EU Regulation 2018/1805: A Free Pass for Freezing and Confiscation Orders?

Since 19 December 2020, domestic freezing and confiscation orders have gained the freedom to “travel” within the EU thanks to Regulation 2018/1805, which allows for their mutual recognition and execution between member states. In other words, freezing and confiscation orders have become borderless due to their newfound extraterritorial enforcement.

It is noteworthy that this marks the first time the EU has chosen a regulation in lieu of a directive to address mutual recognition in criminal matters. The rationale behind this radical choice is clear: an order issued in one member state shall be directly enforceable in another, even if the latter lacks an equivalent instrument in its legal system. To this end, the scope of the Regulation is remarkably broad; it not only covers decisions issued in criminal proceedings in a strict sense, as initially proposed by the Commission, but also any freezing and confiscation decision issued “within the framework of proceedings in criminal matters”. Such approach accommodates the diversity of the asset recovery instruments in various domestic legal orders.

The broadened scope of the Regulation is particularly important in cases of non-conviction-based confiscations (NCBC) and their corresponding freezing decisions, in view of the heterogeneity of national legal orders in that respect. As noted by the Commission in 2019, NCBCs vary widely across member states, and can include:

Some instances even involve hybrid NCBCs, incorporating a system of preventative confiscation (such as in Italy).

Scholars have argued that the Regulation imposes a harmonisation of national legal orders, through what is often referred to as the “side door” method, in obliging member states to recognise and enforce decisions that may be alien to their systems (A H Ochio). As aptly put by F Meyer, member states are now compelled to “recognise the unknown”.

An additional feature introduced by the Regulation is the inclusion of a non-recognition and non-execution ground in “exceptional situations”, where “there are substantial grounds to believe, on the basis of specific and objective evidence, that the execution of the… order would, in the particular circumstances of the case, entail a manifest breach of a relevant fundamental right as set out in the Charter, in particular the right to an effective remedy, the right to a fair trial or the right of defence”.

The above provision marks a welcome change in the approach of the mutual recognition principle in EU law, and reflects the criteria established by the CJEU’s landmark judgment in Aranyosi and Căldăraru (C-404/15). The latter admitted exceptions to the execution of an EAW, in cases where there is threat of an imminent breach of fundamental rights. In practice, the non-execution ground serves as an “emergency exit” for member states, allowing them to abstain from recognising and executing freezing and confiscation orders issued in proceedings that do not adhere to the fair trial requirements outlined in the EU Charter (CFR), such as an NCBC issued in absentia of the affected individual.

However, paragraph 34 of the Regulation’s Preamble seeks to limit the scope of non-execution grounds by asserting that the right to property should, in principle, not be considered relevant. This interpretative guidance to the judicial authorities of member states is puzzling, given that the right to property is the one primarily affected by the execution of freezing or confiscation orders.

Notwithstanding, states do have an obligation to respect the ECHR, when acting as members of the EU. In Avotiņš v Latvia,the ECtHR ruled that the presumption of respect of fundamental rights by the issuing state does not apply where there is a serious and substantiated complaint that the protection of a Convention right has been manifestly deficient and cannot be remedied by EU law. In such cases, member states cannot refrain from examining that complaint on the sole ground that they are applying EU law.

The Strasbourg Court had the opportunity to apply the aforementioned criteria in Shorazova v Malta, an asset recovery case. The execution of a transnational freezing order, issued in the context of the UN’s Convention against transnational organised crime, on the entirety of the applicant’s assets was deemed to be in breach of Article 1 of Protocol No 1 ECHR, despite the fact that Maltese authorities acted in fulfilment of their international obligations as a member of the UN.

There is no doubt that crime should not pay. However, asset recovery measures issued in disregard of essential fair trial rights enshrined in the CFR and the ECHR unfairly target individuals and disproportionately impact on their right to property. In such a scenario, freezing and confiscation orders may cause significant harm exceeding that of the alleged wrongdoing.