Documents considered by the Committee on 18 April 2012 - European Scrutiny Committee Contents


1 Freezing and confiscation of assets


(33758)

7641/12

COM(12) 85

ADDs 1-2

Draft Directive of the European Parliament and of the Council on the freezing and confiscation of proceeds of crime in the European Union

Commission Staff Working Papers: Impact Assessment and Summary of Impact Assessment

Legal baseArticles 82(2) and 83(1) TFEU; co-decision; QMV
Document originated12 March 2012
Deposited in Parliament15 March 2012
DepartmentHome Office
Basis of considerationEM of 26 March 2012
Previous Committee ReportNone
Discussion in CouncilNo date set
Committee's assessmentLegally and politically important
Committee's decisionNot cleared; further information requested; opt-in decision for debate on the Floor of the House

Background

1.1 It has long been recognised that establishing the means to deprive criminals of illicit gains obtained as a result of their criminal activity is an essential tool in combating serious crime. Criminals have become increasingly astute at converting the proceeds of crime into a broad range of assets which are often invested abroad in an attempt to conceal them and prevent their recovery. International cooperation is an important element of an effective asset recovery process so that investigating and prosecuting authorities can help each other to trace and identify criminal assets, prevent their dissipation or disposal, and preserve their value until such time as a confiscation order can be obtained and the assets recovered.

1.2 All EU Member States have ratified a 1990 Council of Europe Convention[1] which requires them to introduce laws providing for the confiscation of the proceeds of crime, including property used to commit a crime ("instrumentalities"), and provides for the widest possible international cooperation in the investigation and confiscation of criminal assets. Far fewer Member States (12 so far, not including the UK) have ratified a 2005 Council of Europe Convention which sets out in greater detail the nature of the assistance to be provided, for example, in obtaining information on bank accounts or transactions.

1.3 The EU has also developed a legal framework which seeks to reduce disparities in Member States' approaches to the confiscation and recovery of criminal assets. A Council Framework Decision adopted in 2001 limits the reservations which EU Member States may make to certain provisions of the 1990 Convention and strengthens some of its obligations by, for example, requiring Member States to ensure that property corresponding to the value of proceeds of crime may be confiscated if the direct proceeds of crime cannot be seized — so-called "value confiscation". It also requires each Member State to accord the same priority to requests from other Member States for assistance in identifying, tracing, freezing or seizing assets as would apply for purely domestic proceedings.[2]

1.4 Under a 2005 Council Framework Decision, Member States must ensure that their national laws make provision for the confiscation of the proceeds of any crime punishable by a term of imprisonment of more than one year and introduce extended powers of confiscation in relation to terrorist offences and particular categories of serious organised crime (for example, money laundering, human trafficking and the sexual exploitation of children). These extended powers enable national courts to infer, on the basis of specific facts, that assets belonging to an individual convicted of a terrorist or serious organised criminal offence must have been obtained as a result of previous criminal activity, even if they are not directly linked to the crime for which he or she has been convicted, and to order their confiscation.[3]

1.5 The Framework Decisions have been supplemented by two EU measures which provide for the automatic recognition and enforcement of freezing orders (in order to secure evidence or property) and confiscation orders relating to any one of 32 listed criminal offences, provided they are punishable under the law of the Member State issuing the order by a maximum term of imprisonment of at least three years.[4] Both measures include a limited number of grounds for refusing to recognise or enforce a freezing or confiscation order.

1.6 Finally, a Council Decision adopted in 2007 requires Member States to establish national Asset Recovery Offices to help trace and identify the proceeds of crime and other crime-related property which may be subject to a freezing, seizure or confiscation order. The Decision provides a legal base for the exchange of information and best practice.

The case for further EU action

1.7 The Commission believes that further EU action is needed because existing national, EU and international laws on asset confiscation "remain underdeveloped and underutilised." It questions whether any Member State confiscates a significant proportion of criminal assets and suggests that existing laws are therefore failing to achieve their stated aim.[5]

1.8 The Commission asserts that the current EU legislative framework has developed on a piecemeal basis, lacks overall coherence or consistency, and has done little to reduce substantial differences in Member States' national systems for the confiscation of assets. Moreover, the Commission considers that

"legal inadequacies and political/structural problems in a few Member States may be so significant that they largely prevent the use of confiscation and asset recovery against high-ranking organised criminals."[6]

It therefore advocates an increased level of harmonisation at EU level in order to establish in each Member State "a minimum level of protection from criminal infiltration in the legal economy (through the acquisition of assets)", adding that "It is widely recognised that a minimum level of harmonisation should exist in order to facilitate mutual recognition."[7]

1.9 The Commission cites Conclusions on confiscation and asset recovery agreed by the Justice and Home Affairs Council in June 2010 which invited it to consider strengthening the existing legislative framework to include "more effective regimes of third party confiscation and extended confiscation, including timely tracing and securing of the assets." The Conclusions also highlighted the importance of preserving the value of assets during the confiscation and asset recovery process and examining ways of enforcing non-conviction based confiscation orders in Member States which do not provide for them within their own legal systems.

The legal base for EU action

1.10 Existing EU measures on the freezing and confiscation of criminal assets were adopted before the entry into force of the Lisbon Treaty and have a broad scope of application. For example, the 2005 Framework Decision on the confiscation of crime-related proceeds, instrumentalities and property covers all criminal offences punishable by imprisonment for more than one year. However, changes introduced by the Lisbon Treaty have limited the extent to which the EU may harmonise national criminal laws so the new Directive proposed by the Commission would maintain in force some of the provisions contained in the existing EU legal framework in order to ensure a minimum level of harmonisation in relation to crimes which would otherwise fall outside the scope of the new Directive.

1.11 The draft Directive cites two legal bases. The first, Article 83(1) of the Treaty on the Functioning of the European Union (TFEU), only allows the EU to establish minimum rules concerning the following particularly serious crimes with a cross-border dimension: terrorism, human trafficking and the sexual exploitation of women and children, illicit trafficking in drugs or arms, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime. However, the Commission believes that the reference to organised crime would also cover other serious criminal activities not specifically listed in Article 83(1) if committed by means of participation in a criminal organisation.[8]

1.12 The second legal base, Article 82(2) TFEU, provides for the adoption of minimum rules on such matters as the mutual admissibility of evidence between Member States, the rights of individuals in criminal procedure and the rights of victims of crime

"to the extent necessary to facilitate mutual recognition of judgments and judicial decisions and police and judicial cooperation in criminal matters having a cross-border dimension."

It also specifies that such rules "shall take into account the differences between the legal traditions and systems of the Member States."

1.13 Although not cited as a legal base for the draft Directive, Article 82(1) TFEU makes clear that

"Judicial cooperation in criminal matters in the Union shall be based on the principle of mutual recognition of judgments and judicial decisions and shall include the approximation of the laws and regulations of the Member States in the areas referred to in paragraph 2 and in Article 83."

1.14 The draft Directive is subject to the UK's opt-in. Moreover, once negotiations have begun, any Member State is entitled to use the "emergency brake" procedure in Articles 82(3) and 83(3) TFEU to suspend discussions within the Council and refer the draft Directive to the European Council if it considers that it "would affect fundamental aspects of its criminal justice system."

The draft Directive

1.15 The draft Directive proposes minimum rules to harmonise Member States' laws on the freezing and confiscation of criminal assets. It is intended to facilitate mutual trust and effective cross-border cooperation, making it easier for freezing and confiscation orders issued in one Member State to be enforced against assets located in another Member State, whilst also taking full account of fundamental rights. The following paragraphs summarise the main elements of the draft Directive.

1.16 Articles 1 and 2 describe the purpose and scope of the draft Directive. It would establish minimum rules on freezing and confiscation of property, in most cases following conviction for a criminal offence. The criminal offences covered by the draft Directive are set out in Article 2 by reference to specific EU legislation which defines criminal offences and sanctions in the areas listed in Article 83(1) TFEU, notably corruption, counterfeiting of the euro, fraud and counterfeiting of non-cash means of payment, terrorism, money laundering, drug trafficking, cybercrime, human trafficking, sexual exploitation of children and child pornography, and organised crime.

1.17 Article 3 requires Member States to provide for the confiscation of the instrumentalities and proceeds of a criminal offence, or property of a corresponding value, following final conviction ("conviction-based confiscation"). Instrumentalities include any property used or intended to be used to commit a criminal offence. Proceeds cover any economic advantage derived from a criminal offence.

1.18 Article 4 requires Member States to provide for the confiscation of property belonging to a person convicted of a criminal offence if a court considers, on the basis of specific facts, that it is "substantially more probable" that the property is derived from similar criminal activities rather than other (licit) activities ("extended powers of confiscation"). Whilst these extended powers also depend on conviction for a criminal offence listed in Article 2 of the draft Directive, they enable a court to confiscate property even if it cannot be directly linked to the commission of that crime. However, confiscation is excluded in two types of cases: first, if the property derives from criminal activities which are time-barred and cannot be the subject of criminal proceedings; and second, if a prosecution has already taken place and resulted in an acquittal.

1.19 Although existing EU legislation makes provision for extended confiscation, it does so by establishing three sets of alternative minimum rules and gives Member States the option of deciding which one (or more) to apply.[9] The Commission believes that this has led to piecemeal transposition and restricted the scope for mutual recognition of confiscation orders, as authorities in one Member State may only execute confiscation orders issued by another Member State if both apply the same set of minimum rules. The purpose of Article 4, therefore, is to establish a single minimum standard for extended confiscation.[10]

1.20 Article 5 requires Member States to provide for the confiscation of proceeds and instrumentalities without a prior criminal conviction ("non-conviction based confiscation") if criminal proceedings have not concluded for the following reasons:

  • the death or permanent illness of the suspected or accused person prevents any further prosecution; or
  • the illness or flight from prosecution or sentencing prevents effective prosecution within a reasonable time and poses a serious risk that it could be barred by statutory limitations.

1.21 According to the Commission, Member States are free to determine whether confiscation in these limited circumstances should be ordered by a criminal, civil or administrative court. It says that its proposal is consistent with provisions in the United Nations Convention against Corruption and recommendations made by the OECD Financial Action Task Force and is supported by the Camden Asset Recovery Inter-Agency Network which brings together practitioners and experts from over 50 countries and jurisdictions (including 26 Member States).[11]

1.22 Article 6 requires Member States to provide for the confiscation of either proceeds transferred to third parties by or on behalf of a convicted person (or by an Article 5 suspect) or other property of a convicted person transferred to a third party in order to avoid confiscation of property of a value corresponding to the proceeds of the crime ("third party confiscation"). Confiscation must be available in the following circumstances:

  • where the property is subject to restitution; or
  • where an assessment, based on specific facts, suggests that confiscation of the property of the convicted person (or Article 5 suspect) would be unlikely to succeed and the proceeds or property were transferred free of charge or for less than their market value and the third party knew or should reasonably have suspected that the proceeds were illicit or that the property was transferred in order to avoid confiscation.

1.23 The Commission believes that third party confiscation in these circumstances is proportionate and includes sufficient safeguards to prevent arbitrary decisions.[12]

1.24 Article 7 requires Member States to provide for the freezing of property which is in danger of being dissipated, hidden or transferred out of the jurisdiction. Such action must be authorised by a court, except in cases where there is a high risk of dissipation, concealment or transfer. In such cases, immediate action may be taken, but it must be confirmed by a court as soon as possible.

1.25 Article 8 sets out minimum safeguards which all Member States are required to provide. They include:

  • the right to a fair trial;
  • the right to an effective remedy;
  • a right to appeal against a decision to freeze property before a decision on confiscation is taken — there are additional procedural safeguards to ensure that those affected are informed of the reasons for deciding to freeze property and that a freezing order only remains in force for as long as is necessary to preserve the property with a view to future confiscation;
  • a right to appeal against a decision to confiscate property and to be informed of the reasons for the decision;
  • a right, in cases involving extended confiscation, to challenge the court's assessment of the probability that the property in question is derived from similar criminal activities;
  • a right, in Article 5 cases, for the person whose property may be affected by a confiscation decision, to be represented by a lawyer; and
  • a right, in cases involving third party confiscation, for the affected third party to be heard, ask questions and provide evidence in the course of proceedings which may lead to the confiscation of his or her property.

1.26 The Commission notes that the right to property is not absolute and may be subject to restriction, if provided for by law and if necessary to "meet objectives of general interest or [...] to protect the rights and freedoms of others, as in the prevention of organised crime." It says that Article 8 ensures full compliance with the EU Charter of Fundamental Rights by establishing minimum safeguards which guarantee respect for the presumption of innocence, the right to a fair trial, the provision of effective judicial remedies and information on how to exercise them.[13]

1.27 Article 9 seeks to ensure that Member States have the necessary tools at their disposal to determine the extent of the property to be confiscated and to execute a confiscation decision effectively. The Commission suggests that this Article is intended to address situations where there is insufficient property to execute a confiscation order in full. It requires Member States to allow financial investigations concerning the assets of a convicted person to continue after criminal proceedings have concluded so that the confiscation order may be executed against previously hidden assets which "resurface" at a later date.

1.28 Article 10 requires Member States to establish mechanisms to ensure the adequate management of frozen property pending a decision on confiscation. It includes an obligation to "optimise the economic value of such property" and to sell or transfer property which is liable to decline in value.

1.29 Article 11 requires Member States to collect and maintain comprehensive statistics (eleven categories are listed) in order to review the effectiveness of their confiscation systems.

1.30 Finally, Article 14 provides that the draft Directive will replace parts of the existing EU Framework Decisions described in paragraphs 1.3 and 1.4, as well as a Joint Action agreed in 1998,[14] but only for those Member States participating in the adoption of the draft Directive. If the UK were therefore to decide not to opt into the draft Directive, it would continue to be bound by both Framework Decisions and the 1998 Joint Action.

Subsidiarity, proportionality and respect for fundamental rights

1.31 The Commission believes that EU action is justified because organised criminal groups operate across borders and often invest or conceal their criminal assets in several countries. It considers that the EU is therefore better placed than individual Member States to regulate the freezing and confiscation of these assets.

1.32 The Commission says that the draft Directive respects fundamental rights and the principle of proportionality, highlighting safeguards built into various Articles which limit the scope for some of the more far-reaching forms of confiscation, such as non-conviction-based confiscation (Article 5), extended confiscation (Article 4) and third party confiscation (Article 6), as well as the inclusion of additional safeguards and judicial remedies in Article 8.

The Government's view

1.33 The Parliamentary Under-Secretary of State for Crime and Security (James Brokenshire) says that the Government welcomes the aim of the draft Directive which will ensure that there are minimum standards across the EU for the confiscation and recovery of profits derived from cross-border activity. He continues:

"For the most part the UK exceeds the requirements of the draft provisions. Our domestic legislation is robust and gives law enforcement agencies extensive powers to identify, freeze and confiscate the proceeds of all serious crime. Last year alone we recovered or deprived criminals of over £1 billion of assets.

"Improving international activity is an important element of this work as criminals do not respect borders and invest or hide their assets overseas, making it more challenging to identify and pursue them. In 2008, it was estimated that some £560 million of UK criminals' assets were overseas. We made clear in our Organised Crime Strategy that we will seek to hit criminal assets held overseas by working with foreign jurisdictions to enhance recovery."[15]

1.34 The Minister considers that EU action is justified

"as it would be difficult to achieve the same level of co-operation and common understanding by and between all Member States acting unilaterally or concluding a range of bilateral instruments."

However, he also suggests that the Commission has not fully considered other non-legislative options which can help to increase asset recovery and notes that "much has already been done and can also be done on a unilateral basis by the UK and through other wider international options."[16]

1.35 The Minister emphasises the importance of improving international asset recovery performance whilst also promoting key elements of the UK's domestic regime. He highlights the following:

"[...] non-conviction based confiscation (civil recovery), which is the ability to pursue property which is, or represents, property obtained through unlawful conduct through the civil courts in the absence of a criminal conviction; extended confiscation, which allows confiscation beyond those made in the instant prosecution and conviction; and third party confiscation, the ability to trace and confiscate assets that may have been transferred to a third party to avoid the court order."[17]

1.36 He notes that all these elements are addressed, to some extent, in the draft Directive and are broadly in line with existing UK legislation and practice, although he adds that the draft Directive appears to be drafted around specific property confiscation whereas the UK operates a value-based regime — the value of the criminal benefit is calculated and a confiscation order made to pay that amount to the court.

1.37 Whilst the Minister considers that the UK broadly complies with, or exceeds, the minimum rules set out in many of the Articles, he also identifies elements of the draft Directive which, on the basis of a preliminary analysis, appear to differ from the approach taken by the UK.

1.38 He says that, if the UK were to opt in, changes may be required to domestic legislation to ensure that there are powers to freeze and confiscate "instrumentalities", as defined in Article 2. This definition might also have implications for the UK's compliance with other Articles which refer to instrumentalities.

1.39 He notes that Article 7 introduces the possibility that, in urgent cases, assets could be frozen prior to obtaining a court order whereas UK law currently requires a court order to freeze property in all cases, regardless of urgency, and says that he will seek to clarify the reasons for proceeding without a court order. He suggests that the UK may not be in a position to provide all the information required under Article 11, such as the value of property frozen.

1.40 Other issues highlighted by the Minister include:

  • the extent of criminal offences covered by the draft Directive, as listed in Article 2(6);
  • clarification of the meaning and intention of the terms "substantially more probable" and "based on specific facts" in Article 4(1) on extended confiscation, as well as the rationale for the exclusions in Article 4(2) ;
  • the implications of Article 8 on safeguards for the legal aid budget; and
  • clarification of Article 9 to ascertain whether it includes value-based confiscation (the basis for the UK's confiscation regime).

1.41 The Minister says that the Government is "considering" the legal bases proposed by the Commission without, however, identifying any specific concerns. He provides a detailed analysis of the impact of the draft Directive on respect for fundamental rights, drawing on rights enshrined in the EU Charter of Fundamental Rights and the European Convention on Human Rights (ECHR). He concludes that the draft Directive is compatible with the EU Charter and the ECHR, in large measure because it reflects law and practice in the UK which the Government considers to be compliant with its Convention obligations.

The UK's opt-in

1.42 The Minister sets out the factors which are likely to influence the Government's decision on whether or not to opt into the draft Directive:

  • "the ability to support or develop our asset recovery regime;
  • "wider domestic developments in tackling organised crime;
  • "burden on the legislative programme;
  • "cost;
  • "association with other international developments."[18]

1.43 He expects the three-month period for determining whether or not to opt in to expire no sooner that 14 June[19] and reiterates the Government's offer, initially set out in the Minister's Written Ministerial Statement of 15 March 2012, to set aside time for a debate on the Government's recommended approach to the opt-in on the grounds that the draft Directive is likely to attract "particularly strong Parliamentary interest."[20]

1.44 The Minister anticipates that, if the UK were to opt into the draft Directive in its current form,

"there might be associated costs arising from the need to amend primary legislation in respect of Articles 2(6), 4, 5, 7(2), and 9 in relation to proceeds of crime and Articles 2, 3, 5 and 7 in relation to instrumentalities. There might also be costs associated with collating statistics under Article 11."

As, however, he believes that the UK exceeds many of the minimum requirements, he does not expect UK participation to affect the number of cases. He adds that the Government will continue to consult informally with the Serious Organised Crime Agency, the Crown Prosecution Service and the Association of Police Officers during the course of negotiations.

Conclusion

1.45 We welcome the Minister's offer of an opt-in debate which will enable the House to express its view on the Government's preferred approach to the opt-in. Although it seems that UK law and practice are broadly compatible with, and in some cases, exceed the minimum rules proposed by the Commission, the draft Directive nevertheless represents a significant extension of EU competence on such matters as third party and non-conviction based confiscation and on the freezing of property, in some cases without first obtaining a court order. For that reason, we agree with the Government's assessment that its decision on whether or not to opt into the draft Directive is likely to attract strong Parliamentary interest and merits a debate.

1.46 We suggest that the debate should address the factors which have influenced the Government's recommended approach to the opt-in and should consider fully the implications of a decision to opt into, or to remain outside of, the draft Directive for asset recovery in the UK and for broader international cooperation in this field.

1.47 We ask the Government to set out its position on the legal bases proposed by the Commission and to explain whether it has particular concerns regarding the scope of the draft Directive in light of the criminal offences listed in Article 2(6).

1.48 We note that one of the principal reasons advanced by the Commission for introducing a more comprehensive set of minimum rules is to make it easier to secure the mutual recognition of freezing and confiscation orders. We therefore ask the Minister to explain how the draft Directive would fit within this broader framework. For example, the 2003 Council Framework Decision, which provides for the recognition and execution of freezing orders for the purpose of securing evidence or the subsequent confiscation of property, specifies that the freezing order must be issued by a judicial authority in the framework of criminal proceedings.[21] We ask the Minister how this requirement for judicial authorisation can be reconciled with Article 7 of the draft Directive which envisages that property may be frozen without a court order in urgent cases.

1.49 Notwithstanding our acceptance of the Government's offer of a debate on its recommended approach to the opt-in, the draft Directive remains under scrutiny and we ask the Minister to provide progress reports on the negotiations.





1   Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, 8 November 1990, CETS No. 141. Back

2   See Council Framework Decision 2001/500/JHA, 26 June 2001, OJ L No. 182, 05.07.2001, pp. 1-2.  Back

3   See Council Framework Decision 2005/212/JHA of 24 February 2005, OJ L No. 68, 15.03.2005, pp. 49-51. Back

4   See Council Framework Decision 2003/577/JHA, 22 July 2003, OJ L No. 196, 02.08.2003, pp. 45-51; and Council Framework Decision 2006/783/JHA of 6 October 2006,OJ L No. 328, 24.11.2006, pp. 59-78.  Back

5   See ADD 1, p.15.  Back

6   See ADD 1, p. 16. Back

7   See ADD 1, p. 17. Back

8   See p.8 of the Commission's explanatory memorandum accompanying the draft Directive. See also Council Framework Decision 2008/841/JHA of 24 October 2008; OJ L No. 300, 11.11.2008, pp. 42-45, which establishes the circumstances in which participation in a criminal organisation constitutes a criminal offence.  Back

9   See Article 3(2) of Council Framework Decision 2005/212/JHA of 24 February 2005; OJ L No. 68, 15.03.2005, pp. 49-51.  Back

10   See pp. 10-11 of the Commission's explanatory memorandum.  Back

11   See p. 11 of the Commission's explanatory memorandum.  Back

12   See p.12 of the Commission's explanatory memorandum.  Back

13   See p.12 of the Commission's explanatory memorandum.  Back

14   Joint Action 98/699/JHA on money laundering and the identification, tracing, freezing, seizing and confiscation of instrumentalities and the proceeds from crime; OJ L No. 333, 09.12.1998, pp. 1-3. Back

15   See paras 12 and 13 of the Minister's Explanatory Memorandum.  Back

16   See para 25 of the Minister's Explanatory Memorandum.  Back

17   See para 29 of the Minister's Explanatory Memorandum.  Back

18   See para 26 of the Minister's Explanatory Memorandum.  Back

19   Officials have since confirmed that the opt-in deadline is 15 June 2012.  Back

20   The offer of a debate stems from the Minister for Europe's Written Ministerial Statement of 20 January 2011 which said that the Government would enhance Parliamentary scrutiny of EU justice and home affairs matters by setting aside Government time for a debate on proposals subject to the UK's opt-in where there is "particularly strong Parliamentary interest." The debate would be on the basis of a motion on the Government's recommended approach to the opt-in.  Back

21   See Article 1 of Council Framework Decision 2003/577/JHA.  Back


 
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