Documents considered by the Committee on 27 June 2012 - European Scrutiny Committee Contents

4 Freezing and confiscation of proceeds of crime



+ ADDs 1-2

COM(12) 85

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

Legal baseArticles 82(2) and 83(1) TFEU; co-decision; QMV
DepartmentHome Office
Basis of considerationMinister's letter of 8 June 2012
Previous Committee ReportHC 428-lvii (2010-12), chapter 1 (18 April 2012)
Discussion in CouncilNo date set
Committee's assessmentLegally and politically important
Committee's decisionNot cleared; further information requested

Background and previous scrutiny

4.1 Organised criminal groups frequently operate across borders and invest or conceal their criminal assets in different jurisdictions. Since the late 1990s, the EU has adopted a range of instruments on the freezing and confiscation of criminal assets, but the Commission considers that these (as well as other domestic and international instruments) remain under-developed and under-utilised and have done little to reduce substantial differences in Member States' national asset recovery systems. It suggests that increased harmonisation at EU level is needed to ensure a minimum level of protection against criminal infiltration of the legal economy in all Member States and to make it easier to enforce freezing or confiscation orders issued in one Member State against assets located in another Member State.

4.2 Our Sixty-third Report of 18 April 2012 describes the background to, and content of a draft Directive which would establish a set of minimum rules covering different types of confiscation: value-based confiscation; extended confiscation; non-conviction based confiscation; and third party confiscation. The draft Directive also provides for the freezing of property pursuant to a court order, except in urgent cases where there is a high risk that property may be dissipated, concealed or transferred out of the jurisdiction, and proposes a set of minimum safeguards which are intended to ensure that the fundamental rights of those affected by freezing or confiscation orders are respected.

4.3 The Government welcomed the aims of the draft Directive and said that EU-wide minimum standards on the confiscation and recovery of profits derived from cross-border criminal activity would underpin the UK's Organised Crime Strategy which targets criminal assets held overseas. In his Explanatory Memorandum, the Parliamentary Under Secretary for Crime and Security (James Brokenshire) noted that the draft Directive was broadly in line with existing UK legislation and practice, and that the UK exceeded many of the minimum requirements. He suggested that the UK would be unable to achieve the same level of cooperation and common understanding by acting unilaterally or entering into purely bilateral arrangements. However, he also said that "much has already been done and can also be done on a unilateral basis by the UK and through other wider international options"[8] and that the Commission had resorted to legislation without fully considering possible non-legislative options.

4.4 The draft Directive is subject to the UK's Title V opt-in and, as the Government anticipated that it would attract significant Parliamentary interest, it offered an opt-in debate on the terms set out in the Minister for Europe (Mr David Lidington's) Written Ministerial Statement of 11 January 2011. The purpose of such a debate (often referred to as "Lidington debates") is to enhance Parliamentary scrutiny of opt-in decisions which are likely to have a substantial impact on the UK's criminal or civil law, national security, civil liberties or immigration policy by ensuring that Parliament has the opportunity to debate and vote on a motion which sets out the Government's recommended approach on the opt-in.

4.5 The debate was originally scheduled to take place on 23 May, well in advance of the deadline (15 June 2012) for notifying the Council Presidency of the UK's opt-in decision. However, in a letter of the same date, the Minister informed us that the Government had decided to postpone the debate because it had not yet "come to a conclusion on the opt-in decision." He continued:

"I believe it is preferable, in the circumstances, to reschedule the debate to a time when the House will be able to properly scrutinise the Government's proposals, as is the intention of the Lidington proposals. Given the timing of the recess, 12 June was the only available time prior to the three month opt-in deadline."

4.6 The Minister wrote again, on 8 June, to provide further information on the Government's position in advance of the opt-in debate on 12 June.

The Minister's letter of 8 June 2012

4.7 The Parliamentary Under-Secretary for Crime and Security (James Brokenshire) reiterates the Government's support for the aims of the draft Directive, adding:

"It is in the national interest for all EU Member States to have wide-ranging and effective asset freezing and confiscation powers. Enhanced cooperation at EU level would be a significant step forward in increasing overseas asset recovery.

"It is important that the UK continues to lead in this field, and has an influential role in negotiations on the Directive. At the same time, it is critical that we get the detail right and do not damage our domestic regime. After consultation with policy and operational partners, the Government is recommending that the UK does not opt in at this stage, with a view to negotiating the final Directive and considering, if there is a suitable text, a post-adoption opt-in.

"The Directive, as currently drafted, offers no direct benefit to our domestic asset recovery regime established by the Proceeds of Crime Act 2002 (POCA). Operational partners have also expressed concern that the Directive poses a risk to that regime, particularly to our non-conviction based confiscation powers. Non-conviction based confiscation powers are used for tackling the high-level organised criminals who are able successfully to distance themselves from criminality thereby making it very difficult to secure a criminal conviction."

4.8 The Minister identifies a number of provisions contained in the draft Directive which might have an adverse effect on the UK's domestic confiscation regime.

"Article 5 introduces provisions on non-conviction based confiscation in limited circumstances. It requires that non-conviction based confiscation be possible in those cases where a criminal conviction cannot be obtained because the suspect has died, is permanently ill, or when his flight or illness prevents prosecution within a reasonable time and poses a risk that it will be barred by statutory limitations.

"This Article is ambiguous. It appears to require non-conviction based confiscation where criminal proceedings have been brought and have failed to produce a conviction. However, it is not clear whether it addresses non-conviction based confiscation that is not linked to criminal proceedings at all. The UK's non-conviction based confiscation powers, which are not linked to criminal proceedings, are much wider, and are based on civil law (they can be found in Part 5 of POCA). They have withstood repeated legal challenges on this point. If EU law were to confer greater protections on the defendants than currently required by the European Court of Human Rights under Article 6(1) (right to a fair trial in civil proceedings) of the European Convention on Human Rights (ECHR), this would significantly weaken our domestic regime. At present, the only way of transposing (at least part of) Article 5 of the Directive into domestic law would be through Part 5 POCA, which may open it up to fresh challenge in respect of the application of Article 6 ECHR.

"Article 6 of the Directive allows third-party confiscation of proceeds either where they were transferred to third parties by a convicted person or by someone falling within the scope of Article 5 or in respect of other property of a convicted person transferred to third parties. We believe that we are compliant with this Article and in some respects we exceed its terms. Our current domestic legislation which provides for third party confiscation is Part 5 POCA and this again introduces the risk of opening up Part 5 to challenge.

"Given the nature of the risk identified, it will be difficult to resolve these issues through negotiation, although we will of course seek to do so.

"Article 8 provides safeguards aimed at guaranteeing the right to a fair trial. It requires an effective judicial remedy before a court, and the right to be informed on how to exercise such remedies. These safeguards equate to those found under Article 6(1) ECHR, not Article 6(2) and (3) ECHR which apply to criminal proceedings. We do not anticipate that they would have an impact on our civil confiscation regime. The obligation to provide a lawyer in non-conviction based confiscation cases at Article 8(5) would have implications for the legal aid budget, but initial indications are that many other countries share our opposition and we would have a high likelihood of successfully negotiating it out of the Directive.

"The Government also has concerns about the potential impact of Article 4 of the Directive on our domestic extended confiscation measures. Article 4(2) prescribes the circumstances in which extended confiscation cannot be used, including for assets which are the product of alleged criminal activities for which the individual has previously been found innocent. As a minimum standards Directive, it is not clear how this restriction would apply in our domestic law. However, there is a risk that it would limit the circumstances in which POCA's extended confiscation powers could be used, and thus weaken our extended confiscation powers. We may however be able to negotiate the text here.

"Article 7(2) provides for the administrative freezing of assets without a court order. We do not currently provide for this in our domestic regime except for cash seizure. We will look to negotiate this out, although many Member States are in favour of such a provision."

4.9 The Minister provides further information on the legal bases proposed by the Commission.

"The Commission cites two legal bases for the Directive: Articles 82(2) and 83(1) of the Treaty on the Functioning of the European Union (TFEU). Article 83(1) is the principal legal base for this proposal. Article 82(2) appears to have been included on the basis that the draft Directive also makes provision in Articles 4 and 8 for safeguards in respect of the rights of individuals (defendants and suspects) in criminal procedure which relies on 82(2)(b) TFEU (defendant's rights) for its legal base. Article 8 provides for a number of rights to be safeguarded including the right to be informed about the process, right to be represented by a lawyer and the right to an effective remedy. Article 4(2) introduces a double jeopardy exclusion in relation to extended confiscation.

"In respect of Article 2(6) of the Directive a 'criminal offence' is defined for the purpose of the Directive by reference to nine former Third Pillar instruments which fall within the scope of the 2014 decision (on whether to accept ECJ jurisdiction for pre-Lisbon police and criminal justice measures), and two Directives that do not because we opted into them post-Lisbon. There is some ambiguity in the drafting of Article 2(6) in respect of which obligations from the cited instruments are actually 'imported' into the draft Directive and we could expect to clarify this during negotiations."

4.10 The Minister says that, irrespective of whether or not the UK opts into the draft Directive, the UK's advanced legislation and leading role internationally will ensure that the Government is able to play an active role in negotiations and to secure changes which are in the national interest. He sets out the following negotiating objectives:

  • "clarify the scope of the Directive to ensure it does not compromise confiscation regimes that operate independently of criminal proceedings;
  • "clarify the obligations under Article 2(6) and ensure they are consistent with domestic policy and practice;
  • "amend Article 4(2) to remove the double jeopardy exclusion;
  • "clarify Articles 5 and 6 and ensure they do not compromise civil POCA proceedings;
  • "remove or amend the 'administrative freezing' power at Article 7(2);
  • "amend the safeguards in Article 8 so as not to add to the legal aid burden; and
  • "clarify Article 14, and in particular its relationship to the 2014 opt-out."

4.11 In addition to these specific negotiating objectives, the Minister also sets out a broader UK objective.

"Our wider aim is to establish effective mutual recognition arrangements for both conviction and non-conviction based confiscation orders, in both the civil and criminal contexts. Whilst the draft Directive adds nothing to our domestic asset recovery regime, mutual recognition arrangements could greatly improve our ability to recover the proceeds of crime which have been transferred to other Member States. The current draft does not contain any proposal to establish an effective system for the mutual recognition of confiscation orders, either of a criminal or civil nature. Law enforcement partners say that they would welcome such proposals and the Government will consider how best to use its influence in this matter."

4.12 Our earlier Report on the draft Directive noted that one of the principal reasons advanced by the Commission for introducing a more comprehensive set of minimum rules was to make it easier to secure the mutual recognition of freezing and confiscation orders. There are two EU Framework Decisions, one agreed in 2003, the other in 2007, which provide for the mutual recognition and enforcement of freezing and confiscation orders. We asked the Minister to explain how the draft Directive would fit within this broader framework, adding that the 2003 Framework Decision specifies that a freezing order must be issued by a judicial authority in the framework of criminal proceedings, whereas Article 7 of the draft Directive envisages that property may be frozen without a court order in urgent cases.

"I do not think that the draft Directive conflicts with the existing Council Framework Decisions. The Directive builds on the existing framework, and at Article 14 replaces some specific aspects of it. The issue you identify appears to be one of scope. Council Framework Decision 2003/577/JHA establishes rules for the mutual recognition of freezing orders issued by a judicial authority in another Member State. That does not preclude another legislative instrument from creating a power for freezing without a court order. Article 7 of the Directive is in two parts. The first part refers to freezing orders issued by a court. The second part refers to freezing orders issued before a court's decision. Clearly, freezing orders issued by an administrative authority under Article 7(2) would not meet the definition of a 'freezing order' in Council Framework Decision 2003/577/JHA, and could not, therefore, be the subject of a mutual recognition application from an issuing State. Freezing orders issued under Article 7(1) of the Directive would be in scope of the Council Framework Decision 2003/577/JHA. As I explained above, the Government will seek new mutual recognition arrangements for both conviction and non-conviction based confiscation orders."

4.13 Finally, the Minister acknowledges shortcomings in the process for holding Lidington debates and says that the Government will give "high priority to finding ways to address the problems that have arisen to date and maximise the effectiveness of the process. The Government will involve the Clerks to your Committee, and of the European Union Committee in the House of Lords, in discussions on how to improve these arrangements."


4.14 We thank the Minister for informing us, albeit at a late stage, of the Government's recommendation not to opt into the draft Directive but to play an active part in negotiations with a view to considering a post-adoption opt-in if the final text addresses the UK's concerns.


4.15 We welcome the Minister's acknowledgment of shortcomings in the process for holding Lidington debates, not only in relation to this draft Directive but also a draft Regulation on data processing in the framework of police and judicial cooperation in criminal matters.[9] The debates form part of a package of measures set out in the Minister for Europe's Written Ministerial Statement of 11 January 2011 which are intended to "significantly strengthen Parliament's oversight of EU Justice and Home Affairs matters and make the Government more accountable for the decisions it makes in the EU."

4.16 It is vital, if Parliament is to hold an informed debate on important opt-in decisions, that the Government provides a clear indication of its intended approach to the opt-in, as well as the factors underlying that approach, well in advance of the debate so that Parliament also has an opportunity to weigh the evidence and assess its impact. We appreciate that it will take time for the Government to form its view. However, we wish to underline that the commitment contained in the Minister for Europe's WMS is to set out the Government's recommended approach on the opt-in, not its final decision, in the expectation that the debate will having some bearing on what the Government eventually decides. We fear that, the greater the delay in providing information on the Government's recommended approach, and the closer the date of the debate to the deadline for notifying the Government's opt-in decision, the less likely it is that Parliament will be able to influence the Government's final decision. We therefore look forward to hearing how the Government intends to address shortcomings in the process for holding Lidington debates.


4.17 Turning to the substance of the draft Directive, the Minister tells us that the Government's principal concern, based on advice from operational partners, is that elements of the Commission's proposal may undermine the UK's domestic asset recovery regime. We understand that this is because the inclusion, within an EU criminal law measure, of provisions on types of confiscation which are governed in the UK by civil procedures (under Part V of the Proceeds of Crime Act (POCA) 2002) might provide a basis for asserting that more stringent criminal law standards and safeguards should be imported into the UK's domestic civil recovery regime.


4.18 In his Explanatory Memorandum, the Minister indicated that the minimum standards set out in the draft Directive were broadly in line with UK legislation and practice. However, his letter of 8 June suggests that some provisions, notably Articles 5 and 6, might require changes to Part V of POCA and create the risk of further legal challenge to the UK's domestic regime. We ask the Minister whether this risk would arise simply by virtue of the UK deciding to participate in an EU confiscation measure which has a criminal law legal base, or whether it would only arise as a result of specific changes that would need to be made to Part V of the Proceeds of Crime Act 2002.

4.19 Moreover, given the breadth of the powers conferred under Part V of POCA, we ask the Minister to explain:

  • why he believes that the Act does not already cover the situations provided for in Articles 5 and 6 of the draft Directive;
  • what changes would need to be made to Part V of POCA to accommodate Articles 5 and 6; and
  • the reasons why he considers that these changes would open up Part V of POCA to "fresh challenge in respect of the application of Article 6 ECHR."


4.20 The Minister also suggests that Article 4(2) of the draft Directive, which precludes the use of extended powers of confiscation in respect of criminal activities which have resulted in an acquittal, might weaken the UK's extended confiscation powers under POCA. We would be grateful if he could explain why this would be the case.


4.21 We note that the scope of application of the draft Directive is determined by reference to eleven EU instruments (listed in Article 2(6)), nine of which were adopted before the entry into force of the Lisbon Treaty and should, therefore, fall within the scope of the UK's "block opt-out" decision (to be taken no later than end of May 2014). The Minister says that the Government will seek to clarify which obligations arising under these instruments are "imported" into the draft Directive by virtue of Article 2(6). We ask him to explain how Article 2(6) would have the effect of importing any such obligations into this Directive and what implications this would have for the UK's "block opt-out" decision in 2014 if the UK decided to seek to opt in post-adoption. Similarly, we ask the Minister to explain how Article 14, which replaces some Articles contained in existing pre-Lisbon EU instruments on the freezing and confiscation of proceeds of crime, without repealing the instruments themselves, would affect the UK's "block opt-out" decision.


4.22 Even if the UK is unable to secure the changes necessary to enable it to opt into the Directive after it has been adopted, it will continue to remain bound by a number of existing EU Framework Decisions and a Joint Action on the freezing and confiscation of proceeds of crime. We would welcome some assessment of the implications that this patchwork arrangement would have for UK cooperation with international partners on overseas asset recovery.


4.23 Finally, the Minister underlines the importance which the Government attaches to establishing "effective mutual recognition arrangements for both conviction and non-conviction based confiscation orders, in both the civil and criminal contexts." The Commission appears to share this objective, but considers that the adoption of a more comprehensive set of minimum rules on confiscation is an important first step. We ask the Minister to explain how the Government intends to achieve its objective and whether he accepts that some common rules or standards are a necessary prerequisite for mutual recognition.

4.24 Pending the Minister's reply, the draft Directive remains under scrutiny.

8   See paragraph 25 of the Minister's EM.  Back

9   See (33647); HC 428-liv (2010-12), chapter 8 (14 March 2012).  Back

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Prepared 3 July 2012