4 Convention on the protection of the
European Communities' financial interests
| (26103)
14071/04
+ ADD 1
COM(04) 709
| Commission Report on the implementation by Member States of the Convention on the Protection of the European Communities' financial interests and its protocols
|
| Legal base | — |
| Document originated | 25 October 2004
|
| Deposited in Parliament | 9 November 2004
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| Department | HM Treasury |
| Basis of consideration | EM of 29 November 2004
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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Background
4.1 The Convention on the protection of the European Communities'
financial interests was adopted by the Member States in 1995.[7]
The First Protocol to the Convention was adopted in 1996,[8]
with a Second Protocol adopted in 1997.[9]
A protocol conferring an interpretative jurisdiction on the European
Court of Justice (ECJ) was adopted in 1996.[10]
The Convention, its First Protocol and the Protocol conferring
an interpretative jurisdiction on the ECJ have entered into force,
but the Second Protocol awaits ratification by Italy, Luxembourg
and Austria.
4.2 The Commission notes that the Council has not
adopted a common position on a draft Directive on the criminal-law
protection of the Communities financial interests,[11]
which it proposed under Article 280 EC.[12]
In view of this, the Commission states that it believes it necessary
to examine national implementation measures and the impact of
the Convention and its protocols. It states that the purpose
of its report is to "check whether the objective of effective
and equivalent protection of the EC's financial interests has
already been attained in all Member States". The Commission
also argues that "the identification of persistent shortcomings
in the implementation of the PFI instruments[13]
should contribute to advancing the legislative process concerning
the proposal for a Directive or, as the case may be, to using
[the] dispute settlement procedures under the PFI instruments".
The Commission's report
4.3 The Commission's report is based on the information
provided by Member States under Article 10 of the Convention.
This requires Member States to transmit to the Commission the
texts of provisions which transpose the Convention and its protocols
into national law. The report refers to the law in the 15 Member
States before the accession of the 10 new Member States on 1 May
2004. The report is supported by a more detailed Commission staff
working paper (ADD 1) .
4.4 The report makes a number of assessments relating
to the law of the United Kingdom. In relation to Articles 1 and
2 of the Convention, the report considers that "in France
and the United Kingdom there seems to be a risk that certain forms
of fraud regarding EC expenditures are not criminalised".
On fraud affecting the revenues of the European Community, the
report concludes that "subject to further analysis of the
legal practices of the courts, amendments of legislation appear
necessary to address potential gaps for certain forms of fraud
in Sweden and the United Kingdom concerning the misappropriation
of legally obtained benefits".
4.5 The Commission staff working paper notes that
fraud affecting the Communities' expenditure is covered by "the
general offence of fraud" but states that the offences under
the Theft Act 1968 (and the Theft (Northern Ireland ) Act 1969)
as well as the common law offence of fraud "appears to require
additional subjective elements, namely deception and dishonesty".
In relation to fraud committed by the misapplication of legally
obtained benefits, the staff working paper takes the view that
"neither the common law offence of cheating the revenue in
England and Wales and Northern Ireland nor the statutory offences
enacted in the Customs and Management Excise Act 1979[14]
and the VAT Act 1994 applicable in mainland UK seem to criminalise
fraudulent conduct leading to the misapplication of a legally
obtained benefit". In its evaluation, the staff working
paper states that in the United Kingdom, fraudulent conduct may
fall under various different offences requiring "additional
factual elements", such as defrauding the country's own tax
or customs authority, and "subjective elements, namely undertaking
the fraudulent conduct knowingly". It concludes that in
the United Kingdom "there appears to be a risk that certain
forms of fraudulent conduct regarding the Communities' revenue
may go unpunished".
4.6 The report states that, in relation to the corruption
offence under Articles 2 to 5 of the First Protocol,[15]
the United Kingdom (along with some other Member States) "have
not put forward convincing arguments that the offences are also
applicable to Community officials". This appears to be based
on an analysis in the staff working paper of the provisions of
section 108(3) of the Anti-Terrorism, Crime and Security Act 2001.
This extends the definition of "public body" in the
Public Bodies Corrupt Practices Act 1889 (which concerns interpretation
relating to corruption in office) so as to include "any body
which exists in a country or territory outside the United Kingdom
and is equivalent to any body described above". The staff
working paper criticises this provision on the basis that it is
not clear whether Community institutions are equivalent to a public
body within the United Kingdom and concludes that "it is
largely up to the courts to consider whether Community officials
are within the scope of the relevant bribery offences" and
that "in a field of law where legal certainty is of utmost
importance, the lack of an explicit reference is very regrettable".
The staff working paper does not mention section 108(1) of the
2001 Act (which makes it immaterial to the common law offence
of bribery that the functions of the person who receives or is
offered a reward have no connection with the United Kingdom and
are carried out in a country or territory outside the United Kingdom)
and does not consider the point that the "public bodies"
which are listed in section 7 of the 1889 Act are bodies with
public law powers and which administer public money, and therefore
do not appear to be dissimilar in this respect from the Community
institutions.
4.7 In relation to rules of jurisdiction over fraud,
money laundering or corruption offences, the report asserts that
France, Austria and the United Kingdom "seem not to provide
for full territorial jurisdiction for fiscal fraud", and
also that "the UK seems to have procedural difficulties that
render it practically impossible to pursue offences committed
abroad". It gives as an example the assertion that "Scotland
might lack jurisdiction for participation in and instigation of
such fraud". The report also regrets the fact that Member
States have taken advantage of reservations to the Convention
which permit them not to apply rules of jurisdiction on wider
bases than the fact that the offence takes place wholly or partly
within the national territory.
4.8 The Commission concludes as follows:
"Since the harmonisation objective has not yet
been fully achieved, the Commission still considers the level
of protection not to be advanced enough to exclude any risk of
leaving unpunished or of not deterring all conduct affecting the
EC's financial interests that should be criminalised. The obligations
of the Member States as regards their commitment to curb this
sort of crime are not fully met.
"The Commission believes that many of the reasons
for which it submitted a proposal for a Directive on the criminal-law
protection of the EC's financial interests remain justified and
considers it useful to relaunch negotiations within the Council
on the amended proposal with a view to a Common Position."
4.9 The Commission also indicates that the Convention
and its protocols:
"do not give an adequate response to the specific
need for criminal-law protection of the EC's financial interests.
Therefore, the Commission will further examine possible approaches
offered by subsequent Treaty amendments such as the proposed Directive
based on the new Article 280 EC Treaty, and the means provided
by the Draft Constitutional Treaty, including the ultimate possibility
of establishing a European Financial Public Prosecutor's Office."
The Government's view
4.10 In his Explanatory Memorandum of 28 November
2004, the Financial Secretary to the Treasury (Stephen Timms)
indicates that the Government is concerned that the report does
not reflect accurately the UK's situation with regard to its implementation
of the Convention and its protocols, and that it has written to
the Commission to express its concerns.
4.11 The Minister adds that the Commission's Recommendation
that the Council should adopt a common position on its proposal
for a Directive is unnecessary as the Directive would replicate
the provisions of the Convention. The Minister adds that "the
Government is still not convinced that the proposal for a European
Public Prosecutor is either practical or necessary".
Conclusion
4.12 We ask the Minister to inform us of the points
he has made to the Commission about its report. It is apparent
to us that its treatment of the law of the United Kingdom is in
places superficial and inaccurate. In particular, we find it
disturbing that the Commission should regard requiring dishonesty
as an ingredient of a criminal offence as a matter for criticism.
We also draw attention to the Commission's incomplete analysis
of United Kingdom law relating to corruption and its likely effect
on office-holders and staff of the EC institutions.
4.13 We agree with the Minister that it is not
necessary to proceed to a Directive under Article 280 EC, as the
Commission recommends. We ask the Minister if he agrees with
us that any instrument adopted under that provision would have
to respect the limits imposed by Article 280(4) EC and, accordingly,
could not concern the application of national criminal law or
the national administration of justice in any event.
4.14 We also ask the Minister if he agrees that
greater priority should be given to the general administrative
and accountability problems highlighted year after year in reports
of the Court of Auditors on the administration of the Community's
finances than to harmonising the detailed provisions of the criminal
law of Member States on fraud and corruption. It appears to us
that the present document is more concerned with arguing a case
for further harmonisation than with identifying problems which
have had any real and substantial effect on the management of
the Community's finances.
4.15 We shall hold the document under scrutiny
pending the Minister's reply.
7 OJ No. C 316 of 27.11.95, p.49. Back
8
Protocol to the Convention on the protection of the European Communities'
financial interests, OJ No. C 313 of 23.10.96, p.2. Back
9
Second Protocol to the Convention on the protection of the European
Communities' financial interests, OJ No. C 221 of 19.7.97, p.12. Back
10
Protocol on the interpretation, by way of preliminary rulings,
by the Court of Justice of the European Communities of the Convention
on the protection of the European Communities' financial interests,
OJ No. C 151 of 20.5.97, p.2. Back
11
OJ No. C 240 E of 28.8.01, p.125. Back
12
Note, however, that Article 280(4) EC provides that measures under
Article 280 EC "shall not concern the application of national
criminal law or the national administration of justice". Back
13
That is, the Convention and its Protocols. Back
14
The reference is, presumably, to the Customs and Excise Management
Act 1979. Back
15
i.e. requesting, accepting or receiving an advantage of any kind,
directly or through an intermediary. Back
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