* ir COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels. 06.05.1998 
COM( 1998) 276 final 
PROTECTION OF THE FINANCIAL INTERESTS 
OF THE COMMUNITIES 
FIGHT AGAINST FRAUD 
Annual Report 1997 
Mill 
wm 
\]" ~> 
WO (presented by the Commission) 

LIST OF FREEPHONE NUMBERS IN THE MEMBER STATES 
Germany • 0130820595 I Greece 008003212595 
Austria 06605845 Ireland 1800553295 
Belgium 080012426 Italy 167878495 
Denmark 80018495 Luxembourg 08003595 
Spain 900993295 Netherlands 060224595 
Finland 0800112595 Portugal 0505329595 
France 0800917295 United Kingdom 0800963595 
Sweden 020791695 
CONTENTS 
INTRODUCTION 5 
1. ANALYSES AND STATISTICS S 
1.1. The situation in 1997 S 
1.2. Trends , 9 
1.2.1. Traditional own resources 9 
1.2.2. Expenditure 10 
1.3. Financial monitoring 11 
1.3.1. Recovery 11 
1.3.2. Monitoring of investigations run by UCLAF in cooperation with the Member 
States 12 
2. INVESTIGATIONS 13 
2.1. Involvement of organised crime 13 
2.1.1. The work of the task-group on cigarettes 14 
2.1.1.1. Sea and air trafficking 14 
2.1.1.2. Cigarette trafficking under cover of TIR carnets 15 
2.1.1.3. Cigarette trafficking from Montenegro 16 
2.1.1.4. Cigarette trafficking by rail 16 
2.1.1.5. Trafficking from Andorra 17 
2.1.2. The role of organised crime in agricultural fraud 17 
2.1.2.1. Alcohol 17 
2.1.2.2. Olive oil 19 
2.1.2.3. Butter 20 
2.1.2.4. Infringement of the embargo on British beef 21 
2.2. Fraud: an assault on the Community's policies 22 
2.2.1. Own resources: assaults on the Community's trade policy 22 
2.2.1.1. Fisheries 24 
2.2.1.2. Textiles 24 
2.2.1.3. Anti-dumping measures •. 25 
2.2.1.4. Environment policy 25 
2.2.2. Fraud in the area of the common agricultural policy 26 
2.2.2.1. Tobacco quotas 26 
2.2.2.2. Investigation in the citrus sector 27 
2.2.2.3. Loan to Georgia 27 
2.2.3. Fraud involving the structural policies 28 
2.2.3.1. Embezzlement of ESF funds..... 28 
2.2.3.2. Networks engaging in fraud against the EAGGF Guarantee 
Section 28 
2.2.4. Fraud involving direct expenditure 29 
2.3. VAT fraud: terms for expanding investigations 29 
3. STEPPING UP COOPERATION WITH THE MEMBER STATES. j 
3.1. Action taken by Member States to protect the Community's financial interests 31 
3.2. Mutual administrative assistance instruments in the area of customs and agriculture 31 
3.3. Other forms of cooperation in relation to customs, agriculture and own resources 32 
3.4. Examples of cooperation with police and judicial authorities in the Member States 34 
3.4.1. The risk of counterfeiting the euro , 34 
3.4.2. The Commission's criminal law expertise unit 35 
3.5. Cooperation in the area of indirect taxation (excise and VAT) 35 
3.5.1. Excise 36 
3.5.2. VAT 36 
3.5.2.1. New administrative cooperation standards 37 
3.5.2.2. Simultaneous inspections to tighten up VAT operations 37 
3.5.2.3. Analysing VAT fraud risk 37 
3.5.3. The Fiscalis programme 38 
3.6. Training 38 
4. COOPERATION WITH NON-MEMBER COUNTRIES 41 
4.1. Implementation 'of existing fraud prevention measures by applicant countries 
(preparation for enlargement) 41 
4.2. Mutual assistance agreements between the Community and non-member countries 41 
5. PENALTIES AND HORIZONTAL CRIMINAL-LAW LEGISLATION TO PROTECT THE 
COMMUNITY'S FINANCIAL INTERESTS 43 
5.1. The effective implementation of Council Regulation (Euratom, EC) No 2185/96 
concerning on-the-spot checks and inspections carried out by the Commission 43 
5.2. The implementation of penalties policy 44 
5.3. Protection of the Community against irregularities in financial management 44 
5.4. Criminal-law protection of the financial interests of the Community 44 
5.4.1. The situation with regard to ratification of the instruments adopted 44 
5.4.2. The second Protocol on the protection of the Communities' financial interests 45 
5.4.3. Public procurement policy and the fight against corruption 46 
5.4.3.1. The Protocol and the Convention against corruption 46 
5.4.3.2. The Commission communi-catiqn on corruption 46 
5.5. The Amsterdam Treaty 47 
5.5.1. The new Article 280 of the EC Treaty '. 47 
5.5.2. Approaching deadlines 47 
5.6. Prospects for work under Title VI of the Union Treaty 47 
ANNEXE : 49 
GLOSSARY 58 
INTRODUCTION 
The Commission's Annual Report on the Protection of the Community's Financial 
Interests takes stock of its actions in the fight against fraud. European taxpayers demand 
that all public money is spent efficiently and in a fraud-proof manner. This goes both for 
the national and the EU budgets. 
For 1997 the budget balance is slightly above ECU 82 billion. 
It is financed partly from the Community's traditional own resources. Customs duties 
and agricultural levies on imports from non-member countries amount to ECU 14 billion 
or 17%. VAT receipts amount to ECU 35 billion or 42%. The remainder is covered by 
the fourth resource paid directly by Member States into the budget. This amounts to ECU 
32.9 billion or about 40%. 
Community expenditure goes to a large extent to agriculture which amounts to ECU 41 
billion or 50%. Structural policies amount to ECU 26.6 billion or 32%. The Commission 
directly manages expenditure such as foreign assistance, research and development, 
social funds, etc. amounting to ECU 9.7 billion or 12%. The remainder of the budget of 
about ECU 4.7 billion or less than 6% covers administrative costs in the Commission as 
well as in the other Institutions (the European Court of Justice, the European Parliament, 
etc.). 
In analysing the figures for detected fraud and irregularities great caution must be 
observed. First of all the two concepts differ. A precise definition is provided by 
Community legislation1. At the outset it is difficult to establish if a case is a fraud or an 
irregularity. This requires a criminal investigation which can extend over several years 
before it can be concluded that there has been a fraud in the strict sense of the term. 
Moreover, higher figures for detected fraud and irregularities may be due to improved 
detection or improved notification of cases or both together. They may reflect an 
increase in the underlying number of irregularities or a more efficient investigations in 
certain targeted areas. Also a small number of very significant cases may shift numbers 
considerably from year to year. Finally an investigation may bring to light a fraud which 
took place much earlier, while the amounts are counted in the year in which the fraud is 
quantified. 
With these precautions in mind, the main findings on fraud and irregularities for 1997 are 
as follows: 
In the area of traditional own resources, the amounts involved in cases known to the 
Commission have risen from ECU 796 million in 1996 to ECU 1 billion in 1997. This 
represents an increase in fraud incidence from 5.8% in '96 to 6.5% in '97. Three times as 
much money is typically lost by national budgets in the same fraud cases in the form of 
excise duties and VAT. 
See glossary in annexe. 
It is to be recalled that the reporting obligations in own resources were tightened-up in 
mid-1996. This probably implies a better notification of actual fraud to the Commission. 
Secondly, the Commission has been called upon more often to deal with sophisticated 
transnational fraud, in which the Commission has achieved a good track record. 
The common agricultural policy and structural policies managed by the Member States 
account for the bulk of expenditure on the budget. In both those areas detected fraud and 
irregularities have declined. 
In the common agricultural policy guarantee section the reduction amounts to 13%. 
Detected irregularities and fraud is down from ECU 365 million to ECU 317 million in 
1997. In the structural funds detected irregularities and fraud has been reduced by 50%. 
It is down from ECU 152 million to ECU 77 million in 1997. 
Both on the income and on the expenditure side organised crime is defrauding the 
budget. International criminal networks are targeting highly taxed products (cigarettes or 
alcohol) agricultural products of high value or with a high world market/internal market 
price differential (e.g. beef, olive oil, butter) and finally goods from third countries traded 
under a preferential tariff regime (fisheries, textiles, electronics, motor vehicles). 
Experience has shown that a tight co-operation between the Commission's anti-fraud 
services and Member States allow for efficient investigations into this type of 
transnational organised crime. The economic weight of these complex cases is rising. 
While cases dealt with by a Member State alone on average cost ECU 120,000 in fraud or 
irregularities, a case dealt with by the Commission in co-operation with Member States 
on average involves ECU 3.7 million. Cases dealt with by the Commission in co­
operation with Member States account for 3% of all cases. The volume of detected fraud 
involved, however, accounts for half the total amount detected. 
The dismal recovery record constitutes another major concern highlighted in this Annual 
Report. In agriculture 65% of money defrauded before 1994 remains unaccounted for. A 
certain progress has been achieved in 1997. Better procedures have been set up to 
determine what sums are to be written off, what sums could be recovered or what sums 
due are to be finally charged to the Member States. And in the area of structural policy 
new guidelines on net financial adjustments will sharpen financial control with 
expenditure in Member States. But, more needs to be done to improve recovery. 
The report mentions certain improvements in the fight against fraud against the 
Community budget. Investigations have been intensified and more focused on organised 
crime. The use of task groups charged with coordinating the investigations in specific 
sectors has been extended to the alcohol sector; it has led to a number of successes in 
complex and transnational cases. The Commission has carried out jointly with the 
Member States the first 'on the spot' checks in the investigation of irregularities at 
economic operators. Generally, cooperation between the Member States in carrying out 
these investigation has been improved. 
The 1997 Annual Report offers many examples of typical antifraud investigations. Also 
the various forms of co-operation with Member States and technical assistance are 
highlighted. A special chapter is devoted to co-operation with third countries. Emphasis 
is put on the pre-accession strategy towards candidate countries in Central and Eastern 
Europe. The objective is to ensure that their capacity to combat fraud and corruption is 
developed in parallel with their preparations to take part in the common policies. 
In the legislative area, the year 1997 has seen the adoption of regulation 515/97 
concerning mutual assistance in the customs and agricultural areas. Also the second 
protocol to the Convention on the protection of financial interests dealing with money 
laundering and judicial cooperation was signed by ministers. However, the Commission 
refrained from taking major new legal initiatives in 1997. Rather the full implementation 
and ratification by Member States of the instruments agreed the years before was 
expected. 
A dual conclusion may be drawn: the first pillar instruments in the form of the regulation 
on the protection of the financial interests and the regulation on on-the-spot checks are in 
place and working. The third pillar instruments (conventions and protocols) aiming for 
an equivalent criminal law protection throughout the Union have not yet been ratified by 
a single Member State. It is recalled that the Amsterdam European Council set a 
deadline for ratification bv mid-1998. 
1. ANALYSES AND STATISTICS 
The purpose of this chapter is to present an 
overview of developments in fraud against 
the Community budget and detailed 
analyses of the data available, to give as 
accurate a picture as possible of the 
situation on the ground. 
1.1. The situation in 1997 
The number of cases of irregularity or fraud 
detected in 1997, and the overall impact of 
such cases on the budget, were once again 
up on the previous year. In all, 4 939 cases 
were detected by the Member States and 
notified to the Commission in 1997. These 
cases involved a loss of ECU 585 million to 
the budget. The Commission also launched 
223 new investigations in cooperation with 
the Member States. The overall impact on 
the budget of cases under investigation by 
the Commission in 1997 came to an 
estimated ECU 827 million.2 been established. The notifications quantify 
the effects on the Community budget, so 
that recovery procedures can be started. 
With cases which the Commission is 
investigating in cooperation with the 
Member States, on the other hand, no 
figures are immediately established, and as 
a result there is no official notification by 
the Member States concerned. It is often 
not possible to make a preliminary estimate 
of the impact on the budget of cases 
investigated by the Commission in 
cooperation with the Member States until 
the investigations have made substantial 
headway. The Member States confirm the 
findings of such investigations by means of 
an official notification in a subsequent 
financial year.4 The figures given for the 
effect on the budget of investigations of this 
kind are therefore only estimates or relate to 
cases opened in previous years. 
These trends show, firstly, that the fraud 
prevention systems (especially the 
notification systems) are steadily becoming 
more efficient. They also reflect the fact 
that dismantling complicated organised 
crime networks is a long-term exercise 
which can tie the relevant departments 
down for years. Hence the cyclical 
fluctuation of varying degrees in the 
amounts involved from one year to the next. 
The fact is that the Member States notify 
irregularities under the regulations for 
particular sectors,3 as soon as the facts have 
2 This included investigations initiated before 1997 for 
which a preliminary estimate of the impact on the 
budget could only be produced on the basis of findings 
made in 1997. 
3 Council Regulation (EEC) No 1552/89 (OJ L 155, 
7.6.1989) as amended by Council Regulation 
(Euratom, EC) No 1355/96 (OJ L 175, 13.7.1996) as 
regards own resources: Council Regulation (EEC) 
No 595/91 (OJL67, 14.3.1991) as regards EAGGF 
Guarantee Section; Council Regulation (EEC) 
No 4253/88 (OJ L 374, 31.12.1988), Commission 
Regulations (EC) Nos 1681/94 (Structural Funds, OJ L 
178, 12.7.1994) and 1831/94 (Cohesion Fund, OJ 
L 191, 27.7.1994); Council Regulation (EC) 
No 515/97 (mutual assistance, OJ L 82. 22.3.1997), In the field of traditional own resources, the 
Member States reported 2 572 cases, 
involving a total of ECU 364 million. The 
Commission launched 76 new 
investigations in cooperation with the 
Member States: the sums involved (results 
of the missions of inquiry, whether new or 
ongoing, carried out in 1997) were 
estimated at ECU 642 million (see 
Graph 1). Table 1 contains a breakdown by 
Member State of the cases notified. 
There was a slight increase in the number of 
cases detected in relation to EAGGF 
Guarantee Section expenditure, though their 
impact on the budget was less (down by 
13%). The Member States notified 2 058 
cases, involving a total of ECU 164 million. 
The Commission launched 48 fresh 
investigations; the sums involved (results of 
the investigations, whether new or ongoing, 
carried out in 1997) were estimated at 
previously Council Regulation (EEC) No 1468/81 
(OJL 144,2.6.1981). 
This applies to all investigations, including those 
under the mutual assistance arrangement and, in 
particular, those relating to organised crime. 
ECU 153 million (see Graph 2). Table 2 
contains a breakdown by Member State of 
the cases notified. 
The number of cases detected by the 
Member States or the Commission in 
cooperation with the Member States in 
relation to structural operations (Structural 
Funds and the Cohesion Fund) remained 
relatively stable, while the sums involved 
were considerably smaller. In 1997 the 
Member States notified 309 cases, involving 
a total of ECU 57 million; the Commission 
launched 57 investigations, involving 
ECU 20 million (see Graph 3). Table 3 
contains a breakdown by fund and by 
Member State of the cases notified. 
The number of new investigations into 
direct expenditure (contracts directly 
administered and monitored by the 
Commission without the Member States' 
administration being involved; see Graph 4) 
remained stable, at 42 cases, while the total 
amount involved fell (ECU 11 million). 
1.2. Trends 
One must be extremely cautious in trying to 
compare trends in the numbers of cases 
detected and their effects on the budget over 
succeeding years. Complicated cases 
developing over the course of several 
financial years may have a major influence 
on the statistics for any given year. There 
are, inevitably, fluctuations.5 We must also 
be cautious about interpreting the trends in 
fraud itself since a substantial increase over 
previous years in the number of cases 
detected and the amounts involved does not 
necessarily mean there has been a major 
change in the real scale of fraud. It may 
also be a sign that the monitoring systems 
have become more efficient. 
The number of cases detected in 1997 and 
the amounts involved are confirmation of a 
tendency for irregularities and fraud to 
affect own resources more heavily than 
expenditure. The average impact on the budget of the 
cases detected in 1997 was clearly up on 
previous periods. The average impact of 
cases notified by the Member States 
remained comparatively stable, at about 
ECU 120 000 as against^ECU 140 000. The 
estimated impact of cases under 
investigation at the Commission in 
cooperation with the Member States rose 
from ECU 2.3 million in 1996 to ECU 3.7 
million in 1997. However, the average 
budgetary impact of a case under 
investigation at the Commission in 
cooperation with the Member States is not 
really comparable with that of a case 
notified by a Member State. A single 
investigation into a transnational case. 
coordinated by UCLAF, may cover 
fraudulent operations in several Member 
States. Moreover, UCLAF concentrates on 
the more significant cases in particular 
those involving organized crime. The 
budgetary impact of such complex cases is 
logically greater than it would be for one 
"typical" case without transnational 
ramifications. 
1.2.1. Traditional own resources 
Both the number cases and the total amount 
of money involved as notified by the 
Member States rose compared with 1996 
and 1995. 
The entry into force of the amendment to 
Council Regulation (EEC, Euratom) 
No 1552/89,6 which requires the Member 
States to give more detail in their 
notifications and establishes the new system 
of notification by electronic mail, is starting 
to produce results, and it will now be 
possible to compare information from 
different sources more effectively and 
analyse cases detected more thoroughly. 
Although the number of new investigations 
launched by the Commission in cooperation 
with the Member States in 1997 was down 
on the preceding period, the amounts 
involved (the estimated effect on the budget 
at the end of 1997) are growing larger, 
See the annual report on the "Fight against fraud" for 
1995, Chapter 7, section 2, page 68. Council Regulation (Euratom, EC) No 1335/96. cited 
above. 
reflecting the fact that the cases concerned 
almost exclusively concern organised crime 
networks. 
The cases notified by the Member States in 
respect of 1997. and the cases under 
investigation at the Commission in 
cooperation with the he Member States, 
mostly concern cigarette trafficking. Even 
so, the figures do not reflect the true scale of 
fraud involving cigarettes (or, even more so, 
that of fraud involving alcoholic beverages), 
as they only represent the impact on the 
Community budget. The impact on national 
budgets is several times greater than the loss 
to the Community budget.7 
The second major group of products 
particularly affected by fraud involving 
traditional own resources is dairy products 
(butter, milk powder and cheese). These 
figures are clearly influenced by the impact 
of a number of very important cases as they 
have developed over time.8 
1.2. Expenditure 
The cases detected in the area of EAGGF 
Guarantee Section expenditure primarily 
concern measures in the "market support' 
category.9 Of all the cases notified by the 
Member States, these have the largest 
impact on the budget, accounting for 50% 
of the overall notified impact in 1997 (71% 
in 1996). The proportion of the estimated 
overall impact of cases investigated by 
UCLAF for which they account rose from 
25% in 1996 to 47% in "l997. 
Export refunds still occupy an important 
place, accounting in 1997 for 32% of the 
' The impact on the Community budget in terms of own 
resources (customs duties and the Community's share 
of VAT) represents, on average, only 25% of the total 
impact on the budget (customs duties, VAT and excise 
duty). 
° One single case investigated on the Court of Auditors* 
initiative and concerning butter has an overall impact 
on the budget estimated at ECU 118 million (an 
assessment based on the findings of the investigation 
in 1997), of which ECU 24 million was the subject of 
an official notification by the Member State concerned 
in 1996. 
Particularly expenditure in a common organisation of 
markets involving quotas and intervention measures. sums involved in cases notified by the 
Member States (as against 21% in 1996). 
This trend runs counter to the fact that there 
was actually a considerable decrease in 
export refunds. The explanation for this 
contradiction may be that the investigations 
conducted by the Commission in 
cooperation with the Member States mainlv 
concern that category' of payments (more 
than 50% of the overall impact of cases 
investigated in 1997 as compared with 75% 
in 1996). The fact is that fraud involving 
export refunds is usually carried out by 
organised crime and the resources a 
Member State by itself can put into 
dismantling the networks concerned are 
limited. 
Lastly, there has been a steady increase in 
the effects produced by cases involving 
direct aid.10 from 5% of the overall impact 
of cases notified by the Member States in 
1996 to 17% in 1997. This is due to 
implementation of the reform of the 
common agricultural policy (CAP) with its 
tendency to give priority to direct aid for 
farmers. Cases involving direct aid form a 
minute proportion of those investigated by 
the Commission in cooperation with the 
Member States, due to the fact that such 
measures are monitored by the Member 
States, and, what is more, there are very few-
cases in this sector involving more than one 
country (e.g. through a single aid recipient 
operating in a number of Member States). 
From 1994 to 1996 there was a major 
increase in the number of cases notified by 
the Member States and the overall financial 
impact in the area of expenditure on 
structural operations. In 1997 the figures 
stabilised around the level reached in 1996. 
Regarding the number of cases notified by 
the Member States, the European Social 
Fund is still the worst affected (with 40% of 
the number of cases). The amounts 
involved are higher in the case of the ERDF 
(with nearly 50% of the total). 
10 In particular, production premia and prcmia for ceasing 
production. 
10 
1.3. Financial monitoring 
1.3.1. Recovery 
Where the Community budget is harmed, 
whether the sums involved in a case of 
irregularity or fraud can actually be 
recovered depends on a number of factors, 
particularly the type of infringement, the 
economic and legal circumstances and the 
area of the budget involved. Apart from 
direct expenditure, responsibility for 
recovery procedures lies with the Member 
States. 
In the area of traditional own resources, the 
determining factor is the incurring of the 
customs debt. If an attempt to smuggle 
goods into the customs territory of the 
Community is detected in time, the batches 
of goods seized are usually destroyed or re­
exported if the debtor refuses to pay the 
duties. Smuggling being what it is, it is 
virtually impossible to collect the evidence 
needed to recover a debt in relation to goods 
which have disappeared (having been sold 
on the black market). 
Special problems arise when it comes to 
recovering sums in cases involving 
organised crime or other sophisticated types 
of fraud. Even if the dismantling of an 
organised crime network means that the 
quantity of goods already smuggled into and 
sold on the black market can be 
"calculated" after the event, it is almost 
always impossible to identify the person 
liable for the customs debt and work out 
exactly how much it is. In such cases 
recovery in the strict sense of the term is 
impossible. In other forms of sophisticated 
fraud, the traders concerned often organise 
themselves in such a way that only 
"smokescreen" companies or people who 
cannot afford to pay the amounts due can be 
identified. It is therefore vital to attack 
organised criminal networks in such a way 
that trafficking is halted at source and 
criminals are prosecuted. 
The situation as regards recovery in the 
cases notified by the Member States in 
relation to 1997 in the area of traditional 
own resources is shown in Table 1. It is 
not, on the other hand, possible at this stage to quantify the amounts still to be recovered 
in the cases of irregularity and fraud 
notified under previous financial years. 
This is because until July 1996, when 
Council Regulation (Euratom, EC) 
No 1355/96 took effect, the relevant 
authorities in the Member States who are 
supposed to instigate the recovery 
procedures relating to traditional own 
resources were not officially required to 
supply the Commission with detailed 
information about financial monitoring. 
In July 1997 the Commission proposed an 
amendment to Council Regulation (EEC, 
Euratom) No 1552/89 designed to clarify 
the situations in which the Member States 
bear a financial responsibility.11 This will 
provide more effective protection for the 
Community's financial interests since it 
involves setting up a transparent, formalised 
procedure for determining the sums not 
recovered for which an exemption from 
making them available may be granted and 
those which have not been recovered for 
reasons attributable to the Member State 
which henceforth justifies making the latter 
financially responsible. In October the 
Court of Auditors gave its opinion on the 
Commission's proposal.12 In February 
1998 the European Parliament adapted an 
amended version of the draft. 
With regard to EAGGF Guarantee Section 
expenditure. Table 2 shows progress with 
recovery in the cases notified in respect of 
1997. Three quarters of the amount 
involved (ECU 122 million out of 164 
million) have yet to be recovered. The main 
problem is still the time taken by recovery 
procedures. The Commission thinks that 
four years can be regarded as long enough 
for determining whether there is a realistic 
prospect of recovering sums due and, where 
appropriate, launching the requisite 
procedures. This time limit allows for the 
limitation period and takes account of the 
new accelerated accounts clearance 
1 ' COM(97^4? final. 
12 OJ C 15. 19.I.I99S. 
11 
procedure.13 By the time the four-year 
period expires, the Commission should be 
in a position to take a decision as part of the 
clearance of accounts procedure, based on 
the explanations supplied by the Member 
State concerned.14 Table 4 shows the 
position as regards recovery in cases 
notified before 1994. 
Similarly, as part of the clearance of 
accounts procedure, the Commission may 
apply flat-rate adjustments to Member 
States which have not established adequate 
checks and have thereby created a risk of 
irregularities. This is not a "recovery" in 
the strict sense but another way of 
protecting the financial interests of the 
Communities. Such adjustments are an 
effective inducement to the Member States 
to tighten up their monitoring systems. 
Flat-rate adjustments for 1993 came to some 
ECU 520 million. 
Structural measures are financed by 
instalments as part of multiannual 
programmes. If an irregularity involving 
one of the individual projects selected by 
the relevant authorities in the Member 
States and in receipt of Community co-
financing is detected before the multiannual 
programme in question ceases to apply, the 
Member State concerned may usually 
withdraw the project and replace it with 
another which also meets the set objectives. 
The Community's financial contribution 
may therefore be "reprogrammed". In 
addition, payment by instalments is often a 
way of reacting to an established 
irregularity in financial terms before the 
final payment is made. The balance to be 
recovered can therefore only be accurately 
calculated after the multiannual programme 
has ended. 
13 Commission Regulation (EC) No 1663/95 (OJ L 158, 
7.7.1995) laying down detailed rules for the 
application of Council Regulation (EEC) No 729/70 
(OJ L94, 28.4.1970) regarding the procedure for the 
clearance of the accounts of the EAGGF Guarantee 
Section. 
14 Most recently. Commission Decision 97/333/EC of 23 
April 1997 on the clearance of the accounts presented 
by the Member States in respect of the expenditure for 
1993 on the EAGGF Guarantee Section (OJ L 139. 
30.5.1997). The Madrid European Council in December 
1995 called on the Commission and the 
Council to look into the possibility of 
extending the accounts clearance procedure 
used for EAGGF Guarantee Section 
expenditure to other sectors, particularly the 
Structural Funds. On 27 October the 
Commission accordingly sent the Member 
States' Permanent Representatives the 
internal guidelines on net financial 
adjustments pursuant to Article 24 of 
Regulation (EEC) No 4253/88 and 
instructed its responsible departments to 
apply them. These guidelines set out the 
circumstances in which net financial 
adjustments have to be made. The main 
proposed criterion is that a net adjustment 
must be made if financial control in the 
Member States leaves major loopholes. 
While recovery in the three budgetary areas 
referred to above is the responsibility of the 
member States, where direct expenditure is 
concerned the Commission itself, once it 
has conducted its investigation, recovers the 
amounts due from the end-recipient. The 
relevant authorising department issues a 
recovery order which is executed bv the 
Commission Accountant. But there is no 
denying that the actual recovery of the 
amounts in question frequently runs into 
material or legal difficulties (such as the 
recipient going bankrupt or procedures 
before national courts taking a very long 
time). 
1.3.2. Monitoring of investigations 
run by UCLA F in cooperation 
with the Member States 
Systematic financial monitoring of recovery 
procedures can only be done on the basis of 
official notifications from the Member 
States. Obviously, in the event of 
sophisticated transnational fraud. the 
Member States acting alone cannot bring 
the case to a close and recover the sums 
due, even in part (particularly in the areas of 
traditional own resources and agricultural 
expenditure, where goods are traded and it 
is difficult to identify who is liable to pay). 
Even if an investigation by the Commission 
enables a figure to be put on the effect on 
the Community budget (in terms of own 
12 
resources evaded or irregular expenditure) 
and the debtor or the end-recipient to be 
identified, UCLAF has to send the Member 
State concerned all the facts in the case and 
ask it to take whatever action is necessary to 
recover the amount due. including notifying 
the case officially if it has not been done. 
In the area of own resources. Council 
Regulation (Euratom, EC) No 1355/96 
amending Council Regulation (EEDC, 
2. INVESTIGATIONS 
The chapter on investigations is a sign of 
the priority the Union gives to stepping up 
its operational presence in the field, that in 
fact being one of the mainstays of the 
Commission's strategy for combating fraud, 
supported by the European Parliament and 
the Council.15 
The aims are clear-cut: to combat organised 
crime, while maintaining the credibility of 
the Union's basic policies and protecting the 
Community's finances. 
Where organised crime is concerned16, the 
Community budget is a major target for 
organisations specialising in financial 
crime. Whenever our investigations have 
turned up complicated, usually 
international, operations involving large 
amounts of money, criminal networks using 
sophisticated techniques are found to be 
involved. Fraudulent operators, corruptors 
and counterfeiters of documents, are experts 
at diverting or switching goods, managing 
complicated flows of false invoices, moving 
capital to "front" companies and using 
bogus administrative documents. The 
Commission and the Member States have 
good reasons for running large-scale 
investigations in the field leading to 
penalties which deter fraudulent operators. 
The Commission also has a duty to take 
firm action to protect the major Community 
policies. Whether it be the agricultural 
policy, the structural policy or the trade Euratom) No 1552/89 introduced a 
requirement for the Member States, in their 
own resources notifications, to refer 
explicitly to any previous notification 
within the mutual assistance system for 
customs and agricultural matters. As 
UCLAF organises cooperation with the 
Member States within the mutual assistance 
framework, these references will make 
monitoring in future more systematic. 
policy, what is at stake is the very 
credibility of the Union. 
The malfunctioning of the preferential 
arrangements illustrates the risks which 
systematic fraud could pose to a dynamic 
trade policy open to the rest of the world. 
There are preferential tariffs on half the 
Union's imports.17 Major risks remain, 
particularly in certain sectors such as 
fisheries, textiles and electronics or in 
relation to certain products subject to trade 
protection measures such as anti-dumping 
duties. 
Within the Union fraud must not be allowed 
to undermine operations as fundamental as 
the agricultural or structural policies. The 
Commission is doing its job when it carries 
out investigations in the field into cases 
which are often complicated and spill over 
into several Member States or non-member 
countries, or when it coordinates the work 
done by national fraud-prevention 
departments. 
In the area of VAT fraud, which raises a 
series of questions related to those raised by 
the taxation of high-risk products, further 
action needs to be taken to ensure that 
coordinated investigations are also 
developed. 
2.1. Involvement of organised crime 
It has been established beyond doubt that 
international crime syndicates target the 
15 COM(94)92 flna! 
See ulossarv in annexe ' ' As the Court of Auditors noted in its annual report on 
the financial year 1996 (OJ C 348. ! 8.1 1.1997) 
13 
Community budget. More than 50 crime 
networks have been identified in the course 
of large-scale investigations which have 
revealed the attacks being made on 
Community expenditure and revenue. The 
networks work with each other and are 
involved in other criminal activities as well 
as financial crime against the Community's 
finances. Organised crime has its sights 
trained on high-risk products in which 
trafficking brings in huge profits, such as 
alcohol and cigarettes: customs duties are 
evaded at the expense of the Community's 
financial interests, while excise duty and 
VAT are evaded primarily at the expense of 
national finances. In agriculture, 
investigations by the specialist national 
departments and the Commission more and 
more often uncover evidence of 
involvement by organised, international 
crime networks. 
As the high-level group mandated by the 
Council in 1997 has emphasised, organised 
crime syndicates take advantage of the 
differences between national systems to 
operate with impunity and, where necessary, 
rely on non-member countries (Switzerland 
or tax havens) which shelter the real 
organisers behind the networks and launder 
the money siphoned off from the common 
budget. 
Substantial results can be achieved, 
however, provided the national and 
Community authorities work together from 
the moment the investigations begin until 
any legal consequences which may ensue. 
The work of the task-groups on alcohol, 
cigarettes and olive oil specially set up on a 
Commission initiative so that the 
Commission and the Member States can 
keep track of the most sensitive cases has 
been stepped up. 
2.1.1. The work of the task-group on 
cigarettes 
Investigations coordinated by the 
Commission by the task-group on which 
UCLAF and the specialist departments in 
the Member States are represented have 
shown that organised crime syndicates are 
heavily involved in Europe and throughout 
the world. They adapt extremely well to the measures adopted to combat their activities 
and are very flexible, both geographically 
and operationally, when it comes to using 
different methods of transport and different 
distribution and money-laundering 
networks. Crime syndicates can only be 
fought by seamless operational cooperation 
between the Member States, with help from 
the Commission and working closely with 
the judicial authorities. 
In 1997 joint action and help from certain 
non-member countries led to the uncovering 
and prevention of certain types of 
trafficking; the main syndicates involved 
are described in this part. The overall 
financial impact of the kinds of fraud 
detected in this area in 1997 is estimated at 
ECU 1.6 billion, covering Community own 
resources and national revenue (customs 
and excise duties and VAT). The loss of 
Community receipts was estimated at 
ECU 423 million. Because of the scale of 
indirect taxation, particularly excise duty', 
such fraud goes on all over the Union, 
though it is traditionally more prominent in 
southern Europe. 
2.1.1.1. Sea and air trafficking 
The Commission and the task-group on 
cigarettes set up an operation to combat the 
traffic in cigarettes by sea off Spain and 
Portugal.18 
The cigarettes were first shipped from 
warehouses at ports in Benelux on board 
vessels declared as being bound for West 
Africa, and were then transhipped by sea. 
In January 1997, the operation coordinated 
by the Commission led for the first time to 
the seizing of two vessels. The operation 
continued throughout 1997, and several 
vessels involved were seized by the Spanish 
and Portuguese authorities in collaboration 
with their opposite numbers in France and 
Belgium. 
One consequence of the seizures was that it 
prompted the crime networks to move the 
warehousing operation from Benelux ports 
See the annual report on the "Fight against fraud" for 
1996, Chapter 3. Section 1.1, page 27. 
14 
to other ports, particularly in Cyprus. The 
way the fraud operated was changed, and 
now involved making a false declaration as 
to the type and actual origin (Morocco) of 
the goods. The cigarettes were now moved 
through ports in Cyprus or other non-
member countries in the Mediterranean, 
where they were loaded with other, less 
sensitive goods into containers which, when 
they entered the European Union, were 
declared as containing only the less 
sensitive goods, to escape the notice of the 
inspection authorities. 
The Commission coordinated the 
information about the movements of these 
containers and more than 93 000 cases of 
cigarettes19 were seized by the Member 
States' authorities. The outstanding help 
the Community received from the Cypriot 
authorities was highly appreciated. The 
trafficking of cigarettes to Spain and 
Portugal by sea has been dealt a serious 
blow. Arrests have been made in Spain. 
France and Belgium, leading to the 
dismantling of crime networks, whose 
members are now being prosecuted. 
The crime syndicates then thought up other 
ways to go on supplying the black market in 
Europe. In April 1997 the task-group, 
working with the Spanish and Greek 
authorities, heard that a cargo plane 
belonging to the Ukrainian armed forces 
and coming from Greece was landing at an 
airport in northern Spain and unloading a 
cargo under a false declaration (as electrical 
spare parts sent from Greece). 
The operation led to the seizure of an 
Ilyushin 76 aircraft and the arrest of its crew 
by the Spanish authorities. The aeroplane 
was then seized and the members of the 
crew convicted in the criminal courts. The 
cargo, which was concealed in wooden 
crates, contained more than 1700 cases of 
cigarettes. Further investigations showed 
that the intercepted flight had been the 
seventh of its kind since February, and six 
more flights were scheduled before the end 
of April. The cigarettes came from a large warehouse in the Netherlands, were loaded 
at Ostend Airport in Belgium, for Belgrade, 
and were then carried from airports in 
Greece, where the aircraft in fact only 
stopped to refuel. 
It was established that more than 17 760 
cases of cigarettes had been brought into 
Spain fraudulently as described above. The 
estimated loss in terms of customs duties, 
VAT and indirect contributions was 
ECU 15 million. According to the 
Ukrainian Government, the seized aircraft 
was on hire from a Ukrainian company. 
The authorities nevertheless refused to 
cooperate in clearing up the case, despite 
the agreement with the Community (in force 
since 1996) which provides a legal basis for 
mutual assistance in customs matters. 
2.1.1.2. Cigarette trafficking under 
cover of TIR carnets 
A crime syndicate based in Switzerland and 
regarded as the main supplier of cigarettes 
to the networks in the Community was 
proposing to smuggle some 175 000 cases 
of brand-name cigarettes from Romania into 
the Community. The fraudulent operations 
started at the beginning of 1996. 
The cigarettes, which were first sent by road 
and by air from a customs warehouse in the 
Netherlands through Belgium to Bucharest 
in Romania, were brought back into the 
Community after being transported from 
Bucharest to the Hungarian border under 
Romanian transit arrangements. The 
criminals then declared the cigarettes as 
low-risk goods (crockery) and placed them 
under TIR arrangements,20 under which 
they were carried back into the Community. 
The TIR carnets were falsely cleared and 
the cigarettes placed on the Community 
market. 
The trafficking was brought to a halt in 
November 1996 when two of the TIR 
carnets were found in the hands of one of 
the main organisers of the fraud in the 
course of a criminal investigation in 
19 A case contains 50 cartons, i.e. 10 000 cigarettes. 20 TIR is the international transport arrangement laid 
down by the 1975 TIR Convention. 
15 
Switzerland into another case (drug 
trafficking and corruption of Swiss 
officials). 
The investigation departments of three 
Member States were sent the information, 
which implicated several haulage 
companies. But it was difficult to carry 
their investigations through as there was no 
evidence of the scale of the fraudulent 
operations or the level of responsibility 
borne by the companies and individuals 
concerned. At the request of these Member 
States, the Commission's fraud-prevention 
department undertook to coordinate the 
investigations. 
A Community mission was set up in 
collaboration with the Romanian customs 
authorities. It found enough evidence for 
the national investigating departments in the 
Member States and Rornania to be able to 
institute criminal proceedings. The 
outcome was that several criminals were 
jailed and the debtors were notified of the 
amounts of import duty evaded. Of the 
projected total of 175 000 cases, 35 000 had 
already been smuggled into the Community, 
representing approximately ECU 38 million 
(customs and excise duties and VAT) in lost 
revenue. 
2.1.1.3. Cigarette trafficking 
Montenegro from 
One of the main routes the crime syndicates 
use for trafficking cigarettes to the 
Community is through the Federal Republic 
of Yugoslavia, where large quantities of 
cigarettes are sent in transit by air, road or 
sea from customs warehouses in the 
Community and Switzerland. The 
cigarettes are then loaded onto speedboats 
declared to be bound for Italy and are 
offloaded on the Adriatic coast as 
contraband. least ECU 700 million in Community and 
national resources per year. 
The investigations showed that 678 250 
cases of cigarettes were carried from the 
European Union and non-member countries 
to Montenegro in the first nine months of 
1997. The sole purpose of taking the 
cigarettes through Montenegro is to divert 
them to the black market in the EU. With 
an estimated 10% of these cigarettes 
earmarked for the local market, it can be 
deduced that about 610 000 cases of 
cigarettes are intended for the black market 
in the EU, representing a loss of some 
ECU 610 million in customs and excise 
duty and VAT. 
A mission organised by UCLAF and the 
Guardia di Finanza in cooperation with the 
Italian legal authorities laid hands on 
documents and other evidence showing that 
31 665 cases had been brought into the 
European Union irregularly. With the 
documents obtained in a subsequent 
mission, the Italian police were able to bring 
charges against 42 people linked to crime 
syndicates and involved in cigarette 
trafficking. 
2.1.1.4. Cigarette trafficking by rail 
Because of the measures planned in relation 
to Community/common transit,21 
particularly the requirement for ah 
individual guarantee for cigarettes carried 
by road, the crime syndicates are exploiting 
the weak points of other methods of 
transport. For example, 77 410 cases of 
cigarettes carried by rail from Switzerland 
to Portugal between February 1995 and 
April 1997 were smuggled into the 
Community, representing a loss of some 
ECU 65 million in Community own 
resources and national revenue. 
This is a substantial operation: more than 
100 cargo plane flights to Montenegro were 
identified in 1997. Investigations in the 
same year confirmed the figures from an 
initial mission in 1996 for the very high 
level of trafficking taking place, involving 
some 800 000 cases per year, or a loss of at Arrangement for movement of goods under duty- and 
tax-suspension arrangements from an office of 
departure to an office of destination by way of a 
document-checking procedure (the common transit 
arrangement is an extension of the Community transit 
arrangement to the EFTA countries and the Visegrad 
countries - Poland, Hungary, the Czech Republic and 
Slovakia). Cf. Chapter 3, section 3.3. 
16 
The cigarettes in question, which were of 
American origin, were sent from 
warehouses in the Netherlands, Germany 
and Belgium to warehouses in Basle and 
Buchs in Switzerland. There the cigarettes 
were declared for export to destinations 
outside the Union, bound for Angola, 
Senegal, Gambia and Guinea via Portugal, 
where they were fraudulently taken off the 
wagons and removed from the 
Community/common transit arrangements. 
This traffic was stopped in April when the 
Portuguese authorities seized the 70th truck 
in this particular operation. 
Investigations by the judicial authorities are 
under way in Portugal to identify those 
responsible for the fraud. UCLAF 
coordinated a mission to Switzerland under 
the mutual assistance agreement with that 
country. Even though loopholes have come 
to light in implementing the agreement, 
particularly as regards the responsibilities of 
the Swiss authorities, the results of the 
mission at this stage show that the 
organisations involved in the fraud are 
known from other cigarette smuggling 
cases. 
2.1.1.5. Trafficking from Andorra 
For several years now Andorra has been one 
of the sources of cigarettes smuggled into 
the European Union, particularly Spain. 
The cigarettes used to be either 
manufactured under licence in Andorra or 
manufactured in non-member countries and 
imported into Andorra. 
In 1995-97, however, the operations began 
to take place on a very large scale. Large 
quantities of cigarettes smuggled out of 
Andorra were seized by the Spanish, 
French, British and Irish authorities. 
Thorough analysis of the tobacco products 
imported into and manufactured in Andorra 
showed that the quantities concerned were 
very much in excess of the requirements for 
local consumption and duty-free sales to 
tourists. Officially, however, Andorra does 
not export cigarettes. 
In 1997 it was found that twice as many 
cigarettes had been imported into Andorra as in 1996, while the quantities of cigarettes 
manufactured in Andorra had risen slightly 
over the five preceding years. The brands 
of cigarettes imported into Andorra in 1997 
suggested that a large part of them was 
intended for the British and Irish contraband 
market, which is run by crime syndicates. 
The total tax receipt loss was estimated at 
some ECU 200 million in 1996 and 
ECU 400 million in 1997. There is solid 
evidence to show that the traffic is being 
carried on by organised criminal gangs 
based in various countries inside and 
outside the European Union. 
Various steps have been taken by the 
Spanish authorities (the Guardia Civil) and 
tougher police and customs control should 
put a halt to this type of operation. The 
relevant departments in the Commission 
and the Andorran authorities are discussing 
what action to take. 
2.1.2. The role of organised crime in 
agricultural fraud 
Investigations into the agriculture sector 
frequently uncover well-organised crime 
networks. Organised crime is particularly 
involved in the extra-Community trade in 
agricultural products, through complex 
networks of producers, dealers, carriers, 
invoice clerks, smugglers, counterfeiters 
and so on. 
The cases involving alcohol, olive oil, 
butter, beef and veal referred to above are 
good illustrations of the kind of crime the 
Community is faced with. The British beef 
example shows that as well as an attack on 
the Community's financial interests there 
may be circumvention of the bans imposed 
by the Community to protect public health. 
2.1.2.1. Alcohol 
At the end of 1996, the investigations into 
alcohol and alcoholic beverages (except 
wine) under way in UCLAF22 were brought 
22 See the annual report on the "Fight against fraud" for 
1996, which reported, in Chapter 3, Section 3.1.1. 
p. 27, that the Member States had told the Commission 
17 
together under a task-group on alcohol 
responsible for gathering the available 
information together in one place and 
coordinating fraud-prevention activities, 
which are inevitably international. The 
group is able to initiate investigations and 
exercise operational supervision over them. 
The early warning system (transit system) 
and the coordination of investigations by a 
special task group have proved useful tools 
in fraud detection. Experience also shows 
that it is in the interests of all the Member 
States to cooperate with each other and with 
the Commission: the problems fully 
identified in 1997 cannot easily be confined 
just to the Member States which have 
worked with the Commission. 
What is more, the principal instances of 
fraud are carried out by well-organised 
criminals. They can only be fought by 
constantly upgrading the exchange of 
information and cooperation between the 
Member States and the Commission. It is very difficult in most cases to discover 
what the end-destination of the alcohol is. 
either because it has not left the Member 
State of departure at all or because it has left 
that Member State but not the Community 
(which involves it simply being diverted 
onto the market in another Member State or 
exported but then smuggled back into the 
Community), or because it has left the 
Community and then been put on the market 
illegally in non-member countries, 
particularly in central and eastern Europe. 
Inside the Union a great deal of the 
trafficking goes on in northern Europe, 
where excise duty is higher. Very 
obviously, it is in the shared interest of the 
Community and non-member countries, 
particularly those of central and eastern 
Europe, to prevent fraud on their respective 
markets and contain organised crime. 
• Consignments under the Community 
transit customs arrangement 
In 1997 the task group launched 
investigations into movements of alcohol 
and alcoholic beverages either under the 
Community external transit system23 or 
under excise - duty - suspension 
arrangements.24 Investigations showed that 
both systems had been used fraudulently. 
Large amounts of alcohol and alcoholic 
beverages disappeared while being 
transported across the Community. The 
fraud methods used include using forged 
documents and stamps, giving false 
descriptions of goods or specifying false 
companies as the declared consignees, and 
setting up "front" companies which go 
bankrupt before duties fall due. 
23 on several occasions that there had been an upsurge in 
alcohol smuggling. 
Consignments covered bv a Tl document. 
Consignments under an accompanying administrative 
document. Council Directive No92/12/EEC of 
25.2.1992 on the general arrangements for products 
subject to excise duty and on the holding, movement 
and monitoring of such products (OJ L 76, 23.3.1992), 
and Commission Regulation (EEC) No 2719/92 on the 
accompanying administrative document for the 
movement under duty-suspension arrangements of 
products subject to excise duty (OJ L 276, 19.9.1992). Because of the information passed on by the 
Member States in 1997 about exports of 
sensitive products, the investigation was 
targeted on two Member States which 
export large quantities to declared 
destinations in the former Soviet Union 
(particularly Russia, Ukraine and 
Lithuania). 
It was thus established that at least 
1.4 million litres allegedly exported from 
one of these two Member States had not 
reached the declared destination. The 
customs documents had not been produced 
at customs offices on the way out of the 
Community, or had been stamped using 
forged stamps. 
If, as seems likely, the quantity involved did 
not in fact leave the customs territory of the 
Community, the financial impact, assessed 
on the basis of average taxation in the 
European Union, and including customs 
duty, would come to about ECU 15.7 
million. The investigation is continuing in 
order to determine both where the products 
concerned went and what happened to 
another 4.4 million litres of exports bound 
for countries in the former Soviet Union 
18 
(with a potential impact of some ECU 49 
million). 
• Consignments under the excise-duty-
suspension arrangement 
Thanks to outstanding cooperation from one 
Member State, it was possible to analyse 
movements of alcohol under the excise-
duty-suspension arrangement and show that, 
over a period of a little over a year, nine 
companies evaded payment of excise duty 
and VAT by means of fictitious exports of 
6.7 million litres of alcohol. 
The customs authorities also uncovered 
irregular dispatches of 14.3 million litres by 
another eight companies over a period of 
less than three years. The estimated 
potential loss of national revenue (based on 
average taxation in the European Union) 
would be some ECU 563 million. 
2.1.2.2. Olive oil 
Investigations in this field show how 
sophisticated the techniques used by crime 
syndicates are. To achieve their aims they 
set up mechanisms which distort the 
economy in a particular sector. The idea 
that there is a type of fraud which works to 
the advantage of one sector is mistaken: 
here, producers, processors and consumers 
are the victims of a concerted operation. 
Large-scale fraud has been taking place in 
the olive oil sector in relation to both 
consumption aid and production aid. 
Import and export operations have also been 
subject to fraud. The Commission took this 
problem into account in the proposals which 
it put forward for the reform of the common 
organisation of this market.25 
The cases involving olive oil are a good 
illustration of the usefulness of a structure 
like the specialised task group, not just 
conducting one-off investigations but, as an 
ongoing exercise, coordinating research 
departments which have to deal with 
organised financial crime operating in 
several countries and in a variety of wavs. 
COM(97)57 final • Olive oil adulterated with hazelnut oil 
It emerged during 1995 that sizeable 
quantities of oil cleared through customs as 
sunflower oil had been dispatched to 
Belgium. Netherlands, Germany and 
Portugal on board ships from Turkey. 
Fraud was suspected: it could have been 
hazelnut oil intended for mixing with olive 
oil. as that type of adulteration is very 
difficult to detect if the amount of hazelnut 
oil mixed in does not exceed 18% or 20%. 
Oil adulterated in that way ioses its quality 
and is no longer entitled to any form of 
Community aid. 
Having the oil cleared through customs in 
various ports in Northern Europe and 
Portugal diverted attention, as did declaring 
it as sunflower oil - and, incidentally, 
thereby side-stepping the requirement to 
provide a security for the importation of 
hazelnut oil.26 
After repeated cross-charging via 
companies established in tax havens 
(Panama and others) and holders of Swiss 
bank accounts, the oil was taken to Italy and 
Spain on lorries, usually French. 
An investigation which the Commission 
carried out in Turkey in 1995 in association 
with the customs departments of the 
Member States concerned found evidence 
that the vessels had indeed been loaded with 
hazelnut oil. The documents produced on 
arrival in the Community were forged 
documents concocted during the journey. 
The false declarations of type and value 
related to a total of 20 680 tonnes of 
hazelnut oil. 
The French, Belgian and Dutch customs 
investigation departments investigated the 
carriers and identified the end-consignees of 
the goods. At each stage of the 
investigation UCLAF, through the olive oil 
task group, coordinated the inquiries by the 
A security of ECU 800 per 100 kg, released on certain 
conditions o\ use. is required by the regulation to 
reduce the risk of fraud involving hazelnut oil. Ci\ 
Commission Regulation (EEC) No 2828/93 (OJ I. 25S. 
16.10.1993). 
19 
specialist departments from the Member 
States concerned. 
The loss to European consumers who 
bought olive oil adulterated with hazelnut 
oil can be put at ECU 40 million, allowing 
for the fact that hazelnut oil was three times 
as cheap as olive oil on the world market at 
the time. The loss to Community finances 
was ECU 30 million through the failure to 
provide the security required for hazelnut 
oil (involving 16 145 tonnes), plus large 
sums improperly collected in consumption 
aid totalling ECU 43 million, if we consider 
that the 20 680 tonnes of hazelnut oil were 
mixed with the olive oil to make up 20% of 
the total, thereby enabling 103 400 tonnes 
of adulterated olive oil to be placed on the 
market. Recovery procedures and legal 
proceedings are under way in these cases. 
• Fraudulent importing of olive oil 
A joint inspection carried out in Greece in 
connection with developments in an earlier 
case involving fraudulent importing of olive 
oil into Italy27 found evidence in a ship's 
log of another fraudulent operation set up 
by the same crime syndicate. An 
investigation by UCLAF in collaboration 
with the Italian Guardia di Finanza and the 
French customs investigation department 
uncovered a complicated operation 
involving fraudulent importing of olive oil 
without payment of customs duties. 
The olive oil, which came from a non-
member country, was claimed to be in 
transit for Israel and Turkey. It was in fact 
unloaded on the customs territory of the 
Community by means of an ingenious 
subterfuge. Two ships sailed from 
Marseilles and Sète in France, each carrying 
1700 tonnes of olive oil in transit and 1700 
tonnes of French sunflower oil. They called 
at Monopoli in Italy, allegedly in order to 
unload the sunflower oil. They then set off 
again for Turkey and Israel with the olive oil (with supporting manifests and bills of 
lading). 
The investigation proved that it was the 
olive oil which was in fact unloaded in Italy 
and the sunflower oil which was cleared 
through customs in Turkey and Israel, the 
papers being altered en route. 
The 3400 tonnes booked in the Italian 
consignee's accounts as sunflower oil were 
then re-established as olive oil: a set of false 
invoices was issued with the connivance of 
other companies to establish that the 
company concerned had sold the sunflower 
oil and bought the same tonnage of olive 
oil. To complete the fiction, carriage 
invoices had been issued, with lorries 
actually moving about (and thereby 
justifying purchases of fuel) but empty! 
The investigation showed that all the 
invoices were bogus and that no goods had 
ever been physically moved. The only 
purpose of the whole set-up was to justify 
the presence of olive oil surreptitiously 
unloaded at the consignee's premises, when 
the two vessels had been officially declared 
as carrying sunflower oil. 
The amount involved in this case, in terms 
of evaded customs duty and securities 
which were not lodged, came to ECU 5.1 
million. Consumption aid which was drawn 
without entitlement came to ECU 1.83 
million. Legal proceedings have been 
instigated. 
Uncovering the mechanisms in this 
particular instance of fraud took several 
years of research, as there were a great 
many people involved in the organised 
crime network which carried it out: three 
companies (French, Swiss and British), all 
run by an international dealer and producer 
based in the UK, with the connivance of the 
manager and captains of the ships involved 
and from a well-organised Italian network 
consisting of officials from a great many 
trading and transport companies. 
27 See the annual report for 1993 on the "Fight against 
fraud", p. 27. The case in question came to trial 
recently; the Communitv's finances were defrauded of 
ECU 27.6 million. 2.1.2. J. Butter 
In October 1996 the Commission was told 
by the Belgian authorities that a dairy 
20 
products firm was suspected of involvement 
in bogus exports of butter to Albania though 
an Italian trader. The Belgian firm was 
getting export refunds. Under the 
responsibility of the trader in Italy, the 
product was placed under the transit 
arrangements and then earmarked for export 
from Bari to Albania. 
Close cooperation between the Commission 
and the relevant national administration led 
to the seizure of the butter consignments in 
Italy, while the carriers were caught in the 
act of unloading the lorries in private 
warehouses. 
An investigation by the fraud-prevention 
departments in Belgium and Italy showed 
that 15 consignments intended for Albania 
had been improperly withdrawn from transit 
using falsified Community' transit 
documents and then diverted to the Italian 
market between July and November 1996. 
Once the fraud had been identified, the 
Italian trader was charged before the Italian 
courts with fraud against the Community 
budget. 
Shortly afterwards the Commission 
discovered that between January and April 
1997 the same trader had bought 13 
consignments of butter intended for Albania 
from a French exporter. A fresh 
investigation was set up, ending in the arrest 
of the trader in Italy on charges of 
smuggling and conspiring to defraud the 
Community budget with the French 
exporter. 
After this case, a third instance of fraud was 
discovered, in which the same Italian trader 
had first exported French butter to Croatia 
and then brought it back into the 
Community fraudulently, declaring it as 
margarine. 
These three cases, in which the amounts to 
be recovered come to ECU 1 million, have 
uncovered a crime syndicate involving 
exporters and traders in Belgium, France 
and Italy and designed to defraud the 
Community budget. Commission 
departments coordinated and steered the 
investigations and thereby helped to stamp a 
crime syndicate out at an early stage, before it could take advantage of Community aid. 
The Commission received exemplary 
assistance in this case from the national 
departments responsible (the Guardia di 
Finanza in Italy, the Belgian customs and 
the customs investigations department in 
France) and the judicial authorities 
responsible for prosecuting crime. 
2.1.2.4. Infringement of the embargo 
on British beef 
On 27 March 1996, as a precautionary 
measure against bovine spongiform 
encephalitis, the Commission decided to 
ban all exports to the Member States and 
non-member countries of live cattle from 
the UK and of various products obtained 
from cattle slaughtered in the UK.28 The 
Commission worked with the Member 
States to obtain information about any 
infringements. Suspicion fell on a Belgian 
crime syndicate already well-known for its 
involvement in the unlawful traffic in 
hormones or other types of agricultural 
fraud. 
In April 1997 Dutch customs found a UK 
health label in a consignment of frozen beef 
which had allegedly come from two Belgian 
establishments. After thorough checks, 
several UK marks were found. The 
principal organiser of the fraud was a 
Belgian company linked to a British firm 
which bought and processed British beef in 
a cold store in the UK. 
The fraud involved removing animal health 
marks saying "UK" and packing the meat in 
cases bearing bogus Belgian health labels. 
Carriage to the Continent by lorry and ferry 
was done under cover of false papers 
claiming that it was Belgian meat which had 
been taken to the UK and sent back. 
The meat was then stored in the Netherlands 
and sold to a French company, by the 
Belgian company which organised the 
fraud, as meat of Belgian origin. The meat 
was then exported by the French company. 
28 Commission Decision 96/239/EC (OJ L 78. 
28.3.1996), amended by Commission Decision 
96/362/EC (OJ L 139. 12.6J996). 
21 
export refunds being paid in the Netherlands 
to a total value of ECU 1 074 000. 
Subsequently French and Irish health labels 
were also found in the same cold store in 
the UK. Another fraud on the lines of that 
described above was uncovered. At the end 
of July the French customs physically 
inspected goods on a lorry coming from 
Northern Ireland (20 tonnes of beef) and 
identified a "UK" mark on the meat. The 
consignment, which was on its way to a 
German company, was seized. The 
Commission was notified of these findings 
in the middle of August, and the report was 
passed on to the German, Irish and British 
authorities. 
The German authorities then established 
that between August 1996 and August 1997 
the German firm had bought 1277 tonnes of 
beef declared as being from Ireland, with 
falsified Irish health certificates and 
transport documents. The meat was then 
either exported as Irish beef by the German 
purchaser, with refunds being paid, or sold 
on to another German firm as beef with 
German health certificates (and then 
exported with refunds paid or sold on the 
internal German market). The amount to be 
recovered in Germany comes to ECU 1.3 
million. 
Lastly, after the investigations in Germany, 
the authorities uncovered a similar scheme 
(UK beef with the health marks cut off by a 
company based in Northern Ireland) 
involving four Dutch and Belgian 
companies and some 2000 tonnes of beef. 
In connection with the investigations into 
the illegal trade in beef, the Commission 
twice applied Council Regulation (Euratom, 
EC) No 2185/96 concerning on-the-spot 
checks and inspections carried out by the 
Commission in order to protect the 
European Communities' financial interests 
against fraud and other irregularities.29 
The investigations into the beef and veal 
industry showed that suspicions of fraud in 
relation to agriculture also need to be 
29 OJL 292, 15.11.1996. See Chapter 5, section 5.1. notified, both under the mutual assistance 
regulations and so that offenders can be put 
on the agricultural black list set up by 
Council and Commission Regulations.30 
In all the cases mentioned which are now 
being dealt with by the judicial authorities, 
UCLAF coordinated the investigations and 
organised all the relevant meetings with the 
various authorities responsible in the 
Member States concerned. When 
authorities are faced with this kind of fraud 
involving an organised crime network, there 
has to be such coordination, including when 
on-the-spot visits are made to traders' 
premises. 
2.2. Fraud: an assault on 
Community's policies the 
There is a political price to pay for fraud 
against the Community budget as well as 
the financial impact. Not only do the 
accounting losses add up, it also poses a 
direct threat to the credibility of the 
Community's policies, whether it be the 
external trade policy, the agricultural or 
structural policy or internal or external 
operations financed by direct expenditure. 
2.2.1. Own resources: assaults on the 
Community's trade policy 
The investigations in 1997 have helped to 
shed a great deal of light in the current 
debate about the management of the tariff 
arrangements which are one of the 
Community's main operational instruments 
in promoting its external policy. The 
Commission's communication on this 
subject31 reviews the shortcomings in the 
operation of the arrangements which have 
come to light during investigations in the 
field and sets out an action programme 
aimed at reducing the instances of fraud 
which represents a threat to the very 
existence of these arrangements. 
These shortcomings should not obscure the 
primary aims of the system, which are to 
30 See Chapter 3, section 3.2. 
31 COM(97)402 final. 23.7.1997. 
22 
help the recipient countries develop, to 
encourage cooperation with the partner 
countries and to prepare for the 
incorporation of countries which have 
applied for membership. 
The object of the communication referred to 
above is to reconcile two objectives which 
are by no means contradictory: the first is to 
facilitate trade by giving preference only to 
products from partner or beneficiary 
countries, and the second is to combat 
fraudulent exploitation of the arrangements 
so that tariff preference is granted only on 
goods from countries which are the intended 
beneficiaries. 
Preferential treatment is given only to goods 
from beneficiary countries where they have 
been obtained in their entirety or processed 
to a sufficient degree. The goods must then 
have been brought to the Community 
directly with special certificates32 showing 
that they were obtained on the required 
terms. There are also cumulation rules 
applying to goods produced using products 
from two, three or more partner countries 
(or two or more countries belonging to a 
regional grouping). 
There are a great many weaknesses, despite 
there being a system for administrative 
cooperation between the Community and 
each of the partner countries. The types of 
irregularity or fraud found relate to the most 
sensitive products, reflecting specialisation 
in the exporting industries of the beneficiary 
countries (electronic products, fisheries and 
textiles primarily), and involve the 
production of certificates which are not in 
the due form or are actually authentic but 
relate to a product which is not covered by 
the agreement or arrangement (these are the 
easiest to detect), or have been issued in 
respect of products not obtained in the 
beneficiary countries (or even obtained in 
the beneficiary country without complying 
with the rules of origin). 
32 The beneficiary countries are responsible for granting 
certificates of origin (system based on cooperation and 
trust). The responsibility borne by traders outside 
the Community is obvious. They are in a 
position to know whether the products they 
make comply with the rules of origin or not. 
By supplying Community' importers with 
certificates of origin for products which are 
not eligible, they give them a way of 
evading payment of the customs duties 
which would normally be payable. The 
Community importers concerned are also 
supposed to be familiar with the rules of 
origin. If they produce a certificate of 
origin with an import declaration, they are 
liable for any duty payable on the import.33 
The other major category of fraud involving 
the rules of origin sets out not just to secure 
tariff advantages but to get round market 
protection measures such as the anti­
dumping provisions or the measures 
imposing all-out bans adopted under the 
Union's policy on the environment. 
In all these instances, the Community's 
interests (which are financial, commercial 
and sometimes also wider in scope, as the 
case of products which destroy the ozone 
layer shows) can only be protected by 
coordinating the work of the Member States 
and the beneficiary countries, with help 
from the Commission. 
This applies both to the prevention stage, 
when the terms for granting trading 
advantages are being studied, and to the 
suppression stage, when traders who behave 
improperly have to be thwarted and 
sanctioned. Such traders not only encroach 
on the Community's financial interests, they 
actually distort trade in ways which cannot 
be tolerated, penalising fair traders and non-
member countries which meet their 
obligations and cooperate with the 
Community in the interests of proper 
implementation of the preferential 
arrangements. 
33 In the Bangladesh textiles case (see the annual report 
on the "Fight agains: fraud" for 1996, Chapter 3, 
Section 3.2.3, p. 29), the Commission notified 
importers (OJ C 107, 5.4.1997) that there were doubts 
as to whether the certificates of origin (A forms) 
submitted in the Community in respect of certain 
textile products from Bangladesh since January 1994 
were authentic, and suggested that they take the 
necessary precautions. 
23 
2.2.1.1. Fisheries 
Applying the preference rules to fisheries, 
where customs duties . are comparatively 
high and the rules of origin difficult to 
police, still creates problems. One example 
of a clever kind of fraud is the case of the 
shrimps from Surinam. 
As far back as 1995 the Commission found 
out that there were suspicions of fraud in 
relation to tariff preferences. There was a 
likelihood that frozen shrimp on board 
Japanese vessels were being imported into 
the Netherlands with certificates of origin 
from Surinam. 
Research showed that fleets flying the flags 
of a number of countries (Korea, Honduras. 
Japan, Vanuatu and others) were operating 
off Surinam. Shrimp landed from the boats 
appeared to be getting some superficial 
form of treatment before being exported to 
the Community. The Member States were 
told there was a suspicion of false 
declarations of preferential origin. A 
mission to Vanuatu in August 1996 also 
found evidence that vessels flying that 
country's flag and operating off Surinam in 
fact belonged to Korean and Japanese 
companies, which confirmed the original 
suspicions. 
By agreement with the Surinam authorities, 
an administrative cooperation mission 
consisting of representatives of the 
Commission and the Member States mainly 
concerned (France and the Netherlands) 
went there in February. After virtually all 
exports since 1992, amounting to 2920 
tonnes, had been checked, it was clear that 
the shrimp had been caught by some one 
hundred ships which, with four exceptions, 
belonged mainly to Korean or Japanese 
companies (under various flags) or did not 
satisfy the conditions laid down in respect 
of crew membership. The shrimp landed by 
the vessels concerned did not, therefore, 
satisfy the cumulative criteria for 
determining entitlement to preferential 
treatment (the total quantity involved was 
2900 tonnes). 
By making incorrect declarations the 
exporters got the Surinam authorities to issue certificates which they used to import 
the shrimp into the Community duty-free. 
The mission established that some of the 
importers had known from the outset that 
the product did not satisfy the rules of origin 
and sometimes advised their suppliers on 
ways of getting round any inspection which 
might take place. 
The duty evaded came to ECU 4 million. 
The Commission referred the matter to the 
appropriate authorities in France and the 
Netherlands for further action to recover the 
duty and apply penalties to the offending 
importers. 
2.2.1.2. Textiles 
This is another sensitive sector where large 
quantities are involved and tariff 
preferences play a major part. The 
Indonesian textile case described below 
shows how sensitive the sector is to fraud 
and how necessary it is that there should be 
cooperation at Union level and with non-
member countries. 
In this particular case an administrative 
cooperation mission to Indonesia was 
carried out in June 1997 by a delegation 
from the Commission and the UK. There 
were suspicions relating to certain textile 
goods for which preferential Indonesian 
origin was being claimed under the 
generalised system of preferences (GSP) on 
import into the UK. 
The goods were apparently manufactured in 
Indonesia, but using imported cloth from 
Taiwan, Hong Kong and Korea. Inquiries 
found evidence of an organised network 
operating in the UK, Hong Kong and 
Indonesia. 
With the authorities responsible locally, 
investigations were carried out on the spot 
into the producing and exporting companies 
in order to check the suspect documents. It 
was found that raw materials (cloth) which 
did not satisfy the rules of origin had been 
used by the largest of the companies 
concerned and the finished textile products 
were then exported to the Community under 
cover of preferential Indonesian certificates. 
24 
The loss in terms of customs duties came to 
some ECU 2 million. With the findings of 
the mission, the UK is in a position to 
recover the duty due. Legal proceedings are 
also under way in the UK. 
2.2.1.3. Anti-dumping measures 
By its very nature, which involves imposing 
high taxes on certain products originating in 
non-member countries by reference to 
manufacturing criteria which are less 
stringent than in the preferential schemes 
context, this type of measure is very 
sensitive and is under constant threat of 
deflection of trade to evade payment of anti­
dumping duties. 
One illustration is the case of the disposable 
Chinese lighters. In the middle of 1995 the 
anti-dumping measures on Chinese lighters 
were reviewed, and anti-dumping duty 
changed from a rate of 16.9% of value to a 
special levy of ECU 0.065 per item, which 
was equivalent to a rate of 100%. 
Following information received from a 
Member State, the Commission launched an 
investigation into all imports of disposable 
lighters from a producer in Macao. There 
had been a considerable increase in the 
number of lighters exported from Macao 
from the middle of 1995 onwards, 
coinciding with the new anti-dumping 
measures. 
The lighters had been imported into the 
Community with GSP certificates of origin, 
under which the goods were exempt from 
customs duty on entry. In checks carried 
out both by the Member States and by the 
Commission, however, it was found that 
non-originating components had been used 
in manufacturing the lighters. The 
certificates had therefore been issued in 
error. An on-the-spot mission was therefore 
carried out jointly by the Macao authorities, 
the Commission and the Member States 
concerned to study the production of 
lighters in Macao. The mission, which took 
place in January 1997, confirmed that all the 
GSP certificates issued were inapplicable. 
A total of 110 million lighters had been 
imported since 1995, 35 million of them under the preferential arrangement. The 
customs duties recoverable on the latter 
come to approximately ECU 200 000. The 
real reason for the fraud was the amount of 
anti-dumping duty evaded, which affected 
all the imports and came to some ECU 7 
million. 
Criminal proceedings were instituted in one 
Member State against the main importer, 
who had imported 61 million lighters into 
the Community between 1995 and 1997. 
2.2.1.4. Environment policy 
When the Union's environment policy 
involves measures which restrict trade such 
as a ban on particular products, it must be 
the concern of any action to combat fraud to 
ensure proper application of the 
arrangements in question the abuse of 
which, aside from the financial impact, runs 
counter to certain fundamental policies of 
the Union. This was illustrated by the case 
of products containing CFCs which were 
fraudulently imported into the Community. 
German, Belgian, British and Dutch 
customs, with UCLAF, took concerted 
action to halt imports of Chinese products 
which destroy the ozone layer. A German 
trader had declared to customs, in Germany, 
Belgium and the Netherlands successively, 
some 1000 tonnes of noxious chemical 
products subject to an import ban34 under 
the false description "cooling agent R227", 
which is a legal, inoffensive product 
authorised for importation. 
The goods brought into the Community in 
violation of the total ban were also imported 
without payment of customs duty by the 
improper use of inapplicable Chinese 
certificates of preferential origin. The 
products, which contained CFCs, were then 
marketed in several Member States (the 
UK, Italy, France, Belgium, Germany, 
Austria and Greece). 
34 Three hundred and sixty-five tonnes of R12B1 and 
R13B1 halons usable for fire-protection materials and 
more than 630 tonnes of R12 CFC usable in freezer 
installations. 
25 
The quantity imported illegally greatly 
exceeds the total annual recycling capacity 
of the Community. As the primary cost was 
very low, the import constituted unfair 
competition against traders who complied 
with the rules. The use of the product could 
generate sizeable unlawful profits. 
A stop was put to the unlawful imports by 
the arrest of the presumed perpetrator of the 
fraud and the seizure of 150 tonnes of goods 
as they were being delivered. 
Proceedings are currently under way in 
Germany against the importing company 
and the person running it. In Belgium and 
the Netherlands actions have been brought 
by the customs authorities against the 
forwarding agents for recovery of ECU 0.2 
million in duty. 
There was an outstanding level of 
cooperation between the national customs 
departments in this coordinated operation in 
a new field, a sign of the growing awareness 
and particular determination of the Member 
States and the Commission when it comes 
ensuring that environmental protection 
measures are implemented. 
It also demonstrates the advantages of 
carrying out physical inspections of goods 
which do not pose a particular financial 
threat at the outset but can harm the 
Community's interests in other ways. 
2.2.2. Fraud in the area of the 
common agricultural policy 
Mention was made above of agricultural 
fraud by powerful crime syndicates. 
Sometimes, however, fraud is spread more 
diffusely and benefits a wide range of 
operators guilty of irregularities which 
adversely affect the Community budget. As 
the cases set out below show, however, this 
does not mean that the overall effects are by 
any means negligible; in fact the 
proliferation of such cases sows the seeds of 
a loss of credibility by what is one of the 
Community's most fundamental policies. 2.2.2.1. Tobacco quotas 
The Commission was notified by the 
Portuguese authorities of a case of fraud 
involving production aid paid to Portuguese 
growers. The fraud consisted of diverting 
quotas from Spain to Portugal during a 
season when production in Spain exceeded 
the national quota while in Portugal it was 
below the quota. A number of Spanish 
producers, through an intermediary, sold 
their surplus tobacco to Portuguese 
producers, who declared it as their own 
goods and thereby obtained production aid 
in Portugal. 
The fraud was detected by the Portuguese 
paying agency, INGA. which searched 
through its database and identified 
producers who had declared that they had 
produced more than three tonnes of tobacco 
per hectare - a suspicious production figure, 
as it was probably too high for that 
particular year in Portugal. The producers 
had inflated their own production with the 
tobacco bought in Spain. The part played 
by the intermediary, a Portuguese haulier, 
also came to light. The operation involved 
422 tonnes of tobacco. 
On the basis of the information obtained 
from the Portuguese paying agency and the 
criminal investigation department in Lisbon, 
the Commission decided to carry out an 
investigation in Spain in November 1997 to 
look for any sales of surplus tobacco in 
other Member States and identify the 
Spanish producers involved in the trade. 
The investigation was carried out under 
Regulation (Euratom, EC^ No 2185/96. 
concerning on-the-spot checks by the 
Commission, which allows traders to be 
investigated exhaustively. The inspection 
was carried out jointly with the Spanish 
authorities (FEGA) and looked at two 
Spanish suppliers who accounted for three 
quarters of the amounts delivered to 
Portugal. 
The Portuguese authorities will be notified 
of the results of the checks carried out in 
Spain. The producers who made false 
declarations will have to pay back all the 
production aid tcceived during the year 
(approximately ECU 2.3 million). So far. 
26 
ECU 1.3 million has been recovered by 
suspending payments due in respect of the 
succeeding year. The Portuguese 
intervention agency will recover the sums 
still due (some ECU 1 million). Criminal 
proceedings against the producers and the 
intermediary are now being brought by the 
relevant public prosecutor in Portugal. 
2.2.2.2. Investigation in the citrus 
sector 
In February 1997, following information 
received, the Commission launched an 
investigation into a suspected fraud 
involving citrus processing aid in Greece. 
A mission set up in several regions (the 
Péloponnèse, Crete and Arta) at the same 
time was coordinated by UCLAF in 
conjunction with DG VI (clearance of 
accounts) and the Greek authorities (the 
investigating departments at the Ministry of 
Finance and the Ministry of Agriculture). 
Several professional associations of citrus 
producers were inspected in order to check 
whether producers had actually been paid 
the minimum price by the processing 
companies (through the producers' 
associations) and whether the products 
intended for processing had actually been 
delivered in the proper way. 
On-the-spot checks came up with a number 
of irregularities. Inter alia, the investigators 
found that there had been deliveries of fruit 
not entitled to aid (because it was rotten or 
of an insufficiently high standard). They 
also found that withdrawal and processing 
operations had taken place in establishments 
which were not adequately secured against 
manipulation or diversion of the 
consignments (because, for example, the 
premises were not sealed or goods had 
simply been unloaded without any physical 
check being made as to quality or quantity). 
It is clear from the ongoing analysis of the 
large amount of documentation collected in 
relation to the procedures for delivering and 
paying for products intended for 
withdrawal, processing or free distribution 
that irregularities may have occurred 
(involving. for example, incomplete contracts and unsigned consignment notes 
and receipts for payment). 
Because of the complexity of the case and 
the scale of the mission, decisions on 
follow-up action as regards clearance or the 
penalties to be imposed are now under 
consideration. Several cases have been 
referred to the Greek judicial authorities. 
2.2.2.3. Loan to Georgia 
In 1997 the Commission's fraud-prevention 
department began to suspect that there had 
been fraud in connection with the delivery 
of 7 million litres of Bulgarian sunflower oil 
to Georgia, involving the use of a 
Community loan.35 The loan was supposed 
to be for the importing of agricultural and 
food products and medical supplies 
originating in the Community, Bulgaria and 
other eastern European countries. 
A Belgian import-export company received 
a documentary credit of ECU 4.625 million 
issued at the National Bank of Georgia, 
Tbilisi, by the Government of the Republic 
of Georgia. 
The documentary credit was to cover the 
dispatching of 7 million litres of sunflower 
oil of Bulgarian origin. However, false bills 
of lading were produced and part of the 
quantity concerned never reached Georgia. 
An investigation was carried out in Sofia in 
April 1997 under the customs mutual 
assistance arrangement which forms part of 
the association agreement with Bulgaria, 
and established what trading and financial 
links existed between the Belgian import-
export company and the Bulgarian company 
which executed the contract to supply the 
oil and showed that 792 160 litres had not 
been delivered. 
On the instructions of its Belgian partner, 
the Bulgarian company then repaid the 
j:) Council Decision 91/658/EEC granting a loan (OJ L 
362, 31.12.1991) under Commission Regulation (EEC) 
No 1897/92 laying down detailed rules for the 
implementation of a medium-term loan to the Soviet 
Union and its constituent Republics (OJ L 191. 
10.7.1992), established by Council Decision 
91/658/EEC (OJ 1.362, 31.12.1991) 
corresponding amount of the loan, or 
ECU 546 352, to a private bank account in 
the name of the actual person running the 
Belgian company. 
Armed with this evidence from Bulgaria 
that a fraud had been perpetrated against the 
financial interests of the Community, the 
Commission reported the matter to the 
public prosecutor's office in Brussels and 
the Central Investigation Office of the 
Belgian gendarmerie so that criminal 
charges could be laid against the person 
running the Belgian company. 
Following this investigation, the Georgian 
authorities stressed that it was important in 
their view to clear up the case and put a'stop 
to the activities concerned. 
2.2.3. Fraud involving the structural 
policies 
The Structural Funds accounted for 
approximately 32% of the Community's 
total budget expenditure in 1997. As their 
specialist government departments 
administer this expenditure, the Member 
States have a definite responsibility for 
financial control as regards the use of the 
funds. 
On 15 October the Commission adopted the 
detailed arrangements36 for the 
implementation of Council Regulation 
(EEC) No 4253/88, clarifying what kind of 
control has to be carried out by the Member 
States in relation to operations co-financed 
by the Structural Funds. They are also 
required to notify the Commission of any 
irregularities found and of the 
administrative and legal follow-up action 
taken as a result. 
2.2.3.1. Embezzlement of ESF funds 
It was established in a criminal 
investigation that invoices for ECU 260 000 
issued by a subcontractor in connection with 
a contribution to a public body in Portugal 
from the European Social Fund had been falsified. The Commission decided to 
launch an investigation into the whole of the 
programme concerned. 
The approved Community contribution to 
the programme comes to ECU 4.4 million. 
Because of the size of the grants, the 
Commission's investigation lias not yet 
been completed, but some conclusions can 
already be drawn. 
A Member State had carried out a partial 
check but not set up proper monitoring. 
Very large amounts of ineligible 
expenditure were declared. however. 
Evidence was also found of non-existent or 
unsupported expenditure being charged and 
certain items of expenditure being inflated 
on fictitious grounds. The approved 
Community contribution to the programme 
comes to ECU 4.4 million. The current 
investigation will establish what proportion 
of that sum has been embezzled. In 
addition, the subcontractor, who is under 
judicial investigation, drew up false 
invoices for certain other programmes, and 
these are also under investigation. 
Two officials from the public body and the 
chairman of the subcontracting agency were 
remanded in custody during the criminal 
. investigation. The vice-chairman of the 
public body and the subcontractor were 
given prison sentences. 
In this case, starting from a detected fraud 
leading to a criminal prosecution, the 
Commission carried out an overall analysis 
which brought to light the irregularities 
committed. The Member State's 
monitoring and checking measures proved 
to be inadequate. -
2.2.3.2. Networks engaging in fraud 
against the EAGGF Guarantee 
Section 
A small number of types of expenditure is 
administered by the Commission direct. In 
the area of the EAGGF Guarantee Section, 
this is the expenditure laid down by 
Article 8 of Council Regulation (EEC) 
36 Commission Regulation (EC) No 2064/9". OJ L 290. 
23.10.1997. 
28 
No 4256/88.37 Further to a report by the 
Directorate-General for Financial Control 
and to a letter of observations from the 
Court of Auditors about a suspicion of fraud 
in that area. Commission authorising 
departments, Financial Control and 
UCLAF, in cooperation with the Court of 
Auditors, have been running a targeted 
investigation into all financial projects on 
the basis of Article 8 of the Regulation since 
1997. The grants for these projects come to 
ECU 18 million and are being paid to 
Spanish, French, Irish. Italian and 
Portuguese companies. 
The Commission looked into the financing 
operations and circuits and found that there 
was systematic forgery, with overbilling or 
bogus invoicing between firms within the 
same circuit for non-existent services. The 
networks which had been set up included 
front companies in different offshore 
locations as beneficiaries and 
subcontractors. Shortcomings in the 
procedures followed in Commission 
departments had also made it easier to cany 
out the frauds. 
The Commission referred the matter to the 
judicial authorities in Spain, Italy and 
Portugal in 1997. The existing networks are 
so complicated that coordination between 
the public prosecutors' departments and 
collaboration with Commission departments 
are vital if the investigation is to succeed. 
Major steps have been taken in that 
direction, and the Commission has done 
everything possible to encourage such 
coordination. 
At the same time, the procedures laid down 
in Article 24 of Council Regulation (EEC) 
No 4253/88 for annulling decisions and 
recovering amounts paid without 
entitlement are under wav.38 2.2.4. Fraud involving 
expenditure direct 
37 OJL374. 31.12.1988. 
J° See Chapter 1, section 1.3 Direct expenditure is expenditure which 
beneficiaries draw on in the form of 
contracts directly administered and 
controlled by Commission departments. In 
1997 they accounted for some 12% of 
Community expenditure in the sectors of 
research, education or energy, which, as the 
case described below shows, are not 
immune from the risk of irregularity or 
fraud. 
A German company which had received a 
great deal of aid from the Commission for 
various research projects in the field of 
renewable energy sources was under 
suspicion of fraud. Preliminary 
investigations were carried out inside the 
Commission. Subsequent investigations led 
to the bankruptcy department at the relevant 
court (Amtsgericht Duisburg), where the 
company in question had meanwhile been 
put through proceedings for bankruptcy. 
Information collected rapidly showed that 
the company had in fact embezzled large 
sums of money. 
The Commission submitted the case, With 
the main items of evidence, to the 
appropriate public prosecutor, who 
instituted legal proceedings against the 
people responsible for running the company 
on charges of bankruptcy and fraudulent use 
of the grant. 
The investigation showed that the company 
had not filed for bankruptcy, despite being 
legally required to do so, and had diverted 
the payments received from the 
Commission under research contracts for 
other purposes, such as paying off its 
creditors. The financial impact is estimated 
at ECU 2.1 million. Criminal proceedings 
are under way. 
2.3. VAT fraud: terms for expanding 
investigations 
The VAT fraud problem is comparable to 
that of fraud involving products with a high 
tax risk (alcohol and cigarettes): the 
financial impact is high and primarily 
affects national treasuries, though it is on a 
scale which calls for a joint response. In the 
interests of greater efficiency, a team to 
combat VAT fraud was set up in UCLAF in 
1995. Since that time there have been 
regular contacts with the Member States to 
prepare the national administration for 
working jointly. 
The VAT fraud team's work relies on the 
reports the Member States send it about 
suspected instances of fraud. In 1997 it 
took part in 18 investigations into cases 
involving more than ECU 300 million in 
tax.39 
Cooperation between the Member States 
and the Commission is still not as effective 
as it might be, however,40 as the following 
case shows. 
Denmark asked the Commission for help in 
a situation where there appeared to be 
systematic violation of the VAT system by 
a number of companies in the scrap metal 
trade. Supply networks had been set up in 
which "mailbox" companies gave security 
for purchases of large quantities at prices 
above the official London Metal Exchange 
price. These companies then sold the metal 
on to large firms in Denmark or another 
Member State, but at prices lower than the 
official price. 
The mailbox companies could not have 
gone on trading in this way unless they were 
systematically evading VAT on the 
transactions. An investigation therefore had 
to be carried out to determine the scale of 
the fraud and the degree of complicity of the 
client companies in various Member States. 
Owing to legal difficulties, however, the 
department responsible in one of the 
Member States was unable to take part. In 
particular, the Member State concerned has 
still not overcome the problem of tax 
secrecy, which means that it cannot play a 
full part in coordinated action to combat international VAT fraud, as most of the 
Member States do in specific, major cases. 
In the same Member State, furthermore, the 
national auditors did not have power to take 
hold of the company's documentation and 
accounts directly. This lack of appropriate 
powers and the variations in powers 
between the different Member States 
severely curtail opportunities for carrying 
out effective investigation in complicated 
international fraud cases. 
This case shows how urgent a need there is 
for the Member States to take the requisite 
steps, as regards organisation, procedures 
and powers, to ensure that there is effective 
cooperation at all levels in combating VAT 
fraud. Discrepancies in the application of 
Community law41 in the Member States 
provide loopholes and opportunities for 
evading VAT. There needs to be 
harmonisation to prevent fraudulent 
operators from exploiting differences in the 
rules regarding tax secrecy or between the 
powers held by national tax departments. 
To strengthen cooperation, Community 
legislation also needs to be clarified, while 
the Commission should be allowed to act in 
cases of VAT fraud of importance to the 
whole Community and to coordinate action 
in appropriate cases. Provisions such as 
those which already apply in relation to 
customs and agricultural matters would be 
appropriate. 
39 
40 The cases in question concern transactions involving 
silver, metal, copper, non-ferrous metals, electronic 
components, videos, cars etc. 
See also Chapter 3, section 3.5.2. 41 Sixth VAT directive, Council Directive 77/388/EEC of 
17 May 1977 on the harmonisation of the laws of the 
Member States relating to turnover taxes - Common 
system of value added tax: uniform basis of assessment 
(ÔJL 145, 13.6.1977). 
30 
3. STEPPING UP COOPERATION WITH THE MEMBER STATES 
This chapter reports on the stepping up of 
cooperation with the Member States, which 
is a keynote of the 1997-98 anti-fraud work 
programme for protecting Community 
finances. 
The chapter starts with a review of certain 
important steps taken by Member States to 
protect the Community's financial interests. 
It goes on to look at operational cooperation 
with police forces and judicial authorities, 
which has been made possible by the 
adoption of new legal instruments, as 
discussed in detail in Chapter 5, and through 
informal contacts developed with national 
authorities for the purposes of on-the-spot 
investigations. However, most of the 
chapter is devoted to indirect taxation. Here 
we see how aware the Commission and the 
Member States are of the need to beef up 
the existing arrangements in order to 
combat financial crime affecting national 
and Community interests more effectively. 
3.1. Action taken by Member States 
to protect the Community's 
financial interests 
In 1997, as in previous years,42 the Member 
States continued their efforts to make 
appropriate organisational arrangements 
aimed at more effective protection of the 
Community budget and the Community's 
economic and commercial interests against 
fraud and financial crime. 
For example, in Denmark a unit dealing 
with Community fraud in the area of 
customs (revenue and expenditure) was set 
up as part of the federal anti-fraud bureau.43 
The national police authorities also have a 
federal unit dealing with economic crime.44 
It is responsible for coordinating complex 
fraud investigations. Greece set up SDOE (the economic and 
financial crime office) as part of the 
Ministry of Finance. Its mandate includes 
the specific task of protecting the 
Community's financial interests. It began 
operating in 1997 and has already been 
involved in effective cooperation with the 
Commission. 
On 26 November Portugal announced that it 
would be setting up a special body with 
responsibility for coordinating customs and 
tax investigations. Known as UCLEFFA,45 
the body will have similar responsibilities at 
national level as UCLAF does at 
Community level. Like France's ICLAF and 
Italy's Guardia di Finanza. it will be a key 
partner for the Community. 
The French police in the form of the 
Gendarmerie nationale, whose remit covers 
all kinds of crime including fraud, is 
currently engaged in a large-scale research 
project in connection with international 
investigations (notably the breach of the 
embargo on British beef). It invited UCLAF 
to present the Community's policy towards 
protecting its financial interests and the 
anti-fraud strategy in connection with the 
role of its central fraud prevention service 
as part of a seminar it will be holding in 
1998 for heads of investigation 
departments.46 
3.2. Mutual administrative 
assistance instruments in the 
area of customs and agriculture 
In a Europe with no obstacles to the free 
movement of goods, persons, services and 
capital, it is essential to make greater 
provision for investigations to be 
undertaken jointly by specialised national 
See the 1995 fraud report, Chapter 5, page 40, and the 
1996 fraud report. Chapter 4, page 39. 
Svigsbekœmpelsekontoret. 
44 Afd. for Scerlig okonomisk Kriminalitet. Unidade de Coordencçào da Luta contra a Evasào e a 
Fraude Fiscal e Aduaneira. 
46 Investigation departments have operational and 
territorial powers for fighting crime. The districts they 
cover coincide with the jurisdictions of Courts of 
Appeal, which means that there are regular contacts 
between investigation departments and public 
prosecutors. 
31 
authorities with the assistance of the 
Commission, particularly when it comes to 
cross-border cases involving sensitive 
sectors or goods. 
Cooperation between the Member States 
and the Commission on effectively 
combating customs and agricultural fraud 
and irregularities has traditionally taken the 
form of the mutual assistance scheme, 
which remains an important tool. 
A new regulation on mutual assistance on 
customs and agricultural matters, Council 
Regulation (EC) No 515/97,47 was adopted 
on 13 March 1997 on the basis of a 
Commission proposal dating from 1992. It 
concerns mutual assistance between the 
administrative authorities of the Member 
States and cooperation between the latter 
and the Commission to ensure the correct 
application of the law on customs and 
agricultural matters. It came into force on 
13 March 1998, repealing Council 
Regulation (EEC) No 1468/81. It 
strengthens the Community rules on 
combating irregularities in these areas and 
also provides the legal basis for sensitive 
data on customs and agricultural 
irregularities to be stored on a central 
database. The database, known as the CIS 
(Customs Information System), can be 
accessed by the relevant departments of the 
Member States and the Commission, while 
safeguarding data confidentiality and 
protecting personal information. 
The electronic bulletin board, SCENT,48 has 
been in existence since 1992. It currently 
comprises around 400 terminals located 
mainly at customs investigation 
departments in the Member States and at 
major ports and airports in the Community. 
It is an information exchange system, rather 
than a data collection system. are being used for operational purposes of 
prevention, investigation or prosecution in 
cases of irregularities. Access to the data is 
to be restricted to departments specifically 
authorised by the Commission (such as 
UCLAF) and by the Member States. 
This is a first step in the direction advocated 
by the European Parliament, which 
recommended that a central customs data 
office should be set up within the 
Commission for the Member States to 
notify of any strategic and operational 
information at their disposal concerning 
action against fraud in customs and 
agricultural matters.50 
3.3. Other forms of cooperation in 
relation to customs, agriculture 
and own resources 
• The goods movement rules (transit 
system) remain one of the most 
vulnerable areas. Reforms currently 
under way to the Community/common 
transit arrangement51 serve to clarify and 
simplify the regulations and coordinate 
operational measures so as to achieve a 
balance between the facilities offered to 
reliable traders and the need for security 
in transit operations. 
A basic procedure, in which the basic 
guarantee is the comprehensive, 
individual security, is available to all 
operators; there is also a "light" 
procedure - where an operator is found 
to be reliable and there are no risks, the 
operator is eligible for a simplified 
procedure in which, among other things, 
the amount of the guarantee may be 
varied. 
These data of an administrative type49 are to 
be kept in the CIS only for as long as they 
47 OJ L 82, 22.3.1997. See also the 1995 anti-fraud 
report, Chapter 2, p. 27. 
48 Svstem for a Customs Enforcement NeTwork 
The legal basis for this database to be set up for non-
Community customs fraud (drugs etc.) will be provided by the convention on the use of information 
technology for customs purposes (OJ C 316, 
27.11.1995), which is in the course of being ratified. 
50 Recommendation No. 3 of the final report from the 
European Parliament's committee of enquiry into the 
Community transit scheme (doc. A4-0053/97, 
20.2.1997). 
3 Plan of action for the reform of transit in Europe, 
presented by the Commission on 30.4.1997: 
COM(97)I88 final, OJ CI76, 10.6.1997. 
32 
55 Regarding security and checks, there is 
also provision for tougher preventive 
measures in the basic procedure and for 
subordinating simplification to risk-
analysis and review of the operator's 
reliability, having regard to the 
operator's own security measures. 
Commission Regulation (EC) No 
75/98,52 amending Regulation (EEC) No 
2454/93 laying down certain provisions 
for the application of the Community 
Customs Code,53 made new provisions 
for the customs status and transit of 
goods carried by sea and recast the list of 
eligible goods. 
A proposal for amendment of the 
Customs Code as regards the scope of 
the transit procedure and the application 
of guarantees was presented to the 
Council and parliament on 28 
September.54 
A European network of 21 national 
coordinators and 330 local 
correspondents was set up by all the 
countries involved (EC, EFTA (except 
Iceland) and the Visegrad countries). 
They are to be linked by e-mail in 1998. 
Joint and coordinated control 
programmes have been established, 
covering in particular: 
- documentary checks on the 
authenticity of customs stamps via the 
Community computerised register55 and 
on guarantee certificates; 
- controls on sensitive goods and goods 
deemed at risk; 
52 OJL7, 13.1.1998. 
53 OJL 253, 11.10.1993. 
54 COM(97)472 final, OJ C337. 7.11.1997. 
The TCT (Electronic Transmission of Customs 
Stamps) programme established by the Commission 
(DG XXI) in 1997 can be used for transmission to the 
customs authorities of all countries involved in the 
Community/common transit system of images and data 
relating to customs stamps and seals for transit 
operations. 56 
57 -a posteriori controls on operations 
eligible for the simplified procedure (air 
and sea transit); 
- identification of itineraries and other 
parameters deemed to be at risk. 
As for computerisation of the transit 
system, the New Computerised Transit 
System entered Phase II (construction 
and initial implementation) this year.56 
To offset delays estimated at 18 to 24 
months in establishing the hardware 
infrastructure, a new strategy is being 
devised with the countries participating 
in Phase II. The aim is to meet the 
original timetable despite unknown 
factors, partly by confining the system's 
functions in the initial implementation 
period to strictly essential messages in a 
limited number of customs offices 
monitoring transit operations. 
The Early Warning System used to 
exchange information once more proved 
to be a major and useful source of 
information. In 1997 customs staff 
exchanged more than 43 000 messages 
using the system.57 
In the customs area, the Commission 
produced in 1997, in partnership with the 
Member States, a revised risk analysis 
guide aimed at reinforcing customs 
control techniques applied. 
In contrast, the "blacklist", which is 
supposed to serve as an advanced 
warning system for agricultural 
transactions, has not yet achieved its 
target. The system was introduced by 
Council Regulation (EC) No 1469/95 
and put into effect by Commission 
Regulation (EC) 745/96.58 The 
arrangements were put in place in all the 
Member States, which by the end of 
Cf. 1996 report, Chapter 5.3, p. 42. 
Not all of the consignments reported in these messages 
turned out to involve irregularities. 
OJ L 102. 25.4.1996. regulation laying down the 
implementing provisions for Council Regulation (EC) 
No 1469/95 (OJ L 145. 29.6.1995). 
33 
1997 had identified only a dozen or so 
traders as "unreliable". 
• Once again the freephone numbers, 
which were introduced in 1995, were a 
useful independent source of additional 
information. UCLAF received nearly 
1 500 calls in 1997 and about 10% of 
them are being followed up. 
3.4. Examples of cooperation with 
police and judicial authorities in 
the Member States 
Cooperation between the Commission's 
UCLAF and the police authorities of the 
Member States is based on Articles 5 and 
209a of the EC Treaty as well as on the 
conventions on protecting the Communities' 
financial interests. These conventions are 
still to be ratified by the Member States.-9 
The fourth axis of the Community anti-
fraud strategy aims at improving the 
compatibility of national legislation to 
implement a policy of criminal law 
enforcement against those who defraud the 
Community budget. This objective has been 
met by the secondary legislation adopted 
under the first pillar of the EU Treaty and 
the instruments under Title VI of the Treaty. 
In the course of its inspections and 
investigations and from the information it 
receives (from the Member States, the 
European Parliament, the Court of Auditors 
or other sources, such as the freephone), 
UCLAF may come across data or find 
material that has to be reported to national 
judicial authorities for prosecution 
purposes. Likewise, when the Member 
States discover an irregularity, they may 
have to pass on information to the judicial 
authorities, in accordance with national 
procedures. However, cases should be 
reported to the relevant judicial authorities 
in a uniform way throughout the 
Community, which is where the 
Commission comes into its own. It has the 
active role of passing on relevant 
information directly in the form of the mission reports drawn up by its inspectors, 
which can be used as evidence in court. In 
addition, it is setting up a criminal law 
expertise unit within UCLAF for the 
specific purpose of preparing prosecutions 
in cases of cross-border fraud. This is a 
coordinating role to make contacts easier. 
3.4.1. . The risk of counterfeiting the 
euro 
Following contact between the European 
Monetary Institute60 and the Commission, 
the latter has undertaken an in-depth 
analysis of the issue of counterfeiting in 
conjunction with national experts. 
An evaluation of the need for action on this 
subject arises out of the determination to 
protect the credibility and authenticity of 
the euro at Union level. In general, the risk 
of counterfeiting will be higher when the 
new currency is first launched, and adequate 
measures are under consideration to ensure 
an appropriate protection for the euro. 
The legal framework, instruments and 
resources needed to protect EMU and the 
euro cannot be put in place without first 
assessing the new situation and holding 
joint discussions with experts on 
counterfeiting. This is why the Commission 
proposed that the Luxembourg Presidency 
of the working group on police cooperation 
should call together all the police experts on 
counterfeiting together with UCLAF to 
produce a report with guidelines. This 
proposition has been accepted. 
Since the single currency will be replacing 
the national currencies and the Member 
States have different structures for 
preventing and combating counterfeiting, 
there will need to be structures for 
exchanging information and cooperation 
between the specialised departments and all 
60 
59 See Chapter 6, section 5.4.1. Under the EU Treaty, the European Monetary Institute 
was set up to carry out certain duties relating to 
preparations for economic and monetary union. Its 
principal task is to put in place the operational 
framework needed for the proper running of the 
European System of Central Banks, which is to be 
made up of the European Central bank and the national 
central banks. 
34 
the institution and bodies concerned at 
Community and Union level. There will 
also need to be a common definition of 
currency counterfeiting and arrangements 
made to combat it in a concerted way. The 
action programme on organised crime, 
which was adopted by the Council on 28 
April, also calls on the Commission to 
examine the need to introduce common 
provisions on combating organised crime 
involving the counterfeiting of banknotes 
and coins in the run-up to the introduction 
of the single currency (Recommendation No 
26).61 
3.4.2. The Commission's criminal law 
expertise unit 
The 1997/98 anti-fraud work programme 
stipulates the setting up" of a "criminal law 
liaison and expertise interface"' to 
strengthen contacts with national judicial 
authorities. This was also recommended by 
the European Parliament.62 Part of UCLAF, 
the criminal law expertise and liaison unit is 
starting to bring together experts in criminal 
and financial law from the Member States 
with a view to improving relations with the 
national police and judicial authorities 
responsible for criminal prosecutions. Judicial cooperation with non-member 
countries is also essential. Here too, a 
pragmatic approach will have to be adopted 
involving criminal law experts to try to 
resolve the problems that arise, which are 
particularly alarming when criminal 
networks are operating from other countries 
outside the Community, such as 
Switzerland, Liechtenstein, the Virgin 
Islands and Panama.63 
The new powers given to UCLAF 
inspectors by Council Regulation (Euratom, 
EC) No 2185/96 concerning on-the-spot 
checks and inspections will lead to an 
increasing need for judicial follow-up. 
Likewise, the second protocol to the 
convention on the protection of the 
Communities' financial interests.states that 
the Commission must provide assistance for 
investigations into cases of fraud, corruption 
and money-laundering.64 This is precisely 
what the. Commission's criminal law 
expertise unit will be doing, particularly 
once the second protocol has been ratified 
by the Member States. 
3.5. Cooperation in the area of 
indirect taxation (excise and 
VAT) 
The unit is intended to provide these bodies 
with technical and operational assistance 
and to make cross-border coordination 
easier. It will use its expertise and 
familiarity with national laws to make 
investigators' jobs easier, for example, 
when they are preparing for on-the-spot 
investigations and inspections. 
The unit is meant to be able to have cases 
speedily referred to the relevant prosecutors 
and magistrates as well as to identify the 
factual and legal aspects relating to the 
cross-border dimension of the proceedings 
in order to facilitate the coordination of 
judicial cooperation procedures in real time. Whether large-scale or not, cases of fraud 
affecting the financial interests of the 
Communities have a knock-on effect on 
national finances. This is why it is essential 
to make use of the existing cooperation 
instruments in the area of indirect taxation 
and, where necessary, improve them after 
seeing how well they operate. 
In 1997 the Member States and the 
Commission continued to discuss increased 
cooperation in this area in order to get a 
clearer picture of how fraud operates and to 
improve methods of combating it. In this 
vein, there were operational contacts on a 
virtually daily basis between the 
61 
62 OJC251, 15.8.1997. 
Recommendation 18 in the final report, referred to 
above, from Parliament's committee of enquiry into 
the Community transit scheme. 63 
64 For example, although there is a customs mutual 
assistance agreement with Switzerland, judicial follow-
up is hindered by the lack of any judicial assistance 
agreement applicable to customs and tax offences. 
See Chapter 6, sections 5.1 and 5.4.2. 
35 
Commission and the national authorities 
responsible for excise and VAT. 
3.5.7. Excise 
In response to the alarming increase in 
tobacco and alcohol excise fraud, in March 
the Commission and the Member States set 
up a high-level group to find solutions to the 
problems of fraud where tobacco and 
alcohol are involved.65 The group's remit 
covers not only detection and prosecution, 
but also preventive measures.66 
The high-level group met three times in 
1997. It adopted a cross-sector approach, 
dealing with customs duties, VAT and 
excise. The group identified the nature and 
extent of this type of fraud. It also 
highlighted shortcomings affecting the 
operation of excise duty systems and the 
effectiveness of inspections carried out by 
the Member States as well as shortcomings 
in the legislation itself. 
Since the Community transit system was 
recently tightened up,67 criminal 
organisations have been turning their 
attention to excise duties, since the system 
suffers from similar weaknesses in terms of 
both inspections and the legislation itself.68 
The Commission is accordingly planning to 
focus its efforts on strengthening the system 
for imposing excise duties and, in particular, 
on the controls on movements of goods 
enjoying excise-duty suspension. 3.5.2. VAT 
In 1997 the Commission continued its 
policy of cooperation with the Member 
States to combat internal VAT fraud. 
The seminars held in 1997 under the 
Matthaeus-Tax programme (which ran until 
the end of 1997, being replaced by the 
Fiscalis programme in 199869) dealt with 
fraud prevention, covering checks on how 
VAT is booked, the preparation and 
scheduling of tax inspections and the issues 
raised by electronic invoicing and electronic 
trade. In 1997 the Commission financed and 
organised two conferences for national VAT 
inspectors. The conferences, which were the 
idea of the Italian Guardia di Finanza, 
further consolidated the Community-wide 
operational contact network and provided an 
opportunity for exchanging information on 
detection techniques and investigatory 
powers. The Commission also organised 
several coordination meetings for Member 
States affected by the same cases as well as 
serving as the focal point for organising 
further action on cases under investigation 
by national authorities. 
As part of the Matthaeus-Tax programme, 
the Member States organised exchanges 
between their tax officials, who had the 
chance to see how other national authorities 
operate. This should help to forge stronger 
links between national authorities and make 
fraud fighting more effective. The 1997 
programme of exchanges involved some 
300 officials. 
5 The group is due to report to Directors-General of 
customs and indirect taxation in April 1998. 
66 
67 
68 A Matthaeus-Tax programme seminar was held shortly 
after the first meeting of the high-level group on the 
subject of irregularities in intra-Community 
transactions involving goods liable or excise duties. 
The Matthaeus-Tax programme is a Community action 
programme designed to prepare officials responsible 
for indirect taxation in the Member States for the 
implications of the creation of the internal market. See 
also Section 1.4.2 on VAT below. 
See the "Action plan for transit in Europe - a new 
customs policy", submitted by the Commission on 20 
April 1997, COM(97) 188 final (OJ C 176. 10.6.1997). 
Here it is interesting to note that L'CLAF has had no 
cases of intra-Community fraud invoking mineral oils 
reported to it bv the Member States There are political obstacles to establishing 
proper cooperation between the Member 
States and the Commission, since several 
Member States continue to fail to 
acknowledge that the Community 
legislation on mutual administrative 
assistance70 is the legal basis entitling the 
69 
70 See point 3.5.3 below. 
Council Directive 77/799/EEC of 19 December 1977 
concerning mutual assistance by the competent 
authorities of the Member States in the field of direct 
taxation (OJ L 336 , 27.12.1977) and Council 
Regulation (EEC) No 218/92 of 27 January 1992 on 
administrative cooperation in the field of indirect 
taxation (OJ L 24. 1.2.1^92). 
Commission to receive information and 
participate in discussions on fraud cases 
involving VAT. 
The Anti-Fraud Sub-Committee (SCAF) of 
the Standing Committee on Administrative 
Cooperation on Indirect Taxation (CPCA) 
has been encouraging the Member States to 
make better, use of the existing 
computerised system for exchanging 
information on VAT called SCENT fiscal11 
For this purpose it revised the standard 
forms used for exchanging data and 
proposed a sort of instruction manual 
designed to make the system more user-
friendly. Nonetheless, the system is still 
disappointingly under-used. The Member 
States have all admitted that very little 
information has been exchanged and that 
there is little follow-up,, particularly when it 
comes to actually taking further action. 
There is, however, another aspect to the 
problem. Some Member States tend to pass 
on useful information only to the Member 
States directly involved in the fraud case or 
cases in question. Tax confidentiality' and 
data protection are regularly quoted as the 
main reasons for not extending the 
distribution of information to automatically 
include the Commission. It is clear that this 
sort of restricted exchange of information, 
particularly where the Commission is left 
out, can only have harmful implications for 
operations in the field. If this state of affairs 
persists, it will be virtually impossible to 
devise a proper Community strategy for 
combating indirect taxation fraud. 
3.5.2.1. New administrative 
cooperation standards 
Progress in combating fraud involving 
indirect taxation largely depends on the 
available administrative cooperation and 
mutual assistance tools being actually used. 
This means, in particular, Council 
Regulation (EEC) No 218/92 and Directive 
77/799/EC. The Commission's second 
"Article 14" report,72 which specifically deals with this issue, noted that several 
Member States do not make as much use of 
these tools as they might. In 1997 solid 
recommendations for strengthening 
cooperation were adopted by the senior civil 
servants responsible for indirect taxation. 
The Member States are currently working 
on stepping up cooperation in order to make 
the best use of the existing arrangements for 
fighting fraud together. 
3.5.2.2. Simultaneous inspections to 
tighten up VAT operations 
Inspections simultaneously carried out by 
several Member States in several Member 
States are set to play a major role in 
improving the fight against fraud.73 The 
Commission oversaw four of these 
simultaneous exercises in 1997, involving 
13 Member States. The main aim is to 
develop suitable methods for coordinating 
and conducting inspections of this type. The 
inspections were good practice for the 
Member States, making them better 
prepared to carry out similar ones in the 
future. The Commission also organised a 
special seminar on this subject in 1997, 
which should result in more inspections of 
this type being scheduled in the future. The 
Commission will be continuing with its 
policy of involving more officials in 
multilateral inspections to ensure that 
inspections of this type become part of an 
inspections strategy shared by all Member 
States. 
3.5.2.3. Analysing VAT fraud risk 
Since 1996 SCAF has been conducting a 
study on VAT fraud in the Community to 
identify the most common types of fraud, 
how it is perpetrated and the factors that 
allow it to happen. The preliminary findings 
of the study were presented to the Member 
States in 1997 in the sub-committee to 
enable them to focus their resources on the 
most fraud-prone areas in order to detect 
and deal with fraud as early as possible. 
71 
72 System dealing specifically with indirect taxation 
using the SCENT network (see section 3.2). 
COM(96)681. 73 The investigation discussed in Chapter 2, section 2.3, 
clearly illustrates the operational difficulties 
encountered by the Member States in cases of this 
type. 
37 
SCAF's investigations, which covered 
nearly 500 fraud cases selected by the 
Member States, clearly showed that the 
intra-Community VAT system is 
particularly hard hit by fraud, although most 
types of transactions are now affected. The 
amounts involved are in the region of ECU 
573 million and 30% of cases involve 
amounts in excess of ECU 1 million. And 
yet there are good reasons to believe that 
this is only a fraction of the total fraud 
being committed. Fraud involving VAT on 
intra-Community and international 
transactions accounts for nearly half the 
total sums involved. SCAF's study should 
wake Member States to the seriousness of 
the situation and the need to step up 
cooperation to target cross-border 
transactions, since fraudsters are taking 
advantage of the absence of physical 
borders. 
The study also showed that information was 
insufficiently centralised. This made it 
difficult to get an overview of the complete 
extent of the phenomenon and yet this is 
what the Member States needed to know in 
order to be able to devise an inspections 
strategy that took account of real priorities. 
Working in close cooperation with the 
Member States, the Commission is in the 
best position to receive, analyse and pass on 
information concerning fraud, so that it can 
be more effectively countered at 
international level. 
3. J. 3. The Fiscalis programme 
The Commission proposals for the Fiscalis 
programme were adopted by the Council 
and the European Parliament on 13 May and 
26 November.74 national officials together to work on real 
cases and provide them with the necessary 
skills to do their job properly. The 
programme also involves the countries of 
Central and Eastern Europe and Cyprus and 
comprises three phases: 
• preparing guides and manuals for the 
communication and information 
exchange systems, such as VIES;75 
• exchanges, seminars and multilateral 
inspections; 
• joint training for all national officials. 
3.6. Training 
As in 1996, the Commission focused on 
organising targeted training for specialist 
departments managing and checking 
Community funds handled by national 
authorities as well as for judicial authorities, 
such as judges, public prosecutors and the 
police, whose cooperation is vital for the 
success of anti-fraud activities in the field.76 
To enhance its training support capacity, the 
Commission continued its policy of giving 
financial support to Member States who 
apply for it on the basis of a programme to 
upgrade the skills of national anti-fraud 
staff. 
In 1997 the Commission organised the 
following events,77 either alone or in 
conjunction with the Member States, mostly 
lasting 2 days: 
The programme runs from 1 January 1998 
to 31 December 2002. It builds on the 
Union's current activities, where possible, 
and is based on using communication and 
information exchange tools to further 
cooperation on preventing fraud involving 
VAT and excise duties. To this end, Fiscalis 
also incorporates arrangements to bring 
74 COM(97)175 final, OJ CI 77, 11.6.1997; and 
COM(97)621 final, OJ CI, 3.1.1998. 75 
76 
77 VAT Information Exchange System. 
See section 3.5 on training concerning indirect taxation 
(points 3.5.2 and 3.5..3). 
The events involved nearly 1 500 national civil 
servants and other staff. The country name given refers 
to the country hosting the event, although the events 
were attended by officials from other Member States at 
the invitation of the organisers (Member State in 
question or the Commission). 
38 
COUNTRY AUTHORITIES AND AUDIENCE TOPICS 
GERMANY The Saxony Public Prosecutor's Office Community fraud and cooperation 
- German prosecutors, customs 
inspectors and police, with participants 
from Poland, Hungary' and the Czech 
Republic 
Zollkriminalamtn Fraud involving agricultural 
- customs inspectors from seven expenditure 
Member States 
Zollkriminalamt Fraud involving imports of textile 
- customs inspectors from all the 
Member States 
Federal Ministry of Finance and the Detecting fraud involving agricultural 
agriculture authorities of the Lander expenditure 
- participants from four Member States 
Landeskriminalamt, 79 Sachsen-Anhalt Community fraud and cooperation 
BELGIUM 
(Brussels) 
FINLAND Zollkriminalamt 
- German prosecutors, with 
participants from Austria and Sweden 
Federal Ministry of Finance and Told-
og Skattevœsene80 (joint event) 
Customs departments (all Member 
States) 
Customs departments and other 
experts (all Member States) 
Fiscal General del Esiado^ 
- prosecutors from Spain (and other 
Member States) 
Judicial and customs authorities from 
Hungary, Slovenia, Bulgaria and the 
Czech Republic 
Customs inspectors (from other 
Member States too) 
Finnish National Bureau of 
Investigation (central police 
department) Community fraud and cooperation 
Cooperation and techniques for 
detecting fraud involving export 
refunds 
Extension of the EWS81 
Implementation of the AFIS8-
Cooperation between investigators and 
judicial authorities 
Community fraud and cooperation 
Fraud involving imports of textile 
products 
Community fraud and cooperation 
German central (federal) customs bureau. 
80 
S 2 The central criminal investi2ation department. 
The Danish customs and tax authorities 
fiarlv Warning System. 
Anti-Fraud Information S>s;em - one-stop shop for Member States to exchange data electronically, incorporating the SCENT 
svstcm. 
Spanish Public Prosecutor's Office 
TullihallitusiA (with investigators from Cigarette smuggling 
other Member States) 
FRANCE Criminal investigation police from Criminal law protection of industrial 
France and other Member States property 
Customs authorities from France and Technical assistance in detecting 
twelve other Member States consignments of smuggled goods 
ITALY Police Further Training College Community fraud 
The Guardia di Finanza Academy Protecting the Communities' financial 
(Officer School) interests 
Guardia di Finanza (with investigators VAT fraud 
from other Member States) 
Consiglio Superiore delta Judicial cooperation in prosecuting in 
Magistratura2,5 fraud cases 
- prosecutors from Italy and other 
Member States 
Guardia di Finanza (with investigators VAT fraud 
from all Member States) 
PORTUGAL Inspeccdo Geral da Administracdo do Irregularities involving the ERDF and 
Territorio (IGAT)86 the Cohesion Fund 
UNITED KINGDOM The Scottish Office87 Fraud involving the Structural Funds 
Intervention Board for Agriculture88 Fraud involving agricultural 
expenditure 
NAO89 Fraud involving the Structural Funds 
SWEDEN Ministry of Agriculture Fraud involving agricultural 
expenditure 
Riksrevisions\'erket (RRV) 90 Fraud involving the Structural Funds 
° Finnish national customs authorities. 
8-* The Supreme Law Council. 
86 Inspectorate-General for Land-Use Planning. 
87 
° Responsible for Structural Fund payments. 
EAGGF-Guarantee paying agency. 
89 National Audit Office. 
Danish national audit office. 
40 
4. COOPERATION WITH NON-MEMBER COUNTRIES 
4.1. Implementation of existing 
fraud prevention measures by 
applicant countries (preparation 
for enlargement) 
On 15 July the Commission adopted 
"Agenda 2000",91 a communication 
describing the broad outlook for the 
development of the Union and its policies 
on the eve of the next century, the issues 
posed by enlargement, and the future 
financial framework beyond the year 2000 
in an enlarged Union. 
The 1997/98 work programme for the fight 
against fraud made the link between 
protection of the Community's financial 
interests and the process of preparing the 
countries of central and eastern Europe for 
membership.92 
This process is fleshed out in the Accession 
Partnerships drawn up by the Commission 
for each of the applicant countries, setting 
out the priorities to help them meet the 
political and economic criteria laid down by 
the Copenhagen European Council in June 
1993. The Accession Partnerships also 
provide for pre-accession structural 
financial assistance from 2000 onwards, in 
addition to continued operations under the 
Phare programme. 
This is the background against which the 
Commission's work programme for the 
protection of the Community's financial 
interests will be implemented. The work 
programme places the emphasis on 
extending customs cooperation to protect 
Community own resources. It recommends 
the adoption of existing Community rules, 
in particular on monitoring and preventing 
fraud. This includes not only Community 
regulations on controls, notification of cases of fraud and irregularity, and administrative 
sanctions but also the Convention on the 
protection of the Community's financial 
interests and the accompanying protocols 
and the application of Article 209a EC 
(cooperation with the Commission and all 
competent authorities, principle of 
equivalence). To this end, the Commission 
has for several years been organising 
training courses.93 However, to ensure that 
this approach is truly successful, it plans to 
set up a network of technical advisers in 
certain non-member countries, whose task 
will be to liaise directly between the 
authorities in those countries and 
departments in the institutions and to 
cooperate on the ground with local control 
bodies. The ultimate aim is to ensure, from 
day one of accession, a similar degree of 
protection for the Community's financial 
interests and policies in the enlarged 
Community as at present. 
4.2. Mutual assistance agreements 
between the Community and 
non-member countries 
Outside the pre-accession process, which 
only concerns 11 countries, the Community 
concluded a number of agreements in 1997 
containing specific provisions on mutual 
customs assistance with 27 non-member 
countries, a third of them in central or 
eastern Europe. Nine countries have signed 
or initialled an agreement not yet in force, 
and negotiations are planned or in progress 
with a further 22. 
These provisions provide a legal basis for 
the authorities responsible to request or 
provide administrative assistance when 
conducting investigations to ensure the 
proper application of the Community's or 
the partner country's customs regulations. 
"' COM(97) 2000 final. Programme covering the period 
2000-2006. 
92 The applicant countries from central and eastern 
Europe are: Hungary, Poland, Estonia, the Czech 
Republic, Slovenia, Bulgaria, Latvia, Lithuania. 
Romania and Slovakia. Agreements came into force in 1997 with 8 
countries: the Faeroe Islands on 1 January; 
See in particular the annual reports on the fight against 
fraud for 1995 (Chapter 5, page 43) and 1996 (Chapter 
4, page 38). 
41 
Kazakstan on 1 April; the Republic of 
Korea on 1 May; the Swiss Confederation 
on 1 July; the United States of America on 
1 August; Georgia on 1 September; 
Armenia and the Russian Federation on 
1 December.94 
Community agreements with similar 
provisions were also signed with the 
following countries: Azerbijan on 8 October 
(not yet in force); Jordan on 25 November 
(not yet in force); Canada on 4 December 
(entered into force on 1 January 1998). 
By 31 December the Community- had 
concluded agreements of this kind with 36 
non-member countries (28 of which have 
already come into force), covering 
practically all its European neighbours and 
its main trading partners. Negotiations on 
global agreements (with mutual assistance 
protocols) or specific agreements (confined 
to customs matters, including mutual 
assistance) are under way or planned with 
around twenty other non-member countries, 
including Albania, South Africa, Egypt, 
Lebanon, Cyprus, Hong Kong, China. Chile, 
the Mercosur countries, and some ASEAN 
countries.95 
The provisions on customs cooperation in 
the agreements with non-member countries 
also cover technical assistance in the 
customs field. With regard to enlargement, 
the essential aim of such assistance 
(provided under the Phare programme) is to 
help the countries concerned to apply 
Community legislation effectively when the 
time comes, including the rules on fraud 
prevention and on the protection of the 
Union's financial interests.96 
94 As far as the Russian Federation is concerned, the 
entry into force of the Partnership and Cooperation 
Agreement, to which the Member States are also 
signatories, has no effect at Community level on the 
interim agreement, in force since 1 February 1996, and 
the accompanying protocol on mutual administrative 
assistance, which already covers all customs matters 
under Community jurisdiction. 
95 
96 Association of South East Asian Nations. 
Cf. Section 4.1. 
PENALTIES AND HORIZONTAL CRIMINAL-LAW LEGISLATION TO 
PROTECT THE COMMUNITY'S FINANCIAL INTERESTS 
This chapter reviews developments in 1997 
regarding horizontal legislation concerning 
the protection of the Community's financial 
interests. 
Section 1 examines the effective 
implementation of the Regulation 
concerning on-the-spot checks and 
inspections carried out by the Commission, 
while section 2 reviews significant 
developments regarding the implementation 
of the administrative penalties policy. The 
following section deals with criminal-law 
protection as it stands. The instruments 
adopted in 1995 and 1996 have been 
completed, but still have to be ratified by 
the Member States. Although some progress 
has been made in this field this year, this 
still hampers effective implementation. The 
chapter concludes with an appraisal of the 
relevant provisions of the Treaty of 
Amsterdam and the new opportunities it 
offers the Community to create a legal 
environment capable of meeting the 
challenge of protecting all the Community's 
interests. 
5.1. The effective implementation of 
Council Regulation (Euratom, 
EC) No 2185/96 concerning on-
the-spot checks and inspections 
carried out by the Commission 
1 January 1997 saw the entry into force of 
Council Regulation (Euratom, EC) 
No 2185/96 concerning on-the-spot checks 
and inspections carried out by the 
Commission in order to protect the 
European Communities' financial interests 
against fraud and other irregularities. 
The on-the-spot checks Regulation was 
applied on eight occasions from the 
beginning of the second quarter. There were 
no serious disputes about the respective 
roles of Commission and national 
inspectors. 
In 1997, the Commission firstly decided on 
a list of staff empowered to carry out the 
checks and inspections and the form of authorisation the inspectors need to carry 
with them under Article 6(1) of the 
regulation. It also decided on the form of 
the inspection order, which indicates the 
subject-matter and purpose of the on-the-
spot check or inspection. 
In accordance with an undertaking given to 
the Council when the Regulation was 
adopted, the Commission has also produced 
a vade-mecum on the way staff are to apply 
the new Regulation. 
The partnership with Member States, the 
basic principle underlying on-the-spot 
checks, has worked well, with the 
inspections being carried out jointly as 
allowed by Article 4 of the Regulation. 
There has been cooperation at the various 
stages of the inspections. 
The spirit of partnership between the 
Commission and the Member States 
continued to prevail when it came to 
evaluating the results, with both working 
together to produce an initial inspection 
report. Under the Regulation, this task falls 
to the Commission, but the report may be 
countersigned by national inspectors when 
an inspection is conducted jointly. 
The findings of on-the-spot inspections are 
recorded in a mission report prepared by the 
Commission, which is directly usable in 
national proceedings. This is a key element 
of the anti-fraud strategy, enabling evidence 
to be placed before the competent 
authorities and courts. The partnership will 
need to be equally constructive when it 
comes to monitoring administrative 
penalties and measures and the judicial 
action to be taken in cases where fraud is 
shown to have been committed. 
In 1997, the Commission's powers of 
investigation under the Regulation were 
used in six Member States (Belgium, 
France, Germany, Greece, Spain and the 
United Kingdom) in the customs, 
agriculture and fisheries sectors. 
43 
In 1998 the Regulation is likely to be 
applied more frequently, involving all the 
Member States and all the Community's 
fields of activity, demonstrating that it is a 
horizontal measure for investigating serious 
or transnational fraud in partnership with 
the Member States. 
5.2. The implementation of penalties 
policy 
Council Regulation (EC, Euratom) 
No 2988/9 covers all Community penalties, 
including sectoral penalties already in 
existence when it came into force.97 
Apart from penalties, the impact of a 
standard legal framework as set out by the 
Regulation must also be considered in 
relation to the obligation for Member States 
to notify the Commission of cases of fraud 
and other irregularities pursuant to sectoral 
regulations.98 To fulfil their notification 
requirements in a homogenous and 
horizontal manner, Member States must 
base their activities on the definitions of the 
concepts of irregularity, abuse of law and 
economic operator.99 
On the basis of the legal framework 
established by Council Regulation 
No 2988/95, the Commission is pursuing its 
policy of introducing administrative 
penalties into the fields of own resources 
and direct expenditure. As part of its 1997/8 
anti-fraud work programme, it is drawing 
up a draft European Parliament and Council 
Regulation establishing administrative 
penalties in the customs sector and is in the 
process of conducting a study to establish 
the degree of reorganisation that will be 
needed for Community administrative 
penalties to be incorporated in direct 
expenditure schemes. 5.3. Protection of the Community 
against irregularities in financial 
management 
Considering the risk of internal corruption, 
asked the Commission to present a paper 
with proposals for an independent UCLAF 
operating on the basis of an 
interinstitutional agreement.100 
The Commission presented a 
communication on 19 November.101 It 
offers avenues to be explored and concludes 
that the role of UCLAF should be reinforced 
in the Commission so that the Commission 
may have effective means of combating all 
forms of fraud and corruption internally. 
5.4. Criminal-law protection of the 
financial interests of the 
Community 
5.4.1. The situation with regard to 
ratification of the instruments 
adopted 
The Amsterdam European Council gave a 
political undertaking to ratify the 
instruments adopted (Convention on the 
protection of the Communities' financial 
interests and the first and second Protocols, 
and the corruption convention) no later than 
the middle of 1998.102 
The difficulties encountered, particularly 
with regard to ratification, a slow process, 
have had ramifications for the progress 
expected to result from the use of this type 
of instrument for the protection of financial 
interests. 
The European Parliament, of course, is 
particularly attentive to the results of 
transposai into national law. 
97 
98 
94 OJ L 312. 23.12.1995. 
See Chapter 1. section 1.1. 
Regulation No 2988/95. Articles 1. 4(3) and 7. 
Discussions on these points will continue in 
COCOLAF. 100 Resolution of the European Parliament of 22.10.1997 
on the annual report for 1996 and the work programme 
for 1997/98 for the protection of financial interests 
and the fight against fraud: OJ C339, 10.11.1997. 
101 SEC(97)2198. 
IUx- First Protocol on corruption - cf 1996 Report, p. 4S. 
and section 5.4.3; second protocol, cf. section 5.4.2. 
44 
5.4.2. The second Protocol on the 
protection of the Communities' 
financial interests 
On 19 June the Council adopted the second 
Protocol on the criminal-law protection of 
the Communities' financial interests103 
following negotiations conducted by the 
Italian, Irish (1996) and Netherlands (1997) 
Council Presidencies, on the basis of the 
Commission's draft Protocol.104 
The Protocol to the Convention consists of 
additional provisions concerning the 
following:105 
money-laundering related to the 
proceeds of fraud and corruption106 
The provisions , making money-
laundering a criminal offence will have 
to be accompanied by an amendment to 
Council Directive 91/308/EEC of 
10 June 1991 on the prevention of the 
use of the financial system (credit and 
financial institutions) for the purposes 
of money laundering107 to include the 
laundering of the proceeds of 
Community fraud in the identification 
and notification requirements. 
the liability of legal persons10* 
These provisions concern the 
responsibility of legal persons for fraud, 
corruption and. money laundering, 
which constitute intentional acts, and 
for lack of supervision or control, which 
are forms of negligence. Legal persons 
may be held liable for fraud, corruption 
and money laundering committed on his 
own behalf by any person acting either 
103 OJC221, 19.7.1997. 
104 OJC 83, 20.3.1996. 
105 Additional provisions provided for by the Council Act 
of 26 July 1995 establishing the abovementioned 
Convention. 
106 Articles 1 and 2. 
107 OJL 166,28.6.1991. 
108 Articles 3 and 4. individually or as a member of an organ 
of the legal person. 
Member States must provide for 
effective, proportionate and dissuasive 
penalties, which must include criminal 
or non-criminal fines and possibly the 
other penalties specified by the protocol 
in the event of liability for fraud. 
confiscation and seizure of the proceeds 
o/fraud109 
In the light of recommendations Nos 
26 and 28 of the action plan to combat 
organised crime, adopted by the 
Council on 28 April, this provision will 
have to be replaced, as it must be 
implemented in line with the policy 
guidelines. 
cooperation in relation to tax or 
customs duties offences^10 
The second Protocol amplifies the 
Convention's legal framework with 
regard to extradition in relation to tax 
and customs duties offences.1 'x 
cooperation with the Commission in the 
fight against fraud, active and passive 
corruption and money-laundering^^1 
The second Protocol complements the 
Convention, which covers judicial 
cooperation in relation to fraud. It 
assigns to the Commission (UCLAF) a 
function in cooperation with the judicial 
authorities in the fight against fraud, 
corruption and money laundering. It 
confirms the Commission's power to 
contact judicial authorities direct for the 
protection of the Community's 
interests. In the area covered by Title 
VI, this protocol clarifies and amplifies 
the Commission's cooperation duties 
flowing from Articles 5 and 209a of the 
EC Treaty. It will allow an established 
109 Articles. 
110 Article 6. 
111 Article 5(3) of the Convention. 
112 Article 7. 
45 
practice to be developed in response to 
needs on the ground relating to 
prosecutions.113 
5.4.3. Public procurement policy and 
the fight against corruption 
The fight against corruption is gaining fresh 
momentum, primarily as a consequence of 
the publication in November 1996 of a 
Green Paper on public procurement in the 
European Union, with contributions from 
numerous key actors (Member States, 
institutions, economic operators). In 1997 
the Commission analysed these 
contributions, and its findings will be 
reflected in a proposal, to be published in 
1998, containing a range of measures to 
increase the transparency of award 
procedures in line with its communication 
on corruption. 
The Green Paper highlighted the importance 
of adapting procedures for public 
procurement to render Union policy in the 
fight against corruption more effective. 
5.4.3.1. The Protocol and the 
Convention against corruption 
In the Member States, corruption on the part 
of European Community officials or other 
foreign officials is not treated as a criminal 
offence. This creates a problem, particularly 
in relation to the Community budget. In 
1995, the Spanish Council Presidency 
accordingly proposed what became the first 
Protocol to the Convention on the protection 
of the Communities' financial interests. The 
Protocol makes active or passive corruption 
on the part of a Community official or an 
official from any other Member State a 
criminal offence in all Member states if the 
Communities' financial interests are 
damaged.114 officials from the European institutions or 
Member States a criminal offence, even if 
their conduct had no bearing on the Union's 
financial interests. It was adopted on 26 
May.115 It enabled the Member States to 
adopt joint positions in Council of Europe 
and OECD (Organisation for Economic 
Cooperation and Development) discussions 
on the fight against corruption.116 
5.4.3.2. The Commission communi­
cation on corruption 
In its communication of 21 May117, the 
Commission drew attention to the fact that 
corruption damages the financial interests of 
the Union. The communication advocates a 
coherent Union strategy to "squeeze out" 
opportunities for corruption. The areas 
include non-tax deductibility of bribes, 
public procurement, financial transactions, 
blacklisting, civil remedies, external 
assistance and co-operation. 
Exclusion possibilities already exist under 
the Public Procurement Directives118 and 
under the FEOGA guarantee scheme. An 
examination of the circumstances in which 
blacklisting could be introduced to cover all 
areas of Community spending has also 
begun. 
Also important is the achievement of a fully 
co-ordinated anti-corruption strategy in 
relation to external aid and assistance. A 
recent Commission communication119 sets 
down prevention measures and sanctions 
necessary for dealing effectively with fraud 
and corruption which harms the objective of 
"good governance". 
The Action Plan on combating organised 
crime endorsed by the Amsterdam European 
Council last June called for a 
A Convention was then drafted, taking the 
first Protocol as a model, to make any form 
of active or passive corruption involving 
113 
114 Cf. chapter 3, section 3.4.2. 
OJ C 313, 23.10.1996. Cf. page 18 of the 1995 report 
and Chapter 6 of the 1996 report, p. 48. 115 OJC 195,25.6.1997. 
116 
118 Common positions of 6.10.1997 (OJ L 279, 
13.10.1997) and 13.11.1997 (OJ L 320, 21.11.1997). 
117 C0M(97) 192 final. 
Directives 92/50/EEC (OJ L 209, 24.7.1992), 
93/36/EEC, 93/37/EEC and 93/38/EEC (OJ L 199, 
9.8.1993). 
119 C0M(98)146 final. 
46 
comprehensive policy against corruption. 
As a response the Commission will report 
on the implementation of the 
Communication. 
5.5. The Amsterdam Treaty 
The Commission's efforts to create a legal 
basis for the criminal-law protection of the 
Communities' financial interests initially 
led to the adoption of Article 209a of the EC 
Treaty, which links the financial interests of 
the Community with national financial 
interests and the Member States' duty to 
cooperate with the Commission's duty to 
assist them. There is currently a major 
information-gathering exercise on the 
application of this Article and the 
Commission will report on the results in 
1998. 
In its opinion on the holding of an 
Intergovernmental Conference (IGC),120 the 
objectives defined by the Commission were 
the fight against different forms of crime 
and fraud damaging to the Communities' 
financial interests and the development of 
effective cooperation between the national 
administrations concerned. 5.5.2. Approaching deadlines 
Article 280 is now up for ratification by the 
Member States, with the rest of the 
Amsterdam Treaty. The Treaty will enter 
into force when ratification procedures have 
been completed. 
If necessary the Commission will propose 
further legislative measures for the 
protection of the Communities' financial 
interests after ascertaining what needs 
emerge from the practical application of the 
Treaty. 
5.6. Prospects for work under 
Title VI of the Union Treaty 
In its Resolutions of 12 June and 
22 October,122 the European Parliament 
asked the Commission to conduct a 
feasibility study on the Corpus Juris, which 
contains criminal-law provisions for the 
protection of European Union's financial 
interests and is itself the result of a study 
carried out by researchers from European 
The Commission supported the proposal 
that Article 209a of the EC Treaty be 
amended to enlarge and align the legal 
bases available for the protection of the 
Communities' financial interests. 
5.5.1. The new Article 280 of the EC 
Treaty 
While Article 209a of the EC Treaty 
emphasised the special responsibility of the 
Member States' national authorities for the 
protection of the Communities' financial 
interests, the new Article 280 of the EC 
Treaty shares the responsibility between the 
Community and the Member States.121 
120 
121 Opinion given under Article N of the Union Treaty. 
COM(96) 90. 
Article 280 reads: 
'1. The Community and the Member States shall 
counter fraud and any other illegal activities affecting 
the financial interests of the Community through measures to be taken in accordance with this Article, 
which shall act as a deterrent and be such as to afford 
effective protection in the Member States. 
2. Member States shall take the same measures to 
counter fraud affecting the financial interests of the 
Community as they take to counter fraud affecting 
their own financial interests. 
3. Without prejudice to the other provisions of this 
Treaty, the Member States shall coordinate their action 
aimed at protecting the financial interests of the 
Community against fraud. To this end they shall 
organise, together with the Commission, close and 
regular cooperation between the competent authorities. 
4. The Council, acting in accordance with the 
procedure referred to in Article 251, after consulting 
the Court of Auditors, shall adopt the necessary 
measures in the fields of the prevention of and fight 
against fraud affecting the financial interests of the 
Community with a view to affording effective and 
equivalent protection in the Member States. These 
measures shall not concern the application of national 
criminal law or the national administration of justice. 
5. The Commission, in cooperation with Member 
States, shall each year submit to the European 
Parliament and to the Council a report on the measures 
taken for the implementation of this Article.' 
i ^ — European Parliament Resolution of 12.6.1997 on the 
creation of a European legal and judicial area to 
protect the European Union's financial interests 
against international crime (0J C 200, 30.6.1997) and 
Resolution of 22.10.1997 (supra). 
Associations of Lawyers at the behest of 
Parliament.123 
The aims of the study to be carried out by 
the Commission are to measure the impact 
of the Corpus on the current national legal 
situation, with a view to achieving effective, 
proportionate and dissuasive protection of 
Community interests as required by the EC 
Treaty, taking account of the new 
possibilities offered by the Treaty of 
Amsterdam. 
The analysis conducted during the 
preparation of the Corpus demonstrated that 
assimilation did not guarantee effectiveness. 
The same applies to the principle of 
cooperation and to harmonisation, which 
makes criminal-law protection so complex. 
During the preparatory stage itself, before 
the judgment stage, the discrepancies 
seemed greatest and the obstacles most 
numerous. 
This is why the Corpus proposes a set of 
rules covering criminal prosecutions to 
ensure simpler and more effective 
enforcement in a European law-enforcement 
area.124 
1 T-J 
The associations of lawyers exist in every Member 
State. They were set up on the Commission's initiative. 
'- This is why the Corpus Juris calls for the establishment 
of a European Public Prosecutor's Office. 
48 
GRAPH 1 
TRADITIONAL OWN RESOURCES 
1994 • 1997 
IRREGULARITIES FORMALLY 
COMMUNICATED* by 
MEMBER STATES INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 
NUMBER of CASES 
1994 1995 1996 
2.213 2.296 
, 1.950 
-1997 
2.572 . 
-1600 -
2500 _ 
1400 _ 
1300 _ 
2200 . 
2/00 . 
2000 
f.900 . 
1300 
1.700 . 
f.600 . 
1500 _ 
1.400 
1.300 _ 
1200 _ 
IfOO _ 
1000 _ 
500 
250 
200 
150 
100 
SO 1994 
145 1995 
120 1996 
m 1997 
-
76 
1994 
289 1995 
296 1996 
320 1997 
364 ; 
1-AMOUNTS in MILLIONS of ECU 
750 
700 
650 
600 
550 
500 
475 
450 
425 
400 
375 
350 
325 
300 
275 
250 
200 
150 
100 1994 i i i i i i i i i i i i i 
Co 
oo 
- m^n-1995 
421 1996 
475 1997 
643 
^= 
= 
* undor Regulation (EEC) 1551/89 
GRAPH 2 
EAGGF-GUARANTEE 
1994-1997 
IRREGULARITIES FORMALLY 
COMMUNICATED* by 
MEMBER STATES INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 
NUMBER of CASES 
1994 
1.610 1995 
1.754 1996 I 1997 
2.058 . 
=• . 2.100 
2.000 
1.900 
1.800 
1.700 
1.600 
1.500 
1.400 
1.300 
1.200 . 
1.100 1.000 900 800 700 600 500 400 300 200 100 
75 
SO 25 93 
26 72 48 
1994 
477 1995 
274 1996 
223 AMOUNTS in MILLIONS of ECU 
I 1997 
164 
L 500 
450 
400 
m 
3S0 1994 
300 J 
2S0 J 
200 J 
ISO J 
100 J 
1 7'5 
SO J I 1995 
702 I 1996 
-
742 I 1997 
153 
-
• 
. _, =! 
=3 
under Regulation (EEC) 595/9 7 
b<-
GRAPH 3 
STRUCTURAL ACTIONS 
1994-1997 
IRREGULARITIES FORMALLY 
COMMUNICATED * by 
MEMBER STATES INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 
NUMBER of CASES 
AMOUNTS in MILLION of ECU 
1994 
5 1995 
44 1996 
64 I 1997 j 
57 L 
==l 
r 700 
95 
90 
85 
80 
75 
70 
65 
60 
55 
50 
45 
— 40 
35 
30 
25 
20 
15 
10 
5 1994 
16 1995 
23 1996 
88 1997 
20 
i 
(*) under regulations (EEC) 1681/94 and 1831/94 
51 
GRAPH 4 
DIRECT EXPENDITURE 
1994-1997 
Inquiries carried out by the Commission with 
the assistance of Member States' services. 
NUMBER of CASES 
AMOUNTS in MILLIONS of ECU 
1994 
23 
• 1995 
28 1996 1997 I 
16 
11 
-
TABLE 1 
TRADITIONAL OWN RESOURCES 
IRREGULARITIES COMMUNICATED BY MEMBER STATES IN 1997 
ON THE BASIS OF REGULATION (EEC) 1552/89 
BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND m 
ÔSTERREICH 
PORTUGAL (2, 
SUOMI 
SVERIGE 
UNITED KINGDOM NUMBER OF 
CASES 
NOTIFIED 
TOTAL 405 
82 
384 
5 
75 
233 
54 
298 
1 
453 
73 
5 
32 
17 
455 
2.572 AMOUNTS X 1.000 ECU {rata of December 1997) 
AMOUNTS 
NOTIFIED 
45.593 
8.244 
28.624 
3.980 
3.522 
32.332 
3.990 
88.398 
12 
39.178 
5.966 
6.037 
1.678 
576 
95.380 
363.511 already 
RECOVERED 
1.937 
5.359 
5.473 
11 
1.362 
8.722 
2.480 
155 
12 
611 
1.561 
401 
23.240 
51.324 BALANCE 
d-b-c CLJ 
43.656 
2.885 
23.151 
3.970 
2.160 
23.610 
1.510 
88.243 
0 
5.355' 
117 
175 
72.140 
266.972 BE 
DK 
DE 
EL 
ES 
FR 
IR 
IT 
LU 
NL 
OS 
PO 
SU 
SV 
UK 
(1) The balance consists of a) amounts still to be recovered ; b) corrections to be made following Court decisions still to be awaited ; 
c) remissions/cancellations decided by national authorities and d) amounts which cannot be recovered and must subsequently be written of 
(2) The amounts recovered have not yet been communicated. H = Total amount for 13 Member states only 
TABLE 2 
en EAGGF - GUARANTEE 
IRREGULARITIES COMMUNICATED BY MEMBER STATES IN 1997 
ON THE BASIS OF REGULATION (EEC) 595/91 
NUMBER OF CASES 
total of which DETECTED 
CASES BEFORE 
NOTIFIED PAYMENT 
a \ b 
BELGIQUE 27 0" 
DANMARK 24 3 
DEUTSCHLAND 601 95 
ELLAS 160 66 
ESPANA 261 2 
FRANCE 91 12 
IRELAND 79 63 
ITALIA 249 1 
NEDERLAND 130 58 
OSTERREICH 36 14 
PORTUGAL 81 2 
SUOMI 7 6 
SVERIGE 66 59 
UNITED KINGDOM 246 31 
' TOTAL J 2.058 j ,. 412 J TOTAL 
AMOUNTS 
NOTIFIED 
c 
1.672 
419 
26.865 
36.931 
43.449 
3.801 
693 
31.352 
7.666 
234 
4.378 
75 
735 
6.221 
164.490 
- -•' j,b i..- I..I. .,....*. AMOUNTS X 1.000 ECU {nt. 
of which WITHOUT 
RECOVERY: 
detected before payment 
d 
379 
42 
2.204 
3.793 
16.402 
1.046 
472 
20 
4.542 
11 
41 
43 
585 
1.003 
30,581 
' '•• ' u.ijyi. ' ..I.' . Vi 11 • r^-^.n of which A 
AMOUNTS 
NOTIFIED 
e 
1.294 
377 
24.662 
33.138 
27.047 
2.755 
221 
31.331 
3.124 
223 
4.337 
32 
150 
5.218 
133.909 of December 1997) 
MOUNTS MEED» 
already I 
RECOVERED 
f 
267 
343 
5.801 
164 
1.568 
828 
69 
606 
582 
204 
287 
32 
104 
1.166 
12.021 IG RECOVERY 
TO BE 
RECOVERED 
9=8-/ 
1.026 
33 
18.861 
32.975 
25.479 
1.927 
152 
30.726 
2.542 
19 
4.051 
0 
46 
4.052 
121.888 BE 
DK 
DE 
EL 
ES 
FR 
IR 
IT 
NL 
OS 
PO 
SU 
SV 
UK 
NB Luxtmburq Informed thit no Imqiiltrity > 4 000 ECU h»s been detected 
TABLE 3 
STRUCTURAL ACTIONS 
IRREGULARITES COMMUNICATED BY MEMBER STATES IN 1997 
ON THE BASIS OF REGULATION (EEC) 1681/94 and 1831/94 
AMOUNTS X 1.000 ECU ( rate December 1997) 
BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND 
OSTERREICH 
PORTUGAL 
SUOMI 
SVERIGE 
UNITED KINGDOM 
| TOTAL EAGGF-GUIDANCE 
number j amounts 
of cases notified 
5 
0 
27 
4 
5 
0 
1 
4 
0 
0 
0 
44 
1 
6 
3 
100 271 
0 
1.251 
1.419 
231 
0 
6 
538 
0 
0 
0 
1.143 
9 
19 
751 
WBM number 
j?lcas£S_ 
2 
0 
10 
48 
5 
6 
0 
26 
0 
0 
0 
9 
0 
10 
7 
123 ESF 
amounts 
27 
0 
4.072 
2.387 
151 
111 
0 
3.563 
0 
0 
0 
5.056 
o 
. 482 
5.388 
21237 ERDF 
number 
Mcasts. 
5 
0 
10 
1 
20 
2 
11 
3 
0 
0 
0 
15 
o 
1 
10 
78 amounts 
notified 
247 
0 
6.347 
0 
3.669 
227 
1.123 
709 
0 
0 
0 
12.219 
0 
63 
3.734 
28.337 FISHERIES 
number 
qf.pases., 
0 
0 
0 
0 
1 
0 
3 
0 
0 
0 
0 
1 
0 
0 
0 
5 amounts 
notified 
0 
0 
0 
0 
64 
0 
187 
0 
0 
0 
0 
363 
0 
0 
0 
8111 COHESION FUND 
number 
, Qicases 
0 
0 
0 
0 
2 
1 
0 
0 
0 
0 
0 
0 
. 0 
0 
, . .... 
3 amounts 
notified 
0 
0 
0 
0 
210 
0 
1.036 
0 
0 
0 
0 
0 
0 
0 
0 
mmm number 
,P,f.,fiases„, TOTAL 
12 
0 
47 
$3 
33 
8 
IS 
33 
0 
Q 
0 
69 
1 
17 
j 20 .. 
WiW» IMI'IMI" 'i' 309 amounts 
• 545 
0 
1<6$9 
' ' 3.S07 
4.324 
337 
2.351 
4.809 
0 
0 
0 
18.781 
9 
- $64 
-9,873 . 
57,070 BE 
DK 
DE 
EL 
ES 
FR 
IR 
IT 
LU 
NL 
OS 
PO 
SU 
SV 
UK 
TABLE 4 
EAGGF-GUARANTEE 
RECOVERY SITUATION regarding IRREGULARITIES 
communicated BEFORE 1994 under Regulation (EEC) 595/91 
BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
NEDERLAND 
PORTUGAL 
UNITED KINGDOM 
TOTAL tqt^I ' 
notified 
! 176 
482 
1.928 
303 
439 
1.002 
167 
1.180 
723 
218 
1525 
8.144 ^ 
total 
recovered 
i 
130 
371 
1.564 
249 
309 
851 
129 
292 
681 
105 
1.319 
6.000 borne* by 
EAGGF-
Guarantee 
i 
7 
89 
94 
40 
1 
2 
72 
305 NUMBER of CASES 
borne *by 
Member 
State 
* 
1 
5 
9 
2 
4 
1 
4 
17 
43 still to be 
recovered 
i.(l-IU) 
39 
21 
265 
45 
130 
109 
33 
888 
39 
109 
117 
1795 whereof 
in COURT 
« 10 
8 
112 
7 
16 
17 
3 
239 
2 
8 
10 
432 request byM-S 
to declare as 
"irrecoverable" 
i 
10 
13 
50 
1 
1 
18 
14 
1 
10 
93 
211 Balance 
..'«.,-) 
19 
0 
103 
37 
113 
74 
16 
648 
27 
101 
14 
1152 
74% 22% 19% I 
BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
NEDERLAND 
PORTUGAL 
UNITED KINGDOM 
TOTAL notified 
» 
23.385 
28.586 
170.923 
78.154 
9.355 
72.174 
18.188 
577.638 
36.481 
9.189 
45.777 
1069.850 AMOUNTS X 1000 ECU {rate ofdecemberm7) 
total 
recovered 
i 
9.587 
13.872 
51.708 
3.582 
3.274 
31.651 
12.464 
48.360 
25.915 
2.009 
22.601 
225.023 borne* by 
EAGGF-
Guarantee 
i 
6.169 
1.331 
52.233 
0 
0 
1.102 
17 
0 
36 
0 
3.357 
€4.245 borne* by 
Member 
State 
4 
0 
2 
27.645 
53.981 
0 
12 
23 
0 
218 
496 
1.641 
84,018 still to be 
recovered 
t.(tit-i) 
7.629 
13.382 
39.337 
20.592 
6.081 
39.408 
5.684 
529.278 
10.312 
6.684 
18.178 
696.563 whereof 
in COURT 
• 
1.593 
10.815 
22.800 
15.279 
584 
14.067 
2.609 
207.970 
1.433 
3.596 
1.756 
282.501 request byM-S 
to declare as 
"irrecoverable" 
' 
3.211 
2.567 
11.566 
0 
0 
2.483 
0 
0 
158 
0 
7.008 
26.993 Balance 
• • <H-1) 
2.826 
0 
4.971 
5.312 
5.497 
22.858 
3.075 
321.308 
8.720 
3.088 
9.414 
387.070 
I 21% I 
' irrecoverable : formal decision in the clearance of account procedure under regulation (EEC) 729/70 
56 65% 36% 
Table 5 
GLOBAL IMPACT of IRREGULARITES 
communicated / detected in 1996 en 1997 • in relation to 
the COMMUNITY BUDGET for 1996 and 1997 
Traditional Own Resources 
collected by the Member States 
BUDGET 
Irregularities communicated by Member States 
Irregularities detected by the Commission services 
in cooperation with Member States 
Global impact of irregularities 1996 I 
MECU % I 
14.942 
320 
I 476 
796 2,14 
3,19 
5,33 | 1997 
MECU % 
15.589 
364 
643 
1.007 2,33 
4,12 
6,45 
Expenditures concerning 
Structural Actions 
BUDGET 
Irregularities communicated by Member States 
Irregularities detected by the Commission services 
in cooperation with Member States 
Global impact of irregularities 1996 III 1997 
MECU % II MECU % 
24.320 
64 
88 
152 I 26.048 
0,26 57 
0,36 20 
0,62 I 77 0,23 
0,08 
0,31 
{Agricultural Expenditure concerning 
EAGGF-Guarantee measures. 
BUDGET 
Irregularities communicated by Member States 
Irregularities detected by the Commission services 
in cooperation with Member States 
Global impact of irregularities \ 1996 II 1997 
MECU % II MECU % \ 
42.799 
223 
142 
365 I! 40.423 
0,52 164 
0,33 153 
0,85 || 317 0,41 
0,38 
0,79 
MECU = amounts in MILLION ECU : rate of December 1997 
General remark : the irregularities detected I communicated in 1997 often relate to previous budgetary years. 
GLOSSARY 
Definition of the concept of irregularity 
The Council regulation (EC) No 2988/95 on the protection of the European Communities financial 
interests (OJ No L 312 of 23.12.95) defines very broadly the concept of irregularity. This concept covers 
both simple omission due to error or negligence which is likely to have a harmful effect on the 
Communities' budget and intentional and deliberate acts which corresponds for their part to the more 
restrictive concept of fraud as defined in the penal convention. 
Council Regulation (EC, Euratom) No 2988/95 of 18 December 19995 on the protection of the European 
Communities financial interests (OJ No L 312 of 23.12.95). 
Article 1, §2: 
" 'Irregularity' shall mean any infringement of a provision of Community law resulting from an act or 
omission by an economic operator, which has, or would have, the effect of prejudicing the general budget 
of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own 
resources collected directly on behalf of the Communities, or by an unjustified item of expenditure". 
Council Act of 26 July on drawing up the Convention on the protection of the European Communities* 
financial interests (OJ No C 316 of 27.11.95). 
Article 1 § 1 : 
"For the purposes of this Convention, fraud affecting the European Communities' financial interests shall 
consist of: 
(a) in respect of expenditure, any intentional act or omission relating to : 
- the use or presentation of false, incorrect or incomplete statements or documents, which has as its 
effect the disappropriation or wrongful retention of funds from the general budget of the 
European Communities or budgets managed by , or on behalf of, the European Communities, 
- non-disclosure of information in violation of a specific obligation, with the same effect. 
- the misapplication of such funds for purposes other than those for which they are originally 
granted; 
(b) in respect of revenue, any intentional act on omission relating to : 
- the use or presentation of false, incorrect or incomplete statements or documents, which has as its 
effect the illegal diminution of the resources of the general budget of the European Communities 
or budgets managed by, or on behalf of, the European Communities, 
- non-disclosure of information in violation of a specific obligation, with the same effect, 
- misapplication of a legally obtained benefit, with the same effect. 
The Member States notify the Commission of irregularities where a mutual administrative report has been 
made. The Commission, for its part, carries out, in cooperation with the specialist national services, 
investigations into cases of irregularity which have not been the subject of such a report by the Member 
States but where there is, according to diverse information sources, a strong presumption of fraud. 
Organised crime 
The Council report on organised crime in the European Union offers a number of criteria for defining 
organised crime: 
- more than one participant; 
- specific functions exercised by each participant, with a degree of discipline and control; 
- international activity; 
- use of violence or other forms of coercion; 
- money-laundering; 
- use of business or businesslike structures: 
- profit motive; 
- influence over political and business circles, public administration, the media and the judiciary. 
58 
Agenda 2000: Commission Communication on enlargement - horizon 2000 
ASEAN: Association of South-East Asian Nations 
CAP: Common Agricultural Policy 
CIS: Customs Information System 
COCOLAF: French acronym for Advisory Committee for the Coordination of Fraud Prevention 
CPCA: French acronym for Standing Committee for Administrative Cooperation (indirect 
taxation). Chaired by the Commission. Directorate-General for Customs and Indirect 
Taxation (DG XXI). Deals with implementation of the transitional intra-Community 
VAT system. 
EAGGF: European Agricultural Guidance and Guarantee Fund (Guarantee Section: EAGGF -
Guarantee, Guidance Section: EAGGF - Guidance) 
EC: European Community (name used since entry into force of the Treaty on European 
Union) 
EDF: European Development Fund 
EDF: European Development Fund 
EFTA: European Free Trade Area (Iceland, Liechtenstein, Norway, Switzerland) 
EMU: Economic and Monetary Union 
ERDF: European Regional Development Fund 
ESF: European Social Fund 
EWS: Early Warning System 
FIFG: Financial Instrument for Fisheries Guidance 
GSP: Generalised System of Preferences 
IRENE: French acronym for database managed by UCLAF - Irregularities, Inquiries, 
OECD: Organisation for Economic Cooperation and Development 
OJ: Official Journal of the European Communities (OJ L: L series, OJ C: C series) 
PHARE: Programme of Community aid for central and eastern European countries 
RTD: Research and technological development 
SCAF: French acronym for Anti-fraud Sub-committee of the CPCA, dealing with indirect 
taxation. 
SCENT: System for a Customs Enforcement Network 
SEM 2000: Sound and Efficient Management - Commission programme for improving the 
management of Community finances by the year 2000 
TACIS: Programme of technical assistance to the Independent States of the former Soviet 
Union and Mongolia 
TIR: Transport International Routier 
TUE: Treaty on European Union 
UCLAF: Unit for the Coordination of Fraud Prevention (Directorate within the Commission's 
Secretariat-General) 
VAT: Value Added tax 
VIES: VAT Information Exchange System 
59 



ISSN 0254-1475 
COM(98) 276 final 
DOCUMENTS 
EN 09 06 01 17 
Catalogue number : CB-CO-98-3Ô9-EN-C 
ISBN 92-78-36032-5 
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