COMMISSION STAFF WORKING PAPER 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) 1610 final 

COMMISSION STAFF WORKING PAPER 

IMPACT ASSESSMENT 

Accompanying document to the  

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
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) 1611 final} 

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TABLE OF CONTENTS 

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

2. CONSULTATION OF INTERESTED PARTIES............................................................ 7 

3. PROBLEM DEFINITION AND INTERVENTION LOGIC .......................................... 8 

4. PROGRAMME OBJECTIVES ........................................................................................ 15 

5. SUBSIDIARITY AND EU ADDED VALUE................................................................... 20 

6. DESCRIPTION OF POLICY OPTIONS ........................................................................ 22 

7. ANALYSIS OF IMPACTS BY OPTION: CHOICE OF PREFERRED OPTION ..... 24 

1. Technical assistance and information technology projects .................................................. 24 

2.  Specialised anti-fraud training ............................................................................................ 26 

3.  The Associations for Criminal Law and the Protection of the EU Financial Interests (ELA)
.................................................................................................................................... 28 

8. LINKS BETWEEN THE INTENDED INITIATIVE AND OTHER POST 2013 

MULTIANNUAL FINANCIAL FRAMEWORK RELATED INITIATIVES .. 39 

9. SIMPLIFICATION AND REDUCTION OF THE ADMINISTRATIVE BURDEN.. 41 

10. MONITORING AND EVALUATION........................................................................... 42 

ANNEXES............................................................................................................................... 43 

ANNEX 1................................................................................................................................. 43 

BUDGETARY ENVELOPE OF THE HERCULE II PROGRAMME (2007-2011):...... 43 

ANNEX 2................................................................................................................................. 44 

COMMITMENTS MADE UNDER THE HERCULE II PROGRAMME (2007- 2010):44 

ANNEX 3................................................................................................................................. 46 

TECHNICAL ASSISTANCE AND INFORMATION TECHNOLOGY: RESULTS .... 46 

3.1 

3.2 

3.3 

3.4 

3.5 

OPERATIONAL RESULTS OF TECHNICAL EQUIPMENT CO-FINANCED BY 
HERCULE II.............................................................................................................. 46 

X-RAY SCANNING EQUIPMENT SUPPORTED BY HERCULE II.................... 46 

COMPUTER FORENSIC TRAINING ..................................................................... 47 

INFORMATION TECHNOLOGY: AMT AND CONTRAFFIC............................. 47 

PROCURED ACCESS TO DATABASES ............................................................... 49 

ANNEX 4................................................................................................................................. 52 

TRAINING: SOME HERCULE II SUCCESS STORIES ................................................. 52 

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ANNEX 5................................................................................................................................. 54 

REPLIES TO THE 2011 SURVEY ON THE USE OF DATABASES SUPPORTED BY 

HERCULE II............................................................................................................ 54 

ANNEX 6................................................................................................................................. 56 

DATA ON THE EXTENT OF FRAUD ............................................................................... 56 

1. POLICY CONTEXT AND CONTRIBUTION TO EU PRIORITIES 

Treaty base 

The Treaty reflects public concern about the protection of EU financial interests by providing 
for the principle of effective and equivalent protection across the Member States and the EU 
Institutions, bodies, offices and agencies (Article 325 TFEU, ex Article 280 TEC). 

The  importance  of  gaining  and  maintaining  public  trust  in  the  EU's  capacity  to  protect 
taxpayers' money from fraudsters cannot be overstated, particularly in the present context of 
budgetary stringency. 

Origins of the Hercule programme 

The  Hercule  programme  is  the  only  instrument  specifically  dedicated  to  protecting  the 
financial interests of the EU by supporting the fight against fraud to the detriment of the EU 
Budget. 

Hercule is administered by the European Anti-Fraud Office (OLAF) which is a Directorate-
General of the European Commission. 

The  Hercule  I  programme  was  based  on  Decision  804/2004/EC  which  essentially  put  on  a 
proper footing and expanded a number of activities which had developed from the 1990s. 

Decision 878/2007/EC extended this programme over the period 2007 to 2013, as Hercule II.  
The 2007 decision introduced a specific emphasis on the fight against cigarette smuggling and 
counterfeiting  to  reflect  the  support  by  the  Commission  to  the  objectives  of  the  Anti-
Contraband  and  Anti-Counterfeiting  Agreement  with  Philip  Morris  International,  signed  in 
2004, and provided an additional € 6 million per year. 

The Hercule II overall budget is € 98.5 milli on over 2007 – 2013, with annual provision rising 
from  €  13  million  in  2007  to  €15  million  in  2 011.  (Details  of  the  breakdown  of  spending 
between the main sectors of activity are in Annex 2.) 

The protection of the financial interests of the EU 

The concept of the protection of the financial interests of the EU (PFI) covers the prevention, 
detection and investigation of fraud against the EU Budget and can extend also to measures to 
address other serious irregularities.  Action to protect the financial interests covers the whole 

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of  the  expenditure  side  of  the  Budget.    On  the  revenue  side  of  the  Budget,  action  mainly 
relates to traditional Own Resources (mainly Customs duties). 

Protection  of  EU  funds  goes  alongside  the  protection  of  national  funds.  This  is  particularly 
obvious where projects are co-financed.  But it is also the case that general improvements in 
ethical  standards,  reduced  corruption  and  better  administration  benefit  public  finance  at  all 
levels. On the revenue side of the budget, action to fight smuggling benefits Member States 
directly because it protects (national) excise revenue as well as (EU) Customs duty.  

Details of the Hercule programme (except cigarette smuggling) 

The main sectors of expenditure under the present Hercule II are as follows; 

1. 
  Technical  assistance  in  order  to  assist  the  Member  States  to  acquire  highly 
sophisticated  and  transnationally  compatible  technical  equipment  used  to  protect, 
mainly,  the  revenue  side  of  the  budget;  and  also  to  promote  common  technical 
standards, training and cooperation between the services which  use this equipment.  
This  heading  is  also  used  to  support  joint  operations  and  to  acquire  commercially 
available databases needed by Member State and OLAF investigation services. 

Examples  are  the  financing  of  vehicle  and  container  number  plate    reading 
equipment  at  the  external  frontier  and  of  scanners  of  various  types  at  sea  ports, 
airports and postal depots to detect in particular  smuggling of products shipped by 
container  

Present  annual  spending  under  this  heading  is  €  9.1  million;  about  60%  of  the 
Hercule Budget. 

2. 
  Specialised  training  in  the  protection  of  EU  financial  interests  for  Member 
State services and sometimes third country partners.  This training is intended to help 
Member States ensure that their officials who have responsibilities for decisions on 
and  control  of  the  spending  of  EU  funds  have  an  adequate  knowledge  of  the 
protection of EU financial interests' aspect of their jobs.   It also promotes the spread 
of  best  practice  and  networking  between  Member  State  services  with  similar 
responsibilities or shared responsibilities where cross-border issues arise.  This is in 
line with the objectives of the Commission's Anti-Fraud Strategy (CAFS) which the 
Commission adopted earlier this year (COM (2011)376, 24.06.2011). 

Some  training  covers  protection  of  the  financial  interests  in  a  wider  sense,  for 
example  the  prevention  of  irregularities  in  the  cohesion  funds.    Other  training  may 
focus more on the specific issue of (criminal) fraud against the Budget; for example, 
a  conference  bringing  together  public  prosecutors  from  Member  States,  candidate 
countries  and  sometimes  third  countries  who  are  responsible  for  dealing  with 
particular aspects of this category of economic crime or who act as national contact 
points with OLAF. 

Present  annual  spending  under  this  heading  is  €  5.2  million;  about  35%  of  the 
Hercule Budget. 

 3. 
Support of the Associations for European Criminal Law and for the Protection 
of the EU Financial Interests (hereinafter: European Lawyers’ Associations (ELA)) .  

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These  academic  and  professional  groups  undertake  research  and  discussion  on  the 
legal issues involved, in the main, in bringing the different national criminal justice 
to  bear  on  the  protection  of  EU  finances.    This  also  serves  as  a  forum  for  the 
dissemination of information about this area of EU law and potential developments 
therein.  The  long-term  strategic  objective  is  to  develop  sufficient  professional 
consensus about the necessity of harmonised or coordinated criminal law approaches 
to the issue.  It is reasonable to speculate that without the work financed in this area 
over the past two decades  important ground work reflecting on how best to achieve 
criminal  law  protection  of  the  EU  finances  would  not  have  been  possible:  for 
example  the  “Corpus  iuris”  (2000)  developed  by  a  study  group  composed  of  the 
members of the ELA influenced the preparation of the Green Paper on the European 
Public Prosecutor  in 2001 and as a consequence also the consultation process at an 
institutional level for the preparatory work of the Convention on the Constitution. 

Present annual spending under this heading is € 0.7 million; about 5% of the Hercule 
Budget. 

Details of the Hercule programme; cigarette smuggling 

In  July  2004,  the  Commission  and  10  Member  States  signed  a  legally  binding  Anti-
Contraband and Anti-Counterfeit Agreement with Philip Morris International (PMI). The aim 
of the 12 year Agreement was to give higher priority to the fight against cigarette smuggling 
which is estimated to result in financial losses to the EU and Member States of €10 billion a 
year.  As  well  as  building  on  measures  to  prevent  the  products  of  PMI  entering  the  illegal 
supply  chain,  the  Agreement  enhanced  the  Commission’s  role  in  anti-contraband  and  anti-
counterfeiting  of  cigarettes  insofar  as  it  provides  for    sharing  of  data  on  seizures  of  illegal 
product by the manufacturers… The Agreement provides for payments by PMI of up to $1.25 
billion over the lifetime of the Agreement.    

Similar  Cooperation  Agreements  were  concluded  with  Japan  Tobacco  International  (JTI)  in 
December  2007,  with  British  American  Tobacco  (BAT)  in  July  2010  and  with  Imperial 
Tobacco Limited (ITL) in September 2010. All 27 Member States have signed the PMI and 
JTI Agreements, 26 Member States have signed the Agreements with BAT and ITL1.  

The four tobacco manufacturers will pay a collective total of $2.15 billion over 20 years, of 
which 10% is paid to the Commission and the rest is paid to Member States.  

These  Agreements  were  in  some  cases  concluded  against  the  background  of  actual  or 
potential litigation. The full text of all the Agreements concluded with tobacco manufacturers 
can be found at: http://ec.europa.eu/anti_fraud/budget/index_en.html 

The  PMI  Agreement  (Article  3,  Section  3.01)  refers  specifically  to  the  Commission’s  anti-
contraband  and  anti-counterfeit  initiatives  and  intention  to  intensify  efforts  to  prevent  the 
introduction, sale and distribution of contraband and counterfeit cigarettes: 

1 Sweden has not signed the Agreements with BAT and ITL 

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“It  is  the  policy  of  the  EC  and  the  Member  States  to  vigorously  combat  the 
introduction,  sale  and  distribution  of  Contraband  Cigarettes  and  Counterfeit 
Cigarettes  within  or  through  the  Territory  of  the  Member  States.  Subject  to 
budgetary  constraints,  the  EC  intends  to  intensify  efforts  to  curb  the  introduction, 
sale  and  distribution  of  Contraband  Cigarettes  and  Counterfeit  Cigarettes;  apply 
appropriate  equipment 
introduction,  sale, 
distribution,  storage,  and  shipment  of  Contraband  Cigarettes  and  Counterfeit 
Cigarettes;  and  continue  to  train  law-enforcement  personnel  in  how  best  to  detect 
and seize Contraband Cigarettes and Counterfeit Cigarettes”.  

for  monitoring  and 

tracking 

the 

Since  2007  the  Hercule  programme  has  served  as  the  means  by  which  the  Commission  has 
carried out its side of these Agreements by spending at least € 6 million per year on actions to 
fight cigarette smuggling.  These actions are taken under the headings of technical assistance 
and  of  specialised  training,  described  above.    The  largest  area  of  spending,  reflecting 
consultation with Member States in 2007 has been on the co-financing of scanners to detect 
concealed  cigarettes  in  transit  (whether  at  EU  ports,  border  crossings,  postal  hubs  or  by 
mobile detection teams).  Other spending has been on specialist conferences and seminars and 
laboratory services. 

OLAF  coordinates  operational  matters  relating  to  these  Agreements  with  the  specialist 
services of Member States through the Task Force Cigarettes which brings together the OLAF 
and national officials concerned.   

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2. CONSULTATION OF INTERESTED PARTIES 

The  current  Hercule  programme  includes  a  heterogeneous  group  of  actions  involving 
stakeholders  who  are  all  important  to  the  fight  against  fraud  but  whose  contribution  takes 
different forms. The format of consultation has taken account of these differences. 

OLAF carried out in 2011 an informal consultation of the following stakeholders, in part 
on the basis of questionnaires; 

-   OLAF's  Task  Group  Cigarettes  partners  (specialist  services  in  Member  States 

concerned in particular with the agreements with the tobacco manufacturers); 

-   Member state services which access the specialist databases which OLAF procures 

under the technical assistance sector of Hercule; 

-   The  Associations  for  Criminal  Law  and  the  Protection  of  the  EU  Financial  Interests 

(European Lawyers’ Associations – ELA). These stakeholders were asked to  
the implementation of the Hercule II programme and to provide ideas for   future objectives. 

evaluate 

In  respect  of  other  activities  financed  under  Hercule,  there  has  been  a  continuous  dialogue 
between OLAF and stakeholders over the life of the programme, in particular in the sensitive 
sector of technical assistance, some of which is confidential for operational reasons.   

Discussions  have  also  been  held  during  the  development  of  the  existing  programme  with 
other institutions/bodies, including Eurojust and Europol, as well as with EU agencies. These 
have  led,  in  particular,  to  suggestions  for  the  wider  availability  of  databases  funded  by 
Hercule, and to the cooperation with the Joint Research Centre (JRC) described in chapter 7. 

This Impact Assessment also draws on the Intermediate Review carried out within OLAF in 
late 2010. 

All 

this 

feedback  has  been 

taken 

into  account 

in 

this 

impact  assessment.  

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3. PROBLEM DEFINITION AND INTERVENTION LOGIC  

Size of the problem 

The Commission's Annual Reports under Article 325 TFEU for 2009 (COM (2010) 382) and 
2010 (COM (2011) 595) on the protection of the EU's financial interests confirm that further 
action is required to ensure that EU taxpayers' money is correctly spent and that measures are 
in place to improve the prevention, detection, investigation and prosecution of fraud 

Whereas  the  actual  level  of  (criminal)  fraud  against  the  EU  Budget  by  nature  of  the 
phenomenon  is  not  known.  The  Commission’s  Annual  Reports  provide  two  sets  of  figures 
which give an indication of the extent of the problem.  These are 

• 
• 

total irregularities reported by Member States or EU authorities; and 
the subset of that total which has been identified as suspected fraud.   

(the 

The Report for 2010 shows that reported irregularities varied from 0.23% of the agriculture 
budget  to  5.26%  of  pre-accession  funds,  via  0.27%  of  direct  expenditure  and  3.15%  of 
influenced  upwards  by  cyclical 
latter  heavily 
cohesion  policy  expenditure 
considerations).    The  corresponding  figures  for  irregularities  suspected  to  constitute  fraud 
were  0.12%  of  agriculture  spending,  0.74%  of  cohesion  policy  spending,  2.6%  of  pre-
accession  spending,  and  0.02%  of  direct  expenditure  (the  latter  probably  influenced 
downwards because of the relative newness of the data source).  The overall financial impact 
of reported irregularities was €  1.8 billion of which suspected instances of fraud accounted for 
nearly € 0.5 billion. 

The table at Annex 6 gives more details. 

Another  statistical  demonstration  of  the  scale  of  the  problem  can  be  found  in  the  data  on 
OLAF’s  casework  in  OLAF’s  annual  independent  operational  report.    The  report  for  2010  
shows that at end-2010 OLAF was conducting 339 investigations on its own account and was 
assisting national authorities with a further 154 cases.  Between the creation of OLAF in 1999 
and July 2011, OLAF completed more than 1,500 of its own investigations.  Further data is in 
Annex  6.  The  Annual  Accounts  of  the  EU  (Note  6  on  financial  corrections  and  recoveries 
following the detection of irregularities)2 give also an indication of the size of the problem. 

Consequences of the problem 

Fraud  against  the  expenditure  side  of  the  EU  budget  makes  spending  less  effective  and  has 
similar  social  and  economic  consequences  to  those  of  other  economic  crime;  distortion  of 
competition,  growth  of  organised  crime,  pervasive  effects  of  corruption  on  society  and 
economic growth etc.  However, there is in surplus also a significant reputational risk to the 
credibility  of  the  EU  Institutions  and  of  the  European  project  itself.  This  risk  is 
proportionately greater than reputational risk at national level since "EU fraud" has at times 
been  instrumentalised  as  an  argument  against  EU  policies  and  spending  programmes  and 
indeed the European project generally.   

2  

OJ C 308, 12.11.2010, p.1 (128) 

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On  the  revenue  side  of  the  Budget,  where  Hercule  interventions  concentrate  on  traditional 
own resources, the reputational risk is lesser but the sums at stake are larger, with individual 
cases in the tens of millions or more, sometimes involving organised criminal groups. 

The enlargement process has significantly increased the level of the problem, as is shown by 
the proportion of OLAF’s caseload in certain new Member States relative to their size.  Future 
enlargements may have similar consequences. 

In addition, there is a third country dimension. The EU spends money in jurisdictions with a 
weak administrative and judicial environment where corruption is a substantial and structural 
problem. 

Fraud  prevention  and  awareness-raising  are  therefore  a  key  issue  under  the  Commission's 
Anti-Fraud Strategy (CAFS) (COM (2011) 376, 24.06.2011).  In this Anti-Fraud Strategy the 
Commission  has  identified  the  current  context  of  the  preparation  of  the  new  multi-annual 
financial  framework  (MFF)  as  an  opportunity  to  reinforce  anti-fraud  approaches  across 
different  EU  policies.  Fraudsters,  in  particular  organised  crime,  adapt  quickly  to  new 
circumstances.  The  Commission  must  be  in  a  position  to  face  such  new  challenges.  The 
changing context requires continuous adjustment to EU anti-fraud policies. 

Drivers 

A number of drivers have been identified which have a negative effect on the joint efforts of 
the EU Institutions and the Member States to work together to protect the EU Budget against 
fraud in close and regular cooperation, as required by the Treaty.  These are summarised in 
Figure 1. 

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Figure 1: Hercule III Drivers and problems 

Driver 1:

Driver 2:

Fraudsters adapt quickly to 
new circumstances at EU 
level, operate across 
borders and exploit the 
weakest points 

The Commission and 
Member States have 
committed themselves to 
intensify the fight against 
cigarette smuggling 

Driver 3:
Pressures on public finance 
require increasingly cost-
efficient protection of EU 
financial interests through 
improved detection and 
prevention

Driver 4:

Vast majority of anti-fraud 
resources are at national level, 
in many and varied competent 
authorities  

Problem 1:
How to develop specialist 
knowledge and to deploy state 
of the art technical equipment 
to modernise prevention, 
detection and investigation in 
defence of the EU Budget 

Problem 2:

1 

How to respond to the rapid 
development in organised 
criminal activities in key 
sectors such as cigarette 
smuggling and counterfeiting 

Problem 3:
How to maintain public 
confidence in the European 
project given the increased 
challenges to good 
governance and public finance 
ethics from past and 
prospective enlargements and 
from continued expansion of 
EU expenditure in high-risk 
third countries

Problem 4:

Problem 6:

Lack of sufficient awareness 
and expertise to prevent and 
detect fraud on an EU scale 

Problem 5:

Insufficient and/or ineffective 
use of risk analysis of and 
information sharing about fraud 
patterns at EU level 

Shortcomings in the ability 
and/or willingness of 
competent authorities to 
cooperate among themselves 
and/or with OLAF 

Problem 7:

4 

Difficulties in installing 
information exchange 
mechanisms and tools which 
are standardised, 
interconnected and adapted to 
efficient transnational anti-
fraud cooperation 

Problem 8:

Lack of a uniform 
administrative and judicial 
environment to investigate and 
prosecute EU budget fraud 

Driver 5: 
Driver 5: 

Differences in incentives and 
Differences in incentives and 
capacities between Member 
capacities between Member 
States impede equivalence in 
States impede equivalence in 
the protection of financial 
the protection of financial 
interests 
interests 

Problem 9: 
Problem 9: 

Gaps in the skills, experience 
Gaps in the skills, experience 
and sharing of best practices 
and sharing of best practices 
among national competent 
among national competent 
authorities 
authorities 

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Driver 1 

Fraudsters  adapt  quickly  to  new  circumstances  at  EU  level,  operate  across  borders  and 
exploit the weakest points. 

Crime,  especially  organised  economic  crime,  knows  no  borders.    It  is  quick  to  exploit  the 
removal of internal frontiers and to search for the weakest points in the external border.  

The Commission Anti-Fraud Strategy, COM (2011) 376 emphasises that the changing context 
of fraud requires continuous adjustment to EU anti-fraud policies. 

 In recent years, OLAF has uncovered sophisticated networks which defraud the expenditure 
side  of  the  Budget  through  complex  structures  operating  in  several  member  states  and 
neighbouring  countries,  using  devices  such  as  multiple  invoicing,  hidden  relationships  and 
inflated  cost  claims.    There  have  also  been  many  instances  of  collusion  between  the 
beneficiaries  of  EU  funding  in  one  MS  (typically  a  new  MS  benefiting  from  pre-accession 
funding) and the suppliers of the equipment funded (typically situated in an “old” MS).  The 
investigation  and  prosecution  of  such  offences  requires  close  cooperation  between  the 
authorities  of  the  Member  States  involved,  generally  involving  OLAF  and  sometimes  also 
EUROJUST. 

Similar patterns of criminal behaviour have long existed on the revenue side of the Budget, 
but  now  enjoy  enhanced  opportunities  as  a  result  of  globalisation,  increased  trade  and  new 
more complex international business models. 

Law enforcement authorities, on the other hand, remain constrained to a significant extent by 
internal borders, and have not yet sufficiently developed structures, networks and skills on the 
scale or with the flexibility rapidly to investigate cross-border crime and to prosecute it in the 
appropriate jurisdiction(s). 

This  situation  presents  a  particular  threat  to  the  EU  Budget,  on  the  revenue  side,  through 
Customs  fraud  (notably  misdescription  of  goods,  false  declaration  of  origin  or  value  and 
through  smuggling).  On  the  expenditure  side  of  the  Budget,  there  is  a  particular  threat  to 
funds  under  shared  management  in  certain  Member  States  with  weak  administrative  and/or 
judicial  structures,  and  to  funds  under  direct  expenditure  in  respect  of  which  Member  State 
judicial authorities are, in practice, less likely to intervene than in respect of national funds. 

Problem  1:  how  to  develop  specialist  knowledge  and  to  deploy  state  of  the  art  technical 
equipment to modernise prevention, detection and investigation in defence of the EU Budget.  

Problem 2: how to respond to the rapid development in organised criminal activities in key 
sectors such as cigarette smuggling and counterfeiting. 

Problem  3:  how  to  maintain  public  confidence in  the  European  project  given  the  increased 
challenges  to  good  governance  and  public  finance  ethics  from  past  and  prospective 
enlargements and from continued expansion of EU expenditure in high-risk third countries. 

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Driver 2: The Commission and the Member States have committed themselves to intensify 
the fight against cigarette smuggling 

The  Commission  and  the  Member  States  have  committed  themselves  to  intensify  the  fight 
against  cigarette  smuggling  in  the  Cooperation  Agreements  with  four  major  international 
cigarette manufacturers which are described in chapter 1 above.  As that chapter explains, the 
companies  have  committed  themselves  to  pay  over  $  2  billion  to  national  and  EU  Budgets 
over  up  to  20  years.    The  Agreements  are  legally  binding  and  Hercule  II  is  the  chosen 
instrument through which an annual sum of €  6 million is targeted at cigarette smuggling. 

The Agreements signed with the four tobacco manufacturers contain a number of provisions 
(for  example  the  tracking  and  tracing  of  cigarettes,  know-your-  customer,  anti-money 
laundering  provisions)  which  have  been  successful  in  reducing  the  availability  of  their 
products to criminal gangs engaged in smuggling. This supply shortfall has been filled with 
cheap cigarettes from countries bordering the EU, and counterfeit cigarettes from the Far East, 
particularly the People's Republic of China but also Malaysia, Vietnam and the  Philippines. 
Production of cheap cigarettes in the Middle East, most notably the United Arab Emirates, has 
also  expanded  considerably  in  the  last  three  years,  and  a  presence  of  cigarettes  produced  in 
the Middle East on the illicit market in the EU has increased.   

The  primary  driver  of  cigarette  smuggling  is  the  intent  and  ability  of  criminal  elements  to 
supply the unofficial market for tobacco at prices below the official market prices in member 
states.  The relatively high cigarette prices in the EU are a major incentive for smugglers.  

Smugglers can expect very high profits and a relatively low risk of detection. If caught and 
prosecuted,  the  penalties  are  much  lower  than  for  other  forms  of  serious  organised  crime. 
.Evasion of customs and other duties is therefore a serious problem.  

Losses to the EU and Member States' budgets as a result of cigarette smuggling are estimated 
to be approximately €10 billion per year. 

The  new  Member  States  have  all  signed  the  Agreements  with  the  tobacco  manufacturers. 
However,  before  joining  the  EU  many  of  these  Member  States  had  limited  experience  with 
cigarette smuggling investigations and traditionally had seized very few illicit cigarettes. The 
situation has changed quite rapidly and both the Balkan route and the Baltic route are being 
used  to  smuggle  substantial  quantities  of  cigarettes.  Member  States  which  in  the  past  were 
source/transit  countries  for  illicit  cigarettes  are  now  transit/destination  points  for  illicit 
consignments of cigarettes. 

Problem 3 (see under Driver 1 above) and problem 5 (see under Driver 3 below) 

Driver  3:  pressures  on  public  finance  require  increasingly  cost-efficient  protection  of  EU 
financial interests through improved detection and prevention 

It  is  generally  not  possible  for  Member  States  or  indeed  EU  Institutions  to  increase  their 
funding  of  control  or  investigation  services  to  match  the  increase  in  the  threat;  on  the 
contrary, especially in some of the Member States more vulnerable to fraud, previous levels 
of funding cannot be maintained. 

There  is  a  particular  issue  with  the  lack  of  incentive  for  Member  States,  in  some 
circumstances,  to  give  sufficient  priority  to  protecting  EU  funds.    For  example,  failure  to 
collect Customs duties effectively in one Member State will, in the absence of identification 

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and  recovery  by  the  Commission,  lead  to  an  increase  in  national  contributions  to  the  EU 
Budget financed by general taxation through the GNI mechanism in all Member States.  Or 
the regional law enforcement authorities, even in a rich Member State, as OLAF has recently 
experienced, may be reluctant to allocate resources to deal with an alleged fraudster in their 
territory whose criminal activities target the EU budget rather than local residents, 

In these circumstances it is necessary to devise more cost-effective ways of protecting public 
money  and  to  take  further  steps  to  reduce  the risk  that  increasing  resource  pressures  do  not 
have disproportionate consequences for the protection of EU funds relative to national funds. 

The  Commission  Anti-Fraud  Strategy  (CAFS)  acknowledges  the  importance  of  cost/benefit 
considerations  and  resources  available  when  implementing  anti-fraud  measures.  Improved 
fraud  risk  management  and  intelligent  IT  based  controls  should  boost  fraud  prevention  and 
detection.  Fraud awareness-raising is another key action to support prevention and detection. 

Problem 4: lack of sufficient awareness and expertise to prevent and detect fraud on an EU 
scale. 

Problem  5:  insufficient  and/or  ineffective  use  of  risk  analysis  of  and  information  sharing 
about fraud patterns at EU level. 

…and also Problem 1, which is aggravated by budgetary pressures 

Driver  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 level. 

Administrative  and  law  enforcement  structures  differ  between  Member  States.  Operational 
responsibility  for  the  protection  of  EU  financial  interests  can  involve  national,  local  or 
specialist  police  forces;  Customs  services;  public  prosecutors  who  may  or  may  not  be 
specialists in fraud; national audit Courts or Offices; national or regional inspection services; 
the audit or control functions of national and regional administrations; and sometimes other 
agencies such as those dealing with security or organised or economic crime.   

These  bodies  have  varying  competences,  capacity,  priorities  and  expertise,  not  to  mention 
resources.    Some  authorities  find  it  relatively  easy  to  work  together  across  frontiers;  for 
example,  neighbouring  Customs  administrations,  or  national  police  forces  organised  on  a 
paramilitary  basis,  where  these  exist.    In  other  cases,  for  example  where  Customs  in  one 
country need to work with the police in another, or where a specialist economic crime agency 
cannot identify a natural "opposite number" or partner in another Member State, cooperation 
is  much  more  difficult.    OLAF  has  an  essential  role  in  facilitating  and  coordinating  such 
contacts. 

Only Member States who joined in 2004 or later, and candidate countries, are obliged to have 
formal structures for national coordination of measures to fight EU budget fraud and to liaise 
with  OLAF  (“AFCOS”  –  Anti  Fraud  Coordination  Structures).  However,  the  proposal  to 
reform  the  Regulation  governing  OLAF  (1073/99)  which  is  currently  under  discussion 
between  the  Council  and  the  Parliament  (COM  (2011)135)  would  extend  this  to  the  older 
Member States. 

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The application of the criminal law and penal sanctions in the fight against fraud remains the 
exclusive prerogative of the Member States.  Despite the – slow - progress made with third 
pillar  instruments  over  the  past  15  years  or  so,  differences  in  national  legal  structures  and 
approaches continue to constitute a significant obstacle to more effective use of the criminal 
law to deal with the threat of fraud to the EU Budget.  The Commission Communication on 
the  protection  of  the  financial  interests  of  the  EU  by  criminal  law  and  by  administrative 
investigations (COM (2011) 293) drew attention in May 2011 to the problems that continue to 
be  caused  by  the  absence  of  a  level  playing  field  in  criminal  law  and  by  insufficient 
cooperation between national authorities. 

In all these circumstances there can be considerable practical difficulties in making a reality 
of  the  Treaty  duty  towards  close  and  regular  cooperation  between  the  Commission  and 
Member States (and indeed on occasion between services of the same Member State). 

Problem  6:  shortcomings  in  the  ability  and/or  willingness  of  competent  authorities  to 
cooperate among themselves and/or with OLAF 

Problem  7:  difficulties  in  installing  information  exchange  mechanisms  and  tools  which  are 
standardised, interconnected and adapted to efficient transnational anti-fraud cooperation. 

Problem  8:  lack  of  a  uniform  administrative  and  judicial  environment  to  investigate  and 
prosecute EU budget fraud. 

Driver  5:  Differences  in  incentives  and  capacities  between  Member  States  impede 
equivalence in the protection of financial interests. 

The  equivalent  protection  of  EU  financial  interests  across  the  EU  and  between  EU  and 
national budgets is a fundamental principle which is an essential reassurance to the taxpayer 
and should be a guarantee that the solidarity which is explicit in EU financial mechanisms is 
not abused. 

However, the capacity of individual Member States and their services to achieve equivalence 
varies very substantially.  This is shown in successive Commission article 325 (formerly 280) 
Reports,  in  reports  of  the  Court  of  Auditors  and  of  the  Internal  Audit  Service,  in  the 
monitoring  of  the  most  recent  Member  States,  and  elsewhere.    For  example,  the  Annual 
Report  of  the  Commission  on  the  protection  of  EU  financial  interests  for  2010,  COM 
(2011)595,    points  out  that  the  performance  of  Member  States  in  identifying  and  reporting 
instances  of  irregularity  which  are  likely  to  constitute  suspected  fraud  continues  to  vary 
significantly. 

Problem  9:  gaps  in  the  skills,  experience  and  sharing  of  best  practice  among  national 
competent authorities. 

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4. PROGRAMME OBJECTIVES 

General objective 

The general objective of the Programme shall be 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 programme will respect the distinct traditions of each Member State and will aim to strike 
a  geographical  balance  across  all  Member  States  and  candidate  countries,  without 
undermining operational effectiveness. 

Specific objective 

The specific objective of the Programme shall be to prevent and combat fraud, corruption and 
any other illegal activities against the Union's financial interest. 

This objective will be measured, inter alia, through the amount of recoveries following fraud 
cases  detected  by  joint  actions  and  cross  border  operations,  the  increased  percentage  of 
successful  joint  operations,  and  the  increased  number  of  cases  accepted  by  the  criminal 
investigative authorities. 

Operational objectives 

Specific  objectives  are  designed  to  address  one  or  more  of  the  problems  identified  in  the 
intervention logic chart. 

Operational objective 1 

To  enhance 
authorities, the Commission and OLAF in the prevention and investigation of fraud. 

transnational  and  multidisciplinary  cooperation  between  Member  State 

Mainly addresses problems 2, 3, 4, 6 and 7 

Operational objective 2 

To  facilitate  the  exchange  of  information,  experience  and  best  practices  related  to  the 
protection of the financial interests of the EU. 

Mainly addresses problems 4, 5, 7 and 9 

Operational objective 3 

To  provide  technical  and  operational  support  for  the  law  enforcement  authorities  of  the 
Member  States  in  their  fight  against  illegal  cross  border  activities,  emphasising  support  for 
customs authorities. 

Mainly addresses problem 1 

Operational objective 4 

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To  enhance  actions  directed  specifically  at  cigarette  smuggling  and  the  counterfeiting  of 
cigarettes, in line with the Agreements signed with cigarette manufacturers. 

Mainly addresses problems 1, 2 and 5 

Operational objective 5 

To  support  academic  analysis  of  strategic  legal  issues  with  implications  for  the  law 
enforcement area, with a view to the development of a broad consensus on how better to use 
legal resources in the protection of EU financial interests. 

Mainly addresses problem 8, also problem 3. 

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Operational sub-objectives 

Operational sub-objectives objectives are set separately for each of the sectors of the Hercule 
programme. They relate to one or more of the specific objectives above. 

Operational  sub-objective  1:  To  extend  the  protection  of  the  external  frontier  through  the 
deployment of technical equipment with common technical specifications. 

Relates mainly to operational objective(s) 3, 4 

Operational  sub-objective  2:  To  support  joint  operations  which  bring  together  national 
resources  in  a  focussed  manner  on  targets  of  shared  interest  to  EU  and,  where  appropriate, 
third countries. 

Relates mainly to operational objective(s) 1 ,4 

Operational sub-objective 3: To increase the number of fully trained and up-to-date forensic 
IT examiners in Member State services who are available to investigate fraud. 

Relates mainly to operational objective(s) 2, 3 

Operational  sub-objective  4:  To  identify  and  procure  the  most  suitable  databases  to  support 
investigations  at    prices  reflecting  OLAF's  capacity    to  buy  in  bulk  on  behalf  of  EU  and 
national services; to make these available efficiently to Member States.  

Relates mainly to operational objective(s) 3 

Operational sub-objective 5: To develop with the JRC mechanisms enabling the identification 
of  significant  changes  in  trade,  and  to  distribute  the  resulting  alert  signals  to  Member  State 
authorities as soon as possible.  

Relates mainly to operational objective(s) 1, 3 

Operational  sub-objective  6:  To  develop  with  the  JRC  an  instrument  for  calculating 
acceptable price ranges that will serve as de facto EU reference prices and signal trade outside 
those ranges. 

Relates mainly to operational objective(s) 3 

Operational  sub-objective  7:  To  develop  with  the  JRC  an  advanced  risk-analysis  system 
capable  of  automatically  checking  the  origin  of  the  merchandise  declared  by  importers,  in 
order to detect potential fraudulent cases of the type "false declaration of origin". 

Relates mainly to operational objective(s) 3 

Operational  sub-objective  8:  To  implement  the  Commission's  commitments  under  the 
Agreements with international cigarette manufacturers.  

Relates mainly to operational objective(s) 4 

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Operational sub-objective 9: To ensure that EU law enforcement agencies engaged in the fight 
against  tobacco  contraband  and  counterfeiting  are  equipped  with  appropriate,  up-to-date 
equipment to detect illegal consignments. 

Relates mainly to operational objective(s) 3, 4 

Operational  sub-objective  10:  To  develop  closer  collaboration  between  the  national  law 
enforcement agencies responsible for investigating the illegal tobacco product imports  

Relates mainly to operational objective(s) 1 , 4 

Operational sub-objective 11: To provide training on and exchange best practice in relation to 
contraband and counterfeit tobacco products. 

Relates mainly to operational objective(s) 2, 4 

Operational sub-objective 12: To improve monitoring, analysis and dissemination of data on 
trends, modus operandi and criminal gangs active in the illegal tobacco trade. 

Relates mainly to operational objective(s) 1, 4 

Operational sub-objective 13: To ensure that conferences and training events are designed to 
strengthen compliance by Member States with EU legislation. 

Relates mainly to operational objective(s) 2 

Operational sub-objective 14: To communicate EU policies to targeted audiences who need to 
implement these policies; to achieve and maintain a sufficient level of awareness. 

Relates mainly to operational objective(s) 1, 2 

Operational sub-objective 15: To facilitate mutual understanding and sharing of best practices 
among national administrations. 

Relates mainly to operational objective(s) 2 

Operational sub-objective 16: To raise public awareness of the risk of fraud while providing 
reassurance that the EU is determined to deal with fraud and has the means to do so. 

Relates mainly to operational objective(s) 2 

Operational sub-objective 17: To facilitate strategic discussions and academic consensus with 
a view to identifying topics for possible future legislation in the field of the protection of the 
EU financial interests. 

Relates mainly to operational objective(s) 5 

Operational sub-objective 18:   To build networks  of academics and  practitioners throughout 
the  Member  States,  acceding  countries  and  candidate  countries  with  an  interest  in  the 
protection of EU financial interests 

Relates mainly to operational objective(s) 5 

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Operational  sub-objective  19:  To  facilitate  the  exchange  of  information  between  EU 
Institutions, legal practitioners, and academics  

Relates mainly to operational objective(s) 5 

Operational sub-objective 20: To develop together with Member States more reliable statistics 
on irregularities and fraud 

Relates mainly to operational objective(s) 1 and 2 

Operational  sub-objective  21:  To  find  ways  to    develop  a  coherent  analysis  of  irregularities 
and fraud within the COM (esp. annual reporting under Art. 325 TFEU and Annual Accounts)  

Relates mainly to operational objective(s) 1 and 2 

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5. SUBSIDIARITY AND EU ADDED VALUE 

The  Treaty  states  that  the  protection  of  the  financial  interests  of  the  EU  is  the  shared 
responsibility of the Union and of the Member States (articles 310 (6) and 325 TFEU). The 
execution  of  the  Budget,  whatever  the  form  of  management  might  be,  remains  the  ultimate 
responsibility  of  the  Commission.    The  Treaty  also  lays  down  the  principle  of  equivalence, 
which  requires  a  comparable  level  of  protection  across  the  EU.  Under  the  assimilation 
principle Member States are obliged to afford the same level of protection to EU funds as to 
national funds. 

The  Hercule  programme  relates  in  part  to  activities  of  the  European  Commission  and  more 
particularly OLAF, and cooperation with the other European Institutions and bodies, as well 
as  with  Member  States.  Therefore,  by  definition,  some  objectives  could  not  be  achieved  by 
action at the national level alone. 

Where  a  Member  State  fails  to  collect  Customs  duties,  the  impact  falls  on  more  efficient 
Member States since the shortfall in revenue for the EU is made up by an increase in the GNI 
contribution financed by general taxation.   

Expenditure  at  EU  level  on  the  protection  of  EU  financial  interests  is  therefore  justified  in 
terms of subsidiarity where it facilitates cooperation between the EU  and Member States or 
between Member States, without impinging on Member States’ responsibilities (for example, 
to pay the salaries of their control staff). 

Expenditure at EU level is also justified where it clearly assists Member States collectively to 
protect  their  national  finances  and  the  use  of  EU  structures  is  more  efficient  than  informal 
national cooperation.   

The most obvious example of this is action against cigarette smuggling; most of the revenue 
protected is national revenue, and 90% of the payments made by the cigarette manufacturers 
under the Agreements which are administered by the Commission go to national budgets. And 
Failure by Member States on the external frontier to prevent the smuggling of cigarettes may 
have  minor  impact  on  their  own  finances  but  significant  impact  on  the  finances  of  other 
Member States which were the intended destination of the smuggled cigarettes. 

It  is  therefore  justifiable  for  the  EU  to  provide  some  assistance  to  enable  more  vulnerable  / 
affected  Member  States  to  provide  the  same  level  of  protection  as  less  vulnerable  Member 
States.  Criminals  will  exploit  any  weak  point  in  the  system,  so  EU  interventions  which  are 
targeted at vulnerable points are in the common interest. 

In concrete terms, added value can be demonstrated by 

• 

• 

• 

savings from collective procurement of specialised equipment and databases 

savings  from  collective  specialised  training  (forensic  IT  training,  seminars  on 
irregularities/fraud detection and reporting) 

improved operational cooperation following training events, including networking at 
conferences and staff exchanges 

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• 

more  effective  cross-border  operations  on  the  basis  of  common  technical  standards 
and joint training 

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6. DESCRIPTION OF POLICY OPTIONS 

This Section lists and briefly describes the options.  Section 7 will then assess the impact of 
each option against the baseline and also against the option of discontinuation (option 4) since 
the  latter  comparison  best  illustrates  the  value  of  the  different  sectors  of  activity  under 
Hercule. 

Option :; Baseline scenario  

The  baseline  option  (1)  is  to  maintain  overall  spending  at  the  current  level  with  the 
assumption, not set out in legislation, that the distribution between spending sectors would be 
broadly the same.   

Option 2 

Option 2 is to maintain overall spending at the present level and renew the programme with 
improved objectives and methodology. 

Option 3 

Option  3  is  to  maintain  overall  spending  at  the  present  level  but  significantly  to  alter  the 
distribution of spending towards greater support for operational activities with less spending 
on activities with less or no immediate impact on operations.  . 

The main  challenge would be  to devise interventions which support  operational actions and 
OLAF’s operational work without crossing into areas which should properly be financed by 
OLAF’s administrative budget or by the administrative budgets of Member States. 

It  would  be  necessary  under  options  1,  2  and  3  to  respect  the  objectives    under  the 
Agreements  with  the  cigarette  manufacturers  to  spend  some  €6  million  annually  on 
cigarette-related activities. 

Option 4 

Option  4  is  to  discontinue  the  programme  in  whole  or  in  part.    The  consequences  of 
reductions should be assessed in terms of the individual sectors affected and of any decision 
not to continue funding of work against cigarette smuggling at the agreed level. 

Discarded options: 

Another  option,  which  could  in  theory  be  combined  with  any  other  option  except  total 
discontinuation,  could  be  to  combine  the  Hercule  and  Pericles  programmes  (Pericles  is  the 
programme, also managed by OLAF, which finances measures to combat the counterfeiting 
of  the  euro).  There  would  in  principle  be  advantages  of  management  and  synergy  for  the 
Commission  and  Member  States  in  combining  Hercule  with  Pericles.    However,  this  is  not 
possible because of the different legal bases in the Treaty for the euro and for the protection of 
the Budget (Art. 133 TFEU) and because of the problems which would arise from the need for 
separate  legislative  instruments  for  euro  and  non-euro  Member  States.    This  option  is 
therefore not further considered. 

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Finally, another option could be to increase the level of spending on Hercule III.  This would 
be inconsistent with decisions already taken on the Medium Term Financial Framework in the 
communication ‘A Budget for Europe 2020’ (COM (2011)500), and is therefore not further 
considered. 

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7. ANALYSIS OF IMPACTS BY OPTION: CHOICE OF PREFERRED OPTION 

Option 1 

This is the baseline option; continue with the same level of funding and the same approach to 
projects as at present under Hercule II. The impact of the baseline option is best assessed by 
reference to the existing programme. Specific impact can only sensibly be assessed by sector. 

Overall,  feedback  from  the  stakeholders  in  the  different  sectors  of  the  programme  has  been 
positive.  The Intermediate Review in late 2010 evaluated output in detail; the main data is 
summarised in the Annex to this Impact Assessment. 

1. Technical assistance and information technology projects  

Technical equipment (except scanners) 

The purchase of technical equipment for law enforcement agencies combating fraud aims at: 

- 

achieving  a  better  level  of  technical  equipment  across  the  EU  and  increased 
compatibility to facilitate cross-border cooperation and achieve  procurement savings; 
- 
efficient use of the equipment acquired; 
- 
facilitating joint operations and international support for operations; 
-  better disclosure of offences and higher quality evidence for the courts. 

Good operational results were obtained. Over the period from 2007 to 2011 (part),  Member 
State services attributed the seizure of 374 million cigarettes, 9 million litres of alcohol and 
over  1  million  litres  of  fuel  to  the  use  of  equipment  funded  by  Hercule    II.  The  financial 
impact exceeded € 100 million.   See Annex 3.1 for more detail.  

Scanners 

Since discussions with member States in 2007, and to date, Hercule II has co-financed 21   X-
Ray  scanners  intended  primarily  for  the  detection  of  illicit  cigarettes  in  16  Member  States.  
Because  of  long  lead  times  for  procurement  and installation,  complete and informative data 
on  the  results  of  this  deployment  is  not  yet  available.    There  will  also,  increasingly,  be  a 
deterrent effect which cannot be measured. 

Spending on scanners constitutes the greater part of expenditure targeted at the illicit trade in 
cigarettes. 

Examples of practical results: Ireland and Malta 

A mobile scanner, co-funded with a grant from Hercule (cost: approximatively €3million has 
been deployed in the in the Port of Dublin since December 2009. Between January 2010 and  
June 2011, almost 4,000 scans have been performed, resulting in the seizure of over 6 million 
cigarettes, 2,111 litres of spirits, 5,877 litres of wine and 48kgs of cannabis, as well as many  
counterfeit items.  This scanner in Dublin Port was been involved in the detection of several 
other  large  consignments  of  illegal  cigarettes  which  were  subsequently  seized  at  their  final 
destination,  for  example  8  million  cigarettes  in  January  2010  and  6.5  million  cigarettes  in 
April 2010. The financial impact of these seizures, in terms of revenue protected, would over 
a few years exceed by a factor of several times the cost of the scanner. Another grant from 
Hercule  was  used  to  co-fund  a  mobile  scanner  in  Malta  Freeport  (cost:  approximatively 

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€3million€). The scanner, which is capable of sc anning a 40ft shipping container in just 1.5 
minutes, was inaugurated  in May 2009 and led to the seizure of over 50 million contraband 
cigarettes and over 16,000  kilos of tobacco in  2009.  Over  20  million  contraband  cigarettes 
were seized in 2010 and nearly 5 million contraband cigarettes in the first half of 2011.Again, 
the benefit in terms of revenue protected exceeds by a factor of several times the cost of the 
scanner. 

Forensic IT training 

Cutting edge computer forensic tools and techniques are essential in the investigation of fraud 
so  that  evidence  can  be  acquired,  searched  and  analysed  in  a  manner  which  will  later  be 
accepted as evidence in court.  Computer forensic training organised by OLAF and funded by 
Hercule  has  brought  law  enforcement  forensic  experts  from  all  Member  States  together  for 
joint    training  courses  which  are  not  otherwise  available  in  Europe  and  are  expensive  for 
national services (in excess of €2,000 per officer pe r week).   In addition to technical skills 
acquired,  these  training  courses  have  developed  networking  and  provided  the  basis  for 
operational cooperation notably but not only in the context of complex OLAF investigations.  

It  is  estimated  that  by  2013  some  460  officers  will  have  attended  the  basic  training 
programme  and  a  further  500  will  have  participated  in  specific  advanced  modules.  More 
detail in Annex 3.3. 

Monitoring of international container movements 

An agreement between OLAF and the EU Joint Research Centre (JRC) will provide for tools, 
funded  by  Hercule,  to  support  investigations  which  need  data  on  container  movements 
(current and past) and which can also provide more realistic and effective scenarios for joint 
customs operations. It will also provide the possibility for more effective risk analysis in the 
domain of trade flows. There are two specific projects: Automated Monitoring Tool (AMT) 
and Contraffic  

The Automated Monitoring Tool (AMT) 

The  AMT  has    specific  operational  objectives3  ;  to  increase  OLAF's  operational  anti-fraud 
effort  by  providing  automated  analysis  of  trade  flow  data  at  EU  level;  to  further  develop  a 
tool to be used to detect signals in customs declaration data provided by Member States with 
prioritization  of  signals  detected  in  customs  declarations;  and,  to  continue  develop  the 
ground-breaking  software  so  that  the  deployment  of  this  kind  of    automated  tool  can  be 
widened.   

3  

A further objective (the development of a web based version of ARIADNE) has been dropped from the arrangement due to its 
cost. 

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Contraffic; better risk analysis in maritime transport 

The Contraffic project supports the activity of customs authorities at EU level. About 90% of 
the world's cargo is transported by a fleet of around 15 million containers. Less than 2% are 
physically  inspected  by  custom  authorities,  due  to  obvious  resource  constraints.    It  is  thus 
imperative  to  develop  advanced  risk  analysis  in  order  to  focus  customs  controls  on  those 
movements most likely to be fraudulent.  Feedback from users in Member States suggest that 
half find it useful in routine operational work, and a quarter consider it to be crucial. 

 More details in annex 3.4). 

Procurement of databases 

The procured access to external data bases (see annex 3.5) provides essential information to 
investigators from Member States and OLAF. This includes data necessary for protecting the 
revenue  side  of  the  budget,  relating  to  trade  flows  and  shipping  and  container  movements. 
Three recent OLAF cases which relied on the extraction of data from one of these databases 
identified evaded Customs duties of € 14 million.  Data relating to companies is also essential 
for investigations and analysis relating to the expenditure side of the budget.  More details in 
Annex 3.5.  

2.  Specialised anti-fraud training 

The projects co-financed involved  participants  from  all MS,  candidate  countries and a large 
number  of  third  countries.  From  2007  to  2010,  in  total,  41  projects  were  realised  under 
Hercule  II,  involving  8.773  participants  from  all  EU  Member  States  (8.447),  Candidate 
Countries (79) and Third Countries (247). 

Number of Participants - Member States/Candidate 
Countries

3122

568

510

789

612

67129

82

39 28 15 22

24

52

898

512

190

19

14 42 30

151

302

71 38 47 74 28 37 14

BE

BG CY

LU MT NL

CZ

PL

DK

PT

EE

FI

RO SK

FR

SI

DE

ES

EL

SE

HU IE

IT

LV

UK

HR MK

TR  

3500

3000

2500

2000

1500

1000

500

0

AT

LT

Through  the  training  activities,  there  was  a  wider  dissemination  of  anti-fraud  and  anti-
corruption  measures  affecting  the  EU  financial  interests.  In  particular,  good  cooperation 
between  the  EU  and  national  authorities,  and  between  the  services  of  all  the  institutions 
concerned, is a prerequisite for efficiently combating fraud. Attendees were principally from 
national  authorities:  police,  Customs,  Ministries  of  Finance  and  Justice,  law  enforcement 

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bodies, audit bodies, the judiciary etc. There was also some attendance from private bodies: 
NGO representatives, students, company representatives. 

The results in this area reflect knowledge obtained in the field of fraud prevention and combat 
against fraud detrimental to the EU financial interests, specific skills in prevention, detection 
and  investigation  capacity  in  fighting  against  fraud,  input  for  further  development  and 
improvement of the activities of the organisation, including legislative work, dissemination of 
information about  the latest developments, methods, techniques in the field of combat against 
fraud  and  corruption  as  well  as  information  obtained  through  networks  established  between 
the  organisations  and  exchange  of  the  latest  information.    These  were  listed  in  the  2010 
Intermediate Review. 

Conference by the European Law Academy (ERA) (2010 grant agreement) 

The  “Annual  Forum  on  Combating  Corruption  in  the  EU  2011  -  How  best  to  ensure  the 
protection  of  whistleblowers”  was  designed  as  a  discussion  forum  where  international, 
European  and  national  experts  could  present  the  topic  from  their  own  point  of  view.  This 
objective  was  met.  The  conference  brought  together  approximately  110  legal  practitioners 
and  experts  (mainly  of  lawyers,  prosecutors  and  anti-fraud  investigators)  from  24  Member 
States and EU Institutions. The results of the conference where used inter alia to prepare for 
the specific objectives to be inserted in the Commission's Anti-Fraud Strategy (CAFS) (COM 
(2011) 376) on informants and whistleblowers (2.3.2.). 

Eucrim 2010 (2009 grant agreement) 

Eucrim  is  a  quarterly  review  of  the  Associations  for  European  Criminal  Law  and  the 
Protection  of  the  EU  Financial  Interests  (ELA).  It  includes  an  extended  news  letter  section 
and  serves  as  a  platform  of  discussions  between  academics  and  practitioners  publishing 
scholarly  articles  on  relevant  topics  of  EU  criminal  law  and  the  protection  of  the  EU 
financial  interests.  Four  issues  of  the  journal  Eucrim  were  published  in  2010  by  the  Max-
Planck-Institute.  The  following  topics  were  covered:  “Data  Protection”,  “The  Lisbon 
Treaty”,  “The  External  Dimension  of  Criminal  Justice”,  “Procedural  Rights  in  Criminal 
Proceedings”. Eucrim raises the awareness of legal practitioners (those working in judicial, 
police or administrative authorities, universities, law offices, etc.) of relevant legal provisions 
associated  with  the  protection  of  the  EU  financial  interests  and  European  criminal  law. 
Eucrim conveys information on the protection of the financial interests and supports networks 
of the European Lawyers Associations in this area.   

Annual Task Group Cigarettes Conference 

Each year OLAF holds a Task Group Cigarettes Conference, bringing together investigators, 
analysts and policy makers working on tobacco crime to discuss the latest trends and issues 
in  this  ever  changing  environment.  In  2011  the  16th  Annual  Task  Group  Cigarettes 
Conference  will  be  held  in  Vienna  from  8-12  October.  Not  only  are  the  27  Member  States 
represented but key third countries (Russia, Ukraine, Egypt, and Moldova) and international 
organisations  (WCO,  EUROPOL)  attend  the  conference.  It  is  an  important  event  for 
participants to maintain and enhance their expertise, as well as for developing and nurturing 
valuable contacts in other Member States and key third countries. As a result of the contacts 
made  during  this  conference,  OLAF  and  the  Member  States  are  able  to  deal  swiftly  and 

EN 

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effectively with operational issues, as demonstrated consistently over the years (for example 
more  recently    Joint  Customs  Operation  SIROCCO,  see  OLAF  (eleventh)    Annual  Report 
2011, point 3.1.4). 

Further examples of Hercule spending on training are listed in Annex 4. 

3. The Associations for Criminal Law and the Protection of the EU Financial Interests 
(ELA) 

Financial  support  has  been  granted  to  legal  academic  projects  such  as  legal  studies,  legal 
academic conferences and publications dealing with particular issues of the protection of the 
EU financial interests. The group of eligible beneficiaries is not limited to the 32 Associations 
belonging  to  the  ELA.  Other  entities  (universities,  research  institutes,  Member  State 
administration  and  non-profit  making  bodies…)  may  also  compete  in  the  calls  for 
applications. 

The  events  have  a  wide  international  dimension.    The  audiences  are  mainly  composed  of 
judges,  prosecutors,  lawyers,  policemen,  national  Law  Enforcements  Agencies,  academics, 
researchers, national civil servants, as well as members and officials of the EU institutions. As 
regards  the  6  conferences  per  year  that  have  been  held  on  average,  the  regional  spread  of 
participants was satisfactory with, however, a very high number of Italian participants4, due to 
the fact that a very big conference was organized in Italy each year in Milan where relevant 
topics on the development of EU law and the transnational protection of the financial interests 
against  fraud  were  included  into  a  continuous  training  scheme  including  Italian  lawyers, 
prosecutors and judges and participants from other Member States.  

Feedback has been positive; the six conferences organised under the 1999 Budget were rated 
as good or excellent in 97% of completed evaluation forms. 

Through  its  influence  on  the  selection  of  topics,  the  Commission  has  a  certain  influence  on 
the  debate  between  the  specialists,  promoting  a  more  comprehensive  approach  and 
encouraging the dissemination of legal information on the latest developments in the area of 
fraud prevention and fight against fraud. 

Projects give input and motivation for preparatory strategic work, research, teaching and the 
exchange  of  practical  experience.  Each  conference  is  in  principle  attended  by  speakers  and 
participants  from  OLAF,  other  Commission  services  or  other  European  Institutions.  The 
annual  meetings  of  the  Presidents  of  the  ELA  give  OLAF  a  further  opportunity  to  initiate 
discussion  among  professionals  and  ideas  for  future  legal  projects  and  this  is  much 
appreciated.  These  consultations  were  at  the  origin  of  several  forward  looking  comparative 
law studies, the “Corpus iuris” on penal provisions for the purpose of protecting the financial 
interests  of  the  EU,  the  study  on  “Criminal  justice  systems”  relevant  to  developing  a 
European institutional frame for the penal law protection of the financial interests of the EU, 
the  “Euroneeds”  stakeholder  review  study  on  the  practical  experiences  by  anti-  fraud 
prosecutors and the study. 

Option 2 

4  

Budget 2007: 352 out of 605, budget 2008: 471 out of 988 and budget 2009: 436 out of 770. 

EN 

28 

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Option 2 is to renew the programme at the present level of spending with improved objectives 
and methodology taking into account feedback from stakeholders as well as the Commission's 
experience in managing Hercule II. 

The  most  significant  change  would  be  to  increase  the  share  of  Hercule  funding  in  co-
financed activities.  This would be a response to a development which has become evident in 
2011,  namely  that  Member  States  are  less  able  to  co-finance  Hercule  projects.    So  far  as 
procurement of technical equipment is concerned, those Member States which most need this 
equipment  are  the  least  able  to  co-finance  this.    In  some  instances,  notably  on  eastern  and 
southern borders, the areas affected are also those potential or actual weak points where there 
is  the  greatest  common  interest  in  strengthening  the  EU’s  defences.  However,  due  to  the 
specific co-financing requirements of the Hercule programme some Member States which are 
particularly exposed to the risks of smuggling have not been able to benefit from the funding 
for the acquisition  for instance of container scanning equipment. 

The  consequence  of  an  increase  in  the  EU  share  of  financing  would  be  that  fewer  projects 
could be funded.  This would require prioritisation and tougher choices at the selection stage; 
at present most projects which meet the eligibility criteria are accepted.  These could include 
departing from the principle of geographical balance.  

The impact on individual sectors of reductions in spending is discussed under option 4. 

In theory, an increase in the EU share of financing could reduce the overall level of spending 
on  anti-fraud  because  the  Member  States  would  reduce  their  contribution.    In  practice, 
however,  the  risk  is  that  unless  the  cofinancing  ratios  are  changed  upwards  the  volume  of 
antifraud spending  would  be  even lower – and its quality would fall – since there will be a 
sharp reduction in bids from the Member States.  Unless the ceilings are raised total spending 
under Hercule could actually fall. 

Another  change  would  be  greatly  to  simplify  the  administration  of  small  grants,  under 
€50,000 ,  to  take  account  of  criticisms  that  the  bureaucracy  required  to  demonstrate  the 
eligibility  of  expenditure  in  detail  is  disproportionate.  Lighter  procedures,  reduced 
requirements in terms of detailed breakdown of costs and more flexible criteria for eligibility 
are  needed.  For  smaller  training  projects  the  level  of  administrative  burden  for  the 
beneficiaries should be kept proportionate. 

Other  changes  could  clarify  the  scope  of  Hercule  in  the  sense  of  explicitly  promoting 
flexibility to extend present areas of activity where there is a strong EU wide interest as 
for example: The action plan to fight against smuggling of cigarettes and alcohol along the 
EU Eastern Border   (SEC  (2011) 791  which  accompanies the  CAFS envisages  for example 
that Hercule III “could be modified in order to facilitate acquisition of relevant equipment for 
a project which has wider European interest” (see action plan in the annex , point 1.3).  This 
would imply readiness also to fund essential equipment which is of a specialist technical 
nature  such  as  automated  recognition  tools.  .Another  change  which  could  be  facilitated  by 
more  flexible  scope  could  extend  the  concept  of  training  towards  communication  to  a 
wider public than the specialists who are currently targeted. 

Option 3 

Option  3  is  to  maintain  overall  spending  at  the  present  level  but  significantly  to  alter  the 
distribution between spending sectors towards greater support for operational activities; and to 

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reduce  the  level  of  spending  on  activities  with  less  or  no  immediate  impact  on  operations.  
This  would  be  facilitated  by  changes  to  the  financial  management  procedures  to  allow  very 
rapid decisions, outside the conventional approach to calls for proposals, for the financing of 
operational support - effectively a “war chest” for OLAF. 

Option  3  would  imply  placing  more  weight  on  specific  objective  3  (technical  operational 
support)  and  specific  objective  1  (enhanced  cooperation),  and  less  weight  on  specific 
objectives 2 and 5 (information and best practice exchange, and improved academic analysis).  
The implications of reduced spending in these areas are discussed under option 4. 

The main  challenge would be  to devise interventions which support  operational actions and 
OLAF’s operational work without crossing into areas which should properly be financed by 
OLAF’s  administrative  budget  or  by  the  administrative  budgets  of  Member  States.  There 
would  also  be  a  need  to  avoid  overlap  with  the  operational  activities  of  EUROPOL 
(coordinating  law  enforcement  actions)  and  EUROJUST  (coordinating  judicial  procedures), 
as these develop. They each manage a budget to support specific law enforcement actions. 

Movement in this direction therefore needs to be exercised with caution.   

Option 4 

Option 4 is to discontinue all or part of the programme.  The analysis below would also apply, 
proportionately to the scale of the reduction, to changes in the allocation of funds to particular 
sectors under Options 2 and 3 

General observations 

If EU spending in this area were simply discontinued, the principles of the protection of the 
Budget  as  set  out  in  the  Treaty  would  be  less  respected;  indeed  the  Commission  would  be 
sending a stark signal to that effect. While costs at EU level would be reduced, it is unlikely 
especially  in  present  circumstances  that  the  efforts  of  individual  Member  States  could 
collectively make good the difference and on the revenue side of the Budget the cost of less 
effective protection in some Member States would be met by greater financial contributions 
from all Member States.  There would also be negative impacts on national finances. 

Some elements could be maintained under other programmes in the areas of justice, customs 
cooperation  and  security,  either  by  the  transfer  of  part  of  the  Hercule  funding  currently 
foreseen  in  the  MFF  or  at  the  expense  of  other  activities  under  those  programmes,  about 
which this Impact Assessment does not attempt to speculate. 

However,  this  would  inevitably  lose  the  advantage  of  the  focus  of  the  present  Hercule 
programme on the key issue, central to the European project, of the defence of the EU Budget.  
Apart from the political implications of appearing to weaken commitment to the principles of 
equivalence and close cooperation between the Union and the Member States in the Treaty, 
OLAF’s operational effectiveness would suffer from the loss of its ability to use Hercule to 
network with operational partners and so to multiply its own value by bringing the resources 
available in the Member States  to bear on the  problem of fraud against the EU Budget in a 
coordinated way. 

To  some  extent,  Member  States  would  replace  some  of  the  activities  consistent  with  the 
principle  of  subsidiarity;  for  example,  to  procure  technical  equipment  and  commercial 
databases for their own purposes and to train forensic IT staff, both of which could have real 

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30 

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or tangential benefits for the protection of the EU Budget.  But these activities would lose the 
focus  of  the  present  Hercule  programme  and  could  well  cost  more  because  of  the  loss  of 
collective purchasing power.  

The likelihood is that for reasons of budgetary stringency and lack of incentive (Drivers 2 and 
5)  the  absence  of  EU  funding  would  mean  that  in  some  critical  areas  differences  in  the 
effectiveness of the defences of the EU Budget between Member States would increase. Not 
only would the overall level of protection be lower, but the equivalence of protection would 
be  less.    There  could  be  critical  problems  on  the  Eastern  border,  and  the  opportunities  for 
criminals  to  move  across  borders  to  seek  out  the  weakest  points  in  the  EU  would  increase 
rather than diminish. 

Reduction  in  the  overall  amount  spent  on  prevention  of  cigarette  smuggling  and 
counterfeiting  would,  beyond  an  immediate  negative  impact  on  public  finances  through 
reduced  revenue,    would  not  be  consistent  with  the  specific  anti-fraud,  anti-  smuggling  and 
anti-  counterfeiting  objectives  of  the  Agreements  with  the  cigarette  manufacturers    which 
were at the basis of their willingness to make out of the pocket payments of more than US $ 2 
billion  into  national  and  the  EU  Budgets  over  the  next  two  decades.  These  should  serve 
targeted  action  to  improve  the  chances  of  effective  law  enforcement  against  fraud  and 
smuggling.   

Observations on individual sectors 

Technical  assistance:  In  addition  to  the  points  made  above  about  the  consequences  for 
Member  States,  OLAF's  own  investigations  would  suffer  seriously  from  the  loss  of  data 
sources currently financed for the Member States and OLAF and mainly used on the revenue 
side  of  the  Budget.  The  cost  in  terms  of  reductions  of  Own  Resources  recovered  (not  to 
mention reduced deterrence) would exceed the financial savings many times over.  The loss of 
ground-breaking  work  currently  under  development  with  the  Joint  Research  Centre  to 
automate analysis of trade flows so as to identify potential fraud against the revenue side of 
the Budget through systematic analysis of massive data sets would deprive the EU of what is 
potentially a powerful new defence for the Budget.  No single Member State has the incentive 
to undertake this work on its own. 

Specialist anti-fraud training: The loss of this activity would greatly reduce opportunities for 
networking and exchange of best practice between the services of Member States and/or with 
their Commission counterparts.  Such contacts would be reduced to those which necessarily 
occur in an immediate operational context; indeed there would probably be fewer even of the 
latter  since  experience  shows  that  operational  exchanges  are  fostered  by  prior  networking.  
The  level  of  compliance  of  Member  States  with  EU  law  on  matters  such  as  the  timely 
reporting  of  irregularities,  and  their  duties  of  cooperation  with  OLAF  and  each  other  on 
investigations would fall.  Realistically, Member States would not make up the gap and to the 
extent  that  some  might  attempt  to?  do  so  this  would  inevitably  be  more  from  a  national  or 
(selective) intergovernmental standpoint than from an EU perspective. 

Associations for European Criminal Law and for the Protection of the EU Financial Interests 
(ELA): This activity can, realistically, only be maintained at EU level.  Its loss would reduce 
the volume and the specificity of the academic and professional work which is necessary in 
order to prepare the ground for more integrated use of criminal and administrative law assets 
in  defence  of  EU  financial  interests.    A  reduction  in  spending  would  have  a  proportionate 

EN 

31 

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effect. The transfer of support to the ELA to another programme would reduce its focus on the 
protection of the financial interests of the EU. 

.

EN 

32 

   EN 

 
Analysis of Options 

Methodology 

The range of options has been checked against the specific and operational objectives:  

Option 1 

Option 2 

Option 3 

Continue with the same level 
of funding 

Baseline scenario (BS) 

Improved objectives and 
methodology, increase the share of 
Hercule funding in co-financed 
activities for the procurement of 
technical equipment  

Significantly alter the 
distribution between 
spending sectors towards 
greater support for 
operational activities 

Option 4 

Discontinue all or part of the 
programme 

To enhance transnational 
and multidisciplinary 
cooperation between 
Member State authorities, 
the Commission and 
OLAF in the prevention 
and investigation of fraud. 

Relates mainly to 
operational objectives  

1: protect external 
frontier with technical 
equipment 

4: procure databases to 
support investigations, 

BS, has currently not the 
full intended positive 
impact  as co-financing 
rates do not always allow 
to achieve a balanced 
geographical distribution 
of funds  facilitating 
targeted projects in high 
risk geographical areas 

- 

Improved impact, as increased 
co-financing will allow to 
achieve a geographically more 
balanced distribution of funds 
facilitating targeted projects in 
high risk geographical areas  

Improved impact on  
investigations, but limits 
potential of the 
programme for 
implementing a consistent 
policy in support of 
prevention,  

Adverse impact on chances to 
implement in a consistent way the 
action plan to fight against alcohol 
and cigarettes smuggling along the 
Eastern boarder  

++ 

+/- 

__ 

EN 

33 

EN 

 
  
 
 
 
 
 
 
 
To facilitate the exchange 
of information, 
experience and best 
practices related to the 
protection of the financial 
interests of the EU.  

Relates mainly to 
operational objectives  

 13: conferences to 
strengthen MSt 
compliance 

,14: communicate EU- 
anti fraud policies, 

 15 : facilitate sharing of 
best practices,  

16 : raise public 
awareness of the risk of 
fraud,  

To provide technical and 
operational support for 
the law enforcement 
authorities of the Member 
States in their fight 
against illegal cross 
border activities, 
emphasising support for 
customs authorities. 
Relates mainly to 
operational objectives  

EN 

BS,  

BS 

Improved impact, as increased 
co-financing will allow to 
achieve a geographically more 
balanced distribution of funds  

Adverse impact on a 
consistent policy for 
exchange of best practices 

Adverse impact on technical 
support offered to Member States  

++ 

-- 

-- 

Positive impact facilitating 
targeted projects in high risk 
geographical areas 

Improved impact on  joint 
operations, but limits 
potential of the 
programme for a 
consistent policy in 
support of prevention,  

Adverse impact on possibilities to 
facilitate the exchange of best 
practices 

-- 

++ 

34 

EN 

 
  
 
 
 
 
 
 
2: support joint 
operations 

 3: increase number of 
forensic examiners 

5:  develop with JRC 
mechanisms identifying 
significant changes in 
trade 

6: develop with JRC 
advanced risk analysis,  

7: develop with JRC an 
advanced risk analysis 
system 

To enhance actions 
directed specifically at 
cigarette smuggling and 
the counterfeiting of 
cigarettes, in line with the 
Agreements signed with 
cigarette manufacturers.  

Relates mainly to 
operational objectives  

8: implement agreements 
with cigarettes 
manufacturers, 

9:provide  up to date 
equipment to detect 
tobacco contraband 
consignments  

+/- 

BS, has currently not the 
full intended positive 
impact  as co-financing 
rates do not always allow 
to achieve a balanced 
geographic distribution of 
funds and do not 
sufficiently facilitate 
targeted projects in high 
risk geographical areas 

- 

Positive impact facilitating 
targeted projects in high risk 
geographical areas 

+ 

Positive impact  in as 
much as the  cooperation 
between law 
enforcements authorities 
is concerned, negative 
impact on implementation 
of  non-law enforcement 
related objectives and 
exchange of best practices 

Adverse impact on a coherent 
implementation of the convened 
actions to fight against alcohol and 
cigarettes smuggling, in particular  
along the Eastern boarder  

+/- 

-- 

EN 

35 

EN 

 
  
 
 
 
10: close collaboration 
between anti- tobacco 
contraband law 
enforcement agencies 

 11:  exchange  of  best 
practices 
to 
contraband 
tobacco 
products 

related 

 12: dissemination of data 
on modus operandi in the 
illegal tobacco trade 

To support academic 
analysis of strategic legal 
issues with implications 
for the law enforcement 
area, with a view to the 
development of a broad 
consensus on how better 
to use legal resources in 
the protection of EU 
financial interests.  

Relates mainly to 
operational objectives  

17: facilitate strategic 
discussion and academic 
debate 

 18:Build networks of 
academics,  

19:facilitate exchange 
with practitioners and 

EN 

Positive impact as an 
improved methodology and 
objectives will allow  to 
simplify procedures thereby 
facilitating attribution of 
grants 

BS 

Adverse impact 

-  

Disruptive impact on possibilities 
to facilitate exchange with 
academics and practitioners 

-- 

+ 

36 

EN 

 
  
 
 
 
academics 

 20:  Develop reflection 
on reliable statistics 
about fraud,  

21:Develop coherent 
quantitative analysis of 
fraud  phenomenon 

EN 

37 

EN 

 
  
 
 
Choice of option 

On the basis of the analysis and evaluation made the preferred option is option 2, which 
scores best.  

It is essentially an improved version of the status quo (option 1), but taking into account 
feedback  and  experience.    .  It  is  in  general  positive  to  move  into  the  direction  of  more 
support for operational activities but Art. 325 TFEU does not only oblige the Member States 
and  the  Union  to  fight  against  fraud,  but  also  to  prevent  fraud.  As  recently  emphasised 
through the CAFS (COM (2011) 376, 24.6. 2011) a distinct effort needs to be developed on 
specific prevention and detection of fraud. This includes actions for an improved exchange of 
best practices, more systematic risk analysis and exchange of strategic intelligence, awareness 
raising and training. A more cautious move towards greater emphasis on operational support 
could  be  determined  within  the  concept  of  Option  2,  through  an  increased  co-financing  for 
technical  assistance  and  by  increasing  the  share  of  the  amounts  attributed  to  operational 
support in the implementation measures under the annual financing decisions.  

Option  3  (to  alter  significantly  the  distribution  between  spending  sectors  towards  greater 
support  for  operational  activities):  To  concentrate  on  specific  investigations  and  law 
enforcement  actions  would  be  problematic  as  Member  States  are  with  their  national 
authorities  and  budgets  responsible  for  the  fight  against  fraud  by  means  of  justice  and  law 
enforcement.  It  might  therefore  lead  to  confusion  with  regard  to  the  attribution  of 
responsibilities  between  Member  States  and  the  EU.  The  obligation  to  prevent  fraud  under 
Art. 325 TFEU could not be followed-up in such an effective manner as until now. This could 
lead to less and less well designed prevention measures in the Union and the Member States 
and limit the chances to achieve a better awareness raising on the need to proactively identify 
fraud risks and exchange of best practices.. Therefore, the potential advantages of option 3 for 
cooperation on investigations are by large outweighed by its disadvantages 

Option  4  (discontinuation)  would  have  the  undesirable  effect  of  costing  much  more  than  it 
would save:  The actions which are supported in a cost effective way at a European level  and 
which  serve  the  development  of  improved  conditions  under  which  close  and  regular 
cooperation  between  nation  authorities  may    be  organised  could  no  longer  be  assisted.  It 
would also signal lack of commitment to the key principles of budgetary anti-fraud protection 
in the Treaty. 

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8. LINKS BETWEEN THE INTENDED INITIATIVE AND OTHER POST 2013 
MULTIANNUAL FINANCIAL FRAMEWORK RELATED INITIATIVES 

In a very wide sense, the Hercule proposal underpins the MFF by strengthening the protection 
of the Budget. 

In  a  number  of  specific  areas,  there  is  a  potential  interlink  with  other  measures,  at  least  in 
relation to the areas of justice,  security and of customs cooperation. 

Most  obviously,  the  deployment  of  additional  technical,  analytical  and  training  resources  to 
fight cigarette smuggling will also strengthen the EU's capacity to protect the external border 
effectively  not  only  against  smuggling  of  high  value  goods  but  also  against  other  forms  of 
serious organised crime such as trafficking in human beings, and even terrorism. 

Equally,  the  development  of  the  capacity  of  interested  legal  professionals  to  address  the 
complex  issues  involved  in  using  criminal  law  resources  more  effectively  in  pursuit  of  the 
common the European objective of protecting the budget will (continue to) have implications 
for wider work on justice and security. Indeed the conceptual basis for the ongoing work on a 
possible European Public Prosecutor's Office is firmly rooted in past work on the protection 
of EU financial interests through the use of the criminal law. To that end, the programme will 
also be useful in the context of the implementation of recent Commission communications on 
Anti-Fraud  Strategy  as  well  as  on  anti-corruption  and  synergies  between  the  Commission 
services involved will be reinforced. 

From  the  opposite  angle,  the  fight  against  fraud  to  the  detriment  of  the  EU  Budget  can  to 
some extent be reinforced, tangentially or more directly, by measures with wider application 
in  the    justice  and  security  areas,  and  customs  cooperation;  for  example,  through  the 
development  of  Europol  and  Eurojust,  through  better  procedures  for  enforcing  civil  law 
judgments  across  national  borders,  and  through  improving  the  administration  of  justice  and 
reducing corruption notably in areas of the EU – and third countries in receipt of EU funds – 
which are at high risk. 

The  indirect  economic  and  social  impact  of  Hercule  is  not  measurable  as  such,  but 
instruments  whose  effect  is  to  protect  public  funds,  improve  law  enforcement,  reduce  the 
availability  of  counterfeit  goods  notably  cigarettes,  and  fight  corruption  clearly  have  a 
positive social and economic impact.  In sectors particularly at risk from smuggling, such as 
some agricultural products (eg garlic) and industrial products at risk from unfair competition 
(anti-dumping), the positive economic impact can be more substantial. 

Steps  have  been  taken  during  the  development  of  the  Hercule  programme  both  to  guard 
against  the  risk  of  overlapping  between  Hercule  and  other  programmes  and  to  promote  the 
effective use of Hercule funding in combination with funding from other programmes where 
this is appropriate. In relation to justice and security issues, this has involved discussions with 
DGs  TAXUD,  JUST  and  HOME  (see  also  annex  3.3  as  regards  DG  HOME  funding  of 
cybercrime training under ISEC5). For example, in 2011 OLAF verified with DG HOME that 

5  

Previously AGIS. 

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there was no overlap between the purchase of scanners for Member State border services and 
actions  envisaged  by  DG  HOME.  Another  example  is  in  the  protection  of  the  external  aid 
budget, where Hercule funds have been used in conjunction with funds administered by the 
former  DG  AIDCO  to  improve  cooperation  with  the  relevant  services  of  third  countries 
through networking, training and staff exchanges. 

Support from programmes designed for wider impact would be less effective in addressing the 
specific issues relating to the protection of the Budget (or would be distracted from their main 
purpose) . All of them target a specific policy area to which correspond particular groups of 
stakeholders  and  authorities.  However,  anti-  fraud  requires  support  of  a  variety  of  multi-
disciplinary objectives to prevent, counter and fight against illegal activities thereby requiring 
cooperation between many different stakeholders and authorities at a regional, national and at 
a European level. 

All  this  said,  there  are  strong  arguments  of  a  beneficial  effect  on  multidisciplinary  capacity 
building, technical assistance and training  for an instrument specifically dedicated to fighting 
fraud against the EU Budget. 

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9. SIMPLIFICATION AND REDUCTION OF THE ADMINISTRATIVE BURDEN 

As  part  of  a  general  approach  to  improve  the  efficiency  of  the  support  granted  under  the 
Hercule programme and to reduce disproportionate administrative burden on beneficiaries the 
proposal will adapt the Hercule programme to reflect simplification of the current rules which 
apply  to  this  form  of  spending.  Consultations  confirm  that  stakeholders  would  particularly 
welcome simplification. 

Specifically, revised financial management procedures could envisage lighter procedures for 
grants  under  €  50,000,  an  increase  in  the  propor tion  of  co-financing  provided  from  the  EU 
Budget,  and  reduced  requirements  in  terms  of  detailed  breakdown  of  costs  and  estimates, 
more  flexible  criteria  for  eligibility,  and  more  flexibility  in  the  requirements  for  application 
and for the reporting of outcomes. 

In terms of communication and coordination, the increased use of working groups and other 
channels  of  communication  between 
the 
Commission/OLAF could accelerate feedback and improve the targeting of spending, at some 
administrative cost. 

the  national  authorities  concerned  and 

Procedures for activities to be supported in third countries should also be simplified so as to 
facilitate operational support in one of the highest areas of risk to the budget. 

Some other suggestions made by stakeholders are worth consideration, such as the possibility 
to  finance,  in  the  same  call,  complementary  actions  (for  instance,  supply  of  technical 
equipment, training of the users and maintenance) or the possibility to promote annual grants 
to support the execution of multiannual activities (which are currently subject to a declining 
scale of payment). 

In  addition,  there  is  a  need  to  address  the  problems  caused  by  the  exclusion  of  VAT  from 
eligible  costs  for  the  purpose  of  calculation  of  the  co-financing  percentage  where  national 
administrations are beneficiaries. 

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10. MONITORING AND EVALUATION 

There will be a mid-term and yearly evaluation report produced on the implementation of the 
programme.  OLAF  also  intends  to  continue  its  presence  at  the  majority  if  not  all  events 
financed  so  as  to  obtain  immediate  feedback  and  ensure  quality.    Next  to  this  the  use  of  a 
standard  clause  requesting  beneficiaries  to  provide  the  necessary  feedback  on  the  impact  of 
the  funds  provided  will  continued  to  be  used  and      received  data  will  be  structured  and 
analysed. 

The performance of Hercule II has already largely been measured in terms of output, through 
feedback  from  clients  and  stakeholders  described  in  the  Annex  and  also  by  a  policy  of 
managing the quality of spending closely. In an effort to check the quality of the events and to 
verify target achievement nearly all conferences and training events financed are attended by 
OLAF staff with financial management responsibilities and many are also attended by OLAF 
staff  who  actively  contributes  with  subject  relevant  expertise.    All  technical  equipment 
funding is discussed between the OLAF experts and the national services concerned.   

This policy will continue. However, Specific, Measurable, Achievable, Relevant and Timed 
(SMART) objectives which were already used in the intermediate review on the achievement 
of the objectives of the Hercule II programme submitted on 21, December 2010 under Article 
7  second  sub-paragraph  (Decision  878/2007/EC)  and  prepared  by  the  OLAF  internal  audit 
capability, will be further developed on the basis of the intervention logic above to the extent 
that this is possible in each sector of the programme.  Where the nature of some of the actions 
financed, particularly the support of the ELA and some training activities, is such that output 
indicators have to be used, particular attention will be paid to stakeholder feedback balanced 
by assessment from OLAF staff who participate in the events 

Data will systematically be collected on the use of financed equipment and services such as 
access  to  databases  including,  where  this  is  cost-effective,  operational  results  which  can  be 
attributed  to  the  equipment  or  services  in  question.    Feedback  from  participants  and 
beneficiaries will be sought on a continuous basis. 

In  relation  to  the  acquisition  of  technical  equipment,  where  there  is  a  particular  need  for 
confidentiality  and  discretion,  OLAF  will  systematically  control  beneficiaries  in  order  to 
check that the equipment exists and is properly used for the co-financed activity. 

In addition to these monitoring activities an independent mid and final evaluation is foreseen, 
in which the Commission's evaluation standards are used in order to assess the programmes' 
effectiveness, efficiency, utility, acceptability, sustainability and consistency. 

The  internal  reorganisation  of  OLAF  at  the  beginning  of  2012  will  concentrate  the 
management  of  Hercule  (and  Pericles)  in  a  single  unit  in  order  to  reinforce  programme 
management skills, including capacity to evaluate. 

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ANNEXES 

ANNEX 1. 

BUDGETARY ENVELOPE OF THE HERCULE II PROGRAMME (2007-2011):  

2007   13,725,000 

2008   13,800.000 

2009   14,000,000 

2010   14,100,000 

2011   15,000,000 

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ANNEX 2. 

COMMITMENTS MADE UNDER THE HERCULE II PROGRAMME (2007- 2010): 

The  HERCULE  II  budget  was  committed  in  2007-2010  as  shown  in  the  table  below. 
Commitment amounts correspond to the amounts stated in the grant agreements as a part 
to be financed by OLAF. Final payment can be less than the committed amount, as actual 
costs are sometimes less than initially envisaged. 

BUDGET 

TOTAL 
COMMITED 

Execution 
(%)* 

Technical 
assistance 

2007 

2008 

2009 

2010 

50% 

of the budget 

Grants 

9.455.208 

9.414.489 

99,6% 

Procurements 

0 

0 

Grants 

7.089.000 

7.155.941 

100,6% 

Procurements 

0 

0 

Grants 

7.570.000 

7.547.636 

99,7% 

Procurements 

200.000 

240.000 

120% 

Grants 

6.150.000 

6.757.726 

109,9% 

Procurements 

100.000 

0 

TOTAL 

30.564.208 

31.115.792 

98,23% 

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Training 
seminars 

conferences 

and  

30% 

of the budget 

2007 

2008 

2009 

2010 

Grants 

1.372.997 

1.477.713 

107,6% 

Procurements 

1.325.911 

1.269.237 

95,7% 

Grants 

1.102.000 

1.100.818 

99,9% 

Procurements 

2.965.000 

2.867.321 

96,7% 

Grants 

1.400.000 

1.396.122 

99,7% 

Procurements 

2.610.000 

1.917.132 

73,5% 

Grants 

2.200.000 

2.219.599 

100,9% 

Procurements 

2.900.000 

2.575.298 

88,8% 

TOTAL 

15.875.908 

14.823.240 

93,37% 

 IT - Information technology 

20% 

of the budget 

2007 

2008 

2009 

2010 

Procurements 

1.570.883 

1.563.561 

99,5% 

Procurements 

2.644.000 

2.675.920 

101,2% 

Procurements 

2.220.000 

2.203.663 

99,3% 

Procurements 

2.750.000 

2.544.904 

92,5% 

TOTAL 

9.184.883 

8.988.048 

97,86% 

* Hercule annual programme allows 20% budget flexibility between headings 

Hercule II programme: consumption level on a yearly basis: 

2007 

100% 

2008 

100% 

2009 

97,22% 

2010 

99,98% 

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ANNEX 3. 

TECHNICAL ASSISTANCE AND INFORMATION TECHNOLOGY: RESULTS 

3.1 

OPERATIONAL  RESULTS  OF  TECHNICAL  EQUIPMENT  CO-FINANCED  BY 
HERCULE II 

Results per year (cases where technical equipment co-financed has been used)6  

Year 

Quantity 
(tons) : 
agricultural 
products 
tobacco 

or 

Quantity 
(liters) : 
Alcohol  

Quantity 
(liters) : Fuel 

Quantity 
(pieces): 
cigarettes 

Amount (EUR) 

Summary  for  2007 
(77 detail records) 

Total year:  

Summary  for  2008 
(38 detail records) 

Total year:  

Summary  for  2009 
(29 detail records) 

Total year: 

Summary  for  2010 
(65 detail records) 

Total year:  

Summary  for  2011 
(16 detail records) 

Total year:  

Grand Total  

6,57  

5.500  

1.262.900  

21.491.440  

3.462.821  

0 

500.000  

10.030  

266.766.634  

81.175.024  

11,08  

8.575.885 

0  

51.166.469  

4.252.315  

0 

0 

tons  of 

17,6 
agricultural 
products 
tobacco 

or 

26.635 

0 

24.978.060  

12.224.885  

4.786  

0  

10.126.254 

1.508.544  

9.113.000  liters 
of alcohol 

1.273.000  liters 
of fuel 

374.529.000 
pieces 
cigarettes 

102.623.000 
EUR  

of 

3.2 

X-RAY SCANNING EQUIPMENT SUPPORTED BY HERCULE II 

Various types of scanners have been purchased with financial support, including large fixed 
scanners  at  key  entry  point  (sea  ports  and  border  crossings)  to  scan  suspect  containers  and 
lorries,  mobile  scanners  which  can  be  deployed  wherever  there  is  an  operational  need  and 
smaller scanners to scan pallets and small loads. One Member State was awarded a grant to 
fund  specialist  scanning  equipment  to  scan  freight  entering  the  EU  by  train.  Scanning 
technology  has  proved  to  be  a  very  effective  weapon  in  enforcing  customs  legislation.  It  is 
used  on  a  daily  basis  to  examine  suspect  loads  and  has  been  invaluable  in  detecting  illicit 
consignments  of cigarettes concealed in containers, vehicles and packages. It is too early to 
give  comprehensive  figures  on  the  number  of  scans  performed  and  the  number  of  seizures 
made.  This  is  because  of  the  considerable  time-delay  between  the  award  of  a  grant  and  a 
scanner  being  fully  operational.  Public  procurement  procedures  must  be  followed,  the 
equipment must be ordered, delivered and tested and staff must receive appropriate training. 

6  

This information, obtained from Member States, cannot be considered as complete and the results could therefore be superior.  

EN 

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Member State 

Number of Scanners 

Austria 

Cyprus 

Denmark 

Estonia 

Finland 

Germany 

Greece 

Ireland 

Lithuania 

Malta 

Poland 

Portugal 

Slovenia 

Spain 

Sweden 

United Kingdom 

2 

1 

2 

1 

1 

1 

1 

1 

1 

1 

2 

2 

1 

1 

1 

2 

3.3 

COMPUTER FORENSIC TRAINING 

OLAF  facilitates  training  for  European  Law  Enforcement  (LE)  officers  on  how  to  collect, 
retrieve  and  analyse  data  on  any  electronic  data  carrier.  It  is  a  vast  domain,  requiring 
specialised knowledge and a very high degree of IT literacy. 

OLAF  has  been  co-financing  this  kind  of  training  since  2007.  So  far,  this  opportunity  has 
been provided to 323 LE officers ("basic" training) and 320 officers (two weeks of high level 
advanced training) to 93 LE bodies/services in the EU and even to 5 acceding countries. This 
training is in line with the US based IACIS standard (International Association of Computer 
Investigative Specialists), a non-profit organisation composed by LE people (or retired from 
LE)  with  a  worldwide  reputation.  It  is  complementary  to  other  forensic  training  actions 
financed by DG HOME (cybercrime training under ISEC). 

OLAF can count on their pool of high level forensic trainers and offers the Member States a 
unique opportunity to raise their technical level and readiness to investigate complex financial 
fraud  and  corruption  cases.  Additionally,  OLAF  has  created  a  real  network  of  forensic 
specialists all over Europe who have received the same kind of training. Each training session 
is  also  focused  to  bring  people  together  and  to  reinforce  this  networking  established  since 
2007.  OLAF  can  call  upon  the  participating  LE  services,  should  its  own  forensic  resources 
fall  short  in  a  specific  on-the-spot  check.  As  the  staff  of  these  services  have  been  trained 
according  to  OLAF’  own  standards,  the  retrieval  of  evidence  will  be  done  in  a  forensically 
correct manner. 

3.4 

INFORMATION TECHNOLOGY: AMT AND CONTRAFFIC 

a) Automated monitoring tool (AMT): number of records 

Access is by OLAF, DG JRC and Member States. 

Results: € 25,506,432 estimated revenue (C ustoms duty) at risk from OLAF examples. € 86,461.53 recovered, € 8,404,939 
identified, but not recovered. These figures include VAT domain of sea-transportation. 

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Satisfaction is indicated by discussion and feedback from the last workshop, leading to a decision to draft a 4th administrative 
arrangement. There is an interesting development on prices, supported by Member States at the last workshop. The tool can 
now identify low price outliers (i.e. potential under declarations) for all Tariff chapters. Results will shortly be published to 
Member States. 

This figure illustrates the count of number of records consulted in Theseus, broken down by number of records for each date 
year.  The colour  shows  details  about  account  category  i.e.:  Commission,  Member  States  and OLAF.  The  downward  trend 
may give a wrong impression, but the project went through a learning curve. AMT now offers more alerts than ever before, 
but filtering tools guide the user to the more relevant alerts.  

b) Contraffic  

Contraffic  aims  to  develop  and  test  an  advanced  risk-analysis  system  in  the  maritime 
transportation  domain  capable  of  automatically  checking  the  origin  of  the  merchandise 
declared  by  importers,  in  order  to  detect  potential  fraudulent  cases  of  the  type  "false 
declaration  of  origin".  The  benefits  at  EU  level  are  to  complement  national  risk  analyses. 
Established  national  risk  analyses  are  based  on  "local  data"  that  mainly  derive  from 
information about the entities involved in the transaction and on the declarations given by the 
importer. This national risk-analysis can be enhanced if global risk-indicators - related  with 
the itineraries of the containers are used. In order to use the itineraries of containers as a first-
class  risk-indicator,  there  is  the  need  to  develop  a  repository  of  container  movements  on  a 
global scale. Clearly, to achieve economies of scale, this type of development should be done 
centrally and made available for national customs organizations. 

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Contraffic: results obtained so far 

Currently  the  central  repository  of  Contraffic  handles  over  660  millions  of  container  events  (around  30%  of  the  current 
worldwide  activity),  referencing  over  12  million  containers.  This  repository  is  regularly  used  by  EU  customs  authorities: 
33% of users declared to use it on a weekly basis, and 22% consult it daily.  The usefulness of the system is also recognized 
by the user community: 50% consider that the information extracted from Contraffic is useful in their operational customs 
work,  while  22%  consider  it  of  crucial  importance.  In  addition,  a  total  volume  of  more  than  one  million  customs  import-
declarations  have  been  analyzed,  and    2251  instances  of  mismatches  between  the  origin  declared  by  the importer  and  the 
geographically origin inferred by Contraffic were detected. Out of these, 244 concerned the transport of "sensitive goods". 
By taken into account the TARIC regime applicable to importation of sensitive goods, the abnormal declarations were further 
manually analyzed by OLAF in order to attribute a "suspicious level" (none, high, medium and low). On the data analyzed 
until  May  2010,  out  of  206  declarations,  14  were  considered  highly  suspicious  and  transmitted  to  a  national  customs 
authority  for  further  investigation.  Contraffic  has  demonstrated  that  route-based  risk  analysis  can  be  effective  in  the 
detection of fraud of the type "false declaration of origin". 

3.5 

PROCURED ACCESS TO DATABASES 

a) Global Trade Atlas Database (GTA) 

GTA is used to help identify potential Customs fraud and support, either directly or indirectly, 
the Member States. Access is by OLAF and Member States. There is an increasing Member 
States database access (see below). 

Total usage split by OLAF and 11 Member States: 

GTA: OLAF & Member State Usage

i

s
n
g
o

l

f
o
r
e
b
m
u
n

1600

1400

1200

1000

800

600

400

200

0

OLAF
Member States

2007

2008

2009

year

2010

2011

Results: € 14,275,000 from 3 OLAF cases.  

OLAF case example 

A product declared as country A origin, suspected to be country B origin subject to anti dumping and countervailing duties €  
9,100,000 ADD and € 1,500,000 Custom s duty. Information was received from Member State authorities about a shipment of 
suspect country A product. GTA checks revealed the exact same quantity being shipped from country B to country A shortly 
before the country B to EU shipment, active investigation. 

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b) China Trade Information (CTI) and Tips Software Services 

The information extracted from the Chinese database  (CTI)  is valuable, not  only during  the 
investigation  itself,  but  also  in  the  evaluation  stage  of  a  case.  It  helps  OLAF  case  handlers 
decide whether or not a case should be opened, provides a support for evidence in cases where 
several fraud mechanisms are involved and it is also useful to identify the Chinese exporters 
concerned.  Some  OLAF  cases  were  dependent  on  the  Chinese  database  to  prove  the  fraud. 
The  use  of  the  information  contained  in  the  database  has  led  to  the  success  of  many 
operational cases, which in turn led to the recovery of important amounts, some leading to jail 
penalties for the individuals involved in the fraud scheme.  

OLAF case example 

A specific case fully depended on the Chinese database (and GTA). The case concerned the evasion of customs duties (12%) 
for textile garments, which had been falsely declared as originating in Country A (preferential origin, 0% duty). Thanks to 
the Chinese database, OLAF could demonstrate that, for example, cashmere pullovers exported from Country B were cleared 
for customs purposes in Country A as yarn in order to deceive the Customs of that Country. The aim was to pretend that the 
companies  concerned  in  Country  A  produced  textiles  from  Country  B  yarn  and  thus  obtained  the  Country  A  preferential 
origin. Instead, however, these companies merely re-exported the Country B ready made garments previously imported. The 
fact that also the bills of lading contained wrong information concerning the description of the goods exported from Country 
B  to  Country  A  made  the  Chinese  data  base  valuable.  It  was  the  only  source  of  obtaining  data to  demonstrate  the  actual 
nature (i.e. ready made garments instead of raw-material) of the goods supplied from Country B to Country A and from there 
to  the  EU.  The  duties  evaded  were  about  €  30  million.  The  case  faced  a  number  of  appeals  and  the  Commission  is  now 
defending it at the ECJ. 

The  same  principle  and  results  apply  for  detailed  shipment  records  of  Indian  imports  and 
exports (Tips). 

c) Access provided to other main databases  

These  databases,  supporting  the  customs  activities  in  the  Member  States  as  well  as  OLAF 
activities,  cover  the  following  information  domains:  Maritime  -  transportation  (Lloyds  – 
SEAWEB  (SEADATA)  and  AISDATA;  Manifest  -  data  (Tradebytes  –  C-HAWK); 
Companies search tool (DUN & Bradstreet GRS); Companies information (full report) (DUN 
& Bradstreet DBAI). 

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Lloyds – SEAWEB (SEADATA) and AISDATA: 

This  database  is  maintained  to  support  the  requirement  of  OLAF  and  the  Member  States  to  information  about  ship 
characteristics,  ownership,  casualty,  ship  movements  current  and  historic  and  AIS  -  automatic  identification  System  - 
information.  The  AIS  module  rounds  up  with  real-time  positions  of  individual  vessels  and  fleets  from  the  AIS  network 
receivers. This gives the possibility to OLAF and the Member states to identify and monitor in real time suspected vessels and 
goods  that  are  carried.  This  database  also  gives  the  possibility  to  check  in  the  historical  movements  of  the  ships  where  a 
particular ship was in the past. This is mostly used when a fraud investigation is carried out. 

Tradebytes – C – HAWK (Manifest data): 

This  Allows  special  searches  based  on  container  number,  bill  of  lading  number,  vessel  name,  consignee  &  address  name, 
shipper, lading Port & Country, departure or arrival date, description, harmonised code etc. (unique in combining the most 
possibilities with search criteria). The information represented in the database is important for OLAF and the Member States 
for risk assessment and targeting. The company has focused its data source acquisition efforts on geographic regions that 
are of interest for the investigation partners in the Member States. 

GRS (Global Reference Solution) - (Search Tool): 

GRS has a worldwide coverage of more than 196 million companies (more than 81 million in Europe); it includes historical 
information  on  active  companies  as  well  as  on  out-of-business  companies.  GRS,  a  customized  application,  contains  more 
detailed  features  and  advanced  searches  in  the  identification  of  related  business,  for  instance  in  fraud  tracking.  Owners, 
Shareholders and company trees can be immediately displayed. The subject of the GRS is the acquisition of “Basic Company 
Information”, to be used primarily in support Member States investigative work.  

DBAI (Detailed companies information): 

After  company  identification  via  the  GRS  database,  a  full  financial  in  depth  analysis  is  available.  DBAI  allows  the 
verification  of the  existence  and  background  of any  business  anywhere  in the  world,  quickly and  easily (and therefore  the 
verification of the existence, history and financial stability of a potential recipient of subsidies, funds, grants, etc.). 

OLAF cases  

Intelligence  support  is  essential  for  investigations,  for  example  as  regards  the  most  current  fraud  mechanisms  applied  in 
poultry cases (misdescription of the species and of the origin), by establishing the origin of a container consignment through 
container tracking and company intelligence on parties concerned (the shipper/producer in a third Country, the consignee in 
the EU and possible links to other economic operators involved). In the initial phase of a new OLAF case, such logistical 
information is vital in order to take further appropriate actions with OLAF partners in the Member States.  

In the context of one OLAF investigation into international cigarette smuggling, the support provided through data collected 
in the Dun and Bradstreet database, led one Member State Customs to investigate and identify assets of almost € 14 million 
that  had  been  generated  from  cigarette  smuggling.  Without  this  information  from  the  database  it  would  not  have  been 
possible to identify the money laundering circuit which extended though several countries and fiscal heavens. Information on 
suspect containers is also a vital tool for OLAF and the Member States to fight international cigarette smuggling. Several 
hundred million illicit cigarettes are seized each year as a direct result of information on container movements provided by 
OLAF's Information Support Office (ISO). 

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ANNEX 4 

TRAINING: SOME HERCULE II SUCCESS STORIES 

Guarda di Finanza (IT): specialised anti-fraud training (2010 grant agreement) 

The  training  activities  were  organised  between  the  Italian  and  the  Bulgarian  authorities  to  pass  on  to  the  latter  the 
experience  acquired  by  the  Guardia  di  Finanza.  The  aim  was  to  raise  awareness  and  share  knowledge  in  the  areas  of 
investigation techniques, money laundering, fight against fraud in the structural funds and common agricultural policy. All 
participants  were  of  the  opinion  that  the  training  was  a  very  challenging  experience;  they  learnt  a  lot  about  the  Italian 
system. The event was attended by high level representatives: the Bulgarian Deputy Prime Minister and Minister of Interior 
and the Italian ambassador. The ambassador will explore further possibilities of cooperation between the two countries (in 
particular  regarding  further  cooperation  between  the  Guarda  di  Finanza  and  the  Bulgarian  AFCOS).  The  project  was 
published on various websites. 

SK Customs Directorate (2010 grant agreement) 

This action focused on improving the skills, qualifications and work of customs officers at the Bratislava Customs Office to 
detect tax fraud, smuggling and counterfeiting of tobacco products, as well as to prevent counterfeiting of tobacco products 
and  related  crime  on  the  territory  of  Slovakia  and  in  the  EU.  Twenty  customs  officers  from  the  Slovak  Customs 
administration  were  trained  in  order  to  fight  fraud  more  effectively,  to  improve  the  quality  of  their  investigation  and  to 
ensure that they take effective measures. These two one-week cycles are a good example of efficient training.  

Conference dbb Akademie (DE) (2010 grant agreement)  

This  conference  in  Germany  included  workshops  on  "Corruption  prevention  in  the  midst  of  a  crisis"  and  4  specialised 
workshops on "Whistle-blowing", "Corruption prevention in the German municipalities", "Human resources development in 
corruption  prevention  efforts"  and  "Ethics  offices  for  the  public  administration"  with  the  aim  to  provide  a  wide  range  of 
participants  with  up-to-date  information  on  OLAF’s  work  on  protecting  the  EU’s  financial  interests,  bring  together  all 
involved  in  the  fight  against  fraud  and  corruption  in  Europe,  solidify  the  joint  fight  against  fraud  and  corruption  and 
facilitate  establishment  of  networks  between  Member  States,  acceding  countries,  candidate  countries  and  third  countries, 
exchange information, strategies and examples of good practice in combating fraud and corruption in Europe and thereby 
provide greater transparency, in order to minimise fraud and corruption and protect the EU’s financial interests as well as 
hold  intensive  discussions  and  make  suggestions.  The  conference  had  a  transnational  character  with  34  nationalities 
represented, 17 Member States, 3 candidate countries, 3 Balkan countries, 1 EFTA/EEA Country, 1 Russian participant, 1 
Neighbourhood  policy-country,  2  other  countries  (CH,  USA)  and  a  range  of  high-level  speakers.  An  evaluation  study  was 
published. 

Presidency Conference (SE) (2009 grant agreement) 

This  seminar  was  organised  in  the  framework  of  the  Swedish  Presidency  to  debate  and  exchange  ideas  on  combating 
financial crime in the EU, including the protection of the financial interests of the EU (from a practical perspective). The 
conference mainly discussed the operational challenges in investigations for police and judicial authorities.  It also sought to 
provide up-to-date information on new institutional tools and to inform on the work of the other national law enforcement 
organisations in the EU. The partnership between the private and the public sector was also discussed. There was a lot of 
discussion  of  the  Lisbon  Treaty  (Establishment  of  a  European  Public  Prosecutor's  Office  (Article  86  TFEU).  18  Member 
States and 1 representative of Liechtenstein participated in the event. The participants were from policy making bodies, EU 
Institutions  (OLAF,  Eurojust,  Europol),  Council  of  the  EU),  Law  enforcement  (operational  and  training),  judges  and 
prosecutors.  

Universidade de Lisboa (PT) (2009 Grant agreement) 

This  conference  was  the  first  co-financed  Hercule  II  project  organised  by  a  university  on  external  aid  fraud.  31  of 
nationalities were represented in the framework of ANCORAGE-NET, dealing with a new domain of intervention for national 
law-enforcers which requires a solid network of cooperation at the international level, as well as an understanding of the 
dynamics of laws, institutions and procedures across different jurisdictions. The main objective was to raise awareness and 
understanding for the agencies involved, in the issues associated with aid funding, and the problems associated. Information 
regarding  the  co-financed  conference  was  published  on-line  and  the  materials  were  distributed  amongst  Portuguese 

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university  departments,  embassies,  EU  representation  in  Lisbon,  media  and  state  agencies  and  published  at  the  ICS-UL 
website.  Transparency  International  (TI),  Centre  for  Public  Integrity  (CIP)  and  the  Portuguese  Platform  of  NGO's  were 
asked to disclose the results of the conference.  

PL Ministry of Finance Internal Control Dept. (2008 Grant agreement) 

The objective of this action was to improve the co-operation between DE and PL surveillance teams, specifically in the area 
of  cross-border  movements  of  excise  goods  (mainly  cigarettes).  This  co-operation  comprised  determining  phraseology, 
communication methods, lines of responsibility, equipment and ultimately the procedures to be adopted in terms of covert 
surveillance. DE and PL officials from the border areas were involved in the action. Post-event feedback has shown that this 
event  was  very  effective:  OLAF  was  advised  of  two  occasions  on  which  the  procedures  were  applied  in  live  situations, 
underlining the value of the training. It was a highly operational matter fully in line with what Hercule II is targeting. This 
event was beneficial to both sides. With these results in mind, it is very likely that wider use will be made for future joint 
actions. 

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ANNEX 5 

REPLIES  TO  THE  2011  SURVEY  ON  THE  USE  OF  DATABASES  SUPPORTED  BY 

HERCULE II 

1.  Percentage of users using the database from all survey replies

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

60%

50%

40%

30%

20%

10%

0%

 Lloyds - SEAWEB 

C-HAWK 

Full reports D&B

GRS

GTA

2. How often do you use this database?

 Lloyds - SEAWEB 

C-HAWK 

Full reports D&B

GRS

GTA

yes

no

I don’t't know

Daily

Weekly

Monthly

Occasionally

Never

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3. Rate the quality of provided information in this database.

70%

60%

50%

40%

30%

20%

10%

0%

70%

60%

50%

40%

30%

20%

10%

0%

 Lloyds - SEAWEB 

C-HAWK 

Full reports D&B

GRS

GTA

4. Rate the usefulness of this database

 Lloyds - SEAWEB 

C-HAWK 

Full reports D&B

GRS

GTA

1- Insufficient

2- Poor

3- Average

4- Above average

5- Excellent

1- Insufficient

2- Poor

3- Average

4- Above average

5- Excellent

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ANNEX 6  

 DATA ON THE EXTENT OF FRAUD 

Number of irregularities values — 2010 – 

of 

Number 
irregularities 
reported 

Area 

estimated 

financial 
irregularities, 

Total 
impact 
including  suspected  fraud  (€ 
million) 

of 

Estimated  financial  impact 
of  suspected  fraud  only  (€ 
million) 

Recovered 
amounts(€ 
million)  

2009 

2010 

2009 

2010 

2009 

2010 

Agriculture 

1621 

1825 

125 
(~0.24 %  of 
allocations) 

131 
(~0.23% 
of allocations) 

13.3 
(~0.03%  of 
allocations 

69 
(~0.12% 
of allocations) 

2010 

175 

Cohesion 
Policy 

4737 

7062 

1 
183 
(~2.44%  of 
allocations) 

1550  (~3.15% 
of allocations) 

109 
(~0.23 %  of 
allocations) 

364  (~0.74% 
of allocations) 

611 

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) 

14 

Direct 
expenditure 

705 

1021 

27.5 
(~0.17 %  of 
allocations) 

43  (~0.27%  of 
allocations) 

Total 
expenditure 

7769 

10332  1.452,5 

(~1.13%  of 
allocations) 

1.807  (~1.27% 
of allocations) 

1.5  (~  0.01 
% 
of 
allocations) 

180.8  (0.13 
% 
of 
allocations) 

4  (~0.02%  of 
allocations) 

25 

478  (~0.34% 
of allocations) 

825 

Source Commission Annual Report on the Protection of the Financial Interests of the EU for 
2010 

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Headline data on  OLAF  investigations  and operations (Source, OLAF Operational Report 
for 2010) 

Investigations and operations by sector and type and cases under assessment at the end of 
2010 

Major sector 

Co-
ordination 
Case 

Criminal 
Assistance 
Case 

External 
Investigation 
Case 

Internal 
Investigation 
Case 

Mutual 
Assistance 
Case 

Total  Assessment 

117 

101 

25 

37 

45 

139 

77 

53 

4 

8 

58 

94 

82 

201 

548 

+ 

Agriculture 
(expenditure 
revenue) 

Cigarettes 

Customs 

Direct Expenditure 

EU  Institutions  +  EU 
Bodies 

External Aid 

Structural Funds 

37 

16 

17 

0 

0 

0 

2 

44 

9 

1 

2 

7 

3 

5 

29 

0 

13 

43 

24 

74 

46 

0 

0 

0 

0 

108 

0 

0 

7 

0 

6 

0 

0 

0 

0 

Total 

72 

71 

229 

108 

13 

493 

Amounts recovered from closed financial follow ups in € million 

Major Sector 

Agriculture 

Customs 

Direct Expenditure 

2010 

11,9 

7,1 

10,6 

EU Institutions + EU Bodies 

0,1 

External Aid 

Structural Funds 

Total 

5,3 

32,9 

67,9 

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Total cases completed by OLAF by 31/12/2010 

•  Cases concluded at the end of the assessment phase: 2890 

•  Investigation cases: 1447 

•  Assistance and coordination cases: 812 

Total amounts recommended by OLAF for recovery by 31/12/2010: € 1.922 bn 

Total amounts recovered by 31/12/2010: € 1.089 bn 

Recorded Court decisions on OLAF-related cases 

Recorded 
Court 
Decisions 

Suspended 
Sentence  

(months) 

2010 

Cases  Values 

15 

1.201 

Imprisonment  

22 

1.503 

(months) 

Financial 
Penalty  

(€ millions) 

133 

1.467,7 

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