FOURTH SECTION

Application no. 663/11 Krasimir Aleksandrov NEDYALKOV and others against Bulgaria lodged on 6 December 2010

STATEMENT OF FACTS

The first applicant, Mr Krasimir Aleksandrov Nedyalkov , is a Bulgarian national born in 1969 and living in Varna . The second and the third applicants, Ms Anna Krasimirova Nedyalkova and Ms Aleksandrina Krasimirova Nedyalkova , are also Bulgarian nationals born respectively in 1993 and 2002 and living in Varna. They are Mr Nedyalkov ’ s daughters. The fourth applicant, Kadans EOOD, is a single ‑ member limited ‑ liability company having its registered office in Varna . It is wholly owned and managed by Mr Nedyalkov .

A. The circumstances of the case

The facts of the case, as submitted by the applicants, may be summarised as follows.

At the relevant time the first applicant was a sole trader. He married in 1992 but divorced his wife in 2001. Two daughters were born out of the marriage; they are the second and the third applicants.

1. The criminal proceedings against the first applicant

On 25 April 2001 the police raided the first applicant ’ s office, conducting a search and seizing a number of documents. In 2002 criminal proceedings were opened against him on suspicion of tax evasion. He was interviewed as a witness on 10 September 2002. During the following years the authorities interviewed a number of witnesses and obtained expert reports.

On 30 June 2009 the first applicant was formally charged with filing, on a number of occasions between 2 November 1999 and 15 January 2001, false tax returns relating to transactions which had not in fact taken place, in order to obtain tax credit unduly and thus avoid the payment of large amounts of value ‑ added tax.

On 23 November 2009 the Varna Regional Prosecutor ’ s Office filed an indictment against the first applicant with the Varna Regional Court . The court held two hearings, on 23 February and 14 June 2010, during which it heard witnesses and admitted in evidence expert reports. However, having heard the parties, at the close of the hearing on 14 June 2010 the court observed that the charges against the applicant had not been properly formulated and that an expert report obtained during the preliminary investigation suffered from a number of shortcomings. It held that those issues amounted to breaches of the first applicant ’ s defence rights which needed to be made good, and decided to refer the case back to the prosecuting authorities.

At the time of the latest information from the applicants (22 February 2011), the criminal proceedings against the first applicant were still pending at the renewed preliminary investigation stage.

2. The proceedings under the Forfeiture of Proceeds of Crime Act 2005

(a) The preliminary inquiry and the opening of the forfeiture proceedings

Having been apprised of the criminal charges against the first applicant, on 17 March 2010 the Commission for Uncovering Proceeds of Crime (see below, Relevant domestic law) started an inquiry. In the course of that inquiry it gathered information from a number of State authorities and banks about the first applicant, his family, and companies controlled by them, as well as about their declared income and their present and past assets. The applicants were not informed of the inquiry.

Based on the results of the inquiry, on 14 April 2010 the Commission decided to open forfeiture proceedings against the first applicant. It reasoned that all the prerequisites for that were in place. Criminal proceedings had been opened against him, he had acquired assets whose value came to 1,714.76 minimum monthly salaries, and it could reasonably be assumed that those assets were the proceeds of crime, in as much as no legitimate source could be established for their acquisition. The Commission went on to specify that the period covered by the proceedings would be twenty ‑ five years prior to the filing of the prospective forfeiture claim.

The decision was not notified to the applicants and was not amenable to legal challenge, in line with section 15(3) of the Forfeiture of Proceeds of Crime Act 2005 (“the 2005 Act” – see below, Relevant domestic law).

(b) The freezing orders against the applicants

( i ) The order issued by the Varna Regional Court

Referring to information about a number of assets acquired and disposed of by the first applicant, members of his family (including the second and the third applicants), and companies wholly or partly owned by him (including the fourth applicant), and about the first applicant ’ s, his family members ’ , and his companies ’ income declared before the tax and the social security authorities between 1999 and 2009, on 21 July 2010 the Commission applied to the Varna Regional Court for an order freezing a number of assets, including real properties, motor vehicles and bank accounts, that were held by the applicants and that could be subjected to a prospective forfeiture claim in the amount of 840,264 Bulgarian levs (BGN).

The Commission argued that the first applicant ’ s and his former wife ’ s legitimate income during the relevant period had been 1,688 minimum monthly salaries, and their expenditures during the same period – 3,388 minimum monthly salaries, resulting in a shortfall of 1,700 minimum monthly salaries, whereas during the same period the first applicant had acquired assets whose value was 2,915 minimum monthly salaries. The first applicant ’ s company, the fourth applicant, had for its part acquired assets whose value was 538 minimum monthly salaries, bringing the total value of the acquired assets to 3,458 minimum monthly salaries [1] . In view of that, it could reasonably be assumed, in line with section 4(1) of the 2005 Act, that those assets were the proceeds of crime. Their current monetary value was said to amount to BGN 325,559. The application satisfied both requirements of Article 391 §§ 1 and 3 of the Code of Civil Procedure 2007 (see below, Relevant domestic law). Firstly, it was supported by written evidence showing that the first applicant had engaged in criminal conduct and that he and persons associated with him had acquired assets without a legitimate source of income, which made a prospective forfeiture claim arguably well ‑ founded. Secondly, there was a risk that the applicants might dissipate their assets and thus prevent the satisfaction of a future forfeiture order.

On 22 July 2010 the Varna Regional Court examined the application ex parte and on the papers, and allowed it. It froze all assets covered by the Commission ’ s application (two real properties owned by the first applicant; two real properties owned by the fourth applicant; two cars owned by the first applicant; one half ‑ share of two cars and seven mopeds owned by a partnership in which the first applicant was partner; one car owned by the fourth applicant; six bank accounts held by the first applicant; one bank safe held by the first applicant; two bank accounts held by the second applicant; one bank account held by the third applicant; two bank accounts held by the fourth applicant; and the first applicant ’ s shareholding in the fourth applicant).

The court held that it could not assess whether the indictment against the first applicant was lawful, and that in itself it constituted formal grounds for opening forfeiture proceedings. The fact that the trial court had referred the criminal case against the first applicant back to the preliminary investigation stage due to breaches of his defence rights did not alter the conclusion that criminal proceedings were pending against him. As for the arguable well ‑ foundedness of the prospective forfeiture claim, it was incumbent on the Commission to prove a link between the alleged but yet unproven criminal conduct by the first applicant and the transactions described in the Commission ’ s application. However, the Commission had not led evidence on that point. In those circumstances, the application for a freezing order could be allowed only if the Commission agreed to provide a guarantee securing a future claim for damages by the applicant in relation to the loss that they might suffer as a result of the order. That guarantee was to be set at ten per cent of the Commission ’ s prospective forfeiture claim, and thus amount to BGN 84,026.40. Naturally, that did not mean that the Commission had to pay that money into court, because by Article 391 § 4 of the Code State bodies were exempt from providing such guarantee.

On 30 July 2010 a bailiff at the Varna District Court wrote to the banks holding the applicants ’ accounts, advising them to freeze the funds in those accounts up to BGN 840,264 (the value of the prospective forfeiture claim).

The applicants appealed to the Varna Court of Appeal. They argued that the Commission had failed to carry out a proper inquiry into the first applicant ’ s legitimate income, ignoring possible sources of information (such as movements on his bank accounts), making vague and opaque calculations, and failing to take into account income earned in 1997 and 2010. Secondly, they asserted that during the relevant period the first applicant, his company (the fourth applicant), and a partnership in which he was partner had had a combined legitimate income of BGN 1,237,235, well above the alleged proceeds of crime. It could not therefore reasonably be assumed that the frozen assets had been acquired through such proceeds. Thirdly, they contested the Commission ’ s valuation method, whose deficiencies were in their view apparent. Fourthly, they argued that the freezing order was overbroad and covering more assets than necessary for the satisfaction of a forfeiture order; that was especially true of the bank accounts used by the first and the fourth applicants for their daily business. Fifthly, they pointed to the already significant duration of the criminal proceedings against the first applicant and the uncertainty regarding their future progress. Sixthly, they pointed out that the frozen assets had been acquired either before or after the offence with which the first applicant had been charged. They requested the appellate court either to set aside the freezing order in its entirety, or to reduce its scope by excluding from it the bank accounts used by the first and the fourth applicants for their daily business.

In an additional memorial the applicants further argued, inter alia , that the Commission had failed properly to specify the period covered by the forfeiture proceedings, that it had failed to explain why the assumption that the assets were the proceeds of crime was reasonable, had failed to explain why assets held by persons other than the first applicant were also the proceeds of crime, and had sought the freezing of assets shielded from enforcement, in breach of the prohibition laid down in section 23(7) of the 2005 Act.

On 31 August 2010 the Varna Court of Appeal dismissed the appeal in the following terms:

“The Court finds the prospective [forfeiture] claim admissible and, in view of the numerous pieces of written evidence, arguably well ‑ founded. Proceedings under the [2005 Act] may opened if it is established that a person has acquired assets of considerable value, in respect of which it may reasonably be assumed that they are the proceeds of crime, and criminal proceedings have been opened against that person for an offence.

The written evidence shows that [the first applicant] has been indicted for a [tax evasion] offence...

During an inquiry it was found that considerable assets have been acquired, some of which were later disposed of. Apart from real property, during the period covered by the inquiry the [first applicant] acquired considerable movable property. It is described in detail in the application and the evidence shows its acquisition.

On the other hand, the written evidence shows that before the dissolution of their marriage the [first applicant] and [his former wife] declared income amounting to 1,688 minimum monthly salaries, whereas the expenditures of the [first applicant] and his family were 3,388 minimum monthly salaries, which yields a shortfall of 1,700 minimum monthly salaries.

In as much as no legitimate source has been established for the acquired assets, under section 4 of the [2005 Act] it is to be presumed to be the proceeds of crime. The court finds that without the requested freezing the satisfaction of a prospective forfeiture order would be hindered or prevented. This interim measure is admissible and appropriate. Evidence has been led that the assets sought to be frozen are owned by the [applicants].”

The applicants tried to appeal on points of law. On 19 October 2010 the Supreme Court of Cassation refused to give them leave to do so.

(ii) The order issued by the Smolyan Regional Court

At the same time the Commission made a similar application to the Smolyan Regional Court . It sought the freezing of twelve plots of land in the Smolyan region acquired by the first applicant in 2004.

On 26 July 2010 the Smolyan Regional Court examined the application ex parte and on the papers, and allowed it. It froze the twelve plots. It held that the application had been duly lodged, and that the prospective forfeiture claim was admissible and arguably well ‑ founded. In noted that relevant criminal proceedings had been opened against the first applicant, that he had acquired assets of considerable value, and that his declared income was lower than that value, which meant that it could be presumed that the assets were the proceeds of crime. Both prerequisites under Article 391 of the Code of Civil Procedure 2007 (see below, Relevant domestic law) were in place: the application was supported by enough written evidence, and there was a risk of dissipation of the assets.

The applicants appealed to the Plovdiv Court of Appeal, relying on the same arguments as those raised by them before the Varna Court of Appeal (see above).

On 1 September 2010 the Plovdiv Court of Appeal dismissed the appeal. It held that the lower court ’ s decision was correct, because the Commission had opened proceedings under the 2005 Act, criminal proceedings had been instituted against the first applicant, and the assets owned by the first applicant and his former wife had a considerable value. In the court ’ s view, that was enough to allow the application for a freezing order. All issues raised in the appeal in relation to the legality of the sources of income used to acquire the assets were irrelevant at that stage. Those were issues touching on the merits of the prospective forfeiture claim. They had to be reviewed carefully, both by the Commission before it sought forfeiture, and by the court dealing with the prospective forfeiture claim, but could not be examined in the proceedings relating to the freezing orders. The court went on to say, without further detail, that the well ‑ foundedness of the application for a freezing order was “established on the basis of the written evidence”.

The applicants did not try to appeal to the Supreme Court of Cassation.

B. Relevant domestic law

1. The Forfeiture of Proceeds of Crime Act 2005

(a) Introduction

The Forfeiture of Proceeds of Crime Act 2005 ( Закон за отнемане в полза на държавата на имущество придобито от престъпна дейност ) was adopted by Parliament in February 2005 and came into force in March 2005. It makes provision for the freezing and forfeiture of the direct or indirect proceeds of crime (section 1(1)), with a view to preventing criminals from profiting from their activities (section 2).

(b) Authority in charge of administering the Act

The authority in charge of initiating and prosecuting proceedings under the Act is the Commission for Uncovering Proceeds of Crime. It has five members: its president is appointed by the prime minister, its vice ‑ president and two of its regular members are elected by Parliament, and the third regular member is appointed by the President of the Republic (section 12(3)). Their terms of office are five years, renewable once (section 12(4)). They must have a university degree in law or economics (section 12(5)).

The Commission has regional offices (section 12(9)), run by directors and staffed by inspectors (section 12(10)).

(c) Grounds for opening proceedings under the Act

Proceedings under the Act may be opened when it is established that a person who has been charged with a relevant criminal offence has acquired assets which have “considerable value” and in respect of which a reasonable assumption may be made that they are the proceeds of crime (section 3(1)). “Considerable value” is defined in paragraph 1(2) of the transitional and concluding provisions of the Act as more than BGN 60,000 (equivalent to 30,677.51 euros (EUR)). In the Commission ’ s and the courts ’ practice, for the purpose of cross ‑ time comparisons, that amount is also presented as the equivalent of 400 minimum monthly salaries. According to the Supreme Court of Cassation, that should be the aggregate value of the assets, determined on the basis of their fair market value at the time of their acquisition ( реш . â„– 89 от 29 януари 2010 г. по гр . д. â„– 717/2009г., ВКС, III г. о.). Proceedings may be opened in respect of assets acquired before the Act ’ s entry into force (paragraph 3 of the Act ’ s transitional and concluding provisions).

Proceedings may be opened even in the absence of criminal charges if such charges cannot be brought or have been dropped because the alleged offender has died, has become mentally unfit for trial or has been amnestied, or if the criminal proceedings have been stayed because the alleged offender has become unfit to take part in them, is absent, or has immunity (section 3(2)). Proceedings may also be opened even if the alleged offences have been committed abroad and do not fall under Bulgaria ’ s criminal jurisdiction (section 3(3)).

The offences that may trigger the opening of proceedings under the Act are set out in section 3(1). They include various terrorism ‑ related offences; murder for gain or for hire; pimping; abduction with a view to prostitution; distribution of pornography; trafficking in human beings; vehicle theft or robbery; embezzlement; fraud; documentary fraud entailing misappropriation of European Union funds; insurance fraud; racketeering; handling large quantities of stolen goods; insolvency fraud; dealing in weapons or dual ‑ use goods without licence; poaching; smuggling; counterfeiting of money; making illegal bank transfers; failing to declare money at the border; engaging in banking, insurance or another licensed financial activity without licence; money laundering or preparation for money laundering; misuse of European Union funds; tax evasion; misappropriation of budgetary funds; abuse of office in relation to narcotic drugs; all forms of bribery; unduly influencing sport events; aggravated document forgery; being a member of a criminal gang; running a racketeering gang; organising or taking part in illegal gambling; dealing in, acquiring, or possessing arms or explosives without licence; vehicle theft with a view to extracting ransom; producing, acquiring, holding or distributing narcotic drugs; systematically allowing the use of premises for drug ‑ taking; illegally prescribing narcotic drugs; and growing opium poppy, coca or cannabis.

(d) Forfeitable assets

Assets that may be forfeited under the Act are those that have been acquired by persons charged with a criminal offence and in respect of which it may reasonably be assumed that they are the proceeds of crime, in as much as no legal source has been established (section 4(1)). If such assets have been transferred to bona fide third parties for consideration, and those third parties have paid the assets ’ real value, only the proceeds received by the target of the proceedings may be forfeited (section 4(2)). Assets inherited by the heirs of the target are also subject to forfeiture (section 5), as are assets included in the capital of a legal person controlled by the target alone or jointly with others (section 6), and assets transferred by the target to spouses, lineal relatives of all degrees, and second ‑ degree collateral relatives and in ‑ laws, provided those persons knew that the assets were the proceeds of crime (section 8(1)). Such knowledge is presumed until proven otherwise (section 8(2)). Assets that are joint marital property, if not traced to a source of income of the spouse of the target, are also subject to forfeiture (section 10). Assets acquired by the target ’ s spouse or minor children from third parties are regarded as assets acquired on behalf of the target if they are of significant value, exceed the spouse ’ s or children ’ s income during the period at issue and cannot be traced to another source of income (section 9).

Transactions with third parties in respect of proceeds of crime are invalid vis ‑ Ã ‑ vis the State if they are not for consideration, or are for consideration but the third parties knew that the assets involved are the proceeds of crime, or acquired them in order to conceal them or their criminal origin or the real rights pertaining to them (section 7).

The State ’ s right to forfeit an asset expires twenty ‑ five years after it has been acquired (section 11).

(e) Manner of unfolding of proceedings under the Act

( i ) Opening of the proceedings

If an individual has been charged with one of the offences set out in section 3(1), the prosecuting authorities must immediately inform the Commission ’ s regional office, specifying the period of criminal activity and any assets of the accused of which they are aware (section 21(1)). The director of the regional office then draws up a report to the Commission.

The Commission carries out an inquiry with a view to ascertaining the source and the whereabouts of assets reasonably suspected of being the direct or indirect proceeds of crime (section 15(1)). In particular, the Commission checks the target ’ s assets, the manner of their acquisition and their value, the target ’ s income, the taxes paid by him or her, his or her usual and extraordinary expenses, tax returns, etc. (section 18(1)). The inquiry cannot last longer than ten months, extendable once by three months (section 15(2)). In the course of the inquiry the Commission may obtain information from various authorities (section 16(1)), gather written, expert and other evidence and accounting records (section 18(2)(2), (2)(3), (2)(5) and (2)(6)), carry out searches and seizures (section 18(2)(7)), and seek the lifting of bank secrecy (section 19). The Commission may also request information from the target of the inquiry (section 18(2)(1)). In particular, it may require targets to file within fourteen days a declaration detailing their and their families ’ assets, bank accounts, sources of income, transactions, and debts (if mentioned in the annual tax return). Third parties who have acquired property from targets may also be required to file such declarations (section 17(3)). If the person concerned does not file a declaration, files an incomplete declaration, or refuses to file a declaration, it is presumed that any undeclared assets are the proceeds of crime (section 17(5)).

On the basis of that inquiry, the Commission determines whether to open forfeiture proceedings; its decision to do so is not notified to the person concerned and is not subject to legal challenge (section 15(3)).

(ii) Freezing of assets with a view to their forfeiture

The Commission may apply to the regional court for an order freezing the target ’ s assets (section 22(1)). The application must describe in detail the assets whose freezing is being sought ( опр . № 416 от 16 юни 2010 г. по ч. т. д. № 368/2010 г. ВКС, ІІ т. о.). The court must rule the same day, and its decision to allow the application is immediately enforceable (section 23(1)).

The assets are frozen in the manner laid down in the Code of Civil Procedure 2007 (section 22(2) of the Act). That means that the court must examine the case in private and ex parte (Article 395 §§ 1 and 2 of the Code), and allow the application if it satisfies two conditions. First, there must exist a risk that the prospective forfeiture claim could be frustrated or hindered. Secondly, either the application must be supported by convincing written evidence or the applicant must provide a guarantee to secure any future claim for damages by the person whose assets are to be frozen (Article 391 §§ 1 and 3 of the Code). The court may require the applicant to provide a guarantee even if the application is supported by convincing written evidence (Article 391 § 2 of the Code). However, the State and State bodies are exempt from providing such a guarantee (Article 391 § 4 of the Code).

Assets that are by statute shielded from enforcement may not be frozen (section 23(7) of the Act).

According to the Supreme Court of Cassation, the determination whether the prospective forfeiture claim is arguably well ‑ founded is made solely on the basis of an ex facie examination of the written evidence submitted by the Commission ( опр . â„– 128 от 10 март 2011 г. по ч. гр . д. â„– 44/2011 г., ВКС, ІІІ г. о.). The court cannot verify whether the facts described in the Commission ’ s evidence are true; such verification may be carried out upon the examination of the prospective forfeiture claim ( опр . â„– 398 от 29 юни 2010 г. по ч. гр . д. â„– 200/2010 г. ВКС, IV г. о.). At the asset ‑ freezing stage the courts are not concerned with whether the assets whose freezing is being sought may reasonably be regarded as the proceeds of crime; that question is to be dealt with only when the prospective forfeiture claim comes for determination ( опр . â„– 66 от 18 февруари 2009 г. по ч. гр . д. â„– 84/2009 г.). The question whether there is a link between criminal conduct and the assets sought to be forfeited cannot be examined at the asset ‑ freezing stage but only at the actual forfeiture stage ( опр . â„– 343 от 7 юли 2010 г. по ч. гр . д. â„– 333/2010 г. ВКС, III г. о.; опр . â„– 424 от 8 юли 2010 г. по ч. гр . д. â„– 363/2010 г. ВКС, IV г. о.; опр . â„– 734 от 23 декември 2010 г. по ч. пр . д. â„– 698/2010 г., ВКС, ІV г. о.; опр . â„– 79 от 14 февруари 2011 г. по ч. гр . д. â„– 7/2011 г., ВКС, ІV г. о.; опр . â„– 100 от 2 февруари 2012 г. по ч. гр . д. â„– 767/2011 г., ВКС, ІV г. о.; опр . â„– 175 от 29 февруари 2012 г. по ч. гр . д. â„– 742/2011 г., ВКС, ІV г. о.). However, that means only that the target of the proceedings cannot seek to establish the lack of such link; if that lack is already apparent from the evidence presented by the Commission, the court cannot overlook that and must refuse to freeze the assets ( опр . â„– 118 от 2 март 2011 г. по ч. гр . д. â„– 90/2011 г., ВКС, ІV г. о.).

That said, in some instances, in particular cases concerning the freezing of third ‑ party assets, the Supreme Court of Cassation has refused to overturn lower courts ’ findings that the assets whose freezing was being sought were not the proceeds of crime ( опр . â„– 541 от 25 септември 2009 г. по ч. гр . д. â„– 448/2009 г., ВКС, ІV г. о.; опр . â„– 576 от 30 октомври 2009 г. по ч. гр . д. â„– 545/2009 г., ВКС, III г. о.; опр . â„– 112 от 1 март 2011 г. по ч. гр . д. â„– 49/2011 г., ВКС, ІV г. о.), or has inquired whether the presumption that the assets were the proceeds of crime was clearly inapplicable ( опр . â„– 449 от 24 септември 2010 г. по ч. гр . д. â„– 408/2010 г. ВКС, ІІІ г. о.)

The unfolding of the criminal proceedings against the target – such as referrals of the case back to the preliminary investigation stage – has no incidence on the possibility to freeze his or her assets ( опр . № 609 от 12 ноември 2009 г. по ч. гр . д. № 496/2009 г. ВКС, III г.о .)

(iii) Appeals against freezing orders

The court ’ s order is subject to appeal and then appeal on points of law (section 23(2) of the Act). Appeals against orders imposing interim measures are as a rule heard in private, but the appellate court may, if it considers it necessary, opt for a public hearing (Article 278 § 1 of the Code). Until July 2010 it was unclear whether further appeal lay to the Supreme Court of Cassation in respect of appellate decisions upholding interim measures. The point was resolved in a binding interpretative decision of the General Meeting of the Civil and Commercial Chambers of that court of 21 July 2010 ( тълк . реш . â„– 1 от 21 юли 2010 г. по тълк . д. 1/2010 г., ОСГТК на ВКС). The court held that appellate court decisions determining appeals against orders imposing interim measures are not in turn subject to appeal on points of law. However, it appears that this general rule does not apply to freezing orders under the 2005 Act, in view of the clear language of its section 23(2). In a number of cases post ‑ dating the interpretative decision the Supreme Court of Cassation held that appellate decisions upholding freezing orders under the 2005 Act are in principle subject to appeal on points of law, subject of course to the general admissibility requirements for such appeals ( опр . â„– 734 от 23 декември 2010 г. по ч. пр . д. â„– 698/ 2010 г., ВКС, ІV г. о.; опр . â„– 4 от 10 януари 2011 г. по ч. пр . д. â„– 513/ 2010 г., ВКС, ІІІ г. о.; опр . â„– 112 от 1 март 2011 г. по ч. гр . д. â„– 49/2011 г., ВКС, ІV г. о.; опр . â„– 128 от 10 март 2011 г. по ч. гр . д. â„– 44/2011 г., ВКС, ІІІ г. о.; опр . â„– 481 от 28 юли 2011 г. по ч. пр . д. â„– 338/2011 г., ВКС, ІV г. о.; опр . â„– 413 от 9 август 2011 г. по ч. пр . д. â„– 385/2011 г., ВКС, ІІІ г. о.; опр . â„– 100 от 2 февруари 2012 г. по ч. гр . д. â„– 767/2011 г., ВКС, ІV г. о.).

(iv) Unfreezing of assets during the main forfeiture proceedings

If the Commission finds that an asset that has been frozen has a legitimate source, the court may, at the request of the person concerned or of the Commission, unfreeze the asset (section 24(1)). According to the Supreme Court of Cassation, if the Commission fails to act in that respect, the person concerned may apply directly to a court for the unfreezing of asset ( опр . № 447 от 17 септември 2011 г. по ч. гр . д. № 491/2011 г., ВКС, ІІІ г. о.). However, in such proceedings the courts again refuse to go into the substance of the case or examine the source of the asset, holding that the point can be judicially determined only in the main forfeiture proceedings, and that before that assets may be unfrozen only if the Commission reverses, in a decision under section 24(1), its earlier assessment that those assets are the proceeds of crime ( опр . № 409 от 7 юли 2011 г. по ч. гр . д. № 369/2011 г., ВАпС , г. о.).

Under Article 402 § 1 of the Code, any affected party may seek the discharge of a freezing order. The court has to discharge the order either if it finds that that the reason why the assets were frozen no longer exists, or if the party provides a guarantee in money or securities (Article 402 § 2 of the Code). According to the Sofia Court of Appeal, that avenue cannot be used to discharge a freezing order on grounds that it has frozen assets in excess of the potential forfeiture amount, and a guarantee cannot be substituted for frozen bank accounts ( опр . № 143 от 24 януари 2012 г. по в. гр . д. № 3840/2011 г., САпС , г. о., 2 състав ).

Third parties who claim proprietary title to frozen assets may request their unfreezing, if their requests are supported by evidence as to the manner of acquisition of the assets and the sources of income used for that (section 24(2) and (3)).

The court may allow payments to be made out of frozen assets if this is necessary for medical treatment or other humanitarian needs, payment of alimony, taxes, salaries and social security contributions, or the costs of the proceedings (section 23(4)). Judicial permission is required for every individual expense; the court must determine such applications within forty ‑ eight hours (section 23(5)).

Of course, the assets have to be unfrozen if the criminal proceedings against the target have been discontinued ( опр . № 649 от 14 ноември 2011 г. по ч. пр . д. № 499/2011 г., ВКС, ІV г. о.).

(v) Forfeiture claims

If the criminal proceedings against the target have been concluded by means of a final conviction, the Commission has one month to file a forfeiture claim (section 27(2) of the Act, Article 390 § 2 of the Code, and тълк . реш . â„– 1 от 14 септември 2009 по тълк . д. â„– 1/2008 г., ВКС, ОСГТК). The claim must be based on a report drawn up by the Commission ’ s regional director that sets out the assets suspected of being the proceeds of crime and the evidence in support of that conclusion (section 27(1)). After receiving the claim, the regional court publishes a notice in the State Gazette and sets the case down for hearing. The hearing cannot take place earlier than three months after publication of the notice (section 28(2)). All persons connected with the target (spouses, relatives, legal persons controlled by him or her, third parties, etc.) are also constituted as defendants (section 28(3)). All defendants must put forward all their defences in those proceedings (section 28(4)). Third parties who assert proprietary title to the assets must bring their claims before the first ‑ instance court (section 29).

The court hears the case at a public hearing, in the presence of a public prosecutor (section 30(1)). Its decision is subject to appeal (section 30(2)). If the court dismisses the forfeiture claim, it must unfreeze the assets (section 30(3)).

If the proceedings do not result in forfeiture, the Commission may refer the case to the tax authorities; in that case, the evidence gathered in the forfeiture proceedings may be used in the tax proceedings (section 31).

(f) Liability of the authorities

The State is liable in respect of any damage caused by unlawful actions or omissions carried out under the Act. Claims for damages must be brought under the State and Municipalities Responsibility for Damage Act 1988 (section 32 of the 2005 Act).

2. Provisions and case-law concerning the length of criminal proceedings

The constitutional and statutory provisions and case-law concerning length of criminal proceedings have been set out in paragraphs 33 ‑ 45 of the Court ’ s judgment in the case of Dimitrov and Hamanov v. Bulgaria (nos. 48059/06 and 2708/09 , 10 May 2011).

C. Relevant international instruments

The Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (CETS No. 141) came into force in respect of Bulgaria on 1 October 1993. Its relevant provisions read as follows:

Article 3 – Investigative and provisional measures

“Each Party shall adopt such legislative and other measures as may be necessary to enable it to identify and trace property which is liable to confiscation pursuant to Article 2, paragraph 1, and to prevent any dealing in, transfer or disposal of such property.”

Article 5 – Legal remedies

“Each Party shall adopt such legislative and other measures as may be necessary to ensure that interested parties affected by measures under Articles 2 and 3 shall have effective legal remedies in order to preserve their rights.”

COMPLAINTS

1. The applicants complain under Article 6 § 1 of the Convention that the law serving as a basis for freezing their property with a view to its forfeiture is not sufficiently clear and foreseeable in its application and does not contain enough safeguards against arbitrary action.

2. The applicants complain under Article 6 § 2 of the Convention of the statutory presumption that all assets that they have acquired during the twenty ‑ five years preceding the prospective forfeiture are the proceeds of crime. They submit that the proceedings for freezing their property in effect amounted to the bringing of a criminal charges against them and thus attracted the strictures of that provision. They point out that even though the criminal charges against the first applicant concerned events in 1999 ‑ 2001, the inquiry into their assets covered a much longer period, up to twenty ‑ five years before the prospective forfeiture. They also complain that under the 2005 Act, when the Commission files a forfeiture claim, the court must publish a notice to that effect in the State Gazette.

3. The applicants complain under Article 6 § 1 of the Convention that when ordering the freezing of their assets the courts refused to examine whether the criminal charges against the first applicant were well ‑ founded or whether there existed any connection between those charges and the assets in issue, and that by law those courts did not have any possibility to limit the extent or the temporal operation of the freezing orders.

4. The applicants complain under Article 6 § 1 of the Convention of the reversal of the burden of proof in the proceedings brought against them and of the nature and the extent of the presumptions laid down in the 2005 Act.

5. They complain under Article 6 § 1 of the Convention of the lack of public hearings in the proceedings relating to the freezing orders.

6. The applicants complain under Article 1 of Protocol No. 1 of the freezing of their assets. They argue that that freezing was (a) not based on a clear and foreseeable law, because the law does not lay down a clear time ‑ limit for bringing a forfeiture claim, and was (b) disproportionate, because the Commission ’ s application was not supported by enough evidence, because there was no established link between the attached assets and the offence allegedly committee by the first applicant, and because there was no time ‑ limit for bringing the forfeiture claim, with the result that the freezing could last a very long time.

7. The first applicant additionally complains under Article 6 § 1 of the Convention of the length of the criminal proceedings against him, and under Article 13 of the Convention of the lack of effective remedies in that regard.

QUESTIONS TO THE PARTIES

1. Was the freezing of the applicants ’ assets a lawful and proportionate interference with the peaceful enjoyment of their possessions within the meaning of Article 1 of Protocol No. 1?

2. Have there been public hearings in the proceedings in which the applicants sought to challenge the freezing orders, as required under Article 6 § 1 of the Convention?

3. Were the criminal charges against the first applicant determined within a reasonable time, as required by Article 6 § 1 of the Convention? Did he have an effective remedy in that respect, as required by Article 13 of the Convention?

[1] . It appears that this was a clerical mistake, because the addition of 2,915 and 538 yields 3 , 453 .