Counterfeiting of Currencies


The Committee consisted of the following Members:

Chair: Albert Owen 

Alexander, Heidi (Lewisham East) (Lab) 

Connarty, Michael (Linlithgow and East Falkirk) (Lab) 

Corbyn, Jeremy (Islington North) (Lab) 

Evennett, Mr David (Lord Commissioner of Her Majesty's Treasury)  

Harris, Rebecca (Castle Point) (Con) 

Kelly, Chris (Dudley South) (Con) 

Lloyd, Stephen (Eastbourne) (LD) 

Paisley, Ian (North Antrim) (DUP) 

Rutley, David (Macclesfield) (Con) 

Slaughter, Mr Andy (Hammersmith) (Lab) 

Vaz, Valerie (Walsall South) (Lab) 

Weatherley, Mike (Hove) (Con) 

Wright, Jeremy (Parliamentary Under-Secretary of State for Justice)  

Alison Groves, Sarah Petit, Committee Clerks

† attended the Committee

The following also attended ( Standing Order No. 119(6) ) :

Rees-Mogg, Jacob (North East Somerset) (Con) 

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European Committee B 

Tuesday 23 April 2013  

[Albert Owen in the Chair] 

Counterfeiting of Currencies

2.30 pm 

The Chair:  Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant document to this Committee? 

Chris Kelly (Dudley South) (Con):  It is a pleasure to serve under your chairmanship, Mr Owen. I will first explain briefly the background to the draft directive, and its scope and key provisions, before turning to the reasons why the European Scrutiny Committee recommended it for an opt-in debate. 

According to the European Commission, the euro is the second most important international currency; the value of euro notes circulating worldwide was €930 billion in January 2013, which roughly equates to that of US dollar bills. Counterfeiting of the euro has, the Commission says, led to financial loss in the EU of at least €500 million since the currency’s introduction in 2002. The Commission considers that evidence of increasing counterfeiting activity during the period from 2009 to 2013, based on information from the European Central Bank, the European Technical and Scientific Centre and Europol, suggests that existing EU rules do not provide sufficient deterrence. The Commission believes that the differences in member states’ sanction regimes, and in particular the lack of a minimum level of sanctions, are responsible for this situation, as counterfeiters are able to operate in safe haven states where the approach to sanctions is more lenient—for example, states where the minimum sanctions imposed are only fines. 

The draft directive broadly reflects the existing EU anti-counterfeiting regime. This comprises a Council regulation from 2001 and a framework decision from 2000, which was amended in 2001; those will no longer be subject to the justice and home affairs, or JHA, block opt-out when replaced by this directive. However, it differs most significantly in prescribing a minimum penalty of at least six months’ imprisonment for all offences involving notes and coins of at least €10,000 in value or involving particularly serious circumstances. A minimum maximum sentence of eight years for those more serious offences was already established in the 2000 framework decision. 

The directive also introduces the capacity for member states to apply non-custodial criminal sanctions in respect of minor cases of counterfeiting, defined as involving currency of less than €5,000 in value and not involving particularly serious circumstances. Another key departure from the existing regime is the requirement for all member states to assert jurisdiction, extraterritorially, over offences committed anywhere by their nationals, not just in respect of offences on home soil. As the draft directive is based on a title V JHA provision, it will not

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apply to the UK unless the UK opts in within three months of its publication. That time period expires on 12 May 2013. 

In their explanatory memorandum of 15 February, the Government are wary of the provision on the six-month minimum sentence in particular, and are concerned about its effects on judicial discretion and on compliance with European convention on human rights requirements on the right to a fair hearing and proportionality. The Government are also opposed to the imposition of extraterritorial jurisdiction for the offences, but are yet to give any indication of whether they will participate in the measure. 

The European Scrutiny Committee shares the Government’s concerns about EU law fettering national criminal law without good reason, and so recommended the Government’s opt-in decision for debate in European Committee. In recommending the debate, it asked the Government to be prepared to respond to the following questions. First, to what extent has their opt-in decision been influenced by the pending block opt-out decision on pre-Lisbon JHA measures? Secondly, what response have they received from law enforcement agencies on the value of the current euro counterfeiting rules? 

The Chair:  I call the Minister to make an opening statement. 

2.34 pm 

The Parliamentary Under-Secretary of State for Justice (Jeremy Wright):  It is a great pleasure to serve under your chairmanship, Mr Owen. I would like to thank the European Scrutiny Committee for its helpful report of 27 February, and, indeed, my hon. Friend the Member for Dudley South for introducing the debate this afternoon. 

I welcome the opportunity to debate this proposed directive. I can tell the Committee that, following careful consideration, the Government have decided that we are not minded to opt in to the directive, though of course we welcome the opportunity to discuss the proposal with the Committee. The Government approach legislative proposals in this area on a case-by-case basis, with a view to maximising the country’s security, protecting civil liberties and safeguarding the integrity of the criminal justice systems of the UK. 

The proposed directive that we are debating today is a substantive criminal law approximation instrument that builds on and updates the regime put in place by previous EU legislation on counterfeiting and, as my hon. Friend said, in particular a framework decision adopted in 2000. Both this draft directive and the framework decision of 2000 cover counterfeiting of all currencies, although they contain some provisions that relate only to counterfeiting of the euro. The obligations contained in the framework decision of 2000 which the UK is currently bound by, and those in the new draft directive, broadly correspond to UK national law set out principally in the Forgery and Counterfeiting Act 1981. 

As regards the broad policy objectives of the instrument, there is no doubt that counterfeiting, particularly counterfeiting of the euro, poses a genuine problem for the European Union, its citizens, businesses and financial institutions. The Commission’s rationale for action in this area is principally that the current divergence between member states in relation to criminal law is hindering

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the fight against counterfeiting. The Government agree that an effective criminal justice response to counterfeiting requires robust national laws and effective international co-operation at the operational level. The UK contributes to the international fight against counterfeiting through the enforcement of our very robust criminal law on counterfeiting and through our active and continuing participation in international operational co-operation. 

The draft directive supplements the provision of the framework decision of 2000 by extending the scope of the obligation to ensure that a minimum maximum penalty applies to the full range of serious counterfeiting offences—the framework decision of 2000 restricted this to production of counterfeit notes and coins—and introduces new obligations, as my hon. Friend said, in respect of investigative tools, minimum sentences and extraterritorial jurisdiction. This proposal could, however, have unwelcome legislative consequences for the UK, particularly as regards obligations in respect of minimum penalties and jurisdiction over counterfeiting offences committed by UK nationals overseas. The former is objectionable on the grounds that it is inconsistent with previously agreed EU Council conclusions on legislation on penalties and because of the obvious threat to the exercise of judicial discretion in sentencing for counterfeiting. As regards the latter, there are strong doubts about the practicability of exercising jurisdiction over UK nationals who are accused of committing counterfeiting offences overseas. 

The framework decision of 2000, as amended by the framework decision of December 2001, is subject to the 2014 opt-out decision. Should the UK choose to opt in to this new directive, it will repeal and replace the framework decision of 2000 and when finally agreed the 2000 framework decision will no longer be within the scope of the 2014 decision. However, should the UK choose not to opt in to the new directive in accordance with the Government’s current thinking, the 2000 framework decision will remain within the scope of the 2014 decision. While related, the two decisions—2014 and the opt-in in this directive—are separate decisions and in line with general Government policy we are assessing this new directive on its own merits while of course being mindful of the wider considerations such as those pointed to in the European Scrutiny Committee’s report. 

Given the differences in their operation, the Government’s intention that the UK does not opt in to this directive, need not be determinative of the approach that the Government will take in relation to the 2014 decision regarding the framework decision. The Committee’s report asks about consultation with relevant national law enforcement authorities. In considering the exercise of the UK’s opt-in in respect of this instrument the Government have consulted internally with the Serious and Organised Crime Agency, which acts as the UK national central office on counterfeiting and was established in accordance with the Geneva convention on counterfeiting of 1929, the Crown Prosecution Service, the Bank of England, the Royal Mint and Her Majesty’s Treasury. 

The information and views received suggest strongly that the instrument would have little practical impact on the UK’s ability to tackle counterfeiting, whether we participate or not. Principally that is because we could continue to enforce our own robust criminal laws on counterfeiting, regardless of whether we participate in the draft directive. In areas where the draft directive

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differs from UK law, it was not considered that the provisions in the draft directive added any value. As regards the obligation in respect of providing for a minimum penalty of at least six months’ imprisonment for serious counterfeiting, it is of note that that discretion would have little sentencing impact in practice. Serious counterfeiting offences in the UK attract sentences in excess of the suggested minimum of six months' imprisonment; most of them far in excess. 

As regards the obligation to assume jurisdiction over offences committed by UK nationals overseas, no evidence has been presented to us to suggest that involvement by UK nationals in counterfeiting overseas is more than very exceptional. In addition, internal consultations with UK experts on counterfeiting enforcement suggest that non-participation in this instrument will not damage the UK’s operational effectiveness domestically or have any legal affect on international co-operation and intelligence sharing. 

The conclusions of the Committee’s report also ask about three particular matters, which my hon. Friend listed. Taking them in order, the Committee questioned whether the Government consider the minimum six-month imprisonment requirement to be compatible with the ECHR. The Government have further considered the compatibility of the minimum sentence provisions with the ECHR and remain concerned about the compatibility of any provision that requires a court to impose a minimum sentence in relation to offences of this type irrespective of whether there are exceptional circumstances that would make it unjust to do so. 

The report asks whether the Government consider that the provision at article 5(2), allowing member states to provide for a penalty other than imprisonment in minor cases, complies with the principle of subsidiarity. In the Government’s view, in light of the obligation in article 5(1), which requires member states to ensure “effective, proportionate and dissuasive” penalties for counterfeiting offences, “including fines and imprisonment”, the provision about lower-value offences is unnecessary and seeks to intervene in areas of criminal law and procedure that are more properly dealt with at the national level. To that extent it could be regarded as in conflict with the principle of subsidiarity. 

The report also asks whether additional legal bases are required for those provisions that are not concerned with obligations in respect of offences and penalties. The European Commission offers no explanation of competence in such areas. However, the Government’s view is that, save in relation to the provision on the Geneva convention, where further information is required in relation to the legal basis, the provisions fall within alternative title V legal bases but, being incidental provision, do not require the citation of a separate legal base in the instrument. 

Finally, the Committee asked for an update on the progress of negotiations on the draft directive. Consideration of the proposal is still at an early stage. The Irish presidency has hosted one working group and no further meetings have yet been scheduled. In considering their approach to the proposal, the Government have taken account of all the legal and policy considerations set out in what I have said and in the explanatory memorandum submitted by Secretary of State for Justice to the parliamentary scrutiny Committees on 15 February. However, I look forward very much to hearing what members of this Committee have to say on the matter. 

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The Chair:  We now have until 3.30 pm for questions to the Minister. I remind Members that questions should be brief. It is open to Members, subject to my discretion, to ask related supplementary questions. 

Mr Andy Slaughter (Hammersmith) (Lab):  It is a pleasure to serve under your chairmanship this afternoon, Mr Owen. The Minister has rather rendered my first question redundant, which was, “Do the Government know what they are doing?” So I will amend it slightly: when will the Government know what they are doing? 

I note that the European Scrutiny Committee’s report says at paragraph 5.22: 

“The Government acknowledges that the UK’s JHA opt-in under Protocol 21 to the TFEU applies, but does not give any indication of whether it is minded to participate in the measure or not.” 

That was still true on 8 April, when the Secretary of State for Justice wrote to the Chairman of the European Union Committee in the other place, who may not be the most popular person with the Government today given the report published on the bulk opt-out. Nevertheless, in that letter, the Secretary of State wrote: 

“I am not yet in a position to indicate the Government’s intentions as regards the opt-in, which remains under consideration.” 

Perhaps the Minister can elucidate slightly as to what has swung the balance in the past two weeks to decide where we are. From what the Government said, it appeared that there was a clear line in relation to certain aspects but also clear doubts as expressed in paragraph 17 on page 115 of the bundle. Will the Minister look at that and tell us what has changed the Government’s mind in relation to their statement that they agree 

“that in principle the proposed update of criminal law minimum standards to address organised criminal counterfeiting of currencies is, in principle, a proper and legitimate objective which can be better achieved at EU level than at national level”? 

The document is primarily concerned with the euro. The hon. Member for Dudley South, in introducing it, referred to that as the second most widely used currency. However, it also applies to our other currencies. Does the Minister have anything to say about sterling and the implications of his decision not to opt in? Of course there is a difference. We are talking about a currency that exists in one country. If Mr Salmond gets his way, there will be a sterling zone, but we will leave that for the future. Nevertheless, it appeared to be absent from the Government’s considerations. 

I noted from the Justice and Home Affairs Council report of 7 and 8 March—the Minister will be pleased to hear that I read everything that comes out of his Department, however lacking in interest—that when the matter was discussed, the vast majority opposed minimum penalties. Was that also true of extraterritorial jurisdiction, the other matter about which the Government had concerns? In any event, if that were the case, given that the matter is subject to qualified majority voting, could a compromise not have been worked up? Indeed, a compromise has been worked up. Page 54 of the bundle discusses policy option 2, which appears to incorporate the parts of the draft directive with which the Minister is content and not those with which he is not. Would it not have been better to work towards that? 

I have a further question about the evidence on which the Government have reached their conclusions. There are a lot of assertions in the draft directive about the

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effects of minimum sentencing and other provisions on tackling counterfeiting. Other measures, which the Government appear to accept, have more to do with detection, enforcement and organisation between member states in relation to surveillance and the comparison of methods of counterfeiting. They have more to do with how the criminal justice system operates than simply with penalties themselves. Where is the evidence about the most effective course of action in pursuing counterfeiting? I have some sympathy with what the Minister says about minimum sentencing, but how have the Government considered the best methods of ensuring cross-border co-operation and countering the obvious problems of international crime? 

On extraterritorial jurisdiction, the issue of competing claims will arise. Even if the UK is not signed up to the directive, it could still arise. Presumably, other member states will have a duty to pursue counterfeiting by their nationals outside their borders. How will that be dealt with in relation to competing claims concerning those running counterfeiting operations in the UK who might be nationals of other states? Again, what research or evidence has been produced about where counterfeiting operations tend to be located and which member states they tend to be principally directed against? How does that relate to the criminal penalties in those member states? Without such evidence, I have much sympathy with the Government in their scepticism. Until we can say, “Yes, clearer minimum as well as maximum penalties will mean a more effective operation to stop counterfeiting,” it is difficult to see how the provisions will achieve that end. 

Jeremy Wright:  I am grateful to the hon. Member for Hammersmith for his questions, which I will try to answer in the order that he asked them. First, he asked when a decision was made on the Government’s current intentions. I stress that this is what the Government are currently minded to do; we will make a final decision before the 12 May deadline—or, in effect, 10 May, as I understand that 12 May is a Sunday. Our current intention is not to opt in. He will understand full well that a process of consultation with other Government Departments must be gone through before the matter reaches the European Affairs Committee, which will then indicate whether it approves the course of action set out by my Department. That process will take some time, so we will not be able to give an indication of our thinking until that point. 

The hon. Gentleman’s second question was about whether an issue is presented by our acceptance that addressing organised criminal counterfeiting across borders is a reasonable objective for the EU to pursue. We think it is a reasonable objective, but that is not to say that all the mechanisms that the Commission wish to apply to the problem are the right ones, or that they have struck the correct balance. For the reasons I gave, we do not think that is the case, but we do not dispute that it is a sensible issue for the Commission and the European Union to address. 

The hon. Gentleman asked about the implications for sterling. It is right that the draft directive covers all currencies. However, we are confident that, for sterling, the measures that are currently in place to counter counterfeiting, which are mostly summed up in the 1981 Act, are effective and do the job. It is right also to point out that almost all sterling counterfeiting happens

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within the UK. Very little sterling counterfeiting, as I understand it, takes place beyond our borders. We are confident that, for sterling, the existing arrangements are adequate and effective. 

The hon. Gentleman asked about the views of other member states on minimum penalties. It is right that other member states have expressed concerns about minimum penalties. Of course, we cannot be confident that as negotiations proceed there will be a majority view to that effect and therefore that the measure will be taken out of the directive. Were we to opt in to it at this point, we would be awaiting the outcome of that negotiation without the opportunity to remove ourselves from the ambit of the directive if minimum penalties remain in it. It is also worth saying that in relation to extraterritoriality we are, if anything, less confident that other countries share our concerns about that issue. In any event, we cannot be confident about the outcome of the negotiations, and it is right that we make a judgment at this point about whether to opt in. Of course, it remains open to the UK to opt in to the directive when the negotiations are concluded if we believe that as a result of the negotiations the directive is more to our satisfaction. 

The hon. Gentleman also asked about the best methods of cross-border co-operation if the directive is not to be used for that purpose. He will be aware of the 1929 Geneva convention on combating counterfeiting, which we believe has been an effective mechanism. This country has been a signatory of that document since 1959. We believe that it has done an effective job, and we co-operate fully with the provisions of that document and the mechanisms that go with it. 

The last question the hon. Gentleman asked was about nationals of other states who are engaged in counterfeiting in this country, and how the interaction of the directive with our position will operate. Clearly, further work will need to be done, depending on the outcome of the directive negotiations. However, I can tell him that just as the overwhelming majority of sterling counterfeiting takes place within this country, very little counterfeiting of the euro takes place in this country, either by UK nationals or by anybody else. We do not believe that it is a significant problem, but I understand his point. We will want to look carefully at the conclusions of the negotiations when the directive is finalised so we can establish what our response should be. 

The Chair:  If no more Members wish to ask questions, I call the Minister to move the motion. 

Motion made, and Question proposed,  

That the Committee takes note of European Union Document No. 6152/13 and Addenda 1 to 3, a draft Directive on the protection of the euro and other currencies against counterfeiting by criminal law, and replacing Council Framework Decision 2000/383/JHA; and welcomes the opportunity to consider whether the UK should opt in to the draft Directive.—(Jeremy Wright.)  

2.54 pm 

Mr Slaughter:  The Minister has set out legitimate concerns in relation to the draft directive, particularly in relation to minimum sentencing, which appears to offend both judicial discretion and subsidiarity. Equally, I take the point he makes in relation to extraterritorial jurisdiction. That sits uncomfortably, and I do not believe it to have been resolved as the directive says. For that reason, the

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Government are probably doing the right thing at this stage. That said, these are serious criminal offences. The fact that they are included in the 1929 Geneva convention is evidence of that, with there already being minima and maxima in place. 

There are some sensible proposals in the directive, particularly in relation to the sharing of information on methods of counterfeiting so that different countries can see how counterfeiters operate. I feel at something of a loss about the fact that there is not clear evidence on the interaction between where the operation of counterfeiting takes place and where it is executed—that is to say, in which countries counterfeit notes or coins are circulated—how that, in turn, may relate to the criminal penalties available in those countries and whether there is a causal link or, in fact, the seriousness with which the judicial systems and policing operations in different countries take counterfeiting is as important, or more important, than a simple penalty. Without that, this measure is quite a big step to take. 

Counterfeiting is a serious international offence, particularly with regard to the euro as that is a currency in 12 countries. Many of the measures set out to increase cross-border operations and share technology, techniques and surveillance methods seem to be entirely sensible. Therefore, there is an element of throwing the baby out with the bathwater here. I hope that the Government will continue to engage with the process so that the best option for all EU countries can be achieved. I would have thought that that remains a possibility. 

I have one other concern: the European arrest warrant is mentioned here in such a way that it appears that imposing a six-month minimum sentence is seen as a way of engaging it. That seems to be putting the cart before the horse––setting a penalty simply to engage that process or to indicate the seriousness of a matter is to look at things in the wrong way. Actually, these are offences that should be taken seriously in themselves, for which appropriate, commensurate penalties should operate in each individual country. The operation of the justice system in those countries should be such that it guards against counterfeiting, whether the effect of that counterfeiting operation takes place in that country or elsewhere. That would seem to be a responsibility that all countries ought to have, whether or not they are in the EU. 

With some concerns that we might not be achieving all that could be achieved in fighting a serious criminal offence, the Opposition are not disagreeing with the Government’s approach. It seems an attack on some fundamental principles of justice to go as far as to suggest minimum sentences, although when legislating the Government have become increasingly fond of minimum sentences and extraterritorial jurisdiction. 

2.58 pm 

Jeremy Wright:  I am grateful to the hon. Member for Hammersmith and to my hon. Friend the Member for Dudley South for the way in which they approached the matter and the points they made. I need not take too much of the Committee’s time at this stage, but I will make a few final points. 

The hon. Member for Hammersmith is right that parts of the directive are sensible and assist in the fight against counterfeiting, wherever it occurs. However, it is

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worth making the point that almost all those elements are found in the framework decision, which this country is bound by and substantially compliant with. That will not change as a result of the decision that we would take in relation to opting in to this draft directive. That framework decision, assuming it continues to be our view, will form part of the wider decision to be taken next year on the broader opting in and opting out of those measures. So we will continue to operate under a measure that provides many of the positive things to which he referred. 

The two objectionable points I would pick out are on minimum penalties and extraterritoriality, which we have focused on in this debate. As the hon. Gentleman said towards the end, there are offences in criminal law where minimum penalties are applied, and of course he is right about that, but in those cases there is provision none the less for judges, in exceptional circumstances, not to apply those minimum penalties. The difficulty we have with this particular provision is that there is no exceptional circumstances provision at all. 

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On extraterritoriality, from a practical point of view, we are most concerned about a situation such as a British national engaged in alleged counterfeiting of a foreign currency, such as the dollar, in a foreign country, such as the Philippines, being obliged to be tried in this country, which does not seem to us to be sensible. 

Finally, I simply underline that eligibility for using the European arrest warrant is connected to the length of sentence imposed. Of course, our argument is not just that minimum sentences are undesirable but that they are not especially useful because, in every single case of serious counterfeiting that has come before the courts—to which the minimum sentences would apply—sentences have been imposed that would, in any event, allow the European arrest warrant to be used. I do not think the hon. Gentleman need have concern on that score. 

Once again, I am grateful to you, Mr Owen, and to the Committee for scrutinising the matter. 

Question put and agreed to.  

3.2 pm 

Committee rose.  

Prepared 24th April 2013