Carousel and VAT fraud is far outstripping Europeans' traditional financial fiddles on EU funds, prompting MEPs to call on the European Commission to overhaul its anti-fraud operation to combat the problem.

MEPs yesterday voted to adopt an “own initiative” report on the commission’s 2005 and 2006 reports on its fight against fraud.

The report detailed irregularities across the EU, pointing out that the amount affected by irregularities rose by seven per cent from €328m in 2005 to €353m in 2006. The “most affected” products were televisions and cigarettes, with the highest rise in the numbers of cases in Italy and the Netherlands.

In agriculture, the most traditional EU fraudsters' playground, the amount affected by irregularities in 2006 was €87m, compared to €105m in 2005. Spain, France and Italy accounted for 57.2 per cent of this.

Meanwhile, abuse of structural funds increased, with €703m affected in 2006, up 17 per cent. Of 95 projects audited over the period, 60 were affected by “material errors in declared project expenditure". MEPs called for more projects to be audited.

These are just the sort of figures that for years have set opponents of the EU foaming at the mouth about waste and fraud. However, they almost pale into insignificance when set against the amount lost to VAT fraud. The MEPs’ report expressed extreme concern over the financial losses to carousel fraud - a crime typically associated with small, easily moveable electronic items such as chips and phones.

The Euro Parliament’s website cited the House of Lords’ EU committee’s report into the problem, which estimated losses were up to £4.75bn for 2005/06 for the UK alone. They backed the Lords' contention that "the current mechanism for intra-Community VAT transactions is not sustainable".

MEPs said they consider that improved cooperation between the services concerned and with the commission (OLAF) is essential.

The MEPs reminded the commission they were in favour of pulling together the investigatory powers of its anti-fraud office – OLAF - under a single regulation. They demanded OLAF “submit an analysis of the interoperability of the different legal bases granting investigative powers to it, in the context of the future revision of the OLAF Regulation".

All of which should have the VAT fraudsters quaking in their boots as they race to pull their last few tens of billions before the EU actually gets round to tackling the problem. ®

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