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The European Anti-Fraud Office (OLAF): a Europeanpolicy to fight
against economic and financial fraud?Vronique Pujas aa Institut
d'Etudes Politiques , Grenoble, FrancePublished online: 04 Feb
2011.
To cite this article: Vronique Pujas (2003) The European
Anti-Fraud Office (OLAF): a European policy to fight
againsteconomic and financial fraud?, Journal of European Public
Policy, 10:5, 778-797, DOI: 10.1080/1350176032000124087
To link to this article:
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Journal of European Public Policy 10:5 October 2003: 778797
The European Anti-Fraud Office(OLAF): a European policy to
fightagainst economic and financialfraud?Veronique Pujas
ABSTRACT The setting-up of the European Anti-Fraud Office (OLAF)
isstudied, exploring the genesis and the institutionalization of a
new paradigm inEuropean policy, the protection of the Communities
financial interests, in thecontext of increasing public anxiety
regarding issues of security. It is argued thatthe European
Commission actually took advantage of being cast as the scapegoatin
the 1999 crisis by progressively strengthening its own powers
within the thirdpillar, progressing towards the construction of a
single judicial area in Europe. Inthat respect, anti-fraud fighting
is both a means and a strategy to reinforce thelegitimacy of
European governance. Nevertheless, such a strategy is risky when
weobserve that the effectiveness of European anti-fraud policy is
highly dependent onthe operational means mobilized by the member
states, strictly managed byintergovernmental rules.
KEY WORDS Financial fraud; governance; legitimacy; OLAF;
security; trans-national crime.
In order to understand the historical and institutional
background which ledto the creation of the Unit for the
Co-ordination of Fraud Prevention (UCLAF)in the late 1980s, which
made way for the European Anti-Fraud Office(OLAF) a decade later,
it is necessary to highlight the emergence of a newpriority in the
member states institutions and policies. This new field ofactivity
in public action is in its infancy but its place on the public
agendarecently became a priority owing to the political
circumstances of September 11.It is therefore interesting to study
the development of the new phenomenonof fighting fraud and
corruption at the European level. The emergence andidentification
of the problem thus defined, and its progressive transformationinto
a new paradigm of public action at a supranational level, are
neitherfortuitous nor trivial and therefore deserve analysis. How
can we account forthe emergence of such widespread practices of
fraud and corruption in aparticular context, which may act as an
obstacle to European construction? Isit the mere transfer of the
difficulties met by national authorities in their fight
Journal of European Public PolicyISSN 1350-1763 print; 1466-4429
online 2003 Taylor & Francis Ltd
http://www.tandf.co.uk/journalsDOI:
10.1080/1350176032000124087
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V. Pujas: The European Anti-Fraud Office 779
against domestic corruption on to the European level? Or is it
that theemergence of a single market and the progressive
integration of the states withina border-free European area create
new opportunities for the development ofEurope-wide fraudulent
practices? In such a case, is the incorporation of anti-fraud
fighting on the European agenda the concrete and objective
representa-tion of new problems to be addressed, or can we assert
that it is the creationof a new public enemy which would make it
possible to institutionalize onthe European level new domains of
public policies as a guarantee of nationalsovereignty? In short,
who are the European and/or national actors who havecontributed to
the emergence of this new public policy? What are the stakesin such
an issue? To what extent is the implementation of a new
anti-fraudpolicy part and parcel of the establishment of a new mode
of legitimacy inEuropean integration? Could it reduce the
democratic deficit that plaguesEuropean institutions?
We will first study the emergence of this new paradigm in
European publicaction the prevention and repression of fraud and
other illegal activitiesdetrimental to the Communities financial
interests and more particularlyits links with the creation of UCLAF
and its subsequent transformations. Suchinstitutional innovations
have been brought about by the discovery of fraudu-lent practices
within the Commission as well as by its alleged incapacity to
actagainst mismanagement of Community funds by member states. Our
aim isto identify the national and supranational actors who may
play a role in theinstitutionalization process of this new problem
on the European level, as well ashighlight their converging and
diverging interests. Two traditional approaches, aneo-institutional
and an intergovernmental one even if declared obsolete bythe
Convention on the future of the European Union (EU)1 are still
veryuseful and will provide us with the necessary general framework
to interpretthe orientations of anti-fraud fighting in Europe. The
second part will bedevoted to a more intra-institutional approach
in order to account for thefailure of the first taskforce of fraud
prevention, better known by the acronymUCLAF. In contrast, its
successor, OLAF, which was set up under exceptionalcircumstances,
was the fruit of a political will to increase European
citizenstrust in the European institutions which nevertheless still
lack the necessarymeans for such a purpose.
THE PROTECTION OF THE COMMUNITIES FINANCIALINTERESTS AND THE
EMERGENCE OF UCLAF/OLAF
The historical and institutional process which has led to the
setting-up of theanti-fraud taskforce is linked to the
institutional development of two keysectors in European
construction the budgetary and financial competencesgranted to the
supranational European institutions and the furthering ofmember
states integration within a single judicial area (first and third
pillars).These sectors have gone through turbulence and show that
fighting fraud, thelame duck in Community politics, is still
embryonic in Europe. Also, we
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780 Journal of European Public Policy
need to acknowledge the fact that fighting fraud and corruption
should bedealt with by the European institutions and is more an
artefact of politicaldynamics than the actual nature of problems
which need to be addressed. Theconstruction of this public problem
is, in fact, the result of tensions betweenthe Commission, whose
strategy aims at strengthening supranational institu-tions, and
member states, who want to reinforce intergovernmentalism underthe
third pillar the real stake in anti-fraud fighting. They are
opposed to theidea that European supranational institutions should
have responsibility forleading an anti-fraud and anti-corruption
policy, a highly salient issue indomestic politics.2
Agenda-setting of a new public issue: fraud and other illegal
activitydetrimental to Community financial interests
The actors of the European supranational institutions became
aware that fraudand corruption were of direct concern when the
Community institutions weregranted own resources independent from
member states in the 1970s.Fraud, which had always existed and only
became visible under certaincircumstances, was then presented as a
problem which ought logically to beaddressed by the European
Community (EC), within the frame of theCommunity building process,
and no longer by member states alone. Paradox-ically, the
institutional and economic evolution which fostered the
emergenceand shaping of the notion that Community-wide fraud and
corruption shouldbe addressed on the supranational level was to
prove detrimental to the actualresolution of the problem, as we
will see.
Alongside the allocation of own financial resources, the
European Court ofAuditors was created in 1978. The task of this
independent body was toevaluate and control Community expenditure.
As early as the 1980s, theCourts reports revealed instances of
fraud and irregularities, notably concerningmismanagement of
agricultural subsidies (the common agricultural policyaccounted for
70 per cent of all Community expenditure at that time) (Nugent1999:
390). These critical reports were presented to Members of the
EuropeanParliament (MEPs) by the Budgetary Control Committee
respectively in 1984,3
1994,4 19955 and 19986 on the occasion of the budget discharge
procedure.With the task of auditing the Community institutions, the
Court of Auditorswas not granted the necessary means and
competences to investigate instancesof fraud.7 While acknowledging
these shortcomings, the Court upheld thedenunciations by the
Budgetary Control Committee which called for a realCommunity action
plan in order to fight against European funds evasion.
On the basis of an internal report about anti-fraud fighting
activities, theCommission decided on the creation of the Unit for
the Co-ordination ofFraud Prevention (UCLAF8) in 1987. It was to be
divided into anti-fraudunits among the various expenditure and
revenue departments. It becameoperational in July 1988. However,
the Court of Auditors reports still revealedinstances of fraud and
irregularities. Within the framework of the discharge
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V. Pujas: The European Anti-Fraud Office 781
procedure in 1990 and 1994 by the European Parliament, UCLAFs
compe-tences remained divided between Directorate-General (DG) VI
(Agriculture,the most important budget in the EC), DG XIX
(Budgets), DG XX (FinancialControl) and DG XXI (Customs and
Indirect Taxation), although its staff wasincreased. In 1995, UCLAF
was placed under the responsibility of MrsGrandin, the Swedish
Commissioner in charge of financial control, andconsequently of
fraud protection. In the same year, all UCLAF operationalactivities
were centralized. Nevertheless, in 1996 the investigation
committeecreated by the European Parliament on the common transit
regime9 pointedto the shortcomings and failures in UCLAFs
activities. It advocated thedevelopment of the role of UCLAF as an
information-gathering unit on crimeand the creation of a central
bureau to exchange information in order to helpnational courts in
their transnational legal activities.
With the support of the Commission and the European Parliament,
themember states, during the 1993 Copenhagen European Council,
admitted theirinadequate management of Community funds and came to
the unanimousconclusion that they had to address Community fraud in
the same way thatthey dealt with the problem of domestic fraud and
its detrimental impacton their national budgets. This issue was
debated during the meeting of Justiceand Home Affairs Ministers in
Essen in December 1994 who requested thatthe member states should
adopt common measures. This collaboration wasformalized in an
agreement in principle during the 1994 Corfu EuropeanCouncil and
led to the adoption of a Convention on the protection of
theCommunities financial interests10 in 1995, which defined the
general frame-work of the Commissions anti-fraud fighting
activities.11
Europes concerted policy against fraud, hampered by the slow
ratificationprocess of the Convention and of its additional
protocols signed in 199612 and199713 (PIF (Protocol for the
Convention on the Protection of the EuropeanCommunities financial
interests) instruments for the protection of Communityfinancial
interests) which granted the necessary legal and judicial means
toconduct such actions, nullified any concrete European
collaboration on thisissue. It also cast doubt on the member states
real political will to fighteffectively against fraud and
corruption. Indeed, the practical enforcement ofmeasures for the
recovery of misallocated funds and the judicial follow-upwere still
under the sole responsibility of member states, some of which
hadnot been very efficient in their fight against domestic fraud
and corruption(Pujas and Rhodes 1999; Pujas 2000, 2001).
The context was one of political awareness by member states
within theCouncil that such a problem existed objectively, while
the enforcementmeasures remained essentially in the hands of the
selfsame states. The creationof UCLAF, a Community body in charge
of fighting against corruption withinthe Commission, complemented
the internal financial supervisory activitieswhich already existed
within DG XX. In spite of UCLAFs various mutationsbetween 1987 and
1999, its more numerous staff, and the successive declara-tions of
intent and official statements in support of the fight against
all
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782 Journal of European Public Policy
forms of fraud detrimental to Community interests, the financial
auditingdepartments repeatedly revealed cases of very flexible and
twisted adaptationsof the rules in the European institutions. The
shortcomings revealed in thediscovery of fraud and irregularities,
as well as in the related investigations,and the absence of any
efficient and coherent legal proceedings at the level ofthe
European Union were denounced by Herbert Bosch, the
BudgetaryControl Committee rapporteur on 7 October 1998. In his
conclusion, heinsisted on the necessity of reforming UCLAF, which
was also the object ofstrong criticism within the Commission
itself.
Thus, the European Parliament expressed its mistrust of the
Commissionon several occasions, by highlighting the Commissions
responsibility for theemergence of irregularities and instances of
nepotism, as revealed in theAuditors report. This new stance, as a
counter-force, allowed the EuropeanParliament to strengthen its new
co-decision and budget control powers,whereas its legislative
activities had decreased over the previous years. It wasalso the
opportunity to reveal to the public its activism in its fight
fortransparency. During the budget discharge procedure of 1998, two
motions ofcensure were voted, but none with the necessary majority
to be adopted.Nevertheless, the first motion led to the creation of
a Committee of Independ-ent Experts, also known as the Committee of
Wise Men, whose non-politicalreport, outside the Community
institutions, was aimed at calming thingsdown while highlighting
the accusations made by the Parliaments BudgetaryControl Committee.
The so-called Bosch Report was very critical and con-firmed the
Commissions failure to prevent and punish the instances
ofmismanagement within its own services. Its conclusions led to the
resignationof the Santer Commission in March 1999. The Bosch Report
was adopted bythe Parliament in May 1999 and the creation of OLAF
was confirmed,alongside the adoption of related legislation
according to the co-decisionprocedure.
European anti-fraud strategy in context
After the presentation of the historical and institutional
evolution which hasled to the emergence of a new European
anti-fraud policy and the appearanceof a new paradigm in public
politics and its institutional foundation (theprotection of
Community financial interests), the somewhat blurred but
con-sensual perception of this issue needs to be analysed. Indeed,
a number ofnational experts and scientific studies have confirmed
that fraud and irregular-ities had reached unprecedented levels in
the context of global trade14 and theabolition of borders linked to
the creation of the single market (Salbu 1999;Abbot 1999). It is
difficult to evaluate to what extent the scandals in the1990s
caused by the discovery of acts of corruption and misuse of power
byrepresentatives from many member states (Italy, France, Belgium,
Spain, Portu-gal or even Germany and the United Kingdom) added to
the alarmist rhetoricabout the Mafias activities from Eastern
countries after the end of the Cold
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War. The extravagant evaluations that organized crime activities
accounted fora third of global monetary exchanges certainly
contributed to a climate ofanxiety about economic and financial
crime in general. Indeed, politicians wereobliged to react to the
concerns of European citizens in a unique context ofgeneral
denunciation of fraud at European and global level. A
Eurobarometersurvey in Spring 1996 showed that, in answer to the
question of what Europesvoters think are high priorities for the
EU, 87 per cent answered fightingorganized crime and 86 per cent
answered fighting drug trafficking. So politi-cians had to adapt
their rhetoric and political initiatives to this new concern.
For all that, the idea that Community institutions should be in
charge offighting fraud has not emerged easily considering the
volume and distributionof fraud in the special structure of EU
expenditure. Indeed, fraud concerningadministrative expenditure
only 1.4 per cent of the EUs total budget wastrivial but proved
much more significant as regards resources from Europeansubsidies,
by far the most important part of the budget under the
directmanagement of the member states.
We are thus forced to recognize that the Commission played the
role of ascapegoat in the general condemnation of corruption
problems, notablywhen the budget discharge procedures were
repeatedly postponed, and moreparticularly during the legitimacy
crisis which led to the resignation of theCommissioners. Such an
interpretation, and the perception that the EU hasto deal urgently
with cross-border crime have been reinforced by the crisisfollowing
the attacks of September 11, as well as the Enron scandal in
theUnited States. Indeed, it appeared that operational details of
the September 11attack were largely planned within Europe. Also,
efforts to fight organizedcrime and issues of financial
transparency became a key concern for theEuropean Parliament. Two
hypotheses explaining these developments can besuggested: either
the Commission chose to play the strategy of
strengtheningsupranational institutions even if it meant assuming
total responsibility forthe crisis of confidence caused by the
revelation of recurring problems of fraudin its management or the
member states, so attached to reinforcingintergovernmental judicial
and police co-operation, deliberately stigmatizedthe Commissions
poor management and stressed the importance of newtransnational
crime in order to weaken the Commission and achieve their
ownpolitical preferences.
First hypothesis: towards reinforced institutions in the EU and
EP
According to the first (neo-functionalist) hypothesis, the
placing of fraud onthe agenda as a new problem to be addressed was
made by supranationalactors the European Parliament and the
Commission who were intention-ally alarmist and wished to develop a
new field of competence for thesupranational institutions with a
view to reinforcing their activities. Indeed,the fact that the
Commission systematically put the problems of fraud on theagenda
during Council meetings (notably the Tampere Summit in 1999),
as
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784 Journal of European Public Policy
well as during parliamentary discussions of mismanagement by
some Europeancivil servants and even some Commissioners, paved the
way to the creation ofa new agency. With the initial task of
investigating instances of mismanagementin the internal
administration, the new agency progressively imposed itself notonly
as an inquiry agency endowed with important powers (and
increasinglyindependent from the Commission), but also as an agency
co-ordinatingnational sanctions. The Commissions role as an
agenda-setter and also as co-ordinator and legislator is also
definitively strengthened in many areas, notonly in the
administrative first pillar, but also in the intergovernmental
thirdpillar with significant developments in matters such as
immigration or eco-nomic and financial crime which were presented
both as a threat and as theresult of insufficient internal security
within the EU.
Under the first pillar, the Council regulation which established
the protec-tion of the European Communities financial interests15
was first conceived toprovide a legal framework for the fight
against fraud led by the Communityand de facto by the Commission as
its executive arm. Likewise, the Councilregulation concerning
on-the-spot checks and inspections conducted bythe Commission for
the protection of the Communities financial interestsempowered the
Commission in practice UCLAF then OLAF to carry outadministrative
investigations into member states, acting on its own initiativeand
responsibility. Its fields of action were greatly extended
regarding its powerof internal investigation into the
administrative activities which were under itsdirect
responsibility.
Under the third pillar, the Commission made more significant
progress asit led to promoting the necessary establishment of a
general framework whichpaved the way to judicial integration.
Though the convention on the protectionof the Communities financial
interests had not yet been ratified by a majorityof member states,
it dealt with the judicial dimension of fraud. Emphasis waslaid on
co-operation between member states and co-ordination in
theirinvestigating, judicial and sanctioning actions. It must also
be added thatEUROPOL was created in 1998 with the explicit task of
promoting co-operation between police forces, customs authorities
and other competentauthorities in the member states. The Commission
was openly granted anextended role as it could from then on conduct
administrative investigationsin the same way as member states.
Though progress was less significant on legal matters, European
integrationwas furthered by reinforced operational co-operation
between police forcesand other policing bodies, improved
information-gathering and processing,and heightened judicial
co-operation.16 The Commission17 was from then onmore concretely
involved in the development of inter-state co-operation owing to
its obligation to provide technical help, or exchange
information.On this basis, a first institutional compromise was
reached; it confirmed thereinforcement of the third pillar with the
creation of EUROJUST in March2002, a temporary unit of judicial
co-operation, composed of fifteen publicprosecutors, in charge of
fighting serious transnational crime. Presented as the
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V. Pujas: The European Anti-Fraud Office 785
judicial counterpart of EUROPOL which had taken the lead, this
newform of co-operation mirrored police co-operation which was
already wellestablished; it was greeted by the Italian Justice and
Home Affairs Minister asa reorientation of the European justice and
security area in favour of justice.Even though this aspect appears
to support the intergovernmental theoreticalapproach which we
consider later, the Member states commitment to justiceand home
affairs matters was reinforced by numerous initiatives taken by
theCommission, notably via the Maastricht Treaty which explicitly
referred to theCommissions task of reinforcing judicial
co-operation. The Commissions rolewas also strengthened by various
European conventions although many ofthem have not yet been
ratified on justice and police issues. Such develop-ments may
herald future strengthening of the third pillar towards
morecommunitization, through the need for a corpus juris18 and the
appointmentof a European Public Prosecutor, suggested (and highly
publicized) by theCommission in the Green Paper of January 2001,
thus confirming the majorinfluence of European institutions in the
area of high politics (Hoffmann1966).19 In support of this
proposal, the European convention relaunched thedebate on the
creation of a European Prosecutors Office in December 2002.A
revision of the EC Treaty in terms of strengthening the criminal
lawdimension in the fight against fraud could facilitate
re-examination of theinstitutional basis of OLAF. However, by
addressing a major source of anxietyin European society (namely the
rise in crime), and proposing an institutionalresponse through the
creation of a specialized taskforce to fight fraud, theCommission
has made a symbolic political move, thus enabling it to increaseits
legitimacy and possibly restore the citizens trust in European
institutions.
Second hypothesis: shifting fraud fighting to the supranational
level
The intergovernmentalist (Moravcsik 1993, 1998) theoretical
approach high-lights the stigmatization of the Commission both as
the instigator and thetarget in the denunciation process of the
fraudulent management of Commun-ity resources. Above all, by
presenting the European institutions as accountablefor fighting
transnational crime, member states avoid public responsibility
forthe lack of effective anti-corruption policy. This has been a
convenient wayfor member states to find a culprit which is part and
parcel of such adenunciation process (Pujas 1999). Thus, member
states laid the blame on theCollege of Commissioners, who were
discredited and eventually forced toresign in March 1999; the
Commissioners therefore paid a high price for thedeveloping
legitimacy crisis when it became obvious that Europes
anti-fraudpolicy was a failure. In reality, some national
governments were incapable orlacked the political will of
initiating institutional reform in order to reducemismanagement of
public funds.20 Instead, they saw a window of opportunity(Lascoumes
2001; Pujas 2001) to gain public credit by taking action againstthe
Commission which they blamed for misuse of Community funds,
whilethey themselves were actually in charge of the management of
these funds.
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786 Journal of European Public Policy
Moreover, the new political priority of fighting fraud is mainly
the result ofdecisions made by national actors regarding the
European integration of nationaladministrations in charge of
domestic security matters. Indeed, fighting corrup-tion necessarily
implies the progressive integration of national judicial
systemswithin a more global and standardized European judicial
area. Fraud cannot befought effectively in the absence of European
penal legislation. However, allCommunity decisions on questions of
penal jurisdiction have always been highlysensitive matters as they
could potentially threaten national sovereignty. Inmatters of
justice and home affairs co-operation, the states, not bound by
theEuropean directives or regulations that are instrumental in the
implementationof Community policies, have kept total autonomy in
such matters, which hasconsequently hindered the enforcement of
coherent and standardized policies.
The distinction between the strictly administrative competences
and thepenal jurisdiction of UCLAF and OLAF is far from clear, and
reflects the twocontrasting theoretical perspectives on European
integration discussed above namely, neo-functionalist and
intergovernmentalist approaches. In practice,some national
administrations engaged in the process of European integrationhave
favoured an intergovernmental approach, yet hope to draw some
advan-tages from it (rent-seeking). Other actors have actually been
keen to developEuropean police and judicial co-operation. In
security matters, for example,the involvement of national civil
servants in transnational security networkshas increased their room
for manoeuvre away from the supervision of theirhome
administrations, but has also created a new situation in terms of
powerand legitimacy in a national context of strong competition
between securityagencies.21 Needless to say, national security
agencies, like the judicial policeservices, are often anti-European
and deeply hostile to the very existence ofEUROPOL and the creation
of UCLAF/OLAF. This may partly explain itsfailure. The report which
led to the resignation of the Santer Commission hadclearly shown
UCLAFs shortcomings in terms of co-ordination between thevarious
authorities in the member states. Several reasons may be put
forwardto account for the lack of trust in OLAF expressed by its
national counterpartsand interlocutors, notably sensitive questions
of sovereignty, lack of knowledgeabout UCLAFs role, reluctance to
give judicial information to a body whichis part of the Commission,
and probably scepticism as regards UCLAFscompetences and way of
working.22 We must also add that at least two of themost important
players, France and the United Kingdom, do not seem to beready to
see the emergence of a European Prosecutor in the near future.
In many ways fighting fraud at a European level is a classic
catch-22situation. On the one hand, the 1999 scandal worsened the
already bad imageand lack of legitimacy that have hampered the
Commission ever since itscreation. On the other hand, any
initiative in matters of fighting fraud is likelyto fail as long as
there is no effective co-operation between national bodies
andagencies. The European institutions, and more particularly the
Commission,therefore took a high risk when they became active in
this new policy area: ifthe results were poor it would further
erode the institutions legitimacy. The
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V. Pujas: The European Anti-Fraud Office 787
audit in the aftermath of the 1999 crisis called for reinforced
financial anddisciplinary control. But conversely, far from
bringing more transparency andlegitimacy to European governance,
such measures could make it more opaque.However, the dramatic
events of September 11 reinforced co-operation betweenthe
judiciary, police and information services of the fifteen EU member
states.Measures that had been discussed for years, but remained
blocked for politicaland technical reasons, were now incorporated
in an action plan to combatterrorism and organized crime. The plan
explicitly included corruption in allthe relevant texts. For
example, in November 2001 a new directive on moneylaundering was
adopted, obliging member states to combat laundering of theproceeds
of all serious crime, including corruption. The European
ArrestWarrant adopted in June 2002 is another illustration of the
new, commonEuropean approach. Introduced to fight transnational
crimes including corrup-tion, it replaces extradition procedures
and requires that an arrest warrantissued in one EU country be
recognized and executed in all other EU memberstates. EU ministers
reached political agreement on the warrant in December2001, but the
process was contentious. Italys Prime Minister Silvio
Berlusconiagreed to the warrant only under intense pressure from
other EU memberstates. His opposition was based on the inclusion of
provisions on moneylaundering, corruption and fraud. Furthermore,
the requirement that nationalparliaments ratify the warrant may
delay its implementation (scheduled forJanuary 2004) even though
six states have decided to implement it so far.Such rapid
improvements (as well as substantial obstacles such as the late
ornon-ratification of most conventions adopted by the Council)
confirm that,in the present state of development of the third
pillar, the member states holdthe key.
Our two chosen theoretical approaches present different
perspectives on theproblem, as both supranational actors, such as
the Parliament or the Commis-sion, and national actors have tried
to hijack and exploit the denunciation offraud to their own
advantage. In the real world, a European anti-fraud policywill
succeed only if a compromise between these two visions of
Europeanintegration is found. Also, much will depend on the
progressive evolution ofthe third pillar towards more
communitization, especially on enlargement andthe difficulties of
dealing with yet more diversity, heterogeneity, and numbersof
partners needed to implement such policy. Also, the elaboration of
a generalnormative framework which may account for the emergence of
Europeanpublic anti-fraud policy cannot overlook a more
intra-institutional approachthat can explain the internal balance
of power within the European institutionswhich prompted the
evolution of UCLAF/OLAF. It is to the important inter-and
intra-institutional matters that we now turn.
INTER-INSTITUTIONAL AND INTRA-INSTITUTIONALTENSIONS DURING THE
CREATION OF UCLAF
Two types of tension may account for the evolution and predicted
failure ofUCLAF. The treatment of cases related to instances of
fraud and irregularities
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in Europe has caused tensions which have occasionally worsened
betweenEuropean institutions such as the Parliament and the
Commission, but alsowithin the Commissions own agencies and bodies.
UCLAF applied pressure,with the support of some MEPs, for the
creation of an anti-fraud structurewithin the Commission. In fact,
the very genesis of UCLAF may account forthe diverging views and
interests of the Commission and the Parliament.Besides, the
creation of UCLAF and its subsequent reform into OLAF haveobviously
modified the balance of power between intra-Community services.
A successful outcome for both the EP and the Commission
The European Parliament conducted its campaign against fraud and
corruptionin the management of Community funds through the
Budgetary ControlCommittee (Georgokakis 2000).23 The initiative in
this domain was thereforepolitical. As the Parliaments role and
influence are restricted in the decision-making process, it is no
surprise that it should have devoted resources to thelimited domain
of activity conceded to it; indeed, since 1977, it has played
anincreasing part in budgetary control activities and has used to
the full itscapacity to create inquiry committees. The budgetary
discharge is, in fact, themain instrument of control over the
budget as implemented by the Commissionand is based on the annual
report of the Court of Auditors and the declarationof assurance (a
function which is now exercised during the whole term of officeof
the Commission). By using such institutional possibilities the
EuropeanParliament has gained a double advantage: the control of
Community expendi-ture has allowed it to advertise what it regards
as a weakness in the EU, but ithas also made it possible for the
Parliament to take on a moral image as theguardian of good
governance in the European institutions, on behalf of aEuropean
public already sensitive to problems of domestic corruption.
Thishas helped to present the Parliament as an institution which
defends Europeantaxpayers and which can overcome its own political
differences and chaoticparliamentary debates.
In the 1990s, four opportunities were offered to the European
Parliamentto express its lack of trust in the way the Commission
managed Communityresources. The first episode took place in 1994
when the Parliament providedfor fifty new posts in the 1994 budget
for UCLAF agents, and insisted thatclear supervisory
responsibilities be established. It postponed the
dischargeprocedure of the 1992 budget in order to compel the
Commission to take thenecessary measures. Likewise, in 1995, the
Parliament used its new right tocreate an inquiry committee, as
stipulated in the Treaty of European Union(TEU). The inquiry
committee issued a report on allegations of fraudand
misadministration in the Community transit system. It called for
thedevelopment of the role of UCLAF as an information-gathering
unit on crime,together with the creation of an information exchange
central office (whichin fact now exists in OLAF) in order to help
national prosecutors in theirtransnational legal proceedings. Again
in December 1998, the Parliament
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postponed the discharge procedure of the 1996 budget following
the discoveryof serious irregularities in the calculation of
travelling expenses within theEconomic and Social Committee, during
an investigation by the Court ofAuditors. Then in 1999 the
Parliament voted two motions of censure oninstances of favouritism
and nepotism by some Commissioners.
In addition to the institutional opportunity offered to the
Parliament tohighlight its supervisory role by systematically
denouncing problems of fraudand urging the Commission to provide
for the necessary means to addressthese problems, the political
context during the first quarter of 1999 may alsoexplain the scale
and timing of the crisis over financial irregularities.
Europeanelections were approaching. As Le Monde put it, the
opportunities offered bythe affaires for some MEPs, notably from
the Greens, to come to the fore,has certainly not helped to calm
things down.24 In the same vein, the ongoingnegotiations Agenda
2000 on the financing of Europe up to 2006 and thereform of the
common agricultural policy and the structural funds
(which,combined, represent the second main source of misuse of
Community funds)were an excellent occasion for the Parliament to
highlight its role and positions.
One of the direct consequences of this winning strategy was the
postpone-ment of the appointment of the new Commission until the
election of thenew Parliament. Indeed, the representatives of the
member states lost groundto the Parliament when they agreed not to
appoint, as initially planned, thepresident of the new Commission
(20002004) before the mid-June 1999European elections. The European
Parliament was seen by public opinion asthe great winner in this
crisis.25
Paradoxically, the confrontation between the Commission and the
EuropeanParliament and the ensuing institutional crisis seem to
have strengthened bothinstitutions, albeit via different dynamics.
The democratic legitimacy of theParliament and its role as
political counterweight have certainly been consoli-dated thanks to
its dual role as denouncer and initiator of anti-fraud
policies.Though at first sight the new institutional balance of
power seems to havebeen more in favour of the Parliament to the
detriment of the Commission,the Commissions initiative and
management capacity were also confirmedwithin the first, and more
particularly the third, pillars, thanks to the reformof UCLAF which
then became OLAF. Contrary to the commonly held opinionthat the
Parliament was the great victor in the 1999 crisis, the fact that
thereport, written by the Committee of Independent Experts, led to
the resignationof the Santer Commission actually weakens the theory
of a binding democraticcontrol by the European Parliament. The
creation of the Committee of WiseMen was indeed the result of a
compromise between the Parliament and theCommission, in order not
to further exacerbate tensions between the twoinstitutions. It
confirmed the highly symbolic position and authority of
theCommission as the embodiment and defender of Community
interests.Likewise, the first motion of censure was intended to
give new legitimacy tothe Commission, in agreement with the
majority Socialist group. Lastly, thevery critical report on UCLAF
which was issued during the debate on the
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motion of censure was aimed at reinforcing the governmental
position of theCommission with a heightened and reformed role given
to UCLAF/OLAFwithin the Commission. All these elements tend to
confirm the neo-institu-tionalist approach according to which,
thanks to the emergence of the idea ofthe absolute necessity for
anti-fraud policies, Community institutions havebeen strengthened
and vested with new powers.
The creation of UCLAF was the result of the confrontation
between theParliament and the Commission, but the emergence of this
new agency alsogenerated competition within the internal services
of the Commission whichpartly explains its failure and subsequent
recent reform. Indeed, internalcompetition between the Commissions
and UCLAFs services is the origin ofa predictable failure. The
tensions between the internal financial controlservices of the
Commission and UCLAF reveal the ambiguous dimension oftheir
supervisory function and have not really been addressed by the
subsequentreforms initiated by the new Commission. The tensions
were also obviousbetween the personnel departments and UCLAF on the
questions of sanctionsagainst deviant civil servants, and
performance incentives intended to lessenadministrative
mismanagement which was at the origin of irregularities
orfraud.
Competition between DG XX and UCLAF
Competition appeared at the very inception of UCLAF and was the
con-sequence of rivalries between UCLAFs investigation services for
the detectionof administrative and/or financial irregularities and
the Commissions financialservices (DG XX). UCLAF was obliged to
work from case files drafted by theaudit division of DG XX in order
to establish instances of fraud. In fact, theauditors expertise was
very important for the drafting of fraud files as UCLAFstaff lacked
expertise in that domain. Such encroachment between the missionof
the services in charge of internal auditing and those of the
anti-fraud unittriggered competition strategies which proved
detrimental to effective anti-fraud fighting. The de facto
exclusion of DG XX was really sterile in so far asthe auditors
expertise remained essential for OLAF investigations.26
Likewise,the DG XX services rigidly retained information because
they felt UCLAFhad no legitimate right to have access to
information which DG XX hadgathered, in terms of expertise,
allocations27 and staff.28 In their report, theWise Men listed a
number of grievances against UCLAF. They criticized thefact that an
excessive number of UCLAF staff were temporary agents, whichcreated
endless turnover and a lack of continuity in the organization.
TheWise Men also commented that the staff had not been selected
carefully andthe rules on the confidentiality of information were
not complied with in acoherent way. It was also noted that, as for
documentation or investigationfollow-up, there was no standardized
procedure, nor was there any measureguaranteeing that case files
followed norms demanded by judicial proceduresin the Member States.
Electronic resources were not entirely operational either,
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or lacked efficiency, and the concrete use of databases was
therefore verylimited. Finally, they observed that the co-operation
between the MemberStates was hampered by the attitude of the
Commission about the privilegesand immunity of EU staff. It was
left to a member of the Commissionsfinancial control unit out of
desperation at not receiving any response fromhis supervisors to
denounce publicly to politicians and the media the abusivepractices
of some services and civil servants on whom he had drawn up
detailedreports. His explicit and irrevocable criticisms of UCLAF
made a majorcontribution to the ensuing crisis (Van Buitenen
2000).
Even if the auditors role was not to detect and investigate
criminal acts,UCLAF was not granted the necessary means to remedy
such shortcomings.Indeed, the criminal jurisdiction of UCLAF
depended on collaboration withthe national authorities which were
endowed with the necessary powers ofinvestigation. It can therefore
easily be understood that rivalry developedbetween both services,
given the fact that the Anti-Fraud Unit had originallybeen
integrated in DG XX services (and in DG VI, XIX and XXI as well)
buthad progressively become more independent (in 1994 and 1995),
thanks tothe centralization of its services and its more numerous
staff, to the detrimentof DG XX though the Unit officially remained
a structurally dependent unitwithin the DG.
In the aftermath of the 1999 crisis, the Court of Auditors, an
external auditunit, produced reports which were clear and to the
point, but it appears thatonly one branch of the budgetary
authorities, the Budgetary Control Commit-tee, used them
efficiently. In contrast, the audit and control mechanismswithin
the Commission did not function properly, for seemingly
politicalreasons. The small size of the audit unit within DG XX did
not enable it toexamine all cases, and it was incapable of
developing the necessary proceduresto prevent further
irregularities and instances of fraud. The creation of
OLAFtherefore offered the opportunity to highlight the weaknesses
of the financialcontrol units within the European institutions and
more particularly withinthe Commission.
We must also stress the ambiguous situation of UCLAF/OLAF
regardingthe control function of the highly bureaucratic European
institutions. TheUCLAF investigations were of an inquisitorial (as
a unit hunting down fraud)and delegitimizing nature for the
services under scrutiny which objectedstrongly to what they
considered as interference. The anti-fraud unit wasaccused of
conveying a negative image of the Commission services. Thus,
theCommission services were very reluctant generally to collaborate
with anagency with such weak legitimacy.29
Several operational services with which the Committee of
IndependentExperts had contact were critical about the way UCLAF
worked, while otherssaw its activities as a concrete obstacle to
the resolution of some cases a viewconfirmed by some UCLAF staff
interviewed over the period 199495.30 Thiscritical stance was
reinforced by the fact that the agency, which was under
theCommissions Secretariat General, was often perceived as
preventing any
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presentation of compromising information to other services or
arenas. Likewise,the August 1998 report of the Court of Auditors on
UCLAF revealed manyproblems in matters of internal and external
communication and collaborationwith other services. For the agents
of the other services of the Commission,UCLAF was seen as a very
secretive unit which might even distort informationon fraud,
without any legal redress. The report also revealed that far
fromconsidering UCLAF as an ally in the fight against fraud, some
services perceiveit as a rival with which only minimal and
essential collaboration should bemaintained.31 From this viewpoint,
UCLAF appeared to produce results quiteopposite to those originally
intended. Some services have even contested itsmonopolistic
position regarding information about fraud. UCLAF was some-times
considered as some sort of censor which would arbitrarily decide
onfraud issues. This lack of trust was intrinsically linked to the
creation ofUCLAF, and its staff found it difficult to restore its
image as a positive andimpartial control unit.
OLAF: an ambiguous step towards a European area of freedom,
security and justice
OLAF is the fruit of exceptional circumstances in the aftermath
of a scandal.It reflects the necessity of restoring credibility.32
Born in a context of institu-tional crisis, it was created to bring
renewed legitimacy to the Commission andwas granted a dual statute
which aimed at giving the Office the necessaryoperational
independence, desired by the political authorities, while it
remainedwithin the Commission for its budget and administration. In
fact, OLAFsmany problems are mainly due to this semi-autonomous
state. OLAF is anadministration with investigative powers but it
lacks a legal personality, has norecognized power to impose
penalties and is overseen by a Supervisory Com-mittee designed to
control and guarantee its independence. As a consequenceof such
deficiencies, the legitimacy of OLAF is regularly questioned by
nationaland European institutions because of the lack of guarantees
regarding theobjectivity and transparency of its investigations as
well as the deficient protec-tion of the fundamental rights and
freedoms for the personnel investigated.(There are no guidelines
about the conduct of investigations or the collectionof evidence
and very few investigations lead to action before a court.)
The end result is that relationships between OLAF and the other
Europeaninstitutions and organs remain problematic. With regard to
the EuropeanParliament, when the request for information is
designed to put the Commis-sion under political pressure, the
provision of documents and information hasremained the focus of
serious tension.33 In particular, the circumstances of
theinvestigations (begun in February 2002) into the alleged misuse
of EU fundsdonated to the Palestinian Authority illustrate the
ambiguity of the institutiondesigned to investigate fraudulent
practices. Indeed, in this case (probablyinfluenced by the memory
of the 1999 crisis) three different initiatives havebeen taken at
the European level. In a first stage, the European Parliament
hastaken up the issue, with 170 MEPs signing a petition calling for
a parliamentary
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investigation. The day after this petition, OLAF announced the
start of a newinvestigation. Finally, the Foreign Affairs
Parliamentary Commission andCOCOBU (French acronym for the
Budgetary Control Committee) proposedsetting up a working group to
control the use of European subsidies by theArafat administration.
Obviously, each of these institutions judged itself themost capable
of investigating such issues, but it again opens the debate
aboutwho is the legitimate European actor to tackle the problem of
the misuse ofEU funds. Thus, the question has not been resolved
even with the creation ofOLAF. With regard to OLAFs position within
the European Judicial Area andits new components EUROPOL and
EUROJUST (added to the previouslycreated European Judicial
Network), it is symptomatic that the decision to setup these
institutions was not planned in the light of the relationships
betweenthem. Only very recently have agreements been made for
co-operation betweenthe Commission (and through it OLAF) and
EUROPOL,34 and EUROJUSTand OLAF.35 These bodies respective tasks
have not been clearly defined eventhough their powers have been
extended and reinforced.
Finally, they were several disputes about the new
inter-institutional internalinvestigation system which illustrate
the lack of legitimacy of OLAF withinthe European institutions. The
European Central Bank (ECB) and theEuropean Investment Bank (EIB)
each adopted an internal decision incom-patible with OLAFs
investigative power which covered all the institutions ofthe EU.
Court action was launched by the Commission through the
EuropeanCourt of Justice. The opinion of the Advocate-General
(presented in October2002) recommended the annulment of the
decisions of the ECB and EIB,which has been approved by the ECJ in
July 2003. The question of whetherMEPs immunity protects them from
action taken by OLAF has also beenbrought before the Court of First
Instance (in February 2002).36
The lack of support by other European agencies which have not
yet agreedto co-operate with OLAF contrasts with the multiplication
of sub-bodiescreated to support OLAF in its task. At least three
new institutions have beenset up by the Commission since 1992: the
Investigation and DisciplinaryOffice (IDOC) with the function of
conducting administrative investigationand preparing disciplinary
procedures,37 the creation of independent Authori-ties specializing
in financial irregularities for each institution,38 and finally
theOLAF Anti-Fraud Communicators Network (OAFCN) whose aim is to
createdialogue and work to inform, raise awareness and develop a
prevention cultureamong the professional circles and national
authorities.39 It is difficult toimagine how such a mosaic of
bodies will be able to co-ordinate their actionefficiently, not
only at the European level but also in relationships with themyriad
of national institutions aimed at fighting crime. The complexity of
theinstitutional tools created by the European institutions is in
stark contrast withthe need for simplicity and clarity in order to
make an anti-fraud policyoperational and efficient.
To sum up, OLAF, which was created to protect the European
communitiesfinancial interests, notably under the first pillar,
comes rather under the
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intergovernmental framework of the third pillar. Indeed, as long
as the questionof the evolution of the third pillar towards more
communitization is notaddressed implying a more concerted and
binding management of Europeanjustice and policing policies all
forms of anti-fraud activity are probablybound to fail. The role of
the European Parliament and the Commission maybe reinforced because
of their commitment to anti-corruption fighting, butthis is a
short-term outcome: the European institutions remain prisoner of
theprevailing intergovernmental doctrine and they run the risk of
being unableto offer satisfactory results and eventually resuming
their former role of ascapegoat, should a new crisis occur.
CONCLUSION
The protection of the communities financial interests and
anti-fraudfighting: would they provide a new legitimacy for
European integration?
The creation and institutionalization of this new paradigm in
public action,the protection of the European communities financial
interests, offers a newtool that may be used to heighten and renew
European governance aschampioned by the Commission. More widely,
the emergence of Europeananti-fraud policies brings into question
the integration process of the memberstates in new domains of
Community action. They are not trivial as theypertain to security
and justice affairs, the last sanctuary of national
sovereigntyagainst European integration.
By promoting anti-fraud policies, the EU spurred on by the
EuropeanParliament and the Commission has clearly adopted a
strategy of judicialintegration, following on from economic
integration. As is the case withEuropean immigration policy,
anti-fraud policies highlight the turning pointin the development
of the new control paradigm under the third pillar, whichis
currently rather weak.
The development of an anti-corruption strategy is therefore
linked to therealization of a much bigger project, i.e. the
construction of a single judicialarea in Europe. In that respect,
anti-fraud policy is both a means and a strategyto reinforce the
legitimacy of European governance in the present criticalsituation
in the construction of Europe. It is symbolic as it embodies a
politicalwill to strengthen European institutions, while means and
resources still dependon intergovernmental decisions under the
third pillar. We cannot, therefore,say if the introduction of this
new policy domain (the fight against abuse ofCommunity funds),
which is based on a discrepancy between the objectives(the
strengthening of the Parliament and the Commission) and its
means(intergovernmental decisions under the third pillar), will
eventually contributeto making good the deficit in the legitimacy
of the European institutions.
Address for correspondence: Veronique Pujas, Research Fellow
CNRS, CIDSP,Institut dEtudes Politiques BP 48, 38040 Grenoble Cedex
9, France. Tel:04 76 82 60 45. Fax: 04 76 82 60 50. email:
[email protected]
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NOTES
1 The European Conventions working group on freedom, security
and justice,Conv. 426/02, proposes substituting the communitization
and inter-governmentalism approaches with a clearer distinction
between legislation (legalinstruments, legislative procedures,
implementation in large part to be alignedwith Community procedures
law) and reinforced co-ordination of operationalcollaboration at
the European level.
http://register.consilium.eu.int/pdf/en/02/cv00/00426en2.pdf
2 Developments in December 2001 in Italy (not included in this
article) regardingthe failure to agree on the European arrest
warrant, after the events of September 11,tend to confirm the
hypothesis that the fight against corruption is a sensitive
issuefor domestic politics. Some member states, without severe
problems of corruptionin their political life, will be much more
receptive to a European policy to fightcorruption, whereas
countries with corruption problems involving the politicalelite in
Italy and France, for example, will be more reluctant to
implementEuropean norms.
3 Jan. 1984, Doc. 11346/83.4 The Bosch Report, A4-0297/98, 22
September 1998, p. 10.5 Parliamentary Inquiry Committee on the
transit system.6 A4-0097/1998 resolution informing the Commission
about the reasons for
postponing the discharge decision on the execution of the EU
general budget forthe year 1997, adopted on 30 March 1998.
7 OJC C348 of 18 November 1997, Court of Auditors covering 1996,
Vol. 2.8 COM (87) 572 and COM (87) 891.9 The Common Transit
Procedure which permits goods to enter the territory of the
Union and its EFTA partners (and that of Poland, Hungary and the
CzechRepublic) without paying customs duties or excise, provided
that they are re-exported, has been the subject of serious frauds
which had an impact on publicbudgets. In Fraud and the EU Budget,
DG Research, EP 167.114, p. 9.
10 OJC C316 of 27 November 1995, EP Resolution of 19 September
1996, OJCC320, 28 October 1996.
11 Reg. no. 2988/95.12 The first protocol on 27 September 1996
defines corruption that is detrimental to
the Communitys financial interests, and the obligation by the
member states tofight and punish it. The protocol on 29 November
1996 is about the interpretationof the PIF Convention and of its
protocols by the ECJ.
13 The second protocol on 19 June 1997 is about the obligation
of the memberstates to fight money laundering, and provides for the
responsibility of legalpersons. It makes provision for the seizure
and confiscation of crime-relatedinstruments and revenues. It also
makes provision for the rules governing co-operation between the
Commission and the member states, and for the protectionof
data.
14 In the mid-1990s and in the context of globalization
awareness, the World Bankand the IMF began to devote more resources
to research into the economic impactof corruption. Several leading
economists including Vito Tanzi, Paulo Mauro andDaniel Kaufman
produced IMF and Bank publications, detailing empirical evi-dence
about the costs of corruption to international business and
developmentefforts.
15 Council Regulation 2988/95.16 Notably with the creation of
liaison judges for each member state with the task of
co-ordinating judicial co-operation.17 We can therefore infer
that the Commission, thanks to the mobilization of
Community institutions on fraud problems, is taking the
initiative in taking on
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the role of agenda-setter that the observers of the third pillar
deplored so much.This hypothesis is confirmed by the directive
drafted by the Commission on23 May 2001 which aimed at ensuring the
criminal protection of European funds.According to this directive
(adopted according to the co-decision procedure by theCouncil and
the European Parliament), the member states were to adopt
commondefinitions of offences (fraud, corruption, money laundering)
that are detrimentalto the Communitys financial interests, together
with common rules in matters ofaccountability, sanctions and
co-operation with the Commission. This directive isinteresting as
it made provision for the control mechanisms of the first
pillar.
18 Corpus juris would introduce an autonomous code for the
investigation, prosecutionand punishment of fraud and other crimes
against the Communitys finances. Thiscode would apply in a single
legal/judicial area comprising all member states.
19 High politics issues are those which touch on the fundamental
definition, identityand security of the nation-state.
20 Cf. the failure of some member states to prevent and punish
public funds evasionthrough fraudulent management of public
contracts, invitations for tenders,subsidies.
21 Ibid.22 Report of the Committee of Wise Men, ch. 5, p. 20.23
Didier Georgokakis explains the denunciation role of the Budgetary
Control
Committee in a number of ways: it is not a prestigious
parliamentary committeeand it consequently gathers members from
minority groups such as the Liberalsand the Greens; it was under
the presidency of a German member of the EuropeanPeoples Party at a
time when pressure on the Commissions budget was strongand the
accused Commissioners were socialist.
24 Le Monde, 20 January 1999.25 Ibid.26 Report of the Committee
of Wise Men.27 UCLAF, as a statutory administrative body, does not
have the same legal arsenal
of attributions as a police force, which is necessary to carry
out more thoroughwork than than of the auditors (Report of the
Committee of Independent Experts,p. 21). We may add that the
creation of OLAF has not solved the problem.
28 Before 1995: 25 customs inspectors, 15 agricultural
inspectors, 8 tax inspectors, 8financial inspectors/accountants, 7
police officers; i.e. a total staff of 163.
29 Interviews with UCLAF/OLAF staff conducted in December
2000.30 Ibid.31 Report of the Committee of Wise Men, ch. 5, p.
20.32 Interview with a member of the OLAF staff, December 2000.33
Supervisory Committee, Report September 2001June 2002, 18 June
2002, p. 52.34 18 February 2003, www.europol.eu.int35 On 14 April
2003, OLAF and EUROJUST signed a memorandum of understand-
ing putting in place the modalities for their future
co-operation.
http://europa.eu.int/comm/anti_fraud/press_room/pr/index_en.html
36 There is currently an appeal to the Court of Justice against
the judgment of theCourt of First Instance.
37 2 April 2003, Commission Report, Evalutation of OLAF, COM
(2003) 150Final, p. 21.
38 Ibid. p. 22.39 Ibid. p. 29.
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