merrion street

The original proposal for this Directive was communicated by the EU

Commission to the Council on 12 July 2012. It aimed to replace what is

known as the PIF Convention of 1995 and its protocols.

The proposal contained a requirement for Member States to criminalise

various forms of fraud and corruption which damage the financial interests

of the Union along similar lines to the 1995 Convention. The Commission’s

proposal went further to address procurement related offences, to encompass

VAT, to require mandatory minimum sentences, and to require minimum

prescription (or statute of limitations) periods. Most controversially,

the Commission’s proposal was based on Article 325 of the Treaty on the

Functioning of the European Union (TFEU). A majority of Member States,

with the support of the Council’s Legal Service, objected to Article 325 as

a legal base for criminal law measures as they are of the view that

criminal law measures must be based on an article within Title V of Part 3

TFEU (Articles 67 to 89) concerning an area of freedom security, and

justice.

Following lengthy negotiations at the Working Group, Counsellor and COREPER

level the Justice and Home Affairs Council agreed on 6 June a Council

General Approach on the proposed Directive. The Government has decided

that Ireland should opt in to this General Approach in accordance with

Protocol 21. In accordance with Article 29.4.7 the approval of the Houses

is sought to that course.

The General Approach is significantly different from the Commission’s

original proposal in a number of areas. The scope excludes VAT and is

limited to expenditure in the form of grants and subsidies or cases where

intention to make an unlawful gain or cause a loss can be proven.

Procurement related offences have been removed. There are no mandatory

minimum prison sentences, only minimum levels of maximum sentences. The

prescription provisions are significantly modified. Most importantly,

however, the Council agreed the General Approach on the understanding that

the legal basis for the measure would be Article 83 (2) TFEU.

On foot of this agreement on a General Approach, the Council noted that 6

June would mark the commencement of the opt-in period for Ireland and the

UK in accordance with Article 3 of Protocol 21 to the Treaties.

The General Approach will form the basis for the Council’s engagement in

trilogues with the European Parliament and the Commission.

The 3 month period in respect of this proposal will expire on 6 September.

Purpose of the draft Directive

The purpose of the draft Directive is to move the basis for criminal laws

to protect the financial interests of the EU from the 1995 PIF Convention

to a basis under the provisions of the Lisbon Treaty. There is an added

significance to the proposed Directive in that Article 86 TFEU provides for

the possible establishment of a European Public Prosecutor’s Office (EPPO)

which would have responsibility for investigation and prosecuting offences

against the Union’s financial interests. Participation in EPPO, if a

proposal is advanced, will be optional for Member States.

Provisions of the Council’s General Approach to the Proposed Directive

The key provisions in the Council’s General Approach to the proposed

Directive are as follows:

Article 83 (2) is the legal base for the measure. (Preamble)

VAT revenues are excluded from the definition of the Union’s financial

interests. (Article 2)

The definition of fraud affecting the Union’s financial interests is

limited to expenditure in the form of grants and subsidies or cases where

intention to make an unlawful gain or cause a loss can be proven. (Article

3)

Article 4 provides for fraud-related offences affecting the Union’s

financial interests - money laundering, corruption and misappropriation.

It also defines “public official” which has a particular relevance for

those offences.

Article 5 addresses incitement, aiding and abetting and attempt to commit

offences.

Article 6 addresses the liability of legal persons

Article 7 requires that offences are punishable by criminal penalties.

“serious offences” – a matter for Member States to define in their own law

– must be punishable by a maximum penalty of at least four years

imprisonment.

Article 8 requires that the commission of offences as part of a criminal

organisation shall be regarded as an aggravating circumstance.

Article 9 addresses sanctions for legal persons.

Article 10 relates to the freezing and confiscation of the proceeds and

instrumentalities of offences.

Article 11 requires Member States to assert jurisdiction over offences

committed wholly or partly in their territory or by their citizens.

Article 12 requires a prescription (statute of limitations) period of at

least 5 years for “serious offences”. Recital 19 clarifies that this is

without prejudice to Member States (such as Ireland, UK and Cyprus) which

do not set limitation periods.

Article 13 refers to the recovery of sums unduly paid.

Article 14 is intended to ensure that the imposition of administrative

sanctions provided for in Regulation 2988/95 relating to the Union’s

financial interests will not be prejudiced by the proposed Directive.

Article 15 provides for cooperation with the European Anti Fraud Office

(OLAF).

Article 16 provides for the replacement (not repeal) of the 1995 PIF

Convention for those Member States participating in the Directive.

Articles 17 to 20 deal with transposition, reporting on implementation,

entry into force and the usual formalities.

Issues which arise for Ireland

While the original Commission proposal contained some elements of concern

to Ireland, such as mandatory minimum sentences and a legal base other than

in Title V of Part 3 TFEU, the General Approach agreed by Council does not

present any significant difficulties for Ireland.

Much of the content of the proposed Directive replicates the PIF Directive

of 1995 which was provided for in Part 6 of the Criminal Justice (Theft and

Fraud offences) Act 2001. While a preliminary examination of the proposal

in its present form indicates that Part 6 may need to be replaced, it is

not envisaged that the replacement provisions will be substantially

different to those in Part 6. When negotiations have concluded, the final

text of the instrument will be examined in conjunction with the Office of

the Attorney General to establish the precise legislative requirements

necessary to give full legislative effect to the Directive in Irish law.

Conclusion

The proposed directive will bring the law in this area under the framework

of the Lisbon treaty. It will further harmonise the approach across the EU

to the criminalisation of fraud affecting the Union’s financial interests.

Our own interests as a Member State are better protected by this measure

and by our participation in its negotiation and implementation. I commend

the motion to the Committee.