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Regional Report : EC Racked by Fields of Fraud : Cheating the system is a growing problem for the European Community. Its farm subsidy program has been hardest hit.

August 31, 1993|JOEL HAVEMANN | TIMES STAFF WRITER

TARANO, Italy — "This is an olive grove, Italian style," says European Community fraud-buster Alfredo Bizzarri as he surveys 20 acres of mostly plowed-up earth in the rolling farmland between Rome and Florence.

In the late 1980s, farmer Giuseppe Lelli claimed thousands of dollars a year in EC farm subsidies for more than 1,000 olive trees on these fields. Investigators, suspicious because the local olive oil mill was not turning out much oil, paid a visit to Lelli's farm.

They found exactly 10 olive trees and a herd of sheep. Lelli was forced to pay back about $4,000, or one year's worth of fraudulently received olive subsidies.

He is one of the unlucky few. Fraud is a mounting problem in just about everything the EC does. EC aid for Eastern Europe has been found as far afield as Egypt, for example, and the EC's poorer countries have collected aid for bridges and highways that have never been built. By far the bulk of the fraud goes undetected, and most of what is detected goes unpunished.

John Tomlinson, a British member of the European Parliament, estimates that fraud in agricultural subsidies alone, which constitute by far the EC's biggest program, amounts to 10% of the program's budget. That would mean nearly $4 billion a year in payments that should not have been made.

"Nobody can prove it," he admits, "but nobody can disprove it. It's the proof of how bad the situation is that nobody can tell you how bad it is."

All this comes at a time when the EC is already facing an enormous public relations problem with its own 330 million citizens.

Evidence that the community cannot protect its budget from swindlers can only fuel the popular revolt against the accumulation of powers by EC headquarters in Brussels. A recent article on EC fraud in the Sunday Times of London, which appeared while the British Parliament was debating the Maastricht treaty on European union, carried a headline that read in part, "Who Would Vote for This?"

The EC itself has little power to track down and punish cheats. There is no EC criminal law equivalent to the federal statutes that American officials enforce. EC national governments, already afraid that they have delegated too much authority to Brussels, are not about to create a European police force.

That leaves EC fraud-busters reliant on law enforcement authorities in the 12 member nations. But EC members are often loath to act, fearing they will be required to reimburse the community if they unearth fraud but are unable to bring the perpetrators to heel. In fact, says Michel Jacquot, who manages the EC's farm subsidy budget, national authorities often decline to notify Brussels of fraud because they are embarrassed to admit its existence.

For the most part, those who are found guilty of defrauding the EC are required to do little more than return what is not rightfully theirs.

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"Our enforcement practices are the equivalent of Marks and Spencer (a British department store) putting up a notice warning shoplifters that if we catch you lifting a pair of socks, we'll take the socks back," Tomlinson says.

The EC usually doesn't even get the socks. Fraud-busters in the agricultural subsidy program have traced $1 billion worth of irregularities in the past 20 years, says Prosper De Winne, who heads the anti-fraud team. De Winne says they have recovered one-tenth of the total, or about $100 million.

"We need some sort of Euro-Rambo to make it look like we're serious about combatting fraud," says Tomlinson, also a member of the British Labor Party.

Instead, EC officials themselves are sometimes implicated in the Euro-scams. Most spectacularly, an EC bureaucrat threw himself out of his office window and to his death in May while authorities were investigating whether he had accepted kickbacks in return for rigging the awarding of tobacco export subsidies

One good indicator of the growing importance of fraud as an EC concern is the decision of New York-based Kroll Associates to consider setting up a Brussels office. Kroll specializes in investigating corporate fraud and helping firms make well-informed decisions about other companies they plan to do business with; it provides the same services to governments.

Anthony Lawson-Smith, who helped Kroll establish its Paris office in the late 1980s, is now spending most of his time in Brussels. "Kroll and other firms like us could help the EC to build up its own corps of investigators," Lawson-Smith says.

For now, the EC's Executive Commission relies heavily on investigators on loan from member nations. The staff of the five investigative units at the EC's Brussels headquarters numbers only about 120; about half are on loan to Brussels from their national governments.

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