Overview
According to the European Commission,[1] fraud offences against the European Union (EU) budget cost the EU and its member states over €1 billion in losses in 2018, in addition to the annual losses of around €150 billion resulting from VAT fraud. With current criminal enforcement efforts across the EU apparently failing to effectively tackle such offences, the EU established the European Public Prosecutor's Office (EPPO) to act as an independent and decentralized office with the power to investigate and prosecute crimes against the EU budget, such as fraud, corruption, misappropriation and cross-border VAT-related fraud.
Set to become fully operational in November 2020, based in Luxemburg, with its funding for 2020 increased by nearly 50%, the EPPO is expected to ramp up prosecutions of corporate crime concerning the EU's financial interests and facilitate the recovery of misused EU funds. Previously, only national authorities could investigate and prosecute such offences within the scope of their own borders.
[1] European Commission's 2018 Annual Report on the Protection of the European Union's Financial Interests [2] Directive (EU) 2017/1371 on the fight against fraud to the Union's financial interests by means of criminal law [3] Certain EU member states have chosen to opt-out of the PIF Directive: Denmark, Hungary, Ireland, Poland, Sweden and the UK. Sweden has indicated that it intends to opt-in at a later stage. [4] Council Regulation (EU) 2017/1939 implementing enhanced co-operation on the establishment of the EPPO [5] See Thomas, J., "EU anti-fraud chief: member states need to prosecute more" (April 21, 2020), Global Investigations Review
EPPO Responsibilities
The EPPO is responsible for enforcement of the PIF Directive,[2] which harmonizes the implementation and enforcement of criminal law across 22 participating EU member states[3] with respect to offences against the EU budget. The relevant fraud offences under the PIF Directive include, amongst others:- Fraudulent expenditure that impacts the EU budget, budgets managed by the EU, or on its behalf, or causes loss to the EU's financial interest;
- Revenue that causes illegal diminution of the resources of the EU budget, budgets managed by the EU, or on its behalf;
- Passive and active corruption and misappropriation by public officials;
- Serious VAT-related fraud, where the offence is connected with the territory of two or more member states and involves a total damage of at least €10 million; and
- Participation in a criminal organization that focuses on committing an offence against the EU's financial interests under the PIF Directive.
How will enforcement change with the EPPO?
Although the European Anti-Fraud Office (OLAF) conducts administrative investigations into irregularities and fraud affecting the EU's financial interests and the EU budget, it lacks the necessary criminal investigation and prosecution powers effectively to clamp down on offences against the EU budget. Currently, the OLAF relies on competent national authorities to independently initiate criminal proceedings based on OLAF's judicial recommendations and investigation findings. Such investigations require national authorities to have sufficient manpower and budget to investigate and prosecute all of OLAF's judicial recommendations. Often, national authorities' efforts to investigate are also stalled by the lack of co-operation across borders with member states. As a result, companies and individuals are frequently not sanctioned; reported figures state that only 45% of cases were prosecuted following an OLAF investigation. With the introduction of the EPPO, it is anticipated that the EU can more effectively pursue offences against the EU budget in each participating member state. Nominated national prosecutors in participating member states will be responsible for investigating such crimes and, as relevant, bringing proceedings in their national courts. In non-participating member states, the EPPO may enter into working arrangements with competent authorities to facilitate co-operation and exchange information to meet the EPPO's needs. Although non-participating member states already have a duty of sincere co-operation under the Treaty on the Functioning of the EU, the new EPPO Regulation[4] states that the EPPO may enter into separate legal instruments for judicial co-operation with non-participating member states. The OLAF and the EPPO intend to work in tandem to widen and strengthen the protection afforded to the EU budget. Under the EPPO Regulation, the EPPO may establish co-operative relationships through designated contact points in relevant competent national authorities in non-EU countries to exchange information. The prosecutor may also rely on relevant international agreements that the EU has entered into with non-EU countries as a means to achieve co-operation in criminal matters.How will the EPPO be structured?
Once it becomes fully operational at the end of 2020, it is reported that the EPPO will operate at two levels: (i) the central level will be headed by the European Chief Prosecutor, two deputies and a European Prosecutor from each participating member state, and (ii) the decentralized level will consist of European Delegated Prosecutors (EDP) in each participating member state i.e., the national authorities responsible for investigating and prosecuting relevant criminal offences in their country, with oversight and supervision from the central level.How might the EPPO impact EU- and non-EU-based entities?
Any corporates or organizations making use of the EU budget, budgets managed by the EU, or on its behalf, such as financing for development, infrastructure or agricultural projects, should be aware of the impact of the EPPO. There are a wide range of EU spending programs in which non-EU countries participate, including entities from across the world benefiting from the EU's Framework Programme for Research and Innovation (referred to as Horizons 2020), the EU's primary mechanism for supporting transnational collaborative research and technological development. Entities in participating member states will need to comply with the provisions of the PIF Directive, as transposed in their national laws, and will be subject to the prosecutorial powers of the EPPO through their national EDP's jurisdiction. Entities in non-participating member states will continue to be under OLAF's remit and be subject to its administrative investigations. The EPPO will establish working arrangements with national authorities in non-participating member states and collaborate with those authorities to prosecute crimes against the EU budget in non-participating member states. The EPPO may also be able to rely on the various EU-wide co-operation frameworks and tools it has available to tackle criminal matters in non-participating member states. With regards to entities in non-EU countries, the EPPO will aim to establish and maintain co-operative working relationships with authorities in these countries by entering into formal arrangements to exchange strategic information and have liaison officers seconded to the EPPO. The EPPO also has the ability to establish formal mutual legal assistance with authorities in non-participating member states and non-EU countries.Brexit
How the United Kingdom (UK) will be impacted by the EPPO after the Brexit transition period, which ends on December 31, 2020, will depend on the final agreements between the UK and the EU. As the UK has opted out of the PIF Directive, it would be considered a non-participating member state during the transition period. After the transition period, if the UK continues to participate in EU spending programs or makes use of EU funding, it appears likely that the UK law enforcement authorities would co-operate with the EPPO to prosecute crimes against the EU budget. It also appears likely that the EPPO will enter into a formal working arrangement with UK law enforcement. If the UK makes use of EU funding for certain projects and causes, it will continue to be under OLAF's jurisdiction. Therefore, OLAF will have the ability to continue to exercise its powers in investigating potentially fraudulent and corrupt acts in relation to EU funds by UK companies. It is yet to be seen what working arrangements the UK will agree with EPPO. In a recent media interview,[5] an OLAF representative stated that the UK's exit from the EU is unlikely to have a material impact on UK authorities' collaboration with OLAF. It is yet to be seen what arrangements the UK implements with the EU to deal with criminal enforcement, and there is no guidance as yet to suggest how UK law enforcement authorities might formally deal with EPPO's requests to investigate and prosecute. Nevertheless, companies in and outside the EU using EU funds as part of their business operations and subject to EU VAT rules should expect to see greater enforcement of fraud, corruption, misappropriation and VAT-related offences with respect to EU finances.[1] European Commission's 2018 Annual Report on the Protection of the European Union's Financial Interests [2] Directive (EU) 2017/1371 on the fight against fraud to the Union's financial interests by means of criminal law [3] Certain EU member states have chosen to opt-out of the PIF Directive: Denmark, Hungary, Ireland, Poland, Sweden and the UK. Sweden has indicated that it intends to opt-in at a later stage. [4] Council Regulation (EU) 2017/1939 implementing enhanced co-operation on the establishment of the EPPO [5] See Thomas, J., "EU anti-fraud chief: member states need to prosecute more" (April 21, 2020), Global Investigations Review
