Canada

Fighting fraud: Czech Republic obtaining searching, freezing Denmark & tracing orders England & Wales

A comparative Guide France

Germany

Hungary

Italy

The Netherlands

Poland

Romania

Russia

Scotland

Spain

Switzerland 2003 United States For more information

If you would like further information on the rules applicable in each jurisdiction, please do not hesitate to contact:

Canada (Ontario) The Netherlands Power Budd LLP CMS Derks Starr Busmann Salima Virani Leonard Bohmer [email protected] [email protected]

Czech-Republic Poland CMS Cameron McKenna CMS Cameron McKenna Jaroslav Tajbr Michal Subocz [email protected] [email protected]

Denmark Romania Dania Advokater CMS Cameron McKenna Jacob Strandgaard Andersen Adelina Elena Marin [email protected] [email protected]

England & Wales Russia CMS Cameron McKenna CMS Cameron McKenna Duncan Aldred Sergei Yuriev [email protected] [email protected]

France Scotland CMS Bureau Frances Lefebvre CMS Cameron McKenna Didier Skornicki Valerie Allan [email protected] [email protected]

Germany Spain CMS Hasche Sigle CMS Bureau Frances Lefebvre Dr Claus-Peter Fabian Esther Adroher [email protected] [email protected]

Hungary Switzerland Ormai és Társai CMS Cameron McKenna CMS von Erlach Klainguti Stettler Wille dr. Tamás Engel Fabienne Crisovan [email protected] [email protected]

Italy United States (New York) CMS Adonnino Ascoli & Cavasola Scamoni Thacher Proffitt & Wood Laura Opilio John Doherty [email protected] [email protected]

Disclaimer: This commentary is not a full review of the topic it covers and does not purport to give legal advice. If you would like to receive specific legal advice, please contact your usual CMS contact.

All liability for damages arising from the information provided is explicitly excluded.

Fighting Fraud: obtaining searching, freezing & tracing orders 2 2003 Introduction

Fraud, in all its many forms, knows no national boundaries. The revolution in information technology has enabled fraudsters to move funds quickly and easily between accounts across the world. The victims of fraud range from banks and other financial institutions, to small companies and individuals. The essential weapons of those acting for the victims of fraud, seeking to recover funds, are the powers of the civil courts to grant search orders to assist in tracing of missing funds; and when they have been located, to make freezing orders to prevent removal of the funds. Those acting to recover funds increasingly need to take action in many different jurisdictions, often simultaneously. This Guide aims to assist the victims of fraud and those acting for them by providing a comparison of the powers of the civil courts across various jurisdictions in Europe and North America, to grant search and freezing orders. We hope you find the Guide informative and useful.

Tony Marks CMS Cameron McKenna April 2003

Fighting Fraud: 3 obtaining searching, freezing & tracing orders 2003 Fighting fraud: A comparative Guide to powers in different jurisdictions to obtain searching, freezing and tracing orders

Country / jurisdiction

Canada (Ontario) 5

Czech Republic 7

Denmark 9

England & Wales 12

France 14

Germany 16

Hungary 18

Italy 20

The Netherlands 22

Poland 24

Romania 25

Russia 26

Scotland 28

Spain 30

Switzerland 32

United States (New York) 34

Fighting Fraud: obtaining searching, freezing & tracing orders 4 2003 Canada (Ontario)

The summary below reflects the position • The court will sometimes order the in relation to Ontario law only as each defendant to list his assets and their Canadian province has its own procedure location in an affidavit. and laws. • A claimant may be ordered to bear any expenses incurred by a third party Freezing orders (for example a bank) in complying • Available in both criminal and civil with the order. proceedings (called a “Mareva injunction” in civil proceedings). Search orders • Usually sought on an urgent, • Available in civil proceedings and without notice, basis to ensure usually obtained without notice element of surprise and can be and in secret prior to the obtained before proceedings are commencement of the action to issued (as well as during or after). ensure the element of surprise. • A claimant must show: • The order must include the -a strong prima facie case (i.e. claimant’s undertaking in damages more than a “good arguable case” as with freezing orders. as under English law); • Authorised persons (typically the - grounds for the claimant’s belief claimant and/or a limited number that the defendant has assets of his employees or agents, his within the jurisdiction of the court; solicitor and an independent third - persuasive evidence that the party e.g. an accountant) are defendant will remove or dispose permitted to inspect and search of assets if the order is not granted. the defendant’s premises. • A claimant must provide an undertaking • If the defendant fails to comply to be liable in damages to the defendant with the order the claimant has no in case the injunction turns out to have right to force entry; his remedy is been unjustified and the defendant to pursue contempt proceedings. suffers damages as a result. • To obtain such an order the claimant • A defendant is permitted to deal with must show that very serious harm, his assets in the ordinary course of his actual or potential, will be suffered business or living. if the order is not granted (can include • A claimant does not acquire any title damage to the claimant’s case due or proprietary interest in the frozen to the disappearance of evidence). assets or any advantage or priority • Search orders are also available in over other creditors. criminal proceedings. • An injunction can freeze any asset to which the defendant has title, provided Tracing orders the assets are within the jurisdiction • The Fraudulent Conveyances Act of the court and can be the subject assists a creditor in recovering of execution. property where the debtor has

Fighting Fraud: 5 obtaining searching, freezing & tracing orders 2003 conveyed or transferred it to others creditors or to avoid being arrested with the intent to defeat, delay or or served with process and the defraud the rights of creditors. debtor has property against which a • The Act permits the creditor to set judgment could be executed within aside the transfer to the third party so Ontario he shall be deemed to be that it is returned to the debtor/ an absconding debtor, in which case transferor and is then available for his property within the jurisdiction seizure by creditors. Any transfer of may be seized in order to satisfy the property made with the intent to debts. This relief is only available in defeat, hinder, delay or defraud creditors pending proceedings. is void, notwithstanding if the transfer was made for valuable consideration, unless the transferee acquired the property bona fide without notice. The claimant must show an intent to defeat, hinder, delay or defraud creditors by both the debtor and the transferee. In certain circumstances this is subject to certain presumptions. • Only applies to property against which a judgment could be executed. • To succeed a claimant must in practice show that the property was transferred for little or no consideration compared to its market value at the time of the transfer. • No requirement to show the debtor’s insolvency at the time of the transfer and the claim is not subject to any limitation period. • A claimant is not able to claim relief against the proceeds of any transferred property under the Act (certain rights are available under the Assignment and Preferences Act).

General • The Absconding Debtors Act (Ontario) provides that where a resident of Ontario leaves the province with the intention of defrauding his

Fighting Fraud: obtaining searching, freezing & tracing orders 6 2003 Czech Republic

Freezing orders by the prosecutor himself. The order • Available in civil proceedings in the form must be delivered to the bank holding of an “interlocutory order” pursuant to the account, and once the bank has the Act on Civil Proceedings. blocked the account the decision must • Granted by the court if it is considered also be delivered to the account holder. necessary to regulate the parties’ • Also available against the account of relationship or if there is concern that a third party not accused of committing the execution of a future court decision the crime. might be in jeopardy. • May be served on a person who is Search orders not a party to the proceedings (e.g. • Only available for criminal proceedings. on a bank holding the account of • The Czech constitution states that this a defendant). can be done only with a written decision • The order may be issued before as of a judge and that such decision must well as during proceedings. be justified (i.e. if there is a reasonable • An order can generally only be issued on suspicion that there is on the premises the basis of a motion. The court must any thing, person or material for the decide whether or not to pursue the purposes of criminal activity). The motion without unnecessary delay, and conditions under which a search of in any case no later than seven days other premises may be ordered are not from the filing of the motion. If the as strictly stipulated as those for the motion is filed before the start of the search of residential premises. main proceedings, the court will ask the claimant to file with the court the Tracing orders petition to start the main proceedings • Available as an interlocutory order in within a certain period, failing which the civil and criminal proceedings (known order will become void. as “adhesion proceedings”). • The claimant will be liable for any • Generally, if information on the asset is damage caused by an interlocutory kept at an official registry, such as the order becoming void (an interlocutory Land Registry, Securities Centre, or order becomes void if the petition Registry of Motor Vehicles, the asset regarding the main proceedings is can be traced. dismissed, the time limit for which it • A claim can be brought against a was issued has passed, or the reasons defendant or against a third party for which it was issued no longer apply). who now has ownership of the asset. • Available in criminal proceedings if the The third party would then be entitled circumstances of a particular case to claim damages against the person indicate that the money has been used who fraudulently sold it the asset. If for, or gained by, criminal activity. Can the victim is no longer the owner of be issued by the court or by the police the asset, he may only claim with the consent of the prosecutor or damages against the person who

Fighting Fraud: 7 obtaining searching, freezing & tracing orders 2003 committed the fraud and against The court itself determines what other transferors of the asset who evidence will be examined. were not bona fide. • Attorneys are liable to maintain the • If the proceeds from the sale of an confidentiality of all facts learned in asset are in the form of money in a relation to the provision of legal services. bank account, banks are obliged to This duty can be lifted only by the provide information to the court, on client or following the demise of the request, for the purposes of the client or expiration of the legal entity's civil proceedings. legal representation. The duty of • Criminal proceedings can only be confidentiality does not affect the brought against the defendant and not legal obligation to prevent a criminal against any third party in possession of offence being committed as stated in the asset. If the decision requires the Act on Criminal Proceedings. additional evidence, the court will not • Other providers of financial and make a decision regarding the adhesion professional services (bankers, auditors, proceedings and will require the victim accountants etc.) are liable to maintain to bring civil proceedings. the confidentiality of all facts learned in relation to the provision of their Evidence services. This duty may be overridden • Evidence may be secured by way of only under special circumstances e.g. as court proceedings if there is concern a result of a court order (or prosecuting that such evidence might not be authority in criminal proceedings) or as a available later, or only obtainable with result of their legal duty to do so e.g. great difficulty. reporting to a supervisory authority or • Once the investigation of a crime to a superior body. has been commenced and if the • In criminal proceedings it is not possible investigation is successful, the victim to use evidence that has been obtained of fraud is entitled to inspect and take illegally. Any actions of the prosecutor copies of the documents held in the or police have to be in accordance with prosecutor’s files Such documents can the criminal procedure legal provisions. also be used as evidence in civil claims. In civil proceedings, the parties are • In general, it is not possible to obtain entitled to refer to all evidence that disclosure of any documents before supports their case, irrespective of how the proceedings begin. it has been obtained. The court itself • After the civil proceedings begin the determines which of the proposed parties are obliged to refer to all items of evidence will be examined. evidence that supports their arguments. This means there is no limitation on the evidence that can be referred to the court (including the evidence examined in the criminal proceedings).

Fighting Fraud: obtaining searching, freezing & tracing orders 8 2003 Denmark

Freezing orders the defendant. An injunction is also a • Available in both civil and preliminary action, subject to subsequent criminal proceedings. confirmatory action before a high court. • In civil proceedings, this can take the • In criminal proceedings, a freezing form of an “attachment” to funds or order prevents the defendant (or a assets until a creditor has obtained a third party) from disposing of his assets judgment confirming his claim for or funds involved in or suspected of money on a debtor or while proceedings being involved in a crime. for such are pending. • Such orders are commonly used by the • In order to obtain an attachment, police during their investigations or the claimant must substantiate his during proceedings and must be put claim and demonstrate that his before a judge for validation. If a court chances of recovering the debt will order cannot be awaited without risk or diminish significantly if the attachment jeopardizing the purpose, a preliminary is not granted. freezing action may be executed by • The bailiff can require the claimant to the police but will be subject to provide security for possible damages confirmation by a court order to be to the defendant, and will often do requested within 24 hours. so. Attachment is a preliminary action, • The purpose of a freezing order in subject to subsequent confirmatory criminal proceedings must be to secure action before a high court. evidence, assets expected to be subject • Alternatively, assets can be frozen by a to confiscation, or assets subject to restraining injunction, and the defendant recovery by the rightful owner. Such can be ordered not to pursue certain orders may also be used to remove actions, e.g. to dispose of or remove things suitable for committing violence assets. If necessary the court can take or to prevent absconding (by freezing the asset into custody, and may receive a passport and similar personal assistance from the police to do so. documentation) or as security for • To obtain a restraining injunction, court costs and damages payable. the claimant must demonstrate that the defendant’s use or intended use Search orders of the assets is contrary to the • Available in both civil and claimant’s rights. criminal proceedings • An injunction will not be granted if • In civil proceedings, the search of a subsequent criminal punishment or person's home or business location is civil compensation can satisfy the very restricted and can only be ordered claimant’s loss sufficiently, or if such an at the discretion of a bailiff if a debtor injunction would be disproportionate or defendant has been summoned to a to the claimant’s potential loss. court hearing and has failed to attend. • The bailiff can require the claimant to • The bailiff carries out the search, and provide security for possible damages to can only search for funds or assets

Fighting Fraud: 9 obtaining searching, freezing & tracing orders 2003 with the purpose of levying execution. Evidence Searching paperwork, documents, etc • In criminal cases the court can order is not allowed. people (other than the defendant • In bankruptcy cases the trustee in or charged person) to disclose bankruptcy is granted access to the documents or other evidence and debtor’s home and business, and can to testify under oath. as such search the debtor’s documents, • In civil proceedings each party financial records, etc. If necessary the supplies his own evidence, although trustee may apply to a judge in the parties usually disclose information bankruptcy court for assistance to carry requested by the counterparts, as they out a search. otherwise risk a prejudicial effect on • In criminal investigations, only the their case. police can carry out a search (or • In exceptional cases a judge can issue seizure). It requires a court order, an order of discovery. unless awaiting the court order • A debtor appearing before the judge jeopardizes the purpose of the search. or deputy judge can be ordered to The police must substantiate to the reveal his financial situation and his court that the defendant is the suspect assets and their whereabouts. of a crime punishable by prison • In bankruptcy cases the receiver may sentence, unless the search is outside summon anyone with knowledge of his home (e.g. open garages, unlocked the debtor’s financial situation before cars, gardens). the bankruptcy court to give evidence as a witness. Lying or withholding Tracing orders of information can be prosecuted • Available in both civil and as perjury. criminal proceedings. • In civil proceedings the right to trace General assets is relatively limited and only • Correspondence and other information available on the request of a claimant between a lawyer and his client if the claimant can prove or substantiate are confidential. his claim. If the claim is disputed, and • In criminal investigations, this can only the dispute has merits, the bailiff can be overcome when the police become refer the settlement of the claim to aware that a lawyer has committed the regular courts. indictable crimes or where a lawyer • As part of criminal investigation a has a suspicion of money laundering. judge can order assets to be seized • Banks have a duty of confidentiality or frozen by police during the concerning information on their clients. investigation or trial. The rightful Board members, local board members, owner can then, via the police/ members of bank councils, CEO’s or prosecution, make a claim to have other employees may not disclose or the assets returned to him. otherwise exploit any confidential

Fighting Fraud: obtaining searching, freezing & tracing orders 10 2003 information, which they have access to as a result of their position. • If a bank suspects that a transaction has a connection to money laundering it has an obligation to inspect it and, if suspicious, to delay the transaction until the police are informed or to inform the police as soon as possible after the transaction is complete. • Land and real estate ownership information is accessible to the public, and information on ownership, mortgages, easements and encumbrances is available in writing or by telephone from local courts, or electronically via the Internet. Mortgages on movables and cars can be voluntarily registered in two separate court administered registries, which also have public access. • Danish and foreign companies in Denmark have to be registered in the Danish Commerce and Companies Agency. The agency keeps publicly accessible registers of public and private limited companies, commercial foundations, European Economic Interest Groupings, financial institutions (banks and insurance companies), co-operative societies, partnerships, commercial associations and a number of other enterprises with limited liability. Ownership information of a company is not accessible in the registry. However, ownership of more than 5% of the share capital must be disclosed in the annual accounts of a company with limited liability if it is an “A/S” company.

Fighting Fraud: 11 obtaining searching, freezing & tracing orders 2003 England & Wales

Freezing orders • Order cannot be used oppressively, for • Freezing orders or injunctions example to cause the defendant to (formerly known as “Mareva Orders”) cease trading. Defendant usually are a means by which a party to allowed to continue using assets, for proceedings or intended proceedings example, to pay employees and trade can be restrained from removing creditors and to discharge reasonable assets from the jurisdiction of the living expenses and/or legal fees. Court or restrained from dealing with • Can freeze assets legally and assets wherever located. beneficially owned by the defendant, • Available in civil proceedings at any including those located outside the time, although usually obtained before jurisdiction and in support of foreign proceedings are issued. Typically, draft proceedings, but usually limited to the pleadings will need to be produced to amount of the claim so that the the Court to demonstrate a real defendant is free to deal with assets intention to commence a claim. above that sum. • Usually made without notice to the • A defendant and any third parties who defendant to ensure element of fail to comply with the order are in surprise. In that case, the claimant contempt of Court and liable to a fine is subject to a duty to make full and and/or imprisonment. Third parties frank disclosure of all relevant matters who knowingly assist in a breach of to the Court. If such disclosure is not the order are guilty of contempt (for made the order can be overturned example if a bank pays money out of regardless of the merits of the claimant’s the defendant’s bank account). A case or entitlement to the order. freezing order does not, however, bind • A claimant must give an undertaking third parties outside the jurisdiction (for to the Court to pay any damages example a foreign branch of a bank which the defendant (or any other with a presence in England). party served with or notified of the • Order usually contains a provision order) sustains if it turns out that the requiring the defendant to disclose order should not have been granted. information about his assets or about If the claimant has insufficient assets the alleged fraud, but cannot be used within the jurisdiction to support the as a “fishing expedition”. undertaking he will be required to • In criminal proceedings, a restraint provide appropriate security. order can be obtained which has the • A claimant must show a good arguable effect of freezing assets suspected of case and a risk that the defendant will being funded by the proceeds of dispose of assets or remove assets crime. The order may be granted by from the jurisdiction so as to make it the High Court after application by likely that any judgment against the the prosecuting authority e.g. Crown defendant could not be satisfied in Prosecution Service, the Serious Fraud the absence of a freezing order. Office or Customs & Excise.

Fighting Fraud: obtaining searching, freezing & tracing orders 12 2003 Search orders cannot be used directly in civil investigated by the authorities, is an • A search order can be obtained proceedings but transcripts of the offence. Banks can now apply in against a party to proceedings or evidence used in court in the criminal private for an interim declaration. intended proceedings in order to proceedings are permitted. • Other options to protect assets preserve evidence which is or may be include applying for the appointment relevant or for the purpose of Tracing orders of a receiver, for example where an preserving property which may be the • It is possible to make a claim for the asset needs managing and cannot subject of proceedings. return of fraudulently obtained assets simply be frozen, or, where the claim • Formerly known as “Anton Piller” orders. on the basis that the claimant has a cannot be disputed, applying for the • In civil proceedings search orders “proprietary claim” to such assets; appointment of a provisional liquidator. are available by application to the this can include the proceeds of assets Court (usually without notice to obtained by fraud. The prospects of the defendant). succeeding on such an application are • A claimant must show real grounds based upon the claimant’s interest in for suspecting that the defendant is the property or proceeds. destroying or will destroy documents • A claimant can pursue both personal or would not comply with an order claims against the fraudster and for disclosure. proprietary claims against the fraudster • A search order must be supervised by and others, at the same time. a Supervising Solicitor who must be • Tracing claims can be more effective experienced in the operation of search than personal claims as they can prevent orders and who is independent of the defendant from dealing with the the claimant. claimant’s money so that the defendant • The Supervising Solicitor’s obligations cannot use it until the entitlement to the include, amongst other things, listing all funds has been established even, for material removed from the defendant’s example, to pay his reasonable expenses. premises and explaining the terms and • A defendant is also obliged to inform effect of the order to the defendant. the claimant what has happened to all • As a matter of principle the Court in the claimant’s money that has passed England and Wales may order a search through his hands i.e. not limited to of premises located overseas, but in the defendant’s current assets. practice it is unlikely to do so. • Tracing rules are flexible – basic • Extremely effective tool in determining principle is “just and convenient”. the whereabouts of assets and proceeds • A defence to a tracing claim exists if of the fraud. the defendant received assets bona • Search orders can also be obtained in fide without notice, so that he takes criminal proceedings, either from the free of the claimant’s claims. County Court (e.g. under tax legislation) or from the Magistrates’ Court General (search warrants). Evidence obtained • “Tipping off” i.e. alerting the alleged from a search in criminal proceedings fraudster to the fact that he is being

Fighting Fraud: 13 obtaining searching, freezing & tracing orders 2003 France

Freezing orders • In criminal matters, the attachment • Available in both civil and procedure takes place in the context criminal proceedings. of the wider criminal proceedings. It is • In civil matters, an order to freeze therefore up to the judge to decide, funds is typically used as a means of for example, to affix seals to assets or enforcement, and is commonly called to freeze a bank account, depending a garnishment or attachment. A on what he feels is in the best interests garnishment may be a protective of his investigation. measure, in which case it is merely • Whether the attachment falls into a aimed at making the asset unavailable. civil or criminal procedure, its effect is to • Beyond this limited purpose, a make the assets attached unavailable to garnishment can be used as the first the defendant, (but sometimes only step in a procedure leading to a form temporarily). of compulsory surrender of the asset • Some assets, such as remuneration, garnished. Generally speaking, cannot be attached as they are too garnishment procedures are instituted closely tied in with the debtor's by creditors in whose interest it is personal survival. to make the their debtors' assets • In civil matters, the attachment itself unavailable or to liquidate them. grants no proprietary rights to the • In criminal matters, a decision to creditor to the things attached. freeze funds stems from a request by • In principle, enforcement procedures rely a judge and not that of a creditor. on the judge's power of distraint, which • In both cases, a bank account may is necessarily limited to national territory. be garnished. Thus, the jurisdiction of the French judge • In criminal matters, the purpose is to is exhausted in the event that assets freeze the disputed assets, thereby located abroad are to be attached, permitting a stabilization of the situation and the ruling enforced. during the ongoing proceedings. • In the instance of garnishment for Search orders security, a creditor must possess • Usually only available in proof of a claim, which may not criminal proceedings. be enforceable, and obtain the • The search can take place at any stage court's permission to carry out of an investigation, depending on the the garnishment. requirement of the investigating judge. • In both cases, a creditor always • In civil matters, if documents are institutes the procedure: the creditor located during the course of the therefore controls the timetable. garnishment procedure, they may • Two bodies of rules apply to be placed before the court. The civil attachments, depending on whether and criminal procedures often merge. personality or real property is being seized.

Fighting Fraud: obtaining searching, freezing & tracing orders 14 2003 Tracing orders imply that they can be identified, for • An owner can file a claim against example because they have been the holder or current occupant of deposited on a separate account -, or a material asset. are from any other origin. • In matters involving personality, a claim for ownership of personality General seized may be prevented if the current • Banks are prohibited from providing possessor has acquired it under lawful direct replies to individuals questioning conditions (i.e. in good faith). them concerning a debtor’s assets. • The above point is an exception to the usual rule that the owner must always be entitled to recover possession of his assets if he has been deprived of them unjustly. • If the person who has embezzled funds has utilized them to acquire an asset, it is possible to bring an action for recovery of this asset, in particular using the procedure of forced sale. • If the embezzled funds have been used to purchase an asset that is in the hands of a third party, there is no possibility per se of filing action against the owner on the basis of the embezzlement. The plaintiff can at best attempt to prove, through the process of Paulienne action (in which a creditor can have declared void certain transactions by a debtor which are prejudicial to his interests) that the asset has been placed in the custody of the third party only for the purpose of violating the rights of the creditors of the perpetrator of the embezzlement, thereby permitting the attachment thereof. • The result is that generally, the claimant claims funds because he has been the victim of embezzlement, however it hardly matters whether these funds are his – which would

Fighting Fraud: 15 obtaining searching, freezing & tracing orders 2003 Germany

Freezing orders is about to transfer or sell assets • Available in civil and without consideration. criminal proceedings. • Disclosure not generally ordered as • In civil cases can only be used for part of freezing order. money claims – not proprietary or repossession claims. Preliminary injunction • Can usually be obtained without • Used to secure claims other than hearing the proposed defendant if the payment claims such as: purpose of the order would otherwise - contractual claims for repossession; be placed at risk or undermined. - proprietary claims; and • Can be obtained before and after -claims for removal or retrieval proceedings have been commenced of assets. (until judgment obtained). • Can be obtained without hearing • Can include all assets legally owned the proposed defendant where by the defendant - tangible, intangible, circumstances require immediate action. moveable, land and assets • A claimant must show: located abroad. - existence of a claim; and • Entitles the claimant to have all assets - that enforcement of claim, if it of which he is aware attached by a succeeds at trial, is being endangered. further court order (for example a • Relief available is wide and includes: garnishee order in the case of debts -a restrictive or preventative order owed to the defendant, a charge in (Unterlassungsverfuegung); and/or the case of land or by seizure in the - the appointment of a receiver over case of moveables). The consequence certain assets (sequestration); of seizure is that the creditor has and/or preferential rights in relation to - specific performance those assets. (Regelungsverfuegung). • The attachment does not entitle the claimant to realise the value of the Search orders respective assets by way of sale. • In civil proceedings, search orders can Realisation requires a judgment in the only be obtained for the purpose of claimant’s favour following a full trial. enforcing or executing a judgment, an • A claimant must show: attachment order or a preliminary - the existence of a claim; and injunction. They are therefore only - the enforcement of a judgment is obtainable once the claimant has being endangered. This would be obtained a provisional or final legal the case if, for example, the decision on the claim from the court. judgment needs to be enforced • A court order is required if the place outside one of the signatory states to be searched is the place of of the Brussels or Lugano Conventions residence or the business premises of or if the defendant has transferred or the defendant although this can be

Fighting Fraud: obtaining searching, freezing & tracing orders 16 2003 waived in extremely urgent cases. The General defendant is given an opportunity to • The Public Prosecutor may invoke a be heard before the search order is criminal investigation and if the made unless the purpose of the search investigation is successful, the victim would be placed at risk, in which case of fraud is entitled to inspect and the order will be made without hearing take copies of the Public Prosecutor’s the defendant. files and use such evidence to pursue • The search is undertaken by the bailiff civil claims. and either the defendant, a member of • In criminal proceedings a freezing his family, a local government officer, a order may transfer ownership of police officer or two adults must be assets to the state, but the rights of present as witnesses while the bailiff the victim of the fraudster take priority carries out the search. In extremely urgent against those of Public Prosecutor (but cases the bailiff can undertake the search not against other creditors) regardless immediately without a court order. of when the orders were obtained. • In criminal proceedings, a search order must specify the criminal act which was the reason for the search and the purpose and extent of the search. Such a search must be carried out within six months of the order and is carried out by the police. The Judge, the Public Prosecutor, a local government official or two members of the relevant local authority must be present. If the defendant objects to any documents being inspected, only the Public Prosecutor or the Judge may carry out an inspection of such documents. (In civil proceedings there is no corresponding provision. The bailiff may carry out an inspection of such documents).

Tracing orders • Can claim against property in the hands of a party not directly involved in the fraud, by way of an arrest order or by way of an interim injunction. • In criminal proceedings it is also possible to obtain a security order over the relevant asset or assets purchased with the proceeds.

Fighting Fraud: 17 obtaining searching, freezing & tracing orders 2003 Hungary

Freezing orders an existing claim, that such claim is • Although available in both criminal and for a quantifiable amount and that civil cases, in practice the Hungarian the claim has fallen due. courts are very reluctant to grant freezing • A freezing order can be made in orders in relation to civil law proceedings. respect of all or over specified assets • Freezing orders therefore currently owned by the respondent party. tend to be used either in criminal • Once a freezing order has been made, investigations or as a tool to assist the affected party is permitted to use in the future enforcement of an their assets in the ordinary course of outstanding debt or monetary claim. business or living. However the In the latter case, assets are typically alienation/disposal of, or the creation frozen by the court with the court of any kind of encumbrance over, the enforcement officer subsequently frozen assets is prohibited. enforcing against the frozen assets. • A freezing order in respect a bank • There are currently very limited account will normally specify a threshold examples of cases where a court has above which no money can be removed issued a freezing order in connection from the account. with a civil law matter, in order to • In order to issue a freezing order, the "protect" the position of a claimant in applicant must submit a motion to the such proceedings. However, in certain court. The court must decide within circumstances, it might be possible to eight days of receipt of the motion and achieve this. may issue the freezing order without • In relation to civil law matters, a having first notified or having heard freezing order can be issued if the from the affected party. Once the court determines that the enforcement freezing order has been issued, it is of a future court decision might be in always served on the affected party danger, i.e. the losing party would and the affected party may appeal. In dispose of assets and has no other any event, once a freezing order has assets which would cover the claim. been issued it is effective and must be • In order to obtain a freezing order, the followed without delay and regardless applicants must: of the initiation of an appeal. - have filed their statement of claim with the relevant court or Search orders arbitral tribunal; • Available in criminal proceedings and in - demonstrate that their chances of court enforcement proceedings. successfully enforcing the future • Depending on what stage the court decision will diminish proceedings have reached, the police, significantly; and the public prosecutor or the judge - substantiate (by public documents may issue a search order. or by private documents with full • In court enforcement proceedings, the probative force) that they do have court enforcement officer may inspect

Fighting Fraud: obtaining searching, freezing & tracing orders 18 2003 and search the judgment debtor's notary or other organisation, disclose residence and other premises, any documents or other evidence, if the property and assets and documents on applicant is not entitled to request his business activities. Frisking however is such disclosure directly from such not allowed in the course of execution. persons/bodies.

Tracing orders • The court enforcement officer may seize assets subject to a freezing order, but where such assets are held by a third party, the court enforcement officer can only seize such assets if there is no dispute that such assets are owned by the party subject to the freezing order. • If a third party does dispute that the relevant assets are owned by a party affected by a freezing order, the applicant may initiate a special proceeding, requesting the court to oblige such third party to accept and co-operate with the seizure of/enforcement over the relevant assets. • The applicant may also initiate proceedings if a third party holds/ owns the asset in bad faith or obtained such assets by way of fraud. • In criminal proceedings, the assets that constitute evidence or are subject to seizure or confiscation pursuant to the provisions of the Hungarian Criminal Code, may be traced from anybody regardless of whether or not such third party holds/owns such assets in good faith.

Evidence • In criminal cases, the judge may order third parties to disclose documents or other evidence. • In civil cases, a judge can only order that a court, other authority, public

Fighting Fraud: 19 obtaining searching, freezing & tracing orders 2003 Italy

Freezing orders Public Officer to freeze any subsequently • Available in both civil and criminal identified assets (up to a certain value), proceedings at any time. subject to the judge’s authorisation. • In certain cases, the order can be Alternatively, the freezing order is made made in the absence of the defendant specific to a single asset, and, if the particularly if the claimant is able to claimant discovers further assets, he produce evidence to show that if the must make a fresh application for a new defendant is given notice the freezing order to include these assets. effectiveness of the freezing order • The defendant loses any right to deal might be prejudiced. In those cases a with, or dispose of, the frozen assets further hearing will be scheduled at until the end of the proceedings. which the defendant has the right to • The judge may request the claimant be present. to give an undertaking to pay any • To obtain a freezing order the damages which the defendant may claimant must produce: sustain.Failure to comply with this - evidence of a risk that the defendant request may lead to the freezing order will not be able to meet the losses being made ineffective. suffered by the claimant; • In theory, the freezing order can - evidence in a summary proceeding extend to assets outside the Italian of his right (“fumus boni iuris”); jurisdiction, but in practice such an - evidence to show that, if the order order is unlikely to be effective. is not granted, the claimant will • The freezing order only covers suffer loss from the delay (“periculum the assets to which the defendant in mora”); and has legal title and not assets - evidence that the defendant beneficially owned (unless the has assets to which the freezing claimant applies for the disposal of order can attach (NB the burden assets to be revoked). of identifying assets lies on • There is no obligation on the defendant the claimant). to disclose any further assets that the • Once granted, the defendant must be claimant has not identified. notified of the freezing order, where- • In criminal proceedings a freezing upon a Public Officer determines order can be issued by the judge on which assets have been frozen and the request of the Public Prosecutor nominates a custodian. The order only whenever there is a risk that the extends to assets identified by the defendant cannot guarantee the Public Officer and binds third parties payment of the fee. The fee includes who are holding the defendant’s the costs of the criminal proceedings assets (for example banks where the and, if payable, a fine - the amount of defendant has an account). which varies according to the gravity • The claimant usually applies for a of the crime. For simple fraud, the general freezing order to enable the fine may be up to Euro 1.000,00.

Fighting Fraud: obtaining searching, freezing & tracing orders 20 2003 Search orders General • Only available in criminal proceedings. • Article 700 of the Italian Civil Procedure • The Public Prosecutor can apply for a Code provides a generic emergency search order to gather evidence of the remedy to obtain any precautionary alleged fraud. measure not expressly set out or • The Public Prosecutor usually issues regulated by the Code in order to the search order himself, alternatively prevent “an irreparable and imminent issue can be delegated to the Police damage” (for example, an order (i.e. it does not require an order from preventing a third party from disposing the court). of goods). • It is possible for evidence obtained in • If a fraud has been committed both criminal proceedings to be released to criminal and civil proceedings may be the judge in the civil proceedings issued. If a party has suffered loss provided that the claimant has because of a fraud, he has a right to produced evidence of his right (“fumus decide whether to bring civil proceedings boni iuris”) and evidence of the to obtain compensation or to enter damage which will result from any into criminal proceedings and to ask delay (“periculum in mora”). for compensation before the Criminal Court. The criminal prosecutors face Tracing orders fewer limits on their powers to obtain • It is not possible, in general terms, to evidence. If a report to the police make a claim against a party who has authority and/or the Public Prosecutor received property belonging to the is produced and criminal proceedings claimant, but who is not directly are instituted, this evidence can then involved in the fraud. be used in the civil proceedings. This • It is a criminal offence to buy goods transfer process may, however, increase when the purchaser reasonably the cost of and delay proceedings. suspects that the goods are proceeds • The violation of or non-compliance of a fraud (even if the purchaser is not with, any of the orders mentioned involved in the fraud). above is a criminal offence if • It is possible to request the judge to committed with intentional freeze assets in civil proceedings where will (“dolus”). the origin of property is in doubt, until the court has determined the ownership of the property and that no fraud is involved. • A claimant can also apply to have a disposal of assets set aside where the disposal has decreased the possibility of the claimant obtaining compensation for the fraud.

Fighting Fraud: 21 obtaining searching, freezing & tracing orders 2003 The Netherlands

Freezing orders as a result of contracts in existence • Available in both civil and criminal at time the order was made. proceedings usually before proceedings • It is unclear under Dutch law whether are issued but also after proceedings a claimant can freeze assets out of have been issued or judgment given. the jurisdiction. • If a freezing order is obtained before • A claimant does not have any proceedings are issued proceedings proprietary rights over frozen assets. must be commenced within 14 days. • The order will exempt assets which are • Usually made without notice to ensure necessary to enable the defendant to the element of surprise. provide for his living and expenses but • To obtain a freezing order the claimant this exemption does not cover legal fees. must file a petition with the President • The claimant does not have to give an of the Court. The petition undertaking to the court to pay any should include: damages that the defendant (or any - the name of the petitioner and the other party) may sustain as a result of name of the defendant; the order unless the court attaches -a clear description of the grounds such a condition (this is rare). However, upon which the request is based; in the event that the claimant is found - the nature of the assets to be frozen. liable, for example if the court finds If the freezing order is in relation to that he did not have a good claim, he real property or moveable property must pay damages to the defendant. it is necessary to state that there is This involves the defendant filing a real risk of dissipation of the a counterclaim. assets if the order is not granted. It • If the claimant becomes aware that is not necessary to provide evidence the defendant has acquired further of that risk. assets not sequestered under the • The application does not have to be order, a new order may be applied for. supported by evidence. If made, this is as an additional order • Written notice of the freezing order rather than an amendment to the must be given to the defendant and original order. to any third parties affected by the • An order binds third parties holding order, within a number of days after the defendant’s frozen assets (for the arrests have been placed. example banks where the defendant • An order only freezes those assets has an account). identified by the President of the Court • In civil proceedings the defendant is which can include: not required to disclose any further - assets legally and beneficially assets to the claimant which are not owned by the defendant; specified in the order. In some criminal - assets available as at the date the proceedings the defendant may be order was made and/or which will required to provide information as to come into the defendant’s hands his assets.

Fighting Fraud: obtaining searching, freezing & tracing orders 22 2003 • It is a criminal offence punishable by a has been purchased with the money fine or up to 4 years’ imprisonment not from the fraud. to comply with a freezing order. These • It is possible, but very difficult, to penalties equally apply to third parties pierce the corporate veil in civil bound by the order. In addition the proceedings. In criminal proceedings claimant can seek compensation from the District Attorney has a number of the defendant or a third party who special provisions to pierce the has failed to comply with the order. corporate veil. In these circumstances, persons within a company or persons Search orders outside the company but who control • Only available in criminal proceedings. those who committed the crime may • The District Attorney has the discretion be regarded as the perpetrators. whether to apply for a search order. Such an order can only be obtained General from the court. • “Gagging orders” have been available • Evidence obtained as a result of a since 1 January 2002. The petitioner files search order in criminal proceedings a request with the court that handles or can be released to the judge in civil has handled the case. proceedings. The evidence can also be released to the claimant if the claimant notifies the district attorney that he is a victim of the defendant’s actions and is then regarded by the district attorney a victim.

Tracing orders • In civil proceedings it is possible to pursue a claim (“revindication”) against a party who has received assets belonging to the claimant but who is not directly involved in the fraud. It is possible to pursue an asset even though it has been purchased by a third party unless the third party acquired the property for value and in good faith and the property was not registrable (land, aeroplanes, ships are all registrable). • It is not possible either in civil or criminal proceedings to pursue a tracing claim against an asset which

Fighting Fraud: 23 obtaining searching, freezing & tracing orders 2003 Poland

Freezing orders • An order does not provide the claimant if a person has held the moveable • Available in both civil and criminal with any proprietary rights over the asset for three years in good faith. proceedings. The procedure governing defendant's assets. This type of claim may only be made civil and criminal orders is virtually • An order only secures assets specifically when the asset is a tangible one. the same. In civil law they are known identified in the order and up to the Tracing claims cannot be made against as “interim orders”, and are available value of the claim. It would not usually the proceeds of an asset, unless there before civil proceedings are issued in cover assets owned by the defendant has been unjust enrichment. which case proceedings must be filed which are outside the jurisdiction within 2 weeks. In criminal proceedings without an order from the relevant General they are only available after charges foreign Court. • No power to prevent disclosure of any have been filed. • An order does not require the defendant freezing order to the defendant or • Application always made without to disclose information regarding his third parties. notice to the defendant. assets to the claimant. • Third parties who fail to comply with • A claimant must show that he has a • An order can bind third parties, for a freezing order are liable to a fine claim and that a freezing order is example banks holding monies which and/or damages. necessary to enable him to enforce are subject to the freezing order. • There are no pecuniary sanctions any judgment. Order will also freeze monies for non-compliance with a search • An order may be conditional on the subsequently paid into the account. order, although in some cases, non- claimant giving a deposit to secure compliance may constitute a crime. possible claims from the defendant Search orders arising from the freezing order. • Only available in criminal proceedings. • An order must specify the method of • Search is carried out by the Public securing the claim, such as: Prosecutor or the Police and may, in - seizing debts due to the defendant cases of urgency, be conducted without (for example salaries) or an order. Before the search commences other assets; the respondent must be informed of -granting a charge over the the purpose of the search. defendant's property; and -preventing the defendant from Tracing orders selling or encumbering property if • It is possible to make a claim against such property is not registered. a party not directly linked with the • A defendant is not permitted to use fraud but who holds/controls the monies which are frozen to meet his proceeds of the fraud (a proprietary living expenses and/or legal fees. claim similar to that in English law), However, assets which are necessary usually by way of separate proceed- for the defendant's financial survival ings. The claimant must simply show (for example, tools of his trade) are an infringement of ownership (i.e. usually excluded from the order. He is there is no requirement to show also permitted to pay employees' “fault” or “lack of good faith” on the wages from frozen monies, in priority part of the party in possession of the to other claims. asset) – although a defence is available

Fighting Fraud: obtaining searching, freezing & tracing orders 24 2003 Romania

Freezing orders by the Public Prosecutor (prior to • Non-compliance with any criminal or • Available in both civil and criminal proceedings) or the Court vested with civil order is a criminal offence and proceedings only after proceedings the case, and only enforceable by penalties can include imprisonment have been commenced (with the the Police. (up to three years) and/or a fine. Such exception of a landlord's claim for • Only available in serious cases, for penalties can be imposed against third recovery of rent). example the enforcement of an parties bound by the order. • Generally obtained without notice to imprisonment warrant or a Court the defendant except for a “judicial decision, to prevent danger to a freezing order”, this being an order person’s life, physical integrity or obtained by the parties to litigation estate and to protect national security (or their creditors) over the goods or public order etc. forming the subject of the litigation. • In certain civil cases a judge has a • A claimant must show the existence power to search a relevant site in of a claim and a risk of dissipation of order to gain a clearer overview of the assets if the order is not granted. case, in this situation prior notice • A claimant must identify as precisely as must be given to the parties so that possible the assets which are to be they can be present. frozen; he may also ask the court to order public authorities or the defendant Tracing orders to disclose details of further assets. • A claimant can pursue proceedings • An order does not cover assets necessary against a third party who has received for the defendant and his family to property belonging to the claimant and earn a living. If the defendant is a who is not directly involved in the fraud. corporate entity all its assets are frozen. • A third party purchaser of goods • A defendant is permitted to use his cannot raise a defence that he has own money to pay living expenses acquired the property in good faith if and/or legal fees. the property was fraudulently obtained • A claimant does not obtain proprietary by the seller. rights over the frozen assets; usually • The claim can only be to recover the at the end of the proceedings the direct proceeds of the fraud and not assets are sold by auction. assets purchased with such proceeds. • A special type of order can be obtained Such assets can, however, be subject which freezes the defendant’s bank to special seizure or freezing orders. accounts in which case a third party • It is often possible to obtain an order (the bank) may be obliged to pay the against not only a company but its debt (i.e. monies in the account) members and directors, ie to pierce direct to the claimant. the corporate veil.

Search orders General • Only available in criminal proceedings • “Gagging orders” are not in the form of search warrants issued generally possible.

Fighting Fraud: 25 obtaining searching, freezing & tracing orders 2003 Russia

Freezing orders • Attachment does not entitle the • Available in both civil and criminal claimant to realise the value of the proceedings until judgment is rendered. assets by way of sale. Realisation will • May be obtained prior to the issue of be by way of a sale at public auction court proceedings, though it will following a full trial. require the deposit with the court of • Disclosure not ordered as part of the the equivalent amount of the sum award of a preliminary injunction. which is being requested to be “frozen”. • Order will bind third parties. • In civil cases can be used for payment, • Relief available preventing or restricting proprietary and repossession claims. sale or disposal of assets by the proposed • A claimant must show the existence of defendant or a third party in possession. the claim and must demonstrate that his chances to enforce the judgment Search orders (to recover the debt) will diminish • In civil proceedings, search orders can significantly if the order is not granted only be obtained for the purpose of or the judgment against the defendant enforcing a final judgment or a could not be satisfied without the preliminary injunction. freezing order. • A court may require information from • An order does not cover certain assets any third parties (including of individual defendants and their governmental authorities) for the families necessary to earn a living. All purposes of identifying assets prior assets of a legal entity may be frozen to issuing a preliminary injunction or including tangible, intangible, movable after final judgment. or immovable property and assets • In criminal proceedings the searching located abroad. Note, however, the lack of residential premises requires a court of international treaties dealing with the order, to conduct the search in other mutual recognition of court awards. premises the decision of an authorised • Defendant’s bank accounts and investigator is enough. Evidence securities may be garnished. obtained from a search in criminal • Orders are obtained without notice to proceedings may be used in adjacent the proposed defendant based on civil proceedings. claimant’s motion. Such motions generally are considered by the court Tracing orders within one day after the filing. • In both civil and criminal proceedings, • A claimant will be liable for any a court order will be effective to trace damages caused by the order to the assets in the hands of third parties. defendant and third parties if the judgment is not in his favour. Disclosure • May entitle the claimant to have all • Available in civil proceedings. assets of which it is aware attached by • Each party presents its own evidence to a further court order. support its case at trial. At the court’s

Fighting Fraud: obtaining searching, freezing & tracing orders 26 2003 discretion, a party may be required to give oral testimony at trial.

General • During criminal proceedings, an application for civil proceedings may be lodged and the two proceedings can run concurrently. Moreover, during/after the criminal proceedings the Public Prosecutor can be required to hand over any evidence necessary for the civil proceedings. • Company information can be obtained from the Unified State Register of Legal Entities: for example, address, registration number and place of registration. • Property information is also available from the Unified State Register of Immovable Property and Transactions with Immovable Property: for example, the identity of the owner of a particular item of immovable property (including land and buildings), whether there are any outstanding security interests over the same and a transaction history. • Information obtained illegally is not admissible. • Information held by advocates is confidential. • Individuals are not required to provide any evidence which would incriminate themselves. • Spouses and close family may also refuse to give evidence.

Fighting Fraud: 27 obtaining searching, freezing & tracing orders 2003 Scotland

Freezing orders premises, and the person who was • A pursuer (claimant) in an action for a believed to hold the items and/or payment can seek a freezing order documents in question must be given either in the form of an “arrestment in the application for the order. on the dependence” or an “inhibition on the dependence”. Criminal proceedings • An arrestment on the dependence can • Section 10 Law Reform (Miscellaneous be easily obtained with little risk to Provisions) Act 1968 - subsisting criminal the pursuer if good cause can be convictions will be admissible in civil shown. It effectively “freezes” those proceedings where it is necessary to of the defender’s moveable assets prove their existence. (both money and other items) which • It is possible to ask the Court to have are, in the hands of third parties on civil proceedings sisted (frozen) if there whom the order is served who are are criminal proceedings relating to subject to the jurisdiction of the the same circumstances. Scottish courts and have a duty to • An order under Section 1 of the account to the defender. Administration of Justice (Scotland) • The arrestment operates as valid Act 1972 must not be served at the security for the sum sued for, the same time as a search warrant granted interest craved thereon and the in the course of a criminal investigation. expenses of the action. • An inhibition on the dependence can Disclosure be sought to prevent the defender • It is possible to obtain disclosure of from dealing with his heritable (real) documents in the hands of a potential property to the pursuer’s prejudice opponent or a third party prior to pending the disposal of an action. For raising proceedings, by applying for an example, an inhibition will prevent the order under the Administration of Justice defender from selling his real estate (Scotland) Act 1972 (either before or without the consent of the pursuer. after commencement of the action). • Under such an order, the court may Search orders order the inspection, photographing, • An order under Section 1 of the sampling, preservation, custody and Administration of Justice (Scotland) detention of documents and other Act 1972 may permit a Commissioner property (including land). appointed by the Court to enter • The Court may order any person to premises for the purposes of preserving, disclose information regarding the copying and removing specified items identity of any person who might be a and documents or categories of items witness in civil proceedings. which are reasonably required in • Before making an order, the Court must connection with intended or ongoing be satisfied that the applicant is already civil litigation. The address of the able to state a prima facie case.

Fighting Fraud: obtaining searching, freezing & tracing orders 28 2003 • The application may be granted in the only in very exceptional circumstances absence of the respondent where the will a general call be allowed. documents (i) are essential to the • Where fraud is an issue, the court applicant’s case and (ii) are at risk of generally admits recovery which may destruction or concealment. clear up what is likely to be obscure • It is open to the court granting the order or hidden. to attach such conditions to it as it sees • Documents and real evidence must be fit. The order will generally be granted lodged in the court at the time when if a prima facie case is stated subject to they are to be founded upon. the applicant giving an undertaking in • Generally, there is no obligation to damages and an undertaking not to use disclose documents to the other party the evidence recovered for purposes or to disclose those which assist the other than the intended litigation. The other party’s case in the absence of a applicant also undertakes to commence court order. the main litigation within a reasonable • There is no rule that the documents period if he decides to litigate. sought to be recovered should be • Recovery of documents (from the other admissible in evidence, but the question party or from third parties) after the of their admissibility may be raised commencement of an action is obtained and decided at proof when a party by way of a commission and diligence seeks to use them as evidence. for recovery of documents. This is allowed in order that the court may General be put in possession of documentary • Solicitor/client communications are evidence bearing upon the issues of privileged. This is superseded only fact which have to be determined. where fraud or some other illegal act • The documents are made available by is alleged against a party and where order upon the “havers”, who are the his legal adviser has been directly possessors of the documents, whether concerned in the carrying out of the party to the cause or not. An additional transaction which is the subject matter procedure allows voluntary compliance of the inquiry. with the order, failing which a • Documents prepared in contemplation commissioner may be appointed with of litigation are generally privileged. authority to require a waiver to appear Contemporaneous accident reports before him and to bring with him all and eyewitness accounts do not fall relevant documents in his possession. within the scope of this privilege and • The Court will not grant authority for are generally discloseable. the recovery of any document sought • Searches of information filed at unless it can be demonstrated that the Companies House, the Land Register, document has some relevance to the the Register of Sasines, the Books depending case. The court will not of Council and Session and the allow a “fishing expedition”. Personal Register are easily • The call for documents must specify the obtained at low cost. document or group of documents and

Fighting Fraud: 29 obtaining searching, freezing & tracing orders 2003 Spain

Freezing orders obtained by fraud, provided that the • Available in civil and criminal owner did not purchase them in good proceedings. faith, in which case he will be protected. • The magistrate may order the retention Similarly, assets obtained with of the defendant’s assets during the trial, fraudulently obtained money may be to safeguard the efficacy of a future the subject of an action, if the buyer judgment. In civil proceedings, a petition knew that the money was obtained from the claimant is necessary, and the by fraud. judge may not issue a freezing order that is more draconian than the one Disclosure requested. In criminal proceedings, no • In civil proceedings any party may petition is necessary. request disclosure from a non-party. • The subject of the order may retain his The judge will make an order for necessary clothing, furniture, books, tools disclosure if it appears relevant to his needed for his work, food, and money decision. The judge may also require needed for his and his family’s livelihood. the non-parties to give oral evidence There is a scale determining how much of about the information they hold in the defendant’s salary may be retained. order for the court to decide whether • The claimant has a preferential right disclosure is necessary. to the assets retained by the court, • The claimant may request the defendant except when a judgment establishes to disclose any documents which form that a third party has a prior right. part of the basis of his claim. If the Other creditors may proceed against defendant does not comply with the the remaining assets when the claimant request, the claimant may apply for an has been paid off. order of the court, giving reasons why the disclosure is necessary. The defendant Search orders has a similar right in a counterclaim. • Not available in civil proceedings. • In criminal proceedings any person can • Criminal proceedings: if necessary, be required to disclose documents which the examining magistrate may make the examining magistrate considers are an order allowing entry into private important for the case. The magistrate domiciles and the requisitioning of may order the disclosure of private private correspondence if necessary. correspondence and other documents; The magistrate will require very strong the fundamental right to privacy will justification for the request before be overridden when he considers that making an order which breaches an the information is absolutely necessary individual’s right to privacy. to give judgment. • Each party must produce all the Tracing orders documents and other evidence which • An action may be brought against the support its case. These documents are current owner of assets which were filed with the court when the parties

Fighting Fraud: obtaining searching, freezing & tracing orders 30 2003 file their claim or defence; the general disclosure is the only possible way for practice of exchange with the other side the magistrate to reach a decision. of all the documents on which a party • Information obtained illegally is intends to rely is not part of Spanish generally void and not admissible. procedure. However, each party may request from any of the other parties the disclosure of documents which are important to the case. If this is refused, and the party urgently needs to see a document held by the other side before the trial begins, he may request an injunction from the court. • If a party is unable to bring a document to the court, the party must indicate where the evidence is situated, and the judge will require it to be produced by resolution of the court.

General • The Land Register and Companies Register are public, and anyone with a legitimate interest may obtain warrants of their entries. The Land Register contains details of the ownership of land, mortgages and so on, while the Mercantile (Companies) Register has information on a company’s constitution, date of incorporation and management. • A defendant has the right not to say anything that would incriminate himself. • There are lower punishments for persons who do not co-operate with the prosecution of a crime if they are protecting their close relatives. • Information held by banks and lawyers in relation to their clients is confidential, and the court will only override the duty to protect important legal rights, and when

Fighting Fraud: 31 obtaining searching, freezing & tracing orders 2003 Switzerland

Freezing orders or on a recognition of debt. • Available in both civil and criminal There is no clear definition of proceedings. “sufficient connection with • Can be obtained at any time including Switzerland” which is a question before proceedings are commenced, of fact in each case. The mere but in civil cases proceedings must be fact that the defendant owns instituted within 10 days of service of property in Switzerland, however, the freezing order. The usual time would not be sufficient; and period between filing a request for a (e) the creditor holds a provisional freezing order and the order being or definitive certificate of obtained is 1-2 days. shortfall against the debtor. • Is always obtained without notice to - the existence of assets owned by the proposed defendant. It is then the defendant which are within the served on the defendant. jurisdiction. Details of the assets • To obtain an order the claimant must be specified in the order. must show: • The following assets can be frozen: - the existence of a claim; - assets legally owned by the defendant; - one of the following circumstances - assets belonging beneficially to the (pursuant to Article 271 of the defendant but which are held by a Swiss Debt Enforcement and third party, in which case the Bankruptcy Law): defendant’s right as against the (a) the defendant has no fixed third party is frozen; domicile in Switzerland; - only assets within the jurisdiction. (b) the defendant is concealing his • Following the making of the order the assets, absconding or making defendant can appeal against the order preparations to abscond so to “de-block” certain assets which he as to evade fulfilment of requires to cover his living expenses his obligations; and/or to carry out his trade. Assets (c) the defendant is passing cannot, however, be released to meet through or belongs to the the defendant’s legal expenses. category of persons who visits • The order does not provide the claimant fairs and markets, for claims with any proprietary rights over the which by their nature must be defendant's assets. If, however, the fulfilled at once; claimant succeeds in enforcement (d) the defendant is not domiciled proceedings, the assets are publicly in Switzerland, and none of the sold by the debt collection office and other grounds for a freezing the proceeds used to satisfy the order is fulfilled, provided the claimant's judgment. claim has a sufficient connection • The defendant is not required to disclose with Switzerland or is based on any further assets to the claimant which an enforceable court judgment are not specified in the order.

Fighting Fraud: obtaining searching, freezing & tracing orders 32 2003 • Third parties served with the order to disclose the order’s existence to must provide precise information on the defendant. the existence and extent of the assets • Penalties for non-compliance with belonging to the defendant and held freezing orders include imprisonment by them, provided that the claimant and/or fines. This extends to third has established the existence and parties served with freezing orders. location of the assets. It is sufficient if • Medical doctors, lawyers and clergymen the claimant indicates the main domicile in a “confidential relationship” are not of a bank which he believes is holding obliged to disclose information and are the defendant's funds. The bank has under strict secrecy obligations which to indicate if the defendant has a bank will be lifted by the supervisory authority account with a branch of the bank, if in exceptional circumstances only. served with the order. In practice banks only provide such information over the telephone.

Search orders • Only available in criminal proceedings upon application to the District Attorney.

Tracing orders • No such orders available in civil proceedings. • In criminal proceedings, the District Attorney can freeze assets which were purchased with the proceeds of fraud or other criminal activity. This is the case even if the assets are owned by a third party unless the third party acquired the asset in good faith and for value or if the freezing of the asset would constitute an undue hardship on the third party. • In certain circumstances, such frozen assets can be used to satisfy the claims of the victims of the fraud.

General • In criminal matters the District Attorney frequently orders a bank or third party served with an order not

Fighting Fraud: 33 obtaining searching, freezing & tracing orders 2003 United States (New York)

The summary below reflects the position Court or any other Court that in relation to New York law only as each is recognised in New York state has its own procedure and laws. - the claim exceeds any known counterclaims by the defendant Freezing orders against the claimant. • Available in civil and criminal • Preliminary attachment orders are proceedings (known as usually made without notice. However, “provisional remedies”). in order to make the attachment order • Order of attachment enables a permanent notice must be given within claimant to seize the defendant’s a prescribed time so that the order can property. Court directs the sheriff to be confirmed by the Court. If the order take constructive (sometimes actual) is based on grounds (i) – (iv) the order possession of the property. Can be must be confirmed within 10 days of granted prior to proceedings the order being levied by the Sheriff. If being commenced. not based on one of these grounds the • To obtain attachment order the order must be confirmed within 5 days. claimant must show: Failure to comply with these time limits - an underlying cause of action; renders the order void. - it is probable that the claimant will • An attachment order must be directed succeed on the merits of its case; to the Sheriff of any County, or the - one or more grounds for attachment City of New York, where any property exist. The grounds are as follows: in which the defendant has an interest (i) the defendant is not domiciled is located. It is also possible in some within the State or is a foreign cases to obtain a general order freezing corporation not qualified to do all assets up to a certain value, although business in the State; such orders are rare. (ii) the defendant resides or is • A sheriff serves the attachment order domiciled in the State and on the holder of the property (includes cannot be personally served third parties holding assets to which despite diligent efforts to do so; the defendant is entitled e.g. garnishees) (iii) the defendant, with intent to this prevents the third party from defraud his creditors or frustrate disposing of the defendant’s property the enforcement of a judgment until further order. that might be made in the • Preliminary injunctions and temporary claimant’s favour, has assigned, restraining orders are also available in disposed of, encumbered or both criminal and civil matters, only secreted the property, or removed after proceedings have commenced it from the State or is about to (although may be obtained at the do so; commencement of the proceedings). (iv) the cause of action is based on • A claimant must give an undertaking in a judgment or order of a U.S. damages in relation to a preliminary

Fighting Fraud: obtaining searching, freezing & tracing orders 34 2003 injunction, in a sum fixed by the Court. • Normally, there is no requirement on a This must usually be supported by a defendant to disclose further assets. In bond (also applies to attachment orders). exceptional circumstances the • A preliminary injunction may be claimant can obtain such an order granted where it appears that the where proceedings are already on foot. defendant is threatening, or is about to carry out an act in violation of, the Search orders claimant’s rights in relation to the • Only available in civil proceedings in subject matter of the action, so as to exceptional cases – not generally used. make it likely that any judgment will • In criminal proceedings searches of not be satisfied. property and documents are conducted • A preliminary injunction can only be by the prosecutor’s office and the obtained on notice to the defendant. police. In order to obtain a search • A temporary restraining order may be order, a prosecutor must show that granted pending a hearing for a there exists probable cause that the preliminary injunction when it appears police will find relevant evidence to a that immediate and irreparable injury, crime within the specified premises. loss or damage will result unless the • The prosecutor may also obtain records, defendant is restrained before the documents or other evidence from hearing can be held. By its nature it third parties that are relevant to the may be granted without notice to criminal investigation. the defendant. • New York law recognises the concept • An attachment order does not attach of constructive trusts. to funds held in trust for the defendant • Material obtained will first be used in where the trust was created by, or the any criminal proceedings, and in some funds emanated from, someone other cases civil proceedings will be stayed than the defendant. Also exempt from pending the outcome of the parallel the order is 90% of a defendant’s criminal proceedings. income earned within sixty days of, or any time after, the attachment order is Tracing orders delivered to the Sheriff. • It is possible for the claimant to bring a • A claimant does not acquire any rights claim against a person who has received © CMS Legal Services EEIG (2003) over the defendant’s assets until property from the fraudster if the judgment has been obtained. The transferee has reason to know that the judgment may then be satisfied out of transfer was made for the purpose of the attached assets. frustrating the transferor’s creditors. • An attachment order can theoretically • It is possible to trace the proceeds of apply to assets outside the US. In fraud into assets purchased with such relation to other US jurisdictions the proceeds, following judgment. claimant must file the order in a Court where the property is located so that General the Sheriff in that jurisdiction can • It can be contempt of Court to refuse enforce the order. to comply with any order.

Fighting Fraud: 35 obtaining searching, freezing & tracing orders 2003 CMS is a major transnational legal and tax services organisation with 1,800 lawyers and a total staff in excess of 3,500. CMS has been created to offer clients seamless services across Europe and is the vehicle to full integration of member firms. The members of CMS are:

CMS Adonnino Ascoli en Cavasola Scamoni CMS Bureau Francis Lefebvre CMS Cameron McKenna CMS Derks Star Busmann CMS von Erlach Klainguti Stettler Wille CMS Hasche Sigle CMS Lexcelis CMS Strommer Reich-Rohrwig Karasek Hainz

CMS offices and associated offices Beunos Aires, Casablanca, Chemnitz, Stuttgart, Toronto, Warsaw and worldwide: Berlin, Brussels, London, Dresden, Düsseldorf, Frankfurt, Hamburg, Washington DC. Paris, Rome, Utrecht, Vienna, Zürich, Hilversum, Hong Kong, Leipzig, Lyon, Aberdeen, Amsterdam, Arnhem, Madrid, Milan, Montevideo, Moscow, Belgrade, Bristol, Bucharest, Budapest, Munich, New York, Prague, Rio de Janeiro,

www.cmslegal.com