Finding Hidden Overseas Assets
If a spouse suspects that his or her spouse
has been hiding assets overseas it is often
difficult to either gather information, or
worse, to attach assets, especially when
such assets are located in secret overseas
bank accounts.
There are many legitimate reasons to hold
assets offshore and there are respectable
providers around the world that offer their
services in this area, including offshore
banking through multiple jurisdictions,
nominee incorporation services, and gatekeepers like lawyers. These services of
course can also be abused to secretly transfer assets across international borders and
they have become available not only to the
super-rich but also to the middle class.
Apart from tax or asset protection against
creditors, personal matters are an important
motivation for people to deposit assets in
foreign structures. Such asset concealment
can take place either in unexpected local
service providers or offshore in a bank or
financial institution (e.g. in Luxemburg,
Liechtenstein, South Dakota, Caymans,
Bermuda, Bahamas). Myriad banking havens located inside and outside the United
States serve this purpose.
Below is a discussion of how individuals
can locate such hidden assets and what
legal remedies and other possibilities may
be available to freeze and recover them
under Swiss law.
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- Credit card invoices
1. How to find hidden assets
If the location of a hidden asset remains
undiscovered even the best legal remedies
or other methods of freezing and recovering the assets are useless. Therefore, the
various techniques for uncovering hidden
assets transferred offshore should be examined first.
Tip 1: Documentation and Copies
Lawyers or forensic accountants can only
issue reports based on the paperwork given
to them. Even seemingly unimportant documents help trace hidden assets and diverted income. Copies of any of the following
documents will help in identifying traces,
patterns and networks of the debtor:
- Address book, whether a hard-copy or
computer-based, particularly foreign
and unknown numbers.
- Federal and State Tax returns for the
previous 5 years provide a wealth of information.
Review 1099s to make sure the bank
accounts in which interest is being reported and the brokerage accounts in
which dividends have been reported
have been disclosed.
In the 1040 forms hidden assets can be
found. At the bottom of Schedule B are
questions about the existence of banks
and financial accounts in foreign countries or foreign trust transactions.
Schedule D discloses capital gains and
losses from sales of fund shares, individual stocks and other assets.
Schedule E discloses income or loss
from real estate and trusts.
Swiss spouses, insofar as they have not
been separated, have a right to obtain
insight into the marital tax return, which
by law must be done together.
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- Information regarding any type of benefit, deferred compensation plan, stock
options or retirement plans, which one
can obtain by requesting the issuance of
a subpoena to the spouse's employer.
Tip 2: Criminal proceeding
Criminal proceedings can give a lot of insight and information about possibly hidden assets. Before deciding whether to
pursue this option one must carefully assess whether the fact pattern suggests criminal wrongdoing. There is a balance between building up pressure and risking
criminal proceedings against your own
client for “false accusation” or “misleading
the court”. It usually takes several important cumulative factors to identify a
behavior as fraud by the debtor. However,
if fraudulent behavior is successfully proven, one can overcome the obstacle of banking secrecy and obtain access to information held by the bank in question, as
will be shown below.
It must also be noted that failure to disclose assets may or may not be a criminal
offense in many countries. In Switzerland,
the mere non-declaration of assets usually
results in a misdemeanor carrying only
administrative sanctions. The concept of
tax evasion, as it is called, is differentiated
from tax fraud, which is subject to criminal
prosecution.
Tip 3: No information
When approaching a hostile divorce one
should carefully consider what information
to provide to the court. Indicating or suggesting a search of assets in open court will
spur a debtor concealing funds to consider
new transfers for his or her money within
minutes of realizing that the lawyer is on
the trail.
Tip 4: Loan applications
Generally, in the course of a loan application in anticipation of obtaining funds from
a bank a list of each asset the person owns
is produced, including an estimation of its
value. Especially where a spouse was codebtor of a loan, access may be granted to
this information.
Tip 5: Hard assets
Some spouses prefer to keep “hard” assets
such as gold. Looking for indications that
hard assets are hidden outside of the home
is important. Swiss banks offer “custodial”
services to hold assets, private vault companies offer safe deposit boxes, and even
self-storage firms offer convenient hiding
places. Evidence of such accounts may be
found in the bank accounts themselves
where charges for such services may be
visible.
Tip 6: Publicly available sources in Switzerland1:
- Google works miracles and so does a
phone book.
- The commercial register provides information on companies (e.g. share capital, legal seat, address, corporate purpose, directors). Each canton maintains
its own commercial register, which is
freely accessible.
- The Swiss Official Gazette of Commerce, which offers information beyond
that published in every cantonal commercial register. There are online monitoring services.
- The land register has a record for every
single plot of land in Switzerland, with
the exception of those in the public domain. Each canton maintains its own
land register, which can be consulted
1
MARC HENZELIN, SANDRINE GIROUD AND
HÉLOÏSE RORDORF, Asset recovery, page 99, under:http://www.lalive.ch/data/publications/SGI+M
HE+HROGTDT_Asset_Recovery_Switzerland.pdf.
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upon the showing of a legitimate interest, while simply determining ownership can sometimes be accomplished
online.
- The Swiss aircraft or ship registry contains the records of all planes and vessels registered in Switzerland and provides detailed information regarding the
owner and the holder.
- The debt enforcement and bankruptcy
register records include all debt collection proceeding filed against a debtor
and can be consulted by anyone showing a prima facie legitimate interest.
2. Swiss banking secrecy
There is no public register of bank accounts in Switzerland. Swiss bank secrecy
protects the privacy of Swiss and foreign
banks’ clients. A judge has only limited
possibilities to enforce a judgment or action against a foreign country’s bank secrecy law. Even if a spouse possesses some
evidence that money or assets are located
in a Swiss Bank, the information must be
accurate and clear in order to satisfy the
requirements to freeze and recover assets.
The claiming spouse must prove the existence of the account and specify the name
and location of the bank.2 In most cases,
the plaintiff does not have this information.
The filing of a criminal complaint is actually the most efficient way to get past the
banking secrecy.
Banking secrecy also prevents so-called
"negative information", meaning that
banks cannot say that they do not have
accounts of a defendant. Otherwise the
relationship with a bank could be deter2
MARC BAUEN / NICOLAS ROUILLER, Das Schweizer Bankgeheimnis.
mined by elimination of various banking
institution with a systematic approach.
Third parties have a duty to cooperate in
obtaining of evidence. In particular, they
have the duty to make a truthful deposition
or statement as to a property or a witness.
The persons bearing the legal responsibility to protect bank secrets may refuse to
cooperate if they credibly show that the
interest in keeping the secret outweighs the
interest in establishing the truth (article
166(2) SCCP and article 47 Banks Act).3
Furthermore, banking secrecy forbids
Swiss bankers to bear witness in a foreign
court (Article 47 of the Banking Act). In
particular, any identification of an individual or company as being a customer of the
bank is per se a violation of banking secrecy.4
However, banking secrecy is not absolute.
It can be uplifted in the context of criminal
proceedings. This is the reason why Mutual Legal Assistance Treaties – a tool normally used in money laundering cases –
are being employed more and more by
family law lawyers seeking overseas liquid
assets of spouses.
It is also important to note that if a bank is
known to have accounts by a claimant and
is informed about a procedure to be implemented, they will refrain from allowing
any further transfer to happen by the person entitled to an account in order to avoid
further claims. This can be an efficient tool
to de facto block assets before the formal
freezing order has been obtained.
3. Mutual Legal Assistance Treaty
MLAT treaties include provisions for
compelling the production of documents
and other evidence. They are useful for
gathering evidence and intelligence that
would be difficult for the officials of one
nation to obtain without the cooperation of
the other country. MLATs facilitate enforcement by allowing for the freezing or
seizure of bank accounts through an
MLAT order.5
MLATs are an unusual technique that attorneys are employing more and more in
fraud cases and in family law cases,
whether to uncover overseas liquid assets
that spouses have not disclosed (in depositions or in court) or as a counter-measure
against disclosure avoidance tactics by the
other side. MLATs are the perfect vehicle
for both locating monies overseas and recovering assets for a victim of fraud in
divorce cases.
The history of MLATs started with cases
involving drugs, embezzlement and financial fraud and were then expanded to corporate fraud, bankruptcy fraud and mortgage fraud cases where the targets had
moved monies overseas to an offshore
banking haven. However, it has been made
available in Swiss civil courts where fraud
can be proven.6
4. Enforcement of provisional
measures in Switzerland
In an international situation (claimant or
defendant or both have no connecting
presence in Switzerland) and according to
article 10 of the Swiss Federal Statute on
Private International law (PILA), there are
two possibilities to enforce provisional
3
4
BERNHARD F. MEYER, Swiss Banking Secrecy and
Its Legal Implications in the United States, 19 New
Engl. L. Rev. 18, at 26; ROBERT U. VOGLER, Das
Schweizer Bankgeheimnis, Verein für Finanzgeschichte, Heft Nr. 7.
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5
DR. PETER C. HONEGGER, Mutual assistance in
Switzerland, Zurich 2011, page 9.
6
JOHN QUIRK, New Asset Recovery Techniques in
Divorce Cases, Family Lawyer Magazine, September 2012.
measures like freezing orders in Switzerland.
The first is to choose a provisional measure according to Swiss law. In this case the
Swiss courts at the place where the provisional measures are going to be enforced
are accorded jurisdiction. 7
The second is to choose a provisional
measure according to a foreign law. The
Swiss courts accept and enforce such
measures if they meet the requirements of
article 25 PILA.8 A foreign judgment is
recognized in Switzerland if the courts that
dealt with the matter were competent, if
the decision is final and no ordinary remedy of recourse is available, and if no reason for objection in accordance with article
27 PILA is available. Article 27 PILA
states that decisions of foreign courts are
not recognized if they are in breach with
Swiss public policy (“ordre public”), if the
defendant hasn’t been properly served (unless the defendant has later participated in
the proceedings), if substantial principles
of Swiss procedural law were breached,
namely the right to be heard, or that there
was an older judgment in the matter. Swiss
courts generally refuse the enforcement of
non-EU freezing orders, because under the
PILA a foreign decision must be final in
order to be enforceable in Switzerland.
This condition is usually not met by freezing orders because of their interim nature.9
If the Convention on jurisdiction and the
recognition and enforcement of judgments
in civil and commercial matters (Lugano
Convention; SR 0.275.12) is applicable,
article 31 of the Lugano Convention super7
Art. 10 Federal Statute on Private International
Law.
8
Thomas Spreche, Praktische Aspekte bei vorsorglichen Massnahmen im internationalen Zivilprozess, S. 17.
9
SADNRINE GIROUD, How worldwide freezing
orders are enforced in Switzerland, Yearbook of
Private International Law, Volume 14, p. 444.
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sedes article 10 of the Swiss Federal Statute on Private International law. Most European countries have signed this convention.
Article 31 of the Lugano Convention states
that “application may be made to the
courts of a State bound by this Convention
for such provisional, including protective,
measures as may be available under the
law of that State, even if, under this Convention, the courts of another State bound
by this Convention have jurisdiction as to
the substance of the matter.”
Therefore, it is usually advisable to seek a
Swiss freezing order for better enforcement for matters originating from jurisdictions that have not ratified the Lugano
Convention. Freezing orders from the EU
are generally enforced in Switzerland and
can be obtained in a member state.10
5. Swiss interim measures
Swiss law distinguishes between nonmonetary and monetary claims. While enforcement of the former is regulated by the
Swiss Code of Civil Procedure (SCCP),
enforcement of the latter is regulated by
the Swiss Debt Enforcement and Bankruptcy Act (DEBA). Interim relief, both
before a claim has been filed or during
proceedings, can be acquired by way of
interim measures for non-monetary claims
and attachment for monetary claims.
Swiss courts can order any interim
measures suitable to prevent imminent
harm in support of a non-monetary claim
(article 262 SCCP). In particular, such interim relief can take the form of an injunction; an order to remedy an unlawful situation; an order to a registry or third party; a
performance in kind; or the remittance of a
sum of money (if provided by law). In
practice, common interim measures are the
10
SADNRINE GIROUD, I.c., p. 445.
registration of property rights (or orders
not to do so) in a public register such as the
land register. Interim measures can also
serve to prevent a party from disposing of
assets such as company shares or moveable
property.11
order. So called “fishing expeditions” are
not permitted.12
In cases of special urgency, and in particular where there is a risk that the enforcement of the measure will be frustrated, the
court may order the interim measure immediately and without hearing the opposing party, i.e., ex parte (article 265 SCCP).
While pretrial discovery is not a feature of
Swiss civil procedure, the SCCP allows for
the gathering of evidence before the initiation of legal proceedings exclusively in
cases where evidence is at risk or where
the applicant has a justified interest (article
158 SCCP).
In the context of a monetary claim, assets
could be frozen by way of attachment proceedings (articles 272 ff DEBA). Such
attachment is granted ex parte and must
thereafter be validated.
The applicant must prima facie:
• show a claim against the debtor;
• identify assets of the debtor that can be
attached;
• show that one of the specific grounds for
attachment, as set out by law, exists. In
particular, if the debtor does not live in
Switzerland and the claim has sufficient
connection with Switzerland, or the creditor holds an enforceable title – like a divorce degree – against the debtor.
As already mentioned in the beginning of
this paper, the main problem in this context
is the identification of hidden assets. Only
if the assets are precisely and individually
specified will the court grant a freezing
11
THOMAS SPRECHER, BSK ZPO, N. 3 article 262.
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12
BSK LugÜ, HOFFMANN/KUNZ, Art. 47 N. 176 ff.