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04 August 2014
The Federal Tribunal recently held(1) that an agreement between an offender and an victim on a settlement of financial loss incurred as a result of a criminal act did not withstand the confiscation and forfeiture of the proceeds of such an act by the penal authorities. Conceding that the victim was at liberty to dispose of any civil claims for compensation of damages as he deemed appropriate, the court ruled that a partial or full waiver of such claims would not, however, prejudice the right of the state to declare the proceeds of the crime forfeited.(2) It thus eliminated an important incentive for offenders to compromise with victims. In future, victims will find it more difficult to achieve a swift settlement of their civil claims.
The Zurich High Court found X guilty of qualified disloyal conduct and on May 21 2012 ordered him to pay to the state Sfr391,200 by way of compensation of financial benefits unlawfully gained through his criminal conduct. X appealed and demanded that the Federal Tribunal, among other things, dismiss the prosecutor's petition for forfeiture. He argued that he had concluded a civil settlement with the victim in the Zurich Commercial Court, providing for the payment of Sfr350,000 in consideration of a comprehensive waiver of any and all further claims by the latter, and that such a settlement had been paid by him. By entering into the agreement, the parties restored justice and there was no further need or basis for the state to intervene.
The tribunal rejected this view on consideration that the forfeiture of the proceeds of a crime was a measure provided for by compulsory law and rooted in the principle that 'crime must not pay'. Article 70(1) of the Penal Code recognised the interest of the victim by stating that forfeiture should not encompass the benefits derived from a criminal act to the extent that such benefits were to be surrendered to the victim in order to restore justice, and such reservation was not to be read as a caveat of the general rule providing for the full deprivation of all financial gains. However, in order to avoid double jeopardy to the detriment of the offender, the court held that any sums repaid to the victim under a civil settlement should be deducted when determining the amount to be confiscated for forfeiture pursuant to Articles 70 and 71 of the code.
The strict position taken by the tribunal runs counter to the established practice of Swiss cantonal penal authorities, which have abstained from confiscating the proceeds of criminal conduct if the parties have achieved a civil settlement providing for restitution of an adequate portion of the proceeds.(3) The new practice will not facilitate the expeditious and effective pursuit of rights by the victim. Any reduction of damages payable by the offender, which the victim might be prepared to accept for the sake of a swift and pragmatic solution, will be skimmed off by the state in future.
Moreover, the judgment is likely to increase the workload of prosecuting authorities. Article 53 of the Penal Code provides for the possibility to drop a criminal case, subject to the conditions that the prerequisites of a probation sentence are given and there is no significant public or private interest in prosecuting the matter, and if the offender has covered the damage or otherwise taken efforts to restore justice. This instrument has proven valuable in resolving cases where the complexity of facts or legal issues is out of proportion to the significance of the matter. Such cases are numerous in practice. Coverage of damage, as provided in this rule, is often achieved by way of a compromise between the victim, offender and prosecutor on the amount of damages to be compensated. It is evident that such an amount does not necessarily coincide with the proceeds (including consequential profit) of the criminal act. Also, in this context, the tribunal's judgment will discourage pragmatic solutions, insofar as it requires apodictically that all proceeds which the offender may have made be skimmed off.
Pursuant to civil law principles, it is impossible to acquire valid title (eg, ownership or creditor rights) to an asset without a valid cause (eg, a contract or a statutory rule providing for the transfer of title). It is apparent that a criminal act cannot constitute such a valid cause – a thief will not become the legal owner of stolen goods, and a party that obtained a sum of money by fraud is unduly enriched must thus return the funds. Accordingly, the proceeds of a criminal act do not regularly belong to the offender, but – from a civil law perspective – to the victim. It is only by virtue of a legal operation, such as the conclusion of a contract, that the offender acquires valid title to assets that he or she may have acquired de facto control of through the offence.
If the offender agrees with the victim on a settlement (which must be free of any defects of contractual intent) – providing that the latter waives any claims to all or part of the assets at issue for the offender's benefit – legal title passes to the offender by operation of this contract. Under civil law, the settlement is constituent of the entitlement of the offender, and the assets in question can thus no longer be deemed proceeds of crime.
By decreeing that any balance which the victim forgives in a civil settlement with the offender must be confiscated and declared forfeited, the tribunal has plainly ignored the principles of civil law. Its judgment directs prosecutors and penal courts to take a serious view not only on unlawful gains, but also on assets to which the offender holds valid title. The 'crime must not pay' principle has thus been perverted into 'compromise must not pay'.
For further information on this topic please contact Bernhard Loetscher or Axel Buhr at CMS von Erlach Poncet Ltd by telephone (+41 44 285 11 11), fax (+41 44 285 11 22) or email (firstname.lastname@example.org or email@example.com). The CMS von Erlach Poncet Ltd website can be accessed at www.cms-vep.com.
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