OLAF Investigations Outside the European Union

• Date: 10 December 2019
• Year: 2019
• Author: Claire Scharf-Kröner,Jennifer Seyderhelm
• Pages: 59
• DOI: https://doi.org/10.30709/eucrim-2019-017

I. Introduction

OLAF was set up in 1999 by Commission Decision 1999/352/EC¹ to protect the EU’s financial interests. OLAF is an EU body mandated to investigate fraud to the detriment of the EU budget, corruption, and serious misconduct within the European institutions, bodies, offices, and agencies.² Moreover, OLAF is in charge of developing an anti-fraud policy for the European Commission.³

OLAF investigates allegations relating both to the entire expenditure side of the EU budget and to part of the revenue side, e.g., customs duties. OLAF also investigates serious misconduct and fraud by EU personnel, including members of institutions, which may not have financial implications but can cause serious damage to the reputation of the EU.

OLAF conducts administrative investigations and it neither has powers of law enforcement nor is it in charge of national prosecution. OLAF summarises the results of its investigations in so-called Final Reports and, where appropriate, issues financial, judicial, disciplinary and/or administrative recommendations to the competent authorities.

At first sight, one might assume that OLAF’s activities are limited to the territory of the EU. However, this would hardly allow for adequate protection of European financial interests. The EU spends substantive amounts of the EU budget outside its territory: the current multiannual financial framework (2014– 2020) foresees expenditure of up to €66.3 billion⁴ in “Global Europe,” which covers all external (or foreign policy) actions carried out by the EU, including humanitarian aid and development cooperation. The Commission proposal for the upcoming multiannual financial framework (2021–2027) foresees increasing this budget up to €108 billion⁵ in the sector “Neighbourhood and the World.” In addition, the European Development Fund (EDF), which is not part of the EU budget so far,⁶ is part of the EU’s financial interests. From 2014 to 2020, the financial resources of the EDF amounted to €30.5 billion.⁷ Lastly, the European Investment Bank (EIB) has large investments outside the EU.⁸ These expenditures and investments need to be protected against fraud and other illegal activities; an important part of OLAF’s work is therefore to investigate related allegations outside the EU.

II. EU Legislation Provides for OLAF’s Competence to Act Outside the EU

A first condition for OLAF to investigate allegations of fraud and illegal activities outside the EU is the EU’s external competence to protect its financial interests. Pursuant to Art. 310(6) and Art. 325 TFEU, the competence to counter illegal activities affecting the EU’s financial interests is shared between the Member States and the Union.

Art. 325 TFEU does not contain a specific reference to the responsibilities for external actions in relation to protection of EU financial interests. According to Art. 325(1) TFEU, the measures adopted are intended to “act as a deterrent and be such as to afford effective protection in the Member States, and in all the Union’s institutions, bodies, offices and agencies.” The provision contains a clear reference to the effet utile of the protection to be afforded and, as confirmed by the Court of Justice of the European Union, a material EU competence may implicitly carry an external aspect.⁹

The European legislator has recognised this external competence in several legislative acts. These provide for OLAF’s specific powers to carry out investigative actions in non-EU countries.

Council Regulation No 2185/96¹⁰ concerning on-the-spot checks and inspections carried out by the Commission already clarified in its Art. 1(2), that the Regulation shall apply to “all areas of the Communities' activity” [emphasis added]. Yet, Art. 2 seems to limit its scope only to actions within the EU, as it refers to the detection of irregularities that “may involve economic operators acting in several Member States” or to “where […] the situation in a Member State requires on-the-spot-checks” or even to on-the-spot checks carried out “at the requests of the Member State concerned.” Nonetheless, despite this enumeration limited to situations occurring within the EU, Art. 8(5) of the Regulation clearly refers to the possibility “where on-the-spot checks or inspections are performed outside Community territory,” pointing to the conditions according to which such reports shall be prepared.

Further clarification of the external competence of the EU, and specifically for OLAF to act outside EU territory, is provided by Regulation No 883/2013.¹¹ The Regulation codifies the notion of EU financial interests, as interpreted by the CJEU,¹² in Art. 2(1): it includes all revenues and expenditures covered by the EU budget and other budgets administrated or monitored by institutions and bodies. In its 36th recital, the Regulation recognises the necessity for OLAF to be capable to engage in relations with competent authorities of third countries, in particular in the area of external aid.

More specifically, the Regulation clarifies in Art. 3(1) that OLAF is mandated to carry out “on-the-spot checks and inspections […] in third countries and on the premises of international organisations.” Art. 14(1) formally introduces OLAF’s right to conclude administrative arrangements with third countries and international organisations. Such arrangements may concern the exchange of operational, strategic, or technical information.

By carrying out on-the-spot checks in third countries under Art. 3(1) of Regulation No 883/2013, OLAF ultimately exercises “the Commission’s powers to carry out external investigations,” as is clarified in Art. 2(1) of Commission Decision 1999/352.¹³ Pursuant to Art. 2(1b) of the Decision, OLAF shall exercise these powers “as they are defined in the provisions established in the framework of the Treaties, and subject to the limits and conditions laid down therein.”

To summarise, Art. 325 TFEU and the above-described Regulations and Decision set out the competence of the EU and task OLAF specifically with countering financial irregularities outside EU territory. However, the above-described set of rules only regulates the distribution of powers and competences among the different EU actors: firstly, between the Member States and the EU and, secondly, between the Commission and OLAF. Additional legal instruments are necessary to provide OLAF with the possibility to carry out investigative activities directly in the territory of a third country.

III. OLAF Investigative Powers in Non-EU Countries

In order to effectively investigate illegal activities or fraud outside the European Union, OLAF is required to carry out investigative activities in third countries. While the EU legislator clearly mandated OLAF to also protect the EU’s financial interests beyond EU borders, this as such does not provide OLAF with the power to carry out its tasks vis-à-vis the third country or vis-à-vis the economic operator¹⁴.

As will be detailed below, OLAF relies on international agreements, by which the country concerned consents to OLAF’s powers being exercised on its territory. In the absence of such an agreement, the third country may provide its consent to OLAF’s investigative activities de facto, when the competent authority agrees to OLAF’s actions in a specific case.¹⁵

OLAF’s cooperation with the third country’s national authorities can play an important role, particularly in cases when the economic operator does not cooperate. As they act under their respective national laws, national authorities can use enforcement powers, e.g., request a search warrant, if the relevant conditions are fulfilled.

In order to allow OLAF to carry out its investigative tasks to also protect the external relations aspect of the EU budget effectively, Arts. 129(1), (2) and 220(5c) of the Financial Regulation¹⁶ foresee that any person or entity receiving Union funds must agree to include OLAF’s competence to conduct investigations in any financing agreement. Pursuant to Art. 129(2) “[a]ny person or entity receiving Union funds under direct and indirect management shall agree in writing to grant the necessary rights as referred to in paragraph 1 and shall ensure that any third parties involved in the implementation of Union funds grant equivalent rights.” The financing agreements concluded with the entity receiving EU funds directly refer to OLAF’s competence based on Regulation No.s 883/2013 and 2185/96 and thus provide OLAF with the possibility to rely on the contractual obligations of the economic operator.

1. OLAF rights of investigation as set out in international agreements

When the EU concludes international agreements with third countries, specific clauses are included to carry out technical and financial review measures, including the collection of documents and data during an on-the-spot check. Different models exist, depending on the country or modality of financing. The EU has concluded Partnership and Cooperation Agreements (PCAs) with some countries, which provide OLAF with the powers to carry out investigative activities in that country.¹⁷ The situation for pre-accession and neighbouring countries is discussed in further detail below.

a) Pre-accession countries

There are currently seven countries (referred to as pre-accession or enlargement countries) that the EU supports, with the aim of eventual EU membership. The Commission concluded a bilateral Stabilisation and Association Agreement with each of them, which constitutes the framework of relations between the EU and the country concerned.

The EU supports the “enlargement countries” financially, based on Regulation No 1085/2006,¹⁸ establishing an Instrument for Pre-accession Assistance (IPA Regulation), in line with the general policy framework for accession and taking due account of the Commission’s annual enlargement package.¹⁹ For the period 2007-2013 IPA I had a budget of €11.5 billion; its successor IPA II has a budget of...