The European Commission’s proposal for a Regulation on mutual recognition of asset freeze and confiscation orders (the “Proposed Regulation”),[1] introduced in December 2016, aims at improving the cross-border enforcement of asset freeze and confiscation orders within the EU.  It is part of a broader set of measures aimed at combating financial crimes, which includes a proposed Directive on countering money laundering through criminal law[2] and a proposed revised Regulation on controls on cash entering or leaving the Union.[3]

In January 2018, the Civil Liberties, Justice and Home Affairs Committee of the European Parliament (the “EP Committee”) issued a report on the Proposed Regulation, which proposes certain amendments to the Proposed Regulation aimed at taking into consideration fundamental rights guaranteed by the case law of the European courts, such as the right to property, due process, effective remedy and access to justice.  In particular, in line with requests made by several EU Member States, the EP Committee proposes to include in the Proposed Regulation a provision for the non-recognition of orders based on non-compliance with fundamental rights.

The Proposed Regulation – Improving Cross-Border Enforcement

            Reasons For The Proposal

A recent Europol study estimated that illicit activities generate around Euro 110 billion and that – from 2010 to 2014 – only 2.2% of the estimated proceeds of criminal activities were provisionally seized or frozen and only 1.1% were ultimately confiscated at the EU level (that is, about 98.9% of the estimated proceeds of criminal activities were not confiscated).[4]

The Proposed Regulation is premised on the notion that strengthening mechanisms for tracing, freezing, seizing and confiscating the proceeds of criminal activities is amongst the most effective ways of combating crime (and more specifically organized crime),[5] and that the existing framework has proven to be mostly ineffective to this end.[6]

The Proposed Regulation is intended as a response to those shortcomings.  In particular, the Commission seeks to address two major issues: the insufficient recovery of assets and the insufficient protection of victims’ rights.

  1. Insufficient Recovery of Criminal Assets in EU Cross-Border Cases

The Commission noted that – although organized-crime activities are often transnational in nature and criminal organizations are increasingly investing their assets in other Member States – as of today Member States make little use of cross-border confiscation procedures and there is an increasing need for cross-border cooperation on asset recovery.[7]  Differences in national regimes for freezing and confiscating assets and the absence of an obligation on Members State to recognize many of those orders are identified as the main reasons for this state of affairs.[8]  This in turn favors criminal organizations, which tend to move their assets in those Member States with weaker asset recovery regimes, making individual Member States efforts to strengthen their domestic regimes useless.

The Commission has enumerated the following issues as relevant to this overall question.

  • Limited scope of the current mutual recognition framework – The existing framework grants Member States significant discretion in deciding whether to recognize and execute extended confiscation orders.[9]
  • Excessively complex and inefficient procedures and certificates – Current procedures are lengthy and complex. Existing certificates are difficult to complete and the current framework does not provide for mandatory deadlines for the executing authority to enforce the orders.[10]
  • Inconsistent implementation of the existing mutual recognition instruments into national law – Current legal instruments are not directly applicable and thus require implementation measures to be adopted in each Member State. Reports by the Commission showed that some Member States had not transposed the current framework into national law and others – while they had implemented it – had not done so in a manner complying with all of the requirements set forth in the relevant legal instruments. Infringement proceedings – although available in principle – would not fully address the issue.[11]
  1. Insufficient Protection of Victims’ Rights to Restitution and Compensation in EU Cross-Border Cases – The current framework also proved to be insufficient in connection with the protection of victims’ rights to restitution and compensation. Acknowledging that – as offenders often do not have enough lawfully acquired assets – the victim’s only chance of being compensated for the damages suffered is often to get such compensation from the confiscated property, the Commission noted that it is necessary to make access to restitution and compensation from confiscated property easier for victims in cross-border cases.

However, this field is not harmonized at the EU level.  On the contrary, the general rule under Framework Decision 2006/783/JHA is that any proceeds from the execution of confiscation orders is to be shared 50%/50% between the issuing and the executing State.  Moreover, it is generally up to the executing Member State to decide what to do with the confiscated property: victims have no say in this decision and have no right to impose another allocation or solution.[12]

            Key Changes

The Proposed Regulation would make a number of changes in an effort to harmonize, and increase the efficacy of, asset freezes and confiscation orders across EU Member States.

  • Legal Instruments – The Proposed Regulation – covering in one single instrument provisions related to both freezing and confiscation orders – would be directly applicable without the need to be transposed into national law in the various Member States.
  • Extended Scope – The scope of the Proposed Regulation would be broader than both (i) the current mutual recognition framework (Council Framework Decision 2003/577/JHA and Council Framework Decision 2006/783/JHA) and (ii) Directive 2014/42/EU. It would apply to third-party confiscation as well as non-conviction-based confiscation.  It would also cover all types of non-conviction-based confiscation orders issued within the framework of criminal proceedings and – since it would be adopted on the basis of Article 82(1) TFEU[13] – would not be limited to so-called Eurocrimes,[14] but would cover all criminal offences.[15]
  • Grounds for non-recognition – The Proposed Regulation sets forth an exhaustive list of grounds for non-recognition. While it maintains the distinction between offences with respect to which dual criminality can be claimed and offences for which such ground for non-recognition cannot be claimed,[16] the Proposed Regulation (i) does not include the grounds for non-recognition related to the type of confiscation order (such as extended confiscation) and (ii) provides that the ground for non-recognition based on the right to be present at trial only applies to conviction-based confiscation orders.[17]
  • Clear Deadlines – The Proposed Regulation sets forth clear deadlines for the recognition and execution of freezing and confiscation orders. The executing authority would have to decide on recognition and execution within 24 hours from their receipt.  It would then have to carry out the order within the next 24 hours and report back to the issuing authority within 3 days of its execution.[18]  As to confiscation orders, the executing authority would have to (i) decide on recognition and execution within 30 days from their receipt and (ii) carry them out within an additional 30 days from taking such decision.[19]  In both cases, if the executing authority is not able to meet the deadlines, it would have to inform the issuing authority without delay.[20]
  • Victims’ rights – The Proposed Regulation would make sure that a victim’s right to compensation and restitution has priority over the executing and issuing Member States’ interest. Specifically, by way of derogation to the above-mentioned traditional 50%/50% rule governing the allocation of money obtained from the execution of the confiscation order, the Proposed Regulation provides that – if a judicial authority of the issuing State has issued a decision to compensate or provide restitution to the victim – the corresponding sum would accrue to the issuing State for the purposes of compensation or restitution to the victim.  If a procedure to compensate or provide restitution to the victim is pending in the issuing Member State, the executing authority must withhold the disposition of the confiscated property until the issuing Member States communicates the decision to the executing authority.[21]  These provisions ensure that victims would not lose their rights under national law in cases where the assets are located in another Member States.  However, they do not create any new right for victims in the event that such rights do not already exist under national law.[22]

The EP Committee Report – Strengthening Fundamental Rights Protections

Freezing and confiscation orders – especially in cases of extended confiscation and non‑conviction-based confiscation orders – may have a significant impact on many fundamental rights of the affected person(s) that are protected by the EU Charter of Fundamental Rights (“Charter”) and the European Convention on Human Rights (“ECHR”), such as:

  • The right to property (Article 17 of the Charter and Article 1 of Protocol 1 to the ECHR);
  • The right to a fair trial and the right to an effective remedy, as well as the principle of presumption of innocence (Articles 47-48 of the Charter and Articles 6 and 13 of the ECHR); and
  • The right to access to justice (Article 47 of the Charter and 6 of the ECHR).

The Commission expressly acknowledged as much and provided for a number of safeguards intended to ensure that the measures envisaged in the Proposed Regulation comply with fundamental rights requirements as interpreted by the case law of the European Court of Justice (“ECJ”) and the European Court of Human Rights (“ECtHR”).[23]

Welcoming the Commission’s proposal as well as the choice for a regulation (as opposed to a directive),[24] the EP Committee stresses the “importance of respecting fundamental rights and procedural safeguards.”[25]  To this end, the EP Committee proposes a number of amendments aimed at strengthening the protection of fundamental rights, including:

  • Scope of application – In line with the ECJ and ECtHR’s consolidated case law, the EP Committee proposes to amend the scope of the Proposed Regulation so as to cover freezing and confiscation orders issued within the framework of proceedings in criminal matters (as opposed to the narrower concept of criminal proceedings), so that in applying the new provisions “due account [would] be taken” not only “of the status of the proceedings under national law, but also of the nature of the offence involved and the severity of the penalty which the accused person faces.”[26]
  • Grounds for nonrecognition – The EP Committee proposes to amend the Proposed Regulation so as to (i) provide for a ground for non-recognition based on non-compliance with fundamental rights,[27] as well as (ii) establish that most grounds for non-recognition – and especially those that relate to fundamental rights – be mandatory (e., in these instances the executing Member State authority has no discretion and must refuse recognition and execution).[28]
  • Rights of third parties – The EP Committee also proposes to introduce or strengthen safeguards for third parties affected by freezing and confiscation orders. In addition to introducing a ground for non-recognition in case the orders concerns a specific piece of property that belongs to a third party that did not participate in the proceedings in the issuing State,[29] the EP Committee proposes amendments to introduce specific information requirements vis-à-vis third parties affected by freezing and confiscation orders, as well as to reinforce procedural rights of all of the interested parties (including third parties).[30]
  • Use of confiscated property – Finally, amendments were proposed so as to allow Member States to reuse confiscated assets for social purposes, for compensating victims (including businesses that are victims of organized crime), families of police officers and public servants killed or permanently disabled in the line of duty, as well as for law enforcement and combating organized crime.[31]

Next Steps

If and when adopted, the Proposed Regulation would replace the existing instruments and would take effect within six months from adoption.[32]  However, the legislative process is still underway.  Both the EU Parliament and the Council have recently adopted their positions and are ready to start negotiations.  At this stage, it is difficult to assess the timing for its adoption.[33]

[1]     Proposal for a Regulation of the European Parliament and of the Council on the mutual recognition of freezing and confiscation orders (COM(2016)826).

[2]     COM(2016)826.

[3]     COM(2016)819.

[4]     Europol, Does crime still pay?  Criminal asset recovery in the EU.  Survey of Statistical Information 2010-2014, (2016), p.4.

[5]     See EU Commission’s Explanatory Memorandum to the Proposed Regulation, p. 2.  See also Whereas No. 1 of Directive 2014/42/EU and Whereas No. 1 of Council Framework Decision 2005/212/JHA.

[6]     The current framework includes (1) Council Framework Decision 2003/577/JHA and Council Framework Decision 2006/783/JHA, which set out a framework for mutual recognition of certain types of freezing and confiscation orders and (2) Council Framework Decision 2005/212/JHA of 24 February 2005 on the confiscation of crime-related proceeds, instrumentalities and property and Directive 2014/42/EU of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the EU (Directive 2014/42), which require Member States to adopt certain minimum measures in terms of the confiscation of assets and procedural safeguards.

[7]     EU Commission, Impact assessment accompanying the Proposed regulation, p. 16.

[8]     Ibidem.  By way of example, the EU Commission mentions the fact that “executing Member State may not know in its legal system the type of confiscation that is to be implemented.  The proceedings may be of a different nature, the standard of proof may be different and procedural rights may vary.  A significant number of Member States does therefore not recognise some types of freezing or confiscation orders issued in another Member State, be it under mutual recognition or mutual legal assistance.”

[9]     Ibidem, PP. 17-19.

[10]    Ibidem, PP. 19-20.

[11]    Ibidem, PP. 20-21.

[12]    Ibidem, pp. 22-23.  To the EU Commission this means in practice that “the authorities of Member State A are able to freeze and confiscate assets in this Member State and give them back to the victim, but if the perpetrator has hidden those assets in Member State B, the authorities of Member State A do not have the legal tools to ensure that the assets are returned to the victim.  Thus the victim may be significantly worse off.”

[13]    Article 82(1) TFEU provides that “Judicial cooperation in criminal matters in the Union shall be based on the principle of mutual recognition of judgments and judicial decisions and shall include the approximation of the laws and regulations of the Member States in the areas referred to in paragraph 2 and in Article 83.  The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures to:  (a) lay down rules and procedures for ensuring recognition throughout the Union of all forms of judgments and judicial decisions; (b) prevent and settle conflicts of jurisdiction between Member States; (c) support the training of the judiciary and judicial staff; (d) facilitate cooperation between judicial or equivalent authorities of the Member States in relation to proceedings in criminal matters and the enforcement of decisions.”

[14]    So-called “Eurocrimes” are those designated by Article 83(1) TFEU, i.e. terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime.  On the basis of developments in crime, the Council may adopt a decision identifying other areas of crime that should be added to the list.

[15]    The Proposed Regulation would not apply, however, to freezing or confiscation orders issued within the framework of civil or administrative proceedings.

[16]    See Article 3 of the Proposed Regulation.

[17]    See Articles 9 and 18 of the Proposed Regulation.  See also EU Commission’s Explanatory Memorandum to the Proposed Regulation, pp. 13-14.

[18]    See Articles 19 and 25 of the Proposed Regulation.

[19]    See Article 10 of the Proposed Regulation.

[20]    See Articles 10 and 19 of the Proposed Regulation.

[21]    See Article 31(3) and (5) of the Proposed Regulation.

[22]    See EU Commission’s Explanatory Memorandum to the Proposed Regulation, p. 17.

[23]    See EU Commission’s Explanatory Memorandum to the Proposed Regulation, p. 10.  See also EU Commission, Impact assessment accompanying the Proposed regulation, p. 33 and Annex 6.

[24]    For the rapporteur, this choice is a key feature of the proposal, as there “is no doubt that a regulation improves clarity and legal certainty and eliminates the problems of transposition into national systems, thereby allowing freezing and confiscation orders to be more rapidly and effectively enforced.”  The rapporteur concludes that this “is therefore the most appropriate and effective form for this kind of mutual recognition instrument.”  See Explanatory Statement to the EU Committee on Civil Liberties, Justice and Home Affairs report, p. 77.

[25]    Ibidem.

[26]    See, inter alia, Amendments Nos. 11, 12, 13, 44, and 49.

[27]    The rationale for this amendment being that – even if the “creation of an area of freedom, security and justice within the Union is based on mutual confidence and a presumption of compliance by other Member States with Union law and, in particular, with fundamental rights” – “that presumption is rebuttable” so that if “there are substantial grounds for believing that the execution of a confiscation or freezing order would result in a breach of a fundamental right of the person concerned” the “execution of the confiscation or freezing order should be refused.”  See Amendment No. 27.

[28]    Discretionary grounds for non-recognition would be limited to those related to irregularities of the certificate, offences committed outside the territory of the issuing State and wholly or partially within the territory of the executing State (where the conduct is not an offence in the executing State) and to offences with respect to which dual criminality may be claimed as a ground for non-recognition.  See, inter alia, Amendment No. 72.

[29]    See Amendments Nos. 69 and 101.

[30]    See, inter alia, Amendments Nos. 82-84, and, in particular, 133.

[31]    See, inter alia, Amendments Nos. 128-129.

[32]    See Article 31 of the Proposed Regulation.

[33]    When the Council adopted its general approach, many Member States stated reservations on various aspects of the Proposed Regulation, including the choice for a regulation as opposed to a directive.