Tracing Concealed Assets in Fraud Investigations, Arbitration Awards, and Judgements

In the case of an internal fraud, once a fraud allegation has been made and investigated, the imperative usually shifts to loss recovery. Similarly, arbitration awardees, judgment creditors, and financial institutions that are chasing debtors with non-performing loans often need expert assistance to identify assets that can be frozen and recovered.

Few debtors start out intending to default on a loan. Nor do they (or can they) erase the early asset footprints they leave behind. The same can be said even for perpetrators of fraud. How then do you find the money?

Uncovering Asset Footprints

A company’s game plan should start with a well-researched history of the target debtor, going back long before the date of the loan or transaction. The asset search should also include a comprehensive search of public records and information databases. Depending on the jurisdiction, these may contain evidence and important leads to assets such as real estate, business holdings, bank accounts, cars, boats and planes, and receivables, among other items.
Social media also has become a rich source of asset-related information. For example, Kroll has often found assets and evidence disclosed by debtors and their families on social media pages that were not password protected. This is not a rare occurrence. In our 24/7, need-to-communicate, tell-all world, the subjects of investigations and their families can be indiscreet and indiscriminate, broadcasting, for example, pictures of their weekend homes and luxury possessions.

Once these tracks have been laid and analyzed, the strategy may shift to external inquiries or human intelligence.

Jurisdiction Matters

Money and assets may be scattered across multiple, complex jurisdictions and in some where it is traditionally hard to make recoveries. Throughout all these stages it is important to focus on the path of least resistance – investigating first in jurisdictions most amenable to enforcement.

The number of countries where assets can be safely hidden is actually shrinking, but the ways in which assets can be concealed has grown. These are abetted by the proliferation of private investment vehicles and the speed of electronic transfers; the complicity of bank managers in some jurisdictions, despite anti-money laundering laws and the banks’ own internal rules; the remaining countries which still profit from being asset flight havens; and for some of the highest net worth dodgers, there are some governments and heads of state who provide shelter, undoubtedly for a price.

However, creditors seeking expert help can have realistic hopes of making potentially significant loss recoveries, even in challenging jurisdictions. If the facts merit an official criminal investigation, creditors should also consider government assistance under a Mutual Legal Assistance Treaty (“MLAT”). MLATs are multinational treaties that facilitate, among other things, obtaining in one signatory country evidence of certain designated crimes committed by an individual(s) or business entity(ies) in another signatory country. The remedy is available only to governments. However, many asset search investigations are conducted in parallel with government investigations where the government has the discretion to assist a victim creditor.
 
The Interplay Between an Internal Review of Books and Records and External Inquiries Was Very Important in a Recent Kroll Case:

A Russian bank had experienced a fraud on its trading floor which led to losses of over USD 300 million. Kroll conducted an onsite investigation comprising a financial review of the Bloomberg trading system and forensic interviews, supported by computer forensics and public record research. This phase of work confirmed that the bank had suffered a fraud and supported legal proceedings in London to freeze assets and obtain disclosure. In the second phase of work, Kroll collaborated with the client and its legal advisors to implement a civil and criminal investigation strategy to obtain further disclosure and to trace the proceeds of the fraud.

Using MLAT proceedings, Kroll supported the bank in obtaining information regarding the flow of funds through the international banking system and was able to successfully pierce the corporate veil. Kroll conducted public record research and local human source inquiries to identify assets in countries across Europe and Asia, including Bulgaria, Ukraine, Georgia, Azerbaijan, and Tajikistan, as well as the Middle East, and North and South America.

Kroll provided expert witness reports in support of a civil fraud claim in the UK and to recover assets in several jurisdictions. Our cyber team secured, processed, and reviewed more than 100 terabytes of electronic documentation and produced trial bundles for court proceedings. We worked with the client to report to the financial regulator and to assist the regulator’s investigation. The civil judgment, issued in the UK and in favor of the bank, has resulted in the recovery of a significant proportion of the fraud proceeds. In criminal proceedings, two of the key defendants have been found guilty and are facing substantial custodial sentences. 

Norwich Pharmacal Orders available in the UK and former UK jurisdictions and/or Discovery Orders, as often referred to elsewhere, are civil tools similar to MLAT, which may provide investigators with information such as banking records or the identity of directors, officers, and shareholders of offshore companies.

A Norwich Pharmacal Order Was Instrumental in Assisting Kroll in a Multijurisdictional Case:

Working for a Middle East client, Kroll identified the diversion of USD 5 million from the company’s bank account. Although no suspects were identified, investigators were able to trace the funds to a financial institution in the Caribbean region. Kroll prepared an affidavit describing the circumstances of the investigation, and with the assistance of local Caribbean counsel, Kroll obtained a Norwich Pharmacal Order against the bank to disclose details of the bank account, including Know Your Client (“KYC”) information. The order identified the beneficial owners of the bank account and also over USD 4 million of the funds still sitting in the account. With further assistance from counsel, the funds were immediately frozen and eventually returned to the client.

Few situations are more frustrating than winning a money judgment or award and chasing a debtor or crook who conceals assets and lives large. But an organized investigative strategy and the use of available tools can break down walls. The target may run, but increasingly, it is far more difficult to hide.