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 base | Articles 82(2) and 83(1) TFEU; co-decision; QMV
|
| Document originated | 12 March 2012
|
| Deposited in Parliament | 15 March 2012
|
| Department | Home Office
|
| Basis of consideration | EM of 26 March 2012
|
| Previous Committee Report | None
|
| Discussion in Council | No date set
|
| Committee's assessment | Legally and politically important
|
| Committee's decision | Not 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
| 
