International Fraud & Asset Tracing 2022 - White Collar Crime, Anti-Corruption & Fraud

1. FRAUD CLAIMS

1.1 General Characteristics of Fraud Claims

In Switzerland, the concept of fraud carries a predominantly criminal connotation, as an offence punishable under the Swiss Criminal Code (SCC). Beyond this strict definition of fraud, however, a number of other causes of action available under Swiss law also include components of fraudulent and/or injurious conduct. Briefly outlined below are the various key avenues available to a victim of such fraudulent behaviour under Swiss law.

Causes of Action Arising out of Criminal Conduct

Criminal fraud and related offences

Fraud is a criminal offence that requires four key elements:

deceit;
astute or malicious conduct;
intent with the objective of unlawful self-enrichment; and
a mistake on the victim's part, causing it to make a self-harming disposition of assets.

These conditions require all of the following elements.

First, the perpetrator must deceive the victim; eg, by making false statements, concealing true facts or reinforcing the victim's mistaken belief.

Second, the perpetrator must act astutely or maliciously. This is the case where the perpetrator relies on a web of lies, fraudulent manoeuvres or the staging/enacting of falsehoods in order to deceive the victim. Astute or malicious conduct is also involved where the perpetrator prevents the victim from verifying false information or where the victim cannot reasonably be expected to verify the information it is provided with, given, for example, the relationship of trust or express reassurances from the perpetrator. On the other hand, malicious or astute conduct may be denied where the victim could have reasonably undertaken verifications but failed to do so.

Third, the perpetrator must act wilfully and with the intent of unlawfully securing financial gain for itself or a third party.

Lastly, the fraud must induce a mistake on the victim's part and cause the victim to act to the detriment of its own financial interests or those of a third party, thereby suffering damage.

The offence of fraud can be committed in the context of international commercial or business transactions; eg, where a party knowingly commits to an agreement with no intention of honouring it or induces its contracting party to contract on false pretences. As a criminal offence, fraud must, however, be distinguished from the mere failure to perform a contract, in which case liability is generally contractual, not tortious.

In addition to the strict notion of fraud, other criminal offences applicable in the business or commercial context may also include a certain degree of fraudulent and/or injurious conduct, such as (among others):

forgery of documents;
criminal mismanagement and misappropriation; and
maliciously causing financial loss to another.

Under Swiss law, there is no separate charge of conspiracy to defraud, but several co-perpetrators to a fraud offence as well as aiders and abettors ("accomplices" and "instigators" in Swiss legal terms) are, as a rule, prosecuted together and may be held severally and jointly liable for civil compensation (see 1.3 Claims against Parties Who Assist or Facilitate Fraudulent Acts).

Liability in tort

The above criminal offences can give rise to civil compensation under tortious liability. Liability in tort depends on four cumulative requirements, for which the claimant bears the burden of proof:

unlawful conduct by the perpetrator;
damage suffered by the victim;
a causal link between the conduct and the damage caused; and
the fault of the perpetrator (eg, breach of a duty of care).

The victim of a criminal offence may seek the recovery of assets and/or compensation for damages suffered as a result of the criminal offences listed above, either in the framework of a criminal investigation or by way of an action filed in the civil courts (for the advantages of both options, see 2.5 Criminal Redress).

Causes of Action Arising out of Contractual Fraud

In the contractual context, Swiss law provides the concepts of wilful (or fraudulent) misrepresentation and of pre-contractual liability, which both arise specifically in connection with the conclusion of contracts. Moreover, where fraudulent conduct arises in relation to an existing contract between the parties, it can give rise to contractual liability.

Wilful misrepresentation

Wilful (or fraudulent) misrepresentation takes place where a person intentionally creates or exploits a mistake and induces its contracting partner to enter into the contract on the basis of this mistake. Wilful misrepresentation depends on three key requirements, for which the claimant bears the burden of proof.

An act of intentional or wilful misrepresentation, which includes making false statements, reinforcing the victim's mistaken belief or concealing true facts that the person in question had a duty to reveal.
A mistake on the part of the victim, which induces the victim to enter into a contract.
A causal link between the act of misrepresentation and the conclusion of the contract (ie, the victim would not otherwise have concluded the contract or would not have contracted on the same terms).

A victim of wilful misrepresentation may choose from several remedies.

First, the victim can invalidate the contract as null and void. On this basis, they can claim restitution of any sums paid, based on a claim for unjust enrichment, and claim restitution of any assets/property unduly transferred (see 1.5 Proprietary Claims against Property). The victim can also seek compensation in tort for damages suffered.

Alternatively, the victim can choose to maintain and honour the contract, but still seek compensation in tort for damages suffered as a result of the misrepresentation.

Similar avenues are available to parties who were induced to enter into a contract on the basis of a material mistake or duress.

Culpa in contrahendo

In addition to wilful misrepresentation, liability can also arise out of precontractual obligations (culpa in contrahendo, based on the principle of good faith). Under Swiss law, parties must negotiate in good faith and in accordance with their true intentions. A party who intentionally gives inaccurate advice or information, fails to disclose facts of reasonably foreseeable importance to the contracting party or otherwise creates certain expectations leading the other party to make subsequent arrangements can, under certain circumstances, be held liable for the resulting damage.

Contractual liability

In some cases, fraudulent and/or injurious conduct can also give rise to a contractual claim under an existing contract. The victim can opt to lodge a claim against its contractual partner based on the general provisions on contractual liability and/or provisions specifically governing the contract in question.

Four conditions must be met under the general rule on contractual liability:

a breach of contract;
damage suffered by the claimant;
a causal link between the breach and the damage caused; and
a fault on the defendant's part (however, under contractual liability – unlike liability in tort – the fault of the defendant is presumed; ie, it is up to the defendant to demonstrate that they were not at fault).

Moreover, the provisions of the SCO that govern specific contracts contain additional rules dealing with wilful misrepresentation or fraudulent conduct by a party to such contract. This is, for example, the case with provisions governing the contract of sale, which limit a seller's defences if the seller wilfully misled the buyer or fraudulently concealed a default.

Generally, insofar as contract claims are concerned, Swiss law holds as null and void any contractual provisions limiting or excluding a party's liability for wilful misconduct or gross negligence, unless the exclusion of liability applies to the acts of so-called auxiliaries; eg, employees. This rule aims at restricting exclusions of liability, namely, in cases of wilful fraudulent conduct.

Agency without Authority

The SCO also contains provisions on the concept of agency without authority (negotiorum gestio), which allows a principal to sue an agent who acted unlawfully and in bad faith, and thus infringed the rights of the principal.

This provision applies, for example, where an asset entrusted to a party was used or sold without authority.

The principal can seek to recover the profits obtained by the agent as a result of its unlawful conduct, but may have to reimburse certain expenses incurred by the agent.

Furthermore, specific provisions of Swiss law apply where the infringement concerns intellectual property and personality rights, among others.

Causes of Action in an Insolvency/Bankruptcy Context

Finally, Swiss law also provides for remedies for fraudulent or injurious conduct committed in a bankruptcy (or pre-bankruptcy) context. Thus, a victim can seek civil compensation if it suffers damage as a result of criminal offences preceding or committed in the context of bankruptcy, such as fraudulent bankruptcy or mismanagement.

In addition or alternatively to this, creditors may file, within three years of the declaration of bankruptcy, civil claw-back actions in cases where the debtor carried out acts in the five years preceding the declaration of bankruptcy, with a clear intent of disadvantaging its creditors or of favouring certain creditors to the disadvantage of others.

1.2 Causes of Action after Receipt of a Bribe

Bribery in the private sector is punishable under Swiss law. Thus, a person who demands, secures a promise of or accepts an undue advantage in their capacity as agent of a company (eg, representative, employee or board member) commits an act of bribery, provided this results in conduct contrary to the agent's professional duties or in the exercise of its discretion.

Depending on the conduct of the agent, they can also be held liable for criminal mismanagement, an act of fraud and other offences as relevant. This will, in particular, be true if the agent has breached their duty of care towards their employer; eg, by failing to turn the commission received over to the company or by abusing their powers within the company to conclude deals on its behalf.

The bribe that the agent fails to turn over to their employer can amount to damage suffered by the company but, as such, it is unlikely to be recoverable by the employer; instead, the bribe amounts to proceeds of corruption that will likely be confiscated by the state.

On the other hand, under certain circumstances, the company may be able to seek compensation from the agent for the damage caused by the agent's conduct, pursuant to the provisions (statutory and/or contractual) governing their relationship (see also 3.1 Imposing Liability for Fraud on to a Corporate Entity and 3.3 Shareholders' Claims against Fraudulent Directors).

1.3 Claims against Parties Who Assist or Facilitate Fraudulent Acts

Distinction between Perfect and Imperfect Solidarity

Under the rules on tortious liability, where two or more persons have together caused damage by a common fault and by conduct that is unlawful, they are jointly and severally liable to the victim, whether as co-perpetrators, instigators or accomplices (so-called perfect solidarity).

The degree to which the co-perpetrators, instigators or accomplices assist or facilitate a fraudulent act has no impact on their civil liability vis-à-vis the victim, to the extent that the parties will be held jointly and severally liable. The victim may thus choose to claim compensation in full equally from the perpetrator(s), the instigator or the accomplice to the same act. The court will then determine at its discretion whether and to what extent the liable parties have a recourse claim against one another.

On the other hand, where two or more persons are liable for the same damage but on different grounds (ie, absence of one common fault), the victim will still be entitled to choose to claim the damage in full or in part against any of the liable parties. However, the rules of recourse between the various persons liable will differ slightly. As a rule, the court will decide on their degree of liability, starting first with those who are liable in tort, then by contract and lastly, by statutory liability (so-called imperfect solidarity).

Receipt of Fraudulently Obtained Assets

The situation is different if a person's assistance consists only in the receipt of fraudulently obtained assets: such party is in principle excluded from joint and several liability. Under the law, they are civilly liable for the damage caused only if and to the extent that they effectively obtained a share in the gains generated by the unlawful conduct or otherwise caused damage due to their involvement or assistance.

Third parties who knowingly receive assets that were fraudulently obtained may also be criminally liable for the offence of handling stolen goods or money laundering. In such cases, the criminal authorities can order various remedial measures against the third party in question (see 1.5 Proprietary Claims against Property).

1.4 Limitation Periods

Civil claims arising out of unlawful and/or fraudulent conduct are subject to statutory limitation periods. As of January 2020, following a partial revision of the SCO, the following statutory limitation periods apply.

Contractual Claims

For contractual claims, the general limitation period is ten years, unless a shorter period of five years applies by virtue of the type of claim in question; eg, periodic payments such as rent or interest; particular services of agents, employees, doctors, lawyers, craftsmen, etc; and others.

Wilful Misrepresentation

The limitation period for a victim of wilful misrepresentation to declare the contract null and void is one year from the date on which the victim discovered the wilful misrepresentation.

After this time period, the contract is deemed ratified by the victim, who may still seek compensation for damages in tort. Even where a victim has failed to bring a tort claim within the above limitation periods, however, they may still be entitled to refuse to perform the obligation incumbent on them under a contract tainted by fraudulent conduct.

Claims Based on Precontractual Liability (Culpa in Contrahendo)

Claims based on culpa in contrahendo are structurally almost identical to contractual damages claims. However, the Swiss Federal Supreme Court consistently applies the limitation period applicable to tort claims (see directly below).

Tort Claims

Tort claims must generally be raised within a period of three years as of the date on which the victim became aware of the damage suffered and the identity of the liable person, but in any event, within ten years following the date on which the unlawful conduct took place or ceased to occur (or 20 years in cases of death or bodily injury).

For tort claims arising from a criminal offence for which the SCC provides a longer limitation period, this longer period applies. For example, the criminal offences of fraud and forgery are felonies and both are subject to a limitation period of 15 years.

Here too, where a victim has failed to bring a tort claim within the above limitation periods, they may nonetheless be entitled to refuse to perform the obligation incumbent on them under a contract tainted by fraudulent conduct.

Claims based on agency without authority are also subject to the same statute of limitations.

Unjust Enrichment

Claims of unjust enrichment (ie, recovery of sums paid without cause) are also subject to a limitation period of three years after the date on which the victim became aware of their claim, but must in any event be raised within ten years from the moment the claim first arose.

Proprietary Claims

See 1.5 Proprietary Claims against Property.

Criminal Redress

The limitations applicable to tort claims also apply to civil compensation claims lodged in the framework of criminal proceedings. In addition, the victim must heed certain deadlines and procedural rules as applicable.

1.5 Proprietary Claims against Property

In cases where a claimant seeks to recover material assets misappropriated or transferred as a result of fraud, the claimant has a choice of two avenues: civil action(s) or criminal redress.

Civil Recovery

Where property over an asset was transferred without due cause (eg, based on a contract invalidated due to wilful misrepresentation), the claimant can at any time file an action to reclaim title against any person who holds the asset in question.

In addition, where the claimant was dispossessed of a movable asset against their will, the claimant can also file an action to reclaim possession against any person who holds the asset, within a period of five years or 30 years for cultural property. The five-year limitation does not apply where the current holder did not acquire the asset in good faith (ie, bad faith holder of assets).

The victim may also seek to recover the profits and/or interest generated with the use of the misappropriated or fraudulently obtained assets. The defendant will, however, be entitled to seek compensation for certain expenses in relation to the assets.

A defendant can resist the actions above by claiming to have acquired title in good faith or through the passage of time (uninterrupted and good faith possession for five or 30 years).

Movable assets can also include cash or bearer shares to the extent they are not mixed with assets belonging to a third party. As for the recovery of mixed assets or of funds, actions for the recovery of title or possession are not available: instead, the claimant may initiate an action for unjust enrichment or another action as relevant (see 1.1 General Characteristics of Fraud Claims).

Where the asset transferred as a result of fraud is immovable property, the victim can act against the person who was unduly listed as the new owner of the property to reclaim it.

Criminal Redress

Where property was criminally misappropriated or a transfer was induced by criminal fraud, the criminal authorities can:

directly restore the fraudulently obtained assets to the victim; or
confiscate (ie, forfeit) the assets, if available or, failing such, order a compensatory claim for an equivalent amount and allocate the assets (or proceeds of the sale thereof) to the victim.

If assets were transferred to a third party in between, the third party in question could object to confiscation, namely, if they had acquired the assets in good faith (ie, if unaware of the grounds for confiscation) and if due consideration was provided in return.

The remedial measures will also cover the profits and/or interest generated with the use of the criminal proceeds. In cases where the proceeds of fraud were mixed with other funds, their confiscation/compensation remains possible, provided their movement can be retraced and connected to the offences in question.

1.6 Rules of Pre-action Conduct

Advance on Costs and Security for Costs

Claims brought before a civil court will be subject to an advance on (court) costs due before the claim is administered and served upon the opposing party. In addition, upon the request of a defendant, the claimant will be ordered to provide security for (legal) costs, in the form of a cash payment to the court or a bond, where the claimant:

resides or is seated abroad;
appears insolvent;
owes costs to the defendant from prior proceedings; or
for other reasons, is unlikely to provide compensation for legal costs.

Prior Conciliation Proceedings

Moreover, most claims brought before a civil court, whether contractual or in tort, are subject to prior mandatory conciliation, the aim of which is to secure, where possible, a mutually acceptable solution for the parties before the matter goes to court. Conciliation can be waived unilaterally in certain circumstances and types of cases.

1.7 Prevention of Defendants Dissipating or Secreting Assets

Interim relief can be sought before a claim on the merits is filed with a civil court or else throughout the civil trial. This aims at preventing a defendant, by way of a preliminary injunction, from disposing of certain assets located in Switzerland pending the resolution of the underlying substantive proceedings.

Swiss law makes a distinction between monetary and non-monetary claims.

Civil Attachment for Monetary Claims

A creditor can secure a monetary claim by filing an application for the attachment (freezing) of assets under the Swiss Debt Enforcement and Bankruptcy Act (SDEBA). The attached assets include bank accounts, movable and immovable property, claims and securities, among others.

The applicant must demonstrate the likelihood of the following three points:

the existence of the claim that needs securing;
a statutory ground for attachment; and
the existence of assets and their location.

A statutory ground for attachment is given in six alternative scenarios, such as where (among others):

the debtor has no permanent residence;
the debtor is attempting to conceal assets or is planning to flee Switzerland to avoid fulfilling its obligations; or
the creditor holds a definitive enforceable title against the debtor (such as a judgment or arbitral award).

The attachment must, in principle, only target assets belonging directly to the debtor, unless a valid case of piercing the veil can be argued (see also 3.2 Claims against Ultimate Beneficial Owners). Third parties affected by an attachment can lodge a claim for restitution by asserting a preferable right over the asset in question.

The attachment is ordered ex parte, usually within 24 to 48 hours. The proceedings become adversarial only if the opposing party objects to the attachment within ten days from service of the attachment order.

Failure to comply with the attachment order is a criminal offence and will expose the non-complying party to criminal penalties.

Interim Measures Securing Non-monetary Claims

Measures can also be sought to secure non-monetary claims under the Swiss Civil Procedure Code. These include injunctions (eg, a ban on moving or transferring property), orders to cease and desist or to remedy an unlawful situation, performance in kind, and others.

The applicant must demonstrate the likelihood of the following three points:

the likely existence of a valid cause of action on the merits;
an impending harm (or urgent risk thereof) to the rights on which the applicant relies; and
a risk of damage that will be difficult to repair.

The measures can be granted inter partes (which can take several months, depending on the complexity of the matter and the domicile of the parties) or ex parte (such measures are usually ordered within 24 to 48 hours). In addition to the conditions outlined above, a party requesting ex parte measures must prove an imminent risk of danger and/or a certain degree of urgency, or else a risk associated with tipping off the opposing party.

Interim measures can be imposed under the threat of criminal sanctions, in which case, the non-complying party is liable to a fine of up to CHF10,000 (see also 5. Enforcement).

Characteristics Common to Both Types of Measures

Moreover, in relation to both types of interim measures discussed above:

if the interim measures precede a civil trial, the applicant will have a fixed number of days from the service of the interim order or the attachment to "validate" these measures by commencing a civil action against the opposing party;
the applicant must pay an advance on costs (eg, up to CHF2,000 for an attachment application, plus extra costs due for the execution of the attachment order); and
the applicant is liable for damages caused by an unjustified interim measure or attachment and the court may, on this basis, order the applicant to provide security (eg, security in an attachment application can amount to up to 10% of the claim value).

No Worldwide Freezing Order Available under Swiss Law

There is no equivalent under Swiss law to a worldwide freezing order (WFO) or Mareva injunction that would cover assets belonging to a defendant globally. In fact, freezing orders do not target a defendant and its estate as such, but rather a specific asset.

That being said, a WFO secured abroad can be enforced in Switzerland under certain conditions and serve as a ground for the attachment of certain (specifically designated) assets located on Swiss soil.

Criminal Freezing Orders

In addition to the above civil avenues, the criminal authorities have extensive coercive measures at their disposal and can order the freezing of assets located in Switzerland or request the freezing of assets located abroad via judicial legal assistance. Assets may be frozen if it is likely that they will have to be returned to the victim, confiscated or used for a compensatory claim. Under certain conditions, the freezing order can target third-party assets (see 1.3 Claims against Parties Who Assist or Facilitate Fraudulent Acts and 1.5 Proprietary Claims against Property).

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Originally published by Chambers International Fraud & Asset Tracing 2022 Global Practice Guide, Switzerland Chapter - Law and Practice, May 2022

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.

Switzerland: International Fraud & Asset Tracing 2022