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Westminster Hall
Wednesday 26 January 2005
[Mr. Frank Cook in the Chair]
European Union Fraud
Motion made, and Question proposed, That the sitting be now adjourned.—[Gillian Merron.]
9.30 am
Mr. Edward Leigh (Gainsborough) (Con): In 2000, in the wake of the resignation of the Santer Commission over allegations of fraud, corruption, incompetence and nepotism, we debated fraud in the European Union in this Chamber. At the time, my predecessor as Chairman of the Public Accounts Committee, my right hon. Friend the Member for Haltemprice and Howden (David Davis), and I welcomed the appointment of Vice-President Kinnock, who was appointed to oversee the fight against fraud and to reform the Commission. We had high hopes that he would bring about fundamental change, but, even then, we were concerned about the speed of the proposed reforms. One development that we welcomed particularly was the new anti-fraud body, OLAF, because its predecessor had been completely ineffective.
Five years on, we now have a new and enlarged set of commissioners under the leadership of José Manuel Barroso and Vice-President Kallas, who is responsible for fighting fraud. With the United Kingdom presidency of the EU fast approaching, it is a good time to take stock of what has been achieved and what remains to be done. The signs of improvement are evident, but painfully slow.
The Commission seems to be attempting to get a grip on fraud within its ranks, but about 80 per cent. of EU money is spent in member states where controls are even more lax and sloppy than in the Commission. My sense overall is that the European Union is still not taking fraud seriously. We urgently need a strong lead from the centre to drive member states forward into a new culture of zero tolerance of fraud and corruption, and that zero tolerance needs to start in the Commission itself. We must start putting warm words and plans—believe me, there are plenty of them—into action. We need a more rigorous approach to safeguarding taxpayers' money.
How much have things changed? Well, we can measure the financial competence of any organisation by its independent auditors' report. In November 2004, the European Court of Auditors published its audit report on the Community's annual accounts and, for the 10th year in succession, the court was unable to give those accounts a clean bill of health. According to MEP colleagues in Brussels, there are worrying signs that the Commission is now pressuring the Court of Auditors to fine-tune the rules, so that the accounts can be signed off in future years.
The Court of Auditors was also concerned about the lack of reliability of aspects of the Community's accounts. That was due partly to the Commission's accounting system, which could not record assets and liabilities correctly—surely a straightforward
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accounting procedure that we would expect in a reputable organisation. Even more worrying, the number of errors that was found was so high that it could not vouch for spending streams that covered 93 per cent. of expenditure. That does not mean, of course, that all the spending was wrong, but it is astonishing that we cannot be confident that as much as 93 per cent. of expenditure was properly spent. For example, the court reported that payments under the common agriculture policy and for structural funds totalling about €70 billion were affected in some way by errors. That conclusion was not new. It was a familiar story and we have been hearing it for a decade.
When will that familiarity breed sufficient contempt to spark some action? The accounts and accounting systems tell us that the Commission falls far short of full financial competence. That is one thing, but what about fraud? The value of reported fraud in the EU was 49 per cent. higher in 2003 than it was in 1999. Fraudulent cases worth an incredible €900 million were dealt with by OLAF in 2003 alone. Those statistics are one year old, so who knows what the situation is now? More worrying, the real levels of fraud are almost impossible to quantify at present.
It is impossible to separate suspected fraud from irregularity. On the one hand, the Commission defines fraud as a deliberate, criminal act with intent to achieve financial advantage. Fair enough, but, on the other hand, irregularities are failures to comply with Commission regulations. So, until a case has passed through the criminal courts in the relevant country, which may go on for years, it cannot technically even be labelled as fraud.
Member states report fraud differently. How can we track something down if we cannot agree on what it is? Some member states will not recognise fraud until a conviction has been obtained through their national legal system. Germany and Greece seldom report cases within a two-month deadline after detection. Some countries wait until recovery is underway before reporting cases of fraud. Greece often does not even report the date of the discovery. For the Commission to allow member states to pursue such varied practices is sloppy and suggests to me that it is not taking fraud seriously.
The figures that we hear about are only those that have been reported. The actual value is probably much higher. I have estimates of fraud at anything between 7 per cent. and 10 per cent. of the total EU budget. It could have been as high as almost €10 billion for 2003 alone. The Commission, of course, puts the figure much lower at about 2 per cent., but even that is almost €2 billion. Whatever the exact figure, the problem of fraud is immense. The situation has surely gone on long enough.
I turn now to the blame game. The Commission is too quick to shrug off responsibility for the astonishing levels of fraud and irregularity by blaming member states. They may well be culpable, but the Commission is too. It is not a moral responsibility, but a statutory responsibility set out in the founding treaty of the EU. It is time that the Commission seized the initiative with member states. We need common recognition that fraud is a problem and renewed determination to tackle it.
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Some frauds are so ludicrous that they should be blindingly obvious. For example, certain Balkan countries have preferential trade agreements with the EU for exporting sugar. The anti-fraud authorities eventually came across some suspect activities with the importation of sugar into Greece from Croatia, where it had been produced. What was the problem? It was not a complicated, underground system nor a corrupt and complex fiddling of the books. No, the fraud was even more blatant than that and yet went unrecognised—Croatia does not produce sugar cane at all.
Individual embezzlement also threatens public money spent by the EU, even when that money is aimed at vital infrastructure for people living in difficult conditions. In April 2002, OLAF investigated a case from the United Nations mission in Kosovo relating to alleged misappropriation of funds intended for the electricity sector in Kosovo. It turned out that the money had been stolen and spirited into personal bank accounts in Gibraltar. A further attempt by the principal suspect to send the funds from Gibraltar to Belize was thwarted. OLAF managed to secure the return of €2.7 million. The suspect, a former United Nations official in Kosovo, is now serving a three-and-a-half-year prison sentence.
Such activities happen in the United Kingdom, too. We cannot sit in a warm bath of our own prejudices and say that it is all down to Johnny Foreigner. It is not. My Committee has reported on several cases when abysmally lax control by public bodies allowed serious frauds to be perpetrated on EU funds, and further control improvements are still needed.
I shall cite two examples. In 2002, my Committee published a scathing report on a notorious fraudster, a farmer called Joseph Bowden, who claimed against the common agricultural policy for different crops on the same piece of land and went on to give fictitious co-ordinates for some of the fields for which he was claiming. If those claims had been examined by experts, or anyone with a map, it would have been discovered that the fields were apparently in Greenland, the North sea and the Norwegian sea. He received a 30-month jail sentence as a result and new controls were imposed, but at the time he got away with it because controls were obviously lax in the then Ministry of Agriculture, Fisheries and Food.
My second concern is perhaps even more worrying. It could be said that that was just one fraudster and one case of lax controls in one Department, but the Committee also looked at the sheep annual premium scheme in Northern Ireland, an EU strategy designed to support sheep producers through payments for eligible sheep. When we investigated the administration of that scheme, we were shocked to find a catalogue of errors and control failures, all of which pointed to what we described as a "particularly slack regime" in place under the Department concerned, and I believe that there was almost certainly collusion. We found, for example, that some payments were made for dead sheep—surely something that is not unknown in Irish history, but there we are—even though there was often no evidence that they had ever existed. These dead sheep were never alive. When visiting farms, the Department's inspectors
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detected more than four times as many irregularities when accompanied by staff from the National Audit Office as when they were not accompanied by them, which suggests that they were on occasions turning a blind eye to the rules.
I acknowledge that in response to our findings the Department agreed to take strong steps to address the Committee's concerns. Indeed, following wider changes in the EU, the sheep annual premium scheme itself has recently ceased to exist. However, the failure to address the European Court of Auditors' recommendations over 10 years was, in the Committee's view, a serious error of judgment. Failure to manage the scheme properly led the Commission to refuse to pay some of the UK's claim, £1.5 million of which was attributed to Northern Ireland. Perhaps controls are much more lax in other European countries, particularly Mediterranean ones, but we, too, are not without blame.
Such cases undermine the integrity of EU funding. If Departments and agencies are as soft on fraud as we found, fraudsters will regard it as a risk worth taking. All bodies involved in the administration of EU schemes must make fraud a decidedly unattractive proposition; they must have effective inspection processes, a rigorous prosecutions policy and penalties that far outweigh the potential gains from fraud.
Our Committee has repeatedly emphasised that £1 of EU subsidy is as much taxpayers' money as any other form of voted money. We make no distinction between the rigorous safeguards that we expect to see operated for EU subsidies and any other form of grant payment.
Improving financial management in the EU has, of course, long been an important issue for the Public Accounts Committee, and in recent years it has increasingly become a priority for European institutions and member states too. Recently there seems to be a new spirit of co-operation between the Court of Auditors, the Commission and the European Parliament, to work towards the achievement of an unqualified opinion on the Commission's accounts.
The PAC's counterpart in the European Parliament, the committee on budgetary control, has taken a robust approach to the discharge of the budget this year. It has closely questioned members of the Commission and, for the first time, officials from the European Court of Auditors, on how a positive statement of assurance can be achieved. That focused approach and pressure to address difficult issues has been welcomed by Vice-President Kallas, the new commissioner charged with the job of rooting out fraud. However, he is the subject of alleged fraud in his own country.
Mr. Richard Bacon (South Norfolk) (Con): Given our experience on the Public Accounts Committee with the National Audit Office, does not my hon. Friend think that it is extraordinary that the European Parliament budgetary control committee is just now, for the first time, meeting the Court of Auditors and taking evidence from it? Should not that have been its meat and drink for years past?
Mr. Leigh : One would have thought so. Parliamentarians in the Westminster model find that extraordinary. I talked yesterday to my colleague, Mr. Chris Heaton-Harris, Member of the European
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Parliament for the East Midlands. It is colleagues such as him who are trying to change attitudes in the European Parliament, and although it is an uphill struggle they are doing their best. However, it is extraordinary that the budgetary control committee has found its teeth only this year.
There have been some moves towards a more accountable system that helps prevent fraud. One step was the introduction on 1 January of an accruals-based Commission accounting system, which is an excellent start, as the Commission is fond of telling us, but even a first-class accounting system cannot guarantee good financial management. A certain company, now a household name for its high-profile failures in corporate governance, used accruals accounting. I am talking about Enron, and we all know what happened there.
There have also been some useful wider developments in the Commission. There is now a strategic planning function to assist commissioners, a deputy secretary-general to cut through red tape and an internal audit service starting in May to look at control of management. We are told that there is now a human resources policy in the Commission—whatever that is—that will help manage whistleblowers better, and an audit progress board to ensure that recommendations are followed up. However, the impression I get from talking to Members of the European Parliament is that the only people who have suffered so far in the European Commission in rooting out fraud are the whistleblowers themselves. Even in the EUROSTAT scandal, it was Dorte Schmidt-Brown, an official who revealed what was going on, who lost her job, suffered a nervous breakdown and effectively had her career ended.
Hans-Martin Tillack, a German journalist, was arrested on 19 March on the orders of the EU's anti-fraud office, OLAF, and taken into custody. His personal papers, computer and archives were confiscated in an effort to identity sources of revelations about EU corruption. That was his crime. He was arrested because he was not prepared to reveal his sources who had told him about EU corruption. OLAF says that it is implementing a policy of zero-tolerance towards corruption and fraud in the European institutions and is working to produce a robust estimate of the level of fraud and error. We are told that at least we will understand the full scale of the problem. We await results.
I am pleased that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) is present in the Chamber. He fought almost a lone fight in the Commission to try to give extra powers to the European Court of Auditors. Indeed, extra powers were given to virtually every other institution in the EU, but not the Court of Auditors. My right hon. Friend's warnings fell on deaf ears. However, I am delighted that he is here today. He is clearly an expert on these matters in the House of Commons.
In conclusion, there are signs of improvement in the way that the EU manages its finances and I am encouraged to see a glimmer of light, but it is, as yet, a light of expectation, rather than action. We need dedication and prompt action from the Commission and all member states, including the UK, to stamp out fraud. The UK's presidency of the EU in the second half of 2005 provides an excellent opportunity for us to drive forward further progress.
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In dealing with fraud and corruption in an institution it is not enough to say that the rules are being carried out correctly. Moral corruption on a petty scale, and on a large scale, must be dealt with too. It is not good enough for any institution to say "We are carrying out the rules," if the rules are corrupt. Let us take one example of petty corruption. Members of the European Parliament are paid travel expenses on the basis of what is known as kilometrage, which involves fixed payments per unit of distance travelled. The sums paid are the equivalent to club class air travel. If Members choose a cheaper form a travel, and, of course, most of them do, they save considerable amounts, which they are allowed to keep because there is no mechanism by which it can be returned. That is an example of petty moral corruption. It can be argued that there are examples of much larger moral corruption on a grand scale, and one such example would involve the European fisheries policy. However, that is a debate for another time and place.
I said in my opening remarks that now was a good time to take stock. Taxpayers across Europe are rightly concerned at the apparent endemic inability of the EU to manage its finances well. We have every reason to believe that money is still pouring down the drain. We may not be able to say how fast the flow is, or whether it is quicker or slower than before, but it is time to plug the hole. We need a radical policy where we press for our own National Audit Office, which has a reputation second to none, to be allowed to pursue the trail of the money that we give to the Commission into the Commission.
Currently, the NAO has no rights of access in the European Commission. The Public Accounts Committee will go to Brussels in March to discuss what further progress is planned, within its rights of access. It will have no ability to cross-question officials, but some points are evident from the outset. We need the Commission's new accounting system to work and the Commission to drive forward consistency in member states' approaches to reporting fraud. We also need all public institutions across the EU to treat each euro of EU subsidy as they would every euro funded by their own national Treasury or finance ministry. That is a very clear agenda for the UK Government as they take on the presidency and I commend it to the Minister.
Mr. Deputy Speaker : Order. This is a 90-minute debate and it is advisable to remind right hon. and hon. Members that the usual convention is to start the first of the three winding-up speeches 30 minutes before its conclusion. While I am interested in the subject and am learning a lot, I appeal to all right hon. and hon. Members to bear in mind the time limitations. We need to start the winding-up speeches at 10.30 am.
9.52 am
Mr. David Heathcoat-Amory (Wells) (Con): When I heard my hon. Friend the Member for Gainsborough (Mr. Leigh) making his excellent speech, I experienced a strong sense of déjà vu, because the issues are of considerable antiquity. I grappled with some of the problems when I was a Minister with responsibility for Europe 10 years ago, and also when I was at the Treasury as the Minister responsible for our contribution to the European budget. At the time, I failed to push through
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the necessary reforms. I received the brush-offs from the European institutions, and the warm assurances that everything would be different, that reforms were in place and that I had to wait only another year and everything would be fine. Of course, the reform never happened.
In the background, there was a strong sense of not in front of the children. The issue was seen as an internal matter where exposure would damage the European project, so there was a strong reluctance to bring many of the deep-seated problems into the open.
We are now well past that point. The public know perfectly well what is going on and are aware of the scale of the waste, mismanagement and fraud, which was so well described by my hon. Friend. That is now an open sore on the face of the European Union and contributes in large part to the widespread disillusionment and disenchantment that the public feel towards it.
The problem has got much worse during the intervening 10 years. The European budget is now more than €100 billion a year and growing, and, as we have heard, the accounts have not been signed off by the auditors for 10 years. If the EU was a commercial institution operating in the private sector, all of the directors would now be in prison. If it were a public institution operating in a member state, those responsible would have been kicked out long ago. Instead, the whole project simply rolls forward, despite the fact that it destroyed the last but one European Commission; the Santer Commission resigned en masse in 1999 because of fraud and mismanagement in its budget.
Fraud is still going on. EUROSTAT has been discovered to be riddled with fraud, with money siphoned off into secret accounts. The Government's contribution to that subject is the Treasury Command Paper 6134, which was published last April and goes into some detail. It is truly awesome that one of the agencies of the Commission had secret bank accounts and there was no audit trail. When that was discovered, no one lost their jobs.
My hon. Friend is right to remind hon. Members that the only people who ever lose their jobs are the whistleblowers—the people who draw attention to scandals. OLAF, the anti-fraud office, was rather dismissively referred to by the Government last year as part of the Commission, which is a telling observation. It is not an independent body as we would understand such things, but part of the European Union institution that causes most of the problem. It is a branch of the Commission and reports to it. It is not truly independent.
I had a rather sad conversation with one of the whistleblowers, Marta Andreasen, when she came to this country to give a lecture before Christmas last year. She was the first qualified accountant to be appointed chief accountant in the European Union. She pointed out that the system has no proper double-entry bookkeeping. I am a chartered accountant; I declare that interest. Every first-year student of accountancy learns about double-entry bookkeeping. In fact, it was a European invention. It was discovered by the Venetians in the 15th century. It has been around for quite a long time in Europe, but it has not yet reached Brussels.
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Ms Andreasen reported the failings to her superiors and, of course, nothing was done. Her objections and complaints were ignored and, even more scandalously, she never received a proper hearing from the people who should be the guardians of our interest—the European Parliament. When Mr. Prodi retired as President of the European Commission he was congratulated in the European Parliament on the way in which he got rid of Marta Andreasen by the leader of the Liberal Democrat group. That speaks eloquently about the lack of assistance—to put it at its mildest—that we get from the European Parliament in guarding not only British taxpayers, but the European taxpayers.
I want to discuss opportunities for reform and to be positive. There was a giant opportunity in the form of the Convention on the Future of Europe, on which I sat. It was given a wide remit, in particular to reconnect with the citizens of Europe. Knowing that an important part of that reconnection was to assure the public that something would be done in future about the European budget and about the scandals, I submitted a six-page paper on 7 July 2003, which was referred to in kind terms by my hon. Friend in his remarks.
I set out the problem in detail. I referred to whistleblowers and their evidence, and I suggested some reforms, for example, how budgetary control committees in national Parliaments—in our case the Public Accounts Committee and the National Audit Office—should be given some way of following national money through into the European system to ensure, and to help, the value-for-money procedures in Brussels.
I suggested reforms to the audit process, and I suggested that where the European Court of Auditors had severe misgivings about a budget line, it should be able to block expenditure until it could sign it off as being regular and legal. I also suggested making reforms to the European Court of Auditors, to strengthen its authority and independence. I suggested that OLAF be given proper independence and be subjected to democratic scrutiny.
I advanced a case for greater transparency and openness. In that connection, it is interesting that, this afternoon, we are debating that issue in the European Scrutiny Committee, which, amazingly, still sits in secret, and there is a move by some Government Members to entrench that secrecy in our proceedings. I also suggested giving additional rights to whistleblowers in the European Union, to match the statutory protection that we give them in our country.
All that was completely ignored. It was never referred to in debate in the Convention, except by myself and a few of my allies. I submitted specific amendments to the evolving European constitution to reflect the need for some of the reforms that I have just outlined. Again, all of them were ignored and, sadly, they were not supported by the British Government representative on the Convention.
The only plan advanced by the European institution itself was to set up another European institution called the European public prosecutor. That body would consolidate new, awesome powers to prosecute and investigate at European level, right across the European Union, from Brussels. It is not the setting up of new institutions that we want; we have seen that too often in the past. We need to reform the existing institution
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before we give it more powers. That is one reason why the European constitution deserves to fail, and will fail. But my hon. Friend deserves to succeed in his noble crusade to do something about the matter at national level, and I very much hope that he does.
10.2 am
Mr. Richard Bacon (South Norfolk) (Con): I am pleased to have the opportunity to contribute to this debate on an extremely important issue, and I congratulate my hon. Friend the Member for Gainsborough (Mr. Leigh) on securing it. It is somewhat sad that the Chamber is not packed, because this issue cuts to the quick. We will have a response from the Financial Secretary, and I look forward to it, although I say in advance that I have almost no confidence in what he will tell us. That is an awful thing to say, because the Financial Secretary is a distinguished member of the Government, and we all have a lot of respect for him, but I am almost certain that he will give us not a crumb of comfort. I shall now explain why.
The epiphany for me came in a House of Lords report on European fraud, which said that
"huge sums of Community money were lost each year because of fraud; that financial management was weak; that the failure both to detect fraud and take action when it was detected allowed the fraudsters to continue in business; and that for years there had been no political will to tackle the problem."
"We were too optimistic. According to the Court of Auditors' Report . . . there has been 'little or no improvement' in the Community's financial management, despite repeated criticisms made in previous reports . . . Many certificates have been issued without the issuing authorities exercising any proper control over what is really going on; and the large increase in the transfer of Structural Funds has not been accompanied by any significant improvement in the way in which the programmes are managed. The report also accuses the Commission of having had enough time to take the necessary remedial measures but of failing to do so."
The report's summary concludes:
"Clearly there is still a long way to go to achieve the sound financial management which Community taxpayers have the right to expect."
As I say, that report was my epiphany, and it came out in July 1994. It talked about the previous five years, yet my hon. Friend has described the litany of problems that there have been in the 11 years since the report. If anything, things are now worse; my hon. Friend described how the scale of fraud has increased. That is why I do not have much hope that the Financial Secretary will give us any comfort. I found a rather good description of the situation on a German website recently. It said that the situation was "grundsatzlich betrugsanfallig", which means fundamentally susceptible to corruption.
My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) re-iterated that the people who try to sort out the problems get sacked. Marta Andreasen was an accounting officer. On the Public Accounts Committee we are familiar with that role; the job of the accounting officer is to make sure that moneys approved by Parliament are spent legally by the
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Government of the day. We all understand that an accounting officer can ask for a direction from a Minister if he or she is uncertain that what he or she is being asked to do is lawful. In that instance, the accounting officer will be exonerated by the Public Accounts Committee for having acted in a certain way if it should turn out that there was doubt about how public money was being spent.
Marta Andreasen refused to sign the EU accounts because, in her view, they were so dodgy. She was told: "Sign them. That's why you're paid a high salary." That is the culture and the attitude. That is what we have to face. Now the Commission is putting pressure on the Court of Auditors to change the basis on which the accounts are written up. That way, without changing the culture underneath, the goalposts are moved, and accounts appear to be clean when they are not.
The last time I was in Luxembourg at the Court of Auditors with the European Scrutiny Committee, I asked the court why it did not publish more value-for-money reports, as the National Audit Office does in this country. The response was, "You should try getting the budget committee and the agriculture committee of the European Parliament to take any interest in them." That, to us on the Public Accounts Committee, is an astonishing response, but that is the culture. We now learn—I did not know this before—that the Liberal Democrats in the European Parliament congratulated the Commission on getting rid of Marta Andreasen.
I have two further points to make, and the first concerns OLAF. Most EU taxpayers would be surprised to know that there is a distinct possibility that they have been funding Palestinian terrorism and suicide bombers over the past few years. The last time I was in Brussels, I raised that subject with Mr. Alberto Perduca, the official in OLAF responsible for monitoring moneys that go to the occupied territories. He said that he could not rule out that that was happening, largely because the moneys are transferred in actual cash. When Yasser Arafat was alive, that money went to his own bank account at the Bank Leumi in Tel Aviv.
My second and final point concerns the EU financial perspective. My right hon. Friend pointed out that instead of trying to sort out current problems, the EU was ever extending into new areas. I commend a speech made by my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) on 15 June 2004, Official Report, column 731, in which he describes in some detail the proposals of the Commission to expand into a whole range of new areas, from health and education to training and social policy. There is even a target for increasing the rate at which European films are distributed outside their country of origin from 11 per cent. to 20 per cent. That is the position that we face; we have a system that cannot cope with what it is doing at the moment, and that cannot account to taxpayers for the money that it has spent, and yet it wants to extend further.
I am pessimistic, because there has been no apparent adequate drive for change. I would love to think that the Financial Secretary will say something that will give me cause for comfort, but the time has come for shock therapy. For years, people have been waiting for some sort of change, and they have not seen it. The only thing that the Financial Secretary can say that will give me any
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cause for optimism is that the British Government will finance—and will encourage other member states to do so too—only those areas of expenditure that receive a clean bill of health. If he does not do that, I am afraid that there will be just more of the same.
10.9 am
Mr. Ian Davidson (Glasgow, Pollok) (Lab/Co-op): The right hon. Member for Wells (Mr. Heathcoat-Amory) talked about déjà vu, or, as we might say in Glasgow, déjà vu again. We have repeatedly had debates on EU fraud, with warm words coming from the Government and nothing effectively happening. It is clear that the EU is weak on fraud, and the Government's attitude seems to be that it is a price worth paying. They have not been nearly as outspoken as they ought to have been in the circumstances about this substantial waste of taxpayers' money.
The Government's attitude seems to be that because this is EU money, it does not matter; but it is our money that is being wasted. We are the second largest contributor to the EU budget; it is the money of the taxpayers of this country that is being wasted. I welcome the fact that the Prime Minister identified a share of the EU contribution to the recent flood disasters in south-east Asia as Britain's contribution. On that principle, the Financial Secretary should accept that a share of all the fraud that is occurring is fraud against UK taxpayers, and that it ought to be dealt with.
The Chairman of the Public Accounts Committee raised a number of interesting points, some of which I had not previously been aware of. I am sure that we all enjoyed the Croatian sugar export story; it would be funny if it was not so tragic, and I hope that the Financial Secretary will respond to it with a degree of seriousness. I was also aware of the farm buildings in the North sea, and the Irish dead sheep that may or may not have existed. However, I am reliably informed that none of those sheep were involved in the recent bank robberies in Belfast.
I ask the Financial Secretary to tell us what the Government's attitude is to the sensible suggestion of the Chairman of the Public Accounts Committee that the National Audit Office should be able to pursue UK money into the Commission—that it should have rights of access to EU books and officials in order to follow through how our money is being spent. We cannot trust the EU system to police itself, and therefore it is essential to adopt a mechanism such as that proposed by the Public Accounts Committee Chairman. I will be very disappointed if the Financial Secretary does not suggest that he intends to support the request and to do what he can to make sure that it comes about; otherwise, the Government will be seen to be acquiescing in the present level of EU fraud, irregularity and mismanagement.
In my opinion, the Government have been more interested in covering up EU fraud than in exploring and revealing it. If that is not the case, I would be grateful if the Financial Secretary would give me an assurance that the Government will publish as soon as possible a list of all the frauds and irregularities that they are aware of and that cause them concern. Failure to do so will be seen as placing the EU project above the rights and duties of the Government and the interests of EU taxpayers.
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I am sure that we have all noticed that the Commission has been pushing for a 35 per cent. increase in EU spending in the next budget round. I hope that the Financial Secretary will give us a clear and categorical assurance on behalf of the Government that Britain will not agree to that until such time as fraud and irregularities are removed from the EU budget.
However, we must remember that the EU budget is not the only source and site of fraud. When Greece joined the euro, it rigged its books to minimise the appearance of its deficit in order to make it eligible to join. The concept of cooking the books for political purposes is endemic to the entire EU project.
I ask the Financial Secretary to explain the Government's intentions with regard to dealing with fraud when Britain takes over the EU presidency. We have heard many warm words about those intentions, but what is the target in combating fraud? What are the objectives against which the success, or otherwise, of the British presidency can be measured?
I look forward to hearing the Financial Secretary's response.
Mr. William Cash (Stone) (Con) rose—
Mr. Deputy Speaker : The Chair acknowledges that the hon. Gentleman who seeks to catch my eye is a member of the European Scrutiny Committee and, as such, I shall allow him to speak. However, I must point out that, as he heard only three minutes of one of his European Scrutiny Committee colleague's contributions and six minutes of that of a Government Back Bencher and Public Accounts Committee member, he will have missed many of the points made. I hope that the hon. Gentleman will avoid undue repetition, and I remind him that the first of the three winding-up speeches begins at 10.30 am and they can last for only 10 minutes each. I trust that the hon. Gentleman will bear those comments in mind when making his contribution.
10.16 am
Mr. William Cash (Stone) (Con): I am extremely aware of what you have said, Mr. Deputy Speaker. I am sorry that I arrived a little late, but sometimes that is unavoidable. However, I will do my best not to repeat myself, and I have no desire to repeat what others have said.
Let me explain the question that I want to address. I am well aware of many of the arguments that I dare say have already been adduced, as I have been involved in this issue since the early 1990s. I was involved in the debate on the European Communities (Finance) Bill when some of my colleagues lost the Whip. On that occasion, there were frenetic discussions between the Whips Office, the Foreign Secretary, the Chancellor of the Exchequer and the Prime Minister, because I had the temerity to table an amendment that said in effect that the rules governing the manner in which fraud is investigated in the EU should take account of and follow the procedures prescribed by our own Public Accounts Committee, several distinguished members of which are present today. I have persisted in that, and I have reason to believe that the Comptroller and Auditor General agrees with my principal point. I am
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also delighted that the Chairman of the Public Accounts Committee is present, because he and I have persistently raised that question over many years.
The reality is that it is open to the other member states to change their rules to take account of the point made by the hon. Member for Glasgow, Pollok (Mr. Davidson) and my hon. Friend the Member for South Norfolk (Mr. Bacon)—and I dare say, although I did not have the privilege of hearing him, my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory).
The fundamental question is, how do our country and other countries address the mismanagement and outright fraud in the EU? Several years ago, I visited the European Court of Auditors as a member of the European Scrutiny Committee—then known as the European Select Committee. We were informally told that although about £6 billion a year was the figure that some German professor had come up with, the fact was that the exact amount was not known, and not only was it not known, but it could be £20 billion or more. The situation is seriously out of control. A senior member of the Court of Auditors resigned because he was not getting the sort of answers that he wanted to such questions. I am putting it in a nutshell, but that is all I need to do because the incidence of fraud and mismanagement is set out in detail in the Court of Auditor's report.
These debates used to be taken on the Floor of the House; I remember complaining when they were referred to a European Standing Committee. Those Committees are useful, although they will be subject to reform, but issues such as the scale and range of European fraud are a matter of grave interest to all Members of the House and they should be taken on the Floor and not in Standing Committee. Because of the nature of the budgetary arrangements in the European Union, interaction between fraud in other countries and the financial perspective to which my hon. Friend the Member for South Norfolk referred means that mismanagement and fraud in other countries impinge on our financial arrangements.
It is inevitable that in the desire to achieve economic management under the European Union Bill, which is published today, we are affected by what goes on in other countries. That Bill, which will give effect to the treaty implementing the European constitution, should deal with these questions but it does not.
There is the further question of the connection between resources and potential tax. If functions are set up and they are fraudulently handled in other countries, or if there is a failure to deal with fraud properly, there will be more and more pressure to bring in a tax system to match the increased functions and the increased resources that are called upon. That is a black hole in the middle of the European Union.
Mr. Bacon: Does my hon. Friend recall that when the European Union financial perspective 2007–13 was discussed at a seminar sponsored by the Commission in Helsinki 18 months ago, two items dominated the agenda—first, the British rebate and, secondly, common European taxation?
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Mr. Cash: Absolutely, and the lies that have been generated from outside the House with respect to the matters that my hon. Friend raises are simply incredible. There is a determination to move to a common tax policy; that is connected with the budget and therefore with the question of fraud. The scale of the fraud speaks for itself.
The problem can be resolved, but there is a lack of willingness to resolve it. In fact, there is a determination not to. If one asks some of the other 26 member states what are the rules for the equivalent of our Public Accounts Committee, do we find that in the other member states they properly examine matters, with the scrutiny available through the National Audit Office and the Comptroller and Auditor General? Is there a determination in each of those member states to deal properly with the accounting system? The Marta Andreasen case and the complete failure of the then Vice-President, now Lord Kinnock, to deal with the matter is a good example of the massive problem of the accounting system and fraud in the European Union, which affects us and our voters. The way in which the whole of the European Union finances operate and the increase in the amount of fraud is a disgrace to the European Union and to those who have been responsible for trying to correct it.
Mr. Bacon : In the last year or so—certainly in the last 18 months—the Committee has visited the Cours des Comptes in Paris, the Bundesrechnungshof in Berlin and, last October, the Tribunal de Cuentas in Madrid. The European Court of Auditors in Luxembourg is modelled on that continental, juridical, legalistic model—not on the financial audit, taxpayer, value-for-money model, such as the one we have here. Does my hon. Friend not appreciate that the reform he is looking for will not happen because it is utterly inimical to the system?
Mr. Cash : I could not agree more. I am living in hope that some good will come of putting forward arguments that make sense and are necessary. I entirely agree with him, because, as I think I said earlier, that is exactly what the European Union does not want. It does not want its accounts to be looked into properly. It does not want to have proper auditing and public accounting. Indeed, a similar problem arises with corruption in Africa as well. The plain fact is that until we face up to the reality of the complete determination not to look into these questions of public accounts, I fear that the situation will simply get worse and worse.
We will have a referendum on the European constitution. The Bill was published this morning, and I can absolutely assure you, Mr. Deputy Speaker, that I and my colleagues will be highlighting these questions in our determination to show that, under the European Union constitution that is being proposed, nothing has changed and nothing will change. The EU does not intend anything to change, and we will put that message firmly across to the British voters, who will produce a resounding no.
10.27 am
Mr. Colin Breed (South-East Cornwall) (LD): Whether people are avowedly in favour of the European Union or totally against it, no one could suggest that
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anyone would countenance fraud and the misuse of taxpayers' money. Therefore it is absolutely right that we have these debates and, while there is a certain amount of déjà vu, they should continue, because these are extremely important matters.
The annual reports by the European Court of Auditors and the European anti-fraud office—and, indeed, the National Audit Office—are scrutinised at a number of national and European levels. In the UK, of course, they are considered by the European Scrutiny Committee and European Standing Committee B. As a member of the Scrutiny Committee for quite a little while, I concur with all who have spoken on the subject today that our scrutiny process, in general, needs to be significantly enhanced. It needs to be open, not held in secret as it is, and it ought to have many more powers to ensure that it can get to the bottom of things, not least the budget and the control of funding. All other areas of scrutiny could be significantly enhanced as well.
Part of the problem is that we have a majority Government, and therefore a Government majority on the Committee, whereas most other European scrutiny committees are comprised of coalitions. While they may not get to the bottom of all their finances, I suspect they hold their Ministers to account more. Far too often when I was on the Scrutiny Committee we were advised that the Minister had ignored the scrutiny reserve and had gone ahead and decided on a particular view at the Council of Ministers, of which he informed us later. Our European scrutiny process is in need of great reform and overhaul, and it needs to be held in public.
Fewer matters should be referred to the European Standing Committee and more should to be taken on the Floor of the House. That was often recommended by the Committee, but was never taken up. There is ample evidence that parliamentary time is available on the Floor of the House, particularly on Thursday afternoons, when we could properly debate the issues that we are discussing today.
The European Court of Auditors produces an annual report, as has been said, and I have had a good look at the most recent one. It is required to do so by the treaty that established the European Community to provide the European Parliament and the Council of Ministers with a statement of assurance—I am not quite certain what it assures at the moment—
"concerning both the reliability of the accounts drawn up by the Commission and the legality and regularity of the underlying transactions."
I understand that to be the payments actually made.
The court's assessment usually goes beyond what we would see as a pure accounting exercise; it also assesses the financial management and control structures of the EU Executive. As we have heard, for the 10th successive year it has failed to give the all clear to the accounts. It refused to give a positive assurance on the legality and regularity of 93 per cent. of the EU budget, which is an extraordinary figure. Most auditors would say that in the time available and in normal circumstances they are unable to get 100 per cent. of everything right, but for the court to say that it could not vouch for 93 per cent. is extraordinary.
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The notes on the reliability of the accounts are quite instructive. I want to quote a couple of paragraphs from what was said. Paragraph III states:
"In the absence of effective internal control procedures for miscellaneous revenue and advances, the Court cannot be certain that the transactions relating to the sundry debtors item have been correctly and completely recorded."
Almost any auditor going into almost any public or multinational company would be unable to provide absolute assurance in the way in which it is expressed there. Paragraph VI (b) states that
"in the case of the structural measures, owing to persistent weaknesses at Member State level in the systems for supervising and controlling the implementation of the EU budget, payments were still subject to the same errors occurring with the same frequency as in previous years."
That gets to the heart of the matter. The fact that, for 10 years in a row, the court has qualified or failed to sign off the accounts seems to have had no effect whatever. There has been no real improvement. Auditors will often make suggestions and indicate areas where there needs to be more effective control, and they would expect, a year later, to see at least some improvement. That is one of the most damning paragraphs; despite 10 years of not being able to sign off the accounts, the payments are
I should like to make one further observation on the report. It relates to paragraph VII, which states:
"The Court notes the progress made by the Commission as regards the reform of its internal control system and the positive impact of this reform on the legality and regularity of operations subject to direct management by the Commission. However, progress is still required in terms of actual implementation."
Progress has been made in one area, but there is a problem with implementation. That seems to indicate that although new regulations are introduced and new instructions given, implementation is not followed through. That is another part of the damning evidence.
I turn now to OLAF, which also produces a report. Its report indicates that the irregularities that it finds are not necessarily fraud but are the result of simple, non-criminal errors. In that context, I want to give an example of one of my constituents, a farmer who—I believe quite properly—indicated that after the re-measurement of his fields some of his subsidy claims needed to be revisited. He reported that his fields were slightly different, and had carried different crops over the past four years, and in doing so he was made to feel an absolute criminal. He was then asked to return all the subsidy that he had received and told that he would be subject to a penalty, notwithstanding the fact that some of the changes would have resulted in credits and others in debits: in some cases he would have received too much, but in others too little. He thought that, having reported the matter, he would receive fair treatment—that a balance of the credits and debits over the four-year period would be calculated, and that if a payment was due he would pay it, and if not, a payment would be made to him. But he was told absolutely categorically that that could not be the case; he would have to pay back all the subsidy that he had received and a penalty would be imposed. He felt pretty bruised by the whole exercise.
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That case would probably go down as fraud, but it was not a fraud. My constituent reported the matter and the difficulties were explained. He was extremely harshly treated. I do not know whether that was the result of an attempt to crack down on fraud, but obtaining money in such a way is not always fraudulent.
The main source of fraud undoubtedly seems to be farmers making fraudulent claims. Spot checks found that 25 per cent. of farm payments in Italy were in error or fraudulent, 23 per cent. in Greece, 21 per cent. in Spain, and 14 per cent. in France. Our error rate was said to be 6 per cent. That may be better than everybody else's, but it is still a problem. How many of those cases were actually fraud rather than honest mistakes I am not certain.
Mr. Bacon : When Marta Andreasen was appointed as the Commission's first budget execution director and accounting officer, there was some hope that those problems would be addressed and sorted out. Why did the Liberal Democrats support the sacking of Marta Andreasen?
Mr. Breed : The short answer is that I do not know. I was somewhat surprised myself. However, I have confidence enough in my own member at the Commission to know that it would not have been out of spite. There must have been significant reasons. I will find out and let the hon. Gentleman know.
The introduction of the integrated administration and control scheme in 2003 has had a significant effect in beginning to check some of the irregularities that were seen in the past. As that rolls out year on year it is beginning to have an effect. Some other reforms, although they have been painfully slow, are also beginning to be implemented. They include satellite imagery of farms to determine their size and to allow proper checking. We are not alone in raising the issue; budgetary matters are raised in other European countries in similar settings but that has only a minimal effect where it makes a difference.
I want to finish with the issue of zero tolerance. It is a good adage to say that we want zero tolerance of fraud, and I would agree with that, but I wonder whether we are prepared to face the underlying costs of implementing the systems that would achieve that. I recall from my banking days that the costs of trying to drive out some of the problems were sometimes 10 times what was being lost. There is a balance to be struck. We are nowhere near it at the present time, but if we want to pursue zero tolerance on all budgetary expenditure to drive out every single euro of fraud, the costs involved would be enormous. We need to take that into account before we go down that road.
10.39 am
Mr. Richard Spring (West Suffolk) (Con): First, I warmly congratulate my hon. Friend the Member for Gainsborough (Mr. Leigh), the distinguished Chairman of the Select Committee on Public Accounts, on securing this debate and on his contribution, based on his considerable knowledge and expertise. What he said about the principle of zero tolerance is absolutely right.
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Nothing alienates people from the European Union more than the thought that taxpayers' money is being squandered in a irresponsible and unmeasured way. I thank him for what he has done this morning.
I absolutely accept that the European Commission is not inherently corrupt. However, it is bureaucratic, inefficient and vulnerable to fraud, and that vulnerability has been exploited. My hon. Friends the Members for Stone (Mr. Cash) and for South Norfolk (Mr. Bacon) and the hon. Member for Glasgow, Pollok (Mr. Davidson) made this point tellingly this morning. The Government are to assume the presidency of the European Union. We have the NAO and other close mechanisms for inspecting any type of financial irregularity in this country. If the Government have, as they say, influence in the EU, it is fundamental that they seek to address the problem in the next year, because the situation has not improved to the satisfaction of people who consider these matters and feel depressed by them, as I do.
I pay particular tribute to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). I have looked again at his contribution on systems of management during the proceedings of the Convention on the Future of Europe. It is a telling document and a telling analysis of what could and should be done in that context. I pay tribute to him for often being a lone voice on these matters. He has been right in so many instances, and we are seeing that again this morning on immigration and asylum.
The first step must be to acknowledge the extent of the problem. The European Commissioner for Institutional Relations and Communication Strategy, Mrs. Wallström, has said that the Commission has the problem of being afraid of too much openness and has a way of thinking that is "in the walls here". That must change, because it certainly has not changed in any adequate sense of the word. As we have heard, there have been so many instances of fraud, including the EUROSTAT affair and the disgraceful situation involving Croatia and sugar cane. That cost the EU £700,000.
In its annual report in November, the EU's own OLAF said that the incidents of fraud in the aid budget increased by 9 per cent. to 637 over 12 months. The report stated that the international aid budget was dogged by "complex and well-organized" financial fraud. For instance, the EU funded a project to improve water supplies to 50 local authorities in Paraguay. An external audit found that 90 per cent. of the funds had disappeared into a foundation that had nothing whatever to do with the project. The report stated:
"Such fraud takes . . . advantage of the lack of coordination in the monitoring and auditing activities between the various international donors".
OLAF's director-general has said:
"Of the problems we detect, more and more are in the aid sector, where things have to be looked into more closely."
I totally agree. After the terrible tsunami disaster and the terrible problems in Zimbabwe and other parts of Africa, international aid is very much at the forefront of people's minds.
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We have heard about Ms Andreasen, the European Commission's chief accountant, who was suspended by the Commission after exposing publicly how its accounts were wide open to fraud and abuse. I say with some pride that Conservative Members of the European Parliament helped Ms. Andreasen to make those shocking accounting practices public, thus fulfilling their public role. The European Court of Auditors has repeatedly confirmed many of her most serious allegations. I add in passing that a British accountant, Brian Gray, is seeking to carry on the work that she was originally put in place to do. We all wish him well in his role and in introducing some of the high standards that we have in this country. In any event, Ms. Andreasen got her reward in October by being sacked from her post.
Regrettably, in November, we yet again faced a farcical situation in which, for the 10th year running, the European Court of Auditors could not give a positive statement of assurance in respect of the overall EU accounts. It is simply unacceptable that the court found that 93.4 per cent. of spending was either unsafe or riddled with errors, up from 91 per cent. the year before. Indeed, the court said that once again there is
"no reasonable assurance that the supervisory systems and controls of significant areas of the budget are effectively implemented so as to manage the risks concerning the legality and regularity of the underlying operations".
That speaks volumes for the court's view of the accounts, and is what qualifying the accounts really means. Spot checks by the court found fraud or error leading to demands for repayment in 25 per cent. of farm aid to Italy, 23 per cent. for Greece, 21 per cent. for Spain and 14 per cent. for France. Given the huge burden of the common agricultural policy, the fact that fraud continues under the umbrella of agriculture is an absolute disgrace.
I understand that the usual defence is that the blame lies with the member states. A senior EU auditor said that the Brussels budget is high risk because most of it is doled out to member states, making it hard to track, but—this is the important point—he went on to say that Commission officials set a dreadful tone, behaving like:
It is absolutely wrong that hard-working, tax-paying families have their taxes so blatantly misused in this way.
We welcome the fact that the Commission has a reform plan, but I doubt that will be enough. The full resource accounting system that we are implementing in Britain has not been replicated in the European Commission—aspects of it have, but not the full system. We need to deal with this problem seriously, and to encourage the European Parliament in its role as watchdog, because it should take itself even more seriously in that role.
I accept that the Commission has made limited progress in this direction. I am pleased that it has taken up our proposal to have a Commissioner with sole responsibility for budgetary control. Frankly, reform must go further. As the treaties say, the buck stops with the Commission. That is a simple fact.
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All Commissioners should have a Cabinet member with specific responsibility for all management control issues. They must take full political responsibility for failings within their department. This is hugely important if public credibility is to be reasserted. Quite frankly, it is absolutely wrong that these reports have been signed off, given the circumstances.
OLAF should be fully independent, with its own staff, budget and organisational priorities, subject to a new management board. Member states must account adequately for all expenditure on EU programmes. The Court of Auditors should undertake programme audits for all member states, rather than just a sample of them, publishing a detailed assessment of each. That should be followed up so that progress can be measured in subsequent years.
Until voters can have confidence in EU accounting, Conservative MEPs will refuse to sign off the Commission's accounts, and so would a Conservative Government. The British people contribute to the EU, and they deserve value for money. They do not expect to have their money stolen. Openness, accountability and honesty from the EU should not be too much to ask. After almost eight years in power, the Government have not gripped the issue significantly.
There have been some practical suggestions this morning on how to take the matter forward. I look forward to the Minister's explanation of what the Government will do about such a serious state of affairs, which must be part of the reason that the credibility of the European Union has never been so low, not only in this country, but in many other parts of the European Union.
10.48 am
The Financial Secretary to the Treasury (Mr. Stephen Timms) : I, too, congratulate the hon. Member for Gainsborough (Mr. Leigh) on securing this debate, and on a very thoughtful speech, which is characteristic of him as Chairman of the Public Accounts Committee. I was pleased that he acknowledged that there were signs of improvement, as did the hon. Member for West Suffolk (Mr. Spring), though perhaps more reluctantly. He said that those improvements were painfully slow, but, nevertheless, acknowledged signs of them. I felt that the contributions of the other Opposition Members were weakened because they said that there had not been any signs of improvement. I agree with the hon. Member for Gainsborough—I think there have been.
I want to be a little more generous than the hon. Gentleman towards the Commission with regard to what has been achieved in the recent past and, in particular, to endorse the fundamental reform initiated by Neil Kinnock when he had responsibility in this area, but I agree that the matter gives rise to serious concern. All Members who have spoken made the point that a great deal more still needs to be done.
My hon. Friend the Member for Glasgow, Pollok (Mr. Davidson) asked me for an assurance that the UK would not agree to proposals to increase the EU budget by 35 per cent. until the problem of fraud is solved. I can tell him that we will not agree to that proposal, period. Six member states, including the UK, have taken a firm view that the EU budget should be limited to 1 per cent. of member states' national incomes rather than the 1.26 per cent. that is implied by the proposal to which he referred. Our argument is that the current Commission proposal is unrealistic and unaffordable.
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There are two important questions that we need to address in this discussion. First, how much fraud is there against the Community budget? Secondly, what is being done to reduce and prevent it? There is a good deal of uncertainty about the true extent of fraud, as has been rightly said in the debate. Most of the figures that are quoted relate not to fraud but to errors or irregularities, within which fraud is an element—although it is difficult to establish precisely how large an element that is. Member states are required to report all detected irregularities to OLAF, but they are not, under current legislation, required to identify actual or even suspected fraud. Some countries—for example, Germany—are not able in law to identify fraud cases until a conviction has been obtained. The UK has been working with OLAF and other member states to try to improve things. I am reassured that OLAF now has the staff and the expertise needed to identify the true extent of fraud. OLAF did not have those at the outset, and putting them in place took rather longer than we had hoped. That they are now in place is a welcome development.
The Commission's annual "Fight against Fraud" reports publish the amounts of irregularities reported each year by member states. The most recent report covered 2003, as we heard. The figures published there add up, as the hon. Gentleman said, to total irregularities of €921 million, and he fairly and rightly drew attention to the increase in that figure since 1999. I think it is also fair to draw the attention of the House to the decline in the 2003 figure of 20 per cent. from the previous year. That is one of the developments that I would emphasise as indicating that there are some signs of improvement.
That does not mean that there is any justification for complacency. The figures can go up and down from year to year. We cannot say yet that the figures are on a consistent downward trend, welcome though the reduction for the most recent year certainly is. Some cases take years to investigate. Total figures may not be included until investigation has been completed. There may be events contributing to an increase, such as the final closure of the 1994 to 1999 structural fund programmes, which required heavy auditing and, consequently, a higher detection of errors, contributing to the 2002 figure.
OLAF has estimated in the past that perhaps some 20 per cent. of the irregularities reported may turn out to be fraud. If that figure was right, taking the €921 million of reported irregularities, that would put the value on fraud at €185 million. If correct, although there are lots of caveats around that figure, that would be 0.2 per cent. of total Community budget expenditure. That is a significant sum, but not as large a share of the total as some that have been quoted in this debate. Although we cannot be sure of the true extent of fraud, we will continue to encourage OLAF to improve its analysis and encourage member states to identify suspected fraud when they report cases of irregularities. It is unacceptable that we cannot pinpoint the true extent of fraud; the sooner we can, the sooner we can expect to see a reduction in the regular critical headlines.
Mr. Cash : Given the seriousness of the situation, and despite the claims of slight improvement—I shall not dispute those, but I do say that it is only slight—why did the Government not take the opportunity to red-line the
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necessity of dealing with the question of procedures during the negotiations on the constitution? That would have ensured that we dealt with the matter properly.
Mr. Timms : I am pleased that the hon. Gentleman has acknowledged the possibility that there has been some improvement. It is important that the House should acknowledge improvement when that has occurred. There are very welcome assertions in the proposed constitution that address the issue; they provide reassurance and helpful underpinnings for the work that needs to be done in future. Perhaps I shall have the opportunity to come back to that in a moment.
The second important question is about what we are doing to reduce the incidence of fraud against the budget. The treaty—the new draft constitution—will make an important contribution.
Mr. Heathcoat-Amory : Will the Minister give way on that point?
Mr. Timms : No, I had better not. I have only three minutes, and I hope to get to the precise point on which the right hon. Gentleman wants to press me.
OLAF is the key player in the fight against fraud. The Commission and the Council worked with commendable speed to set it up in June 1999 after the European Court of Auditors' uncomplimentary report in 1998. What material difference has OLAF made in comparison with its predecessor? We start to get a partial picture by examining the helpful and informative annual activity reports, which tell us, for example, about the Croatian sugar cane case, rightly referred to in this debate.
The latest activity report shows a service that is getting to grips with its predecessor's legacy. It is particularly welcome that the backlog of old and very old cases has been mostly eliminated. OLAF has become more effective, particularly in the past 12 to 18 months, and the new directors for investigations and intelligence have helped to drive that improvement. As I have said, OLAF is now up to its full staff complement and has more than twice as many people as its predecessor UCLAF. The fact that it has achieved that is welcome.
Mr. Bacon : Will the Financial Secretary give way?
Mr. Timms : I have only two minutes. I know what the hon. Gentleman wants to press me on.
Mr. Timms : It is important that I make as much progress as I can through the points that I want to raise.
I welcome the fact that OLAF was able to identify that an agent employed by a Commission agency had wrongly claimed more than €20 million in allowances, and that the agency was able to recover that cash.
The EUROSTAT case was referred to, and work on that is ongoing. There is absolutely no doubt that serious mistakes were made, but the systems put in place as part of the reform programme unearthed those problems at EUROSTAT, and decisive action was taken. Under article 280 of the treaty on European
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Union, the Commission and member states are required to take measures to counter fraud and any other illegal activities affecting the financial interests of the Community. That article also requires member states to take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud that affects their own interests—
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