International Fraud & Asset Tracing 2022 Comparisons

Fraud Claims in Ecuador

Several forms of fraud are recognised under the Ecuadorian Criminal Code (Código Orgánico Integral Penal, or COIP), mainly intentional and illegal acts against the property of a third party, by means of deceptive, false, and misleading facts, which induce an error.

Fraud in Ecuador is mainly based on the provisions of Article 186 of the COIP, which establishes that in order for a fraud to exist there must be four characteristics:

• deception or misleading acts; 
• simulation of false facts;
• concealment of true facts; and
• an effect on the victim’s patrimony, assets or money.

All four conditions must be met for a fraud to take place.

Procedural matters

Ecuadorian legislation contemplates an adversarial accusatory system; therefore, fraud claims in Ecuador are filed before the General Prosecutor’s Office (Fiscalía General del Estado, or FGE), which is responsible for public criminal actions.

Fraud claims must be brought through public criminal actions; this means that a public prosecutor has to investigate an alleged crime and request the Judge of Criminal Guarantees to initiate criminal proceedings for the alleged crime.

The COIP establishes a series of principles, requirements and procedural rules that must be in accordance with the Constitution of the Republic of Ecuador. Therefore, once the Judge of Criminal Guarantees initiates a criminal proceeding, the process itself must necessarily comply with the rules of due process and respect all constitutional guarantees.

Once the criminal process has begun, judges must order precautionary measures (such as a prohibition on leaving the country, periodic appearances before the authorities or even preventive imprisonment). The Judge of Criminal Guarantees will have to determine if it is evident from the facts presented that fraud has been committed. If a judge determines that fraud has been committed, the defendant will be called to trial. However, if no fraud or other crime is identified, the judge will dismiss the defendant and declare their innocence. In this last case, the precautionary measures will have to be lifted and the proceedings will be definitively closed.

However, if the Judge of Criminal Guarantees calls the defendant(s) to trial, they must necessarily hand over the case to a court made up of three competent judges to hear the case, carry out the trial hearing and finally decide whether to ratify the innocence of the defendant(s) or, if not, to find them guilty and sentence them to imprisonment.

Nevertheless, any of the procedural parties has the right to file an appeal before a higher court and, once the appeal has been heard and if this is not favourable, before a National Judge. 

False Statements, Corrupt Payments, Conspiracy and Misappropriation

The making of false statements is a crime known as “perjury and false testimony” and is provided in Article 270 of the COIP. The article states that “[t]he person who, by declaring, confessing, informing or translating before a competent authority, fails to tell the truth under oath, commits perjury. Perjury shall be punished with imprisonment from three to five years; when doing so not under oath, the person commits false testimony. False testimony shall be punished with imprisonment from one to three years.” It is very important to note that perjury can only be committed under oath, therefore, it must be committed or done when testifying or declaring in court or, in the absence thereof, before a notary public. And, as previously explained, the process must be developed by means of a public prosecutor who initiates an investigation and subsequently requests a Judge of Criminal Guarantees to initiate the criminal process and dictate the respective precautionary measures. 

Corrupt payments are contemplated in the COIP through different crimes such as bribery or concussion (extortion), provided in Articles 280 and 281, respectively. Bribery and concussion requires that one of the participants who committed the crime must be a public official of the Ecuadorian state and that, at the time the crime was committed, they were working as an Ecuadorian public official. However, a recent reform of the COIP (passed on 17 February 2021 and which came into effect in late 2021) creates a new form of crime: corrupt acts in the private sector. It defines a variety of inappropriate conduct as a crime (eg, it is a crime for general managers or shareholders, among others, to receive a gift, illegal salaries or promises, among other things). The definition of this crime, in the opinion of the authors of this article, is poorly drafted and overly broad; businesses will therefore need to take a careful look at their practices.

Conspiracy, known as illicit association, is a crime provided for in Article 370 of the COIP and it is committed when two or more people associate with the purpose of committing crimes (that are punishable with imprisonment of less than five years). Illicit association is punished, for the sole fact of the association, with imprisonment of three to five years.

Finally, misappropriation in Ecuador is a crime known as trust abuse and is provided for in Article 187 of the COIP. This crime is committed when a person – who is entrusted to manage money, goods, or assets, or where these are under their control with the condition of returning them or using them in a specific way – uses/steals them for their own or a third party’s benefit. Trust abuse is punished with imprisonment of one to three years. This crime is commonly committed by employees in senior positions. This is a crime that applies to the private sector.

The causes of action available in the Ecuadorian jurisdiction for a claimant whose agent has received a bribe are mainly the following.

The receipt by the agent of any gift or any type of compensation, which the agent has knowingly accepted, in return for performing or omitting certain acts that otherwise would have not been committed, and that have damaged in any way the assets of the company to the benefit of the agent or a third party, will be considered a crime.

Being a crime contemplated in the law and in the COIP, a complaint shall be filed with the Public Prosecutor’s Office for the crime of concussion and/or bribery as applicable, so that a prosecutor investigates the crime committed, respecting all the rules of due process for this purpose.

Ecuadorian legislation punishes the crimes that are typified in the COIP; however, it is the judge of the case who must determine the status under which each defendant is punished and sanctioned. This means that the judgment issued will determine the degree of responsibility that each defendant has and will determine whether they are the author of the crime, an accomplice or helped to cover it up. Therefore, all persons who assist or facilitate the fraudulent acts of another, must assume the legal consequences as accomplices for the crime that was committed.

The claims available in Ecuador against parties who assist or facilitate the fraudulent acts of another are the same as if the claim were to be brought against the perpetrator who committed the crime.

It is important to point out that an accomplice is a person who fraudulently facilitates or co-operates with secondary acts, prior or simultaneous to the performance of a criminal offence. There are situations in which the party’s assistance consists of the receipt of fraudulently obtained assets, after the crime was committed. This person will no longer be punished as an accomplice, however, since their assistance did not occur before or during the committing of the criminal offence, as mentioned above.

However, Article 289 of the COIP provides that a party’s assistance consisting of the receipt of fraudulently obtained assets is a crime, known as “front-manning” (testaferrismo). This crime punishes the person who consents to pretend that the fraudulently obtained assets (including real estate, titles, shares, participations, money and securities) are their own. This crime is punished with imprisonment for three to five years. If it is proven that the crime was committed by a legal entity, it will be sanctioned with the extinction of the legal entity and a monetary fine.

Likewise, Article 370 of the COIP, states the following regarding “unlawful association”: “When two or more persons associate for the purpose of committing crimes, punishable with imprisonment of less than five years, each of them shall be punished, for the sole fact of the association, with imprisonment of three to five years.”

In Ecuador, the limitation period for crimes is the same period of time as the maximum term of imprisonment for that specific crime. This means, for example, that the limitation period for fraud, punishable with five years of imprisonment, will be five years counting from the day the fraud was committed.

Notwithstanding all of the above, it is important to emphasise that when the prosecutor requests the judge to press charges and the judge orders the charges and initiates the criminal proceeding, the statute of limitations is interrupted.

Criminal law in Ecuador has two purposes: (i) to punish the offender with an imprisonment sentence, and (ii) to repair the rights of the victim by means of comprehensive reparation.

In this sense, when a claimant seeks the recovery of property, assets, money or funds that have been misappropriated or induced by fraud to transfer, and where those funds have been mixed or invested before being recovered by the victim, the claimant must necessarily overcome the following barriers. 

• Obtaining an enforceable judgment that orders the payment of integral reparation to the victim, or obtaining an order for the full reparation of the victim’s rights; this decision must be enforceable so no appeals can be filed against the judgment.
• Following this, a second phase or procedural stage for executing the decision must be initiated through a civil process before a civil judge to apply seizures or withholdings on assets owned by the debtor or on the debtor’s income.

In practice it is very unlikely that a seizure or withholdings will be possible. The probability of success in recovering funds which represent the proceeds of fraud, but which have been mixed with other funds, is very low.

Under Ecuadorian legislation, no particular rules of pre-action conduct apply in relation to fraud claims.

In Ecuador, what a victim of fraud can do to prevent a defendant from dissipating assets or secreting them with a view to avoiding the concrescences of a judgment is to request in rem precautionary measures.

Precautionary Measures on Property

Precautionary measures must necessarily be ordered at the beginning of the process, meaning, at the moment in which the Judge of Criminal Guarantees presses charges upon the request of the prosecutor in the case. Thus, it is the prosecutor of the case who, seeking to secure the rights of the victim of an alleged crime, requests and/or recommends that the judge order certain precautionary measures of a real or personal nature. In this sense, it is important to clarify that the COIP recognises, in its Article 549, the in rem precautionary measures that can be dictated by a judge.

The judge may order the following precautionary measures on the assets of the natural or legal person being prosecuted:

• abduction;
• seizure;
• detention; and
• prohibition of alienation.

Once the measures have been ordered, they must be entered in the respective registries free of charge.

Likewise, Article 444.11 of the COIP establishes that the prosecutor has the power to request that the judge dictate the precautionary and protection measures that they consider appropriate for the defence of the victims and the re-establishment of their rights. The revocation or termination of such measures can also be requested when the judge considers that the investigation carried out has made it possible to dispel the evidence that led to them.

On the other hand, Article 519 of the COIP establishes that the judge may order one or more precautionary and protective measures provided for in the Code in order to:

• protect the rights of the victims and other participants in the criminal proceedings;
• guarantee the presence of the accused person in the criminal proceeding, their compliance with the judgment and the integral reparation;
• prevent the destruction or obstruction of evidence that may lead to the disappearance of elements of the conviction; and
• guarantee full reparation to the victims.

In this sense, it is important to clarify that the lawyers representing the victim are the ones who must co-ordinate with the public prosecutor of the case to request that the judge enacts the in rem precautionary measures in order to secure the assets which are the object of the infraction. It is, however, the judge who has the last word and who must decide.

Court Fees

There are no court fees to pay since the Constitution of the Republic of Ecuador recognises the right of the victims to full reparation of the damages caused, to effective and free judicial protection and to have their procedural rights respected as a responsibility of the national judicial system. In the case of non-compliance by the defendant with any of the precautionary measures, at the request of the prosecutor and in a reasoned manner at a hearing, preventive imprisonment must be ordered by the judge. Finally, the claimant is not required to provide a cross guarantee for damages.

In Ecuador there are no procedures available to require a defendant to give disclosure of their assets to assist in preserving assets pending a judgment. Additionally, defendants have the constitutional right to remain silent and not self-incriminate.

It is the responsibility of the person filing the complaint, together with the prosecutor, to demonstrate to the Judge of Criminal Proceedings which are the properties, assets and money of the defendant on which precautionary measures, such as measures of a real nature, will be imposed. If any of these properties, goods or money are not in the name of the defendant, the precautionary measure cannot be imposed.

The claimant does not need to give a cross-undertaking in damages.

Under Ecuadorian law, the procedure available for preserving and conserving evidence in circumstances where it is feared that important evidence might be destroyed or suppressed is that the evidence enters a chain of custody at the request of the prosecutor or by order of a judge. Evidence will enter the chain of custody at the crime scene and is then secured until it is presented before the judge and the judge makes a ruling. Once it has entered the chain of custody it cannot be removed except by order of the competent authority.

Courts in Ecuador allow a party to conduct a physical search of documents at the defendant’s residence or place of business only when there is a search warrant issued by a Judge of Criminal Guarantees, and in turn this Judge has issued an official notice to the Judicial Police and the National Police giving the respective search warrant.

A judicial order will be required to conduct a physical search of documents.

The claimant does not need to give a cross-undertaking in damages. Responsibility for damages due to a search warrant is assumed by the FGE and the National Police.

There is a second way to preserve evidence that is in danger of being manipulated or erased, which is to request an “urgent act” from the prosecutor’s office to order a prosecutor to collect the evidence and keep it in a prosecutor’s file. However, in practice, it may take some time until the prosecutor’s office collects the evidence and therefore this is not always the best method to follow. 

In Ecuador there is only one procedure to obtain a disclosure of documents and evidence from third parties, and this occurs when the prosecutor, either of its own accord or at the request of the parties, orders documents from third parties.

This procedure cannot be invoked before the commencement of the proceedings. There must necessarily be an open criminal investigation to obtain disclosure of documents from third parties. Nevertheless, documents disclosed form third parties will have to remain confidential due to the fact that criminal investigations are necessarily confidential. Disclosed documents will only be made public if there are charges pressed against the defendant and a process has been initiated.

In Ecuador, procedural orders can be brought by judges or prosecutors without notifying the intended defendant. Defendants only need to be notified once, when the process is initiated, then, in white-collar crime and fraud cases, the process con continue, even in the absence of the defendant.

The prosecutor, during the investigation period, has broad capacity to gather or request all type of evidence. However, the defendant always has access to the full file and evidence gathered by the prosecutor.

There is no additional burden placed on the claimant to offer compensation when the defendant is not present in the case proceedings.

The COIP and the law contemplate and establish two purposes for criminal law: (i) punishment and (ii) repairing the rights of the victim.

In this sense, all criminal proceedings in Ecuador seek to punish and/or sanction the perpetrators of the crimes and secondly to repair the rights of the victim. This second aim is known as “integral reparation”. However, in practice sometimes the ruling only establishes what the reparation should be, and the victim then initiates a civil proceeding to enforce that reparation.

Therefore, victims of fraud in Ecuador rarely seek redress against the perpetrator via the criminal process because it is not common to get any economic compensation through a criminal process. Criminal actions are used more as a threat to negotiate economic compensation. In practice, if a civil case has been started for the same matter the judge will usually consider that it is only a damages case and not a criminal offence, meaning that the civil claims impede the progression of a criminal prosecution.

In Ecuador, as a general rule, it is not possible to obtain a judgment without a full trial. The ordinary criminal process has three stages:

• the prosecutorial investigation stage;
• the evaluation and preparatory trial stage; and
• the trial stage.

In the evaluation and preparatory trial stage, the first hearing is held. In this hearing the elements of conviction are presented and the evidence is announced. In the third trial stage the second hearing, called the trial hearing, is held. Only in this trial hearing may the evidence be presented and explained. In this same hearing, the judge is obliged to announce the decision taken (the written judgment is subsequently drafted and notified to the parties). The judgment cannot be obtained if this full process is not held.

However, there is a special abbreviated procedure, which the defendant must voluntarily state that they wish to be subject to in order for it to proceed. To do so, the defendant must plead guilty to the crime and the penalty imposed, and the defence attorney must confirm the defendant’s willingness to plead guilty. In this procedure, it is no longer necessary to carry out the three stages with two hearings. The procedure is reduced to a single hearing where the judge condemns the defendant.

It should also be noted that the following are crimes that can be tried in absentia, when the defendant does not appear at the hearings:

• peculation;
• bribery;
• concussion; and
• illicit enrichment.

In Ecuador there are no special rules or professional conduct considerations to plead fraud. Fraud claims are the same as any other criminal case. However, to preclude unwarranted allegations of fraud or any other crime, if a claim is considered as malicious, damages may be initiated against the complainant.

In Ecuador it is possible to bring claims against “unknown” fraudsters. These claims are dealt with by the Unit to Uncover Perpetrators, Accomplices and Cover-Ups. However, if this Unit is not able to uncover who the fraudster is, then the case will not continue.

In practice, neither the prosecutor nor the defendants have powers to compel witnesses to give evidence. However, at the judge’s sole discretion, and if the judge considers it necessary, a witness may be ordered to appear with the support of the National Police.

In practice, it is very difficult to compel a witness to testify at trial, and thus become part of the trial evidence, since it will become testimonial evidence.

Witnesses must declare under oath that they are going to tell the truth and that no one has exerted pressure on them to testify something in particular, or to bring more evidence to the trial.

In Ecuador, imposing liability for fraud onto a Corporate Entity is provided for in Article 49 of the COIP, which establishes that the acts of company officers generate responsibility for the company, if the acts are done for the benefit of the company. Therefore, it may be said that the knowledge of a director or officer that generates a crime is attributed to the company, if the company benefits from said knowledge.

It should also be pointed out that the COIP contemplates criminal liability for legal entities; therefore, a prosecutor may request that the legal entity be linked to the criminal process through its representative(s) in order to be criminally prosecuted. In this sense, it is fully feasible to impose criminal liability on a legal entity or company when a representative commits acts of corruption, as long as the prosecutor deems it necessary.

Under Ecuadorian jurisdiction, it is possible to bring claims against those who stand behind companies, such as ultimate beneficial owners, when the company has been used as a vehicle for fraud. Complaints can be filed against any person, regardless of whether or not this person held any position in a company or whether or not they were the ultimate beneficiary. However, it is the responsibility of the person filing the complaint to prove to the prosecutor how and in what manner the infraction was committed, since the burden of proof is on them, and to what extent the ultimate beneficial owner was involved in the crime.

The rules for criminal action against directors of companies that misuse the capital of that company are the same as for other white-collar crimes. As mentioned in 1.1 General Characteristics of Fraud Claims, Ecuadorian legislation includes the trust abuse crime as the one where a person fraudulently takes advantage of money, assets, and goods that were entrusted. This is common with company directors who abuse their position of power to benefit fraudulently from the company’s funds.

Article 187 of the COIP, which deals with trust abuse (abuso de confianza), establishes that the person who disposes, for themselves or a third party, of money, goods or patrimonial assets delivered under the condition of being returned or being used in a predetermined way, shall be punished with deprivation of liberty for a term of one to three years.

The same penalty is imposed on the person who, abusing the signature of another, on a blank document, extends with it any other document to the detriment of the signer or a third party.

The process for bringing claims against fraudulent directors will begin by means of a complaint before the District Attorney General’s Office so that a prosecutor investigates the cause and subsequently requests the Judge of Criminal Guarantees to press charges and to begin the ordinary criminal process as in the majority of white-collar crimes.

In Ecuador, international agreements and treaties prevail and take precedence over domestic law. In this sense, the FGE carries out international co-operation in certain crimes and investigations. Thus, the COIP establishes that the Attorney General’s Office will request, with the governing authority of foreign policy, the execution of bilateral agreements for co-operation and international criminal assistance. Additionally, it may execute co-operation agreements with its peers in the jurisdictions involved, in order to make effective the return of assets, which agreements may be signed on an ad hoc basis as appropriate. 

However, in the practice of criminal procedural law in Ecuador, international co-operation occurs with little regularity, and necessarily requires the intervention, direction and control of the highest authority of the FGE, in this case whoever holds the position of Prosecutor General of the Nation.

This type of international co-operation usually only occurs in criminal proceedings that have been important in the media because they deal with political corruption. It is difficult to have international co-operation for crimes such as fraud or breach of trust.

The execution of criminal judgments must comply with certain requirements defined and indicated in the law.

In the first place, the judgment must be duly executed, so that it cannot be appealed or challenged by any resource indicated in the law. Secondly, if there is an imprisonment judgment, it is the Judge of Criminal Guarantees who must issue a warrant and/or an arrest warrant, and therefore order the Judicial Police of Ecuador to register in its databases the referred arrest warrant. It will then be the responsibility of the Judicial Police, in conjunction with the National Police, to arrest the convicted person and deliver them to the social rehabilitation centre of their domicile to serve the sentence of imprisonment.

With respect to the integral reparation of the victim’s rights, it will be understood that the judgment is not executed until the offender has not paid the fine or repaid the economic rights caused by the infraction.

The right to remain silent and the privilege against self-incrimination is fully recognised in Ecuadorian law. This means that no defendant at any stage of the process is obliged to testify against themselves. They may always remain silent.

Under no circumstances can the court force the defendant to incriminate themselves, since this right is recognised in the Constitution of the Republic of Ecuador. It is important to emphasise that it is the prosecution that has the legal responsibility to prove and demonstrate in court the commission of a crime or criminal offence.

Although it is fully recognised by the Constitution of Ecuador and the COIP that there is confidentiality between the defendant and their attorney, this can be interfered with by means of a court order at the request of the relevant prosecutor.

In this sense, once there is authorisation from the judge, an official notice will be issued to the Chief of Subsystems of Interception of Communications or Computer Data by the FGE to carry out the interception of communications or computer data, prior co-ordination with the requesting prosecutor is required in order to give priority to the investigation of crimes.

The District Attorney General’s Office, as the entity that directs and organises the specialised integral system of investigation, forensic medicine and forensic sciences (specialised system), will manage and control the operations of the subsystem. The interception of the communication or computer data will be carried out by the assigned prosecutors within an ongoing investigation, complying with due process.

Under no circumstances may a telecommunications service provider hinder the interception work required for the administration of justice, in accordance with the provisions of Article 77 of the Organic Law of Telecommunications.

The prosecutor will co-ordinate – with the specialised system – the execution of the security protocols issued for this purpose. The information generated at the request of the prosecutor of the case will be recorded in a digital form identified with a security code, for custody and transfer purposes, following the provisions for chain of custody.

The prosecutor assigned to the Subsystems of Interception of Communications or Computer Data will be the executor of the court order and the only person competent to order the extraction, recording and delivery of the intercepted communications or computer data; therefore, no other official, nor police or civil servant belonging to the specialised system, may record or extract any evidence or information without the authorisation of the prosecutor.

Regardless of the penalty of imprisonment for those who commit a crime in Ecuador, the judge in a ruling will establish what represents “full reparation” of the damages caused. The victim may suggest to the judge of the case what the full reparation of the damages caused should be in the hearing and trial, specifically in the closing argument, after having demonstrated the damage caused with the evidence adduced in the oral trial.

Additionally, in Ecuador the Civil Code recognises that any unjustified prosecution, as long as it is proven to be such, grants the right to sue before a civil judge for damages caused by the unjustified prosecution. This civil suit is known as a “moral damages” suit.

The procedure to be followed is the same as any other civil lawsuit under the General Organic Code of Proceedings and mainly consists of the following stages:

• filing of the lawsuit before a civil judge;
• qualification of the claim;
• summons to the defendant by means of three ballots;
• trial hearing;
• judgment;
• appeal to the Provincial Court; and
• cassation before the National Court. 

In Ecuador, banking secrecy is recognised through the different laws that deal with everything related to the national financial system, laws such as the Organic Monetary and Financial Code or even the Constitution of the Republic of Ecuador. Banking secrecy means that one cannot access other people’s banking transactions or review their account statements, given the privacy of such information.

However, this can be circumvented by law as long as there is a court order by a judge ordering a financial institution or bank to disclose the account statements and bank transactions.

Thus, the attorney representing the victim of the crime must be the one to request the prosecutor of the case to add the bank transactions of the person under investigation as evidence in their client’s favour or as an element of conviction for the prosecution. In addition, the prosecutor must request that the judge authorise proceeding with the respective court order.

However, there is a possibility that the defence will oppose this measure and that, ultimately, the judge in the case may not grant the request.

The COIP does not yet specifically regulate cryptocurrencies. This means that in cases of fraud related to cryptocurrency, it will be a common prosecutor who handles cases of fraud who will have to demonstrate and prove how the fraud occurred and justify that it was perpetrated within the Ecuadorian jurisdiction.

Cryptocurrency is treated as property, much like any other form, in Ecuador. Unfortunately, as not much legislation on cryptocurrency, or crypto-assets more broadly, has been developed, the COIP does not regulate it and therefor a freezing injunction or equivalent relief cannot be obtained in relation to these types of assets.

The main challenge in cryptocurrency-related frauds will be to prove to a common prosecutor that the fraud was committed within the Ecuadorian jurisdiction, since being purely virtual property; the defence will probably argue that the crime has not been committed within the Ecuadorian jurisdiction.