September 28, 2020

EU fraud, corruption and money laundering – the EU Public Prosecutor’s Office takes shape


The recent appointment by the EU Council of its European Public Prosecutors is a significant step forward for the EU Public Prosecutor's Office ("EPPO").  The EPPO was established by Council Regulation EU 2017/1939 of 12 October 2017.  It is aiming to commence its operations towards the end of this year. 

The member states participating in the EPPO are: Austria; Belgium; Bulgaria; Croatia; Cyprus; Czech Republic; Estonia; Finland; France; Germany; Greece; Italy; Latvia; Lithuania; Luxembourg; Malta; the Netherlands; Portugal; Romania; Slovenia; Slovakia; and Spain. 

Each of these 22 participating member states nominated its own prosecutor.  Each nominee had to be part of that member state's public prosecution service or judiciary.  The nominees were also required to have the qualifications necessary for high prosecutorial or judicial office in their member state.  Experience of financial investigations, and criminal cases with an element of international judicial cooperation, was also essential.

These 22 prosecutors and the European Chief Prosecutor, Laura Codruţa Kövesi, will constitute the College of the EPPO.  The College will set the EPPO's internal procedural rules for investigations and prosecutions, as well as determining what matters will be prioritised.  The prosecutors will oversee the EPPO investigations and prosecutions. 

The EPPO will be the first supranational public prosecution office.  Its central HQ will be in  Luxembourg.  As an independent and decentralised organisation, it will not be a part of the EU institutions and will not take instructions from them or from national authorities.  However, it will be accountable to the European Parliament, the EU Commission and the EU Council for its activities.­

The aim of the EPPO is to better combat fraud against the EU’s budget and in particular to improve co-operation between participating member states.  It is estimated that the cost of fraud to the EU budget was about €500 million in 2017 alone.1

Member States were required last year to incorporate Directive (EU) 2017/1371 ("PIF Directive") into their national laws.  The PIF Directive paved the way for the EPPO through the harmonisation of sanctions, limitation periods and definitions for crimes against the EU’s economic interests.

There are a number of EU organisations that already exist to protect taxpayers’ money – OLAF (the European Anti-Fraud Office), Eurojust (the European Agency for criminal justice cooperation) and Europol (the European Police Office)OLAF’s most recent annual report2 stated that its work included fraud cases where profits were made by declaring inaccurate values for goods imported into the EU and cross-border investigations into collusion between beneficiaries and contractors.  OLAF also investigated corruption in the tender processes for high-value EU contracts.

There is a weakness in the current protection afforded to the EU budget, because the existing EU bodies cannot conduct criminal investigations or prosecute fraud cases.  OLAF can only refer the results of its administrative investigations to the competent national authorities, which then decide independently whether or not to initiate criminal proceedings based on OLAF's findings. 

In addition, national law enforcement efforts are fragmented across Member States, which do not always take the action required to tackle crimes against the EU budget.  Between 2009 and 2016 less than 50% of OLAF’s recommendations resulted in charges being brought by the national prosecution authorities.  Further, historic recovery rates of amounts lost to fraud have reportedly been low.  The existing EU organisations do not have sufficient powers to investigate and prosecute the particular type of crime that the EPPO will focus on, but they are expected to be 'key partners' in its future work. 

The task facing the EPPO will be to investigate, prosecute and take to judgment criminal offences that harm the EU's financial interests.  The harmful activities to be investigated include: fraud, corruption and money laundering.  There is intended to be a general minimum case value of €10,000 for fraud cases involving EU funds, unless the case involves cross border VAT fraud in which case the minimum value will be €10,000,000.  Companies will be  prosecuted and sentenced in accordance with the laws of the Member State in which the prosecution by the EPPO is brought. 

As well as improving co-operation between member states, the EPPO will also need to establish working relationships with the non-participating EU Member States and non EU countries where companies or individuals are involved in fraudulent activity against the economic interests of the EU.  The EPPO intends to implement regulated working arrangements with these other countries, which may include the exchange of information and possibly the secondment of  officers to act as liaisons with the intention of fostering cooperation. 

The EPPO estimates that its initial workload will consist of about 3,000 cases, with a further 2,000 cases estimated to be added annually.  Despite the appointment of 22 prosecutors, concerns have still been raised as to whether the EPPO's resources (both in terms of finance and personnel) will be sufficient to enable it to cover its broad jurisdiction and to deal with the complex criminal cases that it is intended to investigate. 

It will be interesting to see what issues the EPPO decides to focus on.  We anticipate that Public Procurement is one of the areas that that the EPPO will have in its sights.  An OECD Report3 last year referred to several examples of fraud against the EU budget including a price fixing cartel in the context of EU funded road building contracts and Mafia infiltration of an EU motorway construction project involving "ghost" roadworks.

Another area that has come under public scrutiny is the billions in farm subsidies that are provided to Member States.  A New York Times investigation4 in 2019 highlighted the broad discretion that Member States have as to the distribution of subsidies and the lack of accountability for how the money is allocated within each member state.  The combination of these factors and others gives rise to the risk of corruption and exploitation by criminals.  Is this the type of issue that the EPPO will be ready to confront?  If it is not, then can the EPPO really tackle the cancer of crime that erodes the effectiveness of the EU budget?

The EPPO will impact corporations involved in matters that incorporate EU funding, and/or that are subject to the EU cross border VAT system.  The PIF Directive includes a requirement that Member States provide for corporate liability for fraudulent acts that are against the EU's economic interests.  The EPPO may rely on corporations to report suspicious activity and to provide evidence to assist it with its investigations and prosecutions.

One of the early tasks for the EPPO will be for it to determine what procedures it will institute for investigating corporations suspected of criminal activity.  This will include deciding how best to work with government organisations within the member states that are responsible for the regulation of corporations. 

Companies will need to take account of the increased risk of prosecution for misconduct relating to EU funded projects and the EU cross border VAT system.  Steps should also be taken by companies to review and reinforce their internal controls and compliance programs in light of this heightened risk.

As a brand new organisation, there are considerable challenges ahead for the EPPO  in fulfilling its aim of better protecting the EU budget, so its 22 new prosecutors will certainly have their work cut out for them.

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