The European Commission has recently adopted a proposal for a new directive on the fight against fraud to the Union’s financial interests by means of criminal law, to crack down on fraud and misuse of European Union (EU) funds by seeking criminal penalties for the worst offenders.

Although the EU has a legal framework in place against fraud, under the Convention on the Protection of the European Communities’ Financial Interests (‘PIF Convention’), money laundering and corruption, the 27 EU member states have along the years adopted various regulations that very often lead to diverging levels of protection within their respective legal systems. Such diversions have a negative impact on the effectiveness of the Union’s policies to protect its financial interests, as demonstrated in the Impact Assessment accompanying the proposed directive.

The Treaty of Lisbon has strengthened the EU’s powers in protecting its financial interests. Consequently, to criminalise the fraudulent use of EU funds, the proposed directive seeks to set a minimum sentence of six months’ jail for serious offenders against the EU budget. According to EU Commissioner for Justice, Viviane Reding: “EU money must not be pocketed by criminals... It is crucial to put in place criminal law rules of the highest standard, in order to protect our taxpayers’ money.” The proposed directive lists the differences in legal sanctions related to tax fraud in different EU member states, and seeks to create a more harmonised framework for prosecuting and punishing crimes involving the EU budget so that criminals no longer exploit differences between national legal systems.

The proposed directive shows that in Malta the different level of sanctions are as follows:

• Imprisonment is between four months and one year according to Article 298(1) of the Criminal Code (CC) which states that anyone who forges or alters, without the consent of the owner, the name, mark or any other distinctive device of any intellectual work or any industrial product, or knowingly makes use of any such name, mark or device forged or altered, without the consent of the owner, even though by others;

• Imprisonment for a term not exceeding 18 months and payment of a fine of €2,329.37 to €34,940.60 to whoever knowingly makes use of any mark, device, signboard or emblem bearing an indication calculated to deceive a purchaser as to the nature of the goods, or sells any goods with any such mark, device or emblem as stated in Article 298C of the CC;

• Imprisonment from seven months to two years for whoever obtains money or property by false pretences (Article 308 CC); and

• Imprisonment from one to six months or a fine for those who, by means of any unlawful practice, are involved in other cases of fraudulent gain, as specified in Article 309 CC.

In the recently published annual report by the European Anti-Fraud Office (OLAF) – a European Commission’s independent body which investigates cases of fraud, assists EU bodies and national authorities in their fight against fraud and contributes to the design of anti-fraud legislation – the conviction rate in cases involving offences against the EU budget varies considerably across the member states, ranging from 14% to 80%. In 2011, OLAF closed 208 cases involving the suspected criminal use of money from the EU budget and alleged fraud or corruption by staff in the EU institutions.

The report shows that national authorities recovered around €700m of misused funds and investigations led to prison sentences totalling more than 500 years. Therefore, the proposed directive in particular, aims to improve cooperation and the exchange of information between all competent actors, including police, customs, tax and judicial authorities, and ensure the admissibility of evidence stemming from such cooperation. Romania is the most investigated country for EU funds fraud; whereas member states like Malta, Ireland, Latvia, and Lithuania continue to report very low fraud cases of investigations.

The proposed directive would replace the 1995 PIF Convention. If adopted, this proposal would have to be implemented by all the 27 EU member states, or they could face legal action at the Court of Justice of the European Union. Moreover, the European Commission foresees to put forward a separate proposal for a directive on the harmonisation of procedural criminal law in the member states in 2013.

Brenda Azzopardi is an Executive, (EU Policy & Legislation), Meusac