Edward H Davis Jr of Astigarraga Davis, the leading lawyer in our worldwide research, charts the development of asset recovery as its own distinct practice area.
"I think that “asset recovery” needs to be redefined as “value recovery”. This is because the word “asset” too narrowly defines the target of the recovery effort to “things” rather than pools of value like third-party claims against aiders and abettors of the fraud."
As little as fifteen years ago “asset recovery” was not a term that was widely used in the worldwide legal community other than with regard to government corruption forfeiture cases. Over the past ten to fifteen years asset recovery has emerged as its own distinct practice area. In that same period, numerous scholarly and practical books have been written on the subject of cross-border asset recovery, and numerous conferences have covered this theme, including conferences organised by the International Bar Association, the American Bar Association, C5 and Offshore Alert. In addition, dedicated organisations and lawyer networks have sprung up to service the practice area. The concept of asset recovery has developed its own ethos, its own vocabulary and its own critical paths in the legal, accounting and investigative world. And now, Who’s Who Legal has published its own list of leading asset recovery lawyers.
Asset recovery is not judgment collection. While a portion of the asset recovery practice certainly involves judgment collection, any good asset recovery lawyer knows that if your case strategy is designed around waiting to obtain and enforce a judgment, then the assets are usually long gone. In truth, asset recovery is an exciting, cutting-edge, multi-disciplinary, cross-border practice area that requires specialised knowledge and often simultaneous and harmonious application of common and civil law litigation tactics and tools, insolvency options, investigative principles, forensic accounting techniques, and forfeiture schemes, and a strategic mindset. A successful asset recovery practitioner requires an inquiring mind, flexibility, cultural sensitivity, adaptability, resilience, patience and a high pain threshold as the process can be maddeningly slow at times when legal procedures have to play out in courts around the world.
A top-flight asset recovery professional must also have impeccable and impeachable ethics as the fraudsters and corrupt actors we pursue will often attempt to drag us down to their level and seek to smear our reputation as part of their defence. Many times the asset recovery lawyer and the legal process itself are attacked as the fraudsters know they cannot assail the merits of the claims against them. Often asset recovery lawyers act covertly, with or without court sanction, and must therefore hold themselves to the highest standards of conduct at all times to avoid being the subject of an attention-deflecting attack by the parties they pursue.
I have often said that a good asset recovery lawyer has to have the characteristics of a rat terrier, to wit: unblinking steely-eyed vigilance, speed, relentless pursuit, the courage to go down into the dark holes of society where fraudsters operate with the single-minded determination to latch on no matter what, drag them out into the daylight and shake them until they are finished. Fraudsters and corrupt actors share many of the same characteristics as rats as they move furtively through the holes and sewers of society to steal and then secrete their ill-gotten gains while they carry aiders and abettors and strawmen around on their backs like plague-ridden fleas. Some have told me over the years that this characterisation is harsh – however, once you have seen the pain, misery and hopelessness that corrupt actors and fraudsters cause to their victims, you come to realise that the comparison may actually be libellous to rats.
Common Asset Recovery Cases
The most common types of cases that asset recovery professionals deal with include cases where we represent victims of fraud directly or those charged with representing the interests of the victims on a collective basis. This might include businesses, financial institutions, governments or individuals. In matters involving insolvency, we represent office holders, including liquidators, trustees and receivers in multi-jurisdictional investigations and asset recovery cases. In many cases, we seek injunctions and other provisional and pre-judgment remedies. In others, we oversee sensitive international investigations and pre-suit discovery efforts, sometimes on an ex parte or covert basis. Many asset recovery lawyers represent governments and their agencies in grand corruption cases brought against former government officials or third parties who conspired to effect, or aided and abetted, the corruption or fraud.
Challenges Asset Recovery Professionals Face
The main challenges in asset recovery cases include victims of fraud who are shell-shocked by their loss and hesitant to act; funding of investigations and litigation, including ethical and practical issues related to the emerging third-party litigation funding industry; well-funded and well-advised fraudsters and corrupt actors; mismanagement or handling of cases inherited from non-specialists that have caused litigation fatigue; the absence of legal standing to bring suit on behalf of victims in certain insolvency, corruption and kleptocracy cases; the belief that criminal authorities are best suited in all cases to recover assets to the exclusion of private practitioners; and the unnecessary clash between criminal prosecuting authorities and civil insolvency practitioners chasing the same wrongdoers. Another challenge is that good asset recovery lawyers play by the rules of society and fraudsters do not. Fraudsters and corrupt actors will often find lawyers, accountants, bankers and others who will aid and abet their illegal conduct both during the fraud and or at the tail-end to protect the unlawful proceeds. Asset recovery lawyers have to outwork and out-think these stooges for fraudsters.
Another challenge is that legal systems around the world presume that both litigants before them are honest parties who have a legitimate dispute. However, in a fraud case the fraudster has his finger on the scale of justice (sometimes quite literally) and will not play by the rules. Judges often don’t realise how difficult it is to bring a fraud case. The fraudster is usually the only person with the full picture of the fraud and its inner workings. This requires the building of rapport and trust with the court so that notions of privacy and confidentiality designed to protect the honest members of society can be set aside when a fraudster seeks to hide behind them.
Lastly, a key challenge is the use of offshore or what are known as “secrecy” or “haven” jurisdictions. Offshore jurisdictions are popular with wrongdoers because they offer a certain level of secrecy, be it through bank secrecy laws, or laws that protect against the disclosure of ultimate beneficial ownership information. Offshore jurisdictions offer sophisticated legal and “asset protection” services designed to obscure ownership and ensure privacy. However, even the most secretive of offshore financial centres typically has laws and mechanisms to discover information and evidence through legal channels where a fraud has been committed or corruption has been alleged. These jurisdictions often have powerful asset freezing tools that can be deployed in the right circumstances. The key to navigating successfully in an offshore jurisdiction is to work with the best local asset recovery counsel available. In my case, I am fortunate to belong to the International Chamber of Commerce-sponsored group known as FraudNet. FraudNet is composed of individually selected asset recovery experts in almost every key jurisdiction who can interface with local civil, criminal and judicial authorities in asset recovery cases. The key is to work with asset recovery professionals who are not learning the asset recovery trade on the job. This is crucial in asset recovery cases where speed and funding is usually an important consideration.
Like all challenges, these specific practice-related challenges are best addressed with creativity and perseverance. For some issues, the solution lies in educating stakeholders about what we do, how we do it, and for whom. For others, we advocate aggressively for the novel use of existing legal and investigative tools in an ever-changing world. This might mean, in certain cases, that we need to seek to make new law by taking an appeal of a loss or seeking legislative redress. In other cases, we seek to use existing legal and investigative tools in new and innovative ways to gain an advantage (a screwdriver was not designed as a can opener, but in certain cases it will do).
The Most Effective Strategies for Successful Asset Recovery
Without any doubt, the most effective strategy for successful asset preservation and recovery involves the retention of a civil asset recovery team to pursue a fraudster or corrupt actor and his or her assets. The civil asset recovery team, if composed of true experts, can deliver meaningful results. The civil asset recovery team, or “CART”, is led by a lawyer that can extend the broadest possible attorney–client and work–product privilege protection to the team’s undertakings and who can coordinate its activities. In some cases, the team may be led by an insolvency professional as “the client”, but a lawyer should supervise the team as legal issues pervade every aspect of asset recovery. That lawyer, in turn, must seek out an array of professionals: expert local counsel in jurisdictions of interest to advise on relevant legal issues, including investigative limitations, the availability of pre-suit discovery and remedies and the legal accessibility of identified assets; investigative experts who can conduct surveillance and other investigative work to confirm the existence of assets or their recent movement or the whereabouts of targets; expert forensic accounting personnel to conduct forward and reverse asset tracing analysis and who can, where appropriate, render testimony in court; and expert computer forensic personnel to deal with and preserve electronic evidence and testify in court where needed.
Aside from using a civil asset recovery team, the most effective asset recovery strategy is one that hits the fraudster or corrupt actor hard in several places and all at once. The goal is to surprise and to deprive the wrongdoer of his or her resources where possible by tying up the proceeds of the fraud both to ensure they are available later for recovery and to prevent them from being used as a “war chest” against the victim. Another successful strategy involves identifying collaborating family members who may have become involved and who can be sued. These latter actions often put great pressure on wrongdoers to compromise and open new fonts of recovery.
Finally, no successful asset recovery case is complete without thorough consideration of potential third-party liability and claims. These third parties will sometimes bear equal responsibility for the unlawful acts of the primary wrongdoer and will sometimes be the only solvent recovery targets available to the victims of the fraud.
The Future of Asset Recovery
Simply put, the future of the asset recovery practice could not be brighter. Unfortunately, fraud and corruption continue practically unabated. Sadly, victims abound across the globe. However, to better combat this fraud and corruption and serve these victims, I think that “asset recovery” needs to be redefined as “value recovery”. This is because the word “asset” too narrowly defines the target of the recovery effort to “things” rather than pools of value like third-party claims against aiders and abettors of the fraud. Many times the fraudster has squandered the proceeds of his fraud and there are few true “assets” to recover. The fastest growing aspect of asset recovery involves efforts to redefine the asset to include, among others, claims against third parties who either intentionally or negligently assisted the fraudster or corrupt actor in perpetrating the fraud or who failed to stop the fraudster when they became aware of the fraud. Moreover, courts and governments are becoming more and more open to the use of private practitioners to recover assets rather than more traditional criminal-based forfeiture approaches, which have their own inherent limitations.