The EU Issues Sweeping Cross-Border Asset Seizure Regulations
On November 6, 2018, the European Council adopted new regulations designed to streamline cross-border asset seizures. The new regulations, known as the Mutual Recognition of Freezing and Confiscation Orders, create a simplified mechanism for member states to ask fellow nations to freeze or confiscate criminally-derived property.
The new EU Regulations are similar to the American system of civil asset forfeiture. Under the U.S. system, law enforcement officials can seize assets suspected, but not proven, to be linked to criminal activity without requiring an underlying criminal conviction. Perhaps in response to the widespread criticism of the American system, the EU regulations contain safeguards, including the greater use of disinterested judicial officers, to protect individuals against abuses.
Closing Loopholes Exploited by Criminals
The new regulations are aimed at improving international cooperation to close loopholes that allow wrongdoers to hide assets within the EU. Under the existing legal framework, criminals can shuttle assets across borders in order to exploit differences in national regulations and shield assets from seizure. Patchwork regulations and the lack of a nimble and reliable cross-border seizure mechanism have rendered officials essentially powerless to seize criminal assets.
Indeed, according to a report published by Europol’s Asset Recovery Unit, 98.9% of criminal profits are not confiscated by authorities and remain in criminal hands.1 Of the 2.2% of criminal proceeds that were provisionally seized or frozen in the EU from 2010-2014, only 1.1% of those profits were ultimately confiscated.2 The new regulations seek to improve upon these seizure statistics.
Reliable and Speedy International Cooperation to Seize Criminal Assets
In adopting the regulations, the EU Council3 has agreed to streamline and accelerate the process by which member states can require fellow states to freeze criminal assets and confiscate illicit property. The regulations create a single, internationally recognized instrument for freezing and confiscation orders.4 This instrument, issued by the competent authority of one EU member state, will be recognized and executed in other states as if it were a domestic order.5
Member states will have 45 days to recognize another nation’s confiscation order.6 In urgent cases, this timeframe can be reduced to 48 hours.7 Member states can only extend these deadlines under strictly limited circumstances.8
Compensation for Victims and Cash for Government Coffers
A stated goal of the new regulations is to provide compensation and restitution to victims of crime. In fact, in a memorandum explaining the regulations, the European Commission states that “in cases where the issuing State confiscates property, the victim’s right to compensation and restitution has priority over the executing and issuing States’ interest.”9
Beyond restitution, the money generated by increased seizures should “increase national treasury and EU incomes” and also be “reused for public or social purposes.”10 According to the Commission, the new regulations “should have positive consequences for national and European economies.”11
The New Regulations Compare Favorably to the American System of Civil Asset Forfeiture
The EU’s new regulations permit states to seize and confiscate assets without an underlying criminal conviction.12 This feature of the new regulations invites comparisons to the American system of civil asset forfeiture. Critics claim the U.S. system, which also allows seizure and forfeiture without a criminal conviction, incentivizes abuse and offers inadequate safeguards for property owners.
The EU regulations have some built-in, structural safeguards. Unlike the U.S. system, confiscation orders must be issued within the framework of a criminal proceeding, ensuring procedural safeguards. Thus, the determination that an asset was involved in or derived from a criminal offense is made by a disinterested court. In the U.S., law enforcement can seize property without a warrant as long as the officers have probable cause to believe the property has a nexus to criminal activity. And, in many instances, law enforcement can take ownership of seized property without a court proceeding.
Support for asset forfeiture reform in the U.S. has ebbed and flowed in recent years. In the final years of the Obama administration, Attorney General Eric Holder announced curbs on the federal government’s use of civil asset forfeiture. For example, he limited bank seizures to cases where agents could show documented, “serious illegal transactions.”13 Under the Trump administration, however, recently-ousted Attorney General Jeff Sessions reversed Holder’s restrictions on the practice. Sessions said he “loved” asset forfeiture.14
What you Need to Know
The new regulations are set to go into effect two years after they are published in the EU’s official journal. Despite the safeguards the regulations attempt to provide, businesses with assets in the EU should be prepared to respond if they face a seizure order. When such orders begin to appear, banks and other entities that hold assets should train their employees on how to process such orders, designating a point person to respond to law enforcement and customers.
In the U.S., we will continue to monitor reform efforts to the civil asset forfeiture system as well as judicial review of the forfeiture process.15 Time will tell whether General Sessions’s replacement will take a renewed interest in asset forfeiture.
Visit our website to learn more about V&E’s Government Investigations & White Collar Criminal Defense practice. For more information, please contact Vinson & Elkins lawyer Jennifer Freel.
2 See https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/628225/EPRS_BRI(2018)628225_EN.pdf (hereafter “Legislation in Progress Briefing”) (at p.2).
3 The EU Council sets the EU’s policy agenda. It is comprised of the heads of European Union member states.
4 See Legislation in Progress Briefing at p.2.
5 Id. at p.7.
6 Id. at p.11.
8 For example, a state may delay the execution of a confiscation order when executing the order will damage an ongoing criminal investigation. See https://eur-lex.europa.eu/resource.html?uri=cellar:e99f0f3e-c90a-11e6-ad7c-01aa75ed71a1.0001.02/DOC_1&format=PDF (hereafter “Regulation Proposal”) at p.13.
9 Regulation Proposal at p.6 (emphasis added).
10 Id. at p.11.
12 See Legislation in Progress Briefing at p.2.
15 The U.S. Supreme Court is set to weigh in on the constitutional limitations (if any) on civil asset forfeiture in state court proceedings. Later this month, the Court will hear oral argument in the case of Timbs v. Indiana, which raises the issue of whether the Eighth Amendment’s protection against excessive fines applies to state action. In that case, the trial court denied the state’s attempt to forfeit a drug dealer’s car, ruling that the forfeiture would be an excessive fine under the Eighth Amendment. The Indiana Supreme Court reversed, concluding that the U.S. Supreme Court had never clearly held the Eighth Amendment applies to state action.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.