7.3 EU Anti-Fraud Architecture: OLAF, EPPO & Irregularity Reporting

7.3 EU Anti-Fraud Architecture: OLAF, EPPO & Irregularity Reporting

Core Principle: Protecting the European Union's financial interests—often referred to as PIF (Protection des Intérêts Financiers)—demands a sophisticated multi-institutional defense structure. Operating across 27 sovereign legal jurisdictions and handling hundreds of billions of euros in budget appropriations requires a clear operational division of labor between administrative investigations (OLAF) and criminal judicial prosecutions (EPPO). Auditors are the frontline sentinels of this architecture, bound by strict statutory mandates to report suspected fraud without delay.

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1. Constitutional Foundation: Article 325 TFEU & The PIF Directive

Article 325 TFEU: The Constitutional Mandate

The legal foundation for the European anti-fraud architecture is enshrined in Article 325 of the Treaty on the Functioning of the European Union (TFEU):

• Equivalence Principle: Member States shall take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own national financial interests.
• Deterrence & Effectiveness: Measures taken must be effective, dissuasive, and capable of providing robust protection across all EU institutions, bodies, and Member State administrations.
• Coordination Duty: Member States and the European Commission are legally obligated to coordinate their actions and organize close, regular cooperation between competent national authorities.

The PIF Directive (Directive (EU) 2017/1371)

To eliminate legal fragmentation across national penal codes, the European Parliament and Council enacted the PIF Directive, establishing harmonized criminal definitions, minimum sanctions, and statutory limitation periods for offenses harming the EU budget:

• Subsidy and Grant Fraud: Intentional use or presentation of false, incorrect, or incomplete statements or documents leading to the unlawful misappropriation or wrongful retention of EU funds.
• Public Procurement Fraud: Submitting rigged bids, split contracts, or fraudulent tender declarations to obtain EU public contracts.
• Active and Passive Corruption: Offering, promising, giving, requesting, or receiving an undue advantage by or to a public official to act or refrain from acting in accordance with their duty.
• Misappropriation: Unlawful commitment, disbursement, or use of EU public funds or assets contrary to their authorized statutory purpose.
• Cross-Border VAT Fraud: Serious offenses against the common system of value-added tax connected with the territory of two or more Member States and involving total damage of at least EUR 10 million (such as missing trader intra-community carousel fraud).

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2. OLAF: The European Anti-Fraud Office

Established in 1999 (Decision 1999/352/EC) and governed by Regulation (EU, Euratom) No 883/2013 (the "OLAF Regulation"), the European Anti-Fraud Office (Office Européen de Lutte Anti-Fraude - OLAF) is an administrative body integrated into the European Commission but possessing statutory operational independence.

OLAF's Dual Investigative Mandate

1. Internal Investigations: Administrative investigations conducted within all EU institutions, bodies, offices, and agencies. Focuses on investigating serious professional misconduct, embezzlement, bribery, conflicts of interest, and breaches of the EU Staff Regulations by EU officials, staff members, and European commissioners.
2. External Investigations: Administrative on-the-spot checks and inspections conducted in Member States and third countries. Focuses on economic operators (contractors, beneficiaries, consultants, trading entities) receiving EU funds under direct, shared, or indirect management, as well as smuggling and customs fraud harming EU Traditional Own Resources.

Investigative Powers & Inherent Limitations

OLAF conducts administrative investigations under its legal framework. It may carry out on-the-spot checks and inspections, seek access to relevant information and systems, copy or secure records as authorised, interview persons concerned and coordinate with competent authorities. Exact powers and safeguards depend on the setting and applicable law.

OLAF is not a police or prosecuting authority. It does not arrest, wiretap or itself bring criminal charges. Coercive searches, seizures and prosecution require the competent Union or national judicial authorities. Describing OLAF as freely “seizing devices” overstates its administrative powers.

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types

OLAF's Four Types of Recommendations

Upon completing an investigation, OLAF drafts a Final Investigation Report accompanied by recommendations addressed to competent EU or national authorities:

1. Financial Recommendations: Addressed to the European Commission or managing authority, recommending the recovery of misspent public funds (Recovery Orders).
2. Judicial Recommendations: Addressed to national public prosecution authorities, recommending criminal prosecution based on evidence collected during the administrative inquiry.
3. Disciplinary Recommendations: Addressed to the appointing authority of an EU institution, recommending formal disciplinary proceedings against an EU official.
4. Administrative Recommendations: Addressed to EU institutions, recommending reforms to administrative procedures or internal control systems to eliminate vulnerabilities.

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3. EPPO: The European Public Prosecutor's Office

Established under the enhanced cooperation procedure by Council Regulation (EU) 2017/1939 and operational since June 1, 2021, the European Public Prosecutor's Office (EPPO) is the European Union's independent public prosecution body.

+---------------------------------------------------------------------------------------------------+
|                                 EPPO TWO-TIER INSTITUTIONAL STRUCTURE                             |
+---------------------------------------------------------------------------------------------------+
|  CENTRAL LEVEL (Luxembourg)                                                                       |
|  - European Chief Prosecutor (Laura Codruța Kövesi)                                               |
|  - College of European Prosecutors (One prosecutor per participating Member State)                |
|  - Permanent Chambers: Supervise, direct, and decide on prosecutions or dismissals                |
+---------------------------------------------------------------------------------------------------+
|  DECENTRALIZED LEVEL (In Participating Member States)                                              |
|  - European Delegated Prosecutors (EDPs) embedded in national judicial systems                    |
|  - Exercise identical powers to national prosecutors: order searches, wiretaps, arrest warrants   |
|  - Formally indict defendants and prosecute trials directly before national criminal courts       |
+---------------------------------------------------------------------------------------------------+

Direct Criminal Competence and Judicial Powers

Unlike OLAF, EPPO is a judicial body with direct criminal jurisdiction over all offenses defined in the PIF Directive (Directive 2017/1371):

• European Delegated Prosecutors (EDPs) operate with full judicial independence within participating Member States.
• EDPs have direct legal authority to order police searches, freeze bank accounts, obtain telecommunications intercepts, issue European Arrest Warrants, and initiate criminal indictments.
• EDPs prosecute criminal charges directly before national trial and appellate courts under national criminal procedural law.

Comprehensive Comparative Analysis: OLAF vs. EPPO

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4. Operational Demarcation & Inter-Institutional Cooperation

To prevent investigative overlap, OLAF and EPPO operate under a binding working arrangement governed by Article 101 of Regulation 2017/1939 and Article 12g of Regulation 883/2013:

+---------------------------------------------------------------------------------------------------+
|                                 OLAF <---> EPPO COOPERATION RULES                                  |
+---------------------------------------------------------------------------------------------------+
|  1. NON-DUPLICATION PRINCIPLE                                                                     |
|     OLAF shall not open or continue an administrative investigation into facts that are already    |
|     the subject of an active criminal investigation conducted by the EPPO.                        |
+---------------------------------------------------------------------------------------------------+
|  2. OLAF's MANDATORY REPORTING TO EPPO                                                            |
|     If OLAF discovers suspected criminal conduct within EPPO's competence during an inquiry,     |
|     OLAF MUST report the facts to EPPO without delay.                                             |
+---------------------------------------------------------------------------------------------------+
|  3. EPPO CALL FOR OLAF ADMINISTRATIVE SUPPORT                                                     |
|     EPPO may request OLAF to provide technical expertise, perform forensic digital analysis,     |
|     or conduct complementary administrative checks to support asset recovery.                     |
+---------------------------------------------------------------------------------------------------+
|  4. OLAF COMPLEMENTARY INVESTIGATIONS                                                             |
|     If EPPO dismisses a case or concludes prosecution, OLAF may open an administrative             |
|     investigation to facilitate financial recovery of misspent public funds.                      |
+---------------------------------------------------------------------------------------------------+

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5. Reporting Channels, Whistleblowing & EDES

Institutional reporting duties

Article 24 of the EPPO Regulation requires Union institutions, bodies, offices and agencies and competent Member State authorities to report criminal conduct within EPPO competence without undue delay. EU Staff Regulations Article 22a governs reporting by officials through the specified hierarchy or directly to OLAF in the circumstances set out there. National auditors and other professionals follow the law and procedures applicable to their organisation.

An individual auditor should preserve evidence, confidentiality and due process, avoid alerting a suspected person where that could prejudice action, and use the authorised internal, OLAF, EPPO or national channel. It is inaccurate to say that every auditor must personally and simultaneously report every red flag to both OLAF and EPPO. Suspicion should be escalated under the governing protocol; it is not the auditor's role to determine criminal guilt.

Current EPPO participation

As of this guide's review date, 25 EU Member States participate in the EPPO; Denmark and Ireland do not. Laura Codruța Kövesi remains European Chief Prosecutor through 31 October 2026, and Andrés Ritter has been appointed to take office on 1 November 2026. Date-sensitive office-holder facts should always be checked before use.

Early Detection and Exclusion System

Under the current Financial Regulation, Regulation (EU, Euratom) 2024/2509, Article 137 establishes the EDES purpose and structure, Article 144 addresses the database, and Article 145 the panel. EDES protects the Union's financial interests through early detection, exclusion and/or financial penalties under defined procedures. It is an administrative system, distinct from a criminal conviction process.