COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 06.09.1995 
COM(95) 398 final 
REPORT FROM THE COMMISSION 
ON THE RECOVERY OF TRADITIONAL OWN RESOURCES 
IN CASES OF FRAUD AND IRREGULARITIES 
(METHODOLOGY AND SAMPLE A 94) 

CONTENTS 
I. METHODOLOGY AND MONITORING OF RECOVERY IN CASES OF 
FRAUD AND IRREGULARITIES 
1. Information sent by Member States concerning cases of fraud and 
irregularities 
2. Selective monitoring of recovery - principles 
3. Monitoring methodology 
n. SAMPLE A/94 (CASES EXCEEDING ECU 500 000) 
1. Quantitative aspects 
2. Qualitative aspects 
3. Major cases 
4. Recovery situation 
m. CONCLUSIONS AND SUGGESTED ACTION 
1. General observation 
2. Obstacles to recovery 
3. Application of Regulation No 1552/89 - improvements required 
4. Monitoring of sample through to final clearance 
REPORT 
ON THE RECOVERY OF OWN RESOURCES 
IN CASES OF FRAUD AND IRREGULARITIES 
(METHODOLOGY AND SAMPLE A 94) 
METHODOLOGY AND MONITORING OF RECOVERY IN CASES OF 
FRAUD AND IRREGULARITIES 
1. Information sent by Member States concerning cases of fraud and 
irregularities 
(a) Article 6(3) of Regulation No 1552/89 stipulates that each Member State 
should send the Commission a brief description of all cases of fraud and 
irregularities involving entitlements of over ECU 10 000. 
In their fraud statements, Member States provide information on the type 
of goods, the amount involved, and the origin (declared, established or 
presumed). 
DG XIX then incorporates these statements into the "Resources" section 
of the IRENE 3 base.1 
As with all cases of fraud and irregularities affecting traditional own 
resources that are detected by the national authorities, these cases are 
entered in the accounts and recovery procedures are set in motion in 
accordance with national rules implementing the Community customs 
regulations. The process is suspended, however, if an appeal has been 
lodged with the appropriate legal authorities (see Annexes 1.1 and 1.2). 
(b) Regulation No 1552/89 does not make any provision for these statements 
being updated although this would undoubtedly help in monitoring the 
recovery of the resources. Up till now, only two Member States (Belgium 
and Portugal) have regularly kept the Commission fully informed, although 
Spain has joined them since the second half of 1993. 
Thus it is not always possible to tell from the statements whether a case 
has been settled or what progress has been made in recovering sums 
•owing. 
When Regulation No 1552/89 was being revised, the Commission 
presented its proposals for remedying the current unsatisfactory situation. 
Pending the entry into force of these new provisions, the Commission, 
conscious of its responsibilities vis-à-vis the budgetary authority, decided 
to conduct a survey into the recovery situation in Member States. 
1 IRENE 3 is run by UCLAF. It also contains cases reported in other sectors (EAGGF, Structural 
Funds and Mutual Assistance). 
2. Selective monitoring of recovery - principles 
(a) The monitoring procedure is based on two main principles: 
- making full use of all the statements sent in by Member States and 
held by the Commission's departments; 
- targeting cases using risk analysis. 
With regard to the first principle, the Commission's departments drew on 
all the information obtained under both Regulation No 1552/89 and other 
regulatory instruments, including the mutual assistance provisions. 
Because of the large number of cases (nearly 5 000 as at 31 May 1995 
under Regulation No 1552/89, and nearly 300 notifications under 
Regulation No 1468/81 on mutual assistance), the Commission had to 
resort to sampling techniques based on risk analysis. 
(b) Statistical analysis of the cases reported by Member States under 
Regulation No 1552/89 showed that cases where the amount was greater 
than ECU 500 000 - about 100 cases covering the period from 
1 January 1989 to 30 June 1993 - accounted for about 70% of the total 
amount evaded. The first sample (A/94) therefore covers cases where the 
amounts involved exceed this figure. 
A second sample (B/94) was taken from cases up until the first half of 
1993 of which the Commission had been informed under the mutual 
assistance arrangements. The cases selected were those in which the 
amount of the entitlements involved exceeded ECU 1 million, which had 
been investigated by the Commission's departments, which would soon be 
time-barred, or which had attracted the attention of the budgetary authority 
or the Court of Auditors. Six cases were selected, involving a total of 
approximately ECU 100 million. A report on the progress made on 
monitoring this sample is currently in preparation and will be available 
some time during the second half of 1995. 
A limited number of cases notified under Regulation No 1552/89 and 
involving smaller amounts (less than ECU 500 000) will make up sample 
C/95 which will be selected later this year. In addition, a further sample 
(D/95) will also be prepared this year, covering cases involving small 
amounts notified to the Commission outside Regulation No 1552/89 and 
selected using risk analysis techniques. 
A, B, C and D samples will be prepared on a regular basis (initially, each 
year). Cases appearing in the previous sample and subsequently cleared 
will be replaced by others; the remainder will stay in the sample until they 
are cleared - in other words, they will be rolling samples allowing 
continuous monitoring. 
A debt is cleared if: 
- it is recovered, or 
- it is cancelled, or 
- it is written off. 
3. Monitoring methodology 
The method employed by DG XIX was to ask questions using a pre-prepared 
grid which would allow the information already received to be updated. The 
Commission followed up each statement received by sending the Member 
State concerned a request for additional information (as to whether the amount 
had been entered in the B accounts, whether it had been recovered, whether 
the amount of the debt had been adjusted or whether it had been written off). 
DGXIX uses the information it receives to update the IRENE database. 
Closed cases can now be identified and the financial outcome known. If, after 
analysing the replies, the Commission suspects that the Member State is not 
applying the regulation correctly, it can ask for an explanation or carry out 
some more specific checks. If a problem should emerge, the Commission can 
then ask the Member State to take the necessary action and, where 
appropriate, make good any amounts due. 
DG XIX combines the results of its own enquiries with the information it 
receives from Member States to produce a report on the monitoring of 
recovery which is then sent to Member States and the budgetary authority. 
The first of these reports, which deals with the A/94 sample, now follows. 
H. SAMPLE A/94 (CASES EXCEEDING ECU 500 000) 
1. Quantitative aspects 
The questions concerned cases of fraud and irregularities exceeding 
ECU 500 000 and stored in the IRENE 3 base as at 31 March 1994. The total 
amount involved was ECU 301.2 million (104 fraud statements sent to the 
Commission between the first half of 1989 and the first half of 1993). 
The replies revealed that 5 cases had either been notified twice or been 
wrongly notified by the Member States concerned, and that the number of 
cases exceeding ECU 500 000 was actually 99, involving a total of 
ECU 276 million. The breakdown between the nine Member States is as 
follows: 
Number 
1 Estimate 
d amount B 
8 
13.8 D 
20 
125.2 DK 
2 
1.8 E 
2 
1.4 F 
17 
22.5 IRL 
4 
5.7 I 
8 
59 NL 
3 
5.2 UK 
35 
41.3 Total 
99 
276 
Analysis of the size distribution of the sample shows that: 
- with respect to the number of cases: 
- 45% of the cases notified by Member States involved amounts of 
between ECU 500 000 and ECU 1 million; 
5 
- 35% involved amounts of between ECU 1 and 2 million; 
- 20% involved amounts exceeding ECU 2 million. 
- with respect to thtwo categories of cases accounted for only 27% 
of the overall total (ECU 276 million); 
- eight cases, each of which amounted to more than ECU 5 million, 
accounted for 58% of the total (ECU 160 million). 
The age distribution of all the cases notified is as follows: 
1 
| Number of cases 
1 Estimated amount 
1 (Percentage of total 1989 
15 
50.7 
18% 1990 
18 
34.0 
13% 1991 
24 
87.8 
30% 1992 
26 
52 
19% 1993 
16 
52 
19% Total 1 
99 
276 
100%) 
. The breakdown by year is fairly constant in terms of the amount and the 
number of cases, though the high 1991 amount was down to two cases notified 
by the German authorities involving the giving of false declarations of origin 
for large quantities of ethyl alcohol. 
2. Qualitative aspects 
About a third of the statements contained insufficient details, particularly as 
regards origin and the type of product involved. That said, the sample does 
provide several pointers: 
(a) Type of product 
The products that cropped up in the sample were mainly agricultural 
or processed agricultural products (ethyl alcohol, sheep and cattle, 
meat, dairy products, fish, oils, rice, food preparations, and 
cigarettes). This confirms that large-scale fraud involving substantial 
amounts tends to revolve around agricultural products, while there is 
a much wider spread of frauds or irregularities involving industrial 
products. The IRENE 3 base shows that, in the category of cases 
involving amounts lower than ECU 500 000, industrial products come 
out ahead. The C/95 sample will therefore take this into account. 
(b) Customs procedure 
The frauds or irregularities in the cases included in the sample 
involved either the transit procedure ("leaks" from transit) or the 
release for free circulation procedure (false declarations concerning 
type of goods or origin). In the case of cigarettes, the goods were 
usually simply not presented to customs (contraband). 
As for industrial products, the frauds or irregularities mainly 
concerned false declarations of origin at the time of release for home 
use (mainly textile products or hi-fi or TV equipment). 
(c) Origin 
For agricultural products, the actual origin was very often Eastern 
Europe, whilst for industrial products it tended to be South-East Asia. 
3. Major cases 
As mentioned above, there were eight cases amounting individually to more 
than ECU 5 million. 
One case notified by Belgium related to the first half of 1993 and concerned 
milk powder removed from transit (ECU 7.4 million). 
Four cases notified by Germany in 1990, 1991 and 1992 involved beef and veal 
imports (ECU 37.6 million) and alcohol imports (ECU 84.5 million). 
Italy notified three cases involving contraband cigarettes, olive oil imported 
from a non-member country but declared as being from Greece, and a food 
preparation imported without payment of the variable component 
(ECU 52 million). According to the Italian authorities, these cases are now' 
before the Italian courts. 
4. Recovery situation 
Member States' replies show the recovery situation to be as follows (see also 
Annex 2): 
(a) Situation at the time of notification 
The fraud statements are prepared at the beginning of the six-month 
period following that in which the fraud was discovered and show 
what progress has been made in recovering the amounts due at that 
time. Since we were dealing with the 99 largest cases of fraud, it was 
not to be expected that the entitlements would be recovered quickly. 
This proved to be the case, since only ECU 1 million had been 
recovered by the time the statements were prepared: 
- Denmark: ECU 780 000- recovery by offsetting against a VAT 
refund due; 
- Germany: ECU 150 000 - payment in instalments. 
Most cases had not progressed beyond the administrative 
investigation or administrative proceedings stage. Very few had 
actually reached the courts. 
(b) Cancellations 
According to the replies received from Member States, ten cases had 
been cancelled, whilst in another five the amount had been corrected. 
Partial or total cancellations (KCU 21 million or 7.2% of the amounts 
originally notified) cover situations where the alleged infringement 
was not pursued by the administration or by the courts, or cases of 
seizure involving the destruction of the goods and the subsequent 
correction or cancellation of the customs debt. 
As a result, the actual number of cases of fraud and irregularities 
contained in the sample is 89, amounting to ECU 255.5 million. 
(c) Recoveries 
Of these 89 cases, 22 had been recovered in full. In addition, there 
had been partial recovery in another 16 cases. Total recoveries 
amounted to ECU 22.5 million (or 8.2% of the initial estimate and 
8.8% of the corrected amounts). 
Only in two of the eight cases exceeding ECU 5 million have any of 
the amounts owed begun to be recovered (Germany). 
A comparison by Member State reveals a considerable degree of 
variation. Some Member States (Denmark: 100%, Spain: 100%, 
France: 31.4%) have acceptable recovery levels although, in the cases 
of Denmark and Spain, very few cases were reported (two each). 
Other Member States have been less successful in recovering amounts 
due, as can be seen from the following table (out of a sample total of 
ECU 255.5 million): 
1 
| Recoveries 
(ECU 
I million) 
I % of national 
total 
% of sample 
total F 
7.1 
31.40 
31.30 D 
5.7 
4.50 
25.00 UK 
4.6 
11.50 
21.00 DK 
1.8 
100.0 
8.20 B 
1.4 
10.1 
6.20 NL 
1.1 
20.40 
4.70 E 
0.8 
100 
3.50 IRL I TOTAL 
22.5 
" 
100% 
(d) Irrecoverables 
Established entitlements that cannot be collected must be justified 
under Article 17(2) of Regulation No 1552/89 if the Member State 
wishes to be released from the obligation to make the amount 
available. This, however, was not the case for an amount claimed by 
the Netherlands to be irrecoverable. 
In addition, the German authorities failed to justify the four total or 
partial cancellations which could in fact turn out to be amounts to be 
written off. 
The Commission's departments will look into these cases. 
(e) Recovery pending: recording in the separate accounts 
Of the ECU 232.5 million still awaiting recovery, ECU 188.3 million 
has been recorded in the B account by the national authorities. 
The balance is as follows. The cases covered by the 
United Kingdom's fraud statements- some amounts having been 
totally or partially recovered- have neither been established nor 
recorded in the B account. At the request of the Commission, the UK 
authorities are currently looking into the current status of the cases 
notified. 
The case notified by Belgium, which concerns milk powder removed 
from transit, has not been entered in the B account pending the 
outcome of enquiries in Spain and France. 
It should be noted that the Danish authorities make the amounts 
established available directly, without waiting for recovery, and that 
the Dutch authorities do the same for amounts established by the 
customs administration. Those established by the agricultural boards 
(Produktschappen) are entered in the B account if any difficulty is 
encountered in recovering them. 
All other cases are entered in the B account. In addition, Belgium, 
Germany, Spain and Italy (in just one case) gave the dates when the 
amounts were entered in the B account. France, on the other hand, 
provided the dates of recovery rather than the dates of entry in the 
B account. 
The replies from Member States concerning entry in the B account 
can therefore be judged to be satisfactory overall. However, it was 
not always possible to determine whether the case was still at the 
administrative stage or whether legal proceedings had been initiated 
for the recovery of the sums owing. 
The amounts entered in the B accounts pending recovery are broken 
down in the following table. Amounts not entered are marked with an 
asterisk. 
Notified in 
1989 
1990 
1991 
1992 
1993 
Total F 
0.1 
3.9 
1.1 
4.1 
2.3 
11.5 D 
32.5 
7.0 
66.3 
7.7 
4.0 
117.5 UK 
9.8* 
4.6* 
8.5* 
8.8* 
5.1* 
36.8 DK 
-
-
-
-
• B 
1.6 
0.6 
-
5.8 
7.4* 
15.4 NL 
1.6 
• -
-
-
-
1.6 E 
-
-
-
-
-
-ERL 
-
-
-
-
0.7 
0.7 I 
0.3 
2.0 
15.2 
31.6 
49.1 Total 
45.6 
16.4 
77.9 
41.6 
51.1 
232.6 
It can be seen from the table that some quite large amounts have been 
outstanding for a number of years. 
m. CONCLUSIONS AND SUGGESTED ACTION 
The conclusions reached by the Commission after monitoring the recovery situation 
are as follows: 
1. General observation: \ov( recovery rate 
It may be that the period covered - the first five years of the Regulation's 
application - was not long enough for cases to be concluded, especially those 
which went to court. It is still too early to say how long on average it takes to 
clear each case, although those where the amount exceeds ECU 500 000 are 
likely to be more difficult to resolve. The recovery rates vary from one 
Member State to another. The Commission intends, with the help of national 
authorities, to look into the reasons for this situation and will if necessary 
propose measures to improve the efficiency of recovery within the framework 
of ACOR's subgroup on recovery. 
The study carried out by DG XIX and XX on national procedures for 
recovering traditional own resources should help to clarify the situation. 
2. Obstacles to recovery 
In some circumstances, recovery may be hindered by specific aspects of the 
regulatory framework at national or Community level. In particular: 
(a) Shortcomings in the rules concerning guarantees 
Even if the rules are correctly applied, it may be that the risk of 
non-recovery is not completely covered by the guarantee. This is the 
case, for example, with: 
- the optional guarantee, when applied to customs procedures 
considered to be high-risk because of the nature of the product or 
the operators involved; 
- the comprehensive guarantee (e.g. reference period too short, 
simultaneous presentation in different offices in the European 
Union). 
(b) Slowness of inquiry procedures in the event of non-discharge of 
transit documents 
If there is no notification of the guarantor, securities are released after 
twelve months although, according to Community rules, fourteen 
months must elapse before the recovery procedure can be initiated in 
the case of non-discharge of transit formalities. 
10 
Recovery would be helped if there were stricter provisions on 
notification of the guarantor and if the inquiry procedure was 
shortened. 
(c) Application of the rules in respect of lapse of time 
The current provisions conspire to make recovery more difficult. For 
example, the normal time limit of three years from when the customs 
debt arises allowed by the Customs Code for the debt to be notified to 
the taxpayer may, in some more complicated cases, be too short. 
Furthermore, Member States do not interpret this deadline in the same 
way (interruption/suspension). 
All national authorities should interpret these provisions of the Code 
in like manner. 
To remedy the situation, a series of regulatory proposals are in the 
pipeline and figure in the annual programme on the fight against fraud. 
Application of Regulation No 1552/89 - improvements required 
Without prejudice to the proposals for improving Regulation No 1552/89 now 
being discussed in the Council, the application of the Regulation as it stands 
now could be improved: 
- by matching intelligence data on fraud with accounting data on recovery - a 
task which poses practical problems in Member States and thus explains 
some of the delays in monitoring cases. However, some authorities 
managed to link these two categories of information on an ad hoc basis, 
whilst others have succeeded in being more systematic. 
The systematic link forms part of the Commission's proposal to amend 
Regulation No 1552/89. 
The Commission is currently working with national authorities to try to 
overcome these problems 
Besides the provisions contained in Regulation No 1552/89 on what 
information should be provided in cases of fraud or irregularities, better 
prepared fraud statements would help the Commission to make optimum 
use of Member States' replies. The Commission is looking into ways of 
improving the content of the statements, including a guide and computerized 
data entry. 
- By distinguishing between cases being dealt with by the administrative 
authorities and those which are in the hands of the judicial authorities. The 
administrative authorities continue to be responsible until the judicial 
authorities have found in favour of the taxable person. 
The Commission is seeking to have this information included in the fraud 
statement. 
H 
- By notifying the writing-off of irrecoverable amounts to the Commission in 
accordance with Article 17(2) of Regulation No 1552/89. This was not 
done in some cases in the sample. 
The Commission has asked the Member States concerned to provide further 
details. 
4. Monitoring of sample through to final clearance 
- The Commission will continue to check the grounds given for: 
- writing off; 
- cancellations. 
- It will review long-standing debts. 
- Where Member States have not yet established the amounts, despite there 
being nothing to prevent them doing so, the Commission will look into the 
situation and take any measures that may be required. 
- The 67 cases (amounting to ECU 229 million) which have not yet been 
cleared, will automatically be included in the A/95 sample concerning which 
a questionnaire will be sent out in the second half of 1995. The situation 
will be kept under review until final clearance. 
12 
Choice of samples 
Sample A 
Case 
Sample D 
Sample C 2 m x 
Cases of fraud and irregularities 
Recovery situation 
Establishment 
Recovered Recovery pending 
jBefore the 
icourts Cancelled Irrecoverable 
Article 17(2) No proof of 
fraud or 
irregularity 
Summary table of the recovery situation in respect of cases exceeding 
ECU 500 000 
Member States 
B 
DK 
D 
E 
F 
IR 
IT 
NL 
UK 
TOTAL 
% 
Recovery rate> after 
deduction for cancellations No of valid 
statements 
2 
20 
2 
17 
4 
8 
3 
35 
99 Amount evaded 
(in ECU 000) 
13.787 
1.845 
125.178 
1.390 
22.492 
5.690 
59.089 
5.239 
41.318 
276.029 Amount already 
recovered 
(in FPU mm „ Amount of the 
correction/ 
cancellation 
(in ECU 000) 
1.394 
1.845 
5.678 
. 778 
7.073 
1.070 
4.659 
22.497 
8,2 
8,8% Balance to be 
recovered 
(.in ECU 000) 
2.991 
-2.047 
-611 
-3.904 
-4.955 
-9.927 
-2.548 
•21.002 
(7.6) 15.384 
117.453 
11.515 
735 
49.162 
1.621 
36.660 
232.530 
84,2 > 
2 m x 

ISSN 0254-1475 
COM(95) 398 final 
DOCUMENTS 
EN 01 06 09 
Catalogue number : CB-CO-95-425-EN-C 
ISBN 92-77-92624-4 
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