Do you need to better understand how fraud, insolvency, asset tracing and asset recovery in Spain relate to each other?

In this article, we provide a breakdown of exactly how these respective areas fit together.

Asset Tracing

Asset tracing is the necessary first step and can happen before or after commencing formal judicial proceedings.

This process is used to determine whether assets owned by the debtor exist. In addition, in cases of fraud, the process aims at ascertaining whether the fraudster’s assets are linked to a victim of the crime that’s been committed, and to trace all transactions associated with an asset – from its starting point to its ultimate destination.

Money laundering

Money laundering tends to be associated with complex fraud cases, due to wrongdoers looking to hide and protect the money they have gained from their crimes.

The asset tracing process helps to confirm if any assets that exist are proceeds that result from the fraud that has taken place, as well as identifying any money laundering techniques that have been used to obstruct the recovery of those respective assets.

The System of Asset Tracing in Spain

Spain’s judicial system has gone through a major overhaul since the early 2000s. As part of this modernization effort, an effective system of civil and criminal asset tracing and recovery has been developed.

These developments include the introduction of powerful tools, such as:

• Debtor’s assets disclosure orders
• Electronic tracing of the debtor’s bank accounts
• Electronic freezing of those bank accounts

Asset tracing in Spain will often also include forensic investigations, with an ever-increasing reliance on the use of technology.

Civil Liabilities in Spain Resulting from Crimes

In criminal proceedings, asset tracing and recovery in Spain empowers the victim, the Public Prosecutor’s Office or the party harmed economically by the crime to access and use the same primary asset tracing methods to recover all and any assets or damages resulting from crime.

Additionally, the cooperation from third parties, such as banks and the tax authorities in Spain, is also ensured.

Also, depending on the circumstances, civil liabilities in Spain resulting from crime include some or all of the following:

• Restitution of the defrauded assets
• Repair of the damage
• Compensation of the material and moral damages

Asset Recovery

When assets have been found during the asset tracing phase, the focus shifts to asset recovery, which includes the freezing, the seizure, the forfeiture and, in some cases, the confiscation and restitution of the assets to the fraud’s victim.

During the process that goes from freezing or seizing to forfeiting, the traced assets are basically transformed into cash, to the extent necessary to pay the debt, the recognized damages or the liabilities in favor of the creditor (or the fraud’s victim).

Also, in the cases where this is legally foreseen, confiscation and restitution mean that the recovered assets are sent back to the crime’s victim. The purpose is making sure that “crime does not pay”.

What ties in closely with the recovery phase is enforcement, which is when many of the aforementioned asset tracing tools and methods are mostly used.

See this related article for more information: Secrets of Asset Recovery in Spain.

When assets have not been found during the asset tracing process – and therefore, there is nothing to freeze or recover – the creditor might consider applying, conditions permitting, for so-called “mandatory” insolvency proceedings, meaning that bankruptcy proceedings are opened against the debtor’s will.

This is useful in order to gain information and control over all of the debtor’s assets.

Insolvency

Insolvency proceedings happen when an individual or legal entity is not able to meet their financial obligations. This process also helps to determine the debtor’s potential personal liability, if the insolvency is considered to be fraudulent.

In the latter case, if the respective insolvency proceedings relate to a company, the directors of that company could be forced to cover the deficit that has been determined during the insolvency proceedings with their personal assets.

See this related article for more information: Asset Tracing in Spain: 5 Ways to Determine Who Owns a Spanish Company.

For victims of fraud, the options available are to pursue criminal fraud proceedings, civil fraud proceedings, or both. Fraud actions are also available when assets have not been found in a standard civil asset tracing process, but it has been determined that they do exist under the name of a third party.

Fraud Actions

3 Options to Consider for Victims of Fraud

Indeed, when it comes to deciding whether civil or criminal actions should happen first, there are 3 options to consider for victims of fraud in Spain:

• To start a criminal and civil action within the same criminal proceedings
• To start a criminal action within the criminal proceedings first (and wait until subsequent civil proceedings to begin a civil action)
• To start a civil action within the criminal proceedings, only if the Public Prosecutor (or another third party) pursues a criminal action in the same proceedings

It’s usually not possible, however; for victims to begin parallel proceedings – i.e. civil and criminal – which are based on the same facts and evidence. This is because the respective criminal proceedings can have a significant influence on the resolution of the civil lawsuit.

See this related article for more information: Asset Tracing, Recovery and Fraud in Europe: The Main Differences Between Common Law and Civil Law.

As discussed, pursuing both criminal and civil proceedings at the same time is not possible and doesn’t make much sense under Spanish law, since Spanish criminal proceedings allow for the use of all asset tracing tools available in civil proceedings

Civil Actions vs. Criminal Actions

Furthermore, Spanish law allows victims – and/or the party harmed economically by the crime – to participate in criminal proceedings on a practically equal footing to the Public Prosecutor’s Office.

Additionally, criminal proceedings allow for the intervention of Spain’s Asset Recovery and Management Office (ORGA) in the case of certain crimes, enabling them to take precautionary measures to ensure the fraudster’s assets are available during the proceedings.

However, seeing as the success of a criminal action has strict requirements, filing a civil action instead is – in many cases – the best course of action.

Time to Take Action?

As with all other jurisdictions, the Spanish legal system has many nuances.

Understanding exactly which actions to take in relation to fraud cases, along with the order in which to take them, presents many challenges.

Contact our specialist team of litigators at Lawants to book a meeting and discuss your unique situation with one of the team.

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