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Brussels, 26 May 2011
Frequently Asked Questions: European Commission seeks tougher rules to protect taxpayers' money from fraud
What is the purpose of the Communication on the protection of the financial interests of the EU?
Protecting taxpayers from fraud and other crimes against the EU budget is a top priority for the Commission. This is particularly important in times of budgetary austerity. Today's Communication sets out an approach that will guide the Commission, other EU institutions and Member States' authorities on how to improve measures to protect the EU’s financial interests.
Under the EU Treaty, EU Member States are obliged to take action against illegal activities that harm the EU budget. Fraud and corruption involving EU money are serious crimes and they will not go unpunished. All serious crimes need to be investigated and prosecuted swiftly across the EU.
By ensuring that legal action is effective and the same throughout the EU, the Commission is demonstrating its committment to making the protection of EU funds a priority for national authorities. By helping speed up procedures and ensuring that sanctions are appropriate, today's Communication will strengthen criminal law and improve administrative investigations.
Why is there a need to act?
All citizens, as taxpayers, are victims of misspent EU funds. In 2009 alone, Member States reported €279.8 million worth of suspected fraud against the EU budget. The European Parliament, the Council and the Commission have all expressed the need for stronger protection against the fraudulent use of EU funds. However, the EU’s wide variety of legal systems makes protecting the EU’s financial interests by criminal law particularly challenging. If they do so at all, police, prosecutors and judges in the EU Member States decide on how to intervene to protect EU finances based on their own criminal law. This means that levels of protection vary considerably from one Member State to another and judicial follow-up of criminal cases ranges from 14% to 80% (the average being 41%). To tackle these challenges, the Commission is thus convinced that new legal tools are needed.
What are the criminal policy challenges?
The Protection of Financial Interests Convention was adopted in 1995 but has only been fully implemented fully by five Member States. Fifteen years on and loopholes in criminal and procedural laws still significantly hamper effective action to punish those responsible for financial crime against the EU budget.
In addition, many of these cases have a cross-border dimension involving several suspects in different jurisdictions and sometimes even outside the EU. Because of the complexity and lengthy procedures associated with such cases, Member States may be reluctant to ask for mutual legal assistance. Complex cases such as these cannot be solved through a national approach alone. At the moment, there is no level-playing field in criminal law. Some of the problems are:
Is there sufficient legal action?
The EU tackles fraud and corruption through the European Anti-Fraud Office (OLAF). Since the year 2000, 93 out of a total of 647 OLAF cases have been dismissed by national prosecution services for no specific reason. 178 of these were dismissed due to discretionary reasons (i.e. the prosecutors are free to follow-up a case or not according to certain criteria). Cross-border EU fraud cases are very complex and are sometimes not given the priority they deserve. Some national authorities only prosecute cases when the crime took place exclusively on their territory. Sometimes the national authorities do not have the power to investigate cases of fraud that involve events, suspects or victims that fall beyond the domestic remit.
Is there enough cooperation between authorities?
No. The EU still faces serious deficiencies in the way national authorities cooperate and the situation should be improved. There are many cases for which national authorities may need help from counterparts in other Member States, such as for recovering assets, but they do not ask because they are concerned about overly complex and lengthy procedures. Evidence collected by OLAF during administrative investigations is often not used because of national restrictions on using evidence from a foreign jurisdiction. Mutual trust between judicial and administrative authorities could be fostered if equivalent procedural standards applied, including evidence gathering.
Are investigative powers strong enough?
In March, the Commission proposed a reform of OLAF (IP/11/321 and MEMO/11/176). The objective of the reform is to reinforce OLAF’s accountability, efficiency and effectiveness in its daily workings, while safeguarding its independence in carrying out investigations. This reform concerns several aspects, ranging from:
If OLAF’s reform is now well underway, attention must also be paid to Eurojust. Eurojust supports Member States’ judicial authorities by providing coordination and advice on serious crime including the fight against fraud. However, Eurojust still faces serious limitations because it cannot start criminal investigations nor prosecute cross-border crime on its own.
Reinforcing OLAF and Eurojust's capacities, both in criminal and administrative law, are crucial to minimising illegal activities that hurt the EU budget.
What tools do we have to protect EU financial interests under the EU Treaties?
The EU Treaties already foresee several ways to protect EU's financial interests, such as:
How does the Communication suggest improving the situation?
The Commission's Communication foresees several main areas where criminal law could be further improved to protect the EU's financial interests:
Is there a common definition of fraud and corruption?
The 1995 Protection of Financial Interests Convention provides for a definition of fraud and corruption at the expense of the EU and requires Member States to introduce criminal liability in these fields. Under the Convention, Member States must take the necessary measures to ensure that fraud affecting both expenditure and revenue must be punishable by effective, proportionate and dissuasive criminal penalties in all EU countries.
In cases of serious fraud, these penalties must include custodial sentences that can give rise to extradition. For instance, each EU country must ensure that heads of businesses or legal persons can be declared criminally liable in accordance with the principles defined by national law in cases of fraud affecting the EU's financial interests.
However, the Convention does not apply to the entire field of criminal activity relevant for the protection of EU financial interests and suffers from a number of shortcomings. For example, it does not oblige Member States to establish competence for prosecuting crimes unless they are at least partly committed on their own territory. Member States are also not obliged to provide criminal sanctions for legal persons, or to enact certain minimum levels of penalties for crimes affecting the financial interests of the EU.
Moreover, Member States have not entirely implemented the Convention. There are still discrepancies in the implementation of basic criminal law concepts for crimes affecting the financial interests of the EU. Today's Communication is therefore essential to identifying the areas where further work is needed.
What is the difference between "irregularities" and "fraud"?
An irregularity is when a beneficiary is not in compliance with the EU rules and requirements linked to the spending of EU funds, with a potentially negative impact for EU financial interests. Irregularities are often the result of genuine errors. Errors are made for a variety of reasons by beneficiaries claiming funds and by the authorities responsible for making payments. Fraud is a deliberately committed irregularity, which constitutes a criminal offence.
What are typical examples of fraud to the EU budget?
Fraud can be any case of deliberate misappropriation of EU funds. For example, beneficiaries of EU funds could deliberately use them for purposes other than those for which they were intended with no intention of carrying out the work they should. In other cases, it could happen that beneficiaries of EU money include falsified and inflated tender offers and invoices in their project applications.