Protection of the financial interests of the Communities - Fight against fraud - Annual report 1997
Date: 1998-05-06
Institutions: European Commission
Subjects: EU financing, activity report, financial policy, fraud against the EU, market protection

COMMISSION OF THE EUROPEAN COMMUNITIES 

* 

ir 

Brussels. 06.05.1998 
COM( 1998) 276 final 

PROTECTION OF THE FINANCIAL INTERESTS 

OF THE COMMUNITIES 

FIGHT AGAINST FRAUD 

Annual Report 1997 

(presented by the Commission) 

M i ll 

wm 

\]"  ~> 

WO 

LIST OF FREEPHONE NUMBERS IN THE MEMBER STATES 

Germany 

• 

0130820595 

Austria 

Belgium 

Denmark 

Spain 

Finland 

France 

06605845 

080012426 

80018495 

900993295 

0800112595 

0800917295 

I Greece 

Ireland 

Italy 

Luxembourg 

Netherlands 

Portugal 

United Kingdom 

Sweden 

008003212595 

1800553295 

167878495 

08003595 

060224595 

0505329595 

0800963595 

020791695 

CONTENTS 

INTRODUCTION 

1. ANALYSES AND STATISTICS 

1.1. The situation  in  1997 

1.2. Trends 

, 

1.2.1. Traditional  own resources 

1.2.2. Expenditure 

1.3. Financial  monitoring 

1.3.1. Recovery 
1.3.2. Monitoring  of investigations  run by UCLAF in cooperation  with  the Member 

States 

2. INVESTIGATIONS 

2.1.  Involvement of organised  crime 

2.1.1. The work of the task-group on cigarettes 

2.1.1.1. Sea and air trafficking 
2.1.1.2. Cigarette trafficking  under cover of TIR carnets 
2.1.1.3. Cigarette trafficking  from  Montenegro 
2.1.1.4. Cigarette trafficking  by rail 
2.1.1.5. Trafficking  from  Andorra 

2.1.2. The role of organised  crime  in agricultural  fraud 

2.1.2.1. Alcohol 
2.1.2.2. Olive oil 
2.1.2.3. Butter 
2.1.2.4. Infringement  of the embargo on British beef 

2.2. Fraud: an assault on the Community's  policies 

2.2.1. Own resources: assaults on the Community's trade policy 

2.2.1.1. Fisheries 
2.2.1.2. Textiles 
2.2.1.3. Anti-dumping  measures 
2.2.1.4. Environment policy 

•. 

2.2.2. Fraud in the area of the common agricultural  policy 

2.2.2.1. Tobacco quotas 
2.2.2.2. Investigation  in the citrus sector 
2.2.2.3. Loan to Georgia 

2.2.3. Fraud  involving the structural policies 

2.2.3.1. Embezzlement  of ESF funds..... 
2.2.3.2.  Networks  engaging  in  fraud  against  the  EAGGF  Guarantee 

Section 

2.2.4. Fraud  involving direct expenditure 

2.3. VAT fraud:  terms for expanding  investigations 

5 

S 

S 

9 

9 

10 

11 

11 

12 

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13 
14 
14 
15 
16 
16 
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19 
20 
21 

22 

22 

24 
24 
25 
25 

26 

26 
27 
27 

28 

28 

28 

29 

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3. STEPPING  UP COOPERATION  WITH THE MEMBER STATES. 

3.1. Action  taken  by Member States to protect the Community's  financial  interests 

3.2. Mutual  administrative  assistance  instruments  in the area of customs and agriculture 

3.3. Other forms  of cooperation  in relation to customs, agriculture and own resources 

3.4. Examples of cooperation with police  and judicial  authorities  in the Member  States 

3.4.1. The risk of counterfeiting  the euro 

, 

3.4.2. The Commission's  criminal  law expertise unit 

3.5. Cooperation  in the area of indirect taxation (excise and VAT) 

3.5.1. Excise 
3.5.2. VAT 

3.5.2.1. New administrative  cooperation  standards 
3.5.2.2. Simultaneous  inspections to tighten up VAT operations 
3.5.2.3. Analysing  VAT fraud risk 

3.5.3. The Fiscalis programme 

3.6. Training 

4. COOPERATION  WITH NON-MEMBER  COUNTRIES 

4.1.  Implementation 

'of  existing  fraud  prevention  measures  by  applicant  countries 

(preparation  for enlargement) 

4.2. Mutual  assistance agreements  between the Community  and non-member countries 

5.  PENALTIES  AND  HORIZONTAL  CRIMINAL-LAW  LEGISLATION  TO  PROTECT  THE 

COMMUNITY'S  FINANCIAL  INTERESTS 

5.1.  The  effective 

implementation  of  Council  Regulation  (Euratom,  EC)  No  2185/96 

concerning on-the-spot  checks and inspections carried  out by the Commission 

5.2. The implementation  of penalties policy 

5.3. Protection  of the Community  against irregularities  in financial  management 

5.4. Criminal-law  protection  of the financial  interests of the Community 

5.4.1. The situation with regard to ratification  of the instruments adopted 
5.4.2. The second Protocol on the protection of the Communities'  financial  interests 
5.4.3. Public procurement policy and the fight  against corruption 

5.4.3.1. The Protocol  and the Convention  against corruption 

5.4.3.2. The Commission  communi-catiqn  on corruption 

5.5. The Amsterdam  Treaty 

5.5.1. The new Article 280 of the EC Treaty 

'. 

5.5.2. Approaching  deadlines 

5.6. Prospects  for work under Title VI of the Union Treaty 

ANNEXE 

GLOSSARY 

: 

j 

31 

31 

32 

34 

34 

35 

35 

36 
36 

37 
37 
37 

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41 

41 
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43 

43 

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58 

INTRODUCTION 

The  Commission's  Annual  Report  on  the  Protection  of  the  Community's  Financial 
Interests takes stock of its actions  in the fight  against  fraud.  European  taxpayers  demand 
that all public money  is spent efficiently  and in a fraud-proof  manner.  This goes both  for 
the national  and the EU budgets. 

For  1997 the budget balance is slightly above ECU 82 billion. 

It  is  financed  partly  from  the  Community's  traditional  own  resources.  Customs  duties 
and agricultural  levies on imports  from  non-member  countries amount  to ECU  14 billion 
or  17%.  VAT  receipts  amount  to ECU  35 billion  or 42%.  The remainder  is covered  by 
the fourth  resource paid directly by Member  States into the budget. This amounts to ECU 
32.9 billion or about 40%. 

Community  expenditure  goes to a large  extent  to  agriculture  which  amounts  to  ECU  41 
billion or 50%. Structural policies amount to ECU 26.6 billion or 32%.  The  Commission 
directly  manages  expenditure  such  as  foreign  assistance,  research  and  development, 
social  funds,  etc. amounting  to ECU  9.7 billion  or  12%.  The remainder  of the budget  of 
about  ECU  4.7  billion  or less than 6% covers  administrative  costs  in the  Commission  as 
well  as in the other  Institutions  (the European  Court  of Justice, the European  Parliament, 
etc.). 

In  analysing  the  figures  for  detected  fraud  and  irregularities  great  caution  must  be 
observed.  First  of  all  the  two  concepts  differ.  A  precise  definition  is  provided  by 
Community  legislation1.  At the outset  it is difficult  to establish  if a case  is a fraud  or an 
irregularity.  This  requires  a criminal  investigation  which  can  extend  over  several  years 
before  it can be concluded that there has been a fraud  in the strict sense of the term. 

Moreover,  higher  figures  for  detected  fraud  and  irregularities  may  be  due  to  improved 
detection  or  improved  notification  of  cases  or  both  together.  They  may  reflect  an 
increase  in  the  underlying  number  of  irregularities  or  a  more  efficient  investigations  in 
certain targeted  areas.  Also a small  number  of very  significant  cases  may  shift  numbers 
considerably  from  year to year.  Finally an investigation may bring to light a fraud  which 
took place  much  earlier,  while the amounts  are counted  in the year  in which the  fraud  is 
quantified. 

With these precautions in mind, the main findings  on fraud  and irregularities  for  1997 are 
as follows: 

In  the  area  of  traditional  own  resources,  the  amounts  involved  in  cases  known  to  the 
Commission  have  risen  from  ECU  796 million  in  1996  to  ECU  1 billion  in  1997.  This 
represents an increase in fraud  incidence from  5.8% in '96 to 6.5% in '97.  Three times as 
much  money  is typically  lost  by  national  budgets  in the  same  fraud  cases  in the  form  of 
excise duties and VAT. 

See glossary  in annexe. 

It  is  to  be  recalled  that  the  reporting  obligations  in  own  resources  were  tightened-up  in 
mid-1996.  This probably  implies a better notification  of actual  fraud  to the  Commission. 
Secondly,  the  Commission  has  been  called  upon  more  often  to  deal  with  sophisticated 
transnational  fraud,  in which the Commission has achieved a good track record. 

The  common  agricultural  policy  and  structural  policies  managed  by  the  Member  States 
account for the bulk of expenditure on the budget.  In both those areas detected  fraud  and 
irregularities have declined. 

In  the  common  agricultural  policy  guarantee  section  the  reduction  amounts  to  13%. 
Detected  irregularities  and  fraud  is down  from  ECU  365  million  to  ECU  317 million  in 
1997.  In the  structural  funds  detected  irregularities  and fraud  has been  reduced  by 50%. 
It is down from  ECU  152 million to ECU 77 million in  1997. 

Both  on  the  income  and  on  the  expenditure  side  organised  crime  is  defrauding  the 
budget.  International  criminal  networks are targeting highly taxed products (cigarettes or 
alcohol)  agricultural  products  of high  value  or with  a high world  market/internal  market 
price differential  (e.g. beef, olive oil, butter) and finally  goods from  third countries traded 
under a preferential  tariff regime (fisheries, textiles, electronics, motor vehicles). 

Experience  has  shown  that  a  tight  co-operation  between  the  Commission's  anti-fraud 
services  and  Member  States  allow  for  efficient 
investigations  into  this  type  of 
transnational  organised  crime.  The  economic  weight  of  these  complex  cases  is  rising. 
While cases dealt with by a Member State alone on average cost ECU  120,000 in fraud  or 
irregularities,  a case  dealt  with  by  the  Commission  in co-operation  with  Member  States 
on  average  involves  ECU  3.7  million.  Cases  dealt  with  by  the  Commission  in  co 
operation with Member States account for 3% of all cases.  The volume of detected  fraud 
involved, however, accounts for half the total amount detected. 

The dismal  recovery  record  constitutes  another major  concern highlighted  in this  Annual 
Report.  In agriculture 65% of money defrauded  before  1994 remains unaccounted  for.  A 
certain  progress  has  been  achieved  in  1997.  Better  procedures  have  been  set  up  to 
determine  what  sums are to be written  off,  what sums could  be recovered  or what  sums 
due are to be  finally  charged  to the Member  States.  And  in the area of  structural  policy 
new  guidelines  on  net  financial  adjustments  will  sharpen  financial  control  with 
expenditure in Member States.  But, more needs to be done to improve recovery. 

The  report  mentions  certain  improvements  in  the  fight  against  fraud  against  the 
Community  budget.  Investigations  have been intensified  and more focused  on  organised 
crime.  The  use  of  task  groups  charged  with  coordinating  the  investigations  in  specific 
sectors  has  been  extended  to  the  alcohol  sector;  it  has  led  to  a  number  of  successes  in 
complex  and  transnational  cases.  The  Commission  has  carried  out  jointly  with  the 
Member  States  the  first  'on  the  spot'  checks  in  the  investigation  of  irregularities  at 
economic  operators.  Generally,  cooperation  between  the  Member  States  in  carrying  out 
these investigation has been  improved. 

The  1997 Annual  Report  offers  many  examples  of typical  antifraud  investigations.  Also 
the  various  forms  of  co-operation  with  Member  States  and  technical  assistance  are 
highlighted.  A special  chapter  is devoted  to co-operation  with third  countries.  Emphasis 
is  put  on  the  pre-accession  strategy  towards  candidate  countries  in  Central  and  Eastern 

Europe.  The  objective  is to ensure  that  their  capacity  to combat  fraud  and  corruption  is 
developed  in parallel  with their preparations to take part in the common policies. 

In  the  legislative  area,  the  year  1997  has  seen  the  adoption  of  regulation  515/97 
concerning  mutual  assistance  in  the  customs  and  agricultural  areas.  Also  the  second 
protocol  to  the  Convention  on  the  protection  of  financial  interests  dealing  with  money 
laundering  and judicial  cooperation  was signed  by ministers.  However,  the  Commission 
refrained  from  taking major  new legal  initiatives in  1997.  Rather the full  implementation 
and  ratification  by  Member  States  of  the  instruments  agreed  the  years  before  was 
expected. 

A dual conclusion  may be drawn: the first  pillar instruments  in the form  of the regulation 
on the protection  of the financial  interests and the regulation on on-the-spot  checks are in 
place  and  working.  The  third  pillar  instruments  (conventions  and  protocols)  aiming  for 
an equivalent  criminal  law protection  throughout  the Union have not yet been  ratified  by 
a  single  Member  State. 
It  is  recalled  that  the  Amsterdam  European  Council  set  a 
deadline for ratification  bv mid-1998. 

1.  ANALYSES  AND  STATISTICS 

The  purpose  of  this  chapter  is to  present  an 
overview  of  developments  in  fraud  against 
detailed 
the  Community 
analyses  of  the  data  available,  to  give  as 
accurate  a  picture  as  possible  of 
the 
situation  on the ground. 

budget 

and 

1.1.  The  situation  in  1997 

The number  of cases of  irregularity  or  fraud 
detected  in  1997,  and  the  overall  impact  of 
such  cases  on  the  budget,  were  once  again 
up on  the  previous  year.  In  all, 4 939  cases 
were  detected  by  the  Member  States  and 
notified  to  the  Commission  in  1997.  These 
cases  involved  a loss of ECU 585 million  to 
the  budget.  The  Commission  also  launched 
223  new  investigations  in  cooperation  with 
the  Member  States.  The  overall  impact  on 
the  budget  of  cases  under  investigation  by 
the  Commission 
to  an 
estimated  ECU 827 million.2 

in  1997  came 

systems 

(especially 

These  trends  show,  firstly,  that  the  fraud 
prevention 
the 
notification  systems)  are  steadily  becoming 
more  efficient.  They  also  reflect  the  fact 
that  dismantling  complicated  organised 
crime  networks 
is  a  long-term  exercise 
tie  the  relevant  departments 
which  can 
the  cyclical 
down 
fluctuation  of  varying  degrees 
the 
in 
amounts  involved from  one year to the next. 

for  years. 

Hence 

The  fact  is  that  the  Member  States  notify 
irregularities  under 
for 
particular  sectors,3  as soon  as the  facts  have 

regulations 

the 

2 

3 

This  included  investigations  initiated  before  1997  for 
which  a  preliminary  estimate  of  the  impact  on  the 
budget  could  only be produced  on the basis of  findings 
made in  1997. 

as 

Council  Regulation  (EEC)  No  1552/89  (OJ  L  155, 
7.6.1989) 
amended  by  Council  Regulation 
(Euratom,  EC)  No  1355/96  (OJ  L  175,  13.7.1996)  as 
regards  own  resources:  Council  Regulation  (EEC) 
No 595/91  (OJL67,  14.3.1991)  as  regards  EAGGF 
(EEC) 
Guarantee  Section;  Council  Regulation 
No 4253/88 
(OJ  L 374,  31.12.1988),  Commission 
Regulations  (EC) Nos  1681/94  (Structural  Funds, OJ L 
178,  12.7.1994)  and  1831/94  (Cohesion  Fund,  OJ 
L  191, 
(EC) 
27.7.1994);  Council  Regulation 
No 515/97  (mutual  assistance,  OJ  L 82.  22.3.1997), 

been  established.  The  notifications  quantify 
the  effects  on  the  Community  budget,  so 
that recovery  procedures can be started. 

the  Commission 

in  cooperation  with 

is 
With  cases  which 
investigating 
the 
Member  States,  on  the  other  hand,  no 
figures  are  immediately  established,  and  as 
a  result  there  is  no  official  notification  by 
the  Member  States  concerned. 
It  is  often 
not  possible  to  make  a preliminary  estimate 
impact  on  the  budget  of  cases 
of  the 
investigated 
in 
cooperation  with  the  Member  States  until 
the  investigations  have  made  substantial 
headway.  The  Member  States  confirm  the 
findings  of  such  investigations  by  means  of 
in  a  subsequent 
an  official  notification 
financial  year.4  The  figures  given  for  the 
effect  on the budget  of  investigations  of this 
kind  are therefore  only estimates or relate to 
cases opened  in previous years. 

the  Commission 

by 

76 

in  cooperation  with 

In the  field  of traditional  own  resources,  the 
Member  States 
reported  2 572  cases, 
involving  a  total  of  ECU 364  million.  The 
new 
Commission 
launched 
investigations 
the 
Member  States:  the  sums  involved  (results 
of  the  missions  of  inquiry,  whether  new  or 
in  1997)  were 
ongoing,  carried  out 
estimated 
(see 
Graph  1).  Table  1 contains  a breakdown  by 
Member  State of the cases  notified. 

ECU 642 million 

at 

in 

relation 

There was a slight  increase  in the number of 
to  EAGGF 
cases  detected 
Guarantee  Section  expenditure,  though  their 
impact  on  the  budget  was  less  (down  by 
13%).  The  Member  States  notified  2 058 
cases,  involving  a total  of ECU  164 million. 
The  Commission 
fresh 
investigations; the sums  involved  (results  of 
the  investigations,  whether  new  or  ongoing, 
carried  out  in  1997)  were  estimated  at 

launched 

48 

previously  Council  Regulation 
(OJL  144,2.6.1981). 

(EEC)  No  1468/81 

This  applies  to  all 
under 
particular,  those relating  to organised  crime. 

the  mutual  assistance  arrangement  and, 

investigations,  including 

those 
in 

ECU  153 million  (see  Graph 2).  Table 2 
contains  a  breakdown  by  Member  State  of 
the cases  notified. 

The  number  of  cases  detected  by 
the 
in 
the  Commission 
Member  States  or 
cooperation  with 
the  Member  States  in 
relation  to  structural  operations  (Structural 
Funds  and  the  Cohesion  Fund)  remained 
relatively  stable,  while  the  sums  involved 
were  considerably  smaller. 
In  1997  the 
Member  States notified  309 cases,  involving 
a  total  of  ECU 57 million;  the  Commission 
investigations, 
launched 
involving 
ECU 20 million 
(see  Graph 3).  Table 3 
contains  a  breakdown  by  fund  and  by 
Member  State of the cases  notified. 

57 

expenditure 

investigations 

(contracts 
and  monitored 

The  number  of  new 
into 
direct 
directly 
the 
administered 
by 
Commission  without  the  Member  States' 
administration  being  involved;  see  Graph 4) 
remained  stable,  at 42  cases, while  the  total 
amount  involved  fell  (ECU  11 million). 

1.2.  Trends 

One must be extremely  cautious  in trying to 
compare  trends  in  the  numbers  of  cases 
detected and their effects  on the budget over 
Complicated  cases 
succeeding  years. 
developing  over 
the  course  of  several 
financial  years  may  have  a  major  influence 
on  the  statistics  for  any  given  year.  There 
are,  inevitably,  fluctuations.5  We must  also 
be  cautious  about  interpreting  the  trends  in 
fraud  itself  since  a substantial  increase  over 
in  the  number  of  cases 
previous  years 
detected  and  the  amounts  involved  does  not 
necessarily  mean  there  has  been  a  major 
change  in  the  real  scale  of  fraud. 
It  may 
also  be  a  sign  that  the  monitoring  systems 
have become more  efficient. 

The  number  of  cases  detected  in  1997  and 
the  amounts  involved  are  confirmation  of a 
tendency  for 
to 
affect  own  resources  more  heavily  than 
expenditure. 

irregularities  and  fraud 

of 

of 

cases 

impact 
at 

impact 
at 

the  Commission 

The  average  impact  on  the  budget  of  the 
cases  detected  in  1997  was  clearly  up  on 
previous  periods.  The  average  impact  of 
cases  notified  by 
the  Member  States 
remained  comparatively  stable,  at  about 
ECU  120 000 as against^ECU  140 000.  The 
under 
estimated 
investigation 
in 
cooperation  with  the  Member  States  rose 
from  ECU 2.3  million  in  1996  to  ECU  3.7 
million  in  1997.  However,  the  average 
under 
budgetary 
in 
investigation 
cooperation  with  the  Member  States  is  not 
really  comparable  with 
that  of  a  case 
notified  by  a  Member  State.  A  single 
transnational  case. 
investigation 
coordinated 
cover 
fraudulent  operations  in  several  Member 
States.  Moreover,  UCLAF  concentrates  on 
in  particular 
the  more  significant  cases 
those 
involving  organized  crime.  The 
budgetary  impact  of  such  complex  cases  is 
logically  greater  than  it  would  be  for  one 
"typical" 
transnational 
ramifications. 

into  a 
by  UCLAF,  may 

the  Commission 

case  without 

case 

a 

1.2.1. 

Traditional  own  resources 

Both the number  cases and  the total  amount 
of  money 
the 
Member  States  rose  compared  with  1996 
and  1995. 

involved  as  notified  by 

to  give  more  detail 

The  entry  into  force  of  the  amendment  to 
(EEC,  Euratom) 
Council  Regulation 
No  1552/89,6  which  requires  the  Member 
States 
their 
notifications  and establishes  the new system 
of notification  by electronic  mail,  is starting 
it  will  now  be 
to  produce  results,  and 
to  compare 
possible 
from 
sources  more  effectively  and 
different 
analyse cases detected more thoroughly. 

information 

in 

Although  the  number  of  new  investigations 
launched  by the Commission  in  cooperation 
with  the  Member  States  in  1997  was  down 
on 
the  amounts 
involved  (the estimated  effect  on the  budget 
at  the  end  of  1997)  are  growing  larger, 

the  preceding  period, 

See  the  annual  report  on  the  "Fight  against  fraud"  for 
1995, Chapter  7, section 2, page 68. 

Council  Regulation  (Euratom,  EC)  No  1335/96.  cited 
above. 

reflecting  the  fact  that  the  cases  concerned 
almost  exclusively  concern  organised  crime 
networks. 

at 

the  Commission 

The  cases  notified  by  the  Member  States  in 
respect  of  1997.  and 
the  cases  under 
in 
investigation 
cooperation  with  the  he  Member  States, 
mostly  concern  cigarette  trafficking.  Even 
so, the figures  do not reflect  the true scale of 
fraud  involving cigarettes (or, even  more so, 
that of fraud  involving alcoholic  beverages), 
as  they  only  represent  the  impact  on  the 
Community  budget.  The  impact  on  national 
budgets  is several times greater than the  loss 
to the Community  budget.7 

The  second  major  group  of  products 
particularly  affected  by  fraud 
involving 
traditional  own  resources  is  dairy  products 
(butter,  milk  powder  and  cheese).  These 
figures  are  clearly  influenced  by  the  impact 
of a number  of very  important  cases  as they 
have developed  over time.8 

1.2. 

Expenditure 

The  cases  detected  in  the  area  of  EAGGF 
Guarantee  Section  expenditure  primarily 
concern  measures  in  the  "market  support' 
category.9  Of  all  the  cases  notified  by  the 
Member  States, 
largest 
impact  on  the  budget,  accounting  for  50% 
of the  overall  notified  impact  in  1997 (71% 
in  1996).  The  proportion  of  the  estimated 
overall 
investigated  by 
UCLAF  for  which  they  account  rose  from 
25%  in  1996 to 47% in "l997. 

impact  of  cases 

these  have 

the 

Export  refunds  still  occupy  an  important 
place,  accounting  in  1997  for  32%  of  the 

' 

° 

The  impact  on  the Community  budget  in terms  of own 
resources  (customs  duties  and  the  Community's  share 
of  VAT)  represents, on  average,  only  25% of  the  total 
impact  on  the  budget  (customs  duties,  VAT and  excise 
duty). 

One  single  case  investigated  on  the  Court  of  Auditors* 
initiative  and  concerning  butter  has  an  overall  impact 
on  the  budget  estimated  at  ECU  118  million  (an 
assessment  based  on  the  findings  of  the  investigation 
in  1997),  of  which  ECU 24  million  was  the  subject  of 
an official  notification  by the  Member  State  concerned 
in  1996. 

by 

the  Commission 

sums  involved 
in  cases  notified  by  the 
Member  States  (as  against  21%  in  1996). 
This  trend  runs counter  to the  fact  that  there 
was  actually  a  considerable  decrease  in 
export  refunds.  The  explanation  for  this 
contradiction  may  be that  the  investigations 
conducted 
in 
cooperation  with  the  Member  States  mainlv 
concern  that  category'  of  payments  (more 
than  50%  of  the  overall  impact  of  cases 
investigated  in  1997 as  compared  with  75% 
in  1996).  The  fact  is  that  fraud  involving 
is  usually  carried  out  by 
export  refunds 
resources  a 
organised  crime  and 
Member  State  by 
into 
dismantling 
the  networks  concerned  are 
limited. 

itself  can  put 

the 

reform  of 

Lastly,  there  has  been  a  steady  increase  in 
the  effects  produced  by  cases  involving 
direct  aid.10  from  5% of  the  overall  impact 
of  cases  notified  by  the  Member  States  in 
1996  to  17%  in  1997.  This  is  due  to 
implementation  of 
the 
the 
common  agricultural  policy  (CAP)  with  its 
tendency  to  give  priority  to  direct  aid  for 
farmers.  Cases  involving  direct  aid  form  a 
minute  proportion  of  those  investigated  by 
the  Commission  in  cooperation  with  the 
Member  States,  due  to  the  fact  that  such 
measures  are  monitored  by  the  Member 
States, and, what  is more, there are very few-
cases  in this sector  involving  more than  one 
country  (e.g.  through  a  single  aid  recipient 
operating  in a number of Member States). 

From  1994  to  1996  there  was  a  major 
increase  in  the  number  of  cases  notified  by 
the  Member  States  and  the  overall  financial 
the  area  of  expenditure  on 
in 
impact 
structural  operations. 
In  1997  the  figures 
stabilised  around  the  level  reached  in  1996. 
Regarding  the  number  of  cases  notified  by 
the  Member  States,  the  European  Social 
Fund  is still  the worst affected  (with 40% of 
the  number  of  cases). 
The  amounts 
involved  are higher  in the case of the  ERDF 
(with nearly  50% of the total). 

Particularly  expenditure  in  a  common  organisation  of 
markets  involving  quotas and  intervention  measures. 

10 

In particular, production  premia and  prcmia  for  ceasing 
production. 

10 

1.3.  Financial  monitoring 

1.3.1. 

Recovery 

fraud 

Where  the  Community  budget  is  harmed, 
whether  the  sums  involved  in  a  case  of 
can  actually  be 
irregularity  or 
recovered  depends  on  a  number  of  factors, 
particularly  the  type  of  infringement,  the 
economic  and  legal  circumstances  and  the 
area  of  the  budget  involved.  Apart  from 
direct 
for 
recovery  procedures  lies  with  the  Member 
States. 

responsibility 

expenditure, 

In the  area  of  traditional  own  resources,  the 
determining  factor  is  the  incurring  of  the 
If  an  attempt  to  smuggle 
customs  debt. 
goods  into  the  customs  territory  of  the 
Community  is detected  in  time,  the  batches 
of goods  seized  are  usually  destroyed  or  re 
exported  if  the  debtor  refuses  to  pay  the 
duties.  Smuggling  being  what  it  is,  it  is 
virtually  impossible  to  collect  the  evidence 
needed  to recover a debt  in relation to goods 
which  have  disappeared  (having  been  sold 
on the black market). 

sums 

cases 

Special  problems  arise  when  it  comes  to 
recovering 
involving 
in 
organised  crime or other  sophisticated  types 
of  fraud.  Even  if  the  dismantling  of  an 
organised  crime  network  means  that  the 
quantity of goods already smuggled  into and 
sold  on 
can  be 
the  black  market 
"calculated"  after  the  event,  it  is  almost 
always  impossible  to  identify  the  person 
liable  for  the  customs  debt  and  work  out 
exactly  how  much  it  is. 
In  such  cases 
recovery  in  the  strict  sense  of  the  term  is 
impossible.  In  other  forms  of  sophisticated 
fraud,  the  traders  concerned  often  organise 
themselves 
that  only 
in  such  a  way 
"smokescreen"  companies  or  people  who 
cannot afford  to pay the amounts  due can be 
identified.  It  is  therefore  vital  to  attack 
organised  criminal  networks  in  such  a  way 
is  halted  at  source  and 
that  trafficking 
criminals are  prosecuted. 

the  cases  of 

irregularity  and 

Regulation 
took 

to quantify  the amounts  still  to be  recovered 
in 
fraud 
financial  years. 
notified  under  previous 
is  because  until  July  1996,  when 
This 
EC) 
Council 
No  1355/96 
relevant 
authorities  in  the  Member  States  who  are 
instigate 
supposed 
recovery 
procedures 
traditional  own 
to 
resources  were  not  officially  required  to 
the  Commission  with  detailed 
supply 
information  about financial  monitoring. 

(Euratom, 
the 

to 
relating 

effect, 

the 

interests  since 

In  July  1997  the  Commission  proposed  an 
amendment  to  Council  Regulation  (EEC, 
Euratom)  No  1552/89  designed  to  clarify 
the  situations  in  which  the  Member  States 
bear  a  financial  responsibility.11  This  will 
provide  more  effective  protection  for  the 
Community's  financial 
it 
involves  setting up a transparent,  formalised 
procedure  for  determining  the  sums  not 
recovered  for  which  an  exemption  from 
making  them  available  may  be  granted  and 
those  which  have  not  been  recovered  for 
reasons  attributable  to  the  Member  State 
which  henceforth  justifies  making  the  latter 
financially  responsible. 
the 
Court  of  Auditors  gave  its  opinion  on  the 
Commission's  proposal.12 
In  February 
1998  the  European  Parliament  adapted  an 
amended  version of the  draft. 

In  October 

Three  quarters  of 

With  regard  to  EAGGF  Guarantee  Section 
expenditure.  Table  2  shows  progress  with 
recovery  in  the  cases  notified  in  respect  of 
the  amount 
1997. 
involved  (ECU  122  million  out  of  164 
million) have yet to be recovered.  The main 
problem  is  still  the  time  taken  by  recovery 
procedures.  The  Commission  thinks  that 
four  years  can  be  regarded  as  long  enough 
for  determining  whether  there  is  a  realistic 
prospect  of recovering  sums  due  and,  where 
appropriate, 
requisite 
procedures.  This  time  limit  allows  for  the 
limitation  period  and  takes  account  of  the 
clearance 
new 

accelerated 

launching 

accounts 

the 

The  situation  as  regards  recovery  in  the 
cases  notified  by  the  Member  States  in 
relation  to  1997  in  the  area  of  traditional 
own  resources  is  shown  in  Table  1. 
It  is 
not,  on  the  other  hand,  possible  at  this  stage 

1 '  COM(97^4?  final. 

12  OJ  C  15.  19.I.I99S. 

11 

procedure.13  By  the  time  the  four-year 
period  expires,  the  Commission  should  be 
in a position  to take a decision  as part of the 
clearance  of  accounts  procedure,  based  on 
the  explanations  supplied  by  the  Member 
State  concerned.14 
Table  4  shows  the 
position  as 
in  cases 
recovery 
regards 
notified  before  1994. 

flat-rate  adjustments 

the  clearance  of 
Similarly,  as  part  of 
accounts  procedure,  the  Commission  may 
apply 
to  Member 
States  which  have  not  established  adequate 
checks  and  have  thereby  created  a  risk  of 
irregularities.  This  is  not  a  "recovery"  in 
sense  but  another  way  of 
the  strict 
protecting 
interests  of  the 
the  financial 
Such  adjustments  are  an 
Communities. 
effective  inducement  to  the  Member  States 
to  tighten  up  their  monitoring  systems. 
Flat-rate adjustments  for  1993 came to some 
ECU 520 million. 

are 

part 

financed 
by 
Structural  measures 
of  multiannual 
as 
instalments 
programmes. 
If  an  irregularity  involving 
one  of  the  individual  projects  selected  by 
the  relevant  authorities 
in  the  Member 
States  and  in  receipt  of  Community  co-
financing  is detected  before  the  multiannual 
programme  in  question  ceases  to  apply,  the 
Member  State  concerned  may  usually 
withdraw  the  project  and  replace  it  with 
another  which  also meets the  set  objectives. 
financial  contribution 
The  Community's 
In 
may  therefore  be  "reprogrammed". 
addition,  payment  by  instalments  is  often  a 
way 
established 
irregularity  in  financial  terms  before  the 
final  payment  is  made.  The  balance  to  be 
recovered  can  therefore  only  be  accurately 
calculated  after  the  multiannual  programme 
has ended. 

reacting 

an 

of 

to 

13  Commission  Regulation  (EC)  No  1663/95  (OJ  L  158, 
the 
laying  down  detailed 
7.7.1995) 
application  of  Council  Regulation  (EEC)  No  729/70 
(OJ  L94,  28.4.1970)  regarding  the  procedure  for  the 
clearance  of  the  accounts  of  the  EAGGF  Guarantee 
Section. 

rules 

for 

14  Most  recently.  Commission  Decision  97/333/EC  of 23 
April  1997  on  the  clearance  of  the  accounts  presented 
by  the  Member  States  in respect  of the  expenditure  for 
1993  on  the  EAGGF  Guarantee  Section  (OJ  L 139. 
30.5.1997). 

to 

look 

On  27 October 

The  Madrid  European  Council  in  December 
1995  called  on  the  Commission  and  the 
the  possibility  of 
into 
Council 
extending  the  accounts  clearance  procedure 
used 
for  EAGGF  Guarantee  Section 
expenditure  to other  sectors,  particularly  the 
Structural  Funds. 
the 
Commission  accordingly  sent  the  Member 
States'  Permanent  Representatives 
the 
financial 
internal 
to  Article 24  of 
adjustments  pursuant 
Regulation 
and 
instructed 
its  responsible  departments  to 
apply  them.  These  guidelines  set  out  the 
circumstances 
financial 
adjustments  have  to  be  made.  The  main 
proposed  criterion  is  that  a  net  adjustment 
must  be  made  if  financial  control  in  the 
Member  States  leaves major  loopholes. 

(EEC)  No 4253/88 

in  which  net 

guidelines 

net 

on 

While  recovery  in the three  budgetary  areas 
referred  to above  is the  responsibility  of the 
member  States,  where  direct  expenditure  is 
concerned  the  Commission  itself,  once  it 
has conducted  its investigation,  recovers  the 
amounts  due  from  the  end-recipient.  The 
relevant  authorising  department 
issues  a 
recovery  order  which  is  executed  bv  the 
Commission  Accountant.  But  there  is  no 
denying  that  the  actual  recovery  of  the 
amounts  in  question  frequently  runs  into 
material  or  legal  difficulties  (such  as  the 
recipient  going  bankrupt  or  procedures 
before  national  courts  taking  a  very  long 
time). 

1.3.2.  Monitoring 

of 

investigations 
run  by  UCLA F  in  cooperation 
with  the Member  States 

from 
in 

Systematic  financial  monitoring  of  recovery 
procedures  can  only  be done on the  basis of 
official  notifications 
the  Member 
the  event  of 
Obviously, 
States. 
sophisticated 
the 
transnational 
Member  States  acting  alone  cannot  bring 
the  case  to  a  close  and  recover  the  sums 
due, even  in part (particularly  in the areas of 
traditional  own  resources  and  agricultural 
expenditure,  where  goods  are  traded  and  it 
is difficult  to identify  who  is liable to pay). 

fraud. 

Even  if an  investigation  by the  Commission 
enables  a  figure  to  be  put  on  the  effect  on 
the  Community  budget  (in  terms  of  own 

12 

resources  evaded  or  irregular  expenditure) 
and  the  debtor  or  the  end-recipient  to  be 
identified,  UCLAF  has  to  send  the  Member 
State  concerned  all  the  facts  in the  case  and 
ask  it to take whatever  action  is necessary to 
recover  the  amount  due.  including  notifying 
the case officially  if it has not been done. 

In  the  area  of  own  resources.  Council 
(Euratom,  EC)  No  1355/96 
Regulation 
(EEDC, 
amending  Council  Regulation 

2. 

INVESTIGATIONS 

The  chapter  on  investigations  is  a  sign  of 
the  priority  the  Union  gives  to  stepping  up 
its  operational  presence  in  the  field,  that  in 
fact  being  one  of  the  mainstays  of  the 
Commission's  strategy  for combating  fraud, 
supported  by  the  European  Parliament  and 
the Council.15 

The aims  are clear-cut:  to combat  organised 
crime,  while  maintaining  the  credibility  of 
the Union's  basic policies and protecting  the 
Community's  finances. 

in 

involving 

complicated, 

Where  organised  crime  is  concerned16,  the 
Community  budget  is  a  major  target  for 
organisations 
financial 
specialising 
crime.  Whenever  our  investigations  have 
turned 
usually 
up 
large 
international,  operations 
amounts  of money,  criminal  networks  using 
sophisticated  techniques  are  found  to  be 
involved.  Fraudulent  operators,  corruptors 
and counterfeiters  of documents, are  experts 
at  diverting  or  switching  goods,  managing 
complicated  flows  of false  invoices,  moving 
to  "front"  companies  and  using 
capital 
bogus  administrative  documents. 
The 
Commission  and  the  Member  States  have 
large-scale 
good 
to 
leading 
the 
investigations 
penalties which deter fraudulent  operators. 

running 
field 

reasons 

for 

in 

The  Commission  also  has  a  duty  to  take 
firm  action  to protect  the  major  Community 
policies.  Whether  it  be  the  agricultural 
policy,  the  structural  policy  or  the  trade 

to 

introduced 

resources  notifications, 

Euratom)  No  1552/89 
a 
requirement  for  the  Member  States,  in  their 
refer 
own 
explicitly 
to  any  previous  notification 
within  the  mutual  assistance  system  for 
As 
customs  and  agricultural  matters. 
UCLAF  organises  cooperation  with 
the 
Member  States within  the  mutual  assistance 
framework, 
these  references  will  make 
monitoring in future  more systematic. 

policy,  what 
credibility of the Union. 

is  at  stake 

is 

the  very 

the  preferential 
The  malfunctioning  of 
arrangements 
the  risks  which 
illustrates 
systematic  fraud  could  pose  to  a  dynamic 
trade  policy  open  to  the  rest  of  the  world. 
There  are  preferential  tariffs  on  half  the 
Union's  imports.17  Major  risks  remain, 
in  certain  sectors  such  as 
particularly 
in 
fisheries, 
relation  to  certain  products  subject  to  trade 
protection  measures  such  as  anti-dumping 
duties. 

textiles  and  electronics  or 

Within the Union  fraud  must  not be allowed 
to  undermine  operations  as  fundamental  as 
the  agricultural  or  structural  policies.  The 
Commission  is doing  its job  when  it  carries 
out  investigations  in  the  field  into  cases 
which  are  often  complicated  and  spill  over 
into  several  Member  States  or  non-member 
countries,  or  when  it  coordinates  the  work 
done 
fraud-prevention 
by 
departments. 

national 

In  the  area  of  VAT  fraud,  which  raises  a 
series of questions  related  to those  raised  by 
the  taxation  of  high-risk  products,  further 
action  needs  to  be  taken  to  ensure  that 
coordinated 
also 
investigations 
developed. 

are 

2.1. 

Involvement  of  organised  crime 

It  has  been  established  beyond  doubt  that 
the 
international  crime  syndicates 

target 

15  COM(94)92  flna! 

See ulossarv  in annexe 

'  '  As the  Court  of  Auditors  noted  in  its  annual  report  on 

the financial year  1996 (OJ  C 348.  ! 8.1 1.1997) 

13 

Community  budget.  More  than  50  crime 
networks  have  been  identified  in the  course 
investigations  which  have 
of  large-scale 
revealed 
the  attacks  being  made  on 
Community  expenditure  and  revenue.  The 
networks  work  with  each  other  and  are 
involved  in other  criminal  activities  as  well 
as  financial  crime  against  the  Community's 
finances.  Organised  crime  has  its  sights 
in  which 
trained  on  high-risk  products 
trafficking  brings  in  huge  profits,  such  as 
alcohol  and  cigarettes:  customs  duties  are 
evaded  at  the  expense  of  the  Community's 
financial  interests,  while  excise  duty  and 
VAT are evaded  primarily  at the expense of 
national 
agriculture, 
investigations  by 
the  specialist  national 
departments  and  the  Commission  more  and 
more 
of 
uncover 
involvement  by  organised, 
international 
crime networks. 

finances. 

evidence 

often 

In 

As  the  high-level  group  mandated  by  the 
Council  in  1997  has  emphasised,  organised 
take  advantage  of  the 
crime  syndicates 
differences  between  national  systems  to 
operate with  impunity and, where necessary, 
rely  on  non-member  countries  (Switzerland 
the  real 
or 
organisers  behind  the  networks  and  launder 
the  money  siphoned  off  from  the  common 
budget. 

tax  havens)  which  shelter 

can 
the 

be 
national 

results 
provided 

achieved, 
Substantial 
however, 
and 
Community  authorities  work  together  from 
the  moment  the  investigations  begin  until 
any  legal  consequences  which  may  ensue. 
The  work  of  the  task-groups  on  alcohol, 
cigarettes  and  olive  oil  specially  set  up on a 
Commission 
the 
Commission  and  the  Member  States  can 
keep  track  of  the  most  sensitive  cases  has 
been stepped up. 

initiative 

that 

so 

2.1.1. 

The  work  of  the  task-group  on 
cigarettes 

by 

coordinated 

Investigations 
the 
Commission  by  the  task-group  on  which 
UCLAF  and  the  specialist  departments  in 
the  Member  States  are  represented  have 
shown  that  organised  crime  syndicates  are 
heavily  involved  in  Europe  and  throughout 
the world.  They  adapt extremely  well  to the 

measures  adopted  to  combat  their  activities 
and  are  very  flexible,  both  geographically 
and  operationally,  when  it  comes  to  using 
different  methods  of  transport  and  different 
distribution 
money-laundering 
networks.  Crime  syndicates  can  only  be 
fought  by  seamless  operational  cooperation 
between  the  Member  States, with  help  from 
the  Commission  and  working  closely  with 
the judicial  authorities. 

and 

of 

certain 

In  1997 joint  action  and  help  from  certain 
non-member  countries  led to the  uncovering 
types  of 
and  prevention 
trafficking;  the  main  syndicates  involved 
are  described  in  this  part.  The  overall 
financial 
impact  of  the  kinds  of  fraud 
detected  in this  area  in  1997  is estimated  at 
ECU  1.6  billion,  covering  Community  own 
resources  and  national  revenue  (customs 
and  excise  duties  and  VAT).  The  loss  of 
receipts  was  estimated  at 
Community 
ECU 423  million.  Because  of  the  scale  of 
indirect  taxation,  particularly  excise  duty', 
such  fraud  goes  on  all  over  the  Union, 
though  it  is traditionally  more  prominent  in 
southern  Europe. 

2.1.1.1.  Sea and  air  trafficking 

The  Commission  and  the  task-group  on 
cigarettes  set  up an  operation  to combat  the 
traffic  in  cigarettes  by  sea  off  Spain  and 
Portugal.18 

from 
The  cigarettes  were  first  shipped 
warehouses  at  ports  in  Benelux  on  board 
vessels  declared  as  being  bound  for  West 
Africa,  and  were  then  transhipped  by  sea. 
In  January  1997,  the  operation  coordinated 
by  the  Commission  led  for  the  first  time  to 
the  seizing  of  two  vessels.  The  operation 
continued 
throughout  1997,  and  several 
vessels  involved  were  seized  by the  Spanish 
and  Portuguese  authorities  in  collaboration 
with  their  opposite  numbers  in  France  and 
Belgium. 

One  consequence  of  the  seizures  was that  it 
prompted  the  crime  networks  to  move  the 
warehousing  operation  from  Benelux  ports 

See  the  annual  report  on  the  "Fight  against  fraud"  for 
1996, Chapter  3. Section  1.1, page 27. 

14 

to  other  ports,  particularly  in  Cyprus.  The 
way  the  fraud  operated  was  changed,  and 
now  involved  making  a  false  declaration  as 
to  the  type  and  actual  origin  (Morocco)  of 
the  goods.  The  cigarettes  were  now  moved 
in  Cyprus  or  other  non-
through  ports 
member  countries 
in  the  Mediterranean, 
where  they  were  loaded  with  other,  less 
sensitive  goods  into containers  which,  when 
the  European  Union,  were 
they  entered 
declared  as  containing  only 
less 
sensitive  goods,  to  escape  the  notice  of  the 
inspection  authorities. 

the 

coordinated 

Commission 

The 
the 
information  about  the  movements  of  these 
containers  and  more  than  93 000  cases  of 
cigarettes19  were  seized  by  the  Member 
States'  authorities.  The  outstanding  help 
the  Community  received  from  the  Cypriot 
authorities  was  highly  appreciated.  The 
trafficking  of  cigarettes 
to  Spain  and 
Portugal  by  sea  has  been  dealt  a  serious 
blow.  Arrests  have  been  made  in  Spain. 
the 
France  and  Belgium, 
dismantling  of  crime  networks,  whose 
members are now being prosecuted. 

leading 

to 

The  crime  syndicates  then  thought  up  other 
ways to go on supplying the black  market in 
In  April  1997  the  task-group, 
Europe. 
working  with 
the  Spanish  and  Greek 
that  a  cargo  plane 
authorities,  heard 
belonging  to  the  Ukrainian  armed  forces 
and  coming  from  Greece  was  landing  at  an 
airport  in  northern  Spain  and  unloading  a 
cargo under a false  declaration  (as  electrical 
spare parts sent from  Greece). 

led  to  the  seizure  of  an 
The  operation 
Ilyushin  76 aircraft  and the arrest of its crew 
by  the  Spanish  authorities.  The  aeroplane 
was  then  seized  and  the  members  of  the 
crew  convicted  in  the  criminal  courts.  The 
cargo,  which  was  concealed 
in  wooden 
crates,  contained  more  than  1700  cases  of 
cigarettes.  Further  investigations  showed 
that  the  intercepted  flight  had  been  the 
seventh  of  its  kind  since  February,  and  six 
more  flights  were  scheduled  before  the  end 
of  April.  The  cigarettes  came  from  a  large 

warehouse  in  the  Netherlands,  were  loaded 
at Ostend  Airport  in  Belgium,  for  Belgrade, 
in 
and  were  then  carried  from  airports 
Greece,  where  the  aircraft 
in  fact  only 
stopped to  refuel. 

and 

indirect 

It  was  established  that  more  than  17 760 
cases  of  cigarettes  had  been  brought  into 
Spain  fraudulently  as described  above.  The 
estimated  loss  in  terms  of  customs  duties, 
contributions  was 
VAT 
ECU  15 million. 
the 
Ukrainian  Government,  the  seized  aircraft 
was  on  hire  from  a  Ukrainian  company. 
The  authorities  nevertheless 
to 
cooperate  in  clearing  up  the  case,  despite 
the agreement with the Community  (in  force 
since  1996) which  provides  a legal  basis  for 
mutual assistance  in customs matters. 

According 

refused 

to 

2.1.1.2.  Cigarette 

trafficking 

under 

cover  of TIR  carnets 

A crime  syndicate  based  in  Switzerland  and 
regarded  as  the  main  supplier  of  cigarettes 
to  the  networks  in  the  Community  was 
proposing  to  smuggle  some  175 000  cases 
of brand-name cigarettes from  Romania  into 
the  Community.  The  fraudulent  operations 
started at the beginning of  1996. 

The cigarettes, which were first  sent by road 
and  by air  from  a customs warehouse  in the 
Netherlands  through  Belgium  to  Bucharest 
in  Romania,  were  brought  back  into  the 
Community  after  being  transported  from 
Bucharest  to  the  Hungarian  border  under 
Romanian 
The 
criminals  then  declared  the  cigarettes  as 
low-risk  goods  (crockery)  and  placed  them 
under  TIR  arrangements,20  under  which 
they were carried  back  into the  Community. 
The  TIR  carnets  were  falsely  cleared  and 
the  cigarettes  placed  on  the  Community 
market. 

transit  arrangements. 

The  trafficking  was  brought  to  a  halt  in 
two  of  the  TIR 
November  1996  when 
carnets  were  found  in  the  hands  of  one  of 
in  the 
the  main  organisers  of  the  fraud 
in 
course  of  a  criminal 

investigation 

19  A case contains  50 cartons,  i.e.  10 000 cigarettes. 

20  TIR  is  the  international  transport  arrangement  laid 

down  by the  1975 TIR  Convention. 

15 

Switzerland 
trafficking 
officials). 

into 

and 

another 
corruption 

case 
of 

(drug 
Swiss 

least  ECU 700  million  in  Community  and 
national  resources per year. 

several 

implicated 

The 
three 
investigation  departments  of 
Member  States  were  sent  the  information, 
haulage 
which 
companies.  But  it  was  difficult  to  carry 
their  investigations  through  as  there  was  no 
evidence  of  the  scale  of  the  fraudulent 
operations  or  the  level  of  responsibility 
borne  by  the  companies  and 
individuals 
concerned.  At the  request  of these  Member 
States,  the  Commission's  fraud-prevention 
department  undertook 
the 
investigations. 

to  coordinate 

criminal 

proceedings. 

in 
A  Community  mission  was  set  up 
collaboration  with  the  Romanian  customs 
authorities. 
It  found  enough  evidence  for 
the national  investigating departments  in the 
Member  States  and  Rornania  to  be  able  to 
institute 
The 
outcome  was  that  several  criminals  were 
jailed  and  the  debtors  were  notified  of  the 
amounts  of  import  duty  evaded.  Of  the 
projected  total  of  175 000 cases, 35 000 had 
already been smuggled  into the  Community, 
representing  approximately  ECU 38 million 
(customs and excise duties and VAT)  in lost 
revenue. 

2.1.1.3.  Cigarette 

trafficking 

from 

Montenegro 

to 

for 

cigarettes 

trafficking 

One of the main  routes the crime  syndicates 
the 
use 
Community  is through  the Federal  Republic 
of  Yugoslavia,  where  large  quantities  of 
cigarettes  are  sent  in  transit  by  air,  road  or 
the 
sea 
Community 
The 
cigarettes  are  then  loaded  onto  speedboats 
declared  to  be  bound  for  Italy  and  are 
offloaded 
as 
contraband. 

from  customs  warehouses 
Switzerland. 

the  Adriatic 

coast 

and 

on 

in 

investigations  showed 

The 
that  678 250 
cases  of  cigarettes  were  carried  from  the 
European  Union  and  non-member  countries 
to  Montenegro  in  the  first  nine  months  of 
1997.  The  sole  purpose  of  taking  the 
cigarettes  through  Montenegro  is  to  divert 
them  to  the  black  market  in  the  EU.  With 
an  estimated  10%  of 
these  cigarettes 
earmarked  for  the  local  market,  it  can  be 
deduced 
that  about  610 000  cases  of 
cigarettes  are  intended  for  the  black  market 
in  the  EU,  representing  a  loss  of  some 
ECU 610  million  in  customs  and  excise 
duty and VAT. 

legal  authorities 

A  mission  organised  by  UCLAF  and  the 
Guardia  di  Finanza  in  cooperation  with  the 
Italian 
laid  hands  on 
documents  and  other  evidence  showing  that 
31 665  cases  had  been  brought  into  the 
European  Union 
the 
subsequent 
documents  obtained 
mission, the Italian police were able to bring 
charges  against  42  people  linked  to  crime 
syndicates 
cigarette 
trafficking. 

irregularly.  With 
a 

involved 

and 

in 

in 

2.1.1.4.  Cigarette  trafficking  by  rail 

the 

requirement 

Community/common 

Because of the measures  planned  in  relation 
transit,21 
to 
particularly 
ah 
for 
individual  guarantee  for  cigarettes  carried 
by road, the crime  syndicates  are  exploiting 
the  weak  points  of  other  methods  of 
transport.  For  example,  77 410  cases  of 
cigarettes  carried  by  rail  from  Switzerland 
to  Portugal  between  February  1995  and 
April  1997  were 
the 
Community,  representing  a  loss  of  some 
own 
ECU 65 million 
resources and national  revenue. 

in  Community 

smuggled 

into 

This  is  a  substantial  operation:  more  than 
100 cargo  plane  flights  to  Montenegro  were 
identified  in  1997. 
Investigations  in  the 
same  year  confirmed  the  figures  from  an 
initial  mission  in  1996  for  the  very  high 
level  of  trafficking  taking  place,  involving 
some  800 000  cases  per year,  or a  loss  of at 

Arrangement  for  movement  of  goods  under  duty-  and 
tax-suspension  arrangements 
from  an  office  of 
departure  to  an  office  of  destination  by  way  of  a 
transit 
document-checking  procedure  (the  common 
arrangement  is  an  extension  of  the  Community  transit 
arrangement  to  the  EFTA  countries  and  the  Visegrad 
countries  -  Poland,  Hungary,  the  Czech  Republic  and 
Slovakia). Cf.  Chapter  3, section 3.3. 

16 

sent 

origin,  were 

The  cigarettes  in  question,  which  were  of 
from 
American 
warehouses  in  the  Netherlands,  Germany 
and  Belgium  to  warehouses  in  Basle  and 
Buchs  in  Switzerland.  There  the  cigarettes 
were  declared  for  export  to  destinations 
outside 
for  Angola, 
Senegal,  Gambia  and  Guinea  via  Portugal, 
where  they  were  fraudulently  taken  off  the 
the 
wagons 
Community/common  transit  arrangements. 
This  traffic  was  stopped  in  April  when  the 
Portuguese  authorities  seized  the  70th  truck 
in this particular  operation. 

the  Union,  bound 

removed 

from 

and 

for 

fraud. 

Investigations  by the judicial  authorities  are 
those 
under  way  in  Portugal  to  identify 
responsible 
UCLAF 
the 
coordinated  a  mission  to  Switzerland  under 
the  mutual  assistance  agreement  with  that 
country.  Even though  loopholes  have  come 
to  light  in  implementing  the  agreement, 
particularly  as regards the responsibilities of 
the  Swiss  authorities,  the  results  of  the 
the 
stage 
mission  at 
organisations 
in  the  fraud  are 
known 
from  other  cigarette  smuggling 
cases. 

this 
involved 

show 

that 

2.1.1.5.  Trafficking  from  Andorra 

For several years now Andorra has been one 
of  the  sources  of  cigarettes  smuggled  into 
the  European  Union,  particularly  Spain. 
The 
either 
used 
manufactured  under  licence  in  Andorra  or 
manufactured  in  non-member  countries  and 
imported  into Andorra. 

cigarettes 

be 

to 

In  1995-97,  however,  the  operations  began 
to  take  place  on  a  very  large  scale.  Large 
quantities  of  cigarettes  smuggled  out  of 
Andorra  were  seized  by 
the  Spanish, 
French, British and Irish authorities. 

Thorough  analysis  of  the  tobacco  products 
imported  into  and  manufactured  in  Andorra 
showed  that  the  quantities  concerned  were 
very much  in excess of the requirements  for 
local  consumption  and  duty-free  sales  to 
tourists.  Officially,  however,  Andorra  does 
not export cigarettes. 

In  1997  it  was  found  that  twice  as  many 
cigarettes  had  been  imported  into  Andorra 

as in  1996, while the quantities  of  cigarettes 
manufactured  in  Andorra  had  risen  slightly 
over  the  five  preceding  years.  The  brands 
of  cigarettes  imported  into Andorra  in  1997 
suggested  that  a  large  part  of  them  was 
intended  for the British  and Irish  contraband 
market, which  is run by crime syndicates. 

The  total  tax  receipt  loss  was  estimated  at 
in  1996  and 
some  ECU 200  million 
ECU 400  million  in  1997.  There  is  solid 
evidence  to  show  that  the  traffic  is  being 
carried  on  by  organised  criminal  gangs 
inside  and 
based 
outside the European  Union. 

in  various  countries 

taken  by 

the 
Various  steps  have  been 
Spanish  authorities  (the  Guardia  Civil)  and 
tougher  police  and  customs  control  should 
put  a  halt  to  this  type  of  operation.  The 
relevant  departments  in  the  Commission 
and  the  Andorran  authorities  are  discussing 
what action to take. 

2.1.2. 

The  role  of  organised  crime  in 
fraud 
agricultural 

Investigations 
into  the  agriculture  sector 
frequently  uncover  well-organised  crime 
networks.  Organised  crime  is  particularly 
involved  in  the  extra-Community  trade  in 
through  complex 
agricultural  products, 
networks  of  producers,  dealers,  carriers, 
invoice  clerks,  smugglers,  counterfeiters 
and so on. 

The  cases 
involving  alcohol,  olive  oil, 
butter,  beef  and  veal  referred  to  above  are 
good  illustrations  of  the  kind  of  crime  the 
Community  is faced  with.  The  British  beef 
example  shows  that  as  well  as  an  attack  on 
the  Community's  financial  interests  there 
may  be  circumvention  of  the  bans  imposed 
by the Community to protect public health. 

2.1.2.1.  Alcohol 

At  the  end  of  1996,  the  investigations  into 
alcohol  and  alcoholic  beverages  (except 
wine) under  way  in UCLAF22 were  brought 

22  See  the  annual  report  on  the  "Fight  against  fraud"  for 
in  Chapter 3,  Section  3.1.1. 
1996,  which  reported, 
p. 27, that the Member  States had told the  Commission 

17 

fraud-prevention 

for  gathering 
together 

together  under  a  task-group  on  alcohol 
responsible 
the  available 
in  one  place  and 
information 
coordinating 
activities, 
which  are  inevitably 
international.  The 
group  is  able  to  initiate  investigations  and 
exercise  operational  supervision  over  them. 
The  early  warning  system  (transit  system) 
and  the  coordination  of  investigations  by a 
special  task  group  have  proved  useful  tools 
in  fraud  detection.  Experience  also  shows 
that  it  is  in  the  interests  of  all  the  Member 
States to cooperate  with  each  other and  with 
fully 
the  Commission: 
identified  in  1997 cannot  easily  be  confined 
just 
to  the  Member  States  which  have 
worked with the  Commission. 

the  problems 

What  is  more,  the  principal  instances  of 
fraud  are  carried  out  by  well-organised 
criminals.  They  can  only  be  fought  by 
the  exchange  of 
constantly  upgrading 
information  and  cooperation  between  the 
Member States and the Commission. 

It  is very  difficult  in  most  cases  to  discover 
what  the  end-destination  of  the  alcohol  is. 
either  because  it  has  not  left  the  Member 
State of departure at all or because  it has  left 
that  Member  State  but  not  the  Community 
(which  involves  it  simply  being  diverted 
onto the  market  in another  Member  State or 
exported  but  then  smuggled  back  into  the 
Community),  or  because 
it  has  left  the 
Community and then  been put on the market 
illegally 
countries, 
particularly  in central and eastern  Europe. 

non-member 

in 

the  Union  a  great  deal  of 

the 
Inside 
in  northern  Europe, 
trafficking  goes  on 
where  excise  duty 
Very 
is  higher. 
obviously,  it  is  in  the  shared  interest  of  the 
Community  and  non-member  countries, 
particularly  those  of  central  and  eastern 
Europe, to  prevent  fraud  on  their  respective 
markets and contain organised  crime. 

•  Consignments  under 

the  Community 

transit customs  arrangement 

- 

- 

the 

duty 

1997 

group 

In 
launched 
task 
investigations  into  movements  of  alcohol 
and  alcoholic  beverages  either  under  the 
transit  system23  or 
Community  external 
under 
suspension 
excise 
arrangements.24  Investigations  showed  that 
both  systems  had  been  used  fraudulently. 
Large  amounts  of  alcohol  and  alcoholic 
beverages 
being 
transported  across  the  Community.  The 
fraud  methods  used  include  using  forged 
false 
documents 
descriptions  of  goods  or  specifying  false 
companies  as  the  declared  consignees,  and 
setting  up  "front"  companies  which  go 
bankrupt  before  duties fall  due. 

disappeared  while 

stamps,  giving 

and 

on several  occasions  that  there  had  been  an  upsurge  in 
alcohol  smuggling. 

23 

Consignments  covered  bv a Tl  document. 

Consignments  under  an  accompanying  administrative 
document. 
Council  Directive  No92/12/EEC  of 
25.2.1992  on  the  general  arrangements  for  products 
subject  to  excise  duty  and  on  the  holding,  movement 
and  monitoring  of such  products  (OJ  L 76, 23.3.1992), 
and  Commission  Regulation  (EEC)  No 2719/92  on  the 
accompanying 
the 
movement  under  duty-suspension  arrangements  of 
products subject  to excise  duty (OJ  L 276,  19.9.1992). 

administrative  document 

for 

Because of the information  passed  on by the 
Member  States  in  1997  about  exports  of 
sensitive  products,  the  investigation  was 
two  Member  States  which 
targeted  on 
export 
declared 
quantities 
destinations  in  the  former  Soviet  Union 
(particularly 
and 
Lithuania). 

Ukraine 

Russia, 

large 

to 

that  at 

thus  established 

It  was 
least 
1.4 million  litres  allegedly  exported  from 
one  of  these  two  Member  States  had  not 
reached 
The 
the  declared  destination. 
customs  documents  had  not  been  produced 
at  customs  offices  on  the  way  out  of  the 
Community,  or  had  been  stamped  using 
forged  stamps. 

If,  as seems  likely, the quantity  involved  did 
not  in fact  leave the customs  territory  of the 
Community,  the  financial  impact,  assessed 
on  the  basis  of  average  taxation  in  the 
including  customs 
European  Union,  and 
duty,  would  come 
to  about  ECU  15.7 
million.  The  investigation  is  continuing  in 
order  to  determine  both  where  the  products 
to 
concerned  went  and  what  happened 
another  4.4  million  litres  of  exports  bound 
for  countries  in  the  former  Soviet  Union 

18 

(with  a  potential  impact  of  some  ECU 49 
million). 

•  Consignments  under 

the  excise-duty-

suspension  arrangement 

Thanks to outstanding  cooperation  from  one 
Member  State,  it  was  possible  to  analyse 
movements  of  alcohol  under  the  excise-
duty-suspension  arrangement  and show that, 
over  a  period  of  a  little  over  a  year,  nine 
companies  evaded  payment  of  excise  duty 
and  VAT  by  means  of  fictitious  exports  of 
6.7 million  litres of alcohol. 

The  customs  authorities  also  uncovered 
irregular  dispatches  of  14.3 million  litres by 
another  eight  companies  over  a  period  of 
less 
The  estimated 
potential  loss  of  national  revenue  (based  on 
average  taxation  in  the  European  Union) 
would be some ECU  563 million. 

three  years. 

than 

2.1.2.2.  Olive  oil 

•  Olive oil adulterated  with  hazelnut oil 

that  sizeable 
It  emerged  during  1995 
quantities  of oil  cleared  through  customs  as 
sunflower  oil  had  been  dispatched 
to 
and 
Belgium.  Netherlands,  Germany 
Portugal  on  board  ships 
from  Turkey. 
Fraud  was  suspected:  it  could  have  been 
hazelnut  oil  intended  for  mixing  with  olive 
is  very 
oil.  as  that  type  of  adulteration 
difficult  to  detect  if the  amount  of  hazelnut 
oil  mixed  in  does  not  exceed  18% or  20%. 
Oil  adulterated  in  that  way  ioses  its  quality 
and  is  no  longer  entitled  to  any  form  of 
Community  aid. 

Having  the  oil  cleared  through  customs  in 
in  Northern  Europe  and 
various  ports 
Portugal  diverted  attention,  as  did  declaring 
it  as  sunflower  oil  -  and, 
incidentally, 
thereby  side-stepping  the  requirement  to 
provide  a  security  for  the  importation  of 
hazelnut oil.26 

in 

field 

Investigations 
show  how 
this 
sophisticated  the  techniques  used  by  crime 
syndicates  are.  To  achieve  their  aims  they 
the 
set  up  mechanisms  which  distort 
economy  in  a  particular  sector.  The  idea 
that there  is  a type of  fraud  which  works  to 
the  advantage  of  one  sector  is  mistaken: 
here,  producers,  processors  and  consumers 
are  the  victims  of  a  concerted  operation. 
Large-scale  fraud  has  been  taking  place  in 
the  olive  oil  sector  in  relation  to  both 
consumption 
aid. 
Import and export operations have also been 
subject  to fraud.  The Commission  took  this 
problem  into account  in the proposals  which 
it put forward  for the reform  of the  common 
organisation  of this  market.25 

aid  and  production 

The  cases  involving  olive  oil  are  a  good 
illustration  of  the  usefulness  of  a  structure 
like  the  specialised  task  group,  not  just 
conducting  one-off  investigations  but,  as an 
research 
ongoing  exercise,  coordinating 
to  deal  with 
departments  which  have 
organised 
in 
several  countries and  in a variety of wavs. 

financial  crime  operating 

COM(97)57  final 

19 

repeated 

established 

cross-charging 

via 
After 
companies 
tax  havens 
(Panama  and  others)  and  holders  of  Swiss 
bank  accounts, the oil was taken to Italy and 
Spain on  lorries, usually  French. 

in 

An  investigation  which  the  Commission 
carried  out  in Turkey  in  1995  in  association 
the 
the  customs  departments  of 
with 
Member  States  concerned  found  evidence 
that the vessels had indeed  been  loaded  with 
hazelnut  oil.  The  documents  produced  on 
arrival 
forged 
in  the  Community  were 
documents  concocted  during  the  journey. 
The  false  declarations  of  type  and  value 
to  a  total  of  20 680  tonnes  of 
related 
hazelnut oil. 

The  French,  Belgian  and  Dutch  customs 
investigation  departments  investigated  the 
carriers and  identified  the end-consignees  of 
the  goods. 
the 
At  each 
investigation  UCLAF,  through  the  olive  oil 
task  group,  coordinated  the  inquiries  by  the 

stage  of 

A security  of  ECU  800  per  100 kg,  released  on  certain 
conditions  o\  use.  is  required  by  the  regulation  to 
reduce  the  risk  of  fraud  involving  hazelnut  oil.  Ci\ 
Commission  Regulation  (EEC)  No 2828/93 (OJ  I. 25S. 
16.10.1993). 

specialist  departments  from 
States  concerned. 

the  Member 

oil  (with  supporting  manifests  and  bills  of 
lading). 

loss 

The 
to  European  consumers  who 
bought  olive  oil  adulterated  with  hazelnut 
oil  can  be  put  at  ECU 40  million,  allowing 
for the  fact  that  hazelnut  oil  was three  times 
as cheap  as olive  oil  on  the  world  market  at 
the  time.  The  loss  to  Community  finances 
was  ECU 30 million  through  the  failure  to 
provide  the  security  required  for  hazelnut 
oil  (involving  16  145  tonnes),  plus  large 
sums  improperly  collected  in  consumption 
aid totalling  ECU 43  million,  if we  consider 
that  the  20 680  tonnes  of  hazelnut  oil  were 
mixed  with  the olive  oil  to make  up 20% of 
the  total,  thereby  enabling  103 400  tonnes 
of  adulterated  olive  oil  to  be  placed  on  the 
market.  Recovery  procedures  and  legal 
proceedings are under way  in these cases. 

•  Fraudulent  importing of olive oil 

the 

A joint  inspection  carried  out  in  Greece  in 
connection  with  developments  in  an  earlier 
case  involving  fraudulent  importing  of olive 
oil  into  Italy27  found  evidence  in  a  ship's 
log  of  another  fraudulent  operation  set  up 
An 
by 
investigation  by  UCLAF  in  collaboration 
with  the  Italian  Guardia  di  Finanza  and  the 
investigation  department 
French  customs 
operation 
complicated 
uncovered 
involving  fraudulent  importing  of  olive  oil 
without payment of customs duties. 

same  crime 

syndicate. 

a 

The  olive  oil,  which  came  from  a  non-
member  country,  was  claimed  to  be  in 
transit  for  Israel  and  Turkey.  It was  in  fact 
unloaded  on  the  customs  territory  of  the 
ingenious 
Community  by  means  of  an 
subterfuge. 
from 
Marseilles and  Sète in France, each  carrying 
1700 tonnes  of  olive  oil  in  transit  and  1700 
tonnes of French  sunflower  oil.  They called 
at  Monopoli  in  Italy,  allegedly  in  order  to 
unload  the  sunflower  oil.  They  then  set  off 
again  for  Turkey  and  Israel  with  the  olive 

sailed 

ships 

Two 

The  investigation  proved  that  it  was  the 
olive oil  which  was  in  fact  unloaded  in  Italy 
and  the  sunflower  oil  which  was  cleared 
through  customs  in  Turkey  and  Israel,  the 
papers being altered  en route. 

in  the  Italian 
The  3400  tonnes  booked 
consignee's  accounts  as  sunflower  oil  were 
then  re-established  as olive oil: a set of  false 
invoices  was  issued  with  the  connivance  of 
the 
other  companies 
company  concerned  had  sold  the  sunflower 
oil  and  bought  the  same  tonnage  of  olive 
the  fiction,  carriage 
oil. 
To  complete 
lorries 
issued,  with 
invoices  had  been 
actually  moving 
thereby 
justifying  purchases of fuel)  but empty! 

to  establish 

about 

(and 

that 

that  all 

investigation  showed 

The 
the 
invoices  were  bogus  and  that  no  goods  had 
ever  been  physically  moved.  The  only 
purpose  of  the  whole  set-up  was  to  justify 
the  presence  of  olive  oil  surreptitiously 
unloaded  at the  consignee's  premises,  when 
the two  vessels  had  been  officially  declared 
as carrying  sunflower  oil. 

The  amount  involved  in  this  case,  in  terms 
of  evaded  customs  duty  and  securities 
which  were  not  lodged,  came  to  ECU 5.1 
million.  Consumption  aid  which  was drawn 
without  entitlement  came 
to  ECU  1.83 
Legal  proceedings  have  been 
million. 
instigated. 

involved 

the  mechanisms 

in 
this 
Uncovering 
took  several 
particular  instance  of  fraud 
years  of  research,  as  there  were  a  great 
many  people 
in  the  organised 
crime  network  which  carried  it  out:  three 
companies  (French,  Swiss  and  British),  all 
run  by  an  international  dealer  and  producer 
based  in the UK, with  the connivance  of the 
manager  and  captains  of  the  ships  involved 
and  from  a  well-organised  Italian  network 
consisting  of  officials  from  a  great  many 
trading and transport  companies. 

27 

See  the  annual  report  for  1993  on  the  "Fight  against 
fraud",  p.  27.  The  case  in  question  came  to  trial 
recently;  the  Communitv's  finances  were  defrauded  of 
ECU 27.6  million. 

In  October  1996  the  Commission  was  told 
by  the  Belgian  authorities  that  a  dairy 

2.1.2. J.  Butter 

20 

products  firm  was suspected  of  involvement 
in bogus exports of butter to Albania  though 
an  Italian  trader.  The  Belgian  firm  was 
getting 
the 
refunds. 
responsibility  of  the  trader  in  Italy,  the 
transit 
product  was  placed  under 
arrangements  and then  earmarked  for  export 
from  Bari to  Albania. 

export 

Under 

the 

Close  cooperation  between  the  Commission 
and  the  relevant  national  administration  led 
to the  seizure  of  the  butter  consignments  in 
Italy,  while  the  carriers  were  caught  in  the 
in  private 
the 
act  of  unloading 
warehouses. 

lorries 

falsified 

An  investigation  by  the  fraud-prevention 
departments  in  Belgium  and  Italy  showed 
that  15  consignments  intended  for  Albania 
had been  improperly  withdrawn  from  transit 
transit 
using 
documents  and  then  diverted  to  the  Italian 
market  between  July  and  November  1996. 
Once  the  fraud  had  been  identified,  the 
Italian  trader  was  charged  before  the  Italian 
courts  with  fraud  against  the  Community 
budget. 

Community' 

the 

afterwards 

the  same 

a  French 

Commission 
Shortly 
discovered  that  between  January  and  April 
1997 
trader  had  bought  13 
consignments  of butter  intended  for  Albania 
from 
fresh 
investigation  was set up, ending  in the arrest 
of 
in  Italy  on  charges  of 
smuggling  and  conspiring  to  defraud  the 
Community 
the  French 
budget  with 
exporter. 

exporter. 

trader 

the 

A 

After  this case, a third  instance  of fraud  was 
discovered,  in which  the  same  Italian  trader 
had  first  exported  French  butter  to  Croatia 
the 
and 
it  as 
Community  fraudulently,  declaring 
margarine. 

then  brought 

it  back 

into 

These  three  cases,  in  which  the  amounts  to 
be  recovered  come  to  ECU  1 million,  have 
uncovered  a  crime  syndicate 
involving 
exporters  and  traders  in  Belgium,  France 
the 
and  Italy  and  designed 
Commission 
Community 
budget. 
departments  coordinated  and  steered 
the 
investigations  and  thereby helped  to stamp a 
crime  syndicate  out at an  early  stage,  before 

to  defraud 

21 

received 

it  could  take  advantage  of  Community  aid. 
exemplary 
The  Commission 
assistance  in  this  case  from  the  national 
departments  responsible  (the  Guardia  di 
Finanza  in  Italy,  the  Belgian  customs  and 
the  customs  investigations  department  in 
France) 
authorities 
responsible  for prosecuting crime. 

judicial 

and 

the 

2.1.2.4. 

Infringement  of  the  embargo 
on  British  beef 

bovine 

against 

On  27 March  1996,  as  a  precautionary 
spongiform 
measure 
encephalitis,  the  Commission  decided  to 
ban  all  exports  to  the  Member  States  and 
non-member  countries  of  live  cattle  from 
the  UK  and  of  various  products  obtained 
from  cattle  slaughtered  in  the  UK.28  The 
Commission  worked  with 
the  Member 
information  about  any 
States  to  obtain 
infringements.  Suspicion  fell  on  a  Belgian 
crime  syndicate  already  well-known  for  its 
involvement 
in 
hormones  or  other  types  of  agricultural 
fraud. 

the  unlawful 

traffic 

in 

In  April  1997  Dutch  customs  found  a  UK 
health  label  in a consignment  of  frozen  beef 
which  had allegedly  come  from  two  Belgian 
thorough  checks, 
establishments.  After 
The 
several  UK  marks  were 
principal  organiser  of  the  fraud  was  a 
Belgian  company  linked  to  a  British  firm 
which  bought  and  processed  British  beef  in 
a cold store in the UK. 

found. 

The  fraud  involved  removing  animal  health 
marks saying "UK" and  packing the meat  in 
cases  bearing  bogus  Belgian  health  labels. 
Carriage  to the  Continent  by  lorry and  ferry 
was  done  under  cover  of  false  papers 
claiming that it was Belgian  meat which  had 
been taken to the UK and sent back. 

The meat was then stored  in the Netherlands 
and  sold  to  a  French  company,  by  the 
Belgian  company  which  organised 
the 
fraud,  as  meat  of  Belgian  origin.  The  meat 
was  then  exported  by  the  French  company. 

28  Commission  Decision 
amended 

28.3.1996), 
96/362/EC  (OJ  L 139.  12.6J996). 

96/239/EC 

(OJ  L  78. 
by  Commission  Decision 

export refunds  being paid  in the Netherlands 
to a total value of ECU  1  074 000. 

Subsequently  French  and Irish  health  labels 
were  also  found  in  the  same  cold  store  in 
the  UK.  Another  fraud  on the  lines  of that 
described  above was uncovered.  At the end 
of  July  the  French  customs  physically 
inspected  goods  on  a  lorry  coming  from 
Northern  Ireland  (20  tonnes  of  beef)  and 
identified  a  "UK" mark  on the  meat.  The 
consignment,  which  was  on  its  way  to  a 
The 
German  company,  was  seized. 
Commission  was  notified  of these  findings 
in the middle  of August,  and the report was 
passed  on to  the  German,  Irish  and  British 
authorities. 

Irish  health 

The  German  authorities  then  established 
that  between  August  1996 and August  1997 
the German  firm  had bought  1277 tonnes of 
beef  declared  as  being  from  Ireland,  with 
falsified 
certificates  and 
transport  documents.  The  meat  was  then 
either  exported  as Irish  beef  by the German 
purchaser,  with  refunds  being  paid,  or  sold 
on  to  another  German  firm  as  beef  with 
then 
German  health 
exported  with  refunds  paid  or  sold  on the 
internal  German  market).  The amount to be 
recovered  in  Germany  comes  to  ECU 1.3 
million. 

certificates 

(and 

Lastly,  after  the  investigations  in  Germany, 
the  authorities  uncovered  a  similar  scheme 
(UK beef with  the health  marks cut off by a 
Ireland) 
company  based 
involving 
and  Belgian 
four  Dutch 
companies and some 2000 tonnes of beef. 

in  Northern 

In  connection  with  the  investigations  into 
the  illegal  trade  in  beef,  the  Commission 
twice  applied  Council  Regulation  (Euratom, 
EC)  No  2185/96  concerning  on-the-spot 
checks  and  inspections  carried  out  by  the 
Commission 
the 
European  Communities'  financial  interests 
against fraud  and other  irregularities.29 

to  protect 

in  order 

The  investigations  into  the  beef  and  veal 
industry  showed  that  suspicions  of  fraud  in 
relation  to  agriculture  also  need  to  be 

notified,  both  under  the  mutual  assistance 
regulations  and so that  offenders  can be put 
on  the  agricultural  black  list  set  up  by 
Council and Commission  Regulations.30 

In  all  the  cases  mentioned  which  are now 
being  dealt  with  by the judicial  authorities, 
UCLAF  coordinated  the  investigations  and 
organised  all the relevant  meetings  with the 
the 
various  authorities 
Member 
When 
authorities  are faced  with  this  kind  of  fraud 
involving an organised  crime network,  there 
has to be such  coordination,  including  when 
on-the-spot  visits  are  made 
traders' 
premises. 

responsible 

concerned. 

States 

in 

to 

2.2.  Fraud: 

assault 
an 
Community's  policies 

on 

the 

There  is  a  political  price  to  pay  for  fraud 
against  the  Community  budget  as  well  as 
the  financial 
impact.  Not  only  do  the 
accounting  losses  add  up,  it  also  poses  a 
to  the  credibility  of  the 
direct 
Community's  policies,  whether  it  be  the 
external  trade  policy,  the  agricultural  or 
structural  policy  or  internal  or  external 
operations  financed  by direct  expenditure. 

threat 

2.2.1.  Own  resources:  assaults  on  the 

Community's 

trade  policy 

The  investigations  in  1997  have  helped  to 
shed  a  great  deal  of  light  in  the  current 
debate  about  the  management  of  the  tariff 
arrangements  which  are  one  of 
the 
Community's  main  operational  instruments 
in  promoting  its  external  policy.  The 
Commission's 
this 
subject31  reviews  the  shortcomings  in  the 
operation  of  the  arrangements  which  have 
come  to  light  during  investigations  in  the 
field  and  sets  out  an  action  programme 
aimed  at  reducing  the  instances  of  fraud 
which  represents  a  threat 
to  the  very 
existence of these arrangements. 

communication  on 

These  shortcomings  should  not obscure  the 
primary  aims  of  the  system,  which  are  to 

29  OJL  292, 15.11.1996.  See Chapter  5, section 5.1. 

31  COM(97)402 final. 23.7.1997. 

30  See Chapter 3, section 3.2. 

22 

help  the  recipient  countries  develop,  to 
encourage  cooperation  with 
the  partner 
the 
and 
countries 
incorporation  of  countries  which  have 
applied  for  membership. 

prepare 

for 

to 

The object  of the communication  referred  to 
above  is  to  reconcile  two  objectives  which 
are by no means contradictory:  the first  is to 
facilitate  trade  by  giving  preference  only  to 
beneficiary 
products 
from 
countries,  and  the  second 
is  to  combat 
fraudulent  exploitation  of  the  arrangements 
so  that  tariff  preference  is  granted  only  on 
goods from  countries which are the  intended 
beneficiaries. 

partner  or 

to 

Preferential  treatment  is given  only to goods 
from  beneficiary  countries  where  they  have 
been  obtained  in  their  entirety  or  processed 
to a sufficient  degree.  The  goods  must then 
the  Community 
have  been  brought 
directly  with  special  certificates32  showing 
that  they  were  obtained  on  the  required 
terms.  There  are  also  cumulation  rules 
applying  to  goods  produced  using  products 
from  two,  three  or  more  partner  countries 
(or  two  or  more  countries  belonging  to  a 
regional grouping). 

There  are  a great  many weaknesses,  despite 
there  being  a  system  for  administrative 
cooperation  between  the  Community  and 
each  of  the  partner  countries.  The  types  of 
irregularity or fraud  found  relate to the most 
sensitive  products,  reflecting  specialisation 
in the exporting  industries of the  beneficiary 
countries  (electronic  products,  fisheries  and 
textiles 
the 
production  of  certificates  which  are  not  in 
the  due  form  or  are  actually  authentic  but 
relate  to  a  product  which  is  not  covered  by 
the agreement  or arrangement  (these  are the 
easiest  to  detect),  or  have  been  issued  in 
respect  of  products  not  obtained 
in  the 
beneficiary  countries  (or  even  obtained  in 
the  beneficiary  country  without  complying 
with the rules of origin). 

primarily), 

involve 

and 

The  responsibility  borne  by  traders  outside 
the  Community  is  obvious.  They  are  in  a 
position  to  know  whether  the  products  they 
make comply with  the rules of origin  or not. 
By  supplying  Community'  importers  with 
certificates  of  origin  for  products  which  are 
not  eligible,  they  give  them  a  way  of 
evading  payment  of  the  customs  duties 
which  would  normally  be  payable.  The 
Community  importers  concerned  are  also 
supposed  to  be  familiar  with  the  rules  of 
origin. 
If  they  produce  a  certificate  of 
origin  with  an  import  declaration,  they  are 
liable for any duty payable on the  import.33 

The other  major  category  of fraud  involving 
the  rules of origin  sets out not just to  secure 
tariff  advantages  but  to  get  round  market 
protection  measures  such  as 
the  anti 
dumping  provisions  or 
the  measures 
imposing  all-out  bans  adopted  under  the 
Union's policy on the environment. 

In  all  these  instances,  the  Community's 
interests  (which  are  financial,  commercial 
and  sometimes  also  wider  in  scope,  as  the 
case  of  products  which  destroy  the  ozone 
layer  shows)  can  only  be  protected  by 
coordinating the work of the  Member  States 
and  the  beneficiary  countries,  with  help 
from  the Commission. 

the 

terms 

to  be 

for  granting 

This  applies  both  to  the  prevention  stage, 
when 
trading 
advantages  are  being  studied,  and  to  the 
suppression  stage, when traders who behave 
thwarted  and 
improperly  have 
sanctioned.  Such  traders  not  only  encroach 
on the Community's  financial  interests, they 
actually  distort  trade  in  ways  which  cannot 
be tolerated,  penalising fair  traders and non-
their 
member 
and 
obligations 
the 
interests  of  proper 
in 
Community 
implementation 
preferential 
arrangements. 

countries  which  meet 

cooperate  with 

the 
of 

the 

32  The  beneficiary  countries  are  responsible  for  granting 
certificates  of origin  (system  based  on  cooperation  and 
trust). 

33 

23 

the  Commission 

In  the  Bangladesh  textiles  case  (see  the  annual  report 
on  the  "Fight  agains:  fraud"  for  1996,  Chapter 3, 
Section  3.2.3,  p. 29), 
notified 
importers  (OJ  C  107,  5.4.1997)  that  there  were  doubts 
as  to  whether  the  certificates  of  origin  (A  forms) 
submitted  in  the  Community  in  respect  of  certain 
textile  products  from  Bangladesh  since  January  1994 
were  authentic,  and  suggested 
the 
necessary  precautions. 

that  they  take 

2.2.1.1.  Fisheries 

Applying  the  preference  rules  to  fisheries, 
where  customs  duties  . are  comparatively 
high  and  the  rules  of  origin  difficult 
to 
police,  still  creates  problems.  One  example 
of  a  clever  kind  of  fraud  is  the  case  of  the 
shrimps from  Surinam. 

As  far  back  as  1995  the  Commission  found 
out  that  there  were  suspicions  of  fraud  in 
relation  to  tariff  preferences.  There  was  a 
likelihood 
that  frozen  shrimp  on  board 
Japanese  vessels  were  being  imported  into 
the  Netherlands  with  certificates  of  origin 
from  Surinam. 

Research  showed  that  fleets  flying  the  flags 
of a number  of countries  (Korea,  Honduras. 
Japan,  Vanuatu  and  others)  were  operating 
off  Surinam.  Shrimp  landed  from  the  boats 
appeared  to  be  getting  some  superficial 
form  of  treatment  before  being  exported  to 
the  Community.  The  Member  States  were 
false 
there  was  a  suspicion  of 
told 
declarations  of  preferential  origin.  A 
mission  to  Vanuatu  in  August  1996  also 
found  evidence 
that 
country's  flag  and  operating  off  Surinam  in 
fact  belonged 
to  Korean  and  Japanese 
companies,  which  confirmed  the  original 
suspicions. 

that  vessels  flying 

of 

of 

administrative 

representatives 

By agreement  with  the  Surinam  authorities, 
cooperation  mission 
an 
the 
consisting 
Commission  and  the  Member  States  mainly 
concerned  (France  and  the  Netherlands) 
went  there  in  February.  After  virtually  all 
exports  since  1992,  amounting  to  2920 
tonnes,  had  been  checked,  it  was  clear  that 
the  shrimp  had  been  caught  by  some  one 
hundred  ships  which,  with  four  exceptions, 
belonged  mainly  to  Korean  or  Japanese 
companies  (under  various  flags)  or  did  not 
satisfy  the  conditions  laid  down  in  respect 
of crew membership.  The shrimp  landed  by 
the  vessels  concerned  did  not,  therefore, 
satisfy 
for 
cumulative 
the 
determining 
to  preferential 
treatment  (the  total  quantity  involved  was 
2900 tonnes). 

entitlement 

criteria 

By  making 
the 
exporters  got  the  Surinam  authorities  to 

incorrect  declarations 

24 

issue  certificates  which  they  used  to  import 
the  shrimp  into  the  Community  duty-free. 
The  mission  established  that  some  of  the 
importers  had  known  from  the  outset  that 
the product did  not satisfy  the rules of origin 
and  sometimes  advised  their  suppliers  on 
ways  of  getting  round  any  inspection  which 
might take place. 

The  duty  evaded  came  to  ECU 4 million. 
The  Commission  referred  the  matter  to  the 
appropriate  authorities  in  France  and  the 
Netherlands  for  further  action  to recover the 
duty  and  apply  penalties  to  the  offending 
importers. 

2.2.1.2.  Textiles 

are 

involved 

This  is  another  sensitive  sector  where  large 
tariff 
quantities 
and 
The 
preferences  play  a  major  part. 
Indonesian 
textile  case  described  below 
shows  how  sensitive  the  sector  is  to  fraud 
and  how  necessary  it  is that  there  should  be 
cooperation  at  Union  level  and  with  non-
member countries. 

to 

In  this  particular  case  an  administrative 
Indonesia  was 
cooperation  mission 
carried  out  in  June  1997  by  a  delegation 
from  the  Commission  and  the  UK.  There 
were  suspicions  relating  to  certain  textile 
goods  for  which  preferential  Indonesian 
origin  was  being  claimed  under 
the 
generalised  system  of  preferences  (GSP) on 
import  into the UK. 

The goods were apparently  manufactured  in 
Indonesia,  but  using  imported  cloth  from 
Taiwan,  Hong  Kong  and  Korea.  Inquiries 
found  evidence  of  an  organised  network 
operating 
in  the  UK,  Hong  Kong  and 
Indonesia. 

With  the  authorities  responsible 
locally, 
investigations  were  carried  out  on  the  spot 
into the producing  and  exporting  companies 
in order to check  the  suspect  documents.  It 
was  found  that  raw  materials  (cloth)  which 
did  not  satisfy  the  rules  of  origin  had  been 
the  companies 
largest  of 
used  by 
concerned  and  the  finished  textile  products 
were then  exported  to the Community  under 
cover of preferential  Indonesian  certificates. 

the 

The  loss  in terms  of customs  duties came to 
some  ECU 2  million.  With  the  findings  of 
the  mission,  the  UK  is  in  a  position  to 
recover the duty due.  Legal  proceedings  are 
also under way  in the UK. 

2.2.1.3.  Anti-dumping  measures 

criteria  which  are 

By its very  nature, which  involves  imposing 
high taxes on certain  products originating in 
to 
non-member  countries  by  reference 
manufacturing 
less 
stringent  than  in  the  preferential  schemes 
is  very 
context, 
sensitive  and  is  under  constant  threat  of 
deflection  of trade to evade payment of anti 
dumping duties. 

type  of  measure 

this 

One illustration  is the case of the  disposable 
Chinese  lighters.  In the  middle  of  1995 the 
anti-dumping  measures  on  Chinese  lighters 
were 
reviewed,  and  anti-dumping  duty 
changed  from  a rate  of  16.9% of  value  to a 
special  levy  of  ECU  0.065  per  item,  which 
was equivalent to a rate of 100%. 

received 

information 

Following 
from  a 
Member  State, the Commission  launched an 
investigation  into  all  imports  of  disposable 
lighters  from  a  producer  in  Macao.  There 
had  been  a  considerable  increase  in  the 
number  of  lighters  exported  from  Macao 
the  middle  of  1995  onwards, 
from 
coinciding  with 
the  new  anti-dumping 
measures. 

The  lighters  had  been  imported  into  the 
Community  with  GSP certificates  of  origin, 
under  which  the  goods  were  exempt  from 
In  checks  carried 
customs  duty  on  entry. 
out  both  by  the  Member  States  and  by  the 
Commission,  however,  it  was  found  that 
non-originating  components  had  been  used 
The 
the 
in  manufacturing 
certificates  had  therefore  been  issued  in 
error.  An on-the-spot mission was  therefore 
carried  out jointly  by the Macao authorities, 
the  Commission  and  the  Member  States 
concerned 
the  production  of 
lighters  in Macao.  The mission, which  took 
place in January  1997, confirmed  that all the 
GSP certificates  issued were  inapplicable. 

to  study 

lighters. 

under  the  preferential  arrangement.  The 
customs  duties  recoverable  on  the  latter 
come  to  approximately  ECU 200 000.  The 
real  reason  for  the  fraud  was  the  amount  of 
anti-dumping  duty  evaded,  which  affected 
all  the  imports  and  came  to  some  ECU 7 
million. 

Criminal  proceedings  were  instituted  in  one 
Member  State  against  the  main  importer, 
who  had  imported  61  million  lighters  into 
the Community  between  1995 and  1997. 

2.2.1.4.  Environment  policy 

proper 

When 
the  Union's  environment  policy 
involves  measures  which  restrict  trade  such 
as  a  ban  on  particular  products,  it  must  be 
the concern  of any action  to combat  fraud  to 
ensure 
the 
of 
the  abuse  of 
in  question 
arrangements 
which,  aside from  the  financial  impact,  runs 
counter  to  certain  fundamental  policies  of 
the  Union.  This  was  illustrated  by the  case 
of  products  containing  CFCs  which  were 
fraudulently  imported  into the Community. 

application 

German,  Belgian,  British 
and  Dutch 
took  concerted 
customs,  with  UCLAF, 
action  to  halt  imports  of  Chinese  products 
which  destroy  the  ozone  layer.  A  German 
trader  had declared to customs, in Germany, 
Belgium  and  the  Netherlands  successively, 
some  1000  tonnes  of  noxious  chemical 
products  subject  to  an  import  ban34  under 
the  false  description  "cooling  agent  R227", 
which 
inoffensive  product 
authorised  for  importation. 

legal, 

is  a 

The  goods  brought  into  the  Community  in 
violation  of the total ban were also  imported 
without  payment  of  customs  duty  by  the 
improper  use  of 
inapplicable  Chinese 
The 
certificates  of  preferential  origin. 
products, which  contained  CFCs,  were  then 
marketed  in  several  Member  States  (the 
UK,  Italy,  France,  Belgium,  Germany, 
Austria and Greece). 

A  total  of  110  million  lighters  had  been 
imported  since  1995,  35  million  of  them 

34  Three  hundred  and  sixty-five  tonnes  of  R12B1  and 
R13B1  halons  usable  for  fire-protection  materials  and 
more  than  630  tonnes  of  R12  CFC  usable  in  freezer 
installations. 

25 

imported 

The  quantity 
illegally  greatly 
exceeds  the  total  annual  recycling  capacity 
of the Community.  As the primary  cost  was 
very 
import  constituted  unfair 
competition  against  traders  who  complied 
with  the  rules.  The  use of the product  could 
generate  sizeable  unlawful  profits. 

low,  the 

A  stop  was  put  to  the  unlawful  imports  by 
the arrest  of the  presumed  perpetrator  of the 
fraud  and the seizure of  150 tonnes of goods 
as they were being  delivered. 

Proceedings  are  currently  under  way  in 
Germany  against  the  importing  company 
and  the  person  running  it.  In  Belgium  and 
the  Netherlands  actions  have  been  brought 
the 
the  customs  authorities  against 
by 
forwarding  agents  for  recovery  of  ECU 0.2 
million  in duty. 

an  outstanding 

level  of 
There  was 
cooperation  between  the  national  customs 
departments  in this  coordinated  operation  in 
a new field,  a sign of the growing  awareness 
and  particular  determination  of the  Member 
States  and  the  Commission  when  it  comes 
ensuring 
that  environmental  protection 
measures are  implemented. 

It  also  demonstrates 
the  advantages  of 
carrying  out  physical  inspections  of  goods 
which  do  not  pose  a  particular  financial 
threat  at  the  outset  but  can  harm 
the 
Community's  interests  in other ways. 

2.2.2. 

in 

the  area  of 
Fraud 
common  agricultural  policy 

the 

crime 

by  powerful 

Mention  was  made  above  of  agricultural 
syndicates. 
fraud 
Sometimes,  however,  fraud  is  spread  more 
diffusely  and  benefits  a  wide  range  of 
operators  guilty  of 
irregularities  which 
adversely  affect  the Community  budget.  As 
the  cases  set  out  below  show,  however,  this 
does not mean that the overall  effects  are by 
the 
negligible; 
any  means 
proliferation  of such  cases sows the seeds of 
a  loss  of  credibility  by  what  is  one  of  the 
Community's  most  fundamental  policies. 

fact 

in 

2.2.2.1.  Tobacco  quotas 

the 
The  Commission  was  notified  by 
Portuguese  authorities  of  a  case  of  fraud 
involving  production  aid  paid  to  Portuguese 
growers.  The  fraud  consisted  of  diverting 
quotas  from  Spain  to  Portugal  during  a 
season  when  production  in  Spain  exceeded 
the  national  quota  while  in  Portugal  it  was 
below  the  quota.  A  number  of  Spanish 
producers,  through  an  intermediary,  sold 
their 
to  Portuguese 
tobacco 
producers,  who  declared  it  as  their  own 
goods  and  thereby  obtained  production  aid 
in Portugal. 

surplus 

its 

and 

database 

The  fraud  was  detected  by  the  Portuguese 
INGA.  which  searched 
paying  agency, 
through 
identified 
producers  who  had  declared  that  they  had 
produced  more  than  three  tonnes  of  tobacco 
per  hectare  - a suspicious  production  figure, 
as 
that 
particular  year  in  Portugal.  The  producers 
had  inflated  their  own  production  with  the 
tobacco  bought  in  Spain.  The  part  played 
by  the  intermediary,  a  Portuguese  haulier, 
also  came  to  light.  The  operation  involved 
422 tonnes of tobacco. 

it  was  probably 

too  high 

for 

identify 

On  the  basis  of  the  information  obtained 
from  the  Portuguese  paying  agency  and  the 
criminal  investigation  department  in Lisbon, 
the  Commission  decided  to  carry  out  an 
investigation  in  Spain  in November  1997 to 
look  for  any  sales  of  surplus  tobacco  in 
the 
other  Member  States  and 
Spanish  producers  involved  in  the  trade. 
The  investigation  was  carried  out  under 
Regulation 
(Euratom,  EC^  No 2185/96. 
the 
concerning  on-the-spot  checks  by 
Commission,  which  allows  traders  to  be 
investigated  exhaustively.  The  inspection 
was  carried  out  jointly  with  the  Spanish 
authorities  (FEGA)  and 
two 
Spanish  suppliers  who  accounted  for  three 
quarters  of 
to 
Portugal. 

the  amounts  delivered 

looked  at 

The  Portuguese  authorities  will  be  notified 
of  the  results  of  the  checks  carried  out  in 
Spain.  The  producers  who  made  false 
declarations  will  have  to  pay  back  all  the 
production  aid 
tcceived  during  the  year 
(approximately  ECU 2.3  million).  So  far. 

26 

The 

year. 

ECU  1.3  million  has  been  recovered  by 
suspending  payments  due  in  respect  of  the 
succeeding 
Portuguese 
intervention  agency  will  recover  the  sums 
still  due  (some  ECU  1 million).  Criminal 
proceedings  against  the  producers  and  the 
intermediary  are  now  being  brought  by  the 
relevant  public  prosecutor  in Portugal. 

contracts  and  unsigned  consignment  notes 
and receipts for payment). 

Because  of  the  complexity  of  the  case  and 
the  scale  of  the  mission,  decisions  on 
follow-up  action  as regards  clearance  or  the 
penalties  to  be  imposed  are  now  under 
consideration. 
Several  cases  have  been 
referred  to the Greek judicial  authorities. 

2.2.2.2. 

Investigation 
sector 

in 

the 

citrus 

2.2.2.3.  Loan  to  Georgia 

into 

suspected 

the  Commission 

information 
In  February  1997,  following 
launched  an 
received, 
investigation 
fraud 
a 
involving  citrus  processing  aid  in  Greece. 
A  mission  set  up  in  several  regions  (the 
Péloponnèse,  Crete  and  Arta)  at  the  same 
time  was  coordinated  by  UCLAF 
in 
conjunction  with  DG VI 
(clearance  of 
accounts)  and  the  Greek  authorities  (the 
investigating  departments  at the  Ministry  of 
Finance and the Ministry of Agriculture). 

Several  professional  associations  of  citrus 
producers  were  inspected  in  order  to  check 
whether  producers  had  actually  been  paid 
the  processing 
the  minimum  price  by 
producers' 
companies 
associations)  and  whether 
the  products 
intended  for  processing  had  actually  been 
delivered  in the proper way. 

(through 

the 

On-the-spot  checks  came  up  with  a  number 
of irregularities.  Inter alia, the  investigators 
found  that there  had  been  deliveries  of  fruit 
not  entitled  to  aid  (because  it  was  rotten  or 
of  an  insufficiently  high  standard).  They 
also  found  that  withdrawal  and  processing 
operations  had taken place  in  establishments 
which  were  not  adequately  secured  against 
manipulation 
the 
consignments  (because,  for  example,  the 
premises  were  not  sealed  or  goods  had 
simply  been  unloaded  without  any  physical 
check  being made as to quality or quantity). 

diversion 

or 

of 

It  is  clear  from  the  ongoing  analysis  of  the 
large  amount  of  documentation  collected  in 
relation  to the  procedures  for  delivering  and 
for 
products 
paying 
withdrawal,  processing  or  free  distribution 
irregularities  may  have  occurred 
that 
incomplete 
example, 
(involving. 

intended 

for 

for 

In  1997 the  Commission's  fraud-prevention 
department  began  to  suspect  that  there  had 
been  fraud  in  connection  with  the  delivery 
of 7 million  litres of Bulgarian  sunflower  oil 
the  use  of  a 
to  Georgia, 
Community  loan.35  The  loan  was  supposed 
to  be  for  the  importing  of  agricultural  and 
food 
supplies 
originating  in the Community,  Bulgaria  and 
other eastern  European countries. 

and  medical 

involving 

products 

A  Belgian  import-export  company  received 
a  documentary  credit  of  ECU 4.625  million 
issued  at  the  National  Bank  of  Georgia, 
Tbilisi,  by  the  Government  of  the  Republic 
of Georgia. 

The  documentary  credit  was  to  cover  the 
dispatching  of  7 million  litres  of  sunflower 
oil of Bulgarian  origin.  However,  false  bills 
of  lading  were  produced  and  part  of  the 
quantity  concerned  never  reached  Georgia. 
An  investigation  was  carried  out  in  Sofia  in 
the  customs  mutual 
April  1997  under 
assistance  arrangement  which  forms  part  of 
the  association  agreement  with  Bulgaria, 
and  established  what  trading  and  financial 
links  existed  between  the  Belgian  import-
export company and the  Bulgarian  company 
which  executed  the  contract  to  supply  the 
oil  and  showed  that  792  160  litres  had  not 
been  delivered. 

On  the  instructions  of  its  Belgian  partner, 
the 
the  Bulgarian  company  then  repaid 

j :)  Council  Decision  91/658/EEC  granting  a  loan  (OJ  L 
362, 31.12.1991) under  Commission  Regulation  (EEC) 
No  1897/92 
the 
laying  down  detailed 
implementation  of  a  medium-term  loan  to  the  Soviet 
its  constituent  Republics  (OJ  L  191. 
Union  and 
10.7.1992), 
by  Council  Decision 
established 
91/658/EEC (OJ  1.362, 31.12.1991) 

rules 

for 

corresponding  amount  of 
loan,  or 
ECU 546 352,  to  a  private  bank  account  in 
the  name  of  the  actual  person  running  the 
Belgian  company. 

the 

Armed  with  this  evidence  from  Bulgaria 
that  a fraud  had  been  perpetrated  against  the 
financial  interests  of  the  Community,  the 
Commission  reported 
the  matter  to  the 
public  prosecutor's  office  in  Brussels  and 
the  Central 
the 
Belgian  gendarmerie 
that  criminal 
charges  could  be  laid  against  the  person 
running the Belgian  company. 

Investigation  Office  of 
so 

Following  this  investigation,  the  Georgian 
authorities  stressed  that  it  was  important  in 
their view to clear up the case and  put a'stop 
to the activities  concerned. 

2.2.3. 

Fraud 
policies 

involving 

the  structural 

accounted 

The  Structural  Funds 
for 
approximately  32%  of  the  Community's 
total  budget  expenditure  in  1997.  As  their 
specialist 
departments 
administer  this  expenditure,  the  Member 
for 
States  have  a  definite  responsibility 
financial  control  as  regards  the  use  of  the 
funds. 

government 

for 

arrangements36 

On  15 October  the  Commission  adopted  the 
detailed 
the 
implementation  of  Council  Regulation 
(EEC)  No 4253/88,  clarifying  what  kind  of 
control  has to be carried  out by the  Member 
States  in  relation  to  operations  co-financed 
by  the  Structural  Funds.  They  are  also 
required  to  notify  the  Commission  of  any 
the 
irregularities 
administrative  and  legal  follow-up  action 
taken as a result. 

found 

and 

of 

2.2.3.1.  Embezzlement  of ESF  funds 

a 

in 

established 

It  was 
criminal 
investigation  that  invoices  for  ECU 260 000 
issued  by a subcontractor  in connection  with 
a  contribution  to  a  public  body  in  Portugal 
from  the  European  Social  Fund  had  been 

36  Commission  Regulation  (EC)  No 2064/9".  OJ  L 290. 

23.10.1997. 

28 

The  Commission  decided 

falsified. 
to 
launch an  investigation  into the whole of the 
programme  concerned. 

The  approved  Community  contribution  to 
the  programme  comes  to  ECU 4.4  million. 
the 
Because  of  the  size  of  the  grants, 
Commission's 
lias  not  yet 
investigation 
been  completed,  but  some  conclusions  can 
already  be drawn. 

large 

fictitious 

of 
declared. 

A  Member  State  had  carried  out  a  partial 
check  but  not  set  up  proper  monitoring. 
ineligible 
amounts 
Very 
expenditure  were 
however. 
Evidence  was  also  found  of  non-existent  or 
unsupported  expenditure  being  charged  and 
certain  items  of  expenditure  being  inflated 
on 
approved 
Community  contribution  to  the  programme 
comes  to  ECU 4.4  million.  The  current 
investigation  will  establish  what  proportion 
of  that  sum  has  been  embezzled. 
In 
addition,  the  subcontractor,  who  is  under 
judicial 
false 
invoices  for  certain  other  programmes,  and 
these are also under  investigation. 

investigation,  drew 

grounds.  The 

up 

Two  officials  from  the  public  body  and  the 
chairman  of the subcontracting  agency  were 
remanded  in  custody  during  the  criminal 
. investigation.  The  vice-chairman  of  the 
public  body  and  the  subcontractor  were 
given prison  sentences. 

to  a  criminal  prosecution, 

In  this  case,  starting  from  a  detected  fraud 
the 
leading 
Commission  carried  out  an  overall  analysis 
irregularities 
which  brought  to  light  the 
committed. 
State's 
monitoring  and  checking  measures  proved 
to be inadequate. -

The  Member 

2.2.3.2.  Networks  engaging 

fraud 
against  the  EAGGF  Guarantee 
Section 

in 

A  small  number  of  types  of  expenditure  is 
administered  by  the  Commission  direct.  In 
the  area  of  the  EAGGF  Guarantee  Section, 
laid  down  by 
this 
the  expenditure 
(EEC) 
Article  8  of  Council  Regulation 

is 

that  area.  Commission 

No 4256/88.37  Further  to  a  report  by  the 
Directorate-General  for  Financial  Control 
and  to  a  letter  of  observations  from  the 
Court of Auditors about a suspicion  of  fraud 
in 
authorising 
and 
Financial 
departments, 
UCLAF,  in  cooperation  with  the  Court  of 
Auditors,  have  been  running  a  targeted 
investigation  into  all  financial  projects on 
the basis of Article  8 of the Regulation  since 
1997.  The  grants  for  these  projects  come to 
ECU  18  million  and  are  being  paid  to 
and 
Spanish, 
Portuguese companies. 

Control 

French, 

Italian 

Irish. 

2.2.4. 

Fraud 
expenditure 

involving 

direct 

in 

directly 

administered 

Direct  expenditure 
is  expenditure  which 
beneficiaries  draw  on 
the  form  of 
and 
contracts 
controlled  by  Commission  departments.  In 
1997  they  accounted  for  some  12%  of 
Community  expenditure  in  the  sectors  of 
research, education  or  energy,  which, as  the 
case  described  below 
shows,  are  not 
immune  from 
the  risk  of  irregularity  or 
fraud. 

The  Commission  looked  into  the  financing 
operations  and  circuits  and  found  that  there 
was  systematic  forgery,  with  overbilling  or 
bogus  invoicing  between  firms  within  the 
same  circuit  for  non-existent  services.  The 
networks  which  had  been  set  up  included 
offshore 
front 
and 
locations 
subcontractors. 
the 
in  Commission 
procedures 
departments  had  also made  it easier  to  cany 
out the  frauds. 

beneficiaries 
Shortcomings 

companies 
as 

in  different 

followed 

in 

energy 
of 

A  German  company  which  had  received  a 
great  deal  of  aid  from  the  Commission  for 
in  the  field  of 
various  research  projects 
sources  was  under 
renewable 
suspicion 
Preliminary 
fraud. 
investigations  were  carried  out  inside  the 
Commission.  Subsequent  investigations  led 
to the bankruptcy  department  at the  relevant 
court  (Amtsgericht  Duisburg),  where  the 
company  in  question  had  meanwhile  been 
put  through  proceedings  for  bankruptcy. 
Information  collected  rapidly  showed  that 
the  company  had  in  fact  embezzled  large 
sums of money. 

in  Spain, 

The  Commission  referred  the  matter  to  the 
judicial  authorities 
Italy  and 
Portugal  in  1997.  The existing networks are 
so  complicated  that  coordination  between 
the  public  prosecutors'  departments  and 
collaboration  with  Commission  departments 
are  vital  if  the  investigation  is  to  succeed. 
that 
Major  steps  have  been 
direction,  and  the  Commission  has  done 
everything  possible 
to  encourage  such 
coordination. 

taken 

in 

At the  same  time, the  procedures  laid  down 
in  Article 24  of  Council  Regulation  (EEC) 
No 4253/88  for  annulling  decisions  and 
recovering 
without 
entitlement  are under wav.38 

amounts 

paid 

public 

items  of  evidence, 

The  Commission  submitted  the  case, With 
the  main 
the 
prosecutor,  who 
appropriate 
instituted 
the 
people  responsible  for  running the  company 
on charges of bankruptcy  and  fraudulent  use 
of the grant. 

legal  proceedings  against 

to 

payments 

The  investigation  showed  that  the  company 
had  not  filed  for  bankruptcy,  despite  being 
legally  required  to  do  so,  and  had  diverted 
the 
the 
Commission  under  research  contracts  for 
its 
other  purposes,  such  as  paying  off 
creditors.  The  financial  impact  is estimated 
at  ECU 2.1  million.  Criminal  proceedings 
are under way. 

received 

from 

37  OJL374.  31.12.1988. 

J° 

See Chapter  1, section  1.3 

2.3.  VAT  fraud:  terms  for  expanding 

investigations 

The  VAT  fraud  problem  is  comparable  to 
that  of  fraud  involving  products  with  a high 
tax 
the 
risk 
financial 
is  high  and  primarily 
affects  national  treasuries,  though  it  is  on  a 

(alcohol  and  cigarettes): 
impact 

scale which calls for a joint  response.  In the 
interests  of  greater  efficiency,  a  team  to 
combat  VAT  fraud  was set up  in UCLAF in 
1995.  Since  that  time  there  have  been 
regular  contacts  with  the  Member  States  to 
prepare 
for 
working jointly. 

the  national  administration 

The  VAT  fraud  team's  work  relies  on  the 
reports  the  Member  States  send  it  about 
In  1997  it 
suspected  instances  of  fraud. 
took  part  in  18  investigations  into  cases 
involving  more  than  ECU 300  million  in 
tax.39 

Cooperation  between  the  Member  States 
and  the  Commission  is  still  not  as  effective 
as  it  might  be,  however,40  as  the  following 
case shows. 

Denmark  asked  the  Commission  for  help in 
to  be 
a  situation  where  there  appeared 
systematic  violation  of  the  VAT  system  by 
a  number  of  companies  in  the  scrap  metal 
trade.  Supply  networks  had  been  set  up  in 
which  "mailbox"  companies  gave  security 
for  purchases  of  large  quantities  at  prices 
above  the  official  London  Metal  Exchange 
price.  These  companies  then  sold  the  metal 
on  to  large  firms  in  Denmark  or  another 
Member  State,  but  at  prices  lower  than  the 
official  price. 

evading  VAT  on 

The  mailbox  companies  could  not  have 
gone on trading in this way unless they were 
systematically 
the 
transactions.  An  investigation therefore  had 
to  be  carried  out  to  determine  the  scale  of 
the fraud  and the degree of complicity of the 
client companies  in various Member States. 

international  VAT  fraud,  as  most  of  the 
Member States do in specific,  major  cases. 

In  the  same  Member  State,  furthermore,  the 
national  auditors did  not  have  power to  take 
hold  of  the  company's  documentation  and 
accounts  directly.  This  lack  of  appropriate 
powers  and 
in  powers 
the  variations 
between 
the  different  Member  States 
severely  curtail  opportunities  for  carrying 
out  effective  investigation  in  complicated 
international  fraud  cases. 

This case  shows  how  urgent  a need  there  is 
for  the  Member  States  to  take  the  requisite 
steps,  as  regards  organisation,  procedures 
and  powers, to ensure  that  there  is  effective 
cooperation  at  all  levels  in  combating  VAT 
fraud.  Discrepancies  in  the  application  of 
Community  law41  in  the  Member  States 
provide 
for 
to  be 
evading  VAT. 
harmonisation 
fraudulent 
operators  from  exploiting  differences  in  the 
rules  regarding  tax  secrecy  or  between  the 
powers held by national tax departments. 

There  needs 
prevent 

loopholes  and  opportunities 

to 

To  strengthen  cooperation,  Community 
legislation  also  needs  to  be  clarified,  while 
the  Commission  should  be allowed  to act  in 
cases  of  VAT  fraud  of  importance  to  the 
whole  Community  and  to  coordinate  action 
in  appropriate  cases.  Provisions  such  as 
those  which  already  apply  in  relation  to 
customs  and  agricultural  matters  would  be 
appropriate. 

responsible 

in  one  of 

Owing  to  legal  difficulties,  however,  the 
department 
the 
Member  States  was  unable  to  take  part.  In 
particular,  the  Member  State  concerned  has 
still  not  overcome 
the  problem  of  tax 
secrecy,  which  means  that  it  cannot  play  a 
full  part  in  coordinated  action  to  combat 

39 

40 

The  cases  in  question  concern  transactions  involving 
silver,  metal,  copper,  non-ferrous  metals,  electronic 
components, videos, cars etc. 

See also Chapter  3, section  3.5.2. 

41  Sixth  VAT directive, Council  Directive  77/388/EEC of 
17  May  1977  on  the  harmonisation  of  the  laws  of  the 
Member  States  relating  to  turnover  taxes  -  Common 
system of value added  tax: uniform  basis of  assessment 
(ÔJL  145, 13.6.1977). 

30 

3. 

STEPPING  UP  COOPERATION  WITH  THE  MEMBER  STATES 

This  chapter  reports  on  the  stepping  up  of 
cooperation  with  the  Member  States,  which 
is a keynote  of  the  1997-98  anti-fraud  work 
for  protecting  Community 
programme 
finances. 

legal 

The  chapter  starts  with  a  review  of  certain 
important  steps  taken  by  Member  States  to 
protect  the  Community's  financial  interests. 
It goes on to  look at operational  cooperation 
with  police  forces  and  judicial  authorities, 
which  has  been  made  possible  by  the 
adoption  of  new 
instruments,  as 
discussed  in detail  in Chapter 5, and through 
informal  contacts  developed  with  national 
authorities  for  the  purposes  of  on-the-spot 
investigations.  However,  most  of 
the 
chapter  is devoted  to  indirect  taxation.  Here 
we  see  how  aware  the  Commission  and  the 
Member  States  are  of  the  need  to  beef  up 
the  existing  arrangements 
to 
combat  financial  crime  affecting  national 
and Community  interests more  effectively. 

in  order 

3.1.  Action  taken  by  Member  States 
the  Community's 

to  protect 
financial  interests 

their  efforts 

In  1997, as  in previous years,42 the  Member 
to  make 
States  continued 
appropriate  organisational 
arrangements 
aimed  at  more  effective  protection  of  the 
Community  budget  and  the  Community's 
economic  and  commercial  interests  against 
fraud  and financial  crime. 

For  example,  in  Denmark  a  unit  dealing 
with  Community  fraud 
in  the  area  of 
customs  (revenue  and  expenditure)  was  set 
up as part of the federal  anti-fraud  bureau.43 
The  national  police  authorities  also  have  a 
federal  unit  dealing  with  economic  crime.44 
It  is  responsible  for  coordinating  complex 
fraud  investigations. 

specific 

Greece  set  up  SDOE  (the  economic  and 
financial  crime  office)  as  part  of 
the 
Ministry  of  Finance.  Its  mandate  includes 
the 
the 
Community's  financial 
interests.  It  began 
operating  in  1997  and  has  already  been 
involved  in  effective  cooperation  with  the 
Commission. 

of  protecting 

task 

On 26 November  Portugal  announced  that  it 
would  be  setting  up  a  special  body  with 
responsibility  for  coordinating  customs  and 
tax  investigations.  Known  as  UCLEFFA,45 
the body will have similar  responsibilities  at 
at 
national 
Community  level. Like France's  ICLAF and 
Italy's  Guardia di Finanza.  it will  be  a  key 
partner for the Community. 

as  UCLAF 

level 

does 

including  fraud, 

in  connection  with 

The  French  police 
in  the  form  of  the 
Gendarmerie nationale,  whose  remit  covers 
all  kinds  of  crime 
is 
currently  engaged  in  a  large-scale  research 
project 
international 
investigations  (notably  the  breach  of  the 
embargo  on British  beef).  It  invited  UCLAF 
to  present  the  Community's  policy  towards 
protecting  its  financial 
interests  and  the 
anti-fraud  strategy  in  connection  with  the 
role  of  its  central  fraud  prevention  service 
as  part  of  a  seminar  it  will  be  holding  in 
1998 
investigation 
departments.46 

heads 

for 

of 

3.2.  Mutual 

assistance 
area  of customs  and  agriculture 

instruments 

administrative 
the 

in 

In  a  Europe  with  no  obstacles  to  the  free 
movement  of  goods,  persons,  services  and 
to  make  greater 
capital, 
provision 
be 
undertaken  jointly  by  specialised  national 

is  essential 
for 

investigations 

to 

it 

See  the  1995  fraud  report,  Chapter  5, page  40,  and  the 
1996 fraud  report. Chapter 4, page 39. 

46 

Svigsbekœmpelsekontoret. 

44  Afd. for  Scerlig okonomisk Kriminalitet. 

31 

Unidade de Coordencçào  da Luta contra a Evasào  e a 
Fraude Fiscal e Aduaneira. 

Investigation  departments  have  operational 
and 
territorial  powers  for  fighting  crime.  The  districts  they 
cover  coincide  with  the  jurisdictions  of  Courts  of 
Appeal,  which  means  that  there  are  regular  contacts 
between 
public 
prosecutors. 

investigation 

departments 

and 

the  assistance  of 

authorities  with 
the 
Commission,  particularly  when  it  comes  to 
sensitive 
cross-border 
sectors or goods. 

involving 

cases 

the  Commission 

Cooperation  between  the  Member  States 
effectively 
and 
combating  customs  and  agricultural  fraud 
and  irregularities  has  traditionally  taken  the 
form  of  the  mutual  assistance  scheme, 
which remains an important tool. 

on 

A  new  regulation  on  mutual  assistance  on 
customs  and  agricultural  matters,  Council 
Regulation  (EC)  No  515/97,47  was  adopted 
on  13  March  1997  on  the  basis  of  a 
Commission  proposal  dating  from  1992.  It 
the 
concerns  mutual  assistance  between 
administrative  authorities  of  the  Member 
States  and  cooperation  between  the  latter 
and  the  Commission  to  ensure  the  correct 
application  of  the  law  on  customs  and 
agricultural  matters.  It  came  into  force  on 
repealing  Council 
13  March 
(EEC)  No 
It 
1468/81. 
Regulation 
strengthens 
rules  on 
the  Community 
combating  irregularities  in  these  areas  and 
also  provides  the  legal  basis  for  sensitive 
agricultural 
data 
irregularities  to  be  stored  on  a  central 
database.  The  database,  known  as  the  CIS 
(Customs 
Information  System),  can  be 
accessed  by the  relevant  departments  of the 
Member  States  and  the  Commission,  while 
safeguarding 
and 
protecting personal  information. 

confidentiality 

customs 

1998, 

data 

and 

on 

The electronic bulletin  board, SCENT,48 has 
been  in  existence  since  1992.  It  currently 
located 
comprises  around  400  terminals 
mainly 
investigation 
customs 
departments  in  the  Member  States  and  at 
major  ports  and  airports  in the  Community. 
It  is an  information  exchange  system,  rather 
than a data collection  system. 

at 

These data of an administrative  type49  are to 
be  kept  in  the  CIS  only  for  as  long  as  they 

47  OJ  L  82,  22.3.1997.  See  also  the  1995  anti-fraud 

report, Chapter 2, p. 27. 

48  Svstem  for a Customs  Enforcement  NeTwork 

The  legal  basis  for  this  database  to  be  set  up  for  non-
(drugs  etc.)  will  be 
fraud 
Community  customs 

32 

are  being  used  for  operational  purposes  of 
prevention,  investigation  or  prosecution  in 
cases  of  irregularities.  Access  to the  data  is 
to  be  restricted  to  departments  specifically 
authorised  by  the  Commission  (such  as 
UCLAF) and by the Member States. 

should  be 

This  is a first  step  in the direction  advocated 
by 
the  European  Parliament,  which 
recommended  that  a  central  customs  data 
the 
office 
Commission  for 
to 
notify  of  any  strategic  and  operational 
information  at  their  disposal  concerning 
action  against 
in  customs  and 
agricultural  matters.50 

set  up  within 
the  Member  States 

fraud 

3.3.  Other  forms  of  cooperation  in 
relation  to  customs,  agriculture 
and  own  resources 

•  The  goods  movement 

rules 

remain  one  of 

(transit 
the  most 
system) 
vulnerable  areas.  Reforms 
currently 
under  way  to  the  Community/common 
transit arrangement51  serve to clarify  and 
simplify  the  regulations  and  coordinate 
operational  measures  so  as  to  achieve  a 
balance  between  the  facilities  offered  to 
reliable  traders  and  the  need  for  security 
in transit operations. 

is 

there 

A  basic  procedure,  in  which  the  basic 
guarantee 
comprehensive, 
the 
individual  security,  is  available  to  all 
is  also  a  "light" 
operators; 
procedure  -  where  an  operator  is  found 
to  be  reliable  and  there  are  no  risks,  the 
operator 
is  eligible  for  a  simplified 
procedure  in which,  among  other  things, 
the  amount  of  the  guarantee  may  be 
varied. 

provided  by  the  convention  on  the  use  of  information 
(OJ  C  316, 
for  customs  purposes 
technology 
27.11.1995), which  is in the course of being  ratified. 

50  Recommendation  No.  3  of  the  final  report  from  the 
European  Parliament's  committee  of  enquiry  into  the 
Community 
(doc.  A4-0053/97, 
scheme 
20.2.1997). 

transit 

3 

Plan  of  action  for  the  reform  of  transit  in  Europe, 
presented 
on  30.4.1997: 
the  Commission 
COM(97)I88  final,  OJ CI76,  10.6.1997. 

by 

Regarding  security  and  checks,  there  is 
also  provision  for  tougher  preventive 
measures  in  the  basic  procedure  and  for 
subordinating 
risk-
analysis  and  review  of  the  operator's 
reliability, 
the 
to 
having 
operator's  own security measures. 

simplification 

regard 

to 

Commission  Regulation 
(EC)  No 
75/98,52  amending  Regulation  (EEC) No 
2454/93  laying  down  certain  provisions 
for  the  application  of  the  Community 
Customs  Code,53  made  new  provisions 
for  the  customs  status  and  transit  of 
goods carried  by sea and recast the  list of 
eligible goods. 

for  amendment  of 

the 
A  proposal 
Customs  Code  as  regards  the  scope  of 
the  transit  procedure  and  the  application 
the 
of  guarantees  was  presented 
28 
Council 
September.54 

parliament 

to 
on 

and 

A  European  network  of  21  national 
coordinators 
local 
and 
correspondents  was  set  up  by  all  the 
countries  involved  (EC,  EFTA  (except 
Iceland)  and  the  Visegrad  countries). 
They are to be linked by e-mail  in  1998. 

330 

coordinated 

and 

Joint 
programmes  have  been 
covering  in particular: 

control 
established, 

checks 

-  documentary 
the 
authenticity  of  customs  stamps  via  the 
Community  computerised  register55  and 
on guarantee  certificates; 

on 

-  controls  on  sensitive  goods  and  goods 
deemed  at risk; 

52  OJL7,  13.1.1998. 

53  OJL  253, 11.10.1993. 

-a  posteriori  controls  on  operations 
eligible  for  the  simplified  procedure  (air 
and sea transit); 

-  identification  of  itineraries  and  other 
parameters deemed  to be at risk. 

in  establishing 

As  for  computerisation  of  the  transit 
system,  the  New  Computerised  Transit 
System  entered  Phase  II  (construction 
and  initial  implementation)  this  year.56 
To  offset  delays  estimated  at  18  to  24 
months 
the  hardware 
infrastructure,  a  new  strategy  is  being 
devised  with  the  countries  participating 
in  Phase  II.  The  aim  is  to  meet  the 
original 
timetable  despite  unknown 
factors,  partly  by  confining  the  system's 
functions  in  the  initial  implementation 
period  to  strictly  essential  messages  in a 
limited  number  of  customs  offices 
monitoring transit operations. 

The  Early  Warning  System  used 
to 
exchange  information  once  more  proved 
to  be  a  major  and  useful  source  of 
information. 
staff 
exchanged  more  than  43 000  messages 
using the system.57 

In  1997  customs 

In  the  customs  area,  the  Commission 
produced  in  1997, in partnership with the 
Member  States,  a  revised  risk  analysis 
guide  aimed  at 
reinforcing  customs 
control techniques  applied. 

for 

is 
In  contrast,  the  "blacklist",  which 
to  serve  as  an  advanced 
supposed 
agricultural 
system 
warning 
transactions,  has  not  yet  achieved 
its 
target.  The  system  was  introduced  by 
Council  Regulation  (EC)  No  1469/95 
into  effect  by  Commission 
and  put 
The 
Regulation 
arrangements  were put  in place  in all  the 
Member  States,  which  by  the  end  of 

745/96.58 

(EC) 

54  COM(97)472 final, OJ C337. 7.11.1997. 

55 

The  TCT 
(Electronic  Transmission  of  Customs 
Stamps)  programme  established  by  the  Commission 
(DG XXI)  in  1997  can  be  used  for  transmission  to  the 
customs  authorities  of  all  countries  involved  in  the 
Community/common  transit system  of  images  and  data 
relating 
transit 
to  customs  stamps  and  seals  for 
operations. 

56 

57 

Cf.  1996 report, Chapter  5.3, p. 42. 

Not  all of the consignments  reported  in these  messages 
turned out to involve  irregularities. 

OJ  L  102.  25.4.1996.  regulation 
laying  down  the 
implementing  provisions  for  Council  Regulation  (EC) 
No  1469/95 (OJ  L  145. 29.6.1995). 

33 

1997  had  identified  only  a  dozen  or  so 
traders as "unreliable". 

•  Once  again 

the  freephone  numbers, 
which  were  introduced  in  1995,  were  a 
useful  independent  source  of  additional 
information.  UCLAF  received  nearly 
1 500  calls  in  1997  and  about  10%  of 
them are being followed  up. 

3.4.  Examples  of  cooperation  with 
police  and  judicial  authorities  in 
the  Member  States 

Cooperation  between 
the  Commission's 
UCLAF  and  the  police  authorities  of  the 
Member  States  is  based  on  Articles  5  and 
209a  of  the  EC  Treaty  as  well  as  on  the 
conventions on protecting the Communities' 
financial  interests.  These  conventions  are 
still to be ratified  by the Member States.-9 

improving 
legislation 

The  fourth  axis  of  the  Community  anti-
the 
strategy  aims  at 
fraud 
to 
compatibility  of  national 
implement  a  policy  of  criminal 
law 
enforcement  against  those  who  defraud  the 
Community  budget.  This  objective  has  been 
met  by  the  secondary  legislation  adopted 
under  the  first  pillar  of  the  EU  Treaty  and 
the instruments  under Title VI of the Treaty. 

its 

authorities 

the  course  of 

the  Member  States, 

In 
inspections  and 
investigations  and  from  the  information  it 
receives  (from 
the 
European  Parliament,  the  Court  of  Auditors 
or  other  sources,  such  as  the  freephone), 
UCLAF  may  come  across  data  or  find 
material  that  has  to  be  reported  to  national 
prosecution 
for 
judicial 
purposes.  Likewise,  when 
the  Member 
States  discover  an  irregularity,  they  may 
have  to  pass  on  information  to  the  judicial 
authorities, 
in  accordance  with  national 
procedures.  However,  cases  should  be 
reported  to  the  relevant  judicial  authorities 
the 
in 
Community,  which 
the 
Commission  comes  into  its  own.  It  has  the 
active 
relevant 
of  passing 
information  directly  in  the  form  of  the 

throughout 
is  where 

uniform  way 

role 

on 

a 

59  See Chapter  6, section  5.4.1. 

mission  reports  drawn  up  by  its  inspectors, 
which  can  be  used  as  evidence  in  court.  In 
addition,  it  is  setting  up  a  criminal  law 
expertise  unit  within  UCLAF 
the 
specific  purpose  of  preparing  prosecutions 
in  cases  of  cross-border  fraud.  This  is  a 
coordinating role to make contacts easier. 

for 

3.4.1. 

. The  risk  of  counterfeiting 
euro 

the 

Following  contact  between  the  European 
Monetary  Institute60  and  the  Commission, 
the 
in-depth 
analysis  of  the  issue  of  counterfeiting  in 
conjunction  with national experts. 

latter  has  undertaken  an 

An evaluation  of the  need  for  action  on  this 
subject  arises  out  of  the  determination  to 
protect  the  credibility  and  authenticity  of 
the  euro  at  Union  level.  In  general,  the  risk 
of  counterfeiting  will  be  higher  when  the 
new currency  is first  launched, and adequate 
measures  are  under  consideration  to  ensure 
an appropriate protection  for the euro. 

legal 

framework, 

discussions  with 

The 
instruments  and 
resources  needed  to  protect  EMU  and  the 
euro  cannot  be  put  in  place  without  first 
assessing  the  new  situation  and  holding 
joint 
on 
counterfeiting.  This  is why  the  Commission 
proposed  that  the  Luxembourg  Presidency 
of the  working  group  on  police  cooperation 
should call together  all the police experts on 
to 
counterfeiting 
produce  a  report  with  guidelines.  This 
proposition has been  accepted. 

together  with  UCLAF 

experts 

have 

Since  the  single  currency  will  be  replacing 
the  national  currencies  and  the  Member 
States 
for 
different 
preventing  and  combating  counterfeiting, 
to  be  structures 
there  will  need 
for 
exchanging 
information  and  cooperation 
between  the  specialised  departments  and  all 

structures 

Under the  EU Treaty,  the  European  Monetary  Institute 
was  set  up  to  carry  out  certain  duties  relating  to 
preparations  for  economic  and  monetary  union.  Its 
principal 
in  place  the  operational 
framework  needed  for  the  proper  running  of  the 
European  System  of  Central  Banks,  which  is  to  be 
made up of the European  Central  bank  and the  national 
central  banks. 

is  to  put 

task 

60 

34 

the 
institution  and  bodies  concerned  at 
Community  and  Union  level.  There  will 
also  need  to  be  a  common  definition  of 
currency  counterfeiting  and  arrangements 
made  to  combat  it  in  a  concerted  way.  The 
action  programme  on  organised  crime, 
which  was  adopted  by  the  Council  on  28 
April,  also  calls  on  the  Commission  to 
examine  the  need  to  introduce  common 
provisions  on  combating  organised  crime 
involving  the  counterfeiting  of  banknotes 
and  coins  in  the  run-up  to  the  introduction 
of the  single currency (Recommendation  No 
26).61 

3.4.2. 

The  Commission's  criminal 
expertise  unit 

law 

and 

interface"' 

The  1997/98  anti-fraud  work  programme 
stipulates  the  setting  up" of  a  "criminal  law 
to 
expertise 
liaison 
strengthen  contacts  with  national  judicial 
authorities.  This  was  also  recommended  by 
the  European  Parliament.62  Part  of UCLAF, 
the criminal  law expertise  and  liaison  unit is 
starting  to bring together  experts  in  criminal 
and  financial  law  from  the  Member  States 
with  a view  to  improving  relations  with  the 
judicial  authorities 
national  police  and 
responsible  for criminal  prosecutions. 

It  will  use 

The  unit  is  intended  to provide  these  bodies 
with  technical  and  operational  assistance 
to  make  cross-border  coordination 
and 
its  expertise  and 
easier. 
to  make 
familiarity  with  national 
investigators' 
for  example, 
jobs  easier, 
when  they  are  preparing  for  on-the-spot 
investigations  and  inspections. 

laws 

The  unit  is  meant  to  be  able  to  have  cases 
speedily  referred  to the  relevant  prosecutors 
and  magistrates  as  well  as  to  identify  the 
factual  and  legal  aspects  relating  to  the 
cross-border  dimension  of  the  proceedings 
in  order  to  facilitate  the  coordination  of 
judicial  cooperation  procedures  in real time. 

cooperation  with  non-member 
Judicial 
countries 
is  also  essential.  Here  too,  a 
pragmatic  approach  will  have to  be  adopted 
involving  criminal  law  experts  to  try  to 
resolve  the  problems  that  arise,  which  are 
particularly 
criminal 
networks  are operating  from  other  countries 
outside 
as 
the  Community, 
Switzerland,  Liechtenstein, 
the  Virgin 
Islands and  Panama.63 

alarming  when 

such 

for 

the  second  protocol 

to 
the  protection  of 

The  new  powers  given 
to  UCLAF 
inspectors  by Council  Regulation  (Euratom, 
EC)  No  2185/96  concerning  on-the-spot 
lead  to  an 
checks  and  inspections  will 
follow-up. 
increasing  need 
judicial 
Likewise, 
the 
the 
convention  on 
Communities'  financial  interests.states  that 
the Commission  must  provide  assistance  for 
investigations  into cases of fraud,  corruption 
and  money-laundering.64  This  is  precisely 
what 
law 
expertise  unit  will  be  doing,  particularly 
once  the  second  protocol  has  been  ratified 
by the Member States. 

the.  Commission's 

criminal 

3.5.  Cooperation 
indirect 
VAT) 

in 

the  area  of 
(excise  and 

taxation 

interests  of 

the  financial 

Whether  large-scale  or  not,  cases  of  fraud 
the 
affecting 
Communities  have  a  knock-on  effect  on 
national  finances.  This  is why  it  is  essential 
to  make  use  of  the  existing  cooperation 
instruments  in  the  area  of  indirect  taxation 
and,  where  necessary,  improve  them  after 
seeing how well they operate. 

the  Member  States  and 

In  1997 
the 
Commission  continued  to  discuss  increased 
cooperation  in  this  area  in  order  to  get  a 
clearer picture  of how  fraud  operates  and  to 
improve  methods  of  combating  it.  In  this 
vein,  there  were  operational  contacts  on  a 
the 
basis 
virtually 

between 

daily 

61 

62 

O J C 2 5 1,  15.8.1997. 

Recommendation  18  in  the  final  report,  referred  to 
above,  from  Parliament's  committee  of  enquiry  into 
the Community  transit scheme. 

For  example,  although  there  is  a  customs  mutual 
assistance agreement with  Switzerland, judicial  follow-
up  is  hindered  by  the  lack  of  any  judicial  assistance 
agreement applicable  to customs  and  tax  offences. 

See Chapter 6, sections  5.1  and  5.4.2. 

63 

64 

35 

Commission  and  the  national  authorities 
responsible  for  excise and VAT. 

3.5.2. 

VAT 

3.5.7. 

Excise 

In  response  to  the  alarming  increase  in 
tobacco  and  alcohol  excise  fraud,  in  March 
the  Commission  and  the  Member  States  set 
up a high-level  group to find  solutions to the 
tobacco  and 
problems  of  fraud  where 
alcohol  are  involved.65  The  group's  remit 
covers  not  only  detection  and  prosecution, 
but also preventive  measures.66 

The  high-level  group  met  three  times  in 
1997.  It  adopted  a  cross-sector  approach, 
dealing  with  customs  duties,  VAT  and 
excise.  The  group  identified  the  nature  and 
It  also 
extent  of 
highlighted 
the 
operation  of  excise  duty  systems  and  the 
effectiveness  of  inspections  carried  out  by 
the  Member  States  as  well  as  shortcomings 
in the  legislation  itself. 

type  of  fraud. 

shortcomings 

affecting 

this 

up,67 

turning 

tightened 

Since  the  Community  transit  system  was 
criminal 
recently 
organisations  have  been 
their 
attention  to  excise  duties,  since  the  system 
suffers  from  similar  weaknesses  in terms  of 
both  inspections  and  the  legislation  itself.68 
The  Commission  is  accordingly  planning  to 
focus  its efforts  on strengthening the system 
for  imposing excise duties and,  in particular, 
on  the  controls  on  movements  of  goods 
enjoying  excise-duty  suspension. 

5  The  group  is  due  to  report  to  Directors-General  of 

customs  and  indirect taxation  in April  1998. 

66 

67 

68 

in 

of 

irregularities 

A Matthaeus-Tax  programme  seminar  was  held  shortly 
after  the  first  meeting  of  the  high-level  group  on  the 
subject 
intra-Community 
transactions  involving  goods  liable  or  excise  duties. 
The  Matthaeus-Tax  programme  is a Community  action 
programme  designed  to  prepare  officials  responsible 
for  indirect  taxation  in  the  Member  States  for  the 
implications  of the  creation  of the  internal  market.  See 
also Section  1.4.2  on VAT below. 

See  the  "Action  plan  for  transit  in  Europe  -  a  new 
customs  policy",  submitted  by  the  Commission  on  20 
April  1997, COM(97)  188 final (OJ C  176.  10.6.1997). 

Here  it  is  interesting  to  note  that  L'CLAF  has  had  no 
cases  of  intra-Community  fraud  invoking  mineral  oils 
reported  to it bv the  Member  States 

its 
In  1997  the  Commission  continued 
policy  of  cooperation  with  the  Member 
States to combat internal VAT  fraud. 

is  booked, 

in  1997  under 

The  seminars  held 
the 
Matthaeus-Tax  programme  (which  ran  until 
the  end  of  1997,  being  replaced  by  the 
Fiscalis  programme  in  199869)  dealt  with 
fraud  prevention,  covering  checks  on  how 
VAT 
the  preparation  and 
scheduling  of tax  inspections  and the  issues 
raised by electronic  invoicing and  electronic 
trade. In  1997 the Commission  financed  and 
organised  two conferences  for national  VAT 
inspectors. The conferences,  which were the 
idea  of  the  Italian  Guardia  di  Finanza, 
further  consolidated  the  Community-wide 
operational  contact network and provided  an 
opportunity  for  exchanging  information  on 
detection 
investigatory 
powers.  The  Commission  also  organised 
several  coordination  meetings  for  Member 
States  affected  by the  same  cases  as well  as 
serving  as  the  focal  point  for  organising 
further  action  on  cases  under  investigation 
by national  authorities. 

techniques 

and 

As  part  of  the  Matthaeus-Tax  programme, 
the  Member  States  organised  exchanges 
between  their  tax  officials,  who  had  the 
chance to see how other  national  authorities 
operate.  This  should  help  to  forge  stronger 
links between  national  authorities  and  make 
fraud  fighting  more  effective.  The  1997 
programme  of  exchanges 
involved  some 
300  officials. 

There  are  political  obstacles  to  establishing 
proper  cooperation  between  the  Member 
States  and  the  Commission,  since  several 
to 
Member  States 
to 
fail 
Community 
acknowledge 
legislation 
administrative 
assistance70  is  the  legal  basis  entitling  the 

that 
on  mutual 

continue 
the 

69 

70 

See point 3.5.3  below. 

Council  Directive  77/799/EEC  of  19  December  1977 
the  competent 
concerning  mutual  assistance  by 
authorities  of  the  Member  States  in  the  field  of  direct 
taxation 
,  27.12.1977)  and  Council 
Regulation  (EEC)  No  218/92  of  27  January  1992  on 
administrative  cooperation 
in  the  field  of  indirect 
taxation  (OJ  L 24.  1.2.1^92). 

(OJ  L  336 

to  receive 

Commission 
information  and 
participate  in  discussions  on  fraud  cases 
involving VAT. 

of 

for 

the 

system 

better,  use 

The  Anti-Fraud  Sub-Committee  (SCAF)  of 
the  Standing  Committee  on  Administrative 
Cooperation  on  Indirect  Taxation  (CPCA) 
has  been  encouraging  the  Member  States  to 
existing 
make 
exchanging 
computerised 
information  on  VAT  called  SCENT  fiscal11 
For  this  purpose  it  revised  the  standard 
for  exchanging  data  and 
forms  used 
instruction  manual 
proposed  a  sort  of 
designed  to  make  the  system  more  user-
friendly.  Nonetheless,  the  system  is  still 
disappointingly  under-used.  The  Member 
States  have  all  admitted  that  very  little 
information  has  been  exchanged  and  that 
there  is little  follow-up,, particularly  when  it 
comes to actually taking further  action. 

reasons 

for  not  extending 

There  is,  however,  another  aspect  to  the 
problem.  Some  Member  States  tend  to  pass 
on  useful  information  only  to  the  Member 
States  directly  involved  in the  fraud  case  or 
cases  in  question.  Tax  confidentiality'  and 
data  protection  are  regularly  quoted  as  the 
the 
main 
distribution  of  information  to  automatically 
include the  Commission.  It  is clear  that  this 
sort  of  restricted  exchange  of  information, 
particularly  where  the  Commission  is  left 
out,  can  only  have  harmful  implications  for 
operations  in the field.  If this state of  affairs 
persists,  it  will  be  virtually  impossible  to 
devise  a  proper  Community  strategy  for 
combating  indirect taxation  fraud. 

3.5.2.1.  New 

administrative 

cooperation  standards 

fraud 

in  combating 

Progress 
involving 
indirect  taxation  largely  depends  on  the 
available  administrative  cooperation  and 
mutual  assistance  tools  being  actually  used. 
This  means, 
particular,  Council 
Regulation  (EEC)  No  218/92  and  Directive 
77/799/EC.  The  Commission's 
second 
"Article  14"  report,72  which  specifically 

in 

for 

deals  with  this  issue,  noted  that  several 
Member  States do not  make  as much  use  of 
these  tools  as  they  might.  In  1997  solid 
recommendations 
strengthening 
cooperation  were adopted  by the senior civil 
servants  responsible  for  indirect  taxation. 
The  Member  States  are  currently  working 
on stepping up cooperation  in order to  make 
the best use of the existing  arrangements  for 
fighting  fraud  together. 

3.5.2.2.  Simultaneous 

inspections 
tighten up VAT  operations 

to 

of 

four 

oversaw 

Inspections  simultaneously  carried  out  by 
several  Member  States  in  several  Member 
States  are  set  to  play  a  major  role  in 
improving  the  fight  against  fraud.73  The 
Commission 
these 
simultaneous  exercises  in  1997,  involving 
13  Member  States.  The  main  aim  is  to 
develop  suitable  methods  for  coordinating 
and conducting  inspections  of this type. The 
the 
inspections  were  good  practice  for 
better 
Member  States,  making 
prepared  to  carry  out  similar  ones  in  the 
future.  The  Commission  also  organised  a 
special  seminar  on  this  subject  in  1997, 
which  should  result  in  more  inspections  of 
this  type  being  scheduled  in  the  future.  The 
Commission  will  be  continuing  with  its 
policy  of 
in 
that 
multilateral 
inspections  of  this  type  become  part  of  an 
inspections  strategy  shared  by  all  Member 
States. 

involving  more  officials 
inspections 

to  ensure 

them 

3.5.2.3.  Analysing  VAT  fraud  risk 

Since  1996  SCAF  has  been  conducting  a 
study  on  VAT  fraud  in  the  Community  to 
identify  the  most  common  types  of  fraud, 
how  it  is  perpetrated  and  the  factors  that 
allow  it to happen. The preliminary  findings 
of  the  study  were  presented  to  the  Member 
States  in  1997  in  the  sub-committee  to 
enable  them  to  focus  their  resources  on  the 
most  fraud-prone  areas  in  order  to  detect 
and deal with fraud  as early as possible. 

71 

72 

System  dealing  specifically  with 
using the SCENT network  (see section  3.2). 

indirect 

taxation 

COM(96)681. 

37 

73  The  investigation  discussed 
the 

in Chapter  2,  section  2.3, 
clearly 
difficulties 
operational 
encountered  by  the  Member  States  in  cases  of  this 
type. 

illustrates 

VAT 

system 

SCAF's 
covered 
investigations,  which 
nearly  500  fraud  cases  selected  by  the 
Member  States,  clearly  showed  that  the 
intra-Community 
is 
particularly  hard hit by fraud, although  most 
types  of transactions  are now affected.  The 
amounts  involved  are in the region  of ECU 
573  million  and  30%  of  cases 
involve 
amounts  in  excess  of  ECU 1  million.  And 
yet  there  are  good  reasons  to  believe  that 
this  is  only  a  fraction  of  the  total  fraud 
being  committed.  Fraud  involving  VAT on 
intra-Community 
international 
transactions  accounts  for  nearly  half  the 
total  sums  involved.  SCAF's  study  should 
wake  Member  States  to the  seriousness  of 
the  situation  and  the  need  to  step  up 
cross-border 
cooperation 
transactions,  since  fraudsters  are  taking 
advantage  of 
the  absence  of  physical 
borders. 

target 

and 

to 

The study also showed  that information  was 
insufficiently  centralised.  This  made 
it 
difficult  to get an overview  of the  complete 
extent  of  the  phenomenon  and  yet  this  is 
what  the Member  States  needed  to  know in 
order  to  be  able  to  devise  an  inspections 
strategy  that  took  account  of real  priorities. 
Working 
in  close  cooperation  with  the 
Member  States,  the  Commission  is  in  the 
best position to receive, analyse  and pass on 
information  concerning  fraud,  so that  it can 
be  more 
at 
international  level. 

effectively 

countered 

3. J. 3. 

The Fiscalis  programme 

The  Commission  proposals  for  the  Fiscalis 
programme  were  adopted  by  the  Council 
and the European Parliament on 13 May and 
26 November.74 

The  programme  runs  from  1 January  1998 
to  31  December  2002.  It  builds  on  the 
Union's  current  activities,  where  possible, 
and  is  based  on  using  communication  and 
further 
information 
cooperation  on  preventing  fraud  involving 
VAT and excise duties. To this end, Fiscalis 
incorporates  arrangements  to  bring 
also 

exchange 

tools 

to 

74  COM(97)175 

final,  OJ  CI 77, 

11.6.1997;  and 

COM(97)621 final, OJ CI,  3.1.1998. 

38 

to  do 

national  officials  together  to  work  on  real 
cases  and  provide  them  with  the  necessary 
job  properly.  The 
skills 
programme  also  involves  the  countries  of 
Central  and Eastern  Europe  and Cyprus and 
comprises three phases: 

their 

•  preparing  guides  and  manuals  for  the 
information 

communication 
exchange systems, such as VIES;75 

and 

•  exchanges,  seminars  and  multilateral 

inspections; 

• 

joint training for all national  officials. 

3.6.  Training 

As  in  1996,  the  Commission  focused  on 
organising  targeted  training  for  specialist 
departments  managing 
checking 
and 
funds  handled  by  national 
Community 
authorities as well as for judicial  authorities, 
such  as judges,  public  prosecutors  and the 
police,  whose  cooperation  is  vital  for  the 
success of anti-fraud  activities  in the  field.76 

To enhance its training  support  capacity, the 
Commission  continued  its  policy  of  giving 
financial  support  to  Member  States  who 
apply  for  it on the basis  of a programme  to 
upgrade  the  skills  of  national  anti-fraud 
staff. 

In  1997  the  Commission  organised  the 
following  events,77  either  alone  or  in 
conjunction  with the Member  States, mostly 
lasting 2 days: 

75 

76 

77 

VAT Information  Exchange  System. 

See section 3.5 on training  concerning  indirect  taxation 
(points 3.5.2 and 3.5..3). 

The  events 
involved  nearly  1 500  national  civil 
servants and other staff. The country  name  given  refers 
to  the  country  hosting  the  event,  although  the  events 
were attended by officials  from  other Member  States at 
the  invitation  of  the  organisers  (Member  State  in 
question or the Commission). 

COUNTRY 

GERMANY 

AUTHORITIES  AND AUDIENCE 

TOPICS 

The Saxony  Public Prosecutor's  Office  Community  fraud  and  cooperation 
- German  prosecutors,  customs 
inspectors and police, with  participants 
from  Poland,  Hungary' and the Czech 
Republic 

Zollkriminalamtn 
- customs inspectors  from  seven 
Member States 

Fraud  involving  agricultural 
expenditure 

Zollkriminalamt 

Fraud  involving  imports of textile 

- customs inspectors from all the 
Member  States 

Federal  Ministry of Finance and the 
agriculture authorities of the Lander 
- participants  from  four Member States 

Detecting fraud  involving  agricultural 
expenditure 

Landeskriminalamt, 79  Sachsen-Anhalt  Community  fraud  and  cooperation 

Zollkriminalamt 
- German  prosecutors, with 
participants  from  Austria and Sweden 

Federal Ministry  of Finance and Told-
og Skattevœsene80  (joint  event) 

BELGIUM 
(Brussels) 

Customs departments (all Member 
States) 

Customs departments  and other 
experts (all Member  States) 

Fiscal General del  Esiado^ 
- prosecutors from Spain (and other 
Member  States) 

Judicial and customs authorities from 
Hungary, Slovenia, Bulgaria and the 
Czech  Republic 

Community  fraud  and  cooperation 

Cooperation  and techniques  for 
detecting  fraud  involving export 
refunds 

Extension  of the EWS81 

Implementation  of the AFIS8-

Cooperation  between  investigators and 
judicial  authorities 

Community  fraud  and  cooperation 

FINLAND 

Customs inspectors (from  other 
Member States too) 

Fraud  involving  imports of textile 
products 

Finnish National  Bureau of 
Investigation  (central police 
department) 

Community  fraud  and  cooperation 

80 

S 2 

German  central  (federal)  customs  bureau. 

The  central  criminal  investi2ation  department. 

The  Danish  customs  and  tax  authorities 

fiarlv  Warning  System. 

Anti-Fraud  Information  S>s;em  -  one-stop  shop  for  Member  States  to  exchange  data  electronically,  incorporating  the  SCENT 
svstcm. 

Spanish  Public  Prosecutor's  Office 

TullihallitusiA  (with  investigators from  Cigarette smuggling 
other Member  States) 

FRANCE 

Criminal  investigation  police from 
France and other Member States 

Criminal  law protection  of industrial 
property 

Customs authorities  from  France and 

Technical  assistance  in detecting 

twelve other Member  States 

consignments  of smuggled  goods 

ITALY 

Police Further Training College 

Community  fraud 

The Guardia di Finanza Academy 
(Officer  School) 
Guardia di Finanza (with  investigators  VAT  fraud 
from  other  Member States) 

Protecting the Communities'  financial 
interests 

Consiglio Superiore delta 
Magistratura2,5 
fraud 
- prosecutors from Italy and other 
Member  States 

Judicial  cooperation  in prosecuting in 

cases 

Guardia di Finanza (with  investigators  VAT  fraud 
from  all Member  States) 

PORTUGAL 

Inspeccdo Geral da Administracdo do 
Territorio (IGAT)86 

Irregularities  involving the ERDF and 

the Cohesion  Fund 

UNITED KINGDOM 

The Scottish  Office87 

Fraud  involving the Structural  Funds 

Intervention  Board  for Agriculture88 

NAO89 

SWEDEN 

Ministry of Agriculture 

Fraud  involving  agricultural 
expenditure 
Fraud  involving the Structural  Funds 

Fraud involving  agricultural 
expenditure 

Riksrevisions\'erket (RRV) 90 

Fraud  involving the Structural  Funds 

° 

Finnish  national  customs  authorities. 

8-*  The Supreme  Law Council. 

Inspectorate-General  for  Land-Use  Planning. 

86 

87 

° 

Responsible  for Structural  Fund  payments. 

EAGGF-Guarantee  paying  agency. 

89  National Audit  Office. 

Danish national  audit  office. 

40 

4.  COOPERATION  WITH  NON-MEMBER  COUNTRIES 

4.1. 

of 

Implementation 
existing 
fraud  prevention  measures  by 
applicant  countries  (preparation 
for  enlargement) 

a 

the  Commission  adopted 
On  15  July 
2000",91 
communication 
"Agenda 
describing 
the 
for 
the  broad  outlook 
development  of  the  Union  and  its  policies 
on  the  eve  of  the  next  century,  the  issues 
posed  by  enlargement,  and 
future 
financial  framework  beyond  the  year  2000 
in an enlarged  Union. 

the 

the 

fraud  made 

The  1997/98  work  programme  for  the  fight 
against 
link  between 
protection  of  the  Community's  financial 
interests  and  the  process  of  preparing  the 
countries  of  central  and  eastern  Europe  for 
membership.92 

This  process  is fleshed  out  in the  Accession 
Partnerships  drawn  up  by  the  Commission 
for  each  of  the  applicant  countries,  setting 
out  the  priorities  to  help  them  meet  the 
political  and economic  criteria  laid  down by 
the  Copenhagen  European  Council  in  June 
1993.  The  Accession  Partnerships  also 
structural 
provide 
financial  assistance  from  2000  onwards,  in 
addition  to  continued  operations  under  the 
Phare programme. 

pre-accession 

for 

places 

This  is  the  background  against  which  the 
Commission's  work  programme  for 
the 
protection  of  the  Community's  financial 
interests  will  be  implemented.  The  work 
programme 
emphasis  on 
extending  customs  cooperation  to  protect 
Community  own  resources.  It  recommends 
the  adoption  of  existing  Community  rules, 
in  particular  on  monitoring  and  preventing 
fraud.  This  includes  not  only  Community 
regulations  on controls, notification  of cases 

the 

principle 

authorities, 

of  fraud  and  irregularity,  and  administrative 
sanctions  but  also  the  Convention  on  the 
protection  of  the  Community's  financial 
interests  and  the  accompanying  protocols 
and  the  application  of  Article  209a  EC 
(cooperation  with  the  Commission  and  all 
of 
competent 
equivalence).  To  this  end,  the  Commission 
has  for  several  years  been  organising 
training  courses.93  However,  to  ensure  that 
this  approach  is truly  successful,  it  plans  to 
set  up  a  network  of  technical  advisers  in 
certain  non-member  countries,  whose  task 
the 
will  be 
and 
authorities 
departments 
to 
cooperate  on  the  ground  with  local  control 
bodies.  The  ultimate  aim  is  to  ensure,  from 
day  one  of  accession,  a  similar  degree  of 
protection  for  the  Community's  financial 
interests  and  policies 
the  enlarged 
Community as at present. 

liaise  directly  between 
in 
in 

countries 
institutions  and 

those 
the 

in 

to 

4.2.  Mutual  assistance  agreements 
the  Community  and 

between 
non-member  countries 

Outside  the  pre-accession  process,  which 
only  concerns  11 countries,  the  Community 
concluded  a number  of  agreements  in  1997 
containing  specific  provisions  on  mutual 
customs  assistance  with  27  non-member 
countries,  a  third  of  them  in  central  or 
eastern Europe.  Nine  countries  have  signed 
or  initialled  an  agreement  not  yet  in  force, 
and  negotiations  are  planned  or  in  progress 
with a further  22. 

These  provisions  provide  a  legal  basis  for 
the  authorities  responsible  to  request  or 
provide  administrative  assistance  when 
conducting 
the 
proper  application  of  the  Community's  or 
the partner country's customs regulations. 

investigations 

to  ensure 

"'  COM(97)  2000  final.  Programme  covering  the  period 

2000-2006. 

92  The  applicant  countries  from  central  and  eastern 
Europe  are:  Hungary,  Poland,  Estonia,  the  Czech 
Republic,  Slovenia,  Bulgaria,  Latvia,  Lithuania. 
Romania and  Slovakia. 

Agreements  came  into  force  in  1997 with  8 
countries:  the  Faeroe  Islands  on  1  January; 

See  in particular  the  annual  reports  on the  fight  against 
fraud  for  1995 (Chapter  5, page  43) and  1996  (Chapter 
4, page 38). 

41 

Kazakstan  on  1  April; 
the  Republic  of 
Korea  on  1  May;  the  Swiss  Confederation 
on  1  July;  the  United  States  of  America  on 
1 August;  Georgia 
1 September; 
Armenia  and  the  Russian  Federation  on 
1  December.94 

on 

agreements  with 

similar 
Community 
provisions  were  also  signed  with 
the 
following  countries: Azerbijan  on  8 October 
(not  yet  in  force);  Jordan  on  25  November 
(not  yet  in  force);  Canada  on  4  December 
(entered  into force  on  1  January  1998). 

come 

force), 

By  31  December 
the  Community-  had 
concluded  agreements  of  this  kind  with  36 
non-member  countries  (28  of  which  have 
covering 
into 
already 
practically  all  its  European  neighbours  and 
its  main  trading  partners.  Negotiations  on 
global  agreements  (with  mutual  assistance 
protocols)  or  specific  agreements  (confined 
to  customs  matters, 
including  mutual 
assistance)  are  under  way  or  planned  with 
around  twenty  other  non-member  countries, 
including  Albania,  South  Africa,  Egypt, 
Lebanon, Cyprus, Hong Kong, China. Chile, 
the  Mercosur  countries,  and  some  ASEAN 
countries.95 

in 

technical  assistance 

The  provisions  on  customs  cooperation  in 
the  agreements  with  non-member  countries 
the 
also  cover 
customs  field.  With  regard  to  enlargement, 
the  essential  aim  of 
such  assistance 
(provided  under the  Phare  programme)  is to 
help 
to  apply 
Community  legislation  effectively  when  the 
time  comes,  including  the  rules  on  fraud 
prevention  and  on  the  protection  of  the 
Union's financial  interests.96 

the  countries  concerned 

94  As  far  as  the  Russian  Federation  is  concerned,  the 
entry  into  force  of  the  Partnership  and  Cooperation 
Agreement,  to  which  the  Member  States  are  also 
signatories,  has  no  effect  at  Community  level  on  the 
interim  agreement,  in  force  since  1 February  1996, and 
the  accompanying  protocol  on  mutual  administrative 
assistance,  which  already  covers  all  customs  matters 
under Community  jurisdiction. 

95 

96 

Association  of South  East Asian  Nations. 

Cf. Section 4.1. 

PENALTIES  AND  HORIZONTAL  CRIMINAL-LAW  LEGISLATION  TO 
PROTECT  THE  COMMUNITY'S  FINANCIAL  INTERESTS 

This  chapter  reviews  developments  in  1997 
regarding  horizontal  legislation  concerning 
the  protection  of the  Community's  financial 
interests. 

2 

1 

the 

the 

checks 

section 

reviews 

examines 
of 
on-the-spot 

effective 
Section 
Regulation 
implementation 
concerning 
and 
inspections  carried  out  by  the  Commission, 
significant 
while 
developments  regarding  the  implementation 
of  the  administrative  penalties  policy.  The 
following  section  deals  with  criminal-law 
instruments 
protection  as  it  stands.  The 
adopted 
in  1995  and  1996  have  been 
completed,  but  still  have  to  be  ratified  by 
the Member  States. Although  some  progress 
has  been  made  in  this  field  this  year,  this 
still  hampers  effective  implementation.  The 
chapter  concludes  with  an  appraisal  of  the 
the  Treaty  of 
relevant  provisions  of 
Amsterdam  and  the  new  opportunities  it 
offers  the  Community  to  create  a  legal 
environment 
the 
challenge  of protecting  all the  Community's 
interests. 

capable  of  meeting 

5.1.  The  effective  implementation  of 
(Euratom, 
Council  Regulation 
EC)  No  2185/96  concerning  on-
the-spot  checks  and  inspections 
carried  out  by the  Commission 

(Euratom, 

Regulation 

1 January  1997  saw  the  entry  into  force  of 
Council 
EC) 
No 2185/96  concerning  on-the-spot  checks 
the 
and 
Commission 
the 
European  Communities'  financial  interests 
against fraud  and other  irregularities. 

carried  out  by 
to  protect 

inspections 

in  order 

The  on-the-spot  checks  Regulation  was 
the 
applied  on  eight  occasions 
beginning of the second  quarter. There were 
no  serious  disputes  about  the  respective 
roles 
national 
inspectors. 

of  Commission 

from 

and 

In  1997, the  Commission  firstly  decided  on 
a  list  of  staff  empowered  to  carry  out  the 
checks  and  inspections  and  the  form  of 

43 

authorisation  the  inspectors  need  to  carry 
with 
the 
them  under  Article  6(1)  of 
regulation.  It  also  decided  on  the  form  of 
the  inspection  order,  which  indicates  the 
subject-matter  and  purpose  of  the  on-the-
spot check or  inspection. 

In  accordance  with  an  undertaking  given  to 
the  Council  when 
the  Regulation  was 
adopted,  the Commission  has also  produced 
a vade-mecum  on the way  staff  are to apply 
the new Regulation. 

The  partnership  with  Member  States,  the 
on-the-spot 
basic  principle  underlying 
checks,  has  worked  well,  with 
the 
inspections  being  carried  out  jointly  as 
allowed  by  Article  4  of  the  Regulation. 
There  has  been  cooperation  at  the  various 
stages of the inspections. 

and 

it  came 

to  prevail  when 

the 
The  spirit  of  partnership  between 
the  Member  States 
Commission 
continued 
to 
evaluating  the  results,  with  both  working 
together  to  produce  an  initial  inspection 
report.  Under  the  Regulation,  this  task  falls 
to  the  Commission,  but  the  report  may  be 
countersigned  by  national  inspectors  when 
an inspection  is conducted jointly. 

The  findings  of  on-the-spot  inspections  are 
recorded  in a mission  report prepared  by the 
Commission,  which  is  directly  usable  in 
national  proceedings.  This  is  a  key  element 
of the anti-fraud  strategy, enabling  evidence 
to  be  placed  before 
competent 
authorities  and  courts.  The  partnership  will 
need  to  be  equally  constructive  when  it 
administrative 
comes 
penalties  and  measures  and  the  judicial 
action  to  be  taken  in  cases  where  fraud  is 
shown to have been committed. 

to  monitoring 

the 

in  six  Member  States 

In  1997,  the  Commission's  powers  of 
investigation  under  the  Regulation  were 
used 
(Belgium, 
France,  Germany,  Greece,  Spain  and  the 
United  Kingdom) 
customs, 
the 
agriculture and fisheries  sectors. 

in 

In  1998  the  Regulation 
is  likely  to  be 
applied  more  frequently,  involving  all  the 
Member  States  and  all  the  Community's 
fields  of  activity,  demonstrating  that  it  is a 
horizontal  measure  for  investigating  serious 
or  transnational  fraud  in  partnership  with 
the Member  States. 

5.2.  The  implementation  of  penalties 

policy 

5.3.  Protection  of 

the  Community 
against  irregularities  in  financial 
management 

Considering  the  risk  of  internal  corruption, 
asked  the  Commission  to  present  a  paper 
with  proposals  for  an  independent  UCLAF 
operating 
an 
the 
on 
basis 
interinstitutional  agreement.100 

of 

(EC, 

Regulation 

Council 
Euratom) 
No 2988/9  covers  all  Community  penalties, 
in 
including  sectoral  penalties  already 
existence when  it came into  force.97 

the 

impact  of  a 
Apart  from  penalties, 
standard  legal  framework  as  set  out  by  the 
Regulation  must  also  be  considered 
in 
relation  to the obligation  for  Member  States 
to  notify  the  Commission  of  cases  of  fraud 
and  other  irregularities  pursuant  to  sectoral 
regulations.98  To  fulfil 
their  notification 
requirements 
and 
horizontal  manner,  Member  States  must 
base their  activities  on the definitions  of the 
concepts  of  irregularity,  abuse  of  law  and 
economic  operator.99 

a  homogenous 

in 

of 

by 

legal 

the  basis  of 

the 
Council 

framework 
On 
established 
Regulation 
No 2988/95, the Commission  is pursuing  its 
policy 
administrative 
introducing 
penalties  into  the  fields  of  own  resources 
and direct expenditure. As part of  its  1997/8 
anti-fraud  work  programme,  it  is  drawing 
up a draft  European  Parliament  and  Council 
Regulation 
administrative 
penalties  in the  customs  sector  and  is  in the 
process  of  conducting  a  study  to  establish 
the  degree  of  reorganisation  that  will  be 
administrative 
needed 
penalties 
in  direct 
expenditure  schemes. 

for  Community 
to  be 

incorporated 

establishing 

presented 

Commission 

a 
The 
communication  on  19  November.101 
It 
offers  avenues to be explored  and  concludes 
that the role of UCLAF should  be  reinforced 
in  the  Commission  so  that  the  Commission 
may  have  effective  means  of  combating  all 
forms  of fraud  and corruption  internally. 

5.4.  Criminal-law  protection  of  the 
the 

interests 

of 

financial 
Community 

5.4.1. 

The  situation  with  regard 
ratification  of  the 
adopted 

to 
instruments 

to 

ratify 

undertaking 

The  Amsterdam  European  Council  gave  a 
the 
political 
instruments  adopted  (Convention  on  the 
protection  of  the  Communities'  financial 
interests  and  the  first  and  second  Protocols, 
and the corruption  convention)  no  later than 
the middle of  1998.102 

The  difficulties  encountered,  particularly 
with  regard  to  ratification,  a  slow  process, 
have  had  ramifications  for  the  progress 
expected  to  result  from  the  use  of  this  type 
of  instrument  for  the  protection  of  financial 
interests. 

The  European  Parliament,  of  course,  is 
results  of 
particularly  attentive 
transposai  into national  law. 

the 

to 

97 

98 

94 

OJ  L 312. 23.12.1995. 

See Chapter  1. section  1.1. 

Regulation  No  2988/95.  Articles  1.  4(3)  and  7. 
Discussions  on 
in 
COCOLAF. 

these  points  will 

continue 

1 00  Resolution  of  the  European  Parliament  of  22.10.1997 
on  the  annual  report  for  1996 and  the work  programme 
for  1997/98  for  the  protection  of  financial  interests 
and the  fight  against  fraud:  OJ C339,  10.11.1997. 

1 01  SEC(97)2198. 

IUx-  First  Protocol  on  corruption  -  cf  1996  Report,  p.  4S. 
and  section  5.4.3; second  protocol, cf. section  5.4.2. 

44 

5.4.2. 

The  second  Protocol  on 
the 
protection  of  the  Communities' 
financial 

interests 

On  19 June  the  Council  adopted  the  second 
Protocol  on  the  criminal-law  protection  of 
interests103 
the  Communities' 
following  negotiations  conducted  by  the 
Italian,  Irish  (1996)  and Netherlands  (1997) 
Council  Presidencies,  on  the  basis  of  the 
Commission's  draft  Protocol.104 

financial 

individually  or as a member of an organ 
of the legal  person. 

Member  States  must  provide 
for 
effective,  proportionate  and  dissuasive 
penalties,  which  must  include  criminal 
or  non-criminal  fines  and  possibly  the 
other penalties  specified  by the  protocol 
in the event of liability for  fraud. 

confiscation and seizure  of the proceeds 
o/fraud109 

The  Protocol  to  the  Convention  consists  of 
the 
additional 
following:105 

concerning 

provisions 

money-laundering 
proceeds  of fraud  and  corruption106 

related 

to 

the 

The 
provisions  ,  making  money-
laundering  a criminal  offence  will  have 
to be accompanied  by an amendment  to 
Council  Directive 
91/308/EEC  of 
10 June  1991  on  the  prevention  of  the 
use  of  the  financial  system  (credit  and 
financial  institutions)  for  the  purposes 
of  money  laundering107  to  include  the 
laundering 
of 
the 
Community  fraud  in  the  identification 
and notification  requirements. 

proceeds 

of 

the liability of legal persons10* 

concern 

provisions 

These 
the 
responsibility  of legal persons for fraud, 
corruption 
laundering, 
and.  money 
which  constitute  intentional  acts,  and 
for  lack of supervision  or control, which 
are  forms  of  negligence.  Legal  persons 
may be held  liable for  fraud,  corruption 
and money  laundering committed  on his 
own  behalf  by  any  person  acting  either 

1 03  O J C 2 2 1,  19.7.1997. 

1 04  OJC  83, 20.3.1996. 

1 05  Additional  provisions  provided  for  by the  Council  Act 
of  26  July  1995  establishing  the  abovementioned 
Convention. 

1 06  Articles  1 and 2. 

1 07  OJL  166,28.6.1991. 

1 08  Articles 3 and 4. 

crime, 

In 
the  light  of  recommendations  Nos 
26  and  28  of the  action  plan  to  combat 
organised 
the 
Council  on 28 April,  this  provision  will 
have  to  be  replaced,  as  it  must  be 
implemented  in  line  with  the  policy 
guidelines. 

adopted  by 

in  relation 
cooperation 
customs duties offences^10 

to 

tax  or 

the 
The  second  Protocol  amplifies 
framework  with 
legal 
Convention's 
regard  to  extradition  in  relation  to  tax 
and customs duties offences.1 'x 

cooperation  with the Commission  in the 
fight  against fraud,  active  and  passive 
corruption and money-laundering^^1 

covers 

to  fraud. 

The  second  Protocol  complements  the 
judicial 
Convention,  which 
cooperation 
It 
in  relation 
assigns  to  the  Commission  (UCLAF)  a 
function  in cooperation  with the judicial 
authorities  in  the  fight  against  fraud, 
corruption  and  money  laundering.  It 
confirms  the  Commission's  power  to 
contact judicial  authorities direct  for  the 
protection 
Community's 
the 
interests.  In  the  area  covered  by  Title 
VI,  this  protocol  clarifies  and  amplifies 
the  Commission's  cooperation  duties 
flowing  from  Articles 5 and  209a of the 
EC  Treaty.  It  will  allow  an  established 

of 

1 09  Articles. 

1 10  Article 6. 

1 11  Article 5(3) of the Convention. 

112  Article 7. 

45 

practice  to  be  developed  in  response  to 
needs  on 
to 
the  ground 
prosecutions.113 

relating 

5.4.3. 

Public  procurement  policy  and 
the fight  against  corruption 

The fight  against  corruption  is gaining  fresh 
momentum,  primarily  as  a  consequence  of 
the  publication 
in  November  1996  of  a 
Green  Paper  on  public  procurement  in  the 
European  Union,  with  contributions  from 
numerous  key  actors 
(Member  States, 
institutions,  economic  operators).  In  1997 
the 
these 
Commission 
contributions,  and 
its  findings  will  be 
reflected  in  a  proposal,  to  be  published  in 
1998,  containing  a  range  of  measures  to 
increase 
award 
transparency 
procedures  in  line  with  its  communication 
on corruption. 

analysed 

the 

of 

adapting 

The Green  Paper  highlighted  the  importance 
of 
public 
procedures 
procurement  to  render  Union  policy  in  the 
fight  against corruption  more  effective. 

for 

5.4.3.1.  The 

Protocol 

the 
Convention  against  corruption 

and 

In the Member  States, corruption  on the part 
of  European  Community  officials  or  other 
foreign  officials  is  not  treated  as  a  criminal 
offence.  This creates  a problem,  particularly 
in  relation  to  the  Community  budget.  In 
1995, 
the  Spanish  Council  Presidency 
accordingly  proposed  what  became  the  first 
Protocol  to the Convention  on the protection 
of the Communities'  financial  interests. The 
Protocol  makes  active  or  passive  corruption 
on  the  part  of  a  Community  official  or  an 
official  from  any  other  Member  State  a 
criminal  offence  in  all  Member  states  if the 
are 
financial 
Communities' 
damaged.114 

interests 

officials  from  the  European  institutions  or 
Member  States  a  criminal  offence,  even  if 
their conduct  had  no bearing  on the  Union's 
financial  interests.  It  was  adopted  on  26 
May.115  It  enabled  the  Member  States  to 
adopt  joint  positions  in  Council  of  Europe 
for  Economic 
and  OECD  (Organisation 
Cooperation  and  Development)  discussions 
on the fight  against corruption.116 

5.4.3.2.  The  Commission 

communi 

cation  on  corruption 

In  its  communication  of  21  May117,  the 
Commission  drew  attention  to  the  fact  that 
corruption  damages the financial  interests of 
the  Union.  The communication  advocates a 
coherent  Union  strategy  to  "squeeze  out" 
opportunities  for  corruption.  The  areas 
include  non-tax  deductibility  of  bribes, 
public  procurement,  financial  transactions, 
external 
blacklisting, 
assistance and co-operation. 

remedies, 

civil 

Exclusion  possibilities  already  exist  under 
the  Public  Procurement  Directives118  and 
under  the  FEOGA  guarantee  scheme.  An 
examination  of  the  circumstances  in  which 
blacklisting  could  be introduced  to cover  all 
areas  of  Community  spending  has  also 
begun. 

strategy 

Also  important  is the achievement  of a  fully 
co-ordinated  anti-corruption 
in 
relation  to  external  aid  and  assistance.  A 
recent  Commission  communication119  sets 
down  prevention  measures  and  sanctions 
necessary  for  dealing  effectively  with  fraud 
and corruption  which  harms the objective  of 
"good  governance". 

The  Action  Plan  on  combating  organised 
crime endorsed  by the Amsterdam  European 
a 
Council 

called 

June 

last 

for 

A  Convention  was  then  drafted,  taking  the 
first  Protocol  as a model, to  make  any  form 
of  active  or  passive  corruption  involving 

1 15  OJC  195,25.6.1997. 

116 

Common  positions  of  6.10.1997 
13.10.1997) and  13.11.1997 (OJ L 320, 21.11.1997). 

(OJ  L  279, 

113 

114 

Cf.  chapter  3, section  3.4.2. 

1 17  C0M(97)  192 final. 

118 

(OJ  L  209,  24.7.1992), 
Directives  92/50/EEC 
93/36/EEC,  93/37/EEC  and  93/38/EEC  (OJ  L  199, 
9.8.1993). 

OJ  C  313, 23.10.1996.  Cf.  page  18 of  the  1995  report 
and Chapter  6 of the  1996 report,  p. 48. 

1 19  C0M(98)146 final. 

46 

comprehensive  policy  against  corruption. 
As  a  response  the  Commission  will  report 
the 
implementation 
the 
on 
Communication. 

of 

5.5.  The  Amsterdam  Treaty 

interests 

The  Commission's  efforts  to  create  a  legal 
basis  for  the  criminal-law  protection  of  the 
initially 
Communities'  financial 
led to the adoption  of Article 209a of the EC 
Treaty,  which  links the  financial  interests of 
the  Community  with  national 
financial 
interests  and  the  Member  States'  duty  to 
cooperate  with  the  Commission's  duty  to 
assist  them.  There  is  currently  a  major 
information-gathering 
the 
the 
application 
Commission  will  report  on  the  results  in 
1998. 

exercise  on 
and 

this  Article 

of 

its  opinion  on 

the  holding  of  an 
In 
Intergovernmental  Conference  (IGC),120  the 
objectives  defined  by the  Commission  were 
the  fight  against  different  forms  of  crime 
and  fraud  damaging  to  the  Communities' 
financial  interests  and  the  development  of 
effective  cooperation  between  the  national 
administrations  concerned. 

The  Commission  supported  the  proposal 
that  Article  209a  of  the  EC  Treaty  be 
amended  to  enlarge  and  align  the  legal 
bases  available  for  the  protection  of  the 
Communities'  financial  interests. 

5.5.1. 

The  new  Article  280  of  the  EC 
Treaty 

While  Article  209a  of  the  EC  Treaty 
emphasised  the  special  responsibility  of  the 
Member  States'  national  authorities  for  the 
protection  of  the  Communities'  financial 
interests,  the  new  Article  280  of  the  EC 
Treaty  shares  the responsibility  between  the 
Community  and the Member States.121 

120 

Opinion  given  under  Article  N  of  the  Union  Treaty. 
COM(96) 90. 

121 

Article  280 reads: 

'1.  The  Community  and  the  Member  States  shall 
counter  fraud  and  any  other  illegal  activities  affecting 
through 
the  financial 

interests  of  the  Community 

5.5.2. 

Approaching  deadlines 

Article  280  is now  up  for  ratification  by the 
Member  States,  with 
the 
Amsterdam  Treaty.  The  Treaty  will  enter 
into force  when  ratification  procedures  have 
been  completed. 

rest  of 

the 

If  necessary  the  Commission  will  propose 
the 
legislative  measures 
further 
protection  of  the  Communities'  financial 
interests  after  ascertaining  what  needs 
emerge  from  the practical  application  of  the 
Treaty. 

for 

5.6.  Prospects 

for  work 

under 

Title  VI  of the  Union  Treaty 

the  Commission 

its  Resolutions  of  12  June  and 
In 
22 October,122 
the  European  Parliament 
to  conduct  a 
asked 
feasibility  study  on the  Corpus  Juris,  which 
contains  criminal-law  provisions  for 
the 
protection  of  European  Union's  financial 
interests  and  is  itself  the  result  of  a  study 
carried  out  by  researchers  from  European 

measures  to  be  taken  in  accordance  with  this  Article, 
which  shall  act  as  a deterrent  and  be  such  as  to  afford 
effective  protection  in the Member States. 

2.  Member  States  shall  take  the  same  measures  to 
counter  fraud  affecting  the  financial  interests  of  the 
Community  as  they  take  to  counter  fraud  affecting 
their own financial  interests. 

3.  Without  prejudice  to  the  other  provisions  of  this 
Treaty, the Member States shall  coordinate  their  action 
aimed  at  protecting  the  financial 
interests  of  the 
Community  against  fraud.  To  this  end  they  shall 
organise,  together  with  the  Commission,  close  and 
regular cooperation  between the competent  authorities. 

in  accordance  with 

The  Council,  acting 

4. 
the 
procedure  referred  to  in  Article  251,  after  consulting 
the  Court  of  Auditors,  shall  adopt  the  necessary 
measures  in  the  fields  of  the  prevention  of  and  fight 
against  fraud  affecting  the  financial  interests  of  the 
Community  with  a  view  to  affording  effective  and 
equivalent  protection  in  the  Member  States.  These 
measures  shall  not  concern  the  application  of  national 
criminal  law or the national  administration  of justice. 

The  Commission,  in  cooperation  with  Member 
5. 
States,  shall  each  year  submit 
the  European 
Parliament  and to the Council  a report  on  the  measures 
taken  for the  implementation  of this Article.' 

to 

i  ^ —  European  Parliament  Resolution  of  12.6.1997  on  the 
creation  of  a  European  legal  and  judicial  area  to 
protect 
interests 
against  international  crime  (0J  C  200,  30.6.1997)  and 
Resolution  of 22.10.1997  (supra). 

the  European  Union's 

financial 

Associations  of  Lawyers  at  the  behest  of 
Parliament.123 

The  aims  of  the  study  to  be  carried  out  by 
the  Commission  are  to  measure  the  impact 
of  the  Corpus  on  the  current  national  legal 
situation, with a view to achieving  effective, 
proportionate  and  dissuasive  protection  of 
Community  interests  as  required  by  the  EC 
the  new 
account 
taking 
Treaty, 
of 
possibilities  offered  by 
the  Treaty  of 
Amsterdam. 

during 

analysis 

the 
conducted 
The 
preparation  of the  Corpus  demonstrated  that 
assimilation  did  not guarantee  effectiveness. 
The  same  applies 
the  principle  of 
to 
cooperation  and  to  harmonisation,  which 
makes criminal-law  protection  so complex. 

judgment 

During  the  preparatory  stage  itself,  before 
the  discrepancies 
the 
seemed  greatest  and  the  obstacles  most 
numerous. 

stage, 

This  is  why  the  Corpus  proposes  a  set  of 
rules  covering  criminal  prosecutions 
to 
ensure 
effective 
enforcement  in a European  law-enforcement 
area.124 

and  more 

simpler 

1  T-J 

The  associations  of  lawyers  exist  in  every  Member 
State. They  were set up on the Commission's  initiative. 

'-  This  is why the Corpus Juris calls  for  the  establishment 

of a European  Public Prosecutor's  Office. 

48 

GRAPH 1 

TRADITIONAL OWN RESOURCES 

1994 • 1997 

IRREGULARITIES FORMALLY 
COMMUNICATED* by 
MEMBER STATES 

INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 

NUMBER of CASES 

1994  1995  1996 

1997 
2.572 

1600 

-

. 

2500  _ 

1994 

1995 

1996 

1997 

2.296 

-

2.213 

, 

1.950 

-

1400  _ 

1300  _ 

2200 

. 

2/00 

. 

2000 

f.900 

. 

1300 

1.700  . 

f.600 

. 

1500  _ 

1.400 

1.300 _ 

1200  _ 

IfOO  _ 

1000  _ 

500 

250 
200 
150 
100 
SO 

-

145 

120 

m 

76 

1994 

1995 

1996 

1997 

1994 

1995 

1996 

1997 

AMOUNTS in MILLIONS of ECU 

643 

475 

^= 

421 

= 

750 

700 

650 

600 

550 

500 

475 

450 

425 

400 

375 

350 

325 

300 

275 

250 

200 

150 

100 

i

i

i

i

i

i

i

i

i

i

i

i

i

o
C

o
o

-  m^n-

289 

296 

320 

364 

; 

1-

*  undor  Regulation 

(EEC)  1551/89 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GRAPH 2 

EAGGF-GUARANTEE 
1994-1997 

IRREGULARITIES FORMALLY 
COMMUNICATED* by 
MEMBER STATES 

INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 

1994 

1995 

1996  I  1997 

NUMBER of CASES 

1.754 

1.610 

2.058 

. 
.  2.100 
2.000 
1.900 

1.800 

1.700 

1.600 

1.500 

1.400 

1.300 

1.200  . 

1.100 
1.000 
900 
800 
700 
600 
500 
400 
300 
200 
100 
75 
SO 
25 

=• 

93 

72 

48 

26 

1994 

1995 

1996 

I  1997 

1994 

I  1995 

I  1996 

I  1997 

AMOUNTS  in MILLIONS  of ECU 

4 77 

223 

2 74 

164 

under  Regulation  (EEC)  595/9 7 

L 

500 

450 

400 

m 

3S0 

300  J 

2S0  J 

200  J 

ISO  J 

100  J 

1 

SO  J 

b<-

-

742 

153 

• 

-

.  _, 
=! 

=3 

702 

7'5 

GRAPH 3 

STRUCTURAL ACTIONS 

1994-1997 

IRREGULARITIES FORMALLY 
COMMUNICATED *  by 
MEMBER STATES 

INQUIRIES carried out by 
the COMMISSION together 
with MEMBER STATES 

NUMBER of CASES 

1994 

1995 

1996 

AMOUNTS in MILLION of ECU 
I  1 9 97 

1994 

j 

700 

1995 

1996 

1997 

88 

64 

57 

L 

= =l 

r 

95 

90 

85 

80 

75 

70 

65 

60 

55 

50 

45 

40 

35 

30 

25 

20 

15 

10 

5 

44 

5 

(*) under regulations (EEC)  1681/94 and 1831/94 

51 

— 

16 

23 

20 

i 

GRAPH 4 

DIRECT EXPENDITURE 
1994-1997 

Inquiries  carried  out  by  the  Commission  with 
the  assistance  of  Member  States'  services. 

NUMBER of  CASES 

AMOUNTS  in  MILLIONS  of  ECU 

1994 

1995 

1996 

1997 

I 

28 

23 

• 

16 

11 

-

TABLE  1 

TRADITIONAL OWN RESOURCES 

IRREGULARITIES COMMUNICATED BY MEMBER STATES IN 1997 

ON THE BASIS OF REGULATION  (EEC) 1552/89 

NUMBER OF 

CASES 
NOTIFIED 

AMOUNTS  X  1.000  ECU  {rata  of December 1997) 

A M O U N TS 
NOTIFIED 

already 

RECOVERED 

BALANCE 
d-b-c 

C LJ 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND m 
ÔSTERREICH 
PORTUGAL (2, 
SUOMI 
SVERIGE 
UNITED KINGDOM 

TOTAL 

405 
82 
384 
5 
75 
233 
54 
298 
1 
453 
73 
5 
32 
17 
455 
2.572 

45.593 
8.244 
28.624 
3.980 
3.522 
32.332 
3.990 
88.398 
12 
39.178 
5.966 
6.037 
1.678 
576 
95.380 
363.511 

1.937 
5.359 
5.473 
11 
1.362 
8.722 
2.480 
155 
12 

611 

43.656 
2.885 
23.151 
3.970 
2.160 
23.610 
1.510 
88.243 
0 

5.355' 

1.561 
401 
23.240 
51.324 

117 
175 
72.140 
266.972 

BE 

DK 

DE 

EL 

ES 

FR 

IR 

IT 

LU 

NL 

OS 

PO 

SU 

SV 

UK 

(1) The balance consists  of a) amounts  still  to be recovered ; b) corrections  to be made  following  Court decisions  still  to be awaited ; 

c) remissions/cancellations  decided  by national authorities  and d) amounts which cannot be recovered and must subsequently  be written of 

(2) The amounts recovered have not yet been communicated. 

H = Total amount for 13 Member states only 

EAGGF - GUARANTEE 

IRREGULARITIES  COMMUNICATED  BY MEMBER STATES IN 1997 
ON THE BASIS OF REGULATION  (EEC) 595/91 

TABLE  2 

NUMBER OF  CASES 

total 

of which DETECTED 

TOTAL 

AMOUNTS  X  1.000 ECU  {nt. 
of which A 

of which WITHOUT 

CASES 

BEFORE 

NOTIFIED 

PAYMENT 

a 
27 
24 
601 
160 
261 
91 
79 
249 
130 
36 
81 
7 
66 
246 

\ 

j 

b 
0" 
3 
95 
66 
2 
12 
63 
1 
58 
14 
2 
6 
59 
31 
,.  412 

J  2.058 

en 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
NEDERLAND 
OSTERREICH 
PORTUGAL 
SUOMI 
SVERIGE 
UNITED KINGDOM 
TOTAL 
' 

AMOUNTS 
NOTIFIED 

c 

1.672 
419 
26.865 
36.931 
43.449 
3.801 
693 
31.352 
7.666 
234 
4.378 
75 
735 
6.221 
164.490 

J 

RECOVERY: 

detected  before  payment 

d 

379 
42 
2.204 
3.793 
16.402 
1.046 
472 
20 
4.542 
11 
41 
43 
585 
1.003 
30,581 

AMOUNTS 
NOTIFIED 

e 

1.294 
377 
24.662 
33.138 
27.047 
2.755 
221 
31.331 
3.124 
223 
4.337 
32 
150 
5.218 
133.909 

NB  Luxtmburq Informed thit  no Imqiiltrity  > 4 000 ECU h»s been detected 

- 

- •' 

j,b  i . .- 

I..I.  .,....*. 

' 

'•• 

' 

u . i j y i.  '  . . I .'  . Vi  11  • r ^ - ^ .n 

of December  1997) 

MOUNTS MEED» 
I 
already 
RECOVERED 

IG RECOVERY 

TO BE 
RECOVERED 

9 = 8 -/ 

1.026 
33 
18.861 
32.975 
25.479 
1.927 
152 
30.726 
2.542 
19 
4.051 
0 
46 
4.052 
121.888 

BE 

DK 

DE 

EL 

ES 

FR 

IR 

IT 

NL 

OS 

PO 

SU 

SV 

UK 

f 

267 
343 
5.801 
164 
1.568 
828 
69 
606 
582 
204 
287 
32 
104 
1.166 
12.021 

STRUCTURAL ACTIONS 

IRREGULARITES  COMMUNICATED  BY MEMBER STATES IN  1997 
ON THE BASIS OF REGULATION  (EEC) 1681/94 and 1831/94 

AMOUNTS X 1.000  ECU  ( rate December 1997) 

TABLE 3 

EAGGF-GUIDANCE 

ESF 

ERDF 

BELGIQUE 
DANMARK 
DEUTSCHLAND 
ELLAS 
ESPANA 
FRANCE 
IRELAND 
ITALIA 
LUXEMBOURG 
NEDERLAND 
OSTERREICH 
PORTUGAL 
SUOMI 
SVERIGE 
UNITED  KINGDOM 
|  TOTAL 

number 
of cases 
5 

0 

27 
4 
5 
0 

1 
4 
0 
0 
0 

44 

1 
6 

3 
100 

number 
j?lcas£S_ 
2 

j 

amounts 
notified 

271 
0 
1.251 
1.419 
231 
0 
6 
538 
0 
0 
0 
1.143 
9 
19 
751 
WBM 

0 
10 
48 
5 

6 

0 
26 
0 
0 

0 
9 

0 

10 

7 
123 

number 
Mcasts. 
5 

amounts 

27 
0 
4.072 
2.387 
151 
111 
0 
3.563 
0 
0 
0 
5.056 
o 
.  482 
5.388 
21237 

0 
10 
1 
20 

2 

11 
3 
0 

0 
0 

15 
o 
1 
10 
78 

amounts 
notified 

247 
0 
6.347 
0 
3.669 
227 
1.123 
709 
0 
0 
0 
12.219 
0 
63 
3.734 
28.337 

0 

0 
0 

1 
0 

3 
0 
0 
0 
0 

1 

0 

0 

0 

5 

FISHERIES 
amounts 
notified 

number 
qf.pases., 
0 

COHESION  FUND 
number 
,  Qicases 
0 

amounts 
notified 

0 

0 
0 

2 

1 
0 
0 

0 
0 

0 

0 

0 
0 
0 
0 
64 
0 
187 
0 
0 
0 
0 
363 
0 
0 
0 
8111 

.  0 

0 
, .  .... 
3 

0 
0 
0 
0 
210 
0 
1.036 
0 
0 
0 
0 
0 
0 
0 
0 
mmm 

TOTAL 

number 
,P,f.,fiases„, 
12 
0 
47 
$3 
33 
8 
IS 
33 
0 
Q 
0 
69 
1 
17 
j  20  .. 
309 

IMI'IMI" 

'i' 

W i W» 

amounts 

• 545 
0 
1<6$9 
' '  3.S07 
4.324 
337 
2.351 
4.809 
0 
0 
0 
18.781 
9 
- $64 
-9,873  . 

BE 

DK 

DE 

EL 

ES 

FR 

IR 

IT 

LU 

NL 

OS 

PO 

SU 

SV 

UK 

57,070 

TABLE 4 

EAGGF-GUARANTEE 

RECOVERY SITUATION regarding IRREGULARITIES 
communicated BEFORE 1994 under Regulation (EEC) 595/91 

^ 

total 
recovered 
i 

borne* by 
EAGGF-
Guarantee 
i 

NUMBER of CASES 
borne *by 
Member 
State 
* 

still to be 
recovered 

i.(l-IU) 

tqt^I  ' 
notified 
! 
176 
482 
1.928 
303 
439 
1.002 
167 
1.180 
723 
218 
1525 

130 
371 
1.564 
249 
309 
851 
129 
292 
681 
105 
1.319 

7 
89 
94 

40 
1 

2 

72 
305 

1 
5 
9 

2 
4 

1 
4 
17 

43 

8.144 

6.000 

74% 

whereof 
in  COURT 
« 
10 
8 
112 
7 
16 
17 
3 
239 
2 
8 
10 

432 

request byM-S 
to declare as 
"irrecoverable" 
i 

10 
13 
50 
1 
1 
18 
14 
1 
10 

93 

211 

39 
21 
265 
45 
130 
109 
33 
888 
39 
109 
117 
1795 

22% 

AMOUNTS X 1000 ECU  {rate ofdecemberm7) 
borne* by 
Member 
State 

still to be 
recovered 

total 
recovered 

borne* by 
EAGGF-
Guarantee 
i 

4 

t.(tit-i) 

notified 
» 

23.385 

i 

9.587 

28.586 

13.872 

170.923 
78.154 

9.355 
72.174 

18.188 
577.638 
36.481 

9.189 
45.777 

51.708 
3.582 

3.274 

31.651 
12.464 

48.360 

25.915 

2.009 
22.601 

6.169 

1.331 

52.233 
0 
0 
1.102 
17 
0 
36 
0 
3.357 

0 
2 
27.645 
53.981 
0 
12 
23 
0 
218 
496 
1.641 

whereof 
in  COURT 
• 
1.593 

request byM-S 
to declare as 
"irrecoverable" 
' 
3.211 

7.629 

13.382 

10.815 

39.337 

22.800 

20.592 

6.081 
39.408 
5.684 

15.279 
584 
14.067 
2.609 

529.278 

207.970 

10.312 
6.684 

18.178 

1.433 

3.596 
1.756 

2.567 
11.566 
0 
0 
2.483 
0 
0 
158 
0 
7.008 

Balance 

..'«.,-) 
19 
0 
103 
37 
113 
74 
16 
648 
27 
101 

14 
1152 

19% 

I 

Balance 

• •  <H-1) 

2.826 
0 
4.971 

5.312 

5.497 
22.858 
3.075 

321.308 

8.720 

3.088 
9.414 

1 0 6 9 . 8 50 

225.023 

€4.245 

84,018 

696.563 

282.501 

26.993 

387.070 

I  21% 

I 

65% 

36% 

BELGIQUE 

DANMARK 
DEUTSCHLAND 

ELLAS 
ESPANA 

FRANCE 

IRELAND 

ITALIA 
NEDERLAND 

PORTUGAL 
UNITED KINGDOM 
TOTAL 

BELGIQUE 

DANMARK 
DEUTSCHLAND 

ELLAS 
ESPANA 
FRANCE 
IRELAND 

ITALIA 
NEDERLAND 

PORTUGAL 
UNITED KINGDOM 
TOTAL 

' irrecoverable  : formal  decision  in  the clearance  of account procedure  under  regulation  (EEC) 729/70 

56 

Table 5 

GLOBAL IMPACT of IRREGULARITES 
communicated / detected in 1996 en 1997 • in relation to 
the COMMUNITY BUDGET for 1996 and 1997 

Traditional  Own  Resources 

collected  by  the Member  States 

BUDGET 

Irregularities communicated by Member States 

Irregularities detected by the Commission services 
in cooperation with Member States 

1996 
MECU  % 
14.942 

320 

2,14 

I 

476 

3,19 

I 
I 

1997 
MECU  % 

15.589 
364 
643 

2,33 
4,12 

Global  impact  of  irregularities 

796 

5,33  | 

1.007 

6,45 

Expenditures 

concerning 

Structural 

Actions 

1996 
MECU  % 

BUDGET 

24.320 

1997 

III 
II  MECU  % 
I  26.048 

Irregularities communicated by Member States 

64 

0,26 

57 

0,23 

Irregularities detected by the Commission services 
in cooperation with Member States 

88 

0,36 

20 

0,08 

Global impact of irregularities 

152 

0,62 I  77 

0,31 

{Agricultural  Expenditure  concerning 

EAGGF-Guarantee 

measures. 
BUDGET 

1996 
MECU  % 

42.799 

1997 

II 
II  MECU 
I! 40.423 

%  \ 

Irregularities communicated by Member States 

Irregularities detected by the Commission services 
in cooperation with Member States 

223 

0,52 

164 

0,41 

142 

0,33 

153 

0,38 

Global  impact  of irregularities  \ 

365 

0,85  ||  317 

0,79 

MECU = amounts  in  MILLION  ECU : rate  of  December  1997 
General  remark  :  the  irregularities  detected  I  communicated  in  1997 often  relate  to previous  budgetary  years. 

GLOSSARY 

Definition  of the concept of  irregularity 

The  Council  regulation  (EC)  No  2988/95  on  the  protection  of  the  European  Communities  financial 
interests  (OJ  No  L 312  of 23.12.95)  defines  very  broadly  the  concept  of  irregularity.  This  concept  covers 
both  simple  omission  due  to  error  or  negligence  which  is  likely  to  have  a  harmful  effect  on  the 
Communities'  budget  and  intentional  and  deliberate  acts  which  corresponds  for  their  part  to  the  more 
restrictive  concept of fraud  as defined  in the penal  convention. 

Council  Regulation  (EC,  Euratom) No  2988/95  of  18 December  19995 on  the  protection  of the  European 
Communities  financial  interests (OJ No L 312 of 23.12.95). 

Article  1,  § 2: 

"  'Irregularity'  shall  mean  any  infringement  of  a  provision  of  Community  law  resulting  from  an  act  or 
omission  by an economic  operator,  which  has, or would  have, the effect  of prejudicing  the general  budget 
of the Communities  or budgets managed  by them, either by reducing  or losing revenue  accruing  from  own 
resources collected  directly on behalf of the Communities, or by an unjustified  item  of expenditure". 

Council  Act  of  26  July  on  drawing  up  the  Convention  on  the  protection  of  the  European  Communities* 
financial  interests (OJ No C 316 of 27.11.95). 

Article  1 §  1  : 

"For  the  purposes  of this  Convention,  fraud  affecting  the  European  Communities'  financial  interests  shall 
consist  of: 

(a) 

in respect of expenditure, any  intentional act or omission relating to : 

- 

the use or presentation  of false,  incorrect or incomplete statements or documents, which has as its 
effect  the  disappropriation  or  wrongful  retention  of  funds  from  the  general  budget  of  the 
European  Communities or budgets managed by , or on behalf of,  the European  Communities, 

-  non-disclosure  of information  in violation of a specific  obligation, with the same  effect. 
- 

the  misapplication  of  such  funds  for  purposes  other  than  those  for  which  they  are  originally 
granted; 

(b) 

in respect of revenue, any  intentional act on omission  relating to : 

- 

the use or presentation  of false,  incorrect or incomplete statements or documents, which has as its 
effect  the illegal  diminution  of the resources  of the general  budget of the  European  Communities 
or budgets managed by, or on behalf of,  the European  Communities, 

-  non-disclosure  of information  in violation of a specific  obligation, with the same  effect, 
-  misapplication  of a legally obtained benefit,  with the same  effect. 

The  Member  States notify  the Commission  of irregularities  where a mutual  administrative  report  has been 
made.  The  Commission,  for  its  part,  carries  out,  in  cooperation  with  the  specialist  national  services, 
investigations  into  cases  of  irregularity  which  have  not  been  the  subject  of  such  a  report  by  the  Member 
States but where there is, according to diverse information  sources, a strong presumption  of  fraud. 

Organised  crime 

specific  functions  exercised  by each participant, with a degree of discipline and control; 
international  activity; 

The  Council  report  on  organised  crime  in  the  European  Union  offers  a  number  of  criteria  for  defining 
organised  crime: 
-  more than  one participant; 
- 
- 
-  use of violence or other forms  of coercion; 
-  money-laundering; 
-  use of business  or businesslike  structures: 
-  profit  motive; 
- 

influence  over political  and business circles, public administration, the media  and the judiciary. 

58 

Agenda 2000: 

Commission  Communication  on enlargement  -  horizon  2000 

ASEAN: 

Association  of South-East Asian  Nations 

CAP: 

CIS: 

Common  Agricultural  Policy 

Customs  Information  System 

COCOLAF: 

French acronym  for Advisory Committee  for the Coordination  of Fraud  Prevention 

CPCA: 

French  acronym  for  Standing  Committee  for  Administrative  Cooperation  (indirect 
taxation).  Chaired  by  the  Commission.  Directorate-General  for  Customs  and  Indirect 
Taxation  (DG XXI).  Deals  with  implementation  of  the  transitional  intra-Community 
VAT system. 

EAGGF: 

European  Agricultural  Guidance  and  Guarantee  Fund  (Guarantee  Section:  EAGGF  -
Guarantee, Guidance  Section:  EAGGF - Guidance) 

EC: 

European  Community  (name  used  since  entry  into  force  of  the  Treaty  on  European 

EDF: 

EDF: 

EFTA: 

EMU: 

ERDF: 

ESF: 

EWS: 

FIFG: 

GSP: 

IRENE: 

OECD: 

OJ: 

Union) 

European  Development  Fund 

European  Development  Fund 

European  Free Trade Area (Iceland,  Liechtenstein, Norway,  Switzerland) 

Economic and Monetary Union 

European  Regional Development Fund 

European  Social Fund 

Early Warning System 

Financial Instrument  for Fisheries Guidance 

Generalised  System of  Preferences 

French acronym  for database managed by UCLAF - Irregularities, Inquiries, 

Organisation  for Economic Cooperation  and  Development 

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

PHARE: 

Programme of Community aid for central and eastern European  countries 

RTD: 

SCAF: 

Research and technological  development 

French  acronym  for  Anti-fraud  Sub-committee  of  the  CPCA,  dealing  with  indirect 

taxation. 

SCENT: 

System  for a Customs Enforcement  Network 

SEM 2000: 

TACIS: 

Sound  and  Efficient  Management  -  Commission  programme  for  improving  the 
management of Community finances  by the year 2000 
Programme  of  technical  assistance  to  the  Independent  States  of  the  former  Soviet 

TIR: 

TUE: 

Union and Mongolia 

Transport International Routier 

Treaty on European  Union 

UCLAF: 

Unit  for  the  Coordination  of  Fraud  Prevention  (Directorate  within  the  Commission's 

VAT: 

VIES: 

Secretariat-General) 

Value Added tax 

VAT Information  Exchange System 

59 

ISSN 0254-1475 

COM(98) 276 final 

DOCUMENTS 

EN 

09  06  01  17 

Catalogue  number  :  CB-CO-98-3Ô9-EN-C 

ISBN  92-78-36032-5 

Office  for  Official  Publications  of the European  Communities 

L-2985  Luxembourg