Opinion of the Economic and Social Committee on "Combating tax evasion in the single market"

(2000/C 268/12)

On 25 February 1999, the Economic and Social Committee, acting under Rule 23(3) of its Rules of Procedure, decided to draw up an opinion on "Combating tax evasion in the single market" (Single Market Observatory).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 June 2000. The rapporteur was Mr Burani.

At its 374th plenary session (meeting of 13 July 2000) the Economic and Social Committee unanimously adopted the following opinion.

1. Introduction

1.1. The Economic and Social Committee has decided to look into the problem of fraud affecting Community finances; among the initiatives proposed by the Commission, measures to combat fraud are one of the most important in terms of urgency and the resources required. Fraud - whether in the field of indirect taxation and excise duties or in the field of Community aid - is not only damaging to Community finances but also hinders or distorts application of the internal market rules, which are based on transparency and free competition. The present study therefore focuses on the damaging effects on Community finances and the concomitant distortion of competition within the single market. Analysis of the wealth of documentation available - and particularly the 1997 UCLAF report and the summary report presented to the Helsinki Council of Ministers in December 1999 - reveals the need to establish a basic framework for an EU policy to combat organised crime. The Committee considers it helpful to contribute to the current debate on this matter by issuing an opinion for the attention of the Commission, Council and European Parliament.

1.2. Fraud occurs wherever there is an opportunity to make money or pay less: leaving aside moral considerations, fraud is regrettably an aspect of economic life which it is virtually impossible to eliminate totally. While aware of this constraint, governments are nevertheless doing everything they can to prevent, control and combat it by means of legislative, regulatory, investigative and judicial measures.

1.3. In the past, fraud - generally perpetrated by individuals - could be seen as an "inherent" aspect of the economic system; its scale tends to be in inverse proportion to the strength of legal and regulatory structures, the efficiency of checks and the dissuasive power of sanctions. This type of fraud remains endemic, and indeed appears to be on the increase. Various factors play a part: the shadow economy, the reduction in physical checks, and to some extent - as will be seen below - shortcomings in Community legislation and a lack of coordination between national regulations. In the last ten years in particular, there has been a worrying rise in "pathological" fraud, resulting from the involvement of organised crime.

1.4. In a desire to protect the Community's financial interests, the Commission pays particular attention to fraud in the context of organised crime, without losing sight of the problem as a whole(1): "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)".

1.5. The ESC is submitting this opinion on the same basis, but from a different angle: fraud - and tax evasion in particular - is only one of the activities of organised crime networks, which operate across the board and are involved in all types of illegal activity: drugs, arms trade, illegal immigration, smuggling, prostitution, counterfeiting and credit-card fraud. The proceeds are then used for the further crime of money laundering. It follows that measures to combat fraud must not be an end in themselves but should be regarded as a means of combating organised crime. In other words, they are merely one piece in a jigsaw in which intelligence-gathering can certainly help to counteract individual illegal acts but should also help to form an overall framework for attacking the root of the problem: crime itself.

2. Organising anti-fraud measures

2.1. The European Union now has its own autonomous structure (OLAF), which has taken over from the Unit on Coordination of Fraud Prevention (Uclaf) which was part of the Commission. The basic - and significant - difference is that, in its operational activities, OLAF is entirely independent of the Commission; its task is to investigate fraud against the Community budget, both in the Member States (external investigations) and within individual Community institutions and bodies (internal investigations). The "external" aspect gives the Office the powers of a genuine fiscal investigatory body, whose investigations will be prepared and initiated "in close cooperation between the Member States concerned, the Office and the Commission"(2).

2.2. However, there are limitations to OLAF's activity, as it can only step in - autonomously, but not independently - when a "fraud" (and not an "irregularity") has been notified by the authorities of a Member State. The problem is that Member States are obliged to notify all irregularities, including suspected or proven fraud; however, even after OLAF has stepped in, it is up to the local courts to decide whether the case constitutes an irregularity or a fraud. The EU thus has no means of intervening directly to protect its finances, as competence lies solely with the national authorities. At all events, it is in the Commission's interest to recover sums due to it, whether from fraud or simple irregularities.

2.3. This is a complex and thorny issue. The 1998 UCLAF report notes that the information received from the Member States is not sufficiently precise to make a preliminary distinction between simple irregularities and actual fraud(3). For a legally valid definition one must await the verdict of the relevant national authorities, which may take "a considerable period of time"(4).

2.4. Things are no easier when it comes to recovering the sums owed to the Community budget. In all fields, and for each budget heading (traditional own resources, EAGGF, etc.), OLAF mentions delays that can last years, slow progress on all fronts, and often - not to mince words - "lack of cooperation"(5). The report explicitly(6) questions the diligence of the Member States. In the own resources field alone, between 1989 and 1998, only seven Member States notified a total of 44 cases of unrecoverable debts. Such figures are totally implausible and are a sign of unacceptable negligence, if not something worse.

2.5. The case of the EAGGF provides a particularly eloquent example of the recovery of the sums due to the Community budget: of a total of ECU 1651 million to be recovered from cases cleared up from 1973 to 1994 - a period of 21 years - a full half (824 million) had still not been recovered by the end of 1998. The report's comment on this is both deprecating and threatening. While noting that the Commission's exhortations to the Member States to clear the legacy of the past have not yet borne fruit, it also states that, if the situation does not change, it may be necessary to charge the outstanding sums to the negligent Member States if they cannot prove that the sums are impossible to recover. Here it should be noted that the sums to be recovered are "inflated" by the failure to notify bankruptcies or the winding-up of companies promptly. This is a clear indication of the inefficiency of some administrations.

2.6. The facts and figures quoted in the preceding paragraphs are all the more telling when one considers the number of irregularities reported in 1998: 5091 cases covering a total value of ECU 577 million, at least 20 % of which (in both number and value terms) can provisionally be deemed as fraud. Taking all past and present fraud cases together, and bearing in mind how slow and difficult it is to recover the missing sums, it becomes clear that the nature and scale of the phenomenon give cause for serious concern.

2.7. The Committee would make the following call to the Commission and the Council: the report is a public document, and the EU public has a right to know in detail which countries are not meeting their obligations and what sums are outstanding. The European Parliament could discuss the issue and exercise its powers to prevail on the Member States to act morally in their dealings with the Community; such a step is necessary if the Member States are to be credible when they expect moral rectitude from their citizens.

2.8. It seems clear that OLAF's "external" activity should cover all types of fraud, regardless of the perpetrator. However, given the scale and frequency of the fraud perpetrated by organised crime networks and the concern shown by the Commission, it may be assumed that the bulk of OLAF's activity will focus on this area. This impression is borne out by the 1998/99 work programme for the fight against fraud (COM(1998) 278 of 6 May 1998). OLAF should therefore be regarded as one of the bodies involved in the fight against organised crime, albeit only in relation to fraud against the Community. This perhaps rather obvious fact prompts the ESC - in the following paragraphs - to put forward some of its thoughts about European policy for combating crime.

2.9. The Dublin European Council in December 1996 instructed a high-level group to draw up a comprehensive action plan to combat organised crime, containing specific recommendations and realistic timetables for carrying out the work. The group produced a plan containing 30 specific recommendations which was adopted by the Amsterdam Council on 28 April 1997(7): this is an extremely detailed document which, in addition to very strict political guidelines, sets out a series of coordinated measures, which together form a comprehensive action plan hinging essentially on cooperation between the Member States, the Council, the Commission and Europol. The document had one fault: its timescales were too optimistic: of the thirty measures planned, most were to be completed by the end of 1998, and only two by the end of 1999; very few of them have been completed on time and actually implemented.

2.10. The document is nevertheless a very valuable one; among other things it stresses the principle that "fiscal fraud linked with organised crime [should be] treated as any other form of organised crime"(8). The Council also stated that "Europol should be given operative powers", decided to set up its own multidisciplinary working party on organised crime and specified that "in order to facilitate contacts with other Member States, with Europol and with the Commission" each Member States should have "a single contact point providing access to all the law enforcement agencies". That was in 1997. More than two years later, the Tampere European Council of 15-16 October 1999 called on the Justice and Home Affairs Council "to provide Europol with the necessary support and resources". In other words, thirty months have gone by without any significant developments.

2.11. This raises the question of whether the policy (or, more correctly, policies) pursued hitherto are consistent and logical. The Justice Council considers the fight against organised crime with Europol, while the Ecofin Council only considers the fight against crime when it involves fraud affecting Community finances. The Tampere European Council includes among its priorities "juvenile, urban and drug-related crime" as Europol responsibilities, but forgets that OLAF has singled out other priorities which have also been endorsed by the Council. At least potentially, there seems to be an overlap of responsibilities, multiple priorities and "gaps". The area is not regulated in a systematic manner, as no "Justice" document mentions OLAF, and no "Ecofin" document mentions Europol. Any suggestion that the two bodies might cooperate, pool information or share duties seems more remote than ever.

2.12. Although OLAF is an investigative body confined to institutional investigations, it should be entitled/obliged to maintain contacts with national centralised bodies (which incidentally have not yet been set up in many Member States) and should have the possibility of receiving information and assistance from all police bodies, not only those handling fiscal matters. OLAF is making laudable efforts in this direction on its own initiative and in some instances has been successful. However, the main aim of the existing regulations appears to be to establish working links with investigative and enforcement bodies solely in the financial sphere (customs, VAT offices etc.). Notwithstanding this fact, the Commission itself emphasises the link between "financial" crime and other types of crime: in 1997 UCLAF identified more than fifty networks "involved in other criminal activities as well as financial crime"(9).

2.13. The links between the different aspects of organised crime and the need for coordination at EU and national level between the various investigative bodies are clear enough in theory. In practice, however, a host of obstacles prevent effective practical action: national laws, the concern of many bodies to retain their privileges, and the reluctance of the national authorities to alter the status quo for fear of political repercussions, to mention just a few. The result is that the fight against organised crime - whether involving fraud committed in relation to the Community budget or not - is losing precious time. No doubt the Member States have excellent explanations for the delays and inefficiencies, but the European public is increasingly worried about the growing grip of organised crime. As the voice of civil society, the ESC warmly appreciates the results already achieved by those who are fighting this most difficult battle. However, it also calls on those who are responsible for the EU's future to take practical steps to eliminate forthwith the delays, obstacles and acts of national self-interest.

2.14. Without wishing to prescribe solutions for problems which experts know only too well, the Committee thinks that basically it is necessary to wage an all-out war on crime, which nevertheless - it is worth reiterating - must not focus solely on organised crime. OLAF has a frontline role to play here, and its activity would be more effective if it could act in concert with other criminal investigation bodies. Nor should these be limited to Europe, as crime knows no borders. A structured link with Interpol and with other investigative bodies worldwide should be negotiated. It should also be added - even though this is up to the discretion of each Member State - that the usefulness of orderly cooperation with local administrative bodies and police forces is sometimes overlooked. It is often easier and less costly to gather information locally at "micro" level than to conduct investigations "from above".

2.15. However, one should not be pessimistic. There are signs that some national authorities are waking up to the fact that fraud is a global phenomenon calling for structured cooperation. For instance, in February 2000 a cooperation protocol was signed between OLAF and the Italian Anti-Mafia Directorate (DNA), under which the two bodies are to exchange information and data with a view to preventing, investigating, verifying and suppressing illegal activities, and to identifying and recovering illicit earnings from these activities.

3. Legal and regulatory infrastructure

3.1. In the legislative and regulatory area a number of conventions, protocols and regulations have been or are being adopted concerning mutual assistance in the customs and agricultural areas, the protection of financial interests as regards money laundering and judicial cooperation, and the achievement of equivalent criminal law protection throughout the European Union. In principle, then, there is a sound legislative and regulatory structure capable of providing a European defence against fraud. However, the best solution, in the spirit of the Tampere Council conclusions, would be the establishment of a European penal area. This presupposes the abandonment of egoistic national stances, and acceptance that European interests are worth a few sacrifices.

3.2. In practice, the situation is very different. In the period 1995-1997 the Council adopted two conventions and two protocols in the context of the third pillar aimed at protecting the European Communities' financial interests. They gave a legal definition of fraud and laid down the procedures for judicial and investigatory cooperation between the Member States and the Commission. The Amsterdam European Council set mid 1998 as the deadline for ratification by the Member States; in Special Report No 8/98 of July 1998(10) it was noted, with obvious disappointment, that "these instruments become effective only when ratified by all 15 Member States; ... they have not yet been ratified by any Member State". Some Member States have since ratified the conventions, but the overall situation has not greatly improved.

3.3. The ESC therefore notes a situation which cannot but be deplored: the Council seems to be mainly concerned with its own image and is laying down principles for cooperation and impeccable programmes to combat fraud and organised crime. But when it comes to putting good intentions into practice, the reservations and delaying tactics of national governments, parliaments and institutions come into play and they seek to hide their opposition (not too successfully) behind legal quibbles, administrative and legislative red tape, spurious organisational obstacles and, above all, differences in national laws which few people - aside from some expressions of good will - seem to wish to change. All this results in damaging delays in a fight in which every day lost strengthens the enemy's hand. The ESC regards this as an unacceptable situation to which it would draw the attention of all parties, urging them to shoulder their responsibilities. The Commission in particular should resolutely step up its role as "upholder of the rules", eliminating delays which often give the impression of being used as a deliberate tactic.

3.4. The run-up to the accession of the applicant countries of central and eastern Europe is a particular problem. Apart from assistance with training for crime-fighters, the Commission is endeavouring to create the conditions for the establishment of a legislative and regulatory structure consistent with that of the Union. This is a commendable endeavour, but at the moment it does not - on the whole - appear to be bearing fruit on the ground. There are no signs of any effective measures against financial fraud or of the consistent presence of any plausible or effective cooperation. For the purposes of membership, the European Union should look not only at the factors specified but also at the position with regard to organised crime in each of the applicant countries and at the effectiveness of its crime-fighting arrangements. Pre-accession measures should include staff training; some schemes already exist, but they should be brought within a large-scale programme with commensurate funding.

3.5. In the fight against fraud affecting the Community budget (whether or not organised crime is involved), the Committee notes that some progress could be made as regards judicial and investigative cooperation. Member States should abandon conservative positions which often simply conceal a last-ditch defence of national privileges, and, since the Commission is directly involved in the matter, should regard it as entitled to carry out investigations and pass judgement in its own right, albeit in cooperation with the Member States. In other words the concept of "federal crime" applied in the United States could be used as a model, at least in general terms. Unfortunately, Article 280 of the Amsterdam Treaty would seem to provide an obstacle to this type of solution, as it only speaks of "cooperation" between the Commission and the Member States; such a weak wording is ineffective in the light of the situation. However, the next IGC could examine this matter, if only to show that alongside national interests there are European interests which the individual Member States cannot be left to defend.

4. Fraud in various sectors

4.1. Excise duties: tobacco and alcohol

4.1.1. As these products are subject to excise duty, fraud in the tobacco sector generally takes the form of smuggling, which tends to be a monopoly of organised crime. This is a highly complex and labyrinthine activity requiring huge resources and links at least as great as those of the large multinational companies. Equally enormous are the resources - in terms of investigative personnel, machinery and bodies - which the Member States devote to anti-smuggling measures. Similar considerations apply in the case of alcohol, although with differing emphases and bearing in mind that fraud perpetrated by individuals is still quite common. The most obvious conclusion - which the Commission has also reached - is that the countries where the phenomenon is most noticeable are those with the highest levels of taxation, regardless of the efficiency of prevention and enforcement measures.

4.1.2. For each Member State, it would be useful to find out the total cost of measures to combat smuggling and tax evasion by tobacco and alcohol consumers, setting this against the total tax recovered and the value of the seized contraband. This would show the net contribution of duties to the national budget. Such a calculation is of course complicated - if not rendered mathematically impossible - by the fact that anti-smuggling measures extend beyond tobacco and alcohol, and also cover other criminal activities such as arms and drugs trafficking and the smuggling of illegal immigrants. However, even on the basis of rough figures, some of the Member States could reflect on whether it is advisable, in terms of benefit to public finances, to maintain a level of taxation which is so high that it constitutes an incentive to fraud directed primarily against themselves. The likely objection - that duties are mainly designed to discourage consumption of alcohol and tobacco - is easily refuted by the facts: smokers and drinkers do not reduce their consumption, they simply resort to the black market, which is thereby encouraged.

4.1.3. Cooperation between Uclaf/OLAF and the national authorities (including those of some non-EU countries) has notched up considerable successes in the fight against cigarette and alcohol smuggling. Such successes are obviously to be welcomed. However, new threats are also appearing, especially from mafia-like organisations in eastern Europe which work closely with their counterparts in the EU Member States.

4.2. Agricultural products

4.2.1. Fiscal fraud with regard to agricultural products takes various forms and may also involve health hazards for consumers (for example powdered milk not intended for human consumption, adulterated vegetable oil, beef from prohibited sources etc.). The reports indicate that the phenomenon is very diffuse and difficult to control, particularly since trade in agricultural products accounts for a considerable part of intra-Community and international trade. Efficient and speedy transport and the abolition of border checks are also factors which facilitate the movement of goods under cover of false or forged documents.

4.2.2. In the case of agricultural products, organised crime networks are not always the guilty parties. However, there is no doubt that no one single operator, on his own, could perpetrate fraud on a significant scale: it must necessarily involve the exporter and the importer as well as intermediaries, carriers, forgers and sometimes also producers. This leads the Committee to think that perhaps national legislation should systematically treat this kind of fraud - not only in the agricultural sector - as being the work of "illegal organisations". The Commission could publicise this fact as a deterrent to fraudsters, including those not moving within traditional criminal circles.

4.2.3. The ESC would like to add a subsidiary, but not unimportant, remark. Looking at the various cases of fraud which have come to light, there are often procedures which have a common denominator: goods moving from one country to another, warehousing under cover of false documents and hence dispatch to various destinations before reaching the country of consumption. Transport, warehousing, the operations of forgers and other intermediary accomplices, all this costs money, and it is a cost which is not incurred by "honest" goods. If despite all this - and allowing for the profits from adulteration - fraud is still an attractive prospect, then the conclusion would seem to be that in the case of agricultural products there is a large - perhaps too large - difference between producer prices and consumer prices. This is a point worth looking into.

4.3. Preferential tariff arrangements

4.3.1. Reports in recent years show an increase in fraud involving the preferential tariff arrangements granted to third countries, either by means of false or forged declarations of origin or through circumvention of social provisions or regulations on dumping and environmental protection. The cases cited by the Commission involve products which it describes as "sensitive", such as textiles, electronic products and fishery products, but it may reasonably be assumed that the phenomenon to some extent involves all the products covered by the agreements.

4.3.2. The Commission points out that this kind of fraud "distorts trade in ways which cannot be tolerated, penalising fair traders" and adds that "the Community's interests... can only be protected by coordinating the work of the Member States and the beneficiary countries, with help from the Commission". This solution seems too simplistic, and overlooks an aspect well known to operators (and clear from the reports on the cases uncovered): the checks carried out by exporting countries are often inadequate or even non-existent. The Commission document(11) is quite explicit: "Although the Commission has negotiated administrative cooperation arrangements with all the beneficiary countries to which it accords preferential tariffs, each country retains control of the legal system in which inquiries involving contentious transactions are conducted. When collecting evidence, Community investigators are very much at the mercy of external factors such as political or commercial interest, the effectiveness of the local legal system and the effectiveness and goodwill of the local administration".

4.3.3. The Commission would not have made such serious affirmations without solid proof. The Committee strongly urges that sanctions be taken against countries enjoying preferential arrangements if they exploit these arrangements in order to protect fraud or indeed to commit it themselves.

4.4. Fraud in the area of the common agricultural policy

4.4.1. The most worrying aspect here is that there are many instances of abuses in the common agricultural policy in which "fraud is spread more diffusely and benefits a wide range of operators guilty of irregularities which adversely affect the Community budget". The cases detected are doubtless only the tip of the iceberg; effective monitoring will require the full cooperation of the Member States and direct and effective checks by them.

4.4.2. The impression is that the Member States do not always carry out effective checks. On the one hand the high number of operators involved calls for a big investment in terms of administrative and statistical resources and people on the ground, which is very costly. On the other hand, this is a sensitive political area and the cases so far made public suggest that the authorities are sometimes extremely wary of taking enforcement measures. Enforcing financial penalties is often difficult and does not seem to be an adequate deterrent: the Commission and the Council should consider the possibility of adopting more dissuasive measures, even going so far as to exclude guilty parties from further CAP support. One fundamental question is raised here - namely, whether the procedures for requesting and allocating funds could be revised in order to make fraud more difficult. At present, it would appear that even the most inexperienced operator can circumvent the rules.

4.4.3. This is confirmed by one particular case within the agricultural field, namely the EAGGF Guarantee Section. This case deserves special mention not so much because of the level of fraud involved but because it is proof that fraud exists wherever procedures are inadequate. In the 1997 report(12) the Commission stated that it had been running "a targeted investigation into all ... projects" financed by the EAGGF Guidance Section and had found "systematic forgery, with overbilling or bogus invoicing ...". It concluded that "shortcomings in the procedures followed in Commission departments had also made it easier to carry out the frauds". The Committee considers that this statement is emblematic and applies to many other fields. Therefore, what is needed is a careful review of procedures and checks in all sectors where Community funds are distributed for whatever purpose.

4.5. Value added tax (VAT)

4.5.1. VAT is undoubtedly the most commonly evaded tax at all levels, ranging from individual operators (small-scale evasion) and firms, whatever their size, right up to systematic and sophisticated fraud by organised crime networks. The considerable role of the shadow economy - which by its very nature avoids all taxation - must also be borne in mind. Not only does this damage Community finances but there is double damage to the Member States, in terms of both lost VAT revenue and the accompanying, almost systematic evasion of direct taxes. Assessing the scale of evasion is virtually impossible, but its knock-on effect cannot be ignored: all the statistics on national production, intra-Community trade and Europe's international business must be regarded as distorted because of the lack of reliable data on the true scale of the problems found. VAT fraud is therefore by far the most significant type of fraud in terms of scale and value, and the most damaging to the internal market.

4.5.2. In addition to the damage caused by fraud in terms of lost revenue, there is the cost of checks and enforcement, on which all Member States spend huge amounts; the results are hard to assess in the absence of data on the scale of evasion as a whole. However, some statistics are quite telling. According to a Commission report(13), around 24 million traders in the EU are subject to VAT and around 100 million declarations are submitted each year. In other words, each trader submits an average of about four declarations per year (presumably these are periodic declarations covering a number of transactions, rather than one declaration per transaction). It is estimated that there are around 30000 VAT auditors in the Community. According to the report, it would take 40 years to check the declarations of all traders. At present, information is collected and kept but is not checked for want of resources.

4.5.3. The Committee is drawing up a separate opinion on the case of intra-Community trade. Here it may be noted that the abolition of border checks has increased the scale of evasion, which was already considerable when the checks were still in place; another factor is the constant increase in road, rail and sea traffic. In addition to measures on the ground, the Commission and the Member States have considerably improved administrative and statistical checks by introducing sophisticated computer systems and computer link-ups between the various national data collection networks. Comments on the systems for administrative control and information exchange - which in general relate to all types of tax fraud - will be found in points 5.1, 5.2 and 5.3. However, despite the measures adopted, it appears that the problem of VAT evasion is far from being resolved.

4.5.4. The Commission is proposing that the transitional VAT arrangements should be converted into a permanent arrangement providing for the tax to be levied in the country of origin, and subsequently allocated between the countries of destination. The ESC commented on this plan in an earlier opinion(14). Simply from the point of view of combating fraud (and thus leaving aside other considerations), some people - although not all - feel that the system would have the merit of making checks easier as they would be conducted at source, but would not eliminate fraud relating to undeclared activity and the black economy.

4.5.5. VAT evasion has thus still not been successfully addressed. The measures taken hitherto have not brought a solution at all. What is probably needed is a bold and dispassionate reappraisal of the policies conducted thus far, without expecting any miracle solutions. This reappraisal could start by noting that although the removal of border checks has provided the public with visible proof of a single market, it has also deprived the Members States of a powerful check and deterrent.

4.5.6. Checks in the field should therefore be stepped up. Today such checks are only sporadic, partly because of staff cuts in customs services and also - probably - out of concern not to impede or slow the movement of goods and traffic in general. Some past strategies should therefore be brought back, adapting them to today's needs: creation of special areas for carrying out roadside checks on lorries, speedy procedures for checking rail and air shipments, and above all the use of adequate means - in terms of both human and technological resources - to carry out frequent checks on goods being transported or warehoused. Although the traditional checking methods are obviously difficult to implement, innovations such as the "telepasses" used at Italian motorway toll-booths could usefully be explored in the case of freight transport.

4.5.7. The cost of checks, which would be borne by the Member States, should not be an obstacle in the fight against fraud. An investigation is needed into why the physical risks to officials conducting checks in tax evasion cases are so high, and into possible ways of combating violence at various levels. Member States should devote more efforts and resources to the safety of these officials.

4.5.8. Finally, the Committee wishes to comment on a matter which, strictly speaking, falls outside the scope of the present opinion. It is no coincidence that VAT is the most commonly evaded tax. Alongside the need to revise the tax system, it may also be necessary to rethink taxation mechanisms. The Committee neither wishes nor is able to propose solutions, but those adopted so far have certainly proved unacceptably weak.

5. Computerised checking and enforcement systems

5.1. There are various computerised systems for providing and/or communicating data:

- CIS - Customs Information System: used for customs and agricultural data, it can be accessed by the relevant departments of the Member States, "while safeguarding data confidentiality and protecting personal information";

- SCENT/CIS - an electronic bulletin board with terminals located at customs investigation departments, ports and airports; it is an information exchange system rather than a data collection system; the information, which is purely administrative, is kept in the CIS only for as long as it is being used for operational purposes;

- SCENT/fiscal - as above, but for VAT and excise operations;

- NCTS - New Computerised Transit System: for transit operations (currently being set up);

- EWS - Early Warning System: for the exchange of early warnings on traffic in transit.

5.2. These systems have something in common: they are not available to all the bodies responsible for investigations and enforcement, and they are concerned - in the ESC's view to an excessive and counterproductive degree - to protect the confidentiality of personal data. While this makes sense in the case of honest citizens and as regards access by third parties, the same cannot be said for cases where the authorities are combating crime and are in any case bound to maintain confidentiality. One has the feeling that the data protection issue is cited too readily and without proper thought.

5.3. Each of the existing systems is undoubtedly useful in the sector for which it was designed, but the ESC feels that what is lacking is an overall view of the problem. It is true that there is a need to combat fraud against Community (and national) budgets, and that appropriate computerised systems for prevention and enforcement are therefore necessary. However, the root of the problem lies in identifying and prosecuting the perpetrators of fraud and other criminal activities, whatever field they may be operating in. In other words, the most dangerous and significant type of fraud is that committed by criminal organisations, which are often active in all sectors and not only the tax sector; the main aim of enforcement measures is therefore to catch the offenders and not simply to punish individual acts. This does not mean turning a blind eye to fraud perpetrated by individuals, however big or small; indeed, linking systems together and making them accessible to all authorised bodies increases the likelihood of success. The fact that a fraud is perpetrated by a person acting alone makes it impossible for them to use the cover provided by an organisation.

6. Cooperation between Community and national authorities

6.1. Cooperation between Community and national authorities in the same sector is thus necessary but not enough on its own; there needs to be close, unreserved cooperation with law enforcement and investigative bodies at Community (and where possible international) level. The principle is certainly not a new one: it is repeatedly mentioned in the Commission reports, and political guideline No. 12 in the basic document, the Council's action plan referred to in point 2.3, stresses "the need for developing closer cooperation at the national level between fiscal and law enforcement authorities", while in No. 10 it is stated that "Europol should be given operative powers" and should, "as soon as possible, ... be instrumental in the collation and exchange of information" [between the Member States and the Commission].

6.2. The principle of the need for unified (or coordinated) action between the tax and customs authorities and the police, both at national and at European level, is one of the Council's political guidelines which was recently confirmed by the Justice and Home Affairs Council of 4 October 1999. However, this principle does not yet seem to have been adequately followed up in some Member States, who seem not to appreciate the urgent need to move from words to deeds. Recommendation No. 2 in the abovementioned 1997 Action Plan stated that: "The Member States, and the Commission, should, where it does not already exist, set up or identify a mechanism for the collection and analysis of data which is so construed that it can provide a picture of the organised crime situation in the Member State and which can assist law enforcement authorities in fighting organised crime." The plan was that this joint action by the Member States, the Council, Europol and the Commission should have been taken by mid 1998. The October 1999 Council included it among the objectives still to be achieved.

6.3. Furthermore, the Council action plan mentions the need for a "picture" of the situation, but forgets to mention Uclaf (which existed when the document was drafted and has since been succeeded by OLAF) as one of the bodies involved in the fight against crime. It is also significant that the document setting up OLAF does not specifically mention relations or cooperation with Europol and other bodies that fight money laundering. This would suggest the continuation, in some circles, of the long established tendency among police forces to draw a distinction between "ordinary" and "money-related" crime (including tax evasion in the broad sense), with each being considered to be the preserve of a separate state body.

7. Conclusions

7.1. There is no need to emphasise yet again the harmful effect of fraud on the internal market: distortion of competition, unreliable data, presence on the market of unscrupulous operators devoid of commercial ethics. Eliminating fraud - or, to be realistic, containing it within reasonable bounds - is a task which the Commission seems to be pursuing with conviction but by means of measures which often give the impression of not being targeted at what is ultimately the main aim, i.e. getting to the root of the problem and combating organised crime, without forgetting fraud perpetrated by individuals. Above all, the Commission should act more firmly and decisively to defend its interests - which are ultimately those of the EU public - against all other parties, including even the Member States if necessary. In practical terms, the fight against fraud must strike a balance between the needs of an obstacle-free single market and the need to protect the financial interests of the Union.

7.2. The ESC believes, however, that the main responsibility lies with the Member States, who must coordinate their domestic policies for fighting crime as a precondition for close and effective cooperation at EU level. The main difficulties regarding pursuit of an overall policy seem to lie within the Council. The Ecofin Council continues to handle the fight against fraud (whether or not perpetrated by organised crime), while the Justice and Home Affairs Council is responsible for preventing and monitoring organised crime, as if these two remits were not two sides of the same coin. For its part, the European Council is concerned mainly with the fight against crime; but while continuing to stress the need for cooperation between Member States and with the Member States, it has omitted to set up a mechanism for cooperation between the bodies which it itself has set up.

7.3. In examining the situation, the ESC has not looked at the problem of piracy and counterfeiting, which has already been dealt with in another opinion(15), or that of money laundering, as this is a broader issue which was also dealt with in a recent opinion(16). Here the Committee would merely point out that the proceeds from all sorts of crime often end up being laundered, so that catching the money launderers can help to track down criminal organisations of all types, including those which take funds from the Community budget. Hence the need to establish systematic links between OLAF and the bodies investigating money laundering.

7.4. Attention should also be drawn to a further significant aspect which is not discussed here as it has already been considered in another ESC opinion(17). Combating fraud can do much to reduce undeclared work, which is not only damaging to national and Community finances but also distorts competition within the single market and - paradoxically - causes unemployment.

7.5. In issuing an opinion that focuses on the fight against fraud committed by organised crime, the Committee does not mean to overlook the importance of fraud perpetrated by individuals and by companies, which must be tackled with equal determination. The Committee would however point out firstly, that large-scale, long-term action is needed to rekindle the public's sense of civic duty; and secondly, that the specific measures to be adopted must be commensurate with the costs and problems which they would inflict on honest businesses. The single market must not become a "police state"; it needs simple and sensible rules, efficient but not oppressive checks, and renewed confidence in the institutions.

7.6. The Committee therefore recommends political action within the following domains:

- charging outstanding sums to the negligent Member States; (2.5)

- making public which countries are not meeting their obligations and what sums are outstanding; (2.7)

- providing Europol with operative powers and the necessary support and resources; (2.10)

- taking practical steps to eliminate forthwith the delays, obstacles and acts of national self-interest; (2.13)

- negotiating a structured link between on the one hand OLAF and on the other hand Interpol and with other investigative bodies worldwide; (2.14)

- establishing a European penal area; (3.1)

- stepping up the Commission's role as "upholder of the rules"; (3.3)

- looking at the position with regard to organised crime in each of the applicant countries and at the effectiveness of its crime-fighting arrangements; (3.4)

- establishing judicial and investigative cooperation, using the concept of "federal crime" applied in the United States as a model. (3.5)

The Committee also recommends concrete action concerning fraud in areas such as excise duties on tobacco and alcohol, agricultural products, preferential tariff agreements, the CAP, VAT, as well as the role of computerised checking and enforcement systems.

Brussels, 13 July 2000.

The President

of the Economic and Social Committee

Beatrice Rangoni Machiavelli

(1) COM(1998) 276 of 6.5.1998, "Protection of the financial interests of the Communities - Fight against fraud - Annual report 1997", Introduction. The concept is also mentioned several times in the 1998 Annual Report (COM(1999) 590 final of 17.12.1999).

(2) See COM(1998) 717 - 98/0329(CNS), 1.12.1998, Explanatory Memorandum, point 5.

(3) See 1998 report, point 1.1.

(4) See 1998 report, point 1.2.

(5) See 1998 report, point 1.5.1.

(6) See 1998 report, point 1.5.1.

(7) Action plan to combat organised crime, OJ C 251, 15.8.1997.

(8) Ibid. Part II, political guideline No. 12.

(9) COM(1998) 276 of 6.5.1998, "Protection of the financial interests of the Communities - Fight against fraud - Annual report 1997", point 2.1, p. 14.

(10) Special report No. 8/98 on the Commission's services specifically involved in the fight against fraud, OJ C 230, 22.7.1998.

(11) Commission document, point 2.2.1.

(12) COM(1998) 276 of 6.5.1998, "Protection of the financial interests of the Communities - Fight against fraud - Annual report 1997", point 2.2.3.2, p. 30.

(13) Report from the Commission to the Council and the European Parliament: Third Article 14 Report on the Application of Council Regulation (EEC) No. 218/92 of 27.1.1992 on Administrative Cooperation in the Field of Indirect Taxation (VAT) - COM(2000) 28 final of 28.1.2000, point 5.5.

(14) OJ C 296, 29.9.1997.

(15) OJ C 116, 28.4.1999.

(16) OJ C 75, 15.3.2000.

(17) Opinion of the Commission communication on undeclared work, CES 63/99, OJ C 101, 12.4.1999.