What is EU Budget Fraud?
EU budget fraud has historically taken a wide range of forms, from Croatian farmers seeking payments for climatically impossible sugar cane cultivation to the channelling of funds for immigration projects to what some have labelled Palestinian terrorist groups.
All types of EU budget fraud stem from inadequate budgetary control measures. This partly comes from factors inherent in the EU's structure, such as the 'Own Resources' system for funding the EU, which was introduced in 1970 and puts the bulk of the responsibility for collecting and distributing EU funds on the member states.
Despite much anti-fraud work within the EU, successive scandals have surfaced that have led to an impression among the public that there is an unwillingness or inability to take action against malpractice, which undermines public support for the EU.
1999 was a critical year in the history of the EU for fraud. It saw the mass resignation of the Santer Commission, following a series of scandals (culminating in a nepotism row involving the former French prime minister and then EU Commissioner, Edith Cresson). Fraud only played a part in this, but an investigation by 'five wise men' from the European parliament condemned the Commission collectively for 'loss of control' over the budget.
Romano Prodi succeeded Jacques Santer as European Commission president and immediately promised a 'zero tolerance' approach to fraud. Under intense pressure from the European Parliament - led by Budgetary Control Committee Chair Diemut Theato - the new Commission acted quickly to set up OLAF, a new independent European Anti-Fraud Office, succeeding the Unit for the Coordination of Fraud Protection (UCLAF) set up in 1988. A Santer Commission survivor, Neil Kinnock, was appointed as vice president, in charge of institutional reform.
OLAF was invested with a broad remit covering investigation, facilitating co-operation between states, providing technical assistance, preparing progress reports to the Commission, and suggesting proposals for new measures to tackle fraud. A key feature of the regime administered by OLAF was that its powers of investigation were formally autonomous and free from EU dictation.
In recent years the Commission has made greater efforts to tackle the problem of budget fraud, recognising the negative impact it has on the confidence of member states in the EU and the potential it has to undermine the process of enlargement.
For example, the Commission has taken measures to prevent counterfeiting of Euro notes, has called for, and presented, a green paper on the establishment of a European prosecutor, and has prepared annual reports on the protection measures it has taken that year.
A report by the Commission produced in 2000 presented the EU's overall strategic approach to the fight against fraud, and identified the major challenges to be tackled up to 2005. The report highlighted the importance of strengthening operational cooperation between all competent authorities; cooperating at inter-institutional level to prevent and combat fraud and corruption; strengthening the criminal judicial dimension and developing an overall anti-fraud policy.
A wider transparency initiative was launched in 2005 and in May 2008, Siim Kallas, vice president of the European Commission responsible for Administrative Affairs, Audit and Anti-Fraud, announced that a lobbyists' register and a code of conduct for interest representatives would be introduced in June 2008 as part of that wider initiative.
By the end of October 2009 more than 2100 organisations had registered. It was decided that the voluntary nature of the register linked to a code of conduct had worked and would be a good basis on which to build further.
The European Commission and the European Parliament then agreed to work together on developing a Joint Transparency Register for all EU institutions. A draft agreement was drawn up in January 2011 to be submitted to the institutions concerned. On the 23 June, 2011, the Commission and the Parliament launched the Joint Transparency Register "to shed light on all those seeking to influence European policy."
The coverage of the new register, which replaces the one set up by the Commission in 2008, has been extended beyond lobbyists to include law firms, NGOs, think-tanks, and any organisations or self-employed individuals involved in influencing EU policy making and implementation.
The new register was described as "a key step towards the EU's goal of a more participatory democracy."
In spite of all the attention paid to fraud throughout the EU's existence, there is still an impression of malpractice that undermines public support for the EU. However, the EU itself cannot bear all of the blame for corruption as 90 per cent of the EU budget is spent and policed by the member states.
Member states have widely variable levels of commitment and capacity for combating fraud - southern European member states have traditionally been said to be particularly vulnerable.
There was widespread concern that fraud would worsen dramatically after EU enlargement in 2004, particularly with the accession of eight former Soviet bloc states and their experiences of closed government and corruption under Communism and rising gangsterism since the collapse of the USSR.
In 2002, the EU was rocked by allegations from its own chief accountant, Martha Andreasen, who publicly declared that the Commission's own accounts were faulty and open to fraud and abuse. The Commission's response was to suspend the whistleblower. Ms Andreasen later said that the Commission had worse protection against fraud than Enron, and accused Mr Kinnock of dragging out disciplinary proceedings against her until after he retired.
It is noteworthy that the revelations of another whistleblower, auditor Paul van Buitenen, set in chain the events of the 1999 scandals.
Since then, despite all the efforts that have been made to tackle the issue of budget fraud within the EU, a report by the EU internal audit service in 2003 revealed serious impropriety at Eurostat, the EU statistics agency, where large sums of money had been diverted by officials for more than a decade.
At the centre of the Eurostat scandal was the company Planistat, a contractor for Eurostat which sold Eurostat information to companies and other private buyers. It was discovered that only 40 per cent of the revenue from sales went to the EU budget, and 10 per cent to Planistat for its own administrative costs: the remaining 50 per cent - which could be as much as nine million euros - was reportedly put into secret bank accounts. OLAF's report on the subject was continually delayed. It was alleged by some that three Commissioners, Mr Kinnock, Michaele Schreyer and Pedro Solbes Mira, should have had knowledge of the fraud.
OLAF, although nominally independent, has been accused of being too close to the Commission. Its inaction in the Eurostat case is thought to have compromised its reputation.
Following an internal review launched in March 2011 by OLAF director general, Giovanni Kessler, significant changes to the organisation and working methods of OLAF were announced on 1st February, 2012, the aim being to focus resources on prioritised activities and increase the efficiency and quality of OLAF's investigations.
Summary of operational activities in 2010
225 new investigative and operational cases were opened: 150 internal and external investigations and 75 co-ordination and assistance cases. 189 investigative and operational cases were closed during the year.
The average total duration of investigations and operations, including the assessment phase, was 27.9 months, a five-year low.
OLAF received 46% of its incoming information from the public sector at EU and Member State level. 52% came from citizens and the private sector.
€67.9 million was recovered as a result of OLAF’s cases. The highest amounts were recovered in the structural funds sector (€32.9 million), followed by agriculture (€11.9 million) and direct expenditure (€10.6 million).
A further €351.2 million has also been recovered to date in respect of financial follow-up cases which are still ongoing.
National courts sentenced fraudsters to a cumulative 125 years' imprisonment during 2010 and imposed financial penalties amounting to nearly € 1.47 billion as a result of OLAF's cases.
Source: OLAF – November 2011
“I feel that we have finally accomplished a goal our working group set ourselves several years ago, and today, by launching this joint register for interest representatives between the Commission and the Parliament, I hope that we will help to instill a more solid culture of transparency in Brussels.”
Diana Wallis, Vice-President of the European Parliament, speaking at the launch of the Joint Transparency Register - June 2011
“In times of economic difficulty, the protection of the financial interests of the EU and the activities of OLAF are more important than ever. OLAF is at the frontline in the fight against fraud and corruption, and our high level of ambition reflects the commitment of the EU institutions to address these issues."
OLAF Director-General Giovanni Kessler, commenting on the new OLAF organisational and operational changes - February 2012
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