Special Report No 11/2006 on the Community transit system, together with the Commission's replies
Date: 2006-12-14
Institutions: European Court of Auditors
Subjects: Union transit, audit, computer system, customs cooperation, customs fraud, customs inspection, customs regulations, information system

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

SPECIAL REPORT No 11/2006

on the Community transit system, together with the Commission’s replies

(submitted pursuant to Article 248(4), second subparagraph, EC)

(2007/C 44/01)

CONTENTS

Paragraph

Page

LIST OF ACRONYMS AND ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Definitions and risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Remedial action following the problems of the 1990s . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDIT SCOPE AND APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main audit objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Audit approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDIT FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of the new computerised transit system . . . . . . . . . . . . . . . . . . . . . . . . .

Appropriate Commission coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deficiencies due to the IT environment in the Member States . . . . . . . . . . . . . . . . .

Commission control activities after the legal reform . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Weaknesses in the application of the new legal provisions

. . . . . . . . . . . . . . . . . . . . . . .

Variations in Member States’ application of the revised legal provisions

. . . . . . . . . .

Delays in accounting for duties after non-completed transits . . . . . . . . . . . . . . . . . .

Necessity of stepping up the fight against fraud and enhancing risk management . . . . . . . .

Limited data reliability and completeness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-IV

1-13

1-4

5-13

14-18

14-15

16-18

19-66

20-25

20-23

24-25

26-27

28-54

28-49

50-54

55-66

55-62

2

3

4

4

4

6

6

6

6

6

6

7

7

7

7

10

10

10

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Paragraph

Page

Shortcomings in risk management and analysis of fraud-related aspects

. . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implementation of NCTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Application of the new legal provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fight against fraud and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63-66

67-74

69

70-72

73-74

ANNEX I

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

11

11

12

12

14

15

16

LIST OF ACRONYMS AND ABBREVIATIONS

DG BUDG Budget Directorate-General

DG TAXUD Taxation and Customs Union Directorate-General

EC

EEC

EU

European Communities

European Economic Community

European Union

EWS

Early warning system

MCC

Minimum common core

NCTS

New computerised transit system

OJ

Official Journal of the European Union

OLAF

European Antifraud Office

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SUMMARY

I.
Between 1990 and 1994 the transit system was affected by fraudulent activities which caused an esti-
mated revenue loss of 320 million ecus to the Community budget. Computerisation of transit procedures, the
reform of the legal base, and enhanced physical checks based on common risk analysis were recommended by
the European Parliament, by the Council, and by the European Court of Auditors.

In response to these recommendations, the Commission presented an ‘Action plan for transit in Europe’
II.
in 1997. In 2001 it put in place a revised legal framework and until the end of 2005 coordinated the imple-
mentation of a new computerised transit system (NCTS), designed to exchange electronic messages between
the customs offices of all the Member States.

III.
The Court examined the application of the new legislation and the implementation of NCTS in
11 Member States, focusing on clearance of transits, collection of any customs duties on them and fraud pre-
vention. The main findings were as follows:

(a)

the Commission successfully coordinated implementation of NCTS and has provided efficient back-up;

(b)

in the Member States audited, application of the revised legal provisions on procedure simplifications,
enquiries and recoveries in cases of non-completion of transits, was often unsatisfactory;

(c) Member States applied the legal provisions on accounting for duties on non-completed transits in dispar-

ate ways, which led to delays in making the duties available to the Community budget;

(d) as of the end of 2005, the Commission’s services had still not carried out any inspections in the Member
States focusing on transit in order to evaluate whether application of the new legal framework was
effective;

(e)

rudimentary risk management and few physical checks on goods in transit were identified in most of the
Member States visited;

(f)

information available to the Commission regarding fraud in transit was neither reliable nor complete
enough for it to be possible to determine whether the legal reform and the NCTS project have successfully
reduced fraud in transit.

A lack of data on fraud and deficient risk management in the Member States call for coordinated action
IV.
at European level. The Commission should have access to detailed NCTS information for risk analysis pur-
poses and on the basis of best practice should be able to promote strategies for targeted physical checks on
goods in transit.

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INTRODUCTION

Definitions and risks

the European Parliament Temporary Committee of Inquiry into
the Community Transit System (4) recognised computerisation
and legal reform of Community transit as key elements for fight-
ing fraud, a view which was supported by the Court in its Annual
Report for 1994 (5).

1.
Customs transit simplifies customs formalities and facili-
tates the movement of goods throughout the territory of the
Community, by temporarily suspending the duties and other
charges on goods imported into the Community until they reach
their final destination. Actual customs formalities are shifted from
the border to the place of final destination.

2.

Community transit applies to:

(a) movements of non-Community goods and, in certain spe-
cific cases, Community goods (external Community transit);

(b) movements of Community goods between two points in the
Community customs territory via a third country, where
such possibility is provided for in an international agreement
(internal Community transit).

The main risk of Community transit

3.
is that non-
Community goods are unlawfully removed from customs super-
vision and diverted to the domestic market without payment of
customs duties and other taxes, especially value added tax and
excise duties.

4.
Given the suspensive and temporary nature of a transit,
customs authorities tend to regard control of transits as low pri-
ority. In order to cover the financial risks, transits are usually
secured by a guarantee assuring the payment of duties, taxes and
other charges. The guarantee can be either an individual guaran-
tee covering a single transit operation or a comprehensive guar-
antee covering a number of transit operations (1).

Remedial action following the problems of the 1990s

5.
In the early 1990s, increasing fraud in transit was reported.
Estimates of losses to the Community budget between 1990
and 1994 (2) amounted to 320 million ecus, before taking
account of subsequent clawback from Member States, with even
bigger losses of national taxes. At the time, the Council (3) and

(1) Council Regulation (EEC) No 2913/92 of 12 October 1992 estab-
lishing the Community Customs Code, Article 94(2) (OJ L 302,
19.10.1992, p. 1).

(2) See COM(95)108 final. There are no estimates for subsequent peri-

ods.

(3) Decision No 210/97/EC of the European Parliament and of the Coun-
cil of 19 December 1996 adopting an action programme for customs
in the Community (Customs 2000) (OJ L 33, 4.2.1997, p. 24).

Until the system was computerised, Community transit
6.
declarations were made out on paper. The originals of the decla-
rations were kept at the office of departure and the copies accom-
panied the consignment through to the customs office of desti-
nation. The latter then had to return a document to the office of
departure as notification that the consignment had arrived and
had to indicate whether or not any irregularities had been
detected. The procedure was slow and involved many risks.

7.
The Commission therefore presented the ‘Action plan for
transit in Europe’ (6), in 1997, together with a list of measures
aiming to manage the risks of the transit system and to reduce its
vulnerability to fraud. The measures were concerned with the
implementation of computerised transit, streamlining of the tran-
sit procedure, a reinforcement of control activities at all levels,
and lastly, enhanced cooperation between different customs
administrations and between customs and traders. At the same
time it initiated a revision of the transit legislation.

8.
In 1999, the legal basis for the NCTS (new computerised
transit system) project was adopted. NCTS aimed to replace the
existing paper-based Community transit procedure by a
computer-based exchange of electronic messages between the
customs offices involved, and at a later stage, between traders
and customs.

In the fight against transit fraud, NCTS was to serve a

9.
double purpose, as it would:

(a) prevent traditional forms of fraud, e.g. the use of forged

stamps or falsified documents;

(b) detect in real time the non-arrival of goods at the destination
customs office and, in this case, trigger the immediate start
of enquiry proceedings.

(4) Final Report (PE 220.895/fin), 20.2.1997.
(5) Annual report concerning the financial year 1994 together with the

institutions’ replies (OJ C 303, 14.11.1995, p. 1).

(6) COM(97) 188 final of 10 June 1997.

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10.

Diagram 1 shows a standard NCTS transit procedure.

Diagram 1

A standard NCTS transit procedure (external Community transit)

11.
In 2001, in parallel with the computerisation, the Com-
mission presented a reform of the legal base for the transit sys-
tem (7) introducing new provisions which aimed, inter alia, to:

(b) base the guarantee system on trader reliability and the
risks of the goods involved, whilst introducing the concept
fraud (sensitive
of goods
goods) (8);

involving greater

risk of

(a) distinguish more clearly between standard and simplified
transit procedures (different methods of customs supervision
in the latter case) and better define reliability criteria for par-
ticipating traders;

(c) harmonise enquiry and recovery proceedings after non-
completed transits and shorten the deadlines for the start of
such proceedings.

(7) Mainly Commission Regulation (EC) No 2787/2000 of 15 Decem-
ber 2000 amending Regulation (EEC) No 2454/93 of 2 July 1993
laying down provisions for the implementation of Council Regula-
tion (EEC) No 2913/92 establishing the Community Customs Code
(OJ L 330, 27.12.2000, p.1).

(8) Annex 44c to Commission Regulation (EEC) No 2454/93 of 2 July
1993 laying down provisions for the implementation of Council
Regulation (EEC) No 2913/92 establishing the Community Customs
Code (OJ L 253, 11.10.1993, p. 1). It applies to items such as live ani-
mals, cigarettes and certain alcoholic beverages.

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NCTS was implemented in several phases. The ‘core busi-
12.
ness’ (9) was achieved by 30 June 2003 in EU-15 and the Com-
mission then continued to provide assistance to the implementa-
tion of NCTS in the accession countries. The subsequent phases
included computerised handling of guarantees and enquiries and
were completed in January 2006.

13.
Since 1 July 2005 Community transit declarations must,
as a general rule, be lodged electronically (10). Commission statis-
tics show a rise in the number of NCTS transit movements, from
around 5,5 million in 2004 to more than 7,5 million in 2005.

A total of 620 files and 26 transit declarations were examined
during the audit.

The role of the Commission services was also analysed,
18.
especially the coordination and management work done by Taxa-
tion and Customs Union Directorate-General
(DG TAXUD),
the control activities carried out by Budget Directorate-General
(DG BUDG) in relation to transit, and OLAF involvement in pre-
venting and fighting fraud.

AUDIT SCOPE AND APPROACH

AUDIT FINDINGS

Main audit objectives

Annex I gives an overview of the main weaknesses

19.
observed in the countries visited.

Implementation of the new computerised transit system

14.
The objective of the Court’s audit was to obtain assurance
that the Member States were applying the revised legal provisions
correctly and that the new procedures for transit had been well
coordinated by the Commission and correctly implemented by
the Member States in a way which protected the EU’s financial
interests effectively.

A second objective was to analyse the implementation of
15.
the measures recommended by the European Parliament, the
Council and the Court, and more specifically, the measures envis-
aged in the Commission’s action plan. The emphasis here was on
review of the new system’s vulnerability to fraud and how this is
followed up by the Commission services.

Audit approach

16.
A questionnaire was sent to all Member States to collect
recent transit-related data. Between May 2005 and January 2006
audit visits were performed in 11 Member States which account
for almost 80 % of NCTS transits (11).

17.

These audits covered:

Appropriate Commission coordination

(a)

the general management and IT aspects of NCTS in the Mem-
ber States visited;

(b) authorisation of transit procedure simplifications (authorised

consignors/consignees, use of comprehensive guarantees);

(c)

enquiry and recovery proceedings after non-completed
transits.

20.
The Commission has coordinated the implementation of
the NCTS project in the Member States and put considerable
effort into establishing assistance and monitoring tools. The Com-
mission also developed the standard NCTS application MCC
(Minimum Common Core), and is responsible for its mainte-
nance. MCC is used by 15 Member States, the other 10 Member
States having chosen to develop their own national transit
applications.

(9) Core business: computerisation of the Community transit procedure

for which the single administrative document was used.

(10) Council Regulation (EC) No 837/2005 of 23 May 2005 amending
Commission Regulation (EEC) No 2454/93 laying down provisions
for the implementation of Council Regulation (EEC) No 2913/92
establishing the Community Customs Code (OJ L 139, 2.6.2005,
p. 1).

(11) Belgium, Germany, Spain, France, Italy, Latvia, Hungary, the Nether-

lands, Poland, Slovenia and Sweden.

21.
Work has largely been outsourced using the standard
tendering procedures. In 2005 the Commission’s internal audit
service reviewed the organisation, planning and management of
the NCTS project and found them very satisfactory. On the other
hand, it criticised the fact that no operational agreement existed
between the Commission and the Member States regarding the
management of critical situations affecting availability and conti-
nuity of NCTS.

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Transit computerisation is required by the legislation, as
22.
a general aim of Community Customs Policy (12). Commission
services have therefore emphasised their role as coordinator of
the NCTS project whereas the actual monitoring of NCTS imple-
mentation is Member States’ responsibility.

23.
As part of their coordination activities Commission ser-
vices have made regular visits to Member States to provide assis-
tance and technical support.

Deficiencies due to the IT environment in the Member States

24.
Tests and checking performed by the Commission have
not been able to prevent some IT control environment problems.

25.
Five of the Member States visited, four of them using
MCC, experienced serious compatibility problems when trying
to integrate NCTS into their existing national IT environment, e.g.
in order to check that every completed transit is followed by
another customs procedure, or to use existing risk profiles. Four
of them eventually preferred to maintain NCTS as a stand-alone
system and did not interface it with their national customs IT
systems.

Commission control activities after the legal reform

Weaknesses in the application of the new legal provisions

Variations in Member States’ application of the revised legal
provisions

28.
Following the reform of the legal base (see paragraph 11),
the Commission specified details of the transit procedures in a
handbook agreed by national administrations and available in
19 Community languages, called the Transit Manual (13).

26.
DG TAXUD ensures that Community customs law is uni-
formly applied by national administrations. DG BUDG carries out
regular inspections on traditional own resources, during which
compliance with the applicable customs provisions is also
checked. DG BUDG also cooperates closely with DG TAXUD on
customs policy questions arising from these inspections.

29.
Member States were still not applying the revised legal
provisions correctly: cases of divergence from the provisions in
force (some of a formal nature) were found in 392 of the 620 files
reviewed during the audit.

Procedure simplifications

27.
Traditional own resources inspections specifically focus-
ing on transit were not made between 2001 and 2005, as the
Commission had decided to await the full implementation of
NCTS before embarking upon any extensive examination. Never-
theless, the implementation of the core business element of NCTS
was operational in June 2003 (see paragraph 12) and the major
elements of the legal reform were effective in 2001. Transit is the
main subject in DG BUDG’s 2006 inspection programme.

30.
Economic operators in the European Union most com-
monly use comprehensive guarantees and the status of authorised
consignor/consignee as simplifications of transit procedures.
Article 373 of the provisions implementing the Community Cus-
toms Code specifies the general conditions governing persons
applying for these simplifications (see Annex II).

(12) For example Decision No 210/97/EC and Decision No 105/2000/EC
of the European Parliament and of the Council of 17 December 1999
(OJ L 13, 19.1.2000, p. 1).

(13) The Transit Manual was announced in the action plan and developed
by DG TAXUD. It consists of detailed provisions for all aspects of the
transit procedure, as laid down in Community customs law and dates
from the 1 May 2004.

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Using a comprehensive guarantee makes it possible
31.
to cover numerous transit operations with one instrument. The
guarantee is applicable up to an average amount of customs
duties and charges (the reference amount), which must be
reviewed annually by the customs office concerned (14).

If a trader wants to benefit from a reduction of the guar-
33.
antee or a guarantee waiver or wants to transport sensitive goods
under the transit system, the reliability criteria applicable are
stricter. Box 1 sets out the criteria which applicants for compre-
hensive guarantees covering normal and sensitive goods have to
meet (15). Criteria for reduction of comprehensive guarantee or
guarantee waiver

32.
Having the status of an authorised consignor with com-
prehensive guarantee status allows transit operations to be started
without the goods being presented at customs. Similarly, an
authorised consignee can end a transit procedure without pre-
senting the goods to customs.

34.
Apart from the annual review of the reference amount,
customs authorities are not obliged to carry out controls after
authorisation. The holder of an authorisation is, however, obliged
to indicate actively any factor arising which may influence its con-
tinuation or content (16).

Box 1
Criteria for reduction of comprehensive guarantee or guarantee waiver

Criterion

% ofguaranteed
amount

1. Good financial standing

2.

Sufficient experience
(years) (*)

3. Very close cooperation
with the competent
authorities

4. Control of transport

operations

5. Good financial standing,

sufficient to fulfil the com-
mitments of the principal

Normal goods

Sensitive goods

100 %

50 %

30 %

Waiver

100 %

50 %

30 %

No waiver
allowed

— (**)

1

—

—

—

2

3

1

2

3

—

—

(***)

(***)

—

—

Periods reduced by one year when the principal uses IT techniques to lodge the transit declaration.

(*)
(**) No additional conditions.
(***) Either criterion 3 or criterion 4 must be met.

35.
In six Member States, Customs could not deliver all the
evidence to show that the conditions required for authorised
consignor/consignee status had been checked prior to the autho-
risation. In five of them, Customs had not carried out verifications
after authorisation to check whether the beneficiary still met the
requirements.

amounts, even when customs authorities had started enforced
recovery proceedings against them.

Enquiry proceedings

36.
As regards the use of comprehensive guarantees, the situ-
ation gave cause for concern: in nine Member States, Customs did
not have sufficient records proving that the beneficiaries met the
required conditions when the authorisation was granted. In four
Member States Customs accepted traders’ calculations of refer-
ence amounts, instead of carrying out the prescribed annual
review. In one Member State, traders continued to benefit from
guarantee waivers or comprehensive guarantees with reduced

37.
If a transit is not completed by the deadline, enquiries
have to be started by the departure country in order to determine
whether the transit ended correctly and whether a customs debt
has been incurred. The revised provisions implementing the Com-
munity Customs Code introduced a considerable shortening of
the deadlines for notification of the principal (17) and for the start
of enquiries when computerised procedures are used.

(15) Articles 380 and 381 of Regulation (EEC) No 2454/93, as amended.
(16) Article 377 of Regulation (EEC) No 2454/93, as amended.
(17) The principal is the holder of the transit procedure, Article 96 of

(14) Article 379(2) of Regulation (EEC) No 2454/93, as amended.

amended Regulation (EEC) No 2913/92.

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Notification to the principal and the start of enquiry pro-
38.
ceedings now (18) have to be carried out simultaneously, imme-
diately after the deadline for presentation at destination has
expired, if the customs office of destination has not sent the
arrival message (19). This requirement was not respected in any of
the Member States visited.

In general, national rules have a tolerance of two weeks

39.
before enquiry proceedings are started.

40.
However, 10 of the 11 Member States visited did not
respect their own rules and started enquiries with delays well in
excess of two weeks. In some Member States traders did not
cooperate properly with Customs, which resulted in delays in
clearance which in turn could potentially lead to late recovery of
duties.

41.
In its annual report on the financial year 1994 the Court
pointed out that the recovery procedures should be strengthened
by focusing on the principal’s obligations and recommended a
stronger and more harmonised penalty system.

42.
Until the introduction of computerised enquiry handling,
the departure country of the transit sent a paper enquiry notice
(TC 20) to the country of destination, asking for the specific infor-
mation needed (20). The customs authorities of the Member State
of destination were then required to respond to these enquiry
notices without delay (21). In nine of the Member States audited,
customs authorities reacted late to enquiry notices, or did not
communicate the necessary information. In seven of these Mem-
ber States investigation activities started with delays of several
months, as the information forwarded often left unclear whether
duties had ultimately been collected. These deficiencies led to late
collection of duties.

43.
Most Member States visited expected that the introduc-
tion of the NCTS enquiry handling module (22) would solve such
problems of communication. This could not be assessed by the
Court’s audit, as the module had only recently been implemented.

(18) Articles 365(1a) and 366(1) of amended Regulation (EEC)

No 2454/93.

(19) Article 366 of Regulation (EEC) No 2454/93, as amended.
(20) Specific rules for carrying out the enquiry procedure on paper (e.g.
communication between Member States, forms to be used, adminis-
trative bodies in each Member State) are specified in part IV of the
transit manual.

(21) Article 366(3) and (4) of amended Regulation (EEC) No 2454/93.
(22) The enquiry handling module of the NCTS project (Phase 3.2.2) was
practically implemented in the beginning of 2006 in all Member
States. It replaces the paper-based enquiry procedure.

Recovery proceedings

44.
Finalised enquiries usually provide the information
needed to establish the existence of a customs debt and determine
which country has to collect the duties. In case of doubt the
revised customs law lays down that the debt must be considered
as incurred in the country of departure or entry at the latest
10 months after
the goods were placed under a transit
procedure (23).

45.
The previous legal provisions dealing with the recovery
procedure had already caused application problems in two Mem-
ber States. The Commission took action against these countries in
the European Court of Justice and won the cases (24).

Member States interpreted and applied the new provi-
46.
sions in different ways. In ten of the eleven Member States vis-
ited, the 10-month deadline was generally not respected, often
with considerable delays. In two Member States, Customs awaited
the elapse of the 10-month period, although the necessary con-
ditions for the establishment of the debt had been fulfilled long
before this deadline. In one of the EU-10, 18 months after acces-
sion, almost no recovery action had started for any such cases at
the customs offices visited.

47.
Community regulations do not specify a precise time
limit for the start of recovery proceedings in countries of desti-
nation of a transit. However, as soon as customs authorities learn
that a customs debt has been incurred in their country following
a non-completed transit and they can determine the debtor and
the amount of duties, they have a maximum of two weeks to
enter the debt in the accounts (25).

48.
In the Member States visited such cases were rarely
handled speedily, so delaying collection of own resources. In three
Member States, consignees of goods had themselves informed the
customs authorities and asked for duties to be collected, but the
authorities started recoveries only after delays of several months.

As already highlighted by the Court in its Annual Report
49.
on the financial year 1994 and its Special Report No 8/99 on
securities and guarantees (26), Member States reported that the
value and commodity code were not always mandatory informa-
tion on transit declarations under Community regulations and
that this often caused delays in recoveries. In two Member States,
however, customs authorities required traders to provide such
information before starting a transit.

(23) Article 450a of amended Regulation (EEC) No 2454/93 and
amended Regulation (EEC)

third indent of

Article 215(1)
No 2913/92.

(24) Cases C-460/01 and C-104/02,

Judgments of 14 April 2005

(OJ C 132, 28.5.2005, pp. 1 and 2).

(25) Article 218(3) and Article 219 of Regulation (EEC) No 2913/92, as

amended.

(26) Special Report No 8/99 on securities and guarantees provided for in
the Community Customs Code to protect the collection of traditional
own resources, together with the Commission’s replies (OJ C 70,
10.3.2000, p. 1).

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Delays in accounting for duties after non-completed transits

50.
As with all customs debts discovered after the event the
Community Customs Code (27) stipulates that where debts are
due on non-completed transit movements these must be entered
in the accounts within two days of the date on which the amount
of duty and the debtor become known. This time limit may be
extended to 14 days in certain cases provided for in the Customs
Code (28).

In order to eliminate divergent interpretations the Com-
54.
mission stipulated that secured duties be entered in the A account,
and others in the B account. In the case of comprehensive guar-
antees Member States did not always follow the Commission’s
interpretation. As a consequence, the Commission started pro-
ceedings before the European Court of Justice concerning the
proper accounting treatment of secured duties.

Necessity of stepping up the fight against fraud and enhancing
risk management

In 10 of the 11 Member States visited it was noted that
51.
account entries had been made late, after the 14-day deadline. The
delays were due to inadequate enquiry procedures. In five Mem-
ber States account entries were affected by other delays, because
of the complexity of recovery procedures. Of the 194 recovery
files checked during the audit, 110 were found to have late entries
in the accounts.

52.
Member States must keep detailed accounts according to
the own resources regulation (29). They must aggregate the data
arising from individual account entries in the A account, and
make the total amounts of duty established, less collection costs,
available to the Commission in the second month following the
month in which the entitlement was established. As an exception,
duty that remains unpaid and unsecured, or is secured but under
appeal, need not be made available until it is actually collected. If
Member States exercise this option, the duty concerned shall
instead be entered in a separate account (the B account) (30).

Member States follow different practices for accounting
53.
for own resources owed for recoveries after non-completed tran-
sits. In one Member State duties on non-completed transits cov-
ered by an individual guarantee were entered in the B accounts.
Three Member States considered that the actual amount covered
by comprehensive guarantees is unknown at the moment when
the recovery note is issued and that therefore no amount can be
entered in the A account. These Member States entered the full
amount of the duties in the B account, i.e. they treated these
amounts as if no guarantee had been provided. The same prac-
tice was found at customs offices in two further Member States.

(27) Article 218(3) of Regulation (EEC) No 2913/92, as amended.
(28) Article 219(1) of Regulation (EEC) No 2913/92, as amended.
(29) Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000
implementing Decision 94/728/EC, Euratom on the system of the
Communities’ own resources (OJ L 130, 31.5.2000, p. 1), as
amended.

Limited data reliability and completeness

55.
NCTS impedes certain forms of fraud, such as the use of
forged or false stamps or guarantee certificates, and allows the
enquiry process to be speeded up in cases where transits are not
completed. However, computerisation cannot prevent misde-
scription or intentional false declarations that seek to abuse the
system.

56.
An assessment of the effectiveness of the reform of the
transit system, in terms of reducing transit fraud, would require
reliable and complete data on fraud at EU level. The audit showed,
however, that the reliability and completeness of the available
main sources of data on fraud and irregularities in transit at EU
level cannot be assured.

NCTS data

57.
The Commission carries out continuous analysis of non-
completed NCTS transit movements. The data available showed
a reduction by half between 2004 (2,5 %) and 2005 (1,2 %).
However, this analysis of NCTS transits ignores those taking place
on the territory of a single Member State (31), although such tran-
sits account for a considerable number of all NCTS movements.

(30) Article 6 of amended Regulation (EC, Euratom) No 1150/2000.

(31) Except for Austria and Finland.

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C 44/11

OWNRES data

58.
The OWNRES database contains data on cases of fraud
and irregularities relating to own resources and involving
amounts in excess of 10 000 euro communicated to the Com-
mission (DG BUDG) by Member States under the own resources
regulation (32).

59.
Despite the Commission’s efforts to improve the quality
of the OWNRES data, it is still not adequate. Nevertheless the
OWNRES data are the only source used in the recent Commis-
sion annual reports on the fight against fraud and show, in con-
trast to other sources, an increase in the number and value of
cases of fraud and irregularities reported for the transit area
between 2001 (year of the legal reform) and 2005. Further mea-
sures will be necessary to establish a reliable source of informa-
tion for analysis of fraud in the various Community customs
procedures.

Early warning system (EWS)

The Court found that transit risk analysis was still rudi-
64.
mentary in many Member States. Only one country applied ran-
dom selection by the IT system in order to maintain an uncer-
tainty factor for all traders. Only three of the eleven Member
States visited applied automated risk analysis integrated into
NCTS with specific risk profiles for transit. Customs authorities in
these three Member States considered the fact that the commod-
ity code was not compulsory for transit declarations was a seri-
ous obstacle to the implementation of effective checks on tran-
sits. The Court’s Special Report No 8/99 pointed out that checks
by Community customs authorities were hampered by the
absence of provisions requiring information on the nature
and value of goods to be included in the single administrative
document.

65.
Identification of risks and checks on goods still depend
on the personal initiative of individual customs officers. Most of
the Member States visited considered checks on transit consign-
ments as low priority, partly because of the scarcity of informa-
tion on transit declarations. In five Member States the Court
found particularly low rates of physical checks on transit consign-
ments (around 1 %), while almost no checks were made on
authorised consignors/consignees in seven of the eleven Member
States visited.

60.
The early warning system (EWS) was introduced in 1992
using the concept of sensitive goods (see paragraph 11). The prac-
tical operation of the EWS is similar to NCTS: the office of depar-
ture sends a prior arrival notification of transits referring to sen-
sitive goods to the office of destination and the office(s) of transit,
as appropriate, and to OLAF.

NCTS provides the Commission with statistical data on
66.
the number and status of transits and the countries involved, but
not with goods or trader-related data that might allow more
refined analysis. Moreover, the Commission services have not so
far carried out analyses of transit fraud patterns, undertaken intel-
ligence activities in the same area, nor yet developed transit-
specific risk analysis tools.

According to OLAF the percentage of non-arrival com-
61.
munications as notified by Member States in the years 2004
and 2005 was 20 times lower than in the first quarter of 1998
alone.

CONCLUSIONS AND RECOMMENDATIONS

62.
However, because of the introduction of NCTS and the
similarity of the information to be put onto the two systems,
Member States apparently consider that NCTS is sufficient and
have stopped inputting data to the EWS. OLAF, however, has no
access to the data contained in NCTS transit declarations. A revi-
sion of the administrative arrangements was adopted in January
2006 in order to provide OLAF with access to data concerning
movements of sensitive goods from 2007 onwards.

Shortcomings
fraud-related aspects

in risk management

and analysis of

The Commission has put in place the key elements of the
67.
action plan for transit and in particular has computerised the
transit procedure and concluded a reform of the legal base
(effective in 2001).

68.
The Court’s audit work on Community transit has con-
firmed the good quality of NCTS implementation, even though
some technical problems still persist. It has also identified certain
shortcomings in the application of legal provisions on transit and
related provisions on traditional own resources. At both Commu-
nity and national level, deficiencies were also found in the mea-
sures designed to counteract fraud in transit.

Implementation of NCTS

A proper balance between trade facilitation and effective
63.
protection of the Community’s financial interests calls for appro-
priate risk management and risk-based checking of transits.

(32) Article 6(5) of amended Regulation (EC, Euratom) No 1150/2000.

69.
The Commission has successfully coordinated the imple-
mentation of the NCTS project in the Member States. However
the IT environment in some Member States has not allowed the
system to operate optimally (see paragraphs 20 to 25).

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Official Journal of the European Union

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The Commission should:

(a)

(b)

consider establishing an operational agreement with Member
States for the management of NCTS, namely for critical situ-
ations affecting business continuity;

in addition to acting as coordinator, enhance monitoring activi-
ties, especially as regards the IT control environment affecting
NCTS in the Member States.

Application of the new legal provisions

70.
As of the end of 2005, the Commission had not carried
out any specific inspection activity on transit in order to assess
whether the legal reform concluded in 2001 was being imple-
mented effectively (see paragraphs 26 and 27).

71.
Member States often did not apply the revised provisions
correctly. The Community customs regulations provide that tran-
sit procedure simplifications may only be authorised for reliable
traders who meet specific criteria. The audit detected a lack of
checks on compliance with these criteria — this could potentially
harm the Community’s financial interests (see paragraphs 30
to 36). The enquiry procedure was found to be cumbersome and
Member States had neither applied the regulations in force, nor
shown the necessary diligence once an enquiry had been
launched. Implementation of the new NCTS procedures is too
recent for their impact to be measured (see paragraphs 37 to 43).
Lastly, recovery proceedings were often started late, with the
result that traditional own resources were not collected or made
available at the proper time (see paragraphs 44 to 49).

72.
The late entering of non-completed transits in the tradi-
tional own resources accounts was linked to variations in the
accounting procedures applied or, quite simply, to incorrect
application of the regulations, particularly as regards guarantees
(see paragraphs 50 to 54).

The Commission should consider the shortcomings detected by the
Court’s audit when it drafts implementing rules on authorised eco-
nomic operator status (33) .

As regards enquiry procedures, the Commission should:

(a)

ensure that computerised handling of enquiry procedures does
indeed lead to faster settlement of non-completed transits, as
well as improving communication between Member States.
It should also take remedial action, if that is necessary;

(b) propose the application of sanctions against traders who

obstruct enquiry proceedings.

As regards recovery procedures, the Commission should:

(a) develop inspections in Member States and target them on recov-

ery proceedings after non-completed transits;

(b)

clarify the interpretation of the legal provisions on recoveries in
relation to transit and propose an amendment of customs law
so as to shorten the ten-month time limit and facilitate recov-
eries after non-completed transits by making indication of nec-
essary particulars such as commodity code and goods value
mandatory on transit declarations.

Lastly, in the case of the guarantee system, the Commission should:

(a)

(b)

continue its efforts to obtain correct and consistent application
of the rules for the treatment of duties covered by guarantees;

reinforce inspections in Member States in order to ensure that
legal provisions are correctly and uniformly applied.

Fight against fraud and risk management

73.
The sources of information available to the Commission
regarding transit fraud are still not reliable enough to allow an
assessment of the part played by the legal reform and the NCTS
project in terms of fraud reduction and analysis of the cases pre-
sumed to follow it (see paragraphs 55 to 62).

74.
Commission services have not yet carried out analyses of
transit fraud patterns nor developed transit-specific risk analysis
tools. Systematic risk management for transit is rudimentary or
non-existent in many Member States and only a few of them have
risk profiles integrated into NCTS. The number of physical checks
on transit consignments is very low in some Member States,
and in some they are non-existent (see paragraphs 63 to 66).

The Commission should take measures to improve the reliability of
sources of information on fraud, and should make better use of them
by developing risk management strategies.

The Commission should consider promoting a reasonable rate of tar-
geted physical checks on transit consignments and should also con-
sider the possibility of building automated risk profiles specifically for
transit, as part of the development of the common risk management
framework (34) .

(33) Article 1(2) of Regulation (EC) No 648/2005 of the European Parlia-
ment and of the Council of 13 April 2005 amending Council Regu-
lation (EEC) No 2913/92 of 12 October 1992 establishing the Com-
munity Customs Code (OJ L 117, 4.5.2005, p. 13).

(34) Article 1(3) and Article 2 of Regulation (EC) No 648/2005.

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This report was adopted by the Court of Auditors in Luxembourg at
14 December 2006.

its meeting of

For the Court of Auditors
Hubert WEBER
President

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Official Journal of the European Union

27.2.2007

ANNEX I

OVERVIEW OF OBSERVATIONS FOR THE 11 MEMBER STATES VISITED

DE

ES

FR

IT

BE (*)

LV (*)

HU (*)

NL (*)

PL (*)

SI (*)

SE (*)

Implementation of NCTS

Technical problems with the use of
MCC

Temporary unavailability due to
migration problems with MCC

NCTS not integrated into the national
IT systems

General IT or IT control environment
problems

Application of legal provisions and legal reform

Comprehensive guarantees:
authorisation checks either not done
or not documented

Authorised consignor/consignee:
authorisation checks either not done
or not documented

Deadlines for starting enquiries not
respected

Lack of cooperation by the principal

10 month deadline not respected

Deadlines for recoveries/account
entries not respected

Problems of communication between
Member States

Amounts covered by comprehensive
guarantees, but still entered in B
accounts

Fight against fraud and risk management

Automated risk analysis not
integrated, or poorly integrated, into
the national NCTS application

Physical check rates low (~ 1 %)

Physical check rates for simplified
procedures almost zero

(*) Country using MCC.

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

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ANNEX II

Box 2: Article 373 of the Provisions for the implementation of the Community Customs Code

1. The authorisations referred to in Article 372(1) shall be granted only to persons who:

(a)

(b)

are established in the Community, with the proviso that authorisation to use a comprehensive guarantee may be
granted only to persons established in the Member State where the guarantee is furnished,

regularly use the Community transit arrangements, or whose customs authorities know that they can meet the obli-
gations under the arrangements or, in connection with the simplification referred to in Article 372(1)(f), regularly
receive goods that have been entered for the Community transit procedure, and

(c)

have not committed any serious or repeated offences against customs or tax legislation.

2. To ensure the proper management of the simplifications, authorisations shall be granted only where:

(a)

the customs authorities are able to supervise the procedure and carry out controls without an administrative effort
disproportionate to the requirements of the person concerned, and

(b)

the persons concerned keep records which enable the customs authorities to carry out effective controls.

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Official Journal of the European Union

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THE COMMISSION’S REPLIES

SUMMARY

I.-II.
tem throughout the Community.

The Commission strengthened customs transit by introducing a modern and robust computerised sys-

III.

(b) According to provisional findings from the Commission’s recent inspections, the application of certain
simplifications has already improved in some Member States. As regards enquiries and recoveries the
Commission is examining ways to streamline the procedure.

(c) The follow-up of undischarged operations has been examined during inspections of Member States’ B
accounts. Where administrative delays resulted in traditional own resources being made available late
Member States were or are being requested to make further investigations and to pay interest on the delays
found. Should they not comply then infringement procedures will follow.

(d) Based upon its risk analysis, the Commission decided to defer any wide-ranging inspections of transit until
the NCTS system was fully implemented, to allow conclusions to be drawn about its effectiveness through-
out the full range of its capabilities.

(e) The adoption and implementation of Regulation (EC) No 648/2005 will oblige Member States to use risk

analysis for targeting customs controls.

(f) The Commission obtains information on suspected fraudulent activity from a variety of sources. Overall,

the indications are that transit fraud has declined.

IV.
The Commission is taking the necessary steps to have access to NCTS data which will provide an over-
view of the consolidated traffic routings of sensitive goods in transit and also enable strategic and operational
analysis to be carried out for such goods.

AUDIT FINDINGS

20.
As regards the coexistence of MCC (minimum common
core) and national applications, the latter also had to be based on
the agreed functional and technical specifications which are com-
mon to all Member States.

An operational agreement with Member States was

21.
adopted in July 2006.

24.
The Member States are responsible for the operation of
their national transit application systems and the Commission has
no mandate and no resources to perform IT audits of the national
systems. However, the Commission spent considerable effort in
providing support to and co-ordinating the development projects
of the National Administrations (NAs) and is now reviewing peri-
odically the quality of services provided by the NAs.

application for themselves with consequent advantages for inte-
grating that with their existing systems or using the MCC stand
alone application supplied by the Commission. During its 2006
inspections of transit the Commission is examining whether
Member States have suitable procedures in place to control goods
moving from transit into other customs regimes and also goods
moving from another regime into transit. The systems used by
Member States may be effective, even if they are not fully
integrated.

27.
The legal reform of transit was progressive, starting in
1994. The Commission featured transit in its inspection pro-
grammes for 1996, 1997 and 2000. Thereafter in view of its lim-
ited resources for inspections the Commission decided to defer
further extensive inspections until it would be able to gauge
whether NCTS was actually delivering the expected benefits.
Some specific aspects of transit were however pursued usually as
part of other themes.

25.
In the beginning of the NCTS project several Member
States not wishing to develop a national transit application
requested the Commission to produce a standard one. MCC as
supplied by the Commission is a stand alone application. Mem-
ber States were thus free to choose between developing a NCTS

29.
The Commission will examine the Court’s findings in
detail, together with those from its own inspections, and draw
Member States’ attention to areas of non-compliance which need
to be remedied. Where divergences from the legal requirements
have led to losses to the Community budget Member States have
been or will be required to make the own resources available and
pay interest.

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The Commission too has identified instances of incom-
35.
plete records of pre-authorisation checks in these Member States
and has stressed the potential financial consequences that could
arise from not fully complying with Community legislation.

under the TIR convention) in October 2006. In the three judg-
ments which have implications for current legislation the ECJ
confirmed the Commission position (2).

36.
The Member States concerned will be reminded of the
importance of documenting pre-approval checks and reviews.
The fact that enforced recovery might be started against an eco-
nomic operator does not automatically mean that facilitations
granted should be withdrawn. Member States need to judge each
case on its merits. Should an incorrectly granted reduced guaran-
tee or guarantee waiver lead to an identified loss to the Commu-
nity budget the Member State concerned will be required to make
the own resources concerned available together with interest on
any delay involved.

46.
The Commission too has often found that despite the
clear legal provisions Member States have belatedly established
debts on undischarged transit operations. Action has been taken
to get the own resources involved made available and interest has
been charged on delays. Where the delays have appeared system-
atic Member States have been required to make further investiga-
tions to identify any further instances. The Commission will be
taking action on the cases the Court has identified in the three
Member States.

38.
The Commission similarly has found, in its inspections,
that enquiries rarely begin immediately. An expert group on the
end and discharge of transit operations including the enquiry and
recovery procedures has been set up to report by the end of 2006.
Any resultant proposals for change will be pursued during 2007.

41.
Should principals not cooperate, administrations already
have the means to deny or withdraw transit simplifications such
as the comprehensive guarantee or a reduction granted in the ref-
erence amount. With the reform, customs were specifically given
the possibility of initiating recovery, independently of the degree
of cooperation of the principal. Further sanctions and penalties
currently fall under the competence of Member States although
the Commission proposal for a Modernised Customs Code (1)
provides for a framework of convergence.

42.
The paper based enquiry procedure suffered from delays.
The electronic NCTS ‘enquiry handling’ module introduced in
January 2006 was designed to remedy this. Findings from current
inspections indicate it is doing so. In any event the law sets down
a time limit by which the office of departure must take action to
establish the debt. The Commission will follow up those cases
identified by the Court where economic operators have them-
selves notified the receipt of goods and prompt action to ensure
the goods were declared for another customs regime did not
apparently follow.

43.
The Commission’s own inspections are still ongoing but
the indications are that cases entering the enquiry procedure are
being resolved more quickly.

The European Court of Justice (ECJ) gave judgment in a
45.
number of cases dealing with the precise effect of various provi-
sions for dealing with undischarged movements (including those

48.
The cases raised by the Court which have an effect on tra-
ditional own resources will be followed up with the Member
States concerned.

49.
The commodity code in transit declarations is mandatory
for sensitive goods (see Court’s footnote 9) and in certain other
cases (3). When value and commodity code are not in a transit
declaration for an operation the necessary information to calcu-
late the customs debt is usually obtained as part of the enquiry
procedure. Should this not happen the customs debt is normally
calculated on the basis of the highest tariff.

The Commission will follow up the Court’s findings with

51.
Member States.

53.-54.
The law on how the secured portion of debts should
be accounted for is clear — it must be entered in the A account
unless a written appeal which might change the amount of the
debt has been received before it falls due to be made available. If
these latter circumstances apply it may instead be entered in the
B account. Despite this clarity and all Member States having been
advised of the correct practice the Commission is aware that some
customs offices have been treating guaranteed debts incorrectly
and that in three Member States they were systematically entered
in the B account. Recent judgments of the European Court of Jus-
tice against two of these Member States (4) have confirmed that
this was not in accordance with the law. Action is now underway
to make sure that all Member States are aware of the Court judg-
ments and to collect any amounts of traditional own resources
not made available plus interest on any delays involved.

(2) Cases C-105/02, C-377/03 and C-275/04, judgments of 5 October

2006.

(3) Whenever the transit declaration is made by the same person at the
same time as, or following, a customs declaration which includes the
commodity code and whenever Community legislation so requires.

(1) COM(2005) 608 final of 30 November 2005.

(4) C-105/02, C-377/03.

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The reliability and completeness of data at EU level
56.
depend on the correct application by Member States of the legal
requirements and procedures for reporting fraud and irregulari-
ties, as specified by Regulations (EC) No 515/97 and (EC)
No 1150/2000. The OWNRES data does not necessarily reflect
the trend in transit frauds and irregularities, when compared to
data from other available sources and indicators (mutual assis-
tance communications, customs information system, EWS). For
instance, since 2001 OLAF has dealt with very few cases of tran-
sit fraud. This decreasing trend is also evidenced by the declining
number of mutual assistance (MA) messages for transit fraud
issued by the Office (from an average of 35 % of the total yearly
number of MA messages issued at the beginning of the 1990’s,
down to less then 3 % since 2001) and the absence of operational
cases related directly to transit movements in the Customs Infor-
mation System (CIS). To date, only one CIS case out of 620 con-
cerns transit.

57.
The Commission considers it important to analyse the
situation of open movements. It concentrates this analysis on the
international ones as this was the only independent data available
from the common gateway.

59.
As stated in recent Commission annual reports on the
fight against fraud, the OWNRES data is not considered to reflect
the real trend in transit fraud. The data conflicts with other avail-
able indicators (EWS, mutual assistance communications, CIS),
see also the reply to paragraph 56. The Commission notified the
budgetary authority in 2004 that OWNRES was not a reliable
source of information as the data Member States were recording
was neither complete nor up-to-date. Member States have been
urged to improve their performance and have been taking action.
There have been major improvements in reporting with the latest
results showing OWNRES and B account data currently being
90 % comparable. The Commission will continue to monitor
Member States’ performance.

to increased levels of customs controls during a particular period
based on risk analysis using common criteria — are to be agreed
with the Member States under the committee procedure. The
Court’s concerns and recommendations will be raised in the Code
Committee.

66.
Currently the Commission has no access to the data, it
can only see the envelope of the message, not the content. How-
ever, the Commission is taking the necessary steps to have access
to NCTS data which will provide an overview of the consolidated
traffic routings of sensitive goods in transit and also enable stra-
tegic and operational analysis to be carried out for such goods.

CONCLUSIONS AND RECOMMENDATIONS

The Commission will follow up the technical problems
68.
and shortcomings identified by the Court on a case by case basis,
particularly when financial consequences are to be drawn, and
will monitor the situation as well as encourage administrations to
apply the provisions correctly.

To this end it will make sure that the legal provisions are clear and
unambiguous and if necessary propose modifications. It will give
further detailed guidance on how certain provisions should be
applied by means of administrative arrangements, such as the
Transit Manual. Should doubts persist the Commission will offer
a platform to clarify these.

Ultimately the Commission will consider infringement proce-
dures against Member States in duly justified cases of non
or incorrect application of Community legislation.

Please also see reply to paragraph 66.

69.

64.
With the adoption and implementation of Regulation
(EC) No 648/2005 a clear legal basis for customs controls based
on risk analysis will become a reality and a legal obligation for the
Member States (Article 13 of Regulation (EEC) No 2913/92 as
amended by Regulation (EC) No 648/2005). It is more efficient to
work with clear and well tailored profiles and common criteria
and priority areas of controls rather than to introduce from the
beginning minimum rates of controls that might lead to a diver-
sion of resources from sensitive consignments to non-sensitive
ones just to meet the minimum control rate. Nevertheless, the
Commission does not exclude that based on experience it might
further develop the legislation.

As regards the commodity code, please see the Commission’s
reply to paragraph 49.

65.
The Commission is currently proposing that the selection
of consignments for control should include a random element. In
addition common priority control areas — to be subject

(a) As recommended by the Court a detailed operational agree-
ment has already been adopted in July 2006 to cover critical
situations affecting the availability and continuity of NCTS.

(b) Monitoring of the operation of NCTS has been enhanced and
will be further improved during 2007, please see also reply
to paragraph 24.

70.
The Commission decided to defer any wide-ranging
inspections of transit until all aspects of the NCTS system were
fully implemented to allow conclusions to be drawn about its
effectiveness.

71.
The Commission too has found some Member States
unable to show after the event that all the necessary checks on a
business’ suitability for being granted simplified procedures had
been made. However, the potential damage to the Community
budget is limited: were incorrectly granted guarantees to prove
insufficient then the Member State concerned would be liable for
any own resources lost and where appropriate for interest too.

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The previous paper-based enquiry procedure suffered from too
many cases which appeared undischarged because of transmis-
sion delays and other problems inherent to the procedure. NCTS
is tackling the overload. Furthermore a review by an expert group
is in progress (see reply to paragraph 38).

Where during its routine inspections or as a result of Court activ-
ity the Commission finds delays in making traditional own
resources available Member States are required to pay any own
resources due plus where appropriate interest on delays. Where
there is evidence that the failure was systematic then Member
States are required to investigate all such instances and to make
the necessary financial corrections.

72.
Where appropriate the Commission has taken action to
ensure that Member States compensate the Community budget
for any amounts of own resources which should have been made
available but were not because Member States did not take timely
action on apparently undischarged transit movements.

The Commission has taken account of shortcomings found in
various areas when drafting the implementing rules for autho-
rised economic operator (AEO) status. Further account will be
taken when producing the AEO guidelines. Article 14q of the
Implementing Provisions to Regulation (EC) No 648/2005 fore-
sees that, once the status of AEO has been granted, the customs
authorities shall monitor AEO compliance with the conditions
and criteria set. Furthermore, continuation of the status shall be
reassessed by the customs authority which granted it whenever
the relevant Community legislation changes or when that author-
ity has reasonable indication that the relevant conditions are no
longer met.

As regards enquiry procedures:

(a) The Commission can confirm that computerisation of the
enquiry procedure is already contributing to the speedier
handling of enquiries. Remedial action will be taken where
necessary and a separate review of the enquiry procedure is
underway as stated in reply to paragraph 71. One of the
Commission’s objectives is to shorten the time limits follow-
ing the introduction of NCTS.

(b) With the reform, customs were specifically given the possi-
bility of initiating recovery, independently of the degree of
cooperation of the principal. Sanctions and penalties cur-
rently fall under the competence of Member States although
the Commission proposal for a modernised customs code
provides for a framework of convergence (see paragraph 41).

As regards recovery procedures:

(a) This recommendation is implemented by the 2006 inspec-
tion programme the main theme of which was transit. The
overall objective for those inspections included checking
that Member States’ procedures for following-up any undis-
charged operations comply with the relevant regulations and
that Own Resources have been properly calculated, estab-
lished and accounted for.

(b) The Commission has examined the question of making the
commodity code and goods value mandatory in all transit
declarations (i.e. in addition to the cases referred to under
point 49). Since in transit the declarant is often not the
exporter nor the importer particular attention has to be given
to the additional cost for the operator to provide this type of
information and to offset this against the limited number of
recoveries that are initiated by customs. On balance, the
Commission is of the opinion that, for the purpose of tran-
sit, this type of information need not be required for all tran-
sit declarations and that, provided that customs diligently
carries out the enquiry procedure, the appropriate amount of
duty will be recovered. See also reply to paragraph 72(a).

As regards the guarantee system:

(a) The Commission will continue to monitor Member States’

procedures.

(b) The Commission will continue to select the themes for its
compliance inspections in Member States by risk analysis.
Prior to 2006 transit was a candidate for inspection but was
not selected for examination because we wished to await
fuller implementation of NCTS. For 2007 the Commission
considers it is likely that there will be further inspection
activity concerning transit.

The Commission obtains information on suspected
73.
fraudulent activity from a variety of sources. Overall, the indica-
tions are that transit fraud has declined.

With the adoption and implementation of Regulation
74.
648/2005 a clear basis for customs controls based on risk analy-
sis will become a reality and a legal obligation for the Member
States (Article 13 of Regulation (EEC) No 2913/92 as amended by
Regulation (EC) No 648/2005).

The RIF (Risk Information Form), a central component in the
development of a common risk management framework required
by Council Regulation (EC) No 648/2005 which facilitates the
exchange of risk information among Member States on customs
control issues including transit is already in operation.