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Brussels, 26th July 2001

Free movement of capital: Commission asks France to review penalties for non-declaration of payments

The European Commission has formally requested France to review the penalties imposed by its customs authorities in cases where the administrative requirement under French law to declare any incoming or outgoing transfer of money, stock or securities equal to or exceeding FRF 50 000 or its equivalent has been breached. The Commission is in no way calling into question the principle of the prior administrative declaration requirement as such. For the Commission, however, the penalty prescribed in the Customs Code in the event of any breach of that requirement and consisting, on the one hand, in confiscation by customs of the money, stock or securities and, on the other, in the imposition of a fine ranging from one quarter to the full amount of the capital involved runs counter to the principle of the free movement of capital under Article 56 of the EC Treaty. The formal request to France will be in the form of a reasoned opinion under the infringement procedure provided for in Article 226 of the EC Treaty. If France failed to comply with this request within two months of receiving the reasoned opinion, the Commission may decide to refer the matter to the Court of Justice.

Article 58 of the EC Treaty stipulates that Article 56, which enshrines the free movement of capital, is without prejudice to the right of Member States to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information or to take measures which are justified on grounds of public policy or public security. It nevertheless makes it clear that such procedures must not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 56.

The Commission thus takes the view that the effects of such an administrative requirement, in the case in point customs penalties, must be assessed in the light of the criterion of proportionality. According to the case law of the Court (rulings of 16 December 1992 in Case C-210/91 Commission v Greece and 26 October 1995 in Case C-36/94 Siesse), administrative measures or penalties must not go beyond what is strictly necessary for the objectives pursued and the control procedures must not be accompanied by a penalty which is so disproportionate to the gravity of the infringement that it becomes an obstacle to the freedoms enshrined in the Treaty.

The Commission has found that, in the case at issue, the penalty normally prescribed and applied, namely the confiscation of funds, results in the actual negation of the fundamental principle of the free movement of capital and, as such, is a manifestly disproportionate measure.

The French authorities defend the deterrent effect that such penalties are designed to have by reference to the importance of the objectives pursued, as they see it, by the introduction of declaration requirements, namely the fight against money laundering and the fight against tax fraud. For its part, the Commission takes the view that the penalty should correspond to the gravity of the infringement, namely the failure to comply with the declaration requirement, and not to the gravity of any infringement not established at this stage, namely an offence such as money laundering or tax fraud.

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