The concerns about finding and recovering assets in Switzerland are legion. There is a strict blocking statute and bank secrecy, but all is not lost. In the context of insolvency proceedings, Swiss criminal proceedings offer an effective tool to enable disclosure of banking information and the freezing of assets.
The blocking statute provides that any person who carries out activities on behalf of a foreign state on Swiss territory without lawful authority and where such activities are the responsibility of public officials shall be liable for a criminal sentence or a monetary penalty. A foreign insolvency officeholder qualifies as a person who carries out activities on behalf of a foreign state as they are appointed by a court to conduct involuntary liquidations. In the United States, that officeholder would be a bankruptcy trustee or examiner. Therefore, that officeholder is vested with lawful authority to seek recognition of the foreign insolvency before Swiss courts.
Recognition can take two or three weeks. However, in contentious insolvency proceedings such as ones where fraud is suspected, it is possible to obtain from Swiss law enforcement authorities broad freezing and disclosure orders prior to recognition by granting legal standing in criminal proceedings. Swiss criminal proceedings are commenced by a criminal complaint by “a party to the proceeding,” who can play an active role in the investigation and ultimately be compensated with the assets seized. Bank secrecy does not apply in criminal proceedings, which is why it is an effective asset recovery tool.
Where an insolvent entity is a victim of the fraud, that entity has standing in criminal proceedings to pursue “civil fraud.” Breach of fiduciary duty, deceit or conspiracy may be transposed into Swiss criminal offenses of mismanagement, embezzlement or fraud to qualify as Swiss criminal offenses. A victim of these predicate offenses committed abroad is deemed to be directly affected by the laundering of proceeds of the fraud in or through Switzerland which means the victim can participate in money laundering criminal proceedings, obtain banking evidence and freeze Swiss assets.
A foreign insolvency decree does not need to be recognized before the officeholder files a criminal complaint in Switzerland as long as it is duly authorized to act in Switzerland. Once admitted as a criminal plaintiff, the officeholder may request law enforcement to freeze asses located in Switzerland, as well as issue disclosure orders against third parties holding assets or relevant information. In other words, criminal proceedings can be used by insolvency practitioners to obtain urgent relief. But, criminal proceedings need to be pursued before civil claims so as not to infringe upon the Swiss blocking statute.
Thus, criminal proceedings are the key to opening up the gates to asset discovery and recovery in Switzerland in insolvency matters.