Five-Step Guide to Recovering Overseas Funds in a Civil Fraud Case
Cross-border fraud is on the rise, and in complex fraud cases, assets are often located in multiple jurisdictions. How can companies based in the UK recover money lost due to fraud where the assets are located overseas?
The five common steps involved in tracing and recovering assets lost by fraud in multi-jurisdictional civil fraud cases are as follows:
- Tracing the assets.
- Freezing the assets.
- Disclosure of the assets.
- Pursuing a claim.
- Enforcing a judgement.
1. Tracing the Assets
The first action that needs to be taken is to find out where the assets are. In the UK, disclosure orders exist which can be used to locate assets.
One is a Norwich Pharmacal Order (NPO), which is served on a third party who has been innocently ‘caught up’ in the fraud. Usually, the third party is a bank which has unwittingly received the proceeds of a fraud. Using the NPO, the claimant can find out the fraudster's identity, and where the funds have been diverted.
An NPO is often served alongside the second category of disclosure orders; a Bankers Trust Order (BTO). In a similar vein to the NPO, the BTO will allow the claimant to request disclosure of confidential documents from the defendant’s bank so that they can trace the assets.
Where the defendant’s bank is located outside of the UK, the claimant must serve the NPO and the BTO on the bank in its own country. To do that, the claimant applies to the court to request permission to serve out of the jurisdiction.
In October 2022, this step became slightly more straightforward. The Civil Procedure Rules (CPR) Committee expanded the list of jurisdictional gateways in CPR Practice Direction 6B and created a new gateway for third-party information claims, which includes NPOs and BTOs. Litigation in England and Wales must be conducted in adherence to the CPR. New Paragraph 3.1(25) of Practice Direction 6B makes it possible for the courts to exercise their jurisdiction and grant permission to serve these types of disclosure orders on banks and third parties overseas. The reason this ‘gateway’ exists is to make it easier to pursue a fraudster abroad, particularly if their identity is currently unknown.
But to receive permission to serve out, the claimant must still persuade the court that (i) there is a serious issue to be tried and (ii) England is the appropriate place for the claim to be heard.
2. Freezing the Assets
Once the assets are located, claimants need to remove the risk of their stolen assets being dissipated. In the UK, claimants apply to the court for a Worldwide Freezing Order (WFO). Under section 25 of the Civil Jurisdiction and Judgments Act 1982, the court has jurisdiction to grant this interim relief in support of court proceedings anywhere in the world.
However, a WFO is a draconian measure which the courts do not grant lightly. The applicant has to show:
- They have a good arguable case against the respondent
- There is a real risk of the assets being dissipated
- The order is just and convenient in all the circumstances
A WFO application is usually made at a without notice hearing, which means that the judge will hear the applicant’s reasons for making the application without informing the other party. The applicant must give full and frank disclosure of all the material facts and potential defences that the respondent might raise if they were present at the hearing.
If the WFO is granted, then the claimant’s solicitors will notify the relevant banks and other third parties so that the assets can be frozen. The WFO will then be served on the defendant.
3. Disclosure of the Assets
Once received, a party subjected to a freezing order must produce a list of their assets. That list should be provided to the applicant’s lawyers promptly, usually within 48 hours of receiving the freezing order.
The WFO can freeze the respondent's assets anywhere in the world. Usually, the terms of a WFO will provide that the respondent must not dispose of or deal with their assets, wherever they are situated, subject to a cap that is equal to the value of the claim.
4. Pursuing a Claim
A WFO can be sought before or at the same time that proceedings are issued. It can also be sought after judgment has been obtained, but this is more unusual.
Once the assets are frozen, the claimant must prove that they have indeed been the victim of a civil fraud. There is no standalone action for civil fraud, and which action the claimant pursues depends on their particular circumstances. See our article on ‘How to Decide Which Civil Fraud Action to Pursue’ for more information.
Cross-border civil fraud actions tend to be complicated and usually require extensive disclosure exercises and witness evidence. While settlement discussions can run alongside the case, it may be necessary to proceed to trial to obtain a resolution.
5. Enforcing a Judgment
Following trial, the judge will hand down their decision, together with orders to pay damages and costs (if the claimant is successful). At that point, the defendant should arrange payment. But if payment is not forthcoming, the solicitors will pursue a relevant enforcement method to retrieve the monies owed.
