Council of the European Union Brussels, 14 February 2020 (OR. en) 5753/20 LIMITE COSI 18 ENFOPOL 35 EF 13 JAI 97 NOTE From:                 Presidency To:                   Delegations Subject:              Enhancing financial investigations to fight serious and organised crime: the way forward INTRODUCTION Financial profit is a key driver for most, if not all, types of organised crime. The Croatian Presidency is therefore deeply convinced that a more integrated effort to trace and investigate financial flows related to criminal activity can significantly improve internal security in the European Union. This could be called a ‘follow the money’ approach, and is characterised by the assumption that more efficient and systematic financial investigations into traditional forms of organised crime - such as drug trafficking, migrant smuggling, environmental crime, trafficking of cultural goods, child sexual exploitation or trafficking in human beings - are just as important as further efforts in the fight against money laundering, which is nothing other than attempting to legalise the proceeds of the above (and many other) crimes. The follow the money approach is of key importance to be truly effective in dismantling Organised crime networks and in preventing the infiltration of the licit economy of the Member States. 5753/20                                                                      RS/dk                     1 JAI.1              LIMITE                        EN

‘Following the money’ more effectively will require coordinated improvements in a wide array of interrelated areas, including: asset recovery; cooperation and coordination between Financial Intelligence Units (FIUs); the role of Europol in that cooperation; Europol cooperation with the private sector; and the use of currencies, both virtual and traditional. The Presidency is well aware that some of the measures and ideas that it is proposing for discussion in this document have been discussed in the past, but this was often done in a piecemeal fashion. It should also be emphasized that relevant legislation is partly based on Treaty provisions pertaining to the internal market rather than internal security - but tangible improvements for internal security can only be achieved if the security dimension is well reflected across the board. It is precisely the role of COSI to draw attention to those existing links, with a focus on internal security, from a long-term and strategic point of view. The Presidency is therefore convinced that the Member States should re-engage, with fresh and open minds, in a discussion on strong and ambitious measures to tackle financial aspects of organised crime. SCOPE Commissioner Ylva Johansson has       announced  1 that the Commission was preparing new proposals on asset recovery. From preparatory work conducted recently in the       LEWP  2 it has become clearer that the Member States see the need to discuss new measures to boost confiscation rates, such as further enhancing the possibility of confiscating assets without a criminal conviction, and also improving access by Asset Recovery Offices (AROs) and law enforcement authorities to a variety of public registers. The possibility of interconnecting centralised bank account registers should also be part of the discussion. 1        Tweet by Commissioner Johansson on the EUHomeAffairs Twitter account, 24 January 2020: ‘We need to be better prepared to fight organised crime. According to @Europol , there are 5000 organised crime groups making an estimated €110bn in criminal profits in the EU. ‘Therefore I am preparing new proposals on asset recovery.’’ 2        The LEWP discussed financial investigations at its meetings on 21 January and 11 February 2020 (cf. 5062/20 and 5733/20), and the outcomes of those discussions are reflected in this document. 5753/20                                                                     RS/dk                      2 JAI.1             LIMITE                          EN

At the LEWP meeting of 21 January 2020, the Commission made reference to the recent Council conclusions on strategic anti-money-laundering      priorities 3 and announced that a public consultation would be launched this spring, addressing topics such as the role, organisation and coordination of FIUs, potential solutions to the issue of FIU.net or the role of Europol in the above matters. The scope of the consultation might also include cash payments, which still have significant money-laundering potential, and further rules regarding crypto-currencies, for which we might need to increase the traceability of transactions and cover virtual currencies not exchangeable for fiat ones. But the connection with Europol extends further: In another recent set of   conclusions , 4 the Council called for Europol to be allowed to receive data directly from private parties, and the Presidency believes that Europol’s cooperation with private parties could have a two-fold added value: first, the Member States should discuss whether the private parties able to provide data directly to Europol should include financial institutions; and second, increased cooperation with the private sector within Europol should help the financial institutions to better fulfil their tasks as obliged entities, especially when it comes to reporting suspicious transactions in a more targeted manner. Last but not least, the Member States should foster their support for existing operational tools, such as EMPACT and the relevant priorities. Money Laundering and Asset        Recovery   5 is an Operational Action Plan within the EU policy cycle and is highly relevant to this discussion. Its significance has augmented as there has been a recent shift from raising awareness, knowledge sharing and building networks to a stronger operational and investigative approach. As a horizontal priority it is incorporated within the other crime areas and operational action plans and has contributed to tangible results as outlined in the OAP factsheets 6 Furthermore, its cooperation with third countries on money maundering and asset recovery could prove very beneficial. 3       Council conclusions on strategic priorities on anti-money laundering and countering the financing of terrorism, adopted on 5 December 2019 (14823/19). 4       Council conclusions on Europol's cooperation with private parties, adopted on 2 December 2019 (14745/19). 5       (11683/19) 6       EU Policy Cycle to tackle organised and serious international crime 2018/2021 – Implementation monitoring – Closing reports OAP 2018 and factsheets (8682/19). 5753/20                                                                    RS/dk                         3 JAI.1               LIMITE                           EN

Member States should also discuss support for existing expert networks such as the Anti-Money Laundering Operational Network (AMON), the Camden Asset Recovery Inter-Agency Network (CARIN) or the Asset Recovery Platform, and the assistance that Europol can provide to them. 1 Asset recovery and confiscation In its staff working document on non-conviction-based                  7 confiscation , the Commission cites a report that the proceeds of organised crimes within the European Union (EU) were up to 110 billion Euros annually. Despite all efforts, it is considered that only 1.1% of criminal assets are confiscated in the EU .8  Improving asset recovery, including confiscation, as the primary means of causing tangible discouragement to organised crime groups, should thus be one of the cornerstones of COSI’s discussions. 1.1 Non-conviction-based confiscation The leading idea to be considered is that of further extending the possibilities for confiscation of assets deriving from criminal activities, even in the absence of a conviction of a specific person for these activities. In the above working document, the Commission notes that law enforcement services are often faced with complex financial flows aimed at hiding the illicit origin of assets as well as structures that distance the offender from the crime. Even if illicit funds are discovered, connecting them to a criminal act and an offender can pose considerable obstacles. Non- conviction-based confiscation can help address this challenge and exists in some Member States’ jurisdictions: A classic construction used by some jurisdictions allows for confiscation in cases where a final conviction cannot be obtained, for instance because the suspect is dead, seriously ill, absconded, below the age of criminal liability or has immunity from prosecution, or simply because no person can be identified as the author of the crime, despite certainty that the assets concerned are criminal proceeds. 7        Commission Staff Working Document: Analysis of non-conviction based confiscation measures in the European Union, SWD(2019) 1050 final, circulated as 8627/19. 8        Quoted from Europol, Does Crime still pay? Criminal Asset Recovery in the EU, Survey of Statistical information 2010- 2014, 2016, p.4. 5753/20                                                                      RS/dk                     4 JAI.1              LIMITE                         EN

It is this absence of the possibility of establishing a clear link between proceeds of crime and a specific person that leads certain jurisdictions to allow in rem proceedings, that is actions against the assets themselves: this can be very important especially in relation to large poly- criminal groups where a number of persons are involved in multiple criminal activities, the proceeds of which cannot be individually associated with specific persons. Some Member States also rely on extended confiscation, i.e. the possibility to confiscate assets which are not connected to the crime for which the offender is being prosecuted. And finally, some Member States have introduced the possibility of confiscating assets that can be considered as unexplained wealth. The concept is based on a reversal of burden of proof in cases of evident disparity between declared income and actual property acquired by a person. It is worth noting that such a reversal of burden of proof might be useful not only in the context of confiscation where a conviction cannot be obtained, but also in order to actually obtain convictions for money laundering as a standalone crime: while the recent Directive on fighting money laundering by criminal     law  9 establishes money laundering as a crime without the requirement to demonstrate a link with a specific predicate offence, introducing the concept of unexplained wealth at EU level might significantly facilitate the prosecution of money laundering. 1.2 Improving the capacity to trace and identify illegally acquired assets Effective application of the above confiscation measures requires a strengthened legal framework to trace and identify illegally acquired assets. Legislative measures could include granting new powers to the Asset Recovery Offices (AROs), such as a more elaborate regime of urgent freezing powers or the power to trace and identify assets following a final conviction. This could fortify the current regime, governed by the Confiscation                10 Directive .  It might also need to be complemented by more harmonised access for AROs to various public registers containing information on valuable property, such as land or maritime registers. Member States should also consider establishing time limits within which an ARO has to respond to a request by one of its counterparts. 9        Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law, OJ L 284, 12.11.2018, p. 22–30. 10       Directive (EU) 2014/42 of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union, OJ L 127, 29.4.2014, p. 39–50. 5753/20                                                                       RS/dk                   5 JAI.1              LIMITE                      EN

1.3 Interconnection of the centralised bank account registers Of course, one instance of access by competent authorities to registers containing valuable information needs its own discussion: Article 32a of the Anti-Money-Laundering        Directive 11 (AMLD) requires Member States to put in place by 10 September 2020 central registries of bank 12 accounts. In turn, the recent Directive on facilitating access to financial information obliges Member States to designate the national authorities that should have direct access to those registries. Those authorities must include the AROs. That said, the above rules only provide for direct access by competent authorities to the registry of their individual Member State, whereas information from the other Member States has to be requested pursuant to a different provision. In order to explore potential improvements for procedures with cross-border elements, the Commission has adopted a      report 13 on the interconnection of national bank account registries, coming to the conclusion that such interconnection is technically feasible. It is now for the Member States to assess their readiness to pursue such interconnection in order to speed up access to financial information and facilitate cross-border cooperation between competent authorities. 2 Money laundering and Financial Intelligence Units (FIUs) As stated above, despite the fact that the vast bulk of the legislation pertaining to money laundering and terrorist financing is based on Treaty provisions on the internal market, the Presidency is convinced that any improvements in this area have the potential to be extremely beneficial for the EU’s internal security, and should therefore also be at the centre of COSI’s interest. A more effective fight against the latter is inherently linked to increased success with investigations into its predicate offences - i.e. large-scale criminal activities conducted by organised groups, such as trafficking in drugs, firearms or human beings. 11       Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC, OJ L 0849, 09.07.2018, p. 1. 12       Directive (EU) 2019/1153 of the European Parliament and of the Council of 20 June 2019 laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences, OJ L186 of 11.7.2019, pp. 122-137. 13       11518/19. 5753/20                                                                      RS/dk                     6 JAI.1             LIMITE                        EN

2.1 FIUs The Council has recently adopted conclusions on strategic priorities on anti-money laundering and countering the financing of             14 terrorism ,  which build upon the recent series of Commission reports on the  matter .15 Amongst other issues, they call on the Commission to further consider the possibility of creating a coordination and support mechanism that encourages and facilitates the cross-border work of Financial Intelligence Units (FIUs). That idea needs to be discussed in the context of other closely related issues that might be hampering efficient exchange of financial information: the use and development of FIU.net (and the question of its very operation, for that matter) and the position of FIUs within their national administrations. In its report assessing the framework for cooperation between Financial Intelligence           16 Units ,  the Commission points out that the flow of information suffers at two levels:  First, between the FIUs and the obliged entities from the private sector which are required to file suspicious transaction reports (STRs) to those FIUs: it has been reported that some Member States still rely on paper-based procedures for this kind of exchange. This of course considerably slows down the procedures and hinders the administration and assessment of the STRs received, preventing computerised filtering on the basis of relevant criteria (such as the origin of the STR, time of submission, topic etc.).  A further layer of complication arises with respect to cooperation between FIUs of different Member States. When an FIU receives STRs, it is required to forward those which concern another Member State to the FIU of that Member State (mostly when its own Member State is not concerned, and the STR has been received on the basis of teritoriality). Similarly, upon its own discretionary decision, the FIU should disseminate spontaneously information or analysis that is relevant for another Member State, which is specifically important in cases with a cross-border element. However, the Commission has established that those obligations are fulfilled very unevenly, and in any case rather scarcely: some Member States do not use the relevant functionalities of FIU.net at all, and 16 Member States sent less than 100 cross-border disseminations in        17 2018 . 14       14823/19. 15       11514/19 (+ADD1), 11516/19, 11517/19, 11518/19, 11519/19. 16       11517/19. 17       Ibid, page 7. 5753/20                                                                      RS/dk                    7 JAI.1            LIMITE                          EN

In the former case, tangible improvements are possible without legislative changes at EU level if all the Member States commit to developing computerised systems for reporting suspicious transactions at national level, where that is not already being done. Another aspect of improving submission of STRs at national level, namely targeting them better, will be discussed in another section of this document, on Europol cooperation with private parties. Concerning cooperation between FIUs of different Member States, the possibility of creating a coordination and support mechanism - as mentioned in the December Council conclusions - could play a key role. During discussions on the Directive on the use of financial information, some Member States argued that such a mechanism should be strictly confined to coordination. Therefore, as a minimum, the mechanism should include powers to adopt legally binding standards, templates and guidelines in the area of work of FIUs in order to ensure that filed STRs are as meaningful as possible. However, to achieve significant improvements, the Member States will need to discuss the possibility that it could also include certain centralised reporting features and more central capacity-building based on new IT tools (based on artificial intelligence and machine-learning technologies) to strengthen and facilitate joint analysis. 2.2 Status of FIUs The Commission Report on FIUs also mentions that the different status, powers, and organisation of the FIUs of different Member States continue to affect their ability to access and share relevant financial, administrative and law enforcement information (especially those held by obliged entities and/or law enforcement authorities). Also here, COSI should discuss whether at least certain aspects of that organisation could be harmonised in order to raise the level of ambition. It appears that the fact that some FIUs are embedded within the judiciary, while others belong to law enforcement authorities, unduly hampers the exchange of information, which should be based solely on tasks and obligations set out in the AMLD. 2.3 FIU.net Besides the recent ban imposed by the EDPS regarding the technical assistance to FIU.net provided by Europol, which will require a temporary solution to be found for the hosting of the system, the Member States need to increase their commitment to the existing tools that it provides. 5753/20                                                                    RS/dk                       8 JAI.1             LIMITE                        EN

For instance, it is reported that the so-called ‘Ma3tch’ technology under FIU.net, allowing Member States to match their data with that of other FIUs in an anonymous way (on a hit/no-hit basis) remains underused. This seems a missed opportunity, considering that the technology is based on a number of filters that facilitate joint analysis and assessment of the relevance of the numerous STRs that the FIUs have to process. At the same time, using such a tool to its full potential might represent an alternative to the possibility of using the abovementioned FIU coordination mechanism as a single point of contact for filing STRs. Based on the above, the Member States should discuss how to renew momentum for FIU.net, in terms of its hosting, the development of a new version that would reflect current technological standards (the development of the current version started in 2002), and ultimately an increased commitment on their part to use to the system to its full potential. 3 Europol The aim of this section is to offer another perspective — that of Europol, which could play a key role in supporting the various tools under discussion — on a number of issues that have already been mentioned in this document. In its conclusions on Europol’s cooperation with private          18 parties , the Council stressed the urgent operational need for Europol to request and receive data directly from private parties, and agreed that reflection on possible modalities for such a transmission would continue at all appropriate levels, including COSI. In the Council conclusions, the Member States agreed that any regime of direct transmission of data by private parties to Europol should be based on a procedure of consent from the Member States, for instance in the form of a list of private parties from which Europol would be able to receive personal data. This, in combination with the option of creating a coordination mechanism for FIUs, as discussed in one of the preceding sections, naturally raises two questions:    should it be possible for the private parties covered by the authorisation to provide data to Europol to include financial institutions, and 18       14745/19. 5753/20                                                                    RS/dk                     9 JAI.1              LIMITE                       EN

   should such a coordination mechanism be embedded in Europol, with powers to be defined on a scale ranging from single reporting entity for STRs to a pure coordination body issuing guidelines and templates for efficient and targeted reporting of suspicious transactions? In this very sense, Europol already plays an important role in the framework of its ongoing EFIPP project, which provides a platform for regular discussions between private parties - mostly credit institutions - and public stakeholders. This initiative could be further strengthened, for instance by making the use of any resulting templates or guidelines mandatory for all obliged entities, independently of their participation in the forum (thus in a sense connecting with the idea discussed in the preceding paragraph and responding to the Commission’s call for regular feedback by FIUs to the private sector on the quality of their reports and a structural dialogue between them in order to share typologies, trends and general guidance, which is imperative in order to enhance the ability of the private sector to correctly identify suspicions and file the most meaningful reports. 19 19      11517/19, page 13. 5753/20                                                                       RS/dk                  10 JAI.1             LIMITE                        EN