CATEGORY: MONEY LAUNDERING
The process of tracing is the ways in which a person who is entitled to property can continue to assert a claim to the property even if it is now in the hands of someone else, or even if it has been mixed with other property. “Tracing is neither a claim nor a remedy, but a process”.
In order to be able to follow or rather trace, there must be a property or an asset. It can be an intangible property, yet in order to be able to bring a claim for it, firstly the property must be identified, as unlawfully taken away from him and secondly, the property has been used to acquire some other new identifiable property. Lastly, the change of substitutes from one property to another is not broken.
Cyprus courts have never hesitated to use strong powers to protect and preserve trusts in proceedings. In fact, the court has “equitable jurisdiction to find out that has happened to missing trust funds”.
What can be traced?
i) There must be a fiduciary relationship although not necessarily between claimant and beneficiary who is seeking to trace in equity. It must be highlighted that there is no need to have prior misappropriation or misdirection of the property concerned since the circumstances themselves may give rise to fiduciary relationship, entitling to trace in equity as such. For example, a payment made by mistake brought about a fiduciary relationship that entitled a potential tracing claim.
The following have been determined to constitute fiduciary relationship:
ii) There has to be equitable ownership of the property that will be traced.
iii) There has to be a traceable recipient, that is a recipient who can be identified to have taken the property away. For instance, a trustee as acting as a wrongdoer or a recipient of a payment with knowledge of the mistake.
iv) Αn important aspect, is that property has not dissipated; is still identifiable. Some examples that deems property as being ‘dissipated’ include:
If the property that is being traced is money, then certain actions can deem the property as being ‘dissipated’:
Under Cyprus law, a plaintiff's equitable title to property is defeated and the right to trace is lost in the following circumstances: if the property reaches the hands of a bona fide purchaser. That is when it would be inequitable to allow the plaintiff to trace the assets. An example is when a person, after receiving the assets, changes his or her position in a way that would make it unjust for him or her to be ordered to return the assets; and if the claimant's property disappears or is mixed up with that of the defendant, thereby forming a new product.
As regards with time limits, a claim can be brought within 6 years when the case of action arose. Yet, when there are instances of fraud, time starts to run from the moment that the plaintiff becomes aware of the appropriation of his or her property
Tracing tools in Cyprus:
There are a number of tools that can be used when your property is being threatened to be misappropriated and these include: Νorwich Pharmacal orders, Bankers Trust orders, Anton-Pillar orders and the appointment of Interim Receivers. These are all interim injunction orders that are done in ex parte applications, so as to enable the safety of assets, but will have to prove the urgency of the matter to the courts.
Norwich Pharmacal orders:
It is important to be able to obtain information that will enable the tracking of the assets. Norwich Pharmacal is an application that forces third parties, who although they may not have assisted the wrongdoer to appropriate the property but are somehow connected with the appropriation of the property, to disclose relevant information about the parties involved. In principle, it enables orders to be made against a defendant and against innocent parties for the purpose of protecting the claimants’ substantive rights to the fund. In turn, the claimant can use the information obtained to preserve assets, to identify wrongdoers, and to sue them successfully both on proprietary claims and personal claims, including proving the case against them at trial.
“Registered agents and registered office service providers who are used by others to create and maintain for them corporate vehicles for the purpose of effecting fraud must expect that in due course the victims will come to them seeking discovery for the names and addresses and other information and documents that will enable the perpetrators to be discovered”
Bankers trust orders:
The main aim of this application is the tracing of assets as part of the assertion of a proprietary claim by the applicant or the assertion of the accessory liability premised upon the movement of assets to which the claimant asserts a proprietary interest. In fact, the Bankers Trust case revealed the law is prepared to enable orders to be made against a defendant and against innocent third parties to protect the claimant’s rights to the fund. This suggests that the claimant has only a right over the property. In fact, Banker’s trust applications are only limited to the to the identification and protection of the property.
Cyprus courts have an inherent jurisdiction to grant gagging orders to restrain a respondent against whom an ex parte disclosure order is made from communicating with the intended defendant regarding the disclosure order. This relief is generally granted in conjunction with Norwich Pharmacal and/or Bankers Trust orders. Any breach of a gagging order may result in contempt proceedings.
Anton pillar orders:
The reason for that such orders may be granted is so as to be able to enter premises so as to be able to speculate documents or other objects and to be able to obtain proof of such documents and be allocated in a safe place. Ultimately, there is a need to show to the court, that you need to make sure that evidence will not be destroyed or deteriorated by the defendant. In turn, not only you are able to obtain information about the claim, you are also able to prevent the defendant from warning other to destroy and conceal evidence. For that reasoning, these applications are made ex parte.
Securing assets and proceeds.
As have been recognised, Cyprus Courts have the capability to order freezing injunctions on the assets that the defendant has in his possession until the main proceedings are completed(by virtue to Section 32 of the Courts law 14/60). The basis of such injunction is at a high standard and the applicant need to show the urgency and that it would be impossible for justice to be obtained at a later stage, if the injunction is denied.
Under Section 32 of the Courts Law 14/1960 (as amended), Cyprus Courts have the capability to appoint interim receivers with mandate in order to ensure the security and protection of the assets, on behalf of the party who seeks to appoint them as such, pending trial.
In order to obtain such relief, the court will have to be satisfied that the circumstances to justify a freezing order exist and any risks on prejudice can be justified under the circumstances of the case at hand.
An interim receivership may also be granted to supplement the powers of a freezing injunction, if it can prove that the injunction will not be providing adequate security on its own.
Tracing money in the bank account:
Although, there is the potential protection under the interim applications, there is the potential that the asset has been transformed. In turn, it is essential to determine whether the remaining balance or assets, purchased using the appropriated property (money), can be seen as representing the original trust property. Of course, this is a difficult task for the court to distinguish. In the UK, there has been the recognition that the beneficiary will have the option of choosing an equitable lien or a constructive trust on the case of a mixed fund, so as to enable the potential of claiming the new asset in proportion to the contribution of the beneficiary’s trust fund. Αs a common law jurisdictions such rule will apply and as such enable the claimant to seek justice under the Cypriot courts
When the appropriated trust property, has been mixed with that of other trusts or other innocent volunteers, there will be an allocation of the fund in either “pari passu” allocation (that is equally among the parties involved), or in “first-in first-out” allocation basis (it is presumed that money is paid out of a current account in the same order in which it had been paid in).
 per Lord Millett in Boscawen v. Bajwa (1996)1.W.L.R.328
 Bankers Trust v Shapira  1 WLR 1274
 Norwich Pharmacal Co. & Others v Customs and Excise Commissioners  AC 133
 Bankers Trust v Shapira  1 WLR 1274
 Anton Piller KG v Manufacturing Processes Ltd & Ors (1975) EWCA Civ 12
 JSC BTA Bank v. Fidelity Corporate Services Ltd, HCVAP 2010/35
 Seamark Consultancy Services Limited v. Joseph P Lasala and Others
 International Commercial Arbitration Law (L. 101/87)
 Article 35 of Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012
 Fosckett v McKeown (2001)1 AC 102