Skip to main content
SpringerLink
Log in

The thin line between legitimate and criminal enterprises: subsidy frauds in the European Community

  • Articles
  • Published:
Crime, Law and Social Change Aims and scope Submit manuscript

Abstract

This paper describes and analyses a large fraud against the financial interests of the European Community (EC). On the basis of this case and our interviews with officials in five EC countries, we highlight structural impediments to the control of such frauds, draw parallels with other research on organisational crime and suggest that the distinction between “organised crime” and “white-collar crime” be abandoned in favour of an “enterprise model” of crime. We conclude by pointing out that legal changes and strict controls alone cannot substantially reduce the huge potential for EC frauds, especially in view of the abolition of EC's internal borders in 1993. Antifraud policies must also address the underlying structural factors.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes and references

  1. One may speak of a “double” dark figure, because not all cases of frauds known to national authorities are reported to the EC Commission which publishes the statistics. It is beyond dispute, however, that the potential and “real” figure is substantial—for a variety of reasons. See HMSO,Fraud Against the Community, House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London; HMSO, 1989); Passas, N., “Cheating on the European Community,” paper presented at theAmerican Society of Criminology meeting, revised version, Reno, USA, 1989; Passas, N.,Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)—an elaborated and updated version of this report is to be published in 1993 by Westview Press.

    Google Scholar 

  2. Passas, op.cit,Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a); Passas, N., “The Facts about European Community Frauds,” inCommercial Crime International. 1991b, 1, 5.

  3. e.g. Anderson, A.,The Business of Organized Crime. Stanford, CA: Hoover Institution Press, 1979; Block, A.A.,Perspectives on Organizing Crime. Dordrecht: Kluwer, 1991; Haller, M., “Illegal Enterprise: a Theoretical and Historical Interpretation,” inCriminology. 1990 (28∶2), 207–235; Reuter, P.,Disorganized Crime: the Economics of the Visible Hand. Cambridge, MA: MIT Press, 1983; Smith, C.D. Jr., “White-Collar Crime, Organized Crime, and the Business Establishment: Resolving a Crisis in Criminological Theory,” in Wickman, P. and T. Dailey (eds),White Collar and Economic Crime. Lexington, MA: Lexington Books, 1982).

    Google Scholar 

  4. d'Aloya, C., “Reform of the CAP in a Changing Europe,” presented at the bi-annualECSA conference Fairfax, VA, 1991, 1–54, 10.

  5. Cosson, J.,Les Industriels de la Fraude Fiscale. (Paris: Editions du Seuil, 1971 [revised and extended edition, 1978]); Klaus Tiedemann,Subventionskriminalität in der Bundesrepublik. Rowohlt, 1974a; Tiedeman, K., “Kriminologische und kriminalistische Aspekte der Subventionserschleichung,” in Schäfer, H., (Hrsg.)Grundlagen der Kriminalistik. Band 13/1:Wirtschaftskriminalität, Weissen-Kragen Kriminalität. Hamburg: Steintor, 1974b.

    Google Scholar 

  6. Passas, 1991a, op.cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a).

  7. With the exception of an Italian law; see below and Nikos Passas, and David Nelken, “The Fight Against Economic Criminality in the European Community: Cacophony Rather Than Harmony”, inCorruption and Reform. 1991 (6–3), 237–266.

  8. See Passas and Nelken, 1991, op. cit. Nikos Passas, and David Nelken, “The Fight Against Economic Criminality in the European Community: Cacophony Rather Than Harmony”, inCorruption and Reform. (6–3), 237–266.

  9. Keller, H. and G. Maier,Skandal im Kühlhaus: Dubiose Geschäfte in der EG. Stuttgart: Bonn Aktuell, 1987; Tutt, N.,Europe on the Fiddle London: Helm, 1989.

    Google Scholar 

  10. See Hansart, House of CommonsParliamentary Debates. 148, No. 1476, 2 March, cols: 455–498, (HMSO: London, 1989).

    Google Scholar 

  11. e.g. Guermeur,Report on Stepping up Measures to Combat Fraud Specifically Aimed at the Community Budget. European Parliament, Doc A2-251/1986, 1986; Dankert, P.,Report on preventing and combatting fraud against the European Community Budget in a post-1992 Europe. European Parliament, Session Documents, Doc A2-20/1989, 1989; HMSO, 1989, op. cit. HMSO,Fraud Against the Community, House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London)

  12. Delmas-Marty, M. and E. Roche-Pire,Marché Commun et Criminalité des Affaires. Paris: Economica, 1982; Harding, C.S.P., “The European Communities and Control of Criminal Business Activities,” inInternational and Comparative Law Quarterly. 1982 (31) 246–262; Herlihy, P. and C. Cowan, “Trade in Live Pigs between Northern Ireland and the Republic of Ireland,” inIrish Journal of Agricultural Economics and Rural Sociology. 1983 (9–2), 173–192; Norton, D.,Ireland, the CAP, Trade Distortion and Induced Smuggling Activity, 1974–1981. Dublin: European League for Economic Cooperation Irish Section, 1983; Norton, D., “Smuggling under the Common Agricultural Policy: Northern Ireland and the Republic of Ireland,” inJournal of Common Market Studies. 1986 (24–4), 297–312; Reinke, S., “Wirtschaftskriminalität und Europäische Gemeinschaft,” in Bundeskriminalamt (Hrsg.)Wirtschaftskriminalität. Band 29, (Wiesbaden, 1984); Passas and Nelken, 1991, op. cit. “The Fight Against Economic Criminality in the European Community: Cacophony Rather Than Harmony”, inCorruption and Reform. 1991 (6–3), 237–266; Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a); Tiedemann, 1974a, 1974b, op. cit.Subventionskriminalität in der Bundesrepublik. Rowohlt, 1974a; Tiedeman, K., “Kriminologische und kriminalistische Aspekte der Subventionserschleichung,”; in Schäfer, H., (Hrsg.)Grundlagen der Kriminalistik. Band 13/1:Wirtschaftskriminalität, Weissen-Kragen Kriminalität. Hamburg: Steintor, 1974b; Tiedemann, K., “La Fraude dans le domaine des Subventions: Criminologie et Politique Criminelle,” inRevue de Droit Pénal et de Criminologie. 1975/76, 129–140; Tiedemann, K., “Phenomenology of Economic Crime,” in Council of Europe,Criminological Aspects of Economic Crime, Strasbourg, 1977; Tiedemann, K., “Reform des Sanktionswesens auf dem Gebiete des Agrarmarktes der Europäischen Wirtschaftsgemeinschaft,” in O.F. Freiherr von Gamm, Raisch, P. and K. Tiedemann (Hrsg.) Strafrecht, Unternehmensrecht, Anwaltsrecht, Festschrift für G. Pfeiffer, Köln: Carl Heymanns Verlag, 1988.

    Google Scholar 

  13. e.g. Tuohy, W., “For Europe, Fraud has a $4-billion Price Tag-and it's getting Worse,” inLos Angeles Times, 17 August, 1989, 1 and 7.

  14. Tiedemann, 1974a, b, op. cit.Subventionskriminalität in der Bundesrepublik. Rowohlt, 1974a; Tiedeman, K., “Kriminologische und kriminalistische Aspekte der Subventionserschleichung,”; in Schäfer, H., (Hrsg.)Grundlagen der Kriminalistik. Band 13/1:Wirtschaftskriminalität, Weissen-Kragen Kriminalität. Hamburg: Steintor, 1974b; Delmas-Marty and Roche-Pire, 1982, op. cit.Marché Commun et Criminalité des Affaires. Paris: Economica, 1982; Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a);

  15. Keller, H. and G. Maier,Skandal im Kühlhaus: Dubiose Geschäfte in der EG. Stuttgart: Bonn Aktuell, 1987; Tutt, N.,Europe on the Fiddle London: Helm, 1989.

    Google Scholar 

  16. , House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London: HMSO, 1989); Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)

    Google Scholar 

  17. H.-H. Wächter, “Die Verhinderung und Bekämpfung von Unregelmässigkeiten im Hinblick auf Europa 1992”, inCompte Rendu: Audition Publique sur la Prévention et la Lutte contre la Fraude au Détriment de la Communauté dans l'Europe de 1992. (PE 128.395/Ann., 1989), p. 3.

  18. HMSOCourt of Auditors. House of Lords Select Committee on European Communities, 6th Report, [HL102] London: HMSO, 1987, p. 98; also quoted in HMSO, 1989, op. cit.Fraud Against the Community, House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London: HMSO, 1989). p. 27

    Google Scholar 

  19. .

    Google Scholar 

  20. Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a); Tiedemann, 1974a, op. cit.Subventionskriminalität in der Bundesrepublik. Rowohlt, 1974a

  21. Graziano, L., “A Conceptual Framework for the Study of Clientelism,”Occasional Paper No. 2 (Western Societies Program, Center for International Studies, Cornell Univ., Ithaca, NY, 1974).

    Google Scholar 

  22. It is stressed that the differential treatment does not regard EC frauds vs domestic, frauds, but some offenders vs other (less powerful and functional?) offenders—e.g. see Dee Cook,Rich Law, Poor Law: Differential Response to Tax and Supplementary Benefit Fraud. (Milton Keynes: Open University Press, 1989) about tax vs supplementary benefit fraud. Incidentally, interviewed officials in other countries argued that the public interest is better served if crooks are apprehended, their names publicised and others deterred from defrauding the EC-which is more consistent with John Braithwaite's [Crime, Shame and Reintegration. Cambridge: Cambridge University Press, 1989] views on “reintegrative shaming”. Even there, however, informal arrangements with traders who “made mistakes” are not infrequent.

    Google Scholar 

  23. OJ 1988 C316, “Annual Report of the Court of Auditors for 1987”, inOfficial Journal of the European Communities. paras 3.3–3.35; HMSO, 1989, op. cit.Fraud Against the Community, House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London), 14.

  24. Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)

  25. OJ 1985 C316, “Annual Report of the Court of Auditors for 1984,” inOfficial Journal of the European Communities. para. 4.28[c]; emphasis added.

  26. Tiedemann, 1977, op. cit. “Phenomenology of Economic Crime,” in Council of Europe,Criminological Aspects of Economic Crime, Strasbourg, 1977, 25.

  27. Comp. Frank Pearce,Crimes of the Powerful. London: Pluto Press, 1976.

    Google Scholar 

  28. Even there, it is thought that probably “the public is less interested in Community fraud than it is in domestic fraud” HMSO, 1989, op. cit., HMSO,Fraud Against the Community, House of Lords Select Committee on the European Communities, Session 1988–89, 5th Report, London), [evidence]: 83. So, elsewhere public pressures to prioritise the fight against EC frauds can be expected to be even weaker.

  29. Delmas-Marty, M., “White-Collar Crime and the EEC,” in Leigh, L. (ed),Economic Crime in Europe. London: Macmillan, 1980), 97.

    Google Scholar 

  30. . emphasis added.

    Google Scholar 

  31. See Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)

  32. Brady, J., “Arson, Urban Economy and Organized Crime,” inSocial Problems. 1983 (31), 1–27; Clarke, M. (1989) “Insurance Fraud,” inBritish Journal of Criminology. (29–1), 1–20.

  33. Jesilow, P., Pontell, H.N. and G. Geis, “Physician Immunity from Prosecution and Punishment for Medical Program Fraud,” in Groves, W.B. and G. Newman (eds),Punishment and Privilege. New York: Harrow and Heston, 1986), 7–22.

    Google Scholar 

  34. Calavita, K. and H. Pontell, “‘Heads I Win Tails You Lose’: Deregulation, Crime and Crisis in the Savings and Loan Industry”, inCrime and Delinquency, 1990 (36), 309–341.

  35. Der Spiegel. 20/1990: 172–3 and 176, 180.

  36. Scott, P.D. and J. Marshall,Cocaine Politics: Drugs, Armies, and the CIA in Central America. Berkeley and Los Angeles: University of California Press, 1991; Silverstein, M., “Watergate and the American Political System,” in Markovits A.S. and M. Silverstein (eds),The Politics of Scandal. New York and London: Holmes & Meier, 1988.

    Google Scholar 

  37. Passas, N., “I Cheat, Therefore I Exist: The BCCI Scandal in Context,” in Hofman, W.M., Kamm, J., Frederick, R.E. and E. Petry (eds),International Perspectives on Business Ethics. New York: Quorum BooksPassas, in press); Passas, N., “‘Regulatory Anesthesia’ or the Limits of Criminal Law? Going After BCCI,” paper presented at the annual meeting of theLaw and Society Associational. Philadelphia, USA, 1992 (a short version of this paper is to be published by the Drug Policy Foundation); Schumer, C.E.,Report Regarding Federal Law Enforcement's Handling of Allegations Involving the Bank of Credit and Commerce Internation. House Judiciary Committee, Staff report of the Subcommittee on Crime and Criminal Justice, 1991; US, Senate Committee on Foreign RelationsThe BCCI Affair.hearings before the Subcommittee on Terrorism, Narcotics, and International Operations, Washington, DC: US Government Printing Office, 1992.

  38. Brady, 1983, op. cit. “Arson, Urban Economy and Organized Crime,” inSocial Problems; Levi, M., “Fraudulent Justice? Sentencing the Business Criminal,” in Carlen, P. and D. Cook (eds),Paying for Crime. Milton Keynes: Open University Press, 1989; Szasz, A., “Corporations, Organized Crime and the Disposal of Hazardous Waste: An Examination of the Making of a Criminogenic Regulatory Structure,” inCriminology. 1986 (24–1), 1–27; Yeager, P., “Law, Crime and Inequality: The Regulatory State,” paper presented at theAmerican Society of Criminology. meeting, S. Francisco, 1991.

  39. E.G. Grabosky, P., “The Meat Substitution Scandal,” in Grabosky, P. and A. Sutton (eds),Stains on a White Collar. Sydney: The Federation Press, 1989; Office of Inspector General,Semi-Annual Report to Congress. (Oct. 1988–March 31, 1989), Washington D.C.: US Dept. of Agriculture, 1989, 8–9.

    Google Scholar 

  40. Hagan, F., “The Organized Crime Continuum: a Further Specification of a New Conceptual Model,” inCriminal Justice Review. 1983 (8, Spring), 52–57.

  41. Maltz, M., “Toward Defining Organized Crime,” in H. Alexander and G. Caiden (eds),The Politics and Economics of Organized Crime. Lexington, MA: Lexington Books, 1985.

    Google Scholar 

  42. Bynum, T.S., “Controversies in the Study of Organized Crime,” in Bynum, T.S. (ed),Organized Crime in America: Concepts and Controversies. Monsey, NY: Willow Tree Press, 1987), 3–11.

    Google Scholar 

  43. ; Merton R.K.,Social Theory and Social Structure. New York: The Free Press, 1968; Reuter, 1983, op. cit.Disorganized Crime: the Economics of the Visible Hand. Cambridge, MA: MIT Press, 1983

    Google Scholar 

  44. e.g. Chambliss, W.,On the Take. Bloomington: University of Indiana Press, 1978; Passas, in press, op. cit. “I Cheat, Therefore I Exist: The BCCI Scandal in Context,” in Hofman, W.M., Kamm, J., Frederick, R.E. and E. Petry (eds),International Perspectives on Business Ethics. New York: Quorum BooksPassas, in press)

    Google Scholar 

  45. : Calavita and Pontell, 1990, op. cit.“Physician Immunity from Prosecution and Punishment for Medical Program Fraud,” in Groves, W.B. and G. Newman (eds),Punishment and Privilege. New York: Harrow and Heston, 1986), 7-22.; Haller, 1990, op. cit. “Illegal Enterprise: a Theoretical and Historical Interpretation,” inCriminology. 1990 (28∶2), 207–235; Kwitny, J.,The Crimes of Patriots: The True Tale of Dope, Dirty Money, and the CIA. New York: W.W. Norton & Co, 1987; Lernoux, P.,In Banks we Trust. Garden City, NY: Anchor Press/Doubleday, 1984; Passas, in press, 1992, op. cit. “I Cheat, Therefore I Exist: The BCCI Scandal in Context,” in Hofman, W.M., Kamm, J., Frederick, R.E. and E. Petry (eds),International Perspectives on Business Ethics. New York: Quorum BooksPassas, in press); Passas, N. and M. Escamilla, “Scientology and its ‘Clear’ Business,” inBehavioral Sciences and the Law. 1992 (10), 103–116; Reuter, 1983, op. cit.Disorganized Crime: the Economics of the Visible Hand. Cambridge, MA: MIT Press, 1983; Scott and Marshall, 1991, op. cit.Cocaine Politics: Drugs, Armies, and the CIA in Central America. Berkeley and Los Angeles: University of California Press, 1991

    Google Scholar 

  46. Brady, 1983, op. cit. “Arson, Urban Economy and Organized Crime,” inSocial Problems. 1983 (31), 1–27; Szasz, 1986, op. cit. “Corporations, Organized Crime and the Disposal of Hazardous Waste: An Examination of the Making of a Criminogenic Regulatory Structure,” inCriminology. 1986 (24–1), 1–27;

  47. Coleman, J.W., “Toward an Integrated Theory of White Collar Crime,” inAmerican Journal of Sociology. 1987 (93), 406–439; Passas, N.,Merton's Theory of Anomie and Deviance: An Elaboration. Ph.D. Thesis, (University of Edinburgh, 1988); Passas, N., “Anomie and Corporate Deviance,” inContemporary Crises. 1990 (14), 157–178.

  48. , Passas, in press, op. cit. “I Cheat, Therefore I Exist: The BCCI Scandal in Context,” in Hofman, W.M., Kamm, J., Frederick, R.E. and E. Petry (eds),International Perspectives on Business Ethics. New York: Quorum BooksPassas, in press)

    Google Scholar 

  49. Chubb, J. and M. Vannicelli, “Italy: A Web of Scandals in a Flawed Democracy,” in Markovits, A.S. and M. Silverstein (eds),The Politics of Scandal: Power and Process in Liberal Democracies. New York and London: Holmes & Meier, 1988.

    Google Scholar 

  50. Haller, 1990, op. cit. “Illegal Enterprise: a Theoretical and Historical Interpretation,” inCriminology. 1990 (28∶2), 222;

  51. ; Smith, 1982, op. cit. “White-Collar Crime, Organized Crime, and the Business Establishment: Resolving a Crisis in Criminological Theory,” in Wickman, P. and T. Dailey (eds),White Collar and Economic Crime. Lexington, MA: Lexington Books, 1982); Reuter, 1983, op. cit.Disorganized Crime: the Economics of the Visible Hand. Cambridge, MA: MIT Press, 1983.

    Google Scholar 

  52. 5

    Google Scholar 

  53. Rebscher, E. and W. Vahlenkamp,Organisierte Kriminalität in der Bundesrepublik Deutschland. Wiesbaden: Bundeskriminalamt, 1988, 14–15.

    Google Scholar 

  54. Passas, 1989 and 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)

  55. ; Tiedemann, 1974a, b, op. cit.Subventionskriminalität in der Bundesrepublik. Rowohlt, 1974a; Tiedeman, K., “Kriminologische und kriminalistische Aspekte der Subventionserschleichung,”; in Schäfer, H., (Hrsg.)Grundlagen der Kriminalistik. Band 13/1:Wirtschaftskriminalität, Weissen-Kragen Kriminalität. Hamburg: Steintor, 1974b;

    Google Scholar 

  56. Gottfredson and Hirschi propose that a “valid theory of crime must see it as it is: largely petty, typically not completed, and usually of little lasting or substantial benefit to the offender,” (Gottfredson, M.R. and T. Hirschi,A General Theory of Crime. Stanford: Stanford University Press, 1990, p. 21). They also refer to evidence that specific crimes tend not to be repeated, irrespective of their outcome. There is little reason to dispute this, at a very general lever, but they seek to apply this description also to organised crime and white-collar crime. Our case, alongside a rich body of literature and research, demonstrates that, on this point, they have needlessly overstretched their argument.

    Google Scholar 

  57. Passas, 1991a, op. cit.Frauds Affecting the Budget of the European Community. Report to the Commission of the European Community, (Brussels 1991a)

Download references

Author information

Authors and Affiliations

  1. Department of Criminal Justice, Temple University, 549 Gladfelter Hall, 19122, Philadelphia, PA, USA

    Nikos Passas

  2. University of Macerata, Italy

    David Nelken

Authors
  1. Nikos Passas
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. David Nelken
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Passas, N., Nelken, D. The thin line between legitimate and criminal enterprises: subsidy frauds in the European Community. Crime Law Soc Change 19, 223–243 (1993). https://doi.org/10.1007/BF01844060

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01844060

Keywords

Search

Navigation