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1. In order to protect the financial interests of the Union, the Commission shall set up and operate an early detection and exclusion system. The purpose of such a system shall be to facilitate:

(a) the early detection of persons or entities referred to in paragraph 2, which pose a risk to the financial interests of the Union;

(b) the exclusion of persons or entities referred to in paragraph 2, which are in one of the exclusion situations referred to in Article 138(1);

(c) the imposition of a financial penalty on a recipient pursuant to Article 140.

2. In direct and indirect management, the early detection and exclusion system shall apply to:

(a) participants and recipients;

(b) entities on whose capacity the candidate or tenderer intends to rely or subcontractors of a contractor;

(c) any person or entity receiving Union funds where the budget is implemented pursuant to Article 62(1), first subparagraph, point (c), and to Article 157(4) on the basis of information notified in accordance with Article 158(7);

(d) guarantors;

(e) participants or recipients on which entities implementing the budget in accordance with Article 63 have provided information, as transmitted by Member States in accordance with sector-specific rules, in accordance with Article 144(2), point (d);

(f) sponsors as referred to in Article 26;

(g) beneficial owners and any affiliate of the excluded entity as referred to in Article 138(6);

(h) natural persons as referred to in Article 138(5), first subparagraph, points (a) to (c);

(i) any person or entity receiving funds through any forms, including non-repayable financial support or loans or both, where the budget is implemented pursuant to Article 62(1), first subparagraph, point (a), with Member States, in which case Article 138(2) shall apply. For the purpose of the first subparagraph, point (i), persons or entities receiving funds shall include final recipients of funds, contractors, sub-contractors and the beneficial owners. This is without prejudice to Article 157(7) and the rules laid down in contribution agreements, financing agreements and guarantee agreements, in the case of persons or entities receiving Union funds where the budget is implemented pursuant to Article 62(1), first subparagraph, point (c). In the case of shared management, the exclusion system shall apply to:

(a) any person or entity applying for funding under a programme in shared management, selected for such funding, or receiving such funding;

(b) entities on whose capacity the person or entity referred to in point (a) intends to rely, or subcontractors of such person or entity;

(c) beneficial owners and any affiliate of the entity excluded as referred to in Article 138(6).

3. The decision to register information concerning an early detection of the risks referred to in paragraph 1, second subparagraph, point (a), of this Article, to exclude persons or entities referred to in paragraph 2 and/or to impose a financial penalty on a recipient shall be taken by the authorising officer responsible. Information related to such decisions shall be registered in the database referred to in Article 144(1). Where such decisions are taken on the basis of Article 138(5), the information registered in the database shall include the information concerning the persons referred to in that paragraph.

4. The decision to exclude persons or entities referred to in paragraph 2 of this Article or to impose financial penalties on a recipient shall be based on a final judgment or, in the exclusion situations referred to in Article 138(1), on a final administrative decision, or on a preliminary classification in law by the panel referred to in Article 135 in the situations referred to in Article 138(3) in order to ensure a centralised assessment of those situations. In the cases referred to in Article 143(1), the authorising officer responsible shall reject a participant from a given award procedure. Without prejudice to Article 138(7), the authorising officer responsible may take a decision to exclude a participant or recipient and/or to impose a financial penalty on a recipient and a decision to publish the related information, on the basis of a preliminary classification as referred to in Article 138(3), only after having obtained a recommendation of the panel referred to in Article 142.