New legal framework on the recovery of criminal proceeds
On 1 July 2017, new rules on the recovery of criminal proceeds with regard to both substantive and procedural criminal law entered into force in Germany. The rules apply immediately and without any transitional period to old cases. The Reform Act ("Gesetz zur Reform der strafrechtlichen Vermögensabschöpfung") implements the European Directive 2014/42/EU of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union. Its basic objective is to reorganise and facilitate victim compensation.
Under the previous law, prosecution authorities confiscated criminal assets only temporarily in favour of the victims who then had to assert their claims in a complicated procedure after having obtained the corresponding civil titles. In accordance with the priority principle, the victim who came first was served first – the others were left empty-handed if the secured assets were insufficient to satisfy all their claims. From now on, the enforcement of financial claims against criminal offenders is widely handled by the criminal justice authorities, who shall distribute the assets among the victims.
The previous complex system of interlinked civil and criminal law provisions, where the prosecution authorities had to assist the victims in their recovery measures ("Rückgewinnungshilfe"), has been replaced by a legal concept that requires prosecution authorities to seize assets in the interest of the victims of the crime and, for compensation purposes, distribute them among the victims once the criminal law judgment is final and the court has rendered a final and binding decision about the confiscation of the assets. Contrary to previous law, confiscation is no longer limited only to particularly severe crimes and it is now also possible that the victim can file a claim for damages, the satisfaction of which would deprive the offender or participant of the value of what has been obtained (e.g. cases of fraud). In order to participate in the distribution of the assets the victim does not need to obtain a title against the offender any longer. He does not need to file a claim and undergo potentially cost-intensive, lengthy civil court procedures on top of his financial losses, but only has to register and present his claim to the prosecution authorities. Thus, the new procedure will considerably facilitate and cheapen victim compensation.
Under certain circumstances and similar to the Anglo-American concept of "non-conviction-based confiscation/forfeiture", assets can also be confiscated where an individual cannot be prosecuted or sentenced for a crime (e.g. where his intent or his involvement in a specific crime cannot be proven), if the deciding criminal court is convinced of the illegal origin of the property. The fact that the value of the secured assets is grossly disproportionate to the legal income of the offender is one of the facts giving rise to the conclusion of the court that the property derives from criminal conduct. Thus, if the origin of the assets remains unclear, the Reform Act introduces a shift of the burden of proof to the detriment of the offender, who then needs to prove the legal acquisition of the assets.
As long as assets are under confiscation by prosecution authorities, private creditors cannot enforce against the debtor's assets. If the totality of the victims' claims exceeds the value of the seized assets and the criminal offender goes bankrupt subsequent to the enforcement, the public prosecutor has to file for insolvency on behalf of the creditors. Unless the victims have secured incontestable positions apt to survive insolvency, their compensation claims will be satisfied evenly alongside the financial claims of all other creditors by quota, so often only a small part of their claim will be satisfied.
As the priority principle does not apply in insolvency cases, well-advised victims are deprived of the possibility to assert and enforce their claims before the other competing creditors. Furthermore, under the new legal framework, there is no leeway for settlement agreements between the offender and the victim, because the prosecution authorities are not authorized to reach such agreements on the financial recovery. Thus, it is to be expected that the new legal provisions will not only bring considerable benefits, but will also affect victims disadvantageously as they lose influence on the asset recovery procedure.