REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union’s financial interests — Fight against fraud 2016 Annual Report
Date: 2017-07-20
Institutions: European Anti-Fraud Office, European Commission
Subjects: EU programme, activity report, common strategy, crime, fight against crime, financial control, fraud, fraud against the EU, illicit trade

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 20.7.2017  COM(2017) 383 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union’s financial interests — Fight against fraud  2016 Annual Report    {SWD(2017) 266 final} {SWD(2017) 267 final} {SWD(2017) 268 final} {SWD(2017) 269 final} {SWD(2017) 270 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 2016 Annual Report   

EXECUTIVE SUMMARY ...................................................................................................... 5 

1. 

INTRODUCTION ............................................................................................................ 8 

2.  HORIZONTAL ANTI-FRAUD POLICIES, MEASURES AND RESULTS ............. 8 

2.1. 

Policy initiatives by the EU institutions ...................................................................... 8 
2.1.1.  Proposal for a Directive on the fight against fraud to the EU’s financial interests by 
means of criminal law ............................................................................................................ 8 
2.1.2.  Proposal for the establishment of a European Public Prosecutor’s Office (EPPO) ... 9 
2.1.3.  Evaluation of Regulation (EU, Euratom) No 883/2013 ............................................. 9 
2.1.4.  Fighting corruption in the EU .................................................................................... 9 
2.1.5.  Commission proposal to revise the Financial Regulation and certain sectoral 
financial rules (Omnibus) ....................................................................................................... 9 
2.1.6.  International cooperation .......................................................................................... 10 
2.1.7.  Commission Anti-Fraud Strategy (CAFS) ............................................................... 10 
2.1.8.  Implementation of the Hercule programme ............................................................. 11 

2.2.  Measures taken by Member States ........................................................................... 11 
2.2.1.  Summary .................................................................................................................. 11 
2.2.1.1.  National Anti-Fraud Strategies (NAFS) ............................................................... 12 
2.2.1.2.  Anti-Fraud Coordination Services (AFCOS) ....................................................... 12 
2.2.1.3.  Public procurement .............................................................................................. 12 
2.2.1.4.  Other ..................................................................................................................... 12 
2.2.2.  Implementation of the 2015 recommendations ........................................................ 13 

2.3. 

Summary of statistics concerning detected irregularities and fraud .................... 14 
2.3.1.  Detected fraudulent irregularities ............................................................................. 14 
2.3.2.  Detected and reported non-fraudulent irregularities ................................................ 16 

3.  ANTI-FRAUD POLICIES, MEASURES AND RESULTS — REVENUE .............. 17 

3.1.  Anti-fraud measures in revenue by the EU institutions ......................................... 17 
3.1.1.  Mutual Administrative Assistance (MAA) — Regulation 515/97 ........................... 17 
3.1.1.1.  Legislative developments ..................................................................................... 17 
3.1.1.2. 
Implementation of Article 43b of Regulation 515/97 .......................................... 17 
3.1.1.3.  The Anti-Fraud Information System (AFIS) ........................................................ 18 
3.1.1.4.  Joint Customs Operations (JCOs) ........................................................................ 19 
3.1.2.  Mutual Assistance and anti-fraud provisions in international agreements .............. 20 
3.1.3.  Fight against illicit trade in tobacco products .......................................................... 20 
3.1.4.  Fight against VAT fraud .......................................................................................... 21 

3.2.  Member States’ anti-fraud measures in revenue .................................................... 21 

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3.3. 

Statistics concerning detected irregularities and fraud in Revenue ...................... 21 
3.3.1.  Detected fraudulent irregularities ............................................................................. 21 
3.3.2.  Detected and reported non-fraudulent irregularities ................................................ 22 
3.3.3.  Results of the European Anti-Fraud Office .............................................................. 22 

4.  SECTORAL ANTI-FRAUD POLICIES, MEASURES AND RESULTS — 
EXPENDITURE ..................................................................................................................... 23 

4.1.  Agriculture — Sectoral anti-fraud policies, measures and results ........................ 23 
4.1.1.  Agriculture — Anti-fraud measures by Member States ........................................... 23 
4.1.2.  Agriculture — Statistics on detected irregularities and fraud .................................. 23 
4.1.2.1.  Detected fraudulent irregularities ......................................................................... 23 
4.1.2.2.  Detected and reported non-fraudulent irregularities ............................................ 24 
4.1.2.3.  Results from the European Anti-Fraud Office ..................................................... 24 

4.2.  Cohesion policy and fisheries — Sectoral anti-fraud policies, measures and 
results  ...................................................................................................................................... 24 
4.2.1.  Cohesion policy and fisheries — Anti-fraud measures by Member States .............. 24 
4.2.2.  Cohesion policy and fisheries — Statistics on detected irregularities and fraud ..... 24 
4.2.2.1.  Detected fraudulent irregularities ......................................................................... 25 
4.2.2.2.  Detected and reported non-fraudulent irregularities ............................................ 25 
4.2.2.3.  Results from the European Anti-Fraud Office ..................................................... 25 

Indirect management (Pre-accession) — Sectoral anti-fraud policies, measures 

4.3. 
and results ............................................................................................................................... 25 
4.3.1.  Indirect management (pre-accession) — Statistics on detected irregularities and 
fraud 
4.3.2.  Results from the European Anti-Fraud Office ......................................................... 26 

4.4.  Direct management — Sectoral anti-fraud policies, measures and results .......... 26 
4.4.1.  Direct management — Statistics on detected irregularities and fraud ..................... 26 
4.4.1.1.  Detected fraudulent irregularities ......................................................................... 26 
4.4.1.2.  Detected and reported non-fraudulent irregularities ............................................ 26 
4.4.1.3.  Results from the European Anti-Fraud Office ..................................................... 26 

5.  RECOVERY AND OTHER PREVENTIVE AND CORRECTIVE MEASURES .. 26 

6.  COOPERATION WITH THE MEMBER STATES .................................................. 27 

7.  EARLY DETECTION AND EXCLUSION SYSTEM (EDES) ................................. 28 

8.  FOLLOW-UP TO THE EUROPEAN PARLIAMENT RESOLUTION ON THE 
PROTECTION OF THE EU’S FINANCIAL INTERESTS — FIGHT AGAINST 
FRAUD — ANNUAL REPORT 2015 .................................................................................. 29 

9.  CONCLUSIONS AND RECOMMENDATIONS ....................................................... 31 

9.1.  Revenue ....................................................................................................................... 31 

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9.2.  Expenditure ................................................................................................................. 32 

9.3.  The years ahead .......................................................................................................... 33 

ANNEX 1 — IRREGULARITIES REPORTED AS FRAUDULENT IN 2016 ............... 35 

ANNEX 2 — IRREGULARITIES NOT REPORTED AS FRAUDULENT IN 2016 ..... 36 

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EXECUTIVE SUMMARY 

The  2016  annual  report  on  the  Protection  of  the  European  Union’s  Financial  Interests  (PIF 
Report’)  is  presented  by  the  Commission  in  cooperation  with  the  Member  States  under 
Article 325 of the Treaty on the Functioning of the European Union (TFEU). 

The  report  covers  measures  taken  by  the  Commission  and  the  Member  States  in  the  fight 
against  fraud  and  presents  their  results.  The  Treaty  requires  close  and  regular  cooperation 
between  Member  States  and  the  Commission,  and  allows  specific  measures  to  be  taken  in 
order  to  provide  equivalent  and  effective  protection  of  the  EU’s  financial  interests.  The 
Commission  and  the  Member  States  protect  the  EU’s  financial  interests  from  undue  or 
irregular expenditure and from evasion of customs duties or other levies mainly via: 

(a)  preventive actions; 
(b) investigative actions; 
(c)  corrective mechanisms; 
(d) repressive measures. 

Where  analysis  of  this  information  has  identified  problems  or  risks,  recommendations  are 
made to address those issues. 

Anti-fraud measures at EU level 

In  2016,  a  large  number  of  measures  were  taken  to  improve  the  legal  and  administrative 
framework for protecting the EU’s financial interests: 

 

 

 

the Council, the European Parliament and the Commission reached political agreement 
on  a  proposal  for  a  Directive  on  the  fight  against  fraud  to  the  Union’s  financial 
interests by means of criminal law; 
in  the  absence  of  unanimity  on  setting  up  a  European  Public  Prosecutor’s  Office 
(EPPO), a large number of Member States decided at the beginning of 2017 to proceed 
with it in enhanced cooperation; 
the  Commission  launched  an  evaluation  on  the  application  of  Regulation  (EU, 
Euratom) No 883/2013 concerning investigations conducted by OLAF; 
the  European  Partners  Against  Corruption  (EPAC)/the  European  Contact-Point 
Network  against  corruption  (EACN)  anti-corruption  network  adopted  the  Riga 
Declaration, aiming at strengthening the fight against corruption; 
  sixteen Commission departments updated their Anti-Fraud Strategy; 
  OLAF successfully negotiated anti-fraud provisions in EU international agreements; 
 

the Hercule III financing programme helps to boost the operational and administrative 
capacity of Member States’ customs and other authorities. 

 

On the expenditure side of the EU budget, significant progress was made in 2016 on further 
protecting the EU’s financial interests: 

 

 

the  Early  Detection  and  Exclusion  System  (EDES)  to  protect  the  EU’s  financial 
interests started to apply on 1 January 2016; 
the  Commission  proposed  to  revise  the  Financial  Regulation  and  specific  sectoral 
financial  rules  (via  the  ‘Omnibus’  Regulation)  with  a  view  to  making  them  simpler 
and more flexible; 

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 

important  guidance  documents  were  prepared  in  the  framework  of  the  Advisory 
Committee for Coordination of Fraud Prevention (COCOLAF). 

On the revenue side of the budget, the measures taken in 2016 further protected the EU’s 
financial interests: 

 

the revised Regulation 515/97 on mutual administrative assistance in customs provides 
for two centralised databases containing information on container movements and on 
goods entering, leaving and transiting the EU; 

 

  mutual  assistance  notices  issued  following  Joint  Customs  Operations  conducted  by 
OLAF  remained  an  important  source  of  information  for  detecting  irregularities  in 
transactions involving certain types of goods; 
the fight against illicit trade in tobacco products remained a high priority for the EU 
and the Member States; 
the  Commission  adopted  an  action  plan  on  VAT  Towards  a  single  EU  VAT  area  — 
Time  to  decide,  setting  out  measures  to  tackle  the  VAT  gap  and  step  up  the  fight 
against fraud. 

 

Anti-fraud measures taken by Member States 

Member  States  reported  adopting  80  major  measures  to  protect  the  EU’s  financial  interests 
and  fight  fraud.  Member  States  were  invited  to  report  a  maximum  of  three  anti-fraud 
measures. These measures, covering the entire anti-fraud cycle, mainly relate to funds under 
shared management and cover the following areas: 

  public procurement; 
  organised crime and corruption; 
  conflicts of interest; 
  AFCOS; 
 
  anti-fraud strategy; 
  anti-smuggling; 
  whistle-blowers. 

the definition of fraud; 

By  the  end  of  2016,  nine  Member  States  had  adopted  a  National  Anti-Fraud  Strategy.  Two 
more Member States adopted their strategy at the beginning of 2017. 

Public  procurement  was  also  the  topic  of  many  measures  taken,  as  Member  States  had  to 
transpose the 2014 Directives into their national law by April 2016. 

Member States reported adopting measures against corruption and organised crime, plus other 
horizontal  measures  targeting  tax  havens,  introducing  e-tools  for  criminal  proceedings, 
conducting anti-fraud training and raising fraud awareness. 

Moreover,  the  majority  of  Member  States  reported  on  the  number  and  nature  of  measures 
taken to  follow up on the 2015 recommendations.  The Commission  encourages all Member 
States  to  take  the  recommendations  of  this  year’s  report  into  consideration  in  a  similar 
manner. 

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Detection  and  reporting  of  fraudulent  and  non-fraudulent  irregularities  that  affect the 
EU budget 

In  2016,  19 080  (fraudulent  and  non-fraudulent)  irregularities  were  reported  to  the 
Commission,  involving  a  total  of  approximately  EUR  2.97  billion.  About  EUR  2.43  billion 
concerns the expenditure sector of the EU budget. 

The  number  of  irregularities  detected  fell  by  15 %  compared  with  2015,  and  their  financial 
value fell by 8 %. 

1 410  irregularities  were  reported  as  fraudulent  in  2016,  involving  EUR 391 million, 
covering both expenditure and revenue.  

Information on recoveries, financial corrections and other preventive and corrective measures 
is provided in the Annual Management and Performance Report, which as from 2016 includes 
the  former  annual  Communication  from  the  Commission  to  the  European  Parliament,  the 
Council and the European Court of Auditors on the protection of the EU budget. 

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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  a  report  to  the 
European Parliament and the Council on measures taken to counter fraud and any other illegal 
activities affecting the EU’s financial interests. 

The EU and the Member States share responsibility for protecting the EU’s financial interests 
and fighting fraud. Member State authorities manage approximately 74% of EU expenditure 
and they collect Traditional Own Resources (TOR). The Commission oversees both of these 
areas,  sets  standards  and  verifies  compliance.  It  is  essential  that  the  Commission  and  the 
Member States work closely together to ensure that the EU’s financial interests are effectively 
protected. One of the main aims of this report is to assess this cooperation in 2016, and to see 
how it could be improved. 

This report provides a summary of measures taken at EU and Member State level in 2016 to 
counter fraud. It also includes an analysis of the main achievements of national and European 
bodies  in  detecting  and  reporting  fraud  and  irregularities  relating  to  EU  expenditure  and 
revenue.  The  reporting  system  has  significantly  contributed  to  the  protection  of  the  EU’s 
financial interests and to fighting fraud. 

The report is accompanied by five Commission Staff Working Documents1. 

2. 

2.1. 

HORIZONTAL ANTI-FRAUD POLICIES, MEASURES AND RESULTS 

Policy initiatives by the EU institutions 

2.1.1.  Proposal for a Directive on the fight against fraud to the EU’s financial interests 

by means of criminal law 

After  four  years  of  negotiation,  a  political  agreement  was  reached  in  2016  between  the 
Council,  the  European  Parliament  and  the  Commission  at  a  trilogue  meeting  on 
30 November 2016. The so-called PIF Directive is expected to be adopted in 2017. Member 
States will have two years to transpose the Directive into national law. 

The Directive will strengthen the existing legal framework by harmonising the definition of 
offences  affecting  the  EU’s  financial  interests  (fraud,  corruption,  money  laundering  and 
misappropriation) as well as the penalties and statutes of limitations for such cases. It includes 
cross-border VAT fraud cases for total damages of at least EUR 10 million. 

The  Directive  will  replace  the  1995  Convention  on  the  protection  of  the  European 
Communities’  financial  interests  and  its  protocols  (the  PIF  Convention)2  for  those  Member 
States bound by the Directive3. 

1 

(i) Implementation of Article 325 by the Member States in 2016;  
(ii)  Statistical  evaluation  of  irregularities  reported  for  2016  own  resources,  natural  resources,  cohesion 
policy and pre-accession assistance;  
(iii)  Follow-up  of  recommendations  to  the  Commission  report  on  the  protection  of  the  EU’s  financial 
interests — fight against fraud, 2015;  
(iv)  Early  Detection  and  Exclusion  System  (EDES)  —  Panel  referred  to  in  Article 108  of  the  Financial 
Regulation;  
(v) Annual overview with information on the results of the Hercule III Programme in 2016. 

2  Council Act of 26 July 1995 drawing up the Convention on the protection of the European Communities’ 

financial interests, OJ C 316, 27.11.1995, p. 48. 

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2.1.2.  Proposal for the establishment of a European Public Prosecutor’s Office (EPPO) 

The negotiations on the Commission’s proposal for a Regulation on the establishment of the 
EPPO  continued  in  2016,  under  the  Dutch  and  Slovak  Presidencies.  The  Justice  and  Home 
Affairs Council meeting of 8 December 2016 considered the full text of the draft Regulation 
discussed during successive Presidencies. A majority of Member States considered the text as 
a good basis for further work and supported the principle of the establishment of the EPPO. 

The negotiations on setting up the EPPO through enhanced cooperation continued in 2017, in 
view of the lack of unanimity in the Council. 

2.1.3.  Evaluation of Regulation (EU, Euratom) No 883/2013 

In  2016,  the  Commission  continued  the  evaluation  of  the  application  of  Regulation  (EU, 
Euratom)  No 883/2013  concerning  investigations  conducted  by  OLAF.  The  evaluation, 
required by Article 19 of the Regulation, has to be submitted to the European Parliament and 
the Council by 2 October 2017. 

2.1.4.  Fighting corruption in the EU 

In  2016,  anti-corruption  remained  a  priority  in  the  European  Semester  process  of  economic 
governance.  Several  Member  States  received  recommendations  to  take  action  to  improve 
transparency  or  step-up  anti-corruption  efforts  in  public  administration,  the  judiciary  and 
public procurement.  

The Commission continued its series of workshops under the EU Anti-Corruption Experience 
Sharing  Programme  for  Member  States  experts.4  Three  workshops  were  held  in  2016  on 
themes such as corruption in public procurement at the local level, political immunities and 
corruption in the private sector.  

OLAF  contributed  with  its  expertise  to  several  European  and  international  anti-corruption 
fora,  in  particular  EPAC/EACN5.  This  network,  chaired  until  November  2016  by  OLAF’s 
Director-General,  adopted  the  ‘Riga  Declaration’  of  November  20166  calling  on  European 
decision-makers to strengthen the fight against corruption. 

2.1.5.  Commission  proposal  to  revise  the  Financial  Regulation  and  certain  sectoral 

financial rules (Omnibus) 

In  September  2016,  the  Commission  proposed  in  a  single  act  an  ambitious  revision  of  the 
general financial rules accompanied by corresponding changes to the sectoral financial rules 
set out in 15 legislative acts concerning multiannual programmes7. In designing simpler and 
more  flexible  EU  financial  rules,  the  Commission  has  made  sure  that  it  does  not  weaken 

3  All 28 Member States except Denmark and the United Kingdom. 
4   https://ec.europa.eu/home-affairs/what-we-do/policies/organized-crime-and-human-

5 

trafficking/corruption/experience-sharing-programme_en. 
European Partners Against Corruption (EPAC) / the European Contact-Point Network Against Corruption 
(EACN). 
http://www.epac-eacn.org/images/EPAC_EACN_Riga_Declaration_2016_FINAL.pdf. 

6 
7  COM(2016) 605, Proposal for a Regulation of the European Parliament and of the Council on the financial 
rules  applicable  to  the  general  budget  of  the  Union  and  amending  Regulation  (EC)  No 2012/2002, 
Regulations  (EU)  No 1296/2013,  (EU)  1301/2013,  (EU)  No 1303/2013,  EU  No 1304/2013,  (EU) 
No 1305/2013,  (EU)  No 1306/2013,  (EU)  No 1307/2013,  (EU)  No 1308/2013,  (EU)  No 1309/2013,  (EU) 
No 1316/2013, (EU) No 223/2014,(EU) No 283/2014, (EU) No 652/2014 of the European Parliament and of 
the Council and Decision No 541/2014/EU of the European Parliament and of the Council. 

9 

 
 
 
 
 
 
                                                                                                                                                         
sound  financial  management,  which  remains  a  key  objective.  The  proposal  also  strengthens 
rules on tax avoidance to be obeyed by EU implementing partners and clarifies that the duty 
to  avoid  conflicts  of  interest  fully  applies  to  all  modes  of  implementation  of  EU  funds 
(including at Member State level). It also consolidates the systems in place to protect the EU 
budget  against  fraud  and  financial  irregularities8.  It  simplifies  EU  financial  rules  to  help 
reduce  the  expense  and  time  needed  to  implement  EU  funds  to  cut  the  number  of  errors.  It 
should also increase the impact of the policies and their results on the ground. 

2.1.6. 

International cooperation 

In order to better combat fraud against the EU budget beyond the borders of the EU, OLAF 
also  negotiates  anti-fraud  provisions  in  EU  international  agreements  such  as  association 
agreements  and  partnership  agreements.  In  2016,  anti-fraud provisions  were  included  in  the 
EU-Armenia Comprehensive and Enhanced Partnership Agreement. The negotiations on the 
anti-fraud  provisions  in  the  Political  Dialogue  and  Cooperation  Agreement  between  the  EU 
and Cuba were also finalised and the agreement was initialled on 11 March 2016. 

With  the  objective  of  strengthening  investigative  cooperation  beyond  the  EU’s  borders, 
OLAF  concluded  six  administrative  cooperation  arrangements  with  partner  authorities  from 
non-EU countries and international organisations in 20169. 

2.1.7.  Commission Anti-Fraud Strategy (CAFS) 

The Commission is considering updating the CAFS adopted on 24 June 201110. The objective 
of  the  CAFS  is  to  improve  prevention,  detection  and  investigation  of  fraud  and  ensure  that 
adequate sanctioning, recovery and deterrence is high on the Commission’s agenda. 

The  strategy  has  now  been  fully  implemented,  which  means  that  all  actions  have  been 
finalised or are ongoing. The focus is on sectoral strategies and action plans that tackle fraud 
in their specific policy areas. While keeping this approach, the updated strategy would further 
emphasise  incorporating  anti-fraud  measures  in  the  Commission’s  internal  control  systems, 
and in particular reporting on implementation  of anti-fraud measures. The updated CAFS is 
planned to include a specific chapter on Traditional Own Resources (TORs) as a follow-up to 
the  results  of  the  2016  audit  of  the  Commission's  Internal  Audit  Service  (IAS)  on  the 
"Performance  and  Coordination  of  Anti-fraud  activities  in  the  Traditional  Own  Resources 
(TOR) area". 

All  Commission  departments  (48  in  total)  have  introduced  sectoral  Anti-Fraud  Strategies 
(AFS) for the policy area under their responsibility. Each of these strategies must be regularly 
updated to reflect changes in the anti-fraud environment. 

The Commission’s Fraud Prevention and Detection Network (FPDNet) endorsed an updated 
methodology for such strategies. This consisted of further integrating anti-fraud measures into 
the strategic programming and planning (SPP) and monitoring cycle — from identifying the 
risk  of  fraud,  to  fraud  control  and  monitoring.  In  this  way,  anti-fraud  strategies  form  an 
integral  part  of  Commission  risk  management,  while  maintaining  the  specific  attention  that 
fraud requires. 

8 

9 

Extending the Commission’s power to act with regard to the Early Detection and Exclusion System in direct 
and indirect implementation (see also section 7). 
E.g.  with  the  National  Anti-Corruption  Bureau  of  Ukraine  and  with  the  Belarus  and  Taiwanese  customs 
authorities. 

10  COM(2011) 376 final. 

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The  16  Commission  departments  that  updated  their  strategy  in  2016  reported  that  they  had 
used  the  updated  methodology  and  the  guidance  for  the  development  of  DGs’  anti-fraud 
strategies provided by OLAF. 

Example from EASME 

In 2016, the Executive Agency for Small and Medium Enterprises (EASME) used the updated 
methodology  to  update  its  anti-fraud  strategy.  The  agency’s  fraud  risk  assessment  is  now 
integrated in the annual risk assessment process. The main fraud risks that EASME faces are 
plagiarism and double funding, and intentionally inflated or false cost claims. These risks and 
actions to mitigate them are monitored closely in the annual risk management process. 

EASME  took  mitigating  measures  and  reinforced  controls  for  these  risks,  while  bearing  in 
mind the principle of costs and benefits. This means that risk-based controls are applied and 
that high-risk projects are monitored more closely. 

For  certain  risks  (e.g.  plagiarism),  EASME  participated  in  testing  tools  for  the  H2020 
programmes, which are applied in all Commission departments active in research. 

The  implementation  of  the  anti-fraud  strategies  is  regularly  monitored  through  the 
Commission  performance  cycle.  Given 
that  every  policy  area  has  specific  fraud 
characteristics,  there  is  no  'one  size  fits  all'  approach  in  anti-fraud  activities.  Most 
Commission  services  organise  fraud  awareness  raising  activities  such  as  trainings  and 
seminars.11 

2.1.8. 

Implementation of the Hercule programme 

The  programme  Hercule  III12  (2014-2020)  promotes  activities  to  counter  fraud,  corruption 
and any other illegal activities affecting the EU’s financial interests. In 2016, the third year of 
its implementation13, a budget of EUR 14.5 million was made available for: 

 

 

funding  actions  to  strengthen  the  operational  and  technical  capacity  of  customs  and 
police forces in the Member States, as well as IT support, covering at least 70 % of the 
programme’s budget; 
training  activities  and  conferences,  including  digital  forensic  training  for  staff 
employed  by  law  enforcement  agencies  in  the  Member  States  and  partner  countries, 
covering around 30 % of the budget. 

The Commission (OLAF) started to receive the first reports, reflecting the tangible results of 
activities carried out since the programme started in 2014. Substantial successes were reported 
in  relation to smuggled  and counterfeit  cigarettes and tobacco: seizures were  made  with  the 
help of equipment and training funded under the programme14. 

11   See COM (2017) 351 final, Part 2/2, p. 79. 
12  Regulation (EU) No 250/2014 of the European Parliament and of the Council of 26 February 2014. 
13  Commission Decision C(2016) 868 of 17 February 2016. 
14  For details, see SWD under footnote 1(v). 

11 

 
 
 
 
                                                 
2.2.  Measures taken by Member States  

2.2.1. 

Summary  

Member  States  were  asked  to  report  a  maximum  of  three  main  anti-fraud  measures.  This 
summary  gives  a  good  overview  of  trends  in  and  priorities  for  the  anti-fraud  measures 
implemented  by  Member  States,  but  it  is  not  exhaustive;  many  more  measures  have  been 
taken which are detailed in an accompanying document15. 

In 2016, Member States reported on 80 measures to protect the EU’s financial interests and 
fight fraud for the programming period 2014-2020. 

Member  States’  measures  covered  the  entire  anti-fraud  cycle,  mostly  in  the  area  of  shared 
management, followed by measures on public procurement, conflicts of interest, corruption, 
AFCOSs16,  the  definition  of  fraud,  anti-fraud  strategy,  organised  and  financial  crime  and 
whistle-blowers. Concerning the anti-fraud cycle, most of the measures concerned prevention, 
followed  by  detection,  investigation  and  prosecution,  recovery  and  sanctions.  The  majority 
were sectoral (73 %) rather than general (27 %). Twenty of the sectoral measures concerned 
revenue in the fields of tax fraud (60 %) and customs (40 %). Forty-one measures concerned 
expenditure, covering all areas of the budget. 

2.2.1.1.  National Anti-Fraud Strategies (NAFS)  

By the end of 2016, nine Member States had adopted a national anti-fraud strategy and sent it 
to the Commission17. This is more than in 2015, and shows the Member States’ commitment 
to adopting a strategic approach to combating fraud and irregularities detrimental to the EU 
and national budgets. The Commission  welcomes these  developments and calls  on all  other 
Member States to draft such strategies. 

2.2.1.2.  Anti-Fraud Coordination Services (AFCOS) 

Several  Member  States  adopted  measures  to  improve  such  coordination  services,  including 
Denmark (with an AFCOS anti-fraud manual), France (a national anti-fraud strategy), Croatia 
(a  management  methodology  to  promote  fraud  prevention),  Latvia  (an  operational  strategy 
and action plan for 2017–2019), Malta (fraud prevention activities with other AFCOSs), the 
Netherlands  (the  creation  of  an  AFCOS  team),  and  Finland  (launching  a  national  AFCOS 
network). 

2.2.1.3.  Public procurement 

There were a number of measures on public procurement, as Member States were required to 
transpose  Directives  2014/2318,  2014/24/EU19  and  2014/25/EU20  into  their  national  law  by 
April 2016. Ten Member States21 reported taking measures to harmonise their national law on 

15  For details, see SWD under footnote 1(i). 
16  See section 2.2.1.2. 
17  The nine Member States are: Bulgaria, Croatia, Czech Republic, France, Greece, Hungary, Italy, Malta and 
Slovakia. In addition, Latvia and Romania adopted a NAFS and sent it to the European Commission in the 
first  quarter  of  2017.  Belgium,  Netherlands  and  Poland  reported  that  a  procedure  to  draft  a  NAFS  is 
ongoing, while Austria and Lithuania indicated the adoption of specific strategic documents. 

18  OJ L 94, 28.3.2014, p. 1. 
19  OJ L 94, 28.3.2014, p. 65. 
20  OJ L 94, 28.3.2014, p. 243. 
21  Bulgaria, Czech Republic, Greece, Spain, France, Cyprus, Latvia, Hungary, Romania and Estonia. 

12 

 
 
 
 
                                                 
public  procurement  with  EU  law.  Eleven  Member  States  have  yet  to  transpose  the  three 
Public Procurement Directives in full. 

2.2.1.4.  Other 

Belgium,  France,  Lithuania,  Romania,  Slovenia  and  the  Czech  Republic  reported  measures 
against corruption and organised crime in 2016. 

Various other measures were reported by the following Member States: Belgium (targeting 
tax havens), Spain (improved fraud detection), France (protection of whistle-blowers), Croatia 
(anti-fraud  training),  Italy  (inspection  campaigns),  Lithuania  (an  e-tool  for  criminal 
proceedings),  Hungary  (anti-fraud  training  and  more  cooperation),  the  Netherlands  (fraud 
awareness) and Austria (a central register of accounts). 

2.2.2. 

Implementation of the 2015 recommendations 

In  the  2015  Report22  on  the  protection  of  the  EU’s  financial  interests,  the  Commission 
recommended that the Member States: 

(a)  strike  the  right  balance  between  trade  facilitation  and  the  protection  of  the  EU’s 
financial  interests;  exchange  experiences  on  detecting  fraud  or  irregularities  at 
clearance;  cooperate  closely  with  one  another  on  post-clearance  controls/audits  and 
incorporate information received through the CRMS23, AFIS24 or OWNRES25 systems 
into risk management; 

(b) adapt their customs controls strategies, taking into account the outcomes of voluntary 

admissions; 

(c)  further  improve  the  quality  of  irregularity  reporting  information  via  the  Irregularity 

Management System (IMS); 

(d) plan and focus their audits and controls on the basis of risk analysis and performing IT 
tools and use tools such as ARACHNE26, IMS and the Fraud Risk Assessment Tool. 

Some Member States27 reported that a balance between trade facilitation and the protection of 
the EU’s financial interests had been achieved; others28 are implementing measures to ensure 
this balance. 

Eighteen Member States29 forwarded information received from other Member States or the 
Commission departments to their national competent bodies for risk assessment and analysis. 

A  number  of  Member  States30  reported  that  they  have  taken  into  consideration  the 
Commission’s recommendation to adapt their yearly planning of staff and resources required 

22  COM(2016) 472 final, 14.7.2016, pages 29-31. 
23  Customs Risk Management System. 
24  Anti-Fraud Information System. 
25  Database for irregularity reporting in traditional own resources. 
26   ARACHNE is a risk scoring IT tool for the ERDF, CF and ESF, developed by the European Commission 

put at disposal of national authorities. 

27  Belgium,  Bulgaria,  Germany,  Spain,  France,  Italy,  Cyprus,  Hungary,  Poland,  Romania,  Finland  and 

Sweden. 

28  Denmark and Slovenia. 
29  The Czech Republic, Denmark, Estonia, Ireland, Spain, France, Croatia, Italy, Cyprus, Lithuania, Hungary, 

the Netherlands, Poland, Romania, Slovenia, Slovakia, Finland and Sweden. 

30  Belgium,  Denmark,  Germany,  Estonia,  Ireland,  Greece,  Spain,  France,  Italy,  Cyprus,  Hungary,  the 

Netherlands, Poland, Slovakia and Sweden. 

13 

 
 
 
 
                                                 
for  verifying  information  received  in  the  form  of  voluntary  admissions.  Several  Member 
States31 reported that they have included such information in risk analysis and management to 
minimise risk and use it for post-clearance examination. 

The six  Member States32 that  were specifically recommended to  strengthen their systems in 
relation  to  detection  and/or  reporting  of  fraud,  reported  on  the  progress  made.  France  and 
Lithuania explained the measures it had taken to improve the reporting of irregularities. Spain 
noted an increase in irregularities reported due to the efficiency of the detection system. 

In  relation  to  the  use  of  risk  analysis  and  IT  tools  (ARACHNE,  IMS  and  the  Fraud  Risk 
Assessment Tool), some Member States33 reported that they make use of some of these tools 
combined  with  their  own  tools,  while  other  Member  States34  reported  that  they  mainly  use 
their  own  alternative  tools.  The  IMS  is  widely  used  by  all  Member  States35  that  provided 
information regarding this recommendation36. 

2.3. 

Summary of statistics concerning detected irregularities and fraud37 

In  2016,  19 080  irregularities  (fraudulent  and  non-fraudulent)  were  reported  to  the 
Commission,  15 %  fewer  than  in  2015.  They  involved  a  total  of  approximately  EUR  2.97 
billion, 8 % down from the previous year. 

The detection of an irregularity implies that corrective measures have been taken in order to 
recover  the  irregular  financial  amounts  involved  and  that  criminal  proceedings  have  been 
begun if fraud is suspected. 

2.3.1.  Detected fraudulent irregularities 

The  number  of  irregularities  reported  as  fraudulent  (which  includes  cases  of  suspected  or 
established fraud) and the related amounts cannot be seen in correlation with the level of fraud 
affecting the EU budget. Irregularities reported as fraudulent rather indicate how many cases 
of potential fraud are being detected by Member States and EU bodies. 

In 2016, 1 410 irregularities were reported as fraudulent (i.e. 6 % of all irregularities detected 
and reported38), involving EUR 391 million (representing 13 % of the total financial amounts 
affected  by  irregularities39),  covering  both  expenditure  and  revenue.  Differences  exist 
between sectors, as shown in Table 1. 

31  Belgium,  Germany,  Estonia,  Spain,  France,  Italy,  Cyprus,  Hungary,  the  Netherlands, Poland, Sweden  and 

the United Kingdom. 

32  Spain, France, Lithuania, Austria, Finland and the United Kingdom. 
33  Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Greece, Spain, France, Croatia, Italy, 
Cyprus,  Latvia,  Lithuania,  Luxembourg,  Hungary,  the  Netherlands,  Poland,  Portugal,  Romania,  Slovenia, 
Slovakia and the United Kingdom. 
Ireland, Malta, Finland and Sweden. 

34 
35  Belgium,  Bulgaria,  the  Czech  Republic,  Denmark,  Germany,  Estonia,  Ireland,  Greece,  Spain,  France, 
Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Poland, Portugal, 
Romania, Slovenia, Slovakia, Finland, Sweden and the United Kingdom. 

36  For details, see the SWD, footnote 1 (iii). 
37  For a detailed analysis of the reported irregularities, see the SWD, footnote 1 (ii). 
38  This  indicator  is  described  as  the  fraud  frequency  level  (FFL).  See  section  2.3.2  of  the  Commission  staff 
working  document  Methodology  regarding  the  statistical  evaluation  of  reported  irregularities  for  2015 
SWD(2016) 237 final. 

39  This indicator is described as the fraud amount level (FAL). See footnote 38. 

14 

 
 
 
 
                                                 
Table 1: Irregularities reported as fraudulent in 2016 

Compared  to  2015,  the number  of  fraudulent  irregularities reported  in  2016  fell  slightly,  by 
3 %, while their financial impact decreased by 39 %. Looking at the last 5 years (2012-2016), 
the number of irregularities reported as fraudulent has changed little since 2013: it was 14 % 
higher in 2016 than in 2012, 4 % below the five-year average. The financial impact, however, 
fluctuates greatly, as the amounts at stake can be affected by individual cases involving very 
large sums. 

Chart 1 shows the overall trends over the last five years.  

There  are  some  minor  differences  in  the  year-to-year  variations  between  revenue  and 
expenditure. 

15 

Budget sector (expenditure)N° of irregularities reported as fraudulentVariation in relation to 2015Involved amounts (in million EUR)Variation in relation to 2015As % of paymentsNatural resources413-3%61.8-13%0.11%Agriculture market support and direct payments128-29%12.4-68%0.03%Rural development28422%49.472%0.44%Both1-92%0.0-99%n/aCohesion Policy & Fisheries4074%236.9-51%0.48%ESIF 2014-203200%0.9497%0.00%Cohesion 2007-20133908%234.3-45%n/rStructural and cohesion funds before 2007-20134-60%0.8-98%n/rFisheries10-47%0.9-71%0.10%Internal Affairs0-0-0.00%FEAD, AMIF0-0.0-0.00%ISF0-0.0-0.00%Pre-accession28-3%3.0-62%0.19%Pre accession assistance (2000-2006)3-67%1.8-70%n/rInstrument for Pre-Accession (2007-2013)2525%1.2-31%n/rInstrument for Pre-Accession (2014-2020)----0.00%Direct expenditure49880%6.33025%0.03%Total expenditure8976%308.0-45%0.21%Budget sector (revenue)N° of irregularities reported as fraudulentVariation in relation to 2015Involved amountsVariation in relation to 2015As % of gross amount of TOR collected for 2016Revenue (traditional own resources)513-16%836%0.33%*TOTAL1 410-3%391.0-39%/ 
 
 
 
 
Chart 1: Irregularities reported as fraudulent and their related amounts, 2012-2016 

A breakdown of all fraudulent irregularities reported in 2016, by Member State and by budget 
sector, is set out in Annex 1. 

2.3.2.  Detected and reported non-fraudulent irregularities 

In  2016,  the  Commission  was  notified  of  17 670  irregularities  not  reported  as  fraudulent 
(about 15 % less than in 2015). The figures fell for all sectors except direct expenditure. The 
financial impact was almost unchanged at approximately EUR 2.58 billion, as shown in Table 
2. 

Annex 2 shows a breakdown of all non-fraudulent irregularities reported in 2016 by Member 
State and by budget sector. 

16 

 
 
 
 
 
Table 2: Irregularities not reported as fraudulent in 2016 

3. 

3.1. 

ANTI-FRAUD POLICIES, MEASURES AND RESULTS — REVENUE 

Anti-fraud measures in revenue by the EU institutions 

3.1.1.  Mutual Administrative Assistance (MAA) — Regulation 515/97 

3.1.1.1.  Legislative developments 

Regulation (EU) 2015/152540, amending Regulation (EC) 515/9741 on Mutual Administrative 
Assistance  in  customs  matters,  provides  for  the  creation  of  two  centralised  databases 
containing information on container movements and on goods entering, leaving and transiting 
the EU. These databases became operational on 1 September 2016. In addition, the following 
acts were adopted in 2016 to foster mutual assistance in customs: Delegated Regulation (EU) 
2016/75742,  Implementing  Regulation  (EU)  2016/34543  and  Implementing  Regulation  (EU) 
2016/34644. 

3.1.1.2.  Implementation of Article 43b of Regulation 515/97 

Regulation  (EU)  2015/1525  introduced  a  new  Article  (43b)  requiring  the  Commission  to 
assess  the  need  to  extend  the  container  status  message  (CSM)45  directory46  and  the  import, 

40  OJ L 243, 18.9.2015, p. 1. 
41  OJ L 82, 22.3.1997, p. 1. 
42  OJ L 126, 14.5.2016, p. 1. 
43  OJ L 65, 11.3.2016, p. 38. 
44  OJ L 65, 11.3.2016, p. 40. 
45  See section 3.1.1.3. 

17 

Budget sector (expenditure)N° of irregularities not reported as fraudulentVariation in relation to 2015Involved amounts (in million EUR)Variation in relation to 2015As % of paymentsNatural resources3 489-17%211.2-35%0.39%Agriculture market support and direct payments1056-15%74.9-43%0.17%Rural development2409-16%134.7-28%1.21%Both24-72%1.6-69%n/aCohesion Policy & Fisheries8 090-23%1 826.22%3.74%ESIF 2014-2011111000%6.037702%0.00%Cohesion 2007-20137670-21%1 785.06%n/rStructural and cohesion funds before 2007-201350-92%8.0-91%n/rFisheries25942%27.240%2.89%Internal Affairs4-0.7-0.00%FEAD, AMIF3-0.5-0.00%ISF1-0.2-0.00%Pre-accession92-6%7.645%0.49%Pre accession assistance (2000-2006)5-29%0.3-75%n/rInstrument for Pre-Accession (2007-2013)86-5%7.175%n/rInstrument for Pre-Accession (2014-2020)1-0.2-0.00%Direct expenditure186116%78.0-30%0.42%Total expenditure13 536-17%2 123.7-5%1.48%Budget sector (revenue)N° of irregularities not reported as fraudulentVariation in relation to 2015Involved amountsVariation in relation to 2015As % of gross amount of TOR collected for 2016Revenue (traditional own resources)4 134-8%45430%1.81%*TOTAL17 670-15%2 577.70%/ 
 
 
 
 
                                                 
export  and  transit  (IET)  directory  to  export  data  not  limited  to  excisable  goods.  The 
Commission  is  also  required  to  assess  the  feasibility  of  extending  the  transport  directory  to 
data on the import, export and transit of goods by land and air. 

Given  that  these  directories  became  operational  only  on  1 September 2016,  it  would  be 
premature to expand them to other categories of data at this stage. However, the Commission 
is  currently  conducting  the  assessments,  focusing  in  particular  on  the  added  value  of  the 
additional  export  data.  In  this  context,  internal  consultations  and  consultation  with  the 
Member  States’  authorities  are  ongoing47.  As  to  the  feasibility  of  extending  the  transport 
directory to other means of transport, Regulation (EC) 515/97 already provides the legal basis 
for receiving data. The focus is  currently on identifying sources  of additional data, possibly 
using data collected under the Import Control System (ICS) II project. The Commission will 
present its findings in the next PIF report. 

3.1.1.3.  The Anti-Fraud Information System (AFIS) 

The  AFIS  is  an  umbrella  of  anti-fraud  applications  operated  by  OLAF,  using  common 
technical  infrastructure.  It  is  an  important  IT  tool  for  many  administrations  and  other  users 
involved  in  protecting  the  EU’s  financial  interests.  The  AFIS  also  enables  substantial 
economies  of  scale  and  synergies  in  the  development,  maintenance  and  operation  of  such  a 
wide and diverse set of IT services and tools, aiming at: 

 

 

timely  and  secure  exchange  of  fraud-related  information  between  the  competent 
national and EU administrations; 
the storage and analysis of relevant data. 

The AFIS covers two major areas: 

  mutual assistance in customs matters; 
 

irregularities management. 

By  the  end  of  2016,  AFIS  had  8 700  registered  end-users  on  behalf  of  more  than  1 800 
competent services in Member States, non-EU partner countries, international organisations, 
Commission departments and other EU bodies. In 2016, AFIS users exchanged 16 900 mail 
messages. A total of 13 800 cases were available in the AFIS mutual assistance databases and 
modules. 

The  Irregularity  Management  System  (IMS),  operated  under  the  AFIS  platform,  received 
43 600 new communications on irregularities from Member States and candidate countries. 

Two new IT systems provided for in the amended Council Regulation (EC) 515/97 have gone 
live: 

 
 

the Container Status Messages (CSM) directory; 
the Import, Export and Transit (IET) directory. 

46  The  CSM  directory  contains  information  on  the  physical  movements  of  any  container  imported  by  a 
maritime vessel into the EU, and of exported containers containing excise goods. This information, in the 
form of CSMs, is sent by the carriers directly to OLAF. 

47  The results will be discussed at the meeting of the Expert Group on Mutual Assistance in Customs Matters 

to be held on 29–30 June 2017. 

18 

 
 
 
 
                                                                                                                                                         
The AFIS received 182 million CSMs in 2016. The IET directory contains declaration data on 
import and transit of goods and on the export of excise goods. 

Some  2  million  export  declarations  and  related  messages  were  processed.  The  Anti-Fraud 
Transit  Information  System  (ATIS)  received  information  on  6.7  million  new  transit 
consignments. These are also available in the IET directory. 

The AFIS was used for secure access and exchange of information in eleven Joint Customs 
Operations (see next section). 

3.1.1.4.  Joint Customs Operations (JCOs) 

JCOs  are  brief,  coordinated  and  targeted  operations  implemented  by  customs  authorities  to 
combat illicit cross-border trafficking in goods. 

OLAF  coordinated  and  cooperated  with  Member  States  in  12  JCOs  and  other  operational 
actions.  One  JCO  was  organised  by  the  World  Customs  Organisation  with  intelligence 
support from OLAF. Four JCOs were organised in cooperation with four Member States and 
financed by OLAF. 

To facilitate coordination in JCOs with a large number of participants, OLAF: 

  provided intelligence, technical and/or financial support; 
  ensured secure access and exchange of information via the AFIS; 
  made  its  permanent  operational  coordination  room  available  to  the  authorities 

involved. 

Of the 12 JCOs and other actions, the following stand out: 

The  Magnum  JCO  targeted  smuggling  of  tobacco  products  transported  by  road  into  EU 
territory  across  the  EU’s  eastern  border.  It  was  coordinated  by  the  Estonian  customs 
administration  and  OLAF,  with  the  involvement  of  five  Member  States.  Around  11  million 
cigarettes were seized during the operation. 

The Warehouse III JCO targeted smuggling and removal of excise goods (tobacco products, 
mineral  oil/  fuels  and  certain  alcohols)  from  duty  and  tax  suspension  arrangements.  It  was 
coordinated  by  the  Finnish  customs  administration  and  OLAF  with  the  involvement  of  all 
Member  States  and  the  support  of  Europol.  The  results  of  this  operation  are  still  under 
evaluation. 

The  Orion  JCO  targeted  goods  originating  from  non-EU  countries  and  released  into  free 
circulation  using  customs  procedure  4248.  It  was  coordinated  by  the  Greek  customs 
administration  and  OLAF  with  the  involvement  of  the  customs  authorities  of  23  Member 
States  in  close  cooperation  with  the  tax  authorities.  Europol  supported  the  operation.  This 
JCO  led  to  customs  uncovering  several  instances  of  undervaluation  and  misclassification  of 
goods  at  import,  as  well  as  a  string  of  missing  traders  who  ‘disappeared’  in  order  to  evade 
customs duties and VAT. 

48  Customs  procedure  42  provides  for  non-EU  goods  to  be  released  into  free  circulation  in  an  EU  Member 
State exempted from import VAT on condition that the goods will be transported to another Member State 
in an intra-Community transaction. 

19 

 
 
 
 
                                                 
The  Wafers  JCO  targeted  counterfeit  semiconductors  imported  into  the  EU  from  Asia  by 
post/express  courier  services.  The  results  of  this  operation  are  still  under  evaluation.  It  was 
coordinated by the Dutch Customs and OLAF with the involvement of 12 Member States and 
the support of Europol, in close cooperation with the industry. 

Operations  Kerguelen,  Kiribati,  Killick,  Kheops  and  Pascal  —  These  regional  maritime 
surveillance  operations,  coordinated  by  French  customs  targeted  the  detection  of  illicit 
trafficking  of  sensitive  goods  by  sea,  in  the  Atlantic  and  the  Mediterranean.  The  operations 
resulted in seizures of over 8 tonnes of cannabis resin and 400 kg of cocaine and the arrest of 
17 people. 

The Hansa joint action, driven by the United Kingdom Customs in cooperation with Europol 
and  the  support  of  OLAF,  targeted  internal  movement  of  illegal  excisable  goods,  mainly 
cigarettes. The final evaluation is still ongoing. 

Operation  Octopus  organised  by  French  customs  in  cooperation  with  OLAF,  targeted 
revenue  fraud  involving  customs  procedure  42  and  helped  uncover  various  fraudulent 
companies and large amounts of evaded customs duties and VAT. As a result of the increased 
controls, more than 6 000 counterfeit items were seized. 

Operation Gryphon II, organised by the World Customs Organisation with the participation 
of OLAF, targeted the illicit tobacco trade. The operation resulted in seizures of 729 million 
cigarettes, 287 000 cigars and 250 tonnes of other tobacco products, as well as components of 
machines  used  to  manufacture  cigarettes,  bulk  cash  and  more  than  12  million  excise  duty 
stamps. 

3.1.2.  Mutual Assistance and anti-fraud provisions in international agreements 

In  the  context  of  Article 19  of  Regulation  (EC)  515/97  the  list  of  mutual  administrative 
assistance  agreements49  in  force  providing  the  legal  basis  for  the  exchange  of  information 
with third countries on fraud and irregularities was expanded to include the following partners 
in 2016: Kazakhstan, Ivory Coast, Ghana and Kosovo*. In addition, negotiations to update the 
previous  agreement  were  finalised  with  Armenia.  Negotiations  with  Mercosur  (Argentina, 
Brazil, Paraguay and Uruguay) have made good progress. 

The EU also made progress in ongoing negotiations on including an anti-fraud clause in free 
trade agreements with Japan, the US, Mexico, Mercosur and Tunisia. 

3.1.3.  Fight against illicit trade in tobacco products 

The Commission is reviewing the preliminary outcome of its 2013 Communication Stepping 
up the fight against cigarette smuggling and other forms of illicit trade in tobacco products — 
A  comprehensive  EU  strategy50,  which  came  with  a  comprehensive  action  plan.  A  progress 
report  giving  an  overview  of  the  main  initiatives  taken  since  then,  an  analysis  of  the  illicit 

49  More than 70 agreements are currently in place, including major EU trade partners such as the US, China 

and Japan. 

*  This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the 

ICJ Opinion on the Kosovo declaration of independence. 

50  COM(2013) 324 final. 

20 

 
 
 
 
                                                 
market in tobacco products and suggestions for further reflection and action was published in 
May 201751. 

3.1.4.  Fight against VAT fraud 

The Commission adopted an action plan Towards a single EU VAT area — Time to decide52 
on 7 April 2016. It set out 20 measures to tackle the VAT gap and fight fraud53and proposed 
addressing the provisional VAT system’s current exposure to so-called missing trader intra-
Community  fraud  by  setting  up  a  definitive  VAT  system  based  on  the  destination  principle 
and implementing more urgent measures to tackle the VAT gap. 

The VAT gap report54 published in 2016 revealed a VAT gap of EUR 159.5 billion. An expert 
group  was  set  up  under  the  Fiscalis  programme  to  allow  Member  States  to  exchange  good 
practice in measuring the VAT fraud gap. 

On 21 December 2016, the Commission adopted a proposal for a Council Directive allowing 
a  generalised  reverse  charge  mechanism55  (GRCM)  to  be  applied  temporarily  if  a  certain 
number of Member States requests it. 

Member  States  and  the  Commission  continued  their  discussion  on  new  ways  to  boost  the 
activities of the Eurofisc network in order to detect fraud schemes more efficiently. 

Negotiations  on  an  EU  agreement  on  administrative  cooperation  and  recovery  assistance  in 
VAT with Norway were concluded and the agreement is set to be signed in 2017. 

3.2.  Member States’ anti-fraud measures in revenue  

Most Member States reported measures to fight customs fraud. Denmark and France reported 
on a national risk analysis; Italy and Portugal reported on a national customs risk assessment; 
while Austria and Slovenia reported on a national customs control strategy. Measures to fight 
organised  and  financial  crime  and  anti-smuggling  were  reported  by  Bulgaria,  Greece  and 
Finland.  Measures  to  fight  tax  evasion  and  VAT  fraud  were  reported  by  Bulgaria,  Czech 
Republic, Ireland, Lithuania, Latvia and Poland. 

3.3. 

Statistics concerning detected irregularities and fraud in Revenue  

3.3.1.  Detected fraudulent irregularities56 

The number of irregularities reported as fraudulent for 2016 amounts to 513 (FFL57 is 11%). 
This  is  32 %  lower than the five-year average (749  irregularities for the period 2012-2016). 
The affected amount of TOR estimated and established (EUR 83 million, FAL58 is 15%) in 
2016 is 30 % lower than the five-year average (EUR 119 million).  

51  COM(2017) 235 final. 
52  COM(2016) 148 final. 
53  https://ec.europa.eu/taxation_customs/business/vat/action-plan-vat_en 
54  TAXUD/2015/CC/131,https://ec.europa.eu/taxation_customs/sites/taxation/files/2016-09_vat-gap-

55  Proposal for a Council Directive amending Directive 2006/112/EC, COM(2016) 811 final. 
56 

Information concerning recovery of TOR amounts affected by fraud and irregularities is given in the SWD, 
under footnote 1(ii). 

report_final.pdf. 

57  See footnote 38. 
58  See footnote 39. 

21 

 
 
 
 
                                                 
Inspections  by  anti-fraud  services  and  customs  controls  carried  out  at  the  time  of  goods 
clearance were equally successful methods of detecting fraudulent cases. In terms of amounts, 
inspections by anti-fraud services were the most fruitful. 

Cases of undervaluation detected in the United Kingdom affecting TOR revenue 

The Commission services' inspection on TOR in November 2016 in the UK found significant 
weaknesses in the management and control of undervalued imports of textiles and footwear.  

OLAF  also  concluded  an  investigation  in  March  2017  on the  undervaluation  of  textiles  and 
footwear imported to the UK from the People’s Republic of China. It found that appropriate 
measures  were  not  taken  to  prevent  systematically  undervalued  imports  of  textiles  and 
footwear from China from entering the EU through the UK. This resulted in very significant 
losses to the EU budget between 2013 and 2016. 

These elements led the Director-General for Budget to make a reservation in the 2016 Annual 
Activity  report  on  the  inaccuracy  of  the  TOR  amounts  transferred  to  the  EU  budget  by  the 
United Kingdom since 2013. 

The  Commission  is  following  up  with  the  UK  on  the  findings  of  its  audit  and  the  OLAF 
reports. In the event the UK does not take appropriate corrective action, the Commission will 
take all appropriate measures to protect the financial interests of the Union including, where 
appropriate, the legal action envisaged by the Treaties. 

3.3.2.  Detected and reported non-fraudulent irregularities 

The  number  of  irregularities  not  reported as  fraudulent  was  4 134,  which  is  9 %  lower  than 
the  five-year  average  (4 532  for  2012-2016).  The  affected  amount  of  TOR  estimated  and 
established was EUR 454 million, which is 28 % higher than the five-year average (EUR 355 
million). 

Although the total number of fraudulent and non-fraudulent cases dropped from 5 514 cases 
in  2015  to  4 647  in  2016  (down  by  16 %),  the  total  TOR  amounts  involved  increased  from 
EUR 445 million to EUR 537 million (up 21 %). 

Non-fraudulent irregularities were primarily detected by means of post-clearance controls. 

In  2016,  solar  panels  were  most  affected  by  fraud  and  irregularities  in  monetary  terms.  In 
many  instances  irregularities  involving  solar  panels  were  detected  following  a  mutual 
assistance notice issued by OLAF. This underlines the importance of investigations conducted 
by OLAF to detect irregularities. 

3.3.3.  Results of the European Anti-Fraud Office59 

OLAF  opened  40  investigations  into  suspected  evasion  of  import  duties.  It  concluded  30 
investigations and made 71 financial recommendations to EU national customs authorities for 
the recovery of evaded duties, worth EUR 103.7 million. Eight recommendations for judicial 
action were sent to EU national judicial authorities.  

59  https://ec.europa.eu/anti-fraud/sites/antifraud/files/olaf_report_2016_en.pdf 

22 

 
 
 
 
                                                 
4. 

4.1. 

SECTORAL ANTI-FRAUD POLICIES, MEASURES AND RESULTS — EXPENDITURE 

Agriculture — Sectoral anti-fraud policies, measures and results 

4.1.1.  Agriculture — Anti-fraud measures by Member States 

Seven  Member  States  reported  taking  anti-fraud  measures  specific  to  agricultural  funds  as 
follows:  Germany  organised  anti-fraud  training,  Greece  adopted  measures  on  fraud 
prevention, Luxembourg focused on detecting fraud in agriculture, Poland carried out a fraud 
risk analysis for agriculture, Slovenia introduced a computerised accounting system, Slovakia 
introduced  new  internal  procedures  and  checklists,  and  the  United  Kingdom  implemented 
sectoral anti-fraud strategies. 

4.1.2.  Agriculture — Statistics on detected irregularities and fraud 

The Common Agricultural Policy (CAP) is financed by two funds, the European Agricultural 
Guidance  Fund  (EAGF  —  about  80 %  of  the  CAP  budget)  and  the  European  Agricultural 
Fund  for  Rural  Development  (EAFRD  —  the  remaining  20 %),  which  function  differently. 
The  EAGF  follows  an  annual  implementation,  while  the  EAFRD  finances  multiannual 
programmes.  The  EAGF  is  divided  into  two  main  areas:  direct  payments  to  farmers  and 
market support measures. 

The trend over the last five years of irregularities detected and reported by Member States to 
the  Commission  reflects  these  differences,  with  the  EAGF  showing  an  even  curve  and  the 
EAFRD  reflecting  the  multiannual  cycle.  The  pattern  of  irregularities  detected  by  Member 
States  confirms  the  higher  inherent  risk  of  EAFRD  investments.  However,  detected 
irregularities related to market support measures also indicate that more could be done in this 
area. 

4.1.2.1.  Detected fraudulent irregularities 

Of  the  irregularities  reported  as  fraudulent  by Member  States  over the  last  five  years,  60 % 
concern the EAFRD and 40 % the EAGF. The FFL60 is 12.5 %, while the FAL61 is 24 %. 

For the EAFRD, the most frequently detected modus operandi is the use of false or falsified 
supporting documentation. However, in the last two years, ‘ethics and integrity’ breaches (a 
category  which  includes  cases  of  ‘corruption’  and  ‘conflicts  of  interest’)  have  been  rising. 
They  were  frequently  detected  in  2016  and  may  be  linked to  the  decentralised  management 
structure  of  many  EAFRD  programmes.  On  the  other  hand,  the  fact  that  so  many  cases  are 
detected and reported also implies that Member States are paying increasing attention to these 
issues. 

Fraudulent  irregularities  in  the  EAFRD  over  the  last  five  years  represent  about  0.5 %  of 
payments. 

For the EAGF, over the last 5 years, fraudulent irregularities represent a smaller percentage of 
budget commitments than for the EAFRD. The impact on direct payments is 0.03 %. 

However,  the  situation  is  different  for  market  measures  (which  represent  only  7 %  of  the 
EAGF  commitments):  the  impact  on  the  payments  is  1.1 %.  The  main  measures  concerned 
are:  ‘Fruit  and  vegetables’,  ‘Products  of  the  wine-growing  sector’  and  ‘Pigmeat,  eggs  and 

60  See footnote 38. 
61  See footnote 39. 

23 

 
 
 
 
                                                 
poultry,  bee-keeping  and  other  animal  products’.  The  financial  amounts  reported  mainly 
reflect  significant  financial  corrections  imposed  by  the  Commission  on  the  Member  States, 
following its own audits. National authorities have to recover the unduly paid amounts from 
the  beneficiaries.  This  shows  that  due  to  the  Commission's  audits  the  overall  system  is 
working properly, but that Member States could do more to ensure regularity and legality of 
expenditure in this area. 

The most frequently detected modus operandi categories for the EAGF are ‘false or falsified: 
declarations,  supporting  documents,  request  for  aid’  and  ‘declaration  of  fictitious  product, 
species and/or land’, in line with previous years. 

4.1.2.2.  Detected and reported non-fraudulent irregularities 

Trends in non-fraudulent irregularities are as described in section 4.1.2. 

For  EAGF  expenditure,  there  is  again  a  significant  difference  between  direct  payments  and 
market  measures.  While,  for  the  former,  the  impact  on  payments  over  the  last  five  years  is 
0.07 %, for the latter it is 1.5 %. For the EAFRD, the impact on 2012-2016 payments of non-
fraudulent irregularities is 2.1 %. 

4.1.2.3.  Results from the European Anti-Fraud Office 

Financial  recommendations  by  OLAF  over  the  last  five  years  are  stable  at  about  EUR  60 
million per year.  

4.2. 

Cohesion  policy  and  fisheries  —  Sectoral  anti-fraud  policies,  measures  and 
results 

4.2.1.  Cohesion policy and fisheries — Anti-fraud measures by Member States 

The majority of Member States reported adopting measures in this area: 

Belgium on conflict of interest, Bulgaria on administration of irregularities and ARACHNE, 
Denmark  on  managing  suspected  fraud  cases,  Germany  on  European  Social  Fund 
management  and  control  systems  as  well  as  self-assessment  of  fraud  risks  in  the  European 
Regional and Development Fund, Ireland on anti-fraud measures specific to ERDF, Finland 
concerning their beneficiary information system, Croatia on irregularity management, Italy on 
preventing  fraud  in  fisheries,  Cyprus  on  a  fraud  risk  self-assessment  tool,  Luxembourg  on 
ARACHNE  and  a  fraud  risk  self-assessment  tool,  Malta  on  irregularity  reporting,  the 
Netherlands  and  the  United  Kingdom  on  ARACHNE,  Austria  on  a  verification  procedure, 
Poland  on  IT  tools  in  public  procurement,  Slovenia  on  computerised  accounting  system, 
Finland on anti-fraud training, and Sweden on economic crime and risk analysis.  

4.2.2.  Cohesion policy and fisheries — Statistics on detected irregularities and fraud 

In  comparison  with  the  other  budget  sectors,  analysis  of  cohesion  policy  involves  a  higher 
level  of  complexity  because  the  information  received  (reported  irregularities)  relates  to 
different programming periods governed by different sets of rules. 

Furthermore,  the  programming  cycles  are  multiannual  and  this  significantly  affects  the 
underlying trends. Given the similarity in the management of the funds, fisheries and cohesion 
policy are analysed together. 

24 

 
 
 
 
In 2016, 8 497 irregularities were detected and reported (22 % less than in 201562, but 25 % 
more  than  the  average  for  the  last  five  years).  They  concern  four  different  programming 
periods, with the largest share relating to  2007-2013 (97 %) and  only  115 to the 2014-2020 
programme.  The  financial  amounts  affected  by  irregularities  in  2016  came  to  EUR 2.06 
billion, remaining fairly stable (5 % less than in 2015 and 8 % more than the average of the 
last five years). 

No major shifts in trends were identified in comparison to previous years, in terms of types of 
irregularities detected and detection and reporting efficiency. 

4.2.2.1.  Detected fraudulent irregularities 

407  fraudulent  irregularities  were  detected  and  reported,  4 %  more  than  in  2015,  while  still 
over 17 % more than the average of the last five years. 

The bulk of reported irregularities were for 2007-2013, therefore this year’s analysis focused 
on the whole programming cycle63. For the whole period, 1 750 fraudulent irregularities were 
detected and reported by national authorities, worth EUR 1.48 billion, with a fraud detection 
rate of 0.42 %. 

The detection rate is higher for programmes contributing to the ‘convergence’ objective. The 
European  Territorial  Cooperation  programmes  (ETC),  by  contrast,  the  detection  rate  is 
anomalously low (0.1 %). 

The  priorities  areas  with  the  highest  fraud  indicators  are:  ‘Tourism’,  ‘Research  and 
technological  development  (R&TD)’,  ‘Transport’,  ‘Investment  in  social  infrastructure’  and 
‘Technical Assistance Fisheries’. 

4.2.2.2.  Detected and reported non-fraudulent irregularities 

8 090 non-fraudulent irregularities were detected and reported, almost 23 % less than in 2015 
and 26 % more than the average of the last five years. 

Over the 2007-2013 programming period, 35 360 non-fraudulent irregularities were detected 
and  reported,  worth  almost  EUR  7.3  billion,  an  irregularity  detection  rate  of  2.1 %.  The 
priorities areas with the highest indicators are the same as for fraudulent irregularities. 

4.2.2.3.  Results from the European Anti-Fraud Office 

The  bulk  of  OLAF’s  financial  recommendations  concerns  cohesion  policy.  OLAF 
recommended recovery of EUR 353 million.  

4.3. 

Indirect  management  (Pre-accession)  —  Sectoral  anti-fraud  policies,  measures 
and results 

4.3.1. 

Indirect  management  (pre-accession)  —  Statistics  on  detected  irregularities  and 
fraud 

The  analysis  of  irregularities  relating  to  indirect  management  focuses  on  Pre-accession 
instruments. 

62  2015 was an unusual year: see sections 5.1 and 5.3.2 of the 2015 Annual Report to the European Parliament 
and the Council on the Protection of the EU financial interests and the fight against fraud, (COM(2016) 472 
final), http://ec.europa.eu/anti-fraud/sites/antifraud/files/pifreport_2015_en.pdf. 

63   The programming period closure started at the end of March 2017. 

25 

 
 
 
 
                                                 
Reported  irregularities  still  concern  two  main  periods.  The  2000-2006  Pre-Accession 
Assistance  (PAA)  programmes,  aimed  at  preparing  the  accession  waves  of  2004  and  2007, 
and  the  2007-2013  Pre-accession  instruments  (IPA)  used  in  the  European  Neighbourhood 
policy, which mainly address the Balkan countries and Turkey. 

Overall, reported  irregularities  were unchanged  from 2015,  while  the five  year trend (2012-
2016)  shows  a  steady  decline,  due  to  the  phasing  out  of  initiatives  linked  to  the  latest 
enlargement waves. In 2016, only eight irregularities, involving EUR 2 million, were reported 
in relation to PAA (as against 15 in 2015); 111, affecting EUR 8.3 million, were reported in 
relation to the IPA (as against 109 in 2015). 

Regarding PAA, only three fraudulent irregularities were detected and reported, worth EUR 
1.8 million. In relation to the IPA, the number of fraudulent irregularities detected increased 
to 25 (from 21 in 2015), involving EUR 1.2 million. 

The main area concerned is still rural development support. 

4.3.2.  Results from the European Anti-Fraud Office 

As  a  result  of  its  investigations  in  these  areas,  OLAF  recommended  that  the  Commission 
recover EUR 7.1 million. 

4.4. 

Direct management — Sectoral anti-fraud policies, measures and results 

4.4.1.  Direct management — Statistics on detected irregularities and fraud 

Statistics  on  direct  management  are  based  on  recovery  orders  issued  by  Commission 
departments  that  are  recorded  in  the  Commission’s  Accrual-Based  Accounting  System, 
ABAC. 

4.4.1.1.  Detected fraudulent irregularities 

In  2016,  ABAC  recorded  49  recovery  items  classed  as  fraudulent64,  which  accounted  for 
EUR 6.25 million. Comparing this to the total funds effectively disbursed, the fraud detection 
rate is 0.03 %, a level that has remained stable over the past five years. 

4.4.1.2.  Detected and reported non-fraudulent irregularities 

Regarding non-fraudulent irregularities, 1 861 recovery items totalling EUR 78 million were 
recorded  in  2016.  Over  a  five-year  period,  the  irregularity  detection  rate  remained  stable  at 
around 0.5 %. 

4.4.1.3.  Results from the European Anti-Fraud Office 

Following  investigations  in  these  areas,  OLAF  recommended  the  recovery  of  EUR  22.3 
million. 

5. 

RECOVERY AND OTHER PREVENTIVE AND CORRECTIVE MEASURES 

Detailed information on recoveries, financial corrections and other preventive and corrective 
measures  (interruptions  and  suspension  of  payments)  are  published  in  the  Annual 
Management  and  Performance  Report,  which  as  from  2016  includes  the  former  annual 

64  Referred to in the system as ‘OLAF notified’ cases. 

26 

 
 
 
 
                                                 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the 
European Court of Auditors on the protection of the EU budget.65 

6. 

COOPERATION WITH THE MEMBER STATES 

The  2016  meeting  of  the  Advisory  Committee  for  Coordination  of  Fraud  Prevention 
(COCOLAF) bringing together Member States experts provided an opportunity to discuss the 
main developments in the fight against fraud and the preparation of the report  Protection of 
the  European  Union’s  financial  interests  —  Fight  against  fraud  2015,  required  under 
Article 325 TFEU. 

The COCOLAF subgroups met in 2016 to: 

  prepare  the  irregularity  reporting  guidance  document  and  the  launch  of  the  new 

IMS; 

  draw up fraud prevention documents; 
  share media strategies; 
 

launch communication activities on fraud prevention and deterrence. 

Two guidance documents were prepared under the subgroups: 

  Reporting  and  Analysis  sub-group:  Handbook  on  the  requirement  to  report 
irregularities66,  which  provides  guidance  on  common  aspects  of  Member  States’ 
reporting  of  irregularities  in  connection  with  EU  budget  expenditure  as  part  of 
shared management for the 2014-2020 programming period. 

  Fraud  Prevention  sub-group:  ‘General  Guidelines  on  National  Anti-Fraud 
Strategies, for Member States drawing up their national strategy. The document is 
a revised and enlarged version of the 2014 guidelines: it is a more comprehensive 
document  covering  all  shared  management  expenditure  and  includes  concrete 
examples of Member States’ best practices. 

Both  documents  were  drafted  following  a  collaborative  approach  with  Member  States’ 
experts, coordinated by OLAF. 

The third AFCOS Group meeting took place on 27 October 2016 and was an opportunity for 
coordination  services  to  discuss  key  factors  for  successful  investigative  cooperation  with 
OLAF. OLAF presented several developments in different policy areas, e.g. the evaluation of 
Regulation 883/2013 and the European Public Prosecutor’s Office (EPPO). 

In addition, the OLAF Anti-Fraud Communicators’ Network subgroup met in 2016 to discuss 
the role of investigative journalism in the fight against EU-wide fraud, share experience on a 
Transparency  International  anti-corruption  project  and  participate  in  a  hands-on  session  on 
how to develop a successful communication strategy, among other activities. 

The  Council’s  Working  Party  on  Combating  Fraud  (GAF)  exchanged  views  with  the 
Commission  on  anti-fraud  matters.  Four  GAF  meetings  took  place  in  2016:  three  under  the 
Dutch presidency and one under the Slovak Presidency. 

65  The AMPR is part of the EU budget integrated financial reporting package, COM(2017) 351 final. 
66  This document still needs to be finalised and formally adopted. 

27 

 
 
 
 
                                                 
7. 

EARLY DETECTION AND EXCLUSION SYSTEM (EDES) 

The Early Detection and Exclusion System (EDES) which aims at reinforcing the protection 
of  the  EU's  financial  interests  was  introduced  by  the  2015  revision  of  the  Financial 
Regulation67 and entered into force on 1 January 2016.68 EDES ensures: 

 

 

 

the early detection of economic operators representing risks to the EU’s financial 
interests; 
the exclusion of unreliable economic operators from obtaining EU funds and/or the 
imposition of a financial penalty; 
the  publication,  in  the  most  severe  cases,  on  the  Commission’s  website  of 
information  related  to  the  exclusion  and/or  the  financial  penalty,  in  order  to 
reinforce the deterrent effect. 

This  new  system  represents  a  significant  improvement  in  the  application  of  rules  on 
administrative sanctions with respect to fundamental rights, independence and transparency.  

EU institutions, agencies and bodies can now only decide to impose sanctions on unreliable 
economic operators after obtaining a recommendation69 from the new centralised Panel70. The 
Panel assesses cases where there is no final judgment or final administrative decision. It has 
no  investigative  powers.  In  principle,  the  panel  bases  its  assessment  on  facts  and  findings 
resulting from audits performed under the responsibility of the competent Commission service 
or investigations conducted by OLAF. 

The  Panel  is  composed  of  a  standing  high-level  independent  Chair  who  took  office  on 
24 November 2016,  two  permanent  Members  representing  the  Commission,  and  one  ad  hoc 
Member representing the authorising officer of the service71 requesting the recommendation. 
The Panel respects the right of defence of the economic operator  concerned and applies the 
principle of proportionality72.  

In 2016, 21 cases relating to 33 economic operators were addressed to the Panel through its 
permanent  secretariat  by  different  authorising  services,  including  14  from  the  Commission, 
five  from  executive  agencies,  one  from  an  office  and  one  from  a  decentralised  agency.  In 
2016 the Panel adopted three recommendations73. 

67   Regulation  (EU,  Euratom)  No  2015/1929  of  the  European  Parliament  and  of  the  Council  of  28  October 

2015, OJ L 286, 30.10.2015, p. 1. 

68   Also see COM(2017) 351 final, Part 2/2, p. 79-80. 
69   For the situations referred to in Article 106(1)(c) to (f) of the Financial Regulation (i.e. grave professional 

misconduct, fraud, serious breaches of contractual obligations, or irregularities). 

70   Panel  referred  to  in  Article  108(5)  to  (10)  of  the  Financial  Regulation:  Regulation  (EU,  Euratom)  No 
966/2012  of  the  European  Parliament  and  of  the  Council  of  25  October  2012  on  the  financial  rules 
applicable  to  the  general  budget  of  the  Union  and  repealing  Council  Regulation  (EC,  Euratom)  No 
1605/2002, OJ L 298, 26.10.2012, p.1, lastly amended by Regulation (EU, Euratom) No 2015/1929 of the 
European Parliament and of the Council of 28 October 2015, OJ L 286, 30.10.2015, p. 1. 

71   The authorising services can be that of EU institutions, agencies and bodies.  
72  More information on the Panel is included in the SWD, footnote 1(iv). 
73   As of 30 June 2017, the Panel had issued 17 recommendations, three of which were adopted in 2016. In one 
case, the facts presented to the Panel were not established. In three recommendations, the Panel concluded 
that no sanctions should be imposed, in the light of the remedial measures taken by the operator. For further 
details see the SWD on EDES and its annexes. 

28 

 
 
 
 
                                                 
The Commission must also report on decisions taken by the authorising officers regarding74: 

  non-exclusion of economic operators where it is indispensable to ensure continuity 
of service for a limited period and pending the adoption of remedial measures by 
the economic operators concerned; 

  non-publication  of  information  on  administrative  sanctions  on  the  Commission 
website,  either  due  to  the  need  for  confidentiality  of  investigations,  or  to  respect 
the principle of proportionality where a natural person is concerned. 

8. 

FOLLOW-UP  TO  THE  EUROPEAN  PARLIAMENT  RESOLUTION  ON  THE  PROTECTION 
OF THE EU’S FINANCIAL INTERESTS — FIGHT AGAINST FRAUD — ANNUAL REPORT 
2015 

The Commission gives a warm welcome to European Parliament resolution and in particular 
its support for the recent Commission initiatives in the fight against fraud, the EPPO and the 
PIF  Directive.  The  Commission  notes  the  generally  constructive  and  positive  tone  of  the 
resolution and can give a positive follow-up to a good number of the recommendations. 

(a) Detection and reporting of irregularities 

The  Commission  stresses  that  interpreting  an  increase  in  irregularities  reported  by  Member 
States  as  a negative  development,  or  a decrease as  a positive development, is  too simplistic 
and might be misleading. 

National Anti-Fraud Strategies are only compulsory for candidate countries. The Commission 
is  encouraging  Member  States  to  draft  such  strategies  and  supports  them  by  facilitating  the 
exchange of best practices and know-how75. 

For  the  detection  of  irregularities,  the  Commission  has  already  made  specific  IT  tools 
available to Member States, such as ARACHNE, IMS and the Fraud Risk Assessment Tool. 

(b) Revenue — own resources 

The Commission stresses that it is implementing the action plan VAT — Towards a single EU 
VAT area and the 20 measures to tackle the VAT gap published on 6 April 201676. 

The  Commission  is  committed  to  fighting  trade  in  illegal  and  counterfeit  goods  and  is 
continuously  working  with  the  Member  States  to  develop  a  common  risk  management 
framework to ensure equivalent levels of risk-based customs control throughout the EU. The 
Commission regularly carries out on-the-spot inspections in Member States aiming to ensure 
that national management and control systems comply with EU customs law. 

(c)  Expenditure 

The  Commission  takes  note  of  the  European  Parliament’s  interest  in  more  detailed 
information on recovery from legal residents of non-EU countries of mismanaged EU funds 
under direct management and will try to elaborate more on this specific aspect in next year’s 
report, within the limits of the information available. 

74   Data provided in the SWD footnote 1(iv). 
75  See section 2.2.1.1. 
76  See section 3.1.4. 

29 

 
 
 
 
                                                 
As  regards  systematic  analysis  of  public  procurement  errors,  sufficient  data  is  required  to 
perform meaningful analysis. In addition to the irregularity reporting related to EU funds, to 
gather such data, the Commission has taken steps to explore ways of setting up an irregularity 
database at EU level that would also include public procurement irregularities not related to 
EU funds. To this end, a feasibility study is planned to be finalised by June 2017. 

The Commission will attempt to look in more depth into the high level of fraudulent cases in 
R&TD, innovation and entrepreneurship77. 

(d) Problems identified and measures required 

  Better  reporting:  Regarding  the  request  for  uniform  reporting  principles  in  all  Member 
States,  the  Commission  is  finalising  a  working  document  prepared  in  cooperation  with 
experts from the Member States on the reporting of irregularities, dealing specifically with 
the issues which have caused the greatest problems. 

The Commission is also of the opinion that the establishment of an anti-fraud coordination 
service  (AFCOS)  in  all  Member  States  already  an  important  step  in  the  right  direction. 
The AFCOS network could be an appropriate framework for such cooperation to develop. 

  Better  controls:  The  Commission  has  already  taken  specific  actions,  under  the  current 
legal framework, to strengthen its supervisory role, aiming to improve the Member States’ 
management and control systems and reduce the error rates. 

The  Hercule  III  programme  is  currently  subject  to  an  independent  mid-term  evaluation. 
The  Commission  will  submit  the  results  to  the European  Parliament  and  the  Council  by 
31 December 2017. 

  The  PIF  Directive  and  EPPO  Regulation:  The  Commission  welcomes  the  political 
agreement  reached  by  the  Council  and  European  Parliament  on  the  PIF  Directive  and 
looks  forward  to  its  adoption.  It  supports  the  establishment  of  the  EPPO  with  as  many 
Member  States  as  possible  participating,  while  taking  the  view  that  the  EPPO  could  be 
effective  even  if  not  all  Member  States  participate,  and  supports  the  current  efforts  to 
establish enhanced cooperation.  

  Tobacco: In response to the European Parliament’s request, from today’s perspective, the 
anti-fraud  agreements  with  JTI,  BAT  and  ITL  are  due  to  expire  in  2022  and  2030 
respectively.  The  Commission  has  just  presented  a  report  on  the  implementation  of  the 
2013  strategy78.  This  report  includes  lessons  learned  with  regard  to  the  phenomenon  of 
‘cheap  white’  cigarettes.  On  the  basis  of  stakeholders’  responses,  once  its  evaluation  is 
complete, the Commission may consider further measures in 2018. 

(e)  Investigations and the role of OLAF 

OLAF  has  steadily  reduced  the  overall  length  of  its  investigation  cases  from  an  average  of 
23.6 months in 2012 to 21 months in 2015. 

The Commission is currently evaluating Regulation 883/2013, and will submit an evaluation 
report to the European Parliament and the Council by October 2017. 

77  An in-depth descriptive analysis is available in the SWD, footnote 1(ii). See sections 4.2.2.3 and 4.2.2.4. 
78  COM(2013) 324 final. 

30 

 
 
 
 
                                                 
The procedure for the appointment of a new OLAF Director-General has already started and 
the European Parliament and the Council are fully involved. 

9. 

CONCLUSIONS AND RECOMMENDATIONS 

Adapting legal and administrative measures to target fraud and irregularities and protect the 
EU’s financial interests is a continuous, ongoing process. As the European integration project 
moves forward and as the economic international landscape changes, new challenges emerge. 
Dealing with them requires new instruments and tools. 

New trends and patterns have emerged in the ways in which fraud is committed79. Fraudsters 
exploit  all  opportunities  offered  by  the  single  market,  the  globalised  economy  and  new 
technology. 

As shown by this and previous years’ reports, Member States have been focusing their efforts 
in  particular  on  preventive  and  detection  measures.  At  EU  level,  European  legislators, 
following  specific  initiatives by the European Commission,  are trying to  address the threats 
posed by the increasing cross-border dimension of fraudulent activities80. The establishment 
of the EPPO will provide a more efficient action to counter those fraudulent activities.  

9.1. 

Revenue 

The  measures  taken  at  EU  level  in  2016  further  strengthened  the  protection  of  the  EU’s 
financial interests.  The revised  Regulation  515/97  serves  as  a  powerful  tool  for  stepping  up 
the  fight  against  customs  fraud.  The  joint  customs  operations  (JCOs)  conducted  by  OLAF 
continue to be an important source of information for detecting irregularities in transactions 
involving certain types of goods. 

China was the country of origin with the highest level of fraud and irregularities detected both 
in number of cases and established amounts. 

Customs control strategy involves a combination of different controls. Post-clearance controls 
have been reported as the most effective method of detection, both in terms of the number of 
cases  detected  and  in  terms  of  amounts.  However,  controls  before  and  during  clearance  of 
goods and inspections carried out by anti-fraud services are indispensable for the detection of 
certain types of existing fraud, new fraud patterns and, generally, for the detection of all types 
of fraud. 

The TOR inspections carried out in 2016 on control strategy in customs valuation showed that 
flaws  in  the  management  and  control  of  undervalued  imports  of  textiles  and  footwear  may 
have significant negative consequences for the EU budget. Appropriate risk profiles need to 
be  in  place;  undervalued  imports  need  to  be  systematically  challenged  and  customs  values 
corrected in line with EU regulations. 

Recommendation 1 

Member  States  are  invited  to  review  their  management  and  control  strategy  with  regard  to 
customs valuation. With a view to protecting the EU’s financial interests, they are requested 

79  See The OLAF Report 2016, pages 12-22: 

 https://ec.europa.eu/anti-fraud/sites/antifraud/files/olaf_report_2016_en.pdf. 

80  The OLAF Report 2016. 

31 

 
 
 
 
                                                 
 
to review their national procedures and control systems, in particular by 

 

including  in  their  risk  management  system  EU-wide  risk  profiles  based  on  ‘clean 
average prices’ and systematically challenging potentially undervalued goods detected 
by means of risk profiles; 

  not releasing the goods unless the declarants of potentially undervalued goods remove 
the authorities’ reasonable doubts about the accuracy of the declared value or provide 
a guarantee fully covering the customs debt which may be incurred; 
  applying the customs valuation methodology provided by customs law. 

9.2. 

Expenditure 

As  OLAF’s  investigations  have  shown,  public  procurement,  which  remains  the  largest 
channel of public spending, is an attractive marketplace for fraudsters, who use corruption and 
offshore accounts to facilitate fraud. Many procurement fraud cases are  transnational, as the 
new fraud scenarios often involve a contracting authority from one Member State and bidders 
from  several  other  Member  States  who  subcontract  their  works  to  companies  in  different 
countries81. 

Over  the  last  five  years,  20 %  of  all  reported  irregularities  have  been  related  to  breaches  of 
public procurement rules, accounting for 30 % of all reported irregular financial amounts. 

The  Public  Procurement  Directives  should  have  been  transposed  by  18 April 2016,  to 
introduce a modernised and streamlined legal framework. Eleven Member States have yet to 
transpose the three Public Procurement Directives in full.  

Recommendation 2 

The Commission calls on the Member States to: 

 

fully  transpose  Directives  2014/23/EU,  2014/24/EU  and  2014/25/EU  and  put  their 
implementation high on the political agenda; 

  enforce  the  new  Directives  with  a  focus  on  transparency  and  integrity  in  public 
procurement,  prevention  and  detection  of  fraud  and  corruption  and  better  monitoring  of 
public procurement systems; 

  make use of the possibilities offered by simpler rules and fully realise the potential of e-

procurement, which will become mandatory by October 2018. 

Looking at the detections reported by national authorities over the last five years for the main 
expenditure sectors, there is no significant divergence from known patterns. There are small 
variations  in  annual  programmes,  such  as  those  financed  by  the  EAGF,  from  one  year  to 
another. Multiannual programmes follow a different pattern, linked to the programming cycle, 
with a low number in the first years of the programme increasing towards its closure. 

This  year’s  analysis  has  been  further  deepened  and  refined  to  enable  better  targeting  of 
specific areas at risk. This was possible because of the quality of the reported data, which is 
progressively improving. However, more improvements could be made. 

Recommendation 3 

81  The OLAF Report 2016. 

32 

 
 
 
 
 
                                                 
  When  reporting  irregularities  (fraudulent  and  non-fraudulent),  all  competent  authorities 
are  asked  to  provide  information  about  the  location  and,  for  cohesion  and  fisheries 
policies, the priority area of the measures/projects affected. 

  When updating irregularities previously reported, Member States are also asked to provide 

this information if they have not done so already. 

Direct  payments  financed  by  the  EAGF  form  a  relatively  low-risk  policy  area,  in  terms  of 
fraud  and  irregularities  detected  and  reported  by  Member  States.  Fraud  detection  in  market 
support measures is higher than in any other policy areas82. 

For  EAFRD  programmes,  the  level  of  irregularities  and  fraud  detection  by  the  competent 
authorities is similar to that of other shared management areas. 

For  cohesion  policy,  analysis  of  the  2007-2013  programming  period  points  to  a  higher 
detection  rate  for  convergence  objective  programmes.  An  unusually  low  detection  rate  is 
found for ETC programmes. 

Specific priorities are identified as riskier83. 

Recommendation 4 

  All Member States are invited to take into account the findings of this report in their fraud 
risk assessments for the programming period 2014-2020 and to pay particular attention to 
the priorities highlighted and to interventions which are similar in scope and nature. 
In view of the low detection results for ETC programmes and considering the increasing 
threat  of  transnational  fraud,  Member  States  are  asked  to  increase  their  attention  and 
cooperation. 

 

  All Member States are asked to review their fraud risk assessments in relation to market 

support measures, taking into account the information highlighted in this report. 

9.3. 

The years ahead 

There is increasing awareness of the threats posed by fraudsters and the difficulties for single 
national authorities of coping with the cross-border dimension of the schemes put in place. 

This  translates  into  growing  willingness  to  share  information  and  best  practices  and,  within 
adequate  legal  frameworks,  relevant  data.  The  EU  and  its  Member  States  are  now  better 
equipped than a few years ago and there is increasing commitment to do even more. 

In  2017,  the  Council  and  European  Parliament  will  adopt  the  PIF  Directive,  further 
harmonising  their  approaches  and  embracing  the  European  dimension  of  combating  VAT 
fraud. 

At least twenty Member States will move even further, setting up the EPPO on the basis of 
‘enhanced  cooperation’,  to  specifically  address  fraud  and  other  crimes  affecting  the  EU’s 
financial  interests.  When  the  EPPO  is  established,  there  will  be  two  EU  bodies  conducting 
investigations in this area. OLAF and the EPPO will need to work in partnership to increase 
the protection of the EU’s financial interests within their respective remits for administrative 
and  respectively  criminal  investigations.  The  Commission  is  committed  to  maintaining  a 

82  See section 4.1.2 for the specific market support measures identified. 
83  See section 4.2.2. 

33 

 
 
 
 
                                                 
strong OLAF and the ongoing evaluation of Regulation 883/2013 will offer a new opportunity 
for much needed reflection on how to further strengthen its investigative powers. 

34 

 
 
 
 
ANNEX 1 — IRREGULARITIES REPORTED AS FRAUDULENT IN 2016 

The number of irregularities reported as fraudulent measures the results of Member States’ work to counter fraud and other illegal activities 
affecting the EU’s financial interests. Therefore, the figures should not be interpreted as indicating the level of fraud in the Member States’ 
territories. Totals differ from Table 1 as Annex 1 does not include third countries (pre-accession) and direct expenditure. 

35 

N€N€N€N€N€N€Belgique/België00369 261 635Bulgaria6012 107 5065608 31121 4386712 717 25511436 567Ceská republika14852 2463730 467 3515131 319 5982140 600Danmark4254 7304254 73058 581 374Deutschland3231 833245 508 712275 740 545935 112 337Eesti51 735 03093 958 131145 693 16010Éire/Ireland238 015238 0153445 574Ellada173 401 448173 401 448305 594 313España10580 76875 213 134175 793 902422 972 087France223 375 812223 375 8128328 785 027Hrvatska102 575 582192 94911 006122 669 5365342 006Italia202 707 009202 707 009226 548 191Kypros007332 446Latvija12987 2851210 601 1872411 588 47112661 068Lietuva112 087 2183359 879142 447 09710266 102Luxembourg0000Magyarország241 154 158211 844 119452 998 277288 762Malta001167 040Nederland2206261 626Österreich227 444227 444145 716 261Polska9713 020 9535633 262 94815346 283 901923 101 717Portugal46 033 837118 850 6291514 884 46600Romania10814 007 6849548 222 87331 828 76920664 059 326162 943 686Slovenija2660 0702660 07000Slovensko11 4839982 310 32310082 311 8073707 196Suomi/Finland006119 457Sverige1102101 720United Kingdom380 76661 542 72391 623 4899297 577TOTAL41361 859 35900407236 904 78861 831 212826300 595 35851382 984 369REVENUEMember StatesAgricultureInternal policiesCohesion Policy & FisheriesPre-AccessionTOTAL EXPENDITURE 
 
 
 
ANNEX 2 — IRREGULARITIES NOT REPORTED AS FRAUDULENT IN 2016 

Totals differ from Table 2 as Annex 2 does not include third countries (pre-accession) and direct expenditure. 

36 

N€N€N€N€N€N€Belgique/België21442 748583 239 754793 682 5021676 679 740Bulgaria403 713 58414733 901 40533218 54422037 833 532252 150Ceská republika422 747 385414112 332 254456115 079 639805 298 065Danmark233 532 67014629 377374 162 048733 720 877Deutschland693 045 1881178 81226024 973 61733028 197 6161 48967 203 731Eesti18713 094301 514 040482 227 134363 879Éire/Ireland581 380 576668 187 6611249 568 237284 561 472Ellada1082 051 777554183 569 916662185 621 69488 599 250España31121 701 1672 687313 038 5312 998334 739 69824241 581 643France2079 590 957808 970 76828718 561 72623421 343 994Hrvatska23500 25172 220 3168164 783382 885 35012589 781Italia70362 263 45615850 150 868861112 414 3248917 235 008Kypros7314 4007314 40000Latvija15620 01217940 519 31319441 139 324152 523 277Lietuva924 578 9483463 921313 901 4241268 944 293161 055 777Luxembourg0000Magyarország1576 434 407522105 695 234679112 129 641144 126 454Malta1310 955 6501310 955 65000Nederland441 324 326553 760 864995 085 190517147 056 822Österreich10257 725332 143 370432 401 0954710 535 675Polska31621 718 9071 077305 831 2561 393327 550 164744 084 106Portugal45018 726 87917111 417 92462130 144 803156 461 250Romania59541 369 126557109 492 6942146 5431 154151 008 362413 243 332Slovenija11429 072244 348 776354 777 848125 222Slovensko352 252 313428445 621 389463447 873 70213292 640Suomi/Finland21390 81415497 45236888 266342 000 001Sverige493 1645212 0819305 245966 360 043United Kingdom471 379 77149838 815 49954540 195 27082489 063 434TOTAL3 420211 258 3174642 7328 0901 826 255 83443529 86911 5572 038 686 7534 134453 757 623REVENUEMember StatesAgricultureInternal policiesCohesion Policy & FisheriesPre-AccessionTOTAL EXPENDITURE