For asset recovery practitioners, 2016 was an interesting year. Fraudsters are only growing in sophistication, using developments in digital technology to place further strain on corporate clients across the world. This, coupled with a global drive to fight corruption, continues to result in a wealth of recovery work for well-established players in the traditional offshore jurisdictions. Alongside this, however, a trend towards third-party funding in the asset recovery space, coupled with the adoption of asset-tracing techniques earlier on in arbitral strategy, has broadened the scope for specialists. This will only lead to new work in the future, as the more traditional perception of asset recovery and its links to financial fraud is challenged in a growing number of destinations.
While increasing digitisation creates opportunities for businesses, it also presents fraudsters with a new avenue to steal assets and records. In 2016, a total of 421 billion data records were stolen by online fraudsters. With e-commerce frauds, malware and phishing attacks, this number only looks set to increase in 2017. Indeed, as one practitioner reported, “I receive new cybercrime instructions every week.” Cybercrime, now an ever-present danger for both companies and individuals, costs UK companies an estimated £34 billion a year and will result in increased workload for asset-tracing and recovery experts.
The alarming rise of cybercrime and fraud in the UK has not only pressured the UK government to invest £1.94 billion over the next five years, but also prompted London police to pilot a scheme using the civil courts to freeze and recover stolen assets. The scheme, announced in August 2016, will see the City of London Police work with law firms to tackle fraud via civil recovery methods, as there is a lower burden of proof required. While some are critical of the pilot scheme, the move could add a new stream of work for certain firms in the London market and, if successful, be rolled out across the UK in the future.
According to respondents, China remains a healthy source of asset-tracing and recovery work, particularly fraud and liquidation-related recoveries in the offshore jurisdictions. According to Kroll’s Annual Global Fraud and Risk Report, 2016 saw 86 per cent of Chinese companies fall victim to fraudsters – 4 per cent higher than the global average. The increasing frequency of reported frauds ranged from cyberfrauds on the one hand, to frauds perpetrated by joint venture partners and suppliers. The increasing levels of fraud go hand in hand with an increasing awareness and detection of fraud involving intellectual property and cash assets, and Chinese companies are now more likely to pursue stolen assets. Ultimately, the figures reveal that fraudulent activity in Asia is becoming a significant problem for clients and lawyers will undoubtedly look to meet the increased demand in the region in future.
Latin America has also been a hotbed of activity given the wide-ranging scope of significant corruption scandals in the region. Brazil’s Operation Car Wash investigation has ravaged the country’s political landscape by uncovering corruption at the very highest echelons of Brazilian politics and there is now a strong popular will to hold corrupt politicians and corporations to account. The investigation, which led to the impeachment of former president Dilma Rousseff, continues to probe both domestic and multinational companies in the hope of recovering the state’s lost assets and, as such, there is a heavy workload for asset recovery specialists in the region.
Building on the successes of the 2016 Anti-Corruption Summit in London, the UK government is still at the forefront of a global anti-corruption drive and is keen to honour the promises made at the inaugural event in London. The government’s commitment to introduce an International Anti-Corruption Coordination Centre has not waned and it has become clear that the centre will be built on the principles of increased knowledge-sharing on an online platform at the OECD. While the website, and ultimately the centre, are still under development, it is clear that there still exists a concerted effort to tackle anti-corruption through information exchange, and the centre could become an important tool in future recoveries.
While the UK government’s position on anti-corruption remains unchanged, it remains to be seen what line the new US administration will take in the coming years. President Obama was a leading proponent of anti-corruption at the London summit, but the Trump administration has so far been quiet on the issue at the outset of the new regime. Commentators were quick to highlight that Trump’s apparent disdain for the Foreign Corrupt Practices Act and his consistent rhetoric around putting America first may reflect a desire to adopt a backseat approach to global anti-corruption efforts in the future. The new administration has undoubtedly chosen to pursue other policies in its early days in office, and so, as practitioners were quick to mention, it is simply too early to tell just what the approach of the US government will be in the next few years.
In Europe, European Account Preservation Orders (EAPOs) may further enhance the recovery of assets on behalf of creditors in the EU. EAPOs came into force on 18 January 2017 and, through a single application form, allow EU-domiciled creditors to apply to freeze a debtor’s funds in an account held in a participating member state. Although the UK has opted out of the new EAPO regime, they do have significant consequences for individuals with accounts in a participating member state, and will undoubtedly allow European lawyers and their clients the opportunity to chase and recover assets in a more time and cost-efficient manner.
In March 2017, government ministers, business leaders and civil society representatives met at the OECD Global Anti-Corruption and Integrity Forum to discuss the problems arising from corruption and to offer hope for the future of the recovery of misappropriated assets that burden many societies in the modern world. A key development saw the Nigerian government push for a global asset recovery framework to further enhance the efficiency of returning stolen assets. The Nigerian delegation also urged both the G8 and G20 nations to keep anti-corruption front-and-centre to ensure further discussions and increase corroboration. These proposals clearly highlight a frustration at the efficiency and pace of current methods to repatriate stolen assets, as well as demonstrating that there is sufficient political will to adopt a new international approach that could revolutionise the practice forever. Ultimately, asset recovery specialists will need to monitor the situation, as well as work and consult with any would-be reformers, to ensure that they are fully up to date with any new practices that could change the speed and efficiency with which they operate in the future.
The development of asset recovery in the enforcement of arbitral awards is a key trend noted by a number of respondents. As one interviewee claimed, “A lot of the asset-tracing now going on either precedes or follows an arbitration, depending on how well-organised the lawyers are.” Given that arbitral awards are enforceable in over 150 countries, they are frequently preferred in cross-border cases to ensure that assets are fully recovered in the jurisdictions that subscribe to the New York Convention. As previously mentioned, lawyers are increasingly turning to asset-tracing and recovery experts earlier on in the process to evaluate the relative ease with which these assets can be traced and recovered before they start the cases. As another respondent mentioned, “If the assets are difficult to recover, parties are more likely to settle.” Ultimately, this development in the uses of asset tracing highlights its shifting prominence in international disputes more generally. Now it seems that asset tracing is becoming a tool to decide on case strategy as it is not only being used to work out where these assets are, but also how good are the chances of enforcing a successful recovery.
The rising cost of civil proceedings continues to draw third-party funders into the asset recovery space. Third-party litigation funding – financial assistance in return for a share of the profits – is becoming more prominent in civil fraud proceedings and the associated recovery of misappropriated assets. A low interest rate environment, coupled with an abundance of capital, is seeing funders turning to “riskier” cases in order to reap rewards. Alongside this, there is a growing familiarity, and stronger relationships, between lawyers, clients and funders more generally. As the costs of asset-tracing and recovery are often substantial and unforeseen, asset recovery financing offers clients an avenue to pursue claims minimising the costs and risks. Ultimately, it is important for law firms and their clients to foster and maintain good relationships with funders to offer clients who might otherwise choose not to pursue claims, and related asset recovery, the opportunity to reclaim their assets.
Fraud and asset recovery have now developed beyond their traditional scope. Whereas in the past, asset-tracing and recovery were used exclusively to follow the money trail and recover such capital for victims, the practice is now being employed in increasingly sophisticated ways in a growing number of jurisdictions. While it is still relied upon to recover stolen assets in a more traditional sense, asset-tracing is employed in a growing number of arbitrations and corporate disputes to inform the overall strategy of the case, and it is even being evaluated pre-emptively as a first line of defence to ensure that assets are suitably protected in the first place. As the sophistication of the practice develops, it will undoubtedly push practitioners to develop a much broader range of skills to deal with these new facets of asset recovery.