Special Report No 8/98 on the Commission's services specifically involved in the fight against fraud, notably the 'unité de coordination de la lutte anti- fraude' (UCLAF) together with the Commission's replies (pursuant to Article 188c(4), second subparagraph, of the EC Treaty)
Date: 1998-06-10
Institutions: European Court of Auditors
Subjects: EU body, EU policy, cooperation policy, fraud

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I

(Information)

COURT  OF  AUDITORS

SPECIAL  REPORT  No  8/98

on  the  Commission’s  services  specifically  involved  in  the  fight  against  fraud,  notably  the  ‘unité
de  coordination  de  la  lutte  anti-fraude’  (UCLAF)  together  with  the  Commission’s  replies

(pursuant  to  Article  188c(4),  second  subparagraph,  of  the  EC  Treaty)

(98/C 230/01)

TABLE  OF  CONTENTS

Paragraph
references

Page

1.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 — 1.12

Scope  of  the  audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1

Main observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2 — 1.12

2. THE  COMMISSION’S  ORGANISATION  OF  THE  FIGHT  AGAINST
FRAUD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1 — 2.34

The  strategy  of  the  Commission  for  the  fight  against  fraud . . . . . . . . . . . .

2.1 — 2.12

Fraud  prevention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.13 — 2.19

Division  of  responsibilities:  UCLAF’s  mandate . . . . . . . . . . . . . . . . . . . . . . .

2.20 — 2.25

Security measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.26 — 2.32

Internal  administrative  enquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.33 — 2.34

3. ORGANISATION  OF  UCLAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1 — 3.37

Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1 — 3.18

Cooperation  with  the  Member  States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.19 — 3.27

Information  and  intelligence  systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.28 — 3.37

4. FINANCIAL  FOLLOW-UP  AND  RECOVERY . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.21

General overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.5

Traditional  own  resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.6 — 4.9

EAGGF  guarantee  section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.10 — 4.11

Improvements  to  legislation  in  the  agricultural  area . . . . . . . . . . . . . . . . . . .

4.12 — 4.14

Structural  funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.15 — 4.21

2

2

2

3

3

5

6

7

7

8

8

11

13

15

15

15

16

16

17

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Paragraph
references

Page

5. RELIABILITY  OF  INFORMATION  IN  THE  ANNUAL  REPORT  ON  THE
FIGHT  AGAINST  FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1 — 5.11

Data  presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1 — 5.3

Reliability  of  data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.4 — 5.11

6. CORRUPTION  AND  BREACHES  OF  DISCIPLINE . . . . . . . . . . . . . . . . . . . . .

6.1 — 6.13

Fight  against  corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.1 — 6.2

Allocation  of  responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.3 — 6.4

Lack  of  clear  guidelines  for  administrative  investigations . . . . . . . . . . . . . . .

6.5 — 6.7

Implementation  of  a  ‘zero  tolerance’  policy. . . . . . . . . . . . . . . . . . . . . . . . . .

6.8 — 6.10

Problems  identified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.11 — 6.13

7. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.1 — 7.7

ANNEXES  I — IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commission’s replies

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18

18

18

20

20

20

20

21

21

22

24

34

1.

INTRODUCTION

Scope  of  the  audit

taken 

At  the  beginning  of  1997  the  Court  decided  to
1.1.
carry  out  an  audit  of  the  services  of  the  Commission
responsible  for  the  fight  against  fraud,  especially  the
‘Unité de Coordination de la Lutte Antifraude’ (UCLAF).
To  date  the  audit  work  has  covered  an  evaluation  of  the
legal,
measures 
organisational and administrative arrangements to ensure
the  success  of  UCLAF’s  mission,  an  assessment  of  the
effectiveness  of  UCLAF  based  on  an  examination  of  all
its  units,  enquiries  in  the  United  Kingdom  and  the
Netherlands (1)  and  a  global  examination  of 
the
anti-fraud responsibilities of the Security Office, DG XIX
and  DG  XX.

appropriate 

establish 

to 

Main  observations

The  Commission  has,  in  particular  since  1990,
1.2.
made  a  major  effort  in  its  fight  against  fraud.  This  has
led to a better legal and administrative framework in this
area  (see  paragraphs  2.4—2.6).  However,  Conventions
and  Protocols  agreed  under  the  third  pillar  have  still  not
been  ratified  (see  paragraph  2.11).

(1) According  to  the  legal  and  administrative  framework  action
to combat fraud affecting the Community’s financial interests
is  primarily  the  responsibility  of  the  Member  States  (see
chapter  2).  For  this  reason  it  was  decided  to  include  in  this
audit  controls  at  national  level.

1.3.
A  structure  within  the  Commission  has  been
created  for  the  fight  against  fraud  (see  paragraphs
2.20—2.23).  However,  the  organisational  arrangements,
including those in relation to the Member States, are not
always clear, and are often complicated and cumbersome
(see  paragraph  2.34,  table  1,  paragraphs  3.21—3.23  and
3.35—3.36).  Furthermore, 
and
procedures  are  frequently  not  correctly  implemented  (see
paragraphs  2.28—2.32).

security  measures 

1.4.
UCLAF  has  been  given  more  tasks,  more  powers
and  more  staff.  The  number  of  temporary  staff  is  about
50 %  of  total  staff  which  creates  a  lack  of  continuity  in
the  organisation  (see  paragraphs  3.2—3.4).

1.5.
fully
The  databases  of  UCLAF  were  not 
operational or effective (see paragraphs 3.29—3.33). The
databases  were  rarely  used  and  the  information  kept  by
three of the four operational units within UCLAF did not
reconcile  with  the  database  Pre-IRENE  (see  paragraphs
3.8—3.10).

1.6. Management  information  was  insufficient  for  the
effective management of the high number of cases held by
UCLAF  (see  paragraphs  3.10—3.12).  Furthermore  the
lack  of  standard  methods  of  documentation  and  file
management 
is  considered  a  serious  weakness  (see
paragraphs  3.13—3.18).

Cooperation  between  Member 

1.7.
and
Commission  is  hampered  by  the  manner  in  which  the
privileges  and  immunities  of  the  European  Union’s  staff
are 
In
addition,  UCLAF  in  its  inspections  on  Member  States’

(see  paragraphs  3.24—3.26). 

implemented 

States 

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territory  has  had  to  cope  with  serious  constraints  related
to  national  legislation  (see  paragraphs  3.20—3.23).

recorded 

1.8.
Recovery  of  amounts  unduly  paid  is  hindered  by
the fact that the information on the amounts recovered is
incompletely 
(see  paragraphs  4.3—4.5).
Furthermore  Member  States  do  not  strictly  respect  their
obligation 
the
Commission in this regard (see paragraphs 4.6, 4.7, 4.11,
4.19,  4.20).

to  communicate  all 

information 

to 

1.9.
It  is  to  be  noted  that  for  EAGGF-Guarantee
legislation  has  been  adopted  to  create  a  so-called  ‘black
list’.  So  far,  the  results  are  disappointing  (see  paragraphs
4.12—4.14).

1.10.
A number  of preventive actions  have  been  taken
in  the  fight  against  fraud  (see  paragraphs  2.13—2.15,
2.19).  The  risk  analysis  study,  carried  out  by  the  Joint
Research  Centre  (JRC),  however,  suffered  serious  delays
and  only  part  of  the  areas  that  were  intended  to  be
included  in  the  study  could  be  covered  (see  paragraphs
2.16—2.18).

1.11.
Elements  of  the  data  about  cases  of  fraud,
published in the Commission’s annual report on the fight
against  fraud  are  incomplete  and  therefore  misleading
(see  paragraphs  5.4—5.11).

Procedures  and  responsibilities  concerning  the
1.12.
internal  corruption  and  breaches  of
fight  against 
discipline are unclear and incomplete (see paragraphs 6.3,
6.11—6.13).  In  particular  there  are  no  clear  guidelines
for  investigations  (see  paragraphs  6.5—6.7)  and  there  is
no  clear  policy  (such  as  a  ‘zero  tolerance’  policy)  (see
paragraphs  6.8—6.9).  There  is  exaggerated  hesitation  to
lift  the  immunity  of  European  Union  staff  suspected  of
corruption  (see  paragraph  6.10).

2. THE  COMMISSION’S  ORGANISATION  OF  THE  FIGHT

AGAINST  FRAUD

The  strategy  of  the  Commission  for  the  fight  against
fraud

The organisation of the fight against fraud within
2.1.
the  Commission  and  the  resources  made  available  in  this
field  developed  in  several  phases.

The  Commission  firstly  created  within  certain
2.2.
DGs  (especially  VI,  XX  and  XXI)  administrative  units
responsible for the fight against fraud. In a second phase
the  Commission  decided  in  1987 (2) to establish a central
coordination  unit  (Unité  de  Coordination  de  la  Lutte
Antifraude  —  UCLAF)  in  the  General  Secretariat  and  to

(2) COM(87) 572  final.

set  up  anti-fraud  teams  in  the  different  DGs.  At  the
beginning of the second phase UCLAF had at its disposal
10 officials (of which five at grade A) which were placed
under  the  authority  of  a  director.  It  was  foreseen  that
additional  staff  should  be  allocated  to  the  operational
services  and  UCLAF.

2.3.
The third phase, which started at the end of 1994
was  characterised  by  a  clear  distinction  between  the  task
of  developing  and  implementing  a  common  policy  and
the  collecting  of  information,  carrying  out  enquiries  and
stimulating  corrective  action  where  the  financial  interests
of 
the  Community  have  been  put  at  risk.  The
Commission decided to transfer the responsibilities of the
different  DGs  in  the  fight  against  fraud  to  UCLAF  in
order  to  ensure  a  far  reaching  centralisation  in  this
field (3)  (see  paragraph  2.5).  Thus  major  staff  resources
and  the  largest  part  of  the  budgetary  competence  have
been  transferred  to  UCLAF  (for  financial  details  see
Annex  II).

2.4.
Parallel  to  these  developments  there  was  the
completion  of  the  single  market  and  the  entry  into  force
of the Treaty of the European Union (TEU). Accordingly
the  Commission  devised  in  1994  a  new  strategy  to
combat  fraud  based  on  four  major  axes:

— presence  on  the  ground;

— closer  cooperation  with  the  Member  States;

— improvement  of  Community  legislation;

— convergence  of  Member  States’ 

criminal 

law

enforcement  systems (4).

2.5.
The  Commission  sets  out  an  annual  work
programme  to  take  forward  its  strategy  against  fraud (5)
which  is  not  only  binding  on  UCLAF  but  on  all  services
in  this  field  (see  paragraphs
having  responsibilities 
2.20—2.23).  In  the  work  programme  for  1997/1998  the
Commission  explains  that  it  ‘strengthens  presence  on  the
ground  and  continues  the  policy  of  partnership  with
national  authorities’.  The  following  main  objectives  are
identified:

— detection  of  irregularities,  where  the  Commission
believes  that  it  can  add  most  value  by  concentrating
on  major  transnational  cases;

— recovery  of 

the  amounts 

involved,  where 

the

Commission  intends  to  strengthen  follow-up  action;

outside 

enquiry 

(3) SEC(95) 249.  It  should  be  stressed  that  UCLAF  has  other
see

responsibilities 
paragraph  2.20.
(4) COM(94) 92  final.
(5) The  Commission’s  work  programme  1997/1998  on  the
protection  of  the  Communities’  financial  interests  and  the
fight  against  fraud  (COM(97) 199)  also  contains  a  brief
evaluation  of  the  results  achieved  since  1994.

activities, 

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— preventive  action  through  improvement  of  systems

and legislation;

— emphasising  the  responsibility  of  Member  States  to

manage  the  own  resources  system  properly;

concerning  either  the  first  or  the  third  European  Union
pillars.  In  fact,  Article  209(a)  of  the  EC  Treaty  requires
the  Member  States  to  take  the  same  measures  to  combat
Community fraud as they would take to combat fraud to
the  detriment  of  their  own  financial  interests.  This
obligation derives without any doubt from subject matter
covered  by  the  first  pillar.

— the  eventual  creation  of  a  European  ‘judicial  area  for
the  protection  of  the  Union’s  financial  interests’,
within  which  criminal  penalties  for  offences  against
the  Community’s  budget  would  be  harmonised;

— preparation  for  enlargement,  through  development  of
relations  with  the  countries  which  are  candidates  for
accession.

one 

action 

financial 

‘Improving 

fraud 
of 

SEC(97) 2182/2. 

irregularities, 
Part 

The  Court  noted  the  Commission  communication  of  the
against
18  November  1997 
and
incompetence, 
the
corruption’ 
communication  describes  the  current  situation  in  the
Commission  which  confirms  the  Court’s  understanding
as  described  in  this  report.  Part  two  proposes  lines  of
action to remedy the weaknesses in the current situation.
the
Whilst 
communication it cannot, at present, assess the impact of
the  proposals  presented  therein.  An  Action  Plan  adopted
by  the  Council (6)  includes  detailed  recommendations
indicating  the  direction  to  be  taken  for  further  work  in
this  domain.

the  Court  welcomes 

the  content  of 

In 

this, 

since 

spite  of 

2.8.
the  detection  and
prosecution  of  fraud  require  criminal  responsibilities  and
powers,  it  was  considered  that,  if  this  obligation  was  to
be  complied  with,  use  would  have  to  be  made  of
instruments deriving from traditional international law —
in  this  case  conventions  —  which,  as  such,  come  under
the  third  pillar.  Community 
legislative  acts  cannot
provide 
sanctions.  They  do,  however,
for  penal 
incorporate  in  the  general  notion  of  an  irregularity  both
an  intentional  (and  therefore  fraudulent)  infringement  of
Community law, and one that occurs through negligence.
The  legislation  lays  down  administrative  sanctions  and
extensive powers for the Commission to carry out checks
and  inspections  so  as  to  uncover  such  irregularities.

2.9.
Although  under  the  first  pillar  certain  legislation
exists relating to the combat against fraud, a definition of
fraud  is  to  be  found  under  the  third  pillar:  on  26  July
1995,  the  Council  approved  an  act  drawing  up  a
Convention  on  the  protection  of  the  Communities’
financial interests (7). For the purposes of this Convention
fraud  affecting  the  European  Communities’  financial
interests  shall  consist  of:

legislation  rests  with 

2.6. Making  UCLAF’s  presence  more  effective  on  the
ground  is  clearly  the  responsibility  of  the  Commission.
Aspects of UCLAF’s execution of its tasks are reviewed in
Chapter  3  of  this  Report.  The  initiative  for  improving
Community 
the  Commission,
although  significant  changes  are  likely  to  require  action
by the Council and Parliament. Progress on this aspect of
the  Commission’s  strategy  is  outside  the  scope  of  this
Report. Closer cooperation on the investigation of frauds
and  irregularities  and  in  the  recovery  of  money  wrongly
paid  involves  both  Commission  and  Member  States;
certain  action  is  possible  through  legislation  under  the
first  pillar  of  the  Treaty.  Progress  on  financial  follow-up
and recovery action in cases involving UCLAF is reviewed
in Chapter 4 of this Report. The convergence of Member
States’  criminal  law  enforcement  systems  presupposes
action by all Member Governments under the third pillar
of  the  Treaty.

a)

b)

2.7.
Given  the  absence  of  any  Community  criminal
law,  fighting  fraud  against  the  Community  finances  (and
corruption)  is  governed  by  the  provisions  of  Treaty  texts

in  respect  of  expenditure,  any  intentional  act  or
omission  relating  to  the  use  or  presentation  of  false,
incorrect  or  incomplete  statements  or  documents,
which  has  as  its  effect  the  misappropriation  or
wrongful  retention  of  funds  of  the  general  budget  of
the  European  Communities  or  budgets  managed  by,
the  European  Communities,
or  on  behalf  of, 
non-disclosure  of 
in  violation  of  a
information 
specific  obligation  with  the  same  effect  and  the
misapplication of funds for purposes other than those
for  which  they  were  originally  granted;

in  respect  of  revenue,  any  intentional  act  or  omission
relating  the  use  or  presentation  of  false,  incorrect  or
incomplete statements or documents, which has as its
effect  the  illegal  diminution  of  the  resources  of  the
European  Communities  or  budgets  managed  by,  or
the  European  Communities,
of, 
behalf 
on 
non-disclosure  of 
in  violation  of  a
information 
specific  obligation  or  misapplication  of  a  legally
obtained  benefit  with  the  same  effect.

(6) OJ  C 251,  15.8.1997.

(7) OJ  C 316,  27.11.1995.

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It  should  be  noted  that  the  new  Treaty  of
2.10.
Amsterdam has strengthened the wording of Article 209a
by  requiring  measures  taken  to  combat  fraud  against  the
Community  budget  to  be,  in  particular,  ‘(. . .)  deterrent
and  such  as  to  afford  effective  protection  in  the  Member
States’. In addition, the new text of the article now states
that the Council, ‘after consulting the Court of Auditors,
shall  adopt  the  necessary  measures  in  the  fields  of  the
prevention of and fight against fraud (. . .) with a view to
affording  effective  and  equivalent  protection 
in  the
Member  States.  These  measures  shall  not  concern  the
application  of  national  criminal  law  or  the  national
administration  of  justice.’  This  provision  could  open  up
the possibility of Community action in the harmonisation
of  national  systems  of  criminal  law,  without  prejudice  to
the  exclusive  prerogatives  of  the  Member  States  in  this
area.  Administrative  sanctions  would  have 
to  be
developed  subsequently.

2.11.
Actions  under  the  third  pillar  resulted  in  two
Conventions  and  two  Protocols  agreed  by  the  Council  in
the  period  1995—97  (one  of  which  the  Convention
mentioned  under  paragraph  2.9).  However, 
these
instruments become effective only when ratified by all 15
Member  States;  hitherto  they  have  not  yet  been  ratified
by  any  Member  State.  As  a  result,  present  arrangements
for  judicial  cooperation  are  still  based  on  international
legislation  dating  back  to  the  1950s,  when  Europe  had
no  common  institutions  or  policies  covered  by  a  single
budget, when trade and financial flows were a fraction of
what they are now and when financial crime was carried
out  by  individuals  or  gangs,  not  organised  international
networks  capable  of  maintaining  an  outward  appearance
of  legality  as  is  the  case  today (8).

2.12. Moreover,  even  supposing  that  all  the  new
instruments  were  ratified  in  the  short  term,  a  series  of
measures still have to be taken to enhance the legal basis
of  the  anti-fraud  policy.  The  discontinuity  of  legal
procedures  and  the  disparity  between  the  different
Member  State  systems  of  criminal  justice,  notably  in
terms  of  the  severity  and  nature  of  punishment,  hinder
the  effective  repression  of  fraud (9).  There  is  a  need  for
‘radical  response  to  the  absurdity,  still  tolerated  though
universally  condemned,  of  opening  wide  our  national
frontiers  to  criminals  while  continuing  to  shut  them

(8) See  Fraud  without  frontiers,  Study  for  the  European
Commission  (Justice  and  Home  Affairs  Task  Force,  Judicial
Cooperation  Unit)  of 
the
European  Union  prepared  by  Deloitte  &  Touche  European
and  International  Fraud  Group,  1997.

fraud  within 

international 

(9) See  Final  Report  ‘Incompatibilités  entre  systèmes  juridiques
et  mesures  d’harmonisation’,  in:  Seminar  on  the  Legal
Protection  of  the  Financial  Interests  of  the  Community,
Brussels,  November  1993,  Oak  Tree  Press,  Dublin  1994.

against  those  responsible  for  fighting  crime,  despite  the
risk  of  turning  our  countries  into  crime  havens’ (10).

Fraud  prevention

SEM  2000

States 

the  Member 

Together  with 

2.13.
the
Commission  embarked  on  a  wide-ranging  three-stage
exercise,  named  SEM  2000  (standing  for  Sound  and
Efficient Management 2000), to make the management of
Community  appropriations  more  efficient.  The  first  two
stages  involved  the  Commission  improving  the  standard
of its own financial management. The third stage aims to
the  management  of
improvements 
bring  about 
Community  resources  by  the  Member  States.

in 

‘Fraud-proofing’  of  legislation

the  aim  of 

In this context the Commission adopted in 1996
2.14.
internal  measures  with 
fraud-proofing
legislation  and  decisions  that  have  direct  or  indirect
and
financial 
opaqueness  of  much  existing  Community  legislation
makes  the  EU  budget  particularly  vulnerable  to  fraud.
The  necessary  changes  in  the  legislation  will  require  a
sustained  effort  over  a  long  period.

implications (11). 

complexity 

The 

Early  warning  system  in  the  field  of  direct  expenditure

2.15.
The Commission started, in July 1997, a project
which  has  as  its  objective  the  introduction  of  an  early
warning  system  in  case  of  administrative  errors  or  fraud
committed by organisations or enterprises receiving direct
funding  from  the  Commission (12).  It  is  too  early  for  an
evaluation  of  its  effectiveness.

Setting  priorities

2.16.
UCLAF  needs  a  basis  for  deciding  which  cases
should  receive  priority  in  the  allocation  of  the  limited

(10) See  ‘Corpus  Juris  (hereinafter  referred  to  as  Corpus  Juris)
introducing penal provisions for the purpose of the financial
interests  of  the  European  Union’.  Study  carried  out  at  the
request of the European Parliament, by researchers from the
Associations  of  European  Lawyers  for  the  Protection  of  the
Financial Interests of the Community, under the aegis of the
Directorate  General 
the
Commission,  Paris  1997.

for  Financial  Control  at 

(11) SEC(96) 1802/4  (Implementation  of  recommendation  No  7

of  SEM  2000,  Phase  II).

(12) SEC(97) 1562.

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22.7.98

resources for inspections to sensitive areas and ‘high-risk’
operators  and/or  recipients.  This  in  turn  requires  criteria
for  optimising  the  use  of  the  diverse  information  at  the
disposal  of  the  unit.  UCLAF  concluded,  on  8  December
1995,  an  administrative  arrangement  with  the  Joint
Research  Centre  (JRC)  to  carry  out  a  study  on:

field  of  the  fight  against  fraud.  This 
particular:

includes 

in

— the  protection  of  the  financial 

interests  of  the

Community;

— the  development 

application  of  pattern
recognition  methods  for  fraud  cases  stored  in  the
Commission’s  databases  IRENE  and  PRE-IRENE;

and 

— the  assessment  of 

financed  or  co-financed 

risk  parameters  concerning
the

from 

transactions 
Community  budget  and;

— the  conception  of  the  fight  against  fraud  in  all  areas;

— the  development  of  the  necessary  infrastructure  for

the  fight  against  fraud  (databases  etc.);

— the  collection  of  information  concerning  fraud  cases

and  the  treatment  of  this  information;

— the  description  of  trends  over  a  given  period  of  time
and  detection  of  heterogeneity  in  the  amounts  of
subsidies  in  reference  transactions  and  IRENE  cases.

— the  operational  measures  (enquiries  etc.).

2.17.
The  project  was  initially  intended  to  be  carried
out  within  a  period  of  12  months  after  the  signature  of
the  contract.  Due  to  staff  and  technical  problems,  work
on  the  project  only  started  in  April  1996.  Therefore  a
first extension of the deadline of the last deliverable until
the end of March 1997 was approved. As the JRC agreed
to include in the work additional material and the results
of  an  exchange  on  statistical  sampling  methods  with  the
European Court of Auditors a second extension until the
end  of  July  1997  was  approved  by  UCLAF.  The  results
of  the  study  will  only  be  of  real  practical  value  for
UCLAF  when 
further
developed.

its  computer 

systems  are 

2.18.
Due  to  the  incompleteness  of  the  information  in
the  Pre-IRENE  and  the  IRENE  database  the  work  on
pattern recognition of frauds was limited to certain areas
in  the  IRENE  database  (olive  oil  consumption  aid,  beef
export  refunds,  own  resources).  DG  XX  refused  its  visa
for  the  final  payment.  Meanwhile  the  situation  remains
that  UCLAF  has  not  yet  developed  any  systematic  basis
for  evaluating  information  contained  in  these  databases
in  order  to  assist  in  the  setting  of  priorities.

Other  actions

2.19.
A  number  of  actions  was  taken  recently  in  the
area  of  customs.  Furthermore  UCLAF  has  organised
seminars  for  Member  States’  services  to  increase  the
awareness  on  fraud  (see  Annex  IV).

The  different  Directorates  General  of 

2.21.
the
Commission  are  responsible  for  the  conception  and
management  of  the  common  policies  in  their  respective
areas, including the control of the correct implementation
of  Community  legislation.  UCLAF  and  the  departments
concerned  have  to  cooperate  closely,  coordinate  their
activities  and  exchange  all  the  information  necessary  for
their work (14) In February 1995 the Secretary General of
the  Commission  requested  the  Directors  General  and  the
Heads  of  Services  responsible  for  expenditure  or  own
resources  to  ensure  that  all  elements 
indicating  a
potential  fraud  are  sent  promptly  and  systematically  to
UCLAF.

2.22.
In  a  further  note  of  April  1997  the  General
Secretary  asked  the  Directors  General  and  Heads  of
Services to bring the guidelines, set out below, on ‘Action
to  be  taken  in  cases  of  suspected  fraud,  irregularities  or
breaches  of  discipline’  to  the  attention  of  their  services.

2.23.
In  accordance  with  the  note  from  the  Secretary
General,  if  an  incident  comes  to  the  knowledge  of  an
official  it  is  his  duty  normally  to  inform  his  Director
General  or  Head  of  Service  as  soon  as  possible.  The
Director  General  without  delay  will  inform  the  relevant
service (no mention is made of DG XIX) according to the
nature  of  the  case:

— DG 

IX 

for  possible  breaches  of  discipline  or

professional  misconduct;

— DG  XX  for  irregularities  relating  to  the  commitment
and 
the
of 
establishment  and  collection  of  Community  revenue;

authorisation 

expenditure 

and 

Division  of  responsibilities:  UCLAF’s  mandate

By  Commission  decision  of  February  1995 (13)
2.20.
UCLAF is responsible for all Commission activities in the

(13) SEC(95) 249.

— UCLAF  for  all  matters  relating  to  cases  of  suspected

fraud  against  the  Community  budget;

(14) Apart  from  these  general  guidelines,  detailed  rules  for  the
repartition  of  responsibilities  have  been  fixed  in  the  area  of
agriculture,  customs  and  indirect  taxation.

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— the  Security  Office  for  all  matters  relating  to  the
security  of  persons,  property  or  buildings  of  the
Commission,  including  security  of  information,  its
transmission  and  use (15).

experts  who  together  make  up  more  than  half  of
UCLAF’s  staff.

The 

internal 

guidelines 

2.24.
a
‘whistle-blowing  mechanism’  which  allows  an  official  to
directly  inform  the  services  mentioned  above.  The  Court
found  evidence  where  this  proved  to  be  very  useful  (see
paragraph  6.8).

introduced 

2.25.
Direct contacts between the Commission and the
national  judicial  or  fraud  authorities  in  relation  to  fraud
cases must transit via UCLAF (16).  Therefore  it  is  UCLAF
that  has  to  notify  the  judicial  authorities  of  a  Member
State  of  evidence  or  suspicions  in  a  specific  case.

Security  measures

The  Commission  has  by  Decision  of  30
2.26.
November  1994,  issued  a  set  of  rules  ‘on  the  security
measures applicable to classified information produced or
transmitted  in  connection  with  the  activities  of  the
European  Union’ (17).

2.27.
The Decision aims to ensure adequate protection
of information on hard copy or in electronic form and to
afford  the  same  level  of  protection  as  the  grading  set  by
the  owner,  this  being  another  institution  or  a  Member
State. 
in  respect  of
assignment of security grading, access and filing including
the  vetting  of  officials  and  other  staff  with  access  to
sensitive  information.

It  contains  specific  measures 

2.28.
There  are  serious  weaknesses  in  relation  to  the
implementation  of  the  security  measures  foreseen  by  the
Decision.  The  Security  Office  of 
the  Commission
undertook  a  security  inspection  of  the  premises  of
UCLAF  in  1996.  This  security  inspection  did  not  include
an  essential  aspect,  i.e.  the  appropriate  character  of  any
staff  (by  vetting  or  special  enquiry).  However,  following
the  security  inspection,  UCLAF  in  May  1997  requested
the  vetting  of  59  permanent  officials  and  in  July  for  a
further  three  permanent  officials.  No  request  was  made
in  respect  of  the  temporary  staff  or  detached  national

(15) The  Inspectorate  General  is  not  regarded  as  an  appropriate
contact point in these cases as it is not implicated in ongoing
management tasks. Its role is to monitor the effectiveness of
the  different  services  of  the  Commission  in  relation  to  their
regulatory 
framework,  use  of  resources  and  output
obtained.

(16) Direct  contacts  with  the  security  authorities  in  the  Member
States  have  to  be  channelled  through  the  Security  Office.
(17) COM(94) 3282  of  1  March  1995  replacing  the  decision  of
7  July  1986  defining  the  security  grading  of  documents  and
establishing  the  security  measures  applicable  to  classified
documents.

2.29.
By  the  end  of  October  1997  only  two  UCLAF
officials  have  been  vetted,  in  DG  XIX  and  DG  XX  no
member  of  staff  directly  involved  in  the  fight  against
fraud  has  yet  been  vetted.

information  related 

2.30.
Furthermore  no  security  inspections  have  been
undertaken  in  respect  of  the  other  services  having  access
to 
fraud
to 
(databases,  confidential  documents).  In  relation  to  those
staff  having  access  to  classified  information  no  enquiries
were  made 
into  their  personal  files,  held  by  the
Commission.  Such  a  check  could  possibly  provide
essential  security  assurances.

fight  against 

the 

2.31.
The recruitment of a full time Security Officer is
still  to  be  decided  upon  and  implemented  by  UCLAF
(planned for 1998), and other basics such as classification
principles,  security  grading  of  information,  control  of
documents  and  the  registration  of  documents  classified
higher  than  RESTRICTED.  Thus  for  the  time  being  it  is
up  to  the  discretion  of  each  individual  staff  member  to
ensure  the  security  of  information  held  by  UCLAF.

2.32.
It  is  a  matter  of  concern  that,  with  the  growing
responsibility  of  UCLAF  and  that  more  than  two  years
after  the  reorganisation  of  the  Commission  services,  the
Commission  Decision  of  30  November  1994  has  not
been  entirely  implemented.  It  is  a  matter  of  very  serious
concern  that  there  is  no  scrutiny  of  the  suitability  of  all
staff  having  access  to  sensitive  information.  The  Court
has  become  aware  of  a  particular  case  where  there  is  a
prima  facie  unsuitability  of  a  Commission  official  for  a
specific  function  where  he  has  access  to  sensitive
information.

Internal  administrative  enquiries

2.33.
In  order  to  gain  sufficient  evidence  to  decide
whether  to  take  a  case  forward  for  criminal  prosecution,
UCLAF needs to carry out an administrative enquiry and
to  take  a  position  on  the  results  achieved.  Well  known
cases  exist  (for  example  in  the  tourism  sector)  where
dossiers  have  been  withheld  from  UCLAF  investigators
and  where 
incriminating  documents  have  been
systematically  destroyed.  Such  events  demonstrate  the
need for UCLAF to be granted powers enabling access to
all  files  held  by  the  authorising  officers  at  the  earliest
possible  stage,  beyond  the  simple  instruction  to  notify
UCLAF  of  cases  of  suspected  fraud.  In  an  attempt  to
improve  the  situation,  the  Secretary  General  of  the
Commission  approved  in  April  1996  a  procedure  to
allow  UCLAF  to  carry  out  searches  with  the  prior

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agreement  of  the  Secretary  General  and  the  Director
General  for  Personnel  and  Administration  to  individual
proposals  made  by  the  Director  of  UCLAF.

3. ORGANISATION  OF  UCLAF

Structure

Table  1  gives  an  overview  on  the  methods  of
2.34.
accomplishment  of  certain  operational  tasks  of  UCLAF.
It  also  shows  that  there  are  areas  where  serious
deficiencies  exist,  for  example  in  the  definition  of  the
powers  of  UCLAF  when  it  comes  to  the  questioning  of
Commission  officials  and  the  searching  of  files  and
offices  in  Commission  buildings.

At  present  UCLAF  consists  of  two  units  with
3.1.
horizontal  support  tasks  and  four  operational  units.  The
first  unit  (F1)  is  responsible  for  general  policy  matters,
judicial  questions  and  coordination,  the  second  (F2)  for
intelligence, information and evaluation of the legislation,
the third (F3) for the structural funds and other domains,
import/export  of  agricultural
the 

fourth 

(F4) 

for 

TABLE  1

Basis  for  the  accomplishment  of  certain  operational  tasks  of  UCLAF

Task

Legal base/
Reference  document

Execution

Decision/
Signature

Remark

Notification  of  judicial
authorities  with  a  view
to  open  a  judicial
enquiry

Transmission  of
documents  to  a
judicial authority

— on  the  request  of

the  latter

— on  a  Commission

initiative

Art.  209a  TEC

UCLAF exclusively

Director  of  UCLAF

Actualisation  of  note
SEC(95)  893  of
29.5.1995,  SEC(97)
1293  of  25.6.1997
(particularly
point  4.2.)

UCLAF  in  agreement
with  the  DG
competent  in  the
policy  area  and  the
Legal Service

Director  of  UCLAF

In  order  to  simplify
the  procedures  the
notification  of  judicial
authorities  and  the
transmission  of
documents  can  be
combined

Before  the
actualisation  of
25  June  1997  the
transmission  was
based  on  a  decision  of
the  Commission  after
a  written  procedure

Questioning  of
officials

—

Search  of  files  held  by
officials  of  the
Commission  (including
those  in  electronic
form)

Note  of  UCLAF
No  530  of  2.2.1996
Note  of  Secretary
General  of  1.4.1996

Director  of  UCLAF

No  specific  legal  basis
or  reference  document

—

Decision making
powers  unclear

UCLAF  after  approval
by  the  Secretary
General  and
information  to  the
Director  General
concerned  and  the
Director  General  of
Personnel  and
Administration

UCLAF  with  the
Security  Office  after
approval  of  Secretary
General  and  Director
General  of  Personnel
and  Administration

Request  of  a  judicial
authority  to  lift  the
‘devoir  de  réserve’  of
an  official  of  the
Commission

Art.  19  of  Staff
Regulations

DG  Personnel  and
Administration  in
dialogue  with  UCLAF

Appointing  Authority
(AIPN)

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Task

Legal base/
Reference  document

Execution

Decision/
Signature

Remark

Request  of  a  judicial
authority  to  lift  the
immunity  from  legal
proceedings  of  an
official  of  the
Commission

Disciplinary Procedure

Art.  18  of  Protocol  on
Privileges and
Immunities

DG  Personnel  and
Administration  in
dialogue  with  UCLAF

Decision  of  the
Commission/Signature
of  General  Secretary

Art.  86  to  89  and
Annex  IX  of  Staff
Regulations
Art.  73  to  76  of  the
Financial Regulation

DG  Personnel  and
Administration  in
dialogue  with  UCLAF

Appointing  Authority
(AIPN)

In  some  cases  an
‘administrative
procedure’  is
introduced  (during  or
after  the  enquiries  of
UCLAF)  which  is  not
covered  by  the  Staff
Regulations

for 

the 

(F5) 

fifth 

in  agriculture  and  the  sixth  (F6) 

the  common  market
products, 
organisations 
is
responsible  for  own  resources.  Furthermore  the  director
of  UCLAF  is  supported  by  an  adviser  with  specific
competences  for  external  training,  seminars,  relations
with  the  media  and  coordination  of  studies.

Staff  resources  to  date

3.2.
In  order  to  fill  the  available  posts  as  quickly  as
possible and to strengthen the experience available in the
fight  against  fraud  UCLAF  selected  and  recruited  in
1994/1995 a large number of national civil servants with
requisite 
combining
experience  and  qualifications 
financial,  police,  customs,  judicial  and  tax  expertise  on
temporary contracts. The number of staff of UCLAF and
their  administrative  status  as  at  15  September  1997  is
shown  in  Table  2.  Of  the  total  staff  of  126  only  60
(48 %)  are  permanent  staff.  66  (52 %)  are  temporary

staff  with  33  contracts  finishing  in  1997  (50 %)  and  33
in  1998  (50 %).  In  addition  to  these  staff  there  remain
20  staff  in  DG  XIX  and  XX  with  some  responsibility  in
the  fight  against  fraud.

3.3. While  the  quick  recruitment  of  temporary  staff
helped  UCLAF  to  become  operational  in  a  minimum  of
time, the departure of a lot of these staff at the same time
at  the  end  of  their  standard  temporary  contract  could
cause  severe  problems.  Therefore,  UCLAF  has  instigated
the  procedures  required  for  an  open  competition  to
recruit specialist investigators. UCLAF considers however
that  a  balance  has  to  be  struck  between  recruitment  of
permanent staff and a regular rotation of temporary staff
on  secondment  from  the  relevant  national  authorities.

A  more  recent  development  has  been 

3.4.
the
recruitment  of  experienced  national  legal  experts  or
magistrates.  The  continuation  of  this  policy  to  establish,

Staff  of  UCLAF  and  their  administrative  status  as  at  15  September  1997

TABLE  2

Grade

Permanent  staff

Temporary  staff

Contract  finishing
in  1997

Contract  finishing
in  1998  and
beyond

A2  (Director)

A3-A5  (Head  of  Unit/Adviser)

A4/5  (Principal  Administrator)

A6/7  (Administrator)

National  Expert

Category  B

Category  C

Category  D

Others

Total

1

7

12

6

0

18

16

0

0

60

0

0

15

10

13

17

1

0

10

66

0

0

8

5

1

8

1

0

10

33

0

0

7

5

12

9

0

0

0

33

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within  UCLAF,  a  prosecution  interface  consisting  of
experts  in  criminal  law  who  afford  assistance  and  advice
and  coordinate  files  in  liaison  with  the  national  judicial
authorities,  would  be  a  valuable  addition  to  the  fight
against fraud. The situation could be further improved by
the  further  recruitment  of  experienced  ‘magistrates’  or
legal  experts  to  ensure  that  UCLAF  can  draw  on  the
experience  of  at  least  one  magistrate  or  other  national
equivalent  per  Member  State.

Financial  resources

The  Court,  using  the  Commission’s  estimating
3.5.
methods (18)  for  staff  and  accommodation  costs,  adjusted
to  reflect  UCLAF’s  missions  costs  estimates  the  cost  of
UCLAF  to  be  some  12,4  Mio  ECU  for  the  budget  year
1996.

3.6.
In  addition  to  the  staff  and  accommodation  costs
of  UCLAF,  the  Commission’s  expenditure  on  the  fight
against  fraud  amounted  to  11,1  Mio  ECU  in  1996  and
(an  estimated)  11,9  Mio  ECU  in  1997  (see  Annex  II).

The 

anti-fraud 

appropriations 

3.7.
allocated
exclusively  to  the  Commission  include  appropriations
relating  to  specific  activities  of  UCLAF  such  as  specialist
computer  programmes,  access  to  databases,  certain
computers,  etc.  These  are,  in  practice,  charged  to  budget
line  A-3 5 3 0  and  in  some  specific  cases  to  A-3 5 3 1.
The  anti-fraud  appropriations  allocated  for  the  direct
benefit  of  the  Member  States  are  used  by  UCLAF  to
finance  national  control  structures,  to  cover  the  use  of
experts  in  national  investigations  or  joint  investigations
with  the  Commission,  training  expenditure,  and  to  co-

finance  certain  programmes  for  setting  up  new  control
methods.

Working  methods

3.8.
The  operational  work  of  UCLAF  is  governed
primarily  by  the  information  that  is  received  from  the
various  sources  available  (see  paragraph  3.28).  It  is
assessed  by  the  staff  of  UCLAF  and  a  decision  is  taken
whether  or  not  to  open  a  case  in  relation  to  the
information  received.  The  Court  sought  to  document  the
system  by  which  the  cases  are  opened,  monitored,
reported  and  concluded.  However,  no  common  system
exists  and  moves 
toward  standardisation,  notably
through  the  internal  management  system  Pre-IRENE  (see
Annex  III),  have  had  only  limited  success.

3.9.
There  was  a  clear  difference  between  the  units  as
regards  utilisation  of  the  Pre-IRENE  computer  system.
This  ranged  from  almost  complete  utilisation  of  the
system to the minimal use of the computer tool to keep a
simple, if incomplete, list of the cases related to the unit.
A  significant  number  of  cases  introduced  were  never
updated  using  the  system.  The  units  that  did  not  make
full use of the Pre-IRENE internal management tool used
a  variety  of  methods  to  keep  track  of  cases,  including
spreadsheets  developed  within  the  unit  and  meetings
between  investigators  of  the  unit.  These  various  listings
and management tools could not be reconciled with each
other  as  regards  the  number  of  cases.

3.10.
Table  3  shows  the  number  of  cases  held  on  the
UCLAF  Pre-IRENE  database  and  those  held  on  other
forms  of  listings  in  the  various  operational  units.

Summary  of  the  count  of  files/cases  in  the  operational  units  of  UCLAF  as  of  April  1997

TABLE  3

Operational  Unit

Number  Staff

Files/cases  as  per
PRE  IRENE
listing

Files/cases  as  per
lists  from  heads
of  unit

Number  of
files/cases  that  are
identified  on  both
lists

F3
Structural  Funds  +
Other  domains

F4
Import/Export
Agricultural
products

F5
Agricultural CMOs

F6
Own  resources

Total

20

22

13

29

84

356

356

356

260

39

101

756

311

64

596

1 327

243

35

8

642

(18) Document  DG IX,  ref.  IX.01/PT  D(97)1552.

22.7.98

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3.11. Within the units cases are normally assigned to a
case  officer  who  is  responsible  to  a  coordinator  and
ultimately to the head of unit. Given the number of cases
held  by  most  of  the  units  the  ability  of  the  management
hierarchy  to  effectively  monitor  and  manage  live  cases
without  an  adequate  management  information  system
must  be  called  into  question.

Given the fact that in three of the four units the
3.12.
number  of  cases  runs  into  the  hundreds  it  is  evident  that
the  head  of  unit  cannot  have  all 
the  necessary
information  at  his  disposal  at  all  times.  The  coordinator
has  to  ensure  that  the  cases  under  his  control  meet
standards  required  and  that  the  hierarchy  is  informed  of
progress/problems  with  current  cases.  A  properly  defined
role for the coordinator, common across all units, with a
structured  management  reporting  system  would  be  of
benefit.  At  present  the  coordinators  are  too  often  taken
up  with  a  great  number  of  cases  for  which  they  have
personal  responsibility  as  well  as  retaining  responsibility
for  coordinating  cases  being  handled  by  the  individual
investigators.

Management  of  case  files

3.13.
The  confidential  nature  of  the  majority  of  the
cases  means  that,  quite  rightly,  details  of  the  case  are
only held by those with a need to know. This is often the
investigator,  his  coordinator  and  the  head  of  unit.  This
type  of  arrangement  however  needs  to  have  safeguards
built  in  that  will  protect  the  work  done  and  ensure  its
subsequent  usefulness.

3.14.
Given the current structure of UCLAF with some
50 %  of  investigators  on  temporary  contracts  with  a
remaining  duration  of  less  than  one  year  it  is  probable
that  a  significant  number  of  cases  will  see  a  change  in
case  officer  between  the  initial  opening  of  the  case  and
the  final  closure.  The  files  relating  to  the  cases  should
therefore  be  properly  structured  in  order  that  another
member of the UCLAF staff can take over the case when
the  need  arises.  The  cases  examined  by  the  auditors
showed  that  for  most  of  them  there  was  a  lack  of  a
standard  structure  to  the  case  files,  and  that  there  were
no instructions to the investigators as to how files should
be  structured.  Furthermore  there  were  no  guidelines  on
the  standard  to  which  documentation  and  notes  should
be kept in order to satisfy the minimum requirements for
criminal  evidence  laid  down  in  the  Member  States
legislation.

3.15.
The  files  examined  ranged  from  those  that  were
well  structured,  indexed  and  annotated  (in  the  minority),
to  those  that  were  little  more  than  a  collection  of
documents  placed  in  no  particular  order  onto  ring
binders.  The  most  common  shortcomings  noted  were
absences  of  clear  identification  of  case  documents  on  the

files (no listing, frequently no date(s), no indication of the
source  and  finally  often  no  case  summary).  Where
progress/mission  reports  were  held  on  the  file  they  were
not  of  a  uniform  content  and  did  not  appear  to  have
been drawn up within any particular time frame, i.e. a six
monthly progress report, mission report completed within
a certain time following the mission etc. Furthermore the
case  files  rarely  contained  any  evidence  that  reviews  by
the  coordinators  and/or  the  heads  of  units  had  been
carried  out.  No  record  of  resources  employed  and  time
spent  on  each  case  exists.  In  addition  there  is  no
referencing  system  to  link  related  cases.  One  officer  had
inherited  and/or  opened  six  files  on  one  and  the  same
suspect.

3.16.
In  a  comparison  with  the  systematic  way  many
national  investigation  services  are  forced  to  compile  an
investigation  file  for  the  prosecutor  it  is  difficult  to  see
how  the  UCLAF  files  can  form  the  basis  for  a  case
respecting national laws. Disclosure of evidence, used and
unused material etc. are only some of the requirements of
national  law  the  Commission  will  have  to  respect  when
making  use  of  the  new  on-the-spot  control  Regulation
(Euratom  EC)  No  2185/96  (see  paragraphs  20—22  of
Annex  I).

The lack of overall guidelines as to the form and
3.17.
content  of  case  files  (or  at  the  very  least  a  set  of
minimum  requirements)  needs  to  be  addressed.  The
increase  in  size  of  UCLAF  from  10  staff  in  1987  to  126
today, when combined with the increased caseload means
that  more  effective  ways  of  managing  staff  and
monitoring  cases  are  required.

A consequence of the absence of file discipline is
3.18.
that  it  allows  the  possibility  of  the  manipulation  of  the
files  by  adding  or  removing  documents  at  any  time.  This
could  reduce  UCLAF’s  credibility  and  the  value  of  the
evidence  produced  if  the  defendant  has  good  legal
advisors.

Cooperation  with  the  Member  States

Constraints  imposed  on  the  Commission  services

3.19. Whether  it  be  in  the  field  of  the  fight  against
fraud  itself  or  subsequently  on  the  administrative  and
judicial level, full-scale, sincere and confident cooperation
between  the  competent  bodies  in  the  Member  States  and
the  Commission’s  anti-fraud  structure  is  necessary.  A
climate  of  trust  is  vital  if  policies  which  demand  full
cooperation  are  to  be  carried  out  and  produce  results,
especially  where  jointly  conducted  investigations  are

C 230/12

EN

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22.7.98

concerned. The success of the fight against fraud depends
also  on  the  extent  to  which  a  sharing  of  responsibilities
and  information  with  the  corresponding  departments  in
the  Member  States  is  achieved.

of  the  organisations  visited.  The  problems  described
above and in paragraph 3.22 explain why UCLAF to date
has  only  carried  out  five  missions  under  the  new
Regulation.

3.20.
The  Regulation  (EC)  No  2185/96  contains
provisions  aimed  at  bolstering  the  legal  force  of  the
inspectors’  findings,  by  providing  that  the  reports
prepared by UCLAF agents constitute admissible evidence
in  judicial  proceedings (19).  The  on-the-spot  checks  and
inspections  shall  be  prepared  and  conducted  by  the
Commission  in  close  cooperation  with  the  competent
authorities  of  the  Member  State  concerned,  which  shall
be  notified  in  good  time  of  the  object,  purpose  and  legal
basis  of  the  checks  and  inspections.

3.21.
The new Regulation (Euratom, EC) No 2185/96
stipulates  that  the  ‘Commission  inspectors  . . .  shall  be
required to comply with the rules of procedure laid down
by the law of the Member State concerned’ and that they
‘shall  ensure  in  drawing  up  their  reports  that  account  is
taken  of  the  procedural  requirements  laid  down  in  the
national  law  of  the  Member  State  concerned’.  This
implies  that  UCLAF  has  to  cope  with  a  huge  variety  of
different  systems  and  procedures.  Thus  UCLAF  is  faced
the  Member  States  and
with  15 
each  Member  State  different
furthermore  within 
enforcement  and 
investigative  bodies  exist  (judicial
authorities  specialised  in  combating  financial  crime  and
traditional  enforcement  authorities  such  as  police  forces
of  various  kinds, 
revenue
customs 
authorities,  business  supervisory  authorities,  courts  etc.).
Each of these can have different sets of rules which must
be respected. Any future enlargement of the EU can only
complicate  this  situation.

legislations  of 

investigators, 

UCLAF 

3.22.
is  addressing  this  problem  by  the
preparation  of  instructions  for  the  carrying  out  of
enquiries under the new Regulation. However, UCLAF is
not  yet  in  possession  of  a  complete  set  of  national  laws,
rules  and  procedures  requested  from  the  Member  States.
Even  when  this  is  received,  there  will  inevitably  be  a
considerable  delay  before  complete  instructions  can  be
compiled. Furthermore, support needs to be given to this
measure  by  experienced  staff  (investigative  and  other)  on
secondment  from  the  Member  States.

Treatment  of  requests  presented

that 

the  European  and 

3.24.
In  relation  to  the  cooperation  between  the
Commission  and  Member  States  it  is  of  particular
importance 
the  national
authorities  deal  in  a  constructive  way  with  the  requests
presented by their partners. It is up to the Member States
to  decide  whether  a  procedure  has  to  be  launched  when
the  Commission  has  seized  the  competent  national
authorities  after  gathering  sufficient  evidence.  However
where Member States seek the help of the Commission in
the  course  of  an  investigation  the  Commission  has,  inter
alia,  to  apply  the  Protocol  on  the  privileges  and
immunities  of  the  European  Communities  in  a  way  that
allows  the  Member  States  to  carry  out  the  necessary
actions.

the 

interference  with 

3.25.
Indeed,  the  privileges  and  immunities  which  the
Protocol  grants  to  the  Communities  have  a  purely
functional  character,  inasmuch  as  they  are  intended  to
avoid  any 
functioning  and
independence  of  the  Communities (20).  Therefore,  if  no
danger  of  interference  exists,  the  Commission  is  obliged
to waive the immunity of the inviolability of its premises
in  order  to  allow  a  search  by  competent  national
authorities  (Article  1).  Furthermore,  although  Article  12
of  the  Protocol  provides  that  officials  are  immune  from
legal proceedings in respect of acts performed by them in
their  official  capacity,  the  Commission  is  required  to
the
waive 
Communities are not at stake (Article 18). Permission has
to  be  given  by  the  appointing  authority  according  to
Article  19  of  the  Staff  Regulations  if  an  official  is
requested to testify on some aspect of a criminal case and
thus  also  on  documentation  seized  during  a  search.  This
permission can be refused only where the interests of the
Communities  so  require  and  such  refusal  would  not
entail  criminal  consequences  as  far  as  the  official  is
concerned.

immunity  when 

interests  of 

the 

the 

3.23.
Given  the  wide-ranging  power  under  the  new
Regulation  coupled  with  the  fact  that  the  missions  under
the  Regulation  are  now  ‘labelled’  as  anti-fraud  enquiries,
first  experiences  have  shown  that  the  actions  of  UCLAF
officials were under close scrutiny of legal representatives

The Court identified several problems in relation
3.26.
to  actual  cases.  In  three  of  the  cases  examined  by  the
Court  the  Member  States  did  not  start  the  procedures
requested  by  UCLAF  although  evidence  was  produced.

(19) See  recommendation  20  of  the  final  report  of  the  European
Parliament’s  temporary  committee  of  enquiry  on  the
Community  transit  procedures  (PE  220.895/def).

(20) See the Order of the Court of Justice of 13 July 1990, Case
C-2/88  Imm.  Zwartfeld,  [1990]  ECR  I-3372,  point  19.

22.7.98

EN

Official  Journal  of  the  European  Communities

C 230/13

Furthermore  where  Member  States  need  to  cooperate
with  each  other  in  relation  to  cases  brought  by  UCLAF
this  cooperation  was,  in  one  of  the  cases  examined,
lacking.  As  UCLAF  is  not  always  fully  informed  of  the
reasons  why  cooperation  is  not  given  it  is  difficult  to
pursue  action.  In  two  cases  examined  by  the  Court  the
Commission  did  not  request  or  delayed  a  request  to  the
Member States to start a procedure although the evidence
available  gave  grounds  to  presume  the  existence  of
serious  irregularities.  In  another  case  the  Commission
only  lifted  the  immunity  of  three  officials  some  twenty
months  after  a  request  from  the  competent  national
authority  (see  also  paragraph  6.10).

3.27.
A  criticism  levelled  at  UCLAF  by  the  two
Member States visited was that the start up of a case was
handled  well  but  that  subsequent  work  and  follow  up
could  be  improved.  Lack  of  consultation  and  feedback
were  cited.  In  a  specific  case  a  Member  State  contacted
UCLAF  in  preparation  of  an  action  but  UCLAF  did  not
disclose  all  information  it  held.  The  Member  State  then
effected  a  search  and  found  information  related  to  a
presumed  fraud  that  was  already  on  file  in  UCLAF.  A
further  problem  mentioned  was 
that
investigations  started  by  UCLAF  seemed  to  stop  without
reason. In a specific case there was concern on the part of
a  Member  State  as  to  whether  a  suspicion  of  fraud
reported over one year ago should be allowed to lie with
UCLAF  for  such  a  long  time  with  no  concrete  action
being taken. Finally criticism was made of the fact that in
some  cases  work  carried  out  in  the  Member  States  was
letter  was
completed  but  no  mission 
forthcoming  from  UCLAF.  In  one  case  the  Commission
services  involved  could  not  agree  after  a  period  of  two
years  on  a  common  position  as  to  whether  a  fraud  had
taken  place  or  not.

report  or 

fact 

the 

Information  and  intelligence  systems

Databases

financial 

information 

from  different  sources 

3.28.
Seeking  and  gathering  hitherto  unavailable
information relating to the fight against fraud, exploiting
information  that  is  available  but  in  other  contexts  and
into
combining 
coherent  sets  is  an  important  instrument  to  protect  the
Community’s 
interests.  The  methodical
processing  of  such  a  form  of  ‘intelligence’  will  provide  a
better  understanding  of  various  types  of  fraud  and
fraudster  and  should  help  to  ensure  that  the  Community
finances  are  protected  [on  the  optimum  cost-efficiency
basis].  The  fight  against  fraud  involves  such  a  vast
amount  of  information  that  detailed  knowledge  of  the
result  of  the  work  effected  in  this  field  is  needed  right
from  the  initial  investigation  stage  to  recovery  and  the
ordering  of  penalties.

Based  on  its  strategy  programme  published  in
3.29.
March  1994  the  Commission  invested  a  lot  of  resources
to  expand  its  databases  and  information  networks  and
develop  a  rational  and  integrated  approach.  As  can  be
seen in Table 4, the results in terms of use of the IRENE
database which records the communications of fraud and
irregularity  from  the  Member  States  is  still  very  limited.

As regards the UCLAF internal case management
3.30.
database  Pre-IRENE,  paragraph  3.10  shows  that  its
implementation  has  not  been  completely  successful.
UCLAF is currently working on IRENE 95 which should
integrate  IRENE  and  Pre-IRENE  and  link  them  to  other

TABLE  4

Use  of  the  database  IRENE  as  at  31  of  August  1997

Service

Total  Users

Active Users

Inactive  Users (1)

Excluded  Users (2)

UCLAF

DG  VI  (EAGGF  Guarantee)

DGs  responsible  for  the
Structural  Funds  (DG  V,  VI,
XIV,  XVI)

DG  XIX

DG  XX

Others  (including  European
Court  of  Auditors)

Total

63

5

11

4

3

9

95

7

1

0

1

1

2

12

10

0

6

2

0

2

20

(1) No  interrogation  in  1997.
(2) Excluded  in  February  1997  because  no  interrogation  was  made  during  the  preceding  six  months.

46

4

5

1

2

5

63

C 230/14

EN

Official  Journal  of  the  European  Communities

22.7.98

launched. 

(Integrated 

Information 

sources  of  information.  The  project  ‘UCLAF  Integrated
Information  Management  System  (UIMS)’  which  should
associate  and  interpret  all  information  that  is  available
for  intelligence  and  investigation  purposes  in  every  area
of  Community  activity  has  been  abandoned.  Instead  the
Intelligence
IIMS  project 
Management  System)  has  been 
the
In 
framework  of 
(documentation
the  DAF  project 
antifraude)  four  electronic  registers  for  Member  States
were  set  up  (United  Kingdom,  Spain,  Portugal  and
Greece)  to  display  the  fraud  prevention  and  detection
systems  set  up  there.  This  project  has  been  abandoned
because  Member  States  were  not  willing  to  assure  the
permanent  provision  of  the  necessary  data.  The  APSO
(Anti-fraud  Policy  Support  Office)  which  should  help  to
meet  the  considerable  need  for  information  still  awaits
the  approval  of  a  formal  agreement  with  the  Joint
Research  Centre  (JRC).  At  the  moment  only  a  ‘support
cell’  exists  within  UCLAF  consisting  of  a  B  official  who
request  of
prepares 
investigators.

information  at 

specific 

the 

3.31.
The  development  of  the  databases  holding
intelligence and case information has been beset by delays
and  problems  of  implementation.  The  low  usage  of  the
databases and the partial unreliability of information held
therein  casts  serious  doubt  as  to  whether  any  of  the
computer tools could be said to be fully operational. Too
often  it  appears  that  databases  are  replaced  with  new
models  promising  more  features  before  a  basic  database
with,  for  example,  a  list  of  open  cases,  is  established.

amounts established and/or recovered to cases of fraud or
irregularity.  As  UCLAF  has  to  deal  with  an  increasing
number  of  cases  in  this  field  consideration  should  be
given  to  the  introduction  of  this  type  of  database.

system  and 

The  SCENT 

3.35.
customs
information  system  were  developed  for  the  customs
services  of  the  Member  States  (see  Annex  III).  In  1994  a
number  of  measures  were  taken  to  improve  the  Customs
transit arrangements:

the 

— a  list  was  drawn  up  of  sensitive  products  for  which

there  is  a  high  risk  of  fraud (22);

— an  early  warning  system  (EWS)  was  introduced  for
the  exchange  of  information  relating  to  consignments
of sensitive goods between the office of departure and
the office of destination so that the office of departure
can  be  notified  when  goods  have  not  been
presented.

3.36.
According  to  the  Member  States  visited,  the
EWS  is  cumbersome.  It  ought  to  be  fully  computerised
and  should  work  on  a  more  selective  basis.  A  similar
criticism  was  made  in  relation  to  requests  under  the
mutual assistance arrangements. As they often generate a
lot of work, an explanation of the reasons for generating
a  request  or  ad  hoc  meetings  to  exchange  views  would
help  to  motivate  the  national  services.

3.32.
At the moment national investigation services do
not  have  direct  access  to  IRENE/Pre-IRENE.  This  gives
rise to the risk that UCLAF and national authorities carry
out  enquiries  on  the  same  case  without  being  aware  of
this  duplication.

Other  sources  of  information

3.33.
During  the  missions  to  the  two  Member  States
the  officials  met  suggested  that  UCLAF  should  invest
more resources on transnational intelligence work instead
of  increasing  the  number  of  its  own  inspections  because,
in  the  intelligence  field,  it  could  add  the  most  value  to  a
successful  fight  against  fraud.  (In  the  light  of  this  the
informal contacts between UCLAF and Europol could be
intensified  in  order  to  establish  an  intelligence  system  on
the  European  level (21)).

3.34.
In  the  field  of  direct  expenditure  UCLAF  does
not  possess  a  single  database  linking  information  on

(21) See  also  Action  Plan  to  combat  organised  crime  (OJ  C 251,

15.8.1997),  in  particular  page  9.

3.37.
In  November  1994  the  Commission  set  up  a
permanent  system  for  direct  notification  of  information
relating  to  Community  fraud  by  creating  a  freephone
number  in  each  Member  State.  During  1995  and  1996
the  Commission  received  more  than  8 000  calls.  A  very
reduced  number  of  them  led  to  further  investigations
being  carried  out.  Around  50  of  the  calls  prompted  a
formal  enquiry.  The  Commission  also  makes  use  of  the
technique  of  informers,  for  the  payment  of  whom  there
exists  a  budgetary  heading  supplied  with  the  sum  of
200 000  ECU.  The  result  of  the  use  of  this  instrument
was  confined  to  the  payment  of  three  cases  during  the
1995—1997  period.

(22) Decision  No  2/94  of  the  EEC-EFTA  Joint  Committee  on
Common  Transit  (94/948/EC)  of  8  December  1994  (OJ
L  371,  31.12.1994).  Sensitive  products  are  products  which
are  highly  taxed  on  import  into  the  Community  or  attract
particularly  high  refunds  on  export  to  a  non-member
country.

22.7.98

EN

Official  Journal  of  the  European  Communities

C 230/15

4. FINANCIAL  FOLLOW-UP  AND  RECOVERY

General overview

Recovery  is  a  fundamental  obligation,  and  is  the
4.1.
logical  result  of  investigative  work  as  it  merely  restores
an  equitable  situation  in  relation  to  the  taxpayer  by
withdrawing  the  financial  advantage  illegally  obtained
from  the  person  or  organisation  at  fault.  Thus  it  is  also
one  of  the  parameters  of  the  success  of  the  fight  against
fraud.

4.2.
In  principle,  the  sums  involved  in  frauds  and
irregularities  in  the  area  of  own  resources  and  indirect
expenditure  can  be  recovered  only  by  the  Member  States
acting  under  Community  and  national  law.  Therefore,
the  Commission  must  ensure  that  Member  States  make
regular  reports  to  the  Commission  under  the  obligatory
procedures  so  that  appropriate  action  can  be  taken  at
Community  level  on  the  basis  of  the  legal  means
available (23).  However, 
largely
is 
autonomous  in  respect  of  direct  expenditure (24).

the  Commission 

the  execution  of 

In  its  report  accompanying  the  Statement  of
4.3.
Assurance  concerning 
the  1995
budget (25), the Court observed that the Commission must
indicate  the  declared  or  known  amounts  pertaining  to
cases  of  fraud  and  irregularity  and  the  chances  of  their
recovery.  Although  the  Commission  announced  in  its
1993  Annual  Report  on  Fight  against  Fraud  that  thanks
to  the  refinement  and  the  quantitative  and  qualitative
improvement  of  input  procedures,  IRENE  will  be  used
for  the  financial  monitoring  of  recoveries  concerning
cases  of  fraud  and  irregularities,  in  cooperation  with  the
operational DGs concerned and to the full extent of their
capacities (26),  a  series  of  problems  still  exist.

4.4.
UCLAF  has  to  play  the  role  of  a  catalyst  in
systematically  inviting  the  authorising  DGs  to  establish  a
forward estimate of debt or recovery orders based on the
question  whether  the  debt  is  or  is  not  identified  as  a

(23) Regulation  (EEC)  No  595/91  as  regards  EAGGF  Guarantee
Section, Regulation (EEC) No 4253/88 as regards Structural
Funds  and  Regulation  (EEC,  Euratom)  No  1552/89  as
regards  own  resources.

(24) The  Commission,  however,  has  no  power  as  regards  the

enforcement  of  the  recovery  of  established  debts.

(25) OJ  C 395,  31.12.1996.
(26) See  Annual  Report  1993  of  the  Commission  ‘Protecting  the
Community’s  financial  interests.  The  fight  against  fraud’,
COM(94) 94  final,  page  49.

(EEC)  No  595/91 

tangible  and  valid  obligation  to  pay.  UCLAF  sends
information,  communicated  by  the  Member  States  under
Regulations 
(EAGGF  Guarantee
Section),  (EC)  No  1681/94  (Structural  Funds)  and  (EC)
No  1831/94 (27)  (Cohesion  Fund),  (which  is  registered  in
the IRENE database) to DG XIX in order to include it in
the  ‘off  balance  sheet  commitments’  of  the  Commission.
For  historical 
the  communications  under
Regulation (EEC, Euratom) No 1552/89 (traditional own
resources) are sent by the Member States to DG XIX. As
the  information  was  paper-based  DG  XIX  then  had  to
input it manually to the IRENE database. It was foreseen
that  from  the  beginning  of  1997  the  Member  States
themselves  should  introduce  the  information,  via  an
electronic  system,  directly  to  the  database.  However,  due
to  several  problems  not  all  of  the  Member  States  use  the
system.

reasons 

4.5.
IRENE can still not provide an accurate picture of
the  situation  regarding  recovery  in  reported  cases  of
fraud  and  irregularities.  The  effectiveness  of  the  recovery
procedure  suffers  from  the  fact  that  the  different  DGs
concerned  are  not  cooperating  to  a  sufficient  extent.
Instead  they  tend  to  develop  singular  solutions  for  their
own  specific  problems.  Further  significant  problems  are
the  slowness  of  internal  administrative  procedures  in  the
Commission  and  in  the  Member  States  and  the  high
percentage  of  cases  in  which  the  economic  operators
concerned  contest  recovery  decisions  before  national
courts. Moreover the figures indicated in previous Annual
Reports  on  the  fight  against  fraud  were  not  reliable  (see
paragraph  5.4).

Traditional  own  resources

and 

The 

own 

resources  Decision 

4.6.
its
implementation  Council  Regulation  (EEC,  Euratom)
No  1552/89  require  Member  States  to  establish,  enter  in
the accounts and recover any amounts due in cases where
irregularity  has  been  established (28).  The
fraud  or 
Commission’s  role  is  to  ensure  that  recovery  procedures
are indeed initiated and completed by national authorities
so  that  Member  States  can  be  given  a  discharge  when
their  management  can  be  considered  as  satisfactory.  If
sums  are  not  recoverable  because  of  bankruptcy  or  lapse
of  time,  the  Member  State  has  to  show  that  it  has  done
everything possible to recover them if it is to be exempted
from  making  them  available  to  the  Community.

(27) Under  Regulation  (EC)  No  1831/94  no  communication  has

been  received  to  date.

(28) See  Annual  Report  of  the  Court  of  Auditors  concerning  the

financial  year  1996.

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The  main  difficulty  in  ensuring  effective  financial
4.7.
monitoring is that two areas of competence are involved.
There  is,  on  the  one  hand,  the  entry  of  amounts  in  the
accounts which is usually the responsibility of accounting
services. On the other hand there is the investigation and
reporting  of  fraud,  which  is  normally  dealt  with  by
specific departments. Therefore data contained in IRENE
cannot easily be reconciled with data kept in the Member
States. This is in part because the separate B accounts do
not  solely 
identify  amounts  relating  to  fraud  and
irregularities,  nor  was  this  the  intention  of  the  separate
accounts.

cannot  be  recovered.  It  should  be  pointed  out,  however,
that  these  cases  involved  relatively  small  sums  (in  total
228,7 Mio ECU) and that, in cases where large sums are
involved, recovery often takes a very long time because of
the  judicial  procedures  to  be  followed.  Thus  in  the  area
of  EAGGF  Guarantee  1 508  cases  notified  before  1993
were  still  open  with  a  total  amount  of  549  Mio  ECU;
legal  proceedings  were  under  way  in  400  cases.  Two
Member  States  (Italy  and  Germany)  brought  more  than
80 %  of  all  legal  proceedings.

4.8.
The  Commission  should  monitor  constantly  the
own resources recovery situation and thus be able to call
for measures which it feels are necessary in order to make
up  inadequacies  in  national  action.  Furthermore  due  to
the technical problems described in paragraph 4.4 IRENE
as  at  September  1997  only  contained  information  for
1996  and  1997  for  seven  and  eight  Member  States
respectively and there has not been a systematic updating
of  the  data  concerning  the  traditional  own  resources  for
nearly  one  year.

4.11.
It  has  to  be  stressed,  that  not  all  Member  States
fulfil  their  obligations  under  the  Regulation  (EEC)
No 595/91, on sending communications. Nevertheless the
Commission  did  not  mention  this  in  the  ‘Explanatory
notes’ of the ‘off balance sheet commitments’ — potential
liabilities  and  claims  attached  to  its  1996  accounts.

Improvements  to  legislation  in  the  agricultural  area

4.9.
A  further  difficulty  lies  in  the  fact  that  up  to  July
1996  no  obligation  existed  for  the  Member  States  to
update regularly their reports and to systematically notify
the  Commission  of  amounts  recovered.  After 
the
amendment  of  the  Regulation  a  quarterly  detailed
updating  of  statements  of  recoveries  sent  in  by  Member
States  in  cases  of  fraud  or  irregularity  is  now  provided
for.

4.12.
The  Council  adopted  in  1995  Regulation  (EC)
No 1469/95 (31) which provides for measures to be taken
with regard to certain beneficiaries of operations financed
by  the  Guarantee  Section  of  the  EAGGF  who  present  a
risk  of  non-reliability.  The  implementing  Commission
Regulation  (EC)  No  745/96 (32)  laying  down  detailed
rules  entered  into  force  on  1  July  1996.

EAGGF  guarantee  section

4.10.
Some  progress  has  been  made  in  recent  years  in
the  field  of  EAGGF  Guarantee  Section:  5 370  cases  of
irregularity  communicated  before  1993  have  been  closed
(of  a  total  of  6 878  cases),  i.e.  the  Member  States  have
recovered  all  the  sums  payable  (5 043  cases)  or  the
Commission has decided in connection with the clearance
of accounts (29) to charge the Member State (30) (28 cases)
or  the  Community  (299  cases)  those  amounts  which 

4.13.
This  is  the  first  time  that  Community  law  has
made  provision  for  a  list  of  traders  (the  so-called  ‘black
list’),  whether  individuals  or  companies,  who  have  been
ill  intentioned  or  particularly  negligent  to  be  used  by  the
competent  national  authorities  to  help  them  take  the
necessary  preventive  measures.  The  Member  States  may
impose  tighter  controls  on  these  traders  or  impose  other
measures, which may go as far as suspension of payments
or  temporary  exclusion  from  them.  UCLAF  set  up  a
computerised  system  to  store  and  process  data  and  to
make  sure  that  it  is  passed  on  to  the  other  national
authorities.

4.14. On  30  June  1997  only  four  communications
coming  from  three  Member  States (33)  have  been  received
by 
to
communications of the Member States under Article 3 of

the  Commission.  However, 

according 

(29) The  procedure  is  laid  down  in  Article  8(2)  of  Council
Regulation (EEC) No 729/70 and in Article 5(2) of Council
Regulation  (EEC)  No  595/91.

(30) The Member State is charged if it has failed to do everything
possible to recover the sums in question or has shown itself
to  be  negligent.

(31) OJ  L 145,  29.6.1995.
(32) OJ  L 102,  25.4.1996.
(33) France,  Netherlands  and  United  Kingdom.

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the  Regulation  (EEC)  No  595/91  a  much  longer  list  of
operators  should  have  been  put  on  the  black  list (34).  In
fact,  every  communication  has  to  be  made  ‘as  rapidly  as
possible’  (Article  1  of  Regulation  (EC)  No  1469/95)  on
the  basis  of  ‘the  first  written  assessment,  even  if  only
judicial
internal,  by  a  competent  administrative  or 
authority,  concluding  on  the  basis  of  concrete  facts  that
an 
irregularity  has  been  committed,  deliberately  or
through  gross  negligence,  without  prejudice  to  the
possibility  of  this  conclusion  being  revised  or  withdrawn
subsequently  on  the  basis  of  developments  in  the  judicial
procedure’  (Article  1,  paragraph  2  of  Regulation  (EC)
No  745/96).  The  Commission  (UCLAF) 
intends  to
examine,  together  with  the  Member  States,  the  reasons
the  non-communication  and  how  cases  under
for 
inspection  by  UCLAF  have  to  be  treated (35).

Structural  funds

(EEC)
Article  23  of  Council  Regulation 
4.15.
No  4253/88  defines  the  role  of  the  Member  States  and
the  Commission  as  follows:  the  Member  States  bear
prime responsibility and are required to ‘prevent and take
actions  against  irregularities’,  ‘recover  any  amounts  lost’
and  ‘inform  the  Commission  of  the  measures  taken  for
those  purposes  and,  in  particular,  of  the  progress  of
administrative  and  judicial  proceedings’  (Article  23(1)).
The Commission has powers at its disposal to check that
these  responsibilities  are  carried  out  (Article  23(2)).

to 

lay  down 

the  detailed  rules 

4.16. However, the Code of Conduct drawn up by the
for
Commission 
notification  of  irregularities  by  the  Member  States  was
declared  void  by  the  Court  of  Justice  because 
it
considered  that  its  provisions  went  beyond  those  of
Article  23(1)  of  Regulation  (EEC)  No  4253/88 (36).
judgment  did  not
Although  the  Court  of  Justice’s 
question  the  legal  basis  of  the  Member  States’  obligation
to  communicate  cases  of  fraud  or  irregularities,  its  effect
was  to  curb  the  flow  of  information (37).

will draw up detailed arrangements for implementing that
paragraph.  On  this  basis  the  Commission  Regulation
(EC)  No  1681/94  concerning 
irregularities  and  the
recovery  of  sums  wrongly  paid  in  connection  with  the
financing  of  the  structural  policies  and  the  organisation
of  an  information  system  in  this  field  was  adopted (38).

4.18. While  it  is  possible  in  the  area  of  EAGGF
Guarantee  to  hold  a  Member  State  responsible  for  any
negligence  in  the  recovery  of  amounts  concerned  by
irregularities and to charge the amounts that ought to be
recovered  to  the  Member  State  involved  on  the  basis  of
the clearance of accounts procedure, this possibility is not
explicitly provided for at this stage in the regulations that
govern  the  Structural  Funds.  The  Madrid  European
Council  in  December  1995  advocated  the  extension  of
the  clearance  of  accounts  to  the  other  budgetary  areas.
The  Commission  presented,  on  15  October  1997,  a
document  on  the  terms  on  which  it  will  apply  net  and
possible  flat-rate  corrections  in  the  Structural  Funds  in
line  with  Article  24  of  Council  Regulation  (EEC)
No  4253/88 (39).

the  partnership  arrangements (40). 

4.19.
At  present,  in  the  case  of  the  Structural  Funds
any  irregular  behaviour  or  negligence  resulting  in  the
misappropriation  or  illegal  use  of  payments  is  examined
by  the  Commission  in  cooperation  with  the  Member
In
States  under 
practice,  repayments  are  a  rare  occurrence  and  the
amounts  recovered  may  be  redeployed  or  reprogrammed
for  the  benefit  of  operations  or  final  beneficiaries  other
than  those  involved  in  the  irregularity  under  specific
conditions,  i.e.  that  the  Member  State  has  notified  the
irregularity  in  accordance  with  the  Regulation  (EEC)
re-programming  was
No  1681/94  and 
the 
transparent.  The  Commission 
‘Off
included 
balance  sheet  commitments’  as  at  1996  the  total  amount
of  81,8  Mio  ECU  communicated  under  Regulation  (EC)
No 1681/94 although the expected reimbursements to the
Communities  budget  are  rather  low.  The  Explanatory
Notes  give  no  explanation.  Furthermore  it  was  not
mentioned  that  some  Member  States  fail  to  fulfil  their
obligations as they do not systematically communicate all
cases  or  results  of  recovery  procedures.

in  the 

that 

4.17.
Article  23(1)  of  Regulation  (EEC)  No  4253/88
was modified in 1993. It now states that the Commission

(34) In  COM(97) 417  the  Commission  points  out  that  only  in
the area of export refunds the Member States communicated
72  irregularities  which  go  over  the  limit  of  100 000  ECU
(Article  2,  paragraph  1  of  Regulation  (EC)  No  745/96
foresees the cumulation of all irregularities committed by the
same  operator  during  one  year).

(35) See  COM(97) 417  final,  pages  2  and  3.
(36) Case  303/90  France  versus  Commission,  judgment  given  on

13  November  1991.

(37) See  Annual  Report  1994  of  the  Commission  ‘Protecting  the
Community’s  financial  interests.  The  fight  against  fraud’,
COM(95) 98  final,  page  10.

4.20. Where  funds  are  redeployed  (i.e.  switched  to
another  project 
irregular  one)  the
implementation  of  a  set  of  relevant  rules  concerning  the
redeployment  requires,  in  particular,  the  development  of
a  typology  of  cases  to  be  communicated  and  the

in  place  of  the 

(38) OJ  L 178,  12.7.1994.
(39) See also Regulation No 2064/97 (EC) C(97)3151 final — II)

of  15  October  1997  (OJ  L 290,  23.10.1997).

(40) Article  24  of  Regulation  (EEC)  No  4253/88  as  amended  by

Council  Regulation  (EEC)  No  2082/93.

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Official  Journal  of  the  European  Communities

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in 

the  Commission’s
establishing  of  procedures 
departments  for  administering  the  reports.  In  general  it
can  be  said,  that  the  situation  at  present 
is  not
satisfactory.  To  date  no 
‘vademecum’  has  been
established  which  describes  which  irregularities  have  to
be  communicated.  No  regular  follow-up  of  irregularities
communicated  by  the  Member  States  is  made.  Although
practical  guidelines  for  the  closure  of  programmes  have
been  agreed  in  an  inter-service  meeting  in  April  1995,  at
which  representatives  of  the  authorising  DGs  for  the
Structural Funds, DG XIX and XX, the Legal Service and
UCLAF  took  place,  their  implementation  has  not  been
satisfactory.  The  authorising  DGs  for  the  Structural
Funds do not make any use of their access to the IRENE
database. UCLAF sent a note in February 1997 informing
them  of  cases  where  Article  24  of  Regulation  (EEC)
No 
and  which
be 
communications  under  Regulation  (EC)  No  1681/94  had
been received so far. But the feed-back received has been
very limited.

4253/88 

applied 

should 

4.21.
The  communications  of  the  Member  States
sometimes  contain  wrong  information  or  are  incomplete.
In  some  cases  it  is  difficult  to  identify  which  specific
project of a particular programme is concerned. Thus it is
difficult  for  the  Commission  to  monitor  an  eventual
reprogrammation. A specific problem concerns the region
of  Campania  in  Italy.  The  region  at  the  end  of  1996
directly  communicated  more 
than  1 000  cases  of
irregularities  to  UCLAF.  However,  given  the  number  of
cases  presented  and  the  errors  and  omissions  in  the
communications, even to examine the contents of the files
would  have  tied  up  the  resources  of  the  whole  unit  of
UCLAF for a considerable period of time. Therefore these
cases were not introduced into IRENE and were returned
to  the  Italian  Permanent  Representation  in  Brussels  for
further  examination  and  classification.  Given  that  the
communications  were  received 
it  will  be  extremely
difficult to close the programmes in this region in a legal
and  regular  way.

5. RELIABILITY  OF  INFORMATION  IN  THE  ANNUAL

REPORT  ON  THE  FIGHT  AGAINST  FRAUD

Data  presented

5.1.
The  figures  presented  by  the  Commission  in  the
annual  reports  on  Fight  against  Fraud  related  to  the
impact  of  irregularities  on  the  Community  Budget  show
formally
the 
communicated  by  the  Member  States’  alongside  figures
relating  to  ‘Irregularities  detected  by  the  Commission  in
cooperation  with  Member  States’.

importance  of 

‘Irregularities 

financial 

In  recent  publications  these  figures  have  been
5.2.
presented  as  a  type  of  performance  indicator  comparing
average cases size and total of the irregularities in the two
categories (41).  The  Commission  itself  presented,  in  its
1996  Annual  Report  on  Fight  against  Fraud,  similar
reflections.  According  to  the  text,  approved  by  the
Commission,  the  average  budgetary  impact  of  cases
under  investigation  by  the  Commission  (i.e.  those  not
formally 
is
1,6  Mio  ECU.  Cases  of  fraud  or  irregularity  notified  by
Member  States  under  the  various  regulations  reach  an
average  amount  of  130 000  ECU. 

communicated 

by  Member 

States) 

According to the Commission, less than 5 % of all
5.3.
the  cases  detected  are  dealt  with  by  the  Commission  in
close  collaboration  with  the  investigation  authorities  in
the  Member  States.  On  an  aggregate  basis,  these  cases
account  for  more  than  half  of  the  amounts  involved (42).
This  reflects  a  deliberate  choice  by  the  Commission  to
concentrate 
its  efforts  on  combatting  organised  or
sophisticated  fraud.  Such  fraud,  the  origin  of  which  is
often  characterised  by  the  participation  of  persons  or
firms  operating  from  one  or  many  countries  is  difficult
for  the  Member  States  to  identify  without  the  active
support  which  can  only  be  given  at  the  Community
level (43).

Reliability  of  data

5.4.
The  Court  sought  to  break  down  the  figures
indicated  in  the  1996  Annual  Report  on  Fight  against
Fraud  and  establish  whether  or  not  they  provide  a  true
picture  of  the  actual  situation:  in  theory  the  figures
presented  as  Member  State  formal  communications  are
the  total  of  the  amounts  transmitted  by  Member  States
under  the  various  regulations  governing  the  fields  of
Community  revenue  and  expenditure  and,  with  the
exception  of  own  resources,  registered  in  the  IRENE
database  (see  paragraph  4.4  and  Annex  I,  table  1).

5.5.
For  1996  IRENE  contains  645  cases  in  the  field
of  traditional  own  resources  transmitted  by  the  Member
States with a total value of 123,1 Mio ECU. In the 1996
Annual  Report  on  Fight  against  Fraud  1 950  cases  are
indicated  with  a  total  amount  of  320  Mio  ECU.  A
footnote  explains  that  this  includes  an  estimate  for  the

(41) See  the  Bösch  Report  (PE  222.169),  page  8  or  the  UK
Parliament Select Committee on European Legislation, Fight
against  Fraud  Programme,  London  1997,  page  xxiii.

(42) See  Annual  Report  1996  on  Fight  against  Fraud
(COM(97) 200  final,  6.5.1997,  page  20.  In  the  meantime
the 1997 Annual Report has been published; that report has
not  been  subject  of  the  Court’s  audit.

(43) See  1995  Annual  Report  on  the  Fight  against  Fraud,

page  80  (COM(96) 173  final).

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second  half  year.  The  practice  in  past  years  was  to
multiply  the  number/amount  of  the  first  six  months  by
two.  Thus  there  is  a  significant  difference  between  the
published  figure  and  the  figures  available  in  IRENE.

The  total  value  of  cases  in Table  5  is  higher  than
5.8.
the  actual  value  of  the  cases  held 
in  Pre-IRENE
(2 460  Mio  ECU)  as  49  of  them  have  more  than  one
source  and  are  therefore  counted  more  than  once  in  the
table above. More than 142 cases are held in Pre-IRENE
where  no  source  is  registered.

5.6.
The problem as it relates to own resources should
not  occur  in  the  future,  as  Member  States  are  required,
according to Council Regulation (EC) No 1355/96 (44), to
report  more  frequently,  i.e.  every  three  months  on
irregularity  cases  detected  (see  paragraph  4.9).

The  figures  in  Table  5  presented  as  ‘Irregularities
5.7.
detected by the Commission in cooperation with Member
States’  are  composed  of  the  estimates  of  the  financial
importance  of  cases  held  by  UCLAF.  These  cases  come
from  a  variety  of  sources  and  should  in  theory  be  the
total  of  the  cases  held 
in  the  UCLAF  Pre-IRENE
database.  As  the  Pre-IRENE  database  is  not  yet  fully
operational  the  figures  for  only  one  of  the  four  units
were produced from this source. For the other three units
a note was prepared for the unit in charge of drafting the
Annual  Report  giving  a  total  amount  of  the  estimated
financial  value  of  the  cases  held.  Examination  of  these
figures  showed  that  some  88 %  of  the  amounts  given
were  attributable  to  only  12 %  of  the  cases.  The  amount
recorded for the estimated VAT, lost to the Communities
own resources, in relation to work done by the cigarettes
and alcohol  task  forces  in  1996  amounted  to  some 36 %
of the total financial impact of the category. This amount
should  not  be  directly  compared  to  the  figures  formally
communicated  by  the  Member  States.

5.9.
The  fact  that  these  figures,  presented  as  detected
irregularities,  are  estimates  is  not  clearly  indicated  in  the
reports.  Sources  outside  the  Commission  or  the  Member
States  are  not  indicated.  In  addition  the  figures  are  not
updated  each  year  to  reflect  changes  in  the  impact  of
cases,  amounts  recovered,  changes  in  estimated  value,
cases  dropped  etc.  Many  cases  initially  reported  as
irregularities  detected  by  the  Commission  in  cooperation
with  Member  States  will  become  the  subject  of  a  formal
communication  and  therefore  be  reported  at  a  later  date
as  such.  The  fact  that  the  previous  years  cases  are  not
updated gives rise to the risk that some cases are reported
in  both  categories  and  are  therefore  ‘double  counted’.

Two 

‘UCLAF  cases’,  resulting  from  audits
5.10.
carried  out  by  the  Court,  were  registered 
in  the
Pre-IRENE  database  for  a  total  amount  of  30  Mio  ECU
and  without  a  source  indicated.  In  the  Annual  Reports
1995/1996 these two cases were reported with a value of
58,5  Mio  ECU.  In  IRENE  nine  communications  from
four  Member  States  relating  to  the  same  cases  are
registered  with  a  total  amount  of  58,8  Mio  ECU.  The
grouping of what the Member States notify to IRENE as
a number of irregularities (by entity or incidents) into one

TABLE  5

List  of  PRE  IRENE  cases  with  source  and  case  values

Cases

Amounts  Mio  ECU

Other

Informer

Communication  Member  States

Freephone

Information  Financial  Controller

Court  of  Auditors

Information  Member  States

Information  authorising  officer

Press

Total  with  source

Source:  PRE  IRENE  as  of  April  1997.

(44) OJ  L 175,  13.7.1996.

81

88

84

31

17

14

149

96

54

614

455

53

1 530

8

6

18

577

187

169

3 003

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UCLAF case leaves the reader of the annual reports with
the  incorrect  impression  that  the  average  value  of  a
UCLAF case is greater than the average value of the cases
dealt  with  by  the  Member  States.  In  the  example  above
the  average  UCLAF  value  is  29  Mio  ECU  against  the
Member  States  average  value  of  only  7  Mio  ECU.

corruption  in  specific  policy  areas  but  does  not  cover
internal  corruption  in  Community  institutions.  Also  the
Commission’s  Work  Programmes  for  the  Fight  against
Fraud  does  not 
tackle
contain  a 
corruption (47).

strategy 

to 

5.11.
The  results  of  the  work  of  the  specialised  task
groups  (on  e.g.  cigarettes,  textiles)  as  reflected  in  the
annual reports have been amongst the most important in
terms  of  value.  However  this  must  be  viewed  with
caution as the figures are estimates and no precise figures
exist  as 
the
Community  budget.

recoveries/savings 

the  actual 

to 

to 

6. CORRUPTION  AND  BREACHES  OF  DISCIPLINE

Fight  against  corruption

6.1.
Corruption  (see  Annex  I  point  26)  relates  to  any
abuse  of  power  or  impropriety  in  the  decision-making
process  brought  about  by  some  undue  inducement  or
benefit  and  is  often  used  by  organised  crime.  Corruption
affects  the  interests  of  the  Union  in  several  ways:  it  not
only  damages  the  financial  interests  of  the  European
Communities  but  it  also  undermines  sound  decision
making,  distorts  competition  and  challenges  principles  of
open markets, in particular the functioning of the internal
market.

The  need  to  combat  corruption  at  EU  level  has
6.2.
already  been  recognised  and  a  number  of  initiatives  have
been  taken  which  are  relevant  to  the  fight  against
corruption (45).  However,  as  these  are  not  part  of  an
integrated  approach, 
the  Commission  adopted  on
21  May  1997  a  Communication  to  the  Council  and  the
European  Parliament (46)  in  order  to  set  out  the  main
elements  of  a  comprehensive  Union  Policy  against
Corruption.  The  document  represents  a  good  basis  for
proposals  and  actions  of  the  Commission  fighting

(45) Convention on the Fight against Corruption (see point 2.4),
Resolution  of  the  European  Parliament  on  corruption  of
15  December  1995  (Rapporteur  Mrs.  Salisch),  Action  Plan
of  the  High  Level  Group  on  Organised  Crime  (OJ  C 251,
15.8.1997)  stress  the  importance  of  enhancing  the  fight
against  corruption.  Furthermore  a  common  opinion  has
been adopted on 6 October 1997 on the negotiations in the
Council  of  Europe  and  the  OECD  on  the  fight  against
corruption  (OJ  L 279,  13.10.97).

(46) COM(97) 192  final.  This  document  was  prepared  by  the

Justice  and  Home  Affairs  Task  Force.

Allocation  of  responsibilities

fraud, 

6.3.
The  responsibility  for  the  fight  against  internal
corruption  is  not  clear.  The  note  of  14  April  1997  from
the Secretary-General entitled ‘Action to be taken in cases
of  suspected 
irregularities  and  breaches  of
discipline’  recalled  the  responsibility  of  UCLAF  for  ‘all
matters  relating  to  cases  of  suspected  fraud  against  the
Community  budget’.  Although  the  Director  of  UCLAF
stressed  in  May  1996  that  a  clear  written  reference  to
corruption  would  be  necessary  to  avoid  confusion  about
responsibilities  of  UCLAF,  there  is  still  no  clear  formal
written  instruction  as  to  which  service  has  to  deal  with
this  task.

At  present  UCLAF  has  to  treat  around  40  cases
6.4.
which  involve  a  ‘volet  interne’.  This  expression  was
chosen by UCLAF because the limits between corruption,
conflict  of  interests,  favouritism  or  bad  management  are
often  difficult  to  identify  and  cases  potentially  involve
one  or  more  of  the  elements  described.  Most  of  these
cases  concern  direct  expenditure  but  there  are  also  cases
related  to  EAGGF  Guarantee  and  the  Structural  Funds.

Lack  of  clear  guidelines  for  administrative  investigations

as 

exist 

the  size  of 

in  an  organisation  of 

Although  a  number  of  such  cases  could  be
6.5.
expected 
the
Commission,  no  standard  procedure  for  handling  such
cases  has  been  adopted.  Despite  the  fact  that  some  cases
were  several  years  old,  procedures  for  investigating  such
cases  were  improvised  on  a  case  by  case  basis.  No  clear
guidelines 
administrative
investigations have to be carried out. Questions remain as
to  what  the  powers  of  the  officials  of  UCLAF  and  the
Security  Office  are  in  terms  of  searching  of  premises,
sequestration of property and documents and questioning
officials  and  what  the  rights  and  obligations  of  the
persons  suspected  are.  Furthermore,  and  perhaps  more
seriously, 
is  not  clear  at  which  stage  national
prosecuting authorities have to be notified and thus when
sphere  of  an
the 

important 

to  how 

change 

from 

the 

the 

it 

(47) For  the  1997  Work  Programme  this  has  been  explicitly
criticised  by  the  European  Parliament  (see  PE  222.169).

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administrative  enquiry  to  a  judicial  investigation  takes
place (48).

6.6.
The current  situation gives  rise  to  the serious and
unacceptable  risk  that  any  investigation  carried  out  will
fail  because  the  laws  relating  to  investigation  of  such
cases  are  not  respected  and  any  subsequent  prosecution
will  therefore  be  rejected.

6.7.
The  rules  related  to  collection  of  evidence  and  its
subsequent  use  are  markedly  different  in  the  various
Member  States.  This  is  true,  in  particular,  for  the
documents  that  a  person,  later  accused  during  criminal
proceedings,  has  been  required 
in  a
preliminary administrative investigation. The rules on the
exclusion  of  evidence  illegally  obtained  and  as  to  the
point at which a suspect becomes an accused person, and
therefore  starts  to  enjoy  special  rights  (particularly  the
right  to  have  charges  communicated,  the  right  to  silence,
the  right  to  assistance  by  a  defence  lawyer  of  the
accused’s  choice  etc.)  also  vary  from  one  Member  State
to  another (49).

to  produce 

Implementation  of  a  ‘zero  tolerance’  policy

6.8. Many  of  the  cases  investigated  by  UCLAF  have
been  initiated  by  members  of  staff  of  the  Commission
reporting their suspicions relating to other officials. In all
types  of  organisation  this  has  proved  to  be  one  of  the
main  sources  of  information  when  the  uncovering  of
corrupt  practices  is  made (50).  In  order  to  foster  the
climate  in  which  this  type  of  information  is  forwarded
and  where  fraudulent  or  corrupt  practices  are  not
tolerated the policy of the Commission must be clear and
unambiguous.

The  culture  of 

6.9.
the  organisation  must  be
‘anti-fraud’  and  the  management  must  be  prepared  to
demonstrate  the  fact  that  any  cases  of  suspected  internal
fraud, corruption, breach of discipline or mismanagement
will  be  investigated  in  a  professional  manner  and,  if
proved, that the appropriate disciplinary measures will be
instigated  with  rigour  and  transparency.  If  this  so  called
the
‘zero 
Community institutions it must be done on the basis of a
strict  application  of  the  rules  of  the  staff  regulation  and
the financial regulation. However, in this context there is

tolerance’ (51)  policy 

implemented 

in 

is 

(48) Also  the  Bösch  report  (PE  222.169,  page  4)  criticises  ‘the
inadequacy  of  provisions  for  dealing  with’. . .  [cases  of]
‘corruption  occurring  in  the  Commission’s  own  ranks’.

(49) See  ‘Corpus  Juris’,  pages  134  to  140.
(50) Zero  tolerance,  S.  Burns,  Accountancy  August  1997.
(51) See  Fraud  without  Frontiers,  An  Executive  Summary  of  the
Study  for  the  EC  on  International  Fraud  within  the
European  Union,  Deloitte  &  Touche  European  Fraud  and
International  Disputes  Group,  page  1.

a  lack  of  a  definition  and  guidelines  relating  to  the
disciplinary  and  pecuniary  responsibilities  of 
those
involved 
‘ordonnateurs’,
financial  controllers,  accountants  and  imprest  account
holders  as  already  criticised  by  the  Court (52).

financial  procedure 

the 

in 

6.10.
Furthermore an obligation should exist to notify
the responsible prosecuting authorities of all suspicions of
fraud  and  corruption.  In  this  context  it  has  to  be  very
clear  that  the  ‘Protocol  on  immunities  and  privileges’
cannot, and will not, be used to protect a member of the
management or staff. Moreover it should not be the case
that  the  Commission  requires  the  responsible  judicial
authority  of  a  Member  State  to  justify  its  request  to  lift
the  immunity  by  sending  relevant  documents.  It  should
be  sufficient  that  on  the  basis  of  the  specific  national
rules and procedures a motivated demand is presented. If
the  Commission  is  persuaded  that  its  official  fulfilled  his
obligations it can grant him legal protection under Article
24  of  the  Staff  Regulation.  In  this  context  it  should  be
kept in mind that only a formal judicial investigation and
eventually  a  trial  can  establish  whether  a  person  accused
is  or  is  not  guilty  according  to  the  penal  law (53).

Problems  identified

At  present  the  Commission’s  policy  is  anything
6.11.
but  clear;  cases  are  left  to  drag  on  for  years  with
members  of  staff  being  transferred  away  from  their  post
but  remaining  within  the  organisation (54).  In  many  cases
examined,  UCLAF  was  not  able  to  produce  sufficient
evidence  for  corruption.  This  could  be  due  to  the  fact
that the initial suspicion was not justified or that UCLAF
was  not  able  to  uncover  malpractice.  In  any  case  it  is
difficult  for  UCLAF  to  uncover  sufficient  evidence  where
payments  were,  for  example,  passed  to  third  persons
because  no  European  institution  has  the  power  to  search
a  house,  analyse  bank  accounts  etc.  These  actions  can
only  be  carried  out  with  the  agreement  of  the  persons
concerned  or  after  authorisation  by  the  competent
in  all  presumed
judicial  authorities.  Nevertheless 
corruption cases examined UCLAF was able to find clear

(52) Opinion  No  4/97  of  the  Court  of  Auditors  on  the  proposal
for  a  Council  Regulation  (Euratom,  ECSC,  EC)  amending
the  financial  regulation  of  21  December  1977  applicable  to
the General Budget of the European Communities (OJ C 57,
23.2.1998).  Hereinafter  Opinion  4/97.

(53) See the Order of the Court of Justice of 13 July 1990, Case
C-2/88  Imm.  Zwartfeld,  [1990]  ECR  I-3372,  point  19.
(54) Also  the  Bösch  report  (PE  222.169,  page  15)  criticises  the
absence  of  a  zero-tolerance  policy:  ‘A  series  of  recent  cases
have  focused  attention  on  how  relatively  lax  financial
culture  within  the  Commission  has  allowed  cases  of
corruption  to  occur  within  its  ranks,  and,  perhaps  even
more  worryingly,  go  uninvestigated  for  considerable  length
of  time.’

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evidence of  breach  of  discipline  (serious  mismanagement,
favouritism,  conflict  of  interests  etc.).  However  only  in
exceptional  cases  have  disciplinary  procedures  been
launched (55).

the 

(during 

investigation  or  after 

Cases  occurred  where  an  administrative  enquiry
6.12.
took  place 
the
presentation  of  a  final  report  by  UCLAF)  which  was  not
covered by the staff regulation or any other legal text. In
such  cases  the  official  charged  with  the  ad  hoc
investigation (normally a director independent of the DG
concerned)  is  likely  to  encounter  problems  (transcription
of  minutes  of  the  hearings/interviews/auditions;  presence
of  lawyers;  search  for/requisition  of  documents).  Again
there  are  no  guidelines  covering  the  conduct  of  such
investigations.

6.13.
Experience  so  far  raises  questions  whether
UCLAF  as  presently  structured  should  be  responsible  for
dealing  with  cases  of  corruption  involving  staff  of  the
Commission.  This  responsibility  could  be  incompatible
with  the  partnership  between  the  operational  DGs  and
UCLAF  which 
to  make  UCLAF’s
investigations  successful.  Consideration  should  be  given
to  the  establishment  of  a  separate  unit  to  which  any
corruption  would  automatically  be
suspicion  of 
communicated,  and  which  would  have  the  authority  and
resources  to  undertake  any  necessary  investigation.

is  necessary 

7. CONCLUSION

7.1.
As this enquiry did not include the Member States
and the Commission’s operational DGs in great depth the
findings concentrate on UCLAF. The Commission has, in
particular  since  1990,  made  a  major  effort  in  its  fight
against  fraud  relating  to  European  funds  which  has
resulted  in  a  better  legal  and  administrative  framework
for  the  fight  against  fraud.  At  the  end  of  1994  the
Commission began setting up UCLAF as a central service
with  requisite  financial,  police,  customs,  judicial  and  tax
expertise.  However,  improvements  to  security  measures,
the  internal  management  procedures,  intelligence  and
information  systems  and  the  cooperation  with  the
responsible  authorities  of  the  Member  States  are  of  vital
importance.

7.2.
An  overall  evaluation  of  the  results  achieved  by
UCLAF up to now is difficult. However, the information

on  recoveries  communicated  by  the  Member  States  and
included in the Annual Reports on Fight against Fraud is
not reliable and does not differentiate between recoveries
due  to  work  of  UCLAF  and  that  of  the  national
authorities. Furthermore in the area of direct expenditure
no  easily  accessible  information  exists  on  the  total
amount  to  be  recovered  as  a  result  of  investigations
effected  by  UCLAF.  Finally  the  instruments  ‘black  list’
and 
legislation  have  only  been
introduced  recently  and  have  had  a  limited  impact  so
far.

‘fraud  proofing’  of 

7.3.
UCLAF  needs  a  management  system  that  holds
information  on  the  status  of  actual  or  former  cases  from
the  moment  of  receiving  or  obtaining 
initial
suspicion, to the administrative enquiry, seise of national
authorities,  penal 
trial,
decision  and  recovery.  Without  such  a  system  an  overall
evaluation  of  its  performance  is  virtually  impossible.

investigation,  prosecution, 

the 

7.4.
The  first  steps  have  been  taken  in  an  ambitious
programme  to  fight  fraud  simultaneously  from  all  sides
(prevention,  enforcement  and  administrative  and  judicial
cooperation).  Important  efforts  still  have  to  be  made  to
put  these  initiatives  fully  into  effect.  None  of  the
Conventions  and  Protocols  agreed  in  the  context  of  the
third  pillar  has  yet  been  ratified.

In 

the 

in  real 

contrast 

time  using 

in  dispersed  order 

7.5.
Fraud  against  the  Community  budget  is  often
transnational.  The  enforcement  agencies,  however,
operate  according  to  a  huge  number  of  different
in  a  very
procedures  and 
fraudsters
time-consuming  way. 
themselves  can  operate 
their
international  networks  of  contacts.  The  procedures  in
place  can  simply  not  cope  with  the  new  criminal
networks.  Assistance  from  the  Commission  and  the
information  exchange  between  UCLAF  and  the  judicial
authorities  of  Member  States  constitute  the  beginning  of
a  solution.  However,  a  major  obstacle  still  is  the  lack  of
common  standards  of  evidence,  which  prevents  Member
States from accepting evidence gathered in other Member
States. Therefore a ‘European Law Enforcement Area’ (56)
with  clear, 
limited  objectives  reflecting  the  specific
responsibilities of the institutions regarding the protection
of  the  Community’s  financial  interests  is  necessary.

(55) See  also  Court  Opinion  No  4/97,  in  particular  paragraphs

5.20—5.23.

(56) Speech  of  Mr.  Klaus  Hänsch,  President  of  the  European
Parliament,  addressed  to  the  interparliamentary  conference
on  fraud,  organised  on  the  initiative  of  its  Committee  on
budgetary  control,  on  23  and  24  April  1996.

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UCLAF  has  to  play  a  difficult  role.  It  has
7.6.
administrative  tasks  in  relation  to  the  protection  of  the
financial interests of the Community which belong to the
first  pillar  but  also  it  has  responsibilities  related  to
judicial  investigations,  which  belong  to  the  third  pillar,
without  support  from  an  independent  European  judicial
authority  able,  to  launch  and  direct  investigations  and
liaison  and
bring  prosecutions  as  appropriate.  The 
criminal 
in
paragraph  3.4  only  represents  a  preliminary  solution  to
the  existing  problems (57).  On  25  November  1997  the
to 
Commission  presented  a 
the
Parliament 
Control
(DOC(SEC97) 2182/2) entitled ‘Improving Action against

communication 
Budgetary 

Committee 

described 

expertise 

interface 

law 

on 

Incompetence,  Financial 
Corruption’.

Irregularities,  Fraud 

and

7.7.
UCLAF has no competence to carry out enquiries
related  to  the  other  Community  institutions.  In  the
Community context this has to be considered as a serious
weakness  in  the  legal  and  organisational  framework  of
the fight against fraud. Priority should be given to finding
a  solution  to  this  problem  and  any  proposal  for  the
reorganisation  of  the  fight  against  fraud  at  European
level  should  address  this.  In  this  context  it  is  also
necessary  to  define  the  responsibilities  of  Europol  and
UCLAF  in  such  a  way  that  synergy  effects  can  be
ensured.

This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  its  meeting  of  10  and
11  June  1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

(57) But  it  is  no  solution  to  the  problem  that  UCLAF  does  not
have  the  right  to  tackle  the  fraud  in  other  European
institutions.  Furthermore  in  the  field  of  the  fight  against
corruption  it  is  questionable  whether  UCLAF  should  be
responsible.

C 230/24

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ANNEX  I

BASIC  LEGISLATION  CONCERNING  THE  FIGHT  AGAINST  FRAUD

Introduction

1.
Virtually all own resources of the Community are collected by the Member States and about 80 %  of
Community  funds  (essentially  EAGGF  Guarantee  Section  and  Structural  Funds)  are  paid  out  to  the  final
beneficiaries  by  the  Member  States  (indirect  expenditure).  Agricultural  expenditure  is  managed  by  the
national payment agencies. The Structural Funds are administered by the national authorities responsible for
implementing the Community programmes, in particular at regional and local level. The Commission plays
an  important  coordinating  and  monitoring  role.  Recent  legislative  changes  have  enhanced  the  role  of  the
Commission  as  regards  control.

2.
Direct expenditure is managed by the Commission itself under contract without any formal obligations
being  incumbent  on  the  Member  States.  This  is  the  case  for  administration,  energy,  research,  environment,
internal market, industry, tourism, culture and audiovisual media, European Development Fund (EDF) and
cooperation  with  the  countries  of  Central  and  Eastern  Europe  (PHARE),  the  independent  States  of  the
former Soviet Union (TACIS), the Mediterranean countries (MED) and the countries of Latin America and
Asia.

The  two  pillars  and  the  fight  against  fraud

The  entry  into  force  of  the  Treaty  on  European  Union  (TEU)  established  a  new  institutional

3.
framework  for  the  fight  against  fraud  which  is  based  on  the  first  and  third  pillar.

The  first  pillar

Provisions  in  the  three  Community  Treaties

4.
The  objective  of  combating  fraud  was  formally  enshrined  in  specific  provisions  in  the  three
Community  Treaties;  the  Treaty  establishing  the  European  Community  (TEC),  the  Treaty  establishing  the
European Atomic Energy Community (TEuratom) and the Treaty establishing the European Coal and Steel
Community  (TECSC)  within  the  so-called  first  pillar  of  the  institutional  structure  of  the  Union  (Articles
209a  TEC,  183a  TEuratom  and  78i  TECSC).  They  clearly  state  the  Member  States’  obligation (1)  to  ‘take
the  same  measures  to  counter  fraud  affecting  the  financial  interests  of  the  Community  as  they  take  to
counter  fraud  affecting  their  own  financial  interests’.  The  Member  States  have  to  ‘coordinate  their  action
aimed at protecting the financial interests of the Community against fraud. To this end they shall organise,
with the help of the Commission, close and regular cooperation between the competent departments of their
administrations’.

5.
As  guardian  of  the  Treaties  the  Commission  has  to  ensure  that  this  obligation  is  complied  with.  The
cooperation between the Member States and the Commission is governed by the principle of subsidiarity to
ensure  that  the  financial  interests  of  the  Community  are  protected  in  the  most  adequate  way.

6.
The  Amsterdam  European  Council  on  16  and  17  June  1997  considered  some  proposals  for  Treaty
amendments  to  protect  the  financial  interests  of  the  Community.  A  Danish  proposal  to  include  a  specific
legal base for measures to combat fraud was adopted. The draft Treaty provides for a new paragraph to be
added to Article 209A enabling such measures to be adopted, after consulting the Court of Auditors, under
the  co-decision  procedure  by  qualified  majority  voting (2).  The  paragraph  provides,  however,  that  the
measures  shall  not  concern  the  application  of  national  criminal  law  and  the  national  administration  of
justice (3).

(1) See  Case  68/88  Commission  v.  Hellenic  Republic  [1989]  ECR  2965,  at  paragraph  24.
(2) So far Regulations on the protection of the Community’s financial interests have to be adopted under Article 235 TEC,

where  unanimity  applies.

(3) See  The  Select  Committee  of  the  UK  Parliament  on  European  Legislation,  Fight  against  Fraud  Programme,  London

1997,  page  xxiv.

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Advisory  committee  and  fraud  prevention

7. On  23  February  1994  the  Commission  adopted  a  decision (4)  setting  up  the  Advisory  Committee  for
Coordination of Fraud Prevention (CoCoLaf) (5). It has to advise the Commission on all horizontal matters
relating  to  the  prevention  and  prosecution  of  fraud  as  well  as  the  legal  protection  of  the  Community’s
financial interests. The Committee is made up of representatives from the Member States and is chaired by
the  Commission  (UCLAF).  It  set  up  its  own  working  parties  to  look  into  specific  questions.

Horizontal  regulation

Reporting  and  controls

8.
According  to  the  actual  legal  framework  under  the  first  pillar  actions  against  fraud  affecting  the
Community’s  financial  interests  are  primarily  the  responsibility  of  the  Member  States  who  have  the  means
at  their  disposal,  through  their  authorities,  for  detecting,  monitoring,  countering  and  penalising  fraud
against  the  Union  budget.  The  flow  and  the  quality  of  information  supplied  by  the  Member  States  is  a
crucial  factor  guiding  the  work  of  the  Commission.  Therefore,  a  whole  range  of  policy  areas  are  now
covered by Regulations defining the obligations of the Commission and the Member States regarding fraud
and  irregularity  reporting.

9.
In respect of the regulations governing controls on Community revenue and expenditure it can be said
in general terms that Community revenue has better instruments of protection than Community expenditure
and  that  on  the  expenditure  side  agricultural  expenditure  appears  to  be  scrutinised  more  closely  than
expenditure under the Structural Funds. Customs authorities, who are responsible for own resources and a
part of agricultural expenditure (essentially in liaison with exports or imports of agricultural products) have
at  their  disposal  special  investigation  units  which  have  a  long  tradition  in  the  fight  against  fraud.

10.
In  contrast,  the  controls  on  the  other  areas  of  agricultural  expenditure  and  on  the  Structural  Funds
are  the  responsibility  of  the  management  agencies  or  authorities  responsible  for  implementing  the
Community  programmes,  in  particular  at  regional  or  local  level,  which  are  in  the  majority  unfamiliar  with
techniques for combating large scale or sophisticated fraud. Therefore they tend to be traditional audit and
account  checking  and  are  not  necessarily  the  most  effective  way  of  detecting  large  scale  and  organised
crime (6).

11.
Given  that,  in  recent  years,  the  proportion  of  the  Community  budget  allocated  to  agricultural
guarantee  expenditure  has  been  decreasing  whilst  the  expenditure  on  structural  actions  has  increased,  then
the  focus  of  the  Commission’s  fight  against  fraud  effort  should  be  reviewed  and  if  necessary  re-targeted  to
reflect  this  change.

Council Regulation (EC) No 2988/95 (7) fixes horizontal rules on Community controls, measures and
12.
administrative  penalties  concerning  nearly  all  areas  of  the  first  pillar (8).  It  includes,  for  the  first  time,  a
definition  of  irregularity  covering  fraud,  abuse  of  law  and  any  other  failure  to  discharge  obligations  under
Community legislation (9)  which  jeopardises  the  finances  of  the  institutions,  whether  on  the  expenditure  or
on  the  revenue  side.  Apart  from  the  recovery  of  any  benefits  granted,  the  Regulation  stipulates  the
conditions  in  which  measures  may  be  taken  and  Community  administrative  or  financial  penalties  may  be
imposed  on  the  legal  and  natural  persons  who  commit  the  offence.

(4) Decision  94/140/EC  (OJ  L 61,  23.2.1994).
(5) The  nature  and  tasks  of  the  various  sectoral  committees  (Committee  for  Mutual  Assistance,  Advisory  Committee  on
Own  Resources,  Standing  Committee  on  Administrative  Cooperation  in  the  Field  of  Indirect  Taxes)  or  subcommittees
(Sub-group  on  Irregularities  in  the  Agricultural  Sector,  Sub-group  on  Recovery  in  the  Advisory  Committee  on  Own
Resources,  Anti-fraud  Sub-group  of  the  Standing  Committee  on  Administrative  Cooperation  in  the  Field  of  Indirect
Taxes)  dealing  with  fraud  prevention  were  maintained.

(6) It  is  to  be  noted  that  the  Commission  decided  on  15  October  1997  detailed  guidelines  on  the  financial  controls  to  be
executed  by  Member  States  on  operations  co-financed  by  the  Structural  Funds;  see  Regulation  (EC)  No  2064/97  of
15  October  1997  (OJ  L 290  23.10.1997).

(7) OJ  L 312,  23.12.1995.
(8) The  Regulation  applies  to  all  expenditure  and  all  traditional  own  resources.  VAT  is  not  covered  by  the  Regulation.
(9) This  concept  of  irregularity  covers  both  simple  omission  due  to  error  or  negligence  which  is  likely  to  have  a  harmful
effect  on  the  Communities’  budget  and  intentional  and  deliberate  acts  which  correspond  for  their  part  to  the  more
restrictive  concept  of  fraud  as  defined  in  the  penal  convention.

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13.
It  follows  from  the  notion  of  the  liability  of  defrauders  acting  on  behalf  or  under  cover  of  a  body
corporate,  which  corresponds  to  the  decision-making  powers,  that  the  business  in  question  bears
responsibility  and  should  clearly  be  held  liable  under  criminal  law.  Provision  is  also  made  for  economic
operators  to  be  held  liable  for  offences  committed  by  staff  of  an  undertaking  on  its  behalf.

Furthermore, the Regulation provides for a control mechanism, setting out the general framework for
14.
inspections,  with  detailed  arrangements  being  spelled  out  in  a  specific  regulation  concerning  on-the-spot
checks  and  inspections  carried  out  by  the  Commission (10)  or  in  regulations  governing  individual  sectors.

Regulations  on  reporting

Table I.1: Basic  Regulations  on  the  reporting  of  fraud  and  irregularity.

Own  Resources  (customs  duties  and  agricultural
levies)

Article  6(3)  of  Council  Regulation  (EEC,  Euratom)
No  1552/89 (1)

EAGGF  Guarantee  Section

Structural  Funds

Cohesion  Fund

Articles  3  and  5  of  Council  Regulation  (EEC)
No  595/91 (2)

Article 
No  4253/88 (3)

24 

of  Council  Regulation 

(EEC)

Articles  3  and  5  of  Commission  Regulation  (EC)
No  1681/94 (4)

Article 
No  1164/94 (5)

12 

of  Council  Regulation 

(EC)

Articles  3  and  5  of  Commission  Regulation  (EC)
No  1831/94 (6)

Mutual  assistance  in  customs  and  agriculture

Council  Regulation  (EEC)  No  1468/81 (7)

this  Council  Regulation  was  amended  by  Regulation 

(Euratom,  EC)  No  1355/96

(1) OJ  L 155,  7.6.1989; 
(OJ  L  175,  13.7.1966).

(2) OJ  L  67,  14.3.1991.
(3) OJ  L  374,  31.12.1988.
(4) OJ  L  178,  12.7.1994.
(5) OJ  L  130,  25.5.1994.
(6) OJ  L  191,  27.7.1994.
(7) OJ  L  144,  2.6.1981.

The  wide  range  of  information  received  under  this  legislation  should  provide  the  appropriate
15.
transparency  needed  by  the  Commission  for  financial,  administrative  and  judicial  monitoring  of  cases  and
for  operational  inspections.

Regulations  on  administrative  cooperation

Council  Regulation  (EEC)  No  1468/81 (11)  established  the  procedures  for  mutual  assistance  between
16.
the authorities responsible in the Member States in agricultural and customs matters and the conditions for
cooperation  between  them  and  the  Commission.  It  also  provides  for  the  exchange  of  information  on  cases
where  no  material  facts  have  yet  been  established  but  are  already,  or  will  be,  under  investigation.  In  1997
the  Council  adopted  a  new  Regulation  (EC)  to  replace  Council  Regulation  (EEC)  No  1468/81  in  order  to
improve  the  organisation  of  measures  to  combat  fraud  and  to  guarantee  consistent  protection  of  the
Community’s external borders by stepping up mutual assistance and administrative cooperation (12). Council
Regulation (EEC) No 218/92 lays down arrangements for administrative cooperation in the field of indirect
taxation.

(10) Council  Regulation  (EC,  Euratom)  No  2185/96  (OJ  L 292,  15.11.1996).
(11) OJ  L 144,  2.6.1981.
(12) Regulation  (EC)  No  515/97  on  mutual  assistance  between  the  administrative  authorities  of  the  Member  States  and
cooperation  between  the  latter  and  the  Commission  to  ensure  the  correct  application  of  the  law  on  customs  and
agricultural  matters  (OJ  L 82,  22.3.1997).

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17.
As  regards  the  Structural  Funds  the  administrative  cooperation  is  governed  by  the  partnership
principle.  It  implies  a  close  dialogue  between  the  Commission  and  all  competent  national  authorities  at
central,  regional  and  local  level  during  all  stages  of  programming.  Article  4  of  Council  Regulation  (EEC)
No 2052/88 (13) requires that the partnership shall be exercised in full respect of the institutional, legal and
financial  competences  of  all  of  the  partners.

Regulations  for  controls

18.
Council  Regulation  (EC,  Euratom)  No  2988/95  on  the  protection  of  the  Community’s  financial
interests  adopted  a  twin-track  approach  to  the  question  of  on-the-spot  controls.  On  one  side  some  general
obligations are set out in Article 8 of the Regulation concerning the traditional checks which are carried out
by the Member States. The task of harmonising checks to ensure a comparable level of stringency across the
Community  was  left  to  sectoral  Community  legislation.  On  the  other  side  Article  9  of  the  Regulation  lays
down certain rules for checks carried out by the Commission, though some more detailed provisions appear
in  Council  Regulation  (EC,  Euratom)  No  2185/96 (14)  and  in  the  sectoral  legislation.

Thus the Member States are responsible for ensuring the legality and regularity both of operations to
19.
recover revenue and of expenditure operations financed by the EAGGF Guarantee and the Structural Funds.
It  is  up  to  them  to  take  action  for  preventing  and  prosecuting  fraud  and  irregularity  offences  and  for
recovering  amounts  evaded  or  wrongly  paid  out.  The  Commission  has  the  task  of  monitoring  the  smooth
working  of  the  relevant  procedures.  Specific  regulations  give  it  the  power  to  conduct  direct  on-the-spot
inspections  on  its  own  initiative  or  to  ask  the  national  authorities  to  conduct  special  inspections,  in  which
Commission  officials  may  take  part  (see  table).

Table I.2: Basic  Regulations  concerning  controls

Own  Resources

Article  18(2)  and  (3)  of  Regulation  (EEC)  No  1552/89 (1)

EAGGF  Guarantee

Article  9  of  Council  Regulation  (EEC)  No  729/70 (2)

Article  6  of  Regulation  (EEC)  No  595/91 (3)

Structural  Funds

Article  23(2)  of  Council  Regulation  (EEC)  No  4253/88,  as  amended  by
Regulation  (EEC)  No  2082/93 (4)

(1) This  Regulation  has  been  amended  by  Council  Regulation  (Euratom,  EC)  No  1355/96  (OJ  L 175,  13.7.1996).
(2) OJ  L 94,  28.4.1970.
(3) Apart  from  these  horizontal  regulations  exist  also  regulations  covering  specific  Common  Market  Organisations  (e.g.
Council  Regulation  (EEC)  No  2048/89  on  controls  in  the  wine  sector;  OJ  L  202,  14.7.1989;  and  Council  Regulation
(EEC)  No  1319/85  on  controls  in  the  fruit  and  vegetables  sector;  OJ  L  137,  27.5.1985).

(4) OJ  L  193,  31.7.1993.

Anti-fraud  checks  and  inspections

Regulation  (Euratom,  EC)  No  2185/96,  which  entered  into  force  1  January  1997,  provides  the
20.
Commission  with  a  new  horizontal  legal  basis  for  conducting  specific  anti-fraud  checks  and  inspections
through direct inquiries at operators (15). Thus it complements the current checks carried out by the various
Commission services to ensure that Community regulations are being properly implemented by the Member
States.

21.
The new regulation has strengthened the powers of the Commission to carry out on-the-spot controls
in  the  Member  States.  That  said,  the  legal  framework  within  which  the  Commission  is  empowered  to

(13) OJ  L 185,  15.7.1988;  the  Regulation  has  been  amended  by  Council  Regulation  (EEC)  No  2081/93  (OJ  L 193,

31.7.1993).

(14) OJ  L 292,  15.11.1996.
(15) Except  VAT  and  areas  without  impact  on  the  Union  budget.

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operate has been clearly defined, and the Member States’ fundamental responsibilities in the matter remain
unchanged.  It  follows  from  the  subsidiarity  principle  that  the  Commission  can  conduct  anti-fraud  checks
and  inspections  only  where  it  can  add  a  certain  value.  Therefore  the  Regulation  defines  the  area  in  which
on-the-spot  checks  and  inspections  may  be  carried  out:

— for  the  detection  of  serious  or  transnational  irregularities  or  irregularities  that  may  involve  economic

operators  in  several  Member  States,

— where, for the detection of irregularities, the situation in a Member State requires on-the-spot checks and
inspections to be strengthened in a particular case in order to improve the effectiveness of the protection
of  financial  interests  and  so  to  ensure  an  equivalent  level  of  protection  within  the  Community,

— at  the  request  of  the  Member  State  concerned.

22.
The  Regulation  indicates,  that  in  addition  to  economic  operators  receiving  money  from  the
Community  budget  or  owing  money  to  it,  on-the-spot-checks  and  inspections  may  also  be  carried  out  on
other operators (suppliers, carriers, insurers, etc.). The Commission’s agents are entitled to have access to all
information  and  documentation,  to  take  samples  and  to  enter  business  premises,  in  the  same  way  as
national  inspectors.  If  necessary  they  may  seek  assistance  from  the  authorities  of  the  Member  State.

The  Third  Pillar

23.
Title  VI  TEU  makes  provision  for  various  forms  of  intergovernmental  cooperation  in  the  fields  of
justice  and  home  affairs  (third  pillar).  This  Title  deals  with  several  matters  of  common  interest,  notably
combating  fraud  on  an  international  scale,  judicial  cooperation  in  civil  and  criminal  matters  and  customs
cooperation.  Furthermore  it  covers  police  cooperation  in  specific  areas,  notably  serious  forms  of
international  crime,  including  if  necessary  certain  aspects  of  customs  cooperation,  in  connection  with  the
organisation  of  a  Union-wide  system  for  exchanging  information  within  a  European  Police  Office
(Europol) (16)  (Article  K.1(5)  to  (9)).

24.
The  Member  States  are  to  inform  and  consult  one  another  within  the  Council  with  a  view  to
coordinating  their  action.  To  that  end  they  have  to  establish  cooperation  between  the  competent
departments of their administrations. The Council may adopt joint positions, approve joint action and draw
up  conventions  or  protocols  on  the  initiative  of  any  Member  State  or  the  Commission  (Article  K.3).

25.
In order to reduce the inconsistencies between laws on fraud in several Member States, which provide
a  breeding  ground  for  international  fraud (17),  the  Commission  presented  on  the  basis  of  Article  K.3.2.  a
proposal  for  a  Council  instrument  establishing  a  Convention  for  the  protection  of  the  Community’s
financial  interests  under  criminal  law (18).  On  26  July  1995  the  Council  approved  an  act  drawing  up  a
Convention on the protection of the European Communities’ financial interest (19). Its purpose is to establish
a common definition of fraud and of other serious offences which damage the Community budget, enshrine
the  principle  of  a  specific  offence  in  the  criminal  law  of  the  Member  States  and  introduce  provisions  as
regards  appropriate  penalties,  jurisdiction,  extradition  and  mutual  cooperation.  Serious  fraud  involving
more than ECU 50 000 has to be made an extraditable offence, punishable by imprisonment. Persons with
the power to take decisions within a business should be made criminally liable, albeit in accordance with the
principles  defined  in  national  law.  Furthermore  the  Convention  includes  rules  on  centralisation  of  the
prosecution  and  on  the  extradite  or  prosecute  principle.

(16) See  Convention  of  26.7.1995  setting  up  a  European  police  office  (OJ  C 316,  27.11.1995).
(17) The  features  which  make  the  various  national  systems  incompatible  were  highlighted  in  a  number  of  studies  (see
Corpus  Juris  or  the  study  carried  out  under  the  direction  of  Professor  Delmas  Marty  described  in  the  1993  Annual
Report  on  the  Fight  against  Fraud  COM(94) 94  final).

(18) OJ  C 216,  6.8.1994.  Already  in  March  1994  the  United  Kingdom  presented  a  proposal  for  joint  action  on  criminal

penalties.

(19) OJ  C 316,  27.11.1995.

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26. On  27  September  1996  the  Ministers  of  Justice  signed  the  first  Protocol (20)  to  the  Convention
relating  to  corruption  to  the  detriment  of  the  Communities’  financial  interests.  The  main  purpose  of  the
protocol  is  to  fill  in  the  gaps  in  existing  criminal  law  on  corruption  having  a  link  with  protection  of  the
Community’s  financial  interests  which  involve  Community  and/or  national  officials.  The  Commission  had
already  accompanied  its  proposal  for  a  draft  treaty  from  1976  with  a  second  instrument  concerning  the
responsibilities  under  criminal  law  of  officials  and  other  servants  of  the  European  Communities,  but
discussions  have  never  got  off  the  ground.  In  a  resolution  passed  on  11  March  1994  the  European
Parliament asked the Commission, under Article 138b of the Treaty, to draw up a legal instrument dealing
with  the  liability  of  officials  in  charge  of  expenditure  from  the  Community  budget (21).

27. On  26  May  1997  the  Council  adopted  on  the  basis  of  Article  K.3.2.  a  further  act  which  drew  up  a
convention on the fight against corruption (22). This further act was needed as ‘for the purpose of improving
judicial  cooperation  in  criminal  matters  between  Member  States,  it  is  necessary  to  go  further  than  the  said
Protocol  and  to  draw  up  a  Convention  directed  at  acts  of  corruption  involving  officials  of  the  European
Communities  or  officials  of  the  Member  States  in  general’  because  corruption  may  also  be  committed
outside  the  context  of  fraud  against  the  Community  budget.  It  provides  for  an  offence  covering  both  acts
and  omissions.  European  officials  are  assimilated  to  national  officials  under  criminal  law,  while  taking
account  of  the  immunity  conferred  by  the  Protocol  on  the  Privileges  and  Immunities  of  the  Communities.
Members  of  Community  institutions  are  assimilated  to  their  political  counterparts  at  national  level  rather
than  officials.  The  authorities  in  a  Member  State  may  claim  jurisdiction  for  criminal  cases  involving
European  officials  employed  by  a  Community  institution  established  on  its  territory.

As  the  Convention  on  the  protection  of  the  European  Communities’  financial  interests  in  certain
28.
specific  areas  merely  sets  out  a  few  basic  principles  it  was  complemented  by  a  second  instrument,  the
Protocol  on  judicial  cooperation (23).  This  Protocol  provides  apart  from  the  provisions  relating  to  the
responsibility  of  legal  persons,  for  the  criminalisation  of  money  laundering  and  the  confiscation  of  the
proceeds of fraud and for cooperation between the Commission and the national prosecuting authorities in
the  Member  States  in  relation  to  fraud,  corruption  and  money  laundering.  It  also  contains  rules  on  the
exchange  of  information  between  the  judicial  authorities  and  the  Commission  and  provides  that  the  latter
shall  render  technical  and  operational  assistance.

(20) OJ  C 313,  23.10.1996.  The  Protocol  has  the  same  status  and  binding  force  as  the  Convention  since  it  has  to  be
adopted  by  the  same  procedures,  i.e.  those  provided  for  by  Title  VI  of  the  Treaty  on  European  Union  and  notably
ratification  by  national  parliaments.

(21) OJ  C 91,  28.3.1994.
(22) OJ C 195, 25.6.1997. For the purposes of this convention passive and active corruption were defined in a similar way

to  the  Protocol.
(23) OJ  C 221,  19.7.1997.

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ANNEX  II

FINANCIAL  RESOURCES  FOR  THE  FIGHT  AGAINST  FRAUD

Table II.1: Financial  resources  for  the  fight  against  fraud

Budgetary
item

Heading

1995

1996

To
31.8.1997

Appropriations  available  after  transfer

A-3 5 3 0

Unit  to  coordinate  action  against  fraud

200 000

200 000

190 000

A-3 5 3 1 (1)

Controls,  studies,  analysis  in  connection  with
the  fight  against  fraud

3 308 000

4 000 000

3 980 000

A-3 5 3 2 (2)

Combating  fraud  in  the  textile  sector  (TAFI)

800 000

800 000

800 000

A-3 5 5

B2-1 0 1

B2-1 1 1

B2-1 2 1

B2-1 3 1

B2-1 5 0

B2-3 0 1

European  documentation,  coordination  and
study  network  to  control  cross-border  crime
and  fraud

400 000

p.m.

p.m.

in  the  area  of
Actions  to  combat  fraud 
the  European  Agricultural  Guidance  and
Guarantee  Fund,  ‘Guidance’  section

200 000

Actions  to  combat  fraud  in  the  area  of  the
financial  instrument  for  fisheries  guidance

50 000

Actions  to  combat  fraud  in  the  area  of  the
European  Regional  Development  Fund

300 000

Actions  to  combat  fraud  in  the  area  of  the
European  Social  Fund

200 000

Actions  to  combat  fraud 
structural  measures

in  the  area  of

750 000

750 000

Actions  to  combat  fraud  in  the  area  of  the
Cohesion  Fund

300 000

300 000

300 000

B2-5 1 9

Actions  to  combat  fraud  in  agriculture

1 650 000

B5-9 1 0

General  anti-fraud  measures

4 175 000

5 000 000

B6-7 9 2

B6-9 1 0

B7-5 3 0

B7-6 5 0

Total

Activities  to  provide  scientific  and  technical
support 
to  Community  policies  on  a
competitive basis

993 452

800 000

916 200

Actions  to  combat  fraud 
research  (shared-cost)

in  the  area  of

50 000

50 000

Measures  to  combat  fraud  in  the  cooperation
sector

100 000

Measures  to  combat  fraud  in  the  cooperation
sector

50 000

8 551 452

11 075 000

11 936 200

(1) Budget  line  co-managed  by  UCLAF  with  DGs  VI,  XIX,  XX  and  XXI.
(2) Budget  line  co-managed  by  UCLAF  with  DG  I.
Source:  UCLAF.

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ANNEX  III

DATABASES

IRENE  Database

1.
The IRENE (IRregularities, ENquiries, Exploitation) database has been in operation since 1 December
1992. As at the 6 October 1997 it contained details of 25 619 cases of fraud or irregularity (14 332  under
the EAGGF Guarantee Section, 9 509 under own resources, 821 under the Structural Funds and 957 under
the mutual assistance) based on the obligatory communications presented by the Member States. It contains,
in particular, information on the practices adopted in committing the irregularity, the manner in which the
irregularity  was  discovered,  the  national  authorities  which  recorded  the  irregularity,  the  financial
consequences  and  possibilities  of  recovery  and  the  judicial  and  administrative  procedures  instituted.

Table  III.1: Count  of  records  in  IRENE  as  of  6  October  1997

Mutual  Assistance

Structural  funds:

EAGGF  Guarantee

Own  Resources:

Total  number  of  records:

ERDF

EAGGF  Guidance

FIOF

ESF

Total  Structural  Funds

Old  system

Own  resources

Total  Own  Resources

97

363

11

350

8 900

609

957

821

14 332

9 509

25 619

2. Often  it  is  not  possible,  at  the  stage  of  communication,  to  distinguish  between  irregularities,  for
example resulting from clerical errors, and those which represent fraud or acts of negligence. In fact in the
majority of cases the intentional nature and the seriousness of the irregularity only becomes apparent during
the  administrative  and  judicial  procedures,  which  are  often  particularly  lengthy.

The IRENE database was designed partly to allow a systematic follow-up of all the cases of fraud and
3.
irregularities  which  have  to  be  communicated  by  the  Member  States  and  partly  to  serve  as  a  source  of
intelligence.  However,  the  database  suffers  from  long  delays  in  reporting,  incompleteness  of  some  records,
absence  of  credibility  checks  of  the  information  furnished  and  lack  of  user-friendliness.  Furthermore
individual  cases  are  systematically  reported  without  essential  details  (location  of  the  incidents,  names  of
individuals  or  entities  involved,  etc.).  Thus  it  is  of  limited  value  for  concrete  investigative  work.

Pre  IRENE  Database

4.
In  principle  the  Pre-IRENE  database  (UCLAF  internal,  case  management  database)  contains
information  concerning  cases  of  (presumed)  fraud  on  which  UCLAF  carries  out  enquiries  and  which  were
not  yet  the  subject  of  a  specific  communication  by  the  Member  States.  In  theory  the  information  supplied
should not only relate to identification of the case (category, type of programme, country or region, type of
irregularity,  amount  involved)  but  also  to  particulars  of  the  fraud  technique  or  the  irregularity  and  the
proceedings in motion. The objective is, that the base should evolve as a valuable management tool enabling
investigators  to  manage  their  cases  autonomously  and  those  in  charge  to  manage  the  generality  of

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investigation  business  and  produce  summary  tables.  It  is  foreseen,  by  facilitating  the  correlation  of
information,  to  improve  programming  of  UCLAF’s  operations  in  this  field  and  to  frame  an  intelligence
strategy with a view to obtaining a better picture of fraud prevention and of economic and financial crime.
Pre-IRENE  should  then  be  at  the  core  of  an  intelligence  based  strategy  with  centralised  information
management. Furthermore it should be, following the analysis of the cases introduced, the starting point for
targeted  operational  measures.

According  to  the  Commission,  Pre-IRENE  was  operational  in  1994  on  an  experimental  basis (1),  and
5.
further  changes  were  to  be  made  to  it  in  1995.  Beginning  of  April  1997  in  total  756  cases  were  under
management  in  this  database  —  356  relating  to  the  Structural  Funds  and  direct  expenditure,  39  on  the
Common Market Organisations on Agriculture, 260 cases on export or import of agricultural products and
101  to  non-agricultural  own  resources  (customs  duties).

IRENE  95  Database

6.
In  1995  the  Commission  started  to  develop  an  integrated  information  system  which  would  take
account of different information sources. It is foreseen to base this new integrated information system on a
new  version  of  the  IRENE  database,  which  merges  the  two  previously  separate  databases  IRENE  and
Pre-IRENE. Furthermore, this new database will set up a direct link with ‘mutual administrative assistance’
messages  having  an  impact  on  the  Community  budget.  This  new  database  (IRENE  95)  will  not  be  a  mere
database recording information on fraud cases but a management tool (2). Due to technical problems IRENE
95  is  not  yet  operational.

SCENT

7.
The SCENT (System Customs Enforcement NeTwork) system, which has been operational since 1987,
was  to  have  been  complemented  since  1996  by  the  SCENT  taxation  system  which  has  been  in  the
development  stage  since  1993.  The  system  allows  the  exchange  of  information  on  indirect  taxation  via  the
SCENT-network.  The  CIS  (Customs  Information  System) (3),  which  has  been  operational  since  1993,  is  a
database which contains information (data on persons, vehicles, goods, patterns of fraud, etc.) exchanged by
the  Member  States  through  the  SCENT  network.  More  than  300  Terminals  have  been  installed  to  link  up
offices at points of entry and exit of the Union and allow them to communicate 24 hours a day, seven days
a  week  with  their  own  central  authorities  and  with  Commission  departments.  CIS  is  also  used  for  specific
operations  (surveillance  of  consignments  of  sensitive  goods  in  the  transit  procedure,  maritime  surveillance,
etc).  The  Commission  provides  user  support  in  technical  matters  and  looks  after  training  for  users  in  the
Member  States.

(1) Annual  report  1994  (COM(95) 98  final),  29.3.1995),  page  24.
(2) See  1995  Annual  Report  on  Fight  against  Fraud,  page  78.
(3) The Member States have adopted, in the Title VI context, the convention on the use of information systems in the field
of  customs.  Furthermore  a  Convention  was  drawn  up  on  the  use  of  information  policy  for  customs  purposes.  The
Conventions  still  have  to  be  ratified.

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ANNEX  IV

PREVENTIVE  ACTIONS

Action  in  the  area  of  customs

Further  to  its  communication  of  29  March  1995 (1)  the  Commission  adopted  on  3  April  1996  a
1.
communication  on  the  emergency  measures  taken  and  those  still  to  be  taken,  put  in  place  a  transit  task
force  and  presented  a  communication  on  the  future  of  transit  systems (2).  Furthermore  the  Commission
cooperated  closely  with  the  European  Parliament’s  temporary  committee  of  inquiry  (Article  138(c)  of  the
EC Treaty) on the Community transit procedures (3). Finally on 19 December 1996 the European Parliament
and  the  Council  adopted  an  action  programme  for  Customs  in  the  Community  (Customs  2000) (4).  The
objective of this programme is to improve the overall effectiveness of customs action and the uniformity of
controls  at  the  external  community  borders.

Seminars

2.
As  part  of  the  general  training  policy  of  the  Commission,  UCLAF  organises  seminars  to  acquaint
national  anti-fraud  services  and  administrations  managing  Community  funds  with  the  European  dimension
of  fraud.  General  basic  courses  have  been  run  in  all  the  Member  States.  Lately  the  Commission  has  been
concentrating  more  on  targeted  schemes  for  specialists  departments  managing  Community  funds  and  for
judicial  authorities.  These  training  schemes  are  appreciated  by  the  Member  States.

(1) See  Commission  Communication  of  29  March  1995  on  fraud  in  the  transit  procedure,  solutions  foreseen  and

perspectives  for  the  future,  COM(95) 108  final.

(2) See SEC(96) 290 final ‘Commission action to counter transit fraud’ and COM(96) 477 final. For further information see

1996  Annual  Report,  pages  38  and  39.

(3) See  PE  220.895/def.
(4) Decision  No  210/97/EC,  OJ  L  33,  4.2.1997.

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COMMISSION’S  REPLIES

1.

INTRODUCTION

Scope  of  the  audit

The  Commission  welcomes  the  opportunity  to
1.1.
take  stock  of  progress  made  in  the  fight  against  fraud  as
provided by the Court’s draft report. The effectiveness of
UCLAF  depends  to  a  large  extent  on  the  quality  of
cooperation  and  on  the  Member  States’  structures.

Main  observations

framework 

1.2.
The  Commission  welcomes  the  endorsement  by
the  Court  of  the  Commission’s  commitment  to  the  fight
against  fraud  and  the  improvements  in  the  legal  and
administrative 
that  have  resulted.  The
Commission is extremely concerned that the Conventions
on  the  legal  protection  of  the  financial  interests  of  the
Community,  together  with  its  two  protocols  and  the
Convention  on  the  fight  against  corruption  have  not  yet
been  ratified  by  the  Member  States.  It  would  point  out
that the Member States have undertaken at the European
Council  of  Amsterdam  in  June  1997  to  ratify  these
instruments  by  mid-1998  and  it  will  follow  closely
progress  towards  meeting  this  commitment.

A  wider  ranging  examination  of  the  link  between
1.3.
UCLAF  and  other  control  and  police  services  would
provide  a  useful  basis  for  an  appreciation  of  the  overall
arrangements  that  have  been  put  in  place.  In  relation  to
cases  of  suspected  fraud  or  corruption  within  the
Institution  the  Commission  has  established  a  clear  policy
and  committed  itself  to  a  series  of  actions  including  the
establishment  of  a  formal  decision  on  UCLAF’s  role  and
powers  in  its  Communication  of  18  November  1997  on
Sound  Financial  Management  and  Administration:
Incompetence,  Financial
Improving  Action  against 
Irregularities,  Fraud  and  Corruption  (SEC(97)  2198  (see
point  1.7  below).  As 
the
to 
Commission  has  undertaken  a  number  of  initiatives
which have provided for a progressive increase in security
in  UCLAF  (see  also  comments  on  points  2.26  to  2.28
below).

security  measures 

The  Commission  agrees  that  the  number  of
1.4.
temporary  staff  in  UCLAF  as  a  proportion  of  the  total
staff  is  too  high.  The  majority  of  temporary  agents  are
coming to the end of their contracts in the period autumn
1998  to  summer  1999  and  a  plan  has  been  established
for the conversion of a substantial number of these posts
into  permanent  posts  when  the  temporary  posts  become
vacant.  This  should  help  to  provide  an  appropriate

balance  between  permanent  officials  and  temporary  staff
and  to  ensure  a  proper  continuity.  However  it  would
point out that the current situation is in large part due to
a decision by the budgetary authority in 1994 to increase
the  staffing  of  UCLAF  by  50  persons  of  which  35  were
temporary  agents.  The  advantage  of  having  been  able  to
recruit  a  substantial  number  of  temporary  agents  in  the
period  1994/95  was  that  it  allowed  UCLAF  to  recruit
specialist expertise at different levels and thus constitute a
multi-disciplinary  team  that  was  quickly  operational.

1.5—1.6.
The  general  statements  on  the  effectiveness
and  use  of  the  UCLAF  databases  should  be  seen  in  the
specific  context.  The  rapid  evolution  of  UCLAF  over  the
last few years has given rise to a continuous re-evaluation
of  UCLAF  needs  in  relation  to  information  systems.  At
present  UCLAF  still  depends  to  a  large  extent  on  old
systems  which  are  running  on  outdated  software  and
which  are  not  appropriate  for  UCLAF’s  role.  However
the  present  systems  represent  a  transitional  arrangement
which  should  be  phased  out  during  1998  with  the  entry
into  operation  of  the  new  integrated  IRENE  database. 

to 

refer 

The  Commission  would 

1.7.
its
communication  of  18  November  1997  in  which  it  has
clearly  explained  its  commitment  to  ensuring  that  cases
where  there  are  grounds  for  prosecution  under  the
criminal  law  are  dealt  with  quickly  and  effectively.  A
formal  Commission  decision  is  in  preparation  which  will
establish UCLAF’s role and powers in relation to contacts
with  national  judicial  authorities.  It  is  true  that  national
legislative  requirements  are  important  in  the  conduct  of
(EC)
investigations  particularly  under  Regulation 
No  2185/96.

This  point  is  dealt  with  in  more  detail  in  the  comments
on  point  3.

in 

1.8.
The  Commission  agrees  that  further  actions  are
needed  to  improve  the  procedures  designed  to  track  and
stimulate  recovery  actions 
the  Member  States.
However  it  would  also  underline  the  progress  that  has
been  achieved  todate.  This  includes  the  introduction  of  a
reporting system for the structural funds, the amendment
of  Regulation  (EEC)  No  1552/89  to  improve  the  system
for own resources reporting and the ongoing work in the
context of SEM 2000 on the putting in place of financial
correction  mechanisms,  such  as  exist  in  the  agricultural
domain,  in  the  areas  of  own  resources  and  the  structural
funds.  In  addition  computerised  systems  have  been
established 
in  all  areas  to  facilitate  recording  and
follow-up  actions.

1.9.
The  Commission  agrees  that  todate  the  results  of
the  so-called  ‘black-list’  procedure  are  not  satisfactory

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and  is  examining  means  of  encouraging  the  Member
States to become more active in this area. It would point
out  that  under  the  relevant  legislation  it  is  only  the
Member  States  that  can  insert  names  on  the  so-called
‘black-list’.

emphasise 

The  Commission  would 

1.10.
the
fundamental  reforms  provided  for  in  SEM  2000  together
with  specific  actions  arising  from  the  implementation  of
SEM 2000 referred to in relation to point 1.8 above. The
study carried out by the Joint Research Centre (JRC) did
suffer  delays;  the  coverage  was  altered  as  a  result  of
agreement  reached  during  the  carrying  out  of  the  study.

in 

the 

that 

figures 

figures  published 

The  Commission  is  concerned  at  the  Court’s
1.11.
affirmation 
the
Commission’s  annual  report  on  the  fight  against  fraud
are misleading. The Commission will examine closely the
presentation  of  its  next  annual  report  to  ensure  that  the
origin  and  calculation  of  the  numbers  of  cases  and
amounts  involved  are  clearly  explained.  Nevertheless  the
Commission would point out that there is a fundamental
problem  in  relation  to  the  estimation  of  the  impact  of
fraud  on  the  Community  budget.  This  is  because  using
formally  communicated  by 
only 
the
those 
Member  States 
in  the  framework  provided  by  the
Regulations  applicable  in  the  different  domains  tends  to
lead to a systematic underestimation of the problem as is
evidenced  by  the  growing  importance  of  those  cases  of
fraud identified by the Commission itself in collaboration
with  the  specialist  anti-fraud  services  of  the  Member
States.  The  Commission  needs  to  monitor  the  reported
cases and their evolution and recovery in parallel with the
recording  of 
formally
communicated  by  the  Member  States.  This  is  a  complex
and  difficult  exercise  and  careful  verification  is  needed.
The  new  IRENE  database  contains  special  features  to
ensure  a  proper  correlation  of  cases.

the  cases  not  or  not  yet 

inter alia with ‘the protection of the financial interests of
the  Community’  and  ‘the  conception  of  the  fight  against
fraud  in  all  domains’  as  indeed  the  Court  mentions  in
point  2.20  of  the  report.  This  has  led,  in  particular,  to  a
series  of  legislative  initiatives  concerning  control  powers,
administrative  sanctions  and  criminal  law  which  are
mentioned  in  other  parts  of  the  draft  report.  This
activity,  already  important  at  present,  will  become  even
more  so  in  the  future  in  the  context  of  the  legislative
possibilities  provided  for  under  the  new  Article  280  of
the  Treaty  of  Amsterdam  and  in  the  development  of  the
framework  already  established  to  counter  fraud.  The
continuing  work  on  the  CORPUS  JURIS  project  in  the
context  of  the  notion  of  a  ‘single  judicial  space’  also
represents  an  area  of  considerable  importance.

The  transfers  of  human  resources  to  UCLAF  involved
only  DG  VI  and  XXI  and  the  operational  budget
transfers were very limited. Indeed both DGs VI and XXI
maintained  appropriations  on  the  shared  budget  lines  in
the  A  part  of  the  budget.  In  the  B  part  due  to  action  by
the  European  Parliament  a  number  of  new  budget  lines
were created to support UCLAF activity and subsequently
a  number  of  these  were  merged  to  give  the  current
situation.  These  are  shown  in  Annex  II  to  the  Court’s
report. It is to be noted that Annex II contains only those
budget  lines  where  UCLAF  is  authorising  officer  or  joint
authorising  officer.

2.5.
The  Council’s  Action  Plan  is  independent  of  the
Commission’s  anti-fraud  work  programme  and  indeed
covers  a  wide  range  of  subjects  which  fall  outside  the
competence  of  UCLAF  in  its’  specific  tasks  even  if  a
number  of  the  issues  raised  in  the  Action  Plan  are  also
reproduced in the Commission’s work programme. In the
negotiations  that  led  to  the  adoption  of  the  Action  Plan
UCLAF  was  represented  and  a  number  of  points  were
inserted  on  the  initiative  of  the  Commission  to  broaden
the  scope  to  cover  certain  areas  of  Community  interest.

The  Commission  would  again  refer  to 

1.12.
its
communication  of  18  November  1997  (SEC(97)  2198)
which has established clear policy lines and set in motion
the  creation  of  new  procedures  as  well  as 
the
formalisation  of  certain  existing  procedures.

Fraud  prevention

SEM  2000

2. THE  COMMISSION’S  ORGANISATION  OF  THE  FIGHT

AGAINST  FRAUD

The  strategy  of  the  Commission  for  the  fight  against
fraud

2.3.
The  Commission  decided  in  February  1995  (ref.
SEC(95)249) not only to centralise operational anti-fraud
activity in UCLAF (this affected mainly DGs VI and XXI)
but  it  also  clearly  set  out  UCLAF’s  mandate  in  relation
to  anti-fraud  policy.  Thus  UCLAF  was  charged

2.14—2.15.
The  Commission  agrees  that  the  exercise
of  ‘fraud-proofing’  legislation  which  it  has  proposed  will
require  a  sustained  effort  which  however  will  have  to  be
applied  continuously  and  in  particular  to  new  legislative
initiatives.

Setting  priorities

The  study  was  hampered  by  incompleteness  in
2.18.
pre-IRENE  and  IRENE  databases.  The  domains 
in
question  were  chosen  because  they  represented  sensitive

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22.7.98

areas.  The  administrative  arrangement  with  the  JRC
made  it  clear  that  part  of  the  specific  study  would  be
concentrated  on  areas  chosen  by  UCLAF.

in  the 

The  refusal  of  DG  XX’s  visa  was  related  to  a  formal
problem  in  the  presentation  of  the  dossier  which  arose
because  of  a  problem 
identification  of  the
sub-heading  within  the  budget  nomenclature  which  was
appropriate to the type of expenditure. The problem was
encountered  by  a  number  of  other  services  which  use
appropriations  on  budget  line  B6-7 9 2.  After  discussion
with  DG  XX  the  problem  was  resolved  and  the  final
payment  was  approved.  The  Commission  would  point
out  that  the  detailed  examination  of  the  results  of  the
is  still  ongoing  and  that  the  next  stage  of
study 
development  of 
evaluation  will  be
accomplished  only  when  the  new  IRENE  database
becomes  operational  during  1998.

information 

to  computer  security  because  of 

document  classification  was  circulated  to  the  units  of
UCLAF and measures were taken to ensure that adequate
protected storage facilities existed together with a general
protection of UCLAF premises. Special attention has also
been  given 
the
importance  of  establishing  the  new  integrated  database
IRENE.  As  a  result  the  work  undertaken  by  the  security
office  was  supplemented  by  a  further  detailed  study  by
the  JRC  in  the  context  of  UCLAF’s  overall  security
concept  for  computers.  The  results  are  in  the  process  of
implementation  in  the  ongoing  work  on  the  finalisation
of  IRENE.

It  should  be  noted  that  the  security  of  information  to  be
transmitted  electronically  is  covered  more  pertinently  by
Commission  Decision  C(95)1510.

reports 

The  establishment  of  UCLAF  inspection  priorities  is
guided not only by the historical development of reported
fraud  cases  but  also  by  ongoing  intelligence  work  and
evaluation  of  new  policies  and  risks  as  well  as  by  the
evaluation  of  control 
supplied  by  other
Commission services. The nature of UCLAF’s activities in
investigation  and
relation 
intelligence  operations  does  not  lend  itself  easily  to  the
setting  up  of  an  audit  programme  approach  designed  to
provide  a  wide  coverage  of  the  different  areas  where
Community  finance  is  at  risk.  Nevertheless  work  is
continuing  on  developing  instruments  for  establishing
priorities.

targeted  anti-fraud 

to 

Security  measures

regular  access 

The  Commission  accepts  that  the  detailed
2.26—2.28.
rules  of  its  Decision  on  security  have  yet  to  be  fully
implemented  in  UCLAF.  However  it  points  out  that  an
essential  feature  of  the  implementation  of  the  Decison
will  mean  that  only  those  persons  who  have  been  vetted
can  have 
to  documents  classified
confidential  and  above.  As  a  result  UCLAF  launched  the
vetting  procedure  for  all  of  its  full  time  officials  in  May
1997.  The  procedure  involves  an  enquiry  in  the  Member
in  question  by  the
State  of  origin  of  the  official 
competent  national  authorities  and  can  take  the  better
part  of  a  year  to  finalise.  It  was  decided  to  concentrate
on the permanent official population because the UCLAF
temporary  agents  and  national  experts  are  as  a  general
rule  selected  from  services  already  dealing  with  sensitive
information  and  subject  to  vetting  procedures  and
because  of  the  fact  that  temporary  agent  and  national
expert  contracts  were  of  limited  duration  (most  of  the
temporary  agent  contracts  will  expire  in  the  period
September  1998  to  April  1999).  It  is  nevertheless  the
intention  to  apply  the  vetting  procedure  to  future
recruitment  to  such  posts.  In  the  interim  advice  on

The  inspection  of  UCLAF  by  the  Security  Office  was  a
wide-ranging  review  that  included  document,  physical,
security:
information 
recommendations  on  vetting  are 
in
found 
paragraphs  4.1  and  5.2  of  the  Security  Office  report.

personnel 
to  be 

technology 

and 

2.30.
It  is  not  the  practice  for  the  Security  Office  to
carry  out  routine  checks  of  the  personal  files  of
Commission  staff  for  the  purpose  of  security  clearances.
Such  clearances  are  governed  by  national  procedures,
including  citizen’s  rights:  legal  evidence  of  criminal
activity  should  be  thrown  up  in  the  course  of  those
procedures.

2.32.
The  Commission  intends  to  place  ever  greater
emphasis  on  ensuring  the  implementation  of  all  aspects
related to security during 1998. It would point out that a
post has been assigned for the purpose of the recruitment
of  a  full-time  security  officer  in  UCLAF  in  1998.  The
official  who  did  not  work  in  UCLAF  has  since  been
transferred to other duties within his service. It should be
noted  that  services  outside  UCLAF  have  access  only  to
the  database  containing  formal  communications  of  the
Member  States  and  not  to  that  containing  cases  under
investigation  by  UCLAF.  In  addition  access  is  allowed
only  to  certain  officials  in  those  services  and  to  certain
categories  of  cases.  In  the  case  of  nominative  data  access
is  further  restricted  to  cases  of  direct  relevance  to  those
services.

Internal  administrative  enquiries

2.33.
The  Commission  agrees  that  there  is  a  need  to
formalise  and  reinforce  the  existing  procedures  under
which  UCLAF  acts  in  internal  cases.  It  was  for  this
reason that the Commission issued its Communication of
18  November  1997  (SEC(97)  2198).  Moreover  a  formal
Commission  decision  on  UCLAF’s  powers  to  include  the
elements  set  out  in  the  Communication  is  currently  in

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preparation.  It  should  be  pointed  out  in  relation  to  the
reference  to  the  Tourism  sector  that  the  destruction  of
documents  referred  to  as  well  as  the  start  of  the  case
predated  the  creation  in  UCLAF  of  an  operational  unit
responsible  for  such  matters.

2.34.
The specific points in relation to the questioning
of  Commission  officials  and  the  searching  of  files  and
offices  in  Commission  buildings  is  being  taken  up  in  the
draft decision on the powers of UCLAF referred to in the
previous  paragraph.  It  should  be  noted  however  that  the
Court of First Instance in its judgment of 19 March 1998
in  the  case  Tzoanos  v.  Commission  has  confirmed  the
right  of  the  Commission  to  take  documents  from
officials’  offices  and  computers  prior  to  the  initiation  of
any disciplinary proceedings in the context of an internal
administrative investigation. This and other aspects of the
judgment are being examined carefully in the preparation
of  the  draft  decision  on  the  powers  of  UCLAF.

based than others. This type of work is less suited to the
case  by  case  follow-up  for  which  pre-IRENE  was
designed.  The  Commission  would  point  out  that  the
current  IRENE  project  is  designed  to  provide  a  common
basis  for  managing  cases  in  UCLAF.  This  system  is
currently  becoming  operational  unit  by  unit  in  parallel
with  the  migration  to  WINDOWS  NT.  It  should  greatly
improve  the  transparency  of  the  system  for  authorised
managers  while  at  the  same  time  improving  security.

3.12.
In  the  context  of  the  current  reorganisation  of
UCLAF attention will be given to ensuring a more clearly
defined  role  for  coordinators.  The  new  IRENE  provides
for  a  structured  management  reporting  system.  It  should
be  emphasised  however  that  the  high  number  of  cases
inevitably  puts  pressure  on  coordinators  in  view  of  the
limited  resources  available  to  UCLAF.

3. ORGANISATION  OF  UCLAF

Staff  resources  to  date

The  Commission  welcomes 

3.4.
the  Court’s
endorsement of its policy in relation to the establishment
of an interface and liaison function with national judicial
authorities which is entirely in line with the new role that
the  Commission  will  be  called  on  to  play  once  the
Convention  on  the  legal  protection  of  the  Financial
Interests  of  the  Community  and  its  protocols  are  ratified
(in  particular  Article  7  of  the  second  protocol).  In  line
with  the  commitment  in  its  1997/98  anti-fraud  work
programme  the  Commission  is  creating  an  interface  and
liaison  cell  within  the  unit  of  UCLAF  responsible  for
general  affairs  and  legal  matters.  It  is  clear  that  extra
human  resources  would  be  necessary  if  the  Court’s
recommendation  of  at  least  one  magistrate  or  other
national  equivalent  per  Member  State  were  to  be
implemented.

Working  methods

3.8—3.9.
The  difference  in  use  of  the  pre-IRENE
computer  system  reflects  to  some  extent  the  differences
between  the  type  of  work  carried  out  in  the  investigative
units.  As  is  explained  in  the  comments  in  points  3.14  to
3.16  below  the  work  of  some  units  is  more  intelligence

Management  of  case  files

The  Commission  accepts  the  need  for
3.14—3.16.
investigation dossiers to be properly structured. However
given  the  wide  variety  of  subjects  treated  in  UCLAF  and
the  different  legal  and  procedural  frameworks  that  apply
the  imposition  of  a  single  structure  is  difficult.  As  a  first
step  in  developing  standardised  procedures  UCLAF  has
the  operation  of
established  a  vade-mecum  on 
on-the-spot  checks  under  Council  Regulation 
(EC)
No 2185/96 in view of the importance of UCLAF reports
as  input  to  possible  prosecutions  in  the  Member  States
due  to  the  standing  accorded  to  them  by  virtue  of  the
regulation.  The  other  area  where  presentation  of  reports
is  of  importance  is  in  missions  led  by  UCLAF  to  third
countries  where  mission  reports  may  be  subsequently
used  in  judicial  proceedings.  Thus  it  is  this  aspect  of
UCLAF dossiers where most care is and will be taken (see
point  3.20  and  21  below).  It  should  be  stressed  that  in
relation  to  the  preparation  of  investigation  mission
reports  UCLAF  has  established  a  standard  layout  which
includes  resource  use,  and  which  is  countersigned  by  the
investigator  responsible,  the  relevant  Head  of  Unit  and
the  Director  of  UCLAF.

to  satisfy 

The  issue  of  possible  guidelines  on  the  standard  of
documentation  and  notes 
the  minimum
requirements  for  criminal  evidence  laid  down  in  the
legislation  also  presents  particular
Member  States 
problems  in  relation  to  the  wide  variety  of  situations
encountered.  The  Commission  underlines  the  nature  of
the  role  of  UCLAF  in  relation  to  investigative  and
intelligence work. The overwhelming bulk of investigative
casework  is  carried  out  by  the  specialist  services  of  the
Member  States.  This  derives  from  the  division  of  roles
between  UCLAF  and  such  services  and  the  limited

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22.7.98

resources available to UCLAF. Thus the preparation of a
file for a prosecuting service in many cases is carried out
by  national  services  with  input  from  UCLAF  but  not  by
UCLAF  alone.  In  addition  within  UCLAF  there  is  a
marked difference between the type of activity carried out
by the different enquiry units. Certain units operate on a
case  by  case  basis,  others  are  more  intelligence  oriented.

to  be 

into  account.  A 

UCLAF has been obliged to take a pragmatic approach to
the  development  of  its  work  particularly  in  a  context
where its role has been rapidly developing. In addition its
multi-disciplinary  nature  and  the  fact  that  it  has  been
created  by  amalgamation  of  various  previously  separate
full
taken 
sectors  needs 
examination  of  this  aspect  of  UCLAF’s  work  will  be
launched  in  the  context  of  the  ongoing  work  on  the
application  of  Regulation  (EC)  No  2185/96.  A  further
point  that  needs  to  be  stressed  is  that  in  a  number  of
cases, and most notably in the cases of the different Task
Forces a significant amount of work is intelligence rather
than  case  based.  Thus  the  files  that  are  created  are
intelligence  files  even  though  they  may  include  details  of
cases  where  the  Member  States  are  operating  with  the
assistance  of  UCLAF.

to 

In  relation 

it  should  be  pointed  out 

the  specific  point  of 
that 

file
3.18.
this
manipulation 
presupposes  an  action  on  the  part  of  an  official  that
could  warrant  a  disciplinary  measure  and  it  is  of  course
linked  to  the  issue  of  security  procedures.  Moreover
UCLAF’s central archives have been redesigned to enable
files  to  be  reconstituted  on  the  basis  of  registered
incoming  and  outgoing  documents  as  a  backup  to
investigations  enquiry  files.  Nevertheless  UCLAF 
is
examining  its  internal  security  procedures  on  this  point.

Cooperation  with  the  Member  States

Constraints  imposed  on  the  Commission  services

It 

is 

true 

that  Regulation 

(EC)
3.20—3.21.
No  2185/96  requires  UCLAF  inspectors  to  comply  with
national  rules  of  procedure  in  each  Member  State  in
which  it  carries  out  controls  and  the  Commission  agrees
with  the  Court  that  this  does  present  difficulties  for
UCLAF  inspectors.

by  the  Commission  during  negotiations  on  this  text
precisely  for  the  reasons  put  forward  by  the  Court.

In  any  case  where  a  joint  control  is  carried  out  the
Commission  inspectors  can  benefit  from  the  expertise  of
the  agents  of  the  Member  State  who  are  accompanying
them.  Indeed  the  latter  are  obliged  to  provide  the
necessary  assistance  to  the  proper  carrying  out  of  the
control.

3.22.
The  vade-mecum  provides  investigators  with  a
guide  to  the  application  of  the  Regulation  in  conformity
with  the  commitment  made  by  the  Commission  in
Council  when  the  Regulation  was  adopted.

3.23.
The  Court  notes  that  the  Regulation  had  only
been  applied  on  five  occasions  at  the  time  of  the  audit.
The  Commission  would  emphasise  a  number  of
important  elements  arising  from  the  need  to  put  in  place
certain  practical  provisions  in  the  first  year  of  operation
namely:

— the  creation  of  the  vade-mecum

— putting  in  place  the  Commission  procedures  for

authorising  UCLAF  investigations,

— internal  training  for  UCLAF  investigators,

— a 

series  of 

certain  national
administrations  to  launch  the  first  control  missions
under  the  best  conditions  possible.

contacts  with 

This  work  was  necessary  to  allow  actions  under  the
provisions  of  the  Regulation  to  be  started  within  a  clear
and  solid  framework.  It  should  be  noted  that  since  the
visit  of  the  Court’s  audit  team  the  number  of  cases  of
application of the Regulation has doubled. It is clear that
in  view  of  the  newness  of  the  Regulation  its  legal  effects
and  its  operational  context  UCLAF  is  only  at  the
beginning  of  a  process  of  establishing  its  use.  It  should
be  noted  that  the  Commission  will  be  reporting  to  the
Council  on  its  experience  with  the  Regulation  at  the  end
of  1998.  The  vade-mecum  will  be  subject  to  continuous
review.

Treatment  of  requests  presented

Nevertheless  it  should  be  emphasised  that  the  regulation
requires  that  the  Commission  only  take  account  of
national  procedures  for  the  establishment  of  control
reports.  In  practice  this  should  mean  that  depending  on
the nature of the procedural requirement the Commission
may  apply  it  (as  in  obligatory  circumstances  (such  as
respect  of  a  contradictory  procedure)  or  not  (such  as  in
the  case  of  minor  procedures  which  do  not  undermine
the  validity  of  the  report).  This  wording  was  insisted  on

In  general  the  Commission  would  point
3.26—3.27.
out  that  difficulties  arising  from  the  organisation  of
individual  Member  States  services  and  particularly  the
lack  in  certain  cases  of  a  service  with  an  overview  of
what  is  happening  within  a  given  Member  State  have
posed  practical  problems  in  cooperation  on  casework.
One  Member  State  has  decentralised 
its  anti-fraud
activities so that UCLAF has no central point of reference

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at all. Others however have established central services in
parallel  with  UCLAF.  In  addition  where  a  specific  legal
problem  in  casework  arises  this  cannot  be  justifiably
linked  to  problems  in  the  overall  structure  of  UCLAF’s
operational  role  and  relations  with  Member  States.

of whether a fraud had or had not taken place, the issue
concerned  interpretation  of  complex  legal  provisions
requiring  exhaustive  analysis  by  different  Commission
services.

The  Commission  would  point  out  that  one  of  the  three
cases  mentioned  by  the  Court  under  point  3.26  where
Member  States  did  not  start  procedures  requested  by
UCLAF  led  to  a  substantial  recovery  action  by  the
Member  State  in  question  in  May  1997.  The  two  other
cases  are  still  in  the  hands  of  the  appropriate  judicial
authorities.  In  the  two  cases  cited  by  the  Court  where  a
request  was  not  made  or  was  delayed  both  cases  were
followed  up  and  are  in  the  hands  of  the  appropriate
judicial  authorities.  In  the  case  involving  the  lifting  of
immunity of three officials there were difficulties with the
initial requests which resulted in a prolonged exchange of
the  matter  was  eventually
correspondence  before 
resolved.

In  relation  to  point  3.27  the  Commission  would  make
the  following  comments.

The  Commission  understands  that  the  case  which
prompted  the  comment  on  lack  of  consultation  and
feedback  is  a  case  where,  because  a  judicial  enquiry  was
launched  in  a  Member  State,  it  was  not  possible  for
reasons  related  to  the  protection  of  the  secrecy  of  the
judicial  procedure  to  provide  detailed  feedback  to  other
Member  States.  Once  this  factor  no  longer  applied  the
appropriate  administrations  were 
the
specific  case  involving  the  claimed  non-disclosure  of
information  UCLAF  received  information  which  did  not
directly  implicate  operators  in  the  Member  State  where
the search took place. UCLAF was not able to establish a
link  between  the  information  and  the  Member  State
operation  in  time  for  it  to  be  provided  to  the  relevant
authorities  prior  to  that  operation.

informed. 

In 

The Commission would point out that the three cases, on
which the Court’s statement about investigations seeming
to  stop  without  reason  is  based,  were  all  continued.  In
one  case,  which  is  also  the  case  referred  to  by  the  Court
as  having  been  with  UCLAF  for  a  long  time  without
concrete  action  being  taken,  substantial  difficulties  in  the
organisation  of  an  enquiry  mission  to  a  third  country
prevented  a  rapid  conclusion.  In  this  particular  case  the
collection  of  the  documentation  which  was  needed  to
carry  out  the  enquiry  took  the  Member  States  concerned
some  nine  months.  However  the  case  has  since  advanced
following  a  joint  UCLAF/Member  State  mission  to  a
third country and a substantial fraud has been identified.
The other two cases involved are again referred to by the
Court  in  its  statement  in  paragraph  3.27  about  lack  of
feedback (letters, mission reports). In one the results were
formally  communicated 
in
to 
question  in  November  1997.  In  the  other,  which  is  also
the  case  referred  to  by  the  Court  in  relation  to  the  issue

the  administrations 

Information  and  intelligence  systems

Databases

in 

3.28—3.29.
It is true, as the Court points out, that the
number  of  users  of  the  IRENE  database  is  very  limited.
However  it  should  be  borne  in  mind  that  the  current
version  of  IRENE  (to  be  replaced  this  year)  is  a  system
that  was  developed 
the  1970s  which  requires
knowledge  of  a  specific  (and  now  outdated)  computer
language  to  operate  it.  As  a  result  its  use  in  UCLAF  has
been  restricted  to  a  relatively  small  number  of  trained
operators.  However,  in  spite  of  this  the  number  of  users
is  not  a  sufficiently  accurate  indication  of  the  use  of  the
system. Other criteria that have to be taken into account
are  the  frequency  of  use  and  the  length  of  consultation.
According  to  the  statistics  of  the  Calculation  Centre  at
Luxembourg  where  IRENE  is  held  it  is  one  of  the  most
important  databases  there  in  terms  of  size  and  use.  This
is  on  the  basis  that  although  there  are  a  relatively  small
number  of  users  they  account  for  a  regular  and
substantial activity.

3.30.
As  mentioned  above  the  Commission  is  in  the
process  of  replacing  the  outdated  computer  structure
which  was  designed  with  the  original  UCLAF  role  in
mind.  Improvements  in  the  pre-IRENE  database  which
has already considerably evolved since its inception when
it  ran  on  the  same  basis  as  IRENE  and  suffered  from
using the same specific computer language are part of the
process  of  modernisation  and  adaption  to  the  new
situation. It expects the situation to improve shortly with
the  integration  of  IRENE  and  pre-IRENE  in  the  version
of  IRENE  to  be  implemented  in  1998.  The  project
‘UCLAF  Integrated  Information  System  (UIIS)’  was  a
project  financed  by  the  JRC  in  the  context  of  its
institutional  support.  The  project  as  such  was  not
abandoned.  Its  results  were  used  as  a  basis  for  two
further  projects  SURCOM  and 
(Integrated
Intelligence  and  Management  System)  which  are  still
ongoing.

IIMS 

The  APSO  (Antifraud  Policy  Support  Office)  was  a
proposal of the JRC about the internal organisation of its
support  work  for  UCLAF.  In  practice  the  JRC  opted  for
an  interservice  agreement  supported  by  agreed  annual
work  programmes  between  UCLAF  and  the  JRC.  In  this
context the JRC has given valuable support to UCLAF in
the  development  of  tools  and  systems.  Once  the  new
IRENE  database  has  been  successfully  implemented,  and
in the context of the current reorganisation of UCLAF, it
is  planned  to  devote  more  resources  to  intelligence  work
based  on  data  analysis  from  the  Commission’s  own

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22.7.98

databanks.  It  should  be  noted  that  an  important  part  of
UCLAF’s 
the
operational units and particularly as part of the operation
of  the  different  task  forces.

intelligence  work 

is  carried  out 

in 

The  Commission  accepts  that  there  have  been
3.31.
very  considerable  problems 
in  the  development  of
communication systems and databases. However it would
point  out  that  it  is  not  unique  in  its  experience  of  such
problems.  In  the  context  of  the  replacement  of  outdated
and  inappropriate  systems  by  the  type  of  complex
information and management system that the Court itself
is  calling  for  the  potential  for  problems  to  occur  cannot
be underestimated. It believes that the new IRENE system
should  provide  a  solid  foundation  for  a  reliable  and
effective management of cases both communicated by the
Member  States  and  under  investigation  by  UCLAF.

3.32.
The  risk  that  UCLAF  and  the  Member  States
could be running enquiries on the same case unknown to
each  other  exists  but  is  small.  Member  States  are  of
course  obliged  to  advise  the  Commission  when  cases  of
fraud  or  irregularity  come  to  light.  UCLAF  concentrates
on  important  transnational  cases  and  Member  States  are
informed  of  this  work  through  the  work  of  the  different
for
Task  Forces  and  by  ad  hoc  communication 
information.  Moreover  the  vast  majority  of  UCLAF
enquiries  (other  than  in  the  area  of  direct  expenditure)
are  carried  out  in  partnership  with  the  authorities  of  the
Member States. The new IRENE includes a feature which
will  correlate  possible  overlapping  cases.

and 

control 

legislation. 

inspection 
In  addition  much  of 

3.33.
It  is  certainly  true  that  UCLAF  can  and  does
provide  a  substantial  value-added  in  intelligence  work
and  this  is  an  area  which  will  be  receiving  more
attention.  However  the  Commission  must  also  fulfil  its
functions  under
formal 
Community 
its
intelligence comes from links established as a result of its
own  operational  activity.  In  relation  to  EUROPOL
contacts  have  been  established.  However  this 
is  a
complex  issue  taking  in  as  it  does  such  a  wide  variety  of
areas (from customs to agricultural expenditure, etc.) and
questions  of  principle  relating  to  legal  bases.  At  present
UCLAF is discussing the establishment of a protocol with
EUROPOL  as  provided  for  in  the  Council’s  Action  Plan
to  combat  organised  crime  as  a  first  step  to  increasing
cooperation (as provided for in the Commission’s annual
anti-fraud  work  programme  (COM(97)  199,  point  1.9).
The  institution  of  an  information  system  would,  it  is
understood,  require  certain  changes  in  the  current  legal
framework.

3.34.
The  amounts  that  are  to  be  or  have  been
recovered  in  direct  expenditure  cases  are  listed  in  the
pre-IRENE database as well as in the CORE database of

the  Commission’s  accountant  which  is  accessible  to
UCLAF.  All  direct  expenditure  cases  are 
in
pre-IRENE  and 
IRENE  application  will
the  new 
specifically  cover  the  area  in  question.

listed 

3.36.
The  Early  Warning  System  (EWS)  was  put
together  very  quickly  in  order  to  respond  to  a  crisis
situation. As a result some compromises had to be made.
In  terms  of  becoming  fully  computerised  it  should  be
noted  that  the  EWS  does  not  replace  the  existing  transit
procedures  and  that  the  basic  weakness  in  the  transit
system  requires  a  full  computerisation  which  is  the
subject  of  a  Commission  led  project  with  the  Member
States  under  the  responsibility  of  DG  XXI.

function. 

To  the  extent  possible  improvements  are  being  gradually
introduced to the EWS and in particular the introduction
of  a  reply 
for
information  UCLAF  always  asks  Member  States  for
information with a specific objective in view and has as a
policy  to  inform  national  services  of  the  results  of  its
work.

to  requests 

In  relation 

Nevertheless it will consider taking up this point with the
national  authorities 
in  the  context  of  the  mutual
assistance  committee  provided  for  in  Council  Regulation
(EEC)  No  1468/81.

4. FINANCIAL  FOLLOW-UP  AND  RECOVERY

General overview

4.1—4.4.
The  Commission  shares  the  Court’s  view
about  the  importance  of  having  at  its  disposal  accurate
information  regarding  recovery  action  taken  by  Member
States.  The  new  integrated  IRENE  database  expected  to
be  available  by  mid-1998  will  assist  the  Commission  in
monitoring  the  overall  recovery  situation  as  well  as
monitoring  a  number  of  very  important  traditional  own
resources  cases.  Moreover,  with  regard  to  the  traditional
own  resources  cases  of  fraud  or  irregularities,  this
database  will  receive  the  most  recent  information  from
Member  States,  including  updates,  via  an  electronic
network.  In  relation  to  footnote  number  24  it  should  be
noted  that  the  Commission  envisages  in  its  anti-fraud
work  programme  for  1997/98  the 
introduction  of
administrative sanctions in the area of direct expenditure.
In addition consideration is being given to providing that

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certain  contracts  of  a  public  service  nature  should  be
based  on  public  Community  law  and  in  conformity  with
Article  192  of  the  Treaty  it  would  be  then  possible  to
provide  that  the  recovery  decisions  would  be  directly
enforceable  by  the  Commission. 

4.5.
The  absence  of  an  accurate  picture  of  the
situation  regarding  recovery  of  traditional  own  resources
arising  from  reported  cases  of  fraud  or  irregularity  arose
because  until  mid-1996  Member  States  were  not  obliged
to  follow  a  particular  format  when  submitting  reports.
Since  Regulation  (EC)  No  1355/96  amending  Regulation
(EEC)  No  1552/89  came  into  force  on  14  July  1996,
Member  States’  reporting  obligations  are  clearly  defined.
The  introduction  of  the  new  integrated  IRENE  database
should  enable  the  Commission  to  obtain  an  overall  view
of  the  recovery  situation  based  on  the  data  supplied  by
the  Member  States.

Traditional  own  resources

4.7—4.9.
Up  to  July  1996,  Member  States  were  not
formally  obliged  to  communicate  to  the  Commission  the
state  of  recovery  in  the  cases  reported  under  Regulation
(EEC)  No  1552/89.  Since  Regulation  (EC)  No  1355/96
came into force and on the basis of the new computerised
system 
the
communications 
Commission  is  in  a  much  better  position  to  monitor  the
recovery.  First  results  of  the  improved  transparency  will
be  presented  in  the  annual  report  1997.  However,  it  will
take  considerable  time  to  collect  also  the  necessary
information  on  cases  communicated  before  July  1996.

(OWNRES), 

the 

for 

it  reviews 

In  addition, 

4.8.
The  Commission’s  monitoring  activities  cannot
entail  a  constant  examination  of  all  the  recovery  cases.
Instead, 
the  overall  situation  regarding
the  Commission  monitors
recovery. 
individually,  until  their  ultimate  discharge,  a  number  of
significant  cases 
identified  by  a  risk  analysis.  The
Budgetary Authority is regularly informed of the outcome
of  these  monitoring  actions.  The  Commission  considers
that  most  Member  States  are  now  regularly  updating
their  fraud  reports  although  some  are  still  experiencing
technical  problems.  The  Commission  continues  to  follow
the  situation  carefully.

pending  in  court  or  the  Member  State  requested  that  the
Commission  accept  that  the  amounts  were  no  longer
recoverable. 

in  the 

in  the
include 
The  Commission  will  systematically 
‘clearance  of  account
forthcoming  decisions 
procedure’  all  amounts  for  which  recovery 
is  not
imminent.  Where  the  Member  State  does  not  provide
sufficient  elements  which  exclude  any  irregularity  or
negligence attributable to it, the Commission will not fail
in
to  charge 
accordance  with  Article  8  of  Regulation 
(EEC)
No  729/70  without  necessarily  waiting  for  the  final
outcome  of  proceedings  pending  in  court.

the  Member  State 

the  amounts 

to 

Improvements  to  legislation  in  the  agricultural  area

4.14.
The  Commission  is  concerned  by  the  lack  of
communications by Member States and intends to review
the  operation  of  the  procedure  during  1998.

Structural  Funds

The  Commission  undertakes  to  provide  more
4.19.
information  on  potential  claims  arising 
the
establishment of frauds and irregularities in the structural
funds,  in  the  Explanatory  Notes  to  the  off  balance  sheet
commitments.

from 

they  have  been 

4.20. Member  States  are  obliged  to  communicate  all
cases  of  irregularity  in  the  structural  funds.  UCLAF
monitors the communications and examines in particular
cases  that  come  to  its’  attention  in  other  ways  to  ensure
that 
formal
communications.  Typologies  have  been  established  by
UCLAF  and  communicated  to  the  appropriate  national
authorities  both  directly  on  a  bilateral  basis  and  at  the
meetings of the Advisory Committee (COCOLAF) and at
seminars  supported  by  UCLAF.

included 

the 

in 

4.21.
It  should  be  pointed  out  that  the  1 000  cases
received  form  the  Region  of  Campania  at  the  end  of
1996  were 
Italian  Permanent
to 
representation  as  the  formal  communication  of  cases  is
the  responsibility  of  the  Member  States  and  not  the
regions  under  the  terms  of  the  relevant  legislation.

returned 

the 

EAGGF  guarantee  section

5. RELIABILITY  OF  INFORMATION  IN  THE  ANNUAL

REPORT  ON  THE  FIGHT  AGAINST  FRAUD

4.10—4.11.
The  Commission  is  continuing  its  efforts
to  clarify  the  recovery  situation  especially  in  the  older
cases, i.e. cases reported before 1994. While it is true that
at the end of 1997 65 % of the amounts involved in cases
communicated before 1994 were still to be recovered, for
some  30 %  the  recovery  orders  were  challenged  and

Reliability  of  data

5.4—5.6.
As  far  as  the  practice  of  including  an
estimate  for  the  second  half  year  is  concerned,  this  was

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22.7.98

necessary  because  the  provisions  of  Regulation  (EEC)
No 1552/89 did not allow the Commission to obtain the
second  half  year  figures  in  time  for  incorporation  in  the
annual report. As the Court rightly points out the need to
make  estimates  should  not  occur  in  the  future  following
the  amendment  in  1996  of  the  provisions  relating  to  the
communication  of  cases.  It  should  be  noted  that  it  was
precisely  for  this  purpose  that  the  Commission  proposed
the  amendment  to  Regulation  (EEC)  No  1552/89.

Indeed 

5.7.
The  Commission  believes  that  the  figures  for
losses  to  Community  resources  deriving  from  the  VAT
element of certain frauds relating to cigarettes needs to be
underlined. 
the  Commission  attaches  great
importance to the idea of obtaining as accurate a picture
as  possible  on  the  understanding  that  in  the  past  the
estimates  solely  based  on  the  formal  communications  by
the  Member  States  have  been  underestimates  of  the  real
situation.  It  accepts  that  the  amounts  in  question  here
cannot  be  directly  compared  to  the  traditional  own
resources  communications  by  Member  States  given  the
different  nature  of  the  revenues  involved.  It  will  take
in
measures  for  future  reports  to 
footnotes to the tables to the report the origin and nature
of  these  figures,  which  in  previous  years  have  been
explained  within  the  text  of  the  report.

indicate  clearly 

6. CORRUPTION  AND  BREACHES  OF  DISCIPLINE

Fight  against  corruption

6.2.
its
The  Commission  would  again  refer 
communication  of  18  November  1997  where  it  has
clearly  set  out  its  policy  in  relation  to  anti-corruption
work  within  the  institution.

to 

Allocation  of  responsibilities

6.3.
The Commission communication of 18 November
1997  also  clarifies  the  responsibilities  of  UCLAF  in
relation  to  corruption  cases.

Lack  of  clear  guidelines  for  administrative  investigations

5.9.
The Commission will clearly indicate the fact that
the  figures  for  irregularities  in  cases  detected  by  the
Commission  are  estimates  in  future  reports  even  if  this
should  of  course  be  understood  from  the  nature  of
investigative  work.  The  Commission  is  alert  to  the
possible double counting of certain cases and expects that
the next IRENE system will give the necessary assurances
that  cases  are  being  counted  only  once.  The  system
should  also  facilitate  the  updating  of  cases.  It  has  not
been  the  practice  to  detail  the  source  of  cases  under
investigation  by  the  Commission.

6.5.
The Commission communication of 18 November
1997  provides  the  basis  for  a  standardisation  of
procedures. The questions raised by the Court in relation
to  the  powers  of  UCLAF  will  be  treated  in  the  formal
decision  to  be  taken  by  the  Commission  on  UCLAF’s
powers.  In  relation  to  the  notification  of 
judicial
authorities  it  has  been  the  practice  in  UCLAF  to  notify
the  authorities  as  soon  as  it  is  established  that  there  are
grounds to do so. However it must be borne in mind that
the  purpose  of  UCLAF  investigations  is  to  establish  the
facts on which, subsequently, judgements can be made by
the  appropriate  authorities.

5.10.
In  the  1996  annual  report  the  Commission  has
explained  that  it  concentrates  on  complex  transnational
cases  and  on  major  criminal  networks  which  operate  in
many  different  Member  States.  It  tends  therefore  to  treat
as  one  case  those  cases  which  it  considers  have  a
common 
the
Commission  takes  an  overview  that  individual  Member
States  cannot  necessarily  have.  In  relation  to  the  cases
reported  by  the  Court  the  cases  currently  shown  without
a  source  will  be  the  subject  of  an  internal  review.

the  Member  States.  Thus 

link 

in 

5.11.
The  Commission  takes  the  point  that  precise
figures  or  savings  and  recoveries  arising  from  the
intelligence  and  investigative  work  of  the  different  Task
Forces is difficult to quantify and it is examining ways of
making  it  clearer  what  are  the  benefits  of  this  work
without  compromising  ongoing  operational  activity.

6.6—6.7.
The Commission is conscious of the need to
ensure  the  protection  of  the  rights  of  individuals  and  the
respect  of  laws  relating  to  investigation.  It  would  point
out however that UCLAF does not have police or judicial
powers  and  that  its  enquiries  into  cases  of  suspected
corruption  or  fraud  within  the  institution  are  necessarily
administrative  enquiries  which  are  designed  to  establish
the  facts.

If  the  results  give  reason  to  believe  that  criminal  actions
have  taken  place  the  file  is  passed  to  the  appropriate
national  judicial  authorities  which  then  have  to  decide  if
a  criminal  action  has  taken  place.  In  these  and  other
cases  the  results  of  the  investigation  may  give  rise  to  a
decision  with  the  Commission  to  open  disciplinary
procedures. In its reflection on the formal decision on the
powers  of  UCLAF  however  serious  attention  is  being
paid  to  this  issue.

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Implementation  of  a  ‘zero  tolerance’  policy

6.8—6.9.
The  Commission’s  position  is  clearly  set  out
in its communication of 18 November 1997 as well as its
commitment  to  take  a  clear  line  on  cases  of  suspected
internal 
the
Commission  has  recently  made  a  proposal  (OJ  C  359  of
25.11.1997  page  9)  to  provide  for  disciplinary  measures
the  payment  of  compensation  by  authorising
and 
officers.

In  addition 

fraud  and 

corruption. 

The 

Commission’s 

communication 

6.10.
of
18 November 1997 is clear on the issue of informing the
prosecuting  authorities.  The  Commission  agrees  that
relevant  documents  should  not  necessarily  have  to  be
communicated  to 
lifting
immunity  is  clearly  motivated,  however  it  underlines  the
fact  that  in  order  to  lift  immunity  the  Commission  must
receive  a  properly  motivated  request  in  order  to  be  able
to  take  a  decision.

it  provided  a  request  for 

Problems  identified

The 

Commission’s 

communication 

6.11.
of
18  November  1997  clarifies  the  Commission’s  policy.  It
should  be  noted  that  in  practice  it  is  usually  extremely
difficult  to  obtain  proof  of  corruption  and  that  therefore
it  is  normally  the  police  or  judicial  authorities  who  have
the  powers  necessary  to  do  so  who  obtain  such  proof
once  they  have  been  alerted  to  the  existence  of  a  case.

6.12.
The Commission would refer again to the recent
judgment  by  the  Court  of  First  Instance  in  the  case  of
Tzoanos  v.  Commission  (see  comments  above  in  relation
to  point  2.34)  where  the  Court  has  given  a  clear
view  on  the  rights  of  the  Commission  in  carrying
out  administrative  enquiries  prior 
to  disciplinary
proceedings.

6.13.
The  Commission  intends  within  the  limits  of
resources  available  to  UCLAF  to  reinforce  the  team
dealing  with  anti-corruption  matters  there  through  the
creation  of  a  specific  sector  responsible  for  such  cases  in
an existing unit. At this stage the resources for a separate
unit  are  not  available.

7. CONCLUSION

implemented  given  the  fact  that  UCLAF  in  its’  current
structure  has  really  only  existed  in  a  fully  operational
form  since  the  end  of  1995.  Moreover  it  takes  time  to
fully  implement  new  actions  and  to  see  the  results  of
those  actions.

7.2.
The  Commission  accepts  that  work  needs  to
continue  on  the  improvement  of  recovery  which  is  a
complex  and  difficult  task  involving  many  different
players.  The  non-differentiation  between  recoveries  due
to the work of UCLAF as against that due to the national
authorities is, as a general rule, justified by the nature of
cooperation  between  the  Commission  and  the  Member
States.  Thus  the  majority  of  cases  treated  by  UCLAF  are
the  result  of  cooperative  work  with  the  national
authorities.  The  end  results  in  terms  of  recovery  should
not  therefore  be  solely  attributed  to  the  Commission
(UCLAF).

In the area of direct expenditure however the situation is
somewhat different and here information on recoveries is
contained  in  the  pre-IRENE  database,  held  by  UCLAF.

The  Commission  is  implementing  an  integrated
7.3.
management system as a high priority. It expects that the
implementation  of  this  new  version  of  IRENE  in  1998
will  provide  the  appropriate  means  for  ensuring  a
rigorous  control  and  cross  referencing  of  cases  formally
communicated by the Member States and those on which
UCLAF  is  working  itself.

The  Commission  considers 

it  of  the  highest
7.4.
priority  that  the  Member  States  ratify  the  Conventions
and  protocols  as  quickly  as  possible.

7.5.
The Commission shares the view expressed by the
Court  of  the  problems  that  can  arise  from  the  existence
of  so  many  different  agencies  and  organisations  in  the
Member  States  responsible  for  action  in  the  fight  against
fraud.  It  is  pleased  to  note  the  general  trend  to  create
central  bodies  with  wide  responsibilities  and  a  proper
overview of activities in each Member State in relation to
Europen  Union  interests  such  as  is  the  case  in  France,
Italy,  Denmark,  Portugal  and  Sweden.  Furthermore
UCLAF  is  establishing  specific  cooperation  agreements
with a variety of different agencies to ensure that as wide
a cooperation as possible takes place. The Commission is
continuing  further  work  on  the  CORPUS  JURIS  study  in
order  to  examine  further  the  options  for  legislative
initiatives  in  the  area  of  enforcement.

7.1.
The  Commission  appreciates  the  recognition  of
the  efforts  that  it  has  made  in  the  fight  against  fraud.
Many  aspects  of  its’  overall  strategy  are  still  being

7.7.
As provided for in its anti-fraud work programme
for  1998/99  (COM(98)  278  final),  the  Commission  is
reflecting on the establishment of appropriate agreements

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22.7.98

with  the  other  institutions  and  authorising  UCLAF  to
provide  technical  advice  on  anti-fraud  investigations.

Annex  I  —  Point  6  —  The  Commission  in  its  report  to
Intergovernmental
the  Reflection  Group  on 
Conference also proposed a modification to the Treaty in
relation  to  the  inclusion  of  a  specific  legal  basis  for
measures  to  combat  fraud.  The  new  text  of  Article  280
of  the  Treaty  is  also  the  result  of  this  Commission
initiative.  The  Commission  also  noted  the  paradox  that

the 

the Council which can, as budgetary authority, decide on
the  budget  on  the  basis  of  a  qualified  majority  can  only
adopt  measures  to  control  expenditure  and  fight  against
fraud  by  absolute  majority.

Annex  I  —  Point  18  —  It  should  be  noted  that
Regulation (EC) No 2185/96 provides that the powers of
control  specifically  provided  to  the  Commission  are  in
addition  to  those  sectoral  powers  of  control  that  already
existed  prior  to  the  adoption  of  the  Regulation.