Fight Against Fraud

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Ruth Kelly: In some respects, we are still at an early stage of the aftermath of the tragic events of 11 September. Their implications have not yet been fully analysed and thought through in most member states. The documents were produced before 11 September; most of the work was conducted in 2000. The events of 11 September will create significant repercussions in the debate about international co-operation against crime, for example. However, we are still at an early stage of the process of understanding their implications, and they have not been taken into account in these documents.

Mr. Bercow: What reasons has the Minister adduced for the alarming size of traditional own resources fraud, and in the light of that, does she think that there is an urgent need for a civil penalty regime?

Ruth Kelly: Own resources have traditionally been more subject to fraud than other resource areas, and we will continue to examine that. I had the pleasure of debating the introduction of own resources measures in the House with the hon. Gentleman, and the legislation that we passed will move us away from traditional own resources measures, towards a

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measure based more on gross national product. One beneficial impact will be a reduction in the possibility of fraud in such areas. We must crack down on existing fraud, and I understand that a civil penalties regime will be introduced this year, which I welcome as a significant contribution to the general battle against fraud.

Mr. Kelvin Hopkins (Luton, North): On page 21 of the European Scrutiny Committee's report on the documents, tables list the number of cases of fraud, changes in the number of cases, and changes in the sums affected by those cases. Some of the figures are astonishing; there are changes, year on year, of 239 per cent., 101 per cent., and one, in terms of millions of euros, of 758 per cent. I want the Minister to shed some light on those astonishing figures, and to reassure me that they are not as alarming as they appear.

Ruth Kelly: My hon. Friend has been involved in many debates such as this, and I am sure that he knows that figures that are produced from year to year are notoriously volatile. They can fluctuate for a variety of reasons—a scheme, for example, may come to fruition in a particular year. For that reason, I advise him not to read too much into the figures. We should consider the overall trend. Many of the measures introduced to overcome particular issues with regard to fraud and irregularities have yet to bear fruit and are gradually coming on stream. I urge him not to read too much into yearly figures because they are naturally volatile.

John Barrett (Edinburgh, West): Will the Minister clarify the distinction between error and fraud that she mentioned in her opening statement? Member states have intimated that the number of cases is 6,587. How many are fraud, and how many errors?

Ruth Kelly: The ECA report considers irregularities rather than fraud, and it is difficult to draw a distinction between the two. Irregularities is a broad term that covers, for instance, forms that may be slightly incorrectly filled in, or a misinterpretation of a tightly drawn community rule, or the misapplication of an exchange rate on the day on which the form was filled in, and so forth. Many irregularities can be swiftly and easily reversed once identified. Many sums are subsequently recovered, with no loss to community funds. The ECA report does not try to estimate the precise level of fraud. It is important to maintain the distinction between fraud and irregularities. In no sense do the broad figures reported on the number of irregularities reflect deliberate fraud against EU institutions.

Dr. Palmer: On the point made by my hon. Friend the Member for Luton, North (Mr. Hopkins), will the Minister confirm that the reason for the 758 per cent. growth in traditional own resources cases identified by OLAF was probably partly that OLAF is a new body? I sat on the Committee that debated its establishment, and the 1999 figures are drawn from a year in which it was not yet fully in operation.

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Ruth Kelly: I thank my hon. Friend. OLAF is a new institution that is just getting its teeth into the work. However, variation between years probably relates more to when fraud is identified than to fraud, or irregularity, in any particular year. Such cases are often the result of many years of investigation, sometimes involving significant sums. Such discrepancies can lead to sharp changes between years in the number of cases uncovered.

Mr. Bercow: With reference to the four objectives of the action plan and the development of an anti-fraud approach based on article 280, what are the nature and cost of and intended time scale for the roll-out of the training and assistance programme to protect the euro from counterfeiting?

Ruth Kelly: As the hon. Gentleman knows, the euro has been protected in an unprecedented way against the possibility of fraud and counterfeiting. It is perhaps one of the most difficult currencies to counterfeit among those currently in circulation in member states. As part of its introduction, cash management and training was undertaken in all member states to enable people to deal with its development. Continuing the fight against counterfeiting and money laundering, and dealing with other issues associated with the introduction of the euro, will continue to be a major goal in the action plan, as the hon. Gentleman rightly says. In the United Kingdom, our efforts are concentrated in the National Criminal Intelligence Service and on co-ordinating its activities with other bodies throughout Europe. Strategies will be developed over many years.

Mr. Hopkins: Whether we take up the Minister's suggestion that the year-to-year figures are volatile or the argument of my hon. Friend the Member for Broxtowe (Dr. Palmer) that OLAF is only just getting into gear, the figures suggest that there has been a substantial fraud in the past. The European Union has operated for a long time. Will there be any attempt to identify substantial fraud that has been overlooked and to do something about it?

Ruth Kelly: The point of setting up OLAF was to identify fraud, wherever it is to be found, and to root it out. The streamlining of the Commission's procurement and personnel processes will make that easier. OLAF has already undertaken several investigations, some of which have gone on for a considerable time. With its new independent powers and authority, it will find it easier to conclude those investigations and to require action when evidence of malpractice is found. The figures are taken seriously and are proof, in some respects, of the seriousness with which the Commission is taking fraud.

Mr. Bercow: As happens so often, the hon. Member for Luton, North and I are thinking along similar lines, although I do not mean to damn him by that observation. On page 59 of the Commission report, it is stated that in 2000 the then Ministry of Agriculture, Fisheries and Food

    ''reviewed all debts . . . outstanding for more than two years.''

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Will the Minister put me out of my misery and tell me the outcome of that review?

Ruth Kelly: MAFF, now the Department for Environment, Food and Rural Affairs, has rigorous controls in place to ensure that money is not misappropriated, and that money received from the EU, in particular, is used in a cost-effective way in compliance with regulations. Departments will regularly want to review long-standing issues and decide whether to take action. If the hon. Gentleman is referring to a specific issue, perhaps I could take up that matter and write to him.

Dr. Palmer: I have a couple of questions—I shall ask them one at a time, as you requested, Miss Widdecombe—on the report on cigarettes. I declare a constituency interest; some of my constituents work in the industry, although others are militantly opposed to it. The EU proposes rather low minimum excise rates, which, as paragraph 2.15 of the report states,

    ''means only a few Member States have to increase their excise duties.''

The report notes that excise rates are lower still for applicant states, which would probably need a lengthy transition period to adjust to even those low minimum rates. Does not the Minister think, despite her comments, that that will increase the incentive to smuggle rather than provide a degree of harmonisation in the community?

Ruth Kelly: I disagree because I do not believe that the overriding incentive for tobacco smuggling is the difference in excise duty rates between member states. In fact, a lot of evidence suggests that cigarettes smuggled into the UK come not from other EU countries, but may be manufactured in the UK, exported and reintroduced into the country. That sort of analysis has led the Government to introduce our anti-smuggling initiative on smoking, which was announced by the Chancellor of the Exchequer in the pre-Budget report. The Government are funding a £209 million programme to reduce tobacco smuggling within three years. Analysis suggests that measures such as introducing almost 1,000 more front-line staff to investigate tobacco smuggling, setting up a national network of X-ray scanners to detect large volumes of smuggled goods contained in freight containers and introducing a UK duty-paid stamp on cigarette packets are more appropriate than an artificial harmonisation of duty paid across the EU. If my hon. Friend reads the analysis produced at the time of the PBR, he may find that those measures will achieve the proposed aim of reducing tobacco smuggling within three years.

Paul Farrelly (Newcastle-under-Lyme): My hon. Friend the Minister made an interesting observation about tobacco smuggling when she said that the tobacco may be exported from this country and then imported back again. I believe that the only major British manufacturer that does not predominantly sell in this country is British American Tobacco, which, as

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the Minister will recognise from her previous employment at The Guardian, has been at the centre of major smuggling controversies. Is she pointing the finger at BAT?

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Prepared 12 February 2002