Are EU Administrative Penalties Reshaping the Estonian System of Sanctions?

• Date: 14 July 2020
• Year: 2020
• Author: Dr. Andreas Kangur,Dr. Alexander Lott,Dr. Anneli Soo
• Pages: 76
• DOI: https://doi.org/10.30709/eucrim-2020-009

I. Introduction

In 2002, the new Penal Code of Estonia¹ created a uniform offence concept comprising crimes and misdemeanours. The idea underpinning the reform was that misdemeanours, previously classified as administrative infractions, while clearly less serious in nature, are still punishable offences like crimes. Therefore, they should be governed by the same general principles and provisions in terms of both substantive and procedural criminal law. This fundamental policy decision means that punishing offenders belongs to the domain of criminal law instead of administrative law.

In 2019, a bill was introduced to transpose EU legislation on administrative sanctions into Estonian law. It sought to adjust the definitions of some misdemeanours and increase the maximum fines in order to achieve conformity with European requirements. Regulatory bodies – institutions also responsible for conducting misdemeanour proceedings in areas in which EU legislation has been developed (e.g., the Financial Supervision Authority, the Estonian Financial Intelligence Unit, etc.) – were not satisfied: while the maximum fines for misdemeanours in Estonia certainly needed an upgrade, the procedural framework for misdemeanours was also deemed cumbersome and inadequate for effective law enforcement, especially with regard to corporate entities. This opposition led the bill to be scrapped.

The Estonian government is now planning to transpose EU administrative sanctions for corporations to the Estonian legal system by re-introducing administrative infractions. Work on drafting the law on the administrative sanctions procedure has already begun. While the government seems to have made up its mind, the authors call into question whether EU law actually requires that punishment be imposed specifically under an administrative procedure or, indeed, whether the idea of administrative infractions is compatible with Estonian law.

This article is based on a study conducted by the authors for the Estonian Ministry of Justice from September 2019 to January 2020. Its aim was to map out the options for transposing EU administrative sanctions into Estonian law and to assess the compatibility, feasibility, and consequences of deciding in favour of each mapped option. The study comprised both desktop research and interviews with Estonian regulatory bodies. The following sections summarize the main results of this project and provides a reasoned opinion of the authors on what they consider to be the most preferred option to transpose EU administrative sanctions into Estonian law.

II. Does the EU Call for Administrative Punishments?

In recent decades, the boundaries between criminal and administrative punitive sanctions have become blurred in Europe.² The grey zone between these two areas has even been given a name: “criministrative law”.³ Generally speaking, governments justify their increasing use of administrative punitive sanctions by pointing to a reduction in the workload of courts and achieving speedier proceedings.⁴ In criminal proceedings, the defendant is guaranteed a “full package of procedural safeguards” (the contents of which, of course, depend on the state as well as the international context in which a particular state operates), while proceedings under administrative law generally offer a more limited set of safeguards – and regulatory authorities like the “limited set”.

The EU is making extensive use of punitive administrative sanctions in its legislation. Historically, its limited competence and lack of an appropriate legal basis prevented it from using other measures.⁵ The EU’s increasing use of administrative sanctions led to criticism that it was seeking to regulate criminal law, an area in which it had no legislative competence.⁶ Even after the necessary legal basis appeared, the EU was still initially required to operate under the three-pillar system, as a result of which its activity on administrative sanctions continued.⁷ Paradoxically, now that Art. 83 of the Treaty on the Functioning of the European Union (TFEU) lays down the explicit competence of the EU to provide for criminal sanctions, the EU continues to adopt punitive measures on legal bases other than Art. 83, calling them “administrative.” This preference for administrative punitive sanctions over criminal ones may stem from a desire to extend the EU’s criminal jurisdiction beyond the scope of Art. 83 TFEU. It may also be an attempt to strip defendants of some of their procedural rights in criminal prosecutions so that possible lawbreakers can be punished swiftly and effortlessly – an aspiration possibly running contrary to the European Court of Human Rights (ECtHR’s) ruling in Engel.⁸ In Engel, the ECtHR held that the question whether an offence amounts to “criminal offence” for the purposes of Art. 6 of the European Convention on Human Rights (ECHR) cannot be answered according to the domestic classification alone, but has an autonomous meaning which takes into consideration not only the domestic classification of the offence but also the nature of the offence and the severity of the potential penalty. The Court of Justice of the European Union (CJEU) has recognized Engel’s criteria and has, over time, explicitly extended at least some of its criminal procedural guarantees to punitive administrative sanctions.⁹

Proponents of administrative sanctions in Estonia have successfully managed to spread a serious misconception that the EU prescribes the exact procedural regime for handling breaches of EU law in the Member States. Although these measures in EU law are called administrative, EU law does not actually rule out the possibility of imposing them through quasi-criminal proceedings such as the existing misdemeanour procedure in Estonia. In Estonia, the majority of misdemeanours are initially adjudicated by the regulatory agencies themselves who have the authority to impose fines. This distinguishes the Estonian procedure, for example, from that of Denmark where all sanctions are imposed directly by the courts.

In accordance with the principle of subsidiarity, the EU treaties do not require complete harmonization of the procedural rules applied by the Member States when imposing administrative sanctions. According to the established case law of the CJEU, the choice of penalties also remains within the Member States’ discretion. The principle of loyalty dictates that violations of EU law must be handled under conditions that are analogous to those applicable to infringements of national law of similar nature and importance. The sanction must be effective, proportionate, and dissuasive.¹⁰ In fact, many EU instruments explicitly state that Member States may decide not to enact sanctions under administrative law for violations that are subject to domestic criminal sanctions.¹¹ Therefore, as long as the enforcement of EU law is effective, the EU really does not dictate whether the sanctions are transposed under administrative law or fall under the quasi-criminal category. This begs the question of whether enacting a new category of offences with separate procedural rules under administrative law is really necessary in Estonia.

III. Does Estonia Need to Bring Back Administrative Infractions?

In the analysis commissioned by the Estonian government, the authors explored two options to transpose EU legislation on administrative sanctions:

• As administrative measures;

• As misdemeanours.

These options are discussed below as the authors give their reasoned opinion on why they prefer transposition of EU administrative sanctions via misdemeanour proceedings.

1. EU administrative sanctions as administrative measures

While the government’s attempt to raise maximum fines for misdemeanours within the existing criminal law scheme got bogged down (see Introduction above), some penalties prescribed in the EU’s legal acts related to regulation of credit institutions and data protection, for example, have already been transposed into the Estonian legal order as penalty payments. Penalty payments belong to the general part of administrative law and can be imposed by regulatory authorities in order to enforce their compliance notices.¹² As provided in the relevant domestic laws,¹³ penalty payments can be imposed if an authority’s compliance notice remains fruitless. The maximum amount of an administrative penalty that can be levied at a time is normally only €9600 in Estonia.¹⁴ The new penalty payments may run in the millions. Furthermore, the procedure for imposing a penalty payment is not a suitable expeditious reaction to violations that call for punitive measures. The law expressly states that a penalty payment is a coercive measure as opposed to a punitive one;¹⁵ it must be preceded by a compliance notice and a written warning, i.e., a formal document that directs a person to perform a required act or refrain from illegal activity and sets a deadline by which the directions in the notice must have been complied with.¹⁶ The penalty payment is imposed only after the time limit has elapsed and the directions have been ignored.¹⁷ This multi-stage procedure hardly qualifies as an effective enforcement mechanism of EU law.

If Estonia is to adopt EU administrative sanctions under an administrative procedure, a new procedure aimed distinctly at punitive measures should be devised. This new procedure would likely be intertwined with regulatory enforcement activities as provided for by the Law Enforcement Act (LEA). The LEA provides for a wide variety of measures such as questioning of people and requiring of documents, obtaining data from telecommunications providers, entry into premises and examination of both real and personal property. Laws governing particular fields may also authorize regulatory agencies to use other more far-reaching regulatory measures, such as orders to cease activity. For example, the Estonian Financial Supervision Authority has the right to...