Civil judicial forfeiture over goods of lawful origin and without connection with illegal activities

On August 19, 2020, the Constitutional Court delivered its most recent decision related to the Civil Judicial Forfeiture Code (Act No. 1708 of 2014). This judicial review judgment (C-327, 2020) proclaimed that under a specific interpretation, numerals 10 and 11 of Article 16 did not violate the Constitution, therefore they were declared as conditionally constitutional.

These two provisions govern the situations in which assets, despite not having direct or indirect connection with an illicit activity, may be forfeited. They indicate the following:

"ARTICLE 16. Grounds. Property over goods in the following circumstances shall be declared terminated:

(...)

10. Those of lawful origin whose value is equivalent to any of the goods described in the numerals above, where the civil judicial forfeiture action against such goods is dismissible due to the recognition of the rights of a third party acting in good faith free of guilt.

11. Those of lawful origin whose value corresponds to or is equivalent to that of goods directly or indirectly originated by an illicit activity, where the location, identification or material seizure of such goods is not possible. "

The Court examined the constitutionality of these provisions by referring to what was decided in previous cases. It asserted that in past judgments it had declared the constitutionality of civil judicial forfeiture actions or similar figures such as confiscation to equivalent assets, considering that the purpose of these figures is to combat crime by eliminating its economic incentives and removing the benefits originated from the execution of unlawful activities.

Continuing with its argument, the Court stated that Article 34 of the Constitution referred to illicit enrichment as a cause for forfeiture, and that this offense refers to the wealth of a person and not to the individually considered assets. Therefore, the Court argued that civil judicial forfeiture not only seeks to deprive the owner of specific assets but also to disrupt the criminal activities of those who have acted unlawfully by diminishing their wealth. Thus, considering the purpose and object of the figure, the Court understood the provision as reasonable, only if the property of illicit origin is no longer under the domain of the person who committed the crimes, and only for the value of the illicit profit.

However, the Constitutional Court limited the application of the provisions considering their open and vague wording. It states that the powers of seizure of such property do not affect third parties, who are not required to demonstrate good faith free of negligence. This, as such assets are not illegal, so the unlawful activities carried out by former owners should not implicate the current ones. Moreover, if the reason for the constitutionality of the provisions is that they seek to eliminate the profit obtained through criminal activities, in cases where the asset belongs to third parties, that purpose would not be fulfilled.

Despite the latter, the Court stated that assets which are under securities on behalf of third parties can be extinguished. In these cases, they can be protected by demonstrating good faith without negligence. Consequently, the Court declared the conditional constitutionality of the provisions, on the understanding that this kind of civil judicial forfeiture only applies if the owner of the asset concerned is also the owner of the over which seizure has not been possible. The debate in constitutional terms seems to be settled; however, some comments can be made to the decision, which leaves unresolved issues.

First, the Court does not determine the moment in which the asset must be owned by the prosecuted subject for the seizure to be legal Thus, the discussion is open as to whether the assets should be under the domain of the holder by the time the lawsuit is filed, or when the judge notifies the admission of the claim, or until a judgment is delivered and notified. Considering the nature of the procedure, to make room for the sale of assets after the claim has been filed makes the evasion of the forfeiture possible.

Secondly, the judgment allocates a heavy burden on the creditors with securities over the assets as it requires that they prove good faith free of negligence. Therefore, in order to prevent the forfeiture of the security, not only they have to ensure that the good is of lawful origin and destination, but also that its former owner did not carry out any illegal activity whatsoever. In practice, this means that there is a higher standard of due diligence when creating a security over an asset than there is in the purchase of an asset. This goes against the economic sense of transactions because the value of an acquisition is commonly higher than the one of a security and, therefore, the cost of the due diligence increases in relation to the value of the deal.

Thirdly, the Court does not deal with difficult scenarios such as the one created by numeral 11, that sets forth the impossibility of identifying the asset originated from an illicit activity as one of the circumstances for the forfeiture of lawfully obtained assets. The Court abides by the settled position on the reversal of the burden of proof against the person affected by the forfeiture procedure. Therefore, in cases where the new condition created by the Court apply the third party just needs to prove that he or she is not to be the same person who committed illegal activities. But it continues to be problematic for the affected individual, who will have to prove that he does not own and has never been the owner of goods with unlawful origins. This burden of proof is impossible to fulfill.

In conclusion, the Court has taken a very important step towards the rationalization of civil judicial forfeiture, but it is still a procedure that does not give legal certainty and stability to property. This, as we have explained in previous documents, turns out to be very harmful for the real estate market, in which assets have a very long and well documented history, and unfortunately, a historic link with unlawful activities in Colombia.