The possibilities of defence in the crime of lender bribery

Legal Insight

June 2016

Ioannis Psarakis, Lecturer, LL.M (III), PhD Cand.

The financial turmoil of recent years has contributed to an increase in the number of cases of creditor fraud pending before the criminal courts. The human instinct - when the debtor foresees that he will not be able to meet his debts - to "save whatever is saved" leads to the transfer of his assets to other persons (usually relatives). He does so in order to put himself in such a situation that there are insufficient assets in his name to satisfy his debts in view of the apparent abnormal development of repayment. 

In order to make the note comprehensible even to someone reading a legal text for the first time, it will be useful to set out a (highly probable) scenario beforehand: 

A has obtained a bank loan of €500,000 in 2007 for the expansion of his business. However, as early as 2009 he has difficulties in repaying the instalments and so in 2010 the Bank terminates the loan (after termination, the Bank is able to claim not only the defaulted instalments but the total amount of the loan). The only asset that A had was the property where he lived. Foreseeing, already in 2009, that in the near future he would be absolutely unable to repay the loan and suspecting that the lender (the Bank) would attempt to seize and auction the property, since, as the only asset of its debtor (A), it is the only one from which it can draw some money, it transfers the house to his son, Y, by way of parental care. Indeed, now - in 2009 and therefore before the termination of the loan in 2010 - the house belongs to Y, who is not T's debtor and therefore she will not be able to accelerate enforcement (so called the procedure that will result in the auction of the property) against his assets. The debt will be A's and not Y's. But the house is (no longer) Y's and not A's. 

If the transfer had not taken place, the Bank would have proceeded to auction the property in order to satisfy its claims, at least those that A could not pay. In other words, by this conduct, Mr A deprived the Bank of a sure source of recovery of the money (even part of it) which it had lent him. This is the crucial element. 

Ι. Introduction 

Anyone who has frustrated the total or partial satisfaction of his creditor may be charged with the offence of creditor fraud. The frustration would consist in the disappearance, by means of a contrivance, of property on which the creditor could have accelerated enforcement (e.g. an auction), so that the proceeds (i.e. the amount resulting from the auction) could be used to satisfy the claim and "pay" it (after the debtor has, of course, first proved to be recalcitrant or insolvent in paying the amount due).

However, another defendant may also be found guilty, who may not have initiated the whole process, but played a very supportive role. Such a case is that of a direct accomplice. Indeed, if the son did not accept the transfer, the father's property would remain as it was, and therefore no satisfaction of the Bank would be frustrated. 

It should be noted that in both the one case (i.e. that of the instigator) and the other (that of the direct accomplice) the crime is committed only if the perpetrator considered it even possible that this procedure would frustrate - even partially - the creditor's entire claim. The point in time at which the existence of this possibility in the defendant's mind is examined is the time of the transfer. This point in time at which the judge stops time and investigates what the defendant was then seeking or thinking was possible is very important, since it will determine many of the defendant's essential allegations on which he will base his defence. 

In other words, the perpetrator will be exonerated if it emerges at the criminal hearing that it is rather doubtful that he believed - or even conceived as possible (!) - that this reduction of his property (e.g. the transfer by donation of A's property to Y) would result in the total or partial frustration of the satisfaction of his creditor (e.g. the Bank). 

Similarly, the direct accomplice will only be convicted if the Court makes a firm judgment that Y, in accepting the transfer from his father, had some suspicion that he (his father) might not have sufficient property to cover his debt in full. 

Fortunately for the defendant, in a criminal trial the Court must form a definite forensic judgment of guilt in order to convict him. If the judge is not at all certain that the accused is innocent, but at the same time is neither absolutely convinced that he actually committed the crime of which he is accused, he must acquit him. The slightest doubt leads to the acquittal of the accused. 

It goes without saying, however, that in order to speak of 'expropriation without equal and valuable consideration' (as is usually stated in the charge) we must either be faced with a sale for a lesser price or, of course, with a donation. 

II. The possible exculpatory allegations (and in particular their support) 

It is not sufficient for the Court that the defendant's counsel allege facts favourable to the acquittal of his client, but it is also necessary to support them with evidence in various ways. Here are some examples. 

(i) As to the perpetrator: 

• At the time when the transfer was taking place, it was not even within his horizon of perception that in the future he would cease to repay the debt. So at point in time X (i.e. at the time of the transfer - hence the reduction of his assets - hence the cancellation of the bank's satisfaction), he did not consider it likely that he would in future deprive his creditor of the last source of liquidity which would lead to the payment of the entire amount owed or even part of it. 
  

For example, in the evidentiary proceedings, he will produce balance sheets of his business which will show that up to the year of the contested transfer, his financial data did not foreshadow what followed, e.g. a trader who made a parental provision in 2008 and the crisis in 2009 affected him to such an extent that, for the first time, in that year (i.e. 2009) it appears that he could contemplate the possibility of being unable to service the loan. Other evidence such as purchases during the critical period X, a little earlier or even later, and general indications of a luxurious/comfortable life will reinforce the impression that in the father's mind, the scenario of difficulty in repaying the debt was completely excluded. 

• An allegation which tends to exonerate the accused is also that of the sufficiency of his other assets to cover the debt in full. In this assertion we do not focus on the thought, for example, in this case of the father, but on what ultimately happened in the material world. 
  

But as has already been understood, in criminal proceedings great importance is also attached to what happened in the mind of the accused. Thus, if the Court is convinced that at time X the father had assets (other than the house which he transferred to his son) which assets, it is true, turn out not to be sufficient to cover his debts to the Bank, but at that time X believed - out of inexperience, frivolity or for other reasons - that the Bank was sufficient to cover his debts, then his motives are not considered to be lowly enough to merit a conviction. If, however, it is true that at the time X the property was sufficient to repay the debt, then it follows that, in the main, the defendant had no malice in frustrating the Bank's satisfaction. For example, consider the case in which, with debts of €800,000, at time X the value of A's other property was estimated at €1,000,000, but now, due to the sharp fall in the property market, it is no longer valued at more than €500,000. 

But even if the father had an expectation of collection (e.g. he had bought Greek government bonds which he had calculated to mature just when he needed the money; however, as is well known, these were subsequently "haircut" and did not perform as expected), it will still raise serious doubts in the Court about the potential difficulty of repayment that he had in mind. 

The list of allegations tending towards acquittal on the offence of lender fraud is inexhaustible. In each individual case, by examining all possibilities meticulously and accurately, counsel will find the allegations that best fit each individual case. Of course, this will not be done without the necessary cooperation of the client, who is also the one who will introduce the specific facts of his case so that on the basis of them a solid and complete line of defence can be built, as convincing as possible. 

(ii) As to the direct accomplice:

• For anyone to be punished, a crime must be committed, at least in the material world. Therefore, if it is proved that the Bank did not in fact lose the ability to satisfy its claim because of the gift and transfer of the property from A to Y, because A had such property (either at time X or at the time the Bank demands payment of a sum and the father does not comply) that it covered the entire debt, then in the first case it can be argued that Y acted with knowledge of the sufficiency of his father's other assets, while in the second case there is not even a "frustration" of the Bank's satisfaction, as required by Article 397 of the Criminal Code (read it). Of course, these allegations also work in favour of the perpetrator, A. 
  
• And as for the direct accomplice, it is equally important what happens in his spiritual world. He, must not even have considered as possible and contingent the frustration of the Bank's satisfaction because of this transfer. 
  

But the element that greatly strengthens the position of the direct accomplice in this claim is his greater "distance", compared to the perpetrator, both from knowledge of the debt and its amount, and the sufficiency or otherwise of the father's other assets. That is, the son will be more comfortable in claiming that he had no involvement with his father's finances, so that he had no reason to know of his poor financial situation, which would likely lead him to be unable to satisfy his creditors. He could even claim with a straight face that he was not even aware of his father's debts! Or that he was unaware that his father had donated/forfeited other assets to him due to an auction, which he (the son) had the misguided notion that they still existed, so that in his (the son's) mind, the creditors could be satisfied entirely from A's remaining assets, despite the contested transfer to him. 

Extremely useful in supporting the son's claims will be more general evidence to prove them and make them convincing: e.g. the son lived in a different home and had no reason to be involved in his father's finances (he was financially self-sufficient and at the same time did not work in his business), the father used to act secretly and avoided informing the son of adverse financial developments so as not to "upset" him. Once again, it becomes obvious that the choice of the best line of defence will only emerge through the cooperation of counsel and client, so that every detail that may be considered useful can be used in the specificities of the case. 

III. Objections to the writ of summons: 

a case in which the guilty party is also acquitted 

Suppose that a few days before the trial, father and son had, in a crisis of sincerity, sent a letter to the Bank in which they confessed their guilt. Afterwards, however, they regretted their admission, but of course there was little they could do about it. The letter has already reached the Bank. It will, in the course of the evidentiary proceedings, deposit the letter with the Court, which will weigh in an absolute manner on the final, innocent or guilty, verdict. So we have a case of defendants who are (probably) obviously guilty. Is there any way out? 

The only way out is to object to the writ of summons: the defendants, before being tried, were informed of the charges against them by means of a document, the 'writ of summons'. The writ of summons had to be drawn up in great detail, often to the point of formality. 

On the other hand, of course, this excessive formality is justified. A good defence presupposes a good knowledge of the opponent's method of attack. The accused must be able to prepare his defence in the best possible way, given that the supreme good of individual freedom is at stake in criminal proceedings. At the same time, this requirement to set out in detail a large number of elements and to avoid contradictions is in the interests of the accused, since these formal deficiencies may lead to the invalidity of the subpoena. 

In other words, a decision will not be given on the guilt or innocence of the accused, but it will be held that the proceedings preceding the hearing were not properly conducted and must therefore be repeated. Although this will not be an acquittal, it will often be equivalent in effect to one. This is because: 

The statute of limitations for the crime of a. 397 CC is five years. The service of the writ of summons, however, suspends, "freezes" the statute of limitations. If the nullity of the writ of summons is accepted, it is considered that the suspension never existed. So given the reality of the delay in the administration of justice (postponements due to the absence of lawyers/judicial officials/judges, either because of elections or even at the request of the accused himself), usually 5 years will have already elapsed by the time the relevant objection is raised before the criminal court. Therefore, the service of a (new, this time valid) writ of summons will certainly not be possible within the time limit (i.e. within 5 years, since the 5 years had already elapsed at the time of the trial). 

The offence is time-barred after five years have elapsed from its commission, the course of which (eventually) was neither suspended nor interrupted by any event. 

Thus, we arrive at what is essentially an acquittal before the Court even touches the merits of the case, i.e. whether or not the accused actually committed the crime for which he was called to trial! 

In this type of defence, the effectiveness of the pleas rests entirely on the ability of the counsel and his experience to fish out formal defects in the subpoenaed document, which will consequently lead to its invalidity. Here, there is no need for the principal's involvement, since the facts of each case are irrelevant. That is to say, even if there is no evidence to support relevant defence claims and there is no hope of acquitting the accused at stage ii, i.e. in the context of the allegations and the evidentiary procedure, the writ of summons can nevertheless be annulled since it is based solely on legal, formal grounds. 

For example, in a case recently decided by the Athens Plenary Court, the writ of summons did not mention the defendant's other property and its valuation. In particular, in Article 397 of the PC, the cancellation of the creditor's satisfaction occurs in the case where the remaining assets, after expropriation, are not sufficient, due to their value, to satisfy the creditor's claims. However, in order to establish the impossibility of satisfying the creditor's claims, a detailed inventory of the debtor's other assets is required. 

IV. The quarter of the complaint 

To prosecute the crime of creditor fraud, the victim must file a criminal complaint within three months. The three-month period starts from the day after the knowledge (by the Bank's officers) of both the fraudulent transfer and the perpetrator, and of the result: that is, that the (total or partial) satisfaction of the Bank was ultimately frustrated. 

It is common, however, for banks, due to the large volume of cases, to be less consistent than another private party would be in terms of the timeliness of filing a complaint. Thus, they are forced ex post to "invent" claims in order to "create" a later start of the three-month period. 

For example, the Bank's usual allegation is that of only recent - in relation to the filing of the complaint - knowledge of the transfer of the property. In this case, evidence such as letters or e-mails from the Bank showing that it had already been aware of the transfer of the asset much earlier than that would refute its claim. Often, its prior knowledge will also be evidenced by pleadings from the civil court proceedings, in which it will mention the disputed transfer in its attempt to obtain civil remedies (requesting the annulment of the transfer of the property from A to Y, so that it can now be returned to the debtor's property and the latter can auction it. In criminal proceedings the aim is to punish A, whereas in civil proceedings (civil lawsuit) the aim is to satisfy the claims against A). 

Attention must also be paid to the legal form of the filing of the complaint, which must be filed by the competent body for this purpose, as specified in the bank's statutes. So that if it is lodged by another person not legally entitled to do so, the lodgement is deemed not to have been made. In this case, three months will certainly have elapsed before the development of the relevant objection before the Court, and therefore any new filing (out of time) can no longer lead to a valid prosecution.

(for more see here and here).