European Anti-Fraud Office

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European Anti-fraud Office, Rue Joseph II, Brussels

The European Anti-Fraud Office (commonly known as OLAF, from the French: Office européen de lutte antifraude) is a body mandated by the European Union (EU) with protecting the Union's financial interests. It was founded on 28 April 1999, under the European Commission Decision 1999/352.[1] Its tasks are threefold:

  • to fight fraud affecting the EU budget;
  • investigate corruption by staff of EU institutions; and
  • develop anti-fraud legislation and policies.

OLAF achieves its mission by conducting, in full independence, internal and external investigations. It coordinates the activities of its anti-fraud partners in the Member States in the fight against fraud. OLAF supplies EU member states with the necessary support and technical know-how to help them in their anti-fraud activities. It contributes to the design of the anti-fraud strategy of the European Union, and takes the necessary initiatives to strengthen the relevant legislation.

OLAF conducts administrative investigations. It has no judicial powers to oblige national law enforcement authorities to act on its follow-up recommendations.

Legal basis

Regulation No 883/2013,[2] governing the work of OLAF, entered into force on 1 October 2013. This Regulation builds on the experience gained by OLAF since its creation. It provides a clear statutory basis that codifies past practice and reinforces the effectiveness of OLAF's investigative activities. The Regulation also sets the basis for a better exchange of information between OLAF and its partners.

Structure

OLAF has a hybrid status. On the one hand, it is a Directorate General of the European Commission, under the responsibility of the Vice-President in charge of Budget and Human Resources. On the other hand, it is independent for its investigative activities.

OLAF has a staff of about 420: police, customs and legal experts from the member states of the European Union (EU).[3]

Ville Itälä was appointed OLAF Director-General by the European Commission, following consultation with the European Parliament and Council. He took up his functions on 1 August 2018.

History

OLAF was created in 1999. Following the events that led to the resignation of the Santer Commission, its predecessor UCLAF (Unité de coordination de lutte anti-fraude) was replaced with a new anti-fraud body (OLAF) with stronger powers. These also included conducting investigations within EU institutions.

OLAF results in figures

Between 2010 and 2018, OLAF:

  • Concluded over 1900 investigations
  • Recommended the recovery of over €6.9 billion on the EU budget
  • Issued over 2500 recommendation for judicial, financial, disciplinary and administrative action to be taken by the competent authorities of the Member States and the EU

As a results of OLAF's investigative work, sums unduly spent were gradually returned to the EU budget, criminals faced prosecution before national courts and better anti-fraud safeguards were put in place throughout Europe.

Success stories

OLAF's concluded investigations include cases relating to EU staff, direct expenditure, external aid, customs and cigarette smuggling.

Embezzlement of research funding

A 2017 investigation led to OLAF putting an end to an intricate fraud scheme through which more than EUR 1.4 million worth of European Union funds, meant for emergency response hovercraft prototypes, had been misappropriated.

OLAF uncovered the fraud pattern as part of its investigation into alleged irregularities in a Research and Innovation project granted to a European consortium. The Italian-led consortium, with partners in France, Romania and the United Kingdom, was tasked with creating two hovercraft prototypes to be used as emergency nautical vehicles able to reach remote areas in case of environmental accidents. During on-the-spot checks performed in Italy by OLAF and the Italian Guardia di Finanza, OLAF discovered various disassembled components of one hovercraft, as well as another hovercraft which was completed after the deadline of the project. It became evident that, in order to obtain the EU funds, the Italian partners had falsely attested to the existence of the required structural and economic conditions to carry out the project.

Investigative activities carried out by OLAF in the UK revealed that the British partner only existed on paper and that the company was in fact created and owned by the same Italian partners. To simulate the actual development of the project and to divert funds, fictitious costs had also been recorded. In practice, once the EU funds were obtained, the Italian grantees used accounting artifices to syphon off money, forging documents attesting false expenses.

A thorough analysis of more than 12 000 financial transactions and payments made in the project showed that part of the EU funds received by the Italian and UK partners had been used to pay off a mortgage on a castle facing foreclosure. OLAF concluded its investigation in 2017 with two judicial recommendations – to the Public Prosecutor's Office of Genoa and to the City of London Police in the UK – and a financial recommendation to the Directorate- General for Research and Innovation of the European Commission to recover the defrauded funds. The Italian authorities are already following up on OLAF's recommendations and investigating the persons concerned for embezzlement and fraud against the EU, false accounting, fraudulent bankruptcy and fraudulent statements.

Ending solar panel anti-dumping duty evasion

In 2017 OLAF also investigated another major case involving the evasion of anti-dumping and countervailing duties imposed on solar panels originating in, or consigned from, the People's Republic of China. It was alleged that solar panels were incorrectly declared on importation into the European Union as being of Taiwanese origin. In the framework of this investigation, OLAF, in cooperation with representatives of the Dutch and French customs agencies and the competent Taiwanese authorities, carried out joint enquiries in Taiwan. Further checks took place in Antwerp, in cooperation with Belgian customs.

OLAF collected and analysed transhipment data, EU import data, as well as other documents, while also conducting five company visits of Taiwanese exporters/consignors and visits to eleven shipping agents in Belgium and Taiwan. It was revealed that approximately 2500 container loads of Chinese solar panels had been transhipped via Taiwan to the EU. OLAF discovered that these consignments of solar panels imported into the European Union were not actually of Taiwanese origin, as declared. The solar panels were shipped from solar panel producers in the People's Republic of China to the Free Zone in Taiwan, where the solar panels were loaded into other containers and shipped to the EU with new documents claiming Taiwanese origin. It was established that, in reality, the goods came from the People's Republic of China and therefore anti-dumping and countervailing duties were applicable. As a result, OLAF issued a financial recommendation amounting to EUR 135 million.

UK not acting on China import fraud

In March 2022 the European court of justice (ECJ)—the highest court,from which there is no further appeal—made a final ruling that the UK government, when a member of the EU, had been negligent from 2011 to 2017 in allowing criminal gangs to import cheap Chinese-made clothes and shoes with false invoices understating their value, which were then re-exported into other EU countries. The court considered that EU-wide anti-fraud measures set out by OLAF should have been used. Although Britain had left the EU, the country remains subject to ECJ jurisdiction for breaches of EU law while a member state. The EU claimed compensation of over €2 billion.[4]

Fight against cigarette smuggling

OLAF is not only competent to investigate matters relating to fraud, corruption and other offences affecting all EU expenditure, but also relating to some areas of EU revenue, mainly customs duties. Tobacco smuggling causes huge losses to national and the EU budget, hence OLAF investigates and coordinates criminal cases relating to large-scale, international cigarette smuggling.

In addition to its investigative work, OLAF also supports the EU Institutions and Member States in shaping tobacco anti-smuggling policy. Following litigation before US courts, and to address the problem of contraband and counterfeit cigarettes, the EU Member States and the European Commission signed (between 2004 and 2010) legally binding and enforceable agreements[5] with the world's four largest tobacco manufacturers. The companies agreed to pay a collective total of $2.15 billion to the EU and Member States. With the agreements, the manufacturers have also committed themselves to comprehensive rules concerning sales and distribution practices to promote compliance with EU and national rules as well as to ensure that their genuine cigarettes are sold, distributed, stored and shipped in accordance with all legal requirements.

OLAF brings significant added value to operations like these, where contraband networks operate across borders and can only be countered by coordinated EU-wide efforts.

Fight against wood laundering

OLAF handles illegal logging and smuggling of precious wood and timber into the EU (wood laundering)[6]

Challenges

While OLAF is a largely successful organisation, it is not without faults and challenges. Most notably is how reliant it is on the cooperation of European Member States. OLAF is not a sanctioning body, it does not have any powers to prosecute or discipline, only to make recommendations. It is up to the relevant judicial bodies and EU institutions to follow the recommendations and take action or not.[7] Responses to OLAF's recommendations vary between states, EU institutions and smaller judiciary bodies.[7] For example, most Hungarian authorities have all refused to sign cooperation agreements with OLAF and rarely follow recommendations despite there being high levels of corruption within the country.[8] It has been suggested that Hungary refuses to cooperate because the corruption is in the interests of the authorities, and OLAF lacks the influence needed to force cooperation.[8] EUROPOL and EUROJUST are two organisations OLAF struggles to work with, because OLAF feels like they encroach on its jurisdiction and have no place in fraud investigations.[7] There is no one legal code to protect the European Budget – each Member State has their own legal systems, with their own law enforcement and evidence collecting methods and this can reduce the efficiency of OLAF.[7][8] Its efficiency is also hindered by reliance on state/agency cooperation, cultural, legal and language barriers and complications arising from cross-border investigations.[7]

Criticism

Legal Basis

The legal basis of OLAF has been a subject for criticism. While OLAF is not a law enforcement agency its recommendations hold substantial sway in the EU structures. This raises concerns regarding the transparency of OLAF's actions and basic rights of the subjects under investigation.[9] Helen Xanthaki, Professor of Law at UCL, has stated: "OLAF is entangled in an ad hoc, fragmented, conflicting and uncodified mess of largely self-imposed operational conventions that are supposed to be applied within the tight constrictions of legitimacy and constitutionality in criminal investigations. Even the jurisdictional identity of legitimacy and constitutionality is fluid. Which law and which Constitution would the unavoidably confused OLAF staff work under: Belgian, EU, that of the jurisdiction with competence over the investigation, or that with competence over the actual, indeed usually cross-border, action under investigation? And really, what is the nature of OLAF and the task of its staff: are they investigators, prosecutors or something in between?”[10]

Selectivity and partiality

OLAF has been criticized by Ingeborg Gräßle, a former member of the budgetary control committee of the European Parliament, who has indicated that less than a third of OLAF's staff is dealing with the EU's agricultural and structural funds, even though they represent more than 80 percent of the EU budget.[11] Furthermore, Gräßle pointed out that OLAF's resources are disproportionately allocated to counterfeiting investigations: "They [OLAF] have the luxury industry with a clear interest to help them finding counterfeit goods, but in my view OLAF is not a European FBI. OLAF’s mandate is clearly to protect the financial interests of the EU. This means to protect the EU budget".

Dalligate

OLAF conducted the investigation that lead to the forced resignation of John Dalli, former European Commissioner for Health and Consumer Policy. Basing on OLAF's report, Dalli was accused by José Manuel Barroso, the former President of the European Commission, of using an associate to ask for a bribe from a Swedish tobacco company.[12]

However, none of the accusations against Dalli were found to be substantiated and when OLAF's report leaked, the document was criticized as biased and amateurish.[13] The initial complaint against Dalli was made by Swedish Match, a tobacco company. According to Dalli, the objective of the affair was to impede the EU Tobacco Products Directive, which imposed stricter regulations on tobacco marketing.[14] Leaked documents from Philip Morris International later revealed that the tobacco company had employed 161 people and spent vast sums in an effort to delay the Tobacco Products Directive.[15] At the time of the Dalli affair Philip Morris International had ties with both Swedish Match and OLAF, the former being a strategic partner in a venture to commercialize snus globally[16] and the latter being part of an anti-contraband agreement between the European Commission and PMI which saw PMI provide information as well as funds to OLAF.[17] Corporate Europe Observatory, a lobbying transparency NGO has questioned whether the Dalli affair had been a politically motivated tobacco industry trap.[18]

Criminal investigation of Giovanni Kessler

Belgian authorities opened an investigation against the former Director-General of OLAF Giovanni Kessler who was suspected of illegally listening in to a telephone conversation whilst probing into the Dalli case. In 2016 Kessler was stripped of EU immunity.[19] The investigation remains ongoing.

See also

References

  1. ^ "COMMISSION DECISION establishing the European Anti-fraud Office (OLAF)". Official Journal of the European Union. 28 April 1999. SEC(1999) 802. Archived from the original on 30 May 2019.
  2. ^ "Legislation - REGULATION (EU, EURATOM) No 883/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL". Official Journal of the European Union. 56. 18 September 2013. ISSN 1977-0677. Archived from the original on 26 June 2019.
  3. ^ "Focus on OLAF's staff". The OLAF report 2014 fifteenth report of the European Anti-Fraud Office, 1 January to 31 December 2014 (PDF). Luxembourg: Publications Office of the European Union. 2015. p. 32. ISBN 978-92-79-44585-9. OCLC 1111099966. Archived (PDF) from the original on 5 March 2016.
  4. ^ Rankin, Jennifer; Boffey, Daniel (8 March 2022). "UK faces large EU bill over Chinese imports fraud". The Guardian. Brussels.
  5. ^ "European Commission – OLAF – Tobacco smuggling". europa.eu. 8 February 2016. Archived from the original on 5 March 2016. Retrieved 7 July 2015.
  6. ^ "Criminals increasingly targeting EU green funds, says anti-fraud agency". euronews. 10 September 2020. Archived from the original on 25 January 2021. Retrieved 20 November 2020.
  7. ^ a b c d e Quirke, Brendan (9 July 2009). "OLAF's role in the fight against fraud in the European Union: do too many cooks spoil the broth?". Crime, Law and Social Change. 53 (1): 97–108. doi:10.1007/s10611-009-9214-0. ISSN 0925-4994. S2CID 154425136. Archived from the original on 15 June 2020. Retrieved 20 February 2019.
  8. ^ a b c "Hungary withholds full cooperation with European Anti Fraud Office". 11 March 2016. Archived from the original on 10 May 2017. Retrieved 20 July 2016.
  9. ^ Vervaele, John A. E. (18 February 2014). "Relationship between OLAF, the future EPPO, the other European Bodies and the national judicial authorities" (PDF). www.europeanrights.eu. Archived (PDF) from the original on 28 November 2021.
  10. ^ Xanthaki, Helen (20 June 2016). "The Kessler case should lead to a reform of OLAF". Archived from the original on 28 January 2020. Retrieved 28 January 2020.
  11. ^ Markakis, Laeticia (2 June 2015). "OLAF's fight against counterfeit is questioned". Euranet Plus News Agency. Archived from the original on 28 January 2020. Retrieved 28 January 2020.
  12. ^ Kanter, James (25 October 2012). "Europe's Top Health Official Quits, and the Bloc Has a Mystery on Its Hands". The New York Times. Archived from the original on 28 January 2020. Retrieved 28 January 2020.
  13. ^ "Dalli report leaked". POLITICO. 29 April 2013. Archived from the original on 28 January 2020. Retrieved 28 January 2020.
  14. ^ John Dalli (17 October 2012). John Dalli on OLAF, resignation, and Tobacco Directive (YouTube) (Video). New Europe. Archived from the original on 2 February 2020.
  15. ^ "Tobacco giant Philip Morris 'spent millions in bid to delay EU legislation'". the Guardian. 7 September 2013. Archived from the original on 12 July 2021. Retrieved 11 July 2021.
  16. ^ "Swedish Match and Philip Morris International announce global joint venture to commercialize smokefree tobacco products". www.swedishmatch.com. 3 February 2009. Archived from the original on 28 January 2020. Retrieved 28 January 2020.
  17. ^ "ANTI-CONTRABAND AND ANTI-COUNTERFEIT AGREEMENT AND GENERAL RELEASE" (PDF). 9 July 2004. Archived from the original (PDF) on 27 September 2019. Retrieved 28 January 2020.
  18. ^ "Dalligate: Smokescreen or smoking gun?". Corporate Europe Observatory. 25 October 2012. Archived from the original on 28 January 2020.
  19. ^ Reuters Staff (11 March 2016). "EU anti-fraud head may be prosecuted over Maltese commissioner case". Reuters. Archived from the original on 11 July 2021. Retrieved 11 July 2021 – via www.reuters.com.

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