New provisions on asset recovery in Germany

Recently, the case of Infinus AG, as before the cases “Comroad” or “Enron“, again proved that criminal employees or managing directors can get companies into a life-threatening crisis. To date, however, especially medium-sized enterprises are often not aware of the fact that the German Criminal Procedure Code provides tools to help victims of criminal offenses to enforce their civil-law claims against the offender(s). The Legislator is now seeking a simplified enforcement of these rights by means of a fundamental reform of the corresponding regulations, which entered into force on 1 July 2017.

Previous state of the law

Before the reform, the German Criminal Procedure Code (“Strafprozessordnung”, StPO) in its  §§ 111 b ss., in conjunction with §§ 73 ss. of the German Penal Code (“Strafgesetzbuch”, StGB) provided that the law enforcement agencies could seize assets acquired by the suspect in order to provide the injured party with a simplified route to recovery by means of the so-called “recovery-aid” (“Rückgewinnungshilfe“). The practical handling of this rather complex legal mechanism at the interface between criminal and civil law was, however, not easy before the reform. In principle, the seizure by the law enforcement agencies was only the first step. Thereafter, the injured party had to pursue his or her claims for damages against the suspect in (separate) civil legal proceedings – and this under relatively high time-pressure since a seizure under the aforementioned regulations could in principle only be sustained for six months.

State of law after the reform

One of the objectives of the reform, which was adopted on 13 April 2017 and entered into force on 1 July 2017, is to simplify this complex mechanism. To this aim, claims of the injured party shall now be satisfied directly within the criminal proceedings. According to the new provisions, the penal court first orders the confiscation of the assets obtained through the criminal act or a corresponding value found at the suspect within the sentencing. After the sentencing becomes unappealable, either the confiscated assets or the corresponding value are transferred (back) to the injured party.

In the course of the reform, also new provisions were introduced providing that the effect of the seizure in general expires with the commencement of insolvency proceedings against the suspect as far as these assets then become part of the insolvent estate. Otherwise, the seizure is considered to be insolvency-proof (“insolvenzfest“) and entitles to separate (ie, privileged) satisfaction. A further new provision empowers the public prosecutor to himself instigate insolvency proceedings against the suspect if there are several injured parties and the value of the confiscated assets is deemed insufficient to meet the claims of these injured parties.

First assessment of the reform

Merely from the point of view of the victims of crimes, the abolition of the “recovery-aid” and the introduction of the above-described regulations means real progress. The injured party no longer has to take care of the enforcement of his or her claims through civil procedures. However, only practical experience will show whether the prosecution bureaucracy, which is actually directed at the prosecution and conviction of offenders, will be able to implement the reform properly. This will also include a timely compensation of the injured party.

Even critics of the reform note that the new regulation (perhaps even more than the provisions for recovery-aid) provides the suspect with an additional motivation for an amicable settlement with the victim. Namely, the new provision of § 73 e of the German Penal Code provides for the exclusion of confiscation, in so far as the claim of the injured party has been satisfied, for example by means of typical acts within the framework of an amicable settlement, such as fulfillment or (partial) waiver.

Apart from these positive aspects, the reform was rather controversially discussed. The German Association of Judges (also as a representative of the public prosecutors) criticized the plans of the legislator as well as the German Lawyers Association or the German Criminal Defense Lawyers Association. From the perspective of the suspect, the reformed law on asset seizures indeed displays some disadvantageous changes: for example, the irreversible effects of a quasi-public application for insolvency from the public prosecutor’s office. Furthermore, certain rules providing for a reversal of the burden of proof to the disadvantage of the suspect are regarded as unconstitutional. Thus, it remains to be seen whether the reform “survives” the expected assessment by the German Constitutional Court.

In summary, with the adoption of the afore-described new rules, the previous “recovery-aid” has been sent to legal history, but only the next years will show whether the new regulations actually lead to a better satisfaction of the claims of injured parties.

Reform Bill regarding asset-seizure within criminal proceedings (“Gesetz zur Reform der strafrechtlichen Vermögensabschöpfung”), BGBl, Teil I, Nr. 22 v. 21. April 2017  (in German)

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