Fighting EU fraud: why do we make life difficult for ourselves?

Publication Date05 Jan 2010
Pages61-80
DOIhttps://doi.org/10.1108/13590791011009374
AuthorBrendan Quirke
SubjectAccounting & finance
SECTION II. FOCUS ON ENFORCEMENT
Fighting EU fraud: why do we
make life difficult for ourselves?
Brendan Quirke
Liverpool Business School, Liverpool John Moores University, Liverpool, UK
Abstract
Purpose – The purpose of this paper is to examine the arrangements and institutions that have been
put in place at both the transnational and the national levels to fight fraud against the European
budget. It also seeks to consider the experiences of two new Member States, Romania and the Czech
Republic, in seeking to build effective anti-fraud structures and to co-operate effectively with Brussels.
Design/methodology/approach – Semi-structured interviews are undertaken with officials of the
European Anti-Fraud Office (OLAF), as well as with officials in both Romania and the Czech Republic.
A review of secondary materials such as official reports and academic articles is also undertaken.
Findings – The fight against European Union (EU) fraud is hampered by a number of factors.
Fragmentation occurs at different levels, transnational, national and legal. The lead transnational
agency OLAF has not been given the support it requires and has been subjected to a long period of
uncertainty regarding its powers and responsibilities. New Member States have been admitted to the
EU, but some of them have not been ready in terms of their ability to tackle fraud effectively. These
problems are to a large extent self-inflicted, and make the fight against fraud all the more complex and
difficult.
Originality/value – The paper provides an insight into the difficulties facing both OLAF and the
agencies of new Member States in terms of fragmentation and seeking to acquire investigative and
other technical skills in a very short period of time. It is an addition to a body of literature which is not
particularly extensive.
Keywords Fraud, EuropeanUnion, Romania, Czech Republic
Paper type Research paper
Introduction
The European Union (EU) has 27 member countries with a budget which is in excess of
e100 billion. Of the budget, 80 per cent is spent at member state level and this where the
majority of frauds against the budget occur. It is inevitable that trying to fight fraud
across 27 member states is highly problematic. Each member state has multiple
agencies which all have some part to play in the fight against EU budget fraud. For
example, the Czech Republic has ten different agencies – this situation is replicated
many times – so literally, there are hundreds of agencies involved. The various
agencies are also a mix of police type organisations and administrative organisations
like internal audit departments. So, inevitably there will be a mix of approaches.
Administrative organisations do not have powers of arrest and interrogation which
police type organisations have, so there are different cultures and approaches which
have to be managed. Given this diversity, it is extremely difficult for a transnational
organisation to co-ordinate these activities, it would be even more difficult for one
member state agency to be able to take a Europe-wide view of this phenomenon and to
co-ordinate the activities of so many different national bodies.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Fighting
EU fraud
61
Journal of Financial Crime
Vol. 17 No. 1, 2010
pp. 61-80
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791011009374
One must also bear in mind that some frauds will inevitably have transnational
characteristics as criminals seek to take advantage of the single market and ease of
movement around the EU. Law enforcement agencies, however, do face barriers it is
difficult to take evidence from one jurisdiction and place it before the courts of another.
If national rules are not followed, evidence could be ruled as being inadmissible and a
legal case could collapse. Legal systems across 27 member states are of course very
different. Therefore, to have a body which is transnational in nature, which can help
national agencies to talk to each other and which can try to co-ordinate the activities of
these disparate agencies seems like a good idea. There have, however, been problems
with the role and operations of the European Anti-Fraud Office (OLAF), as well as
problems with having no one legal code which can deal with crimes against the budget.
When these inherent problems are coupled with a rapid expansion of EU membership
and the need to come to terms with the complexities of EU rules and legislation as well
as the complexities of the anti-fraud fight, then this can only compound the problems
and difficulties faced by all concerned. These issues will be discussed below.
OLAF – the EU’s Anti-Fraud Office
OLAF or the European Fraud Prevention Office was established on 28 April 1999. Its
creation was a response to the criticisms of its predecessor, the Unite
´pour la
Co-ordination de la Lutte Anti-Fraude (UCLAF), which was an anti-fraud organisation
of the European Commission (2003, 2005, 2006). UCLAF was severely criticised by the
European Court of Auditors (1998) for the overall quality of its investigative, case
management and intelligence work. The European Parliament (2004) responded to
these criticisms by issuing the Boesch Report which called for the creation of an
independent Anti-Fraud Office.
OLAF was granted operational independence and given its own budget, yet it still
remains part of the European Commission. This arrangement was judged to be useful
by the Committee of Independent Experts (1999a, b) appointed by Parliament to
investigate wrongdoing within the Santer Commission and to consider issues of
management, scrutiny and evaluation in the use of Community funds and the
investigation of fraud and irregularity. The Committee took the view that both for the
purpose of enquiries as well as for the contribution it could make to the shaping of
legislation where there is a fraud interest or aspect, OLAF could play a valuable part by
being based within the Commission.
There is a major issue with respect to OLAF’s status. If there are suspicions of
fraud, corruption or irregularity within the Commission, which OLAF would
investigate, by virtue of it being the lead agency in these matters, then surely this
would be an instance of the Commission investigating itself. This could bring the
independent status of the Anti-Fraud Office into question. It would have been
preferable to have based OLAF entirely outside the Commission, to prevent there being
any allegations of “whitewash” or “cover-up” being made.
OLAF’s responsibilities
OLAF has two major responsibilities. First, it is responsible for conducting internal
investigations within the institutions and other bodies of the EU and they have an
obligation to fully cooperate in OLAF enquiries and to communicate to OLAF any
information concerning suspected fraud and irregularity.
JFC
17,1
62

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