TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 2

2........... Procedural issues and consultation of interested parties.................................................... 2

2.1........ Chronology of the Impact Assessment and results of consultations................................... 2

2.1.1..... Policy context................................................................................................................. 2

2.1.2..... Organisation and timing................................................................................................... 2

2.1.3..... Consultation of interested parties..................................................................................... 2

2.2........ Consultation of the Impact Assessment Board................................................................. 2

3........... The recovery of criminal assets explained........................................................................ 2

3.1........ The asset recovery process............................................................................................. 2

3.2........ Fundamental questions of the asset confiscation and recovery process.............................. 2

3.3........ Asset recovery in the Member States and existing EU legal framework............................ 2

4........... Problem definition........................................................................................................... 2

4.1........ Insufficient recovery of criminal assets in the EU.............................................................. 2

4.2........ Components of the problem............................................................................................ 2

4.2.1..... Inadequate powers for confiscating criminal assets........................................................... 2

4.2.2..... Inadequate powers for preserving criminal assets pending confiscation............................. 2

4.2.3..... Inadequate powers for enforcing confiscation orders between Member States (mutual recognition) 2

4.2.4..... Powers for confiscation, preservation and enforcement are underutilised........................... 2

4.2.5..... Member States lack tools to maximise social utility from recovered assets (Redistribution) 2

4.3........ How would the problem evolve, all things being equal?.................................................... 2

4.4........ The EU's right to act and subsidiarity............................................................................... 2

4.4.1..... Conferral of power......................................................................................................... 2

4.4.2..... Legal basis .................................................................................................................... 2

4.5........ Fundamental rights.......................................................................................................... 2

5........... Policy objectives............................................................................................................. 2

6........... Policy options................................................................................................................. 2

6.1........ Identification and screening of "policy actions"................................................................. 2

6.2........ Discarded policy actions................................................................................................. 2

6.3........ Policy actions grouped into policy options....................................................................... 2

6.3.1..... Policy option 1 – Status quo........................................................................................... 2

6.3.2..... Policy option 2 – Non-legislative option.......................................................................... 2

6.3.3..... Policy option 3 – Minimal legislative option...................................................................... 2

6.3.4..... Policy option 4.1 – Maximal legislative option without mutual recognition......................... 2

6.3.5..... Policy option 4.2 – Maximal legislative option including mutual recognition....................... 2

7........... Analysis of the impacts of the policy options.................................................................... 2

7.1........ Analysis of Option 1 - Status Quo................................................................................... 2

7.2........ Analysis of Option 2 – Non-legislative option.................................................................. 2

7.3........ Analysis of Option 3 – Minimal legislative option............................................................. 2

7.4........ Analysis of Option 4.1 - Maximal legislative option without mutual recognition.................. 2

7.5........ Analysis of Option 4.2 - Maximal legislative option including mutual recognition................ 2

8........... Comparing the policy options.......................................................................................... 2

8.1........ Comparison of options and justification for choosing the preferred option......................... 2

8.2........ Proportionality and subsidiarity of the preferred option..................................................... 2

9........... Implementation, monitoring and Evaluation...................................................................... 2

Annex 1. Summary of fieldwork of the external IA study............................................................. 47

Annex 2. Confiscation statistics................................................................................................... 49

Annex 3. List of EU-level actions.................................................................................................. 2

Annex 4. Asset recovery in the UK............................................................................................. 58

Annex 5. EU27 profitability model.............................................................................................. 72

COMMISSION STAFF WORKING PAPER

Accompanying document to the Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL on the freezing and confiscation of proceeds of crime in the European Union IMPACT ASSESSMENT

Disclaimer: This report commits only the European Commission’s services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission

1. Introduction

In order to disrupt organised crime activities it is essential to deprive criminals of the proceeds of crime. Organised crime groups are building large-scale international networks and amass substantial profits from various criminal activities. The proceeds of crime are laundered and re-injected into the legal economy.

The confiscation and recovery of criminal assets is considered as a very effective way to fight organised crime, which is essentially profit-driven. Seizing back as much of these profits as possible aims at hampering activities of criminal organisations, deterring criminality and providing additional funds to invest back into law enforcement activities or other crime prevention initiatives.

2. Procedural issues and consultation of interested parties 2.1. Chronology of the Impact Assessment and results of consultations 2.1.1. Policy context

As an effective tool, especially in the fight against organised crime, confiscation has been given strategic priority at EU level. The 2009 Stockholm Programme[1] highlights the importance of identifying and seizing criminal assets more effectively and re-using them where appropriate.

The Justice and Home Affairs Council Conclusions on confiscation and asset recovery adopted in June 2010[2] aim at promoting a more coordinated approach between Member States and achieve a more effective and widespread confiscation and recovery of criminal assets. They call on the Commission to consider strengthening the legal framework in order to achieve more effective regimes for third party confiscation and extended confiscation. They also highlight that attention should be focused on all phases of the confiscation and asset recovery process and recommend measures to ensure the preservation of assets during the confiscation process and the reuse of confiscated assets.

The Commission Communication "An Internal Security Strategy in Action"[3] indicates that the Commission will propose legislation in 2011 to strengthen the EU legal framework on confiscation, in particular to allow more third party confiscation and extended confiscation and to facilitate mutual recognition of non-conviction based confiscation orders between Member States.

The Commission Work Programme 2011 includes the proposal for a Directive on the confiscation and recovery of criminal assets as a strategic initiative which forms part of a broader package on the "protection of the licit economy", an agenda to protect Europe's economy which is closely linked to the EU 2020 Strategy. This package includes anti-corruption initiatives adopted in June 2011[4] and a Communication on an EU anti-fraud strategy[5].

The envisaged legislative proposal on the confiscation [correct terminology? Does not "recovery" include confiscation? Needs to be checked in the Directive as well. Indeed it does. When reference is made to the Directive, it is better to use "confiscation", as the Directive mostly covers the legal proceedings. The asset recovery process also includes the asset tracing phase (eg national financial investigations, the work of the AROs) and the disposal phase (eg sale of an asset in a public auction or reuse of the asset for public purposes).]of criminal assets is also in line with the ten strategic priorities emphasised by the Commission in its Communication on the proceeds of crime adopted in 2008[6]. This Communication highlights shortcomings in the EU legal framework (lack of implementation, lack of clarity of some provisions, lack of coherence between existing provisions) and proposes to amend it. It further states that a revision would also allow to introduce new provisions in order to achieve a more coherent and comprehensive framework.

This impact assessment serves as a basis for the above legal proposal.

2.1.2. Organisation and timing

Work on the impact assessment started in May 2010 with the launch of an external study to support the preparation of the Impact Assessment[7]. The identification and finalisation of problems, objectives, policy options and assessment of impacts presented in this report were informed by the study which was completed in March 2011.

The study is based on a broad consultation of practitioners and experts, including interviews with some national contact points of the Camden Asset Recovery Inter-agency Network (CARIN)[8], and a limited consultation of other stakeholders. The results of these consultations are discussed below. As shown by their position in negotiating the JHA Council Conclusions, Member States generally agree that more needs to be done on confiscation and asset recovery[9].

This impact assessment is also based on the conclusions and recommendations of another external study[10] [the study seems to have been removed from the link indicated in the footnote! Thanks ! We will ensure that both this study and the IA are posted online before the proposal is published.] entitled "Assessing the effectiveness of EU Member States' practices in the identification, tracing, freezing and confiscation of criminal assets", contracted by the Commission to Matrix Consultancy and finalised in 2009. This study analyses Member States' practices in confiscation, focusing in particular on what has proven effective at national level with a view to promoting and exchanging best practices. The study identified several obstacles to effective confiscation, such as conflicting legal traditions, resulting in the lack of a common approach to confiscation measures, difficulties in securing and maintaining assets, lack of resources and training, limited cross-agency contacts and a lack of a coherent and comparable statistical system.

Finally, the impact assessment is based on the implementation reports issued by the Commission on the existing EU legal acts (see infra, Section 3.3). The reports on Framework Decisions 2005/212/JHA[11], 2003/577/JHA[12] and 2006/783/JHA[13] show that Member States have been slow in transposing them and that the relevant provision have been often implemented in an incomplete or incorrect way. Only Council Decision 2007/845/JHA seems to have been implemented in a moderately satisfactory way[14].

Statistics on confiscation and asset recovery activities are scarce (Annex 2 contains most of the available data on assets recovered). Reliable data sources on the number of ongoing freezing and confiscation procedures (especially those to be executed in other Member States), the turnover of criminal organisations, the costs of judicial procedures or the administrative costs related to asset management or data collection activities are even scarcer. Therefore, the economic impacts of the foreseen actions are often difficult to quantify.

2.1.3. Consultation of interested parties

Wide consultations and discussions with experts were carried out in the CARIN Plenary meeting (September 2010) and in seven meetings of the EU informal Asset Recovery Offices' Platform between 2009 and 2011. An expert meeting with Member States was held in October 2011.

Confiscation and asset recovery issues are also widely discussed between experts. International practitioners' meetings[15] and strategic seminars on confiscation and asset recovery[16] are increasingly taking place. Practitioners consider that most of the policy actions foreseen are best practices and as such have been included in the recommendations issued by CARIN between 2005 and 2010.

While the governments of the Member States were not formally consulted, they expressed their position on these issues last year in the negotiations of the JHA Council Conclusions mentioned earlier. Although there was broad agreement on most issues, a few Member States held a more reserved position on non-conviction based confiscation (e.g. Romania due to constitutional issues). Conversely, on other issues (eg third party confiscation, asset management) Member States agreed that more should be done, but suggested different solutions due to differences in their legislation, structures and practices.

Defence lawyers expressed concerns about the increased use of extended confiscation, non-conviction based confiscation and third party confiscation due to fundamental rights concerns (possible limitation of the right to property and of the right to a fair trial).

No open Internet consultation was carried out, as confiscation is a rather specialised topic where limited expertise is available but contacts were established with civil society, notably with the organisations promoting legality, the fight against organised crime and the protection of the victims of crime.[17] These organisations fully supported the envisaged measures.

During recent hearings on organised crime in the European Parliament's LIBE Committee, several Members of Parliament expressed a keen interest in strengthening the EU legislation on confiscation, mainly by using the existing Italian legislation (probably the most far-reaching) as a model.

The internal consultations in the Commission were mainly carried out through the inter-service group (ISG) on confiscation and asset recovery. The DGs and services represented in this ISG were DG HOME, DG JUSTICE, OLAF, DG EEAS, the Secretariat General, the Legal Service, DG MARKT, DG TAXUD and DG ECFIN. Three meetings of the ISG took place in 2011 (i.e. on 16 February, 14 April and 4 May 2011) before the submission of this impact assessment to the Impact Assessment Board. Another meeting of the ISG was held on 30 June 2011 to discuss the Impact Assessment Board's opinion. The ISG members were in principle supportive of the main issues addressed in the impact assessment and their comments and suggestions were considered during the drafting of this report.

In view of the above, minimum standards for consultation of interested parties have been met in the preparation of this impact assessment.

2.2. Consultation of the Impact Assessment Board

The Impact Assessment Board (IAB) reviewed a preliminary version of this impact assessment and delivered its opinion on 10 June 2011. The recommendations for improvement were accommodated in this revised version of the report. In particular, the following changes were made:

· The problem requiring EU intervention has been explained more precisely.

· The justification for the preferred option has been strengthened, in order to clarify why it can be considered proportionate despite fundamental rights concerns.

· Stakeholder views have been presented earlier and in more detail in the report and the limited consultation has been acknowledged.

· Some cost element likely to arise from implementation has been indicated.

· The objectives of the initiative have been clarified to enable a meaningful evaluation in the future.

3. The recovery of criminal assets explained 3.1. The asset recovery process

Confiscation applies in principle to all crimes (or at least to most criminal activities in some Member States). However, in practice it is more frequently applied to serious cases involving organised crime. Typical examples are crimes generating huge income and liquidity, such as drug trafficking. The proceeds of crime are then converted into assets ranging from cash held in bank accounts to real estate, vehicles, livestock, artworks, company shares, businesses, collector's items etc. State authorities should be able to expediently identify and trace such assets, freeze them and manage them properly once they have been frozen.

Confiscation and recovery of criminal assets are two stages of a legal process whereby criminal assets (proceeds or instrumentalities of crime) are recovered in favour of victims, deprived communities or the state. At the heart of this process lies the determination by a court that particular assets are criminal and, thereby, liable to confiscation. This typically takes the form of a confiscation order. The full process is illustrated in the table below.

Figure 1: Steps in the asset confiscation and recovery process

The first stage in the asset recovery process is the tracing and identification of assets. This phase involves law enforcement investigations (usually under the coordination of a prosecutor) and requires substantial financial investigation skills. National Asset Recovery Offices (AROs) play a key role in expediently providing information to other AROs on the assets located in their territory.

After criminal assets are located in one or more countries, judicial procedures are needed to first freeze them and later to confiscate them. Following their freezing [what does seizure imply? LS suggested deleting this wording in Directive. In some national legislations and international conventions freezing refers only to the money on bank account and real estate, while seizure refers to all other assets, including cash. The EU legislator referred only to freezing orders for any property in FD 2003/577/JHA, therefore we can delete "seizure" in the IA], assets should be properly managed between the time when they are frozen and the time when a confiscation order is issued, so that their value is maintained. After a confiscation order is issued by a court, its execution is carried out. In principle assets become the property of the executing Member State, which may sell them or re-use them as appropriate.

Each stage in the asset recovery process poses different challenges. For example, AROs should have the necessary resources to operate effectively, including access to all relevant information. Prosecutors and judges should trust the legal system of other Member States in order to recognise and execute foreign freezing and confiscations orders. Authorities should have the necessary skills and expertise to manage different assets as well as handle procedures in cross-border cases. Attention should be focused on ensuring effectiveness in all phases of the confiscation and asset recovery process.

The challenges of the asset recovery process can therefore be summarised as follows:

how to identify criminal assets;

how to preserve these pending a confiscation order;

how to obtain a confiscation order so that they can be recovered; and

how to enforce these orders.

These questions represent stages of an attrition process as explained in figure 2.

Figure 2: Stages of attrition

3.2. Fundamental questions of the asset recovery process

The confiscation process is complicated in practice because sophisticated criminals attempt to conceal their illicit gains from investigators, taking whatever measures they can to put assets beyond the scope of confiscation laws or enforcement measures. In response to this, newer confiscation tools have been introduced, such as:

value confiscation, so that assets of equivalent value can be confiscated where specific criminal assets are outside the reach of investigators;

third party confiscation, so that assets can be confiscated from the third parties to whom they have been transferred; and

mutual recognition of confiscation orders, so that assets can be more efficiently confiscated from other jurisdictions.

These tools are designed to make it easier for authorities to recover criminal assets. However, the key question is what assets should be deemed ‘criminal’ and, thus, liable to confiscation. The traditional approach of ordinary confiscation is to confiscate assets linked to a specific crime, following a criminal conviction for that crime.

The availability of ordinary confiscation can never ensure the recovery of all criminal assets because authorities will not always be able to prove that assets are the proceeds of specific crimes. In some cases, a conviction will have been obtained for the relevant crime, but authorities will lack evidence that particular assets are in fact proceeds of this crime. In other cases, criminal assets will go unrecovered because there is no criminal conviction to serve as a basis for ordinary confiscation. Such cases consist of two types: i) those where authorities have sufficient evidence but a case cannot be brought because it is time-barred or because the defendant is too ill, has died or absconded, lacks legal capacity (e.g. is a minor or of unsound mind), or has immunity from prosecution or amnesty; and ii) those situations in which authorities have insufficient evidence to obtain a criminal conviction. This typology of criminal assets is illustrated in Figure 3. Type 1 assets are those amenable to ordinary confiscation proceedings; type 2 assets are those not so amenable due to barriers to prosecution; type 3 assets are those not so amenable due to insufficient evidence; type 4 assets are those not so amenable for both of these reasons.

Figure 3: Typology of criminal assets

Yet here too there have been legal developments in favour of the state powers. Examples include:

extended confiscation, in which a criminal conviction is followed by the confiscation not only of assets associated with the specific crime, but of additional assets which the court determines are the proceeds of other, unspecified crimes;

non-conviction based confiscation, in which civil, administrative or criminal procedure applies to recover illicit assets; and

extended criminalisation, which involves defining non-traditional crimes, with the result that more assets are liable to confiscation.

The above demonstrates that the following three questions need to be addressed when designing the asset recovery process:

· what assets should be liable to confiscation (i.e. how to delineate between assets which are, and are not, ‘criminal’);

· how to confiscate and recover these assets; and

· what to do with the recovered assets.

The asset recovery process must also be designed in such a way that it meets fundamental rights concerns.

3.3. Asset recovery in the Member States and existing EU legal framework

Within the EU, each Member State’s asset confiscation laws have evolved organically in response to domestic imperatives and, more recently, an EU legal framework. By the time the EU began to act in 2001 some Member States had potent asset confiscation regimes, whilst others did not[18].

The current EU legal framework consists of four Council Framework Decisions (FD) and one Council Decision:

· Framework Decision 2001/500/JHA, which obliges Member States to enable confiscation, to allow value confiscation where the direct proceeds of crime cannot be seized and to ensure that requests from other Member States are treated with the same priority as domestic proceedings

· Framework Decision 2005/212/JHA, which harmonises confiscation laws. Ordinary confiscation, including value confiscation, must be available for all crimes punishable by 1 year imprisonment. Extended confiscation must be available for certain serious offences, when "committed within the framework of a criminal organisation";

· Framework Decision 2003/577/JHA, which requires mutual recognition of freezing orders for a long list of crimes punishable by 3 years imprisonment, or if the ‘dual criminality’ principle is satisfied (i.e. for any offence punishable in both countries); and

· Framework Decision 2006/783/JHA, which mirrors these provisions for the mutual recognition of confiscation orders.

· Council Decision 2007/845/JHA on the exchange of information and cooperation between Asset Recovery Offices.

Each of these instruments was passed unanimously by the Council, exercising broad powers under Title VI of the Treaty on European Union. The context was in each case the fight against organised crime but, with the exception of the provisions on extended confiscation, the EU legal framework is not limited to organised criminal activity.

4. Problem definition 4.1. Insufficient recovery of criminal assets in the EU

The problem addressed by this impact assessment is the insufficient recovery of criminal assets in the EU. To date, estimates of money lost to organised crime in the Member States, as well as data on success in asset recovery, remain patchy. Some recent reports and unofficial sources estimate the annual proceeds from organised crime in some Member States as very high[19]. Even considering a fraction of the estimated amounts as more credible, the figures provide a striking contrast with the amounts recovered annually in the Union[20]. Although only some Member States maintain statistics on the amounts recovered annually from crime, at present the number of freezing and confiscation procedures in the EU and the amounts recovered from organised crime seem modest if compared to the estimated revenues of organised criminal groups.

In the UK an official estimate in 2006 put organised criminal revenue at £15bn per annum.[21] Meanwhile, the UK’s Joint Asset Recovery Database (JARD) recorded approximately £125m worth of recoveries that year (see Annex 6)[22]. In Italy, organised criminal revenues were estimated at €150bn per year and the costs of corruption at 50-60 bn per year[23], eclipsing the amounts recovered and returned annually to the state (including to communities via social reuse programmes) (see Annex 2). Data from the UK and Italy therefore indicates that a low proportion of criminal assets are recovered. Moreover, comparing data on an annual basis (the value of assets recovered versus criminal turnover) is in fact a conservative approach, as it ignores unrecovered amounts from previous years which remain recoverable.

Although reliable data sources are indeed scarce[24], the value of assets recovered in the EU can be considered insufficient, especially if compared to the estimated revenues of organised criminal groups or to the number of criminal convictions decided by courts for serious crimes.

Organised crime activities are often transnational in nature and the assets of criminal groups are increasingly invested in other Member States[25]. A good example is the recent operation "Shovel", described in Box 1, which shows the ramification of criminal activities and that important means need to be deployed to fight them successfully.

Box 1 – Operation "Shovel": The operation "Shovel" (2010) was conducted by the Spanish authorities in collaboration with the UK, Ireland and Belgium and with the assistance of Europol. The targeted criminal group led by Irish and UK criminals was involved in drug and weapons trafficking, money laundering, forgery of documents and murders. Over 700 police officers were deployed in many Member States on the day of the operation (more than 145 persons and 100 companies were under control). "Shovel" resulted in 38 arrests (24 in Spain including two lawyers who facilitated money laundering operations, 12 in the UK, 1 in Ireland and 1 in Bulgaria) and in the freezing of 60 luxury properties on the ”Costa del Sol” and 25 Luxury cars. 180 bank accounts were also frozen.

Pursuing assets located abroad is invariably more problematic, due to the increased difficulties in tracing them and to legal obstacles in obtaining evidence and executing freezing or confiscation orders. Table 1 lists examples of assets confiscated in cross-border cases with the assistance of Eurojust in 2010.

Table 1: Examples of asset confiscation in cross-border cases

Member State || Assets subject to confiscation with Eurojust's assistance

Belgium || Two boats to be confiscated in Spain.

Bulgaria || €37,000 cash and real estate property confiscated in the UK

Germany || €100,000,000 confiscated in a large tax fraud case involving coordinated searches in 15 countries

Ireland || Substantial amounts of property confiscated in Spain and Ireland

Spain || Five cases involving confiscation of €112,000,000, €17,000,000, €1,000,000, €23,000, and €9,000,000

Italy || Provisional confiscation in the Netherlands of €400,000. Freezing of 800 kg of counterfeit products in 10 countries. Freezing of a luxury watch in Germany. Freezing of 300 kg of cocaine in Belgium, Spain, Italy and Czech Republic. Freezing of documents related to the registration of 100 vehicles in Germany. Freezing of 700 kg of hashish, one pc, mobile telephones and documents in France, Spain and the UK. Freezing of one server in Austria.

France || Property and vehicles in Italy, one ship and the freezing of 1,400 kg of cocaine.

Sweden || €1,685,800 confiscated in Sweden and a ship in another country

UK || All property and money of a main suspect (including a house, a speedboat and money with a total value in excess of €1,200,000). Several luxury vehicles in Spain.

Moreover, the penetration of organised crime into the licit economy, even if it takes place in a single Member State, affects the functioning of the whole EU Internal Market, not only of that country. Even when managing licit businesses, organised crime groups often support these activities with the recourse to intimidation and corruption, thus altering competition and the smooth functioning of the Internal Market. The resulting loss of revenues affects both national and EU financial interests, even when it takes place in only one Member State.

The aims of asset recovery are realised not only when criminals are deprived of their ill-gotten gains, but when these are redistributed effectively. In particular, the impact of asset confiscation upon public confidence in the criminal justice system may be enhanced through redistribution and restorative justice. [reuse wording. Yes, but not advocating reuse for social nor public purposes. ]

Although asset recovery is a popular concept with a basis in international law[26], EU law and Member State laws, these laws remain underdeveloped and underutilised. It is unlikely that any Member State confiscates a significant proportion of criminal assets and, accordingly, it is unlikely that the laws themselves are achieving their stated aim.

4.2. Components of the problem

There are essentially three problems in relation to the EU legislative framework: its incomplete or late transposition, the existence of diverging national provisions and the low utilisation of confiscation in practice. The most plausible underlying reason for the late or incomplete transposition of the existing legislation is the workload of the responsible national authorities. This seems demonstrated by the somewhat surprising fact that transposition of the EU acquis has been slow or partial also in countries (eg Italy and the UK) where fighting organised crime through confiscation is a well-established priority at national level and where national legislation is well developed. For example the Commission implementation report on the EU rules on extended confiscation (FD 2005/212/JHA) showed that most Member States are slow in putting in place measures to allow more widespread confiscation, with only 16 of them transposing in full or partially by end 2007. The situation has slightly improved since the report, but transposition is not yet complete today

However, this is not only a case of incomplete transposition. The lack of clarity of some EU provisions has resulted in a different (and often diverging) transposition into national law, further widening the differences in the national legislations. One example is the notion of extended confiscation, which requires Member States to choose between three alternative criteria for extended confiscation, or to adopt two or all three of them cumulatively. As a result, the mutual recognition of orders based on extended confiscation is problematic. Due to the lack of coherence between provisions in the 2005 and 2006 Framework Decisions, a Member State can refuse to execute an order issued in another Member State if the two countries have not chosen the same criteria. Moreover, as highlighted in the Commission implementation reports, Member States have often added conditions (for example additional grounds for refusing the mutual recognition of confiscation orders) which further limit the effectiveness of the EU provisions.

These problems are compounded by a low implementation in practice (under-utilisation) of confiscation, as evidenced by the gap between the estimated size of criminal profits in a country and the amounts confiscated, or by the gap between criminal convictions and number of cases when they have been followed up with effective confiscation. The inadequate implementation in practice of the EU legislation may be due to different reasons depending on the stakeholders involved. For example, practitioners requesting the execution of orders in other Member States find the ad hoc request forms unclear and difficult to use. Law enforcement officers and prosecutors may perceive asset tracing and confiscation as a drain of scarce and expensive resources (financial investigators) that does not always entail tangible results (hence the importance to inform widely on the profitability of confiscation). Among the judges there may be some "cultural" resistance to apply confiscation widely, as it is perceived as an additional punishment on an already convicted person. Bearing in mind the challenges encountered during the different stages of the asset recovery process, the problem of the insufficient recovery of criminal assets in the EU can be broken down into components. These are discussed in more detail below.

4.2.1. Inadequate powers for confiscating criminal assets

The national confiscation systems in the Member States differ substantially. As organised criminal groups operate without borders and increasingly acquire assets in other Member States, there is greater need for both harmonised substantive law provisions and effective mutual recognition procedures in order to enforce freezing and confiscation orders in other Member States.

The EU legislation described above harmonises only some provisions on the national confiscation systems. For example, while it is common practice for suspected or investigated persons to transfer their assets to a knowing third party with a view to avoid confiscation, there are no provisions at EU level on third party confiscation. Also, the current EU legal framework only applies to criminal proceedings and the issuance of confiscation orders generally requires a criminal conviction. On the other hand, some Member States apply also non-conviction based systems to deprive criminals of illicit profits, which are not provided for at EU level.

The limited EU legal framework in place presents shortcomings. As it consists of a series of measures proposed by Member States over time, it is not sufficiently coherent and consistent. It ultimately provides relatively little harmonisation and offers wide discretionality to the Member States in its implementation. Moreover, some provisions have been implemented poorly or in a diverging way.

There are also indications (eg from expert reports within the framework of technical assistance projects financed by the Union or by Member States) that legal inadequacies and political/structural problems in a few Member States may be so significant that they largely prevent the use of confiscation and asset recovery against high-ranking organised criminals. While these shortcomings mainly relate to extended confiscation (which exists in EU legislation since 2005), even obtaining ordinary confiscation seems somewhat problematic in these countries, as demonstrated by the low number of confiscation cases and the modest amounts recovered every year.

For the reasons above, a complete and correct implementation of the existing legal framework would not be sufficient to address the problem of the insufficient recovery of criminal assets in the Union. Many national provisions are not harmonised at EU level and the Member States exercise their powers in a very different way. A summary description of the provisions and the shortcomings existing in each Member State, as well as the potential impact of the proposed measures is provided in Table 5 (infra).

Box 2 – Examples of differences in the Member States' national provisions On the scope of the targeted assets, Member States currently employ varying definitions of criminal "proceeds" (as this term is currently undefined within the EU legal framework). As a result, the indirect proceeds of crime cannot always be confiscated. On the question whether particular assets are proceeds, most Member States employ a criminal standard of proof (high in some countries, such as Germany) while others, such as the United Kingdom, use a civil standard of proof which facilitates confiscation. On the timing for the confiscation procedure, in many Member States, the opportunity to confiscate criminal assets ends when criminal proceedings are finalised. This encourages criminals to try to conceal assets for the duration of the criminal proceedings, so that the assets which "resurface" after its conclusions cannot be confiscated. This can also cause authorities to rush financial investigations (with the risk of missing some assets) in order to conform to timetables imposed by criminal procedure. On the existing barriers to prosecution, the EU legal framework contains no mandatory provision for the confiscation of assets which cannot be confiscated because criminal proceedings are not allowed to be brought despite sufficient evidence. The assets believed to be criminal even though there is insufficient evidence to obtain the criminal conviction are covered by Framework Decision 2005/212/JHA in a limited and complicated way. Another relevant barrier is that in some Member States it is impossible to confiscate criminal assets where a conviction cannot be obtained (eg because the suspect has died, fled the jurisdiction, is unable to stand trial due to mental illness, has immunity from prosecution, etc). Finally, confiscation from third-parties is an entirely optional aspect of the existing EU legal framework. Some national confiscation regimes do not apply to assets which have been passed on to third parties. Others do, but require proof of mala fides even where the third party is a relative or close associate who has received for less than market value.

These differences in legislation often become barriers to the mutual recognition of freezing and confiscation orders between Member States. It is widely recognised that a minimum level of harmonisation should exist in order to facilitate mutual recognition. An increased level of harmonisation is therefore needed in this area, in order to ensure in each Member State a minimum level of protection from criminal infiltration in the legal economy (through the acquisition of assets) and facilitating the mutual recognition of freezing and confiscation orders in other Member States.

4.2.2. Inadequate powers for preserving criminal assets pending confiscation

The EU legislation does not contain harmonised provisions on preservation of assets and does not cover the management of seized assets pending the confiscation procedure, which is addressed exclusively by national provisions.

On asset preservation, while all confiscation regimes are supported by freezing powers, in a minority of cases these do not apply to all assets liable to confiscation (eg not to assets in the possession of third parties or assets representing equivalent value). Moreover, Member States do not always have in place appropriate mechanisms to ensure that assets in danger of being hidden or transferred out of the jurisdiction are able to be immediately frozen/seized while the request for judicial freezing is pending.

On asset management, in many Member States, assets are managed by agents (court officials, prosecutors, and police) involved in the criminal proceeding. In some cases, they lack even basic powers to realise seized assets which are liable to decline in value (even where requested to do so by the affected person). More generally, while a few Member States have established dedicated centralised structures, in most Member States expertise in managing complex assets is lacking and the management of assets is not centralised. This shortcoming directly affects the stages of attrition described in Figure 2. In some cases the spread between the value of the assets frozen or seized in view of confiscation and the value of the assets recovered at the end of the confiscation procedure is quite significant.

Box 3 – Examples on the risks in managing different assets While cash and financial products do not create particular management issues, the management of perishable goods or of vehicles has provoked in some instances substantial loss of value. Even managing real estate can be problematic. Assets frozen when the real estate market is booming may lose substantial value if they are auctioned at the moment when the market has declined. Other items which could risk losing value between the freezing and the confiscation are artwork and livestock (eg race horses).

4.2.3. Inadequate powers for enforcing confiscation orders between Member States (mutual recognition)

The enforcement of freezing and confiscation orders is generally not problematic in a national context. Problems arise more often when enforcing in a Member State an order issued by a judge in another Member State. The existing EU legal framework seeks to address the cross-border aspects of confiscation through provisions on minimum harmonisation and mutual recognition. However, at present the EU legal framework is insufficient, not completely transposed, not correctly transposed and in a few cases lacks coherence[27].

Box 4 Examples of problems with the mutual recognition of freezing and confiscation orders between Member States Framework Decisions (FD) 2003/577/JHA (freezing orders) and 2006/783/JHA (confiscation orders) establish a mechanism whereby the judicial authority issuing an order to be enforced in another Member State can send it directly to the judicial authority in that country which is competent to execute it, by filling in a specific certificate. This mechanism derogates from mutual legal assistance procedures, under which such orders should be sent to Central Authorities in each Member State. However, the full benefits of the swifter procedure provided in the FDs may not be fully reaped. The lack of transposition or the partial transposition by some Member States of the existing mutual recognition obligations significantly hampers the enforcement of freezing and confiscation orders in other Member States. The report issued by the Commission on FD 2003/577/JHA shows significant delays in the transposition, with only 19 Member States transposing this FD fully or partially by December 2008. Even today transposition is still not satisfactory, with four Member States not having transposed. The implementation report issued by the Commission on FD 2006/783/JHA shows that only 13 Member States transposed this FD fully or partially. Again, today the situation has marginally improved but is not yet satisfactory. Regrettably, the legal framework is not only incompletely transposed. Its provisions are sometimes transposed into national law in a diverging way. FD 2003/577/JHA emphasises that the national legislations show numerous omissions or misinterpretations. The report on FD 2006/783/JHA highlights that almost all Member States included additional grounds to refuse the mutual recognition of confiscation orders issued in other Member States. Again, a complete and correct implementation of the existing legal framework would not be sufficient, as some EU legal provisions are not well coordinated. Footnote 27 describes the negative impact on mutual recognition of the three alternative criteria for extended confiscation in Framework Decision 2005/212/JHA and the provisions on the grounds for refusal of mutual recognition of confiscation orders laid down in Framework Decision 2006/783/JHA. The existing FDs on mutual recognition are also limited in scope. Extended confiscation is not supported by FD 2003/577/JHA, whilst FD 2006/783/JHA supports extended confiscation only in a limited way. Neither requires mutual recognition of non-conviction based confiscation orders. These limitations handicap the ability of Member States to combat organised crime. This is especially true for non-conviction based confiscation, as the alternative mutual legal assistance route is relatively weak. The issues with the certificates which lead to under-utilisation of these procedures are described in paragraph 4.2.4. Finally, the existing legal framework includes two similar instruments, ie FD 2006/783/JHA on the mutual recognition of confiscation orders and FD 2005/214/JHA on the mutual recognition of financial penalties, including compensation orders. This dichotomy between confiscation and compensation seems unnecessary given that the recovery mechanisms employed are very similar.

4.2.4. Powers for confiscation, preservation and enforcement are underutilised

Based on available statistics (Annex 2), there is a significant underutilisation of asset confiscation laws throughout the EU. This is in some cases a matter of law, but mostly due to other factors. The study on confiscation conducted by Matrix in 2009 shows how cultural differences in the Member States affect the general approach to confiscation. As a result some judges consider confiscation almost as an additional punishment of an already convicted person and are reluctant to apply it systematically.

In general the profitability of asset confiscation work is also poorly understood by government decision-makers in some Member States. This lack of understanding causes asset confiscation work to be viewed as a drain upon scarce resources. Also because of this factor, underutilisation of asset confiscation tools persists, notwithstanding ample rhetoric on the utility of confiscating and recovering criminal assets. At law enforcement level, in some Member States the tracing and identification of criminal assets are neglected in favour of the criminal investigation. This evidently hampers the possibility to confiscate criminal assets. Within the judicial system prosecutors have a discretionary power to request freezing and confiscation orders and the courts have a discretionary power to issue them. As a result they are underutilised. On a cross-border level, the requests for freezing are very often made alongside other requests (eg. a house search), so practitioners using the specific certificates in FDs 2003/577/JHA and 2006/783/JHA must complete additional paperwork (for mutual legal assistance mechanisms) and need to be familiar with many different instruments. Fieldwork revealed these to be significant barriers for practitioners.

4.2.5. Member States tools for maximising social utility from recovered assets (Redistribution)

The existing EU legislation does not contain provisions on the disposal of assets. National provisions exist in some countries, including on the reuse of confiscated assets (eg for social purposes). In practice not all Member States have redistribution schemes in place. The assets recovered from organised crime are often sold in public auctions and the proceeds are returned to the State budget. In some cases organised criminal groups have been able to re-acquire the confiscated assets by discouraging potential bidders through intimidation. In countries where a system of decreasing value auction is in place (ie the price of the auctioned asset is progressively reduced if no one bids for it) they have also been able to pay a very low price. So this factor may also reduce State revenues resulting from recovered assets and affect the stages of attrition described in Figure 2. Moreover, the social reuse schemes established in some Member States take various forms. In some cases confiscated assets are directly put to social purposes, in others income streams are used to fund social benefits.

4.3. How would the problem evolve, all things being equal?

The baseline scenario or status quo indicates how the identified problem is likely to evolve without additional public intervention, taking account of existing and forthcoming interventions and following the introduction of the Lisbon Treaty.

Based on historical progress, at EU level the status quo policy option would likely result in an increase in the assets owned or controlled by criminal organisations, as well as an increase in their acquisitions of assets in other Member States. Evidence of a progressive increase in cross border criminality and in the cross-border acquisition of assets can be derived from investigative sources. The threat assessments issued by Europol[28] show an increasing trend in cross-border criminal activities and in the links between criminal groups located in different regions. The number of investigations coordinated by Europol, facilitated by Eurojust or supported by Joint Investigation Teams is steadily increasing. To some extent, the increasing cross-border acquisition of assets by organised crime is demonstrated by the steadily increasing number of requests for information on assets which are exchanged on a daily basis between Asset Recovery Offices in the Member States.

The expected increase in the cross-border acquisition of criminal assets would be mitigated to some extent by a corresponding slight increase of the amounts frozen or seized, of the amounts confiscated, of the amounts recovered and of the cases where mutual recognition of orders issued in other Member States is successful. Such increases would partly result from a slightly better transposition of the EU instruments. Better transposition could entail a wider recourse to extended confiscation and an increased number of cases of successful mutual recognition of freezing and confiscation orders issued in other Member States. The TFEU provides for the possibility of using infringements procedures to ensure transposition of the EU acquis in the area of Freedom, Security and Justice. However, even if these procedures may serve as an incentive for the Member States to act, their benefits will not be visible in the short-term.

Moreover, as the EU legislation currently harmonises only some provisions on the national confiscation systems, significant gaps would persist and would continue hampering a more successful recovery of criminal assets across the Union. For example, while it is common practice for criminals to transfer their assets to a knowing third party with a view to avoiding confiscation, there are no binding provisions at EU level on third party confiscation. The current EU legal framework only applies to criminal proceedings and the issuance of confiscation orders generally requires a criminal conviction. Non-conviction based rules to deprive criminals of illicit profits, which are successfully used in some Member States, are not provided for at EU level. While assets tend to decrease in value in the period between their freezing and the confiscation, the EU legislation does not contain harmonised provisions on preservation of assets and the management of seized assets pending the confiscation procedure.

At national level the progressive exchange of best practices and cross-border judicial cooperation between Member States will result in a slight increase of the utilisation of existing instruments, which should result in more successful asset investigations and confiscations. However, this progress in cross-border law enforcement and judicial cooperation may be partially offset by the expected increase in cross-border criminal activities, in the links between organised criminal groups and in the revenues of criminal organisations. On the other hand, the collection of statistics to measure the actual extent of confiscation and asset recovery activities (notably judicial statistics) and the corresponding costs will remain patchy, rendering any comparison between Member States difficult.

At international level the EU Member States will progressively sign and ratify the 2005 Council of Europe Convention (CETS 198). This new set of international obligations may induce some Member States to amend their national legislation to align it with the provisions of the Convention.While this Convention is based on a relatively good consensus, seven EU Member States have not even signed it yet. Without EU action, the implementation of the provisions of this Convention only by some Member States may therefore further widen the differences in the legislation between the Member States, at least in the short/medium term.

In any case action at EU level would still be necessary in order to address the shortcomings identified above. The shortcomings on asset preservation and reuse and on utilisation of confiscation powers are not addressed in the Convention. The existing EU legislation on the powers to confiscate (e.g. on extended confiscation) is more detailed than the provisions of the Convention. Finally, the enforcement of orders in other Member States is based on the principle of mutual recognition instead of mutual legal assistance.

As a result, the spread between criminally owned assets and assets recovered by governments is likely to increase and the cross-border dimension of confiscation is likely to gain relevance. We will be even more in a situation where "crime does pay". It is likely that the current costs of confiscation procedures would remain unchanged.

4.4. The EU's right to act and subsidiarity 4.4.1. Conferral of power

The EU has already passed measures relating to the confiscation and recovery of criminal assets. However, the EU’s conferral of power has changed following the entry into force of the Treaty of Lisbon. Whereas action under the old Third Pillar was essentially unconstrained provided all Member States agreed, the Treaty of Lisbon places specific conditions upon the EU’s right to act.

4.4.2. Legal basis

The legal basis to support action in the field of confiscation and recovery of assets can be found in Article 82(1) TFEU for the provisions on mutual recognition and in Article 82(2) and Article 83 (1) TFEU for harmonisation.

Under Article 5(3) TEU, the Union shall only act if the proposed action cannot be sufficiently achieved by the Member States. Article 67 TFEU foresees that the Union shall provide citizens with a high level of security by preventing and combating crime. Pursuing criminal assets is increasingly recognised as an essential tool to combat organised crime, which is very often transnational in nature and thus needs to be tackled on a common basis. This is all the more true in the EU, where the abolition of internal frontiers makes it far easier to commit cross-border crimes.

As acknowledged by the Stockholm Programme, the Union must reduce the number of opportunities available to organised crime as a result of a globalised economy, not least during a crisis that is exacerbating the vulnerability of the financial system. The EU is therefore better placed than individual Member States in sharpening more efficiently one of the most effective tools to fight organised crime groups.

The assets of organised criminal groups are increasingly invested outside their home country (often in several countries). This double cross-border dimension (of organised crime activities and their investments) further justifies pan-European action to target the assets of organised criminal groups.

While cross-border criminal and asset investigations may occur in several countries, prosecution and the judicial activities leading to confiscation normally take place in only one Member State. The resulting freezing and confiscation orders then need to be enforced in other Member States. Therefore, while criminal activities and investments are increasingly cross-border, confiscation procedures remain essentially national. However, their cross-border dimension is immediately evident in the enforcement of orders in other Member States.

Moreover, the penetration of organised crime into the licit economy even of a single Member State has an inherent cross-border dimension, as this affects the functioning of the whole EU Internal Market.

Apart from the issue of cross-border organised crime, the free movement of persons (11.3 million EU citizens live in a foreign Member State) and capitals within the Union entails a need for action at supra-national level in enforcing judicial decisions, including those on asset freezing and confiscation.

4.5. Fundamental rights

Inasmuch as it deprives the offender of his or her possession, confiscation interferes with the right to property enshrined in Article 17 of the EU Charter of Fundamental Rights. This right is not however absolute: it can legitimately be subject to restrictions when the legislator pursues a valid objective of general interest or the need to protect the rights and freedoms of others, such as the prevention of organised crime. There must nevertheless be reasonable proportionality between the policy behind the law and its effect upon the individual.

In the decisions of the European Court on Human Rights (ECtHR), the proportionality test mainly depends on the application of the confiscation order in the particular case under examination. The Court gives great weight to the procedural guarantees in place: a measure will be usually proportional if the individual had effective means to contest it.

Article 17 guarantees a right to own, use, dispose and bequeath lawfully acquired possessions. This wording seems to corroborate the possibility to confiscate the direct and indirect proceeds of crime, which by definition have been proven to have illicit origin. In fact under this Article it seems unclear whether a right to property exists where said property has illicit origin.

Article 47 of the Charter guarantees the right to an effective remedy and the right to a fair trial. Inasmuch as confiscation orders interfere with the right to property, affected parties must be able to challenge such orders under the conditions set by this Article.

1) Ordinary conviction-based confiscation is generally perceived to be a legitimate restriction to the right to property guaranteed by Article 17 of the Charter, if coupled with procedural guarantees to secure the right of affected individuals to an effective remedy and to a fair trial provided in Article 47. In certain circumstances, this right must be exercised together with the right to presumption of innocence of Article 48, the principles of legality and proportionality of criminal offences and penalties of Article 49 and with the right not to be tried or punished twice in criminal proceedings for the same criminal offence of Article 50 of the Charter.

2) Non-conviction based and extended confiscation regimes enable interferences with the right to property, in the meaning of Article 17 of the Charter, without the said property being linked to a specific criminal conviction. These measures are in principle harder to justify as necessary and proportionate restrictions to the right to property. Since these regimes do not relate to assets for which a criminal conviction has been obtained, they may raise issues with regard to the presumption of innocence guaranteed by Article 48(1) of the Charter and Article 6(2) ECHR.

As with non-conviction based confiscation, extended confiscation may raise questions with regard to the presumption of innocence, as it is by definition a process which enables confiscation without an established link between the asset and a particular criminal conviction. Extended confiscation regimes may also raise concerns with regard to Articles 49 of the Charter and 7 ECHR which spell out the principle of legality, including the non-retroactivity of criminal law, and the prohibition against the imposition of harsher penalties. An issue may in particular arise in respect of newly-introduced extended confiscation provisions which allow for the confiscation of assets acquired through criminal conduct which occurred prior to the introduction of the extended confiscation regime.

3) The confiscation of assets transferred to third parties also affects the right to property within the meaning of Article 17 of the Charter. Again, the main issue is about proportionality, ie whether this limitation is proportionate to the objectives being pursued (deterring crime, restitution to victims).

4) Although freezing orders are only temporary measures, their consequences can be far reaching, particularly with regard to the right to property, despite criminal liability having yet to be established. On the other hand, they are necessary to ensure the subsequent application of confiscation orders, and have been upheld on this basis and justified because of public interest. Freezing orders can also raise issues with regard to the right to private and family life guaranteed by Article 7 of the Charter, and there is a growing awareness that to ensure compatibility with this right, as well as with the respect for human dignity in line with Article 1 of the Charter, Member States are expected to apply freezing orders in a way which leave people with their basic means of survival. Freezing orders can also have effects on third parties since it is often a criminal offence to have any dealings, commercial or otherwise, with a person on whom such a measure has been imposed.

5. Policy objectives

The overall long-term objective is the substantial reduction of organised crime revenues and accumulated wealth within the EU. The following general objectives for the confiscation and recovery of criminal assets, which align to general objectives of the Union in the Treaty of Lisbon, have been identified:

· to combat organised crime

· to achieve justice for victims

· to raise public confidence in the criminal justice system.

The specific objectives of the EU intervention aim at both harmonising Member States practices in order to facilitate mutual recognition and to prompt asset recovey activities at national level in order to deter more effectively criminal activity. In line with the underlying components of the problem, four specific policy objectives can be defined:

· to further harmonise the confiscation powers of the Member States

· to harmonise the preservation powers of the Member States

· to enhance the enforcement of freezing and confiscation orders across Member States' borders

· to enhance the utilisation of existing tools in the Member States.

The table below shows the components of the problem, together with descriptions of the status quo at EU-level and associated specific and operational objectives. It emphasises that the existing EU legal framework is far from comprehensive.

Table 2: Problem and objectives

Problem || Existing EU legal framework || General objectives || Specific objectives || Operational objectives

Not always possible to confiscate criminal assets due to gaps in MS powers (barriers to prosecution, insufficient evidence or both) || Rules are contained in FD 2005/212/JHA but many aspects of the problem are not addressed || 1/ combat crime (notably organised crime) 2/ achieve justice for victims 3/ raise public confidence in the criminal justice system || A. Increase the harmonisation of rules allowing to confiscate criminal assets, with due respect of fundamental rights || 1. harmonise confiscation of type 1 criminal assets (ordinary confiscation) 2. harmonise confiscation of type 2 criminal assets (barriers to prosecution) 3. harmonise confiscation of type 3 criminal assets (insufficient evidence) 4. harmonise confiscation of assets of third parties

Not always possible to freeze criminal assets, or preserve and manage frozen assets, due to gaps in MS preservation powers || No EU rules || B. Minimum harmonised rules allowing to freeze and manage criminal assets pending confiscation, with due respect of fundamental rights || 1. allow freezing orders for all assets liable to confiscation 2. To have effective mechanisms to preserve assets pending enforcement of freezing 3. To have effective systems for managing frozen/seized assets

Not always possible to enforce freezing and confiscation orders across borders due to gaps in MS enforcement powers || FD 2003/577/JHA and FD 2006/783/JHA deal with mutual recognition of freezing and confiscation orders, but are limited in scope || C. Make it easier for MS to freeze and confiscate assets across borders || 1. MS to recognise and enforce (all types of) freezing orders from other MS 2. MS to recognise and enforce (all types of) confiscation orders from other MS

Underutilisation of freezing and confiscation procedures and tools by MS agents || No EU rules || D. Raise utilisation of freezing and confiscation tools by MS agents || 1. MS to raise utilisation of freezing powers 2. MS to raise utilisation of confiscation powers 3. MS to raise utilisation of mutual recognition instruments

|| || ||

6. Policy options 6.1. Identification and screening of "policy actions"

In order to meet the specific and operational objectives identified above and remedy the shortcomings resulting from the problem definition identified in Chapter 3. 21 EU-level policy actions were identified (some of which are complementary) which target particular operational objectives. These 21 policy actions are described in Annex 3, where they are grouped according to the four specific objectives they aim to achieve.

Given the high number of envisaged policy actions, the 21 EU-level actions were first screened individually against the following potential barriers to implementation: i) adequate conferral of power to the EU; ii) proportionality; iii) compatibility with fundamental constitutional or criminal law principles of the Member States.

The impact on fundamental rights was also analysed in detail, based on the relevant jurisprudence of the European Court of Human Rights. Whilst many of the identified policy actions affect fundamental rights, only in a small minority of cases it is not possible to remedy potential negative consequences. On the other hand, in some cases it appears that appropriate remedies can actually promote fundamental rights throughout the Union (by inducing a positive impact in Member States which currently afford low levels of protection).

6.2. Discarded policy actions

Four of the identified policy actions were discarded after the screening of the policy actions against the implementation barriers mentioned earlier:

· Civil standard of proof regarding whether an asset is "criminal" (policy action 3): The standard of proof on whether particular assets are proceeds could be harmonised to a lower "balance of probabilities" standard, to make it more difficult for convicted criminals to retain type 1 assets. This action was discarded due to likely problems with the conferral of powers to the EU and the proportionality principle, as well as problems of compatibility with Member States' legislation.

· Designating Asset Management Offices (policy action 11): Further harmonisation could require all Member States to entrust the management of frozen assets to Asset Management Offices at a national or regional level. This could increase efficiency and promote best practice. This action was discarded due to problems with the conferral of powers to the EU.

· Mandatory assets investigation (policy action 17): The EU legal framework could require investigators to open a parallel financial investigation, at least for the crimes listed in TFEU article 83(1). This action was discarded due to problems with the conferral of powers to the EU and the proportionality principle and problems of compatibility with Member States' legislation.

· Limited judicial discretion (policy action 18): Judicial discretion could be limited by requiring freezing to be ordered wherever there is reasonable cause to suspect that an asset may become liable to confiscation and, in the event of a criminal conviction, by requiring confiscation to be ordered unless doing so would disproportionately affect fundamental rights. This action was discarded due to problems with the conferral of powers to the EU and the proportionality principle and problems of compatibility with Member States' legislation.

Doubts on the compatibility with the above implementation barriers could be expressed also in relation to other policy actions. However, such doubts were not so strong as to cause the relevant action to be discarded.

6.3. Policy actions grouped into policy options

Following the elimination of unfeasible policy actions, the remaining policy actions are grouped into policy options representing different degrees of EU-level intervention: a non-legislative option, a minimal legislative option (correcting deficiencies in the existing EU legal framework which inhibit it from functioning as intended) and a maximal legislative option (going beyond the aims of the existing EU legal framework). Within the latter, two maximal legislative sub-options are analysed, one with and one without EU level action relating to mutual recognition. The "do nothing" option forms the baseline against which all other options are analysed.

6.3.1. Policy option 1 – Status quo

This policy option would involve no new action at EU level, but constitutes the continuation of existing activities. The possible developments of this policy option at EU, national and international levels are indicated in section 4.3.

No new action at EU level does not mean no change at EU level. Protocol 36 to the Treaty of Lisbon ensures that the existing EU legal framework (or at least those provisions which do not exceed the EU’s post-Lisbon competence) will, on 1 December 2014, become enforceable against Member States through infringement proceedings brought by the Commission before the ECJ. Analysis will need to account for this step-change, as well as for other factors, including continued international developments and scrutiny in the forum of mutual evaluations by Moneyval and FATF.

6.3.2. Policy option 2 – Non-legislative option

Under the non-legislative policy option, workshops would be used to encourage Member States to better transpose the existing EU legal framework into domestic law (by highlighting its benefits and reiterating its compulsory nature) and to better utilise their asset confiscation laws (by highlighting benefits and sharing scientific knowledge and best practice). Better transposition can be achieved by promoting implementation of existing confiscation obligations (policy action 1). Although the trends towards compliance with FD 2005/212/JHA are positive, continued implementation/expert workshops could help ensure ongoing progress. Better utilisation of national legislation can be achieved by promoting implementation of existing mutual recognition obligations (policy action 12) via implementation/expert workshops on Framework Decisions 2003/577/JHA (freezing orders) and 2006/783/JHA (confiscation orders). Utilisation workshops for government decision-makers in some Member States on the profitability of asset confiscation work (policy action 15) could increase utilisation of these tools and provide a forum for the sharing of knowledge and practitioner experience.

6.3.3. Policy option 3 – Minimal legislative option

This option consists of transposition and utilisation workshops plus the policy actions aiming at consolidating confiscation and compensation orders (which concern the return of confiscated assets as compensation to identifiable victims of crime) and at providing consolidated mutual recognition forms. These additional policy actions deal with identified deficiencies in the existing legal framework on mutual recognition.

In relation to the enforcement of confiscation orders, this option envisages mutual recognition of compensation orders (policy action 14). The legal framework could be simplified by consolidating FD 2006/783/JHA and 2005/214/JHA and extending their scope to include all compensation orders made in the context of criminal proceedings.

With regard to utilisation, this option would include the introduction of consolidated mutual recognition forms (policy action 19). A single form for all types of mutual recognition at the investigative stage could be provided within the European Investigation Order (and by suppressing the existing mutual legal assistance alternative). This option would also entail enforcing the primacy of mutual recognition (policy action 20). The EU legal framework could suppress the use of mutual legal assistance with respect to freezing and confiscation by repealing the existing mutual legal assistance conventions as regards requests between Member States.

6.3.4. Policy option 4.1 – Maximal legislative option without mutual recognition

This option would introduce many new aspects into the EU legal framework. It would consist of the transposition and utilisation workshops coupled with the policy actions aimed at further harmonising the confiscation, preservation and, to some extent, enhancing enforcement, i.e. all policy actions which do not involve legislative action in relation to mutual recognition.

In order to enhance confiscation powers, this option would foresee the possibility of confiscating all valuable benefits, including indirect proceeds (policy action 2). The EU legal framework could harmonise a (wide) definition of criminal ‘proceeds’ in order to ensure the recovery of ‘indirect’ proceeds resulting from the appreciation in value, or profitable reinvestment, of direct proceeds. Harmonisation could also ensure that any valuable benefit (including, for example, the value of liabilities avoided) is liable to confiscation.

As a way to address the foreclosure of confiscation activities when the criminal procedure is concluded, this option foresees separating confiscation proceedings from criminal proceedings (policy action 4). The EU legal framework could ensure that separate confiscation proceedings can be brought also at a later date when criminal proceedings are finalised.

This option would also include strengthen extended confiscation (policy action 5) by providing for extended confiscation at least where a court finds it substantially more probable that the assets of a person convicted of an offence covered by Article 83(1) TFEU are derived from other similar criminal activities.

With a view to addressing the identified barriers to prosecution, this option would include the introduction of non-conviction based confiscation in limited circumstances (policy action 6). The EU legal framework could make ordinary confiscation possible in circumstances where a conviction cannot be obtained because the suspect has died, fled prosecution or sentencing or is unable to stand trial due to permanent illness.

As criminals often transfer their assets to knowing third parties as soon as they are under investigation in order to avoid confiscation, this option would also include third party confiscation (policy action 7) in some cases. Laws could be harmonised by requiring third party confiscation to be available for assets received for less than market value and which a reasonable person in the position of the third party would suspect to be derived from crime

Policy actions 5, 6 and 7 have been conceived in a targeted way in order to comply with the principle of proportionality and take into account of the concerns expressed. Extended confiscation powers are already provided for in EU legislation (FD 2005/212/JHA). They already can be used only in case of serious crimes and have been applied in practice in a quite limited number of cases. Action 5 does not intend to enlarge the scope of extended confiscation. It merely intends to streamline the existing system of alternative criteria and options for Member States by providing a single minimum criterion for extended confiscation. The envisaged provision would not introduce a totally new obligation and would propose a minimum criterion (which is neither the lowest nor the most extreme) with which most Member States may be comfortable. If adopted, this provision would probably require only a few Member States to amend their legislation and bring it beyond their existing minimum.

In order to comply with the principle of proportionality, non-conviction based confiscation would not be introduced in all cases (full harmonisation), but would be allowed only in very limited circumstances where a criminal conviction cannot be obtained, eg because the suspect has died, fled the jurisdiction, or is unable to stand trial due to permanent illness. This provision has been also enshrined in the United Nation Convention against Corruption (Art. 54.1.c), which has been ratified by the Union and by 25 Member States.

Equally, under Action 7 third party confiscation is not foreseen in all cases, but only in limited circumstances (ie for assets which a reasonable person in the position of the third party would suspect to be derived from crime and which have beenreceived for less than market value). This action would not affect the position of a bona fide third party who has acquired an asset paying its market value. Moreover, third party confiscation would take place only after an assesment, based on specific facts, showing that confiscation of assets directly from the person who transferred them is unlikely to succeed, or in situations where unique objects must be restored to their rightful owner.

In relation to the freezing/ of criminal assets, this option foresees the introduction of standards of universal freezing (policy action 8). Harmonised minimum standards could ensure that it is possible to preserve any assets and would facilitate the mutual recognition of freezing orders. It would also foresee mechanisms to safeguard freezing (policy action 9), so that Member States would be required to have in place appropriate mechanisms to ensure that assets in danger of being hidden or transferred out of their jurisdiction can be frozen/seized immediately. This would include, in appropriate circumstances, the ability to freeze/seize prior to seeking a court order.

With regard to asset preservation, this option would grant powers to realise frozen assets (policy action 10). Harmonisation could ensure that, regardless of how frozen assets are managed, there are powers to realise them at least where they are liable to decline in value or uneconomical to maintain.

In the area of utilisation of powers, this option would introduce reporting obligations (policy action 16) for Member States, for example an obligation to report for all serious crimes covered by TFEU article 83(1), the assets frozen, the confiscation orders (if any) obtained and the type of order (eg ordinary, extended, non-conviction based confiscation). This would also help generate statistics which could be used for evaluation purposes.

Policy option 4.2 – Maximal legislative option including mutual recognition

This option consists of all the envisaged policy actions (but policy actions 19 and 20 partly overlap). Compared to option 4.1, this means that it also includes important provisions which foresee the mutual recognition of all types of orders (policy action 13). The EU legal framework could remove existing limitations on the mutual recognition of freezing and confiscation orders, allowing orders to better circulate around the Union. This would also make the legal framework more coherent. This option would also entail the mutual recognition of compensation orders (policy action 14). The legal framework could be simplified by consolidating FD 2006/783/JHA and 2005/214/JHA and extending their scope to include all compensation orders made in the context of criminal proceedings.

As under the minimal legislative policy option, this option would also provide for consolidated mutual recognition forms (policy action 19) and for measures enforcing the primacy of mutual recognition (policy action 20).

7. Analysis of the impacts of the policy options

The five policy options (including two suboptions under maximal legislative option) have been assessed against an overall estimate of their social, economic and environmental impacts. No environmental impacts were identified.

Given the scarcity of measurable indicators and the lack of a coherent comparative statistics system on confiscation and asset recovery across the EU, it is almost impossible to quantify with precision the potential impacts of the policy options (some including policy actions which are very different in nature). Qualitative assessment therefore complements the analysis when quantification is not possible.

The figure below shows the main social and economic impacts and highlights in bold those which can be analysed meaningfully. Impacts flowing from a reduction in crime cannot be analysed because there is insufficient evidence that asset confiscation will reduce crime.

Figure 5: Impacts which can be assessed meaningfully

7.1. Analysis of Option 1 - Status Quo

For the reasons indicated in Section 3.5, on the ‘do nothing’ option, slow progress can be predicted towards achieving each of the specific objectives (i.e. confiscation, preservation, enforcement, utilisation and distribution).

Economic impact: Is expected to be low, resulting from natural progression in assets recovered. The spread between criminally owned assets and assets recovered by governments is likely to increase.

Social impact: Is likely to be negligible, mostly resulting from an increased application of social reuse practices across Europe and possibly leading to a slight increase in criminal assets being recovered in favour of crime victims.

Impact on criminal behaviour: Without additional action at EU level, criminals are likely to continue investing their assets in other Member States, thereby increasing the need for a cross-border dimension of confiscation activities.

Overall assessment of Option 1: The analysis in Section 4.3 revealed significant gaps, mutual recognition instruments would remain underutilised and the amount of criminal assets confiscated throughout the EU would remain small compared to estimates of organised criminal turnover. Whilst the situation without EU intervention would not be static, the pace of change would be too slow. This option would therefore not achieve the objective of increasing the recovery of criminal assets in the Union. Member States support for this option is unlikely. The European Parliament is expected to be totally dissatisfied with this solution.

7.2. Analysis of Option 2 – Non-legislative option

Economic impact: Transposition workshops on the EU legislation in force would not be particularly expensive and could entail a slight positive impact on transposition (and ultimately on assets recovered) by speeding up the process for the Member States which have not yet fully transposed the relevant texts. The costs of utilisation workshop would depend on the scale on which they are organised and their usefulness would likely be proportional to their scale. Given the severe underutilisation of confiscation procedures (as evidenced in the Matrix Study, see footnote 10) utilisation workshops could potentially have a more significant impact upon utilisation and avoid that decisions may continue to be made based on the assumption that asset confiscation work is unprofitable. Their added value would be proportional to the creation of a suitable evidence base. Transposition workshops on adopted EU legislation are regularly organised in Brussels. A meeting organised at the Commission premises, using the Commission interpreters and covering the travel expenses of two government experts per Member State costs around € 30 000. Utilisation workshops organised at EU level by the Commission would entail similar costs. If organised at national level, utilisation workshops are likely to be less expensive (lower travel costs, no interpretation needed) than those organised at EU level.

Social impact: The direct impact would be negligible, as workshops would impact on State authorities. A complete and correct transposition of EU legislation on extended confiscation and mutual recognition in the Member States and utilisation of confiscation tools would indirectly result in more compensation to victims and increased confidence in the criminal justice system. An increase in the use of extended confiscation would correspond to an increased limitation of the fundamental rights (right to property, right to a fair trial, presumption of innocence) of the defendant. It should normally be balanced by adequate safeguards in national legislation (if Framework Decision 2005/212/JHA is correctly transposed).

Impact on criminal behaviour: To the extent that this option can be expected to generate increased utilisation of existing tools, any impact on criminal behaviour is expected to be quite limited. While it may cause occasional criminal capital flight, this option will likely oblige criminals to better hide their assets, for example by increasingly transferring them to a knowing third party before their conviction in a criminal court. It may therefore have a feeble negative impact on the illicit economy and on the economies of third countries[29].

Overall assessment of Option 2: Overall the added value of the non-legislative option is likely to be low. Although transposition remains incomplete, there is only slight scope for non-legislative action alone to add value in circumstances where the existing legal framework will become enforceable by 2014 in any event[30]. The organisation of EU transposition workshops could also affect practitioners' perception and facilitate enforcement. However, the most promising aspect of the non-legislative option is the utilisation workshops. This option would hardly achieve the objective of increasing the recovery of criminal assets in the Union. It would also draw heavy criticism from the European Parliament.

7.3. Analysis of Option 3 – Minimal legislative option

Economic impact: the impacts of transposition workshops (Actions 1 and 12) and utilisation workshops (Action 15) are described above. Improving mutual recognition instruments by consolidating confiscation and compensation orders (policy action 14), providing consolidated mutual recognition forms (policy action 19) and/or enhancing the primacy of mutual recognition (policy action 20) would clearly increase the number of cross-border enforcement procedures and, to some extent, the value of the assets recovered. However, it is hard to assess the economic added value of even a significant increase in the utilisation of mutual recognition instruments. An increased utilisation in mutual recognition instruments would shift administrative costs from central authorities (in charge of mutual legal assistance) to (local) judicial authorities. As mutual recognition is less convoluted than mutual legal assistance, the administrative cost of handling requests from other Member States should in principle decrease. The extent of this slight decrease in direct costs would depend on the relative efficiency of the different parts of Member State bureaucracies. The time savings resulting from a wider use of mutual recognition (as opposed to mutual legal assistance) would allow faster cross-border execution and increase the chances of successful recovery by limiting the risks for asset dissipation. The envisaged consolidation of mutual recognition forms may require some training for the practitioners to use the new single mutual recognition form. These costs would be likely offset by the benefits in the form of increased value of assets recovered (resulting from an increased number of cross-border enforcement procedures).

Social impact: A moderate increase in the number and value of assets recovered should logically correspond to a moderate increase in compensation to victims. Better enforcement of cross-border procedures would likely result in increased confidence in the national criminal justice systems and in the EU Area of Justice, Freedom and Security. In relation to fundamental rights, the increase in the cross-border enforcement of orders will concern ordinary confiscation. Because this is the procedure with the least impact on fundamental rights, a low impact on the right to property is expected.

Impact on criminal behaviour: Slight, as it results from an increased utilisation of existing tools and increased mutual recognition of orders issued in other countries. As under option 2, it would oblige criminals to better hide their assets (eg using third parties). A better enforcement of cross-border procedures may have some displacement effects, resulting in a net capital flight of criminal money out of the EU. It may therefore have a slight negative impact on the illicit economy and on the economies of third countries.

Overall assessment of Option 3: Overall the added value of the minimal legislative option is likely to be moderate. In addition to the (low) added value of option 2, the increased enforcement of freezing and confiscation orders in other Member States resulting from better mutual recognition instruments would likely produce limited economic and social impacts. However, policy actions 19 and 20, aimed at facilitating the mutual recognition of orders, would significantly enhance utilisation of mutual recognition instruments although action 19 has additional benefits over action 20. Moreover, an enhanced utilisation of mutual recognition over mutual legal assistance would substantially reduce the time necessary to enforce freezing and confiscation orders in other Member States. This option would barely achieve the objective of increasing the recovery of criminal assets in the Union. It would likely not be considered as an adequate response to the problem by the European Parliament.

7.4. Analysis of Option 4.1 - Maximal legislative option without mutual recognition

The maximal legislative option (in its sub-option without mutual recognition) builds upon the non-legislative option by introducing a number of new aspects into the existing EU legal framework, i.e. all policy actions which do not involve legislative action in relation to mutual recognition.

Economic impact: In addition to the impacts of transposition workshops (Actions 1 and 12) and utilisation workshops (Action 15) described above, it can be estimated that most of the actions in this policy option, considered in isolation, would have at least a moderately positive economic impact. For example, although policy action 10 on new powers to realise frozen assets would entail implementation costs (introduction of procedures to sell frozen assets), these would be largely or entirely offset by the benefits in the form of reduced ongoing costs for asset management and no decrease in the value of the assets. Policy Action 7 introducing confiscation from third parties would produce, even in its most limited form[31], at least a moderate increase in the confiscation powers and hence in the value of assets recovered. The application of policy action 6 introducing non-conviction based confiscation, even in limited circumstances has demonstrated that it may have a substantial impact on organised crime as illustrated in box 5 .

Box 5 – Operation "Nemesi": In Italy the application of non-conviction based confiscation provisions to a dead suspect's heirs has allowed in 2010 to freeze, in a single case, assets estimated at € 700 million at least. Dante Passarelli, a businessman suspected of being the "fiduciary person" of the head of the Camorra Casalesi clan, died in unexplained circumstances. He had been convicted of participation in a criminal organisation by a first instance criminal court, but an appeal was pending. The assets frozen (registered in his name or attributed to him by investigators) included 136 apartments, 11 warehouses, 75 land estates, 8 shops, 2 villas, 51 garages, company shares and bank accounts, for a total amount estimated between € 700 million and € 2 billion. In 2008 Italy passed legislation which could prevent the heirs from a deceased defendant, whose assets have been frozen or seized, from legally inheriting the assets and having them released. Mr Passarelli's wife and 6 children were not able to explain the licit origin of all these assets, nor the huge disproportion between their declared revenues and the frozen assets.

The reuse of confiscated assets for social purposes may also have economic benefits, allowing NGOs to start business activities using confiscated assets[32] which normally become profitable over time. On the other hand, separating criminal proceedings from confiscation proceedings (Action 4) would likely result in slightly increased direct costs (due to additional procedures). These costs can likely be offset by the expected increase in the assets recovered, resulting from being able to identify and pursue criminal assets for a longer time, even when criminal proceedings are over. Because of the severe lack of data in relation to amounts frozen, confiscated and recovered, and in relation to the costs of carrying out confiscation-related activities, it is not possible to provide a quantification of the overall cost of this option. Moreover, in many cases implementation costs may differ depending on the characteristics of the Member States, for example for social reuse programmes (Action 21) and in some cases costs would depend on how Member States would implement an action. For example, the separation of criminal and confiscation proceedings (Action 4) could be applied automatically in all cases or only in cases where this is considered necessary. The administrative burden related to the reporting obligations (Action 16) would also vary between Member States, depending on the extent to which they do or do not already collect some of the data required for reporting purposes.

In order to address the lack of data described earlier, the main economic analysis presented is an EU27 profitability estimate based on a model which uses proxy indicators to extrapolate from a detailed analysis of income and cost in the UK (details in Annexes 4 and 5). The UK is the only Member State for which income and costs for all elements of the asset confiscation system can be estimated. Its asset confiscation system is also a reasonable approximation of the maximal legislative sub-option under consideration. Although only indicative, the results of this exercise are encouraging: 21 of 27 Member States are indicated by the model to be profitable (many of them highly profitable) for the maximal legislative option in its sub-option without mutual recognition.

Table 3: Profitability of maximal legislative option without mutual recognition, EU27

Member State || Revenue (€m) || Cost (€m) || Profit (€m) || Profit ratio (profit/cost) || Categorisation

Czech Republic || 131.00 || 36.57 || 94.43 || 3.50 || Highly profitable

Lithuania || 188.08 || 131.08 || 57.00 || 2.63 || Highly profitable

Spain || 167.56 || 124.86 || 42.70 || 2.58 || Highly profitable

Latvia || 31.66 || 10.87 || 20.79 || 2.12 || Highly profitable

Poland || 19.21 || 4.27 || 14.94 || 1.91 || Highly profitable

Slovakia || 32.49 || 18.33 || 14.15 || 1.46 || Highly profitable

Slovenia || 105.42 || 91.92 || 13.49 || 1.37 || Highly profitable

Romania || 109.13 || 96.73 || 12.40 || 1.16 || Highly profitable

Estonia || 19.24 || 13.80 || 5.44 || 1.11 || Highly profitable

Bulgaria || 10.78 || 5.77 || 5.01 || 0.87 || moderately profitable

Hungary || 8.89 || 4.12 || 4.77 || 0.81 || moderately profitable

Netherlands || 12.88 || 8.32 || 4.56 || 0.77 || moderately profitable

Portugal || 8.02 || 4.43 || 3.59 || 0.55 || moderately profitable

Malta || 5.85 || 2.38 || 3.47 || 0.46 || moderately profitable

UK || 21.39 || 19.22 || 2.17 || 0.43 || moderately profitable

Cyprus || 2.74 || 0.75 || 1.99 || 0.42 || moderately profitable

Greece || 3.43 || 1.45 || 1.98 || 0.39 || moderately profitable

Italy || 2.37 || 0.76 || 1.61 || 0.34 || moderately profitable

France || 2.11 || 1.49 || 0.62 || 0.15 || moderately profitable

Germany || 1.00 || 0.48 || 0.53 || 0.13 || moderately profitable

Belgium || 0.26 || 0.18 || 0.08 || 0.11 || moderately profitable

Luxembourg || 1.48 || 1.51 || -0.03 || -0.02 || Not profitable

Sweden || 7.67 || 8.62 || -0.96 || -0.11 || Not profitable

Austria || 7.74 || 9.27 || -1.53 || -0.17 || Not profitable

Ireland || 7.66 || 9.89 || -2.23 || -0.23 || Not profitable

Finland || 1.99 || 4.33 || -2.35 || -0.54 || Not profitable

Denmark || 1.73 || 5.79 || -4.06 || -0.70 || Not profitable

The fact that asset confiscation work appears to be potentially profitable in most Member States pleads in favour of EU-level intervention For the minority of Member States for which asset confiscation may be unprofitable (mostly Nordic Member States where relatively low criminality and commensurately low investment in policing may results in less assets recovered) this does not detract from the case for EU-level intervention. In fact, even the maximal legislative options would oblige all Member States to transpose the new EU provisions into their legislation, but would not force reluctant Member States to incur the (higher) costs of increased utilisation of confisca