EU: Fraud (EUC Report)

Earl of Sandwich Excerpts

Wednesday 11th December 2013 Grand Committee

[The Earl of Sandwich (CB)]

My Lords, I follow the noble Lord, Lord Davies, in much of what he said. As a former member of sub-committee E, I thank the noble Lord, Lord Stoneham, for his introduction of the report and our chairman, the noble Lord, Lord Bowness, for all that he did. I also thank our senior legal adviser Mike Thomas, ably supported by Messrs Ridout, Mitchell and others. Mr Thomas’s outstanding work on this made the evidence much more intelligible and our conclusions more fit for purpose. We wish him well in his retirement next year.

As the noble Lord, Lord Davies, said, the subject of fraud in the European Union is enough to get everyone excited, not only the Eurosceptics but also those who consider the UK to be free of blame and squeaky clean. The fact is that fraud exists everywhere: not just abroad but in this Palace, in the City and in businesses all over the country. Noble Lords will remember that one of the biggest frauds occurred in the al-Yamamah contract. After that was investigated by the SFO and discussed at length in Parliament, it was abruptly hushed up by the then Attorney-General in the public interest. Of course, that was all about a princely sum, even for a prince, and it was assumed by most people that it was the way things worked in Saudi Arabia. But no: the SFO calmly and correctly reminded us that there are two parties to every contract who shared responsibility equally. That is worth mentioning in this case.

This country is in no position to complain about the European Union or other EU states. In fact, if our consultants wish to teach anti-corruption measures to developing countries, as they do daily around the world, they may be qualified to do so but they cannot expect countries such as Kenya and Afghanistan to look up to us as angels of accountability. We may be higher in the transparency index but we are all in the mud together. The Commission protests that fraud in the EU is no worse than fraud in the member states and it is right that there always seems to be a presumption of member state innocence. The EU institutions usually get blamed for the failure to prosecute when in fact it is more likely to be the individual country concerned. As our report states, responsibility for avoiding fraud does not rest solely with the Commission. The treaties require both the EU institutions and the member states to counter fraud affecting the financial interests of the EU.

There are, of course, recent examples of general fraud in both the EU and national Parliaments, and the issue can lead to strong emotions. In some cases, it can come to blows; last June, an Italian MEP called Raffaele Baldassarre was caught red-handed on YouTube entering a lift in the European Parliament. He proceeded, on camera, to box the Dutch journalist who was accusing him of fraud. Astonishingly, in southern Europe, the public do not always notice when their representatives are accused of fraud. There was another case, which I shall not go into, of a Maltese MEP who faced criminal charges for alleged fraud over three years. This was uncovered by the anti-fraud office, OLAF.

That brings me to one of our main recommendations, that while OLAF itself needs to improve its act and protests that it is already doing so, member states must give more support to OLAF, including taking the decision to prosecute. We were told that, in principle, to investigate a case of fraud against the EU budget, OLAF is supposed to request information from the judiciary in the member state involved. As the noble Lord, Lord Davies, said, one of our key witnesses, Rosalind Wright QC, said that judiciaries in member states are,

“in some cases … reluctant to investigate their own nationals for a fraud on a subsidy that is being paid centrally from Brussels”.

We heard from Professor Spencer and others that, even after an investigation, OLAF has no powers to compel member states to act. Some call it toothless—but that is just the point. It was a conscious decision of the member states not to give it those powers. Because of this, at €404 million in 2011, the total amount of fraud is being wholly underestimated by the Commission.

The Government’s response throws doubt on the estimates of €5 billion, although they are derived from National Fraud Authority figures. As the noble Lord, Lord Stoneham, said, in explaining the difficulty of estimating the amount, the Government say that the Commission’s database is constantly being updated and that it makes no distinction between “suspected and established fraud”. Irregularities are sometimes included and sometimes not. Again, if we and other member states are reluctant to investigate, we are never going to find out how serious the problem is; we are just going round in circles.

Communications with OLAF have been inadequate, to say the least, and what we call a lack of enthusiasm all round for reporting fraud is, to me, the most serious issue. A related problem for OLAF is that there is no single point of contact in the UK Government and very likely not in other Governments either. The Commission’s response agrees with our analysis, saying that member states have a continuing duty to provide the information. The Commission refers to the recent tightening of the system through new investigative procedures, mentioning a new regulation establishing a clearer legal framework. Her Majesty’s Government’s comment is that “progress is being made”. We shall hear in a minute what that means.

The Commission invests rather a lot of hope in establishing an EPPO, which it conceives as a “decentralised structure” integrated into the national judiciaries. We all hope that that will never happen.

On the question of a UK focal point, the Commission says that there must be a national body designated to co-ordinate what it calls anti-fraud co-ordination services, which will strengthen the co-operation between OLAF and member states. Perhaps the Minister will update us on the likelihood of any such co-ordinated service in the UK, and on any further conversations between the Home Office, the City of London police and others involved.

The Government’s response merely says that there is room for improvement; it quite reasonably rejects the idea of a new department, mentioned by the noble Lord, Lord Bowness, but it seems to me and to him that we are putting off the more fundamental question of co-ordination—unless the Minister proves us wrong.