I  Executive summary

Cyprus, one of the very few common law jurisdictions within the European Union, is strategically located at the cross-roads of three continents and counts itself as a rising star in commercial and corporate transactions.  Naturally this has, especially in recent years, led to a rise in high-profile fraud claims and asset-tracing exercises taking place in or through the country.  Litigants benefit from the well-established Cyprus legal system, which is heavily based on that of England, as well as the bilateral and multilateral ties between Cyprus, the EU and third countries, including Russia, Belarus, Ukraine and China.

II  Important legal framework and statutory underpinnings to fraud, asset tracing and recovery schemes

The legal environment in Cyprus

As a former British colony, Cyprus has a common law system that is rooted in the English legal system.  The Cyprus Courts apply the principles of equity and, unless statute expressly provides otherwise, they are expected to follow common law.  In fact, English authorities, whilst not binding on the Cyprus Courts, have persuasive value in Cyprus and are usually followed by the Cyprus Supreme Court.

Many of the core statutes in Cyprus date back to its years as a British colony, and therefore mirror the respective statutes in England up to 1960, or have codified longstanding common law principles such as that of civil liability.  For example, the Cyprus Companies Law (Cap. 113) is based on, and is still very similar to, the English Companies Act 1948

Cyprus currently has a two-tier court system, which consists of first instance courts (district and specialist) and the Supreme Court, which is the final appellate court.  The district courts hear civil cases that do not fall under the exclusive jurisdiction of specialist courts (which include the Military Court, Administrative Court, Rent Control Court, Family Court and Labour Court).  First instance civil proceedings are heard by a single judge and first instance courts follow the Supreme Court's precedent.

The Supreme Court, being the final appellate court, hears appeals from the subordinate courts, but also acts as the Supreme Constitutional Court and the Admiralty Court.  The Supreme Court consists of 13 judges, one of whom is the president.  Appeals are usually heard by a panel of three judges unless decided otherwise.

Reform of the Cyprus legal system

The Cyprus legal system is currently amidst radical reform, which has been set in motion over the past few years and is in the process of implementation.

In this context, the Supreme Court recently approved the new, extensive and fundamentally amended Civil Procedure Rules, which are modelled after the Civil Procedure Rules of England,  and which were prepared following detailed review of the existing rules.  This project was headed by Lord Dyson.

Over the course of the coming months, we also expect the implementation and establishment of a Commercial Court, which will be a new, specialised court to deal with high-value (over €2 million) commercial cases.

In addition to the above, the Cyprus legal reforms target the delays that are often faced in Cypriot litigation by appointing specific judges to deal with older cases that are still pending and by creating an additional appellate court in order to shift the current two-tier court system to a three-tier system.

The Cyprus legal system has also recently begun its long-awaited embrace of technology by adopting an e-justice platform, which now serves as the only means of filing new civil proceedings before the first instance courts.

Important tools available in Cyprus for targeting fraud and in asset recovery exercises

The civil tort of fraud is codified in Cyprus under section 36 of the Civil Wrongs Law (Cap. 148), and may be raised:

  1. when statements are made fraudulently;
  2. for the purpose of defrauding a person;
  3. who was in fact defrauded and has acted on the fraud; and
  4. as a result, has suffered damage.

When several parties are involved in the wrongdoing, fraud is usually pleaded alongside the common law tort of conspiracy.

Arguably, the most useful tool in targeting fraud and undertaking asset tracing and recovery in, or through, Cyprus, is the wide jurisdiction of the Cyprus Courts to issue interim relief in the context of civil actions, pursuant to the provisions of section 32 of the Courts of Justice Law (Law 14/1960).  This jurisdiction is exercised when it is deemed just and reasonable, and the following conditions are met:

  1. a serious question arises to be tried at the hearing of the main proceedings;
  2. it appears that the applicant has a probability to obtain a favourable judgment in the main proceedings;
  3. there is a great risk that, if the relief is not given, it will be difficult or impossible to achieve justice at a later stage; and
  4. the balance of convenience is in favour of the applicant.

Given the very wide jurisdiction of the Cyprus Courts, they may issue any interlocutory relief they deem just and reasonable, including (but not limited to):

  1. Freezing orders: The Cyprus Courts may issue freezing orders – also known as Mareva injunctions – with local or worldwide effect, against the wrongdoers and/or third parties where there is evidence that they possess/control assets ultimately belonging to the wrongdoers (i.e. Chabra or Bankers Trust orders).
  2. Disclosure orders: The Cyprus Courts may issue disclosure orders, including Norwich Pharmacal orders (see also “Pre-action discovery” below) and disclosure orders ancillary to freezing orders, whereby the respondent is ordered to disclose his assets in order to ensure compliance with the freezing order it supports.
  3. Appointment of an interim receiver: The Cyprus Courts may appoint an interim receiver to take control of a wrongdoer's assets provided it is convinced that, given the nature of the assets or the actions of the wrongdoer, interim orders (such as freezing orders) will not be effective, and the appointment of the receiver is necessary to preserve the assets.  An interim receiver may be appointed to hold, protect, preserve, and trace assets located or registered both within and outside the jurisdiction.
  4. Search orders: A search, or Anton Piller, order allows the applicant's lawyers, a supervising lawyer, experts (if necessary) and other assisting personnel (if necessary) to search premises under the wrongdoer's control in order to locate and preserve evidence that is, or may be, relevant to the proceedings.

If there is an urgent need for interim relief or other reasons justifying the issuance of the interim relief without giving notice to the respondents (e.g. an immediate risk that the assets of the defendants may be dissipated), an application for interim injunctions may be filed on an ex parte (without notice) basis.  Ex parte applications are usually examined by the court within a few days following their filing and provide an expedited means of securing interim relief where this is necessary.

Failure to comply with a court order constitutes contempt of court, and is punishable by imprisonment, confiscation of assets and/or payment of a fine.

Pre-action discovery

Pre-action discovery has in many cases proven a useful tool in asset tracing and recovery.  Under Cyprus law, pre-action discovery orders are available on the basis of the Norwich Pharmacal jurisdiction.

Norwich Pharmacal disclosure orders may be issued pre-action against innocent third parties, such as banks or local service providers acting as nominee shareholders or directors in Cyprus companies, for the purpose of identifying information held by them that would enable the applicant to raise proceedings against the ultimate wrongdoers.

In particular, a Norwich Pharmacal order may be issued against an innocent third party provided the following conditions are met:

  1. a wrong must have been carried out, or arguably carried out, by an ultimate wrongdoer (including a tort or a contractual wrongdoing);
  2. there must be the need for an order to enable action to be brought against the ultimate wrongdoer; and
  3. the person against whom the order is sought must:
  • be involved in, so as to have facilitated, the wrongdoing; and
  • be able or be likely able to provide the information necessary to enable the ultimate wrongdoer to be sued.

Norwich Pharmacal disclosure orders are usually requested alongside ancillary gagging orders, that are in force for a limited period of time, which prohibit the respondent from informing the wrongdoer of the disclosure proceedings.

However, the Norwich Pharmacal jurisdiction cannot be utilised when all that is being sought is to collect further evidence in support of a claim the party is already in a position to bring (i.e. “fishing” evidence).

“In aid” relief and rogatory proceedings (letters of request)

The Cyprus jurisdiction may also assist international fraud, asset tracing and recovery exercises through assistance to foreign procedures by the issuance of “in aid” relief or through rogatory requests (see section VII below).

III Case triage: main stages of fraud, asset tracing and recovery cases

When dealing with civil fraud cases, asset tracing and recovery, the steps to be taken will ultimately be tailored to the needs and desired outcomes of each plaintiff.  Below we outline the general approach in raising and promoting proceedings, as well as following the issuance of a judgment.

Pre-action investigation

In complex fraud cases, particularly with an international element, there are some pre-action steps that are commonly followed which assist in the overall efforts to target the fraud, and to trace and recover assets.

One commonly utilised option is that of pre-action discovery, which is described above.  Pre-action discovery proceedings are often raised against Cyprus banks through or in which the assets in question have been transferred, as well as Cyprus service providers or company officers who have information available that may assist in the general fraud investigation and/or asset tracing exercise.

As far as the investigation of a matter through pre-action discovery is either unhelpful or inapplicable, litigants may elect to gather information using publicly available resources or through private investigators.

In Cyprus, information regarding companies' officers and shareholders is publicly available in the records of the Registrar of Companies and Official Receiver.  The Registrar of Companies may also provide information in relation to a company's financial statements (assuming these are filed in a timely manner).

Recently, following the implementation of EU Directive 2018/843, the Prevention and Suppression of Money Laundering and Terrorist Financing Law (Law 188(I)/2007) was amended and provisions were included so that the register held by the Registrar of Companies and Official Receiver is required to hold information on the ultimate beneficial owners of companies and entities registered in Cyprus.  The information will soon be accessible to the competent authorities, but also to the public upon payment of a fee.  As at the time of writing, the deadline for submitting such information is 12 March 2022.

Finally, particularly in large-scale and complex cases, litigants may opt for the appointment of forensic investigators who have significant resources both locally and abroad, and can produce a report on the transactions that appear to have taken place (and the parties involved) based on evidence they are able to collect.  This report is frequently then used as the basis for the proceedings to be raised.

Raising and promoting civil actions

Civil proceedings for fraud in Cyprus commence with the filing of a generally indorsed writ of summons, which constitutes a document setting out the parties to the proceedings and the prayer (i.e. relief being sought). 

An application for interim relief may be sought together with, or following, the filing of civil proceedings.  Popular types of interim relief sought in such contexts are outlined above.

Post-judgment relief

In civil proceedings, the Cyprus Courts may award various remedies, including (but not limited to):

  1. declarative judgments regarding the rights and/or liabilities of the parties;
  2. general or special damages as compensation for losses or injuries suffered;
  3. orders for restitution of gains or benefits acquired by the defendants;
  4. injunctive relief; and
  5. specific performance orders.

Aside from in personam remedies, in appropriate cases the Cyprus Courts may issue tracing orders for the recovery of property owned by the plaintiff.

The Cyprus jurisdiction may also assist in cross-border enforcement.  Pursuant to particular conventions/treaties and Regulation (EU) No. 1215/12 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, the Cyprus Courts may also issue relief in aid for the enforcement of foreign judgments (see section VII below).

IV  Parallel proceedings: a combined civil and criminal approach

Raising criminal proceedings in Cyprus

Criminal prosecution in Cyprus can either be initiated through the police or privately (i.e. directly by the victim):

  1. Public prosecution: Public prosecution may be initiated by filing an official complaint with the police.  The complaint should be made in writing, and ideally be accompanied by all available supporting evidence to assist with the investigation.  Following the filing of a complaint, the police will decide whether or not to investigate the complaint and potentially prosecute the wrongdoer.
  2. Private prosecution: Unlike public prosecution, private prosecution has no state involvement and is initiated with the filing of private criminal proceedings in court by the private individual whose rights have been directly affected by the criminal acts of the accused.  Private prosecution is limited to particular cases.

Parallel proceedings

In Cyprus, there is no specific restriction on furthering civil proceedings in parallel with, or in advance of, criminal proceedings concerning the same subject matter.  Civil proceedings are promoted for restitution, whereas criminal proceedings are aimed at punishing the wrongdoer.

The promotion of parallel proceedings per se is not regarded as abusive or oppressive.  However, if parallel proceedings are promoted to exert undue pressure on a defendant for an ulterior purpose, such as achieving a settlement in a civil dispute, that may be deemed abusive of the courts' powers and processes and may, in itself, constitute a criminal offence.  Courts may refuse to entertain parallel proceedings with the same subject matter when those proceedings are found abusive.

Tracing and recovering illegal proceeds

Pursuant to the Prevention and Suppression of Money Laundering Activities Law (Law 188(I)/2007), the Unit for Combating Money Laundering (MOKAS) has authority to trace and recover proceeds of crime and other related property.

It should be noted that confiscated property cannot be used to satisfy civil claims for damages.

V  Key challenges

Delays

One of the most prominent challenges faced by the Cyprus legal system to date is that of delays.  Whilst steps have been taken to actively tackle this issue through the recent reforms of the legal system, the current system is unfortunately burdened by this pitfall.

Civil actions in Cyprus, especially following the restrictions put in place to combat the spread of COVID-19 and lockdown measures imposed by the government that caused delays across the public sector, are expected to be adjudicated in approximately five years after their filing.

In fraud litigation, this difficulty is overcome by making use of the courts' wide jurisdiction to issue interim relief, which can be pursued on an ex parte (without notice) basis and issued within a few days after filing.  Where ex parte relief cannot be justified and the relevant application is heard on a by-summons (on notice) basis, interim relief is expected to be issued within three to 12 months from filing.

As noted above, the reforms of the Cyprus legal system are a ray of hope for the delays that have been crippling the courts.  The establishment of a backlog system, whereby specific judges were appointed to deal with older cases, has already assisted across the island in clearing the dockets of the district courts.  At the same time, the stricter provisions of the new Civil Procedure Rules, the adoption of which is imminent, are expected to strongly discourage litigant behaviour that results in unnecessary and unjustified delays to the process.

The limits of private prosecution

The core considerations in choosing between private and public prosecution are the following:

  1. Investigative powers: In public prosecution proceedings, the police have wide investigative powers including wide powers of arrest and search; they may also be assisted by counterparts abroad.  Such powers include executing search warrants, apprehending and questioning suspects, and accessing a suspect's banking and communication records.  On the other hand, in private prosecution such investigative powers will not be available to the complainant, who will need to rely on his own resources for investigating the crimes at hand.
  2. Impact: Public prosecution proceedings are expected to have a stronger impact on the accused as they are subject to more severe sentencing and can lead to greater exposure of the accused, whereas private prosecutions are heard by the district courts who are confined to a maximum sentence of no more than five years' imprisonment and/or a maximum fine of €85,430, or both (unless the Attorney General consents to more).
  3. Pace and control: A complainant will have no control over the procedure and the pace of public prosecution proceedings, whereas in private prosecution proceedings the procedure and pace of the proceedings is controlled by the complainant.
  4. Cost: The cost of public prosecution is borne by the state, whereas the cost of private prosecution is borne by the complainant. 

In addition to the above, private criminal prosecution is not appropriate in all cases.  In particular, cases involving serious crimes, complex cases, or cases in which the wrongdoer has disappeared or fled the jurisdiction, may be more appropriately dealt with by the police.  For example, the police will usually be better equipped to apprehend and prosecute a suspect who has fled.  Beyond the police, state authorities are usually able to rely on a network of international treaties for mutual cooperation between states and have the power to control points of entry into and exit out of the country.

Serious offences that are subject to a sentence exceeding five years' imprisonment and/or a fine of €85,430 require permission from the Attorney General before being the subject matter of a private prosecution.  This process tends to be slow and bureaucratic, and permission will not always be granted.

VI  Coping with COVID-19

The COVID-19 pandemic has undoubtedly left no sector untouched, the Cyprus legal world included.  Beyond the large shift by law firms towards full, or at least partial, remote working, the Cyprus Courts were faced with unprecedent times, which called for unprecedented measures.

In response to the pandemic, the Supreme Court of Cyprus issued various procedural rules to monitor compliance with the public health measures imposed by the government.  These included:

  1. Partial suspension of court operations: Aside from extremely urgent cases (which included those where ex parte injunctions were being sought or had been issued), the operations of the Cyprus Courts were partially suspended between 16 March and 4 May 2020.  This allowed the Supreme Court and the district courts time to decide on and set out a comprehensive framework within which the courts would be able to operate during the pandemic, in view of the public health measures imposed by the government.
  2. Suspension of deadlines: Deadlines related to court filings, such as those for the filing of pleadings, were suspended during periods in which the government had imposed strict restrictions to limit the spread of COVID-19. 
  3. Extension of limitation periods: Likewise, limitation periods have also been extended to exclude the abovementioned periods. 

Taking the above into consideration, the importance of access to justice was upheld and remained untouched.  In fact, the partial suspension of court operations, which caused delays mostly to procedural matters, also helped in clearing the courts' schedules, enabling them to adjudicate older cases that remained pending.

As far as civil disputes, in particular, are concerned, including those related to fraud, the global economic aftermath of the pandemic coupled with the abovementioned effects on the Cyprus legal system have forced litigants to consider out-of-court settlements much more seriously than before, as these offered security vis-à-vis the uncertainties stemming from the pandemic.

The courts' response to the unprecedented times experienced as a result of the pandemic has also forced the Cyprus legal world to embrace technological advancements that, albeit long overdue, were not imagined to occur so soon.  For example, the district courts hearing civil matters have since implemented, and continue to allow, procedural hearings to take place via email.  Courts and lawyers alike have significantly benefitted from noticeable gains in time as a result.

The pandemic's push towards technology has coincided with the legal system reforms, which naturally also puts technology at the forefront of the legal environment.  As of 1 February 2022, the district courts adopted the new e-justice system, meaning that all new cases before them can be filed only virtually.  This system is expected to drastically benefit the legal world in terms of organisation, flexibility, and environmental impact.  The digitisation of older case files is expected to follow.

Having said this, the need to further modernise the Cyprus justice system in order to meet certain international standards, such as those of fully paperless justice as well as virtual trials, remains.

VII  Cross-jurisdictional mechanisms: issues and solutions in recent times

Given the accessibility and overall cross-border approach to business and transactions worldwide, it is only natural that fraud would not be restricted by jurisdictional boundaries.  As a result, accessibility to cross-border solutions and the ability to receive assistance from foreign courts is often key in fraud cases as well as asset tracing and recovery exercises.

Cyprus, being a Mediterranean business hub, has found itself involved, in one way or another, in large-scale, international frauds.  Hence, the existence of cross-jurisdictional mechanisms has been vital and, in fact, the availability thereof has only added to the popularity of the Cyprus Courts in this respect.

Enforceability of injunctive relief obtained in Cyprus

The jurisdiction to issue worldwide freezing orders was expressly recognised by the Supreme Court in the landmark case Seamark Consultancy Services Limited v Lasala (2007) 1 CLR 162 and is frequently employed in disputes with an international dimension.

Worldwide injunctions act in personam, thereby prohibiting the respondent and any party with knowledge of the injunction from acting in breach thereof.

Injunctive relief in aid of foreign proceedings

Injunctive relief may be sought and issued in Cyprus in aid of foreign proceedings.  In this respect, the principles governing interim relief in Cyprus generally apply (see section II above).  Such relief may, for example, target assets related to the substantive dispute that are located in Cyprus and which need to be maintained pending the outcome of the substantive proceedings.

As a party to Regulation (EU) No. 1215/12 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, proceedings in the European Union, Denmark, Norway, Iceland, and Switzerland may be aided with injunctive relief issued in Cyprus.

Injunctive relief in aid of foreign arbitration and recognition of foreign arbitral awards

As a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Cyprus Courts have jurisdiction to recognise and enforce arbitral awards issued in various jurisdictions, including the United Kingdom, Russia, the USA, Switzerland, Denmark, Norway, Iceland, Ukraine, Belarus, China, and EU countries.

In the course of proceedings for the recognition and enforcement of foreign arbitral awards in Cyprus, the Cyprus Courts may issue injunctive relief in aid thereof.  Such relief may, for example, target the preservation (i.e. freezing) of assets that are located in Cyprus, pending the enforcement of the arbitral award in Cyprus. 

In addition to the above, the Cyprus Courts have jurisdiction to issue interim orders at any time prior to or during an international commercial arbitration (section 9 of the International Commercial Arbitration Law (Law 101/87)).  An international commercial arbitration is defined as, inter alia, an arbitration between parties which have their place of business in different counties, or an arbitration taking place in a country outside the place of business of the parties to the arbitration.

Rogatory proceedings (letters of request)

Rogatory proceedings may be initiated directly abroad, with a view to obtaining information from people and entities in Cyprus.  Whilst generally a cost-effective procedure, as the cost is borne by the state, the pace of rogatory proceedings is slow.

As a party to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, Cyprus accepts rogatory requests from a number of jurisdictions, including China, Denmark, France, Germany, Greece, India, Israel, Russia, Singapore, Switzerland, the United Kingdom and the USA.

Recognition and enforcement of foreign judgments in Cyprus

The Decisions of Foreign Courts (Recognition, Registration and Enforcement) Law of 2000 (Law 121(I)/2000) sets out the framework for the recognition and enforcement of foreign judgments issued by a court or tribunal of a foreign jurisdiction with which Cyprus has entered into a bilateral treaty for mutual recognition and enforcement.  Furthermore, as noted above, Cyprus is a party to, inter alia, Regulation (EU) No. 1215/12 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.  In addition to these, certain judgments, even if issued by a jurisdiction with which Cyprus has no bilateral or multilateral treaty, and which is not a party to any convention to this end, may be recognisable and enforceable in Cyprus under the provisions of common law.

Hence, judgments issued in several foreign jurisdictions may be recognisable in Cyprus and thus enforceable within the Cyprus jurisdiction.  This includes judgments issued in the European Union, Denmark, Norway, Iceland, and Switzerland, as well as judgments issued in, amongst others, Russia, the United Kingdom, China, Ukraine, Belarus and Serbia.

VIII  Using technology to aid asset recovery

Over the past few years, the broad tech, and particularly FinTech, space appears to have been going through a constant boom, from the rise of Bitcoin and cryptocurrencies generally in the early part of the previous decade, to the concept of decentralised finance through technology and to the more recent peak of interest in non-fungible tokens (NFTs).  Inevitably, technology, being inextricably linked to our day-to-day lives, cannot leave the legal world untouched.

In Cyprus's broader financial landscape, FinTech noticeably affected the Forex industry, undoubtedly contributing to its rise in popularity in Cyprus over the past two decades.  Nowadays, the courts are not strangers to fraud claims between Forex companies or between them and their clients, something that would have been unfamiliar territory 15 years ago.  The courts, lawyers and judges alike have grown accustomed to the concept and operations of the Forex industry relatively quickly, after its boom in Cyprus in the early 2010s.

Albeit still with some reservations, we are also seeing the concept of cryptocurrencies being slowly embraced, or at least touched upon, in litigation.  As the number of individuals investing in cryptocurrencies has rocketed over the past few years, the courts will inevitably have to embrace this idea as failure to do so could cripple the effectiveness of the current tools used in asset tracing and recovery.  For example, an interim freezing order that cannot touch the respondent's crypto-wallet is likely to soon fail to serve its purpose.  Likewise, the inability to enforce freezing orders against assets held in non-traditional banks, such as those without a physical presence that operate only online and through apps, may render such orders ineffective.

NFTs are a fairly new concept in the Cyprus legal sphere, but one cannot turn a blind eye to the flow of investments on a worldwide scale to digital assets of this nature.  As with cryptocurrencies, wrongdoers may harbour a large portion of their worth in NFTs and non-fiat currencies, which, unless targeted specifically through litigation, may allow fraudsters to reap the benefits of their wrongdoing by hiding in plain sight.

From a legislative and regulatory perspective, whilst the Cyprus Securities and Exchange Commission (CySec) has been actively monitoring the Forex industry to ensure compliance with local and EU law, it is struggling to keep pace with digital currencies.  Having said this, since 2019, the Prevention and Suppression of Money Laundering and Terrorist Financing Law (Law 188(I)/2007) has undergone several amendments in order to keep up with this rapidly developing area and now recognises that cryptoassets are an “asset” and that dealings with cryptoassets may fall within the broader category of financial services, and regulates providers of services in relation to cryptoassets.

We remain hopeful that, sooner rather than later, fraud litigation will also embrace digital assets, and that legislation, at both the local and European level, will provide the tools that will defeat their use as a hinderance to asset tracing and recovery.

Originally Published by CDR: Essential Intelligence - Fraud, Asset Tracing & Recovery, ICLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.