Report from the Commission - Implementation by Member States of the Convention on the Protection of the European Communities’ financial interests and its protocols Article 10 of the Convention {SEC(2004) 1299}
Date: 2004-10-25
Institutions: European Commission
Subjects: EU financing, criminal law, financial interests of members, financial policy, fraud against the EU, market protection

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 25.10.2004 
COM(2004) 709 final 

REPORT FROM THE COMMISSION 

Implementation by Member States of the Convention on the Protection of 
the European Communities’ financial interests and its protocols 

Article 10 of the Convention 

{SEC(2004) 1299} 

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1. 

INTRODUCTION 

The  protection  of  financial  interests  in  criminal  law  has  been  promoted  as  a  high 
priority  for  the  European  Community  since  the  1970s,  but  the  first  instruments 
adopted for this purpose were the PFI Convention of 26.7.1995,1 the 1st Protocol of 
27.9.1996,2  the  ECJ  Protocol  of  29.11.19963  and  the  2nd  Protocol  of  19.6.19974 
(referred to as the PFI instruments), all adopted under Title VI EU Treaty. The PFI 
instruments set out to establish a common base for the criminal-law protection of the 
EC’s financial interests. The PFI Convention, the 1st Protocol and the ECJ Protocol 
entered  into  force  on  17.10.2002  following  ratification  by  the  then  15  Member 
States. Ratification of the 2nd Protocol by IT, LU and AT is still awaited. 

As  the  Council  has  not  yet  adopted  a  Common  Position  on  the  proposal  for  a 
Directive  on  the  criminal-law  protection  of  the  Communities’  financial  interests  on 
the basis of Article 280 EC Treaty,5 the Commission believes the time has come to 
look into the national implementation measures and to consider the impact of the PFI 
instruments. The purpose of this report is to check whether the objective of effective 
and equivalent protection of the EC’s financial interests has already been attained in 
the 
all  Member  States.  The 
implementation of the PFI instruments should contribute to advancing the legislative 
process  concerning  the  proposal  for  a  Directive  or,  as  the  case  may  be,  to  using 
dispute settlement procedures under the PFI instruments. 

identification  of  persistent  shortcomings 

in 

A report on implementing the PFI instruments is currently necessary to take stock of 
the developments in protecting the EC’s financial interests through national criminal 
law,  even  if  not  all  the  Member States  have  ratified  all  the  PFI  instruments.  The 
accession of new Member States opens a new chapter in the process of monitoring 
implementation, which will have to be dealt with separately.  

2. 

BACKGROUND 

2.1. 

Purpose 

The  main  reason  for  this  report  is  to  evaluate  the  way  Member  States  have 
conformed  to  the  PFI  instruments.  The  report  is  also  the  appropriate  instrument  to 
verify the need to proceed with the dispute settlement procedure under Article 8 PFI 
Convention. 

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5 

of 

on 

the 

financial 

protection 

the  European  Communities' 

Convention 
OJ C 316, 27.11.1995, p. 49. 
Protocol  to  the  Convention  on  the  protection  of  the  European  Communities'  financial  interests, 
OJ C 313, 23.10.1996, p. 2. 
Protocol on the interpretation, by way of preliminary rulings, by the Court of Justice of the European 
Communities  of  the  Convention  on  the  protection  of  the  European  Communities'  financial  interests, 
OJ C 151, 20.5.1997, p. 2. 
Second Protocol to the Convention on the protection of the European Communities' financial interests, 
OJ C 221, 19.7.1997, p. 12. 
COM(2001)  272 
COM(2002) 577 final, 16.10.2002: OJ C 71 E, 25.3.2003, p. 1. 

final,  23.5.2001:  OJ  C  240  E,  28.8.2001,  p.  125,  as  amended  by 

interests,  

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Although the PFI instruments are placed in the 3rd pillar, they pursue aims required 
also under Article 280 EC Treaty: 

•  Measures under both Article 280(1) EC Treaty and the PFI instruments must act 
as a deterrent and  be  such as to afford effective protection of  the  EC’s financial 
interests in the Member States. 

•  Article  280(2)  EC  Treaty  obliges  Member  States  to  take  the  same  measures  to 
counter  fraud  affecting  the  EC’s  financial interests  as  they  take  to  counter  fraud 
affecting  their  own  financial  interests.  This  assimilation  principle  was  an 
underlying consideration when drawing up the PFI instruments. 

•  Both  Article  280(3)  EC  Treaty  and  the  PFI  instruments  alike  aim  to  foster 

cooperation between the Member States, together with the Commission. 

•  The  PFI  instruments  are  measures  in  the  prevention  of  and  fight  against  fraud 
affecting  the  EC’s  financial  interests  which  are  designed  to  afford  equivalent 
protection in the Member States, as required by Article 280(4) EC Treaty. The PFI 
instruments are contributing to the attainment of the equivalence principle. 

Article 10 PFI Convention requires Member States to transmit to the Commission the 
text of the provisions transposing the PFI instruments into their domestic law. Thus, 
this  report  also  serves  as  a  conduit  for  circulating  the  information  that  has  been 
received.6 

2.2.  Method  

The  report  focuses  on  the  15  Member  States  before  the  accession  on  1.5.2004.  It 
further  concentrates  on  provisions  in  the  PFI  instruments  relating  to  criminal  or 
procedural  law.  It  does  not  take  into  account  provisions  that  do  not  require 
implementation, such as those on cooperation and data protection.  

A look into the implementation of the 2nd Protocol is justified because the majority 
of  Member  States  have  ratified  it.  Seven  years  have  passed  since  its  adoption.  AT 
and  LU  are  preparing  draft  legislation  to  implement  the  provisions  on  liability  of 
legal  persons.  IT  has  already  enacted  most  of  the  related  implementing  measures. 
The main components, such as money laundering and confiscation, are closely linked 
to the existing acquis. 

For  evaluating  the  implementation  of  the  PFI  instruments,  it  is  appropriate  to  take 
into  account  the  same  evaluation  criteria  as  they  have  been  already  established  for 
assessing the implementation of directives in the 1st pillar and Framework decisions 
in the 3rd pillar. 

However,  the  assessment  criteria  are  in  the  first  place  the  provisions  of  the  PFI 
instruments themselves. To evaluate the level of protection provided by criminal law 
of  the  EC’s  financial  interests  through  national  measures,  it  is  necessary  to  verify 

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Point  4.1.1  of  the  Annual  report  2002  on  the  Protection  of  the  Communities’  financial  interests, 
COM(2003) 445 final, 4.12.2003, announces an analysis of the way in which the Member States have 
conformed to their obligations under the PFI instruments. 

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implementation for each article and each Member State based on a comparative law 
analysis. The following contains a summary assessment. A detailed evaluation is to 
be found in a Commission staff working paper associated with this report. 

3. 

ASSESSMENT 

3.1. 

Criminal offences  

Fraud affecting the EC’s financial interests (Articles 1 and 2, PFI Convention) 

The  prime  intention  of  the  PFI  Convention  was  to  overcome  loopholes  and 
incompatibilities as regards fraud affecting the EC’s financial interests.  

Thanks  to  the  equivalence  principle  (which  is  also  contained  in  Article  280(4)  EC 
Treaty),  the  criminalisation  of  fraudulent  conduct  has  become  more  similar 
throughout the EU.  

That said, as regards fraud affecting the EC’s expenditure, only DK, EL, ES and IE 
can  be  considered  as  completely  compliant.  Furthermore,  the  laws  of  IT  and  NL 
seem  to  avoid  gaps  and  loopholes  which  could  allow  expenditure  fraud  to  go 
unpunished.  The  laws  of  BE,  DE,  LU,  AT,  PT,  FI  and  SE  might  not  fully  comply 
with the definition of fraud, since they require additional elements for some forms of 
fraud. In FR and UK there seems to be a risk that certain forms of fraud regarding 
EC expenditures are not criminalised. In FR, for instance, fraud committed through 
the non-disclosure of information should be further scrutinised,  while  UK  law  may 
present serious uncertainty as regards the misappropriation of funds. 

The overall picture is better as regards fraud affecting the EC’s revenues, where DE, 
ES, IT, NL, AT, PT and FI have complied with the PFI Convention. The scope of the 
criminal-law  protection  of  VAT  own  resources  is  not  completely  clear  in  DK,  EL, 
FR,  IE  and  LU.  Subject  to  further  analysis  of  the  legal  practices  of  the  courts, 
amendments  of  legislation  appear  necessary  to  address  potential  gaps  for  certain 
forms  of  fraud  in  SE  and  UK  concerning  the  misappropriation  of  legally  obtained 
benefits and in BE for the element of deceit in customs law. Finally, it seems that in 
the UK only fraud directed against its own authorities is criminalised and that fraud 
of  VAT  or  customs  duties  requires  additional  subjective  elements,  namely  being 
“knowingly  concerned  in,  or  in  the  taking  of  steps  with  a  view  to,  the  fraudulent 
evasion”. In BE, FR and AT, the punishment for certain forms of fiscal fraud appears 
not to be proportionate and dissuasive, lacking sufficient custodial sentences.  

This persisting lack of a common definition in the Member States of what constitutes 
fraud affecting EC financial interests can still make prosecution of cross-border fraud 
and EU-level cooperation difficult. 

Criminalisation  of  the  intentional  preparation  of  false,  incorrect  or  incomplete 
statements, required by Article 1(3) PFI Convention, appears to be found in DK, EL, 
ES, IT, IE, NL and SE. For the other Member States, no definitive conclusions can 
be drawn at this stage. 

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Corruption (Articles 2 to 5, 1st Protocol) 

In  general,  implementation  regarding  active  and  passive  corruption  is  more 
advanced, due in part to similar Member States’ obligations under other international 
conventions.  All  Member  States  appear  to  provide  for  corruption  offences.  In  DE, 
EL, IE, AT and SE, their specific scope may however be restrictive. ES, SE and UK 
have  not put  forward convincing arguments that the offences are also applicable to 
Community  officials.  With  regard  to  the  assimilation  of  members  of  European 
Institutions,  in  BE,  DK,  ES,  NL  and  PT,  full  compliance  seems  to  depend  on  the 
courts’ interpretation of the relevant laws.  

Money Laundering (Article 2, 2nd Protocol) 

The Member States’ degree of compliance with the 2nd Protocol as regards money 
laundering is largely positive. BE, DK, ES, FR, IE, IT, NL, PT, FI and UK seem to 
fully comply, ES only as regards ‘serious’ fraud. For SE, it seems uncertain whether 
tax and customs fraud constitutes predicate offences. In LU, fraud is only a predicate 
offence if committed by a criminal organisation. In DE and AT, predicate offences 
do not include fiscal fraud unless conducted in an organised way. In EL, VAT fraud 
appears not to be mentioned as a predicate offence.  

3.2. 

General concepts of criminal law 

Criminal liability of heads of businesses (Article 3, PFI Convention) 

Article 3 PFI Convention stipulates criminal liability for heads of businesses in cases 
of fraud, corruption or money laundering affecting the EC’s financial interests by a 
person under their authority acting on behalf of the business. 

Only  NL  appears  to  explicitly  provide  for  criminal  liability  of  heads  of  businesses. 
The scope and coverage of criminal liability for heads of businesses remains unclear 
in  BE,  DK,  DE,  IT,  LU,  AT  and  SE,  where  the  general  rules  on  participation  are 
taken as an argument to deny the need for specific rules. No certainty exists as to the 
full  impact  of  the  participation  rules.  Further  explanations  are  required  to  assess 
whether the result to be achieved by Article 3 PFI Convention is effectively ensured, 
for instance through examples of standing jurisprudence (FR). IE seems not to have 
introduced the concept of criminal liability of heads of businesses, requiring ‘guilty 
knowledge’ in any case.  

The  Commission  notes  that  the  Member  States  have  shown  a  certain  reluctance  to 
scrutinise  their  national  systems  with  regard  to  the  concept  of  criminal  liability  of 
heads  of  businesses.  More  feedback  is  needed,  since  Member  States  are  simply 
relying on what is already to be found in their national laws. The Commission is not 
convinced that the reference to existing domestic provisions is sufficient and believes 
that incompatibilities continue to exist by virtue of the fact that a decision-maker is 
liable under different circumstances depending on the country concerned. Legislative 
action by Member States to introduce specific rules on the criminal liability of heads 
of businesses might well be necessary. 

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Liability of legal persons (Articles 3 and 4, 2nd Protocol) 

Apart from LU and AT, Member States stipulate the liability of legal persons. Three 
of  them  appear  to  fail  to  provide  for  liability  of  legal  persons  for  all  offences 
contained in the PFI instruments, omitting, for example, active corruption and money 
laundering (PT), tax and customs fraud (FR) or fraud not deemed ‘serious’ (ES). For 
BE, DK, IE, SE and UK, it is doubtful whether they provide for liability where lack 
of  supervision  or  control  has  made  it  possible  for  the  offence  to  be  committed  or 
where the offence was committed by a subordinate person.  

The analysis shows that, as regards similar treatment for firms and individuals guilty 
of  the  same  criminal  behaviour,  the  Member  States  have  advanced  considerably. 
Even LU7 and AT,8 which have not yet ratified the 2nd Protocol, seem to be ready to 
accept the liability of legal persons. The Commission also notes that the concept of 
liability of legal persons has, in the meantime, become a widespread requirement in 
recent EU and international instruments. 

Confiscation (Article 5, 2nd Protocol)  

Concerning the provision on confiscation, existing EU and international instruments 
providing for similar measures have doubtlessly helped to produce a positive result. 
BE, DK, DE, IE, NL, PT and FI appear to comply with Article 5, 2nd Protocol. The 
other  Member  States  appear  to  lack  provisions  for  the  seizure  and  confiscation  or 
removal  of  instruments  (UK)  or  property  of  corresponding  value  (ES)  or  seem  to 
have essentially omitted tax fraud (EL, SE) or other forms of fraud (FR). 

3.3. 

Complementary elements relating to criminal procedure 

Jurisdiction (Article 4, PFI Convention and Article 6, 1st Protocol) 

All  Member  States  provide  generally  for  jurisdiction  based  on  the  territoriality 
principle  for  fraud,  corruption  or  money  laundering.  FR,  AT  and  UK  seem  not  to 
provide for full territorial jurisdiction for fiscal fraud, for participation therein or for 
an  attempt  that  has  been  committed  only  in  part  within  their  territory  but  regards 
another  Member  State’s  authority.  BE  appears  not  to  ensure  jurisdiction  for  some 
categories of participation in fraud or money laundering committed abroad, while the 
UK  seems  to  have  procedural  difficulties  that  render  it  practically  impossible  to 
pursue  offences  committed  abroad,  e.g.  Scotland  might  lack  jurisdiction  for 
participation in and instigation of such fraud. 

Some  Member  States  have  taken  advantage  of  the  possibility  under  the  PFI 
instruments to submit reservations on the application of the personality principle for 
establishing jurisdiction. The persisting differences might therefore make it possible 
for offences to go unpunished and for the cross-border nature of many of the illegal 
activities affecting the EC’s financial interests to be inadequately treated.  

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In the explanatory report on the Draft Law No 5262, LU announced a draft law to introduce criminal 
liability of legal persons. 
The federal ministry of justice recently issued a draft law on criminal liability of legal persons. 

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‘Ne bis in idem’ (Article 7, PFI Convention) 

The ‘ne bis in idem’ rule appears to be recognised in principle. For DK, IT, PT, AT, 
SE, it appears possible to state that implementation has been effected. However, due 
to lack of information, an evaluation for the remaining Member States could not be 
done at this stage. 

3.4. 

General assessment 

At  first  sight,  an  analysis  of  the  national  provisions  adopted  in  the  Member  States 
shows  that  the  level  of  effective  criminal-law  protection  of  the  EC’s  financial 
interests has increased. As regards the definition of offences, national systems have 
grown closer to one another and penalties are usually set at a sufficiently high level 
so as not to impede mutual assistance. 

The assimilation principle (which is also contained in Article 280(2) EC Treaty) has 
found  some  recognition  among  Member  States.  In  particular,  the  PFI  instruments 
have  prompted  Member  States  to  take,  in  general,  the  same  measures  to  counter 
fraud  affecting  the  EC’s  financial  interests  as  they  take  to  counter  fraud  affecting 
their own financial interests. 

Nevertheless,  the  Commission’s  analysis  comes  to  the  conclusion  that  none  of  the 
Member  States  under  scrutiny  appears  to  have  taken  all  the  measures  needed  to 
comply fully with the PFI instruments. Gaps and loopholes in the law which allow 
offences  to  go  unpunished  remain  possible.  The  set  of  rules  contained  in  the  PFI 
instruments cannot be considered separately, since partial or non-implementation of 
an article also produces effects on provisions that, considered independently, might 
seem to comply with the PFI instruments. The considerable differences between the 
Member States  as  regards  criminal  penalties  shed  further  doubt  as  to  whether  the 
penalties  imposed  always  meet  the  Court  of  Justice  criteria  of  being  effective, 
proportionate and dissuasive.9  

Since the harmonisation objective has not yet been fully achieved, the Commission 
still considers the level of protection not to be advanced enough to exclude any risk 
of  leaving  unpunished  or  of  not  deterring  all  conduct  affecting  the  EC’s  financial 
interests that should be criminalised. The obligations of the Member States as regards 
their commitment to curb this sort of crime are still not fully met. 

The Commission believes that many of the reasons for which it submitted a proposal 
for a Directive on the criminal-law protection of the EC’s financial interests remain 
justified  and  considers  it  useful  to  relaunch  negotiations  within  the  Council  on  the 
amended proposal with a view to a Common Position. 

In this context, the Commission notes that the PFI instruments drawn up on the basis 
of the tools available under the Maastricht Treaty do not give an adequate response 
to  the  specific  need  for  criminal-law  protection  of  the  EC’s  financial  interests. 
Therefore,  the  Commission  will  further  examine  possible  approaches  offered  by 
subsequent  Treaty  amendments,  such  as  the  proposed  Directive  based  on  the  new 

9 

Within  the  meaning  of  Case  68/88  Commission  v  Greece  [1989]  ECR  2965  and  Case  C-352/92 
Milchwerke Köln/Wuppertal eG [1994] ECR I-3385. 

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Article  280  EC Treaty,  and  the  means  provided  by  the  Draft  Constitutional  Treaty, 
including  the  ultimate  possibility  of  establishing  a  European  Financial  Public 
Prosecutor's Office. 

4. 

RECOMMENDATIONS 

In view of the foregoing, it is therefore recommended that the Council should 

•  invite Member States  

– 

– 

– 

to  step  up  their  efforts  to  reinforce  national  criminal  legislation  to 
protect the Communities’ financial interests, in particular with regard to 
complete criminalisation of fraudulent conduct and criminal liability in 
a corporate context;  

to  reconsider 
instruments; 

their  reservations  stated  when  ratifying 

the  PFI 

(those  that have not done  so) to  implement  and  ratify  the 2nd Protocol 
without  delay,  given  that  more  than  seven  years  have  already  passed 
since its signature; 

•  treat as a matter of priority the objective of full application of the PFI instruments 

so as to avoid initiation of the procedures under Article 8 PFI Convention;  

•  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 EC Treaty. 

Once all Member States have notified their ratification of and/or accession to all PFI 
instruments, the Commission intends to submit a follow-up report on implementation 
in  the  new  Member  States  and  on  implementation  by  IT,  LU  and  AT  of  the  2nd 
Protocol. 

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