EU-Logos

Financial crimes are not usually the ones linked with serious criminality in people’s mind, but they are nevertheless really harming European societies all the same. Corruption, money laundering, value added tax (VAT) and tax frauds threaten the integrity of EU and States budget. The losses are difficult to estimate due to the obvious lack of data on these actions, taking place in the hidden side of the free market, but several attempts to do so revealed that they represent billions of euro each year. EU is struggling to combat these offences. Institutional bodies fighting financial crimes exist, but they suffer from their heaviness, their slowness and, consequently, their lack of efficiency. Furthermore, their multiplication leads to bad communication between them, and even mistrust in certain relationships. These flaws are part of the decision to create the European Public Prosecutor’s Office (EPPO), whose activities started this year. However, they produced results through the years, and one could say that they should be improved before setting up a new body. But the EPPO is innovative on a particularly important point: it is the first European institution endorsing power to prosecute on criminal basis, whereas the other organs, with results or not, are mostly cooperation tools and, for the European Anti-Fraud Office, an administration prosecution tool.

The importance of financial crimes

The offences against the EU budget which will be fought by the EPPO are defined in Articles 3 and 4 of Directive (EU) 2017/1371[1] on the fight against fraud to the Union’s financial interests by means of criminal law, also called PIF Directive. The deadline for transposition of the PIF Directive into national law expired on 6 July 2019, but, despite the importance of the prosecution of these crimes for national public finances, only twelve Member States had notified full transposition by that date. Fortunately, almost all Member States had communicated complete transposition, or at least partial transposition, by June 2020.[2] The Directive split the offences between fraud in Article 3 and other criminal offences in Article 4.

One of the issues concerning tax fraud is that existing rules are often unable to keep up with the increasing speed of the economy and ensure that all market participants pay their fair share of taxes, since current international and national tax rules were mostly conceived in the early 20th century. According to the European Parliament, there is an urgent and continuous need for reform of the rules, so that international, EU and national tax systems are fit for the new economic, social and technological challenges of the 21st century.[3]

            Several assessments have attempted to quantify the magnitude of losses from tax fraud, tax evasion and aggressive tax planning, but none of these provide a large enough picture on their own, due to the nature of the data, since the objective of fraud is to stay hidden, or their lack. Indeed, some Member States avoid preparing their own national tax gap estimates and, in addition, methodologies are not harmonised. In some cases, they are different but complementary, but it mostly shows their fragmentation and incompatibility. Therefore, there is a lack of reliable and unbiased statistics on the magnitude of tax avoidance and tax evasion. Under Article 325 of the Treaty on the functioning of the European Union, Member States are required to take EU fraud as seriously as fraud against their own budgets and are required to coordinate their action aimed at protecting the financial interests of the Union against fraud and to organise with the help of the European Commission, close and regular cooperation between the competent departments of their administrations. However, this co-operation was seriously weakened from the start, due to the differences in defining frauds and reporting them to the Brussels authorities.[4] But the implementation of the PIF Directive and the creation of the EPPO should harmonise practices, methodologies and so definitions and reports.

Value-added tax (VAT) fraud

Substantial losses are coming from VAT fraud, while VAT is an important source of tax revenue for national budgets. In 2016, VAT revenues in the EU-28 Member States amounted to EUR 1 044 billion, which corresponds to 18 % of all tax revenues in the Member States. In comparison, the 2017 annual EU budget amounted EUR 157 billion. However, every year, large amounts of the expected VAT revenue are lost because of fraud. The losses are estimated by calculating the VAT Gap, which represents the difference between the expected VAT revenue and the one collected. The loss is not due only to fraud, but also to bankruptcy, miscalculations and avoidance.[5] In 2009, the European Commission had estimated the EU VAT gap at an amount between EUR 90 and 113 billion for the period 2000-2006. In 2017, the total amount of EU VAT lost in 2015 was estimated at EUR 151.5 billion, which represents a loss of 12% of the total expected VAT revenue and a significant increase over a 10-year period. According to the 2018 report on the VAT gap (released on 11 September 2018),[6] the VAT gap for the year 2016 fell below EUR 150 billion and amounted to EUR 147.1 billion.

The Commission estimates that around EUR 50 billion is lost to cross-border VAT fraud while Europol estimates that around EUR 60 billion of VAT fraud is linked to organised crime and terrorism financing. One thing is certain: the economic impact of the VAT gap remains extremely significant. It would represent approximately 1.5 % of Member States’ GDP and could reach levels up to 10 % of VAT receipts in some Member States. It should be remembered that the VAT gap affects not only the Member States but also the EU, since a uniform rate of 0.3 % is levied on the harmonised VAT base of each Member State as one of the EU’s own resources. It should also be stressed that VAT fraud also affects compliant businesses because fraudsters create competition distortions in the market.[7]

Tax evasion

Tax evasion is another pressing issue for the European Union and the Member States, and it must be addressed for various reasons. At first, it prevents States from implementing social, economic, environmental, cultural and other policies by depriving them from raising sufficient revenues. Tax evasion is a threat to the credibility of democratic institutions since it undermines the efforts of the government to promote welfare and social cohesion, and it prevents it from performing its social function, while injuring the trust of citizens in the means of a legitimate, democratic government. Secondly, by avoiding their citizen’s duties and responsibilities, tax evaders put a greater burden on those who eventually pay off the effective costs of taxation, who are, in their majority, members of the lower and middle parts of the income distribution. Also, it encourages financial institutions, authorities or politicians to engage in corrupt activities for their own enrichment or other benefits, who are generally interested in increasing their profits even if it implies circumventing the existing rules.[8]

The reports and analysis currently available suggest that the EU tax gap resulting from largely domestic tax evasion might be €825 billion a year, based on data for 2015. It is harder to estimate corporate tax avoidance in the EU, but available evidence suggests different amounts, from €50bn a year to €190bn a year according to previous European Parliament studies.[9] Half of all EU Member States have tax gaps that might exceed their healthcare spending, and often by considerable amounts. As a result, it is suggested that there remains considerable capacity within many EU Member States to collect considerably more of the tax that is legally owing than is done at present.[10]

Money laundering

Money laundering is a criminal offence by itself, but it is a very vast and complex topic since it is the result of a concentration of criminal activities. It can have its origin in various illicit activities, such as corruption, arms and human trafficking, drug dealing, tax evasion and fraud, and can be used to finance terrorism, and it may occur in a variety of ways, such as with the shrewd exploitation of a complex, interweaving web of secrecy jurisdictions and/or tax havens, “shell companies”, the abuse of loopholes in existing anti-money laundering legislation, etc.[11] Because of inadequate disclosure rules, it is far too easy to make use of a company or legal arrangements such as trusts in the EU, to conceal one’s identity for the purposes of money laundering.

According to European Parliament Resolution on financial crimes, tax evasion and tax avoidance of 26 March 2019,[12] the proceeds from criminal activity in the EU are estimated to amount to EUR 110 billion per year, corresponding to 1 % of the Union’s total GDP. In some Member States, up to 70 % of money laundering cases have a cross-border dimension, and the scale of money laundering is estimated by the United Nations Office on Drugs and Crime (UNODC) to be the equivalent of between 2 to 5 % of global GDP, or around EUR 715 billion and 1,87 trillion a year.

All the European anti-money laundering legal framework is based on the Financial Action Task Force (FATF) Recommendations, transposed into the successive directives countering this crime. These Recommendations are the corner stone of the international framework for combatting money laundering and terrorist financing. They have been endorsed by over 180 countries and are universally recognised as setting out the international standards. They have been revised from time to time, and implemented in EU through the various Anti-Money Laundering (AML) Directives, which extended the tools of anti-money laundering and the criminal offences which could be linked to it, such as terrorism. The EU anti-money laundering Directive 91/308/EC (AMLD1) implemented the Financial Action Task Force[13] (FATF) Recommendations on 10 June 1991 within the competences of the EC Treaty which did not provide for criminalisation.[14] The Fifth Anti-Money-Laundering Directive (AMLD 5)[15], the last one, published on the 19 June 2018,complements the existing EU framework for combating money laundering and terrorist financing.[16] It is supposed to increase transparency, facilitate the work of financial intelligence units, set up centralised bank account registers to identify holders, and address risks linked to virtual currencies and anonymous prepaid cards.[17] However, according to Resolution on financial crimes, tax evasion and tax avoidance, some Member States have failed to fully or partially transpose AMLD4, and they also have to transpose AMLD5 before 2020.

Corruption

Obviously, corruption is difficult to measure, but according to the Special Committee on Organised Crime, Corruption and Money Laundering (CRIM)[18], the problem is real and extensive. Its impacts are felt by EU citizens. According to the Transparency International Global Corruption Barometer, 53% of European citizens rated their government as doing a bad job at fighting corruption.[19] Furthermore, according to the Eurobarometer, “despite an 8 point decrease since 2013, over two thirds (68%) of respondents still think that corruption is widespread within their own country. Across the EU, over half of respondents think corruption is widespread among political parties (56%) and among politicians at national, regional or local levels (53%). A quarter of Europeans (25%) say that they are personally affected by corruption in their daily lives, although only about one in ten Europeans say they know someone who has taken or takes bribes (12%), but there are variations at country level.[20]  These cases are actual but underestimated experiences of corruption and, therefore, should be considered as the minimum level of corruption existing.

Corruption is estimated by the European Commission to cost around 120 billion euros per year, or one percent of the GDP, and the public sector is one of the most sensitive to corruption. According to Organisation for Economic Co-Operation and Development (OECD) estimates, money drained through corruption amounts between 20 per cent and 25 per cent of the procurement budget, that is around US$2 trillion annually. There is no safe way to measure the effects of corruption on EU financial interests from the data on petty corruption experiences. By their nature, they cannot cover areas like procurement and management of EU programs and projects, which can be influenced by medium and large-scale corruption. However, according to the CRIM, “when there are at least 20 million cases of petty corruption in the public sectors in the EU, it is obvious that the phenomenon also has a spill over effect in the parts of the public administration of the Member States (and the corresponding political figures), that have the responsibility of the management of EU funds and other financial interests.”[21]

It is not just about a loss of money, it has an impact on society as a whole, in all its aspects.[22] It distorts competition and reduces the quality, sustainability and safety of public projects. From a financial point of view, it makes the costs escalate for a service with poor quality, without benefiting the country’s economic development. It also has significative impact on health, safety and environment. By failing to meet proper environmental standards, it causes irresponsible use of natural resources and increases health and safety risks. The prevention and fight against corruption will be subject to regular monitoring and assessment of Member States legal framework under the newly established rule of law mechanism. The rule of law is enshrined in Article 2 of the Treaty on European Union as one of the common values for all Member States. Under the rule of law, all public powers always act within the constraints set out by law, in accordance with the values of democracy and fundamental rights, and under the control of independent and impartial courts. Ensuring respect for the rule of law is a primary responsibility of each Member State, but the Union has a shared stake and a role to play in resolving rule of law issues wherever they appear. In the last decade, the EU has developed and tested several instruments to help enforce the rule of law. Indeed, severe rule of law challenges in some Member States triggered debates at EU and national level on how to strengthen the EU’s ability to address such situations. In its Communication of July 2019, the Commission proposed that the EU and its Member States should increase efforts to promote a robust political and legal culture supporting the rule of law and should develop instruments preventing rule of law problems from emerging or deepening.[23]

This idea took shape with the creation of the European Rule of Law Mechanism, which is designed as a yearly cycle to promote the rule of law and to prevent problems from emerging or deepening. It focuses on improving understanding and awareness of issues and significant developments in areas with a direct bearing on the respect for the rule of law – justice system, anti-corruption framework, media pluralism and freedom, and other institutional issues linked to checks and balances.[24] In the context of the European semester of economic governance, the challenges in the fight against corruption are assessed with a particular focus on areas of risk, such as public procurement, public administration, the business environment and healthcare.[25]

The defence of EU’s financial interests

The European Anti-Fraud Office (OLAF, stands for Office européen de lutte anti-fraude)

The roots of OLAF can be found in the Task Force “Anti-Fraud Coordination Unit” (UCLAF), which was created in 1988 as part of the Secretariat-General of the European Commission. It worked alongside national anti-fraud departments and provided the coordination and assistance needed to tackle transnational organised fraud. But after it was severely criticised by the European Court of Auditors for the quality of its operational and intelligence work, the European Parliament called for the creation of an independent anti-fraud office.[26] It resulted in the establishment, by the Decision 1999/352,[27] of the European Anti-Fraud Office with an independent investigative mandate. It also had the right to lead internal investigations within EU institutions.

Through the years, its operations have been strengthened by diverse programmes, such as the successive Hercule Programmes, or the launch of the web-based tool Fraud Notification System.[28] Significant changes were brought on 1 October 2013, when the Regulation 883/2013[29] on investigations by OLAF entered into force. It further defines the rights of persons concerned, introduces an annual exchange of views between OLAF and the EU institutions and requires that each Member State designate an anti-fraud coordination service.

OLAF has two major responsibilities. First, it is responsible for conducting internal investigations within the institutions and other bodies of the EU, which have the obligation to fully cooperate in OLAF enquiries and to communicate to OLAF any information concerning suspected fraud and irregularity. Second, OLAF also has the responsibility to assist Member States’ agencies in their fraud and irregularity investigations, both in terms of investigation, intelligence and helping to liaise between different national agencies.

Europol

Europol finds its roots within the Maastricht treaty.[30] It was first de facto organised in 1993 as the Europol Drug Unit (EDU) and officially established in 1995 by the “Europol” Convention, which came into force on 1 October 1998. The Convention defines the police cooperation unit as a dual structure, with a service on the one hand, to analyse and produce databases (a service composed of persons directly engaged by Europol) and, on the other hand, a liaison officer service in charge of facilitating bilateral and / or multilateral cooperation between Member States.[31] Europol was fully integrated into the EU with Council Decision 2009/371/JHA of 6 April 2009 (OJ L121, 15.5.2009) in order to ‘support and strengthen action by Member States and their mutual cooperation in preventing and combating organised crime, terrorism and other forms of serious crime affecting two or more Member States.’ Europol also works with some non-EU partner states and international organisations.

In a nutshell, Europol aims at the simplification of the exchanges of information between law enforcement agencies (customs, intelligence, border guards, etc.). It has set up a specific network that focuses on missing trader intra-community (MTIC) fraud (third countries such as Norway and Switzerland are also part of it). Since 2017, Europol has developed joint investigation teams, which can be seen as a ‘cooperation tool amongst national investigative agencies when tackling cross-border crime. They facilitate the coordination of investigations and prosecutions conducted in parallel across several States.’[32]

Eurojust

On 14 December 2000, on the initiative of Portugal, France, Sweden and Belgium, a provisional judicial cooperation unit was formed under the name Pro-Eurojust, operating from the Council building in Brussels. The idea came from discussion on the establishment of a judicial cooperation unit at a European Council Meeting in Tampere, Finland, on 15 and 16 October 1999. With the attacks of 9/11 in the USA, the focus on the fight against terrorism moved from the regional/national sphere to its widest international context and served as a catalyst for the formalisation, by Council Decision 2002/187/JHA of 28 February 2002 (OJ L 63, 6.3.2002), of the establishment of Eurojust as a judicial coordination unit. Since 2002, Eurojust has grown tremendously and so have its operational tasks and involvement in European judicial cooperation. More powers and a revised set of rules became necessary. The Lisbon Treaty contained an important chapter in the development of Eurojust in its Article 85, which mentions Eurojust and defines its mission, 

“to support and strengthen coordination and cooperation between national investigating and prosecuting authorities in relation to serious crime affecting two or more Member States […].”

Eurojust works is based on operations conducted and information supplied by the Member States and by Europol. After extensive negotiations since July 2013, the European Parliament and the Council adopted the Regulation on the European Union Agency for Criminal Justice Cooperation in November 2018 [Regulation (EU) 2018/1727 of 14 November 2018, OJ L 295, 21.11.2018]. The Regulation establishes a new governance system, clarifies the relationship between Eurojust and the European Public Prosecutor’s Office, prescribes a new data protection regime, adopts new rules for Eurojust’s external relations and strengthens the role of the European and national Parliaments in the democratic oversight of Eurojust’s activities.[33]

European Public Prosecutor’s Office (EPPO)

The idea of the EPPO is not new: it is mentioned as early as 1996 by the President of the European Parliament and few judges because of the shortcomings of international mutual legal assistance, but its creation will wait years.

The book Corpus Juris, ordered by the Commission in 1997 and directed by M. Delmas-Marty is a turning point by proposing for the first time to create a specialized European Public Prosecutor’s Office composed of a European Prosecutor General and European Delegate Prosecutors in the Member States. A Green Paper on criminal-law protection of the financial interests of the Community and the establishment of a European Prosecutor is published in 2001[34], affirming the EU’s will to create EPPO which will be laid down in the Nice (2001) and Lisbon (2007) treaties. It is only in 2013 that the Commission officially presents a proposal of Council Regulation on creation of EPPO, but debates are blocked by firm opposition of some States as the Netherlands, Sweden, Poland or Hungary. Finally, 16 Member States which really want creation of EPPO decided to start the project under enhanced cooperation by Council Regulation 2017/1939.[35] They are now 22,[36] but unlike the Netherlands, which joins the cooperation in 2018, Hungary, Denmark, Ireland, Poland and Sweden still refuse. However, they could participate whenever they wish in the future.[37]

It seems that the choice to join or not the European Public Prosecutor’s office is more a question of political affiliation than national priorities.[38]

Studying the arguments against the EPPO

Institutional and judicial motives: the efficiency of the pre-existing institutions

Some European deputies argued that anti-fraud European institutions already exist, and they should be improved and not replaced or completed by another one. On the other hand, some others were convinced that EPPO could resolve the problems persisting between these institutions.[39] According to OLAF[40], only 39% of the files it transmitted to the national judicial authorities gave rise to indictments, and despite the great progress of Eurojust, the unit is considered as insufficient and way too slow.[41]

The existing institutions faced major issues of encroachment on their respective competences, encroachment which leads to logics of rivalry, distrust and even mistrust. This is the case between OLAF and Eurojust, especially in terms of organised criminality. These instruments are built on opposite institutional principles, as Eurojust deals with cases falling within the third pillar, whereas OLAF has competence over misappropriation of Community funds, which falls within the first pillar. It could seem that they shall never cross each other path, but, in practice, the distinction is not so clear. It is the same problem between Europol and Eurojust. They are supposed to cooperate with each other, but they act more as rivals than partners. This rivalry is based on encroachment of their competences, but also on the fact that institutionalisation of European security is still in progress. They are not so old instruments, and their powers are changing on a regular basis, so as their relationship and cooperation.[42]

Uncertainty concerning EPPO comes from a risk of encroachment between it and the other instruments, just like it happened before its creation. Indeed, according to Directive (EU) 2017/1371, the EPPO will be competent for prosecuting fraud, corruption, money laundering and misappropriation. But according to Council Decision 2002/187/JHA of 28 February 2002, setting up Eurojust with a view to reinforcing the fight against serious crime established Eurojust as a “body of the Union” with legal personality, Eurojust’s general competence covers, among others, fraud and corruption and any criminal offence affecting the European Community’s financial interests and the laundering of the proceeds of crime.[43]The Regulation (EU, Euratom) 883/2013 of the European Parliament and of the Council of 11 September 2013 confirms that the mandate of OLAF extends beyond the protection of financial interests to include all activities relating to safeguarding EU interests against irregular conduct liable to result in administrative or criminal proceedings. Even if it is not part of its priorities, organised fraud is also considered as one of the biggest security threats for Europol. All these instruments are supposed to cooperate, even more because they defend the same interests, but they do not have the same level of independence, they do not answer to the same EU institutions and they use different tools and approaches to fight against fraud and corruption. EPPO may be another body leading to fragmentating of European judiciary system, reducing the global effectivity of instruments.

However, the creation of EPPO could also lead to harmonising practices of these institutions. Since EPPO is the only instruments with prosecution power, and Europol, Eurojust and OLAF are instruments of research and cooperation, but which suffer from a lack of confidence from the national authorities, EPPO could be the link with national police forces. It could gather information from all the other institutions, and it would be easier for them to cooperate. Concerning the risk of encroachment, the Regulation (EU) 2018/1727 clarifies and defines the competence of Eurojust in light of the establishment of the EPPO. It states that:

“from the date on which the EPPO assumes its tasks, Eurojust should be able to exercise its competence in cases which concern crimes for which the EPPO is competent, where those crimes involve both Member States which participate in enhanced cooperation on the establishment of the EPPO and Member States which do not participate in such enhanced cooperation. In such cases, Eurojust should act at the request of the non-participating Member States or at the request of the EPPO. Eurojust should in any case remain competent for offences affecting the financial interests of the Union whenever the EPPO is not competent or where, although the EPPO is competent, it does not exercise its competence.”[44]

Regulation also recommends reducing the administrative workload of national members in order to strengthen its operational functions. In the same idea, Europol should focus on gathering information for the other institutions and OLAF should still manage administrative investigations. Finally, Directive (EU) 2017/1371 harmonises definitions of criminal offences against the EU budget for Member States participating in the enhanced cooperation. Member States are supposed to fight EU fraud as seriously as against their own budget, and, in this purpose, cooperate with each other and share information. This was really difficult due to the differences in defining frauds and reporting them to OLAF, but the EPPO should be a solution to the fragmentation of criminal offences definition.

Economical motives: costs and gains

The cost of another judicial institution is at the heart of the concerns of Member States. The EPPO represents more expenditures, whereas already existing instruments could be improved before creating new ones. A cost / benefit calculation should be performed to analyse this argument, after examining the EU budget (see Figure below).

The EU budget finances activities ranging from developing rural areas and conserving the environment to protecting external borders and promoting human rights. It is decided jointly by the Commission, the Council and the Parliament. The Commission submits a draft to the Council and Parliament for their consideration. They can make changes; if they disagree, they have to work out a compromise. But it is the Commission that is responsible for spending. The EU countries and the Commission share responsibility for about 80% of the budget. Each year’s budget sets out the amounts agreed in advance according to a plan known as the multiannual financial framework. This enables the EU to plan its funding programmes effectively for several years in advance. The current framework runs from 2014 to 2020.[45]

EU benefits from EUR 153,6 billion in 2020[46], and the instruments studied can be found under the budget for the European Commission. Europol is listed under ‘Internal Security’. The EPPO and Eurojust are listed under ‘Justice’. OLAF is listed under ‘Administrative Expenditure of the ‘Fight against Fraud’ policy area. According to the 2020 European Commission budget, it benefits from 151,89 million, or 0,98% of the EU general budget. The 2019 administrative budget of OLAF is EUR 59,72 million, Eurojust’s budget is around EUR 37,67 million and Europol’s is about EUR 137,14 million,[47] for a total of approximately EUR 234,53 million. Budgeting in the EPPO follows the general lines applicable to the institutions and bodies of the EU, reiterated in article 91 EPPO Regulation. The budget granted to EPPO in the 2019 Draft General Budget is EUR 4.9 million. In a Letter of Amendment to the Draft General Budget for 2019, the Commission proposed the recruitment of two additional prosecutors to consider the unforeseen participation of Malta and the Netherlands in the EPPO. However, the number of the EPPO staff remains unchanged, due to expectations of a low caseload in the newly participating Member States.[48]

Figure : 2019 European Commission budget

Source: Budget of European Commission, 2019-2020. Online: https://eur-lex.europa.eu/budget/data/DB/2020/en/SEC03.pdf

While costs concerning issues such as staffing and infrastructure can perhaps be estimated with some accuracy, it is the broader costs and benefits in terms of the financial impact of fraud that cause difficulties. Yet it is only by evaluating financial losses due to fraud that the ultimate effectiveness of any such measure can be assessed.[49] But if the costs and benefits are compared quickly and in absolute, since the EU tax gap resulting from largely domestic tax evasion might be €825 billion a year just by itself, the cost of setting up the EPPO is not so high. 

Political motives: between trust and sovereignty

These  motives are not directly linked, but they counterbalance each other since when opponents are waving the classical threat-to-sovereignty flag, defendants emphasised on the gain of trust from EU citizen. Two visions of Europe clash in this argument: the EU of people versus the EU of states.

The debate about whether states are always sovereign if they submit to international law is not new, and the project of EPPO is one of the illustrations of its actuality. However, it should be noted that since this project takes place in the EU, the question of sovereignty toward international law is not exactly relevant. Indeed, everyone agrees on the specificity of EU as an international legal order. International law has few law-making organs of its own, hence it depends on state for law-making but also for enforcement of the law. As a result, sovereign States function not only as individual contracting parties as in contract-like treaties, but also as lawmakers in the inter­national legal order. The role of sovereign states as law makers has important normative consequences. Their role as officials makes them responsible and constrains their international law making competence. They are doubly constrained and hence accountable, internally but also externally through international law rules.[50] Since EU is the most successful union of independent states in the world, both economically and politically, with its own law-making process, international law theories do not apply. But because of this deep cooperation between states, the question of the reality of their sovereignty within EU stays an important source of debates and conflicts.

European Union relies on treaties ratified by States, and hence exists only because they agreed on it. The Permanent court of international justice declined to see in the conclusion of any Treaty by which a State undertakes to perform or refrain from performing a particular act an abandonment of its sovereignty, since “the right of entering into international engagements is an attribute of State sovereignty.”[51] However, the EU is autonomous enough to act on the Member States. From the beginning, it constitutes an original organization, which tends to broaden its competences beyond the initial economic sphere through the spill over effect.[52] Treaties and jurisprudence allow inclusion of new areas in the European field. As an example, the European Parliament was considered as early as in the Lisbon treaty, and hence according to some politicians, the institution of this new body only follows the logical development of EU.

The impact of EU on state sovereignty in a material sense can be seen at different levels. First, concerning state competences, those transferred to the EU cover a field more and more broad, even some competences traditionally considered as sovereign powers of the state as money, taxes, justice, defence. States lost their decision power and are deprived from their right to oppose application of EU law on their territory. This can also be seen as a breach of States’ territorial sovereignty, but it is more a mutation than an erasure. Secondly, concerning citizenship, states have to deal with European citizen as they would do with their own nationals. European citizenship in only of superposition, but it has been recognized that its status is fundamental for the nationals of Member States. Status and rights of foreigners from the EU are also managed by it, since visa, asylum and migration policies are decided within the EU.[53] This erosion of states’ attributes casts doubt on the reality of state sovereignty because of European integration. However, the status of sovereign state is necessary to be a member of the EU, and as we will see, sovereignty is preserved from and even protected by European integration.

Indeed, States still own the competence of the competence, as the masters of treaties and they have the right to quit unilaterally. Furthermore, there is no competing sovereignty from EU which is not a state. This is clearly stated in the Article 4§2 of the Treaty on European Union, according to which:

“The Union shall respect the equality of Member States before the Treaties as well as their national identities, inherent in their fundamental structures, political and constitutional, inclusive of regional and local self-government. It shall respect their essential State functions, including ensuring the territorial integrity of the State, maintaining law and order and safeguarding national security. In particular, national security remains the sole responsibility of each Member State.”[54]

Transferred competences to the EU are not given up by States, they are exercised on an alternative mode. States are not deprived from their competences; they are deprived from the right to exercise them alone. However, the transition from the solitary exercise of state powers to their pooling and management within an integrated legal and political area is not necessarily detrimental to the preservation of state sovereignty. In this current globalised world, states cannot hope to have an impact on facts they want to regulate without collective decision making. This is typically the issues discussed for the EPPO, all offences possessing a transnational character, as developed above. Efficiency of States sovereignty is linked to their capacity to ally to face transnational issues, so they can weight on international community to defend their interest. Some authors developed the German concept of “open statehood” (offene Staatlichkeit), according to which ensuring state missions relies on  States’ capacity to take concrete decisions, so exercising some competences at the supranational level would be the only way to preserve their statehood.[55] 

            Some states felt their identity threatened by the EU legal integration through the primacy principle. After judgments by the national constitutional courts using the principle of constitutional identity, primary law has incorporated this concern for the preservation of their singularity in the Maastricht treaty. This provision is now included in the Article 4 § 2 TUE, quoted above, which specifies the contours of this « national identity » to which the European Union owes the respect and the Court has taken into account this provision in order to interpret, in a more favourable sense to the States, the derogations to freedoms of movement based on grounds relating to the cultural or constitutional identity of the States.[56] Therefore, even if criminal law is not a part of constitutional identity, it could surely be protected by states under the national identity if they feel that EU was seeking to take over this competence, which is not the case. As already said, the EPPO has been created through enhanced cooperation. Firstly, it means they chose individually to be part of the project and accepted criminal rules only on the financial field by adopting the so-called directive PIF, which unifies previously confusing definitions. Secondly, States are not deprived from their national criminal law since the criminals will be judged in their country or the country of the commission of the offence, by national courts.

The implication of national courts should also be a solution to the lack of trust from both national authorities and European citizens. Indeed, one of the problems existing in the bodies such as OLAF, Europol and Eurojust is linked to the lack of trust from national authorities towards European bodies. First, within the European instruments, national prosecutors and liaison officers are not part of a logic of empowerment vis-à-vis national level. Furthermore, uncertainties due to organisational constraints and the lack of knowledge in European dynamics result in little exchanges between national and European level and even, in the end, in the feeling of loss of power and authority.[57] With the EPPO, national authorities will be completely involved in the prosecution process. The prosecutors appointed, even if independent, will be selected for the knowledge of their own criminal system, and will coordinate the prosecution with the help of the national police forces.

Concerning the trust of the citizen towards EU, one of the most recent inquiries is the Eurobarometer ordered by the European Commission, published in 2016.[58] First of all, the inquiry shows that citizens are now more likely to trust their national political institutions, following a previous decline. According to this survey, French people are clearly the most suspicious of their national institutions, whereas Dutch people mostly tend to trust them. Hungarian people tend more not to trust than to trust, but they still have better rate than French people. One can imagine that a more efficient prosecution of financial crimes could increase the trust of European people in their institutions. Indeed, in France for example, the trust has been eroded by the revelation of financial scandals in the highest spheres of State.

Furthermore, though still the minority view, trust in the European Union has begun to rise again. However, it remains significantly below the best score recorded over the last five years: -6 in spring 2015. The ratio of trust to distrust has improved slightly, while remaining unfavourable, in both the non-euro area (39% versus 50%, compared with 37% versus 51% in spring 2016) and the euro area countries (34% versus 56%, compared with 32% versus 56%). A majority of respondents trust the EU in 11 Member States, compared with nine in spring 2016. Respondents predominantly distrust the EU in 17 Member States, with scores of 50% or more in Greece (78%), the Czech Republic (66%), France (65%), Cyprus (63%), Austria (58%), Italy (58%), Slovenia (57%), the United Kingdom (56%), Spain (54%), Germany (53%), the Netherlands (51%), Hungary (50%) and Croatia (50%).[59] By bringing good results in the prosecution of offences against the EU budget, the EPPO could increase confidence in the European institutions. Indeed, all the money lost in these affairs could finance more projects which citizen will really benefit from.


[1] Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law, OJ L 198, 28.7.2017, p. 29–41 

[2] European Commission, 31st Annual Report on the protection of the European Union’s financial interests — Fight against fraud – 2019, 3.9.2020, p. 9.

Available online : https://ec.europa.eu/anti-fraud/sites/antifraud/files/pif_report_2019_en.pdf

[3] European Parliament, Resolution on financial crimes, tax evasion and tax avoidance (2018/2121(INI)), P8_ TA-PROV (2019)0240, 26 March 2019, p.6.

[4] Quirke Brendan, “EU Fraud : institutional and legal competence”, Crime, Law and Social Change, Vol. 51, Issue 5, 2009, pp. 531-535.

[5] European Parliament, Resolution on financial crimes, tax evasion and tax avoidance (2018/2121(INI)), P8_ TA-PROV (2019)0240, 26 March 2019, pp. 9-21.

[6] Center for Social and Economic Research & Institute for Advances Studies (for the European Commission, DG TAXUD), Study and Reports on the VAT Gap in the EU-28 Member States: 2018 Final Report, TAXUD/2015/CC/131.

[7] Lamensch M. and Ceci, E., VAT fraud: Economic impact, challenges and policy issues, European Parliament, Directorate-General for Internal Policies, Policy Department A – Economic, Scientific and Quality of Life Policies, 15 October 2018, pp. 10-13.

[8] Rui Tavares, “Relationship between Money Laundering, Tax Evasion and Tax Havens”, Thematic Paper on Money Laundering, Special Committee on Organised Crime, Corruption and Money Laundering (CRIM) 2012-2013, January 2013, p. 3.

[9] European Parliament, Resolution on financial crimes, tax evasion and tax avoidance (2018/2121(INI)), P8_ TA-PROV(2019)0240, 26 March 2019.

[10] Richard Murphy, The European Tax Gap, Report for the Socialists and Democrats Group in the European Parliament, January 2019, pp. 1-2.

[11] Rui Tavares, “Relationship between Money Laundering, Tax Evasion and Tax Havens”, op. cit. pp. 2-3.

[12] European Parliament, Resolution on financial crimes, tax evasion and tax avoidance (2018/2121(INI)), P8_ TA-PROV (2019)0240, 26 March 2019, pp. 37-43.

[13] The FATF was set up in 1989 by the G-7 States inviting a number of other states such as Switzerland, Austria and the Benelux states, which laid down a set of international standards for anti-money laundering.

[14] Mario Borghezio, “Money Laundering, banks and finance”, Thematic Paper on Money Laundering, Special Committee on Organised Crime, Corruption and Money Laundering (CRIM) 2012-2013, January 2013.

[15] Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, OJ L 156, 19.6.2018, p. 43–74.

[16] Directive (EU) 2018/843 of the European Parliament and of the Council, 30 May 2018, OJEU L 156, 19.6.2018

[17] Beatrix Immenkamp, Gianluca Sgueo and Sofija Voronova with Alina Dobreva, “The fight against terrorism”, Briefing of the EPRS, European Parliament, June 2019, p.6.

[18] Skylakakis, “Areas of systemic corruption in the public administration of the Member States and measures in order to counter its negative effect for the EU”, Thematic Paper on Corruption, Special Committee on Organised Crime, Corruption and Money Laundering (CRIM) 2012-2013, November 2012.

[19] Transparency International, “People and Corruption : Citizens’ voices from around the world”, Global Corruption Barometer, November 2017, p. 4.

[20] Directorate-General for Migration and Home Affairs and co-ordinated by the Directorate-General for Communication, Special Eurobarometer 470 : Corruption, Survey requested by the European Commission, December 2017, p.5.

[21] Skylakakis, “Areas of systemic corruption in the public administration of the Member States and measures in order to counter its negative effect for the EU”, op. cit. pp. 1-2.

[22] Susanne Kühn and Laura B. Sherman, Curbing corruption in public procurement – A practical guide, Transparency International, 2014.

[23] COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS,  2020 Rule of Law Report The rule of law situation in the European Union, Brussels, 30.9.2020

COM (2020) 580 final.

[24] Idem.

[25] European Commission, 31st Annual Report on the protection of the European Union’s financial interests — Fight against fraud – 2019, COM (2020) 363, 3.9.2020, p. 7.

[26] Brendan Quirke, “OLAF’s role in the fight against fraud in the European Union : do too many cooks spoil the broth?”, Crime, Law and Social Change, Volume 53, Issue 1, February 2010, pp 97–98.

[27]  Commission Decision of 28 April 1999 – OJ L 136,31.5.1999

[28] European Anti-Fraud Office (OLAF), History : https://ec.europa.eu/anti-fraud/about-us/history_en  

[29] Regulation (EU, Euratom ) No 883/2013 of the European Parliament and of the Council of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF), OJ L 248 18.9.2013, p. 1. 

[30] Treaty on European Union, signed at Maastricht on 7 February 1992, Article K.1.

[31] Amandine Scherrer, Antoine Mégie, et Valsamis Mitsilegas. « La stratégie de l’Union européenne contre la criminalité organisée : entre lacunes et inquiétudes », Cultures & Conflits, vol. 74, no. 2, 2009, pp. 103-104.

[32] M. Lamensch and, E. Ceci, VAT fraud: Economic impact, challenges and policy issues, European Parliament, Directorate-General for Internal Policies, Policy Department A – Economic, Scientific and Quality of Life Policies, 15 October 2018, pp 35-36. Available : http://www.europarl.europa.eu/RegData/etudes/STUD/2018/626076/IPOL_STU(2018)626076_EN.pdf

[33] Eurojust : http://eurojust.europa.eu/Pages/home.aspx

[34] COM (2001) 715, 11 December 2001

[35] Council Regulation (EU) 2017/1939 of 12 October 2017 implementing enhanced cooperation on the establishment of the European Public Prosecutor’s Office (‘the EPPO’), OJ L 283, 31.10.2017, p. 1–71.

[36] Current participating States : Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Finland, France, Germany, Greece, Italia, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Romania, Slovakia, Spain, Slovenia.

[37] Toute l’Europe, « Qu’est-ce que le parquet européen ? », 18 March 2019. URL : https://www.touteleurope.eu/actualite/qu-est-ce-que-le-parquet-europeen.html  

[38] European Parliament, debates, plenary session of 28 April 2015 (CRE 28/04/2015-12, adopted text : P8_TA(2015)0173) ; plenary session of 4 October 2016 (CRE 04/10/2016-17, P8_TA(2016)0376) ; plenary session of 4 October 2017 (CRE 04/10/2017-17, P8_TA(2017)0384).

[39] European Parliament, debates, already referred to.

[40] OLAF, The OLAF report 2019 : Twentieth report of the European Anti-Fraud Office, 1 January to 31 December 2019, 2020, p. 40.

[41] Jean-Baptiste Jacquin, « Tentative de sauvetage du procureur européen », Le Monde, 7 décembre 2016.

[42] Amandine Scherrer, Antoine Mégie, et Valsamis Mitsilegas. « La stratégie de l’Union européenne contre la criminalité organisée : entre lacunes et inquiétudes », Cultures & Conflits, vol. 74, no. 2, 2009, pp. 105-110.

[43] Council Decision 2002/187/JHA of 28 February 2002, Article 4 – OJ L 63, 6.3.2002

[44] Regulation (EU) 2018/1727 of the European Parliament and of the Council of 14 November 2018 on the European Union Agency for Criminal Justice Cooperation (Eurojust), and replacing and repealing Council Decision 2002/187/JHA, OJ L 295, 21.11.2018, p. 138–183, (8).

[45] Europa, EU Budget, “How the EU budget is spent”. Online: https://europa.eu/european-union/about-eu/eu-budget/expenditure_en

[46] EUR-LEX, budget, “Total revenue”, 2020. Online : https://eur-lex.europa.eu/budget/www/index-en.htm

[47]l’OLAF Report 2017; Statement of revenue and expenditure of Eurojust for the financial year 2017 – amending budget No 1 (2018/C 279/03); Statement of revenue and expenditure of the European Police Office for the financial year 2017 — amending budget No 1 (2017/C 415/06).

[48] Hartmut Aden, Maria-Luisa Sanchez-Barrueco, Paul Stephenson, European Parliament, Directorate General for Internal Policies, Policy Department D: Budgetary Affairs, The European Public Prosecutor’s Office: Strategies for coping with complexity (IP/D/CONT/IC/2018-113), 15 May 2019, pp. 43-48.

[49] Alison Davies, European Parliament, Briefing: Impact Assessment for a Commission Proposal for a Council Regulation on the Establishment of the European Public Prosecutor’s Office (COM (2013) 534 final)., 2013, pp. 1-10.

[50] Samantha Besson, “Sovereignty, International Law and Democracy”, The European Journal of International Law (EJIL), Vol. 22, n°2, 2011, pp. 385-387.

[51] Permanent Court of International Justice, 17 August 1923, SS Wimbledon (France v. Germany), Series A, n°1.

[52] Gaëlle Marti, « Ce que l’Union européenne fait à l’État. Recherches sur l’incidence de l’appartenance à l’Union européenne sur les États-nations », Civitas Europa, vol. 38, no. 1, 2017, pp. 319-322.

[53] Gaëlle Marti, op. cit., pp. 322-326.

[54] Treaty on European Union, consolidated version of 2016, article 4 § 2.

[55] Gaëlle Marti, op. cit., p. 328.

[56] Gaëlle Marti, op. cit., pp. 329-332.

[57] Amandine Scherrer, Antoine Mégie, et Valsamis Mitsilegas, op. cit.

[58] European Commission, Directorate-General for Communication, “Public opinion in the European Union”, Standard Eurobarometer 86, Autumn 2016, 213 pages.

[59] European Commission, Directorate-General for Communication, “Public opinion in the European Union”, Standard Eurobarometer 86, Autumn 2016, pp. 92-96.

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