Combating business scams

Tomorrow, a public hearing will be held in the European Parliament in Brussels on my upcoming report on Combating Misleading Advertising By Business Directory Companies.

Many enterprises, typically small traders, often fall victim to scams operated through misleading advertising. A common scam is that whereby victims unwillingly sign up to an insertion into a business directory after having been led to believe that this would be free of charge.

It happens like this.

Businesses receive a form inviting them to complete or correct their business details. They are often told that updating the information is free of charge. This leads them to update and send off the form. But here's the catch. They often do not realise that by signing the form they are also signing up to a contract binding them to place an advert in a business directory for a minimum period of three years and at an annual cost of about €1,000. Victims only realise the scam when they receive an invoice along with a letter which spells out - for the first time and to their surprise - that they had placed a costly advert in the directory.

Those who do not pay up are often harassed and even threatened with legal action by the directory companies or their debt collection companies.

A common element is that misleading business directories are normally established in a country which is different from the country of the victim. This makes it difficult for victims to use national law and national authorities to stand up for them.

Thousands of businesses across the European Union are affected.

One business directory, known as European City Guide, lists some 1,343 businesses from Malta. A simple back-of-the-envelope calculation immediately tells us that, in Malta alone, this problem costs the economy some €4 million. The financial impact across the EU is considered to be significant.

While it is clear that there is an element of misleading business practice, which is usually illegal, it is not entirely clear that EU law covers this specific situation and, if it does, whether this is being adequately enforced in the various EU countries. So misleading directory companies appear to be exploiting loopholes in the law or weak enforcement.

Of course, not all business directories are misleading. Far from it. But some of them are and one has to be careful.

The European Parliament received more than 400 complaints from small businesses across the European Union, including Malta, that claim to have fallen victim. The complaints singled out directory companies such as European City Guide, Construct Data Verlag, Deutscher Adressdienst GmbH, NovaChannel and others. However, many other business directory companies engage in legitimate business practices, which is perfectly legal.

Parliament appointed me as a rapporteur on this issue to prepare a report so that this would be adopted as the position of the institution.

I want to use this report to raise awareness on this issue so that fewer businesses would fall victim to such scams. But I also want to urge EU countries to tighten national laws and to ensure that existing EU law on misleading advertising and unfair commercial practices is adequately enforced. Moreover, I want the Commission to improve EU law if it turns out that current law is not adequate to stop these scams once and for all.

Finally, I want this exercise to provide some support and guidance for those who have already fallen victim.

Before tomorrow's public hearing I engaged in various meetings, including with European Commissioner for Consumers, Meglena Kuneva, with MEPs interested in the issue and with business organisations representing SMEs across Europe, such as Eurochambres, UAEPME and the European association of business directories. And, of course, with victims themselves.

Indeed, tomorrow's hearing will be addressed by victims of the scam as well as by stakeholders and by the European Commission. The Europ-ean City Guide will also be there to make its case.

The session will also be attended by Vince Farrugia, from the Chamber of Medium and Small Enterprises - GRTU, and by a representative of the Maltese Chamber of Commerce and Enterprise.

Following the public hearing I intend to complete my work on the drafting of the report and to present it to the Petitions Committee. The final report is expected to be debated by the plenary of the European Parliament and adopted towards the end of this year.

I hope that this exercise can help businesses, especially small businesses, to equip themselves better to avoid such scams in the first place. And I also hope that it will help existing victims to defend themselves better.

Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu.

Dr Busuttil is a Nationalist member of the European Parliament.