International Fraud & Asset Tracing 2021

Last Updated April 30, 2021

Monaco

Law and Practice

Author



Donald Manasse of DMLO Conseil has over 30 years of experience in the Côte d’Azur and significant experience in advising clients on business and personal affairs in Monaco, France and across Europe, including Europe’s offshore wealth-management centres. The firm regularly advises on local and cross-border mandates, both contentious and non-contentious, in the areas of banking and financial regulation, corporate (commercial and M&A), real estate, intellectual property and private client wealth management and taxation. The firm has a multi-jurisdictional litigation and dispute resolution practice and is renowned for its expertise in the area of international bankruptcy, corruption, fraud and asset recovery.

Monaco’s civil law system provides the possibility of: filing civil and criminal claims for fraud, making false statements, corrupt payments, the equivalent of conspiracy and misappropriation. Victims may be parties to the criminal prosecutions, represented by counsel and with access to the file, and demand damages. Alternatively they may sue before the civil courts.

The status of victim in a criminal prosecution is defined at Article 2 of the Code of Criminal Procedure (CPP): “The action to repair the damage directly caused by a fact that constitutes a penal infraction belongs to all those who have personally suffered... The action will be receivable, indistinctly, for all the damages, material, physical or moral”.

The basic fraud infraction (escroquerie) is defined in Article 330 of the Penal Code as follows: “Whoever, either by using a false name or false quality, or by employing fraudulent manoeuvres to persuade another of the existence of false enterprises, of an imaginary power or credit, or to create the hope of a success, an accident, or of any other chimerical event, persuades another to give him or deliver funds, moveable assets, effects, cash, merchandise, bills, promises, receipts or any other writing containing or operation an obligation or a waiver and who will have by these means defrauded or attempted to defraud all or a part of another’s fortune, is punished by imprisonment of from one to five years and a fine”. If the crime involves the issuance of a public offering of whatever nature, the prison sentence is extended to a maximum of ten years.

Abuse of confidence as defined in Article 337 of the Penal Code is a variant on fraud and consists of misappropriating or dissipating assets entrusted for a specific purpose. The maximum jail sentence is three years. The sanctions are increased to five years if there is a public offering, or where a broker or professional has misappropriated funds, for example escrowed funds. If a public official (notary or bailiff) or an employee to whom funds are regularly entrusted violates that trust, the maximum sentence is ten years.

Corruption is sanctioned in Article 113 et seq of the Penal Code. This covers both public officials or agents, and private actors, and includes specifically arbitrators. The acts that are sanctioned include retaining illegal interests in an operation or enterprise by a public agent, and influence peddling.

Passive corruption is the crime committed by the corrupted person (public or private). Active corruption is committed by the corrupter. Both are sanctioned at Article 113-2.

Specific procedures are provided for allegations of the production of false documents in civil procedures (in Articles 290 to 299 of the Code of Civil Procedure). Where there is an allegation in the course of a procedure that a document has been falsified, a declaration must be made to the clerk of the court. The court may then compel the persons to appear. Since there is no live personal testimony in civil actions, this is a rare occurrence. Alternatively, the court can name an expert to verify the document. The person claiming that said documents are false can, during the course of a trial, file a criminal complaint - as can the public prosecutor, in which case, unless the presiding judge determines that the determination of the validity of the document does not impede the case from going forward, the trial will be suspended pending the determination.

The elements of faux en écriture (Article 90 et seq of the Penal Code) are the alteration of the truth committed with the knowledge of creating harm in a piece of writing destined to or apt to be used to prove a right or having the effect of a right. It is an aggravating circumstance if the act that is falsified is among those considered to be authentic (notarial) or public (a document), and when the falsification is committed by a public official.

False testimony in a civil case is punished in Article 302 of the Penal Code, while perjury in criminal cases (a distinction is made between correctional or lesser offences, and criminal cases) are sanctioned in Articles 300 and 301.

Conspiracy is covered in Articles 209-2011 of the Penal Code and is defined as any association or agreement in view of preparing or committing crimes punished by at least 5 years imprisonment constitutes an association of malefactors or malfaitures, and is the equivalent of a conspiracy charge.

In all these cases, the civil party can be a party to the criminal prosecution either by seeking to participate in the investigation or trial (which is a possibility up until the first day of the hearing) or by initiating the investigation by filing the complaint (plainte avec constitution partie civile).

The civil party victim may also sue the defendants in a civil proceedings, either on the basis of breach of contract or the general one of civil responsibility (Article 1229 of the Civil Code), which is the basis for an action in tort. Article 1229 states that any act which causes harm to another obligates the person whose fault caused the damage to repair it. This includes fault by negligence and imprudence.

Where there are concurrent civil and criminal lawsuits involving the same parties and facts, the civil court may suspend the civil action awaiting the outcome of the criminal action.

A claimant whose agent has received a bribe may file a criminal complaint in passive corruption against the agent, and the person having paid the bribe, requesting damages. The claimant may also file a civil action in breach of the agency contract. There may be elements of abuse of confidence or fraud, as well as filing false documents. All the claims can be concurrent.

Parties who assist or facilitate the fraudulent acts of another can be charged as accomplices to the underlying crime. The receipt of fraudulently obtained assets is qualified as “recel” (receipt of stolen property including property obtained through a crime) which is punishable under Article 339 of the Penal Code. Money laundering prosecutions would also be envisioned under Articles 218 and 219 of the Penal Code.

A relatively new provision criminalising the organisation of insolvency to avoid enforcement of a judgment and which applies even before a judgment  is final is in Article 368-1 of the Penal Code. The criminal infraction extends to those who assist in creating the insolvency, and thus to the accomplices. The Code specifically provides that accomplices will be jointly liable.

The Civil Code provides for the Paulian Action, in Article 1022, which allows creditors to attack all acts done by a debtor to defraud the creditors of their rights. The effect of the Paulian Action is to consider the transfer to a third party as null and thus unopposable to the creditor.

The general civil statute of limitations period is five years from the date the party bringing an action knew or should have known the facts allowing the lawsuit to be brought.

Criminal acts defined at délits are mostly punishable by up to five years in prison and tried before a correctional tribunal. The statute of limitations is five years. For criminal acts defined as crime, the imprisonment is from five years to life (but generally 20 years). The statute of limitations is 20 years.

Article 1800 of the Civil Code, paragraph 2 provides that a judge may order escrowed or sequestered real or personal assets where there is a dispute over ownership between two or more persons. The fruits of the escrowed asset will go to the party establishing the right of ownership. 

As regards criminal proceedings, the investigating magistrate may order a freeze on assets if this is considered necessary for the manifestation of the truth. However, in Articles 12 and 32 of the Penal Code confiscation of the proceeds of a crime is also provided.

In the event of insolvency, a party claiming ownership can request the return of property held by the bankrupt party. Security in the form of seizure orders or judicial mortgage will have precedence (unless the judicial administrator claims a preferential transfer).

There are no particular or specific rules requiring, for example, a letter before action to return assets prior to undertaking by an ex parte motion to seek to freeze them. In a standard civil action, it is necessary to demand reimbursement of any amount alleged to be due prior to starting an action. This is known as a mise en demeure, which also starts the running of legal interest on the claim.

The victim of fraud can request a freezing order on assets belonging to a defendant and held by third parties, as a pre-judgment attachment, by filing an ex parte request with the president of the Court of First Instance (Articles 490 and 491 of the Code of Civil Procedure, CPC). The claimant must show the existence of “certain principle of a claim with a sufficiency of evidence”. This is a standard established by the case law and it is not required to show the existence of a foreign judgment. The saisie is the equivalent of a freezing injunction, and does not require a cross-undertaking or court fees (as a bond). If the request is refused, the creditor can appeal in an ex parte proceeding.

The pre-judgment attachment grants precedence over other creditors. It is not necessary to explain why it is thought a third party or bank holds assets, nor is it necessary to specify the bank account numbers, for example, to be seized. It is not necessary to evoke a risk of asset dissipation to justify the necessity of the seizure order.

It is possible (Article 487 CPC) to unilaterally and without a court order make assets including bank funds temporarily unavailable to the defendant by filing a request with the court, which will be served to the third parties or the defendant. The presiding judge will then reply within a very short time with a decision on whether or not to allow the temporary unavailability to continue. While the initial request is ex parte, the third party and the debtor will be informed. If the request fails, then the debtor will be notified and will often take immediate measures to remove funds from the jurisdiction.

If the assets are held by the debtor, the creditor may request permission from the presiding judge to seize the assets. A Bailiff will then intervene at the office or residence to do so, making an inventory of the assets seized. For this procedure (Article 759 CPC), it is necessary to explain that there is a risk of dissipation.

Third parties holding assets, particularly banks, will be served with a seizure order and must reply immediately as to whether it can be satisfied (whether funds exist and, if so, the amount to be frozen under the order). They must make a complementary declaration at the date of the first hearing of the amount seized, after transactions pending at the time of the seizure are cleared. Failure to do so exposes the bank or third party to being held liable for the amount authorised to be seized. Dissipation of assets seized by a bailiff is a criminal offence.

It is possible to request the escrowing of assets under Article 1800 of the Civil Code if there is a dispute over ownership, on an ex parte basis. This method has recently been favoured by the courts even where there is no “principle of the certainty of a claim". The matters are on appeal.

While no court fees or bonds are payable, Monaco avocat-défenseurs – that is, members of the Monaco Bar (which consists of 32 lawyers, not all of whom are avocat-défenseurs) – are entitled to 0.4% of the amount in controversy, if a claim or procedure is successful, as statutory fees, on top of their honoraria, and even if their participation is limited to mere representation of foreign counsel.

There are no procedures available for deposition or discovery. Attempts to enforce deposition and discovery orders from foreign courts on Monaco residents in civil cases have not been successful.

It is possible to request and obtain through an ex parte a civil order compelling a third party to turn over information. There are no sanctions for refusing to comply, and the party requesting may then sue in an accelerated proceeding known as a référé to seek an order to comply, with an astreinte or civil fine.

There are no procedures available in civil cases for preserving evidence. It is possible to obtain a court order to seize documentation as discussed in 2.1 Disclosure of Defendants' Assets.

It is possible to request ex parte an order to obtain documentation from a third party, prior to a proceeding, and there are no restrictions placed on the use of such material.

In criminal proceedings, the investigating magistrate may obtain all information and documentation necessary for the “manifestation of the truth” and the civil party victim will have access to the file and thus the documentation. However, no use can be made of it because it is covered by the “secrecy of the instruction” until such time as the investigation is terminated and the case either dismissed or held over for trial. 

As indicated above, the seizure orders are filed ex parte and it is always appropriate to attempt this prior to trial. Because they are ex parte, the current presiding judge is particularly attentive to the loyalty of the party requesting it. The presiding judge will refuse any such ex parte request once the litigation has begun, because it is felt that an ex parte request in that event is disloyal if the other party is not informed.

Victims of fraud often seek redress through the criminal process, becoming parties in the investigation, with access to the file. If they file a complaint with the investigating magistrate with constitution de partie civile they will be required to deposit a bond, which will be established by the investigating magistrate and which is not often more than EUR15,000. Participation in the criminal investigation does not prevent the same victim from initiating a civil law suit which may then be suspended pending the outcome of the criminal investigation. The civil statute of limitations is suspended during the criminal investigation, but if the investigation does not result in holding the defendant over for a criminal trial, then it may be considered not to have tolled and there is a risk that any subsequent civil procedure is time barred. 

A civil trial will only consist of oral argument by respective counsel (and often, particularly during the pandemic, this will be reduced to filing the written pleadings and supporting documentation without oral argument). There is no live testimony by the parties or witnesses in a civil trial.  There is no possibility for a directed verdict where the defence is unmeritorious (or for a motion to dismiss a case where the complaint is unmeritorious).

A judgment can be obtained if a defendant does not appear (by default), provided satisfactory efforts have been made to serve through the designated authorities under the Hague Convention on service abroad, or where the defendant does not continue in his defence once they have designated counsel. In this case, the judgment will be considered contradictory or adversarial.

Members of the Monaco Bar, which is restricted to only Monaco nationals, are expected to respect the truth and to exercise the profession with dignity, good conscience and loyalty (Law 1.0476 of 28 July 1982, Article 14). Foreign lawyers pleading before the Monaco courts are expected to maintain the same standards in addition to the standards set out by their own Bars. French lawyers, for example, swear an oath to exercise the profession with “dignity, conscience, independence, probity and humanity.” There are no known or published cases of Monaco lawyers being sanctioned or disciplined for failing to respect these standards or any other violations, although malpractice suits are not entirely unknown.

It is accepted practice that a defendant in a criminal case will seek to settle with a civil complainant who will then withdraw the complaint. This will not end the criminal investigation, nor the possibility of the defendant being condemned, but will prevent the civil party from receiving damages or participating in the trial. Certain members of the Monaco bar will file criminal complaints as a means of pressuring either defendants or civil party victims in criminal cases. While this strategy is disliked by prosecutors and investigating magistrates alike, it does not always fail and has never been known to be sanctioned or result in disciplinary measures or prosecution.

It is possible to file a criminal complaint against X, as unknown parties, and this is often the case. One reason that this tactic is used is that it prevents the defendant from filing charges in calumnious denunciation if the criminal complaint fails. It is not possible to file a civil summons and complaint against an unknown party.

The investigating magistrate in a criminal case may compel witnesses to give evidence for their own investigations.

In civil matters, the CPC at Article 326 et seq, provides for the possibility of demanding an investigation and testimony, but this has not been known to have been put into practice. Spouses, ex-spouses and children may in any event not be compelled to testify, nor may anyone who is professionally bound by confidentiality.

Monaco has adhered to the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters.

A company or legal entity can be held liable for a crime or delict under the provisions of Article 4-4 of the Penal Code. The company’s responsibility does not preclude the responsibility of the directors or officers. The entity may therefore be held liable for the fraud to the victims in a criminal trial.

In a civil case, the directors may be held responsible for their actions on behalf of the company. 

In criminal matters, the ultimate beneficial owners – having benefitted from the infractions – can be included along with the companies and the directors and officers.

In civil cases, the legal personality of the company has been respected in the case law where, for example, a claim is against an ultimate beneficial owner or shareholder, and an asset is held by the corporate vehicle. However, there has been a recent tendency towards allowing seizure of the corporate asset on the basis that the corporate vehicle is a sham.

The shareholders of a company can not act on behalf of a company to sue fraudulent  directors unless they are mandated to do so. They have standing as shareholders to sue the fraudulent directors both civilly as injured parties and by filing criminal complaints as victims. They could sue to have a judicial administrator named for the company, who could then, sue the directors on behalf of the company.

While Monaco does not, in general, purport to exercise extraterritorial jurisdiction, overseas parties can be joined under the provisions of CDIP Article 5 which provides that Monaco has jurisdiction provided that one party is a Monaco resident, even where the other defendants are not. There is a caveat, which is that there will be no jurisdiction if the request is made “only to bring a party who has his habitual residence or domicile outside Monaco” into the Monaco courts. Since the CDIP is relatively recent (2017), there is no case law published applying this exception.

Where there is a seizure action, it must be validated before the Monaco courts by a simple action to request payment of the sum in question. In that case, the overseas party will be a party to the action and the Monaco court will have jurisdiction (CDIP Article 6, No 7). 

To execute on the seized assets, it will often be necessary to demand recognition of a foreign judgment. In that event, “any interested party” may bring the action in recognition (CDIP Article 15) and the defendant may be the overseas or foreign party.

Enforcement can be obtained in civil matters by obtaining a final judgment (or a judgment with provisional execution, regardless of appeal) from the Monaco court. Only a bailiff may execute judgments. These may be executed against seized assets or other assets of the debtor.

The foreign judgment that has received recognition from the Monaco court may also be enforced. The CDIP stipulates that foreign judgments are to be enforced unless it is shown that:

  • the foreign court did not have jurisdiction under Monaco legislation;
  • the defendant did not have notice and an opportunity to defend;
  • recognition of the foreign judgement would be manifestly contrary to Monaco public order;
  • the foreign judgment is contrary to a decision rendered between the same parties in the principality or by a foreign court and recognised in the principality; and
  • litigation is pending in Monaco between the same parties and on the same matter in the Principality which was filed first.

The Monaco court may not modify the foreign judgment.

A defendant in a criminal investigation is entitled not to reply, but a negative inference will be drawn from the non-cooperation, both during the investigation and during trial.

Because there is practically no discovery or disclosure, the question in civil cases is not relevant. If a Monaco lawyer or a foreign practitioner were served with an order to disclose (compulsoire), which in civil cases does not carry sanctions where there is a refusal to comply, the lawyer would refuse to comply.

In criminal cases, the privilege is strongly debated in France and has been raised in Monaco in a recent case where information was obtained from the telephone of a foreign lawyer practicing in Monaco. The principle would be similar to the common fraud exemption known in the common law.

There are no punitive or exemplary damages.

Banking secrecy rules apply in civil cases. Article 308 of the Penal Code makes it a criminal violation for anyone who has received information in confidence to divulge it. Banking secrecy cannot be opposed in a criminal investigation. 

DMLO Conseil

Est Ouest
24 blvd Princesse Charlotte
MC 98000
Monaco

+377 93 50 29 21

+377 93 50 82 08

contact@manasselaw.com www.manasselaw.com
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Law and Practice

Author



Donald Manasse of DMLO Conseil has over 30 years of experience in the Côte d’Azur and significant experience in advising clients on business and personal affairs in Monaco, France and across Europe, including Europe’s offshore wealth-management centres. The firm regularly advises on local and cross-border mandates, both contentious and non-contentious, in the areas of banking and financial regulation, corporate (commercial and M&A), real estate, intellectual property and private client wealth management and taxation. The firm has a multi-jurisdictional litigation and dispute resolution practice and is renowned for its expertise in the area of international bankruptcy, corruption, fraud and asset recovery.

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