Protecting the Community
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Protecting the Community's financial interets

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102 pages
English

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The fight against fraud: Annual report 1995
Community finance

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1995
PROTECTING
THE COMMUNITY'S
FINANCIAL INTERESTS
Annual Report 1995 EUROPEAN COMMISSION
PROTECTING THE COMMUNITY'S
FINANCIAL INTERESTS
THE FIGHT AGAINST FRAUD
ANNUAL REPORT 1995 Cataloguing data can be found at the end of this publication
Luxembourg: Office for Official Publications of the European Communities, 1996
ISBN 92-827-6560-1
© ECSC-EC-EAEC, Brussels · Luxembourg, 1996
Reproduction is authorized, except for commercial purposes, provided the source is
acknowledged
Printed in Germany Foreword by
ANITA GRADIN
Member of the Commission
The European taxpayers must be confident that their money is spent in
a sound and efficient manner. It is the duty of the European Commission
and of national governments and agencies to make this happen. And the
Santer Commission has made the fight against fraud a major priority for
its five-year mandate term.
The present Annual Report on the Fight Against Fraud in 1995 gives an
account of how this duty is carried out and of the results.
Some 1.4% of the EU budget is affected. The number of fraud cases still
increased in 1995 but the amounts involved tended to stabilize. The fig­
ures are still unsettling. Further efforts are needed.
I am satisfied, however, with the fact that the Commission is called upon
more frequently to investigate, together with Member States, in compli­
cated transnational fraud cases which often involve organized crime.
Only a common, concerted effort may eradicate such criminality.
The Commission is devoting more resources to investigations. Better
equipment and communication systems have been developed.
Important progress has also been made in the legislative framework. We
have agreed in the Union on better controls, more fair and equivalent
protection in all Member States and better possibilities for judicial colla­
boration in fraud cases. It is now of paramount importance that the Convention on the Protec­
tion of the Financial Interests of the Community, which was already
agreed by all governments in the summer of 1995, be ratified in national
parliaments.
Meanwhile, the Commission's anti-fraud unit (UCLAF), which has been
considerably strengthened and streamlined over the last years, will con­
tinue its efforts to fight against fraud and crime for the financial interests
of the European Union. And Mr Liikanen and myself will intensify the
financial and management reform of the Commission.
Our main concern is that the European taxpayers get value for money. Contents
Page
Introduction 7
Chapter 1: Progress on the horizontal legal instruments in 1995 (First pillar
and Title VI) 11
Section 1: Introduction and assessment
Section 2: First-pillar activities — Improving the Community's legislative
framework3
1. Regulation on the protection of thes financial
interests
2. The proposal for a Regulation concerning on-the-spot checks
and inspections4
Section 3: Title VI activities — Making the various national laws more
compatible with each other 15
1. The Convention
2. Additional Protocol to the Convention on the protection of the
European Communities' financial interests (second
instrument) — on judicial cooperation 17
3. Protocol on corruption amongst officials 18
Section 4: 19 Developments concerning organized financial crime
Chapter 2: s in the regulatory framework in 1995 21
Section 1 Own resources 21 n 2 Agriculture 21
Section 3 Customs 23
1. Customs transit arrangements 23
2. The Customs 2000 project 26
3. Chemical substances frequently used for the illicit manufacture
of narcotics ('precursors') 26
Section 4: Administrative cooperation 27
Chapter 3: The other institutions 28
Section 1 The European Parliament 28 n 2 The Council 28
Section 3 The Court of Auditors 29 n 4 Thet of Justice 30
Chapter 4: The Member States 32
Single section: National reports on the misuse of Community resources —
Application of Article 209a 32
1. Methods used 32
2. Implementation of the first paragraph of Article 209a of the EC
Treaty: state of play 33 n of the second paragraph of Article 209a of the
EC Treaty: state of play 34
Avenues to be explored 4. 35 Chapter 5: Cooperation and partnership 38
Section 1: Seminars, conferences and exchanges of officials 38 n 2: The Advisory Committee for the Coordination of Fraud
Prevention 39
Section 3: Partnership with specialist departments in the Member States 40 n 4: Mutual administrative assistance in customs matters between the
Community and non-member countries 41
Chapter 6: Investigations 43
Section 1: Major organized transnational fraud cases5 n 2: Major frauds relating to origin and preferential agreements 54
2.1. Industrial goods 5
2.2. Textiles6
2.3. Fishery products8
Other frauds in agriculture9 Section 3:
Others in relation to structural policies 64 n 4:
4.1. European Social Fund (ESF)
4.2.n Regional Development Fund (ERDF)5
Section 5: Other frauds in relation to direct expenditure
5.1. Research 6
5.2. Energy
5.3. European Development Fund (EDF) 6
5.4. Environment/Medspa programme (Italy)
Chapter 7: Statistics and analyses 67
Section 1: The situation in 1995 67 n 2: Trends 68
Section 3: Transit 70 n 4: Recovery 70
Section 5: Analysing legislation 71
Chapter 8: Anti-fraud appropriations 91
Section 1: Implementation of the 1995 budget 91 n 2: 1996 appropriations 92
Glossary 95 Introduction
he year 1995 was particularly notable for the substantial progress achieved at legisla­
tive level with the adoption of two basic texts, one concerning checks and admi­T
nistrative penalties (a horizontal regulation) and the other on penal protection of Com­
munity finances (a convention). In the operational area, the investigations undertaken at
the Commission's initiative with the national authorities show more and more clearly
that the Commission can provide an added value in combating fraud on the ground.
This momentum results from the anti-fraud strategy put in place in 1994 which focuses
on four priority areas:
(i) reinforcing the presence on the ground;
(ii) exploiting intelligence and strengthening the partnership between the Commission
and the Member States;
(iii) improving the Community legislative framework;
(iv) securing greater compatibility between national legislations with regard to punitive
measures to deter fraud on a scale commensurate with the problem to be tackled.
In addition, valuable progress was made in all these areas in 1995.
*
* *
Following the proposals' on legal protection for the Community's financial interests pre­
sented by the Commission in 1994 and considered in the first part of the report, the Coun­
cil adopted a Regulation to establish a consistent and effective system of penalties to
punish those responsible for fraud once it is detected and deter such activity in the
future and signed an international Convention which, for the first time, introduced a com­
mon definition of the concept of irregularity and fraud.
These texts aim for a better protection of the Community's financial interests, the princi­
ple contained in Article 209a of the EC Treaty, and are a response to the frequently
expressed public concern to see fraud and waste of Community funds put down with the
greatest severity and constitute a vital legal basis for the development of future work in
that field. The on-the-spot inspection arrangements and the penalty systems applied by
the Commission and the Member States must be improved and strengthened accordingly.
Although substantial progress has been made in the legislative field, experience has
shown, from the Commission's point of view, that the legal means contained in the
Treaty are not sufficient given the amounts involved and the degree of protection re­
quired for a budget of the size of the Union. This is why the Commission considered that
their reinforcement, at the time of the Inter-Governmental Conference (IGC), was
necessary.
It has therefore taken the initiatives required to include the question on the agenda of
the IGC which begins in March 1996.
The horizontal regulation defines very broadly the concept of irregularity. This concept
covers both simple omission due to error or negligence which is likely to have a harmful
effect on the Communities' budget and intentional and deliberate acts which correspond
for their part to the more restrictive concept of fraud as defined in the penal convention.
The investigations presented in the second part of the report refer to cases in which the
1 The Cannes European Council of 26 and 27 June 1995 and the Madrid European Council of 15 and 16 Decem­
ber 1995 emphasized in particular topics related to the protection of the Community's financial interests and
the fight against fraud in the Community. Commission participated. They only involve irregularities of particular interest at Com-
munity level whose intentional or deliberate nature has not yet necessarily been demon­
strated. These irregularities cannot therefore all be considered as cases of fraud in the
penal sense of the term. This also applies to the data featured in the statistical part of the
report.
This 'post-operational' stage is just as vital. The closing chapters of the report give an ana­
lysis of the data compiled in the field and in carrying out the procedures, which makes it
possible to map out trends in large-scale fraud and distinguish which sectors are the most
affected, so that the Community framework in which the financial provisions are decided
on can be adapted accordingly.
The major trends are clear: the number of fraud cases detected is still rising (approxi­
mately 15%) while the total amount involved is tending to stabilize. Half this total con­
cerns investigations in hand under Commission coordination, in close cooperation with
the Member States. The number of these investigations is increasing. The scale of the
amounts at stake illustrates how the launching of in-depth inquiries inn with
specialized departments in the Member States as soon as fraud is suspected can reveal
the existence of networks, often criminal, operating with highly sophisticated techniques.
A rapid administrative and judicial operational response is vital if all prospects of recov­
ering sums diverted or evaded are to be preserved.
In statistical terms, on the side of expenses administered by the Member States (agricul­
tural expenditure and structural policies), the fraud detected in 1995 is represented by a
global amount of in the region of ECU 383 million, that is 0.6% of the finance allocated.
Concerning direct expenditure, managed by the services of the Commission (contracts
concluded with beneficiaries in the Member States), this amount is in the region of ECU
28 million, that is 0.3% of benefits paid.
On the income side, fraud amounts to in the region of ECU 735 million (in the area of
traditional own resources), that is 3.6% of the income collectable under this heading in
1995. This amount represents the duties and taxes evaded, principally during commercial
operations (trade) between non-member countries and the Community. The Member
States are the principal financial losers. In effect, balance (of income and expenditure) is
one of the fundamental principles of the Community budget, which implies that each loss
in the matter of Customs duties and agricultural levies, for example, is made up by the
increase of direct contributions of Member States under the heading of the 'fourth
resource', founded on the GNP of Member States, known still as the 'balancing income'.
Globally and schematically, it is possible to point out that fraud on the Community bud­
get, cases known, recognized, that is to say prosecuted or under investigation, do not go
beyond 1.4% of the Community budget. The Member States have shown that the system
of detection functions; the Commission, for its part, has largely devoted itself, with the
participation of specialized national services, to the triggering off of detailed enquiries
from the first stages of suspicion of irregularity or fraud.
The Commission is continuing to develop its partnership with the Member States. With
their assistance it has embarked on a wide-ranging exercise to make the management of
Community appropriations more efficient. The initiative, which goes by the name SEM
2000 (standing for 'Sound and efficient management'), encompasses three stages, of
which the first two involved the Commission improving the standard of its own financial
management. The last stage aims to bring about improvements in the management of
Community resources by the Member States and will lead to greater transparency on the
one hand and greater security on the other for the benefit of taxpayers. This new stage is
being conducted in the same spirit of partnership as were the anti-fraud activities proper,

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