Chapter 32 – Financial Control

Protection of the EU’s financial interests

European �Anti-Fraud Office

European �Anti-Fraud Office

Overview of the requirements relating to the protection of EU’s financial interests

1. Legal alignment: Alignment of national legislation with the "PIF Directive"�

2. Institutional and policy set-up:

• Establishment of an Anti-Fraud Coordination Service (AFCOS)
• Creation of a corresponding AFCOS network of national authorities involved in the detection, investigation, prosecution and prevention of fraud;
• Adoption of a national anti-fraud strategy;

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3. Cooperation with the European Commission/OLAF - i.e. developing a track record on:

• investigations;
• reporting of irregularities.

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European �Anti-Fraud Office

Article 325 of the Treaty on the Functioning of the EU (TFEU)

• The Union and the Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union […]
• Member States shall take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests.
• […] the Member States shall coordinate their action aimed at protecting the financial interests of the Union against fraud. To this end they shall organise, together with the Commission, close and regular cooperation between the competent authorities.

European �Anti-Fraud Office

1. Alignment with the Directive on the fight against fraud to the Union's financial interests by means of criminal law (“PIF Directive”)�

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European �Anti-Fraud Office

European �Anti-Fraud Office

History: PIF Convention (1)

• "PIF" = protection des intérêts financiers
• Linked to article 325 TFEU
• Council Act of 26 July 1995 drawing up the Convention on the protection of the financial interests of the European Communities [OJ C 316, 27.11.1995].
• Fraud affecting both expenditure and revenue must be punishable by effective, proportionate and dissuasive criminal penalties in every Member State.

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European �Anti-Fraud Office

European �Anti-Fraud Office

• The Convention entered into force on 17 October 2002, along with its First Protocol (on corruption) and the Protocol on its interpretation by the Court of Justice (ECJ Protocol).
• The Second Protocol aimed in particular at the liability of legal persons, confiscation, money laundering and cooperation for the purpose of protecting the EU‘s financial interests and protecting personal data related thereto.
• Since 2005, candidate countries acceded to this Convention and its Protocols by virtue of the Act of Accession.

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History: PIF Convention (2)

European �Anti-Fraud Office

European �Anti-Fraud Office

• Legal basis in Lissabon Treaty; Art. 83(2) TFEU, not Art. 325!
• In order to ensure the implementation of the Union policy in the area of the protection of the Union's financial interests, it is essential to continue to approximate the criminal laws of the Member States by complementing the protection under administrative and civil law for the most serious types of fraud-related conduct in this field, whilst avoiding inconsistencies, both within and among these areas of law.
• As this Directive provides for minimum rules, Member States are free to adopt or maintain more stringent rules for criminal offences affecting the Union’s financial interests.

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History: PIF Directive (1)

European �Anti-Fraud Office

European �Anti-Fraud Office

History: PIF Directive (2)

• Directive (EU) 2017/1371 of 5 July 2017 [OJ 2017 L 198, 29].
• The new directive replaces the PIF Convention and its three protocols (exc. for UK and DK).
• The directive does not radically change the previous system (under the Convention) but introduces a few new aspects.
• MS have until July 2019 to transpose the Directive into national law.
• As candidate countries have previously aligned their national legislation with the PIF Convention, they now need to align it to the PIF Directive. Candidate countries are invited to provide an update to the Commission upon adoption of the required legal changes (table of concordance).

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European �Anti-Fraud Office

PIF Directive: Differences to PIF Convention (1)

• VAT: The directive clarifies that VAT fraud is covered, as regards cross-border cases involving a damage of at least EUR 10 Million.
• PIF Convention: the Council had interpreted the Convention as excluding VAT (not in line with ECJ judgment in C-105/14 Taricco).
• Fraud: Distinction (i) non-procurement-related expenditure; (ii) procurement-related expenditure; (iii) general revenue; (iv) VAT revenue.
• PIF Convention: only distinction expenditure/revenue.

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European �Anti-Fraud Office

PIF Directive: Differences to PIF Convention (2)

• Money laundering: reference to Directive (EU) 2015/849 ('AMLD4').
• PIF Convention: reference to Directive 91/308/EEC, related to the proceeds of fraud, at least in serious cases.
• Broader definition of corruption: Definition of officials; the definition now also covers private actors who exercise functions equivalent to those performed by EU officials and MEPs/national MPs.
• PIF Convention: the definition of EU officials was left to national law.
• New offence : misappropriation

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European �Anti-Fraud Office

PIF Directive: Differences to PIF Convention (3)

• Further harmonisation on sanctions: The directive provides for a harmonisation of the maximum penalty which, at a minimum, should be 4 years of imprisonment.
• The PIF Convention only provided for a sentence of imprisonment.
• Introduction of prescription periods of at least 5/3 years from the commission for the investigation, prosecution and judgment; and 5 years from the date of final conviction for the execution of the sentence.
• PIF Convention: prescription periods were not harmonised at all, which led to divergences between Member States.

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European �Anti-Fraud Office

Fraud: Expenditure fraud (Art. 3(2)(a) and (b))

• Use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the Union budget or budgets managed by the Union, or on its behalf;
• Non-disclosure of information in violation of a specific obligation, with the same effect;
• Misapplication of such funds or assets for purposes other than those for which they were originally granted.
• Procurement-related: additional elements (unlawful gain & loss to the Union; damage).

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European �Anti-Fraud Office

Fraud: Revenue fraud (Art. 3(2)(c) and (d))

• Use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the Union budget or budgets managed by the Union, or on its behalf;
• Non-disclosure of information in violation of a specific obligation, with the same effect;
• Misapplication of a legally obtained benefit, with the same effect.
• Revenue arising from VAT own resources: additional elements (cross-border fraudulent schemes; correct VAT-related statements).

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European �Anti-Fraud Office

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• Each Member State shall take the necessary measures to ensure that money laundering as described in Art. 1(3) of AMLD4 involving property derived from the criminal offences covered by the PIF Directive constitutes a criminal offence.

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Other Offences: Money laundering �(Art. 4(1))

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European �Anti-Fraud Office

• Each Member State shall take the necessary measures to ensure that passive and active corruption, when committed intentionally, constitutes a criminal offence.
• Definition of passive and active corruption.
• Definition of 'public officials' includes Union officials, persons holding an executive, administrative or judicial office at national, regional or local level; legislative offices assimilated; any other person assigned and exercising a public service function.

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Other Offences: Corruption (Art. 4(2) and (4))

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European �Anti-Fraud Office

• Each Member State shall take the necessary measures to ensure that misappropriation, when committed intentionally, constitutes a criminal offence.
• Official entrusted with management of funds or assets;
• Commit or disburse funds/appropriate or use assets contrary to the purpose;
• Damage to the Union's financial interests.

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Other Offences: Misappropriation �(Art. 4(3))

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European �Anti-Fraud Office

2. Institutional and policy set-up

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European �Anti-Fraud Office

Anti-Fraud Co-ordination Service (AFCOS)

• The AFCOS concept was positioned within the EU legislative framework by the adoption of the Regulation (EU, EURATOM) No 883/2013 of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF).
• The Article 3(4) on the designation of AFCOS is not only applicable to the Member States, but also serves as a negotiation benchmark for the Candidate Countries in their accession to the EU:

"Member States shall, for the purposes of this Regulation, designate a service ("the anti-fraud coordination service") to facilitate effective cooperation and exchange of information, including information of an operational nature, with the Office. Where appropriate, in accordance with national law, the anti-fraud coordination service may be regarded as a competent authority for the purposes of this Regulation."

• The requirement for establishing an AFCOS is also part of the IPA II Framework Agreement Article 50(2), which includes a list of specific tasks to be fulfilled by the AFCOS.

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European �Anti-Fraud Office

Anti-Fraud Co-ordination Service (AFCOS)

• The institutional setup in each of the countries involved differs from one another. Therefore, the administrative setup and functioning of AFCOS in practice has also taken different formats.
• AFCOS must be at a minimum a focal point capable to facilitate effective and efficient cooperation and exchange of information, including information of an operational nature, with OLAF.
• AFCOS fulfils administrative and operational tasks.

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European �Anti-Fraud Office

AT

Ministry of Finance

Department for Anti-fraud, Tax and Customs

BE

Ministry of Economy

Interdepartment Commission for Coordination of the Fight against Fraud (CICF / ICCF)

DK

Ministry of Finance

4th Division - EU Budget and Education

FI

Ministry of Finance

Government Financial Controller

FR

Ministry of Finance

Délégation Nationale à la Lutte contre la Fraude (DNLF)

DE

Ministry of Finance

Division for the protection of EU financial interests

GR

Ministry of Justice

General Secretary against Corruption

IE

Ministry of Finance

EU & International Division - EU Budget Section

IT

Presidency of Council of Ministers

Guardia di Finanza, Division Specialised in Countering EU frauds at the Department of European Policies

LU

Ministry of Finance

Development Aid and Compliance - Directorate of International Financial Relations

NL

Ministry of Finance

Customs Information Centre

PT

General Finance Inspectorate

ES

Ministry of Finance

General State Inspection

SE

Swedish Economic Crime Authority

UK

City of London Police

National Police Coordinators Office for Economic Crime - Economic Crime Directorate

CY

Treasury of the Republic of Cyprus

Directorate for European Funds and Financial Control

PL

Ministry of Finance

Treasury Control

SI

Ministry of Finance

Budget Supervision Office

SK

Government Office

Section of Control and Fight Against Corruption

RO

Department for Fight Against Fraud (DLAF)

BG

Ministry of Interior AFCOS Directorate

HR

Ministry of Finance

Independent Service for Combating Irregularities and Fraud

EE

Ministry of Finance

Financial Control Department

CZ

Ministry of Finance

Control Department

LT

Ministry of Interior

Financial Crime and Investigation Service

HU

Ministry of Economy

National Tax and Customs Admin.

LV

Ministry of Finance

EU Funds Audit Department

MT

Office of the Prime Minister

Internal Audit and Investigations Directorate

Administrative tasks

• Take the lead in creating and implementing a national anti-fraud strategy aimed at protection of the EU's financial interests
• Identification of possible weaknesses in national systems for the management of EU funds, including pre-accession funds
• Promote administrative and/or legislative adaptations leading to a more efficient protection of EU financial interest
• Ensure sufficient human resources capacity, including training activities
• Awareness raising, including dissemination of information and communication

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European �Anti-Fraud Office

Operational tasks

• Support co-operation between the national administration/prosecution authorities and OLAF
• Share information within the national administration and with OLAF on the irregularities and suspected fraud cases
• Ensuring fulfilment of all the obligations arising from Regulation 2185/1996 regarding on-the-spot checks
• Facilitate the follow-up to OLAF's recommendations after the closure of a case as appropriate

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European �Anti-Fraud Office

AFCOS network

• Network of all national authorities involved in the protection of the EU's financial interests
• Provides input and expertise for policy documents (e.g. development of national anti-fraud strategy, legislation,…) as well as investigative contacts
• Spanning the whole anti-fraud cycle (detection, investigation, sanctions/recovery, prevention)
• Who should be involved?
• Depending on the national set-up and distribution of tasks, e.g. Ministries of Finance, Interior and Justice, police, judicial authorities, other law enforcement bodies, authorities managing EU funds, audit and control bodies, customs and taxation authorities, anti-corruption authorities, etc.

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European �Anti-Fraud Office

European �Anti-Fraud Office

National anti-fraud strategy (NAFS)

• A NAFS should identify the vulnerabilities to fraud within the management and control systems and ensure a harmonised response to these risks.
• Alongside the NAFS, a detailed action plan is necessary to translate the objectives of the strategy into concrete actions (e.g. adapting legislation and procedures, providing necessary resources, taking measures to enhance cooperation at national and/or EU level).
• The NAFS and action plan should be living documents undergoing regular evaluations and monitoring. The strategy may have a validity period of several years (at least 3-5 years) meanwhile the action plan can be set for 1-2 years.
• Guidance documents on NAFS provided by OLAF:
• Practical Steps towards the drafting of a NAFS (2015)
• General Guidelines on National Anti-Fraud Strategies (2016)

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European �Anti-Fraud Office

3. A track record of cooperation

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European �Anti-Fraud Office

Investigations

• Examples of cooperation in the framework of OLAF investigations:
• Exchange of information
• Assistance in OLAF on-the-spot checks
• Logistical support/ organisation of meetings
• Expertise on national legislation

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• Developing a track record of cooperation with OLAF is a closing benchmark in Chapter 32.

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European �Anti-Fraud Office

Reporting of irregularities

• Protecting the EU’s financial interests also includes the corresponding responsibility to report on detected irregularities, including fraud, and their follow-up at national level.
• Reporting should be done electronically using the Irregularity Management System (IMS) provided by the European Commission.
• The underlying purpose of the system is to help to provide assurance that the beneficiary’s management and control system for EU funds is functioning properly. In addition, the Commission uses the IMS data for proactive risk analysis.
• Developing a track record on irregularity reporting is a closing benchmark in Chapter 32.

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European �Anti-Fraud Office

European �Anti-Fraud Office

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EXPENDITURE

CYCLE

IRREGULARITY REPORTING

PART OF THE

Thank you for your attention!

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Clemens KREITH

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OLAF, Directorate D - Policy

Unit D.3 - Inter-institutional & External Relations

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+32 2 29 13970

Clemens.KREITH@ec.europa.eu

Oliver LANDWEHR

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OLAF, Directorate D - Policy

Unit D.1 - Policy Development & Hercule

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+32 2 29 81666

Oliver.LANDWEHR@ec.europa.eu

European �Anti-Fraud Office

European �Anti-Fraud Office