On 23 October last, the European Court of Human Rights ruled on the issue of confiscation by equivalent of assets formally registered in the name of third parties, addressing the issue of whether the seized or confiscated property actually belonged to the applicants or whether they merely acted as nominal owners.
The proceedings before the ECtHR
The case concerned the confiscation of assets belonging to the applicants, the value of which was deemed to be equivalent to the proceeds from offences committed by their family members. The confiscation was based on the finding that, even though the applicants were the formal owners of the confiscated assets, those assets were at the disposal of the offenders.
The indications cited by the domestic courts in support of this statement were the first two applicants’ close family ties with their father and their lack of sufficient funds to purchase the assets.
The facts of the case
In 2008, a criminal investigation was opened in respect of the applicants’ father for failure to submit a tax return, fraud and bankruptcy fraud.
In the course of the criminal proceedings against him, the judge ordered the seizure of the applicants’ assets, with a view to the confiscation of an amount equivalent to the proceeds arising from the offence.
The appellants sought the revocation of the seizure, arguing—among other things—that they had acquired the assets through inheritance, gifts from their grandparents and bank loans.
The seizure was revoked with respect to part of the assets, as it was found that some of them had indeed been inherited and that there was insufficient evidence that the ownership was fictitious.
Subsequently, once their father had been convicted, an order was made for the confiscation of the applicants’ assets, on the ground that, notwithstanding their formal registration, they were in reality at the disposal of their parent. Following further appeals, the confiscation was revoked in respect of certain assets, but upheld as regards the others, reaffirming that the funds used for their acquisition did not originate from the applicants themselves. The Court of Cassation finally upheld the confiscation of these assets, finding that their purchase of the assets had been the result of an agreement between the father and the applicants to register the assets in question in the name of the latter (as sham owners).
The confiscation of assets formally owned by third parties
Assets belonging to a third party who has not taken part in the commission of an offence may not, as a rule, be subject to confiscation. Nevertheless, the confiscation of third parties’ assets by equivalent means is possible if such assets, although formally owned by others, are found to be at the disposal of the offender.
In such situations, the confiscation measure in question is not directed at the third party, but at the offender. The third party is affected only indirectly because – regardless of who the formal owner is – the asset in question is de facto at the disposal of the offender.
The notion of disposal
The notion of disposal of an asset does not coincide with the civil-law notion of ownership, but with that of possession, which encompasses all those situations in which the asset falls within the sphere of the offender’s economic interests – even if the power of disposal over it is exercised through third parties – and is expressed in the exercise of de facto powers corresponding to the right of ownership.
The assessment of the availability of the assets subject to confiscation
The relevant domestic case-law further stipulates that the fact that the assets in question are at the offender’s disposal has to be established in a rigorous manner and on the basis of specific elements and not of mere suspicions. In particular, it is not sufficient to establish the negative element that the formal owner did not have the financial resources to purchase certain assets; there has to be evidence of the positive element that the assets remain de facto at the disposal of the offender. The burden of proof, in this respect, is placed upon the prosecution.
Remedies available to third parties
Confiscation must be carried out without prejudice to the rights of bona fide third parties.
Third parties claiming to be the owners of seized assets may contest a seizure order issued by a judge by lodging an application for a review within ten days of its enforcement.
They may also lodge an application requesting the return of seized assets. Against a decision dismissing such an application (or against any other decision concerning the seizure of the assets in question) they may lodge an appeal.
Third parties claiming to be the owners of assets that have been confiscated in the course of criminal proceedings are not entitled to appeal against a judgment delivered by the criminal court. They may, however, lodge an application with the enforcement judge, seeking the return of such assets.
The application before the ECtHR
The applicants argued that the seizure and the confiscation of their assets had not rested on a sufficiently foreseeable legal basis and had been disproportionate, in breach of Article 1 of Protocol No. 1 to the Convention.
The applicants pointed out that the domestic courts had not duly observed domestic law, because they had not established that the assets in question were at the offender’s disposal. In this respect, the applicants clarified that it was not sufficient to demonstrate that the third parties had lacked funds to purchase the assets themselves: the domestic authorities had to show – on the basis of consistent and converging elements and not of mere suspicions – that the offender had maintained a factual relationship with the assets, exercising functions corresponding to those of an owner.
The principles recalled by the ECtHR
Article 1 of Protocol No. 1 requires that any interference be reasonably proportionate to the aim sought to be realised. In other words, a fair balance must be struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.
Proof on a balance of probabilities or a high probability of illicit origins, combined with the inability of the owner to prove the contrary, was found to suffice for the purposes of the proportionality test.
As to the punitive aim, the Court considers that, in order to be considered as necessary and adequate for its achievement, a measure of seizure or confiscation must affect assets that are genuinely owned by the offender. If that were not the case, the measure would be (on the one hand) unsuitable as a means of punishing the offender and (on the other hand) would impose an unjustified burden on the true owner of the assets.
Such a conclusion rest on a preponderance of elements suggesting that the owners in question are merely sham owners, and their inability to prove the contrary. It does not consider it sufficient that the domestic courts simply prove such owners’ lack of a sufficient income to acquire the assets in question, since this could, at most, only prove the unlawful origin of those assets but not their sham ownership.
The ECtHR’s ruling
The court held that there has been a violation of Article 1 of Protocol No. 1 to the Convention in respect of the applicants.
In the grounds cited by the domestic courts, the Court was unable to identify any specific element in support of the finding that the assets had been de facto owned by the father: the findings concerning the applicants’ lack of funds to purchase the assets are insufficient in this respect.
The grounds referred to by the domestic courts were insufficient to support the finding that the confiscated assets had been at the disposal of the offender; the domestic authorities appeared to have made no efforts to investigate the true ownership of the assets: aside from examining the applicants’ income, they made no attempt to determine, as required by domestic law, who exercised factual dominion over those assets – for example, by using them directly, taking care of their maintenance, managing them or drawing an income from them.
The domestic courts have not addressed the issue of the true ownership of the assets in a reasonable manner; nor did they point to at least some specific indications that the confiscated assets had been at the disposal of the offender. It follows that the confiscation was not sufficiently justified.
The law firm Dal Pozzo in Milan provides legal assistance to private individuals, public entities, and businesses, including matters related to tax crimes, bankruptcy crimes, crimes against the economy and property.