Mega-Extended Confiscation, or How Prosecutors Seize Corporate Funds Without the Authority to Do So
A Warsaw court ruling exposes an “unacceptable practice”: prosecutors were classifying bank deposits as physical evidence to circumvent constitutional protections.
To confiscate funds belonging to a company, prosecutors must obtain a court judgment establishing that the enterprise was used to commit a crime. This naturally requires law enforcement to prove that the entrepreneur—or other entity operating the business—acted with culpable intent in committing an offense through the use of that enterprise.
For years, however, prosecutors have employed a particular maneuver that allows them to bypass these requirements and seize company funds held in bank accounts without a court judgment or charges being filed against anyone: they designate the funds as physical evidence in an ongoing investigation.
The Warsaw Regional Court, ruling in favor of an entrepreneur on July 22, 2020, deemed such prosecutorial conduct an unacceptable practice that violates civil rights and liberties.
Extended Confiscation of an Enterprise
Article 55¹ of the Civil Code specifies what constitutes an enterprise: an organized complex of intangible and tangible assets intended for conducting business activity, encompassing, among other things, ownership of real and movable property, economic copyrights and related rights, as well as receivables and monetary funds.
Article 44a § 1 of the Criminal Code, which entered into force on April 27, 2017, provides that upon conviction of an offender for a crime from which they derived—even indirectly—substantial pecuniary benefit, the court may order forfeiture of the enterprise owned by the offender, or its equivalent value, if the enterprise was used to commit that crime or to conceal the proceeds obtained from it.
Paragraph 2 of the article extends this criminal liability even to cases where the enterprise used in the crime does not belong to the perpetrator, provided that its owner intended for it to be used to commit the offense or conceal the proceeds, or—foreseeing such a possibility—consented to it.
This provision constitutes what is known as extended confiscation, a tool enabling the justice system to strip criminals of benefits derived from prohibited acts by seizing the enterprises used to commit them.
To deprive entrepreneurs of such enterprise assets, prosecutors must demonstrate before a court that the offense specified in Article 44a of the Criminal Code was committed intentionally by the owner—they must prove guilt.
Freezing the Account of a Company Suspected of Money Laundering or Terrorism Links
The Act of March 1, 2018 on Counteracting Money Laundering and Terrorism Financing empowers prosecutors to halt transactions or block accounts for a period of six months when so-called obligated institutions develop a suspicion that a transaction or accumulated assets may be connected to money laundering or terrorism financing. In this manner—without any need to establish intent or prove the entrepreneur’s guilt before a court—prosecutors freeze company bank accounts.
Blocking Funds as Evidence in a Case
This is precisely what a prosecutor did in December 2019, when, pursuant to the aforementioned statute, he issued an order blocking the accounts of a Warsaw company for a six-month period ending June 17, 2020. On the final day of that period, the prosecutor designated the funds held in the blocked accounts as physical evidence and ordered the bank to transfer them to the account of the relevant district prosecutor’s office.
The Company’s Appeal Against the Prosecutor’s Order
Attorney Robert Nogacki of Kancelaria Prawna Skarbiec, acting as the company’s legal representative in this matter, filed an appeal against the prosecutor’s order pursuant to Article 465 § 2 of the Code of Criminal Procedure. The Warsaw Regional Court upheld the appeal in full.
The court agreed that only items identified with specificity may constitute physical evidence. Article 228 § 1 of the Code of Criminal Procedure instructs that objects discovered during a search must be inspected, inventoried, and described.
In this case, however, it was not possible—once the bank transferred the entrepreneur’s funds from the seized account to the prosecutor’s account—for the prosecutor to inspect, inventory, or describe them. These funds are not connected to specific means of payment in the form of banknotes or coins.
A wire transfer does not effectuate the transfer of possession of specific monetary instruments between banks. Money may indeed constitute physical evidence in criminal proceedings, but only when considered as a source of specifically identifiable banknote serial numbers.
Unacceptable Prolongation of Investigation and Withholding of Funds Without Charging Anyone
The court cited Article 89(7) of the Act on Counteracting Money Laundering and Terrorism Financing, which provides that the suspension of a transaction or account blockade lapses if, within six months from the date of the relevant order, no order for asset seizure or order concerning physical evidence has been issued.
Thus, in this case, if by June 17, 2020—upon expiration of the six-month period referenced above—the prosecutor had failed to charge the entrepreneur with committing a crime, and if during that period no asset seizure had been ordered ex officio against the entrepreneur’s funds, and if such funds cannot constitute physical evidence, then the prosecutor may not seize the company’s funds after that deadline.
“Adopting the contrary position would effectively legitimize, by the Court’s own hand, an unacceptable practice whereby the prosecutor could conduct an investigation for a period many times exceeding the six-month term specified in Article 89(7) of the aforementioned statute without charging anyone. Such an interpretation of Article 89(7) would violate civil rights and liberties.” (Order of the Warsaw Regional Court, XII Criminal Division, July 28, 2020, case no. XII Kp 787/20)
Mega-Extended Confiscation
“In practice, prosecutors have repeatedly employed this ‘maneuver’ as a tool for indefinitely holding entrepreneurs’ funds in situations where there were insufficient grounds to apply the provisions permitting so-called ‘extended confiscation’—which itself raises considerable doubts as to its constitutional validity. This was, in reality, a kind of mega-extended confiscation,” summarized Attorney Robert Nogacki, who represented the company in this matter, commenting on the Warsaw court’s decision.
In recent years, law enforcement agencies have been exceedingly eager to seize the assets of entrepreneurs and ordinary citizens while circumventing constitutional principles: the presumption of innocence, the protection of property, and the guarantee expressed in Article 46 of the Polish Constitution that forfeiture of property may occur only on the basis of a final court judgment.
The most glaring manifestation of these aspirations has been the Ministry of Justice’s attempts to introduce into the legal order so-called preventive confiscation, which would permit prosecutors to seize the property of everyone—including honest citizens—and only afterward shift onto those citizens the burden of proving the “non-criminal” origin of the assets taken from them.
Today, in light of such law enforcement conduct, relocating businesses abroad, establishing cross-border organizational structures, and changing tax residency are no longer—as the tax authorities have long maintained—actions aimed solely at more favorable taxation of business activity.
Rather, they represent a conscious flight from repression by those very authorities. Entrepreneurs no longer ask themselves how to protect their assets and those of their companies from unwanted creditors. They ask how to protect them from agencies acting in the name of the law—agencies that, in their eagerness to reach those assets, circumvent the law itself.
Robert Nogacki – licensed legal counsel (radca prawny, WA-9026), Founder of Kancelaria Prawna Skarbiec.
There are lawyers who practice law. And there are those who deal with problems for which the law has no ready answer. For over twenty years, Kancelaria Skarbiec has worked at the intersection of tax law, corporate structures, and the deeply human reluctance to give the state more than the state is owed. We advise entrepreneurs from over a dozen countries – from those on the Forbes list to those whose bank account was just seized by the tax authority and who do not know what to do tomorrow morning.
One of the most frequently cited experts on tax law in Polish media – he writes for Rzeczpospolita, Dziennik Gazeta Prawna, and Parkiet not because it looks good on a résumé, but because certain things cannot be explained in a court filing and someone needs to say them out loud. Author of AI Decoding Satoshi Nakamoto: Artificial Intelligence on the Trail of Bitcoin’s Creator. Co-author of the award-winning book Bezpieczeństwo współczesnej firmy (Security of a Modern Company).
Kancelaria Skarbiec holds top positions in the tax law firm rankings of Dziennik Gazeta Prawna. Four-time winner of the European Medal, recipient of the title International Tax Planning Law Firm of the Year in Poland.
He specializes in tax disputes with fiscal authorities, international tax planning, crypto-asset regulation, and asset protection. Since 2006, he has led the WGI case – one of the longest-running criminal proceedings in the history of the Polish financial market – because there are things you do not leave half-done, even if they take two decades. He believes the law is too serious to be treated only seriously – and that the best legal advice is the kind that ensures the client never has to stand before a court.
