Opinion No 2/99 of the Court of Auditors on the amended proposal for a Council Regulation (EC, Euratom) concerning investigations conducted by the Fraud Office
Date: 1999-04-14
Institutions: European Court of Auditors
Subjects: World Health Organisation, pharmaceutical product, product designation, tariff exemption

1.6.1999

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Official Journal of the European Communities

C 154/1

I

(Information)

COURT OF AUDITORS

of the Court of Auditors on the amended proposal for a Council Regulation (EC, Euratom) concerning
investigations conducted by the Fraud Office

OPINION No 2/99

(1999/C 154/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

HAS ADOPTED THE FOLLOWING OPINION:

Having regard to the Treaty establishing the European Community,
and in particular Article 188c (future Article 248) thereof,

The Court(cid:146)s special report on UCLAF

Having regard to the Treaty establishing the European Atomic Energy
Community, and in particular Article 160c thereof,

Having regard to the proposal from the Commission for a Council
Regulation (EC, Euratom) establishing a European Fraud Investigation
Office, submitted by the Commission on 4 December 1998 (1) which
was, in particular, a reaction to the European Parliament(cid:146)s B(cid:246)sch report
on UCLAF (2), adopted on 7 October 1998,

Having regard to the request made by the Council, on 22 December
1998, for the Court of Auditor(cid:146)s opinion, received by the Court on
11 January 1999,

Having regard to the amended proposal from the Commission for a
Council Regulation (EC, Euratom) concerning investigations con-
ducted by the Fraud Office, transmitted to the Court by the Commis-
sion on 29 March 1999 (3),

Having regard to the request made by the Council, on 9 April 1999,
for the Court of Auditor(cid:146)s opinion on the amended proposal for a
Council Regulation (EC, Euratom) concerning investigations con-
ducted by the Fraud Office, received by the Court on 13 April 1999,

1.
In its special report 8/98 on the Commission(cid:146)s services involved
in the fight against fraud, notably the (cid:145)UnitØ de coordination de la lutte
anti-fraude(cid:146) (UCLAF) (4), the Court of Auditors observed that:

(cid:151) as long as the Convention and Protocols under the third pillar of
the Treaty are not ratified, the Commission(cid:146)s powers in the fight
against fraud remain limited,

(cid:151) the organisational arrangements within the Commission and with
Member States are not always clear and are often complicated and
cumbersome,

(cid:151) the cooperation with Member States is also hampered by the man-
ner in which the privileges and immunities of the European Union(cid:146)s
staff are respected; in addition, UCLAF in its inspections on Mem-
ber States territories has to cope with serious constraints concern-
ing national legislation,

(cid:151) the quality of the information held in the databases and the use of
that information was unsatisfactory; in addition, the coordination
between UCLAF, the other DGs and the Member States in relation
to databases and intelligence sharing needed to be improved,

(cid:151) the procedures within the Commission and responsibilities con-
cerning the fight against internal corruption are unclear and incom-
plete. There were no clear guidelines for investigations, there was
no clear policy (zero tolerance) and there were doubts whether
UCLAF, as presently structured, should deal with cases of corrup-
tion involving staff of the Commission,

(cid:151) UCLAF has no power to carry out enquiries relating to other insti-

tutions.

(1) COM(1998) 717 final, (98/0329 (CNS) (OJ C 21, 26.1.1999, p. 10).
(2) Resolution AU- 0297/98.
(3) COM(1999) 140 final, 98/0329 (CNS).

(4) OJ C 230 22.7.1998.

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The structure of the proposal

2. The creation of a Fraud Office is treated in a number of docu-
ments:

(a) a draft Council Regulation concerning investigations conducted

by the Fraud Office;

(b) a (draft) Commission Decision establishing a Fraud Office, which
should be responsible for carrying out internal and external inves-
tigations, for developing concepts and legislation for the fight
against fraud, and for any other operational activity in the fight
against fraud (Article 2 of the Decision);

(c) a draft Interinstitutional Agreement (IIA) concerning internal inves-
tigations by the Fraud Office, to enable the Fraud Office to carry
out enquiries within the various Community institutions or bod-
ies.

3. The Court(cid:146)s opinion covers the above documents in a global man-
ner. Given the interdependence of the measures an isolated treatment
of the draft Council Regulation would not be adequate.

4. Whereas the Commission Decision covers the Office as a whole,
the draft Council Regulation, according to its title, only covers the
tasks of investigation (internal and external) and the IIA reduces the
scope further, dealing only with internal investigations. Thus more
global aspects are covered by the Commission Decision and more spe-
cific aspects by the Council Regulation and the IIA respectively.

5. The proposal on the IIA serves a dual purpose. The Agreement is
firstly necessary to provide the Office with the power of access to the
other institutions and Community bodies. Secondly, the Commission
justifies its proposal for an IIA as a temporary means of resolving cer-
tain problems pending a revision of the Staff Regulations. The Court
notes the success of other interinstitutional agreements, such as that
of 1998 on budgetary discipline and improvement of the budgetary
procedures, as a pragmatic means of improving Community manage-
ment, particularly in areas where the need for flexibility makes the
framing of appropriate legislation difficult.

6. As regards access to the institutions (other than the Commission)
and the other Community bodies, the operational independence of
the Office will be heavily dependent on the satisfactory adoption and
implementation of the proposed IIA and the underlying institutional
decisions.

7. As regards future amendments to the Staff Regulations, it is regret-
table that the Commission, in the documentation accompanying the
revised proposal, has failed to provide a clear indication of the amend-
ments it considers necessary. Without this information, it is not pos-
sible to form a view as to the precise content of the IIA and of the
model institution decision annexed to the proposal. Furthermore, if it
is necessary to amend the Staff Regulations, the Court has doubts as
to the legality of any interim measures to overrule this legislation (i.e.
the IIA and (model) institution decision).

The operational independence of the Office

conjunction with a draft Commission Decision and a draft Interinsti-
tutional Agreement) by which far-reaching independence is given to
the Fraud Office for investigative purposes. Indeed, according to Article
12 of the proposed Council Regulation and Article 3 of the draft
Commission Decision, the Commission cannot give any instruction to
the Director (and, therefore, to the Office) where investigations are
concerned. Whereas the aim to create an independent body is pursued
by all parties involved in the discussion, the construction of an inde-
pendent body, as intended by the proposed texts, is rendered more dif-
ficult by the fact that the body is a part of the Commission. Indeed,
even if the Office must be operationally independent, the ultimate
responsibility for its acts rests with the Commission, since the Office
remains part of its structure. This is confirmed by the fact that actions
resulting from acts of the Office, including investigative acts, will be
brought before the Court of Justice against the Commission and not
against the Office directly.

9. Therefore, the text of the second paragraph of Article 12 of the
proposed Council Regulation should be modified in order to make the
operational independence of the Head of Office consistent with the
exercise by the Commission of its responsibilities. In this respect, the
status of the Financial Controller could serve as an example. On the
one hand, the Financial Controller is independent in the performance
of his duties and can even oblige his institution to respect this inde-
pendence by a right of recourse to the Court of Justice (Article 24 of
the Financial Regulation). On the other hand, however, the institution
is able to exercise its final responsibility through the overruling pro-
cedure, subject to certain conditions of transparency (Article 39 of the
Financial Regulations).

Supervisory Committee

10. The tasks of the Supervisory Committee are dealt with in both
the Commission Decision (Articles 5 and 6) and in the draft Council
Regulation (Article 11). The Court(cid:146)s report on UCLAF indicated that
there is a need to ensure that the independence of the fraud investiga-
tion function is protected. While an independent Committee might
have been able to fulfil such a role, and although the Committee is said
to be intended to (cid:145)assist(cid:146) the Office, its functions, giving its opinion to
the Head of the Office on current activities, reporting directly to the
other institutions, overseeing the preparation of the Office(cid:146)s budget
and work programme, and indeed its very title suggest that in sub-
stance it would become a sort of independent board of management.
This could prove a source of great difficulty both for the effective man-
agement of the Office by its Head, and adversely affect the discharge
of his responsibilities towards the Commission, Council and Parlia-
ment. He would, in effect, be responsible to the Committee rather than
to the institutions. The Court questions whether there is authority for
such a management board within the present institutional structure
laid down by the Treaty. Accordingly, the Court considers that the
present proposal would be clearer and stronger without the Supervi-
sory Committee; if consultation is needed between the three major
Institutions concerned about the functioning of the Office, this could
better be arranged through the established interinstitutional discus-
sions as have taken place in the preparation of these proposals.

11. Whatever structure is put in place, it should remain clear that the
Court of Auditors maintains its obligation and powers for external
audits as given by the Treaty. Therefore, if Article 11 remains, it should
begin:

8. Following the discussions in the European Parliament and the
Council the Commission has presented a draft Council Regulation (in

(cid:145)Without prejudice to the audits carried out by the Court of Audi-
tors under Article 188c (future Article 248) of the EC Treaty, the
Office shall be...(cid:146).

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The function of the Office

12. The legislation which is referred to for the tasks of the Office is,
in Article 3 of the draft Council Regulation, limited to Council Regula-
tions (EC, Euratom) No 2185/96 and (EC, Euratom) No 2988/95. In a
revised draft proposal for a Commission Decision (5) it is made clear
that OLAF will take over all of the tasks so far executed by UCLAF.
The functions of the Office are specified in Article 2 of this draft Deci-
sion. It seems that the second paragraph of that Article also includes,
as a task for OLAF, tasks which are presently executed by the Director-
ates General responsible for certain areas. It is doubtful whether the
new Office could add these tasks, regarding all irregularities and ille-
galities, to the primary task of investigating cases of (possible) fraud,
as defined, for example, in the Council Act of 26 July 1995 (6), without
the risk of paralysing the latter activity.

Regulation. Rules on consultation could, however, be maintained in
the draft Commission decision since nothing prevents the Appoint-
ing Authority from establishing consultation procedures.

17. Consideration should be given to adding to Article 12(1) of the
proposed Council Regulation a provision on the communication of
decisions relating to the Head of the Office(cid:146)s career to other institu-
tions, as is the case for the Financial Controller (Article 24 of the
Financial Regulation). The following text could be envisaged: (cid:145)The
Head of the Office(cid:146)s appointment, his promotion and disciplinary
rules or transfer, and any procedure shall be subject to reasoned deci-
sion to be forwarded, for information, to the European Parliament, the
Council and the Court of Auditors(cid:146).

The Office(cid:146)s rights of access to information

Other staff related matters

13. Articles 4(2) and 7 of the proposed Council Regulation provide
for the exchange of information for investigation purposes between
the institutions and the Office. No mention is made of the power to
request, in general, information useful for the fight against fraud for
the purpose of the intelligence task. At the same time, Article 1 of the
model institution decision imposes the obligation on the institutions
to inform the Office without delay of any fact of which they become
aware which gives rise to a suspicion of fraud (etc). While this obliga-
tion can be implied from a reading of the relevant Articles of the pro-
posed Council Regulation, it is of such importance that it should be
explicitly mentioned therein, in addition to the more general provi-
sions in the area of the exchange of information. This is particularly
necessary as there is no guarantee that the institutions will adopt inter-
nal decisions that exactly reflect the model given in the present pack-
age.

18. The Staff Regulations (Article 90(2)) contain rules by which com-
plaints have to be dealt with by the Appointing Authority, which is to
be designated by each institution according to Article 2 of the Staff
Regulations. Article 14 of the proposed Regulation interferes in the
procedures as laid down in the Staff Regulations and should therefore
be deleted.

19. The Regulation should make it clear that the grade of the Head
of the Office should be at the level of Director-General (A 1). This
would be appropriate, given the functions and the status of the body
and the responsibilities of its Head of Office.

In interpreting the first paragraph of Article 7 of the Council
14.
Regulation, it must be made absolutely clear that it is for the Head of
the Office to determine the information that is (cid:145)necessary for current
investigations(cid:146).

Follow-up of action taken and its outcomes

Appointment and dismissal of the Head of the Office

15. Article 5(1) of the Commission Decision and Article 12(1) of the
proposed Council Regulation refer to the appointment of the Direc-
tor of the Office being made after consulting the European Parliament
and the Council.

16. The appointment and dismissal of officials and agents is gov-
erned by the Staff Regulations or by the Conditions of employment of
other servants of the European Communities. Appointment and dis-
including consultation procedures, cannot be
missal conditions,
imposed by the proposed Council Regulation because rules on the
appointment and dismissal of officials or agents should be adopted on
the basis of Article 24(2) of the Treaty of 8 April 1965 establishing a
single Council and a single Commission of the European Communi-
ties. They should therefore be deleted from the proposed Council

It is the responsibility of the management of the institution to
20.
take appropriate follow-up action regarding the results of the Office(cid:146)s
investigations. The efforts to establish an independent, effective and
efficient investigative body will be futile if the follow-up given to its
reports and recommendations by the institutions is inadequate.
Follow-up procedures for external investigations can only become
effective after ratification of the Convention under the third pillar of
the Treaty. For internal investigations disciplinary procedures as well
as procedures on the recovery of funds should be strengthened, as
already proposed by the Court in its Opinion 4/97 concerning the
proposal to modify the Financial Regulation of 21 December 1977 (7).

Financial provisions

21. The content of Article 13 of the proposed Council Regulation
should be included in a Financial Regulation adopted on the basis of
Article 209 of the Treaty rather than in the draft Regulation as pre-
sented under Article 235 of the Treaty.

(5) Not yet adopted formally.
(6) Council Act of 26 July 1995 drawing up a Convention on the protection
of the European Communities(cid:146) financial interests (OJ C 316, 27.11.1995).

(7) Paragraphs 5.18 to 5.23 of the Annex (OJ C 57, 23.2.1998).

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Interinstitutional Agreement

22.
It is not made explicit which institutions and bodies should be
covered by the IIA and to what extent account is taken of the obliga-
tions on confidentiality of information inherent to the function of cer-
tain Institutions.

Conclusion

23.

In conclusion, the Court is of the opinion that:

(a)

the main aim of the proposal seems to be limited to the creation
of a structure that will allow internal investigations to be con-

ducted in all of the Community institutions and bodies; the Com-
mission remains ultimately responsible for the actions of its ser-
vices. Thus, the creation of a body that is intended to be independent
but at the same time is within the Commission poses some practi-
cal as well as legal problems;

(b) the present proposal would be clearer and stronger without the

Supervisory Committee;

(c)

it seems that the tasks and members of staff will be transferred
from UCLAF to the new Office. In this context, the Court draws
attention to the observations contained in its special report 8/98,
and in particular those concerning the managements of UCLAF
and problems of cooperation with the Member States. These
problems need to be addressed before any anti-fraud service can
become fully effective.

This opinion has been adopted by the Court of Auditors in Luxembourg in its meeting of 14 and 15 April 1999.

For the Court of Auditors

Jan O. KARLSSON

President