General Definition of Fraud under Liechtenstein Law
Liechtenstein is a civil law jurisdiction. Although case law exists and serves as a practically relevant source of legal knowledge, playing an important role for daily legal work, it is not capable of creating binding precedent like it does in common law jurisdictions. Subsequently, fraud claims - according to Liechtenstein legal doctrine - arise from legislation.
Liechtenstein law includes no explicit provisions with regard to civil fraud claims. Fraud as a specific legal term is only referenced in the Liechtenstein Criminal Code (Strafgesetzbuch; StGB).
Fraud, as defined in Section 146 of the Liechtenstein Criminal Code, is any conduct that induces a third party - through intentional deception of facts - to perform, acquiesce in, or omit to perform an act that damages the property of that person or another person, if the deception is committed with the intention to unlawfully enrich oneself or a third party through the conduct of the deceived person.
Fraud Claims under Civil Law
Although, there are no specific provisions in Liechtenstein civil law dealing explicitly with fraud, fraud claims play an important role in a civil law context.
Civil fraud claims arise from the general provisions on tort law included in Section 1295 et seqq of the Liechtenstein General Civil Code (Allgemeines Bürgerliches Gesetzbuch; ABGB). They include, on an abstract level, every unlawful conduct dealing harm to another person or another person's property and thus also fraudulent actions.
Fraud claims are primarily aimed at restoration of the previous state. Monetary compensation, on the other hand, must only be provided if it is impossible or impractical to restore the original condition.
As a consequence of the above, persons who have suffered damages from fraudulent actions are entitled to claim damages and people who have entered into contracts on the basis of fraudulent actions may contest such contracts. This includes damages dealt by or contracts concluded as a consequence of false statements made by a counterparty.
All examples of criminal fraud referenced below, ie, the making of corrupt payments, criminal conspiracy and misappropriation, may give rise to civil fraud claims if they include the unlawful dealing of damage to other persons.
Claims for Restitution of Unjustified Enrichment
Further to claims for damages, claims for restitution of unjustified enrichment pursuant to Section 877 (condictio sine causa) and 1431 (condictio indebiti) of the General Civil Code may be a possibility to reclaim fraudulently obtained funds or assets, albeit being less practically relevant and in general subsidiary to the claim for damages. Enrichment claims are possible if a transfer of assets has been performed without legal grounds.
Claims for Unauthorised Use
If an unauthorised person obtains monetary or other advantage by using assets to which they are not entitled in terms of property, the rightful owner may bring a claim based on unauthorised use according to Section 1041 of the General Civil Code. Such claims are subject to a special statute of limitations of thirty years.
Challenging Contracts Concluded by Means of Cunning Deception
Fraud is also recognised in other legal contexts. If a person has entered into a contract because of the deliberate deception of another, the first is not bound to that contract according to Section 870 et seqq of the General Civil Code. From these provisions on contracts also arises the possibility of having a contract altered by the court, or even of contesting a contract that has been concluded through fraudulent actions.
After a contract entered into by matters of fraud has been successfully challenged, funds transferred on the basis of such contract may be reclaimed by bringing enrichment claims according to Section 877 of the General Civil Code.
Special Claims against Directors
Section 218 of the Persons and Companies Act (Personen- und Gesellschaftsrecht; PGR) provides legal entities with a special claim of liability against their directors or corporate bodies.
Civil Fraud Claims: Procedural Aspects
There are no special procedural provisions for the enforcement of fraud claims. The general rules of civil proceedings as stipulated in the Liechtenstein Code of Civil Procedure (Zivilprozessordnung; ZPO) apply.
Characteristics of Fraud in Criminal Law
According to its dogmatic classification, fraud is a crime leading to the victim inflicting harm on himself and/or his property respectively. By his own deliberate conduct, the perpetrator deceives the victim about certain facts and thus causes a disposition of assets by which the victim harms himself or an involved third party.
Fraud requires a particularly guided intention to unlawfully enrich oneself or a third party by deceiving somebody and tricking them into making self-harming dispositions of assets as a result of this deception.
Such deceiving conduct is either achieved by making an intentionally untrue statement or by wilfully omitting to make true or complete statements, where legally required.
Examples of Fraud and Related Offences
By applying the above criteria, the making of false statements to cause someone else to harm their own financial interests or those of a third party will be qualified as a typical example of fraud. If false or falsified documents are used to commit fraud it will even be considered a case of severe fraud (Section 147 Criminal Code) with correspondingly more severe penalties.
Bribery and Corruptibility
Corruption payments to public officials, expert witnesses or arbitrators with regard to the performance of acts in breach of duty are punishable according to Section 307 of the Criminal Code with a prison term of up to three years.
Even payments for the performance of acts in accordance with official duties (eg, for acceleration or preferential treatment of an application) are punishable according to Section 307a of the Criminal Code.
Additionally, offering benefits to influence the performance of official duties without reference to a certain official act may be punished pursuant to Section 307b of the Criminal Code.
Besides corruption payments to officials, bribery and corruptibility are also punishable when committed in a private business context with regard to legally relevant actions in breach of duty (Section 309 of the Criminal Code).
The mirror image offenses, ie, the passive ones relating to corruptibility and similar offences. are mentioned in the same section in Sections 304 and 306 for the public, and Section 309 for the private sector respectively.
Section 277 of the Criminal Code targets criminal conspiracies, defined as actions by two or more people aimed at the commission of particular, severe offences such as murder or blackmail kidnapping. Although a certain plan of action and a firm decision to commit the offence are necessary, no steps to realise or execute the plan are required to become liable for this offence.
Furthermore, the Liechtenstein Criminal Code includes provisions to prevent misappropriation of funds and assets in Section 153 of the Criminal Code.
The provision is intended to ensure proper conduct of authorised disposers with regard to their handling of assets of the respective beneficial owners. As a special offence, misappropriation can only be committed by a person with the legal authority and permission to dispose of and administer the assets of another. Misappropriation occurs wherever rules on the protection of financial interests of the beneficial owner are unreasonably violated.
Relevance of Misappropriation in Liechtenstein
As a consequence of its liberal private and contractual law and its favourable tax regime, Liechtenstein is home to numerous legal structures for wealth preservation and asset management, especially private and charitable benefit foundations and trusts, but also financial asset managers like fund management companies, banks and insurance companies.
This leads to a vast number of legal entities being managed by professional trustees, board members and others with the authority to make legally valid dispositions on other people's assets. Committing misappropriation in the capacity of trustee is considered an aggravating circumstance by Liechtenstein courts. Misappropriation claims often are of special relevance in the context of wealth and asset tracing proceedings in Liechtenstein.
In the case of damages that have already been dealt, a claimant may resort to the standard tort law provisions and claim damages if the following conditions are met:
Apart from this, the receipt of a bribe may be reported to the public prosecutor's office to be prosecuted under Section 307 et seqq of the Criminal Code.
Taking Action against Third Parties Assisting in Fraud
As a general rule, the same criteria which apply to claims against fraudsters themselves are also relevant with regard to third parties who assist in or facilitate fraudulent acts of another according to Section 1301 of the General Civil Code. The provision refers explicitly to direct or indirect assistance and hence comprises a broad range of different conduct.
By way of example, the receipt of fraudulently obtained assets of other persons will be considered a case of the above Section 1301 in conjunction with Section 1295 of the General Civil Code in a civil context.
From a criminal law point of view, such actions will be considered as either the receiving of stolen goods according to Section 164 of the Criminal Code or participation in the offence (eg, fraud, bribery, corruptibility and misappropriation) of another in conjunction with Section 12 of the Criminal Code.
General tort claims and thus also civil law fraud claims under Liechtenstein law are subject to a statute of limitations of three years after notice of the damage inflicted, and the identity of the damaging party and the causal connection between those two become known to the injured party according to Section 1489 of the General Civil Code. In every case, however, the absolute statute of limitation for such claims is thirty years.
The statute of limitations for the prosecution of fraud in criminal law is one year, starting upon completion of the offence according to Section 146 in conjunction with Section 57 paragraph 3 of the Criminal Code.
Property Rights and Property Claims
When assessing the perspectives of proprietary claims, previous examination of the actual validity of the respective fraudulent property transfer is necessary. Property claims under Liechtenstein law must always relate to certain determinable assets.
The transfer of property rights, and of rights in rem in general, is composed of a valid agreement to transfer (titulus) and the effective transfer (modus) of an asset. This must be considered when analysing proprietary claims against misappropriated or otherwise fraudulently transferred assets.
Where a transfer of property was already perfected according to Liechtenstein law, even if somehow induced by fraud, directly resorting to proprietary claims will not be promising.
Important Proprietary Claims
The exercise of property rights by the proprietor is generally unrestricted. The proprietor may use assets as he likes and is entitled to prohibit anyone else from the disposition. As a consequence, the proprietor may also demand the return of his assets from anyone, based on the general proprietary claim (rei vindication) according to Section 20 paragraph 1 of the Law on Property (Sachenrecht; SR).
Whenever a valid transfer of property has already taken place, however, the converted proceeds of assets obtained by fraud are not subject to recovery by proprietary claims against the fraudster. Taking action against a fraudster under these conditions is only possible based on claims arising from obligations law.
If a third party has acquired originally misappropriated or otherwise fraudulently obtained assets in good faith, such party will be considered the rightful proprietor. Consequently, a third party who has acquired assets in good faith is legally protected against proprietary claims of a former owner (Section 512 of the Law on Property).
A third party, who knew or should have known that they are acquiring from a person who is not entitled to legally dispose of the assets (acquisition in bad faith), does not enjoy protection of the laws. Hence, proprietary claims can be successfully asserted against such third parties.
Proprietary Claims and Insolvency Proceedings
Rights of segregation (Aussonderungsrecht)
According to Section 5 paragraph 1 of the Insolvency Act (Insolvenzordnung; IO), the insolvency estate is constituted by the debtor's assets exclusively. As a consequence, the property of others is not part of the insolvency estate and not subject to insolvency proceedings, even if the debtor has the asset in their possession.
Consequently, Liechtenstein law provides for a right to segregation (Aussonderungsrecht), which enables a proprietor to claim segregation of their assets from the insolvency estate.
Right to a separate settlement (Absonderungsrecht)
Furthermore, pledge, property transfer for security purposes, security assignment and the right to retention are considered insolvency-proof claims as well. They provide for a right to a separate settlement (Absonderungsrecht) of the authorised person who is entitled to claim preferential settlement of their claims from the realisation proceeds of the particular assets to which their legal position is related.
Recovery of mixed funds
The person who mixes funds stemming from fraud with other funds, acquires property through commingling. As a result, proprietary claims will not be effective to reclaim property. Instead, the claimant must draw on obligatory claims like tort claims and claims for the restitution of unjustified enrichment.
Investment gains from fraudulently obtained funds
Profits generated through the successful investment of funds, which were initially obtained by fraud, are generally considered property of the investor and hence the fraudster or proprietor.
Notably, if the respective conditions under tort law are met, the victim may not only claim positive damages but also redress for lost profits which had otherwise probably been realised. Furthermore, a claim based on unauthorised use may be brought in such cases.
No specific pre-action conduct regulations apply in relation to fraud claims. Please note, however, that Liechtenstein procedural law requires diligent examination of the specific burdens of proof if claimants intend to assert their claims successfully.
Acting Swiftly: Interim Injunction
Success or failure in asset tracing and recovery proceedings depend heavily on the claimant's acting swiftly. As a consequence, interim measures intended to prevent fraudsters from secreting assets are of utmost importance.
Interim measures, according to the Liechtenstein Enforcement Act (Exekutionsordnung; EO), may be granted prior to as well as after the commencement of regular proceedings and are available either in rem or in personam.
Interim measures may be issued as security restraining orders (for pecuniary claims; Sicherungsbote) or official orders (for non-pecuniary claims; Amtsbefehle). They are intended to maintain a current factual state and prevent a defendant from damaging, destroying, concealing or setting aside assets by custody and administration of the assets by the court, judicial prohibition to dispose of the assets or judicial prohibition to third parties to fulfil claims of the party affected through court order.
Local court practice favours the granting of interim relief if the concerned counterparty is a domiciliary company, ie, a company whose activity is limited to the management of funds or the holding of assets.
As personal interim measures, arrest and detention of the fraudster are possible. Since these are considered to be serious sanctions, they are only permissible if the fraudster is on the run, their possible escape would thwart the enforcement of the applicant's claim, and if other measures are not sufficient to ensure legal protection of an applicant/endangered party. Such personal interim measures are only eligible as ultima ratio, in cases where no other measures can succeed in safeguarding the interests of the endangered party.
Applications for interim injunction can, but do not necessarily, have to be attached to other pending proceedings. The burden of proof for the potential secretion or dissipation of assets lies with the petitioner, whereby it is sufficient to make such actions of the counterparty plausible. Past behaviour or attempts to secrete assets will also be considered adequate evidence. As interim relief measures have to be determined regarding their timeframe, it may be necessary to apply for an extension of the measure from time to time.
Interim measures are always issued and executed at the expense of the claimant. Court fees vary and may amount up to CHF8,500 depending on the monetary valuation of the claim.
Procedural Ways to Achieve Disclosure
Civil law aspects
The Code of Civil Procedure generally leaves the collection and submission of evidence to the parties. Liechtenstein law does not provide rules for the compulsory discovery of pretrial evidence. Even during civil proceedings, the possibilities to force a counterparty to produce evidence, eg, documents related to assets, are restricted to situations in which:
Neither the appearance of a party in court nor the testimony during a party hearing can be compelled by the court. The above remarks refer only to the parties of the lawsuit and, as a general rule, are not extended to their nominees or other associates. A cross-undertaking in damages in not required.
Contrary to civil proceedings, the tasks to collect and prepare evidence in criminal proceedings are largely assigned to the competent judge/the public prosecutor. This comprises a range of coercive measures such as the seizure of documents and other evidence.
If the collection of certain types of evidence is likely to be aggravated or impossible in the future, a party may apply for a court order for the preservation of evidence. This applies to the following categories of evidence:
Physical searches for documents at the defendant's residence or place of business cannot be granted by the courts in civil proceedings. Such searches and seizures of objects and documents may only be conducted in criminal proceedings.
According to Liechtenstein legal doctrine, civil proceedings follow a two-party system. However, third parties may be summoned to testify as witnesses. In the course of such testimony, witnesses are obliged to answer the questions posed to them comprehensively and truthfully, provided they do not have a right to refuse to testify.
Third parties can be forced to produce evidence in the form of documents by issuance of a court order requiring them to do so.
Under certain conditions, witness testimony may already be obtained prior to the commencement of the proceedings. This applies whenever it must be assumed that the taking of evidence will later be made more difficult or impossible.
Procedural law does not place particular restrictions on the use of such evidence. Notably, however, the rules on preserving evidence refer only to those that are of the aforementioned types.
Ex Parte Measures
In civil proceedings, the taking of evidence without notification of the defendant/respondent is generally not intended. Two-sidedness is a guiding principle of the proceedings and the defendant must be given the opportunity to address all evidence presented to ensure procedural equality. Measures ex parte or without notice are generally not foreseen. This also applies to the preserving taking of evidence.
Even the procedures granting interim injunctions are basically two-sided and only specific circumstances justify the omission of an inter partes procedure. The reason for this strict approach towards unilateral taking of evidence is rooted in Liechtenstein law's reception of Article 6 (fair trial) of the European Convention of Human Rights (ECHR).
There are, however, specific situations when the issuance of ex parte interim injunctions is possible. This applies whenever the conducting of an inter partes procedure would thwart the purpose on the measure, which must be determined on an individual case-by-case basis.
Joining Criminal Proceedings as Private Participants
It is not uncommon for fraud victims to seek redress via joining criminal proceedings as private participants, pursuant to Section 32 of the Code of Criminal Proceedings.
This not only provides fraud victims with the opportunity to pursue their civil law claims through the proceedings, but also further equips them with significant procedural rights, including the right to ask questions, submit evidence and inspect files.
In the past, the Liechtenstein Supreme Court has even held that private participants joining criminal proceedings are entitled to be heard and receive a decision on their claims within a reasonable period of time.
The Interplay of Civil and Criminal Proceedings
Civil and criminal proceedings may and actually often do run in parallel. Civil courts, for example, are not bound to the facts found in a criminal proceeding and vice versa. The progression of criminal proceedings does not necessarily impede related civil proceedings.
According to the Code of Civil Procedure, however, civil proceedings may be suspended until the conclusion of related criminal proceedings if the outcome of the latter is prejudicial for the former.
Exceptions from the Principle of Full Trial
As a general rule, Liechtenstein law requires full trial and the possibility for the defendant to invalidate all allegations brought against them, to dispute the claimant's arguments respectively.
However, if the defendant does not appear at the first oral hearing although properly summoned, leaving unused the opportunity to defend themselves, civil procedural law provides for the possibility to issue a judgement by default (Versäumungsurteil) upon application of the claimant.
Additionally, the Code of Civil Procedure provides for a simplified summary proceeding to sue for pecuniary claims. If filed accordingly, the competent judge will issue a payment order on the grounds of the application which will then be delivered to the debtor for response within fourteen days. If the debtor objects within fourteen days, the payment order becomes invalid. If there is no reaction, however, the payment order becomes legally valid and may serve as basis for enforcement proceedings.
Pleading Civil Fraud under General Tort Rules
Specific fraud-related claims do not exist in Liechtenstein civil law. From this, it follows that pleading fraud rather means pleading a specifically fraud-related behaviour responsible for damages under tort law.
This in turn requires proving:
Notably, the calculation of damages is dependent on the type of fault (intentional conduct, negligence). Intentional or grossly negligent conduct gives rise to the obligation to compensate the other party for loss of profits and positive damages. The latter includes primarily restitution, compensation for the damage actually incurred, and compensation for the expenses necessary to redress the damage. Minor negligence requires only the compensation for positive damages incurred.
As fraud always requires a deliberate deception of the victim, this implies intentional conduct and hence leads to a calculation of profits adding compensation for the loss of profits to positive damages.
Furthermore, it is of utmost importance to consider the procedural rules on the burden of proof before deciding to plead fraud in civil courts. Essentially, each party is obliged to prove the facts favourable to its legal position. In obvious and typical cases, the courts also accept prima facie evidence. The existence of a damage and the causality of the defendant's behaviour for its emergence are always up to the claimant to prove.
According to the Code of Civil Procedure, the filing of a civil lawsuit requires precise designation of the defendant. Consequently, the defendant (in this case the fraudster) must be known to the claimant as a precondition to take civil legal action.
This is a matter in which the interplay of criminal and civil law instruments may be useful. A victim of fraud may bring the offence to the attention of the public prosecutor's office. If the office considers the information, possibly finds an initial suspicion of an offence and opens an investigation, this may result in the discovery of the fraudster's identity. The victim is subsequently able to either join the criminal proceedings as a private participant and/or take civil legal action as soon as the identity of the fraudster has been revealed.
Contrary to parties of a legal dispute, witnesses can be compelled to appear and testify before the court. Refusal to do so will be fined or sanctioned by arrest (for imprisonment of six weeks at most) to make the witness testify.
Attribution of Knowledge to Legal Entities
Comprehensive liability of companies and foundations
Liechtenstein's function as an important location for holding and domiciliary structures makes the attribution of the knowledge of individual directors to the legal entities they represent particularly and practically relevant.
In general, directors and other persons with respective power of representation are entitled to perform all legal acts on behalf of the respective entities in relation to third parties, which act in good faith (Sections 187 et seqq of the Persons and Companies Act).
With regard to the external liability regime, legal entities are liable to third parties for the conduct of their representatives without limitations. This applies not only to companies but also to foundations, which is of exceptional practical relevance for Liechtenstein legal practitioners.
Although directors and other representatives are obliged to follow internal limitations stipulated by organisational documents or resolutions of corporate bodies of the entity, such internal limitations do not generally render contradictory external conduct invalid.
Limitations of the representation of legal entities
However, there are certain limitations to the power of representation of legal entities, which are mainly set out in Section 187a of the Persons and Companies Act. If corporate bodies or directors take action exceeding their statutory powers, the legal entity is not bound by their decisions.
Furthermore, directors' actions exceeding the business purpose are not binding on the company if the company proves that the contracting partner knew or would have been obliged to know that the respective conduct was not covered by the business purpose. The Liechtenstein Supreme Court (Oberster Gerichtshof; OGH) has held in the past that this is to be applied per analogiam also to foundations with the foundation purpose taking the place of the business purpose.
In addition to that, representatives' actions contradicting or exceeding limitations placed by internal regulations (eg, statutes or articles of association) are not binding on a legal entity if it succeeds in proving that the contracting partner knew or would have been obliged to know about such internal limitations of the powers of representation.
Consequences of actions invalidated according to the above provisions are to be determined by application of the claim for restitution as a consequence of unjustified enrichment, pursuant to Section 877 of the General Civil Code (condictio sine causa).
Inverse piercing of the veil
For situations in which a defendant is trying to set aside assets by providing them for the establishment of a legal entity, eg, a foundation, Liechtenstein case law has developed the model of the inverse piercing of the corporate veil by looking through the natural person at the legal entity and enabling a claim against this entity if the transfer of funds/assets constitutes an abuse of rights according to Section 2 paragraph 2 of the Persons and Companies Act and Section 2 paragraph 2 of the Law on Property.
Attribution of private knowledge
Private knowledge, ie, knowledge which directors or corporate bodies have acquired outside of the performance of their duties on behalf of the legal entity, will also be attributed to that entity according to settled case law.
Responsibility for criminal conduct
Legal entities bear full responsibility for the criminal conduct of their directors according to Liechtenstein case law. This line of jurisprudence is also extended to the foundation board as governing body of a foundation.
Piercing of the Corporate Veil
If legal entities have been used as vehicles to commit fraud, Liechtenstein case law recognises the concept of a piercing of the corporate veil, ie, attributing rights and obligations of a legal person to the natural person behind it, provided the use of legal entities as instruments amounts to an abuse of rights.
Primary Claims of the Legal Entity and Subsidiary Claims of Shareholders against Directors
Section 218 paragraph 2 of the Liechtenstein Persons and Companies Act (Personen und Gesellschaftsrecht; PGR) specifically deals with the issue of shareholders' claims against the directors of a legal entity. The large number of externally managed companies and legal structures helps illustrate the practical significance of such claims.
Shareholders' claims of responsibility against directors are subsidiary to claims of the entity itself against its directors because the provisions on directors' obligations intend to protect the property of the legal entity in the first place and are meant to provide legal relief to creditors and shareholders only indirectly.
The general rule in this context is that directors are liable to the legal entity represented by them for both intentional conduct and negligence. In insolvency proceedings, the insolvency estate (Insolvenzmasse) as legal person is entitled to this claim against the directors of its legal predecessor.
Shareholders may claim compensation from directors only if two conditions are fulfilled cumulatively. Firstly, they have to be injured directly by the fraudulent behaviour of directors of the legal entity without interposition of the entity itself and, secondly, the legal entity has no claim against its own directors at all.
The provisions on the responsibility of directors vis-à-vis the legal entities represented by them do not follow the mere rules of a liability ex delicto. Rather does Section 218 et seqq of the Persons and Companies Act create a so-called internal liability regime covering both intentional conduct and negligence, based on the statutory ex contractu liability provisions.
The statute of limitations is three years after knowledge of the damage inflicted, and the identity of the damaging party and the causal connection between those two become known to the injured party. However, in cases of intentional infliction of damage or the fraudulent making of untrue statements, the statute of limitations will be extended to ten years.
No Specific Framework to Join Overseas Parties in Liechtenstein Proceedings
There is no specific legal framework to joining overseas parties in fraud claims in Liechtenstein. The location and thus the question of whether parties are domiciled overseas or in Liechtenstein is not relevant, but rather the potential joining party's relationship to the subject of the proceedings.
Joining criminal proceedings, induced by whomever, as a private participant requires the assertion of a private law claim by a person alleging a violation of their rights by the perpetrator.
Civil proceedings are generally designed to be bipartite proceedings. Parties who have an interest in one of the parties prevailing in the lawsuit may, however, join the proceedings as an intervening party (Nebenintervention) according to Section 17 et seqq of the Code of Civil Procedure. Intervening parties may submit evidence and use all procedural means of attack and defence to support their cause.
Liechtenstein Courts do not generally purport to exert extraterritorial jurisdiction.
The Liechtenstein Enforcement Act recognises the enforcement of legally valid and effective decisions (Exekutionstitel) by inter alia the following methods for different classes of assets:
Furthermore, enforcement may also be granted with respect to the performance or omission of actions of a person.
In principle, there are no specific rules applicable to defendants in criminal fraud proceedings. Defendants are subject to the general provisions of the Code of Criminal Procedure.
Liechtenstein Law recognises the privilege against self-incrimination (nemo tenetur se ipsum accusare) in criminal proceedings as an implicit fundamental right. By invoking the right not to incriminate themselves, the defendant must not suffer any disadvantages that would undermine this privilege.
Inferences from the invoking of this privilege by the defendant should be drawn very cautiously. Pursuant to Liechtenstein legal doctrine, the silence of a defendant must not be interpreted to their disadvantage. At the same time, silence may be interpreted not as of little advantage to the defendant but rather of neutral advantage.
Communication between lawyers and their clients enjoys a privileged status of confidentiality under Liechtenstein law. There is no basis for obtaining such correspondence in civil proceedings and criminal procedural law also provides comprehensive protection to the confidentiality of such communication.
Lawyers are exempt from the obligation to testify before courts according to Section 108(1) number 2 of the Code of Criminal Procedure. As a consequence, every attempt to try and obtain correspondence between a lawyer and their client will be considered an attempt to circumvent this privilege, which amounts to an extensive interpretation of the privilege by Liechtenstein courts.
Documents related to correspondence between a lawyer and their client may only be disclosed upon agreement of the respective client.
Liechtenstein tort law, similar to other civil law jurisdictions, does not recognise the concept of punitive or exemplary damages. Damages are only granted to compensate for the loss caused, but do not have a punitive aspect.
Liechtenstein Banking Secrecy According to the Banking Act
Liechtenstein law includes a provision, explicitly protecting the banking secrecy in Section 14 Banking Act (Bankengesetz, BankenG) and the Banking Ordinance (Bankenverordnung, BankV). The law also refers explicitly to investment firms, introducing also an investment firm secrecy.
The banking secrecy extends to all members of corporate bodies, employees and other representatives of banks and includes all information of the client disclosed on the basis of the legal relationship with the bank. The Liechtenstein Constitutional Court even qualified it as a "material fundamental right".
Exceptions from the Banking Secrecy: Ways to Obtain Information
Although the banking secrecy may be the principle, there are many different exceptions. Today, the banking secrecy mainly applies to civil proceedings in a traditional sense. It does, however, not apply to criminal proceedings and agents of banks must thereforenot decline the disclosure of information received from their clients before criminal courts.
Consequently, the parallel launching or incentivising of criminal proceedings, eg, in the case of fraud allegations, may introduce the possibility of obtaining information, which would be covered by the banking secrecy in civil proceedings.
Particularities of Fraud and Asset Tracing Proceedings in Liechtenstein from an International Perspective
In many respects, Liechtenstein is a particularly interesting jurisdiction when it comes to fraud and asset tracing proceedings. Many aspects of this matter are rooted in Liechtenstein's specific jurisdictional setup as a microstate in the heart of Europe, whose diverse connections with neighbouring states and international organisations create a unique and often complex surrounding. Considering the manifold issues which arise from these facts, this article tries to outline the particularities of fraud and asset tracing proceedings involving cross-border factual elements.
Due to its business-friendly legal framework and favourable tax-regime, Liechtenstein has been established as an important venue for asset management over the last several decades. This includes trust service companies, banks, insurance companies, investment funds and other asset managers. The reliable political and legal environment helps to ensure long-term stability and continuity. Liechtenstein is simultaneously closely associated with Switzerland (legally and politically) and is a member of the European Economic Area (EEA), which makes it the ideal getaway to the EU and its single market. The fact that Liechtenstein constitutes an important and popular site for asset management also gives rise to the necessity to resort to asset tracing and recovery instruments wherever fraudulent conduct leads to the unlawful transfer of assets.
From this, it follows that international aspects of fraud and asset tracing proceedings play a particularly pivotal role for Liechtenstein as a jurisdiction. Such proceedings in practice often involve overseas parties in different jurisdictions and make it necessary to think internationally. Hence, special attention must be devoted to the specifics of dealing with international contexts and the obstacles and possibilities which overseas parties face.
The Collection of Evidence in Civil and Criminal Matters
International conventions play an important role in shaping the possibilities of parties of fraud and asset tracing proceedings initiated abroad. If such parties are involved in cases which feature references to Liechtenstein, such as witnesses residing in or assets located in Liechtenstein, they may resort to the following possibilities to request and obtain the assistance of Liechtenstein authorities.
As a signatory to the Convention on Taking Evidence Abroad in Civil and Commercial Matters (The Hague Evidence Convention), Liechtenstein assists other signatories in obtaining evidence in civil proceedings, ie, the summoning and hearing of witnesses and parties, the production of documents or the possibility of conducting local inspections and obtaining expert opinions.
Further to that, Liechtenstein may also provide legal assistance to non-signatories on an individual case-by-case basis.
With regard to criminal proceedings, Liechtenstein is a signatory to the European Convention on Mutual Assistance in Criminal Matters (ECMA) and will thus assist other signatories in obtaining evidence in criminal proceedings by request.
Additionally, legal assistance may be provided to non-signatories according to the provisions of the Act on Legal Assistance (Rechtshilfegesetz; RHG).
Notably, in this context, the possibilities of confiscating documents and freezing bank accounts are frequently used in international asset tracing proceedings.
However, the above remarks are only related to legal assistance in civil and criminal matters for legal disputes which have been initiated abroad which, as a prerequisite, requires a legal venue abroad.
International Aspects: Procedures in Liechtenstein
The following remarks deal with situations in which the jurisdiction of Liechtenstein courts is established by a domestic legal venue.
As a general rule, the jurisdiction of Liechtenstein courts is limited to the territory of the country and hence to parties residing in Liechtenstein and assets located in Liechtenstein respectively. Jurisdiction of Liechtenstein courts may be established inter alia, by seat or residence of a party in Liechtenstein or – particularly important in asset tracing matters – by the presence of assets of a party in Liechtenstein, even if the party resides outside or has its legal seat outside of Liechtenstein.
Commencement of Legal Actions by Overseas Parties in Liechtenstein
A distinctive feature of Liechtenstein law is the so-called actuarial deposit (aktorische Kaution), which is only rarely found in legal systems outside of Liechtenstein. In Liechtenstein, however, this particular requirement is of outstanding practical relevance.
Natural persons residing outside Liechtenstein and legal entities, regardless of their domicile, shall provide their counterparty with a security deposit for costs of the proceedings upon request of the counterparty. The provision on legal entities, however, only applies if the respective legal entity does not dispose of assets amounting to, at least, the projected security deposit potentially subject to enforcement via the decision of the court ordering the security deposit.
This regime sets a special threshold for foreign natural persons and legal entities under the outlined premises to attain access to legal protection by the courts.
In the same way that the application for interim injunction is deemed a commencement of legal action, the aforementioned applies also to foreign parties aiming to take action against a fraudster who has moved assets to Liechtenstein, regularly requiring a security deposit.
Notably, there is case law holding that the requirement to place a security deposit must not make excessively difficult the pursuit of legal protection by the claimant. The principle of proportionality must be applied in each case.
Recognition and Enforcement of Foreign Judicial Decisions in Liechtenstein
The possibility to achieve recognition and, consequently, enforcement of foreign court decisions often plays a crucial role in asset tracing proceedings and is considered a key requirement in the taking of action against fraudsters in international cases. The question of if and how foreign decisions are eligible for recognition in Liechtenstein is thus an issue which deserves and receives comprehensive attention of legal practitioners.
International Norms and Treaties
Liechtenstein takes a very restrictive approach towards the recognition and enforcement of foreign judicial decisions. As a general rule, foreign decisions are not recognised and enforcement of judicial decisions is based exclusively on the domestic provisions introduced by the Liechtenstein Enforcement Act (Exekutionsordnung; EO). Liechtenstein is not a signatory to the Lugano Convention on the recognition and enforcement of foreign judicial decisions, nor is the Brussels Regime on jurisdiction applicable. Liechtenstein has concluded bilateral enforcement treaties, which enable the enforcement of decisions from the respective countries, only with its two neighbouring countries of Austria and Switzerland.
In addition to that, Liechtenstein is a signatory to the New York Convention on the Recognition and Enforcement of Arbitral Awards, which makes the recognition of arbitral awards often easier than the recognition of foreign judicial decisions. Even in the rare cases where foreign decisions are subject to recognition by Liechtenstein authorities, such recognition may be refused if the decision in question is contradicting fundamental principles of Liechtenstein public policy (ordre public). This will be the case if a Liechtenstein court finds such decisions were obtained by the claimant by means of fraud.
Foreign Judicial Decisions Based on Fraud Claims
If a party has already managed to obtain a judicial decision outside of Liechtenstein, there is a possibility of making such a decision enforceable via the detour of the reinstitution procedure.
The reinstitution procedure (Rechtsöffnungsverfahren), based on the Act on the Protection of Rights (Rechtssicherungsordnung; RSO), provides for the possibility of achieving a legal effect amounting to the recognition of a foreign judgement under certain specific conditions and procedural rules. The reinstitution procedure has been adopted from Swiss law.
Generally, recognition of judicial decisions in Liechtenstein is based on the principle of reciprocity. As there are no international treaties to which Liechtenstein is a signatory, and only two bilateral treaties provide for such reciprocity with Austria and Switzerland, the chances for the enforcement of a foreign decision are rather low.
The reinstitution procedure can offer a solution in such cases. First, the creditor must initiate debt collection proceedings in Liechtenstein. If the court issues a conditional default summon and the defendant objects to that summon, the creditor may achieve removal of this objection by resorting to the reinstitution procedure. The application for removal of the objection may be explicitly based on foreign public deeds such as judgments and other judicial decisions according to the law.
Under the framework of the reinstitution procedure, foreign judicial decisions may be rendered enforceable if no grave procedural mistakes have been made, the decision is not opposed to the Liechtenstein ordre public, and the debtor has had a legal right to be heard in the course of the proceedings. However, the Liechtenstein courts may themselves take evidence and deviate from the findings of the original decision. As a consequence, and although the decision is based on the foreign judgment, the Liechtenstein court's decision will be a procedurally new decision on the merits.
If the court grants reinstitution pursuant to the above provisions, the applicant receives a domestic (Liechtenstein) decision on the grounds of the foreign decision, which is consequently enforceable under the rules of the Enforcement Act.
Seizure of Assets in Liechtenstein
The seizure of assets is an important instrument in the endeavour to prevent fraudsters from dissipating or setting aside such assets.
In civil law fraud claims, the possibility of obtaining interim relief is subject to the above provisions on the actuarial deposit. It requires, as a general rule, jurisdiction of the Liechtenstein courts which can be based either on the defendant's seat or assets in Liechtenstein.
If the claimant has already initiated proceedings abroad, an application (depending on the type and country of proceedings) for legal assistance may be filed by the foreign court to either take evidence in civil proceedings, have bank documents confiscated or bank accounts frozen in criminal proceedings.
However, if only civil proceedings are conducted, it will be up to the claimant to initiate domestic proceedings in Liechtenstein and achieve interim measures such as a prohibition to dispose of the assets or custody and administration of assets by the court to prevent the counterparty from setting aside assets.
As a result, there are many different aspects of international fraud and asset tracing proceedings which should be considered when pondering an effective and adequate procedural strategy in cases with references or relations to Liechtenstein.
The general complexity of such proceedings is further enhanced by the particularities of Liechtenstein procedural law. Specifically, the provisions on the actuarial deposit, the reinstitution procedure and Liechtenstein's restrictive approach towards the recognition and enforcement of foreign judgments should be taken into account when drafting a strategy for international fraud and asset tracing endeavours.