their related financial amounts, the average amount per irregularity, FFL and FAL. In terms of numbers, the 'Priorities' most concerned were 'Research and Technological Development (RTD)', 'Improving access to employment and sustainability' and 'Increasing the adaptability of workers and firms, enterprises and entrepreneurs'.

Fraudulent irregularities linked to these three priorities represent about 37% of the total. FFL is highest for 'Strengthening institutional capacity' and 'Tourism' (10%), while the top three priorities in the table are all between 9.1 and 9.7%. From the financial amounts point of view, the most significant results concern ‘R&TD’, 'Transport' and 'Investment in Social Infrastructure'. ‘Transport’ retains also the highest average value, almost eight times higher than that related to R&TD and 22 times higher than the overall average. Financial amounts linked to the irregularities reported as fraudulent in relation to these three priorities represent 58% of the total. FAL is highest for 'Investment in social infrastructure' (41.3%), 'Tourism' (25%) and 'R&TD' (21.6%). The FDR is highest for the same priorities and in exactly the same order: 'Investment in social infrastructure' (0.84%), 'Tourism' (0.74%) and 'R&TD' (0.55%) Table CP14: PP2007-13 - Irregularities reported as fraudulent by Priority Irregularities linked to the EFF have not been included. Reference to 'Technical assistance Fisheries' and 'Measures of common interest – fisheries' in the Table may depend on errors in encoding by Member States. Less than one third of the irregularities used for this analysis did not provide information about the priority area concerned, decreasing in comparison with previous years. 4.2.2.2.Irregularities not reported as fraudulent (fisheries not included) The same analysis showed in the previous paragraph for the irregularities reported as fraudulent is presented here for the irregularities not reported as fraudulent in relation to the programming period 2007-13. Table CP15 shows the number of reported fraudulent irregularities by priority area since the beginning of the programming period 2007-13, their related financial amounts and average amount per irregularity. Again, ‘Research and Technological Development (R&TD)’ is the priority with the highest number of occurrences, followed by ‘Environmental protection and risk prevention’ and ‘Transport’. In terms of financial amounts involved, 'Transport' comes first, followed by the other two priorities. Therefore, irregularities linked to these three priorities together represent 21.6% of the total number and 45.4% of the total amounts. Table CP15: PP2007-13 - Irregularities not reported as fraudulent by Priority Irregularities linked to the EFF have not been included. Reference to priorities specific referred to this policy area, therefore, may depend on errors in encoding by national authorities. Also in relation to the irregularities not reported as fraudulent the constant improvement in the completeness of data is confirmed, although to a lesser extent than for the fraudulent irregularities. 4.2.2.3.Irregularities related to the priority 'R&TD'

As showed in the previous two sub-paragraphs of this section, 'R&TD' is the priority for which the highest number of irregularities, fraudulent and non-fraudulent, have been detected and reported: in total, 3 995 cases, involving over EUR 1.7 billion. Figure CP1 below, details the specific priority themes which were affected by these irregularities. Please note that the larger the square, the higher the number of irregularities; the darker the colour, the higher the financial amounts involved. Two "residual" themes are those showing the highest number of reported irregularities: 'Other investment in firms' and 'Other measures to stimulate research and innovation and entrepreneurship in SMEs'. Together they represent 46% of the reported irregularities, but only 21% of the related financial amounts. Conversely, the themes 'Investment in firms directly linked to research and innovation (innovative technologies, establishment of new firms by universities, existing R&TD centres and firms, etc.)' and 'R&TD activities in research centres' represent only 23.5% of the total number of reported irregularities, but account for almost 51% of the total financial amounts involved. Figure CP1: PP2007-13 - Irregularities (fraudulent and non-fraudulent) reported in relation to the 'R&TD' Priority by theme Figure CP2 shows the same level of detail for the irregularities reported as fraudulent. Similarly to the overall picture, the two "residual" themes present the highest number of occurrences. However, again, the theme 'Investment in firms directly linked to research and innovation (innovative technologies, establishment of new firms by universities, existing R&TD centres and firms, etc.)' has the highest financial amounts, followed by the theme 'R&TD infrastructure (including physical plant, instrumentation and high-speed computer networks linking research centres) and centres of competence in a specific technology'. These two themes together represent only 24% of the number of irregularities reported as fraudulent in relation to the 'R&TD' priority, but more than 52% of the total financial volume of these cases. Figure CP2: PP2007-13 - Irregularities reported as fraudulent in relation to the 'R&TD' Priority by theme 4.2.2.4.Types of irregularities / modus operandi detected related to the priority 'R&TD' The analysis of categories of irregularities detected and reported in connection with the priority 'R&TD' shows a fragmented situation. Detected fraudulent attempts mainly happen during the implementation of a project and are made through falsified documents or declarations (in about 35% of the cases as the main violation or in conjunction with other types of infringement), or by infringing the commitments entered into through the signature of the financing contract (occurring in 38% of the cases, alone or with other), which implies that the project is not implemented according to what was initially agreed. Violation of public procurement rules in connection with irregularities reported as fraudulent have been detected in 8% of the cases but impact on 14% of the total amounts involved. Irregularities concerning ethics and integrity (including possible cases of corruption and conflict of interest) concern 3% of the cases and 6% of the total amounts affected by irregularities are reported as fraudulent. The related amounts for this category are particularly significant despite the low number of cases, as showed by the fact that, associated to this category, there is the highest average irregular amount. Table CP16: Programming Period 2007-13 - Types of irregularity/Modus operandi detected in relation to priority "R&TD" The data population used in this paragraph consists of all irregularities reported in relation to the priority "R&TD" and the programming period 2007-13 until the end of 2016. The row for totals has been omitted due to the fact that the same irregularity reported may be associated with several typologies of infringements and therefore the total sum of values in Table CP16 would result in multiple counting of the same irregularity notification. The category “Infringement of contract provision / rules” includes all irregularities related to implementation of the contract, i.e. irregularities such as ‘action not implemented’, ‘action not completed’, ‘action not carried out in accordance with rules’, ‘Failure to respect other contract provisions/rules’.

The category “Eligibility / Legitimacy of expenditure / measure” refers to all irregularities concerning the eligibility of the project or of the expenditure claimed, such as ‘Not-eligible expenditure’, ‘Expenditure not-legitimate’, ‘Expenditure outside of eligibility period’, The category “Infringements concerning the request” refers to all types of irregularities associated with the request of aid/financing, such as ‘Incorrect request for aid’, ‘Request for aid false or falsified’. The category “Ethics and Integrity” refers to violations such as ‘Conflict of interest’, ‘Bribery – active’, ‘Bribery – passive’, ‘Corruption’, ‘Other irregularities concerning integrity and ethics’. The “other irregularities” category is a residual category to be used when all others do not provide an adequate description of the detected irregularity. 4.2.2.5.Geographical distribution of irregularities (fraudulent and non-fraudulent) detected in relation to the 'R&TD' priority Map CP1 shows the geographical distribution of the irregularities (fraudulent and non-fraudulent) detected and reported in relation to the theme 'R&TD'. Map CP1: Number of irregularities (fraudulent and non-fraudulent) reported by Member State in relation to the theme 'R&TD' – programming period 2007-13 4.3.Antifraud and control activities by Member States – programming period 2007-2013 Previous paragraphs have examined the trend and main characteristics of the reported irregularities. The present paragraph aims at examining some aspects linked to the antifraud and control activities and results of Member States. Four elements are taken into account: ·the duration of irregularities, meant as the time that runs between the beginning of the fraudulent practice and its detection/establishment by the competent authority; ·the number of irregularities reported as fraudulent by each Member State; ·the fraud detection rate (the ratio between the amounts involved in cases reported as fraudulent and the payments occurred in relation to the programming period 2007-13) and the irregularity detection rate (the ratio between the amounts involved in cases not reported as fraudulent and the payments occurred in relation to the programming period 2007-13; ·the ratio of cases of established fraud on the total number of irregularities reported as fraudulent. 4.3.1.Duration of irregularities Of the 37 110 detected irregularities (fraudulent and non-fraudulent) reported by Member States in relation to the programming period 2007-13, 18 142 (47% of the total) involve infringements that have been protracted during a given span of time. For the 1 750 irregularities reported as fraudulent this percentage is higher at 60%. The remaining part of the datasets refers to irregularities/breaches which consisted of a single act identifiable on a precise date (19% of the whole dataset and 26% of that represent exclusively by the fraudulent irregularities) or for which no information has been provided (34% of the whole dataset, but only 14% of the irregularities reported as fraudulent). Taking into account only those irregularities which have been protracted in time, their average duration is almost 20 months (i.e. almost 1 year and 8 months). For the irregularities reported as fraudulent, this average is just one month less: 19. 4.3.2.Detection of irregularities reported as fraudulent by Member State in relation to the programming period 2007-13 Map CP2 shows the number of irregularities reported as fraudulent by Member State in relation to the programming period 2007-13.

Only Luxembourg has notified no irregularity as fraudulent; fourteen (14) Member States reported less than 30 fraudulent irregularities; four (4) countries reported between 30 and 60; three (3) Member States between 60 and 90 fraudulent irregularities and six (6) more than 90. Poland, Romania and Germany are the three countries which have reported the highest numbers. Case study: Cohesion policy, ERDF – undue receipt of EU funds relating to a soil conservation project. Operation ‘Hulk’ carried out by the Catanzaro Guardia di Finanza The Catanzaro Guardia di Finanza’s Tax Investigation Unit carried out a complex investigation aimed at tackling multiple offences concerning a regional body set up for the purpose of integrated implementation of all forestry and soil conservation measures in the region’s territory. The main line of investigation concerned checking whether two project items complied with the corresponding rules. These items were co-financed with monies from the European Union budget, specifically the European Regional Development Fund (ERDF) 2007/2013, for securing riverbeds and addressing landslide risks in the region. The investigations uncovered fraudulent conduct on the part of various persons involved in the management of the body, whereby some EUR 80 million of public funding (half of it EU funds) were unduly obtained, out of an initial allocation of more than EUR 100 million. Against this backdrop, it was discovered that a part of the monies made available by the Union was used for purposes other than financing project targets, namely covering the ordinary expenditure of the beneficiary undertaking, including the regular and ongoing payment of the salaries of the regional body’s employees. Further inquiries also brought to light other offences at the expense of the public administration, perpetrated over the same period by members of the body’s management team relating to, for example: - the use of workers for private ends (during their working hours, thus taking them away from their contractual activities), as well as of the body’s assets and funds; - the attribution of a remunerated task to a person lacking the necessary qualifications to carry out the duties involved. With respect to these criminal acts, in September 2016 the above-mentioned unit of the Guardia di Finanza, authorised by the local Public Prosecutor’s office, took restraining measures against five managers, officials and consultants of the publicly-owned entity which had been responsible to varying degrees for embezzlement of public monies, misuse of official positions, forgery and aggravated fraud. Map CP2: Number of irregularities reported as fraudulent by Member State in relation to the programming period 2007-13 – Cohesion Policy 4.3.3.Fraud detection rate The fraud detection rate compares the results obtained by Member States in their fight against fraud with the related commitment appropriations. Considering the multi-annual nature of the cohesion policy spending programmes, no annual analysis has been prepared, concentrating instead on the whole programming period 2007-13, for which commitment appropriations have almost reached 100% and the number of fraudulent irregularities reported by Member States is significant. The fraud detection rate is the highest (>0.3%) for Slovakia, Italy, Latvia, the Czech Republic, Romania, Slovenia, Poland, Portugal and Croatia. Table CP16: Number of irregularities reported as fraudulent, amounts involved and fraud detection rate by Member State – Programming Period 2007-13 Programmes under the Territorial Cooperation Programme (designated in the table under the country code 'CB', last row before the total) can involve several countries and, therefore, paid amounts are spread among the beneficiaries in various Member States. However, in general, irregularities for these programmes are reported by the Member State in which is located the managing authority. For this reason, the sums paid have been included in the total, while the irregularities reported as fraudulent and the related amounts have already been computed in relation to the country having reported them. The numbers have been included in the table to calculate the FDR related to these programmes, but they are not summed in the total row to avoid a double counting.

4.3.4.Irregularity Detection Rate The irregularity detection rate compares the results obtained by Member States in detecting non-fraudulent irregularities with the related commitment appropriations. Considering the multi-annual nature of the cohesion policy spending programmes, no annual analysis has been prepared, concentrating instead on the whole programming period 2007-13, for which commitment appropriations have almost reached 100% and the number of irregularities detected and reported by Member States is significant. Table CP17: Number of irregularities not reported as fraudulent, amounts involved and irregularity detection rate by Member State – Programming Period 2007-13 Programmes under the Territorial Cooperation Programme (designated in the table under the "country-code" 'CB', last row before the total) can involve several countries and, therefore, paid amounts are spread among the beneficiaries in various Member States. However, in general, irregularities for these programmes are reported by the Member State in which is located the managing authority. For this reason, the sums paid have been included in the total, while the irregularities not reported as fraudulent and the related amounts have already been computed in relation to the country having reported them. The numbers have been included in the table to calculate the IDR related to these programmes, but they are not summed in the total row to avoid a double counting. 4.3.5.Ratio of established fraud (programming period 2007-13) Table CP22 shows the ratio between the cases of established fraud and the total number of irregularities reported as fraudulent (including suspected and established fraud) in the period 2009-13. Taking into account only cases reported in 2015 would be meaningless, as the criminal proceedings leading to a conviction for fraud may take several years, while using the period 2010-14 would be misleading as it will be impossible to make a sound comparison with figures published in the 2013 and 2014 Report. Table CP18 is integrated with the ‘Dismissal ratio’, calculated by the differences between the total number of irregularities reported as fraudulent published in the corresponding table in the 2013 Report (TOTAL 2013) and the total calculated taking into account the updates received until the end of 2016. When the ratio is positive, it means that Member States have classified as ‘suspected’ or ‘established fraud’ an irregularity appearing as non-fraudulent in 2013. In this respect, the average ratio of established fraud at EU level is 14%, increasing from 11% of 2013. The dismissal ratio is 5%. If one considers exclusively the “decisions” (established + dismissed), of the 128 decided cases (91 established fraud and 37 dismissals), 71% is the ‘conviction rate’ and 29% the ‘dismissal rate’. Table CP18: Number of cases of suspected and established fraud, ratio of established fraud, dismissal ratio – cases reported until 2013 Case study: European Fisheries Fund - Use of Spain’s system of public-private partnerships to circumvent the application of public procurement rules Spanish public procurement law, specifically the Royal Legislative Decree 3/2011 of 14 November 2011 approving the recast Law on public sector contracts, expressly excludes from its scope a specific type of legal agreement called a convenio de colaboración (public-private partnership), as laid down in Article 4(1)(c) and (d) of the aforementioned recast Law. These legal agreements differ from public procurement contracts in that they do not relate to a mutual exchange of services between the parties for consideration, but rather they set up a partnership between the parties to achieve an objective of common interest to them both. For a legal agreement to be considered a public-private partnership in the strictest sense and for it to be exempt from public procurement rules, bearing in mind the subject of the agreement, and irrespective of the name the parties give to the agreement, the following conditions must be met: - both parties must be involved in actually carrying out the activity to which the agreement relates; - both parties must be involved in financing the activity; - the result of the activities to which the agreement relates must be jointly owned or used by both parties. A public-private partnership agreement differs from a public procurement contract in all of these respects; in the latter, one of the parties (the contractor) has sole responsibility for carrying out the activities, while the other party (public body) has sole responsibility for financing these activities, and the result of these activities is owned or used exclusively by the public body. The specific case we wish to highlight here relates to a public body that was in receipt of European funding. In order to benefit from the less stringent rules that apply to public-private partnerships in Spain (specifically, the rules do not require a competitive procedure to be held to select the public body’s partner), the public body handled a legal agreement as a public-private partnership (meaning that it selected its partner directly without a competitive procedure). However, in view of the subject of the agreement, it should have been considered as a service contract and the awarding of the contract should therefore have taken place in accordance with the competitive procedures laid down in the public procurement rules.





Section II - Decentralised Management The EU as a global player / Pre-Accession Policy The goal of the EU as a global player is also promoted through direct management. Pre-Accession Assistance (PAA) is provided through decentralised management where third countries distribute funds but account to the