The EU Proposal on Sanctions and Confiscation: Good, But Not Fit-for-Purpose?

Yesterday the European Commission unveiled two proposed instruments that deal with the freezing and seizure of assets. One of these is a Council Decision that would designate sanctions evasion as a serious crime within the EU’s competence, with a view to then setting the definition of the offence and applicable penalties. The other is a Directive containing a smorgasbord of provisions on the freezing and confiscation of the proceeds of crime.

At the risk of being too curmudgeonly, my sense is that these are perfectly sensible measures to take, but they pretend to be much more than they really are. (Not, perhaps, a wholly unusual phenomenon in the area of fighting economic crime…)

Some press reporting on the Commission’s proposals would have us believe they amount to a ‘plan to confiscate frozen Russian assets to help rebuild Ukraine’ or a ‘new law to confiscate and sell Russian assets in the union’. These are, to put it mildly, exaggerations.

The Commission itself has encouraged these hyperbolae by referring to ‘oligarchs’ in its press release, as well as noting that sanctions are ‘key to disrupt the Russian war machine’. It has also made clear that the proposals are being tabled in the context of the EU’s Freeze and Seize Task Force, which was set up to ensure effective implementation of Russia sanctions.

I would be surprised if they make much of a difference, though.

The EU’s first proposal consists, in effect, of one line that reads as follows:

The violation of Union restrictive measures shall be an area of crime within the meaning of Article 83(1) TFEU.

The meaning of this, as I already mentioned, is that the EU will be authorised to set a uniform definition of sanctions evasion across the Union and prescribe penalties. And this is all very well, except that actual enforcement of sanctions laws remains the competence of national governments, regardless of who sets the definitions and penalties. Thus, in the context of Russia sanctions, the amounts frozen across the EU range from €23.6 billion in France to ‘so little we’re embarrassed to tell you how much’ in Hungary.

In short, the bigger problem is not that of inconsistent punishment for sanctions evasion, but the fact that some governments are so supremely relaxed about implementing EU sanctions that there really is not much to evade.

The second proposal, that of a Directive on Asset Recovery and Confiscation, covers much broader ground. The Commission itself highlights the following aspects of it:

  • ‘The proposal will allow Asset Recovery Offices and competent national authorities to trace and identify assets in criminal investigations on the most serious crimes in Europe.
  • The new urgent freezing powers for Asset Recovery Offices will ensure that illicit assets do not disappear before a freezing order is issued.
  • The proposal reinforces the situations where assets can be confiscated without a conviction, such as in cases of death or immunity of the accused. Moreover, the proposal enables the confiscation of unexplained wealth linked to criminal activities to make sure that no illegal assets remain in the hands of criminals when they have been able to cover their tracks and hide the illegal origin of their properties.
  • New rules on management will minimise costs and maximise the value of assets. This will be beneficial for State budgets, victim compensation, or for reusing those assets for social purposes.’

Are these all sensible ideas for all EU member states to embrace? Sure. Are they going to make a real difference to confiscating frozen Russian wealth? I very much doubt it.

The big-ticket item in that context is the hundreds of billions of dollars’ worth of the Russian Central Bank’s foreign currency reserves reportedly frozen in France and Germany. But these are not the proceeds of crime, and so the proposed Directive is irrelevant to them.

In fact, the same is likely to be true of much of the frozen oligarch property: will it ever be possible to demonstrate in court, in the absence of any cooperation at all on Russia’s part, that more than a tiny proportion of it constitutes proceeds of crime?

The EU’s proposal seems to deal with this problem in two ways. First, it would enable the confiscation of assets involved in sanctions evasion. So, if a sanctioned person is ill-advised enough to engage in sanctions evasion in an EU jurisdiction that has a serious sanctions enforcement capability (not always a given!), they may lose their property. In that case, they would have likely been better off by challenging the sanctions in the Court of Justice of the EU.

Second, the Directive contains some provisions on ‘unexplained wealth linked to criminal activities’, which sounds exciting until one notices the contradiction (should the wealth be ‘unexplained’ or ‘linked to criminal activities’?). In fact, what the Directive sets out is the fairly standard requirement – known to the law of a number of jurisdictions – that property can be liable to confiscation if it constitutes the proceeds of crime even when the precise type of the predicate offence cannot be established. Here, too, hardly a seismic shift.

In short, therefore, what the Commission has produced is a set of modest, sensible and incremental proposals that have the potential to somewhat improve the confiscation of criminal proceeds across the EU. This, it goes without saying, is not at all a bad thing. But nor is it a serious step towards anything more than a temporary freezing of the Russian assets subject to EU sanctions.

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