An extract from The Asset Tracing and Recovery Review, 8th Edition
Seizure and evidencei Securing assets and proceedsThird-party attachments
A fraud victim can resort to a third-party attachment to attach or secure the assets owed by a third party to the fraudster.
Third-party attachment proceedings are a two-stage process.
During the first phase (which is often referred to as the conservatory phase), a creditor attaches the assets of his or her debtor that are held or owed by a third party (often a bank).
During the second (or enforcement) stage, the creditor gets the attachment validated in court so that it can obtain payment on the attached assets from the third-party debtor in lieu of his or her own debtor.
Attachment proceedings are ancillary in nature, and are merely a conservatory action during the first phase that aims to put the attachment in place. The first phase is completed by having three separate notices served by a bailiff on the debtor and the third-party debtor.
The claimant might, however, have to go through the process of applying for an attachment leave from the president of the district court (on an ex parte basis) before initiating the attachment if no judgment or title has been obtained against the fraudster. It is worth noting in this respect that case law considers that an alleged claim for damages is not sufficient to obtain such an authorisation.
Once the deed of attachment is served on the third-party debtor, the attached assets are frozen, meaning that the third party is prohibited (under the penalty of personal civil liability) to remit any funds or assets to the fraudster.
The objective of the enforcement phase is to get the attachment validated in court so that the claimant is able to be paid on the attached assets. To succeed, the claimant must show that it has an enforceable money judgment against the defendant. If the claimant did not have an enforceable money judgment during the conservatory phase, it should endeavour to obtain one. This means, in practice and depending on the case, that:
- the claimant should ask for a money judgment against the defendant during the validation proceedings if the district court before which the validation proceedings are being conducted has jurisdiction over the claim;
- the claimant should sue its defendant before any other competent jurisdiction in Luxembourg or abroad (if Luxembourg has no international jurisdiction); or
- if the claimant already has a foreign judgment, that it should make sure that the judgment is recognised and rendered enforceable in Luxembourg (see below).
As of 18 January 2017, it is possible in cross-border situations within the European Union (other than the United Kingdom and Denmark) to apply for a European account preservation order (EAPO) in accordance with Regulation (EU) No. 655/2014.
The procedure and effects are broadly similar to the third-party attachment procedure described above, with the exceptions that:
- only cash may be preserved through an EAPO;
- leave from the court (the EAPO itself) is required to attach, which, if sought in Luxembourg, would have to be delivered by the justice of the peace or the president of the district court, depending on whether the claim exceeds €10,000, according to Article 685-5 NCCP;
- a creditor must show urgency to obtain an EAPO;
- where no judgment has yet been obtained, a creditor will normally have to provide security to obtain an EAPO unless specifically exempted;
- an EAPO can freeze an account only up to the claimed amount;
- banks are very swiftly required to make a declaration concerning the preservation of funds; and
- the debtor will be informed of the preservation measure at a later stage only once the concerned judicial authority, having rendered the EAPO, has received the declaration concerning the preservation of funds by the bank or banks.
An EAPO does not allow a claimant to obtain payment on the preserved bank account. The latter is subject to national proceedings, meaning that if preservation is effected in Luxembourg, a claimant will have to put in a place a national third-party attachment on the same bank account or accounts to enforce on the monies.
An EAPO may, however, be useful where the creditor has no information about its debtor's bank account, as it can make a request for the obtaining of account information under certain circumstances.Seizure
An examining magistrate is empowered in the context of a criminal investigation to seize the instrumentalities of a fraud as well as the proceeds of a fraud. This includes the authority to order a third party to grant access to an automated data processing system.Confiscation
The general system of confiscation under Luxembourg law is conviction-based. Article 32 CrimC specifies that confiscation always applies to crimes, but that its application to felonies is optional.
Under the general system, courts can resort to extended confiscation, meaning that the proceeds and instrumentalities of the offence as well as their respective products can be forfeited.
Confiscated property belonging to a fraud victim is automatically restituted. The victim can also claim restitution of substituted property.
A more extensive confiscation regime applies to certain offences such as money laundering, which also authorises third-party confiscation, value confiscation and non-conviction based confiscation.ii Obtaining evidenceCivil
The process of obtaining evidence to support legal proceedings in Luxembourg differs to a great extent from that of most common law jurisdictions. There is, for example, no discovery procedure.
The general ratione legis behind the Luxembourg rules on obtaining evidence is that fishing expeditions are prohibited, and parties should normally refrain from bringing lawsuits if they do not have enough evidence to support them. The law requires parties to prove their allegations, and judges will not be allowed to order certain investigative measures where they are intended to make up for parties' lack of evidence.Pretrial remedies
Article 350 NCCP allows an applicant to request pretrial investigative measures to obtain evidence regarding facts on which the outcome of a lawsuit could depend, either through summary inter partes proceedings or by issuing an ex parte application (in cases of exceptional circumstances).
Article 350 can only be relied upon if no proceedings have been commenced on the merits. An applicant will be allowed to request lawful investigative measures or the production of evidence if it has legitimate cause, and the applicant will have to show that the outcome of the lawsuit depends on the facts at issue. There is, however, no requirement to show urgency.
To avoid fishing expeditions, case law has also added that where an applicant is seeking to obtain evidence from its adversary or a third party, it should establish that the requested documents do (or are likely to) exist, and should include a detailed description of those documents in its application. The Court of Appeal recently confirmed that Article 350 NCCP cannot serve to obtain documents located outside of Luxembourg.
Article 933(1) NCCP can also support a request for pretrial evidence, but is rarely used in practice since it requires showing an imminent loss of evidence.Obtaining evidence during trial
Parties can also request to obtain evidence while proceedings are ongoing.
Articles 284 to 288 NCCP are the basis for requesting a court order during trial against parties or third parties to communicate evidence that is in their possession. To succeed, four requirements need to be satisfied according to case law. The required evidence:
- needs to be identified with precision;
- should be likely to exist;
- should presumably be in possession of the identified party; and
- should be relevant to the outcome of the lawsuit.
In addition, a party can request any legally admissible civil investigative measure such as witness statements, witness hearings and appraisals.Criminal
If a fraud scheme is prosecuted, an examining magistrate will be appointed to investigate and gather all the evidence of the fraud. The examining magistrate endeavours to reveal the truth, meaning that he or she examines both in favour of and against the accused.
An examining magistrate is able to resort to a very large panel of investigative measures that are not available under civil law such as seizures, hearings, confrontations, surveillances and infiltrations.
The examining magistrate will usually try to trace the proceeds and instrumentalities of the fraud. To mitigate the effect of bank secrecy in this respect, the law allows an examining magistrate, under certain specific circumstances, to order the following bank disclosures: information as to whether the accused holds or held an account, or controls or controlled an account, or if he or she has or held a proxy over an account; and all banking operations that have been or will be performed on the bank account of the accused during a specified time frame.
Financial institutions can be fined if they fail to comply in this respect.
Article 66-4 CCP also authorises an examining magistrate to generally request information and documents regarding a specific bank account or operation, but a bank could in principle choose to uphold bank secrecy and remain silent, since failure to comply is not sanctioned by a penalty.