Many traditional enterprises are confronted with the difficulties in operation and financing with the increasing operating difficulties for entity industry and the downturn of traditional economy. Therefore, some enterprises or individuals unscrupulously make frauds and defraud property and goods for funds whether in the commercial trade or financing field.
In recent years, as well as the subsequent period, the cases for the purpose of defrauding property and goods such as contract fraud, false lawsuits, fraudulent loans and loan fraud will keep increasing.
How to prevent the risk of criminal offense when providing funds for clients and how to safeguard and recover the company’s interests by criminal law means after default are important problems for financing corporations in the business operation. In this paper, the author will share his experiences in successfully handling such cases and share the common skills and criminal protection strategies used for recovering debts by criminal law means.
When there is a default, the civil proceedings are usually initiated. Since there are civil remedies, why do we choose the recovery by criminal law means which is a remedy difficult obtain? Let us take a look at the features and advantages of the recovery by criminal law means?
1. Able to rely on the strong evidence obtaining capability of the public security investigation authorities
In civil procedure, the plaintiff shall undertake the burden of proof and we all know that it is quite difficult to obtain evidences through the normal civil proceedings and obstacles will be encountered in all aspects. However, once the criminal case is filed, the public security organs, as a representative of the state investigating authorities, can make full use of public power, resources and means to obtain evidences, which will not only accelerates the investigation, but also favor to thorough investigation of the facts.
2. Able to quickly recover the stolen property and goods
Once the criminal case is filed, the public security organs can freeze all assets of the suspect, including the bank deposits, houses and stocks, to prevent their transfer of assets. The range of assets frozen is far greater than that of the company's property in civil proceedings. Once the suspect is convicted, the victims can restore the deceived property and goods returned by the court and do not need to wait for the long implementation process.
3. Able to recoup damages in advance through criminal understanding
When compulsory measures are taken for the suspects, most of them will attempt to get bail or lenient sentence by making compensation and obtaining an understanding from victims.
According to relevant laws, making active compensation and obtaining the understanding from the victims can help the accused to reduce 20% of baseline sentence, which are also important conditions of deciding whether the accused can get bail or probation. Therefore, the suspects will make active compensation and attempt to obtain the understanding from the victims as long as they have the performance ability. In several cases represented by author, the amount of the compensation that victims eventually get exceeds their actual losses.
4. The victim’s compensation in a criminal case usually has a priority over general creditor’s right.
Even if the illicit money cannot be restored when it is obtained by the bona fide third party or is squandered, in accordance with the relevant judicial interpretations, the losses incurred by the victims in the criminal cases take preferred allocation over the general creditors in the event of litigation of defendant’s property.
5. When the criminal case is closed can be determined
The criminal cases in each stage have a statutory period, and it is usually 6-8 months for the criminal case from filing to trial. Therefore the closed period can be determined compared with the first, second trail and a long duration of implementation period (with possible additional periods such as jurisdictional objection and announcements).
6. Able to serve as a warning in the industry
Once the criminal charge becomes successful, it would play a stern educational role both for the whole industry as well as the enterprises and the internal staff of the financial institutions, which can effectively prevent the recurrence of such cases, and further strengthen the honesty and self-awareness of internal staff.
In practice, many cases would face the bottleneck of progress, initiating the criminal charge procedures so that the public security organs can take compulsory measures, which are the core of solving the problem.
The recovery by criminal law means has many advantages, but it cannot be initiated by all cases. There is a strict standard for case filling and as well as strict procedures for the public security authorities to initiate a criminal case.
The public security organs are extremely careful with the case filing or to take criminal coercive measures, especially for the economic crime, and that’s why it is quite difficult for the economic crimes to register. Take the common contract fraud for example; the following are the evidence requirements for case filing.
Article 224 of Criminal Code: “Whoever, for the purpose of illegal possession, obtains property and goods of the opposite party by fraud during signing or executing a contract, and when the amount of money is relatively large, shall be sentenced to mot more than three years of fixed-term imprisonment, criminal detention, and may in addition or exclusively be sentenced to a fine; or shall be sentenced to not less than three years and not more than 10 years of fixed-term imprisonment and a fine, if the amount of money is huge or there are other serious circumstances; or be sentenced to more than 10 years of fixed-term imprisonment or life imprisonment and a fine or confiscation of property, if the amount of money is particularly huge or there are other particularly serious circumstances:
The contract fraud objectively constitutes a flow mode as below, namely:
Conduct fraud by the criminal → a wrong understanding by victims →dispose of property based on misconceptions by victims → criminal or a third person obtains the property → victim suffered property damage.
The contract fraud has the statutory constituent elements in accordance with the laws.
1. The purpose of illegal possession: that is the criminal intentionally defraud people by means of fraud and take illegal possession of property, and such illegal possession is neither misappropriated, nor borrows, that is appropriation.
2. Using fraud during signing or executing a contract: the criminal deceives the victims of signing and performing the contract by providing false information and conceals the truth.
3. Obtain property and goods by fraud and the amount of money is relatively large:
The amount of money obtained by fraud shall reach the statutory sentencing standard. The relevant judicial interpretations stipulate that for the purpose of illegal possession, obtains property and goods over RMB 20,000 by fraud during signing or executing a contract shall be registered and prosecuted. The amount of deceived money is over RMB 20,000 but less than 200,000 shall be the relatively large. The amount of deceived money is over RMB 200,000 but less than 1,000,000 shall the huge amount. The amount of deceived money is over RMB 1,000,000 shall be extremely huge amount.
Evidences for objective aspect
1. Generally the victim shall provide a written contract. However, if it is an oral contract, the victim shall at least provide one direct statement by a neutral circumstantial evidence and a written document of actual performance by one party.
2. Damages incurred by victims
(1) If there is loss of goods, generally the victims shall provide the proof of delivery such as the financial books, delivery order, and bill of lading and so on.
(2) If there is loss of money, generally the victims shall provide the proof of payment, such as the receipt of the opposite party, bank transfer certificate, stubs of valuable bills and son on.
Evidences from subjective aspect
1. The suspect is having one of the following circumstances can be identified with the major suspect of “illegal possession”:
(1) Sign a contract with forged, altered or invalid negotiable instruments such as stamps, letter of recommendation and in the name of a made-up unit or under somebody else’s name;
(2) Sign a contract with forged, altered or invalid documents and there is no actual subject;
(3) Sign multiple contracts with same subject;
(4) Other behaviors of failing to perform the contractual obligations
2. The suspect with one of the following circumstances who cannot provide reasonable excuses can be identified with major suspect of “illegal possession”:
(1) Provide false guarantee with forged, altered or invalid documents;
(2) Hiding or avoid undertaking civil liabilities by other means after receiving goods, payment, advance payment or property as guaranty from the opposite party;
(3) Illegally possess the property sold at a low price;
(4)Profligate use of the property;
(5) Using the property for illegal business activities or criminal activities;
(6) Withdrawing, transferring or hiding property to evade the return of funds;
(7) Conceal or destroy the accounts in order to avoid the return of funds;
(8) Other behaviors to illegally possess funds and refuse to return the funds
The amount of crime
1. The amount of contract fraud by the unit or individual over RMB 20,000 shall be the relatively large and shall be registered.
2. The case in which the amount involved cannot be determined, but there is evidence that the amount could reach more than RMB 20,000, or the amount has been verified less than RMB 20,000, but there is a continuous behavior to be verified and may be over RMB 20,000, shall be registered.
All the documents and information derived from the execution and performance of the contract would be the evidence of case filling, therefore, the party shall pay great attention to the preservation of the materials.
1. All kinds of information about the people involved: the personal identity document, residential address, phone number, bank account, and contact information of relevant relatives. The purpose of providing this information for the investigating authorities is to find the whereabouts of the persons involved.
2. The materials like financial books which can reflect the transactions, such as the statement of money paid or received, invoices, records of shipping and receiving, acceptance of a single cargo, certificates of deposit and so on.
3. Contracts or the relevant materials in the past transactions can provide the comparison of the seals, signatures, and transaction process, which can provide evidences for the investigation by public security.
The recovery of economic crimes by criminal law means shall not simply rely on the public security organs. Most of victims shall organize the relevant evidences due to the strict case filling standard, excluding the cases with evident crime circumstances which will be registered directly by the public security organs. Therefore, the victims shall have the sense of proof reservation and shall be good at finding doubts so that they would not miss the critical issues.
1. Electronic forensics shall not be ignored
Electronic evidences restored in all possible mediums such as computers, mobile phones, mobile hard disk, network cloud disk, etc., may be documents, chats records, e-mails which can reflect the contents of the data, or the actions or tracks of operating the computers. With the widespread of the electronics, the electronic evidences have been universal in the modern commerce and financial activities. However, such electronic evidences are always ignored and not preserved, and they are even destroyed or become invalid due to unauthorized use or copy of the evidences. Therefore, experienced lawyers can have a better understanding of the possible electronic evidences and can take protective measures at the first place and involve the public security organs or experienced experts to preserve these evidences.
2. Pay attention to the affiliated parties in the false lawsuits
Generally speaking, the defaulting party in the event of impossible performance, the defaulting party always would transfer funds or preserve assets with disguised means. In a financial leasing contract fraud handled by the author, a factory of the defendant had been seized by the court. However, his friends had attempted to preserve majority of assets by creating false creditor’s right and pledge before such asset was seized. Then his friends were charged with false lawsuit and the false creditor’s right with prior pledge has also been revoked. Therefore, the debtor shall recognize the false lawsuit in the liquidation and shall pay attention to these key issues such as whether the declaration of creditor’s right is closed by mediation or by judgment; whether the declarant is the affiliated party with the debtor; whether the creditor’s right is formed before the financial situation become worsen.
3. Strengthening the supervision of business personnel
In many cases, the quality of employees is directly related to the interests of the company. Companies need to strengthen staff training and management to avoid the employees’ negligence or bribe-taking and preserve the documents held by the employees. If the opposite party has any fraudulent behaviors and the directly responsible business personnel are quite careful and professional, the fraud can be recognized and thus the opposite party would be unable to take the fraud. However, in some cases, the employees have colluded with others and take the fraud. In one case handled by the author in which the interests of a financial leasing company is infringed, one business staff who once worked in another financial leasing company continued a project with serious problem which has been halted by his previous company. Such project has caused great losses. There were another two projects, in which the parties are affiliated parties. The business personnel did not disclosed the truth to the company that accepted the two projects and finally the projects went wrong.
In many cases, the victims recognizing the fraud of the opposite party could not initiate recovery by criminal law means due to lack of evidences. For example, the parties did not make an agreement on the specifications of the leasing equipment in the contract, and just made an oral agreement, but the equipment was found obvious false and such false cannot be proved delivery problem. For another example, some debtors deferred payment with oral false reasons and transferred assets at the same time. The victims could not make criminal case filling due to lack of documentary evidences. Therefore, we shall preserve the relevant evidences during the transactions which can assist the subsequent recovery by criminal law means.
1. Transaction Control Design
There is not a clear bound between the economic crime and economic dispute, which become the reason against the constitution of economic crime by lot of people. For some financing projects, such as trust, we will control the finance and company stamps of the financing party. If there is a strict control, the opposite party will make fraud in order to transfer funds. Therefore, if the transaction is strictly controlled, it can guarantee a safe transaction as well as the preservation of evidences. The transaction control design shall combine with the constituent elements. A good design is favorable to the recovery by criminal law means.
2. Preservation of documentary evidences and electronic evidences
Documentary evidences and electronic evidences are objective evidences, which have greater probative power compared to verbal evidences. The documentary evidences and electronic evidences are beneficial for the criminal case filling. For example, the partner (applicant) may be required to provide written proof of credit capability and loan repayment capability, including the statement of asset and debts and such proofs shall be signed by the controller and affixed seals by the company during the transactions or financing. Meanwhile the above materials shall be signed upon receipt, which can prove that the materials were provided by the partner (applicant). When the materials are found false, the partner who provides the materials will be identified with fraudulent intention. For another example, if the debtor requests deferred payment, which shall be in written form, indicating the specific reasons for the extension, and shall be signed by the controller and affixed seal by company, meanwhile the deferred payment statement shall be signed upon receipt. While during the transfer of lease equipment, the financing lease companies can conduct audio and video recordings of the whole field handover and require the lessee to make confirmation. When the equipment is found false, such audio or video can prove the fraudulent fact.
