Despite its small size (8 million inhabitants), Switzerland is a leading jurisdiction in asset recovery disputes, as there is rarely a global asset recovery case which does not have at least one Swiss element.
Switzerland has been for decades and remains the main offshore banking centre in the world, with more than one quarter, or US$2.2 trillion, of the world's foreign assets under management.2 Furthermore, Switzerland has more recently become the world's number one commodity trading hub. Its global market share is estimated at 35 per cent for oil, 60 per cent for metals and 50 per cent for sugar and cereals respectively.3
It is therefore not surprising that a fair share of cross-border asset recovery disputes involve Swiss banks or financial intermediaries, or commodity trading companies, as assets, claims and evidence lay in Switzerland.
Of particular importance is the commitment of Swiss law enforcement authorities to investigate money laundering and to assist crime victims when they participate as plaintiffs in criminal proceedings.
The situation has recently improved with the adoption of a new cross-border insolvency regime, in force since January 2019, which aims at simplifying the recognition of foreign insolvencies and the work of foreign officeholders.
II LEGAL RIGHTS AND REMEDIES
In Switzerland, as in most civil law jurisdictions, civil remedies need to be supplemented with criminal remedies to achieve a successful asset recovery strategy.
Due to the lack of a proper discovery process under Swiss rules of civil procedure, civil proceeding in fraud-related matters are in most cases preceded with criminal proceedings, so as to obtain evidence and secure assets in support of civil claims.
Rather than opting for the civil route, the institution of criminal proceedings enables the victims of fraud participating as plaintiffs to obtain from law enforcement authorities that they issue broad freezing and disclosure orders from the defendants and third parties holding assets or information. The Swiss criminal system enables the plaintiffs, to a certain extent, to be compensated with their losses.
Fraud has a narrower meaning under Swiss law than the general meaning it is given by asset recovery practitioners. Pursuant to Article 146(1) of the Swiss Penal Code (SPC), a fraud is committed by 'any person who with a view to securing an unlawful gain for himself or another wilfully induces an erroneous belief in another person by false pretences or concealment of the truth, or wilfully reinforces an erroneous belief, and thus causes that person to act to the prejudice of his or another's financial interests'. For the purpose of this article, the terms 'fraud' are defined broadly in order to include, in particular but not limitedly, the following felonies,4 within the meaning of Article 10(1) and (2) SPC: embezzlement,5 fraud,6 criminal mismanagement,7 felonies committed in bankruptcy,8 forgery9 and public bribery.10
Swiss law provides for two types of criminal corporate liability for Swiss or foreign legal entities:
- a subsidiary criminal liability if it is not possible to attribute to a specific person a felony or misdemeanour committed within the company, due to its inadequate organisation;
- a primary liability in regard to money laundering, organised crime and bribery, independently of the criminal liability of individuals if the company did not take all the reasonable and necessary organisational measures to prevent such offences.11
i Civil and criminal remedies
The Swiss Code of Penal Procedure (SCPP) provides ample rights to persons harmed by a crime, and Swiss criminal proceedings are in most cases the key to obtain evidence and freeze assets.
Where fraud is committed, in Switzerland or abroad, criminal proceedings may be opened if Swiss jurisdiction is given pursuant to Articles 3–8 SPC to pursue the predicate offence and/or the subsequent money laundering of the proceeds of the felonies committed. Criminal proceedings can be opened ex officio (e.g., after a suspicious activity report is sent by the Money Laundering Reporting Office Switzerland (MROS), the Swiss financial intelligence unit, to the criminal authorities) or upon criminal complaint by a private plaintiff.12 Criminal proceedings are opened by the office of the attorney general (through a prosecutor) when the reports or the first investigations show that there exists a sufficient suspicion that a criminal offence was committed.13
Any individual or legal entity (including a Swiss or a foreign public entity) whose rights, as legally protected by the applicable provision of the Swiss Penal Code,14 have been directly harmed by a crime subject is deemed to be an aggrieved person.15
Only persons or entities that have been directly harmed by a crime may be admitted as plaintiffs. Persons who are indirectly aggrieved by a crime, such as the shareholders, the directors, the employees, the creditors or the assignees of the direct victim of the crime are not considered to be aggrieved persons.
During the criminal investigation, the plaintiff has essentially the same party rights as the suspect, in particular: to require orders from the prosecutor (including freezing, production and search orders);18 to attend examination of witnesses or suspects and have questions put to them;19 to receive notification of the decisions of the prosecutor and appeal against those which aggrieve his rights20 and file observations in respect of other parties' appeals;21 and to access the file, with the right to take copy.22
The prosecutor has a duty to gather evidence relating to the civil claims of the plaintiff, inasmuch as it does not unduly expand or delay the procedure.23
In addition to the right to participate in the criminal investigation, the person aggrieved by the crime, who made the civil plaintiff declaration24 during the criminal investigation, may, in the context of the criminal trial, request the award of damages against the accused person. The award part of the criminal judgment has the same effect as a judgment issued by a civil court.25
It is only if the Swiss conflict of law rules, governed by the Private International Law Act (SPILA), designate Swiss law as substantive law that it shall apply (see below).
Swiss law of obligations is governed by the Swiss Code of obligations (SCO).
Tort liability27 is given when the claimant proves that the defendant committed an unlawful act.
In addition to civil fraud28 and infringement to absolute rights such as property rights, tort liability will exist in cases of criminal offences, when such the goal of these offences is to protect the assets or interests that were harmed. Complicity or inducement to commit a criminal offence29 will entail liability for tort.
Under Article 55(2) SCC, the governing officers bind the legal entity by concluding transactions and by their other actions. Under Article 55(1) SCO, the employer is liable for the damage caused by its employees in the performance of their work unless it proves that it took all due care to avoid a damage of this type or that the loss or damage would have occurred even if all due care had been taken.
The burden of proof lies with the plaintiff.30
In addition to the unlawful act, the claimant has to prove a loss, causation between the unlawful act and the loss, and a fault.
Most offences against property are intentional offences and thus may only form the basis of an unlawful act in the sense of Article 41 SCO if wilful intention can be established. Likewise, complicity or inducement to commit an offence has to be intentional.
In the case of loss resulting from an unlawful act, the injured party is entitled to compensation of its 'negative' interest, that is, to be put back in the situation in which it would have found itself if the loss-causing event had not occurred. Compensation of damage only consists in direct losses, to the exclusion of indirect losses.
Swiss law substantive does not know the concept of constructive trust. However, certain similar results may be achieved through the provisions governing unjust enrichment provision,31 where restitution is required for what has been received without valid cause, and agency without authority,32 where the agent who acted against the principal's interests must compensate the principal for its losses and remit its gains to the principal.
Civil proceedings are governed by the Swiss Code of Civil Procedure (SCCP).
The filing of a claim needs in principle to be preceded by an attempt of conciliation. If the conciliation fails, the claimant may file its particulars of claims. Particulars of claim must contain a precise allegation of the facts, with the exhibits supporting them and the additional proof proposed (examination of witnesses, provision of documents held by the defendant or third parties, mutual assistance, expert reports, etc.; affidavits or witness statements are not admissible evidence). There is no discovery process, and the production of documents is usually limited to a few documents, which must be precisely described by the party requesting them.
In principle, evidence is administered only after the parties have exchanged their briefs and rejoinders. It is only under specific condition that a claimant may make new factual allegations or amplify the reliefs sought.
Consequently, in cases where many of the facts are initially unknown to the victim of a fraud, it is advisable to collect evidence and secure assets through criminal proceedings before starting civil proceedings.
Trials in first instance typically last from one to three years but may last even longer in case of preliminary objections or obtaining evidence abroad. Appeals to the cantonal court of appeal usually last less than a year, as well as those to the Federal Supreme Court.
ii Defences to fraud claims
The main defences to fraud claims are limitations and waivers. Limitations in tort claims are of one year from the moment the injured party became aware of the loss and the person who caused it and, in any case, 10 years from the day on which the loss-causing event occurred.33 However, if the losses derive from a punishable act subject to a longer limitation period under criminal law, this longer limitation period applies to civil claims.34 Under Swiss criminal law, limitation is of 15 years for felonies and of 10 years for money laundering.35 Criminal law limitation only stops running when a criminal judgment is issued in first instance.36 Actions for illicit enrichment are subject to limitation after one year from the day on which the injured party became aware of its right of recovery and, in any case, after 10 years from the emergence of this right.37 Civil limitation (whether for contractual, tort or unjust enrichment claims) may be interrupted, launching a new full limitation period, by initiating debt enforcement proceedings, filing an application for conciliation, submission of a statement of claim or defence to a court or arbitral tribunal, or a petition for bankruptcy.38
General terms of conditions, notably of Swiss banks, usually contain waivers of liability and transfer of risk clauses. However, such clauses do not apply to gross negligence.39
The ex turpi causa non oritur actio is not available as such under Swiss law, except under the narrow perspective of abuse of rights and public policy. Under Article 44 SCO, however, the judge may reduce the losses, or even not award them, when the injured party has consented to the injury or when facts for which he is responsible have contributed to creating the loss, increasing it, or aggravating the debtor's situation. Under case law, the injured party may be accused of not having exercised the necessary care to safeguard its own interests, provided, however, that it should have been able to foresee the occurrence of a possible loss and still did not adapt its conduct. The contributory negligence is assessed objectively and the injured party's conduct must be compared with that of a reasonable person in an identical situation.
III SEIZURE AND EVIDENCE
i Securing assets and proceeds
There are three ways of securing assets and proceeds in Switzerland:
Article 263(1) SCPP provides that items and valuables belonging to an accused or to a third party may be frozen if it is expected that the items or assets will be used as evidence, will be used as security for procedural costs, monetary penalties, fines or costs, will have to be returned to the persons suffering harm or will have to be forfeited.
All assets that are likely to be forfeited at the end of the proceedings based on Article 70 SPC must be seized during the investigation. These assets may be in Switzerland or abroad, in which case they must be seized by rogatory commission. The freeze takes precedence over any other decision obtained by creditors.
Freeze orders also extend to assets that may be seized to guarantee the replacement claim of the state in respect of crime proceeds that are no longer available for confiscation.43 In respect of those assets, the state has no preferable rights over those of other creditors.
Freeze orders may be issued in view of the restitution of assets to their rightful owner, but not to secure the claim for damages of the aggrieved person. Consequently, the aggrieved person may have to also obtain freezing orders through civil proceedings, namely attachments obtained in the context of debt collection proceedings or enforcement of foreign freezing orders.
The accounts targeted by the freezing order may be described in a generic form, such as 'any account of which designated persons are holders, beneficial owners, signatories or introducers, as well as any account that may have received transfers from or made transfers to, that account'.
Civil attachment orders have a narrower scope, as those can only affect the assets held at the moment when the order is received. The requirements for obtaining these orders are also stricter. The main difficulty for creditors is to identify assets located in Switzerland as the likelihood of the existence of Swiss assets has to be brought before the civil court. Pre-enforcement discovery is not available.
The cause for a civil attachment by a creditor44 can be any of the following:
- the debtor has no fixed place of residence or abode anywhere, in Switzerland or abroad;
- the debtor has dissipated assets, fled the jurisdiction or is preparing to flee in order to defeat enforcement of undischarged debts;
- the debtor is in transit or is a person visiting markets or fairs, provided the relevant claim is of a nature that requires immediate payment;
- the debtor has no residence in Switzerland, no other cause for an attachment are fulfilled, but the claim has a sufficient nexus with Switzerland or is based on a written acknowledgment of debt;
- the creditor holds certificates evidencing former unsuccessful attempts at enforcement in respect of undischarged debts of the debtor; and
- the creditor holds a title for final enforcement under the SDCBA, typically a domestic or foreign judgment or arbitral award.45
The court at the place where assets are located issues a freeze order ex parte if the creditor demonstrates, through documentary evidence, the likelihood that: (1) it has a monetary claim; (2) there exists a cause for an attachment order as listed above; and (3) there are assets at hand belonging to the debtor.46
The likelihood of the existence of the assets to be attached may be demonstrated by direct or circumstantial evidence.
The attachment order describes specific assets and may target assets in several locations, including outside of the canton of the court.
The debtor may file proceedings of objection to the attachment. In parallel, the creditor must 'validate' the attachment by requesting that an order to pay be issued against the debtor, who may object to it.47 The setting aside of the objection may take place through the enforcement of an existing Swiss or foreign judgment or by filing a civil action on the merits in Switzerland or abroad. The final seizure of the attached assets and the distribution to the creditors cannot occur before the end of the proceedings on the setting aside of the objection to the order to pay.
If a company in bankruptcy is involved in the fraudulent scheme, as a victim or as a tool of the perpetrator, the judgment of bankruptcy, respectively the judgment on recognition of a foreign insolvency decree, triggers the opening of bankruptcy. Upon receipt of the judgment, the local bankruptcy office must immediately take all necessary measures in view of its execution, such as the freezing of bank accounts. These orders are issued ex officio and sent to the main Swiss banks. Only the accounts of the debtor can be frozen in the frame of insolvency proceedings. The assets and claims of the bankruptcy estate are listed in the inventory of the estate. If the Swiss liquidator of the bankruptcy does not intend to bring certain claims of the bankruptcy estate, creditors may request the assignment of the right to bring such claims on behalf of the bankruptcy estate at their own cost and risk against the right to be paid in priority over the recovery proceeds.48 In relation to foreign insolvent companies, Swiss privileged creditors have a priority right on the distribution of the Swiss assets, before the balance can be repatriated to the main foreign bankruptcy estate.49
ii Obtaining evidence
The main obstacle in the obtention of evidence in Switzerland are the bank secrecy,50 trade and business secrets and data protection. However, these pitfalls can be overcome, in particular in criminal and insolvency proceedings, where bank secrecy cannot be opposed to the state authorities. Recent Swiss case law on mutual assistance in civil matters also shows a trend in favour of the lifting of banking, trade and business secrets in favour of the manifestation of the truth in the foreign civil trial.
It is important to note that Switzerland has a blocking statute, contained in Article 271 SCP, which punishes with up to three years of imprisonment unauthorised activities conducted on Swiss territory on behalf of a foreign authority. The gathering of evidence in support of foreign proceedings is considered a breach of Article 271 SCP.
There are several alternative ways of obtaining evidence in Switzerland: by criminal disclosure51 and search52 orders, by the civil precautionary taking of evidence53 and civil production orders and by orders of disclosure of information by the bankruptcy authorities.54
Together with the right of the parties to request that further evidence be taken (see above), the parties to criminal proceedings have the right to consult the file,55 which includes the right to levy copy, and to use them in other proceedings of any kinds, in Switzerland or abroad. In principles, under Swiss law, parties do not have the obligation to keep the investigation secret. Therefore, they can access to and use all the evidence in file, in particular the result of the disclosure orders issued by the prosecutor. Article 108(1) and (3) SCPP provides, however, that restrictions may temporarily apply when there is justified suspicion that a party is abusing its rights or when this is required for the safety of persons or to safeguard public or private interests in preserving confidentiality56.
The type of documents that may be obtained include banking statements, KYC documents, visit reports, compliance reports, etc.
Subject to exceptions deriving from the constitutional right to remain silent and not to self-incrimination,57 the holder of documents, information and other items is obliged to hand them over to the prosecutor.58
Switzerland being a civil law country, obtaining pretrial evidence is difficult. In that particular context, Article 158 SCCP provides for the possibility of taking evidence located in Switzerland at any time if the applicant shows likelihood that the evidence is at risk or that it has a legitimate interest to obtain the requested evidence. The Swiss Federal Court ruled that a legitimate interest is sufficiently demonstrated if the applicant wants to appraise the chances of success of a contemplated legal action.59 Precautionary taking of evidence is even granted if the trial will occur outside of Switzerland. The proceedings are conducted inter partes. In principle, gag orders are not available. This domestic tool is an interesting alternative route to requesting international judicial assistance (see below). It can be faster, and the rights of the civil plaintiff are broader than under a request for judicial assistance. However, the grounds for refusing the taking of evidence are much more limited in the context of the execution of a request for judicial assistance than in the independent request on the precautionary taking of evidence.
A civil claimant may also obtain evidence after the institution of a civil action. Production orders issued by the civil judge are, however, very narrow as the claimant has to target specific documents or evidence (see above). As the claimant has to quantify its damage by detailed prayers of relief and to allege all the facts necessary to prove the damage immediately in its first submissions,60 requesting the production of evidence during the civil trial is an inefficient strategy in fraud-related cases.
In bankruptcy proceedings, the debtor is obliged under threat of penal law sanctions to divulge all assets to the bankruptcy office and to hold himself at the office's disposal.61 The debtor must open premises and cupboards at the bankruptcy official's request. If necessary, the official may use police assistance.62 Third parties who have custody of assets belonging to the debtor or against whom the debtor has claims have the same duty to divulge and deliver up as the debtor.63 Creditors and other interested parties have a right to consult the bankruptcy file64 and to use the evidence that it contains.65
IV FRAUD IN SPECIFIC CONTEXTS
i Banking and money laundering
Money laundering usually is a key element of Swiss asset recovery cases, essentially for three reasons:
- the presence of a Swiss bank account or Swiss financial intermediary often is the only connection to Switzerland of the asset recovery case;
- the willingness of Swiss law enforcement authorities to investigate money laundering will help fraud victims to obtain access to key evidence and assets;
- banks or other financial intermediaries may be held liable for the losses caused by money laundering.
Article 305 bis (1) SPC defines money laundering as 'an act that is aimed at frustrating the identification of the origin, the tracing or the forfeiture of assets which he knows or must assume originate from a felony'. Only proceeds of felonies, namely crimes liable to a prison term of more than three years66 can be laundered.
Money laundering by negligence is not punishable. However, the intention is based on the violation of a due diligence duty. It is enough that the person should have known from the circumstances that the assets were the product of some kind of severe offence, without necessarily knowing exactly which, and that the offender acted by recklessness67. If a person has accepted funds without knowing their criminal origin and only learns it afterwards, any transaction made with respect to these assets after that moment is deemed to be money laundering. Money laundering by abstention is also punishable.68
The purpose of the Federal Law on the Prevention of Money Laundering in the Financial Sector (LML) is to create a precise set of due diligence rules for all financial intermediaries, and to provide for an obligation to report suspicions of money laundering. In practice, this provision is very important for asset recovery, as such reports, made to the MROS , often reveal the existence of assets connected to fraudsters that would otherwise not have been found, notably when media report on large criminal investigations. Upon receiving credible reports, the MROS communicates them to Swiss law enforcement authorities, who initiate criminal investigations, issue freeze orders, and usually send requests for mutual assistance to the authorities of the countries where the alleged predicate offences took place.
Money laundering is an offence that is notably meant to protect the person harmed by the predicate felony, and, consequently, the person, company or bank69 who wilfully launders such proceeds may be liable to compensate the loss caused by the acts of money laundering. Acts of money laundering in the meaning of Article 305 bis SPC may entail civil liability for tort towards the person aggrieved by the predicate offence, if the acts of money laundering prevented its compensation, notably from assets that could have been forfeited and allocated in its favour70. However, the breach of due diligence rules contained in the LML does not entail civil liability, as the objective of those provisions is to safeguard the reputation of the Swiss financial industry and not to protect private interests71.
Swiss criminal law provides for specific provisions on fraud in an insolvency context,72 that are a sub-category of the crimes committed against property. There exist three felonies, namely fraudulent bankruptcy and fraud against seizure,73 reduction of assets to the prejudice of creditors74 and mismanagement causing bankruptcy.75 There are also five misdemeanours, namely failure to keep proper accounts,76 undue preference to creditors,77 subornation in enforcement proceedings,78 disposal of seized assets79 and obtaining a judicial composition agreement by fraud.80 Where the debtor is a company, its corporate bodies are deemed the perpetrators of these offences. There is little case law on the commission of these specific offences. The general trend is that the threshold to prove that a specific behaviour of a de facto or de jure body triggered the insolvency of the company is high. Criminal law being subsidiary to other legal remedies, a wrong choice of management may more easily trigger civil liability of the corporate bodies than their criminal liability.
Civil legal actions for damages in torts, where the commission of a criminal offence is proved81 and for damages for breach of their duties in the administration, business management and liquidation82 are available to the company, the shareholders and the creditors against the members of the board of directors and all persons engaged in the business management or liquidation of the company. Outside insolvency, the company itself and each shareholder are entitled to sue for any losses caused to the company. The shareholder's claim is for payment of compensation in favour of the company.83 In the event of bankruptcy, the creditors are also entitled to request that the company be compensated for the losses suffered. However, in the first instance the administration of the bankruptcy may assert the rights of the shareholders and the company's creditors.84 In other words, any legal action of a creditor or a shareholder in an insolvency context is made on behalf of the bankruptcy estate. Where the rights of the estate are assigned to the creditors,85 the assigned creditors that bring the claim before courts are paid first.86
Clawback action is also available where the debtor carried out during the five years prior to the opening of bankruptcy proceedings with the intention, apparent to the other party, of disadvantaging his creditors or of favouring certain creditors to the disadvantage of others.87
Tort claims are arbitrable under Swiss law.
Consequently, if the tortious acts is in connection with the arbitration clause contained in a contract, the claimant will not be able to bring civil proceedings against a defendant who is party to the arbitration clause, but only arbitration proceedings. This does not apply to non-parties to the arbitration clause, however. This means that the victim of a fraud may have to bring both civil and arbitration proceedings (in addition to criminal proceedings, which are not affected by the existence of an arbitration clause), depending on who the defendants are.
The use of parallel civil and criminal proceedings to gather evidence in support of arbitration proceedings which involve an element of criminality is a powerful tool to supplement the lack of powers of arbitral tribunals to compel third parties to give evidence.88
If fraud affects an arbitral award issued in Switzerland, this may be a cause for revision.89 If the arbitral award was issued outside of Switzerland, the existence of fraud may be an obstacle to its enforcement in Switzerland due to its contrariety to public policy (see below).
iv Fraud's effect on evidentiary rules and legal privilege
There is no specific legal regime on evidentiary rules and legal privilege in fraud-related cases.
Article 321 SPC on professional secrecy only protects secrets held by ecclesiastics, lawyers, notaries, auditors, medical doctors, dentists, midwives, as well as their auxiliaries. Non-typical activities of attorneys, such as investment advice, financial intermediation or management of companies are not covered by professional secrecy.90 Banking secrecy is not protected by the Swiss Penal Code but by the SBA.91 Lawyers may always refuse to cooperate even if they have been released from duty of secrecy.92 Attorney-client privilege cannot be invoked by a lawyer in order to protect itself from legal actions brought by the client.
In civil proceedings, a party may refuse to cooperate if the taking of evidence would expose a close relative to criminal prosecution or liability in torts93 or the disclosure of a secret would be an offence under Article 321 SPC. Any third party may refuse to cooperate in establishing facts that would expose it or a close relative to criminal prosecution or civil liability in torts94 or to the extent that the revelation of a secret would be punishable by virtue of Article 321 SPC. With the exception of lawyers and clerics, third parties must cooperate if they are subject to a disclosure duty or if they have been released from duty of secrecy, unless they show credibly that the interest in keeping the secret takes precedence over the interest in finding the truth.
In criminal proceedings, the accused may not be compelled to incriminate itself. In particular, the accused is entitled to refuse to make a statement or to cooperate in the criminal proceedings. It must, however, submit to the compulsory measures provided for by the law, such as disclosure or seizure orders.95 The victim96 and the witness, but not the plaintiff, have the right to remain silent.97 Functional secrecy of public officers and attorney–client privilege may be opposed to criminal authorities. The scope of attorney–client privilege in the context of internal investigations conducted within the frame of FINMA enforcement proceedings is currently debated.
V INTERNATIONAL ASPECTS
i Conflict of law and choice of law in fraud claims
Swiss conflict of laws is governed by SPILA.
Regarding tort claims, Article 133 SPILA provides that when the tortfeasor and the injured party have their habitual residence in the same state, claims in tort are governed by the law of that state; when the tortfeasor and the injured party do not have an habitual residence in the same state, these claims are governed by the law of the state in which the tort was committed; however, if the result occurred in another state, the law of that state applies if the tortfeasor should have foreseen that the result would occur there; notwithstanding the above, when a tort breaches a legal relationship existing between the tortfeasor and the injured party, claims based on such tort are governed by the law applicable to such legal relationship.
Claims for unjust enrichment are governed by the law which governs the legal relationship, either existing or assumed, on the basis on which the enrichment occurred, failing such a relationship, these claims are governed by the law of the state in which the enrichment occurred.98
ii Collection of evidence in support of proceedings abroad
Alternatively to civil letters of requests, parties to the foreign proceedings may consider instituting proceedings on the precautionary taking of evidence in Switzerland pursuant to Article 158 SCCP (see above).
Switzerland is a Contracting State of the Hague Convention of 1954 on civil procedure (CLaH 1954) and the Hague Convention of 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters (CLaH 1970).
These conventions apply to requests for obtaining evidence or performing some other judicial acts. The extent of the information requested is determined by the requesting judge.99 The findings that led the requesting judge to send letters of requests cannot be questioned by the requested judge. The sole elements that the requested judge has to check are the likelihood of the reasons given by the third party that holds the requested information not to collaborate100 and the existence of reasons to refuse to grant assistance that the requested state can invoke pursuant to Articles 12 CLaH 1970 and 11 CLaH 1954.101 The prohibition on fishing expeditions is a limitation that applies to the scope of letters of request.
Persons involved in proceedings of international assistance can be affected in their rights to obtain a decision on the execution of the request for assistance (prohibition of denial of justice), to refuse to collaborate (secrets protected by law or by a predominant interest) and to the minimum guarantees of fundamental rights (sovereignty or public policy, or both).
To date, Swiss case law ruled that the party to the foreign proceedings is only entitled to invoke a denial of justice. The reason given by the courts is that a request for assistance is based on the public law relationship that exists between two states. As such, the parties to the main civil proceedings in the requesting state are not involved in the execution of the request for assistance.102 Parties have no legal standing to appeal against the decision to execute the letter of request if they invoke rights that they could have invoked in the civil proceedings pending in the requesting state.103
The beneficiary of the secret is entitled to invoke a violation of its right to be heard. The Swiss Federal Court ruled that both the account holder and the beneficial owner of the targeted account have legal standing to appeal against the decision to execute the letter of request.104 Apart from standing, the Federal Court decided to pierce the corporate veil that separated the account holder from the beneficial owner of the account on the sole ground that the account holder invoked the privacy of the beneficial owner, which is a right to which the sole beneficial owner was entitled to. As long as the beneficial owner and the account holder form a single economic unit, the account holder cannot intervene in the proceedings on execution of the request for assistance, provided that it was able to exercise its rights before the judge of the main civil proceedings in the requesting state.105 The Federal Court ruled in particular that the violation of the minimum guarantees of neither the account holder nor the beneficial owner can invoke bank secrecy, which is the prerogative of sole banks, as third parties that hold the requested information.
The third party that holds the requested information is entitled to invoke a predominant interest in keeping the requested information secret. Spouses and close relatives have an absolute right to refuse to collaborate.106 Any other third party may refuse to cooperate in establishing facts that would expose itself or a close relative to criminal prosecution or civil liability, or to the extent that the revelation of a secret would be punishable by virtue of Article 321 SPC.107 Bank and business secrecy are not protected by Article 321 SPC (see above).
The holders of other legally protected secrets may refuse to cooperate if they show likelihood that the interest in keeping the secret prevails on the interest in establishing the truth.108 Banks usually invoke this legal provision together with Article 47 SBA (banking secrecy) to object to orders of production of documents. The Swiss Federal Court stressed in this regard that banking secrecy is only an exception to the duty to collaborate of the third party that holds information.109 Although the circumstances in which banking secrecy can be successfully invoked are not clearly defined by case law, it never applies in divorce110 and inheritance111 matters, as well as in the context of debt collection proceedings or civil attachments.112
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
As a participant in Swiss criminal proceedings, a plaintiff may request the prosecutor to issue freeze orders against assets that are the proceeds of crime or, if these assets are no longer available, against replacement assets.
All assets that are proceeds of felonies or misdemeanours must be forfeited, even if the perpetrator is not identified.113 If crime proceeds are no longer available for forfeiture, replacement claims must be issued against assets that are not crime proceeds.114 Third parties are only protected against these measures to the extent that they were in good faith and provided adequate consideration against the assets.
Under Article 73 SPC, if a crime has caused loss not covered by insurance and if it must be presumed that the offender will not pay compensation for the crime, the aggrieved person is entitled to receive, upon its request, up to the amount of the damages established by a judgment (including foreign) or by agreement with the offender:
- the fines paid by the offender;
- the forfeited assets (or the proceeds of their sale);115
- the replacement assets (when the direct proceeds of crime are no longer available to be forfeited);116
- the good behaviour bond.117
The rights of persons harmed or third parties expire five years after the date on which official notice is given.118
iv Enforcement of judgments granted abroad in relation to fraud claims
There are no specific provisions on the enforcement of foreign judgments on fraud claims in Switzerland. Civil foreign judgments on fraud cases are considered as civil judgments pursuant to Article 32 of the Convention of Lugano on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 (CLug) and Article 25 SPILA. They are recognised and enforced following the ordinary rules that apply to any foreign judgment.119
Swiss law makes a distinction between the enforcement of money and non-money judgments. This article only discusses the enforcement of money judgments that are enforced pursuant to the SDCBA, with assistance from cantonal debt collection offices. The recognition and enforcement of foreign judgments are governed by the Private International Law Act (SPILA) and, where applicable, by bilateral or multilateral treaties, in particular by the Lugano Convention between the EU and EFTA countries. Enforcement follows the domestic procedures.
Interlocutory measures ordered in ex parte proceedings are not capable of being recognised in Switzerland. Under SPILA, instead of seeking (uncertain) enforcement of foreign interim measures, a claimant can file an application for autonomous interim measures under Article 10(b) SPILA. The foreign interim order is not binding but the Swiss judge will generally rely on it. Similarly, with regard to CLug judgments, an application can be made to the Swiss enforcement judge for provisional measures available under the law of that state, even if, under the Convention, the courts of another state have jurisdiction over the substance of the matter (Article 31 CLug). Within the scope of application of the Convention, foreign interlocutory orders can be enforced, provided that the defendant was given the opportunity to be heard.
Interlocutory injunctions ordering in rem conservatory measures are enforceable pursuant to the provisions of SDCBA. Interlocutory injunctions ordering ad personam conservatory measures, like common law World Freezing Orders, are enforceable pursuant to the provisions of SCCP.120
The enforceability of a foreign money judgment is decided in the context of debt collection proceedings where the judge decides to set aside the objection to the order to pay under Article 80 SDCBA. For CLug judgments, debt collection proceedings commence concurrently with the request for a declaration of enforceability before the court. The decision on the declaration of enforceability is binding throughout Switzerland. For other foreign judgments, there is no declaration of enforcement and a decision on enforcement rendered in one particular debt collection proceeding is not binding on another debt collection proceeding. A review of the merits of foreign judgments is expressly excluded by Article 27 SPILA and Article 36 CLug.
An ex parte civil attachment order can be granted prior to the filing of the request for an order to pay (see above).
Pursuant to Article 25 SPILA, a foreign judgment is recognized if the judicial or administrative authorities of the state where the decision was rendered had jurisdiction under the SPILA, the decision is no longer subject to an ordinary appeal or is final and there is no ground for denial under Article 27 SPILA. Recognition must be denied ex officio if it is manifestly incompatible with Swiss public policy.121 Recognition must also be denied if a party establishes that (Article 27(2)–(4) SPILA) it did not receive proper notice under the law of its domicile or its habitual residence, unless the party proceeds on the merits without reservation; the decision was rendered in violation of the fundamental principles of Swiss procedural law, including the fact that the party did not have an opportunity to present its defence; a dispute between the same parties and with respect to the same subject matter is the subject of pending proceedings in Switzerland or has already been decided there, or that the dispute has previously been decided in a third state, provided that the latter decision fulfils the prerequisites for recognition.122
Under the New Lugano Convention, judgment given in a state that is party to the Convention must be recognised in the other states without any special procedure being required (Article 33 CLug). The judgment must be declared enforceable immediately and ex parte on completion of the formalities provided for at Article 55 CLug without any review. The decision on the application for a declaration of enforceability can be appealed by either party on the grounds in Articles 34 and 35 CLug. New cross-border insolvency provisions.
The European Court of Justice (ECJ) explained that recourse to a public policy clause can be envisaged only where recognition or enforcement of the judgment delivered in another state party to the CLug is at variance to an unacceptable degree with the legal order of the state in which enforcement is sought inasmuch as it infringes a fundamental principle.123 Typical examples of Swiss public policy incompatibility are punitive damages entirely disproportionate to the damage caused, usurious interest rates, serious violation of the right to be heard, including lack of proper notice and disproportionate costs of the proceedings, and serious breach of rights of defence.
v Fraud as a defence to enforcement of judgments granted abroad
A foreign judgment obtained by fraud is contrary to public policy and will, therefore, not be recognised and enforced in Switzerland (see above).
In a domestic civil or criminal judgment, a party may apply for the revision of a judgment if criminal proceedings have established that the decision was influenced to the detriment of the party concerned by a felony or misdemeanour, even if no one has been convicted by the criminal court; if criminal proceedings are not possible, proof may be provided in some other manner.124
VI CURRENT DEVELOPMENTS
i New cross-border insolvency rules
On 16 March 2018, the Swiss Parliament unanimously adopted the Amendment of the Private International Law Act (Chapter 11: bankruptcy and composition), which entered into force on 1 January 2019.
The provisions of the SPILA in force until 31 December 2018 required, following the recognition of a foreign insolvency on the basis of reciprocity, the opening in Switzerland of an ancillary bankruptcy, the 'mini-bankruptcy', in which a Swiss liquidator is appointed for the purpose of liquidating the Swiss assets, with a priority given to the Swiss privileged and secured creditors in the distribution of the proceeds of these assets. The foreign schedule of claims must be recognised in Switzerland before the Swiss assets are remitted to the foreign liquidators. The Swiss mini-bankruptcy is notoriously costly and cumbersome. As a consequence of these shortcomings, between 2010 and 2016, only 60 requests for recognition of foreign insolvencies were presented in Switzerland, 80 per cent of which were from EU countries.
The amended PILA in force since 1 January 2019 brings seven important changes to the Swiss regime on the recognition of foreign insolvency proceedings:
- the requirement of reciprocity is abolished;125
- insolvency decrees rendered at the 'centre of main interests – COMI' may now be recognised in Switzerland;126
- the ordinary (non-secured and non-privileged creditors) of Swiss branches of foreign entities in bankruptcy may be listed in the schedule of claims of the ancillary bankruptcy;127
- the debtor subject to insolvency measures outside of Switzerland now also has standing to apply for recognition of the insolvency decree;128
- in the absence of privileged or secured creditors, as well as of creditors of a Swiss branch of the foreign insolvent entity, the court of the recognition may, upon request from the foreign liquidators, waive the ancillary bankruptcy procedure in favour of recognising the powers of the foreign insolvency officeholder;129
- the list of the 'protected creditors' in international insolvencies is extended, and an ancillary bankruptcy must be opened in Switzerland not only where there are privileged and secured creditors, but also where there are creditors of a Swiss branch of the foreign insolvent entity;130
- a legal basis has been created so as to allow Swiss authorities and bodies to cooperate with foreign bankruptcy authorities and bodies.131
From a practical point of view, the main change to SPILA is the possibility to waive the ancillary bankruptcy and allow the foreign insolvency officeholder to directly act on the Swiss territory and to dispose of the Swiss assets.132
There is a strong hope that these new provisions allow a better protection of Swiss and foreign creditors' interests by facilitating the recognition of foreign insolvency proceedings, effective cross-border asset recovery and international cooperation.
Given the efficiency of insolvency tools in international asset recovery, it is expected that the new Swiss cross-border insolvency regime will have a defining effect on asset recovery in Switzerland.
ii Data protection and access to information
The question of the scope of the rights and obligations of natural and legal persons with regard to data protection is a hot topic in Switzerland.
In a matter Democratic Republic of Congo v. Office of the Attorney General of Switzerland on the plundering of gold mines, the Federal Administrative Court had to decide on the right of the Democratic Republic of Congo (DRC) to access to the criminal file of criminal proceedings that were already terminated and in which the DRC had not participated. For this reason, the DRC requested access to the file on the basis of the Federal Act on Data Protection (ADP), instead of invoking Article 107(1)(a) SCPP (see above). The DRC argued that it needed the documents contained in the criminal file because it intended to institute civil legal actions against the gold refinery company investigated by the Office of the Attorney General of Switzerland (OAGS).
ADP allows the applicant to obtain 'data', not evidence or documents. Where personal data of the applicant is concerned, documents can in principle be obtained. In a landmark decision, the Swiss Federal Court ruled that the holder of a bank account can access all its personal data, including the notes and reports of its relationship manager, as well as KYC and profiles, even if the purpose is to assess the chances of success of a civil action against that bank.
In RDC v. OAGS, the Federal Court ruled that in principle, the DRC is entitled to access to its own personal data for the purpose of contemplated civil proceedings against the gold refinery as it would also have the right to obtain this information during the evidentiary stage of pending civil proceedings.
However, by requesting the entire criminal file, the DRC also requested access to sensitive personal data of third parties, namely the gold refinery under investigation. Access to this data is subject to Article 19 ADP. To access this data, the DRC should have, however, demonstrated that the gold refinery refused to give access to its personal data in abuse of its rights. Where criminal charges or convictions are concerned, the threshold is very high and the holder of the personal data has to carefully examine if a public or a private interest justifies consultation by the applicant. Arguing, as the DRC did, that the personal data of a third party is sought for the purpose of a civil action against that third party is clearly not sufficient. The reason is that ADP does not aim to facilitate civil proceedings but to protect privacy.
In short, accessing a criminal file through ADP is a difficult path. This being said, the Federal Administrative Court left the issue open of a general right to access to terminated criminal cases by persons with an interest worthy of protection on the basis of the fundamental right to be heard (due process).
1 Yves Klein is Partner and Antonia Mottironi is Counsel at Monfrini Bitton Klein, Geneva.
4 Felonies are distinguished from misdemeanours according to the severity of the penalties that the offence carries. Felonies are offences that carry a custodial sentence of more than three years.
5 Article 138 SPC.
6 Article 146 SPC.
7 Article 158 SPC.
8 Article 163 ff. SCP.
9 Article 251 SPC.
10 Article 322 ter ff. SPC.
11 Article 102 SCP.
12 Article 301 SCPP.
13 Article 309(1)(a) SCPP.
14 When a provision is meant to exclusively protect public or collective interests, its breach, even if it causes damage to a person, does not entitle such person to be considered as injured under the law of criminal procedure.
15 Article 115 SCPP.
16 Article 118 SCPP.
17 Article 119 SCPP.
18 Article 109 SCPP
19 Article 147 SCPP.
20 Articles 393 and 382 SCPP.
21 Article 390 SCPP.
22 Article 101 SCPP.
23 Article 313 SCPP.
24 Article 119(2)(b) SCPP.
25 Article 122 SCPP.
26 Civil liability for breach of contract is excluded from this chapter.
27 Article 41 SCO.
28 Article 28 SCO.
29 Article 25 SPC.
30 Article 8 SCC.
31 Article 62 SCO.
32 Article 419 SCO.
33 Article 60 SCO.
34 Article 60(2) SCO.
35 Article 97 SPC.
36 Article 97(3).
37 Article 67 SCO.
38 Article 135 SCO.
39 Articles 100 and 101 SCO.
40 Articles 263–268 SCPP.
41 Articles 271–281 SDCBA
42 Articles 221–223 of the Swiss Debt Collection and Bankruptcy Act – SDCBA.
43 Article 71 SPC.
44 Article 271 SDCBA.
45 FCD 139 III 135.
46 Article 272(1) SDCBA.
47 Article 279 SDCBA.
48 Article 260 SDBCA.
49 Articles 172–174a SPILA.
50 Article 47 of the Swiss Banking Act – SBA.
51 Articles 263–268 SCPP.
52 Article 244–250 SCPP.
53 Article 158 SCCP.
54 Article 222 SDCBA.
55 Articles 107(1)(a) and 147 SCPP.
56 There exists one important exception to this principle: a State requesting mutual legal assistance in criminal matters is restricted in its right as a plaintiff in the Swiss criminal proceedings to access to the file and to use evidence contained in the file as long as the execution of the letters of request in Switzerland is pending.
57 Article 265(2) SCPP.
58 Article 265(1) SCPP.
59 FCD 5A_295/2016.
60 Article 321(1) SCCP.
61 Article 222(1) SDCBA.
62 Article 222(3) SCDBA.
63 Article 222(4) SDCBA.
64 FCD 93 III 4.
65 The Court of Justice of Geneva recently ruled that a person accused of mismanagement causing the bankruptcy has a legitimate interest to consult the bankruptcy file (DSCO/303/18).
66 Article 10(1) and (2) SPC.
67 ATF 119 IV 242.
68 FCD 6B_908/2009.
69 Article 102 SCP.
70 FCD 129 IV 322; FCD 133 III 323.
71 FCD 134 III 529.
72 Articles 163–171 bis SPC.
73 Article 163 SPC.
74 Article 164 SPC.
75 Article 165 SPC.
76 Article 166 SPC.
77 Article 167 SPC.
78 Article 168 SPC.
79 Article 169 SPC.
80 Article 170 SPC.
81 Article 41 SCO, see above.
82 Article 754 SCO.
83 Article 756(1) SCO.
84 Article 157(1) SCO.
85 Article 260 SDCBA.
86 Article 757(2) SCO.
87 Article 288 SDCBA.
88 See FCD 1B_521/2017 – Republic of Guinea.
89 Article 123 Federal Tribunal Act: 'Revision may be requested if criminal proceedings have established that the decision was influenced by a criminal offense to the detriment of the applicant; sentencing by the criminal court is not required. If the criminal proceedings cannot be carried through, proof may be furnished by other means'. A bill was sent to the Swiss parliament on 24 October 2018 to amend SPILA provisions on arbitration, notably on revision of arbitral awards. We will report in an upcoming edition once the bill is adopted.
90 FCD 112 Ib 606; FCD 114 III 105; FCD 115 Ia 197, FCD 131 III 660.
91 Article 47 SBA.
92 Articles 171(3) SCPP and 166(1)(b) SCCP a contrario.
93 Article 163(1)(a) SCCP.
94 Article 166(1)(a) SCCP.
95 Article 113(1) SCPP.
96 A victim within the meaning of Article 116(1) SCCP is a person suffering harm whose physical, sexual or mental integrity has been directly and adversely affected by the offence.
97 Article 117(1)(d) and Article 169(1)-(2) SCPP.
98 Article 128 SPILA.
99 FCD 4A.340/2015 and 5A.284/2013.
100 FCD 5P.423/2006.
101 FCD 4A.340/2015c.
102 See, e.g., Judgments of the Court of Justice of Geneva ACJC/1367/2012 and ACJC/1078/2014.
103 FCD 4A_340/2015.
104 FCD 5A_284/2013 and 4A_340/2015.
105 FCD 4A_340/2015 and 4A_167/2017.
106 Article 165 SCCP.
107 Article 166(1)(a) and (b) SCCP. This chapter does not discuss the requirements of Article 166 Paragraph 1 lit. c and d.
108 Article 166(2) SCCP.
109 FCD 4A_340/2015. See also Article 47 Para. 5 SBA: 'The provisions of federal and cantonal legislation on the obligation to disclose information to the authority and to testify in court are reserved'.
110 FCD 5P.423/2006 of 12 February 2007.
111 FCD 5A_284/2013.
112 FCD 129 III 239 and 125 III 391.
113 Article 70 SPC.
114 Article 71 SPC.
115 Article 70 CP.
116 Article 71 CP.
117 Article 66 CP.
118 Article 70(4) SPC.
119 These ordinary rules also apply to domestic and foreign arbitral awards.
120 FCD 5A_899/2016.
121 Article 27(1) SPILA.
122 Article 27(2)–(4) SPILA.
123 C-394/07 – Gambazzi, by reference to C-7/98 – Krombach.
124 Article 328(1)(b) SCCP and 410(1)(c) SCPP.
125 Article 166 SPILA.
126 Article 166 SPILA.
127 Article 166 SPILA.
128 Article 166 SPILA.
129 Article 174a SPILA.
130 Article 174a SPILA.
131 Article 174b SPILA.
132 Article 174a SPILA.