EU considers new penalties to fight fraud

Date: 18/04/1996

By Rory Watson

EU governments could face tough penalties for misusing cash from the Union coffers under plans being drawn up by the European Commission as part of a new strategy to stamp out sharp practices and tighten up the operation of its multi-billion-ecu annual budget.

Under the plan, the fines now applied only to the fraudulent use of money from the EU's farming budget may be extended to other policies to encourage member states to be more vigilant in monitoring the way Union funds are spent.

Senior national officials will examine the politically-sensitive scheme for the first time at a meeting with Budget and Anti-Fraud Commissioners Errki Liikanen and Anita Gradin at the end of this month.

Officials say the Union's structural funds, which will account for 170 billion ecu of EU spending on a wide range of regional and social policies between 1994 and 1999, are prime candidates for a similar system of penalties.

The fines can be politically and financially embarrassing for EU governments. Last month, the Commission ordered 11 member states to repay 787 million ecu paid out illegally under the 1992 farm budget.

“The system certainly leads to a lot of money being clawed back. It clearly has quite an incentive effect on member states to operate sensible financial controls on agricultural spending. Otherwise they know they will be punished,” said one senior official.

To ensure the farm fines are paid, the Commission docks the amounts involved from future Common Agricultural Policy payments. Supporters of extending the system to other areas believe that automaticity will yield dividends.

“The Commission is paying far more attention than in the past to recovering funds illegally paid out. The problem with some regional and social programmes is that when irregularities are found, governments tend to withdraw that part of the scheme and put forward something else. That really should be prevented,” said one official.

Similarly, the Commission is warning member states that it might be necessary to impose penalties on governments which fail to collect income due to the Union. Since 1992, failures in the EU's transit system have cost it 750 million ecu in unclaimed customs duties alone.

The possibility of introducing financial sanctions was firmly put on the table by EU leaders at last December's Madrid summit.

It is partly designed to rekindle public confidence in the Union and also as a response to persistent criticism from the European Court of Auditors of the way EU expenditure is monitored. Last year, the auditors complained that the control systems on 14&percent; of EU spending were unreliable.

The move is part of a wider campaign to improve the management of the EU's annual 85-billion-ecu budget. By the end of the year, the Commission aims to have reached bilateral agreements with every member state providing for mutually-compatible audit systems and on the spot checks by EU and national controllers.

Extra attention is also being paid to closing any fraud loopholes in new EU legislation. Every Commission proposal is now vetted by its anti-fraud unit UCLAF, and the introduction of similar safeguards in the Council of Ministers is being considered to ensure political deals do not open the door to fraud.

The Commission's 1995 anti-fraud report, which is due to be approved on 30 April, will point to the new legal measures introduced to protect the Union's finances and emphasise the central role played by the 130-strong UCLAF unit in coordinating anti-fraud moves. A whistle-blowing freephone system now attracts 4,000 callers a year.