What is EU fraud? And can OLAF really combat it?
| Published date | 05 January 2010 |
| Date | 05 January 2010 |
| DOI | https://doi.org/10.1108/13590791011009419 |
| Pages | 133-151 |
| Author | Helen Xanthaki |
| Subject Matter | Accounting & finance |
SECTION III. RE-EVALUATING THREATS
AND RESPONSES
What is EU fraud? And can OLAF
really combat it?
Helen Xanthaki
Institute of Advanced Legal Studies, University of London, London, UK
Abstract
Purpose – The purpose of this paper is to assess the real reasons behind the widely accepted view
that the European Anti-Fraud Office (OLAF) is not performing to its full potential.
Design/methodology/approach – The approach takes the form of consideration of the main points
of the regulatory framework and analysis of lacunae in the current and proposed framework.
Findings – The paper attributes ineffectiveness, in part, to the conflicting and vague regulatory
framework within which OLAF is requested to operate.
Originality/value – The paper provides a list and an analysis of the main lacunae in OLAF’s
regulatory framework, an operation which has been neglected in the academic literature.
Keywords Fraud, EuropeanUnion
Paper type Research paper
1. What is EU fraud?
For a phenomenon that has been discussed with such passion both within the EU and
its Member States, EU fraud remains a grey area. What is the level of EU fraud today?
And, in fact, what is EU fraud? One would be foolish if one demanded an exact sum for
the level of fraud in the EU today: by definition fraudulent activities are meant to
remain in the shadows. As a result, the actual sums involved at any given time can
only be guestimates, often educated but not always necessarily so. Older guestimates
report that fraud prejudicial to Community financial interests amounts each year to
approximately e1,000,000,000 and is constantly increasing (CEPS, 2001). Educated as
these guestimates were, they are de facto arbitrary as they fall against the surprising
wall of a lack of a widely accepted definition of EU fraud. In its very first Annual
Report the European Court of Auditors defined fraud in the context of the then
Community as a deliberate misappropriation of money or goods inevitably breaching
the law and rules (European Court of Auditors, 1978). However, the diversity of
meaning awarded to fraud, the differences in the level of criminalisation attrib uted to
fraudulent behaviour in the national laws of the Member States (Sherlock and Harding,
1991) and the variation in the representation of EC fraud in national legal proceedings
(Warner, 2003, p. 255) rendered the term fraud inadequate in the context of the then EC.
Thus, the term irregularities had been used for a long period of time (Kok, 1989). It is
now widely accepted that the distinction between fraud and irregularities is artificial
(European Parliament Committee on Budgetary Control, 2001).
The definition of fraud in EU law is provided for in Paragraph 1 of Article 1 of the
PIF Convention (European Union, 1995b). The Convention entered into force on
17 October 2002 and has been ratified by all of the older and most of the new EU Member
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What is
EU fraud?
133
Journal of Financial Crime
Vol. 17 No. 1, 2010
pp. 133-151
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791011009419
States[1], albeit not fully (Europa, 2004; CEPS, 2001, 2003; European Parliament, 2001),
at the EU or national level[2]. Fraud affecting the European Communities’ financial
interests can relate to expenditure or revenue[3]. With regard to expenditure fraud is the
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 general budget
of the European Communities or budgets managed by, or on behalf of, the European
Communities; the non-disclosure of information in violation of a specific obligation, with
the same effect; and the misapplication of such funds for purposes other than those for
which they were originally granted. With regard to revenue, fraud is the use or
presentation of false, incorrect or incomplete statements or documents, which has as its
effect the illegal diminution of the resources of the general budget of the European
Communities or budgets managed by, or on behalf of, the European Communities; the
non-disclosure of information in violation of a specific obligation, with the same effect;
and the misapplication of a legally obtained benefit, with the same effect. In other words
the basic elements of EU fraud are an intentional (European Union, 1995b) act or
omission by natural or legal persons[4] constituting and irregularity defined as a fraud
and therefore punishable by Court proceedings; all other acts can therefore only be
sanctioned through administrative measures as fines and denial of further funding
(OECD, 1998). With reference to legal persons the offence exists if at least two
complimentary criteria are met, namely the offence was committed for the benefit of the
legal person and the offence was committed by a natural person with a leading position
within the legal person (European Community, 1999).
In 2002, the European Parl iament and the Council pro posed a Directive
criminalising fraud, corruption an d money laundering affecting the fina ncial
interests of the Community (Europa, 2001, 2002). Any action or omission amounting
to such a criminal offence must have the effect of reducing the resources of the
Community budget or retaining Community funds. Under the proposal Member States
would fix the minimum amount for serious fraud to a minimum of e50,000[5]. Anot her
proposal of the Commission demanded the establishment of the Office of the European
Public Prosecutor aiming to combat fraud effectively (Europa, 2000).
It must be accepted therefore that at least the EU has a relatively clear and at least
set definition for EU fraud. This however must not be taken to constitute the end of
diversities in the definition of EU fraud at the level of operational and judicial action,
namely at the national level. Leaving the worrying issue of lack of complete reception
of the EU definition by all national legal orders within the Union, the implementation of
the relevant EU instruments even by these Member States that have pursued full
reception remains problematic. The continuing diversity in the definition and
constituting elements of the offence of EU fraud at the national level cannot be seen
separately from the unfortunately continued fragmentation that plagues the whole
system and structure of EU criminal law. One could start mentioning the avalanche of
relevant diversities (or is it problems?) in the field, such as lack of adequate monitoring
and enforcement mechanisms for the implementation of EU criminal law instruments,
the diversities in the level of commitment of Member States to the policy, the fierce
defence of national competences in the field, and many others. At the end of the day,
whatever its roots, reasons, justifications or excuses, the fact remains: we can only
guestimate how serious a problem EU fraud is; and, we do not agree on what EU fraud
is and should be.
JFC
17,1
134
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