The law reforming confiscation orders and asset recovery entered into force on 1 July 2017, implementing the EU Directive "on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union" (Directive 2014/42/EU). The new regulations affect both the companies that fall victim to criminal offences and the companies that are subject to an investigation.
Since the recovery of assets is not a sanction, the prohibition on retroactivity under criminal law does not apply. The new regulations hence also apply to criminal offences that were committed prior to the entry into force of the legislative amendment but have only now become the subject of preliminary investigations or whose perpetrators have been convicted.
"Confiscation" as the new terminology
The new regulations first affect the terminology hitherto used in connection with the recovery of assets. The legislator has dropped the differentiation between "confiscation" and "forfeiture", as existed in the former legal situation, to create one single legal concept of "confiscation". The terminology of asset recovery has hence been adapted to the concept of "confiscation", which is used internationally and primarily in European law.
Enhanced protection of victims – i.e. also of companies as victims
The core provision of asset recovery, section 73 German Criminal Code, strengthens the protection of victims, which also benefits companies harmed by criminal offences. Forfeiture (i.e. the recovery of benefits obtained by criminal offences) was hitherto ruled out in cases where the act gave rise to a claim of the victim against the perpetrator (section 73(1) sentence 2 German Criminal Code, former version). This meant that de facto no forfeiture was possible in the case of offences against property. The legislator has now dropped that provision – frequently criticised as sounding the death-knell for forfeiture. Investigating authorities are now able to recover ("confiscate") the proceeds of crime or property of equivalent value if the victim has claims against the perpetrator. Confiscation is, however, ruled out pursuant to section 73e German Criminal Code if the victim’s claims have expired.
Extended confiscation of the proceeds of crime beyond the area of organised crime
Whilst "extended forfeiture" in the law as it stood hitherto was restricted to listed offences, particularly in the area of organised crime, "extended confiscation" now applies to all criminal offences (73a German Criminal Code).
Extended confiscation now allows property to be confiscated from the perpetrator or participant that was acquired by or for a different criminal offence. All incriminated property of the perpetrator may therefore be confiscated, provided that the court is convinced that it originates from criminal activities. There is no need for the court to specifically establish or prove the criminal offence.
Independent confiscation
There is a new provision relating to independent confiscation under section 76a(4) German Criminal Code. Any property that, as a result of illegal activities, has been frozen in proceedings on suspicion of a listed offence may be confiscated independently even where the party affected cannot be pursued or convicted on account of such criminal offence. Listed offences include criminal offences from the areas of organised crime and terrorist financing as well as from other areas.
This provision is of relevance to companies primarily since money laundering is included as a listed offence (section 76a(4) no. 1(f) German Criminal Code) and, given the list of predicate offences under money laundering, ultimately involves all commercial criminal law.
Gross principle consolidated and more detailed
What is termed the "gross principle" still applies after the reform, i.e. all assets may be recovered that have benefited the perpetrator, participant or third-party beneficiary in realising the offence at any stage thereof.
The legislator has, however, made it clearer as to how the proceeds obtained from a criminal offence are established. This clarification is of major importance in practice since the closer definition of the gross principle has hitherto been disputed, including among the criminal divisions of the Federal Court of Justice.
In a first step, the proceeds are to be established on the basis of a "purely objective approach". This is not based on a direct causal link between the offence and enrichment. In a second step, in an evaluating approach considerations or expenses may be deducted (section 73d German Criminal Code) as far as such are justified in line with statutory assessments. Non-deductibility in that regard is restricted to that which the perpetrator intentionally and knowingly spends or uses for the operations condemned under criminal law.
The clarification of the gross principle affects corruption in particular, which is highly relevant in practice. Under the new regulations, most of the expenses and costs incurred in the context of a contract acquired by bribes are likely to be deductible for purposes of assessing the recovery of assets.
Seizure and attachment of assets
As previously, the seizure of assets serves to secure their confiscation (sections 111b - 111d German Code of Criminal Procedure), whereas the confiscation of property of equivalent value (section 73c German Criminal Code) is pursued by way of attachment (section 111e - 111g German Code of Criminal Procedure). From a criminal procedure viewpoint, reasonable suspicion will, in principle, suffice in both cases for the seizure or attachment to be ordered. That has far-reaching consequences since on the basis of reasonable suspicion alone – a threshold which may readily be exceeded – significant assets may be "frozen". In the case of strong suspicion, seizure or attachment "should" be ordered.
Facilitation of assertion of claims
The new regulation on asset recovery facilitates the process of asserting claims, by harmed companies for example, also with a view to potential insolvency of the perpetrator.
Should the assets obtained by way of criminal offences still be available, the trial court will decide on their confiscation. Once the judgment has become final and binding, the assets will be turned over to the party harmed by the criminal offence (section 459h(1) German Code of Criminal Procedure). Should the proceeds of crime no longer be available, the court will order the confiscation of the sum of money corresponding to the value of the property originally obtained (section 73d German Criminal Code). Once the court decision has become legally binding, the assets seized to secure such confiscation of property of equivalent value will be realised and the proceeds returned to the harmed party or parties (section 459h(2) German Code of Criminal Procedure). The public prosecutor, as the enforcement authority, will compensate the harmed party by way of the enforcement proceedings available under criminal law. The public prosecutor will decide on the return and retransfer of ownership in the assets.
The harmed company is no longer required to assert its claims and obtain an enforcement instrument against the perpetrator in civil proceedings. It can notify the public prosecutor, as the enforcement authority, of its claims and assert them within six months of the judgment. There are merely a few cases where companies may find it expedient to take the civil law route as well – for example, given complex and extensive criminal proceedings, it will predictably be faster to pursue civil law proceedings.
With a view to potential insolvency of the perpetrator, it frequently came to a "greyhound race" in the previous legal situation. The party that acted first sometimes obtained everything whilst others were left empty-handed. According to the amended version however, the confiscated assets are distributed equally among all harmed parties. In the event of a lack of assets, i.e. the perpetrator’s assets do not suffice to satisfy all the harmed parties, the public prosecutor will open insolvency proceedings against the perpetrator’s assets. The assets will then be distributed in accordance with the rules of the insolvency proceedings.
Since the recovery of assets is not a sanction, the prohibition on retroactivity under criminal law does not apply. The new regulations hence also apply to criminal offences that were committed prior to the entry into force of the legislative amendment but have only now become the subject of preliminary investigations or whose perpetrators have been convicted.
"Confiscation" as the new terminology
The new regulations first affect the terminology hitherto used in connection with the recovery of assets. The legislator has dropped the differentiation between "confiscation" and "forfeiture", as existed in the former legal situation, to create one single legal concept of "confiscation". The terminology of asset recovery has hence been adapted to the concept of "confiscation", which is used internationally and primarily in European law.
Enhanced protection of victims – i.e. also of companies as victims
The core provision of asset recovery, section 73 German Criminal Code, strengthens the protection of victims, which also benefits companies harmed by criminal offences. Forfeiture (i.e. the recovery of benefits obtained by criminal offences) was hitherto ruled out in cases where the act gave rise to a claim of the victim against the perpetrator (section 73(1) sentence 2 German Criminal Code, former version). This meant that de facto no forfeiture was possible in the case of offences against property. The legislator has now dropped that provision – frequently criticised as sounding the death-knell for forfeiture. Investigating authorities are now able to recover ("confiscate") the proceeds of crime or property of equivalent value if the victim has claims against the perpetrator. Confiscation is, however, ruled out pursuant to section 73e German Criminal Code if the victim’s claims have expired.
Extended confiscation of the proceeds of crime beyond the area of organised crime
Whilst "extended forfeiture" in the law as it stood hitherto was restricted to listed offences, particularly in the area of organised crime, "extended confiscation" now applies to all criminal offences (73a German Criminal Code).
Extended confiscation now allows property to be confiscated from the perpetrator or participant that was acquired by or for a different criminal offence. All incriminated property of the perpetrator may therefore be confiscated, provided that the court is convinced that it originates from criminal activities. There is no need for the court to specifically establish or prove the criminal offence.
Independent confiscation
There is a new provision relating to independent confiscation under section 76a(4) German Criminal Code. Any property that, as a result of illegal activities, has been frozen in proceedings on suspicion of a listed offence may be confiscated independently even where the party affected cannot be pursued or convicted on account of such criminal offence. Listed offences include criminal offences from the areas of organised crime and terrorist financing as well as from other areas.
This provision is of relevance to companies primarily since money laundering is included as a listed offence (section 76a(4) no. 1(f) German Criminal Code) and, given the list of predicate offences under money laundering, ultimately involves all commercial criminal law.
Gross principle consolidated and more detailed
What is termed the "gross principle" still applies after the reform, i.e. all assets may be recovered that have benefited the perpetrator, participant or third-party beneficiary in realising the offence at any stage thereof.
The legislator has, however, made it clearer as to how the proceeds obtained from a criminal offence are established. This clarification is of major importance in practice since the closer definition of the gross principle has hitherto been disputed, including among the criminal divisions of the Federal Court of Justice.
In a first step, the proceeds are to be established on the basis of a "purely objective approach". This is not based on a direct causal link between the offence and enrichment. In a second step, in an evaluating approach considerations or expenses may be deducted (section 73d German Criminal Code) as far as such are justified in line with statutory assessments. Non-deductibility in that regard is restricted to that which the perpetrator intentionally and knowingly spends or uses for the operations condemned under criminal law.
The clarification of the gross principle affects corruption in particular, which is highly relevant in practice. Under the new regulations, most of the expenses and costs incurred in the context of a contract acquired by bribes are likely to be deductible for purposes of assessing the recovery of assets.
Seizure and attachment of assets
As previously, the seizure of assets serves to secure their confiscation (sections 111b - 111d German Code of Criminal Procedure), whereas the confiscation of property of equivalent value (section 73c German Criminal Code) is pursued by way of attachment (section 111e - 111g German Code of Criminal Procedure). From a criminal procedure viewpoint, reasonable suspicion will, in principle, suffice in both cases for the seizure or attachment to be ordered. That has far-reaching consequences since on the basis of reasonable suspicion alone – a threshold which may readily be exceeded – significant assets may be "frozen". In the case of strong suspicion, seizure or attachment "should" be ordered.
Facilitation of assertion of claims
The new regulation on asset recovery facilitates the process of asserting claims, by harmed companies for example, also with a view to potential insolvency of the perpetrator.
Should the assets obtained by way of criminal offences still be available, the trial court will decide on their confiscation. Once the judgment has become final and binding, the assets will be turned over to the party harmed by the criminal offence (section 459h(1) German Code of Criminal Procedure). Should the proceeds of crime no longer be available, the court will order the confiscation of the sum of money corresponding to the value of the property originally obtained (section 73d German Criminal Code). Once the court decision has become legally binding, the assets seized to secure such confiscation of property of equivalent value will be realised and the proceeds returned to the harmed party or parties (section 459h(2) German Code of Criminal Procedure). The public prosecutor, as the enforcement authority, will compensate the harmed party by way of the enforcement proceedings available under criminal law. The public prosecutor will decide on the return and retransfer of ownership in the assets.
The harmed company is no longer required to assert its claims and obtain an enforcement instrument against the perpetrator in civil proceedings. It can notify the public prosecutor, as the enforcement authority, of its claims and assert them within six months of the judgment. There are merely a few cases where companies may find it expedient to take the civil law route as well – for example, given complex and extensive criminal proceedings, it will predictably be faster to pursue civil law proceedings.
With a view to potential insolvency of the perpetrator, it frequently came to a "greyhound race" in the previous legal situation. The party that acted first sometimes obtained everything whilst others were left empty-handed. According to the amended version however, the confiscated assets are distributed equally among all harmed parties. In the event of a lack of assets, i.e. the perpetrator’s assets do not suffice to satisfy all the harmed parties, the public prosecutor will open insolvency proceedings against the perpetrator’s assets. The assets will then be distributed in accordance with the rules of the insolvency proceedings.
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