Frontline fighters in the crusade against EU fraud

Date: 10/10/1996

PRESENTATION of the Court of Auditors' annual report on the way the EU spends its multi-billion-ecu budget is one of the 'highlights' of the Union calendar.

The event is guaranteed widespread media coverage, with Union critics quick to pounce on the revelations (and allegations) of fraud, mismanagement and inefficiency which can be gleaned from the auditors' voluminous report.

The Court is busy putting the finishing touches to this year's exercise before its critical assessment of the way Union funds were spent last year is presented to MEPs in Strasbourg in mid-November by its new president Bernhard Friedmann.

It is not difficult to see why the Court's work attracts so much public interest. In contrast to most other areas of EU activity, fraud - real or imagined - and the wasting of taxpayers' money are easy concepts to grasp.

Last year's report put the scale of EU fraud at around 500 million ecu, less than 1&percent; of the 1994 68-billion-ecu budget. But, claiming that uncovered fraud is only the tip of the iceberg, sceptics still prefer to refer to the misuse of 10&percent; of the total, a figure which has yet to be substantiated.

Nor is it surprising that the Union's main institutions have now put the fight against fraud so high on their agenda. If a sceptical electorate does not trust the EU to take proper care of its finances, it will not tolerate any further increase in the transfer of national funds. More importantly, it will not endorse any extension of the Union's powers and responsibilities.

At the very outset of his five-year term, Commission President Jacques Santer set the tone when he told MEPs in January 1995: “One subject which I know is a cause for concern for many Europeans is fraud affecting the Union's financial interests. Let us make the fight against fraud a common priority.”

How successful that clarion call has been is a moot point.

The need to tackle the illegal use of EU funds is a mantra for all those involved in high-spending regional, social and agricultural policies and overseas aid projects. More rigorous accounting procedures are being put in place and initiatives taken across the range of EU activity.

But the results are distinctly patchy.

One outcome of the anti-fraud crusade has been to remind the public that responsibility for spending more than 80&percent; of EU funds lies with national authorities. Increasingly, attention is focusing on the failure of Union governments to match their condemnation of fraud with effective action.

Not one single member state has yet ratified the Convention on the Protection of the Community's Financial Interests and only three treat EU fraud as a criminal offence.

Anti-Fraud Commissioner Anita Gradin is in no doubt that the Union's whole approach must be reassessed if the problem is to be dealt with effectively, arguing that the fight against fraud must be moved into the mainstream of Union business.

“The intergovernmental approach is slow and ineffective. The ideal result for us would be to move everything in the third pillar except criminal law and police cooperation into the first pillar,” she says.

The Commission has reorganised and strengthened its own anti-fraud unit, UCLAF. It is now involved in all policy areas and enjoys the benefits of high technology equipment and closer cooperation with various national authorities in what many believe to be a fight against organised crime rather than against individuals.

Only fully operational in its latest guise since last summer, UCLAF has already built up a database of 20,000 suspected cases of fraud against the EU budget.

But officials stress that the main responsibility still lies with the member states. “For 80&percent; of the budget, it is the member states who are in the front line. They pay out the money and we check they are paying it out correctly,” said one.

The Commission has also taken a much tougher line with any of its own staff suspected of embezzling EU funds. Internal investigations are more rigorous and suspected fraudsters now face criminal charges in national courts.

The European Parliament has also taken a lead in ensuring tighter control of EU funds. It has used its traditional budgetary powers to freeze expenditure, particularly in central and eastern Europe and the former Soviet Union, and only released the money when satisfied that potential loopholes had been closed.

Ever anxious to maintain the pressure, the Parliament last month adopted reports from German MEPs Diemut Theato and Rosemarie Wemheuer urging the institutions to make the fight against fraud more effective and to assess whether the complexity of EU laws made malpractice easier.

MEPs have taken advantage of new Maastricht Treaty powers to establish a special committee of inquiry into transit fraud, which has robbed EU coffers of almost 1 billion ecu in the past five years and left the freight industry with a liability of more than 8 billion ecu.

The inquiry, under British Socialist MEP John Tomlinson, has successfully drawn attention to the increasing phenomenon of lorry loads of high-value items such as cigarettes, alcohol, meat and textiles vanishing into thin air. It aims to table proposals early next year to modernise the antiquated system and has prevented its extension into central Europe until changes are in place.

The Union's activities are uniquely complex. This point was graphically made by Parliament President Klaus Hänsch at an anti-fraud conference earlier this year.

“The Union's legislation has played its part in the increase in fraud. It would be a mistake to overlook this. Our rules and regulations are too complicated and too confusing. In the agricultural sector alone, the Union issues some 400 new sets of provisions every year. The Union's customs code is thicker than the telephone directory of a large city. The more complicated and more numerous the rules, the wider and more numerous the gaps and loopholes to be exploited by the criminal,” he warned.

The problem has already been recognised by the Commission and, for the past year, officials have been specifically instructed to ensure that all draft legislation is clearly worded, amenable to control and includes safeguards against attempted fraud.

The instructions are part of the three-phase sound financial management programme introduced into the institution by Gradin and Budget Commissioner Erkki Liikanen.

The programme is designed not only to inject a new budgetary culture into all Commission departments, but also to establish tighter control and evaluation systems and to set up bilateral agreements between the institution's financial controller and her counterparts in member states.

But identifying instances of fraud and closing loopholes is only one side of the anti-embezzlement drive. The Union, by its own admission, has had less success in recovering funds which have been fraudulently claimed and paid out.

Between 1991 and 1994, almost 9,000 cases of fraud involving 1.4 billion ecu were reported by member states. Only a fifth of the cases were solved and 185 million ecu recovered.

“This is surely the scandal within the scandal. Where we succeed in detecting fraud, we fail in four out of five cases to recover the money that has been used illegally. One reason for this is that the member states are far less rigorous in their efforts to recover funds that originated from the Community budget than funds that came from their national budgets,” claimed Hänsch.

Tomlinson is in little doubt about the measures needed to force laggards to move at a faster pace. He recognises that a new culture is being instilled in the Commission, but is critical of the failure of member states to do more.

“What we need is an annual inventory. It could be done in a very simplified way, with a matrix matching the 15 member states against what they had or had not done. Then we would know who met the criteria and have more transparency. Member states like the luxury of pontificating and of calling on someone else to do something, but they shrug off the responsibility of putting into place their own control measures,” he says.