Steve Peers
It must come as a relief to EU politicians to find that
there is still one group in society which is much less popular than they are:
the bankers. Indeed, bankers’ unpopularity has only grown as the austerity
caused by the global financial crisis has an ever-greater impact on ordinary
people in many Member States. No
politician ever lost an election because he or she demonised unpopular groups
of persons, and so the EU institutions have duly agreed on legislation which
would lead to jail terms for particular types of bad behaviour by bankers.
Context of the
Directive
The new Directive was
approved by the European Parliament today, and will likely be formally adopted
by the Council in March. It will apply in parallel alongside a Regulation on
market abuse, which requires administrative sanctions to be applied for certain
behaviour by bankers. Member States will have to apply the Directive by two years
after its adoption.
The ‘legal base’ for the Directive is Article 83(2) of the
TFEU, which allows the EU to adopt legislation setting out ‘minimum rules’ for the
‘definition of criminal offences and sanctions’ if this ‘proves essential to
ensure the effective implementation of a Union policy in an area which has been
subject to harmonisation measures’. Clearly this area has been subject to
harmonisation measures, and the preamble to the new Directive sets out the
reasons why, in the EU legislature’s view, it was ‘essential’ to adopt an EU
measure concerning criminal liability on this issue. Basically, the Council and
European Parliament were convinced by information that Member States imposed
weak and diverse sanctions to enforce the previous EU legislation on this subject
(Directive 2003/6, on market abuse).
Article 83(2) requires the criminal law rules to be adopted
by the same legislative method as was used to adopt the main legislation that
the criminal law Directive is supplementing. In this case, the market abuse
Regulation was adopted on the basis of the EU’s internal market powers, ie the
ordinary legislative procedure. So the market abuse criminal law Directive was
adopted by the same method. This meant that the European Parliament could have
a significant influence on the text, as detailed below.
Substance of the
Directive
The Directive requires Member States to criminalise three
types of activity, as further defined in detail therein: insider dealing;
unlawful disclosure of inside information; and market manipulation. The first of
these offences also extends to recommending or inducing another person to
engage in insider trading. Member States must also criminalise inciting, aiding
and abetting and attempting most of these offences. In each case criminalisation
is only required where the acts were committed intentionally and ‘in serious
cases’. The European Parliament had also wanted to oblige Member States to
criminalise reckless acts which
entailed market manipulation, but the Council resisted this. Also, the Council
insisted on limiting Member States’ obligations to ‘serious cases’. The
preamble to the Directive lists certain factors which should indicate whether
the case is ‘serious’, such as the impact on market integrity and the profit
derived or loss avoided.
On the other hand, the European Parliament successfully
insisted that specific rules for criminal penalties for natural persons appear
in the Directive. Member States must ensure that bankers guilty of insider
dealing or market manipulation could potentially be subject to a maximum
penalty of at least four years, and those guilty of unlawful disclosure of
inside information could potentially be subject to a maximum penalty of at
least two years. The Directive also
includes standard rules on liability for legal persons, but this need not be criminal liability, in deference to
those Member States which do not impose criminal liability on legal persons.
The European Parliament also insisted that the Directive
include rules on criminal jurisdiction. Member States must criminalise the relevant
behaviour where an act was committed on a Member State’s territory, or where
the act was committed by a Member State’s citizen outside its territory, at
least if the act was criminal in the country where it was committed. Furthermore, the European Parliament convinced
the Council to add a provision on training judges, prosecutors et al about the
relevant crimes. However, the European Parliament did not convince the Council
to add provisions on investigative techniques and media coverage of the relevant
crimes.
Comments
This is the first time that the EU has used the legal powers
conferred by Article 83(2) TFEU, which was added to the Treaties by the Treaty
of Lisbon. Previously, it has used only Article 83(1) TFEU as regards substantive
criminal law. Article 83(1), also added to the Treaties by the Treaty of
Lisbon, lists ten crimes which are deemed to have such sufficient cross-border
impact that the EU can legislate upon them. The EU has used this power to adopt
legislation on cyber-crime, sexual offences against children and trafficking in
persons, and negotiations on legislation concerning counterfeiting currency are
underway. The Commission has also suggested criminal law rules on fraud against
the EU budget on the basis of Article 325, a legal base dealing with that
specific issue, but the Council (and probably the European Parliament, when it
defines its position) believe that Article 83(2) will again have to be used in
order to adopt that legislation.
Prior to the Treaty of Lisbon, the EU’s Court of Justice, in
a controversial line of case law, ruled that European Community law (as it was
then) could be used to adopt criminal law measures closely related to the
environment (Cases C-176/03 and C-440/05). The EU then adopted Directives to
that end (Directive 2008/99 and Directive 2009/123), as well as a Directive
imposing criminal liability for employing illegal immigrants (Directive
2009/52). But the CJEU ruled that prior to the Treaty of Lisbon, such European
Community measures could not specify criminal penalties. In practice, those
measures did not contain jurisdiction rules either. So the market abuse
Directive breaks new ground on these issues.
The Directive also breaks new ground by imposing criminal
liability in a new area. All of the other post-Lisbon substantive criminal law
Directives or proposals (referred to above) simply replace pre-Lisbon measures
on the same subjects, but there was no pre-Lisbon measure imposing criminal
liability for market abuse. The market abuse Directive is also particularly
detailed when compared to the EU’s other substantive criminal law measures, no
doubt because it is enmeshed within the broader EU legislative framework
imposing highly detailed regulation on the financial sector.
Will the Directive be effective at curbing bad behaviour by
bankers? First of all, as with any crime, perpetrators have to be caught and
punished, and the behaviour concerned is technically complex.
Secondly, it must
be borne in mind that the two-year and four-year sentences referred to in the
Directive must merely be on the books;
there is no obligation to impose them in any particular situation. So even if bankers
commit the activities criminalised by the Directive, and are caught and
convicted, their sentences might be lighter (or indeed heavier: Member States
can set a higher potential maximum penalty if they wish). And it is hard to
imagine that many bankers will spend much jail time inside the unpleasant
institutions where (say) burglars and muggers are incarcerated – even if the
bankers’ crimes were far more lucrative and had a much bigger impact upon the
economy.
More profoundly, the United Kingdom, the home of the largest
proportion of the EU’s financial industry, has opted out of this Directive –
although the UK is subject to the parallel Regulation (Denmark is in the same
situation). And even if a French national (for instance) commits the acts
criminalised by the Directive while working in the City of London, it must be
recalled that Member States are only obliged to criminalise the acts concerned if
committed by their citizens in a State which
also criminalises that activity. So it is up to the UK to decide whether to
criminalise some or all of the acts referred to in the Directive, and only if it
does so are other Member States obliged to criminalise the acts of their
citizens when committed in the UK.
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