Tracing And Freezing Assets In Aid Of Litigation

Author:Ms Isabel von Fliedner
Profession:Isabel von Fliedner, Avocate
 
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  1. Foreword

    This article presents three examples of how criminal proceedings

    and international assistance in criminal proceedings offered a

    possibility to attach assets which could then be claimed in civil

    proceedings.

    The present document is aimed at showing some possibilities open

    to the practitioner in civil and commercial law suits who has met

    with difficulties to trace assets in the past.

  2. United States of America vs. Albert

    Hakim

    Within the framework of the Irangate affair, the Office

    of International Affairs of the U.S.Government addressed a request

    for international criminal assistance to the Swiss Central Office

    for judicial assistance in criminal matters. According to the

    requesting government, Oliver North, a military aide to the

    National Security Council, had been mandated to negotiate arms

    sales to Iran in the amount of US$ 12 million. He was assisted by

    two American citizens, former General Richard Secord and Mr. Albert

    Hakim, who provided an offshore company, Lake Resources, for the

    deals.

    The sales proceeds of over US$ 47 million were placed on Swiss

    bank accounts of offshore companies connected with Lake Resources.

    An amount of US$ 14 million was paid to the U.S.Government, and the

    surplus of US$ 33 million was placed by a Swiss fiduciary company

    managed by a former U.S. citizen on the accounts of various

    offshore companies managed by North, Secord and Hakim. While Oliver

    North intended to spend the money for aid to the Nicaraguan Contra,

    Secord and Hakim were accused of trying to pocket the benefits of

    the sales surplus for their own benefit.

    The Swiss Central Office caused the accounts of the offshore

    companies to be seized pending a final decision of a criminal or

    civil court concerning the question of ownership of the assets.

    Secord and Hakim were granted immunity from prosecution by the

    U. S. Congress in exchange for making declarations before Congress

    in the hearings concerning the Irangate. As a consequence,

    they could no longer be respondents to criminal charges, and

    criminal suits against them in the U.S. were dismissed.

    Therefore, when the U.S.Government asked the Swiss authorities

    to hand over the attached funds in accordance with the U.S.

    – Swiss Treaty for Judicial Assistance in Criminal

    Matters, in application of art. 1 ciph. 1 lit. b of the

    Treaty1, the transfer was refused by the Swiss Central

    Office, the reason being that there was no criminal proceeding

    going on in the United States which could justify that the

    conditions of the transfer were fulfilled. This decision was

    confirmed by the Swiss Supreme Court.2

    At the same time, the Swiss Supreme Court granted the

    U.S.Government 60 days to file a civil claim in order to establish

    its title to the funds attached in Switzerland3. The

    U.S.Government then filed a civil claim with the ordinary courts in

    Geneva, which was granted based on the following legal

    assumptions:

    It was admitted that Secord and Hakim were agents of the

    U.S.Government.

    The existence of agency entails a fiduciary relationship

    between the principal (U.S.Government) and the agent, according to

    which the latter must act in the interest of the former, may not

    make use of his position to gain a benefit for himself, and must

    account for the outcome of his mandate including remitting to the

    principal all the benefits of the operation he engaged in on behalf

    of the principal.

    If the agent does not fulfil his duty to transfer the assets

    resulting from the operation to the principal, these assets become

    an object of a constructive trust4.

    The constructive trust creates a lien on the assets which

    benefits the rightful owner of the benefits of the operation

    conducted by the agent.

    This legal lien allows for the principal keep his title on the

    assets even if the agent has distracted them and made arrangements

    to become the owner ("droit de suite") or to

    transfer them to third parties. This right in rem allowed

    the U.S.Government to recover the proceeds of the arms sales to

    Iran even giving them a preferential position with regards to

    creditors of the agents.5

    The funds were transferred to the U.S.Government as the result

    of civil proceedings recognizing their title of ownership.

  3. P & B v. F

    In Geneva, Switzerland, an accountant diverted funds belonging

    to his employers and used part of them to finance her retirement

    plans and life insurance. Another portion of the funds was used to

    purchase a house across the border in France.

    A criminal complaint was filed against the faulty employee. The

    criminal proceedings in Geneva allow for the criminal court to

    judge the civil claims of the...

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