[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 14.2.2008

SEC(2008) 188

COMMISSION STAFF WORKING PAPER

Annex to the

SECOND REPORT FROM THE COMMISSION

Implementation of the Convention on the protection of the European Communities’ financial interests and its protocols Article 10 of the Convention {COM(2008) 77 final}

1. THE FIRST IMPLEMENTATION REPORT 4

1.1. State of play with ratification of and accession to the Convention on the protection of the European Communities’ financial interests and its protocols 5

1.2. State of play with the Commission’s proposal for a European Parliament and Council Directive on the criminal-law protection of the Community’s financial interests 8

2. DOCUMENTATION GATHERED 9

3. EVALUATION METHOD 12

3.1. Using the established method 12

3.1.1. Assessing national implementing measures 12

3.1.2. Assessing successful establishment of effective EU-wide protection of the Communities’ financial interests 13

3.2. Applying the method to different legal situations across Member States 14

3.3. Using the dispute-settlement mechanisms to enforce the PFI instruments 15

3.3.1. Ensuring ratification 15

3.3.2. Ensuring transposition 16

4. ANALYSIS OF NATIONAL MEASURES TAKEN 17

4.1. Analysis of the general approach to legislative implementation 17

4.1.1. New legislative developments in the EU-15 17

4.1.2. Legislative implementation in the Member States which joined the EU on 1 May 2004 18

4.1.3. Bulgaria and Romania 18

4.2. Assessment of the state of play with overall implementation 19

4.3. Analysis of the implementation of specific provisions 19

5. OFFENCES THAT HAVE TO BE PROVIDED FOR IN SUBSTANTIVE CRIMINAL LAW 20

5.1. Fraud affecting the European Communities’ financial interests 20

5.1.1. Fraud in respect of expenditure (Article 1(1)(a) of the PFI Convention) 20

5.1.2. Fraud in respect of revenue (Article 1(1)(b) of the PFI Convention) 25

5.1.3. Intentional preparation or supply of false, incorrect or incomplete statements or documents (Article 1(3) of the PFI Convention) 28

5.1.4. Penalties (Article 2 of the PFI Convention) 30

5.1.5. Assimilation of Community officials and members of the institutions as regards fraud (Article 4(1), (2) and (3) of the 1st Protocol) 34

5.2. Corruption 35

5.2.1. Passive corruption (Article 2 of the 1st Protocol) 35

5.2.2. Active corruption (Article 3 of the 1st Protocol) 39

5.2.3. Assimilation of members of the institutions as regards corruption (Article 4(2) and (3) of the 1st Protocol) 39

5.2.4. Penalties (Article 5 of the 1st Protocol) 40

5.3. Money laundering (Article 2 of the 2nd Protocol) 42

6. PROVISIONS RELATING TO MORE GENERAL CONCEPTS OF SUBSTANTIVE CRIMINAL LAW 45

6.1. Criminal liability of heads of businesses (Article 3 of the PFI Convention, Article 7(1) of the 1st Protocol and Article 12(1) of the 2nd Protocol) 45

6.2. Liability of legal persons (Articles 3 and 4 of the 2nd Protocol) 47

6.2.1. Liability of legal persons 48

6.2.2. Penalties for legal persons 51

6.2.3. Overall evaluation 52

6.3. Confiscation (Article 5 of the 2nd Protocol) – Annex Table 11 53

7. ELEMENTS USUALLY RELATING TO CRIMINAL PROCEDURE 56

7.1. Jurisdiction 56

7.1.1. Jurisdiction over fraud and money laundering (Article 4 of the PFI Convention, by reference in Article 12(2) of the 2nd Protocol) 56

7.1.2. Jurisdiction over corruption (Article 6 of the 1st Protocol) 59

7.2. Extradition and prosecution (Article 5 of the PFI Convention, by reference in Article 7(1) of the 1st Protocol and Article 12(1) of the 2nd Protocol) 62

7.3. “ Ne bis in idem ” (Article 7 of the PFI Convention, by reference in Article 7(2) of the 1st Protocol and Article 12(1) of the 2nd Protocol) 62

7.4. Preliminary rulings by the Court of Justice of the European Communities on the Convention on the protection of the European Communities’ financial interests and its protocols 64

8. EXPLANATORY NOTES TO THE TABLES 66

9. CONCLUSIONS 66

THE FIRST IMPLEMENTATION REPORT

On 25 October 2004 the Commission adopted a report on implementation by Member States of the Convention on the protection of the European Communities’ financial interests and its protocols.[1] That report took stock of the progress made on protecting the EC’s financial interests in the national criminal law of the Member States before the enlargement of 1 May 2004, in the light of the PFI Convention of 26 July 1995,[2] the 1st Protocol of 27 September 1996,[3] the ECJ Protocol of 29 November 1996[4] and the 2nd Protocol of 19 June 1997[5] (“the PFI instruments”), even if not all the Member States had ratified the 2nd Protocol. The first report was accompanied by a Commission Staff Working Paper (CSWP)[6] which gave a detailed evaluation of the provisions existing in national law to meet the obligations placed on the Member States by the PFI instruments.

Now, three years after the first report and enlargement, the time has come to take a fresh look at the situation with transposition. This CSWP serves the same purpose as the first, namely to supplement the report with a more in depth analysis of the Member States’ implementing legislation. Since it is intended to be a continuation of the 2004 CSWP, it will address three aspects:

- the comments made on the analysis in the first CSWP by the EU-15 Member States, plus developments in the related criminal-law provisions in those Member States since 2004;

- the relevant criminal-law provisions of the ten Member States that joined the EU on 1 May 2004, including an analysis of the existing domestic law in the four Member States that have yet to ratify the PFI instruments (the Czech Republic, Hungary, Malta and Poland);

- the relevant criminal-law provisions of Bulgaria and Romania, which joined the EU on 1 January 2007, although the PFI instruments have not yet entered into force for them.

Evaluation of the criminal law of the acceding Member States, to which the PFI instruments are not yet applicable, is justified because compliance with the PFI instruments as of the date of enlargement was part of the accession negotiations under Chapter 24 (justice and home affairs). It can therefore be reasonably assumed that all the new Member States have the minimum criminal-law provisions necessary for them not only swiftly to ratify the PFI instruments, but also to contribute to the objective of effective and equivalent protection of the EC’s financial interests. In this context, as in the previous CSWP, it seems worth adding that the PFI instruments are based on the idea that any harmonisation would considerably strengthen protection of the Community’s financial interests, which remains difficult due to the fragmentary nature of the European criminal-law enforcement area.

State of play with ratification of and accession to the Convention on the protection of the European Communities’ financial interests and its protocols

The previous CSWP[7] contained a table showing the dates of notification by the EU-15 Member States. An updated table on the state of play with ratification now has to take into account not only enlargement, but also other developments:

- As regards the EU-15, Luxembourg[8] and Austria[9] have ratified the 2nd Protocol in the mean time. The only Member State which still has not ratified the 2nd Protocol is Italy, whose government approved, on 16 November 2007, a bill to start the legislative procedure for ratification of the 2nd Protocol.

- Under the first indent of Article 3(4) of the 2003 Act of Accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia,[10] those Member States undertook to accede to the conventions or instruments in the field of justice and home affairs drawn up in accordance with Title VI of the EU Treaty. These include the PFI instruments, which contain specific provisions on accession (Article 12 of the PFI Convention, Article 10 of the 1st Protocol, Article 6 of the ECJ Protocol and Article 17 of the 2nd Protocol). In the mean time Cyprus, Latvia, Lithuania, Slovenia and Slovakia have acceded to all the PFI instruments. Estonia has acceded to all but the ECJ Protocol. Notification of accession has still not been received from the Czech Republic, Hungary, Malta and Poland.

- The 2005 Act of Accession of Bulgaria and Romania[11] introduced a simplified system for the accession of these two Member States to certain conventions and protocols, including the PFI instruments.[12] Article 3(3) of the Act of Accession simply provides that Bulgaria and Romania accede to these conventions and protocols by virtue of the Act of Accession itself.

It is important to distinguish between ratification and entry into force:

- The situation for the EU-15 is unchanged: for all of them the PFI Convention, the 1st Protocol and the ECJ Protocol entered into force on 17 October 2002. The 2nd Protocol has not yet entered into force due to the non-ratification by Italy, which was a member of the EU at the time of adoption of the Council Act drawing up the 2nd Protocol.

- For the Member States which joined the EU on 1 May 2004, the PFI Convention, the 1st Protocol and the ECJ Protocol entered into force within 90 days after deposit of the instrument of accession with the Secretary-General of the Council by the acceding Member State concerned. For those which have already ratified the 2nd Protocol, it will enter into force on the same date as for the EU-15. For those which have yet to accede to the 2nd Protocol, its entry into force with respect to them will depend on whether or not Italy has ratified it in the mean time.

- Differently, for Bulgaria and Romania, the Council has adopted Decision 2008/40/JHA according to Article 3(4) of the 2005 Act of Accession.[13] Article 2(1) of that Decision sets the 6 December 2007 as date on which the PFI Convention, the 1st Protocol and the ECJ Protocol entered into force for Bulgaria and Romania. Entry into force of the 2nd Protocol with respect to them will depend on the entry into force with regard to Italy according to Article 2(2) of Decision 2008/40/JHA.

The updated table displays the dates of notification of ratification by the Member States, indicating in italics the dates of entry into force for each of the Member States which joined the EU on 1 May 2004:

Table 1: Dates of notification on completion of constitutional requirements for adopting the PFI instruments per Member State |

PFI Convention (signed 26.7.1995; entered into force 17.10.2002) Date of notification in accordance with Article 11(2). For Member States which joined on or after 1 May 2004, date of notification in accordance with Article 12(3). The date of entry into force is indicated in italics. | 1st Protocol (signed 27.9.1996; entered into force 17.10.2002) Date of notification in accordance with Article 9(2). For Member States which joined on or after 1 May 2004, date of notification in accordance with Article 10(3). The date of entry into force is indicated in italics. | ECJ Protocol (signed 29.11.1996; entered into force 17.10.2002) Date of notification in accordance with Article 4(2). For Member States which joined on or after 1 May 2004, date of notification in accordance with Article 5(2). The date of entry into force is indicated in italics. | 2nd Protocol (signed 19.6.1997; not yet entered into force) Date of notification in accordance with Article 16(2). For Member States which joined on or after 1 May 2004, date of notification in accordance with Article 17(3). |

Belgium | 12.3.2002 | 12.3.2002 | 12.3.2002 | 12.3.2002 |

Bulgaria | 6.12.2007 according to Article 2(1) of Council Decision 2008/40/JHA (1.1.2008) | Date of entry into force according to Article 2(2) of Council Decision 2008/40/JHA. |

Czech Republic | Not yet acceded | Not yet acceded | Not yet acceded | Not yet acceded |

Denmark | 2.10.2000 | 2.10.2000 | 2.10.2000 | 2.10.2000 |

Germany | 24.11.1998 | 24.11.1998 | 3.7.2001 | 5.3.2003 |

Estonia | 3.2.2005 (4.5.2005) | 3.2.2005 (4.5.2005) | Not yet acceded | 3.2.2005 |

Ireland | 3.6.2002 | 3.6.2002 | 3.6.2002 | 3.6.2002 |

Greece | 26.7.2000 | 26.7.2000 | 26.7.2000 | 26.7.2000 |

Spain | 20.1.2000 | 20.1.2000 | 20.1.2000 | 20.1.2000 |

France | 4.8.2000 | 4.8.2000 | 4.8.2000 | 4.8.2000 |

Italy | 19.7.2002 | 19.7.2002 | 19.7.2002 | Not yet ratified |

Cyprus | 31.3.2005 (29.6.2005) | 31.3.2005 (29.6.2005) | 31.3.2005 (29.6.2005) | 31.3.2005 |

Latvia | 31.8.2004 (30.11.2004) | 31.8.2004 (30.11.2004) | 31.8.2004 (30.11.2004) | 19.10.2005 |

Lithuania | 28.5.2004 (26.8.2004) | 28.5.2004 (26.8.2004) | 28.5.2004 (26.8.2004) | 28.5.2004 |

Luxembourg | 17.5.2001 | 17.5.2001 | 17.5.2001 | 13.7.2005 |

Hungary | Not yet acceded | Not yet acceded | Not yet acceded | Not yet acceded |

Malta | Not yet acceded | Not yet acceded | Not yet acceded | Not yet acceded |

Netherlands | 16.2.2001 | 28.3.2002 | 16.2.2001 | 28.3.2002 |

Austria | 21.5.1999 | 21.5.1999 | 21.5.1999 | 20.7.2006 |

Poland | Not yet acceded | Not yet acceded | Not yet acceded | Not yet acceded |

Portugal | 15.1.2001 | 15.1.2001 | 15.1.2001 | 15.1.2001 |

Romania | 6.12.2007 according to Article 2(1) of Council Decision 2008/40/JHA (1.1.2008) | Date of entry into force according to Article 2(2) of Council Decision 2008/40/JHA. |

Slovenia | 17.4.2007 (16.7.2007) | 17.4.2007 (16.7.2007) | 17.4.2007 (16.7.2007) | 17.4.2007 |

Slovakia | 30.9.2004 (21.12.2004) | 30.9.2004 (21.12.2004) | 30.9.2004 (21.12.2004) | 30.9.2004 |

Finland | 18.12.1998 | 18.12.1998 | 18.12.1998 | 26.2.2003 |

Sweden | 10.6.1999 | 10.6.1999 | 10.6.1999 | 12.3.2002 |

UK | 11.10.1999 | 11.10.1999 | 11.10.1999 | 11.10.1999 |

State of play with the Commission’s proposal for a European Parliament and Council Directive on the criminal-law protection of the Community’s financial interests

In 2001, frustrated with the delays in ratification of the PFI instruments, the Commission proposed a Directive on the criminal-law protection of the Community’s financial interests on the basis of Article 280 of the EC Treaty.[14] Following the opinion of the European Parliament, adopted on first reading on 29 November 2001,[15] and the opinion of the Court of Auditors, adopted on 8 November 2001,[16] the Commission presented an amended proposal for a Directive.[17] The proposal incorporates all the provisions of the PFI instruments relating to the definitions of offences, liability, penalties and cooperation with the Commission and is intended to offer the benefits that go with Community legislation.

After finding that so far not even the PFI instruments have resulted in effective and equivalent criminal-law protection of the EC’s financial interests, the first report asked the Council to work towards adopting a common position on the amended proposal for a Directive on the criminal-law protection of the Communities’ financial interests on the basis of Article 280 of the EC Treaty. The legislative procedure has been stalled ever since 2003.

Since the previous CSWP, the situation with regard to the PFI instruments has – at least formally – not improved: the 2nd Protocol has not yet entered into force and four acceding Member States still have not started the formal ratification procedure for the PFI instruments. De facto the current system of protection, based on conventions, creates a multi-speed situation. It results in a mixture of different legal situations in terms of the binding effect of the PFI instruments in the individual Member States’ internal legal order. This situation does not produce the desired effective and dissuasive criminal-law protection. The harmonisation objective of the PFI instruments has therefore still not been formally achieved for all 27 Member States. Politically, the need for a Directive on criminal-law protection of the Communities’ financial interests therefore persists.

In the mean time, a new development occurred in the form of the European Court of Justice (ECJ) judgment of 13 September 2005 in case C-176/03 Commission v Council [18] relating to Council Framework Decision 2003/80/JHA.[19] The judgment refers explicitly to Article 280(4) of the EC Treaty, stating that it is not possible to infer from this provision that any harmonisation of criminal law must be ruled out where it is necessary in order to ensure the effectiveness of Community law. However, the PFI instruments are not directly called into question as a result of the judgment as they had already been adopted before the introduction of Article 280(4) of the EC Treaty.

Instead, that judgment underpins the Commission’s argument in favour of its proposal, as expressed in the Commission Communication on the Court’s judgment.[20] In the wake of that judgment, the European Parliament rightly called upon the Council “to abandon its rejectionist stance on strengthened protection for the Community’s financial interests through criminal law measures and to move to the first-reading stage”.[21]

DOCUMENTATION GATHERED

Member States discussed the findings of the first report and the related CSWP at a meeting of the Council Working Group on Substantial Criminal Law on 30 May 2005. The Council Working Group decided not to draw up conclusions for the Council on the report. In the discussions Member States asked the Commission to have more trust in them insofar as application of the general principles of national criminal law are concerned, since it is up to the Member States to see how to implement the PFI instruments, as it is up to their judges, when interpreting national legislation, to take due account of European legislation. While respecting the discretion of Member States with regard to their own criminal-law systems, these general principles are, however, part of the overall objective of approximating criminal provisions in order to ensure better cooperation between different judicial authorities on protection of the Communities’ financial interests.

Following up the first round of evaluation, Germany, Luxembourg, Austria, Portugal, Sweden, Finland and the UK contacted the Commission, either by sending their comments on the findings of the previous CSWP or by meeting the officials responsible to explain their point of view on the evaluation of their criminal law. Furthermore, national governments also invited the Commission to contribute to ongoing legislative work that could improve compliance with the PFI instruments at working level.

When launching the preparatory work on this CSWP, in September 2006 the Commission sent a letter to the Member States which joined the EU on 1 May 2004, asking them to supply documentation, as provided for by Article 10 of the PFI Convention. At the same time, the Commission invited the EU-15 Member States to submit comments on the first report and CSWP or new legislative material. In May 2007 the Commission also invited Bulgaria and Romania to contribute to this second round of evaluation.

The documentation which the Commission asked the Member States to supply is the main, though not the only, source of information for the analysis. The Commission also took into account, where appropriate, the information contained in the documents sent by the Member States to the Commission with a view to preparing the annual report on the measures taken to implement Article 280(5) of the EC Treaty.

As in the previous CSWP, the value of the analysis depends largely on the quality of the national information. Information provided up to October 2007 and, in exceptional cases, up to November 2007 has been taken into account. The analysis therefore takes stock of implementation based on the legislation forwarded to the Commission by that date. The tables in the Annexes specify, according to the information received by the Commission, the known national provisions transposing the relevant articles in the PFI instruments. The table below briefly indicates the documentation which Member States made available to the Commission.

Table 2: Transmission to the Commission of the texts transposing into domestic law the obligations imposed on Member States under the PFI instruments, by Member State (Transmission in accordance with Article 10 of the PFI Convention, also referred to, as applicable, in Article 7(2) of the 1st Protocol and Article 12(1) of the 2nd Protocol) |

Date of latest transmission | Comments |

Belgium | 2.4.2004 | Since the first report, Belgium has transmitted no further comments or texts. |

Bulgaria | 29.7.2007 | In response to the Commission’s letter of May 2007, Bulgaria provided a short summary of the applicable provisions and the relevant legal texts. |

Czech Republic | 30.11.2006 | In response to the Commission’s letter of September 2006, the Czech Republic provided a short summary of the applicable provisions and the relevant legal texts. |

Denmark | 3.12.2003 | Since the first report, Denmark has transmitted no further comments or texts. However, it informed the Commission about the revision of the relevant offences in its Criminal Code in the 2005 annual report under Article 280(5) of the EC Treaty. |

Germany | 4.7.2007 | Germany contacted the Commission on its own initiative and met Commission representatives about the previous CSWP. It also submitted a document. In response to the Commission’s letter of September 2006, it submitted information about the ongoing revision of the relevant offences in its Criminal Code. |

Estonia | 8.12.2006 | In response to the Commission’s letter of September 2006, Estonia provided a short explanation of the applicable provisions and the relevant legal texts. |

Ireland | 15.12.2003 | Since the first report, Ireland has transmitted no further comments or texts. |

Greece | 6.12.2006 | In response to the Commission’s letter of September 2006, Greece submitted a document on the previous CSWP and information about the ongoing revision of the relevant offences in its Criminal Code. |

Spain | 20.12.2006 | In response to the Commission’s letter of September 2006, Spain submitted a document on the previous CSWP and information about the ongoing revision of the relevant offences in its Criminal Code. |

France | 8.11.2006 | In response to the Commission’s letter of September 2006, France submitted a document on the previous CSWP and information about the ongoing revision of the relevant offences in its criminal legislation. |

Italy | 6.11.2006 | In response to the Commission’s letter of September 2006, Italy submitted comments on the previous CSWP. |

Cyprus | 12.6.2007 | In response to the Commission’s letter of September 2006, Cyprus transmitted the Law on ratification of the PFI instruments. |

Latvia | 28.5.2005 | Latvia submitted the implementing legislation on its own initiative. In response to the Commission’s letter of September 2006, Latvia provided a short explanation and additional information on some points to be clarified. |

Lithuania | 29.12.2006 | In response to the Commission’s letter of September 2006, Lithuania provided a short explanation of the applicable provisions and the relevant legal texts. |

Luxembourg | 30.11.2006 | Luxembourg transmitted information on ratification of the 2nd Protocol on its own initiative. In response to the Commission’s letter of September 2006, it submitted additional information and the relevant legal texts. |

Hungary | 8.2.2007 | In response to the Commission’s letter of September 2006, Hungary provided a short explanation of the applicable provisions and the relevant legal texts. |

Malta | - | Malta has transmitted no comments or texts. |

Netherlands | 5.3.2007 | In response to the Commission’s letter of September 2006, the Netherlands submitted a document on the previous CSWP and relevant background information. |

Austria | 17.11.2006 | Austria submitted a document on the previous CSWP on its own initiative. In response to the Commission’s letter of September 2006, it transmitted information on ratification of the 2nd Protocol. |

Poland | 12.12.2006 | In response to the Commission’s letter of September 2006, Poland provided a short explanation of the applicable provisions and the relevant legal texts. |

Portugal | 12.7.2005 | Portugal submitted comments on the previous CSWP on its own initiative. |

Romania | 4.10.2007 | In response to the Commission’s letter of May 2007, Romania provided a short summary of the applicable provisions and the relevant legal texts. |

Slovenia | 24.11.2006 | In response to the Commission’s letter of September 2006, Slovenia transmitted the applicable provisions and the relevant legal texts. |

Slovakia | 24.5.2007 | In response to the Commission’s letter of September 2006, Slovakia provided a short explanation of the applicable provisions and the relevant legal texts. Slovakia also met Commission representatives to explain its national implementing legislation better. |

Finland | 1.7.2005 | Finland submitted comments on the previous CSWP on its own initiative. |

Sweden | 16.5.2006 | Sweden submitted comments on the previous CSWP and information about new legislative developments of relevance to the offences covered by the PFI instruments on its own initiative. |

UK | 8.3.2007 | As regards England and Wales, the UK contacted the Commission on its own initiative and met Commission representatives about the previous CSWP. It also submitted a document. The UK consulted the Commission on legislative initiatives on fraud and corruption. It also informed the Commission about new legislative developments of relevance to the offences covered by the PFI instruments. |

EVALUATION METHOD

Using the established method

This analysis supplements the second report, just as the previous CSWP did the first report. For reasons of consistency and of fairness to the acceding Member States, the same method applies as that developed and used in the previous CSWP for evaluating implementation by Member States. That method consists of two elements: first assessing national implementing measures and then evaluating the contribution made by the national measures to successful establishment of effective EU-wide protection of the Communities’ financial interests. For easier reference, the main elements of the two assessment steps are briefly reiterated below.

Assessing national implementing measures

The general criteria developed with respect to directives and framework decisions are also applied to the PFI instruments:

1. The form and methods of implementation of the result to be achieved must be chosen in a manner which ensures that the legal instrument functions effectively with account being taken of its aims;[22]

2. Each Member State is under an obligation to implement the instruments in a manner which satisfies the requirements of clarity and legal certainty and thus to transpose the provisions into mandatory national provisions.[23] In the specific field of criminal law, besides formal legality, conformity with the European approach to criminal law[24] demands that offences be accessible, precise and have foreseeable consequences, which also implies that the provisions concerned be interpreted strictly, in particular with regard to the prohibition of applying analogy in criminal law;

3. Transposition need not necessarily require enactment in precisely the same words in an express legal provision; thus a general legal context (such as appropriate existing measures) may be sufficient. However, full application of the legal instrument must be ensured in a sufficiently clear and precise manner.[25]

In accordance with established case law regarding Directives, it is important to determine the nature of each provision of the PFI instruments in order to gauge the extent of the obligation for implementation.[26] For compliance, it is essential that the legal situation resulting from national implementing measures be sufficiently precise and clear to enable individuals to know the extent of their rights and obligations.

One of the specific features of the PFI instruments is that some of their provisions require the necessary implementing measures to be taken “in accordance with the principles defined by ... national law”, either explicitly, as in Article 3 of the PFI Convention, or implicitly, for instance for Articles 1(3), 2(1) and 4(1) of the PFI Convention.[27] The reference to principles defined by national law aims to respect the different dogmatic foundations of criminal law in the Member States, particularly in the context of those provisions that touch on general aspects of substantive criminal law, such as the rules on participation and attempts. Where Member States are allowed to transpose obligations imposed by the PFI instruments in accordance with the principles defined by their national law, they are not automatically dispensed from taking any implementing action. Whether the Member States complied with the relevant obligations under the PFI instruments can only be assessed in terms of whether the result to be achieved is actually ensured.

Although the Commission notes the Member States’ criticism that it should trust the working of the general principles of the national criminal law systems, this does not exclude evaluation of whether an equivalent level of criminal-law protection is attained. Member States may not argue that there is no need at all to amend their existing national law purely on the grounds of their general principles as long as the PFI instruments clearly provide for minimum harmonisation.

Assessing successful establishment of effective EU-wide protection of the Communities’ financial interests

Besides implementing individual provisions from the PFI instruments, national law must also comply with their general purpose of effective and equivalent protection of the financial interests of the Communities throughout the EU.

One useful tool to measure attainment of effective and equivalent protection of the financial interests of the Communities is to assess whether the shortcomings identified by the “Delmas-Marty report”[28] have been removed. The Delmas-Marty report was drafted in the wake of the Council resolution of 13 November 1991[29] in order to help draft the PFI instruments. That report indicated a need to reduce differences between domestic legislation, since criminal organisations committing transnational illegalities affecting the Communities’ financial interests exploit these differences to go unpunished. It asked for greater convergence in the manner in which the Member States’ criminal laws apprehend forms of illegal activities directed against the European Communities.

Applying the method to different legal situations across Member States

In the wake of enlargement, a mixture of different legal situations across Member States with regard to the PFI instruments has been created:

- For the EU-15, the evaluation in the previous CSWP remains valid in principle, unless the legislation has been amended or subject to case law handed down in the mean time or, as is the case for Austria and Luxembourg, the 2nd Protocol was ratified and implemented. Consequently, all that needs to be done is to add these developments to the evaluation.

- Within the Member States which acceded to the EU on 1 May 2004, the Member States which have ratified some or all of the PFI instruments are evaluated for the first time. The domestic law already existing in those Member States that have not ratified any of the PFI instruments is also analysed.

- Finally, for Bulgaria and Romania, the domestic law already existing to transpose the PFI instruments is also attached and analysed, since Council Decision 2008/40/JHA ensured the entry into force of the PIF Instruments apart from the 2nd Protocol for Bulgaria and Romania, .

At the end of the sections on the main provisions of the PFI instruments, a table gives an overview of the Member States which are considered to have completely or almost completely transposed the provision and of those assumed to have carried out no transposition or on which further information would be needed in order to ascertain whether their level of transposition is sufficient. However, the table is limited to the EU-15, with the exception of Italy for the 2nd Protocol, plus the “new” Member States which have acceded to the PFI instruments, except for Bulgaria and Romania due to the extremely short delay of entry into force of the PFI instruments for them on the basis of Council Decision 2008/40/JHA. The tables also draw a distinction between these two groups, since the EU-15 have already had an opportunity to hear the views of the Commission from the first report. At the very end, additional information on the other Member States is given to show where those to which the PFI instruments are not yet applicable stand.

In this context, it should be underlined that the evaluation is not complete on some aspects, on which further case law or legislative developments can be expected. Consequently, all the conclusions are preliminary and subject to revision. This is particularly true for the assimilation provisions in Article 4 of the 1st Protocol, where the Commission will closely monitor future legislative developments.

Using the dispute-settlement mechanisms to enforce the PFI instruments

Ensuring ratification

It appears worth tackling the delay in ratification of the 2nd Protocol to the PFI Convention and accession to the PFI instruments by the Member States which joined the EU on 1 May 2004.

The Council, the European Parliament and the Commission have repeatedly invited Member States to ratify the 2nd Protocol without delay.[30] In 2006 the Commission addressed Italy specifically as the only EU-15 State that has still not ratified the 2nd Protocol.

This situation is undermining the desired effective and dissuasive protection of the EC’s financial interests in criminal law, within the framework established by all the PFI instruments. Due to its non-ratification, Italy is indirectly impeding completion of the legal framework established by the PFI instruments, not only as regards the liability of legal persons but also with regard to the provisions on information exchange. Article 280 of the EC Treaty places an obligation on Member States to coordinate their action aimed at protecting the financial interests of the Community against fraud. It is, in the present case, against the idea of solidarity for one Member State to hold back, for a long time, entry into force of a unanimously agreed legal instrument across the EU as a whole, if this instrument is a necessary measure contributing to the fundamental aim of protecting the Communities’ financial interests. This is, in particular, the case for the 2nd Protocol, which the Council considered “ necessary … to improve the effectiveness of protection under criminal law of the European Communities’ financial interests”. [31] An unreasonable delay in ratification or accession is impeding attainment of the aims pursued by Article 280 of the EC Treaty.

For the EU-15 and for the Member States which joined the EU on 1 May 2004 Article 280 of the EC Treaty is applicable and enforceable as of the date of accession. In any case, an obligation exists to ratify and accede to the PFI instruments within a reasonable time .

This applies to the 2nd Protocol for EU-15 Member States and to the PFI instruments for newly acceded Member States alike. The lack of entry into force of the 2nd Protocol is indirectly impeding completion of the legal framework established by the PFI instruments to provide for effective and equivalent criminal-law protection of the Community’s financial interests. The delay by some Member States which joined the EU on 1 May 2004 creates an unbalanced level of protection within the EU in terms of the binding effect of the PFI instruments.

Ensuring transposition

The PFI instruments were drawn up in accordance with the Maastricht version of the EU Treaty. At that time, the ECJ had no general jurisdiction over application of third-pillar conventions. As an exception to the rules applicable under the Maastricht Treaty at that time, Article 8(2) of the PFI Convention, Article 8(2) of the 1st Protocol and Article 13(2) of the 2nd Protocol state that, on Articles 1 and 10 of the PFI Convention, Articles 1(a) and (b), 2, 3 and 4 of the 1st Protocol and Articles 2, 7, 8, 10 and 12(2), fourth indent of the 2nd Protocol, jurisdiction is given to the ECJ to settle any persistent dispute between the Commission and one or more Member States on application of material provisions in the PFI instruments.

Article 35(7) of the EU Treaty, as amended by the Treaty of Amsterdam, provides for the possibility for the Commission to bring a legal action regarding interpretation and application of conventions established under Article 34(2)(d) of the EU Treaty before the ECJ. The question is whether the subsequent amendment of the EU Treaty by the Treaty of Amsterdam and the related extension of the ECJ’s jurisdiction would allow the Commission to use the dispute-settlement provisions not only as regards implementation of the provisions specifically included in the PFI instruments, but also for all other provisions in the PFI instruments. The additional jurisdiction of the ECJ would therefore extend to implementation of the obligation to provide for, for instance, criminal liability of heads of businesses and the aspects of procedural law.

In the Commission’s view, the acceptance by the Member States of a wider dispute-settlement system, including jurisdiction of the ECJ in the Treaty of Amsterdam, also extends to instruments drafted and adopted before that Treaty entered into force. Since jurisdiction is a procedural issue, it is not connected to the time when a legal act that could be subject to such a procedure was drawn up. At the time when the Treaty of Amsterdam was drafted, the PFI instruments had yet to enter into force but the Member States were well aware of the consequences of extending jurisdiction. Should the Member States, when drafting that Treaty, have wanted to avoid such an extension of jurisdiction to previous instruments, it would have been sufficient to state so explicitly in the relevant provision in the Treaty or to include a transition provision.

The Commission will consider triggering the dispute-settlement procedure for promoting ratification under the EC Treaty and under Article 8(2) of the PFI Convention, depending on whether Member States take positions diverging from the outcome of this analysis on application of the relevant provisions in the PFI instruments.

The EU-15 Member States are already aware of the Commission’s views, from the previous CSWP in 2004. The dispute-settlement system available may help to remove the shortcomings identified, if these persist according to the detailed analysis below. Specific measures to ensure compliance with the PFI instruments, both formally and materially, will be proposed at the end of the CSWP.

ANALYSIS OF NATIONAL MEASURES TAKEN

Analysis of the general approach to legislative implementation[32]

New legislative developments in the EU-15

The main development since 2004 has been ratification of the 2nd Protocol by Luxembourg and Austria. In Luxembourg , the ratifying law of 23 May 2005 also introduced the related amendments to the Criminal Code. In addition, the law of 1 August 2007 introduced provisions extending the possibilities for confiscation. Austria enacted a comprehensive law on the criminal liability of legal persons in 2005 and afterwards ratified the 2nd Protocol. Italy remains the only Member State which has still not ratified the 2nd Protocol. However, Italian Law No 2006/146 has put in place most of the required provisions of the 2nd Protocol, such as those on money laundering and on the liability of legal persons. In principle, Italy seems to comply with the majority of the requirements under the 2nd Protocol and could ratify it without any need for further substantial amendments to its criminal law.

Developments were also reported in criminal law in the other EU-15 Member States. In Belgium the law of 11 May 2007 amended the criminal and procedural provisions relating to corruption in order to extend their scope to officials of foreign countries and international organisations beyond the EU. Denmark amended the offence of EU fraud by Law No 366 of 24 May 2005 and rendered application thereof more comprehensible for all forms of fraudulent behaviour. Greece extended the list of predicate offences in its money laundering provision in Law No 3424/2005. France amended the liability of legal persons to render them liable for all criminal offences under French legislation by Law No 2004-204. With a view to complying with France’s obligations under international law, Law No 2007-1598 made further amendments to the criminal and procedural provisions relating to corruption. With Law No 59/2007 Portugal also reformed its Criminal Code to provide for the liability of legal persons for all offences in its legislation. Sweden likewise amended its rules on the liability of legal persons in 2005. In 2006 the UK enacted a Fraud Act applicable to England, Wales and Northern Ireland. The Fraud Act is a major reform of the English criminal-law system which, amongst other things, introduced anew the general offence of fraud.

Reforms of the rules on corruption offences are currently underway in Germany , Austria and the UK , mainly with the intention of making them applicable to all officials of foreign countries and international organisations. The governments of Spain and Luxembourg are working on introducing criminal liability of legal persons in their legal systems. The Spanish proposal also envisages a reform of certain provisions relating to fraud and corruption offences.

Table 3: EU-15 Member States – new developments with regard to the PFI instruments |

Amendments of criminal law since the first report (2004) | Proposals for amendments of criminal law since the first report (2004 ) | No changes |

Belgium, Denmark, Greece, France, Italy, Luxembourg, Portugal, Sweden and the UK | Spain, Luxembourg (liability of legal persons), Germany, Austria and the UK (corruption) | Ireland, the Netherlands and Finland |

Legislative implementation in the Member States which joined the EU on 1 May 2004

Of the “new” Member State which have acceded to the PFI instruments, Cyprus is the only one to have implemented and ratified the PFI instruments at once by enacting a new law. Estonia and Latvia have enacted new Criminal Codes that allow them to take the requirements of the PFI instruments into account. Lithuania , Slovenia and Slovakia amended their Criminal Codes before accession insofar as they considered necessary for compliance and ratified the PFI instruments separately after enlargement.

Whereas Hungary , Malta and Poland have already amended their criminal law to bring it into compliance with the PFI instruments in order to be ready to ratify them, the Czech Republic has not yet amended its Criminal Code and needs to do so at the time of ratification. In fact, the whole of Czech criminal law is currently subject to a reform.

In all these Member States, except Cyprus, the offences transposing the PFI instruments are generally to be found in the Criminal Codes. Whereas Cyprus provides for an offence of fraud concerning the EC’s financial interests in its ratifying law, Hungary and Slovakia provide for such a specific fraud offence in their Criminal Code. In Estonia and Malta some offences relating to taxes and customs fraud may also be found in sectoral legislation. In Poland the offences transposing the PFI instruments are to be found in the general Criminal Code and in a specific Fiscal Criminal Code. In Cyprus and Malta money laundering is regulated by a separate law.

Table 4: Member States which joined on 1 May 2004 by chosen method of implementation (those which have not ratified are indicated in italics) |

Member States which have introduced a completely new criminal offence based on the PFI instruments | Member States which have amended their criminal law partially in order to implement the PFI instruments | Member States which have taken no implementing measures |

Cyprus, Hungary and Slovakia (the latter two in their Criminal Code) | Lithuania, Malta, Poland and Slovenia | Czech Republic, Estonia and Latvia |

Bulgaria and Romania

The simplified system provided for in the 2005 Act of Accession ensures accession to these conventions and protocols by virtue of the Act of Accession itself, Council Decision 2008/40/JHA serves merely to set the date of entry into force. Despite this direct route to accession:

Bulgaria adopted a ratification law in accordance with its own constitutional requirements. This ratification law did not alter Bulgaria’s criminal law in the light of accession. Instead, Bulgaria had already amended its Criminal Code before accession in order to ensure compliance with the PFI instruments.

Romania did the same, i.e. it amended its Law No 78/2000 on preventing, discovering and sanctioning corruption ahead of accession with a view to compliance with the PFI instruments.

Assessment of the state of play with overall implementation

The Commission appreciates that 10 of the EU-15 Member States have made further efforts to improve their implementation of the PFI instruments, even if mostly linked to their other international law obligations. They have thereby partially overcome the lack of transposition identified in the previous CSWP.

Although none of the PFI instruments expressly requires them, specific offences for fraud, and even for active and passive corruption and money laundering, offer advantages. Besides Greece and Ireland, Cyprus now also provides for a set of specific new criminal offences with a view to protecting the EC’s financial interests. In the analysis for the previous CSWP,[33] the Commission noted that “codified” national legislation with regard to the PFI instruments made it easier to provide clear references to the applicable legal provisions and a full understanding of the conduct constituting the offence. Denmark , Hungary and Slovakia provide for a separate offence of fraud against the Communities’ financial interests. In Denmark and Ireland these fraud offences are formulated in such a manner that they apply, in a subsidiary way, to existing fraud offences. Italy and Austria also partially provide for offences shaped to protect only the Communities’ financial interests, for instance in the field of agricultural subsidies (Italy) or export refunds (Austria). As in its previous CSWP,[34] the Commission still believes that such specific offences remain desirable as a means of facilitating inquiry and prosecution.

Analysis of the implementation of specific provisions

As in the previous CSWP, transposition of each specific provision of the PFI instruments will now be analysed. However, the analysis does not take the articles of the PFI instruments in numerical order but examines first the offences that have to be provided for in substantive criminal law, then the provisions relating to more general concepts of substantive criminal law and, finally, those relating to criminal procedure.

Furthermore, the measures implementing each of the provisions of the PFI instruments are structured on the basis of:

- whether there are new developments and comments to be taken into account as regards the EU-15;

- what is the state of play with implementation in the Member States which joined on or after 1 May 2004, i.e. including Bulgaria and Romania, by establishing groups of Member States that take similar approaches; and

- the overall picture for the EU as a whole based on the criteria applied in the previous CSWP.

OFFENCES THAT HAVE TO BE PROVIDED FOR IN SUBSTANTIVE CRIMINAL LAW

Fraud affecting the European Communities’ financial interests

The definition of fraudulent conduct in Article 1 of the PFI Convention is the key to ensuring a common minimum level of criminal-law protection against fraud. To cover various types of fraud, Article 1(1) of the PFI Convention lays down two separate but matching definitions, one applying to expenditure, the other to revenue.

Fraud in respect of expenditure (Article 1(1)(a) of the PFI Convention)[35]

The PFI Convention defines fraud in respect of expenditure as three different forms of conduct, namely:

4. use or presentation of false, incorrect or incomplete statements or documents;

5. non-disclosure of information in violation of a specific obligation; and

6. misapplication of funds.

State of play with implementation in the EU-15 – Developments since the first report

As regards fraud in respect of expenditure, Denmark and two jurisdictions within the UK – England & Wales and Northern Ireland – have amended the applicable provisions since 2004. Denmark made the specific offence of fraud against the EC’s financial interests applicable in a subsidiary way to other fraud offences in Danish criminal law. By contrast, for its jurisdictions of England & Wales and Northern Ireland, the UK completely revised the applicable law, by introducing a general fraud offence with the Fraud Act 2006. This offence covers all forms of public and private expenditure and may take three different forms, similar to those provided for in Article 1(1)(a) of the PFI Convention. Section 2 of the same Act covers fraud in the form of false presentation, Section 3 non-disclosure of information and Section 4 abuse of position.

The Netherlands, Germany, Austria, Portugal, Sweden and the UK (for the jurisdiction of Scotland) commented on the findings of the previous CSWP[36] on fraud in respect of expenditure. The Netherlands, Portugal and Sweden argued that compliance in their countries does not fall short in that misapplication of funds does not cover all kinds of expenditure, given that, firstly, the concept “subsidy” is widely interpreted and, secondly, subsidiary offences give rise to criminal liability in cases of misapplication of funds for expenditure other than grants.

Germany and Austria explained that it is inconceivable to commit fraud without the additional subjective element of enrichment provided for in their criminal law. However, this argument is flawed in view of the fact that Germany and Austria alike do not require this element in connection with general subsidy fraud under German criminal law or the specific fraud against export refunds under the Austrian criminal law. The impact of this argument on the Communities’ financial interests, however, differs between Germany and Austria. Whereas Germany provides for a general offence of subsidy fraud applicable to most EC expenditure, Austria relies on the general fraud offence, except in the case of misapplication of funds. Consequently, Austrian law requires proof of intent to gain enrichment in the majority of fraud cases relating to expenditure of the Communities.

As regards the jurisdiction of Scotland, the UK explained that the common law offence of fraud and embezzlement also applies in case of violation of a contractual or statutory obligation to disclose.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of use or presentation of false, incorrect or incomplete statements or documents

Fraud affecting the Communities’ expenditure committed in the form of use or presentation of false, incorrect or incomplete statements or documents is a specific offence in Cyprus, Slovakia and, although it has not yet ratified the PFI instruments, Hungary. The wording of the offence in Hungary refers to “assistance” and thus leaves open whether all forms of expenditure are covered.

Estonia, Latvia, Lithuania and Slovenia and, of the States yet to accede to the PFI Convention, the Czech Republic, Malta and Poland have enacted specific offences of fraud affecting public entities’ expenditure. In the Czech Republic, the offence requires provision of factually false or severely distorted information, with the result that a simply incomplete statement is not sufficient. In Latvia, Lithuania and Poland, subsidy fraud requires additional elements – a subjective one in Latvia, that is knowingly providing false information, and an objective one in Lithuania, that is the misleading nature of the information, and also in Poland, where the statement must be made in writing.

In all these Member States, a subsidiary general offence of fraud applies to supplement subsidy fraud in cases where the expenditure was not drawn as a grant. In Estonia and Latvia this subsidiary offence requires the additional subjective element of knowingly causing misconception of existing facts. The subsidiary general offence of fraud in the Czech Republic, Lithuania and Poland requires the additional element of enrichment.

Bulgaria, in its Criminal Code, and Romania, in Law No 78/2000 on preventing, discovering and sanctioning corruption, provide for a specific offence of fraud affecting the Communities’ expenditure committed in the form of use or presentation of false, incorrect or incomplete statements or documents.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of non-disclosure of information in violation of a specific obligation

The situation as regards fraudulent conduct affecting the Communities’ expenditure committed in the form of non-disclosure of information in violation of a specific obligation is, in principle, similar to the situation with fraud in the form of use or presentation of false, incorrect or incomplete statements or documents, in particular in Member States, such as Cyprus, Hungary and Slovakia, which provide for one specific offence for all kinds of fraudulent conduct affecting the European Communities’ expenditure, including omissions.

Estonia, Latvia, Lithuania, Slovenia and, of the States which have not yet ratified the PFI instruments, Malta cover subsidy fraud and general fraud through omission by the same provision as fraud in the form of use or presentation of false, incorrect or incomplete statements or documents. Poland provides for non-disclosure as a specific, alternative offence.

In the Czech Republic subsidy fraud by omission is committed only if important facts are withheld.

The specific offences contained in Bulgarian and Romanian criminal law also cover fraudulent conduct affecting the Communities’ expenditure in the form of non-disclosure of information in violation of a specific obligation.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of misapplication of funds

As regards expenditure, misapplication of funds consists of misuse of funds which, although legally obtained, may subsequently have been wasted or used for purposes other than those for which they were granted.[37]

In Cyprus, Slovakia and Hungary, as in Bulgaria and Romania, fraud in the form of misapplication of funds is listed in the specific offences enacted to protect the EC’s financial interests.

In Estonia, Latvia, Lithuania, Slovenia and, of the States which have not yet ratified the PFI instruments, the Czech Republic, Malta and Poland misapplication of funds is one of the possible forms of fraudulent conduct covered by the specific laws or provisions covering fraud concerning grants and subsidies. In Latvia the offence specifically requires use for a purpose other than provided for in the grant agreement. In Lithuania the offence is tied to a minimum amount. In the Czech Republic and Estonia it is doubtful whether a criminal offence covering misapplication of Community expenditure not labelled as a subsidy or grant exists, unless, under very specific circumstances, such conduct is punished as a breach of trust.

Evaluation

The PFI Convention requires Member States to provide for one or more criminal offences covering the elements set out in Article 1(1)(a) of the Convention. In assessing implementation of the offences mentioned in the PFI Convention, the principle that a provision of criminal law may not be applied extensively to the detriment of the defendant must be observed when interpreting the different offences provided for in the Member States.

With this very cautious approach in mind, based on the additional information received, five EU-15 Member States (Denmark, Ireland, Greece, Spain and the Netherlands) and three of the Member States which joined the EU on 1 May 2004 and have already ratified the PFI instruments, namely Cyprus, Slovenia and Slovakia, appear to have fully complied with the requirements of the PFI Convention and to have criminalised every possible form of fraud affecting the Communities’ expenditure.

A satisfactory level of criminalisation of fraud affecting the Communities’ expenditure has been attained in four EU-15 Member States (Germany, Portugal, Finland and Sweden). In those Member States, the three forms of fraudulent conduct regarding Community expenditure cover subsidies and grants in the first place. Where subsidiary offences already apply in cases where the terms of a grant are not fulfilled (Portugal and Finland), they seem wide enough to catch possible criminal conduct and thereby to protect the Communities’ financial interests. By contrast, where the offence requires additional enrichment (Germany and Sweden), the provisions cover only a very small portion of the Communities’ financial interests.

Five EU-15 Member States (Belgium, France, Italy, Austria and Luxembourg) and three Member States which joined the EU on 1 May 2004 and have ratified the PFI instruments (Estonia, Latvia and Lithuania) appear not to have fully complied with Article 1(1)(a) of the PFI Convention.

In Italy compliance falls short given that misapplication of funds does not cover every kind of expenditure.[38] The same seems to apply to Estonia.

Although in Belgium, Latvia, Lithuania and Luxembourg the three forms of fraudulent conduct regarding Community expenditure cover subsidies and grants in the first place, the offences still require additional elements of intent not provided for in Article 1(1)(a).[39]

In France and Austria[40] the observation made in the previous CSWP has to be confirmed: the degree of protection of the Communities’ financial interests against fraud on expenditure varies widely between the three different forms of committing the offence.

In Austria an additional subjective element, namely enrichment, is added to fraudulent conduct for subsidies and grants insofar as misapplication of funds is not concerned. Unlike other Member States, Austria generally requires this element in addition before the behaviour can be criminalised under Article 1(1)(a) and therefore exposes the Communities’ financial interests to a risk of defraudment different from the risk in other Member States, where such additional elements are required only if a subsidiary fraud offence applies.

In France fraud in the form of non-disclosure of information in violation of a specific obligation still seems to be punished only in exceptional cases and in accordance with the relevant case law, and additional elements are required to prove misapplication of funds.

Finally, no conclusive evaluation could be made on the UK: the recent reform of fraud law ensured that the jurisdictions of England & Wales and Northern Ireland now fully comply with the requirements of the PFI Convention and criminalised every possible form of fraud affecting the Communities’ expenditure. As regards Scotland, however, it is still assumed that fraud in the form of non-disclosure of information in violation of a specific obligation is punishable only if there is a specific contractual or statutory obligation to disclose.[41]

Table 5: Implementation overview – fraud in respect of expenditure |

Member States | Transposition complete or considered nearly complete | Transposition incomplete or further information required to evaluate transposition |

EU-15 | Denmark, Germany, Ireland, Greece, Spain, the Netherlands, Portugal, Finland, Sweden and the UK (England & Wales and Northern Ireland) | Belgium, France, Italy, Luxembourg, Austria and the UK (Scotland) |

Member States which joined the EU on 1 May 2004 and have ratified the PFI instruments | Cyprus, Slovenia and Slovakia | Estonia, Latvia and Lithuania |

Of those Member States which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments, the criminal law of Malta provides for fraud offences ensuring protection of the Communities’ expenditure. The same can be said of Bulgaria and Romania.

Hungary may fall short of full compliance depending on the coverage of all forms of expenditure form the EC budget.

Poland falls short of full compliance, since fraudulent conduct regarding Community expenditure covering subsidies and grants is limited to written statements and the subsidiary offence of fraud requires intent to gain enrichment.

The criminal law of the Czech Republic appears incomplete, since for subsidy fraud the requirement of false or severely distorted information goes beyond a simple incomplete or incorrect statement. Instead of criminalising fraudulent behaviour in the form of non-disclosure of information in violation of a specific obligation, Czech law requires that important facts must be withheld. The present fraud offences in Czech law therefore do not cover all the forms of fraudulent behaviour mentioned in Article 1(1)(a) of the PFI Convention.

Fraud in respect of revenue (Article 1(1)(b) of the PFI Convention)[42]

In the previous CSWP[43] the Commission expressed the view that the revenue resulting from application of a uniform rate to Member States’ VAT assessment base is also protected by Article 1(1)(b) of the PFI Convention, although the explanatory report considers VAT to be excluded from the PFI Convention because it is not “an own resource collected directly for the account of the Communities”.[44] Although some Member States criticised this view, the Commission maintains its position, since Article 1(1)(b) of the PFI Convention nowhere states that revenue must be collected directly on the account of the Communities.

State of play with implementation in the EU-15 – Developments since the first report

As stated earlier, Denmark and two jurisdictions of the UK – England & Wales and Northern Ireland – amended their criminal law provisions applicable to fraud as regards revenue too. The UK specifically clarified that it would consider that the offences in the Fraud Act 2006 also apply to fraudulent behaviour against public monies levied by foreign national and supranational authorities.

Sweden added to the findings of the previous CSWP[45] by clarifying that, besides the general fraud offences, specific laws provide for smuggling offences.

As regards the EU-15 Member States that introduced specific new provisions penalising fraudulent conduct against the Communities’ financial interests (Denmark, Greece, Spain, Ireland and Luxembourg), the previous CSWP[46] noted that these apply to EC revenue, yet that none of the offences mentioned outlines specifically what is meant by “revenue” and that there is reason to assume that, whereas agricultural levies, sugar and customs duties are clearly covered, none of these provisions refers to VAT. VAT fraud, hence, appears not necessarily to be criminalised by these specific offences. Greece was the only Member State to comment on this remark, stating that its interpretation of “revenue” in the context of the Communities’ financial interests would, in fact, exclude VAT.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of use or presentation of false, incorrect or incomplete statements or documents

The specific offences in Cyprus, Slovakia and, of the States to which the PFI instruments are not yet applicable, in Hungary, Bulgaria and Romania aim at general protection of the financial interests of the EC. For these offences, the same question as for the EU-15 Member States arises: given the different positions on the scope of revenue to the EC budget, is there reason to assume that, whereas agricultural levies, sugar and customs duties are clearly covered, these provisions also include VAT? The Commission must consider, as a preliminary conclusion, that VAT fraud appears not necessarily to be criminalised by these specific offences. In Slovakia, however, tax fraud in general is criminalised by a specific provision. In Hungary, the wording refers to “payments” and thus leaves open whether all forms of resources to the EC budget are covered.

In Latvia and, of those States which have not ratified the PFI Convention, in the Czech Republic, the general fraud offence also applies to revenue. In Czech law, the offence is committed only if factually false or severely distorted information is provided, with the result that simply incomplete statements are not sufficient. In Latvia fraud implies the additional subjective element of knowingly providing false information.

In Estonia, Lithuania and Slovenia different offences in the national Criminal Codes apply to tax and customs fraud. However, all three countries apply thresholds to these offences: in Estonia the customs offence of illicit trafficking is restricted to “large quantities” without further explanation. Likewise, Slovenia requires that tax fraud must lead to a “large” pecuniary benefit. By contrast, the Lithuanian Criminal Code lays down set monetary thresholds for application of the provisions on smuggling or customs fraud and tax evasion.

Of those States which have not ratified the PFI Convention, Malta and Poland have specific legislation providing for offences affecting public revenue. In Malta customs offences are set out in the Customs Ordinance and VAT offences in the Value Added Tax Code. Other revenue offences fall under the general fraud offence. In Poland offences relating to taxes, including VAT, and offences concerning customs are set out in a specific Fiscal Criminal Code.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of failure to disclose information in violation of a specific obligation

In all these Member States, non-disclosure of information is treated similarly to, and in the same provisions as, use or presentation of false, incorrect or incomplete statements or documents, since tax and customs provisions usually provide for a specific obligation to declare events influencing the amount of duties levied or reimbursed. Furthermore, Lithuania provides for a specific offence of non-submission of declarations, accounts or other documents; however, this offence requires that the public authority has to remind the taxpayer, in writing, of the duty to submit the information.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Fraud in the form of misapplication of a legally obtained benefit

Whereas in Estonia, Cyprus, Latvia, Slovakia and, of those States which have not yet ratified the PFI instruments, Hungary and Malta, misapplication of a legally obtained benefit is one of the possible forms of fraudulent conduct criminalised with regard to EC revenue and is treated similarly to, and in the same provisions as, use or presentation of false, incorrect or incomplete statements or documents, Slovenia and, of those States which have not yet ratified the PFI instruments, Poland provide for specific offences in this regard. The Slovenian implementing measures again require that the fraudulent conduct must lead to a large pecuniary benefit.

The Lithuanian law contains no directly applicable offence of misapplication of a legally obtained benefit. However, such conduct may fall under other misapplication offences, which contain the element of wasting someone else’s property and thus seem to fit in with the concept of misapplication of a legally obtained benefit.

In the Czech Republic misapplication of a legally obtained benefit is not penalised.

Evaluation

After enlargement, compliance with the requirements of the PFI Convention regarding fraud affecting the Communities’ revenue still appears more advanced than the corresponding measures on expenditure fraud. For instance, in addition to the eight EU-15 Member States (Germany, Spain, France, Italy, the Netherlands, Austria, Portugal and Finland) that were considered compliant in the previous CSWP,[47] based on additional information submitted by Sweden and by the UK for the jurisdictions of England & Wales and Northern Ireland, these two States may also be deemed to cover every possible form of fraudulent conduct with regard to the revenue of the Communities.

For those Member States, regardless of whether EU-15 (Denmark, Greece, Ireland and Luxembourg) or later (Cyprus and Slovakia), that have enacted specific offences to protect the Communities’ financial interests, compliance may fall short in the form of differences in the offences concerning VAT fraud. In Ireland and Slovakia fraud against VAT revenue is covered by other provisions. The same is presumably also true for all the other above-mentioned Member States, since VAT resources also contribute to the national budgets and national legislators have an interest in punishing anyone who evades any form of tax. Consequently, in those Member States too there appears, a priori, to be no risk of leaving revenue to the EC budget exposed and lacking protection under criminal law. Nevertheless, it remains to be seen how this is applied with regard to other Member States’ VAT resources.

The situation is more complex in four of the Member States which joined the EU on 1 May 2004 and have ratified the PFI instruments (Estonia, Latvia, Lithuania and Slovenia). Estonia, however, provides for administrative punishments for low amounts of tax fraud. In Lithuania and Slovenia different revenue-related fraud offences apply to tax and customs offences. All of them set thresholds for applying the provisions. Although these thresholds are very low, Article 1(1)(b) of the PFI Convention makes no provision for any exemption from punishment, including administrative, for whatever minimum amount.

In Lithuania compliance may also fall short due to the additional requirements of the specific offence for non-submission of declarations.

In Latvia the same offences as for expenditure fraud apply. As a result, this evaluation must also conclude that the three forms of fraudulent conduct regarding EC revenue still require additional elements of intent not provided for in Article 1(1)(b).

Finally, in the EU-15, Belgium requires an additional element of intent, namely deceit, in the case of customs fraud.[48]

Again, no conclusive evaluation could be made on the whole of the UK, because of Scotland,[49] where it is not clear whether the general fraud offence may supplement the existing UK-wide offences regarding fraud and customs and under which conditions.

Table 6: Implementation overview – fraud in respect of revenue |

Member States | Transposition complete or considered nearly complete | Transposition incomplete or further information required to evaluate transposition |

EU-15 | Denmark, Germany, Ireland, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Sweden and the UK (England & Wales and Northern Ireland) | Belgium and the UK (Scotland) |

Member States which joined the EU on 1 May 2004 and have ratified the PFI instruments | Estonia, Cyprus and Slovakia | Latvia, Lithuania and Slovenia |

Of the Member States which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments, the criminal law of Malta and Poland seems to include fraud offences ensuring protection of the Communities’ revenue. The situation is the same for Bulgaria and Romania, which joined the EU on 1 January 2007.

For Hungary, which provides for a specific offence to protect the Communities’ financial interests, compliance must be verified to check whether this offence or others cover all forms of levies and duties concerning the resources to the EC budget, including VAT fraud.

The Czech Republic provides some protection of the Communities’ revenue, but it appears to be incomplete, in that the general fraud offence alone applies and requires provision of factually false or severely distorted information. As a result, the evaluation of implementation must be no different to that on the Communities’ expenditure, which found that the present fraud offences in Czech law do not cover all the forms of fraudulent behaviour mentioned in Article 1(1) of the PFI Convention.

Intentional preparation or supply of false, incorrect or incomplete statements or documents (Article 1(3) of the PFI Convention)[50]

To ensure effective punishment of preparatory acts, the PFI Convention proposes two approaches. Member States may define a criminal offence of preparing or supplying false, incorrect or incomplete statements or documents affecting the Communities’ financial interests. According to the previous CSWP,[51] however, the majority of Member States have chosen a different approach, where such conduct is not in itself a criminal offence: prosecution is possible at least on the charge of participation in, instigation of or attempt to commit fraud, where the definitions of “participation”, “instigation” and “attempt” in national criminal law apply.[52]

State of play with implementation in the EU-15 – Developments since the first report

In the wake of the fraud reform, the UK jurisdictions of England & Wales and Northern Ireland now penalise possession of articles for use in fraud and have specifically criminalised making or supplying articles for such use.

In their comments on the previous CSWP[53] France and Portugal reiterated that the offences of document forgery supplement the provisions in their national criminal-law system on participation, instigation and attempt, thus allowing them to fulfil the requirements of Article 1(3) of the PFI Convention. This argument would apply to Belgium, Denmark, Germany, Spain, Ireland, Italy, Luxembourg and Finland alike.

Along the same lines, Austria explained that its unitary approach to participation in criminal conduct also guarantees that intentional preparation or supply of false, incorrect or incomplete statements or documents are penalised.

State of play with implementation in the Member States which joined on or after 1 May 2004

All of the Member States which joined on 1 May 2004 and have ratified the PFI instruments (Cyprus, Estonia, Latvia, Lithuania, Slovakia and Slovenia) likewise rely on the provisions made in their national criminal-law system on participation, instigation and attempt. Slovakia stands out in that it applies a unitary approach to participation in criminal conduct. Furthermore, Slovakia also punishes negligent behaviour affecting the Communities’ financial interests.

In the same way, those States which have not ratified the PFI instruments (the Czech Republic, Malta, Hungary and Poland) or those to which the PFI instruments are not yet applicable (Bulgaria and Romania) consider that the general principles of their existing national criminal law already provide sufficient protection in this regard. However, the Czech Republic provides, in addition, for offences in the form of misrepresentation of economic results and assets and Polish law for an offence when public charges are exposed to reduction, which add to the legal framework.

Evaluation

The implication in Article 1(3) of the PFI Convention that, if the preparation or supply of false, incorrect or incomplete statements or documents is already punished as a principal offence or as participation in, instigation of or attempt to commit fraud, as defined by Article 1(1), there is no need for the Member States to take any implementing measure makes it tricky to assess the Member States’ implementation. In the absence of firm evidence of whether the general criminal-law systems make it possible to criminalise this conduct even if, ultimately, no fraud was committed or attempted, an empirical evaluation would be needed. For the time being, it can reasonably be assumed that in Member States where either preparation or supply of false, incorrect or incomplete statements or documents already constitutes an offence (of the EU-15: Greece, the Netherlands, Sweden and the UK jurisdictions of England & Wales and Northern Ireland) or a unitary approach to participation in criminal conduct is taken (of the EU-15: Denmark, Italy and Austria; of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Slovakia), incompatibilities have been reduced to avoid gaps or loopholes in implementation.

With regard to the other Member States, since they all rely on their general national rules on participation, instigation and attempt linked to the principal offence, it appears justified to presume full implementation only where the principal offence is also correctly and fully implemented. Therefore, by virtue of complying via implementation of the principal offences, six Member States (of the EU-15: Germany, Spain, Ireland, Portugal and Finland; of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Cyprus) appear to have implemented Article 1(3) of the PFI Convention by reference to their general rules with regard to the result to be achieved.

At this stage, for the other Member States (of the EU-15: Belgium, France, Luxembourg and the UK jurisdiction of Scotland; of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Estonia, Latvia, Lithuania and Slovenia), any evaluation of their compliance with Article 1(3) of the PFI Convention should be subject to further review.

For those Member States which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments (the Czech Republic, Hungary, Malta and Poland) or to which the PFI instruments are not yet applicable (Bulgaria and Romania), instead it appears worth waiting to see whether they will alter their criminal-law framework with regard to preparation or supply of false, incorrect or incomplete statements or documents once ratification is completed.

Penalties (Article 2 of the PFI Convention)[54]

Article 2 of the PFI Convention is understood to require Member States to:

- provide at least for administrative, non-criminal penalties for conduct constituting fraud against the EC’s financial interests, as defined in Article 1 of the PFI Convention, involving a total amount of less than €4 000 (“minor fraud”);

- lay down effective, proportionate and dissuasive criminal penalties for fraudulent conduct involving a total amount of more than €4 000; and

- always impose proportionate and dissuasive criminal penalties at least providing for deprivation of liberty which can give rise to extradition for punishment of fraudulent conduct involving a minimum amount in excess of €50 000 (“serious fraud”).

State of play with implementation in the EU-15 – Developments since the first report

In Denmark and the UK jurisdictions of England & Wales and Northern Ireland the amendments to the legal framework applicable to fraud also affected the related penalties. In Denmark the reform of Article 289a reduced the punishment to deprivation of liberty for up to one and a half years or a fine, but increased it to deprivation of liberty for up to four years for severe fraud. Following the reform in the UK all the principal offences of fraudulent conduct are now punished in the same way, namely with up to ten years’ imprisonment.

In response to the previous CSWP,[55] France explained that, in cases of tax or customs fraud, a penalty of imprisonment of up to five years applies under the General Tax Code.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Penalties under national legislation

In Cyprus, Slovenia, Slovakia and, of those States which have not yet ratified the Convention, the Czech Republic and Hungary, the principal offences of “standard” fraudulent conduct are punished in the same way. The Czech Republic provides for a minimum penalty of up to two years’ imprisonment, Cyprus, Slovenia and Slovakia alike impose deprivation of liberty for up to three years and Hungary for up to five years. Cyprus allows alternative pecuniary punishment.

The penalty depends on the actual offence that was committed in the cases of Estonia, Latvia, Lithuania and, of those States which have not yet ratified the Convention, Malta and Poland. In Malta general fraudulent conduct is punished with deprivation of liberty for up to two years, yet the minimum punishment differs between expenditure and revenue fraud. In Lithuania subsidy fraud, general fraud and fiscal fraud are all punished in the same way, by deprivation of liberty for up to three years, yet smuggling and customs fraud is punished more severely, namely by deprivation of liberty for up to eight years. In Latvia, Estonia and Poland the possible penalties depend on the criminal conduct. Under Latvian law, subsidy fraud is punished with two years’ imprisonment, yet a term of three years’ imprisonment is set for the general fraud offence. The opposite is the case in Estonia, where subsidy fraud is liable to imprisonment of up to five years and general or fiscal fraud to up to three years. The most complex situation exists in Poland, where subsidy fraud is punished with imprisonment for between three months and five years and fiscal fraud offences are, likewise, liable to a maximum of five years’ imprisonment, yet no minimum threshold is set and a fine may also be imposed. The general fraud offence is punished with imprisonment for between six months and eight years.

In Bulgaria and Romania too the possible penalties depend on the criminal conduct. In Bulgaria simple wrong declaration to the detriment of the EC’s financial interests is punished with imprisonment for up to one year and a fine. In cases of misappropriation, the punishment rises to five years’ imprisonment, while in cases of documentary fraud the punishment ranges from three to ten years’ imprisonment. The system is simpler in Romania, where wrong declaration to the detriment of the EC’s financial interests is punished with imprisonment ranging from three to fifteen years and misappropriation with imprisonment for between six months and five years.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Thresholds for penalties under national legislation

An approach where the concept of serious and/or minor fraud exists alongside “normal” fraud in terms of the amount involved can be seen in Estonia, Cyprus and Slovakia and, of those States which have not yet acceded to the PFI instruments, in the Czech Republic and Malta.

Estonia considers only the concept of “minor” fraud with a threshold of €64, but provides for punishment only in the form of a fine.

The Czech Republic, Cyprus and Malta draw a distinction between minor and serious fraud, based on thresholds. In the Czech Republic fraud causing damage lower than €175 and in Cyprus fraud affecting financial interests lower than €1 196.20 is liable to a fine. In Malta minor fraud concerns amounts of less than €23.29, but is still punished with imprisonment for up to three months.

Concerning serious fraud, the Czech criminal law sets various thresholds, under which the minimum and maximum punishment range from five to twelve years’ imprisonment if the damage caused exceeds €175 000. In Malta the punishment ranges from a minimum of thirteen months to a maximum of seven years’ imprisonment if the damage caused adds up to at least €2 329.97. In Cyprus the punishment is four years’ imprisonment for damage of at least €68 344.10.

Slovakia provides only for “serious” fraud, for which more severe punishment is envisaged subject to various thresholds; the most severe punishment is from seven to twelve years’ imprisonment if the damage caused exceeds €100 000.

Romania provides for “serious” fraud with more severe punishment, yet no specific threshold seems to be set in its legislation.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Extradition under national legislation

Member States must provide for penalties involving deprivation of liberty which can give rise to extradition to punish fraudulent conduct involving a minimum amount which may not be set at a sum exceeding €50 000.

Verifying whether the punishment imposed gives rise to extradition requires a reference to Council Framework Decision 2002/584/JHA on the European arrest warrant and surrender procedures between Member States.[56] That Framework Decision applies, inter alia , to fraud affecting the Communities’ financial interests.

Knowing that in every Member State a maximum of at least one year’s imprisonment is imposed for fraud offences, application of the European arrest warrant is guaranteed. Consequently, this evaluation reaches the same conclusion as the revised version of the Commission report on that Framework Decision.[57] Although that report, issued in 2006, does not refer to Bulgaria and Romania, which joined on 1 January 2007, there appears to be no need specifically to address the situation in these two countries, since both provide for sufficient levels of punishment to ensure application of the European arrest warrant.

Evaluation

Although implementation of Article 2 of the PFI Convention regarding criminal penalties varies widely across the EU, the ranges of punishment can be considered somewhat similar in that they usually provide for a maximum punishment of imprisonment for between one and a half and five years. Where applicable, for “serious” fraud the range rises to a maximum of imprisonment for between four and twelve years.

The foregoing analysis of implementation also shows that, as regards effectiveness, the overall picture seems satisfactory, particularly since, in principle, all the Member States impose imprisonment as the standard punishment for fraudulent conduct. Given that the requirement of giving rise to extradition is fulfilled, the penalties imposed seem to be effective.

The overall picture would be even more positive if, of the EU-15, Belgium were to introduce imprisonment for some forms of customs fraud[58] and, of the States which joined the EU on 1 May 2004 and have acceded to the PFI instruments, Latvia, Lithuania and Slovenia were not to require a minimum amount of damage before imposing any punishment at all.[59]

Furthermore, in some Member States (of the EU-15: Belgium, France, Italy and the UK jurisdiction of Scotland;[60] of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Estonia, Latvia, Lithuania and Slovenia; of those which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments: Malta and Poland; and of those which joined the EU on 1 January 2007: Bulgaria and Romania) some forms of fraudulent conduct are punished more heavily than others, depending on the circumstances in which the offence was committed or the actual interests affected. In Belgium and Italy,[61] for instance, the differences concern different forms of expenditure and revenue fraud. In this situation, implementation leaves much to be desired in terms of the dissuasive nature of the penalties.[62]

It should be added that the probability of detecting criminal conduct, the type of prosecution (mandatory or discretionary) and court sentencing practice in each Member State have a further impact on the perception of penalties, especially on whether they are really dissuasive and effective.

Assimilation of Community officials and members of the institutions as regards fraud (Article 4(1), (2) and (3) of the 1st Protocol)[63]

Although assimilation of Community officials and members of the institutions as regards fraud is provided for in the 1st Protocol, it appears useful to analyse that provision in the light of the Member States’ measures to criminalise fraudulent conduct. Essentially, Article 4(1) of the 1st Protocol requires Member States to extend application of their fraud offences to similar conduct on the part of Community officials or members of the institutions, thereby providing for an extension based not on the conduct but on the category of offender.[64]

The previous CSWP[65] presumed compliance by Germany, due to its legislative action, and by the other 14 EU-15 Member States, since they regard fraud as applicable to any person. However, recent practical experience with cases in some Member States has shown that the requirements of the assimilation principle go further than just ensuring that Community officials or members of the institutions may also be liable for fraud offences. In addition, the punishment applicable to national officials for all offences involving fraudulent conduct, such as embezzlement or misuse of funds, must also be extended to Community officials or members of the institutions. For instance, a Community official who has committed embezzlement should be punished under the same conditions as a national official committing the same crime, not simply as any normal person.[66] Assimilation therefore covers all public offences concerning the handling of the Communities’ financial interests.

Considering compliance from this angle, a positive, regulated extension to all the relevant forms of economic crime committed by Community officials can be found in the criminal laws of the following Member States: of the EU-15: Germany and Ireland; of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Estonia, Latvia, Slovenia and Slovakia; and of those which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments: Malta.

All offences by national officials also seem to have been extended to Community officials in Finland and Sweden out of the EU-15 and in Lithuania of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments.

Assimilation also seems to be ensured in three EU-15 Member States (Spain, the Netherlands and the UK), where a wide definition of “official” allows an interpretation that the rules on crimes committed by national officials likewise apply to Community officials.

By contrast, it is more doubtful whether the assimilation criteria may be fulfilled with a wider interpretation for the following Member States: of the EU-15: Belgium, Denmark, Greece, France, Italy, Luxembourg, Austria and Portugal; of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments: Cyprus; of those which joined the EU on 1 May 2004 and have not yet ratified the PFI instruments: the Czech Republic, Hungary and Poland; and of those which joined the EU on 1 January 2007: Bulgaria and Romania. For these Member States, more information may be needed to confirm full assimilation, as required by Article 4(1) of the 1st Protocol.

Corruption

Since the previous CSWP[67] political momentum at national, EU and international level to continue the fight against corruption, including that affecting the Communities’ financial interests, has remained high. The EU Convention on the fight against corruption involving officials of the European Communities or officials of the EU Member States, which requires criminalisation of the same corrupt conduct as the 1st Protocol, but without being confined to acts or omissions which damage or are likely to damage the European Communities’ financial interests, entered into force on 28 September 2005 following notification of ratification by Luxembourg. Furthermore, the Commission tabled a proposal for a Council Decision on the signature and subsequently conclusion, on behalf of the European Community, of the United Nations Convention against Corruption.[68] It also published a report based on Article 9 of Framework Decision 2003/568/JHA on combating corruption in the private sector[69] covering the Member States other than Bulgaria and Romania. As regards Bulgaria and Romania specifically, the Commission adopted a Decision for each of them establishing a mechanism for cooperation and verification of progress in these two Member States to address specific benchmarks in the areas of judicial reform and the fight against corruption and organised crime.[70]

Passive corruption (Article 2 of the 1st Protocol)[71]

The main difference between active and passive corruption is the person committing the offence. In passive corruption it is the official who is acting. The conduct to be punished under Article 2 of the 1st Protocol consists of requesting, accepting and receiving an advantage of any kind, directly or through an intermediary.

State of play with implementation in the EU-15 – Developments since the first report

Following criticism by the OECD, Belgium revised its corruption provisions in 2007 in order to ensure better compliance with the OECD Convention on combating bribery of foreign public officials in international business transactions.[72] The amendments concern better interpretation of passive bribery committed via an intermediary.

Linked to the EU Convention on the fight against corruption involving officials of the European Communities or officials of the EU Member States, the French amendments to ensure that the offence of passive corruption covers Member State or Community officials entered into force on 28 September 2005. In 2007 France made further amendments to its provisions on corruption offences, which led to reorganisation of the rules applicable in the Criminal Code. The amendment considers European Union institutions, bodies and agencies to be a public international organisation, as provided for in the different corruption offences, so that in substance there is no change with regard to implementation of the 1st Protocol.

Sweden and the UK commented on the findings of the previous CSWP[73] on their implementation. Sweden confirmed the Commission’s assumption that application of corruption offences to Community or other Member States’ officials was ensured by the wide definition of “official” in the Criminal Code. The UK clarified that it would prosecute bribery of foreign officials and officials of international organisations, including the Communities, under common law and the offence of corrupt transactions with agents under Section 1 of the Prevention of Corruption Act 1906. In this context, the Crown Prosecution Service feels confident that it can prosecute officials of the European Communities or officials of the EU Member States on corruption charges in the UK.[74]

Germany, Austria and the UK hinted at the ongoing reform of their rules on corruption offences: Germany envisages integrating in its Criminal Code an extension of the corruption offences to other Member States’ or Community officials. In the meantime, Austria has enacted as of 1 January 2008 a reform in which corruption offences only distinguish whether the bribe is related to the official’s duties or not, but no longer differentiate between bribery for illicit and licit deeds. The UK submitted a proposal for a new Corruption Bill 2006-07, which explicitly punishes bribery of foreign public officials. The proposed definition of foreign public officials covers both officials of foreign states and officials of international organisations.

In January 2007 the Spanish government submitted an amendment to the Criminal Code explicitly extending corruption offences to cover foreign and Community officials.

State of play with implementation in the Member States which joined on or after 1 May 2004 – Analysis

Cyprus, insofar as it has transposed the PFI instruments in a single legal text, has introduced a new specific offence modelled on Article 2 of the 1st Protocol in that the newly introduced offence is limited to an act or omission damaging or likely to damage the European Communities’ financial interests.

Slovakia provides for an elaborate system of corruption offences, which are intended to ensure that a general offence applies in a subsidiary way in all cases where the specific conditions of the other forms of corruption offences are not fulfilled. That subsidiary offence covers foreign public officials, which means officials or servants of foreign countries and of public international organisations.

The other Member States which joined on 1 May 2004 and have ratified the PFI instruments (Estonia, Latvia, Lithuania and Slovenia) define an offence of passive bribery in their Criminal Codes and have extended its scope to officials or servants of foreign countries and of public international organisations.

The same technique is already used by the Member States which have not yet ratified the PFI instruments (the Czech Republic, Hungary, Malta and Poland) or which joined the EU on 1 January 2007 (Bulgaria and Romania).

Evaluation

Bearing in mind that substantive criminal provisions must always provide for the highest standard of compliance, the Commission confirms its conclusion in the previous CSWP[75] that seven of the EU-15 Member States (Germany, Greece, France, Ireland, Italy, Luxembourg and Austria) can be considered to have criminalised at least the conduct to which Article 2 of the 1st Protocol applies and are fully compliant as regards the scope of their national provisions. Also Cyprus, of the States which joined the EU on 1 May 2004 and have ratified the PFI instruments, falls into this category.

For Germany, compliance is, however, only formal. The German criminal law complies only insofar as the 1st Protocol and the EU Convention are read as penalising conduct that includes performance of or abstention from any act within the powers of the holder of the office or function if the act concerned is carried out in breach of the official’s duties.[76] As in the previous CSWP,[77] the Commission must therefore reconfirm that Germany is still failing to live up to the requirements of the assimilation principle, as regards bribery for licit deeds, since the conduct is punished only if committed by a German national official respectively. Whereas the recently adopted reform of the corruption law in Austria ensures full assimilation of Community officials or officials of other EU Member States with the country’s own national officials as of 1 January 2008, the pending German reform proposal does not. Given that the main purpose of the corruption offences defined by the 1st Protocol and the above-mentioned EU Convention is to ensure that all aspects of corruption are also penalised in one Member State if committed by Community officials or officials of another Member State, the mere formal compliance by Germany appears seriously to put at risk attainment of an equivalent level of criminal-law protection against corruption affecting the European Union.

The previous CSWP[78] stated that, concerning the five EU-15 Member States (Belgium, Denmark, the Netherlands, Portugal and Finland) that do not explicitly refer to Community officials but to “EU officials” (Portugal) or to officials of other international organisations (Belgium, Denmark, the Netherlands and Finland), despite lacking evidence to this effect, it seems very reasonable to assume that the concept used in the national laws is likely to be interpreted by the courts so as to match the definitions in Article 1 of the 1st Protocol. With this in mind, the Commission would deem Estonia, Latvia, Lithuania and Slovenia, out of the Member States which joined the EU on 1 May 2004 and have ratifi