REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union's financial interests-Fight against fraud-Annual Report 2010
Date: 2011-09-29
Institutions: European Commission
Subjects: EU programme, European Anti-fraud Office, agricultural expenditure, economic and social cohesion, financial cooperation, fraud against the EU, fund (EU), pre-accession aid, reimbursement of aid, tax evasion

EUROPEAN COMMISSION 

Brussels, 29.9.2011 
COM(2011) 595 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Protection of the European Union's financial interests-Fight against fraud-Annual 
Report 2010 

{SEC(2011) 1107 final} 
{SEC(2011) 1108 final} 
{SEC(2011) 1109 final} 

 
 
 
 
  
 
TABLE OF CONTENTS 

Executive Summary ................................................................................................................... 4 

Introduction ................................................................................................................................ 6 

1. 

1.1. 

Reported cases on fraud and other irregularities.......................................................... 8 

Analysis of the reporting on fraud and other irregularities by the Member States and 
Commission services in 2010....................................................................................... 8 

1.2. 

Revenues .................................................................................................................... 11 

1.2.1.  Traditional own resources (TOR) .............................................................................. 11 

1.2.2.  VAT............................................................................................................................ 12 

1.3. 

Expenditure ................................................................................................................ 13 

1.3.1.  Agricultural expenditure ............................................................................................ 13 

1.3.2.  Cohesion Policy ......................................................................................................... 15 

1.3.3.  Pre-accession funds.................................................................................................... 17 

1.3.4.  Expenditure directly managed by the Commission ................................................... 19 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

2.5. 

3. 

4. 

Recovery of irregular amounts in 2010...................................................................... 20 

Traditional own resources .......................................................................................... 21 

Agriculture ................................................................................................................. 21 

Cohesion policy.......................................................................................................... 22 

Pre-accession funds.................................................................................................... 22 

Expenditure directly managed by the Commission ................................................... 22 

Results of the questionnaire about cooperation with the Member States concerning 
the risk of double financing of projects in the area of cohesion policy ..................... 24 

Anti-Fraud Policies .................................................................................................... 25 

4.1. 

Implementation of anti-fraud policy initiatives in 2010 ............................................ 25 

4.1.1.  Hercule II programme ................................................................................................ 25 

4.1.2.  Customs...................................................................................................................... 25 

4.1.3.  State of ratification of the Convention on the protection of the EU financial interests

.................................................................................................................................... 26 

4.1.4.  Commission anti-fraud policy in the context of enlargement.................................... 26 

4.1.5.  Commission anti-fraud policy in the framework of the European Neighbourhood 

policy.......................................................................................................................... 27 

4.1.6.  Fight against Illicit Trade in Tobacco Products ......................................................... 27 

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4.2. 

New anti-fraud policy initiatives................................................................................ 28 

4.2.1.  Reform of OLAF........................................................................................................ 28 

4.2.2.  Multi-annual Commission Anti-fraud Strategy (CAFS)............................................ 28 

4.2.3.  Communication on the protection of the financial interests of the EU by criminal law 
and by administrative investigations.......................................................................... 28 

4.2.4.  Communication on Fighting Corruption in the EU.................................................... 28 

4.2.5.  EU Green Paper on public procurement rules............................................................ 29 

4.2.6.  Action plan to fight against smuggling of cigarettes and alcohol along the EU Eastern 
border ......................................................................................................................... 29 

General conclusion................................................................................................................... 29 

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EXECUTIVE SUMMARY 

The Commission presents, in cooperation with the Member States, this Annual Report on the 
Protection of the EU’s Financial Interests under Article 325 of the Treaty on the functioning 
of the European Union.  

The  purpose  of  this  Report  is  to  assess  the  extent  to  which  EU  funds  are  at  risk  of  misuse 
through irregularities (including fraud) and to explain what is being done to address the issue. 
It covers both the expenditure and the revenue of the European Budget.  

Recent initiatives to protect the financial interests of the EU 

The  Commission  has  recently  taken  a  number  of  initiatives  to  improve  the  legal  and 
administrative framework for the protection of the EU’s financial interests: 

– 

– 

– 

An amended proposal for a reform of the European Anti-Fraud Office (OLAF); 

The Commission Anti-Fraud Strategy (CAFS); 

The Communication on the protection of the financial interests of the EU by criminal 
law and administrative investigations.  

Irregularities affecting the Budget 

The analysis in this Report is based on data supplied by Member States, with the exception of 
the part dedicated to expenditure managed directly by the European Commission (EC).  

For  the  reporting  year  the  overall  financial  impact1  of  irregularities  detected  by  control 
systems  in  the  area  of  expenditure  amounts  to  €1.8  billion  (1.27  %  of  the  allocations),  as 
compared to €1.4 billion (1.13% of total alloca tions) in 2009. On the revenue side, the overall 
financial  impact  of  irregularities  is  also  higher  than  in  2009:  €393  million  ( 1.88%  of  total 
collected  Traditional  Own  Resources,  gross)  as  compared  to  €357  million  (1.84%  of  total 
collected Traditional Own Resources, gross).  

Overall figures for 2010 indicate that the number of irregularities reported has increased for 
all sectors, with the exception of the pre-accession funds and Traditional Own Resources. The 
main reasons for this increase are the cyclical character of the programming of the Cohesion 
Funds, especially the closure of the 2000 – 2006 implementing period, and an overall increase 
in the volume and speed of reporting by (most) Member States following the implementation 
of the improved reporting system, known as the Irregularities Management System (IMS). 

Member States are required to report irregularities which they have identified and to indicate 
where these may constitute suspected fraud. The systems for reporting have been modernised 
and  improved,  which  has  led  to  an  overall  improvement  in  the  quality  of  reporting.  This  in 
turn has led to an increase in the coverage and reliability of the analysis.  

While  the  overall  picture  is  relatively  reassuring,  and  demonstrates  in  particular  that  the 
Commission  has  the  structures  in  place  to  deal  with  irregularities,  it  is  clear  that  there  are 

1 

The financial impact represents the amount of public contribution affected by the irregularities. 

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significant  differences  in  the  approaches  adopted  by  Member  States  to  the  process  of 
reporting  irregularities.  In  some  instances,  these  approaches  call  the  adequacy  of  national 
reporting  systems  into  question.  These  are  indicated  in  detail  in  the  Report  and  in  the 
Commission Staff Working Paper Statistical Evaluation of Irregularities. It is also clear from 
the analysis of the threat of fraud that the need to combat criminal fraud continues to be very 
real and remains at the top of the agenda. 

It is also essential for the minority of Member States which are not yet using the electronic 
reporting system fully to do so as soon as possible.  

Improvement of anti-fraud systems  

Among  the  global  amount  of  expenditure  affected  by  irregularities,  the  estimated  financial 
impact  of  cases  of  suspected  fraud  in  expenditure  has  increased  from  €180  million  in  2009 
(0.13% of allocations) to €478 million  in 2010 (0. 34% of allocations).  

Certain  Member  States  continue  to  report  very  low  suspected  fraud  rates.  These  Member 
States are invited to report on the manner in which the control systems are adapted to target 
areas where there is a high-risk of fraud and irregularities. 

The Commission intends to analyse the irregularity and anti-fraud control systems put in place 
by the Member States in the area of Cohesion Policy. The initial results of this analysis will 
be published in the Annual Report on the protection of the EU financial interests for the year 
2011. 

Improvement in recovery procedures: 

It is necessary to increase the efficiency of the recovery process, in particular in the area of 
Pre-accession funds. The Commission urges Member States and countries with low recovery 
rates to speed up procedures, make use of the available legal instruments and guarantees when 
irregularities are detected and seize assets in cases where debts are not paid.  

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INTRODUCTION 

This  Report  presents  information  relating  both  to  financial  mismanagement  and  to  criminal 
fraud, so that the reader can appreciate the overall context. In a wider sense, it also addresses 
measures intended to deter mismanagement and fraud and to improve systems both at EU and 
Member State level. 

The  Treaty  clearly  states  that  the  EU  and  the  Member  States  share  responsibility  for  the 
protection  of  the  EU’s  financial  interests  and  the  fight  against  fraud.  National  authorities 
manage four-fifths of EU expenditure and collect Traditional Own Resources2. In these areas, 
the  Commission  exercises  overall  oversight,  sets  standards  and  verifies  compliance.  Close 
cooperation between the Commission and the Member States is essential.  

A prime objective of this Report is therefore to assess the extent to which this cooperation has 
been achieved, as illustrated by the available data, and how such cooperation could be further 
improved.  

As in previous years, this Report includes both the latest information on irregularities detected 
by control systems and suspected fraud and on measures taken to deal with these, and a one-
off  analysis  of  a  special  topic.  This  year’s  special  topic,  agreed  in  advance  between  the 
Commission and the Member States, is ‘the risk of double financing in the area of cohesion 
policy”. Member States have contributed to the analysis via a questionnaire.  

This Report contains information derived from those irregularities and instances of suspected 
fraud  which  are  reported  by  Member  States.  It  does  not  estimate  the  actual  level  of 
irregularities  and  fraud  in  individual  Member  State  as  the  European  Parliament  has 
requested3. This is due to the fact that the Commission is not in a position to estimate actual 
levels of irregularities or fraud because of the extent and nature of available information and 
data received from the Member States.  

However,  the  Commission  is  willing  to  discuss  with  the  Member  States  the  possibility  of 
measuring  actual  levels  of  irregularities  and  fraud,  particularly  where  they  may  already 
undertake such exercises for their own purposes.  

The report is sent to the European Parliament and the Council, and is published4. It is in four 
parts: 

The  first  part  analyses  the  reporting  on  irregularities  detected  by  the  Member  States  in 
respect  of  those  areas  where  Member  States  implement  the  budget  (agricultural  policy, 
cohesion  policy  and  pre-accession  funds)  and  of  the  collection  of  the  EU’s  traditional  own 
resources. It also analyses irregularities in expenditure managed directly by the Commission.  

The second part focuses on recovery of irregular amounts in 2010. 

2 
3 

4 

These are mainly customs and agricultural duties, but also include anti-dumping duties and sugar levies.  
E.g. the European Parliament resolution of 6 April 2011 on the protection of the Communities' financial 
interests – Fight against fraud – Annual Report 2009 (2010/2247(INI)), point 3. 
Previous years’ reports: http://ec.europa.eu/anti_fraud/reports/anti-fraud_en.html. 

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The  third  part  considers  this  year’s  special  topic,  namely  the  risk  of  double  financing  of 
projects  in  cohesion  policy.  It  also  discusses  the  follow-up  measures  to  previous  anti-fraud 
reports. 

The final part of the report presents an overview of the anti-fraud policies implemented in 
2010  and  of  the  new  initiatives  taken  to  ensure  effective  protection  of  the  EU's  financial 
interests against fraud and other illegal activities. 

The report is accompanied by three Commission Staff Working Papers5. 

5 

For references, see cover page of the report. 

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1. 

REPORTED CASES ON FRAUD AND OTHER IRREGULARITIES 

In  order  to  understand  the  data,  it  is  essential  to  distinguish  between  fraud  and  other 
irregularities: 

Irregularity is any infringement of an EU provision by an economic operator which has, or 
would have, the effect of prejudicing the EU’s financial interests6.  

Fraud  is  an  irregularity  committed  intentionally  with  the  intention  of  illicit  gain  which 
constitutes  a  criminal  offence7.  The  Member  States  are  required  to  identify  those  reported 
irregularities in which they suspect fraud. The actual financial impact of identified fraud can 
be measured only at the end of legal proceedings. 

Errors detected by the European Court of Auditors (ECA) are used by the ECA to establish 
error rates on the basis of a sample number of transactions. Error is not a term defined in anti-
fraud8.  The  statistics  in  this  annual  Report  reflect  the  actual  number  of  irregularities  and 
suspected  frauds  reported  by  Member  States  to  the  Commission  or  detected  by  the 
Commission. The approaches of the Commission and the ECA are therefore not comparable.  

The data in this Report must be interpreted with cautions. The actual levels of irregularity are 
not known or estimated and therefore not given, but they are higher than the reported levels 
which are indicated. Equally, actual levels of fraud are not known or estimated. The figures 
given are for the levels of suspected fraud declared by Member States (including confirmed 
fraud). These levels of fraud  suspected do not correspond to fraud confirmed as such at the 
conclusion  of  criminal  proceedings,  often  many  years  later.  This  Report  does  not  contain 
specific  data  on  the  latter.  All  the  irregularities  reported  are  subject  to  different  forms  of 
follow-up, by the Commission and the Member States. 

1.1. 

Analysis  of  the  reporting  on  fraud  and  other  irregularities  by  the  Member 
States and Commission services in 2010 

Member  States  are  required  by  EU  law  to  report  suspicions  of  fraud  and  other  detected 
irregularities  affecting  the  EU  financial  interests  in  those  areas  where  Member  States 
implement the Budget, and for the collection of the EU’s traditional own resources. The main 
expenditure sectors involved are Agriculture and Cohesion Policy. All irregularities involving 
more than €10,000 of EU resources mu st be reported to the Commission.9 

6 

7 

8 

9 

Article 1(2) of 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). 
Article  1(1)(a)  of  the  Convention  of  26  July  1995  on  the  protection  of  the  financial  interests  of  the 
European Communities (OJ C 316, 27.11.1995). 
For the employment of the term of "error" see the European Court of Auditors' Annual Report of the 
European Court of Auditors on the implementation of the budget concerning the financial year 2009, OJ 
C  303/02,  9.11.2010.  Because  of  the  different  methods  to  collect  the  data,  the  European  Court  of 
Auditors and the Commission agree that the figures of the European Court of Auditors on errors and of 
the Commission on irregularities and financial corrections cannot be compared in a meaningful way (OJ 
C  303/02,  9.11.2010,  point  1.50,  p.  32,33)  On  the  methodology  of  the  Court  see  Annex  1.1  (Audit 
Approach and Methodology) OJ C 303/02, 9.11.2010, p. 34. 
As for the legal bases and the derogations see Commission Staff Working Paper Statistical evaluation 
of irregularities. 

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There  are  two  electronic  systems  for  this  reporting  of  irregularities,  the  Own  Resources 
Database  (OWNRES),  which  covers  the  Traditional  Own  Resources,  and  the  Irregularity 
Management  System  (IMS),  which  covers  the  expenditure  side  of  the  budget  where 
management is shared between the Commission and the Member States.  

The OWNRES database is also a key tool for obtaining data for global analyses of fraud and 
irregularities.  The  successful  implementation  of  the  IMS  has  significantly  improved  the 
quality  of  reporting,  since  it  has  rationalised  the  distribution  of  the  workload  related  to  the 
reporting obligations, accelerated the reporting process, and improved  the completeness and 
overall quality of the communications. 

The quality of the reported irregularities has improved in general, although there are still some 
inconsistencies in relation to the classification of the cases into either irregularity or suspected 
fraud. 

In order to solve these difficulties, the Commission services will prepare a working document 
on the practicalities of the communication of irregularities.  

Finally, data on irregularities in expenditure managed directly by the Commission is extracted 
from the Commission's ABAC (Accrual Based Accounting) system.  

For more details on the reporting systems and methodology, see Commission Staff Working 
Paper to this report on Statistical evaluation of irregularities10.  

10 

Commission Staff Working Paper Statistical evaluation of irregularities. 

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Table 1: Number of irregularities and amounts — 2010 – 

Area 

Agriculture 

Number of 
irregularities 
reported 

200911 
1621 

2010 
1825 

Cohesion 
Policy 

4737 

7062 

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

Estimated financial 
impact of suspected 
fraud only (€ million) 

Recovered 
amounts(€ 
million)  

200912 
125 
(~0.24 % of 
allocations) 

1 183 
(~2.44% of 
allocations) 

2010 
131 (~0.23% of 
allocations) 

2009 
13.3 (0.03% 
of 
allocations 

2010 
69 (0.12% 
of 
allocations) 

1550 (~3.15% 
of allocations) 

109 
(~0.23 % of 
allocations) 

364 (0.74% 
of 
allocations) 

Pre-
accession 
funds 

706 

424 

117 (~ % 3.8 
of 
allocations 

83(~5.26% of 
allocations) 

57 (0.78~% 
of 
allocations) 

41 (2.6% of 
allocations) 

Direct 
expenditure 

705 

1021 

Total 
expenditure 

7769 

10332 

27.5 
(~0.17 % of 
allocations) 

1.452.5 
(~1.13% of 
allocations) 

43 (~0.27% of 
allocations) 

1.5 (~ 0.01 
% of 
allocations) 

4 (0.02% of 
allocations) 

1.807 (~1.27% 
of allocations) 

180.8 (0.13 
% of 
allocations) 

478 (0.34% 
of 
allocations) 

5204 

4744 

Total 
revenues 
(Traditional 
own 
resources)17 

357(~1.84 % 
of the total 
amount of 
collected 
TOR (gross) 
for 2009) 

393 (~1.88 of 
the total amount 
of collected 
TOR (gross) for 
2010) 

103(~0.53% 
of the total 
amount of 
collected 
TOR 
(gross) for 
2009) 

139(~0.67of 
the total 
amount of 
collected 
TOR 
(gross) for 
2010) 

2010 
17513 

61114 

1415 

2516 

825 

180 

11 
12 
13 

14 

15 

16 
17 

The figures have been updated for certain sectors since the 2009 report. 
The figures have been updated for certain sectors since the 2009 report. 
This  figure  is  based  on  information  reported  by  Member  States  to  the  Commission  (DG  Agriculture) 
and includes all irregular payments recovered by Member States from final beneficiaries in 2010. 
This figure is based on information reported by Member States to OLAF through the IMS and includes 
amounts  which  Member  States  have  excluded  from  EU  financing  in  relation  to  projects  found  to  be 
irregular (withdrawals) and reallocated to other eligible projects, without necessarily having recovered 
these amounts from the beneficiaries.  
This  figure  is  based  on  information  reported  by  Member  States  to  OLAF  via  IMS  and  includes  all 
irregular payments recovered by the Member States from final beneficiaries in 2010.  
This figure represents the recovery orders registered in ABAC.  
This  figure  concerns  the  amounts  established  by  the  Member  States  as  irregular  amounts  in  the 
OWNRES database.  

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1.2. 

Revenues 

1.2.1.  Traditional own resources (TOR) 

Over 97% of all amounts of TOR established are collected without any particular problem.  

In 2010 the number of cases of irregularities (including suspected fraud) communicated to the 
Commission is lower than in the previous year, while the irregular amount reported is higher 
(see  Chart  1).  The  Commission  Staff  Working  Paper  Statistical  Evaluation  of  Irregularities 
comprises  a  detailed  analysis  of  reported  irregularities  and  cases  of  suspected  fraud  in  this 
area.  

Chart  1:  Irregularities,  including  suspected  fraud,  and  related  irregular  amounts 
reported – 2006-2010 

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Irregular am ounts

The  proportion  of  cases  qualified  as  suspected  fraud  by  the  Member  States  has  remained 
stable. The important differences in the figures communicated by the Member States strongly 
suggest  that  the  classification  of  irregularity  and  fraud  in  the  OWNRES  database  is  not  yet 
fully  reliable  owning  to  different  interpretations  of  the  relevant  definitions.  As  already 
mentioned,  a  working  document  on  the  practicalities  of  the  communication  of  irregularities 
will be prepared by the Commission services.  

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Chart 2: Suspected fraud cases and related amounts reported – 2006-2010 

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Related amounts

Differences  among  the  Member  States  also  appear  when  analysing  the  established  and 
estimated irregular amounts reported in 2010. Several factors may influence those differences, 
including the type of traffic and trade, the level of compliance of economic operators, and the 
geographical location. These figures can also vary significantly from year to year. Individual 
bigger fraud cases that are detected in a particular year may have a considerable impact on the 
annual figures, especially in Member States with a smaller share of TOR collection. Another 
variable factor is the effectiveness with which the Member State's customs control strategies 
are set up to target high risk imports and to detect TOR related fraud and irregularity18. 

In recent years the Commission has laid special emphasis on Member States' customs control 
strategies  in  its  TOR  inspections.  The  Commission  is  closely  monitoring  Member  States' 
action in response to the observations made during Commission inspections19. 

Follow-up: 

Member  States'  custom  control  strategies  should  continue  to  target  high  risk  imports, 
thus further improving the detection rate of irregularities and of suspected fraud cases 
in the area of TOR. 

1.2.2.  VAT 

In the field of taxation, Member States need to monitor and respond to both existing and new 
fraud trends. This involves both legal and operational considerations, such as administrative 
cooperation  and  exchanges  of  information,  compliance  policies,  risk  analysis  and  control 

18 
19 

For more information, see the Commission Staff Working Paper Statistical evaluation of irregularities. 
A  thematic  report  on  Member  States'  customs  control  strategy  synthesizing  the  results  on  the 
inspections  carried  out  in  2009  and  2010  in  all  Member  States  has  been  presented  in  the  Advisory 
Committee of Own Resources of 7 July 2011. 

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strategies for all types of taxes as well as the fraud-proofing of legislation. The Commission 
has  provided  Member  States  with  the  legal  framework  they  need  in  order  to  enhance 
cooperation  on  VAT.  This  also  constituted  the  legal  base  for  the  setting  up  of  EUROFISC, 
which is an operational network for rapid and targeted exchanges of information between all 
Member  States  on  fraud  cases,  in  particular  VAT  carousel  fraud.  Experts  from  the  Member 
States  cooperate  in  specific  areas,  issuing  for  early  warnings  on  potential  fraud  cases  and 
coordinating  national  activities.  From  January  2013,  Member  States  authorities  will  have 
automated  access  to  certain  data  held  by  other  Member  States,  thus  further  speeding  up 
information exchange. Finally, the Commission has suggested that a new approach should be 
developed, based in particular on voluntary compliance, risk assessment and monitoring, with 
the  aim  of  reducing  the  involvement  of  Tax  Authorities  and  lightening  the  administrative 
burden on business.  

The  Green  Paper  on  the  future  of  VAT  provides  a  good  opportunity  to  give  a  new 
impetus to this reflection, by collecting input on potential concrete measures.20 

1.3. 

Expenditure 

1.3.1.  Agricultural expenditure 

In  the  area  of  agriculture,  the  number  of  cases  of  reported  irregularities  and  the  amounts 
affected,  relative  to  the  total  amounts  spent,  differ  substantially  both  between  and  within 
Member States. 

Last  year  the  Commission  called  upon  Finland,  Austria  and  the  Netherlands  to  improve 
reporting  compliance.  Those  Member  States  have  confirmed  their  commitment  to  report 
irregularities and their efforts to optimise the reporting process.  

Every quarter, the Commission (OLAF) performs quality checks and provides Member States 
with feedback on the quality of the reporting and missing data. The Commission stays in close 
contact with the Member States' designated liaison officers for the agricultural sector in order 
to provide Member States with the necessary support and to keep them up-to-date on the latest 
trends and developments. 

The  reported  number  of  cases  of  irregularities  and  suspected  fraud  increased,  as  did  the 
related financial impact. The financial impact of suspected fraud was up from €13 million in 
2009 to €69 million in 2010. The rise in the suspected fraud cases in 2010 (see below Chart 4) 
can be explained by the better reporting through the IMS reporting system and the fact that 
EU-10 and EU-2 Member States have started to report for this sector. 

20 

COM(2010)695. The public consultation ended on 31 May 2011. 

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Chart  3:  Irregularities,  including  suspected  fraud,  and  related  irregular  amounts 
reported – years 2006-2010 

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2010

N° of irregularities

Irregular amounts

In 2010, Italy and EU-12 Member States have qualified more than 90% of the reported cases 
as  "suspected  fraud".  Certain  big  spending  Member  States  such  as  France,  Germany,  Spain 
and United Kingdom continue to report a very low number of suspected fraud cases. France 
did not classify any of its 2010-cases as suspected fraud. This raises the question whether the 
reporting of a low number of cases of suspected fraud is due to the non-respect of reporting 
principles  or  to  the  ability  of  the  control  systems  in  place  to  detect  fraud  in  the  Member 
States.  

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Chart 4: Suspected fraud cases and related amounts reported 2006-2010 

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2006

2007

2008

YEAR

2009

2010

N° of cases of suspected fraud

Related amounts

The  Commission  Staff  Working  Paper  Statistical  Evaluation  of  Irregularities  comprises  a 
detailed  analysis  of  reported  irregularities  in  relation  to  the  financial  year  to  which  they 
belong. A special focus is dedicated to the financial years 2004-2005, which are considered as 
“finalised”,  meaning  that  audit  plans  have  been  completed,  recovery  procedures  have  been 
started and irregularities have been reported.  

Follow-up: 
France,  Germany,  Spain  and  United  Kingdom  are  invited  explain  the  low  number  of 
reported  suspected  fraud  cases,  and  to  report  about  the  way  in  which  the  control 
systems  are  adapted  to  target  areas  with  a  higher  risk  of  fraud  and  irregularities. 
Finland,  the  Netherlands  and  Poland  should  report  more  consistently,  in  particular  in 
relation to personal data on individuals who have committed irregularities and fraud. In 
general,  Member  States  should  further  improve  the  quality  of  reporting,  given  that  in 
2010  Member  States  took  a  step  backwards  in  relation  to  the  timely  reporting  of 
irregularities.  

1.3.2.  Cohesion Policy 

Reported irregularities affecting the Cohesion Policy represent the largest share of all reported 
irregularities  related  to  the  expenditure  part  of  the  EU  budget  (approximately  70%  of  cases 
reported in 2010). 

In 2010 the increasing tendency concerning both reported irregularities and irregular amounts 
already noted in the previous year was confirmed (see Chart 5). Several reasons could explain 
this increase, but the most significant ones relate to the increase in control activities linked to 
the closure of the programming period 2000-2006, the full implementation of the programmes 
of the programming period 2007-2013 and the introduction of IMS.  

EN 

15 

   EN 

 
 
 
The detailed analysis of the methods for detecting irregularities suggests that control systems 
are now functioning more effectively. 

Analysis of those categories of irregularity which are the most reported shows that irregularity 
is most frequently identified in the implementation phase of the project cycle. However, the 
biggest  impact  in  terms  of  value  (financial  impact)  occurs  in  the  selection  or  procurement 
phase.  

The analysis confirms the need for a review of the EU  rules on  public procurement in 
order to increase clarity and improve the conditions for implementation.21  

Chart  5:  Irregularities,  including  suspected  fraud,  and  related  irregular  amounts 
reported – 2006-2010 

8 000

7 000

6 000

5 000

N

4 000

3 000

2 000

1 000

0

1800

1600

1400

1200

1000

800

600

400

200

0

R
U
E
n
o

i
l
l
i

m

2006

2007

2008

YEAR

2009

2010

N° of irregularities

Irregular amounts

In  terms  of  reported  suspected  fraud  cases,  the  tendency  highlighted  in  previous  years  is 
confirmed, with Italy, Germany and Poland reporting most of the cases. Germany is the most 
successful Member State in completing procedures for the establishment of fraud in relation 
to the programming period 2000-2006, followed by Poland and Italy. 

21 

The  Commission  has  started  this  process  in  2011  with  the  Green  Paper  on  Public  procurement  rules, 
COM(2011)15, see also below under point 4. 

EN 

16 

   EN 

 
 
 
                                                 
Chart 6: Suspected fraud cases and related amounts reported 2006-2010 

600

500

400

N

300

200

100

0

400

350

300

250

200

150

100

50

0

R
U
E
n
o

i
l
l
i

m

2006

2007

2008

YEAR

2009

2010

N° of suspected fraud cases

Related amounts

The  following  countries  did  not  report  any  such  case  in  2010:  Denmark,  France,  Malta,  the 
Netherlands,  Sweden  and  Slovenia.  This  shows  that  the  classification  of  irregularities  and 
suspected fraud cases in IMS is not yet fully reliable.  

The Financial Instrument for Fishery Guidance (FIFG)22 showed the highest fraud rate on the 
basis of reports received in 2010. The Commission Staff Working Paper Statistical Evaluation 
of Irregularities contains a detailed analysis of reported irregularities and cases of suspected 
fraud in this area.  

Follow-up 

The  Commission  supports  Spain  and  France  in  their  efforts  to  complete  the 
implementation  of  IMS  by  the  end  of  2011  and  invites  Ireland  to  fully  implement  the 
system.  

The Commission will analyse the anti-fraud control systems put in place by the Member 
States in the area of cohesion policy. A questionnaire relating to this topic was sent to the 
Member States in July 2011. The results will be published in 2012 with the next annual 
report on the protection of the financial interests of the EU. 

1.3.3.  Pre-accession funds 

Reported cases of irregularities and fraud 

22 

This Fund is one of the Structural Funds for the programming period 2000-2006. 

EN 

17 

   EN 

 
 
 
                                                 
In  the  area  of  pre-accession  assistance,  considerable  progress  was  achieved  in  2010  in  the 
implementation of reporting via the IMS. Most of the Member States which benefited in the 
past  from  pre-accession  assistance  now  have  the  possibility  to  submit  irregularity  reports 
through  this  reporting  system.  The  quality  of  the  irregularities  communications  received  is 
satisfactory, in terms of both completeness and compliance.  

The  number  of  reported  irregularities  and  the  related  financial  volume  have  decreased 
substantially  in  relation  to  2009  for  most  funds.  The  exception  is  PHARE,  for  which  the 
number  of  reported  irregularities  has  remained  stable,  though  the  financial  volume  has 
decreased.  This  appears  to  be  due  to  the  phasing-out  of  EU-10  and  EU-2  from  the  pre-
accession assistance phase. 

Chart  7:  Irregularities,  including  suspected  fraud,  and  related  irregular  amounts 
reported – 2006-2010 

800

700

600

500

N

400

300

200

100

0

120

100

80

60

40

20

0

R
U
E
n
o

i
l
l
i

m

2006

2007

2008

YEAR

2009

2010

N° of irregularities

Irregular amounts

The  majority  of  the  newly  reported  cases  are,  as  in  2009,  related  to  the  SAPARD  fund  in 
Romania and Bulgaria. However, an important development has been confirmed in Bulgaria, 
where  irregularities  and  suspected  fraud  cases  are  now  mainly  being  detected  by  national 
services.  The  situation  in  Romania  is  different,  with  a  large  proportion  of  irregularities  and 
suspected fraud cases  being detected following inspections by EU services or undertaken at 
their  request.  The  Commission  Staff  Working  Paper  Statistical  Evaluation  of  Irregularities 
comprises  a  detailed  analysis  of  reported  irregularities  and  cases  of  suspected  fraud  in  this 
area.  

EN 

18 

   EN 

 
 
 
Chart 8: Suspected fraud cases and related amounts reported 2006-2010 

50

45

40

35

30

25

20

15

10

5

0

R
U
E
n
o

i
l
l
i

m

2006

2007

2008

YEAR

2009

2010

N° of cases of suspected fraud

Related amounts

300

250

200

N

150

100

50

0

Follow-up: 

The  Commission  will  continue  to  support  the  new  Beneficiary  Countries  (Turkey, 
Croatia,  FYROM  and  Montenegro)  in  their  efforts  to  implement  IMS  for  better 
reporting quality.  

1.3.4.  Expenditure directly managed by the Commission  

This  point  concerns  the  data  on  recovery  orders23  issued  by  the  Commission  services  in 
relation to expenditure managed under ‘centralised direct management’.24 

Recovery order data suggests that despite an increase in the proportion of directly managed 
expenditure subsequently subjected to recovery orders, the identified irregularity rate remains 
low  (0.17%  in  2009  to  0.27%  in  2010).  Only  2.1%  of  the  issued  recovery  orders  were 
qualified  by  the  Commission  services  as  suspected  fraud  (approximately  0.02%  of 
allocations).  

23 

24 

According to Article 72 of the Financial Regulation, the authorisation of recovery is the act whereby the 
authorising  officer  by  delegation  or  sub-delegation  responsible  instructs  the  accounting  officer,  by 
issuing a recovery order, to recover an amount receivable which he/she has established. 
Centralised  direct  management  includes  any  EU  expenditure  from  funds  managed  by  the  EU 
institutions  (e.g.  administrative  expenditures  of  the  institutions,  programmes  like  Leonardo,  Erasmus, 
the  7th  Framework  Programme  for  research  and  technological  development,  European  Development 
Fund, etc). According to article 53 of the Financial Regulation (Council Regulation (EC, Euratom) No 
1605/2002),  this  part  of  the  budget  can  be  implemented  on  a  centralised  basis,  directly  by  the 
Commission  services,  or  by  delegating  implementing  tasks  to  third  countries  (decentralised 
management) or to international organisations (joint management). 

EN 

19 

   EN 

 
 
 
                                                 
2. 

RECOVERY OF IRREGULAR AMOUNTS IN 2010 

The data in this chapter is based on the notifications of cases of irregularities by the Member 
States,  and  focuses  on  the  results  of  the  actions  by  national  authorities  to  recover  amounts 
unduly paid to beneficiaries (ie economic operators). The analysis excludes all recoveries of 
less  than  €  10,000,  with  the  exception  of  the  agri culture  sector,  for  which  recovery  figures 
relate to all oustanding amounts. 

The  present  report  is  therefore  different  in  scope  from  those  other  Commission  documents 
which  deal  with  recoveries  made  by  the  Commission  from  Member  States,  for  example  via 
financial corrections or clearance of accounts procedures25. 

It  is  important  to  note  that  recovery  rates  are  not  comparable  among  sectors  due  to  the 
different regulatory framework and  recovery  mechanisms applied (as explained in Table 2). 
Furthermore,  certain  mechanims  introduced  to  speed  up  the  recovery  process  have  been 
applied for a shorter period of time (i.e. for the agriculture sector). 

Table 2: Recovery rates per sector — 2009 –2010 

BUDGET SECTOR 

CONTEXT 

TOR 

Agriculture 

Cohesion Policy 

RECOVERY 
RATE 

2009 

2010 

50% 

46% 

39% 

42% 

As  recovery  is  ongoing,  the  overall  recovery 
rate is constantly changing. At the moment, the 
overall  recovery  rate  for  all  years  (1989-2010) 
is 47%.  

in 

indicated 

The  figures 
this  column  are 
reported  directly  by  the  Member  States  to  the 
Commission  (DG  AGRI)  and  are  calculated 
only  on 
the  basis  of  amounts  effectively 
recovered  from  final  beneficiaries  in  cases 
detected  since  the  introduction  of  the  new 
clearance  mechanism  (2007)  and  include  also 
recoveries below € 10.000.  

The  figures  indicated  in  this  column  are  based 
on the Member States' own reporting directly to 
OLAF through the IMS26. The rates refer to the 
programming  period  2000-2006  (programmes 
closure  started  in  2010)  and  also  take  into 
account  irregular  payments  which  Member 
States  have  excluded  from  EU  financing 

53% 

67% 

25 

See for example the Annual Accounts of the European Union – Financial Year 2009, and in particular 
note  6  of  the  Notes  to  the  financial  statements,  “Financial  corrections  and  recoveries  following  the 
detection of irregularities” 

http://ec.europa.eu/budget/library/biblio/documents/2009/EU_final_accounts_2009_en.pdf . 
26 

The  figures  relate  to  irregularities  involving  more  than  EUR  10,000  of  EU  financing.  Furthermore 
mechanisms in place allow Member State to exclude from EU financing projects found to be irregular 
(withdrawals) and to reallocate these resources to other eligible projects. 

EN 

20 

   EN 

 
                                                 
Pre-accession funds 

(withdrawals),  without  necessarily  having 
recovered them from the beneficiaries. 

The figures in this column are reported by the 
Member States directly to OLAF through the 
IMS and they refer to recoveries from final 
beneficiaries.  

The  programming  period 
(programmes closed in 2010) 

is  2002-2006 

27% 

30% 

Direct expenditure 

Recovery rate is calculated on a yearly basis 

56% 

59% 

2.1. 

Traditional own resources 

For Traditional Own Resources Member States are obliged to recover the established amounts 
which  they  register  in  the  OWNRES  database.  The  established  amount  to  be  recovered 
following  irregularities  detected  in  2010  is  €393   million  (approximatelly  1.88%  of  the  total 
amount  of  collected  TOR  gross  for  2010).  An  amount  of  €180  million  has  already  been 
recovered by the Member States. The recovery rate for 2010 at the time of publication is 46%. 

Member States' recovery action in the area of TOR is monitored through TOR inspections and 
through the procedure by which all amounts exceeding €50.000 that are finally irrecoverable 
are  reported  to  the  Commission.  Member  States  are  held  financially  liable  for  the  losses  of 
TOR occurred because of the weaknesses observed in their recovery action.  

2.2. 

Agriculture 

In  the  area  of  agriculture  Member  States  recovered  €175  million  during  the  financial  year 
2010. 

A  clearance  mechanism  (“50/50”  rule,  introduced  via  Regulation  (EC)  No  1290/200527 
provides  a  strong  incentive  for  Member  States  to  recover  undue  payments  from  the 
beneficiaries as quickly as possible. As a result, by the end of financial year 2010, 42% of the 
new  European  Agricultural  Guarantee  Fund  (EAGF)  debts  from  2007  and  thereafter  had 
already been recovered by the Member States. 

Nevertheless,  the  outstanding  accumulated  amount  remaining  to  be  recovered  from 
beneficiaries  by  national  authorities  at  the  end  of  financial  year  2010  was  €1.2  billion 28,  of 
which about € 0.3 billion has alre ady been paid to the EU Budget by Member States under the 
50/50 rule.  

During the years 2008-2010 the Commission audited the new clearance mechanism by means 
of  on-the-spot  checks  on  the  national  authorities  responsible  for  16  paying  agencies  in  12 
Member  States,  and  covering  89%  of  the  total  outstanding  debt  at  the  end  of  financial  year 
2010.  

27 

28 

If a Member State fails to recover an unduly paid amount from the beneficiary within four years of the 
primary administrative or judicial finding (or, in the case of proceedings before national courts, within 
eight years), 50% of the non-recovered amount is charged to the budget of the Member State concerned 
within the framework of the annual financial clearance of the EAGF and EAFRD accounts.  
This outstanding amount concerns sums to be recovered for all financial years.  

EN 

21 

   EN 

 
 
                                                 
In  general,  national  authorities  have  adequate  procedures  for  recovery.  Deficiencies 
found during these controls are being followed up in the context of conformity clearance 
procedures.  

2.3. 

Cohesion policy 

Cohesion policy shows the highest recovery rate in the expenditure area in 2010 (over 60%).  

Cohesion  policy  is  based  on  multi-annual  programmes,  with  the  consequence  that  some 
recovery  procedures  are  delayed  until  the  end  of  the  programming  period.  Substantial 
difficulties  were  encountered  after  the  end  of  the  1994-99  programming  cycle.  Indeed, 
procedures relating to one third of the financial impact of irregularities reported by Member 
States  in  relation  to  that  period  are  not  yet  completed  (EU  contribution,  €  0.5  billion).  The 
Commission services are carrying out reconciliation procedures with a view to closing these 
cases29. The recovery rate for the 1994-1999 programming cycle is currently 67%. 

The success of the improved procedures put in place for the programming period 2000-2006 
is  demonstrated  by  the  fact  that,  only  one  year  after  the  submission  of  the  closure 
documentation by Member States to the Commission, 70% of the € 2.9 billion of unduly paid 
EU contribution has been recovered (or withdrawn from expenditure claims).30  

Hungary, the Czech Republic and Slovenia have recovery rates around or below 20%. 
These Member States are invited to explain the reasons and to increase their efforts.  

2.4. 

Pre-accession funds 

The analysis of recoveries throughout the programming period 2002-2006 confirms the need 
for  improvements  in  this  area.  The  pre-accession  funds  show  the  lowest  recovery  rates  for 
expenditure.  Recovery  rate  for  the  year  2010  is  at  10%,  which  is  a  lot  lower  than  in  the 
previous  year  (27%).  Even  if  the  recoveries  for  the  past  years  are  taken  into  account,  the 
recovery rate remains low (around 30% accumulated for the years 2002-2006) and especially 
low  for  Bulgaria,  Turkey,  Lithuania,  Latvia  and  Slovenia.  In  cases  of  suspected  fraud, 
procedures are becoming even lengthier and more complex, as showed by the lower recovery 
rate (14% on average accumulated for the same period). Apart from the lengthy procedures 
linked to suspected fraud cases, another explanation for the low rates could be the failure by 
Beneficiary Countries to update the recovery information about irregularities.  

Beneficiary  Countries  are  invited  to  explain  the  reasons  for  low  recovery  rates,  to 
improve  their  recovery  performances  and  to  update  the  missing  information  on 
completed recovery procedures. 

2.5. 

Expenditure directly managed by the Commission 

For the recovery orders issued in 2010, full or partial recovery was recorded in almost all of 
the  791  cases,  which  represents  an  amount  of  almost  €  25  million.  The  recovery  rate  in 

29 

30 

In 2010, the Commission adopted 12 decisions on how to treat 107 cases of irregularities for which the 
Member States concerned asked the Commission to bear the financial consequences of the irrecoverable 
amounts.  
This recovery percentage does not include recoveries by the Commission from the Member States by 
financial corrections. 

EN 

22 

   EN 

 
                                                 
general increased to 58.5%, and the recovery rate following cases of suspected fraud is high 
(82.4%). 

The Commission will continue with the recovery procedures. 

EN 

23 

   EN 

 
3. 

RESULTS  OF  THE  QUESTIONNAIRE  ABOUT  COOPERATION  WITH  THE  MEMBER 
STATES CONCERNING THE RISK OF DOUBLE FINANCING OF PROJECTS IN THE AREA 
OF COHESION POLICY 

Every year the Commission and the Member States choose a special topic which is developed 
in the report, drawing on the answers to a questionnaire addressed to the Member States. This 
year's  special  topic  covers  the  risk  of  double  financing  of  projects  in  the  area  of  cohesion 
policy.  

For  the  complete  answers  of  the  Member  States  to  the  questionnaire  and  a  more  in-depth 
analysis  of  national  practices,  see  the  Commission  Staff  Working  Paper  to  this  report 
Implementation of Article 325 by the Member States in 2010.  

National legal framework 

All Member States confirmed that financing of the same expenses from two or more different 
sources  is  not  allowed.  The  prohibition  of  “double  financing”  is  sufficiently  defined  within 
their national legal framework and other national regulations. 

Where they detect cases of double financing of projects, Member States apply administrative 
and criminal sanctions, recover EU funds and prosecute the beneficiaries. 

Most Member States31 make use of double financing risk indicators. Member States generally 
advocate  improved  prevention  by  extending  risk  analysis,  in  the  light  of  recommendations 
from  the  Commission  and  through  the  exchange  of  information  on  beneficiaries  via  shared 
databases. 

Information exchange 

All  Member  States  reported  on  regular  information  exchange  and  operational  cooperation 
between  national  authorities  to  prevent  and  reduce  the  risk  of  double  financing  of  projects. 
Identification of attempts at double financing begins at the application and authorisation stage.  

The authorities administering the use of EU funds at the national, regional and local level may 
use the databases which hold general and financial information about projects co-financed by 
the EU and the beneficiaries. Information can also be obtained by other authorities, such as 
the police and the prosecution service. Some information is also available to the public. 

The majority32 of the Member States have also developed other electronic tools for collecting 
and analysing data about EU co-financed projects, which can be combined with external data 
resources (e.g. public internet sites, public databases). 

During  the  phases  of  publication,  awarding  and  implementation  of  project  contracts, 
information  is  transmitted  between  different  national  authorities  and  is  exchanged  with  the 
European Commission through working groups and information systems. 

31 
32 

BE, BG, CZ, DE, EE, IE, EL, ES, FR, IT, LV, LT, LU, HU, MT, NL, AT, PL, PT, SE. 
BE, BG, EE, IE, ES, FR, IT, LT, LU, MT, AT, PL, PT, RO, SI, SK, SE.  

EN 

24 

   EN 

 
                                                 
The use of the Central Exclusion Database (CED) by the Member States under Article 95 of 
the  Financial  Regulation  is  still  very  limited.  Some  Member  States33  use  national  exclusion 
databases. 

The most common reason for exclusion from participation in procurement procedures was a 
beneficiary’s failure to pay social contributions or taxes34.  

Conclusions  of  the  questionnaire:  Member  States’  contributions  to  the  report  indicate 
that  they  have  measures  in  place  which  should  prevent  double  financing.  These 
measures  include  legal  provisions,  risk  analysis,  administrative  procedures,  and 
cooperation between national authorities, information exchange and the use of electronic 
tools. However, more progress is needed on the identification of risk.  

All Member States are requested to start using the CED.  

4. 

ANTI-FRAUD POLICIES 

4.1. 

Implementation of anti-fraud policy initiatives in 2010 

4.1.1.  Hercule II programme 

The Hercule II programme is the financial instrument managed by the Commission (OLAF) 
in  the  field  of  the  protection  of  the  EU  financial  interests  and  the  prevention  of  related 
criminal activities, including cigarette smuggling. The mid-term evaluation of the Hercule II 
programme confirmed  the  value of this expenditure.35 It recommended that the successor to 
the  Hercule  II  programme  should  continue  to  improve  technical  equipment  in  the  Member 
States,  finance  access  to  databases  essential  for  investigations  by  Member  State  authorities 
and OLAF, and combat cigarette smuggling and counterfeiting in line with the legally binding 
agreements with tobacco manufacturers. 

4.1.2.  Customs 

The  Commission  has  developed  a  number  of  IT  tools  to  facilitate  risk  assessment  and  the 
detection  of  irregularities  and  fraud  in  the  area  of  Customs  (exchange  of  information, 
collaboration systems and databases). The main development in 2010 was the introduction of 
the  "Mutual  Assistance  Broker"  (MAB)  which  provides  a  common  interface  with  national 
systems. 

The  Commission  conducts  joint  customs  operations  with  the  Member  States.36  Around  40 
million  cigarettes,  1.2  tonnes  of  hand-rolled  tobacco,  7.000  litres  of  alcohol  and  8  million 
other counterfeit items were seized during a joint customs operation code-named "SIROCCO" 

33 
34 

35 
36 

DK, IE, ES, HU, SI, SE. 
Article  45(2)  e  and  f  ,  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. 
COM (2011)500 final. 
"Special watch" provisions under Mutual Assistance – Regulation 515/1997. 

EN 

25 

   EN 

 
                                                 
which was coordinated by OLAF in June 2010. This operation also led to the arrest of three 
suspected cigarette traffickers.37 

At the end of 2010, the Union re-launched the customs  cooperation with China  and  Russia. 
Strategic Framework for Customs Cooperation were endorsed with both countries. In view of 
the mutual interest  in  economic  integration, customs modernisation and convergence in line 
with international standards, the Frameworks are built on the basis of three broad priorities: 1) 
safe  and  fluid  trade  lanes,  2)  risk  management  and  fight  against  fraud  and  3)  investment  in 
customs  modernisation.  A  meeting  of  the  EU-Russia  Working  Group  on  Customs  Border 
Issues on 6 May 2011 led to agreement on practical initial actions to implement the Strategic 
Framework, including setting up an Early Warning Mechanism to prevent border congestion 
and creating joint expert groups to explore ways of cooperating on specific areas. 

4.1.3. 

State of ratification of the Convention on the protection of the EU financial interests 

Malta ratified the Convention on 20 January 2011. The Commission reiterates its invitation to 
the  Czech  Republic  to  join  all  other  Member  States  in  ratifying  the  Convention  and  invites 
Estonia  to  ratify  the  Protocol  of  29  November  1996  on  the  interpretation  by  way  of 
preliminary rulings by the Court of Justice of the European Communities. 

4.1.4.  Commission anti-fraud policy in the context of enlargement 

In  2010,  the  Commission  continued  to  ensure  that  anti-fraud  policy  was  fully  reflected  in 
accession negotiations, in particular with Croatia and Turkey. 

The  Commission  monitored  the  implementation  of  the  Croatian  Anti-Fraud  Strategy  for  the 
protection  of  the  EU’s  financial  interests  for  2010-2012  and  the  Croatian  Action  Plan, 
approved  in  January  201038.  Concerning  Turkey,  the  Commission’s  efforts  in  2010,  as  in 
previous  years,  have  focused  on  improved  irregularity  analysis  and  reporting  and  the 
preparation  of  an  anti-fraud  national  strategy.  After  the  appointment  of  the  Turkish  Prime 
Ministry  Inspection  Board  (PMIB)  as  an  anti-fraud  contact  point  in  December  2009, 
intensified  consultations  have  been  organised  by  OLAF  with  Turkey  on  institutional  and 
legislative anti-fraud developments. 

The Commission has co-financed the EU Project on the Establishment of International Law-
Enforcement  Coordination  Units  (ILECUs)39  in  the  Western  Balkan  candidate  countries 
(Croatia,  FYROM,  Montenegro)  and  in  potential  candidate  countries  (Albania,  Bosnia  and 
Herzegovina, Serbia).  

The Commission expects intensified cooperation in the field of the protection of the EU’s 
financial  interests  from  Iceland  and  Montenegro  which  acquired  candidate  country 
status in 2011. 

37 
38 
39 

http://ec.europa.eu/anti_fraud/budget/Sirocco/i_en.html. 
See Commission progress report on Croatia for 2010, COM (2010) 660. 
CARDS Regional Action programme, EUROPAID/126164/C/ACT/Multi. 

EN 

26 

   EN 

 
                                                 
4.1.5.  Commission  anti-fraud  policy  in  the  framework  of  the  European  Neighbourhood 

policy 

The  Eastern  Partnership  constitutes  a  new  development  of  the  European  Neighbourhood 
Policy  towards  Armenia,  Azerbaijan,  Belarus,  Georgia,  the  Republic  of  Moldova  and 
Ukraine.  It  aims  at  creating  the  necessary  conditions  to  speed  up  political  association  and 
further  economic  integration  between  the  EU  and  partner  countries.  The  EU  has  been 
negotiating new Association Agreements with these countries under the aegis of the Eastern 
Partnership since 2009 (except with Belarus).  

In order to have a strong legal framework with clear commitments from the partner countries 
to ensure sound financial management of the funds they receive from the EU, the Commission 
has  proposed  new  control  and  anti-fraud  provisions  in  the  Financial  Cooperation  Titles  of 
these agreements.  

In 2010, after negotiation of a Financial Cooperation Title with Ukraine was closed in 2009, 
the Commission negotiated the Financial Cooperation Title with Moldova. Both Titles include 
these  new  control  and  anti-fraud  provisions.  Since  1st  of  January  2011,  negotiations  are 
carried  out  by  the  European  External  Action  Service  (EEAS)  in  close  cooperation  with  the 
European Commission. 

The  Commission  and  the  EEAS  will  press  for  these  provisions  in  the  new  Agreements 
with Armenia, Azerbaijan and Georgia when negotiations on the Financial Cooperation 
Title will start with these countries in early 2012. 

4.1.6.  Fight against Illicit Trade in Tobacco Products 

To  combat  the  counterfeit  and  smuggled  tobacco  products  phenomenon,  two  cooperation 
agreements  were  signed  in  2010  between  the  EU  and  26  EU  Member  States40  with  British 
American  Tobacco  and  with  Imperial  Tobacco  Limited  in  2010.  Previously  agreements  had 
been  signed  with  Philip  Morris  International  and  Japan  Tobacco  International  in  2004  and 
2007 respectively. These legally binding agreements provide a comprehensive set of measures 
designed  to  limit  the  presence  of  the  products  of  these  companies  on  the  illicit  tobacco 
market41  and  are  consistent  with  the  anti-contraband  provisions  of  the  World  Health 
Organisation  (WHO)  Framework  Convention  on  Tobacco  Control  (WHO  FCTC);  they  also 
underpin the efforts of the EU to promote a strong Protocol to that Convention on Eliminating 
the Illicit Trade in Tobacco Products.  

The  WHO  FCTC  is  the  first  treaty  negotiated  under  the  auspices  of  the  World  Health 
Organization. It was adopted by the World Health Assembly in 2003 and entered into force on 
in  February  2005.  At  the  first  meeting  of  the  Conference  of  the  Parties  (COP)  to  the  WHO 
Framework  Convention  on  Tobacco  Control  (FCTC)  in  July  2007,  the  COP  established  an 
Intergovernmental Negotiating Body (INB) to negotiate a Protocol on the Elimination of the 
Illicit Trade in Tobacco Products based on Article 15 of the FCTC. The Commission (OLAF) 
has coordinated the EU position and, with the Council Presidency, represented the EU during 
the negotiation process. Four INB meetings have taken place, the most recent being in 2010. 
Although  progress  has  been  made,  further  negotiations  on  certain  key  elements  of  the 
Protocol are still necessary. The next INB will take place in 2012. The European Commission 

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strongly supports the conclusion of a worldwide Treaty (the Protocol) on the Elimination of 
the Illicit Trade in Tobacco Products which is in line with the Commission's responsibility to 
protect the financial interests of the EU, including the fight against cigarette smuggling and 
counterfeiting. 

4.2. 

New anti-fraud policy initiatives 

4.2.1.  Reform of OLAF 

The  Commission  adopted  an  amended  proposal  amending  Regulation  (EC)  No.  1073/1999 
and  repealing  Regulation  1074/1999  concerning  investigations  conducted  by  the  European 
Anti-fraud  Office  (OLAF).  In  preparing  the  amended  proposal,  the  Commission  has  taken 
account  of  the  positions  expressed  by  the  European  Parliament  and  the  Council  and  of  the 
conclusions of its Reflection paper42 presented in July 2010 which outlined possible solutions 
to take the current legislative process forward. 

Negotiations on the proposal were conducted under the Hungarian Council Presidency 
and  are  continuing  under  the  Polish  Presidency.  The  Commission  will  assist  the 
legislator with the aim of achieving a final adoption by the end of 2011. 

4.2.2.  Multi-annual Commission Anti-fraud Strategy (CAFS)  

On  24  June  2011  the  Commission  adopted  a  Communication  on  a  Commission  Anti-Fraud 
Strategy  (CAFS).43  The  strategy  provides  a  framework  for  better  protection  of  the  EU 
financial  interests  across  different  policy  sectors,  focusing  mainly  on  fraud  prevention  and 
detection. One of the main objectives of the CAFS is the establishment of sectoral anti-fraud 
strategies at Commission Directorate-General level.  

4.2.3.  Communication on the protection of the financial interests of the EU by criminal law 

and by administrative investigations 

On  26  May  2011  the  Commission  adopted  the  Communication  on  the  protection  of  the 
financial  interests  of  the  European  Union  by  criminal  law  and  by  administrative 
investigations;  this  is  an  integrated  policy  to  safeguard  the  taxpayers'  money.44  The 
communication  suggests  the  exploration  of  new  legislative  measures  to  protect  the  EU 
financial interests of the EU in the light of the Lisbon Treaty. Improvements to the criminal 
and administrative procedures, institutional arrangements (modernising Eurojust's capacities, 
establishing  a  specialised  European  prosecution  authority,  adapting  OLAF's  role  to  a  new 
institutional set-up) and the substantive criminal law framework are being considered. 

4.2.4.  Communication on Fighting Corruption in the EU 

Based  on  the  Council's  Stockholm  Programme,  on  6  June  2011,  the  Commission  adopted  a 
Communication on fighting corruption in the EU45. It also set up a new mechanism, the EU 
Anti-Corruption Report, to monitor and assess Member States' efforts in tackling corruption. 
This should foster political engagement and help Member States to better enforce the existing 

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SEC(2010)859, final. 
COM(2011)376 final. 
COM(2011)293 final. 
COM(2011)308 final. 

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legislation  and  to  fully  implement  their  international  commitments.  At  the  same  time,  the 
Commission  adopted  a  Report  on  the  implementation  of  Council  Framework  Decision 
2003/568/JHA on combating corruption in the private sector and a Report on the modalities of 
EU participation in the Council of Europe Group of States against Corruption (GRECO). 

4.2.5.  EU Green Paper on public procurement rules 

On 27 January 2011, the Commission launched a public consultation (Green Paper)46 on how 
procurement  legislation  could  be  updated  and  improved.  It  covered  issues  such  as 
simplification  of  the  rules,  reduction  of  red  tape,  especially  for  small  and  medium  sized 
enterprises,  fight  against  favouritism,  corruption  and  conflict  of  interests.  The  evaluation 
report on this consultation was adopted at the end of June 201147. The Commission will draw 
on the consultation in preparing its future legislative proposal on the reform of the EU public 
procurement rules.  

4.2.6.  Action  plan  to  fight  against  smuggling  of  cigarettes  and  alcohol  along  the  EU 

Eastern border 

Smuggling, and especially cigarette smuggling is a major issue for the EU, which causes big 
losses to the national and EU budgets. The EU’s Eastern Border is especially problematic in 
this context. The Commission has prepared an Action Plan to fight against smuggling at the 
EU’s  Eastern  Border48.  Published  in  June  2011,  it  contains  a  structured  and  comprehensive 
overview  of  existing  measures  at  Commission  and  Member  States  level,  of  remaining  gaps 
and  loopholes  and  suggestions  from  the  Commission  on  what  other  actions  could  be 
undertaken  at  Commission  or  EU  level.  The  Commission  expects  that  the  Action  Plan  will 
also have a broader effect, on the entire EU territory, and will contribute to the fight against 
criminal activity at a global level.  

The actions provided by the plan include capacity building and  technical assistance actions, 
disincentives  and  awareness  raising  measures,  and  proposals  to  strengthen  operational 
cooperation and to enhance international cooperation. 

GENERAL CONCLUSION 

This  Report  shows  that  progress  has  been  achieved  in  the  past  year  with  regard  to  the 
reporting of irregularities, due, in particular, to the implementation of better reporting systems 
by  the  Member  States.  It  is  also  clear  from  the  data  received  that  progress  has  yet  to  be 
achieved, especially in the area of recovery where procedures are still relatively long.  

Finally,  in  2010  and  during  the  first  part  of  2011,  the  Commission  has  adopted  and 
implemented  a  number  of  policy  initiatives  which  will  have  a  positive  impact  on  the 
protection  of  EU's  financial  interests.  The  practical  implementation  of  these  initiatives  has 
already begun and will require close cooperation between the EU institutions and the Member 
States. The first results of these policy initiatives will be presented in the next report covering 
the year 2011.  

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COM(2011)15 final. 
SEC(2011)853 final.  
SEC (2011)791 final. 

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