With all the Brexit talks, this has become a barely noticed case, but it might be relevant for future border relations between UK and EU:

Britain faces a potential €2 billion bill from Brussels after EU investigators found that U.K. authorities turned a blind eye to a massive fraud network that allowed ultra-cheap Chinese goods to flood into Europe.

The EU’s anti-fraud office OLAF, uncovering allegedly one of the biggest fraud rings in its history, concluded that British customs played a central role by repeatedly ignoring warnings to take action over Chinese textiles and footwear pouring into the EU at a tiny fraction of their cost of production.

OLAF calculated that U.K. customs’ “continuous negligence” deprived the EU of €1.987 billion in revenues in lost duties on Chinese merchandise. The highly sophisticated organized crime network also stripped €3.2 billion from the value-added-tax income of major EU countries such as France, Germany, Spain and Italy, the investigators said.

In an attempt to recoup some of the funds, OLAF has sent a recommendation to the European Commission’s Directorate-General for Budget that the U.K. government should be forced to pay the €2 billion directly into the EU budget. Any recovery of the funds will depend on talks and legislative procedures between the U.K. and the Commission. [...]

Bruno Collin, a head of unit at the French National Directorate of Intelligence and Customs Investigations, attributed Britain’s disinterest to the fact that it was other countries that lost the VAT revenue.

“U.K. authorities are not interested at all in cooperating in this field, probably because the phenomenon does not directly affect them,” he said. Collin was in charge of Octopus, a joint customs’ operation conducted by France and coordinated by OLAF last year, which found that the value of Chinese imports declared at U.K. ports was “discounted five to 10 times.”

Collin said that British authorities largely did not respond to French requests to help trace goods, for example by using tax registration numbers issued at the port of entry. When the British did reply, Collin said they offered only “extremely vague explanations … They don’t make an effort.” [...]

When confronted with details on how other EU countries had curbed the fraud, British officials said that most of the measures in other countries “would not comply with UK law.”

The Crown Prosecution Service, which also received the OLAF report, was not immediately able to comment. The European Commission also declined to comment.

That was in 2017, but in March this year

The European Commission has written to the UK government saying the UK owes €2.7bn (£2.4bn) in customs duties on shoes and textiles imported from China. [...]

HM Revenue and Customs said it did not recognise the commission's estimate of what it owed.

So basically the Commission endorsed OLAF's request (and even increased the bill). The latter article says that case might end up at the European Court of Justice.

Is this the largest case of its kind? Are there any precedents for EU fining member countries for failing to collect taxes and duties on imports?

There's also an even more recent article saying the scheme has apparently now shifted to using Greece and Hungary as import points. But no [new] fines were announced. It does shed some more light on how the (previous) scheme worked and what OLAF bases its claims on:

In the British scheme, Chinese criminal organizations used the German port of Hamburg as Europe’s first arrival point for undervalued clothing and footwear cargos. But goods passed customs controls only after having been shipped to Britain’s ports, under EU rules that spare checks on items in transit between the bloc’s member states.

The British ports of Dover and Felixstowe were still the EU’s main hubs for undervalued Chinese imports in 2017, OLAF data showed, but that flow has nearly stopped this year because of stricter checks by British customs, EU officials said.

Britain’s decision to leave the EU’s customs union might have also persuaded the criminal groups that oversee this business to find new routes to bring Chinese goods into Europe, the officials said.

The British government is contesting that frauds occurred in UK ports. OLAF chief Nick Ilett said he expected the controversy with Britain would last “some time” and would probably need to be settled at the EU’s court of justice.

OLAF defines undervalued goods as those which fall far below the average price declared in all EU customs.

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