PROTECTING THE COMMUNITY' S FINANCIAL INTERESTS - THE FIGHT AGAINST FRAUD - ANNUAL REPORT 1995
Date: 1996-05-08
Institutions: European Commission
Subjects: Community budget, EU control, fraud, fraud against the EU, sanction (EU)

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels,  08.05.1996 
COM(96)  173  final 

PROTECTING  THE  COMMUNITY'S 

FINANCIAL  INTERESTS 

THE  FIGHT  AGAINST  FRAUD 

ANNUAL  REPORT  1995 

(presented  by the Commission) 

CONTENTS 

INTRODUCTION 

CHAPTER  1: 

PROGRESS  ON  THE  HORIZONTAL  LEGAL 
INSTRUMENT  IN  1995 (FIRST  PILLAR  AND  TITLE 
VI) 

Section  1: 

INTRODUCTION  AND  ASSESSMENT 

Section  2: 

1. 

2. 

Section  3: 

1. 
2. 

3. 

FIRST-PILLAR  ACTIVITIES  - IMPROVING  THE 
COMMUNITY'S  LEGISLATIVE  FRAMEWORK 
Regulation  on  the protection  of the  Community's  financial 
interests 
The  proposal  for  a  Regulation  concerning  on-the-spot  checks  and 
inspections 

TITLE  VI  ACTIVITIES  - MAKING  THE  VARIOUS 
NATIONAL  LAWS  MORE  COMPATIBLE  WITH  ONE 
ANOTHER 
The  Convention 
Additional  Protocol  to  the  Convention  on  the protection  of  the 
European  Communities'  financial  interests  (second  instrument)  -
on judicial  cooperation 
Protocol  on  corruption  amongst  officials 

Section  4: 

DEVELOPMENTS  CONCERNING  ORGANIZED  FINANCIAL 
CRIME 

CHAPTER  2: 

DEVELOPMENTS  IN THE  REGULATORY 

FRAMEWORK  IN  1995 

Section  1: 

OWN  RESOURCES 

Page 

5 

8 

8 

.  10 

10 

12 

13 
13 

15 
17 

18 

20 

20 

Section  2: 
Section  3: 
1. 
2. 
3. 

AGRICULTURE 
CUSTOMS 
Customs  transit  arrangements 
The  Customs  2000  project 
Chemical  substances  frequently  used  for  the  illicit  manufacture 
of  narcotics  ("precursors") 

Section  4: 

ADMINISTRATIVE  COOPERATION 

CHAPTER  3: 

THE  OTHER  INSTITUTIONS 

Section  1: 

THE  EUROPEAN  PARLIAMENT 

2 

,  .  .  20 
23 
23 
26 

27 

27 

29 

29 

Section  2: 

THE  COUNCIL 

Section  3: 

THE  COURT  OF AUDITORS 

Section  4: 

THE  COURT  OF  JUSTICE 

CHAPTER  4: 

THE  MEMBER  STATES 

Single  section  1: NATIONAL  REPORTS  ON THE  MISUSE  OF 

30 

31 

31 

33 

COMMUNITY  RESOURCES  - APPLICATION  OF  ARTICLE  209a33 
Methods  used 
33 
Implementation  of  the  first  paragraph  of  Article  209a  of  the  EC 
Treaty:  state  of  play 
Implementation  of  the  second  paragraph  of  Article  209a  of  the 
EC  Treaty:  state  of play 
Avenues  to  be  explored 

.  36 
.  37 

34 

1. 
2. 

3. 

4. 

CHAPTER  5: 

COOPERATION  AND  PARTNERSHIP 

Section  1: 

SEMINARS,  CONFERENCES  AND  EXCHANGES  OF 
OFFICIALS 

Section  2: 

THE  ADVISORY  COMMITTEE  FOR  THE  COORDINATION 
OF  FRAUD  PREVENTION 

Section  3: 

PARTNERSHIP  WITH  SPECIALIST  DEPARTMENTS  IN 
THE  MEMBER  STATES 

Section  4:  MUTUAL  ADMINISTRATIVE  ASSISTANCE  IN  CUSTOMS 

MATTERS  BETWEEN  THE  COMMUNITY  AND  NON-
MEMBER  COUNTRIES 

CHAPTER  6: 

INVESTIGATIONS 

41 

41 

43 

44 

45 

47 

Section  1  :  MAJOR  ORGANIZED  TRANSNATIONAL  FRAUD  CASES 

. .. 

49 

Section  2:  MAJOR  FRAUDS  RELATING  TO  ORIGIN  AND 
PREFERENTIAL  AGREEMENTS 
Industrial  goods 
Textiles 
Fishery  products 

2.1 
2.2 
2.3 

Section  3: 

OTHER  FRAUD  IN  AGRICULTURE 

Section  4: 

4.1 
4.2 

OTHER  FRAUDS  IN  RELATION  TO  STRUCTURAL 
POLICIES 
European  Social  Fund  (ESF) 
European  Regional  Development  Fund  (ERDF) 

60 
6i 
63 
66 

67 

74 
74 
75 

Section  5: 
5.1 

OTHER  FRAUD  IN  RELATION  TO  DIRECT  EXPENDITURE 
Research 

.  76 
76 

3 

5.2 
5.3 
5.4 

Energy 
European  Development  Fund  (EDF) 
Environment/Medspa programme  (Italy) 

CHAPTER  7: 

STATISTICS  AND  ANALYSES 

Section  1: 

THE  SITUATION  IN  1995 

Section  2:  .  TRENDS 

Section  3: 

TRANSIT 

Section  4: 

RECOVERY 

Section  5: 

ANALYSING  LEGISLATION 

CHAPTER  8: 

ANTI-FRAUD  APPROPRIATIONS 

Section  1: 

IMPLEMENTATION  OF THE  1995 BUDGET 

Section  2: 

1996  APPROPRIATIONS 

ANNEX 

GLOSSARY 

76 
77 
77 

78 

78 

80 

81 

82 

83 

97 

97 

97 

104 

105 

INTRODUCTION 

1995 was particularly notable for the substantial progress achieved at legislative level with 
the  adoption  of  two  basic  texts,  one  concerning  checks  and  administrative  penalties  (a 
horizontal  regulation)  and  the  other  on  penal  protection  of  Community  finances  (a 
convention).  In the  operational  area, the  investigations  undertaken  at the  Commission's 
initiative  with the  national  authorities  show more and  more clearly  that  the  Commission 
can  provide  an  added  value  in  combatting  fraud  on the  ground. 

This  momentum  results  from  the  anti-fraud  strategy  put  in place  in  1994 which  focuses 
on  four  priority  areas: 

- 
- 

- 
- 

reinforcing  the  presence  on the  ground; 
exploiting  intelligence and strengthening the partnership between the  Commission 
and  the  Member  States; 
improving  the  Community  legislative  framework; 
securing greater compatibility between national legislations with regard to punitive 
measures  to deter  fraud  on a scale commensurate  with the problem  to be tackled. 

In  addition,  valuable  progress  was  made  in all  these  areas  in  1995. 

Following  the  proposals1  on  legal  protection  for  the  Community's  financial  interests 
presented  by  the  Commission  in  1994  and  considered  in the  first  part  of  the  report,  the 
Council  adopted  a  Regulation  to  establish  a consistent  and  effective  system  of  penalties 
to  punish  those  responsible  for  fraud  once  it  is  detected  and  deter  such  activity  in  the 
future,  and  signed  an  international  Convention  which,  for  the  first  time,  introduced  a 
common  definition  of  the  concept  of  irregularity  and  fraud. 

These  texts  aim  for  a  better  protection  of  the  Community's  financial  interests,  the 
principle  contained  in  article 209a  of the  EC treaty,  and  are a response  to  the  frequently 
expressed  public concern to see fraud  and waste of Community  funds  put down  with the 
greatest  severity,  and  constitute  a vital  legal basis  for  the development  of future  work  in 
that field. The on-the-spot inspection arrangements and the penalty systems applied by the 
Commission  and  the  Member  States  must  be  improved  and  strengthened  accordingly. 

Although  substantial  progress  has  been  made  in  the  legislative  field,  experience  has 
shown, from  the Commission's point of view, that the legal means contained  in the treaty 
are  not  sufficient  given  the  amounts  involved  and  the  degree  of  protection  required  for 
a  budget  of  the  size  of  the  Union.  This  is  why  the  Commission  considered  that  their 
reinforcement,  at  the  time  of  the  Inter-Governmental  Conference  (IGC),  was  necessary. 

The  Cannes  European  Council  of  26-27  June  1995  and  the  Madrid  European  Council  of  15-16 
December  1995  emphasized  in  particular  topics  related  to  the  protection  of  the  Community's 
financial  interests  and  the  fight  against  fraud  in  the  Community. 

It has therefore  taken the initiatives required  to include the question  on the agenda of the 
IGC  which  begins  in  March  1996. 

The horizontal  regulation  defines  very  broadly  the concept  of irregularity.  This  concept 
covers both  simple omission due to error or negligence which is likely to have a  harmful 
effect  on the Communities'  budget  and  intentional  and deliberate  acts which  correspond 
for  their part to the more restrictive  concept  of fraud  as defined  in the penal  convention. 
The  investigations  presented  in the  second  part  of  the report  refer  to  cases  in  which  the 
Commission  participated.  They  only  involve  irregularities  of  particular  interest  at 
Community  level  whose  intentional  or  deliberate  nature  has  not  yet  necessarily  been 
demonstrated.  These irregularities cannot therefore  all be considered as cases of fraud  in 
the  penal  sense  of the  term.  This  also  applies  to the  data  featured  in the  statistical  part 
of  the  report. 

This  "post-operational"  stage  is just  as vital.  The  closing  chapters  of  the  report  give  an 
analysis of the data compiled in the field and in carrying out the procedures, which makes 
it  possible  to  map  out  trends  in  large-scale  fraud  and  distinguish  which  sectors  are  the 
most  affected,  so  that  the  Community  framework  in  which  the  financial  provisions  are 
decided  on  can  be  adapted  accordingly. 

The  major  trends  are  clear  : the  number  of  fraud  cases  detected  is  still  rising  (+/-  15%) 
while  the  total  amount  involved  is  tending  to  stabilize.  Half  this  total  concerns 
investigations  in-hand  under  Commission  coordination,  in  close  cooperation  with  the 
Member  States.  The  number  of  these  investigations  in  increasing.  The  scale  of  the 
amounts  at  stake  illustrates  how  the  launching  of  in-depth  inquiries  in  cooperation  with 
specialized departments in the Member  States as soon as fraud  is suspected can reveal the 
existence  of  networks,  often  criminal,  operating  with  highly  sophisticated  techniques.  A 
rapid administrative and judicial operational response is vital if all prospects of recovering 
sums  diverted  or  evaded  are  to  be  preserved. 

In  statistical  terms,  on  the  side  of  expenses  administered  by  the  Member  States 
(agricultural expenditure and structural policies), the fraud  detected in  1995 is represented 
by  a  global  amount  of  in  the  region  of  383  million  ECU,  that  is  0.6%  of  the  finance 
allocated.  Concerning  direct  expenditure,  managed  by  the  services  of  the  Commission 
(contracts concluded with beneficiaries  in the Member States), this amount is in the region 
of  28  million  ECU,  that  is  0.3% of  benefits  paid. 

On the  income  side,  fraud  amounts  to  in the  region  of  735  million  ECU  (in  the  area  of 
Traditional  Own Resources), that is 3.6% of the income collectable under this hçading in 
1995.  This amount represents the duties and taxes evaded, principally during  commercial 
operations  (trade)  between  non-Member  countries  and  the  Community.  The  Member 
States  are  the  principal  financial  losers.  In  effect,  balance  (of  income  and  expenditure) 
is one  of the  fundamental  principles  of  the Community  budget,  which  implies  that  each 
loss  in the matter  of  Customs  duties  and  agricultural  levies, for  example,  is made  up  by 
the  increase  of  direct  contributions  of  Member  States  under  the  heading  of  the  'Fourth 
Resource', founded  on the GNP of Member States, known still as the 'balancing  income'. 

Globally  and  schematically,  it  is  possible  to  point  out  that  fraud  on  the  Community 
budget,  cases known,  recognised,  that is to say prosecuted  or under  investigation,  do not 
go  beyond  1.4%  of  the  Community  budget.  The  Member  States  have  shown  that  the 
system  of  detection  functions  ;  the  Commission,  for  its part,  has  largely  devoted  itself, 

with  the  participation  of  specialised  national  services,  to  the  triggering  off  of  detailed 
enquiries  from  the  first  stages  of  suspicion  of  irregularity  or 

The  Commission  is continuing  to  develop  its partnership  with  the  Member  States.  With 
their  assistance  it has embarked  on a wide-ranging  exercise  to make the  management  of 
Community  appropriations  more efficient.  The  initiative, which  goes by  the  name  SEM 
2000 (standing for Sound and Efficient  Management), encompasses three stages, of which 
the  first  two  involved  the  Commission  improving  the  standard  of  its  own  financial 
management.  The  last  stage  aims  to  bring  about  improvements  in  the  management  of 
Community  resources  by the Member  States and will  lead to greater transparency  on the 
one  hand  and  greater  security  on  the  other  for  the  benefit  of  taxpayers.  This  new  stage 
is  being  conducted  in  the  same  spirit  of  partnership  as  were  the  anti-fraud  activities 
proper,  even  if it goes beyond the confines  of the fight against  fraud.  It will  in any event 
have  a  definite  impact  on  the  policy  for  preventing  and  fighting  fraud.  Therefore, 
analysis  of  legislation,  mentioned  in  chapter  8 of  this  report,  forms  a  major  part  of  the 
SEM  2000  initiative. 

In this context, the important work done by the Member  States in producing their  reports 
on  national  measures  to  combat  waste  and  misappropriation  of  Community  resources 
deserves  special  mention.  The  Commission  carried  out  a  comparative  analysis  of  the 
reports which  clearly  brings out the problems and questions  which have to be dealt  with 
by joint action. At the same time, again using the Member  States' reports, it reviewed the 
application  of  the  "assimilation"  principle  set  out  in  the  new  Article  209a  of  the  EC 
Treaty. A comparative summary paper was submitted to the Council which, in taking note 
of it, called  on the institutions and the Member  States to press on with their  efforts  in the 
fields  in  que^ion,  in particular  by  striving to  establish  an  equivalent  level  of  protection 
for  the  Community's  financial  interests  throughout  the  Community. 

In  1995 the Commission  also restructured  its fraud  prevention  department  (SG/UCLAF -
Unit for  the coordination  of  fraud  prevention)  by regrouping  its anti-fraud  activities  into 
this operational  and multi-disciplinary  structure2 to enable it to fulfil  its role  independent 
of  the  services  with  authorizing  responsibilities  and  to  achieve  the  global,  integrated 
approach  defined  for  the  protection  of the  Community's  financial  interests. 

Decision  of  16 February  1995 -  See SEC  (95) 249, Commission  Communication  of  10 February 
1995  on  the  organization  of  fraud  prevention  within  the  Commission. 

7 

CHAPTER  1 : 

PROGRESS ON THE HORIZONTAL LEGAL INSTRUMENT IN 
1995 (FIRST  PILLAR  AND  TITLE  VI) 

Section  1: 

INTRODUCTION  AND  ASSESSMENT 

One of the most important events in  1995 was the completion  of the work begun  in  1994 
on  legislation  to  protect  the  Community's  financial  interests.  This  work  also  laid  the 
foundations  for the Commission's new proposals. The combination of the  Commission's 
efforts  and  political  will  at  the  highest  level,  produced  some  very  real  and  practical 
results.3 

The Commission worked on the premise that, as well as bolstering the preventive  aspects 
of the checks and other measures designed to protect the Community's  financial  interests, 
it  also  needed  to  devise  a  set  of  uniform  administrative  and  criminal  penalties. 

* 

A  first  layer  of  protection  was needed  in the  form  of  Community  administrative 
penalties. 

There were already penalties for irregularities concerning the common  agricultural 
policy  but  these  had  to  be  extended  to  other  areas  to  ensure  uniform  protection 
across the Union. This could only be done through Community  law.  Accordingly, 
the  Commission  proposed  a  horizontal  Community  instrument  establishing  a 
special  legal  framework  for  Community  administrative  sanctions  covering  every 
section  of  the  Community  budget. 

A  framework  regulation  on  the  protection  of  the  Community's  financial 
instruments  was  duly  adopted  by the  Council  on  18 December  1995  (Regulation 
(EC,  Euratom)  No  2988/95)/ 4 

This  Regulation  is  the  product  of  the  Commission's  first  set  of  legislative 
initiatives relating to the first pillar. The general horizontal legal framework  which 
it provides for confirms the Community administrative penalty, in accordance with 
the  case  law  of  the  Court  of  Justice  of  the  European  Communities,  as  a  key 
element in the  systems developed to protect the Community's  financial  interests.5 

The  initial  proposal  for  the  Regulation  on  the  protection  of  the  Community's 
financial  interests, presented  by the  Commission  in July  1994, contained  general 
rules for  Community  measures and controls as well as Community  administrative 

A Commission  proposal (Draft  Treaty  for  the common  rules on the protection  under criminal  law 
of the Community's  rinancial instruments) has been before the Council since  1976. See Chapter  1, 
Section  6  of  the  3 J ,4  Annual  Report  on  the  Fight  Against  Fraud  (COM(95) 98). 
OJL  312,  23.12.1995 
The Commission,  in close cooperation with the Member States, conducted a comparative  study into 
the  way  irregularities  concerning  the  application  of  the  common  customs  code  are  punished.  On 
the  basis  of  the  findings,  which  are  now  being  analysed,  the  Commission  will  decide  whether 
legislation  is  required,  on  the  basis  of  Regulation  No  2988/95,  for  example,  to  protect  the 
Community's  financial  interests. 

8 

sanctions.6  For  the  sake  of  expediency,  the  Council  opted,  at  this  stage,  for 
Community  administrative  penalties  and  general  control  measures  in  order  to  be 
sure  of  achieving  political  results  in  the  first  half  of  1995.  "On-the-spot  checks 
and  controls",  it  was  decided,  were  to  be provided  for  in  a  separate  Community 
legal  instrument.7 

However,  with the exception of VAT, which the Council excluded  from  the scope 
of  the  Regulation,  the  comprehensive,  horizontal  approach  the  Commission 
favoured  in  its proposal  has  largely  been retained.  The  Regulation  applies to  all 
expenditure  and  all  traditional  own  resources. 

The  Community  has  opted  unequivocally  for  the  horizontal  approach,  which  is 
now  a  distinctive  feature  of  legislative  initiatives  in  the  fight  against  fraud.  It 
makes  for  a  far  more  consistent  legal  framework  for  measures  to  protect  the 
Community's  financial  interests.  It  has  also  created  a certain  momentum,  as  the 
Council demonstrated when it asked the Commission to put forward  proposals  for 
Community  administrative  penalties  covering  all  sections  of  the  Community 
budget. 

The  Regulation  is the  first  Community  instrument  containing  a  broad  definition 
of what  constitutes  an irregularity  - a definition  which has been  lacking  for  some 
years. 

A second  layer of protection is required  in the form  of national criminal penalties. 

These  are  the  only  types  of  penalties  which,  by  their  exemplary  and  transparent 
nature, provide effective,  dissuasive and proportionate protection against the most 
serious  of  offences  in  accordance  with  European  case  law.  The  Commission  has 
therefore  presented  a proposal  aimed  at reducing  the  inconsistencies  between  the 
laws  on  fraud  in  the  various  Member  States.8  Such  discrepancies  provide  a 
breeding  ground for  international  fraud,  which can easily  develop into  large-scale 
financial  crime  and  even  organized  crime. 

On  26  July  1995,  the  Council,  acting  on  a  Commission  initiative,  adopted  a 
Convention  on  the  protection  of  the  European  Communities'  financial  interests 
with  the  intention  of improving  the  compatibility  of  national  criminal  laws.9 The 
Convention  aims to achieve this by formulating  a common definition  of fraud  and 
of other  serious offences  which damage the Community's  financial  interests.  This 
constitutes  a  major  step  forwards  for  the  Union;  fraud  affecting  the  Community 
budget  is to  be  made  into  a specific  criminal  offence,  with  appropriate  penalties, 
in  each  of  the  Member  States. 

OJ  C  216,  6.8.1994.  See  Chapter  1,  Section  6  of  the  1994  Annual  Report  on  the  Fight  Against 
Fraud. 
See  Article  10 of  Council  Regulation  (EC,  Euratom)  No  2988/95 
The  features  which  makes  the  various  systems  incompatible  were highlighted  in  a study  carried 
out  by  a  group  of  researchers,  led  by  Professor  Delmas-Marty  in  1993.  See  the  1993  Annual 
Report  on  the  Fight  Against  Fraud  (COM(94)  94  final) 
OJ  C  316,  27.11.1995,  p. 48 

The  Commission  based  its  proposal  for  the  Convention  on  Article  K.3  of  the 
Treaty  on  European  Union  (Title  VI  of  the  Union  Treaty  -  cooperation  in  the 
fields  of  justice  and  home  affairs).10  This  approach  is  without  prejudice  10 the 
Community's  powers and does not prevent  it from  acting within the  scope of the 
first  pillar  -  which  Parliament  feels  is  the  preferred  option  with  regard  to  the 
Community  budget. 

In terms of the quantity and quality  of the work which the institutions put  into it, 
the Convention can be seen as an important milestone. It marks the completion  of 
the  first  stage  in  accordance  with  the  conclusions  of  the  European  Council  of 
Cannes  and,  at  the  same  time,  calls  for  further  action.11  It  illustrates  the  special 
problems  involved  in  protecting  the  Community's  financial  interests  and,  in  so 
doing,  promotes the  creation  of tailor-made  cooperation  structures  in the  field  of 
criminal justice. 

The  negotiation  of  these  two  instruments  highlighted  the  difficulty  linked  to 
adopting  legislation on the basis of Article 235 and of Title VI. Given the problem 
of  the  relationship  between  the  EC treaty  and  Title VI  of  the  TEU  on  questions 
concerned  with  the  fight  against  fraud,  the  Commission  intends  to  suggest  the 
legal  base  for  the  protection  of  the 
introduction  of  a  more  operational 
Community's  financial  interests. 

Section  2: 

FIRST-PILLAR ACTIVITIES - IMPROVING THE COMMUNITY'S 
LEGISLATIVE  FRAMEWORK 

1. 

Regulation  on  the  protection  of  the  Community's  financial  interests 

The  adoption  of  Council  Regulation  (EC, Euratom) No  2988/95  on the protection  of the 
Community's  financial  interests  was  an  important  step  forwards  in  the  process  of 
improving  the  Community's  legal  framework  and  tailoring  it  to  the  requirements  of  its 
overall  anti-fraud  strategy  -  a process  which  the  Commission  began  in  1994. 

As  far  as  penalties  are  concerned,  the  comprehensive,  horizontal  approach  finally 
prevailed.  This was the approach favoured  by the Commission in the proposal it advanced 
in  July  1994. 

A  twin-track  approach  was  adopted  to  the  question  of  on-the-spot  controls  and  checks. 
For  the  main  traditional  checks  carried  out  by  the  Member  States,  some_  general 
obligations  were  set  out;12  the  task  of harmonizing  checks, to  ensure  a comparable  level 
of  stringency  across  the  Community  was  then  left  to  sectoral  Community  legislation  or 
even  national  legislation.  For  the  checks carried  out  by the Commission,  the  Regulation 
does  lay  down  certain  rules,13  though  some  more  detailed  provisions  concerning 

Proposal  for  a Council  Act  establishing  the  Convention,  OJ  C 216,  6.8.1994. 
The  second  recital  is  quite  explicit  on  this  matter,  calling  for  ''another  legal  instrument"  to 
complement  the  first  "in  such  a way  as to improve  the effectiveness  of protection  under  criminal 
law  of  the  European  Communities'  financial  interests. 
Article  8 of  the  Regulation. 
Article  9  of  the  Regulation 

10 

procedures were  removed  from  the initial  Commission  proposal  and  will  appear  instead 
in  a  separate  instrument  for  which  the  Commission  will  put  forward  a  proposal  to  the 
Council  at  a later  date.14 

The main achievement  of the Regulation is that it creates a basic legal framework  for  the 
formulation  of  uniform  Community  administrative  penalties  with  the  same  force 
throughout  the  European  Union.  The penalties  can  be  set  for  fraud  relating  to  any  area 
of  Community  policy  where  they  are  required  and  for  which  there  is  a  legal  basis. 

The Regulation  is entirely  in keeping with the Commission's  approach  to  administrative 
penalties in relation to agricultural  policy, which the Court of Justice has always  upheld, 
e.g.  in  199215 and,  more  recently,  in  1995.16 

These  basic  ground  rules,  preserving  the  acquis  communautaire,  were  the  subject  of 
heated  debate  at  the  very  highest  level  within  the  Council  before  eventually  receiving 
unanimous  support  from  the  Member  States.  This  result  gives  the  Commission .the go-
ahead to maintain the existing policy with respect to agriculture and to extend  Community 
administrative  penalties  to  other  areas. 

The Regulation  confirms  the effectiveness  of the system of penalties  already  in place  for 
the common  agricultural  policy and draws on the impetus provided  by the Council's  call 
for the introduction of Community administrative penalties in areas other than agriculture. 

In  practical  terms,  the  Regulation  is  the  first  piece  of  Community  legislation  to  give  a 
broad  definition  of conduct  which prejudices  proper  application  of Community  financial 
legislation. It also establishes the concept of "abuse of rights", describes the measures and 
penalties  available  and  identifies  the  people  who  can  be held  liable. 

All  of  the  above  apply  to  irregularities  affecting  all  sections  of  the  Community  budget. 
The  introduction  of  the  concept  of  abuse  of  rights*fills  a major  gap  in  Community  law. 
From  now  on,  those  "attempting  to  obtain  benefits  contrary  to  the  objectives  of  the 
relevant Community legislation may have their entitlement to subsidies or exemption  from 
customs  duties  withdrawn. 

The  Regulation  provides  for  a  limitation  period  of  four  years  for  the  imposition  of 
penalties.  This  is a compromise  solution  balancing  the need  to protect  the  Community's 
financial interests effectively  and the principle of legal certainty. The four-year  limitation 
the  rules  governing  the  financial  management  of  the 
period  in  no  way  affects 
Community's  revenue  and  expenditure  as  it  applies  only  to  penalties  and  not  to  debt-
recovery. 

Another  of the Regulation's  main  features  is its list of penalties,  with  specific  provision 
for  fines,  other  financial  penalties  and  other  types of penalties  that  the  Commission  has 
traditionally  imposed  in the  past. 

Article  10 of  the  Regulation 
Case  240/90 Germany v Commission of the European Communities [1992] ECR  1-5383 (judgment 
given  on  27  October  1992). 
Case  C  104/94  Cereal Italia  Sri  (judgment  given  on  12 October  1995) 

16 

11 

The relationship between national criminal-law procedures and Community  administrative 
law is made explicit. A good balance, which respects the principle of proportionality,  has 
been  found.  The  principle  of  the  primacy  of  Community  law  is  left  intact  and  the 
Regulation  ensures  that  financial  penalties  are  fair,  whether  they  are  provided  for  by 
Community  law or national criminal  law. The acquis communautaire  is preserved  in that 
administrative  financial  penalties  relating  to  agricultural  matters  are  expressly  excluded 
from  the  suspension  arrangements.  With  regard  to  other  matters,  the  suspension 
mechanism  comes  into  operation  only  when  criminal  proceedings  are  initiated;  it  is  not 
triggered  by  proceedings  initiated  by  the  administrative  authorities  with  a  view  to 
imposing  national  penalties  or  by  out-of-court  settlements. 

Owing to the very tight schedule set by the European Council, much hard work was done 
at  the  beginning  of  1995,  with  Parliament  examining  the  proposal  and  drafting 
amendments  in  accordance  with  the  consultation  procedure.  Parliament  delivered  its 
opinion  on  the  Commission  proposal  on  15 March  1995.17  In  view  of  the  link  between 
the  provisions  on  administrative  penalties  and  criminal  law,  and  the  importance  of 
providing  for  a special mechanism  in the section on on-the-spot  Commission  checks, the 
Presidency  felt  the need to finalize  agreement  on a joint  approach. This involved  making 
a  certain  number  of  amendments  to  the  initial  proposal  on  which  Parliament  was  to  be 
consulted  again.  This agreement  was reached  on 29  June  1995. Parliament  duly  issued  a 
second  opinion  when  the  Council  negotiations  were  over.18 

The Council  finally  adopted  the Regulation  on  18 December  1995 after  it  had  discussed 
Parliament's amendments. As a result of the political views expressed, particularly  within 
the  ad  hoc  group  of  the  Budget  Committee,  the  Council  did  not  accept  Parliament's 
amendments. The Commission, however, took account of the amendments, most of which 
have  been  incorporated  into  the  new  proposal  on  on-the-spot  checks. 

2. 

The  proposal  for  a Regulation  concerning  on-the-spot  checks  and  inspections 

The  Commission  proposal19  is  a  response  to  the  Council's  call  for  a  separate  draft 
regulation  concerning  on-the-spot  checks  and  inspections. 

The Commission did not opt for harmonization or amendment of the existing  sector-based 
Community  provisions  granting  powers  to  Commission  inspectors.  Instead,  it  chose  a 
horizontal  approach  more  specifically  geared  towards  combating  fraud  and  detecting 
irregularities,  leaving  the  existing  sector-based  legislation  on  checks  and  inspections 
untouched. 

The  proposal  gives  a  clear  definition  of  what  constitutes  an  on-the-spot  inspection  and 
establishes  who can be checked.  It also lays down rules governing  the powers  and  duties 
of Commission  inspectors and,  lastly, it contains provisions  aimed  at bolstering  the  legal 
force  of  the  inspectors'  findings. 

17 
18 
19 

Resolution  of  15 March  1995, OJ  C  89,  10.4.1995 
Resolution  of  30 November  1995.,  OJ  C 339,  18.12.1995. 
Proposal  adopted  on  20  December  1995  (COM(95)  690  final) 

12 

The Regulation provides a legal basis for checks and inspections aimed at detecting  fraud. 
It  is  not  concerned  with  checks  carried  out  by  the  Commission  services  to  ensure  that 
Community  regulations  are  being  properly  implemented  by  the  Member  States. 

If  adopted,  the  Regulation  will  make  it  significantly  easier  to  set  up  and  carry  out 
inspections  concerned  specifically  with  combating  fraud.  It will be particularly  valuable 
in cases of major  complex or cross-border  frauds  where the extent to which one Member 
State  can  act  is  limited. 

The  Commission's  desire  to work  closely  with the  Member  States in combating  fraud  is 
the cornerstone of the new horizontal approach, which relies on full  cooperation  between 
the Commission and the Member States with regard to on-the-spot checks and inspections. 

To  summarize,  the  Regulation  will  complement  and  rationalize  existing  arrangements, 
introducing  greater  clarity  and  uniformity  and  enhancing  their  effectiveness. 

It will  also place partnership between the Member  States and the Commission  on a more 
official  footing.  It  is designed  to  achieve  the  aim  spelled  out  in the  second  paragraph  of 
Article  209a of the EC  Treaty regarding the assistance the Commission is required to give 
the  Member  States  with  the  task  of protecting  the  Communities'  financial  interests.20 

Lastly, the  Regulation  goes a  long  way towards  establishing  some kind  of  methodology 
for  anti-fraud  inspections.  It  is  intended  to  meet  the  requirements  laid  down  by  the 
Madrid  European  Council,  held  on  15 and  16 December  1995,  which  stressed  the  need 
for  a regulation  to  be  adopted  as  soon  as possible, before  June  1996. 

Section  3: 

TITLE  VI  ACTIVITIES  -  MAKING  THE  VARIOUS  NATIONAL 
LAWS  MORE  COMPATIBLE  WITH  ONE  ANOTHER. 

1. 

The  Convention 

As part of the new anti-fraud  strategy  it adopted  in  1994, the Commission  also  presented 
a  proposal  for  a  Council  Act21  establishing  a  Convention  relating  to  the  criminal-law 
aspects  of  the  protection  of  the  Communities'  financial  interests,  on  the  basis  of 
Article  K.3(2)  under  Title  VI  of  the  Treaty  on European  Union. 

Parliament  recommended  an  approach  based  on  the  first  pillar  for  measures  aimed  at 
protecting  the  Community  budget.  While  the  Commission  did  not  necessarily  disagree, 
it  preferred  for  the  sake  of  expediency  and  for  reasons  connected  with  the  scope  of  the 
proposed  measures,  to  use  the  intergovernmental  procedures  associated  with  Title  VI. 
These procedures  are even more  familiar  to central  administrations  of Justice  Ministries, 
which are becoming more aware of the issues surrounding protection of the Communities' 
financial  interests and the obligations on the Member  States and the institutions. In opting 
for  the  intergovernmental  approach, the Commission  enhanced the credibility  of the  new 
Maastricht  provisions  without  giving  the  impression  that  the  Community  pillar  was 
inadequate. 

20 
21 

See  also  Chapter  4,  single  section,  point  3, page  36. 
O JC  216,  6.8.1994 

13 

The  resolution  adopted  by  the  Council  on  1 December  1994  identified  the  issues  most 
urgently  requiring  attention  if  legislation  protecting  the  Community's  financial  interests 
through  national  criminal  law  is to  be  passed  as quickly  as possible.22 

In  view  of  the  difficulties  the  negotiators  encountered  with  the  third  pillar,  the  Council 
of  9  and  10 March  1995  decided  to  limit  the  scope  of  the  instrument.  It  would  set  out 
only  to  provide  a  definition  of  fraud  and  settle  the  criminal  liability  of  the  people 
involved, the penalties and jurisdiction. The Cannes European Council, held in June  1995, 
was  able to  reach  an  agreement  on the  matter  and,  on 26 July  1995, an  act  establishing 
the  Convention  for  the  protection  of  the  Communities'  financial  interests  was  signed. 
Other  instruments supplementing  the Convention were to be passed as soon as possible.23 

The  Convention  as  adopted  by  the  Council  does  not  contain  all  the  elements  in  the 
Commission's  initial proposal.24 However, it goes a long way towards ensuring a uniform 
level  of protection  throughout the Community,  in accordance  with the express wishes  of 
the Madrid  European  Council. The adoption  of a common definition  of fraud,  combined 
with provisions requiring  the Member  States to  incorporate  the  definition  into  their  own 
body of criminal law brings the Community  much closer to its objective  of an equivalent 
level  of  protection  in all  Member  States. 

The Convention marks a major  step forwards  in the campaign to protect the  Community's 
financial  interests; every  Member  State is now required  to punish  fraud  with  appropriate 
criminal penalties. It also does much to approximate in a specific  area the Member  States' 
criminal-law  provisions,  which  is  an  appropriate  response  to  the  problem  of  financial 
crime,  particularly  international  fraud. 

The  most  important,  and  undoubtedly  the most  conspicuous  change  for  the  better  is  the 
adoption  of  a  definition  of  fraud  affecting  both  revenue  and  expenditure  in  the 
Community budget.  The idea of creating a specific  offence  -  the Commission's  preferred 
solution -  was rejected  in favour  of new offences  based on the definition  contained  in the 
Convention.  The Member  States can choose whether to create a specific  offence  of  fraud 
against  the  Community's  financial  interests  or  to  make  it  an  offence  under  the  laws 
criminalizing  fraud  in  general.  The  Convention  also  requires  Member  States  to  make 
serious  fraud  involving  more  than  ECU  50  000  an  extraditable  offence,  punishable  by 
imprisonment. 

The Convention  confirms  that persons with the power to take decisions within a business 
should  be  made  criminally  liable,  albeit  in  accordance  with  the  principles  defined  in 
national  law.  It  also  lays  down  very  basic  rules  for judicial  cooperation  in  cases  where 
the Community's  financial  interests  are at stake. These include rules  on centralization  of 
the  prosecution  and  on the  aut dedere aut judicare  (extradite  or  prosecute)  principle. 

22 

23 

24 

OJ  C  355,  14.12.1994,  see  also  Chapter  1,  Section  6.2  and  Chapter  2,  Section  3  of  the  1994 
Annual  Report on the Fight Against Fraud (notably judicial cooperation,  laundering, responsibility 
of  legal  persons,  corruption). 
The  supplement  took  the  form  of the  Protocol  described  at  point  2  of  this  Section.  See  also  the 
second  recital  of the  Council  Act  establishing  the  Convention  (OJ  C  316,  27.11.1995,  p.45). 
See  Chapter  1,  Section  6.2  of the  1994 Annual  Report  on the  Fight  Against  Fraud. 

14 

The  Convention  gives  the  Court  of  Justice  the  jurisdiction  provided  for  by  Article 
K.3(2)(c)  of  the  Treaty  on  European  Union.  The  minimalist  approach  taken  by  the 
Member  States is not the approach sketched  out by the Commission  in its initial  proposal 
and  does  not  give  the  Court  the  power  to  decide  on  all  the  questions  of  interpretation 
concerning  the  Community  budget  which  the  Convention  is  sure  to  raise.  The 
Commission  feels  that  this  situation  must  be  rectified  by  conferring  jurisdiction  on  the 
Court  of Justice. 

Detailed procedures  are laid  down  for  the transposition  into national  criminal  law of  the 
obligations  imposed  by  the  Convention  on  the  Member  States,  which  are  required  to 
inform  the Commission  of the relevant provisions. The Commission  is given  the task of 
monitoring  and  assessing  the  transposai  measures25  and  reporting  to  the  Council  on  the 
progress  made  in  incorporating  the  Convention  into  national  criminal  law. 

Failure  to  ratify  and  transpose  the  Convention  swiftly  would  effectively  wipe  out  the 
progress made  so far,  make the agreement  reached  by the heads of  state  and  government 
redundant  and  disable  the  instruments  associated  with  Title  VI -  a  fate  which  some  are 
only  too  happy  to  predict. 

2. 

Additional  Protocol  to  the  Convention  on  the  protection  of  the  European 
Communities' financial interests (second instrument) - on judicial cooperation 

The Commission proposal  of 20  December  1995 for  a Protocol to the  Convention  on the 
protection  of  the  European  Communities'  interests26  is  another  of  the  Commission's 
initiatives currently  in the Council's hands. The Protocol was drafted  at the request of the 
Madrid  European  Council,  echoing  an  earlier  demand,  in  the  actual  Council  Act 
establishing  the  Convention,  for  an  instrument  to  supplement  it. 

The  Commission  proposal  contained  certain  elements  which  had  figured  in  the  original 
proposal  from  June  1994  but  which  had  not  been  included  in  the  final  version  of  the 
Convention  signed  on  26  July  1995  for  reasons  connected  with  the  timetable  set  by  the 
Council.  The  purpose  of  the  proposal  for  the  Protocol  is  to  lay  down  rules  for  judicial 
cooperation  and joint  investigations  into cases of suspected  multi- or transnational  fraud. 
In  practical  terms,  the  intention  is  to  flesh  out  the  principle  of  centralization  of 
procedures,  laid  down  in the  Convention.  The proposal  also attempts to put  into  practice 
the  Council  Resolution  of  1 December  1994  which  was  concerned  in  particular  with 
money  laundering27  and  the  liability  of  legal  persons. 

Since  the  form  of  the  instrument  supplementing  the  Convention  was  not  specified,  the 
Commission  opted  for  a protocol. 

From  the  legal  point  of  view,  the  Protocol  has  the  same  status  and  binding  force  as  the 
Convention  since  it  will  be  adopted  by  the  same  procedures,  i.e.  those  provided  for  by 
Title  VI  of  the  Treaty  on  European  Union  and  notably  ratification  by  national 
parliaments. 

25 

26 

27 

See the  Commission's  anti-fraud  work  programme  for  1996,  doc  COM  (96)  17  final. 
COM(95)  693  final.  Document  published  in  OJ  C  83, 20.3.1996. 
See Chapter  1, Section  6.3.2  of  the  1994  Annual  Report  on  the  Fight  Against  Fraud. 

15 

As far  as content  is concerned,  the  Protocol  complements  the  Convention  by  providing: 

an appropriate  legal response  (liability  of legal persons and  appropriate penalties, 
definition  of laundering of profits from  fraud  affecting  the Community budget and 
creation  of  a  specific  offence); 

the  procedural  aspects,  to  enhance  the  effectiveness  of  national  instruments  at 
Union  level  (judicial  cooperation,  centralization  of procedures  and  establishment 
of  a common  register  of  prosecutions). 

The  criminal  liability  of  legal  persons  is  an  issue  of  fundamental  importance  and  the 
Commission  does not underestimate  the problems associated  with  it. The principle  is not 
an established  legal concept  in all Member  States, though most of them are familiar  with 
the idea under another  guise. The introduction of the concept is a major  legal  innovation, 
aimed  at  ensuring  that  businesses  and  other  organizations  involved  in  defrauding  the 
Community  can  be  prosecuted.  It  will  also  ensure  that  it  is  not  only  the  senior 
management  or  less  important  people  who  feel  the  full  force  of  the  law  while  the 
company  or organization  continues  to operate without  being penalized  for  actions  which 
can  be  attributed  to  its  organizational  structure  and  which  it  has  unlawfully  benefited 
from. 

The Protocol  also requires that the Member States make laundering the proceeds of  fraud 
a criminal offence  and contains provisions which address the issue of judicial  cooperation 
and  procedural  questions.  The  experience  gathered  by the  national  inspectorates  and  the 
inadequacy  of  existing  laws28 would  indicate  that  there  is an  urgent  need  for  legislation 
to deal with the problems which are now arising (connected with the special nature of the 
Community  budget  and  the  rise  in  financial  crime  etc.) 

The  Convention merely  set out a few  basic principles  for judicial  cooperation,  which the 
Protocol  now  amplifies  with  more  detailed  rules.  In  cases  of  international  fraud  or  a 
complex  web  of  interrelated  fraud,  the  Protocol  provides  for  centralization  of  the 
prosecution  by  conferring  priority  jurisdiction  on  a  principal  authority  on  the  basis  of 
objective criteria. The rules on mutual assistance and judicial cooperation enable the legal 
authorities  to  contact  one  another  and  to  submit  direct  requests  for  mutual  assistance  to 
one  another,  making  the procedure  far  more  simple  and putting  the  second  paragraph  of 
Article  209a  of  the  EC  Treaty  into  practice.  Unlike  the  Convention,  the  Protocol  also 
confers  on  the  Court  of  Justice  the  power  to  give  preliminary  rulings  on  matters  for 
interpretation. 

Given  that  the  Council  Act  establishing  the  Convention  called  for  an  instrument 
complementing  it  to  be  adopted  as  soon  as  possible,  the  Italian  Presidency  made  the 
drawing  up  of  the  Protocol  one  of  its  priorities  for  1996.  The  Commission  is  doing  its 
best  to  facilitate  the  process  as  the  proposal  goes through  the  specialized  bodies  within 
the  Council. 

28 

Many  of  the  national  reports  produced  in  connection  with  the  assessment  of  implementation  of 
Article  209a  of  the  EC  Chapter  (see  Chapter  4,  single  section,  page  33)  mentioned  the  need  for 
effective  judicial  cooperation.  Current  arrangements  are based  on  international  legislation  dating 
back to the  1950s, when  Europe  had no common  policies or shared resources, and financial  crime 
was carried out by individuals or gangs, not organized networks capable of maintaining an outward 
appearance  of  legality,  as  today. 

16 

3. 

Protocol  on  corruption  amongst  officials 

Corruption  was  one  of  the  points  dealt  with  in  the  Council  resolution  (Justice)  of 
1  December  1994. A draft  Treaty, drawn up by the Commission, was sent to the Council 
on  10 August  1976  but  discussions  have never  got  off  the  ground. 

In  view  of  the  speed  with  which  the  Spanish  Presidency  presented  its  own  proposal  in 
June  1995,29 the  Commission  refrained  from  putting  forward  yet another  one to  avoid  a 
plethora  of  proposals  and  measures  all  dealing  with  corruption.  Instead,  it  preferred  to 
retain  the  existing  draft  treaty  and  make  an  active  contribution  to  the  preparatory  work 
in  the  Council  on  the  basis  of  its  own  studies  into  the  matter.  In  so  doing,  it  hoped  to 
ensure  that  the  problem  of  corruption  affecting  the  Community's  financial  interests  was 
given  due  attention  without  falling  into  the  trap  of  focusing  the  text  exclusively  on 
corruption amongst Community officials  and forgetting about corruption amongst national 
civil  servants. 

Thanks to  the  work  done  in  the  Council,  the Madrid  European  Council,  held  on  15 and 
16 December  1995, was able to reach a consensus which is apparent from the conclusions 
it drew. This certainly represents a step forward.  The main aim of the instrument is to fili 
in the gaps in existing  criminal  law on corruption  (acts and omission)  having  a link with 
protection of the Community's financial interests which, by their nature, are international 
and  may  involve  both  Community  and  national  officials. 

The  purpose  of  the  Protocol  is to  make up  for  the  shortcomings  of  the  Member  States' 
domestic  legislation  by  assimilating  officials  of  the  European  Community  to  national 
officials  under  criminal  law,  while  taking  account  of  the  immunity  conferred  by  the 
Protocol  on  the  Privileges  and  Immunities  of  the  Communities.  The  principle  of 
assimilation was laid down in the  1976 proposal for a draft  treaty, from  which the current 
definition  of a "European official",  as it appears in the Council draft,  was also taken, with 
a  few  changes. 

The Protocol provides for  an offence  covering both acts and omissions  in the interests of 
a  rapprochement  of  the  various  concepts  found  in  the  Member  States'  legislation. 
Members  of  Community  institutions  will be assimilated  to their  political  counterparts  at 
national  level  rather  than  to  officials,  as  they  are  under  the  criminal  law  of  certain 
Member  States. 

The  authorities  in  a  Member  State  may  claim jurisdiction  for  criminal  cases  involving 
European officials  employed by a Community institution established on its territory.  The 
rules  on  the jurisdiction  of the  Court  of Justice  follow  the minimalist  approach  taken  by 
the  Council  as regards  the  Convention. 

It is expected  that  the Protocol  will be adopted  in the first half  of  1996 when  Parliament 
has  been  consulted,  a process  started  by  the  Spanish  Presidency  in  December  1995.  In 
accordance  with  Article  K.6  of  the  Treaty  on  European  Union,  Parliament  must  be 
consulted  on  the  principal  aspects  of  the  Council's  activities  covered  by  Title  VI. 

29 

Spain  is  very  eager  to  address  this  issue, which  it considers  to  be  of  central  importance. 

17 

Section  4: 

DEVELOPMENTS  CONCERNING  ORGANIZED  FINANCIAL 
CRIME 

The  Council  signed  the  Convention  on  the  protection  of  the  European  Communities 
financial  interests  on  26  July  1995  and,  in  so  doing,  signalled  that  the  fight  was  on 
against  the  organized  criminal  networks  that  are  often  behind  multinational  or 
transnational  fraud  against  Community  resources  spanning  several  countries. 

This  approach  is  a response  to the  hard  facts  on  the  ground  and  reflects  the  experience 
of the Commission  and the specialized  national  departments with  the  investigations  they 
have  conducted.30 

This experience  is also shared by several Member  States.  The national  reports  submitted 
by the  Member  States  concerning  implementation  of  Article  209a  of  the  EC  Treaty,  as 
requested by the Council, revealed that certain national authorities, particularly in France, 
Denmark  and Italy,  were  well  aware of the involvement  of  organized  criminal  networks 
in  setting  up  scams  to  defraud  the  Community  budget.31 

The basic issues are clear:  organized  crime has gone  international, jeopardizing  not  only 
the  security  of  individual  Member  States  but  also  the  protection  of  common  interests 
which  cannot  be  safeguarded  by  isolated  action  on  the  part  of  national  anti-fraud  units. 
Moreover,  criminal  networks  actually  thrive  on  the  differences  between  the  criminal 
justice  systems in different  countries and the discrepancies between the penalties  applied 
in  the  Member  States.  This  means  that  to  protect  the  common  good  and  safeguard 
financial  interests,  there  is  a  need  not  only  to  bring  the  criminal  law  systems  of  the 
Member  States  closer  together  to  agree  on  a definition  of  the  offence  of  "fraud  against 
the  Community",  but  also  to  adopt  legal  instruments  that  facilitate  judicial  cooperation 
between Member  States and discourage judicial  self-sufficiency  in favour  of  Community 
solidarity.  In  this  way  more  uniform  levels  of  protection  and  prevention  could  be 
achieved.32 

The  tools  which  the  Member  States  have  at  their  disposal  for  judicial  cooperation  on 
cross-border  financial  crime  are  no  longer  up  to  the  task.  Financial  crime  has  become 
increasingly  international,  because  it  is  easier  to  get  away  with  undetected.  It  takes  an 
enormous amount of time and effort  to gather together sufficient  evidence to crack known 
crime  networks.  Hence the need  for  a Community-level  approach  to  ensure the  requisite 
cooperation  and  coordination. 

The criminal organizations involved often have considerable means at their disposal. Their 
financial  power  in  particular  is  used  for  the  purposes  of  corruption  to  circumvent 

30 

31 

32 

See the  1994 annual report  on the fight  against  fraud,  Chapter  5, Section  1 regarding  cross-border 
fraud. 
Member  States  also  sent  the  Council  various  contributions,  which  were used  to  draw  up  a report 
on  organized  crime  in  the  European  Union.  The  Italian  Presidency  has  undertaken  to  pursue  the 
issues  raised  in  the  report  and  will  soon  produce  a report  on  financial  crime  covering  1995. 
See conclusions  of  the  inquiry  on  meat  carousel  in the annual  report  for  1994, chapter  5,  section 
1.2.2. 

18 

international  legislation.  This  is  particularly  the  case  with  the  Community  transit 
regulations  should  be  strengthened,  especially  as  regards 
arrangements,  where  the 
sensitive products,33 to prevent  the evasion  of customs duties  and  levies, which  make  up 
a considerable portion of the Communities'  traditional own resources.34  This also  affects 
national  budgets  to  a considerable  extent. 

To  a  certain  extent,  these  practices  entailed  little  risk  for  the  perpetrators,  since  the 
organization  of the  criminal  networks  involved  is tight and mechanical  and  the  financial 
gain  is out of all proportion  to any legal penalties that may be incurred.  The more  astute 
villains  have  used,  and  continue  to  use, sophisticated  systems  to  escape prosecution,  for 
example  by  using  companies  that  often  seem  to operate  within  the  law,  but  are  actually 
set up  as  fronts  in  areas  where  crime  prevention  is more  lax. 

Nowadays  economic  and  financial  systems  are  geared  up  for  speed  and  efficiency  in 
international  trade35  and  could  obviously  not  do without this flexibility.  However,  when 
the rules are being abused for  criminal purposes, the response needs to be equally, speedy 
and  efficient. 

Financial  interests  cannot  be  protected  by  using  instruments  that  date  from  the  1950s, 
when European  integration did not have common policies covered by a single budget and 
when  trade  and  financial  flows  were  a fraction  of  what  they  are  today.36 

33 

34 

35 

36 

See Chapter  2,  Section  3 on  customs,  page 23, and Chapter  6,  Section  1, point  1.14,  on  cigarette 
smuggling,  page 58. 
This  type  of  fraud  is  particularly  common  and  varied,  ranging  from  cigarette  smuggling  (see 
Chapter 6,  Section  1, point  1.14,  page 58 to shipping carousels  involving  alcohol  and  agricultural 
products  and anti-dumping  duty fraud  (see Chapter 6, Section  1, page 49 and Section  3, page 67). 
In  terms  of  revenue,  2%  of  the  fraud  cases  discovered  account  for  66% of the  amounts  at  stake; 
on the  expenditure  side,  8%  of the  cases account  for  74% of the  amounts  at  stake.  These  figures 
lend further  support to the Commission's  belief that fraud  against the Community  is not a question 
of  petty  pilfering,  but  of  large-scale  organized  financial  crime. 
For example, the international  SWIFT network can transfer  funds between banks in many  countries 
in  a matter  of  seconds. 
As  regards  judicial  assistance  and  cooperation  between  the  Member  States,  although  the  1959 
Strasbourg  convention  is  adequate  for  dealing  with  certain  types  of  one-off  crimes,  it  is  quite 
unsuitabi  ""or dealing with international  economic crime, let alone protecting the financial  interest 
of the  European  Communities. 

19 

CHAPTER  2: 

DEVELOPMENTS  IN  THE  REGULATORY  FRAMEWORK  IN 
1995 

This chapter  is intended to give an account  of developments  in Community  legislation  in 
1995  aimed  at  simplifying  the  regulatory  framework  and  making  legislative  provisions 
with  financial  impact  as fraud-resistant  as possible. 

There  were  considerable  developments  in  agriculture  and  customs,  for  example  in  the 
transit  procedure.  In the area  of  structural  policies,  significant  progress  was  achieved  in 
1994 with the tightening up of sectoral regulations  and the adoption of Regulations  (EC) 
Nos  1681/94 and  1831/94 on irregularities  and the recovery  of sums wrongly  paid  under 
the Structural  Funds and the Cohesion Fund. The Commission has been working hard  on 
putting  the  finishing  touches  on the  implementation  of  these  regulations,  which  are  still 
applied  in  different  ways  from  one  Member  State  to  another.37 

Section  1:  OWN  RESOURCES 

The Commission proposal to amend Council Regulation (EEC, EURATOM) No  1552/89 
implementing  Council  Decision  88/376/EEC,  EURATOM  on  the  system  of  the 
Communities'  own  resources38  has yet  to  be  formally  adopted  by  the  Council. 

The  proposal  aims  to  improve  the  reporting  procedure,  under  which  the Member  States 
provide  the  Commission  with  information  on cases of  fraud  and  irregularities  they  have 
uncovered,  by  increasing  both  the  level  of  detail  of  information  submitted  and  the 
frequency  of  submission  of  reports,  in  line  with  what  is  already  in  force  in  the  area  of 
expenditure.  The  Commission  will  then be better placed  to  keep tabs on the  recovery  of 
amounts  involved  in  fraud  and  irregularities. 

On  17 November  1995 the  Council  agreed on a common  position  on the amendments  to 
be  adopted,  and  this  was  presented  to  the  European  Parliament  under  the  conciliation 
procedure. 

-

Agreement  was reached  under this procedure, which  means that the regulation  should  be 
adopted  sometime  in the  first  quarter  of  1996. 

Section  2: 

AGRICULTURE 

One  of  the  main  objectives  of  the  prevention  side  of  the  anti-fraud  strategy  adopted  by 
the  Commission  in  March  1994  was  to  review  and  improve  agricultural  legislation 
containing  financial  provisions.39  Following  on  from  its  1995  work  programme,40  the 
Commission  has  continued  to  pursue  these  aims  with  the  following  results: 

37 

38 

39 

40 

For example, by organizing training for the relevant staff  from  the national authorities. See Chapter 
5,  Section  1, page 41. 
See the  annual  report  on  the  fight  against  fraud  for  1994,  Chapter  1,  Section  1. 
The  Commission's  Anti-Fraud  Strategy,  Work  Programme  for  1994, COM(94)  92  final. 
Commission's  Work  Programme  for  1995, Section  6.4,  COM(95)  26  final. 

20 

Council  Regulation  (EEC)  No  4045/89,41  which  concerns  scrutiny  by  Member 
States  of  transactions  financed  by  the  Guarantee  Section  of  the  European 
Agricultural  Guidance  and  Guarantee  Fund,  needed  further  tightening  up  with 
specific  provisions  in the  following  areas: 

strengthening  of  mutual  assistance  procedures  between  Member  States 
(under Article  7 of the Regulation referred to above): discussions are under 
way in Commission working groups on a proposal  for  a regulation  and on 
joint  courses  of  action  when  commercial  documents  are  inadequate  or 
come  from  companies  based  outside  the  Community; 

standardization of documents and reports submitted by Member States with 
a  view  to  harmonizing  scrutiny:  on  19 December  1995  the  Commission 
adopted  Regulation  (EC)  No  2992/9542  amending  Regulation  (EEC)  No 
1863/9043  laying  down  detailed  rules  for  the  application  of  Council 
Regulation  (EEC)  No  4045/89; 

The  Commission  further  tightened  up  the  implementing  provisions  for  Council 
Regulation  (EEC) No  386/9044 as regards physical checks at the time of export  of 
agricultural  products receiving  refunds.  This regulation  was  amended  by  Council 
Regulation  (EC) No  163/94.45 

Commission  Regulation  (EC)  No  3122/9446  lays  down  the  criteria  to  be 
used by the Member States in applying risk analysis techniques to devising 
fraud  prevention  strategies  for  agricultural  products  receiving  refunds.  It 
came  into  force  on  1 January  1995. 

Commission Regulation (EC) No 2221/9547 covers physical checks and the 
selection  of  samples  to  be  analysed  at  the  time  of  export  of  agricultural 
products  qualifying  for  refunds.  It  came  into  force  on  1 January  1996. 

As  regards  Community  agricultural  products  exported  to  non-member  countries 
with export refunds,  the Commission  is currently undertaking  a full  consolidation 
of  Commission  Regulation  (EEC) No  3665/87.48 The  work  will  be  completed  in 
1996  and  will  incorporate  the  results of  work  carried  out  previously. 

41 

42 

43 

44 

45 

46 

47 

48 

OJ  L  388,  30.12.1989.  Subsequently  amended  by  Council  Regulation  No  3094/94  (OJ  L 24, 
29.01.1994)  and  Council  Regulation  No  3235/94  (OJ  L  338, 28.12.1994).  See  the  annual  report 
on  the  fight  against  fraud  for  1994. 
OJL  312, 23.12.1995. 
OJ  L  170,  3.7.1990. 
OJ  L 42,  16.2.1990. 
OJ  L24,  29.1.1994. 
O JL  330,  21.12.1994. 
O JL  224,  21.9.1995. 
O JL  351,  14.12.1987. 

21 

Commission  Regulation  (EC)  No  2949/9449  amends  Article  11.  It  came 
into  force  on  1 April  1995 and  lays down  a system of  fines  and  penalties 
applicable  on the  basis of  amounts  wrongly  paid. 

Commission  Regulation  (EC) No 2955/9450 amends Articles  18 and 44 as 
regards  the  approval  of  specialized  international  control  and  supervisory 
agencies  authorized  to  issue  certificates  of  arrival  and  release  for 
consumption  in non-member countries. This regulation came into force  on 
1  January  1995  and  states  that  the  power  to  grant  approval  lies  with  the 
Member  States. 

At  the  same  time  the  adoption  of  this  regulation  also  made  it possible  to 
lay down criteria for approval procedures that may be used by the Member 
States.  It  was  also  stipulated  that  an  up-to-date  list  of  the  agencies 
approved  by the  Member  States would  be periodically  published  in the C 
series  of  the  Official  Journal  of the  European  Communities. 

The Commission also set about revising Article  15 to counter the diversion 
of  agricultural  products  which  have  been  exported  from  the  Community 
(with  payment  of  refunds)  and  subsequently  reintroduced,  having  been 
processed  and  having  qualified  for  reduced  import  duties, on the  basis  of 
preferential  agreements  concluded  with 
the  non-member  countries 
concerned  (overseas  countries  and  territories  and  ACP  countries).  The 
revised text makes the exporter liable for repayment of any refund  wrongly 
paid  out  for  the  products. 

Commission  Regulation  (EC)  No  1384/9551 amending  Regulation  (EEC) 
No  3665/87  concerns  differentiated  refunds,  in particular  the  introduction 
of a system  of penalties  for  changing the destination  where the actual  rate 
of  refund  is  less  than  the  rate  fixed  in  advance.  This  is  to  avoid  any 
irregular  advance fixing  of the destination to obtain higher rates of  refund. 

Council  Regulation  (EC)  No  1469/9552  provides  for  measures  to  be  taken  with 
regard  to certain beneficiaries  of operations  financed  by the Guarantee  Section of 
the EAGGF who present  a risk of non-reliability  (the  "blacklist" regulation). It is 
now  possible  to  compile  a list of traders, whether  individuals or  companies,  who 
have been ill intentioned or particularly negligent. The Member States may impose 
tighter  controls  on  these  traders  or  other  measures,  which  may  go  as  far  as 
suspension  of  payments  or  temporary  exclusion  from  them. 

The  Commission proposal  for  detailed provisions implementing  this regulation  is 
currently  being  adopted. 

49 

50 

51 

52 

Amending  Regulation  (EEC)  No  3665/87  as regards  the  recovery  of  amounts  wrongly  paid  and 
sanctions  (OJ  L  310,  3.12.1994). 
Amending  Regulation  (EEC)  No  3665/87  (OJ  L  312,  6.12.1994). 
OJ  L  134, 20.6.1995. 
OJL  145, 29.6.1995. 

22 

As regards the Community co-financing  arrangements for  stepping up controls by 
Member  States,  the  Commission  has  drawn  up  a  report  on  the  state  of  play  as 
regards  implementation  of  the  current  arrangements  with  a  view  to  formulating 
new proposals to resolve the shortcomings of the previous regulation.53 A draft  has 
already  been produced  and should  be adopted by the Council  in  1996. It provides 
for  control operations in the Member  States to be co-financed  on the basis of cost-
effectiveness  studies  on  each  of the  projects  the  Member  States  are  to  submit  to 
the  Commission  each  year. 

Section  3: 

CUSTOMS 

1. 

Customs  transit  arrangements 

On  29  March  1995  the  Commission  adopted  a  communication  on  fraud  involving  the 
transit  procedure.54  The  objectives  of  the  communication  include  making  traders  who 
work  with  the  system,  and  in  particular  those  who  stand  as guarantors  for  the  principal, 
more aware of the sort of risks they should avoid taking in the course of their work,  since 
the Commission is in any circumstances unable to authorize postponement of the payment 
of  customs debts.  Not  only  is there  is no legal provision  for  this, but the  Commission  is 
actually  duty-bound  to  protect  the  Community's  own  resources. 

The  Commission  communication  puts  forward  specific  measures  to  tighten  control 
procedures  and  to  improve  and  computerize  transit  procedures. 

Rather  than  describing  once  again  the  fraud  methods  used  or  the  particular  types  of 
fraud,55  this  section  is  intended  to  report  in  detail  on  the  state  of  play  as  regards  the 
measures  put  forward  in this  important  Commission  communication. 

Procedures: 

Action  was  taken  on  several  of  the  measures  in  1995. 

Changes  to  the  provisions  guaranteeing  Community  transit  and  common  transit 
operations56  for  sensitive  goods.57 

All  transit  operations  must  be  covered  by  a  guarantee  required  to  cover  the 
amount of the customs duties and other taxes which would be payable in the event 
of the T document not being discharged. There are three types of guarantee  under 
the  Community  and  common  transit  arrangements:  comprehensive,  flat-rate  and 
single-operation.  The  comprehensive  guarantee  is the  most  flexible  arrangement 
for  traders,  since  it  is good  for  a series  of  operations  by the  same principal  over 
a  given period.  The amount  of the  guarantee  is calculated  on the basis  of  criteria 

53 

54 

55 

56 

57 

Council  Regulation  (EEC)  No  307/91,  OJ  L  37, 9.2.1991. 
COM(95)  108  final. 
See the  annual  report  on  the  fight  against  fraud  for  1994, Chapter  1, Section  5. 
The common  transit procedure is an extension of the Community  transit arrangements to cover the 
countries  of  the  European  Free  Trade  Area  (EFTA)  under  a convention  signed  in  1987. 
Cigarettes,  agricultural  products,  butter,  milk  powder,  alcohol,  sugar,  meat  and  textiles. 

23 

laid down in the regulations and it covers only a very small portion of the customs 
duties  (and  other  taxes)  due  on the  operations. 

Under Article 360 of Commission Regulation (EEC) No 2454Z93,58 Member  States 
may request the agreement of the Commission to the temporary prohibition of the 
use of the comprehensive guarantee for operations involving products where there 
is an exceptionally  high  risk  of  fraud. 

To  date  the  Commission  has  issued  two  decisions  on  prohibiting  the  use  of  the 
comprehensive  guarantee:59  one  at the  request  of  Spain  for  the  transportation  of 
cigarettes  and  one  at  the  request  of  Germany  for  the  transportation  of  certain 
agricultural products (live cattle, frozen beef and veal, milk, cream, butter, cheese, 
bananas, alcoholic beverages and other products containing alcohol, sugar, rye and 
wheat). 

Stricter  eligibility  criteria  for  traders to use  comprehensive  guarantees  were  also 
approved  by the Customs  Code Committee  (transit section)  and incorporated  into 
the  regulations  at  the  beginning  of  1996. 

The  provisions  governing  the  flat-rate  guarantee  (calculated  in  multiples  of 
ECU  7 00060)  were  altered  to  increase  the  guarantee  for  products  where  the  risk 
is greater  to  100 % of the  duties and taxes  concerned  for  products  for  which  the 
prohibition  of  the  use  of  the  comprehensive  guarantee  applies. 

Accelerated  discharge  procedure  for  sensitive  goods  (Community  and  common 
transit  and  TIR61). 

This procedure was devised  as an administrative  arrangement  (whereby  a copy  of 
the  transit  document  can  be  sent  to the  office  of  departure  on  the  same  day  that 
the  goods  are presented  at the office  of destination).  These  provisions  have  also 
been  integrated  into  the  regulations. 

For  the  TIR  system  Resolution  No  49 of  3 March  199562  introduced  accelerated 
discharge  procedures  by  fax,  which  came  into  effect  on  1  September. 

Measures concerning transportation, travelling time (Community  transit and TIR) 
and  mandatory  routing  (TIR). 

These  measures  concern  the  transport  of  goods:  as  a  rule,  traders  are  free  to 
choose  any  route  to  reach  the  office  of  destination.  They  may  even  change  the 

58 

59 

60 

61 

62 

OJ  L  253,  11.10.1993.  This  regulation  lays  down  certain  implementing  provisions  for  Council 
Regulation  (EEC) No  2913/92  setting up the Community  customs  code (OJ  L  302,  19.10.1992). 
Commission  Deci^. jn No 95/521/EC of 28.11.1995 at the request of Spain (which came into  force 
on  1.4.1996),  OJ  L  299,  12.12.1995, and Commission  Decision No 96/37/EC of20.12.1995  at the 
request  of  Germany  (which  came  into  force  on  1.3.1996),  OJ  L  10,  13.1.1996. 
Article  367  of  Commission  Regulation  (EEC)  No 2454/93. 
The TIR system, which was laid down  in a  1975 convention, governs the international  carriage of 
goods  by  road. 
Council  Decision  No  95/285/EC  of  24.7.1995  adopting  this  resolution,  OJ  L  181,  1.8.1995. 

24 

office  of  destination,  for  example  in the event  of  resale  to  a different  consignee. 
The  only  obligation  is to present  the goods together  with the transit  document  at 
the  office  of  destination.  But  now  offices  of  departure  are  entitled  to  impose 
mandatory  routes  and  may  also  prohibit  changing  the  office  of  destination  for 
operations  involving  sensitive  goods. 

For  the  TIR  system  Resolution  No  49  referred  to  above  also  allows  time  limits 
and compulsory routes to be imposed in the case of sensitive goods (measures that 
take effect  immediately). A further  measure involves excluding traders from  using 
the  TIR  system  if they repeatedly  commit  serious  irregularities  (Article  38 of  the 
convention). 

Certain  other  measures  were  not  able  to  be  taken  in  1995.  They  include  :. 

Adopting,  in  the  framework  of  the  common  transit  arrangements,  of  different 
provisions  adopted  at  Community  level  concerning  guarantees.  The  adoption  of 
this  measure  requires  a consensus  amongst  the contracting  parties.  This  was  not 
possible  in  1995  as  Switzerland  refused  to  adopt  the  banning  of  the  use  of  the 
comprehensive  guarantee  for  the transport  of  cigarettes. 

Calculation of the comprehensive guarantee on the basis of  100% (instead of 30% 
at  present)  of  the  duties  and  taxes  at  stake  with  the  amount  per  guarantee 
certificate  limited. 

Establishment  of the  obligation  on the part  of the customs  office  of  departure  to 
set  a  stricter  time  limit  for  presentation  of  the  "T"  document  at  the  office  of 
destination. 

Establishment  of  the  financial  liability  of  persons  other  than  the  principal,  in 
particular  the  transporter. 

Establishment  of  the  obligation  to  lodge  a  guarantee  for  goods  in  transit 
transported  by  sea. 

Establishment of the obligation to present proof of the Community  status of goods 
transported  by  sea. 

Early  Warning  System 

A  further  important  measure  involves  the  implementation  of  an  advance  notification 
system  for  sensitive  goods (operations under the Community  transit,  common  transit  and 
TIR arrangements). The office  of departure notifies  the office  of destination  immediately 
that goods  have  been  placed  under  a particular  scheme. This gives  offices  of  destination 
the  time  to  investigate  the  stated  consignees.  This  means  that  they  immediately  know 
when  goods  have  not  been  presented  and  can notify  the  office  of  departure  accordingly. 

In the case of the TIR arrangements, an advance notification  system has been in operation 
since  1 July  1994. 

The Commission  is carrying  out significant  improvements to the system, with  the aim of 
speeding  up  further  the  submission  of  information. 

25 

Computerization  of  the transit  system 

The  Commission, 
computerization  of  the  system  with  three  objectives  in mind  : 

the  Member  States  and 

the  EFTA  countries  embarked  on 

to make the transit procedures work more effectively  and efficiently  for  Customs 
services; 
to  improve  prevention  and  detection  of  fraud; 
to. make  transit  operations  more  fluid,  safer  and  quicker  for  economic  operators; 

As  stated  in the  Commission  communication,  national  and  community  investment  costs 
are  estimated  at  respectively  ECU  13  million  and  ECU  10 "million  over  five  years. 
Although  it  is  obvious  that  computerization  will  not  totally  wipe  out  fraud,  it  is  safe  to 
assume  that  the  cost  of  the  project  will  soon  be  recouped. 

Task  Force 

The  Commission  has  set  up  a  Community  Transit  Task  Force  to  monitor  closely  the 
implementation  of the reinforcements  and improvements to the system on the basis of the 
comprehensive  analysis  of  the  system  already  carried  out. 

2. 

The  Customs  2000  project 

On  4 April  1995  the  Commission  adopted  a  proposal  for  a  European  Parliament  and 
Council  decision63  adopting  a  Community  customs  action  programme,  to  run  from 
1  January  1996  to  31  December  2000,  to  develop  and  expand  on  the  pilot  operation 
launched  in  1994.64  The  programme,  called  Customs  2000,  is  designed  to  improve 
openness in the application of Community customs law and cooperation between  customs 
authorities  in  the  Member  States  so  as  to  improve  the  overall  performance  of  customs 
procedures  and  make  controls  at the  Union's  external  borders  more  uniform. 

The  programme  must  ensure  that  trade  can  flow  as smoothly  as possible  in  the  internal 
market,  as well  as  improving  the  recovery  of duties  and  providing  greater  protection  of 
the  Community's  financial  interests. 

This  is  to  be  achieved  through  operations  to  combat  customs  fraud,  as  part  of  the 
Commission's  overall  anti-fraud  policy,  focusing  on the  following  areas: 

* 

taking maximum advantage of existing legislative provisions and, where necessary, 
amending  them; 
improving  the  collection  and  exploitation  of  information  at  Community  level, 
making  the  fullest  use  of  information  technology  and  increasing  the  use  of 
computer  systems  by  customs  departments; 
eliminating  obstacles  that  impede  swift  action  and  effective  cooperation  by 
customs  investigators,  particularly  as regards  their  investigative  powers; 
ensuring  that  effective  penalties  are  applied; 

63 

64 

COM(95)  119  final. 
See the  annual  report  on  the  fight  against  fraud  for  1994, Chapter  1, Section  4. 

26 

conducting  and  expanding  coordinated  operations,  in  particular  Community 
investigation  and  inspection  visits to non-member  countries; 
developing  cooperation  with  non-member  countries,  in  particular  the  associated 
countries  of  Central  and  Eastern  Europe,  and  with  the  relevant  international 
organizations  and  professional  circles; 
ensuring  that  irregularities  are  followed  up. 

3. 

Chemical  substances  frequently  used  for the  illicit  manufacture  of  narcotics 
("precursors") 

Arrangements  for  Community  action  on the control  of precursors  is covered  by  Council 
Regulation  (EEC)  No  3677/90.65  The  Commission  has  made  sure  that  the  practical 
measures  needed  to  implement  this  regulation  have  also  been  extended  to  the  new 
Member  States.  It  is  also  planning  to  organize  training  courses  on  how  to  use  the 
Community  PREXCO66  database. 

Community  action  in  this  area  has  been  on  the  increase.67  Under  the  mutual  assistance 
arrangements  in  1995 the Commission notified  the Member  States of 36 cases, compared 
with  7 in  1994 

On 24 September the Commission was given a negotiating brief by the Council to discuss 
the implementation  of precursor  control agreements with the 34 member  countries of the 
Organization  of  American  States. On this basis negotiations  were  immediately  launched 
with  the  five  member  countries  of  the  Andean  Pact.68  The  negotiations  were  rapidly 
completed,  which meant that the Community  was able to adopt  and  sign the  agreements 
on  18 December  1995. 

Section  4: 

ADMINISTRATIVE  COOPERATION 

The  Commission  continued  to  follow  up  its  contacts  with  the  other  Community 
institutions regarding  its  1992 proposal  for  a regulation  on mutual  assistance  in the areas 
of  customs  and  agriculture.  The  proposal  improves  on  and  updates  the  corresponding 
provisions  of  Council  Regulation  (EEC) No  1469/8169 and provides  a legal  basis  for  the 
setting  up  of  a  database  to  hold  the  information  exchanged  under  the  CIS  (customs 
information  system)  in  cases  where  primary  responsibility  lies with  the  Community.70  , 

65 

66 

67 

68 

69 

70 

OJ  L  357, 20.12.1990.  Under Article 7 of this regulation, the provisions  of Regulation  (EEC)  No 
1468/81 on mutual assistance between Member States in the areas of customs and agriculture apply 
here  mutatis  mutandis. 
Precursor  Exportation  Control 
On  1 June  1995 responsibility  for  operations  in this area was transferred  from  DG  XXI  (customs 
and  indirect  taxation)  to  the  Secretariat-General's  fraud  prevention  unit,  UCLAF. 
Bolivia,  Colombia,  Ecuador,  Peru  and  Venezuela. 
OJL  144, 2.6.1981. 
See  the  annual  report  on  the  fight  against  fraud  for  1994,  Chapter  1,  Section  4.  and  Chapter  2, 
Section  1.2.3. 

27 

Concerning  the  Customs  Information  System,  the  Member  States  have  adopted,  in  the 
Title VI context, the convention on the use of information  systems in the field  of customs 
and reached an agreement on the provisional application of this convention between some 
of  the  Member  States.  The  convention  still  has to  be  ratified  in the  Member  States  and 
the central  database which will be the nucleus of the project  will not be  created until  the 
new mutual  assistance  regulation  is  in  force.71 

A common position on the regulation was adopted by the Council in December  1994 and 
transmitted  to  the  European  Parliament  in  July  1995.  The  latter  has  not  yet  taken  a 
position  on  the  text. 

At  intergovernmental  level,  a  convention  drawn  up  on  the  basis  of  Article  K.3  of  the 
Treaty  on  European  Union  on  the  use  of  information  technology  for  customs  purposes 
was  signed  on  26  July  1995.72  Among  other  things,  the  convention  provides  the  legal 
basis  for  including  in  a  database  information  to  help  in  combating  illicit  trafficking  in 
narcotics  and  other  restricted  products.  The  database  is to  be  set  up  following  adoption 
of  the  regulation  repealing  Regulation  (EEC)  No  1468/81  governing  the  areas  of 
Community  responsibility. 

Since the extension  of the network to include the new Member  States, there are now 323 
SCENT/CIS73  terminals  installed  at  departments  designated  by  the  Member  States  at 
administrative  headquarters  and  at  large  ports  and  airports.  As  a  computerized  tool  the 
network  may  be  used  for  data  on  both  Community  and  non-Community  matters. 

71 
72 
73 

See  Chapter  1, section  4  of  the  1994  Annual  Report  on  the  Fight  Against  Fraud. 
OJ  C  316,  27.11.1995, p.33. 
CIS  is  a  component  of  SCENT  (System  customs  enforcement  network). 

28 

CHAPTER  3: 

THE OTHER  INSTITUTIONS 

Each  of  the  other  Community  institutions,  in  its  particular  sphere,  has  continued  to 
develop  its  own  ideas  or  activities,  aiming,  like  the  Commission,  to  achieve  the  sort  of 
progress  in  the  fight  against  fraud  which  Europe's  citizens  and  taxpayers  wish  to  see. 

The  importance  of  relentlessly  pursuing  the  fight  against  fraud  has  been  emphasized  at 
the  highest  political  level.  Member  States  in  particular  are  being  urged  to  act,  but  the 
Community  institutions  must  also  respond.  Responsibility  for  achieving  results  in  this 
field  does  not,  therefore,  rest  with  the  Commission  alone.  Seen  in  this  light,  the 
development  of  effective  cooperation  between  the  institutions  is  an  important  element 
which  more  than justifies  the  decision  to  devote  a  separate  chapter  of  this  report  to  the 
anti-fraud  activities  of  the  European  Parliament,  the  Council  and  the  Court  of  Auditors 
in  1995. 

Section  1: 

THE  EUROPEAN  PARLIAMENT 

The  European  Parliament  is responsible  for  monitoring  the use of  Community  funds.  In 
its capacity  of budgetary  authority,  Parliament  discharges  this institutional  responsibility 
to  the  full,  acting  through  the  intermediary  of  its  Committee  on  Budgetary  Control  and 
bolstered by its democratic legitimacy. It is primarily through the work of this Committee 
that  Parliament  closely  follows  all  matters  relating  to  the  fight  against  fraud  and  the 
protection of the Community's financial  interests, taking specific  initiatives in these areas 
whenever  it  sees  fit. 

In addition to its normal activity of questioning the European institutions and monitoring 
the budget, and as a way of introducing the appropriate political dimension into its action, 
Parliament  organized  a public hearing  on the  fight  against  fraud  in the  European  Union 
budget,74  as  it  had  done  in  1993.  This  tackled  three  themes:  corruption  and  organized 
crime involving  the European  Union  budget,  recovery  of misappropriated  funds,  and  the 
legal protection of the European Union's financial  interests - legislation, investigation and 
prosecution  procedures. 

Parliament  also  exercised  the  new  power  of  inquiry  conferred  on  it  by  the  Treaty  on 
European  Union, using it for the first time in connection with the fight against fraud  and, 
particularly,  the  Community  transit  procedures,  a  subject  which  Parliament  had  already 
worked  on  and  discussed,  notably  in  its Committee  on Budgetary  Control.  A  temporary 
committee  of  inquiry  to  examine  the  critical  state  of  transit  procedures  was  set  up  by  a 
decision  adopted  on  13 December  1995. This is the first such committee to  be set up by 
Parliament  on  the  basis  of  Article  138(c)  of the  EC Treaty.  It has  17 members  and  will 
report  to  Parliament  within  12 months  of  the  publication  of  the  decision.75 

Finally,  the  European  Parliament  has  announced  an  inter-parliamentary  conference  (to 
which members of national parliaments will be invited), organized  on the initiative of  its 
President and dealing with fraud  affecting  the European Communities'  budget, to be held 
on  23  and  24  April  1996, to  coincide  with  the IGC. 

74 
75 

On  29  and  30  May  1995. 
It  was  published  in  OJ  C  7,  12.1.1996. 

29 

Section  2: 

THE  COUNCIL 

The Council achieved some particularly  gratifying  results as regards the protection  of the 
Community's  financial  interests  in  1995.  The  demands  made  by  the  Essen  European 
Council  in  December  1994  were  at  least  partly  met.  The  national  reports  and  the 
Commission's  comparative  study  (presented  in Madrid76)  and the  adoption  of  legislation 
(in Cannes and Madrid) represent the first step towards establishing the legal  foundations 
essential  to  the  effective  protection  of  Community  finances. 

Firstly,  the  Regulation  on  the  protection  of  the  Community's  financial  interests  was 
adopted  on  the  basis  of  the  Commission's  proposal  for  legislation  on  checks  and 
Community  administrative  measures  and  penalties  in  all  areas  of  the  budget.77  The 
Council  will  continue  its  efforts  to  introduce  legislation  on  checks  to  complement  this 
provision.  The  Madrid  European  Council  called  for  this  aspect  to  be  dealt  with  as  soon 
as possible,  and  in  any  event  by the  end  of the  first  half  of  1996.78 

Secondly,  once  its  working  parties  and  coordinating  committees  had  examined  the 
Commission's  Title  VI  proposals,79 the  Council  adopted  a convention  for  the  protection 
under  criminal  law  of  the  Community's  financial  interests  on  26  July  1995.80 

Because of the strategic  importance  of the political  message to be conveyed  to  Europe's 
citizens,  it  proved  impossible  to  conclude  the  debate  on  the  draft  convention  on  the 
protection  of  the  Community's  financial  interests  in the  time  envisaged  by  the  Council 
and  the  Commission.  A  supplementary  protocol  is  currently  under  discussion,  which 
would harmonize penalties for corruption among national and European officials  and  staff 
of  Community  and  national  institutions  and  agencies. 

Thirdly,  the  Council  will  continue  to  examine  and  analyse  the  national  reports  on  the 
application of Article 209(a) of the EC Treaty and on the measures taken to combat waste 
and  the  misuse  of  Community  financial  resources.  The  summary  prepared  by  the 
Commission  at  its  request  is  an  interim  report which  will  serve  as  a basis  for  continued 
analysis,  drawing  on  the  Council's  conclusions. 

76 

77 

78 

79 

80 

See Chapter  4,  single  section,  page 33. 
See Chapter  1, section  2,  point  1, page  10. 
The Council  has delegated work on this topic to its Budget Committee  (see  1994 annual report on 
The Fight  Against  Fraud,  chapter 4, section  3). This specialist  body has been prominent  since the 
introduction  of  the  Commission's  annual  anti-fraud  report  in  preparing  the  political  impetus 
articulated  by  the  Council  in  specific  conclusions  which  have  been  instrumental  in  securing 
substantial  progress  in  1995. 
See  the  chapter  and  section  of  the  1994  annual  report  on  The  Fight  Against  Fraud  referred  to 
above.  The  working  party  on  criminal  law  and  Community  law  was  particularly  active  in  1995, 
producing  significant  practical  results. 
See Chapter  1, section  3, page  13. 

30 

The  Madrid  European  Council  accordingly  concluded  that  over  and  above  the  principle 
of  assimilation  embodied  in the  first  paragraph  of  Article  209a  of  the  EC  Treaty,81  it  is 
the duty of both  Member  States and the Community  institutions to  ensure an  equivalent 
level  of protection  of  Community  finances  throughout  the  Union. 

* 

* 

* 

The need for continued efforts  to equip the Community with effective  means of protecting 
its  finances  and  ensuring  effective  penalties  for  serious  financial  fraud  was  strongly 
emphasized  at  the  Madrid  European  Council,  and  indeed  the  subject  of  fraud  and  the 
protection of the Community's financial  interests merited  a section of its own in the final 
conclusions. 

Section  3: 

THE  COURT  OF  AUDITORS 

In the course of carrying  out its traditional  tasks of examining  the legality  and regularity 
of  revenue  and  expenditure  and  ensuring  sound  financial  management  by 
the 
Communities, the  Court of Auditors, the body responsible for auditing the  Communities' 
finances, has had ample opportunity to reflect  on the problem of fraud in the  Community 
budget. 

In its annual report on the  1994 budget,82 the Court defined  its role in this area, reiterating 
that  prime  responsibility  for  the  prevention,  detection  and  investigation  of  fraud  rested 
with the authorities which manage and supervise the implementation of the Communities' 
financial  policies. 

Cooperation  with  the  Commission  is  particularly  important  in  this  respect,  for  the 
Commission  has  to  achieve  the  highest  possible  degree  of  transparency  in  all  its 
expenditure and revenue operations and at the same time lay down clear and precise rules 
on the specific  subject  of fraud  prevention  and the exchange  of  information  between  the 
specialized  departments  of  the  two  institutions. 

Procedures to strengthen co-operation between the Court of Auditors and the Commission 
are  currently  being  studied. 

Section  4: 

THE  COURT  OF  JUSTICE 

The Court  of Justice  of the European  Communities has always had  a vital part to play  in 
the  area  of  protecting  the  Community  budget.  The  importance  of  that  role  has  recently 
been  made  fully  evident  with  the  handing  down  of  a number  of  decisive judgments. 

The judgment of 21  September  198983 laid the foundations for Member States' obligations 
towards the Community  budget, which are now set out in the first and second  paragraphs 
of Article  209a of the EC Treaty, i.e.  the principle that they must take the same measures 

81 

82 

83 

See Chapter 4, single section, point 2, page 34. 
OJ C 303, 14.11.1995. 
Case 68/88  Yugoslav  maize. 

31 

to counter fraud  affecting  the financial  interests of the Community  as they take in relation 
to their own financial  interests, with details of how they should work together to this end. 
These  principles  have  since  been  confirmed  by  the  Court  in  the  judgment  given  on 
14 July  1994  in Milchwerke Kôln/  Wuppertal v HZA Koln/Rheinau*4 

In other cases referred  to in this report,85 particularly in Chapter  1, the Court gave detailed 
judgments  on the  lawfulness  of Community  administrative  penalties  imposed  in the  area 
of  the  common  agricultural  policy  and  recognized  the  Commission's  power  to  impose 
such  penalties  in  its  implementing  legislation  (judgments  of  27  October  199286  and 
12 October  1995).87  These  judgments  confirmed  the  Commission's  power  to  impose 
penalties including the temporary  exclusion  of an operator  from  entitlement  under an aid 
arrangement  and  payment  of  an  amount  greater  than  the  amounts  wrongly  received  or 
evaded.88 

Judicial  review  is  indeed  central  to  the  issue  and  must  be  confirmed  by  the  Title  VI 
instruments  relating  to  the  protection  of  the  Community's  financial  interests  under 
criminal  law. 

Although Article  8 of the Convention  of 26 July  1995 on the protection  of the  European 
Communities'  financial  interests confers  contentious jurisdiction  on the Court and  allows 
the Commission to refer  matters to it (in relation to Articles  1  and  10 of the Convention), 
the  question  of  competence  to  give  preliminary  rulings  remains  in  abeyance.89  The 
Commission  attached  to  its proposal  for  an additional  protocol  to the  Convention  on the 
protection  of  the  European  Communities'  financial  interests90  an  Article  17  providing, 
among  other  things,  for jurisdiction  to  give  preliminary  rulings  on  the  interpretation  of 
the  protocol.  The  Council's  working  party  on the  Court  of  Justice  responsible  for  these 
matters  is  at  present  negotiating  on  the  question  of  the  Court's  jurisdiction  to  give 
preliminary  rulings under the Europol  convention.  The Commission's  view  is that  at the 
very  least  any  result  of  these  negotiations  must  be  extended  to  the  Convention  on  the 
protection  of  the  European  Communities'  financial  interests,  given  the  pivotal  role 
assigned to the Court in specifying  the obligations borne by the Member  States in relation 
to  combating  fraud. 

84 
85 
86 

89 

90 

Case  C-352/92. 
See  also  the  1992  report  on  the  fight  against  fraud,  Title  I,  Section  2.8. 
Case  240/90. 
Case  104/94. 
Article  5  of  Council  Regulation  (EC,  Euratorp)  No  2988/95  on  the  protection  of  the  European 
Communities'  financial  interests). 
When the convention was signed, several of the delegations tabled declarations whereby  ratification 
at  a  late  date  would  be  subject  to  the  conferring  on  the  Court  of  Justice  of  powers  to  give 
preliminary  rulings  on the Europol  and CIS conventions  and the convention  on protection  for  the 
financial  interests  of  the  Community. 
See  Chapter  1, Section  3, point  2,  page  15. 

32 

CHAPTER  4: 

THE  MEMBER  STATES 

The inclusion  of Member  States'  anti-fraud  activities in the Commission's  annual  report 
is  a  natural  development  designed  to  strengthen  the  partnership  between  national 
authorities, which carry out considerable field work, and the Commission, which is bound 
by  its responsibility  for  the  budget  to monitor  the  proper  use  of  Community  funds.91 

The  fight  against  fraud  is  primarily  the  responsibility  of  the  Member  States  but  it  is  a 
matter  of concern to everyone. There were several  developments  in  1995 concerning  the 
separation  of  responsibilities,  which  led  to  concrete  action  at  the  highest  political  level. 
Between  the  Essen  European  Council  in  December  1994  and  the  Madrid  European 
Council  in  December  1995,  fifteen  national  reports  on  measures  taken  to  combat 
wastefulness  and  the misuse of Community  funds  were produced.  This  is the  subject  of 
the  first  section  of  this  chapter. 

Single  section: 

NATIONAL REPORTS ON THE MISUSE OF  COMMUNITY 
RESOURCES  - APPLICATION  OF  ARTICLE  209a 

In its conclusions  of  11 July  1994 the  Council  (Ecofin)  asked the  Commission  to  report 
on Member  States'  implementation  of Article  209a of the EC Treaty  by the end  of  1995 
at the  latest.92 

The Essen European  Council  (9  and  10 December  1994) called  on the Member  States to 
submit  reports  on the measures  they were  implementing  to combat  wastefulness  and  the 
misuse  of  Community  resources. 

The  Cannes  European  Council  (26  and  27 June  1995)  took  note  of  the  Member  States' 
reports  and  requested  the  Commission  to  prepare  a  comparative  summary,  which  was 
presented  at  the  Madrid  Council  (15 and  16 December  1995). 

1. 

Methods  used 

The  comparative  summary,  based  on  the  national  reports,  takes  stock  of  progress  in 
implementing  Article  209a of the EC Treaty  on protection  of the  Community's  financial 
interests and does a round-up  of the measures taken by the Member  States to combat  the 
misuse  of  Community  resources. 

To  ensure  that  the  national  reports  followed  a  standard  pattern  so  that  a  proper 
comparison  of  the  national  systems  could  be  made,  the  Commission  devised  a  general 
layout  for  the  reports  as requested  by the  Council and  this was approved  by the  Council 

91 

92 

It  should  not  be  forgotten  that  around  80%  of  Community  budget  expenditure  passes  through 
national  treasury  departments. 
O J C 2 9 2,  20.10.1994. 

33 

(Ecofin)  on 20  February  1995. By and  large the Member  States adhered  to the  proposed 
layout.  Even  so  there  were  considerable  differences  between  the  reports,  since  some 
Member  States  tended  to  stress  recent  developments  in their  legal  set-up  or  regulations, 
while  others  concentrated  more  on the  organization  of  their  inspection  departments. 

Overall, despite the short deadlines, the efforts  made by those who compiled the nationa-
reports enabled the Commission to produce the required  summary and report.93 To  satisfy 
the Council's request, the Commission also set out the avenues to be explored with a view 
to devising  operations to step up the fight against fraud  and wastefulness,  so as to ensure 
that  the  Community's  financial  interests  are  properly  protected. 

2. 

Implementation  of  the  first  paragraph  of  Article  209a  of  the  EC  Treaty: 
state  of  play 

The first paragraph of Article 209a of the EC Treaty reads: 'Member States shall take the 
same measures to counter fraud affecting the financial  interests of the Community, as they 
take  to  counter  fraud  affecting  their  own financial  interests''.  This  is  known  as  the 
'assimilation  principle'. 

This writes  into  the  Treaty  the  rule  enunciated  by  the  Court  of  Justice  in  Case  C-68/88 
[1989]  ECR  2965  (judgment  given  on  21.9.1989),  specifying  the  scope  of  the  first 
paragraph  of  Article  5. The  national  reports  reveal that the Member  States apply  Article 
5 of the  EC Treaty,  as interpreted  by the  Court,  in conjunction  with  Article  209a  of  the 
Treaty. Most  of them  accordingly  cover both the measures they have taken  to treat  fraud 
against  the  Community's  interests  in the  same  way  as  fraud  against  their  own  financial 
interests  and  the  effectiveness  of  their  systems  of  penalties  for  infringements  of 
Community  law. 

2.1 

Legal  instruments 

Preventive measures received  little attention.  The Member  States tended to have  separate 
systems of penalties for  revenue (covered by tax and customs law) and expenditure  (with 
minor  variations  depending  on the  category). 

In  the  case  of  revenue  the  extent  to  which  the  system  of  penalties  has  been 
assimilated  can  be  assessed  by  comparing  the  system  which  the  Member  States 
apply  to  Community  revenue  (traditional  own  resources)  and  the  system  they 
apply  to  their  own  revenue  (VAT,  excise  duties); 

In the  case of expenditure  certain Member  States have a specific  offence  of  fraud 
involving  subsidies,  which  also  covers  Community  financing. 

The  comparison  revealed  discrepancies  between  the  systems  applied  to  revenue  and 
expenditure  regarding  the effectiveness  of  the  legal measures  taken.  This means  that  the 
objective  for  certain  Member  States  should  be  to tighten  up  the  level  of  protection. 

Two  things  are  immediately  clear: 

93 

See  the  summary  report  entitled  "Comparative  Analysis"  and  the  recapitulative  document, 
COM(95)556  final. 

34 

the  comparative  analysis  revealed  that  only  part  of  the  necessary  data  had  been 
collected,  which  means  that  additional  information  is  needed,  particularly  as 
regards  prevention; 

the difference  between the approaches taken to revenue and expenditure raises the 
problem  of the consistency  and effectiveness  of operations, since it fails to  reflect 
the fact that the techniques of organized financial  crime vary according to the area 
of  activity,  but  are  broadly  similar  as between  revenue  and  expenditure. 

2.2 

Administrative  organization 

Departmental  organization  as  described  in  the  national  reports  shows  that  special 
structures  capable  of  dealing  with  own  resources  as  a  whole  either  already  exist  or  are 
being  set up. As regards the monitoring  of agricultural  expenditure, the national payment 
agencies are basically designed to achieve the quantitative targets set by Community rules. 
There is a predominance  of  independent  arrangements for  trade-related  measures (export 
refunds)  as there  is for  revenue  controls  (note in particular  the role of special  bodies and 
of  the  national  audit  bodies). 

The  Structural  Funds  are  subject  to  control  procedures  applied  by  the  authorities 
responsible  for  implementing  the  Community  programmes,  in particular  at  local  level. 

The  summary  analysis  shows  that  most  of  the  agencies  are  experienced  and  that  the 
effectiveness  of  their  controls has been proven  at the level  of national  finances  (customs 
duties, taxation). More generally, the public accounting rules that protect national finances 
in  all  the  Member  States  are  also  applied  to  Community  expenditure,  most  of  which  is 
channelled  through the national budgets. However, there is a lower  level of protection  of 
the  Community's  interests  than  in  the  case  of  revenue.  Since  the  controls  are  the 
responsibility  of  the  management  agencies,  which  are  unfamiliar  with  techniques  for 
combating  large-scale  fraud,  they tend to be of the traditional audit and account  checking 
kind  and  are,  therefore,  not  necessarily  the  most  effective  way  of  detecting  large-scale 
embezzlement  and  organized  crime. 

One way of significantly  increasing the level of protection of Community resources would 
be  to have  special  anti-fraud  controls carried  out by  specialists at national  level  grouped 
into  structures  with  far-reaching  powers  of  investigation  and  working  independently  of 
the  management  agencies. 

2.3 

Results 

Only half of the reports provided  actual figures  relating to the inspections carried out and 
the  administrative  and  legal  action  taken. 

In  any  case,  the  figures  given  need  to  be  approached  with  some  caution.  This  is  a 
sensitive  area,  and  all  sorts  of  interpretations  are  conceivable:  it  may  be  that  statistical 
notification  methods have improved  (which is a good thing in itself), or that the  anti-fraud 
departments  have  been  more  active,  or that  fraud  itself  has been  on the  upsurge. This  is 
doubtless  why  few  Member  states  provided  detailed  statistics  or  offered  analyses  or 
commentaries  in a directly  usable  form.  There was no  identification  of risk areas and  the 
sort  of  data  in 
standardized  form  that  would  need  to  be  examined  to  arrive  at  proper 
Community-wiae  typologies  was  unfortunately  not  provided. 

35 

The national reports do not provide enough information  to assess the level of assimilation 
of  recovery  procedures  for  misappropriated  funds.94  In  all  but  a  few  cases,  there  is  no 
mention of instruments relating primarily to public creditors (including Community ones). 
There  is no  description  of  the  procedures  and  no  mention  of  the  links  between  finance 
departments  and  investigation  departments. 

Furthermore,  for  the  purposes  of  cross-border  operations  there  should  be  greater  use  of 
the  opportunities  offered  by  mutual  assistance  in the  areas  of  customs  and  agriculture. 

3 . 

Implementation of  the  second paragraph of  Article  209a of  the EC Treaty: 
s t a te  of  p l ay 

The  second  paragraph  of  Article  209a  of  the  EC  Treaty,  which  is  intended  to  step  up 
cooperation,  reads  as  follows:  'Without  prejudice  to  other  provisions  of  this  Treaty, 
Member  States  shall  coordinate  their  action aimed at protecting  the  financial  interests  of 
the  Community  against  fraud.  To  this  end  they  shall  organize,  with  the  help,  of  the 
Commission,  close  and  regular  cooperation  between  the  competent  departments  of  their 
administrations.' 

This  new provision  supplements  the duties  laid  down  in the first paragraph  of  the  same 
article.  It is intended  to  create  the  necessary  conditions  for  stepping  up the  fight  against 
organized  crime  targeted  at  Community  finances.  This  will  require  the  introduction  of 
close and regular  cooperation  arrangements between the departments  involved.  With this 
particular  end  in  mind  the  Commission  set up  COCOLAF,  the  Advisory  Committee  for 
the  Coordination  of  Fraud  Prevention.95 

The  information  provided  by  the  Member  States  shows  that  considerable  use  is 
made  of  non-Community  administrative  cooperation  and  assistance  instruments. 
These  instruments  are  designed  to  protect  national  finances,  but  more  structured 
cooperation  arrangements  are  needed  to  achieve  the  level  of  protection  required 
for  Community  finances  under  Article  209a  of  the  EC  Treaty  and  to resolve  the 
difficulties  currently  encountered  (particularly  as regards the time taken to reply). 

The implementation  of more comprehensive cooperation on enforcement  to tackle 
cross-border  fraud  committed  by  organized  crime  rings  is  a  particular  aim  of 
Article  209a  of  the  EC  Treaty.  The  discrepancies  between  the  Member  States' 
judicial arrangements that showed up in the reports are a serious risk and highlight 
the  need  for  direct  and  prompt  cooperation. 

Some  of  the  reports  also  mention  police  cooperation,  without  making  a  clear 
distinction  between  it  and  judicial  cooperation.  The  value  of  administrative 
cooperation  in  this  area  right  from  the  initial  investigation  stage  is  made  clear 
(information  exchange  between  the  Member  States  and  with  the  Commission). 
Some very practical  suggestions are also put forward  on stepping up  enforcement 
cooperation,  such  as the possibility  of conferring  comparable  powers  on  national 
investigators. 

94 

95 

See Chapter  6,  section  4,  page  74. 
See Chapter  5,  section  2,  page 43. 

36 

The  national  reports make  it clear  that, although  the  Community  instruments  for 
administrative  cooperation  and  mutual  assistance  are  not  totally  neglected,  their 
full  potential  is  not  exploited.  Some  of  the  reports  even  referred  to  certain 
difficulties  that can slow down  investigations and  enforcement  proceedings,  such 
as administrative,  legal  and technical  differences  which hamper  the movement  of 
information  between  Member  States. 

4. 

Avenues  to  be  explored 

There are many, but  it has not proved possible to achieve the initial  aim  of this exercise, 
which was to discover  whether  there was a correlation  between the  measures  and  means 
intended  to  protect  national  finances  and  those  intended  to  protect  the  Community's 
financial  interests.  It  was  not  possible  to  produce  a proper  comparative  analysis  of  the 
results of the  fight  against national  and Community  fraud  owing to a lack of  sufficiently 
detailed  data. 

So although the principle of "assimilation" was clearly demonstrated, it is trickier to draw 
any  conclusions  on  exactly  how  far  this  has  progressed  in  the  Union.  Analysis  of  the 
arrangements  in place  (instruments,  organization)  reveals  that  by  and  large  Community 
revenue is better protected  than Community  expenditure  and that on the expenditure  side 
agricultural expenditure appears to be scrutinized more closely than expenditure under the 
Structural  Funds. 

Be  that  as  it  may,  as  our  inquiries  and  analyses  currently  stand,  there  are  insufficient 
grounds for concluding that there is 100% equivalence. In addition, protection of  financial 
interests  differs  according  to  the  Member  State.  There  needs  to  be  ongoing  evaluation 
of the practical  steps taken to ensure that the Community's financial  management is really 
transparent  and that  its financial  interests are protected  beyond  any doubt.  This leads  to 
the  thought  that  the  principle  of  assimilation  must  be  completed  by  the  concept  of 
equivalent  protection  throughout  the  Community. 

With this in mind, the Commission  has put a series of avenues to be  explored  at the  end 
of  each  descriptive  section  in the  summary  report  to  the  Council. 

One  set  of  considerations  concerns  the  assimilation  principle.  Apart  from  the 
problems  inherent  in  having  one  approach  for  protecting  revenue  and  another 
different  one for monitoring the proper use of expenditure, there is a need to adopt 
measures  that  are  up  to the job.  This means  measures  that  are  effective  and  that 
deter  crime rings specializing  in financial  crime. The same applies to  prevention, 
which  it  was  not  possible  to  analyse  sufficiently  on  the  basis  of  the  national 
reports. 

This realization points to the need for  a clear policy of administrative penalties in 
the  area  of  expenditure.  Penalties  of  this  type  already  exist  at  national  level. 
Obviously  they  are  independent,  but  they  could  be  added  to  the  Community 
administrative  penalties  that  are  provided  for,  in  the  area  of  agriculture  for 
example. The horizontal Commission regulation adopted by the Council lays down 

37 

a  legal  basis  that  should  serve  as  a  reference  framework,  for  example,  for 
introducing  effective  penalties  on the  expenditure  side  generally.96 

In the  same vein, the transposai  into national  legislation  of the convention  on the 
protection  of  the  Community's  financial  interests  should  provide  the  legal  basis 
the  Member  States  need  to  create  a  specific  offence  of  fraud  against  the 
Community  budget.97 In this context, it makes sense for  companies that enjoy  the 
benefit  of  Community  funds  to  incur  the penalties  in the  event  of  fraud. 

There  should  be  greater  equivalence  of penalties  between  the  Member  States, so 
as to avoid  creating  areas of  lighter enforcement  and  deflecting  business  towards 
the  "softer"  Member  States. 

A  second  set  of  considerations  concerns  the  organization  of  national  inspection 
arid  anti-fraud  departments.  Specialist  investigation  services  should  obtain  the 
necessary  powers  to  carry  out  their  tasks  in  an  increasingly  difficult  context. 
Moreover,  the  development  of  multidisciplinary  structures  with  wide-ranging 
investigative  powers  should  be  highlighted.  There  are  numerous  examples: 
Belgium's  OCDEFO  (Central  Office  for  the  Prevention  of  Organized  Economic 
and  Financial  Crime)  consists  of  operational  staff  specializing  in  customs  and 
taxation  as  well  as  prosecution  staff  and  police  officers.  Italy's  Guardia  di 
Finanza  is also on its way to becoming a key instrument  of a policy  laid down  at 
the  highest  level  by  the  Interministerial  Committee  for  the  Prevention  of 
Community  Fraud.98 

This list is far  from  exhaustive, but these  examples serve to show that there is an 
interesting  trend which  is significant  in that  it takes account  of the  special  nature 
of  Community  fraud  prevention  work  (lengthy  large-scale  investigations  that 
require  the  services  of  experts  in different  fields). 

A third  set of considerations concerns the results of anti-fraud  work. Reducing the 
risk of  fraud  involves extracting  the maximum benefit  from  intelligence  gathered 
in the  field.  For example, the national reports showed that the Member  States had 
become  aware  that  fraud  was  no  respecter  of  national  boundaries  and  had  taken 
measures  accordingly. 

Fraud  involves  such  a  vast  amount  of  information  that  more  detailed  knowledge 
of the results of anti-fraud  work is needed right from  the initial investigation  stage 
to  recovery  and  the  ordering  of  penalties. 

This  means  that  national  practices  should  be  made  more  similar  at  Community 
level. The same applies to controls, which should be made comparable throughout 

96 

97 

98 

See Chapter  1,  section  2,  page  10. 
See Chapter  1, section  3, page  13. 
This  Committee  was  set  up,  in  the  spirit  of  Article  209a  of  the  EC  Treaty  and  answers  to  the 
Prime  Minister's  own  department  for  the  coordination  of  Community  policies,  to  which  the 
operational  unit  of  the  Guardia  di  Finanza  established  by  Decree  of  the  Prime  Minister  dated 
11 June  1994  is  attached. 

38 

the  Community,  recovery  rules, administrative  penalties  and  the  rules  governing 
their  imposition. 

Several  of the national reports reveal the enduring desire for  simpler  Community 
regulations.  The  Commission  feels  the  same  way,  and  the  action  it  is taking  on 
this  subject  is  designed  to  ensure  that  fraud  is  not  facilitated  by  excessively 
complex  regulations. 

The last set of considerations concerns cooperation arrangements. A number of the 
national  reports acknowledge  the need  to develop them.  This may  provide  scope 
for  solving the problems mentioned in connection with the operation of the mutual 
assistance  mechanisms. 

There  is  also  a  need  to  improve  the  operational  links  between  the  various 
departments  responsible  for  prosecuting  the perpetrators  of  serious  and  complex 
fraud,  for  example  by  building  up personal  contacts  and  exchanges  of  officials. 

As regards  cooperation  at the enforcement  stage, the  information  provided  in the 
national  reports  reveals just  how  urgent  it  is  for  the  national  authorities  to  have 
effective  arrangements  to meet the need to protect the Union's  finances:  this will 
involve  more  fluid  information  exchanges  between  the  national  enforcement 
authorities  and  the  relevant  Commission  departments,  increasing  the  means  and 
powers available to fraud  investigators  and, in the area of criminal law, taking the 
measures  needed  to  implement  the  Convention  on the  protection  by  the  criminal 
law  of  the  Community's  financial  interests  as  quickly  as possible. 

In  the  same  vein,  emphasis  was  placed  on  the  need  to  adapt  the  information 
systems  for  the  Community  mutual  assistance  mechanisms.  Certain  cooperation 
arrangements  put  forward  by the reports  should be explored  and  built on (such as 
action  to  be  taken  on  cross-checking  of  goods  in  free  circulation). 

Mutual  assistance  on recovering  debts owed to the Community  needs to be made 
more  efficient,  regardless  of  which  budget  area  is  affected. 

The  Advisory  Committee  for  the  Coordination  of  Fraud  Prevention  meets 
regularly  to assess the strengths and weaknesses  of the arrangements and plan any 
necessary  alterations. 

The analysis  carried  out by the Commission  is the first stage in an ambitious  programme 
to  tackle  fraud  simultaneously  from  all  sides,  encompassing  all  aspects  of  anti-fraud 
activity  including  prevention,  enforcement  and  administrative  and judicial  cooperation. 
Maximum  use must be made of both the national  and Community  intelligence  set-ups, in 
line with the actual risks and circumstances encountered. Operations devised at the highest 
political  level  become  credible  only  when concrete progress  is made  in all areas  relating 
to  the  protection  of  the  Community's  financial  interests. 

39 

The  next  stages  in  the  programme  will  involve  putting  these  new  initiatives  into  effect 
and  progress  will  be  reported  on  at  forthcoming  European  Council  meetings. 

As stressed  by the Madrid  European  Council, Community  finances  cannot be  effectively 
protected unless the policies implemented are supervised  in a comparable way throughout 
the  Community.  Both  the  institutions  and  the  Member  States  are  working  towards  this 
end. 

40 

CHAPTER  5: 

COOPERATION  AND  PARTNERSHIP 

As  in  previous  years,  this  Chapter  describes  the  fraud  prevention  seminars  held  by  the 
Commission,  either  on  its  own  initiative  or  at  the  request  of  the  Member  States. 
In 
addition to these  seminars, contacts with the specialist  departments  at national  level  may 
take  the  form  of  bilateral  meetings  or  consultations  within  the  appropriate  institutional 
framework,  namely  the  Advisory  Committee  for  the  Coordination  of  Fraud  Prevention. 
In  1995  this  Committee  organized  its  work  so  as  to  provide  an  overall  view  of  fraud 
prevention  policy. 

The  Member  States, for  their  part,  are continuing  to  adapt their  specialized  departments 
to the interdisciplinary  and multisectoral  dimension  of Community  fraud.  Contacts  with 
the Commission  are on an ever-larger  scale and initiatives have been launched  in various 
areas.  Some  examples  are  given  in this  Chapter  (see  Section  3 below). 

Section  1: 

SEMINARS  AND  EXCHANGES  OF  OFFICIALS 

Since SG/UCLAF was set up in  1988, a large number of general  seminars have been held 
to  spread  awareness  of the  coordinated  action  taken  by  this Unit  and  the  Commission's 
other  specialist  departments.  These  seminars  have  dealt  with  a  wide  range  of  topics 
which  have  now  been  brought  to  the  attention  of  almost  all  the  departments  concerned 
in the  Member  States. 

It  was  essential  to  ensure  that  working  methods  (inspections  and  investigations  in  the 
field) were adapted  to the Community  dimension  of fraud.  Just as the economic  context 
is constantly  changing,  so too  are the  fraud  mechanisms  employed.  Initially,  therefore, 
the  aim  of the  general  seminars  held  by the  Commission  was to  acquaint  the  competent 
officials  with  the  characteristic  features  of  transnational  Community  fraud. 

These general  seminars (other than those held for the new Member  States) were  followed 
in  1995  by  special-subject  seminars.  In  accordance  with  its  work  programme,  the 
Commission  continued  to  hold  special  training  courses  for  the  officials  responsible  at 
national  level  for  the  prevention  of  fraud  against  the  Community  budget. 

In  1995  general  training  courses  were  held  for  officials  from  the  new  Member 
States:  in Brussels two  awareness-raising  seminars  were  held  for  a small  number 
of  senior  officials  ( for  Swedish,  Finnish  and  Austrian  officials);  seminars  were 
also  held  in the  Member  States  for  larger  groups  of  officials  (in  Finland  and  in 
Sweden).99 

The  officials  concerned  belonged  to the tax  inspectorates, customs,  audit  offices, 
police  and judicial  authorities. 

Another  of  the  Commission's  priorities  is  to  provide  specialist  training  for 
departments and bodies engaged in the fight against economic and financial  crime, 

99 

A  seminar  will  be held  in  Austria  in the  first  quarter  of  1996. 

41 

including  prosecution  and  other  legal  action  (on-the-spot  intervention  teams, 
administrative  and  legal  authorities, etc.). 

To  this  end,  special  training  courses  were  held  in  Brussels  in  1995:  for  senior 
officials  in  the  Danish  police;  for  inspectors  in  the  ECD  (a  branch  of  the  Dutch 
Ministry  of Economic Affairs);  for inspectors in Italy's Guardia  di Finanza.  Five 
seminars were held in the Member  States: in Portugal, a seminar on the  Structural 
Funds100  for  officials  of  the  IGAT  (the  Inspectorate-General  for  the  National 
Administration);  in  Cologne  (Germany),  a  seminar  for  prosecutors  dealing  with 
economic crimes, including  fraud  to the detriment of the Community  finances;  in 
Barcelona  (Spain),  a  seminar  on  the  Cohesion  Fund;  in  Deauville  (France),  a 
seminar  for  members of the Police Judiciaire (criminal  investigation  department); 
and  in  Athens  (Greece),  a  seminar  for  officials  responsible  for  management, 
surveillance  and  the  prosecution  of  irregularities  in  the  field  of  the  structural 
policies. 

By  holding  these  different  types  of  training  courses  the  Commission  hopes  to  develop 
direct  and  fruitful  cooperation  with  the  national  bodies  concerned.101  Direct  contact 
between  Community  officials  and  those  responsible  for  day-to-day  fraud  prevention  is 
seen by the Commission as a way of ensuring mutual understanding  and trust.  A similar 
aim  is  pursued  by  the  "workshops",102  where  preparations  are  made  for  enquiries  or 
multisectoral  investigations. 

As  part  of  the  grander  pre-membership  strategy,  the  Community  is  also  holding 
information  seminars and meetings in the countries of Central and  Eastern Europe  and is 
thus establishing contact with economic enforcement  officials,  with whom  it will soon be 
cooperating on the prosecution of fraud.  The first such information  seminar,  which  dealt 
with  operational  cooperation  and  the  exchange  of  data,  was  held  in  Brussels  on  10 and 
11 July  1995  and  was  attended  by  eight  customs  inspectors  from  the  Czech  Republic 
(with  whom  the  Commission  had  already  worked  on  certain  special  investigations). 

In  line  with  its policy  since  1994, the  seminars  which  the  Commission  plans  to  hold  in 
the near future  will be on a smaller scale (the most effective  format)  and will take a more 
specialized  approach. 

Lastly,  fourteen  seminars  were  held  in  1995  under  the  Matthaeus  programme  (a 
Community  action  programme  for  the  training  of  customs  officials  organized  by  DG 
XXI),  seven  of which  were particularly  concerned  with the prevention  of customs  fraud. 
Similarly, eleven seminars were held under the Matthaeus Tax programme.103  Three were 
held  specially  for  the  officials  responsible  for  VAT  and  excise  duties  in  the  three  new 

100 

101 

102 

103 

In  1996  particular  attention  will  be  given  to  training  in  this  particular  area  and  in  that  of  the 
Cohesion  Fund. 
See  Section  3  of this  Chapter. 
These  working  groups,  which  study  specific  cases, provide  an  excellent  opportunity  to  exchange 
views  on  the  problems  encountered  and  the  solutions  to  be  applied.  Generally  speaking,  these 
solutions  involve  closer  judicial  cooperation  or  call  for  resources  which  may  or  may  not  be 
available  (it  may  be  recommended  that  the  Commission  define  new  legal  bases). 
The  purpose  of  this  programme  is  to  improve  administrative  cooperation  and  develop  mutual 
understanding  as  Member  States  implement  the  single  market  in  the  field  of  indirect  taxation. 
Control  measures  to  prevent  fraud  are essential  in  this  area. 

42 

Member  States  and  dealt  with  the  Community  rules  governing  these  matters.  Officials 
from  the  Member  States  explained  the  operation  of  the  single  market  and  shared  their 
know-how  by  outlining  their  control  systems  and  mechanisms. 

These  Matthaeus  and  Matthaeus  Tax  programmes  also  lead  to  exchanges  of  officials 
between  the  Customs  administrations  of  the  Member  States  (390  in  1995) and  between 
the  administrations  responsible  for  fiscal  questions  (118  officials  in  1995).  There  were 
also  sixty  exchanges  between  Member  States under  a scheme  to  develop  audit  methods 
for  the  scrutiny  of  company  accounts. 

Section  2: 

THE  ADVISORY  COMMITTEE  FOR  THE  COORDINATION  OF 
FRAUD  PREVENTION 

The  activities  of  the  Advisory  Committee  expanded  considerably  in  1995.  Drawing  on 
the  experience  gained  in  1994,104 the  Commission,  which  chairs the  Committee,  and  the 
delegations  from  the  Member  States  continued  their  deliberations  on  various  subjects 
relating  to  the  protection  of  the  Community's  financial  interests,  with  special  reference 
to  the  Commission's  anti-fraud  programme  for  1995 and  its  1994 annual  report. 

In  1995  the  Committee  held  three  plenary  meetings:  on  1 February,  on  31 May  and 
1  June  (two  days)  and  on  4  October. 

The  usefulness  of  the  Committee's  work  was  emphasized  by  the  Council  in  its 
conclusions of  19 June and 27 November  1995 on the fight against  fraud,  particularly  as 
regards  the  monitoring  of  the  Commission's  anti-fraud  programme,  the  scrutiny  of  the 
1994  annual  report,  and  the  follow-up  to  the  national  reports  and  the  Commission's 
comparative  analysis  of  the  aspects  covered  by  the  EC  Treaty.105 

In addition to the scrutiny of the abovementioned  reports, the Committee's meetings were 
mainly concerned with the development of legal and operational means of achieving more 
effective  fraud  prevention.  The Committee provided a forum where Member  States could 
obtain  information  direct  from  Commission  staff. 

Wide-ranging discussions were held on matters relating to the regular flow of  information 
between  Member  States  and  between  the  specialized  national  departments  and  the 
Commission (UCLAF) (particularly as regards the notification  of irregularities discovered 
by  the  Member  States  in  the  field  of  the  Structural  Funds  and  the  Cohesion  Fund). 

The  nature  and  tasks  of  the  various  sectoral  committees  dealing  with  fraud  prevention 
were confirmed.  The  bodies  dealing  with each  specific  area  are thus the  Committee  for 
Mutual Assistance, the Advisory Committee on Own Resources (ACOR) and the Standing 
Committee  on  Administrative  Cooperation  in  the  field  of  Indirect  Taxes. 

These Committees may comprise subcommittees or "technical" working parties, which are 
attended  by  experts  from  the  Member  States  and  by  representatives  of  the  Commission 
departments  whose  activities  have  repercussions  on  fraud  prevention.  Mention  may  be 

104 

105 

The  Advisory  Committee  was  set  up  by  a  Commission  decision  of  23  February  1994.  See  the 
annual  report  on  the  fight  against  fraud  for  1994,  cited  above. 
See  Chapter  4,  single  section,  page 33. 

43 

made  of  the  SCENT/CIS  Working  Party  (which  answers  to  the  Committee  for  Mutual 
Assistance), the sub-group on irregularities in the agricultural  sector, the various working 
parties  on  data  processing  and  accounts,  the  ACOR  sub-group  on  recovery  and  the 
anti-fraud  sub-group  of  the  Standing  Committee  on  Administrative  Cooperation  in  the 
field  of  Indirect  Taxes. 

Section  3: 

PARTNERSHIP  WITH SPECIALIST DEPARTMENTS  IN THE 
MEMBER  STATES 

The Commission's annual report for  1994 mentioned the contacts established between the 
UCLAF  and  certain  specialized  bodies  in the Member  States.  These contacts, which are 
frequently  informal,  form  part of the overall policy pursued by the Commission under its 
fraud  prevention  programme. 

Know-how is exchanged  at meetings where the emphasis is placed on operational, aspects 
(directly  measurable  in terms  of  results)  of the  fraud  investigations  conducted  under  the 
partnership  arrangements.  Training  courses, special-subject  seminars  and  similar  events 
also provide  opportunities  which the Commission  earnestly  and  discreetly  endeavours  to 
exploit. 

The contacts established  in  1995 were constructive and positive, the Commission  having 
cooperated  throughout  the year with each of the national  departments responsible  for  the 
detection,  prosecution  and  prevention  of  fraud  committed  in  the  Member  States  to  the 
detriment  of  the  Community  budget.  These  were  primarily  the  customs  departments 
concerned  with  frauds  involving  complex  transactions  in the  trade  in products  requiring 
a  significant  degree  of  co-ordination  which  is  carried  out  using  procedures  well 
established  at Union level.  They  also included  the financial  control  departments  coming 
under the Ministries for Economic and Financial Affairs  (such as the Inspection  Générale 
des Finances  in France  and the IGAE106  in  Spain), the national  inspectorates  for  various 
sectors  (including  the  social  sector)  and  criminal  investigation  departments  in  cases 
requiring  prosecution  in  the  courts  (national  police  and  gendarmerie),  e.g.  organized 
financial  crime. 

One example is the Belgian OCDEFO  (Central Office  for  the fight against Economic and 
Financial  Crime).107  This  body  works  under  the  auspices  of  the  Ministry  of  Justice. 
Investigators  are placed  at  its disposal  by the Belgian gendarmerie, the Belgian  CID and 
the Comité  Supérieur  de Contrôle.  Since each of these bodies has  its own traditions and 
its own approach, the aim is (in the words of the report) to place new police methods and 
a  spirit  of  enterprise  at the  disposal  of  law enforcement. 

. 

The  OCDEFO  carries  out  operational  enquiries in those areas of  the  Community  budget 
which  are  directly  affected  by  large-scale  fraud.  It  also  investigates  money  laundering, 
serious  tax  offences,  stock-exchange  offences  and  serious  social  fraud. 

106 
107 

Intervention  General  de  la Administration  del  Estado. 
OCDEFO  published  its  first  report,  which  covered  1994,  in November  1995. 

44 

To  the  same  end  Italy's  Guardia  di  Finanza  has  set  up  a  special  unit  for  the  prevention 
of  Community  fraud.108 
It  aims  to  provide  an  appropriate  response  to  the  need  to 
implement the first paragraph  of Article  209a of the EC  Treaty, which  is concerned  with 
equivalent  protection  of the  Community's  financial  interests. 

The Guardia di Finanza is a multidisciplinary  body which deals with market  intervention 
as  well  as  own  resources  and  the  Structural  Funds.  It  has  all  the  necessary  means  for 
carrying  out  exhaustive  controls  in  all  parts  of  Italy. 

The  Italian  Government  intends  this  special  unit  to  be  responsible  chiefly  for  the 
centralized  management  of  control  operations  targeting  offences  against  the  EC  budget. 
Since  the  essential  purpose  of  the  unit  is  to  pursue  a  long-term  objective,  the  ongoing 
nature  of  its work  must  be  emphasized. 

In  Spain  the  Guardia  Civil  has  the  task  of  protecting  and  monitoring  the  State's  tax 
interests  and  is  responsible  for  taking  the  necessary  steps  to  prevent  any  type  of 
smuggling  on  land  or  sea. 

Combining  its roles of administrative police force  and criminal  investigation  department, 
the  Guardia  Civil  has  the  capacity  to  carry  out  all  sorts  of  investigations,  from  simple 
administrative  enquiries  to  the  prosecution  and  prevention  of  elaborate  offences 
perpetrated  by  transnational  criminal  organizations. 

Section  4: 

MUTUAL  ADMINISTRATIVE  ASSISTANCE  IN  CUSTOMS 
MATTERS BETWEEN THE COMMUNITY AND  NON-MEMBER 
COUNTRIES 

In  line  with  the  briefs  obtained  from  the  Council  for  the  negotiation  of  agreements 
containing  protocols  on  mutual  assistance  in  the  Customs  field,  the  Commission  held 
further  talks  with  several  non-member  countries  with  a  view  to  strengthening  the 
Community's  arrangements  for  the  prevention  of  customs  fraud. 

In  1995  agreements  containing  such  protocols  were  initialled  or  signed  with  Tunisia 
(signed  on  17 July),  Morocco  (initialled  on  16 November),  Israel  (initialled  on 
20 November  and  interim  agreement  signed  on  18 December),  Slovenia  (signed  on  17 
July  1995) and the  Trans-Caucasian  republics  (Armenia,  Azerbaijan,  Georgia,  signed  on 
15 and  19 December  1995). 

Pending  the  entry  into  force  of  the  agreements  signed  with  most  of  the  CIS  countries, 
interim agreements on mutual administrative assistance on customs matters falling  within 
the  Community's  sphere  of  competence  were  signed  with  Belarus  (June),  Kyrgyzstan 
(9  February),  Moldova  (2  October),  Russia  (17  July)  and  Ukraine  (1  June). 

On  1 January  1995 the free  trade  agreements  signed with the Baltic  States in  1994 came 
into force.  Moreover, the Europe Agreements signed with the Czech Republic,  Slovakia, 
Romania  and  Bulgaria  entered  into  force  on  1 February  1995,  thus  extending  mutual 
assistance  beyond the  confines  of  the  Community. 

108 

Known  as the  "Nucleo  Spéciale  per  la repressione  delle  frodi  comunitarie". 

. 

45 

Negotiations  continued  with  the  Faroes,  Jordan,  Egypt,  Lebanon,  South  Africa,  the 
United  States,  Canada  and  South-Korea. 

Lastly,  the  European  Parliament  approved  the  conclusion  of  an  agreement  on  customs 
union  between  the  Community  and  Turkey.  This  agreement,  which  also  includes  a 
protocol  on  mutual  assistance,  entered  into  force  on  1 January  1996. 

46 

CHAPTER  6: 

INVESTIGATIONS 

The  need  for  protection  for  the  Community's  financial  interests  becomes  clearer  with 
events  on  the  ground  every  year  that  passes.  The  range  of  forms  of  delinquent  conduct 
is  such  that  two  different  types  of  fraud  can  be  distinguished. 

The  first  is  fraud  (or  irregularity)  which  could  be  described  as  individual  forms  of 
conduct by economic operators seeking to use their competitive position on  international 
markets to boost  their market  share to the maximum,  often  interpreting the rules in ways 
that are at the limit of what is lawful.  Such cases may often  be national in scale, in which 
case the Commission's operational task is to support the Member States in their inspection 
and investigation  work by giving them the added benefit  of its experience of the methods 
in  force  at  the  Community  level,  depending  on  the  cases  involved  and  any  difficulties 
which  arise. 

Then  comes  conduct  which  is  deliberately  fraudulent  in  intent  and  organized  in  a 
thoroughly  businesslike way.  There are criminal  aspects to this type of fraud  which  need 
to  be  looked  at  in  the  broad  sense.  Such  fraud  is committed  either  by  individuals  who, 
because of the very nature of their activities, intentionally organize their activities in ways 
commonly  described  as  major  financial  crime  or  organized  crime  and  whose  ability  to 
mobilize  substantial  resources,  particularly  money,  is far  from  negligible.  There  is  also 
a  transnational  aspect  to  it,  and  there  may  well  be  a  congeries  of  individual  offences 
committed  in  several  Member  Slates  (the  multinational  aspect)  but  linked  to  each  other 
with a single, probably covert, decision-maker behind them. These can have a devastating 
effect  on  the  credit  of  the  Community,  its  institution  and  the  Member  States. 

The  Commission's  job  here  is  to  take  unmistakable  and  vigorous  action  against  this 
nuisance,  in  collaboration  with  the  Member  States'  investigation  services.  It  has 
accordingly  decided  to reorganize  its internal  structure  so that  a single,  independent  and 
specialized  department  is  responsible  for  providing  the  requisite  support  to  national 
authorities that do not have this type of structure. Investigating and detecting fraud  is not, 
of  course,  an  end  in itself.  The  need  is for  tougher  enforcement  measures  against  major 
crime and for  equivalent  criminal penalties in all Member  States for  serious fraud  against 
the  Community  budget;  the  scale  and  complexity  of  the problem  demand  an  immediate 
response  that  will  be have  the maximum  deterrent  effect.  That  is why,  in  the  context  of 
the Council's work,109 the Commission's paramount wish is that the Member States should 
reach agreement on implementing an appropriate penal policy. As soon as an investigation 
strays  beyond  national  frontiers,  the  Member  States'  scope  for  action  is m limited, 
procedures  are lengthy,  not to  say never-ending,  and the grounds  for  the  Commission  to 
act become  abundantly  obvious, especially  when it comes to the target  it has set itself  of 
successfully  establishing  effective  legal  cooperation  between  the  national  authorities 
responsible  for  investigating  cases. 

The  fact  is  that  fraud  on  this  scale  is  invariably  transnational.  The  higher  the  financial 
stakes,  the  more  sophisticated  the  methods  applied.  The  networks  behind  it  exploit  the 
smallest  loopholes  to  take  advantage  of  ongoing  developments  and  adjust  efficiently  by 

109 

See  Chapter  1, Section  4,  page  18. 

47 

setting up the requisite structures and establishing circuits for the exchange of  information 
and  money  in  arid  sometimes  even  outside  the  territory  of  the  European  Union. 

The difficulties  facing the Member  States and the Commission  are innumerable  and have 
to do with the peculiarities of this type of organized  financial  crime as it hides behind  an 
appearance  of  legality  to  conceal  its  main  objective,  which  is to  loot  the  Community's 
coffers.  It seeks to exploit to the full  the weaknesses generated by the combined  operation 
of  Community  rules  and  the national  legislation  governing  their  application,  in  order  to 
attack  sectors  identified  as vulnerable  and  more  difficult  to  monitor  where  the  potential 
gains are very high compared  with the risks, which  are still only minor  in the absence of 
a  proper  penal  response. 

One  of  the  main  areas  under  attack  is that  of  Community  transit,  where,  when  fraud  is 
detected,  the  application  of  the  guarantee  system  to  the  principal  is  still  not  widespread 
enough.1 w 

Organized  crime  is  also  active  in  other  types  of  fraud  against  the  Community  budget, 
particularly  fraud  involving  the origin and value of products exported  from  certain  third 
countries  to  the  Community,  and  the preference  arrangements. 

Inspections  carried  out  on  the  spot  show  that  fraud  by  some  operators  in  these  areas 
involves  several  Member  States  and  entails  making  identical  resources  available  over  a 
single period. The defence  systems some of these operators set up also presuppose  a high 
degree  of  preparation  and  collusion  between  suppliers  in  third  countries  and  importers. 

In  some  cases,  evidence  has  come  to  light  that  there  are  organizations,  generally  based 
outside the  Community,  which have  accomplices  in  several  countries  and  are  capable  of 
supplying certificates  of origin that are either false, or genuine but drawn up in the names 
of front  companies; these can be used by buyers in the Community to have goods released 
for  free  circulation  without  having to pay the normal  customs or  anti-dumping  duties  on 
them. 

In  other  cases,  the  initiative  in  carrying  out  the  fraud  has  come  from  within  the 
Community  itself.  For  instance,  European  companies,  fully  aware  of  the  circumstances, 
have non-originating  raw materials delivered to assembly  or processing firms and  import 
the  finished  products  under  certificates  of  preferential  origin  which  they  know  full  well 
have  been  wrongly  obtained. 

In  both  such  cases,  the  true  origin  of  the  goods  is,  at  least  on  the  surface,  "laundered" 
away by completing the customs formalities.  The consignees can market the goods in the 
Community  through  the  lawful  distribution  channels  without  having  to  run  the  risks  or 
face  the  extra  costs  associated  with  illicit  selling. 

*  * 

See  Chapter  2,  Section  3, point  1, page 23. 

48 

This chapter is, logically  enough,  structured to take account of these findings.  As the rise 
in the number  of transnational  fraud  cases discovered  has  shadowed  the  development  in 
import-export  dealings  between  the  Community  countries  and  with  third  countries,  it  is 
reasonable  to  group  all  the  sectors  concerned  under  one  heading  which  identifies  these 
particular  cases. 

The  statistics  speak  for  themselves: 

Of  12 000  cases  notified  by  the  Member  States  between  1991  and  1995  and 
affecting  traditional  own  resources  and  expenditure  financed  by  the  EAGGF 
Guarantee  Section,  120 (or  1%  of  the  total)  by  themselves  account  for  more 
than  50% of the total  budgetary  impact.  It has also  emerged  that  3% of  the  total 
number  of  cases  notified  by  the  Member  States  involve  individual  amounts  of 
more than ECU  1 million, which represents altogether more than two thirds of the 
overall  sum  notified  (in  evaded  duties  and  expenditure  diverted  or  unduly 
received). 

the  273  cases  under 

Of 
the  Commission, 
20%  involved  sums of more than ECU  100 000, and  in half of them the  amounts 
involved  were  more  than  ECU  1 million. 

investigation  co-ordinated  by 

Fraud  cases  involving  organized  crime  are  few  and  far  between,  but  their  effect  on  the 
budget is considerable. The Commission therefore  focuses particular efforts  on such cases 
because  it is in these  areas, where  fraud  is being  organized  from  one  or  more  countries, 
where  there  is  greatest  need  of  active  support  from  the  Community. 

The  illustrative  character,  financial  impact  and  variety  of  the  investigations  reported  in 
this  chapter  are  a  sign  of  the  need  for  both  the  national  and  Community  anti-fraud 
agencies  to  keep  up  the  alert  on  all  fronts. 

Section  1: 

MAJOR  ORGANIZED  TRANSNATIONAL  FRAUD  CASES 

This  section  describes  a number  of  inquiries  which  have  involved  the  carrying  out  of  a 
considerable  number  of  on-the-spot  controls  in partnership  with  the  Member  States.  In 
some  of  them,  carried  out  in  1995,  a  large  number  of  investigations  were  made  on  the 
spot  in  partnership  with  the  Member  States.  They  brought  to  light  major  fraudulent 
practices  involving  milk  products,  cereals  and  rice,  olive  oil,  beef,  tobacco,  sugar  and 
wine  products.  A  specific  paragraph  is  devoted  to  cigarette  smuggling  (a  matter  being 
dealt  with  by  a  special  task  force  in  the  Commission),  the  European  Social  Fund 
(structural  policies)  and  tourism  (direct  expenditure). 

The inquiries mentioned in this section have sometimes lead to missions of enquiry  spread 
out over several  years.111  The departments responsible  in the Member  States, working  in 
conjunction  with the  Commission,  made  great efforts  to detect  fraud  rings.  Major  fraud 
circuits have been brought to light, many of them operated by organized  crime networks. 
These  are complex  transnational  or  multinational  frauds  involving  a number  of  Member 

111 

Indeed,  certain  cases  have  been  mentioned  for  the  first  time  in  the  earlier  annual  reports,  in 
particular  those  of  1993  and  1994. 

49 

States  and  certain  non-member  countries.  The  response  has  been  to  establish  close 
cooperation  between the  departments  concerned  in Member  States and the  authorities  in 
the  non-member  countries. 

1.1 

Refined  sugar 112 

It  was  established  that  1 375  tonnes  of  C  sugar,  which  were  removed  from  export 
procedures  to  Eastern  Europe  and  never  actually  left  Italian  territory,  were  used  for 
domestic  wine  production.  The  same  investigation  further  revealed  that  some  1 243 
tonnes  of  non-C  sugar  were  later  used  for  sweetening  wine. 

Of  the  65  people  accused  of  smuggling,  irregular  use  of  sugar  in  wine  production,  tax 
offences  and  forgery,  38 were  remanded  in  custody. 

The Asti Public Prosecutor's  Office  informed  the Commission of the progress of judicial 
proceedings  in  Italy  in this  case  in  1995. 

The  Italian  authorities  still  have  to  ascertain  whether  other  offences  were  committed 
resulting  in  losses  for  the  Community  budget. 

1.2 

Exports  of  cheese,  meat  and  milk  products 113 

These products were diverted to Greece although they were declared for  export to Jordan, 
Bulgaria  and  Lebanon  with  payment  of  refunds. 

Investigations  revealed  that  the  fraud  was  the  work  of  organized  financial  crime 
professionals  using  networks  of  companies  in  Denmark,  Germany,  Cyprus  and  Greece, 
whose  names  changed  regularly  but  whose  role  was  always  the  same: 
to  claim  to  be 
exporting  outside  the  Community  with  payment  of  refunds. 

The  firms  operated  through  various  supply  channels  and  also  used  different  means  and 
methods  of  transport  to  escape  detection. 

Forged  certificates  for  release  for  consumption  in non-member  countries  were  produced 
in  support  of  the  applications  for  export  refunds  from  the  Community.  In  reality  the 
customs  documents  declaring  that  the  products  had  reached  their  destination  were 
forgeries,  as  the  products  were  reexported  to  the  Community  and  released  for  free 
circulation  in  Greece. 

Investigations  are  continuing  in  the  Member  States  concerned,  as  other  companies 
involved in the scheme have been identified.  An administrative cooperation mission went 
to  Bulgaria  to  collect  further  evidence. 

Criminal  proceedings  have  been  initiated  against  four  people,  one  in  Denmark,  one  in 
Germany  and  two  in  Greece. 

112 

113 

See the  annual  reports  on  the  fight  against  fraud  for  1993, Chapter 4,  Section  1.1,  and  for  1994, 
Chapter  5,  Section  2.2.1. 
See the  annual  report  on  the  fight  against  fraud  for  1994, Chapter  5,  Section  1.1.4. 

50 

Steps have been taken to recover ECU  5 million  in wrongly paid refunds  from  suppliers, 
and the customs  duties  and  agricultural  levies evaded  in Greece  since  1989 total  around 
ECU  9 million. 

1.3 

Imports  of  milk  pov ..er and  butter  into  the  Community 

114 

During  inquiries  carried  out  in the  Community  in  1991 and  1992 concerning  the 
removal  from  the  Community  transit  arrangement  of  some  200  consignments  of 
milk  powder  being  carried  from  Belgium  to  Spain  under  cover  of  customs 
documents  drawn  up  in  Antwerp,  Spanish  investigators  undertook  checks  at 
Spanish  companies  exporting  milk  powder  in  order  to  determine  where  the 
products  were  coming  from. 

They  found 
that  certain  companies  were  purchasing  milk  powder,  via 
intermediaries,  from  a firm claiming to be importing a chemical product  declared 
to  be  coming  from  the  Czech  and  Slovak  Republics. 

In  the  course  of  administrative  cooperation  missions  in  the  Czech  and  Slovak 
Republics in  1994 and  1995 under the protocol on mutual assistance, it was  found 
that  30  consignments  of  milk  powder  (720  tonnes)  and  some  200  consignments 
of  frozen  butter  (5  000 tonnes)  exported  from  these  countries  in  1992,  1993  and 
1994  had  been  covered  by  a false  declaration  of  product  in^Spain. 

The  products  falsely  declared  were  respectively  milk  powder  and  frozen  butter. 

The agricultural levies evaded in Spain are estimated at around ECU  15.7  million. 

During an administrative cooperation mission in Austria in  1994 it was found  that 
large  quantities  of  butter  and  milk  powder  originating  in  Eastern  Europe  were 
being  processed  in  Austria  (under  the  inward  processing  arrangements).  This 
processing  involved  adding  a  minimum  percentage  (less  than  1%)  of  prepared 
cultuie  mediums  (micro-organisms)  to  the  raw  material,  enabling  them  to  be 
imported  into the Community under a customs heading carrying no import duties. 

The  goods  were  then  exported  to  the  Community,  where  they  were  released  for 
free  circulation  (in Italy,  Germany  and  Spain) under  tariff  headings  for  which  no 
agricultural  levy was applied.  When the goods were cleared through customs, the 
operators presented  genuine tariff  papers  issued by the German authorities on  the 
basis  of  erroneous  information.  Tests  carried  out  ex post  showed  that  the  tariff 
classification  requested was not the right one.  Over 20  000 tonnes of milk powder 
and  over  6  000  tonnes  of  butter  were  wrongly  declared  in  this  way. 

The  duty  evaded  comes  to  over  ECU  66  million. 

See the  ai,:.ual  report  on  the  fight  against  fraud  for  1994,  Chapter  5,  Section  1.1.1, 

51 

1.4 

Removal  of milk  powder  and  butter  from  the Community  transit  arrangements115 

The  investigations  into  the  Spanish  companies  were  initiated  at  the  request  of  the 
Commission  following  the  discovery  of  purchases  of  milk  powder  outside  the  usual 
marketing  channels. 

In December  1995 the Spanish authorities questioned  four  members of an organized  gang 
making up a network of European companies irregularly bringing milk powder into  Spain 
from  Estonia. 

The  firms  involved  diverted  from  the  Community  external  transit  arrangements  to  the 
internal  market  650  tonnes  of  milk  powder  originating  in  Estonia  and  intended  for 
Morocco.  Included  in this smuggling network were two  Spanish companies based  in Vic 
and  Montornes  del  valles  whose  officers  were  charged  with  offences.  Additional 
investigations  by  specialized  departments  in the Member  State  concerned  are  continuing 
to  determine  what  role  was played  by  certain  Dutch,  French  and  German  companies. 

The investigations already completed in Germany, the Netherlands and Spain suggest that 
the  cost  to  the  Community  is  around  ECU  650 000. 

The Spanish authorities are investigating other similar fraudulent  operations involving  an 
estimated  ECU  1 million.  These  inquiries  are  being  coordinated  by  the  Commission, 
which  is  also  helping  with  the  preparation  of  criminal  proceedings. 

1.5 

Removal  of  sugar  from  the  Community  transit  or  TIR  arrangements 116 

In  June  1994  the  German  authorities  informed  the  Commission  about  a  case  of  fraud 
involving  the  dispatch  of  sugar  originating  in  the  Czech  Republic  and  Poland  to 
non-member  countries  (Morocco  and  Angola)  in  transit  through  the  Community.  The 
goods,  which  were  carried  by  Czech  and  Polish  haulage  companies  under  the  TIR 
convention,  were  supposed  to  have  left  the  Community  in  Spain  or  Portugal. 

In  actual  fact  the  goods  remained  in  Spain  and  Portugal,  after  customs  documents  with 
forged  stamps  were  presented. 

As the sugar was not exported out of the Community, the customs duties suspended  under 
the transit  arrangements  became payable.  A total  of  19 000 tonnes  of  sugar,  covered  by 
some 950 TIR carnets, was exported  in this way from  Poland  and the Czech  Republic  by 
some 150 different  haulage companies.  The Spanish and Portuguese authorities  confirmed 
that  the  fraud  had  taken  place,  in  that  the  sugar  dispatched  was  not  presented  at  the 
customs  offices  concerned. 

The  financial  impact  is  some  ECU  9 million. 

Judicial  proceedings  are  in  progress  in  the  countries  concerned  both  in  the  Community 
and  elsewhere. 

1 

See the  annual  report  on  the  fight  against  fraud  for  1994,  Chapter  5,  Section  1.1.1. 
See  the  annual  report  on  the  fight  against  fraud  for  1994,  Chapter  5,  Section  1.1.3. 

52 

1.6  Meat  carousel 117 

This  operation  involved  imports  of  live  cattle  from  Eastern  Europe  to  Italy  under  the 
inward  processing  arrangements  followed  by re-exports  of low-quality  cuts and offal  to 
Malta. 

After  being  stored  in  Malta  the  goods  were  brought  back  into  the  Community.  The 
investigations  which  the Italian  authorities,  in collaboration  with the Commission,  have 
now completed reveal that when the containers from  Malta and bound for Eastern  Europe 
were  passing  through  Italy  the  contents  were  removed  and  were  then  exported  with 
refunds,  along  with  other  products  from  the  internal  market,  to  various  non-member 
countries. 

The  financial  impact  of this matter  was finally  put at ECU 18.5 million  in evaded  levies 
and  ECU 24 million  in wrongly  paid  export  refunds. 

Working jointly  with the Italian authorities, the Commission sent a mission to Gabon, the 
main destination for the diverted products, which were systematically  declared for export 
as  "pieces  of meat  from  the hindquarters  of adult  male  bovine  animals".  Evidence was 
found  on the spot  that  most  of the products  reaching  their  destination  were  low-quality 
cuts  from  the  front  quarters  of  the  animal.  The  refund  papers  were  discharged  only 
because  the Gabonese  entries  for  home  use carried  the general  description  "beef. 

In  a number  of cases  it was shown  that  the Gabonese  import  declaration  carried  a clear 
description  of the real  nature  of the meat.  In those  cases the exporter  got an agency of 
an  international  security  company  to  replace  this  compromising  original  by  an  import 
certificate  describing the goods simply as "chilled beef.  Examination of the business and 
transport  papers  which  it  ought  to  have  carried  out  before  making  out  the  certificate 
would  have  enabled  it to  describe  the goods  in accordance  with  the reality. 

Criminal charges  have been brought  against  119 people for conspiracy,  fraud  against the 
Community  budget,  smuggling,  tax evasion,  forgery  and corruption. 

42  people  have  already  been  convicted  and  assets  worth  around  ECU 30 million  have 
been  confiscated. 

Because  of the  seriousness  of the case  the Commission  and the Italian  State  have  both 
asked  the judge  directing  the preliminary  investigation  in Turin  to join  a civil  action to 
the  criminal  proceedings. 

1.7 

Imports  of butter-based  food  products118 

Investigations  continued  in  1995  in  this  case  involving  imports  of  butter-based  food 
products originating  in Hungary  and the Czech Republic.  The products were declared as 
"sauce" (or liquid  butter)  when  imported  into  Italy  and San Marino,  with the result  that 
the  duties  due were  not paid. 

117 

See the annual  report  on the  fight  against  fraud  for  1994, Chapter  5, Section  2.2.2. 
See the annual  report  on the  fight  against  fraud  for  1994, Chapter  5,  Section  1.1.2. 

53 

Criminal  charges  have  been  brought  against  the  importer  in  Italy.  The  San  Marino 
authorities  are  responsible  for  recovering  the  arrears  on the  products  imported  into  San 
Marino.  The  recovery  procedure  is  still  in  progress  in  respect  of  the  duty  owed. 

It  was  established  that  the  goods  were  processed  in  part  into  butteroil  and  re-exported 
from  the  Community  with  payment  of  refunds.  Although  butteroil  does  qualify  for 
refunds, the amount may under no circumstances exceed the amount of import levies paid. 
All  the  destinations  of  the  consignments  to  the  Community  have  been  traced.  The 
Member  States  have  been  asked  to  recover  the  difference  between  refunds  paid  and 
import  levies  charged.  The  amounts  have  not  yet  been  determined. 

The  Italian  authorities'  investigations  have  further  revealed  that  the  same  network  was 
behind  the  irregular  imports  of  4  000  tonnes  of  Hungarian  butter,  declared  as  a 
cocoa-based preparation to evade customs duties and agricultural levies.  This product was 
then  sold,  mainly  in  France,  as Italian  butter. 

Investigations  are continuing  in France and Italy with a view to determining  the ultimate 
destination  of  these  products  and  the  exact  amount  of  the  wrongly  paid  refunds. 

Organized  crime  networks  were  found  to  be  involved  in  all  these  cases.  As  more 
than  one  Member  State  was  concerned,  it  was  soon  apparent  that  administrative 
action  at national  level  alone would  not put an end to the  fraud.  Judicial  cooperation 
between  Member  States  is more  necessary  than  ever,  if  only  to  implement  concerted 
action,  the  only  effective  way  of  bringing  the  perpetrators  to justice. 

1.8 

Removal  of  Czech  butter  from  the  Community  transit  arrangements 

This  case  concerns  the  irregular  removal  from  the  Community  transit  procedure 
(document  Tl)  in Italy of butter originating in the Czech Republic and being carried  from 
Denmark  to non-member  countries  (Egypt,  Hungary,  Slovenia,  etc.) without  payment  of 
customs  duties. 

The  Italian  authorities  seized  three  consignments  of  butter  being  carried  by  lorry  from 
Denmark;  the  destination  shown  on the  transport  documents  was  clearly  forged.  It  has 
not yet been possible to identify  with certainty the consignor and intermediaries  involved, 
but  it  has  been  established  that  a  Swiss resident  placed  most  of  the  orders,  which  were 
sent  from  the  Czech  Republic  via  Denmark  to  non-member  countries  and  then  invoiced 
to  front  companies  in the  Bahamas, the  Virgin  Islands  or  Switzerland. 

The investigations coordinated by the Commission  following  this initial discovery  further 
demonstrated  that  between  31 March  1994  and  27  September  1995,  46  of  the  91 
consignments  which  transited  through  Denmark  and  were declared  as being  re-exported 
to  non-member  countries  were  covered  by  forged  declarations  of  unloading. 

Most  of the customs offices  through  which the goods were leaving the  Community  were 
in  Italy  (Trieste,  Naples,  etc.).  The  customs  documents  were  discharged  by  means  of 
forged  stamps.  The goods were then  illegally brought back  into the Community  without 
the  customs  duties  and  agricultural  levies  being  paid. 

54 

The  investigations  are continuing  to determine whether  export refunds  were also paid on 
this  butter. 

The  investigations  launched  by  the  Commission  probably  put  a  stop  to  this  traffic. 
However,  since  27  September  1995, three new  consignments  of  Czech  butter  bound  for 
Portugal  (again  under  the  Community  transit  arrangements)  have  attracted  the  attention 
of the Swedish authorities in Malmô.  Two of these consignments were illegally unloaded 
and  the  third  was  seized  by  the  Portuguese  authorities  (on  the  basis  of  information 
supplied  by  the  Commission). 

Large  amounts  of  customs  duties  and  agricultural  levies  are  involved.  On  over 
2  700  tonnes  of  butter  they  will  come  to  some  ECU  6  million. 

The  person  behind  this  fraud  is  also  suspected  of  being  responsible  for  other  illegal 
consignments  of  butter  and  sugar  from  the  United  Kingdom  and  the  Netherlands  which 
were  discovered  in the  past  by  Italian  investigators. 

This  case  shows  how  quickly  criminal  organizations  can  adapt,  once  they  have  seen 
that  customs  officers  in  some  Member  States  have  their  eyes  open  for  consignments 
of  this  kind,  and  then  find  other  ways  of  concealing  their  illicit  trade  (e.g.  by 
operating  via  Denmark  and  Sweden). 

1.9 

Removal  of  beef  from  the  Community  transit  arrangements 

During the investigations  on the diversion of refined  sugar,119 it was found  that a number 
of  containers  of  beef  from  Argentina  were unloaded  in Rotterdam  and  placed  under  the 
external  Community  transit  arrangements  (Tl  documents)  for  carriage  to  Croatia.  The 
customs  documents  were  discharged  in Nice,  France,  where  a  local  transit  agent  issued 
new  transit  documents  which  were  then  discharged  by  means  of  forged  Italian  customs 
stamps.  The  beef  was  released  onto  the  Italian  market  without  payment  of  customs 
duties. 

The customs investigations into this transit agent revealed that there had  been many other 
similar  operations  with  consignments  unloaded  in  the  French  port  of  Le  Havre.  When 
it  entered  the  Community,  the  beef  belonged  to  two  British  companies  which  sold  it  to 
Italian  and  German  customers,  who  claimed  to  have  bought  it  in  good  faith  on  the 
internal  market. 

The  investigations  in  Italy  showed  that  this  was  not  entirely  true. 

Some  700  tonnes  of  beef  was 
ECU  3  million. 

involved  and 

the  duty  evaded 

totalled  around 

Judicial  proceedings  are  in  progress  in  France  and  Italy. 

19 

See the  annual  report  on  the  fight  against  fraud  for  1993, Chapter  4,  Section  1.1. 

55 

1.10  Removal  of  bananas  from  the  Community  transit  arrangements 

Bananas from  South America were unloaded  in various northern ports in the  Community. 
They  were  placed  under  the  Community  transit  arrangements  for  carriage  by  road  to 
non-member  countries.  This operation  is covered  by Tl  documents (all taxes and  duties 
being  suspended). 

On the basis of information  supplied by the Belgian and German customs, investigations, 
coordinated by the Commission, were carried out by specialized departments in these two 
countries.  They  brought  to  light  a  major  operation  involving  the  irregular  introduction 
of  bananas  into  Italy  without  payment  of customs  duties  and  agricultural  levies. 

The Italian authorities discovered in particular that a total of 290 consignments of bananas 
from  South America had been smuggled into Italy.  That represents some ECU  15  million 
in  evaded  duties. 

Eight  suspected  smugglers  were  arrested  and  charged  with  forging  customs  documents. 
Their  personal  assets  have  been  seized. 

Additional  enquiries are in progress to determine whether  consignments of the same type 
have  also  been  sent  to  other  Member  States. 

1.11  Fictitious  exports  of  wine  to  non-member  countries 

A close watch was kept  on two  ships suspected  of being  involved  in fictitious  exports of 
wine  to  non-member  countries.  Inquiries  by  Commission  departments  in  Italy,  France, 
Greece  and  Slovenia  brought  the  following  irregularities  to  light: 

Some  of  the  wine  carried  by  these  ships  was  exported  by  French,  Italian  and 
Greek  firms  with payment  of export  refunds.  These consignments  were  intended 
for  Croatia,  Slovenia,  Bosnia  and  Romania  but  were not placed  on the market  at 
destination.  They  were  placed  under  a  special  customs  arrangement,  similar  to 
inward  processing,  referred  to  on  the  documents  presented  as  proof  that  it  had 
been  released  onto  the  local  market; 

another  part  of the  consignment  was never unloaded  but diverted  to  Switzerland, 
for  which  no  export  refund  is payable.  In this  case forged  evidence  of  entry  for 
home  use  was  presented  so that  refunds  were  paid; 

the  remainder  of  the  wine  turned  out  to  be  a  substitute  product  which  did  not 
satisfy  the  quality  requirements  to be  eligible  for  refunds. 

The  Italian  and  Greek  authorities  have  started  judicial  proceedings  against  the  firms 
involved.  The  Commission  is  collaborating  with  the judicial  authorities  examining  the 
cases. 

Joint  action  by  the  Commission  and  the  Member  States  has  produced  the  following 
results: 

ECU  2 million was recovered  for  fictitious  exports of wine (which failed  to reach 
its  destination); 

56 

ECU  1.8  million  was  not  paid  as  the  paying  agencies  had  been  alerted  to  the 
fraud; 

recovery  procedures  are  in  progress  for  refunds  totalling  ECU  3  million. 

Further  inquiries  are  being  made. 

1.12  European  Social  Fund:  FLATHUS  programme 

The inquiry  initiated  by the  Commission  in November  1994 in the new  German  Lander 
focused  on the  transnational  part  of  the  FLATHUS  programme.120 

Inquiries,  which  continued  in  1995,  into  a  vocational  training  programme  for  young 
workers  in  the  new  Land  of  Thuringen  revealed  irregularities.  Community  funds  were 
being diverted  by the head of a Danish training institute with the complicity of a German 
national  official. 

The  investigations  have  so  far  brought  to  light  two  fraudulent  practices: 

1. 

Before  1993 the head of the institute in question had secured exclusive rights over 
most  of  the  transnational  training  operations.  Subsequently  he  had  obliged 
subcontractors (in France, Ireland and the United Kingdom), by means of a second 
contract, to pay part of the agreed amount either to a bank account in Luxembourg 
in  his  own  name  or  to  a. subsidiary  of  a German  technical  assistance  association 
in  Belgium. 

2. 

From  1993  onwards  fictitious  invoices  were  issued  for  services  allegedly 
performed  for  the  programme. 

Cooperation  and  coordination  of  inquiries  between  the  Commission  and  the  national 
administrative  and  judicial  authorities  gave  rise  to  suspicions  that  ESF  subsidies  were 
being used irregularly.  After conducting searches the German judicial authorities obtained 
hard  evidence  and  a  German  official  was  arrested. 

Inquiries  are  still  in  progress  in  the  Member  States  concerned. 

1.13  Tourism121  (direct  expenditure) 

After  the  matter  was  referred  to  the  Belgian  and  French  authorities  in  1994,  the 
Commission  sent the  results  of  the inquiries to  the  Greek  authorities  on  13 March  1995 
under  the  second  paragraph  of  Article  209a  of  the  EC  Treaty. 

Research  and inquiries  into all  aspects of tourism  policy  since  it was set up in  1989 have 
required  constant  coordination  by  anti-fraud  departments  and  the  active  assistance  of 
judicial  departments  in the  Member  States  concerned. 

120 

121 

FLATHUS:  FôrdermaBnahmen  des  Landes  Thuringen  mit  Unterstùtzung  des  Europâischen 
Sozialfonds  (Programme for the promotion of the Land Thuringen  with support from  the European 
Social  Fund). 
See the  annual  report  on  the  fight  against  fraud  for  1994,  Chapter  5,  Section  5.4. 

57 

The  procedures  set  in  motion  in  Belgium  and  France  revealed,  in  addition  to  the 
diversions  of  Community  funds  detected  in  1994,  large  secret  payments  to  members  of 
Commission  staff  in  return  for  the  award  of  grants.  The  necessary  investigations  were 
conducted  on Commission premises in Brussels, the Commission's  immunity  from  legal 
proceedings,  the  inviolability  of  its  documents,  buildings  and  archives  and  its  right  to 
business  confidentiality  were  waived. 

On the basis  of the  findings  in France  and Belgium  five  people  were  taken  into  custody 
(two  Commission  officials  and  three  recipients  of  grants). 

On the basis of the  internal  audit of the authorizing  departments, the  Commission  began 
disciplinary  proceedings  against  the  head  of  unit  managing  the policy  in  question  and  a 
temporary  staff  member.  The head  of unit was removed  from  his post  on  22  June  1995 
and  the  temporary  staff  member  was  dismissed  on  28  July  1995. 

At  the  same  time  orders  were  issued  for  the  recovery  of  ECU  1.4  million  from  15 
recipients  on the  basis  of  initial  controls. 

The  specific  features  of fraud  organized  both inside and outside the Commission  require 
the continuation of close collaboration between the Commission's anti-fraud  coordination 
departments  and  the  authorities  of  the  Member  States  in  order  to  provide  evidence  of 
responsibilities. 

Closer judicial  cooperation  in  this  new  area  should  make  it  possible  to  bring  all  those 
involved  in  such  types  of  fraud  before  the  Courts. 

1.14  Cigarette  smuggling 

Task  Forces122  are  being  set  up  to  combat  fraud  in  particularly  sensitive  areas.  This  is 
because  many  complex  and  highly  elaborate  fraud  networks  have  been  found  to  be 
operating  in  specific  sectors  with  the  result  that  missions  are  constantly  being  sent  out, 
notably  to  non-member  countries.  Task  forces  are  a  reflection  of  the  Commission's 
determination,  under  its  strategic  work  programme,  to  develop  operational  cooperation 
between  Member  States  and  with  non-member  countries  and  to  assign  a  maximum  of 
resources  to  tackling  major  cases  of  fraud  which  frequently  have  a  substantial  financial 
impact  on  the  Community  budget. 

The  Commission  set  up  a  first  task  force  (or  task  group)  in  1994  to  combat  cigarette 
smuggling, as perpetrated by organized gangs.123  This group is made up of officials  from 
the  Commission  and  representatives  of  investigation  departments  in  Member  States. 

The role  and  essential  task  of this group  is to work out  an overall  strategy,  to  assess  the 
information  available,  to  circulate  it  within  the  group  so  that  it  can  be  processed  and 

122 

123 

These  are  made  up  of  experts  from  the  Member  States  and  the  Commission  in  a  particularly 
sensitive  area  of  trade.  Their  role  is  to  share  information  common  to  a  number  of  fraud  files. 
They are to be distinguished from  ad hoc groups of investigators (Commission  and Member  States) 
handling  a specific  case  and  internal  Commission  task  forces  (TAFI,  transit,  tax  evasion,  etc.). 
See the  annual  report  on  the  fight  against  fraud  for  1994, Chapter  4,  Section  3.1.1. 

58 

exploited  by  the  departments  directly  concerned,  which  can  then  select,  coordinate  and 
become  involved  in correctly  targeted  international  operations. 

Within this framework  a homogeneous  strategy  has been  set up, to  apply  at  Community 
level  and based  on  administrative,  operational  and technical  cooperation.  This  illustrates 
the  response  to  the  fact  that  the  'other  side'  is  an  organization  operating  not  just 
Community-wide but sometimes even world-wide. Combating fraud  of this kind demands 
an organized,  structured response constructed  on an ad hoc basis to correspond to the case 
in  hand. 

A number  of operations mounted jointly  with the Member  States, involving  international 
investigations,  have  led  to  the  identification  and  discovery  of  a  number  of  major 
smuggling  routes,  in  particular  involving  transport  and  illegal  trade  in  cigarettes  in  the 
southern  Member  States. 

Some  of  these  operations  are  in progress;  an  important  feature  is  investigations  on  the 
ground in which the Task Group is fully  involved alongside the Member  States and which 
have  led  to  the  dismantling  of  large  smuggling  networks  and  the  identification  of  the 
associated  administrative  networks. 

Investigations coordinated  by the Commission in Denmark, Portugal and  Spain  identified 
a  stock  of  92  million  cigarettes  illegally  diverted  during  the  transit  procedure  from 
Denmark to Portugal.  The procedure was discharged by means of forged  stamps intended 
as  proof  that  the  cigarettes  had  been  through  Portuguese  customs.  The  customs  duties 
evaded  total  some  ECU  15 million124.  Recovery  procedures  are  in  progress. 

Similar 
investigations  uncovered  a  stock  of  some  102 million  cigarettes  (with 
ECU  13 million  in  evaded  duty)  which  had  been  diverted  from  Finland  and  Sweden  to 
Spain.  The  duty  is  in  the  process  of  being  recovered. 

Judicial investigations are being conducted in Spain and Portugal with a view to indicting 
the  main  offenders. 

Other  investigations  into  the  fraudulent  reimportation  into  the  Community  of  cigarettes 
initially  bound  for  non-member  countries  were  carried  out  in  Austria,  Germany,  the 
Netherlands,  Greece  and  Italy.  These  were  part  of  wider  operations  designed  to  breach 
the  UN  embargo  on  former  Yugoslavia.  Some  120 million  cigarettes  were  seized  in 
Germany, Italy  and the Netherlands.  Two aircraft  suspected of being used to  circumvent 
the  UN  sanctions  were  seized  by  the  Dutch  authorities. 

The  information  compiled  in the course  of these  inquiries  is directly  connected  with  the 
result of investigations being conducted  at the same time in another  Member  State where 
130 million  cigarettes  have  been  seized  and those  responsible  for  this  smuggling,  which 
involves over a billion cigarettes and lost resources of around ECU  100 million, are being 
prosecuted. 

Other  inquiries are being  coordinated  by the Commission,  in particular  in France,  Spain, 
Ireland  and  the  United  Kingdom  (100  million  cigarettes  seized  and  around  ECU  10 

124 

All  the  amounts  quoted  on  this  case  also  include  an estimate  of the  national  resources  involved. 

59 

million  in  resources  lost);  another  case  has  been  uncovered  in  Spain  (450  million 
cigarettes  and  ECU  45  million  in  lost  revenue). 

Additional  inquiries  are  in progress  in  Portugal  after  76  lorry-loads  of  cigarettes  bound 
for Eastern Europe failed to turn up at the exit customs offices  in Germany, the procedure 
having  been discharged  by forged  German  customs  stamps (the  duties involved  come  to 
around  ECU  76 million).  A  further  seven  lorries bound  for  Switzerland  likewise  failed 
to reach their  destination  (amounts  involved:  around  ECU  7 million).  Eight  containers 
belonging  to  the  same  organization  were  seized  in  Portugal. 

The Commission is showing that by conducting and coordinating such operations through 
the  Task  Group  it  can  reasonably  hope  to  secure  all  guarantees  of  long-term  results,  as 
the  information  compiled  at  various  levels  reveals  the  modus  operandi  of  the  criminal 
organization  thus  helping  to  identify  the  authors  and  put  them  out  of  action. 

Similarly  the  determination  to  take  administrative  and  judicial  action  is  designed  to 
produce  a  significant  improvement  in  cooperation  with  the  authorities  in  non-member 
countries.  This  determination  is now  beginning  to  bear  fruit. 

it  is 

indispensable  for  cooperation  between  Member  States  and 

Clearly 
the 
Commission  to  be  legitimized  not only in practice but also by unequivocal  legislative 
instruments  giving  the  Commission  the  power  to  add  value  both  at  the  investigation 
stage  and  at  the  prosecution  stage.  It  is  high  time  that  the  judicial  cooperation 
instruments  conceived  in  a  different  environment  and  now  visibly  obsolete  be 
replaced  by  something  more  appropriate.125 

Section  2: 

MAJOR 
PREFERENTIAL  AGREEMENTS126 

FRAUDS  RELATING  TO  ORIGIN  AND 

The measures  and privileges  accorded  in the  framework  of targeted  commercial  policies 
which are subject to misappropriation mainly concern the preferential  agreements but also 
anti-dumping  duties  and  textile  agreements  (quantitative  limits). 

Frauds  committed  in these  different  sectors  are  increasingly  complex  and  often  involve 
several  of  these  provisions  at  the  same  time.  The  inquiries  presented  in  this  section 
represent  typical  examples  of  the  complexity  of  these  frauds  not  only  in their  financial 
aspect  where  the  consequences  for  the  Community  budget  in  cases  of  evaded  customs 
duties  can  be  very  weighty  but  also  in  their  economic  implications  in  cases  of 
misappropriations  which  distort  the  conditions  laid  down  in  the  commercial  policies 
defined  between  the  Community  and  non-member  countries. 

125 
126 

See  Chapter  1, section  4,  beginning  at  page  18. 
Preferential  schemes  include  the  autonomous  GSP  (Generalized  System  of  Preferences)  and  all 
Preferential  schemes  include  the  autonomous C 
concessionary  schemes  set  up  by  agreements  with  non-member  countries. 

60 

2.1 

Industrial  goods 

2.1.1  Computer  diskettes  - Macao 

In May  1995  representatives  from  the Commission  and two  Member  States took  part  in 
an  administrative  cooperation  mission  to  Macao  to  check  the  origin  of  more  than 
200  million  diskettes  imported  from  there  since  July  1993. 

On-the-spot  investigations  revealed  that  the  diskettes  had  been  exported  from  Macao 
under cover of certificates of non-preferential  origin,127 although they could not have been 
assembled  there.  The  diskettes  must  have  been  imported  from  China  under  a  false 
description  and  re-exported  from  Macao.  This  trade  had  continued  right  up  until  the 
arrival  of  the  mission  in  Macao  and  involved  a total  of  some  126.6 million  diskettes. 

The  other  73.9  million  diskettes  had  been  produced  locally,  but  production  consisted 
merely  of  assembling  semi-finished  products  supplied  by  Chinese  factories  (the  same 
factories which supplied the re-exported diskettes), using Japanese, Korean and  American 
components. 

In these circumstances, anti-dumping  duties applicable to diskettes of Chinese origin will 
have to  be paid  on  all  these goods, falsely  declared  to  be of Macao  origin.  The  amount 
of  own  resources  at  stake  runs  to  ECU  18.7 million  for  the  period  from  July  1993  to 
April  1995. 

2.1.2  Computer  diskettes  -  Thailand 

the 
In  March  1995  a  Community  delegation,  consisting  of  representatives  from 
Commission  and  the two Member  States chiefly  concerned,  carried  out an  administrative 
cooperation  mission  to  determine  the origin  of  more  than  50 million  diskettes  imported 
from  Thailand  since  August  1993. 

* 

Initial investigations revealed that around 5.4  million diskettes, declared  as originating  in 
Thailand,  but  actually  shipped  from  Hong  Kong,  had  been  imported  using  false 
in  subsequent 
certificates  of  non-preferential  Thai  origin. 
investigations  showed  that  these  goods,  which  were  not  sent  from  Thailand,  had  been 
manufactured  in China and re-exported via Hong  Kong.  They should therefore  have been 
subject  to  anti-dumping  duties  applicable  to  diskettes  of  Chinese  origin. 

Evidence  gathered 

On-the-spot  inquiries  also revealed  that  nearly  44.8  million  diskettes  which  had  actually 
been exported  from  Thailand  under  cover  of  certificates  of  preferential  origin  issued  by 
the  relevant  authorities  were  not  eligible  for  preferential  treatment,  either  because  they 
had previously  been imported  into Thailand  (24.1  million  units), or because  of the value 
of  the  imported  components  used  in  assembly  in  Thailand  (20.7  million  units). 

127 

Certificates  of  preferential  origin  are  issued  by  the  authorities  of  the  exporting  country  so  that 
goods  can  be  imported  into  the  Community  at  a reduced  (or  zero)  rate  of  customs  duty.  These 
certificates  are  binding  on  the  customs  authorities  at  the  office  of  entry  into  the  Community. 
These certificates  are presented to the Community  customs  authorities  (offices  of entry), to obtain 
the benefits  of the preferential  system.  Certificates  of non-preferential  origin  are also  issued  by 
the  authorities  of the  exporting  country,  to  define  the  origin  of goods  for  whatever  purpose  may 
be  required. 

61 

In view of the assembly  conditions  in Thailand  and the origin of the components used to 
assemble finished products re-exported from Thailand, customs duties will also be applied 
to  the  diskettes  imported  into  the  Community  under  cover  of  certificates  of  preferential 
origin. 

The  amount  of  own  resources  evaded  comprises  ECU  617  000  in  customs  duties  for 
44.8  million  diskettes  and  ECU  4  170 000  in  anti-dumping  duties  for  imports  totalling 
50.2  million  diskettes. 

A  few  months  after  the  mission,  the  Thai  authorities  acknowledged  that  the  certificates 
of preferential  origin  had  been  wrongly  issued.  It may  therefore  be  possible  to  recover 
the customs duties  evaded  using  false  descriptions  of preferential  origin,  but recovery  of 
the anti-dumping  duties which are economically  of greater  significance  than the abuse of 
preferences  accorded  requires additional  investigations to be carried  out to  determine the 
real  (non-preferential)  origin  of  the  goods. 

2.1.3  Bicycles  from  Vietnam 

the 
In  April  1995  a  Community  delegation,  consisting  of  representatives  from 
Commission  and  the  Member  States  chiefly  concerned,  undertook  an  administrative 
cooperation mission to check the origin of 523  241 bicycles exported from  Vietnam using 
certificates  of  preferential  origin  since  April  1992. 

The  bicycles  had  been  assembled  in  Vietnam  using  imported  components  supplied  by a 
Hong  Kong  firm,  which  also  exported  Chinese  bicycles  to  the  Community.  Despite 
facing  a number  of difficulties  - the importer in Vietnam tried to prevent  access to stocks 
of  components  and  documents  - the  mission  was able to prove that  all the  materials  had 
been imported  from  China and Hong  Kong and that the certificates  of preferential  origin 
issued  for  these  products  since  1992  were  incorrect. 

The  amount  of  customs  duties  evaded  runs  to  ECU  6.85  million. 
In  view  of  the 
circumstances in which the products were finally assembled, anti-dumping duties totalling 
ECU  9.78  million  may  be  payable. 

At  the  end  of  the  mission,  the  Vietnamese  authorities,  which  afforded  the  Community 
mission  all  the  assistance  it  required,  acknowledged  that  the  certificates  of  preferential 
origin  had  been  wrongly  issued.  They  have  now  put  a  stop to  these  practices. 

The Commission has identified  exports of this kind to France (the principal  Member  State 
involved),  the  United  Kingdom,  Belgium,  Germany  and  Denmark. 

* 

* 

* 

This information  was established following  inquiries carried out in non-member  countries 
jointly  by  the  member  States  and  the  Commission.  The  latter  is committed  to  carrying 
out  inquiries  of this kind  because, without  results or findings  on the  ground,  no  concrete 
result is possible.  In this regard,  it should be noted that other missions planned  for  1995, 
at  the  Commission's  initiative  or  at  the  request  of  Member  States,  had  to  be  postponed 
because  of  a  lack  of  cooperation  on  the  part  of  the  non-member  countries  concerned, 

62 

namely  Indonesia  and  Malaysia  (computer  diskettes)  and  the  Philippines  (satellite 
broadcasting  receivers). 

Since  these  delays  may  jeopardize  the  subsequent  establishment  of  the  own  resources 
entitlements  at stake, the Commission has urged all the Member  States concerned  to take 
guarantee  measures. 

In  addition  to  false  declarations  of  origin,  it  has  been  established  that  frauds  aimed  at 
evading payment  of anti-dumping  duties were committed by groups or linked  companies 
by  means  of  false  declarations  of  value,  covered  by  false  documents  or  invoices  issued 
by  companies  established  in tax  havens. 

The  Commission  has  notified  the  Member  States,  under  Council  Regulation  (EEC) 
No  1468/81 (mutual  administrative  assistance), of certain findings  which gave rise to the 
establishment  in  1995  of  import  and  antidumping  duties  evaded  by  means  of  false 
declarations  affecting  the tariff  classification,  origin  or  value  of  goods. 

On  the  basis  of  this  information  alone,  the  Member  States  have  established  that  duties 
amounting  to  an  overall  figure  of  ECU  5.7  million  were  evaded,  including  ECU  3.85 
million of anti-dumping duties, resulting from  false declarations of the value of potassium 
imports. 

It  is  worth  stressing  that  formal  transmission  of  information  to  the  Commission  by  the 
Member  States is vital  for  its monitoring  of the results of investigations  and recovery  of 

128 

own  resources. 

2.2 

Textiles 

2.2.1  Honduras 
Doubts  arose as to the true origin  of tee-shirts imported  into the Community  which  were 
declared  as originating  in  Honduras.  A Community  administrative  cooperation  mission 
went to Honduras in May  1995 to work with the local authorities on checking the validity 
of  more  than  1 200  certificates  of  preferential  origin  apparently  issued  in Honduras  and 
submitted  since  1991 on import  into the Community (particularly  in the Netherlands  and, 
to  a  lesser  extent,  Germany  and  Belgium). 

It  was  found  that  1 188  of  these  certificates  were  entirely  false  and  that  the  imported 
goods  in question  had  never  been  on  Hondluran territory,  but  had  in  fact  been  loaded  in 
various  Asian  ports  (particularly  in  China)  and  shipped  direct  to  the  Community. 

Another  52  certificates  had  actually  been  issued  by  the  Honduras  authorities,  but  for 
products  which  had  not  been  manufactured  there  under  the  terms  of  the  GSP  (General 
System  of  Preferences)  rules  of  origin. 

All the certificates  concerned  have therefore  been cancelled by the Honduran  authorities. 
The  amount  of  duties  evaded  comes  to more  than  ECU  2 million,  relating  to more  than 
12 million  items  of  clothing. 

128 

See  1994  Report,  Chapter  1,  Section  1 and  Chapter  6,  Section 3.1. 

63 

Armed with this information,  the Member  States concerned  can now initiate  proceedings 
to  recover  the  duties  evaded. 

Investigations  are  continuing  into  the  true  origin  of  the  goods  which  were  not 
manufactured  in  Honduras  in  order  to  charge  the  quantities  concerned  (more  than  10 
million  items,  mainly  tee-shirts)  to the  quotas  of  the  country  of  actual  origin  (probably 
China). 

2.2.2  Nepal 

In July  1995 the  Commission  organized  an administrative  cooperation  mission  to  Nepal 
to  work  with  the  relevant  Nepalese  authorities  on  checking  the  validity  of  more  than 
500  GSP  certificates  of  origin  supposedly  issued  there,  which  were  submitted  on  the 
import  of  textile  goods  into  the  Community. 

The  investigation  revealed  that  45  of  these  certificates  of  origin,  concerning  more  than 
10 million  items, had  been  falsified.  The  goods  covered  by these  certificates  had  never 
been  on Nepalese  territory,  but  had  been  imported  into  the  Community  direct  from  the 
Far  East.  Inquiries  continue  to  establish  the  true  origin  of  the  goods  described  on  the 
false  certificates  and  to  obtain  economic  compensation  with  regard  to  the  non-member 
countries  concerned  (situated  in the  Far  East). 

It  was  also  established  that  153 other  certificates  of  origin  had  been  wrongly  issued  for 
products  manufactured  in  Nepal  in  breach  of  the  Community's  GSP  rules  of  origin. 
Although  the manufacturers,  who also exported  the goods in question,  had  made  written 
statements  on the matter,  the Nepalese  authorities  had not  deemed  it necessary  to  cancel 
the  offending  certificates.  They  were  therefore  formally  requested  in  writing  to  check 
once  more  the  validity  of  the  certificates  and  inform  the  Commission  of  their  findings, 
within  the prescribed  time-limit.  In the  Commission's  view,  the  only  possible  outcome 
is that  the  certificates  be  declared  invalid. 

Serious doubts have arisen  as to the legality  of a further  285  certificates  of origin.  They 
have  been  sent  to  the Nepalese  authorities  for  ex post  checks. 

The  amount  of  own  resources  at  stake  in  connection  with  the  fake  or  wrongly  issued 
certificates  comes  to  ECU  2  million. 

2.2.3  Laos 

A  Community  delegation  to  Laos  in November  1995, made  up  of  representatives  from 
the  Commission  and  five  Member  States  (France,  Germany,  Denmark,  the  Netherlands 
and  the  United  Kingdom)  found  that  300  certificates  of  origin  presented  on  the  import 
into the Community  of around 4 million  items of clothing had been forged:  they  had  not 
been  issued  by  the  Laos  authorities.  At  the  same  time,  2  700  other  certificates  of 
preferential  origin  (concerning  22  million  items)  had  been  wrongly  issued  for  goods 
which  did  not  meet  the  criteria  applicable  under  the  GSP. 

The  delegation's  findings  were  endorsed  by  the  Laos  authorities,  which  confirmed  in 
writing  that  all  the  goods  inspected  were  ineligible  for  preferential  treatment  on  import 
into  the  Community.  The  certificates  of  origin  were  either  fake  or  issued  in  error. 

64 

However,  as  a  less-developed  country,  Laos  may  ask  for  a  derogation  from  the 
Community's  GSP  rules  of  origin.  The  authorities  have  therefore  requested  permission 
to  continue  to  use  fabrics  imported  from  other  Asian  countries  for  manufacture. 

The  Member  States  concerned  now  have  the  necessary  information  at  their  disposal  to 
pursue investigations into Community importers and recover the customs duties involved. 
The  amount  of  own  resources  at  stake  comes to  nearly  ECU  7  million. 

However,  further  investigations  will  be  necessary  to  identify  the  true  origin  of  the 
products imported  into the Community using the false certificates  (about 4 million items) 
so  as to  obtain  a  charge  on  the  quantitative  limits  of  this  country. 

2.2.4.  Textiles  from  China129 

Consultations were held with China in  1995 with a view to charging certain quantities  of 
textiles  imported  illegally  between  1990  and  1993  to  the  quantitative  limits  applicable 
under  its textiles  agreement  with  the  Community. 

Investigations had confirmed that the goods in question were of Chinese origin.  They had 
been imported into the Community either as contraband (evading the transit arrangements) 
or  as  goods  supposedly  originating  in  other  countries. 

China  has  agreed  that  13 778  000  items  may  be  charged  to  its  quantitative  limits  for 
1995.  This  quantity  corrresponds  to about  20% of the  Chinese  quota  for  the  year  1995, 
for  the  category  "textile  4"  (tee-shirts  etc.). 

2.2.5  Textile  goods  from  the  United  Arab  Emirates  (TJAE)130 

Investigations  have  covered  a number  of  different  cases  and  circuits. 

In January  1995  Commission  representatives  visited  the  UAE to work  out  new  methods 
of cooperation for  identifying  the true origin, as opposed to the declared  origin, of a large 
number  of  consignments  of  textile  goods  from  the  UAE  to  the  Community. 

In  July  the  Commission  sent  the  UAE  authorities,  as  agreed,  a  list  supplied  by  the 
Member  States  concerned  so  that  the  UAE  could  launch  the  appropriate  preliminary 
investigations.  This  list  contains  details  of  more  than  1 300  consignments  covering 
around 80  million products, including tee-shirts corresponding approximately to the quota 
for  China  for  1995  or  to  150% of  the  quota  for  India  for .the  same  year.  However,  by 
October on-the-spot  investigations  had  hardly begun  and no findings  were yet  available. 
The  Commission  therefore  reminded  the  UAE  authorities  of  their  obligations  in  this 
respect. 

On the basis of negotiating  briefs  approved  by the  Council,  Commission  representatives * 
held  discussions  with  the  UAE  authorities  in  Abu  Dhabi  in  October  1995  on  the 
conclusion  of  a bilateral  agreement  on trade  in textile goods, which  would,  among  other 

129 

130 

See  1994  Report,  Chapter  5,  Section  3.2.1. 
See  1994  Report,  Chapter  5,  Section  3.2.1. 

65 

things, establish a system for  inspecting exports of textiles from  the UAE (licences, etc.). 
The  agreement  was  initialled  on  11 November  1995. 

2.3 

Fishery  products 

2.3.1  Salt  cod  from  Iceland 

A  Community  delegation,  consisting  of  representatives  from  the  Commission  and  the 
Member  State  concerned,  visited  Iceland  in  April  1995  as  part  of  an  administrative 
cooperation  mission  to  check  the  preferential  origin  of  consignments  of  salt  cod. 

The investigations  revealed that several  local firms had used fish originating  in Russia in 
the manufacture  of products which were then exported to the Community,  contrary to the 
agreement between the Community  and Iceland on preferential  tariff  treatment.  The own 
resources  at  stake  amount  to  ECU  1 million. 

Other  firms  importing  salt  cod  from  Russia  had  obviously  learned  lessons  from  the 
investigations  into  the  "shrimps"  case,131  as  they  had  re-exported  the  finished  products 
manufactured  using ingredients not originating  in Iceland to non-member  countries only, 
thereby justifying  the  certificates  issued  for  the products  exported  to the  Community. 

The Icelandic  authorities have declared  the inapplicable certificates  of preferential  origin 
invalid  and  have  launched  recovery  proceedings  against  the  importers  concerned. 

2.3.2  Canned  tuna  from  Ecuador 

Following  Community missions to Ecuador in March and October  1994 the five Member 
States concerned  have begun proceedings to recover the customs duties evaded,  totalling 
ECU  11 million. 

After  the  investigations  in  Ecuador,  a  Community  mission  visited  the  United  States  to 
gather  evidence  that  importers  in  three  Member  States  were  fully  aware  that  they  were 
carrying  out  illegal  imports. 

131 

See  1992  Report. 

66 

These  Community  missions  in  non-member  countries  are  organized  either  at  the 
request  of  one  or  more  Member  States  or  at  the  Commission's  initiative  (the 
Commission  handles  relations  with  such  countries).  The  aim  is  to  seek  for  all 
evidence  that  may  help  as-' îrtain  whether  exported  goods  are  in  a  lawful  position  as 
regards  origin  and  then  gather  evidence  to  determine  the  scope  of  the  fraud  and  the 
damage  it has  caused. 

Clearly  this  is  the  first  stage,  still  upstream  of  the  heavy  burden  of  investigation 
work  needed  to  provide  an  assurance  that  the  rules  of  origin  and  the  various 
preference  schemes  are  being  properly  applied  and  to  prove  what  diversions  are 
taking  place. 

In  any  event,  where  there  is  failure 
to  abide  by  the  terms  of  preferential 
arrangements  established  by  agreements  or  on  an  autonomous  basis,  the  Member 
State  will  obviously  have  to  proceed  to  recover  amounts  due  by  way  of  Community 
revenue. 

Moreover,  on  the  basis  of  findings  and  reports  of  Community  missions,  the  national 
authorities  will  have  to  pursue  inquiries  to  ascertain  whether  the  fraud  was 
intentional  and  come  to  the  proper  conclusions  as  regards  penalties,  especially  in 
cases  of  fraud  within  the  definitions  of  the  Convention  for  the  protection  of  the 
Community's  financial  interests  that  must  be  referred  to the  criminal  courts. 

The  Commission  will  do  all  that  is  necessary  in  1996  to  act  in  response  to  the 
the  form  of  a 
current  situation  and  will  propose  a  political 
communication  concerning  preferential  schemes  as  has  been  done  for 
transit 
arrangements. 

initiative 

in 

Section  3: 

OTHER  FRAUDS  IN  AGRICULTURE 

This  section  covers  a selection  of  inquiries  affecting  a large  variety  of  measures  (export 
refunds,  various  types  of  production  aid),  showing  that  investigations  are  being  carried 
out  into  a growing  number  of  sectors.  Some  of  these  cases  have  been  found  to  reflect 
errors  of  interpretation  of  Community  rules,  but  in  others  there  has  been  deliberately 
fraud 
fraudulent 
mechanisms. 

intent,  the  methods  used  in  such  cases  revealing  sophisticated 

67 

3.1 

Exports  of  sugar  to  Sweden 

In  August  1995  the  Swedish  authorities  reported  a  case  of  possible  commercial 
speculation involving  sugar, which had taken place just before  Sweden's accession to the 
European  Union.132 

A Swedish company, whose main line of business is not trading  in sugar,  stocked  around 
25  000 tonnes  of  sugar  in two  warehouses. 

Inquiries  in  Sweden  revealed  that  22  000 tonnes  of this  sugar,  which  had  been  exported 
from  Germany  and  France to  Sweden  in the  last  two  months  of  1994, were  re-exported 
in  1995  to  Germany  and  Greece. 

Some  ECU  6.5  million  was paid  in  export  refunds  in  Germany,  Belgium  and  France. 

Further investigations are in progress in a number of Member States to determine whether 
the  export  refunds  paid  were  not  claimed  a  second  time  after  the  sugar  was  reimported 
into  the  Community. 

3.2 

Imports  of  rice  into  Sweden  (taxation  of  surplus  stocks) 

An  inquiry  was  conducted  in  Sweden  concerning  the  possible  taxation  of  surplus  rice 
stocks  when  Sweden joined  the  European  Union. 

Trade statistics supplied  by the Swedish authorities  showed an increase in rice imports of 
around  73  000  tonnes  in  1994 in relation to average  annual  imports  from  1991 to  1993. 

Five firms were inspected  and were found  to have large stocks of rice.  All five explained 
that  the  price  of  rice  per  kilo  was  likely  to  double  in  the  event  of  Sweden joining  the 
(between  October  and 
in 
European  Union,  hence 
December  1994),  the  main  purpose  being  to  satisfy  demand  on  the  domestic  market 
before  the  price  increase. 

increase 

imports 

their 

the 

Commission  departments  asked  the  Swedish  authorities  to  examine  surplus  stocks  over 
the  three  preceding  years  on  a  case-by-case  basis  along  with  all  accounting  and 
commercial  documents  available,  in  particular  documents  relating  to  stockkeeping  and 
invoicing  (purchases  and  sales). 

3.3 

Imports  and  re-exports  of  olive  oil  (Italy  and Austria") 

The Commission  received  information  about imports into Italy of  1 091  tonnes of virgin 
olive  oil,  originating  in  Tunisia,  and  exported  direct  to  Austria  on  29  December  1994. 

This  quantity  was  therefore  imported  into  Austria  before  its  accession  to  the  European 
Union  and  was  thus  taxable  as  surplus  stock. 

Within the framework  of Commission  Regulation  (EC) No 3108/94 on transitional  measures to be 
adopted  on  account  of  the  accession  of  Austria,  Sweden  and  Finland  in  respect  of  trade  in 
agricultural  products  (OJ  L  328,  20.12.1994). 

68 

The  Commission's  inquiries  revealed  that  802 440  kg  of olive  oil  had  been  re-exported 
from  Austria  to  Italy. 

At the Commission's request the Austrian authorities levied a tax of ECU  846  537 on the 
surplus stock.  As the Austrian exporter  is now bankrupt,  there are doubts about  whether 
this tax  will  be  recovered. 

As regards  the  802  440  kg  of olive  oil reimported  into Italy, the  Commission  asked  the 
Italian  authorities to ensure, in accordance with the rules applying in  such cases, that no 
application  for  consumption  aid  was made. 

Investigations  in  Italy  revealed  that  this  aid  had  in  fact  been  granted.  The  Italian 
authorities  have  taken  all  the  appropriate  measures  to recover  the  amount  paid. 

The  lesson  to  be  learned  from  these  three  cases  concerning  Sweden  and  Austria  is 
that  only  systematic  physical  checks  conducted  by  the  local  authorities  under  the 
existing  rules  are  capable  of  detecting  irregularities  in  transactions  of  this  kind 
(import/export  of  "temporarily  sensitive" products). 

3.4 

Imports  of  frozen  beef  tongue  originating  in  Argentina 

in  Argentina  was 

Inquiries  in  France,  Italy  and  Portugal  revealed  that  at  least  450  tonnes  of  frozen  beef 
tongue  originating 
the  Community  between 
September  1993  and  December  1994.  This  meat  was  accompanied  by  forged  health 
certificates.  When  the  copies  of  the  authentic  certificates  archived  by  the  relevant 
departments  in Argentina  were  examined,  it was  found  that the destination  of  the  meat, 
which  did  not  qualify  for  entry  into  the  Community,  was  Angola,  via  Lisbon 
(17  containers). 

imported 

into 

Because of health restrictions on imports of offal  originating in various countries in South 
America,  fraud  of  this  kind  poses  a  real  threat  for  animal  health  (spread  of  foot  and 
mouth  disease).  The financial risk  is also substantial  since, in the event  of infection,  the 
Member  States and  the  Community  will have to  bear the cost of  combating  the  disease. 

The  matter  has  been  referred  to the  Portuguese judicial  authorities. 

3.5 

Exports  of  Swiss  Emmental 

Emmental,  gruyère  and  Sbrinz  cheese  are  entitled  to  a reduced  level  of  duty  on  import 
into the  Community,  provided  the  minimum  price  rule  is respected.  Producers  of  these 
Swiss  cheeses  must  go through  the  USF  (Swiss  Cheese Union)  to obtain  the  guaranteed 
price  (on  the  Swiss  market)  and  a  document  certifying  that  the  minimum  price  is 
respected  (IMA. 1)  for  the  purposes  of  export  to  the  Community.  For  years,  however, 
large quantities of Emmental cheese have been exported to companies in France, Germany 
and  Italy;  the  USF  has  been  certifying  that  prices  charged  by  the  exporting  companies 
were  below  the  minimum  price.  But  the  USF  has  then  been  refunding  direct  to  the 
Community  importers  part  of  the  selling  price  corresponding  to  the  difference  between 
the Community market price and the price charged by the exporters.  Hence the minimum 
import  price  was  no  longer  applied. 

69 

The Commission  sent a mission  to Berne  in May  1995 with  the  agreement  of  the  Swiss 
Federal  Authorities. 

The  initial  findings  enabled  the  Italian  authorities  to  begin  investigations  of  the  main 
importers  in  Italy.  The  present  indications  are that  at  least  ECU  13 million  in  customs 
duties have  been  evaded. 

Similar inquiries are currently nearing  completion in Germany  and France.  The  German 
customs have sent the files On four  importers in Konstanz to the judicial  authorities.  The 
duties evaded in this specific  case are estimated at ECU  1.2 million.  French customs,  for 
their part, have informed  four other importers that procedures have been set in motion  for 
the  recovery  of  some  ECU  3.9  million. 

3.6 

Advance  financing  of  export  refunds  for  meal 

A  team  of  inspectors  went  to  Spain  to  visit  firms  which  received  this  type  of  advance 
financing  in  1995.  The  stocks  of  durum  wheat  and  meal  were  checked  against  the 
quantities declared  for  advance  financing  by operators with due allowance  for  exports in 
the  meantime. 

Two of the three  firms  inspected  were  found  to have been  involved  in fraud.  In the  first 
the  "missing"  quantity  was  17 719  tonnes  of  durum  wheat,  and  for  the  second 
28  998 tonnes  of  durum  wheat  and  616 tonnes  of  meal  were  missing. 

These  quantities  were  totally  unrelated  to  what  was  declared  for  advance  financing  and 
also  to  the  storage  capacity  on  site. 

The  inadequacy  of  the  physical  controls  by  national  authorities  enabled  certain 
unscrupulous  operators  to  make  false  declarations  and  thus  receive  undue  advance 
payments  (around  ECU  1.49 million)  and also to distort the rules of competition  in their 
favour. 

These  facts  confirm  the  Commission's  view  that  in  a  case  of  this  type  where  the 
amount  of  aid  involved  is  directly  linked  to  the  quantity  of  products,  it  is  essential 
that  physical  checks  be  carried  out  to  avert  any  attempt  at  fraud. 

3.7 

Exports  of  rice  from  the  United  Kingdom  to  Sweden 

The British authorities  informed  the  Commission  of a case of fraud  involving  a  quantity 
of  rice  exported  to  Sweden  under  the  inward  processing  arrangements. 

It had  been declared  as  "unmilled  rice", whereas  after  sampling  and testing  it was  found 
to  be  broken  rice  (a product  of  inferior  quality  to  what  had  been  declared). 

These exports133 were by a British  subsidiary of a Dutch company.  Incorrect  declarations 
had been made  allowing  an equivalent  quantity of rice to be imported  from  non-member 
countries  (under  the  same  customs  references)  without  payment  of  customs  duties. 

133 

A system  of  export  ahead  of  inward  processing  arrangements. 

70 

The financial  loss to the Community is around ECU  5 million (traditional own resources). 

The  Commission  is  coordinating  the  procedures  for  recovering  the  evaded  revenue 
(Netherlands  and  United  Kingdom). 

3.8 

Olive  oil 

The Commission  collaborated  with the public prosecutor's  office  at the court of Vasto  in 
Italy  in  a  case  concerning  the  sweetening  of  olive  oil  which  adversely  affected  the 
Community  budget. 

The  fraud  began  in  1990 after  a Roman  trading  and  export  company  took  over  an  olive 
oil  producing  company. 

The  scheme  is as follows:  the production  company  has stocks of  olive  oil,  olive-residue 
oil  and  seed oil.134  It sells seed oil to other companies  in return  for  the purchase  of olive 
oil.  In  actual  fact  no products  are transferred,  but  fictitious  purchase  and  sales  invoices 
are  issued  (false  transport  documents  are also produced  and false  invoices  are  issued  by 
transport  companies  involved  in the  fraud  ring). 

The  main  protagonists  admitted  that  the  oil  sold  was  never  pure  (mixtures  of  olive  oil, 
olive-residue  oil,  seed  oil  and  palm  oil)  and  thus  did  not  qualify  for  payment  of  the 
refunds  received  for  the  exports  by  the  parent  company. 

The  cost  to  the  Community  was  a  total  of  ECU  2 million,  ECU  1.3  million  in 
consumption  aid  and  ECU  0.7  million  in  wrongly  paid  export  refunds. 

Recovery  procedures  are  now  in progress. 

Four  people  have  been  convicted. 

3.9 

Diversion  of  butter  and  milk  powder 

This  case  concerns  the  export,  with  refunds,  of butter  and  milk  powder  from  the  United 
Kingdom,  allegedly  to  Poland  but  in  fact  to  Spain. 

The  suspected  fraudsters  guaranteed  the  exporter  the  goods  at  the  prices  in  force  for 
non-member  countries.  The  exporter  was  given  forged  Polish  import  documents  to 
support  the  application  for  export  refunds. 

It  is  estimated  that  around  150  lorry-loads  were  diverted  between  October  1993  and 
May  1994,  corresponding  to  a  total  of  some  ECU  3.3  million  in  wrongly  paid  refunds. 
The  products  were  probably  sold  in  Spain  below  the  market  price  and  for  a  substantial 
profit. 

134 

Olive-residue oil is obtained by chemical  processes from  organic matter  (or waste) remaining  after 
olives (the  fruit)  have been pressed.  Seed oil  is a generic term  (soya oil, sunflower  oil, etc.).  The 
largest  refunds  are paid  on  exports  of  olive  oil  (they  are  very  small  for  olive-residue  oil). 

71 

In  June  1994  seven  people  were  arrested.  Six  of  them  are  to  appear  in  court  early  in 
1996.  The  inquiries  coordinated  by  the  Commission  were  carried  out  in  Spain,  Poland 
and  Germany  and evidence was collected  in response to a request  for judicial  assistance. 

The  wrongly  paid  refunds  were  recovered. 

3.10 

Imports  of  beef  at  a reduced  rate  of  duty 

Under  the  GATT135  the  Community  adopts  an  annual  Community  reduced-rate  tariff 
quota.  To  qualify  for  this facility  operators must present  a  GATT  import  licence  to  the 
Community customs office  of import.  These licences may be transferred  within the limits 
of  the  overall  quantities  authorized. 

Investigations  had  to be  conducted  in various Member  States  into  fraudulent  imports  of 
frozen  beef  from  outside  the  Community  accompanied  by  fake  GATT  certificates 
(showing  the  Spanish  Ministry  of  Foreign  Trade  as the  issuer). 

Judicial investigations  in Italy into cases of forgery,  conspiracy, smuggling  and obtaining 
by  deception  revealed  that  a  criminal  organization  had  sold  46  fake  GATT  certificates 
covering  goods exceeding by over  55% the total quota awarded  to Spain, where the  beef 
was  imported. 

The  Community  lost  some  ECU  5.4  million  in  own  resources.  Three  people  are  in 
custody  in  Italy  and  an  international  arrest  warrant  was  executed  in  Spain  on  an 
Argentinian  national  suspected  of  masterminding  the  sale  of  the  forged  certificates. 

3.11  Stocks  of  tobacco  in  Italy  and  Greece 

On  the  basis  of  information  received  by  the  Commission,  inquiries  into  tobacco 
intervention  stocks  in  Italy  and  Greece  were  made  in  late  1995. 

The  question  of  the  eligibility  and  classification  of  certain  lots  in  stock  in  Greece  had 
This  concerned  around  11%  of  total  stocks  worth  an  estimated 
been  raised. 
ECU  9  million. 

The  Commission  finally  decided  to  withdraw  this  proportion  from  sale. 

3.12 

Sugar  quotas  in the  United  Kingdom 

On the basis  of  information  sent  in  by the  British  authorities,  an  inquiry  was  conducted 
in the United Kingdom into commercial operations concerning the system of sugar quotas 
for  the  1992/93  sugar  year.  It was found  that  a large number  of  irregularities  had  taken 
place  concerning  the  application  of  the  sugar  market  rules,136  with  a  serious  financial 
impact  on  the  Community  budget. 

135 

136 

General  Agreement  on  Tariffs  and  Trade,  which  was  replaced  in  1995  by  the  World  Trade 
Organization. 
Council  Regulation  (EEC)  No  1785/81:  OJ  L  177,  1.7.1981. 

72 

Initial findings are that some  16 500 tonnes of sugar were declared for export on the basis 
of  forged  licences.137  The  monetary  compensatory  amounts  (MCA)  were  claimed  and 
obtained  (ECU  500  000).  The  financial  consequences  for  failure  to  comply  with  the 
provisions  governing  C sugar  are  being  established. 

The inquiries are continuing, in particular  into storage costs for  1992/93 and  other years. 
The  latest  information  suggests  that  the  false  declaration  of  sugar  stocks  for  the  year  in 
question  will  have  resulted  in  around  ECU  2 million  in  aid  being  wrongly  paid  to  the 
operator. 

3.13  Aid  for  casein  production  in the  Netherlands 

On  the  basis  of  information  received,  the  Commission  began  inquiries  into  aid  for  the 
production  of  casein  in  the Netherlands.  Following  initial  investigations  an  irregularity 
concerning  some  ECU  3 million  was established  for  failure  to  comply  with  the  specific 
procedures for the processing of certain types of caseinate as laid down in the Community 
rules.,3* 

This  financial  correction  will  be  applied  in the  clearance  of  accounts  procedure. 

Other  developments  are expected  on the basis of the results of the inquiries, notably  into 
the  use  of  certain  chemicals  in  the  manufacture  of  caseinate  and  the  application  of  the 
rules  concerned.139 

3.14 

Sales  of  milk  outside  the  quotas  in the  United  Kingdom 

This  case  received  wide  press  coverage  in  the  United  Kingdom  and  was  investigated 
jointly  by the  Commission  and the  UK authorities.  The  initial  findings  reveal  that  milk 
outside  the  quotas,  on  which  no  supplementary  levy  was  therefore  paid,140  was  sold  in 
North  West  England. 

A number  of  people  appeared  in  court  and  were  fined. 

The  UK  authorities  currently  estimate  the  financial  impact  at  around  ECU  1.5  million. 
Recovery  procedures  will  be  set  in  motion. 

Inquiries  are  continuing,  notably  in Northern  Ireland,  into  manipulations  concerning  the 
fat  content  of  milk  delivered  (1994/95  marketing  year),  the  main  result  being  that  the 
supplementary  levy  was  unduly  reduced.  The  inquiries  must  also  determine  whether  or 
not  there  was  a  failure  to  declare  certain  consignments  under  the  quota  regulations. 

The  national  authorities  have  started  specific  procedures  for  failure  to  comply  with  the 
fat  content  for  the  products  delivered.  The  Commission  expects  to  have  the  findings  of 
this  inquiry  in  1996. 

137 

138 

139 

140 

Licences  for  sugar  intended  for  export  to the  world  market  without  payment  of  refunds. 
Council  Regulation  (EEC)  No  2921/90:  OJ  L  279,  11.10.1990. 
Council  Regulation  (EEC)  No  2921/90  cited  above;  Council  Directive  83/417/EEC:  OJ  L  237, 
26.8.1983. 
Council  Regulation  (EEC)  No  3950/92:  OJ  L 405,  31.12.1992. 

73 

3.15  Skimmed  milk  powder  in Italy  and the  Netherlands 

Following  production  of  a  report  by  the  Dutch  authorities  the  Commission  began  an 
inquiry  into  a  case  concerning  compound  animal  feed  containing  milk  powder.  This 
product,  which  was  manufactured  in  Italy,  was  destroyed  in  the  Netherlands.  Around 
1  200  tonnes,  for  which  a  Community  subsidy  would  appear  to  have  been  paid,  was 
destroyed on the instructions of a Dutch subsidiary of the Italian company which received 
the  Community  premium. 

The  Community  rules141  provide  that  payment  of  aid  is  dependent  on  the  actual 
incorporation  of  milk  powder  in  the  feed  preparation  and  also  on  the  feeding  of  the 
product  to  the  animals  in  question; 
there  is  thus  an  obligation  for  the  feed  to  be 
consumed.  This  was  clearly  not  the case here  as the products  were  declared  to  be  unfit 
for  animal  consumption  in  the  Netherlands.  The  aid  wrongly  paid  must  therefore  be 
recovered  from  the  manufacturer  concerned. 

In the  early  stages  of  the  inquiry  it  became  clear  that  there  were  serious  problems  with 
controls  to  be  undertaken  in the  Member  States  concerned. 

The  Commission  is expecting  this  case to  be  tied  up  in the  first  half  of  1996. 

Section  4: 

OTHER FRAUDS IN RELATION TO STRUCTURAL  POLICIES 

4.1 

European  Social  Fund  (ESF) 

Most  of  the  structural  policies  cases  currently  under  investigation  by  the  Commission 
concern  the  ESF. 

4.1.1  As part of an operation to settle old ESF cases, the Commission  sent a mission to 
Portugal  in  March  1995  to  inspect  vocational  training  courses  presented  by  a 
promoter,  involving  considerable  sums  of  money. 

The inspection revealed large-scale, fraudulent  over-invoicing of services rendered 
by  subcontractors  (non-existent  accounting  documents,  etc.),  punishable  under 
Portuguese criminal law.  The prosecuting authorities (Circulo Judicial de Anadia) 
have  ordered  a judicial  inquiry. 

4.1.2 

In another  major judicial  inquiry,  now before  the  courts  in Lisbon,  a trade  union 
federation  and  some  of  its  leaders  and  subcontractors  have  been  indicted  for 
diverting  Community and national  subsidies worth ECU  1.5  million (cases dating 
from  1988  and  1989). 

The fraudsters  had presented artificially  inflated  expenditure and failed to organize 
training courses.  The Commission has decided to join a civil claim to the criminal 
proceedings. 

141 

Commission  Regulation  (EEC)  No  1725/79:  OJ  L  199, 26.7.1979. 

74 

Since  the  same promoter  is involved  in the  first  and  second  Community  Support 
Frameworks,142 the Commission has carried  out on-the-spot  inspections to  ensure 
that  the  measures  it  presented  have  been  implemented  in  accordance  with  the 
applicable  rules. 

4.1.3  An  investigation  was  launched  into the  activities  of  a British  firm  in  connection 
with  technical  assistance  in the  social  field.  The Commission  suspected  that  the 
contract  was  being  misapplied.  Inspections  revealed  that  supporting  documents 
in respect of costs incurred were missing and that certain operations had been paid 
for  twice.  The  contract  is worth  ECU  1.73  million. 

4.2 

European  Regional  Development  Fund  (ERDF) 

4.2.1  On  scrutinizing  the administration  of the  French département of Var  in  1994-95, 
the  Provence-Alpes-Côte  d'Azur  regional  audit  body  discovered  over-invoicing 
involving  more than  ECU  5 million  in connection  with the  supply  of  equipment 
to  encourage  technical  innovation  (ERDF  co-financing  totalling  ECU  38  million 
under the Renaval programme for the conversion  of shipbuilding areas from  1990 
to  1993). 

The judicial  inquiries currently  in progress  suggest that local councillors  received 
under-the-counter payments totalling at least ECU  0.5 to  1 million in exchange  for 
falsifying  public  contracts. 

Further  research  by  the  investigating  departments  should  reveal  whether  the 
practices  followed  in  this  département  are  widespread  or  constitute  an  isolated 
case. 

4.2.2 

Irregularities  in the  Liège  district  in  Belgium,  relating  to the  Objective  2  (1992-
93), Résider143 (1990-92) and Konver144 (1993) programmes were detected in 1995 
following  inspection  missions  by the  Commission  in April  and  August  1994 and 
by  the  European  Court  of  Auditors  in November  1994. 

Following  these  inspections,  the  Commission  suspended  all  financial  support  for 
the project  in question pending  final  conclusions  on the case,  in accordance  with 
Article  24(1)  of  Council  Regulation  (EEC)  No  4253/88,145  proposing  that  a 
significant  amount  be  recovered  and  several  million  ECU  be  decommitted,  and 
asking  the  Member  State  concerned  to  submit  its  comments.  Implementation  is 

i  under  way. 

142 

143 

144 

145 

Community  Support  Frameworks  are  drawn  up  by  the  Commission  in  consultation  with  the 
'ccc  > - mired 
Member State and regions concerned, defining priorities for action, the financial  n 
and  the  various  forms  of  intervention. 
Conversion  of  steel-making  areas. 
Diversification  of  regions  dependent  on  military  activities. 
OJ  L  374,  13.12.1988,  as  amended  by  Council  Regulation  (EEC)  No  2082/93  (OJ  L  193, 
13.7.1993). 

75 

Section  5: 

OTHER  FRAUD  IN RELATION  TO  DIRECT  EXPENDITURE 

Operational activities in this field, which covers expenditure managed and audited directly 
by  the  Commission,  were  stepped  up  in  1995. 

Investigations  have  covered  a significant  number  of  cases  in  all  sectors  of  activity. 

5.1 

Research 

5.1.1  Acting  on the basis of remarks by the Court of Auditors in a sectoral  letter to the 
Member  of the Commission  responsible  for  information  and  telecommunications 
technologies,  the  Commission  inspected  a  group  of  firms  in  Belgium  and  the 
United  Kingdom  which received  funds  allocated  under the  RACE  programme.146 

It  was  found  that  the  main  beneficiary  had  systematically  produced  false 
statements  of expenditure,  inflated  by  an estimated  ECU  500  000,  in  some  cases 
using  invoices  for  fictitious  services.  The  firms'  directors  had  also  deliberately 
carried  out  legal,  accounting  and  financial  operations  designed  to  create  the 
illusion  of  co-financing  which  did  not  in  fact  exist. 

The Commission terminated contracts still in progress as quickly as possible, drew 
up  appropriate  recovery  orders  and  referred  the  matter  to  the  competent  legal 
authorities  in  Belgium  so that  criminal  proceedings  could  be brought  against  the 
perpetrators  of the  fraud. 

5.1.2  A systematic anti-fraud  investigation was launched as a result of an analysis of the 
JOULE  I  and  II/APAS-RENA programmes147 and  a critical  examination  of  their 
administration  by  the  authorizing  departments.  The  initial  results  of  inspections 
in  Germany  confirm  the  existence  of  irregularities  and  suggest  that  fraud  has 
indeed been committed in this sector, bearing out the findings of the administering 
departments. 

5.2 

Energy 

Following an investigation by the prosecuting authorities in Oristano (Sardinia), a request 
has  been  made  for  six  persons  to  be  committed  for  trial  on  charges  of  diverting  aid 
granted by the Commission  and the  Sardinian regional  authorities for  the construction  of 
a  new,  innovative  wind-power  plant  costing  an  estimated  ECU  1.25 million. 

The  firms  involved  had  in  fact  converted  an  existing  plant  and  used  the  funds  for 
purposes  other  than  those  specified  in the  contract. 

146 

RACE  -  "Research  and  development  programme  in  advanced  communication  technologies  for 
Europe". 
JOULE  -  "Joint  opportunities  for  unconventional  or  long-term  energy  supply". 

76 

5.3 

European Development  Fund (EDF) 

The Commission and the Senegal Ministry of Finance discovered  that large amounts of 
aid had been diverted  from  their proper purpose which was to help small  businesses in 
the Saint Louis region boost their activity and create jobs. Initial estimates put the amount 
involved at between ECU 2 and 4 million. 

In  the  legal  proceedings  currently  under  way  in  Senegal  a  consultant  is  accused  of 
diverting some of the funds  for  his own personal  profit. 

5.4 

Environment/Medspa  programme (Italy) 148 

It has proved impossible to implement the payment order drawn up in  1994 against the 
Italian firm which benefited  from  a Medspa project,  because of the machinations of the 
firm's  directors. The Commission is considering the possibility of referring the matter to 
the Italian police with a view to criminal proceedings against those responsible. 

148 

See  1994  Report,  Chapter  5,  Section 5.1. 

77 

CHAPTER  7  :  STATISTICS  AND  ANALYSES 

The  objective  of  intelligence  gathering  is  to  collect  the  maximum  amount  of  relevant 
information,  to  combine  all  accessible  sources  of  information  and  to  give  a  structured 
form  to available  information.  The purpose  of this is to  detect  as many  cases of  fraud  as 
possible  and  follow  such  cases  up  in  administrative,  financial  and  criminal  terms 
(enforcement).  The  exercise  might  culminate  in  amendments  to  existing  Community 
legislation  or  the  drawing  up  of  future  legislation  (prevention). 

The Commission's  first  source of information  is to be found  in the reports received  from 
Member  States  under  the  sectoral  rules  in  force.149 

Another very important source is the exchange of information  in the framework  of mutual 
administrative  assistance.150 

The  freephone  number  set up  in November  1994 is another  important  source.151  During 
its  first  twelve  months  of  operation,152  the  Commission  received  more  than  4  000  calls. 
Around  two hundred  of these led to further  investigations being carried  out.  Some of the 
calls  prompted  a  formal  enquiry  involving  amounts  of  more  than  ECU  30  million.  In 
others, the information  received  was used by the Commission to cross-check  information 
from  other  sources.  Likewise,  access  to  different  databases,  both  Community  and 
international,  and  in  particular  international  trade  databases,  allows  this  type  of  cross 
checking  to  be  carried  out,  suspicious  transactions  to  be  detected  and  on-the-spot 
investigations  to  be  better  targeted. 

The Commission is currently developing an integrated information  system which will take 
account  of  these  different  information  sources.  This  system  is based  on  a new  version 
of the  IRENE  database,  which  merges two previously  separate  databases:  "IRENE"  (for 
cases  of  fraud  reported  by  the  Member  States)  and  "pre-IRENE"  (for  cases  under  joint 
investigation by the Commission and the Member States). Furthermore, this new database 
will  set  up  a  direct  link  with  "Mutual  administrative  assistance"  messages,  where  these 
refer  to  cases  with  an  impact  on the  Community  budget. 

The new database (IRENE 95) will not be a mere database recording information  on  fraud 
cases but a management  tool. Analysis of the data will facilitate  the identification  of  risk 
factors  that  make  fraud  against  the  Community  budget  possible  or  easier. 

Section  1 : 

THE  SITUATION  IN  1995 

In  1995 the Member  States and the  Commission  detected more than 4.750 cases in all  of-
the  different  budget  areas  combined.  The  sums involved  came  to  more than  ECU  1.100 

149 

150 

151 

152 

Council Regulations (EEC) Nos  1552/89 (own resources), 595/91 (EAGGF Guarantee Section) and 
4253/88  (Structural  Funds). 
Council  Regulation  (EEC)  No  1468/81. 
Numbers  are  listed  country  by  country  in the  Annex. 
Initially  limited  to twelve Member  States. The new Member States have since been connected.  See 
also  Chapter  2,  Section  2.4  of  the  1994 Annual  Report  on  the  Fight  Against  Fraud. 

78 

million.  This represents  a significant  increase  in the number  of  cases but  a more  modest 
increase  in  the  budgetary  impact  of those  cases  (see  Table  1). 

These figures include, on the one hand, the cases formally  notified  by the Member  States 
in the framework  of their regulatory obligations, and on the other hand, the cases initiated 
by  the  Commission  and  cases  dealt  with  in  cooperation  with  the  Member  States.  The 
second category  of cases includes the cases which arise from  an exchange of  information 
between  the  investigative  services  of  the  Member  States  and  the  Commission  or  from 
coordination  in the  framework  of  "mutual  assistance". The number  of cases in this  latter 
category  continues  to  increase  and  these  enquiries  represent  more  and  more  significant 
sums  (in  1995  more  than  50 %  of the  budgetary  value  of  irregularities,  see  Table  2). 

The figures in Tables  1  and 2 concerning cases notified  by the Member  States in the area 
of  traditional  own  resources  only  have  been extrapolated  for  the  whole  year  in order  to 
allow  a  uniform  overview  of  the  general  situation.  This  extrapolation  is  based  on  the 
figures  notified  for the first half year as well as those indications already available for  the 
second half year. Regulation (EEC, EURATOM) no  1552/89, at present, only requires the 
Member  States  to  notify  cases  once  per  half  year  and  therefore  the  statistics  for  the 
second  semester  of  1995 are  not  yet  finalised.  For  the  first  half  year  only,  the  Member 
States  notified  1.146  cases  with  a budgetary  impact  of  ECU  132 million  (see  Table  3). 

In the realm of  EAGGF  Guarantee  Section expenditure  (see Table 4) the Member  States 
have  notified  1.754  cases with  a budgetary  impact  of  ECU  214 million.  This  amount  is 
significantly  less than previous years. On the other hand the budgetary impact of the cases 
dealt  with  by  the  Commission  in  cooperation  with  the  Member  States  has  continued  to 
increase  significantly.  If one includes these cases the budgetary impact  rises to ECU 316 
million. 

The  biggest  increase  in  terms  of  the  numbers  and  amounts  involved  is  in  relation  to 
structural  measures (see Table 5). Although the number  of cases notified  by the Member 
States  remains  low  it  has  increased  significantly  in  comparison  with  notifications  made 
in the past  due to  the recent  putting  in place of the  Commission  regulations  in this  area. 
This  explains  also  the  high  number  of  cases  in  comparison  with  1994  which  the 
Commission  has  obtained  knowledge  of  through  other  information  sources.  The  total 
amount  involved  is  ECU  67  million,  of  which  ECU  23  million  relates  to  enquiries 
initiated  by  the  Commission. 

A  significant  increase  can  also  be  noticed  in  the  number  of  cases  in  the  area  of  direct 
expenditure  (see  Table  6). In this area there  are no  cases  notified  by  the  Member  States 
as this  is expenditure  managed  by the  Commission. 

For the first three  budgetary  areas mentioned above Table 7 gives a division  of the cases 
notified  by the Member  States and those dealt with by the Commission  by sub-area.  This 
allows  a  better  evaluation  of  the  incidence  of  irregularities  in these  areas. 

The  number  of  cases  notified  and  the  amounts  concerned  naturally  vary  greatly  from 
Member  State to  Member  State  (see Table  8). Given that the  amount  of traditional  own 
resources  that  has  to  be  collected  by  each  Member  State  varies  greatly  as  a  function  of 
its position  in  relation  to  the  Community's  external  trade,  and  that  there  are  significant 
differences  between  the  expenditure  on  the  Community  budget  between  individual 
Member  States, it is necessary  to examine the figures  for the number  of cases  uncovered 

79 

and their  budgetary  impact  in the  context  of  the  relative  position  of  each  Member  State 
with  regard  to  own  resources  and  expenditure. 

On  average  and  taking  all  sectors  together,  a  case  of  fraud  or  irregularity  notified  by  a 
Member State involves an amount of approximately ECU  130.000. Only  1,5 % of  notified 
cases  involve  more  than  ECU  1 million.  The  average  budgetary  impact  of  cases  under 
investigation  by  the  Commission,  on the other  hand,  is ECU  1,6 million.  This  reflects  a 
deliberate  choice  by  the  Commission  to  concentrate  its  efforts  on  combatting  organised 
or  sophisticated  fraud.  Such  fraud,  the  origin  of  which  is  often  characterised  by  the 
participation of persons or firms operating from  one or many countries is difficult  for  the 
Member  States  to  identify  without  the  active  support  which  can  only  be  given  at  the 
Community  level. 

Section  2  : 

TRENDS 

Whereas in previous years the number of irregularity and fraud  cases, and their  budgetary 
implications  rose  steadily,  in  1995  there  was  a  certain  stabilisation  of  the  total  amount 
involved. The number of cases uncovered increased nonetheless by about  15 %  compared 
to  1994  while  the  amounts  remained  practically  identical.  At  the  same  time  the 
Community  budget  grew  by  nearly  9 %. 

in  traditional  own  resources  have 

The  evolution  within  the  four  important  budget  areas  identified  in  Section  1  is  very 
different.  The  amounts  involved  in  the  EAGGF  Guarantee  expenditure  area  have  gone 
down  while  the  amounts  involved 
increased 
significantly.  Nevertheless  prudence  is  necessary  in  drawing  conclusions  in  relation  to 
trends based only  on variations between one year and  another. A very  limited  number  of 
highly spectacular  cases uncovered  during any given year can have a major  impact on the 
global  figures  for  that  year.  The  date  of  detection,  and  communication  of  an  important 
and  complex  case  of  irregularity  is always uncertain.  For  example  1994  was  remarkable 
for  the  number  of  very  important  cases  in  the  EAGGF-Guarantee  expenditure  area  (7 
cases  among  the  1.610  notified  by  the  Member  States  represented  more  than  ECU  200 
million  or  half  of  the  total  amount). 

Another marked change is the number of cases (and notably the budgetary impact of those 
cases) which were dealt with by the Commission,  in cooperation with the Member  States, 
which has increased significantly.  Principally this reflects progress achieved  in operational 
activity  through the concentration of the efforts  of the specialised services of the Member 
States and of the Commission on the most important and sensitive cases identified  through 
more  efficient  and  better  targetted  controls.  This  is encouraging,  even  though  overall  in 
this  area,  the  position  remains  unsatisfactory. 

For the first time, in  1995 the notifications  in the area of EAGGF  Guarantee  expenditure 
show a considerable  reduction  in the amounts involved  compared to  1994.  This could  be 
the first reflection  of the reform  of the Common Agricultural  Policy  (CAP).  It is in  fact 
necessary to consider the general evolution of the EAGGF Guarantee expenditure in  1995, 
in  particular  in  two  sectors  in  which  high  levels  of  irregularity  were  recorded  in  1994 
(export  refunds  for  cereals  and  consumption  aid  for  olive  oil)  where  expenditure  was 
reduced  sharply  in  1995.  Expenditure  on  export  refunds  (all  products  combined)  went 
from  ECU  8.159  million  in  1994 to  ECU  7.802  million  in  1995. Olive  oil  consumption 
aid went from  ECU 613 million in  1994 to ECU 263 million in  1995. On the other  hand, 

80 

direct  aid  (including  set-aside)  went  from  ECU  10.552  million  in  1994  to  ECU  13.506 
million  in  1995. 

The  budgetary  impact  of  irregularities  uncovered  by  the  Member  States  or  the 
Commission  in the  area of traditional  own resources  continues, however,  to  rise.  This  is 
due  for  the main  part  to the results  of greater  efforts  by the investigation  services  of the 
Member  States  and  the  Commission,  achieved  through  a  better  targetting  of  sectors  at 
high risk (products subject to high levels of taxes and excise duties or high import duties). 
Customs  duties  on  industrial  products  remain  the  most  affected.  Whereas  in  1994  there 
were more cases involving  customs duties than those  involving  agricultural  levies (45  % 
against  30 %), the  proportion  was inverted  in  1995 in  favour  of the  latter  (39 %  against 
30 %). For  the  amounts  involved  evaded  customs  duties  represented  nearly  54 % of  the 
total  in  1995 against  only  39 % in  1994 (see  Table  7). This reflects  in the  first  instance 
the  growing  number  of  cases  of  fraudulent  importation  of  cigarettes  detected.  The  Task 
Force which has been created by the Commission with the services of the Member  States 
has  allowed  the  identification  of  irregularities  with  considerable  budgetary  impact  (see 
Table  9). 

In  the  area  of  structural  actions,  the  number  of  cases  uncovered  and  their  budgetary 
impact has also grown. This is due, in the first instance, to the entry into force  of detailed 
provisions  for  the  notification  by  Member  States  as  well  as  the  putting  in  place  of 
appropriate  investigation  structures  with  the  Commission.  The number  of  cases  notified 
is highest  in the  ESF  but the  EDRF expenditure  concerned  is the most  significant  (56  % 
of the total budgetary  impact) which reflects the greater financial  importance of this  fund. 

Section  3  : 

TRANSIT 

In March  1995 the  Commission  addressed  a Communication  to the European  Parliament 
and  the  Council  in which  it  set  out  a realistic  picture  of  the  situation  in the  transit  area, 
noted  the  shortcomings  of  the  current  system  and  identified  short-term  and  long-term 
solutions.  153 

The  loss  of  own  resources  and  other  charges  during  the  period  1990  to  1995  was 
estimated  to be at least ECU 975 million  for the Community  and the Member  States. The 
loss of  own  resources  alone  was  estimated  to  be  ECU  409 million  on the  basis  of  cases 
notified  by the  Member  States either  in conformity  with  Regulation  (EEC,  EURATOM) 
no.  1552/89  or  in the framework  of  Regulation  (EEC)  no.  1468/81  on mutual  assistance. 

Cigarettes  are  the  product  that  is by  far  the  most  concerned  by  cases  of  irregularity  and 
fraud  in  the  transit  area  (in  the  period  1990  to  1995  the  cases  involving  these  products 
represented  47  %  of the  amounts  involved).  Next  come  milk products,  live  animals  and 
meat  (see Table  10). Given  the  very  high  rates  of taxes and  excise  duties  applicable  (or 
import  duties  due  on  such  goods)  these  products  are  considered  as  "sensitive".  The 
Member  States and the Commission have put in place a computerised  system to allow the 
rapid  exchange  of  information  in  these  cases  (early  warning  system154)  under  an 
administrative  agreement. 

153 

154 

See chapter  2,  section  3, point  1, page 23. 
See chapter  2,  section  3, point  1, page 25. 

Section  4  : 

RECOVERY 

The  situation  regarding  recovery  in  the  areas  of  traditional  own  resources  and  EAGGF 
Guarantee  remains  unsatisfactory.  This  is  of  particular  concern  in  that  this  is  an  area 
where  the  Member  States  have  an  interest  which  is  at  least  as  important  as  that  of  tl  • 
Community  to  see  an  improvement  in the  situation  as regards  its  impact  on  the  budget. 

The  problems  are  significant,  notably  the slowness  of internal  administrative  procedures 
in the  Member  States  and the high  percentage  of cases  in which  the  economic  operators 
concerned  contest recovery  decisions before  national courts. Moreover  the figures  set out 
in  Table  11 to  13 may  underestimate  the real  efforts  of the  Member  States to the  extent 
that  the  latter  do  not  systematically  notify  the  Commission  of  amounts  recovered,  in 
particular  in  the  area  of  traditional  own  resources.  The  United  Kingdom,  in  particular, 
supplied  figures  showing  that  the  recovery  rate  for  traditional  own  resources  (see  table 
11) is clearly  higher than the figure  arrived  at using data from  the computer  base.  These 
figures,  which  are provided  each quarter  on a global  basis, do not enable the updating  of 
individual cases which represent the basis used for the production  of statistics on recovery 
of traditional  own resources.  The adoption  of the new regulation  on this subject  in  1996 
should  resolve  this  problem. 

The  recovery  of  customs  duties  is  a  particularly  difficult  area.  Indeed  questions  are 
invariably  asked,  as to the  reasons  why  a customs  debt  has arisen  and  the  way  in  which 
responsibilities in carrying through the recovery process are determined. In order to tackle 
these  difficulties  the  Commission  has  put  in place  a specific  measure  to  allow  decisions 
to be taken more quickly in this area, and above all within the time limits needed to avoid 
recovery  being  legally  barred.  An  interservice  working  group has  been  charged  with  the 
examination of contentious dossiers, with bringing together all the necessary elements and 
with  presenting  the  appropriate  conclusions. 

To judge  the  effectiveness  of  the  procedures  set  up  by  the  member  States,  the  situation 
needs  to  be  looked  at  with  a  degree  of  detachment.  It  would  thus  seem  more  proper  to 
analyse  the  situation  as  regards  recovery  of  the  amounts  involved  by  taking  the  cases 
notified  in  the  years  prior  to  the  period  covered  by  the  annual  review.  Tables  11 to  13 
therefore  describe  the  position  with  respect  to  cases  notified  between  1992  and  1994  in 
detail  and  sum  up  the  overall  situation  as regards  older  cases. 

In  1995, there  were  still  a  very  large  number  of  old  cases  pending  (in  some  cases  they 
went  back  as  far  as  the  1970s).  On  31  December  1995,  in  the  area  of  the  EAGGF 
Guarantee  Section  alone,  1.169  cases  notified  in  1991  or  earlier  were  still  open;  legal 
proceedings  were  under  way  in  419  cases.  Two  Member  States  (Italy  and  Germany) 
brought  more  than  90  % of all  legal  proceedings.  As announced  at the  20 October  1995 
meeting  of  the  committee  of  the  Irregularities  and  Mutual  Assistance  Group,  the 
Commission,  working  with  the  Member  States, will  do  its best  to  find  a way  of  closing 
the  older  cases  on  which  no progress  is likely  to be made  and  on which  a decision  as to 
whether  the amount  at issue  is irrecoverable  or chargeable  to the  Member  State needs to 
be  taken. 

While  there  exists  in  the  area  of  EAGGF  Guarantee  the  possibility  to  hold  a  Member 
State  responsible  for  any  negligence  in  the  recovery  of  amounts  concerned  by 
irregularities  and  to  charge the  amounts that ought to, and  could  have  been,  recovered  to 

82 

the  Member  State  involved  (in  a  procedure  known  as the  "clearance  of  accounts")  this 
possibility  is  not  explicitly  provided  for  at  this  stage  in  the  other  budgetary  areas.  The 
worrying  situation  which  exists  in  the  area  of  traditional  own  resources  makes  all  the 
more  important  the  reflection  on  the  extension  of  the  principles  of  the  clearance  of 
accounts  procedure  to  the  c  ier  budgetary  areas  as  advocated  by  the  Madrid  European 
Council  in  December  1995. 

Section  5  : 

ANALYSING  LEGISLATION 

As  part  of  its  "sound  financial  management"  initiative,  the  Commission  took  a  number 
of  decisions  designed  to  ensure  that  any  new  legislative  initiative  with  substantial 
budgetary  implications  is  subjected  to  prior  examination  as  to  any  fraud  risk  it  might 
involve  and  to  any  measures  which  will  guarantee  effective  protection  of 
the 
Community's financial  interests. In the Illrd phase of this exercise, which is being  carried 
out together  with  the  Member  States, the question  has been  put  in  the  same  spirit,  as  to 
how  to  avoid  the  situation  where  changes  to  Commission  proposals  which  arise  during 
Council  negotiations  could  increase  the risk  of  fraud. 

Furthermore,  on  the  basis  of  available  data  concerning  cases  of  irregularity  detected  in 
the past,  the  Commission  will  each  year  draw up a list  of  rules to be  reviewed  from  the 
point  of  view  of  providing  more  effective  protection  for  the  Community's  financial 
interests.  This  work  should  reinforce  the partnership  that  is indispensible  in  this  area  to 
achieve  a more  systematic  use  of  acquired  experience. 

Priority  will  be  given  to  rules  which  : 

have  substantial  budgetary  implications  such  that  non-compliance  will  confer 
added  benefits  on  the  economic  operators  concerned; 

are  highly  complex  and  difficult  to  supervise; 

have  been  identified  in  Court  of Auditors  reports  or the  Irene  and  pre-Irene  data 
bases  as being  especially  vulnerable  to  fraud. 

In this context  and  following  the  findings  established  in  1995, the  Commission  proposes 
to  examine,  inter  alia,  the rules  on time  limits applied  to  securities  in the  customs  code, 
import  duties  and  export  refunds  in  the  beef  and  veal  sector,  the  staffing  of  the 
Community  wine  sector  supervisory  corps,155  the  olive  oil  production  aid  system  and 
articles  23  and  24  of  Regulation  (EEC)  No 4253/88. 

The  Commission  is  also  studying,  in  partnership  with  the  Member  States  and  in  the 
context  of  the  Illrd  phase  of  SEM  2000,  other  improvements  which  could  contribute  to 
a  reduction  in  the  risk  of  irregularities.  They  involve,  for  example,  the  question  of  a 
clearer definition  of the eligibility  criteria for  expenditure  in the area of  Structural  Funds 
and  the  audit  and  control  systems  put  in  place  for  indirect  expenditure  managed  by  the 
Member  States. 

Council  K  gulation  (EEC)  No  2048/89,  OJ  L 202,  14.07.1989. 

83 

TABLE 1 

ALL  SECTORS 
1992 -1995 

TOTAL  IMPACT of  IRREGULARITIES 
formally communicated  by Member  States 
and  inquiries held by the  Commission 
together with Member  States 

NUMBER  of  CASES 

1995 

WÊMmM 

AMOUNTS 

in MILLION  ECU 

I 

1992 

I 

1993 

I 

1994  _j 

1995 

"1.146  (*) 

.  403 

204 

I 

IliiillllllPlli: 

(*)  O wn  Resources  : including  estimation  for  the  second  hatf  of  1995. 

1.200 

1.100 

1.000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

UCLAF  F/2 

TAB1.XLS 

19/04/96 

TABLE 2 

ALL  SECTORS 
1992-1995 

1. 

IRREGULARITIES  FORMALLY 
COMMUNICATED  (#) by 
MEMBER  STATES 

2.  INQUIRIES  HELD by 

the COMMISSION  together 
with  MEMBER  STATES 

1992 

1993 

1994 

1995 

1992 

1993 

1994 

1995 

NUMBER of CASES 

4.500  "2 
4.400 
4.300  ~ 
4100~ 
4.100^ 
4.000 

3.750  ~ 

3.500~ 

3.250  ~ 

3.000  ~ 

2.750~ 

2.500 

2.250 

2.000  ~ 

1.750~ 

1.500 ~ 

1-2S0~ 

1.000~ 

800~~ 

600~ 

400~ 

200~ 

750 

700 

650  " 

S00~ 

550~ 

S00~ 

450  ~ 

400 

350~ 

300~ 

250  ~ 

200 

3927 

2.533 

2.U6 

4,396  O 

• 

^^ 

4.500 ~ 
4.400 " 
4.300 ~ 
4J00~ 
4.100~ 
4.000 ~ 

3. 750 " 

3.500 " 

3-250~ 

i 

t  3.000 ~ 

2.750 ~ 

2.500 ~ 

2.250 " 

2 000 ~ 

1.7S0~ 

1.500~ 

12S0~ 

1.000~ 

eoo~ 
6oo~ 

400 
200~ 

362 

WmosMM] 

1992 

1993 

1994 

1995 

1992 

1993 

1994 

1995 

AMOUNTS  in MILLION  ECU 

711 

572 (*) 

750 

700 " 

650 ~ 

too' 

550 ~ 

500 ~ 

450 ~ 

400~ 

350~ 

300~ 

250~ 

200~ 

403 

204 

574 

"1 

376 

-fl 

U  Cases detected and communicated formally  by the Member  States on the basis of the regulations, in force during the year  indicated 

in the sectors Traditional Own Resources  , EAGGF-Guarantee and Structural  Actions. 

##  Inquiries of the Commission- in cooperation  with the specialized services  from the Member  states 

vhich allowed to identify 

an irregularity  and to evaluate its financial impact  during the year  indicated. 

(')  Own Resources  :  including estimation (or  the second hn!( of  1995. 

85 

T A B LE  3 

TRADITIONAL OWN RESOURCES 
1992-1995 

1.  IRREGULARITIES  FORMALLY 

2.  INQUIRIES  HELD by 

COMMUNICATED  (#) by 
MEMBER  STATES 

the COMMISSION  together 
" 
with MEMBER STATES 

NUMBER  of  CASES 

1992  |  1993  I  1994  |  1995 

2.600 

2.400 

Z9O0 

2200 

2100 

2.000 

1.9O0 

1.000' 

1.700' 

1.6O0' 

1.SO0\ 

1.400' 

1.300' 

1.200' 

1.100-

1.000-

900-

SOO-

700-

6O0-

500-

400-

3O0-

200' 

100-

120 

lllilllil 

= 

1992 

1993 

1994 

1995 

1992  |  1993  I  1994  |  1995 

AMOUNTS  in MILLION  ECU 

soo 

475 

450 

42S' 

400 

376 

350 

325 

900 

275 

250 

225 

200' 

175 

160 

125 

100 

76 

soo" 

47S~ 

450~ 

425~ 

400~ 

37S~ 

3S0~ 

325 

300~ 

275 

2SO~ 

22S~ 

200~ 

175~ 

150 

125" 

100 

75 

60 
25' 

• 

\iQw& 

1Ç1 

95 

289 

u*w'-?: 

(#)  on the basis  of  Regulation  (CEE) 

1552/89 

I communications 

for the  first  half  of  1995 

JJIJJIIIIIH  estimation  for  the second  half  of  1995 

86 

421 

;:::::::::::::::::::;:::::v:::::::::;::::::::::: 

~ 

::?S:ï:-jïï$SS§-S:-?S:5ï 
:ï:S-:::::::-:v:::::::::::::¥:vSSï 

| v . -. •.•.•.•.•.•.•••.•.•••.•.•.•.>•••.•.•••.••  j 

: 
— 

— 

TABLE  4 

EAGGF-GUARANTEE 
1992-1995 

1.  IRREGULARITIES  FORMALLY 

COMMUNICATED  (#) by 
MEMBER  STATES 

INQUIRIES  HELD  by 
the COMMISSION  together 
with MEMBER  STATES 

1992 

1993 

1994 

1995 

1992 

1993 

1994 

1995 

NUMBER  of  CASES 

1.754 

—  —= 

1.Û1Ù 

i 

2.000 

1.900 

1.800 

1.700 ; 

1.600 

1.500' 

1.400' 

1.300 ; 

1.200' 

1.100' 

1.000  ; 

900  \ 

800' 

700  ; 

600] 

500  \ 

400  \ 

300" 

200" 

100" 

1.284 

1,02$ 

99 

1992 

1993 

1994 

1995 

1992  I  1993  |  1994  |  1995 

AMOUNTS  in  MILLION  ECU 

417 

300 

214 

109 

(#)  based  on Regulation  (EEC)  595/91 

500 

475 

450 

425 

400 ' 

375 ' 

350 ' 

325 ' 

300 ' 

275' 

250 ' 

225 ' 

200' 

ITS' 

ISO' 

125 ' 

100 ' 

7S' 

50 ' 

25 ' 

— 

87 

102 

2.000  ~ 

1.900  ~ 

1.300  ~ 

1. 700  ~ 

1.600  ~ 

1.500  " 

1.400  " 

1.300  _ 

1.200 Z 

1.100  " 

1.000  _ 

900  Z 
soo~ 

700  Z 

600  Z 

500 Z 

400  Z 

300  Z 

200 Z 

100~ 

~ 

soo 

475 

460 

425 

400 

375 

-

~ 

350 

325 

300 

275 

250 

225 

200 

175 

150 

125 

100 

75 

SO 

25 

'_ 

T A B LE  5 

STRUCTURAL ACTIONS 

1992 - 1995 

1.  IRREGULARITIES  FORMALLY 

2.  INQUIRIES  HELD by 

COMMUNICATED  (#) by 
MEMBER  STATES 

the COMMISSION  together 
with MEMBER  STATES 

1992 

1993 

1994 

1995 

1992 

1993 

1994 

1995 

NUMBER of CASES 

200 

190' 

ieo' 

170' 

160' 

ISO' 

140 ' 

130' 

120~ 

110' 

100' 

40 

35 ' 

30 ' 

25 ' 

20 ' 

15' 

10 ' 
s' 

200 

1tO~ 

rso' 

170' 

160' 

no' 

140 ' 

130" 

120" 

110' 

100' 

194 

= 

^ 

79 

âSeat  otoif? 

112 

= 

M 

AMOUNTS in MILLION  ECU 

1992 

1993 

1994 

1995 

1992 I 1993 | 1994 | 1995 

- — 

23 

44 

1 

so 
4S' 

40' 

3S' 

30 ' 

25 ' 

20' 
is' 

10 ' 
s' 

2entc ,Mft 

^

1* 

(*)  before  regulation  (EEC) 1681/94 and  1831/94 came into force. 

#  Cases formally  communicated  by Member  States 
based on regulations  (EEC)  1681/94 and  1831/94 

88 

TABLE 6 

DIRECT EXPENDITURE  (*) 

INQUIRIES held by the COMMISSION  (**) 

NUMBER of CASES 

AMOUNTS in MILLION ECU 

(*)  see  CHAPTER  <S, section  5 

(**)  w i th  the  assistance  of  Member  States'  s e r v i c e s. 

89 

19/04/96 

TABLE 7 

DISTRIBUTION  of the irregularities  revealed  in  1995 
Irregularities  communicated officially  by Member States and 
inquiries held by the Commission together with Member  States. 

TRADITIONAL  OWN  RESOURCES 

1995 

TRADITIONAL  OWN  RESOURCES  1995 

ÏS 

TRADITIONAL  OWN  RESOURCES  1995: 
amounts 

subdivision  of  the  figures 

in  table  3 

EAGGF-  GUARANTEE  1995 

EAGGF  GUARANTEE  1995 
cases 

EAGGF  GUARANTEE  1995 
amounts 

subdivision  of  the figures  in table  4 

STRUCTURAL  FUNDS  1995 

STRUCTURAL  FUNDS  1995 
cases 

S T R U C T U R AL  FUNDS  1995 
amounts 

EAGGF-
GUIDANCE 
16% 

subdivision  of  the  figures 

in  table  5 

90 

ALL  SECTORS 

IRREGULARITIES communicated officially by Member States in 1995 

TRADITIONAL  (*) 
OWN RESOURCES 
AMOUNTS 
communicated 

Amounts 
x 1.000 ECU 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND 
ÔSTERREICH 
PORTUGAL 
SUOMI /FINLAND 
'SVERIGE 
UNITED KINGDOM 

TOTAL 

CASES 
communicated 
54 
8 
558 
9 
22 
121 
15 
73 
0 
110 
2 
18 

\ 

\ 

1 
2 
155 
1.148 

CO 
Ô 

CO 
o 

)  ONLY  FIRST 6 MONTHS  of  1995 

22.419 
1.213 
39.548 
1.603 
3.342 
28.754 
613 
22.123 
0 
11.600 
33 
2.103 
25 
38 
10.456 
143.870 

AMOUNTS 
communicated 

EXPENDITURES 
EAGGF - GUARANTEE 
CASES 
communicated 
35 
39 
349 
151 
116 
65 
20 
416 
0 
154 
10 
132 
0 
48 
219 
1,754 

1.613 
3.524 
69.228 
10.838 
17.681 
3.769 
214 
82.716 
0 
9.679 
381 
7.247 
0 
67 
7.148 
214.106 

EXPENDITURES 
STRUCTURAL ACTIONS 

CASES 
communicated 

AMOUNTS 
communicated 

0 
0 
12.691 
2.597 
20.149 
0 
0 
4.443 
0 
0 
0 
2.576 
0 
0 
1.960 
44.416 

21 
58 
46 

5 

13 

44 

7 
194 

H 
> 
CO 
r~ 
m 
00 

TABLE  9 

" TASK GROUP CIGARETTES " 

CIGARETTES SMUGGLING  1995 

Member  State 

Cigarettes  SEIZED 

FINLAND 
SWEDEN 
AUSTRIA / ITALY 
UNITED KINGDOM 
GREECE 
SPAIN 
BELGIUM 
DENMARK / SPAIN/ PORTUGAL 
IRELAND 
FRANCE/UK 
GERMANY 
NETHERLANDS 
ITALY 

EU Total 

4.650.000 
6.750.000 
11.450.000 
13.000.000 
20.000.000 
40.000.000 
51.540.000 
60.000.00Q 
167.534.600 
374.924.600 

Cigarettes 

Involved 
35.000.000 
80.000.000 
426.650.000 
450.000.000 

REVENUE 

Implications 

(*) 

for  MEMBER  STA  TES 

and  OWN  RESSOURCES 
in  ECU 

3.000.000 
10.000.000 
50.000.000 
45.000.000 

57.350.000 
92.000.000 

8.888.665 
15.000.000 

450.000.000 

45.000.000 

1.000.000.000 
1.097.810.000 
3.688.810.000 

100.000.000 
110.580.000 
387.468.665 

(+)  ESTIMATED  AMOUNTS 

CIGARETTES  SMUGGLING  1995 

- 

•  Cigarettes  SEIZED 

•  Cigarettes  Involved 

Q  Revenue  Implications  in  ECU 

1 000.000.000 

800.000.000 

«00 000.000 

:±:mi 

92 

IRREGULARITIES  concerning  TRANSIT 
from 1990 until 1995 included (*). 

AMOUNTS  concerning 

TRADITIONAL  OWN  RESOURCES 

TABLE  10 

IRREGULARITIES  TRANSIT 

CIGARETTES 
48% 

OTHER  PRODUCTS. 
11% 

TEXTILES 
1% 

/££& 

I  MILLION 

l 

PRODUCT 

LIVE ANIMALS 
beef/  pork/sheep 

ECU 

33 

BEEFMEAT  and  PORKMEAT 

33 

Ul 

MILK  PRODUCTS 
butter/cheese/milkpowder 

63 

BANANAS 

15 

CEREALS 

5 

SUGAR 

18 

TEXTILES 

5 

OTHER  PRODUCTS 

46 

CIGARETTES 

191 

MILK  PRODUCTS 
15% 

j 

TOTAL 

409 

C) Irregularities  communicated  under  regulation  (EEC)  1552/89 and  1468/81 

IVE  ANIMALS 
8% 

BEEFMEAT  and 
PORKMEAT 
8% 

RECOVERY  Situation  on  31-12-1995 

TRADITIONAL OWN 

RESOURCES 

TABLE 11 

Situation as to  cases(*) 
notified  PRIOR to  1992 

AMOUNTS 

X 1.000  ECU 

AMOUNT 
notified (**) 

AMOUNT still TO BE RECOVERED^; 

in TOTAL 

[PENDING INCQURT\%  of Q amount n o t if 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND(+) 
ÔSTERREICH 
PORTUGAL 
FINLAND/SUOMI 
SVERIGE 
UNITED  KINGDOM  (++) 
TOTAL 

8.593 
3.476 
122.737 
1.336 
2.410 
27.564 
270 
4.186 
41 
6.030 
# 
699 
# 
# 
24.228 
201.570 

3.606 
2.017 
118.716 
1.336 
1.647 
21.010 
93 
4.186 
41 
5.612 

134 

0 

65.730 

819 

260 
55 
0 
3.719 

0 

2.676 

4=2/1 
42% 
58% 
97% 
100% 
68% 
76% 
34% 
100% 
100% 
93% 

322 

202 

46% 

18.175 
176.761 

73.595 

75% 
88% 

97.943 
7.005 
127.985 
2.162 
13.267 
80.895 
12.038 
98.620 
89 
9.323 
# 
2.716 
# 
# 
72.606 
524.649 

Regulation  (EEC)  1552/89 

Situation as to cases(*)  notified in  1992+1993+1994 
AMOUNT 
notified (**) 
5 

AMOUNT still TO BE RECOVERED <—t 
In TOTAL  PENDING  IN COURT  %  of the «mount notlf. 

8 

recovered 
effectively 
6 
6.555 
2.952 
6.075 
0 
1.615 
957 
6.118 
639 
46 
125 

7=5-6 
91.388 
4.053 
121.910 
2.162 
11.652 
79.938 
5.920 
97.981 
43 
9.198 

50.624 

204 

24^685 

2.037 

2.803 

452 

0 

92.991 

0 

5.090 

9  "7/5 
93% 
58% 
95% 
100% 
88% 
99% 
49% 
99% 
48% 
99% 

677 

2.039 

1.172 

75% 

2.260 
28.019 

70.346 
496;630 

658 
180.716 

97% 
95% 

(*]|  Cases officially communicated to tho Commission 
(**)  Amounts as originally notified or corrected at a later stage 
(•)  The Netherlands declared In 1995 having recovered>ca. 58 Million ECU in cases referring to 1993 and 1994 Involving cigarettes. 
(+•)  The United Kingdom informed the Commission that the recovery rate is higher than resulting from the Uk communications on irregularities In the database, those communications not being updated. 
(+4.+) -j-he recovery rates are quoted under restriction. Untlll the  new regulation  has been agreed upon -which Is to be adopted In near future - member states are not obliged to Inform the Commission 

# * not applicable 

about the recovery of the amounts notified 

TABLE 12 

RECOVERY Situation on  31-12-1995 

EAGGF-GUARANTEE 

Situation as to  cases(*) 
notified PRIOR  to  1992 

Regulation  (EEC)  595/91 

Situation as to cases(*)  notified in  1992+1993+1994 

AMOUNTS 

AMOUNT 

AMOUNT  still  TO  BE  RECOVERED  (~+, 

AMOUNT 

r e c o v e r ed 

AMOUNT  still  TO  BE  R E C O V E R E D ^; 

notified  '(**)' 

in  TOTAL 

PENDING 

IN  COURT 

U1 

X 1.000 ECU 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND 
ÔSTERREICH 
PORTUGAL 
SUOMI  /FINLAND 
SVERIGE 
UNITED  KINGDOM 
TOTAL 
, 

1 

14.570 
23.252 
155.868 
784 
2.486 
29.248 
13.945 
409.108 
0 
27.980 
# 
1.146 
# 
# 
24.042 

2 
4.510 
13.258 
30.510 
253 
1.242 
10.696 
7.316 
393.283 
0 
16.607 

3 

2.550 

11.011 

23.543 

0 

0 

8.891 

2.228 

149.210 

0 

3.471 

496 

0 

11.196 
702.429  489.367 

492 
201.396 

(*)  Cases  officially  communicated 
(**)  Amounts  as  originally  notified  or  corrected  at  a  later  stage 

to  the  Commission 

• 

/o  of the amount 
notified 
4 =  2/1 
3 1% 
57% 
20% 
32% 
50% 
37% 
52% 
96% 

59% 

43% 

47% 
70% 

notified  (**) 

effectively 

in  TOTAL 

PENDING 

IN  COURT 

s 

16.593 
9.101 
62.150 
82.914 
79.607 
491404 
2.992 
460.606 
0 
17.204 
# 
14.327 
# 
# 
22.405 
817,303 

6 

990 
4.829 
9.949 
56.409 
1.951 
14.877 
1.870 
90.063 
0 
9.684 

7=5-6 
15.603 
4.272 
52.201 
26.505 
77.656 
34.527 
1.122 
370.543 
0 
7.520 

8 

43 

1.029 

2.951 

0 

212 

6.474 

0 

114.445 

0 

0 

1.153 

13.174 

2.187 

10.524 
202.299 

11.881 
615.004 

189 
127.530 

/o  of the amount 
notified 
9 =  7/5 
94% 
47% 
84% 
32% 
98% 
70% 
38% 
80% 

44% 

92% 

53% 
75% 

M *  not  applicable 

RECOVERY SITUATION on 31-12-1995 

STRUCTURAL FUNDS 

Situation as to cases 
notified PRIOR to 1992 

Situation as to cases notified 

in 1992+  1993+  1994 

AMOUNTS 
X 1.000 ECU 

AMOUNT 
notified (*) 

AMOUNT still 
to be recovered 

PENDING 
COURT 

IN 

amount 
notified  (*) 

recovered 
effectively 

AMOUNT  still 
to be  recovered 
4  "(1-2-3) 

% of the amount 
originaly  notified 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 

ESPANA 
FRANCE 
IRELAND 

ITALIA 
LUXEMBOURG 

NEDERLAND 

ÔSTERREICH 

PORTUGAL 

SUOMI 

SVERIGE 

UNITED  KINGDOM 

TOTAL . 

0 
13 
19 
111 
72 
945 
58 
0 
0 
562 

# 
0 

# 

0 
13 
12 
35 
60 
945 
23 
0 
0 
444 

# 
0 

# 

0 
0 
0 
0 
0 
944 
0 
0 
0 
45 
# 
0 
# 

# 
420 
2.200 

# 
356 
1.888 

# 
79 
1.068 

0 
105 
239 
2874 
397 
0 
0 
1477 
0 
0 
# 
430 
# 

# 
72 
5.594 

0 
73 
29 
72 
12 
0 
0 
0 
0 
0 
# 
238 
# 

# 
0 
424 

0 
32 
210 
2802 
385 
0 
0 
1477 
0 
0 

192 

'0 
97% 

100% 

72 
5;170 

100% 
dm 

BE 

DK 

DE 

OR 

ES 

FR 

IE 

IT 

LU 

NL 

AT 

PT 

Fl 

SE 

GB 

k) original  amount to be recovered  after  correction(s) 

# = not applicable 

CO 

o 

o 

> 
CO 
f-
m 

CO 

CHAPTER  8:  ANTI-FRAUD  APPROPRIATIONS 

Section  1: 

IMPLEMENTATION  OF  THE  1995  BUDGET 

The  budgetary  authority  adopted  ECU  132.618  million  in  anti-fraud  (commitment) 
appropriations 
totalled 
ECU  88.233  million. 

for  1995.  The  appropriations  available  after 

transfers156 

This  figure  does  not  include  the  appropriations  at  heading  B5.800  (Cooperation  in  the 
field  of justice and home affairs)  which were used in  1995 to finance  projects put  forward 
by  the  Member  States  under  Title  VI  of the  Union  Treaty. 

Much of this is to go to national government departments under the Community's  various 
support and technical assistance policies.  Some of the policies are strictly defined  in rules 
governing  individual  sectors,  particularly  in  agriculture,  while  others  are  more  flexibly 
defined  by way of the granting of subsidies to support monitoring  and investigative  work 
by the specialist  departments in the Member  States.  All of them have to comply with the 
Commission's  self-imposed  requirement  for  sound  financial  management. 

Details  of  how  the  1995  appropriations  were  used  are  given  in  Table  14. 

Section  2: 

1996  APPROPRIATIONS 

The  budgetary  authority  adopted  appropriations  of  ECU  92.165  million  for  1996 
(including  the  amounts  entered  in the reserve).157 The volume  of  appropriations  is down 
on  1995, especially  as regards  Part  B of  the  budget. 

The  decline  is  partly  the  result  of  the  evolution  of  heading  B 1.360  (ECU  29 million  at 
the heading, ECU  15 million  in reserve), as 1995 was, except in the new Member  States, 
the last year of operation of certain cofinancing programmes provided  for  by Regulations 
(EEC)  Nos  307/91  (reinforcement  of  controls  over  certain  areas  of  EAGGF  Guarantee 
Section  expenditure)  and  3508/92  (integrated  management  and  accounting  system). 

Article  B2.150  is a new heading.  It regroups the distinct antifraud  appropriations  for  the 
structural  policies  (headings  B2-101,  B2-111,  B2-121  and  B2-131). 

The establishment  of a new Title B5.9 (Measures to combat fraud)  and an Article B5-910 
(General  measures  to  combat  fraud)  in the  budget  subsection  for  Consumer  protection, 
internal  market,  industry  and  trans-European  networks  was  called  for  by  the  European 
Parliament.  They  cover  expenditure  incurred  by the Commission  in technical  support  by 
SG/UCLAF  to  the  Member  States  in  agriculture  and  traditional  own  resources  and 
expenditure  generated  by the  checks  carried  out  by  the  Unit to prevent  undue  payments 
and  losses  of  revenue  from  own  resources.158 

156 

157 

158 

Internal  transfers  submitted  to  the  budgetary  authority. 
These amounts cannot yet be used but they are expected to become usable in the course of the year 
(after  establishment  of  antifraud  budgets). 
In  1995  this  expenditure  was  covered  by  Article  B2-519. 

97 

Tables  15 and  16 give  a  detailed  breakdown  of  antifraud  appropriations for  1996. 

98 

IMPLEMENTATION  OF APPROPRIATIONS,  1995 

Table  14 

TITLE 

MEASURES  FINANCED 

APPROPRIATIONS 
AVAILABLE  AFTER 
TRANSFERS 

APPROPRIATIONS 
COMMITTED 

PERCENT-AGE 
USED 

BUDGET 
HEADING 

A-2554 

A-3530 

A-3531 

Conferences,  congresses  and 
meetings  in  connection  with  the 
activities  of  the  associations  of 
European  lawyers  for  the  protection 
of the  financial  interests  of  the 
Community 

Unit  to  coordinate  action  against 
fraud 

Controls,  studies,  analyses  in 
connection  with  the  fight  against 
fraud 

A-3532 

Fraud  suppression  in the  textile 
sector  (TAFI) 

Seminars,  meetings  and  training  schemes  in  the 
Member  States 

260.000 

259.605 

99,9 

-  Meetings,  symposiums,  investigations 
-  Data  bases 
-  Information 

-  Reg.  (EEC)  No  4045/89 
-  Legal  seminars  and  studies 
-  Customs,  VAT  seminars 
-  Investigations  and  missions 
- Other  seminars 
- Report on  combating  fraud 
-  Analyses 
-  Data  processing  and  data  bases 
-  Grants 
-  Conciliation  body  (EAGGF) 
-  SCENT 

-  Seminars,  investigations 
-  Grant 
- Cofinancing  of  a  research  unit 
- Textile  booklets 

200.000 

3.308.000 

800.000 

100 

98 

93 

199.999 
85.615 
24.834 
90.000 

3  244.018 
470.000 
112.904 
90.000 
414.800 
516.246 
31.000 
9.598 
718.120 
418.000 
438.350 
25.000 

740  000 
188.799 
200.000 
300.000 
51.201 

TOTAL  TO  BE  CARRIED  OVER 

4.568.000 

4.443.622 

99 

BUDGET  HEADING 

TITLE 

MEASURES  FINANCED 

APPROPRIATIONS 
AVAILABLE  AFTER 
TRANSFERS 

APPROPRIATIONS 
COMMITTED 

PERCENT-AGE  USED 

A-355 

B1-360 

B2-101 

B2-111 

B2-121 

B2-131 

o 
o 

CARRYOVER 

European  documentation,  coordination 
and  study  network  to  control  cross-
border  crime  and  fraud 

Measures  to combat  fraud  affecting  the 
European  Agricultural  Guidance  and 
Guarantee  Fund,  Guarantee  Section 

Establishment  of  a foundation  in 
Dutch  law  (legal  structure  of the 
network)  involving  5 countries: D,  I, 
GR,  L,  NL 

-  Reg.  (EEC)  No  307/91  &  Reg. 
(EC)  No  3235/94 
-  Reg.  (EC)  No  165/94  (remote 
sensing) 
-  Reg.  (EEC)  No  3508/92  (SIGC) & 
Reg.  (EC)  No  3235/94 

4.568.000 

400.000 

65  000  000 

4.443.622 

62.500 

16 

62.060.000 
10.000.000 

8.700.000 
43.360.000 

Measures  to  combat  fraud  affecting  the 
European  Agricultural  Guidance  and 
Guarantee  Fund,  Guidance  Section 

Grants 

Measures  to  combat  fraud  affecting  the 
Financial  Instrument  for  Fisheries 
Guidance 

Measures  to  combat  fraud  affecting  the 
European  Regional  Development  Fund 

Measures  to  combat  fraud  affecting  the 
European  Social  Fund 

Grants 

Grants 

TOTAL  TO  BE  CARRIED  OVER 

200.000(*) 

10.000 

50.000(*) 

300.000(*) 

200.000(*) 

-

30.000 

19.000 

70.718.000 

66,625.122 

95.5 

5 

-

10 

9.5 

(*) 

The  corresponding  appropriations  were  entered  in  reserve  B0-40  with  a  token  entry  against  each  heading.  The  transfer  of  these  appropriations  to  their  headings  was  subject  to  a  decision  by  the 
budgetary  authority,  on  the  basis of  a  report  by  the Commission  (SG/UCLAF).  The  decision  was  taken  in  July  1995; as  the  appropriations  were  made  available  late,  it was  therefore  not  possible 
to make  the  best  use  of  them  in  1995. 

BUDGET  HEADING 

TITLE 

MEASURES  FINANCED 

APPROPRIATIONS 
AVAILABLE  AFTER 
TRANSFERS 

APPROPRIATIONS 
COMMITTED 

PERCENT-AGE  USED 

CARRYOVER 

70.718.000 

66.625.122 

B2-5110 

Inspection  in  agriculture 

12.715.000 

-  Inspection  and  analyses 
-  Olive  oil  agencies 

B2-519 

Campaign  against  fraud  in  agriculture 

1.650.000C*) 

o 

B5-3051 

B6-910 

B7-530 

Matthaeus  and  Matthaeus  Tax 
programmes  (vocational  training  for 
. customs  officials  and  indirect  taxation 
officials) 

Actions  to  combat  fraud  in  the  area  of 
research  (shared-cost) 

Measures  to combat  fraud  in  the 
cooperation  sector 

-  Studies,  analyses,  inspection 
-  Grants 
-  Consultant's  fees 

-  Matthaeus 
-  Matthaeus  Tax 

3.000.000 

50.000 

100.000 

12.668.864 
168.864 

12.500.000 

764.387 
149.387 
590.000 
25.000 

3.000.000 
2.290.570 
709  430 

42.000 

-

99,6 

46,4 

100 

84 

-

TOTAL  TO  BE  CARRIED  OVER 

88.233.000 

83.100.373 

94,2 

(*) 

The corresponding  appropriations were entered  in reserve B0-40 with a token entry against each heading.  The transfer of these appropriations to this heading was subject  to a decision by the  budgetary 
authority,  on  the basis of  a report  by  the  Commission  (SG/UCLAF).  The  decision  was  taken  in July  1995; as the  appropriations  were  made  available  late,  it was  tliereforc  not  possible  to  make  the 
best use  of  them  in  1995. 

ANTI-FRAUD APPROPRIATIONS,  1996 BUDGET 

Table  15 

TITLE 

AMOUNT  (in  ECU) 

ITEM 

A-2554 

Conferences,  congresses  and meetings  in connection  with 
the  activities of the associations  of European  Lawyers  for 
the protection  of the financial interests  of the Community 

A-3530 

Unit to coordination  action  against 

fraud 

A-3531 

Controls,l  studies, analysis  in connection  with the 

fight 

against fraud 

A-3532 

Combating fraud in the textile sector  (TAF1) 

A-355 

B1-3 60 

European  documentation, coordination  and  study network  to 
control  cross-border  crime  and fraud 
Monitoring  and  preventive  measures  concerning the 
European  Agricultural  Guidance  and Guarantee  Fund, 
Guarantee  Section 

B2-150 

Action  against fraud in the field  of structural  action 

B2-301 

Measures to combat fraud affecting  the Cohesion  Fund 

B2-511 

Inspection  in agriculture 

B5-3051  Matthaeus  and Matthaeus Tax  programmes  (vocational 

training  for  customs officials  and indirect  taxation  officials) 

290 000 

200 000 

4 000 000 

800 000 

350 0001 

29 000 0002 

750 000 

300 000 

15 500 0003 

3 200  000 

B5-910 

General  measures to combat 

fraud 

4  175 000 

B6-910 

B7-650 

Actions to combat fraud in the areas  of research  (shared- 
cost) 
Measures to combat fraud in the cooperation  sector 

50 000 

50 000 

These  appropriations  are all  entered  against  Chapter  A0.10  of the budget  (reserve,  Part  A  of  the 
budget). 
An  appropriation  of  ECU  15 million  has  been  entered  in  reserve BO-40. 
An  appropriation  of  ECU  13 million  has  been  entered  in  reserve  BO-40. 

— 

102 

TABLE  16 

ANTI-FRAUD  BUDGET  1996 
Subdivision by domaines 

Domaine 
1.  EAGGF - GUARANTEE 
2. STRUCTURAL  FUNDS + COHESION  FUND 
3. AGRICULTURAL  CONTROL  MEASURES 
4.  TRAINING for  TAX and CUSTOMS officers 
5. COORDINATION  and  GENERAL ACTIONS for 

FIGHT AGAINST  FRAUD 

~~ 

I 

budget 

post 
B1-360 
B2-150 / B2-301 
B2-511 
B5-3051 
A2554/'A-353/A-355> 
|  B-910/B6-910/B7-650 

TOTAL 

ANTI-FRAUD BUDGET 1996 

M I L L I ON 

E CU 
44,00 
1,05 
28,50 
3,20 

9,92 
J  86,67 

COORD.+  GENERAL 
ACTIONS  FIGHT 
AGAINST  FRAUD 
1 1% 

TRAINING  for TAX  and 
CUSTOMS  officers 
4% 

AGRICULTURAL 
CONTROL  MEASURES 
33% 

EAGGF-  GUARANTEE 
5 1% 

STRUCTURAL  FUNDS 
COHESION  FUND 
1% 

103 

19/04/96 

ANNEX: 

FREEPHONE NUMBERS IN THE  MEMBER  STATES 

Austria 

Belgium 

06605845 

080012426 

Denmark 

80018495 

Finland 

France 

0800112595 

05917295 

Germany 

0130820595 

Greece 

Ireland 

Italy 

008003212595 

1800553295 

16788495 

Luxembourg 

08003595 

Netherlands 

060224595 

Portugal 

0505329595 

Spain 

Sweden 

900993295 

020791695 

United  Kingdom 

0800963595 

104 

EEC  : 

European  Economic  Community 

GLOSSARY 

EC  : 

European  Community  (term  used  since the  entry  into  force  of  the  treaty  on 
European  Union) 

IGC  : 

Intergovernmental  Conference 

SEM  2000:  ... Commission.programme  to  improve  by  the  year  2000  the  management  of 

Community  appropriations  (Sound  and  Efficient  Management) 

SG/UCLAF  or 
UCLAF  : 

Unité  de  Coordination  de la Lutte  AntiFraude  (Directorate  featuring  in  the 
Staff  organisation  of the  Commission's  Secretariat  General)  - in  English,  Unit 
for  the  Coordination  of  fraud  prevention 

OJ  : 

Official  Journal  of  the  European  Communities  (OJ  L:  series  L,  OJ  C:  series 

Q 

TIR  : 

Transport  International  Routier  -  in  English:  International  Road  Transport 

SCENT  : 

System  for  a  Customs  Enforcement  NeTwork 

CIS  : 

Customs  Information  System 

VAT  : 

Value  Added  Tax 

COCOLAF:  ÇOmité  Consultatif  pour  la coordination  dans le domaine  de  la  Lutte 
AntiFraude  (French  acronym),  in English:  Advisory  committee  for  the 
coordination  of  fraud  prevention  * 

TAFI  : 

Textile  Antifraud  Initiative 

GSP  : 

Generalized  system  of  preferences 

GATT  : 

General  Agreement  on  Tariffs  and  Trade 

ESF  : 

European  Social  Fund 

ERDF  : 

European  Regional  Development  Fund 

CSF  : 

Community  support  framework 

EDF  : 

European  Development  Fund 

IRENE. 

IRregularités,  ENquêtes,  Exploitation  -  irregularities,  investigations, 
exploitation 

EAGGF: 

European  Guarantee  and  Guidance  Fund  (guarantee  section:  EAGGF-
Guarantee,  guidance  section:  EAGGF-Guidance) 

FIFG: 

' 

Financial  Instrument  for  Fisheries  Guidance 

_ 

105 

ISSN 0254-1475 

COM(96) 173 final 

DOCUMENTS 

EN 

09 

Catalogue number  : CB-CO-96-220-EN-C 

ISBN 92-78-03989-6 

Office  for Official  Publications of the European Communities 

L-2985  Luxembourg