The European Anti-Fraud Office (OLAF) Fraud Risk Management conference Workshop presentation Prague, 3 November 2016 Frank Michlik Head of Unit OLAF.D.2 Fraud Prevention, reporting and analysis

A LITTLE HISTORY 1988 – creation of OLAF predecessor: UCLAF 2012 – OLAF reorganisation 2013 – OLAF Regulation 2013/883 “OLAF” is the French acronym of the Office Européen de Lutte Anti-Fraude 2

OLAF Mission and Mandate Detect, investigate and stop fraud with EU funds Mandate OLAF’s mandate is: to conduct independent investigations into fraud, corruption and irregularities involving EU funds so as to ensure that EU taxpayers’ money reaches projects that can stimulate the creation of jobs and growth in Europe; to investigate serious misconduct by EU staff and members of the EU institutions, thus contributing to strengthening citizens’ trust in the EU institutions; to develop EU policies to counter fraud. 3

OLAF's resources STAFF 2015: About 420 staff members Many with prior professional experience as: Magistrates or prosecutors Customs officers Police officers Tax inspectors Financial controllers Auditors Forensic experts and analysts BUDGET 2015: EUR 57.7 million – administrative budget EUR 21 million – programmes (Hercule, AFIS) 4

OLAF's hybrid status INVESTIGATIONS: fully independent, in all EU institutions and bodies POLICY: administratively part of the European Commission, under VP Kristalina Georgieva Director-General of OLAF: appointed by the European Commission after consultations with the European Parliament and the Council for a seven-year term, not renewable; may neither seek nor accept instructions from any government or any institution, body, office or agency; entitled to bring an action against the Commission before the European Court of Justice. 5

OLAF investigations Internal investigations: fraudulent or serious misconduct of EU staff and Members of the EU institutions External investigations: into beneficiaries of EU funds/economic operators (commercial companies, NGOs, contractors and subcontractors etc.) - EU and worldwide Coordination: within the scope of its jurisdiction, OLAF contributes to investigations carried out by national authorities or EU bodies Legal Bases: various, but the most important is Reg. 883/2013 6

Examples of fraud Embezzled construction aid for bridges and power stations Irregularities in public contract processes Non-payment of import levies on bicycles, energy-saving lamps, etc. Tax evasion caused by cigarette smuggling and contraband goods Expenses fraud (travel, medical, Parliamentary etc) Corruption inside the EU Institutions, bodies and agencies 7 7

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Selection of cases - criteria OLAF’s competence (financial and other interests of the EU) Information is sufficient (reliability of the source, credibility of the allegation) Information falls within OLAF’s Investigative Policy Priorities: Proportionality (expected results vs resources; likelihood of recovery/prosecution…) Efficient use of investigative resources (workload, priorities, expertise…) Subsidiarity/added value (OLAF’s sole competence…) Special Policy Objectives Financial impact 9

Investigative tools Interviews with persons concerned and witnesses Inspection of premises On-the-spot checks Forensic operations Checks and inspections under sectoral rules Missions in third countries 10

Outcome of investigations OLAF investigates under administrative law. It has no judicial powers. It only OLAF seeks evidence for and against the "concerned person" OLAF may request EU and national authorities to cooperate OLAF can only make recommendations following its investigations. 11

OLAF's recommendations DISCIPLINARY: the case is referred to the authority having disciplinary powers in the relevant EU institution, body, office or agency ADMINISTRATIVE: changes to procedures, management or control systems, legal framework recommended to EU Institutions, bodies, offices or agencies JUDICIAL: transmission of final report to the relevant national judicial authorities, recommending legal action. FINANCIAL: recovery of misused funds by the relevant EU institution, body, office, agency or competent authority of the Member State OLAF monitors the implementation of the recommendations 12

Internal & external controls Internal legality check and review – legitimacy, legality, objectivity, impartiality OLAF Supervisory Committee – to guarantee its independence, OLAF is monitored by an independent committee Reporting obligations to European Union Institutions – European Parliament, Council, Commission – accountability European Data Protection Supervisor – personal data protection safeguards European Court of Justice – legality of acts European Court of Auditors: audits OLAF European Ombudsman – investigates complaints about maladministration 13

OLAF's partners NATIONAL LEVEL: Competent EU and Member State authorities (administrative/control bodies, police and customs officers, judiciary…) Authorities in non-EU countries with similar competences (Legal basis: international cooperation agreements, financing/grant agreements, cooperation Arrangements) EUROPEAN LEVEL: Europol, Eurojust, European Investment Bank, European Court of Auditors INTERNATIONAL ORGANISATIONS: Worldbank INT, UN Internal Oversight Office (OIOS), UNDP, World Food Programme, Global Fund, Inter-American Development Bank, African Development Bank, African Union Commission, etc. Administrative Cooperation Arrangements - OLAF’s partners cooperate by: assisting OLAF in doing inspections and on-the-spot checks in EU and non-EU countries and by sharing information and expertise; - OLAF organises consultations with national authorities from Member States and enlargement countries through regular or ad-hoc meetings (COCOLAF, AFCOS) - The ACAs are aimed at facilitating practical day-to-day cooperation and achieving a multi-faceted cooperation between OLAF and its operational partners to protect the financial interests of the EU and of the recipient country or International organisation; - The ACAs do not contain legally binding commitments, apart from their contractual data protection clauses. - ACAs signed in 2015 with 5 international organisations: European Bank for Reconstruction & Development, Inter-American Development Bank, Organisation for Economic Cooperation and Development, World Food Programme and UN Office for project services. Further negotiations took place on arrangements with the European Economic and Social Committee (signed in January 2016) and the European Central Bank (signed in June 2016). 14

TOWARDS A TRULY EUROPEAN SPACE OF JUSTICE Period of consolidation - Track record of positive results following the reorganisation of 2012 Increased number of complex, often cross-border investigations However, significant limits to what OLAF can achieve with its current powers. Transnational nature of fraud requires a European approach, not only in the area of administrative investigations but also for criminal investigations. Need for a strong, independent European Public Prosecutor, to bring fraudsters to justice and effectively protect European money

OLAF'S INVESTIGATIVE PERFORMANCE IN 2015: Four years after its reorganisation, OLAF has reached “cruising altitude”. The office improved its effectiveness across all activity areas: Compared to the years before the restructuring, OLAF has increased the number of concluded investigations by 93%. It delivered 83% more recommendations. OLAF also opened 86% more investigations than before 2012. These productivity gains were achieved despite a decrease in staff and a change in investigative procedures. In 2015, OLAF had the lowest number of staff members in the past 8 years - 422. 16

OLAF ACHIEVES CONSISTENTLY POSITIVE RESULTS OLAF had an excellent performance in 2015, concluding a record number of investigations In 2015, OLAF maintained its strong investigative performance. It concluded a record number of investigations (304): this is 54 more investigations than the year before. In terms of selections completed, investigations opened and recommendations issued, OLAF results were consistent with those of 2014, maintaining an excellent track record. 17

INVESTIGATIONS INTO EU STAFF AND MEMBERS OF THE INSTITUTIONS, CONCLUDED IN 2015 OLAF has a mandate to investigate EU staff/ members. Like other employers, EU bodies are at risk of fraud from their members and staff in relation to remuneration, allowances and expenses etc. They may also be at risk from corrupt activity. In 2015, OLAF concluded 40 investigations into serious misconduct of EU staff members, 19 of which ended with recommendations. OLAF opening an investigation does not necessarily mean that someone is guilty. According to Reg. 883, OLAF has to investigate both incriminatory and exculpatory information. Sometimes we conduct a high quality investigation which results in exonerating the person concerned, which is a good result, fully in line with our mandate, duties and obligations. 18

Amounts recommended by OLAF for financial recovery by sector Number of OLAF investigations concluded in 2015: use of EU funds managed at national/regional level Through its recommendations, OLAF creates the conditions for inappropriately spent EU funds to be recovered to the EU budget. In 2015, the Office issued 364 recommendations to the relevant EU and national authorities and recommended the financial recovery of EUR 888.1 million. 624 million of these recommendations were in the area of Structural and Social Funds. Through this work, OLAF thus delivers concrete results in the protection of the EU budget from fraud, and a key service to EU citizens. The second table presents a breakdown of investigations concluded per country. The largest number of concluded investigations concerned Romania, followed by Bulgaria, Hungary and Greece. OLAF’s overall caseload in Bulgaria and Romania includes a large number of related investigations involving the misuse of funds from the Special Accession Programme for Agriculture and Rural Development (SAPARD). For this line of funding, national authorities in Romania and Bulgaria requested OLAF to open separate investigations for each project concerned. This led to a relatively heavy caseload concerning Bulgaria and Romania, which also had an impact on the number of cases concluded with recommendations. 8 Czech cases closed in 2014 19

Irregularities reported (until March 2016) EU 27 Programming Period N° of irregularities Irregular amounts % of commitments % of payments 2000-06 28 193 5 237 041 432 2.4% Of which fraudulent 1 972 627 982 932 0.3% 2007-13 26 478 7 043 773 577 2.0% 3.4% 1 271 1 235 913 850 0.4% 0.6% Total 54 667 12 280 628 374 2.2% 2.9% Czech Republic 344 121 434 943 7.5% 7.6% 12 16 335 911 1.0% 3 300 1 529 875 401 5.8% 11.8% 109 198 693 777 0.7% 1.5% There is a certain degree of comparability between the two latest programming periods. Still in 2015 we keep on receiving irregularities related to the programming period 2000-06. The peak of irregularities received concerning this period happened between 2008 and 2010 (so between n+2 and n+4 of the reference period). We are observing the same trend for the programming period 2007-13. 2015 has been the peak so far. The overall impact of irregularities on payments is currently higher than in comparison with the previous year (3.4% vs 2.4%) but this should be adjusted with the final payments at programme closure (as showed by the impact on commitments which is currently lower than in comparison with the previous programming period). It should be underlined that we are looking at detected irregularities. This implies that national and European authorities have detected situations that were not compliant with rules and are taking correcting measures (e.g. recoveries, exclusion etc.) them. From this perspective, this is a potentially positive development to be considered also when we examine the annual error rate of the European Court of Auditors, taking into account that these detections/corrections happen, in average 3 years and 8 months after the irregularities have been committed. Detected fraud has been increasing in the EU between the two periods. This result is negative only if we assume that the level of controls has remained stable. Several elements (not least all the fraud awareness raising initiatives conducted by the EC) point to the fact that this is not the case and that indeed national authorities are more attentive to detect fraud. This is, in general, a good sign in view of the new anti-fraud provision contained in the Common Provision Regulations for the period 2014-20. For the period 2007-13, 109 cases have been reported as fraudulent by Czech Republic. CZ is the fourth country in the EU for number of fraudulent irregularities reported and their impact on the commitments. The impact of irregularities on the commitments is the second highest in the EU (after SK) and significantly higher than the EU average. This is partially the result of some problems detected in previous years on some programmes (in particular Transport) and affecting projects of significant values (public procurement issues). In general, the bulk of irregularities is generally received in the years n+2 and +4 (therefore between 2015 and 2017), figures may still vary significantly in the near future, but, in this respect, CZ could be against the overall trend. In particular when we look at fraud, detections are never easy, as fraud is per definition about deception. Therefore, detecting potentially fraudulent cases is always an indicator that anti-fraud systems are correctly in place. In OLAF we are still convinced (and I am sure that you will all agree with this) that still a certain amount of fraud goes undetected (and consequently unreported). So more efforts can always be done in this respect. Annual Coordination Meetings 2016

Distribution of irregularities according to localisation of the project affected The present slide shows the geographical distribution of the detected irregularities, according to the localisation of the economic operator concerned. In general more irregularities are detected where more money are spent. For Czech Republic, the majority of detected irregularities concern the capital area. Annual Coordination Meetings 2016

Distribution of fraudulent irregularities according to localisation of the project affected More than 60 cases have missing values which do not allow for a correct identification of the province. In particular, it appears strange that, while the area of Prague is the one where the highest number of irregularities has been detected, no fraudulent ones indicate it as area of projects affected. Annual Coordination Meetings 2016

OLAF website: http://ec.europa.eu/anti-fraud Thank you OLAF website: http://ec.europa.eu/anti-fraud @OLAFPress