Report from the Commission to the European Parliament and the Council on the application of Regulation (EC) No 1469/95 (black list) {SEC(2005) 1333}
Date: 2005-10-20
Institutions: European Commission
Subjects: EAGGF Guarantee Section, application of EU law, database, exchange of information, fraud against the EU, general budget (EU), report

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.10.2005 
COM(2005) 520 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT  
AND THE COUNCIL 

on the application of Regulation (EC) No 1469/95  
(black list)  

{SEC(2005) 1333} 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT  
AND THE COUNCIL 

on the application of Regulation (EC) No 1469/95  
(black list) 

1.  AIMS OF THE DOCUMENT 

Council  Regulation  (EC)  No  1469/951  established  a  system  for  identifying  economic 
operators  representing  a  serious  risk  for  the  Community  budget  in  the  field  of  the  EAGGF 
Guarantee Section and a notification system between the Member States via the Commission. 
Implementing provisions were adopted by Regulation (EC) No 745/962. 

The  objectives  of  the  Regulation  were  to  establish  a  mechanism  allowing  national 
administrations  to  be  warned  about  operators  presenting  a  serious  fraud  risk  and  to  take 
appropriate  preventive  measures  (reinforced  controls,  suspension  of  payment,  and  exclusion 
from Community aid). 

As required by Article 7 of Regulation (EC) No 1469/95, the Commission submitted a report 
on  the  application  of  this  Regulation  to  the  European  Parliament  and  the  Council  in  July 
1997.3 The Commission announced that there would later be a second report to evaluate the 
applicability and actual application of the Regulation by the Member States and to identify the 
difficulties in applying it. 

2.  INTRODUCTION 

Since  the  Regulation  was  adopted  in  1995,  a  number  of  similar  instruments  have  been 
incorporated  in  the  basic  legislation.  Thus  there  is  a  parallel  instrument  in  the  Financial 
Regulation  applicable  to  the  general  budget  of  the  European  Communities.4  Article  95 
provides  that  each  institution  must  establish  a  central  database  containing  details  of 
candidates  and  tenderers  who  are  to  be  excluded  from  participation  in  a  procurement 
procedure  by  reason  of  being  in  bankruptcy,  winding-up  or  administration  proceedings  or 
having  been  convicted  of  an  offence  concerning  their  professional  conduct  or  having  been 
guilty  of  grave  professional  misconduct  or  not  having  fulfilled  obligations  relating  to  the 
payment of taxes or social security contributions, or who have been the subject of a judgment 
which  has  the  force  of  res  judicata  for  fraud,  corruption,  involvement  in  a  criminal 
organisation or any other illegal activity detrimental to the Communities' financial interests, 
or who have been declared to be in serious breach of contract for failure to comply with their 
following  another  procurement  or  grant  award  procedure. 
contractual  obligations 

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4 

Council Regulation (EC) No 1469/95 of 22 June 1995 on measures to be taken with regard to certain 
beneficiaries of operations financed by the Guarantee Section of the EAGGF, OJ L 145, 29.6.1995, p.1. 
Commission Regulation (EC) No 745/96 of 24 April 1996 laying down detailed rules for the application 
of Council Regulation (EC) No 1469/95 on measures to be taken with regard to certain beneficiaries of 
operations financed by the Guarantee Section of the EAGGF, OJ L 102, 25.4.1996, p.15. 
COM (97) 417 final. 
Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002, OJ L 248, 16.09.2002. 

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Administrative or financial penalties may be imposed on candidates or tenderers who are in 
one  of  the  cases  of  exclusion,  after  they  have  been  given  the  opportunity  to  present  their 
observations (Article 96). Similar rules apply to recipients of grants (Article 114). 

3.  STATISTICAL ANALYSIS OF REPORTS BASED ON THE REGULATION 

•  By 30.6.1997, the Commission had received four notifications from three Member States, 
including  one  for  1996.  This  period  was  covered  by  the  first  Commission  report  to 
Parliament and the Council. By the end of 1997, the number rose to 13. 

• 

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• 

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In 1998, Member States sent five notifications to the Commission. 

In 1999, no notifications were received. 

In 2000, the Commission received 15 notifications. 

In 2001, there were two notifications to the Commission. 

In 2002, eight notifications were sent to the Commission. 

In 2003, only one notification was sent to the Commission. 

In 2004, no notifications were received. 

•  No notifications have been received so far in 2005. 

4.  LOW FREQUENCY OF NOTIFICATIONS : COMPARATIVE DATA 

If we compare this figure with the number of irregularity cases detected either by the Member 
States  or  by  the  Commission  (OLAF),  the  question  arises  whether  the  genuine  number  of 
operators who ought to be considered "unreliable" is actually rather higher. 

–  For  2004  alone,  for  example,  19  irregularities  were  notified  on  the  basis  of  Regulation 
(EEC)  No  595/91  concerning  export  refunds,  each  one  separately  exceeding  the  amount  of 
€100 000. During the same period, the Commission (OLAF) opened 21 cases in the field of 
the EAGGF Guarantee Section. Some of these new cases involve organised crime, involving 
economic operators that can hardly be described as "reliable". 

5.  A FEW POINTS FOR CONSIDERATION REGARDING THE INFREQUENT APPLICATION OF THE 
REGULATION 

The Commission has embarked on a dialogue with the Member States in the Working Group 
on  Irregularities  and  Mutual  Assistance  –  Agricultural  Products  and  at  bilateral  meetings  to 
ascertain  why  the  Member  States  make  such  limited  use  of  the  possibilities  offered  by 
Regulation No 1469/95. The results of this dialogue can be summarised as follows: 

•  The identification and notification system entered into force on 6.7.1995 but was actually 
applicable only to irregularities first detected after 30.6.1996, given that the fundamental 

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principles  of  law  prohibited  retroactive  application.  The  number  of  reports  should  have 
risen appreciably with time but did not in fact do so. 

•  When  Regulation  (EC)  No  1469/95  was  adopted,  the  Community  legislature  wanted  to 
ensure  that  only  the  really  important  cases  were  covered,  and  the  Regulation  therefore 
contains  a  series  of  conditions  limiting  its  scope  to  three  specific  fields,  with  a 
requirement that the established or suspected irregularity must be committed deliberately 
or  through  serious  negligence,  plus  the  condition  introduced  by  Regulation  (EC)  No 
745/96 that the irregularity must relate to an amount higher than €100 000. 

•  The Member States point out that they face difficult questions of interpretation of the law. 
They  often  decide  to  refrain  from  making  a  notification  until  they  have  irrefutable 
evidence.  This  particularly  concerns  the  concept  of  “serious  negligence",5  which  is 
unknown in some Member States, the definition of the economic operators concerned, and 
more particularly the inclusion of persons or firms which did not commit the irregularity 
themselves but took part in it or are liable for the irregularity or responsible for preventing 
it, and the definition of the stage of the investigation or proceeding at which the Member 
States  are  obliged  to  notify  the  Commission  ("preliminary  administrative  or  judicial 
report"). 

•  Since the relevant economic operators, who are on a "black list" and are the subject of one 
of the three measures provided for by the Regulation do all they can to avoid any impact 
on their economic activity, the Member States’ competent authorities fear that putting an 
economic  operator  on  a  "black  list"  and  notifying  the  Commission  and  other  Member 
States, might expose them to the risk of a claim for damages. 

6.  AVENUES TO BE EXPLORED 

(1) Nature of the measures to be envisaged: thought could be given to first solving the legal 
difficulties  mentioned  by  certain  Member  States.  In  particular,  it  would  be  worth  making  a 
distinction  between  a  warning  and  prevention  mechanism,  and  a  penalty  mechanism.  There 
are good grounds for considering that, if the Regulation’s legal framework made it possible to 
make a clear distinction between the two objectives, irregularity cases would be notified more 
systematically. 

(2)  With  regard  to  the  warning  and  prevention  mechanism,  thought  could  be  given  to 
establishing a link between the notifications under Article 3 of Regulation (EEC) No 595/91 
and the preventive measures (reinforced controls). This would facilitate the implementation of 
such a warning and prevention mechanism as it would be distinct from the penalty procedure 
and  would  effectively  establish  a  "Grey  List"  of  operators  requiring  individual  monitoring, 
along  with  the  introduction  of  a  legal  basis  for  precautionary  measures  such  as  the 
compulsory provision of security. Two warning levels could be established in this prevention 
mechanism:  a  first  level  entailing  transmission  of  unreliable  operators  to  the  Commission 
alone,  with  an  indication  of  the  irregular  practices  which  have  been  observed  in  the  past  or 
about which there are currently strong suspicions; and a second level entailing information for 

5 

Article  1(2)(a)  of  Regulation  (EC)  No  1469/95;  fourth  indent  of  Article  3(3)  of  Regulation  (EC)  No 
745/96. 

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the other Member States when, for example because of transnational operations, there might 
be specific risks for several of them. 

In the case of operators who have in the past committed irregularities established by a final 
decision, where reinforced controls will not suffice to rule out the risk of new irregularities, 
the  question  further  arises  whether  it  is  possible  in  the  warning  mechanism  triggering 
reinforced  controls  to  suspend  payments  on  a  precautionary  basis,  provided  the  measure  in 
question is not a penalty measure and the procedural guarantees provided for by the national 
law of the Member States are observed. 

(3)  With  regard  to  the  penalty  mechanism,  thought  should  be  given  to  the  possibility  of 
adopting  specific  provisions  in  the  framework  defined  by  Regulation  (EC,  EURATOM)  No 
2988/95,6  supplemented  if  need  be  by  information  transmission  measures,  parallel  to  those 
established in the warning mechanism. The advisability and, if the case arises, the content of 
such a penalty mechanism, should be treated as a separate subject to be considered in greater 
detail later. 

(4)  Scope:  it  should  be  noted  that  the  three  fields  provided  for  by  the  initial  Black  List 
Regulation  with  regard  to  the  expenditure  financed  by  the  EAGGF  Guarantee  Section 
currently appear rather limitative: 

-  before  the  1992  reform  of  the  CAP,  the  bulk  of  EAGGF  Guarantee  Section  expenditure 
concerned intervention storage and export refunds. Since then, the various CAP reforms have 
resulted  in  a  system  in  which  support  is  mainly  via  direct  payments  to  farmers.  These 
payments  are  efficiently  controlled  via  an  "integrated  administration  and  control  system" 
(“IACS"), also comprising a penalty mechanism; 

- 

irregularities can concern both the expenditure side and the revenue side. 

Where necessary, an extension of the Black List warning mechanism could be considered for, 
e.g.,  structural  measures  (ERDF,  Cohesion  Fund,  ESF  and  FIFG)  and  in  the  area  of  own 
resources. 

At a later stage, a link with the Early Warning System (EWS) of the Commission could also 
be implemented. 

7.  TAKING DATA PROTECTION LEGISLATION INTO ACCOUNT 

When Regulation (EC) No 1469/95 was adopted, both the Council and the Commission were 
aware that the Black List mechanism was politically and legally  highly sensitive in  view of 
the  possible  detrimental  effects  for  operators  if  the  proper  precautions  were  missing.  The 
legislature accordingly subordinated the use of the mechanism to a number of precautions, in 
particular  with  regard  to  the  confidentiality  of  notifications,  professional  secrecy  and 
compliance  with  national  rules  on  criminal  procedure.  Likewise,  the  principle  of  the 
adversarial  procedure,  with  a  preliminary  hearing  and  the  right  of  appeal  of  the  operators 
concerned,  for  the  measures  provided  for  by  Article  3(1)(c)  and  possibly  (b),  stress  the 
legislator’s concern to protect fundamental rights and the general principles of law. Above all, 

6 

Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European 
Communities’ financial interests, OJ L 312, 23.12.1995, p.1. 

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the adoption of penalty measures was subordinated to the prior completion of any formalities 
prescribed by national law. 

Parliament and Council Regulation (EC) No 45/2001 of 18 December 20007 established new 
specific  obligations  with  regard  to  personal  data  processing.  The  data  collected  under  the 
Black List regulation naturally falls within the scope of this Regulation. However, in view of 
the  specific  nature  and  purpose  of  Regulation  No  1469/95,  the  exceptions  and  limitations 
provided  for  by  Article  20(1)(a),  (b)  and  (e)  of  Regulation  No  45/2001  should  apply. 
Nevertheless, possible adjustments in relation to Regulation (EC) No 45/2001 and Directive 
95/46/EC will have to be considered. 

8.  CONCLUSIONS 

The  annual  Commission  reports  on  fraud  prevention  show  that  there  is  still  a  need  for  the 
Community to set up effective means of fraud prevention. The European Parliament and the 
Council,  like  the  Commission,  rightly  stress  the  need  to  start  with  prevention.  An 
identification and notification system such as that established by Regulation (EC) No 1469/95 
is  used  primarily  for  prevention.  None  of  the  Member  States  disputes  its  objectives. 
Nevertheless, there is no denying that the current rules and regulations in force do not ensure 
that it can apply effectively and efficiently. 

To remedy this, the Commission sees several avenues to be explored: 

1-improve the functioning of the existing instruments, by means of new legislation replacing 
the current regulation and clarifying the concepts covered: 

-  clarification of the concept of “serious negligence", 

-  possible amendment of the quantitative threshold of €100 000; 

-  revision  of  the  definition  of  the  economic  operators  concerned  in  order  to  include 
consortia, always in compliance with the general principles of law; 

-  adaptation of the rules and regulations in relation to the provisions concerning the access to 
information and data protection (Regulations (EC) Nos 45/2001 and 1049/2001) 

-  distinction  between  the  prevention  mechanism  and  the  penalty  mechanism:  Regulations 
(EC) Nos 1469/95 and 745/96 do not distinguish these two concepts, which are separate but 
complementary objectives. Since in many Member States the imposition of penalties demands 
compliance  with  substantial  legal  formalities  that  are  more  complex  than  those  that  might 
apply to a warning and prevention mechanism, it will be necessary to consider whether they 
should  be  dissociated  from  the  mechanism  by  making  a  reference,  if  necessary,  to  separate 
regulations; 

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Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on 
the  protection  of  individuals  with  regard  to  the  processing  of  personal  data  by  the  Community 
institutions and bodies and on the free movement of such data (OJ L 8, 12.01.2001, p. 1). 

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introduction in Community law, without prejudice to national procedural provisions, of the 
legal  possibility  of  taking  precautionary  measures  pending  the  completion  of  administrative 
and judicial procedures (guarantees) 

2-introduce a new legislation for a new system with a different scope: once the legal questions 
relating to Community law and national legislations have been settled, possible extension of 
the  scope  of  the  warning  and  prevention  mechanism  to  the  Structural  Funds,  and  to  own 
resources where and to the extent it could appear necessary. 

3-repeal  the  current  legislation,  once  the  discussion  on  the  two  other  avenues  of  reform  is 
completed. 

With  this  report  the  Commission  wishes  to  consult  all  the  Member  States,  in  line  with  the 
recommendations  made  recently  by  the  Court  of  Auditors,8  and  the  European  Parliament  in 
order to prompt a wide-ranging debate on the question. This report should provide the basis 
for the discussion with the institutions concerned and make it possible to draw conclusions on 
the necessary guidelines and the nature of the proposals to be made for the improvement of 
the existing mechanism. 

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Point  80  of  Special  Report  N°  3/2004  on  recovery  of  irregular  payments  under  the  Common 
Agricultural Policy together with the Commission’s replies, OJ C 269, 4.11.2004, p.1. 

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