European Anti-Fraud Office (“OLAF”) remains active during COVID-19 crisis and targets increase in investigation and prosecution of EU fraud

The Director-General of OLAF, Ville Itälä, has indicated in a recent interview that OLAF is seeking to coordinate more with authorities in EU Member States to increase the number of prosecutions brought for EU budget fraud.¹

In a statement released on 7 April 2020, the agency set out that it is “committed to fighting fraud in order to protect the financial and other interests of the European Union, and its citizens.” Since 16 March 2020, OLAF has completed 19 investigations and opened 48 new cases.

Taken together with a pan-European uptick in enforcement actions and corporate settlements in recent years - most notably in France and the UK - corporates who bid for EU funded work, and asset managers involved in investments which have an EU funding element, must ensure that they are alive to the different approaches of European and domestic enforcement authorities, and that they have in place appropriate risk-based compliance procedures and controls.

OLAF has signalled that it remains “fully operational” during the current COVID-19 crisis.

OLAF

OLAF’s primary mission is to investigate fraud against the EU budget in both EU and non-EU countries.² 

• OLAF is an investigatory authority and does not have prosecutorial powers. 
  
• OLAF issues judicial recommendations (including recommendations to investigate and take criminal action) to Member State authorities and monitors how those recommendations are implemented.
  
• OLAF when protecting the interests of the EU has the powers to investigate in countries outside of the EU. 
  

In his recent interview, the Director-General of OLAF indicated that the UK’s departure from the EU should not drastically affect OLAF’s operations with the UK. Much will depend on the outcome of negotiations during the transition period (due to end on 31 December 2020), but regardless of the legal status of the ultimate relationship, Itälä noted that OLAF will still work closely with the UK to investigate trade and customs fraud, as it does with other non-EU countries.

Another significant development is the creation of the European Public Prosecutor’s Office (“EPPO”), based in Luxembourg, which is aiming to become operational by the end of 2020. ³ The EPPO will have the power to investigate and prosecute crimes against the EU budget, with a particular focus on cross-border crime. OLAF plans to become a trusted partner for the EPPO as soon as it begins operating. While the EPPO will be responsible for criminal investigations, OLAF will continue its administrative investigatory role and will “consult and coordinate closely with the EPPO”.⁴ 

OLAF targets an increase in national authority enforcement

OLAF itself is an active authority and, according to the latest statistics published on its website, opened a total of 219 new investigations in 2018, as well as concluding 167 investigations. Between 2010 and 2018, OLAF has issued over 2500 recommendations and has recommended the recovery of over €6.9 billion to the EU budget.

In terms of current trends, investigations have focused on corruption, conflicts of interest and the manipulation of tender procedures in fraud cases.

The Director-General is seeking more cooperation with national judicial authorities to bring about an increase in the prosecution of cases. Recent cases indicate that OLAF is engaging with national authorities and using its investigative powers to assist authorities to bring prosecutions.

Implications for corporates and asset managers

Both during the current crisis, and in its aftermath, there will be particular scrutiny on publicly funded projects, especially in the healthcare sector. Previous market crashes and ensuing economic downturns, from the dot-com bubble in the early noughties to the 2008 financial crisis, have resulted in the uncovering of large scale corporate fraud. The unique market conditions also led to a proliferation of fraudulent practices as corporates sought to mitigate or take advantage of financial upheaval. The COVID-19 crisis will likely follow a similar trend and, once lockdown restrictions are eased, it is expected that there will be a notable increase in authority and regulator action against fraud and related financial crime.

Certain Member States have increasingly begun to adopt and successfully use deferred prosecution agreements (“DPAs”) to settle corporate offending; France most recently having secured a number of large multi-jurisdictional settlements with US and UK authorities. The use of DPAs has been coupled with an increase in multi-jurisdictional cooperation between enforcement authorities across the world and in the EU. The additional encouragement by OLAF to prosecute more in this area, along with the imminent introduction of a new EU prosecution agency focusing on corrupt tenders and abuses to its budget, means failures in corporates’ and asset managers’ internal controls and oversight are now more likely to be exposed and prosecuted. 

Corporates and asset managers will need to update their financial crime risk assessments as a result of COVID-19 and take particular preventative steps to mitigate the risk of related misconduct. Such steps may include issuing tone from the top messaging, amending due diligence procedures and investigative protocols, providing targeted training, and monitoring, testing and updating systems and controls. Companies which bid for EU funded work should take particular care to ensure that the business-specific risks of operating in the current environment are identified and incorporated into their compliance and mitigation steps.

Footnotes

1) Global Investigations Review, “EU anti-fraud chief: members states need to prosecute more”, 21 April 2020.

2) OLAF also investigates corruption and serious misconduct within the European institutions, and develops anti-fraud policy for the European Commission.

3) European Commission, European Public Prosecutor's Office

4)  OLAF, European Public Prosecutor's Office