Insider fraud in charities: prevention is better than cure
You should ask a number of questions - where is the fraudster based, where did the fraud take place and where are the fraudster’s money and assets held? If the answer to at least one of those questions is “in England and Wales” you should consider seeking a freezing injunction over the fraudster’s assets in order to protect your money as well as issuing civil proceedings against the fraudster for the recovery of your money. A freezing injunction can only be obtained in specific circumstances, see the FAQ below “Can I freeze the Defendant’s Assets?"
There is no obligation to report fraud to the police (although you may need to report it to a regulator if you are in a regulated business). We advise against going to the police, certainly not as the first thing that you do. It may be an option at some point, but if your main objective is the recovery of your assets, then there are other options which should be explored first.
There are a number of reasons for this. First, if you report the matter to the police you lose control. This can have important and far reaching consequences. The police will often want to secure evidence as a priority and as soon as possible. This will inevitably involve a raid, and arrests and interviews. This will tip off the fraudster, which is likely to lead to assets being rapidly moved from this jurisdiction, which you might otherwise have been able to freeze by seeking a without notice freezing injunction. The police will only consider restraining the assets much later, if at all.
Second, there is a real risk that any civil proceedings will be stayed whilst the criminal proceedings are concluded. This causes unnecessary delay and expense.
Third, you can use the pressure of a possible report to the police to persuade a Defendant to settle with you and repay you. This is particularly likely if the Defendant is also under significant pressure due to the existence of a freezing injunction. Settlements are always a good idea, as they result in certainty and a quick recovery at a much lower cost than having to go to trial and then enforce any judgment.
Fourth, even if the Defendant is prosecuted and convicted there is no guarantee that he will be ordered by the criminal Court to repay/compensate you.
No. We suggest that you should consider applying to the Court for a freezing injunction before the Defendant has any idea their fraud has been discovered. This will prevent the movement of assets by the Defendant and protect them should you succeed in obtaining a judgment, and has the added benefit of putting the Defendant on the back foot in the litigation.
A freezing injunction is an interim order that prohibits a party from disposing of, or dealing with, his assets. A freezing injunction can be a valuable strategic tool. It helps to ensure that a Defendant retains assets against which the claimant may enforce a judgment if the claim is ultimately successful. Assets that can be frozen include bank accounts, shares, motor vehicles and land.
Save for specific circumstances, a claimant or a defendant may seek a freezing injunction at any stage in proceedings. If a party applies for a freezing injunction before a claim has been issued, he must establish some underlying cause of action. The cause of action must be one in which any judgment could be enforced against the intended Defendant's assets.
In any case, it is important for the applicant to act promptly. The Court will take into account any undue delay on the applicant's part when exercising its discretion to grant a freezing injunction.
Freezing injunctions are often obtained “without notice” to the Defendant. A "without notice" application is made without the other party having any notice of the application or being present at the application hearing. The Court will only grant an injunction on such an application if there are good reasons for not giving the respondent any notice, for example where the matter is too urgent or where there is a risk that informing the other side will create a serious risk of assets being dissipated before the hearing.
It is important to be aware of the fact that there is an obligation on the applicant for an injunction, particularly in the case of a "without notice" application, to inform the Court of any point that may help the other side or that it believes the other side would have made if it had the opportunity to be heard.
Yes, if you meet the strict criteria. A search order is a form of mandatory interim injunction. It requires a Defendant to allow the claimant's representatives to enter his or her premises and search for, copy, remove and confiscate documents, information or material. The purpose of a search order is usually to preserve evidence and/or to preserve property which is (or may be) the subject of an action. It is important to note that search orders are not intended to be a way of obtaining evidence (as opposed to preserving it) or enforcing a party's obligations to give standard disclosure.
Search orders are often granted in support of fraud claims, if they are the only way of preserving evidence for trial. In some circumstances, a search order may be granted in respect of a foreign defendant and/or overseas premises. They are also always granted “without notice” to the Defendant.
They are, however, very expensive, particularly in relation to their execution. Because of their extremely intrusive nature the Court requires that it appoints an independent solicitor experienced in the execution of search orders to supervise it. They are called a supervising solicitor. The Applicant for a search order will pay the costs of the supervising solicitor team as well as the costs of its own solicitors. The costs can quickly mount if there are multiple premises to be searched. Forensic IT teams are also likely to be required.
A search order may be granted against any party against whom the applicant has a cause of action and is, or is likely to be, a party to proceedings. If you cannot fulfil those criteria, consider seeking either one of the following:
A Norwich Pharmacal order requires a respondent to disclose certain documents or information to the applicant. The respondent must be a party involved or mixed up in a wrongdoing, whether innocently or not, but is unlikely to be a party to the potential proceedings. This order can be obtained before proceedings are commenced, and it is not necessary to intend to bring civil proceedings.
You may want to seek a Norwich Pharmacal order to:
In fraud proceedings these orders are often obtained against banks for disclosure of the fraudster’s bank accounts into which your money has been paid, and other account information. They are usually coupled with a “gagging order” to prevent the bank informing their customer that the account information has been disclosed. The gagging order will be for a period of time to allow analysis of the information received, and can be extended on application.
Where proceedings have been commenced and not before, a party to those proceedings may apply to the Court for disclosure by a person or entity who is not a party to the proceedings. The Court may make an order for non-party disclosure only where the following criteria are satisfied:
A Bankers Trust order (named after a case) is a type of third party disclosure order, potentially available in the relatively narrow circumstances in which:
You should specify as far as possible the relevant documents/information sought in order to increase the prospects of obtaining the order.
The sooner you take steps to recover the funds sought to be recovered by way of the Bankers Trust order, the better. Delay risks dissipation.
Bankers Trust orders are often made without notice, and may well be sought along with freezing injunctions, so that the relevant funds can be preserved pending enquiries about their provenance.
In some circumstances it will be necessary to engage an investigator. However, you should proceed with caution, as illegally obtained information, such as information obtained in breach of the Data Protection Act, can have serious adverse consequences. In extreme circumstances it could result in criminal proceedings being brought against you personally. It can also result in the loss of legal professional privilege over the instructions to and the report of the investigator, the discharge of injunctive relief obtained, and a costs order being made against you.
If instructing an investigator you should ensure you have chosen a reputable investigation firm, and be sure to give clear instructions as to what they are not permitted to do, as well as defining carefully what you do want them to do.
Partner and Head of Department
Professional Support Lawyer
Senior Litigation Executive
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