Legal Briefing

Case of the vanishing millions

The In-House Lawyer Logo

Finance | 01 September 2010

ALTHOUGH you might expect to read the following story in a detective novel, it is in fact an abridged version of events that took place in Amsterdam in the spring of last year.

Crime

The chief financial officer (CFO) of a Dutch foundation was last seen at night on the office premises. Before he disappeared, and at lightning speed, he stashed away approximately €16m via hundreds of single transactions to bank accounts throughout Europe. The victim was an Amsterdam-based foundation, Stichting Fonds vor Beeldende Kunsten Vormgeving en Bouwkunst (the foundation), which supports projects of designers, architects and other artists.

The CFO’s criminal activities led him to Austria where he transferred the largest portion of the embezzled money, more than €10m, to a bank account at Raiffeisenbank Waidring in Tyrol. Allegedly, the money was to be used to finance real estate and securities projects. However, the windfall never became a reality. Raiffeisenbank Waidring was the only European bank to have received funds that alerted the authorities of attempts to withdraw money.

As a European writ of capias was issued for the CFO, it was discovered that other individuals involved included a network of people seeking easy money, some of whom were previously convicted of similar offences.

Race against Time

Once money has been embezzled and later transferred to another country, it is difficult for the true owner to regain possession. For the foundation, the CFO’s actions triggered a race against time to localise and secure the embezzled amounts in the respective countries before the money was lost forever. In Austria, the criminal authorities had to act quickly to obtain a legally enforceable seizure of the money transferred to Austria to prevent an outflow of the assets.

First, the funds in the Raiffeisenbank account were secured by a preliminary measure according to s110 of the Austrian Code of Criminal Procedure (StPO). This measure allows the Public Prosecutor’s Office (PPO), during its preliminary investigations, a time-limited power of disposition over the secured objects and prohibits the objects from being released to third parties. As the next procedural step, the court may order a seizure over the secured objects according to s115 StPO. This measure is permitted if the objects are serving to secure a statutorily regulated pecuniary ordinance, like the absorption for enrichment or the forfeiture, or if they are subject to civil law claims.

Accordingly, the seizure may be ordered by the court on request of the PPO, or by another person who is directly affected by the securing measures. As the lawful owner of the money, the foundation was directly affected by the securing measures regarding the Raiffeisenbank account. To keep the seizure in force, so that money could not be released to an unauthorised third party, the foundation notified the criminal court of Innsbruck that it had civil claims related to the objects of the seizure.

The courts of Innsbruck reacted quickly, and in a short period of time, the assets were frozen according to s115 StPO. Although the danger of the money passing into the hands of a third party was averted, a seizure is only a temporary measure for the pending criminal proceedings. In the event that the conviction of the accused person does not cover a conviction for the liability for damages, advantages gained by such criminal offences will generally be absorbed in favour of the state (see s20 of the Austrian Criminal Act (StGB)). Therefore, if the suspects are acquitted, the seizure must be lifted – but the money remains in the account of the recipient of the embezzled amounts.

Because of this risk, the StGB and the StPO enable secured objects to be refunded to the victim in a safe way. The unjustly enriched suspect may either compensate the victim via direct payment or enter into an enforceable agreement with the victim (see s20a StGB and s115 StPO). In this case, an immediate compensation payment was not possible as the suspect did not dispose of any funds except the embezzled amounts, which had been frozen by the PPO. Therefore, the only option was to enter into an enforceable agreement. The main advantage of this approach is that it prohibits the absorption of enrichment in favour of the state, because the StPO provides that the absorption must not be carried out if the enriched person has undertaken a legally enforceable agreement (see s20a StGB).

Furthermore, the enforceable agreement eliminates the risk of the seized objects being released to an unauthorised third party when the criminal court lifts the seizure, allowing the parties to execute the enforceable agreement. In summary, as soon as the civil law pledge becomes effective, the victim’s rights to the seized objects are still secured if the criminal court lifts the seizure for purposes of criminal law. In addition, courts are more likely to lift the seizure when they know that the seized objects are going to be released to its lawful owner (see s115 StPO and s20a StGB).

An alternative solution in this case could have had the amounts of money re-transferred by way of international judicial assistance. However, the devil is in the details. While the European Convention on Mutual Assistance in Criminal Matters (the Convention) (29 May 2000) between the member states of the EU generally allows for returning items obtained through criminal offences at the request of the respective member state, it stipulates only optional provisions, which the respective other member state is not required to observe. Furthermore, a return based on the Convention is only possible if the rules and regulations of the member state requesting judicial assistance allow for such return. It is also ambiguous whether seized bank accounts of a third party are covered by these provisions. Most importantly, the damaged party cannot exercise direct influence on such a proceeding.

Don’t Rely on Criminal Proceedings

Ultimately, the foundation acted wisely in not relying on the criminal proceedings alone. In several European countries, the foundation had to bring claims against the unlawful recipients of the amounts in question. In Austria, the account holder enriched by receiving the funds, co-operated with the foundation and paid back the amount in question based on an enforceable notarial deed. Subsequently, an execution procedure regarding the account balance was initiated, thereby avoiding the absorption proceeding (see s20a StGB). Simultaneously, the money was equally secured for the period of time following the lifting of the seizure through the judgment creditor’s lien, according to civil law.

Having been informed of the enforceable agreement, and having ensured that the judgement creditor’s lien was legally in force, the Austrian public prosecutor quickly lifted the seizure of the amounts at issue. The Tyrolean bank paid the account balance to the foundation as the enforcing creditor, and in a matter of days, the foundation regained possession of the money.

Happy Ending

This case had a happy ending for two reasons. First, the money transferred to Austria was the largest amount of all the embezzled money, and second, to date Austria is the only country where the embezzled money was re-transferred to the lawful owner.

Together with the quick-wittedness of the Tyrolean bank and the account holder’s readiness to co-operate, this success is owed to the outstanding collaboration between the foundation as a private party and the PPO.