Q&A: Asset seizures and recovery
December 2022 | SPECIAL REPORT: WHITE-COLLAR CRIME
Financier Worldwide Magazine
December 2022 Issue
FW discusses asset seizures and recovery with Joydeep Sengupta at Mayer Brown and Jason Williamson at Skadden, Arps, Slate, Meagher & Flom LLP.
FW: Could you provide an overview of current European Union (EU) provisions for confiscating assets linked to serious illegal activities and suspected criminals? How would you characterise their effectiveness?
Sengupta: The 2014 Confiscation Directive 2014/42/EU establishes basic rules on freezing, confiscation and management of criminal property. Regulation (EU) 2018/1805 on the mutual recognition of freezing orders and confiscation orders aims to facilitate cross-border asset recovery and to speed up and simplify the freezing and confiscation of criminal assets throughout the European Union (EU). The 2007 Asset Recovery Offices Council Decision facilitates information exchange and cooperation between member states in tracing criminal property among asset recovery offices. Framework Decision 2005/212/JHA provides minimum standards for confiscation measures for member states to adopt. In 2022, the European Commission (EC) proposed a new Directive on Asset Recovery and Confiscation. The EU has recognised that the value of assets currently being seized within the EU is not in line with the expectations of law enforcement authorities or the public, despite some member states adopting more robust legislation for confiscating the proceeds of crime than required by the EU framework.
Williamson: The most important of the EU legislative instruments is the 2014 Confiscation Directive. The Confiscation Directive sets minimum rules in relation to the freezing and confiscation of criminal property. The 2007 Asset Recovery Offices Council Decision also facilitates cooperation in tracing criminal property by member state authorities. In May 2022, the EC proposed a new directive to strengthen the asset recovery regime. The effectiveness of the regime is mixed: the Commission’s report on the implementation of the Confiscation Directive acknowledged that this had been only somewhat successful. A key issue is the speed of freezing and confiscation procedures, which the EC intends to address through new urgent freezing powers. The Confiscation Directive has also been criticised for not encouraging cooperation between member states in confiscating assets, which the EC plans to address through greater information sharing.
FW: In what ways has the war in Ukraine highlighted the need to revisit asset seizing provisions in the EU, including in connection with activities linked to sanctions evasion? How would you summarise recent events in this area?
Williamson: The war in Ukraine has highlighted the inconsistent approach adopted by member states regarding the implementation and enforcement of restrictive measures adopted in response to the conflict. The May 2022 proposal to reinforce rules on asset recovery and confiscation includes an extension to the mandate of Asset Recovery Offices in member states to trace and identify the assets of individuals and entities which are subject to EU sanctions. The proposal also expands the ability to confiscate assets to a wider set of crimes including the violation of EU sanctions and mandates the establishment of Asset Management Offices in all EU member states. The proposal is designed to harmonise asset seizure provisions across the bloc, in order to deter the circumvention of the EU sanctions regime.
Sengupta: The implementation of EU restrictive measures imposed following the Ukraine conflict has been hampered by the difficulty in identifying assets held by sanctions targets, including oligarchs, which are often held using complex shell companies registered in non-transparent jurisdictions. Ongoing EU efforts to strengthen anti-money laundering (AML) standards, with access to registries identifying ultimate beneficial owners, will be key tools in freezing and seizing sanctioned assets. The EU has also addressed the topic of sanctions circumvention by creating a new sanctions list in October 2022, of persons who facilitate circumvention of Russian sanctions. Further, on 25 May 2022, the EU put forward a proposal for a Council Decision to add sanctions violations to EU crimes.
“The EC appears to recognise the importance of member states adopting a harmonious approach to sanctions enforcement and asset recovery and confiscation matters.”
FW: Given the complexity of banking and financial systems, what challenges typically face those charged with tracing misappropriated assets and making recoveries against rogue actors?
Sengupta: The initial tracing and identification of misappropriated assets can be the most difficult phase. Local legal advice may be needed in each relevant jurisdiction in order to access restricted public registries, or to seek judicial or administrative assistance in connection with obtaining relevant banking or transactional records. Public registries, such as land registries, corporate registries, vehicle or vessel registries, non-profit director registries, and so on, may not be easily accessible or may not include ultimate beneficial owner identification. Counsel may require the labour and time-intensive assistance of forensic accountants or private investigators consistent with applicable local laws, to access records, pierce corporate veils, and identify ownership interests, especially for asset classes that do not appear on public registries, such as private art or jewellery collections or crypto assets. Consequently, preserving secrecy prior to obtaining enforceable freezing orders in multiple jurisdictions is crucial to avoid tipping off rogue actors, or risk the assets being liquidated or transferred.
Williamson: One of the key challenges anyone seeking to recover misappropriated assets will face is secrecy and anonymity on the part of the wrongdoer. Misappropriated assets are often held in complex legal structures to conceal the identity of beneficial owners. This anonymity serves to blunt the potential impact of any confiscation or freezing orders that may be obtained during related investigations or proceedings. In the English court, a wronged party will often need to resort to seeking court orders to obtain disclosure from third parties – usually banks, financial institutions and other professional advisers – to assist in tracing assets, often at significant expense, without guarantee of success and in a way which draws third parties into a dispute. It can also impose a significant burden on the financial institution which has unknowingly facilitated wrongdoing, particularly where it may expose weaknesses in AML or know your customer (KYC) procedures.
FW: In your opinion, do EU member states lack sufficiently robust legal frameworks to seize criminal assets? To what extent is the lack of a common legal framework a key issue?
Williamson: Arguably, the question is less about the need for a uniform legal framework across the EU, but whether the individual frameworks of member states are similar enough to facilitate cooperation among their agencies. In many ways, the sanctions-based response to the conflict in Ukraine has served as a litmus test for that type of cooperative energy. When faced with a common goal, such as restricting the use of tainted funds by actors supporting the Russian state and its satellites, EU member states are demonstrating a willingness both to use the current tools available to them and to consider ways in which those tools might function more effectively with a bit of revision.
Sengupta: The robustness of the legal framework for seizing criminal assets varies widely from one member state to another, much like the resources available to authorities responsible for asset recovery. For example, French law provides for administrative asset freezing measures, as well as a robust legal framework for seizure and confiscation in the code of criminal procedure. French authorities regularly prosecute on these legal grounds and a string of cases in recent years point to the effectiveness of this legal framework, including an innovative law from 2021 which allows for restitution of confiscated ‘ill-gotten gains’ to benefit vulnerable populations in foreign countries from which the funds originated. However, the situation across the EU requires closer harmonisation, and the commission has highlighted the inefficiency of member states’ asset recovery systems as they are not well equipped to effectively address the complex modus operandi of criminal organisations, especially in cross-border cases.
“Preserving secrecy prior to obtaining enforceable freezing orders in multiple jurisdictions is crucial to avoid tipping off rogue actors, or risk the assets being liquidated or transferred.”
FW: Could you outline the steps, such as the introduction of the Freeze and Seize Task Force, that the European Commission (EC) has been taking to redress perceived weaknesses?
Sengupta: To address the impact of organised crime within the EU, an ambitious strategy has focused on closer cooperation and harmonisation between EU member states. The Freeze and Seize Task Force, as well as the proposal for a new directive on asset recovery and confiscation, are part of this approach as they aim to improve enforcement by mutualising member state resources. The Freeze and Seize Task Force was set up by the EC in March 2022 to ensure EU-level coordination in implementing sanctions against sanctioned Russian and Belarusian oligarchs. It is composed of the EC, national contact points from each member state, Eurojust and Europol. As of April 2022, the task force reported that member states had frozen assets worth €29.5bn, including assets such as boats, helicopters, real estate and artwork, worth almost €6.7bn. In addition, about €196bn of transactions have been blocked.
Williamson: The Freeze and Seize Task Force is a good example of an EC initiative designed to encourage cooperation among individual member states, alongside supranational organisations such as Eurojust and Europol. The Task Force enhances strategic coordination between member states related to the implementation of EU sanctions against Russia and Belarus. Another corollary initiative is the Russian Elites, Proxies and Oligarchs (REPO) Task Force, under which the EU cooperates with enforcement agencies in the G7 countries and Australia to ensure the efficacy and cohesiveness of sanctions regimes imposed by its individual members. The EC is also increasingly focused on harmonising the implementation of its asset recovery and confiscation legislation in an effort to combat perceived holes in the current framework.
FW: With EU governments traditionally cautious about reforms that require changes to criminal law, how confident are you that we will see a harmonised framework to make confiscations possible across all EU member states?
Williamson: The EC appears to recognise the importance of member states adopting a harmonious approach to sanctions enforcement and asset recovery and confiscation matters. There are significant discrepancies between member states in, for example, their implementation of the requirement to impose dissuasive penalties for violations of restrictive sanctions. In some states, such violations are an administrative and criminal offence, and in others, they are purely one or the other. I agree that for those member states where such harmonisation requires amendment to domestic criminal law, there may be more hesitation to adopt the EC’s logic. Nevertheless, there is an atmosphere of cooperation which has thus far characterised the EU’s approach to the Ukraine conflict and sanctions more generally.
Sengupta: The Ukraine conflict has accelerated the pace of EU-wide harmonisation to facilitate asset recovery and confiscation, so there is definitely political appetite in the context of breaches of EU restrictive measures. The EC made a proposal on 25 May 2022 for a Directive on Asset Recovery and Confiscation, which aims to reinforce asset recovery and confiscation, consolidate the current framework into a single directive, and create a more harmonised approach to financial crime across the EU. The directive would extend the mandate of Asset Recovery Offices to trace and identify assets of individuals and entities subject to EU restrictive measures, extend the remit for asset confiscation to include crimes such as human trafficking and cyber crime, as well as the violation of EU restrictive measures, and mandate the establishment of Asset Management Offices in all member states, empowered to freeze the transfer of assets and to ensure that they do not lose value.
FW: Looking ahead, how do you expect asset tracing and recovery methods to evolve over the coming months and years? Are there any particular developments that you expect to see?
Sengupta: Media reports indicate the EC is considering adding new powers to the relatively new European Public Prosecutor’s Office to seize assets of those who circumvent restrictive measures, which would be significant. Such measures would make circumventing sanctions a serious EU crime with a cross-border dimension. Finally, given the existing coordination between the EU, US, the UK and other jurisdictions in the context of sanctions target asset freezing and confiscation around the Ukranian conflict, we would expect to see continued strengthening of information sharing, as well as judicial and administrative cooperation between the EU and other western jurisdictions.
Williamson: One key development in the English context is in the willingness of courts to grant interim injunctions in respect of persons who cannot be identified. One example of this is the recent Fetch.ai Limited case, in which the commercial court granted a proprietary injunction, worldwide freezing order and an ancillary disclosure order against persons unknown, alongside a Norwich Pharmacal Order – a disclosure order – against an additional respondent. We expect the use of equitable remedies by the courts to intervene in asset recovery cases will intensify, particularly against the backdrop of increased complexity in identifying the true owners of criminal property. In Europe, there has been a rise in the use of non-conviction-based asset recovery regimes, and we would expect that trend to continue.
Joydeep Sengupta is a member of the compliance, investigations and regulatory team at Mayer Brown’s Paris office, within the litigation and dispute resolution department. He focuses on cross-border litigation, compliance and enforcement matters for financial institutions and corporations, including the resolution of administrative and enforcement proceedings involving regulators and prosecutors. He has conducted internal investigations around the world, including in France, Japan, Italy, Singapore, Spain, Switzerland, the UK and the US. He can be contacted on +33 1 53 53 39 49 or by email: jsengupta@mayerbrown.com.
Jason Williamson’s practice focuses on cross-border investigations into allegations of corporate misconduct, including fraud, bribery, corruption, money laundering, data breaches, and other criminal and regulatory offences. He is experienced in advising individual and corporate clients of the civil, criminal and regulatory risks that can arise in multinational investigations. He advises clients in proceedings brought by a range of prosecutors and regulators, including actions commenced by the UK SFO, FCA, HM Revenue & Customs and the US DOJ. He can be contacted on +44 (0)20 7519 7093 or by email: jason.williamson@skadden.com.
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Q&A: Asset seizures and recovery
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