This article presents three examples of how criminal proceedings and international assistance in criminal proceedings offered a possibility to attach assets which could then be claimed in civil proceedings.
The present document is aimed at showing some possibilities open to the practitioner in civil and commercial law suits who has met with difficulties to trace assets in the past.
2. United States of America vs. Albert Hakim
Within the framework of the Irangate affair, the Office of International Affairs of the U.S.Government addressed a request for international criminal assistance to the Swiss Central Office for judicial assistance in criminal matters. According to the requesting government, Oliver North, a military aide to the National Security Council, had been mandated to negotiate arms sales to Iran in the amount of US$ 12 million. He was assisted by two American citizens, former General Richard Secord and Mr. Albert Hakim, who provided an offshore company, Lake Resources, for the deals.
The sales proceeds of over US$ 47 million were placed on Swiss bank accounts of offshore companies connected with Lake Resources. An amount of US$ 14 million was paid to the U.S.Government, and the surplus of US$ 33 million was placed by a Swiss fiduciary company managed by a former U.S. citizen on the accounts of various offshore companies managed by North, Secord and Hakim. While Oliver North intended to spend the money for aid to the Nicaraguan Contra, Secord and Hakim were accused of trying to pocket the benefits of the sales surplus for their own benefit.
The Swiss Central Office caused the accounts of the offshore companies to be seized pending a final decision of a criminal or civil court concerning the question of ownership of the assets.
Secord and Hakim were granted immunity from prosecution by the U. S. Congress in exchange for making declarations before Congress in the hearings concerning the Irangate. As a consequence, they could no longer be respondents to criminal charges, and criminal suits against them in the U.S. were dismissed.
Therefore, when the U.S.Government asked the Swiss authorities to hand over the attached funds in accordance with the U.S. – Swiss Treaty for Judicial Assistance in Criminal Matters, in application of art. 1 ciph. 1 lit. b of the Treaty1, the transfer was refused by the Swiss Central Office, the reason being that there was no criminal proceeding going on in the United States which could justify that the conditions of the transfer were fulfilled. This decision was confirmed by the Swiss Supreme Court.2
At the same time, the Swiss Supreme Court granted the U.S.Government 60 days to file a civil claim in order to establish its title to the funds attached in Switzerland3. The U.S.Government then filed a civil claim with the ordinary courts in Geneva, which was granted based on the following legal assumptions:
- It was admitted that Secord and Hakim were agents of the U.S.Government.
- The existence of agency entails a fiduciary relationship between the principal (U.S.Government) and the agent, according to which the latter must act in the interest of the former, may not make use of his position to gain a benefit for himself, and must account for the outcome of his mandate including remitting to the principal all the benefits of the operation he engaged in on behalf of the principal.
- If the agent does not fulfil his duty to transfer the assets resulting from the operation to the principal, these assets become an object of a constructive trust4.
- The constructive trust creates a lien on the assets which benefits the rightful owner of the benefits of the operation conducted by the agent.
- This legal lien allows for the principal keep his title on the assets even if the agent has distracted them and made arrangements to become the owner ("droit de suite") or to transfer them to third parties. This right in rem allowed the U.S.Government to recover the proceeds of the arms sales to Iran even giving them a preferential position with regards to creditors of the agents.5
The funds were transferred to the U.S.Government as the result of civil proceedings recognizing their title of ownership.
3. P & B v. F
In Geneva, Switzerland, an accountant diverted funds belonging to his employers and used part of them to finance her retirement plans and life insurance. Another portion of the funds was used to purchase a house across the border in France.
A criminal complaint was filed against the faulty employee. The criminal proceedings in Geneva allow for the criminal court to judge the civil claims of the employers against their employee ("conclusions civiles du plaignant").
It was possible, as a result, to obtain letters rogatory from the investigating criminal judge to attach bank accounts of the accused and the surplus of the sale of the house of the accused in France, sums which were deposited at the office of the public officer who executed the sales contract. Art. 73 of the Swiss Criminal Code (CP) allows for a victim who suffers material damage from a crime which is not reimbursed by insurance to claim the amounts attached by the criminal authorities and originally belonging to the accused person in order to cover his civil claims.6 Thus, a civil award of the judgement of the criminal court could be enforced in France to recover the sums resulting from the sale of the house.
In order to assert entitlement over the funds deposited with the insurance companies, the claim of the victims was for restitution of the principal with all their accessories and cumulated interest7. As for the surplus of the sale of the property in France, the claim of the victim was for damages, and the judgment did award such claim and ordered payment up to the owed amount with interest.
The judgment pronounced by the criminal court in Geneva had two aspects: the criminal sentence and the civil award. The latter can be executed before domestic civil courts in Switzerland according to the Concordat intercantonal sur l'exécution des jugements civils8 (RS-Ge E.3.50) and the federal Loi sur la poursuite pour dettes et la faillite (RS 281.1).
At the international level, e.g. in neighbouring France and in all European countries having signed the same treaty, the civil award granted by the criminal court in Switzerland will be recognized and executed according to the: Convention concernant la compétence judiciaire et l'exécution des décisions en matière civile et commerciale9.
4. AVA Asesores de Valores S.A.
The case of AVA ASESORES OF VALORES S.A., a scandal which came about when a financial intermediary having committed numerous irregularities involving losses for 3'500 investors in Spain, led to the bankruptcy of one of the largest international raw material and agricultural traders, André & Co SA and involved jurisdictions in Spain, Argentina, the Bahamas, Belgium, etc. AVA ASESORES OF VALORES SA had deposited part of the assets of her customers investing in highly speculative instruments with SOCIMER INTERNATIONAL BANK LTD, an offshore bank in the Bahamas (hereafter: "SIBL") The latter deposited part of its assets with EUROCLEAR and CEDEL. Short of liquidities, the offshore bank could not refund certain loans which had matured at AVA ASESORES DE VALORES S.A., and the two companies and their directors were accused of swindle and breach of trust before the Audiencia Nacional, a central criminal investigation and judgement court in Madrid.
The aspect of the matter which is interesting to us is the seizure of assets with EUROCLEAR and CEDEL by the investigating judge.
EUROCLEAR and CLEARSTREAM (formerly CEDEL) are international companies of payment and delivery of bonds, shares and investment funds, based, respectively, in Belgium and Luxemburg. They are international interbank clearing houses handling yearly transactions of over 300.000 billion € and holding more than 13.000 billion € for their clients. Their clients are banks, financial institutions and international trading companies.
As other banks, SIBL had established accounts with both clearing houses to deposit values such as forward contracts, financed purchase sell-back agreements, indentures of trust, repackaged bonds, floating rate bonds, new money bonds, global bonds, and bonos de consolidación de deudas previsionales from Argentina (Bocon-Pre2 – Pre4).
The Plaintiffs in the criminal investigation in Madrid indicated to the investigating judge that SIBL had assets in EUROCLEAR and CLEARSTREAM, and the judge issued international seizure orders (letters rogatory) to have all of SIBL's assets which were deposited with these two organizations attached. SIBL's argument as to the fact that these were fiduciary assets it was holding on behalf of third parties was to no avail. According to art. 1 and art. 5 of the European Convention of International Assistance in Criminal Matters (hereafter CEEJ), the local judges of requested countries which are parties to the Treaty will execute the letters rogatory concerning seizure of assets.
Criminal procedures prevail over civil matters, so unless there is firsthand undoubtable proof that the assets belong to somebody else, they will be seized by the local authorities as requested by the investigating judge or criminal court. Where the criminal proceedings do not result in final seizure and allocation in favour of the victims, or in confiscation of the assets in favour of the prosecuting government, civil proceedings to recover assets may prosper. As the criminal seizure of assets makes their discovery possible; it offers the possibility for lawful owners to state their claims on the individual assets.
The reason for this is that confiscation of assets is decreed over the proceeds of criminal activity in order to frustrate the accused of the benefits of their criminal activity; the allocation to the victims is awarded where the assets were converted and reinvested by the criminals, in order to remedy the damage suffered by the victims. In both cases there is no property lien between the asset and the final beneficiary of the proceeding.
Assets that were not converted and can therefore be individualized in such a way that their title can be ascertained can be claimed by their rightful owner until final judgment. Even where one national authority has decreed confiscation and requested a foreign authority to execute the confiscation order according to international treaty law, the requested country may refuse to grant the request on the grounds that owners claiming title to the assets were not sufficiently granted the possibility to state their claim10.
In the above mentioned case the investigating judge was invited by the authorities of the requested countries to list specifically the values that were to be seized in relation with his inquiry. Others were to be turned over to judges in civil matters concerning claims of entitlement opposing the liquidator of SIBL and former clients of the bank claiming ownership on the grounds that the bank was holding them as a fiduciary on their behalf. These civil claimants who were not plaintiffs in the Spanish criminal proceedings had introduced civil proceedings before the local courts in Belgium.
5. Benefits of criminal proceedings to trace and seize assets
The interest of the intervention of a criminal investigating judge in order to trace matters is manifold:
- Financial institutions may not oppose criminal inquiries for reasons of banking secrecy; they must proceed with the blocking of the accounts and all assets pending a judicial decision voiding the seizure of the assets.
- Any money transfers in European and American countries are subject to prevention of money laundering legislation which forces financial institutions, banks, insurance companies, postal offices etc. to keep records including the identities of the sender and the beneficiary of the transfer, thereby constituting a paper trail which is accessible to criminal inquiries, but not to civil judges.
- Seizure of assets is immediate in criminal matters, and easy to formulate; general clauses such as the ones below are effective to attach assets:
All cash, values, titles, credits and other assets on account, in a deposit or safe, under proper name, conventional or numerical designation, pertaining to Mrs.... as well as all assets of trusts instituted by... or of which he/she is beneficial owner or protector or otherwise entitled, or on which he/she can have, under the terms of a power of attorney or a letter of instruction or any other connected instrument with one " Letter off Wishes" with [financial institution]..., in ...[location].
- Cooperation and judicial assistance in civil matters according to the Hague conventions or the Lugano or Brussels conventions in Europe is lengthy, complicated, and in some countries, not easily granted – and more often not granted within a useful time frame for the seizure of assets. This is the case e.g. in countries where Courts are notoriously overloaded, such as Portugal.
- No cost is involved for the Plaintiff in a criminal investigation, except for counsel; the investigating judge will proceed without court costs involved. In civil matters, the courts will ask for coverage of court expenses, translation costs, notification costs, etc.
Therefore, even though a criminal proceeding is not an easy instrument to handle, because the control of the proceeding and the inquiries is in the hands of the investigating authorities, it should be seriously considered where the case against the Defendant contains criminal elements. Also, where criminal proceedings were started against a party with which our clients were involved for commercial reasons and where our clients are owed substantial amounts, close scrutiny of the ongoing investigation in the press, and, where necessary, participation in the proceedings should be seriously considered in order to protect the clients' interests.
Geneva, 6 February 2009
1. Art. 1 Obligation d'accorder l'entraide judiciaire
Conformément aux dispositions du présent Traité, 1. les Parties contractantes s'engagent à s'accorder l'entraide judiciaire:
b. En vue de restituer à l'Etat requérant ou à l'un de ses Etats membres les objets ou valeurs lui appartenant et provenant de telles infractions;
2. SSC 119 IB 64
3. SSC 119 IB p. 73/74
4. Constructive trust (Black's Law Dictionary, 1979) : « A trust created by operation of law against one who by actual or constructive fraud, by duress or by abuse of confidence, or by commission of a wrong, or by any for of unconscionable conduct, or other questionable means, has obtained or holds legal rights to property which he should not, in equity and in good conscience, hold and enjoy."
5. SSC 5C.169/2001, c. 3 b), c. 6 b) bb) – dd)
6. PONCET, Confiscation, restitution et allocation de valeurs patrimoniales, in SJ 2001 p. 224 ; SJ 1997 p. 417
7. SJ 1997 p. 417, SSC 119 IV 17
8. Art. 1 Champ d'application
1 Le concordat régit l'exécution, dans un canton concordataire, des jugements rendus en matière civile dans un autre canton concordataire.
2 Sont notamment assimilés aux jugements, les désistements, acquiescements et transactions judiciaires, ainsi que les sentences arbitrales, les mesures provisionnelles et les décisions des autorités pénales statuant sur des conclusions civiles.
9. RS 0.275.11 Convention de Lugano du 16 septembre 1988, art. 1, art. 5 ch. 4, art. 24 (provisional measures), art. 31 (execution)
10. Art. 22 ciph.2 lit. a Convention against money laundering and tracing, seizure and confiscation of proceeds of crime (Convention relative au blanchiment, au dépistage, à la saisie et à la confiscation des produits du crime) adopted in Strasbourg on November 8, 1990
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.