Committee of Independent Experts
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3.1. Introduction
3.2. Chronology
3.3. Legal considerations: the delegation of powers and the failure to issue calls for tender
3.4. Lack of staff at the Commission: an inadequate argument
3.5. The issue of the conflict of interests
3.6. Bad management, irregularities or fraud?
3.7. The Commissioners' role and responsibility
3.8. The responsibility of the Commission as a body
3.1.1. The MED programmes for decentralised cooperation with the countries of the Mediterranean began in 1992 after the Gulf War with Iraq. Their aim was to strengthen political and economic cooperation with the southern Mediterranean countries in order to counterbalance the aid given to the countries of Central and Eastern Europe. After a period of suspension, referred to below, they were resumed in April 1998.
3.1.2. Depending on which partners were involved, the MED programmes included five different programmes: MED-Urbs (regional authorities), MED-Campus (universities) MED-Invest (enterprises), MED-Avicenne (research centres) and MED-Media (media professionals).
3.1.3. The partners were in direct contact with each other without, as a rule, central government authorities being involved. Accordingly, the Commission, too, was unable to benefit from the administrative support of the Member States. Indeed, the main idea of the programmes was to avoid government structures altogether and channel the cooperation funds by means of subsidies to non-governmental organisations. The idea was to be 'close to civil society'.
3.1.4. The total multiannual budget for the MED programmes for the period 1992-1096 amounted to ECU 116.6 million, of which ECU 78 million had been committed when the programmes were suspended (decisions taken in October 1995 referred to below).
3.1.5. The Commissioner in charge of the programmes was Mr Matutes until the end of 1992; since 1 January 1993, they have come within the remit of Mr Marín.
3.1.6. In general, the system's management structure was organised on four levels: 1 - the Commission; 2 - ARTM (Agency for Trans-Mediterranean Networks), which was responsible for the administrative and financial management of the five programmes; 3 - TAOs (Technical Assistance Offices), one for each programme and responsible for the technical supervision of the programmes; 4 - Projects (grouped in networks), of which there were 496 in all.
3.1.7. The Commitment Committee (management committee) - one per programme - consisted of representatives of the Commission, of ARTM and of the TAO concerned (which had no voting rights). It considered and approved payments.
3.1.8. ARTM had its registered office in Brussels and was subject to Belgian law, whereas FERE has its registered office in Paris and is subject to French law, and, finally, ISMERI has its registered office in Rome and is subject to Italian law.
3.1.9. As indicated in point 26 of the Court of Auditors' Special Report No 1/96: 'The management of this new instrument was organised on the basis of two central features - subcontracting the management of the programmes to private bodies and the separation of administrative and financial duties from technical support - was adopted (sic). Administrative and financial duties were entrusted to the ARTM whilst technical support duties were entrusted to a different BAT, for each of the programmes. ... '.
3.1.10. ARTM was created on 24 September 1992 as an international philanthropic and scientific association under Belgian law.
Two members of its management board were also directors of two TAOs (FERE and ISMERI); they were replaced, at least formally, on 6 April 1995. In the past, they had acted as consultants to the Commission on numerous occasions. What is more, ISMERI held 15% of FERE's capital.
The Commission attended meetings of the associations's Board of Directors as an observer.
3.1.11. As indicated in point 27 of the Court of Auditors' Special Report No 1/96 referred to above, '..., the ARTM's resources come exclusively from the contracts awarded to it by the Commission'.
3.1.12. What we are dealing with here is a network of firms controlling the implementation of a policy, which was set up by external consultants on the initiative of the Commission. The financial and administrative management of the programmes was therefore entrusted to ARTM in 1992 on the initiative of the Commission (current Directorate-General IB - External Relations: Southern Mediterranean, Middle East, Latin America, South and South-East Asia and North-South Cooperation) - it even paid the registration costs - with no competitive tendering at all. Accordingly, ARTM was created and financed from scratch by DG IB on the basis of the private treaty procedure referred to in Article 58 of the Financial Regulation. There is no evidence whatsoever to suggest that the service managing the appropriations carried out any market research before arriving at the conclusion that there was no other organisation which possessed the requisite qualifications.
3.1.13. Although the initial contract between the Commission and ARTM was thus concluded by private treaty, ARTM submitted a successful bid in mid-1994. Accordingly, ARTM was awarded the contract (on 1 September 1994) after competitive tendering and after consultation of the ACPC.
3.1.14. ARTM was dissolved on 8 September 1997.
3.1.15. Technical monitoring of the networks and their projects was then entrusted to technical assistance offices (TAOs). TAOs constitute external structures with varying legal forms (such as non-profit-making organisations, foundations, agencies, limited liability companies, universities, etc.), providing the Commission with ongoing support in connection with the implementation of a Community programme, as a rule following an invitation-to-tender procedure.
3.1.16. Until mid-July 1994, the contracts awarded to TAOs under the MED programmes were also by private treaty.
3.1.17. ISMERI was entrusted with the MED-Campus programme and FERE with the MED-Urbs programme. Those two companies had previously prepared the MED-Urbs and MED-Campus programmes.
3.1.18. As regards the projects (of which there were 496 in all), the Court of Auditors noted in particular that ineligible expenditure was financed and that the award of contracts in response to a call for tenders was the exception rather than the rule.
3.2.1. On 29 June 1992, Council Regulation (EEC) No 1763/92 concerning financial cooperation in respect of all Mediterranean non-member countries was adopted. Article 6(1) thereof lays down that 'Measures referred to in this Regulation which are financed from the budget of the Communities shall be administered by the Commission'. In turn, Article 7(1) thereof lays down that 'The Commission shall be assisted by the MED Committee' set up by Council Regulation (EEC) No 1762/92 adopted the same day.
3.2.2. On 24 September 1992, ARTM, an international philanthropic and scientific association was established by ISMERI-EUROPA, FERE CONSULTANTS, CLES EUROPEAN RESEARCH NETWORK and, lastly, a natural person on an individual basis. Those four (legal and natural) persons were the founder members. The legal framework used was the Law of 25 October 1919 granting legal personality to international associations. Such associations do not have registered capital.
Ultimately, as we have already seen, the Commission funded the founding of the association.
3.2.3. On 21 October 1992, DG IB adopted a framework document 'setting out the conditions for the implementation of the MED-Urbs and MED-Campus programmes'. That document had been drafted by the appropriate unit but had not been formally approved by the Director-General, even though it was attached as an annex to certain contracts signed by that Director-General with ARTM. Nor did the Commission, as a body, approve the document. It states that 'the Commission must therefore call on an external body for the decentralised implementation of the cooperation programmes; that a delegated management structure must be set up; that, at all events, the Commission must retain control over the operation; that TAOs will be selected in accordance with the procedures currently in force at the Commission; that following the decision taken by the Commission to provide finance since implementation in 1992 was a matter of urgency, and in order to ensure continuity between the setting up of the networks and the launch of their operations, the TAOs for the trial year will be those which drew up the programme for the Commission; and that ARTM is obliged to conclude contracts with the agency designated by the Commission or the agency which successfully tendered'. The document includes a 'functional analysis of ARTM and the agency's administrative set-up', with provision even for the members of the management board, plus the board's Executive Bureau, etc.
Another framework document, dated 15 January 1993, concerns the implementation of the MED-Urbs, MED-Campus and MED-Invest programmes.
3.2.4. On 12 November 1992, the head of unit responsible for the programmes submitted to the Commission's Legal Service, for an opinion, the contracts relating to the MED-Urbs and MED-Campus programmes, together with all the documents which set out the conditions for managing the activities covered by those programmes. That documents states 'that this is a new departure for DG I in respect of which Financial Control would like to have the backing of a prior opinion from the Legal Service'.
3.2.5. On 25 November 1992, the private-treaty contract between the Commission, in the person of the Director-General responsible for North-South relations, and ARTM was signed; its purpose (Article 1) was 'to implement the financing decision taken by the Commission with respect to the MED-Urbs programme (support for cooperation between local authorities in Europe and in Mediterranean non-member countries)'. This programme had earlier been formally adopted by the Commission by decision of 23 July 1992.
In Article 2 of the contract, 'the Commission, as the principal authorising body, entrusted implementation of the decision to finance the MED programme to ARTM, whose obligations were covered by the contract. The contractor undertook to manage the programme by establishing, with a view to the distribution of the aid, contractual relations with 16 financed networks, a list of which was attached at Annex IV, and with the Technical Assistance Office, to manage the reserve funds on a proposal from the Commission, and to set up a system for monitoring financial and administrative management and a management control system'.
Article 8 of the contract provided for annexes, including the Commission's financing decision concerning MED-Urbs, the terms of reference and the framework document setting out the conditions for the implementation of the programme.
Those terms of reference provided '(1) that ARTM would receive and manage the entire amount of Community aid and, with that in mind, it would conclude contracts with the networks receiving Community aid and with a Technical Assistance Office, and (5) that ARTM would set up a system for monitoring the financial and administrative management of the networks taken individually and of the programme as a whole'.
3.2.6. This was the first contract concluded between the Commission and ARTM, and it was followed by other, similar contracts (MED-Campus bearing the same date) in respect of all the MED programmes. The contract for MED-Invest was signed on 6 April 1993 and the one for MED-Media on 23 August 1993.
Until 1994, as has already been referred to, all the contracts were established by private treaty.
3.2.7. On 2 December 1992, the Commission's Legal Service took the view that 'control-related duties, or those involving the discharge of discretionary power within the framework of a genuine Community policy, including the implementation of the budget, may be carried out only by officials, stating that, as the provision of services was involved, the contract had to be awarded after an invitation to tender, where appropriate by duly substantiated private treaty. In this instance, the Legal Service wished to know what the grounds were for allowing the Commission to award the contract by private treaty with ARTM. The Legal Service was also very doubtful as to the involvement of the Commission and other institutions in ARTM's operations. As regards, lastly, the form of the contract, the Legal Service reserved the right to deliver its opinion when the final draft had been referred to it'. That referral never subsequently took place; as we have seen, the contract had been concluded on 25 November 1992.
On 30 September 1993, the Commission's Legal Service noted that 'the procedures for the implementation of ARTM's operating arrangements had been laid down by a Commission framework document dated 21 October 1992'.
3.2.8. As regards technical assistance, the MED-Urbs programme was entrusted to FERE - via ARTM - on 14 December 1992. It was on that date that the contract was signed between ARTM and FERE Consultants for the provision of 'technical assistance with the implementation of the MED-Urbs programme'. Article 2 thereof laid down that 'ARTM was in charge of the financial and administrative management of the programme and that it had entrusted the technical assistance aspect to FERE, which had been appointed by the Commission of the European Communities for the experimental phase of the programme, thereby ensuring continuity with the arrangements for the pilot projects making up MED-Urbs.
3.2.9 In its turn, MED-Campus was entrusted to ISMERI - via ARTM - on 21 December 1992. As in the case of ARTM, and until 1994, these contracts were awarded by private treaty.
3.2.10. On 22 September 1995, the Legal Service of the Court of Auditors forwarded to Mr Karlsson, a Member of the Court, a legal opinion in which it came to the following conclusions: (a)' that the delegation by the Commission of its management powers in respect of the MED programmes to the ARTM international association seemed irregular in that it breached Article 6(1) of the MED Regulation (Regulation (EEC) No 1763/92 referred to above) and breached certain rules governing the delegation of powers; and (b) that even if delegation were possible, it could only have been undertaken on the basis of a decision taken by the College of Commissioners since, if the Commission wished to delegate its powers to a body such as ARTM, it could only have done so on the basis of an express decision taken by the Commission as a body, and thus the very decision to entrust management of a Community policy to an external body constituted a 'decision of principle'.
3.2.11. On 6 October 1995, the Court of Auditors informed the relevant Vice-President of the Commission (Mr Marín) of certain irregularities, with particular regard to the aspects concerning delegation and confusion of interests.
3.2.12. On 23 October 1995, Mr Marín's Chef de Cabinet, acting on the Commissioner's behalf, ordered the acting Director-General of DG IB not to extend the contract with ARTM, to make its management subject to certain supervisory measures, to prepare a new plan for the delegation of powers, to prepare a new invitation to tender and, possibly, to refer the issue of confusion of interests to the Belgian courts.
3.2.13. At a meeting with Mr Karlsson on 7 November 1995, Mr Marín said that he had become aware of the situation the previous October when he read a working document forwarded by the Court of Auditors.
Along the same lines, when interviewed in December 1997 as part of the administrative inquiry (to which we shall return below), the Director-General responsible referred to above contended that 'in the 'cabinet' the principal interest was in the Middle East peace process and that they were not aware of any specific problems until the interim report of the Court of Auditors was presented to them.'
3.2.14. On 23 November 1995, Mr Marín informed Mr Karlsson of the measures taken: non-renewal of the two contracts with ARTM which were to expire in January 1996, carrying out of an audit of ARTM by DG XX, non-renewal of the contracts with the TAOs (TVE, FERE, CUD and ISMERI), conducting of an inquiry in order to establish possible internal responsibility and consideration of the action that might be taken against senior officers of ARTM.
3.2.15. On 23 February 1996, Commissioner Marín's Chef de Cabinet contacted the Director-General and reminded him of the request made on 23 October, referred to above, that he 'establish whether or not it was justified to bring legal proceedings before the Belgian courts against senior officers of ARTM and the TAOs which had benefited from decisions involving a conflict of interests. The Chef de Cabinet went on to say that the Vice-President had undertaken, in a letter to Mr Karlsson of 23 November the previous year, to shed light on this issue and accordingly, on behalf of Mr Marín, Vice-President, the Chef de Cabinet asked the Director-General to contact forthwith the Director-General of the Legal Service and, where appropriate, senior officials in UCLAF with a view to establishing at the earliest possible opportunity the position of the Commission on the action it might take against ARTM's senior officers' (The final part of the sentence was underlined in the original.)
3.2.16. On 18 March 1996, Mr Marín's Private Office drew the attention of the Director-General to the importance of this issue and asked him to speed up and complete the work designed to put into effect some of the measures announced (new plan approved by the Commission and possible prosecution).
3.2.17. On 30 May 1996, the Court of Auditors adopted Special Report No 1/96. The report felt that the Commission's transfer of powers to ARTM ('In view of the nature and scope of the powers conferred on the ARTM, what the Commission had actually done was to delegate its powers de facto to a third body, rather than sign mere service contracts') had no legal basis, that the Commission had not taken a decision of principle on this issue, and that the relevant Directorate-General had not even waited for the opinion of the Legal Service before launching the programmes and had not informed the Financial Control Department before signing the initial contract with ARTM.
3.2.18. The report also states that 'Serious confusions of interest developed in the implementation of the MED programmes which the Commission failed to put an end to in a timely manner. ... The risks of such situations arising were evident from the outset and should have led the Commission to call the system itself into question. ... There was excessive recourse to private-treaty contracts, without proper tendering. Private-treaty contracts have permeated the whole structure of the MED programmes. This was one of the elements contributing to the development of conflicts of interests referred to above .... .'
3.2.19. To sum up, the major criticisms levelled by the Court of Auditors are: the delegation of powers to ARTM, the confusion of interests arising from the fact that TAOs were represented on its management board, the private-treaty contracts, and poor management and monitoring.
3.2.20. The report by the Commission's Financial Control Department, dated 8 July 1996, concerning an audit of ARTM concludes that 'the performance by ARTM of the management tasks assigned to them had been generally satisfactory ... Significant irregularities had been detected in the financial systems of DG IB, which substantially control the management of the programmes by ... selection of beneficiaries and contractors for all types of expenditure. Certain situations, including potential conflicts of interest, will be brought to the attention of UCLAF.'
The report on the TAOs drawn up by the same department reaches the conclusion that 'consideration should be given, in the management system of the MED programmes, to the following matters: - a detailed list of tasks that can be delegated and others that cannot be delegated should be prepared; - reimbursement of accommodation and subsistence expenses should be based on actual expenses incurred ...'.
Finally, the report by the Financial Control Department on the 'projects' takes the view that 'the controls performed have identified several matters ... these relate mainly to: improvement of contracts currently used (the advice of the Legal Service should be sought in each case); improvement of financial supervision: in this respect, the tasks of the programmes financial agency should be formalised by DG IB in a manual of procedures; the performance of control visits should not, as with ARTM, be neglected ...'.
3.2.21. On 17 July 1996, on a proposal from Mr Marín, the Commission adopted a communication on a 'general framework applicable to the decentralised Community programmes in Latin America, Asia and the Mediterranean', which stipulates, inter alia, that only the Commission may decide to call in an external management body and that there must be a clear separation between technical and financial tasks and lays down the tasks which the Commission may not delegate. A second communication deals specifically with the system for the management of decentralised cooperation programmes in the Mediterranean area.
3.2.22. When he appeared before the European Parliament's Committee on Budgetary Control on 25 September 1996, Mr Karlsson acknowledged that the Commission had done everything in its power to remedy the shortcomings criticised without delay, at least as regards decision-making procedures.
3.2.23. On 16 January 1997, on a proposal from Mr Marín, the Commission approved four specimen contracts applicable to the decentralised cooperation programmes, setting out, in particular, provisions on the prevention of conflicts of interest, incompatibilities, confidentiality and penalties.
3.2.24. On 15 May 1997 UCLAF, the Commission's Anti-Fraud Unit, submitted a report dealing with ARTM and the MED programmes which took the view that 'in addition to confirming the comments made by the Court with regard to public contracts and conflicts of interest, the auditors - DG XX - had highlighted relatively wide disparities between the amounts paid by the Commission and the actual substantiated costs' and that it should be borne in mind that the conclusions of the audits carried out by the Financial Control Department had led to the drafting of recovery orders (ECU 355 660 against ARTM, ECU 424 023 against FERE and ECU 1 204 582 against ISMERI).
The report stated that the amount in respect of ARTM 'had resulted from the submission to the Commission of artificially high invoices for staff costs, that these disparities had been regarded as the result of errors, rather than an attempt at deliberate overcharging', that, as regards the amount in respect of FERE, 'the facts brought to light, with the exception of the links with ISMERI', were not particularly serious, and, lastly, 'that with regard to ISMERI the documents it had submitted were vague and seemed to have been drawn up in order to 'substantiate' declarations intended as claims for the full amounts entered in the budget from the start'.
As regards the internal investigations, the report noted that the consideration of documents and interviews 'had not brought to light facts likely to call into question the actions of officials in the exercise of their duties, at any level of management'. As regards the external investigations, however, they had led to 'requests for inquiries into companies by UCLAF's national liaison officers in Belgium, France and Italy with a view to detecting transfers of charges and profits and inquiries into the personal situation of their senior managers'.
As regards legal proceedings, 'in view of the full involvement of the Commission's departments (according to the Legal Service, the measures referred to by the Court of Auditors had been adopted with the knowledge and agreement of senior management at the Directorate for Mediterranean Affairs), it could not claim damages for any loss resulting from a failure to comply with the rules applicable to public contracts.
In conclusion, the report took the view that, 'setting aside any external legal action, which would be limited in scope, mention should be made of the problems facing all the Commission's departments in justifying, in this context, the exclusion of the companies under investigation from future funding arrangements'.
3.2.25. The above-mentioned report follows on from another, very succinct, report, dated 20 November 1996 and entitled 'Summary Report', which concludes that there is no evidence to suggest that Commission staff knowingly committed crimes which represented a breach of the Staff Regulations. UCLAF asked the competent Belgium judicial authorities to assess the scope for criminal proceedings for a conflict of interests.
3.2.26. On 10 June 1997, at Mr Marín's request, a decision was taken to open a preliminary internal administrative inquiry. On 14 July 1997 the Secretary-General of the Commission, Mr Williamson, instructed the Director-General of DG XXII to carry out the inquiry.
3.2.27. The European Parliament's resolution of 17 July 1997 on Court of Auditors' Special Report No 1/96 calls on the Commission to forward to the judicial authorities of the Member States concerned all the details of the case for consideration of any possible legal implications. Parliament 'is astonished that the delegation by the Commission of its powers to ARTM, under the conditions described above, was done quite openly and that, for three years, no official found any reason to object' and 'regrets the length of time it has taken for the Commission to detect the extent of the problem within other Directorates-General'.
3.2.28. The findings of the above administrative inquiry were notified on 28 July 1997. On one level, it is noted that 'The explosion of political interest and budget allocations was just too much to handle, especially in the initiation stage of the programme ... It should be noted that all the relevant procedures were followed regarding financial management of contracts ... all insist that the work was done in a serious and professional fashion... proper procedures would appear to have been followed in project evaluation, selection and project list adoption after the advice of the MED Committee..'.
On another level, however, the view is taken in these findings that 'In the need to get on with the job, there was certainly confusion of interest between project promotors, evaluation committee members and final contracting parties. Commission officials were involved in these exercises without proper guidance or control vis-à-vis their role and responsibilities. This 'culture' is well reflected in their seeing nothing wrong in participating as observers in Board meeting of ARTM ... In summary, a confusion of interest did exist against a background of virtually no management control or guidance. There was no code in terms of differentiation between Commission officials' roles and responsibilities and involvement of outside parties ... The 'management', rather than individual staff members surely bears prime responsibility ...'.
3.2.29. On the same date, the interim report drawn up by the Commission's Secretariat-General on the 'management of the decentralised MED programmes' concluded that 'there was evidence of poor management but not of any fraud or intentional individual negligence on the part of officials'.
3.2.30. On 30 July 1997, in a note to the Secretary-General, Mr Marín's Chef de Cabinet took the view that 'it was in the interests of the Commission for all the facts to be duly established and for light to be shed on the conduct of the officials involved in this affair. That was the line which Commissioner Marín had taken as soon as he became aware of the matter. The Commissioner took the view that the conclusions set out in the report referred to above were provisional, and he was waiting, as determined by the Commission as a body and announced to the European Parliament, for the inquiries to be completed'.
3.2.31. On 18 September 1997, Mr Marín asked Mr Liikanen to ensure that 'the interim conclusions (of the Director-General in charge of the inquiry) were supplemented by all the additional investigations necessary at the earliest possible date'.
Accordingly, the Secretary-General entrusted an additional inquiry to a panel of three directors-general.
By letter of 17 October 1997, Mr Trojan, Secretary-General of the Commission, asked them 'to complete the inquiry with all the additional investigations necessary in order to obtain a full picture of the role of Commission officials in the MED Programme ... conversations with all the management staff operational in this field during the period 1991-5 will be indispensable'.
3.2.32. On 13 October 1997, DG IB proposed that the programmes be resumed. On 10 November 1997, Commissioner Marín notified the conditions and procedures for the resumption of the MED programmes.
3.2.33. On 12 January 1998, the panel of directors-general referred to above adopted the findings of the internal administrative inquiry. They concluded that errors had occurred in the establishment of the management structure, errors for which the Director-General and Director concerned were specifically responsible, and in the day-to-day management and monitoring, for which the Head of Unit concerned was responsible.
They found no evidence of fraud carried out or personal profit made by officials. Accordingly, the facts were not deemed to be such as to require the taking of disciplinary measures; it was considered sufficient to bring them to the notice of the three officials concerned and ask them for their views.
It should be noted that, in the conclusions, 'the panel was told that the immediate inspiration for this type of cooperation came from the Head of Unit concerned, late in 1991 and this was later backed by his superiors. The management construction was decided at services level in the sense that the framework document of October 1992 setting out the details of the construction was not submitted by the Directorate General to the Commission itself for authorisation or to other horizontal services for advice. Top management should have made sure that even though there was pressure to set up the programmes, sufficient monitoring and control mechanisms were established, in particular in view of the fact that the financial management was undertaken by a service outside the hierarchy of DG I. It is the opinion of the Panel that the responsibility for the management construction and related matters as far as the services level is concerned, primarily rests with the Director General ... the Director must take some share of the responsibility for mistakes made in the initial phase. The Head of Unit who proposed the structure and did not, in the circumstances set out above, take the initiative to obtain the views of other services on that structure, fully participated in the setting up of the construction'.
On the other hand, the panel took the view that, 'contrary to the impression left by the Court of Auditors' report, powers for financial matters were not delegated to ARTM. Rather, all the preparatory administrative work was handed over to the ARTM whereas final decisions and payments were made by officials in the unit ... It is the opinion of the Panel that the responsibility for the mistakes rests primarily with the Head of Unit ... The Panel feels that consideration should be given to the expression of dissatisfaction as to the level of management performance in connection with the Med programmes to be addressed to the above persons ... The main originator of the Med programmes was the Head of Unit, who had been delegated the responsibility for their management by the Director General ... it appears that the Head of Unit invited a number of parties including FERE and ISMERI to form a non-profit-making organisation - ARTM -'.
3.2.34. It must, however, be emphasised that, in his letter to the panel dated 25 February 1998, the Head of Unit took the view that 'it was surprising that the Institution was turning against its staff, to which it had not only not given the resources required for them to carry out the duties with which it had entrusted them. The Commission had not provided either the regulatory framework or the procedures essential for the marking out, in administrative terms, of duties on what was completely new ground. For their part, the Unit's staff had carried out the duties required of them in total transparency vis-à-vis their superiors and all the departments concerned, including Financial Control'.
3.2.35. On 6 March 1998, the Secretary-General sent to the former Director-General and Director responsible for the Mediterranean, and to the former Head of Unit responsible at that time for the decentralised programmes, a letter which 'expressed dissatisfaction with [their] management performance in relation to the MED programme'. That letter constitutes the sole criticism levelled directly at the officials concerned. It should be added that it was inserted only into the personal file of the last-named, i.e. the Head of Unit (the lowest-grade official).
3.2.36. On 3 April 1998, Mr Marín authorised the actual resumption of the MED cooperation programmes.
3.2.37. Recital J of the European Parliament resolution of 17 November 1998 on the MED programmes notes that a total of 16 technical assistance contracts were awarded, in ten instances without invitation to tender, i.e. by private treaty, that two of the four board members of ARTM were also managers of the two TAOs, which created a conflict of interests, and that Commission officials contributed to the creation of a system 'which made proper management of Community funds impossible' (recital P). 'It called on the Commission 'to forward the entire file ... on the MED affair to the judicial authorities in Belgium, France and Italy and not, as has been the case hitherto, only parts of the file'.
3.2.38. On 15 January 1999, the Commission forwarded to Parliament the second progress report on the follow-up to the audit carried out by LUBBOCK FINE in respect of the projects. Accordingly, 'Commission audit work performed to date has identified 37 cases ... in respect of which recovery orders for a total of MECU 1.9 have or will be issued. The follow up of the MED projects review report, including second audits and issue of recovery orders required, will continue throughout the following weeks. An updated report on the situation of the follow-up will be issued by end of February 1999'.
3.3.1. The facts set out hitherto demonstrate that ARTM was the creation solely of the Commission (which even paid the costs of setting it up), in particular via the framework document of 21 October 1992 referred to above. Furthermore, the administrative and contractual 'roots' of the entire management structure derive from this document, which was never formally approved.
3.3.2. However, the Commission's Legal Service warned the management service about the weaknesses and the risks of the entity starting up, with particular regard to the delegation of powers and the obligation to issue calls for tender. It should also be recalled that the initial contract between ARTM and the Commission was signed before the Legal Service had delivered its (very hesitant) opinion.
3.3.3. Given the nature and scope of the powers conferred on ARTM, what the Commission had actually done was to delegate its powers de facto to a third body, rather than sign mere service contracts.
3.3.4. This structure seems scarcely compatible with the basic Regulation (EEC) No 1763/92 and with the financial and judicial provisions applicable. As the Court of Auditors states in its Special Report No 1/96, the delegation of powers took place in the absence of any clear legal basis and without the Commission's having adopted at least a decision of principle on this issue.
3.3.5. Furthermore, both ARTM and the TAOs were appointed, at least in the initial phase, under private treaty arrangements controlled by the Commission. On 29 February 1996, a note from the Commission's Legal Service justifiably took the view that, according to the terms of the contract between the Commission and ARTM signed on 25 November 1992, 'ARTM had no further contractual obligation to issue calls for tenders. A substantial item of expenditure financed from the Community budget therefore had not been covered by the safeguards sought by the public procurement Directives'.
3.3.6. Although the Commission assigned the administrative and financial management of the MED programmes to ARTM by private-treaty contracts from 1992 until December 1993, the agency did secure a new contract following an invitation to tender. As the Court of Auditors' report indicates, 'The Commission issued an invitation to tender only when the conditions of equality between the applicants had definitively ceased to exist, even though that meant squandering the experience acquired over the previous two years. Furthermore, the 'brother' programmes subsequently launched as part of the peace process in the Middle East were also entrusted to ARTM by private treaty contracts as was the technical monitoring, for example, of a Peace programme concluded by private contract with FERE Consultants on 18 January 1995.'.
3.3.7. If we apply the rules on competition, we see that this application is biased since the other candidates were treated unequally, given the prior knowledge and the information conveyed to the TAOs which were already working for the Commission.
3.3.8. To sum up, the Commission's departments failed in their duty to monitor the situation with regard both to the delegation of powers and to the issuing of calls for tender.
3.4.1. Directorate IB-A (Mediterranean Directorate) of the Commission's DG I had decided not to manage the programmes directly and had therefore entrusted 'technical management' (monitoring) and 'administrative and financial management' of the programmes to outside firms.
3.4.2. The reason given was that the Commission could not expect its staff to deal directly with the technical management and/or the financial management of the new programmes for decentralised cooperation in the Mediterranean because it did not have enough staff in the DG IB referred to above and in the Commission in general.
3.4.3. Although the situation as described does not justify the issue of the delegation of powers, while it does help us to understand it better in its context, the same cannot be said of the failure to issue calls for tender for the appointment of ARTM and the TAOs. Whatever the case may be, the lack of staff cannot under any circumstances justify the conflict of interests referred to, the central issue of this file and one which has no connection with the lack of staff referred to.
3.5.1. This conflict of interests appears in this file in many forms: firstly between Commission officials and ARTM, then between ARTM and the TAOs.
3.5.2. In an internal document dated 28 September 1993 and drawn up by the unit concerned, it is acknowledged that 'two of the founder members of ARTM - ISMERI Europa and FERE Consultants - had given the Commission technical assistance in the drawing up of the MED decentralised cooperation programmes (Urbs, Campus and Invest). During the pilot year, they then provided technical assistance for the MED Campus and MED Invest programmes. Given the deadlines laid down, the lack of resources and staff at the Commission, and bearing in mind, furthermore, their experience and the fact that no other more appropriate form of collaboration was available to the Commission for the early start-up of the programmes referred to above, DG I instructed ARTM to provide it with assistance in carrying out those tasks'.
3.5.3. Another internal document states that 'The reason why Fere and Ismeri were chosen to support the Commission in the setting up of the Med programmes was said to be that they were well known, as they had already worked for DGV ... Having done the preparatory work for the future Med programmes, the two firms were judged by DG I to be the best placed companies with the necessary know-how ... it was reasonable to contract directly with the same companies that had prepared the programmes for the running of the technical support function'.
3.5.4. Lastly, the above-mentioned note of 27 September 1993 states that, as implementation of the Med programmes was sufficiently advanced, the presence of the above-mentioned consultancies (FERE and ISMERI) on the management board of ARTM was no longer justified, particularly since that could be a factor causing ambiguity.
3.5.5. Such 'explanations' are on no account acceptable, as the last paragraph suggests.
3.5.6. We have seen that, as regards management of its MED programmes, the Commission delegated its management powers to the association ARTM, two of whose founding companies (FERE and ISMERI) were at the same time providing technical assistance for those programmes. Two management board members belonged simultaneously to the association and to the offices referred to above, giving rise to a manifest conflict of interest. Until April 1995, accordingly, those two ARTM management board members (out of a total of four) were also managers of two TAOs: FERE and ISMERI.
3.5.7. As noted in the Court of Auditors' report, two of the four ARTM management board members were, until April 1995, also managers of the TAOs (the firms FERE Consultants and ISMERI) responsible for monitoring the MED programmes. In point 56, it states that 'Once the Commission had realised the danger of this situation, it asked the managers of the BATs responsible for monitoring to resign from the ARTM's Management Board. The minutes of the meetings of the Agency's Management Board show how vigorously those concerned resisted the Commission's requests. Nearly a year and a half went by before they finally decided to step down, in circumstances which are questionable to say the least. Thus, the minutes of the meeting of 11 October 1994 of the Agency's Management Board show that the two administrators 'would resign if: - FERE Consultants were chosen by the European Commission to provide technical assistance for the MED-Invest programme, [or if] ISMERI Europa were reselected as the Technical Assistance Bureau (TAB) for the MED-Campus programme'. Furthermore, both of these managers asked to be able to propose a candidate of their choice to replace them in the event of their resignation. Once all of these conditions were fulfilled, both administrators resigned from the ARTM's Management Board in April 1995.'.
3.5.8. Finally, point 57 of the report states that 'In view of the seriousness of these findings, the Court immediately informed the Commission of them, so that it could take appropriate measures and examine, in particular, the need to take legal action against those responsible'.
3.5.9. However, the above 'historical' circumstances cannot justify the fact that FERE and ISMERI secured more than 60% of the technical assistance appropriations made available by the Community budget for the MED programmes, particularly since, because of their dual status, they were able to participate in the process of negotiating contracts concluded with themselves. The truth is that ARTM awarded contracts to TAOs by private treaty.
3.5.10. What is worse still, however, and shows even more clearly the absurd situation which had emerged is the fact that, as is indicated in a Commission Legal Service note of 13 March 1996, 'Commission officials were apparently present at ARTM meetings at which the choice of FERE and ISMERI was approved. The Legal Service simply commented that, because of the involvement of Commission services, it would appear difficult to win a court case against ARTM'.
3.5.11. Examination of the file (in particular the framework document, the contracts between the Commission and ARTM and certain contracts concluded between ARTM and the TAOs, to which the Commission is a co-signatory) reveals that it is the Commission which dictated the choice of contractors to ARTM. From this we conclude that ARTM was obliged by the Commission to engage FERE and ISMERI, at least initially.
3.5.12. To sum up, and as Parliament's rapporteur rightly pointed out in his document of 4 July 1997 in preparation for the resolution on report No 1/96 of the Court of Auditors, 'Everything was completely out in the open right from the start. But it is exactly this that almost takes one's breath away. Your rapporteur has been unable to ascertain whether the original idea was conceived by a Commission official, but there is no doubt that Commission officials took an active and decisive part in bringing about the establishment of a system to administer the decentralised Mediterranean programmes which was almost bound to lead to a confusion of interests which would have serious consequences.'.
3.6.1. While the fact that the files have been or may be forwarded to the competent judicial authorities (in Belgium, Italy and France) and the recovery of certain amounts may point to fraud, it must be realised that these moves relate only to the 'external' aspect, i.e. the private firms or entities which worked with the Commission.
3.6.2. Indeed, such a move, at least for the time being, does not concern officials at the Commission, since the inquiries conducted within the Commission found no proof of fraud involving officials.
3.6.3. However, we regard the conclusions of the administrative inquiries ordered by the Commission Secretary-General as most disappointing. As far as procedure is concerned, there are question marks also against the validity of 'administrative inquiries', a legal device not provided for in the Staff Regulations of Officials. Given the circumstances involved, Article 86 et seq. of the Staff Regulations should have been applied, at least in order to impose the least serious penalties ('written warning' or 'reprimand'). It should be pointed out that the letters sent to the officials concerned do not come under this legal framework.
3.6.4. As to the substance of the issue, they do not appear to shed sufficient light on the situation which had been created and on the actual responsibility of the various officials involved, particularly with regard to the founding of ARTM by FERE and ISMERI.
3.6.5. For instance, the UCLAF summary report dated 20 November 1996 on 'ARTM/MED programmes', containing three pages in all, reaches the conclusion that, 'with one exception (case now resolved), it did not appear that Commission staff required to have dealings with the ARTM managers and with the TAOs for the MED programmes had knowingly committed acts (criminal offences) contrary to the Staff Regulations'.
That report, albeit 'confidential', has not a single observation to make on the procedure followed, on the persons questioned or interviewed, or on the evidence on which it was based, etc. The report in fact boils down to a mere, and very brief, account of the background to the case, of the Court of Auditors' report and of the relations between ARTM, FERE and ISMERI already described in the report.
Accordingly, that UCLAF text cannot be termed complete or detailed, and it provides no additional help in shedding light on the machinations within the Commission which led to the situation we are describing here. The conclusions of the final report, dated 15 May 1997, are not satisfactory in so far as they imply the status quo. Moreover, it has emerged that the requests for inquiries which were announced were no such thing because they were confined to a few items of information - and irrelevant information, to boot. At all events, should new facts be discovered which were not known when UCLAF carried out its investigation, the case ought to be reopened.
3.6.6. The administrative inquiry reports are also superficial. The results of the preliminary inquiry of 28 July 1997 (two pages this time!), requested by the former Secretary-General, Mr Williamson, are entirely unacceptable, if only because they were produced without even interviewing the former Director-General and Head of Unit with responsibility for the programmes. In terms of tone, this preliminary inquiry is, on occasion, tinged with a degree of irony with regard to the task asked for ('I found all the people helpful, but curious as to the need for and the nature of the task I was undertaking!).
Nor do the results of the final inquiry of 12 January 1998, albeit more detailed, succeed in shedding light on the origins of the case and on establishing where genuine responsibility for bad management lay. Furthermore, it is surprising that the Head of Unit should be singled out as bearing virtually sole responsibility: 'It is the opinion of the Panel that the responsibility for the mistakes rests primarily with the Head of Unit ... The main originator of the Med programmes was the Head of Unit, who had been delegated the responsibility for their management by the Director General ...'. However, such observations are understandable only if there is no accountable chain of command. Very much contrary to the conclusions, the description of the circumstances in that inquiry argues in favour of the entire management chain bearing a heavy responsibility as a result of having entrusted the development and implementation of a programme to a mere head of unit. Accordingly, and to sum up, the conclusions are contradictory and clear-cut responsibility.
3.6.7. In spite of this, however, and unless there is proof to the contrary, the in-house Commission view is that this is a case of bad management (and not fraud), however obvious the former and however implausible the latter may appear. That 'bad management' stems from repeated failure to comply with the rules of the Financial Regulation (Title XV) with regard to competitive tendering and, in general, as has been seen, the lack of overall consultation within the technical services concerned (financial and legal) or the failure to take their opinions into consideration when putting a new policy in hand. That has produced a powerful tendency towards negligence and, to some extent, a willingness to dispense with procedures and even to forget fundamental principles concerning the award of contracts.
3.7.1. It should be pointed out that, once the Court of Auditors had drawn the attention of Mr Marín to the irregularities discovered in the second half of 1995, he took significant remedial action (reports were requested, programmes and contracts were halted or suspended, and a new framework was established, etc.).
3.7.2. With regard to the administrative inquiries' duration and results, whether or not they are convincing, and, in particular, the search for possible involvement of Commission officials, the Commissioner cannot be held responsible. However, we take the view that he could have asked much earlier for a formal inquiry into the circumstances of the case, given that 20 months elapsed after the first letter was forwarded by the Court of Auditors (October 1995), containing a working document on the MED programme audit, before the preliminary administrative inquiry opened (June 1997).
3.7.3. To sum up, it seems that direct responsibility for the structure of the policy on the part of the Commissioner currently responsible for the matter (Mr Marín) has to be ruled out. The only responsibility borne by Commission Marín in this case is general responsibility with regard to monitoring and supervising the areas coming within his terms of reference.
3.7.4. However, the Commissioner previously in charge seems to bear much more clear-cut and much greater responsibility. As we examined above, all the problems which have emerged date from 1991/92, when the issue arose.
3.7.5. The Commissioner responsible at the time is the Commissioner responsible for the launch of the programmes and for signing the main contracts.
3.7.6. At that time, the relevant Commission services - theoretically the programme managers - lacked clear instructions and an appropriate framework, which were all the more important in that a new Community policy was getting under way which opened up some civil service sectors to subcontracting to private companies (in spite of the opinions of the competent technical services, which, to say the least, were hesitant), a practice which inevitably expanded subsequently. Under the circumstances, a minimum degree of superintendence might have been expected of the Commissioner responsible; it was not forthcoming.
3.8.1. In 1992, the Commission was faced with a problem resulting from insufficient manpower. The Commission could perhaps have deployed its staff better.
3.8.2. An entirely new Community policy with a large budget, under which vital civil service tasks were delegated to the private sector without the Commission retaining sufficient control over the process, was put in place at a time when the Commission as a body was not specifically aware of it and had not effectively discussed it.
3.8.3. As is pointed out by the Court of Auditors' Report No 1/96, everything got under way without awaiting any decision of principle by the Commission and without waiting for, or following, the opinions of the relevant technical services (legal and financial), which were all the more important at what was assuredly a Community policy watershed.
3.8.4. The introduction and implementation of the MED programmes were thus marked by improvisation, haste and, indeed, incompetence, with grave consequences: irregular delegation of powers, failure to comply with competitive tendering rules and, above all, manifest conflicts of interest caused by the Commission services themselves.