COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the Proposal for a Council Regulation on the establishment of the European Public Prosecutor's Office
Date: 2013-07-17
Institutions: European Commission
Subjects: Eurojust, European Anti-fraud Office, administrative procedure, fraud, fraud against the EU, operation of the Institutions













EUR-Lex - 52013SC0274 - EN











|



52013SC0274

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the Proposal for a Council Regulation on the establishment of the European Public Prosecutor's Office /* SWD/2013/0274 final */









COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the 
Proposal for a Council Regulation
on the establishment of the
European Public Prosecutor's Office
Table of Contents
1........... Introduction. 5
2........... Procedural issues and consultation of interested
parties. 8
2.1........ Consultation and expertise. 8
2.2........ Internal consultation and scrutiny of the Impact
Assessment 10
3........... Problem Definition. 10
3.1........ What is the problem?. 10
3.2........ Which are the drivers behind the problem?. 12
3.3........ Problem definition: conclusions. 22
4........... Right to act, subsidiarity and fundamental rights. 24
4.1........ Legal basis. 24
4.2........ Subsidiarity and need for EU action. 25
4.3........ Fundamental Rights. 27
5........... Objectives. 27
6........... Policy options and their impact 30
6.1........ Overview of policy options. 30
6.2........ Policy option 1: Base-line scenario - No policy change. 30
6.3........ Policy option 2: No new regulatory actions at EU level 32
6.4........ Policy option 3: Strengthening of the powers of Eurojust 32
6.5........ Policy option 4a: Creation of an EPPO entity within
Eurojust 34
6.6........ Policy option 4b: Creation of a College-type EPPO.. 35
6.7........ Policy option 4c: Creation of a decentralised integrated
EPPO.. 35
6.8........ Policy option 4d: Creation of a centralised EPPO.. 36
6.9........ Horizontal issues for options 4a-4d. 37
7........... Assessment of policy options. 38
7.1........ Status quo (policy option 1) – Baseline scenario. 40
7.2........ No new regulatory actions at EU level (policy option 2) 42
7.3........ A strengthened Eurojust (policy option 3) 44
7.4........ Creation of an EPPO entity within Eurojust (policy option
4a) 46
7.5........ College-type EPPO (policy option 4b) 49
7.6........ EPPO with decentralised integrated organisation (policy
option 4c) 52
7.7........ EPPO with centralised hierarchical organisation (policy
option 4d) 56
7.8........ Horizontal issues. 58
8........... Comparative assessment 59
9........... Enhanced cooperation. 61
10......... Monitoring and evaluation. 62
 Executive Summary Sheet 
 Impact assessment on the Regulation of the Council on the establishment of a system of European Prosecution for protecting the union's financial interests: the European Public Prosecutor's Office (EPPO) 
 A. Need for action 
 Why? What is the problem being addressed? 
 The Union's financial interests are still not protected sufficiently: fraud, corruption and other offences affecting the Union's budget have reached disturbing levels in some areas and the lack of vigorous enforcement has helped a sense of impunity to emerge among fraudsters. The Union's current actions to protect its financial interests include administrative investigations, controls and audits, as well as legislative action, including the Commission's proposal for a Directive on the fight against fraud to the Union's financial interest by means of criminal law and the reform of OLAF, but do not address the deficiencies identified with respect to the investigation and prosecution of criminal offences related to the protection of the EU's financial interests. For the purpose of this impact assessment it has been assumed that about 3 billion euro per year could be at risk from fraud. The most affected stakeholders are the law enforcement and prosecutorial authorities in the Member States. 
 What is this initiative expected to achieve? 
 The initiative is expected to strengthen the protection of the Union's financial interests through establishing a European Public Prosecutor's Office. Its establishment is expected to lead to a more consistent prosecution policy for crimes against the EU's financial interests, ending the current fragmentation. This will lead to an increase in the number of prosecutions of the perpetrators of crimes affecting the financial interests, leading to a higher number of convictions, a higher level of recovery of illegally obtained funds and increased deterrence. In addition, its independence will ensure that investigations and prosecutions of the relevant crimes will be taken forward and brought before national courts, without direct influence of national authorities. 
 What is the value added of action at the EU level? 
 The added value of establishing a European Public Prosecutor's Office is mainly to be found in a more consistent prosecution policy, as well as an increased number of prosecutions of crimes affecting the Union's financial interests. This is expected to increase the level of deterrence and therefore improve the overall respect for the applicable rules, as well as the level of recoveries of funds unduly paid. The EPPO will direct investigations and prosecutions in the Member States, ensure effective coordination of investigations and prosecutions, and reduce problems related to different applicable legal systems. The current system, where the Member States are solely responsible for such investigations and prosecutions, supported by Eurojust and Europol, is not efficient enough to deal with the high levels of relevant crime and associated damages. 
 B. Solutions 
 What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why? 
 Seven policy options have been considered, of which four involve the establishment of a European Public Prosecutor's Office. Maintaining the status quo, taking non-regulatory actions only or improving the functioning of Eurojust have all been considered to be not effective enough in addressing the problems identified – only the options for establishing an EPPO have been assessed as providing effective and efficient action. The options for establishing an EPPO vary with respect to their institutional set-up, ranging from creating a unit within Eurojust (4a), a college-type EPPO (4b), a decentralised integrated EPPO (4c) to a centralised EPPO (4d). According to the impact assessment, setting up the EPPO as a decentralised integrated European organisation, based on the national judicial systems (4c), offers the most benefits. 
 Who supports which option? 
 Consultations with stakeholders have demonstrated differences of views with respect to the different options for establishing the EPPO. Most agree that other actions would neither be efficient nor effective enough to address the problems identified. The exact institutional set-up of the EPPO has been the subject of discussions ranging back to the 90's, and these discussions have not led to a common view amongst practitioners on the preferred option. The main difficulties relate to the integration of the EPPO and its actions within national judicial systems, the law applicable to investigations and prosecutions under the authority of the EPPO, as well as the integration of the EPPO's work with existing institutions, in particular Eurojust and OLAF. 
 C. Impacts of the preferred option 
 What are the benefits of the preferred option (if any, otherwise main ones)?                                        
 All four options for establishing the EPPO are expected to bring benefits in terms of an increase in the number of prosecutions brought forward in national courts. Of these four options, only the decentralised and the centralised options are expected to bring significant benefits, with the decentralised option doubling the current number of convictions, and the centralised option reaching almost that number. In addition to an increase in recovery, the impact assessment conservatively assumes that a doubling of the number of convictions will lead to a reduction in damage of around 10%. This means that the decentralised option is expected to provide the most benefits: over twenty years these are projected to total €3 200 million. The centralised option is a close second with expected benefits of about €2 900 million over the same period. The benefits of the other options are much more limited than that. 
 What are the costs of the preferred option (if any, otherwise main ones)?                                       
 The costs of the different options for establishing the EPPO vary quite considerably. The most expensive option is the centralised one, which assumes that all investigations and prosecutions will be handled at the European level, leading to a higher number of required EU staff. The decentralised option does not entail as much costs, also because use is made to a large extent of resources existing in the Member States, at Eurojust and at OLAF. The costs for the centralised option over twenty years are expected to be over €800 million, whereas the costs for the decentralised option are expected to be about €375 million. These costs include all costs expected to arise from establishing a new European body. 
 How will businesses, SMEs and micro-enterprises be affected? 
 Businesses, SME's and micro-enterprises will not be directly affected through establishing a European Public Prosecutor's office. 
 Will there be significant impacts on national budgets and administrations? 
 Yes – the increase in the number of prosecutions will lead to an increase in the costs for court cases, legal assistance etc. In addition, national law enforcement authorities will need to get used to working together with the EPPO and its staff. However, no significant new investments in investigation or prosecution staff will be needed: the currently available staff is expected to work more efficiently and effectively under the EPPO's direction. 
 Will there be other significant impacts? 
 Yes. The EPPO must be established with full regard to the fundamental rights of the defendants, witnesses and other participants in its investigations and procedures. This includes a system of judicial review of its actions. There will also be an impact on relations with third countries, since the EPPO will need to cooperate with them in the course of its investigations. 
 D. Follow up 
 When will the policy be reviewed? 
 A statistical review of the policy is foreseen to take place within two to four years after the establishment of the EPPO. 
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the 
Proposal for a 
Council Regulation on the
establishment of a system of European Prosecution for protecting the Union's
financial interests: the European Public Prosecutor's Office
1.           Introduction
In times of fiscal consolidation the protection of the European
Union budget is of special political, legal and economic relevance. Both the
Union and the Member States have a duty "to counter fraud and any other
illegal activities affecting the financial interests of the Union" as well
as to "afford effective protection" to such interests.[1] Despite this clear
obligation directly imposed by subsequent EU treaties and already referred to
in 1989 by the European Court of Justice[2],
the Union's financial interests are still not protected sufficiently by many
Member States: fraud, corruption and other offences affecting the Union's
budget have reached disturbing levels in some areas and the lack of vigorous
enforcement has helped a sense of impunity to emerge among fraudsters. Recent
analyses[3]
confirm that hundreds of millions of euros of taxpayers' money continue to
disappear due to such criminal activities. This concerns notably structural
funds, the cohesion fund and areas of highly taxed products (e.g. cigarettes,
alcohol etc.). Besides the Union itself, many citizens and companies are
adversely affected by these offences, and the current budgetary restraint
efforts undertaken by the Member States and the Union seem less credible to
them if the Union and the Member States are unable to prevent such damage to
the EU budget and effectively prosecute fraudsters. 
Whereas both the Union and the Member
States have an obligation to protect the Union's budget, in reality the Union
has little control over the expenditure by Member States and virtually no power
to intervene in cases of criminal misuse of the EU's funds. The vast majority
of the EU budget is managed by national authorities (for example when they
award public procurement grants financed through the EU budget) and any
criminal investigations or prosecutions concerning offences affecting the
Union's budget are within the competence of the Member States. Criminal
investigations into fraud and other crimes against the EU budget are often
hampered by divergent legislation and uneven enforcement efforts in the Member
States. National law enforcement authorities, prosecutors and judges in the Member
States decide in accordance with priorities set by national criminal policy and
on the basis of national criminal law competences and procedural rules whether
and, if so, how they intervene to protect the Union's budget. Consequently, the
level of protection of the Union's financial interests differs significantly
from one Member State to another. The fact that the rate of successful
prosecutions concerning offences against the EU budget varies considerably
across the EU from one Member State to another (from 19,2% to 91,7%[4]) shows a gap in the existing
protection mechanisms and calls for corrective measures. 
Links between crimes affecting the Union's
financial interests and organised crime should also be considered. In
accordance with the findings of the 2011 OCTA report[5], organised crime is a threat to
the citizens and the economy of Europe, to its businesses and state
institutions. Criminals operate easily across borders, and organised crime is
becoming increasingly diverse in its methods, groups structures, and its impact
on society. Crimes affecting the Union's financial interests both at the
national and the EU level attract organised criminal groups due to the low
levels of detection and prosecution of cases, as discussed further below. 
 The scale of fraud against the EU budget Data collected and analysed by the Commission identify “suspected fraud” averaging about €500 million in each of the last three years, but there are good reasons to believe that the actual amount of fraud is significantly higher. Rather obviously, figures on reported fraud cannot include fraud that is not detected. Moreover, not all Member States distinguish between “irregularities” and “fraud” – indeed, six Member States reported zero fraud affecting the spending of EU funds during in the area of Cohesion Policy for the programming period 2007-2013.[6] The preparatory study for this impact assessment (see annex 3) examines the potential size of this “dark figure”. On the revenue side, VAT fraud and cigarette smuggling have been estimated to each cost the EU budget some €1 billion per year. As regards spending, the preparatory study for this impact assessment estimates that in a “low-risk” scenario, damages in the area of agricultural and structural funds could amount to €4.1 billion each year. Taking into account the weaknesses in the available data, for the purposes of this Impact Assessment it has been assumed that about €3 billion per year could be at risk from fraud. Given the weaknesses in the available data and the difficulties inherent in measuring the scale of the criminal activities that are undetected, the true figure, however, cannot be calculated precisely. 
The Union's current actions to protect its
financial interests are manifold, but they have a single aim: to ensure that
the limited financial resources of the Union are used in the best interests of
EU citizens. This is indispensable for the legitimacy of its expenditure and
for ensuring public trust in the Union. Such actions include administrative
investigations, controls and audits, as well as legislative action. The most
recent of these actions is the Commission's proposal for a Directive on the
fight against fraud to the Union's financial interest by means of criminal law.[7] This proposal addresses the
side of substantial criminal law on fraud and aims at ensuring, in particular,
an appropriate level of sanctions. However, in order to ensure the functioning
of the EU system to prevent and sanction fraud, it is also indispensable to
ensure that these actions are actually applied in practice. Even the most
efficient controls and the best possible legal framework will not produce
results without effective investigation and prosecution measures which ensure
that the perpetrators of the crimes concerned are actually brought to trial and
sanctioned. 
The previous initiatives do not serve that
purpose. In particular, the reform of the European Anti-fraud Office (OLAF) only
aims at improving the efficiency and transparency of the current administrative
investigations but cannot be expected to have any substantial impact on the
level of criminal investigation and prosecution of offences in the area of EU
fraud.[8]

There is currently therefore a significant
gap in the "enforcement cycle" (see picture on page 12). This is the focus
of the current report.
This Impact Assessment report will
demonstrate that addressing these issues requires the setting up of a strong,
effective and integrated European enforcement regime against fraud and other
illegal activities affecting the Union's financial interests. The Union's
actions should seek to put an end to the fragmented enforcement regime in the
Member States and ensure a coherent approach to dealing with European fraud
cases throughout the Union, from detection to investigation, and from
prosecution to judgment. Only by overcoming the current legal and institutional
barriers to fighting crimes against the EU's budget by national law enforcement
authorities and justice systems will the Union be able to ensure efficient
protection of its budget. The gaps identified in the enforcement cycle need to
be closed.      
 Actors at European and national level involved in actions to fight offences against the EU's financial interests. 
 Eurojust || Established in 2001, Eurojust is the European Union agency for cross-border judicial cooperation in criminal matters. It plays an important role in cross-border cases involving the financial interests of the EU. Eurojust does not have the power to start criminal investigations or prosecutions in the Member States. Eurojust’s role is to stimulate and improve the coordination of investigations and prosecutions between the competent authorities in the Member States and to improve the cooperation between the competent authorities of the Member States. Eurojust supports in any way possible the competent authorities of the Member States to render their investigations and prosecutions more effective when dealing with cross-border crime. Eurojust may ask the competent authorities of the Member States concerned: ·        to investigate or prosecute specific acts; ·        to coordinate with one another; ·        to accept that one country is better placed to prosecute than another;  ·        to set up a Joint Investigation Team; or ·        to provide Eurojust with information necessary to carry out its tasks. The operation of Eurojust is the responsibility of the College of Eurojust, which is composed of one National Member from each of the EU’s Member States. National Members are seconded in accordance with their respective legal systems. The exact status and powers of each National Member is defined by the national legislation of their appointing Member State, which also determines how long they serve. 
 Europol || Established in 1997, the European Union's agency for law enforcement cooperation supports investigations into offences affecting the EU’s financial interests through its analysis tools and information exchange networks. Europol has no operational powers – its staff cannot by themselves conduct criminal investigations. 
 OLAF || OLAF was established in 1999 as the European body responsible for protecting the financial interests of the Union by combating fraud, corruption and other illegal activities. OLAF exercises its mission by conducting administrative anti-fraud investigations and supporting the Commission in the implementation of fraud prevention and detection policies. OLAF is a central office within the European Commission, which receives reports on fraud[9] and irregularities[10] inter alia from the Member States' authorities and conducts administrative investigations into suspected cases of fraud and other offences affecting the EU’s financial interests, either on its own initiative, using factual information, including from private sources, or on request by a member state or EU institution. It also collects data on these cases. However, OLAF does not have competence with respect to criminal investigations. 
 Member State authorities || Investigate and prosecute these offences, as well as bring offenders to judgment. 
2.           Procedural issues and consultation of interested
parties
2.1.        Consultation and
expertise
Discussions on how to best strengthen the
investigation and prosecution of offences against the Union's financial
interests, for example through the creation of a European Public Prosecutor's
Office (EPPO), have been going on for more than a decade. There are already
numerous institutional documents, studies and independent analyses of the
relevant issues available.[11]
To a large extent, the current report builds on this research. However, these
studies, much as the Treaty itself, leave a number of technical, legal and
political issues open. Therefore, two studies conducted by an external
contractor were carried out on behalf of the Commission with the objective to
prepare this impact assessment.[12]
Preparatory consultations in view of the current report have therefore covered
these issues, based upon a large panoply of options as regards the
institutional, organisational and operational set-up of a European system for
investigation and prosecution of the relevant offences. 
1. 
2. 
2.1. 
At the beginning of 2012, two
questionnaires were published and distributed, one to justice professionals and
another to the general public, respectively. A large number of detailed
replies were sent to the Commission. In general, the replies were positive
towards taking new actions to strengthen the material and procedural framework
to counter offences affecting the EU’s financial interests, and most also
expressed support for the idea to set up an EPPO. A number of more detailed
suggestions, concerns and questions were also voiced (see Annex 1), in
particular on the relationship between the EPPO and national prosecution
authorities, the competence of the EPPO to direct and coordinate investigations
at national level, or the possible difficulties with any harmonised European
rules of procedure in the EPPO's proceedings. 
In parallel, field research has been
conducted in a number of Member States, as part of the external study in
support of this report.[13]
In addition, throughout 2012 and at the beginning
of 2013, a number of discussions or meetings took place at European level:
·       
The network of Public Prosecutors or equivalent
institutions at the Supreme Judicial Courts of the Member States, Budapest,
25-26 May 2012. 
·       
Conference: A Blueprint for the European Public
Prosecutor's Office? Luxembourg, 13-15 June 2012. The conference gathered
experts and high level representatives from academia, EU institutions and
Member States.
·       
Vice-President Reding's consultation meeting
with Prosecutors General and Directors of Public Prosecution from Member
States, Brussels, 26 June 2012. The meeting permitted an open discussion on
specific issues regarding the protection of the Union's financial interests. 
·       
On 18 October 2012, the Commission organised a
consultation meeting on issues relating to a possible reform of Eurojust, in
which questions related to the setting up of an EPPO were also discussed with
representatives of Member States. The meeting generally supported establishing
a close link between Eurojust and the EPPO.
·       
The 10th OLAF Conference of Fraud Prosecutors,
Berlin, 8-9 November 2012, was an opportunity to explore the ways in which
national prosecutors would interact with the EPPO, if set up.    
·       
The informal consultation held on 26 November
2012 with defence lawyers (CCBE and ECBA) looked at procedural safeguards for
suspects and made useful recommendations in that regard.  
·       
ERA seminar "Towards the European Public
Prosecutor's Office (EPPO)", 17 and 18 January 2013.
·       
Meeting of the Commission Expert Group on
European Criminal Policy, Brussels, 23 January 2013.
·       
Further consultation meeting with ECBA and CCBE,
Brussels, 9 April 2013.
Also, numerous bilateral consultation
meetings with Member States’ authorities have taken place over the second half
of 2012 and the beginning of 2013. 
2.2.        Internal consultation and scrutiny of the Impact
Assessment
An Interservice Steering Group was created
involving representatives from DG Justice, OLAF, DG DEVCO, DG AGRI, DG BUDG, DG
EAC, DG EMPL, DG ENTR, DG HOME, DG MARKT, DG MOVE, DG RTD, DG SANCO, the
Secretariat-General and the Legal Service. ISSG meetings were held on 17
September 2012, 26 November 2012 and on 30 January 2013. At the meetings and in
subsequent communication with individual DGs, comprehensive feedback was
received which has been taken into account throughout this report.
This Impact Assessment was examined by the
European Commission's Impact Assessment Board on 10 April 2013. Further to the
IAB's recommendations, additional information, explanations and data were
introduced in this document. In particular, the problem definition has been
redrafted to focus more on the core problems of inadequate investigation and
prosecution of offences against the Union's financial interests, and the
reasons why these are not addressed through current initiatives. Also, the
objectives have been simplified, and the cost-benefit analysis has been further
explained to show more clearly the reasons underlying the differences in the
benefits of the various options. In addition, more information was included on
consultation of stakeholders, information on a discarded option was added, and
some horizontal issues which did not affect the assessment and comparison of
the options were taken out to make the intervention logic easier to understand,
while the contribution of others to addressing the problems has been clarified.
Finally, a separate Annex 2 was added which better explains the relations
between the problems, the objectives and the options.
3.           Problem Definition 
1. 
3.1.        What is the problem?
 As shown under point 1, every year at least several hundred million euros are fraudulently diverted from their intended purpose. Only a small fraction of these losses are ever recovered from the criminals. These figures show that the financial interests of the European Union are insufficiently protected from fraud.   In fact, the Commission's annual statistics (including those of OLAF) demonstrate that while fraud against the Union's financial interests is pervasive and causes substantial damage every year to the tax payer, national criminal enforcement efforts lag behind. In particular, OLAF's cases which are transferred to national investigation and judicial authorities are not always equally effectively followed-up.   
              The issues described in
the introduction to this report can be visualised through a simple diagram,
which shows the relations between the various issues – the enforcement cycle
referred to above. This diagram clarifies how these different issues reinforce
each other, leading to a vicious cycle in the current organisational and
institutional structure: there are high levels of crimes against the financial
interests of the Union, of which only a certain amount is detected. A low level
of detection leads to an even lower level of investigation, since not all
detected crimes will be investigated. A low level of successful investigations
leads to an even lower level of prosecution, since not all investigated cases
will be prosecuted. Finally, not all prosecuted cases lead to convictions and
recovery of the proceeds of crime. Low levels of recovery lead to low levels of
deterrence of criminal activities, leading to a higher level of EU-fraud, and
so on. In order to break this vicious cycle and achieve higher rates of
recovery and deterrence, it is therefore crucial to convict a larger number of
offenders, through more effective investigation and prosecution of offences
against the EU’s financial interests.
Figure 3.1. Enforcement cycle
              
 
 Key areas for potential direct impact of EU Action 
3. 
3.1. 
              Clearly not all of these
issues can be tackled through action at the EU level: detection remains within
the remit of national law enforcement and adminstrative authorities, and
convictions remain under the sole power of national courts. However, detection
levels could increase if detected offences were to be investigated and
prosecuted in a consistent and systematic manner, thereby generating better
knowledge of the fraud phenomenon by the investigators and the prosecutors. Likewise,
it can safely be assumed that larger amounts of money will be recovered if more
cases are brought before national courts (for example by the EPPO), even if the
rate of successful prosecution to dismissals would stay the same. Whilst these factors
are important, and will be considered in the cost-benefit analysis of the
different options, they will only be influenced partly through EU action. The
remainder of this Section will therefore mainly focus on the drivers of the
problem which need to be considered, and which are identified in the
investigation and prosection phases of the enforcement cycle.
3.2.        Which are the drivers behind the problem?
3.2.1.     Limits of existing measures
The main reasons why enforcement is
often weak or deficient are the absence of a European enforcement structure,
the lack of continuity in enforcement action and the lack of an underlying
common European prosecution policy. Whereas offences affecting the EU’s
financial interests are genuine European crimes, the current institutional and
legal framework suffers from a fragmented enforcement regime almost solely
based on national responses, which depend on the priorities and resources of
national investigation, prosecution and judicial authorities. The sections
below identify the reasons why this is the case, provide further details on the
actions already taken by the Commission to address these issues, and explain
why these actions alone do not suffice. 
3.2. 
3.3. 
3.3.1. 
Commission anti-fraud strategy
Prevention plays an important role in the
protection of EU’s financial interests. Preventive measures may take the form
of audits, ex-ante controls, fraud proofing of legislation and better
coordination. 
In June 2011, the Commission adopted the
Commission Anti-fraud strategy (CAFS) which focuses on improving prevention,
detection and the conditions for investigations of fraud. It also aims at
achieving adequate reparation and deterrence, with proportionate and dissuasive
sanctions. The CAFS is targeted at striking a balance between cost-effective
control and simplification and adapting the anti-fraud measures in place to
counter new fraud schemes. The Commission makes use of the experience derived
from OLAF's investigations into alleged fraud and will develop anti-fraud
strategies for specific Directorates-General. 
Prevention efforts and
actions through controls can be effective, but they need to be proportionate
and in accordance with the objectives of simplification. They need to be
complemented by an effective sanctioning system which reduces the temptation of
fraud. 
Finally, not all fraud
can be prevented. This leaves the challenge of better criminal investigation
and more efficient prosecution in cases involving the financial interests of
the Union. 
              Limits of the current
legal framework
A number of instruments are in place at EU
level in order to ensure the protection of the financial interests across the
Member States, among which the 1995 Convention on the protection of the EU's
financial interests and its protocols[14],
Regulation 1073/1999 on investigations conducted by OLAF, and Regulation
2185/1996 concerning on-the-spot checks and inspections.
However, in time, these instruments have
shown their limits: reports[15]
demonstrate a fragmented implementation of the 1995 Convention and its
protocols by the Member States. Experience in investigations accumulated over
the last 14 years since OLAF’s establishment has shown that certain aspects
needed improvements.
              Anti-fraud Directive
In July 2012 the
Commission adopted a proposal for a Directive on the protection of the Union's
financial interests by means of criminal law in order to address the limits
identified above. The Directive will replace the 1995 Convention and aims at
further approximation of definitions of relevant offences and of sanctions
levels. This includes: definitions of offences (fraud, corruption, money
laundering), harmonising definitions of additional offence types, minimum
imprisonment ranges for particularly serious offences and harmonising the
prescription period. However, whilst a sufficient level of sanctions and
procedural rules to allow the application of these sanctions are essential,
they can only be effective if they are complemented by measures ensuring that
they are also effectively applied in practice. These measures are not part of
the proposed Anti-fraud Directive. 
              Eurojust
Eurojust's mandate only allows it to coordinate and encourage
investigations and prosecutions, and assist with information exchange. This
means that Eurojust in general only becomes active where Member States
themselves take the initiative on a certain case.
In the context of this impact assessment we are however looking
particularly at the problem that such action often simply is not taken. And if
a Member State prosecution service is reluctant to investigate or prosecute a
case, Eurojust cannot compel it to do so. The National Members of Eurojust
often lack the powers to ensure effective follow-up in the Member States, or if
they do, they usually refrain from using the powers which they derive from
national laws – most decisions on these sort of issues are arrived at through
consensus. 
As will be discussed in more detail below, even the most
far-reaching reform of Eurojust is limited by the TFEU. Article 85 TFEU, which
provides the legal basis for the establishment of Eurojust and lays down its
mission does not provide the possibility to entrust Eurojust with conducting
investigations: at the maximum, Eurojust could be given the power to initiate
investigations, but not conduct them. The prosecution of cases before the
national courts cannot be entrusted to Eurojust under Article 85 TFEU, which
means that the current disparities and fragmentation of national prosecution
efforts would not be solved.
              Europol
The role of Europol is
limited to providing intelligence and support to national law enforcement
activities. It cannot ensure follow-up to its analyses in the Member States,
nor direct national investigations. The powers of Europol are also limited by
the TFEU. Under Article 88 TFEU Europol cannot independently investigate crime,
and any operational action must be carried out by Europol in liaison and with
the agreement of the national law enforcement authorities. Whilst the support
functions of Europol are certainly important, these cannot substitute for the
powers to independently investigate criminal behaviour. 
A proposal for a
Regulation on Europol was adopted by the Commission in March 2013, focusing on
aligning Europol’s competences with the TFEU and to make it a hub for
information exchange, while granting new responsibilities regarding training.
It does not comprise police investigation and law-enforcement powers in the
area of the protection of EU’s financial interests.
              OLAF – administrative
investigations
The powers of OLAF are
limited to administrative investigations, and OLAF thus cannot directly lead investigations
into crime sensu stricto, nor access information on criminal
investigations. This may be a source of delays in the investigation of fraud
and of shortcomings in the efficient use of resources. It also leads to
problems concerning the use of evidence collected in administrative proceedings
by OLAF in subsequent criminal proceedings, since evidence collected in
administrative proceedings may not always be recognised as valid under the
criminal procedural laws of the Member States. Investigation efforts therefore
may need to be duplicated, performing evidence collection twice.[16] Moreover, OLAF has no
enforcement powers. OLAF may make a recommendation to a Member State for
judicial action to be taken but it is for the national authorities to decide
whether they take any action or not. 
A proposal to amend Regulation 1073/1999
concerning investigations conducted by OLAF (OLAF reform) is under
inter-institutional negotiation. This proposal improves the information
exchange between OLAF and EU institutions bodies, agencies and offices (IBOA),
as well as with the Member States and it provides better governance for OLAF
and a set of procedural guarantees for the persons concerned by investigations,
rendering its work more efficient and transparent. However, it does not provide
OLAF with any additional means of action, in particular criminal investigation
powers. 
Table 3.1 Powers of EU actors
 Limits of the powers of actors at EU level 
 Eurojust || The role of Eurojust is limited to support and coordination of the work of national judicial authorities. Whilst it may ask for the initiation of investigations, it cannot ensure follow-up at the Member State level, nor direct national investigations or prosecutions. 
 Europol || The role of Europol is limited to providing intelligence and support to national law enforcement activities. It cannot ensure follow-up to its analyses in the Member States, nor direct national investigations. 
 OLAF || OLAF does not have any competences with respect to criminal investigations, nor is it able to ensure follow-up to its administrative investigations at the national level. 
              As regards cooperation at Union level, mixed
experiences have been reported regarding the cooperation with Eurojust and
Europol, and between the Member States and OLAF. As indicated above, Eurojust
and Europol do not always receive the information they need to be able to
support the Member States. OLAF provides support to Member States through its
ability to grant specialised technical and operational assistance as required
by Article 7 of second Protocol to the Convention on the Protection of the
European Communities’ Financial Interests.[17] At the
same time, OLAF's investigations are conducted subject to specific conditions,
in particular when it comes to transmitting information to the national
judiciary, including applicable data protection rules. For this reason, the
cooperation with OLAF has also been criticised on occasion, in particular with
respect to the long time it sometimes takes for OLAF to share information with
national prosecutors.[18] Some Member States also restrict the cooperation with non-judicial
bodies like OLAF based on rules of judicial secrecy.
3.2.2.     Low levels of investigation
and prosecution of offences against the EU budget
              Inconsistent follow up to
OLAF investigations by Member States' authorities
OLAF's
annual statistics demonstrate that the cases transferred to national
investigation and judicial authorities are not equally effectively and
efficiently prosecuted across the EU. In its eleventh operational report,
OLAF analysed the judicial follow-up given by Member States to its cases over
12 years and found "very substantial differences between countries with
respect to their capacity to bring EU-budget related judicial investigations and
prosecutions to a conviction within a reasonable time".[19] By the end of 2011, national judicial authorities had decided on 471
of a total of 1030 actions transferred
to them by OLAF in the period between 2006 and 2011, whereas
judicial follow-up was still pending regarding 559 cases.[20] Of these 471 decisions, only 199 were a conviction by a criminal
court. All other cases were either dismissed or a decision of acquittal was
taken. In addition, there are very significant disparities between the Member
States. In the period from 2006-2011, conviction rates at national level ranged
from 19,2% to 91,7% (not including Member States with rates of 0% and 100%).
              The table below indicates
that only a few really well performing Member States such as Finland or
Lithuania have a conviction rate over 90%[21],
while many other Member States have a much lower prosecution (lower than 40%)
and conviction rate (lower than 35%), thereby leading to a lack of
effectiveness and of equivalence of the protection of EU’s financial interests across
the Member States. 
              The fact that the average
prosecution rate lies under 50% indicates that there are serious difficulties
in achieving overall effectiveness of investigation and prosecution in the Member
States. 
              The reasons why many Member
States have an overall weak performance when it comes to investigating and
prosecuting crimes affecting the Union's financial interests may be found in
the comparatively limited chances of the national prosecutors to exercise their
function within the national jurisdiction and come to a successful prosecution
within a reasonable period of time. This is partly due to the complexity of the
facts, which requires an in-depth understanding of the whole legal and
administrative framework applicable to the EU fraud cases. It may also be
explained by the fact that evidence collected outside of the national territory
is frequently needed, requiring that instruments of international cooperation
(MLA) are used, with a considerable risk of delay in the investigation. All these
factors, including linguistic challenges, together lead to a situation with
slowly functioning and less efficient prosecution systems. 
At the same time,
the success of the best performing Member States may come at a price for the
protection of the EU’s financial interests as a whole: sometimes Member States
achieve quick results by limiting the investigation and prosecution of the
cases to the national territory, addressing the underlying criminal conduct
only partially and negatively affecting the investigation of cross-border
cases. It may also be noted that those Member States which achieve the highest
conviction rates are relatively small in terms of population. Accordingly, the
number of cases transmitted to them by OLAF for judicial action represents a
relatively low percentage within the overall number of cases transmitted by
OLAF to the Member States judicial authorities. Therefore, the challenges (at
least in terms of number of cases) with which some of the best performing
Member States have to deal with may be less complex than in the case of other
Member States which have to prosecute a much higher number of fraud cases. 
The
differences which can be noted between the Member States when it comes to the
performance of their judicial systems when prosecuting fraud may therefore be
related to a number of factors, from the number and complexity of cases they
have to cope with, to the degree of complexity of the procedural framework each
Member State applies, the experience of the prosecutors in dealing with complex
cases, or the resources they allocate to crimes affecting the EU's financial
interests.[22]
It has to be noted that it is very difficult to assess the performance of the
judicial systems of the Member States first of all because the data in the
table below is limited to cases transmitted by OLAF (excluding Member States
own investigations and prosecutions) and also because such analysis would imply
an in-depth study of the overall performance of each judicial system, including
the legal procedural framework applicable in each Member State, and of the
crime situation on the ground. However, it is expected that an EPPO functioning
on the basis of a common set of rules and guidelines would contribute to
approximating the judicial practices of the Member States in the area of crimes
affecting the EU's financial interests and to achieve a higher degree of
performance of prosecution in such cases.  
 
Table 3.2.
Member States’ follow-up of cases transferred to them by OLAF, 2006-2011
              
              The available data thus
indicates strongly varying outcomes of judicial proceedings involving offences
against the EU’s financial interests. These findings are mainly based on
experience that OLAF has gained in its own investigative practice. OLAF
investigations (about 500 cases per year) represent only a minority of cases
out of the total number of cases (around 2500 per year) affecting the EU's
financial interests which Member States investigate. There are, however, no
indications that in cases where OLAF was not involved, the record of the Member
States is more satisfactory than the one presented in the table above. In fact,
OLAF cases should present higher chances of successful prosecution due to the
fact that an administrative investigation into the facts has already been
carried out.[23]
The fact that cases previously investigated by OLAF produce such modest results
in terms of prosecution and conviction rates shows that a system where EU
bodies only have administrative investigation powers is not fully effective and
cannot achieve satisfactorily the objective of deterrence. 
              The sections below
explain why these outcomes occur, and the issues related to investigation and
prosecution.
Weak motivation to prosecute
crimes affecting the EU’s financial interests 
 Prosecuting offences against the EU budget is considered too burdensome and therefore of secondary importance by the authorities in a number of Member States. As the chances of successful achievement of investigations within a reasonable short time are considered low,  direct national, regional or local interests may take priority over European interests. 
There are a number of factors which can lead the national
authorities to have weak incentives to prosecute crimes against the Union’s
financial interests:
·       
Authorities are often reluctant to
comprehensively prosecute offences against the EU’s financial interests when
the case has international components requiring evidence to be collected
abroad; there is a perceived tendency to put complex European fraud cases involving
cross-border cooperation on offences affecting the EU’s financial interest
"at the bottom of the pile";
·       
It is sometimes difficult to identify a clear
priority jurisdiction, and therefore both negative and positive conflicts of
jurisdiction may arise; 
·       
There may also be a lack of sense of ownership
of such cases, as national authorities may wrongly count on authorities in
other Member States to deal with the case.
 Case example: National judiciary declines jurisdiction A Member State which from a European perspective appeared to offer the most appropriate jurisdiction, ultimately declined jurisdiction in a case forwarded by OLAF – in close collaboration with Eurojust – because the "relevant acts" were all committed outside its territory even though the potential suspect was a national of the respective Member State. The difficulty in this case was that it concerned a fraud with multiple transnational elements. The suspected person, alleged to have requested payments for services never provided, was residing in various Member States while committing the offence. The suspect was also working for several companies which were carrying out EU funded projects and those were based in different EU Member States. The projects were carried out in non-EU Member States. Further, the suspected person received payments in yet another Member State.  
The majority of
the experts consulted (57%) consider that cases involving the EU’s financial
interests are not fully discovered by the national authorities and that they are
neither investigated nor prosecuted adequately (64%). Sixty per cent of the
experts felt that cases were sometimes hampered by the European dimension. This
ratio is significantly higher than for other areas of crime.[24] Probably as a
consequence of this, 54 % admitted to sometimes limiting their investigation to
the national aspects of a case even though they recognised its European
dimension.
 Case example: National judiciary restricts prosecution to national elements OLAF experienced that national judicial authorities put aside the transnational dimension to facilitate the investigation. This prevents the investigation from identifying the complete EU dimension of the offences committed. In one of its cases, OLAF forwarded information on traffic of Chinese products via Norway into the EU territory to a national judicial authority for prosecution. However, the prosecutor in charge (initially) decided to prosecute only the traffic within his Member State. He did not take into account the subsequent important traffic into several other Member States, because it was faster to close the case if leaving out the cross-border dimension. 
In addition, stakeholders have reported
that the institutional guarantees to ward off any undue interference in
prosecution work, also required to properly investigate and prosecute offences
affecting the EU’s financial interests, are not always at hand. For example,
interviewees in some Member States where public governance issues exist have
indicated that on the expenditure side of the EU budget conflicts of interests
exist in the authorities implementing the funds and this may have further
adverse effects. They assert that close networks of public administration
officials, political leaders and business people exist, especially at the local
and regional level, which hamper the effective protection of public money. 
 “Prosecutors cannot win the battle when national and commercial interests are involved that are too strongly intertwined.”[25] 
              Insufficient and
ineffective cooperation and information exchange
 Tackling cross-border fraud cases requires closely coordinated and effective investigations and prosecutions. Current levels of information exchange and coordination at national and European level are not sufficient to effectively prosecute offences affecting the EU’s financial interests, despite the efforts of Union bodies, such as Eurojust and Europol. Regularly, investigations are undertaken in parallel in different countries, with limited coordination efforts. Even more importantly, the proceedings in one State can be blocked if part of the case has already been finally disposed of in another. Coordination, cooperation and information exchange problems occur at different levels and between different authorities and are a major impediment to the effective investigation and prosecution of offences affecting the EU’s financial interests. There is no authority that can deal with these obstacles and ensure continuity in the investigation and prosecution process. 
At national level,
there is often insufficient information exchange on suspected offences
involving EU funds between the authorities responsible for monitoring and
control, those dealing with administrative investigations and law enforcement
bodies. This partly arises as a result of loopholes in
the procedural framework referred to above hampering efficient
multidisciplinary investigations involving judicial as well as administrative,
customs and tax authorities in the Member States. Agencies
managing and controlling the disbursement of EU funds sometimes focus solely on
getting their money back through administrative and civil law procedures even
if there are strong suspicions that a criminal act has occurred.[26]
This may lead to neglecting criminal prosecutions, and with that deterrence and
general prevention.   
The effective investigation and prosecution
of offences against the EU’s financial interests is, furthermore, hampered by
the fact that law enforcement authorities and prosecutors do not always
transmit information about criminal offences to their colleagues in other
Member States, or to Eurojust or Europol. In interviews, various prosecutors
reported cases where they had information they thought would have been
interesting for their colleagues abroad, but which they did not share
proactively.[27]
As there is no obligation to share the information in all cases, practical
problems such as lack of contact points, language barriers, and time constraints
constitute real obstacles that prevent the proactive sharing of relevant information.
Whilst both Eurojust and Europol can provide important support to deal with
these issues, they are dependent on the willingness of national authorities to
make use of their services. 
 Case example: Obstacles to information exchange between Member States OLAF had been notified by one Member State authority of possible irregularities at import into the EU of chicken breast fillets from South America. There was a suspicion that this meat trader had abused the import pricing system in order to evade payment of the additional duties at import of South American poultry meat. While judicial procedures had been launched in one Member State, an important amount of evidence was to be gathered in other Member States. In one of those other Member States the judicial authorities were prevented to send evidence gathered by them to the other Member State pending a decision by the Supreme Court. According to the national law, MLA requests may not be executed before exhaustion of all local remedies, despite the fact that there are remedies available in the requesting State. This had an impact on the further transmission of this evidence and on the administrative recovery procedures. 
In addition, the classical ways of
international cooperation via mutual legal assistance (MLA) requests or via
joint investigation teams (JITs) are often not functioning well enough to allow
for the effective investigation and prosecution of these offences despite the
efforts of European bodies such as Eurojust and Europol. Responses to MLA
requests are often very slow and police and judicial authorities experience
practical difficulties in contacting and cooperating with colleagues abroad due
to language problems and differences in legal systems.[28] In some States, slow
and ineffective international cooperation has frequently resulted in the
impossibility to pursue the case due to the fact that the prescription period
had expired. In addition, cases affecting the EU’s financial interests are
particularly complex: 34% of interviewed practitioners reported that such cases
fail in a European context because of legal cross-border issues.[29] 

 "Obstacles to effective international cooperation are the insufficient synchronising of procedural rules according to which evidence is collected; different timeframes to conduct certain actions within different Member States, and language problems: a different meaning is attributed to the legal terminology used in different States – there are conceptual terminological differences."[30] 
“Diagonal” cooperation between
administrative and criminal investigation authorities and multidisciplinary
investigations
There are also a number of gaps and
loopholes in the procedural framework applying to the investigation of offences
affecting the EU’s financial interests which are related to the multidisciplinary
character of these investigations involving not only criminal investigation
authorities, but also administrative, customs and tax authorities in the Member
States. 
These difficulties
arise mainly because of the lack of a level playing field in administrative procedural
law. For example, there are currently no rules regulating cross-border
cooperation between an administrative authority in one Member State and a criminal
investigation authority in another Member State (known as "diagonal
cooperation"). 
Other legislative gaps concern the access
to information and the exchange of information between the Commission and
the Member States’ competent authorities, in particular with their criminal
investigation authorities. 
Concerning horizontal administrative
cooperation between Member States' competent authorities, the EU rules
governing Mutual Administrative Assistance (MAA) have developed over time on
the basis of specific needs in the individual policy field: this explains why
different instruments have been established for administrative assistance in
customs matters and agricultural/fisheries[31]
matters on the one hand and in tax matters[32]
on the other hand. Therefore the legal framework in
this domain is very fragmented. 
At the same time, the difference between
mutual assistance in criminal matters and administrative cooperation poses a
problem as regards Joint Investigation Teams (JITs), which are foreseen only
between judicial authorities. At EU level, the participation of the Commission
in joint administrative investigation teams may currently be established only
in the customs field (Naples II Convention).
Other problems arise from the fact that
there are no specific provisions concerning the use and recognition of evidence
gathered in the context of multidisciplinary investigations by
administrative authorities – including the Commission - in judicial
proceedings, therefore it often happens that investigative acts are duplicated.
Sometimes, information gathered in the pre-trial phase remains unused in
criminal proceedings and the levels of admissibility of such information vary
to a large extent throughout the EU.
 “Fraudsters play on the asymmetry of information within the EU.”[33] 
              International cooperation with third countries can also be a significant problem affecting the effective
investigation and prosecution of fraud and other offences affecting the EU's
financial interests, because such offences often have a transnational dimension
that reaches beyond the EU. These cases usually require cross-border
cooperation to obtain evidence, as well as coordination of law enforcement
actions, but in practice such actions are frequently limited to a single State.
Jurisdictions which prosecute these cases are not necessarily the ones which
are best placed to prosecute while some Member States are clearly reluctant to
prosecute them.
3.2.3.     Low
level of deterrence
Deterrence is often considered to be the
ultimate objective of any criminal legislation, and is specifically mentioned
in Article 325 TFEU as a core objective of actions to counter fraud and any
other illegal activities affecting the financial interests of the Union. For
deterrence to be effective, persons committing offences need to be punished,
and their punishment needs to be publicised as well. The conviction
demonstrates to other people that crime does not go unpunished and, coupled
with the recovery of illegally obtained advantages, that crime does not pay. A
well-functioning criminal justice system in which any potential offender can
expect to face investigation and prosecution has a significant effect on
deterrence which can be higher than in case of administrative sanctions.  
However, as a consequence of the weaknesses
described above, the deterrent effect of the current enforcement regime is
insufficient, in particular as regards actions conducted by Member States to
investigate and prosecute offences against the EU’s financial interests. 
The first sections of this problem
definition show that the deficiencies in the enforcement regime lead to impunity to a considerable extent or
give the false impression of tolerance of offences affecting the EU’s financial
interests. Potential perpetrators may think that the likelihood of their
offence being detected and prosecuted, let alone of them being convicted, is
very low. As a result, they may not be dissuaded from committing offences
against the Union's financial interests or from re-offending if their previous
crimes have gone unpunished. 
3.3.        Problem definition: conclusions
 The law on offences affecting the Union's financial interests is generally not enforced to a sufficient degree by the Member States. There is no European body that is responsible for investigating and prosecuting crimes affecting the EU's financial interests. Consequently, whilst many cases have cross-border elements, these are not sufficiently pursued. Law enforcement efforts are fragmented, and Member States do not take all the actions necessary to tackle crimes against the EU budget. 
The preceding paragraphs outline the many issues which negatively
influence the enforcement cycle for these specific types of offences. As stated
before, action at the EU level can in particular address problems related to
investigation and prosecution, as well as cross-border coordination and
cooperation. Indirect effects of such action could include a higher level of
detection, as well as a higher number of successful prosecutions due to more
effective follow-up of reported offences. 
This is especially relevant since the
research performed demonstrates that the main reasons why enforcement is
often weak or deficient are the absence of a European enforcement structure,
the lack of continuity in enforcement action and the lack of an underlying
common European prosecution policy. Whereas offences affecting the EU’s
financial interests are genuine European crimes, the current institutional and
legal framework suffers from a fragmented enforcement regime almost solely
based on national responses, which depend on the priorities and resources of
national investigation, prosecution and judicial authorities. 
In addition, whilst Eurojust and Europol
can and do assist the Member States in dealing with these cases, neither of
these organisations can address all of the issues identified, in particular due
to the fact that they cannot direct national investigations and prosecutions.
They are also dependent on information received from the Member States, but
cannot compel them to gather the information needed to follow up suspected crimes
effectively. 
Although OLAF is a key player at EU level
in the fight against fraud and irregularities, it is limited in its activities
to administrative investigations, and submitting the results to national
authorities, who may decide against any criminal law follow-up. This means that
in its current set-up, OLAF is also unable to bring criminal cases to their
conclusion.
 Stakeholder views This analysis is supported by the results of the EuroNEEDS study[34], which identify a number of points regarded as problematic from  a European perspective. A majority of prosecutors testify being hampered by European dimension of cases, with financial interest experts indicating that legal complexities pose particular problems for them. Around half of the prosecutors interviewed furthermore reported limiting their cases work to aspects of national relevance meaning the European nature of cases goes neglected. Finally the study indicates that the current criminal justice response to European cases is not comprehensive and unlikely to be consistent (dependant as it is upon national prosecutor’s circumstances). This is a clear argument supporting the need for a structural change such as the EPPO. A figure of this kind should guarantee full investigations, not hindered by national borders in what is investigated thereby providing the necessary informational basis for comprehensive prosecution. Furthermore, the House of Lords has recently published a Report on the fight against fraud on the EU’s finances, following an extensive inquiry into this topic and a number of interviews carried out both at EU level (Commission, OLAF, European Parliament, Eurojust, Europol), as well as with representatives of the UK government.[35] The House of Lords notes that if OLAF were to be seen as a body whose recommendations are never followed up, it will remain hamstrung in its ability to protect the EU's financial interests. The House of Lords also states that if the UK government rules out a participation in the EPPO at this stage, it should explain how they propose to tackle the shortcomings in the system for combating fraud against the EU's finances discussed in the Report without participating in any EPPO. 
Whilst Member States recognise these
problems in terms of efficiency, the research performed in preparation of this
impact assessment shows that they sometimes find it more difficult to be
precise on the exact nature of the problems in their own administrations, which
may be due to the fact that they perceive these problems only within the context
of their national systems. This may also partly explain why the consultations
on this topic have resulted in divergent views on the solutions to these
problems, and therefore focussed more on the different models for solving the
issues.
 A consequence of these problems is that only a very small part of the total amount of fraud is ever recovered from criminals[36]: expert opinions and available data show that recovery rates are currently very low, below 10%.[37] This is ultimately due to the relatively small number of successful prosecutions in these cases. A conviction for criminal activities increases the chances of a successful financial recovery as it provides an additional tool to ensure successful enforcement; it prevents the individuals concerned from committing further criminal acts, and generates wider deterrent effects. The more successful enforcement authorities are in bringing offenders before the courts and securing their conviction, the greater the chances of recovering more of the proceeds of crime, and the greater the deterrent effect. 
Diagrams explaining the relations between
the problems identified in this Section, the objectives identified in Section 5
and the options can be found in Annex 2.
3.4. 
4.           Right to act, subsidiarity and fundamental rights
4.1.        Legal basis
One of the fundamental innovations
introduced by the Lisbon treaty in the Area of Freedom, Security and Justice is
the legal basis for the establishment of the European Public Prosecutor's
Office (EPPO). For the first time the founding Treaty foresees the creation of
a Union body with prosecutorial powers. 
The current legal basis for establishing an EPPO is laid down in
Article 86 of the TFEU, which states that the EPPO:
·       
will have to combat crimes against the financial
interests of the EU;
·       
would be established ‘from Eurojust’; and
·       
shall be responsible for investigating,
prosecuting and bringing to justice the perpetrators of these offences.
Article 86 TFEU specifies a special
legislative procedure for setting up of a European Prosecutor’s Office: the
Council needs to decide this unanimously after obtaining the consent of the
European Parliament. Article 86 TFEU limits the initial competence of the EPPO
to offences against the Union’s financial interests, but does foresee that this
limitation of its powers may, at the same time or afterwards, be extended by
the European Council, after obtaining the consent of the European Parliament
and after consulting the Commission. 
Article 86 (1) TFEU also specifies the
possibility of establishing the EPPO on the basis of enhanced cooperation: in
the absence of unanimity in the Council, a group of at least nine Member States
may request that the draft regulation be referred to the European Council,
leading to a suspension of work in the Council. If a consensus is reached
within four months, the European Council will refer the draft back to the
Council for adoption. Within the same timeframe, if at least nine Member States
wish to establish enhanced cooperation, they must notify the European Parliament,
the Council, and the Commission thereof, after which authorisation to proceed
with enhanced cooperation referred to in Article 20 (2) TEU and Article 329 (1)
of the TFEU shall be deemed to be granted and the respective provisions shall
apply. 
Denmark, Ireland
and the UK do not take part in the adoption of measures in the justice field
(Protocols 21 and 22 to the TFEU). However, Ireland and the UK have the
possibility to opt in.
4.2.        Subsidiarity and need for EU action
The traditional subsidiarity test requires
a demonstration that the proposed measure's objective may be better achieved at
Union level than at the level of individual Member States. For establishing
this, it needs to be assessed how the main objective, i.e. effectively
protecting the Union's financial interests and “countering fraud and other
illegal activities” affecting such interests, has been met thus far,
particularly taking into account the results of efforts by Member States and
the reasons for any shortcomings. As the establishment of a European Public
Prosecutor's Office specifically seeks to enhance criminal prosecutions related
to EU fraud and other illegal activities affecting the Union's financial
interests by introducing a direct European enforcement regime, to be
implemented and coordinated by a European prosecution office, it also needs to
be demonstrated that criminal prosecutions conducted by national authorities do
not and cannot achieve the results expected from such a Union-level enforcement
regime.
There is a clear need for EU action to
protect the EU's financial interests for the following reasons:
·       
As set out above, Article 86 TFEU provides for
the establishment of a European Prosecutor's Office. Also, Article 325 TFEU
imposes a general obligation to counter fraud and other illegal activities
affecting the Union's financial interests, an obligation which applies equally
to the Union, its institutions, and to the Member States. The Union's
competence to counter these forms of crime is thus unambiguously stipulated by
the Treaty and this competence is not accessory to that of Member States. 
·       
The Treaty also limits the possibilities to
address the identified issues through reforms of the current European actors.
The activities of both Eurojust and Europol are limited by their respective
legal bases: Articles 85 and 88 TFEU. Even reforming these organisations to the
maximum possible under the Treaty would not address these issues: neither
Eurojust nor Europol can be given the power to conduct investigations, and
Eurojust cannot be given the power to prosecute cases before the national
courts. Under the Treaty, such powers can only be given to a European Public
Prosecutor's Office.
·       
As the EU is best placed to protect its own
financial interests, taking into account the specific EU rules which apply in
this field, it is also best placed to ensure the prosecution of offences
against these interests. A coherent Union-level prosecution regime is not only
justified but also necessary considering the cross-border elements involved in
European fraud cases: national prosecution authorities often cannot, and
sometimes do not want to, deal with the "foreign" elements involved,
such as a witness, a bank account, or a shell-company located abroad. This
entails the risk of prosecuting systematically only narrow "national"
elements of European fraud cases instead of the entire case with its
cross-border dimension. Only a European prosecution regime can cover this
dimension. By doing so it will also help prevent that safe havens develop in
the Union for defrauding it.
·       
As indicated above in Section 3.2, current
measures and initiatives taken by the Commission are not sufficient to deal
with the problems identified, since these are not targeted on the problems
related to investigations and prosecutions. In addition, possible reforms of
Eurojust, OLAF and Europol cannot address these issues either, due to
limitations in their mandates stemming from the TFEU.
·       
Eurojust's annual reports confirm that there is
a need for coordination and support in the area of cross-border fraud
investigations at the level of the EU: for 2011, for example, fraud-related
crime ranked second in the areas of crime where Eurojust provided support, just
after drugs trafficking. These reports also confirm that relatively few cases
of fraud against the financial interests of the Union were forwarded by OLAF to
Eurojust for their support – no doubt due to the fact that in principle the
national authorities first need to take a decision on whether or not to
prosecute such cases before they decide on seeking assistance from Eurojust.
·       
As indicated above, action at national level
cannot achieve the objectives under the Treaty. OLAF's annual reports provide
clear indications that criminal investigations limited to the national
territory do not allow for effective and equivalent protection of the Union's
financial interests. The degree of protection strongly varies from Member State
to Member State. A large number of cases forwarded by OLAF to national
authorities do not reach the prosecution or judicial phase, and other types of
enforcement (fiscal, administrative) do not lead to sanctions either. OLAF’s
annual reports clearly support the conclusion that Member States' criminal
investigation and prosecution authorities are currently unable to achieve an
equivalent level of protection and enforcement.[38] As explained under section 3,
there are various reasons for this, including lack of prioritisation,
inadequate coordination or cooperation with Union agencies and other Member
States, and legal obstacles. This variation in the enforcement level is
demonstrated by the differences in the number of successful prosecutions and
the amounts of financial recovery. The lack of equivalent enforcement in Member
States signifies a generally weak enforcement framework, which is both legally
fragmented and subject to national priorities. Whilst the legal fragmentation
on the substantial law side may be partially addressed through the Commission's
proposal for a harmonised sanction system[39],
this proposal will not address the issues related to the investigation or
prosecution gaps in the enforcement cycle.
·       
Against this background, it is clear that the
Union not only has the competence but also the obligation to act. The Union's
finances are by nature dealt with at the EU level. As such, they are even more
"EU-centred" than other policy areas subject to harmonisation of
rules in the Member States. As a result, they cannot reasonably be dealt with
by the Member States alone.
·       
Moreover, according to the principle of proportionality
EU action should leave as much scope for national decision as possible and
should respect well established national arrangements and legal systems. In
that sense this principle can also be understood to imply decentralisation:
actions should be taken as closely as possible to where they intend to produce
effects. The gravity of the problem, as defined in Section 3, clearly shows
that the often unsynchronised actions of Member States and the missing
continuity in measures countering the relevant offences do not effectively
tackle the common challenge, i.e. the uniform protection of the EU budget.
Given the great differences between some of the policy options, the principles
of proportionality and decentralisation have been taken into consideration
while defining each single option. 
4.3.        Fundamental Rights
Since Article 86 TFEU provides for the
establishment of an EPPO, this provision must be read, interpreted and
implemented in full compliance with the Charter of Fundamental Rights of the EU
(‘The Charter’). In accordance with the Communication
from the Commission on the Strategy for the effective implementation of the
Charter by the European Union[40],
this impact assessment examines, as far as relevant, the impact of the options
proposed on Fundamental Rights, in particular in the light of the 'fundamental
rights check list' presented in the Communication. 
The establishment of an EPPO may raise
several issues as regards the Charter, depending on the nature and scope of the
powers and prerogatives attached to this new EU body. Any investigation powers
conferred on the EPPO could have some impacts on the right to privacy
(domicile, correspondence, phone conversations, etc.) and the right to the
protection of personal data (Articles 7 and 8 of the Charter). The right to
property (Article 17 of the Charter) could also be at stake, if the EPPO's
powers include the possibility to freeze assets or seize other kinds of
belongings. The right to liberty may also be affected, if the EPPO's
interventions entail some restrictions or deprivations of individual freedom
(Article 6 of the Charter).
Finally, any involvement of the EPPO in
judicial proceedings has to be assessed with regard to Articles 47, 48 and 50
of the Charter: access to justice, fair trial, rights of the defence,
presumption of innocence and the application of the ne bis in idem principle.

5.           Objectives
 Objectives: 
 General || ·        To contribute to the strengthening of the protection of the Union's financial interests and further development of an area of justice, and to enhance the trust of EU businesses and citizens in the Union’s institutions, while respecting all fundamental rights enshrined in the Charter. 
 Specific   || ·        To establish a coherent European system for investigation and prosecution of offences affecting the EU’s financial interests. ·        To ensure a more efficient and effective investigation and prosecution of offences affecting the EU’s financial interests. ·        To enhance deterrence of committing offences affecting the EU’s financial interests. 
 Operational   || ·        To increase the number of prosecutions, leading to more convictions and recovery of fraudulently obtained Union funds.  ·        To ensure close cooperation and effective information exchange between the European and national competent authorities. 
Figure 5.1.
Relation between problem, problem drivers and objectives
This diagram shows the relation between the
problem identified, the problem drivers and the objectives. Diagrams explaining
the relations between the problems identified in Section 3, the objectives
identified in Section 5 and the options can be found in Annex 2.
6.           Policy options and their impact
6.1.        Overview of policy options 
6.1.1.     Assessed policy options
               The following seven policy options have been assessed in detail:               1.       Retention of the status quo;               2.       Non-regulatory actions only;               3.       Strengthening of the powers of Eurojust;               4a.     Creation of an EPPO entity within Eurojust;               4b.     Creation of a College-type EPPO;               4c.     Creation of a decentralised EPPO with a hierarchical structure;               4d.     Creation of a centralised EPPO with a hierarchical structure.      
Whichever policy option is chosen,
Eurojust’s role as the Union’s coordination agency for cross-border judicial
cooperation in criminal matters will remain unaffected. This coordination role
is of a general and horizontal nature, which has proven its value over the
years for Member States and Union institutions.
4. 
5. 
6. 
6.1. 
6.1.1. 
6.1.2.     Discarded options
Other policy
options were discarded at an early stage of preparations. In particular, this
included the setting up of an EPPO with a large scope of competence in
accordance with Article 86 (4) TFEU, i.e. including serious cross-border crimes
as listed in Article 83 (1) TFEU. The main reason for this decision was that
fraud affecting the EU budget is a unique problem, both in terms of financial
costs and in terms of damage to the image of the Union. As indicated above,
under paragraph 4.1, the Treaty acknowledges this fact. Moreover, Article 86 TFEU
does not permit the scope of the EPPO to encompass all forms of crime from the
outset without a unanimous decision to this effect taken by the European
Council. 
Options not
establishing a European Public Prosecutor's Office      
6.2.        Policy option 1: Base-line scenario - No policy change
No new action would be taken at EU level. Offences affecting the EU’s financial
interests would continue to be prosecuted solely at national level. This would
mean that the Union would retain its current administrative competences, but
that the fight against these offences would continue to fall under the criminal
law competence of national authorities, with Eurojust playing a coordinating
and supporting role. OLAF and Europol would continue to work in accordance with
their current mandate. The Commission's proposal for a Directive on the fight
against fraud to the Union's financial interests by means of criminal law would
address the current fragmentation of the substantive criminal law applicable to
the relevant offences, but it cannot address the problems identified with
respect to investigating and prosecuting the relevant offences. Whilst the
reforms of existing EU bodies will address more general issues with respect to
the functioning of these organisations, this reform is limited by the Treaty as
explained above. These reforms would therefore also not address the problems
related to investigation and prosecution of cases affecting the Union's
financial interests.
 Current situation – pattern of an OLAF investigation OLAF carries out administrative investigations into cases of fraud against the EU financial interests. The OLAF investigators may carry out administrative on-the-spot checks and inspections in the Member States to collect the necessary evidence. These on-the-spot checks are carried out in cooperation or jointly with the competent authorities in the Member States. OLAF may not use any enforcement powers but it is on the national authorities, acting in accordance with national law, to take the necessary measures. At the end of the administrative investigation OLAF draws up a final report. The Director-General may make a recommendation based on a final report for judicial action to be taken in a Member State and send the report with his recommendation to this Member State. It is then on the judicial authorities of the Member State to decide whether they take any action or not. They are however under the duty to cooperate in good faith, meaning that they have to examine the received information carefully and on that basis take the appropriate action (see judgment of the Court of First Instance of 4 October 2006 in Case T-193/04 Tillack v Commission). 
6.3.        Policy option 2: No new regulatory actions at EU level 
No legislative action would be taken at EU
level, and no new bodies would be set up. However, national and Union-level
actions to fight the relevant offences would be strengthened through non-legislative
measures. This would include capacity building for specialists in law
enforcement and judicial authorities, enhanced cooperation and information
exchange between national authorities and with EU agencies based on existing
tools, as well as efforts to improve the implementation of the existing
mechanisms concerning the admissibility and mutual recognition of evidence. Member
States would also be encouraged to strengthen their efforts to control the use
of Union money, including through regulatory changes where appropriate. New non-legislative
arrangements for cooperation between responsible EU bodies, in particular OLAF,
Eurojust and Europol, would also be introduced, which would improve their
information sharing and promote joint actions in suitable cases. 
6.4.        Policy option 3: Strengthening of the powers of Eurojust
This option would mean that Eurojust would
be given new powers to trigger investigations throughout the Union.[41]
Eurojust and its national members would have the right
to give binding instructions to national prosecution services to initiate
investigations and propose prosecutions in Member States in accordance with
Article 85 TFEU. Eurojust and its national members would not actually direct
the investigations and the prosecutions, which would continue to be
administered by national services in accordance with national law. There would
not be an institution in charge of investigations of crimes affecting the EU’s
financial interests nor responsible for their outcomes, since it is not allowed
under the Treaty to provide such powers to Eurojust as explained above.
The organisation of Eurojust would also be
improved in order to give it a stronger focus on this task, including an
improved focus on information exchange at all levels. In parallel, the current
system of administrative investigations at Union-level (OLAF) would continue to
be applicable, and Eurojust and national authorities would continue to be
supplied by OLAF with investigative reports for judicial
action. This option would also integrate the non-regulatory actions described
under policy option 2 above. 
Options for
establishing a European Public Prosecutor's Office
The following paragraphs outline the four
main options considered for establishing an EPPO. All of these options provide
for a slightly different way of establishing the EPPO "from
Eurojust", as required by the Treaty.
A proposal on the establishment of the EPPO
will be accompanied by a proposal on the reform of Eurojust which will align it
with the common approach on European agencies agreed by the Council, the
Parliament and the Commission, and will establish a link between Eurojust and
the EPPO. This reform might lead to more efficient information exchange and
better cooperation between the national authorities. However, it would not
affect the powers of Eurojust to deal with offences affecting the Union’s
financial interests, and it therefore could not contribute in a tangible way to
a more uniform protection of the EU budget.
Complementary rules on exchange of
information, mutual assistance and cooperation between Member States competent
authorities for the investigation of offences against the EU budget are
mentioned in the Commission Communication on the protection of the financial
interests by criminal law means and administrative investigations[42], as part of the measures
reinforcing the protection of the EU financial interests. This issue concerns
administrative investigations and is not directly linked to the creation of the
European Public Prosecutor's Office. It should therefore be addressed
separately. Pending the OLAF legislative reform, these measures relating to
administrative investigations should be considered at a later stage, once the
outcome of the on-going negotiations on the new OLAF Regulation becomes known. 
All options for establishing the EPPO have
been based on a comparable approach with respect to how investigations would be
brought forward. Minimum EU rules would set out the powers the EPPO would have,
the conditions for opening, conducting and closing investigations, as well as
prosecuting the case, and would provide for minimum procedural guarantees,
leaving other procedural aspects (notably the execution of investigative
measures ordered) to national law. These EU rules would also set European
standards for the admissibility of evidence, addressing the problems identified
with respect to this issue referred to in Section 3.2.2. Only the essential
aspects for the conduct of investigations which correspond to a common standard
would be unified – other issues would continue to be regulated by national law.
With regards to fundamental rights, this mixed regime will enhance rights
protected under the Charter.  
6.5.        Policy option 4a: Creation of an EPPO entity within
Eurojust  
This option would entail the creation of a
central EPPO entity within Eurojust, which would thus become the EPPO's holding
structure as a "parent agency". In institutional terms this option
would mean that Eurojust would effectively host the EPPO by providing
infrastructure and support services to the EPPO entity. Eurojust could also
make available its coordination capacity in cross-border cases affecting the
EU’s financial interests, as well as in such cases which are connected to other
offences falling within Eurojust's competence. The EPPO entity would have exclusive
power to direct the prosecution of cases affecting the EU’s financial
interests.         
This EPPO entity would be composed of
prosecutors and investigators specialised in financial crimes. In these cases
they would exercise certain powers (initiation of investigation, review of
evidence and indictment, coordination and direction), in full compliance with
the Charter. 
The EPPO entity would have a limited number
of own staff to autonomously carry out investigations at central level. For the
rest it would rely for this on local law enforcement authorities, which would
be directed by local prosecutors in their investigations. Decisions to initiate prosecutions in national courts would require
the approval of the Eurojust College of National Members. The EPPO entity would
not prosecute suspects before national Courts, but leave this to local
prosecutors employed by Member States under the direction of the EPPO.
The EPPO would be organically part of
Eurojust and use its support functions (human resources, finance, IT,
case-analysis etc.). A limited number of staff would be transferred from OLAF
to Eurojust but Member States would also need to allocate additional resources
to the Unit. Europol's role would remain unchanged: it would support the work
of Eurojust and the EPPO unit within it.
6.6.        Policy option 4b: Creation of a College-type EPPO
Similar to how Eurojust is organised, the
EPPO would be organised in the form of a College of national members appointed
by the Member States, but with a clearer and stronger mandate for all members.[43] The EPPO college would take majority decisions as regards investigations and prosecutions of offences affecting the EU’s
financial interests throughout the EU.  Consequently, national members would be granted more incisive
powers, as they would need to be able to provide national prosecutors with
binding instructions. This policy option is thus very closely linked to
national judicial systems. This is the main element which sets it apart from
option 4c.
The EPPO will be directly in charge of
investigation and prosecution of the relevant offences. The trial phase would
in practice be run by delegated national prosecutors, acting in the name of the
EPPO. Eurojust’s coordination function relating to investigation and
prosecution of offences against the EU’s financial interests would be
transferred to the EPPO, and a specialised investigative department working
directly for the EPPO would also be created.
The EPPO would be a separate legal entity
from Eurojust, but linked to it through the joint use of operational,
administrative and management resources. The EPPO will also benefit of OLAF's specialised
staff which would be transferred to it in order to provide for investigative,
prosecutorial and administrative resources, whilst the remaining OLAF staff
would continue to deal with  functions that will not fall into the EPPO
competence.  
Europol would support the EPPO in line with
its current mandate through its analysis, intelligence and general support
functions.
6.7.        Policy option 4c: Creation of a decentralised integrated
EPPO 
In this option, based on the concept of
decentralisation, the EPPO would consist of an EU prosecutor's office at
central level with a Chief Public Prosecutor exercising hierarchical
supervision and decentralised European "Delegated" Prosecutors belonging
to the national systems and therefore located in the Member States, having full
prosecutorial authority under national law. The European Public Prosecutor
would have the hierarchical power of instruction over European Delegated Prosecutors,
who would be a genuine part of the EPPO. 
In most cases, investigations and prosecutions
would be led at decentralised level, but with the involvement of the European
Public Prosecutor on opening the investigation and participation in bringing
charges to the Court. Investigative measures would be normally executed at the
national level, led by the European Delegated Prosecutors. A specialised
investigative department at central level would also be created in order to coordinate
investigative activities and to conduct itself, when necessary, investigative actions
for the European Public Prosecutor, as well as for the European Delegated
Prosecutors.  
The European Delegated Prosecutors would work
with the national police for carrying out their tasks. The European Public
Prosecutor would have the possibility to give instructions to the European Delegated
Prosecutors, which would need to cooperate with different national
(administrative and judicial) authorities in order to carry out these
instructions. The EPPO (acting through the European Delegated Prosecutors)
would be normally responsible for bringing cases to trial. All powers of the European
Public Prosecutor and the European Delegated Prosecutors must be in full
compliance with the Charter.
The EPPO would be a separate legal entity
from Eurojust, but linked to it through the joint use of operational,
administrative and management resources. The EPPO will also benefit of  OLAF's specialised
staff which would be transferred to it in order to provide for investigative,
prosecutorial and administrative resources, whilst the remaining OLAF staff
would continue to deal with  functions that will fall outside the remit of the EPPO.
 
All prosecutors and other staff working
within the office of the EPPO would be directly employed by it, whereas European
Delegated Prosecutors and national investigators would continue to be employed
by national authorities. However, any additional costs incurred as a
consequence of them being employed by the EPPO, such as travel, training,
interpretation and translation costs would be borne by the EPPO.
Europol would support the EPPO in line with
its current mandate through its analysis, intelligence and general support
functions.
 Future situation decentralised integrated EPPO The EPPO carries out criminal investigations into cases of fraud against the EU financial interests. The European Delegated Prosecutors, subject to hierarchical instructions of the European Public Prosecutor, direct the investigative work carried out either by national law-enforcement officers, or by joint teams composed of national law-enforcement officers and investigators from the specialised investigative department of the EU office. At the end of the investigation, the European Delegated Prosecutors, with the participation of the European Public Prosecutor, issue an indictment which is then sent to the competent court in one of the Member States. The European Delegated Prosecutor will be the competent prosecutor during the trial, having the same role as any national prosecutor. 
6.8.        Policy option 4d: Creation of a centralised EPPO 
This option would entail the creation of a
central EPPO possessing the full legal and practical capacity required to
conduct investigations and prosecutions of the relevant offences, without
depending on the national prosecution and investigation services. The EPPO's
investigation staff would be empowered to take the necessary investigative
measures within the Member States, only referring to national judicial
authorities in cases where prior judicial authorisation is required. As for options
4b and 4c, Eurojust’s coordination function relating to investigation and
prosecution of offences against the EU’s financial interests would be
transferred to the EPPO. 
This authority would be composed of a chief
prosecutor, several prosecutors and staff at the central level, acting
throughout the whole EU. The centralised EPPO would act directly, bringing
suspects to judgment before national Courts. In contrast to options 4b and 4c,
this would not be done through European Delegated Prosecutors embedded in the Member
States. These powers must be exercised in full compliance with the Charter. All
prosecutors and other staff working within the EPPO would be directly employed
by it.
The EPPO would be organisationally linked
to Eurojust, through a joint use of technical supporting functions such as
human resources, finance and IT. In addition, part of OLAF's and Eurojust’s
staff would be transferred to the EPPO in order to provide for investigative
and prosecutorial resources, reflecting the transfer of the corresponding
responsibilities from OLAF and from Eurojust.
Europol would support the EPPO in line with
its current mandate through its analysis, intelligence and general support
functions.
6.9.        Horizontal issues for
options 4a-4d 
6.2. 
6.3. 
6.4. 
6.5. 
6.6. 
6.7. 
6.8. 
6.9. 
6.9.1.     Cooperation between the EPPO
and Eurojust
              The four options which
entail the setting up of the EPPO need to address the matter of its
relationship with Eurojust since – as indicated above – the Treaty requires
that the EPPO is set up "from Eurojust". Under all four options,
Eurojust and the EPPO will need to co-exist and cooperate, but in a way that
their relationship takes into account the differences in their respective
functions and powers. 
              There are various options
for organising this working relationship. These include as a minimum the
sharing of administrative services and, at the other end of this range, the
sharing of functional (coordination and cooperation) services, including those
located in the Member States (National Contact Points in the Eurojust National
Coordination System (ENCS)) or at Eurojust's Headquarters, based on the EPPO
Regulation and service-level agreements. Such sharing of services would limit
the deployment of additional resources, notably in terms of staffing, to a
minimum. 
              The participation of the
EPPO in the operational work and/or in the management structures of Eurojust is
also an option. Regular coordination meetings between the EPPO and Eurojust
could also be called by either organisation in order to ensure maximum effectiveness
of both organisations, including the coordination of cross-border
investigations or prosecutions of relevance for both. Such coordination could
be particularly useful in cases where the EPPO’s investigations involve
connected offences or third countries.
              Besides this, the partial
transfer or secondment of non-administrative staff (for example staff currently
working in the Legal Service or the Case-Analysis Unit) from Eurojust to the headquarters
of the EPPO would enhance functional links. 
              Even stronger functional
links could be created at central level (SNEs or Eurojust National Members
involved in the EPPO's casework). Eurojust’s National Members (or their
Deputies or SNEs) could function as associated prosecutors within the EPPO
structure, thus ensuring a very close coordination of efforts in cases
affecting the EU’s financial interests, as well as in cases concerning
associated crimes outside the competence of the EPPO. 
6.9.2.     Investing OLAF resources in
the setting-up of the EPPO
              Currently OLAF conducts
administrative investigations for the protection of EU's financial interests.
OLAF has specialised staff with significant experience in cooperating with
national criminal authorities. Many members of OLAF staff have a relevant
background in their national enforcement and judicial administrations (police,
customs, and prosecutorial functions).
A part of OLAF's
resources would thus be used in order to set up the EPPO, taking into account
their experience in the conduct of administrative investigations and the
objective of avoiding duplication of administrative and criminal investigations.
Another important aspect is that of using the current networks which OLAF has
developed over the years in the area of anti-fraud investigations. 
Finally, OLAF would
contribute to the setting up of the EPPO with specialised support to facilitate
forensic analysis and technical and operational support to investigations and
for the establishment of evidence in criminal cases affecting the Union's
financial interests. 
6.9.3.     Cooperation with third
countries
The different options
identified for establishing the EPPO will also have to take account of the fact
that the EPPO will need to cooperate with the authorities of third countries,
since crimes affecting the Union's financial interests are also committed
outside of the European Union. Such cooperation can either be based on existing
legal instruments regulating such cooperation, such as the cooperation
agreements Eurojust has entered into with a number of third countries, or
multilateral agreements such as the 1959 Council of Europe Convention on mutual
legal assistance, or on new legal instruments negotiated by the Union on the
basis of Article 218 TFEU. The only option which offers some advantages in this
respect is option 4a, since under that option the EPPO would become part of
Eurojust, and could thus profit directly from Eurojust's existing cooperation
agreements. The other options, whereby which the EPPO would be established as a
separate legal entity require that the EPPO as such would need to rely on
future legal instruments under which such cooperation can take place. Under
these options, the possibility for the EPPO to use existing cooperation
agreements would need to be specifically regulated.
7.           Assessment of policy options
The assessment of the
impacts of each of the options starts from the assumption that there will be no
significant change in the human resources available to tackle crimes affecting
the EU’s financial interests. The staff allocation assumes that the number of
national staff working on offences affecting the EU's financial interests is
currently up to the level needed to handle the anticipated caseload of 2500
cases in the baseline situation. The costs associated with creating the EPPO
will be offset by reductions in the staff currently working at OLAF, thus
reducing the overall set-up costs considerably. Costs in the various options
therefore mostly arise due to an increase in the number of cases that enter
Member States’ judicial systems, resulting in higher levels of costs for court
cases, legal aid etc.
While there will be no
significant change in the human resources available, there will be various
changes to the administrative and legal framework under which they operate.
These changes will enhance, to a greater or lesser degree, the effectiveness of
the protection of the EU’s financial interests. 
In each of the options
other than the baseline, more effective investigation of crime is expected to
lead to an increase in the number of prosecutions which will be brought forward,
leading in turn to a greater number of convictions. This should increase the
proportion of money that is recovered from criminals. This combination of
greater punishment and reduced reward is expected to lead to higher levels of
deterrence of crimes which should reduce the overall damage they cause.
Increased deterrence is the most important factor in reducing the overall
damage caused by crimes affecting the Union's financial interests over a larger
number of years.
The working assumption
is that increases in the proportion of funds that are recovered and in the
amount of crime that is deterred are roughly proportional to the increase in
the number of successful prosecutions, so to facilitate the comparison of the
relative effectiveness of the options, an attempt has been made to quantify the
changes in the number of successful prosecutions, and the increases in recovery
and deterrence that could result from these. 
All policy options are
based on the same assumptions concerning the total value of offences against
the EU’s financial interests, the average amount unlawfully appropriated per
case and the change in deterrence relative to the change in the number of
convictions. Differences between the options in the number of additional
convictions are therefore the key driver of differences in the foreseen
benefits of the options, as greater numbers of convictions will lead to
higher levels of recovery and deterrence. 
Nevertheless, it is not
possible to establish with complete certainty the exact size of the
cause-and-effect relationships, from administrative and institutional changes
to an increase in the number of successful prosecutions, and from an increase
in the number of successful prosecutions to greater recovery and deterrence.
Because of this uncertainty, the estimated financial benefits that are
presented below for each option are not intended as precise forecasts, but
should rather be understood as indications of the likely relative scale of the
effects that they could generate. Details of the methodology are in Annex 4.
For calculation
purposes, the assumption was used that a 10% increase in the number of
convictions would lead to a 1% decrease in the annual damage suffered, through
the combined effect of deterrence and higher numbers of convicted fraudsters.[44] This deterrent effect is
assumed to be effective from 2020, that is, after a number of years of
increased rates of successful prosecutions. For details see Annex 4.
Changing the
assumptions about the total value of offences against the EU’s financial
interests or of the relationship between increased numbers of convictions and
the amount of crime deterred would affect the calculation of the estimated
benefits of deterrence for each option in proportion to the change in the
assumption. For example, if the value of offences against the EU’s financial
interest is assumed to be 10% lower, then the estimated amount of crime
deterred would also be 10% lower, in each option.
 Stakeholder views The vast majority of stakeholders consulted seem to favour a decentralised structure, i.e. where the EPPO would act via European Delegated Prosecutors, or would otherwise delegate tasks to national prosecutorial authorities. The good cooperation and complementarity between these European Delegated Prosecutors and local authorities (police, judicial, administrative) are considered essential for reasons of efficiency and political acceptance. This cooperation would not only ensure better results because the European Delegated Prosecutors are embedded in national structures and know how to apply national law, but also because the decentralised structure respects the subsidiarity and proportionality principles. A small number of responses favour a structure where an EU prosecutor would direct, or at least coordinate, the investigations and the prosecutions from a central organ. The principal advantage of this design is independence and less cost. Some respondents see a centralised design as a guarantee of total independence from national interests and authorities, and thus a key aspect of effective enforcement. (1)                                                         Some believe that these two designs can be combined: Eurojust suggested that the same persons could possibly combine their role as EPPO delegates and as national prosecutorial authorities. 
7.1.        Status quo (policy option
1) – Baseline scenario 
7. 
7.1. 
7.1.1.     Views of stakeholders
None of the stakeholders consulted consider
that this option would address the problem. Especially the issues with respect
to investigation and prosecution of the relevant offences cannot sufficiently
be addressed by improving existing arrangements only. Some have noted that it
might be possible to improve implementation of certain existing EU instruments,
i.e. the Council Decision setting up Eurojust[45]
and the Framework Decision on the prevention and settlement of conflicts of
exercise of jurisdiction in criminal proceedings[46], which sets out
procedures for cases dealt with by more than one Member State. However, as
explained above, such improvements would only impact on the problems described
in this report to a very limited extent. The current lack of equivalent
enforcement would continue, which is inconsistent with the objectives set out
in Article 325 (4) TFEU. However, some consulted experts consider that the
necessary legal framework is already in place, and that the difficulties
encountered in practice when investigating and prosecuting these offences are
rather of a practical nature. These difficulties can be linked to lack of
specialisation in dealing with these frequently complex cases, difficulties in
collecting evidence from other Member States, differences in procedural laws, and
time limitations. These views fail to appreciate the need to address also the
cross-border dimension of fraud and other offences committed against the
Union's financial interests.
7.1.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives   || Low. As regards the specific objectives related to enhancing the investigation of offences affecting the EU’s financial interests, there are no reasons to expect that the weak incentives and the frequently limited national capacity to deal with the complex nature of EU fraud cases, as described in the problem definition, will be overcome without decisive corrective measures. The Commission's proposal for a Directive on the fight against fraud to the Union's financial interests by means of criminal law would address the current fragmentation of the substantive criminal law applicable to the relevant offences, but would not address the shortcomings identified with respect to the investigation and prosecution of these offences. The operational objectives related to the lack of efficiency in conducting cross-border investigations and prosecutions and  increasing the number of successful prosecutions would not be addressed.       Thus, the current fragmentation of the protection of the Union's financial interests will remain and there is no reason to expect any increase in the number of successful prosecutions from their current level of about 625 per year. Whilst a perfect implementation of the measures already taken to combat crimes affecting the EU's interests (see point 3.2.1) would bring significant benefits to the detection and prevention of the relevant offences, it would not have a real bearing on the issues identified with respect to investigation and prosecution of these offences. 
 Impact on fundamental rights || None. Fundamental rights will be unaffected. The Charter of Fundamental Rights is applied only when EU law is involved, for example under the regime of the European Arrest Warrant. As investigations and prosecutions would be conducted exclusively by national authorities under this option, there is no need to create an additional layer of judicial control. National courts provide such judicial control in accordance with national law. 
 Feasibility || High. 
 Impact on the legal system of Member States   || None. The baseline scenario is the option that is the least intrusive of all options. It does not foresee any changes to the status quo and therefore does not produce any impact on the legal systems of the Member States.  
 Impact on existing Union institutions || None. 
 Costs || None. 
 Benefits || Very small. Improvements in information and exchange due to the reform of Eurojust will be inadequate to address the fundamental problems identified in section 3. 
7.2.        No new regulatory actions at EU level (policy option 2)
7.2. 
7.2.1.     Views of stakeholders
Few of the stakeholders consulted believe
that this option would be sufficient to address the problem. While the
necessary legal framework is considered to be in place by some, it is largely
agreed that difficulties are encountered in practice when investigating and
prosecuting such offences. These difficulties cannot be addressed by non-regulatory
actions only. Several consulted experts have stressed that obstacles to
successful prosecutions could continue to exist: foreign evidence, differences
in procedural laws, time limitations or lack of interest by national
authorities. Some of these could be tackled through legislative action at the
national level. For several consulted national prosecutorial authorities, a
good solution would be to first improve the effectiveness of existing
instruments and bodies such as Eurojust, OLAF, and Europol, as well as the
cooperation between them. However, even such useful measures would not address
the problem of fragmentation in cross-border investigations and prosecutions. 
7.2.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives   || Low. This option would to some degree contribute to the creation of a more coherent European system for investigation and prosecution of the relevant offences, thereby also possibly strengthening the deterrent effect of law enforcement. The experiences with improving mutual recognition and mutual legal assistance instruments show how hard it is to improve cooperation and information exchange between Member States. There are no reasons to expect that these problems will be easily solved by non-regulatory measures, and no guarantee that Member States would undertake any changes needed to their national regulatory frameworks for the specific purpose of improving the protection of the EU’s financial interests. In addition, the problems regarding the incentives, autonomy, and investigation and prosecuting of offences against the EU’s financial interests are also very difficult to address via this policy option.   In the absence of clear leadership, which would drive action and would be in charge of implementing the wide range of improvements which are necessary to be made at both national and EU level, this policy option is not very likely to be able to address the identified obstacles to the effective protection of the EU’s financial interests effectively. 
 Impact on fundamental rights || Low – same as under option 1. It can also not be excluded that improved coordination and cooperation could potentially have a slight impact on the protection of personal data. Any proposal based on this option should take these issues fully into account. However, as in the previous option, the investigations and prosecutions would be exclusively conducted by national authorities and thus there is no need to create an additional layer of judicial control. National courts provide such judicial control in accordance with national law. 
 Feasibility || Medium. This option will also be difficult to implement in practice as it requires many efforts on different fields, and the involvement of many different actors, who face different incentives and a different prioritisation regarding the protection of the Unions financial interests. 
 Impact on the legal system of Member States || Low. An improved use of Union bodies as well as MLA tools and similar judicial cooperation tools would have some positive impacts in Member States. 
 Impact on existing Union institutions   || Low. OLAF A limited effect can be expected, as Union funding would increasingly be used to strengthen its mechanisms. Eurojust A limited effect can be expected, as Union funding would increasingly be used to strengthen its mechanisms. 
 Costs || Moderate. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €35 million. These costs would mostly fall on Member States who would bear the costs of imprisonment of the extra criminals convicted. 
 Benefits || The problems identified would largely remain, but some increase in the current levels of prosecution, recovery and deterrence could be expected. Compared to the baseline, it has been assumed that a limited number of around 50 additional cases per year might be successfully prosecuted. Over a period of 20 years, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €265 million.[47] 
7.3.        A strengthened Eurojust (policy option 3)
7.3. 
7.3.1.     Views of stakeholders
A few Member States would welcome a
strengthened Eurojust in this sense. Some experts have underlined their belief
that a close cooperation between administrative, law enforcement and judicial
authorities in the Member States is of key importance in order to ensure the
effectiveness of relevant national criminal provisions, and that it is most
important to strengthen the response to offences affecting the Union’s
financial interests at national level. An EU approach in the sense of this
option could help to unify the response given by the competent authorities
throughout the European Union in this field in a coherent way and increase the dissuasive
effect of criminal law. This would however not necessarily exclude other
actions (as described in options 4a-4d). 
For others, this option is clearly
insufficient to address the problem, as Eurojust would not be able to
effectively intervene in national legal systems. The problem of lack of
continuity and ownership in investigation and prosecution of the relevant
offences would not be addressed. 
Concerns have also been raised about the
objectivity of decision-making within the college model, as politics and
national interests may interfere with the work of national members. None of the
stakeholders consulted find that this option would be a fully effective
contribution to the protection of the Union’s financial interests. 
7.3.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives   || Low. The investigation and prosecution of the relevant offences would only be strengthened to a limited extent, as Eurojust would continue to have no authority over national prosecutions. The difficulties faced by national authorities in tackling European cases would not be addressed. The option would not address problems identified by stakeholders related to the necessary autonomy of prosecution authorities in individual Member States. All in all, better information exchange, coherence and compatibility between the European level and national systems of investigation and prosecution can be expected, but even that would only have a limited positive effect on the general objective of strengthening the protection of the Union's financial interests, as priorities would not substantially change and the current fragmentation in cross-border investigations and prosecutions would largely remain. Crucially, there would not be an institution in charge of investigating and prosecuting crimes affecting the EU’s financial interests. 
 Impact on fundamental rights   || Low. Fundamental rights will only be affected to a limited degree by this option, considering that the EPPO will not have any powers as regards national investigations under this option. The Charter of Fundamental Rights applies only when EU law is involved, for example when the regime of the European Arrest Warrant is applied. The concrete protection of fundamental rights would mainly continue to be ensured through national judicial authorities acting under law. However, this option may slightly affect defence rights whenever the case has cross-border aspects, i.e. that a trial, or an investigative measure, takes place in a foreign country, due to practical difficulties (language, unknown legal orders, etc.) and to a different standard provided by national law. However, following the implementation by the Commission of the Stockholm Roadmap on procedural rights, several measures have been put in place or are under adoption to provide suspects and accused persons, as well as persons subject to an European Arrest Warrant, with extended procedural rights, like the right to interpretation and translation, the right to information on their rights ("Letter of rights"), the right to information on the charges, the right to access to a lawyer and the right to legal assistance.[48] It can also not be excluded that improved coordination and cooperation could potentially have a slight impact on the protection of personal data. Any proposal based on this option should take these issues fully into account. However, as in the previous options, the investigations and prosecutions would be exclusively conducted by national authorities and thus there is no need to create an additional layer of judicial control. National courts provide such judicial control in accordance with national law. 
 Feasibility   || High. The option would to a large extent build on existing institutions and relevant Union legislation, so the further strengthening of Eurojust on the basis of the Treaty can be expected to be welcomed by some Member States. 
 Impact on the legal system of Member States   || Low to medium. Eurojust would have the powers to initiate investigations and propose prosecutions, but the court proceedings as such would continue to be purely national. 
 Impact on existing Union institutions   || Low to medium. OLAF OLAF’s responsibilities would not be affected by this option. Eurojust Eurojust would in this option acquire some additional powers but would continue to be a European body composed of national members. 
 Costs || Medium. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €50 million.[49] As in option 2, most of these costs would fall on Member States who would bear the costs of imprisonment of the extra criminals convicted. 
 Benefits || The problems identified would largely remain, but some increase in the current levels of prosecution, recovery and deterrence could be expected. This option is likely to be somewhat more effective in this respect than option 2, so that the number of successful prosecutions could reasonably be expected to increase to some extent. If it is assumed that this will lead to an increase with another 50%, i.e. 25 investigations per year, on top of the additional 50 foreseen in option 2, over a period of 20 years, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €400 million. 
7.4.        Creation of an EPPO entity within Eurojust (policy
option 4a) 
7.4. 
7.4.1.     Views of stakeholders
In the views of many stakeholders, this
option would raise problems of conflicts of interests within Eurojust, which
does not have autonomous powers and its current functions rely exclusively on
Member States' good will. However, some Member States are attracted to the idea
of placing the EPPO within the sphere of an existing agency which is mandated
to ensure judicial coordination in cross-border criminal cases. 
7.4.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives || Medium. The EPPO/Eurojust would still need to rely on national law enforcement and prosecution authorities, and its prosecutorial decisions could be delayed by the Eurojust College decision-making process. This means that the added value in terms of strengthening the protection of the Union's financial interests throughout the Union is limited as the current national priorities could still overwrite the EPPO entity’s priorities. This system would not be adapted to achieving a high number of prosecutions. The lack of independence of the prosecutors which would be the consequence of this option would be a factor hampering the effectiveness of this solution. 
 Impact on fundamental rights || Low. As in Option 3, with the necessity of judicial control as in Options 4b- 4d. 
 Feasibility || This option's political feasibility is limited, since conflicts of interest and in working culture between the EPPO entity and Eurojust could influence the effectiveness of this option. Moreover, there are functional limits linked to this option, because the mandate of the EPPO entity would need to go beyond the tasks of Eurojust and the collegial model of Eurojust does not meet the requirements of independence and effectiveness needed for the prosecutorial action of the EPPO laid down in Article 86 TFEU. 
 Impact on the legal system of Member States || Medium. Member States would need to adapt their systems to a new EPPO/Eurojust equipped with certain direct powers, but this would be facilitated by existing legislation on Eurojust. That said, it is expected that Member States would be confused as to who does what in Eurojust. For example, whereas national members usually make requests in ordinary Eurojust cases (serious cross-border crimes) they could be required to transmit instructions for undertaking investigations from the EPPO entity. This could generate confusion as to their respective roles within national prosecution systems.   
 Impact on existing Union institutions || Medium to high. OLAF In line with the transfer of responsibilities for investigating crimes against the EU’s financial interests from OLAF to the EPPO entity, a limited number of specialised staff would also be transferred from OLAF to the EPPO entity. The remaining parts of OLAF would retain their competence to exercise certain administrative functions which would remain necessary in order to cover responsibilities which the EPPO will not be able to take over (notably administrative investigations where there is no criminal perspective (disciplinary) and investigations outside the scope of offences affecting the EU's financial interests).  Eurojust Eurojust would need to create a new administrative entity and ensure that the latter benefits from its administrative structures, including functional support (Finance, Human Resources) and technical services (Security, IT). Conflicts of interests between the EPPO entity and Eurojust could have an adverse effect on Eurojust's overall efficiency. 
 Costs || Moderate. The option would build on existing resources, reallocated in particular from Eurojust and OLAF, but the EPPO unit would also need some additional staff. However, the creation of the EPPO entity with powers in relation to criminal investigations and prosecutions would avoid the current duplication of investigations that sometimes takes place and would thereby free up resources in Member States. These savings would offset the costs that they would due to the imprisonment of increased numbers of fraudsters. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €40 million. 
 Benefits || The problems identified would largely remain, but if an increase by another 50%, i.e. 25 investigations per year, is assumed, an increase in the current levels of prosecution, recovery and deterrence could be expected compared with option 3. Over a period of 20 years, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €500 million. 
7.5.        College-type EPPO (policy option 4b)
7.5. 
7.5.1.     Views of stakeholders
              Similar to what was
written above regarding option 3, stakeholders are generally sceptical with
respect to conferring new prosecutorial powers to a collegial structure with
collegial decision-making. Many practitioners fear that
the nature of decision-making within a college is not
appropriate for the need of rapid decision-making which is intrinsic to a
prosecutor's office. Stakeholders have also raised questions regarding the
independence of the decision-making within the college model, as political and
national interests are bound to interfere. 
7.5.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives || Low to medium. A few benefits from option 4c could also be expected here, mainly improved access to information for concerned authorities. However, the disadvantages associated with a College-type structure would negate most of these benefits. The collegial decision making process of this option would slow down the work process and lead to a very bureaucratic machinery because of the number of direct Member State representatives involved in the college. Also, the lack of independence from national judicial decision making is likely to have a negative impact on the effectiveness of this option. 
 Impact on fundamental rights || Medium to high. Improved coordination and cooperation could potentially have a slight impact on the protection of personal data, since the establishment of the EPPO will lead to improved exchange of information at the EU level. Furthermore, some investigative measures ordered by the EPPO will have consequences with respect to data protection, although these measures will be comparable to those used in national investigations. This option would also mean that a number of decisions concerning individual rights in investigation and prosecution procedures would be taken at European level, in particular the decisions to open an investigation and to prosecute, including the choice of where to prosecute. This implies that the option may slightly affect defence rights whenever a trial, or an investigative measure, takes place in a foreign country, due to practical difficulties (language, unknown legal orders, etc.) and to a different standard provided by national law. However, following the implementation by the Commission of the Stockholm Roadmap on procedural rights, several measures have been put in place or are under adoption to provide suspects and accused persons, as well as persons subject to an European Arrest Warrant, with extended procedural rights, like the right to interpretation and translation, the right to information on their rights ("Letter of rights"), the right to information on the charges, the right to access to a lawyer and the right to legal assistance. Although these new instruments will be applicable at national level, there may be a need to provide individuals with additional legal remedies and safeguards in order to ensure that the EPPO's powers are also exercised in accordance with the Charter. Any proposal based on this option should take these issues fully into account, in particular by requiring judicial control over the EPPO's investigation powers and foreseeing a right to judicial review of the decisions taken by the EPPO. Such judicial review would have to involve both national courts and the ECJ under a graduated scheme.   
 Feasibility || Medium. This option builds on existing structures, in particular the use of national prosecution services, Eurojust and OLAF. However, the establishment of a College-type central office which would direct and coordinate investigations as well as decide on the prosecutions to be brought will have a negative impact on the feasibility of this option. Consultations with stakeholders confirm that this would be a rather controversial option. Indeed, national prosecution systems are usually not based on a collegial decision-making structure for good reasons: operational decisions need to be taken swiftly in the interest of the investigation and the protection of the rights of suspects. This is particularly true in complex cross-border financial investigations, where prosecutors must secure often volatile evidence and seize assets in multiple countries. A collegial decision-making structure could not only slow down such cross-border investigations but possibly turn the EPPO into a rather bureaucratic and cumbersome agency with which national authorities will not cooperate. 
 Impact on legal systems of Member States || Medium. The Member States would preserve the main characteristics of their national systems, but would need to adapt their systems to the new competence of the EPPO to direct national law enforcement and prosecution authorities and intervene in national trials. There would be a combined application of an EU procedural framework together with national procedural rules. 
 Impact on existing Union institutions || Medium to high. OLAF This option would have some consequences for OLAF, as investigative capacities would be transferred to the EPPO in order to provide it with necessary investigative capacities. This is because the College-type EPPO would be a separate entity from Eurojust with a specific mandate to fight fraud against the EU’s financial interests. The remainder of OLAF would retain its competence to exercise certain administrative functions which would remain necessary in order to cover responsibilities which the EPPO will not be able to take over (notably administrative investigations where there is no criminal perspective (disciplinary) and investigations outside the scope of offences affecting the EU's financial interests).  Eurojust This option would have a limited impact on Eurojust. Eurojust would remain a separate body as regards crime areas other than offences affecting the EU’s financial interests. It would carry on with its core activity of coordinating and stimulating judicial cooperation within the EU with regard to other serious cross-border crimes and remain a coordination body at the service of Member States. However, in the interest of synergies and cost-savings, Eurojust would provide administrative support to the EPPO, including functional support (Finance, Human Resources) and technical services (Security, IT). In practical terms, Eurojust's administrative structure would cover the needs of both Eurojust and the EPPO. This administrative structure would ensure coordinated budgetary planning and execution, various aspects of staff management and the provision of all other support services.  
 Costs || Moderate. The option would to a large extent build on existing resources, reallocated in particular from Eurojust and OLAF. However, the new office would need to recruit the members of the College and this would give rise to some extra costs compared to option 4b. Other costs would be similar to those under option 4b. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €70 million.[50] 
 Benefits || Moderate. It is expected that the College-type structure and its role in decision-making would result in this option being no more effective than option 4b in terms of protecting the EU’s financial interests.  No increase in the number of cases that are successfully prosecuted compared to that option can therefore be expected, so that the benefits of this option should be expected to the same. That is, over a period of 20 years, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €500 million.      
7.6.        EPPO with decentralised integrated organisation (policy
option 4c)
7.6. 
7.6.1.     Views of stakeholders
For many consulted prosecutors, the
creation of a decentralised EPPO would be a way to promote unified and
consistent EU action against offences affecting the EU’s financial interests,
including through common prosecution priorities. Specialisation, centralisation
and autonomy are considered by many respondents as the key aspects of the
EPPO's added value, which would help overcome the reluctance of practitioners
to deal with complex and distant cases, which often generate conflicts of
jurisdiction or problems of judicial cooperation.
The vast majority of consulted experts
favour a decentralised and hierarchical structure, where the EPPO would act via
European Delegated Prosecutors, or would otherwise delegate tasks to national
prosecutorial authorities. A good cooperation and complementarity between these
European Delegated Prosecutors and local authorities (police, judicial,
administrative) are considered essential for reasons of efficiency and
political acceptance. This cooperation would not only ensure better results
because the European Delegated Prosecutors are embedded in national structures
and know how to apply national law, but also because the decentralised
structure respects the subsidiarity and proportionality principles better than
the centralised option.
Stakeholders have underlined the need to
ensure the independence of European Delegated Prosecutors from national
authorities and interests, and this need would be addressed through their
hierarchical link with the central EPPO. Also, the lack of specialised capacity
at national level could to some extent be addressed with this option through
the creation of centralised investigation and prosecution services as part of
the EPPO. 
The Member States which expressed reserves
are mainly concerned about the loss of national power (losing the right to
decide whom and when to prosecute within their jurisdiction) and the potential
resource requirements (number and complexity of European investigations to
handle) of this option. However, the loss of such powers would be limited to
cases affecting the financial interests of the EU only. 
7.6.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives || High. This option implies the establishment of a specialised, independent and decentralised body which handles both investigations and prosecutions in a coherent and integrated (European) manner. It will establish clear lines of ownership and will overcome the current low priority given to cases affecting the EU’s financial interests in the national systems. The creation of a decentralised EPPO would improve the use of resources and information exchange necessary to be able to conduct successful investigations and prosecutions of the relevant offences. This, in turn, would strengthen the law enforcement response to these offences in general, and increase the preventive effect (deterrence) for potential criminals. The EPPO would be able to pool investigative and prosecutorial resources for the needs in a given situation, thereby making law enforcement at European and national level more efficient. 
 Impact on fundamental rights || Medium. Improved coordination and cooperation could potentially have a slight impact on the protection of personal data, since the establishment of the EPPO will lead to improved exchange of information at the EU level. Furthermore, some investigative measures ordered by the EPPO will have consequences with respect to data protection, although these measures will be comparable to those used in national investigations. This option would also mean that a number of decisions concerning individual rights in investigation and prosecution procedures would be taken at European level, in particular the decisions to open an investigation and to prosecute, including the choice of where to prosecute. This implies that the option may slightly affect defence rights whenever a trial, or an investigative measure, takes place in a foreign country, due to practical difficulties (language, unknown legal orders, etc.) and to a different standard provided by national law. However, following the implementation by the Commission of the Stockholm Roadmap on procedural rights, several measures have been put in place or are under adoption to provide suspects and accused persons, as well as persons subject to an European Arrest Warrant, with extended procedural rights, like the right to interpretation and translation, the right to information on their rights ("Letter of rights"), the right to information on the charges, the right to access to a lawyer and the right to legal assistance.[51] Although these new instruments will be applicable at national level, there may be a need to provide individuals with additional legal remedies and safeguards in order to ensure that the EPPO's powers are also exercised in accordance with the Charter. Any proposal based on this option should take these issues fully into account, in particular by requiring judicial control over the EPPO's investigation powers and foreseeing a right to judicial review of the decisions taken by the EPPO. Such judicial review would have to involve both national courts and the ECJ under a graduated scheme.   
 Feasibility || Medium to high. This option builds on existing structures, in particular the use of national prosecution services, Eurojust and OLAF, with the addition of a streamlined central office which would direct and coordinate investigations as well as decide on the prosecutions to be brought in national courts. Consultations with stakeholders confirm that this should be a feasible option. 
 Impact on legal systems of Member States || Medium. The Member States would preserve the main characteristics of their national systems, but would need to adapt their systems to the new competence of the EPPO to direct national law enforcement and prosecution authorities and intervene in national trials. There would be a combined application of an EU procedural framework together with national procedural rules. 
 Impact on existing Union institutions || Medium to high. OLAF This option would have considerable consequences for OLAF, as investigative capacities would be transferred to an independent, integrated EPPO which will be set up to host investigative capacities. A reduced OLAF would retain its competence to exercise certain administrative functions which would remain necessary in order to cover responsibilities which the EPPO will not be able to take over (notably administrative investigations where there is no criminal perspective (disciplinary) and investigations outside the scope of offences affecting the EU's financial interests).  Eurojust This option would have a limited impact on Eurojust. Eurojust would remain a separate body as regards crime areas other than offences affecting the EU’s financial interests. It would carry on with its core activity of coordinating and stimulating judicial cooperation within the EU with regard to other serious cross-border crimes and remain a coordination body at the service of Member States. However, in the interest of synergies and cost-savings, Eurojust would provide administrative and support structures to the EPPO, including functional support (Finance, Human Resources) and technical services (Security, IT). In practical terms, Eurojust's administrative structure would cover the needs of both Eurojust and the EPPO. This administrative structure would ensure coordinated budgetary planning and execution, various aspects of staff management and the provision of all other support services.   
 Costs || Moderate. The option would to the largest extent build on existing resources, reallocated in particular from Eurojust and OLAF. The new office would need to recruit the chief prosecutor but the cost for this would remain limited. Significant costs would, however, be incurred due to the imprisonment of greatly increased numbers of fraudsters. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €370 million.[52] 
 Benefits || The benefits of the option can be expected to be important. Compared to options 2, 3, 4a and 4b, which are assessed as being able to deliver no more than incremental improvements to the current situation, the creation of the EPPO would represent a significant change in the approach to defending the EU’s financial interests, in particular due to the independence of the EPPO guaranteed through this option. The new powers conferred to the EPPO, as well as the improved access of information for concerned authorities, would deliver the needed improvements to the investigative and prosecutorial tools available. As compared to a collegial body or a unit within Eurojust, the hierarchical structure of the EPPO would also imply important advantages in terms of efficiency: a faster decision-making process, and clear lines of responsibility. It can be expected that a much greater number of cases – as much as twice as many as under the current arrangements – will be successfully prosecuted, so that a substantially higher amount of illegally received Union money will be recovered and a much larger number of crimes would be deterred.   Over a period of 20 years, reflecting this major improvement to the effectiveness of the protection of the EU’s financial interests, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €3 200 million.      
7.7.        EPPO with centralised hierarchical organisation (policy
option 4d)
7.7. 
7.7.1.     Views of stakeholders
The creation of a centralised EPPO would be
a very efficient way to promote unified and consistent EU action against these
offences, including common prosecution priorities. The frequent cross-border
dimension of crimes affecting the EU’s financial interests and their technical
complexity justify coordination and centralisation of decisions at EU level. A
number of experts also consider the full operational independence of the EPPO a
key issue and see advantages in setting up an EPPO which is immune from local
priorities or prosecutorial instructions. Specialisation, centralisation and
independence from national authorities are considered by many respondents as
the key aspects of the EPPO's added value, which would help overcome the
reluctance of practitioners to deal with complex and distant cases, as well as
to solve conflicts of jurisdiction or problems of judicial cooperation. 
However, concerns have been raised by
stakeholders as regards the effectiveness in practice of a “foreign body” when
it comes to investigating offences in Member States. These stakeholders suggest
that national authorities may in practice be reluctant to cooperate fully with
this body and may even hamper its investigations if they consider the EPPO as a
competitor. It has also been questioned whether this option is feasible from a
political point of view.
7.7.2.     Analysis
 Expected Impact 
 Effectiveness in meeting the policy objectives || High. The EPPO would be given powers to control and steer investigations, including the right to obtain information from all relevant European and national authorities, without the need to rely on their cooperation. The EPPO would thereby also have full powers to pool investigative and prosecutorial resources for the needs in a given situation. 
 Impact on fundamental rights || Medium to high. The analysis made as regards option 4b and 4c applies here too. In addition, the direct powers of the central EPPO in all Member States will make it even more important to accompany the proposal with full guarantees for protection of personal data, defence rights and right to a fair trial. Additional safeguards would therefore need to be introduced in order to ensure that the EPPO's powers are exercised in accordance with the Charter. Any proposal based on this option should take these issues fully into account, in particular by requiring judicial control over the EPPO's investigation powers and foreseeing a right to judicial review of the decisions taken by the EPPO. Such judicial review would have to involve both national courts and the ECJ under a graduated scheme.   
 Feasibility || Medium. Although this option offers considerable advantages and has some support among stakeholders, it would imply very important changes in the administrative and judicial systems of the Member States. The feasibility in the short term is therefore probably low to medium as it would take a lot of time to implement these changes in practice. 
 Impact on the legal system of Member States || High. Member States would need to adapt their systems to a new external body intervening directly in national courts. This would have at least a perceived high impact on the legal systems, and provoke some opposition to the new office, at least in its first phase of existence. 
 Impact on existing Union institutions || High. Same as for option 4c. 
 Costs || Medium to high. This option would imply quite some costs, as new structures and significant numbers of additional posts at EU level for the office would need to be created. However, these would be partly offset by redeployment of staff from existing functions and by expected efficiency gains. Significant costs would, moreover, be incurred due to the imprisonment of increased numbers of fraudsters. Over a period of 20 years, the cumulative present value of costs (in 2012 prices) under this option would amount to about €820 million.[53] 
 Benefits || The benefits of the option can be expected to be important. The new powers conferred upon the EPPO, as well as the improved access of information for concerned authorities, would improve the investigative and prosecutorial tools needed. As a consequence, investigations and prosecutions would become coordinated, including in cross-border cases, and the current problem of fragmentation would end. Although the centralised structure of the EPPO would however imply some losses compared to option 4c in terms of efficiency (considering that the centralised structure could cause problems in working on the ground with the national investigation and prosecution services) – so that perhaps some 50 fewer cases might be successfully prosecuted – it can nevertheless be expected that a sizeable amount of illegally received Union money will be recovered under this option. This option would have a clear preventive effect as well, as the deterrence for potential offenders would be strengthened.  Over a period of 20 years, the cumulative present value of the benefits of increased recovery and deterrence (in 2012 prices) under this option are projected to be about €2 900 million. 
              
7.8.        Horizontal issues 
7.8. 
7.8.1.     Cooperation of the EPPO with
Eurojust
For their mutual
benefit, the sharing of Eurojust's administrative and support services with the
EPPO seems not only necessary but also feasible. This should therefore be part
of the implementation of any policy option to establish the EPPO.
              As indicated above,
functional links could be created at central level through regulating that some
members of Eurojust staff would function as associated prosecutors within the EPPO
structure, in order to assist the EPPO in the discharge of his coordination
tasks related to investigations and prosecutions undertaken by the Office, in
particular in cases also involving offences other than those affecting the EU's
financial interests. This option would ensure the closest possible link in
terms of operational cooperation, and would automatically entail involvement of
the ENCS, which in this option would be approached through Eurojust staff, in
line with normal Eurojust practices. However, for the sake of its legitimacy
and accountability, the EPPO needs to be independent and free from any national
or other influence in its decisions to investigate and prosecute cases in the
Member States. It must therefore be guaranteed that the ultimate decision
whether or not to investigate or prosecute a case remains the sole
responsibility of the EPPO.
7.8.2.      Investing OLAF resources in
the setting-up of the EPPO central office
              A part of OLAF's current
resources would serve for the setting up of the EPPO central office. However,
certain administrative investigation tasks of OLAF which are not linked to
allegations of criminal offences must continue to be exercised. OLAF has an
inter-institutional mandate to conduct administrative investigations into
offences of staff of the EU institutions, which are outside the scope of the
current proposal, but which have a reputational impact on the institutions. It
also conducts administrative investigations into wrongdoings of EU staff which
result in disciplinary proceedings. 
              In addition, the
Commission, through OLAF, also has the important role of organising close and
regular cooperation with the Member States, aimed at protecting the EU's
financial interests, in accordance with Article 325 TFEU. 
              If a dedicated service of
the Commission were to continue to exercise these functions, it would need to
maintain a close relation with the EPPO in any fraud cases where there are both
administrative (recovery) and criminal law aspects to be dealt with. It needs
to be further explored whether an alternative scenario whereby the
administrative investigation function would in the future be exercised by a
department hosted by the EPPO could actually be feasible and effective.
7.8.3.     Cooperation with third
countries
As indicated under section 6.9.3., only option 4a presents some
advantages in the area of cooperation with third countries, since under that
option the EPPO could profit directy from Eurojust's existing cooperation
agreements. However, these existing cooperation agreements are limited in
number, and do not cover all third countries with which the EPPO would need to
cooperate. Under these circumstances, this small advantage should not be a
deciding factor in which option will finally be chosen. As also already indicated
under 6.9.3, this issue can be regulated
specifically in the legal instrument establishing the EPPO, and the EPPO can make
use of future cooperation instruments concluded on the basis of Article 218
TFEU.
8.           Comparative assessment
The table
below sets out a comparison of the relative rating of the seven policy options
as described in Section 6 against the objectives as defined in Section 5. The
policy options are classified in accordance with their potential to meet the
objectives defined in Section 5. Ratings for expected effectiveness in
achieving the objectives are given equal weight in the final sum. 
Table 8.1. Comparative assessment
 Objectives/ costs || Policy option    1 || Policy option    2 || Policy option    3 || Policy option  4a || Policy option 4b || Policy option  4c || Policy option 4d 
 Meeting the policy objectives || Low || Low || Medium || Medium || Low to Medium || High || High 
 Annual net benefit[54] || No major impact || €25 million || €35 million || €50 million || €50 million || €315 million || €250 million 
 Cost effectiveness[55] || - || Low || Medium || Medium || Medium || High || Medium 
 Impact on fundamental rights || - || Low || Low || Low || Medium to High || Medium to high || Medium to High 
 Feasibility || High || High || High || Medium || Medium || Medium to High || Medium 
 Impact on existing Union institutions || - || Very low || Low to Medium || Medium to High || Medium to High || Medium to high || High 
 Impact on legal systems of Member States || - || - || Low || Medium || Medium || Medium || High 
Already at first glance, it becomes obvious
that options 1-3 will not be effective solutions to the problem. Although these
options would not be very costly, they would also not add much value to the
fight against offences affecting the EU’s financial interests. Combining the
strengthening of Eurojust (option 3) with non-regulatory actions (option 2) to
improve the effectiveness of procedures within the existing legal and
organisational framework could perhaps deliver some additional incremental
gains, but would leave the structural weaknesses that have been identified
above fundamentally unchanged.
Based on the analysis above stronger
action is warranted. As has been described in
Section 3, the system of investigation, prosecution and eventually bringing to
judgment is at this moment not effective enough to significantly deter and
combat offences affecting the EU’s financial interests. 
The initial comparative analysis therefore
shows that the only effective answer to the situation is to set up an
independent EPPO. Only an EPPO with clear powers, competence and responsibility
would constitute an adequate response to the problem. The different options
outlined for doing so have different levels of efficiency, as becomes apparent
from their assessment. One of the main elements which explain why creating an
EPPO is more efficient than the other options is that the EPPO will ensure a
harmonised European prosecution policy, which will not be affected by national
priorities. The independence granted to the EPPO under options 4c and 4d will
also mean that prosecution decisions may no longer be influenced by national
interests, and that all cases which merit prosecution will actually be brought
before the competent courts. In addition, problems related to information
exchange and cooperation across borders will be addressed through the EPPO's
powers to ensure that information is collected centrally and shared with those
who need to know. The EPPO will also be able to ensure adequate cooperation
between national authorities, through its power to direct European Delegated
Prosecutors (in options 4b-4d) and set up appropriate procedures for
cooperation between the European Delegated Prosecutors and the national law
enforcement authorities.
 The creation of an independent EPPO under options 4c and 4d is expected to generate a major change in the effectiveness of the fight against fraud affecting the EU’s financial interests. This will lead to a much greater number of convictions, and consequently, to increased recovery and to greatly enhanced deterrence. This enhanced deterrence resulting from an increase in the number of convictions accounts for more than 85% of the difference in benefits between option 4c and option 4b. Using the assumptions that the total value of offences against the EU’s financial interest is €3 billion, and that every 10% increase in the number of convictions leads to 1% extra deterrence, the value of the crimes deterred by a 20% increase in the number of convictions is 2% of €3 billion, or €60 million. The increase in recovery as a result of 20% increased convictions, is about €4.5 million (if the recovery rate does not change), and would be €7.2 million if the recovery rate were to increase with  1%. Still, the difference between €60 and €7.2 million show that vast majority of the estimated benefits comes from increased deterrence of crimes. 
Setting up the EPPO is also coherent with
other policy initiatives which have been undertaken in this area, as mentioned
in the introduction. These include the reform of OLAF, the proposal for the Anti-Fraud
Directive from 2012, and the Commission’s anti-fraud strategy adopted in 2011.
In fact, setting up the EPPO will further increase the effectiveness of these
actions: it will provide the “missing link” in the enforcement cycle referred
to above.
9.           Enhanced
cooperation
As indicated above, the Treaty foresees the
possibility of establishing the EPPO through enhanced cooperation, should
decision-making by unanimity fail in the Council. This Impact Assessment does
not examine in detail what the specific impact of the various options would be
under a different legislative procedure. Measuring such impact would be more or
less impossible in the absence of any clear indication as to the number of
Member States that would wish to join an enhanced cooperation procedure and
under what terms. 
However, it is safe to assume that using
such a procedure would have consequences both for Member States participating
in the enhanced cooperation, as well as for the other Member States. In
particular, if a group of Member States decided to set up a European Public
Prosecutor's Office (option 4a-4d) by way of enhanced cooperation and transfer
the national competence to investigate and prosecute cases of fraud and similar
offences against the Union's financial interests to such an office, this would
affect the way in which investigations would be coordinated with the Member
States which do not participate in it. 
For example, non-participating Member
States could be required to execute mutual assistance requests and/or mutual
recognition-based decisions issued by the EPPO to collect evidence or arrest
suspects. This would necessitate the recognition of the EPPO by both the
participating and the non-participating States as an issuing judicial authority
under those existing mutual recognition instruments of the EU (freezing, arrest
warrant) which are used in the investigation phase. For other types of judicial
measures (hearing witnesses, setting up JITs), cooperation between the EPPO and
non-participating Member States could be organised via existing mutual legal
assistance treaties, such as the Convention of 29 May 2000 on mutual assistance
in criminal matters between the Member States. Again, in this context as well,
the EPPO would need to be recognised as a requesting authority for the purpose
of judicial cooperation. These existing mutual recognition and more classical
mutual assistance instruments could be also used in combination, yet it is
likely that the same problems (fragmentation, speed, efficiency) which led Member
States to propose the European Investigation Order (EIO) would persist here as
well. Until the adoption and entry into force of the EIO, it may therefore be
necessary to create a specific cooperation framework between the EPPO and
non-participating Member States, covering the full range of judicial measures
which the EPPO will undertake to collect evidence in its investigations.       

In addition, the responsibilities of
existing Union bodies, such as Eurojust, Europol and OLAF, would need to be
adjusted to this new reality, with the likely separation of Member States into
two groups, one which still uses OLAF for administrative (external)
investigations and another which does not. The impact on OLAF's work would
indeed be substantial: part of its staff and resources would need to be
transferred to the EPPO to handle the latter's criminal investigations in
relation to Member States participating in its establishment, while another
part would stay and carry on conducting administrative investigations. Moreover,
at least in cases not involving offences against the EU's financial interests,
OLAF would still have to deal with internal investigations as well. Whether
OLAF should continue to exist as a Commission service for this purpose or
alternatively become a department hosted by the EPPO should be further
explored. The figures and assumptions used throughout this Impact Assessment
are based on participation in the EPPO by all Member States. However, should
there be a decision to move to enhanced cooperation under Article 86 TFEU, all
these figures and assumptions would need to be adjusted in the light of the
number of Member States which choose to participate. 
Similarly, Eurojust would no longer
coordinate cross-border investigations in the area of fraud and other offences
affecting the Union's financial interests with regard to the group of Member
States which participate in the enhanced cooperation, while it would need to
continue this with regard to those Member States which don't participate. This
would most likely generate a new type of coordination activity between the EPPO
and Eurojust National Members originating from non-participating Member States,
whereby the EPPO would request or require their assistance to transmit to the
competent authorities in their home States its requests or decisions for
collecting evidence or arresting suspects under the instruments referred to
above. In addition, Europol would also need to establish a new working
arrangement with the EPPO. 
It is also safe to assume that this
procedure would have some additional, or at least different, administrative and
financial consequences for both groups of Member States and the agencies
concerned, which at this time cannot be accurately estimated or calculated.
10.         Monitoring and evaluation
It will be of crucial importance that the implementation of the
preferred policy option is closely monitored. With the EPPO being a novelty in
the institutional set-up of the Union, its functions will have to be closely
assessed and possibly adapted to the situation on the ground.
Providing for a robust monitoring and
evaluation mechanism is therefore crucial to ensure that the envisaged
beneficial effects of the Regulation materialise in practice. Data provided by
the Member States, also under their existing reporting obligations to the
Commission (Article 325(5) TFEU), as well as feedback by Eurostat,
Eurobarometer and the Council of Europe will enable the establishment of a
useful baseline for monitoring the situation, including the ex post
assessment of the initiative's effectiveness when compared to earlier reporting
outcomes. Consideration will also be given to improving data on how EU funds are spent in the Member States. Besides quantitative data provided by Member States, other possible
sources of qualitative and quantitative information on the effectiveness of the
EPPO will be gathered from the Justice Forum, OLAF, Eurojust and Europol. 
Moreover, the Commission envisages carrying
out a specific statistical study two to four years after the set-up of the EPPO
is completed. The study should in particular analyse the number of cases and
amounts involved in the activities of the EPPO. The data would enable the
Commission to evaluate the effectiveness and efficiency of the new office,
contributing to the general assessment of whether new legislation is needed in
order to ensure an effective, proportionate and dissusive action against
offences affecting the financial interests of the Union, as well as a full
respect for the rights, freedoms and principles enshrined in the EU Charter of
Fundamental Rights. 
ANNEXES
1)      Summary of the replies to the 2012 questionnaires to practitioners
and the general public 
2)      Intervention logic: how the different options relate to the
objectives and problems
3)      Dimension of crime affecting the EU's budget
4)      Cost-benefit analysis of the different options
Annex 1
              REPLIES 
              to
the European Commission's Consultation on:  
              Protecting the European Union's financial interests
and enhancing prosecutions
The consultation process
Since the European Commission is planning
to propose further measures in 2013 to improve the protection of the European
Union's budget and enhance criminal prosecutions in this area, it has organised
an on-line consultation on the above subject between 5 April and 8 June 2012 by
publishing a questionnaire with 11 questions on the Commission's Europa website
(http://ec.europa.eu/justice/news/consulting_public/news_consulting_public_en.htm).
The questionnaire focuses on how to improve
the current criminal law framework related to fraud against the EU's financial
interests in the Member States, including by way of establishing a European
Public Prosecutor's Office (EPPO). 
The questionnaire was primarily addressed
to members of the associations admitted to the European Commission's Justice
Forum as well as any other justice or law enforcement professional in EU Member
States who may be interested in the subject matter. It was not necessary to
reply to all of the questions. For the sake of transparency, respondents had to
identify themselves and the Commission clarified that the contributions
received would be published on the same website, except where the respondent
requested that the submission remain confidential. 
Eurojust has also distributed the
questionnaire to national prosecution services via its own channels and
collected replies in view of its own submission. Both the individual replies by
national prosecution services and Eurojust's institutional submission are
included here. 
The results
17 national prosecution services as well as
Eurojust and 25 individual practitioners or associations have replied to the
on-line consultation. 
The replies received are summarised below.
Question 1:
Are the current criminal law provisions in your jurisdiction related to
offences affecting the EU’s financial interests (fraud, money laundering,
corruption, accounting offences against the EU’s financial interests, etc.) in
your view sufficiently effective, proportionate and dissuasive? Please provide
reasons for your position. 
The current
criminal law provisions established in the national criminal justice systems
are largely considered to be effective, proportionate and dissuasive, although
penalties show substantial variations in Member States. Some respondents
believe that the penalties are not sufficiently effective or dissuasive (IT,
ES, Almeida).
National laws
transposing the 1995 Convention usually create specific offences of fraud
against the Union's financial interests. Several respondents underline that
European and National financial interests are theoretically equally protected
under their laws (BE, CZ, PL), whereas others (EL) make a distinction. Some
practitioners state that general criminal provisions (fraud, embezzlement) are
used for both national and EU fraud (UK, LT) but they offer a sufficient
coverage of the 1995 Convention. IT admits that private corruption and
influence peddling are missing in its legislative arsenal.  
While the
necessary legal framework is generally considered to be in place, difficulties
are encountered in practice when investigating and prosecuting such offences: 
several respondents (EL, PT, IT, Transparency International, Ettenhofer,
Gomez-Jara) stress obstacles to successful prosecutions: understaffed
prosecution offices, excessive workload, lack of specialisation, foreign
evidence, differences in procedural laws, time limitation, lack of interest by
national authorities.       
Question 2:
If not, could the protection of EU’s financial interests be improved on EU
level concerning, in particular, one or several of the following aspects of
criminal law :
•           scope
of persons covered
•           scope of geographical application ( in
particular in cases affecting EU financial interests involving third-country
nationals as suspects and where the place of commission is a third country. 
•           Definition of additional acts to criminalise
(abuse of public office in a conflict of interest, breach of professional
secrecy etc.)
•           Type
of conduct (intent versus negligence)
•           Time
limitation
•           Other
horizontal matters ?
Although in
general national legislations are considered sufficiently complete and
effective, some respondents would welcome EU initiatives to improve them.
Corruption and accounting offences are considered as not sufficiently
harmonised (AT) at the level of the EU and lack of uniformity in money
laundering prosecutions (CZ) seems to be a problem.
Many
respondents agree that there is a need to further harmonise criminal law
provisions related to time limitation as well as procedural deadlines
(investigation or MLA). Several agree that rules of jurisdiction, the scope of
persons covered (third-country nationals), legal definitions of criminalised acts
(negligence) need further clarification. However some respondents believe that
the scope of persons covered is wide enough in their current legislation and
advise not to extend it further. Indeed, some respondents consider that
difficulties in judicial cooperation in this field are often of a more concrete
and practical nature, not directly related to legal problems. In this regard,
support to national authorities in, for instance, setting standards for good
case management would be more useful (DK). 
Respondents
also believe that a close cooperation between administrative, law enforcement
and judicial authorities in the Member states is of utmost importance in order
to ensure the effectiveness of relevant national criminal provisions.
Furthermore, an EU approach could also help to unify in a coherent way the
response given by the competent authorities throughout the European Union in
this field and increase the dissuasive effect of criminal law.
Question 3:
Considering the latest known results in prosecuting and bringing to justice
cases of fraud and in light of your own professional experience, do you think
that there would be an added value in establishing a specialised European
Public Prosecutor’s Office with EU-wide priority competences in order to conduct
prosecutions in relation to fraud committed against the EU financial interests
at the level of the Union?
Positions were
quite divided on this question, ranging from veiled opposition (DK, LT, HU) to
mild (FR) or clear support (ES, IT, EL). Some respondents (AT) want to see the
full proposal first before assessing the EPPO's added value, whereas others
insist on seeing the evidence that supports such a new institution (DK, FI, HU,
Frendo). Some respondents would see added value in the EPPO only with regard to
States which don't investigate or prosecute EU-fraud effectively (CY, MT),
whereas others only concerning fraud committed by EU officials or affecting
funds managed by the Commission (PL).   
For several
respondents coming from national prosecution structures, as well as for
Eurojust itself, the optimal solution would be first to improve the
effectiveness of existing instruments and bodies such as Eurojust, OLAF, and
Europol, as well as the cooperation between them (FI, Ettenhofer). Otherwise, they
fear that the EPPO would entail unnecessary duplication of actions undertaken
by national authorities and lead to practical problems in terms of
relationships between the EPPO, the national prosecution services and the other
European bodies (Grixti, Almeida)
For many
others, the creation of a specialised European Public Prosecutor's Office with
EU-wide priority competence to conduct prosecutions in relation to fraud
committed against the EU financial interests would have an added value, for
various reasons. One reason is that it would be a way to promote a unified and
consistent EU action against these offences (ES), including common prosecution
priorities and harmonised levels of punishment. Another reason is that the
frequent international or cross-border dimension of this crime and its
technical complexity seem to justify coordination and centralisation of
decisions at EU level (FR, IT, RO, Ippolito, Damaskou, Florentina, Corstens,
Karitzki). A number of respondents also consider the independence of the EPPO a
key issue and see advantages in setting up an EPPO which is immune from local
political influence or prosecutorial instructions (SK, IT, Gomez-Jara, EAJ).
The EPPO is also seen by some (Mittermaier) as an agency capable of restoring
trust in the EU institutions themselves.
Specialisation,
centralisation and independence from national authorities are considered by
many respondents as the key aspects of the EPPO's added value, which would help
overcome the reluctance of practitioners to deal with complex and distant
cases, which often generate conflicts of jurisdiction or problems of judicial
cooperation (FR). On the contrary, one respondent considers that the EPPO may
lead to further fragmentation of the European landscape (HU) or lead to
unnecessary duplication (PL).   
Question 4:
(a) For what criminal offences should the European Public Prosecutor’s Office
have jurisdiction in the European Union, i.e. only offences affecting the EU’s
financial interests or also serious cross-border offences ? (b) Should this
jurisdiction be exclusive or complementary to national prosecutors? 
(a) Offences
The large
majority of respondents (AT, CY, CZ, EE, ES, FR, IT, MT, PL, RO, SK) consider
that the EPPO should initially have jurisdiction only for offences affecting the
EU's financial interests. The latter could include stricto sensu crimes
affecting the EU's financial interests as well as assimilated offences such as
abuse of office, market-rigging, corruption, misappropriation of funds and
money laundering. At a later stage, provided that it has demonstrated its added
value, several respondents (AT, BE, ES, FR, MT) believe that the EPPO could see
its jurisdiction extended to serious cross-border offences as provided for by
Article 86(4) TFEU. 
For some
respondents (BG, EL, Ippolito, Mihov, Gatzweiler, Sheenan), the EPPO should be
given extended jurisdiction from the moment of its establishment and also cover
other serious cross-border offences. 
Some consider
that sufficient information is not available at the moment to decide on the
scope of a possible future mandate for an EPPO. In this context the view was
expressed that on-going assessments and evaluations of the functioning of
Eurojust and OLAF should be completed in order to identify crime areas that are
not being handled efficiently by Member States in cooperation with European
bodies. Further development of Eurojust as a good possible alternative to the
establishment of the EPPO was also indicated.
The European
Association of Judges agrees on the need of creating an EPPO for these
offences, but proposes that criteria should be established in order to not
overload the EPPO with minor crimes, for example a financial threshold. 
(b)
Jurisdiction
Respondents
were less divided on the issue of the "exclusive" or "complementary"
character of EPPO's jurisdiction. Many respondents (AT, BE, CZ, DK, FR, IT, MT,
RO, Ippolito, Fiala, Ettenhoffer, Frendo, Palomaki), including Eurojust itself,
consider that the EPPO’s jurisdiction should be complementary to that of the Member
states as this solution would be more flexible and less invasive for national
jurisdictions. Many practitioners stressed that the relationship between
national and European prosecutors was a central issue and needed to be
absolutely effective. Disputes over jurisdiction (competence) would be harmful
for both the EPPO and national authorities. Some suggested (BE, EL) that the
EPPO should only have jurisdiction on the request of national authorities, e.g.
when they need assistance (EL), otherwise a too powerful EPPO may be seen as a
competitor or opponent (IT). Some believe that an exclusive jurisdiction could
result in an unmanageable workload for the EPPO (RO), so
"complementary" jurisdiction would mean focusing on "more
significant cases" and "more important investigations"
(Ettenhoffer, Karitzki), although in practice the interconnected nature of
national and cross-border fraud cases may well lead to some degree of overlap
and concurrence (Corstens). Flexibility or clear rules will be necessary to settle
such conflicts of jurisdiction.  
Other
respondents (ES, HU, SK, Florentina, Gomez-Jara, Ippolito) would clearly prefer
that the EPPO be given an exclusive jurisdiction as this solution would prevent
frictions and conflicts between the EPPO and national prosecutors. Some see the
EPPO's role as central when the Member State in which the offence was committed
seems unwilling to carry out the investigation or prosecution or when several Member
States are involved (Florentina, Gomez-Jara). However, for some respondents
"exclusive jurisdiction" does not mean that Member States are
excluded from the investigation or prosecution: the necessity of a strong
cooperation with national authorities is there any way, for example by allowing
the EPPO to use by delegation the national structures and staff in its
investigation (Ippolito). 
Question 5 :
What would be the preferable design for the European Public Prosecutor’s
Office’s structure, centralised (i.e. with all investigative and prosecutorial
acts performed at EU level) or decentralised (i.e. with a certain flexibility
to carry out certain investigative or prosecutorial acts at national level
under the authority of the European Prosecutor’s Office), and why ? Please
consider how the various levels of your preferred design would interact in
practice. 
The replies
given by the respondents show that the terms “centralised” and “decentralised”,
referred to in the question, were subject to different interpretations, as
"centralised" does not necessarily imply that local authorities
should not be involved, nor does "decentralised" mean that certain
investigative or prosecutorial acts cannot be done centrally. There is clearly
a range of possibilities in each option. However, everyone seems to agree that
issue of independence is key for both centralised and decentralised EPPO
designs, as the EPPO must be free from "interference" (Schneiderhahn,
Foldes).  
With that
caveat, the vast majority of respondents seem to favour a decentralised
structure, i.e. where the EPPO would act via European Delegated Prosecutors, or
would otherwise delegate tasks to national prosecutorial authorities. The good
cooperation and complementarity between these European Delegated Prosecutors
and local authorities (police, judicial, administrative) are considered
essential for reasons of efficiency and political acceptance. This cooperation
would not only ensure better results because the European Delegated Prosecutors
are embedded in national structures and know how to apply national law, but
also because the decentralised structure respects the subsidiarity and
proportionality principles.
A small number
of responses (BE, EL, Florentina, Cook, Gatzweiler, Schneiderhahn) favour a
structure where an EU prosecutor would direct, or at least coordinate, the
investigations and the prosecutions from a central organ. The principal
advantage of this design is less cost and independence. Some respondents see a
centralised design as a guarantee of total independence from national interests
and authorities, and thus a key aspect of effective enforcement. 
Some believe
that these two designs can be combined: Eurojust suggested that the same
persons could possibly combine their role as EPPO delegates and as national
prosecutorial authorities. AT also believes that an effective cooperation seems
to be as important as an independent judicial system, a combined approach
mixing aspects of decentralisation and centralisation might be envisaged as a
good compromise (AT). 
Question 6:
What investigation powers should the European Public Prosecutor’s Office have?
(e.g. search & seizure, arrest, interception of telecommunications) ?
For many
respondents, this question was closely linked to the EPPO's organisational
design and applicable law. It was stated (Tiza) that the EPPO as a European
prosecutorial authority must, in any case, have its investigation powers
strictly defined so that its investigations and prosecutions are properly
framed. 
Assuming that
the EPPO will conduct its own investigations and prosecutions centrally, some
respondents (FI, SK, Mihov) supported the idea of granting the EPPO all the
necessary powers on its own, applicable in all Member States. Conversely,
assuming that the EPPO's investigations and prosecutions will be conducted by European
Delegated Prosecutors, acting locally, the large majority of respondents seemed
to agree on the idea that the EPPO should have the same (full range) powers of
investigation as national prosecutors. In practical terms, this means that EPPO
prosecutors should be on an equal footing with national prosecutors, and have
not less, nor more powers than those of the ordinary national prosecutors in
comparable national cases. In addition, several respondents (Karitzki, EAJ,
Schneiderhahn) noted that there was no legal basis for granting more powers to
EPPO prosecutors than what national prosecutors are granted. One respondent
(Gatzweiler) pointed out that having "equal powers" to national
prosecutors also meant that there should be equal (judicial) remedies as well
before national courts.   
On respondent
(ES) recommended that the EPPO exercise certain powers itself but request
judicial authorisation in Member States for those powers that have an intrusive
character for fundamental rights. Similarly, other respondents (CY, MT and PL)
differentiated between coercive powers and non-coercive powers and strongly
suggested that the former be reserved exclusively for national authorities
(prosecutors or judges), who may authorise the EPPO to be involved (CY). Yet
others (DK) agreed that investigative powers could not be given exclusively to
a central EPPO, but "must be based" on close cooperation between the
EPPO and national authorities. The EPPO should not have its own investigatory
powers without a national presence (Frendo, Cook, Palomaki). 
Besides, the
EAJ, though in favour of a strong EPPO with concrete investigation powers,
insists on the need of a judicial control over the exercise of the powers
granted to the EPPO. 
Question 7:
What framework (applicable law, judicial review) should be envisaged for such
investigation powers?
Many replies
connected this question with the one on whether the EPPO should have autonomous
powers or not.
For those
respondents who support an EPPO with autonomous powers (AT, ES, IT, partly RO,
Mihov, Florentina), it would be necessary or logical to consider that the EPPO
should apply a set of new European procedural rules to regulate its actions.
These rules should be established along with the powers granted to EPPO in
European legislation.   
For all other
respondents only national criminal law should be used in order to avoid
complicated changes and ensure coherence with national criminal prosecutions.
Question 8:
By what criteria should the Member State or States of trial be chosen? 
The respondents
generally recognise that the jurisdiction where the EPPO may prosecute and
bring a case to trial may depend on a number of criteria, such as the place
where the crime was committed, the evidence is located, the damage occurred,
the defendant or/and the victim has his residence or registered seat, etc. Many
respondents warn that clear criteria must be set forth by European legislation
to prevent ad-hoc decisions and forum shopping. Actors of the judicial process,
including defendants, must be able to foresee the place where the case will be
tried and the EPPO's choice should be open to judicial review for some
(Schneiderhahn). Those who support the idea of establishing specific criteria
(ES, FR, IT, PL, Ippolito) want the criteria be clear, objective and
foreseeable in order to frame the EPPO's decision.  
The majority
suggest that the EPPO should bring its case to trial where the offence was
committed and, in case of multiple options (cross-border offence), the Eurojust
Guidelines should serve as guidance. 
Question 9: How
should the barrier raised by the diversity of rules of evidence be overcome? 
Not all the
respondents are convinced that the diversity of rules of evidence raises a
barrier at a European level. Several consider that national courts are there to
solve such problems (BE, Cook, Fiala) and that evidence collected lawfully in
one Member State according to local law should be used in trial in another Member
State irrespective of the procedural rules for gathering evidence there
(Ettenhofer).
For those who
see a barrier in the diversity of evidence rules, there are two main possible
solutions: the harmonisation of procedural rules throughout the European Union
(AT, CY, EE, FI, FR, MT, PL, SK, Mihov, Ippolito, Palomaki, Jurgens) or the
adoption of specific procedural rules established (only) for the EPPO's
investigations and prosecutions (AT, ES, RO, Gomez-Jara). 
In addition or
alternatively the application of the mutual recognition principle may also be a
solution, for example by using the (future) European Investigation Order (DK,
Ippolito).
In the absence
of harmonised rules of evidence in the EU, some respondents (Scheiderhan, EAJ)
note that the diversity of rules is a risk that the EPPO has to anticipate
early on, so that it can adapt its investigations accordingly. In practice this
means that the EPPO will collect evidence in a way that it is able to adduce it
in all those jurisdictions where it may bring its case. This constraint of
"multiple-jurisdiction" evidence disappears from the moment when it
has determined the place of trial.  
Question 10:
How could fundamental rights be best protected throughout the criminal
investigations undertaken by the European Public Prosecutor’s Office? 
For all
respondents, fundamental rights must be equally protected in criminal
proceedings, irrespective of the institution conducting the investigation (EPPO
or national investigation agency). There are different ways and at different
scales of protection: for some (ES, FR) the EPPO itself would be a layer of
protection, if established as an independent prosecutorial authority, as it
would have the obligation to protect fundamental rights and prevent double
prosecution (ne bis in idem). Besides, on the national level national judges of
freedom and national adjudicating courts would ensure protection according to
the standards of national law and, ultimately, the ECHR (CZ, EE, FR, IT, MT,
RO, Mihov, Florentina, Cook, Fiala, Frendo) 
On a European
level, the European Court of Human Rights and the European Court of Justice
offer a supplementary layer to protect the fundamental rights of citizen, as
fair trial and defence rights are guaranteed by the ECHR and the Charter of
Fundamental rights. 
However, some
respondents seem to think that the creation of a special European judge controlling
lawfulness of investigation and compliance with fundamental rights could be an
asset in this protection (HU, Jurgens, Foldes, Gomez-Jara).
Question 11
: What relationships (in terms of hierarchy, functioning and usual workflow)
should the European Public Prosecutor’s Office have with other European bodies
involved in the protection of EU financial interests and/or criminal matters,
such as OLAF, Eurojust, and the European Institutions (in particular the
European Parliament, the European Commission, and the Council of the European
Union ? 
All respondents
acknowledge the relevance of the issues as the EPPO would need to be in
relation with other European bodies and this raises questions about its
independence and its links in terms of hierarchy, functioning and usual
workflow with the other institutions.
EPPO &
OLAF: 
Many
respondents consider that OLAF should become an investigate body under the
direction of the EPPO (its «executive arm»; part of the EPPO), fully integrated
into it. 
EPPO &
Eurojust:
For the
majority of the respondents Eurojust should coexist with the EPPO. They should
remain separate one from another but closely coordinate their work. Eurojust
would thus be a useful aid for EPPO in its operations. However, some
respondents consider than the EPPO and Eurojust should be integrated or even
that the EPPO should take over Eurojust’s tasks. 
EPPO &
Other European Institutions: 
Several
respondents recommend that the EPPO be appointed by the Council on the basis of
a Commission proposal and with the assent of the European Parliament. Any
arrangement of institutional accountability would need to respect the
fundamental independence of the EPPO and each EU institution, within its own
competence, could have a supervising role over it. In addition, each Year the
EPPO could present its activity report to the Institutions. The European Court
of Justice could be the disciplinary authority over the EPPO and could have the
competence to deal with claims arising from potential conflicts between the EPPO
and other EU institutions.
Annex 2
Intervention logic: how the different options relate to the
objectives and problems
OPTION 1
   Option 1 Base-line scenario Effectiveness: low Current weak incentives and limited capacity at national level would not address fragmentation problems. Lack of efficiency in investigation and prosecution will continue, leading to low level of prosecution and convictions. Deterrence is not expected to increase due to low number of prosecutions and convictions. The current framework will not ensure closer cooperation and information exchange.   
OPTION 2
OPTION 3
OPTION 4a
OPTION 4b
OPTION 4c
OPTION 4d
Annex
3
Dimension
of crime affecting the EU's budget
Quantifying
the size of EU fraud is a challenge that has puzzled politicians and
researchers for decades (see for example Sherlock & Harding 1991, Passas
& Nelken 1993, White 1995 and 1998, Sieber 1997 and 1998 and Ruimschotel
1994, Durdevic 2006).[56] 
All
those researchers comment on the lack of reliable information on EU
budget-crimes. Offences against the financial interest of the EU cover a wide variety
of activities, ranging from receiving subsidies for products grown on farms
that do not exist, training programmes that have never taken place, various
forms of VAT fraud, to siphoning EU money for personal purchases and political
party financing or EU staff making false claims for salaries and expenses. EU
fraud and corruption is committed all over European Union, within MS and across
its internal and external borders. It happens across Member States with
different judicial systems, different control systems, different cultures of
doing business (including differing attitudes and norms towards using public
money for private purposes).[57]

By
its very nature, fraud and corruption are difficult to quantify, as will be
argued in this Annex, but it is particularly problematic with fraud, corruption
and other offences that affect the financial interest of the European Union.
Around 85 percent of the EU budget is spent though Member State governments and
regional or even sub-regional bodies. This means that the EU has to rely on the
Member States to ensure that the money is spent in accordance with the rules,
and that Member States control the expenditures effectively, and detect and
report fraud and corruption to the EU. There are no comprehensive data on adequate
information on how EU funds are spend in the Member States. Most Member States
do not separately collect data in crimes against the financial interest of the
European Union. 
The
point of reference is the list of offences affecting the financial interests of
the European Union, which have been included in the proposal for a new
Directive on the fight against fraud to the Union’s financial interest by means
of criminal law.[58]
This list consists of:
 ·         
Fraud
affecting both expenditures and revenues of the EU budget; 
 ·         
Misappropriation
of EU funds or assets by public officials;
 ·         
Obstruction
of public procurement or grant procedures (for example bid-rigging between
tenderers);
 ·         
Corruption,
involving not only public officials, but also representatives of public bodies
and private organizations or citizens involved in the management of EU funds;
and 
 ·         
Money
laundering, which should keep separate the laundering of the proceeds of the
above crimes from laundering the proceeds of other crimes committed inside and
outside the EU.
The analysis
will cover both expenditures and revenues of the EU budget. This is
particularly relevant for fraud, which includes VAT and customs fraud, and
fraudulent activities with EU budget expenditures. 
It should be noted that
money laundering often accompanies fraud. Money laundering also facilitates
other offences (with and without EU funds), which could result in double
counting if we were actually able to monetize the amounts of money laundering.
Money laundering as result of crimes affecting the EU budget revenue or
expenditures can appear into various forms, as our analysis of several cases
has revealed:
 ·         
High
profile money laundering of defrauded EU money through off-shore bank accounts;
 ·         
Low
profile money laundering of defrauded EU money through cask-couriers or
(informal) money remitters; and
 ·         
EU
funded investments used as a money laundering vehicle (for example the Sicilian
wind-mill park that is used by the mafia to systematically launder the proceeds
of crime; see box below).[59]

Wind energy on Sicily
Money
laundering of EU funds through the Sicilian Mafia
EU-funds
for development of wind farms and renewable energy in Sicily are seen as an
easy gift to the local Mafia, the Cosa Nostra. The Mafia has reinvented itself
as a ‘white collar’ organisation, siphoning off EU funds through a combination
of shell companies and infiltration of regional bodies, which distribute the
subsidies. According to the regional anti-Mafia prosecutor Roberto Scarpinato,
some of the wind farms in Sicily were developed by the Mafia using EU
subsidies, which were then used to fund a money laundering empire. By rotating
the millions of EU-funds through different front companies, the organisations
appeared to be operating legitimately and so attracted further EU grants. ‘They
took the same amount of money, and they moved it around as if each company had
access to its own existing capital. They performed the same trick many times,
and every time they received public funds’. Many of the wind farms have since
been sold on to genuine energy companies completely unconnected to the Mafia. 
Source: BBC News - Fears over 'widespread'
EU fraud involving the Mafia, 2010, http://www.bbc.co.uk/news/world-europe-11848048.
The starting point for
the analysis is the official data from OLAF. The OLAF data provides an initial
indication of the magnitude of the known cases of fraud, corruption and other
relevant offences (see paragraph 1.2 below). OLAF data also provides an initial
impression of the nature and variety of the offences and the sections of the EU
budget that are affected by it. Next it will be argued why the OLAF data
potentially represents the lower boundary of the real problem (paragraph 1.3).
The calculations of the probable higher boundary of the problem are based on
previous studies in particular on VAT and customs fraud and the ‘what if’
calculation (paragraph 1.4). Finally the main conclusions will be presented
(paragraph 1.5). 
1.1         What is known?
OLAF is the
central European institution for investigating and fighting fraud against the
EU budget and systematically collects data on potential crimes against the EU
budget. Member States are obliged to report so called 'irregularities'
involving more than 10.000 euro of EU finances. Member States are also obliged
to indicate if there is a suspicion of 'fraud'. To put it in more general
terms, they have to indicate whether this irregularity is committed
intentionally and with the aim of acquiring illicit gain or not. This is not a
self-evident classification, and there is no obvious incentive for them to
raise the level of fraudulent reports.
There are two
main systems for formally notifying irregularities to OLAF: the Irregularity
Management System (IMS), managed by OLAF, and the OWNRES (abbreviation of 'own
resources') managed by the Directorate General for Budget. Cases on the revenue
side of the EU budget are reported through the OWNRES system. OLAF data on
irregularities and fraud are published in the ‘Annual Report on the protection
of the EU's Financial Interest and the fight against fraud’. The latest report
available for this study covered 2011.[60]
Table 1.1 provides an overview of the main data over 2011 and a summary of the
2010 totals. 
'Irregularities'
are defined as 'any infringement of a provision of European law resulting from
an act or omission by an economic operator which has, or would have, the effect
of prejudicing the general budget of the EU or budgets managed by it'.
Notifications from MSs to OLAF fall into two main categories:
 ·         
'Irregularities
reported as fraudulent' (or 'suspected fraud'), which are irregularities
'giving rise to the initiation of administrative and/or judicial proceedings at
national level in order to establish the presence of intentional behaviour, in
particular fraud'; and
 ·         
'Irregularities
not reported as fraudulent' is the remaining category of irregularities where
MSs do not explicitly indicate that that there is a suspicion of fraud. 
Another
categorisation is irregularities and suspected fraud cases on EU revenues and
EU expenditures:
 ·         
offences
related to revenues of the EU budget are in particular evasion of import duties
and VAT taxes. Evasion of the payment of customs duties falls into two main
categories: smuggling of (mainly high taxed such as cigarettes and alcohol)
goods over the borders of the EU and fraudulent declaration of customs
information. These two basic forms sometimes overlap; and
 ·         
offences
related to expenditures of the EU budget would cover a wide range of illegal
activities, from direct misappropriation to various forms of fraud, corruption,
obstruction to public procurement or money laundering. 
OLAF is
competent to investigate suspected cased of fraud and other offences affecting
the EU's financial interests committed by European civil servants (so called
'internal investigations') and by economic operators in the Member States when
the EU budget is at stake (so called 'external investigations'). 
The 'estimated financial
impact' of irregularities or fraud is defined by OLAF as the total financial
amount that is affected by the fraud or irregularity. While there are documents
that detail the overall methodology and the statistical approaches, the
‘estimated financial impact’ is calculated through various methodologies.[61] In some cases the value of the
total allocation is taken, is some cases a percentage or part of the allocation
that is directly affected. As will be developed below, the costs (or prejudice)
to the European taxpayer can be (substantially) higher or lower than this
amount. 
Table 3.1 Irregularities reported per type of expenditure,
2011
   || Estimated financial impact 
   || Reported as fraudulent || Reported as non- fraudulent || Reported as fraudulent || Reported as non- fraudulent || Total || Reported as fraudulent 
   || Number || Number || € million || € million || € million || % of allocations 
 Agriculture || 139 || 2 256 || 77 || 101 || 178 || 0.14% 
 Fisheries || 2 || 46 || 0.03 || 1.6 || 1.63 || 0.05% 
 Cohesion policy || 276 || 3 604 || 204 || 1 015 || 1 219 || 0.4% 
 Pre-accession funds || 56 || 207 || 12 || 48 || 60 || 0.67% 
 Direct expenditure || 34 || 888 || 1.5 || 50 || 52 || 0.02% 
 Total expenditure || 507 || 7001 || 295 || 1 216 || 1 511 || 0.21% 
 Total revenues* || 723 || 3973 || 109 || 278 || 387 || 0.49%** 
 Total 2011 || 1 230 || 10 974 || 404 || 1 494 || 1 898 ||   
 Total 2010 || 1 883 || 13 210 || 643 || 1 579 || 2 222 ||   
Source: Annual Report 2011 on the Protection of the European
Union's Financial Interests SEC(2012)408 final.
*Total revenues comprises customs duties and agricultural
levies. **Approximate of gross amount of TOR collected.
The main
observations from table 1.1 are: 
 ·         
OLAF
received a total of 1.230 'irregularities reported as fraudulent' in 2011
(against 1.883 in 2010). The number of irregularities 'not reported as
fraudulent' is almost ten times higher (10.974 in total);
 ·         
There
were 507 fraudulent irregularities (40% of the overall number) related to EU
expenditures. Also, 723 fraudulent irregularities where related to the EU
revenues (60% of the overall number). This is a reversal of the 2010
proportions where fraudulent irregularities on the expenditure side outnumbered
the fraudulent irregularities on the income side of the EU budget;
 ·         
Cohesion
and agricultural funds are in absolute numbers the main sources of concern on
the expenditure side. Fraudulent irregularities related to the cohesion fund
account for almost half (276 in total) of the fraud reports. Agricultural
policy fraud reports are the second largest in number (139 in total);
 ·         
The
total estimated financial impact of the reported fraudulent irregularities is
404 million euro (against 643 million euro in 2010). In terms of financial
impact, cohesion policy cases account for a little over half of the total
financial impact (204 million euro). The total estimated financial impact of
the irregularities that are not reported as fraudulent is 1.494 million euro
(against 1.579 million euro in 2010);
 ·         
If
the irregularities that are explicitly reported as fraudulent are added, the
total financial impact of irregularities (fraudulent and not as fraudulent
reported) was 1.9 billion euro in 2011, against 2.2 billion euro in 2010. As
will be discussed later, these figures probably contain mainly administrative
errors, but can include cases of intentionally fraudulent behaviour as well;
and
 ·         
In
the final column the total estimated financial impact of fraud as percentage of
the budget allocations is given. As a percentage of the overall allocations,
the pre-accession funds seem to be most vulnerable for fraud (0.67% of the
estimated allocations is labelled as fraudulent).[62] The overall
financial impact of fraud on expenditures of the EU budget is 0.21% and on
revenues 0.49%. 
Annual
changes
In table 1.2
the development of the estimated financial impact of fraud and irregularities
over 2006 – 2011 is presented. It reveals that the overall value of reported
irregularities and suspected fraud cases declined in 2011 in comparison with
2010 (both on the revenue and expenditure side). This decline was expected by
OLAF, and was merely technical, after an increase in the two preceding years.
The 2011 figures are however still somewhat above average over the last six
years. 
It is
important to note from this table that these annual changes in reported
(fraudulent) irregularities are mostly technical. They reflect to a large
extent, changes in management and control systems, to changes in the reporting
systems (for example the introduction of the IMS system in 2008) and reporting
behaviour of Member States, and cyclical effects of the closure of EU spending
programmes (in particular the Cohesion fund). They are not indications of an
increase and decrease in the nature and extent of the underlying problem. This
is a general issue that affects most crimes (including drugs) where the
investigative/regulatory body is the principal source of detections. 
Table 3.2 Estimated financial impact of fraud and
irregularities, 2006-2011
   || Estimated financial impact of fraud (million euro) || Estimated financial impact of irregularities (including suspected fraud) (million euro) || Estimated financial impact of fraud (fraud rate) (% of allocations) 
   || Expend. || Revenue || Total || Expend. || Revenue || Total || Expend. || Revenue 
 2006 || 189 || 134 || 323 || 804 || 353 || 1157 || 0.2% || 0.94% 
 2007 || 209 || 107 || 316 || 1048 || 377 || 1425 || 0.22% || 0.62% 
 2008 || 77 || 75 || 152 || 783 || 375 || 1158 || 0.07% || 0.46% 
 2009 || 181 || 99 || 280 || 1493 || 343 || 1836 || 0.13% || 0.68% 
 2010 || 478 || 165 || 643 || 1804 || 418 || 2222 || 0.34% || 0.79% 
 2011 || 295 || 109 || 404 || 1511 || 387 || 1898 || 0.21% || 0.49% 
 Average || 238 || 115 || 353 || 1241 || 376 || 1616 || 0,20% || 0,66% 
Source: SEC(2011)621 final, ANNEX I (2006-2009);
SEC(2012)408 final, table 1 (2010 and 2011).
Whatever
annual increases or decreases there are in reported irregularities and fraud,
it is not evident whether these are the result of: changes in the management of
reporting and control systems, the cyclical nature of EU programmes, and/or
changes in the occurrence of the underlying problem. For these reasons,
official EU data on offences affecting the EU's financial interests cannot be
extrapolated to an overall figure of the detected and undetected losses, nor
can they be used to make intra-Member State comparisons or to analyse trends. 
Types
of offences
OLAF does not
systematically categorise the information relating to types of offences as they
are defined by the proposal for the anti-fraud Directive, but OLAF reports and
internal OLAF information give some indication of the occurrence of the various
offences. 
On the
revenue side false declarations and smuggling are frequently
mentioned as offences, along with formal shortcomings. The goods that
are most affected by EU customs fraud are TVs, tobacco, cigarettes and oil.[63]
On the
expenditure side, the main violations in the known cases by OLAF are the use
of false or falsified documents (in order to inflate the costs of a project
or prove a non-existing right to obtain financial support) and violation of
public procurement rules.[64]
The latter category in it itself could include various offences such as price-fixing
rings, abuse of inside information in the construction of tenders, conflict of
interests and nepotism (though connections between the procurement officer and
the company), and collusion by procurement competitors, etc. 
Cases
transferred by OLAF are mostly prosecuted within the Member States on grounds
of fraud, embezzlement, forgery and theft.[65]
Corruption and money laundering are either (substantially) less often
discovered or occur less frequently. The hypothesis is that in particular
corruption is relatively underrepresented among the known cases because
corruption is relatively more difficult to detect. This is in particular the
case in Member States where corruption is deeply entrenched among economic
operators and within the public administration. So even if the number of
corruption prosecutions in the latter countries are higher than in others, the proportion
of cases may still be low, and it is easy to find targets among un-favoured
parties and/or those who will not pay bribes. It must also be noted that
prosecution decisions are correctly taken on the basis of the best evidence to
prove a particular offence, rather than to fit into the EU record-keeping
requirements.
1.2         What is unknown? 
The irregularities and
instances of suspected fraud, as reported to OLAF, represent incomplete and
often anecdotal evidence of the actual problem. The official findings can, according to
OLAF, 'not be considered as empirical evidence of the levels of fraud and
irregularity.'[66]
The Commission has also stated that it 'is not in a position to estimate actual
levels of irregularities or fraud because of the extent and nature of available
information and data received from the Member States.[67] 
The overall value of
irregularities that were reported in 2011 as fraudulent is 404 million euro and
the overall value of irregularities which were not explicitly reported as
fraudulent was 1.494 million euro. Beyond these known figures, it has to be
taken into account that a “dark figure” exists, which
is certainly higher than the known figures. It is important to note that it is
not entirely transparent how the overall value of the reported irregularities
and suspected fraudulent irregularities is calculated. The information that is
submitted to OLAF should concern, among others the identification of the
operation that is affected, the modus operandi, the natural and legal persons
that are involved and the 'estimated financial impact'. It is not clear how
this financial impact actually is estimated by the sources of OLAF. 
The figures
give rise to two assumptions on the actual magnitude of EU fraud and other
relevant offences. 

Assumption
1. The actual base line of known cases of EU fraud is probably (much) larger
than 404 million euro

First of all,
it must be noted that irregularities reported as suspected of fraud could
contain so called 'false positives' – cases that are mistakenly labelled as
'fraudulent'. An indication for this could be derived from the conviction rates
of cases that are transferred by OLAF to the Member States (1.030 in total over
the past six years). 119 of them have resulted in an actual conviction;
acquittal in 31 cases; 241 cases were dismissed before trial.[68] There are many reasons for
this low conviction rate (no judicial follow up, slow judicial procedures,
quality of the evidential reports). Lack of evidence could be one of them.
Suspected fraud is not yet proven fraud. 
However there
are ample arguments that - an even larger - number of irregularities is wrongly
(deliberately or accidentally) NOT labelled as 'suspected fraud' ('false
negatives') or even not reported to OLAF:
 ·         
The
definition of ‘suspected fraud’ as a specific subset of 'irregularities' is not
consistent across Member States. Member States use different definitions of
fraud, corruption and other illegal activities and a certain proportion of the
reports from the Member States to OLAF do not even distinguish between
suspected fraud and irregularities (all notification are reported as
'irregularity');
 ·         
The
distinction between fraud and irregularity is usually made on subjective
grounds by the sources (people may be for good reasons reluctant to qualify a
case as probably fraudulent if there is insufficient evidence). In some Member
States, officials are even discouraged to report an irregularity as 'fraud'
because they can be held responsible in the case of non-confirmation by a court
judgment;
 ·         
Member
States are only obliged to report irregularities involving more than 10 000
euro of EU finances. It is quite likely that the estimated financial impact of
EU fraud as reported by OLAF is (significantly) underestimated due to the fact
that irregularities under this threshold are not reported. In the case of the
two EU agricultural funds 87% of the overall number of payments, which
constitutes 21% of total expenditure, is below the threshold of 10 000 euro;
 ·         
So,
even if fraud is taking place there is no obligation to report it, and this
potentially incentivises fraudsters to be more active below the reporting
threshold. Furthermore, this also fails to address whether multiple frauds
below the threshold are actually systemised (or even connected) in a context
where committing small acts of fraud and corruption is considered as 'normal';
and
 ·         
OLAF
reports on the revenue side merely report violations of custom regulations.
However VAT cases are generally considered as 'national cases'' and not
reported to OLAF. VAT fraud is a major problem as many interviewees indicated. 

Table
3.3 Irregularity
rates and error rates, 2010 and 2011
   || Expenditure 2010 || Revenue* 2010 || Expenditure 2011 || Revenue* 2011 
 Irregularity rate (reported as fraud) || 0.34 || 0.79 || 0.21 || 0.49 
 Irregularity rate (not reported as fraud) || 0.94 || 1.21 || 0.86 || 1.24 
 Irregularity rate (total) || 1.28 || 2.00 || 1.07 || 1.73 
 Error Rate (European Court of Auditors) || 3.7 ||   || 3.9 ||   
Sources: Annual Report
2011 on the Protection of the European Union's Financial Interests SEC(2012)408
final (irregularity rate); European Court of Auditors, Annual report 2011
(error rate). * Approximate of gross amount of TOR collected.
In Table 1.3
the irregularity rates (fraud and non-fraud irregularities) of OLAF over 2010
and 2011 are presented. The total irregularity rate of the expenditures was in
both years over 1% of the EU budget. On the revenue side the irregularity rate
was between 1.5 and 2% of the gross amount of collected traditional own
resources For various reasons it is difficult to distinguish fraud from
administrative shortcomings. As discussed before, Member States differ for
example in their interpretation of 'fraud'.[69]
In customs procedures for example, 'false classifications' and 'formal
shortcomings' are often labelled as fraud or irregularity. But it is not known
if these 'irregularities' were committed intentionally, out of ignorance, or
just are a matter of inaccuracy. 
The error
rate as calculated by the European Court of Auditors was in both years
respectively 3.7 and 3.9% (see box below). The error rate mainly addresses
technical shortcomings (with fraud as a minor subset) but is considered as a
warning signal of misspending of EU funds. 
As discussed
before, the argument can be made that at least about 1 to 2% of the EU budget
is lost through fraud, corruption and other forms of deliberate misconduct. 
Box 1.1 The 3.9% error rate of the European Court
of Auditors
The
irregularity rate of OLAF is often confused with the 'error rate' as it is
calculated every year by the European Court of Auditors (ECA). The error rate
is defined as 'the irregular expenditure found as a proportion of total
expenditure checked.' The error rate is different from the irregularity rate
since it represents errors in procedures, which does not mean failed projects
or wasted funds. Fraud, defined as the intentional deception and criminal action,
is a minor subset of the error rate. However as the ECA repeatedly stresses,
the EU remains blighted by fraud, waste and irregularities. In 2011 EU payments
were affected by material error, with an estimated error rate of 3.9 % for the
EU budget as a whole. For the 18th year in a row the ECA has reported major
errors in the accounts and was unable to give an unqualified statement of
assurance. The level of error remained similar to 2010 when it was 3.7 %. The
Court of Auditors criticized the Member States for being 'only partially
effective in preventing or detecting and correcting errors.' Cohesion, energy
and transport were the most error-prone EU area of EU expenditure (estimated
error rate of 7.7%). Other risk areas are foreign aid, development, enlargement,
energy, transport and agriculture, according to the Court of Auditors.
Source:
European Court of Auditors, Press Release, ECA/12/43, 6 November 2012.

Assumption
2. It is plausible to assume that the overall value of the ‘dark figure’ of EU
fraud and other relevant offences is substantially higher than the estimated
financial loss of the cases that are known by OLAF as fraud or irregularity

'Dark figure' ('chiffre noir' or
'Dunkelziffer') is the term that is generally used for crimes that are committed
but never detected or reported to authorities. The magnitude of this dark
figure in relation to the crimes that are recorded is strongly affected by the
capacity and willingness of authorities to detect and record crime. In
particular, statistics on white-collar crimes (which these offences are) are
generally considered as very poor indicators of the overall problem. As Levi
and Burrows[70]
have stated, 'there have been some modest and intermittent attempts to
estimate the prevalence of some white collar crimes, the financial costs and
impacts of deception offences have tended to be more subject of rhetoric than
of serious empirical investigations.' 
This elevated dark figure problem with
white collar crimes is caused by various factors, such as: the inherent
secretive nature of many forms of fraud and corruption; the absence (sometimes)
of direct victims; the interest of all involved parties in secrecy of their
illegal activities; and also definitional problems which could complicate the
collection and recording of white-collar crime statistics. Also fraud
investigations are often being investigated after complaints (reactive) while
pro-active investigations are relatively rare, and risk-based investigation
processes are seldom used. As a consequence white-collar crimes remain under
the surface, unless for example an economic sector has acquired particular
political or media attention, or a fraudster becomes a big profile target for
some other reason. This is in particular problematic with EU fraud, corruption
and other offences affecting the EU's financial interests. As one of the
interviewees noted:
'EU fraud is stimulated by a window of opportunity and no
national ownership of the problem'. 
Limited political and national ownership. Law
enforcement authorities tend to focus on national crimes that have a more
populist element. The interviews in the MSs have confirmed that, generally
speaking, law enforcement of crimes against the financial interest of the EU is
regarded as a lower priority. As opposed to many forms of common crime (such as
theft, robbery, and sexual violence) there is a view that there are no direct
victims of fraud affecting the EU interests, although every EU citizen who pays
taxes of any form is a victim of the crime. The ultimate victim is seen more as
the EU as a whole. Expenditures on behalf of the EU budget are seemingly
'someone else's money'. This is analogous to tax fraud, but at least there, the
MS have a direct interest in improving their performance.
Reluctance to report. Even in cases
where offences affecting the EU's financial interests have come to the surface
at the national level, the transfer of information to OLAF could be incomplete
since Member States may have no direct incentive – or even face a disincentive
– to report fraud and corruption to OLAF (even if they are obliged to do so).
This is because any undue amount paid or unduly unpaid duty has to be recovered
from the beneficiary or debtor by the Member State. The Member State has to
bear the costs of pursuing fraudsters on behalf of the EU. 
Large variations in reporting behaviour. It was also
observed that reporting behaviour varies considerably between Member States,
which could confirm the hypothesis that the availability of data strongly
depends on the capacity and willingness of Member States to detect and record
EU fraud, corruption and other such offences. Some Member States have very low
reported irregularity and fraud rates. Other Member States report relatively
frequent cases of irregularities and fraud – this is in particular the case
with Member States such as Bulgaria, Hungary, Poland and Slovenia.[71] 
In the 2011 statistical evaluation of
irregularities, the European Commission expressed its concern over the low
number of fraudulent irregularities in relation to the payments received from
the structural funds.[72]
In particular Greece, France, but also Belgium, Denmark, Ireland, Malta, the
Netherlands, Sweden and Spain were mentioned as a source of concern to OLAF.
These results could indicate either a lower fraud detection capability or the
fact that a part of the detected fraud may remain unreported. OLAF observes
similar inexplicable variations in irregularity and fraud rates between Member
States, with regard to other EU expenditures and revenues, and between geographical
regions within Member States. 
As a consequence the high number of
reported cases does not necessarily signify that a Member State is relatively
vulnerable for irregularities or that indeed a relatively large number of
irregularities or fraudulent activities are committed.[73] According to OLAF, differences
in irregularity and fraud rates might simply reflect variations in methods of
detecting and reporting behaviour. It is, according to OLAF, 'possible that
Member States with a higher irregularity rate perform far better than Member
States with a lower irregularity rate'.[74]
Conclusion

The
dark figure of EU fraud and other offences affecting the EU's financial
interests is probably substantial – more substantial than the (already
relatively) large dark figure of 'national' white-collar crimes. This is due to
a variety of reasons: low priority of detection and prosecution of national
crimes; limited ownership of crimes related to the financial interest of the
European Unions and technical factors (no reporting below the 10.000 euro
threshold and limited reporting of VAT fraud, which is one of the major problem
areas). 

1.3         Magnitude 
As has been discussed earlier, the true
figure of EU fraud is possibly much larger. How much larger? 
The starting point for analysis is the EU
budget. In order to assess the overall magnitude of the relevant offences there
is a need to know which money from into and out of the EU budget are mainly
affected – and by what type of offences. Table 1.4 presents a breakdown of the
main EU expenditures and sources of the revenue for the EU budget in 2011. 
Table 3.4 The EU budget in 2011 (billion euro)
 Expenditures 
 1. Sustainable Growth || 53.3 
 - Competitiveness for growth and employment || 11.6 
 - Cohesion for growth and employment || 41.7 
 2. Preservation and management of natural resources || 56.4 
 - Direct aids & market related expenditure || 42.8 
 - Rural development, environment & fisheries || 13.5 
 3. Citizenship, freedom, security and justice || 1.5 
 4. EU as a global plácer || 7.2 
 5. Administration || 8.2 
 Total || 126.5 
 Total as % of EU GNI || 1.01 
 Revenues 
 GNI own resource || 95.6 
 Customs duties || 16.7 
 VAT own resource || 13.8 
 Sugar levies || 0.1 
 Other revenue || 1.4 
 Total || 126.5 
Source: www.europa.eu.

As the table shows, sustainable growth
represents the largest share of the EU budget (research, innovation, employment
and regional development programmes). Natural resources cover the second
largest portion of the expenditure (agricultural expenditure, rural
development, fisheries and the environment). Agricultural expenditures
are financed by two funds: the European Agricultural Guarantee Fund (EAGF) and
the European Agricultural Fund for Rural Development (EAFRD). The major
instruments of the cohesion for growth and employment polices (sustainable
growth component of the EU budget are the Cohesion Fund and
Structural Funds (ERDF and ESF). 
The focus in assessing the magnitude of
the relevant offences in EU expenditures will be on these five biggest
beneficiaries of the EU budget, which account for about 80 to 85% of the
overall budget. However, other items of the budget, such as resources that fund
various internal and external policies and direct expenditures by the
Commission are equally at risk.
The main source of income for the EU (75%
of the overall income) consists of a standard percentage levied on the Gross
National Income of each EU Member State – which is a Member State to EU
transfer of money. This will be excluded from our analysis, since it is a
direct transfer from the MS to the EU. The main risk areas for offences on the
revenue side are thus VAT resources and customs duties. 
1.3.1      VAT and customs fraud
The European Parliament has recently
expressed its concern about VAT fraud and the widespread evasion of customs
duties. In particular this involves the smuggling of cigarettes and alcohol
across the EU’s external borders, but also smuggling of textiles (a particular
issue in Italy). Parliament is concerned about the negative impact of this on
the financial interests of the EU.[75]

VAT
fraud
The EU’s VAT system has become vulnerable
to highly organised sophisticated VAT fraud schemes in recent years. One common
form of VAT fraud is the so called ‘missing trader intra-community fraud’. This
is where a fraudster buys goods from another EU country ‘free of VAT’ and
subsequently resells the goods to a domestic counterparty at a VAT-inclusive
price without remitting the VAT collected to the tax authority. A variation to
this basic scheme is ‘carousel fraud’ in which the same goods are repeatedly
supplied in a circular pattern. Other VAT fraud schemes involve non-EU
countries (such as missing trader extra-community fraud, carousels on imports
under customs transit and under-invoicing of imports) VAT fraud in cross-border
services and very recently VAT fraud schemes on the European carbon market,
where the transfer of emission allowances turned out to be an opportunity for
carousel fraud.[76]
As a consequence several Member States are increasingly confronted with
carousel fraud related to greenhouse gas emission allowances, which are
categorised as supplies of services within the European Union. VAT fraud types
are transnational phenomena, making it very difficult for MSs to act
individually against these fraud schemes. 
According to Borselli (2011) VAT fraud is
‘an obstacle to the smooth functioning of the single market. It has an impact
on fair competition, erodes tax revenues of the Member States and negatively
affects the EUs own resources.’[77]
VAT fraud can be labelled as an ‘indirect offence’. Member States pay a small
percentage of their total VAT receipts to the EU. The Member States’
contribution is based on 0.3% of the national harmonized VAT tax base (with a
few exceptions for MSs with a reduced rate). [78]
The VAT base is capped at 50% of GNI for each country to
prevent less prosperous countries having to pay a disproportionate amount.
The VAT resources account for around 14 billion euro of the EU
budget (2011 EU budget) – which is 11% of the total revenues.[79]
VAT fraud will result both in losses of
income for the Member States and indirectly affect the financial interests of
the EU. The wider economic and social impact of VAT fraud is considered to be
even more substantial, as Europol has stated in the 2011 Organised Crime Threat
Assessment (OCTA): ‘It distorts the functioning of the single market, accounts
for the loss of significant public revenue and affects the financing of the
European Community budget. The costs involved in Member States’ efforts in
preventing and combating VAT are also significant.’[80] 
Eurojust and Europol support Member
States' investigations in VAT‐fraud. It is generally considered that an
EPPO with the potential capability to investigate and prosecute perpetrators of
fraud against the EU’s financial interests could help overcome barriers
relating to Member States’ reluctance to initiate investigations and judicial
proceedings against perpetrators of VAT fraud.[81]

There are several estimates of the
magnitude of VAT fraud in Europe. Europol has stated that VAT fraud is more
serious than it first appears to be. A minimum of 100 billion euro is lost as a
result of VAT fraud in the European Union each year, according to Europol.[82]
This estimate seems to be in line with the main results of a recent study by
Reckon for DG Taxation and Customs Union on the VAT gap in 25 EU Member States
over the period 2000-2006.[83]
The estimates are based on a comparison of accrued VAT receipts with a
theoretical net VAT liability for the economy as a whole. The theoretical net
liability is estimated by identifying the categories of expenditure that give
rise to irrecoverable VAT and combining these with appropriate VAT rates.
According to the study, the average VAT gap of EU-25 Member States is estimated
at 12%, totalling 106.7 billion euro. PwC (2010) estimated the missing values
for the new EU countries and updated the calculation, which resulted in a VAT
gap for the EU-27 of about 119 billion euro in 2009.[84]
An econometric analysis with various country
characteristics has shown that ‘the variable found to
have the strongest relationship with the size of the VAT gap was that connected
with the perceived level of corruption in the country. The relationship implies
that lower perceived corruption is associated with a lower VAT gap.'[85] It is however important
to point out that the VAT gap does not equal the amount of VAT fraud, as the
gap figure might
include numbers on VAT not paid as a result of legitimate tax avoidance. The
VAT gap includes next to fraud, VAT evasion, avoidance and other forms of
non-compliance. 
Recently Borselli (2011) and others have
estimated that the overall volume of VAT fraud in the EU-27 can be estimated
within a range of 20 billion euro to 35 billion euro a year.[86] These estimates are based on
several sources – and include various forms of VAT fraud and customs fraud such
as missing trader inter-community (estimated total of 13 to 23 billion euro)
plus extra-community fraud, VAT fraud on tradable services under-invoicing of
imports, and specific fraud schemes such as fictitious trades in emission
certificates (estimated tax loss 5 billion euro). Borselli further notes that
VAT fraud differs from country to country, however individual country estimates
should be considered with great caution.  
Customs
duties
Next to VAT fraud, customs duties are the
second important traditional own revenue to the EU budget. The smuggling of
goods over the borders of the EU is the most common form of customs duty
evasion. In addition fraudulent declarations and other kinds of manipulation of
data relevant for the determination of the amount of customs duty are also
frequently occurring offences against the EU budget. These two forms of customs
fraud most often differ but sometimes overlap, for example smuggling of the
undeclared quantity of goods. The most widespread form of smuggling goods into
the EU is not smuggling via physical concealment of goods at border crossings
or the declaration of import of a different kind of commodity by fraudulent customs
documents, but by what is called transit fraud – the manipulation of the
transit procedure.[87]

There are no comprehensive estimates on
the magnitude of the potential overall shortfall of EU revenues due to various
forms of customs fraud. But there is a considerable literature on cigarette
smuggling – which is widely considered as one of the major cross border
criminal problems. Cigarette smuggling is a growing activity worldwide, it is
widespread and particularly well organised, which is said to cost thousands of
millions of dollars globally in lost tax revenue.[88] 
There are two types of cigarette
smuggling. The first is smuggling with contraband cigarettes which are
imported, distributed, sold in the EU in violation of the tax, duty or other
fiscal laws. The second is smuggling with counterfeit cigarettes, which are
cigarettes illegally bearing a trademark of a cigarette manufacturer that are
manufactured by a third party. It is estimated that about 65% of the seized
cigarettes in Europe are counterfeit, a figure that changes over time but was
affected by the control measures taken against complicit major firms. According
to calculations by KPMG (2012) the total counterfeit and contraband cigarettes
within the EU accounted for 10.4% of total cigarettes consumption in 2011, up
from 9.9% in 2010 (the total consumption in 2011 estimated at 629 billion
cigarettes). The annual EU-wide tax loss due to cigarette smuggling is
estimated to be approximately 11.3 billion euros. [89] 
These figures are in line with estimates
used by Europol. The economic impact of cigarette smuggling is significant,
according to Europol: ‘It represents a substantial loss to national and EU
budgets, estimated at around 10 billion euro per year, and damages the
interests of legitimate manufacturers and retailers. Cheaper and smuggled
products also constitute a marked threat to EU efforts on tobacco control, and
by extension the objective of reducing consumption’.[90] According to
Europol, about 10% of this missing 10 billion euro of income to the Member
States due to cigarette smuggling – which is about 1 billion euro – is missed
revenue for the European Union budget. 
In conclusion, VAT fraud and evasion of
custom duties are the two most important sources of a shortfall in revenue in
the EU budget. These two traditional own resources account for respectively
18.8 and 16.7 billion euro in revenues (2011 EU budget). The EU-wide loss to
various forms of organized VAT fraud is recently estimated at 20 to 35 billion
euro a year. 

There
are no comprehensive estimates of the overall losses due to customs fraud.
However, cigarettes smuggling, which is one of the major issues of concern, is
estimated to cost 11.3 billion euro of income to the Member States, of which
about 1 billion euro would be missed revenue for the EU budget.

1.3.2      Agricultural and structural funds
For on analysis of the magnitude of
crimes affecting EU expenditures the focus will be on the two major
beneficiaries of the EU budget: the Agricultural and Structural Funds.
Agricultural and Structural funds are dispersed by an extended system of
subsidies, grants, incentives, aid, premiums and other kinds of expenditures,
which are, by their very nature vulnerable to misuse. Durdevic (2006) observed
that ‘the EU budget can be characterised as a subsidy budget, and according
to criminological investigations, subsidies are a highly criminogenic financial
instrument and very subject to criminal behaviour.’[91] Durdevic continues that ‘apart
from the criminogenicity of subsidies, the European system of managing and
allocating subsidies has a criminogenic effect’ due to the vast and
complicated managing and control system of the EU funds that comprehends the EU
level and authorities in the MSs at national, regional and local level and is
complicated by numerous specific EU and national regulations. As one of the
interviewees stated, ‘there is a window of opportunity and almost no control.’
Common forms of fraud with resources of
the structural funds include a widest imaginable variety of offences. With agricultural
funds offences are related to subsidies of the production of crops, export
subsidies and storage subsidies and subsidies for the production and
consumption of certain agricultural goods.  
There are no empirically well-founded
estimates on the real magnitude of fraud, corruption and other offences with EU
expenditures. Nor are there top-down (macro) estimates (as with VAT
fraud) available. Expenditures of the EU budget involve a large number of
beneficiaries of the EU funds, complex management and control systems, there is
a wide range of potential offences and variety of costs of these offences and
there is a lack of reliable data on the use and misuse of EU funds and its
actual effects on the local or national economy. 
In order to acquire a more complete
picture, data have been collected on fraud and corruption (national data and
related to EU money flows) in ten selected Member States. The objective of this
exercise was to identify (if available) data on the nature and size of offences
at MS level, and to obtain an insight in general recorded statistics on
‘national’ fraud and corruption – this could serve as a proxy of the possible
scale of offences in this Member State. 
There are perceptions of general levels
of fraud and corruption in the individual Member States and in the EU as a
whole, and there are even systematically collected perceptions such as the
Transparency International Corruption Perception Index and the Eurobarometer
studies. However, these are only anecdotal and fragmented empirical findings. 
Official collected data on fraud and
corruption do not seem to be a reliable indication of the actual occurrence of
white-collar crimes. For example, one German expert considers
that undetected cases of fraud in the public sector amount to 400 % - 900 % of
the officially reported cases.[92] According to
another German study only 5 % of the corruption cases are reported.[93]
There are no official estimates of undetected cases of obstruction of public
procurement. However, it is estimated that obstruction of public procurement in
the building industry causes damages of 5 billion euro per year.[94]
Comparisons between Member States cannot
be made validly, since the methods of collecting data differ across Member States.
Member States do not always separate fraud in general from fraud affecting the
national budget. Many Member States do not distinguish clearly between crimes
against the national and against the EU-budget. Many Member States do not
collect separately or systematically data on crimes against the financial
interests of the European Union. Even comprehensive data on the beneficiaries
of EU funds are non-existent. 
There is a need for improved public
available data on EU expenditures in the MSs and national data on offences
affecting the EU's financial interests. These findings are in
line with the recently published report ‘Deterrence of fraud with EU funds
through investigative journalism in EU-27’ by the European Association of
investigative Journalists and commissioned by the European Parliament. That
report states that ‘there is a loud call, from journalists and EU officials
alike, for uniformity in gathering, cataloguing, collecting, archiving and
reporting of data, to be mandated by the European institutions and sanctioned
for non-compliance’.[95]

'What
if' estimates 
Intuitive estimates of losses by offences
against the EU budget have ranged over the last decades from 1 to 20% of the
overall EU budget.[96]
There is a generally accepted expectation that the actual figure of lost
resources to the EU budget is five to ten times larger than the 1 to 2% of
cases that are brought to light. Some interviewees simply stated ‘we don’t
know’. 
Therefore several ‘what if’ scenarios
have been constructed that are based on these generally supported estimates.
The lower bound is 0.5 to 2% of the overall expenditures. This is based on the
fraud rate and irregularity rate of the OLAF notifications over the past few
years, and the error rate identified by the European Court of Auditors, as
discussed in the previous paragraphs. 
For the upper bound three possible
scenarios have been where percentages of the EU budget expenditures on the
Agricultural and Structural funds is lost (abused, misappropriated) through
criminal misconduct:
 ·         
0.5
to 5% (low range);
 ·         
1
to 10% (mid-range);
 ·         
2
to 20% (high range).
The prevalence of offences is not equally
distributed across the EU. Some Member States are more vulnerable to
misconduct with EU funds than others. There are different patterns of crime in
different geographical areas (jurisdictions, regions) and different attitudes
and norms towards and levels of fraud and corruption in different regions of
the European Union. Under the low range scenario 0.5% (in the lowest risk Member
States) to 5% (in the highest risk Member States at the other side of the
spectrum) of the EU expenditure is lost due to criminal conduct. Under the
midrange scenario 1% up to 10% is lost. In the high range scenario 2% to 20% is
lost. 
The main results are given in the table
below. A total of 4 billion euro will potentially be lost annually. If it is
assumed that 0.5 % (in low risk MSs) to 5% (in the highest risk MSs) is lost
through fraud, corruption and other relevant offences, 8.5 billion euro could
potentially be lost under a 1 – 10% scenario. Seventeen billion euro will be
lost if it is assumed that 2 – 20% will be subject to fraud, corruption and
other relevant offences. 

Present
knowledge is not good enough to determine which scenario is the most convincing
one. However, the table reveals that even in a conservative scenario with a
maximum loss of 5% in the most risk full Member States potentially 4 billion
euro (4% of the allocations of the five large agricultural and structural
funds) is probably at risk.

Finally it should be noted that other
expenditure items of the EU budget are equally at risk. In particular
pre-accession funds and development aid, but also direct expenses for EU staff
seem to be vulnerable to fraud and corruption, as can be concluded from the
notifications cases from OLAF. 
Table 3.5  Potential annual loss in Agricultural funds, Structural and Cohesion
funds
 What if scenario || Million euro || % of allocations 
 Low: 0.5 - 5% scenario || 4.066 || 4,0% 
 Mid: 1 - 10% scenario || 8.476 || 8,1% 
 High: 2 - 20% scenario || 16.952 || 16,2% 
Conclusion

There
are no reliable estimates of the loss of European taxpayer money due to
criminal conduct related to the expenditures of the EU budget. However widely
used estimates range from 2 to over 20%. These risks are obviously not equally
spread over the EU Member States (differences in norms and values to the proper
use of public money, differences in effectiveness of control systems). Even if
we adopt a cautious approach in which a minimum of 0.5% will be lost in the
most ‘safe’ Member States, and up to 5% in the MSs where corruption and misuse
of public money is more widespread. A total of 4.1 billion euro of European
money might be at risk (4.0% of the allocations). These calculations are based
on the average annual budget of the agricultural and structural funds, which
account for 80 to 85% of the EU expenditures. 

1.3.3      Other direct costs and welfare effects
Finally it should be noted that the
ultimate ‘prejudice caused to the European taxpayer’ might be larger than these
direct financial losses as they are calculated or estimated. Criminological
research typically differentiates between three main components of costs of
crime:
 ·         
Direct
costs or loss through the criminal, fraudulent or corrupt activity (which is a
transfer from the victim to the fraudster or corrupt operators); 
 ·         
Indirect
or external costs and side effects (which are costs beyond the offence itself);
and 
 ·         
Costs
of preventing and combating crime. 
Even the direct costs could consist of a
variety of costs and effects beyond a direct financial loss (through
misspending, embezzlement, delivery of goods and services at inflated prices)
to the EU taxpayer. Direct costs of crimes adversely affecting the expenditure
side of the EU budget typically also appear in the form of weak or non-performance
of activities, market distortions or financing of wasteful projects. As a
result the real prejudice caused to the European taxpayer could be well beyond
the monetary value of the direct financial loss. 
Direct costs could include:
 ·         
Unlawful
appropriation and embezzlement of EU money;
 ·         
Delivery
of goods and services at inflated prices;
 ·         
No
delivery or partial delivery of the promised goods and services;
 ·         
Poor
delivery (low quality) of goods and services; 
 ·         
Market
distortions (delivery of goods and services at the right prices but by the
'wrong suppliers' through corruption, conflict of interest, favouritism); and
 ·         
Financing
of wasteful projects (misspending, see box 1.2). 
These direct costs often appear in
combination. In some cases the direct financial costs could be limited or even
zero while fraud and corruption manifests themselves through conflict of
interest and favouritism or poor delivery of goods and services. 
Indirect costs (the costs beyond the
offences itself) of crimes affecting the EU budget) should be taken into
account as well. Indirect costs cover a wide variety of tangible and intangible
effects such as environmental effects (bad delivery of goods and services),
social costs (particular target groups that are disadvantaged), health costs
(due to bad or no delivery of procured goods and service[97]) and in particular loss of
reputation of formal and informal institutions (including credibility of the
European Union and its institutions). These effects cannot be meaningfully
monetised. 
Measuring the true costs of EU fraud and
corruption in one single number is an ‘idea fixe’ - even if we would possess
ample empirical evidence. It is a movable construct because we know where to
start counting but we do not know where to stop counting. An alternative could
be to construct a plausible range of the EU money that is possibly at risk due
to fraud, corruption and other offences. 
Conclusion

The
real cost of crimes affecting the financial interest of the Union is higher
than the financial value of the shortfall in revenue or loss of EU funds. For a
full assessment of the prejudice caused to the European taxpayer effects on the
quality and delivery of goods and services, market distortions, and
expenditures on wasteful projects due to conflict of interests should be added.
In addition intangible long term welfare effects – such as a loss of
credibility of the EU and its institutions – should be taken into account as
well. 

Box 1.2 Fraud and waste
Fraud
and corruption and waste of EU money are often perceived as interconnected
aspects of the same problem of insufficient protection of the EU taxpayers'
money. For example the UK-based independent think-tank Open Europe identified a
few years ago infamous lists of ‘100 examples of EU fraud and waste’ with EU
funds. Their publication illustrates the ‘on-going problem of poor financial
controls within the EU’. It should draw attention to what Open Europe called
the ‘Byzantine spending schemes’ of the Common Agricultural Policy and
Structural Funds. Open Europe’s list also illustrates the thin line between
fraud and waste of EU funds.
Similarly
the Financial Times created, in collaboration with the Bureau of Investigative
Journalism, a database that collates information on 646,929 beneficiaries of EU
structural funds across all 27 Member States, revealing 'a trail of undetected
waste, missed opportunity and even fraud'. It has revealed how big businesses
are accessing grants, despite the fact that the structural funds are intended to
provide a helping hand to Europe’s weakest members and smallest businesses. It
also shows how EU funds have poured cash into the hands of for example the
Italian mafia. ‘Taxpayers' money has been lost to fraud, plundered by organised
crime or simply wasted on questionable projects’, according to the
investigative journalists. 
Sources:
Open Europe, 100 cases of EU Fraud and Waste, November 2008; Open Europe's 50
new examples of EU waste, November 2009; Another 50 examples of EU waste,
November 20010; Financial Times, Bureau of Investigative Journalism, ‘Europe’s
hidden billions’.
Case C. Regional
Development Fund
A dog
fitness and rehabilitation centre 
In
February 2009, a Hungarian IT firm “Gyrotech Commercial and Supplier Ltd” was
granted around 411,000 euro from the EU’s Regional Development Fund for a
project to “improve the lifestyle and living standard of dogs”. The company
used the funds to build offices for the rehabilitation centre. The offices
have, however, remained empty and overrun with weeds and there is no dog centre.
Despite this, in April 2009, the firm received a further €13,307 from the EU
for a Web-Shop management project, unrelated to the proposed dog rehabilitation
centre. In August 2010, local authorities initiated a federal investigation
into Gyrotech Ltd.'s activities and funding. 
Source:
Open Europe, Briefing Note, 10 November 2010.
Case D. Development
of the Margaret Bridge and related transport systems
Inflated
prices and non-delivery of requested modifications
The
city council of Budapest originally estimated the reconstruction costs of the
Margaret bridge for around 13 billion HUF. The state secured 6bn HUF of funding
while the EU offered another 6 billion HUF. After the procurement procedure had
been completed, it turned out that the two offers summed up to almost the
double of the originally anticipated amount. However the reconstruction had
been started by the Mh-2009 consortium (made up of Közgép Zrt, Strabag, A-Híd
Zrt. – these companies have been involved in several dubious construction
projects). In 2009, the Prosecutor`s Office started an investigation in the
project but the investigation was ceased in 2012 since the police revealed no
misconducts. In 2009, news portal Index.hu reported that the city council had
violated the EU funding contract because one part of the designed cycle way had
not been built and no modification requests had been initiated either. The
project is often referred to as one of the biggest corruption cases in Hungary
of the last couple of years. 
1.4         Conclusions
It is widely reported that the interests
of the European Union are not sufficiently protected across the EU Member
States. Revenues are lower than they should be, due to in particular VAT fraud
and customs and trade fraud. Expenditures are ‘lost’ due to embezzlement,
fraud, corruption, and other offences with EU funds. 
Irregularities and
suspected fraud 
Data as they are collected and analysed
by OLAF represent the lower boundary (base line) of the overall problem.
Irregularities that are labelled as ‘suspected fraud’ had an estimated
financial impact of 404 million euro. This figure is somewhat lower than in
2010 and somewhat higher than the average over the past six years. A report can
also be falsely labelled as 'fraudulent'. Suspected fraud is not yet proven fraud.
Another 1.494 million euro was reported
as 'non-fraudulent irregularity. It appears from the information provided by
OLAF and our own interviews in the Member States that a (large) majority of
these irregularities indeed represent administrative errors and other technical
omissions. However it should be noted that an unknown number of these
notifications is for various reasons wrongly not labelled as fraudulent.
Member States do not distinguish in an
uniform way between ‘irregularity’ and ‘fraud’ (and sometimes make no
distinction at all), because it is not clear in many cases if an irregularity
was committed intentional or just an administrative error, and because Member States
are sometimes reluctant to label an irregularity as suspicious. The total financial
impact of irregularities (fraudulent and not as fraudulent reported) was 1.9
billion euro in 2011 (also an increase against 2010 and a slight decrease
against the average over the past six years). 
Annual increases or decreases of the
reported irregularities and suspected fraud cases are mainly caused by
technical factors such as changes in the management of reporting and control
systems, the cyclical nature of EU programmes, changes in the reporting
behaviour of Member States etc. They cannot be directly attributed to changes
in the occurrence of the underlying problem, nor can they be used to make
intra-Member State comparisons. 
The dark figure
There are good reasons to assume that the
magnitude of the actual figure is larger. OLAF is facing what we could term ‘a
double dark number’ problem since it is dependent not only on the Member State
willingness and capability to detect and record crime and but also to transfer
it to the competent European bodies. This detection of offences within the Member
States and the transfer of cases to EU bodies is for several reasons (highly)
incomplete: 
1.      Criminological
research has proven that statistics on white-collar crimes (which these
offences are) are, for various reasons, very poor indicators of the magnitude
underlying problem;
2.      The detection
of such offences in particular has a very low priority in the Member States.
Law enforcement authorities tend to focus on national crimes that have a more
populist element;
3.      Member State
authorities face several disincentives to transfer cases to OLAF and other EU
bodies (although they are obliged to do so);
4.      Offences
below the threshold of 10 000 euro are not reported. This fails to address
whether multiple frauds behind this threshold are actually systemised, in
particular in regions or specific economic sectors across the Union, where
small acts of fraud and corruption are considered as 'normal';
5.      VAT fraud is
not systematically reported to OLAF. VAT fraud is one of the major (indirect)
crimes against the EU, according to recent quantitative estimates and based on
interviews in the Member States;
6.      Interviews in
the Member States have shown that in particular 'conflict of interest' is a
major problem in large scale and sophisticated fraud and corruption schemes
(including fraud and corruption against the EU budget). Conflict of interest is
difficult to prove and not in all cases formally against the law;
7.      These
offences could also lead into ‘waste’ of European taxpayer's money. Wasteful
use of EU money is perceived by the general public as an issue in itself, which
however could be interconnected with corruption, conflict of interest, fraud
and other unlawful activities. There is a thin line between waste and fraud and
waste and conflict of interest. 
In addition in order to monetise all
costs of the insufficient protection of the EU financial interest both direct
costs and indirect costs (multiplier effects, externalities, welfare effects
etc.) should be taken into account:
 ·         
Direct
costs can cover various types of losses to the European taxpayer from sheer
embezzlement or various forms of tax fraud, to delivery of goods and services
at inflated prices, against lower than agreed quality standards or no delivery
of goods and services at all; 
 ·         
Indirect
costs (externalities, welfare effects, multiplier effects) can cover an even
wider variety of tangible and intangible effects such as market distortions
('bad competitors drive out good ones'), multiplier effects on the local
economy, environmental effects, social costs (particular target groups that are
disadvantaged), health costs (due to bad or no delivery of procured goods and
service), or reputation of formal and informal institutions (including impacts
on confidences of the MSs in the European Union); and
 ·         
In
particular indirect costs can be significant but difficult to monetise. In some
cases the direct costs of an offence could even be zero while the indirect
costs are substantial, for example favouritism and conflict of interest in
granting EU subsidies or procurement with EU funds. 
All in all it must be concluded that
measuring the true costs of EU fraud and corruption in one single number is an
‘idea fixe’ - even if there would be ample empirical evidence. An alternative
is to fill in some of the blind spots in the 'dark figure' and construct a
plausible range of the EU money that is possibly at risk due to fraud,
corruption and other offences. 
For assessing the real order of magnitude
some plausible assumptions of the money amount that is not spend on the
approved lawful purposes are necessary – and the multiplier and other indirect
effects on the local, national or European economy are excluded. An overview of
this exercise is presented in table 1.6:
 ·         
VAT
fraud, emission fraud and related extra-community fraud and customs fraud is
recently estimated by various sources at an annual volume of 20 to 35 billion
euro a year. VAT fraud is an indirect fraud. Member States are obliged to
recoup about 0.3% to the European Union;
 ·         
The
annual losses through cigarettes smuggling are estimated to cost 11.3 billion
euro of income to the Member States, of which about 1 billion euro would be
missed revenue for the EU budget;
 ·         
For
the expenditure side three 'what if' scenarios have been presented. These
calculations are based on expenditures with the agricultural, structural and
cohesion funds, which represent 85% of the EU expenditures;
 ·         
It
is assumed that the potential losses for these five funds could range from
0.5-5%, 1-10% or 2-10% of the allocations (depending in the risk of abuse in
the individual Member State). The assumed percentages are however based on
previous literature on EU fraud and intuitive expert opinions;
 ·         
A
total of 4 billion euro will potentially be lost annually, if it is assumed
that 0.5 % (in low risk MSs) to 5% (in the highest risk Member States) is lost
through fraud, corruption and other offences. Eight and a half billion euro
could potentially be lost under a 1 – 10% scenario. Seventeen billion euro will
be lost if it is assumed that 2 – 20% will be subject to fraud, corruption and
other offences;
 ·         
The
present knowledge is not good enough to determine which scenario is the most
convincing one or if any of them at all mirrors the reality correctly; and
 ·         
Other
items of the budget, such as resources that fund various internal and external
policies (development and pre-accession funds) and direct expenditures by the
Commission are quantitatively less important but relatively (at least) equally
at risk. 
Table
3.6. Overview of potential annual losses due to offences affecting EU revenues
and expenditures
   || Estimated potential impact 
 VAT fraud || 20 – 35 billion euro per year (only a minor part of this amount is attributed to the EU budget ) 
 Cigarettes smuggling || 11.3 billion per year (about 1 billion euro is a loss to the EU budget) 
 Other customs fraud || No estimates available 
 Offences with agricultural and structural funds (85% of the budget) ||   
        Low           0.5 - 5% loss scenario || 4.1 billion euro 
        Mid           1 - 10% loss scenario || 8.5 billion euro 
        High          2 - 20% loss scenario || 17.0 billion euro 
 Other (direct expenditures, development aid, pre-accession funds etc.) || No estimates available 
Finally it must be
stressed that the availability of public data on EU expenditures (tracking of
the ultimate beneficiaries) and separate data in the Member States on offences
affecting the EU's financial interests is a major shortcoming in the current
framework. Availability of sound data will help public awareness (including
media attention and pressure), result in better detection and more cases for
the law enforcement authorities (including the possibility of a future EPPO)
and will be helpful in constructing better grounded estimates on the overall
prejudice cause to the European taxpayer. 
Case D. Shell Company to obtain
EU funding 
The
company did not meet the obligations provided by the EU community programs
In this case it is
alleged, amongst others, that irregularities had occurred in the costs claimed
by the company A, based in Italy, under two different Community programs: (a)
the first financing was granted in the framework of Plurifund Operational
Program (POP) Calabria 1994/1999 measure 2.1 action B with a public amount
funded of 4.443.740.000 ITL (with an EC contribution up to 2,222,187,000 Lit
(1,147,500.00 €); (b) the second financing was granted in the framework of ROP
(Regional Operational Program) Calabria 2000/2006, measure 4.2 action C, with a
Total amount of 2,189,000 € of which 1,054,356 € certified to the EC. 
According to the
information provided by the Judicial Authorities, the company in question, with
its legal seat in northern Italy and a production facility based in Calabria
region, was allegedly used as a shell company to obtain EU funding. In order to
be eligible for the funding the company A, which was supposed to manufacture
shoes, had to create a certain number of new jobs, however, according to
witness statements, there were serious doubts as to the creation of new jobs,
as the company never launched full-scale production. 
Investigation revealed
that the company A did not meet the obligations provided by the Community aid
scheme as: the level of employment at 57,97 %, was under the minimum
requirement of 70%, as per indicator nr.2 of the measure; ISO 14001 certificate
was not issued (indicator nr. 6 of the measure); instead of hiring a certain
number of employees in the production facility in Calabria, part of the
work-force was “de facto” assigned to the company’s legal seat; social security
contributions were not paid for some employees; no activation of the
shoe-producing machine had taken place. As the company did not comply with the
above mentioned indicators, the financing was subject to full recovery. In
these circumstances the amount had to be considered as unduly paid.
Source:
OLAF.
Case E. Fraud with EU
subsidised tobacco
No
tobacco production. Sales of raw tobacco without actual delivery.
The market situation
makes it necessary to support foreign tobacco producers by means of a premium
scheme. Such schemes should be managed effectively, based on cultivation
contracts concluded by the producer and the first processor; the setting of the
purchase price of the tobacco delivered to the processor plays a key role in
determining the amount of aid to be transferred.
An investigation uncovered
sales of raw tobacco in which no tobacco was actually delivered. These
operations, which received EC subsidies for the production of tobacco, were
completely fictitious. The tobacco on paper was declared as being sold to
France, Austria, Belgium, Luxembourg, Romania. Actually the tobacco sometimes
did not exist in other cases was sold to other producers in order to receive
another time the prime.
More specifically, two
main fraud schemes have been discovered:
1.       
“Tobacco carousels” were created, with one producer taking
tobacco to the processor who returned it to another producer who, again,
brought the same tobacco to the processor and so on;
2.       
Shipments to foreign companies were fabricated in order to
conceal from the Italian control bodies that the raw tobacco did not exist, and
to avoid paying value added (10% of the value).
From transport
documentation resulted that some lorries were in the same time in two different
places (100 km distant); Checks at the highway companies showed that lorries
that should be in other countries were in fact circulating in Italy; Declared
quantities of tobacco which were not fitting in the vehicle declared for the
transport of the goods. Transports carried out with small cars declaring not
compatible volumes of tobacco. Many transporters have not confirmed to have
carried out most of the operations under investigations. False weighing of
tobacco executed at the processor companies. There was inconsistency between
the plates reported in the registry of the processing companies and the
documentation of transport. Some owners of lands in which the tobacco was
supposedly grown did not confirm any production of tobacco. There were false
stamps on transport documentation.
Source:
OLAF.
Case F. Centralised expenditure
Unlawful
acquisition of labour and travel expenses by a member of the European
Parliament
An MEP asked the
European Parliament’s administrative offices to pay the maximum monthly
secretarial expenses, an amount greater than the total expenses incurred under
the employment contracts concluded with his assistants, thereby circumventing
the system of prior authorisation and disregarding the principle that the sum
must correspond to the amounts agreed in the contracts. 
Moreover, he gave his
place of residence as the town X in the MS A, when he was actually residing in
the town Y in the MS B with his own family. This was his centre of interests
and the place of work of his secretaries, for whom he drew up permanent
employment contracts as parliamentary assistants and who included his wife and
other two persons (including the one designated as the third recipient of the
expenses for assistants referred above). He also gave this address (town X) for
correspondence from the European Parliament and it was generally his point of
departure when he travelled in his capacity as Member of the European
Parliament. 
By these actions he: (i)
deceived the administrative and accounts offices at the European Parliament
into paying out monthly the maximum amount permissible for his secretarial expenses,
which the offices paid out monthly on the basis of the total amounts agreed in
the employment contracts; (ii) deceived the same offices with regard to the
flat rate reimbursement of his travel expenses, which would have been higher if
he had actually resided in the town X rather than in Y.
By these criminal
actions he unlawfully acquired the sum of €201 422.50 in secretarial expenses,
i.e. the difference between the maximum amount permitted and paid to him and
the total amount paid to his assistants under the terms of the contracts
submitted to the administrative offices, and €46 550.88 in travel expenses,
i.e. the difference between the amount paid on the basis of his claim that he
resided in the town X and the amount that would have been due had he declared
his place of residence as the town Y.
Source:
OLAF.
Case G. Customs fraud
Two
different bills of lading for one shipment
Following the analysis
of statistical data of trade flows, a sudden and sharp increase of import of
garlic from Cambodia was noticed, this phenomenon being very similar to the
ones recorded in the past from Bulgaria and from Jordan.
Statistics indicated
nearly 1800 tonnes (T) for 2003 and 2004, all imported into Italy. Therefore,
the evaded customs duties at the time of the assessment were estimated
approximately at €2 200 000.
In such case, it was
necessary to get the official export statistics concerning Cambodia. These
referred to exports under CN Code 07 03 2000 (fresh garlic) in 2003 and 2004 to
Italy (totalling 1841 T), but also, in the same period of time, to the UK
(totalling 1046 T). It was verified that Cambodia did not have the capacity to
produce such quantities and that most likely these were just transhipment
covered by Cambodian Certificates of Origin form A.
Italian Customs provided
with copies of the documents presented at customs clearance. The Ministry of
Commerce in Phnom Penh, on request of the Italian Customs authorities, had
carried out post verification controls on all 30 Certificates of Origin Form A
presented at customs clearance in Italy and had confirmed their authenticity.
In the course of a
criminal investigation in Naples it was established that for each shipment two
different bills of lading existed (one covering the part Qingdao-Sihanoukville
and the other Sihanoukville-Naples) and that two different Cambodian companies
appeared on these documents. From the documents, the Chinese supplier was also
identified. Source: OLAF.
Case H. Textile smuggling and
money laundering
Smuggling
and underestimation of the value to avoid custom fees
The Appellate
Prosecution Office in Warsaw has been conducting investigation against eight
suspects charged of smuggling textile goods into custom zone of the European
Union, subsequent sale of the goods without paying VAT and laundering of the
proceeds of tax evasion.  
According to the
findings of the investigation, between 2008 and 2011 a group of Vietnamese
citizens and Polish citizens of Vietnamese origin, carried out on large scale
the trade of clothes and other textile goods imported from East Asia. 
As it was established,
the clothes were imported from China but the value of imported goods was
massively underestimated at the moment of entering EU’s custom zone in order to
avoid high custom fees. Imported commodities were transported from Germany to
Poland and sold by retail sellers, however the sale was not declared for
purpose of charging VAT, so that the payment of VAT was eventually evaded. 
Acquired money were
exchanged into Euros and US dollars in the local bureaux de change and
transferred to suppliers of the goods in China and relatives of the Vietnamese
tradesmen. The money was distributed by means of bank remittances to designated
banking accounts opened for Chinese and Vietnamese legal entities and natural
persons. A part of the money were transported in cash by couriers and handed
over to members of Vietnamese minority residing in countries neighbouring to
Poland.
For the time being, no
further details of the case can be revealed due to the rule of secrecy of investigation.

Source:
Poland.
Case I. Hidden consultants with
inside information in EU tenders
In 2007 and 2008 OLAF
discovered widespread fraud concerning tender procedures of the EC. In this
case, consultants sold illegally obtained inside information on procurement
assignments to clients that wanted to obtain these projects. In addition, they
influenced the preparation of these assignments within the Commission. Acting
as intermediates, these consultants had no contractual relationship with the EC
which made them so-called “hidden-consultants”. Only after a while, OLAF
discovered that this practice was actually a systematic phenomenon and it was
revealed that other cases that previously were handled separately by OLAF
constituted this type of fraud.
Source:
OLAF, Eleventh operational report of the European Anti-fraud Office (2011).
Case J. Research that never
took place
In 2007 OLAF suspected
fraud by company networks involved in EU-funded research projects, by demanding
compensation of expenditures that had never occurred. The networks were
characterized by a vague and complex organizational structure, including
fictional companies, operating in various countries. These cases where
considered as highly complex as they affected many projects, many legal entities
were involved and different legal structures and contractual rules applied. For
years, this type of fraud was not discovered. 
Source:
OLAF, Eleventh operational report of the European Anti-fraud Office (2011).
Annex 4
– Cost-benefit analysis
1.1         Introduction
This chapter presents the results of the
Cost Benefit Assessment (CBA) of the options that focus exclusively on
enhancing the protection of the EU’s financial interests. First the assessment
of the benefits (per option) is described, followed by the presentation of
detailed information on the key costs elements linked to the different policy
options. 
This CBA is very much 'pushing the limits'
of what is possible within a CBA, due to the fact that: 
·     
The
data available is known to be seriously incomplete (dark figure problem in
estimating the magnitude of crimes against the financial interest of the
European Union) and subject to all sorts of biases;
·     
The
options leave a certain room for interpretation, moreover unlike for example an
infrastructure project the outcome - and thus the return on the investment
involved - clearly depends heavily on how well an EPPO operates in practice. 
·     
The
Treaty provides the possibility of setting up the EPPO by enhanced cooperation.
An EPPO based on enhanced cooperation will not change the principles of this
CBA but it will, of course, change the numbers both on the costs and benefit
side. There is also the consideration of displacement of crime to the
non-participant countries which at least in principle would need to be taken
into account.
·     
The
decision on the location of the EPPO has not yet been taken. As a result it has
not been possible to ascertain the concrete (administrative) integration
possibilities and their associated costs and benefits. This would require a
further in-depth analysis.
As a consequence, key parts of the analysis
are based on assumptions (or scenario approaches).
The EPPO is expected to bring significant
benefits by streamlining procedures and cutting back duplications in the
current processes hence having not only an impact on the efficiency of
operations but also on the number of prosecutions and convictions. The CBA has
focussed on the situation in which the full potential of EPPO will be realised,
following pre-defined working assumptions. To test the robustness of the CBA
the sensitivity of the outcomes has been assessed by using a more conservative
set of assumptions. 
1.2         Implementation
of the options
The following policy options have been
assessed in detail:
·       
Non-regulatory
actions only (option 2);
·       
Strengthened
Eurojust (option 3)
·       
Creation
of an EPPO unit within Eurojust (option 4a);
·       
Creation
of College-type EPPO (option 4b);
·       
Creation
of a decentralised EPPO with a hierarchical structure (option 4c);
·       
Creation
of a centralised EPPO with a hierarchical structure (option 4d).
It is assumed that 27 Member States will
participate in an EPPO.[98]
The expected start-up of the EPPO will be 2015 whilst implementation of option
2, non-regulatory actions only, is expected to start in 2013.[99] It is anticipated
that the first half year of operation will mainly be focused on start-up of
operations whilst full operation can start in the second part of 2015. 
Estimated
caseload and convictions 
In order to monetise the benefits through
possible efficiency and effectiveness gains a calculation of the expected
caseload and the resulting number of prosecution and convictions is required.
As mentioned before no structured information is available to estimate the
number of offences affecting the EU's financial interests currently being
prosecuted and convicted. Therefore assumptions and estimates on the expected
impact of the options need to be made. 
It is estimated that the anticipated
potential caseload of 2500 cases per year[100]
could be taken up by in total 400 investigators and 60 prosecutors (FTEs). This
follows the estimation that the case load per prosecutor is around 40 cases per
year[101]
taking into account the full potential efficiency and effectiveness gains of
EPPO. In addition a caseload of 6 cases per investigator is assumed. The ratio
investigators and prosecutors to support staff is estimated at about 5:1. 
The EPPO is also expected to lead to an
increasing number of prosecutions and convictions. In option 4c and 4d these
are expected to be highest. Again, a reliable estimate is difficult to give as
there is no precedence for the EPPO. Based on the condition that the EPPO would
indeed create a highly effective organisation, the working assumption has been
that in options 4c and 4d two-thirds of the cases will be prosecuted, which
will lead to much higher numbers of convictions. The rate of prosecutions and
convictions is expected to be lower in the other options, as they will not
fundamentally address the weaknesses that have been identified in the current
framework.. 
Improvements in the recovery rate are
expected to roughly proportionate to the increases in the number of
convictions. As regards deterrence, it has been assumed that a 10% increase in
the number of convictions would lead to a 1% decrease in the annual damages
suffered, through the combined effect of deterrence and higher numbers of
convicted fraudsters[102].
This deterrent effect is assumed to be effective from 2020, that is, after a
number of years of increased rates of successful prosecutions. The following
table presents the outcomes of these assumptions.
Table 4.1. Assumptions per option
   || Option 1 Baseline || Option 2  Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Caseload || 2500 || 2500 || 2500 || 2500 || 2500 || 2500 || 2500 
 Prosecution || 1250 || 1250 || 1250 || 1250 || 1250 || 1667 || 1667 
 Conviction || 625 || 675 || 700 || 725 || 725 || 1250 || 1200 
 %-point change in the rate of recovery of funds || - || 0,5 || 0,75 || 1,0 || 1,0 || 5,0 || 4,5 
 % of additional deterrence ||   || 0,8 || 1,2 || 1,6 || 1,6 || 10 || 9,2 
Envisaged
staff allocation
The table below shows the envisaged staff
allocation between national authorities and the EPPO per option.[103] 
Table 4.2. Staff allocation
   || Option 1 Baseline || Option 2  Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Investigation || NLEA 400 || NLEA 400 || NLEA 400 || NLEA 220 EPPO 180 || NLEA 220 EPPO 180 || NLEA 220 EPPO 180 || EPPO 400 
 Prosecution || NP 60 || NP 60 || NP 60 || EDP 36 EPPO 24 || EDP 9 EPPO 51 || EDP 36 EPPO 24 || EPPO 60 
 Support staff || NLEA 90 || NLEA 90 || NLEA 90 || NLEA 45 EPPO 45 || NLEA 45 EPPO  45 || NLEA 45 EPPO 45 || EPPO 90 
Abbreviations: NLEA (National Law Enforcement
Authorities), NP (National Prosecutor), EDP (European Delegated Prosecutor) 
*The 27 members of the EPPO college would also act as
European Delegated Prosecutors
1.3         Estimating
the financial costs 
Financial costs cover: 
1.    The initial investment costs of setting up an EPPO to be covered by
the EU;
2.    The annual administrative and operational costs of the EPPO such as
staff expenses, fixed asset related expenses[104],
IT expenses and operational expenses related to the investigation and prosecution of (an increased number
of) offences;
3.    The (indirect) costs (savings) at Member State level related to the
investigation, prosecution and conviction of an increased number of cases.
These costs will cover, among others, costs of national investigative
authorities, national prosecutors, courts, and increased costs of imprisonment.[105]

4.    (Indirect) Costs (savings) for adjoining EC institutions (in
particular Eurojust, OLAF and the European Court of Justice).[106] 
Possible
functional integration
The EPPO will exercise some functions that
are currently the responsibility of OLAF and Eurojust, and should be
established at minimal costs by integrating  the corresponding parts of these
other bodies in the new EPPO. Both organisations have also clear other
functions which will not be taken over by the EPPO such as pure administrative
investigations and coordination of other offences. The following assumptions
have been made:   
·     
At
least 67% of current OLAF investigating/intelligence staff is involved in
administrative investigations leading to criminal proceedings.[107] Under options 4a to
4d, some or all of these staff would be transferred to the EPPO in line with
the transfer from OLAF to the EPPO of the corresponding functions. 
·     
Offences
affecting the EU's financial interests constitute about 17% (1/6) of the
current caseload of Eurojust. If all such offences are taken up by an EPPO
costs savings at Eurojust could be estimated at €3.560.000.[108]

National resources
The staff allocation assumes that the
number of national staff working on offences affecting the EU's financial
interests is currently up to level to handle the anticipated caseload of 2500
cases in the baseline situation. The elimination of the current pattern of
administrative investigations by OLAF followed by criminal investigations by
national authorities is expected to reduce the human resource requirements at
national level, as shown in the table above. 
1.3.1      Estimation
of costs at EU level[109] 
Initial
start-up costs 
Initial start-up costs involve one off
costs related to IT, training, removal and security and setting up of the EPPO
office including drafting internal procedures and the hiring and training of
new staff. The costs for establishing the EPPO mandate
(the expected negotiation and decision process) have not been considered. 
Table 4.3. Initial start-up costs
 Initial investment costs || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Start-up costs || PM[110] || As for option 2 || 2 million || 2.5 million || 2.5 million || 3 million 
Costs
related to possible relocation of staff have not been calculated because the
location of the new EPPO is unknown.
On-going
costs and possible resources (cost savings) at EU level
For the calculation of the cost of the
implementation of the EPPO options assumptions have been made regarding the
recurring institution costs. In order to calculate these direct costs for an
EPPO use has been made of reference data from OLAF and Eurojust. With respect
to the costs for the implementation of option 2, specialisation of
practitioners and strengthening of mutual recognition represent the 'minimum
scenario'. Regular multi-day trainings would be the best way to build capacity.
It is assumed that prosecutors and investigators will receive training every
two years.
Considering the closely linked functions of
the present Eurojust, OLAF and the future EPPO it will likely be necessary to
invest in coordination and exchange of information, even if existing
instruments could possibly be reused. In addition, it can be expected that with
more cases being prosecuted, more cases will be brought to the European Court
of Justice.  
The following table provides an overview of
the annual costs at EU level compared to the baseline (million euro, 2012
prices):
Table 4.4. Annual costs at EU level
   || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Office costs || - || - || 1,7 || 2,3 || 2,0 || 5,0 
 Labour costs || - || - || 20,4 || 22,9 || 20,4 || 45,3 
 Operational expenses[111] || 0,2 || 0,2 || 5,5 || 6,2 || 5,5 || 25,0 
 Cost savings (transfer of functions from OLAF/Eurojust) || - || - || -21,8 || -21,8 || -21,8 || -21,8 
1.3.2      Estimation
of direct and indirect costs at Member State level[112]
The
following table provides an overview of the annual costs for Member States compared
to the baseline (million euro, 2012 prices):
Table 4.5 Annual costs at Member State level
   || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 labour costs savings || - || - || -8,1 || -9,2 || -8,1 || -18,0 
 Indirect costs (Judicial costs & Prison costs) || 2,5 || 3,7 || 5,0 || 5,0 || 31,2 || 28,7 
For the calculation of annual costs at
Member State level assumptions have been made of the assumed labour costs
(savings) and judicial and prison costs. The estimated labour costs are based
on national EU27 averages. A potential top up of national salaries has not been
included in the estimates used. 
Average EU court costs and legal aid costs
are tripled in these calculations because of the expected complexity of cases
compared with other offences. The costs of these cases may vary depending on
the case but financial crimes, including fraud cases, are perceived as the most
difficult cases, certainly compared to the large number of simple petty crime
cases included in the calculation of the average costs.
1.4         Assessment
of the benefits per policy option
In order to assess the benefits per policy
option, it should be clearly established who loses from the different crimes
and the extent to which the amounts involved are likely to be indicative of the
true social costs involved. The following table provides an oversight of the
relevant offences. 
Table 4.6. Social costs
 Offence || Loss to EU and/or MS  || Social costs 
 Procurement irregularities || Can be considered as a cost to the EU budget and to the MS though actual welfare cost may largely fall on MS concerned || Welfare cost may be only a fraction of scale of procurement expenditure involved 
 Embezzlement/fraud || A direct cost to the EU budget and probably MS || Reasonably measured by amount involved 
 Customs duty evasion || A cost to the EU budget (revenues) || At least at a first approximation, is properly measured by the tax lost 
 VAT evasion  || Can be considered as mainly a cost to MS exchequers though a 0,3% cost to the EU budget (revenues) || Measurable by total tax lost 
 Corruption || Cost to the EU budget and MS || Welfare cost may be hugely greater than amount of bribe involved 
 Money laundering || Cost to the EU budget and MS || Welfare costs may be minimal as costs are often already measured in other offences 
As discussed before, in the context of this
impact assessment, it has not been possible to calculate the real social costs
or impacts of these offences, including other (direct and indirect) cost and
benefits; such as effects on the quality and delivery of goods and services,
market distortions through corruption and conflict of interest and the trust in
and legitimacy of the EU and its institutions. The calculation of the financial
impact of the different offences will therefore be limited to an estimate of
the direct costs to the EU budget. 
Calculating
the size and value of potential benefits
The limitations of the available data, and
the likely occurrence of combinations of offences in actual single cases (for
example fraud and corruption, or fraud and money laundering), mean that it is
not possible to make distinct assessments per type of offence or number of
offences that are successfully prosecuted. It is estimated that the benefits
will mainly come from increased recovery results, as well as from the effects
of deterrence. 
The size of the potential benefits are
calculated by estimating the recovery of EU funds (recovery of the
proceeds of the specific crimes involved, financial fines and asset recovery
and possible avoidance of losses (deterrence effect) involved. The calculation
of the size of potential benefits involved two steps:
1) First the average
financial impact of the relevant offences was
calculated. Over 2010 and 2011 an average of 1500 cases of ‘suspected’ fraud with
a value of €523.5 million were identified. The average financial impact of such
offences for the EU 27 can then be calculated at approximately €358 000 in 2012
prices. No information is available to calculate the average amount of VAT
Fraud cases but for the purpose of this report we have assumed a similar
average impact. As discussed above, the welfare or social costs of the
different offences should in theory be added but are impossible to monetise in
the context of this report. 
2) The second step involved the
estimation of recovery rates. Recovery benefits include criminal
confiscation and asset recovery and financial fines. The national ranges
provided by national experts (and estimated changes per option) in the selected
Member States have been used as a benchmark for the size of recovery of funds.
Recovery rates (recovery of proceeds of specific
crimes and asset
recovery based on criminal convictions) are on the
average estimated to be 10% (country estimated ranges are between 5-15%). No
data are available on the size of financial fines but these are expected to be
minimal.
It is expected that more effective
investigation and prosecution of cases will result in better chances of
successful financial recovery, so that the following recovery rates per option
have been assumed.
Table 4.7. Recovery rates
 Options  || Recovery rate 
 1) Baseline || 10% 
 2) Non-regulatory actions only || 10,5% 
 3) Strengthened Eurojust || 10,75% 
 4a) EPPO entity within Eurojust || 11% 
 4b) College-type EPPO || 11% 
 4c) Decentralised EPPO || 15% 
 4d) Centralised EPPO || 14,5% 
The annual benefits can be calculated based
on the expected impact of the different options (more cases that are convicted
and higher recovery), the estimated average financial impact and expected
recovery rates. In the cost benefit model it is assumed that the recovery rate is
initially 10% (baseline scenario) and will jump to its “steady state” value in
the first year of operation. This is a technical assumption used in the absence
of a model that would allow for a more realistic gradual increase in recovery
to be simulated. In particular, asset recovery processes and the collection of
financial fines will take time to feed through. 
For example for option 4c-decentralised
EPPO, the benefits were calculated in two steps:
Step 1: Multiplying the number of
additional convictions (625 additional convictions for this option as compared
to the baseline scenario) with the recovery rate of 15% and with the average
financial impact (€358 000);
Step 2: Adding to the sum above the
improved recovery rate of 5% (15%-10%-baseline) for the existing number of
convictions - 625 (baseline scenario), multiplied by the average financial
impact per case (€358 000). 
The following table provides an overview of
the annual benefits from recovery (to the nearest million euro, 2012 prices) of
the different options compared to the baseline.
Table 4.8. Recovery benefits
   || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Benefits || 3 || 5 || 6 || 6 || 45 || 40 
1.4.1      Benefits resulting from
increased deterrence 
It can be expected that an effective
implementation of the different options will also create a deterrent effect. It
is however difficult to quantify the size of this effect. Deterrence by its
nature is a complex concept. The number of economic operators deterred from
committing a particular offence cannot be measured directly. In addition, the
deterrence effect will – once an EPPO is established – manifest itself only
gradually in the course of (many) years. Moreover, the effectiveness of
detection via non-judicial EU and national control systems (such as procurement
systems, monitoring and evaluation procedures, regularity and quality of audit
controls) and court systems play an important role in the deterrence of these
offences as well. 
Criminological literature provides a wide
range of plausible deterrence rates. This offers some insight into the
potential deterrent benefits of an EPPO. In the first place, criminal research
over several decades concludes that the probability of apprehension and
certainty of punishment has a more important deterrent effect than the severity
of sanctions that are actually imposed. The increased likelihood (certainty) of
apprehension and punishment is associated with declining general crime rates.
Nevertheless, different studies show contradicting estimates, although in cases
of administrative offences (e.g. tax evasion) a higher proportion of
theory-consistent and statistically significant estimations are to be found as
opposed to other criminal offences.[113]
Literature study and data collected in selected countries do not provide
sufficient evidence to make a definitive statement about the likely deterrence
effect of the options. Nevertheless, as indicated in the main body of the text,
significant deterrent effects can be assumed to arise from a significant
increase in convictions. For example, in option 4c, the actual number of
convictions is expected to double. In that scenario, and based on estimates in
the criminological literature, an increase in deterrence leading to 10% less
damage from these crimes would represent a cautious estimate. The table below
outlines the annual benefits arising from this assumption, based on the assumed
value of damages of €3 billion
that has been used for this impact assessment.
Table 4.9. Annual benefits from deterrence 
   || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Benefits || €24 million || €36 million || €48 million || €48 million || €300 million || €276 million 
1.5         Overview
of the CBA assessment of the different options
The
following table provides an overview of the annual benefits and costs (in
million euro, 2012 prices) of the different options compared to the baseline. 
Table 4.10 Net benefits
   || Option 2 Non-regulatory actions only || Option 3 Strengthened Eurojust || Option 4a EPPO entity within Eurojust || Option 4b College-type EPPO || Option 4c Decentralised EPPO || Option 4d Centralised EPPO 
 Benefits || 27 || 41 || 54 || 5 || 345 || 316 
 Costs || 3 || 4 || 3 || 5 || 29 || 65 
 Net benefit* || 24 || 37 || 51 || 49 || 315 || 251 
* figures may not add due to
rounding
The estimates in the table above do not
take account of the initial start-up costs that would be incurred when
establishing an EPPO. These costs are included in the table below, which shows
the approximate discounted present value in 2012 prices of the costs and
benefits of each option over the first twenty years of full operation of the
EPPO. 
Table 4.11. Cost-benefit overview
   || Present value of costs || Present value of benefits || Net present value (benefits – costs)   
   || Direct costs || Savings || Indirect costs || Total costs || Recovery || Deterrence || Total benefits 
 Option || EU budget || EU budget || MS budget || MS budget ||   ||   ||   ||   
   || million euro (2012 prices) 
 2) Non-regulatory actions only || 3 ||   ||   || 30 || 35 || 45 || 220 || 265 || 230 
 3) Strengthened Eurojust || 3 ||   ||   || 45 || 50 || 65 || 330 || 400 || 350 
 4a) EPPO entity within Eurojust || 350 || -275 || -100 || 65 || 40 || 75 || 425 || 500 || 465 
 4b) College-type EPPO || 400 || -275 || -115 || 65 || 70 || 75 || 425 || 500 || 430 
 4c) Decentralised EPPO || 350 || -275 || -100 || 390 || 370 || 560 || 2 650 || 3 220 || 2 850 
 4d) Centralised EPPO || 950 || -265 || -225 || 360 || 820 || 500 || 2 450 || 2 950 || 2 130 
*
figures may not add due to rounding
[1]               Article 325 TFEU.
[2]               21 September 1989, Case 68/88, Commission v. Greece
[1989] ECR 2965.
[3]                               OLAF report 2011; Commission report
on the protection of the European Union's financial interests – Fight against
fraud; COM(2012) 408.
[4]               Commission annual Report on the protection of the
European Union's financial interests – Fight against fraud; COM(2012) 408
[5]               Europol Organised Crime Threat Assessment report,
2011. 
[6]               COM (2012) 408, p.12. See also footnotes 10 and 11 on
the definitions of fraud and irregularities.
[7]               COM(2012) 363 final, 11.7.2012.
[8]               The new OLAF Regulation should soon enter into force;
the Council has adopted its first reading position on 25 February 2013. For
further details on the different actions the Commission has taken, see Section
3.2.
[9]               For the purpose of this Impact Assessment "fraud"
is an irregularity committed with the intention of illicit gain which
constitutes a criminal offence (Convention on the protection of the European
Communities financial interests-OJ, C316, 27.11.1995). 
[10]             Irregularity is any infringement of an economic
operator which has, or would have the effect of prejudicing the EU’s financial
interests (Article 1(2) of Council Regulation (EC, Euratom) No 2988/95 of 18
December 1995 on the protection of the European Communities’ financial
interests (OJ L 312, 23.12.1995). 
[11]             See in particular the academic Corpus
Juris project, published and commented in M. Delmas-Marty & J.A.E.
Vervaele (ed.), The Implementation of the Corpus Juris in the Member States,
vol. 1, Intersentia, Antwerp-Oxford 2000; the Green Paper of the Commission on criminal-law protection of the financial interests of the Community
and the establishment of a European Prosecutor (COM (2001) 715 final, 11
December 2001), and the Report from the international seminar held in Madrid on
24-25 January 2008 on the future European Public Prosecutor. 
[12]             Study on the impact of the different policy options to
protect the financial interests of the Union by means of criminal law,
including the possibility of establishing a European Public Prosecutor's Office
conducted by ECORYS (hereafter referred to as Ecorys EPPO study); Study on the impact
of strengthening of administrative and criminal law procedural rules for the
protection of the EU financial interests, conducted by ECORYS (hereafter
referred to as Ecorys Procedural law Study).
[13]             See footnote 12.
[14]             First Protocol of 27 September 1996 (OJ C 313,
23.10.1996), Protocol of 29 November 1996 on the interpretation, by way of
preliminary rulings, by the CJEC of the Convention (OJ C 151, 20.5.1997) and
Second Protocol of 19 June 1997 (OJ C 221, 19.7.1997).
[15]             COM(2008) 77 final, 14.2.2008.
[16]             See Ecorys Procedural Law study.
[17]             Second Protocol of 19 June 1997 (OJ C 221, 19.7.1997).
[18]             ECORYS EPPO study, Chapter 2.
[19]             OLAF annual report 2010.
[20]             OLAF annual report 2011. An action represents a
criminal action pursued against a single natural or single person in one country’s
jurisdiction. Each case may contain multiple actions in a number of countries. 
[21]             See table 3.2.
[22]             See also
the Final report on the fifth round of mutual
evaluations - "Financial crime and financial investigations"(Council
document 12657/2/12 of 3 October 2012), Section 3.2. Key findings, in
particular point 10. The report also notes the lack of a specific long-term
policy with regard to financial crimes and investigations in the majority of
Member States.
[23]             See also recommendations of the House of Lords report
published on 17 April 2013 where it is proposed that the Member States should
be required to provide feed-back to OLAF on the outcome of cases. 
[24]             See ECORYS EPPO study, Annex C – Summary Euroneeds
study. For the preliminary report of this study see:
http://www.mpicc.de/ww/en/pub/forschung/forschungsarbeit/strafrecht/euroneeds.htm.
[25]             National
prosecutors interviewed during the preparations of this report.
[26]             ECORYS EPPO study, Chapter 2.
[27]             ECORYS EPPO study, Chapter 2.
[28]             ECORYS EPPO study, Chapter 2.
[29]             Euroneeds study, preliminary report, January 2011, p.
19. See also footnote 19.
[30]             National prosecutors interviewed during the preparation
of the report.
[31]             See Regulation No. 515/1997, as amended by Regulation
No. 766/2008
[32]             Regulation No. 904/2012. 
[33]             National prosecutors during the preparation of the
report.
[34]             Euroneeds study, preliminary report, January 2011.
[35]             Published on 17 April 2013; http://www.parliament.uk/business/committees/committees-a-z/lords-select/eu-law-and-institutions-sub-committee-e/news/publication-of-report---fight-against-fraud/
[36]             See the cost-benefit analysis in Annex 4. Recovery in
criminal procedures should not be confused with the much higher recovery rates
that the Commission publishes in its annual reports on the protection of the
European Union’s financial interests. The latter figures relate mostly to
irregularities, with only a relatively small part due to recovery from criminal
activities. Moreover, these recovery rates do not reflect recoveries from those
who actually received the money. For example, in the area of cohesion policy
Member States are primarily responsible for recovering from beneficiaries
amounts unduly paid and what is presented in the Commission report mainly sets
out the financial corrections established by the Commission. In the
agricultural sector the financial clearance mechanism (“50/50” rule) provides a
strong incentive for Member States to recover undue payments from beneficiaries
as quickly as possible, but still may result in charging non-recovered amounts
to the budget of the Member States.
[37]             This is a conservative estimate based on input from
prosecutors and other country experts (interviews and written questions for the
Ecorys EPPO study). For example a prosecutor in Hungary stated that the overall
recovery rate in financial investigations is rather low, cc. 8-14 %. Most of
the assets recovered come from freezing bank accounts related to VAT-fraud. The
interviews showed that in Poland the rate of recovery is also quite low, not
exceeding 5-15%. Prosecutors in other MSs (for example Sweden and Germany)
could not / did not want to give estimates for their countries.
[38]             See OLAF's 10th Operational Report, 2011.
[39]             See footnote 4.
[40]             http://ec.europa.eu/justice/news/intro/doc/com_2010_573_4_en.pdf
[41]             Article 85 also opens for the possibility to give the
same powers to Eurojust as regards other types of serious cross-border crime. The
potential use of this possibility is not assessed in this report, which focuses
solely on offences affecting the EU’s financial interests.
[42]             COM (2011)293 
[43]             It is possible that the members of the EPPO college
would be identical to those of the Eurojust college
[44]             This may be regarded as a conservative assumption: for
example, in “Economics of Crime. Deterrence and the Rational Offender”, Eide
reports a survey of 20 studies that give a median elasticity of crime with
respect to the probability of arrest to be -0.7, suggesting that at 10%
increase in the probability of arrest would produce a decrease in the number of
crimes of 7% (quoted in “Recent Developments in Economics of Crime”; Erling
Eide, German Working Papers in Law and Economics, 2004).
[45]             Council Decision 2009/426/JHA of 16 December 2008
amending Council Decision 2002/187/JHA.
[46]             Framework Decision 2009/948/JHA of 30 November 2009.
[47]             For further details see Annex 4.
[48]         Directive 2010/64/EU of the European Parliament and of the
Council of 20 October 2010 on the right to interpretation and translation in
criminal proceedings (OJ L 208, 26/10/2010, p.1) and Directive 2012/13/EU of
the European Parliament and of the Council of 22 May 2012 on the right to
information in criminal proceedings (OJ L 142, 1.6.2012, p.1).
[49]             For the calculation of costs and benefits, see Annex 4.
[50]             For the calculation of costs and benefits, see Annex 4.

[51]         See footnote 41.
[52]             For the calculation of costs and benefits, see Annex 4.

[53]             For the calculation of costs and benefits, see Annex 4.
[54]             See Annex 4 for further details.
[55]             Indicates the results of the cost/benefit analysis per
option.
[56]        Passas, N. & Nelkin, D. (1993), „The thin line between legitimate
and criminal enterprises: Subsidy Frauds in the European Community, Crime, Law
and Social Change, 19, 223-243; Durdevic, Z., 'Fraud adversely affecting the
budget of the European Union: the forms, methods and causes', in: Financial
Theory and Practice 30(3),  253-282 (2006); Ruimschotel, D. (1994), „The EC
Budget: ten per cent? A policy analysis approach‟, Journal of Common
Market Studies, 32 (3), 319-342; Sherlock, A. & Harding, M. (1991),
„Controlling Fraud within the European Community‟, European Law Review,
16 (1), 20-36; Sieber, U. (1997), ‘EUROFRAUD: Organised Fraud against the
European; Communities‟, Paper delivered at Judicial
and Administrative and Mutual Assistance in the Common European Legal
Space Conference, Helsinki; Sieber, U. (1998), „Euro-Fraud: Organised
Fraud against the Financial Interests of the E.U.‟, Crime, Law &
Social Change, 30 (1), 1-42. References found in: Brendan Quirke, Economic
Crime and Legal Competence in the EU, January 2009, http://wwwext.livjm.ac.uk/AFE/AFE_docs/cibef0109b.pdf. 
[57]     Mungui-Pippidi, A., Contextual Choices in Fighting Corruption:
Lessons Learned, Norad / Hertie School of Governance, Berlin 2011, in: http://www.norad.no/en/tools-and-publications/publications/evaluations/publication?key=383808. 
[58]     COM(2012) 363/2. 
[59]                    PwC,
in commission of the European Parliament, Directorate General for Internal
Policies, Department D of Budgetary affairs, How does organised crime misuse EU
funds?, STUDY IP/D/ALL/FWC/2009 - 56 09/12/2011. 
[60]        http://ec.europa.eu/anti_fraud/media-corner/press-releases/press-releases/2012/20120703_01_en.htm.
[61]        Commission staff working documents at http://ec.europa.eu/anti_fraud/documents/reports-commission/2011/statistical_evaluation_en.pdf and http://ec.europa.eu/anti_fraud/documents/reports-commission/2011/methodology_en.pdf. 
[62]     Instrument for Pre-Accession
Assistance, or simply IPA, is a new funding mechanism of the European Union. As
of 2007, it replaced previous programmes such as the PHARE programme and CARDS.
Unlike the previous assistance programs, IPA offers funds to both EU candidate
countries (Croatia, Macedonia, Montenegro, Turkey) and potential candidate
countries (Albania, Bosnia and Herzegovina, Iceland, Serbia including Kosovo as
defined by the United Nations Security Council Resolution 1244/1999), although
under different conditions.
[63]     SWD(2012) 229 final.
[64]     SWD(2012) 229 final.
[65]     Based on internal information from OLAF database. See also:
European Court of Auditors,
http://www.publicserviceeurope.com/article/1105/eu-accounts-4-6bn-in-fraud-waste-and-irregularities:
Press release on the Annual Report of the European Court of Auditors, 9
November 2011, http://europa.eu/rapid/pressReleasesAction.do.
[66]     SEC(2011) 1108 final, p.15.
[67]     COM(2011) 595 final, p.6. The
Commission refers in this quote to the European Parliament resolution of 6
April 2011 on the protection of the Communities' financial interests – Fight
against fraud – Annual Report 2009 (2010/2247(INI)), point 3.
[68]    OLAF
Annual Report, 2011, p.20.
[69]        SDW(2012) 229 final.
[70]                    Levi,
M. and J. Burrows, ‘Measuring the impact of fraud in the UK’, in: British
Journal of Criminology (2008), 48, pp.293-318. 
[71]        SEC(2011) 1108 final, p.42. 
[72]        SWD(2012) 229 final, p.68. 
[73]        SEC(2011) 1108 final. p.41.
[74]        SEC(2011) 1108 final. p.41.
[75]        Fighting fraud: MEPs want accurate information on customs duty and VAT
evasion. EP, plenary session, Budget control, 10-05-2012. See also: European
Parliament, Directorate general for internal affairs, How does organised crime
misuse EU funds?, 2011, p.29.
[76]        Frunza M.C., Guegan D., Thiebaut F. (2010), Missing trader fraud on
the emissions market, Documents de Travail du Centre d’Economie de la Sorbonne,
CES Working papers, October 2010.
[77]        Borselli, Fabrizio, Organised VAT fraud: features, magnitude, policy
perspectives, Banca d'Italia Occasional Papers 106, October 2011.
[78]        The harmonised VAT base is calculated by the relevant Member State
using what is known as the ‘revenue method’. It consists of dividing the total
annual net VAT revenue collected by the Member State in question by the
weighted average rate of VAT, i.e. an estimate of the average rate applicable
to the various categories of taxable goods and services, to obtain the
intermediate VAT base. The intermediate base is subsequently adjusted with
negative or positive compensations in order to obtain a harmonised VAT base
pursuant to the Sixth Council Directive 77/388/ EEC of 17 May 1977 and
subsequent amendments.
[79]        See: http://ec.europa.eu/budget/library/biblio/publications/public_fin/EU_pub_fin_en.pdf#page=233.
[80]        Europol, Organised Crime Threat Assessment (OCTA), 2011.
[81]        Katherine Niel, Fraud in the European Union, Environmental Technology
MSc thesis (2010/2011) Centre for Environmental Policy, Imperial College
London, Supervisor: Ricardo Pereira https://workspace.imperial.ac.uk/environmentalpolicy/Public/Executive%20Summaries%202010-2011/GECP/Nield,%20Katherine.pdf. 
[82]        http://mobile.europol.europa.eu/content/news/strategic-meeting-vat-fraud-459 and http://forumblog.org/2012/05/what-if-the-internet-collapsed/. This number is based on reports by
Member States and confidential. So far Europol has not given any additional
information. See also Europol ECTA 2011. 
[83]        Reckon (2009), Study to quantify and analyse the VAT gap in the EU-25
Member States, DG Taxation and Customs Union, Report 21 September
2009.http://ec.europa.eu/taxation_customs/resources/documents/taxation/tax_cooperation/combating_tax_fraud/reckon_report_sep2009.

[84]        PricewaterhouseCoopers (2010), Study on the feasibility of
alternative methods for improving and simplifying the collection of VAT through
the means of modern technologies and/or financial intermediaries, Final report,
20 September 2010.
[85]        Reckon (2009), p.11.
[86]        Borselli 2011, p. 16. The calculations are partly based on PWC (2010)
data on the VAT gap. 
[87]        Durdevic, Zlata, 'Fraud Adversely Affecting the Budget of the
European Union: the forms. Methods and Causes', in: Financial Theory and
Practice (30)3, 253-282 (2006), p.258.
[88]        European Parliament, Directorate general for internal affairs, How
does organised crime misuse EU funds?, 2011, p.30.
[89]        KPMG, Project Star (2012), http://www.pmi.com/eng/tobacco_regulation/illicit_trade/documents/Project%20Star%202011%20results.pdf ; http://www.pmi.com/eng/media_center/press_releases/pages/201206200200.aspx.
[90]        Europol, Organized Crime Threat Assessment (OCTA), 2011, p.23.
[91]                    Durdevic,
Zlata, 'Fraud Adversely Affecting the Budget of the European Union: the forms.
Methods and Causes', in: Financial Theory and Practice (30)3, 253-282 (2006),
p.258.
[92]                    S.
Benthin, Subventionspolitik und Subventionskriminalität, Frankfurt am Main,
Peter Lang 2011, p. 69.
[93]                    H.
Kury, Korruption – wird geschmiert wie eh und je?, Kriminalistik 2012, p. 99 (102-103);
see also the general estimates on undetected cases in economic crime: H.-D.
Schwind, Kriminologie, 21th ed., Heidelberg, Kriminalistik 2011, p. 461, with
further references.
[94]                    G.
Dannecker, in: U. Kindhäuser/U. Neumann/H.U. Paeffgen (eds.), Nomos Kommentar
zum Strafgesetzbuch, 3rd edition, Baden-Baden, Nomos 2010, section 298 par. 7.
[95]                    Margot
Smit, ‘Deterrence of fraud with EU funds through investigative journalism in
EU-27’ by the European Association of investigative Journalists and commissioned
by the European Parliament, 2012.
[96]                    For
an overview of the literature and estimates see: Durdevic, 2006, pp-254-255.
[97]    Transparency International argues in this context: ‘Corruption in
public procurement is not just about money: it costs lives. This can happen
when the execution of a construction contract is flawed leading to a building
collapse, or when substandard medicines fail to attend the people’s health
needs’. The OECD argues that corruption in procurement affects mostly the
disadvantaged in society because they rely on public procurement to the
greatest extent. Sources: Transparency International (2010), OECD (2010).
[98]             EU27 without Denmark, but including Croatia. 
[99]             Based on examples of previous processes such as the
establishment of Europol and the International Criminal Court it is to be
expected that the costs and benefits of an EPPO will be delayed by an extended
decision and implementation process of perhaps 2-3 years or longer.
[100]            This figure was estimated on the basis of the number of fraud
cases reported by Member States in 2011, the number of investigations that OLAF
dealt with in 2011 and a rough estimate of cases initiated by Member States law
enforcement authorities directly as criminal investigations and of VAT fraud
cases that the EPPO could deal with. 
[101]            Currently, it is estimated that the number of cases that
may be handled by a prosecutor (full time equivalence) during one year is
between 25 and 35 cases. However, the current experiences are not expected to
fully reflect the set of changes that an EPPO is expected to bring. As a
result, the approach of a higher number of cases has been adopted to take full
account of the higher effectiveness and reduction of repetitions that are
expected to result from more streamlined procedures. 
[102]            This may be regarded as a conservative assumption: for
example, in “Economics of Crime. Deterrence and the Rational Offender”, Eide
reports a survey of 20 studies that give a median elasticity of crime with
respect to the probability of arrest to be -0.7, suggesting that at 10%
increase in the probability of arrest would produce a decrease in the number of
crimes of 7% (quoted in “Recent Developments in Economics of Crime”; Erling
Eide, German Working Papers in Law and Economics, 2004)
[103]            The staff figures in the table represent a preliminary
estimate. They might need minor adjustments and fine tuning in the light of
further calculations. This applies in particular to the question to which
extent personnel needs to be put at the disposal of the central department of
the EPPO and the allocation of staff between the central office and the
national law enforcement authorities.
[104]            Fixed assets normally include items such as furniture,
office equipment and computers. 
[105]                  Only
labour costs (savings) at Members State level have been included as direct
costs, potential changes in housing costs and operational expenses have not
been taken into account. 
[106]            Only possible labour costs (savings) for EU institutions
have been calculated, potential changes in housing costs and operational
expenses have not been taken into account.
[107]            OLAF data received shows that 278
investigators/intelligence staff are employed. Based on the information that in
2011, 73 judicial  recommendations were made in 108 investigations which were
closed with recommendations it could be assumed that more than 67% of all
investigative/intelligence staff (max 180) are currently involved in
administrative investigations leading to criminal proceedings. The number of
OLAF recommendations for judicial action is not per se an indicator of the
workload of the EPPO and consequently of its staffing needs. The EPPO will need
to make a preliminary evaluation of all cases reported to it and it is expected
to receive more information on fraud and irregularities against the EU budget
than OLAF currently receives. 
[108]            Costs per case can roughly be estimated at €21.300 for
2012.
[109]            For details see the Ecorys EPPO study.
[110]            Investment costs would include the costs of establishing
mutual recognition instruments. No reference data could be found in this
respect. 
[111]            Operational expenses include travel costs, training
costs, translation and interpretation costs,
[112]            For details see the Ecorys EPPO study.
[113]            Source Dieter Dölling & Horst Entorf & Dieter
Hermann &Thomas Rupp (2009).