International Law Advisory – New EU Ruling on the Freezing of Funds of Individuals Suspected of Terrorism

September 14, 2009

Introduction

On 2 September 2009, the Court of First Instance (the CFI) delivered an important judgment concerning the freezing of funds of individuals suspected of terrorism.[1] The CFI decided that the Council of Ministers of the European Union (the Council) was not in breach of the principle of the presumption of innocence, when it froze the funds of Mr. El Morabit, since a final conviction was not a legal prerequisite to an initial freezing of funds.

On 10 March 2006, Mr. El Morabit was convicted by a court in Rotterdam of participating in a criminal organization with terrorist aims. He appealed the judgment to the Court of Appeal of The Hague. In December 2006, prior to a decision on appeal, the Council added his name to the European Community’s list of persons and entities whose funds must be frozen.[2] By two Council Decisions in 2007, his name was retained on the list.

By judgment of 23 January 2008, the Court of Appeal of The Hague acquitted Mr. El Morabit.[3] Subsequently, by decision of 29 April 2008, the Council removed Mr. El Morabit from the list relating to the freezing of funds. In the meantime, Mr. El Morabit brought two actions before the Court of First Instance against the two Council Decisions. He submitted that by including him on the list without awaiting the decision on appeal, the Council breached his fundamental rights and, in particular, the presumption of innocence.

The CFI Ruling

The CFI acknowledged that the presumption of innocence required that any person accused of a crime was presumed innocent until his guilt was legally established. However,the CFI went on to note that this principle did not preclude the adoption of precautionary measures which do not constitute a sentence or penalty and did not pre-judge the innocence or guilt of the person concerned.

The Court found that those conditions were met in the present case. It noted that the freezing of funds was provided for by Community legislation, that it was adopted by a competent authority (the Council), and that it had a limited temporal scope (since the list was revised at regular intervals). Furthermore, the restrictive measures did not involve a confiscation of assets which were the proceeds of crime, but rather an interim freezing of funds. Therefore, the measures did not constitute a sentence or penalty; nor did they entail any accusation of that nature. In those circumstances, the Court decided that there was no breach of the principle of the presumption of innocence.

The Court held that the Council was not required to wait for a final conviction before freezing funds. The initiation of an enquiry by a Member State into possible participation in a terrorist act, based on sound and credible evidence, was sufficient to justify inclusion of the target of the investigation on the list. A conviction by a court of a Member State, which established a link with terrorist activities further justified inclusion on that list.

The Court considered also that if the measures to freeze funds could be applied only to persons, groups and entities which were the subject of a final conviction, the maintenance of international peace and security would be jeopardized. The systematic requirement of a final decision could seriously and irreversibly undermine the effectiveness of the restrictive measures. Indeed, persons likely to be included on the list could take steps to prevent their funds from being subject to an interim freezing measure. The Court also held that the importance of maintaining peace and international security was such as to justify the negative financial consequences suffered by Mr. El Morabit as a result of the interim freezing measure. Therefore, a decision to freeze funds did not breach the principle of proportionality.

The Court recalled that the Council was required, following the outcome of the appeal proceedings, to verify whether grounds existed justifying the maintenance of the freeze on the funds of the person concerned. In the present case, following the acquittal of Mr. El Morabit, the Council drew an immediate conclusion by removing him from the list, despite the fact that the public prosecutor had appealed.

Consequently, the Court dismissed the action and upheld the Council Decisions.

This decision, while not unexpected, underscores that the measures and actions the European Community and Member States adopt to address suspected terrorist activity will be given considerable deference by the courts. That same deference is likely to be accorded to other export control, economic sanction, protective and remedial measures that are founded on protecting the security and critical foreign policy interests of the Community members. Companies and business entities that are dealing with cross-border transactions should continue to exercise diligence in screening their business dealings against the relevant restricted party lists, and be mindful of the source of funds relating to such transactions for purposes of complying with the relevant asset freezing requirements.

For further details on this judgment, please contact Michael Sánchez Rydelski (msanchez@steptoe.com; +32 2 626 0543) or Guy Soussan (gsoussan@steptoe.com; +32 2 626 0535) in Steptoe’s Brussels office, or David Lorello (dlorello@steptoe.com; +44 20 7367 8007) in Steptoe’s London office.

[1] Judgment of the CFI of 2 September 2009, Joined Cases T-37/07 and T-323/07 Mohamed El Morabit v Council [2009] ECR (not yet reported). The judgment is available on the Court’s website (in French and Dutch): http://curia.europa.eu/jcms/jcms/j_6/

[2] Established by Council Common Position 2001/931/CFSP of 27 December 2001 on the application of specific measures to combat terrorism (OJ 2001 L 344, p. 93) and Council Regulation (EC) No 2580/2001 of 27 December 2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism (OJ 2001 344, p. 70).

[3] The public prosecutor lodged an appeal on a point of law against that judgment.