On July 1 2017 the new Act to Reform Criminal Law on Proceeds of Crime became effective. The act will transpose the EU Directive on the Freezing and Confiscation of Instrumentalities and Proceeds of Crime (2014/42/EU) into German law. It also aims to simplify existing rules regarding the confiscation of assets resulting from criminal offences.
The reform eliminates the biggest legal impediment to confiscation under German criminal law. It negates the principle that confiscation is prohibited if and to the extent that an injured person has a civil claim against the offender for damage compensation or other corresponding legal rights which legally enable the injured person to deprive the offender of any proceeds resulting from the criminal offence. Confiscation can now support the enforcement of the injured person's claims. Any confiscation will require a corresponding court order.
Section 76a of the Criminal Code, in connection with Sections 435 and following of the Criminal Procedures Code, expands the rules on extended confiscation beyond specific cases of organised crime to all criminal offences. Shifting assets to a third party is now prohibited if the offender has committed the offence on behalf of or in the interest of such a third party. By law, confiscation may also be ordered if the asset or its economic equivalent has been shifted to a third party:
- for free or without legal grounds; or
- if the third party realised or should have realised that the transferred asset resulted from a criminal offence.
In addition, confiscation of shifted assets may be granted if the offender has died and the incriminated assets have been passed on to a third party by way of inheritance, legacy or statutory share.
The common law instrument of non-conviction-based confiscation or forfeiture is set to become established in German criminal law. In connection with investigations regarding enumerated offences, (eg, organised crime, terrorism, drug trafficking, human trafficking and tax evasion), evidence of an individually committed criminal offence is not required for confiscation. Instead, the court can order a confiscation if it is convinced that the source of the specific asset in question was a criminal offence. This may be the case if the court identifies a substantial difference between the value of a specific asset and the regular legal income of the suspect.
The reform grants further clarity regarding the exact scope of the proceeds of a crime which are subject to confiscation. It has always been the general perception that all proceeds resulting from a criminal offence should be confiscated (known as the 'gross principle'). However, the gross principle has been subject to extremely contentious jurisdiction as to its individual application (even among the various senates of the Federal Criminal Court). In particular, it was unclear which of the offender's expenses or disbursements connected to the criminal activities must be deducted from the gross proceeds of a crime and may therefore not be confiscated. Pursuant to Section 73e(1) of the Criminal Code, expenses deliberately incurred in order to prepare for or commit a criminal offence are not deductible. For example, if an order in a public tender was awarded to the offender after he or she bribed public officials, all connected imbursements and expenses relating to the due performance of the offender's contractual obligations may be deducted. As a matter of course, the bribe itself is not deductible. In the event of drug trafficking, the entire proceeds from the sale of drugs are subject to confiscation, whereas the acquisition cost is not considered a deductible expense.
For further information on this topic please contact Thomas Sonnenberg at CMS Hasche Sigle by telephone (+49 221 77 16 0) or email ([email protected]). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
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