The International Who’s Who of Asset Recovery Lawyers has brought together four of the leading practitioners in the world to discuss key issues facing lawyers today
Edwards Wildman Palmer UK LLP
OFFSHORE AND TAX HAVENS
Who’s Who Legal: It is clear that a lot of asset recovery work will be concentrated in offshore territories as well as other tax havens. What are the main features and challenges of recovery in these jurisdictions?
Joe Wielebinski: The main features of these offshore territories and other tax havens is that they establish obstacles that make it incredibly difficult for legitimate creditors to obtain information or identify and recover assets that have been illegally or improperly obtained. Many such havens are geographically remote, sometimes plagued with problems of corruption, and their laws are specifically designed to impair and impede legitimate creditors, which in turn makes it much more difficult and expensive for victims to pursue their claims.
James Maton: The ease and speed of recovery varies tremendously by jurisdiction, and in some places is almost impossible without political will to assist. Generally, the legal process is much slower than is often the case in major commercial centres, particularly in jurisdictions with insufficient judicial capacity or which permit appeals as of right of every interim decision before trial. Banking or professional secrecy laws can also cause difficulties in obtaining necessary information. It is always necessary to find effective local counsel that can help to inform the overall strategy by providing good advice on the options that are available and the likely timetable to trial. In corruption cases, careful thought needs to be given to whether criminal or civil recovery mechanisms give the best prospect of recovery in a sensible period. That will vary by country. But many territories regarded as offshore do offer effective remedies for victims of corruption and fraud.
Colette Wilkins: There is a significant volume of asset recovery work in the Cayman Islands at the moment. A particular feature of this work post-2008 is the very large sums involved. As an established offshore financial centre, with specialist judges available and well able to deal with high-value asset recovery litigation, orders can be obtained quickly and at an early stage, including pre-action. As a common law jurisdiction Cayman is no haven for fraudsters; our courts make orders on a regular basis to assist in asset tracing. The challenge is to ensure careful coordination across the different jurisdictions involved (it is rare for there to be just one relevant jurisdiction) to avoid tipping off, and to judge the moment at which there is sufficient material to justify the orders sought while recognising the need to move as quickly as possible.
Fabio Trevisan: Depending on the jurisdiction, various challenges can be faced by the creditors seeking to recover assets held in offshore jurisdictions, mainly through shelf companies. Usually such companies’ share capital is in bearer form, hence not traceable. Moreover, such companies are not usually required to publish balance sheets, and could hold assets in a variety of jurisdictions, and anonymously.
These problems are usually not faced in European countries, although as an example, Luxembourg still, for now, retains bearer shares for companies incorporated as sociétés anonymes.
In Luxembourg banking secrecy is also fully applicable and there is no way to freeze bank accounts unless the bank where assets are held is known to the creditor. To this end, also, another restriction to obtaining a freezing order is the fact that the creditor needs to show an actual, liquid and due credit. A claim for damages does not qualify to this end.
IMPACT OF FINANCIAL CRISIS
Who’s Who Legal: Asset recovery has been prominent in legal and popular commentary since the effects of the 2008 financial crisis have rippled through the world and commerce. To what extent, in your opinions, have the cases arising under these circumstances been litigated? Are we going to see them petering out or is it still the tip of the iceberg?
James Maton: There is much more asset recovery work as a result of the global financial crisis, with a number of high-profile fraud cases. But the amount of work, while continuing to increase, is probably low given the extent of the downturn. Analysis of previous downturns suggests that the number of cases will continue to grow for some years to come.
Joe Wielebinski: Many of the cases arising from the financial crisis have been litigated, settled or otherwise resolved. However, some of the cases are only now at the stage of being adjudicated and not a small number are on appeal, or are being retried after the appellate courts have ruled on specific legal issues. In my experience, there are clearly fewer cases being generated directly as a result of the 2008 financial crisis than there were in the recent past. However, we are nowhere near the end of the road. New stories are breaking every day regarding financial fraud that will undoubtedly lead to additional litigation. Simply look at the most recent headlines regarding Barclay’s Bank and the LIBOR scandal, which is only one of 10 banks to have allegedly reported false rates to produce profits. Barclay’s $450 million settlement is being done years after these activities occurred. In addition, you can look at recent examples of large financial scandals in the United States, like Peregrine Financial Group or MF Global. Ongoing financial difficulties worldwide are likely to lead to continued announcements of similar financial frauds and resulting litigation.
Colette Wilkins: I am firmly of the view that we are seeing only the tip of the iceberg. Most, but not all, of the asset recovery work we are dealing with at the moment results from allegations of wrongdoing exposed by the financial crisis. Liquidators appointed in 2009 and later are continuing investigations and this is likely to lead to further litigation.
Fabio Trevisan: Definitely the tip of the iceberg. We see quite a lot of restructuring work, and litigation arising from the liquidation of the Icelandic banks posing new challenges which were unforeseen by the legislator at the time of the drafting of the statutes. We also see litigation against banks who, in the view of clients, should have advised them better, as there were premonitory signs of the crisis before the fall out.
Who’s Who Legal: Our interviewees across the world have mentioned a lot of shifts and changes in regulatory and judicial approaches to asset recovery. To what extent is this affecting your work, and, on the other side of the coin, to what extent do you believe that the cases you’re working on are affecting the legal framework?
Joe Wielebinski: It is clear that there have been some shifts in the regulatory and judicial approaches to asset recovery. In some situations there is greater certainty, broader and more effective cooperation, enhanced legal frameworks, greater transparency and comprehensive laws that provide better forms of recovery, all of which can assist in providing potential relief to victims of fraud. Conversely, we continue to have to deal with biases, sophisticated and often well-funded adversaries, naïve or inexperienced judges, together with the ever-present “political considerations”. Even when the law is crystal clear and the objectives may be agreed upon by all of the parties, a variety of external factors come into play that make the desired result unachievable.
James Maton: In corruption and fraud cases, governments and public bodies typically have a range of asset recovery mechanisms open to them: confiscation following criminal conviction, forfeiture by law enforcement as the proceeds of crime in the absence of a conviction, and recovery through civil procedures. No one method is superior. Each mechanism has its own strengths and weaknesses, and the most effective mechanism depends on the circumstances and jurisdiction in issue. In our experience, any effective significant programme to recover corruptly acquired assets needs to make use of the range of available mechanisms. There has been an increasing tendency for governments to make use of the whole legal framework, driven both by a desire to maximise recoveries and by a number of successful case studies. For example, we made significant recoveries for an African government in English civil procedures relying on evidence obtained by the criminal authorities under a court order which recognised that handing over the evidence for use in civil proceedings was in the interests of justice, following the flight of the principal suspect from the country.
Colette Wilkins: The establishment of the Financial Services Division of Cayman’s Grand Court shortly after the financial crisis provided specialist judges for this type of work, and continuity of judges for the life of a case. This has been a significant help in both the speed and quality of decision making. Cayman judges and regulators are mindful of the need to help with asset recovery wherever possible, but also of the need to be fair to all parties and consider the evidence. We have seen an increase in the use of orders requiring third-party disclosure (typically banks or administrators) to assist in asset recovery.
Fabio Trevisan: Much more caution is used by regulatory bodies monitoring the financial sector, especially after the Madoff scandal, and it is a more challenging environment for financial actors to start new ventures, acquire regulated businesses or simply operate in this market.
Who’s Who Legal: Our research has indicated that one of the reasons that asset recovery is such a busy area is that market and economic conditions being what they are, it has become harder for would-be launderers to hide what they are up to. What trends are you seeing in this respect and what are the most creative examples of fraud/ways of disguising assets that you have encountered?
Joe Wielebinski: Fraudsters never cease to amaze me in their level of creativity and cunning. New avenues and approaches to avoid the laws and evade liability are constantly developing. For example, new cellphone technology and online gaming have been used for money laundering, and there are always updated versions of traditional techniques, such as the unwitting bank, purchases of real estate through straw men and others.
James Maton: I am not convinced it has become any harder to launder money. That may be true in some jurisdictions, but there are plenty where it is not. The amount of criminal money that is frozen or recovered remains tiny compared to the estimated volume of laundered funds. It does seem that, in some countries, one consequence of the global financial crisis, and the media coverage and public anger that has followed, will be far more intense scrutiny by regulators and governments on the financial sector, and that may make it more difficult to launder criminal or corrupt funds. I am not sure I want to mention creative examples of laundering funds! But I think one example of creativity is the apparent rise in the number of cases where funds are laundered through settlement of fictitious legal claims that are litigated for some time before a supposed amicable resolution is reached.
Colette Wilkins: It should be getting harder to launder funds, given the opprobrium rightly heaped on jurisdictions or institutions that fail to take their responsibilities in this regard seriously. I agree with James that pseudo-litigation could well provide a loophole that all litigators need to keep in mind.
Fabio Trevisan: Opening bank accounts in Luxembourg has become a real challenge, as banks have enormously progressed on the monitoring of new clients and existing ones as well. Compliance officers acquired a great decision-making power inside banks and nothing can be done operationally without their approval. This makes life extremely hard for fraudsters, as banks tend to ask a lot of questions on any sizeable transaction, and evidence needs to be shown alongside the explanations.