The latest research from the United Nations Office on Drugs and Crime indicates that 3.6 per cent of global GDP comes from criminal proceeds. When one considers that 98.9 per cent of all criminal assets are not confiscated, this figure becomes even more daunting. With the march of economic globalisation and technological sophistication, cases of fraud and money laundering are made all the easier to take on: the UK alone has witnessed an 8 per cent increase in criminal assets seized from 2013 to 2018. It comes as no surprise, then, that asset recovery specialists around the globe consistently report that their field has become “a sexier area to be in” and that there has been a cosequent influx of practitioners looking to secure white-collar crime work. Below, WWL delves into some of the most prominent current trends in asset recovery practice. These include the impact of Brexit on the UK, one of the global centres for asset recovery work. We also highlight the increasing sophistication of technology in asset recovery work and how it is aiding practitioners, as well as the growth in asset recovery practitioners and third-party funding in the space.
As is apparent from interviews with practitioners, asset recovery continues to grow as an international area of practice and focus for firms. This comes as both the sophistication and size of asset recovery cases increase relentlessly due to the pace of economic globalisation and technological innovation. Sources are now reporting, “Projects in international disputes are becoming more sophisticated and it is becoming difficult to create bigger teams in order to get through case work – the work requires more specialist knowledge.” In the Netherlands, for example, one firm notes that after years of being sole specialists in the market, “there are an increasing number of practitioners focusing on asset recovery”. In several jurisdictions, firms are beginning to see “a lot of people wanting to get into white-collar crime work” – and interviewees note, “Competition is quite fierce at the moment.” However, this has not necessarily translated into an improvement in terms of legal work, as many new entrants to the field are “not necessarily specialists”. Ultimately, those in practice say that third-party funding has, in line with the explosion of cases, also “taken off in the asset recovery field”. One practitioner in the UK comments, “40 per cent of my cases are now third-party-funded,” with similar figures being reported in the US market. The US is also in its 10th year of a strong economy, and a number of asset recovery specialists are “starting to see economic fray”, adding that “fraud is starting to pop up” and generating work for them. Several commentators have pointed out the eerie similarities between these market characteristics and the immediate impact of the 2008 economic crisis. Many professionals predict that international markets will experience high levels of uncertainty and volatility before the end of 2019, and that the levels of debt held by corporations will increase. This will potentially translate into an increase in insolvency rates, which in turn raises the levels of “unrealised assets” and gives rise to more business for asset recovery .
As Brexit negotiations continue in relentless deadlock, several asset tracing specialists in Europe and the US highlight the global issues caused by the resulting uncertainty. Chief among non-British lawyers’ concerns is how an eventual secession from the EU “will affect our ability to get access to information in the UK”, and whether they will consequently have to change how they work with colleagues in the UK. All seem to be in agreement that “the major impact of Brexit will be on enforcement proceedings and agreements in Europe”. Many sources predict that “it will probably now be more of an uphill battle to secure these agreements between Europe and the UK” and thus to carry out effective asset tracing exercises, at least in the immediate future. However, there are those who see opportunity in the uncertainty caused by Brexit. One such benefit is that it “will breed litigation as Brexit uncertainty gives incentives to fraudsters”, and this work will keep asset recovery specialists busy in the coming years. Some practitioners say they are “not worried about European commercial courts competing for work, as English courts and common law provide a greater variety of mechanisms than civil jurisdictions when it comes to asset recovery work”. For example, practitioners have highlighted the use of section 423 of the Insolvency Act as an underused, creative mechanism for securing asset freezing orders. As the UK is unique in Europe, in that it has civil and criminal areas of law, and “victims of fraud do not have to worry about resources of the police to fight their case”, some argue that Brexit will have minimal impact upon asset recovery work – regardless of the eventual relationship with Europe. However, the market is not without those who counsel caution in the face of perceived complacency surrounding the primacy of English courts and asset recovery expertise in the UK. Other countries, they predict, “will target the UK market” as time goes on and they develop their own expertise in the field.
In the past two years, the commercial use of big data has increased exponentially, forcing the rapid development of technology that can effectively break down huge datasets – to the point where the cost structures for AI and machine-learning technology have reduced significantly compared to a decade ago. Indeed, from the perspective of some practitioners, “The major change is the affordability of AI, and being able to search through it and find the ‘hot documents’.” The development of these technologies, such as technology-assisted review, means that in jurisdictions such as the US and the UK, machine learning and AI technology continue to prove their worth in cases with large volumes of complex documents to review – and are now receiving institutional backing. For example, in the UK there is a new disclosure pilot scheme for the business and property courts of England and Wales, which is encouraging litigators to use these new technologies in civil proceedings to reduce the burden and cost of disclosure, as well as limit the amount of documents disclosed. However, it is also evident from Omers Administration Corporation & ors v Tesco, where the court forced Tesco to disclose additional documentation, that disputes regarding the amount of document disclosure will continue. Additionally, even though the benefits of this technology are obvious, it has faced some resistance in its adoption: despite the new pilot scheme and the Pyrrho case (which approved the use of predictive coding for the first time in English courts) advocating the increased use of machine learning for document review in the UK, as well as improvements in machine learning technology and AI software generally, market sources comment on a pronounced “lack of uptake of these new technologies”. This appears to result from two probable factors, according to interviewees: first, a “lack of skills and generational gap among lawyers in the field”; and second, “a disconnect created by jargon” between legal professionals and computer technicians.
In a world where international criminal proceeds account for an increasing share of global GDP, and such assets can move between financial systems with extreme ease and speed, it is no wonder that the practice area has attracted many new recruits to take up the various challenges, and reap the rewards, that asset recovery work represents. However, as with any discipline that attracts new talent, not all practitioners are experts in the field: something those in the market should be increasingly wary of when embarking on extremely complex asset tracing cases. Brexit remains a vortex of uncertainty in the market – and with no clarity on how regulatory bodies will interact, or whether there will be legal reciprocity, this uncertainty is set to continue. As such, it seems that likely opportunities for fraudsters will multiply and generate more work for asset recovery specialists in Europe. Whether the English courts can retain their status as the location par excellence for asset recovery proceedings remains to be seen in the face of increased competition from Europe. Finally, technology and its use in asset recovery work continues apace, and offers practitioners some tools to combat the challenge of tracing assets. However, it is evident that said technology’s uptake by practitioners and firms does not match the pace of technological development.