From cigarette trafficking to elaborate scams to access EU farm funds, fraud is costing Europe billions each year.

Crossborder: Fighting EU Fraud

Hello and welcome to Crossborder,  from our Strasbourg studio.

The subject today is fraud  against the EU and how to overcome it.

In 2009 the EU's anti-fraud office,  OLAF,

opened some 220 investigations  into suspected cases of fraud.

Here to discuss the problem  are two guests.

Monica Macovei is an EPP member  for Romania,

She also signed a written declaration  adopted in May this year

for a more comprehensive anti-corruption  strategy and better monitoring.

deputy head in the cabinet responsible  for Taxation and Customs Union,

Audit and Anti-Fraud,  which is led by Commissioner Šemeta.

One of the growing areas of crime  is cigarette smuggling,

thought to cost the states and the EU  some 10 billion euros a year in lost duty.

Manu Coundouris went to Poland  to bring us this report.

A routine border check  in Bezledy in the north of Poland.

But this time customs dogs  have sniffed something out.

This suspicious car is on its way back  from Kaliningrad in Russia.

Fines for this type of tax fraud  can reach 650 euros,

but traffickers believe it's worth the risk  because smuggling can bring in far more.

In Russia the average cigarette pack  costs 50 cents.

It can fetch three times more in Poland  and eight times more in western Europe.

Methods have increased  in sophistication over the years.

Fuel tanks are modified so that  they can be used in cigarette trafficking.

200 km away, the Polish-Lithuanian  border is causing more problems.

These two neighbouring countries  have been EU members since 2004.

As a result, searches have become less  systematic and cigarette trafficking is up.

To stop traffickers, Polish customs  carry out surprise inspections in Poland.

In 2005 custom officers from Budzisko  discovered 70 million cigarettes.

After the first quarter of 2010  they intercepted over 12 million.

It's a drop in the ocean  compared to the 4.7 billion cigarettes

Each year the EU and the states  lose 10 billion euros in tax fraud

due to cigarette trafficking and  the tobacco industry also loses money.

To fight trafficking the Commission  signed agreements with four groups:

Philip Morris International,  Japan Tobacco International,

British American Tobacco  and Imperial Tobacco Limited.

They will pay the Commission and states  1.5 billion euros to beat trafficking.

Can I come to you first,  Baudouin Baudru?

It sounds like a lot of money to  fight this, but it is very big business,

and the traffickers think it's  worthwhile from their viewpoint

because there aren't the same penalties  as smuggling heroin or cocaine.

It's never enough  to fight against fraud.

We do believe that  the agreement we have now

with four of the biggest  cigarette factories in the world

is the first step  towards better cooperation

between legal  cigarette producers and traders

and those protecting the financial  interests of the Member States and EU.

The fact that they paid  a significant amount

to contribute to  the fight against smuggling

also shows that they have  an interest in cooperating with us.

In fact OLAF now has  a representative in Beijing,

because an awful lot of the counterfeit  cigarettes that arrive in the EU markets

Presumably we need  a deal with China to stop that.

When Commissioner Šemeta visited  China in September,

he had the opportunity to say  very clearly and very strongly

that the Union really does want  to have enhanced cooperation

with the Chinese  to fight against counterfeiting.

It's not only for cigarettes,  it's for all areas of goods

which are traded  with the rest of the world

including also potentially  dangerous goods like medicines.

Monica Macovei, you signed  this written declaration back in May

calling for much closer monitoring  of fraud within the Member States

and for a more comprehensive policy  towards fraud and corruption.

What needs to be done  to try to counter it?

For now the anti-corruption measures  are a requirement

only for candidate countries  to the Union.

there is nothing  at the level of the Union

to look at corruption  in the Member States.

Dealing with corruption  is left to the national authorities.

it's related to fraud against  national funds and European funds,

I'm asking for  a mechanism at the level of the Union

and to follow up on  anti-corruption measures.

Maybe we have good practices in some  countries - Sweden, Netherlands -

which could be taken up  and used in other countries.

Then I underline again that corruption  costs a lot, costs in terms of money,

and this is something else we must do  in order to put figures on the table,

to calculate the cost  of corruption and fraud

in health systems, construction,  smuggling cigarettes and other goods.

Every year the Court of Auditors' report  shows up irregularities.

Where do we draw the line between  irregularities, innocent mistakes,

bad form-filling, poor record-keeping  and genuine fraud?

Doesn't this help to obfuscate matters  so that it's easier to commit fraud?

The majority of errors found by the Court  of Auditors are genuine irregularities

because the rules sometimes  are too complex and difficult

to understand and implement  and sometimes also to control.

Therefore one of the actions  we believe should contribute

to preventive reduction of  fraud and corruption cases

is to simplify certain rules, particularly  for agriculture or rural development,