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Tackling Fraud and Corruption in the European Union

About The Author

Former Author (Assistant Editor)

Author is a King's College London Law graduate, currently working as a corporate paralegal for a firm based in South West England. Author is due to begin his BPTC at the University of Law in September 2015, having attained a scholarship from Middle Temple.

A proposed new Directive endorsed by the European Parliament will seek to clamp down on the problem of fraud within the European Union and deal with any dishonest conduct of parties tendering for EU project contracts. The Directive, given the rather wordy title ‘the Directive on the fight against fraud to the Union's financial interests by means of criminal law’ will establish pan-European definitions of fraud and introduce criminal sanctions for those found guilty of dishonest conduct or actual defrauding of the EU budget.  

The Directive is part of the Commission’s plan to make it easier to prosecute those perpetrating fraud over EU funded projects. As stated in the proposed Directive explanatory memorandum, it is estimated that 600 million euros of the EU budget is lost each year to criminal activities. At present, cases of possible fraud that come to the attention of the EU through investigations and audits are referred to the individual Member State where the offence is suspected to have taken place, with the Member State authority left to carry out the investigation. However, this system has been shown to be very ineffective; statistics released by the European Parliament have highlighted that only 46% of these referred cases are followed up by the national judicial authorities, with 42% of these resulting in a criminal conviction. In order to remedy this obvious defect, the EU Commission have begun the process of establishing the EPPO, the European Public Prosecutor’s Office,which would be centrally responsible for investigating and prosecuting fraudulent use of EU budget money. Most EU-funded projects relate to infrastructure but are also a vital source of capital for expanding small and medium sized enterprises in the UK. You can find examples of these projects on the gov.uk website, with businesses across the UK benefitting from the grants.

The EPPO

The European Union website describes the EPPO as “an independent Union body with the authority to investigate and prosecute EU-fraud and other crimes affecting the Union’s financial interests.” It has been established to fill an ‘institutional gap’ where issues of jurisdiction can frustrate investigations. National authorities can only investigate fraud that occurs within their own country, and the current EU bodies such as Europol do not have the power to conduct cross-border criminal investigations.  There will be a head European Public Prosecutor that will manage the operation, with European Delegated Prosecutors installed in every Member State who can coordinate their investigations within each Member State. If the UK were to implement this structure, it would most likely not require a separate lawyer to take up paid employment, but rather be a selected member of the Bar who would continue to do similar work through chambers.

Currently, the UK has exercised its power to opt-out of the EPPO project but like many opt-outs that have gone before it, it could prove to be largely ineffective. Barry Vitou of Pinsent Masons has highlighted that UK companies and their affiliates or subsidiaries must ensure that their procedures would comply with an EPPO investigation. He commented that “The EU is very conscious of the need to be seen to do more to ensure that taxpayers’ money is spent properly, and it will be determined to ensure that the EPPO is not a toothless tiger.” The new sanctions contained within the latest Directive are the clearest indication yet that the EPPO will be given the requisite powers to back up any investigations that are instigated.

New Offences and Sanctions

The explanatory note to the Directive stresses the importance of common definitions of key terms such as “corruption”, as there is a wide range of divergent approaches to criminalising fraud across the EU. The Parliament noted that “the level of sanctions for fraud varies across the European Union from no mandatory sentence for fraud to 12 years imprisonment. Equally the time within which it is possible to investigate and prosecute offences varies widely, ranging from 1 to 12 years.” At present, the UK regime found in section 1 Fraud Act 2006 lists fraud as an either-way offence, with a guilty party liable to imprisonment not exceeding 12 months, a fine or both on summary conviction or imprisonment not exceeding 10 years, a fine or both on conviction on indictment.

One of the stated aims of the common definition is to remove incentives for potential criminals to move to the more lenient Member States to carry out any illegal fraudulent activities. The Directive will establish several key definitions, including corruption, misappropriation and incitement, aiding, abetting and attempting to carry out these offences. The UK legislation and common law currently covers several of these offences, and could be one of the reasons that Theresa May recently commented that the establishment of the EPPO and associated powers were unnecessary. Compliance with the Directive itself would likely be particularly easy given the already substantial body of legislation relating to fraud and theft, with the caveat that these new powers would only be available to the EPPO in their investigations into fraud against the EU budget.

Fraud Investigations in the UK

In recent weeks the UK’s ability to investigate and prosecute serious fraud trials has been called into question on two separate occasions. Firstly, as already summarised by Thomas in a previous article, the ongoing dispute between the government and barristers over legal aid remuneration rates has led to the derailing of a high-profile trial and several others are due to run into similar difficulties in the coming months. Secondly, on a more tangential note, the UK body responsible for recovering proceeds of crime have been heavily criticised by the Public Accounts Committee highlighting that out of every £100 generated by the criminal economy, £99.65 was kept by the perpetrators.

Although these new powers do not seem to directly impact on these two areas, these events highlight that investigating and prosecuting fraud is no simple task and the EPPO will require a substantial financial backing and enforcement powers if it is to be successful. The key barometer of success will be the number of successful prosecutions and an appreciable decrease in fraud in the longer term. The increase in powers of a further Union institution may cause some Eurosceptics to question whether this is a further step towards a federalised Europe, but the powers and Directive itself will be integrated into the Member State rather than being detached from current practices. A move towards better coordination between prosecuting authorities would hopefully reduce any obstacles to effective investigation rather than creating ‘red tape’ or more bureaucracy. The harmonisation procedures instigated by the EPPO and the Directive will hopefully ensure that more complex frauds that have a cross-border element can be effectively investigated and that will surely be welcomed by all.

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Tagged: Banking & Finance, Commercial Law, Criminal Law, European Union

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