Report of the European Anti Fraud Office — Third Activity report for the year ending June 2002
Date: 2002-12-30
Institutions: European Commission
Subjects: European Anti-fraud Office, activity report

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I

(Information)

COMMISSION

REPORT OF THE EUROPEAN ANTI FRAUD OFFICE

THIRD ACTIVITY REPORT

for the year ending June 2002

(2002/C 328/01)

TABLE OF CONTENTS

FOREWORD ................................................................... ................................................................................................ ................

1. Investigation activity ........................................................................................................................................................ .......

2. Intelligence activity ............................................................................. .....................................................................................

3. Support and enhancement of operational results ............................................................................. ..............................

4. Internal organisation, training and communication ................................................................................................ .......

5. Cooperation with Olaf's partners in the fight against fraud.............................................................................. ............

ANNEX — OLAF's investigation procedures

1. The different types of cases ......................................................................................... .........................................................

2. The process of investigation................................................................................................ ...................................................

Site

2

5

15

18

19

20

22

22

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FOREWORD

Three years have passed since the creation of the European Anti-Fraud Office (known as OLAF from the
French acronym). Two-and-one-half years ago, I took up office as Director General of OLAF. This third
Activity Report summarises what we have achieved in operational terms in the 12 months ending June
2002. Our work programme for the next year will build on these foundations.

Our core activity is the conduct and coordination of anti-fraud operations to protect the EC Budget and
the investigation of fraud and illegal activities within the European Institutions. As chapter 1.3 of this
report shows, there has been a significant increase in the number of cases handled by OLAF during this
period.

OLAF was born at a difficult moment for the European Union. The legislator opted for a mixed organi-
sational structure for the new Office: a body within the European Commission, but with operational
independence and a degree of budgetary and administrative autonomy. Although this arrangement has
presented certain difficulties, we have been successful in achieving a number of goals.

OLAF has achieved administrative and budgetary autonomy. In particular, I am pleased to report that the
Commission has scrupulously respected my operational independence. It has not been necessary to call
upon OLAF's Supervisory Committee to exercise its primary function of safeguarding that independence.
OLAF has, however, continued to benefit from the Supervisory Committee's experience, advice and
support.

What OLAF now needs above all is a period of stability. This may be difficult to achieve at a time in which
the entire structure of EU Institutions, and their complex interrelationships, is again under review. We
must, however, have time to absorb the progress which has been made without the disruption to
anti-fraud operations which results from continuing change and uncertainty.

The main management structures for running an Office of more than 300 people are now in place.
Recruitment continued at a fast pace during the period covered by this Report, both to fill new posts and
to replace staff that left. Highly skilled and experienced staff have been appointed to fill the specific needs
of the Office. The budgetary authority's decision to delay the attribution of new posts in 2001 and to
impose changes in the professional profile of many of those posts has led to a delay in the completion of
our recruitment exercise. This will have a long-term impact on our staffing profile. We hope, nonetheless,
to be close to the target by the end of 2002.

I am particularly pleased that, notwithstanding numerous obstacles placed in our path, I was finally able to
appoint the Director for Investigations and Operations.

We have also progressed with the installation of management systems that ensure transparency in our
processes. We have developed clear rules for the processing of operational information which guarantee
the rights of persons under investigation, while also ensuring that successful prosecution in national courts
is not handicapped.

The main responsibility for the protection of the financial interests of the Community remains with the
Member States. There are, however, many points at which the chain of action against criminals who
operate across national borders is liable to be broken, in a network where numerous national investigation
and judicial authorities operate under 17 different legal systems. OLAF's job is to prevent such breakdowns
in the chain within our field of responsibility. OLAF seeks to use its position at the centre of this network
to add value to the efforts of the Member States by providing a ‘platform of services’, many of which are
described in this Report.

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Success or failure in the fight against fraud is not simply a question of the number of investigations
conducted, cases transmitted to the Commission's disciplinary office, files submitted to national pros-
ecution authorities, or criminal activities deterred or disrupted. Our success will be determined by the
effectiveness with which we play our role at the centre, to foster cooperation between national authorities;
by distilling and applying the lessons we have learned through experience; and by the construction of
trans-European anti-fraud structures, legislative, administrative and judicial, which will become increasingly
effective as time goes on. This is particularly important as enlargement approaches.

OLAF therefore also welcomes the opportunity to cooperate with other bodies which have responsibility
for addressing criminal activity, such as Eurojust and Europol. These bodies also have complex institutional
relationships which must not stand in the way of effective cooperation to protect the financial interests of
Europe.

The fight against fraud must lead to visible results: fraudsters punished, stolen money recovered, damage to
the functioning and reputation of institutions repaired. This requires professionalism in the handling of
cases. The guilty must not escape as the result of procedural error. This also requires the efficient allocation
of our limited resources, so that OLAF concentrates its efforts on those areas where we can achieve the
greatest impact.

In this connection, I am convinced that the operational expertise which OLAF is acquiring provides a
unique contribution to the debate on the future European Prosecutor. This is because OLAF has three
critical strengths in the fight against financial and economic crime targeting the European Union and its
finances:
the powers and the
specialised knowledge to conduct operations within the institutions; and the strategic ability to
influence the development of the relevant policy and legislation which flows from our status as a
service of the Commission. The Office's experience has an essential role to play in the debate on this
issue. I shall ensure that we do so.

the capacity to work alongside national

law enforcement authorities;

Franz-Hermann BRUENER

Director-General OLAF

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Our Objective

The mission of the European Anti-Fraud Office (OLAF) is to protect the financial interests of the
European Union, to fight fraud, corruption and any other illegal activity,
including misconduct
within the European Institutions that has financial consequences. In pursuing this mission in an
accountable, transparent and cost-effective manner, OLAF aims to provide a quality service to the
citizens of Europe.

Our Methods and Means

The European Anti-Fraud Office achieves its mission by conducting, in full independence, internal
and external investigations. It also organises close and regular co-operation between the competent
authorities of the Member States, in order to co-ordinate their activities for the protection of the
Communities' financial interests and the fight against fraud. OLAF supplies Member States with the
necessary support and multidisciplinary technical know-how to help them in their fight against
economic and financial crime. It strives to contribute to the design of the European strategy for the
fight against fraud and illegal activities and takes the necessary initiatives to strengthen the relevant
legislation.

The Office's activities will be carried out with integrity, impartiality and professionalism, and will, at
all times, respect the rights and freedoms of individuals and be fully consistent with the law.

Our Principles

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it

future reporting will

opening and closing of investigations was less uniform, any
comparison between reporting years must be qualified. As
the UCLAF cases are closed,
reflect
more accurately the workload of OLAF and case trends.
is still
Notwithstanding this inconsistency in the figures,
clear that there has been an increase in all types of cases.
This increase can be explained by several factors: the amount
of fraud and its rate of detection may have increased; OLAF's
work is becoming better known as the message is spread that
‘we are open for business’; the European Institutions, Member
States and third countries increasingly understand the legal
the body
competence of OLAF and acknowledge it as
responsible for investigating fraud and financial
irregularity
against the Community budget. The special role of OLAF as
co-ordinator among the Member States, with the ability to offer
assistance to national administrations in their investigations, is
also reflected in the greater demands made on OLAF's
resources.

1.3. Statistical overview

During the reporting period OLAF has made a major effort to
reliable and meaningful
establish a reference database for
statistics. The investment of time and effort required by this
exercise was made in order to establish a statistical regime that
can be used for trend analysis in the years to come.

In order to achieve better comparability between the current
activity report and the Annual Report of
the European
Commission, which covers the full calendar year, OLAF has
modified its reporting period so that it covers two full half
i.e. 1 July 2001 to 30 June 2002. In the future, this
years,
adjustment will allow OLAF to report statistics by semester,
and to make easy comparisons between the statistics of the
OLAF report and the Commission report.

On 30 June 2002, the end of the current reporting period,
there were 2 900 cases stored in OLAF's Case Management
System (CMS). Of those, 1 426 were inherited from UCLAF,
while 1 474 were opened between 1st June 1999, when OLAF
was created, and the end of this reporting period. 552 cases
were opened during the current reporting period. This indicates
caseload increased by approximately 30 %
that OLAF's
compared to the first
two years. Figure 1.1 graphically
represents this situation:

1. INVESTIGATION ACTIVITY

1.1. Overview

the

area of business,

The period covered by this Report reflects steady growth in
investigation of
OLAF's principal
suspected fraud against the financial interests of the European
Community (1). This has resulted in growing pressure on
OLAF's human resources, notwithstanding the additional staff
who joined over the course of the year. In order to manage this
growing caseload, work has continued over the year on the
development of a formal system for prioritising incoming
cases. The work programme for 2003 will
include a full
description of the priority criteria as implemented.

Over the last year, OLAF gave high priority to two types of
cases. First, OLAF operated a policy of ‘zero tolerance’ towards
corruption or fraud within the European Institutions. This
meant that all allegations made in this area were investigated,
even where the source was questionable or the amount of
money at issue was minimal. This policy is resource-intensive
but was judged necessary in the interests of the reputation of
the European Institutions. Second, OLAF gave particular
involving the applicant countries. This
attention to cases
covers both cases involving the misuse of EC funds directed
towards the enlargement process and cases where activities
affecting the interests of the EU are in some way linked to
the candidate countries. OLAF is particularly keen to develop
its working relationship with the Anti-Fraud Co-ordination
Structures in the candidate countries.

In addition, OLAF has been working with a wide range of
departments in Member States as well as specialist
fraud
offices in such entities as the World Bank and the United
Nations
irregularities and fraud.
There has been increasing liaison with Interpol, Europol,
Eurojust and the European Judicial Network.

in investigating financial

1.2. Analysis of Investigation Activity

A significant increase in the number of cases opened and dealt
with by the Office has occurred over the course of the current
reporting period. In measuring the increase, one must be aware
that the figures include investigations which OLAF inherited
from UCLAF. Because UCLAF did not have the same breadth
of responsibilities as OLAF and its system of recording the

(1) The statistics in the present report cover 2 full half years, i.e. 1 July
2001 to 30 June 2002. The intention is to adopt this practice as a
statistical convention so as to ensure full comparability of data in
subsequent years.

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Figure 1.1.

Distribution of cases among the 3 reference periods

During the current reporting period, OLAF received information on 576 occasions, which led to the
registration of 552 new cases in the CMS. The reason for this discrepancy is that with respect to
several cases,
information was received from more than one source. The incoming information was
broken down into five sources:

Figure 1.2.

Distribution of incoming information by source

the information came from the Commission Services
Figure 1.2 demonstrates that while most of
(approximately 30 %), this was closely followed by the Member States (22 %), with the other European
Institutions and the Freephone providing 7 % and 8 % respectively of the information received. The 33 %
of information that is grouped under ‘others’ includes, for example, information received from the public
and the media.

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Figure 1.3 shows the breakdown of incoming information by Member State and third countries.

Figure 1.3.

Distribution of incoming informtion by Member State and third countries

Figure 1.4 provides the breakdown of the 552 new cases by sector.

Figure 1.4.

New cases in report period split per sector

OLAF cases can be registered in the CMS as being either in evaluation, under investigation, in follow-up, or
closed. Of the 552 cases that were initiated during the reporting period, 174 cases were closed by the end
of that period, 263 were under investigation, and 115 were still in evaluation.

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Figure 1.5.

Breakdown of cases by type

Figure 1.5 shows a breakdown of the 437 cases opened during the reporting period by type: 118 are
external investigations, 101 are co-ordination cases, 39 are internal corruption cases, 29 are assistance
cases, and 7 are monitoring cases. The latter type was introduced during the last month of the reporting
period. These terms are described in the annex to this Report, which also outlines the procedure for
opening cases.

The statistics set forth in Figures 1.1 through 1.5 are related to the reporting period and will form the
basis of future trend analysis. They do not reflect, however, OLAF's substantially larger caseload. In fact, as
explained above, 922 cases were initiated by OLAF before the reporting period. Within the category of
active cases (in evaluation or under investigation), 277 of these cases were closed and 177 were evaluated
during the reporting period. Figure 1.6 shows the cumulative situation at the end of the reporting period.

Figure 1.6.

OLAF's backlog at 30 June 2002 by operational stage

The Director General of OLAF established a Task Force in 2001 with the mandate of reviewing the cases
inherited from UCLAF. Of the overall total of 1 426 UCLAF cases, 660 cases were still active at the
beginning of the reporting period. The Task Force closed 510 of these cases. With regard to the balance
(less than 11 % of the UCLAF total), the Director General has appointed a magistrate to assess the
allegations. In addition, there will be a review of selected closed UCLAF cases, in order to ensure that
the basis for doing so was correct. The Office will continue to dedicate the necessary resources to this
professional clean-up exercise, which is scheduled to be completed by the end of the reporting period
2002-2003.

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In total, OLAF closed 961 cases during the reporting period. The stage of investigation by reference period
as of 30 June 2002 is summarised in Figure 1.7.

Figure 1.7.

Stage of investigation by reference period as of 30.6.2002

Reference period

Active cases

OLAF reporting period
(1.7.2001-30.6.2002)

OLAF pre-reporting period
(1.6.1999-30.6.2001)

UCLAF (before 1.6.1999)

378

444

150

972

Total

Closed

174

478

1 276

1 928

Total

552

922

1 426

2 900

OLAF distinguishes between administrative, financial and legislative follow-up on one hand and disci-
plinary and judicial follow-up on the other hand. Figure 1.8 shows the distribution of the 241 cases that
are currently in follow-up.

Figure 1.8.

Cases in Follow-Up split by sector

In most cases, responsibility for recovery of misappropriated funds, and in all cases, judicial and disci-
plinary action, does not rest with OLAF. Prime responsibility rests with the Member States or with the
Institutions. OLAF's primary task is to investigate and then refer its findings to the relevant authority for
the necessary action. Specific units within OLAF assist in this process (see Chapter 3).

Figure 1.9 shows the situation of cases in the follow-up stage broken down by reference periods.

Figure 1.9.

Stage of Follow-Up by reference as of 30.6.2002

Reference period

Active Follow-Up

OLAF reporting period (1.7.2001-30.6.2002)

OLAF pre-reporting period (1.6.1999-30.6.2001)

UCLAF (before 1.6.1999)

10

53

178

241

Total

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The timeframe for disciplinary, administrative and judicial action following an OLAF investigation varies.
Some cases are relatively straightforward and can be processed quickly, others may require extensive
inter-service consultation within the Commission and/or contacts with national authorities in the
Member States. There may also be related action in national courts. It is therefore possible that the
follow-up stage may take considerably longer to conclude than the investigation itself.

Figure 1.10 summarises the operational activities of the Office by sector.

Figure 1.10.

Caseload development in the Reporting Period

New cases

Cases
evaluated

Non-cases

Monitoring
cases

Investigations
opened

Closed with
Follow-Up

Closes without
Follow-Up

Internal cases

Direct Expenditure

Structural Funds

Customs & Trade

Agriculture

Cigarettes & Excises

63

174

81

112

77

45

Total

552

58

217

78

214

79

109

755

13

85

28

21

41

9

197

0

2

5

1

1

0

9

115

320

367

464

109

228

2

44

124

37

8

18

1 603

233

32

47

114

178

23

123

517

1.4. Internal investigations

During the reporting period, the Office dealt with the majority of the European Institutions on internal
cases. Co-operation with the institutions is good and improving. The speed with which documents are
supplied or personnel made available for interviews significantly affects the smooth conduct of an inves-
tigation.

Although the number of internal cases treated by the Office has increased, it is difficult to draw general
lessons from these investigations. Sometimes the established facts and the modus operandi vary and seem
more connected with the individual than with a weakness in the system. Nevertheless, in several cases
OLAF drew attention to deficiencies in the organisation and in supervision, and made recommendations to
the institutions concerned to avoid repetition of the problem.

From time to time, it becomes apparent that attention should be focussed on particular activities. One such
area has been the construction and refurbishment of buildings policy of the institutions; another has been
Non-Governmental Organisations (NGOs). Dedicated teams have been set up to deal with these files.

There were 154 internal cases at the end of the reporting period. Of those, 34 were inherited from UCLAF,
57 were opened by OLAF before the reporting period, and 63 new cases were opened during the reporting
period, indicating a large increase in the number of internal cases. Figure 1.11 graphically represents this
situation:

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Figure 1.11.

Distribution of internal cases between the 3 reference periods

Viewed by institutions concerned, Fig. 1.12 clearly shows that the large majority,
concerns the European Commission.

(more than 75 %),

Figure 1.12.

Internal cases broken down by Institution concerned

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Case Study

In March 2002, OLAF opened an internal investigation
concerning an individual in a very senior position with
an EU institution. This case was opened following alle-
gations referred to the Office by a Member of
the
in February. Simultaneously the
European Parliament
information was
institution
concerned.

from the

received

Before opening the investigation, these allegations were
thoroughly assessed. A special
investigation team was
created, composed of an investigator, the Adviser for
internal cases and the Head of the Magistrates' Unit.
From the outset, this team received full co-operation
from the President and the Secretary General, and had
access to whatever information it required. Missions
were executed in 4 Member States. More than 15
persons were interviewed.

The investigation is continuing and should be concluded
within the next month. A specific target of the Office is
to finish investigations as quickly as possible and the
Office has found that the strategy of putting together
specialist teams to deal with high profile cases helps to
achieve this objective.

1.5. External Investigation Cases

The largest number of cases the Office handles are external
investigations. These fall into several categories.

Direct Expenditure and External Aid

Unlike other external cases, Direct Expenditure and External
Aid cases fall within OLAF's exclusive competence.

initiated discussions with its counterparts

in
OLAF has
applicant countries as to how they can collaborate to inves-
tigate cases. The objective is to ensure that investigations are
properly focussed, and efforts are not duplicated. To this end,
the Office is building a network of contacts with its operational
counterparts in Eastern Europe. This is a particularly pressing
issue given that there were, on average, only 28 OLAF inves-
tigators to deal with all internal, direct expenditure, external aid
and structural
the reporting period. The
for
proposal to create a network of OLAF liaison officers in the
Applicant States is currently being considered within OLAF,
however additional resources will be required to implement
this initiative properly.

funds cases

OLAF is also exploring how to optimise the use of resources
available at the level of the law enforcement authorities in the
Member States, such as the network of police and customs
liaison officers.

OLAF is working in close co-operation with its partners in
other international organisations, such as the United Nations
and the World Bank, to develop a set of investigative standards.

Such standards will allow all investigators in these institutions
to exchange information more effectively, to work more closely
together and, if necessary, in joint teams, and to achieve results
from its investigations which can be used by all international
partners. The following example shows the difficulties and the
results of cooperation between national
judicial authorities
within the European Union.

Case Study

the

time

same

In August 1999, OLAF was informed that financing by
the Luxembourg government for an aid project in Africa
funded by the European
was at
Community. Neither donor was aware of the other's
contribution. OLAF
to
initiated
an investigation
financing projects were
determine whether different
In fact,
the subject of a double co-financing request.
the investigation disclosed multi-sourced funding for
the
donors with
contributions exceeding the amount proposed for the
project.

from multiple

project

same

Involvement of four judicial authorities was enlisted by
OLAF to carry out
the investigation: Luxembourg,
Frankfurt and Brussels Prosecutors and the Serious
Fraud Office in London. OLAF co-ordinated all the auth-
orities concerned.

the

lead
Although the Serious Fraud Office was
authority in the investigation,
for legal reasons the
case has now been taken over by the Belgian judicial
authorities. Because of the complexity of the case and
the need to review dozens of aid applications made by
the Non-Governmental Organisation in question,
the
judicial investigations are still ongoing.

Structural actions

Cases opened in this area involve predominantly the European
Social Fund (ESF) and the European Regional Development
Fund (ERDF).

OLAF has increased its efforts to work in close cooperation
with Member State authorities and other Commission services
by placing at their disposal the information gathered at the
Community level.

The majority of
investigations were developed in close
co-operation with the administrative and national judicial auth-
orities. The Office provided assistance through approximately
seventy contacts and/or operational meetings as well as the
transmission of eight reports.

The cases of fraud detected in this field normally involve the
use of false invoices and false declarations. Specific problems in
the field of public contracts were also identified, normally
to the criteria and procedures
involving irregularities as
adopted by the Commission and/or the Member States,
in
particular with respect to technical assistance contracts.

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control

systems

set up by certain Member States
The
sometimes revealed weaknesses. This situation will be the
subject of a more detailed analysis within OLAF with the
aim of putting forward possible corrective measures.

The example which follows demonstrates close co-operation
judicial authorities (assistance
between OLAF and national
case). The fundamental role of on-the-spot checks carried out
by the Office within the framework of external investigations is
also illustrated by this example.

Case Study

Following a complaint sent
to the Commission, an
analysis was made of information gathered by OLAF's
in co-operation with other
Intelligence Directorate
Commission services. The Office thereafter initiated an
investigation
irregularity
concerning the selection and financing of projects by
the European Social Fund.

concerning

suspected

a

The complainant had registered his complaint with the
national judicial authority, which sought the assistance
the Office. Meetings were organised with the
of
the
Magistrate responsible for
the investigation and to establish
various aspects of
the
investigators were
course of
permitted to consult and copy data that was relevant
to the case.

the case to discuss

action. OLAF's

At the beginning of 2002, anti-dumping measures in force
concerned 67 different products, of which 25 were already
subject to investigation by OLAF. Anti-dumping duties may
represent 30 % or more of a product's value, while the
average customs duties applicable are 3 to 4 %. The high
level of duties leads dishonest economic operators to anticipate,
analyse, then seek to circumvent the regulations which would
raise the price of their products.

of

This

20 %).

In the specific sector of fish, origin fraud and value fraud
continue to occur. Both types of fraud are a consequence of
the high level of customs duties for fish products (some in
excess
dishonest
operators either
the products originate in
States where the rates which apply are more favourable, or
to undervalue the products in order to decrease the level of
duties owed. Community health requirements have also led
certain operators to bypass the rules and at the same time
commit origin fraud.

to declare that

encourages

situation

The number of investigations notified by the Member States in
textiles and clothing products has decreased,
the sector of
apparently for two reasons: the progressive liberalisation of
the systems of textile quotas; and earlier and better prevention,
due in part to OLAF's development of agreements with certain
countries (for example, Vietnam, Laos, Cambodia) for better
administrative co-operation.

OLAF forwarded the
authority.

file

to the national

judicial

Case Study

judicial proceedings led to the arrest of
tax evasion,

individuals for misappropriation,

The national
several
fraud, etc.

The fraudulent schemes relied upon involved falsifi-
cation and over-invoicing between the recipients and
the subcontractors for sometimes non-existent services.
Only one part of
the expenditure declared by the
recipients could be justified.

results,

The relevant Commission services were informed of
these
further
financial
transaction connected with the operational
programs in question.

and thereafter blocked any

Customs/External trade

The Customs sector deals with cases involving all types of
industrial and seafood products, including drug precursors.

Based upon information received from the UK customs
authority in July 2000, OLAF opened an investigation
concerning imports into Europe of stainless steel wire
from the United Arab Emirates. Anti-dumping duties of
up to 55.6 % were imposed on such goods originating
in India. Fraud was suspected, in particular on the basis
of an apparent diversion in the movement of
these
goods from India towards the United Arab Emirates.

Although the two Member States most concerned were
the United Kingdom and Germany, others were also
affected. Investigations undertaken by them confirmed
the suspicion of fraud.

OLAF investigators on mission to the United Arab
Emirates found proof not only that
the majority of
the companies in question were not able to produce
steel wire, but also that they had imported such wire
from India. The use of this information continues. Until
now,
is
approximately EUR 6 million, of which EUR 1,2
million have been recovered to date.

level of unpaid

established

duties

the

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Agriculture (1)

Activities in this sector during the reporting period concerned
mainly the co-ordination of cases between various Member
States, and between Member States and third countries. To a
lesser degree, activities also included the direct investigation of
external cases.

The
level of controls and management of programmes
concerning agriculture aids and subsidies in some Member
States was poor. OLAF helped identify the failures which led
to irregular or fraudulent conduct. Examples of such cases are
the long term set-aside programmes in Greece and ongoing
problems with milk quotas in Spain and Italy.

During the reporting period over half of the cases in the agri-
culture sector were of low monetary value and were referred to
the Member States for follow-up action.

Case Study

On the basis of
possible abuse of
Spanish companies, OLAF opened an external
gation.

information received concerning
the milk quota system by certain
investi-

In this regard,
the OLAF Magistrates' Unit was vital

This case is a clear example of OLAF giving added-value
to a Member State in the fight against fraud with the
expertise of its various component units (investigative,
computer forensics and judicial) being brought to bear
on a multi-faceted case of fraud.
the
in
advice of
obtaining the appropriate judicial order in the Member
State granting access to the companies' computer data
records. Great credit is also due to the Spanish auth-
orities whose assistance to OLAF proved invaluable in
this case, and demonstrated clearly what can be done
when OLAF and Member States work closely together
and exploit fully the control obligations and possibilities
contained in the EU regulations.

Cigarettes, VAT and Excise Duties

The trends during the year have confirmed that the type of
fraud committed is becoming more complex, and the fraudsters
are prepared to go to greater lengths to conceal their activities.
Because of the sizeable profits which can be made,
it is no
hardship to the fraudsters to move containers of cigarettes
through several countries, and unload and reload the cigarettes
times. As OLAF's cooperation with certain third
several
countries
the fraudsters move their operations.
They select other countries with which the Commission does
not presently have cooperation agreements, and/or which have
no real interest in helping OLAF to pursue its investigations, or
with which effective cooperation is very difficult to establish.

increases,

its

this

some of

investigation,

In the course of
the
companies involved refused to comply with OLAF's
request to facilitate the copying of computer data. In
response, OLAF invoked Article 9 of Regulation No
2185/96, under which the Member State concerned
must provide OLAF with the necessary assistance to
carry out
the Spanish
functions. Accordingly,
Paying Agency (FEGA) was asked to take appropriate
measures to assist OLAF in obtaining the complete
computer records. In co-operation with OLAF's Magis-
trates' Unit legal authorisation was thereafter provided
by the Spanish judicial authorities and the data was
obtained. The
practices
evidenced
resulting in damage to the EU budget of approximately
EUR 6 million. OLAF's
investigation report was
forwarded to FEGA in order to initiate the adminis-
trative procedures necessary to recover these funds. It
was also forwarded to the Anti-Corruption Special Pros-
ecutor's Office in Spain, as the economic operators
investigated may have made false declarations on the
output and sale of milk. The report also indicates that
similar practices may have been followed by other
Spanish firms. The Spanish authorities have been
asked to review their control systems.

irregular

data

(1) For the sake of consistency, the cases under this heading bear on
(export

and agricultural

expenditure

trade

EAGGF-Guarantee
subsidies).

Investigations in these areas are never for the sole benefit of
the Community. Rather, the Office is a major ‘service provider’
to Member States and third countries. In the field of cigarette
fraud, the Office has worked closely with the enforcement and
to identify the
judicial authorities of
organisers of smuggling,
the Member States in
carrying out
investigative missions and executing letters of
request, and to provide information about suspect cigarette
movements,
the
contribution of OLAF may be prevention, deterrence as well
as the recovery of evaded customs duties and national taxes.

companies and persons.

the Member States

In such cases

to support

there is no resulting loss

The act of seizure of cigarettes secures the goods and prevents
their being introduced into the EU market without payment of
revenue loss thus
the appropriate revenue. The potential
prevented,
to the Community
budget. In such cases, the task of the Member States together
with OLAF is to determine whether the seizure is part of a
wider smuggling scheme and if so, to terminate it. The goal is,
therefore, identification, disruption and prosecution of the indi-
viduals behind the smuggling; prevention of future smuggling;
and improvement in the level of knowledge and cooperation
for OLAF, Member States and third countries.

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the undertaking of missions

OLAF has coordinated a civil action lodged in New York by the
the
European Community and ten Member States against
American cigarette manufacturers Philip Morris
and RJ
involved close cooperation with the
Reynolds. This has
to gather
Member States,
evidence, cooperation with US Customs and the customs
services of third countries, and close cooperation with the
Commission Legal Service. The alleged smuggling schemes
designed by the cigarette companies have caused sizable
finances over the
damage to the Community and national
past ten years. The beneficial effects of the civil action have
already been demonstrated by the vastly lower
level of
smuggling of American cigarettes into the EU in recent years.

VAT

OLAF has provided coordination and assistance services to
international VAT fraud,
certain Member States. Major
particularly carousel fraud, is often carried out by individuals
who are also involved in other types of fraud. VAT fraud is
also a serious problem for the Candidate Countries. OLAF must
cooperate with these countries (along with the Member States)
to address the problem. The objective of the VAT activity is to
enable the Member States' enforcement and judicial authorities
to obtain information which can be used to prosecute
offenders and recover evaded taxes.

OLAF received information indicating that several VAT
carousels had been created
throughout Belgium,
Luxembourg and Italy. This fraud appeared to be perpe-
trated by a Luxembourg company giving false indi-
cations that the margin scheme should apply to cars
bought in Belgium and eventually sold into the Italian
market. This produced a loss of tax, as well as economic
distortions, because many cars were sold at prices lower
than the market price.

OLAF promoted a joint administrative operation carried
out simultaneously by the Belgian and the Italian tax
authorities. Their on-the-spot checks led to evidence
that most of the traded vehicles had never borne the
correct VAT, and that false statements had been made
by the Luxembourg company. OLAF's coordination
efforts allowed the Member States concerned to act
expeditiously to recover evaded VAT and to prosecute
suspects in Italy.

This initiative by the Office led to the discovery of
almost 1,800 intra-Community transactions of cars
falsely described as margin scheme sales during the
period from January 1999 to April 2002. This
amounts to a turnover of about EUR 16 million, and
VAT not paid to the Italian State of about EUR 3
million.

Alcohol

area normally

involves
financial

intra-Community
Fraud in this
operations which affect
the
interests of
the
Community via their effects on the VAT resource and their
adverse impact on legitimate trade. OLAF has devoted limited
resources to this activity during the year, but is prepared to
provide services to the Member States (and third countries)
when needed.

Case Study

criminal organisation which uses

The Office supported Dutch authorities in a criminal
investigation initiated in March 2001 concerning a
VAT carousel
fraud involving computer components
(CPUs). The Dutch judicial authorities were investigating
a
a group of
companies
in several Member States and in third
countries. Almost all of EU customers were ‘missing
traders’ who became the subject of administrative
investigation by the authorities of the
and/or judicial
Member States concerned. Dutch authorities
should
soon complete the criminal
investigation. The loss of
VAT is estimated to be in excess of EUR 30 million
for the years 1999 and 2000.

international

Another case concerned the application of the ‘margin
scheme’ to sales of used cars. There is a sizable market
sales of used cars between many
for
Member States. Among these, Italy holds a significant
share. The suppliers of used cars inform their customers
whether VAT has previously been paid on each of the
individual vehicles being traded. If so, any VAT due on
the subsequent sale will be based solely on the margin.

2. INTELLIGENCE ACTIVITY

OLAF Directorate C was created in September 2001. Entitled
‘Intelligence, Operational Strategy and Information Tech-
nology’, the Directorate brings together the former intelligence
and IT units, reflecting the central role which information tech-
nology plays in intelligence work.

2.1. Strategic intelligence

The principal tasks in this field have included:

— Improving the accuracy of OLAF's annual statistics on
irregularity and fraud affecting the Community budget
drawing on information on irregularities which Member
States transmitted to the Commission;

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— Renegotiating contracts for access by both OLAF and
available

to commercially

authorities

States

Member
databases;

2.3. Information technology

The tasks of OLAF's Information Technology Unit are:

— Making progress

in the exploitation of open sources

through the Internet;

— To establish, maintain and operate the IT infrastructure of
the Office with a particular view towards IT security;

— Monitoring trade patterns in sensitive goods;

— Studying in depth the patterns of irregularity concerning a

main area of the Budget.

In addition, contacts have been strengthened with police and
customs intelligence branches of a number of Member States,
with Europol and with the World Customs Organisation.

2.2. Operational intelligence and information support

The principal activities involved assistance to Member States
and to OLAF investigators across a range of areas:

— The

Information Support Office provided operational
support in three major surveillance operations (Operations
Sinbad, Scorpio and West). Accession countries participated
for the first time in a Community-driven, intelligence-based
maritime surveillance operation;

— During Operation SCORPIO, OLAF established mechanisms
which led to the identification of
two shipments of
smuggled cigarettes that had not been singled out for exam-
ination under any of the risk selection criteria previously
applied by the Member State in question;

— The project ‘One seizure, one report’ addressed the need to
enter the same information about seizures of cigarettes into
several systems. OLAF and the World Customs Organi-
sation (WCO) worked together to avoid duplication;

— OLAF provided technical support for internal investigations
as well as for some external services in forensic computer
examination including copying and analysing the content of
computers;

— OLAF provided within one week a technical solution to
scanning some 80 000 documents and making the results
available in a searchable electronic form for use by partici-
pating Member States with respect
to an operation in
Germany;

a

that

— OLAF Intelligence wrote a special software application to
demonstrate
company was over-charging the
Commission for providing information and advice to the
public on EU-related questions in Sweden by exaggerating
the number of enquiries received. Analysis showed that a
substantial number of the E-mail addresses claimed to be
used did not exist and another substantial number of the
addresses had only been created in order to pose the
question.

— To develop, maintain and support the necessary IT systems
fraud-related

processing

collection

and

of

the

for
information; and

— To provide services and assistance to the Member States for

AFIS/CIS (Anti-Fraud/Customs Information Systems).

During the reporting period, a solid IT architecture has been
in data collection, data
established in order to build trust
storage and analysis.

comprehensive

The IT Unit has contributed to the computerisation and
modernisation of OLAF's internal procedures. Full-text search
and
in OLAF's Case
Management System is possible as a result of these efforts. A
first version of a data analysis system has been developed
(OASYS, OLAF Analysis SYStem) allowing selected users to
produce timely statistics of OLAF's investigative activities.

structure

search

In July 2002, the Director General created a Working Group to
review the Case Management System and to conduct a feasi-
bility study for the introduction of an Electronic Document
Management System at OLAF.

2.4. Information exchange with Member States

The principal means of co-operation with the Member States is
through the Mutual Assistance Agreement and AFIS/CIS (Anti-
Fraud/Customs Information System). More than 3 000 active
users on more than 800 AFIS terminals have exchanged an
average of 2 500 messages per day. OLAF is committed to
improving AFIS and has awarded several new contracts for
this purpose.

OLAF has made progress with the development of the Customs
Information System in co-operation with the Member States,
several of whom have seconded technical experts to OLAF to
help with this task.

Fig. 2.1 illustrates the breadth of OLAF's responsibilities and
how the different legal acts are implemented in a common IT
architecture. This is the architecture of the AFIS (Anti-Fraud
Information System) which implements Council Regulation
(EC) 515/97 on mutual assistance in the customs area and
the CIS Convention. OLAF also collects and analyses fraud-
related data through the Electronic Communications Registry,
which enables secure exchange of text between Member States
and OLAF.

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Figure 2.1.

The Legal Basis as implemented through AFIS

for

Customs related activities are governed by Council Regulation
the Customs Information
(EC) 515/97. This provides
System (CIS), Maritime
Early
(MARSUR),
Warning System for Customs (EWS-C), Maritime Information
(MARInfo, YACHTInfo), Early Warning System for Excise
(EWS-E), and Information on Cigarette Seizures (CigInfo). It
also constitutes the legal basis of AFIS Mail, which allows
secure exchange of text between AFIS partners.

Surveillance

Within the context of Council Regulation 515/97, a number of
Commission Regulations and Committee decisions provide for
the exchange of structured information in a range of areas.
These constitute the legal basis for the AFIS modules that are
used by the Member States for reporting to the Commission.
These modules include the Agriculture Funds Module (EAGGF
Communications),
the EAGGF Operators Module (in devel-
opment),
the Structural Funds Module and the Cohesion
Funds Module. Finally, the Mutual Information System (MIS)
deals specifically with meat exports to Russia, an area of
very high risk to EC funds. It is based on the MIS Adminis-

trative Arrangement
Federation. More
during the first year of operation.

between OLAF

and

than 7 000 messages were

the Russian
exchanged

(OCU)

to run specific

(e.g. drugs, money

laundering,
is established at

The CIS Convention foresees the creation and operation of a
Central Customs Information System to cover the Third Pillar
etc). The
competencies
regular
Operations Control Unit
involving
intervals
Member States
are
is no physical
increasingly ‘virtual’, meaning that
central control room staffed by all participants. Where the
OCU involves third pillar operations, these use parts of the
AFIS infrastructure (3rd pillar CIS) without
intervention by
OLAF.

and third countries. Such exercises

anti-fraud

exercises

there

OLAF is collaborating with the Member states to simplify and
clarify the legal bases for the Member States' exchange of
information in the various EC policy sectors.

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3. SUPPORT AND ENHANCEMENT OF OPERATIONAL

3.2. Legislative follow-up

RESULTS

3.1. Strengthening the judicial dimension

fraud,

OLAF is committed to strengthening the judicial dimension in
the fight against
in line with the Overall Strategic
Approach of the Commission of 28 June 2000 (COM(2000)
358 final). This requires OLAF to guarantee the legality and
including the criminal dimension,
quality of the procedures,
and to coordinate effectively the Member States prosecution
authorities.

To this end, OLAF's lawyers provide advice as to the devel-
opment of its general investigative methodology, and translate
that methodology into practical guidance for the investigators.
Legal advice is also provided in specific cases requiring the
interpretation of the Community legal framework governing
OLAF's performance of its investigative tasks, such as respect
investigation,
for
protection of personal data, professional secrecy, extent of
immunities and access to documents.

the fundamental

those under

rights of

the Member States, or

OLAF does not have power either to prosecute cases before the
to conduct disciplinary
courts of
proceedings within the European Institutions. When an inves-
tigation suggests that prosecution or disciplinary proceedings
(or both) may be appropriate, OLAF transmits the file to the
relevant authority. It is therefore important for OLAF to carry
the
out
requirements of the judicial process in the Member State(s)
concerned. The Magistrates' Unit ensures that proper legal
assistance and support is given at all stages of the investigation
process to meet the requirements of national law. This guards
against the risk that procedural error might prejudice a possible
future prosecution.

in a manner which abides by

investigations

of

investigations

Three separate procedures for conducting interviews in the
been established. These
have
course
procedures take account of
legal positions of
the different
people interviewed and aim to achieve both effectiveness and
protection of fundamental rights. Legal advice is also provided
to assess the legitimacy of complaints made by persons subject
to investigation by OLAF.

OLAF works in close co-operation with the Legal Service of the
Commission when actions are brought before the Community
Courts which involve OLAF's legislative framework, its inde-
pendence and the follow-up of its investigative actions.

‘legislative’

follow-up is to exploit

The operational phase of the work of OLAF ends with the
completion of the investigation report. However, the investi-
gation may have identified weaknesses in legislation or in
control systems, even if fraud was not detected. The function
of
these lessons so that
existing legislation is improved and new legislation takes full
account of experience. For example, agreements with third
countries are now negotiated so as to include stronger adminis-
trative and financial cooperation clauses to address the problem
of false declarations of origin of goods. Given this experience,
the Commission has entrusted OLAF with the establishment of
a system of ‘fraud proofing’ (1) to strengthen the preventative
the
aspect of
Community.

the protection of

the financial

interests of

OLAF's lawyers also draft proposals for legislation to address
problems which fall within the Commission's
sphere of
competence, and provide advice on the establishment of
practical arrangements for co-operation with other bodies
such as Europol and Eurojust.

3.3. Administrative and financial follow-up

follow-up aims

to identify lessons of

a
Administrative
non-financial nature from operational activity, and ensures
compliance with the obligations derived from Community or
national law. The recommendations resulting from the OLAF
investigation may be addressed to national administrations, for
example to modify their control systems for the protection of
the Community's financial interests.

When an OLAF investigation has detected irregularities,
including frauds, the investigation report constitutes the base
for
recovery action by the Member States or by the
Commission, depending on who managed the expenditure.
Beyond the simple transmission of the investigation report
for the recovery, OLAF provides its case-related expertise to
those responsible for the recovery of the money at stake.

In the field of Own Resources, the Office ensures,
in coop-
eration with DG Budget, the financial follow-up of closed cases
and collects information on the recoveries carried out by the
Member States. OLAF collaborates with DG Budget to make a
detailed analysis of certain selected cases.

(1) See Commission Communication of 7 November 2001 concerning
legislation and contract management

the
fraud-proofing of
(SEC(2001) 2029 final)

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In the area of structural measures and the EAGGF-Guarantee
section, management is shared with the Member States. The
follow-up carried out by in these areas consists primarily of
responsible
establishing the necessary contacts with the
the appropriate
Commission departments
measures are actually taken. OLAF is also consulted by the
lead departments of
the Commission before the formal
closure of individual structural programmes

to ensure that

In the agricultural area (EAGGF Guarantee Section),
the
follow-up covers both cases communicated by the Member
States within the framework of their regulatory obligations
under Council Regulation (EEC) 595/91 and cases handled by
the Office (whether by investigation or coordination).

When the Member States are responsible for recovery actions,
OLAF ensures that they communicate the detected irregularities
in compliance with their legal obligations and that they update
this communication so that the Commission can publish an
overview in its report on the Protection of
the financial
interests of the Communities and the fight against fraud.

authorising Directorates-General

The follow-up in the field of direct expenditure (expenditure
managed directly by the Commission) involves contacts with
the
and the Accounting
Officer of the Commission. It may also involve safeguarding
the Commission's position for any civil court action which may
be necessary to recover funds. Following the communication
which the Commission adopted on administrative reform,
OLAF created a new unit responsible for the financial aspect
of the follow-up of irregularities in the field of direct expen-
diture.

4. INTERNAL ORGANISATION,

TRAINING

AND

COMMUNICATION

4.1. Administrative structures

OLAF's administrative structure was revised in February 2002.
The main changes were as follows:

— Magistrates' Unit was placed directly under the Director

General;

— within Directorate A, the unit responsible for administrative
and financial follow-up, anti-fraud legislation and recovery
the scale and
was split into three new units to reflect
importance of these tasks.

Within Directorate C, the intelligence unit was divided into two
units, one for strategic intelligence and one for operational
intelligence. This structure is designed to enhance OLAF's
function of providing
thereby
strengthening partnership and co-operation with the Member
States.

a platform of

services,

During the period covered by this Report, the Office faced a
number of difficulties in completing its planned programme of
recruitment:

— the decision of the budgetary authority not to authorise a
number of new posts until the end of 2001, and uncer-
tainty as to the number of posts available in each category
and grade, and as to their distribution between officials and
temporary staff, delayed the launching of
recruitment
procedures;

— the redeployment in the autumn of 2001 of a number of
officials from OLAF to other Commission departments
abruptly reduced the number of posts available to OLAF
and was followed by further departures of experienced
OLAF officials who obtained posts elsewhere;

— finally, the delay in the arrival of the Director of Investi-
gations and Operations led to delays in completing the
management structure of this Directorate.

Over the period as a whole, 38 individuals left OLAF and 77
individuals joined OLAF. Arrangements were made to recruit
staff to the remaining 76 vacant posts, mainly in categories B
and C, by the end of 2002.

4.2. Anti-fraud training activities

OLAF arranges anti-fraud training activities for its own staff
and for its operational partners. Improved training both of new
arrivals and of OLAF's existing staff was one of the Office's
priorities for this period. A training programme was devised to
the professional knowledge of OLAF officials,
complement
highly qualified in their
financial,
customs, agricultural
inspectors etc), by providing them with
the tools to work in OLAF's multicultural environment and
within the European institutions.

field (police,

judicial,

overall priorities

The Office's external anti-fraud training activities form an
integral part of the ‘service platform’ concept. They reflect
of
the Offices
applicant countries for accession, promotion of
the Green
Paper on criminal-law protection of
the Community's
financial interests, operation of the AFIS system and protection
of the euro. All training activities are systematically evaluated.

including preparation

Over the period of this Report, OLAF helped organise and/or
co-financed 28 seminars. These included 13 organised in colla-
boration with national partners such as police or customs auth-
orities, 3 with the OLAF-Poland Office, 3 with TAIEX and 9
with the European lawyers' associations. Over 1 600 people
attended these events.

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Lastly, OLAF participated in a further 130 conferences and
seminars to which it did not make a financial or organisational
contribution.

OLAF officials. The Paris Mint makes available to the ETSC its
expertise on coin counterfeiting.

4.3. Communication and information strategy

OLAF supports its operational
independence with its own
communication strategy. The objective is to be as open as
possible within the constraints prescribed by national and
Community law,
investigations, and
the need to protect
respect for the fundamental rights of the suspect.

During the period in question there were several hundred
interviews or other contacts between OLAF's Director-General
or the OLAF Spokesman and members of the media. The
OLAF web-site has been improved to provide the general
public with basic information about OLAF. An internet
pressroom has also been established.

established

2001, OLAF

the OLAF Anti-Fraud
In
Communicators' Network (OAFCN) which brings
together
many spokesmen and other responsible for public relations,
law enforcement
as well as information officers in national
agencies with which OLAF co-operates. The objective is to
improve the level of communication with the European
citizen on the protection of
financial
interests.

the Community's

5. COOPERATION WITH THE OFFICE'S PARTNERS IN

THE FIGHT AGAINST FRAUD

5.1. Fight against euro counterfeiting

Apart from its legislative and training functions, OLAF has a
technical operational responsibility in the area of the protection
of the euro. This relates to the protection of euro coins against
fraud and counterfeiting.

it

Community law assigns responsibility for euro coins mainly to
the Member States. However,
is necessary to achieve a
comparable level of protection against fraud and counterfeiting
in the Member States, which have invited the Commission to
co-ordinate their actions for the protection of euro coins. The
Commission has therefore established the Counterfeit Coins
Experts' Group, which is managed and chaired by OLAF.
This brings together experts from all Member States,
the
European Central Bank (ECB) and Europol to ensure implemen-
tation of the technical scheme for handling counterfeit euro
coins agreed by ECOFIN (the Council meeting in the format of
Finance Ministers).

The cornerstone of
this technical scheme is the European
Technical and Scientific Centre (ETSC), which became oper-
ational
in October 2001. As an independent administrative
entity, it is based in the Paris Mint and is managed by two

The main task of the ETSC is the analysis and classification of
counterfeit euro coins presenting a higher degree of risk to EU
citizens. Other tasks include direct technical assistance to Coin
National Analysis Centres
authorities;
for
contributions
counterfeits established at the ECB; establishment of a register
of coin-like objects that could be misused as euro coins; and
technical collaboration with the coin-operated industry.

police
the database

to the development of

and

to

first

report was

The ETSC's
issued in April 2002. Few
counterfeit coins were detected in the first six months of use.
However, high quality counterfeit
are now
beginning to emerge. The ETSC alerts the competent auth-
orities and carries out initial evaluations of the counterfeits.

euro coins

In December 2001,
the Council adopted the Commission/
OLAF's proposal for the Pericles programme for the protection
of the euro against counterfeiting. This programme co-finances
projects to raise awareness of the Community dimension of the
new currency. It also facilitates exchange of information and
assistance. OLAF
technical,
is
and operational
implementing
in partnership with the
Member States. The total budget is EUR 4 million over the
period 2002-2005.

this programme

scientific

5.2. Support to applicant countries

that

interests

financial

the Community's

To ensure
are
effectively protected in the candidate countries, both before
and after accession, OLAF has supported the Commission's
endeavours to reinforce their institutional capacity to prevent
and combat fraud. In particular, the Office has encouraged the
candidate countries to designate operationally independent
anti-fraud co-ordination structures or services, responsible for
legislative, administrative and operational
co-ordinating all
financial
aspects of
interests within the
candidate
countries are already well advanced in the process of setting
up such structures or services.

the Communities'
country concerned. Most

the protection of

In Poland, a PHARE-financed anti-fraud project has been imple-
in close co-operation with OLAF. This
mented since 2001,
project, with a budget of EUR 3.5 million,
is aimed at
setting up a horizontal, multi-disciplinary anti-fraud structure.
An OLAF official and three Member State experts have been
detached to Warsaw to assist the Polish authorities with the
establishment of the anti-fraud co-ordinating service. Although
several
the project's
difficulties of a local nature,
insights
about the management of institution-building projects in the
candidate countries.

run up against
it has provided useful

implementation has

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During the reporting period, 27 cases were examined, and four
investigations were undertaken by the Polish authorities within
the framework of the PHARE programme. Seven cases were
closed as no irregularities were found and 16 cases are still
under analysis. In addition, administrative cooperation between
the OLAF team and various Polish authorities resulted in the
opening by OLAF of 4 investigations.

investigators

In one case in the agricultural sector concerning alleged abuse
of PHARE money and non-respect of the public procurement
rules, OLAF
Polish
counterparts by assisting during joint visits of public bodies.
This investigation, which is still ongoing, has already resulted
in the recovery of nearly EUR 3 million in Phare funds, and of
tens of thousands of euro for the national budget. It has also
led to the review of the procedures for the issue of certificates

cooperated with their

of origin by the national authorised bodies. The Polish Pros-
ecutor's Office has opened criminal procedures against former
Polish officials.

Multi-country PHARE programme

Building on the experience gained in Poland, on 16 May 2002,
the Commission approved a multi-country PHARE programme
ten candidate countries in establishing anti-fraud
to assist
co-ordinating services or structures. OLAF has been closely
involved in the preparation of
the project, and will assist
with its implementation. The implementation of the project
should begin in early 2003. The Office is considering the
possibility of establishing liaison officers in some of
the
candidate countries as of 2003.

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ANNEX

OLAF'S INVESTIGATION PROCEDURES

1.

THE DIFFERENT TYPES OF CASES

The legislation under which OLAF operates distinguishes between internal investigations and external investigations
(Articles 4 and 3, respectively, of Regulation No 1073/1999 of the European Parliament and of the Council).

investigations involve investigations within the European Institutions. (There may nevertheless be links
Internal
between suspected irregularities within the Institutions and irregularities outside the Institutions. Examples are
corruption of officials as part of a wider fraud in the contracting process or in the payment of subsidies from
the EC budget). Although the number of internal cases is a relatively small proportion of the total, some of these
cases are particularly complex and significant. Thus, the overall proportion of OLAF's investigation resources
devoted to internal cases is relatively high.

External investigations are those outside the European Institutions.

For management and statistical purposes, however, OLAF distinguishes between a number of different types of
cases, all conducted under the powers relating to external investigations. These are:

— External cases, where OLAF provides the majority of the investigation resources.

— Co-ordination cases, where OLAF's role is primarily to co-ordinate the activities of other investigation authorities.

— Criminal assistance cases, where OLAF is asked by the competent authorities to assist them in conducting

criminal investigations.

Two further categories of cases are:

— Monitoring case: where OLAF passes information to a national authority but formally monitors the outcome to

ensure that any lessons to be learnt are identified and disseminated;

— Non-cases: where OLAF decides not to open a case. OLAF's policy is to take a formal decision in the Board on
whether to open an investigation into every communication which it receives alleging that an irregularity may
have been committed. This is a resource-intensive process, but it gives the public the assurance that allegations
of fraud cannot be overlooked. Frequently, initial examination of this material shows that there is no threat to
Community funds or breach of Community law, but that there may be a breach of national law, such as
evasion of national income tax or of national urban planning restrictions. OLAF then classifies the case as a
non-case and passes the information to the national authorities, where appropriate. In other instances, alle-
gations are obviously without foundation or personal in character. Such cases are also classified as non-cases.

2.

THE PROCESS OF INVESTIGATION

2.1. Initial handling of information

All new communications about possible frauds which arrive at the Office are first systematically registered in the
CMS database, and allotted a sequential number provided by the system which cannot be modified or deleted.

Once a communication has been registered in the CMS database it is automatically given the status in evaluation.
This is the pre-investigation phase, during which the information received is subjected to a rigorous examination.
Other information sources available to the Office are consulted where appropriate, to determine whether:

1. the information at first sight is sufficient to demonstrate that the (financial) interests of the EU may have been

prejudiced; and

2. there are sufficient grounds to justify the opening of an investigation.

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Official Journal of the European Communities

C 328/23

2.2. Decision on whether to open a case

The decision to open a case is taken by OLAF's Board, under authority delegated by the Director General. The
Board is chaired by the Director of Investigations and Operations. Representatives of the Policy, Legislation and
Legal Affairs Directorate, the Intelligence Directorate, and the Magistrates' Unit sit together on the Board alongside
colleagues responsible for investigations, to ensure operational co-ordination and consistency across the office. The
Director General takes a small number of decisions personally, for example where there is disagreement within the
Board, but retains ultimate responsibility for all decisions.

If the grounds for the opening of a case are not fulfilled, the file is closed as a ‘non-case’.

2.3. Stages in the lifecycle of a case

Open cases

After the initial evaluation phase, where the evidence appears to be sufficient to warrant the opening of an
investigation, a case is formally opened. The purpose of the investigation is to determine whether a fraud or
irregularity has been committed, and if so, to estimate the impact on the Community budget where possible.

Closed cases

— Closed — no-follow-up: Cases in which no fraud/irregularity has occurred and for which no further action is

taken.

— Closed — with follow-up: Cases in which a fraud/irregularity has been established, and follow-up action is needed,
Directorate A or the Magistrates' Unit of the Office assures the follow-up of the recommendations of the
investigation (i.e. that any relevant amounts are recovered, penal actions carried out, etc.).

— Closed — follow-up complete: Cases where the necessary follow-up has been completed.

At each stage of the investigation all significant information is systematically entered in the CMS database in order
i) to ensure that the case portfolio of the Office is effectively managed and ii) to enable the office to fulfil its
external reporting requirements to the Supervisory Committee,
the European Parliament and the European
taxpayer.