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

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 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, like VAT carousels* (offences considered to be serious when they are connected with the territory of two or more EU countries and involve a 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 given a definition at EU level:

  • fraud committed intentionally — what is regarded as fraud 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;
  • passive and active corruption committed intentionally;
  • misappropriation committed intentionally.

What is meant by ‘public officials’ — EU and national (including in EU countries) — is specified in the definitions of money laundering, corruption and misappropriation.

The criminal offences as defined in the directive fall within the material competence of the newly established European Public Prosecutor’s Office, an independent EU body empowered to investigate and prosecute these crimes and bring them to judgment before competent national courts.

Common approach

In all EU countries (except Denmark and the United Kingdom):

  • these offences are all to be punished as criminal offences, as are their attempt as well as their incitement, aiding and abetting;
  • legal persons* should be held liable for any of the criminal offences committed for their benefit — not excluding the possibility of criminal proceedings against natural persons 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;
  • other serious circumstances defined under national law.

Where a criminal offence involves damages of below €10.000, EU countries may introduce sanctions that are not criminal.

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

Offences committed within a criminal organisation within the meaning of Framework Decision 2008/841/JHA constitute an aggravating circumstance.

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 as well as allowing the enforcement of the penalties imposed following a conviction for a commission of these offences.

Cooperation between EU countries and EU institutions, bodies, offices and agencies

  • The EU countries, Eurojust, the European Public Prosecutor’s Office and the Commission’s European Anti-Fraud Office (OLAF) must cooperate against the criminal offences covered by this directive. OLAF and, where appropriate, Eurojust provide technical and operational assistance to facilitate the coordination of the EU countries’ investigations.
  • If the 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. EU countries must ensure that national audit bodies do the same.

FROM WHEN DOES THE DIRECTIVE APPLY?

EU countries have to incorporate it into national law by 6 July 2019.

BACKGROUND

Article 325 of the Treaty on the Functioning of the European Union obliges the EU and EU countries 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 euros each year and is of serious concern. In 2011, the Commission adopted a communication which contained proposals to improve the protection of EU financial interests (see IP/11/644).

For more information:

KEY TERMS

VAT carousel: where fraudsters import goods VAT-free from other EU countries, 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)

RELATED DOCUMENTS

Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union (OJ C 202, 7.6.2016, pp. 1-388)

Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’) (OJ L 283, 31.10.2017, pp. 1-71)

Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, pp. 73-117)

Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union (OJ L 127, 29.4.2014, pp. 39-50)

See consolidated version.

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the protection of the financial interests of the European Union by criminal law and by administrative investigations — An integrated policy to safeguard taxpayers' money (COM(2011) 293 final, 26.5.2011)

Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime (OJ L 300, 11.11.2008, pp. 42-45)

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, pp. 1-118)

See consolidated version.

Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests (OJ L 312, 23.12.1995, pp. 1-4)

Convention drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities’ financial interests (OJ C 316, 27.11.1995, pp. 49-57)

last update 06.12.2017

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