1. Introduction
Seizure and confiscation measures regulated under criminal law can directly affect not only natural persons but also legal entities. These measures have various consequences for companies, affecting everything from their bank accounts to means of production, potentially leading to the suspension of business activities.
This article discusses how seizure and confiscation orders issued for legal entities under criminal law could disrupt business activities and offers some legal and operational measures for companies to take against such risks.
2. What Are Confiscation and Seizure?
Confiscation refers to a transfer of ownership of certain property or proceeds to the state as a result of a crime. The second part of the Turkish Penal Code (“TPC”) sets forth “Security Measures”, including confiscation. Instead of general confiscation, i.e. the transfer of all assets of the perpetrator to the state, the lawmaker orders the confiscation of assets related to the offense in question. There are two types of confiscation under the TPC:
a. Confiscation of Property (Article 54, TPC): The transfer of property that was used in or constituted the subject matter of the crime.
b. Confiscation of Proceeds of Crime (Article 55, TPC): The transfer of the proceeds of crime to the state.
Seizure is regulated in the Code of Criminal Procedure as a temporary measure putting property under the control of the state.
3. Which Situations Pose a Risk of Seizure/Confiscation of Company Property?
Legal entities (companies, associations, foundations, etc.) may face criminal sanctions in relation to both the proceeds of crimes committed for their benefit and the assets involved in the commission of such crimes. Confiscation provisions apply to companies under Article 60/2 of the TPC, which states, “Confiscation provisions also apply to private entities in crimes committed for their benefit.” For instance, if it is discovered that a company uses unlicensed software on its office computers, this software and the devices on which it is installed may be confiscated. Moreover, if a cosmetics company makes scientifically unsubstantiated health and ingredient claims in its product packaging and advertisements, these products may be considered instruments of crime and confiscated.
In criminal proceedings, a legal entity’s assets may be seized if the crime is committed in the course of its business activities, or the proceeds of the crime are used in its company accounts, or it serves as an intermediary in organized criminal activities (e.g., accounting firms issuing false invoices). Although each case warrants a separate evaluation, an injunction may be imposed on company assets in such situations. These types of measures will inevitably affect business operations.
4. Impact of Seizure and Confiscation Orders on Commercial Activity
Seizure or confiscation orders may adversely affect the commercial activities of legal entities. Indeed, the seizure of bank accounts could disrupt cash flows, and the seizure of production equipment could hinder production, partially or fully, which may damage the company’s reputation as well as customer, supplier or investor relations. The situation may lead to contractual breach or legal liability, especially for exporters and companies with foreign partners.
5. What Kinds of Legal and Operational Measures Are Available for Companies?
a. Companies should establish internal audit and compliance mechanisms that suit their functioning and organization.
b. Early legal intervention may prevent the consequences above, including loss of reputation, suspension of production or disruption of cash flows. For instance, legal intervention at the start of the investigation may prevent the issuance of these orders or minimize harm by objecting to the orders or limiting the scope of seizure.
c. Legal entities that cooperate with the authorities by providing the necessary information during criminal proceedings, rather than remaining passive, can thus contribute to the protection of property rights and reputation management.
d. The legal entity’s assets should be distinguished from the personal assets of its shareholders.
e. Companies’ proper maintenance of financial documents helps them in investigations into the proceeds of crime.
6. Conclusion
Seizure and confiscation orders issued under criminal legislation can result in serious consequences for companies. Therefore, companies should develop risk-based internal audit processes, duly keep financial documents and obtain legal support without delay. In this framework, the protection of a legal entity’s economic viability and reputation calls for strategic planning beyond mere self-defense.
Betül Önal Payze, Senior Associate
