UK comes embarrassing third in EU fraud league

FROM ANDREW MARSHALL

in Brussels

The amount of fraud uncovered by the European Union soared to 1bn ecus (£820m), last year, the EU reported yesterday. Britain had one of the higher recorded levels of fraud, in third place behind Germany and Italy for the last three years, according to one measure.

The figure records only fraud that has been detected and reported, but it has virtually doubled since last year. It amounts to about 1 per cent of EU spending, far below the estimate of 10 per cent that has passed into folklore. EU officials say unofficially they think fraud is ``substantially less'' than 5 per cent of total spending. They said that the increase in recorded fraud showed that efforts to fight it were working.

But a stern-faced Anita Gradin, the Commissioner for Financial Control, said the profusion of legal regimes made the fraudsters' work easy. ``They can select la carte which EU legislation suits them best,'' said the Swedish official. The Commission has launched a raft of new proposals recently for attacking fraud, concerned that its image is being damaged by financial irregularities. Not just Britain but Germany and the Netherlands are very concerned about the cost of their con tributions to the EU budget.

However, Britain scores an embarrassingly high figure for fraud, at about 120m ecus over the period 1991-94 by its own account. Most of this comes in British contributions to the EU, perhaps fittingly for a country that has such large reservations over EU spending. Britain has been very unsuccessful in recovering this cash, with 201 cases of fraud totalling 23m ecus in 1994, and nearly 1,000 cases between 1991 and 1994, totalling 92m ecus. Of that, only 2 per cent was recovered. British officials say that the country's figure is high because Britain has been very successful in detecting fraud.

The highest fraud figure by far is for Italy, with 0.5bn ecus on agriculture alone in 1994. Germany also scores a very high figure, though much of this is because Germany has become once more the crossroads of Europe, with goods from and to eastern Europe passing across its borders.

Nearly half of the reported fraud - 411m ecus - is in payments made under the Common Agricultural Policy (CAP). Half of that figure is accounted for by frauds in storage and export refunds for cereals, with most of the rest on beef, olive oil and wine. Much of the fraud results from misrepresentation of goods crossing borders to gain export subsidies or to avoid payment of customs.

For example, milk powder was illegally imported into the EU to Spain via Antwerp - sometimes labelled as other substances - and some was then re-exported. This involved more than 500 lorryloads of milk powder, and losses of perhaps 45m ecus. ``The fraud mech- anisms and techniques used as well as the complexity of the operations are proof that they were masterminded by criminal organisations,'' said the Commission.

As well as fighting fraud through tougher financial controls, the EU says that as the Common Agricultural Policy is reformed, more cash will go direct to farmers and less for export refunds or the storage of food, another large source of fraud.

It also points out that because of CAP reform, it has bought no cereals for storage this year and reduced stocks from 33 million tons to 8 million tons, reducing the scope for fraud.