EU: Fraud (EUC Report)

Lord Davies of Stamford Excerpts

Wednesday 11th December 2013 Grand Committee

[Lord Davies of Stamford (Lab)]

My Lords, I congratulate the noble Lord, Lord Bowness, who was the chairman, and his sub-committee on their decision to focus on this extremely pertinent matter and on the thoroughness of their engagement in this revealing inquiry. I also take the opportunity to welcome my noble friend Lady Morgan to the Front Bench on a European issue. It is the first time I have had the privilege of standing beside her or behind her on a European subject on which she has been leading for my party.

Three particularly striking and salient points emerge from this report. The first relates to the amount of fraud. The Commission suggests that fraud was running at €400 million in 2011—I have taken this figure from the report—which would be 0.28% of the current budget of the EU. That is a very low figure indeed. The committee obviously thinks that that is an understatement and has decided that it wants to multiply that to produce a figure that corresponds to the fraud estimated to exist in this country as a proportion of its public expenditure. It came up with a figure roughly 10 times greater than the commission has proposed. It does not have any reason for that particular multiple and it may be that the truth lies between those two figures. However, what is inconsistent with the picture given by this report is the notion, which is purveyed the whole time in Eurosceptic propaganda, that the European Union is a sink of iniquity in terms of fraud. Clearly the level of fraud is, at worst, comparable with the level of fraud in this country. That is a bad situation. All fraud is regrettable and must be dealt with thoroughly. It should be of particular concern to parliamentarians because it is our job to monitor the performance of governance in this area. Nevertheless, the figures before us will be quite surprising for the British public, who are used to being fed the propaganda line by the media in this country that the level of fraud in the EU is vastly greater than here. Some of the analogies that the noble Lord, Lord Bowness, has cited about British government departments’ records in that area reinforce that.

The second matter is very salient. It is quite clear that the overwhelming majority of fraud, perhaps 99%, arises in the area where national Governments are disbursing EU programmes. It does not arise in the institutions of the Union where fraud is an extremely rare event. That is even more striking in relation to the false propaganda that I referred to. There is an irony here because the Eurosceptic lobby in this country, which is very powerful, as we know, always makes out that this fraud is a consequence of too much European integration and is part of the evil of European integration or, they would say, the evil of European federalism. In actual fact, ironic as it is, it is quite clear from these figures and from the reality of the position that the reverse is true. If in fact these programmes were all run by the European Commission with disbursements under the CAP, the structural funds or the cohesion funds and were the responsibility of European officials, there would not be anything like the same kind of problem. There would be vastly less fraud. The problem is that the national states are disbursing this money, and it is in the national states that the losses, fraud and corruption occur, in some nation states much more spectacularly than in others. I shall come on to that in a moment.

In a way, the reality is not evidence of an excess of federalism in the European Union but an argument for an insufficient degree of federalism in the European Union. I do not suggest for a moment that it is practical to have all the community budget disbursed by an enlarged Commission. In the United States, a lot of federal programmes are actually run by the individual states, and they are responsible for making disbursements under those programmes. Nevertheless, that is a very important and authoritative corrective to the prevailing and utterly false impression given in this country quite cynically by the media purveying a picture that is the exact obverse of the truth.

The third salient point that emerges very strikingly from this report is that there have been quite serious impediments in some of the member states in following up on allegations of fraud or prima facie evidence of fraud that have been brought to their attention by OLAF. I refer noble Lords to the very interesting Table 1 on Page 29 of the report. It is headed,

“OLAF referrals to Member States”.

The left-hand column shows the number of referrals by OLAF of prima facie evidence of fraud. All the columns are interesting but for the sake of brevity I switch right away to the far right-hand column which shows the level of convictions. Noble Lords will see that for all 27 member states—there were 27 at that time—there were 199 convictions out of 1,030 referrals. I calculate that as being roughly 18%. That is the average. One sees immediately that the United Kingdom is slightly below that. I calculate that figure as being about 15%; so in this country we are not quite as good as the average. The worst performers are Italy, Poland and Greece, which all have a record of about 6% or 7% of convictions in relation to the number of referrals. Far and away the star performer is Germany, with almost 40% of referrals resulting in convictions.

OLAF is a single organisation involving people who will be working on different cases involving different fraud allegations in different parts of the Union at any one time, so one can assume that their standard of performance and the solidity of the cases that they make will be the same irrespective of the member state where the fraud happens to have occurred. That means that there is an enormous discrepancy in the extent to which these allegations of fraud are followed up. That is a very serious matter for EU taxpayers as a whole. The question is: what do we do about it?

The report does not avoid the question of what we do about it and the inquiry took a lot of evidence on that subject. For example, I refer noble Lords to the testimony given to the committee and quoted on pages 34 and 35. Paragraph 97 states:

“The Director-General of OLAF”—

that is one perspective, but a very important one—

“gave us a vivid account…of the multi-jurisdictional problems confronting OLAF on a routine basis. He argued that such multi-jurisdictional crimes against the EU’s budget are ‘European by nature, because you cannot say it is specific to this nation or that one’. He was clear”—

this is my emphasis—

“that the solution to this problem is an EPPO”—

in other words, a European Public Prosecutors Office.

“Most of the witnesses agreed … Rosalind Wright QC”—

she is, of course, a former director of the Serious Fraud Office—

“offered two reasons in favour of an EPPO; first, the current unwillingness of the Member States to prosecute these crimes … and, second, the fact that ‘most of these very large frauds are committed across national boundaries’. Drawing on her time at the Serious Fraud Office, she explained that in such cases it had been hard to bring everyone together under one jurisdiction and that an EPPO would help”.

The committee itself, which is an all-party organisation and has always to express itself with great reserve and care—I understand these things because I sit on another sub-committee of this House—is absolutely clear, using parliamentary language. It said that,

“it is unfortunate that the Government have ruled out participation without first having had the opportunity of considering the details of any proposal and without knowing what form an EPPO would take”.

It is quite obvious what is going on here: the Government are not taking into account the national interest. They are not making, or even attempting to make, an objective analysis of where the national interest lies in this matter and what the right solution to those serious problems should be. They are not doing that and should be. It is what they are paid to do and it is what we expect a Government to do in a democratic country but they are not doing it. They are excluding the obvious, pragmatic solution, a priori, without waiting for the details and on the basis of what one can only describe as prejudice or ideology. That is simply not good enough.

Now, I am very familiar with this Eurosceptic prejudice—it is nothing more than that: a refusal to look pragmatically and open-mindedly at issues involving anything to do with the European Union. That is very pervasive in the Tory party and was one reason why, seven or eight years ago, I left the party. We have before us now a Minister who is a Liberal Democrat. I did not think such prejudice was pervasive in the Liberal Democrat Party and look forward with great interest and expectation to see how he will defend the actions, or deliberate inaction, of this Government in a case where an important national interest is being explicitly and deliberately neglected.

--- Later in debate ---

[Lord Newby]

My Lords, it is a slightly flexible definition. The best I can do is draw to the Home Office’s attention the strength of feeling that clearly exists in your Lordships’ House that this decision should now be taken quickly.

Moving on to the European Public Prosecutor’s Office, the Government accept that multijurisdictional crime against the EU budget is European in nature but believe, as noble Lords pointed out, that an EPPO is not the only or the right solution to the problem. The noble Lord, Lord Rowlands, gave some of the arguments for that, but I repeat our view: a centralised European prosecutor with harmonised powers to initiate investigations and order investigative measures is incompatible with the division of responsibilities in many EU countries where law enforcement and prosecutors have different roles from that of the independent judiciary. As such, it would require fundamental changes to those member states’ legal systems and existing operational structures to implement the Commission’s vision of a supranational body with powers of investigation or prosecution within UK jurisdiction.

The Committee asked how the UK would address the shortcomings in existing processes for tackling fraud in the absence of being a participating member of the EPPO. The Government will continue to focus on preventing and tackling fraud against the budget and draw on their new approach to policing fraud. On the response to identified crimes, the Serious Fraud Office uses a similar model to the EPPO by bringing prosecutors and police together to fight serious fraud but there are differences. There are limits to the SFO’s statutory investigative powers but the existence of the SFO at national level is evidence of a domestic model that is similar to the EPPO proposal. Further, the creation of the National Crime Agency’s Economic Crime Command means that we have an opportunity to pull expertise in anti-fraud work into a dedicated policing unit. The ECC will work closely with national police forces and partners as well as the EU and international equivalents.

[Lord Davies of Stamford]

I am grateful to the Minister for giving way. If, as on the Minister’s own admission, the Serious Fraud Office and the ECC have structures that are very similar to the proposed EPPO in that they combine investigative and prosecuting functions, what is the ideological objection to accepting the EPPO? It appears that we have already accepted that those two functions should be shared by the same agency. The Minister will know that there is no suggestion that the courts—the judicial function—should be combined with the EPPO. The EPPO having decided to prosecute would have to do so in front of judges who would be quite independent from it.

[Lord Newby]

As I said, among other things there are differences between the SFO’s investigative powers and the EPPO proposal’s powers. As I should have said, it was a component of the coalition agreement that the UK would not support our involvement with such an organisation. That remains our view.

[Lord Davies of Stamford]

I am grateful for what is clearly a very honest and frank statement by the Minister. That gets to the heart of it. His previous remark left the impression that he was desperately trawling around to find some minor detail of difference between the structure of the SFO and the proposed EPPO to justify a decision that cannot be justified on pragmatic grounds. As he said, it is essentially a political decision. The Committee, the House and the public will be grateful for his frankness.

[Lord Newby]

My Lords, I think that the noble Lord is slightly confused about the difference between a political decision and a sensible decision. Just because something is in a political agreement does not mean that there are not very serious substantive reasons for it, apart from any reasons that he would disapprove of. I am sure that that is the case in this particular example.

There were two final things that I wanted to pick up on. The noble Lord, Lord Bowness, asked about the relationship between OLAF and the Supervisory Committee and what could be done and might be happening. This is an extremely unfortunate dispute that has arisen, and there is a limited amount that the UK Government can do on their own to resolve it. We accept that the Supervisory Committee has an important role but, equally, it is important that it does not operate in such a way as to impede OLAF’s work. We are trying as best we can not to knock heads together—that is perhaps too strong—but to use what influence we have to get these two bodies to work together. It is extremely depressing to read that part of the committee’s report and evidence because it is the kind of thing that legitimately gets the EU and its ways a bad name.

The final issue that I want to address, which the noble Baroness raised, is on how we would engage with committees on the PIF directive. This has raised difficult issues for the UK, and Ministers across government have been considering how best to approach the proposal. Discussions within government are now reaching their final stages, and we hope to be in a position to offer the relevant scrutiny committees a fuller explanation shortly. At the same time, we will seek to address the concerns about the opt-in trigger point.

This has been an extremely useful debate on an extremely important issue. I hope that I have been able to explain how the Government are tackling it. I realise that I will not have satisfied noble Lords in every respect, but I will speak sternly on noble Lords’ behalf to colleagues in the Home Office so that we might make progress at least in that respect.

Finally, I thank the committee for its work and for holding the Government to account in this area of our work.