EU faces new scandal as fraud team probes grain insider dealing scam

The European Commission faced a new financial scandal last night as the EU's internal fraudbusters and Belgian investigators launched an inquiry into suspected insider dealing scam on grain prices.

Raids were carried out in Belgium, the Netherlands and France and several people were detained as the authorities swooped on an international network thought to be cashing in on advance knowledge of market sensitive information.

Jos Colpin, a spokesman for the Belgian public prosecutor's office, said there was an "an investigation into prior knowledge of the pricing of grain," following inquiries by the EU's antifraud unit, Olaf.

He added: "A number of people are detained, an official was detained. It's too early to say anything about this." The inquiry, conducted by a large team of EU and outside investigators, comes at an acutely sensitive time for the European Commission which is under fire over revelations about a series of financial irregularities at Eurostat, its Luxembourg-based statistical agency.

Under the Common Agricultural Policy the EU intervenes in the market for a range of commodities to subsidise production by European farmers. Every Thursday, a grain management committee meets in the European Commission's agriculture directorate to decide the outcome of a weekly export tender, effectively determining the level of subsidy.

Around the time of this decision, speculation is rife and world cereals markets can move significantly as a result. Prior knowledge could be used to commercial advantage.

A small number of people inside the commission have been under suspicion, for several months, of giving advance warning of internal decisions to a network of outside interests. The identity or seniority of the EU officials involved was not clear last night.

More details are expected to emerge today as to the geographical extent of the scam, thought to range over a number of countries.

The latest revelations are bad news for the commission which has faced mounting political criticism over its handling of the irregularities at Eurostat. Three European Commissioners have been targeted by critics: Pedro Solbes, who is responsible for Eurostat, Neil Kinnock, vice-president of the commission and Michaele Schreyer who is in charge of budgets.

Investigations into that episode have uncovered a series of false or double-accounting, inflated contracts and a close relationship between the EU's statistical agency and a series of private sector firms. Money from undeclared bank accounts was used to fund staff perks including travel and an equestrian centre.

However officials will argue that the latest probe is evidence of the commitment of Olaf to tackle fraud and malpractice within the commission.