Strasbourg, 17 Novemebr 2006

Dear Mr X.,

On 23 December 2003, you lodged a complaint with the European Ombudsman against the European Commission, on behalf of the association Y. Your complaint concerned the Commission's decision of 25 March 2003 refusing to provide financial assistance to a request for funding made by Y.

On 31 March 2004, I forwarded the complaint to the President of the European Commission. I received the Commission's opinion on 6 July 2004, and forwarded it to you with an invitation to make observations. I received your observations on 10 August 2004. On 25 April 2005, I wrote to the President of the European Commission in order to seek a friendly solution to your complaint. The Commission replied on 18 July 2005. I forwarded the reply to you for possible observations. On 16 January 2006, I received your observations. You sent additional information to me on 28 February, 8 and 13 March, as well as 19 and 25 July 2006.

I am writing now to let you know the result of the inquiries that have been made.

THE COMPLAINT

Background: case 278/2003/JMA

In 2002, the complainant had first made a request for financial assistance on behalf of the environmental organisation Y in the framework of a NGO Action Programme. On 12 August 2002, the Commission refused the request referring to grave accusations, of falsification of signature of a document and allegedly illegal amendments to the Statutes of the organisation, that were being pursued by the competent judicial authorities of a EU Member State. The Commission argued that the existence of a legal action against Y called into question the legal standing of the organisation, and the nature of its relationship with one of its subsidiaries, a third organisation named Z.

In the complainant's view, the justification given by the Commission for the exclusion of Y, namely the existence of a legal action against the organisation before the national courts, was groundless since such action merely involved a preliminary inquiry carried out by the national public prosecutor. The complainant subsequently lodged a complaint with the Ombudsman in which he alleged that the Commission's decision had no legal basis, and that it had been taken without first giving him the opportunity to be heard. He therefore claimed that the Commission should reconsider its position and grant Y the requested assistance. The case was registered under file number 278/2003/JMA.

[The Ombudsman’s findings as regard this complaint are described below in the section on the proposal for a friendly solution].

Case 281/2004/JMA

At the end of 2002, the complainant made a new request for financial assistance for the year 2003 in the framework of the same Action Programme. On 25 March 2003, the Commission rejected his new request, restating in its decision the very same arguments it had put forward to reject the complainant's 2002 request. The complainant then submitted a new complaint to the Ombudsman, registered under file number 281/2004/JMA, which constitutes the object of the present decision.

In his complaint to the Ombudsman, the complainant repeated the arguments already made in his previous complaint. He argued that the Commission had failed to identify the source of the allegations and to take account of his arguments before making a final decision. In his view, the Commission's reasoning found no legal basis in the Call for Submissions of Proposals of the Action Programme.

In the complainant's view, the inquiry pursued by the national public prosecutor had been the result of a slander campaign launched by a former Y employee who had been laid off. The complainant underlined that the legal proceedings involving his organisation had been brought to a close on 7 October 2002 by the judge in charge of the inquiry. The magistrate had concluded that there was no evidence against the complainant.

As regards one of the allegations being reviewed in that procedure, namely the legal relationship between Y and Z, the complainant noted that the conditions of the partnership had been clearly laid down in a co-operation agreement signed in 1995 between the two organisations, and that the Commission was well aware of the nature of that relationship, as shown in the audit it carried out on the Y's operations on 28 January 2002.

In his new complaint to the Ombudsman, the complainant regretted the hostile attitude shown by the Commission against Y, as illustrated by the fact that OLAF had recently started an inquiry into the organisation's financial management.

In the light of the information submitted in the complaint, the Ombudsman opened an inquiry. The allegations and claim on which the Ombudsman asked the Commission to submit an opinion were similar to those of case 278/2003/JMA, namely:

The complainant alleged, in summary, that the Commission's decision of 25 March 2003 was unfair in that it did not respect his right to be presumed innocent until proven guilty. He claims that the Commission should reconsider its position.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission noted that the reasons for the rejection of the complainant's grant applications in 2002 and 2003 were identical. The institution took the view that there were serious concerns resulting from Y's internal legal problems, as a result of which the potential beneficiary should have convincingly proved that no illegal situation existed and that the institutional stability of Y had been restored. The Commission believed that no such substantial evidence had been presented.

The institution therefore concluded that the considerations put forward in its opinion in case 278/2003/JMA should also apply to this case.

The Commission stressed that a key principle in the management of the Community budget is that of sound financial management, and that this principle would not have been respected if its services had granted assistance to the complainant, considering the existing doubts concerning his financial probity.

It added that OLAF was carrying out an inquiry into the complainant's financial management. On the basis of the investigation carried out by OLAF, the Commission should be able to decide whether or not to resume a normal relationship with Y based on mutual trust, in which future applications for funding ought to be welcomed.

The Commission concluded by stating that, in view of the serious nature of the allegations, its services had to apply the precautionary principle as long as the situation could not be clearly established.

The complainant's observations

In his observations on the Commission's opinion, the complainant repeated the arguments put forward in his complaint. He noted that his comments on the opinions submitted by the Commission in the context of the Ombudsman's inquiry in case 278/2003/JMA were also relevant and applicable to his new complaint. He added that the Commission services had already carried out an audit of Y's financial activities on 28 January 2002, which had found no irregularity. As a result of the audit's findings, the institution had to withdraw its requests for the reimbursement of the 1998 grant and for the suspension of the 2000 and 2001 assistance.

The complainant also underlined that the legal action against Y was merely a preliminary inquiry launched by the national public prosecutor and, in no way connected to the nature of the statutes or the structure of the organisation.

THE OMBUDSMAN'S EFFORTS TO ACHIEVE A FRIENDLY SOLUTION

The Ombudsman's proposal

After a careful evaluation of the opinion and observations, the Ombudsman did not consider that the Commission had responded adequately to the complaint. Article 3 (5) of the Statute of the Ombudsman(1) directs the Ombudsman to seek, as far as possible, a friendly solution with the institution concerned to eliminate the instance of maladministration and satisfy the complainant. The Ombudsman’s provisional conclusion was that, s ince the Commission had not produced evidence to cast any reasonable doubt on the complainant's legal and financial standing and/or his overall integrity, the Commission should agree to resume a normal relationship with the complainant's organisation, based on mutual trust, and to deal with future applications for funding accordingly. The provisional conclusion was based on the following considerations:

The Ombudsman had already had the opportunity to consider the issues raised in this complaint, in the context of his decision of 2 December 2004 on a previous complaint (ref.: 278/2003/JMA), lodged by the same complainant and involving a very similar factual situation.

In that case, the Ombudsman found that the Commission had not been able to show that it had struck a fair balance between the need to pursue sound financial management of its grants, and the complainant's right to be treated both fairly and with due respect to the presumption of innocence, in breach of Article 6 (2) of the European Code of Good Administrative Behaviour. This constituted an instance of maladministration, for which the Ombudsman had already addressed a critical remark to the Commission.

The Ombudsman also made a number of recommendations through a further remark. The Ombudsman took the view that similar problems might be averted if the institution were to provide its services with guidance or instructions on how to respect a fair balance between the interests of private persons and the general public interest in cases involving ongoing judicial or administrative inquiries regarding the legal and financial standing of potential beneficiaries of Community assistance. It was difficult to envisage how the Commission could strike this balance unless it communicated to an applicant for a grant any doubts that it might have as to the applicant’s legal standing and was then prepared to listen and respond to information provided by the applicant in order to clarify those doubts.

In light of the findings made in the context of case 278/2003/JMA, the Ombudsman noted that the Commission had tried to justify its position in relation to the complainant in both case 278/2003/JMA and 281/2004/JMA, on the grounds that OLAF had been carrying out an inquiry into the complainant's financial management since 1 July 2003. The Ombudsman pointed out that he was not aware, however, of any legal rule or principle which could entitle the Commission to treat the mere fact that OLAF was conducting an inquiry (which the Commission itself might have requested) as evidence to justify reasonable doubt about the complainant's legal and financial standing and/or his overall integrity.

In the absence of a better substantiated explanation from the Commission showing that its refusal of the complainant's request for financial assistance in 2003 took due account of the complainant's right to be treated both fairly and with due respect to the presumption of innocence, the Ombudsman's provisional conclusion was that the Commission had not treated the complainant fairly, in breach of Article 6 (2) of the European Code of Good Administrative Behaviour, and that this action constituted an instance of maladministration.

By letter dated 25 April 2005, the Ombudsman therefore proposed that the Commission should agree to resume a normal relationship with the complainant's organisation, based on mutual trust, and to deal with future applications for funding accordingly.

The Commission's reply to the critical and further remarks made in the Ombudsman’s decision on complaint 278/2003/JMA

On 5 July 2005, subsequent to the Ombudsman’s proposal for a friendly solution to the present complaint (281/2004/JMA), but before replying to that proposal, the Commission replied to the critical and further remarks made by the Ombudsman in his decision of 2 December 2004 regarding complaint 278/2003/JMA. The Commission argued that its decision to exclude the complainant from any future financial assistance had been based on its findings in the course of an audit carried out by its services. As for the need for its services to strike a fair balance between the interests of private persons and the general public interest, the Commission explained that it had updated its 1997 Early Warning System (EWS), aimed at alerting the responsible services of potential financial problems involving third parties seeking EU assistance or already benefiting from it. Accordingly, the improved EWS system makes it possible for early warnings regarding administrative errors or fraud involving a third party to be entered into the "central financial information system" at the request of OLAF, authorising officers, the Internal Audit Service (IAS), or the internal auditors. The result of this mechanism is a reinforced monitoring of the third party, and the eventual referral of the matter to IAS, DG Budget or the responsible Commissioner.

The Commission's reply to the proposal for a friendly solution in the present complaint (281/2004/JMA)

On 18 July 2005, the Commission replied to the Ombudsman's proposal for a friendly solution. The institution argued that, in previous communications, it had noted that its services were awaiting the completion of a report being prepared by OLAF on the basis of which it would decide whether or not to resume a normal relationship with the complainant. On 3 May 2005, following an inquiry, OLAF had issued a report in which it addressed a number of very critical remarks concerning the financial dealings of Y, including the following:

* all minutes of General Assemblies and Executive Committee Meetings had been signed only by the Secretary General of Y, and not by the President of the Network, allowing for a potential manipulation of those documents;

* Y had submitted identical invoices to different administrations at the same time, so that it could have received several reimbursements for the same expenditure;

* Y had entered into grant agreements with Z, a subsidiary organisation. Since they constituted two different legal entities, the grant agreement forbade the complainant from entering into sub-contracting agreements without informing and obtaining the Commission's prior agreement. Since Y never did so, none of costs incurred by Z could be considered eligible.

The Commission concluded that, in light of those findings, it could not possibly resume a normal working relationship with Y based on trust, and, as a result of the situation, it had had to launch recovery orders to obtain the reimbursement of the grants paid to Y during the period 1998-2000.

The complainant's observations

The Ombudsman forwarded the Commission’s reply to the complainant. In his reply, the complainant explained that, as a result of the Commission's action, his organisation had been forced to close its main office and to cease most of its activities. The complainant argued that, after two years of a thorough inquiry, OLAF had issued a report without any evidence to support its conclusions. The complainant noted that, in reply to those accusations, Y had prepared a written response which had been filed with the national investigating magistrate who was pursuing a legal inquiry into the financial dealings of Y. The complainant enclosed with his reply a copy of that Report, as well as copies of his recent exchanges with the Commission, contesting the recovery orders for the repayment of the money granted to Y during the period 1998-2000.

The complainant also noted that the Commission had already reviewed the situation of Y in an audit carried out by its services on 28 January 2002, which concluded that no irregularity had been detected in Y's activities, in particular as regards the existence of a potential double accounting.

Further material from the complainant

On 18 July 2006, the complainant forwarded to the Ombudsman a copy of the decision rendered on 29 June 2006 by a national investigating magistrate, which included as an annex the report issued by OLAF. The ruling exonerated the complainant from any of the charges being pursued against him(2).

THE DECISION

1 Alleged lack of legal basis for the Commission's decision

1.1 The complainant alleges , in summary, that the Commission's decision of 25 March 2003 was unfair in that it did not respect his right to be presumed innocent until proven guilty. He claims that the Commission should reconsider its position.

The complainant argues that the Commission based its decision to reject Y's application for funding in 2003 on a number of allegations unknown to him, and which he never had the opportunity to refute. Moreover, in his view, the justification given by the Commission for the exclusion of Y, namely the existence of a legal action against the organisation pursued at the time before the national courts, was groundless since it was merely a preliminary inquiry carried out by the national public prosecutor. Those legal proceedings had been brought to a close on 7 October 2002, with a ruling in which the judge in charge of the inquiry concluded that there was no incriminating evidence against the complainant.

The complainant considers that the Commission should have been well aware of the sound legal structure of the organisation, since it had had a continuous working relationship with it since 1996.

1.2 The Commission notes that the reasons for the rejection of the complainant's grant applications in 2003 were identical to those given in reply to his application in 2002, which was the object of an inquiry by the Ombudsman in connection with complaint 278/2003/JMA. In the context of that case, the Commission argued that it has to ensure the legal and financial standing of the beneficiary, as well as his/her overall integrity. In the Commission's view, the complainant did not meet those conditions. Because of the seriousness of the allegations, the Commission considered that the complainant should have convincingly proved that no illegal situations existed. In the absence of such proof, the Commission had to reject the request for financial assistance.

The Commission also justifies its position on the grounds that, at the time, OLAF was carrying out an inquiry into the complainant's financial management.

1.3 For the reasons explained above, the Ombudsman made a proposal for a friendly solution. In reply to the proposal, the Commission argued that its services had to wait for a report prepared by OLAF, which was issued on 3 May 2005. According to the Commission, the report contains a number of very critical remarks concerning Y, including potential manipulations of the minutes of General Assemblies and Executive Committee Meetings; submission of the same invoices by Y to different funding agencies; and the sub-contracting of the work to a third organisation (Z) without the Commission's prior agreement. In the light of those findings, the Commission therefore declined to accept the Ombudsman's proposal to resume a normal relationship with Y and asked the complainant to reimburse the aid granted during the period 1998-2000.

In his observations on the Commission's reply, the complainant argued that the conclusions of the report issued by OLAF were unsupported by any evidence. Subsequently, the complainant sent a copy of the decision rendered on 29 June 2006 by a national investigating magistrate, which cleared the complainant of the charges being investigated, namely alleged double accounting and submission of invoices to a plurality of funding agencies.

1.4 In view of the developments mentioned by the Commission in its opinion (OLAF report of 3 May 2005) and by the complainant (decision of the national investigating magistrate of 29 June 2006), the Ombudsman finds it necessary to recall that the object of the present case, on which the Commission was asked to comment, is the alleged unfairness of the Commission’s decision of 25 March 2003, rejecting the complainant's request for financial assistance in 2003.

The Ombudsman takes the view that his review of the Commission's decision of 25 March 2003 has to be based on the situation when the decision was adopted and that developments subsequent to that decision are not relevant to the Ombudsman’s review.

1.5 On the basis of the available information, the Ombudsman notes that, in its opinion, the Commission had justified its decision not to grant financial assistance to the complainant in 2003 because of its concerns about the legal and financial standing of the complainant's organisation, as illustrated by the fact that two inquiries concerning the operations of Y had been or were carried out at the time. Those inquiries had been handled by OLAF and by a national public prosecutor, respectively.

On the basis of the available evidence, it appears that the inquiry by OLAF to which the Commission refers was launched on 3 July 2003, and therefore after the decision in question had been taken.

As regards the existence of a judicial inquiry against the complainant carried out by a national magistrate, it appears that, in his ruling of 7 October 2002, the responsible magistrate decided to close the inquiry without making charges against the complainant. That ruling therefore preceded the Commission's decision.

The Ombudsman does not therefore consider that either of the two elements mentioned by the Commission in its opinion could be considered as a reasonable basis for the Commission to exclude the complainant from the grant procedure.

1.6 The Ombudsman finds that, in reviewing applications for Community funding, the Commission not only has to take into account the specific rules which govern that funding programme, but also any rule or principle which is binding upon it. As set out in Article 274 of the EC Treaty, one of the general rules applicable to any initiative involving the use of Community funds is the obligation of sound financial management.

The Ombudsman notes that the interpretation of the principle of sound financial management cannot be reduced to a purely accounting definition. According to the Community courts, its correct interpretation must include a concern for the practical consequences of the acts of financial management(3).

1.7 In view of the above, the Ombudsman finds it reasonable that before requests for financial assistance are awarded, the Commission consider whether or not the legal and financial standing of potential beneficiaries as well as their overall integrity appear to be sufficiently reliable. The Ombudsman is not aware of any legal rule or principle that would prevent this.

1.8 The Ombudsman considers, however, that in taking measures to protect the Community's financial interests the Commission should seek to strike a fair balance between the interests of private persons and the general public interest, as laid down in Article 6 (2) of the European Code of Good Administrative Behaviour(4). The Ombudsman also points out that it is difficult to envisage how the Commission could strike a fair balance unless it communicates to an applicant for a grant any doubts that it may have as to his/her legal standing and is then prepared to listen and respond to information provided by the applicant in order to clarify those doubts.

1.9 The Ombudsman notes that the Commission’s response to the Ombudsman’s findings in case 278/2003/JMA mentioned updating of its “ Early Warning System” (EWS). The Ombudsman notes, however, that the Commission has not referred to the EWS, nor to any procedural safeguards that it might contain, in the context of the present complaint.

1.10 Having reviewed the available evidence case, the Ombudsman finds that the Commission has not shown that, in the present case, it struck a fair balance between the need to pursue sound financial management and the complainant's right to be treated fairly. At the time when the Commission adopted its decision, the Commission had not informed the complainant of its concerns, nor had it given him the opportunity to give his point of view on the matter. The Ombudsman therefore considers that the Commission did not treat the complainant fairly, in breach of Article 6 (2) of the European Code of Good Administrative Behaviour. This constitutes an instance of maladministration. A critical remark will therefore be addressed to the Commission.

1.11 Furthermore, and as already stated in a further remark made in the previous decision in case 278/2003/JMA, the Ombudsman believes that similar types of problems could be averted if the Commission were to take the initiative to provide its services with guidance or instructions on how to respect a fair balance between the interests of private persons and the general public interest in cases involving on-going judicial or administrative inquiries regarding the legal and financial standing of potential beneficiaries of Community assistance.

As mentioned above, in its response to the Ombudsman’s findings in case 278/2003/JMA, the Commission mentioned updating of its “Early Warning System” (EWS). However, it is not obvious to the Ombudsman how this updating might relate to the concerns expressed in the further remark. The Ombudsman will therefore consider the possibility of an own-initiative inquiry into the EWS, based on the need to strike a fair balance between the competing interests at stake in its operation.

2 Reconsideration of the Commission's position

2.1 The complainant claims that the Commission should reconsider its position in relation to Y.

2.2 The Commission had initially argued that it was not in a position to reconsider its decision, since, in view of the serious nature of the allegation, its services had had no other choice but to apply the precautionary principle as long as the situation could not be clearly established.

Following the completion of a report by OLAF on 3 May 2005 which included a number of very critical remarks on the financial integrity of Y, the Commission argues that it cannot resume a normal working relationship with the complainant's organisation based on trust, and that, as a result of the situation, it has had to launch recovery orders to obtain the reimbursement of the grants paid to Y during the period 1998-2000.

2.3 Having carefully reviewed the available information, the Ombudsman notes that the report issued by OLAF on 3 May 2005 after a thorough inquiry makes a number of very critical remarks concerning the complainant's organisation, which includes potential manipulations of the minutes of General Assemblies and Executive Committee Meetings; submission of the same invoices by the organisation to different funding agencies; and the sub-contracting of the work to a third organisation (Z) without the Commission's prior agreement.

2.4 In his observations on the Commission's reply to the proposed friendly solution made by the Ombudsman, the complainant takes the view that OLAF has not showed any evidence in support of its findings. He argues that the decision rendered on 29 June 2006 by a national investigating magistrate, which included as one of its annexes the report issued by OLAF, dismissed all charges against him.

2.5 The Ombudsman finds that, although the complainant contests the evidence used by OLAF to reach its conclusions, and refers to the conclusions of a legal ruling dated 29 June 2006 which cleared him of any wrongdoing, the above decision has not ruled on the content of OLAF's report, but merely took account of its findings in order to assess whether or not the complainant had breached the provisions of the national Penal Code.

2.6 In view of the above considerations, the Ombudsman has concluded that it is not appropriate to pursue further inquiries as regards this aspect of the case.

3 Conclusion

On the basis of the European Ombudsman's inquiries into this complaint, it appears necessary to make the following critical remark:

The Ombudsman considers that in taking measures to protect the Community's financial interests the Commission should seek to strike a fair balance between the interests of private persons and the general public interest, as laid down in Article 6 (2) of the European Code of Good Administrative Behaviour. The Ombudsman also points out that it is difficult to envisage how the Commission could strike a fair balance unless it communicates to an applicant for a grant any doubts that it may have as to his/her legal standing and is then prepared to listen and respond to information provided by the applicant in order to clarify those doubts.

Having reviewed the facts of this case, the Ombudsman finds that the Commission has not been able to show that, in this instance, it struck a fair balance between the need to pursue sound financial management of its grants, and the complainant's right to be treated fairly. By exclusively relying on potential concerns on the complainant financial probity, albeit without informing the complainant of the basis of those suspicions and giving him the opportunity to give his point of view, the Ombudsman considers that the Commission did not treat the complainant fairly, in breach of Article 6 (2) of the European Code of Good Administrative Behaviour. This constitutes an instance of maladministration.

Given that these aspects of the case concern procedures relating to specific events in the past, that the Commission has not accepted the proposal for a friendly solution made by the Ombudsman, and that it does not appear appropriate to pursue further inquiries as regards the complainant's claim that the Commission should reconsider its position in relation to Y, the Ombudsman therefore closes the case.

The President of the Commission will also be informed of this decision.

FURTHER REMARK

As already stated in case 278/2003/JMA, the Ombudsman believes that similar types of problems could be averted if the Commission were to take the initiative to provide its services with guidance or instructions on how to respect a fair balance between the interests of private persons and the general public interest in cases involving on-going judicial or administrative inquiries regarding the legal and financial standing of potential beneficiaries of Community assistance.

In its response to the further remark , the Commission mentioned updating of its “Early Warning System” (EWS). However, it is not obvious to the Ombudsman how this updating might relate to the concerns expressed in the further remark. The Ombudsman will therefore consider the possibility of an own-initiative inquiry into the EWS, based on the need to strike a fair balance between the competing interests at stake in its operation.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) Decision 94/262 of 9 March 1994 of the European Parliament on the Regulations and General Conditions Governing the Performance of the Ombudsman’s Duties, OJ 1994 L 113, p. 15.

(2) In his ruling, the magistrate cleared the complainant of the two charges being investigated: first, alleged double accounting pertaining to Y's subcontracting activity with Z, and second, alleged submission of invoices to a plurality of funding agencies. As regards the first charge, the judge noted that the Commission had already reviewed this aspect of the case and had cleared the complainant of any wrongdoing in an internal audit carried out by its services in early 2002. As for the submission of invoices, the judge came to the conclusion that the alleged actions could not constitute a crime punishable under the national Criminal Code.

(3) Case T-105/99 Conseil des communes et régions d'Europe (CCRE) v Commission ECR [2000] II-4099, par. 73.

(4) "When taking decision, the official shall respect the fair balance between the interests of private persons and the general public interest"; Article 6 (2) of the European Code of Good Administrative Behaviour, available on the Ombudsman's website: http://www.ombudsman.europa.eu