Assisting fraud

Those who assist in a breach of trust can be sued by victims of the breach of trust, as constructive trustees. The term "constructive trustees" means that the court considers them as trustees although they never agreed to be such.

What about those who assist inadvertently? The test seems to be that the person knowingly assists in the breach of trust. Lawyers like to make things complicated, and here, the question of knowledge is decided objectively (but again, there is some controversy on this point). An objective approach means that we consider what the reasonable man in such a situation would think. The personal view of the person being sued would therefore be irrelevant.

An interesting example of knowing assistance in a breach of trust is the case from Brunei - Royan Brunei Airways v Tan. In this Privy Council case, Tan was the managing director of a travel agency which sold tickets on board Royal Brunei Airways (RBA) flights. Under IATA (International Air Transport Association) rules which the agency promised to follows, all monies from such ticket sales were supposed to be banked into a separate trust account. These monies were not to be used for any purpose other than to pay RBA. Tan used the monies to pay the travel agency's expenses.

The lower court found that Tan all along intended to replenish the money but his business later collapsed. As it was pointless to sue the travel agency, RBA sued Tan personally for the missing ticket monies. The Privy Council in England held that Tan's personal intention to repay the monies was irrelevant. He knowingly used trust monies for unauthorised purposes and was therefore liable for the lost funds.

Law - receipients and assistants - constructive trusts

The law of constructive trusts is used to impose liability against the fraudster and his accomplices. This area of law is quite complicated but generally the use of the law of trusts has some major benefits to the victim company. The law of constructive trusts allows property owned by the wrongdoers to be claimed by the victim.

These benefits are

• if the wrongdoers are bankrupt, the properties bought with stolen monies can still be claimed by the victim. The other creditors of the wrongdoes will therefore have no claim to these properties; and
• where the properties bought with stolen monies have increased in value, then the victim can benefit from the increase in value. It is possible for the victim to end off better off as a result of the fraud but this will be rare in real life.

The process of identifying which properties are bought with stolen monies and following the money trail is known as "tracing".

Law - accessories and recipients of stolen money

It is a rare case of large scale corporate fraud where there is only 1 person involved. Often the mastermind finds friends or relatives to participate in his criminal enterprise.

There are basically 2 types of assistants in the criminal enterprise - those who assist in the fraud and those who only receive the stolen monies. Civil law as opposed to criminal law, uses the term "constructive trustees" for these 2 types.

The first type of constructive trustees are those who well aware of the fraud, help in the planning or execution of it. They are known in law as constructive trustees by knowing assistance. The second type of constructive trustees are more passive in that they only receive the ill-gotten gains. Often, the mastermind uses their bank accounts to hide some of the stolen monies in order to avoid arousing suspicions if his own bank account has abnormally large sums of money.

Both types of constructive trustees can be sued by the company victim in order to recover its losses. This area of constructive trust is a branch of equity law.