Prospects for criminal law at EU level and protection of the EU financial interests Dublin 21 March 2014 Irish Centre for European Law The importance of criminal liability of company directors in considering criminal law at the EU level Andrea Venegoni Legislative officer Unit D.1 OLAF

Introduction PFI crimes are often committed by legal persons; legal persons can be held liable if the offence can be referred to the decision- makers (societas delinquere non potest); in order to make the decision-makers also personally liable in homogeneous way across the EU, a specific provision at EU level is necessary Delmas-Marty report of 1992/93 as a preliminary study for the PFI Convention Analysis of the national legal systems: need for harmonisation since the decision-makers liability vary signficantly depending on the national legal systems EU legislation developed in two directions: - Criminal liability of head of businesses - Liability of legal persons Présentation Powerpoint 10/14/2015 2

PFI Convention 1995 Preamble RECOGNIZING that businesses play an important role in the areas financed by the European Communities and that those with decision-making powers in business should not escape criminal responsibility in appropriate circumstances Présentation Powerpoint 10/14/2015 3

Presentation 10/14/ PFI Convention 1995 Article 3 Criminal liability of heads of businesses Each Member State shall take the necessary measures to allow heads of businesses or any persons having power to take decisions or exercise control within a business to be declared criminally liable in accordance with the principles defined by its national law in cases of fraud affecting the European Community's financial interests, as referred to in Article 1, by a person under their authority acting on behalf of the business.

PFI Convention 1995 – Protocol on corruption (1996) Article 7 The provisions of Articles 3, 5 and 6 of the Convention shall also apply to the conduct referred to in Article 2 of this Protocol Présentation Powerpoint 10/14/2015 5

PFI Convention – Second protocol (1997) Article 3 Liability of legal persons 1. Each Member State shall take the necessary measures to ensure that legal persons can be held liable for fraud, active corruption and money laundering committed for their benefit by any person, acting either individually or as part of an organ of the legal person, who has a leading position within the legal person, based on - a power of representation of the legal person, or - an authority to take decisions on behalf of the legal person, or - an authority to exercise control within the legal person, as well as for involvement as accessories or instigators in such fraud, active corruption or money laundering or the attempted commission of such fraud. 2. Apart from the cases already provided for in paragraph 1, each Member State shall take the necessary measures to ensure that a legal person can be held liable where the lack of supervision or control by a person referred to in paragraph 1 has made possible the commission of a fraud or an act of active corruption or money laundering for the benefit of that legal person by a person under its authority. 3. Liability of a legal person under paragraphs 1 and 2 shall not exclude criminal proceedings against natural persons who are perpetrators, instigators or accessories in the fraud, active corruption or money laundering. Présentation Powerpoint 10/14/2015 6

PFI Convention – Second protocol Article 12 Relation to the Convention 1. The provisions of Articles 3, 5 and 6 of the Convention shall also apply to the conduct referred to in Article 2 of this Protocol. Présentation Powerpoint 10/14/2015 7

EU Convention on the fight against corruption involving officials of the European Communities (1997) Article 6 Criminal liability of heads of businesses Each Member State shall take the necessary measures to allow heads of businesses or any persons having power to take decisions or exercise control within a business to be declared criminally liable in accordance with the principles defined by its national law in cases of corruption, as referred to in Article 3, by a person under their authority acting on behalf of the business. Présentation Powerpoint 10/14/2015 8

Corpus Iuris (1997 and 2000) Article 13 Criminal liability of the head of business The head of business or any other person with powers of decision or control within the business are criminally liable as principal offenders if one of the offences under article 1-8 (fraud; corruption; abuse of office; misuse; money laundering) has been committed for the benefit of the business by a person subject to their authority and they have knowingly allowed the offence to be committed. Présentation Powerpoint 10/14/2015 9

Corpus Iuris Article 13 para 2 It is a criminal offence if the head of a business or any other person with powers of decision and control within the business knowingly omits to exercise the necessary supervision provided that a person subject to their control commits an offence under the article 1-8 and that the omission to exercise the necessary supervision facilitated the commission of the offence Présentation Powerpoint 10/14/

CoE Criminal Law Convention on corruption (1999) Article 18 – Corporate liability 1 Each Party shall adopt such legislative and other measures as may be necessary to ensure that legal persons can be held liable for the criminal offences of active bribery, trading in influence and money laundering established in accordance with this Convention, committed for their benefit by any natural person, acting either individually or as part of an organ of the legal person, who has a leading position within the legal person, based on: – a power of representation of the legal person; or – an authority to take decisions on behalf of the legal person; or – an authority to exercise control within the legal person; as well as for involvement of such a natural person as accessory or instigator in the above-mentioned offences. 2 Apart from the cases already provided for in paragraph 1, each Party shall take the necessary measures to ensure that a legal person can be held liable where the lack of supervision or control by a natural person referred to in paragraph 1 has made possible the commission of the criminal offences mentioned in paragraph 1 for the benefit of that legal person by a natural person under its authority. 3 Liability of a legal person under paragraphs 1 and 2 shall not exclude criminal proceedings against natural persons who are perpetrators, instigators of, or accessories to, the criminal offences mentioned in paragraph 1. Présentation Powerpoint 10/14/

Weaknesses Article 3 of the PFI Convention and similar provisions: make reference to national laws No European model of liability of head of business Corpus Iuris suggested a model, although very restrictive (only intention) The inconsistent allocation of responsibility and liability to legal persons, heads of businesses and other relevant individuals can contribute to a lack of deterrence, enforcement and punishment in relation to crimes affecting the EU’s financial interests (source: IA study for the PIF Directive) Présentation Powerpoint 10/14/

Commission's report on PFI Convention's implementation COM(2004)709 Article 3 PFI Convention stipulates criminal liability for heads of businesses in cases of fraud, corruption or money laundering affecting the EC’s financial interests by a person under their authority acting on behalf of the business. Only NL appears to explicitly provide for criminal liability of heads of businesses. The scope and coverage of criminal liability for heads of businesses remains unclear in BE, DK, DE, IT, LU, AT and SE, where the general rules on participation are taken as an argument to deny the need for specific rules. The Commission notes that the Member States have shown a certain reluctance to scrutinise their national systems with regard to the concept of criminal liability of heads of businesses. Présentation Powerpoint 10/14/

Commission's report on PFI Convention's implementation COM(2008)77 Criminal liability of heads of businesses (Article 3 of the PFI Convention) The Commission notes that most Member States show no intention of scrutinising their national systems with regard to the concept of criminal liability of heads of businesses. The scope and coverage of criminal liability for heads of businesses therefore remains unclear in Belgium, Denmark, Germany, Ireland, France, Italy, Luxembourg, Austria, Slovenia and Sweden, where the general rules on participation are taken as an argument that there is no need for specific rules. Présentation Powerpoint 10/14/

Commission's report on PFI Convention's implementation COM(2008)77 Liability of legal persons (Articles 3 and 4 of the 2nd Protocol) Apart from Luxembourg and Slovakia, the Member States have established the liability of legal persons. Spain and Latvia, however, fail to provide for liability of legal persons as a self- standing liability besides that of natural persons. In the cases of Belgium, Denmark and the UK, it is doubtful whether they provide for liability where lack of supervision or control made it possible for the offence to be committed or where the offence was committed by a subordinate. Recent practice in Germany may give cause for doubts about whether effective, proportionate and dissuasive criminal penalties are applied to punish legal persons. Présentation Powerpoint 10/14/

Definition of head of business: costs/benefits Potential avoidance of losses/recovery Creates consistency in the application of criminal law to heads of business which should impact favourably on the number of cases being brought to court and hence the deterrence effect for public officials which, in turn, should help to avoid/recover losses Potential costs Significant annual other costs of investigating and prosecuting more offences. Significant one-off costs of developing and implementing legislation not captured in annual cost figures Estimated potential annual losses avoided/recovered 12,5 m. euros (source IA study on PIF Directive) Présentation Powerpoint 10/14/

Definition of head of business Impact on national legal systems This is expected to have a small impact on national legal systems as it introduces a standard definition within national legislation that will go beyond the criminal law provisions currently in place in some Member States (source IA study on PIF Directive) Présentation Powerpoint 10/14/

A Member State example: Italy L’aw n. 300 of 2000 implementing the PFI Convention: no provision on the specific personal criminal liability of the head of business for lack of control: general rules apply It delegates the government to draft the legal text on business liability Présentation Powerpoint 10/14/

A Member State example: Italy Decree 231/2001 Corporate liability for "administrative infringements deriving from the commission of a criminal offence" The criminal offence can be committed only by a natural person on the basis of the general rules (mens rea, action or omission, event, link between the conduct and the event) Administrative liability of the business: it derives from the commission of a criminal offence by decision-making people, unless the company proves to have done all necessary to prevent it Setting up of internal organisational models No specific provision on the personal criminal liability of the head of business Présentation Powerpoint 10/14/

Problems The lack of specific provisions at criminal level can be problematic General rules of the legal systems usually base the criminal liability for this kind of crimes on the "intention" The scope of the head of business liability is linked to the concept of "lack of control", closer to negligence Risk to fall into the concept of "strict liability" (with no intention but even no negligence) Applicability of the principle "nulla poena sine culpa" Présentation Powerpoint 10/14/

OLAF and liability of legal persons OLAF investigations: on irregularities, but allegations can also constitute criminal offences Economic operators Customs cases VAT cases: it is very difficult to target the companies, that very often are "empty shells" Beneficiaries of EU funds; mainly legal persons OLAF investigations are not focused mainly on the mental element of the conducts of the authors, but on the possibility to refer the conduct to the legal person Confiscation, recovery Présentation Powerpoint 10/14/

PIF directive (proposal COM(2012)363 adopted on 11 July 2012) Article 6 Liability of legal persons 1. Member States shall take the necessary measures to ensure that legal persons can be held liable for any of the criminal offences referred to in Title II committed for their benefit by any person, acting either individually or as part of an organ of the legal person, and having a leading position within the legal person, based on: (a) a power of representation of the legal person; (b) an authority to take decisions on behalf of the legal person; or (c) an authority to exercise control within the legal person. 2. Member States shall also take the necessary measures to ensure that legal persons can be held liable where the lack of supervision or control by a person referred to in paragraph 1 has made possible the commission, of any of the criminal offences referred to in Title II for the benefit of that legal person by a person under its authority. 3. Liability of a legal person under paragraphs 1 and 2 shall not exclude criminal proceedings against natural persons who are perpetrators of the criminal offences referred to in Title II or criminally liable under Article For the purpose of this Directive, ‘legal person’ shall mean any entity having legal personality under the applicable law, except for States or public bodies in the exercise of State authority and for public international organisations. Présentation Powerpoint 10/14/

PIF Directive No specific provision on liability of head of business: no added value in reintroducing the reference to national laws as in the PIF Convention Need for a more in depth analysis of the legal systems to propose a EU solution Présentation Powerpoint 10/14/

EPPO (proposal of regulation COM(2013)534 adopted on 17 July 2013) It completes the EU action in the protection of the Union financial interests Not only common substantive law, but also common investigative body for criminal investigations Présentation Powerpoint 10/14/

Thank you! Andrea VENEGONI European Anti-Fraud Office (OLAF) Rue Joseph II, 30 Brussels Tel Présentation Powerpoint 10/14/