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The proposed new rules would also establish pan-European common definitions of fraud and introduce uniform penalties against those found guilty of defrauding the EU budget, the European Parliament said.

"This will ensure that fraud against the EU budget is considered a crime everywhere in the EU," said a European Parliament statement issued following the vote by MEPs. "The rules will provide sanctions for fraud against the EU budget, including imprisonment, and there will be a level-playing field for periods within which it is possible to investigate and prosecute offences. This will help deter fraudsters, providing more effective legal action at national level and facilitating the recovery of lost funds."

The Parliament described the proposals as an "integral" step in European Commission plans to establish a European Public Prosecutor's Office (EPPO), which would investigate fraudulent use of EU tax-payer's money. The European Parliament last month backed proposals to establish the EPPO, which European justice commissioner Viviane Reding hopes will be operational by 2015.

Plans to establish the EPPO follow concerns at the Commission that investigation and conviction rates for fraud against EU resources vary greatly across the EU. Statistics released by the European Parliament show that only 46% of cases referred to member states are followed up by their national judicial authorities. EU-wide, the conviction rate of these is just 42%.

The UK and Ireland have decided not to opt in to the EPPO, but Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, said that UK organisations involved in spending European Union money must nevertheless ensure their anti-fraud measures and controls over staff will withstand scrutiny by EPPO. British organisations should also be sure that all their European partners have anti-fraud measures in place which will protect against investigations by the EPPO, as the office clamps down on fraudulent use of EU tax-payers' money.

"The UK opt out is largely irrelevant, said Vitou following MEPs endorsement of the proposal to criminalise misuse of EU funds."The point is that the EU is turning up the heat on fraud on EU funded projects. If they find fraud it will be prosecuted, whether by UK or EU prosecutors is a minor detail to those in the cross hairs."

Proposals to criminalise misuse of EU funds across the EU reflect Commission concerns that definitions of EU budget fraud and sanctions against offenders also vary widely across the EU.

"The interpretation of what constitutes fraud to the EU budget differs from one country to another, as do the penalties," said the Parliament statement following the vote. "For example, the level of sanctions for fraud varies across the European Union from no mandatory sentence for fraud to 12 years imprisonment. Equally the time within which it is possible to investigate and prosecute offences varies widely, ranging from 1 to 12 years."

The proposed Directive would establish a definition of corruption and a definition of misappropriation, to be criminalised in the member states. Money-laundering of proceeds of offences criminalised under the Directive would also be criminalised in member states.

Member states would also be required to criminalise all forms of preparation of and participation in the incitement, aiding, abetting and attempt of offences criminalised under the Directive.

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Pan-European definitions of fraud and corruption proposed as European parliament backs anti-fraud measures