Proposal for COUNCIL OF THE EUROPEAN UNION ACT establishng a Convention for the protection of the Communities' financial interests
Date: 1994-06-15
Institutions: European Commission
Subjects: EU police cooperation, Intergovernmental Convention (EU), fraud, judicial cooperation in criminal matters in the EU

COMMISSION OF THE EUROPEAN COMMUNITIES 

COM(94) 214 final 

Brussels,  15.06.1994 

94/0146  (CNS) 

Proposal  for a 
COUNCIL REGULATION  (EC. Euratom^ 
on protection of the Community's financial  interests 

Proposal  for 
COUNCIL OF THE EUROPEAN UNION ACT 
establishng a Convention for the protection of the Communities' financial  interests 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

The  protection  of  the  Community's  financial  interests  ranks  high  among  the  institutions' 
priorities. Action began in the 1970s, with presentation by the Commission of a draft Treaty 
for the legal protection of the Community's financial  interests in  1976.  Since the late 1980s, 
closer attention has been paid to the question of legal protection under both Community law 
and national law 

The Council  (Justice)  passed  a Resolution  on  13 November  1991  stating that  "cooperation 
between the Member States in the prevention and combating of fraudulent practices by which 
harm is done to the financial  interests of the Commumties is enhanced by a compatibility of 
norms in the legal and administrative provisions of the Member States by which such conduct 
is sanctioned" and requesting the Commission to "conduct, as soon as possible, a comparative 
law study of the abovementioned legal  and administrative provisions of the Member States, 
in  order  to  see  whether  action  should  be  taken  to  achieve  greater  compatibility  of  these 
provisions". 

The  Commission  of  its  own  motion  undertook  a  parallel  comparative  law  study  on  the 
systems  of  administrative  and criminal  penalties  of  the Member  States and on the general 
principles applicable  to  Community  administrative  penalties.  The two  studies revealed  the 
need for remedial legislative action in both areas. The Commission transmitted the findings 
of the studies to the Council  and Parliament in June 1993. 

Endeavours to protect the Community's financial  interests against fraud are now given direct 
expression in the new Article 209a EC, inserted by the Treaty  on European Union,  and in 
Title VI of the Union Treaty (justice and home affairs cooperation). Article 209a is broadly 
inspired by the judgment given by the Court of Justice in Case 68/88 (on 21 September 1989) 
which spells out the obligations of the Member States to protect the Community's  financial 
interests in the same way as their own financial  interests and to provide for penalties that are 
effective,  proportionate and dissuasive. 

On  27 October  1992  the  Court  of  Justice  gave  judgment  in  Case  C-240/90  expressly 
acknowledging the Commission's power to impose administrative penalties in the exercise of 
its powers to enact Regulations for the common organization of agricultural markets. 

2.  Legal  framework  for the Commission's initiative 

The Resolution on the independent power of investigation and inquiry which the Union may 
exercise for the legal protection of its financial  interests, passed by the European Parliament 
on  a  motion  from  its  Committee  on  Budgetary  Control  in  March  1994,  calls  on  the 
Commission to make proposals based on Articles  100 and 209a EC in  1994 relating both to 
the principles governing  Community  administrative  penalties and to protection by  national 
criminal  law of the Community's financial  interests against fraud. 

In March  1994 the United Kingdom presented a draft for joint action under Title VI. 

The Commission believes that measures must be taken at both Community and national levels 
if they are to be  successful. 

The protection of the Community's financial interests requires both a definition  of fraud and 
irregularity  in Community  law  and national  law and the establishment  of a body  of law to 
penalize  fraud  both  at  Community  level  (administrative  penalties)  and  at  national  level 
(criminal  penalties).  The legal  bases for the Commission proposal  are accordingly: 

Articles 235 EC and 203 Euratom for Community  law; and 
Article K.l(5)  for national  criminal law. 

Article 209a EC writes a specific  provision for the Member  States' obligation to treat fraud 
against the Community  budget in the same way  as fraud against their own, but contains no 
enabling provisions for  subordinate legislation. 

The  Commission's  proposal  in  Community  law  terms  is  for  a  Regulation  providing  for 
Community  administrative penalties.  Its proposal  in national  law terms is for a Convention 
for the protection of the Community's financial  interests. 

The  Commission  considers  the  legal  basis  for  the  Community  law  instrument  to  be 
Articles 235 EC and 203 Euratom. The objective is to establish horizontal  Community rules 
that do  not  merely  provide  for  Community  penalties  (a  specific  sectoral  instrument would 
have sufficed  for that purpose) but would apply across the board to the general management 
of  the  Community's  finances;  the  "default"  legal  bases  available  in  the  two  Treaties must 
accordingly  be used. 

The objectives pursued in relation to national  criminal law are so broad that only inter-State 
measures will  be appropriate. 

To  achieve  a  situation  of  full  protection  for  the  Communities'  financial  interests,  the 
Commission is also proposing to approve a Decision based on Article 95 ECSC to make the 
provisions of the EC/Euratom Regulation  applicable in the ECSC area also. 

3.  The draft Regulation 

Article  1 determines the scope  of the Regulation  - fraud,  abuse and irregularity  against the 
Community  budget - defined  collectively  as  irregularities  to  facilitate  the  drafting  of 
subsequent articles. 

Paragraph 2  extends the  scope to include  not  only  the budget  itself  but  also other revenue 
managed by a Community  institution. 

Article 2 defines  fraud in  such a way  as to encompass all  unlawful  intentional  or negligent 
acts of omission or commission in breach of a duty of care. 

Article 3 fleshes  out the concept  of  abuse,  defining  it as any operation which is apparently 
lawful  but has no real economic purpose beyond defrauding the budget. There is assumed to 
be no real economic purpose where a transaction has the sole purpose of obtaining payment 
of a grant or avoiding payment of  sums due as revenue 

Article 4 prescribes the consequences of the various forms of offence against Community law. 
Unintentional  irregularities give rise merely to restitutio in integrum. 

Paragraph  2  provides  for  heavier  penalties  to  be  imposed  in  certain  cases,  chiefly  where 
intention or serious negligence are proven. 

Article  5 requires the Member States and the Commission to impose administrative penalties 
for  fraud  as  defined  in  Article 2,  abuse  and  negligent  failure  to  discharge  obligations. 
Intentional  failures are covered by the concept of fraud. 

Article 6 requires Member States to ensure that infringements are penalized in the same way 
as  infringements  of  national  law.  Broadly  speaking  this  restates  the  principle  of 
Article 209a EC, adding to  it the concepts of effectiveness, proportionality and dissuasiveness 
enunciated by the Court of Justice in Case 68/88. 

Article 7  describes  the  types  of  administrative  penalties  that  may  be  imposed  for 
infringements of Community law. 

Article 8 determines who may be liable to the penalties. 

Article 9 prescribes limitation periods for both proceedings and enforcement.  National rules 
currently diverge quite widely; the effect  of the  Regulation would be to achieve a degree of 
harmonization here. 

Article  10 applies the very important nullum crimen sine lege rule to the specific  context of 
Community administrative penalties. It also deals with some specific aspects of retroactivity. 

Article  11 is to regulate checks and inspections in the Community budget context. It provides 
that procedures will  depend on the legislation  applicable to the specific  area concerned, but 
the  Regulation  would  permit  checks  and  inspections  to  be  performed  by  properly 
empowered agents. 

The Commission's rights of access to premises with the assistance of the  Member States are 
also determined in general terms. 

4.  The draft Convention 

Article  1 -defines fraud against the Communities' financial  interests and what it consists  of. 
The effect would be that a single, uniform offence of fraud against the  Communities' financial 
interests would exist in the legislation  of all Member States. 

Article 2 brings attempts within the definition. 

Article 3  determines  the  liability  of  both  natural  and  legal  persons.  Among  other things, 
liability  can attach to persons who are not personally  liable but exercise authority within a 
business. 

Article 4  determines  the  penalties  that  may  be  applied  for  fraud  against  the  Community 
budget and outlines a scale. It specifies what will  constitute aggravating circumstances. The 
reference  to  conspiracy  is  not  so much to  a specific  concept  of  criminal  law  as  simply  to 
fraud committed by organized crime. 

Article 5  establishes  rules  of  jurisdiction  in  multi-State  fraud  cases.  The  basic  rule  that 
jurisdiction  lies with the Member  State in which  the main  acts constituting  the fraud were 
done will  need to be amplified  by subsequent implementing rules. 

Article 6  provides  for  frauds  committed  in  non-member  countries  to  be  treated  as  fraud 
committed  within  the  Community  where  the benefit  of  the  fraud  was  or  could  have been 
obtained in or transferred to a Member State's territory, where the perpetrator is a national of 
a Member  State or where acts conducive  to the commission  of the fraud were done in the 
territory of a Member State 

Articles 7 and 8 deal with extradition,  proceedings,  limitation  and judicial  assistance, these 
being matters to which the Commission's right of  initiative  does not extend.  Provisions are 
proposed in footnotes as material for reflection  offered by the Commission. 

Article 9 provides for  cooperation between the Member  States and the Commission for the 
evaluation of the Convention with a view to improvements. 

Article  10 provides for the adoption of implementing measures (mentioned above in relation 
to Article 5). 

Article  11  confers jurisdiction  on  the  Court  of  Justice  to  give  preliminary  rulings  on the 
interpretation of the Convention and to hear and determine disputes regarding its application. 

Proposal  for a 
COUNCIL REGULATION  (EC. Euratom^ 
on protection of the Community's financial interests 

THE COUNCIL OF THE EUROPEAN UNION, 

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

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

Having regard to the proposal  from the Commission, 

Having regard to the opinion of the European Parliament, 

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

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

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

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

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

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

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

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

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

HAS ADOPTED THIS REGULATION: 

TITLE I 

PRINCIPLES 

Article 1 

1.  For the purposes of the protection  of the Communities' financial  interests,  action shall 

be taken to counter: 

fraud against the Communities' financial  interests; 

- 
-  abuse of Community law; 
-  any  other  failure  to  discharge  an  obligation  provided  for  in  rules  governing 

Community revenue or the grant of  aid, a subsidy  or any other benefit. 

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

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

Article 2 

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

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

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

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

- 

- 

the  preparation,  supply,  use  or  presentation  of  false,  incorrect  or  incomplete 
documents or statements where information  is to be furnished  prior to the grant of 
a subsidy or the receipt of monies; 
failure to furnish information to the relevant authorities in relation to any change in 
the circumstances giving rise to the grant of a subsidy or the receipt of monies; 

-  misappropriation or dissipation of funds; 
-  knowingly  using aids or subsidies obtained on the basis of incorrect or incomplete 

statements or other misleading acts. 

Article 3 

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

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

1.  As  a  general  rule,  where  an  irregularity  is  committed  neither  intentionally  nor 

negligently, the following  measures may be applied. 

Article 4 

-  withdrawal  of a benefit  unjustifiably  received; 
- 

the obligation to pay or reimburse amounts due or unjustifiably received, plus, where 
appropriate, interest which may be fixed at a flat rate; 
the  forfeiture  of  the  whole  or  a  part  of  a  guarantee  lodged  in  support  of  an 
application for a benefit or for the receipt of an advance. 

- 

Such measures shall not be treated as penalties. 

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

Article 5 

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

Article £ 

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

RULES APPLICABLE TO COMMUNITY ADMINISTRATIVE PENALTIES 

TITLE O 

Article 7 

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

Provision may be made in particular for the following penalties. 

-  an administrative financial penalty, including the obligation to pay an amount greater 
than the amounts unjustifiably  received or evaded, plus interest where appropriate; 
-  withdrawal of the whole or a part of the benefit  granted by Community legislation, 

even if only part of this benefit has been unjustifiably  received; 
ineligibility  for or withdrawal of the benefit for a period subsequent to that affected 
by the irregularity; 
temporary  or permanent withdrawal  of  approval  or recognition,  if  any,  needed for 
eligibility for a scheme of Community aid. 

- 

- 

( 2] 

2. 

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

Community administrative penalties may be incurred by: 

Article 8 

natural persons who have committed or assisted in the commission of an irregularity; 
natural persons who, by reason of their position or function,  are under a duty to ensure 
by appropriate means that irregularities are not committed; 
legal  persons where the irregularity  is committed  by a natural  person  acting on their 
behalf and exercising a decision-making power conferred  by law or agency or in fact; 
groups or associations of natural or legal persons where the irregularity is committed by 
a natural person acting on their behalf and exercising a decision-making power conferred 
by law or agency or in fact. 

Article 9 

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

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

2.  The limitation period applicable to decisions imposing penalties shall be five years. Time 

shall run from  the day on which the decision becomes  final. 

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

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

Article 10 

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

TITLE  ni 

CHECKS AND INSPECTIONS ON THE SPOT 

Article  II 

1.  Measures providing for checks shall be so determined as to match the specific schemes 

implemented and shall be in proportion to the objectives pursued. 

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

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

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

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

-  enjoy  a financial  benefit,  whether directly  or indirectly; 
-  are subject to obligations imposed by Community legislation; 
-  are  parties,  directly  or  indirectly,  to  operations  to  which  the  relevant  legislation 
applies, whether as suppliers, successive consignees, carriers or processors, managers, 
coordinators or in any other capacity. 

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

Article  12 

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

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

Done at Brussels, 

For the Council 
The President 

10 

Proposal  for 
COUNCIL OF THE EUROPEAN UNION ACT 
establishng a Convention for the protection of the Communities' financial  interests 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty  on European Union,  and in  particular point  (c)  of  the second 
indent of Article K.3(2) thereof, 

Having regard to the proposal  from the Commission(1), 

Having regard to the opinion of the European Parliament, 

Whereas, by virtue of Article K.l(5)  of the Treaty on European Union, measures to combat 
fraud  on  an  international  scale  are,  without  prejudice  to  the  powers  of  the  European 
Community,  a  matter  of  common  interest  warranting  cooperation  under  Title  VI  of 
that Treaty; 

Whereas Article 209a of the Treaty establishing the European Community, Article 78i of the 
Treaty establishing the European Coal  and Steel Community and Article  183a of the Treaty 
establishing  the  European  Atomic  Energy  Community  impose  specific  obligations  on  the 
Member States to counter fraud against the Communities' financial interests, without prejudice 
to  other more general  obligations  incumbent  on  them  by  virtue  of  Article  5  of  the Treaty 
establishing the European Community; 

Whereas the Council  Resolution  of 30 November  1993  declares that some of the questions 
to be dealt with in the fight  against fraud  injuring the Communities' financial  interests fall 
within areas of common interest covered by Title VI of the Treaty on European Union and 
specifies  the  substantive  questions  to which  special  attention  should be paid, including  the 
definition of offences, liability, penalties, extraterritorial  application and mutual assistance in 
criminal matters, and limitation ratione temporis: 

Whereas  the findings of  the  comparative  law  study  requested  of  the  Commission  by  the 
Council  Resolution  of  13 November  1991(2)  have  revealed  certain  inadequacies;  whereas a 
degree of compatibility  should therefore be secured between the laws of the Member States, 
for the specific purpose of protecting  the Communities' financial  interests; whereas such laws 
should be implemented in a consistent fashion; 

(1)  OJ No C 
(2)  OJNoC328,  17.12.1991,  p . 1. 

11 

Whereas(3) 

Has decided to establish the Convention attached hereto, which has been signed this day 
by the Representatives of the Governments of the Member States of the Union. 

Recommends  the  Member  States  to  adopt  the  Convention  in  accordance  with  their 
respective constitutional requirements. 

Calls upon the Member States to lodge with the General  Secretariat of the Council their 
instruments recording the completion  of the procedures required by their constitutional 
rules for the adoption of the Convention. 

Requests the Secretary-General  of the Council to inform the Member States of the date 
of entry into force of the Convention. 

Done at Brussels, 

For the Council 
The President 

(3)  See  footnote  to  Title  III  of  the  Convention - Judicial  cooperation  between 

Member States. 

Whereas  rules  should  be  laid  down  to  govern  jurisdiction,  the  commencement  of 
proceedings, extradition and mutual assistance, since the conventions concluded hitherto 
for mutual assistance in criminal matters are not applicable in all the Member States and 
do  not  achieve  all  that  is  necessary  for  the  protection  of  the  Communities'  financial 
interests; and whereas the Member States bear the primary responsibility  for detecting, 
prosecuting and penalizing fraud against the Communities' financial  interests. 

12 

CONVENTION FOR THE PROTECTION OF THE COMMUNITIES' FINANCIAL 
INTERESTS 

THE  MEMBER  STATES  OF  THE  EUROPEAN  UNION,  HIGH  CONTRACTING 
PARTIES TO THIS CONVENTION, 

Having regard to Council of the European Union Act No ... of.. , 

Whereas cases of economic and financial fraud affecting Community revenue and expenditure 
are often  not confined  to a single country  and are more and more commonly committed by 
organized crime; 

Whereas organized crime is likely to exploit the systems for collection and disbursement of 
Community funds  with all the more impunity  as national  bodies of legislation  provide for 
inadequate measures to penalize such fraud  and diverge so widely as to hinder the  effective 
protection of the Communities' financial interests; 

Whereas protection of the Communities' financial  interests calls fo the criminal prosecution 
of all fraudulent conduct injuring those interests and requires the Member States, in doing so, 
to apply the same definition; 

Whereas the principle of personal  liability is the basis for  criminal liability in the Member 
States; whereas the treatment of the different parties to the commission of an offence and the 
complexity of decision-making procedures within businesses necessitate changes to the laws 
of the Member States; 

Whereas businesses play an important role in the areas financed by the Community budget, 
and provision must be made for  them to be held liable for  fraud  against the Communities' 
financial  interests where the fraud  is committed with the assistance of any body, legal agent 
or person in those businesses who enjoys decision-making powers, whether in law or in fact; 

Whereas the Member State in whose territory essential factual elements constituting the fraud 
occurred should, in the first  instance, have jurisdiction; 

Whereas transnational  fraud  against the Communities' financial interests is more and more 
highly  organized  and  often  involves  several jurisdictions,  whilst  the  rules  governing  the 
territorial extent of national laws impede the efficacy  of measures to counter it; 

Whereas(4) 

(4)  See footnote to Title III - Judicial  cooperation between Member States. 

Whereas the rules governing  the  obligation  to prosecute,  extradite and  afford  mutual 
judicial  assistance should be applicable to all  cases of fraud  against the Communities' 
financial  interests, including fiscal cases relating to excise duties, value-added tax and 
customs duties. 

13 

HAVE AGREED AS FOLLOWS: 

TITLE I - GENERAL PROVISIONS 

Article 1 - Definition  of the offence  of fraud 

1.  There shall be a specific offence  of fraud  against the Communities' financial interests. 

2. 

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

- 

a diminution of the Communities' own resources or other revenue; or 
the misappropriation, wrongful  retention or misapplication of monies paid by the 
Communities. 

3. 

Fraud  against the  Communities' financial interests  shall  apply  both to revenue and 
expenditure  provided  for  by  the  general  budget  and  to  all  other  revenue  and 
expenditure managed by or on behalf of a Community institution. 

4. 

Fraud against the Communities' financial  interests includes the following acts: 

- 

- 

the  preparation,  supply,  use  or  presentation  of  false,  incorrect  or  incomplete 
documents or statements where information  is to be furnished  prior to the grant 
of a subsidy or the receipt of monies; 
failure to furnish  information to the relevant authorities in relation to any change 
in the circumstances giving rise to the grant of a subsidy or the receipt of monies; 

-  misappropriation or dissipation of funds; 
-  knowingly using aid or subsidies obtained on the basis of incorrect or incomplete 

statements or other misleading acts. 

Article 2 - Attempts 

An attempt to commit fraud  against the Communities' financial  interests shall be punishable 
in the same way as the full  commission thereof. 

Article 3 - Liability 

1. 

2. 

3. 

Any person who is a party to fraud  against the Communities' financial  interests may 
be held liable as principal offender,  instigator, accomplice or receiver of stolen goods. 

Any person who exercises legal, delegated or de facto powers within a business may 
be held liable for  a fraud  against the Communities' financial interests committed by 
a member of the undertaking on its behalf. 

Any legal person shall be liable, at least to financial  penalties, for  any fraud  against 
the Communities' financial  interests  committed  by  any body, legal  agent or person 
enjoying decision-making powers, whether in law or in fact,  on its behalf. 

4. 

The heads of liability under paragraphs  1  to 3 shall not be mutually exclusive. 

14 

1. 

2. 

1. 

2. 

Article 4 - Penalties 

Fraud against the Communities' financial interests shall be punishable by a custodial 
sentence, by a financial  penalty  or by both.  The subject  of the fraud,  including the 
means  of  transport  used  for  its  commission,  and  the  proceeds  of  the  fraud  may 
be confiscated. 

Aggravated fraud  shall be punishable by harsher penalties. Aggravated fraud  shall be 
evidenced by the following: 

the repetition of the facts; 
the premeditated nature of the act; 
the involvement of the offender  as a member of a conspiracy; 
the offender's  status as a public servant or  officer; 

- 
- 
- 
- 
-  bribery of a public servant; 
- 

involvement of amounts in excess of ECU 50 000. 

TITLE H - APPLICATION OF NATIONAL LAW 

Article 5 - National jurisdiction and obligation to prosecute 

The Member State in which the essential factual elements constituting a fraud against 
the  Communities'  financial  interests  occurred  shall,  in  the  first  instance,  have 
jurisdiction to commence proceedings under its own law. 

Rules for the determination of the concept of "essential factual  elements constituting 
a fraud" shall be established as implementing measures in accordance with Article 10. 

Article 6 - Ambit of national law 

1.  Where the essential  factual  elements constituting  a fraud  against the Communities' 
financial  interests occurred in the territory of a non-member country, Member States 
shall treat the fraud  as having been committed entirely within their own territory  if: 

- 

- 

- 

the benefit  could have been obtained  or was obtained in, or was transferred  to, 
their territory; or 
the perpetrator of the fraud  within the meaning of Article 3 is a national  of one 
of them; or 
any act related to the fraud  was performed  in their territory. 

2.  Where  paragraph  1  applies,  the  Member  State  in  whose  territory  the  suspected 
offender  resides  or  is  arrested  shall,  in  the  first  instance,  have  jurisdiction  to 
commence proceedings. 

15 

TITLE DDE - JUDICIAL  COOPERATION  BETWEEN  MEMBER  STATES(5) 

Article 7 - Extradition,  prosecution  and limitation<6) 

(5) 

Title III is not within the scope of the Commission's initiative under Article K.3(2) of 
the Union Treaty. It is presented to the Council as material for reflection  so as to  offer 
a full  document. 

(6) 

Article  7 

1.  Member  States  shall,  in  accordance  with  the  procedures  laid  down  by  the 
extradition  treaties  and  agreements  to which  they  are  parties, extradite  a  person 
against whom proceedings have been commenced by the requesting Member State 
where  the  act  or  acts  of  which  he  is  accused  constitute  or  may  constitute  fraud 
against the Communities' financial  interests. 

Extradition  shall  not be  refused  solely  on the ground  that the offence  is a  fiscal 
offence,  or because  double criminality  is a precondition. 

Member States shall extradite sought for the purpose of enforcement  of a criminal 
penalty  or  preventive  measure  imposed  for  fraud  against  the  Communities' 
financial  interests. 

2.  If the Member State in whose territory the suspected offender  resides or is arrested 
declines to  extradite him  on  the ground  that  he  is a  national,  that  Member  State 
shall  submit  the  case to  its competent  authorities  in  order  that  proceedings  may 
be brought if they are considered appropriate. For this purpose, it shall request the 
transfer  of  proceedings  from  the  Member  State  having  jurisdiction  in  the 
first instance. 

That  Member  State  shall  then  treat  the  fraud  as  having  been  committed  in  its 
own territory. 

3.  Any event which  suspends limitation periods in the applicant Member  State shall 

have like effect  in the Member  State applied  to, and vice versa. 

16 

Article 8 - Judicial collaboration^ 

TITLE IV - RULES TO GIVE EFFECT TO THE CONVENTION 

Article 9 - Cooperation 

The Council shall establish regular cooperation, with the Commission's assistance, to evaluate 
the operation of this Convention. 

To this end a report shall be made every year on the operation of this Convention. 

(7) 

Article 8 

1  Member  States  shall  afford  mutual  assistance  in  all  judicial  proceedings 
commenced in respect of fraud  against the Communities' financial  interests. 

2.  For the purposes of this Convention, judicial  assistance shall extend to: 

- 

investigations,  including  the  hearing  of  witnesses,  experts  and  persons 
undergoing  examination,  carriage to the locus in quo and the preparation of 
expert reports; 

-  submission of evidence, case files and documents; 
-  delivery of procedural  documents and judicial decisions; 
-  submission  of  extracts  from  court  or  police  records,  accompanied  by  all 

relevant  information; 
-  searches and seizures; 
-  notification of documents seeking for the enforcement of penalties and similar, 

including the recovery of  fines  and costs; 

-  measures for the enforcement of fines, including orders for confiscation within 

the meaning of Article 4(1) 

3 

Judicial  collaboration  shall  be afforded  in respect  of all  acts constituting  fraud 
against the Communities' financial  interests. 

Double criminality  shall not be a precondition. 

4  Requests for judicial  collaboration  and  responses to them  may be made direct 
between  the  relevant  judicial  authorities.  Each  request  and  accompanying 
documents shall be translated into the language, or one of the languages, of the 
State applied to.  A copy of the request and of the response shall be sent to the 
relevant Ministries of Justice and the Commission. 

5.  Requests  for  judicial  collaboration  shall  as  a  general  rule  be  acted  upon  in 
accordance with the rules of the State applied to. They may, however, be acted 
upon in accordance with the rules of the applicant State if such rules are expressly 
set  forth  in  the  request  and  are  not  in  conflict  with  the  rules  of  the  State 
applied to. 

17 

Article  10 - Implementing measures 

1. 

2. 

The Council,  acting at the initiative  of  a Member  State  or on  a proposal  from  the 
Commission,  shall  adopt  such  measures  as may  be necessary  to give effect  to this 
Convention. 

The implementing measures may make provision  for  cooperation  between Member 
States and the Commission for the settlement of specific cases. 

Article  11 - Jurisdiction of the Court of Justice 

The Court of Justice of the European Communities shall have jurisdiction to: 

interpret the provisions of this Convention by way of preliminary ruling in accordance 
with the procedure laid down in the second and third paragraphs of Article 177 of the 
Treaty establishing the European Community; 

hear  and  determine  disputes  arising  out  of  the  operation  of  this  Convention,  on 
application from  a Member State or the Commission. 

TITLE V - FINAL PROVISIONS 

Article  12 - Publication 

This Convention  shall  be  published  in the  Official  Journal  of  the European  Communities 
immediately upon its entry into force. 

Article  13 - Entry into force 

This Convention shall enter into force on the first day of the second month following the last 
lodging by a Member  State of its instrument  of ratification  with the General  Secretariat of 
the Council. 

Done at Brussels, 

[Signatures] 

18 

BSN 0254-1475 

COM(94)214final 

DOCUMENTS 

EN 

09 01 

Catalogue number : CB-CO-94-265-EN-C 

ISBN 92-77-70360-1 

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