Proposal for a Council Regulation (EC, Euratom) on protection of the Community's financial interests (94/C 216/05) (Text with EEA relevance) COM(94) 214 final - 94/0146(CNS)

(Submitted by the Commission on 7 July 1994)

THE COUNCIL OF THE EUROPEAN UNION

Having regard to the Treaty establishing the European Community, and in particular Article 235 thereof,

Having regard to the Treaty establishing the European Atomic Energy Community, and in particular Article 203 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Whereas the general budget is financed by the Communities' own resources and administered by the Commission within the limit of the appropriations authorized and in accordance with principles of sound financial management; whereas the Commission works in close cooperation with the Member States to that end;

Whereas more than half of Community expenditure is paid to final beneficiaries by the Member States;

Whereas detailed rules governing the decentralized administration of Community resources and the monitoring of their use are laid down separately for individual Community policy areas; whereas acts detrimental to the Communities' financial interests must be countered in all areas, including those not financed from the Community budget itself;

Whereas, in order to make measures to counter fraud more effective, a common set of legal rules should be enacted for all areas of Community policy; whereas the categories of irregularities affecting the Communities' financial interests and the measures to be taken to counter them should be defined;

Whereas Community law already imposes administrative penalties in relation to the common agricultural policy; whereas such penalties should be extended to other areas;

Whereas administrative penalties imposed by the authorities of the Member States should be imposed on uniform terms in order to ensure effective protection of the Communities' financial interests;

Whereas it is necessary to establish the general principles governing Community administrative penalties, notably as regards the limitation ratione temporis and the non-retroactivity of provisions for penalties, without prejudice to express derogations in specific instruments providing for them;

Whereas Community law imposes on the Commission and the Member States an obligation to check that Community budget resources are used exclusively for their intended purpose; whereas there is a need for common rules to supplement existing provisions;

Whereas, although the Treaties confer powers to enact provisions for checks and penalties in relation to revenue and expenditure in specific areas, they do not confer powers to enact horizontal provisions applicable to revenue and expenditure in general terms, and whereas the appliction of Article 235 of the EC Treaty and Article 203 of the EAEC Treaty is justified,

HAS ADOPTED THIS REGULATION:

TITLE I Principles

Article 1

1. For the purposes of the protection of the Communities' financial interests, action shall be taken to counter:

- fraud against the Communities' financial interests,

- abuse of Community law,

- any other failure to discharge an obligation provided for in rules governing Community revenue or the grant of aid, a subsidy or any other benefit.

Fraud, abuse and failure as enumerated in the first subparagraph are hereinafter jointly referred to as 'irregularities`.

2. The protection of the Communities' financial interests shall extend not only to all revenue and expenditure provided for by the general budget but also to all other revenue and expenditure managed by or on behalf of the Community institutions.

Article 2

1. 'Fraud against the Community's financial interests` means any act or omission contrary to the applicable law, committed either intentionally or through gross negligence in respect of a duty of care, which has as its object or effect:

- a diminution of the Community's own resources or other revenue, or

- the misappropriation, wrongful retention or misapplication of monies paid by the Community.

2. Fraud against the Community's financial interests includes the following acts:

- the preparation, supply, use or presentation of false, incorrect or incomplete documents or statements where information is to be furnished prior to the grant of a subsidy or the receipt of monies,

- failure to furnish information to the relevant authorities in relation to any change in the circumstances giving rise to the grant of a subsidy or the receipt of monies,

- misappropriation or dissipation of funds;

- knowingly using aids or subsidies obtained on the basis of incorrect or incomplete statements or other misleading acts.

Article 3

1. 'Abuse of Community law` means an act is done for the purpose of obtaining an unwarranted advantage by means of fictitious or artificial operations designed to create a situation that is formally in accordance with the law but is devoid of any real economic purpose and is contrary to the purpose sought by the material instrument of Community law.

2. No rights or benefits shall be conferred by operations as referred to in paragraph 1.

Article 4

1. As a general rule, where an irregularity is committed neither intentionally nor negligently, the following measures may be applied:

- withdrawal of a benefit unjustifiably received,

- the obligation to pay or reimburse amounts due or unjustifiably received, plus, where appropriate, interest which may be fixed at a flat rate,

- the forfeiture of the whole or a part of a guarantee lodged in support of an application for a benefit or for the receipt of an advance.

Such measures shall not be treated as penalties.

2. However, even where an irregularity is committed neither intentionally nor negligently, Community administrative penalties may be applied if, to ensure its correct functioning, the rules in question provide for the imposition of penalties regardless of the element of fault.

Article 5

Where an irregularity is committed intentionally or negligently, the Member States or the Commission, as the case may be, shall impose such Community administrative penalties as are provided for by Community legislation in addition to the measures provided for by Article 4 (1).

Article 6

The measures provided for by Articles 4 and 5 shall apply without prejudice to the Member States' obligation to ensure that infringements of Community law are penalized by appropriate measures under their national law and under conditions, both procedural and substantive, which are analogous to those applicable to infringements of national law of a similar nature and gravity and which, in any event, afford effective, proportionate and dissuasive protection for the Communities' financial interests.

TITLE II Rules applicable to Community administrative penalties

Article 7

1. 'Community administrative penalties` means all enforcement measures provided by Community legislation to be taken in the event of conduct to which Article 5 applies which entail unfavourable financial or economic consequences for natural or legal persons to whom Article 8 applies.

Provision may be made in particular for the following penalties.

- an administrative financial penalty, including the obligation to pay an amount greater than the amounts unjustifiably received or evaded, plus interest where appropriate,

- withdrawal of the whole or a part of the benefit granted by Community legislation, even if only part of this benefit has been unjustifiably received,

- ineligibility for or withdrawal of the benefit for a period subsequent to that affected by the irregularity,

- temporary or permanent withdrawal of approval or recognition, if any, needed for eligibility for a scheme of Community aid.

2. In so far as is necessary to ensure the correct functioning of the legislation in question, provisions relating to penalties shall determine the type and scope of the penalties on the basis of the scale of the risk of irregularities, the amount of the benefit granted, and the nature and gravity of the irregularity, with particular reference to the element of fault.

Article 8

Community administrative penalties may be incurred by:

- natural persons who have committed or assisted in the commission of an irregularity,

- natural persons who, by reason of their position or function, are under a duty to ensure by appropriate means that irregularities are not committed,

- legal persons where the irregularity is committed by a natural person acting on their behalf and exercising a decision-making power conferred by law or agency or in fact,

- groups or associations of natural or legal persons where the irregularity is committed by a natural person acting on their behalf and exercising a decision-making power conferred by law or agency or in fact.

Article 9

1. Penalty proceedings shall not be commenced in respect of an irregularity if five years have elapsed following its commission. Where the irregularity is continuous or repeated, time shall run from the date on which it ceases. However, in any case concerning a multiannual programme, time shall run from the date when the programme terminates.

The limitation period applicable to the commencement of proceedings shall be interrupted by any act of a national or Community authority relating to investigation or the commencement of proceedings.

2. The limitation period applicable to decisions imposing penalties shall be five years. Time shall run from the day on which the decision becomes final.

The limitation period applicable to decisions imposing penalties shall be interrupted by notification of a decision varying the original amount of the penalty.

The limitation period applicable to decisions imposing penalties shall be suspended for such time as payment facilities are granted.

Article 10

No penalty may be imposed unless an instrument of Community law prior to the commission of the irregularity has provided for it. Where an instrument providing for penalties is amended, the less severe of the two forms shall be applied with retroactive effect, unless the amended instrument expressly provides otherwise.

TITLE III Checks and inspections on the spot

Article 11

1. Measures providing for checks shall be so determined as to match the specific schemes implemented and shall be in proportion to the objectives pursued.

2. The nature and frequency of the checks and inspections and the procedure for performing them shall be determined in such a way as to ensure effective and uniform application of the material legislation and in particular to allow irregularities to be prevented and detected. Measures providing for checks and inspections shall as far as possible take account of the existing administrative practice and structures in the Member States and shall be determined so as not to entail excessive economic constraints or administrative costs.

3. Checks and inspections performed by the Commission in the exercise of powers conferred on it by specific Community legislation shall be performed by its own staff or by experts duly empowered to act on its behalf. These persons shall be given access to full information, including information obtained by national inspectors, and shall be entitled to take copies of documents, subject to rules of confidentiality applying to judicial proceedings.

All information obtained in the course of the checks or inspections referred to in the first subparagraph shall be subject to business secrecy. It may not be divulged to any persons other than those whose functions give them access to it, nor used for any purposes other than those specified in paragraph 2.

4. Checks and inspections shall be permitted and access to land, premises, means of transport and other places to be visited for the purpose shall be allowed by all natural or legal persons who:

- enjoy a financial benefit, whether directly or indirectly,

- are subject to obligations imposed by Community legislation,

- are parties, directly or indirectly, to operations to which the relevant legislation applies, whether as suppliers, successive consignees, carriers or processors, managers, coordinators or in any other capacity.

5. Where persons to whom paragraph 4 applies refuse to permit checks or inspections to be made, the Member State concerned shall, in accordance with its national procedural rules, provide the Commission staff or experts duly empowered to act on its behalf with such assistance as they may require to enable them to take the measures necessary in order to perform the checks or inspections entrusted to them.

Article 12

This Regulation shall enter into force on the 20th day following that of its publication in the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States.