ALMOST #1000m was illegally siphoned from European Union funds last year as international gangsters exploited lucrative loopholes in EU policies.

But the figures revealed by the European Commission yesterday almost certainly under-estimate the scale of fraud, since they include only cases specifically identified by EU and national authorities.

Officials openly acknowledge that the actual sum of #925m could be considerably higher because of scams they have not yet managed to uncover.

The total is also noticeably less than the #2800m which the EU's financial watchdog, the Court of Auditors, identified as going astray the previous year through fraud and financial errors and irregularities.

Anti-fraud Commissioner Anita Gradin maintained yesterday that the 5162 cases of fraud detected last year was slightly up on 1996 levels because of the greater efforts her staff were making in keeping track of European taxpayers' money.

''But even so, the amount is unacceptably high,'' she added. ''This is why we are strengthening our anti-fraud forces even further. We simply cannot accept that these enormous sums of taxpayers' money disappear into the pockets of international crime syndicates.''

The European Commission's own anti-fraud squad has already identified some 50 separate crime networks, ranging from established groups like the Mafia to recently formed gangs of former security officers in central and eastern Europe which are now targeting EU funds.

The EU has already told governments in Eastern Europe that they must clamp down on crime if they want to become EU members.

Yesterday's report lists an embarrassing catalogue of fraud in a wide range of EU policy areas, stretching from the traditional criminal hunting grounds of agricultural and regional programmes, to relatively new scams involving black market cigarettes and alcohol.

In one case last year, the commission, working closely with Spanish and Greek investigators, seized a Ukrainian Air Force cargo plane which had landed in northern Spain via Greece. Instead of the electrical spare parts which the pilot had said he was carrying, the investigators discovered 1700 cases of cigarettes.

It later emerged that the plane had made seven earlier flights in the previous two months and had been scheduled to make six more in the following weeks.

The cigarettes came from a large warehouse in the Netherlands, were loaded at Ostend Airport in Belgium - ostensibly for Belgrade - and then taken by different Greek airports into Spain.

The Ukrainian government refused to co-operate with the EU in stamping out the fraud, estimated to have been worth #10m in lost customs duties and VAT receipts.

The export ban on British beef in the wake of the BSE crisis also tested the imagination of criminals as they tried to get round the restrictions. In April last year, Dutch customs officers found a UK health label in a consignment of frozen beef which had allegedly come from Belgium.

Investigators discovered that two Belgian and British companies bought the beef in Britain, replaced the UK labels with Belgian ones, and transported the cargo to the continent under false papers, claiming it was Belgian meat being sent back from the UK.

The meat was then stored in the Netherlands and sold to a French company and exported from the EU with the help of EU subsidies worth more than #700,000.

With EU states responsible for implementing more than 80% of expenditure from the #54bn annual EU budget, the commission has repeatedly insisted that national authorities are in the front line in the fight against fraud.

Last year, the UK reported more cases of fraud involving the EU's income from customs duties and VAT than any other member state. In all, the Union lost more than #700m in 1997 through unpaid taxes, while the knock-on effect for national exchequers was even greater. The tax fraud cost them three times that amount in lost revenue.

Leader comment Page 20