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It should be a separate criminal offence to refuse to hand over money and assets derived from crime, a group of MPs has said.

The system for enforcing confiscation orders imposed by the courts is not working, a report by the Home Affairs Select Committee added.

Only a "paltry" 26p in every £100 is being recouped, the MPs said.

The Home Office said it was "making progress" and £1.2bn had been seized between April 2010 and March 2016.

But the committee concluded that the system for monitoring suspicious financial activity was overloaded and there were not enough skilled investigators.

'Debt squared'

Among its recommendations the MPs called for specialist "confiscation courts", with judges able to compel offenders to attend hearings.

Non-payment of a confiscation order would be a crime in itself, and prisoners would have to remain incarcerated until all debts were paid. The MPs also called for offenders to have their passport taken away until debts were settled.

"To enforce this, we recommend that no criminal be allowed to leave prison without either paying their confiscation order in full, or engaging with the courts to convince a judge that their debt to society is squared," the committee added.

The Proceeds of Crime Act 2002 is legislation that applies across the UK, albeit with different rules on how confiscation orders are applied in the different nations of the UK.

Confiscation orders are issued by courts against convicted offenders and can be applied to any offence resulting in financial gain.

But even after an order has been made, there are very few incentives for criminals to either engage with the courts or pay the money back with many choosing instead to extend their prison sentences and avoid paying, the report added.

"It appears that some criminals view paying back their proceeds of crime as an option rather than a requirement - essentially a choice between payment and prison," it said.

The report also said:

Money laundering was "undoubtedly a problem" in the UK

Poor supervision of the London property market had allowed it to become a safe haven for money-laundering criminals

A database used to log suspicious financial activity was "heavily overloaded and therefore rendered completely ineffective"

A new formula for allocating recovered assets needs to be brought in which ensures that at least 10% of the wealth is returned or donated to the communities which have suffered at the hands of criminals

Committee chairman Keith Vaz said: "At least £100bn, equivalent to the GDP of Ukraine, is being laundered through the UK every year. The proceeds of crime legislation has failed to achieve its purpose."

He said the National Crime Agency's main system for reporting suspicious transactions, known as Elmer, was "not fit for purpose", adding that it was capable of managing 20,000 reports a year, but it was currently burdened with 381,882.

As of September 2015, the total debt outstanding from confiscation orders was calculated at £1.61bn, although the committee admitted that this figure was "problematic".

A Home Office spokesman said: "We are committed to attacking criminal finances, making it harder to move, hide and use the proceeds of crime, as set out in the Serious and Organised Crime Strategy.

"And there is clear evidence we are making progress in this effort; the government seized a total of £1.2bn from criminals between April 2010 and March 2016, with more assets recovered in 2015-16 than ever before."

The spokesman also said it would consider the recommendations in the report.