Fraud and Asset Tracing: A Complex Web of Laws and Regulations

Bermuda plays a significant role in uncovering and recovering stolen assets in the world of fraud and asset tracing. Its complex network of laws and regulations provides a unique opportunity for victims of fraud to seek justice.

Avoidance of Contracts and Recovery of Profits

• One key provision in Bermuda’s legal system allows for the avoidance of contracts where there is evidence that they were entered into at an undervalue and with a dominant intention of putting property beyond the reach of creditors.
• This provision has been widely interpreted to cover a variety of situations, including conflicts of interest between directors and third parties.

Undisclosed Conflicts of Interest

• In cases where directors have undisclosed conflicts of interest in contracts entered into by a company, the contract can be avoided and profits recovered at the instance of the company.
• Non-disclosure of such conflicts can also result in the director being deemed not to have acted honestly and in good faith.

Civil Proceedings and Enforcement

• Civil proceedings in Bermuda are typically commenced through the issuance of a writ, which must be served within 12 months.
• The defendant has the right to enter an appearance, failing which a judgment in default of appearance may be sought.
• Once pleadings are complete, the parties must engage in discovery, exchanging lists of documents and allowing for their inspection.

Enforcement Options

• Once a judgment is obtained, there are several options available for enforcement, including:
  • Seizure and sale of assets
  • Garnishment
  • Appointment of a receiver
  • Orders for sequestration or committal
• The Proceeds of Crime Act also provides for the confiscation of assets upon application by the Department of Public Prosecutions or the Bermuda Court.

Reporting and Parallel Proceedings

• Parties involved in fraud investigations must be mindful of their anti-money laundering obligations under the Proceeds of Crime Act, which requires them to report suspicious transactions.
• Parallel proceedings can also be used to recover assets, where a foreign court has jurisdiction over the defendant.

Third-Party Funding and Reputation

• Third-party funding arrangements have been embraced in Bermuda, providing an alternative means for victims of fraud to access justice.
• Funders must exercise professional judgment and caution, as third-party cost awards are possible in Bermuda.

Reputation and International Cooperation

• Historically, offshore jurisdictions like Bermuda have faced concerns about their reputation and international cooperation.
• However, recent reports from the Caribbean Financial Action Task Force have praised Bermuda’s systems and framework to combat money laundering and terrorist financing, citing a substantive overall effectiveness of its regime.

Cross-Jurisdictional Mechanisms

• In many fraud and asset tracing cases, parties are located outside of Bermuda, requiring cross-jurisdictional mechanisms for seeking assistance from foreign courts.
• Letters rogatory may be needed to obtain evidence or freeze orders in aid of Bermuda proceedings.

As the world of fraud and asset tracing continues to evolve, Bermuda remains a key player in uncovering and recovering stolen assets. With its complex network of laws and regulations, Bermuda provides a unique opportunity for victims of fraud to seek justice.