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Cracking the Cayman Islands Code: Successfully Collecting Money from an Off-Shore Bank Account

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Written by Matthew J. Bialick and Blake R. Nelson

 

In the world of collections, obtaining a judgment against a debtor is generally far less than half the battle.  Apart from standard collection difficulties (e.g., finding assets to attach and identifying fraudulent transfers), things get exponentially more difficult when a debtor funnels money to an off-shore bank account in a creditor hostile country.

Securing a judgment against an off-shore company is tough enough, but getting that foreign government to recognize an American court order is almost impossible.  As such, realistically the only way these off-shore banks will release funds is if the debtor personally directs the release.While banks could always get a judgment against the debtor, there really was no way to force the debtor to transfer the funds – until now, that is.

A recent Minnesota Court of Appeals decision has created a new avenue for untangling this fraud that gives banks a legitimate hope of collecting funds from an off-shore account.  See Fannie Mae v. Grossman.  This case established, for the first time, that under the right circumstances a district court may issue an order directing a debtor to transfer an identifiable sum of money known to exist in an off-shore bank account, into an American bank account accessible to the creditor, and to hold that debtor in contempt of court if he or she does not comply with that order.  Sanctions for non-compliance could include incarceration.  

You may have heard the concept that there are no “debtor’s prisons” in America.  In other words, you cannot throw someone in jail just because they could not, or would not, pay a debt.  Thus, a court cannot order someone to simply pay a set amount and incarcerate them if they fail to pay.  In that event, even though the debtor would be violating a court order, the violation stems from the non-payment of money that they legitimately may not be able to pay.  However, in the context of a fraudulent transfer to an off-shore account where: (1) fraud is proven; (2) sufficient funds have been established; and (3) there is no other way to obtain effective relief, the rule against debtors prisons may not apply.  In this case, it is not the inability to pay which lands the debtor in jail but rather the fact that he or she is able to pay but refuses to do so and attempts to evade creditors through fraudulent means.

The threat of being imprisoned can be a stronger motivator than almost anything else when it comes to spurring action out of a debtor.  A thousand court orders to pay money will likely not have the same effect as spending even a single night in jail.   

- Matt Bialick and Blake Nelson are banking law attorneys with Hellmuth & Johnson, PLLC.