4 Freezing and confiscation of proceeds
of crime
| (33758)
7641/12
+ 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
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| Legal base | Articles 82(2) and 83(1) TFEU; co-decision; QMV
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| Department | Home Office
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| Basis of consideration | Minister's letter of 8 June 2012
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| Previous Committee Report | HC 428-lvii (2010-12), chapter 1 (18 April 2012)
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| Discussion in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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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."
Conclusion
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.
LIDINGTON OPT-IN DEBATES
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.
RISKS TO THE UK'S DOMESTIC CIVIL RECOVERY REGIME
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.
ARTICLES 5 AND 6 ON NON-CONVICTION BASED CONFISCATION
AND THIRD PARTY CONFISCATION
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."
ARTICLE 4 ON EXTENDED POWERS OF CONFISCATION
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.
THE UK'S 2014 "BLOCK OPT-OUT" DECISION
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.
IMPLICATIONS FOR BROADER INTERNATIONAL COOPERATION
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.
MUTUAL RECOGNITION
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).
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