The prospect of a £1.7bn fine imposed on the UK by the EU’s fraud watchdog is expected to cast a shadow over Theresa May’s summit with European leaders on Thursday.

The prime minister’s spokesman rejected accusations on Wednesday from Olaf (Office Européen de Lutte Antifraude) that Britain is liable for allowing criminal gangs to flood black markets in the continent with illegal Chinese goods.

The body recommended on Tuesday that the UK pay €1.98bn into the EU budget to compensate for lost customs duties. But May’s spokesman said the UK government does not recognise the proposed fine, paving the way for a dispute between Britain and the European authorities.

The demand from Olaf underlines the difficult challenge May is likely to face as she seeks to extricate Britain from the EU without a hefty divorce bill. If the European commission demanded the fine while the UK was still a member, May would come under huge pressure from MPs not to pay up.

Charlie Elphicke, the Conservative MP for Dover and Deal, said: “This is not down to the failure of the UK to work on the matter. This is down to a fraud being conducted by overseas traders. Many people, including myself, are concerned, which is why I asked the National Audit Office to investigate.

“But it would be fundamentally wrong, it would be a flawed announcement to say this was the fault of the British government. It would be wrong for Olaf to point the finger at us. It would be even more wrong for the commission to seek state proceedings.”

The prime minister is heading to the summit on Thursday afternoon despite the UK’s intention to formally notify the EU within days of its intention to leave the bloc.

She will attend sessions and a dinner on the migration crisis and Russia’s influence on the western Balkans, as well as voting on the future of Donald Tusk, the European council president, who is facing a challenge for his position from his own country, Poland.

During the dinner, the prime minister is likely to raise concerns that the EU needs to do more to tackle “Russian disinformation” in eastern Europe, her spokesman said.

She will be unable to discuss Brexit at the EU summit, as the government has not triggered article 50 and will not be able to do so until legislation has passed through the Commons, which will be next Tuesday at the earliest.

At a press conference on Thursday afternoon, May is likely to face questions about the cost of Brexit and whether the UK would be prepared to pay up if the commmission accepts Olaf’s accusations that it has been negligent about fraud.

Olaf said the fraud was ongoing and that the cost to national exchequers was even greater. France, Germany, Spain and Italy are estimated to have lost a combined €3.2bn in VAT revenues between 2013 and 2016 as a result of British failures in handling imports at its ports.

Relations between Britain and some member states, such as France and Italy, were strained over trade in the runup to Brexit. The British government has been in the vanguard of countries defending EU rules that allow artificially cheap (but legal) Chinese steel into European markets, hurting European jobs and companies.

The EU’s 28 member states belong to a customs union, where a common tariff is levied on imports from outside the bloc. About 80% of customs duties are used to fund the EU budget.



Anti-fraud investigators said they had repeatedly warned British customs officials about the scale of the fraud. A spokesperson said: “Despite repeated efforts deployed by Olaf, and in contrast to the actions taken by several other member states to fight against these fraudsters, the fraud hub in the UK has continued to grow.”

In one example given by the anti-fraud team, women’s trousers imported from China were declared in the UK at an average price of €0.91 a kilogram, although market prices for cotton were €1.44, a disparity that failed to raise the alarm in Britain.



A senior French anti-fraud investigator said the UK had mostly not responded to requests to trace goods. Bruno Collin, at the French National Directorate of Intelligence and Customs Investigation, told Politico that his British counterparts had not made an effort. “UK authorities are not interested at all in cooperating in this field, probably because the phenomenon does not directly affect them,” he said.



Politicians opposed to Brexit said the findings raised more questions about the government’s plans to quit the EU’s customs union. “The UK border force is asleep at the wheel and it’s going to cost the taxpayer billions,” said Alistair Carmichael, a Liberal Democrat MP. “This doesn’t bode well for reckless plans to leave the customs union and set up border checks for all goods coming into the UK.”



The decision about whether to fine the UK will be taken by the European commission.

Asked whether the UK would pay a fine, May’s spokesman said: “We’ve not received a bill from the European commission. This report is not a bill. It’s an estimate. We don’t recognise the figures. HMRC are looking at it now.”

HMRC said it had an “excellent record in tackling fraud and rule-breaking of all kinds” and was considering Olaf’s findings and recommendations.