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18th Nov 2018

EU admits to problems in penalty regime

  • The commission proposes a 'New Deal for Consumers', which includes a more effective penalty regime (Photo: European Commission)

Effective, proportionate and dissuasive.

These three words are common features in EU law to describe the required characteristics of penalties for all sorts of infringements.

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The rules are set at EU level, but the possible fines for breaking them are determined at national level.

From regulations on cheating on car emissions tests to trading with terrorist groups - the same sentence comes back in EU paragraphs about penalties: "The penalties provided for must be effective, proportionate and dissuasive."

But directives and regulations do not provide any guidance how to determine what level of penalties is effective, proportionate or dissuasive.

This website has shown through access to documents requests that this often leads to a patchwork of fines across the EU – and often are too low to have a deterrent effect on multi-million euro companies.

Violating the EU principle of net neutrality would cost a company €9,600 in Estonia, while it could be punished with a fine of up to €2m in Spain.

Companies that sell unauthorised 'novel foods' made from insects or algae could be fined between €1,000 and €500,000 in Slovakia; €2,329 in Malta; and €1,050 in the Netherlands if the company has more than 50 employees (otherwise the Dutch fine is €525).

Dieselgate

On Wednesday (11 April), the European Commission acknowledged that the EU's penalty regime can be improved – at least for legislation related to consumer issues.

"Today, when a company breaks consumer rules, the penalties set out in national law vary widely across the EU and are often quite small. As a result, they do little to discourage unscrupulous traders from cheating consumers," the commission said in a strategy paper titled A New Deal for Consumers.

An impact assessment of the commission's plans to reform consumer legislation looked at the Dieselgate example, which involved the Volkswagen Group company misleading customers about car emissions.

The German carmaker, with an annual turnover of €217.3bn, was fined €5m in Italy, and €450,000 in the Netherlands. These were the highest fines possible on national legislation based on the unfair commercial practices directive.

The commission's impact report said this level of fines was "unlikely to be sufficiently deterrent to prevent similar infringements by large multinational companies in the future".

It also noted that potential fines with an absolute cap are unfair to smaller businesses – because the bigger the company is, the smaller share of its turnover the fine will be.

Common criteria

The Brussels-based EU executive proposed on Wednesday to introduce EU-wide common criteria to determine the level of penalties for violating four consumer-related directives.

The criteria included the nature of the violation; the number of EU consumers affected; the response by the company; whether the infringement was intentional or negligence; priors; how the company has profited from the violation; and "any other aggravating or mitigating factor applicable to the circumstances of the case".

Fines should also take the infringing trader's annual turnover and profits into account.

If a company's prohibited behaviour is a so-called 'widespread infringement', then the national authority should be able to fine up to at least 4 percent of the company's annual turnover in the member states where the infringement took place.

A widespread infringement is defined in EU law as committed in three member states – or in two member states other than the one where the company is based.

The commission said that the common criteria would increase the "deterrent effect and effectiveness".

What about the other laws?

A commission spokesman said on Thursday morning he was not aware of any plans to also introduce common criteria to the hundreds of regulations and directives that do not deal directly with consumer affairs.

On one previous occasion did the commission propose to introduce pan-European penalties. Volkswagen did not only violate consumer law, but also the EU's rules on car type approvals.

Germany has still not fined the company for that. However, next week the European Parliament will vote on an amendment of the type approval legislation which would make it possible for the commission to impose fines if a member state refuses to do so.

But meanwhile the 'effective, proportionate and dissuasive' has proven difficult to root out.

Later on Thursday, the commission is expected to propose better protection mechanisms for farmers against unfair trading practices.

Once again, the draft bill said that penalties should be "effective, proportionate and dissuasive" without providing any common criteria.

This article was updated on Thursday 12 April, 11:56AM, to include a comment from the European Commission

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