A Case for OLAF:The Place and Roleof the Anti-fraud Office in the European

Union Context

George KRATSAS*

This article examines the place and role of the European Anti-fraud Office (OLAF) in thecontext of the European Union (EU). OLAF is tasked with investigating instances of fraudthat harm the financial interest of the EU.The author examines key aspects of OLAFs operationand cooperation with other bodies, such as national authorities and EU institutions, in order toidentify the deficiencies inherent in OLAFs operational framework.As it is argued,many of the cur-rent problems faced by OLAF in the discharge of its functions are due to a lack of reflection as toits precise task and purpose from its early stages of existence and the inadequate coordinationbetween OLAF and other actors in the process of combating fraud. The article concludes bymaking specific policy suggestions that may optimize OLAFs operation in the future.

1 INTRODUCTION

The European Anti-fraud Office, commonly known as OLAF (also referred tohere as the Office), has acquired significant attention over the past years as a keyactor in protecting the financial interest of the European Union (EU) againstfraud.When it comes to protecting the EU budget against instances of fraud, theEU still has no immediate jurisdiction over anti-corruption legislation andenforcement within EU Member States (MSs). Until specific reform is undertakenin this respect,1 the role of the EU is to encourage and support MSs action.TheEuropean Anti-fraud Office was created shortly after allegations that led to theresignation of the Santer Commission,2 and its precise task, as well as its place androle in the EU system, was always a matter of intense debate and, at times, disputeamong EU actors.

OLAF operates internal investigations, where it investigates the use of fundsby EU officials, as well as external ones, where it mainly investigates the allocation

* PhD Cand. University College London.The author would like to thank Despoina Mantzari for hervaluable comments and suggestions.

1 This essentially relates to the possibility of creating a post of a European Public Prosecutor, the detailsof which shall be discussed further infra.

2 The Santer Commission resigned en masse in 1999 after allegations of corruption. For more details, seeA. Topan, The Resignation of the Santer Commission: The Impact of Trust and Reputation,European Integration Online Papers 6 (2002).

Kratsas, George. A Case for OLAF:The Place and Role of the anti-fraud Office in the European UnionContext. European Public Law 18, no. 1 (2012): 6597. 2012 Kluwer Law International BV, The Netherlands

of funds by national governments and potential smuggling cases. It is assisted by aSupervisory Committee, whose role is to reinforce the Offices independence byregularly monitoring the conduct of its investigations and other tasks.3

OLAFs predecessor, UCLAF,4 became a full-fledged operational squad underthe pressure of the European Parliament (EP) and, in particular, the Commissionfor Budgetary Control (COCOBU). The European Anti-fraud Office wasestablished by Commission Decision 1999/352/EC,5 European Coal and SteelCommunity (ECSC), Euratom of 28 April 1999, while the subsequentRegulations 1073/996 and 1074/997 determined its role and powers with regardto investigations. After the enactment of these Regulations, OLAF enjoyedinvestigative independence and an increased budget and staff, while remaining partof the European Commission (the Commission).

OLAF operates on the basis of information given by, among others, MSs andhas the power to conduct investigations with the cooperation of nationalauthorities. It is divided in task units dealing with particular areas such asagriculture or structural funds or with particular tasks such as the magistrates unitor the task recovery unit. After a case is brought to the attention of OLAF, it isassessed and later classified as non-case or as investigation, coordination, orassistance case. When serious suspicion of fraud is identified, the follow-up unitusually undertakes investigations. OLAF has stated that it operates a zero-tolerancepolicy with regard to fraud.8

This article will aim to argue two main points. First, it becomes apparent, bylooking at the issues that surround the operation of OLAF today, that there hasbeen inadequate consideration over OLAFs precise task from the beginning. Atthe same time, the legislator has failed to determine the precise relation betweenOLAF and other EU bodies, such as the Commission and the EP.These failureshave resulted in hindering OLAFs work of investigating fraud and referringsuspects to national authorities, especially during the first years of its operation.Ata second stage, this article points that OLAFs existence so far has beencharacterized by an ongoing progress as a reaction to its original deficiencies and islargely the result of intense scrutiny exercised by the EP and the Commission.

3 See infra for a more detailed presentation of the Supervisory Committees role.4 The Task Force for the Co-ordination of Fraud Prevention (UCLAF), which was part of the

Secretariat-General of the Commission, was created in 1988.5 1999/352/EC, ECSC, Euratom: Commission Decision of 28 Apr. 1999 establishing the European

Anti-fraudOffice (OLAF) (notified under Document Number SEC(1999) 802),OJ L 136, 31May 1999.6 Regulation (EC) No. 1073/99 concerning investigations conducted by the European Anti-fraud

Office (OLAF), OJ L 136/1.7 Council Regulation (Euratom) No. 1074/99 concerning investigations conducted by the European

Anti-fraud Office (OLAF), OJ L 136/8.8 European Anti-fraud Office (OLAF), Annual Report 2010 Tenth Activity Report 1 Jan. to 31 Dec.

2009 (European Commission, 2010), 32.

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Finally, the article will also attempt to make concrete policy suggestions that caneradicate deficiencies and optimize OLAFs operational performance.9

1.1 OUTLINE

This article is divided into two main parts. The first part deals first with theconduct of investigations and the internal administration of OLAF. Whendiscussing OLAFs investigatory work, the emphasis is placed on the Officesindependence and accountability as well as the objectives and the procedure ofOLAFs investigations, followed by an analysis of rules of evidence and theprotection of individual rights.

Subsequently, a scrutiny of OLAFs internal administration, which begins bydescribing the Offices inheritance from its predecessor and its impact on theOffices work as well as problems with regard to human resources, is offered. Ananalysis of the Tillack affair is offered as an illustration of the above problems.Thesection ends with a discussion of OLAFs progress in this respect and how suchissues may be addressed in the context of OLAFs reform.

The second part of this article deals with OLAFs cooperation with otheractors in fulfilling its task. First, OLAFs relation with national authorities isassessed in the context of reporting and prosecuting fraud and other irregularities.Then, the article examines OLAFs relation with other EU bodies, such as theCommission, the EP, and the European Police Office (Europol).

Finally, a number of comments are made as to OLAFs future, especially in thecontext of the proposal for a new Regulation on OLAF. These suggestions willfocus on OLAFs investigative work, on its cooperation with other institutions,and on the possibility of establishing a European Public Prosecutor.

It is noted that the article will focus, in particular, on the conduct of externalrather than internal investigations. Often, examples in the area of agricultural fundsare used for illustrative purposes.

2 THE CONDUCT OF INVESTIGATIONS AND ADMINISTRATIONOF OLAF

Defining OLAFs task requires an examination of its investigatory work. Theproblems that are set out below show that there has not been adequate reflectionfrom the beginning concerning the precise limits of OLAFs job. Many potential

9 The debate over OLAFs reform has become more concrete since the publication of the CommissionProposal for OLAF: Proposal for a Regulation of the European Parliament and of the Councilamending Regulation (EC) No. 1073/1999 concerning investigations conducted by the EuropeanAnti-fraud Office (OLAF), COM(2006) 244 final, 24 May 2006.

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difficulties were acknowledged but not given sufficient importance, and proceduralaspects of the investigations were disregarded. On the whole, the conduct of theinvestigations themselves was not sufficiently set out. While there is still someconfusion over many of these problems, as will be exposed further below, OLAFsadministrative deficiencies intensified many of those problems.

2.1 CONDUCT OF INVESTIGATIONS

OLAFs investigation of fraudulent activities constitutes its primary mission, and assuch, it absorbs a significant part of the Offices resources and staff.10 The mainaspects that will be discussed below concern OLAFs framework of independenceand accountability, the objectives and procedure of conducting investigations, theimpact of rules of evidence, as well as the effective guarantee of individual rightsduring the investigations.

2.1[a] Independence and Accountability

An analysis of OLAFs conduct of investigations should begin by looking into theOffices framework of independence from and accountability to other authoritiesand institutions.The independence and accountability of OLAF lie at the heart ofthe Offices operation and may determine both the result of its work and thequality of its administration. First, unless OLAF operates in full independence, theresults of its investigative and other activities may be compromised by theinfluence of external factors, such as the agencies or businesses under investigation.Second, the scrutiny over OLAFs work not only has enabled the Anti-fraudOffice to optimize its operation strategy but has also further incentivized it toimprove its results, expand its reporting system, and eradicate defects in its internaladministration.11 Having said this, there is still significant room for optimizingOLAFs framework of accountability.

The independence of OLAF is guaranteed by the status reserved to its toplevel official. The Director General, acting as head of OLAF, is appointed by theCommission, following consultation with the EP and the Council, for a term offive years. In the fulfilment of his duties, the Director General is expected to act infull independence from governments or EU officials. When carrying outinvestigations, this duty extends to all OLAF officials. In contrast, when it comes tothe general administration activities, participation in the Commissions legislative

10 For example, in 2009, OLAF had about 500 staff, out of which 160 are investigators; Keith Nuthall,Whistleblower Seeks to Head EU Anti fraud Unit,Accountancy Age, 15 Apr. 2010.

11 Concrete examples are provided infra.

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and policy initiatives, international cooperation, etc., OLAF employees act asagents of the Commission subject to its internal rules and powers.12

OLAFs Supervisory Committee does not intervene in the conduct ofinvestigations. Its role is to safeguard the independence of OLAF through themonitoring of the investigative function.13 Through its annual Activity Reports, itcan offer support but can also challenge and question the work of OLAF andmake its own constructive suggestions for improvement.14 It is appointed bycommon accord with the EP, the Council, and the Commission and is composedof five independent outside persons. The Supervisory Committee discharges itsfunction by delivering opinions to the Director General and by the submission ofreports to the Union institutions, while acting in complete independence andimpartiality.15

Thus, the structure of OLAF may guarantee a satisfactory degree ofindependence. An agency such as OLAF, however, also needs to be accountable.For this purpose, OLAF is answerable to a number of EU bodies: beginning withthe Supervisory Committee, mentioned above, OLAF is also subject to control bythe Commission, of which it remains a part, the EP (and in particular theCOCOBU), the Court of Justice for the European Union (CJEU), the Court ofAuditors (CoA), and the European Ombudsman.16 This wide spectrum of EUbodies with jurisdiction to review the work of OLAF ensures that the Anti-fraudOffice is kept constantly under check.

At the same time, control of the EP over OLAF is also hampered by theconfidentiality clause found in Article 12(3) of Regulation 1073/99.17 As it wasadmitted by the late Director General of OLAF, F.H. Bruenner, OLAF is facingcontinuous calls for the right of access to on-going investigations.18 Drawing aline between the right of OLAF to non-disclosure of documents and, at the sametime, enabling members of the EP to exercise their control appears to be a verydifficult task. To this end, a dialogue was initiated in 2004 on what information

12 OLAF, Annual Report 2009 Ninth Activity Report 1 Jan. to 31 Dec. 2008 (EuropeanCommission, 2009), 20.

13 Regulation 1073/99,Art. 11(1).14 See Supervisory Committee, Supervisory Committee Activity Reports, , 26 Feb. 2011.15 Ibid.16 Which is the body responsible for examining all instances of maladministration by the EU. For the

role of the European Ombudsman in promoting accountability in the EU, see C. Harlow et al.,Promoting Accountability in Multi-level Governance:A Network Approach, European Governance,N. C-06-02 (2006).

17 The [European Parliament, Commission and Court of Auditors] shall ensure that the confidentialityof the investigations conducted by the Office is respected, together with the legitimate rights of thepersons concerned, and, where judicial proceedings have been instituted, that all national provisionsapplicable to such proceedings have been adhered to.

18 OLAF, OLAF Welcomes Encouragement and Motivation from European Parliament Public Hearing,OLAF/05/11, Brussels, 14 Jul. 2005.

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Parliament can have access to in connection with its work; the aim being to find abalance that respects the Parliaments supervisory rights and, at the same time,guarantees the confidentiality of OLAFs investigations. No permanent solutionhas been achieved until now.

Overall, OLAFs accountability to other EU bodies is a matter yet to beresolved.All of the above-mentioned institutions, the EP (as the main driving forcebehind the creation of OLAF), the Commission (as the body of which OLAFconstitutes a part of), the CoA, and OLAFs Supervisory Committee, are pertinentto hold OLAF accountable as well as influence OLAFs future reform.19 As aresult, the Office is often faced with different and often contradictory demands byvarious bodies as to what OLAFs task or priorities should be.20 This muddledframework of accountability may, thus, have been responsible for the slow andsometimes uncoordinated development of OLAFs mission.21

Some further aspects of OLAFs status and accountability towards other EUinstitutions are discussed below in the context of OLAFs cooperation with thosebodies.22

2.1[b] Objectives and Procedure

When attempting to define OLAFs precise objective in an investigation, it shouldbe kept in mind that the measure of OLAFs success largely depends on the typeof case it is faced with. In a case involving smuggling products into the EU, such asthe Philip Morris International affair,23 detecting the smugglers and achieving asettlement between them and the MSs concerned was an undeniable success.OLAFs investigative task, however, in most cases is a more modest one as in mostcases it is enough to refer the persons suspected of fraud to the relevant judicialauthorities or the institution of the EU itself to deal with.

19 Arguably, OLAF is an institution accountable to all the aforementioned bodies, and interestingly, allseem to claim that progress has been achieved essentially owing to their pressure; see H. Bosch, Reporton the Protection of the Financial Interest of the Communities and the Fight against Fraud 2004Annual Report, European Parliament, Committee on Budgetary Control (COCOBU), FINALA6-0185/2006, Brussels, 15 May 2006, and Commission, Report from the Commission to theEuropean Parliament and the Council Annual Report 2006, COM(2007)390, 6 Jul. 2007.

20 OLAF, OLAFWelcomes Encouragement and Motivation from European Parliament Public Hearing,supra, 1. It is noteworthy that interviewed representatives from different EU bodies expressed differentviews as to the precise task undertaken by OLAF or as to where OLAFs responsibility in aninvestigation would end.

21 A characteristic example lies in the application of de minimis thresholds at the same time as operatinga zero tolerance policy. See infra.

22 See infra under s. 3.2.23 Under an agreement secured by OLAF between Philip Morris International (PMI) and ten MSs in

2004, approximately USD 1 billion will be paid over a period of twelve years to the EuropeanCommunities and the MSs that signed the agreement.With Romania and Bulgaria having joined theagreement in March 2007, the number of signatory MSs is twenty-six.

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A major drawback in the first years of OLAFs operation was that there hadbeen little planning from the beginning concerning the conduct of theinvestigations.The OLAFs 2001 and 2005 Manuals focused considerably more onthe legal aspect of the Offices work such as the procedural rules, standards, andform,24 rather than on the organization and conduct of investigations. Such aninsistence on the legal aspect was based on the justification that a failure to complywith these requirements would undermine the subsequent result, and thus, theseshould be set out more clearly on the manual.25

A Summary Manual issued in 2007,26 as well as a new version of OLAFs2009 Manual, moved towards a more detailed account and a proceduralization ofthe Offices investigation procedures.27 In particular, the manuals set out theconditions for conducting investigations and operations,28 such as the relevantauthorization, the procedures for conducting on-the-spot checks,29 the conduct ofinterviews,30 and the transmission of information to other actors, such as nationalauthorities.31 This progress, however, has not succeeded in creating a generalinvestigation policy for OLAF, nor do the manuals define any particular objectivesto be achieved. In addition to this deficiency, OLAFs Annual Reports are markedby an absence of key performance indicators.32 In this respect, OLAF may drawfrom the experience of national investigation agencies.

When carrying out internal investigations (i.e., investigations into the conductof EU officials and institutions), there seems to be some difficulty with decidingwhat action should be taken once the investigation is completed. According toRecital 13 of Regulation 1073/99 concerning investigations conducted by theEuropean Anti-fraud Office, it is incumbent upon the Director to decide whetherto transfer the persons involved to national judicial authorities. However, thisdiscretion confuses the role of OLAF, which according to the foundingRegulations is a purely administrative one, with a situation where OLAFsinvestigations could have both disciplinary (administrative) and criminal lawimplications.33 In the first case, the persons involved would be dealt with by the

24 Such as the Offices mandate, legal framework, organizational chart, etc.25 OLAF,OLAFs Procedural Rules Published, OLAF/05/12, 31 Aug. 2005.26 OLAF,OLAF Manual Operational Procedures (Commission, 2007).27 OLAF,OLAF Manual Operational Procedures (Commission, 2009).28 Section 3.3.1.29 Section 3.3.2.30 Section 3.3.3.31 Section 3.3.6.32 However, it must be recognized that a change in this respect would require significant time, especially

since OLAF does not have control over all factors influencing success. In particular, a measure ofcooperation is required from national investigation agencies as well.

33 R. Kendall et al., Rapport dActivits juin 2003juillet 2004 Recommandations du Comit:Ameliorer de fonctionnement de lOLAF et prparer la transition vers le parquet europen (Comitde Surveillance, 22 Dec. 2004), 43.

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Union institution concerned, and in the second case, they would be referred tonational authorities. It has, thus, been supported in this context by M. Gavanier,Director of the CoA,34 that OLAF should probably abandon the criminal aspectof its internal investigation (meaning, that it should not refer officials to judicialauthorities) but rather leave it to the institutions to deal with, since they have beenproven to be more effective and more quickly resolved.35

A 2005 Special Report issued by the CoA identified a number of deficienciesin OLAFs conduct of investigations in that the manual makes no prioritization ofOLAFs tasks and there is no codification of investigative proceedings.36 As aresult, the report stated, support units took little time in defining objectives andplanning strategy to be adopted in the investigation. It is equally admitted by theSupervisory Committee that the previous manual did not allow such aprioritization to be made apart from clearing non-cases and classifying dossiersbetween investigations and co-ordinations/assistances.37

OLAF, conscious of this deficiency, tries in its recent Annual Reports tointroduce an element of prioritization, without, however, showing clear signs ofthe implementation of a prioritization strategy. In particular, in its 2010 AnnualReport, OLAF merely states that more serious cases as well as those whereOLAF has a clear mandate will be given special priority.38 The Commission,however, notes that since 2005 OLAF has shown significant progress in planningits investigations more. Case assessment reports, since 2005, have set out a workplan and the Offices line managers control, to a greater extent, the legality andquality of its operations.The Case Management System (CMS) initially perceivedto be a simple file management system is now developing into a true system ofinvestigation management and a decision-making aid.39 A desirable development,as stated by the Commission, would be for OLAF to include all materials relatedto the conduct of the investigations in a separate manual40 and thus set outobjectives and results to be achieved more clearly.The introduction in 2009 of theIrregularity Management System (IMS)41 has also helped in this respect as it will

34 Which is the body examining the revenue, expenditures, and management of the EU.35 J.M. Gavanier, Director, Court of Auditors, Informal Correspondence, 9 Jul. 2007.36 Court of Auditors, Special Report No. 1/2005 concerning the management of the European

Anti-fraud Office (OLAF), OJ C 202/1, 18 Aug. 2005, para. 27.37 Kendall et al., supra, 39.38 OLAF, 2010, 13.39 Commission,The Commission Replies, OJ C 202/21, 18 Aug. 2005, para. 36.40 Ibid., para. 34.41 The IMS is a web-based reporting system that allows for the creation of a reporting structure built on

three different levels and is, therefore, able to accommodate the needs also of highly decentralizedMSs.This comprises inputting and updating notifications in the system, verification, completeness, andconsistency of information provided by the MSs, and maintaining user-friendly and secure access tothe IMS for designated Commission officials. See OLAF, OLAF Activities Concerning Greece in theArea of Structural Actions (Commission, undated).

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improve the reporting of various irregularities over the long term and thus enableOLAF to react more efficiently.

It should not be forgotten, moreover, that, as far as external investigations areconcerned, OLAF is now operating with thresholds, thus demonstrating its desireto prioritize cases that have a more significant impact. In 2009, OLAFprogressively introduced a de minimis policy, which introduced indicative monetarythresholds under which OLAF would not automatically open an investigation butwould pass the information to another competent authority.42 Such thresholdsmay rectify part of OLAFs investigative deficiencies; they sit uncomfortably withits zero tolerance policy.43

2.1[c] Rules of Evidence

The diversity of rules of evidence is another factor hampering the results ofinvestigations. Once one has brought a case to court, problems of evidence canlead to failure at the judgment stage. Notions of evidence differ significantlybetween Continental and Common law systems. Continental law is based more onthe concept of legality (whose evidentiary force is predetermined by law), while inCommon law jurisdictions, the notion of truthfulness of the evidence is used,with the result that evidence obtained by a third party (or hearsay) is prohibited.44

Therefore, evidence collected in one country is not always admissible in another.National rules are still deficient in covering this kind of situation. Since OLAF hasto rely on national authorities for the collection of evidence, technical andorganizational problems are likely to arise due to delays in the exchange ofinformation.45

As a result, it falls upon OLAF and the national authorities to work closelytogether so as to ensure that evidence obtained during investigations is admissiblein national prosecutions. To this end, OLAFs 2004 Annual Report on theimplementation of Article 280 TFEU on combating fraud (now Article 325)required MSs to list all national requirements as to the admissibility of evidence.46

The 2009 Manual also recognizes the issue of admissibility of evidence before

42 OLAF, 2010, supra, 13.43 The Commission maintains in its 2010 Reflection Paper that a de minimis threshold could be used

while maintaining the Offices zero tolerance approach, although it fails to explain how a zerotolerance policy can survive the de minimis threshold in practice; Commission, Reflection Paper onthe Reform of the European Anti-fraud Office (OLAF), SEC(2010) 859, 6 Jul. 2010, 6.

44 D. Marty, Guest Editorial: Combating Fraud Necessity, Legitimacy and Feasibility of the CorpusJuris,Common Market Law Review (2000): 250.

45 OLAF,Report of the European Anti-fraud Office 2005, Sixth Activity Report (2005), 39.46 OLAF, Report from the Commission to the Council and the European Parliament, Protection of the

Financial Interests of the Communities Fight against Fraud Commissions Annual Report 2004,COM(2005)323 final, 19 Jul. 2005, 92107.

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national courts, although it fails to provide any substantial guidance so as to avoidfuture complication that may lead to a failure at the judgment stage.47

2.1[d] Guarantee of Individual Rights

One final, particularly important issue concerning the conduct of investigations isthe guarantee of the individual rights of persons involved. This issue becomesparticularly relevant in light of the recent decision of the European Court ofHuman Rights judging a raid, executed under information provided by OLAF, ascontrary to Article 10 of the European Convention on Human Rights on freedomof expression.48 The desire to guarantee the protection of fundamental rightsindicates the importance attached to OLAFs mandate from the very beginning.The increased interest by academics and governmental departments over the yearsand the focus on this aspect of the investigations denote the growing impact ofOLAFs operation.49 On the other hand, it also shows how little reflection wasdedicated at the creation of OLAF to this aspect of the investigations.

The founding Regulation 1073/99 provides in Recital 10 that investigationsmust be conducted with full respect for human rights and fundamental freedoms,in particular the principle of fairness, and for the right of persons involved toexpress their views on the facts concerning them. Moreover, the Gomez Reinoruling50 renders the guarantee of such rights indispensable, where such disregardwould constitute a violation of substantial formalities applicable in investigationsand could impinge on the legality of the decision itself.

Nevertheless, it has been stated by C. Stefanou and H. Xanthaki that there is agap between the protection and full respect of human rights and fundamentalfreedoms envisaged in Recital 10 of the Regulation and the limited number ofrights effectively protected in the context of OLAF investigations.51 This concernis justified since until OLAF endorsed the Uniform Guidelines for Investigators in2003 there was no codification of rights of persons subjected to investigations orany code of good practice for investigators.52

47 See OLAF,OLAF Manual Operational Procedures, supra, 19, 56.48 AFFAIRE TILLACK c. BELGIQUE de 27 novembre 2007, Requte no. 20477/05, see infra for a

more detailed analysis of the Tillack affair.49 See infra House of Lords Committee on European Union, C. Stefanou et al., as well as the interest of

the Court of Auditors and the OLAF Supervisory Committee on this aspect of the investigations.50 CaseT-215/02, Santiago Gmez-Reino v. Commission, 18 Dec. 2003, 65.51 C. Stefanou et al., IALS Study on Strengthening OLAF Towards Greater Effectiveness in the

Protection of the Communities Financial Interests: The Revision of the OLAF Regulation1073/99, Institute of Advanced Legal Studies 4 (2005).

52 See OLAF, The 4th Conference of International Investigators Hosted by the European Anti-fraudOffice (OLAF) held in Brussels on 3 and 4 Apr. 2003, Press Release OLAF/09/2003, 4 Apr. 2003. Anew version of the Guidelines was issued in 2009 in the context of the 10th Conference on

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The Supervisory Committee, in the context of its responsibilities, is taskedwith guaranteeing the rights of those persons under investigation. In reality,however, it has no chance to do so as it cannot intervene in ongoing investigations.It can, thus, be concluded that this objective does not have any real bearing.

As a result, frequent complaints were made from those subject toinvestigations that their fundamental rights were infringed, in particular the rightto be heard before accusations were concluded against them.53 As stated by theSupervisory Committee, the respect of this principle presupposes the existence ofprecise rules, but OLAF had not given, until then, a satisfactory answer to thisproblem.54

OLAFs response came with the adoption of the 2005 Manual that, in section3.6, set out all the rights of interested parties in the process of conductinginvestigations. The importance of this issue was reflected by the even greateremphasis on individual rights in the 2009 Manual both for internal and externalinvestigations. This deals with OLAFs responsibility to inform persons underinvestigation, the duties of officials, and defence rights against self-incriminationand access to files. It also states that OLAF is under a duty to respect nationalprovisions on the rights of defence.55 Still, however, no precise account is maderegarding the rights of persons to be heard other than a simple mention, and moreimportantly, still no effective complaint mechanism is provided for at the disposalof persons who consider that their procedural rights have been breached byOLAF.56 This poor progress is regrettable and, if anything, gives rise to the beliefthat organizational reform must be initiated to guarantee an effective provision ofthose rights. Additionally, it would be a positive development to see a set ofprocedural guarantees of persons concerned by investigations being introduced inthe text of the new Regulation as has been proposed by all three institutions(Commission Proposal of 2006, EP Resolution, and Council WorkingDocument).57

On the whole, the view taken by the CoA Special Report in 2005 was thatOLAFs investigative power was rather limited,58 a criticism that still applies today.It is difficult to deny that the Offices investigatory work, however central to itsmission, is hindered by various deficiencies in the system set up by the founding

International Investigators; see World Intellectual Property Organisation, Investigation ProcedureManual (Internal Audit and Oversight Division, 2010).

53 House of Lords, Strengthening OLAF, the European Anti-fraud Office Report with Evidence, SelectCommittee on European Union 24th Report of Session 20032004, The United KingdomParliament, 21 Jul. 2004, para. 68.

54 Kendall et al., supra, 47.55 OLAF,OLAF Manual Operational Procedures, supra, 119130.56 This deficiency will hopefully be rectified with the adoption of the new Regulation; see infra.57 See nn. 9, 143, and 155, respectively. Infra, the above proposals are discussed in more detail.58 Court of Auditors, 18 Jul. 2005, supra, para. 28.

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Regulations and which progressively came to light. This view will be dealt withlater under the light of the proposed Regulation replacing Regulation 1073/99.For now, it is imperative to see how this work is further obstructed by instances ofmaladministration within OLAF.The criticism related to these defects is of centralimportance since it formed the basis of different voices demanding a reform of therole and mandate of OLAF.

2.2 THE ADMINISTRATION OF OLAF:AN INSTANCE OF MALGOVERNO?

The objective of this section is less to outline the precise administrative structureof OLAF as much as it is about examining problems that have impeded OLAFstask over the years.These evolve around the accumulation of the work of OLAFspredecessor and the organization of its human resources. As will be seen, many ofthose problems resulted in poorer results than expected and subsequently led tocriticism, followed by an organizational response from OLAF.

2.2[a] A Backlog of Cases and Its Impact on Internal Organization

As it was rightly identified by the 2005 CoA Special Report, OLAF, in its firstdays, had to deal with a great number of problematic reports inherited by itspredecessor, UCLAF. Those reports revealed the poor organization of OLAFspredecessor that did not benefit from the same budget and number of staff asOLAF.The new Anti-fraud Office was set up so as to possess sufficient resources todeal with the growing number of cases.59 Furthermore, since the implementationof its electronic CMS, the Offices efficiency has been significantly increased.60

Arguably, the most important criticism concerned the division of the tasksfulfilled by OLAF.The CoA Special Report and the Supervisory Committee haveindicated in the past that the separation between the activities in which OLAF isto exercise its functions independently (investigations) and those where it supportsthe task of the Commission (in the coordination and collaboration between MSs)is not very clear.61 In this context, the CoA also stressed that control of resourcesis made difficult because of treating coordination assistance and investigation asequivalents.62 The problem is that, although those functions are classified asdifferent, resources are not strictly divided as to what is to be allocated in one

59 C. Heaton-Harris, Projet dAvis de la Commission du Contrle Budgtaire (European Parliament,Committee on Budgetary Control, 19 Jul. 2005).

60 See supra n. 39.61 Kendall et al., supra, 40.62 Court of Auditors, 18 Jul. 2005, supra, para 76.

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function or the other.At this point, we should also note that the Manual (both theprevious and present) did little to prevent this confusion.63

An Executive Board that comprised most of the heads of units directly orindirectly responsible for investigations was also set up in 2002. It was establishedto improve the quality of reports by drawing on the experience of the variousservices and to ensure the consistency of the decisions proposed to the Director ofthe Office by the various investigation teams.This was a significant development atthe time. However, in the majority of the cases examined by the CoA, it hademerged that, despite the intervention of the Board, investigations started on thebasis of inadequate assessment.64 OLAF took this criticism seriously andproceeded, in September 2006, to a restructuring of the Board, so as to include anadviser for Case and Board Management whose responsibility is to assistoperational Directors.65 The initial evaluation of cases now must be completed intwo months to give the Board sufficient time to assess each case.At the end of thisperiod, a case is classified as internal/external investigation and coordination orcriminal assistance case.

Another criticism addressed to the Office was that of delays in processing,mainly because of bureaucracy and due to MSs poor cooperation.66 Although thisis a valid criticism for many cases, it should have be acknowledged by the CoAthat many delays were due to the fact that significant resources were absorbed inthe process of clearing up past (UCLAF) cases.67 According to a press release ofthe CoA, OLAF had to deal with a backlog of over 1,400 cases, a veryburdensome legacy owing to the disorganized way in which many of theseinvestigations had been managed.68 Therefore, it would only be logical to expectthat the overall process would be delayed until this large number of cases wascleared.

Regarding the average evaluation time of OLAFs investigations, this hasgiven rise to mixed conclusions.While an average investigation in 2002 took up tothirty-eight months, this average decreased to twenty-three months in 2004,69

although it picked up again to twenty-eight months in 2007, only to be reducedto twenty-five months in 2009.70 Despite the introduction of aTime Management

63 This can be verified by looking at Points 1.2, 1.3, and 1.4 of both manuals.64 Court of Auditors, 18 Jul. 2005, supra, para. 41.65 OLAF,Seventh Activity Report 1 Jan. 2006-31 Dec. 2006 (2007), 7.66 Court of Auditors, 18 Jul. 2005, supra, para. 23.67 Commission, 18 Jul. 2005, supra, para. 20b.68 Court of Auditors, European Court of Auditors Special Report on the Management of OLAF:

Questions and Answers,MEMO/05/251, 12 Jul. 2005.69 Commission,The Commission Replies, supra, para. 23.70 OLAF, 2010, 17.

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System on 1 April 2007,71 it seems that the average duration of investigations is anarea open to improvement as it continues to create concerns until today.72

As far as OLAFs reporting system is concerned, regrets had been expressed inthe past that reports submitted by the Commission and OLAF were notsufficiently comparable and reporting periods were not harmonized.73 Shortlyafterwards, a new Report issued by the COCOBU acknowledged the progressmade by OLAF in this respect.74 In particular, the use of comparative tables anddata from different years in OLAF Annual Reports facilitated, to some extent, thestudy of OLAFs reports in comparison to previous years or with relation toreports issued by other Commission departments.

2.2[b] Human Resources

Another issue concerning OLAFs organization relates to its human resourcesdepartment. Although there has been a considerable increase of staff since 1999,this, according to the CoA, was not followed by a study to determine the Officesstaffing needs in relation to its adopted strategy and its workload.75 This deficiency,once again, demonstrates the absence of a determined plan from the beginningabout OLAFs precise objectives.

In the first years of OLAFs operation, many positions were temporary. In2004, more precisely, these posts accounted for 55% of the total of categories Aand B.76 The fear expressed by the CoA was that when terms come to an end, theexpertise acquired would be lost.

Another problem identified was that a significant proportion of the OLAFpersonnel were not adequately trained.77 This failing, however, cannot be totallyattributed to OLAF as it rested primarily upon MSs to send officials to staff theOffice. Thus, if many officials appeared to lack the necessary background to dealwith the necessary administration (especially in the Offices early days), this was, to

71 OLAF,Annual Report (2007), 12.72 A fact also recognized by the Commission in its 2010 Reflection Paper on the reform of OLAF;

Commission, Reflection Paper on the Reform of the European Anti-fraud Office (OLAF), supra,56.

73 H. Bosch, Report on the Protection of the Financial Interests of the Communities and Fight againstFraud Annual Report 2003, European Parliament, Committee on Budgetary Control, FINALA6-0151/2005, Brussels, 17 May 2005, para. 8.

74 Bosch, 2006, para. 1.75 Court of Auditors, Special Report No. 1/2005 concerning the management of the European

Anti-fraud Office (OLAF), supra, para. 62.76 Ibid., para. 63. A denotes internal investigations (investigations of corruption within the institutions

and assimilated bodies) and B denotes external investigations (direct investigations of third partiesinvolved in activities related to Union budget transactions).

77 Ibid.

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a large extent, attributable to the national authorities of EU MSs rather than toOLAF.

Like most criticisms, this one also proved to have a positive impact on theadministration of OLAF, as most temporary posts were renewed and many weremade permanent.78 Moreover, as acknowledged by the Commission, the trainingoffered to newly recruited officials increased in duration and quality.79 Thisconsists mainly of public procurement training and specialized language and legaltraining. Moreover, during 2009, OLAF implemented a new Training Action Planas a follow-up to the internal audit on training conducted in 2008 and to aninternal needs analysis. OLAF organized internal training sessions to meet thespecific needs of OLAF staff on topics such as interviewing techniques,administrative writing, and on-the-spot checks in addition to general training suchas welcome sessions for newcomers, Fight the Fog (improved drafting skills), andlanguage training targeted on OLAF-specific needs.80

2.2[c] An Illustration:The Tillack Affair

A final source of criticism against the Office was the action taken by the EuropeanOmbudsman who initiated an action concerning the famous Tillack affair.81 InFebruary 2002,MrTillack, a German journalist, published two articles in which hedescribed irregularities within the European Institutions. After carrying outinvestigations to identify the source of the leak, OLAF stated in a press release inMarch 2002 that it is not excluded that payments may have been made tosomebody within OLAF for these documents. Mr Tillack brought the matterbefore the European Ombudsman, who, in a recommendation to OLAF, statedthat making allegations of bribery without a factual basis constituted an instance ofmaladministration.

It is interesting to note that the Ombudsman, in its Special Report, concludedthat OLAFs statement according to which no specific journalist or person wasimplicated for having made such a payment was a manifestly false statement andthat by making this statement OLAF had tried to mislead the Ombudsman.Moreover, OLAFs statement that it was not in possession of the journalistspersonal data was equally wrong.82

78 M.Tsiouni,Member of OLAF, Informal Correspondence, 18 Dec. 2006.79 Commission,The Commission Replies, supra, para 63(a).80 OLAF, 2010, 27.81 See European Ombudsman, Special Report from the European Ombudsman to the European

Parliament Following the Draft Recommendation to the European Anti-fraud Office in Complaint2485/2004/GG, 2006/C 67/19 (2005).

82 Ibid., 6.

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It has been admitted by the new Supervisory Committee in a presentation tothe COCOBU following the affair that many files in the Offices secretariat werepoorly organized, the security of the filing system was extremely deficient, and itwas impossible for the director of the Supervisory Committee to have access tocertain files because the keys to the drawers were lost.83 It is not unlikely thatthese conditions created the right circumstances for the loss of files and leaks thatperhaps led to the Tillack affair.

The journalist involved finally lodged an action at the Court of First Instance(CFI, now General Court under theTreaty of Lisbon) against OLAF, claiming thatthe Offices investigation into alleged corruption and for breach of professionalsecrecy led to a search to Mr Tillacks home and office, during which many of hisdocuments were seized.The CFI dismissed Mr Tillacks action since there was nosufficient direct causal link between the forwarding of the information and thedamage claimed in order for liability to be established.84 He succeeded, however,in his referral to the European Court of Human Rights that ruled that the Belgianauthorities had breached Article 10 of the Convention on Human Rights.85

2.2[d] Tackling Maladministration

The above analysis makes clear that instances of maladministration within OLAFare real and, despite the recent improvements, they continue to exist and impedeOLAFs task. One way of addressing such issues would be by enhancing OLAFsoperational capacity by creating more posts and increasing its allocated budget.TheCOCOBU in the past had taken the position that similar questions would not bediscussed until OLAF presented concrete justifications for such an increase.86

It is not entirely clear whether budget increases would have a positive effecton OLAFs operation. On one side, such action could result in making OLAF amore burdensome and inflexible agency and thus diminish its operationalefficiency. In addition, the question remains as to whether any budget increase,however significant, would ever render OLAF of addressing all instances of fraudin the EU. In any event, the EU institutions appear to have been favourable to anincrease of OLAFs budget and number of staff: in 2008, OLAFs budget wasEUR 50 million for the functioning of OLAF and EUR 12 million for

83 Comit de Surveillance, Prsentation a la COCOBU, 21 Feb. 2006, , 24 Feb. 2011.

84 CaseT-193/04,Hans-MartinTillack v. Commission, Judgment of 4 Oct. 2006.85 H.M.Tillack,Part of the Problem,Wall Street Journal, 10 Dec. 2007, 11.86 Heaton-Harris, supra.

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programmes and policies.87 In 2009, OLAF had about 500 staff,88 out of which160 are investigators,89 and its budget had increased to EUR 57 million, while afurther EUR 20 million was allocated to various programmes, such as providingsupport to MSs and third countries.90

The tendency to increase OLAFs budget contradicts the opinion expressedby the CoA in its 2005 Special Report.According to the CoA, the main source ofall those problems is OLAFs desire to undertake too many tasks. In the words ofM. Gavanier, OLAFs unwillingness to prioritise its tasks and its desire to doeverything brought us to what I call an instance of Malgoverno.91 In this context,CoAs recommendation was to remove most functions from OLAFs authorityand narrow down its mandate to the conduct of investigations.What is proposed,for example, is that financial follow-up should not be part of the Offices remitand that judicial support should be placed in other Commission services.92

This perception of OLAFs tasks was first advanced by the then President ofthe Commission, R. Prodi.At a speech before the EP, he proposed a re-centring ofits activities around the mission fixed by the legislator.93 The CoAs proposal was,therefore, based on a conception that the legislator intended OLAF to have aprimary task, which is that of conducting investigations, and certain secondaryones, such as coordinating and assisting MSs. As was said by P. Schnberg, a CoAofficial, OLAF was created after the allegations made against the SanterCommission, for the purpose of investigating instances of fraud.We believe that ifOLAF focuses on this core function, its efficiency will be greatly enhanced.94

The response by OLAF members was that such a proposal would removefrom OLAF one of its most powerful tools, which is that of exercising pressure onagents and officials in the EU.95 Mr Schnbergs response, however, is not to beignored either. He notes that, in the VAT sector, for example, there are 50,000officials operating within the EU. As he says, to believe that OLAF can possiblyexercise any sort of pressure on all these officials is, to say the least,misconceived.96

87 OLAF, OLAF Anti-fraud Office (Unit D.1 Spokesman, Communication and Public Relations, 2Dec. 2008), 4.

88 An increase from a number of 388 in 2006;OLAF, 2007,Annual Report, supra, 5.89 Nuthall, supra.90 OLAF, 2010, 24.91 Gavanier.92 Court of Auditors, Special Report No. 1/2005 concerning the management of the European

Anti-fraud Office (OLAF), supra, para. 91.93 R. Prodi, Speech of 18 Nov. 2003 before the European Parliament, SPEECH/03/551 (18 Nov.

2003).94 P. Schnberg, Official at the Court of Auditors, Informal Correspondence, held 9 Jul. 2007.95 Tsiouni.96 Schnberg.

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This idea of what constitutes OLAFs core task and what does not is not verystraightforward. It has been admitted by the Director General in the past that manydifferent and, at the same time, contradictory demands are continually made onOLAF regarding the fixing of priorities.97 Moreover, it was also admitted by theCoA that a substantial proportion of resources is allocated to units outside theInvestigations and Operations Directorate (B) that are closely linked to investigativeactivities.98

In all, this claim to limit OLAF to its core function must overcome twoarguments: First, there is nothing in OLAFs founding Regulations or its20012003 Action Plan to indicate that one function is more important thananother.99 Surely, this lack of prioritization is a problem, but nothing can be foundto indicate what the legislators initial ambition was for OLAF. Second, otherfunctions, such as judicial assistance and coordination of investigations, are, to saythe least, a logical corollary to the investigative function. It could be argued thatthey all make part of OLAFs core business, since assisting or coordinating MSsactions can potentially reduce OLAFs investigatory work. It is true, on the otherhand, that coordinating those activities all together is not an easy task. This issuewill be touched upon again later, but, for the time being, it suffices to say thatreducing OLAFs mandate so radically would not be the most appropriatesolution.

So far, the main aspects of OLAFs work, namely the conduct ofinvestigations, and issues of OLAFs internal organization have been analysed.Thenext step will be to examine OLAF in the context of the Union institutions andthe EU as a whole. For this reason, the focus of the analysis will be on OLAFscooperation with national authorities and other EU bodies.

3 COOPERATION

3.1 OLAF AND NATIONAL AUTHORITIES

OLAFs effective cooperation with national authorities is the sine qua non of thefight against fraud. It is widely acknowledged that regular reporting and efficientflow of information between the Office and the MSs is the key to the completionof OLAFs operations. For this cooperation to be successful, MSs must fulfil their

97 OLAF, OLAFWelcomes Encouragement and Motivation from European Parliament Public Hearing.We should not, however, that most institutions seem to agree on the prioritization of its investigativeactivities over other activities, a recommendation that OLAF itself has endorsed in its manual.

98 Court of Auditors, Special Report No. 1/2005 concerning the management of the EuropeanAnti-fraud Office (OLAF), supra, para. 76.

99 See Commission, Communication by the Commission Protecting the Communities FinancialInterests Fight against Fraud,Action Plan 20012003, COM(2001)254 final, 15 May 2001.

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duty to inform EU bodies such as OLAF regularly, but also OLAF must supportand provide training to national authorities.

3.1[a] Irregularities and Fraud

In order to embark upon an operation, the Commission works on the basis of theinformation supplied by MSs concerning cases of irregularities that give rise tosuspicions of fraud. The Commissions statistical assessment of and ability torespond to irregularities is influenced by the accuracy and timeliness of thenotifications made by the MSs. Under Council Regulation (EEC) No. 595/91,100

MSs are required to report at the latest within two months after the end of thequarter in which an irregularity was detected.

Arguably, the biggest problem faced by the Office is that data communicatedby MSs are often incomplete. Furthermore, the distinction between suspectedfrauds and other irregularities is not consistent as MSs do not always have thesame definition of criminal risk.101 Consequently, a significant proportion ofcommunications received by the Commission do not distinguish betweensuspected fraud and irregularity.102

Problems in the exchange of information have a considerable impact in theconduct of investigations. It was found, in particular, by the CoA that MSs provideinformation about irregularities as required, but they do so with varying delays.There are also inconsistencies in the data.There are, moreover, often discrepanciesbetween the data supplied by MSs and the figures in the databases drawn fromthem. As a result, it becomes impossible for the Commission to have a completeand accurate database of reported irregularities.103

It has been repeatedly reported that cooperation with MSs and the flow ofinformation between them and the various EU bodies is one of the Commissionsprimary concern in the fight against fraud.104 The way defective cooperation canaffect the duration of an investigation is seen, for example, in a Commission report

100 Council Regulation (EEC) No. 595/91 of 4 Mar. 1991 concerning irregularities and the recovery ofsums wrongly paid in connection with the financing of the common agricultural policy and theorganization of an information system in this field and repealing Regulation (EEC) No. 283/72. OJ L67, 14 Mar. 1991.

101 Commission, Commission Staff Working Document, Annex to the 2006 Report StatisticalEvaluation of Irregularities 2006, COM(2007)390, 6 Jul. 2007, 5.

102 The distinction between irregularities and fraud is that fraud is a criminal act that can only bedetermined by the outcome of judicial proceedings.As such, it is only when the judicial procedure hascome to an end that the actual amount of fraud can be determined.

103 Court of Auditors, Special Report 3/2004 concerning recovery of irregular payments under the CAP,OJ C269/1, 4 Nov. 2004.

104 Commission, The Commission Pursues Its Improvements in the Protection of the EUs FinancialInterests, IP/04/1057, 1 Sep. 2004.

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stating that it was impossible for the Board to make an initial assessment of a casein fifteen days in an area where cooperation with MSs is needed.105 This is whythe time allowed for the assessment was set at two months.

MSs are obliged to report the date, or dates, on which the irregularity wascommitted and the date of discovery of the irregularity. According to the lateststatistical report, although the reporting discipline of MSs has improved, it stillneeds attention. In 2006, in 273 cases, MSs (France, Ireland, Greece, and Portugalin particular) did not indicate the date on which the irregularity took place.106

In the agricultural sector, OLAFs task was impeded for many years by thefailure of many MSs to introduce an electronic system for notifyingirregularities107 and, until today, to implement the Integrated Administration andControl System (IACS) that has, in part, contributed for the failing figures in thearea of agriculture.108

Unfortunately, there are still no signs of improvement in this area. In its 2011Draft Report for the COCOBU, C t lin Sorin Ivan, member of the EP, expressedserious doubts about the quality of the information provided by the MSs. As hestated, the Commission puts more effort into convincing Parliament about theneed to introduce a tolerable risk of error than into persuading MS of the needfor mandatory national management declarations.109 In his view, thesedeclarations should be audited by the National Audit Office and consolidated bythe CoA.110

External investigations are, thus, sometimes severely undermined and OLAFsintervention often comes long after the event, making it particularly difficult toestablish liability.This situation has prompted commentators to give MSs primaryresponsibility for external investigations.111 OLAF has acknowledged the MSsprime position to prevent and oppose fraud but did not accept any restriction toits jurisdiction. It believed that its presence could provide added value to caseswhere MSs were ill equipped or could not act.112

105 See Point 3.3.3 of the OLAF, 2005 Manual.106 Commission,StaffWorking Document, supra, 20.107 Bosch, 2006, supra.108 A. Cozzolino, Report on the Protection of the Communities Financial Interests and the Fight against

Fraud Annual Report 2008 (2009/2167(INI)), European Parliament, Committee on BudgetaryControl, 4 Jan. 2010, para. 12.

109 C.S. Ivan, Draft Report on the Protection of the Communities Financial Interests Fight againstFraud Annual Report 2009 (2010/2247(INI)), European Parliament, Committee on BudgetaryControl, 14 Jan. 2011.

110 Ibid.111 See, for example, Drs Stefanou and Xanthaki: this is where external investigations should begin and it

is the national authorities which, at least in principle, must open investigations even in the area ofOLAF jurisdiction. House of Lords, supra, 10.

112 Ibid.

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National authorities, when compared to EU bodies, surely enjoy advantages,such as the effectiveness of the prosecution process being guaranteed by thelong-established criminal law traditions of MSs. On the other hand, involvementof national prosecutions is rather lengthy and sometimes they have little means toproperly consider the intricacies of fraud within the EU context.113 At the sametime, OLAFs involvement in national investigations can be beneficial, in manyrespects. OLAF is in a position to offer training and methodological support andmay contribute in enhancing cooperation between various authorities in theMSs.114 Therefore, MSs, if left on their own, might be unable to manage cases ofEU fraud effectively.

Potential problems also arise due to MSs unwillingness to pursue casesreferred to them. Such situations have been encountered in Luxembourg, wherethe authorities have claimed that due to the vast number of internal cases itbecomes sometimes impossible to set aside those cases in order to prosecuteEurofraud,115 or in Belgium, where cases referred to them in the past have,literally, been forgotten.116 It becomes, thus, apparent that in the majority ofOLAFs cases, success depends on variables beyond OLAFs control. For thisreason, efficient cooperation and prompt responses by national authorities arecrucial.

One model of such cooperation is often said to be that between OLAF andthe Gardia di Finanza in Italy.117 This agency was established as a specializedorganization responsible for the detection, investigation, and prosecution of fraudcases. Moreover, it does not investigate all fraud cases, but rather it focuses onso-called serious fraud cases. According to study by Institute of Advanced LegalStudies (IALS), the concentration of serious fraud justifies the combination of theinvestigation and the prosecution functions into one unified body.118

There is, however, another particularity about the Italian office that renders itrather unique. As it is supported by Mr Gavanier, the Gardia di Finanza, being apart of the Italian armed police forces, has developed a military-like internalorganization that has established it as OLAFs most efficient and most reliablepartner in Europe.119 Nevertheless, however interesting the examples of the Gardia

113 Ibid., Issue 1.114 Stefanou, supra, Issue 5.115 H. Bosch, Chairman, Committee on Budgetary Control, Informal Correspondence, held 9 Jul. 2007,

and Commission,The Commission Replies, supra, para. 37.116 This case consisted of a retiring prosecutor who forgot to transmit a particular case to his successor;

Gavanier.117 Guardia Di Finanza, , 24 Feb. 2011.118 Stefanou, supra, Issue 5.119 Gavanier.

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CornelRectangle

di Finanza, it remains the exception rather than the rule. Below, we see that similarproblems of cooperation persist in the area of recoveries.

3.1[b] Financial Impact and Recovery

It must be made clear that there is no way of ascertaining the financial impact ofan irregularity at the beginning of an investigation. The CMS reports, however,have been steadily improved since 2003 so as to represent the best estimate of theprejudice to the financial interest of the EU.120

One element that renders recovery reports unreliable is said to be that datafrom the MSs are not consistent.121 MSs do not only bear the responsibility oftransmitting data, but the responsibility for the prompt and efficient recovery alsorests on them. In this regard, the performance by MSs in ensuring recoveries andcarrying out their reporting vis--vis the Commission has been ratherunsatisfactory.122

In the agricultural sector, the average recovery rate over the period20002006 was 19%.The rather low recovery rate of Italy (6%) had a high impacton the average recovery rate.123 A recent Draft Report for the COCOBU makesreference to the catastrophic situation regarding the overall recovery rate in thearea of agriculture, which, in 2009, was 42% of the EUR 1.266 millionoutstanding at the end of the 2006 financial year.124

The low recovery rate in this sector (a cumulative recovery rate of 17%between 1971 and 2004)125 is, in part, due to national administrative delays andpractices, such as suspension of action to recover until related legal actionconcerning fraud has been completed, absence of preferred creditor status forCommon Agricultural Policy (CAP) debts, and no disincentive to frivolous appeal.This becomes particularly alarming if one considers that the longer the delay, theless chance there is of recovering the full amount.

Since 2004, financial follow-up has been reported in a more coherent way,and according to OLAF reports, recovered amounts continue to increase. A totalrecovery of EUR 203 million was reported for 2004126 and EUR 266.5 millionfor 2006. In addition, at the beginning of 2009, a distinction was introduced

120 Commission,The Commission Replies, supra, para. 17.121 Court of Auditors, Special Report No. 1/2005 concerning the management of the European

Anti-fraud Office (OLAF), supra, para. 43.122 Bosch, 2005, supra.123 OLAF,Statistical Evaluation, supra, at 38.124 Ivan, supra, 5.125 OLAF, Information not on the European Court of Auditors on Special Report No. 3/2004

concerning the recovery of irregular payments under the CAP, ECA/04/16, 21 Sep. 2004.126 OLAF, 2005,Annual Report, supra.

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between financial follow-up cases in which OLAF is still actively engagedfollowing the conclusion of OLAFs operational activity127 and other cases wherethis action has already been completed, thus allowing the remainder to betransferred to OLAFs operational partners. A distinction was also establishedbetween recoveries that are now used only for the revenue aspect of thebudget128 and retrieval used for all expenditure sectors.129

However, problems persist because, although reporting becomes morecoherent, it becomes difficult to estimate remaining amounts from the pastperiods: OLAFs CMS revealed that between 1999 and 2004 EUR 100 millionhad been recovered. Although this is certainly a good indication, changes inreporting practices by MSs and OLAF itself have rendered it impossible to engagein a comparative study of amounts recovered. The impact of this deficiency wasalluded to in a COCOBU Report that stressed that year-to-year fluctuations inlosses should not be overestimated as they may be affected by a wide variety offactors.130 Additionally, the failure by MSs to report regularly renders even moredifficult estimation of the actual amounts to be recovered. To this end, theimprovement of the reports issued by OLAF since 2004 offers a clearer picture ofvolumes of cases and successful follow-ups in national courts, but unless MSsthemselves make substantial progress in the timeliness and regularity of theirreports to OLAF, this picture is bound to remain hazy.

Another issue is the division of responsibilities between OLAF and otherCommission departments. It is supported by the CoA that there is still confusionover OLAFs role in following up irregularities notified by MSs, because thedivision of responsibilities between OLAF and Directorate General for Agriculture(DG AGRI) is not very clear.131 A 2005 COCOBU Report called for a moreprecise division of responsibilities in the agricultural sector in which OLAF wouldbe responsible for investigations and DG AGRI would be responsible forrecoveries.132 The Commission, on the other hand, believes that there is no greatoverlap between financial follow-up (and recoveries) and the relevant CommissionDGs.133 It is reported that in the area of agricultural spending a mechanismalready exists, according to which follow-up of recovery of funds found to havebeen paid illegally is undertaken by OLAF.

127 Essentially in order to identify debts to be established, notified, and recovered.128 Namely the traditional own resources sector, such as customs and agricultural import duties.129 Retrieval covers the actual recovery of funds from final beneficiaries or MSs but also extends to other

important financial adjustment mechanisms such as the reallocation and de-commitment of funds,clearance of accounts, etc. OLAF, 2010, 26.

130 Bosch, 2006, supra.131 Court of Auditors, Special Report No. 1/2005 concerning the management of the European

Anti-fraud Office (OLAF), supra, para. 54.132 Bosch, 2005, supra.133 Commission,The Commission Replies, supra, para. 54.

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Given the difficulties in OLAFs cooperation with the MSs and theuncertainties as to the division of responsibilities, a question arises as to whyOLAF should invest resources and occupy staff to ensure recoveries since it haslittle or no input at all in the whole procedure. Moreover, nothing in the foundingRegulations or in the proposal for a Regulation amending Regulation 1073/99indicates that OLAF is to have responsibility over recoveries as well.

The Statistical Evaluation Unit takes the view that the Recovery Task Unitplays an important role in holding MSs accountable and criticizing slow recoveryrates. However, this is a minor role that can be effected by the relevantCommission DGs, while, for purely informative reasons, recovery rates can stillappear in OLAFs Operational Activity Reports as they do now.At the same time,the RecoveryTask Unit could be reallocated and fulfil other functions.

Since recovery rates have no bearing on the conduct of the investigations,these could be better placed to other Commission services (the relevant DGs). It isstrongly believed by the author that this reform could allow OLAF to focus on itsfraud prevention role while enabling the Commission to use all the necessarypressure to obtain recoveries.

3.2 OLAF AND THE VARIOUS INSTITUTIONS

One major aspect of OLAFs operation and place in the EU context concerns itsrelation with other EU bodies. On the one hand, OLAF remains accountable forthe results of its work towards other institutions, while, on the other hand, suchinstitutions may also be the subject to OLAFs internal investigations.

3.2[a] The Commission

OLAF is often said to benefit from a hybrid status according to which it is stillpart of the Commission and at the same time (in its investigations) is independentfrom it.Although the Commission is answerable for OLAF before the EP and theCJEU, the lack of direct link between the two creates opportunities for a ratherbroad interpretation of independence and confidentiality. This, in the long term,may affect OLAFs accountability.134

An interesting consequence of this administrative status, as identified by theSupervisory Committee, is that there is an obvious risk that the Commission willenter into a conflict of interest if it has to defend both itself and OLAF if an action

134 Stefanou, supra, Issue 3.

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is brought by one of its officials (whose protection it must assure) against themeasures taken during an investigation by OLAF.135

As regards the exchange of information between OLAF and the Commission,the latter argues that a formal exchange of views (structured dialogue) should beestablished between the Supervisory Committee and one representative of theCouncil, of the EP, and of the Commission.The formal exchange of views wouldrelate in particular to the Annual Report of the Supervisory Committee and thatof the Director General, OLAFs programme of investigative activities andinvestigation policy priorities, the effectiveness of OLAFs investigative work, andthe working relations between OLAF and the EU institutions, bodies, andagencies.136

3.2[b] EP

As far as OLAFs powers over members of the EP are concerned, the Rothley affairestablished that, if allowed, they may not subject themselves to OLAFsinvestigations.137 At the same time, as seen above,138 the line between the EPspower to exercise control over OLAF and OLAFs right to confidentiality issometimes difficult to draw. In addition, there is no clear demarcation between thepower of the EP, the CoA, the Commission, or the Supervisory Committee as towhich body is to hold OLAF primarily accountable with the result that OLAF isoften faced with contradictory demands by all these bodies.

The influence of the EP over OLAF is not limited to the exercise of controlbut may extend to most aspects of OLAFs modus operandi or even internalorganizational matters.An example relates to the status of OLAFs head, who untilnow has been called Director. To underline his status, the EP proposes to namethe function Director General,139 while the Council prefers Executive Directorto underline the specific independent status of OLAF.140 The three institutions alsodisagree on the way in which the Director General is appointed, the term of hismandate, the requirements for this position, as well as his competences in relationto proceedings at the European Court of Justice.141

135 Kendall et al., supra, 41.136 Commission, Reflection Paper on the Reform of the European Anti-fraud Office (OLAF), Annex 1:

Options for taking forward the legislative procedure, SEC(2010) 859, 28 Jun. 2010, 4.137 Case C-167/02 P, Willi Rothley and Others v. European Parliament, Judgment of 30 Mar. 2004, 40 and

50.138 See supra n. 18.139 To which the European Commission agrees.140 Commission,Reflection Paper on the Reform of the European Anti-fraud Office (OLAF), supra, 7.141 Ibid. For example, the Commission suggests a non-renewable term of seven years (Art. 12 of the

Commission Proposal n. 9) and the European Parliament prefers a renewable term of five years (Art.

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Another example regards the exchange of information between OLAF andthe EU institutions.The EP largely agrees with the position of the Commission142

but also considers that the exchange of views should (a) relate to the relationsbetween OLAF and the MSs competent national authorities and competentauthorities in third countries, as well as with international organizations, and (b)representatives of Europol, Eurojust, and the CoA may be invited.143

In all, it becomes apparent what led Ren Andr, French deputy, to state thatOLAF is some kind of political football being kicked between the Commissionand the Parliament as they both seem to have influence over it.144

3.2[c] An Overlap with Europol?

Europol is another important actor facilitating cooperation between variousgroups in the fight against fraud. It was created by the Europol Convention of1995. It is a centralized organization grouping all MSs of the EU, tasked withcoordinating initiatives taken by MSs in the field of policing. On 1 January 2010,Europol acquired a stronger mandate and new capabilities to fight internationalserious crime and terrorism. A 2009 Council Decision145 raised the Europolsstatus to a full EU agency, benefiting from increased powers to collect criminalinformation and a wider field of competence in supporting investigations ofserious offences.

It was admitted by R. Kendall, former Chairman of the SupervisoryCommittee, that there was an absence of coordination in the policy establishingthese two bodies,146 a position also shared by the UK House of Lords.147 Therealways appeared to be a need to determine the relation between the two bodies, aneed now increased in the context of Europols change of status.

Already prior to the adoption of the Council Decision, an opinion issued bythe European Data Protection Supervisor placed particular emphasis on bringingEuropol more in line with other EU bodies and ensuring that exchange with

12 of the Resolution of the European Parliament n. 143), while the Council is in favour of anon-renewable term of five years (Art. 12 of the CouncilWorking Document n. 155).

142 Mentioned supra, n. 136.143 European Parliament Legislative Resolution of 20 Nov. 2008 on the proposal for a regulation of the

European Parliament and of the Council amending Regulation (EC) No. 1073/1999 concerninginvestigations conducted by the European Anti-fraud Office (OLAF), 2010/C 16 E/39, 1 C 16 E/20,22 Jan. 2010. For the preparing report, see A6-0394/2008.

144 House of Lords, supra, para. 37(c).145 Council Decision of 6 Apr. 2009 establishing the European Police Office (Europol), (2009/371/JHA),

OJ L 121/37, 15 May 2009.146 House of Lords, supra, para. 88.147 As said by the Upper House of the UK Parliament, there has been no overall plan as to how those

two bodies were to work or fit together. Ibid., para. 88.

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bodies such as OLAF, will be based on a consistent level of data protection andgood cooperation in supervision.148 Moreover, the Council Decision on OLAFhas brought a positive development in that it foresees that the two bodies shallconclude working arrangements with OLAF for the purpose of informationexchange.149 The practical effect of this provision remains to be seen, as it couldpotentially contribute to a better coordination between the two bodies in thefuture.

The existence and parallel performance of both bodies (OLAF and Europol)can surely offer significant support, but on the other hand, the performance of onemay undermine the results produced by the other. As confirmed by Bosch,officials hardly ever give absolute trust to any of those bodies, since it is perfectlyconceivable that OLAF will argue one view, while Europol will argue a differentone.150 This remark further illustrates the absence of coordination between thetwo bodies.

The Supervisory Committee has suggested in the past to grant it special roleto resolve inter-institutional overlaps,151 a role that appears to be consistent withthe one put forward by the Commission, the EP, and the Council in theirproposals for a new Regulation on OLAF. Under this proposal, it shall ensure thatthe rules governing information exchanges between OLAF and the institutions,bodies, offices, and agencies are complied with and it shall monitor thedevelopments regarding the application of procedural guarantees.152

So far, this article has analysed extensively the main aspects of OLAFs work.First, it discussed the conduct of investigations as well as issues arising from theOffices internal administration. At a second stage, the issue of OLAFscooperation with national authorities and various EU bodies was addressed. Inboth cases, it was demonstrated, first, that there has been insufficient considerationover OLAFs precise tasks and role in the context of the EU institutions and,second, that OLAFs progress in the last years has been a response to the criticismaddressed by relevant bodies. In particular, it was seen that administrative or otherdeficiencies have been rectified through better organization and more detailedreporting. It was also noted that OLAFs work will continue to be impeded unlessa better coordination with other bodies over OLAF is achieved and a bettercooperation is established mainly with national authorities.

148 Opinion of 16 Feb. 2007 on the proposal for a Council Decision establishing the European PoliceOffice (Europol), COM(2006) 817 final, OJ C 255, 27 Oct. 2007.

149 Article 22(2).150 Bosch, 2007.151 Comit de Surveillance, supra, 51.152 Commission,Reflection Paper on the Reform of the European Anti-fraud Office (OLAF), supra, 8.

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The next, and final stage, will be to provide some additional suggestions onthe future reform of OLAF.

4 WHAT FUTURE FOR OLAF?

The Proposed Commission Regulation,153 as well as the contributions made bythe EP154 and the Council,155 has suggested a number of legal changes that willaddress many of the Offices previous shortcomings. Some aspects of theseproposals have already been discussed above.156 In this section, these proposedchanges will be primarily focusing on those changes needed to enhance theoperational efficiency of OLAF, namely its investigative work and its cooperationwith MSs.

4.1 ON OLAFS INVESTIGATIVE WORK

The new proposed Regulation brings an important development in that it codifiesthe power to make on-the-spot inspections.157 If the Regulation is finallyadopted, it will grant OLAF more authority to conduct investigations, whichunder the COA report were described as rather limited.

The Supervisory Committee supports that a distinction must be madebetween functions for which OLAF enjoys operational independence(investigations) and those in which it simply assists the Commission services(coordination, assistance).158 However, such a change would not be practicalwithout the creation of separate units dealing only with those additional services.This will be beneficial in two respects: First, coordination and assistance cases willnot interfere with the conduct of investigations. Second, this will enable a clearerallocation of resources.

The mission of strategic analysis should be redefined so as to contribute to theidentification of situations where external investigations are focused on sectors atgreater risk. This was first attempted with the adoption of Regulation No.1469/95 (the Blacklist Regulation)159 with little success. The objectives of theRegulation were to establish a mechanism allowing national administrations to be

153 See supra n. 9.154 See supra n. 143.155 Working Document from the German Presidency (COMBUD 88/07).156 See, for example, nn. 9, 143, and 155.157 Article 3.158 Comit de Surveillance, Rapport dActivits, juin 2003juillet 2004, 22 Dec. 2004, 40.159 Council Regulation (EC) No. 1469/95 of 22 Jun. 1995 on measures to be taken with regard to

certain beneficiaries of operations financed by the Guarantee Section of the EAGGF, OJ L 145, 29Jun. 1995.

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warned about operators presenting a serious fraud risk and to take appropriatepreventive measures. A Commission report issued in October 2005160 highlightedthe infrequent application of the Regulation, compared with the great number ofnotifications forwarded by MSs.

The new proposed Regulation rightly retains the ability of OLAF to focus onareas of greater risk but avoids many drawbacks of the older Blacklist Regulationbecause it clarifies questions (rather than naming sectors or persons) regardingwhether the Office should launch investigations.161 According to Stefanou andXanthaki, this will allow OLAF to concentrate on its priorities to be fixed in itsannual work programme and might also lead to a strengthening of the Officesindependence.162

As far as defence rights are concerned, a significant progress was made withthe adoption of the 2009 Manual that contained procedural rules for itsinvestigations and took into account the rights of witnesses and any person subjectto investigation. Now those rights are codified in the new proposal for amendmentof Regulation No. 1073/99. Moreover, if a person believes that proceduralguarantees have not been complied with, they will be able to file a request for anopinion with the Review Adviser established by the Regulation.

Finally, rights of whistle-blowers must equally be guaranteed by nationalregulations.A Commission report163 stated the various kinds of protections offeredin MSs but fails to endorse the view that certain specific measures, such asprotection against dismissal,164 protection from liability for financial damagecaused by the informant,165 and witness protection,166 should arguably figure inall national legislations.167

160 Commission, Commission Report to the European Parliament and the Council on the Application ofRegulation (EC) No. 1469/95, COM(2005)520, 12 Jul. 2006.

161 In this respect, the proposed Regulation encourages OLAF to draw principles from its experience as itwas aspired by Ioannis Sarmas, Member of the Court of Auditors. Informal Correspondence, held 9Jul. 2007.

162 House of Lords, supra, para. 32. See, in the proposed Regulation, Explanatory Memorandum, 3 andRecital 2. (This view, however, is contrasted to the House of Lords view supra.)

163 Commission, Commission Staff Working Document, Annex to the 2006 Report StatisticalEvaluation of Irregularities 2006, supra.

164 As it exists in Spain and Ireland.165 As in Finland.166 As in the Czech Republic, Luxembourg, and Portugal.167 An effort to harmonize and guarantee rights of whistle-blowers across Europe was made by the

Council of Europe, which in May 2010 voted in favour of Resolution 1729 (2010) on the protectionof whistle-blowers.This resolution, however, remains general and merely specifies the areas in whichwhistle-blowers should be protected rather than specific rights of whistle-blowers. Thus, it does notmake a substantial contribution to the protections already afforded by most EU MSs.

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4.2 ON COOPERATION BETWEEN OLAF AND MSS

As stated earlier, recoveries should not be part of the Offices remit but rathershould be limited to determining the amount to be recovered. At the same time,there is an urgent need to improve reporting by MSs.

There has also been a proposal for a Regulation on mutual administrativeassistance,168 as well as a subsequent amended proposal incorporating thecomments given by the EP and the CoA.169 The proposal aims to complete theexisting anti-fraud instruments, in particular, Regulation No. 1073/99. If adopted,it will give the EU (OLAF) enhanced powers to coordinate, at EU level, theexchange of information between MSs in the fight against fraud.170 It will, thus,increase cooperation between MSs but will also strengthen OLAFs follow-upactivities.171

However, since implementation of hard law has brought little progress in thepast, some more radical change should be brought. In this respect, the judgment ofItalian Republic v. Commission,172 which warns MSs to observe their general duty ofcare, could appear more helpful. It has been recommended by Bosch thatnon-recovery of irregular payments within four years by means of administrativemeasures represents a serious breach of a duty of care and the country concernedshould be required to settle the debt itself.This way, MSs would take responsibilityand adopt a proactive approach.

It is the authors belief that this principle should be applied morerigorously173 but also be extended to reporting irregularities in a timely andregular manner.This can be easily done since there is already hard law in place thatrequires MSs to report promptly and it is well established that poor reporting canhave a serious impact on the Unions financial interest. It has been stated in thepast, for example, that Germany, France, and Spain are failing in their duty toreport irregularities within the time limits set in 90% of cases, which reduces theprospects for recovering sums paid in error.Additionally, half the members are said

168 COM(2004) 509 final.169 COM(2006) 473. For example, following the publication of the initial proposal, the COCOBU

suggested extending this Regulation to illegal activities outside the Union, something that wasincorporated in Art. 3(1): Irregularity means fraud and any other illegal activities includingirregularities committed partially or entirely in third countries; P. Duchon, Report on the Proposalfor a Regulation of the European Parliament and of the Council on Mutual Administrative Assistancefor the Protection of the Financial Interests of the Community, FINAL A6-0156/2005, EuropeanParliament, Committee on Budgetary Control, 25 May 2005.

170 Although note that the Regulation will not grant the Commission investigative powers of its own.171 For example, Art. 1 establishes the possibility of requesting assistance between authorities and the

obligation to comply with such a request. Art. 12 provides for supply of information to theCommission about cases where there is a sound suspicion of irregularity.

172 C-34/89, Judgment of 11 Oct. 1990.173 This will prevent MSs from delaying or even setting aside Eurofraud cases in national courts as was

mentioned earlier.

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not to report within the prescribed time limits or provide the necessaryinformation.174 Applying the duty of care principle in the most extreme of cases,where a part of the Union budget is lost because of poor reporting, couldconsiderably improve the present situation.

4.3 ON THE POSSIBILITY OF ESTABLISHING A EUROPEAN PUBLIC PROSECUTOR

The idea of establishing a European Public Prosecution (EPP) armed withinvestigatory powers and responsible for bringing a case before national courts firstappeared in the Corpus Juris.175 He would also possess powers to direct andinstruct national prosecution authorities. Article 86 TFEU sets out the role andscope of the Office of European Public Prosecutor and how it can beestablished.176 In particular, under Article 86, the EPP will be established when theCouncil decides so by unanimity after obtaining the consent of the EP or when atleast nine MSs will request that a draft Regulation be sent to the EuropeanCouncil for adoption. In the second case, the European Council may, then, decideby consensus to refer the draft Regulation back to the Council for adoption.

It had been proposed by R. Prodi that, while presenting the advantages ofhaving an EPP, OLAF could be fulfilling the role of an auxiliary of justice.177

Thus, a question arises as to the place and role of OLAF if an EPP were to beestablished.The most prevalent view holds that OLAF would become part of theinvestigative units of the EPP, while the latter would be responsible to Eurojust.

According to the former President of the Supervisory Committee, R.Kendall, after the creation of an EPP, OLAF and Europol should become one andthe same body.178 He is not the only to support such a view: It was also stated byRen Andr that a merger would provide a more efficient allocation ofresources.179

The idea of an EPP has been characterized by the House of Lords ascontroversial180 and the investigative role of OLAF leaves open the question of its

174 V. Zelezny, Opinion of the Committee on Regional Development for the Committee on BudgetaryControl, 2004/2198(INI), 15 Mar. 2005.

175 The proposed EUs code for conducting criminal procedures was drawn up by a group of academicexperts. It saw the light in 1997.

176 For more on the status and mandate of the EPP, see Commission, Green Paper on Criminal LawProtection of the Financial Interests of the Community and the Establishment of a EuropeanProsecutor, COM (2001) 715 final, 11 Dec. 2001.

177 R. Prodi, Speech of 25 September 2003 before the Conference of the European ParliamentPresidents, SPEECH/03/432 (25 Sep. 2003).

178 House of Lords, supra, para. 89.179 Ibid., para. 90.180 Ibid., para. 91.

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relationship with Europol. It is certain that more study should be made beforedeciding on a potential merger between the two bodies.

The creation of an EPP, however, has many supporters who see it as afacilitating functio