On April 2020 the Parliament adopted the Law “On Confiscation of Property of Illegal Origin”. Although. From the beginning, it was supposed to become one of the tools to fight against corruption, today many are alarming that they are attempting to apply this law in order to dispossess people and redistribute property.

In a conversation with Banks.am, attorney Artur Hovhannisyan, a partner of Concern Dialog Law Firm, told about the existing dangers, the options for dealing with them, as well as the global experience of confiscating property of illegal origin.

He manages the sectors of tax and administrative law in the company, provides judicial representation in civil and administrative cases. Artur Hovhannisyan’s cases include a number of illegal property confiscation proceedings, the factual bases of some of which, according to him, are even ridiculous.

Causal relationship between property and criminal activity

After joining the Council of Europe, Armenia joined many conventions and tried and still tries to walk in line with European values. Today, the fight against corruption and money laundering, which plays an important role in the sustainable development of the country, is being highlighted all over the world. Corruption acts are generally considered as a crime, the RA Criminal Code also stipulates many provisions on corruption crimes. But there is a nuance: the threshold of proof for accusing and punishing a person for a crime is very high (or at least it should be high). If there is even a small doubt that he/she is innocent, the presumption of innocence is taken into account and prosecution becomes impossible. At the same time, due to the nature of corruption crimes, their detection is quite difficult, in some cases, practically impossible. On the other hand, in the case of corruption crimes, confiscation of the property obtained as a result of the mentioned crimes can be an effective tool for the fight, based on the legal process, which will reduce the “attractiveness” of corruption manifestations, because the property received will be subject to confiscation. With the mentioned logic and taking into account that there is a high public interest in the fight against corruption, many countries of the world use the mechanism of confiscation of property of illegal origin in one way or another. What does this signify in Armenian legislation? If this or that person is suspected of criminal activity, but for some reason criminal prosecution cannot be carried out against him/her (for example, the statute of limitations has expired, an amnesty has been applied, the person has died), the law allows to launch another civil proceeding, and examine the issue of legality of specific property. That is, logically, if the person in question has engaged in criminal activity, there is a high probability that one or another of his/her property has an illegal origin, was acquired as a result of this activity and should be confiscated. Moreover, in case of confiscation of property of illegal origin, the threshold of proof is quite low. The state must prove that the property could not have been acquired with available income, and the person can show other sources of income that were unknown to the state (this is often misunderstood and can be met with the wrong wording from the point of view of the trial “presumption of illegal origin of the property” ).

Along with this, it is very important to emphasize that the significance of the causal connection between criminal activity and the confiscation of property of illegal origin is laid down both in the ECHR precedent decisions and in the anti-corruption conventions. In other words, based on the principle of general freedom, it is not in every case that the state can question the ownership of a person. There must be an additional public interest, in this case the connection with the crime. The RA law, with the interpretation given by the Prosecutor’s Office, only partially addresses this. Judicial practice has not been fully formed yet. We expect the courts to deal with this in the right way.

According to our law, if criminal proceedings are initiated against a person related to some alleged crime, later he/she is even acquitted or the case is dismissed, this gives the Prosecutor’s Office grounds to start an investigation of the person’s property and financial flows. The prosecution can go back to 1991 and examine the legality of all the property owned by the given person from that period until today, demand evidence, otherwise try to confiscate the property. In this case, there is no mention of a causal connection between the criminal activity and the acquisition of the given property. A person can be accused for an act committed in 2016, before that he/she did not even hold any position, he/she did not have the opportunity to commit a corruption crime, but they go back and demand evidence, for example, about the property acquired by him/her in 1995. Here, the ratio of public interest in respect of the protection of a person’s property right is very important. When this mechanism for fighting corruption was developed in European countries, it was emphasized that the public interest is important, and the fight against corruption stems from the public interest itself, which in some places can make it possible to “question” a person’s property rights and generally implement the grounds for acquiring property. review: It turns out that if you can’t prove that the property has something to do with a corruption act, its confiscation can no longer be in the public interest, and this is more like an attempt to simply expropriate or redistribute property. Meanwhile, the interpretation of the law by the Prosecutor’s Office, in fact, considers not only the public interest in the fight against corruption and the confiscation of property acquired as a result of corruption, but also the confiscation of any property, the legality of which is not proven by the owner of the property. In other words, a person can be deprived of his/her property in general, just because, for example, he/she did not observe the grounds for acquiring the property, when the evidence was not preserved even in the state bodies of the Republic of Armenia.

The law is already here after “ordinary mortals”

We must clearly realize that today none of us is safe from the experience of such application of this law. Just remember the 90s. Will you be in condition to prove with documents, for example, the legality of your small piece of land acquired in 1994? In this period, the RA Tax Legislation was still being shaped, many archives were not preserved at all, the exchange rate was changing from rubles to Armenian drams. In the 1990s, you could meet Persian waffle sellers on tables in the streets at every turn, people engaged in currency exchange, fairs of various formats were operating where everything was sold: clothes, food, household appliances. Can you imagine that someone had a document proving the legality of those tables, and even more so, kept them to this day? There was no tax regime. Everyone used to sell the way they could. And this is only part of the economic system. The rest hasn’t been the most documented, either. It turns out that persons who have carried out business activities since the nineties, and then assumed this or that position and were accused of some kind of case, regardless of the outcome of the mentioned criminal case, will have to present evidence (according to the Prosecutor’s Office, transfers and written contracts still “since that period”) regarding their property. In most cases, people will not be able to prove the legality of their business during those years and there is a high probability that they will face the risk of being dispossessed by this law.

I especially want to emphasize that the law can “knock on the door” of “ordinary mortals” and it is in no way limited to persons known in the public as “oligarchs” or “corruptors”. A person may not even hold a public position, as the articles of the criminal code that are the basis for the study include not only crimes related to the position.

There is a lot of talk about the risk of expropriation, but the risks related to the protection of commercial and banking secrets and personal data are no less important. During the proceedings, the Prosecutor’s Office can request and receive information regarding any person and any period of time related to them. In cases where a court order is required, the courts grant sub-authorization, and the possibility of judicial protection is very limited.

This law, at least as it is interpreted and applied by the RA Prosecutor’s Office, has serious contradictions with both the RA Constitution and the European standards with the following provision. Suppose a person cannot justify that any property he/she had in 1997 was legal, and there is a certain connection with crime, but it is not possible to confiscate it today, because it simply does not exist: alienated, demolished, donated to another person. According to RA law, if that illegal property no longer exists, the person must pay for it today, from his/her legal income, and at today’s market value. In this case, can you imagine the huge difference in the price of a two-room apartment in Yerevan today and in the nineties?

Admonition of the Venice Commission

Based on the application of one-fifth of the National Assembly deputies, the RA Constitutional Court (CC) is now reviewing the constitutionality of this law. The CC recently appealed to the Venice Commission for an opinion. The Commission referred to the application of the retroactive force of the law, because it turns out that the law adopted in 2020 confiscates property owned in the 90s, that is, the aggravating law is given retroactive effect, which is prohibited by our own Constitution. The Venice Commission, considering the regulations of the current law in the light of the Constitution and the European Convention on Human Rights, and not comparing it with other legislation (which is beyond their mandate), recorded that in certain circumstances there is no issue of retroaction here, because the law confiscates property, which is still illegal today, and the Constitution protects legal property. That is, if there is illegal property and it is still illegal, it does not follow that the law is given retroactive effect. But a little while ago I mentioned that in many cases the given property is no longer physically there and the Procurator’s Office is trying to demand that the person pay for it today, from his/her legal income. Here, it is clear that an attempt is being made to give retroactive effect to the aggravating law, and to confiscate from a person not the originally illegal property, but the completely legal one.

At the same time, while discussing the return issue, the Venice Commission saw the problem from a different perspective. It was noted that referring to 1991 is not advisable because the period is long, many things are forgotten and obtaining proof of the legality of the property can be difficult. The Commission proposed setting a 15-year retroactive period as their previously proposed period. The Venice Commission also considered the proof threshold used by RA Legislation to be problematic, highlighting the more intensive use of various types of evidence, including witness testimony. I reiterate that many documents of that period have not been preserved today. The Prosecutor’s Office definitely does not take the mentioned into account, but we expect that the Constitutional Court will register the issue, and the courts will correctly interpret and apply the provisions of admissibility of evidence when examining the cases. It may seem funny, but people often even have to bring to court the photos with the car they once owned or pictures in which money can be seen, for example, a photo in which they are counting money. Thus, they try to prove that they had the funds to acquire this or that property.

I want to draw an important parallel with criminal or other civil cases. Even in the case of murder, a person may not bear any responsibility after 20 years, because the statute of limitations for the crime has expired. It turns out that illegal possession of property is a more dangerous act than murder. Also, the law cannot be applied outside of the existing civil and civil procedural regulations, and the statute of limitations (ten years for corruption cases) and other regulations must be applied. Here we see a great danger when international experts, not being familiar with the RA Legislation, teach the specialists of the prosecutor’s office and the judges of the anti-corruption court about the abstract and theoretical application of the law outside the RA Legislation. The Prosecutor’s Office, being convinced that they are right (didn’t the international expert say so), is trying to apply regulations that do not fit directly into the framework of civil proceedings in RA.

Approaches of the courts in such cases are still not clear and explicit

It is very important to contact a lawyer immediately in case of any connection with the law of confiscation of property of illegal origin. At the moment, there is still no idea what acts the courts will make in such cases, I don’t want to be too skeptical.

If we study the judgments of the ECHR, for example, in 2021, in the “Todorov v. Bulgaria” case, the question of this mechanism being a method of punishment is raised. Could the forfeited property not be considered as an additional criminal penalty, for example in the form of a fine? In this case too, the question of proportionality between the public interest and the property rights of a person is raised. The law of confiscation of illegal property should not become a tool of additional punishment, but the facts of the existing cases testify to it.

If the state body, in our case the Prosecutor’s Office, does not prove the causal connection between the criminal activity and the acquired property in court, but the court makes a decision to confiscate the property, I do not rule out that the ECHR will rule in all such cases in favor of the applicant, to the detriment of the state. As a result, of course, the state will compensate another citizen with taxes paid to the budget. This is not the only basis on which decisions can be revised later. The range of problems is wide and should be discussed already within the framework of the proceedings in RA.

Positive experience of confiscation of illegal property

There is definitely a positive experience. There are a number of precedents in the European Court of Justice. For example, a person was really involved in criminal activities, a little before and after that period he/she had property, the legality of which he/she could not justify, here the causal connection was obvious and indeed, this is an example of fighting corruption, there is a public interest and the property is to be confiscated. At the same time, the mentioned connection was assessed within the framework of the available evidence, not based on public opinion formed for one reason or another.

If a number of changes are made in the RA law, it can also ensure a positive result. Today, unfortunately, the law is written in such a way that the presence of a crime of corruption is just an excuse to scrutinize and confiscate a person’s lifetime property.

In one of our cases, the person was convicted by criminal procedure and compensated the damage in full. After that, however, the Prosecutor’s Office initiated a review and now claims that in 1998 the individuals did not have 7,500 Armenian drams to open an LLC, therefore, the LLC founded by individuals using that amount is illegal. Moreover, the mentioned person held a state position only since the end of 2000s. The circumstance of paying 7,500 AMD in 1998 should not be considered at all, as it is not subject to proof. Such cases give the attorneys a reason to claim that the law can simply be applied as a means of punishment.

Yana Shakhramanyan

Photos by Emin Aristakesyan