Kralowetz case uncovers shortcomings in control of international transport companies

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In January 2002, a major scandal broke over the alleged illegal employment of drivers from central and eastern European countries by Kralowetz, an international road haulage company with its registered office in Luxembourg. The affair has uncovered serious shortcomings in Luxembourg's system for monitoring international transport companies registered there, and has caused a major political controversy.

Kralowetz is an international road haulage company with operations based in Austria, but with its head office in Esch-sur-Alzette (Luxembourg). From 20 January 2002 onwards, searches were carried out in Kralowetz agencies in eight countries at the request of the Public Prosecutor's Office in Munich, Germany, which was investigating suspected illegal employment of non-EU nationals (AT0202203F). On 23 January 2002, the Luxembourg Criminal Investigation Department (Police judiciaire) arrested one of the company's senior officials on an international warrant. The seizure of files, computers and various papers indicated the existence of an alleged scandal.

The Kralowetz scandal

It is not easy to make complete sense of the Kralowetz case at the present time. The company appears rather to have operated under the name of United Cargo Lines, which is itself made up of eight separate enterprises with subsidiaries in Europe, notably Soteco sarl and United Cargolux GmbH.

The evidence suggests that Kralowetz had a fleet of approximately 700 lorries travelling around Europe, with dispatching taking place in Luxembourg. The company lists about 350 white-collar staff on its books, and 800 drivers from central and eastern European countries who received their instructions from Luxembourg. About 30 of them were tracked down as they are members of the Luxembourg social security scheme. However, it emerged from the investigation that most of the 800 drivers from central and eastern European countries were not members of the Luxembourg social security scheme. They were also paid EUR 0.1 per kilometre covered, and drove up to 30,000 kilometres a month, working 16-20 hours a day. Tachograph discs and other official documentation had allegedly been tampered with.

When the scandal broke, most of the drivers had not received any payment for two or three months, and their only recourse was to drive their vehicles back to Luxembourg.

European Council of Transport Ministers (ECMT) licences, which allow hauliers to operate internationally in Europe, and exact copies of these licences, are alleged to have been issued by a high-ranking civil servant in the Ministry of Transport in suspicious circumstances (disciplinary proceedings were commenced against this official during the mid-1990s, but they are still at the investigatory stage).

Drivers repatriated

With the help of Luxembourg customs officials, the 164 Kralowetz lorries registered in Luxembourg re-entered the country after the scandal broke, and were placed in a large parking area. The Association of Luxembourg Drivers (Association des conducteurs d'automobile du grand duché de Luxembourg, ACAL), affiliated to the Luxembourg Confederation of Independent Trade Unions (Onofhängege Gewerkschafts-Bond Lëtzebuerg, OGB-L), together with the Red Cross and Caritas, looked after the Czech, Slovenian, Polish and Hungarian drivers, who had been living a precarious existence for weeks with little or nothing to eat. They fed them, and put them up in a variety of centres.

OGB-L began intensive talks with the Ministry of the Family, and it was finally decided that the government would charter two planes to Slovakia and Bulgaria, which was where most of the drivers came from. The Ministry made each of the drivers a payment of EUR 1,000 when they left the country on 1 February 2002.

Major controversy over affair

The president of OGB-L stated in response to the Kralowetz case that the issue of road haulage operators had not been resolved in the European Union, and that while the affair might be a problem for Luxembourg, it was mainly one for Europe. In the words of the general secretary of the European Transport Workers' Federation (ETF), 'the situation is replicated all over Europe.'

According to OGB-L, the transport sector needs to be regulated so that there is no repeat of these situations. For over 10 years now, says the union, it has been denouncing abuses associated with enterprises like Kralowetz to successive governments, but without any action being taken. OGB-L has called for the setting up of an inter-ministerial committee, both to bring more transparency to the Kralowetz affair and to consider preventive action that might prevent the system of 'letter-box' enterprises based in Luxembourg.

According to the Prime Minister, it had been possible for this sort of affair to happen because there is a major 'social deficit' in Europe, particularly in the field of transport, creating 'grey areas exploited by people who display impressive criminal energy'. He claimed that only three countries are currently arguing against these grey areas - Belgium, France, and Luxembourg. The Prime Minister has decided to take over the case personally, together with his ministers, in order to prevent a repeat of such a scandal. An initial area for consideration involves an improvement to the flow of information between the Ministry of Justice and the public administrations concerned.

On 31 January 2002, the Minister of Transport had to explain before the Chamber of Deputies why he was still awarding licences to Kralowetz in late 2001 when the company's managing director had been fined EUR 10,000 for breaches of EU law. It is very likely that the Chamber will set up a parliamentary commission of inquiry until such time as the Ministry of Justice carries out the necessary follow-up to the case.

After the Registration Department seized 140 lorries in order to recover unpaid VAT, Soteco and United Cargolux were declared bankrupt by the Luxembourg Commercial Court (Tribunal de Commerce) at the beginning of February 2002. A verdict determining whether criminal proceedings will be commenced against the high-ranking civil servant in the Transport Ministry allegedly concerned in the affair will be handed down in the near future.

Commentary

The Kralowetz affair was a bombshell in a country that take pride in its 'top-of-the-range' social system. Some commentators claim that it is becoming increasingly clear that the Luxembourg ministers and administrations concerned were aware of Kralowetz's alleged criminal actions, but did nothing and passed the matter back and forth on the grounds that the affair should be dealt with exclusively by the Ministry of Justice.

The Luxembourg courts will have to conduct an analysis of the phenomenon of 'virtual jobs' in Luxembourg, such as drivers declared in the country, but working elsewhere, and also at exactly where the centre of their company's activities is located.

It would also be wise to arrange for the authorisation of three Ministers in decisions on international transport matters, and particularly that of the Minister of Labour, who was the only government representative to complain openly about companies like Kralowetz that allegedly use Luxembourg as a 'letter-box' address, and employ eastern European nationals on appalling terms and conditions in breach of employment legislation, thereby tarnishing the image of a country that does not want to be seen as a 'social dumping area'. (Marc Feyereisen)