REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union’s financial interests — Fight against fraud 2012 Annual Report
Date: 2013-07-24
Institutions: European Commission
Subjects: European Anti-fraud Office, customs fraud, fraud, fraud against the EU, general budget (EU), illicit trade, tax evasion, tobacco













EUR-Lex - 52013DC0548 - EN











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52013DC0548

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union’s financial interests — Fight against fraud 2012 Annual Report /* COM/2013/0548 final */









TABLE OF CONTENTS
REPORT FROM THE COMMISSION TO THE EUROPEAN
PARLIAMENT AND THE COUNCIL Protection of the European Union’s financial
interests — Fight against fraud 2012 Annual Report............................. 5
Executive summary....................................................................................................................... 5
1........... Introduction.................................................................................................................... 7
2........... Fraud and other irregularities........................................................................................... 7
2.1........ Total irregularities reported............................................................................................. 7
2.2........ Irregularities reported as
fraudulent affecting the EU budget............................................. 7
2.2.1..... Revenue......................................................................................................................... 9
2.2.2..... Expenditure.................................................................................................................. 10
2.2.2.1.. Natural Resources (Agriculture and
Rural Development and Fisheries)........................... 12
2.2.2.2.. Cohesion policy (2007-13 and
2000-06 programming periods)..................................... 13
2.2.2.3.. Pre-accession Policy (Pre-Accession
Assistance (PAA) and Instrument for Pre-Accession (IPA))       13
2.2.2.4.. Expenditure directly managed by the
Commission.......................................................... 14
2.2.3..... Results of the European Anti-Fraud
Office (OLAF)....................................................... 14
2.3........ Irregularities not reported as
fraudulent.......................................................................... 14
2.3.1..... Revenue....................................................................................................................... 15
2.3.2..... Expenditure.................................................................................................................. 16
3........... Recovery and other preventive
and corrective measures................................................ 17
3.1........ Expenditure: preventive
mechanisms.............................................................................. 17
3.1.1..... Interruptions in 2012..................................................................................................... 17
3.1.2..... Suspensions.................................................................................................................. 18
3.2........ Expenditure: financial
corrections and recoveries in 2012............................................... 18
3.3........ Recovery relating to own
resources revenues................................................................. 18
3.3.1..... Traditional own resources............................................................................................. 19
4........... Anti-Fraud Policies at EU Level.................................................................................... 19
4.1........ Anti-fraud policy initiatives
taken by the Commission in 2012......................................... 19
4.1.1..... OLAF reform proposal (Regulation
1073/1999)........................................................... 19
4.1.2..... Proposal for a Directive on the fight against fraud to the Union’s financial
interests by means of criminal law      20
4.1.3..... Preparatory work for the
establishment of a European Public Prosecutor's office (EPPO) 20
4.1.4..... Initiatives on fighting corruption
in the EU...................................................................... 21
4.1.5..... Anti-fraud policy in customs.......................................................................................... 21
4.1.5.1.. Mutual Administrative Assistance
(MAA)...................................................................... 21
4.1.5.2.. Joint Customs Operations (JCOs)................................................................................. 21
4.1.5.3.. The Anti-Fraud Information System
(AFIS).................................................................. 21
4.1.6..... Fight against VAT fraud................................................................................................ 22
4.1.7..... Anti-fraud provisions in
international agreements............................................................ 22
4.1.8..... Fight against illicit trade in
tobacco products.................................................................. 23
4.1.8.1.. Commission Action plan to fight
against smuggling of cigarettes and alcohol along the EU Eastern border          23
4.1.8.2.. Framework Convention on Tobacco
Control (FCTC): Protocol to Eliminate Illicit Trade in Tobacco Products 23
4.1.8.3.. Agreements with cigarette
manufacturers....................................................................... 23
4.1.9..... Public procurement rules............................................................................................... 24
4.1.10... Commission Anti-fraud Strategy
(CAFS)...................................................................... 24
4.1.11... Hercule and Pericles Programmes................................................................................. 24
4.1.11.1....................................................... Implementation
of Hercule II and Pericles Programmes     24
4.1.11.2............................................................. Multiannual
Financial Framework (MFF) 2014-20     25
4.2........ Advisory Committee for
Coordination of Fraud Prevention (COCOLAF)...................... 25
4.3........ European Parliament Resolution of
10 May 2012 on Protection of the Communities’ financial interests — Fight
against fraud — Annual report 2010............................................................................. 25
5........... Measures taken by Member States
to counter fraud and other illegal activities affecting the financial interests
of the EU............................................................................................................................... 26
5.1........ Measures to combat fraud and
other irregularities affecting the financial interests of the EU 27
5.2........ Measures to combat fraud and
other irregularities affecting the financial interests of the EU in the area of
agriculture.................................................................................................................................... 27
5.2.1..... Legislative and administrative
measures......................................................................... 27
5.2.2..... New prevention and detection
strategies........................................................................ 28
5.2.3..... Use of fraud indicators.................................................................................................. 28
5.2.4..... Implementation of reporting
provisions.......................................................................... 28
5.2.5..... Insufficient statistics on fraud
detection and prosecution and related recoveries............... 29
5.3........ Operation ‘Magna Grecia’............................................................................................ 29
5.4........ Implementation of 2011 recommendations..................................................................... 29
6........... Conclusions and recommendations................................................................................ 30
6.1........ Two trends in relation to policy
and operational developments....................................... 30
6.2........ Diverse approaches to fraud......................................................................................... 31
6.3........ Adoption of common rules on fraud.............................................................................. 31
6.4........ The most significant risks are
confirmed......................................................................... 32
6.5........ Anti-fraud bodies and law
enforcement agencies remain the most effective in detecting fraudulent
irregularities….................................................................................................................................... 33
6.6........ Protection against EU undue
payments — enforced by existing preventive and corrective mechanisms laid down
in EU regulations — remains adequate.............................................................................. 34
6.7........ Overall conclusions....................................................................................................... 34
ANNEX 1 — Irregularities reported as
fraudulent....................................................................... 35
ANNEX 2 — Irregularities not reported as
fraudulent................................................................. 36
ANNEX 3 — 2012 financial corrections
implemented under shared management (EUR million)... 37
REPORT FROM THE
COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL
Protection of the
European Union’s financial interests — Fight against fraud
2012 Annual Report 
Executive
summary
This 2012 Annual Report on Protection of the
European Union’s Financial Interests is presented by the Commission in
cooperation with the Member States under Article 325 of the Treaty on the
Functioning of the European Union. It covers Commission and Member State measures in the fight against fraud and their results. Where analysis of this
information has identified problems or risks, recommendations are made to
address those issues.
Recent measures to protect the financial
interests of the EU
In 2012, the Commission took or proposed a
number of measures to improve the legal and administrative framework for
protecting the EU’s financial interests, including:
–                        
a proposal for a Directive on the fight against
fraud to the Union’s financial interests by means of criminal law;
–                        
preparatory work for the establishment of a European
Public Prosecutor’s Office (EPPO);
–                        
adoption of a Protocol to Eliminate the Illicit
Trade in Tobacco Products appended to the World Health Organisation (WHO)
Framework Convention on Tobacco Control (FCTC); and
–                        
anti-fraud provisions in international agreements
and administrative cooperation arrangements.
Detection
and reporting of (fraudulent and non-fraudulent) irregularities affecting the
EU budget
In 2012, 1 231 irregularities were reported as fraudulent (this includes both
suspected and established fraud), involving EUR 392 million, broadly at the
same levels as the year before. Significant differences remain in the
fraudulent irregularities reported by Member States, which may point to
divergent interpretations when applying the legal framework and different
approaches to the detection of fraud.
Irregularities not reported as fraudulent
have increased, particularly in terms of amount. The increase mainly reflects
the effect of irregularities involving large amounts but is also due to
systemic irregularities reported at the closure of programmes.
Preventive and corrective measures
In 2012, the Commission took several
decisions to ensure that EU resources are spent according to the principle of
sound financial management and that its financial interests are duly protected.
187 decisions to interrupt payment (involving over EUR 5 billion) were taken in
the cohesion policy area. Of these, 70 were still open at the end of 2012
(involving about EUR 1.7 billion of interrupted payments). Also, four
suspension decisions were taken (still on-going at the end of the year).
Financial corrections were made for over
EUR 3.7 billion (mainly still in relation to the closure of the 2000-06 programming
period) and recovery orders issued for EUR 615 million.
The measures taken in 2012 confirm that the
mechanisms in place allow for effective protection of the EU’s financial
interests, but the ultimate risk of non-recovery of the sums unduly paid is
shifted onto the Member States responsible.
Anti-fraud systems in the area of agriculture
The focus of this year's report was on
measures and irregularities in the area of agriculture. The analysis shows
improvements in Member States’ financial control and risk management systems,
as regards inter alia legal provisions and guidelines, national or
regional strategies, use of risk indicators, administrative procedures and
cooperation between national authorities.
However, the statistical data on anti-fraud
checks, criminal proceedings and results, as provided by Member States, are incomplete,
which makes it difficult to analyse the quality of the
investigation and prosecution of fraud in the Member States and use this as a
basis for future policy.
1.           Introduction
Each year, under Article
325(5) of the Treaty on the Functioning of the European Union (TFEU), the
Commission, in cooperation with the Member States, submits to the European
Parliament and the Council a report on measures taken to counter fraud and any
other illegal activities affecting the financial interests of the Union.
The Treaty states that
the EU and the Member States share responsibility for protecting the EU’s
financial interests and fighting fraud. National authorities manage 80 %
of EU expenditure and collect Traditional Own Resources (TOR). In these two
areas, the Commission exercises overall oversight, sets standards and verifies
compliance. Therefore, close cooperation between the Commission and the Member States is essential for the effective protection of the EU’s financial interests.
Consequently, one of the main aims of this report is to assess how effective
this cooperation was in 2012 and how it could be improved.
This report describes the measures taken at
EU level in 2012 and provides a summary and evaluation of the action taken by
Member States to counter fraud. It also includes an
analysis of the main results achieved by national and European bodies, in terms
of detecting and reporting to the Commission cases of fraud and other
irregularities relating to EU expenditure and revenue. The emphasis is on fraud
detection, where results are indicative of the ability of the systems and
anti-fraud authorities to counter fraud and illegal activities detrimental to
EU funds.
The report is accompanied
by five Commission Staff Working Documents[1]. The
‘Statistical Analysis of the Irregularities’ document contains tables
summarising the main results of each Member State’s anti-fraud action.
2.           Fraud
and other irregularities
2.1.        Total
irregularities reported
In 2012, 13 436 (fraudulent and non-fraudulent) irregularities were reported to
the Commission, involving an overall amount of about EUR 3.4 billion, of which
about EUR 2.9 billion concerns the expenditure sectors of the EU budget. The
detected irregularities represent 2.3 % of the payments on the expenditure side
and 2.1 % of gross TOR collected.
Irregularities increased as compared with
2011, by 6% in terms of number and 77 % in terms of financial amount. The
increase relates in particular to irregularities not reported as fraudulent
because of specific circumstances (see paragraph 2.3).
2.2.        Irregularities
reported as fraudulent affecting the EU budget
The numbers of fraudulent irregularities
reported, and the related amounts, are part of the broader definition of fraud
and should not be regarded as a measure of the level of fraud.
In 2012, Member States reported as
fraudulent 1 194
irregularities involving an overall amount of EUR 390 million. Furthermore, 29
fraudulent irregularities concerned funds managed under direct expenditure,
involving EUR 2 million, and, finally, 8 fraudulent irregularities were
reported by candidate countries involving about EUR 1 million.
The number of fraudulent irregularities[2] reported in 2012 and their impact remained at practically the same
levels as the year before. Significant differences are recorded between
sectors, however, as shown in Table 1 and Chart 1.
Table 1: Irregularities reported as fraudulent in 2012[3]
A breakdown of all fraudulent
irregularities reported in 2012, by Member State and budget sector (revenue and
expenditure) is set out in Annex 1.
Chart 1: Irregularities reported as fraudulent and
related amounts — 2008-12
2.2.1.     Revenue
The number of fraud cases reported on the
revenue side for 2012 (682) is 20% lower than the average for the years 2008-12
(851). The total established amount of TOR affected for 2012 (EUR 77.6 million)
is 22 % lower than the 2008-12 average (EUR 100 million)[4].
Customs controls
carried out at the time of clearance of goods result in cases being classified
as fraud more often than those carried out after clearance. In 2012, a
significant proportion of the fraud cases (32 %) were detected during customs controls carried out at the time of
clearance. 51 % of all TOR
amounts linked to cases of fraud were established during inspections by
anti-fraud services.
Analysis shows
a decreasing trend in the number of fraud cases in 2008-12, as shown in the
chart below.
The highest numbers of fraudulent
irregularities were reported by Spain, Italy, Germany and Greece (between 324
and 32), while Spain is first in terms of amounts involved (between EUR 38 million
and EUR 10 million)[5] followed by Belgium and Italy.
CHART 2: TOR — Cases of fraud and established amounts
affected (2008-12)
2.2.2.     Expenditure
As regards the expenditure budget, the
increase in terms of number of irregularities reported as fraudulent is
relatively small. The fluctuation in the amounts involved is also not
significant as a few larger investigations may alter the results drastically
(e.g. as regards pre‑accession funding — see section 2.2.5).
Reported irregularities often relate to
transactions that took place in a financial year other than that in which they
were detected or reported. With an average time lapse of about 3.5 years between
when a fraud is committed and when it is reported to the Commission[6], it is difficult to explain these developments (e.g. in terms of the
possible repercussions of the economic crisis).
Charts 3 and 4 show the number of
fraudulent irregularities reported and the amounts involved, respectively, in the
expenditure sectors.
As in previous years, the majority of
fraudulent irregularities were detected in the area of Cohesion policy: 50 %
of the total number and 63 % of the amounts involved.
Charts 3 & 4: Irregularities reported as
fraudulent by budget sector (expenditure) — by number and amount
Detected modi operandi did not vary
significantly as compared with previous years. The most recurrent schemes involve
the use of false or falsified documentation or declarations and the
misappropriation of funds (for a use other than that for which they were
intended).
Only very few of the irregularities
reported as fraudulent concern cases of corruption (9 in total), but their
number is on the increase. Four Member States reported that they had detected
such cases: Italy (6), Cyprus, Estonia and Spain (1). All cases identified were
in the area of cohesion policy.
Half of the irregularities reported as
fraudulent in 2012 were detected by anti-fraud bodies or during criminal
investigations or other external controls; the other half were detected by the
administrative control systems provided for in the sectoral regulations. This
underlines the importance of external controls in the fight against fraud and
the need for strong coordination with managing and audit authorities. It also shows
that the latter has improved significantly, as detection used to be almost
exclusively a matter for police bodies and judicial authorities. Anti-fraud or
criminal investigations detect cases of potential fraud involving significantly
higher financial amounts, which reflects the ability of the bodies concerned to
target their activities, but also their greater investigative powers.
The irregularities reported as fraudulent
by Member States can be broken down according to level of complexity. For 2012,
2 % of the cases reported can be regarded as complex[7], 40 %
as simple[8] and 58 % as moderately complex[9]. While
the proportion of complex cases remains unchanged as compared with previous
years, national authorities have detected relatively more ‘simple’ and fewer ‘moderate’
cases. This shift towards simpler frauds may reflect fraudulent attempts in the
context of the economic crisis by beneficiaries who would not have committed an
offence under normal circumstances. This trend will have to be monitored in
future years, given the time gap between detection and the time when the fraud
was committed.
Chart 5: Irregularities reported as fraudulent —
complexity
The rate of fraud detection continues to
vary between Member States (see Annex 1). The Member States which detected and
reported the highest number of fraudulent irregularities are Italy, Poland, Romania, Denmark and Germany (between 109 and 51). In terms of the amounts involved,
the highest figures were reported by Italy, Romania and the Czech Republic (between EUR 119 and 54 million). No fraudulent irregularities were detected and
reported by Greece, Luxembourg, Malta and Finland. Very few (less than three
for all expenditure sectors) were reported by Belgium, France, Cyprus, the Netherlands and Austria. These differences stem from several factors and reflect
very diverse approaches, not only among Member States but even among different administrations
in the same country. Some Member States deploy significant resources to counter
fraud; others prefer to apply financial corrections without further investigation
of the potential criminal offence.
Of the irregularities reported as
fraudulent in the last five years, 5 % have been established as fraud
(ratio of established fraud)[10].
2.2.2.1.  Natural
Resources (Agriculture and Rural Development and Fisheries)
Irregularities reported as fraudulent in 2012
have increased by almost 50 % in this sector as compared with 2011 (see
Table 1). This is the result of the reporting by Denmark of 56 cases, all presenting
the same modus operandi and linked to the same investigation.
The results reported by Denmark relate exclusively to the European Agriculture Guarantee Fund (EAGF) which,
consequently, shows an increase in terms of numbers and amounts in relation to
2011, while the trend for the Rural Development Fund (EAFRD) remains stable.
Almost half of the irregularities reported as
fraudulent concern the exceeding of limits, quotas or thresholds and cases of
over-declaration or fictitious declaration.
The proportion of complex cases of fraud detected
is smaller than in the other sectors (about 1 %), while the proportion of
‘simple’ cases is larger (44 %). In contrast with the other sectors, the
proportion of simple cases decreased in 2012 (from 59 % to 44 %).
The ratio of established fraud in agriculture
is slightly higher than the overall average: about 6 % of all cases
reported in the period 2008-12.
2.2.2.2.  Cohesion
policy (2007-13 and 2000-06 programming periods)
Cohesion policy remains the area of budget expenditure
where the number of irregularities reported as fraudulent is highest, but this
has remained stable in the last three years.
The European Regional Development Fund (ERDF) accounted
for the largest proportion of reported fraudulent irregularities in 2012, while
in the past five years the European Social Fund (ESF) had been predominant. In
terms of amounts involved, the ERDF always represented the biggest proportion
because of the higher value of financing for the supported projects.
As to which authorities detected the fraudulent
irregularities, the largest proportion (59 %) is accounted for, for the
first time, by the control system provided for in EU legislation, rather than
criminal investigations or anti-fraud bodies. This represents a striking difference
in comparison with the previous (2000-06) programming period, when detection
occurred almost exclusively following anti-fraud or criminal investigations.
The Commission’s efforts in the last few years to
raise awareness of fraud in this sector seem to have borne fruit among national
authorities, although this trend needs to be consolidated in the coming years[11]. In terms of financial amounts, the most significant results still
relate to criminal and anti-fraud investigations, which represent about 64 %
of the total.
Another significant development is the reduction
in the time taken to report fraudulent cases after detection: on average, eight
and a half months. On the other hand, irregular practices were detected, on
average, two years and seven months after they began.
The ratio of established fraud for cohesion
policy is lower than average: about 4 % of the irregularities reported as
fraudulent in the period 2008-12.
2.2.2.3.  Pre-accession
Policy (Pre-Accession Assistance (PAA) and Instrument for Pre-Accession (IPA))
In the area of pre-accession assistance, the
number of irregularities reported as fraudulent continued to decrease in 2012,
confirming the downward trend since 2009. EU-12 Member States have phased out of
PAA and it is nearly complete, with the exception of a few projects and
remaining payments for the Community Assistance for Reconstruction, Development
and Stabilisation (CARDS) programme. 
This decrease in the number of irregularities
reported as fraudulent was accompanied by a significant increase in the amount
concerned, due to two cases notified by Romania, for a total of EUR 38.5
million. Without these two exceptional cases, the downward trend would have
been confirmed for the amounts also.
Rural development assistance remains the area
with the highest number of irregularities reported as fraudulent.
In relation to the current programming period,
reported fraudulent irregularities concerning IPA recorded a slight decrease in
2012. This may stem from the backlog in implementation.
2.2.2.4.  Expenditure
directly managed by the Commission
Expenditure directly managed by the Commission is
analysed on the basis of data on recovery orders issued by Commission services
in relation to expenditure managed under centralised management mode.
In 2012, according to the Accrual-Based
Accounting system (ABAC), 26 recoveries were classified by the Commission
services as suspected fraud and subsequently reported to OLAF. Another 1 648
recoveries were classified as irregularities. The financial impact of these
cases is about EUR 2.7 million.
2.2.3.     Results
of the European Anti-Fraud Office (OLAF)
In 2012, OLAF opened 431 investigation and
287 coordination cases and closed 465 (of which 100 with recommendations).
54 recommendations for judicial action were
sent to national authorities and about EUR 284 million was
recommended for recovery, of which EUR 165.8 million related to revenues and
EUR 118.2 million to expenditure (see Table 2).
Table 2: Amounts recommended for recovery in 2012
following OLAF investigations
2.3.        Irregularities
not reported as fraudulent
In 2012, 12 137 irregularities not
reported as fraudulent (non-fraudulent) were notified to the Commission (about
6 % more than in 2011), with a related financial impact of about EUR 2.9 billion
(more than double the figure for 2011). The sharpest increases were recorded in
the areas of cohesion policy and direct expenditure (see paragraph 2.3.2), as
shown in Table 3.
Table 3: Irregularities not reported as fraudulent in
2012[12]
Annex 2 provides a breakdown by Member State, and according to revenue and expenditure, of all non-fraudulent
irregularities reported in 2012.
2.3.1.     Revenue
As regards TOR, the number of
non-fraudulent irregularities reported in 2012 remained stable but the total
established amount is 20 % higher than the average for the years 2008-12.
CHART 6: TOR- Cases of irregularity not reported as
fraudulent and amounts affected (2008-12)
In 2012, post-clearance controls were the
most important method for the detection of irregularities, in terms both of the
number of cases detected and the established TOR amounts.
In recent years, the Commission’s TOR
inspections have focused on Member States’ customs control strategies and the close
monitoring of action taken by Member States in response to observations made
during the inspections. The Commission has observed a shift in Member States’
strategies from customs controls carried out at the time of clearance of goods
to post‑clearance controls. This is confirmed by data received from Member States.
While post-clearance customs controls are an effective method for the detection
of irregularities, customs controls at the time of clearance remain important
for the detection of fraud cases (see paragraph 2.2.1).
2.3.2.     Expenditure
In the expenditure budget areas, the
increase in the number of non-fraudulent irregularities is mainly in the direct
expenditure sector and is almost entirely explained by the improved use by the
Commission Directorates-General of the ABAC system, which has provided more
accurate information. It should be noted that, unlike in all other sectors, all
irregularities in direct expenditure are recorded without any threshold
applied.
Concerning the increase in amounts, two
areas are significant: (i) direct expenditure, where a single irregularity of
about EUR 40 million (now corrected and acted upon) accounts for the variation
in relation to 2011 and (ii) cohesion policy, where the significant amount is
partly explained by the increased implementation of the 2007-13 programming
period but largely by some irregularities identified by the Commission audit
services in past years and reported by the competent national services only in
2012. About EUR 1.5 billion are related to non-fraudulent irregularities
reported by the Czech Republic and Spain (again, financial corrections and
corrective measures have been agreed and acted upon). As regards the Czech Republic, almost half of these amounts stem from financial corrections applied following
audits by Commission services; as regards Spain, half of the amounts are linked
to notifications concerning irregularities relating to the 2000-06 programming
period, requested by the Commission in relation to the closure process[13].
3.           Recovery
and other preventive and corrective measures
An important aspect of protecting the EU’s
financial interests involves the use of mechanisms to prevent and correct fraud
and other irregularities so as to ensure the implementation of the budget in
accordance with the principles of sound financial management[14].
Under shared management, the following
measures may be adopted by the Commission:
·                        
Preventive measures: interruption of payments
(moving the payment deadline back by up to six months)[15]; suspension
of all or part of the interim payments to a Member State[16].
·                        
Corrective measures: where the required measures
are not taken by the Member State concerned, the Commission may decide to
impose a financial correction[17].
Expenditure that is not in accordance with applicable rules is either the
subject of a recovery order or a deduction from the subsequent
request for payment.
Data on Member States’ direct recoveries from
beneficiaries are only partially available[18] and
are included in the Commission Staff Working Document ‘Statistical evaluation
of irregularities’.
Data on management types other than shared
management (particularly direct expenditure) mainly concern recovery orders
issued by Commission services, or deductions from cost claims.
3.1.        Expenditure:
preventive mechanisms
3.1.1.     Interruptions
in 2012
In 2012, the Commission took 187 decisions to
interrupt payments (involving over EUR 5 billion) in the cohesion
policy area. Of these, 70 were still open at the end of 2012 (involving over
EUR 1.7 billion).
Table 4 records the interruption cases
handled in 2012[19] and shows the significant prevention activity undertaken,
particularly in relation to the ERDF/Cohesion Fund, which represent more than
60 % of the cases and about 80 % of the total amounts concerned.
Table 4: Interruption cases handled by the Commission
services in 2012
3.1.2.     Suspensions
A suspension decision taken for two ERDF/Cohesion
Fund programmes in Germany and Italy was still effective at the end of 2012. Two
suspension decisions were adopted in 2012 relating to ESF payments to the Czech Republic (still ongoing at year’s end) and Slovakia.
3.2.        Expenditure:
financial corrections and recoveries in 2012
In 2012, corrective measures adopted by the
Commission vis-à-vis Member States increased significantly (+30 %
for ‘confirmed/decided’ and +137 % for ‘implemented’), mainly in the cohesion
policy area (see Table 5).
Table 5: Financial corrections and recoveries per budget sector —
2012–11
Annex 3 shows a breakdown by Member State of financial corrections implemented in 2012 under shared management: about 58 %
of the EUR 3.7 billion are due to financial corrections implemented in relation
to Spain[20].
3.3.        Recovery
relating to own resources revenues
As regards own resource revenues, which are
the major source of funds for the EU budget, recoveries concern the follow-up
of Commission’s inspection reports, European Court of Auditors audits,
financial responsibility cases resulting from Member States’ administrative
errors or lack of diligence in their recovery action, infringement proceedings,
European Court of Justice rulings and amounts resulting from spontaneous
payments by Member States and interest or late payments relating to own
resources. These amounts are set out in Table 6.
Table 6: Recoveries relating to own resources[21]
3.3.1.     Traditional
own resources
Traditional Own Resources (TOR) mainly consists
of customs duties charged on product imports from non-EU countries and, to a lesser
degree sugar levies. They account for 13 % of total EU revenue for 2012.
About 98 % of all TOR established amounts are collected without particular
problems. The remaining 2 % relate to cases of fraud and other
irregularities. Member States are obliged to recover these amounts and register
them in the OWNRES database. For 2012, the amount to be recovered[22] is EUR 444 million, of which EUR 208 million has already
been recovered by Member States (yearly recovery rate: 47 %). In addition,
Member States continued their recovery activities regarding cases from previous
years and recovered a combined total of approximately EUR 83 million in
relation to cases of fraud and irregularities detected between 1989 and 2011.
The historical recovery rate (1989-2009) is 77 %[23].
Recovery of amounts linked to cases of
fraud is generally much less successful than in cases of irregularities.
Classification of a case as fraud is, therefore, an indicator of future
recovery results.
Member States’ activities to recover TOR
are monitored by means of TOR inspections and through the procedure requiring
that all amounts exceeding EUR 50 000 that are finally declared
irrecoverable by Member States be reported to the Commission. Member States are
held financially liable for the non-recovery of TOR in cases where weaknesses
are observed in their recovery activities.
4.           Anti-Fraud Policies at EU Level
4.1.        Anti-fraud
policy initiatives taken by the Commission in 2012
4.1.1.     OLAF
reform proposal (Regulation 1073/1999)
The Commission’s amended proposal to amend
Regulation (EC) No 1073/1999 concerning investigations conducted by OLAF and
repeal Regulation (Euratom) No 1074/1999[24]
focuses on clarifying the procedural rights of persons under investigation by
OLAF, enhancing the efficiency of its investigations, and improving cooperation
with its partners (other EU institutions and bodies, Member States and
international organisations). The proposal also seeks to clarify the role of
the OLAF Supervisory Committee and establish a periodical exchange of views
with EU institutions to discuss OLAF’s policy priorities.
Informal
discussions between the European Parliament, the Council and the Commission,
from October 2011 to June 2012, laid the base for a broad agreement that is
reflected in the Council’s first reading position, formally adopted on 25
February 2013[25] and approved by the European Parliament on 3 July[26]. The new Regulation is likely to enter into force on 1 October
2013.
4.1.2.     Proposal
for a Directive on the fight against fraud to the Union’s financial interests by means of criminal law
In 2012, the Commission submitted a proposal for
a Directive on the protection of the EU’s financial interests by criminal law.[27] This aims to reinforce the legal framework to protect the EU’s
budget from criminal misuse.
The
draft Directive aims to clarify, harmonise and strengthen criminal law in Member
States as regards offences relating to the EU budget. There are considerable
differences across Member States in the level of (criminal law) protection of
the EU budget. One reason is that existing legislation[28] has
not delivered sufficient harmonisation and enforcement in Member States. The
proposal promotes deterrence through initiatives for further harmonisation of
offences and sanction levels under substantive criminal law to protect EU
financial interests. These include:
- Defining offences — fraud, corruption,
money laundering — broadly on the basis of the Convention for the protection of
the financial interests of the European Communities and accompanying protocols;
- Harmonising definitions of additional
offences (dishonest conduct of tenderers in public procurement,
misappropriation of funds contrary to authorised purposes);
- Providing rules on minimum imprisonment terms
for particularly serious offences, based on thresholds to ensure the
proportionality of the measure;
- Harmonising the period within which the
investigation, prosecution, trial and judicial decision for an offence must
take place;
- Setting out accompanying measures to
protect EU financial interests by means of criminal law, including rules on
jurisdiction and liability of legal persons.
The
proposal has been transmitted to the European Parliament and Council. The
Council has adopted a general approach in June of 2013. The opinions of the
responsible Committees of the European Parliament are expected to be adopted in
the second half of 2013.
4.1.3.     Preparatory
work for the establishment of a European Public Prosecutor's office (EPPO) 
During
2012, OLAF and the Commission’s Directorate-General for Justice carried out an
extensive consultation with Member States, experts and stakeholders on the
possible setting-up of a European Public Prosecutor’s Office to protect EU
financial interests[29]. The legislative proposal was put forward
on 17 July 2013[30] and is accompanied by a proposal to reform EUROJUST[31]. 
OLAF’s
case experience demonstrates the need for a European prosecution authority to
improve investigations in EU fraud cases and speed up prosecutions. A centrally
placed body can better ensure continuity and effectiveness in the investigation
and prosecution process. The EPPO will be a genuine investigation and
prosecution body, which at EU level will increase the efficiency of the fight
against crimes affecting the EU budget. This will remedy the low levels of
investigation and prosecution that currently hamper the effective protection of
the Union's financial interests.
4.1.4.     Initiatives
on fighting corruption in the EU
In 2011, the Commission presented an overall EU
anti-corruption policy[32] and called for a sharper focus on corruption in
a range of policy fields highlighting closer cooperation, updated rules on
confiscation of criminal assets, revised public procurement legislation, better
crime statistics and more rigorous use of conditionalities in cooperation and
development policies.
The Commission has given a commitment to publish an EU
Anti-corruption report every two years. The report will seek to intensify
anti-corruption measures in the EU and strengthen mutual trust between Member
States. It will also identify EU-wide trends, facilitate exchanges of best
practice and prepare the ground for future EU policy measures. Corruption in public procurement will be the cross-cutting theme of
the first report, scheduled for the second half of 2013.
4.1.5.     Anti-fraud
policy in customs 
4.1.5.1.  Mutual
Administrative Assistance (MAA) 
Mutual administrative assistance to combat
customs fraud is based on Council Regulation (EC) 515/97[33]. In
2012, the Commission undertook an impact assessment with a view to updating
this legal framework to further improve detection and the fight against customs
fraud in the EU. A proposal is expected to be adopted by the Commission in the
course of 2013.
4.1.5.2.  Joint
Customs Operations (JCOs)
Joint Customs Operations are coordinated
and targeted operational measures implemented by the customs authorities of Member States and third countries, over a limited time period, to combat illicit
cross-border trafficking in goods.
In the context of mutual assistance
between EU customs administrations and the Commission, OLAF provides an IT
platform, IT applications and an operations room for use by Member States to
carry out JCOs. In 2012, OLAF supported four[34] Joint
Customs operations run by the Member States.
4.1.5.3.  The
Anti-Fraud Information System (AFIS)
The main objective of AFIS which is
managed by OLAF is to improve cooperation with partners including other
institutions, Member States, international organisations and third countries
for the correct application of EU customs law. Member States use AFIS to report
cases of fraud and irregularities, and welcomed the system at the May 2012 AFIS
conference in Lisbon, where further development of the system was discussed. IT
projects were carried out to improve communication and ease data extraction
from AFIS.
By the end of 2012, AFIS had 10 180
registered end-users on behalf of 1 750 services in Member States, third
countries, international organisations, the Commission and other EU institutions,
and users had exchanged 10 120 MAB mail (AFIS secure mail service)
messages. A total of 8 370 cases had been published in the AFIS mutual assistance
databases and modules.[35] The transit information database (ATIS) had received information on
seven million new transit consignments, representing a total of 35 million
goods movements. The irregularity management system (IMS) had received 19 800
new reports on irregularities from Member States and candidate countries in
2012 and holds a historical total of 152 000 reports. 
4.1.6.     Fight
against VAT fraud
In
response to the European Council request of 2 March 2012 and the European
Parliament Resolution of 19 April 2012, the Commission adopted a Communication
on tax fraud and tax evasion[36] on 6 December 2012. The Communication presented
an action plan to combat tax fraud and tax evasion including in relation to
third countries. Under this action plan, the Council and Member States are encouraged to make further progress on existing initiatives, including the quick
reaction mechanism and the application of a reverse charge on certain
categories of goods and services. The Council has recently reached a political
agreement on these initiatives. In addition, the action plan led to the setting-up
of an ‘EU VAT Forum’ to enhance taxpayers’ voluntary compliance, the
continuation of technical and capacity-building assistance to Member States and
aims at the introduction of a common risk analysis within Eurofisc (the network
for quick exchange of targeted information to fight VAT fraud) and the
negotiation of bilateral administrative cooperation agreements on VAT with
third countries.
4.1.7.     Anti-fraud
provisions in international agreements
To safeguard the EU’s financial interests,
fight against breaches and ensure proper application of customs legislation, EU
international agreements — such as preferential trade agreements, cooperation
agreements, non-preferential agreements and stand-alone agreements on customs
matters — contain provisions on customs mutual administrative assistance (MAA)
and measures on the enforcement of preferential treatment.
At the end of 2012, 44 agreements including
MAA provisions for 62 third countries were in force and bilateral or regional
negotiations were under way with another 88 countries (including some of the
EU’s biggest trading partners)[37]. In 2012, the EU concluded free trade agreements (FTA) with the
Central American region[38] and the Andean countries.[39] FTA negotiations
with Singapore were concluded in December 2012. Economic Partnership Agreements
became applicable for a further four ACP countries[40]. All
the above-mentioned agreements contain customs MAA provisions and measures on
the enforcement of preferential treatment.
4.1.8.     Fight
against illicit trade in tobacco products
4.1.8.1.  Commission
Action plan to fight against smuggling of cigarettes and alcohol along the EU
Eastern border
Cigarette smuggling causes significant
losses of revenue for the EU and its Member States – these are estimated at
more than EUR 10 billion in customs and tax revenues every year. The smuggling
of highly taxed goods — cigarettes and alcohol — is one of the prevailing
criminal phenomena on the Eastern border. In June 2011, the Commission presented
an action plan to combat smuggling of cigarettes and alcohol in this region[41]. The Commission raised this issue with neighbouring countries on
the Eastern border, coordinated action by Member States in the region and
provided technical assistance through the Hercule III programme[42].
Analysis shows, however, that cigarette
smuggling is a problem throughout the Union. Therefore, on 6 June 2013, the
Commission presented an overall EU strategy in a Communication on stepping up
efforts to fight against cigarette smuggling[43]. The
Communication is accompanied by an Action Plan that integrates on-going actions
under the Eastern border action plan.
4.1.8.2.  Framework
Convention on Tobacco Control (FCTC): Protocol to Eliminate Illicit Trade in
Tobacco Products
The Commission strongly supports the
Protocol to Eliminate the Illicit Trade in Tobacco Products to the World Health
Organisation (WHO) Framework Convention on Tobacco Control (FCTC), which is in
line with its responsibility to protect the financial interests of the EU,
including the fight against cigarette smuggling and counterfeiting.
The Commission coordinated the EU position
and, together with the Council Presidency, represented the EU during the
negotiations on the Protocol, which was adopted in November 2012. It is open
for signature by Contracting Parties of the FCTC until January 2014. Once in
force, it is expected to contribute substantially to the fight against the
illicit tobacco trade.
The EU, together with the Member States,
should sign and ratify the Protocol as soon as possible.
4.1.8.3.  Agreements
with cigarette manufacturers
In 2012, the Commission and
representatives of Member States held separate meetings with four cigarette
manufacturers[44] to discuss the implementation of cooperation agreements. An
agreement was reached with PMI under which the manufacturer would make
supplemental (seizure) payments to all Member States as soon as representatives
of all Member States, the EU and the company signed a modification agreement on
the matter. Not all Member States have as yet signed.
4.1.9.     Public
procurement rules
Fraud is often linked to procurement.
Consequently, the Commission included
new provisions in its proposals for directives on
public procurement[45] adopted on 20 December 2011: 
–     
Introduction of the notion of conflict of
interests; 
–     
Exclusion of tenderers whose managers have been
convicted of corruption or other serious fraud; and
–     
An overall governance framework including
monitoring and reporting obligations to curb procurement fraud especially when it
involves EU funds.
The
Commission proposals have been thoroughly discussed in the European Parliament and
the Council. An earlier proposal[46] to
create a national oversight body dedicated to public procurement was not agreed
by the Council but has been replaced by certain monitoring and reporting
obligations to the Commission, in particular in cases of corruption. These
proposals, if adopted, would significantly improve governance as well as the
mitigation and follow-up of breaches of public procurement rules, especially
when related to conflict of interest.
4.1.10.   Commission
Anti-fraud Strategy (CAFS)
Adopted in June 2011, the Commission
Anti-fraud Strategy (CAFS)[47], is mainly addressed to Commission departments. It aims to balance
cost effectiveness and simplification with the possibility of adapting existing
anti-fraud measures to counter new fraud schemes. The Commission draws on
OLAF’s experience of investigations into alleged fraud.
The CAFS implementation is well on track,
especially for the three priorities to be achieved by the end of 2013:
–     
Adequate anti-fraud provisions in Commission
proposals on spending programmes under the new Multiannual Financial Framework
(MFF);
–     
Development of anti-fraud strategies at
Commission service level;
–     
Revision of procurement directives[48]. 
OLAF complements the implementation of
these priority actions by providing other services with an internal anti-fraud
website and guidance, training and coordination.
4.1.11.   Hercule
and Pericles Programmes
4.1.11.1.          Implementation
of Hercule II and Pericles Programmes
In 2012, the Hercule II Programme supported actions to strengthen the technical and operational
capacity of law enforcement agencies to combat fraud against the EU. It did
this through technical assistance (EUR 7.35 million), training activities,
including digital forensic training (EUR 3.25 million), legal training and
studies (EUR 0.7 million), and IT support for the purchase of data
and information made available to Member States’ authorities (EUR 2.95
million). The indicated amounts reflect the available budget for 2012. 
In 2012, under the
Pericles Programme for the protection of euro banknotes and coins against fraud
and counterfeiting, the Commission (OLAF) took part in 16 activities,
including conferences, seminars and staff exchanges, organised by Member States and/or the Commission (OLAF). These events focused particularly on strengthening cooperation with the
responsible authorities and included discussions of programmes with applicants
and experts from Member States, the European Central Bank and Europol. In
2012, 94.75 % of the Pericles Programme’s EUR 1 million was committed.
4.1.11.2.          Multiannual
Financial Framework (MFF) 2014-20
In December 2011, in the context of the Multiannual
Financial Framework, the Commission adopted proposals for continuing two
programmes with a view to reinforcing fraud prevention and the fight against
fraud: Hercule III[49] and Pericles 2020.[50]
In 2012, the European Parliament’s Committee
on Budgetary Control and the Council’s working group on combatting fraud (GAF)
discussed both proposals. Under the Danish Presidency, the GAF was able to
prepare agreement on the Commission’s proposals, except for the co-funding
percentages and the overall budget of the programme. The Committee on Budgetary
Control adopted its reports on the proposals in November 2012. Parliament and
Council started negotiations under the Irish Presidency in 2013 with a view to
reaching an agreement.
4.2.        Advisory
Committee for Coordination of Fraud Prevention (COCOLAF)
Under Article 325 of the TFEU, Member States,
together with the Commission, organise close and regular cooperation between
their competent authorities. A major forum for the coordination activities is
the Advisory Committee for Coordination of Fraud Prevention (COCOLAF).[51]
In 2012, COCOLAF was consulted twice on the
main developments in legislative and policy initiatives in the fight against
fraud.
COCOLAF shared its views on EU efforts to
strengthen the protection of EU financial interests and in general agreed with
current initiatives, in particular with regard to harmonising the legal basis
for fighting fraud against the EU.
A revision of COCOLAF’s structure and various
existing expert groups is planned for 2013, to improve the groups’ overall
functioning and provide a clearer overview of activities involving the
Commission (OLAF) and Member States.
4.3.        European
Parliament Resolution of 10 May 2012 on Protection of the Communities’
financial interests — Fight against fraud — Annual report 2010
The European Parliament adopted its Resolution
on the Commission’s 2010 report on 10 May 2012.[52] The Resolution contains specific requests, comments and proposals
covering all sectors of the budget. It is addressed to the Commission and Member States and covers a wide range of topics, such as losses in customs duties and VAT,
irregularity reporting in all sectors by Member States and public procurement.
It regrets that the Commission’s report does not consider fraud in detail but
deals with irregularities very broadly, and criticises the low number of irregularities reported by some
Member States in particular sectors.
The European Parliament welcomed the improved
recovery rate in cohesion policy funds and the great progress made by Bulgaria in strengthening its national control systems for pre-accession funds. It also
welcomed the success of the joint customs operation ‘Sirocco’ and the
effectiveness of the Hercule II Programme coordinated by OLAF.
The Commission has submitted a follow-up
report outlining the measures to be taken to respond to Parliament’s concerns.
In particular, the Commission pointed out that there would be a greater focus
in the Article 325 report on in-depth analysis of fraudulent irregularities,
but emphasised that reporting on all irregularities (including non-fraudulent) is
necessary to fulfil the report’s mandate and to understand more fully the
fraudulent irregularities. In line with Parliament’s recommendation, the
Commission already increased the emphasis on analysis of fraudulent
irregularities in the 2011 report and has done so yet further in the present
report.
With regard to Parliament’s concerns that
some Member States are reporting little or no fraudulent cases for some funds,
the Commission made further contact with the Member States in question to
address the problems of incomplete reporting. Part of the problem, however, is
that fraud detection must still be improved in some Member States. A range of
measures has been taken to guide and support Member States in improving their
fraud detection and reporting performance.
The Commission audits Member States’ recovery
procedures and suspends payments when significant deficiencies are found.
Recoveries were improved in the area of agriculture partly because Member
States now bear half of the irrecoverable amounts if they fail to recover in
due time or all the cost if they make negligent pay-outs (50 % rule). For
the 2014-20 MFF, the Commission has also proposed further strengthening the
legal framework.
In addition, the Commission outlined actions
it would take concerning cohesion policy funds as part of its Joint Fraud
Prevention Strategy concerning the cohesion policy funds. The strategy involves
fraud risk assessment, fraud detection, and internal and external fraud
awareness actions (in the Commission departments in charge of implementing
cohesion policy and in Member States).
5.           Measures
taken by Member States to counter fraud and other illegal activities affecting
the financial interests of the EU
Each year, Member States report to the
Commission on the main measures taken on the basis of Article 325 TFEU to
combat fraud and other illegal activities affecting the financial interests of
the EU.
In 2012, Member States implemented various
measures both general and specific that reinforce the prevention
and repression of fraud affecting the EU’s financial interests. However,
information provided by nearly half of the Member States shows that their
ability to detect and prosecute fraud and to enforce recoveries is limited.
Moreover, practices for reporting fraud and irregularities differ amongst and
within Member States.
5.1.        Measures
to combat fraud and other irregularities affecting the financial interests of
the EU
Administrative measures reported by Member
States mainly concern increased monitoring by managing authorities, agencies or
bodies, more rigorous financial audit, and updated guidelines or methodology
manuals.[53] Other measures are designed to improve cooperation between
competent authorities, reinforce checks,[54]
promote strategic cooperation with the Commission in preventing fraud and
corruption,[55] provide training[56] and improve contract security[57].
More general measures address improvements in
public procurement acts[58] and the recovery of undue payments[59].
5.2.        Measures
to combat fraud and other irregularities affecting the financial interests of
the EU in the area of agriculture
The particular focus in 2012 was on
agriculture. Reporting covered information about anti-fraud investigations,
legislative and administrative measures and strategies, fraud indicators,
amounts recovered in connection with anti-fraud investigations and data on
personnel assigned to and involved in anti-fraud investigations.
5.2.1.     Legislative
and administrative measures
Many Member
States[60] reported in 2011-12 on new legislative and administrative measures that
substantially improved fraud prevention and risk management in agricultural
funds. Some Member States reported measures concerning the entire
administration of agricultural aid[61].
These measures
mainly concern eligibility of expenditure, on-the-spot checks and audits for
the European Agricultural Fund for Rural Development (EAFRD), better targeted
checks as a result of risk assessments on the young farmers’ and Less-Favoured
Areas (LFA) schemes and improvements in the certification procedure due to
stricter controls. Several Member States[62]
reported measures improving their financial control following revision of
national legislation and further updates in supporting schemes (rural
development policy, direct supporting schemes). Some Member States[63] reported improvements in national legislation or harmonisation with
EU law regarding procedures for handling irregularities, including definitions
of irregularity, reporting procedures, financial corrections or recovery of
funds, and a clearer definition of fraud offences and investigative procedures.
Four Member States[64] reported making improvements in their national registries and data
management to allow easier cross-checking. Others[65]
reported improving their risk management systems through better organisational
structures, internal control systems and guidelines on checks, or new risk
analyses for the prevention of serious and organised tax fraud.
In terms of
effectiveness and efficiency, most Member States[66] reported
that the new legislative or administrative measures had led to better results,
including earlier detection, fewer undue payments, more irregularities detected
before payment and a higher degree of accepted eligible expenditures. Some
pointed to fewer on-the-spot checks, including better use of resources due to
new risk analyses. Most Member States reported that they had acted to improve
the reliability and consistency of financial reporting.
5.2.2.     New
prevention and detection strategies
The majority
of Member States[67] reported that they were now using one or more of the following:
national strategies, regional strategies, strategies based on a particular type
of operation for risk mitigation, and better prevention and detection of fraud
in the spending of agriculture funds.
5.2.3.     Use
of fraud indicators
Almost all
Member States[68] mentioned using general fraud indicators such as categories of
irregularity, operations, modi operandi, economic sectors or
geographical areas affected.
In addition, the majority of Member States[69] declared that they also make use of their own specific indicators,
such as identity of beneficiaries, transparency in procedures, changes in the amount of aid as compared to the previous marketing
year, submission of false or suspect data or attempts
to conceal information.
5.2.4.     Implementation
of reporting provisions
Many Member
States[70] reported that they had adopted guidelines on distinguishing between
fraud and other irregularities and organised staff training to clarify the
distinction. Three[71] stated that they had not adopted such guidelines because existing
regulations and procedures are sufficient.
Answers
received regarding reporting practices under Regulation (EC) No 1848/2006 show
that practices vary not only from one Member State to another, but also between
bodies in the same Member State. The latter is true not only in federal
countries, nor just across policy areas such as Agriculture, Fisheries or
Cohesion[72]. 
5.2.5.     Insufficient
statistics on fraud detection and prosecution and related recoveries
Nearly half of the Member States[73] still provide limited information concerning the number of
administrative anti-fraud checks and procedures initiated to establish cases of
fraud. Bulgaria, Denmark, Italy, Poland and Romania launched the highest number
of anti-fraud investigations.
Similarly, the majority of Member States did
not provide enough data on the number of criminal proceedings finalised with a
court decision. In addition, nearly half[74]
provided incomplete data on the amounts recovered relating to fraud following
administrative anti-fraud checks. The situation is even less satisfactory
regarding data on the amounts recovered[75] and
financial penalties in relation to criminal investigations..
This leads to the conclusion that last year’s
recommendation on the monitoring of results of criminal investigations in the
domain of cohesion policy has been only partially addressed.
5.3.        Operation
‘Magna Grecia’
In 2011 and 2012, the Italian financial
police, Guardia di Finanza (GDF), conducted 23 investigations into
beneficiaries whose projects were financed through the 2000-06 Structural Funds
in the Calabria Region of southern Italy. Each investigation would cover more
than a single project. Irregularities were found in 18 cases.
During the investigations, projects worth
more than EUR 23.5 million were inspected, of which almost EUR 16 million was
found to be subject to irregularities. Thirty individuals, including four
public officials, were prosecuted for fraud, falsification in public and
private acts, misappropriation of public funds, use of false invoices, hiding
or destroying accounting documents and money laundering. GDF requested seizures
of goods totalling about EUR 4.5 million.
The investigations were the result of
thorough analysis started by OLAF in 2010 and jointly pursued throughout 2011
in order to refine risk indicators and to integrate further data and GDF’s
local knowledge. The operation demonstrated the efficiency of this innovative
approach, which made it possible to target specific beneficiaries matching the
identified risk indicators.
5.4.        Implementation
of 2011 recommendations
In the 2011 report on the protection of the Union’s financial interests, the Commission made a number of recommendations to Member
States, in particular on reported fraudulent and non-fraudulent irregularities,
recovery of irregular amounts, monitoring the results of criminal
investigations and improving their fraud statistics. The implementation of
these recommendations, presented as part of the 2012 reporting exercise, was
adequate on the whole, although some concerns were not fully addressed. In the
area of shared management, the majority of Member States reported that they
target their fraud prevention and detection efforts on the basis of risk
analysis. The Member States which were asked to explain low levels of detected
fraud in either agriculture[76] or cohesion policy[77] continue to attribute this to the quality of their fraud prevention
systems and to low levels of actual fraud. Various Member States improved their
control systems by targeting high-risk areas as recommended. For cohesion
policy in particular, Bulgaria amended legislation to enable new financial
inspections targeting high-risk public procurement contracts. Romania is now piloting a system of ex-post checks to look for fraud and conflicts of
interests. Slovakia sought to incorporate public complaints and media reports into
their risk analysis.
France has completed
the implementation of the Irregularity Management System (IMS) for cohesion
policy. Given that Croatia also fully implemented it from October 2012 in
preparation for accession, IMS is now fully operational in all Member States. 
Regarding revenue, many Member States[78] responded positively to the Commission’s recommendation to target
customs inspections on high-risk imports, often developing new IT tools to
assist in this process.[79]
For cohesion policy, 74 % of Member
States reported taking measures to improve their management and control systems
in accordance with the recommendation.[80]
Generally Member States have paid special attention to the areas of public
procurement and eligibility following the Commission’s observations that these
areas were particularly error-prone.[81] Latvia and Lithuania amended relevant legislation on procurement and on the identification and
classification of irregularities and recoveries respectively. Finland took measures to simplify eligibility checks.
The last recommendation called on Member
States to monitor the results of criminal investigations and improve their
fraud statistics. Some of the follow-up reported (or not reported) this year
contributes to the Commission’s well-founded concern that the problem has yet
to be satisfactorily resolved.
Greece, Hungary, Italy, Latvia, Lithuania, Slovakia and the United Kingdom have put in place IT or other
systems to improve their fraud statistics, or are in the process of doing so.
Others seemed satisfied with their existing systems.
6.           Conclusions
and recommendations
6.1.        Two
trends in relation to policy and operational developments
In relation to the fight against fraud by Member States and the Commission, the present report highlights two main trends, one concerning
the adoption of new anti-fraud measures and the other relating to the
operational results achieved.
On the policy side, the Commission and Member States undertook a number of significant initiatives in 2012, at both legislative
and administrative level. This positive momentum underlines the growing
attention paid by competent authorities to fraud and other illegal activities
detrimental to EU (and, in cases of co-financing, national) financial
interests. While actions taken at national level are already in place,
initiatives promoted at EU level, in particular the proposal for a Directive on
the protection of the EU’s financial interests and the package on new public
procurement rules, still await the approval of the legislator, while others, such
as the new package for the 2014-20 financial perspectives, are at an advanced
stage of negotiation.
On the operational side, the situation as
regards irregularities reported as fraudulent in 2012 appears generally stable
in relation to 2011, with a significant increase only in the number of cases in
the area of agriculture. This increase was due exclusively to the efforts made
by a single Member State (Denmark) and was offset by a comparable decrease in
the pre-accession area.
The benefit of the measures adopted in 2012
will be felt in future years.
6.2.        Diverse
approaches to fraud
The approaches of Member States remain very diverse,
with a group of six countries (Czech Republic, Denmark, Germany, Italy, Poland
and Romania[82]) leading in terms of fraud detection capability in the expenditure
area and five countries (Belgium, Germany, Greece, Italy and Spain[83]) leading the way in relation to the revenue (traditional own
resources) side.
Results for the remaining Member States are
more homogeneous in the area of revenue than in the area of expenditure, where
significant beneficiaries of EU resources, such as Greece, France and Spain, show a very limited capacity to detect fraud.
Member States approach and address the detection of fraud in different ways. The
explanations for these divergent attitudes lie mainly in legal and
organisational differences, which vary not only between Member States but also
between administrations in the same country. 
Recommendation 1
The identification
of national coordination services for the fight against fraud would increase
the consistency in approach between and within Member
States.
Member States are
invited, where not already done, to quickly designate or establish their Anti-Fraud
Coordination Service (AFCOS).
6.3.        Adoption
of common rules on fraud
Currently, sanction levels for fraud are so
low in some Member States that they cannot be said to have any deterrent effect
at all. Many cases of fraud affecting the Union's financial interests go
unpunished because the time that is allowed by law to investigate and prosecute
fraud has lapsed. 
The proposal for a Directive on the protection
of the EU financial interests by means of criminal law addresses these problems
by providing for a minimum period of time limitation. Serious cases of fraud
should be punished with a minimum penalty of at least six months and a maximum
penalty of at least five years.
Recommendation: 2
Member States
should ensure that sanctions for fraud have a deterrent effect and
investigations and prosecutions can be pursued for a sufficient period of time.
Member States should quickly adopt and implement the Directive on the
protection of the EU financial interests by means of criminal law.
6.4.        The
most significant risks are confirmed
As in previous years, one of the main
problems identified by the authorities in relation to fraudulent irregularities
detected is the infringement of public procurement rules. Corruption has also
been identified in a limited number of cases linked to this type of violation.
Recommendation 3
The package on the reform of public procurement directives should be approved by the legislator
and rapidly implemented by Member States in order to react to the heightened
risk identified in this area.
In line with previous years’ analysis, cohesion
policy (in particular operational programmes linked to the convergence
objective) remains the area where the greatest number of fraudulent
irregularities has been detected.
Recommendation 4
In view of the low
reporting of fraudulent irregularities as regards some Member States in the
area of Cohesion Policy, the Commission recommends in particular to Greece, France and Spain to strengthen their efforts to detect fraud.
Still on cohesion policy, considering the
period 2008-2012, until 2010 the number of fraudulent irregularities detected
was higher in relation to the ESF than in relation to the ERDF. Since 2011 it
has been the other way around. Looking at the financial impact of these cases, the
priority areas most affected are those where the greatest investments are made,
transport, environment and investments in social infrastructure.
Recommendation 5
Competent
authorities should take the results of the
analysis included in the report and its accompanying staff working documents
into account when planning their checks and controls.
The rate of fraud detection in relation to
rural development remains fairly stable compared with 2011, but lower than that
for similar instruments implemented in the previous programming period (under
structural funds and pre-accession assistance). Authorities’ attention seems
still to be focused on the European Agriculture Guarantee Fund (EAGF).
Recommendation 6
Member States
should step up their efforts on rural development investment projects in relation to the elements of risk highlighted by similar findings in the previous
programming period.
6.5.        Anti-fraud
bodies and law enforcement agencies remain the most effective in detecting
fraudulent irregularities…
On the revenue side, customs controls proved
important for the detection of fraud cases at the time of clearance of goods.
Recommendation 7
When developing
customs control strategies, in parallel with the their post-clearance customs
control activities, Member States should ensure that they have effective
systems of risk assessment allowing them also to carry out checks targeted at
high-risk imports at the time of clearance.
On the expenditure side, the successful detection
of fraud (in particular, where there is a high financial impact) remains to a
significant extent the result of investigations run by anti-fraud bodies or law
enforcement agencies; their positive impact is particularly evident in Member
States that have tried to structure cooperation between the administrations primarily
responsible for the management and control of EU funds and law enforcement
bodies.
... but the
role of managing and audit authorities is increasing …
Detection of fraud by administrative bodies
in Member States is improving, especially as regards less complex cases. Some
Member States reported introducing checks and controls based on risk analysis
and the use of IT tools to enhance fraud detection. Targeting checks and
controls with a specific focus on fraud is particularly important in relation
to the costs connected with this type of check, in order to maximise
effectiveness.
Recommendation 8
The Commission
recommends that all Member States adopt and develop checks and controls, in
particular, structuring and improving cooperation between managing authorities
and anti-fraud bodies as well as improving risk analyses and IT tools.
… in particular
in connection with fraud prevention.
In this period of budgetary constraints, the
importance of fraud prevention measures should not be underestimated and the
role of managing authorities, agencies and bodies should be strengthened by
specific provisions in regulatory proposals for the Multiannual Financial
Framework 2014-20.
Recommendation 9
The Commission
recommends that the legislator adopt the MFF provisions on fraud prevention in
their current formulation and that they be quickly and correctly implemented at
national level.
6.6.        Protection
against EU undue payments — enforced by existing preventive and corrective
mechanisms laid down in EU regulations — remains adequate
Analysis of recoveries and financial
corrections confirms that all the preventive and corrective measures put in
place provide for effective protection of EU financial interests. These
mechanisms ensure that EU resources are spent on authorised projects, in
particular in sectors where operations are co-financed and the risk of
non-recovery is shifted onto the Member State’s budget.
6.7.        Overall
conclusions
The most evident and significant problem
still lies in the differences of approach between Member States in relation to
fraud, as also highlighted by statistics gathered in response to the specific questionnaire.
In relation to the monitoring of results of judicial proceedings, the situation
remains unsatisfactory despite the significant overall improvement achieved.
This leads the Commission to conclude that last year’s recommendation on the
monitoring of results of criminal investigations in relation to cohesion policy
has been only partially addressed.
The establishment of the European Public
Prosecutor's Office (EPPO) will significantly improve the fight against fraud.
The EPPO will overcome the limited capability of national authorities to tackle
fraud once it has been detected and ensure consistency and coherence. , The
EPPO will systematically follow-up cases within its competence until they are
brought to court. As a result, the number of convictions and amounts of money
recovered will increase. Because of higher chances of conviction, potential
perpetrators will be deterred and the number and amounts involved in fraud will
decrease over the years.
ANNEX 1 —
Irregularities reported as fraudulent
(The number of irregularities reported as
fraudulent measures the results of efforts by Member States to counter fraud
and other illegal activities affecting EU financial interests; it should not be
interpreted as the level of fraud in their territories)[84]
ANNEX 2 —
Irregularities not reported as fraudulent 
ANNEX 3 — 2012
financial corrections implemented under shared management (EUR million)[85]
 
[1]               (i) Implementation of Article 325 by the Member
States in 2012; (ii) Statistical evaluation of irregularities reported for
2012 own resources, natural resources, cohesion policy and pre-accession
assistance; (iii) Recommendations to follow up the Commission report on
protection of the EU’s financial interests — fight against fraud, 2011;
(iv) Methodology regarding the statistical evaluation of reported
irregularities for 2012; (v) Annual overview with Information on the Results of
the Hercule II Programme in 2012.
[2]               For definitions see Annex IV (Methodology).
[3]               The high percentage of amounts involved in
irregularities reported as fraudulent relative to the total payments for Pre-Accession
Assistance (last column of Table 1) is entirely due to the fact that payments
in 2012 for this sector have been very limited (i.e. EUR 0.5 million) as
the assistance programmes are almost completed. Fraudulent irregularities
detected and reported in 2012 refer to operations financed under previous
financial years. 
[4]               For
comparability reasons, 2008-11 figures are based on the data used for the
reports for those years.
[5]               See Annex 1.
[6]               On average, two years and seven months elapse between
the start of a fraudulent practice and the moment it is detected. Seven or
eight months, on average, then pass before the irregularity is reported to the
Commission.
[7]               Offence lasting over a longer period of time and
committed by at least three subjects.
[8]               Single event offence committed by only one person.
[9]               Single event committed by more than one person or
protracted over time but committed by a single entity.
[10]             The ratio of established fraud is the ratio of the
total number of cases of established fraud over the total number of
irregularities reported as fraudulent (cases of suspected or established fraud)
during the five‑year period.
[11]             The Commission services responsible for cohesion
policy, together with OLAF, have implemented a Joint Anti-Fraud Strategy since
2008. Its main objective is to strengthen Member States’ capacity to prevent
and detect fraud. 
[12]             See footnote 3.
[13]             These are mostly irregular amounts not included in the
certification declaration and thus not representing potential loss for the EU
budget.
[14]             Data presented in this section reflect those published
in the Commission’s annual accounts, i.e. in Explanatory Note No 6 of the
Accounts of the Union, pending the audit by the European Court of Auditors.
[15]             Cases in the 2007-13 programming period of a
significant deficiency of Member State management and control systems; or if
certified expenditure linked to serious irregularities.
[16]             Applied in three cases: (a) evidence of serious
deficiency in the management and control system and no corrective measure
taken; (b) certified expenditure linked to serious irregularity; or (c) a
serious breach by a Member State of its management and control obligations.
[17]             Financial corrections follow three main steps: (a) in
progress: subject to change not formally accepted by the Member State; (b) confirmed/decided: agreed by the Member State or decided via a
Commission decision; (c) implemented: the financial correction is
carried out and undue expenditure corrected.
[18]             Subsequent amendments to the legal framework have
significantly changed the reporting rules for the current programming period.
[19]             For ERDF, the 116 cases handled in 2012 include 69 new
interruptions decided in the course of the year.
[20]             Of the EUR 2 172 million of financial corrections
implemented in relation to Spain, 90 % is linked to ERDF-financed
programmes.
[21]             The principal amount of own resources is a net amount.
[22]             Only cases involving a TOR amount of over EUR 10 000.
[23]             The calculation takes into account only closed cases,
for which Member States completed the recovery efforts.
[24]             COM(2011) 135 final.
[25]             2013/C 89 E/01, ISSN 1977-091X.
[26]             P7_TA(2013)0308.
[27]             COM(2012) 363 final.
[28]             The 1995 Convention on the Protection of the Financial
Interests and its Protocols of 1996 and 1997.
[29]             Based on Article 86 of the Lisbon Treaty.
[30]             COM(2013) 532
[31]             The EU agency for judicial cooperation in cross-border
criminal matters.
[32]             Communication from the
Commission to the European Parliament, the Council and the European Economic
and Social Committee of 6 June 2011 on Fighting Corruption in the EU —
COM(2011) 308 final.
[33]             http://ec.europa.eu/anti_fraud/documents/eu-revenue/consolidated_r515_97_en.pdf.
[34]             Three were on drugs and one on cash control.
[35]             CIS, FIDE, CIGINFO, MARINFO, YACHTINFO.
[36]             Communication from the Commission to the European
Parliament and the Council An Action Plan to strengthen the fight against
tax fraud and tax evasion, COM(2012) 722 final, 6 December 2012.
[37]             E.g. Canada, India, Malaysia, the MERCOSUR region.
[38]             Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
[39]             Peru and Colombia.
[40]             Madagascar, Mauritius, Seychelles, and Zimbabwe.
[41]             SEC(2011) 791.
[42]             See section 4.1.11 below.
[43]             COM(2013) 324 final.
[44]             Philip Morris International, Inc. (PMI), Japan Tobacco (JTI), British American Tobacco (BAT) and Imperial Tobacco Limited (ITL).
[45]             Proposal
for a Directive on public procurement, COM (2011) 896 final — 2011/438 (COD),
and proposal for a Directive on procurement by entities operating in the water,
energy, transport and postal services sectors, COM(2011) 895 final —
2011/439 (COD).
http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/reform_proposals_en.htm.
.
[46]             Proposal for a Directive of the European Parliament and
of the Council on the award of concession contracts, COM(2011) 897 final —
2011/0437 (COD).
[47]             COM(2011) 376 final.
[48]             See paragraph 4.1.9.
[49]             COM(2011) 914 final.
[50]             COM(2011) 913 final.
[51]             Established under Commission
Decision 94/140/EC of 23 February 1994, as amended on 25 February 2005.
[52]             http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2012-0196+0+DOC+XML+V0//EN&language=EN.

[53]             Bulgaria, Czech Republic, Germany, Estonia Greece, Spain, Lithuania, Luxembourg, Romania, Slovakia and Sweden.
[54]             Germany, Ireland, United Kingdom (England and Scotland).
[55]             Italy.
[56]             Bulgaria.
[57]             Denmark secure digital signature for all citizens and
undertakings used in contacts with public authorities.
[58]             Bulgaria, Czech Republic, Latvia and Poland.
[59]             Belgium, Czech Republic, Slovenia and Sweden.
[60]             Belgium, Bulgaria, Czech Republic, Denmark, Ireland,
Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Hungary, Poland,
Romania, Slovakia and Slovenia .
[61]             Belgium (Wallonia), Czech Republic and Slovakia.
[62]             Ireland, Greece, Spain, Italy and Latvia.
[63]             Ireland, Greece, Spain, Italy and Latvia.
[64]             Germany, Latvia, Hungary and Poland.
[65]             Belgium (Wallonia), Ireland, Spain and Lithuania.
[66]             Belgium, Bulgaria, Czech Republic, Greece, Spain,
Italy, Cyprus, Latvia, Lithuania, Hungary, Austria, Poland, Romania, Slovakia,
Slovenia, and United Kingdom.
[67]             Belgium, Bulgaria, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, , Italy, Cyprus, Hungary, Netherlands, Austria, Portugal, Romania and Slovakia..
[68]             All except Luxembourg.
[69]             Except five (Belgium, Denmark, Netherlands, Slovenia and Sweden).
[70]             Bulgaria, Estonia, Greece, Spain, France, Italy, Cyprus, Latvia, Hungary, Netherlands, Portugal, Romania, Slovenia, Slovakia, Sweden and   United Kingdom. 
[71]             Belgium
(ALV), Austria and Poland.
[72]             See point 2.2.9 of the Commission Staff Working
Document on Implementation of Article 325 by the Member States in 2012 accompanying
this report, pp. 11-12, which summarises the information reported by the Member
States.
[73]             Belgium, Ireland, Greece, France, Cyprus ,Latvia,
,Luxembourg, Malta, Portugal, Finland and United Kingdom
[74]             Germany, Greece, Italy, Lithuania, Luxembourg, Hungary,  Poland, Portugal, Romania, Slovenia and Slovakia.
[75]             Only 8 Member States provided data (Bulgaria, Denmark, Germany, Italy, Poland, Portugal, Romania, Slovakia and United Kingdom. 
[76]             Germany, France, Spain and the United Kingdom.
[77]             France, Cyprus, Malta and Netherlands 
[78]             Bulgaria, Czech Republic, Germany, Ireland, France,
Hungary, Italy, Cyprus, Latvia, Malta, Netherlands, Poland, Romania, Slovenia,
Slovakia, Finland, Sweden and United Kingdom.
[79]             Belgium, Bulgaria, Czech Republic, France, Hungary, Ireland, Italy, Cyprus, Latvia, Malta, Netherlands and Sweden.
[80]             Belgium, Bulgaria, Czech Republic, Germany, Estonia,
Greece, Hungary, Cyprus, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania, Slovakia, Finland, and Sweden.
[81]             Bulgaria, Estonia, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Netherlands, Portugal, Poland, Romania, Slovakia and Finland. .
[82]             Their results representing 75 % of the total
number of irregularities reported as fraudulent.
[83]             Their results representing 79 % of the total
number of irregularities reported as fraudulent.
[84]             For the amounts related to the Netherlands in relation to agriculture, see paragraph 3.4.1 of the Commission Staff Working
Document on ‘Statistical evaluation of irregularities’.
[85]             Row and column totals may not correspond to the sum of
values displayed due to rounding.