The civil way to catch a thief: Prosecution can be so difficult that companies are using different areas of the law to tackle fraud. Peter Rodgers reports

Click to follow
The Independent Online
IN the search for new ways of prosecuting the ever-growing problem of corporate corruption and fraud, lawyers are beginning to look beyond the statutes of the criminal law.

They have seized upon an obscure and long-established body of civil law, covering not theft but trusteeship. With criminal fraud cases so often failing after huge amounts of time and money have been expended, this alternative is increasingly being used to bring what amount to civil charges of fraud. Requiring lower standards of proof, it can be used in cases that the police may decide are too difficult to stand up in a criminal court.

There have been some successes for criminal cases - a corruption ring involving BP was succesfully prosecuted, as was John Ferriday in the Eagle Trust theft trial that ended last week. But KPMG Peat Marwick, the accountantcy firm, estimates that 90 per cent of the pounds 5bn a year of frauds committed in Britain never surfaces.

The key technique in civil law is to argue that there has been a breach of a fiduciary duty. The defendants become 'constructive trustees' of the missing property or funds, which implies they have a special obligation to the original owners. This is part of a long-standing civil procedure that does not always involve fraud, so the only way to tell whether it does is to look at specific cases.

Gary Miller, a partner specialising in civil fraud at the London solicitors Mischcon de Reya, says: 'Constructive trust is a difficult but creative area to use. You put the circumstances to a judge and say it is clear from the facts that, even though Joe Smith did not steal the money or the car, he has dealt with it in such a way that he should be as liable as the thief.'

Because of the need to prove a fiduciary relationship, 'all these obscure terms do not fit immediately with your basic thief and victim scenario. But they derive from the fact that somebody has held property in trust for another.'

The technique involves a change from the usual game of villains and victims, says Mr Miller. 'The original thief may have absconded - and may not be in the country - or he may have disposed of the ill-gotten gains to a third party. Very often it is not worth pursuing the first person in the chain himself. You look for people who have the resources to pay you and who could be liable. We trace the asset and examine each and every person who had anything to do with that asset to see if he had any liability.' The targets of such lawsuits may often be financial institutions and professionals who handle money.

To allege civil fraud without good evidence is extremely risky. Gathering evidence is crucial and may involve aggressive use of injunctions. An Anton Piller order compels a defendant to allow the plaintiff to enter premises and search for assets and evidence while a Mareva injunction can be used to freeze assets worldwide. The civil courts can also be asked to confiscate a passport.

These controversial legal tools have been abused, and have been called the nuclear arsenal of the civil courts. They give private litigants powers very like those of the police.

Mr Miller agrees they are controversial. 'The state of the law at the moment is that the courts are extremely cautious before granting this type of relief.'

The use of injunctions may bring the need for private investigators, often to collect evidence for the injunction applications. 'If the material, the evidence, is not readily available, and you need professional assistance, private investigators obviously become critical,' says Mr Miller.

The hiring of investigators requires special care. 'Essentially you ask them to explain to you the sort of cases they have done, who their shareholders and directors are and the number of their personnel. You want a beauty parade and a presentation,' says Mr Miller.

'The implications of getting it wrong are so serious that you want to make sure you have first class professionals,' he adds.

A company that hires investigators may be liable if they do something unlawful, even without authority, so if a firm decides it needs to call in Gumshoe, he is best instructed through lawyers.

Comments