Explanatory Memorandum to COM(2018)386 - EU Anti-Fraud Programme

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dossier COM(2018)386 - EU Anti-Fraud Programme.
source COM(2018)386 EN
date 30-05-2018


1. CONTEXTOFTHEPROPOSAL

In the context of the preparation of the next Multiannual Financial Framework (MFF), a programme should be established to support the protection of the EU financial interests as well mutual administrative assistance between customs authorities.

An ex-ante evaluation was performed in connection with the new programme, in line with Article 30 i of the 2016 Financial Regulation, in the form of a Staff Working Document.

This proposal provides for a date of application as of 1 January 2021 and is presented for a Union of 27 Member States, in line with the notification by the United Kingdom of its intention to withdraw from the EU and Euratom based on Article 50 of the Treaty on European Union received by the European Council on 29 March 2017.

• Reasons and objectives

Article 325 of the Treaty on the Functioning of the European Union (TFEU) provides for a shared obligation of the Member States and the EU to protect the latter's financial interests. Article 33 TFEU provides for strengthening of customs cooperation between Member States and between the latter and the Commission. The implementation of the past Union multi-annual budgets has been accompanied by a set of measures to support the Member States and the Union as a whole in preventing and fighting fraud affecting the Union's financial interests, and supporting mutual administrative assistance and cooperation in customs and agriculture matters. These measures include (i) the Hercule III1 spending programme which supports activities against fraud, corruption and any other illegal activities affecting the financial interests of the Union, (ii) the Anti-Fraud Information System (AFIS) which is an operational activity consisting essentially in a set of customs IT applications operated under a common information system managed by the Commission, set up to perform the tasks entrusted to the Commission by Regulation 515/972, and (iii) the Irregularity Management System (IMS) which is a secure electronic communications tool which facilitates the Member States' obligation to report detected irregularities, including fraud, and which supports the management and analysis of these. Although it is difficult to quantify their financial impact, they have contributed to bringing back large amounts of money into the EU budget. For example, Hercule funded the development of the Automated Monitoring Tool (AMT), an IT tool that identifies anomalies in trade flows. It was used in several customs operations and was instrumental in identifying large undervaluation fraud schemes in the import of textile and footwear from third countries.

Past experience shows that the Union's financial interests are impacted by both fraud and irregularities. Every year, the Annual Report on the protection of the EU's financial interests3 demonstrates that the level of such irregularities, including fraud, although fluctuating, requires action on the part of the Union. In addition, the next multiannual financial framework (MFF) will be implemented against the background of significant changes in the legislative and institutional framework for the protection of the Union's financial interests, in particular with the establishment of the European Public Prosecutor’s

Regulation (EU) No 250/2014 of the European Parliament and of the Council of 26 February 2014 establishing a programme to promote activities in the field of the protection of the financial interests of the European Union (Hercule III programme) and repealing Decision No 804/2004/EC (OJ L 84, 20.3.2014, p.

6).

Council Regulation (EC) No 515/97 of 13 March 1997 on mutual assistance between the administrative authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters, as lastly amended by Regulation 2015/1525 (OJ L 82, 22.3.1997, p.

1).

All PIF reports are accessible via the website of the Commission: https://ec.europa.eu/anti-fraud/about-us/reports/communities-reports_en.

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Office (EPPO) and the implementation of Directive (EU) 2017/1371 of the European Parliament and the Council of 5 July 2017 on the fight against fraud to the Union's financial interests by means of criminal law (the PIF Directive)4.

From a budget implementation perspective, IMS is not a financing programme but an operational activity. The Commission is tasked with the IMS activity by sectorial legislation. The IMS system needs to be adequately maintained and developed in order to allow Member States to comply with their reporting obligations and to provide the Commission with the necessary data to analyse the main achievements in detecting and reporting irregularities, including fraud, relating to Union's budget in shared management and pre-accession areas.

Like IMS, AFIS is, from a budget implementation perspective, an operational activity. With, in particular, the increasing sophistication of criminal groups and new challenges coming up in the fight against fraud, including in connection with technological evolutions, the need for mutual administrative assistance between customs authorities and cooperation with the Commission remains strong.

The establishment of the EU Anti-Fraud Programme will largely roll over the Hercule III programme, with some improvements such as the possibility to fund new initiatives (e.g. on data analysis), and combine it with the financing basis for AFIS and IMS. It will also take full advantage of the possibilities created by the new Financial Regulation. The EU Anti-Fraud Programme will ensure the continuity of Union support for activities carried out by the Member States and the Commission in the defence of the Union's financial interests and in support of mutual administrative assistance between Member States and cooperation between the latter and the Commission in customs and agricultural matters.

The EU Anti-Fraud Programme will also strengthen and streamline the existing Union support to the efforts to protect the Union's financial interests and for mutual administrative assistance in customs matters, as well as exploit synergies and create flexibility between various existing actions.

The Programme will have two general objectives:

Protecting the financial interests of the European Union.

Support to mutual assistance between the administrative authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters.

Deriving directly from the general objectives, the specific objectives of the Programme will be threefold:

Preventing and combating fraud, corruption and any other illegal activities affecting the financial interests of the Union.

Supporting the reporting of irregularities, including fraud, with regard to the shared management and pre-accession assistance funds of the Union budget.

Providing tools for information exchange and support for operational activities in the field of mutual administrative assistance in customs and agricultural matters.

Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union's financial interests by means of criminal law, (OJ L 198, 28.7.2017, p. 29).

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• Consistency with existing policy provisions

Several legal acts at Union level address the protection of Union's financial interests, most notably: Regulation 883/20135 laying down the rules for the investigations by the European Anti-Fraud Office (OLAF), Regulation 515/97 on Mutual Administrative Assistance in customs and agricultural matters, or more recently, Regulation 1939/20176 implementing enhanced cooperation on the establishment of the EPPO and the PIF Directive. Sectorial legislation also includes provisions on the protection of Union's financial interests. The EU Anti-Fraud Programme will provide assistance to the Member States and the relevant Union bodies to help them better protect the Union's financial interests. It should support the above-mentioned policy instruments.

In the area of customs, the AFIS component of the EU Anti-Fraud Programme will continue to cover the activities tasked to the Commission by Regulation 515/97. Finally, the IMS component will cover activities tasked to the Commission by sectorial legislations.

• Consistency with other Union policies

A new instrument for Customs Control Equipment will be established under the new multi-annual financial framework to support a well-functioning customs union, including by supporting the purchase of control equipment for customs authorities. The EU Anti-Fraud Programme and the Customs Control Equipment programme will be complementary, as each will focus on different types of support to customs: the EU Anti-Fraud Programme will support, among other, the purchase of equipment, including small customs equipment for customs and non-customs authorities, where it is specifically targeted at the protection of the Union's financial interests, while the new customs equipment programme is meant to rather finance the acquisition of larger customs equipment in order to improve uniformity in the performance of customs controls throughout Member States.

For example, the following types of equipment could fall under the EU Anti-Fraud Programme remit without overlapping with the Customs Control Equipment instrument: digital forensic equipment, surveillance equipment, intelligence equipment, equipment for combatting cigarettes trafficking, such as sniffer dogs. In addition, unlike the instrument for Customs Control Equipment, the EU Anti-Fraud Programme will afford support to non-customs authorities, such as tax authorities, judicial authorities, police inspectorates and border police, ministries, various investigative bodies, anti-corruption bodies etc.

Other Union's policies in areas such as Justice, Customs, and Home Affairs and their relevant programmes will address specific challenges in those fields, which will be adjacent to the protection of the Union's financial interests. No overlaps between these programmes and the EU Anti-Fraud Programme are expected. Avoiding duplication and finding synergies between the EU Anti-Fraud Programme and other relevant programmes in areas such as Justice, Customs, and Home Affairs will be explored in the context of the preparation of the Annual Work Programmes.

2. LEGAL BASIS, SUBSIDIARITYAND PROPORTIONALITY

• Legal basis

The legal basis for the EU Anti-Fraud Programme will combine Article 325 TFEU, which outlines the shared obligation of the Member States and the Union to protect the Union's financial interests, and

Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council of 11 September 2013 concerning the investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council and Council Regulation (Euratom) No 1074/1999 (OJ L 248, 18.9.2013, p.

1).

Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’); (OJ L 283, 31.10.2017, p.

1).

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Article 33 TFEU on customs cooperation given that Regulation 515/97, which provides for the operational aspects financed by the AFIS component of the EU Anti-Fraud Programme, is based on Article 33 TFEU (in addition to Article 325 TFEU)7.

• Subsidiarity

Irregularities, including fraud, to the Union budget are by definition a Union-wide phenomenon which is not limited to each Member State. This is particularly obvious where fraud has a cross-border dimension on the expenditure side or, on the revenue side, for instance in cases of undervaluation of imported goods which aims at evading customs duties and thus directly affects the traditional own resources of the Union.

As far as the Hercule component of the EU Anti-Fraud Programme is concerned, the intervention at Union level on the protection of Union financial interests is justified in terms of subsidiarity where it facilitates cooperation between the Union and Member States or between Member States, without impinging on Member States’ responsibilities (for example, to design and implement their own specific anti-fraud systems). The support which will be provided under this initiative will strengthen cross-border cooperation.

The Union added value of AFIS comes from its coordination dimension, especially in terms of collection and access to data which could not be achieved at national level, and by facilitating the good performance of the national customs authorities’ missions and their mutual assistance, as well as cooperation with the Commission.

The IMS is the only database at the Union level which consolidates reported information about irregularities, including fraud, in the shared management and pre-accession funds, per field of Union action and per Member State. It allows for various types of analysis and helps develop an evidence-based Union anti-fraud policy. The added value of such a Union-wide picture is that it allows for identifying common risks and patterns, defining and implementing common approaches to fighting fraud, in view of the effective and equivalent protection of the Union's financial interests.

Additionally, the activities under the AFIS and IMS components of the EU Anti-Fraud Programme are executed at Union level as provided under the relevant Union legislation, which themselves comply with the principle of proportionality.

• Proportionality

The Hercule component of the EU Anti-Fraud Programme provides the Member States with targeted assistance in achieving their obligation to protect the Union's financial interests. It is limited to what is necessary in order to attain the proposed objectives, and is therefore compliant with the principle of proportionality.

The AFIS and IMS components of the Programme merely cover the financial obligations imposed on the Commission by secondary legislation, and do not touch upon the operational aspects of AFIS and IMS. As such, they comply with the principle of proportionality.

Choice

of the instrument

The legal basis for the previous Hercule programme (Regulation 250/2014), will expire at the end of 2020. Therefore, the establishment of the EU Anti-Fraud Programme under a new regulation will be necessary to ensure the continuity of Union support for the activities carried out by the Commission

AFIS does cover activities which do not all fall under article 325 TFEU (e.g. customs cooperation in connection with illicit products).


and the Member States with the purpose of providing assistance in the fight against fraud. The adoption of the EU Anti-Fraud Programme offers an opportunity to combine the Hercule component with the financing basis of AFIS and IMS, for streamlining purposes and for exploring operational, administrative and budgetary synergies.

3. RESULTS OF RETROSPECTIVE EVALUATIONS, STAKEHOLDER

Contents

1.

CONSULTATIONS


ANDIMPACTASSESSMENTS

• Retrospective evaluations/fitness checks of existing legislation

Hercule has been evaluated twice in the past years. The Commission ex post report on the evaluation of Hercule II programme (2007-2013) was adopted and transmitted to the European Parliament and to the Council in May 20158. The Commission mid-term evaluation report of Hercule III (starting on 1 January 2014 until June 2017, the first half of the seven-year period that the programme lasts for) was adopted and transmitted in early January 20189. This evaluation found that the Hercule III programme has largely fulfilled its mission to protect the financial interests of the Union. The Programme was thus deemed as effective. It has proven relevant with a possible extension of its operational objectives to be considered, while the necessary mechanisms to ensure its coherence were in place. The Programme was also demonstrated to be overall efficient. Room for improvement was suggested during the evaluation in order to alleviate the burden generated by the application and reporting processes. To this end, the Commission started using an electronic management system for the submission, processing and management of grant applications under the programme. There is a clear added-value to have such a programme at the level of the Union, and the activities of the programme have been found sustainable.

As far as AFIS and the IMS are concerned, as they are not financial programmes, they are not subject to the corresponding evaluation cycles. There are, however, certain indicators that can be taken into account to evaluate their performance on the related operational activities10. Furthermore, AFIS is subject to regular survey reports carried out by the Commission. The latest ones indicate that more than 80% of Member State users are satisfied with the functionality and performance of the various AFIS applications, as well as for the AFIS training provided.

In its special report 19/2017 on import procedures, the European Court of Auditors (ECA) concluded that specific AFIS applications are effective tools to identify potential cases of fraud related to misdescription of origin and undervaluation/under invoicing. They can also provide useful tools to estimate the size of the customs gap11. In the same special report, the ECA also states that the Union’s tools and programmes for exchanging customs information and increasing cooperation have not reached their full potential. The special report also concluded that some AFIS customs information

2.

Report from the Commission to the European Parliament and the Council on the achievement of the objectives of


the Hercule II Programme, COM(2015) 221 final.

3.

Report from the Commission to the European Parliament and the Council, Mid-Term evaluation of the Regulation


(EU) No 250/2014 of the European Parliament and of the Council of 26 February 2014 establishing a programme

to promote activities in the field of the protection of the financial interests of the European Union (Hercule III

programme) and repealing Decision No 804/2004/EC, COM(2018) 3 final.

4.

Notably on the basis of the Commission annual reports on AFIS activities (pursuant to Art. 51a of Reg. 515/97) as


part of the Commission report on the protection of the EU's financial interests (PIF Report). IMS was evaluated in

Staff Working Document 'Implementation of article 325 TFEU by the Member States' and the "Follow-up of

recommendations to the Commission PIF Report" which accompany this report. For the 2016 report see COM

383 final and SWD(2017) 266, 267 and 270 final.

European Court of Auditors, Special Report No 19/2017: “Import procedures: shortcomings in the legal

framework and an ineffective implementation impact the financial interests of the EU”, 5 December 2017.

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systems are insufficiently used. The ECA special reports 10/2015 and 24/2016 made recommendations with regard to IMS.

More details on retrospective evaluations of current programmes can be found in section 1.2 of the ex-ante evaluation accompanying the legislative proposal.

Stakeholder

consultations

On 13 March 2018, the Commission organised a one-day workshop with stakeholders in the Member States (mostly representatives of the anti-fraud coordination services and customs administrations), aimed at discussing options for the activities of the future programme. The consultation confirmed the need for continued support in the form of a Union anti-fraud programme. Annex 2 of the ex-ante evaluation summarises the findings of this targeted stakeholder consultation.

The Commission also conducted an open public consultation for the preparation of the future sectorial legislations that will accompany the proposal for the MFF post 2020. Only a very limited number of contributions received concerned aspects related to the EU Anti-Fraud Programme.

• External expertise

An external contractor was used to evaluate the performance of Hercule III, as required by Regulation 250/2014. The independent study12 carried by the contractor provided a thorough mid-term evaluation of Hercule III and outlined some ideas of possible objectives and activities for the programme going forward, in particular in the areas of cross-border cooperation between Member States, cooperation with non-Union partners, as well as addressing the challenges of new technological developments. It also found that only few actions involved staff exchanges between national administrations and few actions involved international participation.

Impact

assessment

Considering that the EU Anti-Fraud Programme is a continuation, with some adjustments, of existing initiatives (Hercule, AFIS and IMS) and considering its structure and the limited size of its budget, it was deemed that an Impact Assessment was not required. Instead, an ex-ante evaluation in line with Article 30 i of the 2016 Financial Regulation in the form of a Staff Working Document is provided.

• Simplification

The Hercule III programme, the AFIS operational activity and the IMS reporting system each bring a valuable contribution to the protection of the Union's financial interests and mutual administrative assistance in the customs field. The EU Anti-Fraud Programme will bring the financing of these three instruments under a single programme having the advantage that, on the one hand, each of them will continue to provide the specialised service for which it has been created, while on the other hand, the conditions for streamlining and creating synergies will be put in place, as well as those for alleviating administrative burden and simplifying management.

4. BUDGETARYIMPLICATIONS

The financial envelope for the implementation of the EU Anti-Fraud Programme amounts to EUR 181 207 000 in current prices, over the period 2021-2027.

Mid-term Evaluation of the Hercule III programme, Final Report, CEPS, Economisti Associati, CASE, wedoIT, 2017 (https://ec.europa.eu/anti-fraud/sites/antifraud/files/herculeiii_midterm_evaluation_en.pdf).


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The detailed allocation per year, including the payment appropriations and the human and administrative resources required, are presented in the Legislative Financial Statement which accom panies this proposal.

5. OTHERELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The draft regulation establishing the EU Anti-Fraud Programme provides for the following three main indicators relating to the specific objectives of the programme:

Support in preventing and combatting fraud, corruption and any other illegal activities affecting the financial interests of the Union, as measured by:

• Satisfaction rate of activities organised and (co-)financed through the programme.

• Percentage of Member States receiving support each year of the programme.

User satisfaction rate for the use of the I rregularities M anagem ent Syste m.

The number of mutual assistance information made available and the number of supported mutual assistance-related activities.

In line with paragraphs 22 and 23 of the I nteri nsti tuti on al Agreement of 13 April 201613, where the three institutions confirmed that evaluations of existing legislation and policy should provide the basis for impact assessments of options for further action, the Commission will carry-out an interim and a final evaluation. The evaluations will assess the Programmes impact based on the Programme indicators and targets and a detailed analysis of the degree to which the Programme can be deemed relevant, effective, efficient, provides enough EU added value and is coherent with other EU policies. The evaluations will include lessons learnt to identify any issues or any potential to further improve the actions or their results. The conclusions of the evaluations accompanied by observations will be communicated to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regi ons and th e European Court of Audi tors.

• Detailed explanation of the specific provisions of the proposal

Chapter I of the Regulation lays out basic p aram eters for th e EU Anti-Fraud Programme for the period 2021-2027 of the next MFF, including the scope of the programme and its financial envelope, broken down according to its three components (Hercule, AFIS and IMS). Chapter I also provides for the conditions of participation of third countries to the programme. As to the implementation of the programme, Chapter I refers largely to the Financial Regulation. For the costs covered by AFIS the Regulation provides in Annex I to the Regulation an indicative list of costs covered by the programme.

Chapter II provides for details on the implementation of the programme through grants, and in particular regarding the possible beneficiaries of grants. They include authorities which may contribute to achieving one of the objectives of the programme, from any of the following countries: a Member State or an overseas country or territory linked to it, a third country associated to the Programme, or a third country listed in a work programme.

Chapter III lays out provisions on the programming, monitoring and evaluation aspects of the programme. Specifically, it outlines the indicators and reporting methods implemented, and sets forth the interim evaluation procedure. It also e sta blishes the Commissions power to adopt delegated acts for narrowly defined purposes.

Interinstitutional Agreement between the European Parliament, the Council of the European Union and the European Commission on Better Law-Making of 13 April 2016 (OJ L 123, 12.5.2016, p.

1).

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Chapter IV describes the transitional and final provisions, and provides for the repeal of the Hercule III regulation as well as the financing provisions of AFIS in Regulation 515/97.