Were ‘EU funds’ a ruse for Kessler to bypass OLAF rules?

As the tide turns, OLAF's independence is now at stake. And not because of the European Parliament's vultures waiting to feast on the carcass of its Italian director Giovanni Kessler, a former centre-left politician in Italy's democratic party who now stands to fall out of favour with his socialist patrons.

Because Kessler's own investigation appears to have been based on irregular motives, particularly in the procedure he employed to be able to fly to Malta, involve the Prime Minister's head of internal audit and investigations - Rita Schembri, then also a member of OLAF's supervisory committee - and interview Silvio Zammit on what turned out to be flimsy, if not false grounds.

In a nutshell, Kessler contrived an investigation on EU funds so that his own agency's investigation selection and review unit (ISRU) could green-light an extension of the "internal" investigation into an "external" one, and carry out an interrogation of Zammit in Malta.

It was a ruse perhaps borne out of frustration, not least because Kessler was bound by OLAF rules not to be able to conduct interviews outside the EU institutions. When his office received the Swedish Match complaint, ISRU conducted a mere 24-hour check into the allegation that Zammit had solicited a €60 million bribe to influence Dalli in lifting a retail ban on snus.

ISRU said the allegation's "possible impact on the reputation of the EU institutions was very high", but that there was however no potential impact on the EU's financial impact. This particular proviso was important, since it characterised the ensuing investigation as an "internal investigation", that is to say, investigations carried out within the EU institutions.

But for Kessler to come to Malta and interrogate Zammit, the director had to request that his investigation be extended into an external one, that is, taking place outside the EU institutions and requiring on-the-spot inspections in a Member State.

The legal hair-splitting comes into play here: while the rules governing OLAF (Regulation 1073/99) do not provide for such an extension, Kessler relied on a procedure he himself added to the ISIP (instructions to staff on investigative procedures), which demanded that ISRU conduct a legality check on his request before granting the extension.

But there is more to this than meets the eye. The ISIP rules allow a widening of powers to OLAF that are not apparent in Regulation 1073/99, giving OLAF the possibility of merging internal and external investigations instead of opening two separate but complementary investigations.

Kessler was confident of finding compliance inside OLAF to validate this extension on what he claimed were "possible frauds detrimental to the EU budget". Indeed, ISRU's opinion was delivered the same day of the request, despite its complexity.

ISRU's opinion however was that the need to extend the investigation "appears doubtful" and that there was "very limited evidence in the case so far" of what financial interests could be affected to justify the spot-check at Silvio Zammit's business premises in Sliema.

Despite the flimsy grounds, ISRU still proceeded to grant the extension, giving Kessler the go-ahead to rope in the OPM's Internal Audit and Investigations Department, which houses OLAF's liaising partner, the anti-fraud coordination service (Afcos).

This was particularly important, since the ISIP rules require that Afcos is brought in to coordinate the case with OLAF, which then "facilitates" the taking of statements. Not only, but because Afcos's remit at law is only to conduct financial investigations on EU funds, Kessler now could venture to Malta on the grounds that he was to investigate some misappropriation of EU funds by Silvio Zammit, who happened to be the deputy mayor of Sliema.

So when Kessler and IAID head Rita Schembri first visited Zammit at his pizzeria in Sliema on 4 July 2012, the spot-check was made on the "external aspects" of the case. His subsequent interrogation at the IAID offices - as revealed by the OLAF report's transcripts - was carried out on the basis of Article 3 of Regulation 1073/99: the article that governs external, not internal investigations.

This fact alone was pounced upon by the Supervisory Committee that subsequently analysed the conduct of OLAF in the Dalli investigation.

"The interview was conducted in the framework of an 'external investigation' but questions were asked mainly on the facts relating to the internal investigation." As the OLAF report shows, only two questions out of the 41 reproduced in the Zammit transcript dealt with EU funds, prompting the Supervisory Committee to express concern at this fact. "The interview as a 'person concerned' within the framework of an external investigation does not appear to be foreseen under Article 3."

Further shortcomings by OLAF were evident in the SC's evaluation: no internal verification was carried out by ISRU of Kessler's request to ask the Maltese authorities for Zammit's telephone records. The request was based on Article 4, which governs internal investigations, and that grants OLAF access to any information "held by the institutions, bodies, offices and agencies", but it does not cover the request to national authorities.

Kessler's zealousness in the Dalli investigation has yet to be deciphered.

Was he actively following genuine leads which required the fullest possible use of his office's power, even if at times OLAF's own internal units were compliant to accede to his requests?

Or was he egged on by the powerful and political interests at stake - a complaint given "special priority" by President Barroso himself and one which struck right at the heart of an important EU directive on tobacco that was to affect millions in revenues for the ravenous tobacco industry?