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Dr. Cable: That is a perfectly valid point. Specific aspects of how the European Commission pays its staff--particularly expatriate allowances--seem incompatible with my idea of a proper European civil service recruited in much the same way that the staff of the World bank, whose approach to their jobs is much more professional, are recruited.
In addition to problems with the Commission, the Parliament is a wasteful institution. Points have been made about a particular Member of the European Parliament, and if he is guilty of malpractice, he should be dealt with appropriately. However, that case involves rather petty sums while rather large sums are wasted by the Parliament, primarily as a result of its operating on three sites. I hope that the Government will make it clear
that rationalisation of the Parliament's operations should be a major strategic matter, which could save an estimated £100 million a year.
Mr. John Bercow (Buckingham):
Does the hon. Gentleman agree that all the Commissioners who resigned in March should have ceased to hold office immediately and that none of them should be reappointed beyond his or her existing term? On the conduct of the Parliament, does he agree that it is wholly unsatisfactory that there is no record in the House of Commons Library of the declarations of interests of Members of the European Parliament? Does he agree that it should be possible to obtain a copy of the register of interests from the Library?
Dr. Cable:
The latter point seems perfectly sensible. When it comes to the appointment of Commissioners, however, we should recognise that some of them acquitted themselves honourably and well, including Sir Leon Brittan and Mr. Kinnock. Whatever people's political standpoint, we should not tar them all with the same brush. Some selectivity should apply.
Mr. Gerry Steinberg (City of Durham):
As a member of the Public Accounts Committee, I visited Brussels and Luxembourg in April to look into fraud in the European Union and what was being done about it. The visit was prompted by the National Audit Office's report, "Audit of the General Budget of the European Union for 1997 and Related Developments", and by the whistleblowing of Paul Van Buitenen, an EU official, who, incidentally, ranks as fraudulent not only those on whom he blew the whistle, but everyone else connected with the EU.
To examine fraud in the EU, one must start with what the EU does. In 1997, the total budget was about £54 billion, spent under three basic headings--the common agricultural policy, structural funds and directly managed expenditure, including aid to countries in central and eastern Europe and the former Soviet Union and budget compensation to the newest member states. The United Kingdom is the third largest contributor, paying about £1.3 billion, so our visit was thought appropriate. There is clearly a huge problem.
CAP accounts for 50 per cent. of the Budget and the NAO found errors in CAP payments amounting to around one sixth of the total. Farmers overdeclared areas eligible for subsidy for cereals and set-aside. The errors were exacerbated by generous subsidy and ineffective checks by the paying agencies. Although the overpayments may be relatively small, it would be an understatement to say that the global sum was quite big. In fact, it was huge.
The NAO also detected errors in structural funds payments, which account for about one third of the EU budget. Aid is distributed to member states for operational programmes that can last up to about six years. Often,
member states declared expenditure ineligible for funding. The Commission's programme closure procedures did not detect ineligible expenditures.
About £8.9 billion was spent on external aid, but much of it does not go where it is supposed to. Only 82 per cent. of aid intended for central and eastern European countries was paid out, and only 64 per cent. of that meant for southern Mediterranean countries was paid. During 1998, the Commission uncovered suspected fraud in humanitarian aid. The ECHO affair, as it was called, involved aid to Yugoslavia and the great lakes region of Africa. Since 1992, £420 million has gone missing from that project.
In 1998, the PAC reported waste, error and fraud in EU expenditure programmes. Frankly, matters are no better a year later. Four examples of the most appalling cases of fraud are contained in the NAO report.
The first deals with cigarette smuggling from Montenegro. The report states:
The last fraud that needs to be mentioned is the Leonardo programme, a four-year youth training programme with a budget of about £450 million, headed by Commissioner Edith Cresson of France. Favouritism and irregularities were rife. All the cases that I have mentioned substantiate the view that there is large-scale organised crime across national borders.
Miss McIntosh:
Is the hon. Gentleman aware that the tourism fraud was exposed by the leader of the Conservatives in the European Parliament, Mr. McMillan- Scott? That shows the seriousness that Conservatives attach to fraud.
Mr. Steinberg:
I do not for one moment dispute that. I do not attempt to make political points.
The Public Accounts Committee went to Brussels and Luxembourg to see the problems of fraud in the EU. The situation is deplorable and something needs to be done about it.
Mr. Gapes:
I do not seek to minimise the terrible things to which my hon. Friend refers, but is it not a fact
Mr. Steinberg:
My hon. Friend is partly right and partly wrong. There is tremendous irregularity and fraud within the Commission. I agree that a great deal of responsibility lies with the member states, but we cannot blame just one section of the EU. The whole thing seems corrupt. I believe that corruption and fraud are much more prevalent across the EU than in the UK. The standards of probity in public affairs in the UK are higher than in most other western European countries. The report of the National Audit Office refers to places such as Greece, Spain, Italy and Portugal. I do not mean to be disrespectful to those countries, but their record is appalling.
Financial arrangements in the European Union lend themselves to misappropriation and misuse of funds. The structure of the EU is bureaucratic rather than democratic. There appears to be little control over those who participate in corruption and fraud and little effort or capacity to get rid of them. It appears from the examples that I have given that about 10 per cent. of the EU budget is misappropriated and not spent on the purpose for which it was designated. That mis-spend amounts to about £5 billion a year. That is an incredible amount of money.
With great respect to the hon. Member for Twickenham (Dr. Cable), I got the impression from his speech that he was complacent. We heard the same arguments from him as I heard from the European Court of Auditors. The auditors seemed to say, "There is misappropriation and one would expect that to happen with such a huge budget." I do not think that one can say that. The Commission should have high standards.
The recent disclosures by Van Buitenen were already well known before he blew the whistle. It was clear what was going on and he happened to bring it to the fore. Everyone knew what was going on. He showed that the standards of the Commissioners were anything but proper, and collectively they had to resign. The Commissioners ought to have been setting high standards, but they were not. Examples of nepotism and manipulation of funds emerged.
On our visit to Brussels and Luxembourg, we met representatives of the Commission, the EU anti-fraud organisations and the committee of independent experts set up by the European Parliament to examine the way in which the Commission detects and deals with fraud. The anti-fraud organisation, known as UCLAF, has an atrocious record and was clearly unable to do an effective job. It has now been replaced by OLAF. I was little impressed, bearing in mind the seriousness of the situation. The only thing that was apparent was complacency.
We met the Budgetary Control Committee of the European Parliament. Although it recognised the problems and played its part in triggering the resignation of the Commissioners, the fact is that it knew for years that fraud and waste were rampant, yet it tolerated the situation. Can you imagine, Mr. Deputy Speaker, the Public Accounts Committee tolerating such a situation? I cannot, but that seems to be the way things are.
We had a meeting with the European Court of Auditors. That filled me with horror. Its members were apparently so complacent, and I told them so. One of the most disgraceful aspects of EU administration is not only that large sums of money in budgets cannot be properly accounted for but that the auditing and signing-off of EU accounts often runs years into arrears as a result of lax accounting systems, some of which are seemingly riddled with fraud. We all know that it is impossible to run any organisation efficiently without accurate, up-to-date accounts.
It seems to me that the problem with the EU Court of Auditors is the same as in so much of the rest of the EU. Those able and willing to set high standards are dragged down by those who are much more easy going. One amazing statement made at our meeting with the auditors was that fraud was a price worth paying for the Union. I may have misunderstood that because I was dropping off to sleep, but I do not think so. Well, they may think that, but I disagree with them.
After our visit to the EU, the Committee was unanimous in its conclusions. There need to be significant and urgent improvements in the financial culture governing European spending. These issues are central to public confidence and fundamental to the democratic legitimacy of Europe. The Commission must define more clearly who is accountable to whom and for what.
We found that the current arrangements for investigating and prosecuting cases of abuse were inadequate. Rapid action is required to reform the procedures for identifying and handling cases of suspected fraud within the Commission and other EU institutions. That should include a strong, independent head of fraud investigations with statutory protection from dismissal.
The National Audit Office report concludes that it is important that the Commission and member states keep up the pressure on effective implementation of the sound and efficient Management 2000 initiative, which simplifies schemes so that they can be easily and effectively managed and so that the risk of fraud can be reduced. The NAO also concludes that effective action must be taken to pursue and repress fraud across the EU budget. Better arrangements are needed for combating fraud and corruption involving EU institutions.
"One of the main routes used by crime syndicates for trafficking cigarettes was through the Federal Republic of Yugoslavia. The cigarettes are loaded onto speedboats declared to be bound for Italy and are offloaded on the Adriatic Coast as contraband. The sole purpose of this is to divert them to the European Union black market. The Commission estimates that this activity results in a loss to the Community General Budget of some . . . £410 million".
The second example relates to the fraudulent import of olive oil. The report states:
"Olive oil claimed to be in transit for Israel and Turkey was in fact unloaded in the Community through an ingenious subterfuge. Two ships sailed from France with cargoes of olive oil and sunflower oil. The ships docked in Italy and unloaded the olive oil, but claimed that it was sunflower oil so that the lower level of duty was payable on it. To cover up the fraud, the perpetrators pretended to sell the sunflower oil in exchange for olive oil, even to the extent of driving around empty lorries to justify purchases of fuel. As a result of this fraud, some 5.1 million ECU (£3.4 million) of customs duties were evaded and some . . . £1.2 million . . . aid was claimed without entitlement."
The third case related to tourism. In 1990, the European year of tourism was launched. By 1999, 76 bodies or individuals were subject to criminal proceedings or additional inquiries in member states and £3.5 million had been fraudulently paid out.
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