Published: Tuesday, 27 Oct 2009 | 10:56 AM ET

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Call it the mystery of the European sugar triangle.

It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back — instead of taking the most direct, 900-mile route.

Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.

AP

Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union’s farm subsidy program.

Some 200 shipments roared along this route over a three-year-period, investigators say, earning 3 million euros in refunds (about $4.5 million) for the Belgian sugar maker Beneo-Orafti. In the spring, dozens of Belgian and European investigators raided the company’s offices, freezing half of its refunds and initiating an investigation that could cost the company the remaining 1.5 million euros, and possibly more.

In the sprawling European subsidy program — which lavishes more than 50 billion euros ($75 billion at current exchange rates) a year in agricultural aid — no commodity is more susceptible to fraud, chicanery and rule-bending, experts say, than simple household sugar.

Across Europe there are some 2.5 million acres of beet fields that will produce 16.7 million metric tons of sugar this year for an industry worth 7 billion euros. Last year the European Union spent 475 million euros in price supports for sugar, including export subsidies. Then it spent another 1.3 billion euros on restructuring aid to reform a subsidy regime so that lavish it even prompted cold-weather Finland to start producing more sugar.

Sugar producers across the Continent cashed in — from Italy, where Italia Zuccheri collected more than 139 million euros, to France, where a handful of sugar producers received 128.5 million.

With this much money at stake, critics and some analysts say, the sugar subsidy system is like a cookie jar waiting to be pilfered. Europe’s antifraud division, called OLAF, reported that from 2005 to 2008, 67 million euros worth of sugar subsidies were tainted by irregularities and fraud. Many countries have been penalized millions more over the last few years for lackluster sugar inspections. In 2008, OLAF pursued 34 cases of sugar fraud involving 4.4 million euros, a figure they describe as the icing on the cake because so many of the schemes go undetected.

"There’s a whole world of commercial fraud, which goes under the radar for most people," said James Byrne, a law professor at the George Mason University School of Law in Virginia who has studied the global sugar trade. “It is a parallel universe that mimics the real world of commerce and finance."

Critics have long said that Europe’s subsidy system distorts the market, skewing competition and driving up prices. That is especially true for sugar, which in Europe has traded at roughly double the world market rate for almost two decades. European sugar prices are the highest per capita of any region in the world and about 20 percent higher than in the United States.

But investigators say that fraud and rule-bending also contribute significantly to higher costs, because of the millions lost in uncollected revenue and in the payment of undeserved subsidies.

"Sugar has been an area of concern for several decades,” said Jörg Wojahn, a spokesman for OLAF. “We have seen problems of fraud with imports, exports and transit of sugar. Substantial amounts of taxpayers’ money and revenue are at stake.”

As one example, in 2003 Serbian producers were found to be buying cheap cane sugar on the world market for about 210 euros per metric ton, then repackaging it as domestic produce to sell in Europe at subsidized prices, which at the time was 630 euros per ton. The markup contributed to higher prices for the consumer.

In addition, there are continuing investigations in Germany, Hungary and Belgium into cartel activity aimed at fixing prices and dividing up customers and territory.

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