The Asset Tracing and Recovery Review: Spain
Victims of fraud in Spain are protected both by civil law and criminal law. Spanish criminal law features a powerful procedural instrument: Spanish criminal procedures allow a victim (of fraud or any other crime) to personally make an accusation with the assistance of a lawyer, even if the public prosecutor is unwilling to make a public accusation, and this will have equal weight. This grants a victim of fraud control over a criminal investigation, allowing him or her to drive the process and be heard at all stages, in the same manner as the public prosecutor.
In recent years, as a result of the housing bubble in Spain at the beginning of the century that has led to a significant decline in real estate prices, Spain has become not only an attractive country to investors in terms of obtaining real estate at a good price, but also for money laundering. The entry into force of the Regulation implementing the Money Laundering Act 2003 sought to prevent money laundering by imposing strict verification duties on banks and other traders, and imposes severe penalties for infringement of such duties.
With regard to the recovery of criminal assets, in 2018 the Ministry of Justice's Office for Asset Recovery and Management initiated 277 new matters against 470 individuals and organisations, and exchanged information with 39 countries.2
From 2007 to 2010, 50 per cent of requests for the location of assets by all countries within the European Union were received by Spain.3 This led to the creation of CEART Project, funded by the European Union and led by the Central Economic Crime Unit and the National Fiscal Police.
The Transparency Act came into force at the end of 2014, and it is at the forefront of the fight against public corruption in Spain. The Act establishes certain procedures for publicity, right to information and obligations of good governance that affect the Spanish public administration.
On the heels of the insolvencies of Spanish companies such Marsans, Pescanova and Gowex, the Spanish Criminal Code has been amended to expedite the punishment of corporate fraud resulting in insolvency. Specifically, Article 259 of the Code has been enhanced and clarified to specify which behaviours will trigger the criminal prosecution of corporate executives and officers who, through mismanagement or negligence, drive their companies into insolvency.
The Criminal Code establishes confiscation mechanisms such as confiscation without trial, and includes a section referring to the 'crimes of corruption in business'.
Legal rights and remedies
i Civil and criminal remedies
The procedural remedies available to victims in Spain may be brought under either the civil or criminal jurisdictions. Choosing between them is often not the decision of the victim, but if the prosecutor or investigating judge has initiated criminal proceedings, a civil proceeding may be brought in conjunction with the criminal one unless the victim wishes that the civil action be exercised separately from the criminal action. In that case, judges will begin to hear the civil action following the conclusion of the criminal proceeding.
From the foregoing, it can be understood that the same recovery actions may be brought before the civil and criminal jurisdictions, because the Spanish Civil Code articles apply regardless of whether a claimant is the victim of a crime or the claim is based on a purely civil action.
The person entitled to exercise the recovery action is the person who suffered the damage that causes its right to claim. Heirs are recognised in Spanish law as having the right to claim. An action may be brought against both the tortfeasor and those who cooperated with the perpetrator, as well as against those who took advantage of the damage with knowledge of the unlawful action (and also against any of their heirs, assuming that they have not renounced their inheritance).
For a civil action to be successfully brought, an accusation must demonstrate a causal link between the harm suffered and the action causing the damage. The Spanish law of evidence is governed by the principle of the burden of proof, with the claimant party having to prove the basis of its claim. The law also obliges the defendant to prove the facts that defend the claim. In criminal law, however, as a matter of constitutional principle, innocence must be presumed, so the criminal investigation must be directed at proving the commission of the offence.
The average approximate time for a decision in a civil lawsuit in the first instance in Spain is between 12 and 15 months. A judgment can be provisionally enforced even if it is appealed. Criminal proceedings generally last between one and three years during the investigation stage, until a case is ready for trial, but in a large fraud case the investigation stage may last longer. Any judgments rendered by the criminal courts do not allow provisional enforcement if they are appealed, but freezing measures and seizure of property in general can be ruled on quickly, and sometimes in a more expeditious manner than in civil proceedings.
In both civil and criminal proceedings, victims of fraud are entitled to bring actions, proving facts by the evidence they deem appropriate. If a victim does not appear at the criminal proceeding, it will continue where there is another accusation, whether public or private. If the victim does not expressly request that civil liability is decided within the framework of the criminal proceeding, the judgment would also decide on the relevant statements about repairing the damage. If, however, the victim states his or her desire to bring a civil action outside the criminal proceedings, criminal judges will not rule on the compensation due to the victim. Here, the victim can go to the civil courts to determine the amount of the claimed compensation.
ii Defences to fraud claims
As previously noted, criminal law is governed by the constitutional principle of the presumption of innocence. Therefore, it is for the prosecution to produce incriminating evidence to prove the authorship of a crime and the causal link. Evidentiary possibilities are broader in scope in criminal matters, as the court allows investigative powers to the police that parties in civil proceedings have no access to: for example, wiretapping or immediacy in obtaining evidence.
Whether a civil action is brought in criminal proceedings or civil proceedings, the defence of the accused or defendant may include a denial of the causal link, previous payment to the victim, its prior waiver to the claim, or the lapse of the statute of limitations. The defence may also question the extent of the damage in order to reduce its liability.
In general, economic crimes are time-barred after five years. The statute of limitations for civil liability arising from crime is one year as from the moment in which the victim becomes aware of the damage.
Seizure and evidence
i Securing assets and proceeds
Although criminal procedures have several disadvantages (e.g., length of the procedure or the need to overcome the presumption of innocence), the powers entailed in securing a defendant's assets are extensive and relatively swift. Criminal procedures allow the court to act promptly by issuing, inter alia, the attachment or freezing of assets, which is not possible in civil proceedings. Certainly, a victim may request securing and freezing orders by way of injunction in civil actions, but injunctions tend not to be obtained in Spain with the necessary speed. Moreover, those who do obtain them must generally post bonds to secure any damage that may be incurred in the event of an unwarranted claim.
The Criminal Code has mechanisms that are intended to provide more effective legal instruments for the recovery of assets from crime, and for the economic management of them. In this regard, the Criminal Code follows the European Directive 2014/42/EU of 3 April on the freezing and confiscation of assets and the proceeds of crime in the EU.
These mechanisms are confiscation without trial; confiscation expanded to assets not particularly related to the criminal activity for which a procedure is initiated; and confiscation of the property of third parties. In all these types, cases are extended to allow more effective securing of property.
The Criminal Code also allows the possibility that, in cases in which the confiscation of property or proceeds of crime is not possible, the judge can determine an amount that shall be authorised for confiscation.
Finally, the Office of Recovery and Asset Management for conservation, performance or use of seized goods is a governmental agency established to cooperate with the courts, the public prosecutor and those countries that seek assistance from the Spanish authorities.
Plaintiffs can also request and obtain injunctions without hearing the defendant, even if the competent jurisdiction is that of the courts of another state. Once granted, in the event that a party has not previously started relevant proceedings on the merits before the competent jurisdiction, that party must produce evidence of the filing of a claim in the competent state within 20 days of an injunction being granted.
To apply for and obtain an injunction, it is necessary that the applicant has a presumed right to obtain the injunction. Therefore, the law does not require an exhaustive test of law; it is sufficient to establish an appearance of sufficient rights. It also must be proven that were the injunction not granted, there is some risk that the assets would disappear by the time a future judgment is enforced.
The main obstacle to overcome is time, because the success of an injunction will depend on how quickly it is granted. In these circumstances, the criminal jurisdiction is more effective than the civil jurisdiction.
ii Obtaining evidence
Obtaining evidence in criminal matters is carried out at first by the judicial police at the request of both the investigating judge and the public prosecutor. A private prosecutor may also request the taking of evidence from the investigating judge.
The Criminal Procedure Act provides that evidence must be produced at trial. However, it is during the period of investigation that the evidence that will be used to support the charges must be obtained. Since the crimes related to fraud are public, each party is obliged to cooperate with the investigating judge in obtaining evidence. This also applies to third parties, who may face criminal charges in the event they refuse to cooperate. In these circumstances, even banks cannot justify avoiding the provision of evidence to an investigating judge on the grounds of banking secrecy.
In civil cases, the parties are required to disclose all evidence in their possession at the request of the other party, so there is a duty of disclosure. Third parties, however, are not obliged to provide evidence unless the court issues an order to that effect, provided they do not violate rights such as privacy or confidentiality. In civil proceedings, evidence is obtained in different stages. Documentary evidence must accompany the statement of claim and defence, and producing documentary evidence after this stage is allowed only in very few cases. As a rule, expert evidence must also be submitted with the claim or defence, but its production by defendants is allowed at a later stage in some cases. The rest of the evidence has to be produced at trial.
Evidence must be relevant and be directly related to what it is intended to prove. Therefore, judges may reject evidence they consider redundant or irrelevant. Evidence obtained in breach of constitutional rights will also be rejected.
Fraud in specific contexts
i Banking and money laundering
The Regulation implementing the Law on Money Laundering specifies the scope of the diligence to be observed regarding clients in relation to banks, notaries and lawyers, and in other regulated fields. The Regulation requires the identification of the last individual owner of the shares of a company. It also requires the identification of individuals who are clients of regulated practitioners.
The Act on Money Laundering and the Regulation that develops and implements the Act on Money Laundering, more specifically have both generated much controversy because they establish an obligation to report suspicions of money laundering or money laundering activities: bar associations have objected based on the fact that this may infringe the duty of professional secrecy of lawyers.
In any case, legislation against money laundering contributes to the fight against fraud, and allows the obtaining of information by state authorities and cooperation with judges in this area.
The end of the recession in Spain led to a fall in the number of insolvency proceedings to the lowest number seen in the past three years.4
Various amendments to the Insolvency Act were designed to reduce the number of companies becoming insolvent and subsequently being liquidated. The reforms favour obtaining agreements between a debtor and its creditors in the stages prior to insolvency, but come at the cost of reducing the rights of priority creditors.
The law, in any case, affords protection to victims of fraud. Victims have the opportunity to exercise clawback actions against the directors of insolvent companies by alleging their personal liability for the insolvency of a company and their criminal responsibility. In this sense, the Forum Filatelico and Afinsa cases are relevant. In these cases, the personal liability of the owners of the companies was declared in its insolvency, and criminal proceedings for offences were initiated against the directors and against those who cooperated in the channelling of assets.
The subsequent criminal proceedings and trials have ended with a high number of condemnations of many of the directors of those companies.
Article 259 of the Criminal Code punishes a company's directors that, acting with mismanagement and negligence, bring the company to an insolvency situation that turns into an insolvency procedure.
The Criminal Code hardens the penalties for directors who purposefully falsify the economic situation of a company or cause an unsustainable economic situation within a company.
The Criminal Code further punishes certain acts of directors once an insolvency situation has commenced, such as, inter alia, the hiding or destruction of assets that should be included in the insolvency procedure, non-compliance with the duty of accounting and altering the documentation of the company.
The effects of the criminal action will be extended to those individuals that, through these types of conduct, have led a company to an insolvency situation. Penalties will be imposed even in cases where the situation is caused by negligence and where a crime would be pursued even if it has not resulted in an insolvency procedure.
The detailed specification of punished behaviours helps to provide greater legal certainty and stimulates the prosecution of these situations.
A new drafting of the Insolvency Act was enacted in May 2020 and will enter into force in September 2020. Although it is not a new insolvency Act, the new text introduces clarifications to the existing Act.
Arbitration as a consensual alternative means of dispute resolution is not the ideal way to resolve cases of fraud. By definition, fraudsters will prevent their victims from facilitating a swift recovery of assets. For this reason, decisions of conflicts in which fraudulent conduct is decided are not usually subject to arbitration. The Spanish Arbitration Act, however, does not prevent the civil aspects of fraud being decided in arbitration.
Perhaps the closest relevant example in Spain is that of arbitration for financial derivatives. Mass marketing by certain banks of such financial products, which were negatively affected by the economic crisis, resulted in the loss of many small investors of their savings. By submitting to arbitration proceedings in deciding these disputes, the banks have received public aid. Obviously, the process is voluntary for investors, and is a way of avoiding judicial proceedings, but it also means they are subject to an arbitral tribunal's decision, which cannot be appealed.
iv Fraud's effect on evidentiary rules and legal privilege
As previously noted, the initiation of a criminal proceeding as a result of an offence relating to fraud entails certain evidentiary presumptions. The defendant is protected by the constitutional right of the presumption of innocence, and may not incriminate him or herself. This does not allow the defendant to hide or bury evidence, but the prosecution bears the burden of proving the facts.
Article 416.2 of the Criminal Procedure Act exempts lawyers from testifying regarding facts known to their clients. Under Spanish law, professional secrecy covers all types of facts that a lawyer has knowledge of as a result of his or her professional relationship with a client. This includes evidence gathered by the lawyer and kept on file.
i Conflict of law and choice of law in fraud claims
Spanish law provides that Spanish courts have jurisdiction to prosecute crimes committed in Spain. It also states that the Spanish courts will decide on offences committed outside the national territory if the offenders are either Spanish or foreigners who have acquired Spanish nationality.
The law limits the principle of universal jurisdiction and requires that a criminal act is punishable at the place of execution unless, pursuant to an international treaty or a regulation of an international organisation to which Spain is a party, no such requirement is necessary.
For offences related to falsification of the Spanish currency and those related to foreign exchange control, the foregoing is not applicable.
Spain also has jurisdiction to prosecute offences of corruption among individuals or in international economic transactions if they fulfil any of the following circumstances:
- the proceeding is directed against a Spanish citizen;
- the proceeding is directed against a foreign citizen normally resident in Spain;
- the crime was committed by an officer, director, employee or partner of a business enterprise, society, association, foundation or organisation that has its headquarters or registered office in Spain; or
- the crime was committed by a legal person, company, organisation, group or any other entity or group of persons having its seat or registered office in Spain.
In civil actions, the Spanish courts have jurisdiction if a defendant is resident in Spain or is a Spanish citizen, or in the event the damage caused by the actions of the defendant is mainly felt in Spain.
ii Collection of evidence in support of proceedings abroad
From an administrative point of view, the Spanish authorities provide support for asset recovery, as described earlier in this chapter, as well as for investigating crimes related to fraud falling under international treaties related to judicial and police cooperation. Spain is a member of INTERPOL.
In civil cases, and within the European judicial area, Regulation (EC) No. 1206/2001 of the Council of 28 May 2001 on cooperation between the courts of the Member States related to obtaining evidence in civil or commercial matters is applicable in Spain.
The Regulation establishes two systems of taking evidence between Member States: direct transmission of requests between courts and direct taking of evidence by the requesting court.
The requesting court is the court in which the proceedings are instituted, and the requested court is the court of another Member State to which the application for obtaining and examining evidence is submitted. A central body is designated by each Member State, which will be responsible for providing information and finding solutions to any difficulties that may arise concerning the application.
Spain is also a signatory to the Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
In criminal matters, Spain has incorporated Framework Regulation 2006/783/JHA on the application of the principle of mutual recognition of decisions regarding confiscation.
Spain belongs to the platforms for international judicial cooperation for the tracing of assets such as the EU's SIENA platform and RRAG for third countries.
In civil cases, the Spanish courts may issue injunctions against assets located in Spain although they are not competent to decide on proceedings on the merits. This requires providing initial evidence and legal arguments that the plaintiff is duly entitled to claim. It is also necessary to prove that there is a risk that the assets will disappear if they are not seized. Finally, the party seeking an injunction must show that there are court proceedings on the merits in another country, or that proceedings on the merits will start immediately after the injunction is granted.
Outside court proceedings, victims cannot seize assets. While waiting for a court decision, and if a victim is aware that a bank is holding money deriving from fraud in an account in Spain, the victim can, however, send a notification to inform the bank that the money has a fraudulent origin. Although the bank is not obliged to act, in order to avoid future liabilities it can temporarily freeze an account until a court agrees to an injunction.
iv Enforcement of judgments granted abroad in relation to fraud claims
Spain often recognises firm civil judgments of non-European courts through the exequatur procedure. For this, and in the absence of a treaty with the country of origin of the judgment, Spain has certain requirements; for instance, that the judgment does not contain anything contrary to Spanish law. It also requires that the judgment has not been rendered in absentia. Finally, the judgment must be enforceable under the law of the state in which it was issued.
Regulation (EU) 1215/2012 on jurisdiction, recognition and enforcement of judgments in civil and commercial matters within the scope of the European Union is also applicable in Spain, which allows rapid enforcement of decisions given by European courts.
v Fraud as a defence to enforcement of judgments granted abroad
Both civil and procedural rules provide that Spanish law does not allow fraud or abuse of law. In that sense, the enforcement of foreign judgments in Spain is not possible where it can be proven by the party against whom enforcement of a judgment is requested that the judgment was obtained fraudulently.
The Office for Recovery and Asset Management has been operating since 2016.
As mentioned in Section I, the latest reform of the Criminal Code created a new section referring to the crimes of corruption in business under which the offence of bribery to gain competitive advantage was included. The reform allows the application of expanded confiscation in corruption crimes, such as the confiscation of assets not strictly related to the proceeds of corruption.
The expected amendment of the Criminal Procedure Act to provide the public prosecutor with new investigating faculties has been delayed for the past few years due to Spain's political circumstances. In February 2020, the Ministry of Justice announced a new draft before the end of the year. However, the current pandemic situation might delay this project.
Finally, the consolidated text of the Insolvency Act will come into force on 1 September 2020. The text clarifies the Insolvency Act, but does not contain substantial amendments to the insolvency regulations.
1 Fernando González is a partner at Squire Patton Boggs.
2 The Agency for the Recovery and Management of Assets, statistical data 2018.
3 Intelligence Centre against Organized Crime.
4 According to the Spanish Statistics Agency, INE, the annual rate of insolvencies had reduced to 24.3 with regard to the first quarter of 2019.