Steve Peers
EU politicians likely feel a sense of relief as they’ve discovered a group even less popular than themselves: bankers. This unpopularity has only intensified as the global financial crisis and resulting austerity measures continue to impact ordinary citizens across numerous Member States. Politicians understand that targeting disliked groups rarely hurts them in the polls, leading EU institutions to enact legislation that could imprison bankers for specific wrongdoings.
Context of the Directive
Approved by the European Parliament, the new Directive is expected to be formally adopted by the Council in March. Functioning alongside a market abuse Regulation (requiring administrative penalties for certain banker actions), this Directive mandates implementation by Member States within two years of its adoption.
The Directive’s legal foundation rests on Article 83(2) of the TFEU, empowering the EU to establish “minimum rules” for defining criminal offenses and sanctions “if essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonisation measures”. This area has clearly undergone harmonization, and the Directive’s preamble explains the EU legislature’s rationale for deeming an EU-wide measure on criminal liability “essential”. The Council and European Parliament were persuaded by evidence demonstrating weak and inconsistent sanctions across Member States when enforcing previous EU legislation on this matter (Directive 2003/6, concerning market abuse).
Article 83(2) dictates that criminal law rules must follow the same legislative process as the primary legislation they supplement. In this instance, the market abuse Regulation utilized the EU’s internal market powers, specifically the ordinary legislative procedure. The market abuse criminal law Directive subsequently mirrored this approach, granting the European Parliament considerable influence, as detailed below.
Substance of the Directive
The Directive compels Member States to criminalize three specific activities, as defined within: insider dealing, unlawfully disclosing inside information, and market manipulation. Furthermore, recommending or inducing someone to engage in insider trading is also criminalized. Inciting, aiding, abetting, or attempting most of these offenses must also be subject to criminal penalties within Member States. Criminalization is contingent upon intentional acts committed “in serious cases.” The European Parliament sought to include reckless acts of market manipulation under this umbrella, but faced resistance from the Council, which also advocated limiting Member States’ obligations to “serious cases.” The Directive’s preamble outlines factors determining “seriousness,” such as market integrity impact and profit gained or loss avoided.
Conversely, the European Parliament successfully pushed for the inclusion of specific criminal penalty rules for individuals within the Directive. Member States are required to ensure a maximum potential penalty of at least four years for bankers convicted of insider dealing or market manipulation, while those guilty of unlawful disclosure of inside information could face a maximum potential sentence of at least two years. The Directive also outlines standard rules for legal entities, but criminal liability is not mandatory, respecting Member States where it doesn’t apply to legal persons.
Additionally, at the behest of the European Parliament, the Directive includes criminal jurisdiction rules. Member States must criminalize the relevant conduct if an act occurs within their territory or if committed by one of their citizens outside their borders (at least if considered criminal where it occurred). The European Parliament also convinced the Council to include provisions for training judges, prosecutors, and others on these crimes. However, provisions related to investigative techniques and media coverage were unsuccessful.
Comments
This marks the first instance where the EU has exercised the legal powers granted by Article 83(2) TFEU, incorporated into the Treaties via the Treaty of Lisbon. Previously, only Article 83(1) TFEU was employed for substantive criminal law matters. Also introduced by the Treaty of Lisbon, Article 83(1) enumerates ten crimes with sufficient cross-border implications for EU legislative action. Leveraging this power, the EU has enacted legislation on cybercrime, sexual offenses against children, and human trafficking. Negotiations are ongoing for legislation related to currency counterfeiting. Although the Commission proposed criminal law rules concerning fraud against the EU budget based on Article 325 (addressing this specific issue), the Council (likely with European Parliament support) believes Article 83(2) is necessary for enacting such legislation.
Prior to the Treaty of Lisbon, in a series of debated rulings, the EU Court of Justice determined that European Community law (as it was then known) could be used for criminal law measures closely tied to the environment (Cases C-176/03 and C-440/05). Consequently, the EU adopted Directives toward this end (Directive 2008/99 and Directive 2009/123) and a Directive imposing criminal liability for employing undocumented immigrants (Directive 2009/52). However, the CJEU ruled that prior to the Treaty of Lisbon, these European Community measures couldn’t specify criminal penalties. In practice, neither did they include jurisdictional rules. Therefore, the market abuse Directive is groundbreaking in these areas.
The Directive also breaks new ground by imposing criminal liability in a new area. All other post-Lisbon substantive criminal law Directives or proposals (mentioned previously) merely replace pre-existing measures on the same topics. No pre-Lisbon measures existed concerning criminal liability for market abuse. This market abuse Directive is also incredibly detailed compared to other EU substantive criminal law measures. This detail likely stems from its integration within the broader, meticulously crafted EU legislative framework governing the financial sector.
Will this Directive effectively curb misconduct within the banking industry? First and foremost, like any crime, perpetrators must be apprehended and penalized, and these are technically complex offenses.
Second, the two- and four-year sentences outlined in the Directive are merely potential maximums; there is no obligation to impose them in every case. Even if bankers are caught and convicted for acts criminalized under this Directive, sentences may be more lenient (or potentially harsher, as Member States can set higher maximum penalties). It is unlikely that many bankers will face significant jail time alongside offenders like burglars and muggers—even if their crimes yield greater profits and have a more significant economic impact.
More importantly, the United Kingdom, home to a substantial portion of the EU’s financial industry, opted out of this Directive despite being subject to the parallel Regulation (similar to Denmark’s situation). Should a French national, for example, engage in acts criminalized by this Directive while working in London, Member States are only obligated to criminalize such acts when committed by their citizens in countries that also outlaw those activities. Therefore, whether to criminalize some or all acts defined in the Directive rests with the UK. Only then would other Member States be obligated to criminalize those acts when carried out by their citizens within the UK.
Barnard & Peers: chapter 25