Europe's spreading "grey" economy is feeding a new criminal underworld, creating a dangerous culture of dependency and depriving the union of much-needed revenue. The inquiry into the failure of the EU transit system and transit fraud, chaired by John Tomlinson, a Labour MEP, will undermine confidence in the creation of a border-free Europe.
Criminals based in East Europe are exploiting lax policing of customs and tax systems because member-states have failed to compensate for abolition of border controls by updating crime-fighting systems and sharing information. Four years after the abolition of border controls, member-states continue to act as 15 separate entities, providing a free-for-all for the criminals.
The report calls for a common customs investigation body and a centralised customs intelligence office to fight fraud, and computerisation of the entire transit system.
Cigarettes are the biggest business for customs fraudsters, the report says. "A container-load of cigarettes carries a potential fiscal value of about 1m ecu [pounds 700,000]. Almost all of this is potential profit for the smuggler." The report focuses on the "community transit system", by which goods from outside the EU move through member-states.
The tax system set up for such goods involves 18 million operations a year, all by paper and open to fraudsters. Goods such as cigarettes or alcohol are simply unloaded clandestinely en route and placed on the black market.
Nobody knows the extent of the fraud, says the report. Estimates vary by billions from country to country. The fraud poses a big threat to the livelihoods of those working for companies operating in the "legitimate economy", putting jobs at risk, says the report.
"More insidious is the malign influence of the `grey' economy, which is fed by transit fraud and customs fraud in general. This parallel economy thrives at the expense of the legitimate economy, leading to unemployment and slower growth." The inquiry team heard of evidence of a link between the sluggishness of the "official economy" and expansion of the "grey" economy.