EUROPEAN COMMISSION Brussels, 25.5.2022 SWD(2022) 245 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council on asset recovery and confiscation {COM(2022) 245 final} - {SEC(2022) 245 final} - {SWD(2022) 246 final}



Table of contents 1. Introduction 1.1 Political context 1.2 Legal context and description of the asset recovery process 2. Problem definition 2.1 Problem overview 2.2. Specific problem 1: Competent authorities have limited capabilities to swiftly identify, trace and freeze assets 2.2.1 Driver: limited EU level provisions and in particular of the ARO Council Decision and insufficient human, financial and technical resources allocated to asset tracing 2.3 Specific problem 2: Inefficient management procedures discourage authorities from launching asset recovery procedures 2.3.1 Driver: generic requirements of the Confiscation Directive, lack of specialisation of authorities managing assets and insufficient use of the most effective management methods 2.4 Specific problem 3: Existing confiscation tools do not cover all high revenue-generating criminal markets and do not address criminals’ complex modi operandi 2.4.1 Driver: narrow scope of the Confiscation Directive 2.5 Cross-cutting driver: absence of a strategic approach and of commitment to asset recovery by all relevant actors. 3. Why should the EU act? 3.1 Legal basis 3.2 Subsidiarity 4. Objectives: What is to be achieved? 4.1 General objectives 4.2 Specific objectives

4.3 How do the objectives relate to the sustainable development goals? 5. What are the available policy options? 5.1 Baseline scenario: how will the problem evolve? 5.2 Description of the policy options 5.2.1 Option 1 5.2.2 Option 2 5.2.3 Option 3 5.2.4 Option 4 5. 3 Options discarded at an early stage 6. What are the impacts of the policy options? 6.1 Social impacts 6.2 Economic impacts 6.3 Environmental impact 6.4 Fundamental rights impacts 6.5 Sustainable development goals impacts 7. How do the options compare? 7.1 Effectiveness 7.1.1 Strengthen asset tracing capabilities 7.1.2 Ensure efficient asset management 7.1.3 Strengthen confiscation capabilities

7.1.4 Improve the overall efficiency of the asset recovery system 7.2 Efficiency 7.3 Coherence 7.4 Proportionality (including impacts) 8. Preferred option 8.1 Policy Option 3 8.2 REFIT (simplification and improved efficiency) 8.3 Application of the “one in, one out” approach 9. How will actual impacts be monitored and evaluated? Annex 1: Procedural information Annex 2: Stakeholder consultation (Synopsis report) Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Categories and scope of confiscation measures Annex 6: Confiscation and fundamental rights Annex 7: Evaluation of the existing policy and legislative framework 1. Introduction 1.1 Purpose and scope 1.2 Sources and methodology 2. What was the expected outcome of the intervention

2.1 Description of the intervention and its objectives 2.2 Points of comparison 3. How has the situation evolved over the evaluation period? 3.1 ARO Council Decision 3.2 Confiscation Directive 4. Evaluation findings 4.1 To what extent was the intervention successful and why? 4.2 How did the EU intervention make a difference? 4.3 Is the intervention still relevant? 5. What are the conclusions and lessons learned? ANNEX 8. Evaluation Matrix Glossary Term or acronym Meaning or definition AROs Asset Recovery Offices Asset Recovery Offices Platform The Asset Recovery Offices Platform is an informal group set up by the European Commission gathering EU AROs, the Commission and Europol to further enhance EU cooperation and coordinate exchanges of information and best practice. Camden Asset Recovery Inter-agency Network (CARIN) The Camden Asset Recovery Inter-Agency Network (CARIN) is an informal network funded by the European Commission of law enforcement and judicial practitioners in the field of asset tracing, freezing, seizure and confiscation. https://www.carin.network/ Confiscation Final deprivation of property ordered by a court in relation to a criminal offence. FATF Financial Action Task Force Financial investigations Investigative technique usually conducted by law enforcement authorities which entail the tracing and analysis of criminal money and other assets trails related to suspected crimes. FIU Financial Intelligence Unit Freezing Temporary prohibition of the transfer, destruction, conversion, disposal or movement of property or temporarily assuming custody or control of property. Instrumentalities Any property used or intended to be used to commit a criminal offence or criminal offences. MONEYVAL Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, a permanent monitoring body of the Council of Europe which assesses compliance with the FATF standards of its members (for the EU, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic and Slovenia). Proceeds Any economic advantage derived from a criminal offence; it may consist of any form of property and includes any subsequent reinvestment or transformation of direct proceeds and any valuable benefits. 1. Introduction 1.1 Political context As acknowledged in Europol’s 2021 Serious and Organised Crime Threat Assessment, organised crime is one of the greatest threats to the security of the European Union . The EncroChat, Sky ECC and AN0M cases have shown the extent of organised crime’s transnational reach, its complex modi operandi and unprecedented degree of economic infiltration. With EUR 139 billion of annual profits at their disposal, criminals groups are able to take over vulnerable businesses to expand and cover up illegal activities . Criminal infiltration, alongside organised crime’s widespread use of corruption, is a threat to the Rule of Law and to the integrity of the economy. Moreover, the presence of organised crime in society threatens the Sustainable Development goals of (16), peace, justice, and strong institutions and, through its infiltration into the legal economy, (8) decent work and economic growth. In view of the economic recovery from the Covid-19 crisis, it is more important than ever to tackle the profit-based motivation behind organised crime, taking away money from the hands of criminals. Following the announcement of the EU Security Union Strategy of July 2020 , the need to eliminate the profits generated by organised crime was further stressed in the EU Strategy to tackle Organised Crime (2021-2025) of April 2021 . The latter announced a revision of Directive 2014/42/EU (hereafter the “Confiscation Directive”) and of Council Decision 2007/845/JHA (hereafter the “ARO Council Decision”). This revision is in line with the expectations from the co-legislators. In June 2020 the Council called on the Commission to consider strengthening the legal framework on the management of property frozen and granting Asset Recovery Offices with additional powers, for instance to urgently freeze assets, and with access to a set of public registers . The European Parliament has recently called for enhanced asset recovery rules . These calls complement the previous request by both co-legislators to analyse the feasibility of introducing further common rules on the confiscation of property deriving from criminal activities, also in the absence of a conviction . These calls are in line with increased international efforts to improve asset tracing and confiscation capabilities globally. The United Nations Conventions on Organized Crime (UNTOC) and against Corruption (UNCAC) , as well as the recommendations of the Financial Action Task Force (FATF) whereby countries are to adopt measures to enable their competent authorities to freeze and confiscate proceeds and instrumentalities of crime. As recently as June 2021, the FATF adopted a report for government authorities that analyses the key obstacles to asset recovery and how to overcome them. At the summit in Rome on October 2021, the G-20 endorsed the adoption of “measures to prevent corrupt actors and organized criminal groups from enjoying the proceeds of their crimes” .

1.2 Legal context and description of the asset recovery process Asset recovery is a powerful tool of the criminal justice system and the anti-money laundering regime, since it enables Member States to identify, temporarily freeze and ultimately confiscate and redistribute profits originating from criminal activities. By depriving organised crime groups of their illicitly obtained profits, asset recovery is key to limit their capacity to operate, to compensate victims and to restore the damage inflicted by returning profits to affected communities. As criminals take advantage of the integrated nature of the EU’s financial system to launder their proceeds, the recovery of criminal assets requires strong cross-border cooperation and adequate confication tools in all Member States. The EU legislative framework on asset recovery is composed of three main instruments. The ARO Council Decision requires Member States to set up Asset Recovery Offices to facilitate the tracing of proceeds of crime, and establishes minimum requirements to facilitate their cooperation across borders. The Confiscation Directive, partially replacing instruments dating back to the late 90s and 2000s , sets minimum rules for the freezing, management and confiscation of criminal assets. The most recent legal instrument in force is Regulation (EU) 2018/1805 , which facilitates the mutual recognition of freezing and confiscation orders across the EU. Where they fall within the legal framework of the Union, freezing and confiscation powers must be exercised in full compliance with the fundamental rights enshrined in the Charter of Fundamental Rights. The Confiscation Directive provides for a number of safeguards in this respect, as clarified by a growing body of jurisprudence by the Court of Justice of the European Union, such as the right to an effective remedy before a court. Asset recovery is a process composed of five phases: Figure 1: Asset recovery phases

2. Problem definition 2.1 Problem overview Organised crime has never posed such a high threat to the EU and its citizens. 70% of criminal groups operating in the EU are active in more than three Member States and 65% of them are composed of members of multiple nationalities . Transport routes of drugs, firearms or counterfeit products span across all continents through a global supply chain. Criminal groups engaged in property crime, migrant smuggling or trafficking in human beings carry out their crimes across multiple jurisdictions. VAT fraudsters set up complex schemes across several Member States in order to deceive revenue authorities. Moreover, criminals carry out crimes online from anywhere on the globe, from the illegal distribution of child sexual abuse material to online fraud and cyberattacks. While criminal groups have become increasingly sophisticated in their use of technologies such as encryption, their structures and modus operandi have also become more complex, hindering the capacity of law enforcement to tackle them. Organised crime groups cooperate with each other through ad hoc-partnerships and with providers of criminal services. At the same time, they are organised in hierarchical or complex structures where the managerial levels distance themselves from the “foot soldiers” executing the crimes on the ground while reaping most of the economic benefits. Therefore, “those at the upper echelons of the criminal enterprise remain insulated against criminal liability, with their property beyond the reach of law enforcement” . Moreover, criminals use increasingly elaborated methods to conceal their immense profits. Organised crime is profit-driven, generating at least EUR 139 billion per year, or 1% of the EU’s GDP, with the largest revenues deriving from fraud and illicit drugs . The magnitude of criminal revenues is however likely to be significantly larger, given the intrinsically opaque nature of criminal activities and of the fact that criminals are involved in a wider range of markets than those analysed in existing studies. Table 1 Summary of revenue estimates in the main markets (EUR million, 2019) Criminal markets Illicit drugs Trafficking in human beings Migrant smuggling Fraud Environmental crime Illicit firearms Illicit tobacco Card payment fraud Property crimes Annual revenue 30,688.4 7,185.9 289.4 77,425.0 9,524.67 408.1 8,309.2 1,816.4 3,369.9



Criminals do not only hide illicit assets in the name of relatives or associates, but employ a complex web of bank accounts and front companies across jurisdictions to disguise the audit trail, mixing illicit assets with legitimate property and hiding the source and ownership of funds. They do so by employing professional money launderers who have established a parallel underground financial system to ensure assets cannot be traced . Against these challenges, and as highlighted in the Evaluation of the ARO Council Decision and of the Confiscation Directive (hereafter “the Evaluation,” see Annex 7), the EU asset recovery system is not well equipped to effectively address the complex modus operandi criminal organisations and to deprive them of their profits. Even though the EU has developed a legal framework promoting the establishment of asset recovery regimes and cross-border cooperation for the recovery of criminal assets, only around 2% of criminal assets are frozen and 1% confiscated . Against this, several Member States have gone beyond the minimum standards provided in the EU rules, creating an uneven level of fight against criminal finances across the Union . The ineffectiveness of the EU asset recovery system comes from three specific problems: (1) Competent authorities have limited capabilities to swiftly identify, trace and freeze assets; (2) Inefficient management procedures discourage authorities from launching asset recovery procedures and (3) Existing confiscation tools do not cover all high revenue-generating criminal markets and do not address criminals’ complex modi operandi. Figure 2: problem tree

2.2. Specific problem 1: Competent authorities have limited capabilities to swiftly identify, trace and freeze assets The existing tracing and freezing framework stems from the ARO Council Decision and the Confiscation Directive, which respectively regulate, inter alia, Asset Recovery Offices and the freezing of property which might become the object of a confiscation order. The ARO Council Decision requires Member States to set up or designate at least one Asset Recovery Office for the purposes of the facilitation of the tracing and identification of proceeds of crime which may become the object of a freezing or confiscation order. Whilst Asset Recovery Offices may facilitate the tracing and identification of proceeds of any crime, the Confiscation Directive limits the scope of freezing orders only to the crimes listed in Article 3, and does not include an obligation to trace and identify property which might be subject to freezing and confiscation orders. The first step in the asset recovery process is the identification and tracing of suspected property which might become the object of a confiscation order. Without early identification of criminal property, it is not possible to subsequently freeze, confiscate and ultimately manage assets in an effective manner. Speed in tracing assets is essential, since criminals can rapidly move funds to avoid detection through the international and EU financial system. For example, one Member State, referring to the 140 requests sent to other Member States for the tracing of illegal proceeds in order to freeze them, indicated that “in almost all cases, the property (e.g. money in bank accounts) was already withdrawn or transferred elsewhere” . The key actors in this phase are law enforcement authorities and Asset Recovery Offices, established in accordance to the minimum obligations of the ARO Council Decision, which tasks them with the facilitation of cross-border tracing and identification of proceeds of crime which may become the object of a freezing or confiscation order. In the course of their investigation, law enforcement authorities may launch parallel financial investigations to trace the suspects’ assets, from bank accounts to vehicles, high-value goods, real estate or companies. To do so, they are empowered to check databases available to police, apply investigative techniques such as observation or undercover operations, or require financial information from private parties. Despite the acknowledgement by Member States of the need for using financial investigations when dealing with organised crime from the very start of a criminal investigation , many jurisdictions do not undertake pro-active parallel financial investigations in a routine and expedite manner: in the EU, only eleven Member States automatically launch parallel financial investigations for all forms of crime. Other eight Member States limit this automatism to certain crimes, while in other eight the decision to launch them is left to the discretion of the investigators or to the judicial authorities overseeing the investigation . According to 72% of respondents to the public consultation, which gathered responses from EU citizens, academics, business associations, non-governmental organisations and public authorities, the fact that financial investigations are not systematically launched is one of the main components explaining the low rate of identified assets, a view shared by Asset Recovery Offices . Even when law enforcement authorities launch such investigations, investigators do not always pay sufficient attention to the economic dimension of crimes. Practitioners have underlined that competent authorities often concentrate on the collection of evidence on the criminal act rather than on their assets . This does not only create risks of criminals laundering their proceeds in those Member States where there is a lower risk of detection. It also results in missed opportunities for cross-border cooperation, since a timely financial investigation is likely to uncover assets in other jurisdictions. As regards the role of Asset Recovery Offices, the Evaluation shows that their creation has increased the effectiveness in the cross-border identification of criminal assets. However, their capacity to identify and trace assets is still suboptimal. Whilst all EU Member States have established at least one Asset Recovery Office, with 19 Member States have designated one (AT, BE, HR, CY, CZ, DK, EE, FI, EL, HU, IE, IT, LV, LU, MT, PL, PT, RO, SK, Slovenia having designated just a contact point) and seven other Member States designated two (BG, FR, DE, LT, NL, ES, SE), the Offices’ legal framework, which only requires Asset Recovery Offices to be a mechanism to ‘facilitate’ the tracing of criminal assets (Article 1) and promote close cooperation between the authorities involved in the tracing of illicit proceeds and the “direct communication between those authorities” (recital 3), leaves a considerable degree of discretion to Member States regarding their number, legal nature, and powers. Firstly, Asset Recovery Offices do not have all the necessary powers to efficiently facilitate asset recovery across borders. 27% of offices do not have autonomous tracing powers, and thus have to request and rely on the responsiveness of other competent authorities to trace criminal assets in order to answer to cross-border requests. The lack of tracing powers is more acute when a judge orders confiscation but no sufficient assets have been identified beforehand or they have lost value: 68% of Asset Recovery Offices are not legally empowered to trace assets in the post-trial phase and thus not able to respond themselves to post-trial tracing requests from other offices . This partly explains the fact that Asset Recovery Offices are not able to always meet the current deadlines for cross-border information exchange (eight hours for urgent requests and one week for non-urgent ones), especially since the number of requests has increased almost five-fold since 2013 . Less than half of offices considered that the deadlines are met, indicating that in almost half of the cases responses take up to two weeks non-urgent situations and 12 hours or more in urgent ones. Additional problems raised by Asset Recovery Offices are the provision of incomplete responses as well as the insufficient relevance of some of the requests for information. Moreover, the majority of offices usually provide information to other Asset Recovery Offices without granting its use for evidence purposes. Thus, the requesting authorities need to re-send a request via judicial channels in order to obtain a freezing order, leading to delays and therefore increasing the risks of assets dissipating before they can be frozen. In addition, eight Asset Recovery Offices are still not directly connected to the Europol’s Secure Information Exchange Network Application (SIENA) network , which should allow them not only to quickly communicate with each other, but also to benefit from Europol’s analysis and operational support and cross-checking of data with other intelligence and investigations. Moreover, only one fourth of the Asset Recovery Offices have powers to freeze assets themselves in urgent cross-border cases. In such situations, assets can dissipate before the freezing order is prepared by the requesting Member State, recognised and executed. Urgent freezing powers are particularly important in relation to moveable assets such as funds held in bank accounts or cryptocurrencies, since criminals (or their associates) can quickly transfer those assets the moment the suspect is arrested or aware of being under investigation. In the absence of such powers, many Asset Recovery Offices resort to other authorities to ensure assets are quickly frozen (e.g. the Financial Intelligence Units, which can temporarily suspend or withhold consent to transactions). However not all Offices have such legal possibility. Finally, in many Member States Asset Recovery Offices do not only facilitate cross-border cooperation but have become a central actor in the national asset recovery system, supporting national investigations in the tracing of criminal assets, providing training on asset recovery to law enforcement authorities, judges and prosecutors, or collecting statistics. However, not all Member States have incorporated these good practices into their national frameworks. One fourth of Asset Recovery Offices do not act as asset recovery focal points, 40% of them do not have training capacity and 60% do not collect statistics. Therefore, the role of Asset Recovery Offices in national settings is uneven across Member States, with some of them providing a clear added value to national asset recovery efforts and others being merely a letter box for cross-border requests. This affects the effectiveness of the respective asset recovery systems, as Member States with weaker asset recovery provisions will be less capable to address the cross-border problem of criminal finances. Figure 3: The competencies of Asset Recovery Offices Overall, the insufficient number and prioritisation of financial investigations, the challenges to the exchange of information among Asset Recovery Offices and insufficient powers, both in a cross-border and national context, lead to a limited capacity of Member States to identify and trace assets. This is reflected in the low percentage of criminal assets frozen, barely 2% of the estimated criminal revenues. Such limited capabilities hamper cross border cooperation and make it more difficult to confiscate assets linked to transnational crime. The identified tracing and freezing problem has both national and cross-border connotations, since all cross-border cases require action to be taken on the national territory of Member States, which might then have cross-border implications. For example, information exchange and cooperation between Member States is directly affected by Asset Recovery Offices not responding sufficiently swiftly to requests from Offices in other Member States, which in turn is linked to their limited competences in tracing assets, limited resources and their limited access to the relevant databases. Similarly, the absence of parallel financial investigations directly affects the capabilities within each Member State to identify as early as possible in the process potentially illicit asset, having however negative spill over effects for cross border cooperation since it means that assets that may be present or have been moved to other Member States are not detected. Finally, the inability of Asset Recovery Offices to ensure that identified assets are temporarily frozen pending a formal freezing orders at national level has cross-border effects, as Asset Recovery Offices respond to cross-border requests for the purposes of tracing and identifying crimes of a cross-border nature. 2.2.1 Driver: limited EU level provisions and in particular of the ARO Council Decision and insufficient human, financial and technical resources allocated to asset tracing The lack of systematic launching of financial investigations is due to legal and practical reasons. Not being regulated at EU level, the rules for carrying out financial investigations vary among Member States. In eight Member States, the legislation does not set any requirements for the automatic launching of financial investigations, leaving it to the discretion of competent authorities. In eight Member States, legal frameworks make the launching financial investigations subject to different conditions, such as the types of crime or the amount of profits generated . Moreover, the reluctance of some competent authorities to carry out or prioritise financial investigations is also due to their lack of resources and expertise. Around half of the authorities competent for carrying out financial investigations do not have sufficient human resources to cope with their current tasks and responsibilities , in particular the specialised staff required to carry out complex financial enquiries. As regards the obstacles hampering cooperation among Asset Recovery Offices at EU level, the main reasons are the limited requirements of the ARO Council Decision, which have led to a disparity in national approaches. Moreover, Asset Recovery Offices do not have sufficient human, financial and technical resources: against a rising number of requests for cooperation and a workload that has increased between 15% and 50% for half of the offices, and between 50 and 100% for the other half, human resources have not risen to match the increased demands and remain limited. There are also significant differences between Member States: on an average of 19 employees per office, the staff ranges from one employee in one of the Member States, to 91 in another Member State (despite the latter being only double the population) . This affects notably the capacity of Asset Recovery Offices to cooperate with each other. Furthermore, as underlined in the Evaluation, the current legal framework is limited since it does not specify their role (besides “facilitating” asset recovery) and simply establishes a general requirement to cooperate and exchange information. The ARO Council Decision does not explicitly require Asset Recovery Offices to be vested with powers to carry out asset tracing investigations to answer to requests from other Asset Recovery Offices, or to provide information to other Asset Recovery Offices for evidentiary purposes. There are no information exchange rules as regards the channels to be used (i.e. SIENA), the types of crimes for which requests can be made, the type of information that should be provided and, most importantly, the sources of information that should be consulted to respond to asset tracing requests. This leads to the incompleteness and irrelevance of some of the responses. There are also no rules regarding the capacity of Asset Recovery Offices to take expeditious action to ensure freezing in urgent cases. While according to the Confiscation Directive Member States need to provide for the possibility of urgent freezing of assets where necessary to preserve the property (see Article 7(1)), it is not specified whether Asset Recovery Offices could take action to ensure urgent freezing in cross-border cases.

Only 15% of Asset Recovery Offices have access to all databases; and only one third can check police databases or tax/income registers. These limitations are mainly of legal nature, since national legislation does not foresee access to the offices for certain databases. The most relevant databases for asset tracing, real estate registers and company registers, can only be accessed by 64% and 45% of the Asset Recovery Offices respectively . 66% of respondents to the public consultation considered that the limited access to databases by Asset Recovery Offices hampers the identification of criminal assets to a high or very high extent. Figure 4: Asset Recovery Offices’ access to databases Against the general obligations of the ARO Council Decision, Member States have applied different interpretations and provided Asset Recovery Offices with different roles, powers and information sources. This largely affects cross-border situations, but also applies to the role of Asset Recovery Offices in the national asset tracing activities, where the absence of rules at EU level have led to a considerable discrepancy of Member States approaches as to the capacity of the offices to provide training or to support investigators in identifying assets. 2.3 Specific problem 2: Inefficient management procedures discourage authorities from launching asset recovery procedures Once property is frozen, it should be adequately managed in order to preserve its value until a judge decides to confiscate it or to return it to the defendant in case of acquittal. Once confiscated, assets also have to be well managed before they are returned to the state budget or used for compensating victims or for social reuse. Given the length of criminal proceedings, which in complex criminal cases usually take at least five years , assets can easily depreciate over time or deteriorate if not adequately managed. While assets such as real estate or artworks are less likely to lose value, moveable assets such as vehicles, which represent a very large part of frozen assets, are more likely to depreciate. Similarly, volatile financial instruments such as cryptocurrencies also require specialised management to ensure they do not lose value over time, an issue often raised at the Asset Recovery Offices Platform meetings. Particularly challenging is the management of confiscated companies controlled by organised crime, which have to be run by the authorities in a way that they continue generating profits and the jobs are preserved. Inadequate management discourages asset recovery as a whole. When the cost to manage assets is higher than the value of the assets that will ultimately be recovered, the authorities that are charged with taking the decision of freezing or confiscating assets are less inclined, or even reluctant, to take such decisions. According to a study prepared for the United Nations, “the financial burden on the State of the cost of preserving assets […] has the potential to bankrupt a nascent asset recovery programme” . The perception of this issue was shared by the respondents to the public consultation, 58% of which indicated that the inadequate management of criminal assets negatively affects asset recovery to a high or a very high extent. The inefficient management of assets also leads to fewer returns in the disposal phase, with fewer or no criminal assets reverted to victims, communities or Member States. Inefficient asset management further undermines the capacity of Member States to cooperate with each other, reducing cross-border incentives to freeze assets on behalf of other Member States. Given that criminals often hold assets in other jurisdictions, cross-border cooperation is of essence for their effective management. However, given the high management costs, a Member State with inefficient management methods will be reluctant to manage freeze assets upon request of another Member State. The inefficiencies in management in one Member State become thus a disincentive for the forwarding of confiscation orders. The problem is of particular relevance in those Member States who have not established at least one Asset Management Office with specialized competences for the management of property (AT, CY, DK, EE, FI, DE, EL, HU, LV, LT, LU, PL, SK, SI, and SE). Furthermore, asset management offices have reported challenges in the identification of their counterparts in other Member States to coordinate the sale of assets, which can last up to three or four months in some occasions . The delays in identifying cross-border counterparts increase the time assets are to be held for management, increasing in turn management and storage costs. 2.3.1 Driver: generic requirements of the Confiscation Directive, lack of specialisation of authorities managing assets and insufficient use of the most effective management methods The inefficient management of assets is driven by the absence of clear requirements and guidance on effective and efficient management methods, and by the fact that managing authorities lack adequate specialisation, capacities and expertise, particularly on the application of the most effective management methods. The current legal framework requires Member States to take measures to ensure the “adequate management” of property frozen with a view to possible subsequent confiscation, including the possibility to sell or transfer property where necessary . However, this provision does not provide a definition on what adequate management entails, and does not set obligations to achieve concrete effective management objectives. Similarly, Regulation (EU) 2018/1805 on mutual recognition of freezing and confiscation orders, while encouraging Member States to consider establishing an office responsible for the management of frozen property, relies on national laws for the management of property frozen in cross-border situations. Member States have therefore entrusted different and sometimes multiple bodies with management tasks and have developed different sets of asset management measures. In most cases, Member States have attributed asset management responsibilities to a wide range of authorities such as prosecution services, courts, bailiffs, law enforcement authorities, tax and custom authorities or local administrations . These structures do not always have the necessary expertise, human, financial and technical resources and competences to ensure the efficient management of assets, which often means that they do not have enough resources to efficiently manage the property they have been mandated to. As the Confiscation Directive does not oblige Member States to adopt a management set-up over another, only 13 Member States (BE, BG, CZ, IE, EL, ES, FR, HR, IT, LU, NL, PT, RO) have attributed management tasks to entities specialised in handling criminal assets, i.e. Asset Management Offices (AMOs) , in some cases along with other actors depending on the type of asset or confiscation procedure. Whilst this flexibility has allowed Member States to develop systems tailored to national realities, some management systems achieve very different degrees of effectiveness and efficiency. This perception is shared by the respondents to the public consultation, 76% of which considered the lack of harmonised rules on the management of frozen and confiscated assets a significant obstacle impacting to a high or very high extent effective management. Figure 5: System used to register frozen and/or confiscated assets Moreover, mechanisms of proven effectiveness for managing assets such as pre-seizure planning or interlocutory sales are not sufficiently used. Pre-seizure planning is a widely recognised tool to effectively manage assets, as it entails an assessment of what property is most suitable for confiscation, and of how and when it could be frozen or confiscated. Through pre-seizure planning, authorities taking control of assets limit the risks that these might be managed at a loss, since assets could easily depreciate or even become a financial liability due to their high maintenance costs. Despite the fact that the Camden Asset Recovery Inter-Agency Network (CARIN) encourages jurisdictions to implement the principle of pre-seizure planning , investigative and prosecution authorities in most Member States do not assess whether the management of seized assets is feasible and cost-effective before seizing them . Without such planning, considerable resources are wasted on preserving assets that have little or limited value, leading to ineffective management of confiscated assets and overall discouragement of the use of asset recovery. While the Confiscation Directive also requires Member States to allow for the selling or transfer of frozen property prior to confiscation, there are no provisions requiring Member States to use them nor a clear definition of interlocutory sales and the conditions under which it should be used, for example in cases when the asset is perishable or rapidly depreciating, or when the storage or maintenance costs are disproportionate to the asset’s value. Consequently, while interlocutory sales are available in all but two Member States, this mechanism is not applied as a rule across the EU, despite the promising results achieved where it is used. For example, the Netherlands was able to reduce the cost of management of movable assets from € 23 million to € 9 million through a strategy of selling off assets when costs exceed the value of the property . Moreover, cooperation concerning management of frozen assets is hampered by Member States that do not use interlocutory sale or do not have sufficient experience with it, since it discourages Member States to recover assets on behalf of (and for the benefit of) another Member State, given the high costs the former would incur. In conclusion, the generic requirements of the Confiscation Directive lead to a patchwork of management structures in the Member States, which in turn lead to various degrees of effectiveness and efficiency of management techniques, which negatively affect the asset recovery system both overall and in cross-border cases through discouraging the use of asset recovery and cross-border requests.

2.4 Specific problem 3: Existing confiscation tools do not cover all high revenue-generating criminal markets and do not address criminals’ complex modi operandi When ordering a conviction, judges may take a decision to confiscate the assets of the offender, which are the direct proceed or the instrumentality of the specific offence for which the person is convicted (standard confiscation). However, criminals often convert those proceeds into other property, and mix it with property acquired from legitimate sources, or put it under the name of relatives or their associates. To address this, judicial authorities can resort to mechanisms such as value-based confiscation, which allows for the confiscation of any other property of the offender that is equivalent in value to the proceeds or instrumentalities of the offence, or third-party confiscation, to recover the assets transferred by the offender to another person. However, these instruments only allow for the confiscation of assets linked to the concrete offence for which the person is convicted, while usually individuals involved in organised crime have perpetrated other criminal activities over a longer period. For example, a court might be able to convict a drug trafficker for one specific cargo, but not for the trafficking activities over preceding years from which they also profited. In these cases, the court can confiscate other property beyond the direct proceeds of the crime in question, if the court concludes that property is derived from criminal conduct (extended confiscation). Moreover, confiscation can be ordered in the absence of a conviction (non-conviction based confiscation or NCBC). This can happen in situations where a conviction is impossible due to objective impediments, such as the accused being gravely ill or absconding. Categories of confiscation measures in the Confiscation Directive Standard confiscation Standard confiscation refers to a judicial order concerning property related to a specific crime for which the owner has been convicted. The targeted assets are the direct proceed or the instrumentality of a crime, following a criminal conviction for that crime. Value confiscation Value confiscation refers to a confiscation measure targeting property of equivalent value to the proceeds or instrumentality of a crime. It is employed most often in cases where criminals convert proceeds of crime into other property to hide its illicit origin and disguise the audit trail. Third-party confiscation Third-party confiscation refers to a confiscation measure made to deprive someone other than the offender – the third party – of criminal property, where that third party is in possession of property transferred to him or her by the offender. It is employed most often when criminals transfer property to a knowing third party in order to maintain its enjoyment without being the legal owner, thus attempting to avoid the confiscation of such property in case of conviction. Extended confiscation Extended confiscation concerns confiscation orders which go beyond the direct proceeds of a crime. The order follows a criminal conviction, targeting property “beyond the direct proceeds of the crime for which the offender was convicted, where the property seized is derived from criminal conduct.” A direct link between the property and the offence, such as in the case of standard confiscation measures, is not necessary if the court assesses that the offender’s property was nevertheless derived from other unlawful conduct. Non-conviction based confiscation (NCBC) Non-conviction based confiscation refers to a confiscation measure taken in the absence of a conviction against assets of illicit origin. In the case of Directive 2014/42/EU, it covers cases where a criminal conviction is not possible because the suspect has become ill or fled the jurisdiction, but the court is nevertheless convinced in a criminal procedure that the assets are of criminal origin, and a conviction would have been reached had it not been for the illness of absconding of the defendant.

Despite the wide range of mechanisms available to judicial authorities, only one third of assets traced and frozen are ultimately taken away from the hands of criminals. In 2019 authorities froze EUR 3 billion of estimated criminal assets, but only about EUR 1 billion were confiscated in that same year . Moreover, the most employed confiscation mechanism is standard confiscation, which – despite only allowing for the confiscation of the proceeds directly resulting from the offence for which the defendant is on trial, and therefore failing to capture proceeds of previous crimes which are inherent in the context of organised crime – represents more than half of confiscation orders in the large majority of Member States . This is remarkable considering that assets confiscated through extended confiscation – a tool adapted to organised crime groups usually operating over long time periods – only represent less than 30% of total confiscated assets, while non-conviction based confiscation is, with the exception of a few Member States, less than 15% . A low use of confiscation methods such as extended and the limited scope of non-conviction based confiscation is an issue because standard confiscation fails to tackle the complex methods that criminal groups, and in particular its managerial layers, employ to cover their tracks and hide their assets. Criminals at the top of organised crime groups are often insulated from criminal liability, as they benefit from profits generated by crimes they themselves do not commit but that are carried out by others under their command, or when different organised crime groups provide services for one another without directly engaging with the predicate offence. Since existing forms of confiscation target only the proceeds of criminals for which there is enough evidence to obtain a conviction, the current confiscation frameworks fails to tackle illicit assets of criminals able to avoid criminal investigation and prosecution. The fact that standard confiscation targets only the direct proceeds or instrumentalities of the specific offence for which the person is convicted, and extended confiscation – while allowing for the confiscation of other assets than those resulting from a specific crime – is still subject to a prior conviction leads to a situation where illicit assets of criminals able to avoid criminal investigation and prosecution will escape confiscation. Accordingly, the existing approaches are not able to “target the property of persons at the very top of the chain against whom enforcement authorities may struggle to gather sufficient evidence to bring a criminal prosecution” , thus failing to address a significant portion of criminal profits in the hands of the managerial levels of organised crime. Furthermore, one of the main issues affecting confiscation in organised crime cases is proving the scope of assets that stem from criminal operations that went on for years. It is unlikely for such an operation to maintain organised records or bookkeeping exposing the full sum of assets amassed over the years and that evidence can be provided for each and every individual criminal act. Hence, the confiscation mechanisms available to the majority of Member States are not fit to effectively disrupt criminal activities, and even less so tackle the complex nature of organised crime, as they are not suited to deprive criminals who have successfully managed to hide the necessary evidence that would link them to the offence from their profits. 2.4.1 Driver: narrow scope of the Confiscation Directive The limited capacity of Member States’ confiscation mechanisms derives from the narrow scope of the existing legal tools (both in terms of offences covered and types of confiscation available) and from a lack of sufficient awareness and willingness of judicial authorities to use others beyond standard confiscation. Limited scope in terms of offences covered The scope of existing confiscation measures varies greatly in terms of the number of minimum offences that EU legislation requires them to cover. Standard confiscation is the most widely used confiscation tool because, since it stems from a legal instrument preceding the Confiscation Directive – Framework Decision 2005/212/JHA – it is applicable to all crimes having a penalty of over one year. The majority of Member States thus follow an ‘all crimes’ approach, allowing for the imposition of standard conviction-based confiscation to a larger number of crime areas than the confiscation tools foreseen under the Confiscation Directive. The same scope is however not matched in confiscation tools covered by the Confiscation Directive, particularly value based, third party confiscation and NCBC, which are better placed to address modern organised crime, where flexible yet hierarchical groups distance themselves from proceeds directly stemming from crimes. These post-Lisbon confiscation mechanisms have nonetheless a narrower scope than standard confiscation as foreseen by the 2005 Framework Decision, with the Confiscation Directive based on Article 83 (1) applying to specific criminal offences related to some, but not all, of the so-called ‘eurocrimes’ . The minimum scope of extended confiscation is even further limited to a smaller set of offences: corruption, the participation in a criminal organisation, child-pornography, and IT crimes. For other crimes in scope of the Confiscation Directive but not explicitly listed in the relevant article on extended confiscation, extended confiscation is only applicable in relation to offences punishable by a custodial sentence of at least four years . Table 2: crimes covered in the scope of Directive 2014/42/EU Provisions of Directive 2014/42/EU Instruments Covered Criminal Offences covered Article 3 Directive 2014/42/EU Convention drawn up on the basis of Article K.3(2)(c) of the Treaty on European Union on the fight against

corruption involving officials of the European Communities or officials of the Member States of the European Union (1) (‘Convention on the fight against corruption involving officials’) Corruption Council Framework Decision 2000/383/JHA of 29 May 2000 on increasing protection by criminal penalties and other sanctions against counterfeiting in connection with the introduction of the euro Counterfeiting Council Framework Decision 2001/413/JHA of 28 May 2001 on combating fraud and counterfeiting on non-cash means of payment Fraud

Counterfeiting Council Framework Decision 2001/500/JHA of 26 June 2001 on money laundering, the identification, tracing,

freezing, seizing and confiscation of instrumentalities and the proceeds of crime Money Laundering Council Framework Decision 2002/475/JHA of 13 June 2002 on combating terrorism Terrorism Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector Corruption Council Framework Decision 2004/757/JHA of 25 October 2004 laying down minimum provisions on the

constituent elements of criminal acts and penalties in the field of illicit drug trafficking Illicit drug trafficking Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime Participation in a criminal organisation Directive 2011/36/EU of the European Parliament and of the Council of 5 April 2011 on preventing and combating trafficking in human beings and protecting its victims, and replacing Council Framework Decision 2002/629/JHA (6 Trafficking in human beings Directive 2011/93/EU of the European Parliament and of the Council of 13 December 2011 on combating the sexual abuse and sexual exploitation of children and child pornography, and replacing Council Framework Decision 2004/68/JHA Sexual abuse and exploitation of children Directive 2013/40/EU of the European Parliament and of the Council of 12 August 2013 on attacks against

information systems and replacing Council Framework Decision 2005/222/JHA Cyberattacks Article 5 Directive 2014/42/EU (extended confiscation) Council Framework Decision 2003/568/JHA of 22 July 2003 on combating corruption in the private sector Active and Passive Corruption in the private sector Convention drawn up on the basis of Article K.3(2)(c) of the Treaty on European Union on the fight against

corruption involving officials of the European Communities or officials of the Member States of the European Union Corruption involving officials Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime Participation in a criminal organisation Directive 2011/93/EU of the European Parliament and of the Council of 13 December 2011 on combating the sexual abuse and sexual exploitation of children and child pornography, and replacing Council Framework Decision 2004/68/JHA Sexual abuse and exploitation of children Directive 2013/40/EU of the European Parliament and of the Council of 12 August 2013 on attacks against

information systems and replacing Council Framework Decision 2005/222/JHA Illegal system interference and illegal data interference

Consequently, the confiscation tools foreseen by the Confiscation Directive do not cover all revenue-generating criminal markets where organised crime is active; notably, they do not cover firearms trafficking, environmental crime, migrants smuggling, contract killing (including murder, grievous bodily harm and kidnapping), organ trafficking, organised armed robbery, trafficking in cultural goods, swindling, racketeering and extortion, counterfeiting, documents forgery, forgery of means of payment, trafficking of nuclear materials and of illicit hormonal substances, illicit tobacco trade and trafficking of stolen vehicles. Even though the aggregate value of the revenues generated from these crimes cannot be defined with precision, cautious estimates would place this value in at least EUR 50 billion per annum outside the scope of the Confiscation Directive . The current scope of the Confiscation Directive thus fails to capture a wide area of criminal profits generating from offences organised crime is engaged with. Stakeholders from law enforcement, prosecution and public authorities have identified the limited scope of application of the Confiscation Directive, in particular for extended confiscation and NCBC, as one of the underlying reasons behind the low rates of freezing and confiscation . Stakeholders from Member States have referred in particular to the necessity of being able to confiscated profits stemming from environmental crimes as well as for instance firearms trafficking, illicit tobacco trade, organised property crime and cyber fraud. As modern organised crime is more and more poly-criminal and engages in a multitude of criminal areas , it is important that confiscation measures can counter its reach. In conclusion, the narrow scope of the Confiscation Directive does not match with the poly-criminal nature of organised crime groups by requiring confiscation of one a minor fraction of criminal activities organised crime groups are engaged with. The absence of confiscation rules at EU level that would cover crimes such as firearms trafficking, migrant smuggling, illicit tobacco trade, or trafficking in counterfeit products, organised property crime or cyber fraud also affects the effectiveness of EU policies, including the effective implementation of harmonised rules in these areas . Furthermore, the absence of confiscation measures at EU level for certain crimes is at odds with international obligations.

Limited scope of existing confiscation mechanisms The Confiscation Directive does not envisage for Member States to put in place confiscation mechanisms enabling authorities to confiscate assets where top-level criminals have successfully destroyed the evidence that would directly link them to the crime, or when they have hid the illicit origin of the property. To address these challenges, some Member States have introduced alleviations in the burden of proof for confiscation, either shifting it to the defendant – requiring him or her to justify the origin of the property – or applying the civil standard of balance of probabilities in confiscation cases. However, to the extent that these confiscation measures are grounded in civil proceedings, they entail lower safeguards than in criminal procedures and are not covered by the EU Regulation on mutual recognition of confiscation orders . Other Member States have developed confiscation systems grounded in criminal proceedings, with corresponding safeguards, that enable authorities to confiscate assets of suspects or offenders for which the court is sufficiently convinced that the suspect belongs to organised criminal groups or is involved in particularly serious crimes and that the assets are the proceeds of crime, since no legal origin can be demonstrated. These systems have proven their effectiveness. In Italy, authorities are able to confiscate assets in 90% of judicial proceedings through these mechanisms, compared to 50% through the traditional confiscation mechanisms . Since Germany established such a model in 2017, it has been put in practice for a considerable number of cases: 5,100 in 2018 and 5,800 in 2019, which is a significant figure considering the novelty of the model . Latvia, on its part, is able to confiscate 25 times more through confiscation mechanisms not linked to a conviction than through standard forms of confiscation (EUR 105.4 million vs. EUR 4.2 million in a period of five years) . 2.5 Cross-cutting driver: absence of a strategic approach and of commitment to asset recovery by all relevant actors. In addition to the drivers contributing to each of the specific problems, an overall challenge affecting the different phases and the effectiveness of the confiscation system as a whole is the absence of a strategic approach by Member States towards asset recovery. Even though 56% of respondents to the public consultation considered that the Confiscation Directive has contributed to fostering a culture of asset recovery, confiscation is not always pursued as a key priority, according to the in-depth assessments of Member States’ frameworks carried out by FATF and Moneyval . While all the 20 EU Member States that have been subject to FATF/Moneyval fourth round of mutual evaluations were considered as fully or largely compliant from a legal perspective with the FATF recommendations (which are less detailed than the Confiscation Directive), the picture is less encouraging when it comes to the effectiveness of the asset recovery systems. Only four EU Member States (CZ, ES, IT, and SE) have proven to count on asset recovery systems with a substantial level of effectiveness. The vast majority (AT, BE, CY, DK, EL, FI, HR, IE, LU, LV, LT, PT) have moderately effective systems and four others are ranked with low effectiveness. The four Member States with a substantial level of effectiveness are generally characterised by a strong commitment from policy makers to a defined set of goals reflected in strategic documents. Such a common approach to asset recovery is also reflected at operational level, with authorities and officers on the ground well equipped and aware of the importance of making crime unprofitable as the most effective tool to disrupt criminal organisations, usually on the basis of written guidelines and an adequate training offer. For the other EU Member States, in many cases the mutual evaluations show that confiscation is not always considered as a key priority of the criminal justice system or have not set out specific objectives at a strategic level underpinning their confiscation policies. In other cases, the policy commitments are not followed in practice, especially in relation to the systematic undertaking financial investigations by prosecutorial and law enforcement structures, which do not count with the skills, knowledge and guidance or incentives to take a proactive approach. Asset tracing being the first step in the asset recovery chain, this affects the effectiveness of the overall system. The absence of shared strategic objectives and operational commitment by all parties is of particular concern given the wide array of actors involved in the asset recovery process. Responsibilities are spread among different bodies, many of which do not have as their primary responsibility the recovery of criminal assets. Against conflicting priorities, and given the complexity and hurdles of asset recovery processes, those authorities are not always inclined to prioritise the financial dimension of crimes. Moreover, the mutual evaluations provide few examples of inter-agency cooperation structures in Member States, and several instances where different authorities are not aware of the role or even the existence of actors such as the Asset Recovery Offices, an issue highlighted also in the study underpinning this Impact Assessment. A lack of effective coordination at national level can lead to duplicating efforts, or conversely to situations where assets are falling through the cracks due to a lack of information sharing. The lack of a coherent approach by all actors in relation to asset recovery is also reflected in the absence of comprehensive and comparable statistics on the number and value of assets frozen and confiscated, a problem that arises in all Member States to varying degrees. The Confiscation Directive requires Member States to “make reasonable efforts” to collect a minimum set of statistics. Despite this, asset recovery data are not systematically collected at a central level. In many Member States, individual agencies or authorities collect certain statistical data, but without guidance at national level on the methodological aspects of data collection, it results in diverging datasets and a scant level of completeness and quality of data. Without a clear picture of the results in each phase of the asset recovery process and of the overall system, it is difficult to identify and bring political attention to the shortcomings and necessary actions to improve the effectiveness of the asset recovery system. 3. Why should the EU act? 3.1 Legal basis The ARO Council Decision is based on Article 30(1)(a) and (b) TEU (now Article 87 TFEU) and Article 34(2)(c) TEU, whilst the Confiscation Directive is based on Article 82(2) and 83(1) TFEU. These articles under the TFEU are relevant for the envisaged revision of these legal acts and the measures identified in the different options. In addition, measures aiming at the extension of the scope of the confiscation measures to crimes ares other than ‘eurocrimes’ (covered by Article 83(1)) would need to comply with the relevant requirements of Article 83(2). The combination of these legal bases (Articles 82, 83 and 87 TFEU) allows for harmonising measures on freezing, confiscation and management of illicit assets, measures that directly facilitate cross-border cooperation as well as other measures that govern Member States’ internal procedures to the extent necessary to ensure the effective implementation of asset recovery and confiscation measures while also contributing to cross border cooperation. 3.2 Subsidiarity Under Article 5(3) TEU, the Union, in areas which do not fall within its exclusive competence, shall only act if the proposed action cannot be sufficiently achieved by the Member States. Article 67 TFEU provides that the Union shall provide citizens with a high level of security by preventing and combating crime. Organised criminals transfer and spread their illicit property across multiple jurisdictions, hampering the capacity of competent authorities to trace, freeze and confiscate these assets. Cross-border cooperation is therefore crucial for the effective recovery of criminal assets. This cross-border dimension of organised crime and the criminal organisations’ activities and investements in more than one country justify the need for European action. Individual efforts of Member States against organised crime’s activities are insufficient as criminals take advantage of the benefits of the EU’s internal market and of the speed of the financial system, as well as of organised crime’s underground parallel financial system. According to Europol, 80% of organised crime groups in the EU are highly poly-criminal and active across borders, with 7 out of 10 active in more than 3 countries and 65% of organised crime groups being composed of multiple nationalities . As highlighted in the Evaluation, law enforcement authorities and representatives of the Confiscation Directive Contact Committee agree that this highly international crime picture is best tackled at EU level. 97% of consulted stakeholders in the public consultation consider cross-border cooperation essential in the identification of criminal assets and 88% believe it would be harder to freeze and confiscate the proceeds of crime without EU intervention. The penetration of organised crime into the economy of one Member State affects the functioning of the whole EU Internal Market, with criminals reportedly targeting Member States with weaker asset recovery systems . Organised crime groups often resort to intimidation and corruption of public officials, thus altering competition and the smooth functioning of the Internal Market. The resulting loss of revenues affects both national and the EU’s financial interests, even when it takes place in only one Member State. The recovery of criminal profits needs to therefore be addressed at EU level in order to address the cross-border threat of organised crime.

4. Objectives: What is to be achieved? 4.1 General objectives The general objective is to deprive criminals and in particular organised crime groups of their illicit property in order to disrupt the capacity of organised crime groups to maintain and further expand their criminal activities, while compensating victims and repairing damage done to society more generally. 4.2 Specific objectives (1)Strengthen asset tracing capabilities Strengthening the capabilities of the competent authorities to identify and trace assets aims at ensuring that competent authorities have the competences and resources, as well as sufficient access to the necessary information, to facilitate asset tracing and information exchanges in an effective and swift manner, in particular in a cross border context. (2)Ensure efficient asset management Ensuring efficient asset management aims at ensuring that Member States have the capacity to manage frozen and confiscated asset so that management costs remain below the benefits of asset recovery, and at ensuring that the value of assets is safeguarded for further use, thereby increasing incentives to carry out asset recovery investigations and adopt freezing/confiscation decisions. (3)Strengthen confiscation capabilities The objective to strengthen confiscation capabilities aims at enabling authorities to capture all relevant criminal activities, in particular those typically carried out by organised crime groups, and to confiscate all relevant assets, in particular the property held or controlled by those orchestrating criminal activities. Achieving this objective would contribute to the overall aim of disrupting organised crime structures, groups and networks, going beyond the mere sanctioning of individual crimes. (4)Improve the overall efficiency of the asset recovery system This objective aims at increasing the cooperation between the wide range of actors involved in the asset recovery phases, promoting a more strategic approach in relation to asset recovery and improving data collection and monitoring of developments, trends and progress, so as to ensure that all actors prioritise asset recovery and work in a coordinated manner. 4.3 How do the objectives relate to the sustainable development goals? The objectives of this policy initiative relate to a number of sustainable development goals. Countering organised crime’s profits primarily contributes to goals of (16), peace, justice, and strong institutions and (8), decent work and economic growth through countering organised crime’s infiltration into the legal economy. 5. What are the available policy options? 5.1 Baseline scenario: how will the problem evolve? The baseline scenario or status quo indicates how the identified problem is likely to evolve without additional public intervention, taking into account existing and forthcoming interventions. While the current framework would remain untouched beyond further enforcement measures, there are a number of legislative and policy initiatives that would impact the work of Asset Recovery Offices and of authorities in charge of freezing and confiscation decisions. The application of Regulation (EU) 2018/1805 on the mutual recognition of freezing and confiscation orders will lead to greater execution by competent national authorities of freezing and confiscation orders in cross-border cases. However, while the Regulation sets the means for increased recognition of freezing and confiscation orders across the EU, the number of orders to be recognised is dependent on the capacity of authorities to identify assets, the confiscation instruments available to judicial authorities in every Member State, and their willingness to apply them. All these are areas where this Impact Assessment has identified significant deficiencies. With the entry into force of Directive (EU) 2019/1153 on access to financial information on 1st August 2021, law enforcement authorities, including Asset Recovery Offices, soon should have access to bank account information once all Member States will have transposed the Directive. Once co-legislators adopt the recent Commission proposal to amend Directive (EU) 2019/1153 , access could include bank account information in other Member States, granting law enforcement access to an interconnected bank account registries system across the EU. However this covers only one of the relevant databases. The Anti-Money Laundering package of July 2021 , once adopted, would facilitate a more effective detection of suspicious transactions and activities and increased dissemination of financial analysis by Financial Intelligence Units. This would increase the possibilities for law enforcement authorities to launch new investigations but, without prioritisation as well as the necessary resources and powers on the part of competence authorities responsible for tracing, freezing and confiscating assets, it is likely that authorities will not able to follow up on all the information disseminated by Financial Intelligence Units in an effective manner.

Despite progress in these areas, under the current framework, the problems identified would remain to a large extent. Financial investigations would continue to be carried out in a non-systematic way in most Member States and be hampered by lack of resources and prioritisation. Asset Recovery Offices would continue to gradually increase their cooperation, albeit hindered to the current limitations, including the lack of resources and insufficient access to databases or to SIENA. The exchanges in the Asset Recovery Offices platform meetings could lead to some incorporation of best practices by some Member States. As regards asset management, the number of Asset Management Offices could slightly increase, with one Member State already having foreseen its creation, as so would the use of instruments such as interlocutory sales, which another Member State is planning to facilitate . Moreover, it is foreseeable that some Member States, following a 2018 Resolution of the Council of Europe Parliamentary Assembly inviting Member States to develop confiscation models that facilitate the confiscation of illegal assets , would develop new confiscation models adapted to the complex nature of organised crime, an issue which is already being considered in one Member State where a process to review its asset recovery framework has been launched. These improvements that may be expected in a limited number of Member States, however, would not represent the significant change which is required to ensure an asset recovery system across the EU that is able to effectively tackle the growing complexity and scale of criminal finances, especially in view of the evolution of the threat from organised crime and its transnational nature. In fact, the status quo option would not allow authorities to catch up with the likely increasing volume of assets owned or controlled by criminal organisations. The economic downturn produced by the pandemic creates new business opportunities for criminal groups, including by fraudulently benefitting public funds aimed at supporting economic recovery, and for infiltrating the economy and the institutions. In the current economic context, and organised crime is expected to take advantage of the weak financial situation in many companies “to launder money through dormant companies, buy out financially affected cash-intensive businesses, or invest in property in the construction sector” . This would allow criminal groups to launder their proceeds while maximising their financial benefits, and to use the legal structures under their control to further their illicit activities. Against this bleak outlook, it is expected that the slow increase of the amounts frozen and confiscated that could be achieved through the application of existing or ongoing measures would not match the foreseable ever-greater profits of criminal groups. When asked about how the criminal finances landscape will develop in the EU in the next 5-10 years without further EU intervention, 66% of the respondents to the public consultation agreed it would worsen and that the current legal framework would not be sufficient to retrieve criminal assets. Whilst awareness raising and recent legislative instruments will have a mitigating impact on the rates of criminal profits, the existing freezing and confiscation measures will not allow to bridge the gap between recovered assets and criminal profits in the foreseeable future, thus failing to ensure that asset recovery is an effective deterrent of criminal activity. 5.2 Description of the policy options The following table summarises the different options for each of the specific objectives. Table 3: Options table Policy option 1 Policy option 2 Tracing: increase the exchange of good practice and develop EU guidance complemented by training by Europol and CEPOL on asset tracing, financial investigations, and information exchange. Management: increase the exchange of good practice and develop training and guidance on asset management methods. Confiscation: exchange of good practices, and develop EU guidance complemented by training by Eurojust and European Judicial Training Network on confiscation. Strategic approach: increase the exchange of good practice and develop EU guidance on increasing cooperation between the different actors responsible for the different phases of the asset recovery process (tracing, freezing, management, confiscation, disposal) and on data collection methodology. Tracing: requiring Member States to develop a national plan on asset recovery, covering tracing and financial investigations; strengthening Asset Recovery Offices powers to include urgent freezing, investigative powers, access to relevant databases, and SIENA. Management: establishing contact points to facilitate cooperation between management authorities in different Member States, setting out general principles for asset management, and require that all competent authorities have the necessary resources to carry out their tasks. Confiscation: extension of the general scope of all confiscation measures to include all ‘eurocrimes’, and making non-conviction based confiscation available in cases of death of the defendant. Strategic approach: establishing a national strategy on asset recovery covering all its phases, and setting up more comprehensive requirements on the collection of statistics on asset recovery at central level. Policy option 3 Policy Option 4 Tracing: in addition to the measures foreseen in Option 2 + introducing the obligation for the systematic launch of financial investigations for set organised-crime crimes, and detailing the requirements for Asset Recovery Offices information exchanges. Management: in addition to the measures foreseen in Option 2 + establishing specialised Asset Management Offices to manage assets or to support and coordinate decentralised management authorities. Ensuring that Member States conduct pre-seizure planning and interlocutory sales. Confiscation: extension of the general scope of all confiscation measures, to include the crimes covered by Regulation (EU) 2018/1805. In addition to the existing cases of illness and absconding, allowing non-conviction based confiscation in cases of death, amnesty, immunity of the defendant, or because of expiration of statute. Introduction of a new confiscation model (unexplained wealth linked to criminal activities). Strategic approach: in addition to the data collection requirements of Option 2 + obligation to establish cooperation mechanisms between all asset recovery phases, and establishment of centralised asset registries accessible to Asset Recovery and Management Offices. Tracing: in addition to the requirements on Asset Recovery Offices information exchange foreseen in Option 3 + introducing the obligation for the systematic launch of financial investigations for all crimes, introducing 24/7 Asset Recovery Offices contact points and ensuring that the information they exchange can be used for evidentiary purposes Management: in addition to the measures foreseen in Option 3 + establishing a single, centralised Office with both asset recovery and asset management tasks and responsibilities. Confiscation: in addition to the measures foreseen in Option 3 on non-conviction based confiscation, + extending the scope of all confiscation measures to all crimes (“all crimes approach”) Strategic approach: in addition to the establishment of asset registries foreseen in Option 3 + ensuring the interconnection between centralised asset registries in different Member States accessible to Asset Recovery Offices and Asset Management Offices of other Member States. 5.2.1 Option 1 Under Option 1, the measures consist of making increased use of existing platforms and, where necessary, establish new expert or advisory groups to exchange experiences, know-how and good practice to strengthen capabilities and understanding in relation to the various phases of asset recovery. These exchanges would be further enhanced through the development of appropriate EU guidance and, where appropriate, trainings (by CEPOL, Europol, Eurojust, the European Public Prosecutor’s Office (EPPO), or the European Judicial Training network, EJTN). These non-legislative measures would help address identified shortcomings for all phases of the asset recovery process to some extent. Promoting the exchange knowledge and best practices, offering guidance and training can be expected to contribute to improved capabilities related to asset tracing, asset management andthe use of confiscation possibilities and will to some extent improve the effectiveness and efficiency of the overall asset recovery system in Member States. According to consulted stakeholders, (Asset Recovery Offices, Contact Committee of the Confiscation Directive, and Europol) measures under PO1 would address indirectly the policy objective to increase the rate of frozen, confiscated and recovered assets, and considered it unlikely that they would achieve the policy objective to a significant extent, given their soft nature. Training and guidelines with respect to victims’ compensation and social reuse of confiscated were however considered by stakeholder as being more appropriate than legislative intervention due to the many differences between Member States on these areas. 5.2.2 Option 2 Option 2 would foresee minimum legislative measures composed of targeted amendment to existing legislation and national set ups. Under Option 2, the measures would consist primarily in specifying the scope of existing general requirements and making targeted amendments to the ARO Council Decision and Confiscation Directive with a view of reinforcing their effectiveness. This includes obligations on Member States on a more strategic/structural level: ·to adopt an overall strategy/action plan setting out the objectives of the asset recovery system. Such a strategy would set out the indicators, identify relevant actors, their responsibilities and cooperation mechanisms, identify gaps and the necessary measures to address them, in terms of resources, training, guidance, etc. This strategy could also include objectives, indicators and measures, where appropriate, to improve victim compensation; ·to ensure that the competent authorities have the necessary skills and capabilities; ·to require more comprehensive and meaningful statistical data at central level. Other measures would aim at improving cross border cooperation: ·enabling Asset Recovery Offices to respond swiftly to information requests within the required short deadlines (by providing access to existing databases which are of greater relevance to Asset Recovery Offices and making use of SIENA for secure communication); ·ensuring that Asset Recovery Offices have the necessary powers to facilitate asset tracing upon request from Asset Recovery Offices in other Member State;

·ensuring that assets do not dissipate (through temporary urgent freezing powers); ·allowing authorities competent for asset management to identify their counterparts in other Member States (through the establishment of contact points) and set out general principles of adequate asset management that Member States can rely on when assets linked to an investigation in a Member State are managed in another Member State. Existing requirements on confiscation would remain in place as they stand. Only minor adaptations would be introduced, in order to cover all eurocrimes envisaged in Article 83(1) TFEU (i.e. adding firearms trafficking as defined in EU law) and extend non-conviction based confiscation to situations comparable to illness or absconding (i.e. where conviction is not possible because the offender has passed away). All confiscation measures would remain grounded in criminal law. The measures under option 2 would contribute considerably to the objective of a more strategic approach to asset recovery addressing identified shortcomings in terms of prioritisation, cooperation among competent authorities or available resources. The measures under option 2 are expected to make a considerable contribution to better asset tracing and securing identified illicit assets through the facilitation of cross border information exchange and cooperation as well as requirements to adopt temporary urgent freezing measures. The measures are expected to improve to some extent asset management. Similarly, due to the only limited changes compared to the status quo, the measures under option 2 are expected to only marginally improve confiscation capabilities. According to consulted stakeholders (law enforcement, judicial authorities, Europol, Asset Recovery Offices and NGOs), harmonization on asset recovery is highly necessary at national level in order to ensure the effectiveness of the system at EU level. Option 2 was therefore considered a minimum intervention to address the problems, with margin for improvement. 5.2.3 Option 3 Option 3, builds on measures under Option 2 and incorporates measures facilitating asset tracing and management as well as requirements for a more strategic approach and more detailed data collection provisions Option 3 would foresee more detailed requirements for Member States for all phases of the recovery process requiring more extensive changes to the current EU legal framework. The asset recovery regime in Member States would need to comply with more specific requirements, including: ·Obligations regarding asset tracing, which is currently not covered by the Confiscation Directive or spelled out in the ARO Council Decision. This would include in particular a requirement to ensure that financial investigations are systematically launched in certain cases and under certain conditions, e.g. when the crime under investigation is linked to organised crime and is likely to generate profits above a certain amount. This requirement is necessary to complement and steer eventual measures by Member States to provide resources, training and guidance for carrying out financial investigations as part of the overall strategy/action plan on asset recovery envisaged in Option 2. ·Additional specific requirements regarding asset management, notably: omandating the use of pre-seizure planning , and interlocutory sales in certain cases and under certain conditions ; orequiring the establishment of specialised Asset Management Offices with the necessary powers to ensure they can effectively support other authorities in charge of managing assets and, where necessary, manage frozen and confiscated assets -especially complex ones- upon request from competent authorities. The proposal would leave to Member States the freedom to choose the administrative and legal set up of the Offices to allow them to best respond to national needs. ·Requirements to facilitate a more complete statistical overview of the asset recovery process, notably the establishment of an asset recovery registry in each Member State, accessible to competent authorities, including Asset Recovery Offices and Asset Management Offices. Competent authorities would be required to encode relevant information throughout the asset recovery process, e.g. whether an asset is frozen, sold, confiscated, returned to its owner, to the State or the victim or used for social purposes. The confiscation tools and mechanisms would be expanded to allow for the confiscation of significantly more illicit assets, in particular by: ·Expanding the scope of offences covered by the Confiscation Directive in order to cover additional crimes of particular serious nature, high profitability or linked to organised crime (e.g. firearms trafficking, migrant smuggling, trafficking of counterfeit products); ·Extending the scope of non-conviction based confiscation measures grounded in criminal proceedings to other cases in which a criminal conviction is not possible due to objective circumstances (such as immunity, amnesty, lapse of statute of limitations, because of out-of-court settlement, age-related decision not to convict); ·Foreseeing a new confiscation mechanism ensuring the confiscation of assets not directly linked to specific crime (for which the owner or possessor was convicted) but more broadly resulting from criminal activities. The main elements of such new confiscation mode would be inspired by models in Member States while ensuring full respect of the relevant fundamental rights and the relevant jurisprudence of the European Court of Human Rights (“ECtHR”) and the European Court of Justice. The new model aims at addressing the identified shortcomings with regard to the existing confiscation models, which do not allow for the recovery of all illicit assets related to criminal activities in the framework of organised crime and which go beyond the assets linked to a specific crime for which the person in question was convicted. Under this new confiscation model, it would therefore be for the prosecution to show that the assets in question are linked to criminal activities. Although a conviction of the defendant for a specific criminal offence is not required, the prosecution would have to prove the link between the assets and the criminal activities, showing that those assets could have been the proceeds of such conduct. The establishment of these facts can be based on circumstantial evidence, including in particular indications such as unexplained wealth (i.e. property without evidence of legitimate origin, when there is a significant disproportion between the value of assets and the stated income of the person) rebuttable by the defendant through a shifted burden of proof.

All confiscation measures would remain grounded in criminal law. This possibility would be subject at least to the safeguards stipulated in Article 8 of the Confiscation Directive, and in particular the right of defence, providing for effective possibilities for the defendant to rebut allegations. Further safeguards could become necessary (e.g. in relation to the required threshold to initiate such proceedings or as regards the review possibilities ensuring timely remedies) to ensure that any interference with fundamental rights remains proportionate. Ensuring overall proportionality would need to be ensured (e.g. by limiting this possibilities to certain particularly serious crimes or crimes committed within the context of organised crime activities). Cooperation between the relevant authorities both cross-border and within each Member State would be strengthened by establishing: ·Cooperation obligations between the different competent authorities within each Member State, including Asset Recovery Offices and Asset Management Offices but also other authorities such as tax authorities; the functioning of the overall recovery process including cooperation between the relevant authorities would be subject to regular monitoring coupled where appropriate with recommendations for further improvement; ·More detailed requirements facilitating information exchange across borders (including templates). The measures under option 3 will make a significant contribution to the objectives of improving asset tracing in that it will require Member States to carry out more systematically financial investigations which are of crucial importance in this regard. The measures will significantly improve the efficiency of asset management in that it will require pre-seizure planning and the use of interlocutory sales. Setting out more detailed requirements and conditions and requiring the establishment of asset management offices that can support other competent authorities in their work will help overcome identified shortcomings that limited the use of more efficient management tools. The measures under option 3 are also expected to make a significant contribution to improving confiscation possibilities by extending possibilities of confiscation where a criminal conviction is not possible for objective reasons (while all the evidence is there to show criminal conduct) and where the assets are clearly linked to organised crime activities but cannot be linked to a specific crime; but also be significantly extending the scope of offences. Measures under option 3 will further contribute to a more effective asset recovery framework in Member States in that it provides for a better sharing of information and improved cooperation among competent authorities. Stakeholders consulted over the course of the Policy Options Workshops (law enforcement, judicial authorities, Europol, Asset Recovery Offices and NGOs) identified Policy Option 3 as the best performing in order to ensure that the provisions of the existing instruments are properly applied. According to consulted stakeholders, the alignment of the scope of confiscation measures with the crimes covered by Regulation (EU) 2018/1805 harmonization on asset recovery is particularly necessary to ensure the effectiveness of the system. This assessment extended to measures on tracing, management, and confiscation. 5.2.4 Option 4 Option 4 would foresee a maximum legislative intervention, building upon the measures under Option 3 (which includes certain measures under Option 2). Option 4 would further strengthen the requirements established under Option 3 concerning the different asset recovery processes and procedures by: ·More extensive requirement on financial investigations, which should be carried out for all crimes, without limiting to organised crimes’ activities as in Option 3; ·Setting out more concrete conditions regarding urgent freezing orders (as already foreseen under Option 2). This would include requirements on the validity of such temporary orders, deadlines within which such temporary freezing orders must be issued and a requirement for establishing 24/7 contact points to ensure urgent freezing in cross-border cases; ·Requiring information exchanged among Asset Recovery Offices to be without purpose limitation e.g. for intelligence purposes only (so that information can be used also for evidentiary purposes). At the same time, this option would aim at overcoming coordination and cooperation issues by further streamlining of responsibilities and ensuring greater interconnectivity: ·requirements for having asset tracing and management support functions within one single entity or under the oversight of one entity (Asset Recovery and Management Office, a model available in seven out of the thirteen Member States that have established Asset Management Offices); ·In addition to the establishment of asset registries as foreseen in Option 3, ensuring that national asset recovery registries are interconnected and that access to them is granted to all Asset Recovery and Management Offices of every Member State. Finally, the scope of the confiscation measures would be further strengthened by expanding the scope of the new confiscation framework to all crimes, in order to align the scope with that of Framework Decision 2005/212/JHA which regulates standard confiscation, the most used confiscation tool in the Member States, as opposed to the list of Regulation (EU) 2018/1805 as foreseen in Option 3. This possibility would be subject to safeguards stipulated in and going beyond Article 8 of the Confiscation Directive, and in particular the right of defence. All confiscation measures would remain grounded in criminal law.

Compared to Option 3, measures under option 4 would only marginally improve the achievement of the relevant objectives in terms of asset tracing, asset management, confiscation and overall improved strategic framework for asset recovery. The benefits of further extending the scope and providing more detailed requirements of the different measures already foreseen under Option 3 would come along with more substantive interferences with Member States’ prerogatives. According to consulted stakeholders (law enforcement, judicial authorities, Europol, Asset Recovery Offices), the policy measures under PO4 reflect the level of harmonization and cooperation Member State might reach in the long term, but go too far to address what are perceived as being the most urgent issues to address for an effective asset recovery system. Under the current circumstances, the minimal performance of the asset recovery system is strongly severed by issued such as lack of resources, insufficient access to information, and lack of minimal legislative harmonization. Therefore, PO4 measures were perceived as too demanding on Member States and the relevant asset recovery actors, too costly to implement, and with benefits visible only in the long-term. 5. 3 Options discarded at an early stage The Inception Impact Assessment on the revision of the asset recovery framework informed of the intention of the Commission to assess any possible obstacles related to the use of recovered assets for social purposes and for victim compensation. Based on the outcome of the consultations, it has been considered that measures to reinforce the current voluntary nature of the provision on social re-use could interfere with the Member States’ budgetary autonomy, and would therefore be disproportionate. In relation to victim compensation, the Commission services have not identified, based on the consultations, specific problems requiring an inclusion of victim compensation provisions in revised legislation on asset recovery. In addition to the requirement in the Confiscation Directive for Member States to ensure that confiscation measures do not prevent victims’ compensation, the EU legislation in this field comprises the Victims' Rights Directive , which provides for a right to a decision on compensation from the offender in criminal proceedings, and the Compensation Directive . The latter provides for access to compensation from the state for victims of violent and international crime, including national schemes on compensation to victims. The EU Strategy on victims’ rights indicated that the Commission will monitor and assess EU legislation on compensation, and if necessary propose measures to complement this framework. Considering the existence of a specific framework focused on victim compensation, any possible measure in this regard would be better addressed therein, should there be a revision of these instruments. Moreover, a few Member States’ expressed strong reservations on strengthening existing legal provisions on social reuse, as they would infringe upon budgetary autonomy national competences. 6. What are the impacts of the policy options? 6.1 Social impacts Impact on security: criminal and in particular organised crime activities All options are expected to contribute in different degrees to improving capabilities of tracing, freezing, confiscation and management and, as a consequence, the capabilities to disrupt criminal activities and in particular the activities of organised crime groups. The different options will thus – depending on the scope of the measures and the degree of harmonisation throughout the EU – contribute in different degrees to enhancing security in the EU as a whole (with the least impact for PO1 and higher impacts for PO2-4). This contribution will be even higher for options containing measures that not only address cross-border aspects but also investigations at domestic level (e.g. measures under PO3), given that illicit gains resulting from criminal activities in a domestic context can and are used for criminal activities throughout the EU. Increasing capabilities in tracing and freezing assets at national level increase the chances of identifying assets linked to criminal activities in other Member States. PO1 is expected to improve capabilities necessary for effective asset recovery to a limited extent with the estimated increase in the number of freezing and confiscation orders being relatively marginal. Furthermore, confiscation measures remain limited in scope and will not be able to capture all relevant assets linked to organised crime activities. As a consequence, the impact on security is limited. Measures under PO2 will make a positive contribution to increasing the capabilities of asset tracing and management and strengthening cross border cooperation. Information exchange can be expected to be significantly improved and response times significantly reduced in particular by giving Asset Recovery Offices access to the relevant databases. It is expected that the number of freezing and confiscation orders could increase considerably. The highest impact is to be expected from measures under PO3 and PO4 since concrete measures are expected to significantly improve the operational capabilities at all stages of the recovery process as well as the overall effectiveness and efficiency of the asset recovery system as a whole. The impact through significantly higher rates of freezing and confiscation orders is further increased by the extension of the scope of crimes subject to confiscation. As a result of these measures it is expected that measures under PO3 and PO4 could increase the rates of freezing and confiscation in a substantial manner, so as to effectively contribute to disrupting organised crime activities. Both PO3 and PO4 will make a more significant contribution to fighting crime across borders since they foresee measures that will improve cross border information exchange and cooperation: increased access to the relevant information will not only improve asset tracing internally but also improve cross border cooperation in terms of better/more comprehensive information and shorter timeframes for replies. Impact on citizens’ perception of justice and reassurance that crime does not pay All options contribute in different degrees to the objective of making the asset recovery system more effective. However only PO2-4 make a substantial contribution to increasing rates of confiscation, so as to make a positive impact on the citizens’ perception of justice and the reassurance that crime does not pay. By increasing confiscation rates, all of these options would in different degrees ensure that funds are available for victim compensation or other public interest and social uses. 6.2 Economic impacts Impa