7 Fraud and other illegal activities
| (25996)
12993/04
COM(04) 509
| Draft Regulation on mutual administrative assistance for the protection of the financial interests of the Community against fraud and any other illegal activities
|
| Legal base | Article 280 EC; co-decision; QMV
|
| Department | HM Treasury |
| Basis of consideration | Minister's letter of 9 December 2004
|
| Previous Committee Report | HC 42-xxxvii (2003-04), para 8 (17 November 2004)
|
| To be discussed in Council | Not known
|
| Committee's assessment | Legally and politically important
|
| Committee's decision | Not cleared; further information requested
|
Background
7.1 Article 280 EC places a general obligation on the Commission
and Member States to counter fraud and any other illegal activities
affecting the financial interests of the Community. Important
elements in countering such activity include the Financial Regulation,[17]
which governs the preparation of budgets and the management of
the financial resources of the Communities, relevant legislation
of Member States, the Commission's European Anti-Fraud Office
(OLAF), the European Court of Auditors and the relevant authorities
of Member States. Also relevant is EC legislation on VAT fraud
and money laundering, including Regulation 1798/2003 EC on administrative
cooperation on VAT matters and Directives 91/308/EEC and 2001/97/EC
on money laundering.
7.2 Present legislation does not give a legal basis
for the Commission to play an active role in protecting the financial
interests of the Community through supporting and coordinating
Member States' activities, particularly in the fields of VAT fraud
and money laundering. Measures under Article 280 EC may deal with
the prevention of fraud and the fight against fraud, but they
may not concern the application of national criminal law or the
national administration of justice. The draft Regulation:
- would require competent authorities
(Member States and the Commission) to respond to requests for
information and assistance, require some defined information to
be supplied to the Commission without a request and allow the
Commission to access the VAT databases of Member States (the VAT
information exchange system known as the VIES system);
- covers the use of information, including admissibility
as evidence in administrative and judicial proceedings and confidentiality;
and
- would provide a comitology[18]
procedure for detailed rules for implementing the proposal.
7.3 When we last considered this proposal, in November
2004, the Government confirmed its intention to oppose those
parts of the proposal that are superfluous or premature and to
seek to safeguard the principle of taxpayer confidentiality. But
we asked for the Government's view on Article 15 of the proposal,
which appeared to us to impose a uniform rule of the admissibility
of evidence, including in criminal proceedings, and on the extent
to which this is consistent with Article 280(4) EC.[19]
The Minister's letter
7.4 The Financial Secretary to the Treasury (Mr Stephen
Timms) now says:
"I do not share the Committee's interpretation
of Article 15 of the draft regulation. Specifically that it imposes
a uniform rule of the admissibility of evidence in administrative
or judicial proceedings in any Member State.
"I consider that Article 15 would create
a rule whereby that admissibility will be determined in the same
way as admissibility of evidence obtained in the UK. It is in
a sense a negative rule because it excludes any argument that
evidence is not admissible because it came from a non-UK source.
I do not think this rule would infringe the saving for national
criminal law in Article 280(4) because that saving concerns the
application of criminal law, e.g. the creation of offences,
not the procedural matters at issue here. Having regard to the
principles of interpretation adopted by the European Court of
Justice (ECJ), I am satisfied that the ECJ would uphold the validity
of Article 15. Not to do so would in large measure deprive the
proposed regulation of any effect."
Conclusion
7.5 We note the Minister's comments on this issue.
However we continue to doubt whether there is any power under
Article 280 EC to adopt Article 15 of the proposed Regulation.
7.6 The Minister makes two points. First, he claims
the article would not apply a uniform rule of admissibility of
evidence. However, the ninth recital to the proposal (which states
that "information gathered or transferred by the Commission
should therefore be admissible [as] evidence in administrative
and judicial proceedings") clearly shows an intention to
create a uniform rule on the admissibility of evidence. The drafting
of the article is ambiguous in our view. It could simply mean
that the foreign material is to be treated, as far as admissibility
is concerned, in the same way as if such material had originated
within England and Wales, Scotland or Northern Ireland. On the
other hand, it could mean that the foreign material is to be treated
as admissible whether or not its content or the way it was obtained
makes it admissible in proceedings in the relevant part of the
UK. Whichever meaning is correct, the article still imposes a
rule on the admissibility of evidence. The Minister himself acknowledges
that it creates a "negative rule". The provision seems
to us clearly to create a rule to be used uniformly by courts
in all Member States and thereby exceeds the powers conferred
by Article 280 EC.
7.7 Secondly, the Minister argues that the proposed
article would not infringe Article 280(4) EC because that saving
concerns the application of criminal law, which he describes as
limited to "the creation of offences, not the procedural
matters at issue here". We do not accept that the saving
is so limited, because rules of criminal procedure, such as those
on the admissibility of evidence, also concern the application
of criminal law. Moreover, the saving also refers to "the
national administration of justice". It seems to us beyond
doubt that rules about the admissibility of evidence are measures
which concern the national administration of justice and are therefore
excluded from the scope of measures which may be adopted under
Article 280(4) EC.
7.8 The Minister states that not to uphold the
validity of Article 15 "would in large measure deprive the
proposed regulation of any effect". Whether or not this is
so is no answer to the point that Article 280(4) EC is a specific
and deliberate limitation on the legislative power of the Council
and should not be ignored, on the grounds of expediency, to the
detriment of the powers reserved to the Member States in the national
administration of justice. We therefore invite the Minister to
reconsider and to explain more fully the grounds for his confidence
that the European Court would uphold the validity of Article 15.
7.9 Whilst we await the Minister's further comments
we continue not to clear the document.
17 Council Regulation (EC, Euratom) No. 1605/2002. Back
18
Comitology is the system of committees which oversees the exercise
by the Commission of legislative powers delegated to it by the
Council and the European Parliament. Back
19
See headnote. Back
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