Strasbourg, 27 November 2007

Dear Mr L.,

On 10 February 2005, you submitted a complaint to the European Ombudsman concerning a refusal by OLAF to grant you access to OLAF's Final Case Report on its investigation related to "Greater Manchester, Lancashire and Cheshire Objective -2, Programme 94-96-Application by Rossendale Borough Council dated 10 April 1995".

On 18 March 2005, I forwarded the complaint to the Director-General of OLAF.

On 29 June 2005, OLAF sent me its opinion. I sent the opinion to you on 6 July 2005 with an invitation to make observations, which you sent on 15 August 2005.

You wrote to me on 13 September 2006 requesting information as regards progress in your case.

I sent a letter to you on 2 October 2006 stating that I would inform you of the next steps in your case before 31 October 2006.

My services telephoned you on 27 October 2006.

On 30 October 2006, I informed you that I had transferred your case to a senior member of my legal services.

You sent me further correspondence on 24 November 2006.

On 4 December 2006, I asked OLAF for further information in relation to your complaint. I asked OLAF to reply to me by 31 January 2007.

OLAF sent me its reply on 31 January 2007.

On 6 February 2007, I forwarded to you OLAF's reply with an invitation to make observations, which you sent on 28 March 2007.

On 6 February 2007, I also asked the European Commission for further information in relation to your complaint. I asked the European Commission to reply to me by 31 March 2007.

The Commission informed me on 2 March 2007 that it would only be able to respond by 30 April 2007.The Commission sent me its reply on 14 May 2007.

On 16 May 2007, I forwarded to you the Commission's reply, with an invitation to make observations, which you sent on 23 July 2007, after having requested from me an extension of the deadline to submit observations.

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

I apologise for the delays encountered in this inquiry, which resulted, in part, from the particularly complex nature of the facts.

THE COMPLAINT

The relevant facts according to the complainant were, in summary, as follows:

The complainant is a businessman who sought to develop a shopping arcade in the north of England. In February 1995, the complainant discussed the possibility of obtaining European funding for his scheme with the local public authority (the "Rossendale Borough Council"). On 10 April 1995, Rossendale Borough Council applied for funding from the European Regional Development Fund (ERDF) and, for this purpose, included the complainant's scheme in its submission.

Despite obtaining funding from the ERDF, Rossendale Borough Council did not transfer any of these funds to the complainant.

The complainant asked OLAF to investigate the issue in early 2000. On 22 January 2003, the complainant asked OLAF to give him access, on the basis of Regulation 1049/2001 EC, to its Final Case Report on its investigation involving the "Greater Manchester, Lancashire and Cheshire Objective -2, Programme 94-96-Application by Rossendale Borough Council dated 10 April 1995". On 12 February 2003, OLAF replied that such a Final Case Report did not exist. On 20 June 2003 and on 21 January 2004, the complainant again requested a copy of the report.

On 29 April 2004, OLAF sent the complainant a copy of its final report. OLAF further informed the complainant that parts of the document requested were covered by the exception provided for in Article 4(1)(b) of Regulation 1049/2001 EC.

On 12 May 2004, the complainant made a request for access to the document in its entirety. He also asked to receive clarification in relation to two general questions.

On 11 June 2004, OLAF informed the complainant that, as regards the two general questions, his letter had been forwarded to the Regional Policy Directorate General of the European Commission (DG REGIO). Concerning the complainant's request for access to the Final Case Report in its entirety, OLAF informed him that it was unable to disclose any additional parts of the document and confirmed, pursuant to Article 4(1)(b) of Regulation 1049/2001 EC, its decision to blank out the names of the OLAF investigators mentioned in the Final Case Report.

The complainant alleged that OLAF failed to give him access to the Final Case Report dated 20 March 2003 in its entirety.

The complainant claimed that OLAF should give him access to the Final Case Report dated 20 March 2003 in its entirety.

THE INQUIRY

OLAF's opinion

OLAF's opinion can be summarised as follows:

On 22 January 2003, complainant submitted a letter to OLAF requesting access to the Final Case Report in relation to an investigation concerning "Greater Manchester, Lancashire and Cheshire Objective-2 Programme 94-96; Application by Rossendale Borough Council dated 10 April 1995".

On 29 April 2004, OLAF provided him with access to the requested document. OLAF apologised for the delay in replying to him. The only data which was not revealed to the complainant were the names of the OLAF officials who carried out the investigation. This was done on the basis of the exception set out in Article 4(l)(b) of Regulation 1049/2001 EC (that is, the protection of privacy and the integrity of the individual).

The means of redress available to the complainant were set out at the end of the letter.

On 12 May 2004, complainant submitted a second letter to OLAF, which was registered on 18 May 2004. This letter specified that the complainant sought clarification on two issues of "general information", and clarification on several statements contained in the Final Case Report which he had received in response to his request. The complainant specified that "alternatively access to the report in its entirety would suffice."

On 11 June 2004, OLAF replied to the complainant's letter. This letter specified that OLAF had forwarded the complainant's letter of 12 May 2004 to DG REGIO, which would answer his general information questions in a separate letter. In response to the complainant's request for clarification in relation to several statements in the report, OLAF's explained that the information it obtains during an external investigation is "confidential" and subject to professional secrecy. Therefore, it could not reply to his requests for clarification. Regarding his request for the report in its entirety, OLAF confirmed its initial reply and stated that it could not disclose any additional parts of the document. The letter provided the following explanation for refusing access to the names which had been deleted from the report:

"Since your request concerns clearly and exclusively the disclosure of the names of the OLAF officials responsible for this case, it is a request for the disclosure of personal data. Therefore, Regulation 45/2001 is applicable."

Pursuant to Article 8 of Regulation 45/2001, the names of the persons who have not given their consent to disclose their identity may only be transferred to you if you establish the necessity to receive these data and if there is no reason to assume that the legitimate interests of these individuals might be prejudiced. You have not, however, established any express and legitimate purpose nor provided any convincing arguments that would establish the necessity to obtain the names of the responsible OLAF officials. Therefore, the conditions set by Regulation 45/2001 for the transfer of personal data are not met. Consequently, the exception to the right of access established by Article 4(l)(b) of Regulation 1049/2001 applies."

The means of redress available to the complainant were provided at the end of the letter.

As regards the claims that OLAF should provide him with access to the Final Case Report "in its entirety", OLAF noted that the complaint did not contain any explanation of the need to receive the names of the OLAF officials responsible for the investigation. As a result, OLAF's denial of access to personal data was fully consistent with legal requirements as established by Article 4(l)(b) of Regulation 1049/2001 and Article 8 of Regulation 45/2001.

The complainant's observations

The complainant's observations in relation to the opinion of OLAF can be summarised as follows:

The complainant first of all noted that OLAF omitted to include, in its opinion to the Ombudsman, the reply to the complainant's letter of 22 January 2003.

Further, OLAF omitted to include, in the same opinion to the Ombudsman, a letter from the complainant dated 20 June 2003. The complainant had not received a reply to that letter.

Further, the complainant noted that his letter of 12 May 2004 clearly identified the information he was seeking, including a specific question on the conclusion by OLAF that the claim for ERDF funding by Rossendale Borough Council was "inappropriate".

The complainant noted that, in his view, the issues he sought advice on must have been dealt with during the course of OLAF's investigation and must be on OLAF's files. He argued that, rather than dealing with his questions, OLAF requested DG REGIO to deal with the matter. The complainant received a letter dated 8 July 2004 from DG REGIO that only partially dealt with his concerns.

The complainant noted that, as a European citizen, he had a right to have concerns and that his questions should be addressed. The only way this could be achieved was via full access to OLAF's investigation file. He underlined that he had never requested the names of individual OLAF officials.

Follow-up to observations

The complainant wrote to the Ombudsman on 13 September 2006 requesting information as regards progress in his case.

The Ombudsman sent a letter to the complainant on 2 October 2006 stating that he would let the complainant know the next step in his case before 31 October 2006.

The Ombudsman's services telephoned the complainant on 27 October 2006. During this telephone conversation and in a subsequent letter, the complainant clarified his position.

The complainant explained that, in the mid-1990s, he applied to Rossendale Borough Council for planning permission for a project. He subsequently found out that the Rossendale Borough Council had, without his agreement, included his project in an ERDF application, for which it subsequently received funding. None of this funding was forwarded to the complainant. When he addressed Rossendale Borough Council about the matter he was told that his project had been included in its application as an example of "private sector leverage" (that is, according to Rossendale Borough Council, projects that ERDF funding would indirectly help to generate, but which would not themselves be eligible for funding).

Not satisfied with this explanation, the complainant contacted the responsible Regional Office of the central government in the United Kingdom (Government Office for the North West) , which gave a different explanation, namely that Rossendale Borough Council put forward the complainant's project as "eligible expenditure" (that is, a project that would receive ERDF funding) but, due to a sudden and temporary change in ERDF rules, private sector projects became ineligible to benefit from funding at the precise period when Rossendale Borough Council received and allocated the ERDF funds concerned.

The complainant, however, was not satisfied with this explanation because (a) he never made any agreement with Rossendale Borough Council concerning the inclusion of his project in Rossendale Borough Council's application, and (b) the Single Programme Document 1994-6 under which Rossendale Borough Council obtained funding expressly envisaged that private sector projects may benefit from funding. He noted that none of his many interlocutors on the matter has ever produced written evidence of the sudden and temporary change in ERDF rules alleged by the Government Office for the North West.

The complainant contacted Commissioner Kinnock about the matter and was advised to contact OLAF, which he did. The complainant was eventually informed, in a one-page summary of OLAF's conclusion, that Rossendale Borough Council had acted in a way that was "inappropriate".

The complainant subsequently sought to obtain more detailed information from OLAF concerning the results of its inquiry, including exactly what Rossendale Borough Council had done that was "inappropriate". OLAF, however, misinterpreted his request as a request to know the names of its investigators. The complainant stated that he has no interest in knowing the names of OLAF investigators. What the complainant wished to know is what OLAF found out about Rossendale Borough Council's actions that led to the conclusion that Rossendale Borough Council had acted in a way that was "inappropriate".

Further Correspondence

The complainant stated that he could find no evidence of the private sector being excluded from ERDF funding in the relevant period. On the contrary there were clear references, in the relevant official documentation, to the fact that the private sector was in fact eligible for ERDF funding in certain areas. Thus, Rossendale Borough Council should have been able to pass the grant to private sector participants (such as the complainant).

On obtaining this information, the complainant contacted the Government Office of the North West and was told that the "new" arrangements allowing for private sector participation were only introduced in September 1995. The Government Office North West refused to give any details of these allegedly "new" arrangements, other than to confirm that they were introduced in September 1995.

The complainant stated that the Directorate General of DG REGIO informed him in July 2004 that the Government Office of the North West had advised the Commission that the "new arrangements" with regard to private sector participation were introduced in May 1995 (and not in September 1995 as the complainant had been led to believe by the Government Office of the North West).

The complainant went on to note that Rossendale Borough Council was awarded an ERDF grant in relation to the complainant's scheme in September 1995. He noted that if these new arrangements were in fact introduced in May 1995, as was now claimed by DG REGIO, this would imply that the private sector was eligible for ERDF funding a few months prior to Rossendale Borough Council being awarded the grant.

The complainant also stated that he understood that the Ombudsman does not have the remit to deal with complaints against Member States.

Further inquiries
The Ombudsman's letter to OLAF

On the basis of the clarifications provided by the complainant, the Ombudsman again wrote to OLAF.

The Ombudsman stated that the OLAF's Final Case Report concluded that the "claim [for ERDF funding by Rossendale Borough Council] was inappropriate without being unequivocally irregular" [emphasis added]. The Final Case Report went on to note that "it was decided to withdraw the expenditure already incurred from the programme funding application" and that "DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure." The only information which was deleted from this document related solely to the names of the OLAF officials who drafted and supervised the drafting of this document.

The Ombudsman stated that the complainant had now confirmed to him that he did not in fact wish to know the names of the OLAF officials who drafted and supervised the drafting of the Final Case Report. However, the Ombudsman underlined, the complainant did wish to know on what basis it was concluded that Rossendale Borough Council's application for ERDF funding was adjudged to be "inappropriate".

The Ombudsman stated that the complainant assumed that the information necessary to answer this question must have been dealt with during the course of OLAF's investigations into Rossendale Borough Council's application for ERDF funding and, therefore, must be in OLAF's investigation files. The complainant therefore believed that his request for clarification as regards why the application for ERDF funding by Rossendale Borough Council was adjudged to be "inappropriate" can only be met via access to OLAF's investigation file.

In light of the above, the Ombudsman informed OLAF that it would be useful if OLAF could confirm whether its investigation file contains any additional documents, including any more detailed case reports, any "results" of the on-the spot check referred to in the Final Case Report, any "observations", any "conclusions" or other supporting documents(1), which may help clarify on what basis it was concluded that the application submitted by Rossendale Borough Council for ERDF funding was "inappropriate".

The Ombudsman also noted that the Final Case Report states that the on-the-spot check was carried out jointly by DG REGIO, the British authorities responsible for structural fund applications, with a representative of OLAF present. In this respect, the Ombudsman also noted that DG REGIO may have information or documents, or may be able to provide an explanation, which may allow OLAF to clarify on which basis it was concluded, in the Final Case Report drafted by OLAF, that Rossendale Borough Council's application for ERDF funding was "inappropriate". In this respect, the Ombudsman stated that OLAF might consider it necessary to contact DG REGIO to obtain the necessary information, documents or explanations to allow OLAF to reply to the request for clarification.

The Ombudsman also noted that the following observations might prove useful to OLAF when replying to the further enquiry.

The Final Case Report concludes that the "claim [of Rossendale Borough Council for ERDF funding] was inappropriate without being unequivocally irregular" [emphasis added]. The Final Case Report went on to note that "it was decided to withdraw the expenditure already incurred from the programme funding application" and that "DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure." The Ombudsman noted, in this respect, that Article 39.1 of Council Regulation No 1260/1999 laying down the General Provisions on the Structural Funds states that all or part of the Community's contribution to funding shall be cancelled in the event an individual or systematic "irregularity" is found. Given that the Community's contribution to funding can only be reallocated or recovered if an "irregularity" is found, the Ombudsman underlined the fact that it would appear that Rossendale Borough Council's application for ERDF funding was at least sufficiently "irregular" to give rise to the reallocation or recovery of the Community's contribution.

The Reply of OLAF

OLAF's reply can be summarised as follows:

In implementing the ERDF funding, Member States are required to take the necessary measures to:

• verify on a regular basis that operations financed by the Community have been properly carried out;
• prevent and take action against irregularities;
• recover any amounts lost as a result of an irregularity or negligence.

Insofar as the Regulation is respected, it is the Member State itself which decides on the detailed rules for implementing the relevant Regional programmes.

The case in question was indeed reported by the UK authorities under the provisions of Regulation 1681/94, with respect to the fourth quarter of 1999.

In early April 2000, after OLAF received an allegation according to which Rossendale Borough Council had acted irregularly relating to a project to support a request for ERDF funds, OLAF met the representatives of the Government Office of the North West.

After a meeting with DG REGIO on 12 April 2000, it was agreed to carry out an on-the-spot check under Article 23(2) of Regulation 4253/88. OLAF underlined that the on-the-spot check was not an independent OLAF investigation, but a joint on-the-spot check in which a representative of OLAF took part. The on-the-spot check was carried out on 26 - 28 June 2000.

The UK authorities had previously acknowledged (in a letter of 25 October 1999 to DG REGIO) that:

• whilst the project (heritage arcade development) was deemed eligible for ERDF support, the complainant himself had been judged ineligible for such support because of his private sector status;
• the ERDF grant of up to 34 000 sterling was reassigned to other eligible activities.

On the basis of the June 2000 checks, this view was confirmed and was recorded in OLAF's Final Case Report. The Final Case Report, which had already been communicated to the complainant, stated that:

"[a]n on-the-spot check performed jointly by DG REGIO with a representative of OLAF present and the British authorities responsible for structural fund applications, concluded that the claim was inappropriate without being unequivocally irregular. Accordingly, it was decided to withdraw the expenditure already incurred from the programme funding application. DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure."

OLAF noted that there was no separate OLAF internal mission report. OLAF also noted that on-the-spot check was not an "OLAF" investigation.

On the basis of the information provided by the UK authorities and of the June 2000 on-the-spot check, the Commission decided to close the procedure initiated on 2 September 1999.

As regards the disclosure of documents, OLAF stated that it was willing to provide additional documents to both the Ombudsman and the complainant.

These documents included:

• the OLAF Follow-up Recommendation;
• a letter from OLAF to DG REGIO dated 19 August 2003;
• a letter from OLAF to DG REGIO dated 12 November 2003;
• the Closure of Follow-up Stage note dated 12 February 2004.

OLAF suggested that, if any request for further clarification were made with respect to DG REGIO's own files, it should be addressed directly to the Commission.

As regards the absence of reply to a letter from the complainant OLAF apologised for the absence of reply to the complainant's letter dated 20 June 2003 and added that, apparently, this letter had not been registered at OLAF.

The Complainant's Further Observations

The complainant's further observations can be summarised as follows:

The complainant first noted that he was surprised to be informed that the investigation was not an official OLAF investigation.

The complainant maintained that the ERDF appraisal body of the Government Office for the North West and Rossendale Borough Council did not take issue with regard to the eligibility and the private sector status of his scheme when they appraised and approved his application.

He argued that if Rossendale Borough Council encountered eligibility issues between receiving the ERDF offer letter of 20 September 1995 and the drawing-down of the ERDF grant on his scheme in February 1996, it should have removed his scheme from the project by notifying the Government Office for the North West. He reiterated that it is difficult to see how any claim that his scheme was excluded from ERDF funding, on the grounds of private sector ineligibility, can be justified.

The complainant also made reference to Article 14 paragraph 4 of Council Regulation 2082/93 of 20 July 1993, which states that:

"The respective commitments of the partners, in the framework of an agreement within the partnership, shall be reflected in the Commissions decisions to grant assistance".

According to the complainant, the above clearly demonstrated the requirement that agreements/contracts between participating partners within an ERDF application must be mandatory. Such an agreement would, he argued, have afforded him the opportunity of negotiating with the lead applicant (that is, Rossendale Borough Council) the best ERDF deal for his scheme. Such an agreement would, inter alia, have afforded him the power to decide, based on negotiations with the lead applicant, whether or not to allow his scheme to be included within an application.

He argued that it was inconceivable that contracts/agreements between final beneficiaries and a lead applicant/intermediary could be anything else but mandatory. The lack of any such agreement/contract in his case was at the very core of his complaint.

The Ombudsman's letter to the Commission

The Ombudsman's letter to the Commission can be summarised as follows:

The Ombudsman informed the Commission that OLAF's Final Case Report concluded that the "claim [for ERDF funding by Rossendale Borough Council] was inappropriate without being unequivocally irregular." The Final Case Report went on to note that "it was decided to withdraw the expenditure already incurred from the programme funding application" and that "DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure." The Ombudsman underlined to the Commission that the complainant wants to know on what basis it was concluded in the Final Case Report that the claim by Rossendale Borough Council for ERDF funding was adjudged to be "inappropriate".

The Ombudsman stated that he would be grateful if the Commission could inform him whether DG REGIO's investigation file contains any documents, other than those already provided to the complainant by OLAF, which could help clarify on what basis it was concluded that the application submitted by Rossendale Borough Council for ERDF funding was "inappropriate".

The Reply of the Commission

The Commission's reply can be summarised as follows:

A project by Rossendale Borough Council known as "The Bacup and Rawtensstall Conservation Area Partnership (CAP)" was, on 20 September 1995, awarded 648 000 sterling at 29% grant rate under the Greater Manchester, Lancashire and Cheshire ("GMLC") Objective 2 Programme 1994-6. The grant project comprised a package of 27 town centre regeneration initiatives, with match funding from English Heritage (200 000 sterling) and the private sector (1 624 000 sterling).

The complainant alleged that Rossendale Borough Council misled him into thinking that his proposal for the redevelopment of a former picture house into a retail heritage arcade would be eligible for an ERDF grant through the CAP project. The complainant's heritage arcade originally figured as part of scheme 5 of the project. The complainant noted that 34 000 sterling of ERDF grant was originally earmarked for it.

The complainant contended that, in refusing him the grant, Rossendale Borough Council proceeded, without his consent, to use his development costs as private sector expenditure in order to obtain the ERDF funding.

The Commission noted that the CAP project was wider than its ERDF components.

The Commission noted that it was permissible to claim grants without the funding being passed on to the entity directly incurring the expense, but added that the investor should normally be made aware that his project is being used to generate funding.

The Commission noted that the Government Office for the North West (the implementing authority) decided, in May 1999, to remove the complainant's costs and associated outputs from the CAP scheme.

Following complaints from the complainant, the Director-General of DG REGIO wrote to the Government Office for the North West. In its reply the latter indicated that the complainant was considered "ineligible" for ERDF support because of his private sector status and that the ERDF grant earmarked for the project was reassigned to other eligible activities. The reasons supporting the grant reassignment were explained in detail in the Government Office for the North West's letter and the accompanying letter from Rossendale Borough Council. In the view of the Government Office for the North West, there was no evidence to suggest that Rossendale Borough Council had acted improperly. The key facts and conclusions reached were as follows:

• The heritage arcade development qualified for ERDF co-funding;
• Whilst the arcade development was, in accordance with the assumptions governing ERDF and the private sector at that time, deemed eligible for ERDF support, the complainant himself was considered ineligible because of his private sector status. At the time the CAP application was conceived (in the second half of 1994) and submitted (February 1995), there was no clear guidance available from the Commission on the degree to which private sector companies could participate in such programmes. The UK Government, however, after discussions with the European Commission, introduced its own arrangements in May 1995. The general thrust of the new advice from the UK Government was to encourage private sector contributions where a value for money justification existed. Reasonable profits would be acceptable having regard to the risks involved. The said risks should be shared appropriately by the public and private sector. Prior to that advice, participation in such programmes was limited to the non-profit making private sector. The guidance on private sector participation which was emerging in 1995 represented a sea change. Rossendale Borough Council's actions needed to be viewed in that context;
• In calculating "eligible expenditure", Rossendale Borough Council was allowed to include spending by private sector partners, including the complainant's expenditure;
• A project could be used as a basis to claim an ERDF grant without that grant going to the applicant (such as the complainant). Finance policy advice from an Internal Audit Service confirmed that, provided the project was an integral part of a wider scheme, in this case the CAP, it was acceptable to use the project's costs as a justification to draw down the grant (without the grant necessarily going to the project itself);
• Rossendale Borough Council acted properly having regard to the uncertainties concerning private sector participation in ERDF schemes prevailing at the time the application was made.

As a consequence, the Government Office for the North West reassigned the ERDF grant originally earmarked for the Heritage Arcade (up to 34 000 sterling) to other eligible expenditure.

On the basis of the information provided in the Government Office for the North West's letter of 25 October 1999, and on the basis of the on-the-spot check carried out on 26-28 June 2000, DG REGIO concluded that the reallocation was an acceptable variation to the overall project, that it was not in contravention of the terms of the grant, and that there were no irregularities. The Commission, therefore, decided to close the Article 24 procedure initiated with its letter of 2 September 1999.

The Commission's file to which the Ombudsman requested access contained the following documents:

• the letter of 14 July 1999 from the Government Office for the North West to Mr C. (DG REGIO) confirming that Rossendale Borough Council had acted properly in the management of the project;
• the letter from Mr L. to the Government Office for the North West launching an examination of the case;
• the reply of 25 October 1999 from (DG REGIO pointed out, in its reply to the Ombudsman, that the Government Office for the North West agreed, by email of the 19 February 2007, to hand over their letter dated 25 October 1999 to the Ombudsman and to the complainant, accompanied by the comments of the Rossendale Borough Council sent to the Government Office for the North West by fax of 17 September 1999).
• the letter to the complainant dated 25 June 2002 informing the complainant that DG REGIO had not yet received OLAF's report of the on-the-spot check;
• the letter of 13 November 2002 from Mr C. to the Government Office for the North West confirming that the Commission decided to close the procedure based on Article 24;
• an internal note for the file of 2 May 2000 drawn up to provide a better understanding of the complaint (this internal note was deemed confidential by the Commission and was therefore not annexed to the reply).

The Complainant's Further Observations

The complainant's further observations can be summarised as follows:

The complainant first of all stated that the documents and comments supplied by DG REGIO had been helpful to him. Regarding private sector eligibility/participation, the complainant noted that the documents provided to him include a letter dated 2 February 2007 entitled "Comments of the Commission on a request for information from the European Ombudsman" in which, on page 2, the Commission makes it clear that Council Regulation (EEC) No 2083/93 of 20 July 1993 amending Regulation (EEC) No 4253/88 (Article 17) does not exclude private sector participation.

The complainant also noted that the documents provided to him include a fax from the Government Office North West to the Commission dated 9 November 1999 in which it is stated that "the ERDF grant up to £34k which we understood to be originally earmarked for Heritage Arcade". This clearly demonstrates, according to the complainant, that the Government Office for the North West did not take issue with regard to ERDF funding going to the private sector, and in particular, to his scheme.

The complainant also noted that the above documents contained a list of private sector schemes that were included in Rossendale Borough Councils' ERDF project 94-96. On 7 June 2007, the complainant presented this list to Rossendale Borough Councils' Chief Executive. Subsequent to this meeting, and after a series of exchanges of correspondence, he obtained a ledger of ERDF payments made by Rossendale Borough Council to the private sector with regard to the 94-96 project. The list of schemes included in the 94-94 ERDF project, together with the ledger of ERDF payments made by Rossendale Borough Council to the private sector, clearly demonstrated that Rossendale Borough Council, acting as lead applicant/intermediary, had no issues with regard to passing on approved ERDF grant to the private sector.

In the view of the complainant, officers of Rossendale Borough Council made a conscious decision not to pass on ERDF funding specifically approved for his scheme, whilst actively offering ERDF support to other private sector schemes. He therefore, argued that he and his scheme were clearly treated differently from other private sector schemes.

In a letter dated 2 September 1999 to the Government Office for the North West, the Commission sought to establish whether his scheme had been treated any differently than the other schemes within the project. The complainant stated that he would be grateful if the Ombudsman's office could obtain the Commission's conclusion on this matter of equality.

The complainant stated that he would also be grateful if the Ombudsman could give an opinion on the legality of Rossendale Borough Council (a) acting as lead applicant/intermediary to apply for ERDF support for his scheme, (b) making the necessary declarations for the need of ERDF support, (c) gaining approval for ERDF funding, and (d) drawing down that ERDF funding without a contract/agreement, without passing on the funding (and, indeed, without his knowledge).

THE DECISION

1 Preliminary remarks

1.1 The Statute of the European Ombudsman sets certain conditions as to the opening of an inquiry by the Ombudsman. One of these conditions, set out in Article 2(1) of the Statute, is that: "(...) the Ombudsman shall help to uncover maladministration in the activities of the Community institutions and bodies (...) No action by any other authority or person may be the subject of a complaint to the Ombudsman." In this context, the present inquiry of the Ombudsman is necessarily limited to determining whether the Community institutions concerned acted in accordance with the principles of good administration. The Ombudsman is not entitled to evaluate specifically the actions of the local authorities in the United Kingdom.

1.2 The Ombudsman is aware that the complainant's contacts with OLAF and DG REGIO are closely connected to an on-going dispute the complainant has with local authorities in the United Kingdom. The Ombudsman is aware that information obtained and conclusions made during the course of the present inquiry may be useful to the complainant in the context of his dispute with the local authorities in the United Kingdom. However, it is for the complainant to pursue the remedies that may be available to him at national level in relation to his dispute with the local authorities in the United Kingdom.

1.3 The Ombudsman also notes that, in his further correspondence of 24 November 2006, the complainant stated that he understood that the Ombudsman does not have the remit to deal with complaints against Member States' authorities.

2 OLAF's alleged failure of provide the complainant with full access to the investigation report

2.1 In February 1995, the complainant discussed, with his local public authority ("Rossendale Borough Council"), the possibility of being granted European funding for the development of a shopping arcade. On 10 April 1995, Rossendale Borough Council applied for a European Regional Development Fund (ERDF) grant and, for this purpose, included the complainant's scheme in its submission., Despite obtaining funding from the ERDF, Rossendale Borough Council did not transfer any of these funds to the complainant.

2.2 The complainant asked OLAF to investigate the issue in early 2000. On 22 January 2003, the complainant asked OLAF to give him access, on the basis of Regulation EC 1049/2001, to its Final Case Report on its investigation involving the "Greater Manchester, Lancashire and Cheshire Objective -2, Programme 94-96-Application by Rossendale Borough Council dated 10 April 1995".

2.3 On 12 February 2003, OLAF replied that such a Final Case Report did not exist. On 20 June 2003 and on 21 January 2004, the complainant again requested a copy of the OLAF's Final Case Report.

2.3 On 29 April 2004, OLAF sent the complainant a copy of its Final Case Report. OLAF further informed the complainant that parts of the document requested were covered by the exception provided for by Article 4(1) b) of Regulation 1049/2001 and were not available to him. On 12 May 2004, the complainant made a request for access to the document in its entirety.

2.4 The complainant alleged that OLAF failed to give him access to the Final Case Report dated 20 March 2003 in its entirety.

2.5 OLAF's opinion states that after a request submitted on 22 January 2003, OLAF provided the complainant with access to the requested document on 29 April 2004. OLAF apologised for the delay in replying to him. The only information which was not revealed were the names of the OLAF officials who had carried out the investigation. This exception was based on Article 4(l)(b) of Regulation 1049/2001 EC, that is, the protection of privacy and the integrity of the individual.

2.6 On 12 May 2004, complainant submitted a second letter to OLAF specifying that he sought clarification on two issues of "general information", and clarification on several statements in the Final Case Report which he had received in response to his request. He specified that "alternatively access to the report in its entirety would suffice."

2.7 On 11 June 2004, OLAF replied to the complainant's letter. In this letter OLAF specified that it had forwarded the complainant's letter of 12 May 2004 to the Regional Policy Directorate General (DG REGIO), which would answer his general information questions in a separate letter. In response to the complainant's request for clarification in relation to several statements in the Final Case Report, OLAF's letter explained that the information it had obtained during an external investigation was "confidential" and subject to professional secrecy. Therefore, it could not reply to his requests for clarification. Regarding his confirmatory request for the report in its entirety, OLAF confirmed its initial reply and stated that it could not disclose any additional parts of the document.

2.8 OLAF argued that, pursuant to Article 8 of Regulation 45/2001, the names of the persons who have not given their consent to disclose their identity may only be transferred to a third party if the need to receive the data is established and if there is no reason to assume that the legitimate interests of these individuals might be prejudiced.

2.9 In his observations in relation to the opinion of OLAF, the complainant first of all noted that OLAF omitted to include, in its opinion to the Ombudsman, the reply to the complainant's letter of 22 January 2003. Further, OLAF omitted to include, in the same opinion to the Ombudsman, a letter from the complainant dated 20 June 2003. The complainant received no reply to that letter.

2.10 Further, the complainant noted that his letter of 12 May 2004 clearly identified the information he was seeking, including a response to a specific question on OLAF's conclusion that the claim for ERDF funding by Rossendale Borough Council was "inappropriate". The complainant noted that, in his view, the issues he sought advice on must have been dealt with during the course of OLAF's investigation and must be in its files. He argued that, rather than dealing with his questions, OLAF asked DG REGIO to deal with the matter. The complainant received a letter dated 8 July 2004 from DG REGIO that only partially dealt with his concerns. He went on to note that, as a European citizen, he had a right to have concerns, and that his questions should be addressed. The only way this could be achieved is via full access to OLAF's investigation file. He underlined that he had never requested the names of individual OLAF officials.

2.11 The complainant further clarified his position in a telephone contact with the Ombudsman services and, subsequently, by letter. In these communications, he explained that, after extensive inquires on his part, he was eventually informed, in a one-page summary containing OLAF's conclusions, that OLAF considered that Rossendale Borough Council had acted in a way that was "inappropriate". The complainant subsequently sought to obtain more detailed information from OLAF concerning the results of its inquiry, including exactly what Rossendale Borough Council had done that was "inappropriate". OLAF, however, misinterpreted his request as a request to obtain the names of its investigators. He had no interest in obtaining these names.

2.12 The Ombudsman notes that the complainant asked OLAF in early 2000 to investigate the actions of Rossendale Borough Council in relation to the "Greater Manchester, Lancashire and Cheshire Objective -2, Programme 94-96-Application by Rossendale Borough Council dated 10 April 1995". On 22 January 2003, the complainant asked OLAF to give him access, on the basis of Regulation EC 1049/2001, to its Final Case Report on its investigation. On 12 February 2003, OLAF replied that such a Final Case Report did not exist. This reply was accurate, since the Final Case Report in question was only drafted on 20 March 2003.

2.13 On 20 June 2003 and on 21 January 2004, the complainant again requested a copy of the Final Case Report of OLAF. The Ombudsman notes that in his letter of 20 June 2003, the complainant noted that, while at the time of his request dated 22 January 2003 it was possible that OLAF had not yet drafted the Final Case Report, it was mandatory for OLAF to draw up such a Final Case Report. He therefore repeated his request for a copy of the Final Case Report. The complainant's letter of 21 January 2004 repeated the arguments set out in his letter of 20 June 2003.

On 29 April 2004, OLAF sent the complainant a copy of its Final Case Report and apologised for the delay in replying to him.

2.14 The Ombudsman notes that Article 7.1 of Regulation 1049/2001 EC states that:

"[a]n application for access to a document shall be handled promptly. [...] Within 15 working days from registration of the application, the institution shall either grant access to the document requested and provide access in accordance with Article 10 within that period or, in a written reply, state the reasons for the total or partial refusal and inform the applicant of his or her right to make a confirmatory application [...]."

2.15 OLAF has apologised for the absence of reply to the letter sent by the complainant, dated 20 June 2003, and stated that it appears that this letter was not registered by its services. The Ombudsman notes that OLAF does not argue that the letter was incorrectly addressed by the complainant nor does it provide any other reason for not registering the letter. Indeed, the Ombudsman has examined the letter in question and notes that that it was addressed to the "Director of the European Anti-Fraud Office (OLAF)". The complainant's letter of 21 January 2004, which was registered by OLAF, was also addressed to the "Director of the European Anti-Fraud Office (OLAF)".

The Ombudsman is therefore of the view that the failure of OLAF to register the letter of 20 June 2003 constituted an instance of maladministration and as a result he will make a critical remark.

2.16 As regards the letter of 21 January 2004, OLAF did not respond to this letter until 29 April 2004. The Ombudsman notes that, in accordance with Article 7.1 of Regulation 1049/2001 EC, a request for access to documents should be responded to within 15 working days of the "registration" the letter requesting access to documents. The Ombudsman has noted, from the documentation submitted to him, that the letter of 21 January 2004 was registered on 27 January 2004. The Ombudsman is of the view that OLAF failed to reply to the complainant's request for access to documents within 15 working days from the registration of the request. This constituted an instance of maladministration. As a result, the Ombudsman will make a second critical remark below.

3 The complainant's claim that OLAF should give him access to the Final Case Report dated 20 March 2003 in its entirety

3.1 The Ombudsman notes that the claim set out in the letter opening the inquiry was that OLAF should give the complainant access to the Final Case Report dated 20 March 2003 "in its entirety". From the facts ascertained during the course of the inquiry, the Ombudsman understands that the reason the complainant insisted on obtaining the Final Case Report "in its entirety" was because the complainant presumed that the Final Case Report should have contained more information as regards how Rossendale Borough Council had acted in a way that was "inappropriate". However, OLAF misinterpreted the complainant's request as a request to obtain the names of its investigators.

3.2 Given that the present inquiry has revealed that the complainant has no interest in knowing the names of OLAF investigators, and given that no information other than the names of OLAF investigators has been removed from OLAF's Final Case Report of 20 March 2003 which was sent to the complainant on 29 April 2004, the Ombudsman considers that no further inquires are justified in relation to this aspect of the complaint.

4. Clarifications sought by the complainant as regards the basis for the conclusion, in the OLAF Final Case Report, that the claim by Rossendale Borough Council for ERDF funding was adjudged to be "inappropriate"

4.1 Since, as emerged from the inquiry, the key information sought by the complainant was, in fact, why OLAF's Final Case Report concluded that the claim of Rossendale Borough Council for ERDF funding was "inappropriate", and since the Final Case Report itself did not set out this information, the Ombudsman considered that it was appropriate to carry out further inquiries.

4.2 The Ombudsman informed OLAF that the complainant had now confirmed to the Ombudsman that he did not, in fact, wish to know the names of the OLAF officials who had drafted and supervised the drafting of the Final Case Report. The complainant did wish to know on what basis it was concluded that the claim by Rossendale Borough Council for ERDF funding was adjudged to be "inappropriate". The Ombudsman stated that the complainant assumed that the information necessary to answer this question must have been dealt with during the course of OLAF's investigations into the claim for ERDF funding by Rossendale Borough Council and, therefore, must be in OLAF's investigation files. The complainant therefore believed that his request for clarification as regards why the claim for ERDF funding by Rossendale Borough Council was adjudged to be "inappropriate" can only be met via access to OLAF's investigation file.

In light of the above, the Ombudsman informed OLAF that it would be useful if OLAF could confirm whether its investigation file contains any additional documents, including any more detailed case reports, any "results" of the on-the spot check referred to in the Final Case Report, any "observations", any "conclusions" or other supporting documents(2), which may help clarify on what basis it was concluded that the claim submitted by Rossendale Borough Council for ERDF funding was "inappropriate".

The Ombudsman also noted that the Final Case Report states that the on-the-spot check was carried out jointly by DG REGIO, the British authorities responsible for structural fund applications, with a representative of OLAF present. In this respect, the Ombudsman also noted that DG REGIO may have information or documents, or may be able to provide an explanation, allowing OLAF to clarify on which basis it was concluded, in OLAF's Final Case Report, that Rossendale Borough Council's application for ERDF funding was "inappropriate". In this respect, the Ombudsman stated that OLAF may consider it necessary to contact DG REGIO to obtain the requisite information, documents or explanations that would allow OLAF to reply to this request for clarification.

4.3 The Ombudsman also noted that the Final Case Report concludes that the "claim [of Rossendale Borough Council for ERDF funding] was inappropriate without being unequivocally irregular" [emphasis added]. The Final Case Report went on to note that "it was decided to withdraw the expenditure already incurred from the programme funding application" and that "DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure." The Ombudsman noted, in this respect, that Article 39.1 of Council Regulation No 1260/1999 laying down the General Provisions on the Structural Funds states that all or part of the Community's contribution to funding shall be cancelled in the event an individual or systematic "irregularity" is found. Given that the Commission can only order that the Community's contribution to funding can only be reallocated or recovered if an "irregularity" is found, the Ombudsman underlined the fact that it would appear that Rossendale Borough Council's application for ERDF funding was at least sufficiently "irregular" to give rise to the reallocation or recovery of the Community's contribution.

4.4 OLAF replied stating that, in early April 2000, after it received an allegation according to which Rossendale Borough Council had acted irregularly relating to a project to support a request for ERDF funds, its services met the representatives of the Government Office in the Northwest of the UK. After a meeting with DG REGIO on 12 April 2000, it was agreed to carry out an on-the-spot check under Article 23(2) of Regulation 4253/88. The on-the-spot check was carried out on 26 - 28 June 2000.

4.5 OLAF stated that the UK authorities had previously acknowledged that:

• whilst the complainant's project was deemed eligible for ERDF support, the complainant himself had been judged ineligible for such support because of his private sector status;
• the ERDF grant of 34 000 sterling was reassigned to other eligible activities.

4.6 OLAF stated that this view was confirmed on the basis of the June 2000 on-the-spot check and was recorded in OLAF's Final Case Report. The Commission thus decided to close the procedure which had been initiated on 2 September 1999.

4.7 As regards the disclosure of documents, OLAF provided additional documents to both the Ombudsman and the complainant.

4.8 In his observations in relation to the reply of OLAF, the complainant first of all noted that he was surprised to be informed that the investigation was not an official "OLAF investigation". He reiterated that it was difficult to see how any claim that his scheme was excluded from ERDF funding on the grounds of private sector ineligibility could be justified. Finally, the complainant stated that it was his expectation that DG REGIO would have looked into the above issues and that their conclusions would be in its files.

4.9 The Ombudsman then wrote to the Commission with a view to seeking clarifications, through DG REGIO, as regards OLAF's conclusion that the claim submitted by Rossendale Borough Council for ERDF funding was "inappropriate".

4.10 The Commission stated that the project in question comprised a package of 27 town centre regeneration initiatives, with match funding from English Heritage (200 000 sterling) and the private sector (1 624 000 sterling). The complainant's heritage arcade originally figured as part of scheme 5 of the project (34 000 sterling of ERDF grant was originally earmarked for it). The Commission stated that the complainant alleged that Rossendale Borough Council misled him into thinking that his proposal for the redevelopment of a former picture house into a retail heritage arcade would be eligible for an ERDF grant. The complainant contended that, in refusing him the grant, Rossendale Borough Council proceeded, without his consent, to use his development costs as private sector expenditure in order to draw down the ERDF grant.

4.11 The Commission noted that the CAP project was wider than its ERDF components.

4.12 The Commission noted that it was permissible, under the applicable rules, to apply for funding without it being necessary for the funding to be passed on to the entity directly incurring the expense. It went on to point out, however, that the investor should "normally" be made aware that his project was being used to generate funding.

4.13 Following complaints from the complainant about the above-mentioned project, DG REGIO decided to raise the matter with the Government Office for the North West. The Director-General of DG REGIO wrote to the Government Office for the North West to query about the project and asked the Government Office for the North West to submit its observations.

4.14 The Commission noted that, in its reply to DG REGIO, the Government Office for the North West indicated that the complainant was considered "ineligible" for ERDF support because of his private sector status and that the ERDF grant earmarked for the project was reassigned to other eligible activities.

4.15 The Commission also noted that, in the view of the Government Office for the North West,, the key facts and conclusions were the following:

- The heritage arcade development qualified for ERDF co-funding;

- Whilst the arcade development was deemed eligible for ERDF support, the complainant himself was considered ineligible because of his private sector status in accordance with the assumptions governing ERDF and the private sector at that time. At the time the CAP application was conceived (in the second half of 1994) and made (February 1995), there was no clear guidance available from the Commission on the degree to which private sector companies could participate in such programmes. The UK Government, however, after discussions with the European Commission, introduced its own arrangements in May 1995. The general thrust of the new advice from the UK Government was to encourage private sector contributions where a value for money justification existed. Reasonable profits would be acceptable having regard to the risks involved, and that the said risks should be shared appropriately by the public and private sector. Prior to that advice, participation in such programmes was limited to the non-profit making private sector. The guidance on private sector participation which was emerging in 1995 represented a sea change. Rossendale Borough Council's actions needed to be viewed in that context;

- In calculating "eligible expenditure", the Council was allowed to include spending by private sector partners, including the complainants'' expenditure;

- A project could be used as a basis to claim an ERDF grant without that grant being passed on to an applicant, such as the complainant. Finance policy advice from an Internal Audit Service confirmed that, provided the project was an integral part of a wider scheme, in this case the CAP, it was acceptable to use the project's costs as a justification to draw down the grant (without the grant necessarily going to the project itself);

- Rossendale Borough Council acted properly having regard to the uncertainties concerning private sector participation in ERDF schemes prevailing at the time the application was made.

As a consequence, the Government Office for the North West reassigned the ERDF grant, of up to 34 000 sterling, which was originally earmarked for the Heritage Arcade, to other eligible activities.

4.16 DG REGIO concluded that the reassignment of funds to other "eligible" activities was an acceptable variation to the overall project, that it was not in contravention of the terms of the grant, and that there were no irregularities. The Commission, therefore, decided to close the Article 24 procedure initiated with its letter of 2 September 1999.

4.17 The Commission also provided the Ombudsman with extensive correspondence in relation to the issue, which was forwarded to the complainant.

4.18 In his observations in relation to the Commission's reply, the complainant stated, that the documents and comments supplied by DG REGIO were helpful to him. Regarding private sector eligibility/participation, the complainant noted that the documents provided to him included a letter dated 2 February 2007 entitled "Comments of the Commission on a request for information from the European Ombudsman". The Commission makes clear, on page 2 of that letter, that Council Regulation (EEC) No 2083/93 of 20 July 1993 amending Regulation (EEC) No 4253/88 (Article 17) does not exclude private sector participation.

4.19 The complainant also noted that the documents provided to him included a fax from the Government Office for the North West to the Commission dated 9 November 1999, in which it is stated that "the ERDF grant up to £34k which we understood to be originally earmarked for Heritage Arcade". This clearly demonstrated, in the complainant's view, that the Government Office for the North West did not take issue with regard to the private sector, and in particular his scheme, receiving ERDF funding.

4.20 The complainant also noted that the above documents contained a list of private sector schemes that were included in Rossendale Borough Councils' ERDF project 94-96. On 7 June 2007, the complainant presented this list to Rossendale Borough Councils' Chief Executive. Subsequent to this meeting, and after a series of exchanges of correspondence, he obtained a ledger of ERDF payments made by Rossendale Borough Council to the private sector with regard to the 94-96 project. The list of schemes included in the 94-94 ERDF project, together with the ledger of ERDF payments made by Rossendale Borough Council to the private sector, clearly demonstrate that Rossendale Borough Council, acting as lead applicant/intermediary, had no issues with regard to passing on ERDF funding to the private sector. In sum, according to the complainant, officers of Rossendale Borough Council made a conscious decision not to pass on to him ERDF funding specifically approved for his scheme, whilst actively offering ERDF support to other private sector schemes. He therefore, argued that he and his scheme were clearly treated differently from other private sector schemes.

4.21 The Ombudsman recalls that the purpose of his further inquiry was to seek clarification as regards why OLAF's Final Case Report concluded that the application of Rossendale Borough Council for ERDF funding was "inappropriate".

4.22 The Ombudsman notes that Article 24 of Regulation 4253/88, which related to the reduction, suspension and cancellation of assistance, reads as follows:

"1. If an operation or measure appears to justify neither part nor the whole of the assistance allocated, the Commission shall conduct a suitable examination of the case in the framework of the partnership, in particular requesting that the Member State or authorities designated by it to implement the operation submit their comments within a specified period of time.

2. Following this examination, the Commission may reduce or suspend assistance in respect of the operation or a measure concerned if the examination reveals an irregularity or a significant change affecting the nature or conditions for the implementation of the operation or measure for which the Commission's approval has not been sought.

3. Any sum received unduly and to be recovered shall be repaid to the Commission. Interest on account of late payment shall be charged on sums not repaid in compliance with the provisions of the Financial Regulation and in accordance with the arrangements to be drawn up by the Commission pursuant to the procedures referred to in Title VIII." [Emphasis added]

4.23 The Ombudsman notes that DG REGIO stated that the ERDF grant earmarked for the complainant's project was reassigned to other "eligible" activities and concluded that the reassignment of funds to other "eligible" activities was an acceptable variation to the overall project, that it was not in contravention of the terms of the grant, and that there were no "irregularities". The Commission, therefore, decided to close the Article 24 procedure initiated with its letter of 2 September 1999.

4.24 The Ombudsman recalls that the wording used in OLAF's Final Case Report, where it is stated that "DG REGIO would either initiate recovery procedures or act to re-assign the grant to other eligible expenditure", could have led to the conclusion that DG REGIO had ordered the funds to be reassigned to other eligible expenses in order to correct an "irregularity" it had found (see paragraph 4.3 above). It appears, however, from the Commission's opinion, that, in evaluating a reassignment of funds which had already been implemented by Rossendale Borough, DG REGIO concluded that this reassignment did not constitute an "irregularity" nor a significant change affecting the nature or conditions for the implementation of the operation or measure. As such, the above quoted statement in the OLAF Final Case Report does not accurately reflect the results of the position taken by DG REGIO.

4.25 As regards the statement used by OLAF in its Final Case Report, namely that the "claim [of Rossendale Borough Council for ERDF funding] was inappropriate without being unequivocally irregular", the Ombudsman recalls that the applicable legal rules do not give any specific legal meaning to the term "inappropriate". Rather, the applicable legal rules, in particular, Article 24 of Regulation 4253/88, only use the terms "irregularity" and " a significant change affecting the nature or conditions for the implementation of the operation or measure"(3). As such, the above-quoted reference to the claim being "inappropriate" does not appear to have a specific legal meaning.

4.26 The Ombudsman also notes that the reasons given by DG REGIO for concluding that the reassignment was not "irregular", was that the projects to which those funds were reassigned were themselves "eligible", that the reassignment was an acceptable variation to the overall project, and that the reassignment was not in contravention of the terms of the grant. The Ombudsman understands that the remit of the investigation in which DG REGIO and OLAF participated was to verify if Community funds had been used for projects that were "eligible" and to verify that any reassignment of funds to alternative eligible projects was a variation which was not in contravention of the terms of the grant. As such the reasons provided by DG REGIO in its reply to the Ombudsman appear to be coherent and sufficient.

4.27 The Ombudsman underlines that the review procedures of the Commission and OLAF only serve to verify that that Community funds were used for "eligible" projects and that any reassignment of funds to alternative eligible projects was a variation which was not in contravention of the terms of the grant . Provided this review was adequately carried out, it was not necessary for the Commission or OLAF also to examine, for example, whether national authorities misled potential beneficiaries of grant aid, or reassigned funds when the applicable rules did not oblige them to do so. Further, it was not for the Commission or OLAF to verify whether the national authorities might have incurred legal responsibility under national law for having misled potential beneficiaries or for having reassigned funds. In the Ombudsman’s view, such questions could only be dealt with by a competent national instance.

4.28 As regards the argument, put forward by the complainant, that agreements/contracts between participating partners within an ERDF application are mandatory, the Ombudsman notes that OLAF has stated that, insofar as Regulation 4253/88 is respected, it is the Member State itself which decides on the detailed rules for implementing the relevant regional programmes. After examining the applicable rules, the Ombudsman does not find any specific requirement that binding agreements must be entered into between participating partners within an ERDF application.

However, the Ombudsman stresses that he has not examined whether, under national law, the communications and assurances from the local authorities to the complainant may have given rise to contractual or extra-contractual liability on the part of the local authorities. That issue does not fall within the mandate of the European Ombudsman and could only be dealt with by a competent national instance.

4.29 The Ombudsman recalls that he has noted, in paragraph 1.2 above, that it is for the complainant to pursue the remedies that may be available to him at national level in relation to his dispute with the local authorities in the United Kingdom.

4.30 In this respect, however, the Ombudsman observes that the further inquiry has permitted the complainant to clarify many of the issues which may be of interest to him. In this regard, the Ombudsman notes that the complainant has recognised that the documentation he has obtained in the context of the further inquiry has been of assistance to him. The Ombudsman also underlines the fact that it has been established that the Community rules concerning ERDF funding, applicable at the time the complainant submitted his application for funding, did not prohibit private sector participation. It also emerged that, prior to May 1995, the UK authorities took the view that participation in ERDF funded projects was limited to the non-profit making private sector (although there was, in the view of the UK authorities, scope for the wider private sector to benefit from competing for ERDF funded public works projects). However, after obtaining clarification of the meaning of the applicable rules from the Commission, the UK Government took the position, in May 1995, that private sector contributions were to be encouraged where a value for money justification existed (reasonable profits would be acceptable having regard to the risks involved; the said risks should be shared appropriately by the public and private sector). The Ombudsman notes that the position taken by the UK Government in May 1995 was not the result of any change in the applicable rules, but rather the result of the correct meaning of the rules being clarified for the UK Government by the Commission. The Ombudsman also notes that, given the timescale for processing ERDF applications, the fact that Rossendale Borough Council was awarded an ERDF grant in relation to the complainant's scheme in September 1995 implies that the private sector was considered, even by the UK Government , to be eligible for ERDF funding a number of months prior to September 1995. As noted in Point 1.2 above, it is for the complainant to pursue the remedies that may be available to him at national level in relation to his dispute with the local authorities in the United Kingdom.

5 Conclusion

As regards the allegation that OLAF failed to give the complainant access to the Final Case Report dated 20 March 2003 in its entirety, it is necessary to make the following critical remarks:

1. OLAF's failure to register the letter of 20 June 2003 constituted an instance of maladministration.
2. OLAF's failure to reply to the complainant's request for access to documents within 15 working days from the registration of the request on 27 January 2004 constituted an instance of maladministration.

In light of the conclusions set out above, the Ombudsman decides to close the case.

The Director General of OLAF and the President of the Commission will also be informed of this decision.

Yours sincerely,

 

P. Nikiforos DIAMANDOUROS

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(1) Article 38 of Council Regulation No 1260/1999 laying down the General Provisions on the Structural Funds, which deals with the financial control of structural funds, including ERDF funding, refers to "results" of on-the spot checks, "observations" and "conclusions".

(2) Article 38 of Council Regulation No 1260/1999 laying down the General Provisions on the Structural Funds, which deals with the financial control of structural funds, including ERDF funding, refers to "results" of on-the spot checks, "observations" and "conclusions".

(3) As referred to above in paragraph 4.23, DG REGIO concluded that there was no "irregularity" and no "significant change affecting the nature or conditions for the implementation of the operation or measure".