TIPS & TRENDS IN CROSS-BORDER ASSET TRACING

Ian Casewell, Partner, Mintz Group.

The borderless world in which we now live enables those wishing to hide misappropriated as-sets quickly and quietly. Tracing those assets requires a commensurate response that is multi-faceted and multi-jurisdictional. Asset tracing assignments tend to arise from two different situations: (1) someone has embezzled or misdirected assets to themselves, and our client wants them back; or (2) our client has obtained a judgment against some party that it wants to enforce. 

But the tracing challenges can be similar in both these scenarios, because embezzlers and judgment creditors commonly use the same tools to hide what they have: opaque corporate structures, offshore accounts and fiduciaries, related-party transfers, benefits to family members etc. 

Here are some tips and trends that we have learned from recent cases: 

First things first: Secure evidence quickly 

Take, for example, cases of insolvency where there is suspicion of wrongdoing by executives. It is imperative to have a coordinated response, involving a team of lawyers, forensic accountants and investigators, working in unison. But the team needs an additional category of professional who are immediately important: Forensic IT specialists. Because the most important first step is the preservation of evidence – both physical and virtual. This must be gathered in a manner that ensures continuity of evidence. Documents, servers, computers, laptops, handheld devices, bank ac-counts and other company as-sets should be the primary focus.

In Ukraine recently, for example, the U.S. Attorney General, Eric Holder, wanted to help the new government recover state assets stolen by the Yanukovych regime. So within days of Yanukovych’s fall, Holder sent a team to Kiev whose assignment focused on “document re-view and preservation”. 

Build a fighting fund 

Shareholder demands and the recovery of misappropriated funds will be paramount in recovery actions. This will frequently re-quire multi-jurisdictional actions, which can be costly, and with this comes the pressure of funding. Securing the “low hanging fruit” in terms of assets at an early stage can provide a much needed “fighting fund”, from which to launch more challenging and far reaching recovery actions. This also enables the recovery team to move quickly pursuing multiple lines of investigative and recovery work, which can run concurrently. In complex cases with multiple potential defend-ants, it is sometimes useful to differentiate the “rich ones” from the “poor ones” and then inter-view the latter to build stronger cases against the former.

In one case, a listed company that had falsified future revenue streams by faked investments in emerging markets was suspended from trading. After the initial response of securing evidence, an intense period of information analysis took place, which identified a Swiss bank account holding several million dollars. Armed with this evidence, the lawyers moved quickly to freeze and repatriate this money, which in turn was used to fuel further investigative and legal actions in a number of other jurisdictions. 

Most business executives are not skilled at hiding money

They do everything right — set up a Caymans account, hire Panamanian trustees, incorporate in the Seychelles — but then they brag to their secretary about it. In one case, counsel for a judgment creditor received unconfirmed reports that a bankrupt individual was improperly removing valuable art and furnishings from his home. Investigators found and contacted a former employee, who provided evidence of the looting. 

Then there’s the executive who diverted money from his employer for years, but turned in his BlackBerry after the company went under, thinking he had deleted all of the data on it. 

Investigators recovered the numbers he had on speed dial, including the one for his Isle of Man fiduciary. 

Check the well-worn paths 

When executives try to move assets, they often look to the obvious ways – transferring stock to a child, for example, or mortgaging a property and moving the cash. When they try to be more creative, for example moving assets to a holding company, they set up a new company in the days around insolvency, which should raise a red flag for investigators.

Chronology is all. In the days before the indictment of a certain money manager on fraud charges, investigators found out, on behalf of an investor he had victimised, that he had just transferred his multi-million-dollar home to a related corporate entity. 

In another case, investigators scrutinised the creditor list of a bankrupt company and noticed – among the dozens of supplier creditors – a particularly large creditor company incorporated in an offshore jurisdiction. Further investigation revealed that the company was incorporated in the days before the bankrupt company became insolvent, using an address that was found to be linked to the wife of the bankrupt company’s CEO. 

Finding a person’s assets often involves discovering some hidden aspect of their life 

Knowing where to look for hidden assets re-quires an in-depth understanding of the per-son’s family and social circles, business and leisure activities, even where they golf and take holidays. A good start is mining social media in concentric circles around the person.

A bank needed to search for the assets of a guarantor who claimed he was unable to repay a substantial loan to his company. A standard search indicated that he indeed looked broke – he lived in a rented house, drove a run-down car and had significant outstanding tax obligations. But investigators looked in some unexpected places and found a customs record showing he had recently imported 6,000 pounds of high-quality marble into Bermuda. They then found the lavish home he was building there. 

In another case, investigators learned that a company’s executives were buying holiday homes abroad with company money after identifying a private plane the company had chartered and then tracking its frequent flights to an exclusive beach town. A few casual conversations with local real estate agents lead directly to the properties. 

Obtaining a judgment is only one stop — you still have to find hard assets in jurisdictions where you can seize them 

Acting for a creditor with a multi-million pound judgment against an African state, we focused on identifying assets held within the European Union. There had been a change in government within the African country which presented opportunities in finding knowledgeable sources who were minded to speak with investigators. These sources provided insightful information on where and how assets were held in the EU. This case presented particular challenges with respect to differentiating between the Central Bank and assets funded by development money. We provided witness statements to the court based on our findings which enabled our client to recover its full judgment and interest. 

Follow the supply chain 

A detailed understanding of a target company’s business is key to understanding where its as-sets may be located. In one case, investigators looking for assets of an Eastern European commodities company needed to find assets that existed outside the country’s borders. One successful approach was to identify the main sup-pliers to the business and the supply routes they use. Then, using sources that track ship-ping routes, investigators pinpointed the location of the next shipment en route to the country and tracked shipments to seize in friendlier jurisdictions. 

Investigators also looked for places in which the suppliers might be storing the target company’s goods. Databases linked the supplier to a Belgian warehouse, and by interviewing the fore-man of the warehouse, investigators confirmed that the supplier was storing inventory that be-longed to the target company. 

Understanding the flow within the supply chain can also help pinpoint when trouble starts. In one case, investigators were asked to deter-mine at what point a large engineering firm began to be swamped by cost overruns and, in turn, when the firm knew they would become insolvent. Investigators learned that, months before insolvency proceedings, the firm began cancelling orders. 

The Internet is a rich evidential resource 

The ubiquity of the internet has meant there are very few real world schemes without a high-tech element. Users often think they are afforded anonymity through the internet and email – we frequently find this not to be the case. Whether it’s analysing the meta-data of a web-site to find clues to its author or analysing email header information to identify the sender, the web can be critical to understanding movements, communications, associations and activities. 

On-line fraud requires a mechanism by which to harvest money, this is where the online payment providers step in. There are a tier of providers which services the darker side of the internet; they are domiciled in offshore locations, have low thresholds for on-boarding new clients and operate un-transparently. We have found that some payment processors from this group require clients to hold funds in escrow for six months, which can provide a rich source of funds in recovery actions against online fraudsters.

Social media often provides invaluable clues as to a person’s associates, travel and assets. In a recent Ponzi case we found that one of the targets had moved some family properties to his wife several years ago. One of our working hypothesise was that they had divorced; another was that he had done this to protect his as-sets from future recovery actions. Analysis of his wife’s online postings helped confirm the second hypothesis. 

Conclusion: You can run… 

The networked world in which we now live presents tools and opportunities to commit fraud and move assets at a faster, more sophisticated pace. A speedy and creative response, developing investigative leads and evidence of wrongdoing, from forensic analysis of computers to interviewing witnesses, is paramount to successful asset recovery actions. 

About the Author 

Ian Casewell is a partner and Head of the Lon-don Office of Mintz Group

Ian specialises in providing investigative sup-port to large-scale disputes and fraud matters. Ian has conducted cross-border investigations originating in many countries working in the field of corporate investigation for the past decade. 

Ian worked at Europol, where he ran international investigations into organized crime. In addition to his operational work, Ian was lead analyst for all computer crime-related activities within the European Union relating to Europol. In this role he was responsible for the establishment of an EU-wide strategic intelligence group comprised of members of the EU’s computer crime units, producing the first EU-wide strategic assessment on computer-related crime with-in the European Union. It was published and disseminated to all Member States. Aware of the value of digital evidence, Ian knows that computer forensic investigations provide a rich source of information. 

Ian also has experience working at the U.K. Government’s Asset Recovery Agency and West Mercia Constabulary, where he was engaged in crime pattern analysis and the support of criminal investigations. 

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