The impact of Lower Standard of Proof in Proceedings Regarding Criminally Acquired Property

Section 124(6) of the Criminal Procedure Law provides that in criminal proceedings and in proceedings regarding criminally acquired property, the conditions included in an object of evidence in relation to the criminal origin of the property shall be considered proven if there are grounds to recognise during the course of proving that a property is, most likely, of a criminal rather than a lawful origin.

On 5 July 2017, the amendments to the Criminal Procedure Law were adopted by the legislator; on 22 June 2017, the respective amendments were published and rolled out on 1 August 2017. The adopted amendments added a sixth paragraph to Article 124, which are follows: The conditions included in an object of evidence in relation to the criminal origin of the property shall be considered proven if there are grounds to recognise during the course of proving that a property is, most likely, of a criminal rather than a lawful origin. However, according to the amendment of 21 November 2019 to the Criminal Procedure Act (which was rolled out on 24 December 2019), ‘The conditions included in an object of evidence’ replaced with the words ‘In criminal proceedings and in proceedings regarding criminally acquired property, the conditions included in an object of evidence’.

Thus, the currently applicable wording of Section 124(6) of the Criminal Procedure Law evolved from 22 June 2017 to 21 November 2019, and it is retained till date. Moreover, according to the currently available future amendments to the Criminal Procedure Act, it is not yet in plan to amend the sixth paragraph of Article 124 of the Act.

The annotation to the amendments to the Criminal Procedure Act of 22 June 2017 (titania.saeima.lv, 2017) states that ‘Currently, the standard of proof – “beyond reasonable doubt” – is enshrined in the Criminal Procedure Law. Article 124(5) of the Criminal Procedure Law provides that the circumstances which are the subject of proof shall be deemed to be proven if, in the course of proof, any reasonable doubt as to their existence or non-existence has been excluded.[...] Under the current regulation of the Criminal Procedure Law, it is not sufficient in these cases that the investigator conducting the proceedings has a reasonable suspicion that the property has criminal origin, but this must be proved beyond reasonable doubt. Moreover, it should be borne in mind that property may be declared criminal even before a conviction enters into force. This makes it even more difficult to meet the “beyond reasonable doubt” standard of proof.’ In order to harmonise the ‘balance of probabilities’ principle in the standard of proof, respective amendments were made to several articles, including Article 124(6) of the Criminal Procedure Law.

The annotation to the amendments of the Criminal Procedure Law dated 21 November 2019 (titania.saeima.lv, 2019) states that ‘While promoting the procedure for declaring property to be proceeds of crime, the correspondent provisions of Article 124(6) of the Criminal Procedure Law (Article 126(3¹) and Article 356(5) of the Criminal Procedure Law) establish the obligation of a person to prove the legality of the origin of the respective property from the moment when his right to act with the property is limited by procedural actions and on condition that the person involved in the criminal proceedings claims that the property does not qualify as proceeds of crime. [...] Analysing the case law, it has been established that the provisions of Chapter 59 of the Criminal Procedure Law, which regulate the Proceedings Regarding Criminally Acquired Property, are applied with sufficient efficiency, but the number of criminal proceedings in which persons are convicted in accordance with Article 195 of the Criminal Law, which prescribes liability for money laundering, is much lower than the number of cases in which property is found to be criminally acquired. [...] Given this, it is necessary to make it clear in Article 124(6) of the Criminal Procedure Law that the lower standard of proof as regards proving the origin of property applies both in criminal proceedings in which a person is held criminally liable and in Proceedings Regarding Criminally Acquired Property’.

Considering the annotation to the amendments dated 22 June 2017 and 21 November 2019, it is concluded that the necessity to change the legal act is related to the obligation of the State to comply with the provisions of Directive 2014/42/Eu of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union, Recommendation No. 4 of the Financial Action Task Force (FATF) on Confiscation and Provisional Measures and a number of other sources of international law.

In accordance with Section 626 of Criminal Procedure Law, it is an exclusive right of an investigator to separate the materials from a criminal case regarding criminally acquired property and to initiate proceedings if the following conditions exist: 1) the totality of evidence provides grounds to believe that the property that has been removed or seized is criminally acquired or related to a criminal offence; 2) due to objective reasons, the transferal of the criminal case to court is not possible in the near future (in a reasonable term), or such transferal may cause substantial unjustified expenses.

There could be several objective reasons to initiate CAP proceedings before a general criminal case is revised by the court, for instance:

The violator is a fugitive.

To initiate CAP proceedings, there must be a specific objective that literally does not allow to bring a criminal case to trial. Circumstances such as need to obtain additional evidence to establish the guilt of a person, or waiting for any documents or other material evidence from Latvian or foreign security or other authorities, or expiry of the term of the seizure of property in criminal proceedings, as well as any other actions, which are under the sole control of the investigator, shall not be considered as objective obstacles but are technical obstacles that shall not serve as a justification for initiating CAP proceedings.

The focus of attention shall be on objective reasons since the CAP proceeding is a more convenient mechanism for proving the criminal origin of the property. By comparison, in the general criminal process, the prosecutor must convince the court that the person committed a specific crime, which resulted in economic benefits in the form of the received asset (Greenberg et al., 2009, 30), whereas in CAP proceedings, the investigator reports to the court his doubts about the legitimate origin of the property.

In some jurisdictions (Council of Europe. The Use of Non-Conviction Based Seizure and Confiscation. 2020), including Latvia (Commission staff working document. Analysis of non-conviction based confiscation measures in the European Union. European Commission (2019), the CAP proceeding (or respective analogue) has a different standard of proof, which differs from the standard in the general criminal proceeding. In a criminal investigation, the guilt of the suspect must be proved beyond reasonable doubt (Criminal Procedure Law, 2005); thus, the connection of the seized property with a crime is more obvious, whereas in the CAP proceeding, the unlawful origin of property has to be proved according to the civil procedure principle, that is, with a higher probability of the criminal origin (Criminal Procedure Law, 2005).

In the personal experience of the author (Zemgale district court (2021) case No. 11310046418; Riga Regional Court Criminal Division (2021) Case No. 11270001820; The Court of Economic Affairs (2021) Case No. 11903012020), property may also be subject to forfeiture if there is no evidence of its connection to a crime and there is no clear link between a particular crime and the seized property. The absence of at least approximate connection between the property and specific crime shall be an absolute obstacle to declare the property to be acquired by criminal action.

Section 1.2.1 (p. 16) of the Manual for the Disposition of Property in Criminal Proceedings prepared by the Ministry of Justice of the Republic of Latvia states that ‘a significant number of judges and academics consider that the wording of the second and third paragraphs of Article 70.11 of the Criminal Law does not allow confiscation of presumed criminally acquired property 59 of the Criminal Procedure Law. This means that a conviction or a decision to dismiss the criminal proceedings on non-rehabilitative grounds is required in order to establish that a person (1) has committed a crime which, by its nature, is aimed at material or other gain; (2) is a member of or supports an organised group; or (3) is associated with terrorism. It is not possible to make such a finding in Proceedings Regarding Criminally Acquired Property’ (Ministry of Justice of the Republic of Latvia, 2019).

Consequently, the lower standard of proof cannot replace the obligation to establish the crime and the connection of the property with the offence, unless a presumption is provided for. It is necessary to understand the clear distinction between criminally acquired property and such property, the origin of which is unclear (Fernandez-Bertier, 2016).

The term ‘criminally acquired property’ can be interpreted as the intentional, unlawful, gratuitous removal of another person's movable property for the purpose of dealing with it as one's own property (Juridisko terminu vārdnīca. 2002). A person who has acquired property by committing a crime does not have the right to enjoy the property and its fruits even after the period of limitation for the committed crime has expired. That is, regardless of the circumstances that exempt the person from criminal liability or make criminal prosecution impossible, the property preserves its status of criminally acquired property and does not become legal property if the offender cannot be prosecuted. This important aspect must be kept in mind when investigating and resolving the issue of the origin of a concrete seized property.

On the other hand, property of unknown origin need not necessarily be acquired criminally. As previously stated, criminally obtained property is not subject to the period of limitation, that is, the property will always be considered as illegally acquired, but on this principle, the investigation may question the acquisition of any asset by a person, especially if in the past the payment for such an asset was allowed to be received in the form of cash. For objective reasons, the owner of an asset will not be able to produce, for instance, twenty-year-old documents confirming the origin of the cash, but this would not be a reason to assume that the absence of proof of the wealth's origin automatically indicates illegal possession of an asset.

The fact that property and its fruits can be considered an outcome of a crime even after several decades, in the author's opinion, directly points to the necessity of establishing the predicate crime and the connection of property with a crime. If the offender received an economic benefit in the form of an acquired asset, such as money, the investigator must understand exactly what amount of money was accumulated in the hands of the offender. This sum of money must be separated from the rest of the offender's funds, and only this amount of money can be subject to restitution or forfeiture because the rest of the money must be considered as legally acquired unless proven otherwise.

The purpose of the CAP proceeding is not to confiscate criminally acquired property for the benefit of the State as soon as possible but to restore the status quo, that is, to recover the victim's unlawfully deprived or restricted property rights over the property he or she owned before the crime was committed.

CAP proceedings are part of criminal proceedings and should therefore be governed by the same fundamental principles as those applicable to the guilt of a person in criminal proceedings. The objective of criminal proceedings is to detect criminal offences swiftly and to identify those responsible and to ensure that the law is correctly applied so that every person who commits a crime is justly punished and no innocent person is prosecuted and convicted (Constitutional Court. Case No 2003-08-01; Constitutional Court. Case No 2017-23-01). Following the judgement of the Constitutional Court, it is important to note that the legislators must protect the private person from any possibility that any unjustified restriction of rights or deprivation of rights due to regulatory deficiencies may be applied against the person intentionally or erroneously. It follows from the judgements of the Constitutional Court established that the right contained in the first sentence of Article 92 of the Constitution applies not only to the pre-trial and trial stages of criminal proceedings but also to property issues in criminal proceedings, the restoration of criminal proceedings due to newly discovered circumstances and the reconsideration of existing decisions due to a substantive or procedural breach of the provisions of law (Case-law of the Constitutional Court, 2020, 30).

Section 124(6) of the Criminal Procedure Law, in line with the case law, allows the investigator to presume that property has been criminally obtained without proving (1) the predicate offence; (2) the relation of the seized property to any crime; (3) the exact amount of the criminally obtained property (e.g., the amount of money); (4) the place and circumstances where the crime was committed; (5) if the crime was committed outside the territory of Latvia or in violation of the laws and regulations of another country, whether such conduct is criminalised in that country; or (6) circumstances that exclude the perpetration of the crime. Thus, a court may declare property to be criminally obtained solely on the basis of an investigating officer's presumption of the criminal origin of the property.

The purpose of the lower standard of proof, in the light of the aforementioned analysis of Section 124(6) of the Criminal Procedure Law, was not to develop a mechanism that could be used to confiscate personal property rights with the minimum of state resources but to stop the integration of criminal funds into the economy, thereby distorting economic stability. Confiscation is not the primary objective of the CAP proceeding.

It would be absurd to assume that in a proceeding for criminal property the person, the true legal owner, whose property rights have been unlawfully terminated is not obliged to prove the lawful origin of his property. That is to say, the property rights of the true legal owner cannot be established on the basis of a mere statement by that person but are subject to the same evidentiary regime as applies to a person associated with the property. Thus, the State, like the true legal owner of the property, cannot enjoy privileges and obtain the property by confiscation solely on the basis of a preponderance of the evidence.

The presumption that property has been acquired criminally can only be established by a final ruling in criminal proceedings, which is particularly linked to the fact that a person's connection with the crime must be proven (Kūtris, 2020). To confiscate the property of a person whose association with the offence has not been proven beyond reasonable doubt is not in accordance with the spirit of the provisions of Chapter 59 of the Criminal Procedure Law. An offence can only be considered legally established if the Criminal Law clearly and unambiguously defines the elements of a criminal offence which distinguish it from other unlawful, and especially from lawful acts (lex certa) (Stepaniuk, 2007, 197). The court in a CAP proceeding must be convinced of the predicate crime in order to impose confiscation; otherwise, the court may wrongfully subject a person's lawfully acquired property to confiscation.

In the absence of an objective possibility to establish the origin of the property, the lower standard in criminal proceedings (including CAP proceedings) allows the accusing party, in accordance with the Criminal Procedure Rules and the purpose of Criminal Procedure Law, to prima facie confirm (rather than prove) the connection of the property with the crime, thus without proving the exact connection of a particular property with a particular offence or episode of crime.

By lowering the standard for determining the crime and proving the association of property with the crime, the legislator has allowed the investigation to avoid the obligation to provide evidence of the existence of any crime and, consequently, the association of property with such crime, which cannot be recognised as a legitimate aim.

The principle of legal certainty requires that legal rules be clear and precise and aims to ensure that situations and legal relationships governed by community law remain foreseeable. It is settled case law that in the sphere of the common organisation of the markets, whose purpose involves constant adjustments to meet changes in the economic situation, economic agents cannot legitimately expect that they will not be subject to restrictions arising out of future rules of market or structural policy (Fintan Duff and Others v. Minister for Agriculture and Food, Ireland, 1996). Thus, a person who is part of society, who has to deal with the State and who has to respond to the State for non-compliance with the rules has the right to demand that the State indicate precisely what is required of the person and what restrictions are imposed on him.

If the State, by changing the legal framework, restricts a person's conduct that was previously lawful and possibly even supportable, the person cannot rely on the State to respect the person's rights, or whether the person has any rights at all, if such rights can easily be taken away and the person can be charged with a criminal offence.

The legitimate aim of a rule cannot be solely directed towards the protection of the interests of the State, that is, in criminal law, in particular in CAP proceedings, the legislator, when facilitating the right of the investigator to prove a crime, must bear in mind that the rule of law must serve the preservation of public order. Where a rule of criminal law confers an unjustified privilege on a prosecuting party, which could potentially result in the wrongful conviction of a person, the objective of such a rule cannot be regarded as legitimate.

The first sentence of Article 92 of the Constitution of the Republic of Latvia provides that ‘Everyone has the right to defend his or her rights and lawful interests in a fair court. One of the fundamental values of a democratic state governed by the rule of law is justice. The task of the judiciary is to ensure that, in the course of judicial proceedings, the implementation of constitutional norms, laws and other normative acts, compliance with the principles of general law, as well as human rights and freedoms are safeguarded.’ (Constitutional Court. Case No. 2011-11-01). The judiciary's task is to ensure that, in the course of judicial proceedings, the implementation of constitutional norms, laws and other normative acts is guaranteed and that the principles of general law are implemented in the interests of society (Constitutional Court. Case No. 2015-06-01, Constitutional Court. Case No. 2011-11-01) Therefore, Article 92 of the Satversme implies the obligation of the State to establish a legal mechanism through which any person whose rights have been unlawfully infringed would be able to obtain effective protection of his/her rights (Constitutional Court. Case No. 2011-21-01). Consequently, the judicial system must be established in such a way that every person has an actual opportunity to apply to the court for protection of the rights that have been violated, including protection of the rights of private property against actions of third parties or the State.

The term ‘rights and lawful interests’ is primarily understood to indicate the fundamental rights of a person as laid down in the Constitution. For example, the Constitutional Court has found that in case of restriction of the fundamental rights established in Article 105 of the Constitution, a person must be able to defend his/her rights in a manner corresponding to the first sentence of Article 92 of the Constitution (Constitutional Court. Case No. 2016-06-01). Regarding the protection of personal rights in criminal proceedings, appropriate guarantees shall be provided to a person, for example, in Section 19 of the Criminal Procedure Law, which prohibits the State from unreasonably restricting the freedom and property rights of a person against unfounded accusations. Despite the fact that in CAP proceedings, the person connected with the property is not held criminally liable even if the property is found to be criminally acquired, this circumstance does not affect the obligation of the court to ensure the protection of the property rights of the individual, having the question of the legality of the origin of the property to be subjected to an independent test.

Currently, Section 124(6) of the Criminal Procedure Law creates an irrational presumption that if a person is unable to substantiate the legal origin of property, an investigator's statement of the criminal nature of the property will be sufficient for a court to declare such property to be unlawfully acquired and, accordingly, subject to confiscation. Such a regime does not ensure adequate protection of the fundamental rights of the individual and therefore does not provide a basis for relying on the court's decision as an objective and fair instrument regulating the issue of property rights.

Section 124(6) of the Criminal Procedure Law regulation undermines the level of protection of legitimate personal property by making legally acquired property subject to confiscation. In the text of the contested provision, the word ‘most likely’ means a change in the principle of evaluation of evidence from the criminal law principle of ‘beyond reasonable doubt’ to the civil law standard of evaluating evidence. In fact, by the word ‘most likely’, the legislator intended to integrate the competition principle to resolve the matter. The principle of competition is widely used in civil proceedings. Under the principle of competition, each party proves to the court the validity of its claims, counterclaims and defences. In civil proceedings, the parties compete by gathering evidence, participating in its examination and evaluation, making oral and written submissions to the court, presenting their arguments and observations on the merits of the case and certain procedural issues [...] justifying and defending their legal position and performing other procedural acts prescribed by law, directed towards establishing the facts of the case and applying the appropriate legal rules to them (Torgans, 2016, 62-62). However, the competition is not stipulated in criminal proceedings because in criminal proceedings, the truth is established in accordance with the principle of objective investigation.

In CAP proceedings, the term ‘most likely’ means a contest of evidence between the parties, that is, the investigator proves that the property is linked to a crime known to him or her, while the person associated with the property provides evidence that confirms the legitimate origin of the property. The use of the word ‘most likely’ in Section 124(6) of the Criminal Procedure Law formally confirms that property may be subject to confiscation if it was lawfully obtained, but there is not sufficient evidence to confirm the fact of legitimate origin. Such construction of the norm based on a court decision allows termination of a person's property rights, despite the protection of the right provided for in Article 105 of the Constitution as the regulation allows the court to rely on the investigator's statements without even establishing the objective connection of the property with the crime or the existence of a crime at all.

The burden flips to the holder of the allegedly criminal property to prove that the funds or property in question is not tainted. This removes the need for the authorities to delve into the intricacies of sources of wealth and complex structures facilitating the amassment of large funds, requiring the respondent to the proceedings to explain the position instead. Such an approach is extremely helpful in cases of fraud and financial crime, where great effort is likely to have gone into concealing transactions, such as through the use of shell companies, sham consultancy agreements or offshore trust structures, making such detail hard to unravel. The flipped burden serves to remove any strategic advantage from the respondent. Indeed, it goes a step further and puts the respondent to proof (Council of Europe. The Use of Non-Conviction Based Seizure and Confiscation. 2020). However, in case of CAP proceedings, there may be a chance that the general criminal proceedings are not yet completed; consequently, the guilt of the person has not even been established, but the property has already been forfeited. The separation of the CAP proceeding from the general criminal proceeding is under the sole control of the investigation, and the court cannot make a prima facie assessment whether the decision to separate the CAP proceeding is reasonable and whether the conditions of Section 626 (1) of the Criminal Procedure Law have been met.

In CAP proceedings, the State has a positive obligation to ensure the right to a fair trial in such a way as to provide for effective protection of rights. This means, inter alia, that the State is also obliged to provide a person with procedural guarantees to protect his or her property rights, so that the merits of the case are decided in the special proceedings in accordance with the person's right to a fair trial (Constitutional Court. Case No 2016-13-01). In deciding the question of the origin of property, the court must be independent of the influence of the investigator's decision. The court, when evaluating the arguments of the investigator and the person associated with the property that confirm the origin of the property, gives more credibility to the opinion of the instigator because he or she is the one who is informed about the main criminal proceedings, and consequently, his or her opinion is less subject to verification. However, the exemption of the investigator from the obligation to prove the origin of the property cannot be interpreted as an absolute confirmation of the unlawful acquisition of the property.

By separating the CAP proceeding from a pending criminal proceeding, the investigator immediately gets a head start on proving the origin of the property. ‘CAP Proceedings are not intended to establish the question of a person's guilt in committing a criminal offence, thus precluding the application of the presumption that a person has committed a criminal offence’ (Stukāns, 2020, 19–23). The purpose of the CAP proceedings is not to assess the person's further disposal of the unlawfully obtained benefit since regardless of whether the person has sold, exchanged, donated or retained the acquired property for his or her own use, it is only important to determine the circumstances of the acquisition of the property.

It may be the case that the investigator, without having obtained sufficient evidence to bring an indictment, without having obtained knowledge of the crime, or without having clarified the legality of the origin of the property to justify the need for criminal proceedings, unreasonably uses the exclusive right granted to him not to complete the criminal proceedings but to separate CAP proceedings, knowing that investigator is not required to prove the criminal origin of the property. The burden of proof is thus unjustifiably placed on the person associated with the property, who, in the absence of a predicate crime, must prove beyond reasonable doubt the lawful origin of the property. The individual is placed in an incomparably unequal position with the investigator, who had both the time to gather evidence (or not to gather evidence as to the origin of the property), the resources to carry out the investigation and the reputation. The legal uncertainty, stress and potential negative impact on a person's reputation should also not be ignored as the existence of such unjustified proceedings and the confiscation of assets without establishing their criminal origin can have a direct impact on a person's career and future.

Consequently, the lower standard of proof permits that criminally acquired property may be subject to confiscation in CAP proceedings. By allowing competition in CAP proceedings, the legislator has not provided adequate safeguards to preserve the integrity of a person's lawfully acquired property. Due to the objective impossibility of a person to compete with the resources of the State and his or her inability to convince the court and clearly prove the origin of the property, the court may decide to confiscate the asset unintentionally. Thus, confiscation becomes not a seizure of criminally acquired property but a confiscation of property as an additional penalty. However, this type of confiscation cannot be applied in CAP proceedings since the confiscation of lawfully acquired property cannot be carried out in the context of CAP proceedings, so that lawfully acquired property, or property of unlawful origin of which is not clearly established, cannot be subject to confiscation as criminally acquired property.