By Peter D Maynard, Peter D Maynard Counsel & Attorneys
Corruption and fraud go hand in hand. Globally the magnitude of corruption is about $1 trillion a year. Private-sector corruption alone in developing countries was more than three times all foreign assistance in 2012.
The specialist in asset tracing and recovery (ATR) is concerned not only with grand corruption and politically exposed persons, but also corruption on a smaller scale and the ill-gotten gains of fraud. The common denominator is that the ATR specialist actually returns such losses to the victims of corruption and fraud.
“If it seems too good to be true, it usually is.” Fraud is purposeful deceptiveness for illegal gain. The person who commits fraud intentionally makes a false representation expecting prejudice to someone else and a beneficial gain to himself. Obtaining by false pretences, credit card fraud, false accounting, forgery, pyramid and Ponzi schemes are all prime examples.
In a Ponzi fraud, high return rates with little or no risks are promised to investors; new money obtained from new investors is paid to older investors. Victims known as “investors” believe that there is an authentic money-making enterprise when the only source of finance is the newer victim’s money. Ponzi schemes generate returns to earlier investors, as long as there are new investors.
Pyramid schemes engage new members with a promise of compensation for enrolling other members into the scheme. Pyramid schemes are similar to Ponzi schemes in that the money obtained from the newer victims is used to pay earlier victims. The difference between them is that in the pyramid schemes, the earlier victims are convinced to recruit newer victims with the promise of payment for the recruitment.
We are concerned about civil proceedings, the customary means by which victims trace and recover lost assets owing to fraud. But we use criminal proceedings and work with criminal lawyers against “white-collar crime”, mindful that the recovered proceeds of crime often go to the state and not back to the victims. We typically convert the proceedings to civil cases so that the proceeds are returned to the actual victims.
There are a number of remedies in the ATR toolbox that are available to seize assets which were obtained by means of fraud or corruption. Some of these remedies include injunctions, specifically Mareva injunctions, seal and gag orders, Norwich Pharmacal, Bankers Trust disclosure orders and winding-up petitions. However, in the interest of brevity, we will go into detail on only a few of the abovementioned.
Rules of court make provision for injunctions. An application may be made by any party before or after the trial. Where the applicant is the plaintiff and the case is one of urgency, an application may be ex parte on affidavit. The plaintiff may not make such an application before the issue of the writ or originating summons by which the cause or matter is to be begun except where the case is one of urgency.
Guidelines on how the court ought to exercise this discretion were laid down in American Cynamid Co. v Ethicon Ltd  AC 396, where Lord Diplock laid out five criteria that must be satisfied:
The Mareva injunction is a form of interlocutory injunction designed to restrain the defendant from disposing of, or dissipating, his or her assets so as to frustrate any judgment which the plaintiff may obtain against him or her. As the name suggests, the leading authority on Mareva injunctions is Mareva Campania Naviera SA v International Bulkcarriers SS  1 ALL ER 213.
Apart from the above, there are key requirements in granting this injunction:
Seal and gag orders
The court has the power to seal the court’s file and restrain all persons having notice of the proceedings, from disclosing or communicating the fact or nature of the proceedings in order to enable the court to act effectively. In R v Connelly  AC 1254, Lord Morris of Borth-y-Gest explained on page 1,301:
There can be no doubt that a court which is endowed with a particular jurisdiction has powers which are necessary to enable it to act effectively within such jurisdiction. I would regard them as powers which are inherent in its jurisdiction. A court must enjoy such powers in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of its process.
This inherent power of the court was also highlighted for example in the Bahamian case of Bank of Nova Scotia Trust Co v Barletta  BHSJ No. 150, 1995 No. 858, where the Court recognised its power in appropriate cases to restrict the publication of a report of court proceedings. While Davis J opined that the power should be used sparingly and in exceptional circumstances he recognised that it could be used.
Norwich Pharmacal/Bankers Trust disclosure orders
Another valuable tool is the Norwich Pharmacal/Bankers Trust disclosure order (whose names also derive from cases). This type of order is used to obtain the disclosure of documents and materials in the hands of third parties who have been involved in the wrongful acts of others.
The jurisdiction to grant a Norwich Pharmacal Disclosure Order was considered in a House of Lords decision in Ashworth Security Hospital v MGN Ltd  UKHL 29:
The Norwich Pharmacal case clearly establishes that where a person albeit innocently and without incurring any personal liability becomes involved in the wrongful act of another, that person thereby comes under a duty to assist the person injured by those acts by giving him any information which he is able to give by way of discovery that discloses the identity of the wrongdoer.
For example, on the ex parte application by the authors of this article, the Bahamas Supreme Court issued Norwich Pharmacal/Bankers Trust orders in the matter of Marcus A Wide v First Caribbean International Bank 2005/COM/bnk/21. As a result, invaluable evidence was secured from a host of third parties including the bank. The court also exercised its jurisdiction to seal the file and restrain parties from disclosing or communicating the fact of the proceedings. This prevented anyone from tipping off the wrongful party and therefore enhanced the chances of recovery.
Such orders were also obtained in Marko Hentunen v Acathla Limited and Wide Horizons Limited 2009/COM/bnk/0103, where the plaintiff was appointed trustee of a bankruptcy estate in Helsinki, Finland. The trustee was recognised within the Bahamas with power to investigate the property and affairs of the bankrupt who failed to disclose accounts at two banks in the Bahamas. As a result, two large (six- and seven-figure) sums were recovered from the banks as funds held on behalf of the bankrupt.
Another tool in the ATR toolbox to assist with tracing and recovery for victims of fraud is the insolvency or winding-up petition. The objective is to ensure there is a liquidator appointed who can wind up the business of the company which was involved in fraud; collect assets; and identify creditors and debtors of the company, and victims of any fraud carried out by the company. Forensic accounting and other tools may be used to assist in the tracing of any assets.
For example, in an application by the authors, a provisional liquidator appointed by a foreign court was recognised in the Bahamas in Horizon Bank International Limited (In Liquidation) 2005/COM/bnk/00024. An order was made to retrieve and seize documents and computer records. A huge treasure trove of documents and records was obtained leading to the successful conclusion of the case.
There are many different forms of frauds and corruption. But the specialist has an impressive toolbox to recover assets for victims.