The system covers all international communications
Britain will be warned that it may be breaching the European Convention on Human Rights because of its involvement in a global intelligence network known as Echelon.
A European Parliament committee report will urge individuals to start encrypting all e-mails and faxes to circumvent the system, used to eavesdrop on private and commercial communications.
An inquiry into the spy network concludes that an unencrypted e-mail is like a letter without an envelope.
The system, run by the American and British intelligence services, has been described as being capable of almost total surveillance of emails, telephone calls and faxes around the world.
The Americans have been accused of using it to steal commercial secrets from European companies.
'Limited scope'
Now Euro MPs, who have been studying the system for almost a year, say it poses a threat to individual and commercial privacy.
Their report calls on individuals and businesses to begin routinely encoding all e-mails and faxes to prevent their interception.
It warns that Britain - the only EU member involved in the network - could be in breach of the European Convention on Human Rights, which guarantees individual privacy.
The MEPs found Echelon somewhat less extensive than has been claimed; its scope is limited largely to communications transmitted by satellite as opposed to those that use cables.
The committee also failed to prove that the USA had used it to damage European commercial interests.
But the network certainly exists, they say, despite American denials, and its primary purpose is to intercept private and commercial communications, not military intelligence.