We now move to the presentation by officials on COM (2004) 103 and COM (2003) 104 which relate to investigations conducted by the European anti-fraud office. The committee agreed on 21 April to scrutinise these proposals. We are joined by Mr. Dermot Nolan and Ms Evelyn O'Connor from the Department of Finance, both of whom are very welcome. I am grateful for the provision of a briefing note which has been circulated to members of the committee. I understand Mr. Nolan will make a short presentation, following which the discussion will be opened to members. The officials may respond as appropriate. I apologise for the late start but we had other activities on our agenda which we wished to get out of the way first.
Scrutiny of EU Proposals.
Not at all. This is the first time a presentation has been made to an Oireachtas committee on the activities and objectives of the Commission's anti-fraud organisation, OLAF. The European Community treaty gives the Community institutions and the member states shared responsibility for protecting the finances of the EU budget. Until 1999, the Commission organisation responsible for this area was UCLAF, the unit for the co-ordination of fraud prevention. While UCLAF had minor investigative powers, its main task was to promote co-ordinated efforts among member states and Community institutions in the fight against fraud. In the light of the resignation of the Santer Commission, it was felt by the Commission, the Parliament and Council that a greater, more focused effort was required to ensure the successful conduct of the fight against fraud and to secure greater public confidence across member states that the fight was being taken seriously. The Commission, Parliament and Council agreed to establish the new anti-fraud organisation, OLAF.
OLAF's mission is to protect the financial interests of the European Union, to fight fraud, corruption and any other illegal activity which has financial consequences, to conduct in full independence external and internal investigations and to organise, co-ordinate and promote close and regular co-operation among the competent authorities of the member states. OLAF is a Commission organisation and the Commission is politically responsible for it. The staff of OLAF is subject to Commission staff regulations, but the organisation is independent in the exercise of its principal function which involves combatting fraud and carrying out investigations into it.
OLAF's legal base consists of two regulations which govern its investigations and activities, one adopted under the EC treaty and the other under the EURATOM Treaty. The regulations are adopted under both these treaties because all EU budget expenditure derives its legal basis from them. If OLAF is properly to investigate expenditure under the EU budget, it must derive authority from both treaties. In the EC treaty, the OLAF regulation and statutory basis derives from a co-decision of the European Parliament and Council, whereas under the EURATOM Treaty provision is made on the basis of a Council decision only after consultation with Parliament. The regulations under both treaties are very much similar.
Given the topicality of the draft European constitution agreed recently by member states under the Irish Presidency, I point out that there is no specific mention of or change to OLAF's status. The draft constitution provides the same legal obligation for member states and Community institutions to protect the EU's financial interests and to fight fraud. In passing, I note the possibility in the draft constitution that a European public prosecutor will ultimately be established. An office of prosecutor and its remit and mission may only be established by a unanimous decision of member states. In time, there may be greater dove-tailing between the investigative objectives of OLAF and the ultimate remit of a European public prosecutor, if established. As things stand, the draft constitution has no impact on OLAF's current status.
OLAF has a budget for 2004 of approximately €42 million and a staff of 329. The staff of OLAF is divided into two categories consisting of, on the one hand, normal Commission officials with long-term careers and, on the other, investigators nearly all of whom are temporary recruits from the member states retained on a contract basis. To source investigators, OLAF approaches the relevant investigating authorities in member states including police forces, judicial authorities and magistrates which provide personnel to serve on three or six year contracts. These people have experience of investigating fraud in their own member states and bring the experience to OLAF.
OLAF has three main divisions. Directorate A deals with policy, legislation and legal affairs and has responsibility for promoting co-ordination between member states to provide for a joint and co-ordinated approach to fraud in general. Directorate B deals with investigations and operations and has eight units which deal with various investigations. There is a dedicated EUROSTAT unit. The directorate staff consists for the most part of investigators brought in from the pertinent authorities in member states. Directorate C deals with intelligence and examines information from member states including economic and financial data which it analyses to ascertain where the greatest risk of fraud lies to guide OLAF investigations.
The director of OLAF has principal authority and responsibility for the body's activities. He makes his decisions in accordance with his fully independent status. The overall activities of OLAF, however, are subject to the monitoring of the supervisory committee on which five people sit. The committee is not like a company board which can direct a director to carry out certain tasks or operate in a certain way. It does not operate like a Minister who can direct civil servants. The committee oversees and monitors the activities of OLAF and makes annual reports. The committee also provides advice to the director.
OLAF took over from the previous organisation, UCLAF, in 1999 and, as with every new organisation, there have been problems in initiating operations and recruiting relevant staff. It took a couple of years for OLAF to clear the backlog of cases left over from UCLAF. As that has been accomplished, OLAF will now have the freedom, resources and time to concentrate on new cases and the carrying out of more targeted operations in future.
OLAF is an investigative body whose function is to use the powers available to it to examine facts, seek all available information and make a report on its findings to the proper authorities. Responsibility for prosecutions and further action in the case of fraud or alleged fraud or irregularities OLAF has discovered rests with national authorities. Essentially, OLAF checks the facts, finds out everything it can and then refers the matter to the relevant authorities, be it the Garda or DPP in Ireland or the equivalent authorities in the other member states.
The view of the director general of OLAF is that OLAF has already demonstrated it has sufficient independence to combat fraud and that its separation from the Commission would raise complex legal, management, operational and logistical questions. He is reasonably happy with the structures and powers available to him at present but that is not to say there cannot be improvements.
The Commission has carried out an evaluation of OLAF's activities, which was published in April last year. It acknowledges that there have been start-up problems with OLAF but that they are being ironed out. The Council was not really happy with the Commission's evaluation. It believed it lacked depth and did not go to the heart of the matter. Last year, the Council concluded that the Commission's evaluation of OLAF's activities was not a full progress report containing an in-depth analysis, particularly in quantitative terms, of OLAF's activities during its first three years of operation. The Council wants the Commission to provide a more quantitative and analytical report on what OLAF has achieved to date.
The issue which has achieved most notice for OLAF and its activities is called the "EUROSTAT affair". I must be careful what I say about it because OLAF, where it has carried out certain investigations, has referred the results thereof to the relevant judicial authorities in the relevant member states. Some investigations are still under way. The EUROSTAT affair received considerable press coverage and the Commission was required to appear before the European Parliament to explain what it knew about what was suspected to be going on.
Partially and principally as a result of certain matters that arose from the EUROSTAT affair, the Commission proposed to amend and supplement the existing regulations governing the activities and investigations of OLAF. According to the Commission, these areas follows: to strengthen OLAF's operational efficiency; to improve information flows between OLAF and the European institutions and bodies — this is the Commission's principal objective in its proposed changes to the regulation; to ensure that the rights of individuals concerned are fully protected; to fill a number of gaps the Commission believes have jeopardising the effectiveness of OLAF's investigations; and to enhance the role of the supervisory committee, which already monitors and oversees the work of OLAF.
This proposal from the Commission to the Council was made during the Irish Presidency. The Irish Presidency consulted closely with our colleagues in other member states and also the European Parliament. The proposal was considered by Council's anti-fraud working group, the permanently established working group of member states in Brussels in this area.
Council and the European Parliament very much felt that we should work in parallel and in close co-operation with the Parliament. Legally we cannot adopt any position on the Commission's proposal without having first obtained the opinion of the Parliament. When the proposal was made, the Parliament was just about to break up before the European elections and therefore it was effectively a matter for the new Parliament. I imagine that the new Parliament will be considering it principally through its committee on budgetary control.
Council had already asked the Commission to give us a more complete, effective and analytical report on OLAF's activities to date. OLAF's supervisory committee stated it would be better to wait until we see a statement by the Court of Auditors, which is to carry out a management audit of OLAF this year. We hope to have the results later this year. Essentially, the Irish Presidency, in consultation with all the member states, stated that it would be premature to engage actively with the Commission on its proposals to amend and supplement the OLAF regulation until all the various reports have been issued.
I will be happy to answer further queries by members of the committee.
That is the first presentation the committee has heard on OLAF and it has been helpful and informative.
It seems that if all those involved are sitting on their hands until the audit is complete, we should also sit on our hands. We will hardly approve the proposals if others are adopting a "wait and see" attitude. Perhaps the committee should await the outcome of the audit on the progress made.
Most of the material is unexceptional, although I am surprised to note that Article 7 obliges institutions, bodies, agencies and member states to provide information, documents, etc., relating to possible cases. Does this include cases this body has flagged as being under investigation or does it involve a trawling power whereby virtually any possible misdemeanour must be accounted for, just as auditors now have to produce a compliance statement? Is this new duty so far-reaching that institutions, bodies, agencies and member states effectively have to produce a compliance report and present the outcome to this body each year?
The rest of the information does not seem particularly exceptional to me. It seems to be in accord with natural justice that somebody under investigation should be informed about it and have the opportunity to present his case. It is unclear what happens when national authorities do not inform OLAF of action taken on the findings of external investigations sent to them. It states that OLAF will be informed in so far as it is compatible with national law. This seems to suggest that some nations are under no obligation to inform anyone of what happens when files are presented to a director of public prosecutions. It becomes a bit of a black hole. To what extent can national law prevent reasonable cases being pursued?
Ms Evelyn O’Connor
The first part of Article 7, on the duty to inform the office, has not been changed. Institutions, bodies, agencies and member states were always supposed to provide information documents, etc., relating to possible cases. What is new in Article 7 is the procedural guarantees part, which clarifies OLAF's powers to investigate to prove or disprove. It must inform any member or employee of an EU body as soon as it becomes apparent that he or she may be involved, unless this will damage the inquiry. It means the institution will have to be informed and therefore the procedural guarantees part is trying to protect the individual concerned because he or she will have certain rights, such as the rights to privacy and to the presumption of innocence.
Until now, OLAF had a let-out clause under Article 4. It would have to inform the institutions if it was conducting an investigation. It had the power to arrive at the door and have access to all the documents and the premises but it now has no let-out clause. As soon as it becomes apparent that an individual is implicated, OLAF must inform the relevant institution. This is a protection for the institution because it will have to take political responsibility. The relevant individual must also be informed and will have certain rights, including the right to be heard. It is like when a policeman outlines to a suspect his or her rights, including the right to remain silent. The institution or individual will also have to be informed if OLAF finds there is no result to follow up or no irregularity has taken place.
The Deputy asked if OLAF has to tell everyone what powers it has. In the case of external investigations, it is the member states themselves who are the competent authorities. However, OLAF has certain powers under Regulation 2185/96 to check out irregularities which might be of a serious or transnational nature or might involve economic operators in a number of member states. In that case, OLAF would have to co-operate very closely with the local authorities. It would have to inform the local authorities that it is carrying out the investigation. The economic operators would also have to authorise any of OLAF's actions. When OLAF arrives at the premises, the economic operator has to allow it access to its documents and give it relevant information. However, if the economic operators refuse to allow OLAF access, the local authorities would have to come on board and jointly assist OLAF by carrying out inspections themselves or jointly.
OLAF may pass on information to the local authorities and recommend that they take proceedings. OLAF's work is only preparatory and once the information is sent to the relevant competent authorities at home, any follow up action will now have to be notified to OLAF. The amendment to the regulation clarifies that the local authorities in the member states will have to take enforcement procedures against the economic operators if they refuse to assist OLAF. There was always an obligation on the local authorities to tell OLAF about possible cases of irregularity. Therefore, that aspect is unchanged.
Is this done by way of a compliance statement in the same way as a auditor has to provide any evidence of irregularities to the Director of Corporate Enforcement and sign off each year on the fact that no issue has arisen which ought to have been notified?
Ms O’Connor
There are sectoral regulations. Under Article 2.80, member states have to report on any fraud or irregularities that have been carried out in a particular year. In the areas of agriculture, customs or resources, the member state would supply OLAF with a report stating that it had recorded a certain number of fraud cases — which had risen by a particular percentage since last year — the total amount involved and so on. The Commission would then oblige the member state to recover what it could. There are a number of rules in that regard.
Ms O'Connor referred to economic operators. Whom does she mean by that? Will she give us an example?
Ms O’Connor
Planistat was a French company which was involved in the EUROSTAT case, about which members will know from media reports. OLAF carried out an external investigation of that company and it turned out that it was actually getting money from EUROSTAT's network of data shops, which were set up to market statistical information. EUROSTAT had also set up reserves or funds through which some money was channelled to Planistat. OLAF discovered this when it was investigating the data shops network. That is an example of an economic operator.
OLAF's primary function is to carry out internal investigations but it carries out external investigations where direct or external aid in involved. For example, in regard to research contracts, the Commission funds beneficiaries directly rather than through any managing authority in any specific department. In such cases there is no competent authority to investigate administrative practices, which is where OLAF come is. In such cases there is a contract between the Commission and a beneficiary in a particular member state without any department being involved.
Does OLAF have legal jurisdiction to carry out an investigation in some of the research and development companies in Ireland?
Ms O’Connor
This is clarified in the amendment to the regulation. It is the legal lacuna which has been referred to. In the contracts between the beneficiaries and the Commission, the beneficiaries were required to give information to the Commission on a regular basis as to how they were executing the contract, but the contracts did not specify that OLAF would have the power to carry out investigations into these economic operators and examine their accounts and so on. The amendment clarifies that under Regulation 2185/ 96, under which it can carry out external investigations, it can also carry out investigations into contractual relationships.
Has that power been challenged in any of the national courts by the economic operators?
Ms O’Connor
No, it has not happened yet. It always had the power under Regulation 2185 but economic operators did not always allow access to OLAF and difficulties arose. This amendment sets the position out more clearly.
Have there been any investigations outside the EU boundaries, for example, where a project in Africa has been grant-aided?
Ms O’Connor
There would have to be agreements with third countries and, under those agreements, OLAF would then be able to carry out investigations. It has already been carrying out investigations in Romania and similar countries.
OLAF is the investigating branch. Once complete, the case is sent to the DPP and, where appropriate, it may or may not get back information. Does OLAF not have a mechanism for initiating its own follow-up for information? If it is not getting back information and following it up, it could be wasting its time on a number of cases.
Ms O’ Connor
OLAF has a case management system. Part of that comes from the initial inquiry, then the assessment is carried out, it is passed on the competent authority and there is a follow up phase. Member states are obliged to inform OLAF of the results. If they do not, OLAF will chase them up.
There is a specific amendment to this regulation to make it absolutely clear that member states will be obliged to inform OLAF of the action taken on the findings of external investigations sent to them.
This goes to the basic principle of subsidiarity. There will be a great deal of sensitivity around giving Community institutions the powers to carry out criminal prosecutions or investigations in member states, which is why the member states have an obligation placed on them too to ensure that the financial interests of the Community are protected. That is why they are obliged and will be even more clearly obliged to co-operate with OLAF in future.
Ms O’Connor
There are investigations anyway which might lead to administrative, disciplinary or criminal proceedings, but it is not a third pillar body itself.
If there are no further questions, on behalf of the committee I thank Mr. Nolan and Ms O'Connor for assisting with our scrutiny of the proposal. The committee will consider its views on the matter and will report to the Houses.
Deputy Bruton indicated that we might postpone a report on this matter. Was that his suggestion?
It seems unexceptional, but if there is an audit of this body which will inform the Council's decision, we might as well hear its outcome before we express a view.
It was the feeling at Council that it would be proper and useful to wait for the outcome of these various audits and reports by the Commission and the Court of Auditors on the success of OLAF in meeting its objectives to date. We expect to have most of that later this year. We can keep the committee informed about when Council will look at the proposal in detail with the Commission and at that stage we can arrange another hearing.
When that information is available and we have considered it, we may require another hearing but we may be in a position to finalise a report when we receive it. I thank the witnesses for attending.
The joint committee adjourned at 11.05 a.m. sine die.