International Fraud & Asset Tracing 2022

Last Updated May 03, 2022

Singapore

Law and Practice

Authors



Rajah & Tann Singapore LLP has a dedicated fraud, asset recovery, investigations and crisis management (FICM) team that includes former prosecution lawyers and legal advisers to the Commercial Affairs Department of the Singapore police force. The FICM team builds upon the wealth of experience gathered by its partners in dealing with complex cross-border commercial fraud, cross-border asset recovery, white-collar crime, regulatory and compliance advice, and insolvency as well as through its close collaborations with anti-fraud, anti-bribery and forensic-accounting professionals. The firm has acted in some of the most high-profile cross-border investigations in the region, notably, Lehman Brothers, MF Global, Wirecard’s investigations into fraud allegations, the collapse of OW Bunker, and the Malaysian 1MDB scandal. Rajah & Tann Singapore is a member firm of Rajah & Tann Asia, a network of over 800 fee earners across ten jurisdictions, delivering excellent service to clients, including in the Singapore-based regional desks.

As a trading and financial hub, there is often an international element to fraud claims in Singapore. The general characteristics of fraud claims in Singapore include:

  • the making of false statements;
  • misappropriation or diversion of assets (particularly through multiple and offshore entities);
  • falsification of documents and banking records;
  • conspiracy to defraud (including between individuals and the corporate entities used to perpetrate the fraud);
  • breach of fiduciary duties by an agent or officer of a company;
  • dishonest assistance; and
  • corrupt payments.

The principal’s cause of action may be founded on restitution (money had and received) or breach of fiduciary duty (prohibition against secret profits). The latter is relevant if the principal also intends to seek a constructive trust over the bribe and trace the proceeds thereof.

A principal’s right at law to recover the bribe or the monetary value of the bribe received by its agent is statutorily recognised. Section 14 of the Prevention of Corruption Act provides that a principal may recover as a civil debt the amount or monetary value of the bribe received by the agent, or from the person who gave the bribe, and no conviction or acquittal of the defendant shall operate as a bar to recovery. The fact that the agent had paid fines equivalent to or in excess of the value of the bribe received is not a bar to recovery by the principal. The possibility of double disgorgement acts as a further deterrent against corruption.

The party who assisted or facilitated the fraudulent acts of another may be liable in a claim for:

  • unlawful means conspiracy, together with the primary wrongdoer, if the fraudulent acts were carried out by one or more of them pursuant to conspiracy between them to injure the victim;
  • dishonest assistance, if that party assisted or facilitated the breach of fiduciary duties; or
  • knowing receipt, where the assistance/facilitation involved the receipt of trust/proprietary funds. 

Generally, causes of action grounded in contract and tort are subject to a six-year limitation period (see Section 6 of the Limitation Act).

There are, however, specific provisions that deal with claims based on fraud. For instance:

  • under Section 22 of the Limitation Act, no period of limitation shall apply to an action by a beneficiary under a trust, being an action in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy, or to recover from the trustee trust property or the proceeds thereof in the possession of the trustee or previously received by the trustee and converted to his use; and
  • under Section 29 of the Limitation Act, the six-year limitation period shall not begin to run in certain cases of fraud or mistake until the plaintiff has discovered the fraud or mistake, as the case may be, or could with reasonable diligence have discovered it.

Generally, a victim of a fraud may make a proprietary claim for the misappropriated funds or property, and seek a constructive trust to be imposed over the funds or property. The constructive trust will give priority to the claimant against other unsecured creditors in an insolvency situation. It also enables the claimant to trace and follow the fraud proceeds. Hence, if the proceeds of fraud are invested successfully before they are recovered by the victim, the victim is entitled to trace the fraud proceeds into the investment and claim the full value thereof.

Where the proceeds of the fraud have been commingled, there are specific rules and methods of distribution that the Singapore courts may apply in considering the distribution of such commingled funds, depending on whether the assets were commingled with the assets of the fraudster, or that of other innocent third parties, and whether and how the commingled funds have been spent or dissipated. In the case of the former, the courts will apply the rule that is most favourable to the victim. The courts may apply the presumption (which is rebuttable) that the fraudster had spent their own money first and the remaining money is the beneficiary's (if the victim seeks to claim the remaining funds), or the presumption that the beneficiary's money was spent first (if the victim seeks to trace the proceeds of the funds). In the case of the latter, the courts may order a pro rata distribution from the commingled assets.

There are no rules of pre-action conduct required of a claimant in relation to fraud claims. There is generally no obligation to provide any advance notice or to undertake any alternative dispute resolution prior to the commencement of any legal proceedings (unless otherwise agreed between the parties).

A claimant may seek either a freezing injunction (in personam) over the defendant to prevent them from dealing with or disposing of assets beyond a certain value, or a proprietary injunction (in rem) over a specific asset in which the plaintiff asserts a proprietary interest. Such injunctions are typically sought on an urgent and without notice (ex parte) basis. Freezing injunctions can be sought either in aid of domestic or foreign proceedings, although the legal requirements for each differ.

A claimant may also seek a freezing injunction against a third party (non-cause of action defendant) who is holding onto the defendant’s assets as nominee.

Exceptionally, a claimant may also seek an interim receivership order requiring the defendant’s assets to be handed over and managed by a court-appointed receiver, pending trial of the action. A receivership order may be granted if the court concludes that the defendant cannot be trusted to obey the freezing order, for example, where the defendant’s assets are held via a complex, opaque and multi-layered corporate structure.

If the defendant does not comply with the court order, they may be liable for contempt of court under the Administration of Justice (Protection) Act for a fine up to SGD100,000, or imprisonment for a term not exceeding three years, or both. Additionally, the court may refuse to hear the defendant until the contempt is purged, or the defendant submits to the order or direction of the court, or an apology is made to the satisfaction of the court. Third parties (such as banks) within Singapore are also bound by the freezing order when they receive notice of the injunction, failing which the third party may also be liable for contempt of court.

A claimant seeking a freezing or proprietary injunction will need to pay filing fees for the application, which may range between SGD2,000 to SGD10,000, depending on the volume and number of documents filed. The fees are not pegged to the value of the claim. The claimant will also be required to provide a cross-undertaking in damages to the court, which may be substantial depending on the nature of the claim and the potential loss and damage that may be incurred by the defendant. In certain cases, the claimant may also be required to provide fortification of such undertaking, which would usually be in the form of payment into court, a solicitor's undertaking, or bank guarantee.   

Generally, a claimant can seek disclosure orders as an ancillary order to support the freezing injunction. The defendant will be required to file an affidavit to identify their assets, whether held in their own name or not, and whether solely or jointly owned.

If there is reasonable ground to believe that the defendant has not complied with their disclosure obligations, the claimant may apply for the defendant to be cross-examined on their asset disclosure. Where the defendant is found to have acted in breach of the disclosure orders, they may be liable for contempt of court.

A claimant may also rely on the defendant’s failure to comply with the disclosure order as a basis to apply for an interim receivership order requiring the defendant’s assets to be handed over and managed by a court-appointed receiver, pending trial of the action.

In any event, the claimant will be required to provide a cross-undertaking in damages to the court. In certain cases, the claimant may also be required to provide fortification of such undertaking. 

The court may grant a search order (formerly known as an "Anton Piller order") to prevent a defendant from destroying incriminating evidence. Such an order permits certain persons to enter the defendant’s premises to search for, seize and retain documents or other items.

Such an application is usually made on an ex parte basis. The requirements that must be satisfied in order to obtain a search order are:

  • the applicant has an extremely strong prima facie case;
  • the potential damage suffered by the applicant would have been very serious;
  • there was a real possibility that the defendant would destroy relevant documents before an inter partes application (ie, with notice to the other party) can be made; and
  • the effect of the search order would not be out of proportion to the legitimate object of the order.

Similar to an application for a freezing order, the applicant will have to undertake to pay damages that may be sustained by the defendant as a result of the search order if it is granted by the court.

A court application is permitted to seek disclosure of documents and evidence from third parties, either before the commencement (pre-action) or during the course of proceedings.

In either case, the applicant will be required to specify or describe the documents sought and show how such documents are relevant to an issue arising or likely to arise out of the claim made or likely to be made, and that the documents are likely to be in the possession, custody, or power of the third party against whom disclosure is sought.

In the cases of fraud and asset tracing, the courts would usually be prepared to grant pre-action disclosure orders in line with the principles for the grant of a Norwich Pharmacal order or Banker’s Trust order, ie, to enable the identification of the wrongdoer or the tracing of misappropriated funds or property. 

A party who is given discovery of documents pursuant to an order of court gives an implied undertaking to the court only to use those documents for the conduct of the case in which the discovery is given, and not for any collateral or ulterior purpose (also known as the “Riddick Undertaking”).

As discovery on compulsion of court order is an intrusion of privacy, the Riddick principle ensures that this compulsion is not pressed further than the course of justice requires. This implied undertaking is sometimes fortified by an express undertaking to the same effect.

A breach of the undertaking amounts to a contempt of court. The Riddick principle is, however, not an absolute one, and a court has discretion to release or modify the undertaking.

Generally, an application for a freezing injunction or a search order will be made on an ex parte basis. The courts’ practice directions, however, require that except in cases of extreme urgency or with leave of court, the applicant shall still be required to provide a minimum of two hours’ notice to the other party before the ex parte hearing.

The applicant of an ex parte application must make full and frank disclosure to the court of all facts which are material to the exercise of the court’s discretion whether to grant the relief. In other words, the applicant must disclose all matters within their knowledge which might be material, even if they are prejudicial to the applicant’s claim.

Generally, the victims of fraud would seek redress concurrently through criminal and civil proceedings. The criminal prosecution and civil proceedings may progress in parallel. In less serious fraud cases, however, criminal prosecution may take place only after the conclusion of the civil claim.

As mentioned at 1.2 Causes of Action after Receipt of a Bribe, Singapore has various statutory provisions that would capture different fraudulent acts.

For example, the Penal Code it provides for:

  • dishonest misappropriation of property (Section 403);
  • criminal breach of trust (Section 405);
  • dishonest receipt of stolen property (Section 411);
  • cheating (Section 415);
  • dishonest or fraudulent disposition of property (Section 421);
  • forgery (Section 463); and
  • falsification of accounts (Section 477A).

The Companies Act also sets out the following conduct which, if a person is found guilty of, may amount to an offence:

  • false and misleading statement (Section 401);
  • false statements or reports (Section 402);
  • fraud by officers (Section 406); and
  • breach of directors’ duty (Section 157).

A default judgment may be obtained where a defendant fails to enter a notice of intention to contest or not contest the claim, or file a defence within the stipulated timelines.

In cases where it is clear that the defence is wholly unmeritorious, the plaintiff may seek summary judgment without trial. Generally, summary judgment would be argued on affidavit evidence, and would be granted where there are no triable issues.

The Legal Profession (Professional Conduct) Rules provide that a legal practitioner must not draft any originating process, pleadings, affidavit, witness statement or notice or grounds of appeal containing any allegations of fraud unless the legal practitioner has clear instructions to make such an allegation and has before the legal practitioner reasonably credible material which establishes a prima facie case of fraud.

In terms of the standard of proof for a fraud claim, the burden remains the same as in other civil cases – that is the civil standard, ie, on the balance of probabilities. However, the Singapore courts have observed that the more serious the allegation (which is the case in a fraud claim), the stronger or more cogent the evidence is required for the claimant to discharge their burden.

The authors successfully represented the plaintiff in a recent Singapore High Court decision in CLM v CLN [2022] SGHC 46, which held for the first time in Singapore that the Singapore court has the jurisdiction to grant interim orders against unknown persons, where the description of the unknown persons is sufficiently certain as to identify those who are included and those who are not.

A party can apply to the court to issue an order for a witness to attend court to testify or an order to produce documents.

In determining whether to grant the order, the court considers whether the witnesses are in a position to give oral and/or documentary evidence relevant to the issues raised in the case.

An order to attend court or order to produce documents should not be used to fish for evidence, or to embarrass or inconvenience the witness.

Such an application is governed by the Rules of Court 2021. An order to attend court or an order to produce documents must be served personally and within the specific timeframe stipulated in the Rules of Court 2021.

If a witness disobeys an order to attend court or an order to produce documents, the court has jurisdiction to enforce the order by committal.

A company can be made liable for the acts of its directors and officers through the doctrine of attribution. Under this doctrine, the company and its officers are still treated as distinct legal entities, but the acts and the states of mind of the officers are treated as those of the company.

There are three types of rules of attribution.

First, there are primary rules of attribution that are found in the company’s constitution or implied by company law, which deem certain acts by certain natural persons to be the acts of the company. For instance, if the board of directors of a company is aware of acts being performed by employees or agents of the company, knowledge of such acts could be attributed to the company.

Secondly, there are general rules of attribution by which a natural person may have the acts of another attributed to them, ie, the principles of agency, and by which a natural person may be held liable for the acts of another, such as the principles of estoppel, ostensible authority and vicarious liability.

Thirdly, there are special rules of attribution where, although the primary and general rules of attribution are not applicable, the courts find that a substantive rule of law is applicable to the company. This would depend on the interpretation or construction of the relevant rule which the person’s act or state of mind was, for the purpose of the rule, to be attributed to the company.

In particular, the special rules of attribution operate differently depending on the factual matrix. In the case of fraud, the courts have held that while a company could be bound by the improper acts of the directors at the suit of an innocent third party, that rule of attribution should not apply where the company itself is bringing a claim against the directors for their breach of duties.

In certain exceptional circumstances, courts can ignore the separate legal personality of a company and look to those who stand behind the companies eg, shareholders. This is typically referred to as “lifting the corporate veil”.

One scenario where corporate veil can be lifted is where the company is used as by the person as an instrument of fraud. A fraudster will not be allowed to commit a wrong through a company that they control and then assert that it is the company and not themselves who should bear the responsibility for the wrong.

The corporate veil can also be lifted where the company is simply an alter ego of the fraudster, ie, where there is no distinction between the company and the fraudster, and the company is simply carrying on the business of its controller.

The general rule is that the proper plaintiff to bring a claim against fraudulent directors is the company itself. Shareholders are typically not allowed to sue on the company’s behalf but can request the company’s board of directors to take action. The shareholders of the company may also attempt to oust the fraudulent directors by way of a shareholder resolution, and then have the company bring claims against its fraudulent ex-directors.

However, in the situation where the wrongdoers are themselves in control of the company and do not allow for an action to be brought in the company’s name, the minority shareholders may consider seeking leave from the court to pursue a derivative action, either under common law or statute.

Specifically, under Section 216A of the Companies Act, the shareholder may apply to court for leave to bring an action in the company’s name. The court would need to be satisfied that:

  • the complainant is acting in good faith; and
  • it is prima facie in the interests of the company that the action should be brought.

Under the common law derivative action, the action against the fraudulent director is brought in the shareholder's name. There are two requirements that need to be satisfied before the court may grant leave to start a derivative action, namely:

  • it is prima facie in the interest of the company that the action should be brought; and
  • the complainant must have standing to bring the action, by showing that there has been “fraud committed against the minority” and the alleged wrongdoers are in control of the company.

The idea of “fraud on the minority” is a term of art here and is different from actual fraud under common law. It includes, for example, situations where the director misappropriates the company’s money or opportunities, or receives bribes or benefits at the expense of the company. 

In order to bring a claim against overseas parties, it must be established that the Singapore court has jurisdiction over the overseas parties or is the appropriate court to hear the action.

Whether or not the Singapore courts assume extraterritorial jurisdiction will depend on the nature of the specific issue at hand. The Singapore Court of Appeal has held that the Singapore courts do not have jurisdiction to adjudicate on matters concerning immovable property located outside of Singapore. In a separate case, it was held that the Singapore courts can order a foreign individual to be subject to examination of judgment debtor proceedings if the foreign individual is so closely connected to the substantive claim that the Singapore court is justified in taking jurisdiction over him or her.

After a judgment is issued, the recovery of lost assets may still be frustrated as the fraudster may undertake efforts to make enforcement of the judgment difficult. For instance, the fraudster may seek to conceal or dissipate its assets, or may simply refuse to comply with the judgment order. There are various court remedies available to locate, preserve, and procure the assets of the fraudster.

Examination of Enforcement Respondent

Armed with a court judgment, the company may apply under Order 22 Rule 11 of the Rules of Court 2021 for an order for the Examination of Enforcement Respondent against the fraudster. The fraudster would then be compelled to attend court to answer questions relating to their existing property, or property which may become available to them. The fraudster may also be compelled to produce any books or documents in their possession which are relevant to their assets.

Preservation of Assets

Freezing orders, as explained at 1.7 Prevention of Defendants Dissipating or Secreting Assets, are also available as remedies to preserve the assets of the fraudster post-judgment, pending execution. Given that a judgment has already been obtained, an application for a post-judgment freezing order requires only that there are grounds for believing that the debtor intends to dispose of their assets to avoid execution.

Enforcement Orders

Where it is known that properties belonging to the fraudster exist within the jurisdiction, an Enforcement Order may be issued under Order 22 Rule 2 of the Rules of Court 2021 for the properties to be seized by a public official and sold. The proceeds of sale will then be paid to the company in satisfaction of the judgment debt.

Where it is known that the fraudster is owed debts by other persons, an Enforcement Order may also be issued to the other person to pay the debt amount to the plaintiff, up to the value of the judgment amount. The most common targets of such orders are banks in which fraudsters have deposited money.

Contempt Orders

As a measure of last resort, an application for a committal order may be taken out against the fraudster under Order 23 Rule 2 of the Rules of Court 2021. This entails the threat of criminal sanctions against the fraudster to compel compliance with the judgment issued.

The right to silence can be invoked when a person is asked to provide information that has a tendency to incriminate them. However, the fact that the answer or the document to be provided will expose the person to civil liability is generally insufficient to attract the privilege.

The right is therefore more commonly applied in criminal proceedings. In Singapore, the right to self-incrimination is not a constitutional right under the principles of natural justice. When summoned for an investigation, a person must state what they know about the facts and circumstances of the case, except that they are not required to disclose anything which they think might expose them to a criminal charge, such as admitting or suggesting that they did it.

At the same time, the court has the power under Section 116(g) of the Evidence Act to presume that evidence which could be and is not produced, would if produced, be unfavourable to the person who withholds it. As a result, courts have drawn adverse inference against a party who fails to produce documents or call crucial witnesses to testify at trial, both in civil and criminal proceedings.

In order for the court to draw adverse inference, there are two main requirements that need to be satisfied.

  • First, there needs to be a substratum of evidence which establishes a prima facie case against the person against whom the inference is to be drawn. In other words, there must already be a case to answer on that issue before the court is entitled to draw the desired inference.
  • Secondly, that person must have access to the information they are said to be concealing or withholding.

Note that in criminal proceedings, Section 261 of the Criminal Procedure Code expressly provides the Singapore courts with the power to draw adverse inference from the silence of the accused for failing to mention any fact which they subsequently rely on in their defence.

While communications between a lawyer and client attract legal advice privilege or litigation privilege, such communications can be stripped of their privileged status on the basis of “fraud exception”.

In particular, Section 128(2) of the Evidence Act expressly provides that legal advice privilege will not apply to “any communication made in furtherance of any illegal purpose” or “any fact observed by any advocate or solicitor in the course of his [or her] employment as such showing that any crime or fraud has been committed since the commencement of his [or her] employment.” The Singapore courts have held that litigation privilege is also subject to the same fraud exception.

The party seeking to lift privilege must at least show some prima facie evidence that the privileged communications were made as part of an ongoing fraud. When determining whether the “fraud exception” applies, the court will conduct a balancing exercise between the protection of privilege and the importance of preventing the commission of such fraudulent and/or criminal acts.

Generally, the Singapore courts have not been willing to award punitive damages in contract law, as the purpose of damages in contract law is to compensate the plaintiff for their loss, instead of punishing the wrongdoer. Even if fraud is established, the courts are reluctant to award punitive damages and depart from the general rule that punitive damages cannot be awarded for breach of contract.

Punitive damages may, however, be awarded for claims in tort, where the totality of the defendant’s conduct is so outrageous that it warrants punishment, deterrence and condemnation. The courts will also consider whether the defendant has already been punished by criminal law or through the imposition of a disciplinary sanction when deciding whether to award punitive damages. The overarching principle is that the courts will not make a punitive award when there is no need to do so.

Under Section 47(1) of the Banking Act, the bank is not allowed to disclose customer information to any other persons. However, the Banking Act also provides exceptions where disclosure is allowed, for instance, where the disclosure is necessary to comply with a court order, or to comply with a request made pursuant to written law to furnish information for the purposes of an investigation or prosecution of a suspected offence.

As such, there are recognised exceptions to the banking secrecy laws such as a Bankers’ Trust Order (see 2.3 Obtaining Disclosure of Documents and Evidence from Third Parties). The customer’s information can also be provided to a police officer or public officer who is duly authorised to carry out the investigation or prosecution.

The Singapore High Court has held that cryptocurrencies are property and, when stolen, can be subject to proprietary injunction. The Court also granted a worldwide freezing injunction against the defendants who allegedly stole cryptocurrencies even though their identities were unknown, and disclosure orders against the crypto exchanges to help in the tracing of the stolen assets.

This decision would have implications on cryptocurrency exchanges operating in Singapore as they may now be served with disclosure orders to disclose information relating to user accounts and freezing injunctions to freeze cryptocurrency held in user accounts, notwithstanding any contractual terms between an exchange and its users.

Rajah & Tann Singapore LLP

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+65 6535 3600

info@rajahtannasia.com www.rajahtannasia.com
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Trends and Developments


Authors



Rajah & Tann Singapore LLP has a dedicated fraud, asset recovery, investigations and crisis management (FICM) team that includes former prosecution lawyers and legal advisers to the Commercial Affairs Department of the Singapore police force. The FICM team builds upon the wealth of experience gathered by its partners in dealing with complex cross-border commercial fraud, cross-border asset recovery, white-collar crime, regulatory and compliance advice, and insolvency as well as through its close collaborations with anti-fraud, anti-bribery and forensic-accounting professionals. The firm has acted in some of the most high-profile cross-border investigations in the region, notably, Lehman Brothers, MF Global, Wirecard’s investigations into fraud allegations, the collapse of OW Bunker, and the Malaysian 1MDB scandal. Rajah & Tann Singapore is a member firm of Rajah & Tann Asia, a network of over 800 fee earners across ten jurisdictions, delivering excellent service to clients, including in the Singapore-based regional desks.

Introduction

Fraud cases worldwide have increased in scope, complexity and sheer frequency, due to developments in technology and commerce. In 2022, with the continued rise in the number of digital accounts and online activity, it is expected that fraudulent transactions will occur with greater severity across digital touchpoints. Of specific concern is the cryptocurrency market, with a global market value of about USD2 trillion, yet its regulation and legal status continue to be subject to much debate and uncertainty – for instance, in ascertaining the exact entities operating exchanges, or which countries even have jurisdiction over them. 

In Singapore, the cryptocurrency industry has also seen a meteoric rise in the number of cases in the past year, outpacing all other forms of fraud locally. Being a leading trading and financial hub, the country has sought to legislatively regulate the cryptocurrency industry. At the same time, civil remedies through tracing efforts have broken new grounds in terms of orders sought, and obtained, before the Singapore courts. In this article, we highlight how such fraud schemes are commonly perpetrated, the difficulties faced with recovery and tracing of the assets, as well as the developments in law.

Fraud in the Cryptocurrency Trading Industry

In 2021 alone, Singaporean victims are estimated to have lost up to SGD190.9 million from “cryptocurrency investment scams”. Such scams, sinisterly known as “pig butchering scams”, involve fraudsters persuading victims to purchase cryptocurrency and transferring it to them under the guise of investment plans. Some achieve this by cultivating a relationship with the victims, and thereafter encouraging them to pay administrative or security fees, or taxes, to reap profits in investment schemes linked to cryptocurrency. Others offer a chance for individuals to be directly involved in the mining of the cryptocurrency. One such company, A&A Blockchain Technology Innovation, that is currently under investigation by the authorities, promised a fixed daily return of 0.5% in a cryptocurrency mining investment scheme.

The ubiquity of such fraudulent schemes has been such that the Monetary Authority of Singapore (MAS) and the Singapore Police Force have issued public notices, warning of such scams. This concern has also been raised in the Singapore parliament where, in response, the Minister for Law observed that there is a limit to how much law enforcement agencies can do once the scam has taken place, given that the vast majority of such cryptocurrency scammers are based outside Singapore.

Asset Tracing in Cases of Cryptocurrency Trading Fraud

It is in this context that efforts to trace and freeze stolen cryptocurrency assume greater importance. The first difficulty arises because, as the Minister for Law noted, perpetrators tend to be based overseas. Even in a civil claim, one will have to convince a court that it has jurisdiction over these perpetrators – this is a difficult task, but all the more so where the perpetrators have no links to Singapore.

A practical problem also arises as regards the identification of both the perpetrators and the stolen assets. Cryptocurrency fraudsters may, in many situations, be unknown to the victim. This would severely impede the investigations and tracing process, and any court orders would be difficult to obtain since no defendant can properly be identified. Cryptocurrency fraudsters may also attempt to conceal the stolen assets by using services to mix potentially identifiable or “tainted” cryptocurrency with vast sums of other funds. These “cryptocurrency tumblers” or “coin mixers” utilise various methods to anonymise funds transfers or to conceal a user’s transaction graph. As these services often do not require KYC verifications, it would be ideal for fraudsters, making it extremely difficult to trace and identify the stolen cryptocurrency.

A further layer of complexity is also introduced where cryptocurrency exchanges are involved. While these exchanges are likely to be the entities that possess information relevant to the tracing process, they tend to be unregulated. They further tend to not be headquartered in any specific jurisdiction, raising the question of which jurisdiction disclosure orders should be sought from. The difficulty is only compounded where the stolen cryptocurrency is routed through various exchanges as part of the attempt by fraudsters to obfuscate tracing efforts.

A situation involving all of the above difficulties recently arose in Singapore, in CLM v CLN [2022] SGHC 46, when an American entrepreneur had more than USD7 million worth of cryptocurrency stolen by unidentified perpetrators. Investigations and tracing efforts ultimately determined that the unidentified perpetrators had dissipated the cryptocurrency through a series of transactions, through two separate cryptocurrency exchanges, and even further on to entities based in the United States, one of whom maintained a cryptocurrency exchange. Rajah & Tann Singapore, acting on behalf of the fraud victim, obtained a worldwide freezing order against the assets of the unknown persons, a first order of its kind granted in Singapore. Equally important were disclosure orders that were obtained against the two cryptocurrency exchanges, requiring them to disclose information and documents relating to the accounts credit with part of the stolen cryptocurrency.

Another matter involved the Torque Group, a company that served as a platform for cryptocurrency trading, that was rendered insolvent because of unauthorised trades and/or misappropriation of the company’s assets by one of the company’s officers. The company was placed into liquidation in its place of incorporation. Rajah & Tann Singapore, acting on behalf of the company’s liquidators, obtained an order from the Singapore courts that recognised the foreign liquidation proceedings. More notably, along with the recognition order, the liquidators were also granted the powers to compel entities or persons in Singapore to provide information and/or produce documents that pertained to the dealings with and/or affairs of the company. Such ancillary relief significantly assisted the liquidators in their investigations, in particular, with obtaining information that could reveal the location of the misappropriated assets of the company and the identities of any wrongdoers that the company might have claims against. 

It can therefore be seen that, in such cases, it is critical to act with utmost urgency to prevent fraudsters from taking actions to conceal their ill-gotten assets. Experienced legal counsel and forensic teams trained to effectively trace the assets and seek the appropriate legal remedies would, in most instances, be imperative in ensuring a successful recovery.

Singapore’s Legislative Efforts

The worrying rise in the number of cryptocurrency frauds is such that the Singapore government has also moved quickly to enact applicable legislation. One such example is the Singapore’s Payment Services Act 2019 (the “PS Act”) that was recently amended by the Payment Services (Amendment) Bill (the “PS Bill”), in a bid to strengthen the laws that govern digital payment tokens. 

The PS Bill has expanded the scope of applicability of the PS Act to include Virtual Assets Service Providers (“VASPs”) that: (i) facilitate the transmission of digital payment tokens (“DPTs”) from one account to another; (ii) provide custodial services for DPTs; and (iii) facilitate the exchange of DPTs even where the provider does not possess the moneys or DPTs involved. Such VASPs will now be required to be licensed and subject to the rules and regulations set by MAS. The PS Bill will also enable the MAS to impose protection measures on VASPs where it deems necessary. This would include requiring the VASP to segregate customer assets from its own, safeguarding the customer’s money in the event of insolvency.

On 5 April 2022, the Singapore government also passed the Financial Services and Markets Bill (the “FSM Bill”). One aspect of the FSM Bill, insofar as cryptocurrencies are concerned, is to build upon and enhance the existing regulation of VASPs. In particular, to mitigate the risk of regulatory arbitrage – that is, where no single jurisdiction has sufficient regulatory hold due to the internet and digital nature of the business – such VASPs are now regulated as a new class of Financial Institutions, subject to oversight from the MAS. Such VASPs would also be required to have a permanent place of business in order to obtain the requisite licence to operate.

Crucially, it should be noted that the scope of digital token services under the FSM Bill is a wide one, and includes the facilitation of the exchange of DPTs, inducing or attempting to induce a person to enter into any agreement for digital tokens in exchange for money or other DPTs, and even financial advice relating to the offer or sale of DPTs. Such regulations are undoubtedly useful in shaping the understanding in relation to DPTs and the permissible standards in relation to the services offered. At the same time, the wide applicability of the FSM Bill, coupled with the powers of court made available, would offer greater protection in the cryptocurrency space.

These legislative changes recognise that various services could be exploited by criminals to move or layer the proceeds of illicit assets, either through the transfer of value from one person to another (in the form of DPTs), or using these services to safekeep the illicit assets, thus forming an additional layer against investigation efforts. While this is certainly a step in the right direction, given that the both the PS Act and the FSM Bill are recent legislative efforts, their efficacy remains to be seen as industry players adapt accordingly.

Conclusion

It is a foregone conclusion that fraud will continue to exist and that fraudsters will continually update and innovate with developments in commerce and technology. In the cryptocurrency industry, the evolving nature of fraud is unfortunately turbocharged, while most countries unfortunately lag behind in their regulations. While the Singapore government has taken steps to enact legislation and to promote efforts to combat such fraud, for now, civil remedies will be the main frontier to mitigate the consequences of such fraud. Legal practitioners should thus be continually updated of the evolving landscape and be aware of the best available strategies to recover stolen proceeds for their clients. Through this article, it is hoped that legal practitioners, forensic teams and their clients will better understand the trends and developments of fraud and asset tracing that are most relevant in Singapore today. 

Rajah & Tann Singapore LLP

9 Straits View #06-07
Marina One West Tower
Singapore 018937

+65 6535 3600

info@rajahtannasia.com www.rajahtannasia.com
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Law and Practice

Authors



Rajah & Tann Singapore LLP has a dedicated fraud, asset recovery, investigations and crisis management (FICM) team that includes former prosecution lawyers and legal advisers to the Commercial Affairs Department of the Singapore police force. The FICM team builds upon the wealth of experience gathered by its partners in dealing with complex cross-border commercial fraud, cross-border asset recovery, white-collar crime, regulatory and compliance advice, and insolvency as well as through its close collaborations with anti-fraud, anti-bribery and forensic-accounting professionals. The firm has acted in some of the most high-profile cross-border investigations in the region, notably, Lehman Brothers, MF Global, Wirecard’s investigations into fraud allegations, the collapse of OW Bunker, and the Malaysian 1MDB scandal. Rajah & Tann Singapore is a member firm of Rajah & Tann Asia, a network of over 800 fee earners across ten jurisdictions, delivering excellent service to clients, including in the Singapore-based regional desks.

Trends and Development

Authors



Rajah & Tann Singapore LLP has a dedicated fraud, asset recovery, investigations and crisis management (FICM) team that includes former prosecution lawyers and legal advisers to the Commercial Affairs Department of the Singapore police force. The FICM team builds upon the wealth of experience gathered by its partners in dealing with complex cross-border commercial fraud, cross-border asset recovery, white-collar crime, regulatory and compliance advice, and insolvency as well as through its close collaborations with anti-fraud, anti-bribery and forensic-accounting professionals. The firm has acted in some of the most high-profile cross-border investigations in the region, notably, Lehman Brothers, MF Global, Wirecard’s investigations into fraud allegations, the collapse of OW Bunker, and the Malaysian 1MDB scandal. Rajah & Tann Singapore is a member firm of Rajah & Tann Asia, a network of over 800 fee earners across ten jurisdictions, delivering excellent service to clients, including in the Singapore-based regional desks.

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