Are Payments To and From EU Lawful?
by Ashley Mote MEP, Independent, South-East England
Member of the European Parliamentâ?Ts Committee on Budget Control
An EU report admitted that in 2007 nearly £5 million of taxpayersâ?T money was lost to fraud and irregularities â?" their word for incompetence â?" every working day.
According to the report, released quietly through Agence Europe just as the European Parliament started its summer recess, the EU lost £1.1 billion to fraud and financial irregularities during 2007. Many thousands of cases were involved.
Agriculture was, as usual, by far the worst area of financial abuse. In Greece, for example, we now know there must be olive groves in the Aegean Sea if the acreage claimed is correct. But the Greek government chooses to do little to investigate or prosecute its own farmers.
So it is no surprise that, for the fourteenth year in succession, the European Unionâ?Ts own Court of Auditors was not willing to sign off the EUâ?Ts 2007 annual accounts because the level of irregularities remains unacceptable high.
But that is not all, not by a long way. It is arguable that even money which is properly accounted for is being used improperly in the first place.
Routinely the European Commission allocates billions of euros for social engineering purposes across the EU. This public money is used to purchase popular support for the EU itself amongst recipients, whether member states, what it chooses to call 'candidate countries', or elsewhere. The underlying objective is to generate public awareness.
Yet management is lax in the extreme. Roads and bridges that lead nowhere. New pavements outside thriving casinos in Kyrenia in Turkish-held northern Cyprus. And 400 million euros to provide electricity in Kosovo where many of the subsequent receipts simply disappear.
These are highly questionable, political uses of public money, regardless of the supposed beneficiaries.
What is worse, the 2009 EU budget approved in October makes it clear that this deplorable and unacceptable situation will not get any better. Nor are the powers in place to enforce accountability.
As these facts become more widely known, taxpayers in net contributor countries - like the UK â?" are increasingly objecting to EU funds being given to other member states and â?~candidatesâ?T whose own tax burden is smaller - sometimes much smaller - and which effectively replaces the lack of local tax revenues.
Given the nature and scale of the financial problems endemic in the EU there appears to many an urgent need to clarify the law regarding the legality of payments from public funds.
Make no distinction between payments which are made between member states and the EU, or those between the EU and third-party beneficiaries. Payments to and from statutory organisations which have had their accounts qualified are, in law, ultra vires. On the face of it, therefore, any paying authority is open to the charge of negligence and/or malfeasance in such circumstances.
Neither the European Commissionâ?Ts fraud investigation agency, OLAF, nor the European Parliament's legal services have ever expressed an opinion on this crucial question, at least not in my hearing, despite its having been raised in various contexts in the past.
OLAF is a largely toothless wimp, an institution of the EU in place to provide an illusion of financial supervision. After nine years it has yet to succeed with a major criminal investigation, win convictions and recover the money involved.
Its role and powers are currently being reviewed, and not before time. Even the socialist chairman of the European Parliamentâ?Ts Committee on Budget Control advocates that the supervisory committee of the board charged with watching over OLAF's activities ought to be separated from it.
Together with a semi-independent â?~review adviserâ?T for disputes, these are more or less the only changes in prospect after four years of discussion â?" assuming they happen.
When the House of Lords committee started investigating the financial management of the European Union in 2006, a queue of volunteer witnesses formed at the door. They included a former member of the Commission, Lord Kinnock, the Commissionâ?Ts Chief Accounting Officer, Brian Gray, several other members and former members of the staff of the Commission, OLAF and other EU institutions and bodies.
This impressive queue also included Mrs Rosalind Wright, then the chairman of the supervisory board of OLAF.
Given that all these witnesses volunteered, what is truly remarkable about their collective evidence is its inaccuracy. They were not on oath, of course, but they did â?" between them â?" spin a tale not entirely in keeping with all the facts.
Churchillâ?Ts immortal phrase about â?oterminological inexactitudesâ? springs to mind.
In answer to a direct question, Mrs Wright said there were no serious problems with OLAF, despite telling the European Parliamentâ?Ts Committee on Budget Control only six months earlier that there were! Indeed, she went further on that occasion, claiming that her recent appointment would ensure that â?othings will now be differentâ?.
It was difficult to believe all OLAFâ?Ts problems would soon disappear, especially as the evidence suggested otherwise. Such scepticism was fully justified. They didnâ?Tt. Two years later the chairmanship rotated and little else changed.
According to the gobble-de-gook language of the EU, the function of OLAF is to â?oprotect the interests of the European Union, to fight fraud, corruption and any other irregular activity, including misconduct within the European institutions.â? (A passing reference to the interests of taxpayers comes later.)
OLAF largely ignores that brief. The chairman, Franz-Hermann Bruener, said in answer to a direct question about the problems of mismanagement and possible corruption in the Commission itself that he â?odid not snoopâ?, the implication being that he did not snoop on his friends.
The supervisory committee is charged with â?oregular monitoring of the implementation of the investigative functionâ? (whatever that means). What it demonstrably does not mean is kicking the OLAF management up the backside when necessary. Why else is one particular so-called investigation into the possible misuse of a relatively small sum of money still unresolved after eight years?
When later asked about her supervisory committeeâ?Ts ineffectiveness, Mrs Wright wrote that it was â?onot empowered to carry out investigations ourselvesâ? Quite how it could be expected to function at all without such powers is difficult to imagine.
Commissioner Siim Kallas is a former head of the Estonian Central Bank. Today he is a vice-president of the European Commission and responsible for audits and administrative affairs. It is true - Jim Hacker and Yes Minister have come to life in Brussels.
Since Kallasâ?T portfolio also includes the EUâ?Ts fight against fraud and corruption he was asked about the relationships between OLAF and its supervisory committee. His reply: â?oThe supervisory committeeâ?Ts main role is in securing procedures in OLAFâ?. Translated, that means the committee is another of the Commissionâ?Ts illusions. You see it, but nothing actually happens.
Shortly after making that comment, Kallas himself appointed a personal advisor, Alain Gillette, who had previously been short-listed to replace Bruener as head of OLAF. Gillette was to help â?obuild trust in financial management at the European levelâ?. Nothing has been heard of him since, despite the German magazine Der Spiegel reporting that Gillette was also charged with â?oguarding the interests of the people under investigationâ? by OLAF.
This spectacular confusion of roles, responsibilities, briefs and contradictory reporting structures can have one inevitable result only â?" inertia. And the EUâ?Ts supposed fight against fraud and corruption has that in spades.
Which brings us to the re-appointment of Franz-Hermann Bruener as head of OLAF. His first mandate ran from 2000 to the beginning of 2005, after which it took a full year before the decision-making process churned out the unlikeliest of candidates. The search for a new man culminated in a report which claimed that it had been "impossible to find anyone with the right sense of responsibility". The incumbent would be allowed to stay on.
Immediately after the announcement of his re-appointment in 2006 Bruener chose not to refute a series of criticism of him in the Committee on Budget Control.
He listened in silence as the committee was reminded that Bruener's re-appointment was directly contrary to the specific recommendation of the committee itself, and of the European Council.
The Committee on Budget Control, after fierce lobbying by influential Germans to retain Bruener, decided that Swedish police chief Björn Eriksson was the best candidate. The European Council favoured Frenchman Alain Gillette to take over.
Former chairman of OLAF's supervisory committee and an arch-opponent of Bruener, Raymond Kendall, had been the secretary-general of Interpol when Eriksson was its president in the mid-nineties. So torpedoing Eriksson's appointment by Brunerâ?Ts supporters in Brussels was inevitable.
Bruener's re-appointment was all the more astonishing in the light of the following facts:
1. Formal complaints had been made against him over the arrest and house search of investigative journalist Hans-Martin Tillack, then working in the Brussels office of Stern magazine. While he was being arrested, the potential criminals he was investigating were not. Simple questions about what Bruener had learned from the affair were never answered. A long time later Mr. Tillack was completely exonerated by a judgment of the European Court of Human Rights in Strasbourg.
2. Widespread criticism of OLAF in the European Parliament and in various reports over Bruenerâ?Ts handling of the Eurostat affair, including its contractor Eurogramme Ltd which was registered in the UK. Eurostat is one of the biggest, and probably the worst case of financial mismanagement so far uncovered inside the European Commission and its administration during OLAFâ?Ts chequered history. It directly involved OLAF management and the whole affair occurred on Bruenerâ?Ts previous watch. Yet, after a delay of many years, Eurostat has recently been put quietly to bed in a confidential document that could find no reason to continue investigations and no record of any person or organisation making personal gain.
3. Leaked reports from the supervisory committee that Bruener had, from time to time, conducted "fake investigations".
4. In the all of OLAF's existence, with Bruener in charge throughout, OLAF had never succeeded in gaining a conviction in a single major prosecution.
5. Bruener's flat refusal to investigate the financial management of the Commission itself, despite evidence from reliable sources that this was where the real problems lay.
6. Bruener's not replying to a request for access to documents on the Eurogramme case, despite a legal obligation to respond within 15 days. A refusal was eventually received after some five months. It was obtuse and claimed confidentiality when public interest clearly demanded publication.
Added to which, reports from inside OLAF indicated wide disappointment amongst senior staff at the decision to re-appoint him.
At least one senior member of the Committee on Budget Control in Brussels is convinced that Kallas is a fundamentally weak man being manipulated behind the scenes by the more powerful bureaucrats who advise him. Their purpose in forcing the re-appointment of Bruener was to protect their own interests.
Between them, Kallas and Bruener have managed some spectacular disasters.
On one occasion OLAF appointed two new directors from a list of 269 applicants. The director-general and his deputy sat with a nominee from the commission to decide on the short list. One of the applicants was an OLAF investigating officer who was investigating the commission nominee on the selection committee. No case management system flagged up this flagrant conflict of interest.
When the story broke, the investigating officer surprisingly withdrew his application instead of pressing it. Later the commissionâ?Ts nominee also withdrew, but by then the damage had been done. Late last year it appeared that Bruener claimed to have initiated an investigation into this affair, something that was later denied by Kallas.
And that is what passes for effective management in the European Commission and OLAF.
Commissioner Vladimir Å pidla (Czech Republic), responsible for employment, social affairs and equal opportunities, recently threw some light on the scale of the money that not only goes missing, but is then written off by the EU. He told a meeting of the Committee on Budgetary Control that in his area of responsibility between one and two million financial transactions occur each year.
In a single year, he claimed, some 266 million euros-worth of allocations were suspended for irregularities. He did not make clear how much of this huge sum was in units below one million euros each, and thus not subject to recovery. But simple mathematics suggests a large number.
None of which is in the best interests of taxpayers, who now lose some £2 million a day to fraud in the area of agriculture alone, if OLAFâ?Ts own figures are to be believed.
Indeed, the public interest has been totally ignored throughout. The claims made by Commissioners Siim Kallas and Mrs Margot Wallström (Swedish Commissioner responsible for communications with the general public) that the EU needs urgently to improve the publicâ?Ts perception of it as a secretive and untrustworthy body crumble into contemptible dust in the light of the facts.
The role of the British government and its agencies in this never-ending catalogue of corruption is instructive. It is one of benign indifference. The National Audit Office says it cannot act â?~becauseâ?T the money is controlled by Brussels. The Serious Fraud Office uses the same excuse, and even ignores EU corruption when it involves a British-registered company dispersing EU funds via Britain â?" in this case the letterbox company Eurogramme, contractor of Eurostat, using resources held in Luxembourg.
The EUâ?Ts management of the public funds it holds does not include budgeting in any normal sense. Its income comes in an endless stream. It consists of percentages of VAT, customs duty, agricultural levies and GDP from all the member states. At no time does the EU say to the member states "this is what we plan to do, this is the cost - will you fund it?"
Instead, the money just pours in. Then the Commission figures out how to spend it. There is no means of stopping this flood of cash, and no means of returning it.
If this were a business, the shareholders would have a distribution of surplus funds. If this were an elected government, instead of a bureaucracy, whenever an election loomed, taxes would be cut and money effectively refunded - because accountable democracy demands it. Instead, it was not long ago that parallel or double (not double entry!) bookkeeping was exposed at Eurostat's data-shops.
In answer to a question on the lack of effective cost/benefit analyses whenever the Commission plans new regulations the reply was that it was impossible â?obecause the member states each have different costs of enforcementâ?. That, apparently, was justification enough.
It is equally astounding that the EU continues so spectacularly to undermine its own authority and credibility with endless instances of opaqueness and obfuscation, to say nothing of an ever-growing mountain of evidence of fraud and corruption.
Do those at the centre of power still not understand that every such event and incident brings ever nearer the day when the Brits will leave, take their money with them and leave the door open for others to follow?
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