EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 25.10.2004 
COM(2004) 709 final 
 
REPORT FROM THE COMMISSION 
Implementation by Member States of th e Convention on the Protection of 
the European Communities’ financ ial interests and its protocols 
  
Article 10 of the Convention 
  
{SEC(2004) 1299}  
 
EN 2   EN 1. INTRODUCTION 
The protection of financial in terests in criminal law has been promoted as a high 
priority for the European Community since the 1970s, but the first instruments adopted for this purpose we re the PFI Convention of 26.7.1995,
1 the 1st Protocol of 
27.9.1996,2 the ECJ Protocol of 29.11.19963 and the 2nd Protocol of 19.6.19974 
(referred to as the PFI instruments), all adopted under Title VI EU Treaty. The PFI 
instruments set out to establish a common ba se for the criminal-law protection of the 
EC’s financial interests. The PFI Conventi on, the 1st Protocol and the ECJ Protocol 
entered into force on 17.10.2002 following ra tification by the then 15 Member 
States. Ratification of the 2nd Protocol  by IT, LU and AT is still awaited. 
As the Council has not yet adopted a Common Position on the proposal for a 
Directive on the criminal-law protection of the Communities’ financial interests on 
the basis of Article 280 EC Treaty,5 the Commission believes the time has come to 
look into the national implementation measures  and to consider the impact of the PFI 
instruments. The purpose of th is report is to check whether the objective of effective 
and equivalent protection of the EC’s financ ial interests has already been attained in 
all Member States. The identification of persistent shortcomings in the implementation of the PFI instruments should  contribute to advancing the legislative 
process concerning the proposal for a Dir ective or, as the case may be, to using 
dispute settlement procedures  under the PFI instruments. 
A report on implementing the PFI instruments is  currently necessary to take stock of 
the developments in protecting the EC’s fi nancial interests through national criminal 
law, even if not all the Memb er States have ratified all
 the PFI instruments. The 
accession of new Member States opens a new chapter in the process of monitoring implementation, which will have to  be dealt with separately.  
2. BACKGROUND 
2.1. Purpose 
The main reason for this report is to evaluate the way Member States have 
conformed to the PFI instruments. The report is also the appropriate instrument to verify the need to proceed with the dis pute settlement procedure under Article 8 PFI 
Convention. 
                                                
 
1 Convention on the protection of the European Communities' financial interests,  
OJ C 316, 27.11.1995, p. 49. 
2 Protocol to the Convention on the protection of the European Communities' financial interests, 
OJ C 313, 23.10.1996, p. 2. 
3 Protocol on the interpretation, by way of preliminary rulings, by the Court of Justice of the European 
Communities of the Convention on the protection of the European Communities' financial interests, 
OJ C 151, 20.5.1997, p. 2. 
4 Second Protocol to the Convention on the protection of the European Communities' financial interests, 
OJ C 221, 19.7.1997, p. 12. 
5 COM(2001) 272 final, 23.5.2001: OJ C 240 E, 28.8.2001, p. 125, as amended by 
COM(2002) 577 final, 16.10.2002: OJ C 71 E, 25.3.2003, p. 1. 
 
EN 3   EN Although the PFI instruments are placed in th e 3rd pillar, they pursue aims required 
also under Article 280 EC Treaty: 
• Measures under both Article 280(1) EC Tr eaty and the PFI instruments must act 
as a deterrent and be such as to afford effective prot ection of the EC’s financial 
interests in the Member States. 
• Article 280(2) EC Treaty obliges Member St ates to take the same measures to 
counter fraud affecting the EC’s financial interests as they take to counter fraud 
affecting their own financial interests. This assimilation principle  was an 
underlying consideration when drawing up the PFI instruments. 
• Both Article 280(3) EC Treaty and the PFI instruments alike aim to foster 
cooperation between the Member Stat es, together with the Commission. 
• The PFI instruments are measures in th e prevention of and fight against fraud 
affecting the EC’s financial interests wh ich are designed to afford equivalent 
protection in the Member States, as re quired by Article 280(4) EC Treaty. The PFI 
instruments are contributing to the atta inment of the equivalence principle . 
Article 10 PFI Convention requires Member St ates to transmit to the Commission the 
text of the provisions transposing the PFI instruments into their domestic law. Thus, 
this report also serves as  a conduit for circulating the information that has been 
received.6 
2.2. Method  
The report focuses on the 15 Member States before the accession on 1.5.2004. It 
further concentrates on provisions in the PFI instruments relating to criminal or 
procedural law. It does not take into  account provisions that do not require 
implementation, such as those on co operation and data protection.  
A look into the implementation of the 2nd Prot ocol is justified because the majority 
of Member States have ratified it. Seve n years have passed since its adoption. AT 
and LU are preparing draft legislation to  implement the provisions on liability of 
legal persons. IT has already enacted mo st of the related implementing measures. 
The main components, such as money launde ring and confiscation, are closely linked 
to the existing acquis . 
For evaluating the implementation of the PFI instruments, it is appropriate to take 
into account the same evaluation criteria as  they have been already established for 
assessing the implementation of directives in the 1st pillar and Framework decisions 
in the 3rd pillar. 
However, the assessment criteria are in the first place the pr ovisions of the PFI 
instruments themselves. To evaluate the le vel of protection provided by criminal law 
of the EC’s financial interests through nati onal measures, it is necessary to verify 
                                                 
6 Point 4.1.1 of the Annual report 2002 on the Pr otection of the Communities’ financial interests, 
COM(2003) 445 final, 4.12.2003, announces an analys is of the way in which the Member States have 
conformed to their obligations under the PFI instruments. 
 
EN 4   EN implementation for each article and each Me mber State based on a comparative law 
analysis. The following contai ns a summary assessment. A detailed evaluation is to 
be found in a Commission staff working paper associated wi th this report. 
3. ASSESSMENT 
3.1. Criminal offences  
Fraud affecting the EC’s financial interests  (Articles 1 and 2, PFI Convention) 
The prime intention of the PFI Conve ntion was to overcome loopholes and 
incompatibilities as regards fraud affe cting the EC’s financial interests.  
Thanks to the equivalence principle (which  is also contained in Article 280(4) EC 
Treaty), the criminalisation of fraudul ent conduct has become more similar 
throughout the EU.  
That said, as regards fraud affecting the EC’s expenditure, only DK, EL, ES and IE 
can be considered as completely compliant . Furthermore, the laws of IT and NL 
seem to avoid gaps and loopholes which could allow expenditure fraud to go 
unpunished. The laws of BE, DE, LU, AT, PT , FI and SE might not fully comply 
with the definition of fraud, since they requi re additional elements for some forms of 
fraud. In FR and UK there seems to be a ri sk that certain form s of fraud regarding 
EC expenditures are not criminalised. In FR, for instance, fraud committed through 
the non-disclosure of information should be further scrutinis ed, while UK law may 
present serious uncertainty as re gards the misappropriation of funds. 
The overall picture is better as regards fr aud affecting the EC’s revenues, where DE, 
ES, IT, NL, AT, PT and FI have complied with the PFI Convention. The scope of the 
criminal-law protection of VAT own resour ces is not completely clear in DK, EL, 
FR, IE and LU. Subject to further analysis  of the legal practices of the courts, 
amendments of legislation appear necessa ry to address potential gaps for certain 
forms of fraud in SE and UK concerning the misappropriation of legally obtained 
benefits and in BE for the element of dece it in customs law. Finally, it seems that in 
the UK only fraud directed against its own au thorities is criminalised and that fraud 
of VAT or customs duties requires additi onal subjective elements, namely being 
“knowingly concerned in, or in  the taking of steps with  a view to, the fraudulent 
evasion”. In BE, FR and AT, the punishment for certain forms of fiscal fraud appears 
not to be proportionate and dissuasive, lacking sufficient custodial sentences.  
This persisting lack of a common definition in  the Member States of what constitutes 
fraud affecting EC financial interests can still make prosecution of cross-border fraud and EU-level cooperation difficult. 
Criminalisation of the intentional preparation of false, incorrect or incomplete 
statements, required by Article 1(3) PFI C onvention, appears to be found in DK, EL, 
ES, IT, IE, NL and SE. For the other Member States, no definitive conclusions can be drawn at this stage. 
 
EN 5   EN Corruption  (Articles 2 to 5, 1st Protocol) 
In general, implementation regarding active and passive corruption is more 
advanced, due in part to similar Member States’ obligations unde r other international 
conventions. All Member States appear to  provide for corruption offences. In DE, 
EL, IE, AT and SE, their specific scope ma y however be restrictive. ES, SE and UK 
have not put forward convincing arguments th at the offences are also applicable to 
Community officials. With regard to th e assimilation of members of European 
Institutions, in BE, DK, ES, NL and PT , full compliance seems to depend on the 
courts’ interpretation of the relevant laws.  
Money Laundering  (Article 2, 2nd Protocol) 
The Member States’ degree of compliance with the 2nd Protocol as regards money 
laundering is largely positive. BE, DK, ES, FR, IE, IT, NL, PT, FI and UK seem to fully comply, ES only as regards ‘serious’ fraud. For SE, it seems uncertain whether tax and customs fraud constitutes predicate offences. In LU, fraud is only a predicate offence if committed by a criminal organisa tion. In DE and AT, predicate offences 
do not include fiscal fraud unless conducted in an organised way. In EL, VAT fraud 
appears not to be mentioned as a predicate offence.  
3.2. General concepts of criminal law 
Criminal liability of heads of businesses
 (Article 3, PFI Convention) 
Article 3 PFI Convention stipulates criminal liability for heads of businesses in cases 
of fraud, corruption or money laundering affe cting the EC’s financial interests by a 
person under their authority acting on behalf of the business. 
Only NL appears to explicitly provide for cr iminal liability of heads of businesses. 
The scope and coverage of criminal liabili ty for heads of businesses remains unclear 
in BE, DK, DE, IT, LU, AT and SE, wher e the general rules on participation are 
taken as an argument to deny the need for speci fic rules. No certainty exists as to the 
full impact of the participation rules. Fu rther explanations ar e required to assess 
whether the result to be ach ieved by Article 3 PFI Conven tion is effectively ensured, 
for instance through examples of standing ju risprudence (FR). IE seems not to have 
introduced the concept of criminal liability of heads of businesses, requiring ‘guilty 
knowledge’ in any case.  
The Commission notes that the Member Stat es have shown a certa in reluctance to 
scrutinise their national systems with regard  to the concept of criminal liability of 
heads of businesses. More feedback is needed, since Member States are simply 
relying on what is already to be found in their national laws. The Commission is not 
convinced that the reference to existing do mestic provisions is sufficient and believes 
that incompatibilities continue to exist by virtue of the fact th at a decision-maker is 
liable under different circumst ances depending on the country  concerned. Legislative 
action by Member States to introduce specific rules on the criminal liability of heads 
of businesses might well be necessary. 
 
EN 6   EN Liability of legal persons  (Articles 3 and 4, 2nd Protocol) 
Apart from LU and AT, Member States stip ulate the liability of legal persons. Three 
of them appear to fail to provide for liability of legal persons for all offences contained in the PFI instru ments, omitting, for example,  active corruption and money 
laundering (PT), tax and customs fraud (FR) or fraud not deemed ‘serious’ (ES). For 
BE, DK, IE, SE and UK, it is doubtful whethe r they provide for liability where lack 
of supervision or control has made it possible for the offence to be committed or where the offence was committed by a subordinate person.  
The analysis shows that, as regards simila r treatment for firms and individuals guilty 
of the same criminal behaviour, the Memb er States have advanced considerably. 
Even LU
7 and AT,8 which have not yet ratified the 2nd Protocol, seem to be ready to 
accept the liability of legal persons. The Co mmission also notes that the concept of 
liability of legal persons has, in the mean time, become a widespread requirement in 
recent EU and international instruments. 
Confiscation  (Article 5, 2nd Protocol)  
Concerning the provision on confiscation, ex isting EU and international instruments 
providing for similar measures have doubtlessly helped to produce a positive result. BE, DK, DE, IE, NL, PT and FI appear to  comply with Article 5, 2nd Protocol. The 
other Member States appear to lack provi sions for the seizure and confiscation or 
removal of instruments (UK) or property of corresponding value (ES) or seem to 
have essentially omitted tax fraud (EL, SE) or other forms of fraud (FR). 
3.3. Complementary elements rel ating to criminal procedure 
Jurisdiction
 (Article 4, PFI Convention and Article 6, 1st Protocol) 
All Member States provide generally for jurisdiction based on the territoriality 
principle for fraud, corruption or mone y laundering. FR, AT and UK seem not to 
provide for full territorial juri sdiction for fiscal fraud, for participation therein or for 
an attempt that has been committed only in part within their territory but regards another Member State’s authority. BE app ears not to ensure jurisdiction for some 
categories of participation in fraud or money laundering committed abroad, while the 
UK seems to have procedural difficulties that render it practically impossible to 
pursue offences committed abroad, e.g. Scotland might lack jurisdiction for participation in and instigation of such fraud. 
Some Member States have taken adva ntage of the possibility under the PFI 
instruments to submit reservations on the a pplication of the personality principle for 
establishing jurisdiction. The persisting di fferences might therefore make it possible 
for offences to go unpunished and for the cross-border nature of many of the illegal 
activities affecting the EC’s financial interests to be inadequately treated.  
                                                
 
7 In the explanatory report on the Draft Law No 52 62, LU announced a draft la w to introduce criminal 
liability of legal persons. 
8 The federal ministry of justice recently issued a draft law on criminal liability of legal persons. 
 
EN 7   EN ‘Ne bis in idem ’ (Article 7, PFI Convention) 
The ‘ ne bis in idem’  rule appears to be recognised in  principle. For DK, IT, PT, AT, 
SE, it appears possible to stat e that implementation has b een effected. However, due 
to lack of information, an evaluation for the remaining Member States could not be 
done at this stage. 
3.4. General assessment 
At first sight, an analysis of the nationa l provisions adopted in the Member States 
shows that the level of effective criminal-law protection of the EC’s financial interests has increased. As regards the defi nition of offences, national systems have 
grown closer to one another and penalties are usually set at a sufficiently high level 
so as not to impede mutual assistance. 
The assimilation principle (which is also contained in Article 280(2) EC Treaty) has 
found some recognition among Member States . In particular, the PFI instruments 
have prompted Member States to take, in  general, the same measures to counter 
fraud affecting the EC’s financial interests as they take to counter fraud affecting 
their own financial interests. 
Nevertheless, the Commission’s analysis co mes to the conclusion that none of the 
Member States under scrutiny appears to have taken all
 the measures needed to 
comply fully  with the PFI instruments. Gaps and loopholes in the law which allow 
offences to go unpunished remain possible. The set of rules contained in the PFI instruments cannot be considered separate ly, since partial or non-implementation of 
an article also produces e ffects on provisions that, cons idered independently, might 
seem to comply with the PFI instruments. The considerable differences between the Member States as regards criminal penalt ies shed further doubt as to whether the 
penalties imposed always meet the Court of Justice criteria of being effective, 
proportionate and dissuasive.
9  
Since the harmonisation objective has not ye t been fully achieved, the Commission 
still considers the level of protection not to be advanced  enough to exclude any risk 
of leaving unpunished or of not deterring all conduct affecting the EC’s financial 
interests that should be criminalised. The ob ligations of the Member States as regards 
their commitment to curb this sort of crime are still not fully met. 
The Commission believes that many of the reasons for which it submitted a proposal 
for a Directive on the criminal-law protection of the EC’s financial interests remain justified and considers it useful to relaunch negotiations within the Council on the amended proposal with a vi ew to a Common Position. 
In this context, the Commission notes that  the PFI instruments drawn up on the basis 
of the tools available under the Maastricht  Treaty do not give an adequate response 
to the specific need for criminal-law prot ection of the EC’s financial interests. 
Therefore, the Commission will further ex amine possible approaches offered by 
subsequent Treaty amendments, such as the proposed Directive based on the new 
                                                
 
9 Within the meaning of Case 68/88 Commission v Greece  [1989] ECR 2965 and Case C-352/92 
Milchwerke Köln/Wuppertal eG  [1994] ECR I-3385. 
 
EN 8   EN Article 280 EC Treaty, and the means provi ded by the Draft Constitutional Treaty, 
including the ultimate possi bility of establishing a Eu ropean Financial Public 
Prosecutor's Office. 
4. RECOMMENDATIONS 
In view of the foregoing, it is theref ore recommended that  the Council should 
• invite Member States  
– to step up their efforts to reinforc e national criminal legislation to 
protect the Communities’ financial intere sts, in particular with regard to 
complete criminalisation of fraudulen t conduct and crimin al liability in 
a corporate context;  
– to reconsider their reservations  stated when ratifying the PFI 
instruments; 
– (those that have not done so) to implement and ratify the 2nd Protocol 
without delay, given that more than  seven years have already passed 
since its signature; 
• treat as a matter of priority the objective of full application of the PFI instruments 
so as to avoid initiation of the pro cedures under Article 8 PFI Convention;  
• work towards adopting a Common Po sition on the amended proposal for a 
Directive on the criminal-law protection of the Communities’ financial interests 
on the basis of Article 280 EC Treaty. 
Once all Member States have notified their ratification of and/or accession to all PFI 
instruments, the Commission intends to submit a follow-up report on implementation 
in the new Member States and on impleme ntation by IT, LU and AT of the 2nd 
Protocol.