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Fight against fraud to the EU’s financial interests by means...

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Fight against fraud to the EU’s financial interests by means of criminal law

SUMMARY OF:

Directive (EU) 2017/1371 – using criminal law to protect the EU’s financial interests

WHAT IS THE AIM OF THE DIRECTIVE?

To create a stronger and more harmonised system, with minimum common rules, to fight crime affecting the European Union (EU) budget.
To better protect the EU’s financial interests and taxpayers’ money across the EU.

KEY POINTS

Scope

The directive concerns:

fraud and other criminal offences, such as corruption, misappropriation or money laundering, affecting the EU’s financial interests – i.e. the EU budget, the budgets of the EU institutions, bodies, offices and agencies established by the treaties or the budgets directly or indirectly managed and monitored by them;
serious offences against the common value added tax (VAT) system, such as VAT carousel fraud* i.e. offences are considered to be serious when they are connected with the territory of two or more EU Member States and involve total damage of at least €10,000,000.

It also sets out common rules on sanctions and limitation periods in relation to the criminal offences covered by this directive.

Definitions

Each of the following offences is defined at the EU level:

fraud committed intentionally in respect of expenditure as procurement and non-procurement as well as of revenue arising from VAT own resources and other revenue;
money laundering as defined in Directive (EU) 2015/849 (see summary);
passive and active corruption committed intentionally;
misappropriation committed intentionally.

The directive defines ‘public officials’ – EU and national officials (including in Member States) – and this definition is relevant for the definition of money laundering, corruption and misappropriation.

The criminal offences defined in the directive fall within the responsibility of the European Public Prosecutor’s Office, an independent EU body with the powers to investigate and prosecute these crimes and bring them to judgment before the relevant national courts.

Common approach

In all Member States (except Denmark and the United Kingdom*):

these offences are all to be punished as criminal offences, as are their attempt, incitement, aiding and abetting;
legal persons* should be held liable for any of the criminal offences committed for their benefit – including the possibility of criminal proceedings against individuals who are the perpetrators or who are solely responsible.

Sanctions

The directive provides for minimum ‘effective, proportionate and dissuasive’ criminal sanctions.

These include a maximum penalty of at least 4 years of imprisonment:

where the financial damage to the EU budget is above the threshold of €100,000;
in any case of serious offences against the common VAT system;
for other serious circumstances defined under national law.

Where a criminal offence involves damages of below €10,000, Member States may introduce sanctions that are not criminal.

Regarding legal persons, the directive sets out various other types of sanctions in addition to fines (criminal and non-criminal).

Committing the abovementioned offences within a criminal organisation as defined in Framework Decision 2008/841/JHA (see summary) constitutes an aggravating circumstance (the offence will be considered more serious)..

These sanctions do not exclude:

the possibility of more severe sanctions in national legislation;
the exercise of disciplinary powers by the competent authorities against public officials.

The directive also deals with the following:

the freezing and confiscation of means and proceeds from the criminal offences that affect the EU budget;
establishing jurisdiction for such offences;
minimum limitation periods enabling investigations and prosecutions, and allowing the enforcement of the penalties imposed following a conviction for a commission of these offences.

Cooperation between Member States and EU institutions, bodies, offices and agencies

The Member States, the European Public Prosecutor’s Office, the European Union Agency for Criminal Justice Cooperation and the European Anti-Fraud Office (OLAF) must cooperate against the criminal offences covered by this directive. OLAF – and, where appropriate, the European Union Agency for Criminal Justice Cooperation – provide technical and operational assistance to facilitate the coordination of the Member States’ investigations.
If the European Court of Auditors and auditors responsible for auditing the budgets of the EU institutions, bodies, offices and agencies or other budgets managed and audited by the institutions, find anything that could qualify as a criminal offence under this directive, they must inform the European Public Prosecutor’s Office, OLAF and the other competent authorities. Member States must ensure that their national audit bodies do the same.

FROM WHEN DO THE RULES APPLY?

The directive had to be transposed into national law by 6 July 2019.

BACKGROUND

Article 325 of the Treaty on the Functioning of the European Union obliges the EU and Member States to counter fraud and any other illegal activities affecting the EU’s financial interests with measures that act as a deterrent.

More than 90% of the EU budget is managed nationally. Damage to the EU budget resulting from crime and other illegal activities amounts to hundreds of millions of euro each year and is of serious concern. In 2011, the European Commission adopted a communication which contained proposals to improve the protection of EU financial interests (see IP/11/644).

For further information, see:

Policies to prevent and deter fraud (European Anti-Fraud Office)
Fraud prevention (European Commission)
Commission steps up its efforts in fighting fraud against the EU budget – press release (European Commission).

KEY TERMS

VAT carousel fraud. Where fraudsters in a Member State import goods VAT-free from other Member States, then sell the goods to domestic buyers, charging them VAT. The sellers then disappear without paying the VAT to the tax authorities.

Legal person. An entity recognised by the law as being entitled to rights and duties in the same way as a natural or human person, the common example being a company.

MAIN DOCUMENT

Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (OJ L 198, 28.7.2017, pp. 29–41).