The appropriateness of continuing reliance on misappropriation sanctions

As foreign policy instruments, sanctions are adopted through a process which is often rapid with little opportunity or reason for prior consultation and outreach. The EU’s misappropriation sanctions are no exception to this general rule and the occasions on which they have been adopted were not preceded by any public debate, whether in the European Parliament or otherwise. Almost a decade after their first adoption there has yet to be any principled, independent analysis of the concerns raised by misappropriation sanctions, whether at EU level or otherwise. Yet there can be seen to be growing awareness of the failure of international law to catch up with developments in the design and application of sanctions; as acknowledged by the UN Human Rights Council in its resolution on human rights and unilateral coercive measures,^[1] as well as in subsequent reports presented to the same body by the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights.^[2] Because misappropriation sanctions raise a range of unique concerns that are distinct from those arising in connection with financial sanctions more generally, this analysis is urgently required before greater use is made of misappropriation sanctions; particularly as the European Parliament has called for EU autonomous sanctions to target systemic corruption related to grave human rights violations.^[3] Only by adopting a principled approach to the appropriateness of adopting sanctions in response to third-country grand corruption, gross human rights violations and other serious criminality can these measures be bestowed with the legitimacy and robustness they require to withstand challenges in the legal and public courts. To the extent that the UK maintains the EU’s misappropriation sanctions once it ceases to be a Member State, these measures will now at least come under scrutiny by UK Ministers and UK courts pursuant to the Sanctions and Anti- Money Laundering Act 2018.^[4] The analysis should ideally include the following concerns.

First, misappropriation sanctions are based on criminal allegations in a third country. This means that the availability and duration of misappropriation sanctions are effectively delegated to third-country institutions. In this sense, the availability of misappropriation sanctions indirectly confers powers on a third country to determine who becomes the target of EU financial sanctions and for how long; which could potentially be delegated to the discretion of individual decisionmakers. Misappropriation sanctions can also be seen to bestow external legitimacy on the judicial proceedings they seek to support, in circumstances where the independence of the third country’s law enforcement authorities and the judiciary may be far from established; thereby running the risk of perpetuating any substantive or procedural human rights violations perpetrated in connection with those proceedings. In this sense restrictive measures adopted for the purpose of strengthening the rule of law in the third country could end up having the opposite effect in practice, encouraging or even condoning departures from the rule of law by the third country’s public authorities.

Only some considerable time after the misappropriation sanctions were first adopted did the EU courts begin to require the Council to verify, before relying on any third-country decisions in support of designations, that those decisions have been adopted in compliance with procedural rights, including the rights of the defence and the right to effective judicial protection; and to include at least a brief explanation to this effect in the statement of reasons accompanying a listing.^[5] However, this protection can be seen to be heavily caveated. The Council’s verification obligation is limited to the third-country decision on which the particular restrictive measures are based - it does not extend to the procedural rights compatibility of the third-country investigations or proceedings as a whole.^[6] In any event, the Council’s verification exercise is not the same as those of a national judicial authority in the context of asset-freezing criminal proceedings.^[7] The Council is not required to conduct its own further investigation if it has already obtained information it deems to be sufficient from the third country; unless the evidence provided by the third-country authorities is capable of giving rise to legitimate doubts regarding the conduct of the proceedings and the adequacy of information provided about it.^[8] Beyond the context of the specific proceedings the bar is set very high:

It is only if the Council’s political choice to support the new Ukrainian regime, including the cooperation resulting from the restrictive measures at issue, turns out to be manifestly erroneous, in particular because fundamental rights are systematically infringed in that country after the change of regime, that the alleged lack of correspondence between the protection of fundamental rights in Ukraine and that existing in the Union could have an impact on the legality of the maintenance of those measures in respect of the applicant.

(Yanukovych v Council, para. 161, unofficial English translation).

The EU court’s approach to the degree of scrutiny the Council is expected to apply to third-country proceedings may be difficult to reconcile with the approach adopted by the European Court of Human Rights to the extra-territorial application of Article 1 of the ECHR in connection with the execution of MLA and extradition requests for the last three decades.^[9] Whilst signatories are not obliged to verify whether the third country proceedings would be compatible with the ECHR, violations may occur where the subject of the request would face a real risk of suffering a flagrant denial of justice in the third country; by which is meant a breach of the principles of fair trial so fundamental so as to amount to a nullification, or destruction of the very essence of the right guaranteed by Article 6 EC HR.^[10] Corruption proceedings brought against former members of the governing regime in the aftermath of a revolution could conceivably satisfy this test.

Second, the grounds on which persons are designated as subject to misappropriation sanctions are expressly based on historic conduct. This means that the designated persons are unable to influence the duration of the sanctions by changing their behaviour; short of any steps accused persons might be able to take to expedite the third-country proceedings, whether by pleading guilty to a criminal charge or otherwise. In any event, this is not an option open to family members or other persons associated with suspects who are merely subject to judicial proceedings imposing preventative asset freezes. The EU court has on at least one occasion rejected a challenge by designated on the basis of third-country preventative measures by pointing to their failure to challenge the underlying freezing order;^[11] which ignores the possibility that such challenges may not be viable under the third country’s legal order.

Third, misappropriation sanctions appear to have had at best a questionable effect on the fight against grand corruption. The stated purpose of misappropriation sanctions is to assist the third country to prosecute misappropriation offences,^[12] and to find and repatriate misappropriated public funds.^[13] The aim pursued is one that can ultimately be achieved only by successful criminal proceedings in the third country, supported by the EU Member States executing any necessary' MLA and extradition requests. The success of misappropriation sanctions depends on the success of the third country’s criminal justice response to grand corruption. Commentators are starting to point out that these objectives have gone largely unsatisfied to date (Portela, 2019). A recent Explanatory Memorandum prepared by the UK Foreign and Commonwealth Office in connection with the proposed extension of the EU’s misappropriation sanctions on Tunisia contained a similar observation: progress has been slow in respect of international asset recovery, particularly as the asset freeze itself does not enable EU Member States to return disputed funds to the Tunisian State.^[14] In large part, this is due to the lack of convictions secured by the third countries’ authorities, which would be a prerequisite for securing EU Member State assistance in the confiscation and repatriation of assets, where available. However, the lack of convictions to date might in part be attributable to the adoption of misappropriation sanctions, to the extent that these measures have effectively obviated the need for the third countries to seek MLA from the ELJ Member States in locating and freezing assets within their territories.

Fourth, replicating the assistance conventionally available through well-established MLA channels without any of the corresponding procedural protections available in the criminal justice context risks devaluing those instruments. The way to stave off this temptation is not to water down the safeguards available in connection with cooperation in criminal matters but instead to try to replicate the advantages of sanctions - an instantaneous, EU-wide, asset freeze - within the established criminal justice framework. Regulation (EU) 2018/1805 of the European Parliament and of the Council of 14 November 2018 on the mutual recognition of freezing order and confiscation orders, due to come into force at the end of2020, provides for the mutual recognition of freezing and confiscation orders made by EU Member State courts. This instrument was adopted under Article 82 TFEU which envisages EU instruments based not only on mutual recognition of judgments and judicial decisions but also the approximation of Member State laws and regulations in the areas of terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime. Further measures could in principle be adopted under Title V TFEU governing the EU’s Area of Freedom, Security and Justice. The European Parliament in the course of calling for the adoption of EU autonomous sanctions to target individuals and entities responsible for, involved in or which have assisted, financed or contributed to the planning, directing or committing of gross human rights violations, abuses and acts of systemic corruption related to grave human rights violations also recognised that criminal prosecution should remain the primary objective of all efforts by the EU and its Member States to punish perpetrators of gross human rights violations and crimes of atrocity.^[15] There appears to be no reason why the same rationale should not also apply to grand corruption.

Conclusions

The adoption of misappropriation sanctions may risk not just undermining the fight against grand corruption and other heinous crime in third countries but also damaging the perceived legitimacy of sanctions as a foreign policy tool. Even if it is accepted that supporting a third country’s criminal proceedings is an appropriate foreign policy goal for the EU to pursue, and that assistance in the recover)' of assets is the best form for that support to take, the manner in which this is provided can be perceived as a convenient shortcut to avoid the procedural protections and other restrictions on MLA as well as the limits to the EU’s jurisdiction in criminal justice matters. Despite the deferential approach adopted by the EU court to legal challenges brought to date, reservations about the appropriateness of misappropriation sanctions will only increase as the criminal proceedings on which they are predicated fail to result in convictions and the related repatriation of assets from outside the jurisdiction. The adoption of misappropriation sanctions may even have undermined the third-country criminal proceedings they were intended to support, as fewer requests for MLA may have been sought once the administrative asset freeze was in place. The existence of misappropriation sanctions may similarly have precluded non-conviction based civil recovery of assets in those EU Member States where the power exists.

For these reasons, the better response to third-country grand corruption and other activities of concern is to strengthen the criminal justice responses available to the EU and its Member States. Misappropriation sanctions can only operate lawfully and effectively if greater care is taken to forge a symbiotic relationship between foreign policy and criminal justice objectives and if meaningful safeguards are made available to affected legal and natural persons. These challenges should ideally be addressed before misappropriation sanctions are relied on again - whether by the EU, by the UN or some other supra-national organisation or by individual countries acting unilaterally.

References

House of Lords, European Union Committee. (2017). The Legality of EU Sanctions. 11th Report of Session 2016-17, 2 February 2017, HL Paper 102. Available from: https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/102/10 2.pdf [Accessed 16th September 2019].

Office of Financial Sanctions Implementation. (2018). Financial Sanctions Guidance. London: HM Treasury. Available from: https://assets.publishing.service.gov.uk /government/uploads/system/uploads/attachment_data/ffle/685 308/financi al_sanctions_guidance_march_2018_final.pdf [Accessed 16th September 2019].

Portela, C. (2019). Sanctioning Kleptocrats: An Assessment of EU Misappropriation Sanctions. Berlin: Civil Forum for Asset Recovery' (CiFAR). Available from: https ://cifar.eu/wp-content/uploads/2019/03/CiFAR_Sanctioning-kleptocrats.pdf [Accessed 12th September 2019].

• [1] Resolution adopted by the UN Human Rights Council, 27/21, Human rights and unilateralcoercive measures, A/HRC/RES/27/21, 3 October 2014.
• [2] United Nations General Assembly, Human Rights Council, 39th session, Report of the Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment ofhuman rights, 30 August 2018, A/HRC/39/54.
• [3] European Parliament Resolution of 14 March 2019 on a European human rights violationssanctions regime (2019/2580(RSP)).
• [4] Chapter 2 (Review by appropriate Minister, and other reviews).
• [5] Judgment of Court (Grand Chamber) of 26 July 2017, Council v LTTE, C-599/14P,EU:C:2017:583; judgment of the Court (Fourth Chamber) of 19 December 2018, Azarovv Council, C-530/17P, EU:C:2018:1031; judgment of the General Court (Sixth Chamber)of 11 July 2019, Yanukovych v Council, Joined Cases T-244/16 and T-285/17.
• [6] Judgment of the General Court (Sixth Chamber) of 13 December 2018, Mykola TanovychAzarov v Council of the European Union, T-247/17, ECLI:EU:T:2018:931.
• [7] Judgment of the General Court (Sixth Chamber) of 30 January 2019, Stavytskyi v Council,T-290/17, ECLI:EU:T:2019:37, para. 92.
• [8] Ibid., para. 131.
• [9] ECtHR, Soering i> the United Kingdom, Appl. no. 14038/88,7 July 1989, Series A no. 161,para. 113.
• [10] ECtHR, Othman (Abu Qatada) v the United Kingdom, Appl. no. 8139/09, 17 January2012, para. 260.
• [11] Thabet and Others v Council, n. 26, para. 199
• [12] Tanovych v Council, n. 32.
• [13] Judgment of the General Court (Sixth Chamber) of 21 February 2018, T-731/15, SergiyKlyuyev v Council of the European Union, ECLI:EU:T:2018:90.
• [14] Standard Form of Explanatory Memorandum on the European Union’s Common Foreignand Security Policy, Council Decision (CFSP) 2019/... of [dd/01/2019] amending Decision 2011/72/CFSP concerning restrictive measures directed against certain persons andentities in view of the situation in Tunisia, Council Implementing Regulation (EU) 2019/...of [dd/01/2019] implementing Regulation (EU) No.101/2011 concerning restrictivemeasures directed against certain persons, entities and bodies in view of the situation inTunisia, Submitted by the Foreign and Commonwealth Office on 16 January 2019.
• [15] European Parliament resolution of 14 March 2019 on a European human rights violationssanctions regime (2019/2580(RSP)), para.12.