Fighting fraud in Scottish style
16 July 1996
23 September 2013
3 April 2014
28 October 2013
9 January 2014
24 January 2014
The Proceeds of Crime (Scotland) Act 1995 which came into effect on 1 April this year is the latest weapon in the Scottish legal armoury to fight large scale international fraud and theft. Applying to all solemn and certain summary offences, Scottish civil litigators can use the Act as a vehicle to recover assets misappropriated through fraud.
Similar to the English Proceeds of Crime Act 1995, the Scottish legislation allows prosecuting authorities to apply to the court for confiscation and forfeiture orders upon conviction. Before conviction, the Crown may seek restraint orders and warrants to arrest property controlled by the accused.
The confiscation order affects benefits deemed to have been derived from crime and may extend to the defendant's whole realisable property. As in English provisions, offenders are subjected to assumptions that property obtained during specified periods was derived from the crime. The forfeiture order affects assets used in committing the crime.
The Act gives the Crown new powers to investigate financial aspects of the crime by compelling the production of material and disclosure of information from government departments. It can also seek restraint orders preventing disposal of assets before conviction. This is a remarkable innovation in Scots law, allowing the court to use inhibition and arrestment to 'freeze' the property, which is then held until the accused is acquitted or confiscation is made.
A party interested in property subject to confiscation or forfeiture may apply for release of the property within specified time limits. The Crown can resist the application if it shows the applicant knew or ought to have known the property was intended to commit or facilitate the commission of an offence.
Even after realisation of such property, innocent third parties may apply for compensation from the Crown where that person can satisfy the court as to ownership or interest in the property immediately before realisation. Compensation will equal the value of the sum received by the Crown for the property. Application must be made within three years of conclusion of proceedings.
Therefore, in a scam involving standby letters of credit, the fraudster's slush fund used to entice further investment may be regarded as property used to facilitate the commission of a crime and so be liable to forfeiture. Alternatively it may be seen as a benefit derived from crime and liable to confiscation. In either case, innocent third parties defrauded of monies may claim interest in the fund.
The Criminal Procedure (Scotland) Act 1995 also allows courts to grant compensation to the victim in a criminal prosecution. Application can only come from the Crown and is granted at the judge's discretion. Compensation recovered may be deducted from any sum recovered through civil litigation in respect of the same loss.
It is vital, therefore, for solicitors to ensure that the Crown is fully aware of the nature and extent of the victim's loss so as to encourage application for a compensation order or release of the confiscated or forfeited property.
However, criminal procedures will generally be too slow to fully protect the victim's interests. To recover lost money, early steps must also be taken in the civil courts to locate and freeze lost money or the fraudster's assets. With this in mind, the new commercial cause procedure in Edinburgh's Court of Session may prove the most effective vehicle to recover defrauded monies.
Commercial judges Lords Penrose and Coulsfield have proved pragmatic, well-informed and interventionist and the process minimises formality and delay while wide disclosure of witnesses and evidence can be required at an early stage.
The Scottish civil remedies of arrestment and inhibition may be exercised on the dependence of a claim. Inhibition will prevent voluntary disposal of the fraudster's interests in Scottish heritable property. Arrestment will freeze moveable assets held by third parties and owed to the defender. The remedies are available immediately and do not require a court hearing or provision of indemnities against damages.
The Scottish courts can order ex parte the preservation, inspection, custody and detention of property raising any relevant questions between parties.
More importantly, the court can exercise this power before substantive court proceedings are likely to be raised in any of the Brussels or Lugano Convention States (Administration of Justice (Scotland) Act 1972).
The procedure can be used to recover information necessary to identify and trace defrauded monies and, albeit arguably, to recover the misappropriated money itself. The 1972 Act also empowers the Scottish courts to order the disclosure of the identity of any person who may be a witness.
Litigation of this nature generally extends over several jurisdictions. If proceedings were begun in Scotland, protective and provisional measures, such as arrestment and inhibition on the dependence and the 1972 Act orders, may be obtained in respect of assets located in Scotland under the Civil Jurisdiction & Judgements Act 1982.
International fraudsters can transfer funds almost instantaneously to or through a number of jurisdictions. Victims require swift and pragmatic legal advice to establish the method by which the fraud was committed, to find their way around foreign jurisdictions quickly and to make maximum use of the courts procedural, protective and substantive civil and criminal remedies. And this advice must be with a view to trace and recover assets swiftly. Imaginative use of those procedures and remedies is essential to produce quick and effective commercial results.
While the 1995 Act may enhance the victim's prospects of recovering his money, those remedies offered through civil means still offer the best hope for the victim of recovering his lost money.
A PS on WS
For any sassenachs curious to know what the initials WS or even CS stand for, the story of the Society of Writers begins far back in the history of Scotland.
Originally, the Signet was the private seal of the early Scottish kings, and the Writers to the Signet and Clerks to the Signet were those authorised to supervise its use and, later, to act as clerks to the courts.
The earliest use of the Signet was in 1369 and Writers to the Signet were included as members of the College of Justice when it was established in 1532, but the society did not take definite shape until 1594.
The function of the Society of Writers has changed but every summons initiating an action in the Court of Session still "passes the Signet" - it is stamped with the Royal Seal.
There are now over 900 members of the society, the majority being solicitors in private practice in Edinburgh, and it is currently developing a number of initiatives with the Law Society of Scotland including a programme of professional education and training for its members and staff.
So now you know...