Although the days of the large Ponzi scheme cases seem to be a thing of the past, the number of frauds perpetrated worldwide is on the rise. Global asset recovery practitioners reported a busy year with no let-up in their caseloads.
As fraudsters become more sophisticated, the lawyers working in this area are forced to be accordingly more creative and inventive on behalf of their clients. Thus, the whole field has experienced a formative period of adaption, whereby practitioners demonstrate an increasing awareness of the diverse strategies necessitated by the growing sophistication of fraudsters trying to hold on to their ill-gotten gains. Fraud work, including asset tracing and recovery, is now more than ever driven by strategy. Jurisdictions are beginning to play an integral role in case strategy as a whole: the court in which the claim is brought dictates how the case can be structured and where it can be taken. As asset recovery work is a relatively new specialism, a number of new entrants are attempting to challenge the ascendency of the better-established firms in the UK and offshore jurisdictions. However, the highly complex and technical nature of asset recovery work ensures that the practice area remains highly specialised and dominated by lawyers with a wealth of experience operating at the nexus of commercial litigation and civil and criminal fraud work, as well as practitioners with a strong background in insolvency law.
All eyes were on London in May 2016 as the UK capital played host to more than 40 countries for an international anti-corruption summit – the first of its kind – which focused on bringing together leaders to discuss corruption in a transparent and inclusive manner. Lawyers followed the proceedings closely as the summit sought to tackle some of the world’s toughest corruption issues, including the concealed movement of stolen assets around the financial system and across borders, and resulted in the attendee countries signing up to general principles and issuing a global declaration promising to expose, pursue and punish, and drive out corruption in all its forms. The summit posted interesting results that may assist practitioners in the fight against business crime and misappropriated assets. Not only did the summit result in the agreement between Britain, Afghanistan, Kenya, France, Nigeria and the Netherlands to publish registers of beneficial ownership, but it also ensured that 11 new countries would be joining the list of countries (now 29-strong) that draw up and share lists of beneficial ownership privately. Among these countries were notable offshore jurisdictions including the Cayman Islands, Jersey, Bermuda, the Isle of Man and the UAE. Notable omissions from those sharing information include the US, the BVI and Panama. Overall, the summit represents an international willingness to fight corruption on an institutional level and ensures that certain jurisdictions will actively share ownership information that could drastically reduce the time needed to trace and follow assets.
Eight countries – Australia, Canada, Germany, New Zealand, the UK, the US, Singapore and Switzerland – have also made a commitment to found an international anti-corruption coordination centre to augment the fight against corrupt and increase the chances of seizing and repatriating stolen assets. A Global Forum for Asset Recovery has been promised for 2017 and is set to be focused on Ukraine, Nigeria, Tunisia and Sri Lanka. The UK was at the forefront of the push for harsher legislation and committed to exploring the option of strengthening its asset recovery legislation with non-conviction based confiscation powers and unexplained wealth orders. The UK’s drive towards stronger asset recovery legislation will only aid practitioners in their efforts to locate and repatriate stolen assets. Many praised the commitments as the “beginning of progress” but others were quick to point out that certain jurisdictions failed to make sufficient improvement effectively hamstringing the process before it has even begun. It remains to be seen as to whether these measures will have any significant impact on the field but practitioners warn it is worth being mindful of the general international consensus and atmosphere.
Technological advances are having a profound effect right across the asset recovery field, from the increasing number of frauds occurring online to the use of technology as a tool to assist lawyers and even serve freezing orders. A number of practitioners reported that the number of remote banking frauds perpetrated recently increased dramatically in the past 12 months and will continue to do so as large-scale data leaks containing personal information jeopardise personal and corporate security. Lawyers will need to adapt litigation strategies and work with digital experts in order to effectively combat and pursue online fraudsters.
“Technologically innovative tools will come to the fore in the asset recovery space in the near future”, remarked one of our sources, and this seemed to be corroborated by a number of other respondents who pointed to the influence of technological innovations on court proceedings. Recently, a court judgment approved the use of predictive coding, which allows a lawyer-assisted programme to effectively sort documentation required by an order of disclosure. The sheer volume of potential documents that can now be the subject of a disclosure exercise affects lawyers on both sides and can result in tying up hundreds of hours sifting through documentation. Predictive coding could prove a more efficient, timely and cost-effective method that would revolutionise the way in which disclosure exercises are carried out. Additionally, according to one practitioner, “the past 12 months has seen the UK commercial court take the first step into the 21st century”. In ADM Rice Inc v Corporacion Comercializadora De Granos Basicos SA, a case brought before the courts regarding unpaid arbitral awards and the subsequent freezing order obtained by the defendant and enforced by the court. The case not only set an interesting precedent for granting a worldwide freezing order in aid of the execution of unpaid arbitral awards but also led to the UK commercial court taking the unusual and unprecedented step of allowing the service of a worldwide freezing order by email, and of the committal proceedings by courier. Although the respondents attempted to obstruct service upon them by holding that service in such a way was unfounded, the courts willingness to compromise and exhibit flexibility in relation to the service of court documentation highlights that the commercial court is willing to modernise its practices.
As predicted in last year’s edition, the healthy flow of cases coming out of Russia seems to be slowing down. The decline, believed to be due in part to the growing number of Russian-speaking lawyers and firms servicing these individuals, has not ceased entirely but its numbers are gradually diminishing. As such, practitioners are looking for asset recovery work in a number of different jurisdictions. A number of sources pointed to Eastern Europe and the CIS region, notably Ukraine and Bulgaria, as the next “meal ticket”. Amid the political turmoil following its conflict with Russia, the Ukrainian economy has reached its lowest ebb since the midst of the global financial crisis in 2009. Rising rates of inflation, and a failure to secure and pay off government debts have together seen a number of cases coming out of the region; practitioners in London have reported that they are seeing a healthy amount of this work, both on the side of creditors but also in terms of civil fraud cases. However, these cases have not yet reached the lofty heights and sheer volume of Russian and Kazakh disputes, as typified by the Pugachev and Ablyazhov proceedings and affiliated litigation.
A number of respondents highlighted that China is becoming a “hotbed” for large-scale fraud and asset recovery work. As the country’s economic fortunes have increased, so have the number of fraudsters targeting the country’s businesses. The types of cases range from commodity frauds to online P2P lender Ezubao, the Ponzi scheme that allegedly stripped investors of over $7.6 billion. Asset recovery specialists around the world have all been part of this new trend developing from the economic powerhouse, with lawyers in Europe, the BVI and the Cayman Islands reporting that there was an increasing amount of work coming from this area. Offshore law firms in particular have noticed that China is now a significant source of work. Lawyers and experts in the Cayman Islands reported that Chinese backers were increasingly investing in the overseas jurisdictions, as well as using Cayman-developed trust structures as vehicles for investment and tax purposes. There is an expected uptick in the amount of work coming from the region, and lawyers in the Caymans and BVI encourage this with open arms. Some interviewees, however, were more pessimistic, suggesting that the proliferation of cases stemming from the Chinese market might fall to the Singaporean market given its favourable geographical proximity. It remains to be seen whether this will be the case but it is still a development that law firms in all jurisdictions will monitor as it is likely, given the multi-jurisdictional flavour of asset recovery work, that they could get a piece of the pie.
Africa also appears to be a hot prospect for asset recovery work in the future. Nigeria, labelled by one source as “the sleeping giant”, is in the midst of an anti-corruption campaign that has propelled the jurisdiction into the limelight in 2015–2016. The election of President Muhammadu Buhari in May 2015, who ran on an anti-corruption ticket and whose victory marked the first time in Nigerian history that an incumbent president lost a general election to an opposition candidate, has led to an anti-corruption drive of mammoth proportions. In a statement issued in early June 2016, the information minister Lai Mohammed stated that the Nigerian government had seized more than $10.3 billion in cash and assets in the year since Buhari’s elevation to president and was in the process of expediting the repatriation of a further $330 miliion stolen from the public treasury. The country’s anti-corruption campaign, led by the Buhari-appointed chairman of the EFCC Ibrahim Magu, is responsible for hundreds of arrests and numerous pending cases – including that of Sambo Dasuki, the former national security adviser accused of diverting $2.1 billion of funds originally earmarked for fighting the Boko Haram insurgency. This trend seems to be impacting Swiss lawyers more than most, with a lion’s share of the litigation outside Nigeria falling to a select few in Switzerland: the haven favoured by the corrupt former political elite.
North Africa and the Middle East have also been highlighted as areas of interest among respondents in this year’s research. One source highlighted that “political instability in the region has led to a displacement of high net worth individuals” with many choosing to relocate to the relative calm and luxury of the UAE. This movement, however, has also ensured that fraudsters have increased significantly along with the need to combat and pursue stolen cash and assets. A number of lawyers in last year’s research reported that the UAE and Qatar particularly stood out as areas of interest but it appears that this trend has not really come to fruition as of yet. That said, early 2016 saw some interesting developments at the Dubai International Financial Centre (DIFC) courts. In February 2016, the DIFC Court of Appeal handed down a landmark judgment in the DNB Bank v Gulf Eyadah Corporation and Navigation Holdings PJSC dispute. The ruling upholds the right for parties to enforce foreign judgments in the DIFC courts and pursue the DIFC court judgment to the Dubai courts for enforcement; it’s said to have “possible wide-ranging ramifications” in the international arena. While this new ruling may challenge the traditional perception that the UAE is a difficult jurisdiction in which to enforce foreign judgments, given the challenging legal and procedural obstacles that have historically hindered such enforcements, some lawyers remain sceptical of the probable implications. These lawyers highlight that although these judgments pertain to the Dubai courts, there is still a gulf between these courts and the rest of the UAE. However, these developments continue to be monitored by asset recovery specialists worldwide who view the judgment as potentially significant, especially in fraud cases pertaining to individuals from the Middle East that have chosen an alternative jurisdiction to begin asset recovery proceedings.
London’s centrality for fraud and asset recovery proceedings
London’s High Court is still cited as the most preferable place to bring forward claims. The commercial court is regarded as providing clients with “the gold standard for fairness” and the courts’ credibility and legitimacy is unparalleled across the globe. Mid-2015 saw a committee of high court judges unveil proposals to streamline proceedings for commercial disputes. The new procedures outline procedures for a shorter trial with limited disclosure and oral evidence, as well as introducing flexible trial procedures for more complicated cases allowing both parties to adapt court procedures to suit their case. The revolutionary changes aim to significantly reduce the time and cost of litigation at the commercial court. It remains to be seen as to whether these proposals would be taken up by practitioners but it is definitely a change of which lawyers and law firms should be aware as clients seeking a speedy resolution may want to resort to this fast-paced justice.
Changes to the commercial court’s fee structure came into effect in March 2015, effectively increasing issue fees to 5 per cent of monetary claims between £10,000 and £200,000 (fees are capped at £10,000). At the time, senior members of the legal community criticised the move as a grave miscalculation on the part of the previous coalition government, foreshadowing a negative impact on England’s reputation for fairness and its competitiveness as a global leader in dispute resolution. While the higher cost does represent an added burden that clients will unfortunately have to grin and bear in order to bring claims before the English courts, a number of respondents report that the rising fees have had no effect on their business, particularly at the top end of the market where the figures claimed far exceed the million-pound mark. Some lawyers did suggest that the higher fees might put those at the lower end of the market in a difficult position as the added expense, coupled with pretrial investigation costs, could result in rendering pursuit of the claim untenable in England.
Although the days of the Ponzi scheme litigation, typified by complex litigation arising from the Madoff and Stanford scandals, seem to be long gone – and with them, a large source of work – the resilient offshore market continues to grow steadily with firms reporting another busy year. Given the centrality of financial services to these jurisdictions, contentious insolvency work and trust-related frauds continue to form the bulk of work for firms in the Channel Islands, the Cayman Islands and the BVI. That said, many practitioners have reported that during the past year or so the number of shareholders’ disputes and concomitant-related asset tracing and recovery matters seems to have increased exponentially, and firms have adapted quickly to meet this demand.
Additionally, we reported that last year’s practitioners were seeing an increase in tax-related asset-tracing, due to the aggressive stance taken by worldwide authorities keen to recover taxable income. It’s a similar story for 2016, as the intensity of media scrutiny and public outrage continues to grow. Government tax authorities are keen to increase transparency in the offshore markets in the hope of recovering taxable assets, but this is something that remains a work in progress, as lawyers have hinted that the offshore markets are in no hurry to lose their niche position in the financial services industry.
As mentioned above, asset-tracing and recovery are now more than ever driven by strategy. Actions are often characterised by an international flavour, with successful cases involving the coordination of teams of lawyers across several jurisdictions. The formative stages of an asset recovery action are often the most important; a full investigation is required to trace and locate the stolen assets, as well as underlining the key strengths and weaknesses of each jurisdiction involved in the case. Practitioners must be aware of legal nuances; of the types of enforcement remedies offered in the jurisdiction containing the stolen assets; and of the legal requirements that must be met before the enforcement is effected. Ultimately, the early stages of a complex, multi-jurisdictional asset recovery action require a large team of lawyers with specialised, local knowledge and the ability to coordinate large teams in a speedy and effective manner. Corruption, fraud and misappropriated assets seem to occupy an ever-more centralised position in public consciousness; this can only mean that the legal market dedicated to pursuing these assets must rise to the challenge to meet the added demand. A growing number of cases are flowing in from Asia and Africa, with lawyers remaining optimistic that China and Nigeria in particular will continue to provide work for asset recovery specialists in the coming years.