LAW ON EXTINCTION OF OWNERSHIP: IMPRESCRIPTIBILITY AND RETROSPECTIVITY

1.      .      BACKGROUND. With Opinion No. 1-21-OP/21, dated March 17, 2021, the Constitutional Court (CC) ruled on the President's partial objection to the Organic Law on Extinction of Ownership. The CC declared the objections against Articles 4 and 72 partially admissible, and those against Articles 8 and 71 inadmissible. Furthermore, it declared, by connection, the unconstitutionality of Articles 7(a), 14(c) and (d), and 19(a) of the Bill. The law, approved by the Assembly, contained 77 articles, 5 general provisions, 12 transitional provisions, and 4 amending provisions. The President expressly objected to Articles 4, 8, 71, and 72. He also objected, by way of connection, to Articles 7, 13, 14, 16, 17, 18, 19, 21, 26, 34, 37, 38, 39, 40, 42, 43, 44, 46, 47, 48, 49, 50, 51, 52, 53, and the third amending provision. The Constitutional Court accepted two of the four objections. Therefore, the declaration of unconstitutionality rendered the law meaningless.

2. PRESIDENTIAL OBJECTION AND CONNECTION. The Constitutional Court (CC) affirms that the declaration of unconstitutionality by connection has the exceptional function of “extending the declaration of unconstitutionality of a legal provision to other unchallenged provisions, provided that there is a relationship of redundancy, close systematic connection, or causality between them.” Along the same lines, the CC accuses the executive branch of acting “irregularly” in its objections based on grounds of unconstitutionality. It requests that the executive branch, if it considers certain articles unconstitutional, expressly object to them and not by connection, as this is its constitutional duty. In this way, it enables the CC to rule on the matter.

3. RESTRICTIONS ON RIGHTS AND GUARANTEES. The CC affirms that “the fight against corruption can constitute a legitimate objective for the limitation of certain constitutional rights,” provided that five elements are present: i) legality, which is met when they are established in a law; ii) the existence of a legitimate aim, which occurs to the extent that they seek the social interest and the common good; iii) suitability, that is, the determination of a causal relationship between the restriction and the aim pursued; iv) necessity, that is, the determination that there are no less burdensome and equally suitable alternatives; and v) proportionality in the strict sense, that is, the balance of the interests at stake and the degree of sacrifice of one with respect to the other. According to the Constitutional Court, these elements legitimize restrictions on constitutional rights that seek to combat corruption.

4. IMPRESCRIPTIBILITY AND LEGAL CERTAINTY. The President of the Republic objected to Article 4 of the Bill regarding the imprescriptibility of the action for forfeiture of ownership. It also requests that, due to its connection to the case, Article 14 be declared unconstitutional. Regarding the statute of limitations, the Constitutional Court affirms that it is one of the expressions of the right to legal certainty. The Court elaborates, stating that "this is a cross-cutting right that permeates the entire legal system and encompasses both a sphere of certainty and predictability." Furthermore, it mentions that establishing statutes of limitations helps guarantee legal certainty and frees individuals from the indefinite and unlimited pendency of a potential burden. Additionally, the Court points out that the statute of limitations "plays an important role in protecting the right to a defense because, when an excessive amount of time elapses between an event and the commencement of legal proceedings, the possibilities of gathering evidence to affirm and contradict the facts are substantially reduced (...) the excessive passage of time increases the possibility of errors regarding the determination of the material truth." In the opinion of the Constitutional Court (CC), this does not mean that prescription is an absolute rule, since there are instances of imprescriptibility in Articles 46, 80, 223, 290, and 396 of the Constitution of the Republic of Ecuador (CRE). Other instances of imprescriptibility may exist, provided that the principle of statutory reservation is respected and that the legislature duly justifies their inclusion. The CC also affirms that the imprescriptibility of the action for extinction of ownership, “by referring to assets regardless of who their owner is, has the potential to affect third parties who have acquired assets in good faith.” The CC declares the imprescriptible nature of the action for extinction of ownership unconstitutional, as it is incompatible with the right to legal certainty. The unconstitutionality of Article 14, paragraph d) of the Bill is also declared, by connection, of Article 14, subparagraph d) of the Bill.

5. RETROSPECTIVITY, NON-RETROACTIVITY, INITIAL NULLITY, AND LEGAL CERTAINTY. Regarding retroactivity, the Constitutional Court (CC) establishes the right to legal certainty, based on the existence of prior norms. Under this premise, the retroactive application of norms is prohibited. The CC asserts that “non-retroactivity aims to ensure a minimum of predictability for individuals, so that they can know the rules of the game that will govern their conduct and can adjust it accordingly. The right to legal certainty protects against the retroactive application of norms in order to guarantee certainty to those subject to administrative action that their situation will not be modified by procedures established subsequently.” Furthermore, it affirms that retroactivity is “strictly exceptional” since, if permitted, it would be impossible for individuals “to obtain certainty in their legal relationships.” The National Assembly bases its argument for retroactivity on the “principle of nullity of origin,” which refers to the fact that “when the object of the acts or legal transactions that gave rise to its acquisition is contrary to the constitutional and legal regime of property, it is understood to be null from the outset.” The Constitutional Court (CC) considers that retroactivity, together with the principle of nullity of origin, constitutes “unlimited retroactivity.” The CC determines that retroactivity and the purported imprescriptibility of the action for extinction of ownership result in “endless persecution of people’s property, both past and future, disproportionately expanding the State’s sanctioning capacity with respect to people’s assets.” Consequently, the CC declares Article 14, paragraph c) of the Bill unconstitutional, by virtue of its connection to other provisions, for being contrary to legal certainty and the principle of legality.

6. OPEN CLASSIFICATION OF ILLICIT ACTIVITY. Article 7 of the Bill defines illicit activity that would give rise to forfeiture as “any activity contrary to the current legal order.” The Constitutional Court, in beginning its analysis of this definition, relates it to the principle of legality, which “applies to every expression of the State’s punitive power, that is, to any process that involves impairment, deprivation, or alteration of the rights of individuals, as a consequence of illicit conduct.” The Constitutional Court challenges the proposed definition, arguing that it is “extremely broad and indeterminate insofar as it refers in a general and abstract way to any type of activity contrary to the legal order.” Furthermore, the Constitutional Court points out that “this definition does not clearly establish the constitutive elements of the conduct that will give rise to the sanction” and “it does not determine the scope of the conduct that could result in the forfeiture of ownership rights.” The Constitutional Court notes that “the breadth and indeterminacy of the proposed definition would allow its application to cases disproportionate to the sanction of forfeiture of ownership rights.” In light of this, the Constitutional Court (CC) exemplifies the aforementioned points with the following cases: failure to comply with formalities, donations without judicial approval, wills executed without witnesses, lack of capacity to enter into a contract, etc. Consequently, the CC identifies that the definition of illicit activity in Article 7, paragraph a), and the grounds for admissibility in Article 19, paragraph a), are incompatible with the right to due process and the guarantee of proportionality in the imposition of sanctions, recognized in Article 76, paragraph 6 of the Constitution of the Republic of Ecuador (CRE), and with the right to legal certainty. The CC urges the Assembly to clearly define the grounds for the admissibility of the action for forfeiture of ownership, and that these grounds must be proportionate to the patrimonial sanction that the Bill seeks to establish.

7. NEW LEGAL CATEGORY: PROPERTY LAW. One of the presidential objections relates to the attribution of the power to resolve civil cases, granted to criminal judges, as well as the private prosecution and its presentation by the Attorney General's Office within a civil proceeding, in addition to the application of the principle of subsidiarity between the Civil Code and the Comprehensive Organic Criminal Code (COIP) in the process of asset forfeiture. The National Assembly justified this mixed and peculiar process with the creation of a new legal category called "property law," elevating it above civil law and other areas of positive law. According to the Assembly, property law "has as its object or core the right of ownership in its broadest sense, making it necessary to develop this category through legislation and jurisprudence." The Constitutional Court considers that the legislature "has full power to decide to create a new legal action or even new legal categories if it deems it necessary." The Constitutional Court (CC) notes that “the Assembly has the power to assign powers to different authorities through legislation, without the need for such powers to be expressly established in the constitutional text, provided that they are compatible with the general functions defined constitutionally.” The CC points out that it is “striking” that the Assembly opted for a mixed supplementary approach for this action, drawing on the Civil Code for substantive matters and the Comprehensive Organic Criminal Code (COIP) for procedural matters. However, the CC emphasizes that “the legislature may choose to innovate within the legal system and, to that end, may establish specific regimes that incorporate elements from other codes.” Furthermore, “while the application of this mixed supplementary approach could generate contradictions, practical difficulties, or even infringements on the rights of individuals, these potential problems fall outside the scope of analysis that the Court must and can undertake in the context of abstract and prior review of constitutionality.” Based on this reasoning, the CC considers that Article 8 is not unconstitutional.

8. SPECIAL FUND AND BUDGETARY PRE-ALOCATION. The Constitutional Court proceeded to determine whether the Special Fund for Extinction of Ownership, created through Articles 71 and 72 of the Bill, implies a budgetary pre-allocation as prohibited by Article 298 of the Constitution. The Constitutional Court determined that Article 298 of the Constitution establishes the list of sectors for which a portion of the revenue may be reserved (Decentralized Autonomous Governments, health, higher education and research, science, technology and innovation). The Constitutional Court (CC) analyzes the challenged articles and concludes that the Special Fund for Extinction of Ownership (70% for comprehensive child development and 30% for training personnel responsible for implementing the Bill) constitutes a pre-allocation of funds, based on the principle that “the income received by the State from the monetization of assets subject to a final judgment declaring their extinction of ownership in its favor is income that must form part of the General State Budget.” The CC states that Article 71 is not unconstitutional, since the creation of the Fund itself is not unconstitutional. Regarding Article 71, the CC concludes that the Fund is not unconstitutional. Paragraph 72 states that “for this regulation to be constitutional, all of its resources must be allocated exclusively to the sectors listed in Article 298 of the CRE, so allocating them to comprehensive early childhood development is consistent with the constitutional text, as it can be considered part of the health and education sectors. However, allocating 30% of the fund's resources to training and constitutional strengthening is not, since this purpose has no relation whatsoever to the sectors established in Article 298 of the CRE.”