Foreigners ask the Constitutional Court to return nationalized money

The Latvian state's practice of nationalizing foreigners' money on suspicion that it was obtained criminally is currently being assessed by the Constitutional Court in several cases.

At one time, the government introduced a golden visa program to warm up the country's economy. In exchange for investments in banks, companies and real estate, it allowed foreigners to obtain European Union temporary residence permits. Nobody cared about the origin of this money. It was only after the overhaul of the Latvian financial system, when Latvia was effectively banned by US order from handling money from third-country nationals, that they started to take an interest. Proof of origin is required for investments already accepted. The presumption of innocence in this category of cases has been abolished and - if a foreigner fails to find documents dating back five, ten or more years - the Latvian authorities, based on a typology drawn up by the Financial Intelligence Unit, declare it to be criminal property, seize it and finally nationalize it. The paradox is that the owner of the money is not considered a criminal and is not put in prison. Only money is criminal. And now several cases have come before the Constitutional Court where the main question is whether the Constitution of the Republic of Latvia protects allegedly criminally acquired property and its owner.

Three Ukrainian cases

These cases challenge the provisions of the Criminal Procedure Law relating to Chapter 59 "Proceedings Regarding Criminally Acquired Property". According to the applicants, they do not comply with the first sentence of Article 91 of the Constitution "All human beings in Latvia shall be equal before the law and the courts"; the first sentence of Article 92 "Everyone has the right to defend his or her rights and lawful interests in a fair court" and Article 105, which guarantees everyone the right to property. Lawyers working on these cases have repeatedly pointed out that their ability to challenge police and court decisions and to access the materials of criminal proceedings is severely restricted. For example, Neatkarīgā recently described "Three stories of money seized from rich Ukrainians in Latvia".

In one case, money earned on the stock market and given by a brother to his sister, who lost her husband in the first year of the Ukrainian war, was seized. In the other, the seized money was earned by the inventor of digital security solutions. The third is the money of a Ukrainian agricultural entrepreneur. The common element in all these cases is the unwillingness of the process facilitator to explain himself, the unwillingness to examine the evidence, the denial of access to the investigation materials and the allegations about the criminal origin of the property.

Without the possibility to appeal

If the decisions of the authorities cannot be challenged and the seized money released, the three Ukrainian cases will be brought before the Constitutional Court, where several other similar cases are already pending. The applicants are both individuals and companies. Deng Xiaoxu, Xinya Ling, Baxodir Boltabaevich Parpiyev, Artyom Zuyev, a company registered in the Swiss Confederation Produktech Engineering AG, a company registered in Estonia 1Dream OU. In the case of Zuyev, for example, the applicant's assets were found by the Court of Economic Affairs not to have been criminally acquired and the proceedings were discontinued. The prosecutor then lodged a protest, and the Riga Regional Court then found the property to be criminally acquired and confiscated it for the benefit of the State. It is no longer possible to appeal against this decision of the Regional Court, which, according to the applicant, does not comply with the right to defend one's legitimate interests before a fair tribunal enshrined in the Constitution. Another case brought before the Constitutional Court concerning the nationalization of foreigners' money was decided on May 23. The Court rejected the applicants' claims. The contested articles of the Criminal Procedure Law were declared compatible with the Constitution.

Confiscation of money as a preventive measure

The applicants are ERGO TEC LLP, a company registered in the United Kingdom, and Trasta Komercbanka, a joint stock company in liquidation, which holds more than €7 million for the company. In the present case, it is not the money of this British company that has been declared toxic and nationalized, but that of other depositors. However, the bank is insolvent and the money taken by the State is not being paid to creditors. The applicants take the view that the money deposited with a credit institution becomes its property at the moment of deposit. If the bank is obliged to return its property to the State, the amount of the bank's assets is reduced, which prevents it from fulfilling its obligations to creditors. Meanwhile, the Saeima, as the author of the law, considers that confiscation of criminally acquired property in criminal proceedings is in the public interest and is a tool to be used to deter persons from engaging in criminal offences. In this way, the democratic order of the State and public security are safeguarded. The key is to remove criminal money from civil circulation as soon as possible. The fact that ERGO TEC LLP was a victim in the Trasta Komercbanka criminal case added to the intrigue of this case. However, the money that the unscrupulous insolvency administrators failed to extort from the company sometime around 2017 is stuck in the failing bank anyway.

Whoever takes the risk loses

The supervisory authorities have found criminal money in three accounts of the to-be-liquidated Trasta Komercbanka and nationalized it. Accordingly, money that could otherwise have been repaid to depositors has been withdrawn from the bank. The State has effectively bypassed the other creditors waiting in the queue for money, including ERGO TEC LLP. The Constitutional Court has found that this is correct and constitutional. As regards the bank, the Court found that there were no negative consequences at all, as the amount taken by the State no longer had to be repaid by the bank to the depositors. The confiscated property does not belong to the bank or to the creditor. The proceedings in respect of the claim by Trasta Komercbanka should therefore be brought to an end. The proceedings in respect of the claim by the creditor ERGO TEC LLP should also be brought to an end. As is clear from the Constitutional Court's ruling, all depositors must take into account that the use of banking services is, by its very nature, risk-taking. Confiscation of the proceeds of crime is appropriate and necessary even if the bank is insolvent. Replacing bank depositors on the payout lists with the Latvian State is in line with the Constitution. Whoever takes the risk loses. The Constitutional Court's ruling can be found HERE.