This presentation made at the ICC-FraudNet meeting in Calgary on 1 October 2010 concerns a description of the new tools available for the recovery of fraud proceeds since the entry into force on 1 January 2011 of the Swiss codes of criminal procedure and of civil procedure.

1. ICC – FRAUDNET
Developments in the new Swiss Codes of Civil
and Criminal Procedure Affecting Fraud Recovery
Palliser Hotel Alberta Room
Hotel,
th
133 – 9 Ave SW, Calgary, Alberta
Friday, October 1, 2010
Yves Klein, Monfrini Crettol & Associés, Geneva, Switzerland
Michele Caratsch, Baldi & Caratsch, Zurich, Switzerland
Baldi & Caratsch, Zeltweg 44, CH- 8032 Zurich Monfrini Crettol & Associés, 3, place du Molard CH-1204 Geneva
Tel: +41 44 205 25 25 Fax: +41 44 205 25 00 Tel: +41 22 310 22 66, Fax: +41 22 310 24 86
e-mail: mcaratsch@bclaw.ch e-mail: yklein@mcswisslaw.com

2. Overview
1.
1 General introduction: The New Federal Code of Civil Procedure and the
New Federal Code of Criminal Procedure
2. Principal aspects of the new Code of Criminal Procedure affecting Fraud
Recovery
3. New Code of Civil Procedure: changes affecting banking secrecy issues
4. Taking of evidence: "Discovery" in Swiss proceedings?
5. Use f illegally obtained evidence i S i civil proceedings
5 U of ill ll b i d id in Swiss i il di
6. Conservatory Measures: the new grounds for attachment; new possibility of
freezing state assets on the basis of an enforceable award under the new
Lugano Convention

3. From 27…
27
In the 1874 Swiss constitution, both
j
judicial organization and p
g procedure were
within the competence of the 26 cantons,
each of which had its own codes of civil
and of penal procedure. In addition, the
Confederation also had its own codes of
civil and of penal procedure, leading to t o
the existence of 27 distinct sets of rules,
more than in the whole European Union.
p

4. … to 1
On 8 October 1999 the Federal
1999,
Constitution was amended, attributing the
Confederation exclusive competence over
criminal and civil procedure (judicial
organization and administration of justice
f
remain within the competence of cantons).
p )

5. Swiss Code of Civil Procedure
Principal characteristics:
a. Encouragement of mediation and conciliation; simplified
proceedings for small cases (below CHF 30’000).
b. Enhancement of third party intervention.
b E h t f thi d t i t ti
c. Investigation entirely conducted by the judge.
d. Power t issue production orders t thi d parties.
d P to i d ti d to third ti
e. Lifting of bank secrecy as the rule.
f. No discovery or pre-trial di
f N di i l discovery.
g. No class action (judge may consolidate actions).

6. Swiss Code of Criminal Procedure
Principal characteristics:
a.
a Prosecutor model: conducts both the investigation and
the prosecution (no more Investigating Magistrates).
b. Enhanced rights of the defence.
g
c. Enhanced rights of the victim.
d. No jury.
e. Possibility of default judgments.
f. Plea bargaining through simplified procedure and
sentencing orders.
g
g. Since 2000, compulsory federal j
, p y jurisdiction over money
y
laundering, corruption and organized crime, when
mainly carried out abroad or in several cantons.

7. 2. Aspects of the Swiss Code of
p
Criminal Procedure relevant for
fraud ictims
fra d victims

8. Investigation
Prosecutor has the power (without court
orders) to:
)
• interrogate witnesses
• i
issue production orders ( b ki
d ti d (no banking
secrecy)
• issue freeze orders to guarantee forfeiture
• iss e MLAT letters of req ests
issue requests

9. Freeze orders
Freeze order issued to guarantee:
• forfeiture of crime proceeds or
replacement assets
• not compensation of the victim’s damage
Freeze orders may be generic and may take
the form of blanket orders in cases of
organized crime & grand corruption

10. Forfeiture of assets
Compulsory forfeiture of:
• crime proceeds or assets intended to reward or bring
about an offence
• when crime proceeds are no longer available, forfeiture
of replacement assets of the same owner (beneficial
ownership test; no privilege towards other creditors)
• assets under the control of a criminal organization;
g
assets beneficially owned by persons who participated in
or supported a criminal organization are presumed to be
controlled b th organization until proof of th contrary
t ll d by the i ti til f f the t
(either proof of lack of control or of legitimate origin)

11. Third parties protection
Third parties are only protected from
forfeiture if both:
–i
ignorant of their criminal origin;
t f th i i i l i i
and
– provided adequate consideration for the
assets
Forfeiture may be waived if it would
represent an excessive h d hi on th
t i hardship the
third party.

12. Forfeiture procedure
• Together with a conviction.
• Non conviction based forfeiture:
conviction-based
compulsory when no trial takes place;
forfeiture order issued by prosecutor;
no other condition than proof of the
criminal origin of the assets and
Swiss juridiction over the offences.

13. The plaintiff
Upon declaration any individual or legal
declaration,
entity whose rights were directly affected
upon the commission of a crimecrime.
Not the shareholder or the assignee (rights
limited to civil action in subrogation).

14. Plaintiff’s right to participate in
the investigation:
• Right to consult the file and levy copy, granted at the
latest when the suspect has been examined for the first
time (may be limited to prevent abuses)
abuses).
• Right to use evidence in domestic & foreign proceedings.
• Right to request freeze orders
orders.
• Right to request investigative measures and participate
in the examination of witnesses or suspects
suspects.
• Right to appeal against the prosecutor’s decision and to
support the prosecutor’s decision in case of appeal by
prosecutor s
the suspect or a third party.

15. Plaintiff’s right to sue for
damages:
• Plaintiff has the right to sue the accused
for damages before the criminal court.
g
Civil law (including level of proof) applies
(court fee must only be paid at that stage)
stage).
• Plaintiff may support the prosecution in the
criminal trial and reserve its right to sue
before Swiss or foreign civil courts, using
g g
the evidence obtained in the criminal
proceedings.

16. Plaintiff’s right to the allocation
of the forfeited assets
• Article 73 of the Penal Code:
If a felony or an offence has caused damage not
covered by insurance and if it must be presumed
that the offender will not compensate it the
it,
injured person is entitled to receive, upon
request,
request up to the amount of the damages
established by a judgment or by agreement the
forfeited assets, the replacement assets and the
assets
fines paid by the offender.

17. 3. Changes affecting banking secrecy
in the Swiss Code f Civil Procedure
i th S i C d of Ci il P d

18. Current situation
• Today most Swiss cantonal codes of civil
Today,
procedure do not allow production orders
against third parties or the lifting of bank
secrecy.
• Consequence: criminal proceedings are
necessary to obtain evidence.

19. General obligation to cooperate
• Article 160 SCCP introduces a general
obligation for p
g parties and third p
parties to
cooperate with the civil trial.
• In principle banking secrecy cannot be
principle,
opposed (contrary to attorney-client
confidentiality).
f )
• Consequence both on domestic and civil
mutual assistance proceedings.

20. Relative right of refusal:
Art.
A 163 para. 2 SCCP:
SCCP
“[Parties] privy to other secrets that are protected by law can refuse
to cooperate if they show that the interest in maintaining secrecy
p y g y
overrides the interest in discovering the truth.”
Consequence of unjustified refusal: taken into account when
weighing evidence (art 164 SCPP)
(art. SCPP).
Art. 166 para. 2 SCCP:
“Other persons aware of statutorily p
p y protected secrets can refuse
cooperation if they show prima facie that the interest in maintaining
secrecy overrides the interest in discovering the truth.”
Consequence of unjustified refusal: fine threat of imprisonment
fine, imprisonment,
order compliance by force, costs (art. 167 SCPP).

21. Lifting of banking secrecy is the rule:
• Bank secrecy is lifted unless the party or
third party barred by secrecy law from
disclosing the information or d
di l i th i f ti document t
can show that there is an overriding
interest to maintain secrecy.
• However banks have declared that they
However,
will systematically exert their right of
refusal to make sure that they have a court
f lt k th t th h t
decision protecting them from liability.

22. Consequence on domestic
proceedings
• In the less complex cases criminal
cases,
proceedings may no longer be necessary.
• Criminal p oceed gs still necessary for
C a proceedings st ecessa y o
transnational, complex cases.

23. Consequences on civil international
judicial assistance
Requests for taking evidence sent to Switzerland
are governed by:
• The Hague Convention of 18 March 1970 on the
Taking of Evidence Abroad in Civil or
Commercial Matters (Swiss declaration under
article 23: limitations on pretrial discovery)
• Th Hague Convention relating to civil
The H C i l i i il
procedure of 1 March 1954 (applies also when
the
th requesting St t has no treaty with
ti State h t t ith
Switzerland)

24. Law applicable
to the execution of the request:
• Today, requests are executed in
accordance with the code of procedure of
p
the canton of execution (art. 11 PILA).
• From 2011 on, the Swiss Code of Civil
on
Procedure shall apply.
• By providing sufficient elements in the
request, bank documents may be obtained
in Switzerland (see 4A_399/2007).

25. Elements to provide in the request:
• Facts of the case sufficiently detailed to
allow the Swiss court to effect a balance of
interest between secrecy and truth.
• Specify which documents are requested
(no discovery-like exploratory requests).
• Parties may participate in the examination
of witnesses but not in the production of
documents.

26. 4.
4 Taking of evidence:
"Discovery" in Swiss proceedings?

27. Taking of evidence: "Discovery" in
Swiss proceedings?
• Ad i ibl t
Admissible types of evidence under A t 168 SCCP:
f id d Art. SCCP
(1) Witness evidence
(2) Documentary evidence
(3) Inspection by court
(4) Expert evidence
(5) Written request by the court
(6) Parties’ interrogation by the court and testimony
under oath

28. Differences to common law system
• Th concept of pre trial discovery or gathering of evidence prior t th
The t f pre-trial th i f id i to the
trial by way of taking depositions of witnesses or mandatorily exchanging or
producing documents is completely unknown and will continue to remain
unknown under the new code of civil procedure.
p
• Affidavits or witness statements filed by a party have no
evidentiary value unless backed up by “live” evidence given in front of the
court.
• Evidence is taken by the court after the parties have submitted in
full, usually by exchange of written briefs, their allegations of facts. The
court will take evidence on all of those facts which are either alleged or
disputed.
disputed
• The administration of the evidence, including the questioning of the relevant
witnesses, is reserved to the court. Parties' counsels may ask additional
questions to any witnesses which are being questioned by the court, but this
only after the court h made i own enquiries and authorizes parties''
l f h has d its ii d h i i
counsels to proceed. NO concept of cross-examination.

29. Codified duty of the parties to
produce documents
• Art. 160 sec. 1 (b) SCCP contains a general obligation for the parties and
third parties to cooperate with the courts, including the duty to produce
documents at the request of the court.
q
• General guideline: IBA Rules on the Taking of Evidence in International
Commercial Arbitration of 1999:
• Documents to be released must be in possession, custody or control of the
party from which they are requested
• The documents must be sufficiently identified by the requesting party – no
fishing expedition
• Request must be formulated during the p
q g proceedings – no pre-trial discovery
g p y
• Order of production is issued by the Court – release of documents only to
the Court, not directly to the requesting party.
• Side note: A defendant cannot be compelled by either the court or the
adversary t disclose it assets. Di l
d to di l its t Disclosure of assets presupposes a fi l
f t final
judgment or enforcement document against the defendant, and is only
possible within the framework of compulsory enforcement under the DCB.

30. Legal Privilege?
• Art.
Art 160 sec. 1(b) newly introduces the concept of legal privilege:
sec
• NOT ONLY ATTORNEYS CAN REFUSE TO PRODUCE THEIR
OWN PRIVILEGED DOCUMENTS, BUT ALSO CLIENTS CAN
DOCUMENTS
REFUSE TO PRODUCE COMMUNICATION WITH THEIR
ATTORNEY WHICH IS PRIVILEGED.
• NOT PRIVILEGED IS:
• Activity of a lawyer as member of the board of directors of a
company;
• Activity of a lawyer when performing fiduciary services e.g. for
offshore entities
• Activity of a lawyer as asset manager
• In-house counsel of a corporation cannot invoke legal privilege!

31. Rights of Refusal of Parties and
Witnesses
Absolute d Relative Right f Refusal of P ti and
Ab l t and R l ti Ri ht of R f l f Parties d
Witnesses (Art. 163, 165, 166 SCCP)
• Witnesses or third parties holding documentary evidence
may refuse to cooperate with the court to the extent that
the disclosure of a business or other secret would be
punishable pursuant t article 321 of th P
i h bl t to ti l f the Penal C d
l Code.
• The third party submitted to an obligation to report or
released from the obligation to keep the secret has a
duty to cooperate, unless it renders likely that the
interest of the protection of secret is stronger than the
interest t th manifestation of truth (art. 166 para. 1 b
i t t to the if t ti f t th ( t
SCCP).

32. Discovery without teeth against
parties (Art. 164 SCCP)
• U j tifi d refusal BY PARTY t produce
Unjustified f l to d
documents upon order of the Court
• Consequence: NO CRIMINAL PENALTY; NO
ENFORCEMENT OF THE COURT ORDER
• Art. 164 SCCP: The Court shall take (the
refusal) into account when weighing the
evidence
• Example: Court, if satisfied that document is in
possession of the party, shall assume that the
document has those contents as described by
the counterparty; also applies to documents
which have been unjustifiedly destroyed.

33. Discovery with teeth against third
parties (Art. 167 SCCP)
• Unjustified refusal by third party to produce
documents upon order of the Court
Consequences:
• Administrative fine of CHF 1‘000.—;
1 000. ;
• Order of the court to comply with criminal
sanctions if failure to do so;
• Forceful enforcement of court;
• Bearing of court cost resulting from the failure to
comply.

34. 5. Use of illegally obtained evidence in
Swiss i il
S i civil proceedings
di

35. Use of illegally obtained evidence in Swiss civil
proceedings (Art. 152 sec. 2 SCCP)
• Art. 152 sec. 1 SCCP gives both parties
the right to have all „
g „suitable“ evidence
timely submitted admitted and accepted by
the court
court.
• Art. 152 sec. 2 introduces a right to have
evidence illegally obtained considered by
the court, to the extent that the interest in
„finding the truth“ is predominant.

36. Balance of interest between „illegal
act“ and „finding the truth“
• J d h t b l
Judge has to balance th interests
the i t t
• Irrelevant, whether the breach committed to obtain the
evidence is being investigated or not
• If illegal act led to a breach of the physical or
p y
psychological integrity, then judge is unlikely to consider
g g y j g y
it
• If illegal act was a breach of an absolute or relative right
to refuse giving evidence – judge will weigh these
interest very high.
• Open question: Private investigator obtains information
from Swiss banker in breach of banking secrecy laws:
Can this information be used?

37. 6. Conservatory measures;
The new grounds for attachment;
New possibility of freezing state
assets o the bas s o a e o ceab e
on t e basis of an enforceable
award under the new Lugano
Convention

38. Conservatory Measures
New Safeguarding Measures under Art. 261 SCCP
Art
Safeguarding Measures under Art. 261 et seq. SCCP
Art seq
The court can issue the necessary precautionary measures if the applicant can
make plausible:
(1) that a claim or right has been breached or a breach is to be expected; and
(2) the breach will cause a damage which is not easily remediable.
Negative injunction preventing the defendant from changing the status quo and
protecting an alleged right of the claimant in order to secure an effective
enforcement in the future, once the disputed matter is determined on its merits
(such as preservation orders restraining the defendant from disposing of real
property)
•(i) the likelihood that the claim in the main trial is justified
() j
•(ii) the existence of an impending and not easily remediable damage, if the
injunction is not granted
•(iii) urgency in granting the provisional remedy

39. Conservatory measures
Type of measures pursuant to Art. 262 SCPP (coupled with threat of criminal
sanction under Art. 292 PC if not complied with – NO CONTEMPT OF COURT)
p )
(a) Prohibition
( )
(b) An order to set aside an illegal situation
g
(c) An order directed at a registry or at a third party to refrain from allowing or
effecting any disposal
- Order to bank to freeze a certain account respectively to maintain
status quo
- Prohibition to bank to release certain securities to one of the parties
(d) The intermediate payment of a certain sum in the cases provided by law
- Support p y
pp payment under family law for children…but
y
…might apply e.g. to Dutch orders to effect certain contractual
payments pending the final determination of the case
(Articles 289 to 297 of the Netherlands Code of Civil Procedure deal with a form of procedure known
as `kort geding' which allows the President of the Arrondissementsrechtbank to grant enforceable
kort geding',
measures `in all cases which, having regard to the interests of the parties, require an immediate
measure on grounds of urgency' (Article 289(1)).

40. Monetary Claims: The Attachment
Proceedings
If a claim for money is involved, the classic interlocutory order designed to secure its
enforcement is the attachment order
order.
The attachment order (Séquestre, Arrest, Sequestro) is the classic interlocutory order
designed to secure the enforcement of a claim for money.
•It causes a temporary freezing of assets located in Switzerland in order to secure a
basis for subsequent enforcement, pending a final determination of the litigation on the
merits in respect of a monetary claim only.
•A claimant will usually apply for an attachment as a pre-trial interlocutory order before
a claim is filed, but attachments may also be obtained at any time after the filing of the
main action in Switzerland or abroad as an ancillary remedy. The monetary claim for
which an attachment order is sought must be prima facie due and payable
•The statutory basis for attachments is laid down in the Federal Act on Debt Collection
and Bankruptcy of 11 April 1889 (
p y p ("DCB"), specifically articles 271 to 281 DCB.
), p y
•To obtain an attachment order over assets of a defendant, an applicant must mandatorily
show any of five conditions or reasons (Cas de séquestre, Arrestgründe, Cause di
sequestro) allowing an attachment p
q ) g pursuant to article 271 DCB, namely:
, y

41. Presently: 5 reasons for attachment
(1) the defendant has no fixed place of residence or abode anywhere
anywhere,
in Switzerland or abroad;
(2) the defendant has dissipated assets, flees or prepares to flee in
order to defeat enforcement of undischarged debts;
(3) the defendant is in transit or is a person visiting markets or fairs,
provided the relevant claim is of a nature that requires immediate
p y
payment; ;
(4) the defendant has no residence in Switzerland, no other reasons
for an attachment are fulfilled, but the claim has a sufficient nexus
with Switzerland or is based on an enforceable judgment or a
written acknowledgment of debt;
itt k l d t f d bt
(5) the creditor holds certificates of unsuccessful former enforcement in
respect of undischarged debts of the debtor.

42. Attachments in fraud litigations:
Difficulties
• In an international context the principal ground usually relied upon
context,
is the absence of Swiss residence.
• The additional requirement of a sufficient nexus with Switzerland
has not been defined by the legislator Court practice has developed
legislator.
a number of factual circumstances which are deemed sufficient to
establish such a nexus. If the claim is based on contract, then a
nexus would be established if the contract was negotiated,
concluded or performed, wholly or i part, i S it l d or S i
l d d f d h ll in t in Switzerland, Swiss
law or an arbitration clause with seat in Switzerland was determined
to be applicable to the contract or to any disputes arising out of it.
• In tort cases the claimant would have to show that the activities
cases,
leading to the tort claim were carried out, at least in part, in
Switzerland.
• A fraud victim might not be able to obtain an attachment if the only
nexus to Switzerland is constituted by the existence of a Swiss bank
account, without any apparent evidence that any fraudulent activities
were carried out in the country.

43. Application for attachment
• The application for an attachment order is filed ex parte in
summary proceedings
• Written submission that any one of the five conditions of article
271 DCB is met
• prima facie case supporting a reasonable probability of a valid
claim
• Establish b way of doc mentar evidence the n mber and
by a documentary e idence number
denomination of the Swiss account/asset to be frozen
• The jurisdiction ratione loci is the court at the registered seat
of the bank
• If an application is unsuccessful, the defendant is not notified,
giving the applicant the possibility to improve his application by
filing a second more documented version of it or by filing an
second,
appeal against the adverse decision of the lower court. As long
as the applicant is not successful, the defendant is not notified
of any applications filed

44. New Ground for Attachment
under Art. 271 sec. 6 DCB
Coming into force as f
C i i t f from 1 t J
1st January 2011
2011:
New section 6:
An attachment may be granted if the claimant disposes of a
title for final enforcement under the DCB
(i) enforceable court awards (on payment of a sum
of money);
(ii) enforceable arbitration awards;
(iii) Resolutions and decisions of cantonal and
federal authorities (including uncontested tax
decisions);
(iv) enforceable public deeds.

45. Novelties provided under sec. 6 of
Art. 271 DCB
• „Lugano“ court judgments are equivalent to Swiss
Lugano“
judgments.
(
(The Lugano Convention on Jurisdiction and the
g
Enforcement of Judgments in Civil and Commercial
Matters of 1988/2007, the latter applicable to EU
including eleven new EU member states (
g (Czech
Republic, Cyprus, Slovakia, Slovenia, Hungary, Malta,
Estonia, Latvia, Lithuania, Bulgaria and Rumania) plus
S
Switzerland, Norway a d Iceland (ye to be ratified)
e a d, o ay and ce a d (yet o a ed)
Judge granting the attachment effects an exequatur of
the Lugano-judgment in ex parte proceedings.

46. Novelties provided under sec. 6 of
Art. 271 DCB
NEW IS:
IS
- No absence of Swiss residence (Assets of Swiss
residents might now become subject to attachment)
- No nexus to Switzerland needs to be shown (but assets
in Switzerland need still to be identified);
)
- Urgency or threat of creditors‘ interest through a
possible dissipation of assets by debtor no longer needs
to be shown;
- Order has Swiss-wide effect: Application might be
brought in Zurich, but also address assets located in
Geneva (but all assets still need to be identified

47. Freezing of State assets?
•The new ground for attachment gives the possibility, on
Th df tt h t i th ibilit
the basis of an enforceable judgment rendered in a Lugano
state against a foreign state, to freeze the assets of a
g g ,
foreign State in Switzerland.
•Conditions:
– acta iure gestionis
– assets to be attached are not used for any public purpose
– thus far nexus to Switzerland was required
far, required.
This is no longer the case. Swiss Department of Justice is
presently drafting new guidelines on the procedure to be
adopted, in line with Art. 2 1 sec. 6 DCB – during 2011
271 C

48. Outlook
• Non Lugano-judgments need fi t t go th
N L j d t d first to through (i t
h (inter-
partes) exequatur proceedings in order to be coupled
with attachment proceedings
p g
• Increase of attachment proceedings expected in
Switzerland, in particular:
• - against Swiss citizens and residents;
• - attachment by tax authorities for unpaid taxes now
possible;
• -against assets of foreign states
• - Creditor might freely decide which assets should be
frozen (improvement of negotiating position of
creditors to obtain quicker discharge of debts)

49. No security for attachments under
Sec. 6 of Art. 271 DCB
Security
S it
• The applicant who obtains an attachment order is liable
to both the defendant and to any third party affected for
damages suffered as a result of an unjustified
attachment.
• It lays within the discretion of the judge to order the
claimant to post a bond as a security against such
potential damage (usually 10% of the claim for which
attachment is sought, to be put up usually by way of a
cash deposit or a bank guarantee.
• Under the cases of sec. 6, unlikely that judges will ask
for security from the applicant.