Report from the Commission to the Council and the European Parliament -  Protection of the financial interests of the Communities - Fight against fraud- Commission’s annual report 2004 (SEC(2005)973) (SEC(2005)974)
Date: 2005-07-19
Institutions: European Commission
Subjects: Community budget, EU Member State, activity report, fraud, fraud against the EU

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.7.2005 
COM(2005)323 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND 
THE EUROPEAN PARLIAMENT 

Protection of the financial interests of the Communities - fight against fraud- 
Commission’s annual report 2004 

(SEC(2005)973) 

(SEC(2005)974) 

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TABLE OF CONTENTS 

Introduction ................................................................................................................................ 3 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

Major developments in 2004........................................................................................ 4 

Proposed reform of the European Anti-Fraud Office .................................................. 4 

The accession of 10 new Member States ..................................................................... 4 

The cooperation agreement with the Swiss Confederation.......................................... 5 

Cigarette smuggling ..................................................................................................... 6 

Agreement with Philip Morris International ................................................................ 6 

The Constitutional Treaty and the proposal to establish a European Public 
Prosecutor’s Office....................................................................................................... 6 

Results of the fight against fraud: statistical analyses and new measures taken 
by the Commission and the Member States................................................................. 7 

Fraud and other irregularities notified by the Member States under the sectoral 
regulations .................................................................................................................... 7 

Informing the public on the results of the fight against fraud.................................... 11 

The measures adopted by the Member States ............................................................ 12 

Measures adopted by the Commission....................................................................... 15 

Cooperation in agriculture and customs matters........................................................ 17 

Results of analysis of the contributions from the Member States.............................. 17 

The measures taken by the Commission in 2004....................................................... 19 

recovery...................................................................................................................... 20 

Traditional Own resources ......................................................................................... 20 

Direct expenditure...................................................................................................... 21 

Agriculture ................................................................................................................. 24 

Structural funds .......................................................................................................... 25 

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INTRODUCTION 

The protection of the European Communities’ financial interests and the fight against 
fraud  is  an  area  in  which  responsibility  is  shared  between  the  Community  and  the 
Member  States.  Consequently,  each  year  the  Commission  draws  up  a  report  in 
cooperation  with  the  Member  States  on  the  measures  taken  to  implement  this 
obligation, according to article 280 of the EC Treaty. This report is adressed to the 
European Parliament and the Council and is published.  

In  order  to  make  the  report  more  readable,  this  year  the  Community  and  national 
measures  will  be  presented  in  parallel  in  each  area  (rather  than  being  treated 
separately  in  two  different  parts  as  in  previous  reports).  The  aim  of  this  new 
presentation  is  to  give a fuller overview of an area where Community and national 
powers complement each other. 

The  first  section  of  the  report  deals  with  major  developments  in  2004  in  the 
protection  of  the  Communities’  financial  interests:  the  reform  of  the  European 
Anti-Fraud Office (OLAF), the accession of ten new Member States, the signing of a 
cooperation  agreement  with  the  Swiss  confederation,  the  fight  again  cigarette 
smuggling, the cooperation agreement concluded with the cigarette company Philip 
Morris International to fight against fraud and the signing of the Treaty establishing a 
Constitution for Europe. 

The  second  section  begins  by  summarising  the  results  of  the  statistics  on  the 
irregularities  reported  by  the  Member  States  under  the  sectoral  Regulations  and 
the measures taken by them in 2004, and goes on to give a mid-term review of the 
Commission’s  2004-05  action  plan  and  the  efforts  made  to  increase  OLAF's 
efficiency.  A  sub-section  discusses  the  question  of  public  information  in  the  fight 
against fraud. 

The  third  section  deals  with  the  implementation  of  the  Regulation  on  mutual 
assistance in the area of customs and agriculture1. Given the numerous different 
kinds and levels of authorities with powers in these fields, cooperation is essential to 
ensure  that  the  Community's  financial  interests  are  effectively  protected.  This  year, 
mutual  assistance  between  the  relevant  authorities  was  chosen  by  the  Commission 
and the Member States as one of the central questions covered in the questionnaire 
on which the Member States’ contributions are based.  

Lastly,  section  4  outlines  the  measures  taken  to  improve  recovery  of  amounts  not 
received or wrongly paid. Clearly, organised financial monitoring is the only way of 
remedying damage caused to the European budget by fraud and other irregularities. 

The report only gives a summary and overview of the measures taken and the results 
achieved  by  the  25  Member  States.  The  Commission  is  simultaneously  publishing 
two working documents2, one listing the measure taken by the Member States, one 
on statistics, which provide additional information. 

1 
2 

Regulation (EC) No 515/97. 
“List of measures taken by the Member States” and “Statistical analysis of irregularities”. 

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1. 

MAJOR DEVELOPMENTS IN 2004 

1.1. 

Proposed reform of the European Anti-Fraud Office  

In  his  speech  to  the  European  Parliament  on  18  November  2003,  President  Prodi 
drew conclusions from the “Eurostat” affair, concerning communication flow and the 
clarity of the rules on OLAF’s operational activity. A code of conduct3, drawn up by 
the Commission and OLAF in July 2003, already aimed at improving the exchange 
of information on internal investigations in the Commission. 

Subsequently in February 2004, the Commission adopted a proposal aimed at laying 
down  clear  rules  on  exchanges  of  information  between  OLAF  and  the  Community 
institutions,  bodies,  offices  and  agencies  and  to  increase  OLAF’s  effectiveness  by 
enabling it to concentrate on its operational priorities and speed up its investigations. 
The  proposal  aims  to  clarify  the  rules  on  opening,  closing  and  extending 
investigations and to strengthen the defence guarantees and protection of individual 
rights  and  the  role  of  the  Supervisory  Committee.  The  legislative  procedure  is  still 
pending4.  

26th of October 2004 the Commission produced a complementary evaluation of the 
activities of the European anti-fraud office5, which above all contains a quantitative 
analysis. Some figures of this report are included in point 2.4.2.  

1.2. 

The accession of 10 new Member States 

Thanks to the pre-accession aid and the fully decentralised management of SAPARD 
and ISPA acceding states were well prepared to take on full financial responsibilities 
for  the  correct  implementation  of  EU  funds.  By  the  date  of  accession  an  extended 
decentralised implementation system (EDIS) was in place.  

All the new Member States have created central services for the fight against fraud 
(AFCOS).  AFCOS  is  a  structure  aiming  at  helping  the  new  Member  States  to 
familiarize  themselves  with  their  duties  concerning  fraud  prevention  and  fraud 
repression.  The  two  main  objectives  of  the  services  are  to  coordinate,  within  their 
country,  all  legislative,  administrative  and  operational  obligations  and  activities 
related  to  the  protection  of  the  Communities’  financial  interests  and  to  ensure 
operational cooperation and communication with the Commission (OLAF) and other 
Member States. 

Through the multi-country Phare programme6 assistance was given by setting up the 
structures,  establishing  communication 
links  and  databases  and  developing 
operational  know-how.  Seminars,  trainings  and  internships  are  being  organized  by 
the Commission (OLAF) to ensure a professional approach by the AFCOS. 

In  the  majority  of  the  new  Member  States  the  AFCOS  are  established  as  either  a 
department or an office within the Ministry of Finance. In other Member States they 

3 
4 
5 
6 

SEC(2003)871. 
COM(2004)103 and 104: amendment to Regulations (EC) 1073/1999 and 1074/1999. 
SEC(2004)1370. 
PH/2002/1412. 

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are  established  in  the  Ministry  of  Justice  (Czech  Republic  and  Cyprus),  or  in  the 
Ministry of Internal Affairs (Lithuania) and in Slovakia it is a department within the 
Government office.  

In most of the new Member States, AFCOS are also responsible for the conduct of 
anti-fraud  investigations  and/or  for  the  coordination  of  these  actions.  In  Slovenia 
AFCOS  is  only  responsible  for  examining  the  adequacy  and  effectiveness  of  the 
inspection  systems.  The  AFCOS  powers  with  regard  to  the  monitoring  of  the 
methods used by other institutions to conduct investigations are not widespread; only 
AFCOS  Poland  has  these  powers,  and  in  Malta  a  special  Coordinating  Committee 
was created to monitor the methods of other bodies.  

In  all  Member  States  AFCOS  are  responsible  for  the  collection  of  information  on 
irregularities  in  the  area  of  expenditure  and  for  the  communication  of  this 
information  to  the  Commission  in  accordance  with  EU  legislation.  More  details  on 
AFCOS  in  the  new  Member  States  can  be  found  in  the  working  document  issued 
with this report7. 

1.3. 

The cooperation agreement with the Swiss Confederation 

In October 20048 the European Community and its Member States, on the one part, 
and  the  Swiss  Confederation,  on  the  other  part,  signed  a  cooperation  agreement  to 
combat  fraud  and  all  other  illegal  activities  damaging  their  financial  interests.  This 
agreement, reached after lengthy negotiations, is currently being ratified. 

The  agreement  binds  the  parties  to  provide  each  other  with  full  judicial  and 
administrative  assistance  in  all  cases  of  fraud  and  other  illegal  activities,  including 
customs and indirect taxation offences committed when trading goods and services. 
Cooperation in the fight against money laundering will be substantially stepped up, 
in particular with regard to serious cases of fraud and smuggling. 

As a result of this agreement, the rules governing cooperation between the parties in 
the protection of their financial interests have been brought considerably closer to the 
Community acquis. Administrative cooperation  will  lean  on the  prepositions  of  the 
Convention  concerning  mutual  assistance  and  cooperation  between  customs 
administrations  (the  “Naples  II”  Convention9).  The  arrangements  for  judicial 
cooperation will be similar to those established by the Convention for mutual judicial 
assistance in criminal matters between the Member States of the European Union and 
its  additional  protocol10.  Judicial  cooperation  in  coercive  measures  (searches  and 
seizures)  will  be  subject  to  the  double  criminality  principle,  as  laid  down  and 
formulated  by  the  same  terms  as  in  the  Convention  implementing  the  Schengen 
Agreement11.  The  money-laundering  provisions  are  also  based  on  the  Community 
acquis relating to this area12. 

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9 
10 

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SEC(2005)973 
COM(2004)559 final and 2004/0187 (CNS), not yet published in the OJ. 
Council Act of 18 December 1997, OJ C 24, 23.1.1998, p.1.  
Convention  of  29  May  2000,  OJ C 197,  12.7.2000,  and  additional  protocol  of  16  October,  OJ C 326, 
21.11.2001. 
Convention  implementing  the  Schengen  Agreement,  OJ L 239,  22.9.2000.  If  the  double  criminality 
rules applicable to letters rogatory for the purposes of search and seizure is no longer to be applied in 

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The  Commission  hopes  that  similar  agreements  can  be  negotiated  with  other  third 
countries in the future. 

1.4. 

Cigarette smuggling 

For several years the European Community has been vigorously combating cigarette 
smuggling,  which  causes  considerable  damage  to  the  EU  and  Member  States’ 
budgets.  In  2000  and  2001  the  Commission  and  ten  Member  States13  brought  civil 
proceedings  before  New  York  courts  against  the  cigarette  companies  RJ  Reynolds 
and alia, for involvement in cigarette smuggling and money laundering, and applied 
for an injunction to prevent smuggling in the future. 

1.5. 

Agreement with Philip Morris International 

On 9 July 2004 the European Commission and the ten Member States announced that 
an  agreement  had  been  concluded  with  the  cigarette  company  Philip  Morris 
International  (PMI),  establishing  an  effective  system  for  combating  cigarette 
smuggling  and  counterfeiting  in  the  future  and  putting  an  end  to  the  differences 
between the parties in this area. Under this agreement PMI will cooperate with the 
Commission’s  departments,  particularly  OLAF,  and  the  judicial  authorities  of  the 
Member States in the fight against contraband and counterfeiting. In this context, the 
agreement  also  contains  financial  provisions  whereby  PMI  is  to  pay  around  1.25 
billion  dollars  over  12  years.  The  partners  to  this  agreement  hope  that  this  will 
provide a model for similar agreements with other companies. 

1.6. 

The  Constitutional  Treaty  and  the  proposal  to  establish  a  European  Public 
Prosecutor’s Office 

The  transnational  nature  of  fraud  affecting  the  Community’s  financial  interests  and 
the role played by organised crime make it necessary to remove the boundaries for 
the  national  police  and  judicial  authorities  to  cooperate  across  Europe.  Although 
numerous  agreements  have  been  signed  for  this  purpose,  the  main  obstacle  to 
effective  suppression  of  fraud  is  still  the  fragmentation  of  the  European  criminal 
law-enforcement area. In 2001 the Commission adopted a Green Paper14 to widen the 
debate. The Convention on the Future of Europe15 inserted a provision allowing the 
creation of a European Public Prosecutor’s Office in the draft Treaty. 

Finally Article III-274 of the Treaty establishing a Constitution for Europe states that 
once  the  Treaty  comes  into  force,  the  Council,  acting  unanimously  and  after 
obtaining the consent of the European Parliament, may establish a European Public 

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13 
14 

15 

Schengen, the new Schengen rules will apply fully to matters regulated by the cooperation agreement, 
with the exception of direct taxation. 
In  particular  Directive 91/308/EEC  as  amended  by  Directive  2001/97/EC  (OJ L 344,  28.12.2001)  and 
the  second  protocol  to  the  Convention  on  the  protection  of  the  European  Communities’  financial 
interests (OJ C 222, 19.7.1997). 
Belgium, Germany, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and Finland 
Green  Paper  on  criminal-law  protection  of  the  financial  interests  of  the  Community  and  the 
establishment of a European Prosecutor, COM(2001)715. 
The Convention on the Future of the Union, chaired by Mr Giscard d’Estaing, was set up following the 
Laeken  declaration  on  the  future  of  the  European  union  to  launch  a  debate  on  the  reform  of  the 
European institutions. 

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Prosecutor’s Office from Eurojust to combat crimes affecting the financial interests 
of  the  Union.  The  European  Public  Prosecutor’s  Office  would  be  responsible  for 
investigating,  prosecuting  and  bringing  to  judgment  the  perpetrators  of,  and 
accomplices  in,  offences  of  this  type.  The  Council,  acting  unanimously  after 
obtaining  Parliament’s  consent  and  after  consultation  with  the  Commission,  may 
adopt a European decision to extend the Office’s powers to fight serious international 
crime. 

The Commission has announced in May 200516 in its proposal for Hague action plan 
in the context of European judicial cooperation and Eurojust, that it will follow up its 
previous  work  and  the  possibilities  afforded  by  the  Constitution,  as  regards 
strengthening the protection of the Union’s financial interests. 

With regard to the fight against fraud in general, Article III-415 of the Constitution 
maintains the actual text of the EC Treaty. However, the removal of part of the text17 
will enable the Union to acquire the necessary legal instruments in the criminal law 
area to protect its financial interests. 

2. 

2.1. 

RESULTS  OF  THE  FIGHT  AGAINST  FRAUD:  STATISTICAL  ANALYSES  AND  NEW 
MEASURES TAKEN BY THE COMMISSION AND THE MEMBER STATES 

Fraud and other irregularities notified by the Member States under the sectoral 
regulations 

Community  legislation  requires  the  Member  States  to  notify  fraud  and  other 
irregularities  detrimental  to  the  Community’s  financial  interests  in  all  areas  of  its 
activity18.  The  same  requirement  applies  to  countries  benefiting  from  the  pre-
accession funds. The Commission document published at the same time as this report 
contains  an  in-depth  analysis  of  the  statistics  obtained  on  the  basis  of  these 
communications19.  The  table  below  shows  the  number  of  irregularities  notified  in 
2004 and the amounts involved in each area. 

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17 

18 

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COM(2005)184. 
Last part of paragraph 4 has been deleted, it stated that “measures against fraud and the prevention of 
fraud affecting the financial interests of the Union shall not concern the application of national criminal 
law or the national administration of justice”.  
See  in  particular  Article  3.1  of  Council  Regulation  (EEC)  No  595/91  of  4  March  1991  (OJ  L67, 
14.03.1991),  Commission  Regulation  (EC)  No 1681/94  of  11  July  1994  (OJ  L178,  12.07.1994)  and 
Commission Regulation (EC) No 1831/94 (OJ 191, 27.07.94) for the area of expenditure, and Article 6.5 of 
Council  Regulation  (EC,  Euratom)  No°1150/2000  (OJ  L130,  31.05.2000) for  the  area  of  traditional  own 
resources. 
SEC(2005)974 

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Table 2.1. – Number of irregularities and amounts 

Area 

TOTAL 2004  

Number of 
irregularities 
notified 

Own resources 

EAGGF- Guarantee 

Structural and 
cohesion funds 

2 735 

3 401 

3 327 

Total amounts 
(in €1 000) 

205 692 

82 064 

694 535 

Total 

9 463 

982 291 

There  was  an  overall  increase  in  the  number  of  irregularities  notified  for  2004. 
However,  the  estimated  financial  impact  of  the  irregularities  is  lower  for  all  areas 
except  for  structural  funds.  The  average  financial  impact  of  the  irregularities  is 
around  0.19%  for  agricultural  expenditure,  1.5%  for  own  resources  and  2%  for 
structural  funds  (including  cohesion  funds).  However,  distinction  should  be  made 
between  fraud  and  irregularity.  Fraud  is  defined  as  an  irregularity  committed 
deliberately, which only the courts can classify as such20. It constitutes a criminal act. 
In the area of agricultural expenditure, suspected cases of fraud accounted for around 
11% of the irregularities notified, i.e. 0.02% of total appropriations for the EAGGF - 
Guarantee.  In  the  case  of  structural  funds,  fraud  accounts  for  around  20%  of 
irregularities, i.e. 0.4% of the structural and cohesion fund appropriations. 

2.1.1. Traditional own resources 

The number of cases notified in this area (2 735 cases for 2004) is rising steadily, but 
the  amount  affected  (€205.7  million)  has  been  falling  since  2002  and  represents 
around  1.5%  of  the  total  own  resources  collected  (€12 307  million21  in  2004).  In 
2004 the products most affected by the irregularities were cigarettes, televisions and 
sugar. 

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21 

See the definition in Article 1 of the Convention of 26 July 1995 on the protection of the Communities’ 
financial interests (OJ C 316, 27.11.1995), which came into force on 17 October 2002. 
This amount corresponds to the customs debts recorded in the Member States’ A accounts for 2004, i.e. 
debts that had been paid and/or guaranteed. The sums for which a customs debt has been opened but 
which have not been paid or guaranteed (or have been guaranteed but are contested) are recorded in the 
B accounts and are not included in this figure. The amounts notified as being affected by irregularities 
are divided between A and B accounts. 

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Graph 2.1.1. - Notifications of irregularities in the area of 
traditionnal own resources 2000-2004 (amounts in millions of 
euros)

Number of notifications

Amounts (millions of euros)

3000

2500

2000

1500

1000

500

0

2000

2001

2002

2003

2004

2.1.2. Agricultural expenditure (EAGGF- Guarantee) 

In  2004  the  number  of  notified  irregularities  increased  slightly  with  respect  to 
previous  years  (3 401  cases),  but  their  financial  impact  decreased  (€82  million),  it 
represents  around  0.19%  of  the  total  EAGGF-Guarantee  appropriations  (€42 935 
million  for  2004,  which  is  a  huge  improvement  compared  to  preceding  years 
figures). 

Graph 2.1.2. -Notifications of irregularities in the area of 
agricultural expenditure 2000-2004 (amounts in millions of euros)

4000

3500

3000

2500

2000

1500

1000

500

0

Number of notifications

Amounts (millions of euros)

2000

2001

2002

2003

2004

The  Commission  has  assessed  the  effect  of  fraud  on  the  Community  budget  based 
both  on  estimates  provided  by  the  Member  States  and  on  its  own  analyses. 
According  to  the  Commission’s  estimates,  11%  of  the  irregularities  notified,  i.e. 
0.02% of total appropriations for the EAGGF – Guarantee, can be classified as fraud 
and  the  total  amount  involved  is  around  €6.8  million.  Most  suspected  fraud  cases 
were  committed  using  fictitious  area  declarations,  forged  customs  documents  and 
forged aid applications. 

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2.1.3. Structural funds 

In  2004  both  the  number  of  irregularities  notified  (3 339  cases,  including  cohesion 
funds)  and  their  financial  impact  (€695.6  K) increased  with  respect  to  the  previous 
year owing to an increase in cases of irregularities in the area of ERDF. The financial 
impact  of  the  irregularities  notified  in  2004  represents  around  2%  of  the  structural 
and cohesion fund appropriations (€35.665 million for 2004). 

Graph 2.1.3. -Notifications of irregularities in the area of 
structural funds 2000-2004 (amounts in millions of euros)

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

Number of notifications

Amount (millions of euros)

2000

2001

2002

2003

2004

According  to  the  Commission’s  estimates,  20%  of  the  irregularities  notified,  i.e. 
0.4% of  the structural and cohesion fund  appropriations, can be classified  as fraud. 
The most affected appears to be the European social fund (around 26%). 

2.1.4. The pre-accession funds 

A  system  of  notification  of  irregularities  similar  to  that  for  the  structural  funds  has 
been  established  for  multiannual  financing  agreements  for  PHARE22,  SAPARD23, 
ISPA24 and the funds granted to Cyprus and Malta25. 

22 

23 
24 
25 

for  Economic  Reconstruction,  Regulation 

Poland  and  Hungary  Aid 
OJ L 375, 23.12.1989. 
Sapard (Agricultural Pre-Accession Instrument), Regulation (EC) No 1268/1999, OJ L 161, 26.6.1999. 
ISPA (Structural Pre-Accession Instrument), Regulation (EC) No 1267/1999, OJ L 161, 26.6.1999. 
Regulation (EC) No 555/2000, OJ L 68, 16.3.2000. 

(EC)  No 3906/89, 

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Table 2.1.4.  :  Notifications  of  irregularities  pre-accession  funds.  Amounts,  in 
millions  of  euros,  representing  the  total  eligible  cost  in  respect  of  the  projects 
affected by the irregularities. 

Year 

PHARE26 

SAPARD 

ISPA 

Case  Amount  Case  Amount  Case  Amount 

2002 

30 

1 073 

0 

0 

2003 

12 

9 

26 

76 

2004 

81 

35 

131 

81 

Total 

123 

1 118 

157 

157 

0 

20 

28 

48 

0 

391 

713 

1 105 

The  authorities  in  charge  of  notifying  irregularities  must  continue  to  make  serious 
efforts to improve the quality of the notifications. In over 90% of the cases notified it 
is impossible for  the Commission  to  ascertain the classification of the irregularities 
detected,  the  amounts  recovered  and  the  amounts  yet  to  be  recovered.  It  is  for  this 
reason that the table above gives the total amount of the eligible cost in respect of the 
projects affected rather than the amounts really affected. Thus, the figures available 
cannot yet be analysed in depth. 

2.2. 

Informing the public on the results of the fight against fraud 

With  a  view  to  increased  transparency  the  Commission  wishes  to  inform  better 
about the  types  of  frauds  and  other  irregularities  which  threaten  the Community's 
financial  interests, the  consequences  which  they may  have  and the  measures  which 
are taken to avoid them. 

In  November  2004  the  European  Anti-Fraud  Office  organised  a  seminar  with  the 
anti-fraud communicators  network, bringing together the  communication experts of 
the national fraud authorities. In his introductory speech Commissioner Siim Kallas 
said that “Transparency is one of the cornerstones of the fight against and prevention 
of  corruption  and  fiscal  mismanagement,  and  communication  is  the  active  side  of 
transparency. Transparency in itself is often enough to prevent fraud.” However, in 
the case of investigations, different interests have to be weighed against each other. 

Analysis of the contributions by the Member States27 to this report shows that each 
country  has  different  judicial  and  legislative  rules  to  providing  information  to  the 
public on the different stages of administrative or judicial inquiries. 

A limited number of Member States are in favour of providing extensive information 
to  the  public  on  both  administrative  and  judicial  inquiries  throughout  the  process, 

26 
27 

The figures in this column include notifications made under Regulation 555/2000 by Cyprus and Malta. 
SEC (2005)973  

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from the opening of an investigation to publication of information on an inquiry once 
it has been closed. 

However,  most  Member  States  limit  the  information  provided  to  the  public  on  the 
different stages of administrative inquiries on the grounds that the public’s right to be 
informed must be balanced against the need to protect the rights to defence, privacy 
and human dignity. These Member States also refuse to make public the facts of an 
inquiry once it has been closed. The information made public on judicial inquiries is 
more  extensive,  although  it  is  usually  only  provided  at  the  request  of  the  media  or 
with express authorisation rather than spontaneously. 

2.3. 

The measures adopted by the Member States 

The  legislation  discussed  below  is  intended  to  solely  for  illustration.  A  separate 
Commission  document28  lists  all  the  new  measures  taken  in  2004  reported  by  the 
Member  States.  The  new  Member  States  have  in  principle  only  reported  on 
legislation that was adopted or came into force after 1 May 2004.  

2.3.1.  New horizontal measures 

The  Member  States  indicated  that  they  had  adopted  very  wide  ranging  measures 
aimed at improving the protection of the Community's financial interests: measures 
to  counter  money  laundering  or  corruption,  national  anti-fraud  strategies,  widening 
of the area of customs investigations, extension of the definition of certain offences 
so as to include attacks on the European budget, improvements in financial controls 
or procedures for the processing of data held on computers and so on. 

In 2004 a new Act was adopted in Belgium to combat money laundering. It requires 
the  unit  responsible  for  handling  financial  information  to  notify  the  Ministry  of 
Finance when information is provided to the public prosecutor on money or property 
laundering resulting from an offence relating to serious organised tax fraud. The Act 
also concerns fraud affecting the Community budget.  

The  Latvian  government  has  adopted  an  extensive  anti-corruption  programme  for 
2004-2008.  ,  A  Latvian  Act  authorises  especially  the  office  responsible  for 
preventing  and  combating  corruption 
information  on  criminal 
investigations  in  progress  (subject  to  authorisation  by  the  prosecutor),  donations 
received by public organisations, or debts and receivables of civil servants (with the 
authorisation of the prosecutor or the President of the Supreme Court).  

receive 

to 

The  Czech  Republic29,  adopted  the  National  Strategy  against  fraud  affecting  or 
threatening the financial interests of the European Communities. 

28 

29 

SEC (2005)973 Member States were asked to provide information only on measures that are more than 
a mere implementation of Community law. Since the Commission’s report comes out annually, the lack 
of any new measures in 2004 in certain Member States cannot be interpreted as reflecting the general 
level of protection of financial interests in those countries. On the contrary, it may be owing to a higher 
level of activity in the preceding period. 
Decree No 456, 12.5.2004. 

EN 

12 

   EN 

 
                                                 
France30,  extends  the  remit  of  the  French  national  judicial  customs  department  to 
cover  all  offences  affecting  the  Communities’  financial  interests.  From  now  on, 
officials  authorised  to  conduct  judicial  inquiries  will  also  have  powers  in  cases  of 
infringements relating to the structural funds. 

An amendment to the Polish Treasury Penal Code has introduced a new definition of 
legal  public  duty.  From  now  on,  failure  to  collect  a  European  budget  resource  or  a 
resource  of  a  budget  managed  on  behalf  of  or  by  the  European  Communities  may 
constitute  an  infringement  of  the  rules  on  legal  public  duty,  provided  the  other 
determining criteria have been fulfilled. 

The  Slovenian  Criminal  Code  has  been  amended  to  extend  the  definition  of  tax 
evasion to include fraud against the Communities’ financial interests. 

In Slovakia, the definition of infringement of budgetary discipline has been extended 
to irregularities committed in spending Community funds31. 

Finland has created the function of financial controller, with independent status and 
the  right  to  access  to  information,  tasked  with  coordinating  the  internal  and 
administrative  controls  for  European  funds  in  Finland  and  to  draft  reports  on  the 
supervision  and  auditing  of  these  funds,  on  mismanagement  and  irregularities, 
addressed to EU institutions and other EU bodies. The Finnish government has also 
set up an internal control and risk management board harmonise control procedures 
and improve internal audit. 

In Portugal, external audits should be conducted henceforth at least once every eight 
years  on  the  expenses  of  bodies  that  manage  public  expenditure  (in  particular 
European funds)32. The audits must assess the body’s function and aims and whether 
its expenses meet criteria of economy, efficiency and effectiveness.  

An  agreement  has  been  concluded  to  facilitate  cooperation  between  the  Latvian 
financial police and the Estonian customs authorities. 

In  the  Czech  Republic,  improvements  have  been  made  to  the  laws  governing 
selection of the winning bid in public tenders, to avoid in particular frauds.  

Computer processing of data. Several Member States have reported improvements in 
the computer processing of data which should make the activities of the authorities 
involved more  effective  and  reliable.  In France a  new software  application  is to  be 
rolled out that will make it possible to automate, trace and increase the reliability of 
administrative checks and selections of on-the-spot visits and inspections relating to 
rural  development  funds.  Lithuania  has  introduced  a  computerised  management 
system to gather and store information on programming and on the use of structural 
funds and supplementary financial resources. In the UK the Scottish authorities have 
introduced  an  on-line  system  for  applications  and  claims  relating  to  the  structural 
funds,  while  in  Hungary  a  unified  computer  management  system  (EMIR)  was 

30 
31 
32 

Act No 2004-204 on 9 March 2004 adapting the judicial system to developments in criminal behaviour. 
Act 523/2004. 
Act 48/2004. 

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13 

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created  in  2004  for  the  effective  and  uniform  processing  of  information  on  the 
structural and cohesion funds. 

2.3.2.  New measures relating to own resources 

Spanish  tax  legislation  was  amended  by  an  Act  passed  in  July  2004.  As  a  major 
innovation  is  the  possibility  of  employing  new  technologies  and  mechanisms  to 
combat  fraud  more  effectively.  It  also  increases  the  number  of  tax  audits  and 
improves the procedure for recovering tax debts. 

In Ireland, a new law significantly extends the powers of customs officials to seize 
assets that are the proceeds of an offence or have been used to commit this offence. 
In  December  2004  the  Irish  authorities  bought  a  mobile  containers  scanner  that 
should significantly increase the effectiveness of the customs department in the fight 
against maritime smuggling. 

In  Poland,  customs  legislation  has  been  adapted  to  provide  for  tax  audits  for 
Community own resources as well. 

2.3.3.  New measures relating to agricultural expenditure 

France  is  grouping  together  the  various  paying  offices  for  the  common  agricultural 
policy  into  poles,  and  the  creation  of  a  single  paying  agency  should  be  realized  by 
2007. 

In  Italy  a  decree-law  has  been  adopted  aimed  at  harmonising  and  rationalising 
inspections. This gives the regional governments the power to impose administrative 
penalties in cases of food fraud, committed in breach of Community law. 

In Poland, a new law allows the president of the agricultural market agency to issue 
an  administrative  decision  whereby  agricultural  payments  received  unduly  or  in 
excess of the amount due are treated as customs debts and can therefore be recovered 
by administrative enforcement procedures. 

2.3.4.  New measures relating to structural measures 

In Malta, Act I of 2004 amends the system for receipt, control and payment of public 
funds,  including  structural  funds.  The  new  Act  also  stipulates  the  procedures  to  be 
used in combating fraud and other irregularities. 

The Netherlands adopted a series of administrative measures to ensure correct use of 
ESF resources and more effective prevention of irregularities. These measures relate 
in  particular  to  exchanges  of  information,  assistance  and  audits,  particularly  as 
regards applications submitted retroactively. 

In Poland, an Act passed on 20 April 2004 created national monitoring units for each 
of the structural funds. 

The  new  Portuguese  audit  manual  on  the  structural  and  cohesion  funds  was 
approved. It outlines the methods to be employed by the IGF as the body responsible 
for drawing up the statement of validity when assistance that is co-financed from the 
funds is wound up. 

EN 

14 

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2.4.  Measures adopted by the Commission 

2.4.1.  Measures taken under the 2004-2005 action plan 

The  overall  strategic  approach  2001-200533  was  followed  by  the  Commission’s 
action  plan  2004-2005  on  the  protection  of  financial  interests  and  the  fight  against 
fraud34.  

In  2004  the  Commission  delivered  11  of  the  37  measures  contained  in  this  action 
plan for 2004-2005. The most noteworthy were:  

– 

– 

– 

Proposals to amend Regulations Nos 1073 and 1074/9935 (see 1.1); 

Proposal  for  a  Regulation  on  mutual  administrative  assistance  for  the 
protection of the financial interests of the Community against fraud and 
any  other  illegal  activities,  in  particular  money  laundering  and  VAT 
fraud36 (see 3.2);  

A report37 on implementation by the Member States of the Convention on 
the  Protection  of  the  Communities’  financial  interests,  which  came  into 
force  in  2002.  A  number  of  shortcomings  have  been  identified,  and  the 
Commission  considers  that  there  are  good  grounds  for  pursuing  the 
adoption  of  the  draft  directive38  on  the  protection  of  the  Community's 
financial interests.  

2.4.2. 

Strengthening OLAF’s effectiveness 

Since  it  was  set  up,  OLAF  has  made  considerable  efforts  to  reduce  the  length  of 
preliminary  assessments  and  investigations.  The  average  length  of  assessments  of 
information  on  suspected  irregularities,  which  rose  to  18  months  in  the  period  July 
2000-June 200139, fell to 5 months in 2003-04. The average length of investigations 
has been falling steadily since 1999 and is now around 22 months compared with 29 
months five years ago. 

33 

34 

35 
36 
37 
38 
39 

Communication from the Commission on protection of the Communities’ financial interests, the fight 
against fraud, for an overall strategic approach, COM (2000) 358 final. 
Communication from the Commission on protection of the Communities’ financial interests, the fight 
against fraud, action plan 2004-05, COM (2004) 544 final. 
COM(2004)103 and 10 final. 
COM(2004)509 final. 
COM(2004)709. 
COM(2002)577. 
During the period june 1999 - july 2000, the average duration of the assessment phase was 6 Months, 
but this period can’t be considered representative, because the implementation of new procedures took 
effect only in late 2000.  

EN 

15 

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Chart 2.4.2 - Average length of assessments and investigations

Av er age lengt h of  inv est igat ions

av er age lengt h of  assessment s

35

30

25

20

15

10

5

0

07.1999- 06.2000

07.2000- 06.2001

07.2001- 06.2002

07.2002- 06.2003

07.2003- 06.2004

The proportion of investigations closed with follow-up has increased to around 1 in 2 
in the period July 2003 - June 2004 compared with 1 in 5 in the period 1999-2000, 
most  markedly  as  concerns  judicial  follow-up  (almost  1  case  in  3  in  2003-04 
compared with 1 case in 22 in 1999-2000)40. 

2.4.3.  Operational expertise at the service of legislation and of contract management 

The Commission’s White Paper on reform41contains a series of measures designed to 
make better use of the expertise available to improve prevention of irregularities and 
fraud. A  Commission communication42  sets  out  a  mechanism  for  consulting  OLAF 
as  far  in  advance  as  possible  when  submitting  legislative  proposals,  to  improve 
quality  of  legislation.  The  communication  also  proposes  that  DG  Budget,  in 
cooperation with OLAF, should take a series of preventive measures in the area of 
contract management. The system came into operation in 2003. 

For  2004,  29  legislative  measures  programmed  were  identified  as  risk  measures  in 
terms of fraud proofing. The Office has thus been able to contribute its operational 
experience  in  relation  to  the  drafting  of  Community  documents,  such  as  the  Green 
Paper  on  the  future  of  preferential  systems  and  the  modernisation  of  the  customs 
code, as well as more specific regulations, such as a proposal to regulate mushroom 
quotas, or certificates of origin for garlic imported from third countries.  

In the area of direct expenditure, on the new model memorandum of understanding 
for participation by the candidate countries in Community programmes will include 
clauses ensuring more effective protection of financial interests. 

40 

41 

42 

EN 

For more details concerning the Office’s results see the complementary evaluation of the activities of 
the European anti-fraud office, SEC(2004)1370. 
Reforming 
COM(2000)200 final. 
Commission Communication concerning the fraud-proofing of legislation and contract management, of 
7.11.2001 – document SEC(2001)2029 final. 

the  Commission,  White  Paper  part 

I  point  V3  and  part 

II  point  XXX, 

16 

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3. 

COOPERATION IN AGRICULTURE AND CUSTOMS MATTERS  

The instrument for cooperation in agricultural and customs matters43 lays down the 
conditions under which the customs and agricultural authorities of the Member States 
cooperate  with  one  another  and  also  with  the  Commission  at  the  request  of  an 
applicant  authority  or  spontaneously,  to  ensure,  notably  the  exercise  of  a  special 
surveillance  on  persons,  places,  movements  of  goods  and  means  of  transportation, 
administrative inquiries, the providing of a document, etc.  

The  regulation  has  led  to  a  wide  system  for  exchange  of  information  between  the 
Commission  and  the  Member  States.  The  national  authorities  communicate  to  the 
Commission  any  relevant  information  concerning  irregularities  detected  and 
suspected  fraud,  the  methods  and  the  practices  used,  etc.  (Art  17).  The  regulation 
also  makes  provisions  for  mutual  assistance  with  the  authorities  in  third  countries 
and the information  from the Commission when this  presents a  particular  interest ( 
Art. 19 to 22). 

The regulation established a customs information system (Art 23 to 41), that enables 
information to be disseminated rapidly and makes the cooperation procedures more 
efficient44. 

This year this subject was chosen by the Commission and the Member States as one 
of the central questions covered in the questionnaire and the following section gives 
an overview on the stat of play in this area. 

3.1. 

Results of analysis of the contributions from the Member States45 

While  in  general  the  implementation  of  the  Regulation  is  satisfactory.  Analyses 
shows that the quality of both Member State and Commission statistical data could 
be improved and that certain practical problems should be resolved. 

Statistics on communications. Most Member States have encountered difficulties in 
supplying reliable and coherent statistics concerning the communications or reports 
requested.  The  Member  States  have  neither  a  centralised  database  for  this  type  of 
information  nor  a  uniform  definition  of  the  concept  of  “mutual  assistance 
communication”. No analysis was therefore possible and examination of the figures 
was based merely on a quantitative approach. Also, there are no exploitable statistics 
on the number of communications and reports requested by or communicated to the 
Commission. The improvement of the data bases is desirable for use in risk analysis. 

43 

44 

45 

Regulation  (EC)  No  515/97,  OJ  L  82,  22.3.1997,  supplemented  by  Commission  Regulation  (EC) 
No 696/98: OJ L 96, 28.03.98, p. 22. 
A  third pillar  instrument  has  been  introduced  to  complete  the  system.  The  Naples II  Convention  lays 
down the arrangements for mutual assistance in the context of criminal investigations of infringements 
of Community and national customs regulations. A certain number of the investigations concerned are 
the natural extension of administrative inquiries initiated under Regulation (EC) No 515/97. In 2004, 10 
Member  States  (Austria,  Belgium,  Cyprus,  Hungary,  Lithuania,  Latvia,  Portugal,  Finland,  Slovenia, 
Slovakia) ratified the Naples II Convention. A further two (Czech Republic, Estonia) ratified it at the 
beginning of 2005. At the time this report was drafted, only three Member States had not yet deposited 
their instrument of ratification. 
All the answers by Member States can be consulted in the working document (SEC (2005)973) relating 
to the report, since the report gives only a very summarised overview. 

EN 

17 

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Handling  of  request  for  mutual  assistance.  Member  States  have  reported 
problems, in particular response time, the quality and relevance of responses (or even 
the absence of any response, particularly from certain third countries) and translation 
problems.  As  a  result,  the  time  limit  for  instituting  the  proceedings  in  question 
sometimes expires. Most of the Member States regularly use reminders to speed up 
the procedure.  

Cooperation  with  third  countries.  Member  States  have  suggested  concluding 
cooperation  agreements  with  third  countries  to  resolve  some  of  the  problems 
reported46. Although the Commission updates and distributes the contact list during 
each Mutual Assistance committee meeting (two or three times a year), it has been 
reported that sometimes it is difficult to determine the competent authority in a third 
country in a Member State (when request is send by a third country).  

Handling  of  fraud  risk  messages.  Member  States  are  required47  to  inform  the 
Commission of risks of fraud or other irregularities that are of particular relevance at 
Community  level,  and  the  Commission  conveys  this  information  to  other  Member 
States. In some Member states there are two or more competent administrations for 
the application of customs legislation, messages are then handled in the same way as 
other  requests  for  mutual  assistance;  a  central  coordinating  unit  or  office  generally 
receives  the  message  and  conducts  an  initial  analysis  of  it  in  order  to  determine 
which  competent  authority  should  deal  with  it48.  The  results  are  conveyed  to  the 
Commission (OLAF) by the coordinating unit/office.  

Necessity of a judicial authorisation. Where the consent of the judicial authority is 
required  to  implement  a  measure  needed  to  handle  a  request  for  mutual  assistance, 
the  information  thus  obtained  is  conveyed  to  the  requesting  Member  State.49  An 
additional  judicial  authorisation  may  be  necessary  for  the  transmission  of 
information.  Member  States  differ  widely  as  to  which  types  of  investigative 
measures  require  authorisation  from  the  judicial  authority,  specially  the  customs 
authorities  have  more  extensive  powers  of  administrative  inquiry  Generally 
speaking,  however,  each  time  such  an  authorisation  is  required  to  take  an 
investigative measure, it is also required in order to send the report to the requesting 
Member  State50.  Certain  Member  States  also  impose  additional  requirements,  not 
laid down in the Regulation, for transmitting the data obtained.  

Treatment  of  reports  submitted  following  a  mission  in  a  third  country. 
Following a Community mission in a third country, a report, countersigned by those 
taking part in the mission, and the supporting documentation which could be used as 

46 

47 
48 

49 
50 

It  has  been  suggested  that  agreements  be  concluded  with  the  following  countries:  Albania,  Armenia, 
Belarus,  Bosnia-Herzegovina,  Canada,  China,  Croatia,  United  Arab  Emirates,  Indonesia,  Japan,  Laos, 
Malaysia, Panama, Romania, Russia, Serbia and Monte Negro, Singapore, Taiwan, Thailand, Tunisia, 
Vietnam,  the  countries  of  the  middle  East,  the  Balkan  countries,  the  North  African  countries  and  the 
countries of South-East Asia. The cooperation agreements signed with India (20.10.2004) and Mexico 
(26.03.2001) came into force. 
Article 18 of Regulation (EC) No 515/97 
In  Poland,  the  Bureau  for  International  Treasury  Relations  is  the  main  correspondent  of  the 
Commission,  but  the  customs  authorities  must  also  be  contacted  in  a  certain  number  of  cases.  Both 
services are departments of the Ministry of Finance 
Article 3 of the Regulation 515/95. 
With the exception of Poland, Slovakia and France concerning customs investigations. 

EN 

18 

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evidence are sent to the Member States concerned even if they have not taken part in 
the  mission51.  The  Commission  whished  to  know  if  the  reports  and  documentation 
could be used as evidence in a recovery procedure before a national court whether or 
not  the  Member  State  took  part  on  the  mission.  The  Member  States  replied  in  the 
affirmative.  However,  there  may  be  difficulties  with  the  evidence  in  a  recovery 
procedure in a Member State that has not taken part in the mission in cases where the 
third  country  have  not  signed  the  report,  something  which  is  not  required  by  the 
Community regulation. 

Statistics on follow-up of cases reported. The communication of the administrative 
and  judicial  decisions  on  reported  cases  is  obligatory52.  Although  several  Member 
States  plan  to  set  up  departments  responsible  for  following  up  cases  reported  and 
drawing  up  statistics,  there  is  no  centralised  management  of  this  information  at 
present  and  the  statistics  currently  obtained  are  incomplete  and  unreliable.  Only  a 
few  decisions  concern  organised  crime.  The  reason  for  this  may  be  the  scant 
incidence of organised crime in customs and agricultural infringements the restricted 
definition  of  organised  crime  in  the  legislation  of  certain  Member  States, 
reclassification  by  the  judicial  authority  of  the  offences  reported  (for  example 
conspiracy) or also a lack of evidence in the case file. 

3.2. 

The measures taken by the Commission in 2004 

Stepping  up  cooperation  in  agricultural  and  customs  matters.  Following  the 
thematic report of DG Budget on the handling of mutual assistance messages53, the 
Commission consulted the Member States and confirmed the need to: 

- reinforce the efficiency of working methods by faster and more modern exchange 
and follow-up of information; 

-  foster  a  better  co-operative  environment  between  the  tools  of  detection, 
investigation  and  prosecution  (articulation  between  Mutual  assistance  sheets,  CIS54 
and FIDE55); 

- better synergy between the respective aims of various Commission departments. 

In  2004  a  feasibility  study  was  conducted  with  a  view  to  creating  an  electronic 
message: “Mutual Assistance/Fraud communication”. 

51 
52 
53 
54 

55 

Article 20 of the Regulation. 
Article 49 of the Regulation, generally made through the Ownres system 
Thematic report of 2002 on handling of mutual assistance messages in the Member States. 
Database « Customs information system », foreseen by the Convention of 26 July 1995 on the use of 
information  technology  for  customs  purposes  (OJ  C316  of  27.11.1995).  A  new  common  interface 
should allow the storage of a certain number of information from the mutual assistance messages. 
The creation of a customs files identification database (FIDE) foreseen by the additional protocol to the 
Convention  on  the  use  of  information  technology  for  customs  purposes  of  8  May  2003 
(OJ  C  139  of  13.6.2003).  Its  objective  is  to  allow  the  competent  authorities  of  a  Member  State  to 
identify the competent authorities of the other Member States who investigate of investigated the same 
persons or companies. 

EN 

19 

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Extension  of  cooperation  to  other  areas.  On  20  July  2004  the  Commission 
submitted  a  proposal  for  a  Parliament  and  Council  Regulation  on  mutual 
administrative assistance56. 

in  particular 

The  proposed  Regulation  could  provide  a  more  detailed  legislative  framework  in 
fight  against  fraud  and  encourages  cooperation  with  and  coordination  by  the 
Commission,  particularly  OLAF.  The  proposal  is  horizontal:  it  covers  all  the  areas 
involved  in  the  fight  against  Community  fraud  not  yet  addressed  by  sectoral 
the 
legislation, 
Commission in the fight against intra-community VAT fraud57, the structural funds 
and  direct  expenditure.  It  also  concerns  the  use  of  information  on  financial 
transactions  suspected  of  involving  laundering  of  proceeds  from  Community  fraud. 
Cooperation  should  be  used  above  all  for  cases  of  particular  importance  for  the 
Community, i.e. tax losses of at least €500 000 in cases of VAT fraud or of €100 000 
in other cases. 

the  cooperation  between  Member  States  and 

4. 

RECOVERY 

The  Commission  supervises  the  recovery  of  amounts  unduly  paid  by  the 
Communities as the result of an error, fraud or another irregularity, and the collection 
of  own  resources.  In  the  areas  directly  managed  by  it,  the  Commission  itself  is 
responsible for recovery. In areas in which management has been decentralised, this 
responsibility  is  shared,  with  the  Commission  following  the  recovery  procedures 
initiated by the Member States or else applying the clearance procedures.  

In 2004 the Commission took several measures aimed at improving recovery of own 
resources, agricultural funds, structural funds and direct expenditure. 

4.1. 

Traditional Own resources 

Member  States  are  responsible  for  the  recovery  of  traditional  own  resources.  The 
Member  States  must  keep  “A  accounts”58  for  the  registration  of  paid  and/or 
guaranteed customs debts, and “B accounts” for the registration of either unpaid or 
not guaranteed” debts (or debts guaranteed but contested). Many debts appearing in 
the “B accounts” are the result of fraud or irregularities detected. 

A  report59  analysed  17  cases  of  recovery  which  were  subject  of  previous  Mutual 
assistance communications from OLAF, involved several Member States and had a 
financial impact of over €1 million on the Community budget. The sample involved 
different types of asset and fraud mechanisms (false customs values, false prices and 
false declarations of origin). The Commission observed a steady improvement in the 

56 
57 

58 
59 

COM(2004)509 final. 
The aim of the proposed Regulation is to supplement Council Regulation No 1798/2003 of 7.10.2003, 
OJ  L  264,  15.10.2003,  which  concerns  only  cooperation  between  Member  States,  and  not  between 
Member States and the Commission. 
Regulation (EC) 1150/2000, OJ L 130, 31.5.2000. 
Commission report on the follow-up of traditional own resources in cases of fraud and irregularities of 
7.1.2005, COM(2004)850. 

EN 

20 

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effective rate of debt recovery (2% for the sample examined in 1994, 12% in 1998 
and 15% in 2003).  

Member  States  are  also  responsible  for  entering  all  cases  of  detected  fraud  and 
irregularities  in  the  OWNRES  database  if  they  have  a  potential  financial  impact  of 
traditional  own  resources  over  €10,000.  Because  it  is  to  be  expected  that  customs 
debts over €10,000 will appear not only in OWNRES but also in the B-accounts, the 
Commission,  in  2003,  compared  the  twos.  The  results  of  this  comparison  were  not 
very  satisfactory.  When  the  Commission  did  the  exercise  in  2004  significant 
improvements became evident. 

Regulation  (EC)  No 2028/200460  obliges  Member  States  to  treat  as  irrecoverable 
amounts  of  traditional  own  resources  in  excess  of  €50, 000  which  have  not  been 
recovered  within  five  years  from  the  request  for  payment  became  definitively 
enforceable. This means that all such items (including very difficult to recover debts 
arising from fraud and irregularities) cases must be presented to the Commission for 
evaluation.  

4.2. 

Direct expenditure 

4.2.1.  The new Financial Regulation 

The new Financial Regulation61 significantly improves the effectiveness of recovery 
of  direct  expenditure.  From  now  on,  systematic  use  will  be  made  of  offsetting 
(Article 73), whereby any claim that the Communities have on a debtor who himself 
has a claim on the Communities that is confirmed, quantified and due will be offset 
as to an equivalent amount. 

Article 72(2) also confirms that the institution can “formally establish an amount as 
receivable  from  persons  other  than  States  by  means  of  a  decision  which  is 
enforceable”. This possibility was provided for in Article 256 of the EC Treaty, but 
no implementing regulations had been issued. 

In  addition,  the  new  Financial  Regulations  introduce  automatic  collection  of  late 
payment interest for any debt not repaid on the due date62, and significantly increase 
the amount thereof63. 

4.2.2.  Contractual warranties for better contract management. 

Payment of advances or granting of pre-financing without consideration at the time 
of payment constitutes an appreciable risk for the Communities’ financial interests. 
However,  such  payments  are  an  essential  tool  for  carrying  out  certain  actions  that 
meet Community policy objectives. The new Financial Regulations and in particular 

60 
61 
62 

63 

OJ L 352, 27.11.2004. 
Council Regulation (EC, EURATOM) No 1605/2002, OJ L 248, 16.9.2002. 
Commission  Regulation  (EC,  EURATOM)  No 2342/2002  laying  down  detailed  rules  for  the 
implementation of Council Regulation (EC, Euratom) No 1605/2002, OJ L 357, 31.12.2002, Article 86. 
The rate of late payment interest applicable is the reference rate of the European Central Bank plus 7 
percentage points for service and supply contracts and the reference rate plus 3.5 percentage points in 
other cases. This is a significant increase with respect to the previous rate (the reference rate plus 1.5 
percentage points). 

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the  Regulation  laying  down  detailed  rules  for  its  implementation,  provides  for  a 
number  of  measures  that  mitigate  this  risk.  Thus,  in  the  cases  provided  for  by  the 
implementing  rules,  the  contractors  or  beneficiaries  must  provide  a  guarantee  in 
advance before receiving pre-financing. 

The  Commission’s  departments, 
through  standard  contracts  or  conventions 
(including agreements with candidate and third countries in the area of foreign aid or 
participation  in  Community  programmes)  ensure  that  effective  provisions  on 
recovery are included. 

4.2.3.  Recovery  by  joining  a  civil  action  to  criminal  proceedings  and  precautionary 

measures under Member States’ legislation 

The  study  published  in  last  year’s  report64  showed  that  in  the  majority  of  Member 
States  the  Commission  is  entitled  to  join  a  civil  action  to  ongoing  criminal 
proceedings  with  a  view  of  obtaining  damage  to  secure  recovery  of  Community 
entitlements  related  to  direct  expenditure.  Launching  a  civil  action  within  criminal 
proceedings  is  considered  an  effective  instrument  to  facilitate  the  Commission’s 
efforts to recover debts in the field of direct expenditure. It offers several advantages, 
including the shortening of legal proceedings. In Member States having common law 
systems65,  although  the  Commission  would  not  be  entitled  to  launch  ‘civil  action 
within criminal proceedings’, it would nevertheless be allowed to make a request for 
a compensation order. 

The  2003  report  also  established  that  the  Commission  may  usually  apply  for 
precautionary measures66 as from the investigation phase of criminal proceedings.  

In  2004,  the  Commission  wished  to  make  a  more  detailed  assessment  of  the 
conditions under which it may represent the Community in legal proceedings relating 
to  direct  expenditure.  The  questionnaire  submitted  to  the  Member  States  took  the 
form  of  a  case  study  involving  an  economic  operator  defrauding  the  Commission. 
Two  Member  States  were  not  able  to  provide  answers  to  this  part  of  the 
questionnaire67.  The  full  text  of  the  responses  is  available  in  the  form  of  a 
Commission services’ working document. 

Although certain common trends can be identified, the national legal systems provide 
for  very  different  conditions  under  which  the  Commission’s  application  for  civil 
action can be launched. This highlights the need for the Commission to have close 
co-operation  with  national  judicial  authorities.  The  2004  report  also  gives  the 
Commission  a  better  understanding  of  the  conditions  under  which  applications  for 
precautionary measures should be made following national legislations. 

64 
65 
66 

67 

COM(2004)573. 
Ireland, United Kingdom.  
Precautionary measures are those measures which the prosecutor or the court may order to prevent the 
defendant from dispersing his assets before the court reaches its decision. They include the freezing and 
seizing of the defendant’s assets. 
Luxembourg, Malta. It should also be noted that the answers of some Member States were not detailed 
enough  to  be  able  to  establish  what  were  the  essential  points  to  be  included  in  a  Commission’s 
application to conduct a ‘civil action within criminal proceedings’. 

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Civil  action  within  criminal  proceedings.  The  application  for  ‘civil  action  within 
criminal  proceedings’.  The  majority  Member  States’  answers  show  that  the  claim 
must be filed by the Commission. In Sweden the prosecutor is entitled to submit the 
claim.  In  Finland  and  Portugal  it  can  be  made  by  the  prosecutor  if  he  considers  it 
appropriate.  In  this  case,  there  will  be  no  need  for  the  Commission  to  make  an 
application. Finland pointed out that, if the Commission applies for damages on the 
basis of facts which are not shown in the charge drawn up by the prosecutor, those 
facts should be presented in the claim together with the supporting evidence. 

In  certain  Member  States,  it  is  also  necessary  to  state  all  the  facts  supporting  the 
object of the claim68 and/or the amount sought for compensation69. Additionally, in 
some  Member  States70,  the  link  of  causality  between  the  fraud  and  the  loss  to  the 
Community  budget  must  be  clearly  demonstrated  in  the  application.  Only  two 
Member States71 reported that a claim may be submitted after the opening of the trial. 

Requirements as to evidence in relation to civil action within criminal proceedings. 
All  the  Member  States  who  answered  apply  the  rule  of  evidence  by  all  means, 
whether  by  a  witness  statement  or  in  written  report.  However,  the  courts  are  also 
bound to apply the rule of the free assessment of evidence. This means that no piece 
of evidence in relation to the damage produced by the Commission, even a report of 
a certified auditor, might be in itself sufficient enough to prove an infringement of a 
criminal provision by the contractor. 

Even  if  it  is  the  rule  that  evidence  may  be  provided  by  all  means,  three  Member 
States indicated there are limits to the admissibility of a report of a certified auditor. 
(Sometimes, it is necessary that the report be written by a registered expert72, or one 
that has been appointed by the Court73). In the Czech Republic the admissibility of 
the  statement  is  subject  to  inclusion  of  specific  clauses  in  the  claim.  In  Italy,a 
quantitative  limit  is  imposed  on  private  parties,  and  therefore  also  on  the 
Commission: they may appoint up to a maximum of two experts to give testimonies 
to the court. 

In other Member States, auditors’ reports are freely admissible, but there are special 
conditions for the treatment of this type of evidence74.  

Precautionary  measures.  All  Member  States  which  allow  ‘civil  action  within 
criminal  proceedings’  also  permit  applications  for  precautionary,  or  safeguarding, 
measures. 

Initiator of precautionary measures. The general rule is that it is the damaged party, 
and therefore the Commission, which must initiate the application before the public 

68 
69 
70 
71 
72 
73 

74 

Czech Republic, Greece, Italy, Germany, Sweden. 
Czech Republic, Greece, Italy, Latvia, Slovakia. 
France, Hungary, Poland. 
Netherlands, Slovakia 
Czech Republic. 
Poland. The expert must be a court expert or a person who is known to possess adequate knowledge in a 
given field. 
Thus, in Sweden the report must be presented in person during the hearings. In Slovenia, the Court may 
appoint a financial expert to verify the document. 

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prosecutor  or  the  court75.  Only  two  Member  States  reported  that  is  it  possible  for 
both the Commission and the prosecutor to apply for a precautionary measure during 
the trial76. 

Application  for  precautionary  measures.  The  obligatory  information  to  be  included 
in the application for precautionary measures varies greatly from one Member State 
to  another.  Some  Member  States77  do  not  impose  obligations  concerning  the 
application. At the opposite end of the spectrum, the application must sometimes be 
very detailed, including for example the legal basis for the application, a description 
of  the  relevant  facts,  evidence  of  dispersal  of  assets,  and  a  description  of  the 
contractor’s  known  assets  together  with  their  location.  Slovakia  imposes  the 
condition that the application includes a proposal of a precautionary measure. 

As  far  as  the  risk  of  disappearance  of  assets  and  consequently  the  impossibility  of 
recovery  is  concerned,  the  burden  of  proof  will  generally  fall  on  the  injured  party, 
that is to say the Commission78. In this respect, it will always be in the interest of the 
Commission  to  submit  an  application  with  as  many  details  as  possible.  Finally,  it 
should be noted that an equivalent of precautionary measures may be found in certain 
Member States who have common law systems. They are known as freezing orders79 
and restraint orders80. 

4.3. 

Agriculture  

In  2002  the  total  arrears  of  recoverable  amounts  relating  to  irregularities  in  the 
EAGGF Guarantee section were estimated at €2.2 billion, according to data provided 
by  Member  States  under  Articles  3  and  5  of  Regulation  No 595/9181.  In  its 
Communication  of  December  200282,  the  main  aim  of  which  was  to  improve 
recovery, the Commission  decided to set  up a “Recovery Task Force” (RTF) made 
up  of  officials  from  OLAF  and  DG  Agriculture.  The  Recovery  Task  Force  was 
charged with clarifying the situation of unrecovered debt and drawing up decisions 
on financial liability under the formal clearance procedure in the EAGGF Guarantee 
section. It started its audit work in 2003 for unrecovered amounts dating from before 
1999  exceeding  €500 000  each.  This  exercise,  involving  nine  Member  States, 
revealed that the total amount of unrecovered debt was €765 million83. At the end of 
2004 the clearance procedure was initiated by DG AGRI; formal letters under Article 

75 

76 

77 
78 

79 
80 
81 
82 
83 

Austria,  Belgium,  Czech  Republic,  Greece,  Spain,  Finland,  France,  Hungary,  Italy,  Latvia,  Portugal, 
Sweden, Slovenia. 
Czech  Republic  and  Slovakia.  In  the  pre-trial  proceedings,  the  prosecutor  may  secure  the  claim  even 
without application by the injured if the protection of the latter’s interest calls for it and, in particular, if 
there is a danger of omission. 
Austria, Belgium, Greece, Italy. 
Finland  is  only  reported  exception  to  this  rule:  application  for  a  precautionary  measure  such  as  a 
transfer  prohibition  or  seizure  will  not  require  any  evidence  of  that  risk.  In  principle,  it  is  enough  to 
claim that the risk is rather likely. However, the application should describe how the risk is manifesting 
itself in the case in question. 
England and Wales. 
Scotland. 
OJ L 67, 14.3.1991. 
COM(2002)671 final. 
This amount does not include 32 cases communicated before 1999 for an amount exceeding € 500 000, 
which  revealed  inconsistencies  when  compared  with  the  communications  were  compared  with  the 
results of the audit. Priority will be given to dealing with these cases in 2005. 

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8 of Regulation (EC) No 1663/95 on financial liability were sent to the nine Member 
States in question with the financial corrections proposed by the Commission. 

The  RTF  also  began  the  audits  of  around  3 400  cases  for  an  amount  of  under 
€500 000 each, which had been communicated before 1999 and not recovered to date 
(the  total  financial  impact  was  estimated  at  around  €200  million).  The  External 
Communications  Registry  database,  managed  by  OLAF,  contains  all 
the 
communications  sent  by  the  Member  States  under  Articles  3  and  5  of  Regulation 
(EEC)  No 595/91  on  irregularities  relating  to  the  EAGGF  Guarantee  Section.  The 
Member  States  were  asked  to  verify  and  complete  these  data,  fill  in  an  electronic 
self-assessment form on the results of the recovery measures and submit a proposal 
on dealing with unrecovered amounts. The RTF will verify the data sent in 2005; the 
formal clearance procedure will begin after completion of the verifications and any 
necessary supplementary audits. 

The RTF’s work has resulted in better use of the data communicated by the Member 
States  in  line  with  the  Commission’s  undertaking  to  “improve  the  quality  of  the 
available  data  relating  to  irregular  payments  under  the  CAP”  in  its  response  to  the 
Court of Auditors’ special report No 3/200484.  

4.4. 

Structural funds 

In  the  area  of  the  structural  funds,  the  recovery  of  unduly  paid  amounts  due  to 
irregularity or fraud is carried out by Member States. The recovery of those amounts 
at  Community  level  can  be  done  by  reduction  or  cancellation  of  the  financial 
contribution with the possibility of a transfer of funds to other operations when the 
programme concerned has not yet been closed. 

The programmes co-financed by the structural funds are multi-annual and based on 
interim payments. Recovery of amounts unduly paid may take place before or after 
conclusion of the programme. For the 1994-1999 programming period, the deadline 
for presentation of the request for final payment to the Commission was 31st March 
2003. In that period, about 1,000 programmes were co-financed by the Community 
for  a  total  of  around  €159  billion85.  The  Commission’s  authorising  and  managing 
departments  (DG  REGIO,  EMPL,  AGRI,  FISH),  assisted  by  the  European 
Anti-Fraud  Office,  are  responsible  for  administrative  and  financial  follow-up  once 
these programmes have been concluded. This follow-up is based in particular on the 
communications,  in  accordance  with  Regulation  No 1681/9486,  of  irregularities  by 
Member  States  that  have  been  recorded  in  the  External  Communications  Registry 
database.  

In  the  period  in  question,  the  Member  States  communicated  cases  of  irregularities 
involving  an  amount  of  approximately  €  1,370  billion87  affected  as  Community 
contribution. 

84 

85 

86 
87 

Special  report  No 3/2004  on  recovery  of  irregular  payments  under  the  Common  Agricultural  Policy, 
OJ C 269, 4.11.2004. 
These  are  multiannual  programs.  This  figure  does  not  include  projects  directly  financed  under  the 
structural funds and projects co-financed under the cohesion funds. 
OJ L178 of 12.7.1994. 
Situation according to the data contained in the ECR database of 18.4.2005. 

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Among  these  cases,  5028  have  been  the  subject  of  a  final  closure  at  Commission 
level and the amount of € 634.6 billion has been deducted during the final payment. 
Furthermore,  for  a  number  of  2,604  cases  concerning  the  same  period,  Member 
States informed the Commission that the administrative and judicial procedures has 
been  concluded  at  national  level.  The  Commission  departments  are  preparing 
decisions on how the amounts not recovered will be charged. 

2,694  cases  remain  open,  involving  an  amount  of  approximately  647€  to  be 
recovered. 

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