Ne Bis in Idem in Criminal Proceedings: The Binding Effect of Tax Court Decisions

Ne bis in idem – the principle of legal certainty and the res judicata effect of a tax court decision in criminal proceedings. Comments on the Criminal Decision of September 22, 2022, of the Bucharest Court of Appeals – Second Criminal Division

Written by:

Lia Pricope

Maria Monica Tușa

of Costaș , Negru & Asociații

1. Introductory Remarks

By its criminal decision of September 22, 2022, the Bucharest Court of Appeals—Second Criminal Division—granted the appeals filed by defendant X, defendant Y, and the civilly liable party AB S.R.L., quashed in its entirety the conviction handed down at first instance, and, upon retrial, ordered the acquittal of both defendants pursuant to Art. 396, paras. (1) and (5), in conjunction with Art. 16, para. (1), subparagraph b), first sentence, of the Code of Criminal Procedure, since the acts are not provided for by criminal law.

The decision is of particular practical importance because it provides a correct and consistent interpretation of Constitutional Court Decision No. 102 of February 17, 2021, regarding Article 52, paragraph (3) of the Code of Criminal Procedure and upholds the ne bis in idem principle and the principle of legal certainty, in light of the final findings of the tax court regarding the reality of the commercial transactions for which criminal proceedings were initiated. In a context where some criminal courts continue to claim exclusive jurisdiction over determining whether certain commercial transactions are genuine or fictitious, the decision under review reaffirms that what has been definitively decided by a non-criminal court cannot be re-examined.

2. The Facts of the Case and the Course of Proceedings

By the indictment dated March 24, 2017, issued by the Prosecutor’s Office attached to the Bucharest Tribunal, the defendant X, administrator of AB S.R.L., was indicted for committing the offense of continuous tax evasion, as provided for in Article 9(1)(c) and (2) (2) of Law No. 241/2005. Essentially, the charge was that, between January 14, 2013, and May 30, 2013, with the intent to evade tax obligations, the defendant allegedly ordered the recording in the company’s books of fictitious expenses representing non-existent purchases of goods, provision of services, and performance of work, based on 16 tax invoices issued by three supplier companies, totaling 11,330,659.93 lei, with the loss to the state budget in the form of VAT amounting to 2,193,030.92 lei. Defendant Y, the de facto manager of the supplier companies, was indicted for the crime of aiding and abetting tax evasion.

In its criminal judgment of July 9, 2020, the Bucharest Tribunal—First Criminal Division—sentenced both defendants to 8 years in prison, along with complementary and ancillary penalties. Significant for the present analysis is the fact that the trial court expressly refused to consider the documents consisting of civil court decisions submitted in defense, holding, pursuant to Art. 28, para. (2) of the Code of Criminal Procedure, that the civil court did not have res judicata authority regarding the existence of the criminal act, the person who committed it, and that person’s guilt.

In parallel with the criminal proceedings against the company’s administrator, the tax authority responsible for the company issued decisions holding him jointly and severally liable. These were overturned by the May 16, 2019, ruling of the Pitești Court of Appeals—Second Civil, Administrative, and Tax Division, which became final as no appeal was filed. Adopting the concurring conclusions of the experts appointed in the case, the tax court held that: (1) the economic transactions conducted by AB S.R.L. between 2011 and 2013 with its suppliers—including the companies subject to the criminal charges—were supported by supporting documents, with the accounting records having been prepared in accordance with legal provisions, (2) the conditions set forth in Article 19(1) and Article 21(1) of Law No. 571/2003 on the Tax Code were met, and that (3) it cannot be concluded that the manager acted in bad -faith to fail to declare and/or pay tax obligations by their due dates, or acted in bad faith regarding the refund or reimbursement of certain amounts from the consolidated general budget, within the meaning of Article 27(2)(d) and (e) of Government Ordinance No. 92/2003.

The same defendant had, in fact, previously been acquitted of similar charges—involving invoices issued by other suppliers of the same company—by the criminal judgment of November 3, 2021, issued by the Vâlcea Tribunal — Criminal Division, which became final with the criminal decision of May 4, 2022, by the Pitești Court of Appeals — Criminal Division. These rulings gave effect to the same judgment of the tax court, and the Bucharest Court of Appeals expressly relied on them in the reasoning for its own decision.

3. Constitutional Court Decision No. 102/2021 and the Preliminary Ruling Procedure

The reasoning and ruling of the appellate court were based on Constitutional Court Decision No. 102 of February 17, 2021, published in the Official Gazette No. 357 of April 7, 2021, which found the phrase “except in circumstances concerning the existence of the offense” in Article 52(3) of the Code of Criminal Procedure to be unconstitutional. As a result of this decision, the text now reads as follows: final judgments of courts other than criminal courts on a preliminary issue in criminal proceedings have the force of res judicata before the criminal court.

In the reasoning of its decision, the constitutional court held that the struck-down exception allowed the criminal court to reopen proceedings on aspects of the case that had been definitively resolved by other courts and, thereby transforming itself into a de facto court of review of final judgments, with the possibility of rendering decisions contrary to those that have attained the force of res judicata and seriously undermining the principle of res judicata, which constitutes a guarantee of the right to a fair trial enshrined in Article 6 of the European Convention on Human Rights. At the same time, the Constitutional Court has ruled that the category of preliminary issues concerning the existence of a crime includes matters relating to the constituent elements of the crime, the existence of justifying grounds or grounds for non-imputability, the grounds that remove the criminal nature of the act, or the determination of the legal classification, as provided in the second sentence of Article 52(3) of the Code of Criminal Procedure, concerning either the factual premise or the elements of objective or subjective typicity of the offense. Therefore, in the event that, by the time the criminal case is resolved, the preliminary issues have been definitively resolved by another court, the applicable rule is that the criminal court is bound by the decision of that court.

4. The Bucharest Court of Appeals’ Rationale: The Identity Between the Issue in Dispute and Res Judicata

In analyzing the applicability of Article 52, paragraph (3) of the Code of Criminal Procedure, as amended by Decision No. 102/2021, the Bucharest Court of Appeals found that among the grounds for granting the appeal in the tax case were aspects leading to the conclusion that this was a preliminary issue concerning circumstances related to the elements of the offenses. The tax court definitively ruled on precisely those factual elements that determine the applicability of the criminal provision: the reality and legality of the accounting records and tax returns for the commercial transactions conducted by AB S.R.L. with its suppliers, their impact on obligations to the state budget, and the good or bad faith of the administrator.

Drawing on the analysis set forth by the Pitești Court of Appeals in its criminal decision of May 4, 2022, the appellate court found that the issues in dispute were identical in both proceedings. First, their subject matter was the same: to determine whether the commercial transactions were genuine or fictitious, whether their recording in the accounting records was lawful, and whether, by recording and reporting them, the manager acted in bad faith and caused the company to evade payment of its obligations to the state budget. Second, there is a genuine identity of the parties—the state and the taxpayer—and it is irrelevant that the tax proceedings involved territorial units of the National Agency for Fiscal Administration, while the criminal proceedings involved the Romanian State through the National Agency for Fiscal Administration, since both refer to the same institutional structure of the budgetary creditor. Finally, in both proceedings, legal, relevant, and conclusive evidence—documents and expert reports—was presented, which confirmed the reality of the transactions and the existence of supporting documents.

Of major practical importance are the criminal court’s findings that the evidence presented in the tax dispute can prove or disprove, beyond a reasonable doubt, the fictitious nature of a transaction—that is, whether the commercial operations were real or fictitious and whether their recording in the accounting records was lawful—and, by extension, the elements constituting the objective elements of a tax evasion offense. This ruling directly contradicts the view, still prevalent in practice, that criminal courts hold a monopoly on determining the reality or fictitious nature of commercial transactions. It was explicitly held that these findings by the tax court have acquired the force of res judicata, within the meaning of Article 430 of the Code of Civil Procedure.

The appellate court further noted, in accordance with European case law, that after the tax court had annulled the act issued by the tax authority, finding that the taxpayer had not violated the law, the prosecutor sought a criminal conviction based on another expert opinion, with different conclusions, thereby re-examining a factual and legal situation that had already become res judicata. However, such a re-examination of the evidence, in disregard of the final judgment, is inadmissible, all the more so since the tax authority, by not appealing the judgment, implicitly accepted the administrative court’s decision and its reasoning, and any shortcomings on the part of the judicial authorities cannot be attributed to the litigant. This ruling directly contradicts the view, still prevalent in practice, that criminal courts hold a monopoly on determining the reality or fictitious nature of commercial transactions. It was explicitly held that these findings by the tax court have acquired the force of res judicata, within the meaning of Article 430 of the Code of Civil Procedure.

5. The Perspective of European Law: Ne Bis in Idem and Legal Certainty

The decision under review is notable for the depth of its analysis of European law, as the court draws upon the case law of the European Court of Human Rights and the Court of Justice of the European Union concerning the principles of ne bis in idem and legal certainty, guaranteed by Article 4 of Protocol No. 7 to the Convention, Article 50 of the Charter of Fundamental Rights of the European Union, and Article 6(1) of the Convention, respectively.

First, the European Court of Human Rights recalled that, according to the Grand Chamber’s judgment in the case of Sergey Zolotukhin v. Russia (Application No. 14939/03), Article 4 of Protocol No. 7 prohibits the prosecution or trial of a second “offense” to the extent that it arises from identical facts or facts that are substantially the same; the criterion is therefore one of factual identity, not legal classification. Although the text of the Convention does not prohibit the parallel conduct of tax and criminal proceedings, there is a violation of the ne bis in idem principle when, after a final judgment has been rendered in one of the proceedings, the other proceeding continues, as held in the cases of Lucky Dev v. Sweden (Application No. 7356/10) and Rinas v. Finland (Application No. 17039/13). Furthermore, even in the absence of a formal allegation of a violation of Article 4 of Protocol No. 7, the existence of a second judgment—by the criminal court—that overturns a first final judgment—by the tax court—constitutes a violation of the principle of legal certainty, which is an integral part of the right to a fair trial.

The central focus of the analysis was the judgment of October 21, 2014, rendered in the case of Lungu and Others v. Romania (Application No. 25129/06), the facts of which are strikingly similar to those in the present case. The Strasbourg Court found in that case that, although there was neither an identity of parties nor an identity of subject matter between the tax and criminal proceedings, both concerned the same issue that was decisive for their resolution, and the criminal division of the court of appeals’ reassessment of the facts—which was radically at odds with the prior final judgment of the commercial division of the same court—in the absence of any valid grounds, undermined the principle of legal certainty and resulted in a violation of Article 6(1) of the Convention. In the same vein, reference was made to the judgments in Brumărescu v. Romania (Application No. 28342/95), Kehaya and Others v. Bulgaria (Applications Nos. 47797/99 and 68698/01), Gök and Others v. Turkey (Applications Nos. 71867/01, 71869/01, 73319/01, and 74858/01), Esertas v. Lithuania (Application No. 50208/06), Siegle v. Romania (Application No. 23456/04), and Amurăriței v. Romania (Application No. 4351/02), from which it follows that, even in the absence of a judgment being quashed, reopening the issue decided by a final court judgment in the context of other legal proceedings may render the right of access to a court illusory, and the burden of bearing the shortcomings of the judicial authorities cannot fall on the litigant.

Applying these criteria, the appellate court found that the simultaneous and parallel conduct of two independent proceedings concerning the same facts was likely to lead to a new assessment of the facts, radically opposed to the previous final judgment, that the objectives of the two judgments overlapped, that the duality of the proceedings existed both in law and in practice, and that the re-examination of the same evidence had not been avoided, as the prosecutor had impermissibly ordered a new expert assessment without taking into account the final judgment of the tax court. From the perspective of European Union law, such an analysis is all the more necessary given that the charges concerned value-added tax, a matter falling within the scope of EU law, so that the safeguards of Article 50 of the Charter apply, as outlined in the case law of the Court of Justice of the European Union beginning with the Åkerberg Fransson judgment (C-617/10) and refined by the Menci judgment (C-524/15), Garlsson Real Estate (C-537/16), and Di Puma and Zecca (C-596/16 and C-597/16), which make the joinder of proceedings contingent upon the existence of strict, justified, and proportionate limitations.

It is worth highlighting an important nuance in the reasoning: the appellate court specified that its decision was not based strictly on the ne bis in idem principle, as enshrined in Article 50 of the Charter and Article 4 of Protocol No. 7, since the acquittal was not based on the grounds that the facts had already been adjudicated in another case. The Court, however, analyzed the legal situation of the defendants from the convergent perspective of the rules guaranteeing the certainty of legal relations and the authority of res judicata, as forms of exercising the right to a fair trial guaranteed by Article 6, paragraph 1 of the Convention, noting that the issues of fact and law definitively resolved in the tax case and in the prior criminal case definitively settle elements relevant to determining the criminal nature of the acts. The res judicata effect of the tax court’s decision thus operates, within the framework of Article 52, paragraph (3) of the Code of Criminal Procedure, as a domestic reflection of the same European requirements underpinning the ne bis in idem principle: the prohibition against the state, through its agencies, from reopening, to the detriment of the individual, matters that have been definitively resolved.

6. The ruling regarding the defendant X and the company AB

Finding that the facts brought before the court lacked the constituent elements of a crime—the reality of the transactions and the administrator’s good faith having been established with the force of res judicata—the Bucharest Court of Appeals held that the only possible ruling was an acquittal. Consequently, it granted the appeals filed by the defendants and the civilly liable party, AB S.R.L., completely overturned the criminal judgment of July 9, 2020, issued by the Bucharest Tribunal, and, upon retrial, acquitted defendant X of the offense of continuous tax evasion and defendant Y of complicity in that offense, pursuant to Article 396(1) and (5) in conjunction with Article 16(1)(b), first sentence, of the Code of Criminal Procedure, since the acts are not provided for by criminal law. The appeal filed by the civil party, the National Agency for Fiscal Administration, was dismissed as unfounded.

The ruling also has direct consequences for Company AB. As a result of the acquittal based on Article 16(1)(b), first sentence, of the Code of Criminal Procedure, the court left unresolved the civil action brought by the National Agency for Fiscal Administration pursuant to Article 25 (5) of the Code of Criminal Procedure, so that the party liable in civil law could not be ordered, in the criminal proceedings, to pay any damages.

Although the provisional measures imposed on the defendant’s and the company’s real property were maintained pursuant to Article 397(5) of the Code of Criminal Procedure, the court ruled that they would automatically lapse if the civil party did not file a claim with the civil court within 30 days of the judgment becoming final. For the company, the acquittal of the director and the dismissal of the civil action effectively amount to the full restoration of its financial and reputational standing, which had been affected by criminal proceedings conducted in contradiction to what the tax court had definitively established as early as 2019.

7. Conclusions

The criminal decision of September 22, 2022, by the Bucharest Court of Appeals is part of a line of case law that is still fragile, but one that is essential for the coherence of the judicial system, alongside Criminal Judgment No. 194/2021 of the Vâlcea Tribunal and Criminal Decision No. 427/A/2022 of the Pitești Court of Appeals. It confirms that, following Constitutional Court Decision No. 102/2021, final judgments of tax courts that determine the reality of commercial transactions, the legality of their accounting treatment, and the taxpayer’s good faith have the force of res judicata before criminal courts, including with regard to the objective and subjective elements of the crime of tax evasion.

From the perspective of European law, the ruling demonstrates that the ne bis in idem principle and the principle of legal certainty are not mere formalities, but effective tools for protecting individuals against the state’s temptation to reopen, through criminal prosecution, disputes that it has definitively lost before the tax court. When the tax authority chose not to appeal the decision that established the reality of the transactions, reopening the same disputed issue in criminal proceedings, based on a new expert opinion, violates Article 6(1) of the Convention, as interpreted in the case of Lungu and Others v. Romania, and conflicts with Article 4 of Protocol No. 7 and Article 50 of the Charter. The ruling handed down against the defendant X and the company AB thus remains a benchmark for all cases in which allegations of tax evasion coexist with tax proceedings that have been definitively resolved in favor of the taxpayer.