Table of Contents:
: EU sanctions and proportionality: the normative layer
: EU direct sanctions
The Court has consistently held that it is the task of the EU legislature alone to determine the most appropriate solutions for achieving the objectives established by primary and secondary law and that these include the imposition of sanctions for breaches of Union law. Of course, the possibility of relying on this power is not carte blanche in the hands of the Union. All relevant provisions of EU law must be interpreted - inter alia - through the lens of proportionality, which sheds light on the methods and extent of the EU’s ius puniendi. In fact, this principle requires such a power to be exercised only insofar as it is necessary to achieve the pursued policy objectives and through the means strictly necessary. In addition, the intensity of the reaction to an infringement of EU law should, accordingly, be measured carefully. Depending on the situation at issue, the intensity of the reaction may involve aspects such as the duration in time, the extent, and the objective and subjective scope of application of a sanction.
The EU acquis and the practice of EU institutions show some attempts to align the aforementioned methods and extent of EU sanctioning powers to requirements of appropriateness, necessity and proportionality at normative or regulatory level, as the outcome of a proportionality-oriented decision-making process.
From a general perspective, the diversified forms of EU direct sanctioning power often share a common denominator, namely the fact that the respective measures represent a photographic negative of the infringement or misconduct that justifies their imposition.  Sanctions, such as recover}' or reduction of unduly obtained benefits, pecuniary sanctions in an amount equivalent to a given unlawful economic advantage or quantified in light of the severity of the conduct and its material effects, withdrawal of administrative decisions, and temporary exclusion from the right to apply for specific funding opportunities, are recurring examples, cross-sectional to many EU policies. The obligation to return unlawfully granted State aid and the recovery of structural and investment funds in the event of fraud or mismanagement are illustrative examples. Similarly, EU nation sanctions against third countries aiming to prevent conflicts and the proliferation of weapons, to promote democracy and human rights, and to combat terrorism include, depending on the circumstances, arms embargoes, trade restrictions, import or export prohibitions, and travel and visa bans or restrictions.
Tailoring the form of a sanction to the conduct it addresses and to the aim(s) it pursues is not conclusive in terms of compliance with the principle of proportionality. However, ensuring coherence in the causal link between a breach and the ensuing penalty is an effective way of securing the sound exercise of public coercive powers, since - at least in principle - it avoids plainly unreasonable normative choices. Thereafter, the compelling question is the extent to which an in abstracto tailor-made sanction can be, regardless of its qualification, in concreto problematic from a proportionality viewpoint, due to its severity and its effects.
The EU legal framework and the practice of EU institutions are matters of debate in this respect. In fact, all key areas lack binding EU legislation establishing clear and pre-determined limits to the Union’s direct sanctions. The enforcement of Articles 101 and 102 TFEU and the sanctions that the Court of Justice has the power to impose on a Member State pursuant to Article 260(2) TFEU are particularly telling examples.
Firstly, as Calzolari discusses in detail later in this book, the enforcement of EU competition rules still relies heavily on pecuniary sanctions issued by the Commission and by the national competition authorities. Since the early 1980s, the Commission has prioritised the deterrent effect of penalties for breaches of Articles 101 and 102 TFEU, thereby provoking a sharp increase in the severity of sanctions, up to their recent remarkable peaks. Nonetheless, this trend has not been accompanied by ad hoc legislative constraints and the Commission has always been endowed with extensive discretion in determining the fines and calculation methods. Widespread criticism of the lack of transparency and predictability eventually forced the Commission to adopt the Fining Guidelines, a self-imposed (and unilaterally devised) soft law instrument detailing the exercise of its sanctioning prerogatives. Although this document is a useful reference point, the absence of formal legislation still raises claims of the unconstrained - or, at least, not duly constrained - sanctioning power of the Commission, with remarkable effects on the companies concerned and on the market as a whole.
The Fining Guidelines do not refer explicitly to proportionality, but this principle underlies the calculation method, which is split into three steps. Following the determination of the basic amount of the fine, the second phase aims to tailor that sum to all relevant (aggravating and mitigating) circumstances. In addition, the third and final assessment establishes the so-called turnover cap, according to which a fine may not exceed 10% of the undertaking’s total global turnover in the previous year. This criterion primarily aims to avoid disproportionately harsh penalties.
The Commission made a similar effort to secure the transparency and predictability of the lump sum and the penalty payment that may be imposed on a Member State pursuant to Article 260(2) TFEU, following a failure to take the necessary measures to comply with a judgment of the Court of Justice in the framework of infringement proceedings. Since 1996, the Commission has issued several Communications providing guidance on the calculation methods of these sanctions,4 paying great attention to penalty payments. In fact, due to their reiteration over time and the ensuing budgetary pressure on the Member States, they were deemed to hold significant deterrent potential, with a real risk of disproportionate financial burdens. This concern was incorporated into the mechanism for determining the penalty amount: the objective assessment of the gravity of the infringement and its duration was to be filtered by an n factor, reflecting the budgetary magnitude of each Member State, established on the basis of its Gross Domestic Product in the year preceding the imposition of the sanction. The development of the n factor is an interesting aspect for our purposes.
The 2004 enlargement to ten new Member States - most of which were characterised by weaker economies than those of the EU-16 - and the Commission v. France case of 2005, in which the Court of Justice decided, for the first time, to cumulate both a lump sum and a penalty payment, prompted new adjustments to this mechanism. To reflect more accurately the differences between the Member States in the enlarged EU, the Commission included the voting weight of a Member State in the Council in the method of determining the n multiplier. Moreover, it undertook to update its approach on a regular basis, to reflect both contingent factors - such as inflation - and the Court’s evolving case law.
More recently, the economic crisis provided an opportunity for further reviews, as the Court took the stance that the criteria pre-determined by the Commission -in particular, the reference to the previous year’s GDP - did not accurately reflect the abrupt and sharp decrease of some Member States’ ability to pay. Consequently, from 2011, the Commission decided to issue yearly updates to its approach, to reflect more attentively the continent’s rapidly evolving economic situation.
The final step of this development occurred in 2019, after the expiry of the transition period regarding the fully-fledged application of the new double majority voting system within the Council. Even though the Commission was willing to continue to use the weighting of votes for the purpose of calculating the n factor, at least for pending cases, the Court began to determine penalty payments by referring only to the GDP. Consequently, the Commission once again had to reconsider the calculation of penalty payments. In fact, referring to the GDP alone would have led to a disproportionate increase of the differential of the n factor between Member States, based on their ability to pay, with detrimental consequences on the fairness of the system and on the deterrent effect of the sanctions. Therefore, the Commission decided to use another objective institutional criterion, namely the number of representatives in the European Parliament.
Overall, the Commission’s Guidelines aim to ensure the consistency, transparency and proportionality of the system and of the proposals of determination of a sanction, although the Court is not bound by the proposed amount and has the final say on the determination of a specific lump sum and/or penalty payment. However, the Commission’s role once again becomes dominant in the enforcement phase, after the Court has passed its second judgment. At that time, the actual effects of the imposition of a sanction on the Member State concerned materialise, as the Guardian of the Treaties is entitled to request the payment. To do so, the Commission has the power to decide whether or not the infringement persists and whether or not the Member State concerned has made any improvement. Depending on the outcome of this crucial assessment, also following submissions and requests from the national authorities, the Commission may collect the entire penalty, grant reductions or instead decide that there is no longer any need to enforce the judgment. Surprisingly, this phase is blanketed with silence. The Treaties do not rule on how it should be managed, and the Commission has never issued any soft law instrument to self-orient its activity and make it more transparent, as occurs in the pre-judgment phase. Even though the Member States should be entitled to challenge any final decision taken by the Commission in this context pursuant to Article 263 TFEU. the misalignment between the institutional efforts to tailor the lump sum and the penalty to the specific circumstances of a case and the lack of indications on the Commission’s approach to the material enforcement of such sanctions is striking. Moreover, the stance taken by the Commission raises serious issues of proportionality, particularly in relation to the duration of the obligation to pay the penalty and to any reductions of its amount in light of the Member State’s improved conduct.