Charlemagne: The road to perdition

Date: 26/07/03

Are the EU's financial controls so exasperating that they force its own staff to evade them?

THE European Commission has never fully recovered from the corruption scandal that forced its then members to resign en masse in 1999. Stories of false contracts, lax financial controls, complacency and cronyism crystallised much of the public distrust of the “Brussels bureaucracy”. Romano Prodi, who took over as head of the commission later that year, promised that henceforth there would be “zero tolerance” of corruption. But now a new scandal has broken, containing several of the elements that brought down the Santer commission four years ago.

Earlier this year the European Union's anti-fraud office, OLAF, alerted French prosecutors to a “vast enterprise of looting” at Eurostat, the commission's statistical service. Senior managers, said OLAF, had set up secret bank accounts and funnelled EU cash though them to contractors, including companies that they themselves had helped set up and whose boards they sat on. The worth of these contracts was sometimes artificially inflated; others may have been for work that was entirely fictitious. Over €900,000 ($1m) was siphoned off into “black accounts”.

The commission was first alerted to trouble at Eurostat years ago - and barely stirred. One official who complained about dubious contracts was sucked into a costly legal action. When she asked the commission for support, it was refused; she later had a nervous break-down, retiring on an invalidity pension at the age of 37. Almost three years passed before Michaele Schreyer, the budget commissioner, read one crucial memorandum on thegoings-on at Eurostat. The commissioner nominally in charge of it, Pedro Solbes, has refused to accept responsibility, telling the European Parliament this month that he could not be held accountable “for things I didn't know about”. The unimpressed parliamentarians have now summoned Mr Prodi to testify before them in September. Belatedly, the commission is getting tough: on July 23rd it announced that it had cancelled contracts with four of Eurostat's preferred partners, besides launching an investigation into which other commission departments might have been running black accounts.

So is this just further confirmation of the popular prejudice that the Brussels bureaucracy is rife with corruption and incompetence, a gurgling drain choked with European taxpayers' hard-earned cash? Unsurprisingly, things are a bit more complex than that. It is not certain that the black accounts set up by Eurostat were used for the personal enrichment of the officials involved. The most pernicious activity so far proven is illicit funding of a staff volleyball team. Officials familiar with the investigation think that these accounts may originally have been set up to give Eurostat a way to pay for research quickly, without going through the commission's cumbersome procedures. But there is also a strong suspicion that, even if the secret accounts were at first intended to serve a relatively virtuous purpose, they may have been abused as time went on. As one investigator puts it, “Once you step outside the established procedures, you lose the presumption of innocence.”

The whole tortuous tale shows that it is not true that the commission is indifferent to fraud. Alas, things are worse than that. The commission has elaborate procedures to prevent financial irregularities. But these have not just proved insufficient; indirectly, they may actually have made the problem worse. Driven crazy by the amount of form-filling and box-ticking required of them, commission officials have got used to cutting corners. Further investigations may demonstrate that Eurostat's black accounts were by no means unique in the EU's bureaucracy. And once people get into the habit of doing things off the books, the road to perdition is wide open.

There is little doubt that in some ways EU financial regulations are ridiculously cumbersome. Aid projects run by the commission have been notoriously slow in delivering the money they promise to worthy causes. Officials in the commission's research department complain that many top European scientists cannot be bothered to apply for EU money, because of the number of bureaucratic hoops they have to jump through. “Nobody can really follow all the rules,” complains one senior official, “there are just too many. It took three years for my department to find a way to buy in outside data.”

Yet while the commission is top heavy with rules and regulations, it lacks a culture of responsibility. As Mr Solbes's words to the European Parliament demonstrated, nobody seems willing to say “the buck stops here”. Arguably, he, whose most pressing task is to keep life secure for the euro, should have been able to rely on his senior officials to crack down on malpractice in a statistics bureau in Luxembourg. But an official familiar with the Eurostat investigation argues that “the big problem is that there is nobody in the commission who has the responsibility and power to say that a given practice is unacceptable or a given person must be fired.” Instead the buck is passed, memorandums are left unread and investigations drag on for years - until the press or the European Parliament get hold of them.

Plus a change...

After the last big scandal, the European Commission promised a radical overhaul of the way it worked. Fresh procedures were put in place, a new anti-fraud office was set up, and whistle-blowers were promised special protection. But many of the conclusions of the external investigation into that scandal still ring uncomfortably true. It argued that “the multinational character of the commission itself lies at the heart of some of its problems”, creating not only “differences in the interpretation of procedures” but also “unhealthy national allegiances that can cut across the formal structures of the commission”. The report concluded that it was difficult to find anyone in the commission with “the slightest sense of responsibility” for financial control. Four years on, how much has really changed?

Are the EU's financial controls so exasperating that they force its own staff to evade them? Commentary feature looks at the issue of Eurostat.

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