06.04.2016 | Swiss banks begin to voluntarily enforce UK freezing orders

Switzerland appears to be shedding its reputation as a safe haven for the assets of fleeing debtors.

Switzerland’s banking secrecy laws are as famous as its chocolate but the days when fraudsters and defaulting debtors could safely park their money in a Swiss vault or an alpine chalet appear to be numbered.

The evolution of Swiss law on asset freezing in recent years has given some valuable tools to creditors and defrauded parties seeking to recover funds from their evasive counterparties.  Since the early 1980s, creditors have availed themselves of the UK High Court’s readiness to grant worldwide freezing orders in support of civil proceedings.  Debtors could nevertheless continue to hide assets in Switzerland, knowing that Swiss courts would not enforce UK orders.  Swiss law, unlike common law, only allowed for freezing orders to be awarded in rem, against a specific asset, and not in personam, against an individual.

The situation changed dramatically in 2004 with a landmark Swiss Supreme Court ruling.  For the first time, a Swiss court ruled that an English freezing order – issued on this occasion against members of the Turkish Uzan family – was enforceable in Switzerland.  A precedent was set and creditors could domesticate their foreign freezing orders in Switzerland.  

Despite this leap forward, many creditors still struggle with getting access to information.  How can a creditor confirm whether a debtor owns assets in Switzerland and where they might be?  When it came to disclosure, Swiss courts have been clear and unyielding.  As a rule of thumb, unless the matter is criminal they will not pierce their strict banking secrecy laws. As a result, Swiss litigation would not typically help a plaintiff to discover his counterparty’s secret $25 million private bank account.

In recent years, however, a quiet but powerful development has taken hold.  Swiss banks have begun to voluntarily enforce domesticated freezing orders when approached out of court.  In cases where a plaintiff writes to the bank with a valid domesticated freezing order, Swiss banks have tended to acknowledge the existence of the defendant’s accounts and implemented the freezing order before notifying the latter.  Perhaps due to reputational considerations or to the long arm of US law enforcement, Swiss banks have become more willing to comply with international asset recovery efforts, even in civil proceedings.

The key for any litigant pursuing a debtor’s assets in Switzerland is to be armed with accurate intelligence from the start. Through careful scrutiny of the public record, including documents held in Swiss registries, and discreet discussions with well-placed sources, a plaintiff can discover crucial information about his counterparty’s Swiss assets, be they financial, real estate or otherwise.  Armed with this information, a plaintiff can then apply swiftly for freezing injunctions.  

A litigant must also consider an additional factor: Switzerland’s federal structure.  Switzerland is made up of 26 cantons, each of which has its own courts, land registries and civil administration. A plaintiff seeking to recover a chalet in Crans-Montana would go to a cantonal court in Valais, but would approach a court in Geneva if seeking to freeze a Genevan bank account.  Equally, investigators must have a clear understanding of the division of the Swiss administration to obtain the relevant records.  Given the speed with which assets can be moved, correctly establishing jurisdiction is vital.

The future for asset freezing and asset recovery in Switzerland is more promising than it was only a few years ago.  Crucial developments in the way Swiss law is applied have benefitted creditors in pursuit of a defendant’s Swiss assets.  While vast quantities of wealth continue to be held in Swiss banks and real estate, they are no longer out of the reach of a nimble and well-informed creditor.  Swiss chocolate sales, on the other hand, have never been stronger.