Documents considered by the Committee on 13 November 2017 Contents

27Combating payment fraud

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee

Document details

Proposed Directive on combating fraud and counterfeiting of non-cash means of payment and replacing Council Framework Decision 2001/413/JHA

Legal base

Article 83(1) TFEU, ordinary legislative procedure, QMV

Department

Home Office

Document Number

(39018), 12181/17 + ADDs 1–2, COM(17) 489

Summary and Committee’s conclusions

27.1Recent years have seen a steady increase in the number and value of transactions using non-cash payment instruments, particularly credit and debit cards. The Commission estimates that fraud using payment cards issued in the EU amounted to around €1.44 billion in 2013, equating to an average loss of €130436 for each fraudulent card transaction.437 Non-cash payment fraud is often connected to organised crime groups and generates funds for a range of criminal activities, including terrorism, drug trafficking and trafficking in human beings. It also undermines trust in the integrity of online payment systems and may make consumers more reluctant to participate fully in the Digital Single Market.

27.2A Council Framework Decision dating back to 2001 requires Member States to criminalise fraud and counterfeiting of non-cash means of payment. The 2001 Framework Decision was one of a number of EU police and criminal justice measures which were subject to the UK’s 2014 “block opt-out” decision and ceased to apply to the UK from 1 December 2014. The then Coalition Government noted at the time that UK laws complied with the Framework Decision “and would continue to do so if the UK were no longer to participate in the EU instrument”.438

27.3The Commission considers that the 2001 Framework Decision is out of date, resulting in regulatory gaps. It says that a “technology neutral” approach is needed to keep pace with technological developments, such as the growth in payments made on mobile devices and payments using virtual currencies (bitcoin) or other forms of e-money (for example, vouchers and coupons). It has therefore proposed a new Directive which would replace the 2001 Framework Decision and establish a more comprehensive framework for preventing, investigating and prosecuting non-cash payment fraud. The proposal would:

27.4The proposed Directive is subject to the UK’s Title V (Justice and Home Affairs) opt-in, meaning that it will only apply to the UK if the Government decides to opt in. The Security Minister (Ben Wallace) says that the measures proposed in the Directive “are broadly in line with existing UK legislation and practice on fraud”. He adds that the Government is carrying out further analysis to determine whether any legislative changes would be needed if the UK were to opt in. He indicates that the three-month deadline for opting in at the negotiating stage (thereby securing a vote on the outcome) will expire on 15 December. In reaching a decision, the Government will have particular regard to the following factors:

27.5In deciding not to rejoin the 2001 Framework Decision on combating fraud and counterfeiting of non-cash payment in 2014, the then Coalition Government made clear that it was “not for Europe to impose minimum standards on our police and criminal justice system”.439 We ask the Minister whether this remains the Government’s position or whether different considerations now apply.

27.6The Minister indicates that Article 9 of the proposed Directive on the liability of legal persons “arguably goes further than domestic law currently”. We note that the UK participates in two EU criminal law measures—Directives establishing minimum rules on trafficking in human beings and on the sexual abuse and exploitation of children—which contain identical provisions on corporate liability.440 Can the Minister explain whether and why these provisions raise particular concerns in relation to non-cash payment fraud?

27.7We note that the proposed Directive is only likely to take effect after the date on which the UK is expected to leave the European Union. We have decided not to recommend an opt-in debate at this stage for two reasons. Firstly, we think it unlikely that the Government will wish to opt in, given that the then Coalition Government decided in 2014 not to re-join around 20 EU criminal law measures establishing minimum standards in order to “bring powers in those areas back to the UK”.441 Secondly, even if it were to do so, the Minister considers that UK law “largely meets the requirements of the Directive”. The impact on UK law would not therefore be substantial.

27.8We nevertheless retain the proposed Directive under scrutiny and may decide to recommend a debate at a later stage once the Government’s intentions are clearer. We ask the Minister to explain how the Government envisages maintaining cooperation in this area post-Brexit, given that the UK would not be part of the network of operational contact points responsible for exchanging information on non-cash payment fraud and supporting cross-border investigations and prosecutions. We ask the Minister to provide the information we have requested at the earliest opportunity and to provide regular progress reports on negotiations. We draw this chapter to the attention of the Home Affairs Committee.

Full details of the documents

Proposal for a Directive of the European Parliament and of the Council on combating fraud and counterfeiting non-cash means of payment and replacing Council Framework Decision 2001/413/JHA: (39018), 12181/17 + ADDs 1–2, COM(17) 489.

The proposed Directive

27.9The Commission considers that further action at EU level is necessary to:

27.10It notes that non-cash payment fraud “has a very important cross-border dimension”—much of it takes place online, meaning that the victim, the perpetrator and the evidence needed to prosecute fraud may be located in different jurisdictions and subject to different criminal laws and sanctions.443 As well as facilitating investigation and prosecution in cross-border cases within the EU, the Commission believes that setting common minimum rules applicable in the EU can “inspire effective legislative solutions in non-EU countries” and facilitate cross-border cooperation globally.444

27.11The proposed Directive is based on Article 83(1) of the Treaty on the Functioning of the European Union (TFEU) which provides for the adoption of EU criminal law measures establishing minimum rules on the definition of criminal offences and associated sanctions. Article 83(1) TFEU only covers “particularly serious crime with a cross-border dimension”. It includes counterfeiting of means of payment, computer crime and organised crime. The proposed Directive would replace the 2001 Framework Decision in its entirety as the Commission considers that the changes it has put forward are “substantial in number and nature”.445

27.12The main elements of the proposed Directive are:

27.13The Commission envisages a two-year transposition period (following the negotiation and adoption of the proposal) during which Member States would be required to align their national laws with the Directive.

The Minister’s Explanatory Memorandum of 9 October 2017

27.14The Minister summarises the main provisions of the proposed Directive:

Article 1 establishes the subject matter of the Directive, namely that it imposes minimum rules concerning the definition of criminal offences and sanctions in relation to fraud and counterfeiting of non-cash items.

Article 2 defines the terms used throughout the Directive in relation to non-cash means of payment and the related services.

Article 3 sets out the offences relating to the fraudulent use of payment instruments that the Directive requires Member States to have in place.

Article 4 requires criminalisation of the preparatory offences to commit the offences listed in Article 3.

Article 5 requires criminalisation of the transfer of money, monetary value or virtual currencies for unlawful gain through the misuse of information systems or interference with computer data.

Article 6 criminalises the production, procurement, sale, transfer etc. of tools where intended for use in the commission of the offences specified in Articles 4 and 5.

Article 7 requires Member States to have in place measures to ensure that the incitement, aiding and abetting and attempt to commit the offences in Articles 3 to 6 are punishable as criminal offences.

Article 8 requires that the offences set out in Articles 3 to 7 are punishable by effective, proportionate and dissuasive penalties.

Article 9 requires that liability is provided for legal persons in relation to the offences set out in Articles 3 to 7.

Article 10 requires that Member States have sanctions in place for legal persons, which may include criminal and non-criminal fines or other sanctions.

Article 11 requires Member States to establish jurisdiction over the offences in Articles 3 to 7 where the offence is committed in whole or in part within its territory, where the offence is committed by one of its nationals, or where the offence causes damage within its territory. Member States shall ensure that they have jurisdiction where the offence is committed using computers, whether or not the offender commits the offence when physically present on its territory.

Article 12 requires Member States to put in place mechanisms to carry out effective investigations.

Article 13 requires Member States to have in place a 24/7 point of contact for the sharing of information relating to the offences set out in Articles 3 to 7. This can be an existing mechanism.

Article 14 requires Member States to have in place channels to facilitate the reporting of the offences set out in Articles 3 to 7.

Article 15 requires Member States to provide information and advice to [natural and legal persons] on how to protect themselves from the consequences of the offences set out in Articles 3 to 7.

Article 16 requires Member States to provide, through appropriate channels, information aimed at reducing fraud.

Article 17 requires Member States to monitor the impact of the provisions of the Directive, including statistics relating to the offences set out in Articles 3 to 7.

Article 18 replaces Framework Decision 2001/413/JHA of 28 May 2001 on combating fraud and counterfeiting of non-cash means of payment.

Articles 19, 20 & 21 are procedural, and relate to the transposition of the proposed Directive, reporting arrangements, and entry into force.”446

27.15The Minister makes clear that “combating fraud forms a major part of the Government’s approach to tackling serious and organised crime” and that the Government “strongly supports international cooperation to tackle fraud”.447 He considers that the UK “largely meets the requirements” for the offences and sentences set out in the proposed Directive by virtue of the Fraud Act 2006, the Computer Misuse Act 1990, and the Forgery and Counterfeiting Act 1981, adding:

“We will clarify in negotiation the precise scope of the offences to take a definitive view on whether any amendment would be required to achieve domestic compliance with the Directive.”448

27.16He highlights possible concerns with Article 9 of the proposed Directive which establishes the liability of legal persons (such as companies) for the offences contained in Articles 3 and 4. He considers that Article 9:

“arguably goes further than domestic law currently in so far that where a lack of supervision or control leads to the commission of an offence, then the legal person should be capable of liability. Ordinary common law principles of corporate liability are applicable in this area, and the principle of the directing mind applies so that the company can be imputed with the criminal intent of those directing the company. In domestic law, the lack of supervision or control would have to be reckless such as to amount to criminal intent and this arguably would not be sufficient. This is an issue which will be explored further in negotiations.”449

27.17The Minister is satisfied that the proposed Directive is compatible with fundamental rights. Commenting on the inclusion of a requirement to establish “minimum maximum” prison sentences of up to five years, he notes that “this does not bind the judicial authorities of the Member States to impose the maximum in a particular case” and that there should therefore be no infringement of Article 49(3) of the EU Charter of Fundamental Rights which stipulates that the severity of penalties must not be disproportionate to the criminal offence.450 He is also satisfied that the proposed Directive complies with the principle of subsidiarity, noting that Article 83(1) TFEU “allows for minimum rules to be set down in the area of counterfeiting of means of payment to combat serious cross-border crime”.451

27.18The Minister notes that the proposed Directive is subject to the UK’s Title V (Justice and Home Affairs) opt-in. He reiterates that all opt-in decisions are taken “on a case-by-case basis, putting the national interest at the heart of the decision making process” and sets out the main factors that will inform the Government’s decision (see paragraph 4 of this chapter).452 As he considers the UK to be broadly compliant with the proposed Directive, he does not anticipate that there would be “significant costs or other financial implications” if the UK were to opt in.

Previous Committee Reports

None on this document.


436 £1 = €1.08728

437 See p.15 of the Commission’s Impact Assessment—ADD 1. 2013 is the latest year for which data are available. The estimated figure of €1.44 billion is based on fraud using cards issued in the Single European Payment Area (SEPA). All Member States plus Iceland, Norway, Switzerland, Liechtenstein, Monaco and San Marino are part of SEPA. It facilitates cross-border electronic payments in euros. The average loss per transaction is based on data showing that there were 11.29 million fraudulent card transactions in 2013.

438 See p.126 of Command Paper 8671.

439 See the comments made by the then Home Secretary (Mrs Theresa May) during a debate in the House on 15 July 2013, HC Deb, col. 777.

440 See Directive 2011/36/EU on preventing and combating trafficking in human beings and protecting its victims and Directive 2011/92/EU on combating the sexual abuse and sexual exploitation of children and child pornography.

441 See the contribution of the then Justice Secretary (Chris Grayling) in HC Deb, 15 July 2013, cols. 850–1.

442 See p.5 of the Commission’s explanatory memorandum accompanying the proposed Directive.

443 The Commission’s Impact Assessment—ADD 1—gives examples of cross-border non-cash payment fraud.

444 See p.11 of the Commission’s explanatory memorandum accompanying the proposed Directive.

445 See recital (25) of the proposed Directive.

446 See paras 1–20 of the Minister’s Explanatory Memorandum.

447 See paras 36 and 40 of the Minister’s Explanatory Memorandum.

448 See paras 40–1 of the Minister’s Explanatory Memorandum.

449 See para 42 of the Minister’s Explanatory Memorandum.

450 See para 31 of the Minister’s Explanatory Memorandum.

451 See para 35 of the Minister’s Explanatory Memorandum.

452 See para 39 of the Minister’s Explanatory Memorandum.




20 November 2017