The European Commission has recently proposed new rules intended to fight fraud against the EU budget by means of criminal law. The draft directive on the fight against fraud to the Union's financial interests by means of criminal law aims at harmonizing Member States’ criminal law as regards offences related to the EU budget. The European Commission noted that there are differences between national legal systems as regards levels of protection of the EU budget. According to the European Commission Member States have adopted different rules on the definition of crimes against the EU budget and, consequently, there are different levels of sanctions applied across Member States. The European Commission believes “Such diversions have a negative impact on the effectiveness of the Union's policies to protect its financial interests” thus it proposes to introduce common definitions of offences against the EU budget and minimum sanctions. Member States have an interest in preventing criminal acts against the EU’s budget, no one can deny that taxpayers’ money must be protected. However, the European Commission’s proposal fails to recognise Member States different legal traditions, failing, therefore, to respect different criminal justice systems. The European Commission has failed to demonstrate that by harmonizing Member States laws it would achieve effective protection of the EU's financial interests, which raises subsidiarity concerns.

The proposal is based on Article 325(4) TFEU which provides “The Union and the Member States shall counter fraud and any other illegal activities affecting the financial interests of the Union through measures to be taken in accordance with this Article, which shall act as a deterrent and be such as to afford effective protection in the Member States, and in all the Union’s institutions, bodies, offices and agencies.” This provisions sets out the EU's competence to adopt the necessary measures in this area. It is important to note that before the entry into force of the Lisbon Treaty the correspondent article in the EC Treaty (Article 280 (4)) provided that such “measures shall not concern the application of national criminal law or the national administration of justice”, however this provision had no place in the Lisbon Treaty, which means that criminal law measures concerning these matters may now be adopted. In fact, the European Commission has stressed that “Article 325 therefore includes the power to enact criminal law provisions in the context of the protection of Union's financial interests against all angles of illegal attacks, which was not the case in the correspondant Article 280 (4) in the EC-Treaty.”

It is important to mention that the UK might not have an opt out from these measures as they will be adopted following the decision making procedure found in Article 325  TFEU, which might be considered out of the Protocol on the area of freedom, security and justice, as this provision is not included in Title V “Area of Freedom, Security and Justice.”

It is important to note that measures in the fields of the prevention of and fight against fraud affecting the EU's financial interests are subject to the ordinary legislative procedure and they are adopted by QMV in the Council. Hence, the UK has no veto over the adoption of such measures. During the Lisbon Treaty negotiations, the UK government gave up a veto in return for an opt out from policing and criminal law proposals. It is therefore essential the UK government secures the possibility of opting out from such measures as this proposal concerns criminal law and would affect the UK's criminal law. The UK would be required to introduce changes to its criminal laws, particularly to the Fraud Act 2006, in order to implement the Directive. The Commission is proposing to use the UK’s criminal system in relation to the EU's finances in unacceptable way.

Member States are therefore required to criminalise fraudulent behaviour affecting the EU's financial interests. Hence, they are required to ensure that fraud and fraud related offences affecting the EU’s financial interests when committed intentionally are punishable as a criminal offence. The Member States are also required to criminalise forms of preparation and participation in such offences, thus they must ensure that inciting, aiding or abetting as well as attempts to commit the above-mentioned offences are punishable as a criminal offence. In fact, the majority of the EU member states already have special provisions stipulating penalties for frauds regarding EU funds. However, they also have different definitions of fraud and the level of sanctions vary considerably among them. The Commission proposed, therefore, a common definition of fraud as well as other related crimes such as corruption, the misappropriation of funds, money laundering or obstruction of public procurement procedures that affect the financial interests of the EU.  

The UK has no minimum sentence for fraud. Under Section 1 Fraud Act 2006 a “person who is guilty of fraud is liable (…) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both); on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).” Under the draft proposal, Member States would be required to apply effective, proportionate and dissuasive sanctions, including fines and imprisonment, when the criminal offences defined in the present Directive are committed. They would be required to foresee certain minimum types and levels of sanctions, including minimum maximum imprisonment ranges for more serious cases. The seriousness of the crime would be determined according to thresholds of financial damage, caused to the EU budget, laid down in the proposal. As regards natural persons, Member States would be required to impose minimum sanction of six months and maximum sanction of at least five years imprisonment for cases of fraud or related crimes, involving an advantage or damage of €100 000 and above. These criminal offences shall be punishable by a maximum penalty of at least 10 years of imprisonment if they were committed within a criminal organization.

Member states would be allow to choose whether to apply criminal or administrative sanctions in case of minor offences involving damages or advantages of less than €10,000.

According to the EuropeanVoice the European Commissioner in charge of Home Affairs, Cecilia Malmström, has raised concerns over the introduction of minimum sentences for fraud as there is no EU-wide minimum sentences for other serious crimes. She also noted that the maximum sentences were higher than sanctions for the production of child pornography or human trafficking.

Member States would be also required to ensure liability of legal persons for the above-mentioned criminal offences when “committed for their benefit by any person, acting either individually or as part of an organ of the legal person, and having a leading position within the legal person”. They shall, therefore, be subject to “effective, proportionate and dissuasive sanctions”, including criminal or non-criminal fines as well as other sanctions, such as: exclusion from entitlement to public benefits or aid, temporary or permanent disqualification from the practice of commercial activities, placing under judicial supervision.

Under the draft proposal, Member States would be also required to establish their jurisdiction over these criminal offences in accordance with the principles of territoriality and personality, thus where “the offence is committed in whole or in part within their territory” or “the offender is one of their nationals.” The draft proposal specifically provides “Member States shall take the necessary measures to ensure that their jurisdiction is not subordinated to the condition that the prosecution can only be initiated following a report made by the victim in the place where the offence was committed, or a denunciation from the State of the place where the offence was committed” and “shall ensure that their jurisdiction includes situations where an offence is committed by means of information and communication technology accessed from their territory.”

The draft proposal would also require all Member States to lay down rules concerning prescription periods for all offences affecting the EU's financial interests, including the establishment of a minimum period of prescription and a provision on the prescription period for the enforcement of penalties following a final conviction. It is important to recall that in the UK the prescription period for minor offences is six months and there is no limitation period for the trial of offences on indictment.

Under the draft proposal Member States would have to ensure a prescription period within which the investigation, prosecution, trial and judicial decision for the offence must take place, would have to be at least five years from the time when the offence was committed. This period shall be extended to ten years if it was interrupted by investigations or prosecutions. Moreover, Member States would be required to ensure that “the enforcement of a penalty imposed following a final conviction for a criminal offence (…) for a sufficient period of time that shall not be less than 10 years from the time of the final conviction.”