COMMISSION NOTICE

Guidance on the avoidance and management of conflicts of interest under the Financial Regulation

(2021/C 121/01)

DISCLAIMER: ‘On the basis of applicable EU law, this document provides technical guidance for staff and bodies involved in implementing, monitoring and controlling the EU Budget on how to interpret and apply the EU rules in order to facilitate implementation and to encourage good practice(s). The examples provided in the document merely aim at illustrating the specific concepts presented in each chapter. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law.’

TABLE OF CONTENTS

1. Regulatory references 3

2. Introduction and purpose of the guidance note 3

3. The concept and obligations regarding avoidance of conflicts of interest 4

3.1 Main differences between the previous and the current Financial Regulation with regard to conflicts of interest 4

3.2 The new provisions on conflicts of interest in the FR 2018 6

3.2.1 Definition of conflict of interest 7

3.2.2 Who is concerned 7

3.2.3 ‘Situations which may objectively be perceived as a conflict of interest’ 10

3.2.4 Obligations in case of conflict of interest 12

4. Specific elements for direct/indirect management 15

4.1 Conflicts of interest in award procedures 16

4.2 Further references in the FR 2018 to conflicts of interest 17

4.3 Ethical issues in non-financial contexts 18

5. Specific elements for shared management 22

5.1 Who does what in the context of shared management? 23

5.2 Rules on conflicts of interest under the Procurement Directives 25

5.3 Specific elements for shared management financial instruments 29

6. Possible measures to avoid and manage conflicts of interest 30

6.1 Awareness raising 31

6.2 Policies, rules and procedures 31

6.3 Declarations of interest, asset disclosure and exclusive functions 33

6.4 Other measures 35

Annex I – Other illustrative examples of conflicts of interest 39

Annex II – EU legal provisions on conflicts of interest in the area of shared management 39

1. REGULATORY REFERENCES

Legislative act Articles Regulation (EU, Euratom) No 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union and repealing Regulation (EU, Euratom) No 966/2012 (1) Financial Regulation (hereinafter‘FR 2018’) Articles 2, 26, 33, 36, 61, 62, 63, 69, 70, 71, 73, 76, 77, 78, 89, 136, 137, 141, 150, 154, 155, 167, 205, 209, 216, 225, 237 and Annex I points 20.6, 28.2 and 29.1 Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (2) Financial Regulation (hereinafter‘FR 2012’) Articles 32, 57 and 59 Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (3) (4) Public Procurement Directive (hereinafter‘PP Directive’) Articles 2, 24, 41, 57, 58 and 83

2. INTRODUCTION AND PURPOSE OF THE GUIDANCE NOTE

The FR 2018, which entered into force on 2 August 2018, has strengthened the measures to protect the EU financial interests. A key example is the strengthening of the rules on conflicts of interest, which, in addition to direct and indirect management, are now explicitly extended to Member States’ authorities (regardless of the Member States’ internal governance arrangements) and any person implementing any of the EU funds under shared management.

Situations involving conflicts of interest can happen at any time. It is of paramount importance to either prevent them or manage them appropriately when they occur. That requirement is crucial for upholding the transparency, reputation and impartiality of the public sector and the credibility of the rule of law principles as a fundamental value of the EU. This is essential for maintaining public confidence in the integrity and impartiality of public bodies and officials as well as in the decision-making processes that serve the general interests. Conversely, if conflicts of interest are not prevented or properly managed when they arise, they can negatively affect the decision-making process in public bodies, give rise to unsound use of public money and cause reputational damage. They can also lead to a loss of faith in the public sector’s ability to operate impartially and in the general interests of society.

Conflicts of interest must be prevented and addressed and the principles governing the EU budget (5) must be duly observed. Having in place detailed policies and rules on avoiding and managing conflicts of interest is an essential part of good governance.

Given the fundamental importance of rules on conflicts of interest, the infringement of EU law in this respect is a matter of serious concern and will normally result in some form of redress, financial or other, e.g. disciplinary (6).

The purpose of this guidance note is to:

(1) promote a uniform interpretation and application of the rules on avoidance of conflicts of interest (7) for financial actors (8) and staff of the EU institutions involved in implementing, monitoring and controlling the EU budget under direct/indirect/shared management;

(2) raise awareness among Member States’ authorities, holders of public office (including members of government) and any other person involved in implementing the EU budget under shared management (9) about the applicable provisions set out in the FR 2018 and the PP Directive with regard to the avoidance of conflicts of interest; and

(3) raise awareness among external partners (10) (including their staff and any entity with whom the external partner has a contractual relation for budget implementation) involved in implementing the EU budget under indirect management about the applicable provisions set out in the FR 2018 with regard to the avoidance of conflicts of interest.

Chapters 1 to 3 of this guidance note are relevant to all management modes, whereas Chapters 4 and 5 present specific elements that are relevant to direct/indirect management and shared management, respectively. Chapter 6 provides a non-exhaustive list of suggestions and recommendations for measures that could be put in place to avoid and manage conflict of interest situations. These suggestions and recommendations aim at providing EU institutions and Member States’ authorities with guidance and tools to assist them in the avoidance of conflicts of interest.

3. THE CONCEPT AND OBLIGATIONS REGARDING AVOIDANCE OF CONFLICTS OF INTEREST

3.1. Main differences between the previous and the current Financial Regulation with regard to conflicts of interest

FR 2012 FR 2018 Article 57 Conflict of interests ‘1. Financial actors and other persons involved in budget implementation and management, including acts preparatory thereto, audit or control shall not take any action which may bring their own interests into conflict with those of the Union. Where such a risk exists, the person in question shall refrain from such action and shall refer the matter to the authorising officer by delegation who shall confirm in writing whether a conflict of interests exists. The person in question shall also inform his or her hierarchical superior. Where a conflict of interests is found to exist, the person in question shall cease all activities in the matter. The authorising officer by delegation shall personally take any further appropriate action. 2. For the purposes of paragraph 1, a conflict of interests exists where the impartial and objective exercise of the functions of a financial actor or other person, as referred to in paragraph 1, is compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other shared interest with a recipient. 3. The Commission shall be empowered to adopt delegated acts in accordance with Article 210 setting out what is likely to constitute a conflict of interests together with the procedure to be followed in such cases.’ Article 32 of Rules of Application of the FR 2012 (11) Acts likely to constitute a conflict of interests and procedure (Article 57 of the Financial Regulation) ‘1. Acts likely to be affected by a conflict of interests within the meaning of Article 57(2) of the Financial Regulation may, inter alia, take one of the following forms without prejudice to their qualification as illegal activities under point (d) of Article 106(1) of the Financial Regulation: (a) granting oneself or others unjustified direct or indirect advantages; (b) refusing to grant a beneficiary the rights or advantages to which that beneficiary is entitled; (c) committing undue or wrongful acts or failing to carry out acts that are mandatory. Other acts likely to be affected by a conflict of interests are those which may impair the impartial and objective performance of a person’s duties such as, inter alia, the participation in an evaluation committee for a public procurement or grant procedure when the person may, directly or indirectly, benefit financially from the outcome of these procedures. 2. A conflict of interest shall be presumed to exist if an applicant, candidate or tenderer is a member of staff covered by the Staff Regulations, unless his participation in the procedure has been authorised in advance by his superior. 3. In the event of a conflict of interests, the authorising officer by delegation shall take appropriate measures to avoid any undue influence of the person concerned on the process or procedure in question.’ Article 61 (our underline) Conflict of interests ‘1. Financial actors within the meaning of Chapter 4 of this Title and other persons, including national authorities at any level, involved in budget implementation under direct, indirect and shared management, including acts preparatory thereto, audit or control, shall not take any action which may bring their own interests into conflict with those of the Union. They shall also take appropriate measures to prevent a conflict of interests from arising in the functions under their responsibility and to address situations which may objectively be perceived as a conflict of interests. 2. Where there is a risk of a conflict of interests involving a member of staff of a national authority, the person in question shall refer the matter to his or her hierarchical superior. Where such a risk exists for staff covered by the Staff Regulations, the person in question shall refer the matter to the relevant authorising officer by delegation. The relevant hierarchical superior or the authorising officer by delegation shall confirm in writing whether a conflict of interests is found to exist. Where a conflict of interests is found to exist, the appointing authority or the relevant national authority shall ensure that the person in question ceases all activity in the matter. The relevant authorising officer by delegation or the relevant national authority shall ensure that any further appropriate action is taken in accordance with the applicable law. 3. For the purposes of paragraph 1, a conflict of interests exists where the impartial and objective exercise of the functions of a financial actor or other person, as referred to in paragraph 1, is compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other direct or indirect personal interest.’

The FR 2018 has explicitly extended the scope of the provisions on conflicts of interest to all management modes (12) and to all actors, including national authorities at all levels, involved in the EU budget implementation, including carrying out preparatory acts and audits, as well as exercising control.

The following are the main changes brought about by the FR 2018 regarding conflicts of interest.

— Broader scope: explicitly applicable to shared management (in addition to direct and indirect management) and to national/regional authorities at any level, including members of government.

— Reworded definition of conflict of interest: now covering ‘any other direct or indirect personal interest’, which is broader than ‘any other shared interest with a recipient’ in Article 57 FR 2012.

— More situations covered: it explicitly requires not only that situations involving conflict of interest be prevented but also these situations be addressed, including those which ‘may objectively be perceived’ as a conflict of interest’. This provision strengthens the preventive function for conflict of interest situations.

Shared management

Prior to the FR 2018, the rules on conflicts of interest as set out in Article 57 FR 2012 were not directly applicable in the Member States when implementing the EU budget in shared management. Considering in particular that the specific measures to be adopted, as referred to in Article 57 FR 2012, merely focused on the duties of the authorising officer by delegation, such provision applied only to staff of the EU institutions and EU bodies.

However, Article 59(1) FR 2012 provided that ‘The Commission and the Member States shall respect the principles of sound financial management, transparency and non-discrimination (13) (14)[…] when they manage Union funds’ and ‘the Commission and the Member States shall fulfil their respective control and audit obligations.’ In accordance with Article 59(4) FR 2012, bodies designated by Member States to manage and control EU funds in shared management were already obliged to set up and ensure the operation of an effective and efficient internal control system.

Furthermore, Article 32(1) FR 2012 provided that the budget must be implemented in compliance with effective and efficient internal control (for all management modes) and in line with the relevant sector-specific rules. Article 32(3)(c) FR 2012 required these internal control systems to be capable of avoiding conflict of interest from arising in all methods of budget implementation.

Therefore, the avoidance of conflict of interest was one of the shared management principles enshrined in Article 59(1) FR 2012. Thus, even before the FR 2018 entered into force, under the FR 2012 Member States were obliged, when implementing the EU budget in shared management, to take the necessary measures to avoid conflicts of interest; for example, this obligation has been clearly set out in the accreditation criteria for the Paying Agencies under the Common Agricultural Policy (CAP) (15).

3.2. The new provisions on conflicts of interest in the FR 2018

One important legal provision (16) for the avoidance of conflicts of interest is Article 61 FR 2018, which contains revised rules on conflicts of interest. As of 2 August 2018, it applies to all funds stemming from the EU budget and to all management modes.

Article 61 FR 2018 is directly applicable in the Member States to the extent that they are involved in implementing the EU budget. Consequently, their obligation to prevent and address conflicts of interest, as set out in this Article, does not depend on national implementing measures being adopted. However, Article 61 FR 2018 does not comprehensively regulate conflicts of interest and the way these should be dealt with as it makes reference to taking appropriate measures to prevent and address situations of conflict of interest. In addition, national authorities remain competent for adopting supplementary and possibly even more detailed and/or stricter national rules as evident from the reference to ‘any further appropriate action to be taken in accordance with the applicable law’ in paragraph 2 of Article 61 FR 2018.

In the context above, the application of such national rules would no longer be exclusively a national matter and could be included in the scope of checks, controls and audits carried out by the Commission services as well as by the European Court of Auditors, in line with paragraph 2 of Article 61 FR 2018. While Member States remain competent to apply their own supplementary and/or more detailed national rules (even if Article 61 FR 2018 is directly applicable), they should consider aligning or supplementing any more lenient or incomplete national rules in order to improve the legal certainty of the applicable rules where the EU budget is concerned.

Examples of rules on ethics and conflicts of interest at Member State level: (1) In one Member State it is prohibited for persons occupying managerial positions in government administration (e.g. minister, secretary of state, head of central office) to hold more than 10 % of shares in private companies. (2) In a second Member State, the Head of State, ministers and members of Parliament may not accept gifts, hold shares in private or public companies or hold government contracts. (3) In a third Member State, anyone holding a public sector position must not carry out any trading activities if they own over 10 % of a company’s shares. (4) In a fourth Member State, ministers and members of Parliament must not be part of supervisory or managerial bodies of private companies and if they own shares in a private company of 0,5 % or more, they must transfer their consequential management rights to another person for the duration of their mandate. (5) In a fifth Member State, officials who have financial responsibilities and whose hierarchical level or the nature of their duties so warrants must, within two months of their appointment, take all steps to ensure that their financial assets are managed, during the duration of their duties, under conditions which exclude any right of scrutiny on their part.

3.2.1. Definition of conflict of interest

Pursuant to Article 61 FR 2018, a conflict of interest exists where the ‘impartial and objective exercise of the functions of a financial actor or other person’ involved in budget implementation ‘is compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other direct or indirect personal interest.’

A conflict of interest can arise even if the person does not actually benefit from the situation, as it is sufficient that circumstances compromise the exercise of their functions in an objective and impartial manner. However, such circumstances must have a certain identifiable and individual link with (or impact on) concrete aspects of the conduct, behaviour or relationships of the person.

A mere link with beliefs, views, opinions or preferences of the person does not usually or automatically constitute a personal interest (but each case may be different from the other). However, persons involved in budget implementation should exercise their rights of expression, opinion and political and civic participation by considering and managing the risks that may arise for their impartiality in the exercise of functions and for the image and reputation of the institutions or authorities where they work (17).

Moreover, a conflict of interest would not usually exist where the person is only concerned as a member of the general public or of a broad class of persons, unless the person (or the related person, e.g. a family member) is in a specific and different situation compared to other members of the general public or of a broad class of persons.

Similarly, the concept of conflict of interest would not usually cover situations where the EU budget implementation tasks by the person concerned are related to decisions (1) that are of a general nature and based on objective criteria that apply to a whole sector of the economy or a very wide group of potential beneficiaries; and (2) that would therefore neither be compromised by emotional life, political or national affinity and economic interest, nor by the fact that the person concerned or a member of their family is among the beneficiaries.

National affinity, political affinity, emotional life or others as listed in Article 61(3) FR 2018 are factors that could compromise the impartiality and objectivity of a person involved in budget implementation. In practical terms, to avoid such compromise persons involved in budget implementation should refrain from involvement, influences or pressures that may affect their impartiality and objectivity (or the perception of their impartiality or objectivity) in their professional performance. This could in particular result from friendships or enmities, family relationships, party affiliations, associations or religious beliefs. Persons involved in budget implementation should base their performance and professional judgment only on legal and objective criteria and on sufficient and appropriate evidence (18).

The inclusion of a reference to ‘any other direct or indirect personal interest’ is broader than the wording of the FR 2012, which referred to ‘any other shared interest with a recipient’. An indirect interest goes beyond the direct connection between the person in question and the beneficiary of EU funds.

Direct and indirect interest can also include gifts or hospitality, non-economic interests, or result from involvement with non-governmental or political organisations (even if non remunerated), competing duties of loyalty between one entity the person owes a duty to and another person or entity the person owes a duty to.

Example of a personal interest: A head of a managing authority/paying agency: (1) might have a direct personal (family) interest in allocating EU funds to a project of the company of their spouse/partner (and therefore would need to declare a conflict of interest and abstain from being involved in decision-making related to that project, so that the situation can be managed); (2) might have an indirect personal (family) interest, in allocating EU Funds to a company that promised to create a new factory for which the company of the spouse/partner will most likely be the most significant sub-contractor (and therefore would require them to abstain from decisions related to the award procedure) or owns the land that the company will have to buy to build the factory.

The relationships constituting family membership may vary between countries and need to be analysed within the legal and cultural context (depending, for instance, on the degree of kinship). However, the text and the purpose of Article 61 FR 2018 as set out in Chapter 2, namely to protect the integrity and impartiality of decision-making related to the implementation of the EU budget and the public’s trust therein, form the basis for some general guidance.

— First, it should be noted that Article 61(3) FR 2018 refers to ‘family’ and ‘emotional life’ separately. An emotional bond between family members is therefore not required for a person’s impartiality to be compromised by reasons involving family.

— Second, Article 61(3) FR 2018 does not stipulate conflict of interest as an automatic consequence of a family relationship, but the concerned person’s impartiality needs to be compromised (in exceptional cases, this may not be the case).

— Third, from the purpose of Article 61 FR 2018 to protect the integrity of budget implementation and the public’s trust, it may be derived that the notion of family should cover relationships between the person concerned and a party involved that would typically raise reasonable suspicions about a potential undue family-related influence on the exercise of official functions. Against this background, Article 61 FR 2018 should refer, at least, to immediate family. The concept of immediate family goes significantly beyond that of the nuclear family, but its precise contours are neither universally recognised nor defined in EU legislation, except in specific policy areas, notably migration. The Commission services take the view that, in the context of Article 61 FR 2018 and based on its purpose, ‘immediate family’ should comprise, at least, the following relationships, including if formed through adoption: The spouse (including a partner with whom the individual has a (non-) registered non-marital partnership), children and parents, (great-)grandparents and (great-)grandchildren, (half-) brothers and sisters (including from blended families), uncles and aunts, nieces and nephews, first-degree cousins, parents-in-law, children-in-law, siblings-in-law, stepparents and stepchildren. The existence of one of these family relationships between the person concerned and a party involved should, at least, be considered as a situation objectively perceived as a conflict of interest (see Chapter 3.2.3), save in exceptional, objectively plausible circumstances. Apart from the concept of ‘immediate family’, the wider concept of ‘extended family’ may still lead to a conflict of interest, notably pursuant to rules and regulations or social perception in the country concerned or taking into account further circumstances such as emotional or economic ties.

— Last, public trust in a sound implementation of the EU budget – as protected by Article 61 FR 2018 – is, in principle, indivisible. Citizens in country A must be able to trust the integrity of budget implementation in country B. Therefore, there is only very limited room for variations from one country to another in the application of standards derived from Article 61 FR 2018.

Similarly, a personal friendship (or god-parents/god-children relationships), which may imply a closer proximity than with immediate family could lead to a situation where the person concerned, by having a particular relation with that friend, would compromise their impartiality and objectivity.

Anyone permanently living in the concerned person’s household is at least in a situation that could objectively be perceived as a conflict of interest (19), unless such a conclusion is refuted by an objectively plausible counterargument.

Example of rules on ethics and conflicts of interest at Member State level: In one Member State, members of Parliament, members of Government or local executives are forbidden to employ as a parliamentary assistant or member of their cabinet a person from their ‘first family circle’ (spouse, children and parents). For the employment of a person from the ‘second family circle’ (brothers, sisters, brothers-in-law, sisters-in-law, nephews or nieces, ex-spouse, etc.), the law obliges the employment to be declared.

3.2.2. Who is concerned

The Commission is responsible for implementing the EU budget, in cooperation with Member States, in line with the financial rules for establishing and implementing it, while observing the principle of sound financial management (Article 317 TFEU (20) and Article 63(1) FR).

Financial actors as well as other persons (at EU or national level), including national authorities are concerned by Article 61 FR 2018, as long as they are involved in implementing, at any level, the EU budget under direct, indirect and shared management (including preparatory acts, audits or controls). This means that Article 61 FR 2018 applies to anyone and to any entity under Member States jurisdictions (21) involved in implementing the EU budget (22).

Article 61 FR 2018 concerns: (i) financial actors (23) (within the meaning of Chapter 4 – Articles 73, 76, 77 and 89 – of Title IV of FR 2018) which are the authorising officers (each EU institution performs the duties of authorising officer and delegates – and further sub-delegates – its duties of authorising officer to staff at an appropriate level), the accounting officers (appointed by each EU institution from officials subject to the Staff Regulations (24)) and the imprest administrators (appointed by decision by the accounting officer of the EU institution, on the basis of a duly substantiated proposal from the authorising officer responsible); and (ii) staff (including members of opening and evaluation committees and the external experts selected to assist them (25)) involved in implementing the EU budget.

The external partners entrusted with the (indirect) management of EU funds listed in Article 62(1)(c) FR 2018, including any entity with whom the external partner has a contractual relation for budget implementation (e.g. financial intermediaries) also fall within the scope of Article 61 FR 2018 as well as their staff and members, as long as they are under Member States jurisdictions and involved in implementing the EU budget (see further details and recommendations in Chapter 4).

As far as executive agencies referred to in Article 69 FR 2018 are concerned, Article 61 FR 2018 is directly applicable to them.

As regards decentralised agencies referred to in Article 70 FR 2018, the rules on conflicts of interest are set out in Article 42 of the Framework Financial Regulation (26). For public-private partnership bodies referred to in Article 71 FR 2018, the rules on conflicts of interest are set out in Article 27 of the Model Financial Regulation (27). Both these Articles mirror the provisions of Article 61 FR 2018, explicitly mention members of their respective management boards or governing boards and, in addition have been incorporated in the financial rules of all decentralised agencies and public-private partnership bodies concerned. To the extent that these entities implement the EU budget under indirect management, Article 61 FR 2018 applies.

In the case of shared management, it is the responsibility of national authorities to establish internal control systems with responsibilities/tasks being clearly assigned as this is relevant to determining a person’s ‘involvement in budget implementation’ in each particular case.

However, it should be noted that, pursuant to Article 61(1) FR 2018, the ‘involvement’ encompasses preparatory acts, and any step of the process of planning, deciding on, managing, auditing and controlling the use of EU funds. Therefore, this concept includes anyone that might influence the decision-making process including national, regional and local authorities, staff or members of these authorities and government members, to the extent that they deal with any of the abovementioned steps in implementing the EU budget.

Hence, Article 61 FR 2018 applies to any step (to be) taken by anyone who is responsible for, and/or who has the ability to steer and/or influence, the decision-making process linked to the implementation of the EU budget. However, their involvement has to be reasonably significant: the person has to be entitled to exercise a certain degree of discretion or control over the implementation of the budget (i.e. the power to act or to give instructions to those who act; a role to advise or to provide opinions to those who act).

Example of a person working for a managing authority/Commission service but not involved in implementing the EU budget and therefore falling outside the scope of Article 61 FR 2018: A staff member working for the Communication department that is only responsible for publishing calls for proposals in a website but does not intervene in its preparation is not involved in budget implementation (even if working for a managing authority/Commission service).

In addition to the level of proximity to the decision-making process, other important aspects need to be considered, such as the nature and importance of the responsibilities exercised (including whether they are political, administrative, legislative or executive), the existing functional or hierarchical links, the nature of the decision-making process and its transparency and openness to public scrutiny. All these aspects also have an influence on the objective perception of conflicts of interest (see Chapter 3.2.4).

Examples of persons at any level involved in implementing the EU budget including preparatory acts, and therefore falling within the scope of Article 61 FR 2018: (1) A member of government or a Commissioner who has the direct or indirect power to instruct or influence an authority or service that manages EU funds (this is relevant in case there is a risk that the position leads to concrete situations, which could amount to, or be perceived as amounting to, a conflict of interest). (2) A head of a national or regional authority/Commission service/EU body, office or agency that manages EU funds who has the power to instruct a person responsible for assessing applications for EU funds (same as above). (3) A staff member of a national or regional authority/Commission service/EU body, office or agency that manages EU funds who is responsible for managing procurement contracts or grants (same as above). (4) A staff member of a paying agency/certifying authority/audit authority/Commission service (or a person/entity to whom an activity has been outsourced) responsible for auditing the implementation of EU funds.

Composition of advisory groups in relation to budget implementation

Private interests can influence public budget implementation through advisory groups established by public authorities. An advisory or expert group refers to any committee, board, panel, task force, or similar group, or any subcommittee or other subgroup thereof that provides EU institutions and national authorities with advice, expertise, or recommendations on budget implementation. They usually consist of representatives from public authorities, the private sector, and/or civil society organisations, and may be established by EU institutions and national authorities.

There can be a risk to the integrity of budget implementation if, for example, private interests strongly steer or influence the work of advisory groups. When, for example, corporate executives or interest representatives advise governments as members of an advisory group, they act as part of the decision-making process with direct influence on decision-makers while still having their own private interests. In this respect, while the expertise of advisory groups is indeed important for the quality of the decision-making process, it is equally important that such groups have a balanced composition representing the different relevant areas of expertise and interest required for the specific tasks and/or decision of the body concerned.

For the application of Article 61 FR 2018 to members of such advisory groups, it is important to distinguish between sectoral or societal interests that they officially represent in the advisory group on one hand and the member’s personal interests (e.g. because a project submitted to the advisory group is run by the member’s spouse/partner) on the other hand. In the latter case, the member is obliged to disclose the situation and must be excluded from deliberations on that project.

3.2.3. ‘Situations which may objectively be perceived as a conflict of interest’

Any activity or interest, which could interfere with the impartial and objective exercise of the functions of a financial actor or other person, and thus affect public trust in the sound financial management of the EU budget, is a situation which may be perceived as a conflict of interest.

A perceived conflict of interest may notably occur when a person, regardless of their intentions, may reasonably see him or herself or be seen as having competing personal and public interests as these risk undermining the person’s ability to fulfil their tasks and responsibilities in an impartial and objective manner (e.g. a risk or possibility of favouritism or hostility for reasons of family interest and national or political affinity may objectively be perceived as a conflict of interest). A perceived conflict of interest covers objective circumstances affecting trust and confidence in a person’s or entity’s independence and impartiality, even if the conflict of interest does not materialise (28) or even if the person does not actually benefit from the situation. In this context, it is of utmost importance to safeguard both the effective observance of the rules on avoidance of conflicts of interest and avoid any doubts that a reasonable, informed, objective and good-faith person may have about the conformity of the behaviour of a person involved in budget implementation.

The inclusion of the wording ‘situations which may objectively be perceived as a conflict of interest’ in Article 61 FR 2018 ensures partly alignment with the definition of conflict of interest set out in the PP Directive. However, as compared to the PP Directive, Article 61 FR 2018 contains the term ‘objectively’: this was added to the FR 2018 to underline the importance of basing the risk of perceived conflicts of interest on objective and reasonable considerations. This notably includes verifiable factual indications that there are links (29) between the functions and the interest at stake, for instance, a power to act or give instructions, a link via a third person, a continuing link with previous positions, a link with future positions or a hierarchical and/or functional link.

The interest has to be sufficiently significant to be perceived as being able to ‘compromise’ the ‘impartial and objective exercise of the functions’. As a rule, it could be argued that the higher the responsibility and the accountability or the greater the interest or the closer the involvement in budget implementation, the higher the probability of a perceived conflict of interest.

In this regard, Article 61 FR 2018 does not set a precise quantitative threshold for the interests that could create a conflict of interest, nor does it seem possible to establish one. A 10 % share in a company may not seem large, but it (or indeed an even smaller percentage share) could still be the largest single holding in the company concerned, it could be accompanied by the right to veto important decisions of the company or represent a sizeable asset given the size of the company. A thorough examination of each case will be necessary in such situations.

Examples of when a person who works for a managing authority/paying agency (or a national contracting authority) or for a Commission service, and is in charge of evaluating applications for EU funding, could come to be in a situation that may constitute or be objectively perceived as a conflict of interest: (1) The person (or their partner) simultaneously carries out consultancy work, for either a consultancy or a third party providing services to the consultancy, on submitting applications for EU funding. (2) The person (or an immediate family member of the person) directly or indirectly owns a company applying for EU funding. (3) The person has a personal friendship with the managers/owners of a company applying for EU funding. (4) The person is a candidate (as a member of a political party) for public office and their political party has a business relationship vis-à-vis a specific applicant for EU funding. (5) Prior to leaving their position in the public service, a person negotiates their future employment in a company applying for EU funding (30) (or affiliated or partner company, or another company with overlapping ownership compared to the one applying for EU Funding). (6) The person recently worked in a management position in a company applying for EU funding, and was in charge of the particular sector of the company that is now requesting the funding. (7) If the person lives in a municipality that is applying for infrastructure funding, this should not necessarily and objectively be perceived as giving rise to a conflict of interest. The larger the group to which the person belongs that would benefit from a measure – in this case, the people of the municipality concerned – the more diluted the risk of conflict of interest generally becomes. However, a case-by-case assessment remains necessary if, for example, the person were to benefit from the funding measure in a particular way, e.g. from public infrastructure increasing the real estate value of their neighbourhood, the perception of a conflict of interest could exist/arise.

3.2.4. Obligations in case of conflict of interest

The rules on conflict of interest should be implemented in a comprehensively preventive manner, as they aim to prevent, in the first place, a person from being in a situation where they would use their power in a manner influenced by their interest. If it appears that the impartial judgement of someone involved in implementing the EU budget can be hampered by personal interests, either by favouring a certain choice, or by being overly critical or hostile in order to avoid the perception of favouritism, this situation should be promptly dealt with before it could result in any wrongful act.

Whenever there is a situation that may be objectively perceived as a conflict of interest, it must be examined and resolved in such a way that it could no longer be objectively perceived as such. In this context, and without prejudice to any stricter national rules, financial actors and other persons involved in implementing the EU budget must:

— refrain from taking any action which may bring their own personal interests into conflict with those of the EU; Example: Refrain from taking any action that concerns their personal interests. A person must not decide upon allocation of public funds to, evaluate, monitor, control or audit a project in which they (or their personal friends or immediate family) are to be or have been involved.

— take appropriate measures to prevent conflicts of interest from arising in the tasks under their responsibility. Example: The person concerned must abstain from decisions influencing the allocation of funds to their own entities (or of their immediate family). It must be ensured that there is no influence on decision-making (31) linked with budget implementation. As an example, agricultural land (in cases where the land is eligible) automatically entitles (as there is no selection procedure) a beneficiary to receive direct payments under the European Agricultural Guarantee Fund. In such a situation, the person concerned should not be involved in the decision-making process determining the eligibility of a particular plot of land.

— take appropriate measures to address any situations which may objectively be perceived as a conflict of interest. Example: The person concerned could take measures that ensure that they are no longer involved in any step of budget implementation or no longer have any economic interest or other personal interest within the meaning of Article 61 FR 2018 in relation to an entity applying for EU funding. Thus, the person could sever all relations with the entity; or the person concerned should abstain from being involved in any decision regarding the allocation of EU funding to the entity concerned (including by resigning if punctual abstention could not sufficiently address the situation); or the entity could withdraw the application for EU funding. The steps below must be taken where there is a risk of a conflict of interest involving a person involved in implementing the EU budget.

— The person must report it to their hierarchical superior (or to the relevant authorising officer by delegation) (or in the case of politically exposed persons, a good practice is for the person to disclose relevant personal interests in a public declaration of interests).

— The relevant hierarchical superior (or the relevant authorising officer by delegation) must confirm in writing whether a conflict of interest exists (and the person concerned is obliged to refrain from creating any fait accompli while their superior’s decision is pending). The hierarchical superior must exercise judgement and carefully consider whether someone who is aware of the relevant facts would be likely to think that the organisation’s integrity is at risk from an unresolved conflict of interest. The hierarchical superior should evaluate the need to replace the person who has declared a possible conflict of interest. Before that, and without prejudice to applicable law, the authority or the hierarchical superior should discuss the situation with the person concerned to better assess the risk of biased execution of their duties.

— When it is established that a conflict of interest has arisen, the relevant national authority (or the appointing authority) must ensure that the staff member concerned ceases all relevant activities related to budget implementation, including any preparatory acts.

Article 61 FR 2018 also requires the national authority (or the relevant authorising officer by delegation) to ensure that any further appropriate action is also taken in accordance with the applicable law (see Chapters 3.2 and 6.2). This is important not only to address the issue but also to allow for business continuity. In this respect, it may be the case that the authority (or the relevant authorising officer by delegation) needs the advice or intervention of other competent bodies, in accordance with applicable law.

Finally, on one hand, in the presence of an unresolved objectively perceived conflict of interest or if the conflict of interest materialises, e.g. a staff member effectively uses their power to favour/deliberately benefit an economic entity owned by an immediate family member, such situations should lead to the examination of its impact on EU budget implementation (32) also with a view to determine adequate remedies (e.g. cancelling and re-evaluating award procedures, cancelling contracts/agreements, suspending payments, making financial corrections and recovering funds). In addition, such situations could generally qualify as a wrongful act under administrative, civil service law or criminal law and should be penalised as such. On the other hand, attempts by candidates, tenderers or applicants, to unduly influence an award procedure or obtain confidential information should be treated, at least, as grave professional misconduct and should lead to exclusion from participating in award procedures (as it is the case for direct/indirect management under Articles 136(1)(c)(iv) and (v) – see Chapter 4).

4. SPECIFIC ELEMENTS FOR DIRECT/INDIRECT MANAGEMENT

As set out in Article 36(3)(c) FR 2018 on internal control of budget implementation for all management modes (including direct/indirect management), internal control systems must be capable of avoiding conflicts of interest.

In direct management, in accordance with Article 62(1)(a) FR 2018, the Commission (and therefore Commission staff) executes the budget directly through its services.

In indirect management, in accordance with Article 62(1)(c) FR 2018 (33), the Commission entrusts budget implementation to external partners. Examples of such external partners are international organisations under the umbrella of the United Nations, the European Bank for Reconstruction and Development, the European Investment Bank, the European Investment Fund, EU bodies (34), private law bodies with a public service mission, public law bodies including Member State organisations, and third countries (35) or the bodies they designate.

However, even if the external partners are responsible for setting up and maintaining an effective and efficient internal control system, the Commission remains ultimately responsible and accountable for implementing the EU budget. For this reason, the Commission should include the obligations related to avoidance on conflicts of interest, stemming from Article 61 FR 2018, in the agreements (either new or amended) signed with the external partners. This is even more important where the external partner is not under Member States jurisdictions (36) (see Chapter 3.2.2). The external partners should also include these obligations in their own agreements with any other entity (e.g. implementing entities such as financial intermediaries) with whom they have a contractual relation for budget implementation. The external partners remain however competent for adopting supplementary and possibly even more detailed and/or stricter rules but, as a minimum, they must adhere to the obligations of Article 61 FR 2018.

The Commission is also tasked with supervising these partners so they fulfil their duties (37). This is obligatory and relevant to the extent that, under indirect management, the Commission must ensure that that the external partners provide for a level of protection of the EU’s financial interests equivalent to that provided under direct management (38).

While direct management allows for continuous prevention, detection and handling of conflicts of interest at all stages from design through the implementation phase to audits and evaluations, the Commission’s involvement in the prevention, detection and handling of conflicts of interest in cases of indirect management is also based on the ex ante assessment of the external partner’s procedures.

The steps involved in such an assessment are set out in Article 154(4) FR 2018 and are further detailed in the Commission decision (39) establishing new terms of reference for the pillar assessment methodology to be used under the FR 2018. In particular, this methodology includes the assessment of the procedures in place for the avoidance of conflicts of interest in the pillar of internal control systems, as well as, when applicable, in the pillar of grants, procurement and financial instruments. Only after a positive assessment, would the entity be eligible to be entrusted with budget implementation tasks.

Therefore, in dealing with conflicts of interest in indirect management, a focus should be put on preventing conflicts of interest when budget implementation tasks are entrusted to an external partner, and on detection and handling of conflicts of interest by those involved in carrying out checks or auditing the external partner (and any entity with whom the external partner has a contractual relation for budget implementation) during and after the implementation phase.

The basic acts (sectoral legislation) of different policies, funds or programmes may also contain further rules on conflicts of interest, notably the obligation to avoid conflicts of interest. Considering the Commission’s commitment to (and requirement of) transparency, it is important to provide participants (40), beneficiaries (41), external partners, etc., with clear information about their obligations regarding conflicts of interest and to include provisions or cross-references to legal provisions on those obligations (and the consequences of their violation) in (i) procurement documents; (ii) work programmes: (iii) calls for proposals; (iv) procurement contracts, (v) grant agreements; (vi) contribution agreements and (vii) financing agreements.

4.1. Conflicts of interest in award procedures

The public procurement rules that EU institutions have to comply with are set out in the FR 2018 (42). Article 2(3) FR 2018 defines an award procedure as a procurement procedure, a grant award procedure, a contest for prizes, or a procedure for selecting experts or persons or entities implementing the budget in indirect management.

The Commission (Directorate-General for Budget) ‘Central Financial Service's Vade-mecum on public procurement’ (43) and ‘Vade-mecum on grants’ (44) are documents for internal use intended to provide EU institutions and agencies with practical assistance in preparing and implementing these procedures and to provide guidance (45) on dealing with conflicts of interest in award procedures.

Further information can also be found in the ‘Procurement and Grants for European Union external actions – A Practical Guide (PRAG)’ (46). This practical guide provides contracting authorities, on the one hand, and tenderers, candidates, applicants and contractors, on the other hand, with practical assistance in preparing and implementing procurement and grant contracts in the field of external actions. This practical guide does not apply to awards procedures for which the Commission acts as contracting authority on its own account (these are covered by the Vade-mecums on public procurement and on grants referred to above). The references included in Section 2.5.4 of this practical guide in relation to conflicts of interest are, in substance, similar to the four cases presented below.

In the specific context of award procedures, four situations must be distinguished: (i) conflicts of interest under Article 61 FR 2018; (ii) attempts to unduly influence an award procedure or obtain confidential information (which should be treated as grave professional misconduct); (iii) the involvement in the preparation of documents used in the award procedure; and (iv) professional conflicting interests (47). Cases involving these four situations are presented in more detail below so to make clear in which cases there is a conflict of interest covered by the provisions of Article 61 FR 2018.

1. Conflicts of interest under Article 61 FR 2018

In the context of award procedures, the EU (and its staff) acts as a contracting authority or as a provider of EU support in the form of grants, prizes, financial instruments and budgetary guarantees.

The concept of conflict of interest is linked to the principles of sound financial management, transparency and equal treatment (48). Where legal instruments provide for an obligation of sound financial management, transparency and equal treatment, this includes the diligent handling of conflicts of interest, in particular to ensure a level playing field.

For example, in line with the principles of transparency and equal treatment, members of an evaluation committee (49) have to be able to impartially and objectively assess the proposals. Therefore, they are obligated to take any action required under Article 61 FR 2018.

The concept of conflict of interest refers to situations where persons involved in budget implementation are in one of the situations referred to in Article 61 FR 2018, i.e. where the person's ability to impartially and objectively exercise their role is ‘compromised for reasons involving family, emotional life, political or national affinity, economic interest or any other direct or indirect personal interest’. In this respect, the obligations explained in Chapter 3 apply (50).

In the context of award procedures, Article 61 FR 2018 applies to the authorising officers (51) and to those involved or in charge of the award procedure as well as to those involved in the preparation, opening and evaluation phases. The concept of ‘conflict of interest’ as defined in Article 61 FR 2018 does not apply to participants (i.e. candidates/tenderers/applicants) and should not be used when referring to them.

Furthermore, the FR 2018 further strengthens the rules on conflicts of interest with the following provisions:

— members of opening and evaluation committees (and the external experts selected to assist them) must comply with the provisions of Article 61 FR 2018 (Articles 150(5), 225(4), 237(2), Annex I points 28.2 and 29.1 FR 2018),

— the selection of persons or entities to be entrusted with implementing the EU budget under indirect management should not give rise to conflicts of interest (Article 154(1) FR 2018),

— for financial instruments that the Commission directly implement, the selection of managers of dedicated investment vehicles, financial intermediaries and recipients should not give rise to conflicts of interest (Article 216(3) FR 2018).

2. Grave professional misconduct

There are specific situations involving participants that qualify as cases of ‘grave professional misconduct’ and not as conflicts of interest under Article 61 FR 2108:

— where the participant enters into an agreement with other persons or entities (52) with the aim of distorting competition,

— where the participant attempts to unduly influence the decision-making process of the contracting authority during a procurement procedure, for example by denigrating another participant or by misrepresenting the expertise and resources available to the participant,

— where the participant tries to obtain confidential information that may give them undue advantages in the procedure.

These cases are listed in Article 136(1)(c) FR 2018 and are a basis for excluding the participant from award procedures if ‘it has been established by a final judgment or a final administrative decision that the person or entity is guilty of grave professional misconduct by having violated applicable laws or regulations or ethical standards of the profession to which the person or entity belongs, or by having engaged in any wrongful conduct which has an impact on its professional credibility where such conduct denotes wrongful intent or gross negligence’. As set out in Article 136(2) FR 2018, such exclusion may also happen in the absence of a final judgment or a final administrative decision on the basis of a preliminary classification in law having regard to established facts or other findings contained in the recommendation of the panel referred to in Article 143 FR 2018.

3. Involvement in the preparation of documents used in the award procedure

There may be cases where the contracting authority/provider of EU support contracted, for example, outside expertise to help prepare documents to be used in an award procedure (e.g. drafting the tender specifications of a subsequent procurement procedure) and where the service provider themselves decide to take part in the same award procedure as a participant.

In accordance with Article 137(1) FR 2018, the participant is obliged to declare its involvement in the preparation of documents used the award procedure (or any other of the situations referred to in Articles 136(1) and 141(1) FR 2018) and, where applicable, declare whether it has taken any remedial measures referred to in Articles 136(6)(a) and 136(7) FR 2018.

The contracting authority/provider of EU support is responsible for ensuring the participants involved in preparing the documents and other participants are treated equally. The participant involved in preparing the documents must be rejected from the subsequent procedure if their participation entails a breach of the principle of equality of treatment, including distortion of competition, that cannot be remedied otherwise (Article 141(1)(c) FR 2018 (53)). In this respect, the contracting authority could, for example, provide information for the evaluation committee members concerning the services providers who were involved in preparing the documents to be used in the award procedure.

The burden of proof is on the contracting authority/provider of EU support. It is therefore up to the contracting authority/provider of EU support to prove the distortion of competition or to prove that it has taken all possible measures to avoid the rejection from the award procedure of the participant concerned (54). Such rejection is subject to a contradictory procedure (55), so the participant must be given the opportunity to prove that their prior involvement did not distort competition.

In practice, it is recommended to avoid rejection by putting in place measures to avoid distortion of competition. In particular, the information given to the service provider for the preparation of documents to be used in an award procedure should also be communicated to the other participants in the second procedure. Besides, the time limit for receipt of tenders/applications of the second procedure should be long enough to ensure that all participants are well informed.

4. Professional conflicting interests (for procurement only)

Economic operators (56) participating in procurement procedures should not have conflicts of interest that may negatively affect the performance of the contract (Article 167(1)(c) and Annex I point 20.6 FR 2018).

This is usually referred to as a professional conflicting interest and should be treated at the selection stage in order to prevent cases where, for example, an economic operator is awarded a contract to evaluate a project in which they have participated or to audit accounts which they have previously certified as, in these cases, the economic operator has already been involved in the precise subject matter of the tender. These situations often arise in evaluation or audit framework contracts, where the contractor can have a professional conflicting interest for a specific contract.

A case-by-case assessment is required to confirm that the situation of conflict of interest may negatively affect the performance of the specific contract in question. If the economic operator is in such a situation, the corresponding tender is rejected. The assessment should include a contradictory procedure with the concerned operator and should be based on objective criteria and factual elements that confirm, taking into consideration the nature of the tasks to be performed, the professional conflicting interest and, simultaneously, prevent an unjustified limitation of the number of economic operators that can participate in procurement procedures, in order to also abide by the principles of non-discrimination, equal treatment and transparency.

In the specific case of the selection of the independent external audit bodies or experts that carry out the external audit of the annual financial statements of European political parties and European political foundations, Article 233 FR 2018 sets out that the term of the contract is limited to 5 years, with a maximum of two terms. After two consecutive terms, there is a presumption that there are conflicting interests that may negatively affect the performance of the audit.

The professional conflicting interest is different from the involvement in the preparation of documents used in the award procedures as described under point 3 of this Chapter 4.1.

4.2. Further references in the FR 2018 to conflicts of interest

The concept of conflicts of interest is further referred to in the FR 2018 to encompass the following situations:

— if the accounting officer of the Commission is also the accounting officer of an executive agency (Article 69(3) FR 2018) or if two or more EU institutions or bodies have the same accounting officer (Article 78(2) FR 2018), specific arrangements are required to avoid any conflict of interest,

— the implementing entities or counterparts involved in implementing financial instruments and budgetary guarantees must prevent conflicts of interest with their other activities (Article 209(2)(e) FR 2018),

— where the implementation of an action or work programme requires the beneficiary to award public contracts, they must avoid any conflict of interest (Article 205(1) FR 2018),

— EU institutions and bodies may exceptionally accept corporate sponsorship as in-kind support for an event or an activity for promotional or corporate social responsibility purposes, provided that it does not generate any conflicts of interest (Article 26(2)(c) FR 2018).

The first two examples are close in substance to the concept of professional conflicting interests described in Point 4 of Chapter 4.1.

4.3. Ethical issues in non-financial contexts

This document covers primarily financial management issues related to conflicts of interest and regulated in the FR 2018. In this context, staff involved in implementing the EU budget being confronted with a situation of conflict of interest as defined in the FR 2018 should follow the procedures described in Chapter 3.2.4. Nevertheless, it is considered valuable to provide, in the current chapter, a short description and compilation of relevant documents covering ethical issues in non-financial contexts at Commission level.

Rules on conflicts of interest applicable to Commission staff (even when there is no involvement in budget implementation) are regulated through what is broadly known as 'rules on ethics' (professional ethics or deontology). The framework is set by the Regulation of the European Parliament and the Council on the Staff Regulations of Officials of the EU and the Conditions of Employment of Other Servants (57). In the Commission (58), the Directorate-General for Human Resources and Security is responsible for staff ethics at central corporate level, which includes cabinet staff.

In addition, each Commission service has an obligation to advise staff members in relation to ethics and to put in place internal measures for preventing and managing conflicts of interest.

Preventive and mitigating measures are an important aspect of regulating conflicts of interest within the Commission. The obligations for staff include, amongst others, declaring:

— any situation in which a staff member is asked to deal with a matter in which, directly or indirectly, they have any personal interest such as to impair their independence, and in particular, family and financial interests, Example: The person concerned should declare any situation where they are asked to deal with a matter in which, they have a family and/or financial interests (such as the companies owned by their immediate family).

— any situation of conflict of interest upon recruitment or upon return from leave on personal grounds,

— the professional activity of spouses (including a partner with whom the individual has a registered non-marital partnership) and possibly of other immediate family members,

— offers of gifts or hospitality,

— decoration or honour,

— paid or unpaid outside activities and assignments, for which, as a general rule, authorisation needs to be asked and obtained in advance.

A staff member may also be asked, among other things, to: (i) desist from acting in certain circumstances; (ii) refrain from outside activities during active service or leave on personal grounds; and (iii) refrain, for a limited period of time, from professional contacts with former colleagues or from representing opposing parties after leaving the service. In addition, a staff member must refrain from any unauthorised disclosure of confidential information.

The rules and restrictions mentioned above serve the purpose of preventing conflicts of interest from arising, e.g. from the outside activities of the staff member or professional activities of their spouse (including a partner with whom the individual has a registered non-marital partnership). The reference documents and sources of information presented below provide more detail in relation to rules on conflicts of interest affecting staff (59), even when they are not involved in implementing the EU budget.

— Regulation No 31 (EEC), 11 (EAEC), laying down the Staff Regulations of Officials and the Conditions of Employment of Other Servants of the European Economic Community and the European Atomic Energy Community (60), notably Articles 11 and 16,

— Commission Decision of 29 June 2018 on outside activities and assignments and on occupational activities after leaving the Service (61),

— Communication from Vice-President Šefčovič to the Commission on Guidelines on Gifts and Hospitality for staff members SEC(2012) 167 final (62),

— European Commission Ethics Guide (Ref. Ares(2019)4833796 – 24/07/2019) (63),

— Practical Guide to Staff Ethics and conduct (64),

— Commission Decision of 17 October 2000 amending its Rules of Procedure: Code of Good Administrative Behaviour for staff of the European Commission in their relations with the public (65),

— Ethics and staff conduct webpage (66),

— Guidelines on the prevention and management of conflicts of interest in EU decentralised agencies of 10 December 2013, which notably covers members of management boards and experts (67),

— Guidelines on whistleblowing (68) (69).

The handling of cases where a conflict of interest cannot be adequately mitigated depends on the applicable legal framework and procedure. Different remedies will be available to the EU institutions. They exist in the FR 2018, in the Staff Regulations, in sectoral legislation, or in the binding agreements into which the Commission, other persons/entities involved in implementing the EU budget, contractors and beneficiaries have entered.

The European Anti-Fraud Office (OLAF) or the Investigation and Disciplinary Office of the Commission (IDOC) may be called upon to investigate whenever circumstances present (i) a suspicion of fraud, corruption or other illegal activities; (ii) breaches of financial rules (such as those on public procurement); (iii) favouritism affecting the financial interests of the EU; or (iv) serious professional misconduct.

Example (70): ‘The Appointing Authority decided to remove from post an official who privately negotiated important terms of a contract with an external company, without any authorisation from his hierarchy. Both the Disciplinary Board and the Appointing Authority considered that this behaviour seriously damaged the image of the institution and reflected adversely upon his position. Moreover, the official openly recommended the company of his partner as a subcontractor to the Commission, which resulted in that company effectively acting as a subcontractor, without the knowledge of the hierarchy. The official furthermore participated in the management of the contract binding the company of his partner to the contractor of the Commission. All this constituted a serious conflict of interest. The Appointing Authority concluded that the official seriously breached Articles 11, first paragraph, 12 and 21 of the Staff Regulations, as well as Article 57 and 79 of the Financial Regulation (71)’.

5. SPECIFIC ELEMENTS FOR SHARED MANAGEMENT

In addition to the rules set out in the FR 2018, the rules for managing and controlling shared management funds are supplemented in sectoral legislation.

For details about the rules on financial corrections and on the set up of management and control systems for shared management funds, please refer to the relevant provisions of (i) the FR 2018; (ii) other sectoral legislation for shared management funds notably, with regard to European Structural and Investment Funds, to the Common Provisions Regulation (‘CPR’) (72); and (iii) the ‘Guidance for the Commission and Member States on a common methodology for the assessment of management and control systems in the Member States – EGESIF 14-0010-final 18/12/2014 (73)’. In addition, for detailed rules on the management and control system for the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD), please refer also to the Horizontal Regulation (74) and in particular the accreditation criteria for paying agencies (75).

5.1. Who does what in the context of shared management?

The overall responsibility and accountability for implementing the EU budget lies with the Commission. However, approximately 75 % of the EU budget is implemented by Member States in shared management in accordance with the rules of the FR 2018, the applicable sectoral EU legislation and national rules. Therefore, close cooperation between the national authorities and the Commission is needed to ensure that the EU budget is used in line with the principles of sound financial management and that the EU’s financial interests are well protected by an adequate accountability model.

Shared management means that Member States (and, depending on their organisation, also their regions), taking into account their institutional and legal framework, are responsible for implementing programmes, aid schemes and actions funded under shared management. This role also includes defining the scope of support of the funds and the design of specific instruments for support and allocating funds to beneficiaries (e.g. companies, farmers, municipalities, etc.) and audits and controls on the implementation of programmes.

In shared management, the Commission is responsible for proposing the legislative provisions at EU level, adopting the programmes, carrying out certain advisory functions, and exercising supervision over the implementation of the programmes, including monitoring and auditing, without, however, intervening directly at the operational level; i.e. under shared management rules the Commission, in principle, is not a party to the contractual relation between the national or regional authority and the beneficiaries/recipients of the funds. Moreover, the Commission also facilitates the EU-wide dissemination and exchange of knowledge, good practices and information regarding the support provided by the EU funds under shared management.

In accordance with Articles 36(1) and 63(1) FR 2018, the Commission and the Member States must adhere to the principle of sound financial management as defined in Article 33 FR 2018.

In this context, it is for Member States and their authorities to act by means of the following steps.

— Setting up and ensuring the effective functioning of internal control systems. These control systems must comply with the requirements of the FR (in particular Articles 36 and 63 FR 2018), sectoral legislation and national rules, including those on (i) having adequate procedures for organising such internal control systems; (ii) selecting operations; (iii) having appropriate measures in place to prevent, detect and properly mitigate and address conflicts of interest; and (iv) carrying out the necessary administrative and on-the-spot management verifications or checks, and audits. Member States should check their existing systems to ensure that the aspects as regards conflicts of interest in the FR 2018 are well covered.

— Establishing measures to avoid conflicts of interest. Effective prevention of conflicts of interest is important to safeguard the EU’s financial interests in the implementation of the EU budget, under the applicable EU rules. Staff members should act without regard for personal interests in order to safeguard the integrity of the decision-making process.

— Establishing whether a conflict of interest exists in a given case and, if so, applying mitigating measures. To this end, a Member State has to assess whether or not a conflict of interest exists, for example, when its authorities evaluate an application for funding or check the eligibility of expenditure.

— Reporting on cases of conflict of interest using appropriate reporting tools, in particular the Irregularity Management System (IMS) for reporting detected irregularities to the Commission.

— Correcting irregularities in cases of non-compliance (either individual or systemic (76)) with the rules on avoidance of conflicts of interest as laid down in Article 59(2)(b) FR 2012 and Article 63(2)(c) FR 2018. Non-compliance with conflict of interest rules may result in Member States imposing financial corrections and recovering funds (77) as laid down in sector-specific rules and/or other forms of redress. Example: In one notable case, an entity which had been used to implement cooperation programmes had to be wound up altogether, because some members of the entity board also directed technical assistance offices which were likely to, and did, get consultancy work from it. This was criticised by the Court of Auditors in its special report No 1/96. One of the offices concerned launched a case for defamation against the Court of Auditors, which it lost. In its judgement on that particular case the Court of Justice stated that ‘the conflict of interest constitutes, objectively and in itself, a serious irregularity without there being any need to qualify it by having regard to the intentions of the parties concerned and whether they were acting in good or bad faith’ (our underline) (78) (79). As explained in Chapter 3.2.3, the existence of an objectively perceived conflict of interest is to be assessed regardless of the intention of the person concerned. The Commission considers that an unresolved objectively perceived conflict of interest constitutes an irregularity. Such irregularities must be prevented, but if not, they should be detected and corrected by the competent national authorities (80). More targeted corrective measures and sanctions/penalties might be imposed, by Member State authorities, on beneficiaries/final recipients based on national legislation and on the agreements and contracts concluded with them. Similarly to the situation described in Chapter 5.2, for financial corrections in case of non-compliance with the applicable rules on public procurement (81), there is no need to demonstrate any effective impact of the objectively perceived conflict of interest or that the objectively perceived conflict of interest has been deliberately used to benefit a certain person/entity (these would be relevant only for establishing a fraudulent irregularity). When a conflict of interest is detected, the Member States authorities should consider possible implications on other operations or contracts for the concerned operation/stakeholders and act appropriately to prevent further situations of conflict of interest.

— Ensuring the audit, in accordance with internationally accepted audit standards, of the use of the funds by national independent audit bodies, in addition to the controls carried out by national authorities responsible for the management of EU funds (or under their responsibility). The audit opinions of these bodies form the basis of the overall assurance on the use of EU funds. The Commission’s reliance on national audit opinions does not however prevent it from carrying out further audits on the use of EU funds and does not affect the Commission’s duty to monitor, as part of its risk assessment, the control systems established in the Member States.

The Commission is responsible for:

— providing advice and guidance for, and monitoring, the conformity of national internal control systems with EU requirements,

— auditing Member States’ internal control systems to assess whether they are appropriate and effective in preventing and managing, among other things, situations of conflict of interest (on a risk basis, taking account of the results of verifications, audits and controls carried out by national authorities or other EU audit bodies and communicated to the Commission and any other information available) and to make recommendations to improve those systems,

— auditing expenditure declared to the Commission by the Member States to verify compliance with relevant eligibility rules,

— applying appropriate measures to protect the EU budget, such as the interruption of payment deadlines, suspension of payments and financial corrections in cases of non-compliance (either individual or systemic) with the rules on avoidance of conflicts of interest as laid down in Article 59(6)(b) and (c) FR 2012 or Article 63(8)(b)(c) FR 2018, together with recommendations for Member States on appropriate corrective measures to take, including the strengthening of their internal control systems (82).

Article 63(8)(b) FR 2018 (83) obliges the Commission to exclude expenditure from EU financing because of a breach of applicable law. This can result from controls and audits at any level of the control systems in the Member State, from controls and audits carried out by the Commission, from audits by the European Court of Auditors or from investigations by the European Anti-Fraud Office (OLAF) and their purpose is to restore a situation where the expenditure co-financed is in line with the applicable law. As explained above, Member States are primarily responsible for correcting irregularities. The Commission may exclude expenditure from EU financing where the Member State has failed to take the required actions, where there are serious deficiencies in the effective functioning of the management and control system, or where all or part of the EU financing to an operation is irregular. The Commission has the power to apply extrapolated or flat-rate corrections where it is not possible to quantify precisely the amount of irregular expenditure (84).

In conclusion, for shared management funds, it is first for national authorities/bodies managing and controlling EU funds to prevent, detect, report and correct conflicts of interest situations. The measures taken by these authorities/bodies in this respect remain subject to audits by the national independent audit bodies, monitoring and audits by the Commission as well as audits by the European Court of Auditors and to investigations by OLAF in the exercise of its competences.

5.2. Rules on conflicts of interest under the Procurement Directives

Article 61 FR 2018 covers all management modes and all types of spending under the EU budget.

Public procurement rules set out in the Procurement Directives (85) are relevant in shared management, in particular for a beneficiary in a Member State that is a contracting authority (86) and awards contracts for implementing a project funded by the EU budget.

Procurement rules take the form of national law, notably the Member States' transposition of the Procurement Directives, or they may be derived directly from general principles enshrined in EU law.

It should be noted that the scope of the Procurement Directives is limited, in particular by minimum thresholds as regards the procurement value net of VAT. Besides, given the transposition deadline of 18 April 2016, the 2014 Procurement Directives are applicable as from that date at the latest or earlier if transposed before that date in national legislation.

Under Article 2 of the previous Procurement Directive (87), the requirement to avoid conflicts of interest was derived from the principles of equal treatment and transparency, enshrined in that provision (88). Indeed, going beyond the directives, the Court of Justice stated that, even where the directives do not contain any provisions specifically governing any litigious issue (89) or where the case at hand falls outside the scope of the directives (90) (91), contracting authorities in the Member States are bound to comply with the fundamental rules of the Treaty in general, and with the principle of equal treatment in particular. As a result, the principle of transparency also applies in this context, to ensure that compliance with the principle of equal treatment can be scrutinised (92).

If the principles of equal treatment and transparency, on which the requirement to avoid conflicts of interest was based, are thus generally applied in the field of public procurement, then the avoidance of conflicts of interest must be considered equally applicable in this field.

In the new PP Directive (93), Article 24 obliges Member States to ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising from procurement procedures and lays down a definition for the concept of a conflict of interest, as follows:

Article 24 Directive 2014/24/EU: ‘Member States shall ensure that contracting authorities take appropriate measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of all economic operators. The concept of conflicts of interest shall at least cover any situation where staff members of the contracting authority or of a procurement service provider acting on behalf of the contracting authority who are involved in the conduct of the procurement procedure or may influence the outcome of that procedure have, directly or indirectly, a financial, economic or other personal interest which might be perceived to compromise their impartiality and independence in the context of the procurement procedure.’

Pursuant to this provision, contracting authorities are obligated to take appropriate measures and put in place systems capable of detecting, preventing and redressing conflicts of interest in the area of public procurement (94). This is valid for all stages of a procurement procedure (preparation of tender, selection of tenderers/candidates and award of contract as well as post-tendering phase).

The wording of the PP Directive is not prescriptive in relation to the measures and mechanisms to achieve these objectives. It is up to the Member States to identify the most appropriate solutions, as allowed by the national jurisdictions. In any case, Member States must make information and guidance available to contracting authorities and to economic operators as set out in Article 83(4) PP Directive.

In line with the purpose of Article 24 PP Directive – namely to protect fair competition and equal treatment among tenderers – Article 57(4)(e) PP Directive allows (though does not oblige) Member States to provide for a ground for exclusion of a tenderer where a conflict of interest within the meaning of Article 24 cannot be effectively remedied by other, less intrusive measures.

A type of case that has traditionally been categorised as a conflict of interest is characterised by the tenderer's involvement in preparing a call for tenders. These cases are now regulated separately in Article 41 PP Directive, requiring the contracting authority to take appropriate measures to avoid any distortion of competition. Under Article 57(4)(f) PP Directive, Member States may provide for the tenderer to be excluded where the situation cannot be effectively remedied by other, less intrusive measures (such as sharing relevant information with all tenderers and the fixing of adequate time limits for the receipt of tenders). Prior to any such exclusion, tenderers must be given the opportunity to prove that their involvement in preparing the procurement procedure is not capable of distorting competition (95) (96).

Article 58(1)(c) PP Directive defines the framework for selection criteria, among which the tenderer’s technical and professional ability. Article 58(4) PP Directive elaborates on this type of criteria: a contracting authority may assume that an economic operator does not possess the required professional abilities if the contracting authority has established that the economic operator has conflicting interests that may negatively affect the performance of the contract. The logic behind this provision applies equally to cases that do not fall within the scope of the PP Directive in the sense that (within the confines of national law) the contracting authority has the option (but is not obliged under the PP Directive) to exclude a tenderer from the being awarded the contract if that tenderer is subject to a conflict of interest.

National authorities had to take the measures necessary to ensure that, by the deadline for transposition (18 April 2016), all arrangements are in place in order to be compliant with the PP Directive. By April 2017 and every 3 years after, Member States are required to submit a report to the Commission on the most common sources of misapplication or legal uncertainty as well as on prevention, detection and adequate reporting of cases of procurement fraud, corruption, conflict of interest and other serious irregularities as set out in Article 83(3) PP Directive. Similar provisions have been inserted in the specific procurement directives concerning concessions (97) and utilities (98).

Examples of when conflicts of interest arose in public procurement procedures: (1) In a public procurement procedure carried out within a project concerning actions to promote business growth, a conflict of interest was identified as the CEO of the sole bidding company was employed by the contracting authority with the task of preparing the tender technical specifications, at the time the tender procedure was carried out. As a result, all expenditure related to the public procurement was irregular (ineligible for co-financing). (2) In a public procurement procedure carried out within a project for renewing technology in an environmentally friendly manner, the shareholder of the winner company was also the manager of the consultant that advised the contracting authority on the technical documentation. The contracting authority chose a different consultant, not linked to the winner, for preparing the public procurement procedure. The public procurement consultancy limited its work to the legal part of the call and used for the technical specifications of the call for tenders the technical documentation prepared by the first consultancy. The contracting authority did not take appropriate measures to avoid any distortion of competition. As a result, the expenditure related to the public procurement was irregular (ineligible for co-financing). (3) In a public procurement procedure, three independent offers needed to be presented according to national rules, yet the beneficiary (contracting authority) chose the offer of a bidder whose owner was also the exclusive owner of the beneficiary (in this case however the conditions for an in house award have not been fulfilled). In this case, the managing authority made no adequate verification of a situation of lack of independence between the beneficiary and its contractors. Although the offer was the lowest received, all expenditure related to this public procurement contract was concluded as being irregular and consequently ineligible for co-financing.

Infringement of rules on public procurement may result in financial corrections or other forms of redress. The Commission adopted guidelines, in 2013 (99) and in 2019 (100), for determining financial corrections to be made to expenditure financed by the EU for non-compliance with the applicable rules on public procurement.

Similarly to the 2013 guidelines, the 2019 guidelines set out flat-rate financial corrections for cases related to conflicts of interest, ‘whenever an undisclosed or inadequately mitigated conflict of interest has been identified, according to Article 24 of the Directive 2014/24/EU (or Article 35 of Directive 2014/23/EU or Article 42 of Directive 2014/25/EU), and the tenderer concerned was successful in securing the contract(s) in question,’ (101) The conflict of interest may already occur at the stage of the project preparation, as far as the project preparation had an influence on the tender documentation/tender procedure. There is no need for a complainant to demonstrate that the conflict of interest has materialised (102).

With regard to the condition of undisclosed and inadequately mitigated conflict of interest, this refers to (i) an obligation of the person concerned for prior disclosure of any perceived conflict of interest; and (ii) implementation of mitigating measures to address such situations by the contracting authority. These measures should in the first place be directed at the person concerned on the side of the contracting authority (i.e. this person ceases all activities related to the tender in question, for example, the member of the evaluation committee is removed from the panel). If such measures are not sufficient to mitigate the conflict of interest (for example, the person concerned has been involved in the stages of the procurement procedure that already took place and cannot be changed/repeated), further measures should be taken by the contracting authority as regards the tenderer concerned (such as exclusion of the tenderer from the tender, a possibility also mentioned in Article 57(4)(e) of PP Directive).

There is no need to demonstrate any effective impact of the conflict of interest (also due to the notion of perception in the definition of the conflict of interest) on the concrete decision-making process. In particular, there is no need for evidence that the conflict of interest has been deliberately used to benefit the winning tenderer (these would be relevant only for establishing a fraudulent irregularity).

Example: Person X is one of five members of a tender evaluation committee. During the period of evaluation of tenders and decision-making on the award, X has been employed by the winning tenderer, company Y, in a position responsible for tasks related to the subject matter of the tender, an employment which X, however, does not disclose in violation of their procedural obligation. Irrespective of the concrete and material influence of the person X on the award decision and its concrete circumstances (decision-making mode of the evaluation committee in accordance with objective award criteria, six bidders participating in the tender, etc.), the situation presents a conflict of interest. A financial correction applies in accordance with the Commission’s guidelines on financial corrections in public procurement if both conditions mentioned in these guidelines are fulfilled, i.e. (1) the conflict of interest has not been disclosed and/or adequately mitigated (either on the side of the person X or on the side of the company Y); and (2) this conflict of interest concerned the winning company.

For further information on avoiding conflict of interest in the context of procurement, please refer to the following documents: (i) PP Directives; (ii) ‘Identifying conflicts of interest in public procurement procedures for structural actions. A practical guide for managers (2013)’ (103); (iii) ‘Public procurement Guidance for Practitioners on avoiding the most common errors in projects funded by the European Structural and Investment Funds. February 2018’ (104); and (iv) ‘DG REGIO – Preventing fraud and corruption in the European Structural and Investment Funds – taking stock of practices in the EU Member States Study on the implementation of Article 125(4)(c) CPR in the Member States’ (105).

5.3. Specific elements for shared management financial instruments

Where EU funds are implemented through financial instruments, preventive and mitigating measures need to be taken at every stage of implementation of the financial instrument operation, from selecting bodies to implement financial instruments (106) to selecting final recipients. Article 38(5) CPR sets out that the selection of these bodies must be based on open, transparent, proportionate and non-discriminatory procedures, avoiding conflict of interest.

Article 7(2) of Commission Delegated Regulation (EU) No 480/2014 (107) lays down that the selection of bodies must be transparent and justified on objective grounds and not give rise to conflicts of interest. It also lays down that in cases where the body implementing the financial instrument allocates its own financial resources to the financial instrument or shares the risk, measures to mitigate possible conflicts of interest are necessary.

Moreover, Article 6(1)(a) of Commission Delegated Regulation (EU) No 480/2014 lays down that the selection of final recipients must be transparent and justified on objective grounds and must not give rise to a conflict of interest.

6. POSSIBLE MEASURES TO AVOID AND MANAGE CONFLICTS OF INTEREST

When dealing with conflicts of interest, the focus should be placed on prevention as it is much more difficult to detect and correct such situations. It is worth bearing in mind that conflicts of interest can arise at any stage of EU budget implementation. As a result, any measure to prevent and address them should consider the earlier stages of implementation to maximise prevention over correction. Furthermore, measures to prevent and address conflicts of interest should be effective, proportionate, transparent and regularly updated (taking into consideration any legal, policy or institutional development).

This chapter provides a non-exhaustive list of suggestions and recommendations for measures that could be put in place to avoid and manage conflict of interest situations. These suggestions and recommendations aim at providing EU institutions and Member States’ authorities with guidance and tools to assist them in the avoidance of conflicts of interest.

For additional explanations and examples, please refer to the extensive work undertaken by the OECD (Organisation for Economic Co-operation and Development) and SIGMA (Support for Improvement in Governance and Management (108)) on conflicts of interest (109) and to the regulatory framework for EU institutions referred to in Chapter 4.

6.1. Awareness raising

The accountability model for managers is an approach to public management in which managers are held accountable for results by assigning them responsibility, accompanied by delegated authority for decision-making and the autonomy and resources necessary to achieve the expected results. In practice, senior managers should have the authority and autonomy to be accountable for the results of the organisation or entity that they supervise.

In the context above, prevention of conflicts of interest is closely linked to awareness of those involved; if a conflict of interest is anticipated, it can be avoided. Raising awareness about conflicts of interest is therefore highly recommended. In addition, the existence of a strong management culture (‘tone at/from the top’) that supports integrity is of utmost importance as senior public officials/staff members can create a culture of integrity where everyone has ownership and responsibility for their actions and where conflicts of interest are not tolerated. Similarly, it is also important to encourage a culture in which staff members can seek guidance and advice without fear of reprisal.

EU institutions and national authorities should provide continuous, comprehensive and compulsory training on ethics and integrity and on how to identify, manage and monitor conflicts of interest. This includes examples of conflicts of interest and the provision of advice in case an official has doubts about policies or procedures in place. The appointment of an ethics officer within an entity involved in EU budget implementation could also be part of the measures in place. Such officer would be responsible for providing any person who so requests with advice relevant to compliance with ethical principles. While being bound by professional secrecy, the ethics officer could play a fundamental role in the dissemination of a culture of integrity based on dialogue and trust.

6.2. Policies, rules and procedures

Taking account of the number, size and complexity of programmes and available staff members, it is important to ensure that the principle of separation of functions (or segregation of tasks/duties) is adequately implemented in practice (between and within each body involved in management and/or control of EU funds), as this is an important requirement for establishing the management and control systems as set out in Article 36(3)(a) FR 2018.

Each body should have: (i) written arrangements as regards the exercise of the different functions and of the decision-making process; (ii) a clear division of functions and clear job descriptions for staff; (iii) an adequate number of sufficiently qualified human resources at the different levels and for the different functions.

The principle of separation of functions is relevant to the extent that there is lower likelihood of conflicts of interest if functions are adequately separated, i.e., an adequate separation of functions minimises the risk of conflicts of interest. The absence of procedures that ensure that functions are adequately separated is a deficiency in the management and control systems.

Examples with relation to the principle of separation of functions: (1) A staff member who was responsible for the appraisal of an application for EU funding is later tasked with auditing its implementation. In carrying out the audit, the staff member may believe that their support for the selection of the project should be borne out by a positive report on its implementation. Even if there are a large variety of reasons why a selected project could derail, the absence of a clear separation of functions may lead to a situation of conflict of interest. (2) The audit authority implements some technical assistance operations. When such operations are included in the s