Taxpayers lose millions to tobacco fraudsters: Report shows how worthless produce is sent abroad simply to claim EU cash

MASSIVE fraud, maladministration and ill-conceived policies have cost the European Union hundreds of millions of pounds in its efforts to subsidise tobacco production, a report from its financial watchdog says. The damning report from the EU's Court of Auditors follows five years of investigation by Terry Wynn, the Labour MEP for Merseyside East. 'It's an indictment of not just the tobacco sector but the whole Common Agricultural Policy,' said Mr Wynn yesterday.

'The report is everything that I have asked for,' he said. But he demanded action yesterday from both the European Commission and national governments. 'This is a total misuse of public funds,' he said. Nearly all of the EU's 180,000 tobacco growers live in Spain, Italy and Greece. The cost of propping up the sector was 1.274bn ecus (pounds 1bn) last year. The report notes that changes have been made to policy, but says that huge and in many cases unnecessary costs will continue. It blames the European Commission and member states alike.

The most serious allegation in the report concerns the fraudulent manipulation of the market with the assistance of a Commission official who later committed suicide, and inadequate attempts by the Commission to get to the bottom of the affair. 'In 1990, the Commission carried out an internal inquiry into the management of the tobacco division,' the report notes. 'During the inquiry the Commission received allegations that a cartel had existed and been aided by the head of division . . . The report itself indicates that the possible loss over an eight-year period could have been as high as 40m ecu.'

During the 1989-90 period one Italian company and one Greek company accounted for about half of all the tobacco sold off from EU stocks. The Commission launched a disciplinary action against the head of division. But, it notes, 'no action has been taken to carry out adequate inquiries into the allegations of a cartel and the consequences for the Community budget'. It adds: 'There was no evidence of action on the part of the Commission or a member state to bring suspected wrongdoers to justice.' The Commission maintains that the investigation is ongoing, even though the official killed himself last year.

The Court of Auditors says that it found the Commission 'not as forthcoming as it should have been' over this affair. And it makes further requests for 'a copy of a contract with a company, connected with a retired Commission official, which conducted (the investigation) and for details of payments made thereunder'.

Large quantities of tobacco were exported at very low prices from Italy, Spain and Greece with the aid of EU subsidies. In many cases the tobacco was worthless and simply sent abroad to claim the cash, mainly to Hungary, Russia and Albania. 'The tobacco had no real commercial value and the exporter's profit from such operations was almost entirely derived from the export refund,' the report says.

A separate investigation is going on into what appears to be a massive case of fraud involving exports to Albania, Mr Wynn said yesterday, sparked by his inquiries. 'Exports from Italy to Albania amounted to 25,906 tonnes in 1990 but 23,087 tonnes or 89 per cent did not reach its destination,' the report says, with a 10m ecus cost to the EU. Fraudulent exports from Greece to Albania cost another 23.4m ecus.

The report says that a large proportion of the EU's resources were spent subsidising tobacco for which there is little or no demand. For two varieties which 'hardly had a market' overproduction was estimated at 215,000 tonnes in 1987-92. Altogether the EU spent more than 800m ecus on 'problem varieties'.

The result of the EU schemes was to make tobacco production far more profitable than it should have been in proportion to the amount of land involved. 'The net income (per hectare) was more than three times as high as as the average net income . . . for all types of farms in the same member states,' the report says. The level of EU support was 23 times higher than that for cereals, for instance. The Court of Auditors calculates that if the EU had handed over the equivalent of the income that tobacco farmers get in cash, rather than managing the market, the cost would be halved.