By Loes & Luiza
On the 19th of February 2016, The European Anti Fraud Office (OLAF), issued a press release on the outcome of a so-called historic investigation, code-named Operation Cocoon. The operation entailed a complex transnational investigation about fraud on the European budget concerning Research and Innovation projects. For over 10 years, a criminal organisation coordinated identical bids in several EU Member States. After receiving approximately 53 million euro in funds for the projects in question, they claimed non-existent expenses in an organized manner, amounting up to more than 1.8 million euro.
The Italian authorities worked effectively with OLAF: the collaboration resulted in five fraudsters found guilty after the national criminal investigation, and the Italian Court of Auditors seized the money defrauded from the European budget. But is this success story daily practice for OLAF or is it just a lucky strike?
It appears that the collaboration between Member States and OLAF remains diverse within the European Union. Due to a lack of information, scrutiny, and coordination between judicial authorities it seems that it is hard to manage the investigations carried out by OLAF. It is not in all cases that Member States are willing to collaborate or take action after an investigation. While 200 million euro have been recovered in 2014, Member States could have doubled the amount in the same year if they had followed OLAF’s recommendations.
A critical look at the external investigation procedure?
The duty to cooperate in order to protect the financial interests of the EU is enshrined in Art. 325(2)(3) TFEU. Also, Regulation 2185/96 states that Member States “shall provide the assistance needed”. However, the forwarded request by OLAF to start an investigation has no legal binding effect as stated in the Tillack Judgment. Possibly, this could be an explanation for why the Netherlands only adopted a legislative proposal in 2013 to assist OLAF in external investigations (while it should have done so from 1996 onwards).
In contrast, Romania already had a national coordinator of the anti-fraud fight on the European budget (DLAF) before it became an EU member. These inconsistencies between Member States lead to different levels of effectiveness regarding the collaboration.
If we then look at the actions taken by national judicial authorities following from OLAF’s recommendations the dimensions change. It is solely up to the Member States to decide whether they should take action or not. The General Court confirmed this procedure by stressing that the decision to forward information to national authorities cannot constitute an act with binding legal effects. Between 2007 and 2014, the rate of indictment was around 50% within the Member States. Even though they ‘have the obligation to ensure that an infringement of Community law is penalised … for the collection or recovery of duties or charges which have been fraudulently evaded’ and they receive a clear report from OLAF, Member States do not always act according to it.
A closer insight reveals that these are not the only issues OLAF is facing with. Who checks the checker? Accountability or lack thereof, is often seen as a legal loophole for OLAF’s actions. A highly debatable aspect is the balance between effectiveness and procedural guarantees, especially considering the Supervisory Committee’s (SC) lack of access to on-going investigations. Even after an investigation has been concluded, the SC can only issue opinions and recommendations regarding procedural guarantees. On one hand, the SC is pushing for an extension of the scope of its supervisory role, requiring access to all investigations, arguing that this way procedural guarantees would be increased..
“It is much easier to control the secret services of Finland than OLAF via closed cases”
-CHAIRMAN SUPERVISORY COMMITTEE (FORMER AUDITOR GENERAL OF FINLAND AND AS SUCH ALSO RESPONSIBLE FOR THE FINISH SECRET SERVICES)
On the other hand, Mr. Giovanni Kessler, the Director General argues that this would hinder the effectiveness of the investigations and impede OLAF from achieving its goals. He went as far as claiming that the SC was transforming itself into a court and was acting beyond its role of protecting OLAF’s independence. The ECJ made some attempts to balance procedural rights and the effectiveness of OLAF mission in some of its judgments. For example, in Franchet and Byk, it took the view that the OLAF’s Supervisory Committee should be consulted (rather than just informed) before investigation information or reports were to be sent to national authorities. However, these attempts are not enough, and we recognize the urge for a clearer legal framework for OLAF, supporting the idea of an internal judicial unit, that would ensure ex-ante controls of investigative measures and real and timely ex-post judicial controls.
As the legality check within OLAF is not sufficient at this point, the only alternative is addressing the Court of Justice. However, meeting the hard conditions of admissibility for an action for annulment or action for damages make judicial control over OLAF’s acts highly ineffective in practice. In cases such as Gomez-Reino and Tillack the Court ruled that OLAF’s report and act of sending information to the national judicial authorities constitutes a preparatory act which does not bring a distinct change in the applicant’s legal position. If there is no illegal act, there is nothing to annul, and almost impossible to prove a causal link in the case of action for damages.
When we look at OLAF’s activity, it is easy to realize that OLAF’s possible unlawful acts are not subject to the broad spectrum of the judicial remedies, which in this case are rather theoretical. Regarding the collaboration with Member States, this could be taken to the next level. We are eagerly waiting for the 2015 report to see whether the recommended amount of 901.00 million euro is recovered for more than 50% in 2014. However, it is success stories such as Operation Cocoon that show us the importance of a well-functioning Office and put the potential of its mission into perspective. This is how OLAF’s daily practice should look like.
 Vervaele, J.A.E. ‘Green Paper on criminal-law protection of the financial interests of the Community and the establishment of a European Prosecutor’ Opinion to the Netherlands First Chamber of the States-General, OLAF/5395/02
 -, ‘Romania – most OLAF investigations on use of EU funds in 2014’ ActMedia Romanian News Agency June 3, 2015: http://actmedia.eu/daily/romania-most-olaf-investigations-on-use-of-eu-funds-in-2014/58237
 Jensen, Gerard “Een beschouwing van fraudebestrijding op nationaal- en EU-niveau (hoe is de samenwerking tussen de lidstaten en OLAF bij het beschermen van het EU-budget georganiseerd?)” Europese Fiscale Studies, Erasmus Rotterdam, 2012-2013
 The Fight Against Fraud on the EU’s Finances – European Union Committee, CHAPTER 5: The EU Dimension III-OLAF, point 67, available at http://www.publications.parliament.uk/pa/ld201213/ldselect/ldeucom/158/15808.htm
 White, Simone “EU fraud enforcement: overcoming obstacles”, for Journal of Financial Crime, special issue on EU fraud, p.14.
 The proposal of setting-up a formal judicial unit was put on the table when revising the text of OLAF Regulation in July 2013, but was not amended.