ICC FraudNet

Global Annual Report 2023

FRAUD AND ASSET

RECOVERY IN AN
UNSTABLE WORLD

EDITED BY
DR DOMINIC THOMAS-JAMES
 ICC FraudNet Global Annual Report 2023
Published by ICC FraudNet in 2023 on www.iccfraudnet.org

© 2023 ICC FraudNet, ICC Commercial Crime Services,

Cinnabar Wharf, 26 Wapping High Street, London, E1W 1NH,
United Kingdom

All rights reserved. No part of this publication may be

reproduced, distributed, or otherwise transmitted in any form
or by any means without the prior written permission of ICC
FraudNet, except in the case of brief quotations embodied in
promotional materials or critical reviews. Permissions can be
sought, in writing, from above address.

The ICC FraudNet Global Annual Report 2023 is made up of

individually-authored articles. The views expressed in these
articles do not represent the views of ICC FraudNet, ICC
Commercial Crime Services, the International Chamber of
Commerce, or the Editor, and are the individual author’s own
views.

iccfraudnet.org
 ABOUT ICC
FRAUDNET
ICC FraudNet is an international network of independent lawyers
who are the leading civil asset recovery specialists in each
country. Using sophisticated investigation and forensic tools and
cutting-edge civil procedures, FraudNet members have
recovered billions of dollars for victims of some of the world’s
largest and most sophisticated global frauds involving
insurance, commodities, banking, grand corruption and
bankruptcy/insolvency. FraudNet was founded in 2004 and
operates under the auspices of the Commercial Crime Services
of the International Chambers of Commerce (ICC) – a Paris-
based world business organization with offices in 90 countries.

ICC Commercial Crime Services

ICC FraudNet
Cinnabar Wharf
26 Wapping High Street
London, E1W 1NG
United Kingdom

Phone: +44 (0)20 7423 6960

Email: [email protected]
www.iccfraudnet.org
www.icc-ccs.org

iccfraudnet.org
Acknowledgments

The Editor wishes to acknowledge the following people who have been of
instrumental assistance and valued support in the publication of the third ICC
FraudNet Global Annual Report. Peter Lowe, Executive Secretary of ICC FraudNet,
has provided, as usual, steadfast support and ongoing enthusiasm for this initiative.
His guidance has been most valued throughout this publication. ICC FraudNet’s Co-
Executive Directors, Kate McMahon and Rodrigo Callejas, have given considerable
support during the preparation of this report. The authors of the 2023 are owed
significant thanks, for it is their thought leadership and expertise which shines
through the papers contained in this compendium and makes this publication the
true research and practical resource that it is. Indeed, many FraudNet members have
worked with co-authors in the writing of their papers, which has contributed greatly
to the quality of the insights provided. FraudNet’s Members and Strategic Partners
have contributed en masse, and the turnout of such relevant and topical papers in
this publication is nothing short of impressive. As a practitioner and academic,
working closely with such a group of practitioners in the compilation of this
publication has been a privilege. The Editor also wishes to acknowledge the
assistance received by Members’ and Strategic Partners’ colleagues and staff. Their
support of the authors during the editorial process has been of great assistance to
the editorial team. Thanks also to Priya Jethwa, FraudNet’s Director of Marketing and
Communications, for her promotional efforts – ensuring that this Report has
meaningful global reach within and beyond ICC FraudNet’s network. Gratitude also
goes to all ICC Commercial Crime Services and FraudNet staff for their ongoing
support in making this publication possible.
Executive Kate McMahon &
Rodrigo Callejas
Directors’
Foreword June 2023

Kate McMahon Rodrigo Callejas

Greetings readers,
It gives us great pleasure to present the ICC FraudNet Third Global Annual
Report. This report serves as a reminder that fraud and commercial crime
continues to be a significant and growing threat in today's business
landscape. It also highlights the invaluable work that ICC FraudNet is doing
around the world to combat this issue.

ICC FraudNet is a global network of lawyers and strategic partners, based

across 75 jurisdictions, who all specialise in fraud and asset recovery. Our
members are experts in identifying and resolving complex fraud cases that
span borders and jurisdictions. The network is a key player in the fight against
fraud and has made great strides in recovering stolen assets and holding
fraudsters accountable.

This year's report provides a comprehensive overview of the activities and

achievements of ICC FraudNet during the past year. It showcases the
network's accomplishments in key areas such as education, prevention, and
recovery. It also highlights some of the challenges faced by the network in its
efforts to combat fraud, including the rise of new and emerging technologies
that have given fraudsters new avenues to carry out their crimes.
As the Co-Executive Directors of ICC FraudNet, we are proud of what our network
has accomplished in the past year. Our network has worked hard to educate
businesses and individuals about the risks of fraud and empower them to protect
themselves. We have also successfully recovered millions of dollars in lost assets for
victims of fraud around the world. Further, as the demand for specialised
practitioners continues to grow globally, we have incorporated future generations of
specialist lawyers into our network, through the ICC FraudNet Future initiative, which
looks to continue developing our network that next year will celebrate its 20th
anniversary!

We would like to thank all of our members for their dedication and hard work this
past year. We would also like to express our gratitude to our strategic partners and
supporters for their continued support of our mission.

We invite you to read this year's report and learn more about ICC FraudNet's efforts
to combat fraud and protect businesses and individuals around the world. Together,
we can make a difference in the fight against fraud.

Sincerely,
Kate McMahon and Rodrigo Callejas
Co-Executive Directors, ICC FraudNet
Editor’s Dr Dominic Thomas-James

Summary
June 2023

Dr Dominic Thomas-James

The third edition of the ICC FraudNet Global Annual Report takes as its theme “Fraud
and Asset Recovery in an Unstable World”. The first and second Global Annual
Reports (2021, 2022) were published during unprecedented times – both at the
relative outset, and height, of the global Covid-19 health pandemic which has now, at
the point of publication, been downgraded as such by the WHO. Yet, the global
backdrop to the third annual Report is still beset by conflict, political instability and
sustained economic uncertainty around the world. Underpinning this landscape is
the sinister reality that fraud and associated acquisitive misconducts continue to
thrive. The UK government, as an example, published in May 2023 its “Fraud
Strategy” taking aim at reducing fraud by 10% on 2019 levels, by 2025. Indeed, at the
time of writing legislation is currently making its way through the UK Parliament to
create a corporate failure to prevent fraud offence. While fraud appears to be, if at
least ostensibly, at the forefront of government agendas – the fact remains that
fraud is complex, multifaceted, and even nebulous. With sustained uncertainty, one
thing is certain: fraud continues to be the crime we are most likely to fall victim to,
thereby making the 2023 ICC FraudNet Global Annual Report of timely importance.

The 2023 Report comprises original articles by FraudNet’s unparalleled global

network of leading fraud and asset recovery lawyers, strategic partners, and
associated collaborators from the investigative, consulting, advisory and academic
worlds. The papers herein represent a unique contribution of knowledge to
increasingly pertinent issues that continue to be at the forefront of international
agendas. Displaying the network’s leading practices in the areas of fraud, asset
recovery, insolvency, and investigations – the contributions exhibit expert insight
from the authors’ respective jurisdictions and practices.
The 2023 Report, building on the success of the first two editions, comprises 28
original articles authored by 52 contributors, from some 20 jurisdictions. Many of the
network have been involved in some of the most high-profile and complex asset
recovery cases, and their experience makes for highly interesting and instructive
reading. Papers share experiences from all corners of the world, including the
following jurisdictions: UK, USA, Ireland, Guernsey, Malta, Hungary, Spain, Poland,
Guatemala, Panama, Argentina, the Cayman Islands, the British Virgin Islands,
Ghana, South Africa, Singapore, Malaysia, India, Luxembourg, and Japan.

Against the aforesaid backdrop, the Report addresses a wide range of important and
timely topics in the fraud and asset recovery space. For example, in the Members
Insight section, the Report includes analysis on issues including new legislative
developments in fraud and asset recovery cases in the US; proceeds of crime laws in
Ghana; cyber-crime case reviews from Argentina; freezing orders in South Africa;
fraud litigation in Malaysia; asset recovery in Panama; virtual-asset regulation in
Poland; and crypto-related enforcement and awards in Spain.

Elsewhere in the Report, we see discussions and insights from FraudNet’s Strategic
Partners, as well as insights from academics and associated collaborators. Such
discussions include the difference between evidence and intelligence in
investigations; asset recovery tools in Ireland; civil recovery mechanisms such as
Unexplained Wealth Orders in the UK; an analysis of the proposed corporate failure
to prevent fraud offence; and developments in the psychology of fraud.

With a work of this kind, it is not possible to capture commentary on every possible
issue of pertinence within our field; but rather the discussions in the papers reflect a
wide range of interest areas, respective practices and perspectives of the
distinguished authors. In deference to their various professional and academic
disciplines, as well as differences in citation methods between jurisdictions, the
editorial team has not attempted to impose a single style or form of citation.

These articles aim to provide informative, practically-relevant and instructive insights

and therefore be of use to the wider FraudNet and International Chamber of
Commerce network, Strategic Partners, professional collaborators and colleagues,
existing and future clients, and those with a practical, policy or academic interest in
these issues. At a time of increased global uncertainty, in order to advance integrity
in our societies and systems, and to disrupt fraud and financial crime and repatriate
ill-gotten gains, it has never been more important for practitioners and experts at the
coalface to contribute their expertise, knowledge and thoughts to the debate. It is
only with greater understanding of best practices and individual experiences, that
solutions can be shaped, and responses be developed. In this sense, ICC FraudNet’s
unparalleled international reach exhibits the utility of meaningful cooperation and
collaboration. When fraud is increasingly transnational in nature, this is not only
valuable, but essential.

Dr Dominic Thomas-James
Editor
ICC FraudNet Global Annual Report 2023
Contents

About ICC FraudNet i

Acknowledgments ii

Executive Directors’ Foreword iii

Kate McMahon and Rodrigo Callejas

Editor’s Summary v
Dr Dominic Thomas-James

Authors ix

MEMBER INSIGHTS

The Price of Ice – Cross Undertakings In Damages In Mareva 1

Injunctions
Colette Wilkins KC, Nick Dunne

Dealing with the Proceeds of Crime in Ghana – Finding The Balance 6

Between Unjust Enrichment And The Enforcement Of Illegal
Contracts
Bobby Banson

Chapter 15 and 28 U.S.C. § 1782: New Developments and Uses in 19

Fraud and Asset Recovery cases
Edward H. Davis, Jr., Arnold B. Lacayo, Alejandro Rodriguez Vanzetti

Sony Insurance $150m Fraud Case – Successful International 27

Cooperation to Seize Embezzled Funds Converted to Bitcoin
Hiroyuki Kanae, Hidetaka Miyake

Argentine Leading Cases in Cyber Crime: First conviction for 33

computer fraud in Ciudad Autónoma de Buenos Aires
Justo Lo Prete, Lucía Filipelli Colletto

Friend or Foe – The Regulator as an Ally? 39

John Greenfield, David Jones, Robin Gis
Role of Arbitration and Mediation in Insolvency 46
Shreyas Jayasimha, Punthi Shah and Tushar Tyagi

Freezing Orders in South Africa – Challenges and Opportunities A 60

Recent Case Study
John Oxenham, Michael-James Currie, Jemma Muller, Tyla Lee
Coertzen

ICSID Award Enforcement Risk: Lessons from the Tethyan Saga 67

Martin Kenney

Are Banks Liable for “Ponzi Schemes”? 74

Gabor Damjanovic, Reka Bali

Serious Fraud Litigation in Malaysia – Trends and Relief 80

Lee Shih, Nathalie Ker

Can the EU Commission’s AML Action Plan Reduce Cross-Border 85

Financial Crime within EU Member States?
Diane Bugeja, Peter Mizzi

Asset Recovery in Panamanian Jurisdiction: Considerations 96

Regarding the Paulian Action
Donald Andersson Sáez Samaniego

New AML Regulations on Crypto Assets in Poland 101

Joanna Bogdańska

Metaverse Disputes – Navigating Jurisdictional Issues in the 106

Metaverse
Danny Ong, Jason Teo, Stanley Tan

What About Volatility? Enforcement Of Crypto-Related Decisions 114

in Spain
Héctor Sbert

U.S. Fraudulent Transfer Law: Legal Issues and Practical 122

Considerations
Joe Wielebinski, Matthias Kleinsasser

How the UK Courts are Seeking to Police the Cryptocurrency ‘Wild 135
West’ with Novel Orders
Kate McMahon, Jack Walsh
STRATEGIC PARTNER INSIGHTS

Asset Recovery as a Tool to Combat Investment Fraud – a view from 142

Ireland
Barry Robinson

Unexplained Wealth Orders in the UK – 2022 150

Andrew Moran KC, Wilson Leung

Blockchain Analysis: A Powerful Early Warning System for Crypto 163

Insolvencies
Sean Anderson, Eleanor Warnick

Intelligence vs. Evidence: From the Perspective of An Investigative Firm 169

DC Page

KYC for Investigators in Polarized Times – Your Client’s Client’s Client 172
Craig Heschuk, Calvin Chrustie

Unpacking the Complexities of Third-Party Liability Claims for Aiding 178

and Abetting Fraud
Christopher N. Camponovo, Kirt W. Gallatin

Crypto Regulation in Offshore Financial Centres – How Much is Enough? 185

James Pomeroy

ACADEMIC AND RESEARCH INSIGHT

Another Corporate “Failure to Prevent” Offence: Fraud 190

Dr Dominic Thomas-James

Innovations and Strategic Applications in the Psychology of Fraud 196

Alexander Stein Ph.D.

The Boundaries of Arbitration Exclusion in the EAPO Regulation 218

Dr Carlos Santaló Goris

Strategic Partners 227

Contact ICC FraudNet 228

AUTHORS

SEAN ANDERSON | Mintz Group

Sean Anderson is a director at the Mintz Group, heads the Mexico City office and
works closely with the Mintz Group’s Washington D.C. office. He works in our Latin
American practice and has experience conducting complex litigation, integrity due
diligence and asset tracing investigations. Sean has conducted numerous
investigations throughout Latin America, with a particular emphasis on the
infrastructure, energy and financial services sectors. Recently, he undertook
comprehensive pre-deal investigations into companies in Honduras, Guatemala
and Mexico, which uncovered ties to organized crime, large-scale tax fraud and
money-laundering. Sean has also led internal investigations into contract fraud
and bribery at a large mining company and undisclosed conflicts of interest leading
to multimillion-dollar distressed loans at a multinational financial institution. He
also manages cryptocurrency-related investigations on behalf of clients involved
in multimillion-dollar lawsuits. Sean is fluent in English, Spanish and proficient in
French.

Contact: [email protected]

RÉKA BALI | Forgó Damjanovic & Partners

Réka Bali is an attorney-at-law at Forgó, Damjanovic and Partners Law Firm. She
is specialised in litigation and commercial law. She works on several complex
litigation cases which require comprehensive approach and deep understanding
both of law and practice in the area of commercial relations. She has extensive
experience in fake president fraud cases.

Contact: [email protected]

BOBBY BANSON | Robert Smith Law Group

Bobby Banson is the Founding Partner of Robert Smith Law Group, which is a
boutique law firm located in Central Business District of Accra, Ghana. He heads
the firm’s practice areas focusing on Alternative Dispute Resolution, Investment
Advice and Corporate Governance. He has acted as Counsel in both Domestic and
International Arbitration matters. He has provided legal services to several
multinational Companies doing business across the West African sub region;
particularly in the area of due diligence of prospective investment opportunities.
He has gained experience in wide areas of legal practice including Corporate,
Investment, Real Estate and Dispute Resolution. He was educated at Adisadel

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College, the Kwame Nkrumah University of Science and Technology (KNUST),
Kumasi-Ghana for his Degree in Law (LLB) before proceeding to the Ghana School
of Law in Accra-Ghana for his Professional Qualification in Law (BL) where he
graduated as the best student in Law of Taxation. He has an LLM in International
Business Law from the University of Brussels and a Certificate in Oil & Gas
Contracting as well as a Certificate in Advanced Studies in Arbitration. He also has
a Diploma in Financial Management. He has attended courses at the Harvard
University, as well as the Africa International Legal Awareness (AILA) Conferences.
As a Fellow of the Chartered Institute of Arbitrators (FCIARB), Mr. Banson has
spoken at various conferences organized by CIArb. across the globe and AILA and
participated extensively in SOAS conferences on Arbitration in Africa. He teaches
Civil Procedure at the Ghana School of Law and has several legal articles published
in his name. He is the author of the book “Civil Litigation in the High Court of
Ghana”.

Contact: [email protected]

JOANNA BOGDAŃSKA | KW Kruk and Partners

Joanna Bogdańska is an Attorney at law, and Partner at KW Kruk and Partners

Law Firm, Poland. Joanna provides comprehensive legal advice and represents
clients in the field of broadly understood economic crime, corruption and fraud
leading to exposing business entities to losses. Joanna participates in conducting
audits, including due diligence of business partners, individual transactions and
adopted procedures and solutions in terms of compliance thereof with the law.
Additionally, Joanna specializes in transaction advisory, with particular focus on
mergers and acquisitions. Advises in complex restructuring projects of
companies, including mergers, transformations and divisions.

Contact: [email protected]

DIANE BUGEJA | Camilleri Preziosi Advocates

Diane Bugeja practices primarily in financial services law, financial regulation and
anti-money laundering regulation, providing advice to local and overseas clients
on the impact of the current and forthcoming regulatory regime on their business
models. Diane also advises clients on the regulatory aspects of a wide range of
transactions, including licensing-related matters, capital markets initiatives and
on-going liaison with regulatory authorities more broadly. Diane joined the firm as
an Associate in 2016 and was promoted to Senior Associate in January 2017. She
was previously a risk and regulatory consultant at a Big Four audit firm, working in
Malta and in London, and subsequently joined the enforcement departments of the
UK and Maltese financial services regulators. Diane successfully completed her

x
PhD in Law in 2017 at King’s College London. She is a visiting lecturer at the
University of Malta and is regularly invited to speak at conferences and deliver
seminars on various aspects of financial services law and financial crime.

Contact: [email protected]

CHRISTOPHER N. CAMPONOVO | Drumcliffe Partners

Christopher N. Camponovo is Managing Director at Drumcliffe Partners. Chris has

over 20 years of experience working in government and the private sector. He has
held senior positions at the White House and U.S. State Department. Chris has
spoken, written and published articles on a diverse range of topics, including U.S.
foreign investment treaties, international human rights, and corporate ethics. He
holds a JD from the University of California Los Angeles Law School, and a BA from
UC San Diego.

Contact: [email protected]

CALVIN CHRUSTIE | CRT Critical Risk Team

Calvin Chrustie is a senior partner and critical risk consultant, with a background
in resolving critical risk for governments, corporations, families, and individuals.
He has managed crises, security operations and complex investigations in Europe,
the Middle East, Africa, the Americas, and Asia over the last three decades. Calvin
is a former Royal Canadian Mounted Police senior operations officer and United
Nations veteran. As a former Senior Ops Officer for Transnational Organized Crime
within the RCMP, Calvin led complex international investigations and intelligence
operations throughout the world. Calvin was Team Leader of Canada’s
‘International Negotiators Team’, which specialized in negotiating with terrorist
and transnational organized crime networks relative to kidnaps and extortions. He
has led complex negotiations, representing C-suites, corporations, governments,
and NGOs, navigating armed conflict, community conflicts, terrorists, cyber and
hostage situations. He is a graduate of the FBI’s and Scotland Yard’s Hostage
Negotiation Program. His experience includes working with Indigenous groups and
other community groups. Calvin holds a BA in Justice and Law Enforcement, a
second BA (Honors) in Law, an LLM in Dispute Resolution and Negotiations, and
recently completed Harvard University’s Executive Program for Cyber Security.
Calvin was seconded to the Federal Government for several years to assist in
managing numerous volatile disputes across Canada. This included being
requested to advise and consult on other international intractable conflicts. After
33 years of exemplary service, he received the 2016 ‘International Police
Award’ from the Canadian Association of Police Chiefs for his work in transnational
crime and crisis responses involving terrorist kidnaps. As a founder of the Critical
Risk Team, he has been working with clients and enhancing their awareness of the

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world’s most acute and contemporary threat actors and activities. This includes
building solutions and resilience through integrating expertise, technology, and
global networks to support clients’ needs. This includes focusing on threats and
the changing threat activities clients face currently and in the coming years. He
also possesses a significant international network of associates in the security and
intelligence profession that are often part of the solutions CRT offers clients. He is
currently a Director of the Steering Committee for Project Seshat, an NGO-based
entity focused on building leadership capacity to meet the challenges of global
conflict and its security issues facing Western democracies.

Contact: [email protected]

TYLA LEE COERTZEN | Primerio

Tyla has assisted the Primerio team in various matters and has experience in
matters relating to commercial and competition law, litigation, white-collar crime
and regulatory work. Tyla completed her studies at the University of Pretoria and
the University of the Witwatersrand. In addition to her practice areas, Tyla is a
contributor to Africanantitrust and Africanantifraud and regularly assists the
Primerio team with various advocacy initiatives.

Contact: [email protected]

LUCÍA FILIPELLI COLLETTO | Durrieu Abogados

Lucía Filipelli Colletto graduated as a Lawyer with orientation in Criminal Law and
Criminal Procedure Law in the University of Buenos Aires, and she obtained a
Specialized Program in Criminal Law in the Universidad Torcuato Di Tella,
Argentina. She was assigned as chair assistant of Professional Internship in
Criminal Law class in the UBA. Currently, she is chair assistant in Criminal Law
General Principles subject in the Universidad Nacional de Avellaneda (UNDAV –
Argentina). Moreover, she is member of the Permanent Renewal of Criminal
Doctrine Seminary in the University of Salvador, and member of the Research
Project in Legal Sciences “Omisión impropia y trasgresión de normas (subyaentes
al tipo penal) en la República Argentina.” (USAL-CONICET – Argentina). She
performs as editorial assistant in the Newspaper of Criminal Sciences from USAL.
Besides, she published several articles about Criminal Law and Criminal Procedure
Law and presented herself in different seminaries and academic conferences. She
is part of the Estudio Durrieu team since May, 2022. Previouosly, she performed
herself in Estudios Gottheil & Suriz and Privanza, and in the corporate field as an
in-house Lawyer. Currently, she is member of the Colegio Público de Abogados de
la Capital Federal and of the Colegio Público de Abogados de Avellaneda-Lanús.

Contact: [email protected]

xii
MICHAEL-JAMES CURRIE | Primerio

Michael-James Currie is Director of Primerio. Michael’s expertise includes complex

commercial litigation (including cross border) and dispute resolution before the
superior courts including arbitration. Michael is an active member of the ICC’s
Fraudnet, the world’s leading asset recovery group, Michael-James is well versed
with the anti-corruption laws in Southern Africa as well as the UK Bribery Act and
the Foreign Corrupt Practices Act. Michael-James’ practice in this area includes
conducting internal investigations, compliance, litigation and asset recovery. Mike
currently serves as the International Bar Association Anti-Corruption Committee’s
regional representative for Africa.

Contact: [email protected]

GÁBOR DAMJANOVIC | Forgó Damjanovic & Partners

Gábor Damjanovic is co-managing partner of Forgó Damjanovic & Partners Law

Firm. He heads the Dispute Resolution Practice Group and handles complex,
high-value commercial court cases and arbitrations, as well as fraud cases; almost
always with a cross-border element. Gábor is frequently nominated as an
arbitrator, both as wing and chair and has represented clients/acted as arbitrator
under a number of different institutional rules, as well as under the UNCITRAL
rules. According to Legal 500: “Gábor Damjanovic stands out for his ‘impressive
practical knowledge in court cases and arbitration’”. Gábor is also listed on the
Arbitration Powerlist 2021 CEE published by the Legal 500.

Contact: [email protected]

EDWARD H. DAVIS, Jr. | Sequor Law

Edward H. Davis, Jr., a founding shareholder of Sequor Law, focuses his practice on
the representation of individual, corporate and institutional victims of fraud
throughout the world. Ed conducts financial fraud investigations, prosecutes civil
claims for fraud and pursues misappropriated assets, having tracked such funds in
jurisdictions across the globe, including Japan, the Bahamas, Latin America,
Switzerland and Liechtenstein, among others. A highly recognized and sought-
after leader in his field, Ed is a Certified Fraud Examiner, Inaugural Chair of the
Asset Recovery Sub-Committee of the International Bar Association’s Anti-
Corruption Committee, and member of other distinguished boards and
committees. Under his direction, Sequor Law has established itself as a leading
member of the ICC Commercial Crimes Services FraudNet Network. Ed frequently
lectures on financial fraud and corruption to groups ranging from one of the
world’s most prominent banks, to associations of certified public accountants and

xiii
investigative agencies. He also counsels clients in fraud response crises based on
his experience handling high-profile cases, including the second-largest Ponzi
scheme in world history. Ed also is noted for filing the first Chapter 15 bankruptcy
petition in the state of Florida. Admitted to practice in Florida and before the
United States District Courts for the Southern and Middle Districts of Florida and
the 11th Circuit Court of Appeals, Ed is a Past Chair of the International Law
Section for which he has served as the Chair, Chair-Elect, Secretary and Treasurer
as well as on the Executive Council. He is the Founding Chair of its International
Litigation and Arbitration Committee; a member of the Bankruptcy Bar of the
Southern District of Florida, and a member of the American Bankruptcy Institute
and the Florida International Bankers Association.

Contact: [email protected]

NICK DUNNE | Walkers

Nick Dunne joined Walkers' Cayman Islands office in 2008 and is a Partner in the
firm's top-tier Insolvency & Dispute Resolution Group. His practice focuses on
major and complex international and cross-border commercial disputes and
arbitrations with a particular interest in fraud and asset recovery. Nick frequently
appears before the Grand Court and the Cayman Islands Court of Appeal, and also
has experience of appeals to the Judicial Committee of the Privy Council. Nick has
also been listed as a recommended lawyer in the leading independent legal
directories, including Chambers Global, Legal 500 and Who's Who Legal.

Contact: [email protected]

KIRT W. GALLATIN | Drumcliffe Partners

Kirt W. Gallatin is a Director at Drumcliffe Partners. His professional background

focuses government, elections, and law. Prior to joining Drumcliffe, he serving as
the Director of Policy for the U.S. Department of Commerce’s International Trade
Administration. He has advised several Heads of State on pre- and post-election
strategy, and practiced law, specializing in civil litigation. He holds a JD from
Northwestern University Pritzker School of Law, and a BS from Florida Gulf Coast
University.

Contact: [email protected]

xiv
ROBIN GIST | Carey Olsen

Robin Gist, Senior Associate, is an advocate in the dispute resolution and litigation
group. He brings a unique mix of significant experience of both the private and
public law spheres, including in regulatory and data protection matters. Robin
works with both international and local clients on a broad breadth of contentious
issues, regulatory matters and general advisory work, including private client and
property matters. Robin is a director of the Institute of Law, Guernsey, a member
of the Guernsey Bar Council and sits on the Tax Tribunal. Robin is Deputy
Bâtonnier of the Guernsey Bar Council, and he also sits on the Tax on Real Property
Tribunal. He has extensive experience of appearing in all the Bailiwick of
Guernsey's courts, including the Court of Appeal.

Contact: [email protected]

DR CARLOS SANTALO GORIS | Lecturer, European Institute of Public

Administration

Carlos Santaló Goris is a lecturer at the European Institute of Public Administration

(EIPA) in Luxembourg, with a specialisation in European Union (EU) law. During
the course of his Ph.D. research at the University of Luxembourg, he also served as
a research fellow at the Max Planck Institute in Luxembourg. At this institute,
Carlos was involved in two EU-funded research projects focusing on the field of EU
civil procedural law. Additionally, he holds a registration as a lawyer with the A
Coruña Bar Association in Spain.

Contact: [email protected]

JOHN GREENFIELD | Carey Olsen

John Greenfield is a Consultant in the dispute resolution and litigation group in

Guernsey where he was previously senior partner. John undertakes the complete
range of major litigation and advocacy work including asset tracing,
multijurisdictional disputes and commercial and trust litigation. John has been
counsel in many major litigation cases before the Royal Court of Guernsey and the
Guernsey Court of Appeal and is one of the few Guernsey advocates to have
appeared as counsel in the Privy Council. John was a member of the Committee
that completely overhauled Guernsey’s civil procedure in 2008 and is now part of
the new review Committee in 2021. He has been the Guernsey member of the UK
Fraud Advisory Panel since 2001.

Contact: [email protected]

xv
CRAIG HESCHUK | Greylist Trace

Craig Heschuk is Executive Vice President at Greylist Trace. Craig is a legal and
management professional with 30 years’ experience in commercial project
development. He was admitted to the Canadian Bar Association in 1990. His career
spans dozens of countries starting in the early 1990’s when he was advising a major
Canadian energy company on international projects. His subsequent experience
includes 17 years living abroad with his family in Abu Dhabi, Singapore, Doha and
Quito. His career has centered on corporate/commercial work, mainly in the
development of major infrastructure projects in the energy, real estate and
manufacturing sectors. Most notably he has acted as General Counsel to companies
involved in upstream oil & gas development in South East Asia and utility-scale
solar and wind power projects in Europe and elsewhere.

Contact: [email protected]

SHREYAS JAYASIMHA | Aarna Law

Shreyas Jayasimha read law at the National Law School of India University and was
a Chevening Scholar at the University of Warwick. He is the founding partner of
Aarna Law LLP. He is currently serving as co-counsel for a state party in two
significant investment treaty arbitrations. Shreyas advises clients including banks,
financial institutions, non-banking financial companies and insolvency
professionals on various issues, including assisting banks and asset recovery
companies in India to recover wrongfully retained assets presently concealed
abroad, or ‘round tripped’ back to India; issues in relation to cross-border
insolvency, among other matters. Shreyas is the only India-based representative of
ICC FraudNet, which formed the Asset Recovery Group India (ARGI) to pursue
substantial-value cross-border asset recovery claims for Indian banks, asset
reconstruction companies and other creditors. ARGI comprises specialist fraud
and asset recovery lawyers from various jurisdictions who provide superior legal
representation to financial institutions, corporations and individuals in asset
tracing and recovery, securities litigation and arbitration.

Contact: [email protected]

DAVID JONES | Carey Olsen

David Jones is a Partner and head of the restructuring and insolvency team in
Guernsey. He advises on complex restructurings and formal insolvencies in
contentious, non-contentious and multijurisdictional matters. David has been
involved in many of the largest insolvencies involving Guernsey entities, ranging
from investment funds to global retailers. He is able to assist lenders in respect of

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the taking and enforcement of all forms of security. He regularly advises the boards
of distressed entities and has extensive experience acting for office holders on all
aspects of their appointments including the tracing and recovery of assets. David
is a member of the Insolvency Lawyers Association and R3 and sits on the young
members Committee of INSOL International. David lectures on INSOL’s
Foundation Certificate in International Insolvency and is part of the working group
tasked with updating and revising Guernsey’s insolvency laws. He has also been
appointed as a member of Guernsey’s first ever Insolvency Rules Committee (IRC).

Contact: [email protected]

HIROYUKI KANAE | Anderson Mori & Tomotsune

Hiroyuki Kanae focuses on corporate law, including mergers and acquisitions

(domestic and international), corporate reorganizations, joint ventures, labor and
employment law (including dispute settlements), corporate governance, IP license
agreements, and real estate transactions. He also advises on commercial litigation
matters, including domestic and cross-border litigations involving major Japanese
and foreign companies. He represents major Japanese manufacturing companies,
foreign financial institutions and high tech companies, as well as private equity
funds. He has been advising on the global development projects mainly for the
major Japanese companies investing in North America, Europe and Asia pacific
regions and has more than 30 year experiences in the cross-border M&A. In recent
years, he has completed M&As and joint ventures not only in Europe and the North
America but also in Asian and pacific rim developing countries by collaborating
with rich overseas networks in the areas of semi-conductor, high tech, nano-tech,
aviation and space, pharmaceutical, medical equipment and software industries.
Through experience of a member of the audit and supervisory board of a major
logistic company that has been seeking the global strategy, he advises on the real
need of management strategy foreseeing the post-merger integration.

Contact: [email protected]

MARTIN KENNEY | Martin Kenney & Co (MKS)

Martin Kenney is one of the world’s leading asset recovery lawyers, specialising in
multi-jurisdictional economic crime and international serious fraud. He has acted
for international banks, insurance companies, individual investors, and other
private and governmental institutions. Based in the British Virgin Islands (BVI),
Martin is founder and Head of Firm at Martin Kenney & Co (MKS). The firm’s work
lies at the intersection of cross-border insolvency, creditors ’rights and complex
commercial litigation – WIRED has styled MKS as among “the world’s sharpest
fraudbusters”. Leading a team of lawyers, investigators and forensic accountants,

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Martin is widely regarded as a ground-breaker in the use of pre-emptive remedies,
multi-disciplinary teams and professional litigation funding in response to global
economic crime, uprooting bank secrets and freezing hidden assets in multiple
jurisdictions. He is a practising solicitor advocate of the senior courts of England
& Wales and the Eastern Caribbean at the BVI and at St Vincent & the Grenadines,
and a licensed foreign legal consultant in the state of New York. He is also a Visiting
Professor at the University of Central Lancashire School of Justice, and ranked
among the world’s leading asset recovery lawyers by Chambers and Partners, plus
is a Who’s Who Legal “global elite” Thought Leader.

Contact: [email protected]

NATHALIE KER | Lim Chee Wee Partnership

Nathalie Ker is a partner in Lim Chee Wee Partnership. Her fraud and asset recovery
practice includes high profile and complex fraud matters involving cross-border
elements. She is well-versed in obtaining and executing search orders and freezing
orders to secure evidence and assets, discovery orders against banks and other third
parties, and other interim orders in aid of effective litigation. Nathalie is a founding
committee member of the Thought Leaders 4 NextGen FIRE (Fraud, Insolvency,
Recovery, Enforcement) Community.

Contact: [email protected]

MATTHIAS KLEINSASSER | Winstead

Matthias Kleinsasser, Of Counsel, is a member of Winstead’s Business Litigation,

White-Collar Defense, and Business Restructuring/Bankruptcy practice groups. He
regularly represents officers, directors, and other clients involved in private
securities litigation, as well as in investigations brought by regulatory agencies
such as the Securities and Exchange Commission and the FDIC. Matthias diligently
represents clients in almost any kind of contested matter, be it a state court
receivership, class action, AAA arbitration, inverse condemnation suite, or other
dispute. He also frequently advises firm transactional clients with respect to
contract negotiations and business disputes, particularly in the technology and
healthcare fields. Matthias has significant fraudulent transfer litigation
experience. He has advised foreign clients on asset recovery procedures under US
law, as well as represented debtors, creditors, and trustees in virtually all aspects
of business bankruptcy proceedings, including contested asset sales and debtor-in-
possession financing.

Contact: [email protected]

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ARNOLD B. LACAYO | Sequor Law

Arnoldo (Arnie) Lacayo, a shareholder at Sequor Law, focuses his international

litigation practice on financial fraud, asset recovery and cross-border insolvency.
He has experience litigating complex disputes in both state and federal courts and
has represented multi-national corporations, sovereign governments, Receivers,
Trustees and other foreign officeholders in matters pending in U.S. Courts. Arnie
regularly supervises transnational investigations and has instructed counsel in
dozens of jurisdictions. He also has extensive experience working with the versatile
28 U.S.C. § 1782 discovery statute and Chapter 15 of the U.S. Bankruptcy Code. In
addition to being named a “Super Lawyer” by the publication Super
Lawyers, Arnie’s recent speaking engagements include: Florida International
University College of Law lecture for course titled El Derecho en Estados Unidos:
Aspectos Fundamentales, Litigios y Arbitraje Internacional. Arnie has also contributed
to or co-authored various papers and chapters, including the United States Chapter
in The FraudNet World Compendium on Asset Tracing and Recovery. Arnie is an
active member of the Florida Bar’s International Law Section where he recently
concluded his year as Chair of the one-thousand member-plus organization and
where he continues to serve as a member of the Executive Council. He is also active
with the International Association of Young Lawyers (AIJA) where he served as
President of the Litigation Commission. As a native Spanish speaker, prior to
settling in South Florida, Arnie lived and studied in Latin America. He is a cum
laude graduate of the University of Miami School of Law. As the Articles and
Comments Editor for the University of Miami Inter-American Law Review, he
authored Seeking a Balance: International Pharmaceutical Patent Protection, Public
Health Crises and The Emerging Threat of Bio-Terrorism, 33 U. Miami Inter-
Am. L. Rev. 295 (2002), for which he received the 2003 Burton Award for Legal
Achievement, an award presented annually by the Burton Foundation in
association with the Library of Congress. He graduated magna cum laude from the
University of Notre Dame in South Bend, Indiana, where he double majored in
Psychology and History. He also completed a Concentration in Latin American
Studies while at Notre Dame. Arnie is admitted to all Florida state courts, the
Eleventh Circuit Court of Appeals, the District Courts for the Southern and Middle
Districts of Florida and the United States Bankruptcy Court for the Southern
District of Florida.

Contact: [email protected]

WILSON LEUNG | Serle Court

Wilson is a dual-qualified barrister practising in both England and Hong Kong. He

has over 13 years of experience at the Hong Kong Bar, practising from Temple
Chambers ("the leading chambers in respect of commercial litigation work", Legal 500,
2022 edn); he then qualified at the English Bar in 2022 and joined Serle Court. He
focuses on complex commercial and chancery litigation, with particular experience
in company, insolvency, contract, trusts, probate, and banking disputes. He is

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recommended as a leading commercial junior in Chambers & Partners, Legal 500,
and Who's Who Legal. Wilson has significant experience both as sole advocate and
junior counsel (including multiple appearances at the Hong Kong Court of Final
Appeal, and often appearing against silks), and has worked on some of the most
high-profile cases in Hong Kong. He is also a Fellow of the Chartered Institute of
Arbitrators, and holds the Diploma in International Commercial Arbitration from
CIArb.

Contact: [email protected]

KATE MCMAHON | Edmonds Marshall McMahon

Kate McMahon is a founding Partner of Edmonds Marshall McMahon, the UK’s

premier private prosecution firm, specialising in high value fraud. She specialises
in serious, international fraud, asset recovery, large scale investigations and
perverting the course of justice proceedings. She is typically instructed by
corporates, hedge funds and HNW’s in commercial fraud matters. Prior to founding
Edmonds Marshall McMahon, Kate prosecuted for the Serious Fraud Office (SFO)
where she worked as a senior lawyer on some of the UK’s largest criminal
prosecutions, including the “Innospec” case. This was the first global settlement
in the UK and involved systemic corruption by a UK/USA company in Iraq and
Indonesia. The case resulted in a US$12.7 million fine in the UK and a US$14.1
million fine in the USA and successful prosecutions of the Company Directors and
employees. Kate has also prosecuted a number of high-profile, high-value
international “boiler room” frauds operating across a number of countries,
involving thousands of victims. Kate also has significant experience in the area of
confiscation and has also successfully conducted many large-scale fraud trials,
including the famous “transit thefts” of pharmaceuticals in transit from EU
factories to wholesale dealers in the UK. Kate is known for her incisive analysis and
strategic vision, having had conduct of large fraud, corruption and trademark
cases. She is highly regarded by her clients and has a reputation for being extremely
determined and driven in all her cases. She has been described as an “outstanding
prosecutor” who provides “intellectual leadership”. She is praised for her “high
intelligence, tactical acumen and great client care skills.”

Contact: [email protected]

HIDETAKA MIYAKE | Anderson Mori & Tomotsune

Hidetaka Miyake is a partner at Anderson Mori & Tomotsune, and one of the
leading lawyers in the fields of government investigations and crisis management
in Japan. By leveraging his background as a former public prosecutor, a former
senior investigator at the Securities and Exchange Surveillance Commission and a
former forensic senior manager of a Big Four accounting firm, he focuses on

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handling internal or independent investigations for listed companies to address
complex accounting frauds. He also handles crisis management for financial
institutions and criminal defense for non-Japanese clients. Since joining Anderson
Mori & Tomotsune in 2017, he has been involved in accounting fraud
investigations for more than 12 Japanese listed companies.

Contact: [email protected]

PETER MIZZI | Camilleri Preziosi Advocates

Peter Mizzi works as an advisor at Camilleri Preziosi advising primarily in financial

crime and regulatory matters. He has over three years of experience in issues
relating to anti-money laundering, terrorist financing, bribery and corruption,
fraud, and sanctions. He regularly advises financial institutions and other
corporates with their policies relating to financial crime and conducts reviews of
client files. Peter also delivers trainings on anti-money laundering and terrorist
financing. He has also assisted regulators on the development and implementation
of regulations on financial crime issues. Peter holds an International Diploma in
Anti-Money Laundering from the International Compliance Association (ICA) as
well as a Bachelor of Science degree in Business Administration with International
Business from the University of London. Before joining Camilleri Preziosi, Peter
worked at a Big Four audit firm in Malta as a senior compliance associate and was
extensively involved in one of the largest local remediation projects.

Contact: [email protected]

ANDREW MORAN KC | Serle Court

Andrew's practice covers a broad range of work from contentious trusts, through
what may be conveniently described as general commercial work and civil fraud, to
professional indemnity insurance work of various sorts. The bulk of his work tends
to fall under the heading of general commercial litigation with a strong emphasis
on civil fraud. A significant proportion of his work originates overseas, in particular
from the USA, the Isle of Man, the Channel Islands and various Caribbean
jurisdictions. He has a particular interest in the jurisdictional aspects of civil fraud.
Andrew is described by the legal directories as, "a wonderful legal
brain" and "extraordinarily smart and tactical; delightful to work with and hugely
admired". Andrew is the author of: "Commercial Litigation in Anglophone Africa"
(Juta Press, 2018; 2nd edition June 2022).

Contact: [email protected]

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JEMMA MULLER | Primerio

Jemma Muller is a Junior Associate at Primerio. She has assisted the team in various
significant matters and has regulatory and commercial law practice experience
pertaining to merger control notifications across several African countries and
regional blocs including Botswana, Kenya, Namibia, Nigeria, South Africa, Eswatini
and COMESA. Jemma also has practical experience in white collar crime,
competition (both from a compliance and regulatory perspective as well as from a
competition law violation perspective), anti-bribery and corruption in South
Africa. Jemma has been published in the Concurrences e-Competition Bulletin,
featured in your weekly digest and Competition Policy International.

Contact: [email protected]

DANNY ONG | Setia Law

Danny Ong is Managing Director of Setia Law and specialises in complex

international commercial and financial disputes and investigations, as well as
cross-border restructuring and insolvency. Danny has led multiple high-stakes
cross-border disputes and investigations, across a multitude of industries over the
last two decades. He is regularly called upon by financial institutions, private
investment funds, and state-owned enterprises, to act in mandates involving
complex investments, market misconduct, and distressed situations. He is also
known for his expertise in international enforcement, fraud, and financial crime
and is recognised amongst the Global Elite as one of 40 Global Thought Leaders in
the asset recovery field. With extensive experience in multi-jurisdictional headline
restructurings and insolvencies, Danny is recognised as a “standout” in the market.
His portfolio includes acting for debtors in the Eagle Hospitality REIT
restructuring, and acting for the liquidators of 45 Lehman entities across Asia (ex-
Japan), MF Global Singapore, Dynamic Oil Trading (of the OW Bunker Group), and
BSI Bank. More recently, Danny has been a pioneer in disputes and managing crises
in the blockchain and digital assets space, having led the team that successfully
prosecuted the first cryptocurrency claim before the Singapore International
Commercial Court, and advising distressed cryptocurrency investment platforms.
Danny combines technical excellence with sharp commercial sensibility and
creativity in tackling novel legal questions. He is spoken of by clients as “an
excellent litigator” and “an outstanding lawyer” who is “adept at tackling unique
and challenging issues” and “combining a deep and broad knowledge of the law
with a pleasant manner and an ability to switch gears and become a powerful
advocate and highly effective cross-examiner”. Danny graduated from the National
University of Singapore and is admitted to the Singapore Bar as well as the Rolls of
Solicitors of the High Courts of Hong Kong and England and Wales.

Contact: [email protected]

xxii
JOHN OXENHAM | Primerio

John Oxenham is Co-founding Principal Director of Primerio, John has practised in

the global investigations, regulatory, commercial litigation and antitrust fields
locally and across the African region for over 20 years. He has been recognized as
a leader in his field for many of these. Recently, John represented Business at the
OECD as the first regional representative from Africa. John has acted in many of
the leading precedent setting global investigation matters. John is the sole South
African representative for FraudNet the ICC’s Commercial Crime Division.

Contact: [email protected]

DC PAGE | V2 Global

As the Managing Partner of V2 Global, DC directs worldwide operations. His

experience spans a career including US Customs (Homeland Security), Kroll
Associates and CEO of Verasys. His focus includes multi-jurisdictional inquiries
involving asset tracing, litigation support, anti-money laundering and
investigations for multi-national corporations. With his customs background, DC
and his team have assisted many multi-nationals and sovereigns with asset
tracking and recovery investigations. Complex cross-border inquiries require the
integration of multi-dimensional investigators capable of private-public sector
liaison. DC has perfected and replicated such inquiries around the world creating
value for corporations and at the same time, results for governments.

Contact: [email protected]

JAMES POMEROY | Grant Thornton

James Pomeroy, CPA CA, CFE is Director, Forensics, and heads Grant Thornton’s
Forensics practice in the BVI, Cayman Islands, and the Eastern Caribbean. He has
26 years of insolvency, audit, forensic accounting, and investigations experience,
21 of those with a Big Four firm. He is a Chartered Professional Accountant, a
Fellow of INSOL, and a Certified Fraud Examiner. James’ experience includes cases
involving asset tracing and recovery, investigations, cross-border insolvency,
political corruption, business intelligence and integrity due diligence, commercial
fraud and disputes, and forensic technology. He has experience in matters
originating in jurisdictions throughout the offshore financial sector, in the
Caribbean region, Latin America, Canada, Switzerland, the US, and Hong Kong.
James has led insolvency-based asset tracing and recovery engagements and
investigations in jurisdictions around the world. James is an experienced forensic
accountant and asset recovery professional with an appreciation for the nuances
of different regions and cultures and how those can impact a case.

Contact: [email protected]

xxiii
JUSTO LO PRETE | Durrieu Abogados

Justo Lo Prete has a law degree from the School of Law of Universidad Católica
Argentina and was awarded a postgraduate Specialization Degree in Criminal Law
from Universidad de Belgrano. Besides participating in many courses related to
criminal law matters, he has extensively traveled abroad and attended seminars of
lawyers specializing in this field (he is identified in Who´s Who Legal as a specialist
lawyer in asset recovery) Mr. Lo Prete has worked at Durrieu Abogados since 1992
and this has enabled him to develop professionally in the most diverse branches of
criminal law, to which he has devoted himself entirely throughout his professional
life.

Contact: [email protected]

BARRY ROBINSON | BDO Ireland

Barry Robinson leads BDO’s Forensic Services team in Ireland and has specialised
in the area of forensic accounting and investigations since 2001. He joined BDO in
2019 and is one of Ireland’s most experienced forensic accountants. He has worked
on some of the most complex and high-profile forensic cases in Ireland. He has
given evidence in Court and provided his expert opinions at mediations. Barry has
written and assisted in the preparation of expert reports for use in legal
proceedings in a number of jurisdictions, including the Commercial Court in
Ireland, the High Court in Northern Ireland, the UK Royal Courts of Justice and the
High Court in the Netherlands. He has attended as an Expert at a large number of
complex commercial mediations and has presented his findings at mediation. He
has led a number of complex investigations into allegations of misappropriation of
assets, false accounting, financial statement fraud and breaches of company law,
policies and procedures. He is the co-author of the Chapter on “Corporate
Investigations” in the book “White Collar Crime in Ireland: Law and Policy” edited
by Dr. Joe McGrath and published by Clarus Press. He is a Guest Lecturer on the
Honourable Society of King’s Inns Advanced Diploma in Regulatory, Corporate &
White-Collar Crime and speaks at conferences and events on the topic of fraud and
financial crime. He is a Council member of the Irish Commercial Mediation
Association, a position he has held since 2016. He holds a Masters Degree (MSc) in
Forensic Accounting and Chartered Accountants Ireland’s Diploma in Forensic
Accounting. He also holds a Bachelor of Science Degree (BSc) in Accounting with
French. He is a Fellow of Chartered Accountants Ireland.

Contact: [email protected]

DONALD ANDERSSON SÁEZ SAMANIEGO | MDU Legal

Donald Andersson Sáez Samaniego is an academic and attorney admitted by the

Supreme Court of the Republic of Panama. He holds a Bachelor of Laws and

xxiv
Political Sciences with high honors (Cum Laude Charter) from the University of
Panama, and a Master of Laws (International Law, emphasis on Private
International Law) at the Complutense University of Madrid, and a Postgraduate
Degree in Higher Teaching at the University of the Isthmus. Also, he has a Bachelor
in criminalistic and forensics sciences. He is an Associate Lawyer at MDU Legal,
and his practice focuses on International Law; Civil law; Commercial law;
Insolvency/Bankruptcy (national and crossborder); Corporate law; Assets Recovery
and Litigation. Mr. Sáez Samaniego, as expert in Panamanian Law, has served
clients in numerous juri sdictions including Switzerland; England; Austria;
Singapore; Peru, US, BVI; Brazil; Costa Rica. He has advised several multinational
companies.

Contact: [email protected]

HÉCTOR SBERT | ECIJA

Héctor Sbert is a Litigation and Insolvency Partner at ECIJA Barcelona. Héctor has
more than 20 years of experience advising national and international clients from
all sectors in the field of litigation and insolvency law, and has been recognized by
prestigious international rankings like Best Lawyers and Who’s Who Legal in his
practice areas. Héctor is an expert in international commercial litigation and
arbitration, in particular in the enforcement of national and foreign judgments,
asset tracing and recovery, civil and commercial fraud and contentious insolvency.
He is also the representative for Spain of ICC FraudNet, a global network of lawyers
that, under the auspices of the International Chamber of Commerce (ICC), brings
together the leading international specialists in asset tracing & recovery. He is a
Member of the London Chartered Institute of Arbitrators (MCIArb.) and a
Registered Mediator at the Ministry of Justice. Sbert holds a Ph.D. in Law from the
Pompeu Fabra University and an Executive MBA from IESE. In addition, he has
been Member of the Deputy of the Governing Board of the Barcelona Bar
Association (ICAB) and Chair of the Bar’s Ethics Commission. Héctor speaks
Spanish, Catalan, English, French, German and Italian.

Contact: [email protected]

PUNTHI SHAH | Aarna Law

Punthi Shah enrolled as an advocate to the Bar in India (Bar Council of Maharashtra
and Goa) in 2008 from Mumbai and has an LLM in Intellectual Property Rights from
the Mumbai University. She is actively involved in the practice of Insolvency Law
regularly appearing before domestic courts and tribunals. She is also a part of the
Asset Tracing and Recovery team at Aarna and has over 12 years of experience
across prominent law firms in Mumbai in litigation and real estate.

Contact: [email protected]

xxv
LEE SHIH | Lim Chee Wee Partnership

Lee Shih is the managing partner of the specialist litigation firm, Lim Chee Wee
Partnership. He is a member of the ICC FraudNet. His work focuses on fraud and
asset recovery, commercial disputes and contentious restructuring and insolvency.
He secured Malaysia’s first-ever persons unknown injunction against unknown
fraudsters as well as self-identification orders. He is also active in advising on and
acting in cryptocurrency-related disputes.

Contact: [email protected]

DR ALEXANDER STEIN | Dolus Advisors

Alexander Stein is an expert in human decision-making and behavior, and serves

as an advisor to CEOs, senior management teams and boards. Trained and licensed
as a psychoanalyst, he advises executives, founders and directors across a broad
array of industries on issues involving leadership, culture, governance, ethics, risk,
and other organizational matters with complex psychological underpinnings. He is
the Founder and Managing Principal of Dolus Advisors, a bespoke consultancy
founded in the aftermath of the September 11, 2001 attacks to help business
leaders address psychologically complex enterprise challenges beyond the
capabilities of conventional business consulting. He is also a Principal in the
Boswell Group, a psychodynamic management consulting group. Dr Stein is an
internationally regarded authority in human risk and the psychodynamics of fraud.
He is frequently engaged as a specialist advisor in multijurisdictional serious fraud
and grand corruption matters and also helps companies mitigate and address
challenging institutional disturbances such as human factor vulnerabilities in
cybersecurity and executive misconduct. A passionate advocate for ethical and
socially responsible technologies, Dr Stein sits on the advisory boards of several
technology firms. Dr Stein is widely published and cited in the business press and
varied industry publications, including Fast Company, INC, Financier Worldwide,
Risk & Compliance, the Wall Street Journal, The FraudNet Report, among many
others. A former monthly columnist for FORTUNE Small Business Magazine,
CNN/Money, and CBS Business News covering the psychology of leadership and
entrepreneurship, he currently contributes his expertise to Forbes focusing on the
psychology of decision-making and unintended consequences in organizations and
society. Dr Stein is a frequent podcast and webinar guest, on-camera commentator,
and keynote speaker and panelist at industry conferences and corporate events
internationally.

Contact: [email protected]

xxvi
STANLEY TAN | Setia Law

Stanley Tan is an Associate at Setia Law. Stanley has acted in a broad range of cross-
border disputes and investigations where he specialises in the prosecution of
claims involving multi-jurisdictional fraud, and the tracing and recovery of digital
assets. His experience and familiarity with cryptocurrency and emerging
technologies often sees him working together with experts and industry leaders on
complex briefs and dealing with novel issues of law. Stanley aspires to develop a
specialist advocacy practice that focuses on digital technology, Web 3.0, and
disputes in cyberspace. Stanley graduated from the National University of
Singapore with First Class Honours. He was awarded the Outstanding
Undergraduate Researcher Prize for his research relating to the loss or destruction
of evidence. He was also placed on the Directors’ List while studying at the Centre
for Transnational Legal Studies in London. He represented his university in the
Willem C Vis International Commercial Arbitration Moot (Vienna), and was also a
finalist in the Dentons Rodyk Moots and a semi-finalist in the Advocacy Cup.

Contact: [email protected]

JASON TEO | Setia Law

Jason Teo is Associate Director at Setia Law. Jason has a broad commercial and
financial litigation and investigations practice. His keen interest in technology and
cross-border commercial fraud matters has seen him act for the successful claimant
in B2C2 Ltd v Quoine Pte Ltd, a landmark Singapore judgment involving
cryptocurrency trades executed autonomously by algorithmic trading software. He
was also part of the team that acted for the liquidators of Torque Holdings Ltd, a
cryptocurrency investment fund, in successfully securing worldwide freezing
injunctions exceeding $200 million in value against former company officers
arising from the misappropriation of crypto assets. Jason is a member of ICC
Fraudnet Future, worldwide network of leading lawyers who specialise in asset
tracing and recovery, and was selected to the Supreme Court Young Independent
Counsel scheme in 2023. He graduated with First Class Honours from the
University College London.

Contact: [email protected]

DR DOMINIC THOMAS-JAMES | ICC FraudNet

Dr Dominic Thomas-James is Consultant and Director of Publications for ICC

FraudNet. He is a Research Associate at Fitzwilliam College, University of
Cambridge and is a Global Justice Fellow at Yale University. He is Tutor in
International Relations and International Development at the University of
Cambridge Institute of Continuing Education, and lectures in Justice and

xxvii
Development at the Centre of Development Studies, Department of Politics and
International Studies at the University of Cambridge. Dr Thomas-James is a
Barrister at Goldsmith Chambers, London and is a qualified civil and commercial
mediator accredited by the ADR Group. He has consulted to various
intergovernmental and international organisations, and is a Senior Organiser of
the annual Cambridge International Symposium on Economic Crime at Jesus
College, Cambridge. Dr Thomas-James earned his Ph.D and M.Phil from Queens'
College, Cambridge and his LL.B from King's College London, before being called
to the Bar of England and Wales by the Honourable Society of the Inner Temple.
He is author of the book Offshore Financial Centres and the Law: Suspect Wealth
in British Overseas Territories (2021, Routledge) – a #1 Amazon New Release in
Comparative Law and a Top-50 Amazon Bestseller in International Economic
Development – as well as numerous other book chapters, edited texts and journal
articles. He sits on the editorial boards of the Company Lawyer, the Journal of Money
Laundering Control and the Journal of Financial Crime.

Contact: [email protected]

TUSHAR TYAGI | Aarna Law

Tushar enrolled as an advocate in 2018 and has a degree in law from the Guru
Gobind Singh Indraprastha University, New Delhi. He has advised and represented
financial creditors, operational creditors, corporate debtors, resolution applicants
and insolvency resolution professionals (RP) before Bankruptcy Courts in India for
both contentious and non-contentious issues arose during the Corporate
Insolvency Resolution Process and Liquidation. He is also involved in matters
involving Asset Tracing and Recovery across jurisdictions.

Contact: [email protected]

ALEJANDRO RODRIGUEZ VANZETTI | Sequor Law

Alejandro Rodriguez Vanzetti is a third year law student at the Florida

International University College of Law. Alejandro currently serves as a Law Clerk
at Sequor Law. During law school, Alejandro worked as a judicial intern to the
Honorable Jose E. Martinez of the U.S. District Court for the Southern District of
Florida. He is the Executive Submissions and Comments Editor of the FIU Law
Review, and authored The Waiting Game: Who Benefits from Recovered Assets
Associated with Venezuelan State Corruption? Remission as a Solution, to be published
in Volume 17.4 of the FIU Law Review. Before attending law school, Alejandro
worked as a Senior Litigation Assistant at Kobre & Kim LLP, where he provided
support on matters involving government enforcement defense. He graduated cum
laude from the Pennsylvania State University, where he double majored in
International Politics and Journalism. During his undergraduate studies, he

xxviii
interned with the U.S. Department of Defense in Washington D.C. and the U.S.
Department of State in Milan, Italy. Alejandro is a native Spanish speaker.

Contact: [email protected]

JACK WALSH | Edmonds Marshall McMahon

Jack is Special Counsel at Edmonds Marshall McMahon, having joined as a Senior

Associate in June 2015. In 2018 he spent time working as a Complex Casework
Lawyer in the Court of Appeal to strengthen his knowledge of all aspects of the
justice system. As Special Counsel Jack advises on all areas of the firm’s practice
and has a particular focus on Fraud; Offences by and against corporates;
Jurisdictional issues; the interaction between criminal and civil proceedings;
Judicial review, particularly of the Police and CPS; Costs; The private prosecutor’s
powers to obtain evidence; Disclosure; Criminal procedure and the power to stay
proceedings. Jack works with Edmonds Marshall McMahon’s lawyers and clients
and with our clients’ legal teams. Jack has a particular interest in legal research,
especially relating to novel or obscure areas of law and procedure, and in drafting.
He has acted for a variety of clients, from corporates of varying size, company
directors to trustees and well-known individuals. Prior to joining Edmonds
Marshall McMahon was a tenant at a well-known set of barristers’ chambers in
London, specialising in criminal law. He appeared in the Crown and County Court,
Tax Tribunal, High Court and the Court of Appeal as well as Courts Martial in the
UK and Germany.

Contact: [email protected]

ELEANOR WARNICK | Mintz Group

Eleanor Warnick is a managing investigator at the Mintz Group, where she

specialises in cross-border asset tracing, litigation support and fraud detection.
She has eight years’ experience in investigations, including five years in corporate
intelligence and three as a journalist. During this time, she has advised a broad
range of clients such as financial institutions, law firms, government bodies and
multilateral institutions. Recent casework includes: unearthing procurement fraud
at a political organisation; exposing grand corruption under a former government
of an African nation; and uncovering an extortion attempt at a logistics company
in Guatemala. Prior to joining the industry, she was a journalist, editor and
commentator, focusing on Latin American current affairs. During that time, she
undertook on the ground investigative assignments and carried out hundreds of
interviews in countries such as Bolivia, Brazil, Mexico and Peru. She holds a BA in
Spanish and Portuguese from Oxford University, is a Certified Fraud Examiner
(CFE) and a Certified Cryptocurrency Investigator (CCI).

Contact: [email protected]

xxix
JOE WIELEBINSKI | Winstead

Joe Wielebinski, Shareholder, is a member of Winstead’s Business

Restructuring/Bankruptcy practice group. For more than 30 years, his practice has
concentrated on bankruptcy, creditors’ rights and financial restructuring, and he
is active throughout the United States in a variety of complex restructuring,
insolvency and bankruptcy matters and related litigations. Joe has represented
numerous victims in matters involving complex financial fraud, theft, money
laundering and other white-collar crimes. He has also served as a Federal District
Court receiver at the request of the SEC in cases involving national and cross-
border fraud schemes. Consistently ranked by Chambers USA as a “Leader in Their
Field” since 2005, Joe is a frequent speaker and a prolific author on a broad range
of topics involving corporate reorganization, insolvency, financial restructuring,
fraud, asset recovery and cross-border insolvencies. Joe is the Executive Director
Emeritus of ICC-FraudNet and member of its Advisory Board. He is a member of
the International Bar Association, International Association for Asset Recovery,
American Bankruptcy Institute and Turnaround Management Association.

Contact: [email protected]

COLETTE WILKINS KC | Walkers

Colette Wilkins KC leads the Walkers' Insolvency & Dispute Resolution Practice in
Asia. She has been a commercial litigator for more than 30 years, specialising in
contentious insolvency, high value asset recovery, investment fund disputes and
issues relating to corporate governance and fraud. She advises office-holders in
complex cross-border liquidations, and regularly represents creditors and
liquidators in insolvency and related proceedings to determine and protect
interests in insolvent estates. Colette advises and appears for clients on issues
relating to corporate governance and fraud as well as other areas of commercial
litigation. She has been a partner in the Insolvency and Dispute Resolution Group
since 2009 and since then has been commended in all the leading independent
legal directories who take soundings from clients and peers including Chambers
Global (Band 1), Legal 500 (Tier 1) and Who's Who Legal (Thought Leader). Leading
her team at Walkers, Colette represented SICL and eight other defendants in the
year-long Saad trial in which claims and counterclaims exceeded US $15 billion and
on appeal to the Cayman Islands Court of Appeal. Colette also represents the
liquidators of these companies in their Cayman Islands liquidations. She has
appeared in many other leading cases in both the Grand Court and the Court of
Appeal in the Cayman Islands including Parmalat, App Re v Mangino, SPhinX, Al
Sadik Investcorp, Governor v Information Commissioner, Fortuna, Caledonian,
Pugachev, Re Wyser-Pratte, Camulos v Kathrein, and HSH Cayman v ABN AMRO.
Colette was a member of the Law Society Committed tasked with responding to the
Law Reform Commission Paper entitled "Directors' Duties – Is Statutory Codification
Needed?" Colette addresses issues relating to Cayman Islands asset recovery and

xxx
insolvency at conferences on a regular basis and was a speaker at the United
Nations Commission on International Trade Law Colloquium on Civil Asset Tracing
and Recovery in Vienna in December 2019. Colette is one of the two attorneys
appointed by the Chief Justice to sit on the Cayman Islands Grand Court Rules
Committee. She was appointed to the rank of Queen's Counsel in 2021 following
the recommendation of the Cayman Islands' judiciary to the Foreign &
Commonwealth office.

Contact: [email protected]

xxxi
 ICC FraudNet
Global Annual Report 2023

MEMBER
INSIGHTS

iccfraudnet.org
 ICC FraudNet
Global Annual Report 2023

The Price of Ice –

Cross Undertakings
In Damages In
Mareva Injunctions

COLETTE WILKINS KC
NICK DUNNE

iccfraudnet.org
MEMBER INSIGHT COLETTE WILKINS KC & NICK DUNNE

The Price of Ice – Cross Undertakings

In Damages In Mareva Injunctions

COLETTE WILKINS KC AND NICK DUNNE

Abstract

The Mareva injunction is a central feature of common law legal systems when
dealing with asset recovery, but is not without risk for parties seeking relief. The
potential exposure to damages in the event that an injunction is found to have been
unjustified is an important tactical consideration, and this article summarises the
key principles which courts will bear in mind in this regard.

Introduction

The "nuclear weapon" of the Mareva injunction is well known to asset recovery
lawyers across the common law world and beyond. The ability to freeze both
tangible and intangible assets worldwide is perhaps the single most useful tool
available to ensure that judgments against wrongdoers translate into actual
recoveries.

It can however sometimes be forgotten that a price is typically exacted for the grant
of a Mareva injunction in the form of the cross-undertaking in damages, a promise
to pay for any losses sustained by a respondent to the order if the injunction is later
discharged. Potential exposures can be very large, particularly in the context of
long-running litigation where commercial assets are frozen for a significant period
of time.

As such, whilst plaintiffs are naturally apt to focus upon the potential fruits of
success, the consequences of failure are ignored at their peril.

1
Damages

Whilst the undertaking is often referred to as the "price" of an injunction, and

although almost every plaintiff will be required to give an undertaking1, not every
unsuccessful plaintiff will be liable to pay under it. Because the undertaking is
given to the court as opposed to the counterparty, leave must be obtained for that
undertaking to be enforced, which will not be granted unless the court considers
that the injunction was wrongly granted, and a prima facie loss can be established.

That loss must also be a consequence of the injunction, as opposed to the mere
existence of the litigation, or a particular ruling. Where such losses can be shown,
the jurisdiction is compensatory, not punitive: its function is to make good losses
as opposed to sanctioning the unsuccessful party for having obtained an injunction
in the first place.

The correct approach to the award of damages was recently considered by the Privy
Council in Ennismore Fund Management Ltd v Fenris Consulting,2 on appeal from the
Cayman Islands Court of Appeal. It was made clear that assertions from injuncted
parties as to their losses will not be taken at face value – the ordinary principles of
causation apply – and it is for the party claiming under the undertaking to prove
its losses on balance of probabilities. On the facts of that case, an initial award of
well over GBP £5 million based upon a claim that the injuncted funds would
otherwise have been invested in a highly profitable way was ultimately revised
downwards to a figure of slightly over GBP £500,000.

The calculation of damages can be an uncertain science, particularly where the

damage arises from an inability to deploy funds, as it is not straightforward to
answer the hypothetical question of what a party would have done with them had
they been available. What is clear, however, from Ennismore is that claims under
the undertaking do not amount to "open season" on an unsuccessful plaintiff: they
must always be proved in a properly forensic and defensible way.

Mitigation

The fact that losses must be properly proved should not however distract from the
fact that a party obtaining an injunction also accepts responsibility for its
consequences, which may be very significant.

1
Undertakings are invariably required, even where there is no foreseeable prospect of loss at the
time that the injunction is granted.
2
[2022] UKPC 27

2
This is well illustrated by the English decision of SCF Tankers v Privalov3, in which
an argument that an injuncted party could and should have mitigated its loss by
seeking variations of the injunction in order to allow it to conduct business and
thus avoid its losses was roundly rejected by the Court of Appeal. In ordering a
payment of over USD $70 million under an undertaking, it was held that regard
should be had to the practical reality both of how difficult it might be to secure a
substantial variation of an order whilst litigation was ongoing, and the commercial
unlikelihood of a counterparty wishing to engage in transactions for which court
approval was required.

A further example of that approach to mitigation of loss can also be seen the
Cayman Islands case of Sagicor General Insurance v Hurlstone4, where a party had
taken legal advice as to the possibility of seeking to discharge an injunction, but
having been advised that it would be a long and costly process, declined to do so.
Although the Court considered the advice to be unduly pessimistic, there was no
failure to mitigate losses: it was not unreasonable for a party to refrain from
potentially expensive litigation on legal advice.

The practicality that underpins the grant of freezing injunctions is reflected by the
courts' approach to the consequences of failure. The Mareva jurisdiction is firmly
grounded in the real world, and just as it is accepted that fraudsters are liable to
dissipate funds, so it is accepted that depriving a party of access to funds or
property is likely to result in unavoidable losses. Technical arguments to the
contrary may struggle to find favour, and plaintiffs can be exposed to very
substantial liabilities.

Fortification

The utility of an undertaking in damages is entirely contingent upon the ability of

the party providing it to pay in the event that it is called upon: a promise which
cannot be kept amounts to no promise at all. As such, in some cases the
undertaking alone will not suffice, and the court will require security for that
undertaking in the form of a payment into court, known as "fortification".

A request for fortification is a potentially powerful weapon in the hands of a

Defendant, as in the event that it is ordered and the Plaintiff cannot, or will not,
pay, the likely consequence is that the injunction will fall away, which may be
sufficient to defeat the claim altogether.

3
[2017] EWCA Civ 1877
4
[2011] 1 CILR 130

3
There is no right to fortification, it being a matter within the discretion of the
Court. It has been reiterated recently5 that the discretion will not be exercised
unless a Defendant is able to provide credible evidence amounting to a good
arguable case as to (i) risk of loss, (ii) that the loss in question would be caused by
the injunction, and (iii) that the size of the loss can be intelligently estimated. In
common with claims under the undertaking, it is not sufficient for a Defendant to
speculate as to possible losses, or pluck numbers from the air, Courts are alive to
the fact that fortification places a burden on a Plaintiff andfortification is likely to
be ordered only where losses are both likely and identifiable, and where the party
obtaining the injunction lacks assets within the jurisdiction to make good on any
liability.

Although there is a challenging evidential threshold, the potential for fortification

is an important consideration for any foreign Plaintiff seeking Mareva relief. This
is particularly so where resources are limitedand a significant part of any war chest
is required to be held as security for an undertaking rather than deployed in order
to progress the litigation. That difficulty can be mitigated now that some litigation
funders are willing to offer insurance as collateral for the purposes of fortification.
However, parties minded to seek injunctions should be aware from the outset that
a mere promise to pay may not be enough: they may also be required to put their
money where their mouth is.

Conclusion

In the initial excitement of seeking Mareva relief, it can be easy to overlook the
undertaking in damages and ignore its potential consequences, both in the event
that the claim is unsuccessful or at an earlier stage through requests for
fortification. As such, consideration of the undertaking should form a key part of
any asset recovery strategy so as to avoid unpleasant surprises after an injunction
is obtained. Prospective plaintiffs would be well advised to hope for the best, but
plan for the worst.

5
Claimants listed in Schedule 1 v Spence and ors [2022] EWCA Civ 500

4
 ICC FraudNet
Global Annual Report 2023

Dealing with the Proceeds of

Crime in Ghana
Finding the Balance
Between Unjust
Enrichment and the
Enforcement of
Illegal Contracts
BOBBY BANSON

iccfraudnet.org
MEMBER INSIGHT BOBBY BANSON

Dealing With Proceeds of Crime In

Ghana: Finding The Balance Between
Unjust Enrichment And The
Enforcement of Illegal Contracts

BOBBY BANSON1

ABSTRACT

This paper seeks to analyse the legal regime in Ghana relating to proceeds of crimes
committed outside and which proceeds are brought into, received in or invested in
Ghana. Sometimes, Parties to these illegal acts, may enter into contracts and
arrangements for the distribution of the proceeds from their unlawful activities in
another Country where the crime was not committed. Where there is a breach of
such contracts, how would the court ensure that justice is achieved for all parties
involved? We will discuss the position of the law in Ghana on such matter in the
context of finding the balance between unjust enrichment and enforcement of
contracts deemed to be illegal either in the country of execution or where the
proceeds are brought into or both.

1
The Author would like to thank and acknowledge the efforts of Vanessa S. Zormelo, Joseph Bondzie
Afrifa, Antoinette Kyeremanteng, Afua A. Danquah, Kwame Appiah Oduro, Theophilus Boateng Osei
and Isaac Adjei – all Law Students of the Ghana School of Law who spent their summer internship
assisting with research for this article.

6
INTRODUCTION

With the advent of technology and digitisation, it has become ever easier to
transfer money across countries. Unfortunately, the proceeds of crimes are often
sent to countries other than where the crimes were committed by electronic and
other means. There are also instances where the proceeds of an act considered as
legal in the country of commission are sent to and/or invested in a country where
said act is contrary to its legislation and public policy; or vice versa. Crimes of
corruption or dishonesty may arise from private contractual arrangements between
parties. Individuals involved in any such private arrangements found to be illegal
are sometimes caught in the dilemma of recovering whatever consideration they
may have given pursuant to such illegal contracts.

Recently, the Supreme Court of Ghana held that a woman was entitled to her share
of the proceeds from prostitution which she undertook in Italy with the assistance
of a man, and which proceeds had been invested in Ghana.2 This article was
inspired by the facts and ratio in that case.

In the proceeding parts of this article, the Author will discuss the existing legal
regimes in Ghana on dealing with proceeds of crimes committed outside Ghana
when the funds are brought into Ghana, and how persons may recover property or
funds paid in consideration of contracts which are found to be crimes and illegal.
In addition, the Author will discuss the provisions of the Criminal and Other
Offences (Procedure) Act, 1960, the Economic and Organised Crime Act, 2010, the
Office of Special Prosecutor Act, 2017 and case law, as well as the applicable
Common Law provisions which are deemed to be part of the laws of Ghana by virtue
of the provisions of the 1992 Constitution. This discussion will be situated in the
context of finding the balance between unjust enrichment of a party to such illegal
acts and the duty of the Courts in punishing illegal actions.

1. JURISDICTION OF GHANAIAN COURTS IN DEALING WITH CROSS BORDER

ILLEGAL CONTRACTS

In this article, cross border illegal contracts refer to contracts:

i. Executed by Parties outside Ghana but to be performed in Ghana and
which contract is found to be illegal for being in breach of statutes in
Ghana.
ii. Executed by Parties outside Ghana and to be performed outside Ghana
but which proceeds are brought into, received in, or invested in Ghana.

2
See www.dennislawnews.com new item titled “Breach of Promise to marry: Supreme Court grants
woman properties of her toil” published on 18th July 2022 at accessed on 13th October 2022.

7
Broadly, the jurisdiction of the Ghanaian Courts can be invoked in both criminal
and civil actions.
For Civil actions, the 1992 Constitution provides the High Court of Ghana with
original jurisdiction in all matters. For a foreigner to be able to institute a civil
action in Ghana in respect of a contract which is found to be unlawful, the
Defendant must be resident in Ghana, or the purported contract ought to have been
executed in Ghana.

For criminal actions, Section 56 of the Courts Act, 1993 confers jurisdiction on the
Ghanaian Courts in criminal matters where the offence is committed by a Citizen
of Ghana or by a person who is resident in Ghana if the offence is wholly or partly
committed in Ghana.

Hence, where persons execute a contract outside Ghana, which ought to be

performed in Ghana, or the Defendant/Accused person is resident in Ghana, the
jurisdiction of the Ghanaian Court may be invoked. This can be either by criminal
proceedings instituted on behalf of the victim by the Office of the Attorney-
General, or by civil proceedings commenced by the victim himself. Where the
proceeds of the illegal contract are brought into or received in Ghana, the Ghanaian
court will have jurisdiction to make a determination on the same.

2. ILLEGALITY OF CONTRACTS

A contract is an agreement between two or more parties creating obligations that

are enforceable or otherwise recognizable at law.3 The elements of a valid contract
are namely: offer and acceptance, capacity to enter into the contract,
consideration, and intention to create legal relations.

A contract may be treated as illegal for various reasons. It may be considered so

because it contains an illegal promise and/or object. A contract may also be deemed
illegal if a promise contained therein has been, or will be, performed illegally,
though lawful.4 The legality or otherwise of a contract is often determined by
statute, public policy and/or morals.

Though the Courts do not ordinarily enforce illegal contracts, in the absence of a
dominating public interest to invalidate an illegal contract, such a contract could
be enforced if: (a) the party seeking the enforcement is less guilty than the other
party; (b) the law was violated without any severe moral turpitude; (c) the other
party would benefit unfairly from the contract voidance, and (d) the penalty would

3
Black’s Law Dictionary, 11th Edition
4
George A. Strong, “The Enforceability of Illegal Contracts” (1961), 12 Hastings L.J. 347

8
be disproportionally harsh compared to the degree of illegality.5 In such situations,
the party seeking enforcement will likely obtain certain reliefs based on a quantum
meruit basis and recover the justified value of the services or goods provided.6

2.1 Can Illegal Contracts executed or performed outside Ghana be Enforced in

Ghana?

Every contractual agreement assumes that the parties will uphold their respective
ends of the bargain and achieve the intended purpose of the agreement. However,
there are instances where a valid contract would be rendered void or unenforceable
by certain vitiating factors.

At common law, where a contract is illegal, property transferred or money paid

under the contract is not recoverable, mainly when the Plaintiff’s claim relies on
the said illegality. This principle is captured in the Latin phrase, “ex dolo malo non
oritur actio”, stated by Lord Mansfield in Holman v Johnson [1775]7 and loosely
translated as: “no court will lend its aid to a man who founds his cause of action
upon an immoral or an illegal act.”

There are four known exceptions to the rule that money paid, or properties
transferred, under an illegal contract are irrecoverable.8 First, where the Plaintiff’s
claim is not founded on the illegal act. Thus, in Schandorf v Zeini [1976]9, the Court
held as follows:

“For if the plaintiff can present his case for relief without necessarily
disclosing or relying on the illegality, the cases show that the courts will
not decline to assist him on the ground of his wrongdoing.”10

Second, where one party to an executory contract repents before performance. The
said party, in this instance, is allowed a locus poenitentiae. That is, an opportunity
to repent or change his mind.
Third, where the Plaintiff is not in pari delicto (equally guilty) with the Defendant.
Finally, where the contract is prohibited by a class protecting statute, that is, where
the party who is a member of the protected class is not regarded as in pari delicto
with the other party.

5
UpCounsel, “An Illegal Contract: Everything you need to know”, available at
https://www.upcounsel.com/illegal-contract#is-the-contract-void-or-unenforceable-because-it-is-
illegal accessed on September 6, 2022
6
Ibid
7
(1775) 1 Cowp 341
8
Christine Dowuona-Hammond, “The Law of Contract in Ghana” (2011), Frontiers Printing &
Publishing, Accra, Ghana
9
[1976] 2 GLR 418
10
Ibid, paragraph 37 at 435

9
In the case of Agbeko v Standard Electric Company [1978]11, it was held that:

“The position at common law was that, considerations of illegality and public
policy apart, where money was paid by the Plaintiff to the Defendant in pursuance
of a transaction thought to be a valid contract but which in form was devoid of
effect in law, such money was recoverable in quasi-contract as money received by
the Defendant to the use of the Plaintiff.”12

Further, the Supreme Court of Ghana, in the case of City & Country Waste v Accra
Metropolitan Assembly [2007-2008]13, on enforcing illegal contracts, noted that a
modern discretionary approach was necessary to ensure that justice would be
rightly served. In that case, the Court held that since the Plaintiff was not aware of
the illegality, the purpose of the rule rendering the contract illegal would not be
defeated if the Plaintiff was awarded “some compensation at a rate below the contract
rate for the services rendered to the Defendant.”14

It is important to note that the Court held, in addition to the above, that the
Plaintiff’s claim for restitution was distinct from the illegal contract.

Notably, the Supreme Court’s decision in the City & Country Waste15 case has, to a
large extent, made some advancement in finding a balance between unjust
enrichment of parties and enforcement of illegal contracts in Ghana.

Hence, it is submitted that under the current legal regime in Ghana, where Parties
execute a contract outside Ghana for the discharge of obligations in Ghana, the
contract may be rendered a nullity if the same is found to be at variance with public
policy and/or statute in Ghana. However, if a Party has received money in
consideration of discharging an obligation under the said illegal contract, the other
party may recover the money paid if that other party is able to prove that he was
not aware of the illegality of the transaction.

2.2 Proceeds of Crime and the Concept of Equitable Tracing

11
[1978] GLR 432
12
Ibid, holding 1 at 432; paragraph 20 at 438
13
[2007-2008] SGCLR 409
14
Ibid, paragraph 33 at 424
15
Ibid

10
‘Proceeds of Crime’ or ‘proceeds’ refers to any property or economic advantage
derived from or obtained directly or indirectly through unlawful activity, and
includes economic gains from the property and property converted or transformed,
in full or in part, into other property.16 Proceeds from crime may arise from private
contracts (e.g. for corrupt actions) or from dishonest receipt of funds. It is accepted
and practised in many legal jurisdictions that a criminal (or dishonest person)
should not be allowed to benefit from his criminal or dishonest activity. However,
it is not always easy to identify whether or not said material gain was acquired
through crime. Proceeds of crime are easily determined when they are directly
obtained from crime. For example, in countries where prostitution is a criminal
offence, monies paid to a prostitute for her services are direct proceeds of crime.

On the other hand, proceeds of crime are not easily ascertainable when they are
indirectly obtained from crime. For example, properties bought with money
obtained from crime can be proved to be proceeds of crime only if it can be shown
that the money acquired from the criminal activity is what was used to acquire the
property. It also becomes difficult to ascertain proceeds of crime when they become
mixed with other properties owned by the individual.

How, then, can a proceed of crime be established? There should be a causal link
between the criminal activity and the economic advantage or asset to show that
the economic advantage or asset was acquired through crime. In the case of NDPP
v Salie and Another [2014]17, the High Court of South Africa had to decide whether
or not the property in question was qualified to be proceeds of crime. In this case,
the National Director of Public Prosecutions had made an application against the
Respondents for the forfeiture of property allegedly obtained by keeping a brothel
and living off its earnings, contrary to the Sexual Offences Act 23 of 1957 of South
Africa. The Respondents first admitted that it was known that the massage parlours
were being used for sexual services, but later denied this. The Court therein held
that there was no evidence that either of the Respondents had any income from
legitimate sources and the money used to repay their debts was sourced from the
three brothel businesses they ran. Therefore, the properties in question were
proceeds of crime and would be forfeited.

Although the properties were not directly obtained from the commission of the
offences, the Court was able to identify a close connection between the property
and the commission of the offences.

16
Anti-Money Laundering Act, 2020 (Act 1044), s 63
17
[2014] 2 All SA 688 (WCC)

11
Due to the difficulty in tracing mixed funds, the principle of equitable tracing was
created to ensure that individuals do not forfeit their lawful assets. Per Lord Millett
in Foskett v McKeown [2000]18:

“Tracing is neither a claim nor a remedy. It is merely a process by which a

claimant demonstrates what has happened to his property, identifies its
proceeds and the persons who have handled or received them, and justifies
his claim that the proceeds can properly be regarded as representing his
property.”19

In the words of Lord Ellenborough, CJ, in Taylor v Plumer [1815]20:

“… the product of or substitute for the original thing still follows the nature
of the thing itself, as long as it can be ascertained to be such, and the right
only ceases when the means of ascertainment fail, which is the case when
the subject is turned into money, and mixed and confounded in a general
mass of the same description.”21

The equitable principle of tracing of proceeds of illegal contract has received

judicial pronouncement in Ghana. In the case of Owusu and Others v Agyei and
Others [1980]22, it was held that:

“Furthermore, through the equitable principle of the constructive trust and the
mechanism of tracing, a man could be forced to disgorge property in his
possession which belonged to another person.”23

3.3 Dealing with Proceeds of Crime in Ghana

In Ghana, every person has the right to own property either alone or in association
with others.24 Does this right permit an individual to enjoy property acquired from
the proceeds of a crime? For the purposes of this discussion, the most applicable
crimes will be a crime involving dishonesty which may arise in contractual dealings
between private persons and/or the crime of a private person corrupting a

18
[2000] 3 All ER 97 at 120
19
Ibid, paragraph 6
20
(1815) [K.B.] All ER 167 (Reprint: 1814-1823)
21
Ibid, paragraph 9 at 171
22
[1980] GLR 1
23
Ibid, holding 1 at 3; paragraph 86 at 37
24
1992 Constitution of Ghana, Article 18(1)

12
government official. These crimes may arise from contracts executed between the
parties involved.

There are laws which have been enacted to recover money or properties acquired
by an individual from crime. These laws create institutions which are empowered
to confiscate such assets for the State. There are other statutory provisions which
require that the proceeds from the crime may be returned to the victim of the
crime. In this part of the article, we will discuss some of these statutory provisions:

• The Economic and Organised Crime Office Act, 2010 (Act 804) establishes
the Economic and Organised Crime Office (EOCO) and has as one of its
functions, the recovery of crime proceeds.25 The office also has the power to
seize any property upon the reasonable suspicion that the property was
acquired from the proceeds of a crime.26

• The Office of the Special Prosecutor Act, 2017 (Act 959), the purpose of
which is to recover and manage proceeds of corruption and corruption
related activities.27 This law establishes the Office of Special Prosecutor
which has the power to seize any property upon suspicion that the property
was acquired from the proceeds of corruption or corruption related
offences.28

• The provisions of the Criminal and Other Offences (Procedure) Act, 1960
(Act 30) are more instructive. For the purpose of emphasis, the relevant
provisions will be reproduced verbatim:

Section 146—Restitution of Property Stolen, Etc.

“Where any person is convicted of having stolen or having obtained any property
fraudulently or by false pretences, the Court convicting him may order that the
property or a part thereof be restored to the person who appears to it to be entitled
thereto.”

Section 147—Restriction Disposal of Property of Accused Person.

“Where any money or other property in respect of which any person has been
charged before a court with an offence involving dishonesty is in the custody or
possession of a person other than the accused, the trial court of its motion or on
the application of the prosecutor or the alleged victim of the offence or any other
court on the application of the prosecutor or the alleged victim of the offence may

25
Economic and Organised Crime Act, 2010 (Act 804), s 3(b)
26
Ibid, s 24 (1)
27
Office of Special Prosecutor Act, 2017 (Act 959), s 2(b) and 3(d)
28
Ibid, s 32

13
 order that the person in whose custody or possession the money or property is
shall not part with or dispose of the money or property until otherwise directed
by the Court.”

Section 147A.—Payments of Money made by Accused Persons.

“(1) Where a person convicted of an offence involving dishonesty has, since the
commission of the offence, made payments of money or transferred any property
to any person, such payments or transfers shall be deemed to have been made out
of the proceeds of the offence, and accordingly any court may, on the application
of the prosecutor or the victim of the offence, order the person to whom the
payments or transfers have been made to return the money or property to such
person as may be specified by the court unless it is shown to the satisfaction of
the court by the person in respect of whom the order has been made—

(a) that he gave valuable consideration commensurate to the payments, of

money or transfers of property made to him, or;
(b) that he is a dependant of the person convicted and that the payments
of money were his reasonable living expenses made to him as such
dependant.”

On reading these statutory provisions as a whole, one can safely conclude that
where a crime arises from civil/contractual arrangements outside Ghana which are
found to be illegal, institutions created with the obligation to investigate and
prosecute these crimes may trace and seize these properties. In addition, a Court
of competent jurisdiction may order that victims of such illegal acts are to be
restituted with these properties.

From the foregoing, a person who acquires properties illegally will have his/her
constitutional right to own the property curtailed.

3. THE “CURIOUS” CASE OF AMA SERWAA V. GARIBA HASHIMU29

In this 2021 decision, the Plaintiff alleged that the Defendant acquired the
properties in Ghana, albeit in his name, with her earnings from prostitution in
Italy, an undertaking she was engaged in with the assistance of the Defendant. The
Plaintiff, thus proceeded to issue a writ of summons in Ghana to claim inter alia the
following reliefs:

(1) General damages against the Defendant for breach of promise to marry.

29
Civil Appeal No. J4/31/2020 with judgment dated 14th April, 2021

14
 (2) Refund of loans to the tune of €20,000 from the Defendant with interest
thereon from 2003 to date of payment.
(3) Half of the property located in two neighbourhoods, Madina and Adjirigano
(4) Half of the seven (7) machines brought in with the Plaintiff’s money which
have been in the custody of the Defendant as well as an account of proceeds
from same to date.
(5) An order for her to be given her share of the proceeds from their criminal
conduct.

The trial Court found the Defendant liable and entered judgment in favour of the
Plaintiff. In delivering its judgment, the trial Court accepted the evidence of the
Plaintiff that she acquired most of the properties they possessed from the act of
prostitution. The trial Court took judicial notice of the fact that the act of
prostitution is lucrative in Italy and the fact that the Plaintiff obtained a lot of
resources while in such business is not exaggerated. The profession of the
Defendant, on the other hand, was considered by the trial judge as not lucrative to
purchase all the properties acquired within that space of time.

In addition, the trial Court stated that the Plaintiff having contributed to the
properties should have a share of same. This was to prevent the Defendant from
having the enjoyment of the properties to the exclusion of the Plaintiff. There were
supportable documents evidencing that the properties in issue were acquired
during the subsistence of the relationship between the parties although these
relevant documents covering the properties were in the name of the Defendant.

The Defendant, dissatisfied with the judgment by the Trial Judge, filed an appeal
at the Court of Appeal. The learned justices of the Court of Appeal in overturning
the judgment of the trial Court, covered a number of reasons. For the purpose of
this article, we will focus on the issue of the proceeds from the crime of prostitution
and how same was dealt with by the Court of Appeal.

The Court of Appeal accepted the submission made by the Defendant that
prostitution is a criminal offence in Ghana and for the trial Court to admit facts
and evidence on proceeds of prostitution as the foundation of the Plaintiff’s claim
was erroneous in law. Relying on Section 40 of the Evidence Act, 1975 (NRCD 323)
which provides that: “The law of a foreign country is presumed to be the same as the
law of Ghana”, the Court of Appeal concluded that the Plaintiff failed to prove that
prostitution was a lawful business in Italy and that she was duly certified as a
prostitute. Failing to do so, the presumption that the law of Italy on prostitution is
the same as that of Ghana was inaccurate and the Plaintiff could not find an action
based on illegality and adduce evidence to support same. The issue of the illegality
of prostitution in Italy was a matter that went to the very jurisdiction of the trial
Court and to the Court of Appeal, it was duty-bound to consider such a

15
fundamental issue. The appellate court also emphasized that by its judicial oath, it
must uphold the Constitution and the laws of Ghana and not gloss over clear
violations of the statute. Based on this reasoning, the Court of Appeal set aside the
judgment of the High Court and concluded that the Plaintiff cannot be allowed to
enjoy in Ghana, the fruits of illegal conduct in Italy.

The Plaintiff, piqued by the decision of the Court of Appeal, appealed to the
Supreme Court. The Supreme Court set aside the judgment of the Court of Appeal
and restored the judgment by the High Court Judge. The Supreme Court found that
the Plaintiff sufficiently proved her claim for a half share of properties acquired in
the name of Defendant during the period of their relationship. By means of
evidence led at the trial Court, the Plaintiff contributed substantially to the
acquisition of the property through her source of income made as a commercial sex
worker in Italy. The Plaintiff therefore was deemed to have beneficial interest in
the property though held in the name of the Defendant. The Defendant held the
property merely as a trustee, that is constructive trustee, and the properties were
intended for the benefit of both parties. There was sufficient understanding
between the parties to demonstrate that they were preparing for a life together
back home in Ghana, and thus the beneficial interest in the property should cover
both parties. It was therefore reasonable for the Supreme Court to prevent the
unjust enrichment of the Defendant through the sole retention of the properties.
The Defendant being a constructive trustee of the properties was bound to allow
the Plaintiff benefit from the proceeds of prostitution which took place in Italy.
However, the fact that the prostitution was committed in Italy, did not deny the
Court in Ghana jurisdiction to order the Plaintiff to receive her portion of the
proceeds of the crime as long as the proceeds were invested in, or brought into,
Ghana.

The Supreme Court thus concluded that the Defendant cannot be unjustly enriched
or benefit from his wrong to the disadvantage of the Plaintiff. In addition, the
Supreme Court set aside the conclusion reached by the Court of Appeal that the
trial Court judge had the obligation to dismiss the entire claim on grounds of
illegality and public policy. In its explanation, the Supreme Court stated that that
the result of upholding the decision by the Court of Appeal will mean a person who
acquires property by means of sexual immorality should not be allowed to keep it,
but that one who was complicit in that immoral lifestyle was so morally superior
that he had a better right to keep the “unclean property”.

16
 4. CONCLUSION

The position of the law is clear that illegal contracts are generally unenforceable.
However, where a case falls under any of the exceptions mentioned above, the
Courts, judging from the Supreme Court’s disposition in the Ama Serwaa case, may
allow a party to recover such sums especially where this would prevent unjust
enrichment of the other party.
From the foregoing discussions, it is the opinion of the author that the legal regime
in Ghana ensures that persons who are parties to contracts found to be illegal are
not unjustly enriched or allowed to benefit from their wrongs at the expense of the
other Party. Either by means of criminal or civil conduct, the Courts in Ghana have
demonstrated that unless otherwise dictated by law, they will enforce the terms of
a contract, albeit illegal or unlawful, if the interest of justice in a given case
dictates. The position of the Ghanaian Court should be a disincentive to persons
who might be thinking of avoiding contractual obligations on the basis that the
contract is illegal in Ghana; for to allow the enjoyment of proceeds from crime to
the detriment of the other party involved in same, would offend public policy in
Ghana.

17
 ICC FraudNet
Global Annual Report 2023

Chapter 15 and 28
U.S.C. § 1782: New
Developments and
Uses in Fraud and
Asset Recovery cases

EDWARD H. DAVIS, JR.

ARNOLD B. LACAYO
ALEJANDRO RODRIGUEZ VANZETTI

iccfraudnet.org
 MEMBER INSIGHT EDWARD H. DAVIS JR., ARNOLD B.
LACAYO & ALEJANDRO VANZETTI

Chapter 15 And 28 U.S.C. § 1782:

New Developments and Uses in
Fraud and Asset Recovery Cases

EDWARD H. DAVIS JR., ARNOLDO B. LACAYO, ALEJANDRO VANZETTI

Abstract

Cross-border litigation is ever evolving, particularly as to the use of insolvency and

U.S.-style discovery as tools in fraud and asset recovery matters. The U.S. Supreme
Court and circuit courts continue to weigh in on critical issues, such as the
definition of a “debtor” in a Chapter 15 proceeding or the breadth of a “foreign or
international proceeding” in a § 1782 Application. In this article, examine these
and other recent developments, with the goal of educating litigators and
encouraging the use of creative solutions and tools to facilitate the recovery of
assets in cross-border proceedings.

CHAPTER 15
Overview

One of the goals of Chapter 15 proceedings is to foster uniformity in cross-border

cases.1 Foreign clients may wish to initiate a Chapter 15 proceeding to protect

1
Chapter 15 – Bankruptcy Basics: Ancillary and Other Cross-Border Cases, U.S. COURTS (accessed on
Feb. 15, 2022), https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-15-
bankruptcy-basics.

19
assets in the U.S. or to provide an avenue for an orderly repayment of creditors.2
Regardless of the motivation, recognition of a foreign insolvency proceeding in the
U.S. comes with several benefits: the debtor, through the Foreign Representative,
may seek an automatic stay on execution of debtor’s assets3 as well as the
examination of witnesses and taking of evidence under the broad latitude afforded
in U.S. bankruptcy proceedings.4 Above all, it allows a specialized bankruptcy
court—including experienced judges—to oversee complex, cross-border insolvency
proceedings.

A Chapter 15 petition requires identifying whether the debtor’s foreign proceeding

is considered a foreign main proceeding or a foreign non-main proceeding. A foreign
main proceeding is one that is “pending in the country where the debtor has the
center of its main interest.”5 Although a debtor’s registered office is presumed to
be the center of main interest, this is a rebuttable presumption,6 and U.S. courts
have considered a number of factors in making this determination, including: the
location of the debtor’s headquarters, the location of those who manage the debtor,
and the location of the majority of the debtor’s creditors, among others.7 If the
court recognizes the foreign proceeding as a foreign main proceeding, automatic
relief is triggered, which includes a stay and enjoining actions against the debtor.8
On the other hand, a foreign non-main proceeding is a foreign proceeding pending
in a country where the debtor has an “establishment,”9 which is “any place of
operations where the debtor carries out a non-transitory economic activity.”10 If
the court recognizes the foreign proceeding as a foreign non-main proceeding, it
may (but is not required to) grant certain relief, including relief automatically
available to a foreign main proceeding and discovery.11

Requirements for recognition as either a foreign main proceeding or foreign non-

main proceeding are twofold. Procedurally, a petition for recognition of the foreign
proceeding must be filed by the foreign representative: the foreign proceeding’s
representative appointed to administer the reorganization of the debtor’s assets.12
This includes providing the order commencing the foreign proceeding and
appointing the foreign representative.13 Substantively, the foreign proceeding

2
Leyza F. Blanco, Inside the Minds: Challenging Aspects and Issues of Cross-Border Chapter 15 Filings,
ASPATORE BOOKS (2012).
3
11 U.S.C. §1519(a)(1).
4
11 U.S.C. §1521(a)(4).
5
11 U.S.C. § 1517(b)(1).
6
11 U.S.C. § 1516(c).
7
In re SPhinX, Ltd., 351 B.R. 103, 117 (Bankr. S.D.N.Y. 2006), aff'd, 371 B.R. 10 (S.D.N.Y. 2007).
8
11 U.S.C. §1519 (a)(1).
9
11 U.S.C. § 1517(b)(2).
10
11 U.S.C. § 1502(2).
11
11 U.S.C. § 1521.
12
See 11 U.S.C. § 101(24).
13
11 U.S.C. § 1515(b)(1).

20
must be (1) a proceeding that is (2) judicial or administrative; (3) collective in
nature; that is (4) pending in a foreign country and (5) related to insolvency or
adjustment of debts; with (6) foreign court supervision; and in (7) liquidation or
reorganization.14

Since its enactment in 2005, Chapter 15 of the U.S. Bankruptcy Code, based on the
UNCITRAL Model Law on Cross-Border Insolvency, has proven to be an
indispensable fraud-fighting and asset recovery tool. The contours of Chapter 15’s
reach continue to be defined in cases from around the world. The below touches on
a selection of new developments that every cross-border insolvency practitioner
should be aware of.

New Developments

In re Al Zawawi

Sequor Law represents the foreign representatives in a Chapter 15 proceeding

currently before the Eleventh Circuit Court of Appeals.15 The court will decide an
issue of first impression in the circuit: whether “debtor,” as defined under § 109(a)
of the bankruptcy code, imposes a threshold requirement for Chapter 15 cases
requiring that the foreign proceeding involve a “debtor” that fits the U.S. statutory
definition. In In re Al Zawawi, 637 B.R. 663 (M.D. Fla. 2022), the debtor refused to
pay his former wife £24 million following a divorce, so he was adjudged bankrupt
under English law. The foreign representative sought discovery in the Middle
District of Florida and filed a Chapter 15 petition, which was subsequently granted.
On appeal, the debtor did not dispute that the foreign representative satisfied the
requirements of § 1517; instead, he argued that the requirements of § 109(a)—that
debtor reside or have a domicile, place of business, or property in the United
States—was not satisfied. The connection between § 109(a) and Chapter 15 lies in
§ 103(a) of the U.S. Bankruptcy Code, which establishes that various chapters of
the U.S. Bankruptcy Code are applicable to Chapter 15 cases.

The district court disagreed with debtor’s argument and agreed with the
bankruptcy court’s assessment, basing its decision on the legislative history,
Eleventh Circuit Court precedent, and comity: “[F]or a foreign representative,
recognition serves as the door to much of our nation's judicial system. Limiting
recognition to proceedings involving foreign debtors that qualify as “debtors”

14
11 U.S.C. § 101(23); See also In re Global Cord Blood Corp., 2022 WL 17478530, *7 (Bankr. S.D.N.Y.
Dec. 5, 2022).
15
Sequor Law’s cross-border insolvency practice has ample experience in filing and prosecuting
Chapter 15 proceedings. The firm has filed over 70 petitions across several U.S. federal courts in aid
of insolvency proceedings stemming from North and South America, the Caribbean, Europe, and
Asia.

21
under the Bankruptcy Code is simply inconsistent with the express language and
fundamental purpose of Chapter 15.”16

The Eleventh Circuit’s forthcoming decision on the issue may have significant
implications in the field of cross-border insolvency. The decision may limit the
relief available under Chapter 15 by incorporating § 109(a)’s definition of “debtor”
to foreign debtors as a threshold requirement, or, may expand that relief by
differentiating between a Chapter 15 “debtor” and “debtors” under Chapters 7 and
11.

In re Three Arrows Capital

Service of court documents abroad—necessary to initiate a lawsuit or to obtain

discovery—is closely intertwined to Chapter 15 proceedings which are cross-border
in scope by their very nature. Generally, in the U.S. federal courts, service of
process abroad is governed by FRCP 4(f), while service of a subpoena abroad is
governed by FRCP 45(b)(3). FRCP 4(f) has been recognized for its flexibility, such
as providing a path to serve process via e-mail and social media.17 However, service
of a subpoena has generally been executed via more traditional means, such as hard
copy delivery of the documents. But a recent Southern District of New York
Bankruptcy Court decision discussed how FRCP 4 governing service of process may
be “persuasive, if not controlling” to serving a subpoena abroad.18 In In re Three
Arrows Cap., Ltd., 647 B.R. 440 (Bankr. S.D.N.Y. 2022), the debtor’s cryptocurrency
trading business collapsed, leading to the commencement of liquidation
proceedings in the British Virgin Islands (“BVI”). The foreign representatives then
filed a Chapter 15 petition, and the U.S. bankruptcy court entered an order granting
recognition of the BVI bankruptcy as the foreign main proceeding. The foreign
representatives subsequently issued eighteen subpoenas to banks and
cryptocurrency exchanges, but the issue before the court was the service of
subpoenas upon the debtor’s two founders and investment managers. With no
knowledge of the founders’ whereabouts, the foreign representatives sought to
serve them via alternative means: social media and e-mail. While one founder and
the investment managers did not meet the territorial requirement of FRCP
45(b)(3),19 the court did allow service of a subpoena on the other founder, a U.S.
national residing in a foreign country, via the proposed alternative means. In
granting the foreign representatives’ request, the court agreed that FRCP 4’s

16
In re Al Zawawi, 637 B.R. 663, 670 (M.D. Fla. 2022).
17
See, e.g., WhosHere, Inc. v. Orun, No. 1:13-cv-00526-AJT-TRJ, 2014 WL 670817 (E.D. Va. Feb. 20,
2014) (authorizing service on an individual in Turkey by email and through Facebook and LinkedIn);
FTC v. PCCare247 Inc., No. 12 Civ. 7189(PAE), 2013 WL 841037 (S.D.N.Y. Mar. 7, 2013) (authorizing
service on individuals in India by email and through Facebook).
18
In re Three Arrows Cap., Ltd., 647 B.R. 440, 456 (Bankr. S.D.N.Y. 2022).
19
The requirement is that the targets be U.S. nationals or residents in a foreign country.

22
requirement that service be “reasonably calculated” to provide notice is instructive
in the context of FRCP 45, as this standard “derives from the underlying due
process requirement applicable under both rules.”20

28 U.S.C. SECTION 1782

Overview

28 U.S.C. § 1782 (“§ 1782 Application”) allows an interested party to seek U.S.-style
discovery for use in proceeding before foreign or international tribunal. The
seminal case Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004)
established the mandatory requirements that a § 1782 Application must meet: (1)
the request must be made by a foreign or international tribunal, or by any
interested person; (2) the request must seek evidence, whether it be the testimony
or statement of a person or the production of a document or other thing; (3) the
evidence must be for use in a proceeding in a foreign or international tribunal; and
(4) the person from whom discovery is sought must reside or be found in the district
of the district court ruling on the application for assistance. The case defined an
“interested person” broadly to include litigants before the foreign or international
tribunal as well as foreign and international officials and any person who has a
reasonable interest in obtaining judicial assistance.

The court in Intel Corp. also analyzed certain discretionary factors that courts may
consider in granting or denying judicial assistance under the statute: Whether “the
person from whom discovery is sought is a participant in the foreign proceedings”;
“[t]he nature of the foreign tribunal, the character of the proceedings underway
abroad, and the receptivity of the foreign government or the court or agency abroad
to U.S. federal-court judicial assistance”; “whether the § 1782(a) request conceals
an attempt to circumvent foreign proof-gathering restrictions or other policies of
a foreign country or the United States”; and whether the request is otherwise
“unduly intrusive or burdensome.”

While both the mandatory and discretionary factors have been heavily litigated
since the Intel Corp. decision, the issue of whether the proceeding abroad
constitutes a “foreign or international proceeding” was recently analyzed by the
U.S. Supreme Court in a case that resolved a split among the U.S. Circuits Courts of
Appeal.

New Developments

ZF Auto and its Nominal Progeny

20
In re Three Arrows Cap., Ltd., 647 B.R. 440, 456 (Bankr. S.D.N.Y. 2022).

23
In ZF Auto. US, Inc. v. Luxshare, Ltd., 213 L. Ed. 2d 163, 142 S. Ct. 2078 (2022), the
U.S. Supreme Court addressed the issue of whether an arbitration proceeding
abroad constitutes a “foreign or international proceeding” under § 1782. Before ZF
Auto, circuit courts disagreed on this issue with respect to private arbitral tribunals.
The U.S. Supreme Court thus consolidated two cases—one involving a private
arbitration and one involving an investor-state arbitration—to decide the issue.

In excluding the private and investor-state arbitration proceedings before it from

the scope of “foreign or international proceedings” under § 1782, the court held
that a “foreign tribunal” exercises governmental authority conferred by one
nation, while an “international tribunal” exercises the same control conferred by
two or more nations. However, the court accepted that the issue of investor-state
arbitration is a closer question, stating that “sovereigns might imbue an ad hoc
arbitration panel with official authority.”21

Even though the ZF Auto decision is recent, district courts have already weighed in
on the issue of whether an investor-state arbitration proceeding constitutes a
“foreign or international proceeding.” In In re Alpene, Ltd., No.
21MC2547MKBRML, 2022 WL 15497008 (E.D.N.Y. Oct. 27, 2022), a magistrate
judge in the District Court for the Eastern District of New York stayed a § 1782
Application filed by a Hong Kong corporation and claimant in an investor-state
arbitration against the Republic of Malta. This particular arbitration took place
before the World Bank’s International Centre for the Settlement of Investment
Disputes (“ICSID”). The court’s inquiry centered on whether Malta and China (the
treaty parties) intended to “imbue the body in question with governmental
authority,” as outlined in ZF Auto.22 The court analyzed certain parallels between
the arbitration proceeding initiated by the Hong Kong corporation and the
investor-state arbitration in ZF Auto, noting that “the inclusion of domestic courts
as one option [in the treaty] undercut the contention that the arbitration panel had
governmental authority.”23 Recognizing that the purpose of § 1782 is to promote
comity, the court stated that ICSID tribunals are unable to provide reciprocal
discovery assistance for U.S. cases. Even though the decision is a major shift
towards non-recognition of investor-state arbitration in the context of § 1782
Applications, the court acknowledged that In re Alpene is the first case to analyze
the issue in the context of ICSID post-ZF Auto. The applicant has filed an objection
to the magistrate judge’s ruling. The district judge’s decision to either adopt or
reject the magistrate’s ruling is likely forthcoming and may shed further light on
the issue.

21
ZF Auto. US, Inc. v. Luxshare, Ltd., 213 L. Ed. 2d 163, 142 S. Ct. 2078, 2091 (2022).
22
Id.
23
In re Alpene, Ltd., No. 21MC2547MKBRML, 2022 WL 15497008, at *2 (E.D.N.Y. Oct. 27, 2022).

24
Soon thereafter, another New York federal court came to the same conclusion as In
re Alpene. In In re Webuild S.P.A., No. 22-MC-140 (LAK), 2022 WL 17807321
(S.D.N.Y. Dec. 19, 2022), the court held that an ICSID proceeding stemming from a
treaty between Panama and Italy is not a “foreign or international tribunal.” Even
considering these recent district court decisions, it is premature to rule out the use
of § 1782 Applications in investor-state arbitrations. Given the U.S. Supreme
Court’s ambiguity in ZF Auto, a circuit split may yet again result.

While the door may have seemingly closed to the use of § 1782 in the context of
some arbitral disputes, § 1782 remains as vital as ever to fraud and asset recovery
practitioners. The recent decisions have left undisturbed the ability to file § 1782
Applications on an ex parte basis, both before (in reasonably contemplation of) a
foreign proceeding, as well as during the pendency of an already-filed proceeding.
As well, § 1782 judicial assistance remains available to gather evidence for use in a
wide array of cases including civil, criminal, administrative, probate, marital and
post-judgment cases. In the arbitral setting itself, § 1782 may remain relevant in
the context of cases where arbitration, corruption, and post-arbitral award
enforcement intersect.24

24
Sequor Law has been and continues to be at the forefront of these and other developments in the
realm of § 1782, representing diverse interested parties seeking various forms of evidence in U.S.
courts.

25
 ICC FraudNet
Global Annual Report 2023

Sony Insurance $150m Fraud Case

Successful
International
Cooperation to Seize
Embezzled Funds
Converted to Bitcoin
HIROYUKI KANAE
HIDETAKA MIYAKE

iccfraudnet.org
MEMBER INSIGHT HIROYUKI KANAE & HIDETAKA MIYAKE

Sony Insurance USD 150M Fraud

Case: Successful International
Cooperation to Seize Embezzled
Funds Converted to Bitcoin

HIROYUKI KANAE & HIDETAKA MIYAKE

Abstract

In this article, Hiroyuki Kanae, and Hidetaka Miyake, Partners at Anderson Mori &
Tomotsune discuss a recent significant fraud case in Japan. There were many
noteworthy points in this case, such as the fraudulent transfer of a huge amount of
illegal money by an employee who was working remotely, the conversion of the
stolen funds into cryptocurrency, and the prompt recovery of all assets through
international cooperation between the Japan and U.S. authorities.

1. Introduction

Sony Life Insurance Co., Ltd. (‘Sony Life’) publicly released on August 4, 2021
that its overseas consolidated subsidiary, SA Reinsurance Ltd. (‘SAR’), learned
that approximately JPY 17 billion (approximately USD $155 million) had been
transferred from its bank account without approval. On December 1, 2021, Sony
Life stated that its employee (‘Mr I’) was arrested by the Tokyo Metropolitan
Police Department on November 29, 2021 on suspicion of fraud. Furthermore,
on December 21, 2021, Sony Life revealed that another case concerning Mr I had
been sent to the prosecutor’s office on suspicion that he had violated the Act

27
 Concerning Punishment of Organized Crimes, Control of Crime Proceeds and
Other Matters.

In the meantime, the U.S. Department of Justice (‘U.S. DOJ’) announced on

December 20, 2021 (local time) that it had filed a civil forfeiture complaint to
protect and return to Sony Life more than USD $154 million seized by the FBI
on December 1, 2021. The U.S. DOJ's public announcement revealed that Mr I
had carried out the fraud in May 2021, and that the stolen funds had been
converted into approximately 3,879 bitcoins worth more than US $180 million
at the time of the public announcement.

There were many noteworthy points in this case, such as the fraudulent transfer
of a huge amount of illegal money by an employee who was working remotely,
the conversion of the stolen funds into cryptocurrency, and the prompt
recovery of all assets through international cooperation between the Japan and
U.S. authorities.

In this article, we review this case based on publically available information and
discuss the lessons that can be learned from it.

2. Massive illegal money transfers carried out during remote work

SAR was engaged in the reinsurance business in Bermuda and was in liquidation
with a view to being dissolved at the end of September 2021. Mr I was seconded
to SAR from Sony Life and was in charge of the liquidation procedures such as
converting SAR’s financial assets into cash and returning them to Sony Life.
Three persons including Mr I were seconded from Sony Life to SAR, and Mr I
had only one supervisor.

SAR held funds in multiple accounts, and Sony Life transferred those funds to
banks in Japan through a pattern of transactions. Specifically, Sony Life
transferred Japanese yen to its Citibank account in Bermuda and converted it
into U.S. dollars. Mr I was in charge of these currency exchange and fund
transfer transactions. Sony Life handled the international remittance process
securely through Citibank's Secure Financial Transfer Portal/Protocol (‘SFTP’).
The money transfer process by SFTP required double authentication through
the email accounts of Mr I and his supervisor.

From December 2020 to February 2021, Mr I changed the email account of his
supervisor in the SFTP authentication process from the official email account
of Sony Life to another email address controlled by Mr I without permission. In
March 2021, Mr I opened an account without permission in the name of SAR

28
 with a crypto asset company, Coinbase, by using false information that gave the
impression that his supervisor was the individual associated with the Coinbase
account, and in April of the same year, he set up a cold wallet and established a
rule that would cause all funds deposited into the Coinbase account to be
transferred into the cold wallet.

Following these preparatory actions, from May 18 to 20, 2021, Mr I fabricated

his supervisor's approval in the SFTP authentication procedure and transferred
JPY 16,962,800,068 to the Citibank account in Bermuda, and converted the
amount from Japanese yen to USD 154,932,103.17. In addition, Mr I instructed
Citibank to remit the converted US dollars in full to a Silvergate Bank account
in California which he managed. The account was a Coinbase credit account,
and the entire dollar amount was converted into approximately 3,879 bitcoins
and transferred to Mr I's cold wallet as configured under the abovementioned
rule. It appears that Mr I thought that if the stolen money was converted to
cryptocurrency, it would not be frozen even after the discovery of the crime, so
he exchanged it for Bitcoin.

3. Prompt asset recovery via international cooperation

On May 20, 2021, Sony Life confirmed the illegal fund transfer and reported the
incident to the Financial Services Agency and the Tokyo Metropolitan Police
Department. Furthermore, Sony Life filed a criminal complaint with the Tokyo
Metropolitan Police Department after it found in its investigation into the
incident that no unauthorized access or system malfunction had occurred.

On May 25, 2021, 5 days after the illegal money transfer was executed, Mr I sent
an anonymous email in both Japanese and English to his supervisor’s official
email address with the message, "If you accept the settlement, we will return
the funds back." Over the next two days, May 26 and 27, Mr I sent anonymous
e-mails to his supervisor and certain executives of Sony Life threatening them
not to report the incident to the police.

In the meantime, the Tokyo Metropolitan Police Department asked the FBI to
cooperate in the investigation and identified the final recipient of the money
from Mr I's Bitcoin address. The U.S. DOJ announced that it had seized all of the
approximately 3,879 bitcoins and that it had filed a civil forfeiture complaint
with a local US court to protect and refund the funds to Sony Life. The bitcoins
were kept in Mr I's cold wallet, but the Tokyo Metropolitan Police Department
conducted a search of his house and other places and obtained evidence leading
to the discovery of the private key to the wallet, and conducted an analysis in
cooperation with the FBI. The U.S. DOJ stressed that the stolen funds were

29
 successfully seized in full because Sony Life and Citibank had immediately
contacted and cooperated with the authorities after discovering the fraudulent
money transfers and because of the FBI's international cooperation with foreign
authorities.

4. Criminal charges and preventive measures

After conducting the necessary investigations, the Tokyo District Public

Prosecutors Office indicted Mr I on fraud and other charges. On June 7, 2022,
the first public hearing was held at the Tokyo District Court where Mr I admitted
to the criminal charges. On November 18, 2022, the Tokyo District Court
imposed a jail term of 9 years on Mr I.

On July 20, 2022, Sony Life announced measures to prevent a recurrence of this
incident. In particular, Sony Life announced that it will strengthen its
management of employee information, based on its analysis that one of the
causes of this incident was that copies of the ID documents related to the
persons who were authorized to authenticate transactions through SFTP were
stored in a location that Mr I could access and use illegally, and that appropriate
measures such as setting a password to restrict access were not taken.

Sony Life also emphasized that SAR did not conduct its own ID management
through online banking since it ceased its reinsurance operations in April 2021,
and that SAR did not conduct daily checks of its bank account balances since
April 2021, when daily fund transfers ceased to occur. In addition to thorough
checking of bank account balances on a daily basis, Sony Life also decided to
conduct regular checks of ID registrations by overseas subsidiaries, and to have
the results verified by the overseas subsidiaries management division and
headquarters management division of Sony Life.

Sony Life also announced on July 20, 2022 that, following judicial proceedings
in the United States, the bitcoins were converted to US dollars for the purpose
of protecting assets, and on July 12 of the same year, a court ruled that
approximately USD 161 million would be returned to SAR. It was suspected that
Sony Life recovered approximately JPY 22 billion, which is JPY 5 billion more
than Mr I fraudulently transferred, due to the weaker Japanese yen.

30
5. Lessons learned from this case

While remote working practices create environments that facilitate employee

access to company materials and information to improve operational efficiency,
it is also important to note that this increases the risk of fraud.

This case has a significant precedential value in the sense that funds converted
into cryptocurrency were successfully recovered. This means that the
conversion of stolen funds into cryptocurrency does not allow a perpetrator to
escape the authorities' pursuit. However, considering the fact that the rapid
response of companies and international cooperation among authorities
contributed significantly to the early recovery of assets in this case, companies
need to bear in mind the importance of responding quickly at the initial phase
of an incident.

31
 ICC FraudNet
Global Annual Report 2023

Argentine
Leading Cases in
Cyber Crime:
First conviction for
computer fraud in Ciudad
Autónoma de Buenos Aires

JUSTO LO PRETE
LUCÍA FILIPELLI COLLETTO

iccfraudnet.org
MEMBER INSIGHT JUSTO LO PRETE & LUCÍA FILIPELLI
COLLETTO

Argentina: Leading Case in Cyber

Crime: First conviction for computer
fraud in Ciudad Autónoma
de Buenos Aires

JUSTO LO PRETE & LUCÍA FILIPELLI COLLETTO

Abstract

In this article, Justo Lo Prete and Lucía Filipelli Colletto discuss convictions for
cyber crime; and computer manipulation techniques accessed by the defendants to
use the money from the virtual wallets of mobile devices that were reported stolen,
lost or misplaced, in the context of Argentina.

Introduction

On July 20, 2022, the first conviction1 for computer fraud took place in the
jurisdiction of Ciudad Autónoma de Buenos Aires. Judgment was reached by the
judicial approvement of an in-court settlement entered into between the accused
and the Specialized Prosecutor's Division for Cybercrimes and Misdemeanors, with
the consent of the private prosecutor.

1
Preliminary Criminal Investigation (IPP) Number 26836/2022-0, Legal Id. Code (CUIJ): IPP J-01-
00026836-0/2022-0, Case No. 1983681/2022, of the Criminal, Misdemeanor and Petty Offenses Court
No. 8 of Ciudad Autónoma de Buenos Aires, in charge of Judge Natalia Marcela Molina.

33
The investigation began on March 16 2022. Several evidentiary measures were
ordered, including a search warrant carried out on July 11, when the accused parties
were arrested and property that could be related to the act was seized. Among said
property was the cell phone of the —currently convicted— accused party, which
was accessed by means of their biometric data, pursuant to a granted access
request.

The conviction was based on the complexity of the acts, the involvement of
multiple parties, the legal interest affected, which was determined to cause
multiple offenses, and the violation of the victims' right to privacy.

In addition, investigative tasks were ordered to determine the ownership of the

seized assets for their restitution.

a. The facts

It was proven that by means of computer manipulation techniques that the accused
accessed the virtual wallets of more than one hundred users through their logged-
in sessions in the cellular devices that were reported stolen, lost or misplaced.

After entering, they sent money, requested account funds, made payments and
applied for credits. In order to make use of those funds, the money was sent to bank
accounts owned by the convicted party. The latter kept part of these funds and
transferred the rest to third parties.

b. About the access to the cell phone through biometric data

In the search warrant, the cell phone of the now convicted party was seized, and
then the Prosecutor's Office requested this party to show their face, iris or
fingerprint to effectively unlock the device in order to preserve the information
contained in it related to the investigation, in case third parties could remotely
access the stored data. The Prosecutor’s Office also emphasized that the measure
was necessary due to the technology of the equipment, since there was no tool that
would allow the unlocking of the relevant smartphone.

They understood that the privilege against self-incrimination was not violated,
since this measure did not imply obtaining confessions or statements in a coercive
manner. Furthermore, they warned that expert evidence on the accused was not
prohibited, such as: line-up identifications, compulsory blood extractions, urine
analysis, fingerprinting and alcohol breathalyzer tests.

34
Finally, the Prosecutor’s Office understood that the limited content of the
information to be sought implied a minimal intrusion in the intimate sphere of the
accused.
In order to grant the measure, the Judge concluded that, given the type of crime,
the need to unlock the cellphone was relevant and evident. Nevertheless, it should
be carried out with absolute respect to the privacy of the accused party.

The Judge also took into account the international context including the Budapest
Convention, the proportionality of the measure, the principle of freedom of proof
and the non-existence of absolute rights. In this sense, the Judge understood that
the requested access to the equipment was legal because it protects the rights of
society, who becomes a potential victim, thus contributing to social peace. In this
regard, the Judge added that the measure was proportional in view of the rights of
the victims, and also made reference to previous judgments issued by the National
Supreme Court of Justice, which ruled on the coordination of private and public
interests and individual rights with those of society.

Finally, the Judge understood that the privilege against self-incrimination was not
affected, referring to case law and the need to avoid anachronism, in relation to
technological advances in the interests of society in the pursuit of crimes. In
addition, the Judge held the accused was bound by a duty of tolerance in
accordance with the requested measure, since said party was a passive holder of
the property and the request did not imply degrading, humiliating, ill-treatment,
cruel or unnecessary practices, nor practices harmful to health.

c. On the conviction and its grounds

The accused was sentenced to two years and nine months in prison for being
considered a direct participant of the offense, pursuant to article 173(16) of the
Argentine Criminal Code (hereinafter “CC”). Furthermore, the accused was
sentenced to abide by certain rules of conduct for three years according to article
23 of the CC, and all the seized assets were confiscated.

In the Conclusions of Law of the sentence, the Judge provides an analysis of the
criminal offense of Article 173(16) of the CC as a special type of fraud, where it is
required that:

“...changes in ownership (are) carried out without the owner’s knowledge, who
suffers the manipulation of his or her data or system without the person being aware,

35
and does not apply to cases in which information science is one of the means with which
the scheme or deception was forged.”2

In this sense, the judge ruled that:

“...the protected legal interest appears as multiple or subject to diverse offenses, since
it should not be forgotten that in this case not only the property of each of the victims —
who are all individuals— was affected, but there was also an alteration of the normal
development of the information system that nowadays automates the distribution of
money and organizes the economy of a system, since new technologies also undoubtedly
contribute to the economic development of a society.”3

On the other hand, it was noted that the fraud entailed a complex criminal
structure, with the participation of different perpetrators, at different times and
making use of technology, often state-of-the-art, for the consummation of the act.

The Judge uses the terms “informatic mule” or “cybermules” to explain the direct
participation of the convicted party, given that the party enabled the subtraction
and disposal of the funds using a number of accounts where the funds were
received, and where these funds were subject to broad powers of disposal.

Prior to the intervention of the accused, other parties were also involved, like those
stealing the cell phone or carrying out phishing actions; those manipulating the
information (unlocking the devices, collecting the data, sending the funds); and
the party in question who received the money and later partially forwarded it to
higher links in the criminal chain. Although these actions may be carried out by
the same person, cybercrimes already committed show the involvement of
different actors mainly in an attempt to avoid receiving any punishment under this
scheme. In spite of this division of roles and duties, all of them were considered to
act maliciously and as direct participants for the consummation of the crime.

In addition, the judgment states that the victims were deprived of their funds
through an intrusion into their privacy, noting that the judgment did not judge the
way in which the cell phones were obtained, but rather the crime of disposal of
assets perpetrated with them. Specifically, it states:

2
“Casos especiales de defraudación” [Special cases of fraud] by Pedro Rodriguez at
https://www.pensamientopenal.com.ar/cpcomentado/37768-art-173-casos-especiales-
defraudacion, p. 31.
3
Idem citation 1.

36
 “...the victims' assets were misappropriated through an invasion of their privacy,
since they directly accessed their accounts, their cell phones and attempted against the
reliability of the information system or directly attacked the information security.”4

This impact is reinforced when analyzing the type of acts carried out, since the
judgment states:

“Regarding the invasion to the privacy revealed with this criminal actions, it was
necessary to overcome the scope of reserve in the device established through the
information security system, such as, for instance, to enter the passwords to access the
bank accounts. To make it clear, something that has a password, or whose access is not
‘open to the public’ is undoubtedly within a sphere of private life that each individual
wishes to keep safe, to avoid possible intrusions or undesirable dangers; similar to what
happens when the door of a house is closed.”5

Finally, the confiscation of the seized assets was determined — aimed at them
being returned to their owners – as “...a measure that will certainly provide a remedy
for society and possible victims, since it will undoubtedly be a fundamental element to
bring peace to society."6

Conclusion

The conviction in this matter demonstrates the rapid and effective work carried out
in this case. It further shows a proportionate and reasonable intervention of the
different authorities in relation to the rights at stake. Measures were taken to
preserve the rights of the convicted party, while the rights of the victims and of
society as a whole were protected as parties indirectly affected by the actions that
had been carried out.

4
Idem citation 1.
5 Idem citation 1.
6
Idem citation 1.

37
 ICC FraudNet
Global Annual Report 2023

Friend or Foe –
The Regulator as
an Ally?

JOHN GREENFIELD
DAVID JONES
ROBIN GIST

iccfraudnet.org
MEMBER INSIGHT JOHN GREENFIELD, DAVID JONES &
ROBIN GIST

Friend or Foe – the Regulator as an

Ally?

JOHN GREENFIELD, DAVID JONES & ROBIN GIST

Abstract

In this article, John Greenfield, David Jones and Robin Gist of Carey Olsen
examine tools available to the Guernsey regulator which, if deployed correctly,
can provide powerful assistance in investigating wrongdoing in regulated
business and in effecting recoveries or investors.

Introduction

So – you have just received instructions from investors (or on their behalf by
liquidators) to recover their investments which appear to have disappeared down
the black hole of a Ponzi scheme. The Regulator in the jurisdiction responsible for
supervising the people or entities involved in the scheme will be on your side –
right? Well, maybe or maybe not. Those Regulators may have other influences on
them, e.g. political, financial (resources), reputational which may make it feel like
the first priority is not always recovery for investors.

We have seen all of these – often combined in one case. A few years ago, one such
Ponzi scheme resulted in liquidators being appointed over the Fund in question
by the BVI Court, such appointment being recognised by the Royal Court in
Guernsey as substantial proceeds were resting in a Guernsey bank account. The
liquidator sought orders from the Guernsey Court to enable them to take charge

39
of these proceeds and be in a position to distribute to all the victims.

At the last minute, the US Securities and Exchanges Committee (‘SEC’) sought to
intervene and be joined as a party in the Guernsey proceedings on the basis that
there were some US resident investors among the victims. Apart from anything
else, this would certainly have led to increased costs in professional fees and a
consequential reduction in the ultimate funds available for the victims. On this
occasion, the Guernsey Court stood firm on the basis that the victims did not need
another "cheer leader" in the proceedings.

Some legal principles

It is inescapable that one consequence of the international sanctions imposed as

a result of Russia’s invasion of Ukraine has been a heightening of the regulatory
risks - and scrutiny of them - for offshore businesses and regulators alike.

The Russia (Sanctions) (EU Exit) Regulations 2019 (the ‘UK Regulations') are given
the direct effect of law in Guernsey. Upon the designation by the UK of a person
or entity, that person or entity becomes a designated person pursuant to Guernsey
law as well.

Failure to comply with any obligations under the UK Regulations, as implemented

by the Sanctions (Implementation of UK Regimes) (Bailiwick of Guernsey) (Brexit)
Regulations, 2020 (the ‘2020 Regulations’), or under the Sanctions (Bailiwick of
Guernsey) Law, 2018 (the ‘Sanctions Law’) is a criminal offence under the
Sanctions Law punishable with imprisonment and/or a fine.

When a person becomes designated pursuant to the power in regulation 5, they

become subject to an asset freeze as set out in regulations 11 to 15. Broadly, these
provisions amount to a complete asset freeze.

Some companies registered in Guernsey continue to be adversely affected by

sanctions, and careful thought is proving necessary when dealing with any entity
or person with a Russian nexus – whether designated or not. Banks, in particular,
appear to have modified their risk appetite such that certain Guernsey entities
find themselves without banking services – even though they are not dealing with
any person that is the subject of sanctions.

In some cases, companies have become so crippled by the consequences that the
Regulator has had to step in.

The Guernsey Financial Services Commission (the ‘GFSC’) might expect to receive

40
criticism from an article such as this for getting in the way of debt recovery and
fraud investigation processes. However, this is not our experience. There are
occasions where the GFSC may be there to lend a hand. Guernsey regulated
entities are always required to approach their dealings with the GFSC with
openness and transparency, and the need for this has never been more apparent
than in the current circumstances. This requirement for openness and
transparency has, on occasion, provided justification for the GFSC taking matters
into its own hands and putting companies in to administration management.

The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law,

2020, as amended (the ‘Enforcement Powers Law’), provides the power for the
GFSC to make an application for an administration management order (an ‘AMO’)
under section 81(1)(b) where it is of the opinion that it is necessary or desirable
that an order should be made in relation to an administered person for the
purpose of the protection of the public or the reputation of the Bailiwick as a
finance centre. An administered person is, effectively, a regulated or registered
entity.

Recent use of the AMO in respect of Russian Sanctions

The procedure was utilised in April 2022, when the GFSC was granted an AMO in
relation to VTBC Asset Management International Limited (‘VTBC’), a company
licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (the ‘PoI
Law’).

VTBC is a Guernsey subsidiary of VTB Capital plc, one of three strategic business
arms of the VTB Group. VTB was made the subject of asset freeze sanctions on 24
February 2022 due to its ownership and/or association with the Russian
government. The imposition of sanctions led, inexorably, to significant trading
difficulties.

In a publication on the GFSC's website, it stated that it felt that it was necessary
to bring VTBC into administration in order to protect the interests of investors,
and on a larger scale, the Bailiwick of Guernsey as a financial centre, given the
ongoing impact of sanctions arising as a result of the Russo-Ukrainian war.
Administration managers were subsequently appointed conditional on the issue
of a licence by the Committee for Policy & Resources under regulation 64 of the
UK Regulations (which allows for the issuing of licences for actions that would
otherwise be prohibited).

Carey Olsen later assisted the GFSC in an application for an AMO over ITI Trade

41
Limited (‘ITI’), a prime brokerage business with significant dealings with Russian
entities, individuals and securities also licensed under the PoI Law. The
appointment of Joint Administration Managers was granted effective
immediately, the Regulator again maintaining that this was imperative to protect
the Bailiwick's reputation and to protect investors.

Why are AMOs of interest in the asset recovery context?

While the examples of the use of AMOs above were, without doubt, driven by the
impact of the sanctions regime, they have demonstrated the utility of the AMO
process in assisting in recovering assets for defrauded investors in a wider fraud
context.

The GFSC is the only entity that can apply for an AMO. In addition to utilising an
AMO where there is a risk to the reputation of the Bailiwick of Guernsey as a
financial centre, the GFSC may apply for an AMO where there has been, will, or is
likely to be an act or omission, that has caused or is likely to cause undue risk to
customers or potential customers. If it considers that the making of an AMO would
protect existing or potential customers (section 80(1)(a) of the Enforcement
Powers Law), the GFSC can make application to the Court. Consequently, the two
available limbs can be applied in a broad context including to protect victims of a
potential fraud.

An AMO directs that, during the period for which the order is in force, the
business, property, and affairs of the administered person will be managed by the
administration manger(s) appointed by the Royal Court.

The GFSC itself may also be appointed as administration manager (section 81(3)).
In practice, however, it appears that the general rule of thumb will be that an
experienced insolvency practitioner or professional will be appointed.

The application for, and subsequent grant of, an AMO creates a moratorium on
other action against the company. While insolvency proceedings may continue
during the period between the application for an AMO and the making of an order
(s.83(2) of the Enforcement Powers Law), once an AMO is in force, no insolvency
proceedings may be commenced against the company (s.84(1)), and from
application onwards it cannot be voluntarily dissolved (s.83(1)(a)/s.84(2)(a)) and
no proceedings may be commenced against it save with leave of the
administration manager (once in place) or the Royal Court (s.83(1)(b)/s.84(2)(b)).

In addition, the administration manager has significant powers. By s.86(7) of the

42
Enforcement Powers Law the administration manager has power -

• to remove any holder of a supervised role; and

• to call any meeting of members, creditors, customers, partners, limited
partners or general partners of the administered person.
• By s.100 the administration manager has the power, among other things -
• to employ and dismiss servants;
• to take possession of, collect and get in the business, property and affairs of
the administered person;
• to sell or otherwise dispose of the business, property and affairs of the
administered person;
• to appoint an Advocate or other professionally qualified person to assist in
the performance of his or her functions;
• to bring or defend any action or other legal proceedings in the name and on
behalf of the administered person; and
• to appoint any agent to do any business which he or she is unable to do or
which can more conveniently be done by an agent.

The GFSC's powers do not end upon the appointment of an administration

manager. It retains the power to apply for an injunction where it is concerned
either that an administered person has or may perform any act or make any
omission that is likely to cause undue risk to customers, the public or the
reputation of the Bailiwick as a finance centre – or where there is a reasonable
likelihood of the same (s.99(1) of the Enforcement Powers Law).

The result is a powerful weapon for asset recovery and enforcement which is, in
many ways, even more powerful than a traditional insolvency appointment. While
the ability to apply for an AMO does not, itself, sit in the hands of the ordinary
creditor or concerned investor, it would appear to be open to such persons to
approach the GFSC to seek to persuade it that applying for an AMO is the only
appropriate course of action.

Conclusion

An AMO may, in the right circumstances, provide a powerful tool in the asset
recovery toolkit by placing a company into the hands of an experienced
professional with power to take control of assets and with significant investigative
powers. Those powers are bolstered by the support of the regulator which, itself,
may have broader powers available to it to secure further information.

To summarise, it can be very helpful for the victim to be able to piggyback on the

43
process of the Regulator to be able to recover their losses, turn over stones to see
what is lying underneath, and have the ready ear of their local courts.

While there may be a price to pay – some loss of control of the process of
recovery/enforcement and in particular the pace of such process, and the
inevitable feeling of "being left in the dark" that may ensue – a regime that is
regulator driven, that provides a concerned party with a relatively easy "in" with
the local court, and which can be used to investigate and pursue wrongdoing
might, in the right circumstances, be just the mechanism a concerned investor
requires.

In this context, it should be noted that a relatively small offshore jurisdiction can
have its advantages. In Guernsey, we have a regular dialogue with all the team at
the Regulator's Department and, indeed, often represent them in some of the
more challenging court applications. As a result, good professional relationships
develop, and a good exchange of information is consequentially available. For the
victims to know what is actually going on and when some positive steps will be
taken can help enormously to ease the pain of the loss they have suffered.

44
 ICC FraudNet
Global Annual Report 2023

Role of Arbitration
and Mediation in
Insolvency

SHREYAS JAYASIMHA
PUNTHI SHAH
TUSHAR TYAGI

iccfraudnet.org
MEMBER INSIGHT SHREYAS JAYASIMHA
PUNTHI SHAH & TUSHAR TYAGI

Role of Arbitration and Mediation in

Insolvency

SHREYAS JAYASIMHA, PUNTHI SHAH AND TUSHAR TYAGI

Introduction

In this article, Shreyas Jayasimha, Punthi Shah and Tushar Tyagi analyze how
Alternative Modes of Dispute Resolution have been gaining traction across the
world as an apt alternative to litigation, including with particular reference to
India. Insolvency proceedings in recent times have clashed with such alternative
modes of dispute resolution, especially arbitration. In this regard, it becomes
pertinent to shed light on the Insolvency and Bankruptcy Code, 2016 which has
been one of the most significant national legislations on insolvency and liquidation
that has yielded some outstanding results in its nascent stages. However, there
exist certain grey areas within the legislation, one of which this article aims to
address – the clash between imposition of a moratorium and that of an
initiation/continuation of an arbitration proceeding. The article is divided in the
following order –

Part I
1. Indian Perspective
1.1. Arbitration as a tool for dispute resolution
1.2. The Code
1.3. Intersection between CIRP and Arbitration
2. International Perspective

46
 2.1. United Kingdom
2.2. Australia
2.3. United States of America
3. The Road Ahead
4. Conclusion

Part II
1. Indian Perspective
1.1. Benefits of Mediation
1.2. Objectives
2. International Perspective
2.1. Singapore
2.2. USA
3. Way forward

PART I: ARBITRATION AND INSOLVENCY

The Insolvency and Bankruptcy Code, 2016 (‘Code’) was enacted with the objective
of being an umbrella legislation for the insolvency resolution of all types of entities
such as individuals, corporate persons or partnership firms. The enactment of this
Code was a watershed moment in the history of insolvency and bankruptcy in India.
The Code sought to regulate and ensure a time-bound manner of insolvency
processes with the aim of maximization of value of assets among other aspects.

Considering that the 'maximization of value of assets' is one of the most prominent
aims of the Code, it has the tendency to affect other areas of law, including
arbitration. Only the imposition of a moratorium under Section 14 of the Code is
where the problem arises with respect to arbitration proceedings. Due to a lack of
judicial precedents in this regard, the entire conflict between arbitration and
Corporate Insolvency Resolution Process (‘CIRP’) or liquidation remains a grey
area. Albeit there is a complete stay on arbitration proceedings among other
proceedings under Section 14 (1)(a), there are multiple interpretations of the same
by the Indian Courts which have resulted in more confusion which needs to be
addressed.

1.1. Arbitration as a tool for Dispute Resolution

Arbitration is an alternative mode of dispute resolution wherein the parties
submit their dispute to one or more arbitrators who is/are a neutral third
party, who passes an arbitral award which is binding on both parties. It is
crucial to note that arbitration can only happen upon the consent of both
parties and they also appoint their arbitrators. Usually, the parties who
submit their dispute to arbitration have a pre- existing agreement which has

47
 an arbitration clause in case of future disputes or a binding arbitration
agreement.

1.2. The Code

The Insolvency and Bankruptcy Code, 2016 seeks to revive distressed
companies and protecting the interests of creditors by preventing
credit/lending and financial risks. It classifies creditors into two categories
namely, operational creditors1 and financial creditors2, who can both initiate
CIRP3 against the corporate debtor who has at least 1 Crore4 of outstanding
dues. Further, the corporate debtor can initiate a CIRP on their own in case
of a default being committed as a corporate applicant.5 An application under
either of these categories shall be made to the Adjudicating Authority, i.e.,
the NCLT, which shall either accept or reject the application upon being
satisfied of the existence of debt. In case it is accepted, the Adjudicating
Authority will initiate a CIRP over the corporate debtor by appointing an
Interim Resolution Professional who shall have full control to manage the
affairs of the corporate debtor over the course of CIRP.6 Post this, a public
announcement will be made regarding the initiation of CIRP against the
corporate debtor along with a call for claims of various creditors to whom
the corporate debtor owes debt to. A moratorium is then imposed for the
continuation of or institution of suits/arbitration proceedings among other
actions.7 It is important to note that once the CIRP begins, the order of
moratorium so declared by the Adjudicating Authority shall exist till the
completion of the CIRP process.

1.3. The Intersection Between CIRP and Arbitration

This section aims to identify the exact point of overlap between the Code

1
Section 5(20) of the Code
2
Section 5(7) of the Code
3
Sections 7 and 9 of the Code
4
As amended by the Notification under Section 4 of the Code
5
Section 10
6
The interim resolution professional later gets replaced by the resolution professional
7
Section 14 – the following are prohibited during the period of moratorium –
(a) the institution of suits or continuation of pending suits or proceedings against the corporate
debtor including execution of any judgment, decree or order in any court of law, tribunal,
arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its
assets or any legalright or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor
in respect of its property including any action under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or in
the possessionof the corporate debtor

48
 and the process of arbitration, i.e., the imposition of a moratorium upon
the admission of an application for CIRP by the Adjudicating Authority.

1.3.1. Moratorium
A moratorium is a suspension or stay on any legal action against a
corporate debtor, giving them a chance to pay off their debts. This
provision awards the debtor an opportunity to assess the risks,
liabilities and profits without the imposition of any legal debt
recovery mechanisms by the creditor. The moratorium period begins
from the date of initiation of CIRP and ends upon the completion of
the CIRP process, barring all proceedings during this period.

However, the Code is silent on what types/classes of proceedings that

shall not be barred, leaving it to judicial interpretation. While Courts
have attempted to interpret the scope of Section 14, there is neither a
conclusive order which can be followed nor has the Code been
amended to remove the ambiguity.

1.3.2. Outcome of Moratorium on Arbitration Proceedings

To discuss what the outcome of an order of moratorium on arbitration
proceedings, it can be classified further into the following:

1.3.2.1. Filing an application for CIRP when Parallel Arbitration

Proceedings are underway.
In the case of Fourth Dimension Solution Ltd. v. Ricoh India Ltd8.,
the Court gave an order for the operational creditor of the
corporate debtor to go ahead with arbitration proceedings
despite approval of the resolution plan by the CoC and the Apex
Court. Moreover, in K. Kishan v. M/s. Vijay Nirman Company9,
the Supreme Court held that an arbitral award falls under the
ambit of a valid evidence of operational debt so long as it is
undisputed.

Therefore, it is evident that there is no express bar against filing

an application for CIRP when parallel arbitration proceedings
are going on because a claim under an arbitration agreement
does not fall under the definition of debt under the Code;
However, if the claim independently falls under the scope of

8
Civil Appeal No. 5908 of 2021.
9
Civil Appeal No. 21824 of 2017.

49
 financial or operational debt, an application for CIRP may be
made.

1.3.2.2. Foreign Seated Arbitration in which One of the Parties is

an Indian Corporate Debtor Undergoing CIRP
In a situation where there is an ongoing foreign seated
arbitration proceeding and one of the parties happens to have
a CIRP case ongoing in India, then such a party may request for
a stay on the arbitration proceeding; However, where an award
has already been passed foreign arbitration tribunal against
foreign assets, then such an award shall have no prejudice
against it having an effect on the Indian assets.

1.3.3. Judicial Precedents

Coming to judicial precedents, it is imperative to distinguish the views
of courts. It is noticeable that there are 2 issues that courts have dealt
with previously:
(a) Continuation/Initiation of Arbitration Proceedings when CIRP
is admitted; and
(b) Arbitrability of Insolvency Proceedings.

In the case of Alchemist Asset Reconstruction Co. Ltd. v. Moser Baer India
Ltd., the Court held that any proceeding initiated post the initiation
of CIRP including those of arbitration, are considered ‘non-est’ in law.
This landmark case resolved the question of whether arbitration
clauses can be invoked after the initiation of CIRP. However, in this
case, the question of invoking the arbitration clause arose at the stage
of debt recovery. This was perhaps the rationale behind the
judgement being made. However, this may not be the case for all
stages of arbitration.

Further, in the case of Power Grid Corporation10, the Court held has that
so long as a proceeding is beneficial to the corporate debtor and has
no adverse impact on the assets of the corporate debtor, then such
proceeding shall not be barred under Section 14 of the Code,
extending to even arbitration proceedings. An opposing view was held
in the recent case of Indus Biotech Private Limited v. Kotak India
Venture Fund11 wherein the Court relied on two principles to decide
the arbitrability of insolvency proceedings.

10
Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd. 246 (2018) DLT 485.
11
2021 SCC Online SC 268.

50
 1.3.3.1. Firstly, the aspect of the Code having an overriding
effect. As per Section 238 of the Code, the provisions of the
Code have an overriding effect over any other law or statute for
the time being in force, which essentially takes after the maxim
generalia specialibus non derogant. Therefore, if two special
statutes have clauses which are in conflict, the clauses of the
statute enacted later will have an overriding effect over the
former.

1.3.3.2. Secondly, the principle of Right in Rem v. Right in

Personam. In order to examine the issue of arbitrability, the
court took heed of the precedent laid down in the Vidya Drolia12
case which stipulated that insolvency/CIRP proceedings
become a right in rem only after they are admitted. Seeing as
post the admission all creditors to whom the corporate debtor
owes a debt to become interested third parties, the admission
or acceptance of the CIRP application thereof results in an ‘erga
omnes’ effect.

Insolvency proceedings being erga omnes is essentially true because a

corporate debtor seated in one jurisdiction may have transactions
with multiple jurisdictions, who will all be affected if the corporate
debtor goes into liquidation or undergoes an insolvency. Therefore,
even in the Swiss Ribbons Case13, the Court held that as soon as the
CIRP initiated, they become in rem cases.

In order to understand why post-admission insolvency case becomes

right in rem, it is crucial to examine the case of Indus Biotech Case
wherein the Court made a distinction between the in rem and in
personam stages of an insolvency proceeding. Before the application
is admitted, the proceedings are only between the debtor and creditor,
hence it is in personam. The NCLT only needs to establish the
existence of default. Once the application is admitted, it becomes in
rem. Additionally, this case addressed the arbitrability of insolvency
proceedings in detail, wherein the Supreme Court allowed the case to
be settled via arbitration as the dispute does not constitute a valid
‘debt’ under the Code.

12
Vidya Drolia and Ors. v. Durga Trading Corporation, MANU/SC/0939/2020.
13
Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) SCC Online SC 73

51
 In spite of the previously settled precedents, there is a lack of clarity
regarding which insolvency proceedings can be settled through
arbitration and the initiation or continuation of arbitration
proceedings.

2. International Perspective
India is not the only country which imposes a stay on arbitration
proceedings during an ongoing insolvency/liquidation. This is to ensure that
all the creditors to whom the corporate debtor may owe a debt are treated
justly. While it may be possible to settle certain insolvency issues through
arbitration, there are some core insolvency issues which cannot be arbitrated
(for example verification of claims of creditors, initiation of insolvency,
winding up, etc.). A clear distinction between arbitrable and non-arbitrable
insolvency issues has been brought about due to the sheer volume of
international insolvency laws. In the Canadian case,
Petrowest Corp. v. Peace River Hydro Partners , the court-appointed receiver
14

set aside the competence-competence principle of arbitration (one that

gives precedence to arbitration) and concluded that the arbitration
agreements of this case were ineffective because several arbitral proceedings
would conflict with the Bankruptcy and Insolvency Act's goals of an orderly
and effective resolution of the receivership.

2.1. United Kingdom

Relying on the various precedents laid down by English courts, it can
be ascertained that so long as third-party rights or public policies are
not infringed, parties involved in insolvency disputes may settle their
dispute through arbitration.15 In a case where the creditors are not
satisfied with the method of resolution of debts by the appointed
liquidator they may mutually agree upon settling the issue through
arbitration as opposed to approaching a court of law. Post liquidation,
the effect of moratorium equates to automatically suspending or
staying all actions against the corporate debtor unless otherwise
expressly approved by the courts.

2.2. Australia
As such there are no divisions pertaining to core and non-core issues
in the Australian set-up. The adjudicating authorities generally refuse
to grant a stay order if they are of the opinion that the rights of the

14
Petrowest Corp. v. Peace River Hydro Partners, 2022 SCC 41.
15
This was held in the case of Fulham Football Club v. Richards, [2010] EWHC 3111 (Ch)

52
 parties do not stem from the statute but arise from a contract.
Additionally, the arbitrability of insolvency matters depends heavily
on public policy considerations.

2.3. USA

Unlike many nations, the jurisprudence surrounding this conflict in

the US is a little more cemented and substantial in nature. There
have been a few cases wherein the courts have upheld that it is not
possible to subscribe to concerns which places bankruptcy laws in a
superior position to that of the Federal Arbitration Act superiority
between bankruptcy laws and the Federal Arbitration Act was
therefore clarified in this case. In the McMahan case, the Court laid
down the test: “the party challenging the arbitral award must
show/establish the Congress’s intention to make an exception to
the FAA’s mandate either by establishing the (i) text of the
Statute, (ii) legislative history of the Statute or (iii) inherent
conflict between arbitration and the statute’s underlying
purposes.”16 In non-core matters, US bankruptcy courts lack
jurisdiction, hence arbitration must be required in such
circumstances. Even while the majority of essential insolvency
concerns should be decided by the courts, some issues may not
necessarily contradict or undermine the core purpose of the
bankruptcy code and can be resolved through arbitration.

3. Road Ahead

The clash between insolvency laws and arbitral laws in India require some
clarity when it comes to their application based on each case. The ultimate
goal of creditors/adjudicating authorities/courts is to ensure that there is an
effective debt recovery that happens, because if not, over a period of time, it
will eventually affect the economy of the country. Creditors need to consider
the bundle of rights each corporate debtor has, which includes that of issues
pertaining to insolvency likely to be resolved through arbitration.

This comparative study of different countries gives the criteria that must be
taken into account when deciding the arbitrability of insolvency issues;
certain countries have adopted a severe stance, while others are more

16
Shearson/American Express v. McMahon, 482 U.S. 220, 242 (1987).

53
 tolerant. While some nations make decisions on a case-by-case basis, some
have advanced legislative frameworks with clear structures, to some extent.

Therefore, it is up to the Indian courts to arrive at a possible solution which

clears the mist surrounding this grey area that exists. Until such time,
debates over the superiority of the Code over arbitration agreements or
clauses will persist.

4. Conclusion
Different spheres of laws often intersect and overlap. However, each law
only ensures justice for the party which suffers losses by fulfilling the aim
behind which it was enacted for. Often times, multiple legislations need to
be applied, resulting in the conflicts between these laws. During liquidation
or insolvency proceedings, the corporate debtor is already facing hurdles to
pay off their debt, therefore imposing additional proceedings/suits through
arbitration or in a court will only aggravate their existing burden. On the
other hand, an agreement entered into by two parties based on trust will be
breached when one party does not honour it merely because of undergoing
insolvency/liquidation. The judiciary must take a very neutral stance on the
issue of insolvency/liquidation and the initiation /continuation of
proceedings in other forums of law. In this light, many cases have seen the
courts applying the following neutral rule: so long as the arbitration
proceedings, which may run parallel, are not aimed at debt recovery, they
can continue with the same as this has no effect on the pool of assets of the
corporate debtor. While this is the most neutral solution which the Courts
have come up with, it is still not entirely cohesive. This can be rectified
through an amendment to Section 14 of the Code which clearly lays down
which categories of proceedings are barred or not. Additionally, arbitration
agreements can have clauses which deal with situations in the case either of
the parties goes into insolvency. Such steps can be taken for the better
implementation of the provisions of the Code as clauses contained within
arbitration agreements.

54
PART II: MEDIATION AND INSOLVENCY

Mediation is another mode of Alternative Dispute Resolution which is informal in

nature wherein a mediator (a neutral third-party) assists, oversees and facilitates
the two parties who have agreed to mediate their dispute to reach an amicable
solution. Unlike in arbitration, the mediator does not have any adjudicative
powers. Invariably, any agreement reached upon will not be binding upon either of
the parties. Mediation is at a very nascent stage in India, especially when it comes
to insolvency related disputes.
The Code was enacted to deal with the rising Non- Performing Assets in a timely
manner. While the Code is more successful than its predecessors, it is heavily
reliant on the traditional courts for its functioning. This inevitably leads to
inordinate delays due to litigation between different parties during the CIRP
process. Despite multiple amendments to the Code, there are inefficiencies in the
time bound resolution of disputes. Inevitably, the purpose of the preamble of the
Code stands defeated. This part of the article aims to explore the aspect of using
mediation as an effective tool to combat this issue. Additionally, the article shall
also analyze the Indian position along with a cross-jurisdictional comparison of
the effective use of mediation in insolvency issues. Finally, the article shall suggest
a few approaches which may assist the creditors as well as the corporate debtor in
resolving disputes through mediation including amicably framing strategies for
payment of debt, restructuring among others. .

1. Indian Perspective

1.1. Benefits of Mediation

Given that mediation is mostly based on the concept of mutually negotiating
to come to an amicable solution, it would increase the likelihood of arriving
at a promising solution for both parties involved. Further, the corporate
debtor would have some control over their assets as opposed to an
Insolvency Resolution Professional having total control over the pool of
assets. Additionally, there is scope for deciding on a comprehensive
resolution plan which addresses the interests of all the concerned parties.
Such a resolution is more than a mere debt recovery mechanism since it also
helps the debtor to effectively rehabilitate. Furthermore, despite the time
period provided for completion of the CIRP process, it inevitably gets
delayed. By using mediation, it is possible to reduce the burden on the courts
by eliminating the long procedural complexities. Mediation also helps to
protect the reputation of the corporate debtor owing to the confidentiality
of the proceedings. They have an added benefit of being extremely
convenient because they can be held at the ease of both parties. Finally, the
relationship that exists between a creditor and debtor does not get damaged

55
 when they enter into a mediation, thereby ensuring their cooperative nature
persists for future transactions.

1.2. Objectives

Mediation insolvency processes can act as a tool for alleviating corporate

distress by ensuring there is a conducive environment benefitting both
the parties for insolvency negotiations.

1.2.1. A significant problem that arises when it comes to insolvency

proceedings is with respect to the distribution of the assets of the
corporate debtor to all the creditors involved from the estate. As per
the Code, a waterfall mechanism is followed but this may not be
equal distribution of assets or even the entire amount of what a
creditor may be entitled for. Hence, mediation could be an effective
tool in this regard whereby parties themselves can come to a
common conclusion as to the most efficient way of distribution of
assets of the corporate debtor.17

1.2.2. Another pertinent issue that arises is with respect to the

restructuring plan. A restructuring plan is essentially a multi-party
agreement which enables the most optimal method to revive the
company/solve the distress it faces for all the parties involved. What
happens generally is that the corporate debtor convinces the
creditors of the benefits of revival of the company as opposed to
liquidation of the company. However, it is not always that creditors
are satisfied with this approach because they do not trust the
corporate debtor’s capabilities to manage the distress. Even in the
event of an acceptance of the motion, the next major challenge is
that of coming up with an apt restructuring plan, which requires a lot
of capital in itself – such as hearings, expert opinions, etc. However,
should mediation be used for the same, there would be a more
satisfactory result. The confidentiality aspect of mediation further
bolsters more open communication between the corporate debtor as
well as the creditors involved. Additionally, the mediation process
gives the parties the chance to develop a rescue strategy that adheres

17
For instance, Bankruptcy mediation is formally part of the judicial system in Canada. In addition
of being privately available, Article 105 of the Canadian Bankruptcy and Insolvency general rules
(C.R.C., c. 368) prescribes mandatory mediation to resolve two type of disputes: (a) Mediation for
surplus income, which can beinitiated both by the trustee, or one or more creditors, in case of
disagreement with the amount of surplus income to be paid by the bankrupt, according to art.
68(8) Canadian Bankruptcy Act; (b) and mediation in case of creditors’ opposition to bankrupt’s
discharge, according to art. 170.1(2) Canadian Bankruptcy Act. Canadian bankruptcy regulation is
available on the Justice Laws website: http://laws- lois.justice.gc.ca/eng/acts/B3/index.html.

56
 more closely to their true interests; in addition, parties can gather a
variety of information to ensure performance and to monitor future
behavior. That said, there is always an iota of risk involved when it
comes to restructuring plans and therefore, all relevant aspects
should be considered while mediating, failing which there would be
adverse consequences.

1.2.3. Finally, mediation can be used to even prevent insolvency. Instead

of using it as a last resort, mediation should be employed in the
initial stages of the proceedings when the parties are most likely to
find common ground. They may even recognize other previously
unidentified issues and prevent them from occurring.

2. International Perspective

2.1. Singapore
The Committee to Strengthen Singapore as an International Centre
for Debt Restructuring proposed using insolvency mediation to
resolve disputes in 2018, and the Singaporean Ministry of Law
accepted their recommendation. The following cases have been
approved for the use of insolvency mediation for the following
purposes: resolving individual creditor disputes with a debtor in a
multi-creditor restructuring; managing multiple creditor disputes of
the same nature; and achieving agreement between a debtor and its
creditors on the restructuring plan.18 The Insolvency law of
Singapore also provides for statutory recognition under the
Insolvency to arbitration and other alternate disputes resolutions.
Under the Insolvency, Restructuring and Dissolution Act 2018, the
Official Assignee can refer the disputes to arbitration, or
compromise all debts, claims and liabilities between the bankrupt
and any person who may have incurred any liability to the
bankrupt.19

2.2. United States of America

Under Chapter XI of the Bankruptcy Code, the US has a strong

mediationprocess.20 Either a party requests insolvency mediation,
or the court orders it. It hasbeen utilized successfully in a number
of high-profile instances, including the Lehman Brothers case,

18
https://www.lexology.com/Commentary/insolvency-restructuring/singapore/oon-bazul-
llp/alternative-dispute-resolution-in-insolvency-and-restructuring-proceedings
19
Section 387 of Insolvency, Restructuring and Dissolution Act 2018
20
Gert-Jan Boon, Maciek Bednarski, Carlotte Dessauvagie & Milan Pastoors, The Mediator in
Insolvency Law:Exploring New Terrain, leidenlawblog

57
 when only 4 of the 77 finalized mediation processes were
discontinued.21

3. Way Forward
Simply suggesting the use of mediation as a tool to prevent insolvency is not
substantial; it is crucial to also resolve various issues which surround the
context of using mediation in insolvency such as-
(a) Whether to group creditors with their myriad of interests under
different brackets, each with their own representative;
(b) Who gets to initiate the process - be it the corporate debtor, creditor,
or both;
(c) Who decides upon the mediator;
(d) Enforcement of any settlement reached at in a particular mediation
proceeding, etc.;

Insolvency mediation may not be ideal to resolve every insolvency matter.

However, it provides a platform for prevention of disruption of corporate
entity, which should ideally be the goal of any insolvency process. Further,
seeing as maximization of value of assets is one of the primary motives of
the Code, mediation also helps by expedited manner of solving cases. The
judiciary and parliament should consider incorporating mediation into the
Code, this will promote flexible and cost-effective resolutions of insolvency
matters. While all cases may not require a mandatory pre-litigation
mediation, amending the Code to incorporate those cases which fall under a
specific classification to undergo a pre-litigation mediation would not only
expediting process but reduce burden on courts.

Conclusion

Following the analysis in both parts of this article , it can be concluded that the
Code has a long way to go to becoming a clear and potent law. Despite the
numerous challenges that have cropped up - especially during the pandemic - the
Code provided the most feasible solutions to aggrieved persons. The introduction
would not only dispel the mist surrounding the clash between a moratorium and
arbitration, but also increase the rate of success in terms of disposal of cases and
debt recovery and asset distribution.

21
Kayjal Dasan & Samuel Seow, Seminar Review: Mediation in International Insolvency,
International Arbitration
http://www.internationalarbitrationasia.com/mediation_in_international_insolvency_disputes

58
 ICC FraudNet
Global Annual Report 2023

Freezing Orders in
South Africa
Challenges and Opportunities
A Recent Case Study

JOHN OXENHAM
MICHAEL-JAMES CURRIE
JEMMA MULLER
TYLA LEE COERTZEN

iccfraudnet.org
 MEMBER INSIGHT JOHN OXENHAM, MICHAEL-JAMES CURRIE
JEMMA MULLER & TYLA LEE COERTZEN

Freezing Orders in South Africa-

Challenges and Opportunities:
A Recent Case Study

JOHN OXENHAM, MICHAEL-JAMES CURRIE, JEMMA MULLER AND TYLA

LEE COERTZEN

Abstract

In this article, John Oxenham, Michael-James Currie, Jemma Muller and Tyla Lee
Coertzen of Primerio provide an analysis of the use of freezing orders as a civil
remedy in South Africa available to victims of fraud and cross border scams in order
to identify and recover assets. In doing so, the authors provide an overview of the
requirements and advantages of the use of freezing orders, as well as a synopsis of
a recent case in which they were involved wherein freezing orders were successfully
used to recover funds lost as a result of fraudulent misrepresentations.

Introduction

South Africa is considered one of the most notorious jurisdictions for money
laundering and fraud offences. It has been estimated that South Africa forfeits up
to USD25 billion in illicit financial flows annually.1 The prevalence of money
laundering in South Africa and its failure to implement various international

1
Matt Smith, Cheska Lozano, “South Africa banks face growing risks as anti-money laundering
deadline looms” (31 August 2022) <https://www.spglobal.com/marketintelligence/en/news-
insights/latest-news-headlines/south-africa-banks-face-growing-risks-as-anti-money-laundering-
deadline-looms-71794924> accessed 11 January 2023.

60
benchmarks with regards to money laundering and other financial crimes, resulted
in South Africa being placed on the ‘grey list’ by the Financial Action Task Force
(“FATF”) on 24 February 2023.2

In the Prudential Authority’s “Assessment of money laundering, terrorist financing

and proliferation financing risk in the banking sector, July 2022”3 (“Risk
Assessment”), various risks and vulnerabilities within the banking sector which
contribute to financial losses caused by financial crime and scams were identified.4
These included, inter alia, fraud and illicit cross-border flows, the failure of banks
to procure beneficial ownership information, interactions with and the onboarding
of clients without face-to-face interactions, data issues and the absence of a
holistic view of clients in circumstances where a client has various accounts and
business relationships within the same bank.

Employing effective detection and recovery mechanisms has become more

important than ever. Effectively recovering assets (which are proceeds of crime) for
purposes of complying with FATF obligations rests with the State. We consider the
civil mechanisms available to victims of cross border scams in order to identify and
recover assets. We do so with reference to a case study the authors were recently
involved in and highlight challenges and opportunities in pursuing civil freezing
and recovery actions in South Africa.

In this regard, the starting point of any recovery effort is to track and trace the
assets or funds. Once this is done, and in order to swiftly protect such assets while
parallel proceedings are instituted, it is vital to obtain an anti-dissipation interdict,
also known as the “Mareva Injunction” or “Freezing order”.

We discuss the legal requirements and practical aspects of this process from a
South African perspective.

Anti-dissipation interdicts in South Africa

2
Financial Action Task Force, “Jurisdictions under Increased Monitoring” (24 February 2023)
https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-
monitoring-february-2023.html accessed 29 March 2023. In its “Mutual Evaluation Report of South
Africa”, the FATF accurately described South Africa’s exposure and notorious reputation as a
country popular for money laundering both within and through the country to other jurisdictions.
See the “Anti-money laundering and counter-terrorist financing measures South Africa: Mutual
Evaluation Report” accessible at https://www.fatf-
gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-South-Africa.pdf.
3
Prudential Authority, “Assessment of money laundering, terrorist financing and proliferation
financing risk in the banking sector” (July 2022)
<https://www.resbank.co.za/content/dam/sarb/publications/media-releases/2022/pa-assessment-
reports/Banking%20Sector%20Risk%20Assessment%20Report.pdf> accessed 10 January 2023.
4
Ibid, para 1.2, page 2.

61
An anti-dissipation interdict (also known in South Africa as an interdict in
Securitatem debiti) is an interlocutory order which prohibits a respondent from
dissipating his or her assets. It is an urgent application which can, provided certain
requirements are met, be granted on an ex parte basis.5

A South African court will grant such an order where there is reasonable belief that
a respondent may deliberately be dissipating or concealing his or her assets, in
order to ensure that when the applicant eventually obtains judgment against the
respondent, the respondent will have no assets to satisfy such judgment debt.6 It
often happens that a defendant will ensure that his or her assets have either been
transferred abroad or transferred into someone else’s name when being made
aware that a plaintiff has or intends on instituting proceedings against such a
defendant, and such proceedings have a good prospect of success. By dissipating
or concealing such assets, the defendant causes irreparable harm to the plaintiff as
any judgment which the plaintiff may obtain will be effectively hollow.

Requirements to obtain an anti-dissipation interdict

The onus is on the applicant to prove the following requirements in order to obtain
an anti-dissipation interdict:

(a) there are assets of the respondent within the jurisdiction of any court in
South Africa;

(b) there is a reasonable belief that the respondent will dissipate the assets, or
conceal the assets and transfer them abroad (i.e., there is a reasonable risk
of disposal of the assets);

(c) the purpose of the above-mentioned dissipation or concealment is in order

to frustrate the anticipated judgment obtained by the applicant in either
existing proceedings or proceedings about to be instituted; and

(d) a well-grounded prima facie cause of action exists against the respondent.

In addition to the above, it is worth noting that the court has the power to grant
ancillary orders which are viewed as necessary for the interdict (such as, inter alia,

5
This is particularly relevant in in cases where the disclosure of the application to the defendant
would likely result in the defendant expeditiously dissipating his or her assets before such an order
can be made. An ex parte application, while despite being instituted without notice to the
defendant, will make provision for the defendant in due course to approach the court to either
discharge or amend the order after being served with the order.
6
The precedent setting case as to when a court will grant an anti-dissipation interdict is the case of
Knox D’Arcy Ltd and Others v Jamieson and Others 1994 (3) SA 700 (W); 1995 (2) SA 579 (W) (on appeal)
1996 (4) SA 349 (A).

62
the disclosure of bank account records).7 Not only does this ensure that any
interdict granted is effective, but it can also serve as a useful investigative tool by
allowing access to additional information which can be used to trace the remainder
of the funds which are to be recovered.

A recent case study

In 2022, an international company based in the Philippines transferred funds into

a South African bank account as a result of a fraudulent misrepresentation. Various
anti-dissipation interdicts were successfully utilized to swiftly freeze, trace funds
already dissipated by the protagonists into other bank accounts, and ultimately
recover most of the funds transferred as a result of the fraudulent
misrepresentation.8

This case was a good example of how to “chase the money” as three urgent
applications were brought and heard within a period of two days and more than 7
bank accounts were frozen as the funds were moved between different bank
accounts.

The anti-dissipation interdict was commenced on an urgent and ex parte basis.9

The applicant was thus not only required to demonstrate urgency in its papers, but
also convince the Court’s registrar that the matter is sufficiently urgent as to
warrant a hearing within a few hours (the urgent application was filed within six
hours from obtaining instructions and the hearing was held after hours). In the
authors’ view, this is in practice a common hurdle faced by legal practitioners.
There are no set legal rules on how one sufficiently demonstrates urgency to a
registrar, nor what the threshold for urgency is. Much will depend on the relevant
registrar and his/her views on whether the matter is urgent or not.

The applicant in casu was able to demonstrate the urgency of the matter and
expeditiously (within just a few hours) freeze the account, whilst not alerting the
main protagonists to the intention to request the court to freeze the account.

7
The court in Knox D’Arcy accepted the principle in English law that: “if a Mareva injunction is likely to
be rendered ineffectual or unworkable without discovery of certain facts or documents, the Court has an
inherent common-law power to make such orders for discovery of facts or documents as may be necessary
to ensure the injunction will be effectual and workable”. Knox D’Arcy Ltd and Others v Jamieson and Others
(1994) 4 All SA 171 (W), page 178.
8
This was achieved by the team at Primerio Law Incorporated, who were able to successfully obtain
four urgent applications over the course of ten days.
9
The applicant sought the relief on an urgent and ex parte basis for two main reasons:
(i) It would not have been possible to serve the application on the respondents timeously;
and
(ii) There was a well-grounded apprehension that if the application came to the attention
of the main protagonists, they would immediately transfer the funds out of the bank
account.

63
As a consequence of the matter being brought on an urgent and ex parte basis, the
anti-dissipation interdict operated as an interim order, allowing the respondent to
represent its case (if any) to the court on a return date given by the court.

Due to the fact that South African banks will only disclose account information
following a court order, the applicant used the application for an anti-dissipation
interdict to pre-emptively compel the bank to provide certain information in
addition to freezing the account. In particular, the applicant sought information
on the relevant account balance, know-your-client information, and bank
statements. As mentioned above, this is possible as the court has the power to grant
ancillary orders which are viewed as necessary for the interdict.

Absent a request for additional information, an applicant risks being granted an

anti-dissipation interdict, without subsequently being able to ascertain whether
the account in fact has any funds. If the account has little or no funds, the interdict
is essentially meaningless and hollow. This is another shortcoming in obtaining
anti-dissipation interdicts and greatly undermines its purpose and effectiveness.
By requesting additional information together with the freezing order (i.e., account
balances, account holder information, transaction history and bank statements),
an applicant can not only ascertain the amount actually frozen, but also receive
vital information which the applicant can use to trace the funds in the event of it
already having been transferred into different bank accounts prior to obtaining the
interdict. This is, however, assuming the bank recorded accurate and sufficient
account holder information, an obligation identified by the Prudential Authority
in the Risk Assessment as one which is not always adhered to by banks.10

The importance of requesting such additional information simultaneously with an

anti-dissipation interdict was demonstrated in casu. The information the applicant
received from the initial bank to which the funds were transferred revealed: (i) that
half of the funds had been transferred out of the account; (ii) where the funds had
been transferred; and (iii) relevant information on the account holder.

This information enabled the applicant to successfully obtain further urgent

interdicts, freezing each South African account to which the funds were
subsequently transferred, together with compelling such banks to provide certain
information in relation to the accounts. Again, since the application was brought
on an urgent ex parte basis, the respondents were provided with a return date where
they could demonstrate their case (if any) to the court, and in particular motivate
why the frozen funds should not be returned to the international company.

10
Prudential Authority, “Assessment of money laundering, terrorist financing and proliferation
financing risk in the banking sector” (July 2022)
<https://www.resbank.co.za/content/dam/sarb/publications/media-releases/2022/pa-assessment-
reports/Banking%20Sector%20Risk%20Assessment%20Report.pdf> accessed 10 January 2023 at
para 1.1, page 3.

64
Additionally, the information could be useful for law enforcement authorities in
investigating the matter, and could greatly assist in expediting their investigation.
In casu, the applicant provided law enforcement authorities with the information,
prompting them to open an investigation into the matter.

The majority of the funds ‘frozen’ by the applicant were ultimately frozen and
returned to the applicant as the respondents failed to oppose the application (not
surprisingly, given that they would be exposing their identities).

Conclusion & Practical Considerations

The use of the anti-dissipation interdict is not without difficulties. It can, however,
be effectively used. Critical to the effectiveness of such a litigation tool is to move
expeditiously. The team of lawyers need to have the skill set, capacity and
relationship with the court’s registrars to prepare, file and move an urgent
application in the space of a few hours. Taking too long to deliberate on whether
to proceed or not risks the funds being very quickly moved (often offshore) and
fragmented making the asset recovery process more complex, costly and less likely
to obtain recovery.

A key practical consideration which South African policy makes need to consider is
the role and obligation on banks to take steps to freeze accounts prior to a court
order being obtained. Currently banks require a court order before taking any such
steps. This clearly undermines the efficacy of freezing orders because even the
most expeditious freezing orders will take some time and are not immediate.
Whether banks could be held liable for failing to freeze accounts despite being
alerted to such fraud is a subject for another paper.

In conclusion, while our State institutions have demonstrated great difficulty in

swiftly moving to detect and preclude fraudulent funds flowing in or offshore, the
civil rules and courts in South Africa do provide some relief for victims of such
fraud, if they react promptly and decisively.

65
 ICC FraudNet
Global Annual Report 2023

ICSID Award
Enforcement Risk:
Lessons from the
Tethyan Saga

MARTIN KENNEY

iccfraudnet.org
MEMBER INSIGHT MARTIN KENNEY

ICSID Award Enforcement Risk:

Lessons from the Tethyan Saga

MARTIN KENNEY

Abstract

In this article, Martin Kenney examines how a decade of multi-jurisdictional

arbitral and enforcement proceedings (“the Tethyan saga”) provides a case study
in the consequences of ICSID award enforcement risk.

Introduction

States tend to comply with arbitral awards rendered under the ICSID Convention,
the leading international treaty governing the resolution of investment disputes
by arbitration.1 The content of the ICSID (International Centre for Settlement of
Investment Disputes) Convention and the incentive framework it creates, leaves
little room for award-debtors to challenge awards. Despite this pro-enforcement
posture, ICSID awards are always exposed to some measure of enforcement risk.
The Tethyan saga, a decade of multi-jurisdictional arbitral and enforcement
proceedings, provides a case study in the quantity and consequences of ICSID
award enforcement risk.

The ICSID Convention was designed to robustly promote state compliance with

1
Anastasiia Filipiuk, Enforcement of Arbitration Awards and Sovereign Immunity, Central European
University, 15 April 2016, https://www.etd.ceu.edu/2016/filipiuk_anastasiia.pdf; Mayer Brown,
Enforcement of Awards in ICSID Arbitration, December 2011,
https://www.mayerbrown.com/en/perspectives-events/publications/2011/12/enforcement-of-
awards-in-icsid-arbitration.

67
ICSID awards. Article 54 of the Convention requires all contracting states to
recognise awards rendered and enforce pecuniary obligations. Article 52 of the
Convention substantially limits the scope of award-debtor interference with
enforcement. Pursuant to Article 52, the ICSID annulment process, unlike the
annulment process of some non-ICSID investor-state arbitrations, is self-
contained and autonomous from domestic law, ensuring that ICSID arbitrations are
not subject to the supervisory jurisdiction of state courts.

Despite the robust ICSID pro-enforcement posture, there is still substantial scope
for dilatory/guerrilla tactics that increase enforcement risk. The rate of Article 52
annulment applications, for instance, has increased dramatically over the past
decade. From 2010-2019, the increase in the rate of annulment proceedings
outpaced the increase in the rate of ICSID awards by 77%.2 Generally, such
enforcement risk is largely dependent on the identity of the award-debtor. In
respect of annulment proceedings, Argentina, Venezuela, and Spain account for
44% of all annulment applications submitted by states.3 As the Tethyan matter
demonstrates, dilatory tactics reduce the certainty of recovery, and incentivise
post-award settlement to the detriment of the award-creditor.

The Tethyan saga

The Tethyan arbitration saga provides a counterexample to the broader trend of

ICSID award-debtor compliance, and demonstrates the consequences of state
resistance to award recognition and enforcement.

In 2000, Tethyan Copper Company (TCC) – an Australian 50-50 joint venture

between Barrick Gold Corporation of Australia and Antofagasta PLC of Chile –
created a subsidiary in Pakistan. Tethyan engaged with Balochistan, a Pakistani
province, in a joint venture agreement (CHEJVA) for exploration of mineral
deposits. In 2011, after investing more than US$220 million and discovering
substantial gold and copper deposits, Tethyan applied for a mining licence.
Balochistan denied the application.

Tethyan appealed the administrative decision denying the application, but was
unsuccessful despite exhausting domestic remedies. Ultimately, the Supreme Court
of Pakistan held that CHEJVA, the Tethyan-Balochistan joint use agreement, was
void on the grounds that (1) Balochistan had exceeded its powers, and (2) the

2
Johannes Koepp, Yarik Kryvoi and Jack Biggs, Empirical Study: Annulment in ICSID Arbitration, 2021,
The British Institute of International and Comparative Law (BIICL) and Baker Botts LLP,
https://www.biicl.org/documents/10899_annulment-in-icsid-arbitration190821.pdf.
3
Johannes Koepp, Yarik Kryvoi and Jack Biggs, Empirical Study: Annulment in ICSID Arbitration, 2021,
The British Institute of International and Comparative Law (BIICL) and Baker Botts LLP,
https://www.biicl.org/documents/10899_annulment-in-icsid-arbitration190821.pdf.

68
agreement was contrary to public policy.4

In arbitral proceedings, Tethyan had greater success on the same facts. In 2014, it
obtained a favourable preliminary ruling in an ICC (International Chambers of
Commerce) arbitration claim based on the Tethyan-Balochistan joint use
agreement.5 In July 2019, Tethyan obtained a partial award in an ICC arbitration
seated in London.6 Beginning in 2011, Tethyan pursued an ICSID claim against
Pakistan, alleging a breach of the fair and equitable treatment, expropriation, and
non-impairment obligations under the Australia-Pakistan Bilateral Investment
Treaty (BIT).7 In the ICSID proceedings, Pakistan objected on the grounds of
jurisdiction, admissibility, and alleged corruption. The tribunal rejected all
objections. The tribunal found for Tethyan on the merits, awarding more than
US$5.9 billion in compensation, interest, and legal costs.8

In contrast to its considerable success in obtaining favourable arbitral awards,

Tethyan faced an uphill battle to enforce its ICSID award. It prevailed in
enforcement proceedings in the US, but only after lengthy litigation. After the
ICSID tribunal issued the award in the Tethyan matter, Tethyan petitioned the US
District Court for the District of Columbia to recognise and enforce the award.
Pakistan then sought two remedies before ICSID – annulment of the award, or
revision of the award. These proceedings precipitated a stay of enforcement by
ICSID.9

In response, the US District Court for the District of Columbia itself stayed
proceedings. Upon expiry of the ICSID stay, Pakistan petitioned the District Court
to continue to stay enforcement of the award. The District Court dismissed
Pakistan’s petition, holding that, inter alia, Tethyan had already waited over a
decade for compensation, and Pakistan had provided no guarantee that it would
not use the stay to deplete its US assets.10 Despite its ultimately favourable
outcome, Tethyan was prejudiced by the delay in enforcement caused by the US
District Court’s stay in proceedings, which changed the negotiating posture of the
parties to a prospective post-award settlement.

4
Maulana Abdul Haque Baloch & others v. Government of Balochistan thr. Secy. Industries & Mineral
Development & others [2013] SCMR 511, [2013] SCP 53.
5
Province of Balochistan v Tethyan Copper Company Pty Ltd, [2021] EWHC 1884 (Comm), 24.
6
Province of Balochistan v Tethyan Copper Company Pty Ltd, [2021] EWHC 1884 (Comm), 2.
7
ICSID, Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan (ICSID Case No.
ARB/12/1), https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/12/1.
8
ICSID, Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan (ICSID Case No.
ARB/12/1), https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/12/1.
9
ICSID, Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan (ICSID Case No.
ARB/12/1), https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/12/1.
10
Tethyan Copper Co. Pty Ltd. v. Islamic Republic of Pakistan, 590 F. Supp. 3d 262 (D.D.C. 2022).

69
Enforcement proceedings in the BVI

Tethyan was less successful in enforcement proceedings in the British Virgin

Islands (‘BVI’). After moving to enforce the ICSID award, the BVI first instance
court granted Tethyan an ex parte order against the state of Pakistan, and against a
range of other entities associated with the state of Pakistan. These associated
entities included Pakistan International Airlines (‘PIA’), which was incorporated in
the BVI.

The ex parte orders included the recognition and enforcement of the US$6 billion
ICSID Award, and a provisional charging order over the BVI assets of PIA, which
included estimated US$1 billion of assets in contest held by PIA’s BVI holding
company. Through several layers of vertical subsidiaries, this holding company
owned the titles to a luxury hotel in Paris, and to the Hotel Roosevelt in New York
City, which occupies a city block next to Grand Central Terminal.

In seeking and obtaining these ex parte orders, Tethyan relied on the Privy Council
decision in La Générale des Carrières et des Mines v. FG Hemisphere Associates
LLC [2012] UKPC 27 (Gécamines) for the proposition that PIA was so closely
associated with the state of Pakistan as to be the proper source for the enforcement
of an award against the state of Pakistan. The effect of the charging order was to
treat PIA as assimilated into the state for all purposes, and thus a valid source of
recovery.

In a return date hearing, the BVI Commercial Division of the Eastern Caribbean
Supreme Court set aside the original ex parte orders on several grounds.11 The Court
held that Gécamines did not support enforcement of the Tethyan award against PIA.
The Privy Council in Gécamines established that, inter alia, there was a strong
presumption that separate corporate identity should be respected, and
enforcement against an entity related to a state was only proper where that entity
and the state had “no separate effective existence”.12 In the Tethyan matter, the
BVI Court held that PIA did have a separate corporate identity, and the strong
presumption of separate identity was not rebutted because PIA was publicly traded
and had private shareholders, and thus PIA did have “separate effective existence”
from the state of Pakistan.13

Further, in the return date hearing, Tethyan argued that Pakistan had waived
immunity and submitted to enforcement jurisdiction by agreement to the ICSID
Convention. The BVI Court disagreed:

11
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan et al. (BVIHC (COM) 2020/0196).
12
La Générale des Carrières et des Mines v. FG Hemisphere Associates LLC [2012] UKPC 27.
13
Tethyan Copper Company Pty Limited v Islamic Republic of Pakistan et al. (BVIHC (COM) 2020/0196).

70
 “TCC advanced a new case at the substantive return date that there was a
submission by agreement in the ICSID Convention itself. This is said to be
clear from all the textbooks and the case law. However, the ICSID Convention
is a treaty that can have no effect under domestic law in and of itself. That
includes, for present purposes, the United Kingdom position on state
immunity…”14

The BVI Court’s reasoning applied a narrow construction of the terms of the ICSID
Convention. The Court appeared to have limited its inquiry to the question of
Pakistan’s obligations pursuant to the ICSID Convention, rather than inquiring
whether, as a consequence of ICSID, award-debtor states agree that other parties
to the ICSID Convention have jurisdiction to enforce an ICSID award. The
reasoning of the BVI Court in this respect was roundly criticised in a subsequent
New Zealand High Court decision:

“I do not agree with the analysis of the British Virgin Islands High Court in
Tethyan Copper Company Pty Ltd v Islamic Republic of Pakistan and Anor. The
Court there concluded that art 54(1) of the ICSID Convention placed no
international obligation on Pakistan, and accordingly could not involve a
waiver of its immunity. But it is not a matter of identifying whether the state
who is a party to the award itself has an obligation under art 54(1) of the ICSID
Convention or not. It is a matter of identifying what that state has agreed are
the obligations of other states, implemented in their judicial systems. Such
agreement is clear from the articles as a whole …”.15

Despite some surprising and unfavourable results in enforcement proceedings,

Tethyan was able to obtain a relatively attractive provisional settlement. The
March 2022 provisional out-of-court settlement provided the Tethyan Copper
Company joint venture co-parties with various sums.

Antofagasta Copper will receive $900 million, while Barrick Gold will be authorised
to extract the mineral deposits discovered in 2011. Barrick Gold will also make a
US$3 billion investment in Pakistan in order to engage in this extraction. As of 9
December 2022, the Supreme Court of Pakistan has approved the settlement
agreement, holding that it did not violate the Supreme Court’s prior verdict, which
had voided the original Tethyan-Balochistan joint use agreement.

14
Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan et al. (BVIHC (COM) 2020/0196),
para. 50.
15
Sodexo Pass International SAS v Hungary [2021] NZHC 371 (10 December 2021), para. 28.

71
Conclusion

Tethyan presents a useful case study in award-creditor enforcement risk for parties
to ICSID arbitration. As Tethyan discovered through extensive enforcement
proceedings, the inherent uncertainty of multi-jurisdictional litigation, and the
nature of the award-debtor’s foreign-held assets, can limit the recoverable scope of
ICSID awards. Despite the pro-enforcement posture of the ICSID Convention, and
the incentive structure that the Convention creates, ICSID awards remain
vulnerable to award-debtor resistance to enforcement.

The excellent contributions of MKS legal intern Jack LeGresley, BA Law (1st Class)
(Cambridge) and LLM (Harvard), towards the writing of this piece are acknowledged
with gratitude.

72
 ICC FraudNet
Global Annual Report 2023

Are Banks Liable

for “Ponzi
Schemes”?

GABOR DAMJANOVIC
REKA BALI

iccfraudnet.org
MEMBER INSIGHT GÁBOR DAMJANOVIC & RÉKA BALI

Are Banks Liable for “Ponzi

Schemes”?

GÁBOR DAMJANOVIC & RÉKA BALI

Abstract

This article will refer to AML requirements imposed on banks, the supervisory body
of banks, and their potential controlling measures and will present the Hungarian
liability rules including contractual and delictual liability with special regard to
banks’ responsibilities. Here, Gábor Damjanovic and Réka Bali approach the
question of what can be done if banks cause financial damages to private
individuals by their breach of AML obligations. In the course of this, we analyse a
recent case which could be relevant for establishing liability of banks.

AML requirements

In line with the provisions of Act LIII of 2017 on the Prevention and Combating of
Money Laundering and Terrorist Financing (‘AML Act’), banks must identify their
clients, the proxy thereof, the person with the right of disposal acting with the
banks and the representative acting with the banks, and must also perform a
verification of their identity. Additionally, banks must require the presentation of
documents to verify the clients’ and the ultimate beneficial owners’ (‘UBO’)
identity and ensure that clients’ data is valid and up to date.1

Banks must continuously monitor the business relationship – including the

analysis of transactions performed during the existence of the business
relationship – to determine whether the transactions are in accordance with the

1
Section 7 of AML Act and Section 12 of AML Act

74
data available to the banks regarding the client and dictate whether it is necessary
to perform measures against the client in the scope of preventing money
laundering.2

Generally speaking, if a bank employee suspects a high money laundering risk of

their client in connection with a transaction, the bank employee must apply risk
mitigation measures and further identify the client including the analyses of the
client’s ownership structure in registers available or request a statement regarding
the source of funds and assets (in particular, a contract or other official document
deriving from the inheritance, proof of income, document related to exchange rate
gains, prizes, dividend).

Bank employees must promptly make a report to a person in charge of any data,
fact or circumstance indicating money laundering that originates from a crime.
Subsequently, a person in charge must forward the report on behalf of the bank to
the financial intelligence unit which is a specific organisational unit of the National
Tax and Customs Administration.3

Non-compliance with AML rules

Can lost funds be recovered in civil procedures? What if the bank fails to comply
with its AML obligations determined above as a result of which the fraudulent
investment operation remains undetected and thereby private individuals suffer
loss. In the following passages, we assess the possibility of a civil lawsuit being
brought against the bank by the scammed investors with the aim of establishing
the bank’s responsibility based on non-compliance with AML rules and awarding
compensation to the scammed investors.

First of all, we need to look at what the supervisory body of Hungarian banks can
do if it detects the infringement of AML rules.

Failing to duly perform the AML obligations, the supervisory body may apply
measures (such as warnings, fines and/or suspension of activity) proportional to
the severity of the infringement.4 In Hungary, the Hungarian National Bank
(‘MNB’) is the supervisory body of banks. 5

In the following passages, we describe a recent example of the MNB’s supervision

activity.

2
Section 11 of AML Act
3
Section 30 – 31 of AML Act
4
Section 69 of AML Act
5
Section 5 point a) of AML Act

75
In 2022, the MNB found weaknesses in OTP Bank’s6 internal control and
information system due to improper operations. MNB established that the bank's
filter system was not functioning properly as the filtering criteria for the detection
of unduly large and cumulatively significant cash withdrawals and were not able to
detect unusual transactions. Therefore, the bank did not become aware of
suspicious transactions that would have had indicated a reporting obligation. As a
result, the bank was not able to fulfil its AML obligations or identify cases where
further risk mitigation measures - such as obtaining proof of funds or refusing to
execute further transactions - were warranted.

Due to the non-compliance with AML rules, the MNB: (i) imposed a fine of HUF
2.200.000 (approximately EUR 5,500) on the bank; (ii) obliged it to further develop
and review its AML reporting, monitoring, and source of funds verification
practice; and (iii) obliged it to conduct an internal investigation to assess the
effectiveness of the above systems.7

Although the amount of the fine and the obligation may not seem significant, the
finding of an AML infringement by the MNB may create an opportunity for
individuals to enforce their claims against the bank.

Contractual and delictual liability rules

The Hungarian civil law liability for extra-contractual (delictual) damages and the
liability for damages caused by breach of contract (contractual) are separated from
each other and are regulated independently. The essence of this separation is that
while liability for breach of contract is based on the concepts of foreseeability and
the sphere of interest, the liability for extra-contractual damage is still based on
the fault of the tortfeasor. Contractual liability differs from extra-contractual
liability in two respects: in the stricter exculpation8 and in the scope of damages to
be compensated.9

Due to this distinction, it is important to clarify which form of liability applies if an

individual wishes to claim damages against a bank for a breach of AML rules. Since,
in this case, the individual does not have a contractual relationship with the bank
but only with the fraudster who committed the Ponzi scheme and used a bank
account for the fraud, the individual can only bring an action against the banks'
unlawful conduct under the rules of extra-contractual liability.

6
OTP Bank Group is the largest commercial bank of Hungary providing banking services for private
individuals and corporate clients.
7
MNB’s Decision No. H-PM-I-B-2/2022.
8
Section 6:142 of the Act V of 2013 on the Civil Code (Hungarian Civil Code)
9
Section 6:143 of the Hungarian Civil Code

76
The Hungarian Civil Code clearly states the general prohibition of causing
damages, and therefore, with statutory exceptions, all tort is unlawful. As a result
of this rule, if the injured party proves that his/her damage was caused by the
tortfeasor's conduct, the unlawfulness of the tort is presumed by law and the
burden of proving the lawfulness of the tort lies with the tortfeasor.

However, an important limitation of liability for damages is that there must be a

causal link between the damage and the harmful conduct. The tortfeasor is not
liable for damages that are distant from the harmful conduct. Causation cannot be
established for damage that the tortfeasor did not foresee and could not have
foreseen. The Supreme Court of Hungary (‘the Curia’) set out in one case that the
question is whether the initiator of the series of events leading to the harm saw or
could have seen the result that would occur. It is important to note that the
tortfeasor does not need to foresee the full causal process leading to the damage,
but only to recognise the nature and extent of the damage that the conduct or
omission may cause. The test here is not the consciousness of the given tortfeasor,
but what a person acting with due care could foresee. Liability for damages arises
when a reasonably diligent person, having regard to the likelihood of such a risk,
must have assumed it.

For example, there was a case in Hungary initiated by a person who was diagnosed
with a highly aggressive tumour caused by his exposure to asbestos while he was
living 50 meters away from a factory that used this harmful substance between the
early 1970s and 1990s. The case resulted in a multi-round court proceeding, where
the Curia eventually ordered a retrial. At the first time, the first instance court
dismissed his statement of claim, but subsequently, in the repeated procedure
ordered by the Curia, it ruled against the owner of the factory, the Hungarian State
and established the liability on the ground that - within the framework of
neighbour rights - the owner is obliged to refrain from unlawful conduct that
unnecessarily disturbs the neighbours.

To exclude liability, the Hungarian Sate had to prove that it did not know or, even
with due care, should not have known that asbestos entering the air and polluting
the environment in connection with the activity carried out on its property is
harmful to health and is carcinogenic. The Hungarian State did not dispute the
causal link between the damage and the harmful conduct on the scientific level but
from the legal perspective. The Hungarian State stated that the causal link would
only exist if the defendant could foresee the occurrence of the serious, possibly
fatal illness at the time of the damage.

Regarding causation, the court highlighted that it only expects probability that
cannot be challenged beyond a reasonable doubt. The court stated that early

77
knowledge of asbestos and its harmful effects were known by the defendant in 1975
and embodied in the defendant’s legislation. The lack of precise knowledge in the
course of the damaging process does not make the damage “unforeseeable”, so it
does not interrupt the causal link. Hence, the defendant foresaw, or was able to
foresee, that the use of asbestos could infringe the personal rights of others.

Knowing the harmful effect of asbestos, the question arises as to what the
defendant has done to prevent endangering the workers or the citizens. In the
present case, there was no data indicating any preventing measures, designating
protective distance areas, or relocating playgrounds away from the factory site.10
One may ask how this very sad case relates to banks' liability for damages ari áll cég
sing from non-compliance with AML rules. In our view, the importance of this
decision may be that even in cases where the link between the damage and the
conduct of the tortfeasor seems at first sight distant and the damage is caused by
negligence, liability for damages may be established.

What can make it difficult to establish the bank's liability is how to prove to the
court that the bank has actually breached its money laundering obligations. This is
where the MNB's supervisory activities can help, because if the MNB has found that
a bank has not complied with money laundering rules during the period relevant
to us, this can be strong evidence against the bank in a court case.

Conclusion

In closing, let us imagine a fictive case where a private individual is a victim of a

Ponzi scheme which is generated by a fake company fraudulently obtaining and
laundering money through bank accounts. The question is whether the victim can
bring and win a lawsuit against the bank? Based on the previously presented case
and discussion, we believe that there is a chance of winning such a case, although,
the question is very complex and compound for the following reasons. The
relationship is extra-contractual / delictual between the bank and the victim in the
absence of a contractual relationship. Hence, providing proof that the damage was
caused by the bank to support the bank’s responsibility could be difficult but a
decision establishing the bank’s negligence in complying with AML obligations
could help to win the case – such as the MNB’s decision establishing the bank’s
negligence due to non-compliance.

10
Metropolitan Court’s Decision No. 38.P.20.956/2019/37

78
 ICC FraudNet
Global Annual Report 2023

Serious Fraud
Litigation in
Malaysia –
Trends and Relief

LEE SHIH
NATHALIE KER

iccfraudnet.org
MEMBER INSIGHT LEE SHIH & NATHALIE KER

Serious Fraud Litigation in Malaysia

– Trends and Relief

LEE SHIH & NATHALIE KER

Abstract

In this article, Lee Shih and Nathalie Ker of Lim Chee Wee Partnership, Kuala
Lumpur, discuss the recent tr ends in fraud litigation in Malaysia. They provide an
overview of the various facets of large-scale fraud litigation, from interim relief
such as freezing and search orders, to concurrent investigations by law
enforcement authorities and tracing of stolen monies.

Introduction

In recent years, large-scale fraud litigation matters in Malaysia have been

constantly in the news. We will touch on recent trends, interim relief available in
Malaysia, the involvement of law enforcement authorities, and how tracing of
monies is carried out in Malaysia. We further set out briefly the various methods of
enforcement in Malaysia.

Recent Trends in Fraud Litigation

Malaysia’s fraud litigation arena has recently seen a number of serious fraud
matters with claims in the hundreds of millions. The infamous 1 Malaysia
Development Berhad (‘1MDB’) case and the subsequent criminal conviction of

80
Malaysia’s ex-prime minister Najib Abdul Razak,1 was just the beginning of a slew
of cases where directors and ex-employees were sued for fraud involving
mismanagement of monies on a large scale.

In December 2021, the High Court finally handed down judgment in one of the
longest-running fraud cases in Malaysia. Damages of more than USD $44 million
was awarded to the plaintiff, Toyota Tsusho (M) Sdn Bhd (‘Toyota’), after 5 years
of litigation. This was a matter where a senior manager in Toyota, a plastics trading
company ultimately owned by public-listed Toyota Tsusho Corporation in Japan,
had been secretly siphoning monies out of the company. Toyota had been paying
for what were fake super engineering plastics, and where an intricate web of deceit
involving fake payment documentation and cancellation of invoices made it seem
as if inventory was moving when it was not. The web of deceit extended to various
employees, suppliers, and other associates of the main fraudster.2 The suit is
currently on appeal in the Court of Appeal.

Also in December 2021, a suit was filed by Johor Corporation, the state-owned
conglomerate of Johor, against its previous Chief Executive Officer (‘CEO’) and
other defendants. The suit is ongoing and is for approximately USD $53 million for
alleged fraud which spanned 12 years. The alleged fraud is regarding monies
invested by Johor for a development of a ‘global logistics system’ which was never
commercialised. Monies were allegedly dissipated to various international entities
in Ireland, Switzerland and the United States of America.3

In mid-2022, Malaysia’s largest development bank, Bank Pembangunan Malaysia

Berhad (‘BPMB’), filed a suit for more than USD $141 million against its former
President and Group CEO and 26 other defendants for alleged bribery and fraud.
This is in relation to the disbursement of loan monies to a company for a
telecommunications network project which was allegedly never completed.4

Interim Relief in Malaysia

1
See “Najib Razak: Malaysia's ex-PM starts jail term after final appeal fails”, BBC News, 23 August
2022 <https://www.bbc.com/news/world-asia-62642643> (last accessed on 3 January 2023).
2
For the related criminal proceedings, see “More charges slapped on ex-company manager”, The
Sun Daily, 17 January 2017, https://www.thesundaily.my/archive/2129714-ATARCH421661 (last
accessed on 3 January 2023).
3
For the related criminal proceedings, see “Former head of GLC JCorp charged with nearly RM10m
investment fraud”, Malay Mail, 22 March 2022
<https://www.malaymail.com/news/malaysia/2022/03/22/in-johor-former-jcorp-president-accused-
of-investment-fraud-totalling-nearl/2048811> (last accessed on 3 January 2023).
4
See “Bank Pembangunan sues former MD and 26 others for alleged fraud, bribery”, The Edge
Markets, 29 June 2022, <https://www.theedgemarkets.com/article/bank-pembangunan-sues-
former-md-plus-26-others-fraud-and-bribery> (last accessed on 3 January 2023).

81
There are a number of available urgent reliefs which may be obtained in the
Malaysian courts in aid of fraud litigation. These include freezing and search
orders, Bankers Trust discovery orders, and Norwich Pharmacal discovery orders.
More recently, the High Court granted a Norwich Pharmacal order against a
cryptocurrency exchange with an office in Malaysia. This was in aid of an
investigation by liquidators of the wound-up New Zealand cryptocurrency
exchange, Cryptopia Limited.5 The liquidators had applied for the order to assist in
recovery efforts of stolen cryptocurrency of more than USD $41 million, where
some of the cryptocurrency had been traced into Malaysia.

Investigations by Law Enforcement Authorities

In most instances in Malaysia, the initiation by a victim of investigations into

fraudulent conduct will involve and proceed concurrently with the investigation by
law enforcement authorities.

The authority in charge of investigation and prevention of corruption and abuse of

power is the Malaysian Anti-Corruption Commission (‘MACC’).6 Separately, the
Royal Malaysia Police (‘RMP’) conduct their own investigations where police
reports have been made. There are also efforts made by the MACC to engage and
corporate with international law enforcement agencies where the fraud extends
outside of Malaysia. For example, where targets reside outside of Malaysia or where
funds are traced to sources out of the jurisdiction.

Concurrent Criminal and Civil Proceedings

Where either the MACC or the RMP recommend a matter for prosecution to the
Attorney General of Malaysia, the Attorney General may choose to bring criminal
proceedings against the alleged fraudsters. Again, this is often done concurrently
with civil proceedings.

The courts in Malaysia have an inherent discretion to stay civil proceedings in light
of concurrent criminal proceedings. One of the factors which would be considered

5
See “Liquidators’ Eighth Report on the State of Affairs of Cryptopia Limited (in Liquidation)”, 12
December 2022 <https://www.grantthornton.co.nz/globalassets/1.-member-firms/new-
zealand/pdfs/cryptopia/eighth-liquidators-report_cryptopia.pdf> (last accessed on 3 January 2023).
For an article on the hack and liquidation of Cryptopia Limited, see “Liquidation of hacked
cryptocurrency firm Cryptopia heading towards $15m”, 3 January 2022,
<https://www.stuff.co.nz/national/127401736/liquidation-of-hacked-cryptocurrency-firm-
cryptopia-heading-towards-15m> (last accessed on 3 January 2023).
6
See the MACC’s website at
<https://www.sprm.gov.my/index.php?id=21&page_id=75&articleid=463> (last accessed on 3
January 2023).

82
by the courts would be whether there is a real danger of injustice in the criminal
proceedings.7

Information and evidence which could be useful for the civil litigation may
sometimes arise from the criminal proceedings. Where necessary, an application
to the court in the civil proceedings may be made to admit evidence such as
statements made by the accused in the criminal proceedings.

Tracing of Funds – the Role of Professionals

Where the matter is a complex one, which is generally the case for serious fraud,
there is a need for a team of different professionals to ensure that the best strategy
for civil recovery is adopted. In Malaysia, a forensic consultant is usually employed
at the very start in order to unearth the various facets of the fraud. The information
from the investigation forms the building blocks of the civil litigation. The flow of
funds may be further unearthed through information obtained from Bankers Trust
orders and other discovery orders. This information would then be fed to the
forensic consultant for analysis. Private investigators in Malaysia and overseas are
sometimes engaged in order to supplement the information on targets and assets.

Enforcement in Malaysia

Once a judgment is obtained from the civil court, the victim may proceed to enforce
the judgment. The most common enforcement options in Malaysia include
garnishee proceedings, writs of seizure and sale, bankruptcy and winding up
proceedings. Generally, and depending on the amount of monies left in the target
bank accounts, the low-hanging fruit would be a garnishee order. Garnishee
proceedings in the Malaysian courts are fairly straightforward and efficient. The
victim may file a court application to garnish the bank accounts belonging to the
judgment debtor. The banks or garnishees would have a chance to object to the
garnishee order. Where there is no objection, the order becomes absolute and the
banks would have to pay the sums over to the victim.

Conclusion

Serious fraud litigation continues to be on the rise in Malaysia. Litigators, forensic

consultants and other professionals will need to form a cohesive team in order to
tackle the

7
See Suruhanjaya Sekuriti v Datuk Ishak bin Ismail & Anor [2017] 3 MLJ 478.

83
 ICC FraudNet
Global Annual Report 2023

Can the EU
Commission’s AML
Action Plan Reduce
Cross-Border
Financial Crime within
EU Member States?
DIANE BUGEJA
PETER MIZZI

iccfraudnet.org
MEMBER INSIGHT DIANE BUGEJA & PETER MIZZI

Can the EU Commission’s AML

Action Plan Reduce Cross-Border
Financial Crime within European
Union Member States?

DIANE BUGEJA & PETER MIZZI

Abstract

In this article, Diane Bugeja, Senior Associate, and Peter Mizzi, Compliance and
AML Advisor at Camilleri Preziosi Advocates, assess the upcoming thorough and
sweeping changes to be made at EU level with regards to combatting financial
crime related to the Money Laundering and Funding of Terrorism. In particular,
they examine how the different legislative proposals, such as the introduction of
harmonised EU single rulebook and a stand alone AML/CFT supervisor will
strengthen the fight against financial crime within the bloc.

Introduction

On 20 July 2021, the European Commission (the ‘Commission’) formally

announced its proposal (the ‘Proposal’) for a regulation of the European
Parliament and of the Council on the prevention of the use of the financial system
for the purpose of Money Laundering or Terrorist Financing (‘ML/FT’)1. The
proposal consists of an aspiring package that seeks to overhaul the current

1
COM/2021/420 final

85
European Union (‘EU’) Anti-Money Laundering and Countering the Financing of
Terrorism (‘AML/CFT’) regime, focusing on the consolidation and harmonisation
in an attempt to overcome existing gaps and loopholes in the current framework,
most prominently at the cross-border level. This article will mainly focus on the
introduction of new rules, updates and reforms, particularly relevant to reducing
cross-border crime among Member States (‘MS’), originating from the following
legislative proposals;

• this proposal for a Regulation on the prevention of the use of the financial
system for the purposes of ML and FT;
• a proposal for a Directive establishing the mechanisms that Member States
should put in place to prevent the use of the financial system for ML/TF
purposes, and repealing Directive (EU) 2015/8492;
• a proposal for a Regulation creating an EU Authority for anti-money
laundering and countering the financing of terrorism (‘AMLA’)3; and
• a proposal for the recast of Regulation (EU) 2015/847 expanding traceability
requirements to crypto-assets4.

Shortcomings with the existing EU AML/CFT framework

Illicit flows emanating from financial crime represent a severe threat to the
reliability and stability of the EU economy and the financial system, as well as to
the safety and security of EU citizens. Estimates from Europol, indicate that around
1% of the EU’s Annual Gross Domestic Product is ‘detected as being involved in
suspect financial activity’.

This comes as no surprise when considering the major scandals that have rocked
the Union over the last decade. In particular, the Danske Bank5, Deutsche Bank AG6
and Latvia ABLV Bank AS7 scandals have seriously damaged the integrity and
reputation of the EU as a financial services hub.

This was further corroborated by the Commission in 2019, which revealed that
criminals have long exploited disparities in AML/CFT regimes among MS. Thus, EU
action is warranted to ensure a fair playing field throughout the Union, with
obliged entities in all Member States subject to a consistent and harmonised set of

2
COM/2021/423 final
3
COM/2021/421 final
4
COM/2021/422 final
5
https://www.nytimes.com/2019/02/20/business/danske-bank-estonia-money-laundering.html
6
https://www.fca.org.uk/news/press-releases/fca-fines-deutsche-bank-163-million-anti-money-
laundering-controls-failure
7
https://www.govinfo.gov/content/pkg/FR-2018-02-16/pdf/2018-03214.pdf

86
AML/CFT obligations. Moreover, given the cross-border nature of financial crime,
it is critical that member states, national supervisors, and Financial Intelligence
Units (‘FIUs’) cooperate and coordinate with each other in sharing and
dissemination of intelligence.

1. A regulation establishing an EU AML/CFT authority (in the form of a

decentralised EU regulatory agency)

The proposal for a Regulation creating the Anti-money laundering authority

(‘AMLA’) establishes an integrated, EU-level supervisor for combatting ML/FT
whilst also acting as a support and cooperation framework for FIUs (which takes
the form of a Directive as seen below).

Following the successful implementation of the EU AML single rulebook (discussed

hereunder), the AMLA will be at the heart of a revamped EU AML/CFT supervisory
system, directly supervising the highest-risk financial institutions that operate in
a large number of MS. Through the AMLA’s coordination of national supervisors,
it will indirectly supervise the remaining financial and non-financial entities that
fall under the EU AML/CFT framework.

The AMLA will possess the power to act on its own behalf if it is found that the
local supervisory regime is not enforcing EU law. Therefore, it is anticipated that
regulatory emphasis will shift toward those MS where local regulators have been
traditionally less active or effective. Further where an entity, not directly
supervised, is exposed to very substantial ML/TF risk, then financial supervisors
need to provide formal notification to the AMLA.

With respect to FIUs (national regulators), the AMLA will be able to obtain relevant
information and documentation for it to perform its tasks, as well as issue
guidelines and recommendations. AMLA is also expected to provide technical
advice on the development of standards and future rules to the European
Parliament, European Council and the Commission.

The aforementioned proposals provide the AMLA with the ability to bolster
AML/CFT compliance among MS, directing its attention to high-risk areas and
situations where national supervision is lacking, as necessary.

87
 2. A new regulation on AML/CFT, containing directly applicable rules, include
revised EU list of entities subject to AML/CFT rules (known as Obliged Entities)

Data extracted from Commission reports in 2019, confirmed the necessity for the
introduction of harmonised regulations across the internal market. These studies
found that, while the provisions of Directive (EU) 2015/849 and Directive (EU)
2018/843 are broad, their lack of direct applicability, and delayed transposition,
resulted in various interpretations and fragmentation across MS. Consequently,
issues with the existing EU AML/CFT frameworks has made it difficult to tackle
cross-border financial crime. The Commission notes that scandals across MS
disrupt the functioning of the single market and leading to reputational damage.
In a bid to avoid regulatory divergences and other aforementioned issues, going
forward AML/CFT rules applicable to obliged entities will take the form of
regulation as opposed to a directive.

However, the proposal does not merely mean a transfer of existing provisions from
AML/CFT directives to a regulation but rather several changes of substance are
made in order to bring about uniformity and convergence in the application of
AML/CFT rules across the EU.

Increased scope of obliged entities:

Crypto-Asset Service Provides (“CASPs”), unregulated crowdfunding platforms,

creditors for mortgage and consumer credits and associated intermediaries as well
as investment migration operators are now considered obliged entities and thus
subject to the AML/CFT framework. In addition, AML/CFT requirements will no
longer apply to person trading in goods. On the other hand, dealers in precious
metals and stones are often considered high risk in terms of ML/FT and shall
continue applying AML/CFT obligations.

Internal Policies, controls and procedures:

Building on existing EU AML/CFT legislation, the new requirements provide clarity

on how obliged entities are to identify, analyse, mitigate and monitor ML/FT risks
through the implementation of AML/CFT policies, controls and procedures.
Management is to ensure that compliance functions and roles are adequately
resourced and take responsibility to ensure that staff are properly trained and
aware of the AML/CFT obligations.

88
Customer due diligence measures:

Most of the existing Customer Due Diligence (‘CDD’) requirements will take the
form of regulatory technical standards provided by the AMLA and will be
transferred from the current AML/CFT rules. Despite this, several proposals will
provide transparency and further detail on CDD obligations. Harmonised and
uniform rules on CDD will reduce national divergence, allow for consistent
application and thus create a level playing field across MS that is harder for
criminals to misuse or redirect their efforts towards the weakest link in the chain.
However, obliged entities are to ensure the application of CDD requirements
following a risk-based approach, through evidence-based decision-making
processes that target ML/FT risks more efficiently and effectively.
Specific and detailed provisions are laid down on identification and verification
processes for natural persons, legal entities, trusts and other legal arrangements,
whereas conditions for the use of electronic identification will be clarified. Obliged
entities will be required to obtain information on both the source and destination
of funds, the estimated amount and economic rationale behind the transactions or
activities.

Furthermore, the application of Simplified Due Diligence (‘SDD’) and Enhanced

Due Diligence (‘EDD’) will be covered in detail, whereas the threshold for applying
CDD measures for occasional transactions will be reduced from €15,000 to €10,000,
thus triggering additional CDD requirements for entities.

Beneficial Ownership:

Building on existing EU AML/CFT legislation, the proposals for updated beneficial

ownership rules will streamline the process of transparency among MS8. The
concept of holding adequate, accurate and current beneficial ownership
information seeks to address the lack of granularity, which allows criminals to
exploit divergent application of rules. To mitigate risks of criminals hiding behind
nominee arrangements, new disclosure requirements are introduced for nominee
shareholder and nominee directors.

8
The Court of Justice of the European Union ruling delivered on 22nd November 2022 on access to
beneficial ownership registers is unlikely to impact transparency in practice, as member states,
supervisory authorities and obliged entities will retain their access – only the general public are
hereby restricted from unfettered access to beneficial ownership registers.

89
 3. A proposal for a Directive establishing the mechanisms that Member States
should put in place to prevent the use of the financial system for ML/FT purposes,
and repealing Directive (EU) 2015/849

The Regulation creating the AMLA and its accompanying Directive provide a
support and collaboration system for FIUs, whereby the AMLA will ensure
consistent reporting, assist FIUs with a comparative analysis of STRs and also host
the FIU.net platform.

The AMLA will create, exchange, and promote intelligence on ways for detecting
and analysing suspicious transactions aimed at enhancing the reporting processes
and procedures. Furthermore, to facilitate the understanding and collaboration
between obliged entities and FIUs, the AMLA will conduct specialised training and
provide assistance to both FIUs and obliged entities. Thus, obliged entities will
receive assistance and know-how with respect to detecting suspicious
activities/transactions and details on how such are to be report to the respective
FIUs. Standardised templates and models will be introduced, to enhance and
expedite the reporting process and sharing of information between FIUs at a cross-
border level. Obliged entities that operate in multiple MS and tasked with reporting
several FIUs stand to benefit the most from standardised reporting procedures and
templates.

The AMLA will also be tasked with promoting coordinating and collaborating FIUs
efforts in MS. The main goal is to enhance knowledge, share best practice
examples, and improve threat/vulnerability assessment all of which will contribute
to the publications of studies on ML/FT threats, risks, typologies, and
methodologies.

As joint analysis and investigations become more commonplace, the Directive

clarifies that variations in MS national laws should not affect the capacity of an FIU
in cooperating with another EU counterpart. Should an FIU reject to participate in
an inquiry must provide justification to the AMLA. As a result, obliged entities can
anticipate an increase in FIU requests for customer information.

The Commission will be tasked with the management, maintenance and hosting of
FIU.net platform, until the AMLA is fully up and running. Furthermore, the
Directive requires MS to sustain and consolidate information and metrics in
relation to the function of their AML/CFT frameworks. In particular, data and
information pertaining to the number of reports made to the FIU and the
underlying predicate offences.

90
The lack of feedback provided to obliged entities by FIUs following the submission
of a suspicious transaction reports has long been an issue. In response, FIUs will be
guided on how they are to respond and provide feedback on ML/FT threats, trends
and typologies.

Furthermore, the introduction of centralised automated mechanisms will allow

FIUs with direct access to the identity information of payment and bank account
holders. Accordingly, the Directive pronounces that such mechanisms will be
linked to a single access point administered by the Commission and available to all
MS.

Such reforms will be of paramount importance toward resolving the challenges of

cross-border information transmission. However, in view of increased sharing of
information, obliged entities must ensure that information submitted to the FIUs
is of sufficient and accurate quality. Overall, these changes will provide obliged
entities with much needed cross-border intelligence which can in turn be used to
improve internal ML/FT policies, controls, and procedures.

4. Third-country policy and ML/FT threats from outside the Union

The persistent nature of significant strategic deficiencies emanating from third

countries outside the Union, poses a significant threat and thus requires a unified
mitigating response at the Union level. The updated strategy proposed by the
Commission seeks to implement a harmonised and uniform approach at the Union
level as well as a detailed determination of external threats on a risk-based manner.
Harmonising EU level mitigating measures seeks to protects MS by providing a
framework that is directly applicable, consistent and thus reducing national
divergencies, which would expose the entire Union's financial system to risks that
are continuously evolving.

Hence, obliged entities should be required to apply the whole set of available EDD
measures to business relationships and occasional transactions that involve those
high-risk third countries to manage and mitigate the underlying risks.

The AMLA will monitor specific risks, trends and methods to which the Union's
financial system is exposed and will communicate with the Union's obliged entities
about external threats. Guidelines that define external threats will be provided on
regular basis to obliged entities.

In an attempt to reduce ML/FT threats from third countries, the Commission will
either follow Financial Action Task Force (‘FATF’) standards in relation to third

91
countries or carry out its own independent assessment. Third countries so
identified by the Commission will be subjected to two different sets of
consequences, proportionate to the risk they pose to the Union’s financial system:

(i) Third countries "subject to a call for action" by the FATF, informally
referred to as the ‘blacklist’ will be identified as high-risk third countries
by the Commission. EDD measures, as well as country-specific
countermeasures, will be used to them to appropriately minimise the
danger.

(ii) Third-country AML/CFT regimes with compliance deficiencies, defined

as "subject to increased monitoring" by the FATF and informally referred
to as the ‘greylist’, will be identified by the Commission and subject to
country-specific EDD measures proportionate to the risks.

Furthermore, the Commission may also identify third countries, which are not
listed by the FATF, but which pose a specific threat to the Union’s financial system
and which, on the basis of that threat, will be subject either to country-specific EDD
measures or, where appropriate, to all EDD measures and to countermeasures.
Prospectively, additions to the EU’s list are expected to align with that of the FATF
and hence most obliged entities will already have such jurisdictions classified as
high risk. However, they may not currently automatically trigger EDD and thus
obliged entities must prepare for more of their customer base to require automatic
EDD.

5. A recast of the 2015 Regulation on Transfers (Regulation 2015/847)

The recast of Regulation 2015/847 is closely connected with the proposal for an EU
AML/CFT Regulation, whereby crypto-asset service providers will be obliged to
conduct due diligence on their customers. In addition, anonymous crypto-asset
wallets will be prohibited in the EU.

Present EU rules on the regulation of money transfers have excluded the facet of
crypto assets. The Commission notes that ML/FT risks are increasing due to the
lack of traceability of these assets. The proposal intends to address this gap by
following Recommendation 16 (Travel Rule) of the FATF. Going forward, Crypto-
Asset Service Providers (‘CASPs’) must supplement crypto-asset transfers with
information on the sender and beneficiary. This information must be fully shared
with its counterpart in the transaction and be readily available in case of requests
from competent authorities.

92
The Regulation requires that, for transfers of crypto-assets, identifiable
information must be held on the originator (for example name, address and place
and date of birth) and the beneficiary (name and account number) of the transfer.
The CASP of the originator needs to verify the accuracy of the information on the
originator using an independent reliable source before executing the transfer. The
CASP will not be able to execute any transfer of crypto assets until this information
has been obtained. This requirement seeks to ensure effective and full traceability
of crypto transfers.

The Regulation requires the CASP of the beneficiary to verify the accuracy of the
information on the beneficiary using an independent reliable source, before
making the crypto-assets available to the beneficiary (for transfers exceeding
€1,000, either single or linked). For transfer values below €1,000, the CASP must
verify beneficiary information when payment is made in cash, via anonymous
electronic money, or where the CASP has reasonable grounds for suspecting
ML/FT.

In cases where the information outlined above is incomplete or missing, the CASP
of the beneficiary will be required to make a risk-based determination regarding
whether to execute or reject a transfer of crypto-assets. The CASP of the beneficiary
will be required to report failures to verify accurate information.

Conclusion

The Commission’s plan is extensive, ambitious and seeks to completely overhaul

the existing AML/CFT legislative framework in a manner that is substantial when
compared to its predecessors. The proposals acknowledge that the cross-border
nature of ML/FT requires a coherent and consistent approach across MS, based on
a single set of rules in the form of a single rulebook. Seeing as the present proposal
does not adopt a maximum harmonisation approach, several cross-border
loopholes were present throughout the Union, exposing the financial system to
risks.

Shifting the form of AML/CFT rules to a Regulation, with more detail than at
present in the EU Directive, will promote convergence of application of AML/CFT
measures across MS. Such will be based upon a consistent framework against which
AMLA will be able to monitor the application of such rules in its function as a direct
supervisor of certain obliged entities.

This being said, the application of a risk-based approach remains fundamental to

the nature of the EU’s AML/CFT regime. In areas where specific national risks

93
justify it, MS remain free to introduce rules going beyond those laid out in the
present proposal. It can be argued that the notion of the risk-based approach may
defeat the purpose of having a set of harmonised rules, however, it is anticipated
that the application of a risk-based approach will be closely monitored by national
supervisors and the AMLA.

The plan to establish a separate, well-resourced EU supervisor promises to increase

consistency, uniformity, standards, and degree of AML/CFT supervision across the
bloc. AMLA will work toward ensuring that national supervisors apply the single
rulebook is applied in a consistent manner.

Nonetheless, obliged entities and FIU may encounter potential compliance

challenges such as a lack of cooperation among competent authorities, both at a
domestic and cross-border level, creating loopholes that can be misused by
criminals. Additionally, these proposals may come into conflict with other key
pieces of legislation namely data privacy acts. Obliged entities will be faced with
the improbable challenge of complying with conflicting regulations, whereas
AML/CFT requires the processing of personal data, data protection regulations
restrict such.

In conclusion, providing a harmonised approach to key areas such as the CDD

process, identification of beneficial ownership, reporting procedures as well
providing clearer rules for AML/CFT risk management, improving cooperation
among authorities, the interconnectivity of bank account registers, the traceability
of crypto-assets and increased scope of obliged entities, superseded by consistent
application by competent authorities and regulators is highly likely to reduce the
cross-border element of financial crime.

The final texts of the legislative proposals are subject to change and refinement, as
other EU bodies and stakeholders provide feedback. Therefore, MS, national
regulators and obliged entities are strongly encouraged to closely monitor the
developments in this space.

94
 ICC FraudNet
Global Annual Report 2023

Asset Recovery in
Panamanian
Jurisdiction:
Considerations
Regarding the
Paulian Action
DONALD ANDERSSON SÁEZ
SAMANIEGO

iccfraudnet.org
MEMBER INSIGHT DONALD ANDERSSON SÁEZ SAMANIEGO

Assets Recovery in the Panamanian

Jurisdiction: Considerations
Regarding the Paulian Action

DONALD ANDERSSON SÁEZ SAMANIEGO

Abstract

In this article, Donald Sáez Samaniego, associate lawyer at the MDU LEGAL Law
Firm in Panama, addresses the conceptual framework of the Paulian or Revocation
Action in the Republic of Panama, as a mechanism for tracing and recovering assets.
In addition, he explains the requirements that must be observed and other
important elements for these actions to succeed. Based on his professional
experience and legal research, the author presents an overview of the applicable
law and the procedure of Paulian Actions before the courts of the Republic of
Panama.

The Paulian action as a method of asset recovery

It tends to happen with some degree of frequency, that a plaintiff presents a

pecuniary claim before the Courts of Panama and, after an extensive and
exhausting process, the defendant defeated in court, skillfully transfers, or disposes
of all his assets, in his search to evade the payment obligation established in a final
court ruling.

Such is the case where the debtor's assets are transferred through donations or
simulated sales in favor of relatives or partners, with the aim of freeing them from
an imminent execution by the victorious claimant and defraud the creditor(s). That
is why, in order to do justice to the defrauded creditor, the Panamanian legislator
has provided an exceptional formula so that, in cases in which the insolvent debtor

96
releases his assets in order not to pay his creditor, ownership can be returned or
restored to the debtor and then, the defrauded can collect his credit. Likewise, the
mechanism entitles the defrauded creditor to exercise all the rights and actions of
the fraudulent debtor for the same purposes. This remedy is what the Panamanian
legislation understands as Paulian Action (or revocation), regulated through its Civil
Code.

Conceptually, the Jurisprudence1 of the First Superior Court of Panama,2 has

defined the Paulian Action as: "the one that is incumbent on creditors to request the
revocation of all fraudulent or malicious acts carried out by the debtor to the detriment
of his rights."

In Panama, the legal figure of the Paulian Action is regulated by article 996 of the
Civil Code, in the following terms:

"Art. 996: Creditors, after having pursued the assets in possession of the
debtor to perform what is owed to them, can exercise all the rights and actions
of the debtor for the same purpose, except those that are inherent to his
person; They can also challenge the acts that the debtor has carried out in
fraud of his right."

The scope of these requirements has been interpreted by the jurisprudence of the
Supreme Court of Justice. In view of this, they must be observed by whoever intends
to exercise this type of action before the courts of Panama.

Reasons to request for a Paulian Action process

This type of process becomes a legal alternative for those creditors who have been
defrauded by their debtors. In other words, this action can contribute to the
payment of the debt, since what is sought is the revocation of all those fraudulent
acts that the debtor has carried out to free himself from his assets and rights and
thus render the debt uncollectible. If the action is considered proven, the
fraudulent transfers of assets or rights of the debtor can be annulled or revoked, in
order to make them available to the creditor to execute the seizure or exercise the
rights of the debtor in order to recover his credit.

1
Judgment of November 13, 1992 issued by the First Superior Court of Panama, within the Ordinary Process
proposed by Anselmo Ortega vs. Placido Castillo and others.
2
The First Superior Court of the First Judicial District is a Court with, among other functions, hearing
appeals in certain civil processes that arise in the provinces of Panama, Panama West, Colón, Darien and
the Guna Yala Region (all of these include the First Judicial District). It is clarified that the Republic of
Panama, judicially, is divided into four (4) judicial districts.

97
Requirements that must be observed to bring the Paulian Action before the courts
of Panama
Article 996 establishes the purpose of the Paulian Action and the requirements that
must be observed to bring to the court this type of action. It is important to point
out that the requirements for its filing have been specified in a better way, through
the jurisprudence of the Supreme Court of Justice of Panama.

Thus, and from the analysis of article 996 cited, the following can be deduced:

1. Insolvency of the debtor: a first requirement to observe for this action to

proceed is to demonstrate that the debtor is insolvent and that he does not have
assets that serve to collect the debt pending payment. Even though there is no
unanimity of criteria, the idea seems to prevail that insolvency or lack of assets
is not necessary to prove it in a previous or separate process, but rather, it can
be proven in the same process where the Paulian Action is filed.

2. Subsidiary nature: in accordance with the previous requirement, the nature

of the Paulian Action is merely subsidiary, that is, it only proceeds when the
creditor cannot collect due to the fraudulent actions of the debtor to free
himself from his assets with the purpose of not facing his debts.

Regarding the subsidiary nature of this type of action, by means of a Judgment of

June 27, 2001, the Civil Chamber of the Supreme Court of Justice of Panama ruled
in the following terms:

"What has been asserted is also related to its reason to be, which leads us to
refer again to the subsidiary nature of the Paulian or Revocation Action but
from another perspective, that is, as an action whose exercise is subject to
the fact that the creditor can not, in another way collect what is owed,
where we consider fair that the law places in the hands of the creditor this
other alternative to collect his credit, undoing or revoking those acts that
fraudulently tend to prevent the fulfillment of an obligation”.3 (Emphasis
added).

In accordance with the above, it is very important to establish that this is a last
resort remedy for the defrauded creditor. As such, the courts are very cautious to
verify that the circumstances really warrant granting this action. Of course, what is
sought by not making indiscriminate use of this measure is to guarantee the
principle of legal certainty.

3
This is a liberal translation of an extract of the Judgment.

98
 3. Fraud: A third element is to demonstrate that the acts that give rise to the
transfer or disposal of assets are done fraudulently to evade payment of an
obligation. This fraud, according to doctrine and case law, can occur when the
transfer of goods or rights is carried out free of charge, or when, having been
done for a fee (in exchange for consideration), the bad faith of the third party is
verified.

4. Very personal rights or actions: although the rule authorizes the creditor to
exercise the rights and actions of the insolvent debtor (for the purpose of
collecting the debt), it is not possible when the debtor's rights or actions are of
a personal nature or have an ‘intuite personae’, that is to say, those inherent to
the person that cannot be transferred either because his own nature does not
allow it, or because it is legally impossible.

Conclusions and Considerations

In accordance with the norm that regulates the Paulian Action and jurisprudence,
its primary purpose is the annulment or revocation of fraudulent acts when it is
shown that the debtor has done so with the aim of becoming insolvent and avoiding
his obligations to the creditor. However, we reiterate that this is a subsidiary
process that, effectively, only proceeds when there are no other assets or rights of
the debtor with powerful collection, in which case such insolvency must be
demonstrated before the Courts.

Although this action is regulated in our legal system and can be legally requested,
these processes are not common, and they tend to be very casuistic. This implies
that its admission and concession may be subject to the reasoning of each judge,
for which it is recommended that when filing a process of this type, the plaintiff
makes sure to provide strong evidence that can create sufficient conviction in the
judge, that the debtor has stripped himself of his assets to defraud his creditor.

99
 ICC FraudNet
Global Annual Report 2023

New AML
Regulations on
Crypto Assets in
Poland

JOANNA BOGDAŃSKA

iccfraudnet.org
MEMBER INSIGHT JOANNA BOGDAŃSKA

New AML Regulations on Crypto

Assets in Poland

JOANNA BOGDAŃSKA

The article provides information on the latest developments in anti-money

laundering regulations for crypto assets in Poland. These changes are not only
aimed at bringing Polish regulations in line with those of the EU, but also reflect
the will of the legislator to introduce greater control over the flow of crypto assets.
The legislator has also decided to impose strict penalties for non-compliance with
the new standards, obviously with a view to achieving a preventive effect.

On May 15, 2021, an amendment to Poland’s AML laws came into force. Its purpose
was to implement into the Polish legal order the solutions of Directive (EU)
2018/843 of the European Parliament and of the Council of 30 May 2018 amending
Directive (EU) 2015/849 on the prevention of the use of the financial system for the
purpose of money laundering or terrorist financing and amending Directives
2009/138/EC and 2013/36/EU. The changes that were introduced largely affect the
cryptocurrency market in Poland.

Project authors referred in their explanatory memorandum to the European

Commission's "zero tolerance policy" towards inadequate or incomplete
implementation of EU legislation. Polish legislator assures as well that the project's
priority is to replicate the requirements of AMLD5 as closely as possible, not only
in terms of content, but also when it comes to the layout of drafting units or the
conceptual grid used by the EU legislator. Bearing in mind the deadlines that the
European Union has set for member states to implement the provisions, that being

101
January 2020, Poland's legislature seems, however, to have disregarded them, since
the work on the project began in February 2020.

As of 31 October 2021, the activity of virtual currencies is a regulated activity under

the provisions of the Law of 6 March 2018, the “Law of Entrepreneurs”. This means
that such activity can be carried out, but only after obtaining an entry in the
register of virtual currency activities. The register is maintained by the Director of
the Tax Administration Chamber in Katowice, while its establishment is expected
to contribute to increasing the transparency of the cryptocurrency market in
Poland.

The register of virtual currency activities is clearly not an initiative of the Polish
legislator. It stems from the need to implement the recommendations of the
Financial Action Task Force (‘FATF’) on virtual assets1. Indeed, FATF stated that
the activities of virtual asset service providers should be licensed or at least
registered.

As of January 2023, almost 600 entities have been listed since November 2021.
The new regulations do not apply to all entrepreneurs whose activities involve
cryptocurrencies. This provision identifies entrepreneurs engaged in virtual
currencies activities consisting of:

• exchange between virtual currencies and means of payment,

• exchange between virtual currencies,
• intermediation in the above-described exchange, and
• maintaining accounts for virtual currencies.

This means that under the Polish AML Law, "virtual currency business" is a
narrower concept than in the colloquial sense.

What's more, additional requirements have also been introduced for persons who
can engage in virtual currency business, in the above narrower sense. Thus, such
activity may be conducted by:

• a natural person who has not been validly convicted of an intentional crime
against the activities of state institutions and local self-government, against
the administration of justice, against the credibility of documents, against
property, against economic turnover and property interests in civil law

1
See: https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-
assets-2021.html

102
 transactions, against money and securities trading, an offence committed
for the purpose of financial or personal gain, or an intentional fiscal offence;
• a legal person or an organizational unit without legal personality, in which
the partners entrusted with the conduct of the affairs of the company, or
authorized to represent the company, or members of the management
bodies have not been validly convicted of an offence referred to the above or
an intentional fiscal offense.

Further, natural persons, both running crypto business themselves and

management of the legal entity engaged in such business, should have knowledge
or experience relating to the business of virtual currencies. Proper knowledge and
experience shall follow from a training course or programme covering legal or
practical issues related to the virtual currency business, or from practice, i.e.
performing, for a period of at least one year, relating to activities in the field of
virtual currencies. This experience should be documented.

An entity or person engaged in virtual currencies activities without obtaining

registration in the register of virtual currencies is subject to a fine of up to PLN
100,000 (c.a. EUR 20,000).

Comparing with other sanctions set forth in the AML Law, this penalty seems
relatively small. However, it should be remembered that virtual currency operators
have the status of mandatory institutions just like banks or financial institutions.
This mean that they are required to apply financial security measures accordingly
to occasional transactions equal to or exceeding EUR 1,000. As a reminder, until
now the threshold was EUR 15,000.

So, in order to make a transfer of cryptocurrencies in an amount higher than the

equivalent of EUR 1,000, it is now necessary to apply to the client a full catalog of
financial security measures (including establishing personal data, citizenship,
PESEL number or date of birth, information on identity documentation or address,
establishing the data of the real beneficiary - that is, the person actually in control
of the client, establishing the data of the proxy, and verifying all this data, as the
AML Law prescribes).

Failure to comply with these requirements carries a number of sanctions, including

criminal liability for members of governing bodies. It is worth notice that penalties
imposed in the control process performed by Polish authorities are considerably
higher. In the case of individuals, it can be up to almost PLN 21 million, and in the
case of other entrepreneurs - up to EUR 5 million or up to the value of 10% of the
company's annual turnover.

103
Outlook

Although it is obvious that the changes in the law have been forced by EU
regulations and are aimed at tightening the system in general, one cannot help
feeling that they will primarily affect the activities of cryptocurrency exchange
offices. Cryptocurrency exchanges have long been considered in Poland, but also
worldwide, to be the riskiest in terms of money laundering. The extension of the
obligations of customer identification and verification combined with the
obligation to obtain an entry in the register of cryptocurrency exchange offices
enforces placing particular emphasis on maintaining up-to-date AML procedures
and risk assessments of the services provided by the exchange office in terms of
AML.

104
 ICC FraudNet
Global Annual Report 2023

Metaverse Disputes –
Navigating
Jurisdictional Issues
in the Metaverse

DANNY ONG
JASON TEO
STANLEY TAN

iccfraudnet.org
MEMBER INSIGHT DANNY ONG, STANLEY TAN & JASON TEO

Metaverse Disputes – Navigating

Jurisdictional Issues in the Metaverse

DANNY ONG, JASON TEO & STANLEY TAN

Abstract

The Metaverse involves a confluence of cutting-edge technologies and is touted to

become as revolutionary as the Internet when it was first brought into the
mainstream. With a projected 25% of the global population spending at least an
hour a day in the Metaverse and the size of the Metaverse market expecting to
reach USD 758 billion by 2026,1 fraud in the Metaverse is inevitable. In this article,
Danny Ong, Jason Teo, and Stanley Tan of Setia Law LLC consider some of the
jurisdictional issues that could arise in the Metaverse which victims of fraud are
likely to grapple with when seeking relief.

Introduction

The Metaverse brings together a gamut of cutting-edge technologies and has the
potential to revolutionise how we fundamentally interact, learn, work, play, and
live as a society.2 With the confluence of virtual reality, artificial intelligence,

1
Meghan Rimol, “Gartner Predicts 25% of People Will Spend At Least One Hour Per Day in the
Metaverse by 2026” (Gartner, 7 February 2022); Don-Alvin Adegeest, “Global Metaverse market to
be worth 758.6 billion dollars by 2026” (19 February 2022).
2
Matthew Ball, “The Metaverse will Reshape Our Lives. Let’s Make Sure It’s for the Better” (Time,
18 July 2022); Matthew Ball, The Metaverse: And How It Will Revolutionize Everything (Liveright
Publishing, 2022).

106
blockchain, spatial, and cloud technology,3 the Metaverse is poised to usher in a
new era of possibilities for commerce and development.

Yet, echoing the challenges faced with the advent of the Internet and
cryptocurrency, the Metaverse is likely to form a new battleground and hotbed for
fraud and criminal activity. This article considers some of the challenges that
victims of fraud are likely to face in seeking redress, before discussing possible
solutions to overcoming them.

What is the Metaverse?

No universal definition of the Metaverse yet exists.4 Indeed, given its nascence and
the lack of clarity as to what forms and functions it will ultimately take and adopt,
the Metaverse could be said to be currently incapable of precise definition.
Nonetheless, one author, William G. Burns III,5 offers the following neat
encapsulation of what the Metaverse is likely to be: “a collective virtual shared space,
created by the convergence of virtually enhanced physical reality and physically
persistent virtual space, including the sum of all virtual worlds, augmented reality, and
the Internet.”6

As Burns notes, no single Metaverse currently exists.7 However, various online

platforms like Meta Platforms Inc’s “Horizon Worlds” and VRChat Inc’s “VRChat”
could be described as early constituents of a Metaverse which users access through
virtual reality equipment to interact, play games, and conduct business. While
these platforms are operated by a central authority (i.e. the platform developer) in
a relatively traditional manner, also on the rise are decentralised platforms like
Decentraland, which operates through a Decentralised Autonomous Organisation
(‘DAO’) without any central control.8

A decentralised Metaverse platform operated through a DAO makes decisions and

implements platform policy and changes through a voting process involving the

3
Stylianos Mystakidis, “Metaverse”, Encyclopedia 2022, Vol. 2(1), 486-497.
4
Cathy Hackl, “Defining the Metaverse Today” (Forbes, 2 May 2021).
5
William G. Burns III has been recognised by Forbes as a “Metaverse veteran” (see, supra note 4) and
his profile and experience with the Metaverse can be found at
<https://www.linkedin.com/in/wgburns/> accessed on 29 March 2023. William G. Burns III is also
the co-author of a journal article titled “3D Virtual Worlds and the Metaverse: Current Status and
Future Possibilities”, ACM Computing Surveys, 2013, Vol. 45:3, 1-38.
6
William Burns III, “Everything You Know About The Metaverse Is Wrong” (26 August 2017),
<https://www.linkedin.com/pulse/everything-you-know-metaverse-wrong-william-burns-iii/>
accessed on 29 March 2023; See also supra note 4.
7
William Burns III, “Everything You Know About The Metaverse Is Wrong”, supra note 6.
8
See Decentraland, “Building the foundations for a decentralized virtual world” (19 February 2020),
<https://decentraland.org/blog/announcements/building-the-foundations-for-a-decentralized-
virtual-world/> accessed on 29 March 2023.

107
owners of crypto-tokens associated with the platform. For example, in
Decentraland, any change to the platform has to be proposed by an owner of crypto-
tokens known as MANA, NAMES or LAND, presented to the other owners of these
crypto-tokens, and put to a vote.9 Proposals that have been passed by a majority
are thereafter enacted by a “DAO Committee”, which comprises trusted individuals
appointed by the DAO and tasked with “enacting any passed votes with a binding
action”.10 The DAO committee members are capable of effecting these changes
because they have access to the DAO’s Smart Contracts which are essentially the
programmes responsible for running the Decentraland platform.11

The remainder of this article will consider the “Metaverse” in the forms outlined
above.

Establishing Jurisdiction over Fraudsters in the Metaverse

Victims of fraud typically have to urgently commence a claim against the fraudster,
and may seek freezing and/or proprietary injunctions against him. These typical
asset recovery steps face unique challenges in the Metaverse.

As Metaverse platforms today generally allow their users to operate anonymously

through avatars, identification of the fraudster presents a victim’s first challenge.
If the platform operator requires disclosure of users’ real identities on account
creation, pre-action discovery against the platform operator may be viable.
However, many platforms have little or no user identification requirements, in
which case victims will need to resort to commencing claims against “unknown
defendants”.

9
See Decentraland, “Participation Requirements” (28 March 2023),
<https://docs.decentraland.org/player/general/dao/overview/what-do-you-need-to-participate/>
accessed on 29 March 2023 and Decentraland, “DAO User Guide” (28 March 2023),
<https://docs.decentraland.org/player/general/dao/dao-userguide/>, accessed on 29 March 2023.
10
See Decentraland, “How the DAO works” (28 March 2023)
<https://docs.decentraland.org/player/general/dao/overview/how-does-the-dao-work/> accessed on
29 March 2023.
11
See Decentraland, “What is the DAO” (28 March 2023),
<https://docs.decentraland.org/player/general/dao/overview/what-is-the-dao/> accessed on 29
March 2023 and Decentraland, “The DAO Smart Contracts” (28 March 2023),
<https://docs.decentraland.org/player/general/dao/overview/what-smart-contracts-does-the-dao-
control/> accessed on 29 March 2023.

108
In this regard, numerous jurisdictions like Canada,12 Hong Kong,13 Malaysia,14
Singapore,15 the United Kingdom16, and the United States of America17 already
permit claims and injunctions to be obtained against unknown persons. The recent
Singapore decision of Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”) [2022]
SGHC 264 also allowed a claimant to identify the unknown defendant by his twitter
pseudonym in the court action. By extension, it may be possible for victims of
Metaverse fraud to identify the fraudster by his pseudonym, avatar, or any other
unique identifying trait.

Service of process, which is often necessary to confer jurisdiction on the court to

determine the claim,18 presents the next challenge for our hypothetical victim.19
Many Metaverse platforms do not require their users to provide any contact details,
much less verify their true identities. For example, in the case of Decentraland, a
user only needs to provide a private cryptocurrency wallet address before being
allowed to enter and trade on the platform – no email, phone number, or other
contact details are required.

Nevertheless, the unique features of this space provide opportunity for unique
solutions. For instance, in D’Aloia v Person Unknown and others [2022] EWHC 1723
(Ch), the English Court allowed a claimant to effect service of the court papers on
a defendant by sending a Non-Fungible Token (‘NFT’) containing the court
documents to the defendant’s wallet address. This method of service was also
employed in LCX AG v. John Doe Nos. 1-25, No. 154644/2022 (N.Y.Sup.Ct. June 2,
2022).20

Establishing jurisdiction over a fraudster operating in virtual space presents a

further challenge. Victims will need to persuade a court that it is the appropriate

12
Jackson v Bubela [1972] 5 WWR 80; Golden Eagle v International Organization of Masters [1974]
B.C.J. No. 614; Busseri v John Doe [2014] O.J. No. 605; Voltage Pictures LLC v John Doe [2015] 2
F.C.R. 540
13
University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 1 HKLRD 536; MTR
Corporation Ltd v Unknown Persons [2019] 5 HKC 260.
14
Zschimmer & Schwarz GMBH & Co Kg Chemische Fabriken v Persons Unknown & anor [2021]
MLJU 178.
15
CLM v CLN & others [2022] SGHC 46.
16
Cameron v Liverpool Victoria Insurance Co Ltd [2019] 3 All ER 1 at [13]; AA v Persons Unknown [2020]
4 WLR 35 (“AA”) at [75]; Ion Science Limited v Duncan Johns [2020] EWHC 3688 (Comm) (“Ion
Science”) at [23].
17
Jim Wagstraffe, “To Doe or not to Doe in Federal Court” (LexisNexis, 2020).
18
See, for example, section 16(1) of Singapore’s Supreme Court of Judicature Act (2020 Rev Ed).
19
See, for example, Order 6 rule 4 of the Singapore Rules of Court 2021, Rule 6.5 of the UK Civil
Procedure Rules, or Order 10 rule 1 of the Hong Kong Rules of the High Court.
20
See LCX AG v John Doe Nos. 1-25, Index No. 154644/2022 (N.Y. Sup. Ct. 2022),
<https://www.hklaw.com/-/media/files/generalpages/lcx-ag-v-doe/ordertoshowcause_15.pdf?la=en>
accessed 29 March 2023. The relevant NFT containing a hyperlink to the court documents can be
accessed here: <https://etherscan.io/nft/0xdc9ec0c966c3d3a552a228b3fe353848ce2f25f4/1>
accessed 29 March 2023

109
court to determine their claims, notwithstanding the fact that jurisdiction is
traditionally determined by “territorial connecting factors”,21 which are less than
apparent in the Metaverse.

That said, courts around the world have grappled with issues of jurisdiction in the
virtual space before, and the legal principles established from resolving
jurisdictional disputes in Internet and cryptocurrency disputes might assist in
resolving those same issues in the Metaverse. For example, a victim of fraud in the
Metaverse who wishes to establish the jurisdiction of the Singapore Court might be
able to argue that the damages are suffered in Singapore if he resides or is
domiciled in Singapore,22 or lost assets in the Metaverse that were funded by a
Singapore bank account.23 The victim might also be able to rely on how the
fraudster has property in Singapore24 if, for example, it is uncovered that the
fraudster has assets and/or had transferred the stolen proceeds to a cryptocurrency
exchange whose central management and control is based in Singapore.25

Establishing Jurisdiction Over Metaverse Platform Providers

As alluded to above, victims of Metaverse fraud might also need to establish

jurisdiction over Metaverse platform providers to seek disclosure orders, and later,
to get assistance with enforcing a judgment against the fraudster.

While establishing jurisdiction against Metaverse platform providers operated by

a central corporate entity would be relatively straightforward, difficulties arise
when the Metaverse platforms are operated by a DAO because DAOs are not
recognised as separate legal entities like corporations which can be sued in their
own name, and their legal status remains a novel and unsettled issue26 in most
jurisdictions.27

21
Andrew Dickinson, “Cryptocurrencies And The Conflict Of Laws” in David Fox & Sarah Green
(eds), Cryptocurrencies in Public and Private Law (Oxford University Press, 2019) at [5.08].
22
See paragraph 63(3)(f)(ii) of the Singapore Supreme Court Practice Directions 2021; Ion Science,
supra note 16 at [13]; Tulip Trading v Wladimir Van Der Laan and others [2022] EWHC 667 at [145];
23
Ion Science, supra note 16 at [13]; AA supra note 16 at [68].
24
See paragraph 63(3)(a) of the Singapore Supreme Court Practice Directions 2021.
25
Andrew Dickinson supra note 21 at [5.109]; The Society of Trust and Estates Practitioners (STEP)
UK Technical Committee, “STEP Guidance Note: Location of Cryptocurrencies – an alternative
view” (3 September 2021); UK Law Commission, “Digital Assets: Consultation Paper” (28 July 2022)
at p. 219.
26
See the UK Law Commission’s public call for evidence about how DAOs can (and should) be
characterised at The UK Law Commission “Decentralised Autonomous Organisations (DAOs)”,
<https://www.lawcom.gov.uk/project/decentralised-autonomous-organisations-daos/> accessed on
29 March 2023. See also, Cointelegraph, “The impact and rise of DAOs in the legal industry” at
<https://cointelegraph.com/daos-for-beginners/impact-in-legal-industry> accessed on 29 March
2023.
27
The states of Wyoming and Tennessee in the United States of America have passed legislation
recognising DAOs as separate legal entities, see Counsel for Creators LLP, “Wyoming DAOs as LLCs”
(25 May 2022), <https://counselforcreators.com/log/wyoming-

110
Furthermore, as decisions of a DAO are made through a voting process involving
the owners of the crypto-tokens associated with the Metaverse platform, control
over the platform might be said to be vested in all owners of the relevant crypto-
token. Commencing a claim against all owners of the relevant crypto-token and
seeking orders compelling them to pass a proposal enabling disclosure or
enforcement against a fraudster’s Metaverse assets, is far from practical for a
multitude of reasons, not least because the owners of these crypto-tokens are likely
to be constantly in flux as these tokens are usually publicly traded.

One potential solution is to seek recourse against the specific crypto-token owners
tasked with enacting proposals that have been passed by the DAO (the ‘DAO
Committee Members’). As mentioned above, these individuals have access to the
Smart Contracts which enable the functioning of the Metaverse platform, and they
are therefore technically capable of “controlling” the platform in a way that
enables them to comply with a Court order to, for example, transfer assets owned
by the fraudster on the platform to the victim.

However, while these individuals might have the ability to access and transfer
ownership of crypto-tokens associated with a Metaverse platform (like LAND in
Decentraland)28, they are unlikely to have access to other assets in the fraudster’s
private wallet address.

In addition, considerable expertise might be needed to alter the Smart Contracts of

the platform to carry out a court order for disclosure or transfer of assets. If the
relevant DAO Committee Members lack such expertise or willingness to do so,
victims may need to engage their own independent expert to devise a code or
program to make the necessary alterations, in which case the DAO Committee
Members would only be ordered to execute the relevant code or program.29

daos/#:~:text=Wyoming%20Senate%20Bill%2038%2C%20titled,the%20bill%20in%20July%202021>
accessed on 29 March 2023 and Matthew S. Miller & Spencer Green, “Beyond a Reasonable DAOubt:
Tennessee’s Limited Liability Statute for Decentralized Autonomous Organizations (DAOS)” (4
August 2022), <https://www.natlawreview.com/article/beyond-reasonable-daoubt-tennessee-s-
limited-liability-statute-decentralized> accessed on 29 March 2023.
28
See Decentraland, “Allow the DAO to recover lost assets” (25 August 2021)
<https://governance.decentraland.org/proposal/?id=3f890970-052f-11ec-a4d1-8d5d2cba0825>
accessed on 29 March 2023.
29
See David Goldman, “Apple’s case against the FBI won’t be easy” (25 February 2016),
<https://money.cnn.com/2016/02/25/technology/apple-fbi-court-case/index.html?iid=EL> accessed
on 29 March 2023.

111
Conclusion

As we work towards achieving the exciting possibilities that the Metaverse offers,
we should also remain grounded and be prepared for the reality that fraud and
criminal activity will ride on the coattails of the Metaverse’s success. Regulation of
the Metaverse may eventually materialise to address these issues, but as was seen
in the early days of cryptocurrency, it may come too slowly to provide adequate
redress for victims, particularly early adopters of this new technology. Regulation
may also prove to be of limited effectiveness in the case of decentralised Metaverse
platforms, given their lack of a central governing entity. Nonetheless, as we have
illustrated above, victims can take comfort in how Courts around the world are
alive to the unique problems posed by novel technology and are willing to adopt
equally innovative solutions.

112
 ICC FraudNet
Global Annual Report 2023

What About
Volatility?
Enforcement Of
Crypto-Related
Decisions in Spain

HÉCTOR SBERT

iccfraudnet.org
MEMBER INSIGHT HÉCTOR SBERT PHD

What About Volatility? Enforcement

Of Crypto-Related Decisions in Spain

HÉCTOR SBERT, PH.D

Abstract

This article deals with the possibilities at the disposal of a judgment or award
creditor to obtain the refund in kind of crypto assets and digital assets during
enforcement proceedings in Spain. We explore the enforcement orders that
Spanish Courts may issue and the existing alternatives when those orders fail to
provide with the return in kind of the digital assets. In particular, we will cover the
risk of volatility and the instruments at the disposal of the creditor to reduce it
according to Spanish law.

1. Request for Legal Opinion: a case study

CryptoABC obtained an international arbitration award against the Spanish

company XYZTechno.1 In that award, XYZTechno was ordered to return to
CryptoABC a certain amount of digital assets, consisting of cryptocurrencies and
various types of tokens, which CryptoABC had provided as interest-free funding to
XYZTechno.

CryptoABC has asked for our opinion about the possibility to enforce such award
in Spain. CryptoABC is interested in tracing and recovering those digital assets,

1
This article refers to an actual case that is the subject of an international arbitral award issued in
2022 and administered by one of the world's leading arbitral institutions. For reasons of
confidentiality, the reference to the award is omitted. For the same reasons, the names of the parties
and references to the products and services covered by the cryptographic platform have been
modified and anonymized.

114
wherever they may be. Bearing in mind that the arbitral award ordered XYZTechno
to those digital assets in kind -and not their monetary equivalent-, CryptoABC has
asked us to consider whether Spanish courts may issue disclosure and attachment
orders, addressed both to the debtor and to third parties that may lead to: (i)
ascertaining the crypto exchange where those digital assets may be deposited (ii)
making sure that those digital assets are returned to CryptoABC. CryptoABC is also
interested in learning more about the enforcement alternatives under Spanish law,
in case the disclosure and attachment orders fail, i.e., they do not lead to the
tracing and recovery of the digital assets. Also, and crucially, CryptoABC is asking
what protection Spanish law has to offer against the risks arising from the volatility
of such assets, meaning, who bears the risk of potential loss in value of those digital
assets between the date when they were delivered to XYZTechno and the time
when those same assets will be possibly returned to CryptoABC.

In this article, we explore the Spanish legal framework to the extent necessary to
answer those questions and provide insight in this particularly topical area.

2. Background

CryptoABC is a crypto exchange, i.e., a company dedicated to the trade and custody
of cryptocurrencies and other digital assets. As such, it enjoys a solid reputation as
a safe and reliable operator in the market.

XYZTechno is a market leader delivering liquidity solutions to blockchains. In this

capacity, it reached an agreement with CryptoABC to provide market maker
services2 on one of the cryptocurrency exchange platforms developed by
CryptoABC, called "ABC SuperExchange".
To help it launch its services as a market maker, CryptoABC provided XYZTechno
with interest-free funding (via the signature of several Loan Agreements)

2
“The term market maker refers to a firm or individual who actively quotes two-sided markets in a particular
[asset], providing bids and offers (known as asks) along with the market size of each. Market makers provide
liquidity and depth to markets and profit from the difference in the bid-ask spread. They may also make
trades for their own accounts, which are known as principal trades.”, Market Maker Definition: What It
Means and How They Make Money, Investopedia (Dec 8, 2022),
https://www.investopedia.com/terms/m/marketmaker.asp. This begs the question, why are market
makers necessary? A market maker serves as a middleman or broker between the demand and supply
for digital assets. Market makers provide liquidity in markets of digital assets, which ensures there is
enough orders to buy and sell, while cryptocurrency exchanges offer the infrastructure that allows
traders to operate. Market makers ensure traders can quickly and easily liquidate their holdings.
Market makers are also necessary because they maintain price stability in a market with a somewhat
small bid-ask spread. In addition to being seen as reputable and trustworthy by cryptocurrency
traders, a market with price stability is an indication of significant liquidity, since it means that many
participants are transacting, which in turn increases the market maker's profit.

115
consisting of exact quantities of cryptocurrencies and digital assets (payment and
utility tokens)3 that XYZTechno would have to return.

At one point, CryptoABC requested TechnoXYZ to return the exact quantities of

the cryptocurrencies and digital assets loaned at TechnoXYZ’s account in ABC
SuperExchange. TechnoXYZ failed to comply with this request, which led the
parties to arbitration. A sole arbitrator was appointed to handle the dispute.

3. The Object of the Refund: Digital Assets, or its Equivalent Initial Value in Fiat
Currency?

This was one of the critical issues of the dispute. CryptoABC argued it provided
funding in the form of an exact quantity of digital assets. CryptoABC further
claimed that XYZTechno had to restitute this interest-free funding in the exact
same quantities as received, in conformity with the parties’ intention that the
funding should always remain the property of CryptoABC and that XYZTechno
would bear the risk of losing it.

XYZTechno argued that funding had to be repaid based on its initial value in Euro,
and not token-for-token.

The consequences of one option or the other are obvious. If the sole arbitrator was
to order that the funding had to be refunded based on its initial value in fiat
currency (the currency used was Euro), the volatility risk of the digital assets would
be borne by the funder, insofar as that initial Euro value would be equivalent, at
the time of repayment, to an amount different from that which was the initial
subject of the funding.

If, on the other hand, the sole arbitrator was to rule that the funding had to be
repaid in the exact amount of digital assets originally received, the volatility risk
would be borne by the borrower since, if it did not hold the digital assets received,
it would have to purchase them on the market at their equivalent price in Euro at
the time of repayment.

4. What the Award Rules

The award rules that the parties intended the return of the digital assets on a token-
for-token basis, and not on a monetary value basis. It further considered that the

3
“Payment tokens” are issued with payment medium functions on a given blockchain, while “utility
tokens” grant the right to claim the provision of a service from issuers. There are also "security
tokens", which have equivalent functions to financial instruments (i.e. Initial Coin Offerings (ICOs)
or other crypto-assets that represent tradable financial instruments, such as shares, bonds or rights
to investment contracts).

116
parties agreed on an obligation to return the funding received in the same asset
and in the same quantity as received.

5. Can a Spanish Court issue Disclosure and Attachment Orders to the Debtor and
Third Parties in relation to Digital Assets?

Considering that the award orders the restitution of digital assets in kind (and in
the exact amount initially received), CryptoABC needs to know whether a Spanish
court can, during enforcement of the award, issue disclosure and attachment
orders to the award debtor and to third parties – aimed at learning about the
whereabouts of such digital assets and to make them available to the Spanish court,
for their delivery to the award creditor.

The answer to this question of Spanish law is affirmative. A Spanish court may,
according to the Spanish Code of Civil Procedure, issue disclosure orders to the
award debtor and to third parties. First off, the Spanish court may order the award
debtor to disclose whether it keeps the received digital assets and where they are
deposited; the Spanish court may also order the award debtor to make these digital
assets available to the court for delivery to the creditor.
To third parties (e.g., cryptocurrency exchange platforms, where the digital assets
may be under custody), the Spanish court may also request them to disclose
whether they deposit those assets and, if applicable, to make them available to the
court for delivery to the award creditor.

6. Limitations on the Effectiveness of Disclosure and Attachment Orders

Addressed to the Award Debtor and to Third Parties

Even though it is possible to issue orders both to the debtor and to third parties,
the effectiveness of both types of order is potentially different, particularly in
matters related to cryptocurrencies, whose place of deposit can be anywhere in the
world.

On the one hand, the award debtor is fully subject to the jurisdiction of the
enforcement court and must comply with its orders. If he fails to do so, the Spanish
court may impose coercive fines on him. In addition, repeated non-compliance
with judicial disclosure orders, as well as incomplete or mendacious responses to
such requests, may be criminal offences under the Spanish Criminal Code.

However, in the case of third parties and, particularly, in the case of crypto
exchanges, one can expect that it will only be materially possible to force them to
comply with the Spanish court's orders if their domicile is Spain. If their domicile
is not Spain (as is usually the case for most crypto exchange platforms), there are

117
generally no international instruments that would allow Spanish courts to force
the third party to comply with such order. In any case, the few legal instruments
that may be considered are very difficult to apply in practice. This is a considerable
limitation to international asset tracing and recovery affecting all types of assets,
both digital and non-digital.

7. What Enforcement Options does the Award Creditor have if the Debtor of
Third Party fails to comply with the Orders issued by the Spanish Court?

To answer this question, it is first necessary to analyse the legal nature of

cryptocurrencies (which Spanish legislation names "virtual currencies") and other
digital assets (which Spanish legislation names "crypto assets").

In relation to the former, Spanish regulations define them as "a digital

representation of value, not issued nor guaranteed by a central bank or public
authority, and not necessarily associated with a legally established currency, which
does not have the legal status of currency or money, but which is accepted as a
medium of exchange and can be transferred, stored or traded electronically". What
is noteworthy about this definition is that virtual currencies do not have the legal
status of “currency” or money under Spanish law.

As for digital assets or "crypto-assets", Spanish financial regulations define them

as the "digital representation of a right, asset or value that can be transferred or
stored electronically, using distributed ledger technologies or other similar
technology". It follows from this definition that crypto assets are purely electronic
and decentralised assets. It also follows that digital assets are fungible and, as such,
likely to be used as a medium of exchange in economic transactions.

We must therefore conclude that the cryptocurrencies and other digital assets that
are the object of the award have the legal nature, under Spanish law, of non-cash
and fungible assets (as opposed to the so-called "NFTs" or Non-Fungible Tokens,
which, by definition, have a different legal nature). Therefore, the enforcement of
any court or arbitral decision whose object is cryptocurrencies and other fungible
digital assets will follow the legal regime of non-monetary enforcement and,
specifically, that of the enforced delivery of generic or indeterminate assets. In
other words, the delivery of cryptocurrencies and digital assets has the same legal
procedural treatment as that of a kilo of rice or potatoes (also generic or
indeterminate assets); as opposed to the regime of delivery of a Picasso painting
(which would be a specific movable asset, non-fungible and, therefore, the legal-
procedural equivalent of an "NFT"...).

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 7.1. Option 1: Attachment of the debtor's assets to pay for the acquisition of the
fungible digital asset

When the debtor has refused to comply with the order to deliver fungible (i.e.,
generic, or indeterminate) assets, Spanish law allows the award creditor to acquire
such assets at the debtor's expense. For this purpose, the creditor may request the
court to empower him to acquire them, ordering at the same time the attachment
of sufficient assets of the debtor to pay for the acquisition.

Naturally, the attachment of sufficient assets will be made in the fiat currency
governing the enforcement; typically, in Spain, such currency will be Euros, but it
could be any other of legal tender.

Therefore, an interesting question is what value, or "exchange rate" in fiat

currency, will be used to determine the exact amount of the debtor's assets that
will have to be seized to finance the acquisition of the cryptocurrencies and other
fungible digital assets that are the object of the award. Some of the (countless)
possibilities could be: (i) the exchange rate at the time when they were delivered
to the borrower; (ii) at the time when the breach occurred; (iii) at the time of the
arbitration claim; (iv) at the time of the award; (v) at the time of enforcement; (vi)
or at the time of the award creditor's acquisition of such cryptocurrencies and
digital assets.

The correct answer under Spanish law is the latter: the debtor's assets will be seized
according to their value in fiat currency at the time of acquisition of the digital
assets by the award creditor during the enforcement of the award. In this way, the
risk of volatility of the digital assets will rely on the award debtor and not on the
award creditor. The creditor will receive value in fiat currency of the digital assets
at the time of purchase and can therefore buy the same exact number of
cryptocurrencies and digital assets that were borrowed at the time by the award
debtor.

7.2. Option 2: Request that the non-delivery of the digital assets be replaced by
the payment of a fair monetary compensation

Spanish law also contemplates the possibility of it becoming impossible to

purchase the generic or indeterminate asset. This possibility is relevant in the case
of cryptocurrencies and digital assets, one of whose characteristics, in some
instances, is their lack of liquidity. In certain cases, such lack of liquidity may make
it impossible to find buyers and sellers of the cryptocurrency or digital asset in
question (hence the importance of the "market maker" services that XYZTechno
undertook to provide on the CryptoABC platforms).

119
In these cases, Spanish law provides that the impossibility to deliver the asset
should be replaced by the payment of a fair pecuniary compensation. What should
the amount of such compensation be? In our opinion, the compensation should
cover, on the one hand, the value in fiat currency of the undelivered
cryptocurrencies and digital assets (at the time when such compensation is
calculated, i.e., at the time of the failed attempt to purchase them). On the other
hand, the compensation should cover any other demonstrable damages that the
creditor has suffered because of the non-delivery of the cryptocurrencies and
digital assets (i.e., direct and indirect damages). To this end, the Spanish Code of
Civil Procedure provides for a specific proceeding for the creditor to assert and
prove the totality of damages suffered.

8. Conclusion

Spanish procedural law has not undergone any modification to adapt to the
enforcement of court and arbitral decisions on the return of cryptocurrencies and
other digital assets. However, the current regulation is already relatively well-
suited to certain aspects relating to the enforcement of judgments and awards
involving the delivery in kind of such assets. Spanish law provides that, in the
absence of return in kind, the creditor may acquire the digital (fungible) assets at
the debtor's expense, seizing his other assets for the value, in fiat currency,
necessary to purchase such assets at the time of the acquisition during the
enforcement. If this is not possible, Spanish law provides that the creditor may
claim a fair monetary compensation from the debtor. In either case, Spanish law
protects the creditor against the inherent volatility of digital assets, allowing the
creditor to recover the exact amount of digital assets recognised in the enforceable
title, to be calculated in fiat currency at the time of the enforcement.

In this case, paradoxically, the latter option in the enforcement stage would reach
the opposite solution to the one envisaged in the award, which rejected that the
return of the digital assets could be made in fiat currency instead of being made in
kind. However, one must acknowledge there are no alternatives to the impossibility
of recovering the digital assets in kind, other than converting them into their fiat
currency value, be it to attach the debtor’s assets to assist in the purchase, or to
pay to the award creditor a fair monetary compensation. Therefore, the basic
element to consider is protection for the award creditor against the volatility in the
value of cryptocurrencies and digital assets. As we have seen, Spanish law
contemplates what seems a fair solution to this problem.

120
 ICC FraudNet
Global Annual Report 2023

U.S. Fraudulent
Transfer Law: Legal
Issues and Practical
Considerations

JOE WIELEBINSKI
MATTHIAS KLEINSASSER

iccfraudnet.org
MEMBER INSIGHT JOE WIELEBINSKI AND MATTHIAS
KLEINSASSER

US Fraudulent Transfer Law: Legal

Issues and Practical Considerations

JOE WIELEBINSKI AND MATTHIAS KLEINSASSER

Abstract

The U.S. has a well-developed body of law concerning the prosecution and recovery
of fraudulent transfers. Fraudulent transfer law is a type of creditors’ rights law
that seeks to claw back two types of transfers: (i) transfers made with actual intent
to hinder, delay, or defraud creditors and (ii) transfers made for less than
reasonably equivalent value while the debtor was in dire financial circumstances.
As with most areas of law, fraudulent transfer law often involves complex issues.
Questions such as whether the transferee provided reasonably equivalent value,
whether the recipient of a transfer acted in good faith, or which jurisdiction’s law
governs the proceeding frequently involve fact-intensive inquiries. In this article,
Joe Wielebinski and Matthias Kleinsasser identify common issues in this area and
also provide practical considerations for practitioners.

1. Introduction

The U.S. has a well-developed body of law concerning the prosecution and recovery
of fraudulent transfers. Fraudulent transfer law is a type of creditors’ rights law
that seeks to claw back two types of transfers: (i) transfers made with actual intent
to hinder, delay, or defraud creditors and (ii) transfers made for less than
reasonably equivalent value while the debtor was in dire financial circumstances.
As such, fraudulent transfer litigation is one of the most important tools used to
address fraud and recover assets for victims of such fraud. Fraudulent transfer law

122
is unique in that the party committing the prohibited act – the transferor – is
generally not the defendant in the lawsuit. Instead, a fraudulent transfer lawsuit is
typically commenced against the initial transferee of the assets, and, where
applicable, subsequent transferees. Fraudulent transfer lawsuits are regularly filed
in state and federal court not only by creditors, but also by equity receivers and
bankruptcy trustees. As such, a thorough understanding of this area of law is
essential for any U.S. asset recovery professional.

As with most areas of law, fraudulent transfer law often involves nuanced issues.
Questions such as whether the transferee provided reasonably equivalent value, or
whether the debtor acted with actual intent to hinder, delay, or defraud, can prove
to be complex, fact-intensive inquiries. This article identifies many of these issues
and also provides practical considerations for practitioners involved (or
considering becoming involved) in fraudulent transfer litigation.

2. Basics of U.S. Fraudulent Transfer Law

a. History

U.S. fraudulent transfer law traces its roots to the Fraudulent Conveyances Act
1571, commonly referred to as the Statute of 13 Elizabeth, an act of the English
Parliament that laid the foundation of modern fraudulent transfer law. At the time,
creditors were frequently the victims of fake sales of assets by debtors intended to
hinder collection efforts. The Statute of 13 Elizabeth effectively voided certain
transactions not made in good faith or without sufficient consideration. The most
famous case decided under the Statute is known as Twyne’s Case,1 in which the
Queen’s Star Chamber set aside a purported conveyance of sheep because the
debtor farmer did not transfer the sheep to the purchaser and continued shearing
them. Accordingly, the sheep remained available for seizure by the farmer’s
creditors. Thus, this case established the basic principles of modern fraudulent
transfer law.

All U.S. states have some version of fraudulent conveyance law. In 1918, the
original model law titled the Uniform Fraudulent Conveyance Act was enacted.
Forty-five U.S. states subsequently adopted the 1984 Uniform Fraudulent Transfer
Act (“UFTA”). In 2014, the UFTA was amended with the new model law being
named the Uniform Voidable Transactions Act (“UVTA”). The logic behind the
UFTA’s name change is that some transactions that are voidable under the Uniform
Fraudulent Transfer Act, such as constructive fraudulent transfers, do not require
a showing of fraudulent intent. The UVTA has been adopted by several states,
including California and New York. In addition, the U.S. Bankruptcy Code, codified

1
(1601) 76 ER 809, 3 Co. Rep. 80b.

123
in Title 11 of the U.S. Code, contains fraudulent transfer law provisions that
generally parallel the provisions under the state model laws.2

b. Actual Fraudulent Transfer Claims

U.S. fraudulent transfer law distinguishes between actual fraudulent transfer

claims and constructive fraudulent transfer claims. An actual fraudulent transfer
occurs when a debtor transfers an asset with the intent to hinder, delay, or defraud
a creditor.3 By its very nature, fraud is secretive, making it sometimes difficult to
determine whether a debtor had the requisite intent to hinder, delay, or defraud.4
Therefore, U.S. fraudulent transfer law recognizes multiple badges of fraud, the
presence of which suggest that an actual fraudulent transfer occurred. These
badges include that the transfer was made to a related party (called an “insider”),
that the debtor absconded afterward, that the debtor was recently sued or had a
judgment entered against it, and that the transfer was made for less than
reasonably equivalent value, among others.5 The more badges of fraud that are
present, the more likely it is that the debtor committed an actual fraudulent
transfer. The badges of fraud underlying any fraudulent transfer statute are not
exhaustive.

c. Constructive Fraudulent Transfer Claims

Constructive fraudulent transfer claims are a bit of a misnomer, insofar as actual

intent to hinder, delay, or defraud is not required.6 A constructive fraudulent
transfer occurs when the debtor transfers assets or grants a security interest
without receiving reasonably equivalent value in exchange for the transfer and one
of three conditions is present: (i) the debtor is insolvent or becomes insolvent as a
result of the transfer, (ii) the debtor is undercapitalized with respect to a business
or transaction that the debtor is engaged in or is about to be engaged in, or (iii) the
debtor intended to incur, or believed it would incur, debts beyond the debtor’s
ability to pay.7 The transferor’s intent is irrelevant. In essence, constructive

2
See 11 U.S.C. §§ 548, 550.
3
In addition to including asset transfers, a “transfer” is also defined to include the granting of a lien
or other security interest, since the granting of a security interest, like an asset transfer, diminishes
the amount of assets held by the debtor that can be seized by unsecured creditors. See, e.g., Tex. Bus.
& Com. Code § 24.002(12).
4
Strictly speaking, an actual fraudulent transfer claim, like a constructive fraudulent transfer claim,
does not require the presence of actual intent to defraud. Intent to merely hinder or delay creditors’
collection efforts is sufficient. See, e.g., Tex. Bus. & Com. Code § 24.005(a)(1).
5
See, e.g., Tex. Bus. & Com. Code § 24.005(b).
6
For this reason, the most recent uniform law in the U.S. is titled the Uniform Voidable Transactions
Act, not the Uniform Fraudulent Transfer Act.
7
See, e.g., Tex. Bus. & Com. Code §§ 24.005(a)(2), (b), 24.006(a). U.S. fraudulent transfer law also
provides a cause of action to recover a transfer to an insider (i.e., a related party) for an antecedent
debt while the debtor was insolvent. Strictly speaking, this cause of action is generally termed a claim

124
fraudulent transfer law seeks to prevent a debtor in dire financial circumstances
from putting its creditors in a worse position by transferring assets or granting
security interests to others without receiving reasonably equivalent value in
exchange.

d. Who Can Be Sued?

Unlike most lawsuits, a fraudulent transfer suit is generally not brought against the
transferor, the party accused of the prohibited conduct. Instead, suit is generally
filed against the initial transferee – i.e., the party who received the asset from the
debtor. If the initial transferee transferred assets to other parties (termed
subsequent transferees), those parties can also be sued, subject to the defenses
described below.8 The creditor may generally recover either the asset transferred
(to the extent the asset is non-fungible, such as real property) or the asset’s value.9
A creditor typically may not recover more value than what it is owed by the
debtor.10

e. Affirmative Defenses

U.S. law generally defines an affirmative defense as a defense on which the

defendant bears the burden of proof. There are no affirmative defenses to
constructive fraudulent transfer claims. Either the plaintiff creditor can establish
the elements, or he cannot. However, affirmative defenses do exist on actual
fraudulent transfer claims. With respect to an actual fraudulent transfer claim, the
initial transferee is free from liability if he or she can show they received the asset
in good faith and for reasonably equivalent value.11 In other words, even if the
debtor transferred the asset with actual intent to hinder, delay, or defraud a
creditor, if the initial transferee did not know (and reasonably should not have
known) of the debtor’s bad intention, then the initial transferee is protected –
assuming they provided reasonably equivalent value. Even if the initial transferee
did not provide reasonably equivalent value (and therefore cannot claim to be
wholly free from liability), so long as the initial transferee acted in good faith, it
can deduct the amount of whatever value it did provide from the amount of the
adverse judgment.12

to recover a preferential transfer, as opposed to a fraudulent transfer claim. Preferential transfer

recovery is also an integral part of insolvency litigation in the U.S.
8
See, e.g., Tex. Bus. & Com. Code § 24.009(b).
9
See, e.g., Tex. Bus. & Com. Code § 24.009(b).
10
See, e.g., Tex. Bus. & Com. Code § 24.009(b).
11
See, e.g., Tex. Bus. & Com. Code § 24.009(a).
12
See, e.g., Tex. Bus. & Com. Code § 24.009(d).

125
Subsequent transferees can rely on two defenses: First, if the initial transferee
prevails on its “good faith + reasonably equivalent value” defense, all subsequent
transferees are free from liability.13 Second, even if the initial transferee cannot
establish this affirmative defense, a subsequent transferee that took the assets for
any value (as opposed to reasonably equivalent value) is free from liability if the
subsequent transferee acted in good faith.14

3. Legal Issues in Fraudulent Transfer Cases

a. Who Has Standing to Bring the Claim?

Generally, a fraudulent transfer claim is brought by a creditor of the debtor. A

creditor is broadly defined as a person who has a claim, which is virtually any right
to payment of money, whether disputed, unliquidated, contingent, or otherwise.15
In other words, a creditor need not obtain a judgment against the debtor prior to
filing a fraudulent transfer lawsuit. Whether the creditor held a claim at the time
of the fraudulent transfer can be relevant under certain factual circumstances. For
example, to bring an actual fraudulent transfer claim, or to bring a constructive
fraudulent transfer claim based on the debtor not paying its debts as they become
due or undercapitalization, the creditor’s claim must arise before the time of the
transfer or within a reasonable time thereafter.16 To bring a constructive fraudulent
transfer claim based on insolvency, on the other hand, the creditor must have had
a claim at the time of the transfer.17 If the claim arose later, the creditor is
prohibited from pursuing this particular type of constructive fraudulent transfer
claim.

Standing to assert fraudulent transfer claims is different in a bankruptcy or

receivership than in normal debtor/creditor litigation. Upon the filing of a
bankruptcy petition, creditors initially lose standing to bring fraudulent transfer
claims. Instead, the bankruptcy trustee (or, in a Chapter 11 case, the debtor-in-
possession, which is essentially the debtor who is charged with fiduciary
obligations to the bankruptcy estate) obtains standing to bring these claims.18 In
large bankruptcy cases, the Official Committee of Unsecured Creditors, or, less
commonly, individual creditors may request that the bankruptcy court confer
standing upon them to bring fraudulent transfer claims for the benefit of all
creditors. If the debtor-in-possession is disinclined to bring fraudulent transfer
claims (e.g., because it would require suing the debtor’s principals or affiliates),

13
See, e.g., Tex. Bus. & Com. Code § 24.009(a).
14
See, e.g., Tex. Bus. & Com. Code § 24.009(b).
15
See, e.g., Tex. Bus. & Com. Code § 24.0092(3).
16
See, e.g., Tex. Bus. & Com. Code § 24.005(a).
17
See, e.g., Tex. Bus. & Com. Code § 24.006(a).
18
11 U.S.C. § 544(b)(1).

126
then the bankruptcy court will often confer standing upon the Committee or the
requesting individual creditor to pursue such claims.19

In an equity receivership, the receiver is generally granted standing to bring

fraudulent transfer claims for the benefit of the receivership estate and its
interested parties.

b. What is Value – Janvey v. Golf Channel

Value is broadly defined under U.S. fraudulent transfer law as the transfer of
property or the securing or satisfaction of an antecedent debt.20 Reasonably
equivalent value does not have a precise definition, but it does include the range
of values for which the transferor would have sold an asset in an arm’s length
transaction.21 However, reasonably equivalent value does not require dollar-for-
dollar equivalency.22

An interesting opinion on the issue of value in recent case law is the Texas Supreme
Court’s decision in Janvey v. Golf Channel.23 In that case, the equity receiver for
Stanford International Bank sued the Golf Channel television network for return of
$5.9 million in payments for advertising on the Golf Channel. The Receiver argued
that the advertising provided no objective value to the receivership estate and
merely furthered the Ponzi scheme. Accordingly, the Receiver argued that Golf
Channel should not be allowed to rely on the “good faith + reasonably equivalent
value” defense. The Texas Supreme Court disagreed, holding that the services
provided by Golf Channel did not need to preserve the debtor’s estate so long as
they had objective value, and the fact that they were provided to a Ponzi scheme
did not change the inquiry. Since the advertising services had objective value at the
time they were provided, Golf Channel was permitted to retain the $5.9 million.
This decision is controversial and is not followed in some states, which retain the
more commonly accepted principle that services to a Ponzi scheme merely further
the fraud and provide no value to creditors.

c. Establishing Actual Fraud – the Ponzi Scheme Presumption

19
See, e.g., Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v.
Chinery, 330 F.3d 548, 583 (3d Cir. 2003) (en banc); Fogel v. Zell, 221 F.3d 955, 965 (7th Cir.
2000); Canadian Pac. Forest Prods. Ltd. v. J.D. Irving, Ltd. ( In re Gibson Group, Inc.), 66 F.3d 1436, 1440-
41 (6th Cir. 1995); La. World Exposition v. Fed. Ins. Co., 858 F.2d 233, 247-48 (5th Cir. 1988).
20
See, e.g., Tex. Bus. & Com. Code § 24.004(a).
21
See, e.g., Tex. Bus. & Com. Code § 24.004(d).
22
See Brown v. Douglas (In re Dual D Health Care Operations, Inc.), 2021 Bankr. LEXIS 1934, *27
(Bankr. N.D. Tex. Jul. 21, 2021).
23
487 S.W.3d 560 (Tex. 2016).

127
Fraudulent transfer litigation frequently occurs in the context of a Ponzi scheme.
A Ponzi scheme – so named after Italian businessman Charles Ponzi who defrauded
thousands of people out of over $10 million – is an investment scheme in which
money from new investors is used to pay prior investors. In other words, the
investment scheme generates no real value by its business operations, and simply
misappropriates new investor funds for the benefit of earlier investors, thereby
prolonging the scheme.

Because a Ponzi scheme is, by its very nature, fraudulent, many courts in the U.S.
presume that funds paid out of a Ponzi scheme to investors were made with actual
intent to hinder, delay, or defraud creditors.24 In other words, once a creditor (or
receiver or bankruptcy trustee) files an actual fraudulent transfer suit and
establishes that the operation in question is a Ponzi scheme, the issue of actual
intent to hinder, delay, or defraud is established without further evidence. In such
case, the burden shifts to the transferees to establish affirmative defenses if they
wish to retain the funds they received. Clearly, the Ponzi scheme presumption is a
huge advantage to a creditor/receiver/trustee pursuing actual fraudulent transfer
claims. While it is generally still followed in most jurisdictions that have adopted
it, the presumption has been subject to recent criticism. The Minnesota Supreme
Court has held that the Ponzi scheme presumption does not apply under Minnesota
law and the Texas Supreme Court has raised questions as to its validity.25

d. The Netting Principle

Another principle applicable to Ponzi scheme fraudulent transfer litigation is the

netting principle. The netting principle operates based on the policy that transfers
made from a Ponzi scheme should be clawed back to evenly distribute recovered
funds among the victims, regardless of when someone invested in the scheme. The
trustee or receiver nets the amount transferred to an investor from the Ponzi
scheme against the amounts invested by that individual within the relevant
limitations period. If the result is positive, the investor has liability as a “net
winner” from the scheme. If the result is negative, the investor is not liable and
may receive distributions on its claim from the receivership or bankruptcy estate.26

e. Establishing Good Faith – Inquiry Notice and the Duty to Investigate

A finding that a transferee acted in good faith is a valuable finding under U.S.
fraudulent transfer law. An initial transferee who provides reasonably equivalent

24
See, e.g., Donnell v. Kowell, 533 F.2d 762, 770 (9th Cir. 2008).
25
Finn v. Alliance Bank, 860 N.W.2d 638 (Minn. 2015); Janvey v. GMAG, L.L.C., 592 S.W.3d 125 (Tex.
2019).
26
See, e.g., Donnell, 533 F.2d at 771-72.

128
value in exchange for the transfer and acts in good faith has a complete affirmative
defense to an actual fraudulent transfer claim.27 A subsequent transferee has a
complete affirmative defense if it acts in good faith and provides any value at all.28
Even an initial transferee who provides some value but not enough to meet the
reasonably equivalent value standard can offset the amount of value provided
against its liability if the transferee acted in good faith.29

So what is good faith? Generally, the concept is defined in U.S. fraudulent transfer
law as conduct that is honest in fact, reasonable in light of known facts, and free
from willful ignorance of fraud.30 There are two types of notice that will vitiate good
faith. Actual notice means that the transferee is actually aware of fraud or other
inequitable conduct at the time of the transfer. Inquiry notice means that the
transferee was aware of facts that would have caused a reasonable person to
investigate whether fraudulent conduct is present.31

In Janvey v. GMAG, LLC,32 the Texas Supreme Court was again called upon to
interpret the Texas Uniform Fraudulent Transfer Act, this time in the good faith
context. The issue before the court was what a transferee on inquiry notice is
required to do to show good faith. The court held that a transferee on inquiry notice
is required to conduct a diligent investigation of its suspicions to attempt to
uncover fraudulent conduct if it wants to establish good faith. Importantly, the
court held that this investigation requirement holds even if a hypothetical
investigation may not have uncovered the fraud, thereby providing transferees a
strong inventive to investigate.33

f. Whose Law Controls?

Fraudulent transfer claims frequently involve transactions that take place across
multiple states (or countries). While fraudulent transfer law across U.S. states is
reasonably uniform, seemingly small differences between or among states can
prove material in the right case. For example, even when the vast majority of U.S.
states had adopted the Uniform Fraudulent Transactions Act, New York, a major
commercial center, retained the prior Uniform Fraudulent Conveyance Act. More
recently, an increasing number of states have adopted the Uniform Voidable
Transactions Act, while others continue to hold to the Uniform Fraudulent

27
See, e.g., Tex. Bus. & Com. Code § 24.009(a).
28
See, e.g., Tex. Bus. & Com. Code § 24.009(b).
29
See, e.g., Tex. Bus. & Com. Code § 24.009(d).
30
See GMAG, 592 S.W.3d at 129.
31
Id.at 129-30.
32
592 S.W.3d 125 (Tex. 2019).
33
Id.at 131-32.

129
Transactions Act. Therefore, choice of law issues can prove to be important
determinations.

Until the promulgation of the Uniform Voidable Transactions Act, courts generally
used the following procedure to determine which state’s law should apply:34

1) The court would apply the choice of law principles of the state in which it
sits to determine how to conduct the analysis.
2) Because fraudulent transfer claims are torts, most UFTA states would apply
the “most significant relationship test” found in the Restatement (Second)
of Conflict of Laws that is generally used to address tort conflict of laws
issues. This is an intensive, multi-factor test that considers elements such
as where the injury occurred, where the conduct causing the injury occurred,
the location of the parties, and other factors.
3) Before applying this test, the court would compare the laws of the respective
states to determine if a true conflict exists between them. The court would
also consider whether, even if the laws conflict, they would nevertheless
produce the same result and whether each state’s policies would be
furthered by applying its laws. If no conflict exists, the same result would
obtain regardless of which state’s law applied, or one state’s policies would
not be furthered by applying its law, then a true conflict does not exist. If a
true conflict does exist, the court would perform the fact-intensive analysis
under the most significant relationship test.

The Uniform Voidable Transactions Act streamlines this process significantly by

applying the law of the state where the transferor was located when the transfer
occurred. An entity is located at its principal place of business. If it has more than
one principal place of business, then the entity is located where its Chief Executive
Office is located.35 In other words, if the fraudulent transfer suit is filed in a state
that adopted the UVTA, then the analysis is simple. If suit is filed in a UFTA state,
it may be a much more complex analysis.

4. Practical Considerations

a. Investigate Before Filing Suit

To the extent possible, it is best for a potential fraudulent transfer plaintiff to

conduct as much pre-suit investigation work as possible prior to filing suit. This
should include public record searches (e.g., prior court filings or lien searches),

34
See Mukamal v. Nat’l Christian Found., Inc. (In re Palm Beach Fin. Partners), 2014 Bankr. LEXIS 5418
(Bankr. S.D. Fla. Dec. 10, 2014) (applying this analysis).
35
See, e.g., Cal. Civ. Code § 3439.10 (2016).

130
internet searches using a search engine, and a review of social media accounts. In
particular, social media searches frequently turn up information that can later be
used in a lawsuit to uncover fraudulent conduct. The applicant may wish to
consider hiring a private investigator in this regard. If the applicant already has
access to a significant amount of financial information relating to a business, the
applicant should consider hiring a forensic accountant to determine if assets have
been fraudulently transferred or other suspicious circumstances are present. Some
jurisdictions also permit pre-suit discovery (e.g., a pre-suit deposition under Texas
Rule of Civil Procedure 202), although the benefits of formal pre-suit discovery
when fraudulent conduct is possible are often outweighed by the risks inherent in
tipping off a fraudster that litigation is being evaluated. In short, while a pre-suit
investigation can have drawbacks, a party should, at a minimum, conduct internet
searches and review social media postings.

Because the U.S. permits liberal discovery once a lawsuit has been filed, uncovering
fraudulent conduct becomes much easier once a lawsuit is commenced. The
problem, of course, is that merely filing a lawsuit does not prevent a fraudster from
dissipating assets while it is pending without some kind of additional equitable
relief in place, like a preliminary injunction or the appointment of a receiver.
Obtaining either of these types of equitable relief measures requires more than
mere suspicion that fraudulent conduct has occurred. Frequently, the best course
of action for a party that has sufficient evidentiary support to file a lawsuit, but not
sufficient evidence to obtain a preliminary injunction or a receiver, is to file suit
and seek expedited discovery, which may be authorized by the court in most
jurisdictions.36

b. Injunctive Relief

An injunction is an equitable remedy under which a court orders the enjoined

person or persons not to do something. Temporary injunctions, also known as
preliminary injunctions, operate to preserve the status quo until a case can proceed
to trial. Temporary restraining orders remain in place for only a brief period,
generally until the temporary injunction hearing.

U.S. fraudulent transfer law specifically provides for a court to order injunctive
relief in appropriate circumstances. Temporary restraining orders can often be
obtained on an ex parte basis, while temporary injunctions typically require a
lengthy hearing on the following elements: (1) proof of a cause of action (e.g.,
actual fraudulent transfer); (2) a likelihood of recovery; (3) probable, imminent,

36
Under Federal Rule of Civil Procedure 11 and its state law equivalents, a litigant must ensure that
allegations in the lawsuit have evidentiary support, or at least are likely to have evidentiary support
after a reasonable inquiry.

131
and irreparable harm if the injunction is not granted; (4) the injury that will occur
outweighs any injury that will result from granting the injunction; and (5) the
injunction serves the public interest.37 Irreparable injury is present if damages will
not suffice to compensate the applicant.38 If the enjoined person violates the
injunction, he or she may be held in contempt of court.

c. Making Use of Receiverships and Creditors’ Committees

Equity receiverships and Chapter 11 bankruptcy proceedings can be useful

proceedings for recovering fraudulently transferred assets. As discussed in Section
3.a above, an equity receiver is generally provided the right to prosecute fraudulent
transfer claims for the benefit of the receivership estate and its creditors. Similarly,
Unsecured Creditors’ Committees are often granted a similar right in Chapter 11
bankruptcies, particularly when the debtor’s management may have a conflict of
interest that would prevent them from diligently prosecuting fraudulent transfer
actions. In addition, equity receivers and Creditors’ Committees are granted broad
investigative powers including, in the latter case, under Rule 2004 of the Federal
Rules of Bankruptcy Procedure which authorizes an expansive examination
regarding the debtor and its financial affairs.

d. Cross-Border Matters

Fraudulent transfer litigation frequently requires recovering transfers made as part

of cross-border transactions. Cross-border litigation can be particularly difficult
where laws between jurisdictions differ, especially if the transfers involved
jurisdictions that are generally unfriendly to asset recovery. In such situations,
identifying and retaining qualified counsel and other skilled asset recovery
professionals (e.g., members and strategic partners of ICC FraudNet) in the
respective foreign jurisdiction is often a critical step to increase one’s chances of
recovery.

If the matter involves a non-U.S. insolvency proceeding, it is strongly worth

considering seeking to have the foreign proceeding recognized under Chapter 15
of the U.S. Bankruptcy Code, which is based on the Model Law for Cross-Border
Insolvency. If recognition is granted to the foreign proceeding, the U.S. bankruptcy
court can provide a forum for asset recovery efforts in the U.S. Another good option
that is available regardless of whether an insolvency proceeding is pending in
another jurisdiction is to file an application under 28 U.S.C. § 1782 to obtain
information from the U.S. to assist a foreign tribunal. U.S. federal courts regularly

37
Paulsson Geophysical Servs. v. Sigmar, 529 F.3d 303, 309 (5th Cir. 2008); Butnaru v. Ford Motor Co.,
84 S.W.3d 198, 204 (Tex. 2002).
38
Butnaru, 84 S.W.3d at 204.

132
grant these applications to permit discovery to proceed in the U.S. to obtain
evidence for use in another country.

5. Conclusion

Fraudulent transfer litigation is a critical tool for creditors to recover assets

improperly transferred by a fraudster. Therefore, it is important to understand the
law governing fraudulent transfers. Fortunately, the U.S. has a well-developed
body of law concerning fraudulent transfers, the principles governing such claims
and the practical implications involved in fraudulent transfer litigation. A
thorough understanding of this area of law is critical for any U.S. asset recovery
professional.

133
 ICC FraudNet
Global Annual Report 2023

How the UK Courts

are Seeking to Police
the Cryptocurrency
‘Wild West’ with
Novel Orders

KATE MCMAHON
JACK WALSH

iccfraudnet.org
MEMBER INSIGHT KATE MCMAHON & JACK WALSH

How the UK Courts are Seeking to

Police the Cryptocurrency
‘Wild West’ with Novel Orders

KATE MCMAHON & JACK WALSH

Introduction

A review of recent case law on the English courts’ response to the recognition of
digital assets as property indicates that the law can respond quickly to impose order
on this new virtual territory and demonstrates that the common law can be flexible,
albeit given a strong steer.

The Legal Statement published by the UK Jurisdiction Taskforce of the LawTech

Delivery Panel (UKJT) in November 2019 (‘the Legal Statement’) did not have the
force of law in the sense of creating binding precedent but its conclusions on the
legal status of cryptoassets have, nonetheless, been enthusiastically adopted by the
English courts in tackling fraud related to such digital assets and in recovering
them. Whilst some legal questions remain, the civil courts in England have not
merely accepted that cryptocurrencies such as Bitcoin and other digital assets, are
indeed ‘property' for various legal purposes but continue to develop novel interim
and final orders to take account of digital assets’ unique features. Whether
cryptoassets are property is vitally important because that issue defines the nature
of rights, liabilities and remedies in English law in disputes concerning them.
Indeed, although the criminal law was expressly excluded from the scope of the
Legal Statement, the criminal courts have begun to recognise the proprietary
nature of cryptoassets both in the substantive law and in the law relating to
restraint and confiscation of assets. In this way, and without the benefit of any
legislation, the English courts have, since the Legal Statement, demonstrated a

135
flexibility and willingness to police the world of virtual assets and prevent this
jurisdiction becoming a ‘Wild West’, bereft of meaningful remedies.

The Legal Status of Digital Assets prior to the Legal Statement

In Your Response Limited v. Datateam Business Media Limited1, the Court of Appeal
held that an electronic database was not a form of property capable of possession.
Lord Justice Moore-Bick held that recognising possession of such a thing would be
a departure from existing case law and that, if such intangible property that was
not a ‘chose in action’ was to be so recognised, it would require legislation. He
thought there was “a powerful case for reconsidering the dichotomy between choses in
possession and choses in action and recognising a third category of intangible property,
which may also be susceptible of possession and therefore amenable to the tort of
conversion2”. If that case were accepted, the judge thought that “it would have the
beneficial effect of extending the protection of property rights in a way that would take
account of recent technological developments”. Parliament did not act, however, and
the English courts3 were at risk of being left behind the technological developments
arising from digital assets. Other common law jurisdictions did not feel so
constrained. In New Zealand in Dixon v. The Queen4, the Supreme Court had held
that digital files comprising CCTV footage held on a computer system were more
than mere information and could be ‘property’ for the purposes of the New Zealand
Crime Act. The NZ Supreme Court considered “that the fundamental characteristic of
“property” is that it is something capable of being owned and transferred…” and that
the digital files had that characteristic. In B2C2 Ltd v. Quoine Pte Ltd,5 in the
Singapore International Commercial Court the judge was satisfied that
cryptocurrencies met all the requirements of the classic definition of a property
right set down by the House of Lords in National Provincial Bank v. Ainsworth6,
namely that they are “definable, identifiable by third parties, capable in its nature of
assumption by third parties, and hav[ing] some degree of permanence or stability.” On
appeal, however, the question whether cryptocurrencies were a form of property
was left open7.

Technological Developments

In the meantime, in the growing world of cryptoassets there were, perhaps

inevitably, fraudsters willing to exploit the new technologies – particularly their

1
[2014] EWCA Civ 281
2
At [27]. That case being made by Prof. Sarah Green (who sat on the UK Jurisdiction Taskforce and is
now a Law Commissioner) and John Randall KC in ‘The Tort of Conversion’
3
Feeling themselves bound by OBG Limited v. Allan [2007] UKHL 21
4
[2015] NZSC 147
5
[2019] SGHC(I) 03
6
[1965] 1 AC 1175
7
[2020] SGCA(I) 02

136
speed and scope for anonymity - for their own gain and to others’ detriment.
Bitcoin were introduced in 2008 and increased in popularity before the use of
cryptocurrencies became widespread in 2017. They were, at least initially, used
predominantly as a medium of exchange for unlawful and/or secret purposes.

The English courts’ response to the Legal Statement

A prime example of the use of Bitcoin for nefarious purposes is the case that led to
the first reasoned judgment deciding that Bitcoins are property in English law, AA
v. Persons Unknown8, a decision of Mr. Justice Bryan. The claimant was the insurer
of the victim of a hack and ransom demand. The victim was required to pay the
ransom in Bitcoin. The claimant raised proprietary claims and sought, among other
orders, a proprietary injunction in respect of the Bitcoin that had been paid over.
Bryan J, influenced by the Legal Statement, accepted that crypto assets such as
Bitcoin were property, albeit they are neither ‘choses’, or ‘things’ in possession or
things in action. As did the first instance judge in B2C2 Ltd v. Quoine Pte Ltd, they
met the criteria for ‘property’ in National Provincial Bank v. Ainsworth. The interim
proprietary injunction was granted. The case signifies a key development. It began
a number of cases which have, collectively, provided a degree of confidence in the
ability of the English legal system to engage with crypto-related fraud.
Subsequently, the English courts, in order to assist claimants who have been
dispossessed of their cryptoassets, have been prepared to grant proprietary
injunctions, asset preservation orders, freezing orders and information/disclosure
orders in respect of cryptocurrencies.

In Ion Science Ltd v. Persons Unknown9, the Commercial Court granted an interim
proprietary injunction and a worldwide freezing order against unidentified
defendants in respect of Bitcoin that had been dissipated by the wrongdoers
following a fraud. The Court also granted permission to serve Banker’s Trust
disclosure orders against the exchanges that processed the transactions in order to
help locate the missing digital assets and identify the wrongdoers. In the final
judgment, and to assist enforcement of it, the Court granted the first third-party
debt order in respect of Bitcoin.

The claimants in Fetch.ai Ltd v. Persons Unknown Category A10, were granted a
worldwide freezing order and proprietary injunctive relief against unknown
fraudsters in addition to a Norwich Pharmacal Order allowing the claimants to
obtain information from the cryptocurrency exchange that would, in turn, assist
them to trace assets.

8
[2019] EWHC 3556 (Comm)
9
unreported, 21 December 2020
10
[2021] EWHC 2254 (Comm)

137
In Nicholls v. Little11 investors in cryptocurrency obtained a freezing and
preservation order over the cryptoassets of an individual who claimed to be a
specialist in investing in cryptocurrency and who had refused to return their assets
to them. The claimants had obtained a default judgment against him, and the Court
granted a freezing order to enable them to seek enforcement of it.

The New Zealand High Court in Ruscoe v. Cryptopia Ltd (in Liquidation) held that
cryptocurrencies are a form of property that are capable of being held on trust. In
this jurisdiction, Wang v. Darby12, Jones v. Persons Unknown13 and LMN v. Bitflyer
Holdings Inc & Ors.14 proceeded on the same basis. Indeed, in Cryptopia the court
decided that the digital assets held by the Cryptopia exchange were also held on
express trust on behalf of its customers. Whether cryptoassets can be held on trust
is important because it determines the availability of certain proprietary claims in
respect of cryptoassets (e.g., tracing) might be available following a breach of trust.
Osbourne v. Persons Unknown Category A15 involved the theft of valuable non-
fungible tokens (NFTs) and is believed to be the first occasion when the court
permitted service on the defendants solely by NFT.

The English criminal courts’ response

The effect of the Legal Statement has been felt in the English criminal law too,
which was beyond its initial ambit.

The editors of Archbold, in chapter 21-52, dealing with ‘intangible property’ for
the purposes of the Fraud and Theft Acts, cite AA v. Persons Unknown in support of
their commentary that “Cryptocurrency is intangible property”. In R v. Wright16 the
appellant in person, in a renewed application for leave to appeal against his
conviction for blackmail, sought to persuade the Court of Appeal (Criminal
Division) that it was at least arguable that his demands for Bitcoin would not have
amounted to a ‘gain’ for him for the purpose of the offence. His reasoning was that
‘gain’ is confined by the Theft Act 1968 “only to gain or loss in money or other
property”17 and that “property includes money and all other property, real or
personal, including things in action and other intangible property.18” In can be seen
that the definition of ‘property’ in the Theft Act 1968 is, in any event, and by
contrast to the definition of gain, non-exhaustive. The Court of Appeal rejected the

11
[2022] EWHC 2344 (QB)
12
[2021] EWHC 3054 (Comm) (although no trust was held to exist on the facts)
13
[2022] EWHC 2543 (Comm)
14
[2022] EWHC 2954 (Comm)
15
[2023] EWHC 39 (KB)
16
[2022] EWCA Crim 882
17
Section 34(2)(a)
18
Section 4(1)

138
ground of appeal, however, expressly in reliance on the decisions in AA v. Persons
Unknown, Ion Science v. Persons Unknown19 and Fetch AI Limited v. Persons Unknown20.
Although Wright is not itself of the highest authority, it can be anticipated that the
Court of Appeal (Criminal Division) will adopt a similar approach if asked to decide
whether cryptocurrencies are property for the purposes of criminal offences.

Reflecting the approach taken by the civil courts in respect of freezing orders, Mr.
Justice Fordham in DPP v. Briedis21, an unopposed application for a ‘Property
Freezing Order’ under Part 5 of the Proceeds of Crime Act 2002 (POCA), was “…
satisfied that cryptocurrency, as cryptoassets, fall within the wide definition of
“property” in section 316(4)(c) (“other intangible … property”), especially when viewed
in the light of the purpose of these statutory powers. It would be a serious lacuna if
cryptoassets fell outside the reach of this statutory scheme.” The judge cited the
decision in AA v. Persons Unknown and, indeed, the Legal Statement itself in
support of his conclusion on the definition of ‘property’ for the purposes of Part 5.
The definition in s.316(4)(c) is the same as that which is applied generally in POCA
(e.g., in ss.84(1)(c) and 340(9)(c)) and so Fordham J’s conclusion is likely to be
adopted more widely to the provisions of POCA dealing with restraint and
confiscation orders and to offences under POCA of laundering the proceeds of
crime. Mitchell, Taylor and Talbot on Confiscation and the Proceeds of Crime write,
at 03.034, “Cryptoassets constitute “property”, including for the purposes of a property
freezing order. The same analysis is thought to apply for the purposes of a restraint
order.”

Unresolved Issues

Some questions remain. In respect of jurisdiction, Tulip Trading Ltd v. Bitcoin

Association for BSV22 took a different approach to the ‘lex situs’ of a cryptoassets
than had been taken in Fetch.ai Ltd. In his speech on 24 February 202223, Sir
Geoffrey Vos MR suggested that the Civil Procedure Rules may be amended to deal
with the issue of jurisdiction in cryptoassets disputes. The Law Commission’s
Digital Assets Project will consider whether such assets are capable of being
‘possessed’. As the law currently stands, only physical objects can be ‘possessed’.
This has implications for how digital assets can be transferred and secured, for
example. The Law Commission will also be looking at whether the dichotomy
between ‘things in possession’ and ‘things in action’, which prevented substantial
development of the law in relation to digital assets prior to the Legal Statement,
remains valid.

19
(Commercial Court, 21st December 2020)
20
[2021] EWHC 2254 (Comm)
21
[2021] EWHC 3155 (Admin) at [10]
22
[2022] EWHC 667 (Ch)
23
At the launch of the UKJT’s ‘Smarter Contracts’ report

139
The Court of Appeal, in either its criminal or civil division, has not yet provided a
definitive judgment on the legal status of cryptoassets. Most of the first instance
decisions have been interlocutory.

The Overall Picture

Nonetheless, as the plethora of cases at first instance dealing with digital assets
shows, the English courts have enthusiastically embraced the opportunity – or
steer - given to them by the Legal Statement. The cases show the flexibility of the
common law. In the absence of legislation, the courts have to a great extent
furthered the objective of the Master of the Rolls and the government for the
English law to adapt to the challenges presented by digital assets and the potential
for fraud in relation to their use.

140
 ICC FraudNet
Global Annual Report 2023

STRATEGIC
PARTNER
INSIGHTS

iccfraudnet.org
 ICC FraudNet
Global Annual Report 2023

Asset Recovery as
a Tool to Combat
Investment Fraud –
a view from Ireland

BARRY ROBINSON

iccfraudnet.org
STRATEGIC PARTNER INSIGHT BARRY ROBINSON

Asset Recovery as a Tool

to Combat Investment
Fraud – a View from Ireland

BARRY ROBINSON

Abstract

In this article, Barry Robinson of BDO discusses Ponzi Schemes, Binary Options
fraud and the collapse of FTX. He also discusses asset recovery in an ever-changing
world of global investments and the continued rise of cryptocurrencies, including
a recent Irish Court decision to “pierce the corporate veil” for the first time in that
jurisdiction.

Introduction

Investment fraud occurs when someone “knowingly misleads an investor using

false information for the purpose of monetary gain”1. There are many different
types of investment fraud with one thing in common: they often involve
perpetrators contacting individuals promising high returns and convincing them
to invest in schemes or products that are worthless or do not exist. Once the
perpetrators have received payment, they often cease contact with their victims.2
Many such schemes include Affinity Fraud, Advance Fee Fraud, Binary Options
Fraud, High Yield Investment Programs, Internet and Social Media Fraud, Microcap

1
Beals, M., M. DeLiema and, M. Deevy (2015). ‘Framework For a Taxonomy of Fraud,’ Stanford
Center on Longevity Working Paper. Palo Alto, CA.
2
Investment fraud | Action Fraud (no date). Available at: https://www.actionfraud.police.uk/a-z-of-
fraud/investment-fraud. (Accessed 17 April 2023)

142
Fraud, Ponzi Schemes, Pre-IPO Investment Scams, Pyramid Schemes, “Prime
Bank” Investments, Promissory Notes and ‘Pump and Dump’ Schemes.3

In this article, Barry Robinson considers three types of investment fraud (Ponzi
schemes, Cryptocurrency and Binary options) and identify the scale of these frauds,
particularly during the Covid-19 Pandemic. Furthermore, it discusses the asset
recovery tools that are available to investors to recover funds and discuss two
recent cases from Ireland, both of which assisted victims of alleged fraud to recover
funds. Finally, the article discusses what asset recovery tools are likely to be needed
in an ever-changing world of global investments, the continued evolution of
technology and the continued rise of cryptocurrencies.

Traditional Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds
collected from new investors4. Charles Ponzi first committed the first known fraud
of this type in the 1920s, promising high returns for investments in stamps5. Ponzi
scheme organisers often promise to invest funds and generate high returns with
little or no risk. However, in many Ponzi schemes, little or no money is invested by
the perpetrators. Instead, perpetrators of Ponzi schemes typically pay those who
invested earlier by “recruiting” new investors, and have been known to keep some
of the investors’ funds for themselves6.

Ponzi schemes require a constant flow of new money to thrive. When it becomes
difficult to find new investors, or when large numbers of existing investors
withdraw their funds or “cash out”, such schemes tend to collapse, leaving later
investors with significant losses. One such well-known scheme, perpetrated by
Bernie Madoff, is estimated to have defrauded investors by up to $65 billion. On
March 12, 2009, Madoff pleaded guilty to 11 federal felonies and to date
approximately $4 billion out of the $65 billon originally invested has been returned
to investors7.

3
Types of Fraud | Investor.gov (no date). Available at: https://www.investor.gov/protect-your-
investments/fraud/types-fraud (Accessed 17 April 2023)
4
Ponzi Scheme | Investor.gov (no date). Available at: https://www.investor.gov/protect-your-
investments/fraud/types-fraud/ponzi-scheme. (Accessed 17 April 2023)
5
Trozze, A., Kamps, J., Akartuna, E.A. et al. Cryptocurrencies and future financial crime. Crime
Sci 11, 1 (2022)
6
Ponzi Scheme | Investor.gov (no date b). Available at: https://www.investor.gov/protect-your-
investments/fraud/types-fraud/ponzi-scheme. (Accessed 17 April 2023)
7
Justice Department Announces Total Distribution of Over $4 Billion to (2022). Available at:
https://www.justice.gov/opa/pr/justice-department-announces-total-distribution-over-4-
billion-victims-madoff-ponzi-scheme . (Accessed 17 April 2023)

143
During Covid-19, investment fraud was prevalent across the globe, including in the
USA where deceptive advertising was undertaken by some companies which
claimed to have developed alleged “miracle cures” for COVID-19. Such advertising
promised exponentially high growth in the value of an investment if the victim
invested in a company marketing false pills that claimed to prevent coronavirus
infections8. Such schemes portrayed many traits of a Ponzi scheme, including
promises of high returns based on false premises.

An analysis by BDO of the Ponzi Scheme database9 (a collection of publicly reported

Ponzi schemes and their reported values), shows that since the financial crash of
2008, the value and volume of reported Ponzi schemes has significantly decreased
(from US $23 billion of losses in 2008 to US $4 billion of losses in 2021). As can be
seen from the graph below, the scale of reported Ponzi schemes in 2021 is at a
similar level to 2010 and has remained constant over the past 11 years. This
suggests that Ponzi Schemes are still big business for perpetrators of such schemes
and investors should be wary of any investment schemes offering unusually high
returns.

Figure 1: BDO’s analysis of Ponzi schemes by volume and value 2008 to 2021 (based
on data published in the “Ponzi Scheme database”)10

8
Murrar, F. (2022), "Fraud schemes during COVID-19: a comparison from FATF countries",
Journal of Financial Crime, Vol. 29 No. 2, pp. 533-540
9
Ponzi Scheme Database — Ponzitracker (no date). Available at:
https://www.ponzitracker.com/ponzi-database (Accessed 17 April 2023)
10
Ponzi Scheme Database — Ponzitracker (no date). Available at:
https://www.ponzitracker.com/ponzi-database (Accessed 17 April 2023)

144
Cryptocurrency Ponzi Schemes

During 2008 to 2021, there has been an increase in the the global value of
cryptocurrencies, which has has significantly increased from zero in 2010 to
approximately $3 Trillion in November 2021. From the graph below we can see that
there was significant growth in the volume and value of all cryptocurrencies during
2020, 2021 and 2022, which coincided with the Covid-19 Pandemic.

Figure 2: Market Cap and 24hr volume of all cryptocurrencies 2013 to 2023 (Source:
coinmarketcap.com)11

An academic study carried out 2020 by Corbet et al (Corbet et al, 2020)12, identified
that significant growth in both returns and volumes traded indicated that large
cryptocurrencies acted as a store of value during this period of exceptional
financial market stress, which coincided with the Covid-19 Pandemic.
Furthermore, cryptocurrency returns were found to be significantly influenced by
negative sentiment relating to COVID-19. The study also found that investors
perceived Cryptocurrencies as not only providing diversification benefits for them,
but results suggested that digital assets acted as a safe-haven similar to that of
precious metals during historic crises.

Cryptocurrency losses

11
Global Cryptocurrency Market Charts | CoinMarketCap (no date). Available
at: https://coinmarketcap.com/charts/ (Accessed 17 April 2023)
12
Corbet, S., Hou, Y. G., Hu, Y., Larkin, C., & Oxley, L. (2020). Any port in a storm: Cryptocurrency
safe-havens during the COVID-19 pandemic. Economics Letters, 194, 109377.

145
Unfortunately, the rise in investments in cryptocurrency has also given rise to an
increase in investors losing large sums of money through fraudulent
cryptocurrency investment schemes. Several investment schemes involving
cryptocurrencies such as Bitcoin have been suspected to be Ponzi schemes, for
example, the “Bitcoin Savings and Trust”13 ,“Forcount”14 and “IcomTech”.15 which
have been the subject of investigations by the United States Department of Justice
(“DOJ”).

Perhaps the two most recent high profile cases involving allegations of a
cryptocurrency being used to perpetrate fraud on investors is that of the collapse
of the FTX Exchange in the Bahamas and Celcius Network LLC. The recent
bankrputcy of FTX and related entities was quickly followed by the arrest and
extradition to the USA of its founder. It is suspected that up to $8 billion of
investors’ funds have been lost relating to FTX16. FTX’s founder has been charged
with perpetrating a multibillion-dollar fraud through the FTX Group. To date,
FTX’s co-founder and Chief Technology Officer, the CEO of a related entity
Alameda Research17, and an FTX Senior Executive18 have all pled guilty to charges
arising from their participation in schemes to defraud FTX’s customers and
investors.

FTX follows the collapse of other high-profile cryptocurrency companies

(TerraLuna, Three Arrows Capital (3AC), Voyager Digital and Celsius Network) in
2022 which has become known as the “crypto winter”.19 Issues at Celcius Network
LLC came to light in July2022, when it announced a pause on withdrawals, swaps,
and transfers on its platform and ultimately filed for Chapter 11 bankruptcy in the
USA. Its ex-CEO has recently been sued by the New York State Attorney General

13
Texas Man Sentenced For Operating Bitcoin Ponzi Scheme (2016). Available at:
https://www.justice.gov/usao-sdny/pr/texas-man-sentenced-operating-bitcoin-ponzi-scheme.
(Accessed 17 April 2023)
14
U.S. Attorney Announces Fraud And Money Laundering Charges Against (2023). Available at:
https://www.justice.gov/usao-sdny/pr/us-attorney-announces-fraud-and-money-laundering-
charges-against-additional (Accessed 17 April 2023)
15
U.S. Attorney Announces Fraud And Money Laundering Charges Against (2022). Available at:
https://www.justice.gov/usao-sdny/pr/us-attorney-announces-fraud-and-money-laundering-
charges-against-founders-and-promoters (Accessed 17 April 2023)
16
CFTC Charges Sam Bankman-Fried, FTX Trading and Alameda with Fraud and Material
Misrepresentations | CFTC (no date). Available at:
https://www.cftc.gov/PressRoom/PressReleases/8638-22 (Accessed 17 April 2023)
17
https://www.justice.gov/usao-sdny/pr/united-states-attorney-announces-extradition-ftx-
founder-samuel-bankman-fried-united
18
CFTC Charges FTX Co-Owner with Fraud by Misappropriation and Aiding and Abetting Fraud Related
to Digital Asset Commodities | CFTC (no date). Available at:
https://www.cftc.gov/PressRoom/PressReleases/8669-23 (Accessed 17 April 2023)
19
Opening Statement of Commissioner Kristin N. Johnson Regarding Global Markets Advisory Committee
| CFTC (no date). Available at:
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement021323. (Accessed 17
April 2023)

146
for allegedly defrauding investors out of billions of dollars’ worth of
cryptocurrency.20

As many economies recover from the Covid-19 Pandemic, it is yet to be seen just
how many more victims of cryptocurrency-related frauds that may have occurred
during the Pandemic will come to light in 2023.

Binary Options

As investors sought high returns on their investments post the 2008 financial
crash, many turned to alternative investments including “binary options” as a way
of making higher returns than conventional investments. A binary option is a type
of options contract in which the pay-out will depend entirely on the outcome of a
yes/no proposition, for example whether the price of a stock will rise of fall below
a specified amount21. In recent years there have been numerous warnings issued by
financial regulators about the prevalence of unregistered binary options
investment schemes. One of the largest ever binary options fraud schemes
involving up to $186 million recently came to light in a legal case in the Irish Courts
involving an investor, William Thomas Powers against an Irish registered
company, Greymountain Management Limited (in Liquidation) & Others22. In the
opening paragraph of his judgment, Mr. Justice Twomey stated:

“The following sad and very personal email is what Irish corporate fraud
looks like in real-life terms: “Can anybody help me with the withdrawing of
€210,882 and wire it to my Beobank account; see attachment. Please
understand that my life has become unbearable; daily I am having stress; I
can’t believe this is happening… these were all my savings from myself and
my children. Please proof me that all of this is not a scam.” (Emphasis
added)”

The case was of significant importance insofar as it was the first legal case in
Ireland to “pierce the corporate veil” to identify the relevant individuals involved
in operating and assisting the alleged fraudulent investment scheme and to make
those individuals personally liable for the investors’ losses, including two directors
of the Irish company, whom the Court found to have been involved in

20
Attorney General James Sues Former CEO of Celsius Cryptocurrency Platform for Defrauding Investors
(2023). Available at: https://ag.ny.gov/press-release/2023/attorney-general-james-sues-former-
ceo-celsius-cryptocurrency-platform-defrauding (Accessed 17 April 2023)
21
CFTC/SEC Investor Alert: Binary Options and Fraud | CFTC (no date). Available at:
https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/fraudadv_binaryoptions.html
(Accessed 17 April 2023)
22
William Thomas Powers -v- Greymountan Management Limited (in Liquidation) & Ors [2021]
IEHC 243

147
“impropriety” and responsible for the investors’ losses as a result of a “derelict of
their duties”.

Asset recovery tools to recover fraudulent losses

As can be seen with the recent cases discussed in this article, there are a number of
asset recovery tools available to investors to recover investment losses. Such tools
include bringing legal proceedings against the investment vehicles and those
individuals believed to be responsible for any alleged fraud. Once a Judgment can
be obtained against a company or individuals, it may be possible to seek mutual
recognition of that Judgment in multiple jurisdictions. Often the appointment of
an insolvency practitioner and forensic accountants to investigate and initiate
legal proceedings against the promoters and those entities involved in any alleged
fraud can be very effective in the efforts to recover losses. In another recent case
before the Irish Courts in 2022, an EU national was successful in legal proceedings
brought in Ireland against a number of parties to have receivers appointed over
assets to recover funds they invested. In that case, a Judge appointed receivers over
and made permanent various freezing orders against several assets linked to
various defendants in those proceedings, including property, yachts and bank
accounts.23

Future developments in the fight against investment fraud

As more cases are expected to become known, there will be a greater need for
effective tools in the fight against investment fraud, including cryptocurrency
expertise alongside forensic accounting. Mutual recognition of judgments and
court orders such as disclosure orders and freezing orders will also be required. It
is anticipated that the Council of the European Union’s recent decision for the EU
to accede to the 2019 Hague Convention on the recognition and enforcement of
foreign judgements in civil or commercial matters will lead to a greater ability for
investors to recover losses as it will enable recognition and enforcement of judicial
decisions from non-EU States within the EU. For victims of fraud, it is hoped that
recovery of funds lost through fraudulent schemes will become easier across the
globe and that investment frauds in the future will no longer be able to hide behind
the corporate veil or anonymous usernames in unidentified jurisdictions.

23
Healy, T. (2022) “High Court says French actor Dany Boon entitled to €4.87m over fraud,”
Independent, 14 December. Available at: https://www.independent.ie/business/irish/high-court-
says-french-actor-dany-boon-entitled-to-487m-over-fraud-42217701.html. (Accessed 17 April
2023)

148
 ICC FraudNet
Global Annual Report 2023

Unexplained
Wealth Orders in
the UK – 2022

ANDREW MORAN KC
WILSON LEUNG

iccfraudnet.org
STRAT EGIC PARTNER INSIGHT ANDREW MORAN KC
& WILSON LEUNG

Unexplained Wealth Orders

in the UK – 2022

ANDREW MORAN KC AND WILSON LEUNG

Abstract

In this article, Andrew Moran KC and Wilson Leung, barristers at Serle Court,
provide an overview of the background, structure, and operation of the
Unexplained Wealth Order (‘UWO’) regime in the United Kingdom. The article
also considers recent amendments made in 2022 and the mechanism’s prospects
as an effective tool.

Background

A UWO is a civil investigation tool used in the UK to assist enforcement

authorities in building evidence to combat money laundering. A UWO compels a
person holding particular property to explain the nature and extent of his interest
in it, and how he obtained it. The objective is to provide the authorities with
information to aid their assessment of whether the assets were illegitimately
obtained. UWOs are particularly aimed at situations where a person has property
that is disproportionate to his known income. UWOs are potentially a valuable
tool for authorities to obtain information, especially because the threshold
requirements for obtaining such orders are relatively low.

Historically, the UK has been an attractive destination for those who seek to
launder illicit proceeds. UWOs were introduced in the UK via the Criminal Finances
Act 2017, and inserted into Part 8 of the Proceeds of Crime Act 2002 (‘POCA’).

150
Under the then existing provisions of POCA, UK enforcement agencies frequently
had grounds to suspect that assets within the UK were the proceeds of crime
(including crimes committed abroad), but were unable to freeze or recover those
assets due to an inability to obtain evidence, often due to a foreign jurisdiction’s
lack of cooperation.1 This might occur, for example, where the ruling regime of the
country where the crime was committed has close ties with the perpetrator. UWOs
were intended to ameliorate that. The provisions came into effect on 31 January
2018.2

Applying for a UWO

An application for a UWO can only be made by specified enforcement authorities.

In England and Wales, these are:3

• National Crime Agency (‘NCA’)

• Serious Fraud Office
• HM Revenue & Customs
• Financial Conduct Authority
• Director of Public Prosecutions.

Other agencies cannot apply for UWOs: if they want a UWO to be pursued, they
would have to refer the case to one of the above authorities.4

The application is made to the High Court.5 The application must specify the
property in respect of which the order is sought, and the person who is believed to
hold the property (i.e. the respondent).6

UWOs applications are generally made without notice, and heard by the court in
private (indeed, this is the “presumptive starting point”).7 However, the court has
power to order a public hearing and/or refuse to make an anonymity order,
especially where the desirability of open justice outweighs any privacy concerns.8

1
Criminal Finances Act 2017, Explanatory Notes, at para 12
2
Criminal Finances Act 2017 (Commencement No 4) Regulations 2018 (SI 2018/78). See also Ali
Shalchi (April 2022), Unexplained Wealth Orders, House of Commons Library Briefing Paper no. 9098,
London: House of Commons Library, §1.3. <https://commonslibrary.parliament.uk/research-
briefings/cbp-9098/> Accessed on 20 November 2022.
3
s 362A(7). Unless otherwise indicated, all references to sections are to sections in POCA. For the
sake of brevity, this article will refer to sections within Part 8 of POCA as they pertain to England
and Wales (there are similar provisions in Part 8 which pertain to Scotland and Northern Ireland).
4
Shalchi, Unexplained Wealth Orders (supra), at p 10.
5
s 362A(1)
6
s 362A(2)
7
s 362I(1); NCA v Hussain [2020] 1 WLR 2145, at [88] (Murray J)
8
NCA v Mrs A (Ruling on Anonymity) [2018] EWHC 2603 (Admin) (Supperstone J)

151
Requirements for a UWO

The threshold requirements for obtaining a UWO are:

(1) There is reasonable cause to believe that: (a) the respondent holds the
property; and (b) its value is greater than £50,000.9

(2) There are reasonable grounds for suspecting that: (a) the known sources
of the respondent’s lawfully obtained income would have been insufficient
to obtain the property; or (b) the property has been obtained through
unlawful conduct.10

(3) Either (a) the respondent is a “politically exposed person” (‘PEP’);11 or

(b) there are reasonable grounds for suspecting that the respondent (or a
person connected with him) has been involved in “serious crime”.12

If the threshold requirements are fulfilled, then the court “may” make an UWO –
in other words, the court has a discretion.13

(1) The respondent holds the property and its value is greater than £50,000

“ Property” is expansively defined: it encompasses “money”; “all forms of

property, whether real or personal, heritable or moveable”; and “things in action
and other intangible or incorporeal property”.14 Moreover, it does not matter
where in the world the property is situated.15 The respondent may be situated
anywhere in the world.16

There is also a wide definition of “holding” property. Property is “held” by a

respondent if he holds an interest in it.17 An interest includes (where land is
concerned) any legal estate, equitable interest, or power; and (where non-land
property is concerned) a right.18 Property is also held if the respondent has effective
control over the property; is the trustee of a settlement by which the property is

9
s 362B(2)
10
s 362B(3); see also s 242
11
s 362B(4)(a)
12
s 362B(4)(b)
13
s 362A(1); NCA v Baker [2020] EWHC 822 (Admin), at [22] (Lang J)
14
ss 362H(6), 414(1)
15
ss 362H(6), 414(1)
16
s 362A(2)(b)
17
ss 362H(6), 414(3)(za)
18
ss 362H(6), 414(3)(b), 414(3)(d)

152
held; or is a beneficiary in relation to such a settlement.19 Thus, the definition is
broad enough to cover circumstances in which property is held in trust or owned
in a complex corporate structure arrangement.20 It also covers anyone who is in
possession of the property.21 A person can hold property irrespective of whether
there are other persons who also hold it.22 The broadness of these provisions makes
sense, as proceeds of crime will often be held through corporate, trust, or other
structures designed to obscure the true ownership.

The applicable test here is “reasonable cause to believe”.23 This does not require
the enforcement authority to prove the requirements set out at (1) above, whether
to the criminal or civil standard of proof. It does require the enforcement authority
to show that the fact is (subjectively) believed to be true, and that there are
“objectively reasonable grounds” for that belief.24 “Belief” does not require a firm
conviction, though it is “a more positive frame of mind than suspicion.”25

(2a) The respondent’s lawfully obtained income would have been insufficient to
obtain the property

The basic exercise here is to compare the respondent’s known financial

circumstances (insofar as this is derived from legal sources) with the value of the
property.

In considering this question, the court is bound by the following guidelines:

(i) The court must consider whether a mortgage (or other type of security)
might have been available to enable the respondent to obtain the property;26

(ii) The property should be assumed to have been bought at market value;27

(iii) The legality of the means by which income was obtained is to be assessed
by reference to the laws of the country where the income arose.28

(iv) The “known” sources of income to be taken into account are those
“reasonably ascertainable from available information” at the time of the

19
s 362H(2)
20
Criminal Finances Act 2017, Explanatory Notes, para 71
21
NCA v Hussain (supra), at [29]
22
s 362B(5)(a)
23
s 362B(2)
24
NCA v Baker (supra), at [24]-[25]; NCA v Hussain (supra), at [31]-[34]
25
NCA v Hussain (supra), at [31]-[34]
26
s 362B(6)(a)
27
s 362B(6)(b)
28
s 362B(6)(c)

153
 application, including earnings from both employment and assets29 (and
presumably including any capital gains30). This might include, for instance,
data available from internet searches and company registry records.

The UK authorities’ code of practice states that the applicant authority should be
able to explain its suspicion by reference to disclosable intelligence or information
about, or specific behaviour by, the person concerned (including open source
material from overseas where there are public registers relating to property and
public officials’ income).31

In some cases, the fact of a foreign criminal conviction may be adduced to meet
this requirement. But the circumstances of the conviction might be such (and
would be such, if there were a breach of jus cogens norms) that it could not form a
proper ground for reasonably suspecting that the respondent’s lawful income was
insufficient to obtain the property.32

The threshold here is “reasonable grounds for suspecting”. The phrase appears
elsewhere in POCA as well as in other statutes (notably in connection with powers
of arrest). The case law on the latter make clear that the threshold is a low one and
a “very limited requirement” which could be satisfied where, for example, someone
“could possibly” be associated with a robbery.33 One may be dealing with a
preliminary stage of an investigation and it is not necessary even to have
formulated a prima facie case.34 In short, the question is whether the enforcement
authority’s (subjective) suspicion, viewed objectively and in the round, is one
which a reasonable person could hold.35

(2b) The property has been obtained through unlawful conduct

This is an alternative ground, introduced by the 2022 reforms (see below), which
is based on examining whether the property has been obtained through unlawful
conduct (as opposed to whether the respondent’s income would have been
sufficient to obtain the property). Again, the threshold here is “reasonable
grounds for suspecting”.

29
s 362B(6)(d)
30
See: Code of Practice issued by the UK Home Secretary under s 377 of POCA, last updated 31
December 2021, at para 182. <https://www.gov.uk/government/publications/proceeds-of-crime-act-
codes-of-practice-june-2021/code-of-practice-issued-under-the-proceeds-of-crime-act-2002-
investigations-accessible-version> Accessed on 20 November 2022.
31
Code of practice issued by the UK Home Secretary under s 377 of POCA (supra), at para 176
32
NCA v Hajiyeva [2020] 1 WLR 3209, at [38] (Lord Burnett CJ, Davis and Simon LJJ) (Hajiyeva-CA)
33
Parker (aka Michael Barrymore) v Chief Constable of Essex Police [2017] EWHC 2140 (QB) at [32] and
[37].
34
NCA v Baker (supra), at [37]; NCA v Hussain (supra), at [38]; O’Hara v Chief Constable of the Royal
Ulster Constabulary [1997] AC 286, at 293.
35
NCA v Hussain (supra), at [39]

154
(3a) The respondent is a PEP

The notion of a PEP derives from EU anti-money laundering legislation. It refers

to an individual who is, or has been, “entrusted with prominent public functions”
by an international organisation or any state other than the UK or an European
Economic Area (‘EEA’) country36; or a family member or known close associate of,
or person otherwise connected with, such an individual.37 The logic is that,
because of their position, PEPs are higher risk in terms of being involved in
corruption overseas and money laundering in the UK.38

The definitions of being entrusted with prominent public functions, family

member, and known close associate are each expanded by reference to the EU’s
Fourth Anti-Money Laundering Directive.39 Consequently, PEP encompass not
only legislators, senior government officials, and senior officials of international
organisations, but also senior management of state-owned enterprises.40 A state-
owned enterprise would likely include any business in respect of which the
government had a majority shareholding and ultimate control.41

(3b) The respondent (or a person connected with him) has been involved in serious
crime

The alternative ground is that the respondent is involved in serious crime (or is
connected with a person so involved). “Serious crime” is defined by reference42 to
an expansive list in Schedule 1 of the Serious Crime Act 2007, including inter alia
fraud, organised crime, bribery, drug and people trafficking, and terrorism. The
serious crime may have been committed anywhere in the world; but if outside the
UK, the conduct must be criminal both under UK law and the law of the place where
it occurred.43

Being “involved” in serious crime includes not only committing such an offence,
but also extends to facilitating another’s commission of an offence, and even to
where the respondent “has conducted himself in a way that was likely to facilitate

36
The concept of PEP continues to exclude public officials in EEA countries, notwithstanding that
the UK itself has now left the EEA as a result of Brexit.
37
s 362B(7)
38
Criminal Finances Act 2017, Explanatory Notes, at para 13; and Shalchi, Unexplained Wealth Orders
(supra), at p 10
39
Article 3 of Directive 2015/849/EU dated 20 May 2015. See s 362B(8)
40
Hajiyeva-CA, at [16], [25]-[29]
41
Hajiyeva-CA, at [32]-[33]
42
s 362B(9)(a)
43
s 2(5), Serious Crime Act

155
the commission by himself or another person” of a serious offence.44 “Facilitating”
is a broad term which includes ‘making easier’, and there is no fixed list of conduct
which would fall within it.45

The concept of being “connected” with someone involved in serious crime has a
complex meaning derived from s 1122 of the Corporation Tax Act 2010,46 but
includes for example spouses, relatives, and business partners.

The applicable threshold here is again “reasonable grounds for suspecting”.47

(4) Discretion

If the threshold requirements are met, the court has a discretion to make a UWO.
Among other things, the court will have regard to human rights considerations,
given that a UWO involves a degree of intrusion into the respondent’s right to
private life (which is protected by Article 8 of the European Convention on Human
Rights). Thus, the court will seek to ensure that any use of UWO powers is
proportionate to the outcome being sought; this will involve considering whether
the necessary objectives could be achieved by less intrusive means.48 The court
may also take into account any risk of prosecution (whether in the UK or abroad)
that the respondent could be exposed to by having to comply with the UWO.49

The UWO

A UWO requires the respondent to explain: (i) the nature and extent of his interest
in the property; (ii) how he obtained the property (including, in particular, how
costs incurred in obtaining it were met); (iii) in cases where the property is held
by the trustees of a settlement, such details of the settlement as may be specified
in the order; and (iv) other specified information and documents.50 The
respondent must provide the information within a specified time.51 The court
would likely require the order to be drafted in a clear and specific manner, given
that non-compliance could attract serious consequences for the respondent (see
below).

Non-compliance with UWO

44
s 2(3)-(4), Serious Crime Act
45
NCA v Baker (supra), at [52]; NCA v Hussain (supra), at [54]
46
s 362B(9)(b)
47
s 362B(4)(b)
48
NCA v Baker (supra), at [64]-[65]
49
Hajiyeva-CA, at [52]
50
s 362A(3), (5)
51
s 362A(6)

156
If the respondent fails, without reasonable excuse, to comply with the
requirements of a UWO within the time specified, then the property is (rebuttably)
presumed to be recoverable property for the purposes of civil recovery
proceedings under Part 5 of POCA.52 In other words, the court will presume that
the property is the proceeds of unlawful conduct and therefore make an order that
it be confiscated, unless the respondent can show (on the balance of
probabilities53) otherwise.

As long as the respondent purports to comply with the UWO, he will not have
failed to comply with it (and so the presumption will not arise).54 It is debatable
what degree of answer is needed from the respondent to constitute ‘purported’
compliance. The UK government’s own code of practice apparently reflects this
uncertainty: on the one hand, the code states that if a respondent provides “a poor
or limited response”,55 that could amount to a failure to comply; on the other
hand, the code suggests elsewhere that providing “the bare minimum of
information” needed to address a UWO’s requirements would suffice to be
purported compliance.56

In addition to the presumption, the court can also secure compliance with a UWO
by attaching a penal notice and thereby raising the possibility of committal
proceedings.57 It is possible that the court could enforce compliance in other ways
too, for example, by making an order for cross-examination on a statement given
in purported compliance with a UWO (by analogy with the practice in freezing
orders58).

It is a criminal offence to knowingly or recklessly make a false or misleading

statement in purported compliance with a UWO, punishable by a term of
imprisonment of up to two years or a fine.59

Generally, an answer given in response to a UWO cannot be used as evidence in

criminal proceedings.60 This “use immunity” provision is included to compensate

52
s 362C(1)-(2)
53
This is the standard of proof which applies to civil recovery proceedings under Part 5 of POCA:
Serious Organised Crime Agency v Gale [2011] 1 WLR 2760, at para 123 (Lord Dyson JSC)
54
s 362C(5)(a)
55
Code of practice issued by the UK Home Secretary under s 377 of POCA (supra), at para 189.
56
Code of practice issued by the UK Home Secretary under s 377 of POCA (supra), at para 185 and fn
55.
57
NCA v Hajiyeva [2018] 1 WLR 5887, at [94]-[97]. Supperstone J rejected the contention that s 362C,
by implication, ousts the court’s power to attach a penal notice to a UWO and enforce non-
compliance through committal proceedings.
58
See, for example, Jennington International v Assaubayev [2010] EWHC 2351 (Ch)
59
s 362E
60
s 362F(1)

157
for the fact that the UWO regime restricts the usual privilege against self-
incrimination.61 There are some limited exceptions: for example, the answer can
be used in confiscation or restraint proceedings under Part 2 of POCA.62

Interim freezing orders

When granting a UWO, the court may concurrently make an “interim freezing
order” (‘IFO’). An IFO prevents the respondent (and any other person with an
interest in the property) from dealing with the relevant property in any way.63 The
aim is to prevent property being dissipated pending the respondent’s provision of
information ordered by the UWO.64

An IFO may only be granted where the court is satisfied that an IFO is necessary to
avoid the risk of any subsequent recovery order being frustrated.65

The court has power to exclude certain property from an order, which includes
doing so to enable the respondent to meet his reasonable living expenses, or to
carry on his trade, business, profession, or occupation, or to meet legal expenses.66

After a respondent complies (or purports to comply) with a UWO, the enforcement
authority will have to decide if any further enforcement or investigative
proceedings are to be taken. If an IFO is in place, such determination must be made
within 60 days of the date of compliance (which is extendable to 186 days).67 The
court must discharge an IFO if it is notified by the enforcement authority that it
does not intend to pursue further proceedings68 or else two days after the deadline
for the enforcement authority’s consideration.69 Apart from that, the court may
also vary or discharge an IFO at any time.70

UWOs’ track record and 2022 amendments

UK enforcement authorities have had some success in using UWOs, such as:

61
Hajiyeva-CA, at [45], [51], [54]. See also: Shalchi, Unexplained Wealth Orders (supra), at §2.7
62
s 362F(2)
63
s 362J
64
Shalchi, Unexplained Wealth Orders (supra), at p 13
65
s 362J(1)-(2)
66
s 362L(3) & (5)
67
ss 362D(2), 362DA(5)
68
s 362K(5)
69
ss 362K(3)-(4). This applies unless there are any outstanding applications for property freezing
orders, interim receiving orders, or restraint orders.
70
s 362K(1)

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 (1) NCA v Hajiyeva [2018] 1 WLR 5887, upheld on appeal [2020] 1 WLR
3209:71 This was the first UWO granted in the UK. The NCA obtained the
order against the wife of a jailed chairman of an Azerbaijani state-
owned bank, on the strength of evidence which included her
extravagant spending at Harrods department store in London (over £16
million). After receiving the required information, the NCA brought
forfeiture proceedings against her (which, as of June 2022, were
ongoing).72

(2) NCA v Hussain [2020] 1 WLR 2145: The NCA obtained a UWO against
a suspected money launderer for criminal gangs in northern England; it
also obtained an IFO against him and six companies he owned. This led,
ultimately, to him agreeing with the NCA to forfeit assets worth £10
million, even without being convicted of any criminal offence.73

But there has been at least one high-profile failure: NCA v Baker (supra). The
NCA obtained UWOs in relation to several London properties. It was alleged
that the properties were purchased to launder the illicit funds of a former
Kazakh senior official. However, the respondents successfully applied to set
aside the orders. The court held that the NCA’s case was deficient and relied
on unjustified assumptions. Among other things, the court decided that it was
unable to infer that the money to purchase the properties had come from the
former official.74 The court also observed that, although the properties were
held through complex offshore structures, this was not in itself a reason to
assume that wrongful purposes were involved, because such structures could
be used for privacy, security, or tax reasons.75

In any event, it is clear that UWOs have not been used with anywhere near the
frequency originally pledged by the UK government. When introducing UWOs,
the government estimated that there would be around 20 orders made per

71
In December 2020, the UK Supreme Court refused to grant leave to further appeal: see Shalchi,
Unexplained Wealth Orders (supra), at p 16
72
Martin Bentham, “£16m Harrods big spender ‘should be given her jewels back’”, Evening Standard
(14 June 2022) <https://www.standard.co.uk/news/london/harrods-big-spender-zamira-hajiyeva-
jailed-banker-husband-jewellery-b1005995.html> Accessed 20 November 2022.
73
Dominic Casciani, “Unexplained Wealth Orders: Suspected money launderer gives up £10m of
property”, BBC News (7 October 2020) <https://www.bbc.co.uk/news/uk-54442979> Accessed 20
November 2022.
74
[100], [167], [197], [209], [215]
75
[96]-[97]

159
year.76 However, as of February 2022, a total of only nine UWOs had been made,
relating to a mere four investigations.77 No agency other than the NCA had
utilised them. This has led the UK Parliament’s Foreign Affairs Committee to
describe the mechanism as “spectacularly unsuccessful”.78

The lack of use has prompted efforts to reform the regime. In 2022, the UK
government passed the Economic Crime (Transparency and Enforcement) Act,
introducing a suite of measures targeted at money laundering. These included
several amendments to Part 8 of POCA, aimed at making UWOs more effective:

(1) Creating a new category of persons against whom a UWO can be

made, namely, “responsible officers” of a respondent.79 This is to enable
enforcement authorities to obtain information more easily from officers
of legal entities who have control over an asset, and thereby make it
more difficult for individuals to hide behind complex ownership
structures.80

(2) Expanding the use of UWOs to cases where there are reasonable
grounds for suspecting that the property has been obtained through
“unlawful conduct” (as an alternative to scrutinising whether the
respondent’s lawful income would have been sufficient).81

(3) Limiting enforcement authorities’ liability for costs, such that costs
will not be ordered against an authority unless its conduct has been
unreasonable, dishonest, or improper.82 This was to address a concern
that UWOs’ lack of use was partly caused by enforcement authorities’
fear of adverse costs orders;83 in the failed case mentioned earlier84, the
NCA had been ordered to pay £1.5 million in legal costs (reportedly half
of the agency’s annual budget).85

76
Criminal Finances Bill, Impact Assessment (by UK Home Office), 20 June 2017, para 16.
<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/fil
e/621205/Impact_Assessment_-_UWOs.pdf> Accessed on 20 November 2022.
77
Shalchi, Unexplained Wealth Orders (supra), at p 4
78
UK Parliament, House of Commons, Foreign Affairs Committee, The cost of complacency: illicit
finance and the war in Ukraine (HC 2022-23 168), 14 June 2022, para 12.
<https://committees.parliament.uk/committee/78/foreign-affairs-committee/news/171796/morally-
bankrupt-billionaires-using-the-uk-as-a-safe-deposit-box/>. Accessed on 20 November 2022.
79
s 362A(3) and (8)
80
Economic Crime (Transparency and Enforcement) Act 2022, Explanatory Notes, at para 335; and
Shalchi, Unexplained Wealth Orders (supra), at p. 11
81
s 362B(3)(b)
82
s 362U
83
UK Foreign Affairs Committee, The cost of complacency (supra), para 12.
84
NCA v Baker (supra)
85
Nicola Sharp, “Can UWOs shake their 'spectacularly unsuccessful’ label?”, FT Adviser (2 August
2022) <https://www.ftadviser.com/opinion/2022/08/02/can-uwos-shake-their-spectacularly-
unsuccessful-label/> Accessed 20 November 2022; and Colette Kelly & Robert Payne, “Unexplained
wealth orders: where are we now?” (Wealth Briefing, 22 July 2022)
<https://www.wealthbriefing.com/html/article.php?id=195125> Accessed 20 November 2022.

160
 (4) In cases where an IFO has been granted, increasing the time (from
60 days to a maximum of 186 days) for enforcement authorities to
review the material provided in response to the UWO before having to
decide whether to take further proceedings.86

Whether these reforms will have the desired effect remains to be seen. It is
quite possible that they will increase the public’s interest in UWOs and
enforcement authorities’ readiness to consider using them. The protection
against adverse costs orders, in particular, may stimulate enforcement
authorities’ appetite for UWOs. However, a fact sheet issued by the UK
government regarding the amendments conceded that it was difficult to
pinpoint the extent to which the changes would increase the use of UWOs
(albeit argued that “even a single UWO will have a high impact”).87 Meanwhile,
the experience of other jurisdictions presents an unclear picture: although the
UWO regime in Ireland has had notable success, the track record in Australia
has been “mercurial at best”.88

Ultimately, the success of UWOs may depend on factors other than the
legislation itself. Even if the statutory mechanism is soundly designed,
enforcement agencies will not be able properly to utilise it unless they are
allocated sufficient funding so as to have the requisite financial, technical, and
legal expertise.89 As observed by the UK Foreign Affairs Committee: “Recent
changes…seek to make it easier to apply for UWOs, but a law is only as
effective as its enforcement.”90

A 2017 report by the Royal United Services Institute argued that the UK
authorities’ success in leveraging the UWO mechanism would depend on four
factors: expertise, inter-agency cooperation, resources, and political will.91 It
is to be hoped that these factors will shift in a positive direction. If so, we may
see UWOs incrementally increasing in effectiveness and utility – even if they
fall short of the success that had originally been promised.

86
s 362DA(5)
87
UK Treasury, Home Office, and Department for Business, Energy and Industrial Strategy, Policy
paper, “Fact sheet: unexplained wealth order reforms”, 4 March 2022
<https://www.gov.uk/government/publications/economic-crime-transparency-and-enforcement-
bill-2022-overarching-documents/factsheet-unexplained-wealth-order-reforms-web-
accessible#key-reforms> Accessed 20 November 2022.
88
Shalchi, Unexplained Wealth Orders (supra), p 20
89
UK Foreign Affairs Committee, The cost of complacency (supra), para 12. See also Kelly & Payne,
“Unexplained wealth orders: where are we now?” (supra).
90
UK Foreign Affairs Committee, The cost of complacency (supra), para 12.
91
Shalchi, Unexplained Wealth Orders (supra), p 21

161
 ICC FraudNet
Global Annual Report 2023

Blockchain Analysis:
A Powerful Early
Warning System for
Crypto Insolvencies

SEAN ANDERSON
ELEANOR WARNICK

iccfraudnet.org
STRATEGIC PARTNER INSIGHT SEAN ANDERSON
& ELEANOR WARNICK

Blockchain Analytics: A Powerful

Early Warning System for Crypto
Insolvencies

SEAN ANDERSON & ELEANOR WARNICK

Abstract

In this paper, Sean Anderson and Eleanor Warnick consider how greater use of
blockchain data analytics can complement the traditional asset recovery toolkit, by
reference to some recent high-profile crypto cases.

Introduction

While cryptocurrency gained traction as an alternative asset class in 2021 and 2022,
many fundamental questions about how crypto fits into the processes and
standards of the fiat financial system remain unresolved. The ongoing wave of
crypto insolvencies has provided a new sense of urgency to those open issues,
particularly regarding due diligence and asset recovery.

The announcement by a leading accounting firm in December that it was

suspending all work with crypto clients illustrates the extent to which those
investing in the crypto space are operating without the safeguards, tools and
assurances customary in financial markets. Fortunately, new analytic techniques
using blockchain data can indicate reserves held by the business, provide early
warning signs of impending financial distress and establish a foundation for

163
mapping and recovering assets after an insolvency. Indeed, over the past two years,
more sophisticated software, more experienced investigators, and more aggressive
government enforcement actions and private litigation cases have helped debunk
the myth that the movements of crypto assets are untraceable.

Leveraging blockchain’s transparency

The ability to analyse the solvency of a crypto enterprise in real time stems from
the transparency of crypto transactions on the blockchain. Blockchain analytics
firms and independent observers on social media first identify crypto addresses
associated with major exchanges and hedge funds. Blockchain analytic software
then makes it possible to identify irregular flows of funds out of exchanges. These
fund flows can signal the crypto equivalent of a bank run, in which customers sense
or hear that a crisis is looming and attempt to withdraw their funds before the
exchange collapses. In November 2022, before declaring bankruptcy, FTX faced
USD 6 billion in withdrawals in short succession in part due to concerns raised on
social media by Changpeng Zhao, the head of rival exchange Binance.1 Crypto
holders promptly pulled their funds out of what was previously seen as a “safe”
exchange—leading FTX to first freeze withdrawals and later admit it was insolvent.
FTX’s collapse was accelerated when users on social media, monitoring FTX’s
known addresses, encouraged other users to get their funds out before the
addresses were eventually emptied.

In addition to crypto bank runs, investors can also observe sudden changes in
behavior that could be a sign of financial distress. By watching for mispriced
transactions—where a hedge fund, for example, might have overpaid to ensure a
transaction took place quickly, or sold a token at a loss due to inadequate liquidity
when selling the position over time may have avoided the loss—analysts can flag
funds that are rushing to repay loans or cover positions. For example, the collapse
of crypto hedge fund Three Arrows Capital was presaged by panicked trades,
uncharacteristic OTC deals and hasty deposits to cover positions or add collateral—
all of which were visible to trained observers.2

The ability to analyse developments in real time is particularly critical given the
speed at which crypto insolvencies can occur. Part of crypto’s appeal lies in its
ability to execute transactions near instantaneously, without the security controls,

1
Source: Chaopeng Zhao’s Twitter account @cz_binance
https://twitter.com/cz_binance?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor,
‘How Binance Played a Key Role as FTX Collapse Unfolded’, the Guardian, 11 November 2022,
theguardian.com/technology/2022/nov/11/binance-ftx-collapse-cryptocurrency-exchange-
changpeng-zhao, accessed 29 December 2022
2
‘On-Chain Forensics: Demystifyting stETH’s “De-peg,”’ Nansen, 29 June 2022,
https://www.nansen.ai/research/on-chain-forensics-demystifying-steth-
depeg?utm_source=twitter&utm_medium=social&utm_campaign=stETH_report_29June2022

164
oversight and other constraints that can slow down fiat currency transactions. As
recent events have illustrated, however, frictionless efficiency is a double-edged
sword: When things go south in the crypto world, they can do so with blinding
speed. On the decentralised lending platforms on which many crypto companies
were leveraging positions, there are no human managers from whom a trader could
request an extra hour to meet a margin call. Instead, the platforms’ code liquidates
positions based purely on collateral requirements and price. And those liquidations
can occur at any time of the day or night, without the buffer provided by the need
to wait for the market to open.

Further, because many crypto companies use highly volatile cryptocurrency or

tokens as collateral, a sudden drop in the value of that collateral can quickly
snowball into a cascading series of potential liquidations or margin calls. FTX, for
example, collateralised its loans with its own token, FTT3—of which FTX held
roughly 80 percent of FTT’s total supply, while affiliated hedge fund Alameda
Research held roughly 40 percent of its USD 14.6 billion in assets in FTT.4 Once the
price of FTT began to drop, it created a crisis for both FTX and Alameda, which
were suddenly unable to meet loan obligations, and the public nature of their
financial distress only further drove down the price of FTT and other
cryptocurrencies associated with the exchange and its founder, Samuel Bankman-
Fried.

Asset recovery: Following the crypto

Just as analytical techniques give investors and others important tools to evaluate
the soundness of crypto enterprises, those techniques may also be able to help in
the asset recovery process after insolvencies by identifying assets that may have
been improperly funnelled to entities or addresses controlled by the founders, their
alter egos or even third-party attackers. For example, as FTX was entering
insolvency, an unauthorised user began transferring and laundering
cryptocurrency, which online analysts have already traced through a mixer to an
exchange. In addition, Ethereum (ETH)5 addresses associated with Alameda began
swapping remaining crypto through instant exchangers, and eventually mixers. At
the same time, some insiders appear to have received forewarning that Celsius and

3
FTT stands for FTX token
4
‘Blockchain Analysis: The Collapse of Alameda and FTC,’ published on 17 November 2022,
Nansen, nansen.ai/research/blockchain-analysis-the-collapse-of-alameda-and-ftx, accessed on 29
December
5
Ethereum is a blockchain predominantly used for decentralised financial applications. Its native
cryptocurrency is called Ether. Ether is the second largest cryptocurrency in terms of market
capitalisation, after Bitcoin. An Ethereum wallet is a piece of hardware or software that stores the
private cryptographic key which controls one or more specific Ethereum addresses. An Ethereum
address is a public string of letters and numbers and its balance and previous transactions can be
publicly seen on the Ethereum blockchain.

165
FTX would soon be insolvent, and withdrew their assets before those implosions.
Other users—particularly in the Bahamas—were able to make withdrawals after
authorities froze assets on FTX. Observers on social media have alleged that
Bahamian account holders were using NFT sales to help users withdraw frozen
crypto. In some of these cases, blockchain investigations will help the trustee
identify individuals who received these funds.

Law firms, investigators and other advisors are likely to be sifting through the
fallout of last year’s crypto frauds and insolvencies for the foreseeable future.
These cases will require sophisticated blockchain analysis to trace and recover
cryptocurrency holdings, but will also involve the standard suite of asset recovery
tools. In addition to cryptocurrency, investigators and lawyers will be pursuing
private equity investments, revenue flows, third party debt and other tangible
assets like yachts and mansions.

Regaining trust

In the midst of the current turmoil, crypto’s future is far from clear. However, if it
is to regain any of the momentum it once had, it will be essential to create a
stronger system of validation for centralised crypto companies. Existing efforts to
provide a “proof of reserves,” crypto’s analogue to the traditional audits of the fiat
world, proved too easy to manipulate and lacked standards to allow less technical
users to trust these claims. Here too, blockchain analytics offer a potential path
forward.

Currently, the independent monitoring of crypto assets is a two-step process, in

which third-party observers first identify ownership addresses and then track fund
flows in and out of those addresses. However, exchanges could become active
participants in that process by publicly identifying cold wallets where reserves are
stored and maintaining a publicly facing ledger of those assets. To prove ownership
and control, institutions can also sign smart contracts or engage in other on-chain
transactions to demonstrate they actually control the private keys for the
addresses. From there, blockchain analytics firms and investigators can monitor
the stability of the exchanges’ holdings and analyse trading patterns, as they do
now.

While this approach should provide a more trustworthy tally of assets, the
challenge of fully accounting for liabilities, including those in off-chain collateral
agreements, remains. As such, there will always be the need for a third party to
attest to proof of reserves. New cryptocurrency-focused auditing companies with
the expertise to handle on-chain assets, while also conducting a larger audit of
traditional assets, may fill the gap left by larger auditors. Over time, new expertise

166
and tools—or acquiring the companies that have them—may allow the larger
auditing firms to more comfortably re-enter the cryptocurrency space.

Although it is difficult to accurately value crypto’s market capitalisation, one

estimate places it at roughly $900 billion as of the start of 2023. While that figure
represents only a sliver of global assets—and a third of what it was only recently—
it is still substantial enough to warrant the efforts of accounting firms, developers,
investigators, regulators and independent observers to build an infrastructure that
allows for greater accountability. Although there is much work to be done to
provide future users with greater insight into the risk of platforms they use,
blockchain analytics provide a solid foundation on which to begin.

167
 ICC FraudNet
Global Annual Report 2023

Intelligence vs.
Evidence: From
the Perspective of
An Investigative
Firm

DC PAGE

iccfraudnet.org
STRATEGIC PARTNER INSIGHT DC PAGE

Intelligence vs. Evidence: From the

Perspective of An Investigative Firm

DC PAGE

In this article, DC Page of V2 Global analyses the important question of the

distinction between intelligence and evidence, with particular reference to
practical considerations in the investigative setting.

As an investigative firm, it is necessary to always explain to clients our

investigative methodology not only to manage expectations and to be cost
effective, but also to provide a roadmap on how to best utilize the results of the
investigation. One of the concepts that often gets discussed with clients are the
differences between intelligence and evidence and the benefits or limitations of each.

Evidence is a body of facts or information that can be used in a court of law to prove
whether a fact has happened with a certain degree of probability. It has the power
to validate any intelligence that may be gathered within an investigation. In a U.S.
or UK criminal case, the degree of probability would be “high beyond the reasonable
doubt proof” or “clear and convincing evidence”. While in a civil case the degree of
probability would be 50% more probable than not (preponderance of the evidence
type of proof).

Intelligence is information, generally confidential, gathered and analyzed during

the course of an investigation around the subject matter. An advantage when
gaining intelligence is utilizing trustworthy sources familiar with the content. For
it to be valuable, it must be relevant and reliable. The goal is to acquire as much
reliable information as possible on the subject matter to advance and further the
investigation and/or to negotiate with a third party pre or post action. Intelligence

169
does not need to be actionable but mainly inferential based on logic and reasoning;
it is part of an analytical process that gives a perspective on the subject matter.

One difference between intelligence and evidence is that evidence must generally be
disclosed to the accused or opponent in a litigation, while intelligence does not
necessarily need to be unless it will be used as leverage during settlement
negotiations. Another difference is that evidence would need to be admissible in
court (which would depend on the jurisdiction, type of case and the nature and
scope of the evidence itself). Although intelligence may or may not become
evidence, it is important that all intelligence be gathered legally within the
legislative and procedural parameters of the applicable jurisdiction.

At first glance, someone may infer that evidence is more important than
intelligence and, as a result, the main objective of an investigation should be to
gather evidence, not intelligence. That is not necessarily true. Intelligence will
provide an assessment on the costs and time necessary to proceed with a legal
action and, most importantly, on the probability of success. Intelligence will also
provide clues or leads on how to best manage, conduct and plan the investigation
efficiently and some of the intelligence may eventually become court-admissible
evidence and/or a powerful tool during settlement negotiations.

In gathering and converting intelligence into evidence, it is important to understand

the legal framework in all applicable jurisdictions involving the subject matter.
Close attention should be paid to privacy and secrecy, asset recovery, seizure laws,
the judicial framework and the conflicts of laws that may have to be overcome in
multi-jurisdictional cases.

Instances when intelligence may well be converted to evidence can include using
practices such as open-source research, discovery, and interviews. That is why it is
imperative that investigators are partnered with an experienced and reputable
counsel. Other investigative techniques that are helpful when converting
intelligence into evidence include surveillance, garbology, social media, and deep
cyber research.

Evidence is more difficult to collect than intelligence, but evidence is necessary to

succeed in a court of law. That does not mean, however, that intelligence is less
valuable. There would be no evidence without intelligence.

170
 ICC FraudNet
Global Annual Report 2023

KYC for
Investigators in
Polarized Times –
Your Client’s
Client’s Client

CRAIG HESCHUK
CALVIN CHRUSTIE

iccfraudnet.org
STRATEGIC PARTNER INSIGHT CRAIG HESCHUK
& CALVIN CHRUSTIE

KYC For Investigators in Polarized

Times – Your Client’s Client’s Client

CRAIG HESCHUK & CALVIN CHRUSTIE

Abstract

In this article, Craig Heschuk of GreyList Trace and Calvin Chrustie of the Critical
Risk Team consider KYC for investigators in an environment where the identity
and motives of the ultimate client may be obfuscated. They review the evolving
risk environment and highlight some recent cases in this area. In doing so, they
provide insights, recommendations and suggestions for client KYC checklists.

Introduction

It’s a story as old as the investigation business itself: the client that hires the
investigator turns out to have ulterior motives and is working for an undisclosed
third party. Film noir, from The Maltese Falcon to Chinatown, has played on the
subject to create not only superb dramatic and ethical tension – but also exquisite,
duplicitous romantic tension with the arrival of a mysterious femme fatale. The
deception is predictable from the first client interview. It won’t end well for the
investigator, client, or both – but it is cinematic magic.

Reputable investigators, due diligence and intelligence advisors and lawyers know
the landscape. In the real world, with the increasing nefarious influences of
geopolitics and threats of foreign state actors, it may not be as melodramatic, but

172
the risk is real and the stakes are high. Professionals know that they need to do
adequate due diligence on the real nature of the matter they are being asked to
investigate. The risks include breach of professional ethical obligations, potential
civil liability, criminal exposure and becoming unwittingly engaged in national
security threats. Now this risk environment is becoming even more acute. The
manipulation of investigators by organized crime and hostile foreign state actors
is bringing heightened attention to this otherwise niche due diligence space.

The Emerging Threat Landscape

In the last several years the world we live in has become more polarized and
adversarial. Perhaps in the past we had the luxury of believing that criminal
infiltration of society writ large is a problem for “other countries”. However, a new
reality has arrived where the illicit activities of nefarious state actors and their
transnational organized crime networks are cascading into our communities.
These influence campaigns in the business, legal and political communities are
becoming well-known – but manipulation strategies are also being exercised
covertly via risk management firms, private investigators, business intelligence
agencies and security companies.

Public institutions that have been built up to protect us are now being leveraged
by foreign states and transnational crime groups in a sophisticated and strategic
manner to undermine the very society that depends on them. This phenomenon as
it relates to the public sphere is prominent in the news today.1 But the application
of such strategies is more wide-reaching than just at the “macro” government and
corporate levels. Foreign influence operations, illicit intelligence operations and
‘hit’ and ‘kidnap’ squads are surfacing more frequently in the domain of the private
sector.

China, Russia, Iran, and others have all been identified operating in this new
space.2 Headlines across the world in 2022-23 concerning China’s use of “Police”
offices operating in western democracies have called attention to the alarming
extent to which some foreign states will interfere in other countries.3 Several years
ago, Huawei was embroiled in an international fraud, sanctions evasion and
national security scandal that included transfer of technology to Iran. Huawei’s
command and control is now widely understood to flow directly from the PRC
government. Over a several year period, Huawei contracted multiple law firms who

1
See: https://www.nbcnews.com/politics/national-security/garland-hold-news-conference-
significant-national-security-cases-rcna53702
And https://www.cbc.ca/news/politics/foreign-interference-csis-china-allegations-1.6783031
2
See: https://www.ctvnews.ca/politics/cybersecurity-agency-calls-out-four-countries-as-the-
greatest-strategic-threats-to-canada-1.5194491?cache=yes
3
See: https://www.nytimes.com/2023/04/17/nyregion/fbi-chinese-police-outpost-nyc.html

173
were in partnership with research, security, investigative and risk firms. During
this time, state-backed hackers and espionage threat actors had physical and cyber
access to the law firms’ systems. The “clean up” exercise is enormous and fraught
with potential legacy infiltration risk given the sophistication of the hacking. All
this growing out of an ostensible case of “litigation support”, due diligence and
private sector investigations.

For the private sector, these cases are more than just cautionary tales. They are
existential threats and they mean that a compliance regime must include efforts to
understand a new client’s ultimate client. The damage of misunderstanding the
real reason work is being contracted can extend to criminal exposure. The
consequences of not knowing the “who” as both the client and the subject of
interest have made international headlines attracting the attention of the global
law enforcement, intelligence and legal community.

Recent Cases In The Press

Operation Fox Hunt is a well-known and ongoing example. Michael McMahon, a

former NYPD sergeant turned private investigator undertook surveillance
operations of a Chinese national on behalf of a client. Mr McMahon insists he had
no knowledge that the ultimate client was the Chinese government, and they were
working to coerce the Chinese citizen to return to the PRC. But he has been charged
by the FBI with acting as an illegal agent for the Chinese government.4

In 2021, we saw a high-profile case of Iranian intelligence agencies hiring private

investigators to gather information and conduct research for a kidnapping plot to
target Americans, Canadians, and British citizens. Iranian intelligence operatives
were arrested, and the complicit supporting cast of private security and
investigators suffered the consequences of potentially having failed to adequately
follow a “know your client” process. As Lisa Monaco, the Deputy Attorney General
said in the context of this case, the US has increasingly seen “the blending of
national security and criminal threats, as rogue nations and criminal organizations
make common cause and share capabilities”.5

In early 2023, the arrest of a former high ranking FBI agent hired by the Russians
to “to investigate and gather intelligence” on behalf of a Russian oligarch grabbed
headlines – a depressing case where an FBI agent was acting for the other side just
as nations seek to bring Russia’s criminal business elite to account.6

4
See: https://www.nytimes.com/2022/11/13/nyregion/china-iran-private-detectives.html
5
See: https://www.nytimes.com/2023/01/27/us/politics/masih-alinejad-doj-assassination-plot.html
6
See: https://www.axios.com/2023/01/23/doj-mcgonigal-sanctions-oligarch-deripaska

174
These are several recent examples making headlines and catching the attention of
governments regarding the growing concern of foreign threat actors operating
within western democratic borders. The existence of foreign hostile actors from
Russia, China, and Iran are not new. What is new is the escalating of use of violence
and leveraging the western democratic private sector capabilities to carry out their
nefarious national security mandate that includes, kidnappings, murder,
extortions.7

Recommendations for Your Client KYC Checklist/Risk Assessment

With the above discussion in mind, the following are some recommendations based
on best practices and drawn from our professional experience:

1. Secure basic information such as business address and nature of business

activities etc (including government ID if there is a suspicion about the true
identity or nationality of the client), seek references from professional associates,
consider employment verification.

2. Obtain a statement of the legitimate interest that the client is pursuing in

requesting the investigation.

3. Consider geopolitical indicators in the Risk Assessment - ie potential

connectivity to high risk networks or state actors particularly China, Russia, Iran
and North Korea.

4. If you see or suspect geopolitical risk indicators - consider securing advisory

services that are versed in these more ‘acute’ risks and have experienced
researchers in the area of national security.

5. Always use open source intelligence (‘OSINT’) and in very large or suspicious
cases leverage tools that assist and support OSINT including “big data” and AI
tools. Note: Absence of or minimal social media and internet presence could be a
flag - this includes a “recent-only” presence.

6. Look out for indicators such as a client starting with a very small matter and then
expanding quickly to larger and more expensive assignments or clients that seem
to have surprisingly large budgets.

7
See footnotes 3 and 4. See also the case of Jamal Khashoggi: https://www.bbc.com/news/world-
europe-45812399

175
7. Once a relationship is established, continue checking and assessing if there were
high risk indicators and / or suspicious flags.

8. Read Malcolm Gladwell’s “Talking To Strangers”, an entertaining and

compelling examination of how we have a pre-disposition to believing the people
we interact with – a “default to truth” as Gladwell puts it. Even the best security
practitioners are prone to being deceived – even when, in hindsight, the warning
lights were flashing. Gladwell talks at length about Ana Montes, the “Queen of
Cuba”, one of the most damaging spies in U.S. history. It was not brilliant tradecraft
that allowed her to work undetected for the Cuban government for decades. The
reason she thrived as a mole at the Defence Intelligence Agency was that her
colleagues liked her and unconsciously turned a blind eye to the tell-tale
indications of deceit.

Conclusion

The malign actions of foreign state actors may be focussed on pursuing a discrete
case against an individual or they may be part of a strategic effort to fundamentally
damage another society. In either case, such covert attacks corrupt our entire
society as the system and networks we rely upon become compromised as a result
of being used in conspiracies to harm others. The methods employed range from
exposing IT systems to top-tier hackers; allowing physical access to corporate
board rooms which can be compromised by electrical devices; recruiting insider
threats through honeypots and financial incentives; etc. Investigators, attorneys
and other professional advisors can become an unwitting pawn in these efforts.
The onus is on us to be aware that our firms are highly likely to be targeted and
potentially compromised. The ramifications of complacency in knowing who your
client really is are potentially severe.

176
 ICC FraudNet
Global Annual Report 2023

Unpacking the
Complexities of
Third-Party Liability
Claims for Aiding
and Abetting Fraud

CHRISTOPHER N. CAMPONOVO
KIRT W. GALLATIN

iccfraudnet.org
STRATEGIC PARTNER INSIGHT CHRISTOPHER CAMPONOVO
& KIRT GALLATIN

Unpacking the Complexities of

Third-Party Liability Claims for
Aiding and Abetting Fraud

CHRISTOPHER N. CAMPONOVO & KIRT W. GALLATIN

Abstract

Third-party claims are an increasingly important tool in the fight against fraud and
corruption. When it comes to recovering assets that have been fraudulently taken,
it is essential that all potential parties who may have assisted in the wrongdoing
be held accountable. This article will unpack the complexities of third-party
liability claims for aiding and abetting fraud and outline the legal framework for
such claims.

What is a Third-Party Liability Claim?

In the context of asset recovery, third-party liability claims are civil claims brought
against individuals or entities who have facilitated the wrongdoing of the primary
defendant. Such claims are most commonly made against banks, lawyers and other
intermediaries who have knowingly or negligently acted to facilitate a fraud or
corruption and can include Quincecare claims, aiding and abetting fraud, aiding and
abetting breach of fiduciary duty, etc. In some cases, the person or entity accused
may not have directly benefited from the wrongdoing but may have known or ought
to have known about it and failed to act.

178
The purpose of third-party liability claims is to ensure that anyone who has
facilitated the fraud or corruption is held accountable and to ensure that victims of
fraud and corruption can seek full restitution for their losses. It is also an important
tool for deterring future wrongdoing from both fraudsters and their enablers and
encouraging good corporate governance.

Aiding and Abetting Fraud

Aiding and abetting fraud is a form of intentional misconduct in which one person
assists another to commit a fraudulent act. This type of conduct is often referred
to as “assisting” or “associate” liability, and it is an offence that could lead to both
civil liabilities and criminal sanctions depending on the jurisdiction.1 Aiding and
abetting fraud is a serious offence and can result in significant penalties, including
imprisonment and fines.2

Impact of Third-Party Liability on Asset Recovery

Third-party liability claims are an important tool for victims of fraud and
corruption seeking to recover stolen assets. While criminal sanctions can be an
effective deterrent for fraud and corruption, civil asset recovery is often the only
way for victims to recover their losses.

Additionally, third-party liability claims allow victims to seek restitution from the
parties who facilitated the primary defendant’s fraud or corruption. This can
include banks, lawyers, and other intermediaries who have knowingly or
negligently acted to enable the wrongdoing. By targeting these enablers and
facilitators, claimants expand the universe of potential recovery strands and
improve the chances of restitution.

The Legal Framework for Third-Party Liability

The legal framework for third-party liability claims is based on common law
principles. For an aiding and abetting fraud claim, a claimant needs to prove: (a)

1
See 18 U.S.C. § 2. To uphold a conviction for aiding and abetting under 18 U.S.C. § 2, the
Government must prove that the defendant associated with a criminal venture, purposefully
participated in the criminal activity, and sought by his actions to make the venture successful.
United States v. Polk, 56 F.3d 613, 620 (5th Cir.1995) (citations omitted). A defendant associates with
the criminal venture if he shares in the criminal intent of the principal. United States v. Jaramillo, 42
F.3d 920, 923 (5th Cir.), cert. denied, 514 U.S. 1134, 115 S.Ct. 2014, 131 L.Ed.2d 1013 (1995). A
defendant participates in the criminal activity if he has acted in some affirmative manner designed
to aid the venture. Id.
2
United States Attorney’s Office. (February 16, 2023). Hopkins County Company Guilty of Aiding and
Abetting Document Fraud [Press Release]. (“[Defendants] has agreed to pay forfeiture of $5 million”
and “face up to six months in federal prison at sentencing”). https://www.justice.gov/usao-
edtx/pr/hopkins-county-company-guilty-aiding-and-abetting-document-fraud.

179
the existence of an underlying fraud; (b) the third party had knowledge of the fraud
(c) and the third party provided substantial assistance to facilitate the fraud.3 This
can be difficult to prove, as the third party may not have been directly involved in
the underlying wrongdoing.

For example, to plead knowledge in an aiding and abetting fraud claim, it has been
held the claimant must allege sufficient facts to support a “strong inference of
fraudulent intent” by either (a) showing a motive for participating in the fraud and
an opportunity to do so or (b) identifying circumstances indicative of conscious
behavior.4

In bank fraud cases, courts have recognized “atypical banking procedures” as a

basis to infer knowledge that the bank was aiding in the fraud.5 And the United
States Court of Appeals for the Second Circuit has stated that “proof of a
defendant’s knowledge or intent will often be inferential.”6 Keep in mind though
that allegations that a bank merely suspected fraudulent activity does not satisfy
this requirement.7

Given the high standard of showing actual knowledge, in many jurisdictions the
law requires claimants to prove that the third party acted in a manner that was
“unreasonable” or “reckless” to be held liable.8 This means the third party must
have acted in a way that was objectively unreasonable or reckless considering the
known circumstances. Reckless disregard is not just suspicion, but rather behavior
that “highly unreasonable and constituting an extreme departure from standards
of ordinary care.”9

Additionally, the plaintiff must show sufficient evidence demonstrating that the
defendant substantially assisted the underlying fraud. Commentary to the
RESTATEMENT (SECOND) OF THE LAW OF TORTS § 876 identifies several
relevant factors for evaluating whether encouragement or assistance was
“substantial” including: (1) the nature of the act encouraged; (2) the amount and
kind of assistance given; (3) the defendant’s relation to the tortious actor; and (4)
the defendant’s state of mind.10

3
Wight v. Bankamerica Corp., 219 F.3d 79, 91 (2d Cir.2000) (citing Fidelity Funding of Calif., Inc. v.
Reinhold, 79 F.Supp.2d 110, 122 (E.D.N.Y. 1997)).
4
In re AHT Corp., 292 B.R. 734, 746 (S.D.N.Y. 2003), aff ’d, 123 Fed. Appx. 17 (2d Cir. 2005).
5
Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d 1101, 1120-1121 (C.D. Cal. 2003) (citing
Aetna Cas. & Sur. Co. v. Leahey Constr. Co., 219 F.3d 519, 536 (6th Cir. 2000)).
6
Rolf v. Blyth, Eastman & Dillon & Co., 570 F.2d 38 (2d Cir. 1978), amended, 1978 WL 4098 (2d Cir.
May 22, 1978), cert. denied, 439 U.S. 1039 (1978).
7
Dubai Islamic Bank v. Citibank N.A., 256 F. Supp.2d 158, 166 (S.D.N.Y. 2003).
8
See Tew v. Chase Manhattan Bank, N.A., 728 F. Supp. 1551 (S.D. Fla. 1990), amended on
reconsideration, 741 F. Supp. 220 (S.D. Fla. 1990).
9
Levine v. Diamanthusel, Inc., 950 F.2d 1478, 1484 (9th Cir.1991).
10
RESTATEMENT (SECOND) OF THE LAW OF TORTS § 876 cmt. d (1979).

180
There are similar causes of action – e.g., aiding and abetting fiduciary duty or a
Quincecare claim – that can also be alleged depending on the facts and the
jurisdiction.

Challenges in Bringing Third-Party Liability Claims

Bringing a successful third-party liability claim can be difficult. While the burden
of proof in civil cases is by a preponderance of the evidence (i.e., there is a greater
than 50% chance that the claim is true), the claimants must show that the third
party had knowledge of the fraud or corruption and acted to facilitate it. This can
be difficult to prove, as the third party may not have been directly involved in the
wrongdoing.

Additionally, there is the in pari delicto doctrine and the Second Circuit’s Wagoner
Rule to consider. A common fact pattern for third-party claims, especially against
financial institutions, involves a bankrupt corporation that formerly operated as a
fraudulent enterprise. After the fraudsters have left the bankrupt company, the
bankruptcy trustee commonly uncovers that third parties enabled the fraud.
In pari delicto is a Latin phrase which means “in equal fault” and is a doctrine that
states that there is a bar to a claimant recovery of damages for a wrong in which
the plaintiff participated.11 If the claimant is at least equally at fault as the
defendant in the wrongdoing, the court will not involve itself in resolving one
side’s claim over the other. Courts are understandably reluctant to award relief to
plaintiffs who have “unclean hands,” and this doctrine serves as an equitable
defense.

In the Second Circuit, a bankruptcy trustee standing in the shoes of a debtor

corporation lacks standing to sue third parties for damages “when a bankrupt
corporation has joined with [the] third party in defrauding its creditors.”12

However, in pari delicto and the Wagoner Rule are not a sure-fire defense for
enablers of fraud. In a bankruptcy setting, the doctrine applies primarily to a
bankruptcy trustee as a representative of the “debtor” under the U.S. bankruptcy
code, and not to the trustee in its status as a representative of the “creditor.”13 As

11
Merriam-Webster. (n.d.). in pari delicto. In Merriam-Webster.com dictionary. Retrieved February 1,
2023, from https://www.merriam-webster.com/legal/in%20pari%20delicto
12
Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991); see Wight v.
BankAmerica Corp., 219 F.3d 79, 87 (2d Cir. 2000)(“[M]anagement’s misconduct is imputed to the
corporation, and because a trustee stands in the shoes of the corporation, the Wagoner rule bars a
trustee from suing to recover for a wrong that he himself essentially took part in.”).
13
See 11 U.S.C § 544(a)(1).

181
such, if it can be effectively argued that the claim stems from the creditor’s rights
as opposed to the debtor’s, then this hurdle can be overcome.14

The Wagoner Rule also has an additional narrow but important exception. It does
not bar a bankruptcy trustee’s claim against third parties where the bankrupt
corporation’s management “acted entirely in his own interests and adversely to the
interests of the corporation.”15 The exception is narrow: management “must have
totally abandoned” the corporation’s interests16 or engaged in “outright theft or
looting or embezzlement . . . i.e., where the fraud is committed against a
corporation rather than on its behalf.”17 And the exception does not apply if a
corporation “receives any benefit from the fraud . . . even if the fraud ultimately
causes the corporation to suffer harm in the long term, and even where the insider
intended to benefit himself at the corporation’s expense.”18

The final challenge with third-party liability claims is that they can be expensive
and time-consuming. While not unique to third-party liability claims, defendants
may have access to a larger war chest and claimants may not be able to finance the
claim themselves and will need to seek litigation funding.

Strategies for Bringing Third-Party Liability Claims

In order to bring a successful third-party liability claim, it is important to have a

clear strategy in place. Claimants should start by gathering evidence, such as
documents and other materials that demonstrate the third party’s knowledge of
the fraud or corruption and their role in facilitating it.

Claimants should also seek legal advice early. Third-party liability claims are
complex and the issues presented can be tricky and entangled. Claimants and their
counsel should be aware of the legal framework for third-party liability claims to
properly consider whether their claim is likely to be successful. This will help
claimants to make an informed decision about whether to proceed with the claim
and how best to pursue it.

14
See Wagoner, 944 F.2d at 120 (“[a] claim against a third party for defrauding a corporation with the
cooperation of management, accrues to creditors, not to the guilty corporation”); see also In re
Bennett Funding Grp., Inc., 336 F.3d 94, 102 (2d Cir. 2003) (“In short, we hold that the defrauded
investors and not the bankruptcy trustee are entitled to pursue the claims arising from the fraud.”).
15
Wight, 219 F.3d at 86.
16
In re CBI Holding Co., 529 F.3d 432, 449 (2d Cir. 2008) (citing Center v. Hampton Affiliates, Inc., 66
N.Y.2d 782, 784 (1985)).
17
Kirschner v. KPMG LLP, 15 N.Y.3d 446, 466-67 (2010).
18
Cobalt Multifamily Inv’rs I, LLC v. Shapiro, 857 F. Supp. 2d 419, 428 (Bankr. S.D.N.Y. 2012) (citing
Kirschner, 15 N.Y. at 468-69).

182
Finally, claimants should consider the funding options available. Properly
evaluating a third-party claim and – if feasible – the ensuing litigation, can be
expensive and funding can be an effective way of financing a third-party liability
claim, as it allows claimants to access the funds needed without having to pay the
full cost upfront.

Conclusion

Third-party liability claims are an important tool in the fight against fraud and
corruption. By holding those who facilitate such wrongdoing accountable, victims
of fraud and corruption can seek full restitution for their losses. This article has
unpacked the complexities of third-party liability claims for aiding and abetting
fraud and outlined the legal framework for such claims. It has also outlined the
challenges in bringing such claims and strategies for pursuing them. By
understanding the legal framework and the strategies for bringing such claims,
claimants can make an informed decision about proceeding with a third-party
liability claim.

183
 ICC FraudNet
Global Annual Report 2023

Crypto Regulation in
Offshore Financial
Centres – How Much
is Enough?

JAMES POMEROY

iccfraudnet.org
STRATEGIC PARTNER INSIGHT JAMES POMEROY

Crypto Regulation in Offshore

Financial Centers – How Much is
Enough?

JAMES POMEROY

Digital assets, particularly cryptocurrencies, have rapidly transformed the financial

landscape. They have the potential to revolutionize how we conduct financial
transactions, but at what cost to the unsuspecting, or unsophisticated, consumer
and investor?

The regulation of these assets remains a complex and challenging issue,

particularly in jurisdictions such as the Cayman Islands, the British Virgin Islands,
and other island nations in the Caribbean region. In recent years, Offshore
Financial Centers (‘OFC’s’) have, with varying degrees of success, invested heavily
in the battle to change a common perception that OFCs are the natural habitat for
tax cheats, kleptocrats, fraudsters, and the generally corrupt.

OFCs that can boast a clean bill of health on the international stage are able to
attract new service providers and benefit from the investment in local resources
that follows. Finding the right mix of innovation, incentive, and regulation is a
delicate equilibrium but one that any jurisdiction must find if it is to avoid
reputational disaster that comes with international financial scandals. Scandals
like those that have tarnished reputations of Caribbean nations, arguably unfairly
and on a disproportionate scale, than those of more so-called developed countries,
leaving many jurisdictions gun-shy or paralyzed when it comes to supervising and
enforcing the industry.

185
While offshore jurisdictions are often known for favorable regulatory
environments and economic stability, these same qualities have made them an
attractive location for digital asset companies, highlighting the need for strong
regulations to protect consumers and investors, and prevent financial crimes such
as money laundering. Digital asset regulation in offshore jurisdictions is still in its
infancy, with significant challenges that must be addressed.

One of the most significant issues is the lack of clear laws and regulations. While
some territories have implemented strict regulations for digital assets, some
jurisdictions are still striving to establish clear guidelines for the industry, creating
uncertainty for companies operating in the digital asset space and making it
challenging for investors to understand and evaluate the associated risks.

The pace of innovation and market volatility that are distinguishing characteristics
of the digital asset sector amplify the challenges faced by regulators worldwide.
These can have a more significant impact on smaller jurisdictions, where attracting
and maintaining resources and technical expertise can be demanding.

Even in some jurisdictions where regulation has been implemented, an absence of

consistent oversight and enforcement enables bad actors to take advantage of
those gaps and makes it easier to avoid or bypass those safety barriers.
Consequently, the digital asset industry experienced a wave of prominent and far-
reaching collapses during the "crypto winter" of 2023.

Occasionally, and more by good luck than good management, the reluctance or
inability for a regulator to approve an application pushes the applicant elsewhere,
sparing that jurisdiction from the spotlight and furor of the ensuing meltdown.
Sadly, this “do-less” approach keeps out the good as well as the bad, to the ultimate
detriment of that country.

So, where is the balance between the “head in the sand” approach and a regulatory
regime that is so tight that if a company is allowed through the gates, their
operation and innovation is so restricted as to be prohibitive? The answer, clearly,
is somewhere in between and must include a comprehensive approach to digital
asset regulation.

While many offshore jurisdictions have established regulations for specific areas of
the digital assets industry, such as exchanges or initial coin offerings, a more
comprehensive approach is needed to effectively regulate the industry as a whole.

The digital asset industry is multifaceted and is constantly evolving, encompassing

various aspects such as tokenization, fintech, blockchain, and so on. While

186
regulation of specific areas is a step in the right direction, a more comprehensive
framework that ties into anti-money laundering, cybersecurity, market
manipulation, custody of digital assets, and much more is needed. A
comprehensive approach will create a more stable, secure, and transparent
environment for the industry. This will help to ensure that regulation does not
stifle innovation.

To do this, governments should focus on regulating the activities, not the assets.
This means that governments should focus on regulating the people and
businesses that are involved in the digital asset ecosystem, rather than regulating
the digital assets themselves.

Regulators must consider where their highest duty lies. If that duty is ultimately to
protect investors and consumers, then a risk-based approach to regulation is apt.
This means the focus of their regulatory efforts must be on the activities that pose
the greatest risk to consumers and investors. For example, governments should
focus on public facing service providers like exchanges and other businesses that
are involved in the trading of digital assets.

Achieving these aims requires collaboration between regulators and industry

stakeholders - a vital component of effective digital asset regulation. Ideally,
government-to-government collaboration to coordinate regulatory efforts across
borders would help to reduce the drive for businesses or investors to seek out the
least regulated jurisdiction. In practice, this kind of international cooperation is
complicated and unlikely to fully take root, national interests will never fully align,
however, the greater the commonality between regulations across the globe, the
more obvious it becomes when spotting jurisdictions offering a weaker regime.

Advances have been made in allowing entrants to set up under a regulatory

“sandbox”, a safe, controlled environment where projects and businesses can
function while regulatory frameworks are developed.

Regulators can use the sandbox to observe and assess potential risks associated
with participating companies and the broader industry, striking a balance between
consumer protection, and fostering innovation. This approach helps oversight
bodies to develop regulations and share information and best practices to ensure
that regulations remain relevant and effective.

Similarly, regulators and the private sector can collaborate in different ways to
assist under-resourced governments in enhancing the rigor of existing laws and
regulations that affect the digital asset market. Proactively, this can be as simple

187
as sharing expertise, industry knowledge, and best practices around digital asset
regulation via training programs, workshops, and seminars.

In a more hands-on way, private sector companies can offer technical assistance to
governments in the form of tools, technologies, and resources that can bolster their
capabilities in monitoring and enforcing digital asset regulations. This can include
software solutions, data analytics tools, and cybersecurity expertise.

Reactively, public-private sector collaboration on investigations is not new. With

the rapid evolution and expansion of technology and structures being used in the
sector, it will often be the private sector that is exposed to these before a regulator
in a smaller territory.

Regulators and private sector firms can collaborate on joint investigations to

identify and address potential violations of digital asset regulations. By pooling
resources and expertise, they can work together to investigate and prosecute cases
of non-compliance, or more serious and damaging misconduct.
The regulation of digital assets is a complex and challenging issue. There is no one-
size-fits-all approach, and each jurisdiction will need to develop its own regulatory
framework in light of its own specific circumstances. However, it is clear that
offshore jurisdictions are committed to regulating digital assets in a way that
promotes economic growth and innovation while also protecting consumers and
investors.

Ultimately, offshore jurisdictions must recognize and confront their realities

truthfully. They must recognize and address their shortcomings in this area to
ensure the effective regulation of the industry, protect investors, and create an
enabling environment for innovation and growth. As the digital asset industry
continues to evolve, it is essential for regulators to remain proactive and adapt to
these changes to ensure the continued success and safety of the industry.

188
 ICC FraudNet
Global Annual Report 2023

ACADEMIC
AND
RESEARCH
INSIGHTS

iccfraudnet.org
 ICC FraudNet
Global Annual Report 2023

Another Corporate
“Failure to Prevent”
Offence: Fraud

DR DOMINIC THOMAS-JAMES

iccfraudnet.org
RESEARCH INSIGHT DR DOMINIC THOMAS-JAMES

Another Corporate “Failure to

Prevent” Offence: Fraud

DR DOMINIC THOMAS-JAMES

Abstract

In this article, Dr Dominic Thomas-James, Consultant and Director of Publications

at ICC FraudNet, Barrister, Goldsmith Chambers, and Research Associate at
Fitzwilliam College, Cambridge considers proposed legislation currently going
through the UK Parliament that seeks to create a corporate failure to prevent fraud
offence. The article considers the effect of this legislation, the extent to which it is
suitable in the area of fraud, and details some questions that remain unresolved.

Overview of the legislation

Within the increasingly complex economic crime landscape, so-called “failure to

prevent” offences have become a familiar standard. A corporate failure to prevent
fraud offence is currently making its way through the UK Parliament. The
Economic Crime and Corporate Transparency Bill1 takes aim at large businesses or
organisations and whether their systems to prevent fraud on the part of their
people, are adequate.

We are, of course, familiar with this type of “failure to prevent” offence in the areas
of bribery and tax evasion – with section 7 of the Bribery Act 2010 providing an
offence of failure of corporate organisations to prevent bribery, and the failure to
prevent the facilitation of tax evasion per part 30 of the Criminal Finances Act

1
See: UK Parliament, Parliamentary Bills, ‘Economic Crime and Corporate Transparency Bill’, available at:
https://bills.parliament.uk/bills/3339 (accessed 22 May 2023).

190
2017. There have been those campaigners making calls to transpose this model into
a broader failure to prevent economic crime offence.2

The mechanics of the proposed law appear quite straightforward in that it takes
aim at large corporate organisations, partnerships, non-profits and charities under
restrictive criteria. Entities must fit two of three criteria, namely, employing over
250 people; making more than £36 million turnover per year; or holding assets of
more than £18 million. The legislation targets an organisation that did not have
reasonable measures in place to prevent fraud on the part of an employee or agent,
and that may have benefited from the fraud. The fraud itself and related offences
include offences under the Fraud Act – namely, section 2, 3 and 4: fraud by false
representation; fraud by failing to disclose information; and fraud by abuse of
position. It also includes a section 9 fraud offence, namely participating in a
fraudulent business. It further includes Theft Act 1968 offences, namely the section
11 offence of obtaining services dishonestly, the section 17 offence of false
accounting, and the section 19 offence of the making of false statements by
company directors. It includes an offence under the Companies Act 2006, namely
the section 993 offence of fraudulent trading, and finally it includes the common
law offence of cheating the public revenue (R v Hudson [1956] 2 QB 252).

Companies and organisations to which the legislation applies will need to

demonstrate that they have reasonable fraud prevention procedures in place.
Indeed, companies may have a defence if they can demonstrate that it had
reasonable measures in place – as per the defences we see relating to other
corporate “failure to prevent” offences. What is to be considered as “reasonable
procedures” is yet to be defined and Government guidance on this is awaiting
publication. For companies and organisations unable to demonstrate the same; on
conviction liability is an unlimited fine. Importantly, prosecutors will not need to
prove that the company or organisations’ senior figures knew about the fraud, or
directed it.

Impact

This offence, much like those others in the areas of bribery and tax evasion
facilitation, appears to be aimed at general deterrence and bringing the “fraud”
discussion firmly within the corporate governance environment. As such, and for
the area of fraud, it brings organisations’ role as potential “facilitators” rather than
“victims” in this regard, into the compliance framework.

Of course, in English criminal law, for fraud to be proven, dishonesty needs to be

shown (Ivey v Genting Casinos [2018] AC 391). In the criminal setting, this is to a
high standard and the prosecution must prove that the defendant committed fraud
beyond reasonable doubt – in other words, the jury must be satisfied so that they
are sure. This can be contrasted with the civil setting, whereby the claimant has

2
See, for example: Baroness Bowles of Berkhamsted’s amendment to the Economic Crime and Corporate
Transparency Bill, Amendment number 91, available at:
https://bills.parliament.uk/bills/3339/stages/17398/amendments/94608 (accessed 22 May 2023).

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the burden of proving the same on the balance of probabilities – in other words,
that it is more likely than not that the defendant committed the fraud.

For offences under sections 2, 3 and 4 of the Fraud Act 2006 (i.e. fraud by false
representation, failing to disclose information, or abuse of position), it must be
proven that the defendant’s conduct was dishonest, and that it was their intention
to make a gain, or cause a loss or the risk of loss to another. The actus reus
requirement for fraud in this regard is less than for theft. It need not be shown that
a gain or loss actually occurred. The maximum prison sentence for a criminal fraud
conviction under these provisions is 10 years.

Dishonest intent is the underlying feature of such fraud offences in the criminal
context. In the case of fraud by false representation, it must be shown that the
defendant made a false representation dishonestly and knowing that the
representation was, or might be, untrue or misleading. In the case of fraud by
failing to disclose information, the defendant must have failed to disclose
information when they were under a legal duty to, and dishonestly intended, by
failing to disclose that information, to make a gain or cause a loss or risk thereof.

Yet, for a corporate to commit the new “failure to prevent” fraud offence,
prosecutors do not need to show that there was a “directing mind”. Prosecutors do
not need to prove that officials orchestrated the fraud, conspired, or knew about it
– which may have ended up benefiting the organisation.

The proposed legislation clearly focuses on systems – or the lack thereof. What the
legislation achieves with not having this requirement of proving knowledge on the
part of officials, is to eradicate the possibility or risk of wilful blindness on the part
of the organisation or its officers. In other words, formerly, liability would have
rested on the part of – say – the rogue employee. Now, it will not be sufficient for
companies to rely on rogue elements or one-offs in the absence of reasonable fraud
prevention procedures being fully implemented and operational.

Putting the focus on the organisation, even without the requirement of proving
knowledge or a directing mind, appears to have at its core general deterrence. It
also creates a non-optional awareness-raising function within the organisation’s
operations and, therefore, inevitably ought to have an effect on culture and
corporate governance. Given that fraud and its methods are ever-evolving,
particularly with the use of technology and systems, awareness and understandings
of fraud require constant monitoring. The legislation may well serve this aim.

While standardisation will inevitably be required in terms of guidance on what are

considered to be “reasonable procedures”; in practice much will depend on
particular risk-profiles of organisations and the type of measures they will aver are
adequate. Indeed, even the UK Government’s Factsheet acknowledges that for
some entities it may be reasonable to have no fraud prevention procedures when it

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has an extremely low risk of fraud.3 Of course, guidance will have to take account
of fraud’s complexity. The fact remains that fraud is the crime to which we are most
likely to fall victim, and represents some 41% of all crime against individuals in
England and Wales.4 Understanding fraud remains an essential, but difficult,
endeavour particularly for companies strategizing on measures to prevent it. If we
truly understood the risks of and from fraud, the forms that fraud takes, the
environments and circumstances fraudsters pray in, and, importantly, fraudsters’
motivations, then one would think that the above figure would be somewhat less.

The elephant in the room arguably is the type of company or organisation

concerned. With more and more “failure to prevent” offences, there is considerably
more attention on issues relating to corporate governance, responsibility and
compliance than ever before. For larger organisations, the sort caught by this
legislation, it is not unreasonable to assume that the majority will put considerable
effort and resources into both ascertaining what are “reasonable” fraud prevention
measures in their case, and implementing the same to comply with this legislation.
Even though “reasonable procedures” is still lacking guidance and definition; many
such organisations will already have gone through similar processes to comply in
areas such as failing to prevent bribery and failing to prevent the facilitation of tax
evasion. For these, and now for fraud, many will of course engage specialist
compliance personnel and legal representatives to ensure compliance. The
proposed legislation targets large organisations – given their risk profile. It does
not target smaller organisations – partly due to concerns about proportionality.
Therefore, the targets under the legislation are those organisations that are
perhaps better resourced to implement and monitor such measures. Surely this,
taken with the familiarity of the work required to comply with similar measures
already in place, will make the prosecutor’s task all the more difficult in proving
that procedures were not reasonable.

Concluding thoughts

Robert Peel, in his policing principles, evoked the notion that an effective law
enforcement does not have high arrest rates; but rather, its community has low
crime rates. It is not unreasonable to assume that most entities to which the
legislation applies, will likely retain legal and compliance experts to assist and
advise them on devising procedures that will be considered “reasonable” for the
prevention of fraud; based on the legislation’s guidance and on their particular
business, activities and risk profile. With Peel’s principle in mind, how will the
legislation’s effectiveness be measured? It could be argued that it rests on a more
nebulous, conceptual basis, rather than high numbers of criminal fines. Bringing
fraud awareness-raising more visibly under the corporate governance spotlight
ought to serve a deterrent function. Yet, given the likelihood that large entities will
comply and implement reasonable measures, as well as the difficulty prosecutors

3
UK Government Policy Paper: Factsheet: Failure to Prevent Fraud Offence, 11 April 2023, available at:
https://www.gov.uk/government/publications/economic-crime-and-corporate-transparency-bill-2022-
factsheets/factsheet-failure-to-prevent-fraud-offence (accessed 22 May 2023).
4
See: UK House of Lords (12 November 2022) “How do we break the fraud chain?”, available at:
https://ukparliament.shorthandstories.com/breaking-fraud-chain-committee-report/index.html (accessed 22 May
2023).

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may therefore have in proving that the measures were “unreasonable”; it remains
unclear whether this will translate to prosecutions and convictions – or whether
the function of this legislation rests more in the area of awareness-raising and
corporate culture, backed up by the threat of a criminal fine and the reputational
harm that may ensue for non compliance. Of course, the question remains as to
whether this legislation will prevent fraud at a substantive level, or is it is just
another exercise in corporate box-ticking, which may yield little by way of
measurable results?

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 ICC FraudNet
Global Annual Report 2023

Innovations and
Strategic
Applications in the
Psychology of
Fraud

ALEXANDER STEIN PH.D

iccfraudnet.org
RESEARCH INSIGHT ALEXANDER STEIN PHD

Innovations and Strategic

Applications in the Psychology of
Fraud

DR ALEXANDER STEIN

Abstract

Fraud is a crime of relationships. It involves dishonesty, deception, betrayals of

trust and abuses of power and is predicated in ubiquitous human propensities to
be hoodwinked and manipulated. Despite its centrality, the psychological
dimension of fraud and fraudsters has been historically misconstrued and domain
relevant expertise underutilised in the ferocious psychological battle to recover
victims’ losses and bring fraudsters, kleptocrats, and other corrupt actors to justice.
In this article, Alexander Stein Ph.D., redresses that by elaborating on the complex
psychodynamics at play across the entire psycho-social ecosystem in fraud matters
and delineating psychologically sophisticated tools for actionably leveraging
psychodynamic intelligence to assist fraud litigators and allied asset recovery
professionals.

Introduction

“Fraud is committed by people, not numbers.”

— Joseph Wells, Founder and Chairman, Association of Certified Fraud
Examiners1

1
Joseph Wells’ keynote address, ACFE 25th Annual Global Fraud Conference, San Antonio, Texas,
June 2014

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The standard definition of fraud is deceit, trickery, sharp practice, or breach of
confidence perpetrated for profit or to gain some unfair or dishonest advantage.
Fraudsters use these methods to induce victims to unwittingly become deprived of
dominion over substantial sums of money or other valuable assets.2

The ostensible goal in most cases is personal enrichment. To this end, fraudsters
continually innovate and creatively adapt to new technologies and environments.
They exploit disruptive macro-social events and loopholes in markets and financial
instruments, capitalize on inadequate regulatory oversight or reform, and
weaponise investor greed and lackadaisical due diligence.

But above all else, fraud is a crime of relationships. It involves dishonesty,

deception, betrayals of trust and abuses of power and is predicated in the
ubiquitous human propensities to be hoodwinked and manipulated.

In this view, recovering the fructus sceleris—the fruit of ill-gotten gains—and

pursuing justice on behalf of victims involves more than adroitly navigating
judicial procedures and coordinating complex trans-national legal, banking,
accounting, and investigative expertise. Contemporary asset recovery cases are, at
core, a ferocious psychological battle with corrupt actors who operate under
radically disparate moral, ethical, and behavioural codes, dismiss the rule of law,
and abide antisocial notions of justice, consequence, and accountability.

That conflict is waged primarily between the fraudster, his affiliates, operational
workforce, and knowing co-conspirators and facilitators (as well as many unwitting
enablers, including family members), on the one side, and the array of asset
recovery professionals—investigators, litigators, prosecutors, litigation funders,
and other subject matter experts—on the other.

But an expansive view of the human ecosystem must also include two additional
constituencies: the victims and other impacted stakeholders, and the judiciary—
triers of fact and law—legislatures, regulators, and policy-making institutions as
well as the social and cultural structures that enable them.

2
The umbrella rubric “fraud” is used here for brevity’s sake and is intended to incorporate by
reference its many forms and varieties. Other common frauds include false claims of scientific
discovery or intellectual property ownership. While these may result in undeserved gains to the
fraudster and unjust losses to the victims, they comprise different classes of fraud which will not be
directly taken up here. The dominant focus here is asset recovery in the context of economic fraud.
For more detail, see for example, Martin Kenney’s useful enumeration of 15 common types of fraud
in the chapter titled Serious Fraud in Asset Tracing and Recovery – The FraudNet World Compendium,
1st Edition, pp. 8-14. For a thorough survey of Ponzi schemes, see Kathy Bazoian Phelps & Hon.
Steven Rhodes, The Ponzi Book: A Legal Resource For Unraveling Ponzi Schemes (LexisNexis® 2012).

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Whatever their functions, these groups are psycho-social systems, each subject to
and governed by powerful psycho-social forces and dynamics. In addition, the
antagonist and his cohort will inevitably unleash psychological warfare to
frustrate, stymie, or nullify the professional campaign directed to bringing them to
book.

In short, fraud professionals routinely confront the roiling impact of all manner of
unscrupulous behaviour—deception, psychological manipulation, abuses of trust
and power—as well as a dizzying array of dense issues involving individual and
social psychology, family systems, and organizational dynamics.

In the 5th century BC, Chinese military strategist and philosopher Sun Tzu opined
that “the opportunity of defeating the enemy is provided by the enemy himself.”3
This axiom is no less applicable in 21st century fraud cases where sophisticated
analyses and actionable intelligence concerning the mind and behaviour of the
fraudster and his confederates together with insight into the psychological
dynamics of all the constituent human systems open a third dimension on case
management, strategy, and prosecution, and provide unique guidance for the
litigation and recovery operation.

What follows is an introductory overview of these ideas, briefly updating historical

and conventional understandings of the psychology of fraud as a prelude to
providing a contemporary and more robust psychodynamic perspective. This is
followed by a delineation of the primary applications and methods for leveraging
expertise in human psychology, and family, organisational, and social systems in
asset recovery work.

Psychology in Jurisprudence and Fraud—The Imperative of Updating Historical

Perspectives

Efforts to understand and explain the psychological underpinnings of criminally

deviant behaviour have entwined with the development of Western jurisprudence
for more than four hundred years. Common law guidelines on criminal liability
have, in simplest terms, historically relied on establishing intent, motive, and
forethought to explain why people defy prevailing rules of law and codes of
normative civil ethics and conduct.

Most English law jurisdictions require establishment of mens rea, the guilty mind,
as a necessary element of a criminal offence accompanying actus reus, the guilty
act. Codified by Edward Coke in the 17th century, the notion actus non facit reum nisi

3
“Art of War,” Chapter 4

198
mens sit rea—the act does not make a person guilty unless the mind also be guilty—
remains jurisprudentially influential to this day. Another related psycho-legal
concept is Dolus, which describes an accused person’s intention at the time an
alleged crime is committed. It has two forms: (i) Dolus directus (direct intention),
where it is determined that the accused intended a certain act or result; and (ii)
Dolus eventualis (indirect intention) where the possibility of a particular
consequence or circumstance is foreseen but there is a reckless disregard as to
whether it ensues or not. Both forms establish that the accused understood that his
actions or the consequences of them were wrong. Similarly, establishment of
animus nocendi—criminals’ (or organizational decision-makers’) a priori knowledge
of illegality and intent to harm—is a requisite condition to courts’ determinations
of penalty and liability for constructive dishonesty, knowing assistance,
recklessness, negligence, and aiding and abetting breaches of fiduciary duty.

Societies and courts have long relied on consensual acceptance of these concepts.
In support of that, psychologists’ and psychiatrists’ expert opinions are enlisted in
cases involving psychiatric issues, requiring extensive knowledge of mental health
law, in jury selection, or in presenting relevant psychiatric concepts and diagnostic
findings in language that courts can understand and use in instructing juries and
rendering sentencing. This includes determining a defendant’s mental fitness or
capacity relating to criminal intent, mental competency, or statutory thresholds of
legal insanity; attesting to a defendant’s state of mind and how it affected his
ability to author or commit certain acts in concurrence with the alleged criminal
wrongdoing; or testifying as to the symptoms and conditions of a crime victim’s
post-traumatic duress.

Research on the psychology of fraud occupies a distinct category in the studies of

criminal types,4 historically relying, in the main, on psychiatric diagnoses to
explain why people commit fraud.

Arguably the most influential schematic understanding has been the Fraud
Triangle. Devised by Donald R. Cressey in the 1950’s, it established a triumvirate
of simultaneous factors needed for an “ordinary” person to commit fraud:
opportunity, rationalisation, and pressure (or incentive).

Another popular mid-20th century view examined similarities between classic

symptoms of antisocial personality disorders, particularly criminal psychopathy,
and the markers of leading economic criminals. While not a formal diagnostic
classification in the DSM (Diagnostic & Statistical Manual of Mental Disorders),

4
Including, inter alia, mass- and serial-killers, sociopaths, sex offenders, terrorists, kidnappers,
drug lords, organized crime capos, tyrants, dictators, authoritarians, and malfeasant executives and
assorted white-collar offenders.

199
psychopathy overarchingly refers to APD (anti-social personality disorder), a
serious condition characterised by virulently aggressive and disinhibited antisocial
behaviour, feckless disregard, diminished empathy, and absence of remorse. The
work of several psychiatrists profoundly influenced clinical, diagnostic, and
criminological parameters of psychopathy, most prominently Hervey M. Cleckley,
an American psychiatrist and pioneer in the field of psychopathy whose 1941 book
The Mask of Sanity provided the most influential clinical description of psychopathy
in the twentieth century, and Robert D. Hare, a Canadian forensic psychologist who
developed the Hare Psychopathy Checklist used to assess cases of psychopathy.
Building on that earlier work, William and Joan McCord, a husband-and-wife team
who specialised in the study of criminal delinquency, co-authored The Psychopath:
an essay on the criminal mind (1964), a seminal work which became a leading
reference to the legal profession. These and other similar works ignited popular
imagination and found easy favour with courts and juries, cementing psychopathy
as far and away the most widely accepted explanation for fraud.

Other established views emphasised fraudsters as principally motivated by an

unquenchable hunger for power, rapacious greed, or unrestrained opportunism.
Additional explanations proposed that fraudsters utilise “techniques of
neutralisation” which reduce the offender’s ability to modulate or abort
destructive, amoral, or anti-social impulses to greater degrees than the average
person. A related view suggested that fraudsters possess an unusual capacity for
rationalisation—a psychological mechanism by which an individual seeks to
replace the actual socially, ethically, and emotionally reprehensible motivations
for his actions with a more palatable though fictive explanation.

Even the most systematic scientific research has tended to narrowly classify
fraudsters as remorseless sociopaths or psychopaths—predatory men devoid of
empathy who prey on victims ill-equipped to protect themselves and their assets.
Studies such as Edwin H. Sutherland’s 1939 “Principles of Criminology” which
promulgated Differential Association and Differential Reinforcement Theory—the
notion that criminal behaviour is learned—are still referenced today. Some studies
located the origins of criminally delinquent behaviour in organic (brain) disorders,
while others assigned the complex calculus of predispositions and psycho-social
factors driving the commission of fraud to a wide range of causes, including low
self-esteem, arrogance and egocentricity, a poorly developed code of ethics,
emotional instability, a desire to beat the system, and taking pleasure in
manipulating others.

Even as a separate matter from the relative plausibility or fractional correctness of

any of these formulations, the historically entrenched focus on fraudsters wholly
in terms of psychopathology is simplistic. It inadequately explains the salient

200
characteristics, psychological constituents, and dynamic catalysts of offenders and
their criminal schemes. And the conventional view of fraud as an asymmetrical
bipolar event between fraudster as dominant figure and victim in a hapless
subordinate position—while omitting all other involved parties—is insufficient in
the aggregate.

One legacy of these approaches has been to compress fraudsters into a universally
accepted taxonomy that purportedly explains all typical characteristics and
motivations as a single diagnosable psychopathology. This has detrimentally
influenced generations of litigators in crafting prosecution and asset recovery
strategies, jurists, and policy-making bodies in determining sentencing guidelines
and designing prevention and recidivism reduction programs, and biased
journalists, authors, and filmmakers in producing mythologised narratives about
fraud and fraudsters now ensconced in culture and the popular mind.

But the most significant adverse consequence in the context of this article is that
it provides scant practical value to asset recovery professionals. Recalling the
premise that fraud is fundamentally a psychological crime, it follows that
expansive, contemporised conceptualisations of the psychological dimensions
involved demonstrably enhance developing and pursuing third party liability
claims against fraudsters and their knowing assistants and facilitators leading to
the recovery of assets wrongfully taken from victims. Working models must move
beyond inert post-facto psychiatric diagnoses for single-actor wrong-doing. And
professionals in the field can only benefit from access to sophisticated
psychodynamic intelligence gathering and analytics to add to the array of
established legal and accounting instruments and practices.

What follows redresses these shortcomings on two fronts. One is to introduce a

magnified multi-dimensional understanding of the complex psychodynamics at
play across the entire human ecosystem of a fraud case. This includes mapping the
matrix of people in a dynamically interacting constellation of relationships—a field
populated by the primary antagonist’s family and others in his personal sphere
together with all those in his professional world such as executives, associates, and
front-line personnel in his various entities, bankers, accountants, lawyers,
property agents, and all others with knowledge of his financial dealings, holdings,
and corporate structures. The multijurisdictional team of asset recovery
professionals forms another group, and the judiciary, regulatory bodies, and
legislatures yet another. The stakeholders and participants comprising these
constituencies are considered independently as well as in direct and indirect
connection to each other.

201
The second presents robust methods for actionably leveraging psychodynamic
intelligence and soft and shadow data analysis in case strategy, management,
prosecution, and settlement negotiations.

The Fraudster: General Profile, Psychological Components, Talents,

Vulnerabilities

“Society is a masked ball where everyone hides his real character

and reveals it by hiding.”
— Ralph Waldo Emerson5

The psycho-historical origins and mental substructures of criminal fraudulence,

driven by individualistic predilections and idiosyncratic circumstances and
decisions, are complex, meaningfully vary for every offender, and defy broad-brush
theorizing. A comprehensive taxonomy of fraudster psychology encompassing all
constituents and underpinnings of every type of fraud is infeasible here. Each fraud
case is unique and must ultimately be understood in its own context.

That said, there is a substantial body of evidence-based scholarship explicating the

array of psychological devices used and abused by those who commit fraud. Only a
fraction of that will be referenced here.

Everyone is a Fraudster

We are unique among species in calling up psychological mechanisms even in the

complete absence of any actual external threat. We preserve in our minds vivid
phantoms of abusive, traumatising, humiliating, impinging, terrifying, invasive,
overwhelming experiences, relationships, and environments of early life. The
psychological systems and early response patterns developed to survive some early
life circumstance extend into contemporary life as unconscious reflexes—internal
responses triggered without awareness or control and that cannot be modulated or
aborted at will—and solidify as fixed, embedded features of character. We draw on
batteries of such devices—denial, negation, disavowal, repression, suppression,
dissociation, splitting, projection, among others—to protect ourselves from
feeling, thinking, remembering, or even knowing things about ourselves, and to
control people and situations to help us feel safe, powerful, and important.

5
“The Conduct of Life” (1860)

202
With gradations and variations across cultures, these are all essential psychological
dispositions and devices shared by everyone. They are normal parts of the human
condition.

They are also all elemental in fraud. Therefore, in a sense, and in radical departure
from constricted historical psychiatric classifications fixated on criminal
psychopathy, everyone is (or can be) a fraudster. Or a potential victim.

But of course, not everyone is a malicious felon. Precise reasons why some
individuals respond to certain trauma with asocial miscreance or criminality rather
than living with quotidian psychological scars are difficult to detail in the abstract.
Typical differentiating factors are age, severity, seriality, and response. Serial
trauma in very early life usually gives rise to more acute psychological
deformations than comparatively less shattering or isolated episodic experiences
in later maturational stages. Still, there are countless variables, and developmental
trajectories do not follow pre-set formulations. It is not unusual for survivors of
severe relational trauma—childhood victims of emotional or sexual abuse,
domestic violence, pathologically narcissistic, manipulative, and other toxically
disordered and dysfunctional households—to escape those early injuries and lead
reasonably healthy and productive lives. But for others, those who grow-up to
become fraudsters or predatory power abusers, forming relationships
differentiated from their formative experience and developing self-modulated
ethical, pro-social decision-making and behavior, is an impossibility. Normal
coping and survival mechanisms become weaponized and other people exist only,
or primarily, as functional opportunities, recalling the definition of fraud, to profit
or gain some unfair or dishonest advantage.

The presenting details of an individual’s psychohistory will elicit different

responses or have a different function depending on the context. In social
relationships, it might prompt compassion—or a hasty retreat; in a therapeutic
setting, it should lead to an initial diagnosis and treatment strategy; and in a legal
psychiatric context, such data will inform a baseline evaluation to guide sentencing
or predict rehabilitation or recidivism.

The utility here is different. These psychological devices developed in the

protagonist’s life are his weapons. Understanding them is important to formulating
a three-dimensional profile—telling us who he is, how he thinks, and what
motivates him; how he relates to risks, threats, and other people; clarifies his aims,
aspirations, values, and tolerances; reveals potential vulnerabilities, and helps
accurately forecast his probable responses and decisions in various future
scenarios.

203
Lies & Deception

Deception abounds across the natural world. Many animals and organisms use an
ability to camouflage, feign, disguise, lure, or outwit to live another day, secure
sustenance, prevail in conflict, or traverse, escape, or defeat threat and adversity.

Deceit, misrepresentation, dishonesty, evasiveness, and duplicity serve similarly

important functions for people. Far from patently undesirable or pathological,
most theories of human development consider the child’s first lie an important
milestone. Lying—the overt, conscious, intentional effort to evade the truth or to
present an untruth—is something every human being, including people who are (or
claim to be) unwaveringly honest, has done6. Everyone employs contrivance and
emotional deception as a coping device or for self-preservation.

Innocuous falsities are mandatory mainstays of social life. Diplomacy,

minimisation, and white lies facilitate workable relations, and intentional feints,
half-truths, and artful obfuscations are accepted requisites of diplomatic rhetoric,
political stagecraft, negotiations, interrogations, and corporate deal-making.

Lies can be a form of denial, substituting something private or shame- or guilt-

inducing with something less threatening. We conceal or obscure aspects of
ourselves—thoughts, feelings, desires, impulses, vulnerabilities—to avoid
scrutiny, humiliation, or punishment, or to preserve emotional homeostasis—to
feel alright—with others, within ourselves, and in environments we perceive or
experience as unsafe.

Another type, common among young children and others with under-developed
skills in lying, is negation, in which the object of the lie is expressed in its negative:
“I'm not doing something.” “There’s nothing here.” “This is not what you think it
is.” “You have nothing to worry about.”

People will also transform a statement they cognitively recognize as a lie (or
probable falsification) into a truth they prefer. Known as wilful denial, fraudsters
liberally use this to self-justify their thoughts and actions, and it is also common
among fraud victims (and other traumatised individuals) to neutralise emotional
pain.

Imposturousness

6
For a penetrating examination of lying, see “Lying: Moral Choice in Public and Private Life” by
Sissela Bok. Vintage; 2nd ed. (1999)

204
Many fraudulent schemes employ psychological elements related to imposter fraud
even if they do not typically use identity disguise.

Imposturous tendencies are universal. The true impostor assumes multiple false
identities to deliberately deceive. He passes himself off incognito (which is often
the only way he can function) in delinquent or other criminal ways as actually
possessing an identity of someone other than himself. One notorious example is
Hargobind Punjabi Tahilramani, an Indonesian national dubbed the “Con Queen
of Hollywood” who perpetrated an elaborate, long-running con by impersonating
powerful female entertainment executives before being apprehended by the FBI.7
Other prominent cases include Anna Sorokin, a Russian immigrant from a middle-
class family, whose frauds pivoted on transforming herself into the persona of
Anna Delvey, a non-existent wealthy German heiress. Or, the Colombian imposter
Anthony Gignac who convinced people he was a rich Saudi prince named Khalid
bin al-Saud, though he was actually a poor street kid from Bogotá who had been
adopted and raised by a couple from Michigan.

Many con artists experience themselves as most authentic when they are acting
imposturously and often feel as though they are being artificial and phoney when
they are themselves. A professional impostor might never fear exposure when
swindling but will feel like an impostor if he did honest work.

While seemingly similar to “imposter syndrome” popularised by social

psychologist Amy Cuddy’s ‘fake it until you make it’ 2012 Ted Talk, relating to
people who fear their insecurity or underpreparedness will be disastrously exposed,
criminal impostors commit identity fraud by deliberately pretending under the
literal cover of a fictive persona. They are frequently motivated by an unconscious
need for punishment, not merely a defence against the dreaded exposure of
inadequacy. The drive to produce illusion rather than substance may contain a
neurotic fear that healthy, acceptable activities will be mistaken for monstrous
crimes for which he would not want to risk being caught. Deceit and artifice, it must
be noted, are also critical to the normal promotion of illusion, as in art and play.8

The appearance of excessive empathy and a dazzling ability to pass themselves off
as having impressive expertise or capacities are other key attributes. They can seem

7
For more on the psychology behind Tahilramani’s con: the bonus episode of the 2020 podcast
“Chameleon: Hollywood Con Queen,” hosted by Josh Dean and Vanessa Grigoriadis and produced
by Campside Media and Sony Music, https://podcasts.apple.com/us/podcast/bonus-episode-1-the-
psychology-of-the-scam/id1532225667?i=1000500309399

8
It is relevant to note that fraud litigators, members of law enforcement and other asset recovery
personnel frequently use techniques and instruments of fraud or deception in the normal course of
advancing a case, though with entirely different legal aims and motivations, and implemented
within rigorous ethical and judicial guidelines.

205
remarkably attuned to others, quickly and intuitively catching on to what
somebody is thinking and feeling, and disarmingly anticipating others’
expectations. But all of that is, more accurately, a form of gas-lighting—
inauthentic, self-serving, and the antithesis of empathy. It is also typically limited
and selective. As keen and sharp as their responses may be in picking up details
and certain nuances in the needs and desires of others, particularly those they
target, they may also be staggeringly obtuse and emotionally tone-deaf in other
relationships.

Betrayal, Manipulation & Abuses of Trust

Betrayal, manipulation, and abuses of trust are standard tools of the fraudster’s
trade; he could not employ them masterfully without knowing them intimately. He
could only have been horribly scarred—a victim—in his own life.

That would likely be denied and even seemingly contradicted by his high
functionality and life as a powerful, successful, respected titan of business. Self-
deception in inventing an idealised creation myth—a fabricated narrative that
childhood was caring, loving, and stable, with parents who praised, encouraged,
and provided a strong moral compass—is common in pathogenic trauma.

But psychological evidence, inferred or extrapolated through behavioural

symptoms and shadow data—trace information dispositive of mental constructs
and predispositions—suggests a different story. The experience of severe betrayal
catalyses a host of natural reactions, cross-culturally. These include depressive
collapse, dissociative impassivity, chronic anxiety, and violent retaliatory outrage.
It is, among all else, laceratingly painful.

Emotional betrayal involves sudden unexpected withdrawals of affection, love, or

attention. Availability and interest are doled out intermittently, unpredictably, and
in constricted packets. In contingent, insecure attachments, children can become
cognitively and emotionally disorganized, and may adopt the artifice of pseudo-
empathy and social poise to cover their low self-esteem, insecurity, and
powerlessness. The persistent anticipation of instability and dread of
disempowerment impels a callous disregard for people and social norms and, in
threating situations, can unleash aggressive, disruptive behaviour or an icy
catatonic unemotionality.

Criminality

All criminal acts are intrinsically psychological events. As a separate matter from
legal, environmental, socio-cultural, and other considerations, criminality is

206
always a behavioural expression of the actor’s internal world destructively or
coercively inflicted on others.

But the underpinnings of prohibited, harmful behaviour are, like the elements of
fraud, intrinsically normative. Fantasies, urges, and floridly conceived campaigns
of brutality, violence, glorious vengeance, the easy acquisition of vast wealth,
power, and adoration, lurid and forbidden sexual bacchanals, assorted rampages
unencumbered by remorse or concern for consequence, are all commonplace.

Each of us can readily imagine illegal, socially impermissible, morally

reprehensible, inhumane, destructive, and viciously repugnant acts. Such mental
doings can have various purposes, for example to contend with emotional distress
or disturbance or imaginatively satisfy an unrealizable craving. But these are
typically transient and containable thoughts which rarely escalate into enactment
or committing an actual crime. The imaginary drama is a continuous obsessive
rehearsal, not a true factory of scenes and situations. Most of these thoughts and
attendant feelings are psychologically digested and dismissed without
transgressive action.

The line between criminal fantasy and actual commission is crossed when the
thoughts and feelings become so powerfully consuming that working them over
mentally is insufficient. The drive for release through action is an imperative that
eclipses all else. Abetted by delusional self-rationalisation and dismissal of
possible adverse consequences, enactment becomes unstoppable.

Thus, a signal attribute of many criminals is an inability to appropriately self-

regulate, manage or contain—reconsider or walk back—primitive urges in harmless
fantasies or other nondisruptive outlets, or, like the renegade entrepreneur,
harness and transpose adversity or other difficult personal experiences into
socially productive law-abiding ventures.

But until that line is crossed, the psychological substructures are ubiquitous human
phenomena.

Chief Executive & Master Strategist

The foregoing can be concisely distilled to two main points with important
relevance to asset recovery work:

(1) The psycho-historical elements giving rise to fraud are cross-culturally

intrinsic to the human condition, not in themselves evidence of severe
psychopathology;

207
 (2) A formative life experience organized around knowing the world as abusive
and untrustworthy, while creating a constellation of injurious
maladaptations, also gives rise to tactical occupational advantages.
Analogous to world-class athletes whose mental, muscular, and respiratory
systems are perfectly and naturally suited to their sport, fraudsters’ primary
instinctual reflexes are optimised and seamlessly calibrated for their
enterprise.

With rare exception, high-value cross-border fraud is operationally sophisticated.

It is the antithesis of the work of the petty criminal. Elite fraudsters are creative,
intellectually gifted, and voraciously ambitious. They are superior abstract
thinkers with quick intuitive abilities to grasp hidden relationships, often with
minimal or incomplete information, and frequently exhibit an unparalleled ability
to remain preternaturally poised even under extreme duress.

On this view, and putting ethics and law momentarily aside, some fraudsters are
CEOs of complex, effectively organised businesses and can be seen as masterful
corporate strategists and organisational leaders. But for the fact that its mission is
destructive, illegal, and in the service of malfeasance, their formal business may be
structured as any legitimate venture (indeed, ultimate beneficial ownership may
be concealed within a labyrinth of seemingly legitimate puppet or nominee
entities). In most instances, these organisations are staffed with a senior
management team of superior quality and capability.

These organisations, like many others, are also susceptible to myriad quotidian
challenges. There will be frustrated and disaffected employees; difficulties with
absenteeism, squabbling, and sub-par performance; grumbling lieutenants with
stymied aspirations and uncontrollable personal problems (including, not
uncommonly, various addictions and abusive relationships), communication
quagmires, cultural and inter-departmental friction, and operational and
personnel breakdowns of all stripes.

While the principal traits and competencies comprising so-called “great

leadership” are not definitionally fixed and remain debated (despite a vast
literature devoted to assertions to the contrary), the intense pressures and
challenges of the chief executive role are well established. Even the CEOs of the
world’s highest-performing and most profitable companies have blind spots and
invariably stumble.

But any similarities between corrupt and legitimate business leaders should not be
mistaken as an equivalence. Authoritarian leanings, malevolent creativity, and

208
indifference to competitive fair play are nontrivial differentiators. Others include
shameless rejection of integrity and honesty, an absence of conscience and pro-
social responsibility, and brazen disregard for compliance controls, regulatory
legalities, fiduciary legitimacy, and the rule of law.

While the fraudster’s playbook engenders certain advantages, voluminous

management research demonstrates irrefutable correlations between tyrannical
leadership, ethical indifference, and normed institutional corruption with high
rates of organisational turmoil and dysfunction.9 In addition, many large-scale
fraudulent enterprises are either literal or de facto family businesses in which
numerous family dynamics and dysfunctions distort best practices. The internal
cultures of these ventures can closely resemble organized crime syndicates, even if
not formally classifiable as such.

In sum, it is critical to understand that the visible persona of individuals who

commit high-value cross-border fraud—powerful, successful, shrewd business
titans, pillars of moral integrity and paragons of civic largess—is a fiction, its own
fraud. Their malevolent brilliance and super-functionality operate only within a
narrow spectrum. Beneath the cloaks and veils, they are psychologically damaged
and emotionally stunted. They live in a world defined by fear, impotence, betrayal,
retribution, threat, and punishment, bound by concerns of humiliation and
inferiority, and preoccupied with stratagems for defiance, domination, and
retaliation. They are ruthless power-abusers, wedded to vengefulness, devastating
others through subterfuge, contrivance and manipulation.

These perspectives are in the aggregate like a psychological X-Ray, providing

insight into an array of individual and organizational vulnerabilities that, once
amassed and properly understood, can be advantageously leveraged against the
protagonist and his confederates.

Victims: Psychological Characteristics & Propensities, and Role in the Fraud and
its Aftermath

“Every magic trick consists of three parts. The first is The Pledge. The
magician shows you something ordinary. The second is called The Turn.
The magician takes the ordinary something and makes it appear
extraordinary. Now you're looking for the secret ... but you don't really
want to know. You want to be fooled. But you wouldn't clap yet. Because

9
A startling 2015 Harvard Business School study (“Toxic Workers” by Michael Housman and Dylan
Minor, https://www.hbs.edu/faculty/Pages/item.aspx?num=50046) found that “toxic workers are
much more productive than the average worker” and that while “there is a potential trade-off when
employing an unethical person—they are corrupt—they excel in work performance.”

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 making something disappear isn't enough; you have to bring it back.
That's why every magic trick has a third act … the part we call The
Prestige.”
— Christopher Priest “The Prestige”10

Understanding fraud as a total event entails looking not only at why certain people
commit it but why some become victims. Of additional practical importance in
expanding the asset recovery toolkit is leveraging insight about the victim’s role in
the criminal proceedings and aftermath as material witness, first order data source,
and fiduciary stakeholder in the recovery operation.

Fraud differs from crimes of threat or force. Few people on the wrong end of a
weapon will defy a perpetrator’s demand to hand over their valuables. Victims of
fraud and other cons, by contrast, must play an active part in what happens. Fraud
exists in relationships and arrangements between people, and pivots on
complicitous confluences of power, needs, desires, and individual histories and
tendencies. Trust cannot be breached until it has been given or established.

As fraudsters have been narrowly categorised as sociopaths, so too have victims of

fraud been mischaracterised. They have as a class been considered greedy, witless,
or gullible patsies, susceptible to manipulation and deception. Allowing oneself to
be bamboozled was taken as prima facie evidence of naïveté.

Legal systems have been (and many still are) riven with this bias. Historically,
courts of law and of public opinion responded to victims of fraud as they have to
victims of sexual assault or domestic violence, apportioning culpability to the
victim for causing the crime or failing to avert it.

Consequently, fraud victims have suffered the additional indignities of social

stigma and obstruction to appropriate legal and financial remedy, injuries further
compounded by victims’ own shame, embarrassment, and self-castigation for
having been duped. But unwitting participation does not change that they are
victims in the truest sense: harmed or adversely affected by another’s wrongdoing.

As Material Witness and First Order Data Source—Marked by Psychological

Fingerprints

Misconceptions about victims have also influenced asset recovery professionals’

interactions with them, unintentionally contributing to overlooking or foreclosing
critical intelligence and primary evidentiary material.

10
“The Prestige” by Christopher Priest (1995), Tor Books

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However unique each incident is, every victim of fraud shares a common
experience: the dual trauma of betrayal and loss. Victims are also typically shocked,
humiliated, ashamed, weak, vulnerable, furious, and untrusting. They may be
despondent, disinterested, defeated, or resigned, as well as agitated or bellicose,
stressed, and distressed. Depression and suicidality are common.11 Fissures can
form in personal and professional relationships leading to divorce, partnership
dissolutions, and acrimony with friends and relatives.12 They may be bankrupt;
even if not, they will likely be financially anxious and risk averse.

This is not merely a complex evidentiary field. It is a roiling cauldron of

emotionality. The victim may be psychologically haemorrhaging even if he appears
intact. And notwithstanding a willingness to help—he is after all a primary
stakeholder in assisting the asset recovery professionals in bringing the fraudster
to book and, hopefully, being repatriated with some of his stolen assets—he may
be too overwhelmed, humiliated, guarded, and mistrustful to think clearly, speak
coherently, or productively engage in discovery interviews.

But victims are uniquely important sources of information. They are to be

considered akin to a crime scene. Grifters, hucksters, and sundry con artists
colloquially call victims “marks” (among other terms like sucker, rube, and stooge).
It is uncannily apt. Victims bear the mark of the perpetrator. Analogous to physical
evidence, fraudsters leave psychological fingerprints—impressions, emotional
traces, and other fragments of soft data. These can be culled from victims’ accounts
of their experience in interviews and from which potentially useful intelligence
about the malicious actor and the mechanics of the enterprise can be extrapolated.

But as noted, this information can be challenging to access through the static of
victims’ distress or could be overlooked in the fast-moving larger-scale project of
harvesting diverse evidentiary material. Expertise in victim interviewing and
specialised soft intelligence gathering—including compassion, patience, and
sensitivity—are important.

Roles & Functions in Relation to Fraudsters

11
For additional information on the topic of red collar crime—white-collar crime leading to physical
violence and/or death (whether homicide or suicide)—see Brody RG, Kiehl KA. “From White-Collar
Crime to Red-Collar Crime.” J. Financ Crime. 2010;17(3):351-364; Perri, Frank S. “Red Collar
Crime.” Intl J Psych Studies Archives 2016; 8(1):61-84; Perri, Frank S. “Fraud detection suicide: the
dark side of white-collar crime.” J. Financ Crime 2016 23(4) 786-797).

12
See The White-Collar Wives Project, Lisa Lawler, Founder, for information and resources around
the the catastrophic legal, economic, and emotional fallout to innocent spouses and families of
fraudsters and perpetrators of clandestine economic crimes:
https://www.thewhitecollarwivesproject.org/.

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While some individuals are more susceptible to being scammed than others, no one
is immune. Anyone can play into a fraudster’s ploy. There is no definitive victim
profile. That said, there is a recurrent fundamental in every fraudulent scenario:
desire.

Both victim and fraudster share the want of something—the fulfilment of a wish or
need. The fulcrum of economic crime is of course money or some other valuable
asset, though this is often merely an incidental vehicle used by both fraudster and
victim for the attainment of other aims—for instance, power, status, recognition,
admiration, love, validation, social elevation, retribution, or any of a host of other
para-economic interests.13 Like any talented entrepreneur, the fraudster identifies
a desirable commodity or service that he will, in essence, bring to market. Part of
the fraudster’s work is to make his offering appear concordant with victims’
interests.

An obvious factor distinguishing fraudulent from legitimate enterprises is that its

business model is intentional deception and harm. While aspects of that
grotesquely inequitable transaction are the fraudster’s responsibility, the victim
must be sufficiently motivated to overcome (or dispense with) due diligence best
practices, sound judgment, experience, good counsel, even intuition. Some may
abandon rationality and reason altogether. Denial and magical thinking,
mentioned above, allow victims to dismiss red flags and delusionally believe that
all will be well—he might be capable of stealing from others, the victim tells himself,
but he won’t steal from me.

People also tend to follow group or mob mentality. Ponzi artists, for example, enlist
victims as unwitting sales associates; in bragging or touting their investment
success, each successive group of marks grease the machinery that will entice new
recruits to voluntarily participate.

Recall the pseudo-attunement to others discussed above. Successful fraudsters

keenly pinpoint and then exploit people’s propensities and vulnerabilities,
enticing or duping them to yield to the con of their own accord.

But despite their apparent impunity, fraudsters are, ironically, always in a

relationship of dependency to others. Unlike criminals who use weaponry or force,

13
There is abundant criminal case law grounded in McNally v. United States, 1987, wherein the U.S.
Supreme Court held that in order to constitute fraud, the object of a scheme must be to deprive a
victim of money or property. U.S. criminal law insists on a clear legal distinction between fraud and
mere deceit or deceptive conduct, and repeatedly concludes that not all deception is fraud. The
discussion here focuses on active psychological elements which operate indifferently to the narrow
parameters of legal and judicial determinations.

212
or stealth and tactical brilliance, the fraudster’s success is contingent on victim
participation.

No matter any scheme’s payday, flipping the polarities of power in a relationship,

abusing and betraying trust, inflicting psychological pain are fraudsters’ actual
drivers. That goal can only be attained with the help of another.

This, ultimately, is his Achilles Heel.

Judiciary and Legislature

“Not everything that is legal is right.”

— Judge Theodor Seidel14

Since the 15th century, the main iconography of justice has been Justicia, a
blindfolded woman carrying a double-edged sword symbolising reason (or truth)
and fairness, in one hand, while balancing the scales of a case’s competing claims,
in the other. The notion that “justice is blind” is meant to convey a court’s
impartiality and objectivity.

Judiciary officers, sovereign legislative bodies, regulators, government officials,

and other law makers comprise an important constituency in the ecosystem of a
fraud case. Their decisions and interventions can facilitate or hinder investigations
and recovery initiatives and influence legal strategy and case management
decisions. They can also serve as de facto enablers to fraudsters, money launderers,
and other corrupt actors. Jurisdictions that offer products, services, and laws such
as bank secrecy, impenetrable asset protection vehicles, and short statutes of
limitations in which to file claims, among other mechanisms will appeal to or even
facilitate wrongdoing.

Certain jurisdictions are hotbeds of corruption and under-the-table deal-making.

In certain locales, jurisprudence, politics, economics, and social or religious
ideology openly comingle. Judicial and legislative decisions and policies are the
products of individuals’ ideologies, philosophies, and personal predilections, not
just case law and precedent. Some jurists and policy architects are unabashed
activists, will exceed their authority, or are allergic to impartiality. Their decision-
making might favour political agendas, socially promulgated morals, or cultural
and religious values. Or, such may hold greater allegiance to placating special

14
From Judge Theodor Seidel’s sentencing pronouncement in the February 1992 case against East
German soldier Ingo Heinrich, on trial for shooting and killing Chris Gueffroy in 1989 as he tried to
climb the Berlin Wall.

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interest groups and influential business leaders than advancing socially just
regulatory policy. Jurists no less than fraud victims are susceptible to corruption.

Experienced cross-border asset recovery professionals accept the potential for

these issues to influence case disposition, often as unavoidable forces beyond
control. While certain factors may indeed be untouchable, important benefits
derive from closely examining and developing sophisticated proactive responses
and workarounds to this dimension of a case.

Asset Recovery Team

“Only a few know how much one must know to know how little one knows”
— Werner Heisenberg15

Asset tracing and recovery in high-value cross-border cases requires the

coordinated collaboration of professionals across a range of disciplines.
Collectively, this consortium is the asset recovery team (‘ART’).

There is a vast literature on optimising team performance and effective project

management. A deep review of those and other affiliated research in application to
asset recovery work is beyond the scope of this article. Instead, this section
presents a concise overview of psychodynamic concepts and tools specifically
relevant to asset recovery and fraud litigation16.

ARTs engage with both allies and antagonists across the case ecosystem and, as
already noted, contend with circumstances and issues involving individual and
social psychology, organizational dynamics, and family systems. Attempting to
assess or act on such matters without domain-relevant expertise, armed only with
de minimus lay understandings, is an avoidable handicap that places offenders in a
significant advantage over the professionals attempting to defeat them. By
analogy, forensic criminology was transformed by the introduction of microscopy,
DNA analysis, and other technologies that empowered the collection and analysis
of previously invisible physical evidence. Similarly, there is a wealth of
psychodynamic data beyond hard facts and evidence which can measurably
advance a case.

Actionable Tools & Applications of Psychodynamic Intelligence Analysis

15
Werner Heisenberg, theoretical physicist (1901-1976)

16
See also, “Multi-Jurisdictional Concealed Asset Recovery: Managing the Risks” by Martin S. Kenney,
Alex D. Moglia, and Alexander Stein, Journal of International Banking Law and Regulation, Vol 1,
2015; “Leadership and Management of People In Asset Recovery” by Martin S. Kenney, Alexander

214
 “Never interfere with the enemy while he is in the process of destroying himself.”
— Napoleon Bonaparte17

Fraud weaponises human psychology. Psychology can be used as a

countermeasure.

As certain martial arts redirect an attacker’s strength against him by leveraging

physics and tactical savvy, the force of psychodynamic intelligence analysis
enables insights regarding the fraudster’s psychological vulnerabilities and other
psycho-social dimensions of the malicious enterprise to be turned against him.

In conventional management consulting, assessments of organisational and

leadership challenges are a point of entry to implement a go-ahead action plan for
enhanced functionality, sustainability, and profitability. By contrast, stress points
and dysfunctions identified in the fraudster’s organisation through investigation
and other intelligence gathering, can be pried apart and exploited to advance the
pursuit of justice.

The array of deployment areas and methods for leveraging psychological expertise
include:

• Developing dynamic predictive behavioural models of primary and ancillary

actors and their networks of affiliates, collaborators, and organizations.

• Creating actionable pinpoint profiles and analyses of the opposition’s

personal life and professional operations, including executive team, front-
line personnel, and organisational strengths and vulnerabilities.

• Providing psychologically sophisticated counter-offensive tactical planning.

• Boosting human systems intelligence gathering and strengthening both

victim and other involved stakeholder interviewing to enhance the
interpretation and application value of information obtained.

• Providing precision forecasts and expert counsel regarding the entire human
ecosystem of the case in preparation for settlement negotiations, pre-trial

Stein, Alex D. Moglia, and D.C. Page, unpublished whitepaper presented at The C5 30th Fraud, Asset
Tracing & Recovery Forum, Miami, Florida, October 2015; and “Cross-Disciplinary Collaboration in
Fraud and Asset Recovery” by Martin S. Kenney and Alexander Stein, unpublished whitepaper
presented at The ACFE 25th Annual Global Fraud Conference, San Antonio, Texas, June 2014.

17
Authorship indeterminate but usually attributed to Napoleon Bonaparte, French military
commander and political leader, 1769-1821.

215
 meetings, arbitration hearings, settlement discussions, and court
proceedings.

Conclusion

"Every human being’s life in this world is inevitably mixed with every other life
and, no matter what laws we pass, no matter what precautions we take, unless the
people we meet are kindly and decent and human and liberty-loving, then there is
no liberty. Freedom comes from human beings, rather than from laws and
institutions."
— Clarence Darrow18

Criminal fraud is a perversion of natural, universal human psychological systems,

and a radical deformation of societally productive entrepreneurship. The building
blocks and predispositions both to commit fraud and become victim of it are
endemic to the human condition, and many aspects of the world’s economic and
social systems enable, abet, or are indifferent to the corruption and abuses of power
that engender large-scale fraud.

Even if fraud cannot be wholly eliminated, more effective detection, deterrence,

prevention, and recovery mechanisms can and must be brought to bear. Providing
more robust and sophisticated tools and resource to the professionals dedicated to
bringing fraudsters and kleptocrats to justice and recovering and repatriating value
wrongfully taken from victims must be a priority. Crucial to that, as has been
argued here, is clarifying the wide-ranging simplifications and misunderstandings
of the psychological dynamics and psycho-social elements at play across the
spectrum of involved parties as well as elevating the utilisation of specialist
expertise in the human dimensions of fraud in asset recovery case work.

18
From Darrow’s closing argument in People v Henry Sweet, 1926

216
 ICC FraudNet
Global Annual Report 2023

The Boundaries of
Arbitration
Exclusion in the
EAPO Regulation

DR CARLOS SANTALÓ GORIS

iccfraudnet.org
RESEARCH INSIGHT CARLOS SANTALÓ GORIS

The Boundaries of Arbitration

Exclusion in the EAPO Regulation

CARLOS SANTALÓ GORIS

Abstract

The European Account Preservation Order consists of an interim measure at the

EU level. It allows the temporary attachment of debtors' funds in cross-border civil
and commercial claims. The EAPO Regulation states that it does not apply to
'arbitration'. The meaning of 'arbitration' is not a settled question among scholars
and national courts. In this article, Dr Carlos Santaló Goris explores the
underpinning debate surrounding the arbitration exclusion, focusing on the
interpretation some national courts have made of it.

A. Courts interim measures in arbitration proceedings

1. National procedural systems generally permit courts to grant interim measures

in support of civil claims brought before arbitral courts. The fact that the parties
decide to bring a civil claim before an arbitral court does not necessarily exclude
them from measures granted by ordinary courts. For instance, the German Code of
Civil Procedure (Zivilprozessordnung) states that ‘an arbitration agreement does not
preclude a court from ordering, at the request of a party, an interim or conservatory
measure with respect to the subject matter of the arbitration before or after the
commencement of the arbitration’.1 A similar provision can be found in the Spanish

1
Section 1033 German Code of Civil Procedure (Zivilprozessordnung)

218
Code of Civil Procedure (Ley de Enjuiciamento Civil).2 The 2010 Irish Arbitration Act,
referring to the UNCITRAL Model Law on International Commercial Arbitration,3
acknowledges that it ‘is not incompatible with an arbitration agreement for a party
to request, before or during arbitral proceedings, from a court an interim measure
of protection and for a court to grant such measure’.4

2. Regulation No 655/2014 introduced the European Account Preservation Order

(‘EAPO’), which is the very first cross-border civil interim measure at the European
Union level.5 It applies in all EU Member States but Denmark.6 It permits courts of
the EU Member States where the EAPO Regulation applies to order the provisional
attachment of the funds in the bank accounts located in other Member States.7 The
EAPO can be used only in civil and commercial claims with a cross-border
dimension.8 Creditors can apply for the EAPO ante demandam, during the
proceeding on the merits or once they have already obtained an enforceable
judgment, authentic instrument or court settlement.9 Moreover, creditors who
have a title, enforceable or not, by the time they submit an EAPO application can
also request the investigation of the debtors’ bank accounts.10 One of the EAPO’s
most attractive features is that is always granted ex parte,11 so debtors are only
informed about the attachment of their bank accounts once it has already
happened.

3. Can the EAPO be included among those interim measures that courts can grant
to secure a claim before an arbitral tribunal? In this regard, it should be noted that
the EAPO Regulation states that ‘arbitration’ is an excluded subject matter.12
Depending on how arbitration exclusion is interpreted, one could argue that an
EAPO may or not be granted to secure a claim brought before an arbitral court. This

2
This possibility also features in Art. 722(1) Spanish Code of Civil Procedure (Ley de Enjuiciamiento
Civil). The Spanish Arbitration Act reiterates this possibility: Art. 11(3) Act 60/2003 of Arbitration (Ley
60/2003 de Arbitraje).
3
Article 9 UNCITRAL Model Law on International Commercial Arbitration 1985 (With amendments
as adopted in 2006)
4
Article 10 Irish Arbitration Act.
5
Regulation (EU) No 655/2014 of the European Parliament and of the Council of 15 May 2014
establishing a European Account Preservation Order procedure to facilitate cross-border debt
recovery in civil and commercial matters, OJ L 189, 27.6.2014, p. 59–92 (‘EAPO Regulation’).
6
Recital 51 EAPO Regulation.
7
For a more exhaustive overview of the EAPO Regulation, see the previous edition of the FraudNet
Global Annual Report: Carlos Santaló Goris, ‘Searching for the Debtors’ Bank Accounts across the
European Union: the EAPO Regulation Information Mechanism’ FraudNet Global Annual Report
(2022), 231.
8
Art. 2 EAPO Regulation. The EAPO Regulation defines a cross-border claim as one where the
creditors’ domicile or the court that grants the EAPO is in a different Member State than the bank
account to be attached is located: Art. 3 EAPO Regulation.
9
Art. 5 EAPO Regulation.
10
Art. 14(1) EAPO Regulation.
11
Art. 11 EAPO Regulation.
12
Art. 2(1) EAPO Regulation.

219
article explores the different interpretations of the arbitration exclusion, relying
on the contributions scholars have made to the topic and the approaches followed
by some national courts.

B. The boundaries of the arbitration exclusion

4. Among scholars, there are different interpretations of what the ‘exclusion of

arbitration’ means.13 Nonetheless, the most prevalent view is that the moment
there is an arbitration clause that compels the parties to bring their claim before
an arbitral court, they can no longer apply for an EAPO.14 This broad interpretation
was seemingly embraced by the European Commission, which in the Proposal of
the EAPO Regulation it stated that ‘even though there might be a case for allowing
parties to an arbitration to have recourse to the European procedure, the inclusion
of arbitration would entail complex questions which have not yet been addressed
by EU law, e.g. under which circumstances arbitral awards can be put on an equal
footing with judgments and it did not seem appropriate to address them for the
first time in this instrument’.15
6. There are some authors who have a more restrictive view of the arbitration
exclusion. For Hilbig-Lugani, it is possible to obtain an EAPO before initiation of
the arbitration proceedings, even when there is an arbitration clause compelling
parties to bring their claim before an arbitral court.16 The arbitration exclusion
would only operate once the arbitration proceeding begins. For Schumacher, once
the arbitration proceeding has come to an end and there is an arbitral award, the

13
For an extensive overview on the different interpretations that scholars have made of the EAPO’s
arbitration exclusion, see: Denise Wiedemann, ‘The European Account Preservation Order’ in Jan von
Hein and Thalia Kruger (eds.), Informed Choices in Cross-Border Enforcement. The European State of the
Art and Future Perspectives (Intersentia 2021) 109 – 114.
14
Burkhard Hess, ‘Art. 2 EuKoPfVO’ in Peter Schlosser and Burkhard Hess (eds.), EU-Zivilprozessrecht
(5th edition C.H. Beck 2021), margin no. 3; Pilar Jiménez Blanco, ‘La Orden Europea de Retención de
Cuentas: Avances y limitaciones’ Anuario español de Derecho internacional privado (2014/2015) 245
– 245; Martin Klöpfer, ‘Art. 2 Verordnung (EU) Nr 655/2014’ in Reinhold Geimer and Rolf A Schütze
(eds.), Internationaler Rechtsverkehr in Zivil- und Handelssachen (CH Beck 2016), margin no. 7; Franz
Mohr, Die vorläufige Kontenpfändung. EuKoPfVO (LexisNexis 2014), margin no. 34; Miguel Teixeira de
Sousa, ‘O Reg. 655/2014 sobre o Procedimento de decisão europeia de arresto de Contas: uma
apresentação geral’ Revista da Ordem dos Advogados (2019) 194 – 195; Martin Trenker, ‘Vorläufige
Kontenpfändung: Überblick und ausgewählte Fragen’ in Bernhard König and Peter G. Mayr (eds.),
Europäisches Zivilverfahrensrecht in Österreich IV (Manz 2015) 129; Marcin Walasik, ‘Article 2’ in Elena
D’Alessandro and Fernando Gascón Inchausti (eds.), The European Account Preservation Order. A
Commentary on Regulation (EU) No 655/2014 (Edward Elgar 2022), paras. 2.26-2.30; Nora Wallner-
Friedl, ‘Artikle 2 EuKoPfVO’ in Andreas Geroldinger and Nora Wallner-Friedl (eds.), IZVR
Praxiskommentar Internationales Zivilverfahrensrecht (LexisNexis 2021), margin no. 13; Denise
Wiedemann, ‘Artikel 2 EU-KpfVO’ in Thomas Rauscher (ed.), Europäisches Zivilprozess- und
Kollisionsrecht (5th edition Otto Schmidt 2022), paras. 12 - 18.
15
COM/2011/0445 final, 5.
16
Katharina Hilbig-Lugani, ‘Art. 2 EuKoPfVO’ in Thomas Rauscher and Wolfgang Krüger (eds.),
Münchener Kommentar zur Zivilprozessordnung. Band 3 (6th edition C.H. Beck 2022), margin no. 9.

220
arbitration exclusion would no longer operate.17 Creditors could apply for an EAPO
to guarantee the enforcement of an arbitral award.

C. The CJEU approach towards the exclusion of arbitration in the Brussels

system: is this of any relevance for the EAPO Regulation?

7. The EAPO Regulation is not the only EU civil procedural instrument for which
arbitration is excluded. The European Enforcement Order, the European Small
Claims Regulation and the Brussels I bis Regulation all contain a similar reference
excluding arbitration.18 Under the two predecessors of the Brussels I bis Regulation,
the 1968 Brussels Convention and the 2001 Brussels I Regulation,19 the CJEU has
rendered several key judgments interpreting the arbitration exclusion.20 Part of
this case-law was codified to the Preamble of the Brussels I bis Regulation.21

8. Among of the judgments rendered by the CJEU on the arbitration exclusion, C-

391/95, Van Uden is the most relevant for the EAPO Regulation.22 In this case, the
CJEU was asked to determine whether, given the arbitration exclusion, is possible
to use the jurisdictional rules of the 1968 Brussels Convention to obtain an interim
measure.23 In this judgment, the CJEU affirmed that what was relevant to decide
‘whether the 1968 Brussels Convention could apply to a procedure on interim
measures was the ‘nature of the rights which they serve to protect’.24 Therefore, as
long as the claim does not concern the arbitration procedure as a subject manner,
claimants could still rely on the 1968 Brussels Convention.25 For instance, claims

17
Hubertus Schumacher, ‘Art. 2 EuKoPfVO’ in Hubertus Schumacher, Barbara Köllensperger and
Martin Trenker (eds.), Kommentar zur EU-Kontenpfändungsverordnung EuKoPfVO (MANZ 2017),
margin no. 65.
18
Art. 2(2)(d) Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April
2004 creating a European Enforcement Order for uncontested claims OJ L 143, 30.4.2004, p. 15–39;
Art. 2(2)(e) Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July
2007 establishing a European Small Claims Procedure, OJ L 199, 31.7.2007, p. 1–22; Art. 1(2)(d)
Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012
on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
(recast), OJ L 351, 20.12.2012, p. 1–32 (Brussels I bis Regulation).
19
1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial
matters, OJ L 299, 31.12.1972, p. 32–42 (1968 Brussels Convention); Council Regulation (EC) No
44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in
civil and commercial matters OJ L 12, 16.1.2001, p. 1–23 (Brussels I Regulation).
20
C-190/89, 25 July 1991, Marc Rich, ECLI:EU:C:1991:319; C-185/07, 10 February 2009, West Tankers,
ECLI:EU:C:2009:69; C‑536/13, 13 May 2015, Gazprom, ECLI:EU:C:2015:316; C‑700/20, 20 June 2022,
London Steam-Ship Owners’ Mutual Insurance Association, ECLI:EU:C:2022:488.
21
Recital Brussels I bis Regulation.
22
C-391/95, 17 November 1998, Van Uden, ECLI:EU:C:1998:543.
23
C-391/95, 17 November 1998, Van Uden, ECLI:EU:C:1998:543, para 18.
24
C-391/95, 17 November 1998, Van Uden, ECLI:EU:C:1998:543, para 33. Something that the CJEU
had already determined in previous judgments: C-143/78, 27 March 1979, De Cavel (I),
ECLI:EU:C:1979:83, paras. 7 – 9; C-120/79, 6 March 1980, De Cavel (II), ECLI:EU:C:1980:70, para. 9;
C-25/81, 31 March 1982, C.H.W., ECLI:EU:C:1982:116, paras. 6 – 8.
25
Fernando Gascón Inchausti, ‘Artículo 35’ in José Pedro Pérez-Llorca, Pilar Blanco-Morales Limones,
Federico Francisco Garau Sobrino, María Luz Lorenzo Guillén, Félix J. Monteiro Muriel (eds.),
Comentario al Reglamento (UE) nº 1215/2012 relativo a la competencia judicial, el reconocimiento y la

221
by arbitrators for the payment of their fees would be excluded.26 At the same time,
the CJEU state that ‘where the parties have validly excluded the jurisdiction of the
courts in a dispute arising under a contract and have referred that dispute to
arbitration, there are no courts of any State that have jurisdiction as to the
substance of the case for the purposes of the Convention’.27 However, courts could
still rely on Art. 24 (now Art. 35 of the Brussels I bis Regulation) which stated that
other courts than those with jurisdiction to decide on the merits of the claim can
render interim measures.28 It should be noted that, unless the CJEU decides the
opposite, Van Uden remains applicable to the Brussels I bis Regulation unless the
CJEU decides to the contrary.29

9. Can the Van Uden solution be transposed to the EAPO Regulation? When an
EAPO is requested before the creditor has obtained an enforceable title, and the
debtor is not a consumer, the jurisdiction to issue the EAPO ‘shall lie with the
courts of the Member State which have jurisdiction to rule on the substance of the
matter in accordance with the relevant rules of jurisdiction applicable’.30 These
relevant rules on jurisdiction include the Brussels I bis Regulation.31 However, only
the rules on jurisdiction of the Brussels I bis Regulation that permit ‘to rule on the
substance of the matter’ can be used. Since there is an arbitration agreement, there
would be no courts with jurisdiction to decide on the merits.32 Art. 35 of the
Brussels I bis Regulation would also be excluded since it only serves to grant
‘provisional, including protective measures’ but not to decide on the merits.33

ejecución de resoluciones judiciales en materia civil y mercantil. Reglamento Bruselas I (Aranzadi Thomson
Reuters 2016), 713.
26
Gilles Cuniberti and Sara Migliorini, The European Account Preservation Order Regulation: A
Commentary (Cambridge 2018), 27.
27
C-391/95, 17 November 1998, Van Uden, ECLI:EU:C:1998:543, para. 24.
28
C-391/95, 17 November 1998, Van Uden, ECLI:EU:C:1998:543, para. 29.
29
In C‑186/19, Supreme Site Services, the CJEU stated that the case law on Art. 24 of the 1968 Brussels
Convention ‘can be transposed to the interpretation of the equivalent provisions in Article 35 of
Regulation No 1215/2012 (Brussels I bis Regulation)’: C‑186/19, 3 September 2020, Supreme Site
Services, ECLI:EU:C:2020:638, para. 50. In TOTO, the CJEU referred to C-391/95, Van Uden when
interpreting Art. 35 of the Brussels I bis Regulation: C‑581/20, 6 October 2021, TOTO,
ECLI:EU:C:2021:808, para. 52.
30
Art. 6(1) EAPO Regulation.
31
Pietro Franzina, ‘Article 6’ in Elena D’Alessandro and Fernando Gascón Inchausti (eds.), The
European Account Preservation Order. A Commentary on Regulation (EU) No 655/2014 (Edward Elgar
2022), paras. 6.07 – 6.08.
32
In this regard, Leandro remarks that ‘a distinction may be proposed between a “court” having
jurisdiction on the merits (and, accordingly, for granting the EAPO) and a “court” which would have
had jurisdiction on the merits, absent a valid arbitration agreement, which may nonetheless grant an
EAPO’: Antonio Leandro, ‘Arbitration and European Account Preservation Order’ Kluwer Arbitration
Blog (2016), available at: <http://arbitrationblog.kluwerarbitration.com/2016/04/04/arbitration-
european-account-preservation-order/> accessed on 15 January 2023.
33
Katharina Hilbig-Lugani, ‘Art. 6 EuKoPfVO’ in Thomas Rauscher and Wolfgang Krüger (eds.),
Münchener Kommentar zur Zivilprozessordnung. Band 3 (6th edition C.H. Beck 2022), margin no. 7;
Denise Wiedemann, ‘Artikel 6 EU-KpfVO’ in Thomas Rauscher (ed.), Europäisches Zivilprozess- und
Kollisionsrecht (5th edition Otto Schmidt 2022), margin no. 5.

222
Therefore, the Van Uden solution would not fit in the jurisdictional regime of the
EAPO Regulation.34

D. National courts’ approach towards the arbitration exclusion: from Lithuania

to Luxembourg passing by Poland

10. The extension of the arbitration exclusion is no longer a merely theoretical

question. Domestic case law on the EAPO Regulation shows that courts in at least
three different Member State have already dealt with this issue. One of these courts
was the Lithuanian Court of Appeals (Lietuvos apeliacinis teismas). It was asked to
clarify whether District Court of Vilnius (Vilniaus apygardos teismo) could grant an
EAPO in a case pending before the Vilnius Commercial Arbitration Court (Vilniaus
komercinio arbitražo teisme).35 First, the Lithuanian Court of Appeals (Lietuvos
apeliacinis teismas) found that the above-mentioned judgment C-391/95, Van Uden,
did not apply to the EAPO Regulation.36 Therefore, it determined that under the
Brussels I bis Regulation Lithuanian courts did not have jurisdiction to grant an
EAPO in a claim pending before an arbitral court.

11. Since the Brussels I bis Regulation was not applicable, the Lithuanian Court of
Appeals (Lietuvos apeliacinis teismas) explored whether it would be possible to grant
the EAPO relying on the domestic rules on jurisdiction.37 It needs to be recalled
that the jurisdiction to grant an EAPO ‘lie with the courts of the Member State
which have jurisdiction to rule on the substance of the matter in accordance with
the relevant rules of jurisdiction applicable’.38 Those ‘relevant rules of jurisdiction’
include not only the Brussels I bis Regulation but also domestic rules on
jurisdiction.39 In this case, the Lithuanian Court of Appeals (Lietuvos apeliacinis
teismas) wondered if Article 27(2) of the Lithuanian Act on Commercial Arbitration
could provide the jurisdiction to grant an EAPO. This provision states that ‘a party
shall be entitled to request Vilnius Regional Court to take interim measures or
require to preserve evidence before the commencement of arbitral proceedings or
the constitution of an arbitral tribunal’. Nonetheless, the Lithuanian legislation
implementing the EAPO Regulation states that the court with jurisdiction to decide

34
Burkhard Hess, ‘Art. 2 EuKoPfVO’ in Peter Schlosser and Burkhard Hess (eds.), EU-Zivilprozessrecht
(5th edition C.H. Beck 2021), margin no. 3.
35
Lietuvos apeliacinis teismas, 28.11.2017, byla e2-1387-178/2017, para 21.
36
Lietuvos apeliacinis teismas, 28.11.2017, byla e2-1387-178/2017, para 21.
37
Lietuvos apeliacinis teismas, 28.11.2017, byla e2-1387-178/2017, para 23.
38
Art. 6(1) EAPO Regulation.
39
For instance, in Slovakia, the District Court Žilina (Okresný súd Žilina) of determined that Slovakian
courts had jurisdiction to grant an EAPO against the bank accounts of a debtor domiciled in the USA
based on the Slovakian domestic rules on jurisdiction, more precisely on the 1963 Czechoslovakian
Act on International Private and Procedural Law (Zákon o medzinárodnom práve súkromnom a
procesnom): Okresný súd Žilina, 13.08.2020, 50Cb/38/2020, ECLI:SK:OSZA:2020:5120208691.1.

223
on the merits is the only competent to grant the EAPO.40 Therefore, Lithuanian
Court of Appeals (Lietuvos apeliacinis teismas) concluded if the claim is brought
before an arbitral court, under Lithuanian law, there would not be a competent
court to grant the EAPO.41

12. In Poland, the Court of Appeal in Rzeszów (Sąd Apelacyjny w Rzeszowie) also
found that the domestic rules of jurisdiction could serve to grant an EAPO in
support of claim brought before an arbitral tribunal.42 More precisely, this court
referred to Art. 1166 of the Polish Code of Civil Procedure, which states that
‘subjecting the dispute to the arbitration court does not exclude the ability of the
court to secure the claims which are brought before the arbitration court’.

13. Using the domestic rules on jurisdiction can be a solution to circumvent the
limitations of the Brussels I bis Regulation. Nonetheless, there is an aspect of the
EAPO Regulation that Lithuanian and Polish courts should have considered that
would prevent granting an EAPO when a claim is brought before an arbitral court.
The EAPO Regulation requires that the procedure on the substance of the matter
has to be conducted before a court.43 This leads to the question: does an arbitral
court fit in the category of a court that decides on the merits of the claim? In this
regard, the CJEU has stated that, in principle, arbitral courts do not enter in the
category of courts that can make a preliminary reference under Article 267 of the
Treaty on the Functioning of the European Union.44 Relying on this definition, an
arbitral court cannot be a court that decides on the merits of the claim in an EAPO
procedure.45 Against this argument one could wonder whether the definition of a
court that decides on the merits needs to match the definition of court that can
make a preliminary reference.46 This is an open question that only the CJEU can

40
Art 30(18) Law of the Republic of Lithuania on the Implementation of European Union and
International Legal Acts Regulating Civil Procedure (Lietuvos Respublikos civilinį procesą
reglamentuojančių Europos Sąjungos irtarptautinės teisės aktų įgyvendinimo įstatymas)
41
Lietuvos apeliacinis teismas, 28.11.2017, byla e2-1387-178/2017, para 23.
42
On this case see: Grzegorz Pobożniak and Paweł Sikora, ‘The Admissibility of a European Account
Preservation Order in the Event of an Arbitration Clause’ Czech (& Central European) Yearbook of
Arbitration (2018) 226 – 227.
43
Art. 10(3) EAPO Regulation.
44
C-284/16, 6 March 2018, Achmea ECLI:EU:C:2018:158, 54 – 56. Only an arbitral court which ‘had
been established by law, its decisions were binding on the parties and its jurisdiction did not depend
on their agreement’ could make a preliminary reference: C-377/13, 12 June 2014, Ascendi Beiras Litoral
e Alta, Auto Estradas das Beiras Litoral e Alta, ECLI:EU:C:2014:1754, para. 28.
45
Wiedemann (n 13), 111.
46
In this regard it should be noted that in the CJEU case C-551/15, Pula Parking, Advocate General
Bobek relied on the notion of ‘court’ entitled to make a preliminary reference under Art. 267 of the
TFEU to examine the notion of ‘court’ in the Brussels I bis Regulation. On the one hand, he considered
‘it inappropriate to import wholesale definitions that have been developed in different contexts of
other instruments of secondary law’ (para. 98). Nonetheless, the criteria to determine that a court
can make a preliminary reference under Art. 267 of the TFEU can be a term of reference to establish
the notion of court under the Brussels I bis Regulation: Opinion AG Bokek in C‑551/15, Pula Parking,
ECLI:EU:C:2016:825, paras. 82 – 107.

224
answer. In the meantime, as a matter of caution, a coherent interpretation of both
notions would be preferable.47 It would be up to the CJEU to decide differently (if it
ever has that chance).

14. Luxembourg was the third Member State where a court dealt with an arbitration
exclusion. In this case, the creditor already had an arbitral award and requested an
EAPO before the District Court of Luxembourg (Tribunal d’arrondissement de
Luxembourg) to secure its enforcement.48 The court granted the EAPO.
Subsequently, the debtor requested before the same court the revocation of the
EAPO under Article 33 of the EAPO Regulation.49 The debtor argued, among other
reasons, that the claim fell within the arbitration exclusion. The court did not
examine whether the claim did or did not fall within that arbitration exclusion.50
In the court’s view, since the EAPO had not attached any funds, the debtor did not
have an interest (interet d’agir) to obtain the revocation of the EAPO. In other
words, the debtor lacked the locus standi required by Luxembourgish law.51

15. The critical point of this case is the reason why the District Court of
Luxembourg (Tribunal d’arrondissement de Luxembourg) issued an EAPO to secure
the enforcement of an arbitral award. The EAPO Regulation only acknowledges
three kinds of titles that can be used to apply for an EAPO: judgments, court
settlements, and authentic instruments.52 The EAPO Regulation defines
‘judgment’ as ‘any judgment given by a court of a Member State’.53 This means that
an arbitral award cannot be a judgment unless an arbitral court is considered to be
‘a court of a Member State’. An arbitral award is neither an authentic instrument
nor a court settlement. Therefore, if an arbitral award does not fit within any of the
three categories of titles, why did the District Court of Luxembourg grant the
EAPO? Luxembourgish law requires arbitral awards to be declared enforceable by a
court before seeking their enforcement.54 Perhaps the District Court of
Luxembourg (Tribunal d’arrondissement de Luxembourg) considered that the
judgment declaring an arbitral award enforceable to be a ‘judgment’ that can be
used to apply for an EAPO.55 The influence of domestic practice on the enforcement
arbitral awards might offer another explanation. Luxembourgish courts often grant

47
Wiedemann (n 13), 111.
48
Tribunal d'arrondissement de Luxembourg, Ordonnance du 24 septembre 2021 (unpublished).
49
Art. 33 EAPO Regulation.
50
Creditors can only request the revocation of the EAPO under a limited number of grounds. One of
those grounds is that ‘the conditions or requirements set out in this Regulation were not met’, which
includes that the claim the EAPO seeks to guarantee falls under the arbitration exclusion: Art.
33(1)(a) EAPO Regulation.
51
Cour de cassation, arrêt n° 2594 du 12 février 2009, N° JUDOC: 99865114.
52
Art. 5(b) EAPO Regulation.
53
Art. 4(8) EAPO Regulation.
54
Art. 1241 Luxembourgish Code of Civil Procedure (Nouveau Code de Procedure Civil).
55
Cuniberti and Migliorini consider that the judgments declaring the enforceability of arbitral awards
can be used to apply for the EAPO: Cuniberti and Migliorini (n 26), 31.

225
national attachment orders (saisie-arrêts) to secure the enforcement of arbitral
awards. The District Court of Luxembourg (Tribunal d’arrondissement de
Luxembourg) might have addressed the EAPO application as it would have done
with a national provisional attachment order requested to secure the enforcement
of an arbitral award. Regardless of the reasons that led the District Court of
Luxembourg (Tribunal d’arrondissement de Luxembourg) to grant the EAPO based on
an arbitral award, it is difficult to reconcile such a solution with the text of the
EAPO Regulation.

16. Overall, case law shows that national courts seem keener towards a more
limited interpretation of the arbitration exclusion than most scholars.

E. Concluding thoughts: A need to shed light on the EAPO arbitration

exclusion

17. The existence of different interpretations concerning the arbitration exclusion

among courts and scholars reveals that this is not a settled question and needs to
be clarified. One could hope that a national court decides to submit a preliminary
reference to the CJEU about this. That would allow the CJEU to address the
arbitration exclusion as it was able to do with the Brussels I bis Regulation.
However, considering the scarce use of the EAPO that statistics show,56 the
probability of a national court referring a question on the EAPO Regulation’s
arbitration exclusion is slim. Another option is that in the case of a reform of the
EAPO Regulation, the EU legislator decides to include a specific provision in the
Preamble explaining the boundaries of the arbitration exclusion, as was done in
the Brussels I bis Regulation. Until one of these possibilities occurs, the
controversy surrounding the arbitration exclusion will continue.

56
Marco Buzzoni and Carlos Santaló Goris, Report on practices in comparative and cross-border
perspective (2022), 64 – 65, available at: <https://efforts.unimi.it/research-outputs/reports/report-on-
practices-in-comparative-and-cross-border-perspective/> accessed on 15 January 2022.

226
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