The European Union's main antifraud office is investigating the wine alcohol trade for possible corruption, the office confirmed to Friday's Wall Street Journal.
The EU sells undrinkable wine alcohol to bidders at public auctions several times a year to stabilise prices for regular wine in Europe. Investigators are looking into whether certain traders manipulated the system.
European wine alcohol is used in the US by Archer Daniels Midland and others to make ethanol, which is blended with gasoline to reduce pollution. The EU confirmed it was investigating after allegations were raised in the US Congress that ADM colluded with other bidders at European wine auctions.
The European Anti-Fraud Office started its investigation in 1998, said spokesman Alessandro Buttice. He said the office "is investigating suspicions of fraud and possible manipulation of the market."
People familiar with the case said the probe was looking into possible corruption of EU officials, and into whether some of the wine alcohol had been doctored and sold as regular wine in the Caribbean, where some wine alcohol destined for the US is processed. The EU props up wine prices by buying huge vats of low-quality wine from massive overproduction in Spain, Italy and France. That wine is distilled to a brew that is over 95 per cent pure alcohol and is auctioned a few times a year, typically at a loss.
The wine alcohol auctions are run by the Wine Management Committee of the EU's executive arm, the European Commission. The commission said an auction scheduled for last October was suspended after the commission's agriculture service became suspicious.
ADM is "looking into" the allegations, but has not found relevant company documents, Larry Cunningham, ADM's senior vice president of corporate affairs, has said. George Fitch, a Virginia consultant who lobbies in Brussels to make more wine available to ADM and others, has said the EU's action is part of an effort to increase revenue. He has called allegations of collusion in bidding " utter nonsense."
Wall Street Journal Staff Reporters Brandon Mitchener and Glenn Simpson contributed to this story.