Putting a brake on the transit scam

Date: 06/02/1997

AT ITS best, the EU's transit system is the oil which helps smooth the flow of commerce across Union frontiers. At its worst, its creaking procedures offer lucrative loopholes for fraudsters.

Nowhere has the Jekyll and Hyde nature of the present arrangements been more exposed than in the special European Parliament inquiry which will deliver its verdict on the patient next month.

The MEPs' analysis, based on a huge volume of evidence collected from almost everyone (except the illegal beneficiaries) involved in the system, will contain a series of recommendations to improve existing procedures and close loopholes.

These are conservatively estimated to have cost the Union and national budgets at least 1 billion ecu since 1990.

Like moths around a flame, fraudsters - and organised crime in particular - have targeted the system. The attractions are obvious. The arrangement under which consignments can be transported across the EU's internal and external frontiers without paying duty or excise until they reach their final destination is struggling to cope with the increasingly onerous demands being made on it.

It runs on paper. And it runs slowly. As one witness to the parliamentary inquiry noted: “The system relies on 19th century techniques, such as customs stamps, applied to late 20th century trade.”

On average, the 3,000 customs offices operating in the Union process 18 million documents a year.

In theory, the documentary proof that a vehicle has completed its journey should be returned to the original departure office within two weeks. In practice, this can take up to ten or 12 months.

An inquiry into a missing vehicle is not normally triggered until ten weeks after it has left its home base. Even then, hunting for goods which have disappeared is more difficult than looking for a needle in a haystack.

“Vehicles have eight days to complete their journey, generally follow no prescribed route and usually have the option of changing the office of destination without prior notice to the customs authorities. In practice, therefore, a 'lost' vehicle could be almost anywhere in the Community,” notes a draft final report for the inquiry prepared by British Conservative MEP Edward Kellett-Bowman.

The system, originally devised for six EU member states and now catering for trade involving 23 countries (including four in central and eastern Europe), has acted like a magnet to organised crime.

“Criminals can apply their skills in different ways. We increasingly see them being selective, weighing up the risks and profits involved in various areas. Whereas we used to feel fraud meant isolated causes, now we have realised that it is widely organised,” explained one investigator.

The stakes are huge as high-value, sensitive items such as cigarettes, alcohol, meat and even textiles are targeted.

The tax and duty evaded on a contraband container of spirits can be as high as 500,000 ecu and is double that amount for cigarettes. It is estimated that as many as 15&percent; of the cigarettes sold in Spain and Austria, for instance, are contraband.

The inquiry has helped construct a comprehensive picture of the very different monitoring practices operating across the Union.

Spanish customs officers maintain they operate 100&percent; checks on any consignment of sensitive goods, while the Dutch target only 1&percent;. But while the latter spend up to 12 hours on each check, the Spanish devote only a perfunctory ten minutes. “You cannot even open the lorry in that time,” said one investigator.

Even before the Parliament had turned its attention to transit fraud, the European Commission had begun its own investigations into the tensions pulling the system in all directions.

“Problems began to be noticed after the fall of the Berlin Wall and started with Poland. In 1990, for instance, the fraud tended to be essentially in meat and animals. But the methods employed, the products targeted and the countries used change constantly,” explained one official.

The Commission established an early warning system for exchanging information between departure and destination customs offices; increased to 100&percent; the guarantee which had to be paid before sensitive items such as cigarettes could be transported; and proposed clearly specified routes for moving such items.

But as the realisation dawned that the problem could not be solved on a piecemeal basis since clear links were emerging between the different kinds of fraud, the Commission created a special transit task force at the end of 1995 to examine the whole picture.

Internal Market Commissioner Mario Monti has recognised the need for a major overhaul of the system so that it operates efficiently for businesses taking advantage of the internal market, but is not a milch cow for the fraudsters.

“A far-reaching, but well-balanced reform is what we are both after,” he told the parliamentary inquiry last week, revealing that he now intended to involve EU finance ministers in the search for practical solutions.

The Commission is pinning much of its hopes of closing down loopholes on the computerisation of the system.

A pilot project is being run this year and officials are confident that by 1998 computer links will join all 15 member states at least. The green light is also expected later this month for the establishment of a data base to which customs authorities from round the Union would have access.

Parallel efforts to strengthen the system are being made by the Commission's anti-fraud squad UCLAF.

It has core teams of experts focusing exclusively on criminal attacks on sensitive goods, which liaise closely with national authorities and has employed four special prosecutors to help national lawyers prepare court cases with international ramifications.

“The problem is not occasional misuse, but systematic large-scale misuse. That is why UCLAF is targeting organisations, not individual cases, and is constructing a pattern of crime,” explained one source.

Among ideas which may emerge when the Commission presents its own report at the end of April on ways of reforming the transit system are the possibility of amalgamating the two different, separate Community transit systems into one

Euro-transit scheme; the greater use of international conventions; and practical harmonisation of the frequency and duration of checks on shipments.

There is no doubt that the inquiry has drawn the attention of all those involved - manufacturers, users and operators alike - to what has been a long-festering problem, and pushed it up the political agenda.

Until the MEPs became heavily involved, freight forwarders - who bear much of the financial responsibility when lorries go missing - complained that their voices were not being heard. Now they are listened to by national authorities and EU institutions. Customs authorities have also shown a greater readiness to work more closely with each other.

The changed climate has even affected Switzerland. Widely considered a key ingredient in the fraudsters' operations because of its secrecy laws, the country has recently shown a new willingness to cooperate with the Union.

Members of the parliamentary committee are convinced their investigation has helped to construct the most complete picture to date of the problems besetting the transit system.

Not everyone agrees, and some EU officials maintain that the year-long investigation revealed nothing they did not already know. It is a damning admission.

“If that is the case, why did they do nothing about it until now?” asks one of those closely involved in the inquiry.

Committee of inquiry chairman, Socialist MEP John Tomlinson, and his colleagues are in no doubt about the value of the exercise. “We have been the catalyst which has forced all those involved to take seriously what circumstances have shown they should have done years ago,” he insists.