The Polish Supreme Court has held that payments under the EU’s Common Agricultural Policy are a form of financial support, and an attempt to obtain the payments under false pretences is a form of “capital fraud” under the Polish Penal Code.
The Supreme Court made this holding in an order dated 19 May 2011 (Case No. I KZP 3/11) ruling on a certified question requiring a critical interpretation of the Act on Payments under Direct Support Systems dated 26 January 2007. The certified question was, “Are direct payments and supplementary payments made on the basis of the act included within the concept of ‘grants’ as used in Penal Code Art. 297 §1, or do they constitute a form of financial support other than those referred to in that article?” The question was submitted to the Supreme Court because of doubts raised by an appellate court on how to interpret the law. The appellate court was hearing an appeal by a person convicted under Penal Code Art. 297 §1 for including a false statement concerning circumstances material to the award of a “grant” (as the trial court put it) in an application for land-based CAP direct payments.
Under Art. 297 §1, it is a punishable offence to attempt to obtain financial support from a bank or organisational unit conducting similar commercial activity on the basis of statute, or from an authority or institution handling public funds, in the form of a “credit, loan of money, guarantee, surety, letter of credit, grant, subsidy […] or similar monetary benefit for a defined economic purpose” as a result of filing a forged, altered, false or inaccurate document or an inaccurate written declaration concerning circumstances material to obtaining a specific instrument of financial support.
This offence, often referred to in practice as “capital fraud” or “criminally misleading a financial institution in order to obtain financing,” is intended to protect participants in trade from dishonest practices involving attempts to obtain funds under false pretences from financing institutions, and more generally to protect the fair and honest functioning of commerce. In order to commit capital fraud, it is not necessary that the institution actually make an unfavourable disposition of funds, which is an essential element of the offence in the case of ordinary fraud under Penal Code Art. 286. Under Art. 297 §1, the mere attempt to obtain unauthorised financial support by filing false or inaccurate documents or statements is a punishable offence.
Relying on the text of the law as well as a functional and systemic analysis, the Supreme Court held that direct and supplementary payments under CAP are not “grants”, but they are a “similar monetary benefit for a defined economic purpose.”
The Supreme Court explained that in light of the rule that terms that are not defined in a penal act should carry the meaning ascribed them to them by laws governing the specific area, the term “grant” as referred to in Penal Code Art. 297 §1 cannot be given its ordinary meaning, but only the meaning based on the definition of a “grant” in the Act on Public Finance. The definition provided by that act excludes extension of the term to cover such benefits as direct or supplementary payments under the Common Agricultural Policy.
This does not mean, however, that this type of financial support is not covered by Penal Code Art. 297 §1. Direct and supplementary payments are instead covered by Art. 297 §1 as a “similar monetary benefit for a defined economic purpose.” They are a separate type of monetary benefit, apart from the other instruments listed in the law, which one might also attempt to obtain under false pretences. Extending the concept of capital fraud to cover such payments is justified as well by the fact that they are financed out of public funds, i.e. from the Polish state budget and the EU budget (administered in Poland by the Agency for Restructuring and Modernisation of Agriculture). This interpretation is also supported by the purpose sought to be achieved by the law, particularly in light of amendments to Art. 297 §1 designed to expand the scope of protection of the proper and honest functioning of commerce as well as the interests of institutions involved in financing trade.
As pointed out by the Supreme Court, the reference in Art. 297 §1 to a “similar monetary benefit for a defined economic purpose” opens up the list of financial instruments that may be regarded as a form of financial support. This means that an attempt to obtain any other unauthorised monetary benefit for a specific economic purpose, of a comparable nature—not just direct or supplementary payments—may also be punishable under this fraud provision.
Fraud of this type is punishable by 3 months to 5 years in prison.
Aleksandra Stępniewska, Dispute Resolution and Arbitration practice, Wardyński & Partners