§ 3.6 p.m.
§ Lord Benson rose to call attention to the volume of fraud which continues to take place in the conduct of affairs in the European Communities and the case for specific programmes of reform in a number of areas if fraud is to be curtailed; and to move for Papers.
The noble Lord said: My Lords, the substance of today's debate is well summarised in the Select Committee's report, Fraud against tire Community, dated 21st February 1989. The report reads as follows:
The Committee are deeply concerned by the disclosures in this Report. In brief, these are: the loss of huge sums of Community money each year due to fraud and irregularity; weak financial administration, and the absence of adequate controls in so many areas; the failure to detect fraud and to take criminal and civil action when corrupt practices are brought to light, so that fraudsters are allowed to continue to trade; the failure to deploy the audit function properly; and above all, the absence of political will to correct a damaging situation which has existed for years".
There can scarcely have been a more damaging criticism of a governmental organisation which speaks for 12 first-world countries.
§ To the best of my knowledge, fraud within the Commission is negligible. The fraud about which we speak takes place in the 12 member states which carry out the Community policies. The Commission has never bothered to ascertain the amount of such fraud but it has been going on for a great many years and various estimates of the amount have been made by different people. They vary between £2 billion and £10 billion every year. The United Kingdom is no better and no worse than the other 11 states.
§ There is no need for fraud. Each of the big industrial organisations in this country, such as Unilever, ICI, the oil groups and many others, carry on business without fraud taking place within them. They do not carry on business in 12 member states; they carry on business in scores of different countries all over the world. Their transactions are not riddled with fraud because they are carried out by people of integrity and competence, and the audit coverage of their transactions is adequate.
§ Fraud in the Community is rampant because the competence of the people who carry out Community policies is inadequate and audit coverage is unsatisfactory. The basic reason for that state of affairs is the absence of the political will to stop it in the Council of Ministers. Her Majesty's Government have pointed out many times that they are anxious to combat and contain fraud; but they draw attention to the fact that they are only one of the 12 member states and that it is difficult to persuade the other 11 states to take action. There is truth in that. It is due in some degree to the disjointed and uncoordinated structure of the government organisation in Brussels. In particular, it is exacerbated because we are not told of the intentions or decisions of the Council of Ministers. It is further exacerbated because the European Parliament has a mouth but no teeth.
§ That is not the only reason. It is true, as I shall explain later, that concerted action from the top is necessary in many cases, but any one of the 12 member states could easily take the initiative in their own territory to, in some degree, contain the fraud that is taking place in their areas.
§ Those persons who inhabit the corridors of power may take refuge in the fact that in 1988 an anti-fraud co-ordination unit was set up in the Community. The Select Committee pointed out that it could not possibly deal with the subject because the fraud unit has neither the power nor the authority to make the changes necessary. I hope that no one in the course of the debate will suggest that the anti-fraud coordination unit will eradicate fraud in the Community. If anyone were to do so, I fear that they would be misleading themselves and, worse still, they would be misleading the House.
§ Fraud and irregularity in the Community can be stopped only by concerted action taken by the Council of Ministers, the Commission and the 12 member states working together on an agreed programme. There is nothing vague or doubtful about the nature of that programme. The Select Committee pointed out with unassailable logic that if fraud is to be contained, 970 the causes of fraud must be removed. By analogy, if aeroplane crashes arise because there are structural weaknesses in the aeroplane, the structural weaknesses must be removed or the crashes will continue.
§ The Select Committee itself identified 13 major causes of fraud in the Community, and there are others. All will have to be tackled separately and eradicated. It is a most considerable problem. It will take a year to prepare the programme, and about five years to implement it. It should also be the subject of an annual report by the Court of Auditors to inform the public and the Community as to whether the programme is up to date. No government department, no Minister, no institution, no member state, no individual has, as far as I know, ever formulated the outline of such a programme and put it before the Council of Ministers and the other institutions affected so that the appropriate decisions can be made.
§ On 13th April 1989 the noble Lord, Lord Belstead, said in this Chamber that he hoped that such a programme would be devised and its implementation monitored. Nothing has been done. It is a formidable task and it needs the help and skill of professional lawyers and accountants. I gravely doubt whether the Commission or any of the member states, including this country, have the necessary administrative skills to handle the job properly. Perhaps I may therefore put a question to the Minister who will answer the debate: when will such a programme be prepared? Will it be monitored by the Court of Auditors, as suggested by the Select Committee?
§ What I have described so far is only one reason why fraud is rampant in the Community. Every organisation which engages in financial transactions finds it necessary to have those transactions reviewed by independent auditors at least once a year. The Court of Auditors in the Community was set up in 1977, largely on the initiative of the United Kingdom, and it has done good work; but both resources and objectives now need to be restructured. What is of imperative importance is that the Court of Auditors should have the right, and exercise the right, to pursue its inquiries in the member states and then to report accordingly. If it cannot do that on its own account, it should do it through the medium of the Audit Office in the territory concerned.
§ The precise changes needed in the structure of the Court of Auditors are set out in paragraphs 196 to 203 of the Select Committee's report. The House will also have noticed last week when we debated the report prepared by the committee under the chairmanship of the noble Lord, Lord Aldington, that it drew special attention to the need to restructure the Court of Auditors to remove the present deficiencies. Perhaps I may now put a second question to the Minister: will he tell the House when that restructuring of the Court of Auditors will take place?
§ There is a third reason why fraud is rampant in the Community. For years the Council of Ministers has not dealt properly, or at all, with the serious criticisms which appear in every report that the Court of Auditors writes. If directors of industrial organisations in this country behaved in a similar way their 971 efforts would soon be the subject of a DTI inquiry or possibly even of the Serious Fraud Office. Perhaps I may put a third question to the Minister: will he tell us when the Council of Ministers will be prepared to accept that basic responsibility for financial administration which rests on its shoulders, and when will it be willing to alter its ways?
Fraud in the Community is a growth industry. It will not stop of its own accord. It will not go away. It is like a cancer eating into the body of the Community. It needs relentless determination to get rid of it. I shall quote the short penultimate paragraph of the report:
The huge sums which are being lost due to fraud and irregularity against the Community are losses borne by all the taxpayers and traders of Europe. This strikes at the roots of democratic societies, bound as they are on the rule of law and its enforcement, and is a public scandal".
§ In the past two years while the subject has been before the House, I have gained the impression that no fewer than four or five Ministers have been dealing with it. Indeed, the evidence given to the Select Committee was that there was no consistency in the individuals who represented the United Kingdom in Europe when the matter was under consideration in Brussels. I cannot help feeling that this subject is being shunted about from department to department and from Minister to Minister because nobody is prepared to handle a hot potato. I shall put a fourth question to the Minister. Which government department and which Minister has been responsible during the past two years for cleaning up this public scandal?
§ It may help to focus the debate if I repeat the four questions that I have asked. I do not do so because I wish to weary the House with repetition but for a particular reason. On numerous occasions during the past two years the Government have been asked to publish a White Paper and they have resolutely refused to do so. That was an unwise and imprudent decision because, if we are on notice of a public scandal which has been continuing for many years, both the public and Parliament are entitled to know how the Government intend to deal with the matter. It follows that, if the Minister is able to give strong and affirmative answers to my questions, the House can be assured that in due time fraud will be contained, although it may take years. However, if the answers are weak and indeterminate, the House will be on notice that fraud and the public scandal will continue unabated for many years to come.
§ I shall repeat the four questions that I asked. When will a comprehensive programme of reform and an annual report from the Court of Auditors upon that be introduced? When will the necessary changes in the powers and functions of the Court of Auditors be introduced? When will the Council of Ministers observe accepted standards of financial administration and deal properly with the auditors' criticisms? During the past two years, which department and which Minister has been charged with the task of eliminating this public scandal? My Lords, I beg to move for Papers.972
§ 3.22 p.m.
§ Lord Campbell of Alloway
My Lords, your Lordships will be grateful to the noble Lord, Lord Benson, for his authoritative exposition and for introducing the debate. He explained the formidable professional task which lies ahead in preparing a programme and he gave an estimate or five years for implementation. It is my purpose to concentrate only on certain aspects of that programme.
Before doing so, it is with respect that I suggest to the noble Lord that any criticism of Her Majesty's Government in this regard, or any particular department of state, is wholly wide of the mark. On any objective analysis, the true criticism lies with the Council of Ministers for lack of political will without which no single member state can make any progress.
The debate takes place in the wake of last Thursday's main debate on this 27th Report. For the sake of accuracy, today's debate is concerned with paragraphs 130, 166 and 167 and recommendation 217 of that report. In last Thursday's debate they were endorsed by the Minister who said that the roles of the Court of Justice and the Court of Auditors should be strengthened and that national parliaments need to be more involved in national life. For want of time only the noble Lord the Leader of the Opposition assented to that suggestion sub silentio. In that context, my noble friend Lord Aldington said that the Court of Auditors and the European Court of Justice must be given the resources and structure to do their job properly.
This subject raises no political issue which divides your Lordships' House or another place. The singular and strenuous initiative on Community fraud taken by my right honourable friend the immediate past Prime Minister commands a tribute from all sides of your Lordships' House, and from all subjects and citizens in all the member states of the European Community. I shall deal with the reason why that initiative failed in a moment. In this context, it is not to the point what form of monetary system or systems may evolve in the European Community. The point is that the foundations of any monetary system are eroded unless steps are taken to tackle and debilitate the hydra; that is, Community fraud.
Over the years my right honourable friend saw that as of the order of priorities together with agreed cuts in farm subsidies—that fertile field for Community fraud—and rightly so. The hope must be that my right honourable friend the Prime Minister will bring that initiative to a speedy and successful conclusion. The report of the Select Committee stresses the urgency of the situation and refers to three previous reports of your Lordships' Select Committees: the Sixth Report of 1986–87, the Court of Auditors' Report of 1988–89 and the Fraud Against the Community Report of 21st February 1989. That is the report to which the noble Lord, Lord Benson, referred and which vents deep anxiety about the losses borne by all taxpayers and traders in Europe occasioned year by year by fraud, irregularity, weak financial administration and absence of adequate controls. In its 27th Report your Lordships' committee concluded that none of the 973 evidence heard conflicted with the evidence given to the Court of Auditors' Select Committee. When the Council of Ministers reports to the European Parliament, as it must each year, on the Court of Auditors—and I quote,they should state what action should be taken and if none, why not".Why not, indeed? The reason why the Council of Ministers spurned the initiative of my right honourable friend in this regard, and on occasions juggled with the agenda, is not shrouded in the mist of speculation. As the noble Lord, Lord Benson, truly stated, fraud takes place in the member states. The reason is all too plain. The member states are unwilling to foot the Bill to set up the requisite structure and resources or indeed to accept on behalf of each member state the substantial cost of sanctions in default.
Therefore, the immediate priority is to generate at the Council of Ministers the political will to which the noble Lord, Lord Benson, referred. Unless that is done, it is no use complaining that Her Majesty's Government under this, that or any other administration have not done enough because one cannot do anything at that Council of Ministers' level unless the political will is generated. The criticism lies there.
Also, there must be the will to set up an effective system of administration and control, and to establish a system of effective sanctions against member states whose institutions are found to be in default. To that end, subordinate legislation, directives and regulations must be introduced at Community level, and primary implementing legislation must be enacted in each of the member states.
No doubt other noble Lords will consider in some detail the recommendations in paragraph 183 of the Fraud Against the Community Report and paragraphs 166 and 167 of the 27th Report. It would not be right to weary your Lordships with the details, and I do not propose to do so. However, it is plain beyond doubt that in order to control that criminal and highly profitable activity, sanctions must be introduced which bite on the budgets of the defaulting member states. Also, the Court of Auditors must be able to implead defaulting institutions and member states in the Court of Justice. Powers of investigation of the Commission into the operation with the Court of Auditors and the national authorities must be increased. The national authorities must have sufficient resources and trained staff to afford effective supervision of domestic controls.
I ask the Minister to confirm that the magnificent initiative, although it failed, which was taken by the Thatcher administration will not be allowed to abate or lie fallow under this Administration, and that it will now be pursued with the utmost vigour at Council of Ministers' level. I ask also, because it is such an important subject, that progress or lack of it may from time to time be reported to your Lordships' House.
§ 3.34 p.m.
Lord Bruce of Donington
My Lords, the House will have good cause to thank the noble Lord, Lord Benson, for taking this opportunity once again to raise the question of fraud which was dealt with nearly two years ago by the Select Committee under the able chairmanship of the noble Baroness, Lady Robson of Kiddington.
The noble Lord, Lord Benson, has been a tower of strength in these matters. In this House during the past 18 months he has consistently raised this question and I feel confident —and I offer my own support to the noble Lord in this respect—that he will not rest until some effective action is seen to be taken in this sphere.
In his remarks the noble Lord mentioned, as did the report to which he referred, the crucial importance of the reports produced from time to time by the Court of Auditors. Perhaps it is rather unfortunate that by the time those reports are eventually available, it is one year after the year to which they refer. The matters have then tended to become somewhat obsolete. Immediate steps should be taken to ensure that the Court of Auditors' report is published immediately on completion rather than having to wait for many months for the observations of the Commission on the report. That takes many months to prepare and it ensures that the report is always long delayed. There is no reason why the Court of Auditors' report, damning as some of those have been, should not be made available immediately. In this country when a committee reports, the report is published and the Government submit their own observations somewhat later in a separate document. That practice would mean that every auditor's report could be considered on its own merits without having to wait for the replies of the Commission.
I do not wish to go into the matters already covered by the noble Lord, Lord Benson, because time does not permit. However, one matter is certain and is revealed in the Select Committee's report. The greater part of fraud, running into billions of pounds, arises from the operation of the common agricultural policy, and in particular that section of it which deals with export rebates; that is, compensation is given to exporters, to third countries outside the Community, at a rate which will not compete internally with the price of the food which is exported. Those export rebates paid to producers in this country are frequently many times the world price at which they are sold. That creates consequences, which are impossible to deal with in the limited time, on the food markets of the world and in particular on the part played by developing countries in those markets.
It is sufficient to say that as long as the common agricultural policy system operates, and in particular the system of export rebates, there is an open invitation to fraud. That has not in any way mitigated since the Select Committee's report was published over 18 months ago in February 1989. We learn from The Times on 10th November that food mountains are once again accumulating. I shall not read out the figures because that takes time but those figures can be 975 studied in the edition of The Times to which I have referred. Beef, butter and all kinds of food mountains are beginning to accumulate on a scale similar to that which existed three or four years ago, before the Select Committee's report was published. Once again the opportunities for fraud arise.
One matter that exasperates the noble Lord, Lord Benson, and me is the apparent inactivity that has existed since the matter was first drawn to the Government's attention. It was drawn to the Government's attention long before the setting up of the Select Committee on fraud. Your Lordships will recall that I raised the question of fraud in the Community with the noble Lord, Lord Young. His reaction was to minimise it. When the Commission was visited in Brussels as part of the investigation, its reaction was also to minimise the significance of the matter.
What is required is for Her Majesty's Government to treat the fraud that takes place within the territory of the United Kingdom as a serious crime worthy of serious investigation and with a view to the strict enforcement of the law. That is what is required, and what occurs when fraud arises in other fields; for example, in social security. Some of the poorer sections of our community are quite rightly prosecuted for fraud in connection with social security payments. The whole might of the state descends upon them. Hundreds of new inspectors are appointed.
What happens in the European Community? I discern that so far the attitude of the Government towards fraud in the Community and in regard to the common agricultural policy involving billions of pounds is not to treat it with the same degree of seriousness with which minor crimes in the country are treated. It is time some effort was made involving expense and the reinforcement of the police and prosecution authorities in order that that attitude may be changed. Instead, as we are likely to hear again this afternoon—I do not wish to anticipate the noble Lord—we shall hear soothing words regarding the kind of organisational arrangements that are likely to be put in motion in the next year or so, the kind of governmental consultations that are taking place, and the kind of new committees that are being considered. What is required is action.
The noble Lord, Lord Benson, referred to political will. I do not believe, and I challenge contradiction, that there is the political will in the Council of Ministers necessary to tackle the problem. There is a tendency among member states to regard the frauds committees within their territory and enjoyed by their citizens, corrupt though they may be, as part of their own national pay-off out of the CAP.
In that connection, it is of particular interest to the United Kingdom. There is a two-tier Europe that is not mentioned. The first tier are countries that pay. The Federal Republic of Germany contributes between £3.5 billion to £4 billion per annum to the Community budget, and the United Kingdom contributes £2.2 billion every year. The second tier 976 comprises the remainder that receive. I have no doubt that the enthusiasm in the countries that receive is not as intense as that among the countries which pay.
The problem is long-standing. It did not even begin at the time of the meetings that took place, and which were commented upon by the Select Committee, on the control of Community finance. At that time it was proved beyond all reasonable doubt that the council, as a council, had no real will to control Community expenditure. It is time that the problem was taken seriously. I sincerely hope that the Government will at long last pay attention. They may not pay attention to me even though I, together with my colleague Sir Michael Shaw, drew it to the notice of the European Parliament as long ago as 1978 and 1979 in a report to which I can draw the attention of noble Lords. Something must be done now. I hope that at last the Government will be able to give some satisfactory reply to the very important contribution made to the debate by the noble Lord, Lord Benson.
§ 3.45 p.m.
§ Lord Templeman
My Lords, the members of the judicial committee of your Lordships' House have a good deal of practical experience of fraud, of its ramifications both in this country and abroad and of its serious effects on the innocent people who suffer from it. I hope therefore it will be thought appropriate that I should rise to support the work of the sub-committee and express the hope that the many necessary reforms indicated in the report will be actively pursued.
The suspected scale of fraud in the Community is shattering. The estimates vary from £2 billion to £6 billion a year, or 10 per cent. to 15 per cent. of the Community budget, although one characteristic of fraud is that its scope is incapable of measurement. Moreover, fraud begets fraud. Unless detention and punishment are swift and sure the problem is bound to become worse.
In the report there are four principal reforms for the containment and reduction of fraud in the Community to which I should like to draw attention. The first is the reduction of the incentives and opportunities for fraud by a reduction in the expenditure of the Community and the need to raise revenue. Fraud is practised in connection with expenditure and also in connection with revenue. Therefore a reduction of both is bound to lead to a reduction of fraud. In most cases the reduction of expenditure will have the effect of removing an obstacle to free trade and fair competition.
In the report the remarks of Mr. Carey, the United Kingdom member of the Court of Auditors, and Mr. Tomlinson of the European Parliament drew attention to frauds practised in connection with export refunds. In paragraph 74 they say that the solution lies in lowering Community support prices. The report continues:It was the fact that these were so much higher than world prices that determined the huge sums involved in export refunds. This created the incentive to manipulate the system. A huge proportion of a trader's income could be made up of export refunds".977 As long as support prices continue at the same level, administration of export refunds will continue to entail a significant risk of fraud as well as substantial budgetary costs. They say that if we reduce the incentive we shall reduce the fraud.
The second main reform proposed in the report is the simplification of regulations. Paragraph 27 on page 12 deals with the common customs tariff. There are 4,000 product codes for agricultural goods alone; for processed goods there are 932 product codes, 1,416 standard recipes and 14,000 non-standard recipes. That degree of precision allows different levies for biscuits depending on the cereal, milk, fat and sugar content. But it also increases the complexity of the system for customs authorities and traders alike and the scope for fraud due to misdescription. One can imagine the traders picking their way through the regulations trying to find something to enable them to pretend to fall into one category rather than another.
The same is true of export refunds. They vary between 11 zones. In paragraph 60, on page 70, the committee comments that four companies in Denmark were estimated to have netted £530,000 by pretending to send goods to one zone—namely, the Caribbean—but in fact sending them to the United States. The report refers, at paragraph 63, to 3,000 regulations giving, in the words of Mr. Tomlinson,a 'flood of legislation' leading to a 'chaos of ill-understood paper'".It is perhaps not surprising that if the United Kingdom Customs and Excise advice to traders was placed in a pile it would be seven inches high. It is inevitable that there will be discrepancies and inconsistencies between member states and that the opportunities for fraud and irregularities will be enhanced. In other words, the more complicated the system, the more the fraudster can pick his way between one return and the next.
The third principal reform is the improvement of machinery for the detection and punishment of frauds. Paragraphs 33 and 66 refer to the need for more frequent and more detailed customs examination, though it must be said that that would cause delay and resentment. It is always difficult to strike the right balance between sufficient examination, particularly at the borders of states, and causing more resentment than the inspections are worth.
Paragraph 94 draws attention to the criticisms made by the European Court of Auditors on the checks on documents made by member states. For example, in 1987 some 80 irregularities were discovered in Italy but practically none in Denmark or Greece. The charming picture conjured up by that statistic of all the innocent Danes and Greeks basking on the beach while only the wicked Italians are practising fraud is quite misleading. The statistics on what is reported bear no resemblance to the actual incidence of fraud in any one country. I do not suggest that Denmark and Greece are any worse than others, but I decline on that evidence to believe that they are necessarily much better than others. In that respect, as the noble Lord, Lord Benson, pointed out, there is 978 substantial fraud in this country. It does not extend (as most evils always extend in the Community) to all the other member states except the one to which one belongs.
Paragraph 97 refers to the need for the exchange of information between member states. The Serious Fraud Office describes speedy co-operation as absolutely essential. There is no real drive in the machinery to ensure that what one member state discovers another is informed about. Therefore, one fraudster may be under investigation and regarded with heavy suspicion in one state while another state is handing out subsidies to him with a free hand as though he were as white as snow.
The fourth proposed reform is an increase and improvement in surveillance by the European Court of Auditors, the Commission, the European Parliament and national parliaments. It is clear that the whole of this work of detection and punishment depends on everybody using their best endeavours and playing their part. I do not accept the words of the noble Lord, Lord Bruce of Donington, who was inclined to think that the world is divided into 11 fraudsters and two innocent member states. Fraud is endemic throughout the Community, in countries which pay and in countries which receive. I agree with the noble Lord that it is a great pity that we should pay more than we receive, but that does not measure the long-term benefits arising from the Community. The Community is our ticket; we pay for it and we receive extraordinary benefits from it.
Paragraphs 183 and 186 to 203 summarise the main proposals. It is fair to say that if all those proposals were carried out with the speed for which the noble Lord, Lord Benson, is pressing a very great improvement would take place. I echo the words of the noble Lord, Lord Benson, who spoke of fraud as a cancer eating away at society. Fraud and corruption go hand in hand and we can see in many parts of the world whole societies being ruined, not only economically but morally and materially, by corruption and fraud which it is impossible to stop. The more fraud there is, the more tempting it is and the more difficult it is for states to assert themselves and restore an element of order.
I commend this report to your Lordships and I sincerely hope that it will be put into effect.
§ 3.56 p.m.
§ Lord Bethell
My Lords, I join with noble Lords in congratulating the noble Lord, Lord Benson, on his initiative in introducing this debate on a vital subject affecting every citizen in the European Community. The noble Lord indicated that European Community fraud could be as high as £10 billion a year. The noble and learned Lord, Lord Templeman, suggested that it might be as high as £6 billion a year. The discrepancy in the figures indicates the enormity of the problem and the fact that we do not know how large it is. Certainly, however, it is very large and every possible effort must be made to combat it.
The noble Lord, Lord Benson, said that the European Parliament has a voice but no teeth in this 979 matter. With respect, it would be appropriate for me to clarify the European Parliament's role in this problem, as I see it, and to show that in Strasbourg and Brussels we have certain ways of assisting the other institutions and national parliaments in the struggle against European fraud.
Many noble Lords will recall the result of the hearings held in the European Parliament in January 1989 which gave widespread publicity to the problem throughout this country and the Continent. The estimates given in the debate of the billions of pounds a year and the 10 or 15 per cent. which may be lost through fraud gave an impetus—a burr under the saddle, so to speak—to those who are endeavouring to bring this matter from the back burner to the desk where it needs to be tackled.
The European Parliament, therefore, has a role in invigilating and in supervising the institutions of the Community; to some extent the Commission, but mainly the Council of Ministers which does, after all, report to the European Parliament on a regular basis in this regard. The European Parliament has a role in forming the legislation which is often misused by the fraudsters. Together with the Council of Ministers' working groups and the Ministers, who eventually have the last word in most of the laws, the European Parliament can make sure that laws are put together in such a way as to make fraud more difficult. I hope your Lordships agree that what is required is not so much detection and punishment but prevention. At present the laws are so complicated that it is difficult to deal with fraudsters and much easier for the criminal to exploit loopholes.
It will not be easy for the European Parliament or, indeed, for the Commission, to deal with any problem of detection and prosecution. The unit for the fight against fraud, set up by the Commission in the wake of the European Parliament hearings, is a step forward, but it has only 20 people working for it. It has had some successes, in particular in dealing with fraud that involved fish passing through Greenland and machinery that was diverted from Bulgaria via Malta. That involved hundreds of thousands of pounds rather than the millions or billions of pounds mentioned by previous speakers.
A small unit such as the one that the Commission has set up cannot be a kind of super-European FBI, a troubleshooter to deal with the criminals and to put them where they belong. It should be the main function of the Commission in this area, helped by the European Parliament, to make the laws more simple and appropriate for dealing with fraud and for making it harder to commit.
For instance, there should be provision in law for the checking of documents in order that fraudsters may be more easily caught. It should be possible to check suspicious cargoes and transactions against bank accounts; it should be possible to check suspicious transactions against manifests and movement orders involving ships, aircraft and trains. In this way it would be possible to prosecute certain criminals. The knowledge that such checks were 980 taking place would, I hope, be a deterrent to the criminal and discourage him or her from embarking on fraud in the first place.
Previous speakers have rightly indicated that the main duty lies with the Council of Ministers. It is a fair point that one cannot look at a country's list of criminals and prosecutions and say that that country is more guilty than another because it has so many more cases. The opposite may be the case. The absence of cases of fraud may simply mean that the authorities in the country in question are doing nothing about it.
As regards the forces of law and order, there is a limit to what the national parliament or government can do about the problem in each country. The legislature is not charged with the enforcement of law and order. It can invigilate, supervise, and encourage and press Ministers. The main burden in this country must be on HM Customs and Excise and, in the final analysis, on the police. I hope that at the end of this debate the Minister will be able to give some information about how the customs and the police are faring in their struggle against European Community fraud in this country. If there are any hints or tips that he can suggest that might be brought to the attention of other governments about how their forces of law and order can tackle this kind of crime, that would be very useful as well.
I have some sympathy with the previous speaker who said that the problem will not go away until we have finally settled the question of serious agricultural surpluses. When there is opportunity for serious crime and for the making of huge illegal profits, then criminals will always be found who will exploit it. In a similar way, it is hard to see how the drug traffic will be stamped out. So much money is available to be used in that traffic. It is not easy to see how the agricultural aspects of EC fraud can be done away with so long as the export rebate system remains as it is.
I am encouraged by the thought that certain steps along the road to doing away with massive export refunds are being taken even though the agricultural surpluses have now unhappily returned. I believe that member states have come round to the view that a system of extremely generous export refunds in agriculture is inappropriate and that over a period of years it should be phased down or even phased out. Then the incentive for large-scale EC fraud in agriculture would no longer exist.
I believe that the European Parliament does have a role to play in this important matter. EC fraud shocks the people who elect us to the Strasbourg parliament. As taxpayers they are quite right to be shocked at the thought of their hard-earned money going into the pockets of criminals. I hope that we shall work together with the other institutions and national parliaments in order to see that this scourge is finally done away with.
§ 4.6 p.m.
§ Lord Seebohm
My Lords, it has already been pointed out that the question of fraud and negligence—there is very little difference between them—was 981 considered by the Select Committee in 1988. There was a debate in your Lordships' House in April 1989. There is no point in having a rerun of that debate today. It may be thought that it is a little early to raise the matter again. However, the subject is so serious that it cannot be allowed to drift any longer. Therefore, I am sure that my noble friend Lord Benson is absolutely right in raising it once more.
By way of introduction I shall quote a short extract from evidence given to the Select Committee by Mr. John Tomlinson, MEP, in answer to a question put by the noble Lord, Lord Bruce of Donington. Mr. Tomlinson said:When I see the extent to which governments can find the time and the will and all the other ingredients to pursue arguments over relatively small amounts, I feel it amazing that they cannot find the same degree of time, energy and effort over the amount of money that is leaking from the Community budget to the detriment of member states and individual taxpayers".He went on to say:I would particularly refer to a study that was done in Sweden by the National Crime Prevention Board where they examined the whole import and export trade through a number of custom points over a period of time and their estimation was that there was 50 per cent. of fraud or negligence in the transactions".Admittedly, Sweden is not a member of the Community, but most of its trade is with the Community. If fraud continues on that scale in Sweden, it is likely to be even greater elsewhere.
What was more illuminating was the evidence given by Professor Tiedemann, who had made a special study of fraud in Germany. He estimated that the equivalent of £3 billion to £5 billion of fraud took place in that country annually. It appears that as the loss is to the Community budget and not to the member state there is no incentive or will to attack the problem or even to convict criminals when they are caught. I suppose that there is a natural tendency in all countries to cheat the public sector, whether it is transport, taxation, or whatever, and to treat it as fair game. The practices in the Community are completely unacceptable.
At the time of the inquiry the total complement of the European Court of Auditors was 300, and of those 65 were totally occupied in translating documents into the nine languages of the Community. It also included secretarial and administrative staff. What has happened since? An additional inspectorate of 100 would cost peanuts in comparison with the money at stake. Another powerful weapon that could and should be used is maximum publicity for the findings of the inspectorate. Such information should be given to the press. I can imagine an interesting regular column in the Financial Times and perhaps even in the Daily Mirror. However, internationally this vast monetary problem must be tackled systematically.
I suggest that figures should be reported monthly to ECOFIN and to the appropriate committee of the European Parliament. I also hope that a full report will be given annually to both Houses of Parliament. I trust that similar action will be taken by other member states and that possibly references will be 982 made to the IGC. According to the figures given by the noble and learned Lord, Lord Templeman, we are talking about frauds which could amount to 15 per cent. of the total Community budget. I believe that the figure could be far higher. Member states should be required to give the court whatever information it requires from the national audit bodies and the relevant departments to carry out its task. I look forward to hearing the Government's reply to the debate.
§ 4.10 p.m.
§ The Earl of Perth
My Lords, when the noble Lord, Lord Benson, asked me whether I would take part in the debate I hesitated. He is a very old friend of mine; he and I used to work together when he was head of Cooper Brothers. I felt that I had to take him seriously. That being the case I read the report and its proposals for putting a stop to the vast frauds which go on in the Community and which hitherto have gone on virtually unpunished. I am speaking today because the noble Lord, Lord Benson, asked me to do so and because it is clear that something must be done, and done soon.
I have a second reason for speaking. I am a strong supporter of and believer in the European Community. I worked closely with Jean Monnet—the father of Europe—before the war. After the war, although I no longer worked with him in the same capacity, I was naturally anxious to see his good work succeed. I am sure that, if he were now alive, he, who was essentially a practical man, would back all that has been said today on the need for the Community and the member states to put their house in order. I knew, as many noble Lords knew, that some kind of racket—I use the word advisedly—was going on in the agricultural world. One heard about cattle being driven across a border and then being driven back again. It was perhaps something to joke about.
Most people in this country and in the Community have no conception of the degree of damage and the cost to the taxpayer resulting from such fraud. If they did know—and they ought to know—we might expect a much stronger reaction. One has the feeling, as the noble Lord, Lord Bruce of Donington, and other speakers have said, that member states do not care too much. I hope that the noble Lord is wrong. I am sure that if we could make clear what is happening there is a good chance that the problems could be put right. One of the real troubles is the complexity of the regulations. I suggest that the European Community and all its parts should pause in the good work they are doing and look at what is happening now. If they did so, a great deal could be done in the way of simplification. We should simplify matters and make the regulations less complicated and more easily understood.
The top priority must be to stop corruption. The Council should consider pausing for a moment and getting down to this important business. The noble Lord, Lord Bethell, said that a fraud squad of 20 members has recently been appointed. That figure is a joke. We do not want to see unnecessary staff and bureaucracy, but that consideration does not apply in 983 this case. What does it mean? If the fraud squad does its work properly—and I feel confident that it will—we shall benefit greatly.
I only wish that the media would pay more attention to this question. It is perhaps unfortunate that there has been so much on other affairs to occupy them over the past week. I do not blame the media for that but we must try in every way to ensure that what is happening is widely known. This debate should help matters along. Perhaps the new Prime Minister, hot from the Treasury, with the help of, let us say, Mr. Hurd, if he is Foreign Secretary, will agree that in this area we should do all we can for the member states and for the Community.
The noble Lord, Lord Benson, and others referred to the need for political will. I am sure that that is right. The noble Lord asked four questions of the Government. I believe that a fifth question should be asked. Will the Government give an undertaking that they will make an annual report to both Houses on the progress being made, or not being made, in relation to fraud matters? If they do so, I hope that they will be able to give us many facts and figures. That is one of the problems. We have insufficient information about what is happening, and, as these matters are criminal, the information is kept under the blanket.
§ 4.18 p.m.
§ Baroness Robson of Kiddington
My Lords, the report of your Lordships' Select Committee on fraud against the Community, published in February 1989 and debated in this House on 13th April 1989, put forward far-reaching proposals as to the remedies needed to deal with the problem. It also set a timetable of two to five years for the implementation of those proposals. When introducing the report for debate in the House, I concluded with the words:I suggest that within a year or 18 months a further debate … should take place to see where the Community has reached and what our further contributions should be".—[Official Report, 13/4/89; col. 432.]I am therefore deeply grateful to the noble Lord, Lord Benson, for giving us this opportunity today to review progress exactly 18 months after our last debate.
I was sad not to be able to be present in the House last Thursday when the Select Committee report on European monetary and political union was debated. I was abroad at the time. I have read very carefully the speeches made in the debate. I particularly welcome the proposals in the report in relation to the Court of Auditors. The report on monetary and political union contained an additional proposal which did not appear in the report on fraud in the Community. I refer to the recommendation that the Court of Auditors should be asked for advice on how, when drafting new legislation for implementation by member states, the risk of fraud can best be avoided.
I agree 100 per cent. with the noble Lord, Lord Benson, that the causes of fraud, where they exist today, must be removed. However, we must also be careful that we do not create new causes of fraud by introducing legislation which contains loopholes. Incidentally, the practice of consulting qualified chartered accountants and auditors is a practice which 984 takes place in this country when the Treasury consults the Institute of Chartered Accountants on the Finance Bill. Therefore, there is a precedent for following that exact procedure.
Initially, after the publication of the fraud report, in meetings with the noble Earl, Lord Caithness, there seemed to be real concern about the problem and some remedial measures were taken. One of them was the reduction in the number of product classifications in the field of agricultural goods from the ludicrous 14,000 non-standard codes mentioned by the noble Lord, Lord Templeman, to 4,000 codes. Nevertheless, by no means enough has been achieved.
However, it is not only classification; something must be done about the export refunds which are paid at different levels when the export takes place in different countries. Mr. Carey, the British member of the Court of Auditors mentioned the following ludicrous situation in a speech on 19th April 1990. If a country exports cheese—for example, Parmigiano Reggiano, a special kind of cheese—which is,not grated or powdered of a fat content by weight not exceeding 40% and a water content calculated by weight, of the non-fatty matter not exceeding 47% [it] would attract a refund weight of 190 ECU per 100 kg if exported to Sweden but zero if exported to Norway and Finland".If anyone can tell me what is the difference between Sweden, Finland and Norway—and I come from one of those countries —I should like to know. This is a situation which we must remedy.
Some most important proposals in the fraud report have not been implemented. There does not seem to have been any increased use of publicity when cases of fraud are detected. Many recommendations in the report may necessitate legislation, but an increase in the level of publicity when fraud is detected would not necessitate legislation. Such measures could be taken as from this moment. However, this has not happened. I suggest that one of the greatest forms of deterrent to fraud is the risk of it being publicised. Moreover, so far as I know, no move has been made to reform the system of advance payment for FEOGA guarantee expenditure. These advance payments act as a disincentive for member states to pursue fraud, as the state suffers a loss if the fraudster goes bankrupt or cannot be traced.
Above all, as the noble Lord, Lord Benson, so ably stated, there seems to be no evidence that the Community has initiated any real re-thinking about the audit function within the Community. There is a crying need for an increase of staff in the Court of Auditors if it is to be able properly to monitor the reports of the national audit authorities.
As many noble Lords have said, the Council of Ministers still seems to lack the political will to take proper note of criticisms and recommendations made in the reports of the Court of Auditors; for example, giving reasons why no action is to be taken in certain cases. I should have thought that that was the least we could expect. Although the Commission is now committed to preparing an annual report on fraud, I 985 believe that it would have been preferable, and much more appropriate, if a strengthened Court of Auditors had carried out that task.
The possible enlargement of the Community by entry applications from the EFTA countries puts new pressure on the need for a thorough review of the remedies required to combat fraud against the Community. I have just returned from an eight-day visit to Stockholm. The change in attitude in the countries of the North towards entry into the European Community was very much in evidence. I believe that within the very near future an application will be submitted by Sweden to join the Community. When we enlarge the Community, we must ensure that we have a Community which is financially sound and one where the accounting of its resources is not subject to fraud.
Finally, we are approaching 1992 and the completion of the open market in Europe. Therefore, it is most imperative that the problems of fraud against the Community are tackled with all the energy that we can muster. Unless all the Community countries have adequate systems for the control and detection of fraud by that date, the problem will only increase when the borders are removed.
§ 4.27 p.m.
§ Lord Williams Of Elvel
My Lords, the House will be grateful to the noble Lord, Lord Benson, for bringing this very important matter to your Lordships' attention. As other noble Lords pointed out, the subject was debated in the House on 13th April 1989. The central point behind the noble Lord's Motion is to ask what has taken place since that time. We look forward to hearing the Minister's reply and hope that he will be able to tell us exactly what has happened.
As the noble Lord, Lord Benson, rightly pointed out, fraud against the Community is not an abstract matter; it is fraud against taxpayers in the Community. In other words, someone has to pick up the bill. That is why it is qualitatively of great importance. However, it is also quantitatively of great importance, as the noble Lord and others pointed out. The Community budget now stands at something over £30 billion per annum. If any of the estimates advanced this afternoon—that is, anything between £2 billion and £10 billion per annum—are right, we are talking about fraud which represents something between 8 per cent. and 30 per cent. of the total Community budget. I cannot conceive that any of your Lordships would wish to work for a commercial undertaking where 8 to 30 per cent. of its profit and loss account was entirely due to surreptitious and illegal transactions of which no one was aware. That is the scale of the problem. Perhaps I may take the point a little further. Even the lower estimate of £2 billion per annum is one-and-a-half times the total net income of British agriculture. Therefore, it is a major problem and one which the noble Lord, Lord Benson, is quite right to bring to our attention.
As noble Lords have pointed out—especially my 986 noble friend Lord Bruce of Donington—the majority of incidents of fraud take place within the common agricultural policy. It is a curious feature of the policy that farming incomes are falling but consumer prices are still well above world prices. That itself is a very astonishing achievement. Worse than that, and worse than the opportunities it gives for fraud, as the noble and learned Lord, Lord Templeman, pointed out, is the threat to world free trade. It is a fact that the progress of the Uruguay round in GATT will very much depend on some sort of reduction in the long term in subsidies to European agriculture. That may well be one of the ways out of the fraud problem which we are confronting today.
Cheating on export refunds can be achieved by a variety of methods. In a large bureaucracy many people get to know beforehand of a change in the rate or the timing of a subsidy, and traders can take advantage of that. Experts know to what extent documents, the destination of shipments and classification are inspected and controlled and how far these matters are subjected to proper audit: so they can take advantage of all that. There can be swindles in the nature of the product: diluted olive oil, grain which is mostly sand, and offal which is exported as prime quality beef. All are swindles that we know about and which are on the record.
The only cure is to have a proper audit procedure combined with simplification of the classification of products. Although the majority of fraud takes place within the context of the common agricultural policy it would be wrong to ignore what was said by the report to your Lordships' House by the Select Committee: that virtually no form of Community finance is untouched by fraud. That is a serious indictment, to which your Lordships must pay proper attention.
What should be done? What must be done? As many noble Lords have pointed out, there is a question of political will. The noble Lord, Lord Bethell, drew our attention to the role of the European Parliament; his was a very valuable contribution. However, as all noble Lords who have spoken recognise, ultimately it is a question for the Council of Ministers. The Council of Ministers must sit down and say collectively, "This is a problem which we seriously wish to tackle and"—as my noble friend Lord Bruce of Donington said—"wish to tackle now": not tomorrow, next year or the year after, but now.
Specifically, we need to reform the role of the Court of Auditors. The recommendations of the report which we debated last Thursday are quite clear. The Court of Auditors has functions under the Treaty of Rome and must be allowed the resources which will permit it to carry out those functions. It must have powers of inspection in member states and more staff. All Community operations in member states should be audited; in our case that means close co-operation between the Court of Auditors and the National Audit Office. There must also be power to ensure that the Community itself issues accounts which incorporate a true and fair view and not just notes that the accounts have been established according to the law.
987 In turn, member states have to respond with their own programmes. The problem with the anti-fraud co-ordination unit, as the Commission has pointed out, is that its role is essentially limited. It can control, stimulate, co-ordinate and reinforce. These are all very nice words. But, with management power vested in the member states, the unit cannot possibly be strong enough. I should like the Minister to consider whether we should not return, as my noble friend Lord Bruce of Donington has said, to the proposal made in 1976 that all states incorporate in their law provisions that make it a crime to cause the unlawful reduction of Community revenue or the unlawful collection of public subsidies, refunds or financial aid.
There may be technical problems; if so I am sure the Minister will explain them. There may be difficulties in the status of such a directive coming out of the Community. I am sure however that my noble friend was right when he said that until we make this activity a crime, in exactly the same way as we have crimes of fraud in this country, we are not going to make much progress throughout the Community. As the noble Baroness, Lady Robson, pointed out, as we move into 1992 the opportunities for fraud, unless there is greater and more effective control, will be enlarged.
We recognise that the United Kingdom Government have in the past made an effort. The past Prime Minister launched an initiative and, as the noble Lord, Lord Campbell of Alloway, said, it appears to have failed. I should be grateful, if I may have the attention of the noble Lord, for an explanation of how and why that initiative failed. What happened? Why did it run into the ground and lose momentum?
There seem to me three things the Government have to do urgently. First, they should press, and continue to press, other member states for action in the Council of Ministers. That seems to be the consensus of noble Lords today. Secondly, the Government should publish a White Paper setting out a programme of action and should report regularly on that programme to your Lordships' House and to another place. Thirdly, they should recognise that the matter merits being placed on the agenda of the intergovernmental conference on European monetary union. As the noble Baroness, Lady Robson, rightly pointed out, in the event of a possible Swedish application to join the European Community, who wants to be a member of a Community or join in an economic and monetary union with an organisation that cannot get its accounts in order? That is why it should be discussed by the next IGC. If they do these three things I can assure the noble Lord that the Government will have the Opposition's full support.
§ 4.37 p.m.
§ Lord Henley
My Lords, it is clear that this House has a keen and continuing interest in ensuring that the campaign to stem fraud against the EC budget does not flag. I should like to join other noble Lords in thanking the noble Lord, Lord Benson, for introducing this debate, following up the debate some 18 months ago on the report by the noble Baroness's Select Committee, which was published in February 988 1989. The Government share the House's concern and are in the forefront of efforts to maintain the momentum of the Community's anti-fraud programme. I can assure my noble friend Lord Campbell of Alloway that we shall continue in that position.
I should like to bring the House up to date on recent progress with this programme and to indicate our priorities for the future. I would also stress that there has not been any inactivity, as was suggested by the noble Lord, Lord Bruce of Donington. Perhaps I may first say that the 13-point action plan in your Lordships' Select Committee's report of February 1989 on EC fraud has provided valuable assistance to the Government in deciding how best fraud might be tackled in the Community. That assistance has not been just to the Government. The European Commission's 45-point work programme, developed in early 1989 at United Kingdom prompting by an EC committee of experts on fraud (COCOLAF), broadly covers the same areas as the 13-point action plan in the report of the Select Committee. ECOFIN and the European Council endorsed this programme in June 1989 and welcomed the Commission's undertaking to follow it up with an annual progress report.
Work on the programme went ahead during 1989 under the co-ordination of a new Commission anti-fraud unit (UCLAF), reporting direct to M. Delors, and the Commission produced its first annual report on 7th February 1990. The Commission rightly began the report by stating the need for political determination to combat fraud in the Community. At the meeting of ECOFIN on 12th March this year we welcomed the Commission report and stressed the priority to be given to initiatives on the simplification of EC legislation, improved investigation and reporting by member states, and agreement by member states on appropriate administrative sanctions. This prioritisation reflects the fact that, as the Select Committee recognised, there are no quick fixes against fraud, and any programme will take a number of years to implement.
So, while recognising that much remains to be done, let me now turn to the main achievements under the Commission's programme in the past year and a half, and set them in the context of the 13 points set out in the Select Committee report of February last year.
The first point, which has been touched on by various noble Lords, was the need to simplify Community regulations. Her Majesty's Government are keen to do as much as possible for their part to make regulations which are easier to understand and operate. At Community level, an ad hoc committee known as the Lachaux group has been established to study the scope for simplifying the mechanisms of agricultural support. This will provide an opportunity to remedy the defects in current regulations which can work to fraudsters' advantage, as the noble and learned Lord, Lord Templeman, quite rightly said; though we shall clearly need to strike a balance between the goals of simplicity and the need to keep 989 the system watertight. As the noble Baroness, Lady Robson of Kiddington, said, incautious removal of controls can create more opportunities for fraud.
The second, related point concerns reduction in the number of product classifications. The Commission is undertaking a review of differentiated refunds, with a view to reducing the complexity and so the opportunities for fraud. Action has so far been taken in the beef, fruit and vegetable sectors. While again we must guard against the danger that oversimplification of the system could lay it open to abuse and so prove more expensive, we remain convinced that some streamlining is both possible and desirable, and the United Kingdom has suggested a number of reforms to the Commission.
The Government support your Lordships' third point that lucid instructions are necessary at all levels. To this end we have supported Commission action to convert directives concerned with Customs controls into regulations as a means of introducing greater precision of meaning and conformity of application. We have also supported Commission efforts to introduce greater clarity into the regulations—for example, by the proposed Community Customs code—which will come into force with the single market on 1st January 1993. Measures have also been taken within the United Kingdom to assist in providing lucid instructions. Among other measures, Her Majesty's Customs and Excise will shortly reissue its CAP export instructions after a comprehensive review.
The fourth point in the report concerned the need to establish effective internal controls, as mentioned by the noble Lord, Lord Williams. Her Majesty's Customs and Excise has during the past three years introduced improved arrangements for examinations, reviews and inspections. In the area of CAP exports, our 7 per cent. national target examination rate for all CAP export consignments is now underpinned by an important new EC regulation which sets minimum examination rates for exports attracting export refunds for each Customs region. Customs is already achieving an examination rate by consignment of over 8 per cent.
The next point in the Select Committee's report concerned the need for better training of staff. Steps have recently been taken by Her Majesty's Customs to improve staff training, from which 600 officers have already benefited, designed in particular to equip staff with the basic knowledge and skills required for their control duties.
Improved exchange of information was the sixth recommendation. Since that recommendation was made there has been a considerable investment of effort in this area both by member states and by the Commission. There has been an encouraging increase in the flow of information over recent years, not least by means of more frequent ad hoc meetings between national officials. The Commission has been playing an effective role in bringing together investigators of the various national Customs services.
990 Abolition of advance payment under the agriculture guarantee was the seventh point in the Select Committee report and it was mentioned by the noble Baroness, Lady Robson. As early as October 1987 a decision had been taken to abolish advances. I am glad to say that this has now been implemented, with the result that member states' expenditure is now funded two months in arrears.
The next point in the programme concerned the need for intensified efforts by member states to detect fraud. Among measures taken to achieve this in the United Kingdom, Her Majesty's Customs now has an additional 15 posts for CAP export control on top of the existing departmental total of 100 available in 1990–91. The noble Lord, Lord Bruce, laughs, but 15 out of 100 is an increase of 15 per cent.
Lord Bruce of Donington
My Lords, I am sure that the noble Lord would agree that it would be far more advantageous if the increase had been 100 per cent., which is what the position should be.
§ Lord Henley
My Lords, I am sorry that we cannot go so far as the noble Lord would like. I said that the increase was 15 per cent. and I do not believe that it merited the noble Lord's laughter, especially as it complements other efforts at a national level and the Commission's own inspection powers to detect irregularities of expenditure, about which I shall say more in a moment.
As to the vigorous pursuit of criminal prosecutions which both the noble Lords, Lord Bruce and Lord Williams, desired, and civil claims—the report's ninth recommendation—the Select Committee observed that the failure to conclude a Community crimes treaty was a cause of difficulty in instituting criminal prosecutions against fraudsters. However, since EC fraud was last debated in your Lordships' House a judgment made by the European Court of Justice would appear to have removed in part the need for such a treaty. The so-called Greek maize case reaffirmed the requirement on member states to treat fraud against the Community budget as seriously as fraud against their national budgets. M. Delors wrote to heads of government earlier this year asking them to ensure that proper regard was paid to the ECJ decision.
My right honourable friend the Prime Minister stated in reply—the UK was, as so often, the first to respond—that United Kingdom arrangements were in line with the ECJ ruling. So far, only four other member states have replied. Once all replies have been received, the Commission will consider in the light of the responses whether there is a continuing need for a Community crimes treaty.
The noble Earl, Lord Perth, touched on the recommendation to improve publicity and quite rightly mentioned that the media might offer a little more help. However, possibly the media have been concerned with other matters during the past week. In respect of the recommendation to improve publicity where fraud has been successfully dealt with, Her Majesty's Customs and Excise press office now works 991 closely with the investigation division and frequently gains good coverage for successfully exposed and prosecuted cases of fraud.
The Government entirely agree with the importance of reporting fraud and irregularities to the Commission—the Select Committee's eleventh recommendation. Standards of reporting by member states have undoubtedly been variable. However, there have been recent signs that the obligation to report fraud and irregularities is being taken more seriously. Spain and Greece, for instance, have started reporting for the first time, and the overall number and value of irregularities reported have increased under a new regulation on traditional own resources and under a regulation on reporting of irregularities in agriculture currently under emendation.
In order to assist in this process of reporting, the Select Committee suggested that there should be a clarification of the definition of fraud and irregularity. This essential basic requirement was fulfilled in April 1989 when member states agreed and adopted a working definition in the form of an explanatory document which covers what is understood by an irregularity and in what circumstances it should be notified to the Commission.
§ Lord Campbell of Alloway
My Lords, will my noble friend allow me to intervene on this subject? How are we getting on with the matter raised by the noble Lord, Lord Williams of Elvel—the concept of Community fraud as a Community offence which is justiciable in the Court of Justice at the suit of the Court of Auditors? How is that going? Where are we getting to; or are we getting nowhere?
§ Lord Henley
My Lords, I thought I dealt with that earlier when I talked about the Greek maize case, which reaffirmed the requirement on member states to treat fraud against the Community budget as seriously as fraud against their national budgets. In the light of responses from member governments, a community crimes treaty may still be needed, but we felt that the case I referred to removed the greatest need for such a treaty. I hope that that goes some way towards helping the noble Lord.
The final recommendation in the report was for closer Commission surveillance within member states. The Government consider that the Commission has a major role to play in co-ordinating the anti-fraud activities of member states. Existing provisions give the Commission important rights of access and oversight in the agriculture and own resources areas to ensure even-handed administration by member states in the wider Community interests. Proposals are under discussion in Brussels to amend the CAP irregularity regulation and to enhance the power of the Commission to be associated with national investigations. The United Kingdom is supporting such Commission involvement, even with criminal investigations, provided that national law so allows and provided that sensitive areas such as search of premises and questioning of suspects are excluded. In fact a United Kingdom amendment to this effect has been accepted and we very much hope that speedy agreement can now be reached. 992 I shall now turn to the four questions that the noble Lord, Lord Benson, put to me in his opening speech. He first asked when an action programme would be prepared for annual review by the Court of Auditors. The Commission's 45-point plan, developed in 1989 and endorsed by the Council in 1989, was reported to the House of Commons by my honourable friend the Paymaster General earlier this year. The Commons took note of and approved the Government's efforts. The Commission makes public an annual report on the fight against fraud. I shall return to that matter in a moment.
I was also questioned about the role of the Court of Auditors. That body already produces an annual report which comments on fraud, as appropriate. The 1988 report was debated in the Commons in February 1990. The European Court of Auditors also produces special reports on topics of interest such as export refunds. Therefore the court takes a leading role in highlighting fraud and other irregularities by use of its existing powers. However, I appreciate that the noble Lord, Lord Bruce, felt that it might be possible for the court to report somewhat earlier than is now the case. At the moment the timetable is established in Community legislation. The Commission's right to reply to the Court of Auditor's annual report is enshrined in Article 206 of the treaty.
Under Article 88 of the financial regulation, the court must transmit the annual report by 15th July. The Commission must then respond by 31st October and the report must be submitted in its final form by 30th November, that is 11 months after the financial year in question. Her Majesty's Government believe that the replies of the institutions are valuable to ECOFIN when it considers the ECA's report.
There is no doubt that the structure and powers of the court will figure in the intergovernmental conference on political union. The noble Lord, Lord Williams, asked me about that point. The United Kingdom will propose enhanced powers to improve the effective scrutiny of the EC budget by increasing the effectiveness of the Court of Auditors, clarifying responsibilities as to financial control and enhancing the European Parliament's role in scrutinising the budget. These measures should make an effective contribution to the fight against fraud. I welcomed the contribution made by my noble friend Lord Bethell on this matter. The Government welcome the active role taken by the European Parliament. As the joint arm of budgetary authority, the European Parliament has a direct interest. Its involvement helps to maintain the political impetus.
The noble Lord, Lord Benson, also asked when the Council of Ministers would accept responsibility for this matter. It already does so. Written progress to date on the 45-point plan is reviewed annually by ECOFIN. The noble Lord also asked about responsibility within the Government. That is clearly defined. Her Majesty's Treasury is responsible for the EC budget and for co-ordinating anti-fraud policy. Customs and Excise and the Ministry of Agriculture, Fisheries and Food are in league on enforcement.
993 I have endeavoured to show noble Lords that the Select Committee's work has provided a solid and influential start to a practical and continuing drive to deal more effectively with the virus of fraud within the Community. This is a battle which may never be conclusively won, but by examining every area of possible abuse and by taking practical and effective measures, such as those I have described today, to counteract and close off opportunities for fraud and by the constant exercise of vigilance we can make and keep it a hard and unprofitable option to be dishonest or inefficient at the expense of the Community taxpayer. Her Majesty's Government are determined that what has been achieved should be only the start. We shall not flag in our determination to bring the same high standards to Community finances as we exercise domestically.
§ 4.55 p.m.
§ Lord Benson
My Lords, I am grateful to the Members of the House who have spoken in this debate. I think it is fair to say that there is general agreement that there is a public scandal which has not yet been eradicated. There is also agreement that there is an absence of political will to correct it. I am grateful to the Minister for seeking to answer the various points that have been raised and the four questions that I put to him.
As regards my first question, it is quite plain from the answers given that no comprehensive report comprising responses from the Council of Ministers, the Commission and the member states has yet been prepared. Until that is done this public scandal will continue. It is very unsatisfactory in a debate of this kind to have to drag out, so to speak—I use that phrase politely as I am sure it is no part of the Minister's duty not to help us—bit by bit what is happening. It is rather like the situation of Churchill's porcupine, which had to be plucked quill by quill.
I draw the attention of the Minister to the proposals that have been made by the noble Lord, Lord Williams of Elvel, and the noble Earl, Lord Perth, for a White Paper to be prepared to show the Government's intentions. They further propose that an annual report should be made to both Houses to show exactly what is taking place. Until that is done the problem will continue unabated.
Secondly, I asked what was happening about the reform of the Court of Auditors. Alas, all we have had is a series of promises of goodies yet to come. I suppose it is impossible for the Government to promise more than that as nothing more has yet been done. What those goodies will be remains to be seen.
Thirdly, I asked when the Council of Ministers would accept its responsibilities to deal properly with the criticisms made by the Court of Auditors. I understood the Minister to say that the Council of Ministers has accepted those responsibilities. However, I deny that that is the case unless it has happened in the past few days. It has certainly never happened up to this point. The Council of Ministers has never properly replied to the criticisms made by 994 the Court of Auditors. I hope the Minister will re-examine that point and make proper inquiries on it as the answer given to the House was not satisfactory.
On my fourth point, I am obliged to the Minister for his remarks. I need not detain the House any longer. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.