MultiScience - XXXI. microCAD International Multidisciplinary Scientific Conference University of Miskolc, Hungary, 20-21 April 2017 ISBN 978-963-358-132-2 THE PROTECTION OF THE FINANCIAL INTERESTS OF THE – THE PAST, THE PRESENT AND THE FUTURE

dr. Bence Udvarhelyi scientific researcher University of Miskolc, Faculty of Law, Institute of Criminal Sciences, Department of Criminal Law and Criminology

I. INTRODUCTION

It is a primary interest of the European Union to combat against crimes affecting its financial interests. According to some estimation, the overall damage caused by these criminal offences can reach 10-20% of the EU’s budget. [1] Apart from the substantial damage to the budget, on both the revenue and expenditure side, EU- also has indirect effects. The differences in the assessment of EU-fraud by the national authorities can cause illicit competition among the economic operators in the Member States, because perpetrators choose for the commitment of the criminal offences the Member States where the penalty the most lenient is. Furthermore, in a long term, crimes against the financial interests of the European Union can also affect the credibility, confidence and political acceptance of the EU. Therefore, these offences may seriously slow down the process of . [2] The European Union also realized the risks of these crimes and tried to create a coherent and effective framework to combat criminal offences against its financial interests. In this paper we intend to analyse the most important steps of this process.

II. THE PAST – THE PFI-CONVENTION AND PFI-REGULATION

Although crimes against the financial interests of the Union have extremely serious consequences, the EU has not adopted general rules to fights against these offences for a long time. Before the 1990’s, the protection of the EU budget was intended to be secured by sectorial directives. [3] However the lack of unified regulation caused serious problems, which led to the adaption of two legal instruments in 1995: a Convention [4] and a Regulation [5] on the protection of the financial interests (hereinafter: PFI-Convention and PFI-Regulation). As it can be seen the protection of the financial interests of the EU is based on two different pillars: while the PFI-Convention contains criminal measures against EU- fraud, the PFI-Regulation regulates the administrative means and sanctions.

II.1. The PFI-Convention

The main objective of the PFI-Convention is to ensure effective, proportionate and dissuasive protection of the Union's financial interests. In order to achieve this aim,

 SUPPORTED BY THE ÚNKP-13-6. NEW NATIONAL EXCELLENCE PROGRAM OF THE MINISTRY OF HUMAN CAPACITIES

DOI: 10.26649/musci.2017.114 the Convention creates a common definition of EU-fraud. In connection with the definition, the Convention distinguishes between fraudulent acts relating to the expenditure and to the revenue of the Union. In respect of expenditure, EU-fraud can be any intentional act or omission relating to the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities; non-disclosure of information in violation of a specific obligation, with the same effect; or the misapplication of such funds for purposes other than those for which they were originally granted. In respect of revenues, EU-fraud can be any intentional act or omission relating to the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities; non-disclosure of information in violation of a specific obligation, with the same effect; or misapplication of a legally obtained benefit, with the same effect. Furthermore, the Convention also criminalizes the intentional preparation or supply of false, incorrect or incomplete statements or documents having the aforementioned effects. [6] According to the Convention EU-fraud can only be punishable if it was committed intentionally. However, the Convention allows the Member States to infer the intentional nature of an act or omission from objective, factual circumstances. [7] The Member States are required to take all necessary and appropriate measures to criminalize EU-fraud in their national criminal law. [8] The penalty for EU-fraud differs according to its amount. In cases of minor fraud involving a total amount of less than EUR 4.000 without any particularly serious circumstances, Member States may provide for non-criminal penalties (e.g. administrative sanctions). If the amount of fraud exceeds EUR 4.000 Member States are obliged to set out effective, proportionate and dissuasive criminal penalties. And in cases of serious fraud, which involve a minimum amount set in each Member State, but at least EUR 50.000, the Member States have to punish EU-fraud by deprivation of liberty. [9] The Convention regulates the criminal liability of heads of businesses or persons having power to take decisions or exercise control within a business, who can be held liable in accordance with the principles defined by its national law if EU-fraud was committed by a person under their authority acting on behalf of the business. [10] The Convention also contains rules on jurisdiction, extradition and prosecution, cooperation between Member States and the ne bis in idem principle. [11] The European legislator also realized that not only EU-fraud, but other crimes could also harm the financial interests of the EU. Therefore, three Additional Protocols were adopted in 1996 and 1997, which deals with criminalization of active and passive corruption and money laundering and the liability of legal persons. [12]

II.2. The PFI-Regulation

The main objective of the PFI-Regulation is to adopt general rules relating to homogenous checks and to administrative measures and penalties concerning irregularities with regard to Community law. [13] Because the Regulation focuses on the administrative means of the protection of the financial interests of the EU it does not mention the criminal law notion of EU-fraud. Instead, the Regulation uses the definition of irregularity, which means an infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure. [14] In connection with sanctions, the Regulation distinguishes between administrative measures and penalties. Between the two categories several differences can be observed. [15] The aim of the former is the withdrawal of the wrongly obtained advantage, whereas the latter has a clearly punitive nature. While the former can be applied automatically and irrespectively of the guilt of the perpetrator (strict liability), the applicability of the latter is not obligatory and can only be used if the irregularity was committed intentionally or by negligence. Furthermore, in connection with administrative penalties, the nulla poena sine lege principle also applies, because the Regulation stipulates that no administrative penalty shall be imposed unless a Community act prior to the irregularity has made provision for it. However, in the event of a subsequent amendment of the provisions which impose administrative penalties and are contained in Community rules, the less severe provisions shall apply retroactively. [16] Pursuant to the Regulation, administration measures are the withdrawal of the wrongly obtained advantage by an obligation to pay or repay the amounts due or wrongly received, or by the total or partial loss of the security provided; and the payment of interest determined on a flat-rate basis. Administrative penalties are the payment of an administrative fine; the payment of an amount greater than the amounts wrongly received or evaded; the total or partial removal of an advantage granted by Community rules; exclusion from, or withdrawal of the advantage for a period; temporary withdrawal of the approval or recognition necessary for participation in a Community aid scheme; the loss of a security or deposit provided for the purpose of complying with the conditions laid down by rules or the replenishment of the amount of a security wrongly released; or other penalties of a purely economic type. [17]

III. THE PRESENT – DISCUSSION ON A DIRECTIVE ON THE PROTECTION OF THE FINANCIAL INTERESTS OF THE EU

On the 1st December 2009 the entered into force which empowered the European Union with a broad competence in connection with the protection of its financial interests. According to Article 310(6) TFEU the Union and the Member States, in accordance with Article 325, shall counter fraud and any other illegal activities affecting the financial interests of the Union. Article 325(1) TFEU repeats the obligation of the Union and the Member States to counter fraud and any other illegal activities affecting the financial interests of the Union through measures, which are deterrent and which are able to afford effective protection in the Member States, and in all the Union's institutions, bodies, offices and agencies. Article 325(2) TFEU requires the Member States to take the same measures to counter fraud affecting the financial interests of the Union as they take to counter fraud affecting their own financial interests. This provision is the so-called assimilation principle elaborated by the European Court of Justice in the famous Greek Maize case. [18] Furthermore Article 325(4) TFEU empowers the and the Council to adopt the necessary measures in the fields of the prevention of and fight against fraud affecting the financial interests of the Union with a view to affording effective and equivalent protection in the Member States and in all the Union's institutions, bodies, offices and agencies. These measures can be adopted in accordance with the ordinary legislative procedure, after the consultation with the Court of Auditors. This provision enables the Union to adopt directly applicable, supranational criminal law norms in connection with the protection of the financial interests of the European Union. [19] In 2012, the submitted a Proposal on the fight against fraud affecting the Union's financial interests (hereinafter: PFI-Proposal) [20] based on Article 325(4) TFEU, which will repeal the PFI-Convention and its Additional Protocols. The Proposal will be the first instruments which gives a clear definition of the Union’s financial interests. According to the definition, it means all revenues and expenditures covered by, acquired through, or due to the Union budget or the budgets of institutions, bodies, offices and agencies established under the Treaties or budgets managed and monitored by them. [21] Similar to the PFI-Convention, the PFI-Proposal also begins with the definition of EU-fraud, which is almost the same as in the Convention. [22] However the Proposal does not keep the highly debated and problematic provision of the Convention about the automatic inference of the intention of the perpetrator from objective circumstances. Apart from EU-fraud the Proposal enumerates four other fraud-related criminal offences, which could also affect the Union's financial interests. These are the following: fraud in public procurement, passive and active corruption, money laundering and misappropriation. It could be argued however, that other criminal offences, such as abuse of office or disclosure of professional secrecy should also be added to the Directive. Among the fraud-related crimes listed in the Proposal the definitions of corruption and money laundering were mostly taken over from the two Additional Protocols. Passive corruption is an intentional action of a public official, who, directly or through an intermediary, requests or receives advantages of any kind whatsoever, for himself or for a third party, or accepts a promise of such an advantage, to act or refrain from acting in accordance with his duty or in the exercise of his functions in a way which damages or is likely to damage the Union's financial interests. Active corruption can be described as an intentional action of whosoever promises or gives, directly or through an intermediary, an advantage of any kind whatsoever to a public official for himself or for a third party for him to act or refrain from acting in accordance with his duty or in the exercise of his functions in a way which damages or is likely to damage the Union's financial interests. In connection with the definition of money laundering the Proposal refers to the 3rd Money Laundering Directive. [23] The other two criminal offences are currently not covered by the existing EU instruments. In connection to fraud in public procurement the Member States are required to criminalize any provision of information, or failure to provide such information, to contracting or grant awarding entities or authorities in a public procurement or grant procedure involving the Union's financial interests, by candidates or tenderers, or by persons responsible for or involved in the preparation of replies to calls for tenders or grant applications of such participants, when committed intentionally, with the aim of circumventing or skewing the application of the eligibility, exclusion, selection or award criteria. Misappropriation can be described as an intentional act by a public official to commit or disburse funds, or appropriate or use assets, contrary to the purpose for which they were intended and with the intent to damage the Union's financial interests. [24] In connection with these crimes, the Proposal contains the definition of public official, which means a person exercising a public service function for the Union or in Member States or third countries by holding a legislative, administrative or judicial office; or exercising a public service function for the Union or in Member States or third countries, not holding such an office, participating in the management of or decisions concerning the Union's financial interests. [25] According to the PFI-Proposal, Member States are obliged to take all the necessary measures to ensure that committing, inciting, aiding or abetting the aforementioned criminal offences as well as the attempt to commit these offences are punishable as a criminal offence. [26] In connection with natural persons, the Proposal maintains the sanction system of the previous Convention, although it introduces significant modifications as well. The treshold of bagatell offences is increased from EUR 4.000 to EUR 10.000. Under this amount, if no paricularly serious circumstances occurred, Member States are entitled to provide criminal and non-criminal (administrative) sanctions as well. If the criminal offence involved a damage or advantage of more than EUR 10.000 perpetrators are required to be punished by effective, proportionate and dissuasive criminal penalties (e.g. fine, imprisonment). In case of serious crimes, where the damage of advantage is at least EUR 100.000 (or in case of corruption and money laundering EUR 30.000), Member States are obliged to punish these crimes with no other criminal sanctions but imprisonment. Contrary to the PFI-Convention, the PFI-Proposal also prescribes the minimum- maximum duration of imprisonment: serious and other criminal offences have to be punished by a minimum penalty of at least 6 months imprisonment and a maximum penalty of at least 5 years of imprisonment. If the crime was committed within the framework of a criminal organisation [27], the perpatrators have to be punishable by a maximum penalty of at least 10 years of imprisonment. [28] According to the PFI-Proposal not only natural persons, but legal persons can also be held liable for the offences covered by it. According to the Proposal, legal person mean any entity having legal personality under the applicable law, except for States or public bodies in the exercise of State authority and for public international organisations. The condition of the liability of a legal person is that one of the aformentioned criminal offences was committed for their benefit by a person having a leading position within the legal person, acting either individually or as part of its organ. The leading posion of this person can be based on a power of representation of the legal person; an authority to take decisions on behalf of the legal person; or an authority to exercise control within the legal person. Furthermore legal persons can also be held liable when the lack of supervision or control by the aforementioned person has made possible the commission of the criminal offence for the benefit of that legal person by a person under its authority. Sanctions for legal persons have to be effective, proportionate and dissuasive, which include criminal or non-criminal fines and other sanctions, e.g. exclusion from entitlement to public benefits or aid; temporary or permanent disqualification from the practice of commercial activities; placing under judicial supervision; judicial winding-up; temporary or permanent closure of establishments which have been used for committing the offence. The Proposal clearly prescribes that the liability of the natural and legal person are independent from each other, which means the liability of legal persons does not exclude criminal proceedings against natural persons who are perpetrators of the criminal offences. [29] Furthermore the PFI-Proposal contains provisions relating to the freezing and confiscation of proceeds and instrumentalities from the offences; to the conditions relating to the establishment of the Member States’ jurisdiction; to the prescription for offences affecting the Union's financial interests; to the recovery of sums unduly paid; and to the cooperation between Member States and the Commission. [30]

IV. THE FUTURE – ESTABLISHMENT OF A EUROPEAN PUBLIC PROSECUTOR’S OFFICE

According to Article 86 TFEU, in order to combat crimes affecting the financial interests of the Union, the Council may establish a European Public Prosecutor's Office (EPPO) from Eurojust, by means of regulations adopted unanimously after obtaining the consent of the European Parliament. [31] In this regulations the Council have to determine the general rules applicable to the EPPO, the conditions governing the performance of its functions, the rules of procedure applicable to its activities and to the admissibility of evidence, as well as the rules applicable to the judicial review of procedural measures taken by it in the performance of its functions. The EPPO shall be responsible for investigating, prosecuting and bringing to judgment the perpetrators and accomplices of offences against the EU’s financial interests. However, the may unanimously, after obtaining the consent of the European Parliament and consulting the Commission, extend the powers of the EPPO to other serious crime having a cross-border dimension and affecting more than one Member State. [32] With the legal basis of Article 86 TFEU the Commission submitted a Proposal on the establishment of the European Public Prosecutor’s Office (hereinafter: EPPO- Proposal) [33] in 2013. The EPPO-Proposal contains detailed provisions on the Status, organisation and structure of the EPPO as well as on the rules of procedure on investigations, prosecutions and trial proceedings. The EPPO-Proposal has a very strong connection with the PFI-Proposal. According to the EPPO-Proposal the EPPO will have competence in respect of the criminal offences affecting the financial interests of the Union defined in the PFI-Proposal and implemented by national law. Furthermore the EPPO also have an ancillary competence for other criminal offences inextricably linked with the crimes defined in the PFI-Proposal, under the conditions that the PFI-crimes are preponderant and the other criminal offences are based on identical facts. [34] It can be summarized therefore, that the future of the protection of the financial interests of the European Union will be that a common EU institution (EPPO) carries out investigations based on common EU material rules on definition of criminal offences. Of course this will not be easy, because vivid debates evolved on both proposals. However, the adoption of the two proposals would be essential because they could contribute to the establishment of a more adequate and effective protection of the EU’s financial interests.

VI. REFERENCES

[1] RASNER, Andreas: Erforderlichkeit, Legitimität und Umsetzbarkeit des Corpus Juris Florenz. Duncker & Humblot, Berlin, 2005, pp. 56-57; SPINELLIS, Dionysios D.: Das Corpus Juris zum Schutz der finanziellen Interessen der Europäischen Union. Kritische Vierteljahresschrift für Gesetzgebung und Rechtswissenschaft, 2/1999, pp. 141-142; TIEGS, Heiko W. A.: Betrugsbekämpfung in der Europäischen Gemeinschaft. Berliner Wissenschafts-Verlag, Berlin, 2006, pp. 57-58; WILLIAMS, Aled: Fighting fraud in the EU: a note on icebergs and evidence. ERA Forum, Vol. 14/2, 2013, pp. 229-234. [2] MURAWSKA, Agnieszka Aleksandra: Administrative Anti-Fraud Measures within the European Union. Nomos, Baden-Baden, 2008, pp. 53-54. [3] KARSAI Krisztina: Mozaikkép a közösségi pénzügyi érdekek büntetőjogi védelméről. Európai Jog, 2002/5, p. 14. [4] Convention on the protection of the European Communities' financial interests [OJ L 68, 15.3.2005, pp. 48-57] [5] Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial interests [OJ L 312, 23.12.1995, pp. 1-4] [6] Articles 1(1) and 1(3) PFI-Convention [7] Article 1(4) PFI-Convention [8] Article 1(2) PFI-Convention [9] Article 2 PFI-Convention [10] Article 3 PFI-Convention [11] Articles 4-7 PFI-Convention [12] Protocol to the Convention on the protection of the European Communities' financial interests [OJ C 313, 23.10.1996, pp. 1-11], Second Protocol of the Convention on the protection of the European Communities' financial interests [OJ C 221, 19.7.1997, pp. 11-22], 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, pp. 1-14] [13] Article 1(1) PFI-Regulation [14] Article 1(2) PFI-Regulation [15] See: CORSTENS, Geert – PRADEL, Jean: European Criminal Law. Kluwer Law International, The Hague – London – New York, 2002, p. 560; LIGETI Katalin: Büntetőjog és bűnügyi együttműködés az Európai Unióban. KJK-Kerszöv Kiadó, Budapest, 2004, pp. 194-195. [16] Article 2(2) PFI Regulation [17] Articles 4-5 PFI-Regulation [18] See: Case 68/88 Commission v. Greece [1989] ECR 2965, paras 22-25. [19] See for example: AMBOS, Kai: Internationales Strafrecht. Beck, München, 2014. pp. 447-448; ESSER, Robert: Europäisches und Internationales Strafrecht. Beck, München, 2014. p. 44; HECKER, Bernd: Europäisches Strafrecht. Springer, Berlin – Heidelberg, 2012. pp. 152-153, 493; SATZGER, Helmut: Das Strafrecht als Gegenstand europäischer Gesetzgebungstätigkeit. Kritische Vierteljahresschrift für Gesetzgebung und Rechtswissenschaft, 1/2008. p. 25; SIEBER, Ulrich: Die Zukunft des Europäischen Strafrechts – Ein neuer Ansatz zu den Zielen und Modellen des europischen Strafrechtssystems. Zeitschrift für die gesamte Strafrechtswissenschaft, 1/2009. p. 59. [20] Proposal for a Directive of the European Parliament and of the Council on the fight against fraud to the Union's financial interests by means of criminal law [COM(2012) 363 final] [21] Article 2 PFI-Proposal [22] Article 3 PFI-Proposal [23] Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing [OJ L 309, 25.11.2005, pp. 15-36] [24] Article 4(1)-(4) PFI-Proposal [25] Article 4(5) PFI-Proposal [26] Article 5 PFI-Proposal [27] Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime [OJ L 300, 11.11.2008, pp. 42-45] [28] Articles 7-8 PFI-Proposal [29] Articles 6 and 9 PFI-Proposal [30] Articles 10-15 Proposal [31] In the absence of unanimity in the Council, a group of at least nine Member States may request that the draft regulation be referred to the European Council. In that case, the procedure in the Council shall be suspended. After discussion, and in case of a consensus, the European Council shall, within four months of this suspension, refer the draft back to the Council for adoption. Within the same timeframe, in case of disagreement, at least nine Member States are entitled to establish on the basis of the draft regulation concerned. [32] The potential serious transnational crimes to which the powers of EPPO can be extended are listed in Article 83(1) TFEU. These so-called ‘eurocrimes’ are the following: terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime. However, it does not exclude the possibility to define other criminal offences which meet the aforementioned criteria. [33] Proposal for a Council Regulation on the establishment of the European Public Prosecutor's Office [COM(2013) 534 final, 17.7.2013] [34] Articles 12-13 EPPO-Proposal