Protection of the Community's financial interests - Fight against fraud - Work programme 1997/98
Date: 1997-05-06
Institutions: European Commission
Subjects: EU control, EU programme, VAT, customs cooperation, fraud against the EU

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  06.05.1997 
COM(97)  199  final 

PROTECTION OF THE COMMUNITY'S FINANCIAL INTERESTS 

FIGHT AGAINST FRAUD 

WORK PROGRAMME 1997/8 

(presented by the Commission) 

Introduction 

The  present  work  programme  strengthens  presence  on  the  ground  and  continues  the 
policy  of  partnership  with  national  authorities.  It  also  aims  at  strengthening  antifraud 
legislation  to  ensure  compatibility  of  national  judicial  norms,  and  transnational 
cooperation. 

The efforts  will focus on 6 themes: 

•  detection of irregularities; 

• 

• 

recovery of the amounts concerned; 

fraud-prevention  and proof-fraud legislation;; 

•  administrative sanctions and deterrence; 

•  a judicial  area for  the protection  of the Union's financial  interests; 

• 

the preparation for  enlargement and relations with non-member countries. 

In  each  of  these  themes  the  SEM  2000  principles  on  financial  management  will  be 
supplemented.  The  accent  will  be  put  on  the  prevention  aspect,  especially  the  quality 
and applicability  of legislation  as well as their correct and homogeneous  application.  In 
the  customs  area,  the  principles  identified  in  the  "customs  2000"  programme  will  be 
implemented. 

A few  priorities  merit to be highlighted.  The European Parliament's  recommendations 
to strengthen  custom cooperation  in the transit field  will be given priority.  Priority will 
to  an  improvement  of  preferential  regimes  so  as  to  better  prevent  and 
also  be  given 
combat  fraud. 

In  the  field  of  indirect  taxes,  strengthened  cooperation  with  Member  States  at  Union 
level will be put in place so as to improve the functioning  of VAT and excise systems in 
the internal market. 

Targeted  anti-fraud  actions  will  be  developed  in  certain  non-member  countries,  in 
particular  the  new  independent  States  as  well  as  the  accession  candidate  countries  in 
Central and Eastern Europe.  This is particularly important in view of enlargement. 

The  most  recent  improvements  in  the  legal  framework  for  the  fight  against  fraud  are 
essentially : 

•  provisions  concerning notifications of frauds  which now cover all Community areas; 

•  a  regulation  for  the protection  of  the financial  interests  of  the  Community  adopted  in  December 

1995; 

• 

the on the spot checks and inspections regulation adopted in November 1996; 

•  A  Convention  and  Protocol  on  the  approximation of  norms  and  strengthening  of  cooperation  and 
penal protection  signed in July  1995 and September  1996.  These two texts remain to be ratified  and 
transposed in Member States. 

Since  1994 some Member  States have set up specialized  structures  for  the protection  of 
EU finances  while others have introduced  provisions to  strengthen  cooperation  with  the 
Commission.  These  are  positive  and  encouraging  signs.  The  success  of  the  anti-fraud 
policy  relies on  a continued  effort  by Member  States  in improving  measures  at national 

level to protect  financial  interests more efficiently.  Some aspects of  action  in Member 
States,  such  as  close  collaboration  and  networking, 
also  form  part  of  the  work 
programme. 

1. 

REINFORCING  THE  DETECTION  POLICY  AND 

IMPROVING  ANALYSIS  OF 

INFORMATION 

Combating  Community fraud  effectively  is based  on  operational  activity  and  requires  a 
firmer grasp of the phenomenon on the ground. It is a question of emphasizing the policy 
of  detecting  fraud  cases  by  improving  investigative  techniques  in  a  legal  framework 
strengthened  in  particular  by  the  adoption  of  EC  Euratom  Council  regulation  2185/96. 
This  regulation  represents  an  important  step  forward  for  work  on  the  ground.  It 
establishes  conditions  for  on  the  spot  checks  and  inspections  carried  out  by  the 
Commission in close cooperation with the competent authorities in the Member States, in 
principle,  in  all the fields  of  activity  of the  Communities.  Also, the Member  States  and 
the  Commission  will  from  1998  be  able  to  use  the  improved  mutual  assistance 
mechanism  in  the  customs  and  agricultural  fields  (EC  regulation  515/97)1  which 
introduces  the legal base for  the establishment  of  a database  in the  customs  information 
system. 

It  is now up  to the Commission  and  the Member  States to  concentrate  their  efforts  and 
bring together the means which are indispensable to put into practice this new  legislative 
framework.  These  instruments  and  those  being  finalized  in  the  framework  of  penal 
protection  will  allow  the  investigative  work  carried  out  in  the  framework  of  the 
Commission/Member  State strengthened  partnership to be developed. It is on the basis of 
the  initial  results  that  the  qualitative  steps  necessary  for  protection  of  the  European 
finances  and taxpayer can finally  be envisaged and realized. 

The Commission  and the Member  States will  have to do everything  possible to  improve 
prevention, detection and cooperation and develop a common approach at Union level. 

The programme presented by the Commission  for  the setting up of a new common VAT 
system2  and  the  report  concerning  administrative  cooperation  in  the  field  of  indirect 
taxes3 which point out the existing weaknesses  and lacunae in the current framework  for 
combating  major  international  tax  frauds  will  serve  as  a  framework  to  define  the 
guidelines for  action. 

With  regard  to the  Commission's  role, the  accent will  be put  on the  means  intended  to 
combat more effectively  major  financial  crime, transnational  fraud  and the most  serious 

OJL 82 of 22.03.1997. 

2  COM(96)681 final  :  second  report  on  article  14 for  the  implementaiton  of  regulation  218/92  on 

administrative cooperation in the field of indirect taxes. 

3  COM(96)328,22.07.1996. 

irregularities. These are the areas of activity where the Commission is also best placed to 
provide added value and support to the actions of all national authorities. 

To accomplish this first  set of activities, a number of initiatives must be undertaken  in all 
the sectors of activity of the Union: 

1.1.  Effective  implementation  on the ground of regulation  2185/96 concerning on 

the spot checks and inspections with all the national authorities. 

Presentation  of practical  means of application of the EC Euratom Council regulation n° 2185/96^ 
concerning on the spot checks and inspections carried out by the Commission for  the protection  of 
the European Communities 'financial  interests against frauds  and other irregularities. 

First  assessment  of  experience  of  implementation  of  the  on  the  spot  checks  and  inspections 
regulation  at  the  end  of  1998.  At  this  time,  the  Commission  will  envisage  the  possibility  of 
providing  for  the  application  of fines  or  Community  administrative  sanctions  with  regard  to 
economic  operators  who  refuse  the  right  of  access  to  information  and/or  right  of  access  to 
premises,  with a view to strengthening the  "on the spot checks and inspections" regulation. 

1.2.  Selective  establishment  of  Task  Groups  and  their  use  in  high  risk  sectors 

where organized crime rings are involved. 

Following  the  example  of  what  has  been  successfully  achieved  in  the  areas  of  olive  oil  and 
cigarettes,  the  Commission will put  in place  where resources are  available  new  Task  Groups to 
intensify action against organized networks or rings, in particular  in the alcohol sector. 

1.3.  Strengthening customs cooperation instruments. 

•  Cooperation between customs investigation services. 

Joint  investigation  between  specialized  customs investigation services  will  be  developed  with the 
help of the Commission for  more effective coordination, in particular  where there are transnational 
aspects. 

Operational  activity  will  be  increasingly focused  (mutual assistance  and  where necessary  on  the 
spot  checks  and  inspections  regulation)  on  sensitive  sectors  and products  (transit,  preferential 
origin,  anti-dumping  ...)  both  with  investigations  within  the  Community  as  well  as  with 
investigations in non-member countries. 

The customs services  will  be  called  upon to  use more effectively  the  computerized instruments  at 
their  disposal  such  as  the  early  warning system for  targeted  checks  on  sensitive  goods  and  the 
Customs  Information  System  (CIS)  with  the  technical  assistance  and  operational  aid  of  the 
Commission. 

In  the field  of  transit,  reinforcement  of  the  security  of  movements  of  goods  will  involve  taking 
measures  to  limit  the  risks  of  diversion or  substitution  of products  and facilitating  surveillance, 
monitoring and checks on operations (cf. point 3.3). 

•  Establishment of a Community  intelligence analysis cell. 

The  establishment  of  such  a  ''intelligence  and  forward  planning"  cell  will  enable  a  better 
Coordination  of risk  management  to  be  ensured.  Particularly  in  the  sensitive  textile  sector,  this 
cell  could  make  use of  the results  of  the statistical  work already  undertaken  (and which  must  be 

4  OJL 292 of  15.11.1996. 

strengthened in the future)  so as to establish, on the basis of thorough analysis of the trade and the 
anomalies  detected,  "warming criteria"  making possible  the  identification  of  cases  which  should 
be  investigated.  In  general,  the  orientations  resulting from  this  cell's  work  will  also  allow  the 
necessary assistance to be provided  to the Task Groups. 

•  Use of the "Early Warning System" (transit regimes). 

Having  shown  its  effectiveness,  the  use  of  this  system  will  be  systematic  to  make  its  application 
It  will  also  be  compulsory  for 
compulsory for  transit  movements  involving  high  risk products. 
countries participating  in the common transit system (Visegrad 4 and  EFTA)5 

In the area of Community/common transit, future  participants  in the common transit system have to 
guarantee  their  capacity  of  ensuring  the  proper  functioning  of  the  transit  procedures  and  its 
instruments of which the early warning system is an integral part. 

4 

•  Setting up of a central database (CIS)6. 

So as to improve the effectiveness  of the use of information exchanged between Member  States  via 

an  optimized AFIS'  network,  the  Council  regulation  on mutual  assistance  and  the  convention  on 

the use of information technology in the field  of customs" provides  in particular for  the creation of 
a customs information system  (CIS) comprising a central database  which will  be managed  by the 
Commission.  This will  assist  the Member  States  in  the prevention,  detection  and prosecution  of 
operations  contrary  to  customs  or  agricultural  regulations  by strengthening  by  means  of  a  more 
rapid dissemination  of information the  effectiveness  of cooperation and control procedures  by the 
competent authorities. 

Ic4. 

Increase  in  action  in  the  field  of  direct  expenditure  -,  in  particular  for  the 
major  regional development programmes. 

See theme 6,  "Enlargement". 

1.5.  Development  of  mutual  assistance  and  cooperation  between  the  Member 

States with the help of the Commission in the field  of indirect taxes. 

With regard  to  VAT,  the  Commission  and  the  Member  States  must,  in  line  with  the  guidelines 

identified  in the report on implementation of regulation no. 218/92^  on administrative  cooperation 

in  the field  of  indirect  taxes  (VAT)'®,  must  improve  their  efforts  to  develop  cooperation  in  the 
areas of detection  and prevention  of fraud.  The lack of information at  Community  level  allied  to 
the restrictions in the current framework for  handling complex international fraud  cases represents 

5 

Visegrad:  Poland,  Czech  Republic,  Slovakia  and  Hungary  (cf  point  6.5);  EFTA:  Switzerland, 
Norway and Iceland. 

6  Customs Information  System. 

7  Anti Fraud Information  System (formerly  SCENT). 

8  OJ C 316 of 27.11.1995. Convention to be ratified by the Member States. 

9  OJL  24 of 01.02.1992. 

10  COM(96)681 final. 

a  risk  which  must  be  confronted.  The  Commission  will  continue  the  analytical  work  already 
started, together with the Member States, in the fraud  prevention  sub-committee  of the  Permanent 
Committee on Administrative Cooperation. 

The  Commission  will  continue  to  encourage  and  support  contacts  and  cooperation  between  its 
investigation services and Member States investigation services. It  will facilitate  and contribute to 
the fight  against fiscal  fraud  in cases  involving  Community interests.  The Commission will  assess 
the  results  of  this  cooperation  and  will  take  them  into  account  where  necessary  in  the  detailed 
examination  of Community regulations  (EEC Council regulation n°  218/92 and  Council Directive 
n°  77/799 and where necessary the regulation on protection  of financial  interests) so as to improve 
the tools and mechanisms of mutual assistance in the field of indirect taxes.  All  these activities will 

contribute  to the FISCALISA  programme  as well as to the programme for  the new  common VAT 
system* 2. 

With regard to excise, the Commission will work together with the member States, in the framework 
of  the high  level group, particularly focusing  on the movement  of products  subject  to excise  duty 
(tobacco, alcohol),  to define  a common fraud  prevention  and cooperation strategy  and  to  identify 
improvements including possible  legislative amendments at national and Community level. 

1.6.  Strengthening the fight against economic crime. 

Over and above  areas in which own resources or Community finance  are at risk, the Commission 
will  use  all  means  available for  cooperation  between  customs  authorities  and  the  other  national 
services  responsible  for  reinforcing  the  fight  against  economic  crime  harmful  to  Community 
interests  (intellectual property,  counterfeiting  ..,  quotas,  anti-dumping),  in particular  in  sensitive 
sectors  such  as for  example  textiles  where  the  coherence,  the  very  credibility  of  the  common 
commercial policy  is largely based on the definition and implementation of an effective  anti-fraud 
strategy. 

On the basis of an assessment of legislation in these fields, legal instruments could if necessary be 

proposed, in particular  in the area of action against counterfeiting** to strengthen with  the help of 
the Commission : 

• 

reciprocal information 

•  cooperation between Member States ' specialized services. 

In  this  context,  the  Commission  might  envisage  the  proposal  of  a  legal  instrument  enabling 
cooperation  to  be  extended  to  cover  the  authorities  responsible for  combating  economic  and 
financial  crime to improve coordination at Community level of all operational activities preceding 
the opening of judicial  proceedings.  This instrument could in this way contribute to strengthening 
the fight against counterfeiting and piracy  which represent an evergrowing  scourge. 

1.7. 

Improvement  of  equipment  and  tools  for  data  processing;  making  use  of 
follow up of notifications  and development of risk analysis. 

Cooperation with theJRC'^to 
improve the use of all relevant information, especially to strengthen 
methods  of  risk  analysis.  The pilot  actions  and  use  of  risk  analysis  especially  in  the  areas  of 

11  COM(97)175 of 23.04.1997. Programme  intended to  improve the functioning  of the internal  market 

provisions concerning indirect  taxation. 

12  COM(96)328 of 22.07.1996. 

13 

In particular for the protection of consumer health and safety  and intellectual property. 

activity  of  the  customs  services  to  target  better  documentary  and/or  physical  checks  will  be 
continued. 

In  all sectors, particularly  in  the  area  of structural policies,  this  action  will  aim  to facilitate  the 
primary  control  work  of  the  national  authorities,  follow  up  of  cases  under  investigation, 
rationalization  and exploitation  of  information  on a real  time  basis to identic  trends  and  monitor 
the development of sectors of interest to organized crime. 

This work will have to be carried out regularly in a concerted manner in the ad hoc and specialized 
working groups  (typology, fraud  profiles,  sensitive sectors, targeting of checks...).  The Commission 
will ensure in the specialized  bodies  of the advisory committee  (forum for  exchange  of  experience) 
the promotion  of methods  of detection  based on modern technology.  Use of notifications,  results  of 
risk  analysis  carried  out  by  the  JCR  and  information  resulting from  the  work  of  the  Court  of 
Auditors  will allow the sectors  in which the discovery of fraud  is highly probable  to be identified. 

1.8.  Strengthening of the Commission/Member State15 cooperation at all stages of 

the investigation and follow up of inquiries. 

To  ensure  a  comprehensive  follow  up  of  cases,  the  Commission's  technical  and  operational 
assistance  will  be  carried  out  at  all stages  of  the administrative  inquiry and prosecution  (cf  point 
5.5).  This  assistance  should facilitate  operations  involving  prosecution  and  seizure  in  cases  of 
illicit traffic going  beyond the single area of national sovereignty  (cfpoints  5.4 and 5.6). 

1.9.  Establishment of relations between UCLAF and Europol. 

Organization  of  regular  contacts,  in particular  in  the  area  of  analysis  of  the  phenomenon  of 
economic  and financial  crime  and  its  development  contrary  to  Community  interests.  Pooling  of 
technical  knowledge,  especially  in training and gathering  of information, processing  and  analysis 
of data. 

1.10.  Targeted training action, development of exchange of  officials 

Organization  of  targeted  training  action  for  the  authorities  responsible  for  the  fight  against 
economic  and  financial  crime  (customs, police  and judicial  authorities)  and  in  the  fiscal  field 
(Matthaeus-Tax16). 

The exchange  of officials should also be extended for  officials  of accession  candidate countries in 
the framework  of  the provisions  on  customs  cooperation provided  in  the Europe  agreements  (cf. 
point  6.4). 

2. 

FINANCIAL  FOLLOW  UP  OF  FRAUD  CASES  AND  OTHER  ^REGULARITIES  AND 
RECOVERY OF MONIES 

To complement its anti-fraud  strategy and develop its actions, the Commission has opted 
clearly  for  a strengthening of  financial  management.  The dynamic effect  of operation 
SEM  2000  allowed  a  series  of  measures  to  be  undertaken  to  strengthen  financial 
management.  The  Commission  has therefore  made  substantial  progress  in  developing 

14  Joint Research Centre of Ispra. 

15  On  the  spot  checks  and  inspections  regulation,  Convention  and  protocols  concerning  protection  of 

financial  interests, CIS Convention.. 

16  See "Fiscalis". 

new  instruments  and financial  management  procedures.  This  work  is  to be  continued, 
care will have to be taken with the implementation of these strengthened provisions. 

Recovery  is  the  logical  consequence  of  action  on  the  ground.  It  constitutes  a simply 
reparatory  measure  whereby  the  European  taxpayer's  money  is  justifiably  returned. 
is  therefore  an  equitable  measure  and  a  fundamental  element  in  the  fight 
Recovery 
against fraud.  It is also one of the parameters for identifying  success in the fight against 
It  is  fully  in  line  with  the  content  of  the  horizontal  regulation  concerning 
fraud. 
interests17  which  establishes  a  general 
protection  of  the  Community's  financial 
framework at Union level. 

2.1.  Area of own resources 

• 

Implementation  of  new provisions  of  regulation  1552/89  which  allows  the  monitoring  of  the 
recovery carried out by member States of cases of fraud and irregularity; 

•  Strengthening of the recovery provisions  of regulation no. 1552/89 (cf. point  3.4). 

•  Strengthening  of  mutual  cooperation  of  recovery  in  the  fiscal  and  traditional  own  resources 

areas*°. 

2.2.  Agriculture 

Establishment  of  separate  so-called  B  accounts for  debts  identified  but  not yet  recovered  in  the 

EAGGF-Guarantee  sector'^ 

2.3.  Area of structural policies 

Ensure better continuity of financial follow  up (cf  point  3.6); 

2.4.  Area of direct expenditure 

Ensure  and reinforce  continuity  of  the financial  follow-up  of regional  aid programmes  to certain 
non-member  countries  on  the  basis of  a  clear  separation  between  the  management  structure and 
the  beneficiaries  to  avoid  conflicts  and  confusion  of  interests;  better  general  evaluation  of  the 
impact  of decentralized programmes;  concentration  of responsibility for  the  execution  of  projects 
intended for  multiple  beneficiaries. 

2.5.  Assessment of the coherence of legislative systems and recovery procedures 

The  Commission  will  organize  a  comprehensive  follow  up  of  exemplary  and 
selected  cases  from  the  stage  of  the  inquiry  up  to  the  final  financial  settlement. 

17  Article 4 of EC Euratom regulation no. 2988/95 O.J. L 312 of 23 December 1995. 

18  EEC Directive 76/308 O.J.L. 73/18 of  19.03.1976. 

19 

In the  area  of  own  resources,  B  accounts  have  existed  since  1989;  in  this  framework  the  Member 
States have the  obligation  to account  on the  one hand for  duties  detected  and recovered  and on  the 
other hand  duties  detected  but  not  yet  recovered  or not  covered by  guarantees.  It  should be  noted 
that this separate accounting  system will allow the  Commisison to  check recovery  of own resources 
The 
including  where  frauds  or  irregularities  have  been  notified  by  the  Member  States. 
implementation of such a system in the EAGGF area is planned for  1997. 

Comparison of these cases with the analysis of  all  information  communicated will 
allow an assessment of the need for  legislative action to be carried out so as to put 
in place mechanisms at national and/or Community level to avoid the confluence of 
conditions favourable for the organization of the insolvency of the beneficiaries and 
debtors 
limitation,  provisional  measures,  protective  measures, 
preferential  credit,  appeal  systems,  centralization  of  cases  handled  by  several 
Member States,...). 

(period  of 

3. 

IMPROVEMENT OF LEGISLATION AND PREVENTIONS 

In this context, the need to add to sectoral legislation especially in the area of checks will 
be examined.  In parallel, the Commission will take the provisions necessary to examine 
and assess, especially by way of their actual application, legislative texts with a view to 
whether they should be strengthened or simplified. 

The guidelines laid down in  SEM 2000 will allow measures to be taken to facilitate the 
setting  up  of  mechanisms  to  adapt  legislation  better  to  the  risks  of  fraud  and  other 
irregularities. 

3.1.  Practical  application  of  the  measures  taken  concerning  assessment  of 

regulations 

This assessment will be carried out on the basis of ex-ante mechanisms as well as on the basis of an 
ex-post checks system both for  existing legislation and for  new legal instruments. 

In  the  framework  of joint  initiatives,  qualitative  assessment  of  regulations  will  be  carried  out, 
taking account of the results  of inquiries (cf. point  1.7), observations of  the  Court of Auditors  and 
the budgetary authority  (discharge).  This exercise also encompasses a particular follow-up  of the 
evolution  of  texts  from  the point  of  view  of  their vulnerability  to  fraud  including  in  the  course  of 
negotiations with the Council and European parliament. 

3.2.  Complete the  comparative analysis  on  the position  on  application  of  article 

209A (checks) 

In  line  with  the  request  of  the  European  Council, a  supplementary  questionnaire  was produced. 
The additional  information refers to measures taken at national  level  to combat waste and misuse 
of  Community  revenue  and  expenditure  and  should  add  to  the  summary  report  submitted  to  the 
Madrid  European  Council  by concentrating  on  checks  and  administrative  sanctions  implemented 
by the member States. 

The summary of the results will give  a better picture  of the situation in the different Member  States 
with regard to the  "checks"  aspect.  On this basis, the provisions  required to achieve the objective 
of equivalent protection  throughout the Community can be envisaged.  The results of this work will 
be submitted to the Council. 

A Commission regulation concerning the financial  controls to be made by the member States in the 
area  of  Structural  Funds  based  on  article  23  of  regulation  4253/88  will  be  presented  to  the 
committees concerned. 

3.3.  Reinforcement of transit regimes 

As  the  Commission  set  out  in  its  communication  entitled  "Action  plan  for  customs  transit  in 
Europe "  and  with  the  advantage  of  recommendations from  the  Parliamentary  Committee  of 
Enquiry,  the  Commission  is  undertaking  a  thorough-going  reform  of  the  transit  regimes. 
In 
addition to computerisation, which is already in progress, the reform highlights both the legislative 

and  operational  aspects  of  preventing  and  suppressing  fraud,  in  particular  by  strengthening 
cooperation  between  customs  services,  adopting  a  common  approach  at  European  level  to  the 
management  of  risks  in  this  area,  and  developing  a  partnership  with  commercial  operators. 
Special  attention  will be paid  to effective recovery  from  the debtors concerned.  The Commission 
will ensure that the security of the common/Community transit regimes will be a major concern to 
be taken into account in the context of contacts concerning enlargement (cf. point 1.3). 

3.4.  Presentation of a communication on preferential  regimes 

Following on from  the work which  it has undertaken  in the fight  against fraud  and 
irregularities, the Commission has noted that for  some time the principle of mutual 
trust  on  which  preferential  agreements  and  autonomous  regimes  are  based  is  in 
practice  being  called  into  question. 
It  is  important  consequently  for  the 
Commission's  partners  to  provide  a  better  assurance  of  their  obligations  and 
responsibilities.  This  situation  affects  own  resources  and  common  policies  whose 
objectives are not met.  Competition between Community operators is also  affected. 
The  regimes  established  for  the  benefit  of  non-member  countries  are  therefore 
diverted away from  their political and economic objectives. 

The Commission will present  a communication on the existing situation in the area of preferential 
agreements.  This communication aims to raise awareness of economic operators on risks linked to 
trade with non-member  countries  in the context of  these agreements and to draw the  attention  of 
countries which benefit from  Community preferences  to the obligations arising from acceptance of 
these agreements. These initiatives will take into consideration certain elements including : 

• 

the possibility  of simplifying Community legislation; 

m 

improvement  of provisions for  checks  in  non-member countries  and procedures  laid  down  in 
preferential  agreements and arrangements (conventional and autonomous regimes); 

• 

strengthening in the areas of training, provision of information and follow-up  action; 

•  putting  in  place  means  of  raising  awareness  including  the  use  of  appropriate  sanctions 
(horizontal legal instrument; see  1996 anti-fraud work programme, point  1.6.  5th indent). 

3.5.  Production of a new proposal  for  amendment and strengthening of provisions 
in  EEC,  Euratom  Council  regulation  1552/89  concerning  the  Community's 
own resources system. 

This proposal  will  aim  strengthen  the  regulatory  mechanism  allowing  the  Commission either  to 
grant  discharge to the Member States in respect of their management of Community own resources 
or,  if  necessary,  to  hold  them financially  responsible for  their  lack  of  diligence  in  ensuring 
recovery  of amounts due.  To this end, it is intended to introduce a maximum time limit by which 
the amounts not recovered exceeding a set limit are to be communicated to Commission. 

3.6.  Application of articles 23 and 24 of EEC Council regulation 4253/88 

The Commission intends  to  clarify  the respective  responsibilities of  the Member  States  and their 
competent authorities in the area of Structural Funds. 

4.  REINFORCEMENT OF THE DETERRENCE POLICY : ADMINISTRATIVE SANCTIONS 

A  coherent  anti-fraud  policy  requires  an  organized  system  of  effective  sanctions  to 
achieve  a deterrent  effect.  It  is essential  to ensure the greatest  possible homogeneity  in 
such  an  effect  that  measures  envisaged  in  this  area  take  account  of  the  objective  of 

10 

equivalence  laid  down by the European  Council.  EEC Euratom  Council  regulation  no. 
298//9520  concerning the protection  of the Community's  financial  interests represents  an 
important  and  concrete  stage  in  the  global  and  horizontal  approach  preferred  by  the 
Commission.  It  defines  and  specifies  the  categories  of  person  who  may  be  considered 
responsible  for  acts  prejudicial  to  the  sound  application  of  Community  financial 
provisions and provides a general  framework  reference  for  Community  legislation  in the 
area of administrative sanctions.  On this basis, it is appropriate to  develop  initiatives  in 
all areas.  Action will also be continued to approximate national enforcement  instruments 
to ensure greater effectiveness  and homogeneity in penal sanctions (cf.  point 5) 

4.1.  Complete  the  comparative  study  on  the  position  concerning  application  of 

article 209A (Sanctions) 

The summary  of  the results  of  the comparative  analysis  (cf  point  3.2)  will give  a  better picture  of 
the situation  in the different Member  States  with regard  to the  aspects  concerning  "administrative 
sanctions".  On this basis, the provisions  required to achieve  the objective  of equivalent  protection 
throughout  the  Community  can  be  envisaged.  The  results  of  this  work  will  be  submitted  to  the 
Council. 

4.2.  Put  in  place  on  the  basis  of  the  results  of  the  comparative  analysis 
mechanisms for administrative sanctions in the area of structural policies 

The results of the comparative  analysis  (see points  3.2 and 4.1) will enable  the Commission  to plan 
the production  of mechanisms  in the framework  laid down by EC  Euratom  regulation  no.  2988/95 
for  administrative  sanctions  adapted to the particularities  of the structural  policies. 

4.3.  Design  a  system  of  Community  administrative  sanctions  for  direct 

expenditure 

//  is  appropriate  in  the  horizontal  legal framework  of  regulation  no.  2988/95  to follow  a  global 
approach  to  be  put  in  place  together  with  the  updating  of  the  programmes  in  question  in  the 
different fields concerned. 

4.4.  Continue  actions  started  in  the  area  of  traditional  own  resources  to  put  in 

place a homogeneous system of administrative customs sanctions 

The work undertaken following  the  "customs sanctions"  study  will  be continued.  The  Commission 
will  produce  on  the  basis  of  the  work  of  the  "customs  policy  group"  measures  laying  down 
guidelines  specified  in the general framework  of regulation  no.  2988/95. 

4.5.  Continue  activities  on  a  regular  and  systematic  basis  in  the  area  of  the 

common agricultural policy 

5. 

TOWARDS A  EUROPEAN JUDICIAL  AREA  IN  THE  FIELD  OF THE  PROTECTION OF 
THE UNION'S FINANCIAL INTERESTS 

The  particular  responsibility  of  the  Community  in  financial  matters  necessitates  a 
rapprochement of national  enforcement  systems to achieve, in line with the guidelines of 
the  Madrid  European  Council  of  15  and  16  December  1995,  an  equivalent  level  of 

20  O.J. L 312 of 23 December  1995. 

11 

protection  throughout  the  Community.  This  will  allow,  beyond  the  principle  of 
assimilation contained in EC article 209A : 

•  greater homogeneity in checks- and inspections; 

•  a more equitable recovery of amounts evaded or unjustly received; 

• 

the  uniform  application  of  Community or national penalties  having  an  effective, proportionate  and 
dissuasive effect in all Member States. 

The level of integration of the internal market requires a corresponding development of a 
coherent and integrated area in the criminal  law field  to allow the judicial  authorities to 
confront the challenges posed by organized crime operating on a transnational basis. 

The recommendations of the study requested by the European parliament for a European 
judicial  area ("CORPUS  JURIS") may help in deciding the approach to be followed  on 
this question.  The Commission will  examine the concrete conclusions to be drawn from 
this initiative  in the light of  its  experience of  fraud on the ground  in the framework  of 
judicial cooperation21. 

5.1.  Finalization of the second protocol on penal protection of financial interests 

The debates in Council on the adoption of this protocol  (responsibility of legal persons,  laundering, 
Commission assistance in criminal prosecutions)  will be continued  with  the active  cooperation  of 
the Commission so as to reach an agreement during the Dutch Presidency. 

5.2.  Setting up of  a "liaison  and criminal  law expertise  interface" at Community 

level 

Establishment  of  an  "ad hoc  cell"  (to follow  proceedings/cases)  within  UCLAF.  This cell  must 
fulfil  the function  of coordinating and assisting teams who carry out administrative investigations 
as  well  as  where  necessary  the  national judicial  authorities.  It  should facilitate  exchanges  of 
information and contacts between competent authorities and  provide expertise. 

It  will  provide  expertise  and  contribute  to  increased  knowledge  of  the  law  and  the  national 
procedures  applicable. It will participate  in targeted training action for judicial  authorities. 

5.3.  Finalization of the Convention on corruption 

This Convention,  which  broadens the scope  of  the partnership  concerning  corruption  linked  with 
protection  of financial  interests, was signed  in September  1996.  The mechanisms concerning the 
Court of Justice's  competence regarding the Convention must be completed. 

This  text  will  need  to  take  account  of  the fact  that  the  Court's jurisdiction  will  have  to  apply 
equally to actions taken by Community and national officials which, over and above protection  of 
financial  interests, may prove  to be prejudicial  to other Community interests. 

21  This  need  is  regularly  highlighted  by  the  European  parliament.  The  result  of  public  hearings 
organized by the latter serve to mobilize opinion on these questions.  In defining  its objectives  in this 
area, the parliament  starts from  the acceptance that  instruments  of international  judicial  cooperation 
are  not  adapted  to  the  needs  of  combatting  major  financial  crime.  Therefore  the  European 
parliament  directs its thoughts towards the  estabishment  of a Community  structure, as a preliminary 
to  a  European  prosecution  liaison  service,  ensuring  at  the  very  least  functions  of  coordination, 
consultation and exchange of information  on judicial  cooperation. 

12 

5.4.  Assessment of the need  to  resume work  at the  Council  on the  points which 

featured  in the initial Commission proposal 

//  is  important  to  identify  the follow  up  action  to  be  taken  on  certain  elements  of  criminal  law 
protection  which  were  withdrawn from  the  parent  Convention  and  the  second  protocol.  This 
concerns  in  particular  elements  regarding  mutual  recognition  of  evidence,  direct  judicial 
cooperation, centralization of proceedings and a fraud  register. 

These themes^,  as well as the rights  and obligations concerning seizure,  on  land, at sea  and on 
the high seas, could be included in a third protocol  or other appropriate instrument (cf. points  1.8 
and 5.6). 

5.5.  Monitoring  of  ratification  of  conventions,  in  particular  the  protection  of 

financial  interests Convention and the additional protocols. 

In  this regard, the  Commission may provide  its assistance in  the preparation  of  acts  to transpose 
the  Convention  in  line  with  the  explanatory  report,  in particular  to  introduce  a  criminal  offence 
appropriate for  the  Union context, for  the needs of the fight against fraud  and for  the obligation to 
achieve an equivalent level of enforcement throughout the Community. 

5.6.  Optimal  exploitation  of  international  Conventions  to  improve  the  fight 

against major economic crime 

So  as  to  improve  the  effectiveness  of  investigations  and  prosecutions,  existing  international 
instruments  will  be  assessed  to  exploit further  this potential;  in particular,  to  stop  illicit  traffic 

linked with navigation outside territorial waters^* (cfitem  19). 

5.7.  Detailed examination of the themes covered in the "CORPUS JURIS"24. 

Selection  of themes to be examined in detail: setting up of a common reading grid  and preparation 
of precise  and oriented terms of reference for  the collection of information and data indispensable 
for  the  inventory;  comparative  analysis  of  the  inventory  in  the fifteen  Member  States;  summary 
report for  the  budgetary authority  (Council, European parliament);  Commission proposals  to  the 
Council. 

6. 

PREPARATION  FOR  ENLARGEMENT  AND  RELATIONS  WITH  NON-MEMBER 
COUNTRIES 

With  regard to actions in non-member countries, particular stress will be placed  on the 
development of relations with accession candidate countries. These initiatives are fully in 

22 

23 

It  should  be  noted  that  some  of  these  points  feature  as  recommendations  in  the  parliamentary 
committee of inquiry into transit. 

see  e.g.  Convention  of  10.12.1982  on  maritime  law,  currently  being  concluded  by  the  European 
Community, COM (97) 37, 4.2.1997, on the application of Community law for activities on the high 
seas. 

24  Study  carried  out  at  the  request  of  the  European  parliament  by  researchers  from  the  association  of 
European  lawyers  for  the protection  of  the  Communities'  financial  interests under  the  aegis  of  the 
European  Commission  : Towards a European judicial area. Corpus Juris introducing penal provisions 
for the purpose of the financial  interests fo the European Union. 

13 

line  with  the  framework  of  new  guidelines  for  the  PHARE  programme  in  the  pre-
accession  context25. 

The  preparation  of  candidate  countries  from  central  and  eastern  Europe  for  accession 
responds to a common concern of the Community and these countries. The pre-accession 
strategy  is  a  major  priority  of  the  European  Union.  It  is  important  to  continue  the 
reinforcement  of  the  Community  acquis  and  Community  anti-fraud  provisions  in  this 
perspective. The process of preparation of the countries of central and eastern Europe for 
membership status will include assistance with putting in place institutions equipped with 
efficient  administrative  and judicial  structures and well trained staff,  a pre-requisite for  a 
successful  accession  encouraging  mutual  trust.  The  initiatives  aim  to  develop  the  anti-
fraud  services,  training  of  specialized  staff  (officials,  investigators,  magistrates)  in  this 
area  and  the  reinforcement  of  systems  of  specific  cooperation.  In  particular,  the 
provisions  on  customs  cooperation  (technical  assistance)  in  the  bilateral  agreements 
signed with these countries will be fully  exploited and where necessary enhanced 

• 

to improve exchange of information 

• 

to reinforce customs cooperation 

• 

to develop police  and judicial  cooperation. 

The  implementation  of  major  regional  development  programmes  (PHARE,  TACIS, 
MEDA)  as  well  as  the  appropriations  of  the  European  Development  Fund  (EDF)26 
mobilize  important  Community  budget  resources  for  the  benefit  of  non-member 
countries. This expenditure requires  specific  and  appropriate  action,  given the  economic 
and social situation  and  institutional  capacity  at administrative  and judicial  level  in non-
member  countries,  to  provide  for  a  degree  of  protection  which  is  as  effective  as  for 
expenditure within the Union. 

The following  initiatives will be taken in close cooperation with the services  responsible 
for the programmes including their  financing: 

6.1.  Setting  up  of  a  specialized  investigation  body  within  UCLAF  for  anti-fraud 

checks on major  regional programmes. 

Strengthening of the Commission's assistance and operational cooperation on the ground. 

6.2.  Establishment of contact points in the countries concerned (cf point 1.3). 

Nomination  of  liaison officers  in  certain non-member countries to  ensure  direct  contact  with the 
competent  authorities and  institutions: development of contacts with  Commission delegations and 
networks of officials from  the Member States working in these non-member countries. 

25  New  guidelines  for 

the  PHARE  programme 

in 

the  context  of  pre-accession  assistance, 

communication  from  Mr. VAN DEN BROEK |COM (97) 1121. 

26  Appropriations allocated to humanitarian aid (ECHO) are also concerned. 

14 

6.3.  Extension  of  customs  cooperation  to  improve  the  protection  of  financial 

interests and the fight against  fraud. 

Customs cooperation will be developed: 

• 

• 

in the framework  of protocols of mutual assistance in the Europe agreements; 

in the framework  of protocols  on mutual  administrative  assistance in  commercial  agreements 
concluded with non-member countries; 

•  on the basis of the  "origin of goods" protocols  in the same agreements and analogue provisions 

in the autonomous preferential regimes. 

This type  of  cooperation  will  have  to  be  extended  to  all  investigation services  specialized  in  the 
fight  against economic crime  in the countries concerned  (cf point  6.6 hereafter).  The Commission 
will  consider  the possibility  of setting  up for  this purpose  a network  of computerized  information 
aimed at developing structured exchanges of information in the framework  of these protocols. 

6.4.  Targeted  training  actions  for  the  authorities  responsible  for  the  fight  against 
fraud  (customs, police, justice,  ...) in the accession candidate countries. 

Promotion of training activities and exchange of officials involved in the fight against fraud.  In the 
context of these actions, the guidelines  in the communication on the new PHARE guidelines  which 
form part  of the pre-accession  assistance aimed at training officials of these countries in taking on 
the  Community  acquis  ("institution building")  should  be  taken  into  account.  The training  could 
where appropriate be organized together with corresponding actions for  the competent  authorities 
of the Member States. 

6.5.  Technical  assistance  for  the  accession  candidate  countries  to  help  them  to 
equip  themselves  with  administrative  structures  of  effective  financial  and 
judicial  protection. 

The development of this assistance will allow the achievement of the objective aimed at organizing 
a  fairer  share  of  the  financial  responsibilities  between  the  Community  and  the  non-member 
countries concerned. This assistance will take the form  of technical support in the setting  up of the 
computer  hardware  and  software  necessary for  rapid,  operational  connection  into  the  mutual 
assistance framework,  and the extension of the early warning system  (cf. point  1.3).  These actions 
will also have to take account of the guidelines of the above mentioned communication so as to set 
up the administrative structures essential for  taking on the acquis ("institution building"). 

6.6. 

In parallel  with the reinforcement  of the Community  acquis, the  Commission 
will  take  initiatives  to  improve  the  compatibility  of  legislation  in  the  non-
member  countries  concerned  with  the  objectives  of  legal  protection  of  the 
Communities'  financial  interests (pre-accession phase). 

Regular  consultation  on  the  state  of  national  legislation,  the  putting  in place,  functioning  and 
experiences  of the services responsible for  the  fight  against fraud  will be  organized in  an ad hoc 
institutional framework.  These  contacts  could  take  place  in  the  appropriate fora  provided  for 
association agreements where Member States, candidates countries and the Commission meet; (cf 
informal COCOLAF). 

In this context and on the basis of the Europe agreements, the following  are to be planned: 

• 

the possibility  of extending to these countries the systems of notification  of cases of fraud and 
irregularity  against  the  Community  budget  which  have  been  the  subject  of  an  initial 
administrative or judicial  report (anticipated application of notification regulations); 

15 

assistance in the framework  of investigations carried out into irregularities or frauds along the 
lines of the  "on the spot checks and inspections"  Council regulation no.  2185/96 (if necessary 
establishment of a legal base in the framework  of these regulations allowing for  the  possibility 
of negotiation  of cooperation protocols  with all  the  competent  authorities  in  the non-member 
countries concerned). 

the  need  to  provide  for  a  legal  base for  administrative  cooperation  and  mutual  assistance 
between authorities in the non-member countries concerned. Where necessary, the Commission 
will present proposals in this direction. 

16 

ISSN 0254-1475 

COM(97)  199  final 

DOCUMENTS 

EN 

09  02  10 

Catalogue  number  :  CB-CO-97-206-EN-C 

ISBN 92-78-19619-3 

Office  for Official  Publications of the European  Communities 

L-2985 Luxembourg 

Ir-