On 1 July 2017, the new Act to Reform Criminal Law on Proceeds of Crime became effective (the “Act”). The act transposed 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 on confiscation of assets gained as a result of criminal offences.
The reform eliminates the biggest legal impediment to confiscation under German criminal law – the existence of a damages claim against the offender for proceeds resulting from the criminal offence. Under the Act, confiscation can now support the enforcement of the injured person's claims so long as there is a corresponding court order. Under the previous law, confiscation was prohibited if and to the extent that an injured person had a civil claim against the offender for damages or other legal rights to proceeds resulting from the criminal offence.
The Act also expands the rules on extended confiscation to all criminal offences; this is done through amendments to Section 76a of the Criminal Code and Sections 435 et sec of the Criminal Procedure Code.
The Act permits confiscation of assets shifted to a third party, if the offender has committed the offence on behalf of or in the interest of the third party. 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 ordered if the offender died and the incriminated assets were transferred to a third party through an inheritance, legacy, or statutory share.
The Act also codifies the common law principle of “non-conviction based confiscation or forfeiture”. In connection with investigations regarding enumerated offenses - 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.
Establishing the amount to be confiscated
The Act adopts and clarifies the commonly applied rule that all proceeds resulting from a criminal offence should be confiscated (the “Gross Principle”). However, the individual application of the Gross Principle has been the subject of extremely contentious debate (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. As a result of the Act, Section 73e(1) of the Criminal Code now requires that 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 bribed public officials, all connected payments 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, and the acquisition cost is not a deductible expense.
For more information on this topic please contact Thomas Sonnenberg.