“This is an olive grove, Italian style,” says European Community fraud-buster Alfredo Bizzarri as he surveys 20 acres of mostly plowed-up earth in the rolling farmland between Rome and Florence.
In the late 1980s, farmer Giuseppe Lelli claimed thousands of dollars a year in EC farm subsidies for more than 1,000 olive trees on these fields. Investigators, suspicious because the local olive oil mill was not turning out much oil, paid a visit to Lelli’s farm.
They found exactly 10 olive trees and a herd of sheep. Lelli was forced to pay back about $4,000, or one year’s worth of fraudulently received olive subsidies.
He is one of the unlucky few. Fraud is a mounting problem in just about everything the EC does. EC aid for Eastern Europe has been found as far afield as Egypt, for example, and the EC’s poorer countries have collected aid for bridges and highways that have never been built. By far the bulk of the fraud goes undetected, and most of what is detected goes unpunished.
John Tomlinson, a British member of the European Parliament, estimates that fraud in agricultural subsidies alone, which constitute by far the EC’s biggest program, amounts to 10% of the program’s budget. That would mean nearly $4 billion a year in payments that should not have been made.
“Nobody can prove it,” he admits, “but nobody can disprove it. It’s the proof of how bad the situation is that nobody can tell you how bad it is.”
All this comes at a time when the EC is already facing an enormous public relations problem with its own 330 million citizens.
Evidence that the community cannot protect its budget from swindlers can only fuel the popular revolt against the accumulation of powers by EC headquarters in Brussels. A recent article on EC fraud in the Sunday Times of London, which appeared while the British Parliament was debating the Maastricht treaty on European union, carried a headline that read in part, “Who Would Vote for This?”
The EC itself has little power to track down and punish cheats. There is no EC criminal law equivalent to the federal statutes that American officials enforce. EC national governments, already afraid that they have delegated too much authority to Brussels, are not about to create a European police force.
That leaves EC fraud-busters reliant on law enforcement authorities in the 12 member nations. But EC members are often loath to act, fearing they will be required to reimburse the community if they unearth fraud but are unable to bring the perpetrators to heel. In fact, says Michel Jacquot, who manages the EC’s farm subsidy budget, national authorities often decline to notify Brussels of fraud because they are embarrassed to admit its existence.
For the most part, those who are found guilty of defrauding the EC are required to do little more than return what is not rightfully theirs.
“Our enforcement practices are the equivalent of Marks and Spencer (a British department store) putting up a notice warning shoplifters that if we catch you lifting a pair of socks, we’ll take the socks back,” Tomlinson says.
The EC usually doesn’t even get the socks. Fraud-busters in the agricultural subsidy program have traced $1 billion worth of irregularities in the past 20 years, says Prosper De Winne, who heads the anti-fraud team. De Winne says they have recovered one-tenth of the total, or about $100 million.
“We need some sort of Euro-Rambo to make it look like we’re serious about combatting fraud,” says Tomlinson, also a member of the British Labor Party.
Instead, EC officials themselves are sometimes implicated in the Euro-scams. Most spectacularly, an EC bureaucrat threw himself out of his office window and to his death in May while authorities were investigating whether he had accepted kickbacks in return for rigging the awarding of tobacco export subsidies
One good indicator of the growing importance of fraud as an EC concern is the decision of New York-based Kroll Associates to consider setting up a Brussels office. Kroll specializes in investigating corporate fraud and helping firms make well-informed decisions about other companies they plan to do business with; it provides the same services to governments.
Anthony Lawson-Smith, who helped Kroll establish its Paris office in the late 1980s, is now spending most of his time in Brussels. “Kroll and other firms like us could help the EC to build up its own corps of investigators,” Lawson-Smith says.
For now, the EC’s Executive Commission relies heavily on investigators on loan from member nations. The staff of the five investigative units at the EC’s Brussels headquarters numbers only about 120; about half are on loan to Brussels from their national governments.
The EC’s Court of Auditors also is empowered to investigate whether the organization is spending its budget for its intended purposes. Lawson-Smith finds the Court of Auditors’ staff to be better equipped to investigate than the commission itself, although the court has no enforcement powers and can only turn over what it learns to the commission.
Most EC fraud occurs where the most money is, and that means the $40-billion-a-year agricultural subsidies program, one of the few spending programs administered by the EC itself rather than its 12 member nations.
If Tomlinson’s estimates are right, EC farm fraud far outstrips the less than 2% cheating rate that, according to the U.S. Agriculture Department, prevails in American agricultural subsidy programs.
Olive oil seems particularly riddled with abuse by farmers and bottlers, both of whom can qualify for generous EC subsidies.
Teams of fraud-busters jointly financed by the EC and national governments operate in the community’s four big olive-producing nations: Italy, Greece, Spain and Portugal.
In those countries, EC fraud-busters face dangers that their American counterparts can scarcely imagine. An Italian olive oil investigator was murdered this spring in southern Italy, Mafia country.
Nobody will say on the record. However, speaking not for attribution, one investigator at EC headquarters in Brussels says, “When you’re talking about olive oil, you’re talking about the Mafia.”
Luciano Berni Canani, who manages the EC’s 200-member Italian olive oil fraud team, observes of the industry: “This is the agricultural sector in Italy with by far the most subsidies.” In Italy alone, 700,000 olive growers and 650 bottling plants apply for subsidies annually.
Since his investigative unit began operating in 1987, Berni Canani says, it has reported about $130 million in fraud to Italian authorities.
The government so far has recouped $26 million and has used its power to charge more penalties and even to send some cheats to jail.
“We are not loved in Italy,” Berni Canani says. “We have penetrated some big economic interests.”
Reporting production from fictitious olive groves is only one of the olive oil scams uncovered by the EC.
Another involves falsifying records to make imported oil appear to have originated within the EC and therefore to be eligible for subsidies.
In one operation uncovered by EC investigators in Brussels, Italian importers falsely claimed that olive oil from Tunisia and Turkey, which are not part of the EC, had been produced in Greece, which is. That way they could not only collect EC farm subsidies but also dodge customs duties that are levied on non-EC oil.
Jacques Dumont, an olive oil specialist in the EC’s anti-fraud team in Brussels, says the captain of the ship that carried the oil from Greece to Italy spent a day or two in jail.
But the community, he says, is still in court trying to collect the $27 million that it says the scam cost the EC. “These five cases are just a starting point,” Dumont says. “We know there’s more.”
Dodging EC agricultural duties has become a favorite pastime in all corners of the EC. Some German importers have evaded the punishingly high tariffs on Polish beef by forging papers declaring the beef is merely passing through the EC on its way to North Africa.
Nor is agriculture the only locus of EC fraud. Wherever the EC spends money, somebody seems to cheat.
The EC Court of Auditors has focused on the community aid program for Eastern Europe. It has yet to figure out how 740 tons of milk powder in boxes showing Bulgaria as the intended destination instead wound up for sale in Egypt.
Likewise, the EC program of technical assistance to Eastern Europe has drawn charges of mismanagement, if not outright fraud.
The EC commission mostly retains private consultants to provide the emerging market economies of Eastern Europe with advice on such concerns as privatizing state-owned industry and establishing laws governing banking and investment.
Lawson-Smith, of Kroll Associates, says the commission lacks the resources to ensure the proper kind of assistance is given. “This enables advantage to be taken by unscrupulous consultants,” he says.
In a typical arrangement, the EC hires a private consulting firm--usually on extremely generous terms, according to the Court of Auditors--to locate the experts that Eastern Europe needs. The consulting firm then subcontracts the actual advisory work to the experts.
One such expert, a Brussels lawyer who asked not to be identified, says the consulting firm through which he must deal is nothing more than a “shell company” that pockets about 10% of the value of the work but performs practically no services.
Does this constitute fraud? The lawyer admits he has no evidence. But when someone is making good money for bad work, he says, his lawyerly instincts tell him that fraud is the reason.
The European Community’s annual budget has grown from about $4 billion in 1970 to about $80 billion in 1993. Current agricultural expenditures account for nearly half that amount-a prime target for fraud.
Structural operations: 30.9%
Internal spending: 12.9%
ECSC and EDF*: 4.0%
Note: Some numbers have been rounded off.
* European Coal and Steel Community, European Development Fund