Report from the Commission to the European Parliament and the Council - Protection of the financial interests of the Communities – Fight against fraud – Annual Report 2006 [SEC(2007) 930] [SEC(2007) 938]
Date: 2007-07-06
Institutions: European Commission
Subjects: European Anti-fraud Office, activity report, financial control, fraud, fraud against the EU, statistics

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 6.7.2007 
COM(2007) 390 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Protection of the financial interests of the Communities – Fight against fraud – Annual 
report 2006 

[SEC(2007) 930] 
[SEC(2007) 938] 

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TABLE OF CONTENTS 

Introduction ................................................................................................................................ 4 

1. 

Results of the fight against fraud: statistics on fraud and other irregularities.............. 5 

1.1. 

Statistics on fraud and other irregularities reported by the Member States in 2006 .... 5 

1.1.1.  Traditional own resources ............................................................................................ 6 

1.1.2.  Agricultural expenditure (EAGGF Guarantee Section)............................................... 7 

1.1.3.  Structural measures ...................................................................................................... 8 

1.1.4.  Pre-accession funds...................................................................................................... 9 

1.2. 

Statistics on OLAF's activities ................................................................................... 10 

2. 

Fraud prevention ........................................................................................................ 11 

2.1. 

Risk analysis and management, control systems ....................................................... 11 

2.1.1.  Measures relating to expenditure ............................................................................... 11 

2.1.2.  Customs...................................................................................................................... 13 

2.2. 

Debarment, early-warning and reliability databases.................................................. 13 

2.2.1.  At EU level................................................................................................................. 13 

2.2.2. 

In the Member States ................................................................................................. 14 

2.3. 

2.4. 

2.5. 

3. 

3.1. 

More transparent EU decision-making in financial management at EU level........... 17 

Improving accounting and control rules for a positive statement of assurance ......... 18 

Hercule action programme to promote activities in the field of the protection  
of the Community's financial interests....................................................................... 19 

Combating fraud......................................................................................................... 19 

Detection of fraud: warning systems involving internal informants  
(whistleblowing) ........................................................................................................ 19 

3.1.1.  European institutions.................................................................................................. 19 

3.1.2.  Member States............................................................................................................ 20 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

4. 

The European Anti-Fraud Office (OLAF) ................................................................. 22 

Developing mutual assistance .................................................................................... 22 

Combating cigarette smuggling and counterfeiting ................................................... 23 

Protecting the euro ..................................................................................................... 24 

Initiatives taken by certain Member States in 2006 ................................................... 24 

Recovery .................................................................................................................... 25 

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4.1. 

Agriculture ................................................................................................................. 25 

4.1.1.  The work of the Task Force Recovery....................................................................... 25 

4.1.2.  Financial corrections .................................................................................................. 26 

4.2. 

4.3. 

4.4. 

4.5. 

Structural Funds ......................................................................................................... 26 

Own resources............................................................................................................ 27 

Recovery following an OLAF investigation .............................................................. 28 

National legislation on the recovery of EU funds...................................................... 28 

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INTRODUCTION 

The protection of the Community's financial interests and the fight against fraud are 
areas of shared responsibility between the Community and the Member States. Each 
year  the  Commission,  in  cooperation  with  the  Member  States,  produces  a  report 
presenting the new measures they have taken to meet their obligations in this field, in 
accordance with Article 280 of the EC Treaty. The report is addressed to Parliament 
and the Council and is published. 

The  Commission  and  the  Member  States  jointly  decided  that,  as  well  as  giving  a 
general overview of the measures taken in various areas, the report should deal with 
four  specific  issues:  risk  analysis  and  risk  management;  debarment  databases  and 
warning  systems  involving  internal  informants  and  mechanisms  for  recovery  by 
offsetting. 

The  first  part  of  the  report  gives  a  summary  of  the  statistics  concerning 
irregularities reported by the Member States in accordance with sectoral regulations 
and provides some figures relating to the operational activities of the European Anti-
Fraud Office (OLAF). 

The  second  part  concerns  the  measures  taken  by  the  Member  States  and  the 
Commission to prevent fraud and to deal with other irregularities. It also examines 
the  topic  of  risk  analysis  and  risk  management  and  debarment  databases  and 
warning systems.  

The third part gives an account of the anti-fraud measures taken. It also contains a 
section on warning systems involving internal informers. 

The  fourth  part  presents  the  steps  taken  to  improve  recovery  of  amounts  not 
collected  or  wrongly  paid.  It  contains  a  section  on  mechanisms  for  recovery  by 
offsetting under national law. 

The report provides only a summary of the measures taken and the results obtained. 
Alongside  it,  the  Commission  publishes  two  working  papers,  one  detailing  the 
Member States' contributions1 and the other containing statistics on the irregularities 
reported by the Member States2. 

Previous years' reports are available on OLAF's website3.  

1 
2 
3 

"Implementation of Article 280 of the Treaty by the Member States in 2006", SEC(2007) 930. 
"Statistical Evaluation of Irregularities", SEC(2007) 938. 
http://ec.europa.eu/anti_fraud/reports/anti-fraud_en.html. 

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1. 

1.1. 

RESULTS  OF  THE  FIGHT  AGAINST  FRAUD:  STATISTICS  ON  FRAUD  AND  OTHER 
IRREGULARITIES 

Statistics  on  fraud  and  other  irregularities  reported  by  the  Member  States 
in 2006 

The protection of financial interests is an area of shared responsibility. In the fields 
where the Member States implement the budget (agricultural policy, Structural Funds 
and  pre-accession  funds)  and  for  the  collection  of  the Community's  own  resources, 
Community legislation requires the Member States to report suspicions of fraud and 
other irregularities affecting Community financial interests. Expenditure managed by 
the Member States accounts for some 80% of the Community budget. 

The  Commission's  working  paper  on  "Statistical  evaluation  of  irregularities", 
published  at  the  same  time  as  this  report,  presents  an  in-depth  analysis  of  the 
statistics derived from the information received. Though this report does not include 
statistics on irregularities detected in connection with expenditure directly managed 
by  the  Communities,  the  Commission  has  taken  steps  to  ensure  that  they  are 
provided in future. 

Table  1  shows  the  number  of  irregularities  reported  and  the  amounts  involved  for 
each area. 

Table 1 – Number of irregularities and amounts – 2006 

TOTAL 2006 

Area 

Number of 
irregularities 
reported 

Estimated financial 
impact of suspected 
fraud (€million) 

Total estimated 
financial 
impact of 
irregularities, 
including 
suspected 
fraud 
(€million) 

Own resources 

5 243 

353 

EAGGF 
Guarantee 
Section 

Structural Funds 
and Cohesion 
Fund 

3 249 

87 

3 216 

703 

134.39 (~0.94% of the 
total amount of own 
resources in 20064) 

29.8 (~0.06% of the 
total allocations) 

157.56 (~0.41% of 
total allocations) 

4 

This  percentage  is  calculated  on  the  basis  of  an  estimate  of  traditional  own  resources  in  the  2006 
general budget, and not on the basis of accounts.  

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Pre-accession 
funds 

384 

12.32 

Total 

12 092 

1 155.32 

1.57 (~0.03% of total 
allocations) 5 

323.32(~0.94% of own 
resources and ~0.2% of 
the total expenditure in 
the three areas6) 

1.1.1.  Traditional own resources 

In 2006, the number of cases of fraud and irregularities reported (exceeding €10 000) 
was  down  12%  on  2005  (from  5 943  to  5 243),  but  the  amount  affected  by 
irregularities rose by over 7% (from €328 million to €353 million7). Suspected fraud 
accounts  for  approximately  22%  of  the  cases  of  irregularities  reported,  with  an 
estimated financial impact of €134.39 million, equivalent to approximately 0.94% of 
the  total  amount  of  own  resources  in  2006.  This  compares  with  €105.3 million 
(around 0.85% of own resources) in 2005. Graph 1 shows the trends in the number of 
irregularities reported over the last five years and their estimated financial impact. 
The  increase  in  the  total  number  of  cases  since  2003  can  be  accounted  for  by  an 
increase  in  the  number  of  cases  reported  by  the  Member  States,  the  inclusion  of 
transit  operations  discharged  late  and  the  accession  of  new  Member  States.  The 
number  and  proportion  of  transit  operations  cleared  late  has  fallen  compared  with 
2005 (by over a third)8. 

The goods most affected by irregularities in 2006, as in previous years, are tobacco 
products  and  TVs.  The  figures  for  sugar,  fish,  glass  and  glassware  and  optical 
instruments were down on 2005, whereas meat, engines and parts, inorganic products 
and oils and fats were all up. The textile sector remained relatively stable, involving 
€10.3 million in duties. 

5 
6 
7 
8 

Percentage of suspected fraud during 2000-06 period for all funds allocated during the period. 
The pro rata for 2000-06 has been taken into account for the pre-accession fund. 
The figures published in the 2005 report have been updated. 
In 2005, 2 313 transit operations were cleared late, compared with 1 381 in 2006. 

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Graph  1:  Number  of  irregularities  reported  and  estimated  financial  impact  in  the 
area of traditional own resources – 2002-06 (€million) 

7000 

6000 

5000 

4000 

3000 

2000 

1000 

0

Number of cases of 
irregularities and fraud 
reported 
Irregular amounts 

2002 

2003

2004

2005

2006

1.1.2.  Agricultural expenditure (EAGGF Guarantee Section) 

In 2006 the number of irregularities reported was up 3% on the previous year (3 249 
cases  in  2006).  The  total  amount  involved  in  2006  was  15%  down,  at  €87 million, 
accounting  for  almost  0.17%  of  total  appropriations  for  the  EAGGF  Guarantee 
Section (€49 742 million for 2006). Suspected fraud accounted for around 10% of all 
irregularities  reported  (€29.8 million,  0.06%  of  total  appropriations,  compared  with 
€21.5 million, or 0.05% of total appropriations in 2005). 

The  highest  number  of  irregularities  reported  related  to  rural  development,  bovine 
sector,  and  fruit  and  vegetables.  Together  these  three  groups  accounted  for  almost 
60%  of  the  total  number  of  reported  irregularities  and  almost  70%  of  the  total 
amount affected by irregularities. 
A  Regulation  adopted  by  the  Commission  in  20069  simplifies  the  procedures  for 
reporting  irregularities  in  the  area  of  agricultural  expenditure  from  2007.  The 
threshold  above  which  Member  States  are  required  to  report  irregularities  to  the 
Commission  has  now  been  brought  into  line  with  the  threshold  for  the  Structural 
Funds (€10 000). 

9 

Precise references to the Regulations mentioned in this chapter are given in the Commission's working 
paper "Statistical evaluation of irregularities", referred to above. 

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Graph  2:  Number  of  irregularities  reported  and  estimated  financial  impact  in  the 
area of agricultural expenditure - years 2000-06 (€million) 

4000 

3500 

3000 

2500 

2000 

1500 

1000 

500 

0 

Number of 
cases reported

Irregular 
amount 

2002 

2003

2004

2005

2006

1.1.3. 

Structural measures 

The  European  Parliament  and  the  Council  adopted  a  series  of  Regulations  for  the 
Structural Funds, for the new 2007-13 programming period. The rules on reporting 
irregularities to the Commission have been retained. The old Regulations continue to 
apply for former programming periods. 

In  2006  the  number  of  irregularities  reported  (3 216  cases,  including  the  Cohesion 
Fund)  was  down  10%  on  the  previous  year  (3 750  cases)  whereas  their  financial 
impact increased by 17% to €703 million in 2006. The estimated financial impact of 
the  irregularities  reported  in  2006  accounts  for  around  1.83%  of  the  Structural  and 
Cohesion  Fund  appropriations  (€38  430  million)  for  2006,  and  suspected  fraud  for 
approximately  16.6%  of  irregularities  reported  (€157.56  million,  around  0.41%  of 
total appropriations, against €205 million, or 0.53% of total appropriations for 2005). 
The final impact will not be known until the programmes have been wound up. 

As in previous years, the ERDF and ESF account for the most irregularities (around 
75%). The number of irregularities reported for the Guidance Section of the EAGGF 
increased  by  38%;  for  the  Cohesion  Fund  and  the  FIFG  it  remained  stable.

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Graph  3:  Number  of  irregularities  reported  and  estimated  financial  impact  for 
structural measures 2002-06 (€million) 

5000 
4500 
4000 
3500 
3000 
2500 
2000 
1500 
1000 
500 
0 

Number of cases 
reported 
Irregular amount 

2002 

2003

2004

2005

2006

1.1.4.  Pre-accession funds 

The number of irregularities concerning PHARE, SAPARD and ISPA funds for 2006 
increased  by  13.6%  (384,  compared  with  338  in  2005).  The  presumed  financial 
impact  of  the  irregularities  increased  for  PHARE  and  SAPARD  but  fell  for  ISPA 
(from  €6.9  million  in  2005  to  €1.2  million  in  2006).  For  2006,  the  total  amount  of 
irregularities  reported  was  down  26%  to  €12.318 million  (from  €16.7  million  in 
2005),  approximately  2.8%  of  the  total  eligible  amounts  for  the  three  funds. 
Suspected  fraud  accounted  for  approximately  14.63%  of  the  irregular  amounts 
reported. The financial impact is estimated at €1.57 million. The financial impact of 
reported fraud for 2000-06 amounts to 0.03% of total allocations to the three funds in 
that period. 

The most frequently reported type of irregularity for each of the pre-accession funds 
was  “non-eligible  expenditure”10.  For  the  PHARE  fund,  the  second  most  common 
irregularity was “unjustified expenditure”11. 

10 

11 

Expenditure is "ineligible" when the commitment criteria laid down by the Member States are not met 
or it is not paid in accordance with the relevant Community and national rules. 
Expenditure  is  "unjustified"  when  it  is  eligible  but  there  are  no  supporting  documents  or  when  the 
money is used for purposes other than those for which it was granted.  

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Graph  4:  Number  of  irregularities  reported  and  estimated  financial  impact  for  the 
accession funds – 2002-06 (€million) 

18000

16000

14000

12000

10000

8000

6000

4000

2000

0

Number of cases
reported

Irregular amount

1

2

3

4

5

1.2. 

Statistics on OLAF's activities 

The number of investigations opened by OLAF following evaluation of information 
received fell (195 in 2006 against 214 in 2005). The decision to open a case is based 
on a preliminary assessment. 

Graph 5: Cases opened following evaluation of information received 

400

350

300

250

200

150

100

50

0

2002

2003

2004

2005

2006

At 31 December 2006 there were a total of 430 investigations in progress, which is 
comparable with the 2005 figure (452 at 31 December 2005). 

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Table 2 : Cases ongoing at 31 December 2006 by sector, and their financial impact 

Sector 

Cases pending at 31 
December 2006 

Estimated financial 
impact (€million) 

Agriculture 

Structural Funds 

Customs 

Direct Expenditure 

Internal Investigations 

Total

65 

46 

111 

118 

91 

431 

202.7 

192.9 

748.9 

293.4 

301 

1 738.8 

For  more  details  concerning  OLAF  investigations  and  comparison  with  previous 
years, see the OLAF Report12. 

2. 

FRAUD PREVENTION 

2.1. 

Risk analysis and management, control systems 

As  part  of a sound  control system,  appropriate assessment and management of risk 
help  ensure  that  taxpayers’  money  is  spent  properly  when  implementing  policies. 
This area is currently being developed within the Commission as well as in Member 
States,  to  ensure  proactive  protection  of  financial  interests,  prevention  and  targeted 
action. 

2.1.1.  Measures relating to expenditure 

For  some  years  the  Commission  has  used  risk  management  not  just  in  relation  to 
expenditure  but  more  generally  too.  Acknowledging  the  need  for  a  common 
approach to risk management13, the Commission has taken a number of steps since 
200614.  The  objective  is  to  improve  the  decision-making  process,  to  increase 
effectiveness  and  to  strengthen  the  reliability  of  management  systems.  In  this 
context,  Commission  departments  now  have  a  common  methodology  for  analysing 
risk  and  choosing  the  right  response.  In  the  latter  part  of  2006,  a  pilot  study  was 
carried  out  to  test  a  structure  meant  to  improve  risk  management  for  several 
departments and bring about more effective management by grouping services. That 
structure is to be put on a permanent footing in 2007. 

12 
13 
14 

http://ec.europa.eu/comm/anti_fraud/reports/index_en.html. 
Communication concerning a roadmap for a framework of integrated internal control, COM(2005) 252. 
Communication to the Commission from Ms Grybauskaité in agreement with the President and Vice-
president  Kallas,  "Towards  an  effective  and  coherent  risk  management  in  the  Commission  services", 
SEC(2005) 1327. 

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At national level all Member States have rules in their budgetary procedures to help 
managers to assess and manage the financial risks involved in awarding grants and 
public contracts, in particular to verify the reliability of potential beneficiaries15. 

The  new  financial  rules  introduced  in  200616  require  to  national  administrations 
establish effective internal control systems and perform the necessary inspections on 
the  EU  funds  they  manage.  This  means  providing  information  and  reporting  each 
year on controls and audits. 

Approximately  half  of  the  Member  States  have  general  national  guidelines 
(instructions  or  good  practices)17  or  rules  on  risk  assessment  and  management  in 
specific fields18. 

Nine Member States have special tools for assessing the risk posed by new recipients 
of public funds. For example, in Ireland additional information not yet available on 
new  applicants  may  be  sought  at  the  grant  assessment  stage.  In  Poland  first-time 
CAP beneficiaries are more likely to be referred for on-site inspection. 

When a beneficiary is identified as posing a risk, this may result in tighter checks by 
the managing authority19 or in a systematic requirement for special guarantees20. 

When a (national or Community) grant or public contract is awarded, applicants are 
required  by  managing  authorities  to  submit  relevant  documents  declaring  that  they 
fulfil  the  criteria.  In  some  Member  States  the  managing  authorities  have  access  to 
specific  databases  to  check  the  accuracy  of  the  declarations  by  applicants;  these 
include  databases  on  tax  (accessible  in  more  than  half  of  the  Member  States21),  on 
financial institutions22 and on persons and corporate bodies ordered to pay penalties 
in  either  administrative23  or  criminal  proceedings24.  In  Hungary,  a  2006  law 
establishes  a  new  creditor  protection  register  to  provide  full  and  up-to-date 
information  on  creditworthiness  and  measures  to  be  taken  by  the  courts  against 
registered companies. 

15 

16 

17 
18 

19 

20 

21 

22 
23 
24 

These rules were established some years ago but have been evolving. Thus, for example, the Spanish 
authorities reported that a 2006 law on subsidies enabled a criminal penalty to be imposed for failure to 
lodge a guarantee when required to do so.  
Council  Regulation  (EC,  Euratom)  No 1605/2002  of  25  June  2002  making  the  financial  regulation 
applicable to the general budget of European Communities, OJ L248/1, 16.9.2002, lastly modified by 
Council Regulation (EC, Euratom) No 1995/2006 of 13 December 2006, OJ L 390, 30.12.2006. 
The Czech Republic, Denmark, Poland, Finland and the United Kingdom. 
Public  procurement:  Ireland,  the  Netherlands,  Poland  and  the  United  Kingdom.  Grants  and  subsidies 
(including  Structural  Funds,  the  Cohesion  Fund,  pre-accession  and  Transition  Facility  programmes): 
Belgium,  the  Czech  Republic,  Malta,  the  Netherlands,  Poland  and  Slovakia.  Agriculture:  Ireland, 
France and Luxembourg. 
Belgium, Denmark, Germany, Ireland, France, Italy, Latvia, Lithuania, Malta, the Netherlands, Austria, 
Poland, Portugal, Slovenia, Slovakia, Finland, Sweden and the United Kingdom. 
Germany and France. Under Maltese law, the authorities may require a guarantee from a person whose 
VAT registration may give rise to a particular risk. 
The  Czech  Republic,  Denmark,  Greece,  Spain,  France,  Italy,  Latvia,  Lithuania,  Hungary,  Austria, 
Poland,  Finland  and  Sweden.  In  Portugal  the  law  on  the  2006  budget  provides  for  publication  of  the 
main tax debtors. 
Denmark, Greece (indirect), France, Lithuania, the Netherlands, Finland and the United Kingdom. 
Greece, France, Italy, Latvia, Lithuania, Austria, Poland, Portugal and Finland. 
The  Czech  Republic,  Denmark,  Greece,  France,  Italy,  Latvia,  Lithuania,  Hungary,  Austria,  Poland, 
Portugal and Finland. 

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2.1.2.  Customs 

The  national  customs  authorities  have  for  a  long  time  been  using  risk  analysis  to 
identify  potential  illegal  activities  and  to  target  controls  more  effectively.  Over  the 
years coordination at European level has improved the effectiveness of actions taken 
by the national authorities. 

In 1997 the Commission presented an action plan for transit in Europe25 to combat 
transit fraud more effectively and in 2001 it drew up a revised regulatory framework 
which  included  the  introduction  of  a  new  computerised  transit  system  (NCTS). 
Following the special report of the Court of Auditors No 11/2006, the Commission 
took  the  necessary  measures  to  ensure  that,  from  2007  onwards,  it  could  access 
NCTS  data  concerning  sensitive  goods  for  the  purposes  of  risk  analysis,  so  that  it 
could promote strategies for targeted physical controls of goods in transit. 

The Commission also continued to improve the ConTraffic system, which provides 
an  overview  of  container  traffic.  The  system  enables  a  container's  itinerary  to  be 
monitored  so  that  suspicious  consignments  can  be  identified.  With  a  new  web 
interface  launched  in  2006  and  a  database  with  over  220  million  entries  relating  to 
more than 4.4 million containers, the system has been used by national authorities to 
help  them  combat  fraud  more  effectively,  particularly  through  joint  customs 
operations carried out in 2006. 

In  December  2006  the  Commission  adopted  a  Regulation26  amending  some  of  the 
implementing  provisions  of  the  Community  Customs  Code.  The  Regulation  also 
provides  for  the  application  of  common  risk  criteria  and  common  priority  control 
areas  and  sets  out  standards  for  the  harmonised  application  of  customs  controls  in 
specific cases. 

2.2. 

Debarment, early-warning and reliability databases 

2.2.1.  At EU level 

In  2006  the  Commission  reviewed  the  European  early-warning  and  debarment 
systems27  with  a  view  to  improving  the  management  of  certain  risks  associated,  in 
particular, with public procurement systems and the protection of the Communities’ 
financial  interests.  In  this  framework,  OLAF  and  Transparency  International  (TI) 
organised  a  round  table  in  January  2006  on  ways  to  protect  the  EU's  financial 
interests with debarment systems28. 

25 
26 

27 

28 

COM(97) 188 final, OJ C 176, 10.06.1997. 
Commission  Regulation  (EC)  No  1875/2006  of  18  December  2006  amending  Regulation  (EEC) 
No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 
establishing the Community Customs Code (OJ L 360, 19.12.2006). 
The  debarment  systems  are  administrative  sanction  systems  whereby  economic  operators  who  find 
themselves  in  one  of  the  situations  covered  by  the  exclusion  criteria  are  debarred  from  certain 
procedures or advantages, such as participation in a public tender or subsidies. The debarred operators 
are listed in a database accessible to the competent authorities. 
Following the meeting, TI drew up a number of recommendations for improving the debarment systems 
within  the  Commission  and  on  the  introduction  of  a  centrally  managed  European  debarment  system 
covering all Community expenditure, including funds under shared management. 

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Article  95  of  the  Financial  Regulation,  as  amended  in  2006,  provides  for  the 
introduction  of  a  central  database  of  organisations  excluded  from  contracts  and 
grants  financed  by  the  EU  budget.  It  is  a  common  database  of  the  institutions, 
executive  agencies  and  bodies  covered  by  Article  185  of  the  Financial  Regulation. 
This database will contain all relevant information on entities convicted of fraud or 
corruption 
the 
implementation  of  EU  programmes.  The  system  will  be  supplied  with  information 
from  partners  authorities  involved  in  implementing  the  Community  budget  in  the 
Member States will also be able to consult it29. 

the  Member  States  and 

third  countries 

involved 

in 

in 

in 

The  Commission  already  has  an  internal  Early  Warning  System  (EWS)  database 
containing information on funds managed directly by the Commission, in compliance 
with the rules on personal data protection. 

The  Commission  also  manages  a  database  for  risk  identification  in  relation  to 
economic  operators  in  the  specific  field  of  the  EAGGF  Guarantee  Section. 
Information for this database is supplied by the Member States. In the second report 
on the application of the Regulation setting up this system30, the Commission refers 
to  problems  with  application,  such  as  the  limited  number  of  irregularities  reported, 
problems with the interpretation of legal concepts, or Member States' fear of having 
legal proceedings brought against them in the national courts by operators entered in 
the database. 

As well as the debarment databases, there are also databases on reliable beneficiaries, 
which  help  to  improve  risk  assessment.  The  Regulation  amending  the  provisions 
implementing  the  Community  Customs  Code31  provides  for  the  status  of  approved 
economic  operator  to  be  granted  to  reliable  operators  who  meet  certain  criteria. 
These approved operators then benefit from simplifications under customs legislation 
and/or customs control facilities. 

2.2.2. 

In the Member States 

The  two  Directives  on  public  procurement  adopted  in  200432  require  that  Member 
States debar any economic operator who has been found guilty of participating in a 
criminal organisation, of corruption, of fraud detrimental to the financial interests of 
the European Community or of money laundering, once a definitive court judgement 
has been handed down. The Directives also provide for the possibility of excluding 
an  economic  operator  who  is  bankrupt  or  being  wound  up,  who  has  suspended 
trading, whose affairs are being administered by the court, who has been convicted of 
a  criminal  offence  affecting  his  professional  standing,  committed  serious 
professional misconduct or not paid social security contributions or taxes. 

29 
30 

31 
32 

This database will be created at the latest by 1 January 2009. 
Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  application  of  the 
Regulation (EC) No 1469/95 (« blacklist »), COM(2005) 520; SEC(2005) 1333 of 20.10.2005. 
See footnote 26. 
Directive  2004/18/EC  of  the  European  Parliament  and  of  the  Council  of  31  March  2004  on  the 
coordination of procedures for the award of public works contracts, public supply contracts and public 
service  contracts  and  Directive  2004/17/EC  of  the  European  Parliament  and  of  the  Council  of 
31 March 2004  coordinating  the  procurement  procedures  of  entities  operating  in  the  water,  energy, 
transport and postal services sectors, OJ L 134, 30.4.2004. 

EN 

14 

   EN 

 
                                                 
In  connection  with  the  recent  developments  in  the  field  of  early-warning  and 
debarment  (blacklisting)  systems,  Member  States  were  asked  to  indicate  what 
databases of risky beneficiaries they had (if any) and to describe one in greater detail. 
It must be stressed that the fact that half of Member States33 do not have this kind of 
database does not mean that they do not have measures or rules in place to identify 
risky beneficiaries (see point 2.1.1.). 

Almost all the databases described aim at prevention (early-warning system)34. Entry 
in  the  database  leads,  for  example,  to  special  guarantees  being  required  or  tighter 
controls.  Seven  of  these  databases35  are  also  (or  purely)  punitive,  i.e.  entry  in  the 
database entails or may entail penalties such as exclusion from public procurement or 
public grants for a limited period. 

All  the  databases  include  information  on  the  legal  person  responsible  for  the 
irregularity in question, and most of them also on the natural persons involved (such 
as  the  person  who  committed  the  irregularity  or  the  manager  of  the  firm)36.  Six 
databases  also  contain  information  on  legal  persons  linked  to  the  legal  person 
responsible for the irregularity (holding company, subsidiary, etc.)37. 

In  all  the  countries  with  tax  databases38  ,  not  being  up  to  date  with  taxes  or  social 
security  contributions  is  considered  a  ground  for  inclusion  in  the  database.  Some 
databases  also  register  beneficiaries  who  are  in  debt39,  those  against  whom 
administrative penalty proceedings have been brought40 or who have been ordered to 
pay an administrative penalty41, those prosecuted for alleged financial offences42 or 
convicted  of  a  financial  offence  (at  first  or  final  instance)43.  In  most  cases  the  tax 
authority decides on inclusion of beneficiaries in or removal from the database44. 

Regarding databases in the area of public procurement45, in Austria beneficiaries are 
entered  in  the  database  if  they  are  ordered  to  pay  an  administrative penalty.  In 
Germany beneficiaries are entered in the corruption register if they are ordered to pay 
an administrative penalty or are convicted of financial offences at final instance. The 
most extensive database seems to be the public works database in Italy, for which all 
of  the  situations  referred  to  above  are  grounds  for  inclusion.  Beneficiaries  are  also 
included in the database if they have failed to comply with the obligations attaching 
to the award of a grant or a public contract. 

33 

34 

35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 

Belgium, the Czech Republic, Estonia, Ireland, Greece, Spain, Hungary, France, Cyprus, Luxembourg, 
the Netherlands, Portugal, Finland and the United Kingdom. 
Denmark,  Slovenia  and  Slovakia  (tax  databases).  Germany,  Italy  and  Austria  (public  procurement 
databases). Lithuania and Poland (Structural Funds and Cohesion Fund). 
Germany, Italy, Austria, Poland, Slovakia and Sweden. 
Except for Poland. 
Germany, Italy, Lithuania, Austria, Slovakia and Sweden. 
Denmark, Slovenia, Slovakia and Sweden. 
Slovakia and Sweden. 
Slovenia and Slovakia. 
Denmark, Slovenia and Slovakia. 
Slovenia and Slovakia. 
Denmark and Slovakia. 
Denmark, Slovenia and Sweden. In Slovakia inclusion or removal is automatic. 
Germany (Berlin), Italy and Austria. 

EN 

15 

   EN 

 
                                                 
The main ground for entering a beneficiary in the databases relating to subsidies46 is 
failure  to  comply  with  the  obligations  attaching  to  the  award47.  Possible  grounds 
include  ongoing  prosecution  for  alleged  financial  offences48  or  final  conviction  of 
financial offences49. 

Amongst the main grounds for removing a beneficiary from the database are that a 
given  time  period  has  elapsed50,  that  the  initial  situation  has  changed51  or  that 
exploratory  proceedings  have  proved  that  no  irregularity  has  occurred52.  In  two 
instances removal from the database is not possible53. 

Concerning  the  right  of  defence,  in  six  Member  States  beneficiaries  are  informed 
when  they  are  entered  in  the  database54.  Sometimes  they  can  appeal  against  the 
decision  to  enter  them55.  Such  appeal  proceedings  can  be  either  administrative56  or 
judicial57. 

Most  of  the  databases  are  centralised58,  others  are  managed  locally.  Four  databases 
are  accessible  to  authorities  other  than  the  one  which  manages  them59.  In  three 
Member  States  the  database  is  also  accessible  to  the  authorities  of  other  Member 
States,  non-EU  countries  or  international  organisations  which  abide  by  equivalent 
data protection rules and apply for access to it60. With the exception of Sweden, the 
databases are not accessible to the public. 

More than half of Member States61 indicated that they have to comply with rules on 
personal  data  protection  in  addition  to  the  Community  regulations  on  the  matter 
(e.g. Constitutional guarantees). 

Member  States  mentioned  several  problems  with  establishing  or  operating  the 
databases,  e.g.  inappropriate  legal  basis62,  the  need  to  demonstrate  a  specific  legal 
purpose to justify the existence of a database63, doubts about which data relating to 
legal and natural persons could be published in the system64, technical problems with 
linking the database to other databases65, problems with identification of companies 

46 
47 
48 
49 
50 
51 
52 
53 
54 
55 
56 
57 
58 

59 
60 
61 

62 
63 
64 
65 

Structural and Cohesion Funds: Lithuania, Malta and Poland. Agriculture: Latvia. 
Latvia, Lithuania and Poland. 
Poland. 
Latvia. 
Denmark, Germany, Austria, Slovenia and Sweden. 
Germany. Article 8(2) of the Corruption Register Act. 
Poland. 
Latvia and Lithuania. 
Denmark, Germany, Italy, Latvia, Lithuania and Sweden. 
Denmark, Germany, Italy, Latvia and Sweden. 
Denmark, Italy and Latvia. 
Germany and Sweden. 
Denmark, Germany (centralised at Land level), Italy, Lithuania, Malta, Austria, Poland, Slovenia and 
Sweden. 
Germany, Malta, Austria and Sweden. 
Denmark (in exceptional cases), Italy and Sweden. 
Germany, Ireland, Greece, Spain, Italy, Latvia, Malta, Austria, Poland, Portugal, Slovenia, Slovakia and 
Sweden. 
Slovakia. 
Austria. 
Lithuania. 
Malta. 

EN 

16 

   EN 

 
                                                 
if they change legal form66 and seeking out all the available information to deal with 
the  complexity  of  risk  assessment67.  The  problems  cited  are  similar  to  the  ones 
described  in  the  Commission's  second  report  on  implementation  of  the  Regulation 
establishing  a  system  for  identifying  operators  presenting  a  risk  in  connection  with 
the EAGGF Guarantee Section68. 

There  are  also  measures  (instruments)  for  reliable  beneficiaries,  such  as  a  specific 
database  on  reliable  beneficiaries  (“whitelist”),  certification  scheme  or  qualitative 
evaluation of results. 

In  Germany  (Berlin),  firms  which  have  proved  their  technical  capacity,  efficiency 
and reliability may apply to be entered in a register of construction contractors and 
construction  suppliers.  Firms  that  have  committed  offences  are  removed  from  the 
register  for  a  limited  period  and  can  be  disqualified  from  being  awarded  public 
contracts. 

In Italy any firm performing public works contracts worth more than €150 000 must 
hold  a  certificate.  Qualified  firms  are  entered  in  a  computerised  register  at  the 
Observatory  for  Public  Works.  A  certificate  (clearance)  is  also  issued  under  anti-
Mafia legislation. 

Though it is not possible to discern a dominant model in the Member States amongst 
the range of databases described above, the examples show what is possible in this 
field. This overview also allows the Commission to consider whether the European 
early-warning  and  blacklisting  policy  needs  improving  and  to  look  at  ways  of 
making the rules and procedures clearer and more transparent. 

2.3.  More transparent EU decision-making in financial management at EU level 

Following  the  European  Transparency  Initiative69,  the  new  Article  30(3)  of  the 
Financial Regulation provides for transparency concerning the beneficiaries of funds 
deriving from the Community budget, irrespective of how those funds are managed. 
An  annual  retrospective  publication  will  be  produced  on  beneficiaries  of  the 
Structural  Funds  starting  in  2008.  This  applies  also  for  the  common  agricultural 
policy,  for  the  expenditures  of  the  European  Agricultural  Guarantee  Fund  (EAGF) 
from  the  financial  year  2008,  and  for  those  of  the  European  Agricultural  Fund  for 
Rural  Development  (EAFRD)  from  the  1st  January  2007.  Some  Member  States70 
applied  this  principle  of  transparency  even  before  the  reform  of  the  Financial 
Regulation.  The  Commission  hosts  a  central  web  portal  with  links  to  the  relevant 

66 
67 
68 

69 
70 

Austria. 
Slovakia. 
Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  application  of 
Regulation (EC) No 1469/95 ("blacklist"), COM(2005) 520; SEC(2005) 1333 of 20.10.2005. 
COM(2006) 194 final. 
For  example,  in  2006  information  on  the  beneficiaries  of  the  common  agricultural  policy  was  made 
available  to  the  public  in  Belgium,  Denmark,  Estonia,  France,  the  Netherlands,  Portugal,  Spain, 
Slovenia, Sweden and the United Kingdom. 

EN 

17 

   EN 

 
                                                 
websites  in  Member  States71.  The  Commission  itself  already  publishes  information 
on the beneficiaries of programmes which it manages directly72. 

Providing the public with access to this financial information enables them to exert 
indirect  control  on  the  way  in  which  the  European  funds  are  spent  which  helps 
ensure a better protection of the Communities’ financial interests. 

2.4. 

Improving accounting and control rules for a positive statement of assurance 

In  January  2006,  the  Commission  adopted  an  action  plan  for  an  integrated  internal 
control  framework73  taking  account  of  the  European  Court  of  Auditors'  opinion 
No 2/200474.  This  action  plan  is  a  contribution  to  the  Barroso  Commission's 
objective of achieving a positive statement of assurance by the Parliament on budget 
implementation. 

Within  this  framework,  the  Commission's  2005  Report  on  the  protection  of  the 
financial interests of the Communities and the fight against fraud75 brought together 
some  information  on  systems  for  certifying  proper  implementation  of  public 
expenditure in the Member States. 

A number of the more significant developments that occurred in 2006 are described 
below76. 

The  new  Council  Regulation  on  the  Structural  Funds  adopted  in  July  2006  for  the 
period  2007-2013,  as  well  as  the  Council  Regulation  (EC)  No  1290/200577  on  the 
financing  of  the  CAP,  introduces  several  improvements  to  simplify  and  clarify  the 
rules,  which  should  provide  the  Commission,  the  Court  of  Auditors  and  the 
Parliament with better guarantees that the money has been well spent. An evaluation 
of  the  Member  States'  control  components,  as  well  as  indicators  of  legality  and 
irregularity, have been set up. 

The  monitoring  of  payment  bodies  has  been  strengthened  where  management  is 
shared, and provision has been made for a regular revision mechanism with regard to 
agriculture and the Structural Funds. 

The  Welsh  and  Austrian  authorities  signed  a  "contract  of  confidence"  with  the 
Commission in 2006. This is a voluntary arrangement between the Commission and 
the authorities of a Member State to guarantee the quality of audit work on current 

71 
72 
73 

74 

75 
76 
77 

http://ec.europa.eu/grants/beneficiaries_en.htm. 
http://ec.europa.eu/public_contracts/beneficiaries_en.htm.  
Communication  from  the  Commission  to  the  Council,  the  European  Parliament,  and  the  Court  of 
Auditors:  Commission  Action  Plan  towards  an  Integrated  Internal  Control  Framework,  COM(2006) 9 
and SEC(2006) 49. The framework of integrated control means monitoring systems and complementary 
control that are sufficient to give a reasonable assurance that the risk of error is properly managed at all 
operational levels. 
Opinion No 2/2004 of the Court of Auditors of the European Communities on the “single audit” model 
(OJ C 107, 30.4.2004). 
COM(2006) 378 final. 
See also the first report on the progress of the Action Plan, COM(2007) 86 final. 
Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural 
policy (OJ L 209, 11.8.2005). 

EN 

18 

   EN 

 
                                                 
programmes under the Structural Funds until 2008. The conclusion of such a contract 
indicates  that  the  Commission  has  obtained  assurances  regarding  the  proper 
functioning of the management and control system, the audit strategy and the quality 
of  the  annual  audit  report.  Negotiations  on  "contracts  of  confidence"  with  other 
Member States are well advanced. 

In  2006,  the  Netherlands  adopted  an  initiative  for  the  provision  of  a  national 
declaration  of  assurance  at  political  level  on  Community  funds  in  line  with  the 
European  Parliament  and  Commission  proposals.  The  Commission  thinks  that  this 
initiative could pave the way for other similar initiatives. 

2.5. 

Hercule action programme to promote activities in the field of the protection of 
the Community's financial interests 

The programme is intended to help to promote activities relating to the protection of 
the  Community's  financial  interests78.  In  June  the  Commission  proposed  amending 
the Hercule programme and extending it to the end of 201379. 

In 2006, the programme awarded cofinancing grants to eleven training projects, five 
seminars, one study on comparative law and 23 technical-assistance projects. 

The  Commission  proposed  increasing  the  programme's  financial  allocation  by 
€44 million  for  the  period  2007-13  (€6  million  for  2007),  in  particular  to  finance 
training measures and equipment purchases to combat cigarette smuggling under the 
cooperation  agreement  signed  with  the  cigarette  manufacturer,  Philip  Morris 
International. 

3. 

COMBATING FRAUD 

3.1. 

Detection  of 
(whistleblowing) 

fraud:  warning 

systems 

involving 

internal 

informants 

Civil  servants  and  other  staff  of  administrative  authorities  are  the  best  placed  to 
realise  what  the  risks  are  and  thus  to  prevent  and  combat  fraud.  The  treatment  of 
whistleblowers has changed considerably in recent years in some Member States, as 
it has in the European Union and various international organisations. 

3.1.1.  European institutions 

In  1999,  the  European  institutions  introduced  rules  requiring  any  official  or  other 
staff member who suspects serious wrong-doing to inform their head of department 
or  Director-General  or,  if  appropriate,  to  go  direct  to  the  Secretary-General  of  the 
Commission or to OLAF80. 

78 
79 

80 

http://ec.europa/anti-fraud/programmes/index_en.html. 
COM(2006) 339. At the time of writing, this proposal had not yet been adopted by the Council and the 
Parliament. 
Article  2  of  the  inter-institutional  agreement  of  25  May  1999  between  the  European  Parliament,  the 
Council  of  the  European  Union  and  the  Commission  concerning  internal  investigations  by  OLAF 
(OJ L 149, 16.6.1999). 

EN 

19 

   EN 

 
                                                 
In 2004, a new article was added to the Staff Regulations of officials of the European 
Communities  and  Conditions  of  Employment  of  other  servants  of  the  European 
Communities.  Article  22a  of  the  Staff  Regulations  incorporates  the  obligation  laid 
down in the 1999 decision81. 

The  Staff  Regulations  also  provide  for  the  protection  of  whistleblowers,  providing 
that:  "an  official  shall  not  suffer  any  prejudicial  effects  […]  as  a  result  of  having 
communicated the information [...] provided that he acted reasonably and honestly." 

Amongst  its  measures  relating  to  good  conduct  on  the  part  of  officials  and  other 
servants  of  the  European  Communities,  the  Commission  provided  its  staff  with 
training  on  how  to  pass  on  information  about  any  potential  fraud  or  other 
irregularities which they may detect. 

In 2006, no OLAF investigations were launched as the result of information received 
direct from a whistleblower. 

3.1.2.  Member States 

In  their  contributions  to  this  report,  all  Member  States  indicated  that  they  had 
adopted  legal  provisions  or  practices  entitling  or  requiring  civil  servants  and  other 
public administration employees to pass on information discovered in the course of 
their duties if they suspect that an irregularity, fraud, corruption or malpractice may 
have  been  committed  in  the  organisation  where  they  work.  These  provisions  and 
practices help to protect public funds, including European funds. 

In most Member States82, it is primarily criminal law provisions which require civil 
servants  to  report  infringements  detected  in  the  course  of  their  duties.  In  addition 
there are also often83 provisions in codes of conduct, circulars and manuals which set 
out rules and procedures for the application of this duty to inform. In eleven Member 
States84,  there  is  no  obligation  under  criminal  law  to  inform  the  authorities  of 
irregularities detected or suspected; the obligation is imposed only by administrative 
law. 

The  obligation  to  inform  is  often  very  general  and  relates  to  any  suspicion  of 
irregularity.  In  some  circumstances  it  is  limited  to  the  most  serious  cases,  such  as 

81 

82 

83 
84 

"Any official who, in the course of or in connection with the performance of his duties, becomes aware 
of facts which gives rise to a presumption of the existence of possible illegal activity, including fraud or 
corruption, detrimental  to the interests of the Communities, or of conduct relating to the discharge of 
professional duties which may constitute a serious failure to comply with the obligations of officials of 
the Communities shall without delay inform either his immediate superior or his Director-General or, if 
he  considers  it  useful,  the  Secretary-General,  or  the  persons  in  equivalent  positions,  or  the  European 
Anti-Fraud Office (OLAF) direct." 
Belgium,  the  Czech  Republic  (where  the  Labour  Code  also  contains  relevant  provisions),  Estonia, 
Greece,  Spain,  France,  Italy,  Luxembourg,  the  Netherlands,  Austria,  Poland,  Portugal,  Slovenia  and 
Slovakia. 
Belgium, Estonia, Spain, Italy, Luxembourg, the Netherlands, Austria, Poland, Slovenia and Slovakia. 
Denmark,  Germany,  Ireland,  Cyprus,  Latvia,  Lithuania,  Hungary,  Malta,  Finland,  Sweden  and  the 
United Kingdom. 

EN 

20 

   EN 

 
                                                 
criminal offences. One Member State85 said that the obligation to inform was greater 
for offences affecting public finances and EU financial interests in particular. 

In all systems but two86, when a staff member becomes aware of a fact that must be 
reported,  the  information  must  be  passed  first  to  his/her  direct  superior  (or  indirect 
superior  where  the  circumstances  justify  it87).  It  is  this  superior  who  passes  the 
information on to the competent authorities where necessary. In some cases the staff 
member  may  also  report  the  facts  directly  to  an  independent  internal  department, 
such  as  the  internal  audit  department88  or  internal  supervisory  authority89,  without 
going via his/her superior. In other cases, as well informing his/her superior, the staff 
member  may  also  inform  an  external  authority  such  as  the  police90,  the  public 
prosecutor's  office91,  the  fund-managing  authorities92  or  an  external  supervisory 
authority93. 

The information may be communicated in different ways: by letter, telephone, e-mail 
or  fax.  In  one  Member  State,  the  informant  must  be  identifiable  when  there  is  an 
obligation  to  report  the  offence94.  In  two  others,  information  can  be  provided 
anonymously95.  In  five  Member  States  information  must  be  submitted  in  writing96. 
Two Member States have Internet97 notification systems, another one has a specific 
e-mail for informants98 and five Member States have set up a free-phone system99. 

In  many  cases,  staff  who  discover  a  serious  irregularity  within  the  administration 
may  fear  reprisals  from  the  people  involved.  To  lessen  this  fear  and  encourage 
informing,  various  kinds  of  protection  are  offered:  protection  against  dismissal100, 
non-liability  for  financial  damage  caused  by  informing101,  non-disclosure  of  the 
identity  of  the  informant102,  protection  by  the  ombudsman  on  request103.  Standard 
employment law may also offer some protection: the requirement that unfavourable 

85 
86 
87 
88 

89 

90 
91 

92 
93 
94 
95 
96 
97 

98 
99 
100 
101 
102 
103 

Spain. 
Greece and Sweden. 
Latvia, the Netherlands and Slovenia. 
Belgium  (Flemish  Region),  Ireland  (for  agriculture)  and  Malta.  In  Sweden,  staff  of  the  Swedish 
National Audit Office must report to the internal audit unit. 
Denmark,  Lithuania  ("irregularities  inspector")  Hungary  ("person  responsible  for  irregularities  within 
the organisation") and Austria (an official responsible for combating corruption). 
Denmark, Italy. 
France,  Italy  and  Slovakia.  In  Greece,  civil  servants  must  report  offences  to  the  public  prosecutor's 
office. 
Latvia, Malta and Poland. 
The Netherlands and Portugal (disciplinary authority). 
Belgium. 
Germany and Slovenia. 
Greece, Italy, Cyprus, Luxembourg and Malta. 
Lithuania  (Structural  Funds  and  Cohesion  Fund).  In  Germany,  Lower  Saxony  and  Hanover  already 
have such a system and a national system is due to be set up soon. 
Poland. 
The Czech Republic, Latvia, Austria, Portugal and the United Kingdom. 
Spain and Ireland. 
Ireland. 
Ireland and Finland. 
Belgium, Flemish Community. 

EN 

21 

   EN 

 
                                                 
decisions  against  an  employee  be  justified104,  the  requirement  that  administrations 
protect their staff against any form of injustice or violence105. 

When a judicial procedure is underway, the informant may ask for witness protection 
under the procedure provided for by the law106, particularly where he/she or another 
person is in serious danger. One Member State107 said that an informant has the right 
to be informed within a reasonable period of the action taken on his report and the 
right to appeal to an independent authority if he/she is not satisfied with the action 
taken. Some legal systems impose further conditions for protecting the informant in 
addition to his/her having acted reasonably and in good faith – for example that the 
irregularity gives rise to a real risk of harm108. 

3.2. 

The European Anti-Fraud Office (OLAF) 

OLAF  was  established  in  1999  to  protect  the  financial  interests  of  the  European 
Union and the reputation of the European institutions. The office was restructured in 
2006 on the basis of experience acquired in the first years of its operation, in order to 
strengthen its effectiveness. 

In  May  2006,  the  Commission  adopted  a  proposal  for  a  Regulation  amending  the 
Regulations  on  OLAF  investigations109  replacing  a  proposal  dating  from  February 
2004110.  This  new  proposal  takes  account  of  the  recommendations  of  the  Court  of 
Auditors and aims at improving the governance and the effectiveness of OLAF, and 
procedural laws. The proposal was transmitted to the Parliament and the Council for 
examination under the co-decision procedure. 

3.3. 

Developing mutual assistance 

A  proposal  for  a  Regulation  amending  the  Regulation  on  mutual  assistance  on 
agriculture  and  customs  matters111  adopted  by  the  Commission  in  December 2006 
proposes  extending  the  customs  information  system  database112  to  enable  it  to  be 
used in national analysis systems so that controls on goods can be targeted and action 
coordinated  at  Community  level.  The  only  way  to  prevent  crime  growing  in  these 
fields  is  to  constantly  improve  the  available  instruments  or  innovate.  The  proposal 
aims to improve operational cooperation on customs matters and provide an interface 
between  customs  authorities,  regional  and  international  organisations  (Interpol,  the 
WCO113 and Europol etc.) and EU bodies and agencies. It provides for the creation 

104 
105 
106 
107 
108 
109 

110 
111 

112 
113 

Denmark and Latvia. 
France and Austria. 
Czech Republic, Luxembourg, Portugal, Slovenia and Slovakia. 
The Netherlands. 
Latvia and Austria. 
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EC) 
No 1073/1999  concerning  investigations  conducted  by  the  European  Anti  Fraud  Office  (OLAF) 
COM(2006) 244 final. 
COM(2004) 103 and 104. 
COM(2006) 866  amending  Council  Regulation  (EC)  No  515/97  on  mutual  assistance  between  the 
administrative authorities of the Member States and cooperation between the latter and the Commission 
to ensure the correct application of the law on customs and agricultural matters, OJ L 82, 22.3.1997. 
CIS - Customs Information System. 
World Customs Organisation. 

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of a customs file identification database114 and a European central directory of data 
from the principal service providers worldwide for the international carriage of goods 
and  containers115.  It  establishes  a  legal  basis  for  the  management  of  a  permanent 
infrastructure  for  coordinating  joint  customs  surveillance  operations,  making  it 
possible for representatives or liaison officers of the Member States to be hosted at 
OLAF during the operational phase. 

An amended  proposal adopted in September 2006116 aims to establish a new, more 
complete  and  multidisciplinary  mutual  administrative  assistance  framework  for  the 
protection  of  the  financial  interests  of  the  European  Community  against  fraud  and 
any  other  illegal  activities.  For  this  purpose,  the  proposed  Regulation  requires 
Member  States  and  the  Commission  to  cooperate,  coordinate  and  assist  each  other 
and exchange information  to  allow swift investigations and appropriate action. The 
proposal  does  not  give  the  Commission  any  investigative  powers  of  its  own,  but 
offers  Commission  assistance  to  the  Member  States  (service  platform)  for  cases  of 
cross-border fraud, like carousel frauds with VAT. The proposal sets out to optimise 
the  use  of  information  available,  for  example  by  using  financial  information  from 
anti-money  laundering  for  the  fight  against  fraud  detrimental  to  the  Community's 
financial interests. 

3.4. 

Combating cigarette smuggling and counterfeiting 

In 2006, six more Member States117 signed up to the Agreement concluded in 2004 
between  the  Commission,  ten  Member  States118  and  the  cigarette  manufacturer, 
Philip  Morris  International  (PMI);  by  the  end  of  December  2006,  twenty-four 
Member  States  were  parties  to  the  Agreement119.  The  United  Kingdom  is  now  the 
only  Member  State  which  has  not  signed  up  to  the  Agreement.  The  Agreement 
provides for an effective system to combat cigarette smuggling and counterfeiting. It 
improves the exchange of information between the parties on seizures of smuggled 
or counterfeited cigarette consignments (bearing Philip Morris trademarks) and day-
to-day communication between them on operations covered by the Agreement. 

Among  the  principal  aspects  of  the  Agreement  are  the  “tracking  and  tracing” 
protocols  on  cooperation  between  OLAF  and  the  Member  States  on  one  side  and 
PMI  on  the  other.  This  cooperation  involves  tracking  and  tracing  cigarettes  to 
determine where they left the supply chain and fell into the hands of smugglers. 

Under  the  agreement,  approximately  USD 1 billion  will  be  paid  over  a  period  of 
twelve years to the European Communities and the ten Member States that signed the 
Agreement in July 2004. Between the signing of the agreement and the end of 2006 
PMI  paid  out  approximately  USD 425 million.  In  October  2006  the  original  ten 
signatory  Member  States  and  the  Commission,  acting  for  the  EC,  confirmed  their 
agreement  on  the  distribution  of  these  payments.  The  amount  paid  into  the 

114 
115 
116 
117 
118 
119 

FIDE – Customs File Identification Database. 
EU Container Targeting System. 
COM(2006) 473. 
Cyprus, the Czech Republic, Estonia, Latvia, Hungary and Sweden. 
Belgium, Germany, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and Finland. 
With Romania and Bulgaria, which joined the Agreement in March 2007, the number is twenty-six. 

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23 

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Community budget is 9.7% of the amount received, the rest being transferred to the 
Member States’ budgets. 

3.5. 

Protecting the euro 

The Commission continued to coordinate the efforts of the Member States to protect 
the euro against counterfeiting in close cooperation with Europol and the European 
Central Bank. 

OLAF  also  manages  the  Pericles  action  programme  for  exchanges,  assistance  and 
training  intended  to  protect  the  euro  against  counterfeiting120.  This  programme  co-
finances  trans-national  and  multidisciplinary  projects.  It  is  intended  to  raise 
awareness among the staff concerned with the Community dimension of the euro, to 
bring the structures and staff concerned closer together and to develop a climate of 
mutual trust, to achieve similar high standards of training for trainers and to expand 
general knowledge, particularly with regard to relevant Community and international 
law and instruments. In 2006 twelve projects were launched, including nine proposed 
by 
the 
Commission/OLAF. 

the  competent  authorities  of 

the  Member  States  and 

three  by 

In view of its success, the programme was extended to the end of 2013121. 

3.6. 

Initiatives taken by certain Member States in 2006 

Several Member States stated that they had adopted new laws to combat VAT fraud 
in 2006. In Denmark, stricter rules are now applied for the activation of guarantees 
and  liquidation  of  companies  involved  in  carousel-type  fraud.  Italy  adopted  a  law 
imposing  more  severe  criminal  penalties  for  VAT  fraud.  In  Slovenia,  a  "missing 
trader"  may  now  be  penalised  by  cancellation  of  its  VAT  registration.  A  new 
Portuguese law introduces measures to combat VAT fraud in the waste sector. Some 
Member  States  have  taken  measures  to  reinforce  joint  liability  for  non-payment  of 
VAT122. 

The  Czech  Government  adopted  a  resolution  on  the  anti-corruption  strategy  for 
2006-11. 

Some Member States adopted bilateral agreements on mutual assistance in customs 
matters with other Member States or with third countries in 2006123. 

120 
121 

122 

123 

http://ec.europa/anti-fraud/programmes/pericles/2006/index_en.html. 
Council Decision 849/2006 of 20 November 2006 modifying and extending the Decision 2001/923/EC 
establishing an action programme for exchanges, assistance and training is intended to protect the euro 
against counterfeiting (Pericles programme). 
Belgium and Denmark with regard to the liability of company directors, and Spain regarding the joint 
liability of consortia. 
Belgium signed agreements with Belarus and Congo, Portugal with Spain, and Slovakia with Slovenia, 
Albania and Israel. 

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4. 

RECOVERY 

4.1. 

Agriculture 

4.1.1.  The work of the Task Force Recovery 

In 2002, the Commission announced the setting-up of a Task Force Recovery (TFR) 
to  examine  the  considerable  backlog  of  recovery  cases  concerning  the  EAGGF 
Guarantee Section. 

The Agriculture and Rural Development Directorate-General and OLAF's joint TFR 
was  responsible  for  463  cases  involving  more  than  €500 000  each  and  3 227  cases 
involving  less  than  €500 000  each,  following  an  irregularity  reported  to  the 
Commission  prior 
to  TFR's  work  at 
to  1999.  The  situation  with  regard 
31 December 2006 can be summarised as follows. 

(a) Cases involving more than €500 000 each.  

On  3  October  2006,  a  first  formal  Commission  Decision124  was  taken  concerning 
financial liability in 349 cases of non-recovery totalling approximately €895 million. 
This Decision cleared from the debtors' lists: 

– 

– 

– 

41  cases  involving  €176 million,  charged  to  the  Community  budget 
because  the  Member  States  had  taken  all  necessary  measures,  which 
meant that the non-recovery could not be attributed to them; 

164 cases involving €317 million, charged to the relevant Member States 
as a result of negligence on their part in the recovery procedure; 

144  cases  involving  approximately  €402 million,  removed  from  the 
debtors' list as non-cases or double entries. 

Clearance has yet to take place for the 114 cases remaining. 

– 

– 

59 cases, involving €111.9 million, in which the Commission found that 
the  Member  States  concerned  had  shown  due  diligence  in  the  recovery 
procedure, which was still ongoing; 

55 cases  totalling  €128.6 million  in  which  the  clearance  of  accounts 
procedure is still ongoing but should be completed in 2007. 

In  addition,  on  13 October 2006,  the  Commission  adopted  a  decision125  concerning 
€6 653 487  for  50  cases  concerning  Belgium,  Germany,  Ireland,  France,  the 
Netherlands,  Portugal  and  the  United  Kingdom.  This  sum  was  charged  to  the 
Community budget as the Member States had shown due diligence in their recovery 
efforts. 

124 
125 

Commission Decision 2006/678/EC of 3 October 2006 (OJ L 278, 10.10.2006, p. 24). 
C(2006) 4801. 

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25 

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involving 

(b)  Cases 
less  than  €500 000  each.  Regulation (EC) 1290/2005 
introduced an automatic clearance mechanism for irregular payments not recovered 
within  four  years  of  the  primary  administrative  or  judicial  finding  or  within  eight 
years where recovery action is taken in the national courts. In that case, 50% of the 
financial consequences of non-recovery are borne by the Member State in question 
and 50% by the Community budget. 

The  new  mechanism  has  been  in  operation  since  16 October 2006  and  covers  all 
cases of non-recovery open at that date, including the 114 cases referred to above and 
cases  reported  by  the  Member  States  before  31 December 1998  involving  less  than 
€ 500 000  each.  Accordingly,  all  irregularities  from  before  2003  (1999  where 
recovery  action  is  taken  in  the  national  courts)  involving  money  not  recovered  by 
16 October 2006  were  cleared  in  2007  using  the  50%-50%  rule.  The  Commission 
applied  the  rule  for  the  first  time  in  the  account-clearance  decision  adopted  in 
April 2007126. 

4.1.2.  Financial corrections 

In addition to the recovery activity described above, the Commission also excluded 
certain  expenditure  incurred  by  Member  States’  approved  paying  agencies  from 
financing under the EAGGF-Guarantee section, because they were not in conformity 
with  Community  rules.  Following  checks  and  bilateral  meetings  between  the 
Commission  and  the  competent  authorities  of  thirteen  Member  States,  the 
Commission excluded expenditure of some €575.5 million from European financing 
in three 2006 decisions127. 

The Commission also excluded expenditure of more than €500 000 from Community 
financing with regard to the SAPARD agencies of two countries128. 

4.2. 

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  Commission  level  can  be  done  by  reduction  or  cancellation  of  the  financial 
contribution with the possibility of a transfer of funds to other operations. 

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 1994-99 programming period, the deadline for 
presentation of the request for final payment to the Commission was 31 March 2003. 
In  that  period,  the  Community  cofinanced  around  1 000  programmes  worth  around 
€159 billion  in  total129.  The  Commission’s  authorising  and  managing  departments 
(DGs REGIO, EMPL, AGRI, FISH), assisted by the European Anti-Fraud Office, are 
responsible for administrative and financial follow-up once these programmes have 

126 
127 

128 
129 

Commission Decision 2007/327/EC of 27 April 2007, OJ L 122, 11.5.2007. 
Decision 2006/334/EC, 2006/554/EC and 2006/932/EC, OJ L 124, 11.5.2006, OJ L 218, 9.8.2006 and 
OJ L 355, 15.12.2006. 
Commission Decisions C(2005)3702 and C(2006)2405, not published in the Official Journal. 
These  are  multiannual  programs.  This  figure  does  not  include  projects  directly  financed  under  the 
Structural Funds and projects co-financed under the Cohesion Fund. 

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26 

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been concluded. This follow-up is based in particular on the reports of irregularities 
sent  in  by  the  Member  States  in  accordance  with  Regulation  No 1681/94130  and 
recorded in the External Communications Registry database. 

In the 1994-99 programming period, the Member States communicated 11 573 cases 
of  irregularities  with  a  financial  impact  of  approximately  €1.452  billion131  for  the 
Community contribution. 

Of  these  cases,  5 488  have  been  closed  definitively  at  Commission  level  and  the 
amount of €600 million was taken into account during final payment. Member States 
informed  the  Commission  that  administrative  and  judicial  procedures  had  been 
concluded at national level for a further 2 016 cases relating to the same period, with 
a  financial  impact  of  €173 million.  The  Commission  departments  have  started 
reconciliation procedures with a view to closing these cases. 

Concerning  the  2000-06  programming  period,  the  Member  States  have  so  far 
communicated 8 733 cases of irregularities with a financial impact of approximately 
€1.156 billion for the Community contribution. 

Member  States  have  informed  the  Commission  that  administrative  and/or  judicial 
procedures  have  been  concluded  at  national  level  for  3 686  of  these  and  that 
some €345 million has been recovered. 

In  2006,  the  financial  correction  figure  was  €502 million  for  the  1994-99 
programming  period  and  €521 million  for  the  2000-06  period.  The  financial 
corrections are the result of audits by the Commission and the Court of Auditors and 
the  closure  procedure  for  programmes  from  the  1994-99  period.  They  consist  of 
official  financial  correction  decisions  following  the  detection  of  an  irregularity, 
decommitments  on  programme  closure  resulting  in  a  reduction  in  Community 
financing because the  Member  State did not declare sufficient eligible expenditure, 
and  reimbursement  of  amounts  recovered  following  the  completion  of  court  cases 
still  pending  when  the  programmes  in  question  were  closed.  The  figures  do  not 
include financial corrections that did not result in recovery, such as corrections made 
when  a  Member  State  detected  an  irregularity  or  accepted  the  financial  correction 
proposed  by  the  Commission  and  the  irregular  amount  was  reallocated  to  another 
project. 

4.3. 

Own resources 

The  Member  States  must  recover  established  amounts  relating  to  irregularity  cases 
registered in the OWNRES system. On 30 March 2007, the recovery rate for cases 
communicated in 2006 was 32% (approximately €113 million). 

For  various  reasons,  it  is  possible  that  the  amount  initially  established  may  not  be 
recovered  in  full,  in  spite  of  the  Member  States'  efforts,  for  example  when  the 
amount becomes irrecoverable because of the insolvency of the debtor, or when it is 
modified because of new information received or following judicial proceedings. 

130 
131 

OJ L178, 12.7.1994. 
Situation according to the data contained in the ECR database at 18 May 2007. 

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27 

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When non-recovery of an established debt is not attributable to a Member State, the 
Member State may request that the irrecoverable amount be written off. In 2006, the 
Commission  refused  Member  States'  write-off  requests  in  59  cases,  worth 
approximately €4.6 million, because it deemed that non-recovery was attributable to 
the Member States. 

Moreover,  certain  Member  States  were  held  financially  responsible  for  a  total  of 
some €33.4 million because they did not establish customs debts where they should 
have. 

4.4. 

Recovery following an OLAF investigation 

Where an OLAF investigation finds that certain sums have probably been paid to a 
beneficiary  against  the  rules  or  that  sums  that  should  have  been  collected  have  not 
been, the relevant authorities (generally the authorities in the Member States or third 
countries  concerned)  must  recover  the  amounts  in  question.  In  2006,  almost 
€114 million was recovered following OLAF investigations. 

Table 4: Recovery following an OLAF investigation 

Sector 

Customs 

Agriculture 

Structural Funds 

Direct expenditure 

Internal investigations 

Total 

Recovery 2006 

0.1 

1.2 

17.2 

93.1 

2.2 

113.8 

4.5. 

National legislation on the recovery of EU funds 

The last annual report gave an overview of the Member States' recovery procedures. 
Analysis  of  the  contributions  showed  that  recovery  by  offsetting,  generally 
understood  to  mean  clearing  a  claim  and  a  debt  which  cancel  each  other  out,  is 
possible  in  nearly  all  the  Member  States  for  public  funds.  Offsetting  is  a  very 
effective  way  of  recovering  public  funds,  which  is  why  the  2006  questionnaire  set 
out to clarify some aspects of the mechanism. 

In principle, all legal systems provide for the offsetting of a debt and a claim which 
fall under the same Community fund132. However, this does not apply where the debt 

132 

However,  in  some  Member  States  (Czech  Republic,  Greece,  Luxembourg,  Hungary  and  Malta) 
offsetting is limited to the agricultural sector. 

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28 

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and  the  claim  fall  under  different  Community  funds;  in  this  case  offsetting  is  only 
possible in half of the Member States133. 

Within the Guarantee Section of the EAGGF, offsetting a debt and a claim relating to 
different agricultural sectors is possible under nearly all the national legal systems134. 
Those  Member  States  which  use  offsetting  for  the  Structural  Funds  and  Cohesion 
Fund  generally  only  apply  it  within  the  same  programme.  Offsetting  is  possible 
between  different  programmes  in  just  ten  Member  States135.  It  is  possible  between 
different programming periods in just ten Member States136. In four Member States, 
offsetting  is  possible  even  where  the  recovery  and  the  payment  do  not  come  under 
the same paying agency137. 

In  most  Member  States  a  Community  debt  and  a  national  claim  can  be  offset  and 
vice versa138. 

Some  Member  States  have  statistics  on  their  recovery  practices,  which  they 
communicated to the Commission in the context of this report. They show that some 
Member  States  use  offsetting  regularly.  For  example,  over  the  last  three  years 
recovery  by  offsetting  accounted  for  between  75%  and  90%  of  all  public  funds 
recovered  in  the  agricultural  sector  in  Ireland,  between  73%  and  94%  for  livestock 
premiums in France, approximately 90%  in the  agricultural  sector  in  Austria,  more 
than  50%  in  the  agricultural  sector  and  between  21%  and  93%  for  the  European 
Social  Fund  in  Sweden139.  These  figures  include  national  funds  but  a  considerable 
proportion is accounted for by European funds recovered by offsetting. 

While offsetting is used extensively in some Member States to recover Community 
funds, it is used much less in other Member States, even though it would be legally 
possible  under  certain  conditions.  The  Commission  can  only  encourage  the  use  of 
this  very  effective  instrument  for  recovering  Community  funds  wherever  possible. 
To  increase  the  use  of  offsetting,  the  authorities  responsible  for  recovery  could  be 
given access to databases, such as those belonging to other paying agencies or central 
databases, as is already the case in some Member States140. 

133 

134 

135 

136 

137 
138 

139 
140 

Belgium (Flemish Government), Denmark, Germany, Ireland (between the two sections of the EAGGF, 
but  not  used  in  practice),  Spain,  France  (between  the  two  sections  of  the  EAGGF),  Italy,  the 
Netherlands, Poland (where the funds are managed by the same body), Portugal, Slovakia and Sweden. 
Exceptions:  Estonia,  Malta  and  Slovenia.  In  Austria,  offsetting  is  possible,  but  only  within  the  same 
paying agency. 
Belgium,  Denmark,  Germany,  Ireland,  Spain,  Italy,  the  Netherlands,  Poland,  Portugal  and  the  United 
Kingdom. 
Belgium,  Denmark,  Germany,  Ireland,  Spain  ,  Italy,  the  Netherlands,  Poland,  Finland  and  the  United 
Kingdom.  
Belgium (Flemish Region), Denmark, Germany and Italy. 
It is not possible in Greece, Latvia, Lithuania, Malta, the Netherlands, Austria, Finland, Sweden or the 
United Kingdom. In some Member States, this type of offsetting is confined to the agricultural sector. 
In Slovenia and Slovakia it is possible to offset a debt to the Community budget with a national claim, 
but not the other way round. 
For all the statistics provided by the Member States, see SEC(2007) 930. 
Belgium  (Walloon  Region),  Czech  Republic,  Denmark,  Estonia,  Greece,  France,  Italy,  Latvia, 
Lithuania, Poland, Sweden and the United Kingdom. 

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