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Baroness Williams of Crosby: My Lords, I follow what the noble Lord, Lord Moynihan, said. I very much welcome this debate and should like to congratulate the noble Lord, Lord Bruce of Donington, who continually and quite rightly refers to the importance of democracy in carrying out what seems to me one of the most important functions of democracy which is to supervise continually the administration of the taxpayers' money. Therefore, on these Benches, we welcome the strongest possible measures which can be taken against fraud in the European Union and the member states.

No one can say that the European Union has been profligate in its budget which remains at 1.27 per cent. of GNP. Moreover, there has been very little attempt to

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try to inflate it. However, I draw attention also to the regulation which was agreed on 11th November 1996 when it was agreed between the member states that there should be spot checks and unannounced inspections in the whole area of possible misuse of Union funds.

I agree with what the noble Lord, Lord Moynihan, said in a reasonable discussion on that matter. It is of crucial importance that the European Parliament should work with the national parliaments to reduce the possibility of fraud not least because, as was pointed out in our own 13th report back in 1992, fraud is not so much a problem for the Commission as for the member states dealing with the money provided by the Commission. That means that it is only through co-operation between those which are the parliamentary scrutiny bodies within the national parliament and the European Parliament and Commission that one is likely to deal with that extremely difficult problem.

Secondly, there is continual pressure for closer co-operation arising from Europol and others to deal with the issues of fraud within the geographical area of the Union. In that respect, it is worth echoing what my noble friend Lord Wallace of Saltaire said about the number of proposals brought forward under the intergovernmental pillar in the area of trying to deal with financial fraud and other issues where, if anything, there is a demand for more joint action and not less.

I wholly share the view that we must pursue this matter as vigorously as possible. Indeed, I have been instrumental in sending a good many documents about TACIS and PHARE to our own sub-committee under the chairmanship of the noble Baroness, Lady Hilton of Eggardon, because I have had reason to be concerned that some money may have been misused. It is important that such an inquiry is supported in every possible way by everybody, whatever may be their view in general of the value or otherwise of the European Union.

I do not support the amendment. It would put off sine die any movement forward of this treaty. The phrasing of the amendment implies that one must wait until the treaty had been in operation and a report would then have to be made. A resolution would then be necessary and only if that were carried could one move ahead on Amsterdam. I do not believe that is the right way forward and I shall not support the amendment. However, in bringing this matter to the attention of the House, the noble Lord, Lord Bruce of Donington, is to be much commended and I hope that all Members of this House will make as one of their first priorities the attempt to root out fraud whether at member state or at European Union level.

Baroness Park of Monmouth: My Lords, I strongly support the amendment moved by the noble Lord, Lord Bruce of Donington, who has brought this matter to the attention of the House.

I wish to make two points. It seems to me to be vital that our Government and other governments should be seen to act on the reports of the Court of Auditors, particularly in view of the forthcoming enlargement. There are a number of new countries about to join. It

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seems to me essential that they should join an institution where they see that there is serious application of the law and serious accountability.

It could be very difficult for those countries. They are making the transition from a command economy to a free economy. On the way, there are liable to be quite a few pirates around who will be using their money. It is vital that they should understand that the issue is taken seriously and that accountability matters. Article 216 says:


    "If any Member of the Commission no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct, the Court of Justice may, on application by the Council or the Commission, compulsorily retire him".

I have to tell the Minister that I should like to see a few compulsory retirements.

Lord Tebbit: I add my congratulations to those already expressed to the noble Lord, Lord Bruce of Donington, for the manner in which he introduced the amendment. I congratulate him also on his long struggles as regards issues of fraud. It would be a little unfair if we were to give the impression that this problem has arisen only since May 1st last year. We know that it has a much longer record.

It now falls to the present Administration to see whether they can be more successful than their predecessors in battling against fraud. I wish the Government well. It will be a most difficult task. I return to the view that I expressed in this House a few years ago; namely, that while such large sums of money are being moved across borders in this way for certain purposes in the European Community, it is unlikely that we will ever get fully on top of the issue of fraud.

I have some sympathy, for example, with the French or Greek farmer who thinks that it is a bit of a nonsense that he should have to grow his tobacco crop in order to harvest it and then send it off to be destroyed so that he can receive his subsidy. It would seem to any logical person that the process could be short-circuited and that such a farmer could save everyone the trouble by relaxing indoors, with his feet up and still receive his subsidy. No doubt a good many of those farmers do exactly that, as we know happens in Italy with the olive scandal.

I was surprised that the noble Baroness, Lady Williams, did not make more of the matter when we discussed subsidiarity earlier. It seems to me that this is a perfect example of subsidiarity. Every country is told that it should deal with fraud involving European Community funds in the way that it safeguards the funds entrusted to it by its own taxpayers. I am sure that the Italians would find that to be quite nice. Indeed, as we know, standards vary across Europe. Surely, the safeguarding of taxpayers funds is not a matter which should have subsidiarity applied to it in this manner. There should be a single standard right across the Community, at any rate in this respect. It should be the highest standard in the Community. I venture to suggest that that means our own standard or that of countries such as Germany.

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I should like to ask the Minister who is to reply two questions to sum up the matter. They are fairly simple questions but they may not be so easy to answer. First, would such a state of affairs as has been uncovered by the Court of Auditors be tolerated in a department of state in our Government here? That is pretty easy to answer: it most certainly would not. If such a state of affairs were uncovered in this country, it would not be a matter of people being compulsorily retired; indeed, it would be a matter of people being prosecuted and sent to gaol. Any Ministers or senior civil servants involved would be treated most severely. Of that I am absolutely certain.

The second question is a little more difficult. What can we do about it? I say "we" because it would be unfair merely to ask what the Government are going to do about it. If the Government are going to do anything about it they will require the strongest support from all of us across parties in this House. I hope that when the Government take action and build upon anything which they may have been able to achieve during our presidency they will be strongly supported from all sides.

3.30 p.m.

Lord McIntosh of Haringey: My Lords, I join the tribute that has been paid to my noble friend Lord Bruce of Donington for his stalwart work over more than 25 years in uncovering and publicising the level of fraud which exists in the European Community. The work that he does is, I fear, done by far too few people in this country and probably in other member states too.

In my reply I wish to comment first on the quantum of fraud in the European Community, and respond to the noble Lord, Lord Moynihan, on that subject; and then to comment on what the Amsterdam Treaty does in that respect and again respond to the noble Lord, Lord Moynihan, on that point. I then wish to comment on what we are doing about this during the UK presidency.

The noble Lord, Lord Moynihan, and my noble friend Lord Bruce are entirely right to draw attention to the National Audit Office analysis of the European Court of Auditor's report on 1996 accounts which reveals an unacceptable level of inaccuracies. The figure is £3 billion or 5.4 per cent. of the budget--and not between £3 billion and £5 billion--but that figure includes not only fraud but also errors in implementation, many of which relate to genuine differences of opinion between the European Court of Auditors and the Commission about interpretation of the rules on eligibility. Neither is this figure an estimate of wastage as it includes technical infringements, for example about the timing of payments. Nevertheless the level of errors, and the fraud contained within that, are clearly a cause for serious concern. When the report was published last November the Government made it clear that much work remains to be done before Community finances are as well managed as our national Budget. This has been a priority for our presidency. I say to the

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noble Lord, Lord Tebbit, that we do not believe that the level of control and enforcement is comparable to that which exists within the British Government.

What did the Amsterdam Treaty achieve in this regard? The changes were relatively modest but nevertheless they are worth putting on record. First, the treaty "beefed up" the role of the European Court of Auditors to give it recourse to the European Court of Justice to protect its right to audit Community funds. This means that if the Court of Auditors is blocked by another institution from properly carrying out its duties, it can take that institution to the Court of Justice. The Court of Auditor's right to audit those in receipt of Community expenditure right down the line to end users is clearly set out. This may have been ambiguous in the past. The Court of Auditor's right to audit Community funds managed by the European Investment Bank is also protected, even if the agreement under which the audit is carried out breaks down. As a result of these changes the Court of Auditors is now doing useful work and member states and the Commission are taking its reports more seriously. Increases in the European Court of Auditors' powers in the Amsterdam Treaty should ensure that this continues.

The second main change is in the Community's ability to take action against fraud. Under the revised Article 209a referred to by the noble Lord, Lord Moynihan, a specific legal base is created for adopting measures against fraud. Previously those had to be adopted under the cover-all provisions of Article 235, which requires unanimity and causes delay and less efficient legislation. In future, measures will be adopted by majority voting, which allows quicker action. The use of qualified majority voting should not be seen as a threat. On the contrary, it is a tool to be used, and in this case it will be possible to take decisions unencumbered by the threat of veto from an offending member state.

The noble Lord, Lord Moynihan, asked me questions about the control that is exercised by member states. As I said to the noble Lord, Lord Tebbit, although we are not privy to the way in which they run their public sector, there clearly will be significant differences between the member states. However, the point is that now, with qualified majority voting, there is a power to take action even if an offending member state is not in agreement with that action.

The third major change is the requirement placed on member states to co-operate with the Commission to ensure sound financial management of Community funds.

I turn now to what is being done by the UK presidency in the fight against fraud, and for better financial management during our presidency. As recently as Tuesday of this week, May 19th, ECOFIN considered a report on the follow-up to the Court of Auditors' report on the 1996 accounts. That is the first time the Council has discussed member states' replies to criticism by the European Court of Auditors. The debate highlighted key financial management issues such as the need to set clear aims for expenditure and to evaluate results against those aims. That should help to ensure that weaknesses highlighted in the Court of Auditors' report are addressed.

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ECOFIN also noted progress on the SEM (sound and efficient management) 2000 initiative, which is improving financial management, and discussed the Commission's annual report on the fight against fraud. I have no doubt that in due course the results of the ECOFIN debate will be made available to noble Lords.

We have made good progress on agreeing amendments to the financial regulation which sets out detailed rules for drawing up, implementing and auditing the EU budget to improve financial management. We are working to pass on good practice in financial management to central European candidates for admission to the European Union so that they can develop effective financial systems before they join the EU. That is relevant to the point made by the noble Baroness, Lady Park. They have all been invited to a financial control conference in London in June.

We are following up last year's report of the European Parliament on transit fraud. Progress has been made on legislation to improve the workings of the transit system and on preparation of the new computerised transit system. We are pursuing work on criminal fraud in the Justice and Home Affairs Council as part of the recent action plan on organised crime. The European Council at Cardiff will receive a progress report.

Although we cannot accept this amendment, because it would cause unacceptable delay and would prevent ratification if the necessary resolution were not passed in either House, nevertheless I know that the Government will recognise the unanimity of view and the determination to counter fraud which has been expressed by noble Lords in the course of this debate. On the basis that that message will now be passed back to government, I invite my noble friend to withdraw his amendment.


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