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New EU anti-fraud office will target UK companies even though UK government has opted out, lawyers warn

Out-Law News | 28 Mar 2014 | 2:13 pm | 3 min. read

UK organisations involved in spending European Union money must ensure their anti-fraud measures and controls over staff will withstand scrutiny by the proposed European Public Prosecutor's Office (EPPO), even though the UK government has decided to opt out of the measures, legal experts warn.

British organisations should also be sure that all their European partners have anti-fraud measures in place which will protect against investigations by the EPPO, as the office clamps down on fraudulent use of EU tax-payers' money.

Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, said that engineering companies which secure contracts on EU-funded infrastructure projects, agricultural businesses in receipt of EU subsidies and consultancies and universities engaged in international research projects are among those at risk of being targeted by the EPPO as it pursues investigations.

“British organisations that are in any way involved in the spending of EU money would do well to ensure that their own anti-fraud measures, as well as those of any European partners, will stand up to the scrutiny of this tougher new environment," Vitou said. "Investigations will not be limited to the stereotypical frauds relating to Southern Europe. As a result of the Bribery Act, UK companies can already be held to account for corrupt activity by their staff overseas, and the new European Public Prosecutors Office will mean that their chances of being caught out for defrauding the EU, whether systematically, or through inadequate controls over staff, will increase significantly. The EU is very conscious of the need to be seen to do more to ensure that taxpayers’ money is spent properly, and it will be determined to ensure that the EPPO is not a toothless tiger.”

The European Parliament this month voted in favour of the European Commission's proposal to set up the EPPO, which would have the exclusive task of investigating, prosecuting and bringing to judgement crimes against the EU budget. The Commission wants to develop the office amid concerns that only 46% of EU fraud cases referred to member states are followed up by their national judicial authorities. The conviction rate of these across the EU is just 42%.

Under the proposals, EPPO would have a decentralised structure which would be integrated into member states' national judicial systems. Each member state would establish a delegated European Prosecutor who would carry out the investigations and prosecutions in their state, with a team of national staff. National law would be applied to the cases.

The proposals have met resistance in some quarters and the UK and Ireland have decided not to opt in to the measures. UK home secretary Theresa May said this month that the UK government "believes the creation of the EPPO to be unneccessary". However Vitou warns that this does not mean that UK businesses and that organisations will remain unaffected by the EPPO, which EU anti-fraud commissioner Algirdas Semeta  and EU justice commissioner Viviane Reding hope to see operational in 2015.

Welcoming the European Parliament's endorsement of the proposals, Semeta and Reding said in a joint statement earlier this month: "The European Public Prosecutor’s Office will make sure that every case of suspected fraud against the EU budget is followed up so that criminals are brought to justice. This will deter fraudsters who might otherwise get away with their crimes, and it will save taxpayers’ money."  The European Parliament vote in favour of the EPPO followed similar endorsements by the Parliament’s Civil Liberties, Justice and Home Affairs Committee (LIBE). The proposal also won backing from the EU Legal Affairs Committee (JURI) in February this year.

The EPPO proposal will now go before member states, and would normally require unanimous support to be adopted. However if the Commission does not achieve unanimity, it is expected to still go ahead with the creation of EPPO under the “enhanced co-operation” procedure, which says just nine EU countries can launch new EU initiatives.

Vitou said that the creation of EPPO would be the latest development in a wider international clamp-down on fraudulent and corrupt practices, particularly in the spending of public money.  “Whether the UK likes it or not, the creation of a EPPO is now another step closer, and is another example of the increasing appetite to investigate and prosecute fraud. " Many multilateral institutions, such as the EBRD and African Development Bank are already signatories to the World Bank Institutional Integrity department’s policies, which automatically ban any company found guilty of fraud from holding any future contracts, Vitou highlighted.