Fraud is wrong, right? In most countries with more or less sophisticated criminal codes, it is an offence to obtain money by false representations, just as it is to thump an old lady over her head and grab her handbag.

In law, these two somewhat disparate actions add up to the same thing: theft, punishable by fines or imprisonment. It is not sufficient, in the latter case to return the poor old party's handbag, even with the wallet intact. There has to be something more to discourage privateering of this sort. Punitive measures usually follow restitution in such cases. So why is Luxembourg telling us that theft in the form of subsidy fraud is an administrative matter, not a criminal one? And if it isn't criminal, why don't we all do it (those of us with sufficient agricultural land to qualify, that is)?

This was a reference from the national court to the Court of European Union (CJEU) for a preliminary reference in relation to criminal proceedings against Lukasz Bonda for fraud in his declaration of the agricultural area eligible for the single area payment.

Background facts

In short, Bonda made an application to the Polish Office for Agricultural Restructuring for a single area payment under EU subsidy law. In support of that application, he submitted an incorrect declaration of the extent of agricultural land cultivated and the crops grown on that land, nearly doubling the area used for agriculture. When this misrepresentation came to light, Bonda was of course refused his payment. He was also convicted of subsidy fraud under the Polish Criminal Code for making a false declaration concerning facts of essential importance for the purpose of obtaining subsidies. On that basis Bonda was sentenced to eight months' imprisonment (suspended for two years) and a daily fine.

Legal context

Regulation (EC, Euratom) No 2988/95 provides for the protection of the European Community's financial interests. Article 4 of that regulation covers the situation where someone tries to gain an advantage (ie obtain a subsidy) by wrongful means. "Any irregularity" it says, "shall involve withdrawal of the wrongly obtained advantage:

- by an obligation to pay or repay the amounts due or wrongly received,

- by the total or partial loss of the security provided in support of the request for an advantage granted or at the time of the receipt of an advance.

But in Subsection 4 this provision stipulates that "the measures provided for in this Article shall not be regarded as penalties."

On the other hand, Article 5 of the Regulation says that any "intentional irregularities or those caused by negligence" may lead to a range of administrative penalties including the payment of fines, and other penalties "of an economic type" including withdrawal of an amount greater than that wrongly received. Furthermore, the Regulation provides that the imposition of financial penalties such as administrative fines may be suspended by decision of the competent authority if criminal proceedings have been initiated against the person concerned in connection with the same facts.

Polish criminal law imposes a sentence of imprisonment from three months to five years for any effort to obtain, amongst other things, subsidies on the basis of false statements or warranties: fraud, in other words.

When Bonda appealed his conviction, the appeal court set it aside on the ground that the criminal proceedings were inadmissible because an administrative penalty had already been imposed on Bonda for the same act. The Prosecutor appealed, and the question before the Supreme Court was whether Bonda's transactions with the Office were covered by the administrative regime such as to necessitate the cessation of the criminal proceedings. The question referred to the CJEU was formulated thus:

What is the legal nature of the penalty provided for in [the EU regulation governing support schemes] which consists in refusing a farmer direct payments in the years following the year in which he submitted an incorrect statement as to the size of the area forming the basis for [the single area payment]?

The essential question was whether the purpose of the penalty imposed on the farmer is punitive. The CJEU held, in essence, that the characteristics of the penalties provided for in that Regulation do not allow it to be considered that they must be classified as criminal penalties.

The court's reasoning

The CJEU has previously held that penalties laid down in rules of the common agricultural policy, such as the temporary exclusion of an economic operator from the benefit of an aid scheme, are not of a criminal nature (see Case 137/85 Maizena and Others [1987] ECR 4587, paragraph 13; Case C-240/90 Germany v Commission [1992] ECR I-5383, paragraph 25; and Case C-210/00 Käserei Champignon Hofmeister [2002] ECR I-6453, paragraph 43).

While the support scheme Regulation does contain rules concerning the taking into account of national criminal proceedings in administrative proceedings based on European Union law, it follows from the ninth recital in the preamble to and Article 6(5) of that regulation that:

administrative penalties laid down in pursuance of the objectives of the common agricultural policy form an integral part of the schemes of aid, that they have a purpose of their own, and that they may be applied independently of any criminal penalties, if and in so far as they are not equivalent to such penalties.

Nor was the Court of the view that administrative nature of these measures is not called into question by an examination of the case-law of the European Court of Human Rights on the concept of 'criminal proceedings' within the meaning of Article 4(1) of Protocol No 7 to the ECHR, which provides that

'No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.'

The CJEU considered that the purpose of those measures is not punitive, but is essentially to protect the management of European Union funds by temporarily excluding a recipient who has made incorrect statements in his application for aid.