COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Date: 2011-12-19
Institutions: European Commission
Subjects: EU action, EU financing, European Anti-fraud Office, fraud against the EU

EUROPEAN COMMISSION 

Brussels, 19.12.2011 
SEC(2011) 1611 final 

COMMISSION STAFF WORKING PAPER 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  

Accompanying the document 

Proposal for a European Parliament and Council Regulation 

on the Hercule III programme to promote activities in the field of the protection of the 
European Union's financial interests  

{COM(2011) 914 final} 
{SEC(2011) 1610 final} 
This report commits only the Commission’s services involved in its preparation and does not 
the  Commission.
prejudge 

form  of  any  decision 

taken  by 

to  be 

final 

the 

 
 
 
 
  
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT ON THE HERCULE PROGRAMME. ............. 3 

1. POLICY CONTEXT AND CONTRIBUTION TO EU PRIORITIES ............................................................... 3 

2. CONSULTATION OF INTERESTED PARTIES.............................................................................................. 3 

3. PROBLEM DEFINITION AND INTERVENTION LOGIC ............................................................................. 3 

4. PROGRAMME OBJECTIVES .......................................................................................................................... 4 

5. SUBSIDIARITY AND EU ADDED VALUE.................................................................................................... 4 

6. DESCRIPTION OF POLICY OPTIONS ........................................................................................................... 5 

7. ANALYSIS OF IMPACTS BY OPTION .......................................................................................................... 5 

8. LINKS WITH OTHER POST 2013 INITIATIVES ........................................................................................... 6 

9. SIMPLIFICATION AND REDUCTION OF THE ADMINISTRATIVE BURDEN ........................................ 6 

10. MONITORING AND EVALUATION ............................................................................................................ 6 

 
 
Executive summary of the Impact Assessment on the Hercule programme 

1. Policy context and contribution to EU priorities 

The  Hercule  programme  is  the  only  instrument  specifically  dedicated  to  fighting  fraud, 
corruption  and  any  other  illegal  activities  affecting  the  financial interests  of  the Union. It is 
administered by OLAF.  

The  Treaty  provides  for  the  principle  of  effective  and  equivalent  protection  of  EU  financial 
interests  across  the  Member  States  and  EU  institutions  and  close  cooperation  in  the 
achievement of that objective. 

Spending under Hercule II over 2007/2013 is € 98.5  million. The proposal is to continue this 
spending under Hercule III at the present rate of € 15 million annually.  

Hercule II spending is divided between: 

1. 

2. 

3. 

Technical assistance (60%) 

Specialist antifraud training (35%) 

Support of the Associations for European Criminal Law and the Protection of 
the EU Financial Interests (European Lawyers associations, ELA) (5%) 

In addition, a minimum of € 6 million annually mu st be spent from within 1 and 2 above on 
the suppression of the illegal cigarette trade. This reflects consistency with the specific anti-
fraud, anti-smuggling and anti-counterfeiting objectives subscribed to in the Agreements with 
4 major international cigarette manufacturers under which the latter will pay US$ 2.3 billion 
into national and EU budgets over a 20 year period. 

2. Consultation of interested parties 

The  impact  assessment  reflects  consultation  with  stakeholders,  especially  in  Member  State 
operational  services,  other  Commission  services  and  other  EU  bodies;  and  also  OLAF's 
operational  experience  and  OLAF's  experience  with  the  management  of  the  programme.  It 
incorporates  material  from  the  intermediate  review  on  the  achievement  of  the  objectives  of 
Hercule II programme completed in late 2010. 

3. Problem definition and intervention logic 

Scale 

The Commission's annual report under Article 325 on the protection of the financial interests 
for 2010 emphasises the need for further action to deal with fraud. The Commission's Anti-
Fraud Strategy addresses this need and underlines the importance of the Hercule programmes. 
Statistics  in  the  Article  325  report  and  in  OLAF's  independent  operational  report  give  an 
indication  of  the  scale  of  fraud  and  of  OLAF's  caseload.  The  overall  financial  impact  of 
reported  irregularities  for  2010  was  €  1.8  billi on  of  which  suspected  instances  of  fraud 
accounted for € 0.5 billion (out of an amount of € 141 billion spent and approximately € 17 
billion  of  customs  duties  on  the  traditional  own  resources  (income)  side).  OLAF  completed 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
more than 1500 of its own investigations between 1999 and 2011 (360 are currently ongoing) 
leading to a recovery of more than one billion € via OLAF investigations on fraud cases and 
other irregularities until mid 2011.  

Fraud has significant financial consequences, and negative social and economic effects. It also 
involves reputational risk to the EU project. 

Drivers 

The impact assessment identifies 5 key drivers which Hercule III should address: 

  1.  Fraudsters  adapt  quickly  to  new  circumstances  at  EU  level,  operate  across  borders 

and exploit the weakest points. 

  2. The Commission and the Members States have committed themselves to intensify the 

fight against cigarettes smuggling.  

  3.  Pressures  on  public  finance  require  increase  in  the  cost-efficient  protection  of  EU 

financial interest through improved detection and prevention. 

  4. The large number and  varied  nature of competent authorities  in Member  States and 
candidate or associated countries. The vast majority of resources available to fight EU 
budget fraud are at national not EU levels.  

  5. Differences in incentives and capacities between Member States impede equivalence 

in the protection of financial interests.  

Problems 

Under  each  driver,  specific  problems  are  identified.  These  include  deficiencies  in  specialist 
knowledge and technical equipment, the changing threat from organised crime, lack of public 
confidence, lack of awareness of EU fraud, inadequate risk analysis and information sharing, 
inadequate capacity of national competent authorities to cooperate with each other and with 
OLAF, incompatibility of technical and communication equipment, the absence of a uniform 
administrative  and  judicial  environment  to  investigate  and  prosecute  fraudsters,  and  gaps  in 
the skills and sharing of best practice among national authorities.  

4. Programme objectives 

The  general  objective  is  to  protect  the  financial  interest  of  the  Union  thus  enhancing  the 
competitiveness  of  the  European  economy  and  ensuring  the  protection  of  the  taxpayers' 
money". 

The specific objective of the programme is to prevent and combat fraud, corruption and any 
other illegal activities against the financial interests of the Union. 

Further operational objectives have been defined in the annex to the regulation. 

5. Subsidiarity and EU added value 

The Treaty (Articles 317, 325 TFEU) makes the Commission in cooperation with the Member 
States responsible for the implementation of the budget and the countering of fraud. The latter 
is a policy of shared competence of the EU. Therefore the EU has a specific responsibility to 

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foster close and regular cooperation between all competent authorities by granting assistance 
and support.  Furthermore, some Hercule actions take place at the level of the EU Institutions.  

Clear  added  value  is  obtained  from  facilitating  cooperation  between  Member  States 
authorities, from cost savings from joint procurement, and through strengthening weak points 
where  national  authorities  are  particularly  exposed  to  criminal  action  organised  from  the 
territory of neighbouring countries. There are also benefits to national finances in as much as 
many of the EU expenditure is spent under a regime of co-financing and smuggling frequently 
has  detrimental  effects  both  on  the  customs  duties  and  on  national  (indirect)  taxes.  The 
programme  addresses  the  problem  of  the  lack  of  incentive  for  some  Member  States  to  deal 
with issues which have little impact on their own finances but which impact negatively on the 
EU-budget  or  on  the  national  budgets  of  other  Member  States,  particularly  in  times  of 
budgetary stringency (e.g. cigarette smuggling and counterfeiting). 

Also,  the  programme  fosters  networking  and  exchange  of  best  practice  between  Member 
States' administrations, and improves compliance with EU law, by training national specialists 
in joint events attended by many nationalities. 

6. Description of Policy Options 

The baseline scenario is continuation of the status quo (option 1). 

Option 2 would build on the status quo, but improving the methodology of the programme, 
notably by raising maximum co-financing ceilings so as to address the growing problems of 
matching  finance  in  Member  States,  which  is  particularly  important  if  protection  in 
geographical  zones  which  are  particularly  at  risk  and  weak  points  in  EU  defences  against 
fraud are to be strengthened. 

Option 3 would be a radical shift towards the support of immediate operational activities at 
the  expense  of  longer  term  objectives  such  as  increased  compliance,  better  information 
exchange,  and  the  development  of  legal  thought  on  EU-wide  criminal  law  issues  affecting 
protection of EU funds.   

Option 4 is to discontinue the programme. 

Two other options have not been further taken into account: 

• 

• 

An option to increase spending above present levels is rejected as inconsistent with the 
Multiannual  Financial  Framework    planning  as  proposed  by  the  Commission  in    its 
communication (COM(2011)500 ‘A Budget for Europe 2020’. 
An option to combine the programme with Pericles (protection against counterfeiting of 
the  euro)  is  not  viable  because  the  respective  legal  bases  foresee  different  legislative 
procedures for the adoption (see Articles 133 and 325 TFEU respectively). 

7. Analysis of impacts by option 

The impact of the options is analysed by first examining the impact achieved under Hercule II 
(baseline, option 1) and then by comparing the impact which the other options would have.  

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The discussion of option 4 considers the effect of discontinuation by sector of the programme 
and  therefore  also  serves  as  a  basis  for  considering  possible  changes  in  the  distribution  of 
spending  between  sectors.  Option  4  is  rejected  because  the  cost  in  terms  of  reduced 
effectiveness  and  efficiency  in  the  fight  against  fraud  would  greatly  exceed  the  financial 
savings.  The  possibility  of  transferring  some  actions  to  other  EU  programmes  is  rejected 
because of the inevitable loss of focus on EU Budget protection. 

Option 3 would have as its undesirable possible effect to generate a disbalance in the overall 
anti-fraud approach at an EU-level. In accordance with the Commission Anti-Fraud Strategy 
(CAFS, COM (2011) 376) a distinct effort needs to be maintained and even further developed 
on  specific  actions  aimed  at  the  prevention  and  detection  of  fraud,  including  an  improved 
exchange of best practices and training.  

The  preferred  choice  is  therefore  Option  2  (basically  an  improved  status  quo).  This  would 
permit  a  more  cautious  move  than  under  Option  3  to  be  made  towards  more  emphasis  on 
operational  support,  if  it  is  so  decided  in  the  light  of  developing  circumstances  and 
stakeholder views. 

8. Links with other post 2013 initiatives  

Other initiatives in the areas of law enforcement and Customs cooperation will have positive 
indications for the protection of EU financial interests. Equally, initiatives under Hercule will 
have positive implications for other law enforcement, customs and security policies; a scanner 
provided  primarily  to  detect  illicit  cigarette  consignments  can  also  identify  other  illicit 
consignments with revenue, criminal or security implications. 

Nevertheless  these  initiatives  follow  distinct  policy  objectives  and  may  not  continuously 
support specific anti-fraud actions. It is indeed essential to maintain the focus of a programme 
targeted specifically at the protection of financial interests at EU level to allow for specialised 
projects aimed at improving fraud prevention, detection and investigation, including projects 
which  require  multidisciplinary  involvement  of  services  which  belong  to  different 
administrations.  Anti-fraud  is  a  multidisciplinary  objective  requiring  an  effective  and 
transnational cooperation between many different partner authorities.  

The necessary coordination has taken place between OLAF and other DGs to avoid overlap or 
confusion between programmes. 

9. Simplification and reduction of the administrative burden  

Some  technical  improvements  are  suggested  to  reflect  experience  and  consultations  in 
accordance  with  the  rules  under  the  Financial  Regulation,  such  as  more  flexible  procedures 
for the financing of projects below a certain ceiling (50 000 €), reduced requirements in terms 
of  breakdown  of  costs  and  estimates,  the  use  of  simplified  requirements  for  application  as 
well as for reporting on outcomes, and an increased use of working groups to accelerate feed 
back and improve the targeting of the spending. 

10. Monitoring and evaluation 

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There  will  be  annual  and  mid-term  evaluations.  OLAF  officials  attend  many  of  the  events 
financed in order to ensure proper monitoring of the quality and the target oriented character 
of the actions. This provides an adequate ex-ante control of the financing of the projects and is 
an  important  aspect  of  the  implementation  of  the  mandate  of  the  Commission  (OLAF)  to 
assist Member States in the organisation of a close and regular cooperation. Output data and 
feedback will be systematically collected and analysed. SMART indicators will be developed 
wherever possible to measure the impact of actions under the programme. Where this is not 
possible because of the nature of the action, for example for some training actions, there will 
be close monitoring of quality and of output indicators. 

The  re-organisation  of  OLAF  early  in  2012  will  reinforce  OLAF's  capacity  to  manage  and 
evaluate the Hercule programme.  

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