Landmark Judgement in Milk Quota Case in Italy

The scheme consisted of the establishment of a network of companies with the sole purpose of simulating commercial operations of sale and purchase in order to avoid the payment of the extra levy in the milk quota payment scheme.

15/04/09 In a landmark judgement, the Italian Supreme Court has confirmed a decision of a national Court concerning the evasion of extra levies in the milk quota payment scheme. The ruling goes back to an Italian investigation supported by the European Anti-Fraud Office (OLAF) and is an important precedent for other pending cases in Italy concerning similar schemes to evade the extra levy payment in the sector.

The ruling was handed down by the Italian Supreme Court (Corte di Cassazione) in Rome on 21.1.2009 and is not subject to further appeal. In the underlying case, the scheme consisted of the establishment of a network of companies with the sole purpose of simulating commercial operations of sale and purchase in order to avoid the payment of the extra levy in the milk quota payment scheme.

The Prosecution Office and the Judge of First Instance (Pre Trial Judge) considered this a fraud and issued a seizure order in April 2008. OLAF gave significant assistance to this case, led by the Italian judicial authorities, consisting, in particular, in providing the Office of the Prosecutor with legal arguments on technicalities of the milk quota system and of the legislation to be used in the request of seizure to the Court. OLAF assistance contributed to the temporary seizure of assets for the amount of 21 million Euros. The order issued by the Judge of First Instance was then challenged. The Supreme Court has now finally ruled that the legal assessment of the Judge of First Instance, who issued the seizure order, was correct.

According to the ruling, the evasion of the payment of the extra levies by setting up a fraudulent scheme amounts to the crime of fraud against EU financial interests (article 640bis of the Italian Criminal Code).

This decision strengthened the criminal investigation, which resulted in the indictment of the authors of the scheme.

The milk quota regime, introduced by the European Common Agricultural Policy, aims to steer EU-wide milk production. Milk that is produced in excess of the quota is subject to an extra levy when being put on the market.

A common fraud scheme, habitually used in this kind of case, supposedly works as follows: milk producers create several cooperative companies. Their aim is to make these companies appear as “first purchaser” of the milk. In such capacity, they would be obliged to keep the levy on the “extra-quota” milk produced and to transfer the money to the Italian body responsible to collect the levies (AGEA). In practice, the cooperative companies do not do so; in fact, they do not carry out any real business activity. The milk is subsequently sold to the dairies. On paper, the sale seems to involve the cooperative companies and the dairies, but, in practice, it takes place directly between the producers and the dairies. This way, the producers are able to sell their extra-quota milk to the dairies without paying the levy.

The cooperative companies justify their non-payment of extra-levies by claiming the possibility of compensating such debts with credits in favour of the producers due to an “under quota” production at national level in subsequent years.

Over the years, the cooperative companies accumulate high debts for the unpaid levies towards the State and the EC, but they do not have any income or asset, so there is no possibility of recovering any amount of money from them.