Money laundering and the financing of terrorism - European Union Committee Contents


67.  We began by saying that acquisition of the wealth and property of others is the ultimate objective of every serious criminal. For that reason, locating, identifying and confiscating the proceeds is one of the best ways of combating serious crime.

68.  All prosecutions for money laundering by the Serious Fraud Office (SFO), and a significant proportion of those by the CPS and the Revenue and Customs Prosecution Office (RCPO), involve assets that are located abroad. These assets are often in the form of real property or bank accounts. There are no available statistics to show the exact proportions, but a study of CPS confiscation orders made in the first quarter of 2008 in respect of all crimes estimated that 36% by value included foreign or hidden assets. The Asset Forfeiture Division of the RCPO estimated in September 2008 that 86% of the value of unenforced confiscation orders was in respect of assets held overseas or hidden overseas.[49]

69.  We put to the CPS questions designed to elicit, among other things, the number of cases in which they (and, in Scotland, the Crown Office and Procurator Fiscal Service) had made requests for enforcement by foreign States of United Kingdom confiscation orders; the number of cases in which English and Scottish courts had given effect to foreign confiscation orders; the value of the assets involved; and similarly for the freezing of assets. The reply is printed at pp 100-106. In a number of cases the information is not available; but the figures we have been given show that the value of the assets frozen or seized is very small compared to the Treasury estimate that serious crime involves every year perhaps £5 billion of assets in a possible seizable form.[50]

70.  FATF Recommendation 38 requires countries to take "expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate property laundered, proceeds from money laundering or predicate offences,[51] instrumentalities used in or intended for use in the commission of these offences, or property of corresponding value." John Ringguth, the Executive Secretary of MONEYVAL, told us: "On the confiscation agenda it is submitted that still more needs to be done by many countries: in the proactive investigation of the financial aspects of major proceeds-generating cases … in the detection of assets / proceeds hidden by criminals in countries other than the one where the predicate offence was committed … in achieving restraint and other provisional measures in respect of proceeds held in countries other than the one where the predicate offence was committed …. in the negotiation and implementation of asset sharing agreements …"[52]

71.  Some of our witnesses thought there was a gap between estimates of formal compliance with this recommendation, and what happened in practice. For the Treasury, James Robertson told us that the United Kingdom was leading a project on confiscation within the FATF, and was "trying to put a much stronger focus on the effectiveness of the regimes that are in place rather than the strict, simple compliance with the standards". (Q 109) Mr Ringguth took the same view: "… the practice in FATF and the FSRBs is that if the essential criteria for the Recommendation are formally observed in all their particulars, but the evaluators are not satisfied that the country has demonstrated effective implementation, this leads to one downgrading [from Compliant to Largely Compliant] … MONEYVAL will press for a reconsideration of the effectiveness issues under Recommendation 38 and a re-think about the way we evaluate Recommendation 38 and other international cooperation recommendations."[53]

72.  An evaluation of the FATF Recommendations is in progress, and Sir James Sassoon hoped that they would be looked at carefully one by one. (Q 408) The review of the FATF Recommendations is a good opportunity to re-examine, not just the text of Recommendation 38, but the manner in which it is implemented, and the way in which compliance is measured.

73.  Within the EU there has been a focus, since the Tampere European Council in October 1999, on progressively placing cooperation between Member States in this area on a mutual recognition footing. Several Framework Decisions have been adopted, most recently on the application of the principle of mutual recognition to confiscation orders.[54] We were disappointed to learn that the Commission has identified significant problems with the drafting of some of these instruments, and with the manner and pace of the transposition process in others, and as a consequence has suggested that consideration be given to a recasting of the EU legal framework.[55] A somewhat negative assessment was also provided by Dr Valsamis Mitsilegas of Queen Mary, University of London. (Q 373) Equally disturbing is the conclusion in a recent Commission study that "at present the overall number of confiscation cases in the EU is relatively limited and the amounts recovered from organised crime are modest, especially if compared to the estimated revenues of organised criminal groups".[56]

74.  We commend the Commission for its efforts to increase cooperation among Member States over confiscation of the proceeds of crime. We urge the Government to take a lead in driving this agenda forward with renewed vigour.

Asset sharing agreements

75.  Where a country enforces a confiscation order made by the courts of another country, the normal default position is that assets remain in the country that enforces the order, not in the one that initiated the request. An asset sharing agreement enables part of the proceeds to be returned to the initiating country, forming an added incentive for cooperation in enforcing confiscation orders. There is no legal precondition in the United Kingdom for a formal asset sharing agreement to be in place with a third country before this can happen, thus permitting ad hoc arrangements to be entered into on an opportunistic basis. However, we received no evidence to suggest that this option is resorted to in practice.

76.  The major exception in international practice to the default position, mandated by the UN Corruption Convention,[57] relates to the proceeds of certain forms of corruption such as the embezzlement of state funds. As the 2007 FATF mutual evaluation of the United Kingdom notes:[58] "Where funds recovered represent the proceeds of grand larceny or corruption by a kleptocrat and an entire state is the victim, it is UK policy to repay 100% of recovered funds, minus costs".

77.  At present there are very few asset sharing agreements. We were told by Stephen Webb of the Home Office that the United Kingdom has between six and eight such agreements "with countries such as the US, Canada, Jamaica, the Channel Islands and a few other countries of that description. We have been having discussion with some of our bigger European partners as well." (Q 458) Mr Webb also told us of the importance attached to asset-sharing agreements; he thought there might be an opportunity of "driving forward on bilateral agreements, piggy-backing where possible with partners like the US".(QQ 143, 146) Be that as it may, the present position represents a very modest level of achievement given that the default position on confiscated assets was first established in the 1988 Vienna Convention, and that the FATF has been encouraging asset sharing agreements since 1990.

78.  The Government should give higher priority to the negotiation of bilateral asset sharing agreements with non-EU countries not already involved.

79.  The reason we place emphasis on the conclusion of agreements with non-EU Member States is that within the EU the issue of asset sharing is addressed in Article 16 of the Framework Decision on the mutual recognition of confiscation orders referred to in paragraph 73. The basic position it establishes is that if the amount of money confiscated is below €10,000 it accrues to the Member State where the order is executed; if above that sum 50% of it is transferred by the executing State to the State which issued the order.

80.  This Framework Decision was due to be transposed into national law by all Member States by 24 November 2008. A number of Member States have yet to do so; regrettably, the United Kingdom is among them. We are told that the Government are looking for a suitable legislative vehicle. This is an inadequate explanation more that 2½ years after its adoption. The Government must take immediate steps to remedy this. Given the importance of the Framework Decision, the Commission must adopt a robust stance in monitoring its effective implementation by all Member States, and react swiftly should delays or problems arise.

Civil recovery

81.  Recommendation 3 of the FATF Recommendations reads in part: "Countries may consider adopting measures that allow [proceeds of crime] to be confiscated without requiring a criminal conviction, or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation, to the extent that such a requirement is consistent with the principles of their domestic law."

82.  This hesitant language demonstrates at once the importance of civil recovery and some of the obstacles to it. In many countries civil recovery is not consistent with domestic law; in some it is unconstitutional, since it involves an adjustment to the burden of proof. A confiscation order made in criminal proceedings of course follows a conviction made on proof beyond reasonable doubt. Civil recovery may arise when there is only a suspicion that assets are the proceeds of serious crime, based on their being disproportionate to the declared income of their owner. The suspicion may be reinforced by other facts, such as contacts between the owner and known criminals. A case may be brought before a civil court based on an assumption, on the balance of probabilities, that the assets may be proceeds of crime. In some countries the burden of proof may then be reversed, and it is for the owner of the assets to prove that their origin is legitimate.

83.  Civil forfeiture has for long been available in the United States and an analogous system was introduced in Ireland in the 1990s. It was first introduced in the United Kingdom by Part 5 of the Proceeds of Crime Act 2002 (POCA). This scheme permits the recovery by way of civil proceedings of property that is or represents the proceeds of unlawful conduct, whether or not criminal proceedings have been brought. Alan Campbell MP, Parliamentary Under Secretary of State at the Home Office, informed us that "it has been tested and has passed the test of it being ECHR compliant". (Q 442)

84.  We referred in paragraph 73 to the Commission Communication entitled Proceeds of Organised Crime: Ensuring that 'crime does not pay'. Its main conclusion is: "To fight crime effectively means to hit criminals where it hurts them most. The confiscation and recovery of the proceeds of crime targets their resources and is an essential part of the wider EU financial crime strategy." Civil recovery is one route the Commission tentatively suggest exploring, though they acknowledge that "a balanced approach is necessary and appropriate safeguards need to be provided for", given that fundamental rights are involved, such as the right to property and the right to an adequate means of recourse. At present most relevant EU legislation, as with the Framework Decision on the mutual recognition of confiscation orders, anticipates that the cooperation envisaged will arise within the framework of criminal proceedings.

85.  For the Home Office, Stephen Webb thought that the Commission working paper had a number of recommendations about civil recovery that were very important to the United Kingdom. He told us that "One of the big priorities is to improve the mutual recognition in civil recovery and we are putting a lot of effort into it … a lot of other countries are still trying to get their heads around this as a concept and how they would cooperate with it in practice." (Q 143) We welcome this positive approach.

86.  Similar difficulties are present at the wider international level. As the CPS explained, "the criminal conventions and treaties deal only with criminal confiscation and the Hague Convention is only concerned with private commercial civil actions. The difficulties manifest themselves at each stage of the civil recovery process …". (p 78)

87.  Article 23(5) of the Warsaw Convention[59] is a very significant provision on civil recovery.

Warsaw Convention, Article 23(5)

88.  This is a mandatory provision to which no reservation is allowed. It is a broad provision, given the wide definition of "property" in Article 5 of the Convention; and cooperation has to be provided "to the widest extent possible". Mr Ringguth pointed out that if more countries actually ratified the Warsaw Convention the possibilities for the United Kingdom to enforce civil confiscation orders would be considerably increased. He thought this was "also relevant to a number of MONEYVAL States as well because, although a lot of our countries are of Roman law origin, one of the interesting features over ten years of MONEYVAL evaluations is actually seeing how there has been some convergence towards some of what are more popularly known as common law notions." He gave Bulgaria and Georgia as examples. (Q 492)

89.  We have already given a number of reasons why the Warsaw Convention should be ratified.[60] This mandatory provision on civil recovery is yet another reason, if one were needed, why the United Kingdom should ratify the Warsaw Convention without delay.

90.  In Mr Ringguth's view there was for practical purposes no global impetus to enforce civil confiscation under the FATF standards. This was an issue that MONEYVAL would push in the review of the FATF Recommendations on international cooperation. He added: "So far as our own organisation is concerned, I have discussed this issue with the President of the Committee in the light of your questions and we have decided that we will actually open up a much larger discussion within the MONEYVAL membership on the whole issue of enforcement of civil orders outside of the general discussions that we have on mutual evaluation reports." (Q 493) We are glad to see that our inquiry has already triggered this initiative.

91.  We agree with Mr Ringguth that international cooperation on confiscation of the proceeds of crime is an issue of growing importance, and one where most progress could be made if Governments showed the necessary determination. The Government should give the highest priority to international cooperation on the confiscation of the proceeds of crime, whether by post-conviction criminal confiscation or by civil recovery.

92.  We welcome the suggestion of the Executive Secretary of MONEYVAL that the Council of Europe may press the merits of civil recovery in the review of the FATF Recommendations. We trust that the Government will support such a move.

93.  Cooperation in relation to civil recovery must be given much greater prominence in the current FATF review of its standards and the associated methodology for assessment of its members, so that failure to provide this would have a significant negative impact on compliance ratings for the countries concerned.

94.  Given the lack of support for civil recovery in existing multilateral arrangements, we were disappointed to learn that the United Kingdom has not yet concluded a single bilateral agreement in this sphere (Q 443), though discussions with the United Arab Emirates and the Cayman Islands "are almost finished." (Q 453) Mike Kennedy, Chief Operating Officer of the CPS, pointed out some of the real opportunities in this area. (Q 145) Mr Campbell assured us that this was a priority for the Government and that sufficient resources were in place to give effect to it. (Q 442)

95.  The Government must devise an overall strategy for the conclusion of bilateral agreements with third countries, including asset sharing provisions, and press for their early negotiation and for their timely and effective entry into force.

49   Written evidence from the Crown Prosecution Service, p 76. Oral evidence QQ 122, 131, 132. Back

50   HM Treasury, The financial challenge to crime and terrorism, February 2007. Back

51   Predicate offences are those through which a person can receive criminal property, in order then to launder it. See further paragraphs 101 et seq. Back

52   Supplementary evidence, p 216. Back

53   Ibid. Back

54   Council Framework Decision 2006/783/JHA of 6 October 2006 on the application of the principle of mutual recognition to confiscation orders (OJ L 328 of 24 November 2006). Back

55   Memorandum by the European Commission, p 129. Back

56   Commission Communication Proceeds of Organised Crime: Ensuring that 'crime does not pay', November 2008 (Document 16123/08; COM(2008)766 final). Back

57   United Nations Convention against Corruption, opened for signature at Merida (Mexico), 9 December 2003. Back

58   Paragraph 1293. Back

59   We discuss the Warsaw Convention in paragraphs 43 to 48. Back

60   Ibid. Back

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