On 23 March 2017, the German Parliament passed new rules on criminal law measures for recovery of criminal proceeds. In the future, enforcement of financial claims against criminal offenders will be widely handled by the public prosecution. Whilst the new rules may facilitate access to compensation for private parties affected by crimes, intellectual property right owners fighting counterfeiters may often find civil enforcement more promising.
Cornerstones of new rules
The Reform Act (“Gesetz zur Reform der strafrechtlichen Vermögensabschöpfung“, see: http://dipbt.bundestag.de/extrakt/ba/WP18/761/76162.html) shall implement Directive 2014/42/EU on the Freezing and Confiscation of Instrumentalities and Proceeds of Crime in the European Union as well as a decision of the German Supreme Court. Main goals of the new Law are to facilitate confiscation of illegal proceeds as well as compensation of the victims of crime.
In order to achieve these goals, the Reform Act provides in particular for the following:
The complex system of interlinked civil and a criminal law provisions aiming at the prosecuting authorities assisting the victim in its recovery efforts (“Rückgewinnungshilfe“) is replaced by a set of new rules making asset recovery first and foremost the task of the prosecuting authorities. Under the new rules, the prosecuting authorities are empowered to seize assets for compensation of the victims and distribute the assets among the victims of the crime. Such distribution shall take place after a final and binding decision has been rendered about the confiscation of the assets. Victims do not need to obtain a title against the offender anymore to participate in distribution. Seized assets escape civil enforcement and in particular attachment by private parties as long as the seizure by the prosecuting authorities continues.
Where enforcement against criminal offenders results, as it is often the case, in bankruptcy of the offender, insolvency administrators and insolvency courts shall take over. Unless the victims have secured incontestable positions apt to survive insolvency, their compensation claims will be satisfied alongside the financial claims of all other creditors by quota which regularly results in satisfaction of a small part of the claim only. Insolvency of the offender may be triggered by the prosecuting authorities who shall file under the new Law an application for insolvency where the total of the victims’ claims exceeds the value of the seized assets.
Confiscation of criminal proceeds according to the new rules will regularly prescribe within 30 years after completion of the crime and confiscation will also be possible in the event that assets are discovered with delay or successfully passed on by the offender to third parties. Under certain circumstances assets can also be confiscated where an individual cannot be prosecuted or sentenced for a crime. Where a criminal offense was committed, confiscation of assets extends to assets obtained in context of other criminal offenses. The limitation to certain, particularly severe, crimes was removed.
The decision on confiscation may be separated from the decision in the criminal trial and notably rendered after completion of the criminal proceedings on basis of their findings.
Impact on IP right enforcement
Whilst the deficiencies of the former rules were widely recognized and the reform is hence generally welcomed, the Reform Act met criticism in particular for attributing the task of compensation of the victims widely to the prosecuting authorities. Concerns were raised that the prosecuting authorities may not be equipped to handle this additional task with the result that recovery actions may not be taken with sufficient vigor. The involvement of insolvency administrators and insolvency courts was criticized in particular for attributing to them under certain circumstances the task of assessing criminal liability of the debtor. Postponement of distribution until a final decision on confiscation is rendered may take far too long and the prosecutor’s application for the insolvency of the offender may come with liability risks where the offender is in fact not bankrupt or the application is not compliant with insolvency law.
For IP right owners facing intentional infringement of their rights by counterfeiters and other fraudsters, reliance on the new criminal law rules on recovery of criminal proceeds alone may ultimately be unsatisfactory. In particular where IP right owners invested heavily in identifying crime and culprit and provided the public prosecution with the factual and legal basis for their actions, reliance on proper action of the public prosecution and shared distribution of the offender’s assets amongst all victims and – where insolvency proceedings are conducted – all creditors including the state may be disappointing.
Accordingly, IP right owners facing criminal infringement of their rights in Germany should weigh their civil law enforcement options early on to make sure enforcement investment pays back in the end.