Criminal Fraud Under Swiss Law: When Is It Not Really Fraud?

Introduction

What a scam! Such a fraud!

This everyday expression can be misleading when one tries to match it with the strict boundaries of the law.

In Swiss law, the criminal offence of fraud (Art. 146 of the Swiss Criminal Code) is often considered to attract jurisdiction in Switzerland in international context. It is sufficient for this attraction that one or even part of one of the prerequisites of the offence occurred in Switzerland, such as the assets stemming from the fraud being in Switzerland. In such a case, even if the potential perpetrators are not domiciled in Switzerland, the country may have jurisdiction to initiate criminal proceedings with all the benefits for plaintiffs.

According to art. 146 of the Swiss Criminal Code, "any person who with a view to securing an unlawful gain for himself or another willfully induces an erroneous belief in another person by false pretenses or concealment of the truth, or willfully reinforces an erroneous belief, and thus causes that person to act to the prejudice of his or another's financial interests, shall be liable to a custodial sentence not exceeding five years or to a monetary penalty".

The prerequisites of the offence are: (i) a deceit, (ii) a malicious conduct; (iii) a mistake of the victim, causing a self-harming disposition of assets (iv) causality (v) the purpose of obtaining an unjust enrichment.

There are obviously certain pitfalls in the application of the provision. For this note, we have decided to focus on one specific aspect: the malicious conduct.

No fraud without a malicious conduct

In everyday conversation, calling something a "fraud" or a "scam" may be used loosely, but legally speaking, the element of malicious conduct is essential to establish fraud under Swiss law. A mere deception, without a malicious intent, is not enough to constitute fraud under the Swiss Criminal Code.

The assessment of this prerequisite focuses not only on the attitude of the potential perpetrator of the offense but also on what the victims could have done in view of their personal situation to protect themselves. In other words, the presence of malice is also evaluated based on the victim's particular circumstances, which takes into account the victims' responsibility in protecting themselves. It is thus not uncommon for the perpetrators to argue that the deception they are accused of is not at all clever and that the victim should have been more careful, arguing that the law is not meant to protect fools (recalling the Roman law adage "de non vigilantibus non curat praetor").

It is worth recalling the Swiss Federal Supreme Court's ("SFSC") well-chosen words when discussing the existence of fraud.

The SFSC has emphasized that malicious deceit is present when the deceiver uses a "structure of lies," "fraudulent manoeuvres" or a staging to deceive the victim. If the deceiver discourages the victim from verifying information or foresees that the victim will not verify it because of a special relationship of trust, the mere statement of false information by the deceiver may also be considered malicious.

However, the victim's responsibility in protecting themselves is also taken into account. If the victim could have protected themselves with a minimum of care or avoided the mistake with the minimum of prudence that could be expected of them, the deceit may not be considered malicious. The victim's co-responsibility only excludes deceit in exceptional cases.

Therefore, according to the SFSC, in order to assess whether the deceiver was malicious, it is not sufficient to look objectively at how a reasonably prudent and experienced person would have reacted to the deceit. Rather, the concrete situation and the victim's need for protection, as known and exploited by the deceiver, must be taken into account to assess whether the deceiver was malicious. This is particularly important when the victim is vulnerable due to factors such as feeble-mindedness, inexperience, or age, illness, dependence, inferiority, or distress. In such cases, the exploitation of such situations by the deceiver is considered malicious. The potential special knowledge and business experience of the victim must also be considered.

Malicious conduct in court's practice

In the past, malicious conduct has been denied by courts in the following particular and recurring cases:

• Experienced investors. According to the SFSC, experienced investors should exercise greater vigilance and should be more skeptical about the fraudulent scheme in question. Between the lines, the SFSC suggested that experienced investors may have been motivated by greed or the prospect of high returns, which may have clouded their judgment and made them more susceptible to the fraudulent scheme.
• Banks. The SFSC often expects banks to show above-average diligence when assessing possible fraud of which they may have been victims.

More recently, however, the following cases have been accepted as satisfying the prerequisite of malicious conduct:

• The false landlord. An individual falsely made several people believe, through ads on the Internet, that he was willing and able to rent or sublet apartments to them, which was not the case. The victims could not reasonably have been expected to verify whether the individual was the actual owner or had the right to rent the apartments, given that he had access to them. The victims were tricked into giving money to the individual as an application fee, rental guarantee and/or first rent (receipts signed).
• Car lease under a false identity. An individual entered into a car lease agreement under false pretenses. By deliberately using a false identity and producing a false identity document to obtain benefits he could not have obtained under his real identity, given his compromised financial situation and his criminal record, the individual engaged in fraudulent conduct. The SFSC did not hold the leasing company jointly liable, holding that it had been maliciously deceived about the perpetrator's identity.
• The felon employer. An employer put an employee to work, falsely promising that he would be paid, even though he knew that his company was not making any profit and was operating solely on loans from acquaintances. The employer exploited the relationship of trust and subordination, and even the embarrassment of his employee, who was an unskilled, relatively old worker who was no longer able to enter the job market. The employee was also full of gratitude that the employer had hired him, which the employer knew. The fact that the employer paid the employee's first wages only reinforced the illusion that he could afford to pay the employee, and thus was part of the malicious deceit.
• The dishonest worker. A subcontractor/worker placed an order with the supplier of materials for the construction of a villa, falsely indicating that the material was intended for the ongoing construction, for which the general contractor (who had a relationship of trust with the supplier) was the successful bidder. In reality, the orders were for the worker and he set up a scheme to take advantage of the supplier's account receivable in favor of the general contractor. The worker provided false information to obtain materials at a lower price. The deceit could not be foiled with the least amount of attention or caution, as the worker was actually doing plastering work on the villa in question and the materials ordered were in line with the work on the site. The supplier's employees therefore had no reason to check the accuracy of the information given by the worker.
• The lying co-contractor. A person hides information to his co-contractor and confirms the latter in his error, even though he has a contractual obligation to provide this information to allow the performance, in good faith, of the commitments made.
• The delivery scam. An individual induced various companies to deliver goods to him (including spirits and computer equipment) without prior payment by setting up a system of lies: the use of the name of a Swiss company registered in the Commercial Register, the concealment of his identity (on the telephone and by e-mail), pretending to be the manager of said company (whose name appeared in the Commercial Register). To make the orders plausible, the individual lied: alleged urgency, events supposedly organized by the company and gifts to customers. He then applied a strategy based on the multiplication of suppliers and the speed of simultaneous orders, allowing him to limit the amount of orders from each one and to act in the name of a company whose reputation was still intact. Finally, the SFSC denied any co-responsibility of the victim companies, as the verification of solvency is not a usual business practice for such deliveries.
• The false business provider. An individual presents himself, in view of his origins, as having the benefit of a vast network and access to an oriental royal family, allegedly wishing to deposit an amount of several hundred million Swiss francs with a financial institution chosen by the individual. The individual had been introduced to the institution by a business partner who spoke highly of him. Just before an allegedly key meeting abroad, justifying a certain opacity in his request by local customs, the individual succeeded in persuading a representative of the financial institution that his secret intermediaries (who in reality did not exist) were asking for an advance on commission of EUR 250'000, which was granted.

Conclusion

In view of the above, it appears that the offence of fraud contains, from the point of view of the malicious requirement, some elements whose technicality is often misunderstood. Moreover, it seems clear that the degree of diligence that could be expected from the victim increases according to the latter's sophistication. Therefore, in any business or investment, before buying or investing, it is important to be critical and to ask for evidence from one's counterparty in order to convince oneself that the deal is not too good to be true and, in case of fraud, to avoid being blamed for having been too light at the time of the litigious transaction. However, just because the conditions for fraud are not met does not mean that the conduct necessarily escapes criminal reproach and that there are no other civil legal means of obtaining compensation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.