Confiscation of criminal proceeds in cases where the underlying criminal acts were already statute-barred before the Reform Act entered into force is compatible with the Basic Law

Press Release No. 20/2021 of 05 March 2021

Order of 10 February 2021
2 BvL 8/19

In an order published today, the Second Senate of the Federal Constitutional Court held that Art. 316h first sentence of the Introductory Act to the Criminal Code (Einführungsgesetz zum Strafgesetzbuch – EGStGB) as amended by the Act Reforming Asset Recovery in Criminal Proceedings of 13 April 2017 (Gesetz zur Reform der strafrechtlichen Vermögensabschöpfung – VermAbschRÄndG) is compatible with the Basic Law (Grundgesetz – GG) even insofar as it declares the new provisions applicable in cases where prosecution of the underlying criminal acts was already barred by limitation before the Reform Act entered into force.

The Federal Court of Justice (Bundesgerichtshof) had referred the question of whether this transitional provision is compatible with the Basic Law under those circumstances to the Federal Constitutional Court. In its reasoning, the Second Senate of the Federal Constitutional Court stated that while Art. 316h first sentence EGStGB does constitute a retroactive effecting of legal consequences in such circumstances (‘real’ retroactivity), this is permissible and compatible with the Basic Law as an exception due to overriding interests of the common good.

As the law stood before the Reform Act came into force, the recovery (then referred to as ‘forfeiture’) of proceeds generated from criminal acts was precluded if the prosecution of the relevant criminal act was barred by limitation. The only exception was ‘extended forfeiture’ under § 73 (former version) of the Criminal Code (Strafgesetzbuch – StGB). With the entry into force of the Act Reforming Asset Recovery in Criminal Proceedings, it was explicitly specified in § 76a(2) first sentence StGB in conjunction with § 78(1) second sentence StGB that the independent confiscation of criminal proceeds is permissible even in cases where the limitation period for prosecuting the relevant offence has expired. The independent confiscation of criminal proceeds has thus been decoupled from the limitation period relating to the offence generating the proceeds and is now subject to a separate limitation period under § 76b(1) first sentence StGB. Art. 316h first sentence EGStGB provides that the independent confiscation of criminal proceeds may also be ordered if a decision made after the new provisions entered into force on 1 July 2017 is reached on offences committed before that date, and it also covers cases in which the prosecution of the offence generating the proceeds was already barred prior to 1 July 2017.

The referral arose from criminal court proceedings against two companies, concerning the independent order of confiscation of the value of criminal proceeds. In October 2017, the Regional Court (Landgericht) had acquitted two defendants of violating the Act to Combat Undeclared Work and Unlawful Employment (Schwarzarbeitsbekämpfungsgesetz – SchwarzArbG) due to the absolute expiry of the limitation period. Under Art. 316h first sentence EGStGB in conjunction with § 73(1), § 73b(1) first sentence no. 1, § 73c first sentence and § 76a(2) first sentence StGB, it had ordered the confiscation of the value of criminal proceeds in the amounts of around EUR 10 million and around EUR 72,000 from the two involved companies managed by the defendants. In its reasoning, the Regional Court had set out that the expiry of the limitation period for criminal prosecution did not preclude the ordering of independent confiscation under the reformed legal situation.

The Federal Court of Justice suspended the appeal on points of law (Revision) insofar as it concerned the confiscation of the value of criminal proceeds because, under the old legal situation, the recovery of criminal proceeds would no longer have been possible due to the expiry of the limitation period for prosecuting the underlying offences. The court came to the conclusion that, in this respect, Art. 316h first sentence EGStGB violates the general prohibition of retroactivity, a principle arising from the rule of law.

Key considerations of the Senate:

Art. 316h first sentence EGStGB is compatible with the Basic Law even insofar as it declares the new provisions applicable in cases where prosecution of the criminal acts was already barred by limitation before the Reform Act entered into force.

1. The confiscation of criminal proceeds or equivalent value is not a punishment within the meaning of Art. 103(2) GG.

a) The scope of Art. 103(2) GG is confined to state measures that constitute an official disapproval of unlawful, culpable behaviour and that impose some hardship for the purpose of offsetting such culpable behaviour. Other measures of state intervention are not covered by Art. 103(2) GG. The guarantee in Art. 103(2) GG serves to prevent the state from officially disapproving of some behaviour only retrospectively, subjecting that behaviour to a penalty and accusing the person concerned of having engaged in unlawful and culpable behaviour.

b) Asset recovery as set out in the Reform Act is not an additional punishment (Nebenstrafe) subject to the principle of individual culpability, but a measure (§ 11(1) no. 8 StGB) sui generis with restitution-like character. Even forfeiture under the previous legal situation did not have a punitive or punitive-like character. The legislator at that time wanted the recovery of criminally obtained assets to be a separate legal consequence alongside the punishment itself. The goal of forfeiture was not to inflict some hardship but rather to eliminate an advantage which, if left standing, could have tempted the offender to commit further criminal acts. With the latest reform, the legislator was not seeking to call the restitution-like character of asset recovery into question. The new provisions have not changed the nature of asset recovery to such an extent that asset recovery measures could now be assumed to be punitive in nature.

c) Classifying asset recovery as a measure sui generis and not as a punishment is in accordance with the European Convention on Human Rights. In light of the case-law of the European Court of Human Rights, asset recovery under the Reform Act cannot be regarded as a punishment within the meaning of Art. 7(1) of the Convention.

2. Art. 316h first sentence EGStGB is compatible with the principles of legal certainty and the protection of legitimate expectations as enshrined in the rule of law and fundamental rights.

a) The independent confiscation of proceeds generated from statute-barred criminal acts does constitute a retroactive effecting of legal consequences (‘real’ retroactivity) insofar as the new asset recovery legislation is applicable to cases where the limitation period for prosecution had already expired when the Reform Act came into effect. In principle, ‘real’ retroactivity is impermissible under constitutional law. It is however acknowledged that there is an exception if overriding interests of the common good that take precedence over the principle of legal certainty necessitate a retroactive remedy. In such cases, the protection of legitimate expectations must stand back.

b) The ‘real’ retroactivity at issue in this case is justified by precisely such overriding interests of the common good.

With the order envisaged under Art. 316h first sentence EGStGB, the legislator pursues the legitimate aim of reorganising property matters in favour of the injured party of a criminal act – including with statute-barred offences – and of not allowing offenders to retain the proceeds of their crimes on a permanent basis – even in the absence of criminal prosecution. This is an aim of overriding importance. Recovery of criminal proceeds aims to make both the offender and the legal community realise that an accumulation of criminally obtained assets will not be recognised by law and thus cannot enjoy any permanence. Depriving the offender of such criminally obtained assets serves to demonstrate the just and inviolable nature of the legal order, thereby strengthening the population’s willingness to abide by the law.

This prevails over protecting legitimate expectations of the person subjected to the confiscation of criminal proceeds. Categorising specific behaviour as a criminal offence is the sharpest instrument available to the legislator for expressing disapproval of human behaviour. Every provision of criminal law therefore contains a socio-ethical condemnation – endowed with state authority – with regard to the conduct it criminalises. This leads to the offender being largely deprived of the protection provided by the state legal order, including where property law is concerned. Under § 134 of the Civil Code (Bürgerliches Gesetzbuch – BGB), for example, a legal transaction that violates a statutory prohibition is in principle void and can be reversed through the law on unjust enrichment (§§ 812 ff. BGB). Furthermore, § 823(2) BGB grants the injured party extensive claims to compensation in the case of violations of criminal laws protecting the individual. Moreover, private law leaves virtually no room for acquisition of ownership – at least not in the context of property offences – since good faith acquisition (gutgläubiger Erwerb) by third parties is excluded in principle under § 935 BGB. There are also extensive possibilities for avoidance if the injured party was influenced by deceit or duress (§ 123 BGB).

This fundamental legislative assessment is not changed by expiry of the limitation period for prosecuting the criminal offence. Expiry of the limitation period for prosecution does not mean that the criminal process of acquisition gains retrospective approval from the state authorities. Indeed, any assets so obtained continue to be tainted with the blemish of their criminal origin. This continued tainting of assets due to the criminal nature of their acquisition is a manifestation of the general precept that, in principle, protection is not afforded to the expectation that dishonestly acquired rights will enjoy permanence.

Not only do the enriched offenders themselves not merit protection in such cases, neither do any enriched third parties – except for those who conducted their own transactions in good faith with the legitimate expectation that their property acquisition would be of a lasting nature. The expectations of persons who have acquired criminally obtained assets in collusion with the offender, as the legal successor of the offender, as persons represented by the offender, or otherwise without themselves having taken any expectation-based action worthy of protection, are not to enjoy greater protection than the expectations of the offender themselves. § 73b(1) StGB ensures that asset recovery does not apply to third parties who merit protection in this sense.