CHAPTER 1: introduction
1. Late in the evening of 15 March 1999 all 20
Members of the European Commission under the stewardship of Jacques
Santer resigned. The unprecedented mass resignation would prove
a pivotal moment in the EU's institutional response to fraud against
the EU's budget. It would also mark a key moment in the European
Parliament's (EP) evolution; in particular, the role of the EP's
Committee on Budgetary Control (CONT) in holding the European
Commission to account. Arguably, the Commission scandal would
cement the idea in the general public's mind that the EU's bureaucracy
is inherently corrupt and staffed by officials who are guilty
of perpetrating frauds on its finances.
2. In September 1999 a new Commission was appointed
led by Romano Prodi. Neil Kinnock, one of two Commissioners from
the UK,[1] was made the
Commissioner responsible for administrative reform, audit and
anti-fraud. One of the key changes Commissioner Kinnock introduced
was the creation of OLAF (Office de Lutte Anti-Fraude)
the EU's anti-fraud body, out of the ashes of its discredited
predecessor UCLAF (Unit de Coordination de Lutte Anti-Fraude).
OLAF, which remains the key EU institution responsible for protecting
the EU's financial interests, is discussed in Chapter 5.
3. The Treaty on the Functioning of the European
Union[2] enjoins both the
EU Institutions and the Member States to protect the EU's financial
interests but, in practice, the effort to combat fraud against
the EU's budget falls largely to national authorities who remain
responsible for administering 80 per cent of the EU's funds and
for collecting most of its revenue. In 2011 the European Court
of Auditors[3] (ECA) decided
again that the EU's budget in the areas of agriculture; market
and direct support; rural development, environment, fisheries,
and health; regional policy, energy and transport; and employment
and social affairs was "materially affected by error".[4]
4. In its 2011 Communication on the protection
of the financial interests of the European Union by criminal law
the Commission argued that there are shortcomings in national
legal frameworks regarding the definitions of offences, and penalties.[5]
In addition the Commission said that cooperation between the national
authorities is insufficient, that national authorities do not
always have the necessary means to prosecute cases involving EU
funds, and do not systematically follow up investigations undertaken
by OLAF.[6] The current
Director-General of OLAF told us that the protection of the EU's
financial interest "is left to the ability and willingness
of national authorities, and that varies very much".[7]
5. In the light of the Commission's recent legislative
efforts in this field (see Chapter 2), in particular the publication
of the proposed Directive on the protection of the financial interests
of the European Union by criminal law (see Chapter 4), and in
order to appraise the EU's anti-fraud system as a whole, including
the significant role played by the Member States, the Justice,
Institutions and Consumer Protection Sub-Committee, whose members
are listed in Appendix 1, initiated an inquiry on fraud against
the EU's financial interests. A call for evidence was published
in July 2012 to coincide with the Directive's publication. The
call for evidence is reproduced in Appendix 3. The Committee held
19 oral evidence sessions including 14 sessions in Brussels. The
persons and bodies who provided evidence to the inquiry are listed
in Appendix 2. We are grateful to all those who gave us written
and oral evidence.
6. Unfortunately, the Government's engagement
with this inquiry has been disappointing. Officials from the Treasury
were scheduled to appear alongside the City of London Police and
the National Fraud Authority to discuss the level of VAT fraud
perpetrated within the EU.[8]
However, having initially accepted our invitation the officials
withdrew at the last minute. Following a letter from our Chairman
to the Chancellor of the Exchequer, (see Appendix 4) David Gauke MP,
Exchequer Secretary to the Treasury, agreed to appear in January.
He explained that no discourtesy was intended but officials had
advised that VAT fraud "was outside the [inquiry's] scope".[9]
Deciding what is (or is not) within the scope of a Select Committee
inquiry is not a matter for the Government. We believe VAT is
relevant for reasons that appear later in the Report.
7. In these difficult economic times protecting
the public purse should be the priority of us all.
8. We make this Report to the House for debate.
1 The other was Chris Patten who was responsible for
external relations. Back
2
Article 325 TFEU Back
3
The body responsible for auditing the EU's accounts. Back
4
European Court of Auditors annual report concerning the financial
year 2011. Para X of the Court's statement of assurance. The Court's
estimated error rate for payments underlying the EU's accounts
is 3.9 per cent. Back
5
26 May 2011, COM (2011) 293 final Back
6
26 May 2011, COM (2011) 293 final Back
7
Q 52 Back
8
At our meeting of 21 November 2012 Back
9
Q 209 Back
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