Sugar companies claim their activities are misinterpreted because they are governed by a byzantine European Union system that invites confusion. “It’s very complicated” and difficult for anyone to understand, said Dominik Risser, a spokesman for the Südzucker Group, a German company that is the industry giant in Europe and owns 40 factories in 10 nations, including those of Beneo-Orafti.
Südzucker, which reaped agricultural subsidies this year of almost 448 million euros for all its subsidiaries, declined to comment on the investigation of Beneo-Orafti.
Europe acknowledges its sugar problem and has been instituting reforms intended to reduce sugar subsidies and the fraud that comes with them. In the meantime, dozens of sugar-related raids have been conducted in Greece, Germany, Belgium and elsewhere, including Croatia, where scams were so rampant that the country was disqualified from the rebate system in 2003. Investigators cited Croatia’s role in so-called carousel trades, in which export subsidies were claimed for cheap sugar shipped to Croatia from countries inside Europe, and then sent straight back.
Perhaps the most common scheme used to game the system is to mix in cheap cane sugar from abroad with European beet sugar, which lowers production costs and increases volume. Companies doing this often falsely declare the country of origin for the sugar, which is illegal.
About 30 Greek sugar producers have been investigated over the last three years on suspicion of trading mixed sugar, and some people have been prosecuted and convicted, although typically they appealed and tied up the cases in a slow-moving justice system.
Greece, Italy and Belgium together have been forced to return more than 10 million euros because of lax inspection controls related to mixing.
These days it is Germany where the biggest sugar showdown is taking place. Armed police have raided factories and corporate suites, confiscating computers and truckloads of documents.
Suspicion of cartel activity led to raids last March in Manheim, Cologne and Bonn. Then in late summer, almost 300 investigators swarmed over the operations of the nearly century-old August Töpfer sugar trading company in Hamburg. They raided about 35 sites, including sugar factories and the homes of top executives, whose telephones were also tapped. The investigation is based on suspicions that August Töpfer fraudulently claimed subsidies for sugar that didn’t come from the European Union. “We are investigating a complex, extensive and difficult case of economic subsidy fraud,” said Wilhelm Moellers, a spokesman for the Hamburg prosecutor’s office.
August Töpfer’s lawyer, Klaus Landry, maintained that the company had not mixed sugars, and said that this summer’s raids were politically motivated. He said that prosecutors did not understand the arcane sugar subsidy system. “I sometimes say that not more than 10 lawyers in Germany know how it works,” he said, ‘’because it’s very technical and it changes quickly.”
The mixing schemes extend into exotic hybrids — sugar mixed with dashes of tea and cocoa. By doing this, exporters can declare their products processed foods, and thus pay lower customs fees or avoid them altogether.
One 2004 case in the Netherlands involved a Belgian company that mixed sugar with dried peas. The peas could later be easily separated out, leaving only the sugar. A Dutch court rejected the company’s argument that this was a processed food subject to lower tariffs.
Investigators have also had to deal with Croatia, a perennial thorn. They noticed that Croatian exports to Europe sugar mixed with a small quantity of tea were steadily rising — from 20,951 tons in 2006 to 52,487 tons last year.
With the normal duty on white sugar costing 419 euros a ton, Croatian exporters, by mixing in tea, appear to have avoided some 22 million euros in customs charges last year.