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5.39 pm

Mr. Charles Wardle (Bexhill and Battle): I am bound to say that until the hon. Member for City of Durham (Mr. Steinberg) came to his extra points, I agreed with almost everything he had to say. He and I both serve on the Public Accounts Committee and there is broad agreement about what has gone wrong. He and I can debate vigorously many political issues all day long, but until he came to his last item I endorsed his remarks this afternoon. When he came to his final and quickly added last point, and as he looked at the Government Whip and thought that he should score some political points, he was wrong, in that he failed to notice that the Chief Secretary seemed to have swallowed, hook, line and sinker the idea that OLAF will do a more effective job than UCLAF does now. I understand the Government's having agreed to the proposals for the amendment in the regulations that will deliver OLAF and wishing to say that all will be put right, but I believe that the Chief Secretary is absolutely wrong on that.

As the hon. Member for City of Durham said, the Public Accounts Committee visited Brussels and Luxembourg last month. Several of the Committee members either were in their place or are now. I wish to make a couple of comments about the visit to place in context my remarks about the anti-fraud effort.

The Committee's object in its visit was to examine how financial control and accountability of EU funds could be improved within the Commission and in member states. In Brussels, the Committee took evidence from the Commission, UCLAF, the Commission's anti-fraud unit, the budgetary control committee of the European Parliament, Mr. Van Buitenen--the whistleblower--and the committee of independent experts. In Luxembourg, it took evidence from the European Court of Auditors.

Although the Committee's report of its foray into the heart of Euroland will not be published until after next month's European elections, I formed the clear impression--my Committee colleagues who are present in the Chamber can either confirm or deny this--that the Committee was quickly united across party lines in its criticism of the complacency, arrogance, self-interest, lack of even the most rudimentary management discipline, absence of financial controls and failure to tackle fraud that was clearly evident wherever we went.

In a press release agreed by the Committee, there was a call for significant and urgent improvement in the financial culture governing European spending, for better controls to protect the interests of the European taxpayer and for an accounting system based on robust independent and expert procedures. The Committee registered its dismay that proposals to reform UCLAF--this is where I disagree with the Chief Secretary--in the form of thenew OLAF fell well short of delivering a genuinely independent anti-fraud unit.

Given the limited time for the debate, I shall resist the temptation to regale the House with the full extent of the financial shambles and the self-serving bureaucratic intrigue that masquerades as the government-in-waiting for Europe. I shall concentrate instead on the inadequacy of the attempts to protect the Community budget from fraud.

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There is little doubt but that fraud and financial irregularity are rife throughout the EU spending programme. There is fraud at national level in member states, as the hon. Member for Ilford, South (Mr. Gapes) was allowing--for example, in the common agricultural policy. However, some of the most spectacular rip-offs have taken place under the nose of the Commission, and these were the ones highlighted by Mr. Van Buitenen.

As we have heard, the Leonardo youth training programme, worth £450 million, has been riddled with mismanagement, and blatant favouritism has been shown to certain contractors. The Commission's tourism unit, which has already been alluded to, has been defrauded of at least £3.5 million. The Med programme of economic assistance in the southern member states has been hijacked by a network of firms which has run rings round Commission officials, at huge cost to the European taxpayer. The humanitarian aid office, ECHO, cannot account for £420 million from last year's budget alone. These are only some of the horror stories.

Pitted against corruption is UCLAF, the anti-fraud unit, which operates from within the Commission's central secretariat. That location is a handicap in itself because the Commission is staffed with appointees long on horse-trading skills but short on management instincts. This means that the Commission is an establishment in which transparency and individual accountability are literally foreign concepts. That makes it unsurprising that UCLAF was doomed to failure from its inception.

UCLAF is not, as some people suppose, an internal audit service. Members of the PAC will appreciate that. It may act on audit data produced by the European Court of Auditors, which itself is not allowed to investigate suspected cases of fraud. For some reason best known to the bureaucrats, UCLAF is not allowed to pursue active fraud investigations either. It is merely authorised to assess the financial sums at risk and then draw up cases for submission to public prosecutors in the member states.

In the unlikely event that UCLAF identifies a case for prosecution within the Commission itself, under whose roof it sits, it is supposed to draw that suspected fraud to the attention of the Belgian prosecutors. In other words, UCLAF is not a fraud-busting unit but a co-ordinator of allegations of fraud for the benefit of national prosecutors in member states.

Inevitably this cumbersome and unwieldy procedure has failed to produce results or to deter fraud, and it has already been widely condemned. The Court of Auditors has complained that UCLAF has no standard system for opening, monitoring and concluding procedures. The court says that UCLAF lacks operational procedures for storing and monitoring information, cannot manage its case load effectively and causes long, needless delays.

UCLAF's procedures for dealing with internal discipline and corruption are unclear and incomplete as well. The Court of Auditors has accused it of what it delicately describes as "exaggerated hesitation" before lifting the immunity of staff suspected of fraud. That is because it is under the Commission's roof, of course. Meanwhile, the committee of independent experts has said that UCLAF's remit within the Commission is less clear than it should be and claims that UCLAF appears to be in competition with the internal audit function. The UCLAF staff lack professional skills and often slow down

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procedures so that the audit trail goes dead. In short, the entire UCLAF operation is a farce. The fraudsters thrive and the taxpayer loses out.

To remedy this sorry state of affairs, at the end of last year the Commission, the Council of Ministers and the European Parliament drew up a proposed regulation for a new fraud prevention office--son of UCLAF, as it were--to be called OLAF, an acronym with a Nordic ringof financial rectitude and authority. This seemingly worthwhile initiative quickly became bogged down in utter confusion when the Council of Ministers resisted the very sensible idea that OLAF should be a distinct legal entity, separate from the Commission, with extra powers of investigation within member states.

After much wheeling and dealing, and to nobody's surprise, OLAF is to stay under the Commission's umbrella, but regulations will be amended to give its new director greater responsibility for the recruitment and promotion of staff and the power to ask for oral information from employees of the Community institutions.

The new director is to report regularly to the Parliament and he will be monitored by an independent external committee. In practice, however, the EU staff regulations, which have for years throttled any attempt to promote outstandingly talented officials, are so prohibitive that OLAF will inherit and be required to keep most of the old UCLAF personnel, in spite of their known lack of professional qualifications. The new director will not be independent at all. He will still be in thrall to the Commission and will have nothing like the clout which national audit offices enjoy in, for example, the United Kingdom--most especially, in Holland or in the Scandinavian member states.

So in spite of the courage of the whistleblower, the condemnation of the Commission by the independent committee of experts and the grand theatrical gesture--

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Wardle: I shall not for the moment. I appreciate that the hon. Gentleman will have much to say, but time is short and I have nearly come to a conclusion. He always does have a lot to say, and it is always of interest.

In spite of the grand theatrical gesture of the Commission's mass resignation and the fight against fraud, that which is being proposed leaves the EU toothless in its anti-fraud effort. It is all talk and no action. The will to improve accountability and transparency simply does not exist, and the inevitable consequence will be that corruption will increase.

Mr. Deputy Speaker, I am sure that you will allow me a moment longer. For those of us of a sceptical nature, none of this will be surprising. The sceptics might agree with me that the United Kingdom should insist on a properly functioning single market, tried and tested over a suitable period, before the Euro-zealots try to rush headlong into experiments with an unworkable single currency, and into economic and monetary union as a prelude to their real goal of a federal state.

It is essential that the scandal of financial malpractice and fraud in Brussels be adequately addressed. That is why my right hon. Friend the Leader of the Opposition's cautious, step-by-step approach to further integration in

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the European Union is absolutely right, and why the Government's timidity in dealing with OLAF, which is not an effective successor to UCLAF, is so disappointing.

Euro-enthusiasts of an uncritical disposition ignore the failure of anti-fraud measures at their peril. If the difficulties of checking fraud seem formidable now, they will become far worse if they are not resolved before the EU goes in for more enlargement and yet further extension of treaty competence. With respect to EU fraud, a stitch in time might save nine, but those in Brussels have hidden the needle and lost the thread.

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