Select Committee on European Communities Seventeenth Report


34.  AMENDED PROPOSAL FOR A COUNCIL REGULATION CONCERNING INVESTIGATIONS CONDUCTED BY THE FRAUD PREVENTION OFFICE (14031/98 and 7226/99)

Letter from Patricia Hewitt MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  I have been asked by the Commons Scrutiny Committee to provide further information on the above document, and in particular why the Government feels that the Fraud prevention Office ("FPO") should be situated within the Commission and how its independence can be assured.

  The Government gave this issue detailed consideration and came to the conclusion that an FPO situated within the Commission was the right solution for a number of reasons. The first relates to the responsibility of the Commission under article 274 of the Treaty for the execution of the budget, a responsibility which is underlined by article 280. The Government believes that responsibility for execution of the budget must include responsibility for putting in places procedures to prevent fraud, including an investigative function to look into cases of suspected fraud. It should be emphasised that the role of the FPO is to carry out administrative investigtions into cases of suspected fraud and to make recommendations as to whether to involve the judicial authorities who are then responsible for carrying out prosecutions.

  In addition to considering what was most appropriate in legal terms, the Government was particularly concerned that the FPO should be as effective as possible in deterring fraudsters and investigating possible fraud. The Government believes that this consideration also points to situating the FPO within the Commission, where the majority of the EC budget is administered. An independent institution would have less understanding of how the commission functions and would be likely to encounter barriers in obtaining information about possible fraud—it would not have access to "inside information".

  There is, of course, a danger here that being within the Commission the FPO would be less likely to follow up fraud leads because it would be part of the system, subject, as the Committee puts it, to "pressures and cultural influences". I believe that on balance this is a less important consideration because there are ways of guarding against such influences. The FPO will have an independent Director, appointed with the involvement of the Council and the European Parliament. The Director will be supported by a supervisory committee, whose members are to be appointed by common agreement of the Commission, Council and European Parliament. The Director is forbidden from seeking or taking instructions from any Government, institution or body. He or she will have the right to initiate investigations, and to draw up reports, and will report regularly to the European Parliament and the Council.

  We do have some experience of an office operating within the Commission in the form of the existing anti-fraud task force ("UCLAF"). This has shown that cases of suspected fraud can be detected and investigated by an office operating within the Commission; the allegations of fraud referred to by the Committee of Independent Experts (the "Wise Men") in their report were under investigation by UCLAF. Where the Government feels that UCLAF has been weak is in drawing conclusions from its investigations and in its lack of authority to recommend follow up and to monitor whether appropriate follow up has in fact taken place. These powers were also missing from the original proposal for a fraud prevention office outside the Commission, which would not even have had the right to open investigations on its own authority. It is these issues that the Government is looking at in particular in considering the Commission's revised proposals, as noted in my explanatory memorandum on the document.

  There was also a practical reason for supporting the establishment of an office within the Commission rather than setting up a separate body. The Government was concerned at the amount of time it would have taken to set up a separate body and the dislocation this would cause to ongoing investigations. There seemed to be some uncertainty as to whether this could be done without a Treaty change. Setting up an office within the Commission, on the other hand, is something that can be done relatively quickly. The Government is particularly concerned that strengthened, more effective fraud prevention procedures should be put in place as quickly as possible.

  I should, perhaps, add that the view that the FPO should be situated within the Commission was one which is shared by other Member States and by the European Parliament.

17 May 1999

Letter from Patricia Hewitt MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  I understand that your Committee has not concluded its scrutiny of the new Fraud Prevention Office. The Commons Scrutiny Committee on European Legislation is in a similar position.

  The intention is that the Council will adopt proposals establishing the new Fraud Prevention Office at ECOFIN on Tuesday 25 May. It would not be in the UK's interest to impose a scrutiny reserve at this point. The proposals meet the Government's objectives as set out in explanatory memoranda on documents 14031/98 and 7226/98 submitted 15 January 1999 and 5 May 1999 respectively. The proposal has already been approved by the European Parliament. Under these circumstances the Government's intention is to support the adoption of the Regulations by the Council, which will have the effect of bringing the new Fraud Prevention Office into being.

  I will write to you on the outcome of ECOFIN's discussion in due course.

21 May 1999

Letter from Lord Tordoff, Chairman of the Committee, to Patricia Hewitt MP, Economic Secretary to the Treasury

  Thank you for your letter of 21 May, telling us that the Government intented to support the adoption of the regulations to bring the new Fraud Prevention Office into being at the ECOFIN meeting on 25 May, even though the proposal had not cleared scrutiny.

  As your officials will have been told by telephone, Sub-Committee A cleared both these documents at its meeting on 25 May. However, I have been asked to say that a number of members of the Sub-Committee were disappointed at the decision to locate the new office within the Commission: they would have preferred it to be autonomous, or perhaps attached to the European Court of Auditors.

  You have explained your reasons for favouring this solution in your letter of 17 May, which Sub-Committee A considered together with the document. But when you write as you have promised on the outcome of the discussion at ECOFIN, it would be helpful to know what reasons other Member States gave for supporting this approach.

27 May 1999

Letter from Patricia Hewitt MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  When I wrote to you on 21 May about the European Anti-Fraud Office I promised to advise you, in due course, of the outcome of the 25 May ECOFIN Council which was to consider this.

  I can not confirm that ECOFIN did indeed adopt the Regulation concerning the investigations to be carried out by the Office. The final form of the Regulation as adopted by the Council differs from the amended proposal brought forward by the Commission which was the subject of my explanatory memorandum dated 5 May in a number of significant ways.

    —  the Office now has a right of immediate and unannounced access to information in internal investigations and to question staff.

    —  reports by the Office must include recommendations on follow up action to be taken, which will be monitored by the Director and the supervisory committee;

    —  the supervisory committee is given a more significant role in reinforcing the independence of the office and monitoring the progress of reports and follow up action, including a right to report on this at any time to the European Parliament, Council, Commission and European Court of Auditors, and

    —  the independence of the Director is protected through his right to bring action against the Commission before the European Court of Justice and safeguards surrounding possible disciplinary procedures.

  The UK supported the adoption of the Regulation by ECOFIN, since the Government feels that, in its final form, the Regulation will lead to a strong, operationally independent Office which will be a significant force in the fight against fraud. The concerns related to the Commission's amended proposal, which I outlined in my 5 May explanatory memorandum, have been dealt with in the final regulation.

  We have not yet received the final Regulation and associated documents (Inter institutional Agreement, Council Decision concerning terms of investigations carried out and Commission Decision establishing the office) under formal cover. However, I do have a final version of the Regulation. I am therefore forwarding you a copy of this document with an explanatory memorandum.

10 June 1999

Letter from Lord Tordoff, Chairman of the Committee, to Patricia Hewitt MP, Economic Secretary to the Treasury

  Thank you for your letter of 10 June, telling us that the regulation on the Fraud Prevention Office was adopted as expected by ECOFIN on 25 May, and sending us the latest version of the text.

  We are grateful for this, but your letter did not address the point raised in my letter of 27 May to you: why did other Member States favour establishing the Fraud Prevention Office within the Commission rather than outside? We should appreciate a reply on this point.

22 June 1999

Letter from Patricia Hewitt MP, Economic Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 22 June asking why other Member States favoured establishing the European anti-fraud Office within the Commission rather than outside.

  The decision that the Office should be established within the Commission was taken by the Council as a whole and individual Member States did not set out their reasons for supporting the decision. I can, however, advise that in discussions at official level leading up to the Council decision, other Member States expressed views broadly similar to those set out in my letter to you of 17 May.

9 July 1999


 
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