Leading Article: Fraud that cannot hide behind a smokescreen

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A GREATER concentration of policy errors can hardly be imagined than those that have led - as the European Union's Court of Auditors has just confirmed - to fraud amounting to tens of millions of pounds by those involved in tobacco production. It is questionable enough whether EU taxpayers' money should be subsidising the production of a plant that damages and kills many of those who smoke it.

The same European Commission charged with propping up the production of tobacco - to the tune of pounds 1bn last year - also spends much smaller sums supporting research into smoking-induced cancer and supporting anti-smoking campaigns. A parallel institution, the European Parliament, backs a ban on cigarette advertising.

The tobacco regime began to get out of hand in 1981, when Greece, a substantial producer, joined the EC (as it then was), followed by Spain and Portugal in 1986. In that decade, guaranteed prices and export subsidies led to production tripling. This being the Common Agricultural Policy (CAP), the increase was inevitably in varieties for which there was little demand. Despite the resulting huge surplus, three-quarters of tobacco actually consumed in Europe has to be imported, principally from the United States.

Where there are price and export subsidies, there will always be fraud. One trick was to export virtually worthless tobacco to Albania for rock-bottom prices and then collect a fat export subsidy. The Commission official in charge of sales, an Italian from a tobacco- growing area, jumped to his death from his office last March.

It is part of the EU Court of Auditors' remit to identify fraud, which is rampant in virtually all sectors of agriculture. But it is up to member states - which approved policies that make it so easy - to prosecute the fraudsters. Since these criminals often commit fraud in one country, keep the proceeds in another, the goods in a third and live in a fourth, the task is not easy. Motivation is low, since when fraud is proven, the affected member state may have to repay the sum lost, even if it is not recouped from the fraudster.

CAP reforms being phased in over several years should reduce both production and subsidies in most surplus sectors, including tobacco, and thus the opportunities for fraud. Meanwhile the question of accountability must be tackled, possibly by beefing up the investigative powers of the European Parliament and the Court of Auditors.