The new EU Directive on Freezing and Confiscation of Instrumentalities and Proceeds of Crime in the EU came into force this week. The key aim of the directive is to create a common set of minimum rules for the detection, tracing and confiscation of proceeds of crime across the EU. The measure has to be implemented into the national law of Participating EU Member States (e.g. EU except UK & Denmark) by 4 October 2016.

Background

According to UN estimates, in 2009, proceeds of crime reached €1.5 trillion. In early 2014, an EU report assessed that less than one per cent of those proceeds of crime were frozen or confiscated, and that “most of this "dirty money" is laundered and channelled into the licit economy”. Laws on the confiscation of proceeds of crime across EU member states have been criticized as underutilized, not fully effective, and uneven, with laws differing significantly from one EU member state to another. With that in mind, in early 2014, the EU has adopted a new Directive on the Freezing and Confiscation of Instrumentalities and Proceeds of Crime in the EU (EU Directive 2014/42/EU & Corrigendum published 29 April 2014).

New Minimum Standard

The new directive sets out the minimum rules to be applied in the EU, with the aim of establishing a single common minimum standard. EU member states (except the UK and Denmark)are to take “the necessary measures” by 4 October 2016 to implement the directive, including to enable at least:

  • the detection and tracing of property to be frozen or confiscated;
  • the freezing of property (including that held by third parties) with a view to later confiscation;
  • the confiscation of proceeds, instrumentalities, or property corresponding to the value of such instrumentalities/proceeds once a final criminal conviction has been obtained (including if obtained in absentia); and
  • the confiscation of proceeds and instrumentalities, in circumstances where criminal proceedings have been initiated but a final conviction is impossible because the accused has absconded or is unable to attend the proceedings for an extended period of time due to illness,2 and where those proceedings could have led to a conviction had the accused stood trial.

 Extended Confiscation Rules

In addition, the new directive provides for “extended confiscation,” that is, confiscation of other property belonging to a person convicted of a criminal offence that the court “is satisfied”is the proceeds of other crimes(i.e. not just that associated with the crime for which the individual was convicted). Confiscation may also extend to property transferred to third parties if the third party knew or ought  to have known the purpose of doing so was to avoid confiscation (e.g. the transfer/sale was free or below market value). However, rights of bona fide third parties are not to be prejudiced (though the directive fails to define or give guidance as to what is a “bona fide third party”).

Wide Scope of Directive

The definitions of “proceeds of crime,” “criminal offence,” “property” and “instrumentalities” are broad, expanding the reach of the new directive:

  • “Proceeds” means any economic advantage derived (directly or indirectly) from a criminal offence, including if later reinvested, transformed, converted or intermingled with other property acquired from legitimate sources.
  • “Property” means property of any description, including legal documents or instruments evidencing title or interest in property.
  • “Instrumentalities” means any property used or intended to be used, in any manner, wholly or in part, to commit a criminal offence.
  • “Criminal offence” means any offence covered by the EU instruments listed in Article 3 of the new directive, which includes (amongst others) offences of money-laundering, corruption involving officials of the EU or of EU member states, corruption in the private sector, and organized crime.

Given the reach of the regime, and in response to concerns raised by certain EU member states, a number of safeguards have been expressly set out in the new directive, including the right to an effective remedy and a fair trial, and access to legal representation.

Management of Confiscated Property and Data sharing

Participating EU member states also are required to implement measures for (adequate) centralized management of frozen or confiscated property, and for the collecting and sharing of data with the EU Commission concerning activities under the new regime (though there does not seem to be any suggestion that that data should be publicized for purposes of deterring crime).

Analysis

Although welcomed by most commentators, the new directive has not been immune from criticism. Some have complained that during the negotiation process to get it passed by the EU Parliament the directive has been watered down in important respects. In particular, the draft directive had provided for confiscation even without a criminal conviction – i.e. civil asset forfeiture proceedings. That provision however is not found in the final directive. Instead, EU member states have agreed that the EU Commission will carry out a study on the benefits of civil confiscation, so it is possible that in due course we will see some implementation of an EU civil confiscation regime.

Even despite those criticisms, the new directive does appear (at least in principle) to be a positive step in targeting criminal activity by confiscating assets of criminals within the EU. What remains to be seen, however, is whether it will be effective not only in establishing a cohesive minimum standard for freezing and confiscating proceeds of crime across the EU, but whether participating EU member states will implement and effectively utilize and enforce these sanctions.