Prosecuting EU sanctions offences: will the EPPO take over in 2023?

Although the European Public Prosecutor’s Office (EPPO) has been operational for just over one-and-a-half years, it has become a prosecutorial force to be reckoned with.

On 15 December 2022 the EPPO was again thrust into the limelight as, amidst allegations of bribery made against Members of the European Parliament (MEPs) by Belgian prosecutors, the EPPO requested the lifting of immunity for two MEPs to conduct its own investigation into their management of parliamentary allowances. Two weeks prior, the EPPO had uncovered what is believed to be the biggest VAT fraud ever investigated in the EU with damages amounting to €2.2bn.

For now, the EPPO’s competency is limited to the prosecution of criminal offences affecting financial interests in the EU. This might change in the future: adding to a recent proposal by the EU Commission to elevate violations against EU sanctions to the level of ‘EU crimes’, there are plans to simultaneously expand the EPPO’s competency beyond its current scope to prosecute EU sanctions offences.

Elevating EU sanctions offences to the level of ‘EU crimes’ 

The EU may establish minimum rules concerning the definition of criminal offences and sanctions in the areas of particularly serious crime with a cross-border dimension; see Article 83(1) TFEU (so-called ‘EU crimes’). On 2 December 2022, the EU Commission put forward a proposal to harmonise criminal offences and penalties for violations of EU sanctions, following a prior decision by the Council of the EU designating EU sanctions offences as ‘EU crimes’. The proposal by the EU Commission includes a list of criminal offences which violate EU sanctions (eg making funds or economic resources available to a designated entity) and aims at establishing a common basic standard for penalties. Depending on the offence, natural persons could receive a maximum penalty of up to five years in prison.

Companies violating EU restrictive measures could face severe fines. Although the EU Commission proposes a fine of no less than 1 percent of a company’s worldwide turnover for a few of the sanctions offences (eg provision of services prohibited by EU restrictive measures), for most of the proposed sanctions offences (eg for making funds available to a designated entity) companies shall receive fines of no less than 5 percent of their total worldwide turnover.

Against the backdrop of current fine levels for EU sanctions offences and considering that even the GDPR – as a EU Regulation – sets a fine maximum of 4 percent of total worldwide annual turnover, the EU Commission’s proposal of a fine minimum of 5 percent of worldwide annual turnover substantially increases fine exposure for companies.

Elevating the prosecution of EU sanctions offences to the EPPO

In parallel with plans to elevate EU sanctions offences to ‘EU crimes’, the French and German Ministers of Justice published an op-ed on 29 November 2022, in which they argued that the EPPO’s competencies should be expanded to include the prosecution of EU sanctions violations.

Prior to the op-ed, there had already been calls for such an expansion of the EPPO’s competencies. In a meeting between the European Chief Prosecutor and the President of the EU Parliament in October, the latter expressed her openness to a potential revision of the EPPO Regulation.

On 9 November 2022 the European Chief Prosecutor gave a speech at the Legal Affairs Committee of the German Bundestag in which she called for an expansion of the EPPO’s competencies to prosecute EU sanctions offences. Prior to that, following a corresponding inquiry by the EU Commissioner for Justice, the College of the EPPO, which is a panel consisting of 22 European Prosecutors from each Member State and the European Chief Prosecutor, had concluded that such an extension of the EPPO’s competencies would be feasible. 

Sanctions-exposed companies should prepare for EPPO investigation

Companies with potential sanctions exposure should not only watch out for the severity of the fines proposed by the EU Commission, but also keep a close eye on efforts to ramp up the prosecution of violations of EU sanctions. In comparison to dealing with a local public prosecutor’s office, companies facing an EPPO investigation are presented with particular challenges stemming from the complexity of the EPPO’s structure, as well as its broad investigative capabilities.

An EPPO investigation is led by one of the competent Delegated European Prosecutors in the respective Member State. At the same time, the European Prosecutor (there are 22 European Prosecutors, one for each Member State, operating at the centralised level of the EPPO) as well as a Permanent EPPO Chamber in Luxembourg supervise the European Delegated Prosecutors and make key operational decisions (eg deciding whether or not to dismiss a case).

As a result, in contrast to facing an investigation conducted by an individual public prosecutor’s office, a company facing an EPPO investigation must deal not only with one investigating authority, but a multitude of decision-makers. This could complicate attempts to co-operate with the EPPO (eg in an attempt to clarify the facts of the case or to reach a consensual arrangement), which in some cases could be vital to the outcome of an investigation.  

It also cannot be ruled out that the centralisation of key operational decisions on the level of the EPPO offices in Luxembourg may lead the supervising European Prosecutor and Permanent Chamber to, generally, take a more restrictive stance when evaluating potential violations of EU sanctions.

At the same time, an EPPO prosecution has an immense investigatory apparatus at its disposal. The competent Delegated European Prosecutor can not only fall back on its national Member States’ (police) authorities, but also on other European institutions, such as the European Investment Bank (see our blogpost here), the European Anti-Fraud Office, Eurojust and Europol. In contrast to national public prosecutors, who have to rely on complicated mechanisms of mutual assistance in criminal matters between EU Member states, the EPPO Regulation enables the Delegated European Prosecutors to directly exchange information and evidence, which substantially simplifies the execution of cross-border investigations.

Not all EU Member States (ie Denmark, Ireland, Hungary, Poland and Sweden) participate in the EPPO. That does not mean, however, that the EPPOs’ reach is limited to participating Member States. As the EPPO’s latest annual report shows, all non-participating EU Member States have been involved in EPPO cases to some degree, and even here the EPPO can rely on the mechanisms of mutual assistance in criminal matters established between participating and non-participating EU Member States. Furthermore, Sweden has announced it will join the EPPO and Hungary has concluded a working arrangement with the EPPO.

In addition to that, the EPPO has expanded its investigative reach substantially beyond the EU by concluding working arrangements with the US (see our blogpost here) and Ukraine. In light of the EPPO’s extraterritorial reach, companies from outside the EU should bear in mind that EU sanctions, although generally requiring an EU nexus, can have a considerable extraterritorial effect (see our blogpost here).

Outlook for the EPPO

It remains to be seen whether the EPPO Regulation will be amended. Procedurally this would require a unanimous decision by the European Council and the consent of the EU Parliament after consultation of the EU Commission. Although the procedural requirements for an amendment are high, there are strong signs that an EPPO reform might come to pass.

While the EPPO continues to showcase its investigative capabilities ranging from big VAT fraud detections to high profile cases (eg its most recent investigation into MEPs), there also is strong political will amongst some EU Member States (eg France and Germany) to expand the EPPO’s competencies. An indication of whether the EPPO may take over the investigation of EU sanctions offences in the future could potentially be derived from the EU Parliament’s committees’ opinions on the EU Commission’s proposal. The EU Commission’s proposal was referred to the relevant committees on 12 December 2022.

Freshfields will continue to monitor plans for a potential expansion of the EPPO’s competencies in its Risk and Compliance publications. Watch this space.