Fraud inquiry finds evidence of missing millions in EU office

Millions of euros could be missing in a fraud scandal involving taxpayers' money and the EU's statistics office, the European Commission admitted yesterday.

Two internal reports on Eurostat reveal bogus contracts, inflated prices, the use of unofficial bank accounts to siphon off money and an accounting system that operated outside official records. The scale of financial losses remains unclear although, according to one informed estimate, as much as €5m (£3.5m) may be missing.

Pat Cox, the president of the European Parliament, drew parallels with the scandal that brought about the fall of the previous European Commission in 1999 - though he praised the speed and openness of yesterday's public statement.

The European Commission formally admitted that preliminary investigations into Eurostat"suggest that serious wrong-doing on a much more widespread scale than previously thought may have taken place". Disciplinary proceedings have been launched against three officials - the director general, Yves Franchet, and two directors, Daniel Byk and Photius Nanopoulos. The men have not been suspended and remain on full pay in different posts. Mr Franchet and Mr Byk are on record as denying any wrongdoing.

Brussels has also suspended 58 contracts with Planistat, a French economics and statistics consultancy that manages shops through which Eurostat sells its data to commercial users. Revenue from this source is alleged to have been transferred to unofficial bank accounts.

Press reports on the scandal surfaced in May, alleging that up to €920,000, fed through unofficial bank accounts, might have gone missing. Now two internal reports have confirmed that "a number of serious breaches" have taken place. Eurostat employs 724 people and has an annual budget of more than €122m.

Dietmut Theato, chairman of the European Parliament's budget control committee, said the findings were as "though a bomb has exploded around us". Chris Heaton-Harris, a Tory MEP on the committee, added: "Opportunities for fraud still exist and reforms to clean up the system are still not in place."

Mr Cox said: "It is deeply disappointing, four years after the unprecedented resignation of the European Commission on matters of control and financial management, that we should find ourselves again, today in this position."

The findings are an acute embarrassment to a Commission that came to power with a promise of zero tolerance on fraud and mismanagement.

The scandal has raised particular concern because of the revelation that Olaf, the EU's anti-fraud unit, had been inquiring into Eurostat for more than two years before commissioners were informed.

Neil Kinnock, a vice- president of the European Commission, said: "If the Commission had had any substantive evidence on which to act there is not a chance in hell that it would have ignored it in the hope that it [the problem] would go away."