Documents considered by the Committee on 1 February 2017 Contents

2Proceeds of crime: mutual recognition of freezing and confiscation orders

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; opt-in decision to be debated in European Committee B; drawn to the attention of the Home Affairs Committee, the Justice Committee and the Committee on Exiting the European Union

Document details

Proposal for a Regulation on the mutual recognition of freezing and confiscation orders

Legal base

Article 82(1)(a) TFEU, ordinary legislative procedure, QMV

Department

Home Office

Document Number

(38429), 15816/16 + ADD 1, COM(16) 819

Summary and Committee’s conclusions

2.1Criminals have become astute at converting the proceeds of their crimes 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, disposal or diversion into other forms of criminal activity, such as terrorist financing, and preserve their value until such time as a confiscation order can be obtained and the assets recovered. The Commission estimates that only a very small proportion of proceeds of crime within the EU—around 1% of criminal profits—is currently confiscated.

2.2In 2014, the EU agreed a Directive establishing minimum rules on the freezing and confiscation of proceeds of crime which is intended to make it easier for national authorities to seize and recover criminal assets within their own jurisdictions.40 Whilst supporting the objectives of the Directive and indicating that it was broadly in line with existing UK legislation and practice, the previous Coalition Government expressed concern that it might undermine the UK’s civil asset recovery regime. This is because the Directive—an EU criminal law measure—also covers non-conviction based confiscation which, in the UK, is governed by civil procedures under Part V of the Proceeds of Crime Act (POCA) 2002. The Government decided not to opt into the Directive to avert the risk that its participation might provide a basis for asserting that more stringent criminal law standards and safeguards should apply to Part V of the Act.

2.3The Council and European Parliament have both called for further legislative action to improve the cross-border enforcement of freezing and confiscation orders. The proposed Regulation is intended to support wider efforts to disrupt and cut off funding for organised crime and terrorism. It is based on the principle of mutual recognition, meaning that an order to freeze or confiscate the proceeds of crime made by a court in one Member State will be recognised and enforced in another Member State with the minimum of formalities.

2.4The proposed Regulation would replace two EU Framework Decisions adopted in 2003 and 2006, the first providing for the execution of orders freezing property or evidence, the second for the mutual recognition of confiscation orders. The UK participates in both Framework Decisions.41 The Commission describes the existing EU regime as “patchy”, “out of date” and unworkable in practice, with loopholes that criminals can exploit. It says that its consultation of stakeholders (including Member States) revealed a “large consensus on the need to improve mutual recognition of freezing and confiscation orders”.42 The Commission anticipates that the proposed Regulation would improve cross-border enforcement by:

2.5The proposed Regulation is an EU criminal law measure and is subject to the UK’s Title V (justice and home affairs) opt-in, meaning that it will only apply to the UK if the Government decides to opt in. The Commission anticipates that it would take effect in Member States six months after its formal adoption and entry into force.

2.6The Security Minister (Ben Wallace) supports the changes proposed by the Commission which are “broadly in line with existing UK legislation and policy on asset recovery”.43 He notes, however, that UK law does not make provision for the mutual recognition of terrorist property forfeiture orders and that there are other areas of divergence with domestic law. The Government is “carefully considering” whether it would be necessary to amend UK law to bring it into compliance with the proposed Regulation. He sets out the Government’s position on new legislative proposals in light of the referendum outcome:

“On 23 June, the EU referendum took place and the people of the United Kingdom voted to leave the European Union. Until exit negotiations are concluded, the UK remains a full member of the European Union and all the rights and obligations of EU membership remain in force. During this period the Government will continue to negotiate, implement and apply EU legislation.”44

2.7The decision to leave the EU, the extent of any changes that would be needed to UK law and the previous Coalition Government’s decision not to opt into the 2014 Directive on confiscation on the grounds that “the UK, not Europe, should decide on UK criminal law” are all factors which will inform the Government’s opt-in decision.45 The Minister does not know when the three month period for opting into the proposed Regulation at the negotiating stage will expire—time will start to run from the date on which the last language version of the proposal is published. He expects that the proposed Regulation will be considered at the June Justice and Home Affairs Council.

2.8We ask the Minister to inform us as soon as possible of the three month opt-in deadline.

2.9The proposed Regulation establishes a framework for the mutual recognition and enforcement of freezing and confiscation orders throughout the EU. Substantive rules on the freezing and confiscation of proceeds of crime are set out in a 2014 Directive in which the UK does not participate. Can the Minister tell us:

2.10 We note that there is no provision in UK law for the mutual recognition and enforcement of terrorist property forfeiture orders made under the Terrorism Act 2000. We ask the Minister to explain why this is the case and whether and how terrorist property concealed in another Member State can be recovered under existing UK law. Can he confirm that terrorist property forfeiture orders would fall within the scope of the proposed Regulation if the UK were to opt in? Would this present any difficulties for the UK?

2.11The Minister raises the possibility that the UK could be ejected from the existing EU regime for mutual recognition of freezing and confiscation orders if the Government were to decide not to opt into the proposed Regulation. We ask the Minister to elaborate on his concerns in light of:

2.12We also ask the Minister for a clearer indication of the likely timescale for negotiating and adopting the proposed Regulation, given that it appears to be supported by the Council and the European Parliament. How likely is it that the Regulation will take effect before the UK leaves the EU?

2.13The proposed Regulation will supplement a number of other EU criminal law mutual recognition instruments—notably the European Arrest Warrant, the European Investigation Order, the European Supervision Order and the European Protection Order—as well as others concerning financial penalties and the transfer of prisoners in which the UK currently participates. The Government has so far given very little indication of its approach to mutual recognition measures in negotiating the terms of the UK’s exit from the EU. The Minister of State at the Department for Exiting the European Union (Mr David Jones) told the House in January that “cooperation with the EU in the fight against crime and terrorism will be one of the Government’s principal priorities when negotiations begin”.47 The Minister for Policing and the Fire Service (Brandon Lewis) added:

We are committed to strong cooperation on security, law enforcement and criminal justice now and when we leave. We will work with our European partners to find solutions that promote security across Europe and beyond.”48

2.14He indicated that the Government would be seeking to develop “a unique and bespoke position” for the UK.49 Can the Minister tell us whether the EU mutual recognition instruments in which the UK currently participates, or opts into before it leaves the EU, are to be included in the bespoke solution the UK is seeking? We ask him to identity the most important instruments for the UK from a law enforcement and criminal justice perspective and to indicate whether he considers that mutual recognition could operate without some degree of oversight by the European Court of Justice?

2.15The proposed Regulation remains under scrutiny.

2.16We recommend that the Government’s opt-in decision should be debated in European Committee B. The debate should consider the impact of the Government’s opt-in decision on the UK’s ability to freeze and confiscate criminal assets concealed abroad which may be used for personal gain or to fund terrorism or other forms of serious organised crime. The debate should also consider the Government’s wider approach to EU criminal law mutual recognition instruments during the UK’s exit negotiations. We ask the Minister to provide the information we have requested ahead of the debate.

2.17We draw this chapter to the attention of the Home Affairs Committee, the Justice Committee and the Committee on Exiting the European Union.

Full details of the documents

Proposal for a Regulation on the mutual recognition of freezing and confiscation orders: (38429), 15816/16 + ADD 1, COM(16) 819.

Background

2.18Our earlier Reports listed at the end of this chapter provide a comprehensive overview of the 2014 Directive on the freezing and confiscation of the proceeds of crime and the reasons given by the then Coalition Government for not opting in.

2.19The Directive covers different types of confiscation orders, all of which must be authorised by a court in relation to a criminal offence:

The proposed Regulation

2.20The proposed Regulation is based on Treaty provisions authorising the EU to adopt criminal law measures “laying down rules and procedures for ensuring recognition throughout the Union of all forms of judgments and judicial decisions”.50 The Commission considers that a directly applicable Regulation is needed to overcome differences in the way Member States implemented the earlier Framework Decisions and to provide greater clarity and legal certainty in the application of cross-border freezing and confiscation procedures. It says that it will be “the first Regulation proposed by the Commission in the field of mutual recognition in criminal matters since the entry into force of the Lisbon Treaty”.51 The following paragraphs describe the main elements of the proposed Regulation.

Scope

2.21The proposed Regulation is broader in scope than the 2014 Directive. It would apply to all types of freezing and confiscation orders, including non-conviction based confiscation orders, issued by a Member State “within the framework of criminal proceedings”. It is not limited to so-called “Eurocrimes”—particularly serious crimes likely to have a cross-border dimension, such as terrorism, trafficking in humans, arms and drugs, and money laundering.52 The proposal would not apply to confiscation orders issued in civil or administrative proceedings.

Dual criminality

2.22Member States would be required to recognise and enforce freezing or confiscation orders linked to the commission of a standard list of serious criminal offences listed in Article 3 of the proposed Regulation. The principle of dual criminality—that an act giving rise to a freezing or confiscation order has to be an offence under the law of the Member State issuing the order and under the law of the Member State being asked to execute it—could not be invoked in relation to these crimes. Member States would continue to be able to apply the dual criminality principle to crimes not included in the Article 3 list.

Procedural rules

2.23The proposed Regulation sets out the conditions under which a freezing order may be issued—it must be necessary and proportionate—and the procedures for transmitting freezing and confiscation orders to another Member State in which the criminal assets are located. Both types of order must be accompanied by a standard form or certificate containing prescribed information which the issuing Member State certifies as being “accurate and correct”. The proposal specifies the circumstances in which a freezing or confiscation order may be sent to more than one Member State, for example if property is located in several Member States. The receiving Member State would be required to recognise and execute the freezing or confiscation order “without further formalities”, in the same way as it would a domestic order, unless one of the specific grounds for non-recognition and non-execution applies. The proposal also specifies the circumstances in which the execution of a freezing or confiscation order may be postponed, for example to safeguard an ongoing criminal investigation.

2.24Throughout the mutual recognition procedure, the proposed Regulation sets out detailed requirements to ensure that both the issuing and executing Member States communicate regularly and promptly with one another. It makes clear that the execution of freezing and confiscation orders would be governed by the law of the executing Member State. However, the executing Member State would be required to execute an order against a legal person (for example, a company) even if its own domestic law does not provide for the criminal liability of legal persons.

2.25Once a freezing order has been executed, the executing Member State would be required to inform the individual concerned (and any other interested parties) of the reasons and the legal remedies available to them. These remedies would apply in the courts of the executing Member State, but the proceedings cannot be used to challenge the substantive reasons for issuing a freezing or confiscation order.

Time limits

2.26The proposed Regulation would require Member States to give the same priority to the execution of freezing and confiscation orders issued by another Member State as they would to orders issued in domestic criminal proceedings. Member States would have 24 hours to take an initial decision on the recognition and execution of a freezing order and a further 24 hours in which to execute it. Longer time limits would apply to confiscation orders: 30 days for the initial decision and a further 30 days for execution. The proposal includes provisions requiring Member States to consult one another if these time limits cannot be met.

Disposal of frozen or confiscated assets

2.27The proposed Regulation expressly contemplates that the victim of a crime should be first in line to receive compensation or restitution, provided this is made clear in the confiscation order. In all other circumstances, the executing Member State would retain the first €10,000 (£8,562)53 of confiscated assets, with 50% of any excess being transferred to the issuing Member State (although different rules may apply to property).

Fundamental rights

2.28The Commission is satisfied that the proposed Regulation complies with fundamental rights. As it would only apply to freezing and confiscation orders issued within the framework of criminal proceedings, all criminal law procedural safeguards provided for in EU legislation and the EU Charter of Fundamental Rights would also apply.

The Minister’s Explanatory Memorandum of 12 January 2017

2.29The Minister notes that the proposed Regulation is “broadly in line with existing UK legislation and policy on asset recovery” and adds:

“We are carefully considering the changes to the existing regime suggested by the proposed Regulation, but our initial view is that we are supportive. The recovery of criminal proceeds forms a major part of the Government’s approach to tackling serious and organised crime, as set out in the 2013 Serious and Organised Crime Strategy.”54

2.30He describes how the existing EU Framework Decisions, adopted in 2003 and 2006, have been given effect in UK law and the domestic legal framework enabling the mutual recognition and enforcement of freezing and confiscation orders.

“The Criminal Justice and Data Protection (Protocol No 36) Regulations 2014 (S.I. 2014/3141) gave effect to the Framework Decisions and completed the transposition of the measures into UK law. Part 2 of, and Schedules 1 and 2 to, the Regulations make provision in relation to the freezing and confiscation of criminal assets, including the instrumentalities of crime (instrumentalities are assets used in the commission of criminal conduct). Part 2 transposes the Freezing Orders Framework Decision (to the extent that the Framework Decision had not been already transposed by the Crime (International Co-operation) Act 2003).

“The Proceeds of Crime Act 2002 (POCA) makes provision for the freezing and confiscation of criminal property (Part 2 in relation to England and Wales, Part 3 in respect of Scotland and Part 4 in relation to Northern Ireland) by means of restraint orders and confiscation orders. Part 2 of the 2014 Regulations makes provision to enable restraint and confiscation orders made by UK courts against property in other Member States, to be enforced by the authorities in those States. It also makes provision to allow our domestic courts to recognise and enforce restraint and confiscation orders made against property in the UK, or persons normally resident in the UK. These are orders made by the authorities in other Member States. It should be noted that this Part of the Regulations only enables domestic courts to transmit restraint orders and confiscation orders they have made themselves, or enforce orders made by other Member States. They do not give any additional powers to make restraint orders and confiscation orders.

“The Terrorism Act 2000 (TACT) makes provision for the freezing and forfeiture of terrorist property which is similar to that contained within POCA for the restraint and confiscation of proceeds of crime. TACT was amended by the Crime International Cooperation Act 2003 to transpose the 2003 Framework Decision in respect of terrorist property.”

2.31Despite the similarity in the freezing and confiscation provisions of POCA and the freezing and forfeiture provisions of TACT, the Minister explains that “UK legislation does not currently provide for the mutual recognition of terrorist property forfeiture orders”. He continues:

“We will be considering how the proposed Regulation impacts on terrorist finance provisions in TACT, particularly with regards to the interaction with existing Frameworks.

“Our initial view is that the majority of the proposals in the Regulation accord with the current position in UK law. However, there are some significant differences, in particular in relation to the introduction of new time limits for the recognition and execution of orders, and to the wider scope of orders that can be recognised.”55

2.32The Government is therefore “carefully considering” whether it would be necessary to amend domestic law to comply with the proposed Regulation. He continues:

“In particular, the Regulation includes measures of scope and national minimum standards corresponding to the 2014 Confiscation Directive, to which the UK did not opt in. We are considering the implications of this, both in terms of the decision as to whether to opt into the Regulation, and the effect on domestic legislation.”

2.33The Minister summarises the main differences between the proposed Regulation and the existing EU framework for recognising and enforcing freezing and confiscation orders:

2.34The Minister sets out the factors which the Government will take into account in deciding whether or not to opt into the proposed Regulation:

2.35He adds that, in the event of a decision not to opt into the proposed Regulation, the Government would “consider whether the existing Framework Decisions would continue to have effect between the UK and the EU, or whether the Framework Decisions could be deemed inoperable in accordance with Article 4(a)(2) of Protocol No. 21 to the Treaties” (the UK’s Title V opt-in Protocol).57

Previous Committee Reports

None on this document, but see our earlier Reports on Directive 2014/42/EU on the freezing and confiscation of instrumentalities and proceeds of crime in the EU: Tenth Report HC 432-x (2015–16), chapter 21 (25 November 2015); Twenty-eighth Report HC 83-xxv (2013–14), chapter 13 (18 December 2013); Twenty-second Report HC 86-xxii (2012–13), chapter 9 (5 December 2012); Twelfth Report HC 86-xii (2012–13), chapter 5 (12 September 2012); Sixth Report HC 86-vi (2012–13), chapter 4 (27 June 2012); and Sixty-third Report HC 428-lvii (2010–12), chapter 1 (18 April 2012).


40 See Directive 2014/42/EU. For further details, see the Reports listed at the end of this chapter.

41 Council Framework Decision 2003/577/JHA and Council Framework Decision 2006/783/JHA. The 2003 Framework Decision has been partially superseded by Directive 2014/41/EU on the European Investigation Order which establishes procedures for the freezing and transfer of evidence. The UK opted into the Directive and has to implement its provisions by 22 May 2017.

42 See pp.8–9 of the Commission’s explanatory memorandum accompanying the proposed Regulation.

43 See para 58 of the Minister’s Explanatory Memorandum.

44 See para 59 of the Minister’s Explanatory Memorandum.

45 See para 61 of the Minister’s Explanatory Memorandum.

46 See p.19 of the Commission’s explanatory memorandum accompanying the proposed Regulation.

47 See Hansard, HC Deb, 18 January 2017, col 1023.

48 See Hansard, HC Deb, 18 January 2017, col 955.

49 See Hansard, HC Deb, 18 January 2017, col 960.

50 Article 82(1)(a) of the Treaty on the Functioning of the European Union.

51 See the Commission’s Fact Sheet—Security Union: Regulation on the mutual recognition of freezing and confiscation orders.

52 See Article 83(1) of the Treaty on the Functioning of the European Union.

53 €1 = £0.85618.

54 See para 58 of the Minister’s Explanatory Memorandum.

55 See paras 47–50 of the Minister’s Explanatory Memorandum.

56 See para 61 of the Minister’s Explanatory Memorandum.

57 See para 62 of the Minister’s Explanatory Memorandum.




3 February 2017