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Brussels, 24th January 2002

Free movement of capital: Infringement proceedings against France

The European Commission has decided to take France before the European Court of Justice. It considers that 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 €7622.45 (FRF 50 000) or its equivalent has been breached are not compatible with Community law on the free movement of capital. It should be pointed out straightaway that the Commission is in no way calling into question the principle of the administrative prior 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 which can be equal 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.

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.

From this point of view, the Commission finds that the French legislation provides for a standard penalty which makes no distinction according to the nature of the infringement. A heavy financial penalty can thus be imposed both on an offender who had no established fraudulent intent and on one who, fully aware of the consequences, has ignored the declaration requirement in order to carry out illegal transactions, whereas a simple failure to fulfil the declaration requirement should be punished in a manner proportionate to the minor nature of the infringement.

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