Consequences of a conviction – confiscation of the proceeds of a crime

In German criminal law as well as in other European countries, the principle applies with regard to the consequences of a conviction.

A criminal shall not obtain economic benefits from the offence –  Crime must not pay!

confiscation of the proceeds of a crime

1. Skimming off of assets in criminal law

The basic ideas behind the right of asset recovery can be illustrated by means of narcotics criminal law:

If a drug dealer’s home is arrested and searched and a kilogram of hashish is found, these drugs are confiscated by the police.

If, instead, 10,000 euros found in the apartment from a recently completed sale of drugs, the money will also be confiscated.

But what happens if the drug dealer has spent 9,000 euros on acquiring the illegal drugs? In contrast to tax law, such “operating expenses” are not taken into account to reduce profits in the criminal-law asset absorption. In other words, the state collects the full amount of 10,000 euros. From a profit of 1,000 euros, this effectively turns into a loss of 9,000 euros. This is called the gross principle.

The examples from the field of narcotics crime are easy to understand. However, it becomes complicated when it comes to offences under commercial criminal law, such as corruption, tax evasion or the delay of insolvency proceedings. This not only raises complicated legal questions, but also can lead to economic consequences with existential threat. In particular, the application of the gross principle often hits the convicts much harder than the criminal sanction itself as a secondary consequence of a conviction.

2. Reform of the law in 2017

The German law of asset recovery applies to all criminal law, i.e. also to the law of administrative offences and to juvenile criminal proceedings.

The provisions on “forfeiture and confiscation” (§§ 73 to 76a StGB old) valid until June 2017, which finally regulated the absorption of assets, were fundamentally reformed by the law on the reform of criminal asset absorption on July 1, 2017. This reform should simplify the right of asset recovery, facilitate the temporary seizure of assets and allow the subsequent recovery of assets.

The background to the reform of the law on skimming off assets was provided by European law. However, with the version of the law now in force, German lawmakers have in some cases clearly overstepped the target.

3. Former legal situation: expiry and seizures

According to the old legal situation, a distinction was made between “expiry” and “seizures”.

The expiry in the old version of the law referred – put simply – to what “had been achieved through the deed”. This should not remain with the perpetrator, but be transferred to the state. The forfeiture did not constitute an additional penalty, but a measure to skim off the assets acquired illegally, which could also be imposed independently of the culpability of the perpetrator. However, since decay – at least according to the wording of the law (“something achieved”) – followed the so-called gross principle, i.e. did not focus on profit, but on what was achieved, it actually had the effect of an evil with a sanctioning effect that went beyond mere skimming back.

The condition for forfeiture was the existence of an unlawful act. A large number of assets, including movable property, land, rights in rem, consolidated peculiarities, tax advantages, etc., were classified as “acquired assets”. These values had to come directly “from the deed”, i.e. they had to flow to the perpetrator from the realization of the offence. Not included were profits “for the crime”, e.g. rewards for the participation in the crime. As a result of the so-called “extended expiry” (§ 73d StGB old version), assets were also recorded under the old legal situation which originated in connection offences, i.e. which did not represent “something achieved” under § 73 StGB old version, but had otherwise illegally come into the possession of the offender as a result of a previous act.

In cases where the concrete object obtained could no longer be skimmed off, the offender was obliged to pay compensation for the monetary value (§ 73a StGB). If the exact values for the levy according to §§ 73 and 73a StGB old could not be determined, they could be estimated (§ 73b StGB old).

Exceptionally, the offender escaped the levy on property if he was thereby exposed to “undue hardship” (§ 73c StGB old version). Pursuant to § 73 (1) sentence 2 StGB (old version), the forfeiture was not ordered for the protection of the injured party “insofar as the injured party has accrued a claim from the offence, the fulfilment of which would deprive the offender or participant of the value of what was obtained from the offence”. As a result, a form of civil law recovery aid was installed in criminal law.

The legal consequence of the expiry was the transfer of ownership of the expired goods to the state (§ 73e StGB old version).

The seizure which had to to be separated from expiry (§§ 74 to 75 StGB a.F.) after former law did not refer to what was obtained by the act but to the securing of what was “produced by the act” (so-called producta sceleris, e.g. counterfeit money, false documents, etc.) or the “used for the act” (so-called instrumenta sceleris, e.g. the used murder weapon, the transport container used for the narcotics, etc.). Ownership of the confiscated property was also transferred to the state (§ 74e StGB old version).

4. Actual legal situation: confiscation of proceeds of crime

The old legal situation was found to be cumbersome and complicated. The reform of §§ 73 ff. of the Penal Code (StGB), which came into force in July 2017, by no means only brings simplifications – and certainly no relief for those sentenced.

First of all, there is conceptual cosmetics. The term “seizure” has been comprehensively replaced by the term “confiscation”. First of all, the above distinction between “expiry” and “seizure” is omitted. In addition, the aim is to facilitate cooperation with countries that do not know the difference between “expiry” and “seizure” in the case of cross-border asset transfers.

In future, the forfeiture will be uniformly referred to as “confiscation of proceeds from crime”. Section 74 StGB (old version), which formerly regulated the requirements for confiscation, is now called “confiscation of products, means and objects of the offence”. Another new term is “asset rest”, which replaces the former “attachment in rem”. Furthermore, the hedging instruments of the property remainder after the StPO and the tax arrest in accordance with § 324 AO rank equally alongside each other. This is intended to avoid uncertainties in the preliminary securing of assets in criminal tax proceedings.

The concept of “recovery aid” is abandoned. This is at least consistent because criminal law primarily does not serve to enforce civil law claims. This means that economically injured parties are no longer privileged in comparison to other injured parties. The result is that confiscation and protection of assets in the form of confiscation and restraint of assets can now also be imposed in the case of property offences.

The gross principle, which has not yet been applied uniformly, has been confirmed and extended. However, expenses incurred shall be deductible, unless they have just been incurred for the commission of the unlawful act.

The Institute of Extended Confiscation is now possible on the basis of any criminal offence (§ 73a StGB n.F.), a referral is no longer relevant.

A completely new approach is implemented in § 76a Paragraph 4 StGB new version. The regulation allows the independent confiscation of assets even without proof or traceability of an illegal act, provided that the court is convinced of their illegal origin. The newly inserted § 437 of the German Code of Criminal Procedure (StPO) also stipulates that the court can base the required conviction of the illegal origin of the object “in particular on a gross mismatch between the value of the object and the lawful income of the person concerned”. With regard to the principle of the free assessment of evidence by judges in accordance with § 261 StPO, such a “rule of evidence” seems extremely strange. It is also questionable whether such a “presumption of illegality of the origin of the assets” can be agreed with the presumption of innocence of Art. 6 (2) of the European Convention on Human Rights (ECHR).

5. Conclusion

Asset absorption, despite all assertions to the contrary, is a form of state infliction of evil through expropriation. Since the freshly reformed regulations have yet to be put into practice, it remains to be seen how the right of asset recovery will develop in the future as a result of the comprehensive restructuring. However, the most problematic aspects of the new regulation – even on a purely dogmatic level – are the privileged status of the state as a confiscation creditor in insolvency and criminal tax proceedings as well as the newly created independent asset recovery without the necessary proof of the exact unlawful act.

It is even more important than before for defence lawyers in all areas of law to develop long-term strategies and to keep an eye on the possible side effects of a conviction.