The European Commission president, Mr Jaques Santer, agreed yesterday to re-establish the institution's anti-fraud unit as an independent body, after facing criticism at the European Parliament in Strasbourg for administrative abuses revealed at the European Community humanitarian office (the ECHO).

Mr Santer said that a new fraud investigation unit would replace the Unit for the Co-ordination of Fraud Prevention (UCLAF) and would work externally and internally "but in total independence of the commission and with no hierarchical relationship with it".

The assurance follows the leaking of a document which showed that there was a lack of auditing procedures at the Commission on the expenditure of $1 billion (£657 million) of aid between 1993 and 1995. A criminal investigation is currently underway into the misappropriation of $2.9 million-worth of that aid, marked for Rwanda, Burundi and Yugoslavia, after the fraud was revealed by UCLAF.

The leaked report revealed that over the three-year period, the Commission had no audit trail to find out whether money passed on to contractors had been spent correctly.

Mr Santer said he was also agreeing to more expenses and comprehensive disclosure of information on in-house fraud investigations "to enable parliament to fully carry out its role as a budget watch-dog" amid an atmosphere of restored trust between the institutions.

He was rejecting the assertion that UCLAF did not work independently, but he would move its investigative function away from the Commission if that institution's fight against fraud was coming under question.

He said that administrative irregularities were not to be confused with fraud; but were a failure to comply with financial regulation and budgetary requirements.

The EU's humanitarian aid role had an excellent image through ECHO's work with the UN, the Red Cross and other non-governmental organisations (NGO's). "I will not allow that image to be tarnished," he said.