Progress Report July 1999 to July 2000
Date: 2000-12-14
Institutions: European Commission
Subjects: EU control, activity report, committee of inquiry, fraud, fraud against the EU

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I

(Information)

COMMISSION

OLAF Supervisory Committee

PROGRESS REPORT

July 1999 to July 2000

(2000/C 360/01)

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Members of the OLAF Supervisory Committee

Mireille DELMAS-MARTY

Chairman

Professor, Université Panthéon-Sorbonne (Paris I)

Edmondo BRUTI-LIBERATI

Deputy Public Prosecutor, Court of Appeal, Milan

José Narciso DA CUNHA RODRIGUES

Prosecutor-General of the Portuguese Republic

Raymond KENDALL

Secretary General of Interpol

Harald NOACK

State Secretary, Government of North Rhine-Westphalia

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CONTENTS

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

CHAPTER I — ESTABLISHMENT OF NEW STRUCTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. Establishment of the Supervisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Rules of Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.

Secretariat

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

B. Transition from UCLAF to OLAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Operational structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Appointment of the Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C. Organisation of relations between the Supervisory Committee and OLAF . . . . . . . . . . . . . . . . . . .

1.

Procedures for obtaining information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER II — AN INITIAL ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A. OLAF’s independence in budgetary and administrative matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.

Functional independence (investigative activity)

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

C. Organisational independence (interinstitutional relations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. The context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. OLAF’s interinstitutional status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Difficulties encountered in interinstitutional relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

Involvement of OLAF in interinstitutional discussions on the protection of the financial interests
of the European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D. Confidentiality and data protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. The relevant texts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Application of relevant texts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER III — LIMITATIONS IMPOSED BY THE NEW STRUCTURES AND POSSIBLE IMPROVEMENTS

A.

Limitations imposed by OLAF’s status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Administrative organisation (P1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. OLAF’s dual role (P2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. OLAF’s interinstitutional remit (P3)

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

Page

5

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8

9

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B.

Limitations imposed by OLAF’s activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2.

Limitations associated with the internal organisation of investigations (P4) . . . . . . . . . . . . . . . . . . . .

Limitations associated with the institutional environment (P5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEXES

Annex I — Calendar of Supervisory Committee meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex II — List of opinions and reports by the Supervisory Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex III — Opinion No 5/1999 of 17 December 1999 on the implications of the possible implemen-
tation of the corpus juris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex IV — Opinion No 2/2000 of 16 May 2000 on the initiatives of the institutions concerning the
future of OLAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annex V — Report No 1/1999 of 7 October 1999 on the implementation of Regulation (EC)
No 1073/1999 of the European Parliament and of the Council by EU institutions, bodies,
offices and agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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INTRODUCTION

The approach finally adopted made it possible to avoid this
kind of break in operations. OLAF is formally part of the
Commission and, as such, may exercise the Commission’s
powers while being endowed with the budgetary and adminis-
trative autonomy that is essential for it to be operationally
independent.

The European Anti-fraud Office’s (OLAF’s) establishment phase
is not yet complete. Some operations, such as the recruitment
of new staff, take time, and the budgetary authority decided
that they should be spread over two years. Other operations
have not yet been completed owing to the cumbersome nature
of the procedures used. In particular, owing to the fact that the
Director did not take up his duties until 1 March 2000,
consideration of the reform of OLAF’s operational structures
has not yet been concluded, and the managerial staff are
not yet in place. The decentralised management procedures
intended to reinforce OLAF’s independence have not yet been
formally laid down, and this is also helping to delay the
introduction of new structures.

From the very start, the Supervisory Committee finds itself
obliged to draw the political authorities’ attention to the fact
that the system which they devised in four months, i.e. from
January to May 1999, has not yet been definitively introduced,
more than one year after Regulation (EC) No 1073/1999 (1)
(hereinafter ‘the Regulation’) was adopted by Parliament and
the Council under the codecision procedure, following the
adoption of the decision of 28 April (‘the Decision’).

This state of affairs, which is due to the political context that
led to the establishment of OLAF, has determined the way the
Supervisory Committee’s activities, which are the subject of
this report, have been organised and conducted.

On the one hand, the establishment of OLAF reflected the
political authorities’ wish to change not only the mission, but
above all, the nature of the entity responsible for combating
fraud and all other illegal activities detrimental to the Com-
munity’s financial interests, the aim being to guarantee the
Office’s operational independence. The approach initially taken
by the Commission was to propose a new, totally independent
interinstitutional body. This approach was not accepted by
Parliament or the Council, basically because it would have
deprived the new body of
the Commission’s powers of
supervision and investigation throughout the time required for
the transfer of those powers to the body.

the
For the same purpose of avoiding any interruption,
Commission decided to provide OLAF with the entire UCLAF
staff as soon as the Regulation entered into force and instructed
the UCLAF Director to act as Director of OLAF until the new
incumbent, appointed under the procedure laid down in the
Regulation, took up his post. In actual practice, however, it
was not just UCLAF’s staff, but also its structures and methods
that were transferred to OLAF.
It was only in the area
of budgetary forecasts, where the Supervisory Committee’s
opinions clarified the situation, that relations between the
Commission and OLAF could be established from the outset
in a way that was in line with the principles laid down by the
legislator. However, during this period, relations between
OLAF and the Commission were not well suited to the new
autonomy and the principles governing such interdepartmen-
tal relations in the Commission remained unchanged,
in
particular as regards personnel and budget management,
something which caused a number of misunderstandings,
difficulties and delays.

On the other hand, the Supervisory Committee was established
pursuant to the same Regulation precisely in order to strength-
en and guarantee OLAF’s independence: ‘Whereas the Office
should enjoy independence in the discharge of its function;
whereas, to reinforce that independence, the Office should be
subject to regular monitoring of its investigative function by a
Supervisory Committee, made up of outside independent
persons highly qualified in the Office’s fields of activity;
whereas the Committee’s duties should also include assisting
the Office’s Director in discharging his responsibilities’ (recital
17). Following on from this recital, the Regulation stipulates
that ‘The Supervisory Committee shall reinforce the Office’s
independence by regular monitoring of the implementation of
the investigative function. At the request of the Director or on
its own initiative, the Committee shall deliver opinions to the
Director concerning the activities of
the Office, without
however interfering with the conduct of investigations in
progress’ (Article 11(1)).

(1) In actual fact Regulation (EC) No 1073/1999 and Regulation (EC)
No 1074/1999. For practical reasons, reference will be made only
to Regulation (EC) No 1073/1999 in the rest of this report.

lays down that

Moreover, Article 11(8)
‘the Supervisory
Committee shall adopt at least one report on its activities per
year which it shall send to the institutions’. Drafted so as to
provide an account of the performance of its tasks, this initial
progress report of the Supervisory Committee also serves the
purpose of drawing attention to the difficulties encountered.

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This report outlines the work done by the Committee in
accordance with the Regulation, at 11 meetings (the Regulation
stipulates that there must be at least 10 meetings a year). It has
been drawn up on the basis of the minutes of each of those
meetings. Apart
together with the
from the time spent,
secretariat, on preparing and following up the meetings,
members of the Committee basically concentrated their activi-
ties during their monthly meetings. It should be recalled that
the Committee is composed of
‘five independent outside
persons who possess the qualifications required for appoint-
ment in their respective countries to senior posts relating to
the Office’s areas of activity’ (Article 11(2)) and that these five
persons have in no way been relieved of the duties incumbent
upon them in their respective Member States.

During this first year, which has been one of transition from
UCLAF to OLAF, the Supervisory Committee’s activities have
been focused largely on the establishment of new structures
(Chapter I). This report therefore provides an account of the
Committee’s deliberations regarding the Office’s organisation
and functioning. As regards the monitoring of operational
activities, however, the Committee has had to take into account
the constraints and obstacles resulting from the mismatch
between the old UCLAF structures and the new tasks that
have been entrusted to OLAF. Taking such difficulties into
consideration, an initial assessment has been made by reference
to the objectives laid down in the Regulation (Chapter II).
Lastly, going beyond the difficulties typical of a transition
the report seeks to identify where the limitations
period,
associated with the new structures lie and makes proposals as to
how improvements might be made (Chapter III).

CHAPTER I

ESTABLISHMENT OF NEW STRUCTURES

first consider the establishment of

This chapter will
the
Supervisory Committee (A), then the transition from UCLAF
to OLAF (B), and lastly the organisation of relations between
the Supervisory Committee and OLAF (C).

A.

ESTABLISHMENT OF THE SUPERVISORY COMMITTEE

Even before they officially took up office on 1 August 1999,
the Committee members, appointed by common accord of
Parliament, the Council and the Commission, met in Brussels
on 12 and 13 July 1999 for an initial exchange of views (in
the presence of the representatives of the three institutions) on
the Committee’s task and priorities, its working methods and
the material conditions for its independence. At this meeting,

it was emphasised that the Committee’s task would not be to
act as a governing body intervening in the management of the
Office, but, in accordance with Article 11 of the Regulation, to
strengthen the Office’s independence through regular and, in
practice, a posteriori monitoring of its investigative function.
After carrying out an initial assessment of OLAF’s activities
and methods at its first meetings, the Committee laid down its
own working methods, deciding to hold monthly meetings,
opting for a system of rapporteurs responsible for preparing
the different items of business, and drawing up its Rules of
Procedure (as provided for in the Regulation). At the same
time, it had to recruit staff for its Secretariat.

1. Rules of Procedure

The Committee’s Rules of Procedure, drawn up on the basis of
an analysis of the current functioning of OLAF and of the
changes to be made to structures and methods, were adopted
on 17 November 1999 and published in the Official Journal of
the European Communities of 15 February 2000 (1). They organ-
ise, group together and specify the provisions of Regulation
(EC) No 1073/1999 of the European Parliament and of the
Council in order to render operational the rather general legal
framework they lay down.

Tasks of the Supervisory Committee

In performing its task of strengthening the Office’s indepen-
dence through regular monitoring of the implementation of
the investigative function, as set out in the Regulation, the
Committee felt it important to specify in its Rules of Procedure
the criteria on the basis of which it is to carry out these
monitoring tasks, in particular compliance with the law. These
monitoring tasks are not the same thing as the judicial review
provided for in Article 14 of the Regulation, which is the
responsibility of the Director of OLAF, and,
in the final
instance, of the Court of Justice, and therefore do not take its
place.

Procedures and means of action

The Rules of Procedure set out the various procedures under
which the Committee is to carry out its investigative role
within the terms of the Regulation, lay down the relevant rules
and specify the material conditions under which this work is
to be done: access to information held by OLAF; use of
inspections, expert reports and studies; the hearing of represen-
tatives of institutions in the event of a refusal to inform OLAF.
The Rules point out, in this connection, that the Committee
must refrain from interfering with the conduct of investigations
in progress.

(1) A note of 21 June 2000 drawn up by the Commission’s Legal
Service on the Rules of Procedure appears to depart from the
status and functions of the Supervisory Committee as laid down
by the Community legislator.

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Independent status

The Committee felt it appropriate to reiterate in its Rules of
Procedure the importance of its legitimacy and independence.
Its members are appointed by common accord of the European
Parliament, the Council and the Commission,
i.e. by the
Union’s highest political authorities, and must perform their
role in complete independence. The Committee has therefore
organised the conduct of its business in such a way as to
guarantee this independence,
in particular with regard to
members’ status, the committee’s budget and its secretariat.

Functioning

The Rules of Procedure expand on the brief provisions of
Article 11(6) of the Regulation with a view to guaranteeing the
effective operation of the Committee, making full use of the
skills of its members and seeking to ensure transparency. Its
procedures and working methods are intended to prepare and
facilitate decision-making on a consensual basis, given that it
meets, on average, two days per month. The Rules of Procedure
are aimed at encouraging decision-making on a collegiate basis
so as to enhance their authority. This collegiate approach is
backed up and given a framework by the definition of the
chairman’s powers, under which he is responsible for the
proper conduct of meetings, the implementation of decisions
and external contacts.

Relations with the Director of OLAF

The nature of these relations is defined in recital 17 of
the Regulation:
the Committee is responsible for regular
monitoring of the Office’s investigative function and assists
the Office’s Director in discharging his responsibilities in this
respect. The Rules of Procedure contain detailed provisions on
the monitoring dimension of these relations.
It was also
necessary to draw up a procedure for preparing the opinion
which the Committee is required to deliver under Article 12(2)
of the Regulation on the list of candidates for the post of
Director. This procedure was in fact implemented before the
formal adoption of the Rules of Procedure.

2.

Secretariat

As soon as the members of the Committee were appointed,
Parliament’s Secretary-General placed two officials at OLAF’s
disposal, on a provisional basis, to be responsible for the
Supervisory Committee’s secretariat. This made it possible to
make the necessary organisational arrangements and start
work rapidly, as the High-Level Group (1) had requested. At its

first meeting, the Committee firstly defined the secretariat’s
tasks, as subsequently set out in the Rules of Procedure. It
immediately established the principle that the secretariat placed
at its disposal should be under its sole authority and took the
necessary measures to ensure that it could perform its tasks
effectively, exclusively serving the missions entrusted to the
Supervisory Committee.
In its first opinion (No 1/1999)
adopted at the meeting of 31 August 1999, on OLAF’s
budgetary situation, it proposed to the Director an establish-
ment plan for its secretariat and this proposal was adopted by
the budgetary authority in Supplementary Budgets Nos 4/1999
and 5/1999 and Letter of Amendment No 4 relating to the
preliminary draft budget for 2000.

The recruitment procedures were opened as soon as the posts
created by the budgetary authority actually became available,
on 1 January 2000. They were conducted in accordance with
the principles established by the Committee in its Rules of
Procedure (Article 19(1)), which had been published in the
Official Journal of the European Communities. on 15 February
1999, and the guidelines laid down by common accord with
the Director of OLAF and set out in Committee Opinion
No 1/2000. However, the procedure for filling the secretariat
posts was delayed for several months owing to a disagreement
between OLAF and the Commission on the nature of these
posts. OLAF, referring to Article 6 of the Decision, which
conferred on the Director the power of appointment and, in
particular, the power to establish recruitment conditions and
procedures, wished to take the recruitment decisions on a
completely independent basis. The Commission, on the other
hand, considered that such decisions should be subject to the
institution’s internal procedures.

it feels, preserves its independence,

Finally, in a spirit of conciliation and in order to prevent the
system grinding to a standstill because it was not possible to
recruit a secretariat, the Supervisory Committee agreed to an
arrangement which,
is
sufficiently flexible and guarantees the permanent nature of
the secretariat’s functions, namely the open-ended temporary
contract arrangement under Article 2(c) of CEOS (2). This
also has the advantage of not undermining the Director’s
independence as the appointing authority and of meeting the
recruitment needs of OLAF,
in particular as regards the
possibility of recruiting people from outside the Commission
for the purpose of appointing specialists or guaranteeing the
Office’s independence.

The Committee also asked for the secretariat to be organised
in such a way as to preserve its independence.

(1) Established by the European Council in January 1999 on the
initiative of Chancellor Schröder, Mr Gil Robles, President of the
European Parliament, and Mr Santer, President of the Commission.

(2) Conditions of employment of other servants of the European

Communities

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B.

TRANSITION FROM UCLAF TO OLAF

— the range of tasks covered by OLAF is far too extensive

and highlights the absence of priorities,

From its very first meeting, the Supervisory Committee was
fully aware of its responsibilities with regard to the transition
from UCLAF to OLAF. For the purposes of this transition, the
Commission had, as mentioned above, decided to transfer the
entire UCLAF structure to the new Office and to confer on
the UCLAF Director responsibility for exercising the OLAF
Director’s functions on a provisional basis. As part of its task
of assisting the Director, the Committee therefore began,
to
during this particularly important and delicate phase,
examine OLAF’s tasks and the resources required for it to carry
out those tasks, in particular its operational structure. It also
contributed to the procedure for appointing the Office’s new
Director.

1. Operational structure

The establishment of OLAF and the definition of its tasks and
powers under the Regulation were based on the legislator’s
desire to amend and improve procedures for the protection of
the Community’s financial
interests and action to combat
fraud. This desire for change was based on the analyses and
assessments of the Court of Auditors as well as Parliament and
the Council, which had drawn attention to shortcomings and
weaknesses with regard to the independence of investigations,
the transparency of procedures and the resources available.

On taking up its duties, the Supervisory Committee had the
task of taking these analyses a stage further in order to draw
operational conclusions and prepare the work of the future
Director in considering what structures and procedures would
be adequate.

As early as its meeting of 31 August 1999, the Committee
carried out an initial assessment of OLAF’s operation with a
view to drawing up its guidelines for the Offices’ budget, the
main points of which were as follows:

‘— the move from UCLAF to OLAF has not yet resulted in
the changes in tasks and structures called for by the
political authority,

— there are no structured links between investigative activi-
ties and the management services, whether in the Com-
mission’s directorates-general or in the Member States,

— the aims of OLAF’s investigation policy have not been
clearly defined and the decision to open an investigation
is reactive, whereas it should be proactive; such aims
should be reflected in the budgetary forecasts,

— there should be a clearer distinction,

in the nature
of OLAF’s tasks, between information, coordination,
legislation and investigative activities,

— the compartmentalisation of inquiry units into specialised

sectors is counter-productive,

— security aspects in relation to staff as well as information,
are only tackled superficially and the resources to be
allocated to these aspects should be increased,

— collection and analysis of information should have a
central role in the organisation and a better balance
should be sought between information and investigation.
OLAF should carry out a systematic analysis of audit
reports,

— instruments should be developed to enable information
technologies to be used for collecting and processing
information,

— the lack of budgetary independence has serious reper-
cussions on the purchase of equipment and recruitment
of personnel (1)’.

The Committee concluded that OLAF should be provided with
a complete overview of the Office’s organisation, working
methods and procedures. It was thus possible to initiate a
dialogue with the new Director as soon as he took up his
duties on the aims and procedures of a new structure for
OLAF, which in turn made it possible for clear guidelines to
be drawn up on the 2001 budgetary estimates and with regard
to the procedures for filling the new posts created by the
budgetary authority.

A study of OLAF’s operational tasks and working methods
which external experts were commissioned to carry out was
submitted on 29 March 2000 (see below). It contains a detailed
assessment of OLAF’s operations at the time when the new
Director took up his duties. In addition to its assessments
which concur with and supplement the conclusions previously
reached by the Court of Auditors, the Committee of Indepen-
dent Experts and the Supervisory Committee itself, the study
provides a significant contribution to the OLAF Director’s
analysis of restructuring requirements. The Committee there-
fore carefully considered the study and took up its main
recommendations: separate organisation and operation as
regards internal and external investigations; establishment of a
magistrate’s unit to supervise investigations and guarantee
legality; ensuring that OLAF’s
their internal and external
operational activities are part of a strategy defined by the
Director with the assistance of an ‘intelligence’ structure.

(1) Based on the minutes of the meeting of 31 August 1999.

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2. Appointment of the Director

The three institutions meeting within the High-Level Group,
Parliament, the Council and the Commission, were in favour
of establishing OLAF’s new bodies, and in particular its
Director, as swiftly as possible. At its first official meeting, the
Supervisory Committee had to establish a procedure for the
adoption of the opinion which it was required to draw up,
pursuant to Article 12(2) of the Regulation, on the list of
candidates with the necessary qualifications (Article 20 of the
it expressed the wish that
Rules of Procedure). Similarly,
internal and external recruitment procedures be initiated
simultaneously and, by urgent procedure, delivered a favour-
able opinion on the draft call for applications.

At its meeting of 6 and 7 October 1999, the Supervisory
Committee therefore began its consideration of the appli-
cations which the Commission had submitted to it. Having
then considered the applications on the basis of a grid for the
assessment of applicants’ qualifications, the Committee then
felt that it could give a favourable opinion on a list of 11
applicants, which it forwarded to the Commission (Supervisory
Committee Opinion No 3/1999). In accordance with the Rules
of Procedure, the Director was chosen by the institutions
from amongst the candidates on the list forwarded by the
Supervisory Committee.

C. ORGANISATION OF RELATIONS BETWEEN THE

SUPERVISORY COMMITTEE AND OLAF

At its preliminary meeting of 12 and 13 July 1999, the
Supervisory Committee observed that its terms of reference
and the conditions of its appointment required it to carry out
regular checks on OLAF’s operations, holding approximately
10 two-day meetings each year. This being so, and on the basis
that the preparatory work could not reasonably exceed one
day’s preparation per meeting day, the Supervisory Committee
could only perform its task properly if permanent contact
could be maintained with the secretariat (which, as will be
recalled, is still provisional).

The Committee’s work has accordingly focused on the meet-
ings, which have been devoted not only to adopting positions
on the supervision of operations, but also, during this first
year, to the restructuring and administrative and budgetary
management of OLAF. The opinions,
letters and reports
communicating these positions formally to the institutions
more particularly concerned institutional or administrative
issues, whereas the positions adopted by the Committee on
the subject of the investigative operations have generally been
communicated by letter or orally to the Director at meetings.

In order to be able to check on OLAF’s operations regularly,
the Supervisory Committee has sought from the outset to
institute procedures for obtaining the information required in
order to exercise such supervision, to which end it has had to
overcome the difficulties arising from the inadequacy or non-
existence of procedures for registering information or files and
the lack of harmonised rules for processing them.

Its assessment of OLAF’s work reflects the situation with
regard to the information available: the Committee does not
yet have sufficient data to enable it to assess comprehensively
to what extent the expectations formulated by the High-
Level Group (representing Parliament, the Council and the
Commission), Parliament,
the Court of Auditors and the
Committee of Independent Experts have been met during this
first year of OLAF’s operation; however, the Committee has
expressed views on particular aspects of OLAF’s operations in
opinions, reports,
letters or exchanges of views, and the
positions it has adopted in this way have been recorded in its
minutes.

1.

Procedures for obtaining information

In order to supplement what is still very incomplete direct
information,
the Supervisory Committee has taken into
account various sources of indirect information.

(a)

Direct information

In view of the need to condense the Committee’s deliberations
into the two days of the monthly meeting, the Committee
found it expedient to configure its information system in
such a way that summaries could be produced rapidly for
operational purposes. The Regulation expressly provides for
certain sources of
information which are useful but not
sufficient for the exercise of regular supervision. The Director’s
report to the institutions pursuant to Article 12(3), second
paragraph, or the programme of activities referred to in
Article 11(7) contain valuable information, but
it is too
general. Conversely, the information which is to be provided
same
to the Supervisory Committee pursuant
Article 11(7) in certain cases (where an investigation has been
in progress for more than nine months, where information
needs to be forwarded to the judicial authorities of a Member
State, and cases where the Director’s recommendations have
not been acted upon) is too fragmented.

to the

The Committee has therefore made use of the more general
provision in the same article which stipulates that ‘the Director
shall keep the Committee regularly informed of the Office’s
activities, its investigations, the results thereof and the action
taken on them’ with the aim of trying to establish a chart of
OLAF’s operations which would enable it to exercise constant
supervision. On-site inspections of OLAF by several of its
members provided it, inter alia, with indications of the nature
and structure of the information available: as neither the

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conditions under which the information received was recorded
nor the procedures for dealing with cases were centralised or
harmonised, the information which the Committee required
had to be gathered and presented in advance, which, inciden-
tally, presupposed a reorganisation of OLAF’s working
methods. The Committee consequently asked the Director, for
each meeting, to provide it with a periodic overview of the
cases under investigation and a press file. Since May 2000, the
Committee has thus had summaries and data sheets concerning
the cases which had been under investigation for more than
nine months and the internal
the
Director was asked to inform the Committee systematically of
cases which he thought concerned an issue of principle.

In addition,

inquiries.

The Committee also requested that external experts draft an
overview of OLAF’s operations and working methods. This
was done, describing the situation as at the end of February
2000, and provided important indirect information to assist
the Committee in assessing the work of OLAF.

(b)

Indirect information

In addition to being approached on several occasions with
requests from Members of Parliament or persons under
investigation, the Supervisory Committee has also been able
to make use of various documents.

— Firstly, the experts’ study of OLAF’s operational tasks and
working methods (1), which was forwarded to OLAF on
29 March 2000, reviews the structure and functioning of
the Office as regards its operations. It considers the
various functions of OLAF and their organisation, the
methods used to draw up an anti-fraud policy and
strategy, and the various aspects of the Office’s operations:
information,
investigations, coordination and follow-
up. Before presenting a summary of some interesting
recommendations for restructuring, the study analyses
the way in which the Office now functions, particularly
its operational activity. However, this analysis, covering
the period ending on 29 February 2000, does not permit
an overall assessment of OLAF’s activities to be made. Its
only contribution can be as a source of information for
use in evaluating the restructuring currently in progress.

— Secondly, OLAF’s first report on its operations, dated 6 June
2000, begins by describing the procedures governing the
Office’s functioning and then presents an overview of
operations, particularly those performed between 1 June
1999 and 29 February 2000. Like the experts’ study it is
therefore primarily of value as source material for an
assessment to be made once restructuring is completed.

(1) Anne Heitzer, Jean de Maillard, Simone White.

The data it presents concerning investigations performed
and their follow-up provide some interesting information
about the division of the Office’s work between investi-
gations and coordination, the number and proportion of
cases, investigations initiated, investigations closed and
reports drawn up and forwarded to the competent
authorities. But OLAF’s report recalls that, particularly on
account of the recent date of entry into force (1 June
1999) of the Regulation, and hence the recent nature of
the requirement
to draw up an investigation report
(Article 9), these figures do not give a clear picture of the
facts.

The report raises the following issues without, however,
offering any solution:

— the large number of investigations closed without a

report,

— the duration of the validation procedures,

— the small number of judgments given after cases

were forwarded.

— Lastly, the Commission communication on an overall strategic
approach, drawn up at the request of the Helsinki European
Council on the basis of proposals drafted by OLAF, has
the advantage that it incorporates the Office’s proposed
strategy into the policy envisaged by the Commission.
this document
For an overall assessment of OLAF,
indicates the context in which the Office must operate
and in which its restructuring must take place.

However, the Committee noted that the challenges referred to
in this communication often fell within the remit of the
Commission rather than that of OLAF. It therefore wished to
have the opportunity to examine OLAF’s own strategy on the
basis of the programme of activities which the Director is
required to submit to it annually pursuant to Article 11(7) of
the Regulation.

2. Assessment

Owing to the mismatch between OLAF’s structures and
working methods, which are still subject to restructuring, the
conditions needed for making an overall assessment do not
exist: the on-site inspections by its members made it clear to
the Committee what difficulties it would encounter in its
attempt to assess OLAF’s operations. Besides the lack of clear
management, the lack of harmonisation of procedures and
practices, and the imperfections of the system for recording
information and filing, the fact that OLAF has for more than a
year been undergoing a period of transition and restructuring

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made this exercise very difficult, as it was impossible to
distinguish between intentions and plans already being
implemented and to evaluate structures which are still in the
process of being set up. However, during this first year of
operations the Committee was able to assess various selected
questions either when considering particular cases that had
been referred to it or by analysing the collections of summaries
submitted by the Director. Its principal observations relate to
investigation procedures and procedures for the referral of
cases to the judicial authorities and to the protection of those
subject to proceedings.

(a)

Investigation procedures

The cases examined by the Committee concerned investi-
gations, some of which had been started by UCLAF with the
legal bases applicable at the time, while others had been based
on the provisions of the Regulation and the 1999 Commission
Decision. The period under consideration is therefore charac-
terised in the first place by a change not only in the legal
framework for the investigations but also in their nature.
Although formally they were at all times administrative, in
terms of subject matter and effect, the investigations, taking
further a trend which began with the adoption of Regulation
(Euratom, EC) No 2185/96, encroached upon the field of
criminal law, although they lacked the necessary guarantees
with regard to the rights of individuals (1).

In particular, the general guidelines in the Regulation and in
the Decision of 2 June 1999 concerning the conduct of
investigations have not been translated into centralised and
codified instructions to the investigators,
to which those
subject to legal proceedings could have been given access. A
manual of this kind, which is currently being drafted, ought
therefore to take account of the objectives of the current
restructuring:
to provide a framework for operations in
accordance with a strategy laid down by the Director and to
introduce a unit comprising legally qualified magistrates to
ensure the internal and external regularity of investigations.

The lack of such instructions in effect arose from a certain
confusion among the various categories of action by OLAF,
particularly between actual investigations, the coordination of
national
for administrative or
criminal inquiries.

investigations and support

The future instruction manual ought therefore to reflect the
need to organise OLAF in such a way as to stress the special
character of internal investigations.

On the other hand, the Committee observed that the provisions
of Article 4(2), first indent, of the Regulation concerning access
to the premises of the institutions were being applied without
those subject to investigation being informed of their rights,
and that the records of hearings carried out on the basis of the
second indent of the same article were not systematically
submitted to the people who had been heard for approval. The
new instruction manual should of course also remedy these
shortcomings.

Finally, the Committee notes with interest the reforms in
progress with a view to giving the Director sole responsibility
for decisions to open and close investigations and concerning
the length of the periods of validation of the information
received.

(b)

Referral to the judicial authorities

Article 11(7) of Regulation (EC) No 1073/1999 requires the
Committee to be informed of cases requiring information to
be forwarded to the judicial authorities of a Member State. In
it is able to monitor this particularly
principle, therefore,
important stage in OLAF’s operations. However, it was only at
the end of the period under consideration that satisfactory
arrangements were established in relation to this information.

The Committee deliberated on the question of referral to
judicial authorities when considering particular cases. It noted
the lack of clear and exact criteria for determining the nature
of the referral. The Regulation refers to two different situations:
forwarding of the report drawn up after an investigation
(Article 9) and forwarding by the Office of
information
obtained in the course of an investigation (Article 10), without
indicating the relationship between these two situations.
In practice, the two possibilities seem to have been used
indiscriminately, and the reasons why OLAF sometimes for-
wards the whole file and sometimes only part of it, and why it
refers a case to the enforcement or to the administrative
authorities of one country or another, are not apparent, which
gives an impression of arbitrariness and improvisation.

The Committee therefore wishes this legal ambiguity to be
clarified at
(see the improvements
proposed in Chapter III).

the appropriate level

(1) Any such development must fit in with the Community legal
order and in particular take account of the case-law of the Court
of Justice of the European Communities, which takes the view
that the criminal nature of a case is linked to the nature of the
offences in question and to the nature and severity of
the
associated penalties (ECR, 8 July 1999, C-235/92, point 176). In
its view, the criminal nature of a case entails the application of
general principles of criminal law, and in the case in question, the
principle of presumption of innocence.

(c)

Protection of those subject to proceedings

The Supervisory Committee considered this issue from the
practical point of view, primarily on the basis of information
which it received from people whom OLAF had investigated
and statements made by the Office at the Committee’s request.

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At the outset the Supervisory Committee made it clear that its
checks did not constitute any avenue of redress designed to
ascertain individual responsibilities. From the strict point of
view of consideration of the application of the provisions in
force, it noted the effectiveness of a certain monitoring of the
investigations (1). On the basis of
regularity of OLAF’s
Article 14 of the Regulation, a complaint was submitted to the
Director of the Office concerning the examination of acts
adversely affecting the complainant committed as part of an
internal
investigation. This complaint, which was lodged
in accordance with Article 90(2) of the Staff Regulations,
subsequently led to proceedings before the Court of First
Instance (2). Similarly, the Disciplinary Board may perform
certain checks on the regularity of the Office’s investigations (2).

the demands of

As regards the nature of the rights concerned, it should be
the interested parties relate
noted that
essentially to their right to be informed and to have the
opportunity to state their case, and the right to an impartial
investigation.

The assessment of this protection remains an unresolved issue,
as cases are still pending. However, it should be noted that this
protection is effective to the extent that it is subject to review
by the Court of First Instance and the Court of Justice, but that
comes late in the day, namely a posteriori, rather than during
the investigation.

As regards the draft budgets, this meant ensuring that the
posts and appropriations necessary to allow OLAF to function
properly were safeguarded in each budget.

In doing so, the Committee had to bear in mind that the
decisions of Parliament, the Council and the Commission on
the establishment of OLAF call for a gradual approach in
setting up and implementing OLAF, notably by spreading the
creation of 300 posts and the recruitment of staff for these
posts over a relatively long period of time and various different
budgets.

Taking the structure of the former UCLAF as its starting point,
the Supervisory Committee discussed the budgetary issues
raised by each draft budget, taking particular pains to establish
which forms of structure and organisation might be appropri-
ate to enable OLAF to undertake the tasks allotted to it
efficiently as intended by the decisions of
the European
institutions. One question in particular that needed to be
addressed in order to ensure that OLAF could operate properly
concerned the relationship between A and B posts. The
Committee also discussed to what extent posts should be
allocated as temporary posts, despite OLAF’s changed remit
which meant that it no longer operated merely as a task force.

CHAPTER II

AN INITIAL ASSESSMENT

Discussions on the structure and tasks facing OLAF in
connection with the human and other resources required by
OLAF also considered to what extent the use of modern
technologies by OLAF called for particular funding.

In addition to the specific assessments referred to above, it is
necessary to assess the Committee’s role as guarantor of
OLAF’s independence within the meaning of the Regulation in
the budgetary and administrative spheres (A) and as regards
organisational independence (B) and functional independence
(C), and as the body coresponsible for confidentiality and data
protection. within the meaning of Article 8(4) (D).

A. OLAF’S INDEPENDENCE IN BUDGETARY AND ADMIN-

ISTRATIVE MATTERS

At its very first meeting and regularly in all subsequent
meetings the Supervisory Committee considered the sup-
plementary budget for 1999, the budget for 2000 and the
budget for 2001.

In its consultations and decision-making the Supervisory
Committee was particularly conscious that one of its tasks
consists in guaranteeing the independence of OLAF.

Basically, the Supervisory Committee took care in its budgetary
decisions and opinions to ensure that the demands made on
OLAF in the decisions by Parliament, the Council and the
Commission were actually met.

The 1999 supplementary budget showed clearly that the
recruitment of staff and the construction of the future organis-
ation of OLAF should be left to subsequent budgets. Neverthe-
less, the Supervisory Committee attached great importance to
the fact that the 300 posts provided for and the appropriations
required for this purpose should be made available by the
in good time. The
budgetary authorities and Parliament
Supervisory Committee therefore welcomed the fact that the
2001 draft budget met all the budgetary preconditions to
ensure that OLAF would finally be set up by this budget as
intended by the decisions of Parliament, the Council and the
Commission.

The constitutional guarantees provided by the institutions for
the Office are intended, by guaranteeing its independence, to
give it the maximum room for manoeuvre both internally and
externally to protect the financial interests of the EU.

(1) UCLAF’s investigations were likewise subject to the control of the
Court of Justice of the European Communities. See Tzoanas
judgment — Case C 191/98 P.

(2) Case pending.

Important first steps in this direction were taken during the
period under review.

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The Supervisory Committee took up its work in the knowledge
that it was the direct and primary guarantor of the indepen-
dence of OLAF.

posts and the difficulties in dismissing staff where necessary.
Since the Director-General of OLAF has not been given
maximum freedom to act independently, the Office’s room for
manoeuvre and independence have been impaired.

At almost all meetings since the constitution of the Supervisory
Committee there were detailed discussions concerning the
budgetary, organisational and administrative independence of
this agency. One area of particular concern for the Committee
was to what extent the structure of UCLAF which had been
taken over might hinder the work of the new Office. Bearing
in mind that the change from UCLAF to OLAF would have to
have been effected at the latest by the end of the construction
phase, i.e., at the end of 2001, the Supervisory Committee
reviewed its structure and held related discussions, most
recently with the new Director-General who took office on
1 March 2000.

It should however be borne in mind that the independence
which is essential if the Office is to function optimally has
only been partly achieved and guaranteed. This is due primarily
to the fact that OLAF is still being set up. As stated above, the
Director-General of the Office who was selected by a Europe-
wide competition was only able to take office on 1 March
2000.

Only since that date have there been institutional guarantees
that the structure and staff complement will be implemented
and operate as envisaged by the institutions and bearing in
mind also the consensual discussions held between the Sec-
retary-General and the Supervisory Committee. However,
the Supervisory Committee and the Director-General have
completed neither their discussions on the structure nor on
the guidelines for OLAF. For example,
it still needs to be
decided whether the Office will or should operate according to
the principle of legality or the discretionary principle. Another
question that has not been discussed is to what extent the
administrative reform which has begun in the EU institutions
will be taken up by OLAF and if so, in what direction.

Since the recruitment of staff and the financial endowment of
the Office have only just begun, and the structural priorities of
OLAF’s activities and working methods have not yet been
sufficiently discussed, OLAF is still a long way from the
organisation envisaged by Parliament, the Council and the
Commission in their decisions.

In the period under review it has also become clear that the
guarantees of
independence given to the Office are still
not sufficient. The lack of independence in recruiting and
transferring or dismissing staff owing to the close ties with the
Commission’s administration has almost led to gridlock. This
is shown by the duration of the recruitment procedure for

The Supervisory Committee takes the view that budgetary
independence means that the Office should be able to take
it
structural decisions independently of
includes freedom to take decisions on staff and freedom
of manoeuvre. In the period under review, none of these
preconditions were fully met, as they must be if OLAF is to
work properly. The Supervisory Committee will take pains
during the next review period to ensure that the independence
which OLAF has been guaranteed is achieved even more fully,
even in its daily work.

the institutions:

B.

FUNCTIONAL
ACTIVITY)

INDEPENDENCE

(INVESTIGATIVE

The role and responsibilities of the Supervisory Committee in
relation to investigative activity are essentially described in
Article 3 of the Rules of Procedure, which clearly indicates that
investigative activity is to be monitored by the Committee. It
was never the intention that the Committee should enter into
detailed examination of ongoing investigations, but rather
ensure that certain basic procedures and principles are
respected.

At an early meeting, the Committee appointed two of its
members to evaluate the way in which OLAF functioned in
relation to investigations following the period in which UCLAF
had been in operation. This evaluation was based on meetings
with the interim Director of OLAF as well as with members of
the staff.

Progress was not particularly satisfactory due to the fact, and
this is understandable, that the interim Director and most of
the staff were carried over from UCLAF.

The tasks of OLAF, in so far as investigations are concerned,
are defined in Article 2 of the Commission Decision estab-
lishing OLAF.

It is clear that the internal structures of OLAF should corre-
spond to an organisational plan which would enable it to carry
out its newly defined role.

It has to be said that, without a Director being appointed on a
permanent basis, it is difficult to imagine how serious long-
term reform could be undertaken. An examination of the
manner in which investigations had been conducted during
the UCLAF period disclosed a certain number of anomalies
and weaknesses which arose essentially from the fact that
there were no internal rules of procedure for dealing with
investigations and that they were often dealt with according to
the individual investigating officer’s interpretation of what was
required, thus preventing uniformity of action. The role of
investigation in so far as internal and external cases were
concerned was not clearly defined.

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The Committee decided at the outset that its role was not to
examine the past action of UCLAF, except in so far as it could
be used as a basis of experience in the establishment of the
working methods and structures of OLAF.

The Committee’s task was considerably complicated by the
fact that a new Director was not appointed permanently until
1 March 2000, so that the Office’s new establishment plan is
still on the drawing board.

In the light of the above remarks, it is clear that the Committee
has not been in a position to carry out, other than partially, its
responsibility for monitoring in accordance with the pro-
cedures outlined in Article 3 relating to its role and responsi-
bilities.

It was difficult to ‘examine the information on investigative
activity supplied on a regular basis by the Director of OLAF’,
essentially because the internal mechanism did not exist within
OLAF to supply information in a uniform manner, notably in
relation to cases which had been under investigation for some
time.

that

the Committee,

in the context of

The fact
its task
of regularly monitoring implementation of the investigative
function (Article 11(1) of the Regulation), had access to all
documents and files held by and data stored by OLAF was not,
during the interim period pending the appointment of the new
Director, of real assistance, given the lack of uniformity in
dealing with case files in general and in particular the lack of
procedures and structures to deal with intelligence infor-
mation.

Monitoring by the Committee has therefore been based on
case files selected pragmatically on the basis of their topicality
or of specific communications received from members of the
institutions or from individuals. The Committee has used the
information obtained to assist it in its task of ‘reinforcing the
independence of the Office’, which it performs by issuing
opinions to the Director, but it reserves the right to deliver
more formal opinions on certain cases if need be.

The lack of clearly defined objectives following the creation of
OLAF also made it difficult to consider whether any real
strategy had been developed.

The Committee is aware that OLAF is a new organisation, as
indeed is the Supervisory Committee, and that it will inevitably
take a certain amount of
time to introduce permanent
measures concerning rules and procedures for investigations.
Not until this has been achieved will the Committee be able
effectively and efficiently to carry out its monitoring function.
The Committee will, however, continue to supervise, in close
cooperation with the Director, the implementation of measures
which will ensure the independence of OLAF in so far as
investigative activity is concerned. This will also apply to a
certain number of cases where investigations were started
by UCLAF and where continued action by OLAF appears
necessary.

C. ORGANISATIONAL

INDEPENDENCE

(INTERINSTI-

TUTIONAL RELATIONS)

The Supervisory Committee reinforces the Office’s indepen-
dence by ensuring that its interinstitutional position, as laid
down by the legislative authorities, is protected. It is necessary
to bear in mind the circumstances that surrounded the
adoption of the Regulation by Parliament and the Council on
25 May 1999 in order to fully understand why, despite their
wish to confer genuine independence on OLAF, the legislative
authorities have not resolved all the difficulties that stem from
OLAF’s interinstitutional status, nor those which stem from
OLAF’s involvement in interinstitutional discussions of the
protection of the financial interests of the EC.

1.

The context

The institutions have long been concerned about the need
to strengthen the means of combating fraud affecting the
Community budget. It is a concern that dates from a time
when it was estimated that fraud affecting the Community
budget,
the extent of which it was difficult to measure,
amounted to 10 % of the budget, while at the same the
Community institutions had virtually no powers in this area.
The response of the institutions at that time was to establish a
Commission service, UCLAF, responsible for coordinating the
exercise of the various powers conferred on the Commission
in the area of administrative controls, as part of its role in the
implementation of Community policies and the budget. In the
early 1990s, a number of high-profile cases of fraud clearly
demonstrated the need for the Community’s anti-fraud mech-
anisms to be made tougher. As a result, UCLAF was given
responsibility not only for exercising the Commission’s powers
relating to anti-fraud controls but also new powers to conduct
on-the-spot administrative investigations. New texts laid down
the definition of and sanctions for administrative and criminal
offences affecting the Community budget.

Despite these changes, when Parliament and the Council came
across instances of irregularities and fraud in the institutions
in the course of the discharge procedure for 1996, it became
apparent that the new arrangements did not guarantee invest-
igative independence and that this would have serious conse-
quences for the transparency and effectiveness of legal proceed-
ings. In particular, the political authorities took the view that
the objectivity of investigations and their follow-up in terms
of criminal or disciplinary proceedings could not be relied on.
The purpose of adopting Regulation (EC) No 1073/1999 was
therefore to establish a new body responsible for administrative
investigations based on three principles: independence, trans-
parency and effectiveness. The legislative authorities also
ensured that the establishment of the new body, OLAF, formed

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part of a broader political project aimed at protecting the
financial interests of the European Union against fraud and
corruption and, more generally, at dealing with the growing
problem of organised crime in the context of globalisation and
the enlargement of the Union. Faced with this situation, the
main aim of the political authorities was to set up a system
that was effective, taking into account the fact that, as the
UCLAF experience had shown, the effectiveness of the system
depended to a large extent on its legitimacy. In particular, in
order for an investigation to lead to disciplinary or criminal
proceedings, it must be subject to the safeguards necessary to
protect the rights of the persons concerned, thereby allowing
greater transparency. Investigations must also be conducted in
accordance with the highest standards of objectivity, in other
words, on the basis of total independence and impartiality.

In dealing with the issue of safeguarding individual rights, the
political authorities took account of the autonomous status of
the institutions and allowed each institution to take internal
measures relating to the rights and obligations of
their
members and officials on the basis of an interinstitutional
agreement and in the framework of an internal decision.

independence,

investigations in all

the legislative
With regard to the aim of
authorities have provided for a solution in Regulation (EC)
No 1073/1999. Although agreement between the institutions
was reached quickly on the need to allow UCLAF/OLAF to
conduct
the Community institutions
and bodies, which required it to be neutral, the degree of
independence which it should be granted was a matter of lively
debate. Initially, the Commission had proposed the setting up
of a European Anti-fraud Office that was totally independent
of all the institutions (1). In order not to deprive the new Office
of the material and legal means required for it to operate
during the period which otherwise would have been required
for the replacement of the Commission’s resources, Parliament,
the Council and the Commission, within the High-Level
Group, finally came to an agreement on a formula granting the
greatest possible independence to an Office that nevertheless
continued to be integrated into the structure of the Com-
mission.

Safeguarding the independence of the Office nevertheless
posed a thorny problem for the legislative authorities which
they have attempted to solve by setting up a Supervisory
Committee and giving the Director a special status. Even
before they became operational, the ability of these two
solutions to safeguard the organisational
independence of
OLAF was questioned by the Court of Auditors and the
Committee of Independent Experts.

The Court of Auditors in its Opinion No 2/1999 (2) points out
that because OLAF is part of the Commission’s administrative
structure the Commission is responsible for it. In particular,
challenges to acts of the Office brought before the Court of

Justice refer to the Commission as defendant and not to OLAF
itself. This remark made by the Court of Auditors was to a
large extent taken into account by the legislative authorities
who introduced provisions for appeals by officials before the
Director of OLAF. Disciplinary powers with regard to the
Director, however, remain the prerogative of the Commission,
after consulting the Supervisory Committee.

The Committee of Independent Experts stressed the need and
the urgency of preventing any possible political interference
by the Commission hierarchy in order to safeguard confidence
in the objectivity of investigations. Its report therefore rec-
ommends that OLAF’s independence of the Commission in
particular must be and remain a fundamental principle. Clearly,
OLAF must also be protected from interference on the part of
the other institutions. The Committee of Independent Experts
considered that the Supervisory Committee, set up to reinforce
the independence of OLAF, was not a satisfactory solution
since it will be asked to act as a judicial authority, and in
particular to review the legality of individual decisions and the
conduct of specific investigations. The report therefore comes
out in favour of the establishment of an independent pros-
ecutor working in close collaboration with OLAF which would
be subject to review of legality carried out by a special chamber
of the Court of First Instance.

Given the legal and political context in which the legislative
authorities decided to adopt these solutions, in other words at
a time when a formula had to be agreed as a matter of urgency
in order to make it possible for independent investigations to
be conducted using the existing legal bases, they represented a
set of pragmatic arrangements which could be implemented
in a matter of months. The ideal solution, which was also a
great deal more radical, to the problem of the effectiveness and
legitimacy of investigations not only in the institutions but
also into fraud generally affecting the Community budget had
already been proposed in the corpus juris.

the Committee of

The recommendations of
Independent
Experts explicitly refer to the corpus juris and call for it to be
phased in over time. In addition, the study dealing with the
need for, the legitimacy and feasibility of the corpus juris (3),
which stressed that the issue was a matter of political rather
than legal choices, also envisaged the implementation of corpus
juris in several phases. But as far as those who drafted the study
were concerned, it was clear that only the implementation of
all the proposals would ensure the effective and legitimate
protection of the financial interests of the EU.

(1) COM(98) 717.
(2) OJ C 154, 1.6.1999, p. 1.

(3) General Report of 30 September 1999, Mrs Delmas-Marty.

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The tasks assigned to OLAF by the Decision of 28 April 1999
(Article 2) and the Regulation in the area of the protection of
the financial interests of the Community are part of a network
of responsibilities conferred by the Treaties on the various
participants in the management of the Budget. The fact that
the legislative authorities have laid down the principle of the
independence of the Office in Article 12(3) of the Regulation
and that they have made the Supervisory Committee respon-
sible for reinforcing it (Article 11(1) of the Regulation) are not
sufficient to resolve all the problems that arise from the
addition of these tasks. Further provisions govern the relation-
ship of the Office with the national authorities competent in
the field of criminal proceedings (Article 2) and with the
Commission, with regard to which the Director’s independence
is safeguarded by the possibility of bringing an action before
the Court of Justice (Article 12(3)).

These various provisions only lay down a number of principles
and the independence of OLAF can only take on concrete
significance when these principles are applied in practice. The
Supervisory Committee has thus had the opportunity, through
its reports, opinions and other expressions of its positions,
to clarify the scope of the principle of the organisational
independence of OLAF, in the first instance with regard to the
national prosecuting authorities.

independence of

The issue of OLAF’s organisational
the
national authorities is not regulated in a specific manner.
Article 12(3) of the Regulation merely indicates that ‘the
Director shall neither seek nor take instructions from any
government or any institution, body, office or agency in the
performance of his duties with regard to the opening and
carrying out of external and internal investigations or to the
drafting of reports following such investigations’.

The Regulation’s recitals provide, however, for cooperation
between the Office and the Member States, in particular with
regard to the reciprocal exchange of information (recital 15),
the admissibility of OLAF reports as evidence in administrative
and judicial proceedings (recital 16), and in addition, the
principle underlying such cooperation, namely subsidiarity
(recital 21).

On 11 January 2000 Mr Knudsen submitted a request for an
opinion to the Committee concerning the inaction of the
Luxembourg judicial authorities in the ECHO affair. The
Committee reiterated that it was competent in the area of the
independence of the Office in cases of alleged obstruction on
the part of the Member States.

In its opinion addressed to the acting Director of OLAF on
14 February 2000, the Committee recommended that the
Director should first seek an explanation from the Luxembourg
judicial authorities in order to establish whether it could be
shown that there had been a failure to act, before, if appropri-
ate, making use of the procedures for initiating legal proceed-
ings set out in the Treaty.

In such a context, the Supervisory Committee noted with
interest the ideas for a global strategic approach aimed at
organising the functions of the Office to represent a ‘platform’
of services in order to implement a partnership (‘new culture
of cooperation’) with the Member States. It looks forward to
receiving the Director of OLAF’s proposals on how this is to
be put into practice.

2. OLAF’s interinstitutional status

The provisions of the Treaty laying down the competence of
the Community in combating fraud affecting the financial
interests of the Community (Article 280) are imprecise with
regard to the administrative or criminal-law nature of that
competence. They simply indicate that the competence does
not concern the application of national criminal law nor the
administration of justice in the Member States. They do not
seem therefore to preclude action on the part of the Com-
munity where such action does not affect the application of
national criminal law but instead relates only to the principles
thereof. As far as the nature of investigations is concerned, the
ambiguity lies more in the provisions of the regulations that
lay down the powers of the Commission, and in particular
Regulations (EC, Euratom) No 2988/95 and (Euratom, EC)
No 2185/96. This is because Regulation (EC, Euratom) No
2988/95, which defines the irregularities and the administrat-
ive measures relating to breaches of Community law in the
financial
lays down genuine sanctions, which are,
moreover, consistent with the case-law of the Court of Justice,
although it distinguishes them from criminal-law sanctions.
Regulation (Euratom, EC) No 2185/96 which lays down
arrangements relating to the power to conduct on-the-spot
investigations, stipulates that investigations may lead to either
administrative or judicial proceedings in the Member States.

field,

The competences conferred on OLAF by the 1999 Decision
and the Regulation are in addition to those previously
conferred on the Commission and consist of competence in
the field of internal administrative investigations and in the
areas of corruption and professional misconduct, which may
lead to disciplinary or criminal proceedings. This new com-
petence lies behind the modification to the statute introduced
by the Decision of 28 April 1999 establishing OLAF and
laying down its interinstitutional position and the need for its
independence. The legislative authorities attempted in this way
to provide a structured response to the need to strengthen the
fight against corruption and fraud in all the institutions. In
order to do this it was necessary to go beyond the existing
framework: the nature of the statute and the role of the Court
of Auditors prevents it from carrying out such investigations;
and UCLAF did not have the requisite institutional status or
independence.

All these measures and provisions reflect an exceptionally clear
political will to strengthen the protection of the financial
interests of the Union using all the available legal means. In

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the same way that the notion of an administrative sanction
was interpreted as extensively as possible, the provisions of
the Treaties, the Protocols annexed thereto and the Staff
Regulations were fleshed out and made more precise, in the
framework of an interinstitutional agreement, so as to define
the arrangements under which members, officials and other
staff of the institutions were to collaborate with the internal
investigations conducted by OLAF. The use of this type of
non-binding and provisional legislation reflects the desire of
Parliament, the Council and the Commission to introduce an
effective mechanism very quickly to combat corruption and
illegal conduct within the Community institutions and bodies.
But this formula, while meeting the need for speedy action and
flexibility, has weaknesses which the Supervisory Committee
has had occasion to draw attention to in the performance of its
duties, since they are such as to undermine the organisational
independence of OLAF. In particular, the institutions and
bodies which are not signatories to the interinstitutional
agreement may be reluctant to adhere to it out of a desire to
protect themselves against interference in their internal affairs
by an Office whose status may appear ambiguous and whose
independence of the Commission does not seem to them to
be entirely guaranteed. In addition, by merely referring to the
Protocol on the immunities of officials and to the Staff
Regulations the interinstitutional agreement has not resolved
all the questions which may arise with regard to the protection
of individual rights and safeguards in internal investigations
which may lead to criminal proceedings.

3. Difficulties

encountered

in

interinstitutional

relations

In practice, since it was formally established following the
entry into force of the Regulation, OLAF must resolve a
number of problems relating, among other things, to its terms
of reference as regards the recruitment of staff, the procedures
and safeguards to which investigations are subject and the
immunities which may be invoked against it. In the course of
the establishment of the Office, the Supervisory Committee
spent a great deal of its time considering the solutions adopted
and identifying the aspects that were key to the Office’s
independence of the institutions.

(a)

OLAF’s terms of reference as regards the recruitment of staff

As it is defined in the texts, which stipulate that OLAF is to
take over the tasks conferred on the Commission in the area
of combating fraud in the various sector-based policies, the
competence of the Office is very diverse and its investigations
may be of an administrative, disciplinary, financial, tax or
customs nature and can even enter the field of criminal law.
This wide range of functions makes the problem of recruitment
(inevitably, of a limited number of staff) particularly difficult,
especially as the structure of the organisation chart must
strike a difficult balance between the different categories of
investigators and duties that are upstream and downstream of
follow-up and administration.
investigations:

intelligence,

Thus,
in the case of investigations within the institutions,
where the knowledge required is of an administrative or
budgetary nature, but where anti-corruption expertise may
also be necessary as well as a knowledge of public procurement
and financial management, it can prove difficult to meet all of
the Office’s needs.

(b)

Investigative procedures

The investigative powers of OLAF are defined in Articles 3 and
4 of the Regulation and Article 7 of Regulation (Euratom, EC)
No 2185/96, which emphasise the administrative nature of its
powers. Nevertheless, both in terms of outcome and procedure,
the investigations stray into criminal law. They may contribute
to the investigation of criminal offences and involve acts
affecting the rights and freedoms of persons, such as searches
and interrogations. OLAF is working on the introduction of
procedural rules that are specific to its role and which reflect
its aims. This task is however proving difficult since the
‘administrative’ nature of its investigations could constitute a
restriction in relation to crimes of a complex nature, not only
from the point of view of admissibility before criminal
jurisdictions but also from the point of view of effectiveness.
In cases of corruption or financial crime administrative
procedures may be inadequate for protecting the institutions
against attempts to conceal evidence.

(c)

Safeguards surrounding investigations

According to the regulations in force, investigations conducted
by OLAF are subject to safeguards protecting the rights of
persons. Article 8 of the Regulation requires confidentiality
and the protection of personal data and Article 4(6)(b) thereof
stipulates that each institution must issue rules safeguarding
these rights. The outline decision set out in this provision
provides for two such safeguards: the right of persons con-
cerned to express themselves prior to being accused of an
offence following an investigation (Article 4) and the right to
be informed of the closure of an investigation (Article 5).
Clearly, the safeguards built into criminal procedures are much
more precise and extensive. In order for evidence gathered in
the course of OLAF investigations to be admissible before a
criminal court these safeguards must be respected. Article 6 of
Regulation (Euratom, EC) No 2185/96 provides that the
investigations must comply with the procedural rules appli-
cable to national administrative auditors. Nevertheless, OLAF
in
must adapt its procedures for gathering evidence and,
particular, the safeguards surrounding the investigations, so as
to reflect the outcome of the investigation, be it criminal,
disciplinary or administrative. If it fails to do this, it is likely
that the validity of the measures OLAF takes and even their
legitimacy may be challenged when it conducts investigations
in the institutions.

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(d)

Immunities, restraints on OLAF’s action within the insti-
tutions

The question of immunity, which the Supervisory Committee
has examined at length because of its implications for the
organisational and operational independence of OLAF, is very
complex since the notion in fact covers three different
situations:
immunity proper, absence of responsibility and
inviolability.

Immunity proper is immunity from jurisdiction and by virtue of
one’s office. Such immunity is granted to officials and other
servants of the Community under Article 12 of the Protocol
on Privileges and Immunities of 8 April 1965. This immunity
exempts them, in respect of acts carried out in the exercise of
their duties, from legal proceedings taken by national auth-
orities, in particular judicial authorities. This immunity is not
an obstacle to OLAF’s action in the institutions and is only
mentioned in the internal decisions of the institutions relating
to OLAF investigations with reference to the fact that appli-
cations by national authorities for the waiver of the immunity
of officials or a servant of the institution must be notified to
OLAF. In practice, all the applications made by the national
authorities for immunity to be waived since the entry into
force of the Regulation have been in respect of cases referred
to the national authorities by OLAF.

Closely related to the question of immunity, or at least to issue
of the obstacles to OLAF’s internal investigations, is the fact
that several Community bodies have felt entitled to restrict the
action of the Office within their own administrations.

The decision taken, not without some delay, by the Committee
of the Regions aimed at implementing the Regulation, and in
particular Article 4(6) thereof, constitutes an obstacle to the
obligation of members, officials and other servants of the
Committee to provide OLAF with information since it requires
them to communicate with the Office through their hierarchy.

In addition, in exchanges with the Supervisory Committee, the
European Central Bank and the European Investment Bank
have maintained that they are not subject to the obligation to
allow investigations by OLAF in their administrations on the
grounds that Regulation (EC) 1073/1999 is not applicable to
them. They maintain that the intervention of OLAF in their
internal affairs would undermine their independence and that,
furthermore, since they do not manage Community funds
they are not concerned by the Regulation. The Supervisory
Committee, which took the view that the adoption of such
positions was an attack on the organisational independence of
OLAF, sent a report on the matter to the institutions in which
it stressed that in its opinion since Regulation (EC) 1073/1999
had been adopted on the basis of Article 280 of the EC Treaty
it had general application and applied to all the institutions.
Since the banks had adopted internal decisions putting in place

structures of their own shielding their administrations from
OLAF investigations and their staff from the obligation to
supply information to OLAF, the Supervisory Committee lent
its support to the application by the Commission to the Court
of Justice for the annulment of the decisions.

The parliamentary immunity provided for in Article 10 of the
Protocol is in fact an absence of responsibility: on the territory of
any Member State other than their own, merely by virtue of
the fact that Parliament is in session, Members of Parliament
are exempt from all detention measures and legal proceedings.
On their national territory, they enjoy the immunities enjoyed
by the members of the parliament of their own country.
The question of whether parliamentary immunity protects
Members of the European Parliament against OLAF measures
is currently the subject of a case before the Court of First
Instance. The case clearly underlines one of the fundamental
ambiguities of OLAF, i.e. that surrounding the nature of its
investigations. The applicants, 71 Members of Parliament,
consider that the internal decision taken by Parliament which
lays down the arrangements for OLAF investigations does not
protect them against OLAF measures, such as searches, which
are usually carried out in the context of criminal proceedings.
At all events, the Court’s judgment should clarify the nature of
OLAF investigations. The Supervisory Committee has stressed,
however, that there are two drawbacks to a solution based on
case-law: firstly, it will take a relatively long time for the Court
to deliver its judgment and in the meantime the legal situation
will remain uncertain; secondly, the scope of the judgment
may be limited and may only partially resolve the problem. It
is therefore to be hoped that a regulatory solution can be
found.

in the framework of

The inviolability of premises could be another obstacle OLAF
investigations have to overcome. The principle was referred to
by the 71 Members of Parliament who requested, among other
things,
the summary procedure, a
commitment on the part of Parliament to authorise the Office
to enter their offices only with their express permission. In its
order of 2 May 2000, the President of the Court granted the
request made by the 71 Members of Parliament pending the
delivery of the judgment in respect of the main action.

Conversely, the inviolability of the premises of OLAF itself was
lifted by the Commission at the request of an investigating
magistrate in Brussels (decision of 15 February 2000).

4.

Involvement of OLAF in interinstitutional dis-
cussions on the protection of the financial interests
of the European Union

Owing to its interinstitutional status, OLAF often adopts
positions or does groundwork relating to discussions involving
the Community institutions about
the
financial interests of the European Union. The Supervisory
Committee has also become involved in such discussions to
the extent that they relate to its area of responsibility. The
Regulation has enabled a structure to be established which

the protection of

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now has the task of defining a policy, completing and
specifying the legal framework for its actions and of initiating
discussion on its institutional development. The Supervisory
Committee,
in order to reinforce the independence of the
Office, has been involved in the discussions led by the Director
and has given its support to this process, whether it concerns
the overall strategic approach, the legal framework or insti-
tutional reform.

(a)

Overall strategic approach

The challenge which the European Union is facing in the shape
of crime affecting its finances can only be met by means of a
coherent, comprehensive and planned response. The broad
outlines of such a response proposed by OLAF to the
Commission reflect
the analyses and observations of the
Supervisory Committee.

Firstly, the fight against fraud must be based on an in-depth
understanding of its economic and criminal context, and on a
policy of investigations defined on the basis of the analysis of
as wide a range of information as possible. OLAF could
perform these tasks by establishing an adequate ‘intelligence’
service, which would involve recruiting the necessary qualified
staff.

Secondly, the cross-border nature of the fraud in question
means that it must be combated through greater cooperation
with the Member States.

Thirdly, at the Community level, there is a need to boost
the effectiveness, transparency and independence of internal
investigations in the institutions and furthermore to introduce
an anti-fraud policy based on legislation dealing with the issues
of detection, follow-up and prevention.

Lastly, the strategy must deal with the judicial dimension of
the investigations and, by creating the platform of services
proposed by the Office (see above), clear the way for the
establishment of a body such as the European prosecutor. It
will be necessary for the various phases of this development to
be carefully coordinated.

(b)

Legal framework

The legal difficulties encountered by OLAF and reported by
the Supervisory Committee in the areas of procedural rules,
immunities, etc., can and must be resolved quickly, without
the need for institutional changes. The Supervisory Committee
has had the opportunity to stress the urgency of such measures
in its Opinion Nos 5/1999 and 2/2000.

(c)

Institutional reform

The Supervisory Committee has pointed out on several
occasions, and in particular in its Opinion No 5/1999, that
OLAF is faced with a problem of legitimacy. Although its role
has been defined by the Community legislative authorities at
the highest
level, by means of a regulation adopted by
codecision, the body’s legitimacy has been challenged on the
grounds that there are shortcomings in the system of safegu-
ards surrounding the investigations and in the institutional
status of the Office. Moreover, OLAF, even by strengthening
is not in a
its partnership with the national authorities,
position to resolve all the problems of international judicial
cooperation. The introduction of a European prosecutor would
be, in the view of the Supervisory Committee, a coherent
solution to these problems. That is why it has lent its support
to the proposal for the establishment of a European prosecutor
which the Commission has submitted to the IGC.

D. CONFIDENTIALITY AND DATA PROTECTION

Community law confers specific responsibilities on the OLAF
Supervisory Committee in the area of confidentiality and data
protection.
is necessary to analyse the scope of such
responsibilities before considering application of the relevant
texts.

It

1.

The relevant texts

The legislation in question consists of two complementary sets
of provisions.

— Firstly, Article 8 of the Regulation protects all information

obtained in the course of investigations.

The aim of these provisions is to protect all information
obtained by the service in the course of external investi-
gations and all types of information obtained or supplied
in the course of internal investigations which is covered
by the principle of professional secrecy.

The legislation provides, however, for the possibility of
communicating information obtained in the course of
internal investigations, with names, to persons who need
to be made aware of such information because of the
nature of their professional duties in combating fraud,
corruption and all other illegal activities.

The staff of the Office and all persons acting under its
authority must adhere strictly to the Community and
national rules governing personal data protection.

It is the Supervisory Committee’s role to ensure that this
obligation, which is aimed at protecting both the service
and anyone placed under investigation, is met, on the
basis of Article 8(4) of the Regulation.

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— Secondly, European Parliament

and Council Directive
95/46/EC of 24 October 1995 on the protection of
individuals with regard to the processing of personal data
and on the free movement of such data provides for the
protection of the fundamental freedoms and rights of
individuals, and of privacy in particular, with regard to
the processing of personal data. Under the provisions of
the Directive personal data must be processed fairly and
lawfully, collected for specified, explicit and legitimate
purposes, relevant in relation to the purposes for which
they are collected, and steps must be taken to update the
data within a reasonable period which must be usable for
a period no longer than is necessary for the purposes for
which they were collected.

Pursuant to Article 8 of the Regulation, the Supervisory
Committee is required to ensure that the provisions of
the Directive are complied with in so far as they apply to
the information collected and processed by the Office in
the course of its work in the area of preventing and
combating fraud affecting the financial interests of the
Communities.

With regard to the first aspect of the issue of data
protection, the Supervisory Committee, immediately after
its establishment, launched several initiatives aimed at
ensuring that the provisions relating to confidentiality
and data protection were applied.

2. Application of the relevant texts

— Firstly, in order to check the nature of all the information
relating to the activities of the Office published in the
press, the Supervisory Committee asked the Director of
the Office to compile, for each of its meetings, a press
review covering all the articles and information published
in the press in which the Office was mentioned.

Subsequently, at each meeting, the Supervisory Com-
mittee examined and sifted through the information in
order to identify any material capable of compromising
the secrecy of investigations or the principle of pro-
fessional secrecy protecting third parties.

Clearly, the quality and in particular the independence
and effectiveness of investigations and the legitimacy of
the status of the service can only be improved by strict
adherence to the provisions governing confidentiality and
data protection.

— A second initiative by the Supervisory Committee consisted
in giving an oral reply to an urgent request for an opinion
expressed orally to the acting Director of the Office. The
request for an opinion raised a question of principle.
Shortly before the issuing of a press release following the
closure of an internal investigation, the acting Director of

the issuing of

in principle, of

the Office asked the Supervisory Committee whether it
approved,
the press
release and its contents. After discussing the matter
the Committee noted that the press release contained
information and remarks which specified names and that
the judicial authorities in a Member State were to be
forwarded the Office’s file on the investigation.

In view of these considerations, the Supervisory Com-
mittee decided, taking into account the provisions con-
cerning confidentiality and data protection, that it was
not advisable for the press release to be issued. In the
course of the subsequent discussion which took place
with the acting Director of the Office, the Supervisory
Committee expressed its reservations with regard to
the issuing of press releases which reveal investigative
methods, breach the principles of confidentiality and the
protection of the identity of individuals, or which are
issued without the agreement of the judicial authorities
to which the case has been referred for prosecution.

The Supervisory Committee stated that in the event of
cases being referred to the judicial authorities it was
preferable for the judicial authorities themselves to issue
a press release rather than the Office. The Supervisory
Committee welcomes the fact that it is apparent from the
Office’s most recent press releases that the Committee’s
recommendations have been put into effect.

Moreover, the Committee has taken note of the complaint
lodged by an official against
the acting Director of
OLAF relating to an alleged breach of the confidentiality
obligation. The complaint is currently being considered
by the Commission and the Court of First Instance.

— Lastly, with regard to the aspect of data protection
which concerns the automated processing of information
gathered by the Office, the Supervisory Committee has
appointed one of its members rapporteur responsible for
carrying out an assessment of the IT systems that will be
introduced in the Office.

CHAPTER III

LIMITATIONS IMPOSED BY THE NEW STRUCTURES
AND PROPOSED IMPROVEMENTS

As has been emphasised throughout
this report, OLAF’s
establishment phase is not yet complete, and the very length
of the transition period poses problems which have been
outlined above. However, not all the difficulties are of the
same nature. Although, in practice, the distinction between
the two categories is not always perfectly clear, it would appear
that, in addition to cyclical problems, there are also structural
problems which stem from the limitations associated with the
new structures, the hybrid nature of which was pointed out at
the outset. Where such limitations are likely to undermine

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the functioning of OLAF at various levels, the Supervisory
Committee considers it has a duty to identify and propose
improvements that it considers necessary in order to ensure in
full the required independence and transparency, as regards
both the Office’s efficiency and its legitimacy (see P1-P5).

carry out internal
in
adapting its management rules to give OLAF the autonomy it
needs to operate.

investigations, and the Commission,

It does not, of course, fall to the Supervisory Committee to
choose the legal basis and appropriate procedure for each of
the solutions advocated, for such matters do not fall within its
remit, that is to say they are neither internal OLAF decisions, nor
provisions clarifying general Community rules and regulations,
e.g. the Staff Regulations, nor modifications to Regulation (EC)
No 1073/1999, nor provisions to be added to the Treaty at the
IGC.

Limitations which are undermining OLAF’s operational inde-
pendence have become apparent. They stem from the various
ambiguities in OLAF’s status, e.g. the administrative organis-
ation of OLAF, its dual role, and its interinstitutional remit.
Since they could jeopardise the objectivity of its investigations
and the credibility of its role, the necessary administrative and
regulatory remedies in each case are set out below.

However, the Committee will in this final chapter consider the
limitations it perceives in the system that has been introduced
for implementing the political project adopted on 25 May
1999 as regards both OLAF’s status (A) and its activities (B).

1. Administrative organisation

A.

LIMITATIONS IMPOSED BY OLAF’S STATUS

When it was adopted (in the 1999 Decision and Regulation),
the status conferred on OLAF no doubt constituted the most
sensible way of addressing the problems which the political
authority had to resolve as a matter of urgency. The alternative
of creating a completely new interinstitutional body and
transferring to it the powers it needed would have required a
considerable amount of time, and this would not have been
compatible with the political situation. On the other hand, the
establishment of an office within the administrative and
budgetary structure of the Commission was practicable, pro-
vided that such an office had the investigative powers hitherto
exercised by the Commission and maximum operational
independence. And so it was that work on defining OLAF’s
status was completed in four months. Moreover, the chosen
formula offered the advantage of a gradual transition from
UCLAF (a Commission department) structures to those of
OLAF (an independent
interinstitutional office) and thus
ensured continuity.

The task of establishing OLAF has, however, proved to be a
tricky and difficult business. It has been entrusted to the
Director and overseen by the Supervisory Committee, but it
cannot be completed without the active support of all those
in creating the
involved, namely the budgetary authority,
structure and allocating the appropriations and posts needed,
the institutions, in adopting the decisions to enable OLAF to

The Decision (Articles 5 and 6) and the Regulation (Article 13)
emphasise the intention of the political authorities to give
OLAF administrative and budgetary autonomy by laying down
a special budgetary structure and establishment plan for the
Office and conferring upon its Director the powers of an
appointing authority and authorising officer. As far as pro-
cedures for adopting budget forecasts are concerned, the
Commission and the budgetary authority have implemented
the following arrangements: OLAF’s budget and establishment
plan are adopted by Parliament and the Council on the basis
of a preliminary draft drawn up by the Director after consulting
the Supervisory Committee and forwarded to the budgetary
authority by the Commission, if necessary accompanied by
comments.

Not all the conclusions have yet been drawn from these
arrangements as far as management is concerned, and the
effect of this has been to create de facto limits on the Office’s
autonomy. In particular, OLAF has so far made very few
changes to the expenditure implementation and staff manage-
ment procedures used by UCLAF, a department which was
subject
to the general Commission regime. However,
Article 6(4) of the Decision laid down that ‘Commission
decisions concerning its internal organisation shall apply to
the Office’ but only ‘in so far as they are compatible with the
provisions concerning the Office adopted by the Community
legislator, with this Decision and with the detailed rules
implementing it’. It should be noted that Article 6(1) confers
the power to ‘lay down the conditions and detailed arrange-
ments for recruitment’. And pursuant to Article 6(2), the
Director, as authorising officer, has the powers needed to
ensure OLAF’s administrative and budgetary autonomy. It
would therefore suffice in principle to implement such powers.
To date, however, all that has been done is to compile a more
or less formal inventory of expenditure managed directly by
OLAF and to assign management tasks on a pragmatic basis,
the aim being to continue to benefit from economies of scale.

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If this situation were to continue, it could adversely affect the
Director’s freedom of action,
limit his powers in matters
pertaining to staff management and create de facto obstacles
to the restructuring of
the Office by limiting his scope
for recruiting staff with the necessary qualifications and
specialisations (e.g.
investigation,
criminal procedure or ‘intelligence’). As regards the manage-
ment of appropriations, scope for obtaining equipment or
premises could also be limited.

in the fields of criminal

P1: The Supervisory Committee therefore stresses the need to
support OLAF’s efforts to establish the administrative structures
and internal rules required to ensure its independence,
in
particular in the spirit of the conclusions of the Ecofin Council
of 17 July 2000 (see point 12), for it considers this essential for
the decentralised exercise of the functions laid down in the
Financial Regulation (functions of authorising officer, account-
ing officer, financial controller, Consultative Committee on
Purchases and Contracts) and by the Staff Regulations (appoint-
ing authority, Staff Committee, Joint Committee).

2. OLAF’s dual role

fighting fraud, the
In addition to its operational task of
Decision and the Regulation conferred on OLAF all of UCLAF’s
powers and responsibilities, including the task of preparing
and drawing up legislative and regulatory initiatives for the
Commission pertaining to action against fraud. It is precisely
in this dual role that the ambiguity lies. OLAF has total
independence in respect of its operational activities, but in
respect of the drawing-up of legislative initiatives or certain
preparatory work, it is merely involved in a process for which
the Commission retains full responsibility.

OLAF’s involvement in the preparation and drawing-up of
legislative initiatives is very important, partly for ensuring the
quality of such legislation, which must be able to benefit from
the Office’s practical experience in the field, and party for
OLAF, whose enforcement activities must be improved and
supplemented by preventive measures, by means of better
adapted and more effective legislation. In practice, the relation-
ship between the Commission and OLAF in such cases tends
to be very similar to that between the Commission and any
directorate-general to which it issues, and on which it imposes,
political guidelines: OLAF is thus regarded as a department
which must cooperate and negotiate with other departments
in the drafting of common positions,
the
Commission.

those of

i.e.

3. OLAF’s interinstitutional remit

As is evident from the foregoing, as regards operational
activities, the most important aspect of the reform brought
about by the creation of OLAF concerns its task of carrying
out
investigations within Community institutions, bodies,
offices and agencies in order to enhance the action taken to
fight fraud, corruption and any other illegal activities to the
detriment of the Community’s financial interests. Owing to
certain weaknesses in the legal framework, difficulties have
nevertheless become apparent in implementing the Regulation
in the institutions.

the bodies,

— On the one hand, the general scope of the Regulation,
which covers the whole of the Community’s legal order
and all
institutions, offices and agencies
established by, or on the basis of, the Treaties, has been
called into question because of the decisions that are to
be taken pursuant to Article 4. The political authorities
had chosen to ensure the Regulation’s general scope not
only by basing it on Article 280 of the EC Treaty and
using the codecision procedure set out in Article 251, but
also by concluding an interinstitutional agreement which
the various institutions and bodies were called on to sign
and which provided for a model decision which they
were to adopt.

It should be recalled that the European Central Bank
and the European Investment Bank did not consider
themselves to be bound by these provisions and used the
scope the interinstitutional agreement gave them to adopt
internal decisions that were not consistent with the
Regulation. As requested by the Supervisory Committee
in its letter of 17 December 1999 to President Prodi,
the Commission instituted legal proceedings, currently
pending before the European Court of Justice, in respect
of those internal decisions. At the same time, several
Members of Parliament brought action against the Euro-
pean Parliament on account of its decision to apply the
Regulation, and an interim decision was given on 2 May
2000 which suspended application of the decision for
the plaintiffs.

— On the other hand, once the institutions and other bodies
envisaged the specific possibility of OLAF conducting
investigations, ambiguities and uncertainties
internal
emerged as regards the relationship between such investi-
gations and existing procedures for invoking the disciplin-
ary, financial or criminal
liabilities of their members,
officials or agents:

P2: Consequently, as far as OLAF’s involvement in the prep-
aration and drawing-up of legislative initiatives is concerned,
the Supervisory Committee considers it advisable that OLAF be
structured in such a way as to prevent any interference
which could weaken its operational independence as far as
investigative activity is concerned.

— how could the administrative inquiries hitherto
conducted by the institutions into irregularities be
reconciled with OLAF’s power to conduct internal
administrative investigations?

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— what role do OLAF’s internal investigations have

with regard to disciplinary procedures?

— what action could be taken to follow up OLAF
investigation reports which conclude that
is
advisable to invoke financial
liability since the
corresponding procedures work only in very excep-
tional cases?

it

— what could the scope of an OLAF investigation into

a Member of the European Parliament be?

P3: The Supervisory Committee considers that the following
ambiguities must be removed as a matter of utmost urgency at
the appropriate legal level:

— scope of Article 280 of the EC Treaty,

— interrelationship of OLAF’s internal investigations with
disciplinary procedures and compatibility of an interinsti-
tutional investigations body with disciplinary procedures
proper to each institution and body,

— scope of OLAF investigations in relation to Members of

the European Parliament,

— absence of an effective procedure for invoking financial

liability.

Moreover, the Supervisory Committee considers that OLAF’s
role as regards internal investigations must be one of its key
functions, to be performed by a team of sufficiently high
hierarchical rank and possessing the skills needed in specific
areas, especially anti-corruption measures, public procurement
and budget and financial management. Lastly, OLAF’s establish-
ment plan must highlight the specific nature of this role.

B.

LIMITATIONS IMPOSED BY OLAF’S ACTIVITIES

If we look first at the situation that existed previously, we see
that UCLAF had a structure that corresponded to, and evolved
with, the tasks entrusted to it. That structure was initially
geared to coordinating the anti-fraud activities of various
Commission directorates-general and gradually came to
encompass administrative control activities, the aim being to
draw up administrative measures, adopted more often than
not by national authorities on the basis of Community rules,
on the prosecution of irregularities. In the case of intentional
irregularities constituting administrative or criminal offences,
such measures could take the form of sanctions. Increasingly,
UCLAF became involved in coordinating criminal proceedings
relating to one and the same case in several Member States or

in providing technical back-up for such proceedings.
Its
activities thus evolved towards coordinating and providing
back-up for investigations and proceedings conducted by
national (administrative or criminal) authorities. Lastly, there
were its own investigative activities within the European
institutions, either in internal Commission cases, or in relation
to the aspects of complex external cases which involved the
Commission.

The dividing line between such activities has remained
blurred and, despite their extreme diversity,
they have
continued to be dealt with according to analogous, and very
informal, Rules of Procedure. However, at the request of the
political authority, these changes in UCLAF’s activities were
accompanied by increases in resources,
in terms both of
instruments. Regulation (Euratom,
personnel and of
legal
EC) No 2185/96 conferred upon the Commission,
its
anti-fraud unit, powers of investigation involving relatively
major restrictions on individual freedoms, and it has, for
instance, the same material resources as national administra-
it can make copies of documents or
tive control officers:
take samples, make physical checks,
computerised data,
analyse budget documents and accounts, and,
if need be,
call on the public authorities for assistance. Where necessary,
the information thus obtained can be used in criminal
proceedings. However, neither UCLAF’s methods nor its
structures were really adapted to reflect these changes until
the Commission Decision of 14 July 1999.

i.e.

But the Regulation, which established OLAF, did not provide
specific solutions to the difficulties caused by the structural
mismatch in respect of the legitimacy and effectiveness of
investigations, either. This calls into question OLAF’s ability to
fulfil its tasks and means that the system must be improved so
that the provisions of the Regulation become fully effective
and that consideration must be given to developing the legal
framework so as to ensure the necessary overall cohesion. This
is illustrated below as regards both internal organisation and
the institutional environment.

1.

Limitations associated with the internal organisation
of investigations

The introduction of the new OLAF structure, tailored to the
tasks laid down by the legislator, is still at a very early stage,
and several major reforms are still being considered or are in
the process of being implemented. As for the changes that
have already been made, they have had very little impact to
that
date and it has to be pointed out
shortcomings exist in the current organisation in terms of the
requirements for transparency, legitimacy and efficiency:

in this report

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— as regards transparency, it is not possible to determine
the objective criteria on the basis of which decisions to
launch investigations or forward files to the legal auth-
orities are taken, and the same is true of the practices and
procedures for registering cases and associated docu-
ments,

— as regards legitimacy, guarantees for the objectivity of
investigations and for respect for individual rights are
inadequate; persons under investigation by OLAF receive
little information about the procedural rules being applied
or their guaranteed rights (in the case of internal investi-
gations, the procedures applied by UCLAF have also been
the subject of formal complaints (see above)),

— as regards efficiency, the operational scope of the reports
drawn up following investigations is still
inadequate.
Although a relatively large number of prosecutions have
been launched in cases which UCLAF/OLAF have dealt
with, very few of them have resulted in a judgment. As
far as disciplinary action is concerned, it should be noted
that investigation reports are merely considered to be one
of several factors.

P4: The Supervisory Committee recommends that the follow-
ing measures, which are still on the drawing board, be put into
practice without delay:

— definition and implementation of a reactive and proactive
investigations policy based on the collection and analysis
of all available information on the financial and criminal
aspects of fraud against the Union’s financial interests,

— rationalisation of the conduct of investigations and the
drawing-up of reports (in cooperation with magistrates
recruited by OLAF on the basis of their expertise in the
area of criminal procedure),

— reorganisation of the systems for registering cases and
associated documents and standardisation of case file
presentation,

— drafting of precise and detailed rules of procedure for the

various stages of the investigations.

2.

Limitations associated with the institutional environ-
ment

Communities,

The purpose of the various Community texts on the protection
of the Community’s financial interests (Article 280 of the EC
Treaty and the Cannes Agreement of 26 July 1995 on the
protection under criminal law of the financial interests of the
Euratom)
European
No 2988/95,
(Euratom, EC) No 2185/96 and (EC)
No 1073/1999), is, with due regard for subsidiarity, to remedy
the shortcomings of a system in which responsibility for
investigating and prosecuting fraud against the financial inter-
ests of the European Union rests primarily with national
authorities. It may be observed that those perpetrating acts of

Regulations

(EC,

fraud are increasingly profiting from the existence of separate
national prosecution systems and that it is therefore necessary
to coordinate, organise and, indeed, centralise at Community
level a number of tasks so as to deal with the increasingly
Community-wide dimension of such crime. However, the
institutional limits of the last measure adopted for this purpose,
the establishment of OLAF by the Regulation, are already
becoming apparent as regards cooperation between OLAF and
the national authorities, which is meant to ensure the system’s
efficiency, and as regards judicial scrutiny of OLAF’s oper-
ations, which is intended to ensure its legitimacy.

(a)

Limits on the operational efficiency of OLAF: inadequacy of
cooperation with national authorities

The bases for cooperation between OLAF and the national
administrative authorities are rules providing for mutual
administrative assistance and well-established bilateral con-
tacts, which may be based on ad hoc arrangements or on
formal agreements. However, only exceptionally does such
cooperation go beyond the scope of specific cases and scarcely
does it extend to a global approach to the phenomenon of
fraud. In particular, cooperation on the collection and analysis
of information and intelligence is still embryonic.

As far as cooperation with national criminal authorities is
concerned, OLAF’s role is still poorly defined and is not the
same for external operations as it is for internal investigations.
In the case of external operations, OLAF endeavours, by
adopting a pragmatic approach and cultivating personal
contacts, to mitigate the drawbacks of international judicial
cooperation, i.e. slow and unreliable procedures. But the results
are hardly encouraging, and very few cases are successful. In
the case of internal investigations, OLAF is more proactive
when it comes to gathering evidence, but its relationship with
the judicial authority is unclear: OLAF may only issue guidance,
depending on the particulars of each case, to the competent
national authority, and it is excluded from the judicial handling
of cases, especially as the national authorities tend to consider
OLAF as an ordinary Commission department.

(b)

Limits on the legitimacy of OLAF investigations: inadequate
judicial scrutiny

The Regulation does not formally provide for scrutiny of the
legality of OLAF investigations, except in the case of internal
investigations and solely where officials or agents are con-
cerned. The latter may file a complaint with the Director of
OLAF in accordance with the procedure laid down in Article 90
of the Staff Regulations, pursuant to which appeals may be
filed retrospectively with the Court of First Instance.

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Obviously, this is completely inadequate, and a judicial body
should permanently supervise all OLAF activities and,
in
particular, authorise or order measures restricting individual
rights to be adopted during investigations, monitor their
implementation and verify whether an investigation conforms
to the evidence rules so that the evidence adduced is admissible
in the court with jurisdiction for the case. The complexity of
such scrutiny is compounded by the fact that European case-
law (1) is itself complex annd constantly evolving.

The Regulation did not entrust such a task to the Supervisory
Committee, which is not a judicial body.
It was clearly
stipulated that the Office is not to interfere in the conduct of
investigations in progress. Moreover, the fact that it is compo-
sed of ‘independent persons’ occupying ‘senior posts’ ‘in their
respective countries’ prevents it from taking on such a role.

This is a fundamental issue which, together with the ambiguiti-
es concerning the Office’s independence, forms the basis for
the complaints made in respect of the legitimacy of OLAF’s
investigations that have been filed with the Court of Justice
(see above). It must be resolved as soon as possible.

P5:
For the time being, the Supervisory Committee considers
that what must be done is to adopt measures without delay
relating to OLAF’s internal organisation, such as the creation of
a magistrates unit, in order to enhance the legitimacy of its
investigations. Such measures would also foster the emergence
of a European legal culture.

At the same time, the Supervisory Committee fully supports
the Commission’s initiative of proposing to the IGC that a
legal framework be created for establishing in the long term
a European public prosecutor’s office and the European
Parliament’s calls concerning in particular the establishment of
a European public prosecutor for internal investigations. For
more on this subject, see also Opinions Nos 5/1999 and
2/2000, which are annexed to this report.

CONCLUSION

The Committee was established and its powers laid down by
the Community legislator in order to ensure the independence,
transparency and efficiency that are essential for the protection

(1) For instance, the concept of domicile, which the European Court
of Justice’s Hoechst judgment of 21 September 1999 confined to
the private domiciles of natural persons, was considered by the
European Court of Human Rights in its Nimietz judgment of
16 December 1992 to include some professional and commercial
premises. The matter was also referred to the European Court of
Justice on 7 March 2000 by the Court of Cassation of the French
Republic (Ch. Comm. Aff. Roquette frères SA).

of the Community’s financial
interests and for action to
combat fraud. It is for that reason that it stands outside the
institutions and that the Regulation states clearly as regards its
members that, ‘in carrying out their duties, they shall neither
seek nor take instructions from any government or any
institution, body, office or agency’ (Article 11(5)).

the organisation of

the
One year on,
European Union’s financial
interests has not yet improved
appreciably, in spite of the innovative system introduced by
the Regulation of 25 May 1999.

the protection of

From the cyclical point of view, the transition from UCLAF to
OLAF is far from complete, and the long-drawn-out staff
recruitment procedures (even the secretariat of the Supervisory
Committee has not yet been appointed, more than a year after
its members took up their duties!) makes us fear that the
transition will last for many more months to come, at the risk
of compromising the effectiveness of
investigations both
within the European institutions and in the Member States.
This risk is particularly worrying at this specific time, when
the introduction of the euro in currency form, on the one
hand, and the enlargement of the European Union, on the
other, will provide criminals with new opportunities to commit
fraud.

The structural problems that the Supervisory Committee has
noted are equally worrying. It is obvious that neither a posteriori
scrutiny exercised by the Court of First Instance and the Court
of Justice of the European Communities nor coordination by
Eurojust investigating magistrates, however vital these may be,
will be enough to ensure the continuous management of
investigations, which presupposes the adoption of common
rules on procedure and substance and the establishment of a
European public prosecutor’s office with jurisdiction through-
out the European area. In this connection, there must be no
confusion about the Supervisory Committee: it has not been
given a mandate to fulfil the role of judicial safeguard which is
called for by the development of the powers of investigation
entrusted to OLAF; it neither can nor should replace such a
public prosecutor’s office, the establishment of which it regards
as inevitable, after the year it has spent observing OLAF’s
activities. However, the Committee proposes in Chapter III a
set of improvements (P1 to P5) which could be implemented
quickly.

When all is said and done, it is obvious — and this first year
illustrates this point beyond any doubt — that in the absence
of a European public prosecutor’s department, OLAF’s inde-
pendence must be guaranteed by a body which is itself
independent and not part of the institutions, and this confirms,
if any confirmation were necessary, the legitimacy of the
system introduced by the Community legislator.

Done on 25 August 2000.

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Official Journal of the European Communities

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ANNEX I

Calendar of Supervisory Committee meetings – 1999

Month

Meeting date

Thursday, 12 July 1999
Friday, 13 July 1999

Tuesday, 31 August 1999

Wednesday, 1 September 1999

Wednesday, 6 October 1999
Thursday, 7 October 1999

Tuesday, 16 November 1999
Wednesday, 17 November 1999

Tuesday, 14 December 1999
Wednesday, 15 December 1999

Calendar of Supervisory Committee meetings – 2000

Month

Meeting date

Tuesday, 11 January 2000
Wednesday, 12 January 2000

Tuesday, 8 February 2000
Wednesday, 9 February 2000

Wednesday, 7 March 2000
Thursday, 8 March 2000

Tuesday, 4 April 2000
Wednesday, 5 April 2000

Tuesday, 9 May 2000
Wednesday, 10 May 2000

Tuesday, 20 June 2000
Wednesday, 21 June 2000

No meeting planned

Thursday, 24 August 2000
Friday, 25 August 2000

July

August

September

October

November

December

January

February

March

April

May

June

July

August

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ANNEX II

LIST OF OPINIONS AND REPORTS BY THE SUPERVISORY COMMITTEE

Opinion No 1/1999 of 7 September 1999 on OLAF’s budget proposals for 1999 and 2000

Opinion No 2/1999 of 28 September 1999 on preliminary draft supplementary and amending budget 5/1999

Opinion No 3/1999 of 7 October 1999 on applications for the post of Director of OLAF

Report No 1/1999 of 7 October 1999 on the application of Regulation (EC) No 1073/1999 of the European
Parliament and of the Council by the institutions, agencies and bodies of the European Union

Opinion No 4/1999 of 14 October 1999 on the draft rectifying letter relating to the budget for 2000

Opinion No 5/1999 of 17 December 1999 on the implications of the possible implementation of the corpus juris

Opinion No 1/2000 of 8 February 2000 on the filling of posts in the secretariat

Opinion No 2/2000 of 16 May 2000 on the initiatives of the institutions concerning the future of OLAF

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ANNEX III

OPINION No 5/1999

OF THE SUPERVISORY COMMITTEE

FOR THE EUROPEAN PARLIAMENT’S COMMITTEE ON BUDGETARY CONTROL

on the implications of the possible implementation of the corpus juris

At a time when several European Union institutions have started to
discuss the implementation of certain parts of the corpus juris the
Supervisory Committee, at the request of the Committee on Budgetary
Control, has analysed what the implications of such a step would be
in practice. In this exercise it has particularly borne in mind the
experience that it has gained in its first six months in office, as well
as the thinking that has emerged in connection with its responsibility
for supervising OLAF’s budgetary and administrative management,
where the future operational and administrative organisation of the
Office is concerned.

The Committee has based its analysis of
the implications of
implementing the corpus juris on its members’ initial thoughts about
three aspects:

— the implications for the balance between EU institutions,

— the implications for OLAF’s internal organisation, and

— the implications for the organisation of the European Union’s
external relations in connection with the fight against fraud and
other illegal activities and in connection with the protection of
financial interests.

To start with, the Committee noted that several problems which had
emerged during the early months of its supervisory activities could
or should be eased by the establishment of OLAF.

An investigative policy based on the collection, processing and
analysis of information, supported by a reorganisation of units and
the recruitment of additional qualified staff should bring about the
first tangible improvement over the current situation.

Another improvement, which is also desired by the political auth-
orities, should be to strengthen OLAF’s independence regarding its
operational activities (collection of information, investigative activity,
follow-up) vis-à-vis the institutions, governments and other bodies,
and especially vis-à-vis the Commission. Certain conditions for that
improvement can now be said to be on the horizon. The Supervisory
Committee is operational; budgetary and administrative autonomy
should be assured with effect from 1 January 2000; the budgetary
and staff resources for this policy have been made available by the
budgetary authority; and the new Director of OLAF should shortly
take up his duties in circumstances conducive to his independence.
On that basis, the establishment of OLAF should make it possible to
ease these difficulties; first and foremost, these new resources should
be deployed to maximum effect.

The Committee has none the less found that several difficulties cannot
be resolved by the establishment of OLAF, because the legislative
authority has not settled certain issues, relating essentially to the
substantive law applicable and to the judicial control over investi-
gations which is needed to ensure respect for and the protection of
individual rights.

OLAF was conceived, in fact, as a temporary solution to resolve an
urgent problem, pending a more comprehensive and definitive
solution which calls for the implementation of more cumbersome
procedures. It was thus possible to create the investigatory body before
the European legal area came into existence. In these circumstances, it
is therefore not surprising that operational activities are taking place
in a framework which restricts both their effectiveness and their
legitimacy, in that the law applicable, both substantive and procedural,
varies from one Member State to another, and in that there are
inadequate safeguards to ensure respect for individual rights.

The Committee rapidly drew up a list of the areas affected by
implementation of the corpus juris and then proceeded to consider, on
the basis of the various proposals put forward, which option would
be most likely to resolve the difficulties encountered. It noted that,
since the issue was one of strategic approach, the choice would be a
political one, but recognised that a two-stage approach offered the
advantage of giving precedence to matters which were politically
urgent and, at the same time, lent themselves to less cumbersome
procedural solutions. It therefore focused on the proposed first phase,
namely the consequences of setting up a European Public Prosecutor’s
Office responsible for internal fraud.

The Committee then analysed the extent to which the corpus juris
might provide solutions, by comparison with the weaknesses and
loopholes in the present system which have been pointed out by
several observers, including the Committee of Independent Experts.

First, OLAF’s current fundamental ambiguity is attributable to its lack
of legitimacy. Its present legitimacy was conferred on it by the
Community legislative authority in an act adopted under the co-
decision procedure by Parliament and the Council, and hence at a
high level in the Community system.

There are several question marks hanging over it, however; first, in
several cases considered by the Supervisory Committee, it appears
that some persons under investigation believe that their individual
rights have not been protected; secondly, some Community bodies
claim that the Regulation does not apply to them; finally, since OLAF
still appears within the Commission’s administrative structure, the
practical arrangements concerning its independence still need to be
clarified.

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Although setting up a body of judicial officers within OLAF would
be useful in terms of improving the interface with national judicial
authorities, it would not resolve this problem, nor that of determining
the national legal system applicable in cases of conflicting jurisdiction.

The Supervisory Committee’s scrutiny of OLAF’s investigatory activ-
ities cannot bridge this gap, either, since it takes place a posteriori and
respects the Director’s autonomy.

Establishing a European Public Prosecutor’s Office which would
exercise judicial scrutiny over OLAF’s investigatory activities, by
contrast, would have the effect of enhancing its legitimacy to the
highest possible level of the Community legal system, namely that of
safeguarding fundamental rights and individual freedoms. The law
officers’ unit could, however, retain the role of providing expertise in
criminal law in connection with the conduct of investigations.

Secondly, OLAF’s effectiveness is restricted in several respects within
the current framework, which also makes it necessary to set up a
European Public Prosecutor’s Office.

— To begin with, the establishment of OLAF will not be sufficient
to resolve the problems concerning international judicial coop-
eration. The Committee considers that
the proposals put
forward in the corpus juris concerning depositions (by witnesses)
and interrogation reports (in respect of suspects), the European
arrest warrant and recognition of the validity of evidence
obtained by investigators constitute the only feasible solution.
Transferring the responsibility for relations with national prose-
cuting authorities to the European Public Prosecutor’s Office
will make it possible to put an end to the inconsistencies that
the Committee has noted where action taken to follow up
investigation reports is concerned.

— Secondly, the legislative authority’s main goal in setting up
OLAF was to step up the fight against internal fraud. On the
other hand, it introduced few improvements where external
fraud is concerned, particularly with regard to fraud involving

third countries. By applying the principle of European terri-
toriality defined in the corpus juris, the European Union should
achieve greater consistency in its relations with third countries
in connection with the protection of financial interests. The
definitions of offences in the European context would be valid
in the same way as national definitions. In addition, it would be
possible to forward European arrest warrants to Interpol.

— Finally, OLAF’s independence is difficult

to ensure in the
interinstitutional context, and it disrupts certain balances.
The creation of a European Public Prosecutor’s Office would
certainly be likely to bring about greater clarity. In the long
term, it might provide a solution to the problem of legitimacy
not only for OLAF but also for Europol. Such a solution would
promote the requisite degree of synergy between the two
bodies, while enabling the responsibilities of each to be clearly
delineated.

The Supervisory Committee is continuing its consideration of the
implications of implementing the corpus juris. It deems it premature
to present conclusions about the impact of the corpus juris on the
internal organisation of OLAF before discussing this with the new
Director. The Committee also wishes to examine in greater depth the
the
question of
establishment of a European Public Prosecutor’s Office would entail.

the new balance between the institutions that

As things stand, the Supervisory Committee considers that setting up
a European Public Prosecutor’s Office responsible for internal fraud,
as a first step, would provide a solution to several vital problems
which have emerged during its first few months in office.

Rapporteurs

José Narciso DA CUNHA RODRIGUES

Raymond KENDALL

Edmondo BRUTI-LIBERATI

17 December 1999.

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ANNEX IV

OPINION No 2/2000

on the initiatives of the institutions concerning the future of OLAF

Even before OLAF has completed the restructuring required as a
result of its having new functions assigned to it pursuant to Regulation
(EC) No 1073/1999 and of its having been allocated the requisite
resources (essentially, management autonomy and an establishment
plan consisting of 300 posts), several institutions have put forward
various initiatives seeking changes in the short or medium term to its
functions,
its institutional environment or even its status. The
Supervisory Committee appreciates that those initiatives have been
drawn up on the basis of perfectly sound analyses, in particular those
set out in the second report of the Committee of Independent Experts
which highlighted the fact that the mechanism established by the
Regulation was a temporary solution and that it was now time to
consider what additions should be made to it.

In the light of the various initiatives referred to below (1), the
Committee deems it appropriate to assess the ambiguities in the new
OLAF structure (2), then to analyse, on the basis of the way in which
OLAF currently operates, the priorities which must be established as
part of its reorganisation (3) and, finally, to emphasise the need for
the legal framework to be strengthened (4).

(b)

OLAF’s role in disciplinary proceedings

The Commission proposes two new features, the impact of which on
OLAF’s status and powers needs to be studied: the setting-up of an
Interinstitutional Disciplinary Board and the establishment of an
‘Office’, the job of which would be to bring administrative cases
before the Disciplinary Board. The Commission also envisages
proposing an amendment to the Staff Regulations of Officials in
order to implement these measures.

1.2. Commission opinion on the convening of an IGC (26

January 2000) (2)

In its opinion, the Commission proposes supplementing the pro-
visions of Article 280 of the EC Treaty with a legal basis enabling a
system of rules defining offences and the penalties they carry to be
introduced, laying down the requisite procedures for the prosecution
of such offences and creating a European Public Prosecutor. Such a
system, which would introduce a judicial safeguard, would no doubt
impinge on the way in which OLAF operates.

1.

REMINDER OF THE VARIOUS INITIATIVES PUT FORWARD
BY THE INSTITUTIONS

1.3. Council deliberations concerning the Eurojust project

(note dated 28 March 2000)

1.1. Commission White Paper on reforming the Commission

(5 April 2000) (1)

Several of the proposals formulated by the Commission in its White
Paper concern OLAF, essentially in two areas:

(a)

Protecting the Community’s financial interests

In this area, the White Paper does not propose changes to the
current structure or rules but merely to the relationships between
departments, advocating ‘better’ coordination and closer involvement
of OLAF in the legislative process. It also recommends that OLAF’s
role in recovering unduly paid funds be strengthened.

As regards the way in which OLAF operates, suffice it to say that, if
these additional tasks (especially the second) were assigned to OLAF,
additional resources would also need to be allocated. Moreover,
OLAF’s operational management should not intervene in manage-
ment other than in an advisory role, since that might otherwise lead
to an overlapping of powers and responsibilities or even a conflict of
interests.

Addressing the issue of action to combat organised crime in its
entirety, the Council is considering mechanisms that could strengthen
European police and judicial cooperation arrangements. It will thus
be faced by problems of an interinstitutional nature, as the new
entities, Europol, Eurojust and the European Judicial Network, have
general powers and operate within the third pillar, whereas OLAF has
specific powers relating to the protection of the European Union’s
financial interests and operates within both the first and third pillars.
It will therefore be necessary to define the respective roles of the
various entities and the relationships between them. It would seem to
this matter must be resolved through
go without saying that
cooperation between these entities, based on the maintenance of the
specific features of the protection of the Community’s financial
interests and the preservation of
the current
mechanism.

the efficiency of

1.4. Parliament’s resolutions

(a)

Resolution in the Theato report on the protection under criminal law
of the Union’s financial interests (19 January 2000)

In that resolution, it is noted that the protocols on the protection of
the Community’s financial interests have still to be ratified by all the
Member States, and a deadline for and a linkage between the various
stages in the completion of
the mechanism’s development are
proposed.

(1) COM(2000) 200 final.

(2) COM(2000) 34.

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(b)

Resolution in the Van Hulten report on the Second Report of the
Committee of Independent Experts (19 January 2000)

That resolution takes into account some of the recommendations
made by the Committee of Independent Experts with a view to
making additions to the mechanism for establishing officials’ liability.

(c)

Resolution in the Stauner report on the postponement of the discharge
in respect of the financial year 1998 (13 April 2000)

Inter alia, that resolution calls on the Commission to respond to the
proposals for the establishment of an external chamber at the Court
of Auditors or the Court of Justice to deal with disciplinary procedures
in respect of budgetary irregularities.

(d)

Report drawn up by Mr Bösch, on behalf of the Committee on
Budgetary Control, on the 1998 annual report on protecting the
Communities’ financial interests

First of all, this report recalls, and sets out in detail, the proposal to
create a European Public Prosecutor’s Office. It calls on the Com-
mission to submit, on the basis of Article 280 of the EC Treaty, a
proposal to amend the Regulation which would allow, initially, for
the creation of a European Public Prosecutor’s Office for the
prosecution of irregularities committed by members and employees
of the institutions. It also calls for the establishment of a chamber for
budgetary discipline under the authority of the Court of First Instance,
the establishment of absolute priority for internal investigations, the
reorganisation of OLAF so as to guarantee its operational indepen-
dence and administrative and budgetary autonomy, and additional
powers for the Supervisory Committee so that it may ensure that
defence rights are guaranteed.

2.

THE AMBIGUITIES OF THE CURRENT LEGAL FRAMEWORK
WHICH AFFECT OLAF’S INDEPENDENCE

2.1. Ambiguities relating to OLAF’s status

The legislative authority granted hybrid status to OLAF because of
the urgent need for such a body to be established: the creation of an
independent organ and the adoption of the acts entrusting to it the
requisite powers would have entailed lengthy and cumbersome
procedures. The hybrid status seeks to grant OLAF the operational
independence sought by the political authorities while keeping the
Office within the Commission structure as regards the budgetary and
administrative aspects. Although the political authorities took various
measures to ensure that OLAF enjoyed the maximum possible
autonomy within that structure, such as the terms for the appointment
of its Director-General, his role as appointing authority for its staff
and as authorising officer for the implementation of its budget, and
the specific budgetary structure, in practice OLAF has to cope with a
large number of difficulties because not all of the implications of that
autonomous status have as yet been properly thought through.
Although, as regards the drawing up of budgetary estimates,
it
now appears accepted that the budgetary authority examines the
preliminary draft estimates drawn up by the Office, OLAF does not
yet possess the requisite instruments to cope with its autonomy in
terms of budgetary and staff management, and the division of

management powers and responsibilities between OLAF and the
Commission will have to be reviewed with that in mind. In the
current establishment phase, these ambiguities might give rise to
situations where the Office’s independence could be challenged.

It is clear that, if OLAF were to develop as Parliament wishes it to
develop,
these ambiguities would be eliminated. However, one
problem would then have to be resolved, namely the exercise of the
powers of the Commission, preparation of which is entrusted to
OLAF, for example in the legislative field.

2.2. Ambiguities relating to OLAF’s powers

The fundamental ambiguity relating to OLAF’s powers arises from a
change in the nature of the investigations conducted, a change which
has become more marked during the transition from UCLAF to
OLAF. Originally, the investigations were purely administrative in
nature, being conducted by a Commission department. Now, how-
ever, they have become more like criminal law investigations (with
particular regard to internal investigations) in order to respond to the
wishes of the political authorities. That has given rise to problems
concerning the powers allocated to the Office, the safeguards which
must accompany its operations, the procedures used and the issues
of immunity, inviolability of Members and inviolability of premises.

3.

REORGANISATION OF OLAF: THE PRIORITIES

The new Director-General took up his duties on 1 March 2000. His
work revolves around the need to eliminate as rapidly as possible the
difficulties referred to above. In the Stauner and Bösch reports,
Parliament emphasised the need to identify the priorities for OLAF’s
reorganisation. It called for ‘absolute priority’ to be given to the
establishment of a structure for investigations into cases of fraud or
corruption within the EU institutions and for structures and pro-
cedures to be established for cases to be prosecuted under criminal
law or in accordance with disciplinary procedures.

Parliament’s concerns are completely in tune with the analyses made
by the Supervisory Committee during the first 10 months of its work.

4.

STRENGTHENING THE LEGAL FRAMEWORK

The ambiguities of the current legal framework are such that, whatever
institutional changes may be envisaged, the legal environment in
which OLAF operates must be clarified as a matter of urgency.

In its opinion No 5/1999 (1), the Committee analysed the extent to
which the corpus juris and the solutions advocated in the follow-up
study might help to eliminate the weaknesses and the shortcomings
of the current system. It emphasised in particular the desirability of
the establishment of a body such as the European Public Prosecutor’s
Office and, with that in view, supported the Commission opinion
dated 26 January 2000 referred to in point 1.2. A preliminary
European Chamber might also be able to monitor the investigation
procedure and determine whether there were grounds for committal
for trial.

(1) See Annex III to this report.

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As regards the initiatives taken by Parliament with a view to the
immediate strengthening of the legal framework, the Supervisory
Committee would support:

— the establishment, on the basis of Article 280 of the EC Treaty,
of a European Public Prosecutor’s Office with powers restricted
to cases of fraud and financial
irregularities internal to the
institutions,

— the establishment of a Disciplinary Chamber to deal with

budgetary irregularities,

— the adoption of rules governing the conduct of OLAF’s investi-

gations.

Finally, the Committee takes the view that the provisions designed to
clarify and supplement the current legal framework should clearly
restate the principle that the protection of the Union’s financial
interests extends to assets held or managed by the Community
institutions, organs and bodies and, in particular, to the fight against
the counterfeiting of the euro and against fraud committed to the
detriment of Community legislation, and that internal investigations
concern illegal conduct and actions in the financial sector by officials
and other servants of the Community in the exercise of their duties

or, in the case of Members of the institutions, in the exercise of their
mandate.

Conversely, it believes that the appointment of a hearings officer
attached to the Supervisory Committee Secretariat would be in
conformity neither with the powers nor with the nature of the
Supervisory Committee.

CONCLUSION

This opinion is based on an analysis of the current situation, one
where serious difficulties exist. Although it was possible to draw up
the basic texts for the creation of OLAF in just four months, the
putting in place of the new structures is far from being completed
one year on. What is more, problems arise because of the ambiguous
nature of the legal framework with regard to powers, safeguards,
procedures and immunities. Whatever action is taken on the measures
designed to bring about institutional changes, clarification of the legal
framework is urgently required if those problems are to be resolved.

Rapporteur:

Mr Edmondo BRUTI-LIBERATI

16 May 2000.

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ANNEX 5

REPORT No 1/1999

OF THE SUPERVISORY COMMITTEE

TO PARLIAMENT

TO THE COUNCIL

TO THE COMMISSION

on the implementation of Regulation (EC) No 1073/1999 of the European Parliament and of the Council by
EU institutions, bodies, offices and agencies

1.
On 25 May 1999 the European Parliament and the Council, in
agreement with the Commission, adopted the Regulation concerning
investigations conducted by the European Anti-fraud Office (OLAF).
This regulation confers on OLAF independent status and extensive
powers to conduct administrative investigations in all the Community
institutions, bodies, offices and agencies. It also makes it compulsory
for each Community institution, body, office or agency to take a
decision aimed at two objectives: establishing a duty on the part of
their members, officials and other servants to cooperate with and
supply information to OLAF; specifying the guarantees of the rights
of persons concerned by an internal investigation.

On the same date, the European Parliament, the Council and the
Commission signed an interinstitutional agreement extending OLAF’s
powers of
investigation within institutions, bodies, offices and
agencies beyond protection of the Community’s financial interests
and providing a model for the decision required by the Regulation.
All institutions, bodies, offices and agencies were invited to accede to
this agreement and to take a decision in compliance with the model.

2.
An assessment of the implementation of these provisions shows
that, to date, only the Committee of the Regions, the European
Central Bank and the European Investment Bank have failed both to
take the decision made compulsory by Article 4 of Regulation (EC)
No 1073/1999 and to accede to the interinstitutional agreement.

3.
The Committee wishes to point out that the Regulation is based
on Article 280 of the Treaty establishing the European Community,
under which the Council, acting in codecision with Parliament, has
the power to ‘adopt the necessary measures in the fields of the
prevention of and the fight against fraud affecting the financial
interests of the Community’. The Committee notes that the only
restrictions set by Article 280 on Community measures are the
application of national criminal law and the national administration
of justice, and that it does not provide for any Community institution,
body, office or agency being exempt from measures taken on the
basis of this Article. Besides, Regulation (EC) No 1073/1999 stipulates
that OLAF ‘shall conduct administrative investigations within the

institutions, bodies, offices and agencies established by, or on the
basis of, the Treaties’, without exception. The Committee of the
Regions, the European Central Bank and the European Investment
Bank are bodies established by the Community Treaties.

4.
The Committee notes that Article 280 of the Treaty and
Regulation (EC) No 1073/1999 do not mention the budget adminis-
tered by the Commission but seek to protect the Community’s
financial interests as a whole. As Regulation (EC) No 1073/1999
points out, the Community is composed of all the institutions, bodies,
offices and agencies established by, or on the basis of, the Treaties.
interests include not only the funds which these
Their financial
Community institutions, bodies, offices and agencies have in their
possession or administer, but also all the resources available to them.
They also cover any funds or assets entrusted to the Community
institutions, bodies, offices and agencies, for example by the Member
States (currency reserves deposited with the ECB), given that, under
Article 288 of the Treaty, the Community ‘shall, in accordance with
the general principles common to the laws of the Member States,
make good any damage caused by its institutions or by its servants in
the performance of their duties’, for example as a result of fraud.

5.
The Committee also attaches the greatest importance to the
interinstitutional agreement. It is the only means of protecting citizens
and economic operators against a number of risks which may not
affect the finances of Community institutions, bodies, offices or
agencies, but might be costly to the general public. These risks include
corruption with the aim of influencing Community legislation or the
choice of projects to be funded or supported by the Community, for
example via the European Investment Bank,
the disclosure of
confidential information, for example with regard to decisions on
reference or intervention rates on the European Central Bank’s
exchange market. Moreover, under the terms of Regulation (EC)
No 1073/1999, OLAF already has the power to conduct administrat-
ive investigations within institutions and other bodies, including,
where necessary, the Committee of the Regions, the European Central
these
Bank and the European Investment Bank. The fact
Community bodies have not taken the statutory decision specifying
the guarantees of rights of persons concerned by an internal

that

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investigation is potentially prejudicial to their members and staff. The
result of the abstention of the Committee of the Regions, the
European Central Bank and the European Investment Bank is therefore
that neither ordinary citizens nor economic operators, nor the staff
of these bodies are guaranteed adequate protection.

6.
In view of the sums of money managed by the Committee of
the Regions, the European Central Bank, and the European Investment
Bank, the Supervisory Committee therefore considers it essential

that these Community bodies accede as soon as possible to the
interinstitutional agreement on OLAF and take the decision made
compulsory by Regulation (EC) No 1073/1999, in accordance with
the proposed model. It calls on the European Parliament, the Council
and the Commission, in exercising their responsibilities, to take due
account of the attitude of these bodies to OLAF, in accordance with
the principle that the Community should not make public funds
available if they cannot be protected by OLAF.

7 October 1999.