Legitimate Source of Funds Proven before the Economic Court
In representing an Estonian company before the Economic Court (EC) in proceedings regarding property acquired through a criminal offence, Law Firm FORT has proven legitimate source of the client’s funds. By the EC decision of 27 August 2021 it is resolved not to recognize the arrested funds to be acquired through a criminal offence and terminate the proceedings regarding the property acquired through crime. The court decision forms a methodology of evaluation that is of crucial importance in other proceedings concerning property acquired through a criminal offence as well.
EC that started operating this spring reviewed a case regarding a property acquired through a criminal offence which was initiated based on a decision of the prosecuting authority with respect to funds of an Estonian company which were credited to an account in a bank registered in Latvia in the year 2019 and were subsequently arrested less than a month later. The prosecuting authority had made an assumption in its decision that the funds credited to the bank account were of illegal source, because the owner of the arrested property was alleged to be a shell company which allegedly did not conduct any real economic activity, while the documents submitted for substantiation of the international transaction were dismissed as fictitious (the service was allegedly not provided).
Contrary to the position of the prosecuting authority and the prosecutor’s office, in its decision of 27 August 2021 EC did not recognize the arrested property to be acquired through a criminal offence and terminated the proceedings regarding the property acquired through a criminal offence. The explanations and evidence provided by the Estonian company to the court caused objective doubts to the court about the statement of the prosecuting authority that the company was allegedly a shell company. EC acknowledged that it had ascertained of the manner how the economic activity was conducted and why it was associated with Estonia. Furthermore, the court, referring to the evidence provided by the owner of the property, dismissed the doubts about the fictitious nature of the transaction documents submitted for substantiation of the transaction.
EC noted several considerations with respect to the specifics of the burden of proof in the proceedings concerning the property acquired through a criminal offence. In the opinion of the court, even though the Criminal Procedure Act stipulates a lowered standard of proof – “preponderance of probabilities” – the latter pertains only to proving the source of property which the prosecuting authority believes to be acquired through a criminal offence. Furthermore, such lowered standard of proof pertains only to criminal source of the property and not the actions comprising a criminal offence. The actions comprising the criminal office are subject to the general standard of proof – “beyond reasonable doubt”.
EC acknowledged that the prosecuting authority and the prosecutor need to point out the specific content of the criminal offence prescribed by the Criminal Act which the criminal offence committed in another country conforms to and shall provide evidence that allows, beyond the reasonable doubt, to draw conclusions about the respective offence having been committed.
Finally, the court emphasized that, first of all, the prosecuting authority needs to be the first one to obtain evidence that forms grounds to recognized that the property, most probably, is of illegal and not legal source, If the evidence obtained by the prosecuting authority is not sufficient to claim, with the preponderance of probabilities, that the arrested property is acquired illegally, then there is no reason to transfer the burden of proof onto the owner of the property.
In light of the amendments to laws and regulations aimed at enhancing restrictions on property acquired through a criminal offence, the court focused on the issue of timing in application of the legal provisions. The court recognized that the new wording of the law governing prevention of money laundering is not applicable, while the wording of the legal provision is to be applied instead that was effective during the period when the actions under review were taken.
The EC decision can be appealed before the Riga Regional Court within 10 days.