FraudNet

FraudNet, the ICC-sponsored international network of specialist fraud and commercial crime law firms, is starting to attract media interest. Journalist Alexander Hauk recently published this insight into its work in a German newspaper.

They work for governments, banks, companies and businessmen. Their task is to help victims of white collar crime. They specialise in pursuing misappropriated assets abroad and returning them to the owners.

Thirty-seven attorneys in 34 countries worldwide have built a network called FraudNet to fight fraud and corruption. In Germany, Attorney-at-law Mr. Bernd Klose from Friedrichsdorf represents the association: "Practically all major cases today are of a transnational nature. And we work at the transnational level, just as the criminals do," says Klose, as he and his four associates describe the cooperation and relate their experiences.

When Klose talks about his work, one cannot help calling to mind the image of a secret agent: large sums of money, overseas stays - for example in the Bermudas or British Virgin Islands, cases with a criminal background. In many ways, his work is indeed similar to that of an agent.

"In most cases, though, there is no violence," Klose says about FraudNet. "Neither is it a government agency," he explains. It is actually a network of attorneys specialising in white collar crime that was established in early 2004. Its parent organisation is the International Chamber of Commerce (ICC) in Paris, which has more than 7,500 members in over 130 countries.

Criminals have long since been 'working' internationally: "In one lawsuit, we were active in ten different countries," says FraudNet member Steven Philippsohn, whose law firm is domiciled in London. For contractual and legal reasons neither he nor his colleagues may specify any details. But he reveals that one of his many clients includes the British government.

"Nowadays, money can be transferred in a matter of seconds to accounts in other countries by a mere push of a button," says the legal expert. Victims of white collar crime, he says, accordingly need the help of a legal system that is able to respond quickly and at an international level. The cause of so many problems in international cases is the differences between legal systems, which are a challenge to the investigators. The translation of the necessary letters rogatory alone takes up so much time.

Whereas in Germany the prosecuting attorney also has executive powers in cases of fraud with damage in civil law, in countries with Anglo-Saxon legal systems, recovery assistance in the case of white collar crime falls under civil law. In the German legal system, recovering the misappropriated assets is not secondary, but the priority is finding the perpetrators.

According to Philippsohn, the Anglo-Saxon legal system that prevails in England, the US, Australia and Canada, and ironically most of the offshore sites that are a perfect hiding place, is best for dealing with the pursuit of misappropriated assets. Indeed, court requests for information and arrests can be made very quickly and without the knowledge of the perpetrator, in comparison with the law systems based on Roman law that are more common in Europe. "Sometimes within 24 hours of the assignment", says Philippsohn. In their work, the lawyers often resort to legal aids such as the Norwich Pharmacal Order (Information Injunction), the Anton Piller Order (Search Order) and the Mareva Order (Freezing Injunction). For example, with the Anton Piller Order, the experts can search the offices and residence of the suspect and seize evidence by court order, without a hearing of the opposing party. But what sounds easy in theory is highly complicated in reality. Ultimately, the judge has to determine on the basis of the information compiled by the FraudNet members that an offence was committed.

Cooperating with authorities

FraudNet members work together with the authorities as far as possible. "In general we have found that government authorities now tend to greater international cooperation," says FraudNet member Edward Davis. One reason for this is that the cases are becoming increasingly more international, and the other is that FraudNet is becoming better known to the government authorities, making the exchange of valuable information possible. "When we represent governments, the willingness of the authorities in other countries to cooperate seems to be even greater," the attorney from Miami observes.

Davis regards FraudNet as an expansion of his own law office: "I have contact with attorneys in other countries who I know have the right qualifications." The conditions for acceptance into the network of specialists are actually regarded as a challenge. "The Standards and Procedures Committee made up of members, a type of Chamber, sets the conditions for acceptance, examines and interviews the candidates applying for acceptance and makes the final decision regarding their acceptance," says Peter Lowe, Director of FraudNet and a founder of the network. The purpose of the strict selection is to ensure that only experts can profit from the network. In addition to the Chamber already mentioned, there is the Strategic Planning and Marketing Committee, whose FraudNet members search internationally for suitable candidates to be accepted into the network. One of Lowe's tasks is also the organisation of FraudNet conferences. Twice a year, members meet in different cities all over the world to exchange ideas and experiences and to get to know each other better.

Pursuing claims

In their work, they depend on each other. For Edward Davis, one of the most significant cases so far has been to represent the government of Trinidad and Tobago in a major corruption case. "We were able to handle the case with the help of FraudNet members from Liechtenstein, Switzerland, Panama and London."

An assignment usually takes between two to four years of work. Davis explains that the majority of clients find out about his law office through recommendations by other attorneys. He believes that the countries in the Anglo-Saxon legal system are more advanced in the area of fighting fraud than the legal systems of Continental Europe. "Whereas the countries in Continental Europe tend to rely on the work of government authorities, the countries in the Anglo-Saxon legal system make it possible for victims to pursue their claims directly."

Bizarrely, the attacks of 9-11 had a positive effect on the work of the FraudNet members. Since terrorists use the same channels as other criminals, numerous laws were made stricter in many countries as a consequence. "These laws now allow more aggressive action against defrauders, impostors and swindlers," explains Davis.

Large damages

FraudNet cases frequently concern large amounts of money. "Several members are currently working on a case of white collar crime against a bank in Brazil with damages of $3 billion and consequences in the US, Antigua and other countries," reports attorney Martin Kenney, who has a law office in the British Virgin Islands. Kenney calls for countries to have internationally uniform laws which obligate banks and other financial service providers to make their documents accessible to victims of fraud and white collar crime and their attorneys. "By allowing victims to inspect the bank documents, the perpetrator's chances of misappropriating the victim's assets can be considerably reduced," Kenney believes.

In their work, FraudNet members sometimes experience odd cases: "One morning I got an assignment against a perpetrator who was on his way to the airport to leave the country", says Philippsohn. While one of the attorney's colleagues applied to the court for an urgent arrest, Philippsohn drove to the airport, where the arrest order was faxed to him. With this paper in hand, he boarded the plane, which was ready for take-off and was able to persuade the perpetrator to get off the plane.

"Actually, he didn't really have to get off the plane, but it seems he was so stunned by the surprise visit," the attorney explains. Shortly thereafter, the case was able to be successfully brought to conclusion - another small victory for FraudNet and its defrauded clients.

FraudNet has developed a new website, which is now visible here.Please let us have your views and comments.

Hammonds Madrid, the CCS FraudNet member for Spain, has reported the latest developments in that country's ongoing stamp investment fraud investigation.

The fraud, originally featured in CCI last June, involves two companies - Afinsa and Forum Filatelico - suspected of getting more than 200,000 victims to invest in stamps in the belief their value would increase substantially. But police allege the two deceived clients because they didn't possess many of the stamps they supposedly purchased on their behalf, and said the actual value of the stamps was heavily overestimated.

At the time the fraud was made public police arrested several of the alleged participants, closed offices and accused the two companies of operating a massive pyramid scheme. The fraud hit the headlines both because of its scale and the size of the companies alleged to be behind it: Forum had around 140 offices in Spain alone and Alfinsa was the world's third biggest collectibles company after Sotheby's and Christie's.

More than a year later, Hammonds' man in Madrid, Fernando Gonzalez, says both companies have now been accused before the Spanish courts of fraud and the case continues to be investigated by the Audiencia Nacional. Several people have already been charged with embezzlement, money laundering, tax evasion, fraudulent bankruptcy, breach of trust and forgery. In addition, Alfinsa and Forum have been declared insolvent as the stamps they actually possess only cover around 10% of the massive amount they owe clients, thought to be at least several thousand million euros.

Forum's receivers, for instance say the company has assets of Euro 900 million, but liabilities of Euro 3.7 billion. Alfinsa's assets apparently amount to Euro 600 million and its liabilities are Euro 2.4 billion. Given this position, many now think the only viable solution is to wind-up both companies.

Investigators have meanwhile continued their hunt for assets in overseas operations, and in particular are enquiring into the activities of Scala Group, an Alfinsa subsidiary in the US, which has already been sued ten times and is currently the subject of a SEC investigation.

For its own part, Hammonds say it has been seeking to mitigate the damage on behalf of several overseas stamp trading firms that supplied stamps to Spring Este, a company related to Forum. So far, says Snr Gonzalez, it has been able to get Este's bank accounts seized and frozen by the Audiencia Nacional until its investigation is completed. Hammonds has also filed a claim against Spring Este in the amount owed for stamps not paid for (almost Euro 4 million), and is currently pushing the courts to locate any and all other assets it may have.

While Fernando Gonzalez appreciates the case against Forum and Alfinsa still has a long way to go and that many investors may never see their money given the parlous state of their finances, he is hopeful his clients will enjoy a more successful outcome in time.

Hammonds Madrid is part of FraudNet, the global network of lawyers specialising in combating fraud and commercial crime that was launched in 2004 and operates under the control of the ICC. FraudNet currently has 37 member firms in 34 countries whose single point of contact approach simplifies the fraud case management process and can ensure rapid and effective action against fraudsters, thus increasing the chances of recovering losses