This guide was last updated in September 2015
Civil fraud solicitors in the UK have a number of tools at their disposal which they can use to immediately secure stolen assets on behalf of their clients. This guide considers some of the most common methods of asset recovery that can be obtained through the civil courts.
Depending on the nature of the fraud, it may be appropriate to report it to the police or a public body such as the Serious Fraud Office (SFO), National Crime Agency (NCA) or Economic Crime Unit for further investigation and potential criminal prosecution. However, the latest government statistics show that only 26p in every £100 of criminal proceeds was confiscated in 2012/13. Therefore, if a victim of fraud wants to maximise their chances of recovering the stolen assets then these routes should only be pursued after civil proceedings, which will solely focus on recovering the stolen assets, have concluded.
Most frauds are likely to leave both a paper trail and, as is increasingly common, an electronic footprint. An initial review of invoices, financial and procurement systems documentation and other relevant and associated documentation is essential in order to establish the underlying facts and amount at stake in any potential claim. Financial information should be first reviewed by a solicitor who is an expert in civil fraud to determine if a forensic accountant is needed. This will ensure available resources are used appropriately in the initial 24 hours of the discovery of a fraud. Commonly, only an overview of the financial information is needed in the first instance. Further, a civil fraud solicitor will ensure any work (e-mails, reports etc.) produced by the forensic accountant be protected with the cloak of Legal Professional Privilege LPP).
Naturally, any other relevant and associated documentation should also be reviewed and analysed by a civil fraud solicitor. A detailed witness statement or affidavit will need to be produced by the civil fraud solicitor to set out the background as to what has happened. This will include the history of the parties involved, the discovery of the fraud and what has been discovered and how it has been discovered. This is usually a very detailed statement.
Even if paper evidence has been destroyed, fraudsters almost always inadvertently leave electronic evidence. The best way to identify the relevant documents is through a review of the suspected fraudster's electronic data including laptop or desktop computer, work mobile and any other work-related device. This review will focus on email, Word, Excel and Powerpoint documents, instant messenger conversations, desktop applications, accounts and finance records, and procurement-specific software.
Ideally this process should be conducted without alerting the suspected fraudster and should be completed as soon as possible: usually within a day or two, depending on the amount of data to be reviewed. Data will usually be retrievable from your company's backup files by an external, independent forensic technology provider working closely with your head of IT and the civil fraud solicitor.
Deciding on the best course of action
Once the document review is complete, your specialist civil fraud solicitor will be able to provide you with a view on the strength of any potential claim against the suspected fraudster. He or she will also be able to give you a better view on the most appropriate course of action and an idea of costs.
Where further information is needed in order to trace the flow of funds from the company to other entities and individuals, your solicitor could potentially apply for 'Norwich Pharmacal' orders against the bank accounts that are suspected to have received misappropriated funds. This is a specific type of disclosure order that enables a fraud victim to obtain evidence and information from an innocent third party that has become mixed up in the fraud, such as a bank or accountant; and which can often be deployed without informing the suspected fraudster.
In addition to this, if you have suspicions that the individual is likely to quickly dissipate the assets, your solicitor could apply for a freezing order restraining the fraudster and associated individuals and entities from dealing with their assets worldwide or removing their assets from the UK. Freezing orders are usually obtained without notice: that is, the fraudster will not be aware of the freezing order until it has been granted by the court and served on them and the relevant financial institutions.
Where the freezing order is made at a without notice hearing there will be a full, on notice hearing at a later date - usually about seven days after the initial without notice hearing. This later hearing is called the return date. The return date hearing allows the fraudsters to make representations to the court as to why the freezing order should not have been granted. This is why it is important to make sure the evidence filed in support of the freezing order is as accurate as possible.
In the most extreme cases it may be necessary to seek a search and seize order. This type of order is usually only sought if it can be demonstrated that, without it, any evidence in the hands of the fraudsters will be destroyed. Such an order will allow the civil fraud solicitor and his or her team, normally including IT experts, to enter the fraudsters' properties. This will take place under the watchful eye of the 'supervising solicitor', who will act as the eyes of the court to make sure the order is executed correctly and does not prejudice the fraudsters' rights. As with a freezing order, a return date will then be listed to allow the fraudster to make any representations.
An application for a freezing order or search and seize order will also require the filing and serving of the Claim Form and Particulars of Claim. At this point, civil proceedings against the fraudster begin.
In certain circumstances, it may be more appropriate to interview other employees who may be able to provide further information. The method and process of undertaking interviews will need to be carefully considered as retaining LPP in the event of subsequent legal proceedings will be important. An experienced civil fraud solicitor will also be best placed to focus on a line of questioning which is targeted at both understanding the underlying issues, and obtaining the necessary information to potentially issue proceedings.
The fraud victim may also decide that it is more appropriate to undertake disciplinary action of the individual and to seek the advice of an employment law expert.
Issuing proceedings and trial
After proceedings are served, the suspected fraudster will be required to file a Defence. Both parties will then be required to attend a case management conference where the court will set out the timetable to trial.
The Civil Procedure Rules require disclosure by all parties of documents in their control which exist or existed and which they intend to rely on in court, or which adversely affect their own case or another party's case or which support another party's case. This step will include both disclosing such documents to the other side and considering the documents that they have disclosed to you, and will involve both hard copy and electronic disclosure of documents.
Witness statements will need to be drafted in readiness for trial. These will be used to provide evidence of the wrongdoing to the court by those individuals who are best placed to do so.
It may be necessary to call on expert opinion evidence in order to prove or disprove a case. The expert's role is to assist the court, not to act as an advocate for either party. Expert evidence is used to assist the court when the case before it involves matters on which it does not have the requisite knowledge. In fraud cases, it will often be required in order to quantify the losses suffered as a result of the fraudster's actions.
A significant amount of work will need to be completed in the run-up to trial. This will include corresponding with the other side's solicitors, agreeing and preparing bundles, cross-referencing documents and liaising with counsel.
The length of the trial will of course depend on the facts of each case. Factors which are likely to affect the trial length are the complexities of the fraud and number of documents involved, the number of suspected fraudsters and the number of witnesses. At trial, the judge will hear evidence relating to the matter and decide whether the claims are successful. If successful, the judge will also decide the measure of damages and costs to be awarded.
Settlement may occur at any time before the trial takes place. Settlement discussions usually take place after proceedings are issued especially if a freezing order has been granted, following disclosure or after exchange of witness statements. Although settlement is always an option, its appropriateness will depend on the circumstances at each stage.
Most corporate fraud victims will pursue employees who have stolen from the company. Not only does this allow the victim to recover its assets but it also sends out a strong message to all the employees of the company that fraud will not be tolerated. This also, avoids directors having to account to shareholders as to why they did not act in accordance with their statutory duties to act in the best interests of the company, and recover the stolen assets. It sets the tone of how the company wants to operate and be seen to operate.