EC admits to growing fraud scandal

The European Commission sought to quash allegations today that senior officials failed to act promptly against widening fraud allegations at the EU’s statistics agency.

However, the EC acknowledged suspected financial irregularities at the Luxembourg-based Eurostat appear much worse than first expected.

“New developments showed that the problems were far more significant than we had known,” said Pedro Solbes, the EU’s finance commissioner.

“The Commission is deeply concerned about the state of affairs,” he told a European Parliament committee. “We take it very seriously.”

The allegations focus on alleged irregularities in granting contracts to outside firms to help gather or distribute Eurostat data and that almost £700,000 (€1m) in funding was siphoned off to private bank accounts.

Investigations are under way by judicial authorities in France and Luxembourg, as well as by the EU’s own anti-fraud office known as OLAF.

At their own requests, the head of Eurostat Yves Franchet and another leading official, Daniel Byk, have been relieved of their posts as the investigations continue.

EU Commission President Romano Prodi denied a report in the Financial Times claiming he and other top officials were aware of the problems at Eurostat for years, but failed to take action.

However, the acknowledgement that the allegations run deeper than expected is an embarrassment for Prodi’s team which took over the EU head office in 1999 promising to root out corruption after a scandal brought down the previous European Commission.

Prodi spokesman Reijo Kemppinen said it was the Commission that first alerted the EU fraud office to suspicions of irregularities at Eurostat four years ago, but that the wider extent of the problems only emerged this year.

In his testimony to the European Parliament’s budgetary control committee, Solbes said action was taken to cancel contracts with some of the companies concerned and financial checks tightened.

He insisted legal restraints prevented the Commission from taking further action against suspected officials and companies before allegations against them are proved.

Solbes said he expected a report this month from the OLAF anti-fraud unit into the alleged involvement of EU officials. He added the Commission would decide on disciplinary proceedings based on that report.

EU officials admitted there had been breakdowns in communications within the European bureaucracy that slowed the flow of information about the Eurostat case between different departments.

“The system has not functioned in the way it should have,” Kemppinen acknowledged. “Problems exist, we have never denied those problems.”