Legal Definitions - in fraudem legis

In fraudem legis is a Latin legal phrase that translates to "in fraud of the law." It describes actions or transactions that are undertaken with the deliberate intention of circumventing, evading, or defeating the underlying purpose or spirit of a law, even if those actions might technically appear to comply with the law's literal wording.

Essentially, it refers to exploiting loopholes or structuring arrangements not for their genuine purpose, but solely to bypass legal obligations or restrictions that the law was designed to impose.

Here are some examples to illustrate this concept:

• Example 1: Tax Evasion Scheme

  A multinational corporation establishes a complex network of subsidiary companies in various countries with extremely low tax rates. These subsidiaries perform no actual business operations or provide no genuine services; their sole purpose is to route profits through these low-tax jurisdictions on paper, thereby significantly reducing the corporation's overall tax liability in the countries where its real economic activity occurs.

  Explanation: While each individual transfer or transaction within this network might technically adhere to specific tax codes in each jurisdiction, the entire elaborate structure is created in fraudem legis. It's an intentional design to evade the spirit of tax laws that aim to tax profits where they are genuinely earned, rather than a legitimate business strategy.

• Example 2: Environmental Regulation Avoidance

  A chemical manufacturer produces a product that contains a substance subject to strict environmental disposal regulations. To avoid the costly and complex disposal procedures, the manufacturer slightly alters the product's formula, reducing the regulated substance by a minuscule amount. This minor change allows the product to be reclassified under a different regulatory category with significantly less stringent disposal requirements, even though the environmental impact of the altered product remains largely the same.

  Explanation: The manufacturer is technically complying with the letter of the law for the new, less regulated category. However, their action is in fraudem legis because the modification was not made to genuinely reduce environmental harm, but rather to intentionally circumvent the more robust environmental protections that the original regulation was designed to enforce.

• Example 3: Asset Protection Before Bankruptcy

  A person facing imminent bankruptcy and significant debts "sells" their valuable luxury vehicle to a close family member for a token amount, far below its market value. The vehicle remains in the original owner's garage, and there's an unwritten understanding that it will be "returned" once the bankruptcy proceedings are concluded. The goal is to remove the asset from their declared possessions so that creditors cannot claim it.

  Explanation: This "sale," while appearing as a legitimate transfer of ownership, is a sham transaction designed in fraudem legis. Its purpose is to evade bankruptcy laws that require debtors to disclose all assets for fair distribution among creditors. The intent is to hide assets from creditors, thereby defrauding the legal process.