6 Fraud and other illegal activities
| (a)
(25996)
12993/04
COM(04) 509
(b)
(27810)
12854/06
COM(06) 473
|
Draft Regulation on mutual administrative assistance for the protection of the financial interests of the Community against fraud and any other illegal activities
Amended 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
|
| Document originated | (b) 14 September 2006
|
| Deposited in Parliament | (b) 22 September 2006
|
| Department | HM Treasury |
| Basis of consideration | (a) Minister's letter of 1 November 2006
(b) EM of 5 October 2006
|
| Previous Committee Reports | (a) HC 42- xxxiii (2003-04), para 8 (20 October 2004), HC 42-xxxvii (2003-04), para 8 (17 November 2004), HC 38- iii (2004-05), para 7 (12 January 2005) and HC 38-xi (2004-05), para 5 (15 March 2005)
(b) None
|
| To be discussed in Council | Not known
|
| Committee's assessment | Legally and politically important
|
| Committee's decision | (a) Cleared
(b) Not cleared, further information requested
|
Background
6.1 Article 280 EC requires the Community and the Member States
to counter fraud and any other illegal activities affecting the
financial interests of the Community through measures adopted
under that Article. Article 280(2) EC requires member States to
"take the same measures to counter fraud affecting the financial
interests of the Community as they take to counter fraud affecting
their own financial interests". Article 280(3) EC provides
for "close and regular" cooperation between their competent
authorities. Article 280(4) EC provides for the adoption of measures
which are necessary to prevent and fight against fraud affecting
the financial interests of the Community, but such measures "shall
not concern the application of national criminal law or the national
administration of justice".
6.2 Important elements in countering fraud and other
illegal activities include the Financial Regulation,[18]
which governs the preparation of budgets and the management of
the financial resources of the Community, 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.
6.3 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. The Commission believes that cooperation
and the exchange of information concerning fraudulent activities
in a single market of 25 Member States will become increasingly
difficult, and that there is a need for it to take a more active
role in supporting and coordinating Member States' activities.
So in July 2004 the Commission presented a draft Regulation (document
(a)), which is designed to give it such a role. The Commission
stressed that the Regulation would not give it or OLAF any additional
investigative powers. It said the proposal would provide "the
basis and tools for multidisciplinary co-operation between the
relevant competent authorities of different Member States and
between them and the Commission".
6.4 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 VIES
system — the VAT information exchange system);
- covers the use of information, including admissibility
as evidence in administrative and judicial proceedings and confidentiality;
and
- would provide a comitology[19]
procedure for detailed rules for implementing the proposal.
6.5 The previous Committee considered this document
on a number of occasions. During this consideration the Government
was able to satisfy our predecessors as to concerns about taxpayer
confidentiality and, saving one instance, about unnecessary or
inappropriate provisions in the draft Regulation. This instance
related to the previous Committee's concern about the lawfulness
of Article 15 of the draft Regulation and about the related Recital
9. Article 15, which was entitled "Use as evidence",
provided that "findings, certificates, information, documents,
certified true copies and any intelligence communicated to a competent
authority [in the course of providing assistance] shall constitute
admissible evidence in administrative or judicial proceedings
in any Member State, in the same way as if they had been obtained
in the Member State where the proceedings take place". This
appeared to our predecessors to impose a uniform rule of admissibility
of evidence, including in criminal proceedings, and we asked the
Government to what extent this was consistent with Article 280(4)
EC, which prevents the adoption of measures which concern the
application of national criminal law or the national administration
of justice.
6.6 The Government was unable to persuade the previous
Committee of the validity of the provisions of Article 15 and
was asked to reconsider that question, since our predecessors
maintained their view that these provisions plainly disregarded
the limits imposed by Article 280(4) EC. The previous Committee
also commented on what appeared to be misquotation or distortion
of its views by the Government and sought clarification of a confusion
about the correct text of Recital 9. The document remained (and
remains) uncleared.[20]
The new document
6.7 The amended draft Regulation in document (b)
replaces document (a). The Commission presents this revised proposal
in the light of amendments made by the European Parliament and
suggestions made by Member States. The changes to the original
text:
- amend the recitals so as to
stress the right of Member States to a degree of discretion, to
update references to relevant legislation and to include references
to OLAF and data protection;
- stress that the proposed Regulation would not
affect co-operation between Member States on VAT matters under
Regulation 1798/2003 EC;
- add new definitions;
- require Member States to provide information
about their competent authorities to the Commission and designated
competent officials, competent authorities and the Commission
to co-operate with regard to irregularities;
- permit Member States to exercise discretion as
to the appropriate form and method of co-operation;
- provide for an applicant competent authority
to include a brief statement of facts in requests for assistance
and for the applicant authority to be informed if a request is
transferred to another (correct) competent authority;
- delete requirements for a competent authority
to keep, with or without a request, a "special watch"
in relation to suspected irregularities;
- provide that the Commission may, rather than
shall, be granted access to the VAT databases of Member States;
- make minor changes to the provisions on "spontaneous",
that is unrequested, assistance;
- give the Commission a co-ordinating role in the
exchange of information between Member States and third countries;
- state that the Commission's use of information
is in order to "facilitate…the work of the competent
authorities in the Member States";
- cover the provision of information, respecting
confidentiality, concerning money laundering;
- require Member States, on request, to freeze,
seize and confiscate proceeds of money laundering from natural
or legal persons; and
- permit Member States to withhold co-operation
if it would be contrary to their sovereignty, security, public
policy or other fundamental interests. In such cases the Member
State would be required to inform the Commission of its reasons.
6.8 Recital 9 and Article 15 of the original proposal,
which concerned our predecessors, although renumbered —
Recital 11 and Article 14 — remain unamended in the revised
proposal. Recital 11 states that "information gathered or
transferred by the Commission should therefore be admissible as
evidence in administrative and judicial proceedings". Article
14, entitled "Use as evidence" provides that "findings,
certificates, information, documents, certified true copies and
any intelligence communicated to a competent authority in the
course of assistance provided for in Articles 6, 7, 8 and 13 shall
constitute admissible evidence in administrative or judicial proceedings
in any Member State, in the same way as if they had been obtained
in the Member State where the proceedings take place".
The Government's view
6.9 In relation to the amended draft Regulation,
document (b), the Financial Secretary to the Treasury (John Healey)
tells us that the Government is pleased that the Commission has
revised the proposal, going some way towards meeting its concerns
with the original proposal. He says:
- the main changes concern the
degree of flexibility now offered to Member States, allowing each
Member State to decide how it will co-operate with the provision
of assistance and information. But the Government is seeking to
clarify the extent of such flexibility;
- since the original draft Regulation was proposed
Directive 2005/60/EC and Regulation 1889/2005, both concerning
money laundering, have come into force, and the Government is
still concerned that the need for further measures in this field
is unclear; and
- the Government notes that the Commission holds
that the revised proposal does not affect administrative co-operation
in the field of VAT under Regulation 1798/2003 EC, but remains
concerned about the remaining references in the proposal to assistance
in this area.
6.10 The Minister does not address in this Explanatory
Memorandum the outstanding issues on the original draft Regulation,
document (a), raised by our predecessors. However, in his letter
of 1 November 2006 the Economic Secretary to the Treasury (Ed
Balls) seeks to address those points.
6.11 First, the Minister apologises for the absence
of any earlier response to the previous Committee's last report
on this matter, and for the fact that the matter was not dealt
with in the Explanatory Memorandum on the new document. He explains
and apologises for the confusion over the correct text of Recital
9, and regrets if the previous Committee considered that his predecessor's
letter[21] appeared to
distort the Committee's views or attribute to it other views which
it did not express.
6.12 Turning to the substance, the Minister states
that he shares the view of his predecessor that "Article
15 of the draft does not impose a uniform rule on the admissibility
of evidence" and that the European Court of Justice would
"in all probability conclude that this provision would not
exceed the powers conferred by Article 280(4)EC". In support
of this view, the Minister refers to the provisions of Article
15 and suggests that it does not provide for "automatic admissibility"
which the Minister believed to be the concern of our predecessors.
The Minister argues that the provisions of Article 15, which provide
for findings, certificates and information to constitute admissible
evidence "in the same way as if they had been obtained in
the Member State where the proceedings take place" are quite
different in their objective from those of section 3(2) European
Communities Act 1972 which provide that the Official Journal "shall
be admissible as evidence".
6.13 The Minister goes on to state:
"I do not share the Committee's view that the
words in the proposal create a rule about the admissibility of
evidence and not a rule about the availability of information
which may, depending on national law, become admissible in proceedings,
or not".
6.14 In the second limb of his argument, the Minister
recalls the view of the previous Committee that it seemed to be
"plain" that "the rules which determine what evidence
may be put before a civil or criminal court are rules which concern
the administration of justice". In reply, the Minister notes
that although the term "administration of justice" is
not defined, "it could refer widely to matters relating to
the working of the courts and tribunals". The Minister explains
that he has considered the text of Article 280(4)EC in the different
language versions and notes that there are "some small but
surprising differences in the texts" but considers that "the
European Court is likely to take the view that 'the national administration
of justice', however phrased, refers to its practical application
and not to a rule about the availability of information".
6.15 The Minister adds that he finds it "difficult
to see how the Community's financial interests are to be afforded
protection if the courts cannot be asked to take cognizance of
evidence collected in another Member State" and asks us to
clear the original proposal from scrutiny.
Our assessment of the Minister's reply
6.16 As did the previous Committee, we think it necessary
to analyse the Minister's reply in detail. On the Minister's first
point, we remain of the view that the provisions of Article 15
(now 14) do introduce a rule on the admissibility of evidence.
The scope and effect of that rule is, in our view, ambiguous and
this is a matter particularly to be criticised in a directly applicable
Regulation. According to the Minister, the provision does not
impose a uniform rule on the admissibility of evidence, but provides
for "findings, certificates, information, documents, certified
true copies and any intelligence communicated to a competent authority"
to constitute admissible evidence "in the same way as if
they had been obtained" in the Member State where the proceedings
take place.
6.17 It is apparent from the Minister's reference
to section 3(2) European Communities Act 1972 that he does not
consider the provisions to have the effect, in all cases, of making
the "findings, certificates, information, documents, certified
true copies and intelligence" originating in another Member
State admissible in proceedings here. Instead the Minister appears
to take the view that such material is to be admissible as evidence
in proceedings to the same extent ("in the same way")
as the like material would be if it had been obtained here. Assuming
that the Minister is right in this narrower interpretation of
the provisions of Article 15 (now 14), it seem to us that the
provision remains one about the admissibility of evidence, even
if it is confined to securing some form of equivalence between
foreign material and that obtained here. Even if (which we doubt),
the rule were confined to providing that the foreign material
is admissible if the like material, collected in the same way,
would be admissible in proceedings here, the rule remains one
about the admissibility of evidence. The Regulation, if adopted,
would appear to have the effect, for example, of displacing the
discretion of the court under Part 11 of the Criminal Justice
Act 2003 to exclude hearsay evidence in criminal proceedings,
since the directly applicable Regulation would be equivalent to
a "statutory provision" making the evidence admissible
under section114(1)(a), making it unnecessary for the court to
examine under section 114(1)(d) whether it is in the interests
of justice for the evidence to be admitted.
6.18 Moreover, we recall that in his letter of 9
December 2004 the then Financial Secretary to the Treasury described
the provisions of Article 15 as "in a sense a negative rule
because it excludes any argument that evidence is not admissible
because it came from a non-UK source". If the provision is
such a "negative rule", having the effects suggested
by the then Minister, it remains a rule about the admissibility
of evidence.
6.19 As for the second limb of the Minister's argument,
we do not see that the expression "national administration
of justice" in Article 280(4)EC (or the corresponding provisions
in the French[22] and
German[23] texts of the
EC Treaty) can be read as excluding the rules of a Member State
on the admissibility of evidence. Such rules go to the heart of
the administration of justice, and we do not understand the distinction
the Minister appears to make between "practical application"
(which would be included in the "national administration
of justice") and rules "about the availability of information"
(which would not be included).
Conclusion
6.20 Since the original draft Regulation, document
(a), is overtaken we now clear it from scrutiny. As for the amended
draft regulation, document (b), we note that the Government finds
this a more satisfactory proposal but still requires satisfaction
on a number of points. We wish to be kept informed of developments
in relation to these — that is the extent of flexibility
for Member States in response to the Regulations requirements,
any real necessity for further measures on money laundering
and the affect of the proposal on co-operation in the field
of VAT.
6.21 However, like the previous Committee, we
are unconvinced by the Government's arguments in relation to Recital
11 and Article 14 in the amended draft Regulation (previously
Recital 9 and Article 15). We adhere to the view of our predecessors
that the provisions of Article 15 (now 14) exceed the scope of
what may lawfully be done under Article 280(4) EC. Article 280(4)
EC specifically provides that measures adopted "shall not
concern" the application of national criminal law or the
national administration of justice. Demonstrably, the measures
in this case do "concern" the national administration
of justice and exceed the powers conferred on the Community.
6.22 Given all this we think it would be helpful
if we were to take evidence from the Minister as to what seems
to us clearly an ultra vires proposal, before reporting
on the new proposal again.
6.23 Meanwhile the amended draft Regulation, document
(b), remains uncleared.
18 Council Regulation (EC, Euratom) No. 1605/2002 Back
19
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
20
See headnote. Back
21
The then Financial Secretary to the Treasury (Mr Stephen Timms)'s
letter of 28 February 2005. Back
22
'l'administration de la justice' Back
23
'Die Anwendung des Strafrechts der Mitgliedstaaten und ihre Strafrechtspflege' Back
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