Will your lawyer accuse you of money laundering behind your back? Michaud, 12323/11

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The EU legislated three directives (nos. 91/308/CEE, 2001/97/CE, 2005/60/CE) requiring attorneys to accuse their clients on a suspicion of money laundering without informing them about this (§§ 9-10). The French law requires your attorney to observe you permanently and denounce every suspicion (§ 13). On 06/12/2012 the European Court of Human Rights found this compatible with the right to private correspondence with an attorney (Article 8 of the European Convention of Human Rights).

French tax attorney Patrick Michaud tried to prove contrary. He argued that the notion of “suspect” was not defined clearly (§ 59). The Court replied that it is impossible to arrive to “absolute certainty”, since this would produce “excessive rigidity”, and that the concepts must be “more or less vagues” (§ 96). The ECtHR continued that it had already been recognised in case law that sometimes the attorney’s freedom of expression is more important than professional secret (§ 123).

The attorney argued that the function of counselling in business transaction and defending before tribunals could not be easily divided (§§ 59, 117.2), but it didn’t work. The ECtHR replied that the duty to accuse is strictly limited to business transactions that are clearly defined (§ 127), and that there is a filter of the Bar (§ 129).

In 2010, French attorneys 20 252 times accused their clients but only in 404 cases the clients became prisoners at the bar. Mr Michaud says that this means that the system is not efficient, and waists time that could be invested in fighting crime (§ 65). The Court replies that according to the intergovernmental body Financial Action Task Force it is good that the French attorneys were among the best in the World in accusing their clients behind the back (§ 125).

Mr Michaud presented an analysis of the situation in Italy, Estonia, Belgium, Netherlands, Ireland, the USA and Canada (§ 68). Do not choose France.

ECJ gives the green light for the European Stability Mechanism, Pringle, C-370/12

The European Council took Decision 2011/199/EU of 25/03/2011 amending Article 136 of the Treaty on the Functioning of the European Union (TFEU) with § 3 providing that the Eurozone Member States may establish a stability mechanism (§ 6). The Decision is accompanied with the European Stability Mechanism (ESM) Treaty that establishes the respective mechanism with a maximum lending capacity fixed at € 500 billion in order to help Member States threatened by severe financing problems (§ 11).

Thomas Pringle, left-wing independent Member of Irish Parliament, sued Ireland for implementing this initiative before the Irish Supreme court that made a reference to the EU Court of Justice (§ 2). The latter decided to judge in full Court of 27 judges, and on 27/11/2012 dismissed the action.

Mr Pringle claimed that Article 136 TFEU might not be amended pursuant to the simplified revision procedure provided by Article 48(6) TEU, since this amendment would directly encroach on the exclusive competence of the Union in relation to monetary policy (§ 25). Article 3(1)(c) TFEU states that the Union is to have exclusive competence in the area of monetary policy for the Eurozone. Thus, according to Pringle, the amendment would give Member States back the respective competence (§ 52).

The 27 judges replied in 2 steps. First, the TFEU contains no definition of monetary policy, and refers to the objectives, not to the instruments (§ 53). Second, under Articles 127(1) and 282(2) TFEU, the primary objective of the EU monetary policy is to maintain price stability, which is pretty different from safeguarding the stability of the euro (§§ 54 and 56). Thus the grant of financial assistance does not fall within monetary policy.

Mr Pringle argues that Article 48(6) TEU provides that the European Council can act in monetary area only after consulting the European Central Bank. In this case the European Central Bank gave its opinion on 17/03/2011, and this means that this is a monetary policy procedure. The ECJ replied that the Bank was consulted on the European Council’s own initiative, and not due to any legal obligation (§ 61).

Mr Pringle continues that the competence of establishing this kind of mechanism has been transferred to the Union level by Article 352 TFEU, and cannot be forwarded to a new institution called European Stability Mechanism by the simplified revision procedure. The full Court replies that the Union has not used powers under that Article and that, in any event, that provision does not impose on the Union any obligation to act (§ 67). I like this point because this is a bright case of indeterminacy in the EU case law. In this case, the Court followed Commission v Council, 22/70, § 95, but there are other cases (such as UK v Ireland) where this kind of reasoning was unambiguously dismissed.

The final point makes us smile. Mr Pringle says that the ESM Treaty may not be signed or ratified before the entry into force of Decision 2011/199 amending Article 136 TFEU (§ 183). The ECJ replies that this amendment is a simple confirmation of the legal order that has existed before (§ 184). In other words, the Court makes the completed amendment procedure senseless because anyway it always was like this.

ECtHR makes Slovenia liable for Ljubljanska Banka Sarajevo debts of € 175 million, Alisic et al v 5 ex-Yugoslavian States

Before the collapse of the Socialist Federal Republic of Yugoslavia, Mr Alisic and Mr Sadzak had foreign currency savings in Ljubljanska Banka Sarajevo (respectively DEM 4 715.56 and DEM 129 874.30, § 7). After the collapse, the savings were frozen (disappeared). The issue raised is who is liable for the debts of Ljubljanska Banka Sarajevo? The Slovenian perspective is to apply the principle of territoriality and to accept all liabilities in all domestic branches of all ex-Yugoslavian banks, but not in the Bosnian branches (§ 36).

In 1990 Ljubljanska Banka Sarajevo became a branch, without legal personality, of Ljubljanska Banka Ljubljana. On 31/12/1991 the amount of foreign-currency savings at the Sarajevo branch was DEM 250 000 000 with a valid annual interest of 12 %. However only DEM 350 000 were present in Sarajevo (§ 21). The Slovenian Government stated that part of the money that came from Sarajevo was forwarded to National Bank of Yugoslavia, and the remaining funds sent back to Bosnia (§ 61). European Court of Human Rights replies that the Slovenian Government failed to provide any proof in that regard, and according to its information from 1984 and 1991 only 17 % of the money was shipped back from Slovenia to Bosnia (§ 11). The Chamber majority writes: “While it is unclear what happened with the remaining sum, it is likely that most of it ended up in Slovenia” (§ 21 and then § 68). 

This means that now Slovenia will have to find € 175 million unless the Grand Chamber will set aside the Chamber judgment on appeal.

It is remarkable that 5 of the ECtHR judges who considered the case were from the former Yugoslavia States. Four of them voted against Slovenia, and the Slovenian one supported his country. Four is already a clear majority in a Chamber of seven.

Serbia is also found liable for other aspects of the same problem, and its debt is about € 60 million.

ECtHR enforces the restitution of Kentbank SA, Süzer et al. v Turkey, 6334/05

Mr. Mustafa Süzer and Eksen Holding SA owned by him controlled 99 % of the Kentbank capital (§ 5). It was 22^nd biggest Turkish bank employing 2000 people in its 93 branches. On 01/02/2001 the Turkish Agency for Regulation and Supervision of Banks accused the bank of $ 680 750 000 debt (active/capital ration of –56,67 %). On 09/07/2001 Kentbank was taken from the owners by the Agency and transferred to FADE (a savings insurance foundation, §§ 11-12).

Already at the national level, the Turkish State Council judged that the transfer was illegal (§ 63) but the administration was not enthusiastic about the restitution. Thus I wouldn’t call the proceedings difficult. The ECtHR reconfirmed the property rights and the right to restitution. The pecuniary damage proceedings will continue.

Mr. Süzer asked an official excuse from the Government as a non-pecuniary redress. The Court replied that it cannot give this kind of directives to the State and dismissed the request (§§ 177, 179).

The Applicant claimed € 722 711 for legal costs but the Strasbourg Court reduced it by € 241 136.94 (§ 193).

ECJ upholds freezing of the Melli Bank funds, C-380/09 P

On 03/03/2008 the United Nations Security Council issued Resolution 1803 (2008) calling on “all States to exercise vigilance over [...] Bank Melli [...] in order to avoid such activities contributing to the proliferation sensitive nuclear activities, or to the development of nuclear weapon delivery systems” (§ 17). On 23/06/2008, under Common Position 2008/479/CFSP the EU Council froze the Melli Bank plc funds. The latter is owned by the Melli Bank Iran (بانک ملی ایران‎) that is owned by the Iranian Government (§ 19).

The Melli Bank raised a number of points of law before the EU General Court and, on appeal C-380/09 P, before the ECJ:

1. The Melli Bank maintained that the grammatical structure of legal acts requires giving specific and individualized reasons for freezing its funds (§§ 34-35). The UK based Melli Bank did not participate in nuclear proliferation. The ECJ replied that the fact that the EU Council has the discretion as to by whom the entity is “owned” does not mean that the EU Council also has discretion to assess whether that entity plays a part in nuclear proliferation (§ 42).
2. The Melli Bank pointed that the UN Resolution calls to “exercise vigilance” and not “freeying of funds”. Thus, the EU measure is disproportional (§ 47). The ECJ replied that the UN and the EU are “distinct legal orders” (§ 54), and that the EU freezing serves the “terms and objectives” of the UN vigilance (§ 55). Finally, it cannot be inferred from the UN Resolution that there is no need to freeze the funds (§ 57).
3. The Bank proposed that the proportional measures could be of prior authorization and supervision by an independent agent and of total prohibition of transactions with Iran. The ECJ replied that this argument was mentioned for the first time at the hearing, and therefore could not be taken into consideration (§ 59).
4. According to the Melli Bank the EU General Court changed the burden of proof by requiring the Bank to demonstrate that measures alternative to freezing would be entirely effective (§ 47). The judges reply that a “lack of evidence” does not fall to be reviewed by the ECJ (§ 59).
5. The Melli Bank argues that the competition law entitles it to make submissions to the EU institutions while consideration of the measures (§ 67), that freezing of funds is comparable to criminal penalty, and therefore there is a breach of the presumption of innocence (§ 69). The ECJ interprets that the fact of being “owned” by Iran is a sufficient ground, and it is not “necessary to carry out further review”.

ECHR: Standard of “increased prudence” in a retrospective application of criminal law, Soros v France, 50425/06

Today George Soros lost his case in Strasbourg. In 1998 his investment fund Quantum Fund acquired 160 000 shares of the French bank Société Générale, and sold them several days later. This looked as a participation in a takeover attempt. The operation brought the profit of $ 2.28 million ($ 1.1 million at the French market, §§ 10-11). However in 2007 the Paris Appellate Court convicted Soros of buying shares based on insider information (Mr. P), and imposed a fine of € 940 507.22 (§ 30).

George Soros argued before the European Court of Human Rights that the French judgment had violated Article 7 of the Convention (nulla poena sine lege). The classic understanding of “insider trading” was that it is a use of “privileged information” by a person employed by the respective company or otherwise contractually related (§ 54). Does this conception cover Mr. Soros? The report of the French Commission of Stock Exchange Operations stated that it had been impossible to appraise whether the French law had forbade this kind of operations at the respective time (§ 14). However later the French law was amended in a manner making that operation clearly illegal.

The ECHR majority (4 versus 3) ruled on introduction of additional tests.

1. The 4 judges stated that he had “to doubt” about that operation, since previously the French first instance tribunals had ruled that an insider employed by a company could not use privileged information for such a personal benefit (§§ 56-58). Note: this question never went to appeal or cassation stage.
2. They qualified George Soros as “institutional investor”, and since he was this kind of person, he had to bring a “proof of increased prudence” (§ 59).

The minority opinion of 3 judges insists that the criminal law interpretation must be strict. The very fact that after the operation the French Government had to amend the written law shows that it was not precise at the respective time. The minority underlines the difference between “unavoidable imprecision” and “avoidable imprecision” of criminal law, and proposes to use this as a judiciary test.

“Finding a business partner” as a criterion in competition law, Visa, T-461/07

The EU General Court confirmed the fine of EUR 10 200 000 imposed by the European Commission on Visa International and Visa Europe Ltd. for their refusal to allow their competitor Morgan Stanley Bank International Ltd. (UK) issuing Discover Cards to issue Visa and Master Cards.

Visa International argued that despite refusing to allow the Discover Card issuer to issue Visa and Master Cards, Morgan Stanley could find a fronting partner, i.e. an entity that had already been authorized to issue Visa, and enter into a relationship with that entity. The EU General Court applied the finding a business partner criterion and concluded that this option had been excluded for Morgan Stanley, since:

1) a fronting agreement does not allow a new competitor to enter the market but rather reinforces the already existing service providers (§ 91);
2) previously fronting arrangement granted the access to the market to processing companies only, and not to banks (§ 92);
3) other large international banks would not be interested in entering in such a relationship with Morgan Stanley (§ 93).

It is remarkable that Morgan Stanley was not required to prove any attempt to find a business partner.

It is also interesting how the European Commission defined the period of violation: not from the date of the refusal to enter into a relationship (22/03/2000, § 4) but from the date of statement of objection by the Commission (02/08/2004, § 28).

ECHR supports an insolvent borrower attacked by his bank, and strikes "unless" judgements

Mr Félix Chatellier (case 34658/07) was a shareholder of company R. that faced certain difficulties in 1990s. Therefore, he borrowed under his personal name about EUR 762 000 (FRF 5 000 000) from the B. bank in 1993. However, due to the insolvency, the Bordeaux Tribunal of Commerce ordered him to pay EUR 625 654.10 under the annual interest of 10,4 % in 2004. The French fiscal authorities claimed EUR 292 926, and the monthly revenue of his household at the respective time was EUR 2 600 (§§ 7, 11, 14).

Mr Chatellier appealed the judgement, however the bank made an application for “unless judgement”, and the case preparing judge (conseiller de la mise en état) rejected the appeal due to non-payment of the sum ordered by the Bordeaux Tribunal of Commerce. The Bordeaux judges believed that the fact that he allegedly had not paid EUR 292 926 showed that he had certain savings or some hidden money (§ 15).

Why do I talk about this case?

1) The ECHR unanimously rejected this reasoning in declaring the coverage of civil/fiscal cases by the presumption of innocence, which plays a role here because Article 6(1) of the Convention implies it (§ 43).

2) The ECHR imposes the duty of formal proofs for adoption of an “unless” judgement (§ 42). Thus, Strasbourg reduces the scope of use of these judgements.

3) One may observe a political victory of a lower incomes person against a bank.