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Asset confiscation and recovery: EU proposes a new directive

Episode
/
July 6, 2022

Little headway has been made on the confiscation and recovery of illegally acquired assets. The EU proposes to tackle this with a new directive that would drive national strategies for member states, see greater international cooperation, and expand the mandate of asset recovery agencies.

 

In a June 2021 statement, the European Commission said: “Serious and organized crime is one of the greatest threats to the security of the European Union. Today, only about 2% of criminal proceeds are frozen and 1% confiscated in the EU, meaning organized crime groups can often retain and invest their illegally acquired profits into expanding their criminal activities and infiltrating the legal economy.”

 

Although there are laws for confiscating and disposing of illegally acquired property, in light of Russia’s invasion of Ukraine and the subsequent sanctions imposed on Russia, the European Commission wants to do more. It commissioned an impact assessment to examine EU recovery systems for illegally-acquired property and assets and the legal instruments available to member states. The findings highlighted the need for more legal powers when it comes to confiscating the profits of organized crime.  

 

In May this year, the Commission issued a proposal for a new EU directive that would see the implementation of new regulations to tackle money laundering, giving greater power to Asset Recovery Offices across all member states to seize and dispose of assets.

 

What does the EU want to achieve?

 

The EU wants to make confiscating and disposing of illegally acquired property and assets more effective and efficient. The directive would create a more harmonized approach to financial crime across the bloc, with the Commission’s aim being to ensure sanctioned individuals or entities cannot evade the law.

 

The proposed directive extends the list of criminal offenses that fall within the remit for asset confiscation, with crimes such as human trafficking, sexual exploitation, and cybercrime included. Implementing the directive will involve EU-wide changes, more cooperation between governments, and the creation of strategies in each member state for asset recovery, management and disposal.

 

The EU also wants the new directive to acknowledge the victims of crime. Article 17 outlines how money from asset disposal should be invested into social improvement programs.

 

Under Article 21, each member state would be required to establish an Asset Management Office (AMO) which would be responsible for tracing and identifying “properties, instrumentalities, and illegally acquired assets”. The AMOs would have the power to freeze assets to stop them from being transferred to another owner or otherwise disappearing.

 

The AMOs would choose which assets to trace by evaluating the financial benefit generated by the criminal activity. Similar to the UK’s unexplained wealth orders, Article 16 of the proposed directive enables the confiscation of property derived from criminal offenses whose value is disproportionate to the legitimate income of the property owner.

 

Article 26 details how member states would be responsible for creating a new registry of assets for frozen and confiscated property. This would contain the nature of the property or asset, its estimated value, and the owner’s name. This register would not be available to the public, but would be open to recovery agencies.

 

Non-conviction-based confiscation

 

According to Article 15 of the proposed directive, recovery agencies would be given the ability to confiscate property even in the absence of a conviction.

 

Under circumstances where criminal proceedings have not taken place due to factors such as amnesty, immunity or death, confiscation without conviction may be enacted. A court within the relevant jurisdiction would decide whether an asset had been acquired, either directly or indirectly, as a result of a criminal offense.

 

The stages to confiscation and disposal

 

Asset or property owners have a right to defend their position in court. Confiscation and disposal can therefore be a long and complex process with several stages, not all of which will be completed.

 

  • Stage 1: trace and identify the property, instrumentality, or asset.
  • Stage 2: freeze the asset to ensure it doesn’t disappear or get transferred. At this stage the asset is still the legal property of the owner.
  • Stage 3: the ARO that seizes the asset has an obligation to look after it. The maintenance stage ensures the asset isn’t devalued before being returned to the owner or disposed of.
  • Stage 4: if the asset or property owner is found to have acted illegally, confiscation orders can be issued by a court within the relevant jurisdiction, at which point legal ownership transfers to the ARO.
  • Stage 5: disposal can now take place. The ARO can sell the asset and the proceeds of the sale go to the relevant government.

 

Who needs to engage with the directive?

 

Nothing is going to change materially for regulated institutions as a result of this proposal, which is targeted at EU member states and recovery agencies. However, the European Financial and Economic Crime Center (EFECC) continues to promote a culture of financial crime investigation and cooperation to enhance asset seizure. Information and guidance can be found on the EFECC website.

 

The process of confiscation and recovery will contribute to tackling financial crime. Confiscation of assets will be reported in the press, with these incidents appearing in adverse media screening programs and therefore improving future customer due diligence programs.

 

Get in touch

 

Moody’s Analytics KYC has a large and comprehensive risk database, containing information on adverse media and negative news, sanctions, watchlists, and politically exposed persons (PEP). 

 

Please get in touch to talk about your approach to anti-money laundering and risk management – we would love to help.

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