COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 29.03.1995 
COM(95) 108 final 
COMMUNICATION FROM THE COMMISSION 
FRAUD IN THE TRANSIT PROCEDURE, SOLUTIONS FORESEEN AND 
PERSPECTIVES FOR THE FUTURE 
1. INTRODUCTION 
This paper informs the Council and European Parliament of serious fraud in the transit 
procedures. Such fraud, which involves organised crime, is known to have had a financial 
impact for the Community and Member States of a minimum of 750 million ECU1, during 
the period from 1990 to date. This amount does not take into account economic damage 
to business. 
The measures proposed herein form an integral part of the Commission's Anti-Fraud 
Strategy Work Programme announced in 1994, which include specific action in the 
tightening of control procedures, and in the improvement and computerisation of transit 
procedures. 
The paper describes the measures which have already been adopted and those which are 
proposed to solve the problems in the short term. It gives an overview of a long term 
solution to computerise the transit system. 
The Council and the European Parliament are requested to support the 
Commission's initiatives in this area. 
2. BACKGROUND 
European trade has for long relied on transit systems that allow suspension of duties and 
other charges payable as well as non-fiscal measures for goods crossing more than one 
country under customs control, provided a guarantee is established to ensure the 
collection of duties and other charges payable in the event of irregularities. 
The use of transit systems in the Community has always been promoted in particular 
because it is the only way to avoid congestion at the border. These systems enable the 
more intensive customs controls, which are necessary for specific customs procedures, to 
be concentrated at the office of destination where usually most information is available 
concerning the consignment and the consignee. 
The main transit procedures used in the Community are: Community transit, common 
transit, which is an extension of Community transit to the EFTA countries under the 
Common Transit Convention of 1987, and the international transit regime by road as 
provided for in the TIR Convention of 1975. 
The transit regimes have been designed to facilitate trade and are largely based on a 
general trust in the honesty of the majority of economic operators. They are the result of a 
search for a balance between, on the one hand, the needs of honest traders in their aims 
for competitiveness by reducing operating costs and, on the other hand, the requirements 
for protection of the internal economy by an effective control of international transactions. 
'320 Mecus own resources and 430 Mecus VAT and excise 
2 
The transit system has developed over the years. It began as an internal Community 
procedure in 1969 to control movement of goods between Member States and movements 
to and from third countries. From its inception it was a trade facilitation measure as it 
superseded a succession of national transit procedures. After being initially extended to 
Switzerland and Austria, the system was extended in 1987 to all the EFTA countries by 
the 'Convention on a common transit procedure'. Already it could be considered as 
anticipating many of the advantages of the internal market. A major development affecting 
the transit system was the completion of the single market in 1993. This established the 
principle that all goods transported within the customs territory of the Community were 
deemed to be Community goods unless demonstrated otherwise. Thus all customs 
formalities and controls on such goods were eliminated and for these movements the 
transit procedure was no longer required. 
Geo-political considerations arising from liberalisation of relations with Eastern and 
Central Europe has had an important impact on the development of trade with the 
countries in this area. These countries have turned their eyes towards the facilities offered 
by the Western European countries and have been increasingly demanding to participate in 
customs systems which promote and facilitate trade. Actions are being taken to extend the 
common transit system to Poland, Hungary, the Czech Republic and Slovak Republic. It is 
expected they will join the system in mid 1996. Other Eastern European countries are 
queuing up to join the Convention. However until these countries join the Common 
Transit Convention, the international TIR Convention will remain as the only transit 
procedure for the movement of goods between the Community and these countries. 
3. BASIC OUTLINE OFÏRANSIT SYSTEM 
The Community transit procedure allows the movement, within the Community, of goods 
coming from or going to third countries under customs control with suspension of duties 
and other charges payable as well as measures resulting from Community policies. It is 
based on designating a person as a principal. His most important obligations are: 
the provision of a guarantee to ensure the collection of duties and other charges 
payable in the event of irregularities; 
the production of the goods intact at the customs office of destination within the 
prescribed time limit. 
The procedure starts with the presentation of goods and the validation of a transit 
document at the office of departure. One copy is kept at this office to control the 
regularity of the operation. The goods move through the territory of the Community 
accompanied by the document and have to be produced at the customs office of 
destination within the prescribed time limit. The customs authorities at the office of 
destination carry out the necessary controls, notes the outcome on the document and 
returns a çqpvrof such document to the office of departure. If everything is in order, the 
movement is discharged and the principal is released from his responsibilities. 
In the case of an offence or irregularity committed during a transit operation the duties 
and other charges are recovered. The guarantee covering the transit operation will not be 
released until the duties and other charges have been paid. However, the guarantor shall 
be released from his obligations upon expiry of a period of twelve months from the date of 
registration of the Tl declaration where he has not been advised by the Customs 
authorities of the Member State of departure of the non-discharge of the Tl document. 
4. PRINCIPAL ATTACKS ON THE SYSTEM 
4.1 Introduction 
It is not an exaggeration to say that the transit systems, for long a pillar of the customs 
union, are now in crisis. 
4.2 Problems at operational level 
The customs union being a single entity, its integrity is the affair of everyone. National 
administrations are responsible for the quality of administrative controls and the 
management of the system. The quality of these controls has fallen progressively over the 
last few years. This has resulted in an increasing number of complaints from economic 
operators concerning unacceptable delays in the system. These delays are typically caused 
by belated return of the return copy, leading to the accumulation of uncleared documents. 
Enquiry procedures regarding outstanding movements are not initiated at a sufficiently 
early stage, and are not pursued with sufficient priority and vigour. Legislation and 
administrative provisions are not always applied by Member States in such a way that 
good management is guaranteed. The consequence is that failure in any part of the system 
jeopardises the whole. These highlighted problems show that Member States' 
administrations have given lower priority to transit controls notably because on the one 
hand it has been considered as "someone else's problem" and on the other hand because in 
the completion of the single market Member States often had other priorities which 
resulted in a reallocation of resources to the detriment of transit. 
Economie operators are responsible for the production of the goods and documentation 
intact at the Customs office of destination within the prescribed time limits. For sensitive 
goods they have to be particularly vigilant as regard the "clients" with whom they do 
business. Because of competitiveness this vigilance is not always applied. 
The result is that these operational problems have created an ideal breeding ground for 
fraudulent activities. 
4.3 Fraud 
Since the opening up of the borders of Eastern and Central Europe to international trade 
the transit system has been targeted by major criminal networks for highly profitable 
fraudulent activities. Fraud has become a major and growing problem not only resulting in 
enormous revenue losses, but also in substantial economic damage due to the illicit 
competition from fraudulent goods and the evasion of Community policies, including 
sanitary legislation. In addition there is growing uncertainty for honest economic 
operators as they have to suffer the consequences of the impact of fraud and the effects of 
amended legislation under which, for example, the comprehensive guarantee for certain 
kinds of goods has been increased. 
Fraud has now spilled over into the TIR system. A special carnet "Tobacco/Alcohol", 
which requires a higher guarantee than for normal carnets, was introduced last year. 
However, fraud for these products has increased to such an extent that insurance 
companies no longer wish to guarantee these carnets because the risks are too high. 
Therefore, the national associations and International Road Transport Union, which issue 
the TIR carnets, are now suspending the delivery of these special carnets, which places 
even greater pressure on the other transit systems. 
4.4 Types of fraud 
The fraudulent transit operations concern mainly goods which are subject to a high 
taxation (e.g. a single container load of cigarettes attracts duties and taxes of 
approximately 1 million ECU) or a high profitability due to the level of protection of 
Community policies for e.g. CAP products (meat, milk, sugar...). 
It should be noted that law-abiding economic operators are frequently being misused by 
major criminal networks which specialise in these frauds. The fraud in the transit 
procedure is mainly manifested by: 
non-presentation of consignments at the office of destination, but which are brought 
into free circulation in the Community without payment of duties and taxes and 
without application of any non-fiscal measures which might be applicable; 
the appearance that a consignment has been presented to the office of destination by 
forging the customs endorsement on the copy which is returned to the office of 
departure by the use of stolen or forged customs stamps. 
The basic problem in this sector is that fraud is often only detected at a very late stage 
because of unacceptable delays in the system and because some of its mechanisms are no 
longer adapted to the present situation. 
However, it is necessary to draw attention to the fact that in the area of own resources, 
the amounts notified by the Member States under the provisions of Council Regulation No 
1552/89 of 29 May 1989 implementing the system of the Communities, own resources2 
corresponding to cases of fraud or irregularity remain at a very low level - about a third of 
the amount of known fraud. On the basis of these notifications, the amounts recovered are 
for that matter very low even if for some of them recovery is dependent on delays due to 
legal action. On this basis, according to the information supplied to the Commission, of 
more than 1000 cases notified under Regulation 1552/89 only 22 have been pursued by 
action in the courts. 
4.5 Conclusion 
Given the enlargement of the Community and the further extension of the common transit 
arrangements to more countries, the pressures indicated above can only increase. 
Moreover, despite the best efforts of the specialised investigation services of the Member 
States it has proved impossible to compensate for the weaknesses referred to above.. The 
challenge for the European Union is how to reassert authority over the system, guarantee 
high quality customs controls and preserve the proper functioning of the internal market 
without losing the benefits of trade facilitation. 
5. MEASURES TAKEN 
During 1994 various measures have been taken in both the legislative and operational 
areas. They include : 
revised methods of handling the list of fraud-sensitive products in order to provide 
more flexibility in taking immediate action where necessary; 
provisions increasing the level of the comprehensive guarantee to cover the full 
amount of duties and other charges payable for a number of sensitive goods; 
the adjustment of the transport period in the light of the distance to be covered for 
the dispatch of the goods; 
increase in the actions co-ordinated by the Commission to deal with fraud cases (a 
strengthening of the co-operation between investigation services and an increased 
number of inquiry missions in third countries); 
the application of an early warning system for the exchange of information between 
the office of departure and the office of destination concerning consignments with 
sensitive goods; 
2320 Mecus (own resources) 
in the TIR area, the introduction at international level of a special carnet 
"Tobacco/Alcohol" covered by a higher guarantee than for the normal carnets; 
strengthening of the contacts with the IRU (International Road Transport Union) to 
improve the management of the TIR regime and of the system of guarantees. 
6. SOLUTIONS FORESEEN AND PERSPECTIVES FOR THE FUTURE 
6.1 Introduction 
Currently the system is operating with about 18 million transit declarations annually and 
on average about 1 million enquiries outstanding at any time of the year. The saturation 
point has been reached or is fast approaching in most customs services. Therefore, it is not 
credible to believe that a system, currently covering 18 countries and probably soon to be 
22 or more, can continue to work by purely paper-based methods. However, over the 
years new technology and woridng methods have been developed. Hie Commission has 
for a long time been convinced that computerisation is the only solution. The main 
obstacle to previous attempts has been the resistance of certain Member States partly 
because of their budgetary reasons and partly because of other national priorities. 
6.2 Long term solution 
6.2.1 Transit Computerisation Project 
The Commission services took the initiative to computerise the transit system and as a 
result of talks between the EU and EFT A countries a feasibility study was agreed in 
September 1993. As a result of this study it was agreed on 8 December 1994 to proceed 
with the project. 
The aim of computerising transit is to make the transit procedure more effective and 
efficient, to provide the means for effective detection and prevention of fraud, and to 
enhance the facilities available to economic operators who use the transit procedure. 
The proposed computerisation entails the data capture of consignment details at 
departure, ideally by direct links with economic operators, transmission of those details , 
over an international network and linked to the national computers systems at each end, to 
an office of destination in another country. The controls would be carried out on the basis 
of the electronic message, and the results of controls would be returned by the same route 
to the office of departure, thereby eliminating the need to return a paper copy of the 
transit document. The use of messages to communicate between offices would ensure 
integrity of departure information and of the outcome of the checks at the office of 
destination, thus solving the problem of alteration of information and of the use of forged 
stamps. The system would provide enquiry procedures for consignments which had not 
been discharged within the time allowed for their movement. In a computerised 
environment the customs authorities could detect cases of fraud at a very early stage and 
would therefore be able to take appropriate counter measures. Additionally, the 
computerised system will be used for a better management of the system of guarantees. 
The establishment of databases of transit movements would allow risk analysis techniques 
to be applied to particular consignments. 
Because of the complexity of such a system, implementation is not expected to be 
finalised before early 1998. 
Moreover, it should be clear that, besides computerisation, an increase of the number of 
physical controls at offices of destination will be necessary in order to prevent fraud by 
means of substitution of goods en route. 
6.2.2 Cost/benefit analysis 
A preliminary cost/benefit analysis indicates an operational net cost over the 5 years 
beginning in 1995 of about 8 million ECU. Over 7 years this becomes a net operational 
benefit of about 17.5 million ECU. 
In order to implement a computerised transit system, investment will be required. The 
national investments costs (excluding running costs) amount to 13 million ECU over 5 
years. An additional 9.5 million ECU is required at Community level to fund the central 
investment. 
However, these amounts should be viewed in the light of the likely impact of 
computerisation on fraud. An estimate based on a conservative assumption, shows some 
1,200 million ECU benefits over 5 years. Considerable additional but unquantifiable 
benefits could be expected to accrue from increased protection for those trading sectors 
which are currently undermined by fraudulent operations and from the strategic 
advantages which an international customs network would bring. 
6.3 Short term solutions 
6.3.1 Introduction 
The Commission's aim is to provide a complete solution for the imperfections of the 
transit system by implementing the computerisation project. However, the earliest date for 
full application of the system is 1998. Until then all parties are, of necessity, to retain the 
paper-based transit system. However, the shortcomings in the present system are 
unacceptable for the intervening three year period and it is necessary to introduce short 
term improvements in order to improve the controls, while maintaining as far as possible 
an appropriate level of trade facilitation. 
6.3.2 Measures proposed 
>. 
i 
Substantive measures proposed fall into two prime categories and include: 
Improvement and strengthening of the transit legislation: 
The introduction of the necessary flexibility to forbid throughout the Union the use 
of the comprehensive guarantee for those sensitive goods which present high risks 
of fraud; 
the introduction of an expedited procedure for returning and discharging transit 
documents concerning sensitive products, possibly including special identification of 
these documents; 
prohibiting a change of office of destination for sensitive goods (or at least allowing 
a change only on fulfilment of conditions which would enable the transport 
operation to be monitored;) 
the drawing-up of binding itineraries; 
the reduction of the time-limits and stages provided for under the inquiry procedure. 
The prevention and detection of fraud: 
the strengthening of the special Task Group set up by the Commission's Anti-Fraud 
Unit UCLAF charged, in co-operation with Member States, with taking all 
appropriate measures in the operational frameworks necessary to combat fraud in 
this sector; 
fuller involvement of economic operators in action to defeat fraud, (including clear 
legal provisions to create a shared financial responsibility for transporters); 
strengthening administrative and operational co-operation with countries 
neighbouring the European Union. 
6.3.3 Other considerations 
It should be clear that before extending the common transit procedure to applicant third 
countries it is essential these countries have a properly functioning administrative structure 
in place, to ensure that the system will not be undermined by criminal activities. This is a 
vital necessity for the Community as well as for the new partner countries whose 
economies could be substantially damaged by fraud in the transit procedures. 
Also within the TIR regime there has been significant increase in fraudulent activities. 
Most of the cases concern tobacco and alcohol. For this reason a separate carnet has been 
introduced for which a higher guarantee than normal is required (Carnet TIR 
Tobacco/Alcohol"). However, for these kinds of goods it has proved still to be 
inadequate. It is now proposed to increase the guarantee to a level equal to the full 
amount of the duties and other charges payable. Additionally, for this carnet it is proposed 
to introduce an accelerated inquiry procedure, a procedure for an accelerated return of the 
return copy and the introduction of a system for the exchange of information concerning 
fraud. 
7. CONCLUSIONS 
The measures discussed herein are wholly in line with the Commission's Anti-Fraud 
Strategy and fully reflect the importance placed on this initiative by the Commission and 
the concerns expressed by the Parliament and the Council. 
Transit offers many advantages to a Community as economically complex as ours. We are 
unlikely to be able to offer operators the full benefits of an integrated internal market 
without such a regime. It is essential for the operation of the internal market and the EEA 
arrangements. It is also a vital vector for the integration of the countries of Eastern and 
Central Europe into EU and EEA trade flows. The economic advantages to European 
trading interests are undeniable. 
There is no viable alternative to transit. To insist on the payment of duties and taxes and 
to apply systematic controls at the point of entry to the Community would result in 
congestion at the external borders especially at the road crossings in Central Europe and is 
therefore unpalatable and unthinkable. The existence of the transit systems remains 
indispensable. However, if present arrangements are fraud-ridden, slow, uncertain and 
burdensome, the system will lose its credibility. There is no choice, then, but to agree now 
to rapid and effective change. 
10 
The present system getting to the end of its operational life, computerisation offers major 
advantages. In particular it is the only credible protection against fraud and abuse. The 
costs of computerising the transit system would be largely offset by the savings. 
Furthermore a modest expenditure from the EU budget would guarantee business and 
revenue substantial benefits. 
However, interim measures are essential to shore up the system until new arrangements 
are implemented. If rapidly and fully implemented, this would be sufficient to keep trade 
moving while ensuring satisfactory control. 
Since these initiatives are of great importance at Community and Member State level, the 
Council and Parliament are requested to support the Commission's solutions foreseen and 
its perspectives for the future. 
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