Asset Tracing and Recovery

What type of firms and cases does K2 Integrity work with? 

Our core clients have always been law firms, and this has not changed. However, the rise in litigation funding has seen the asset recovery market change to an extent. Without funding a case often does not get off the ground, so relationships with these funders is critical for us. Recent years have also seen a rise in the number of hedge funds moving into the litigation market and commoditising arbitral awards. By viewing these awards as tradeable assets and recognising them as an asset class which can offer very high returns on investment, they have opened up new opportunities for investigators.

A big part of this market is the enforcement of awards against sovereign states and these cases have always formed a large part of our practice and continue to do so. Outside the traditional legal centres of London and New York where we continue to do a lot of work, at K2 we have historically had a strong presence in Geneva and have also expanded our presence in the Middle East in the past two years and opened offices in Abu Dhabi and Riyadh. This is a key growth market for us, as we have seen corporations in the Middle East demonstrate a greater willingness to pursue debtors outside the jurisdiction and engage investigators to help recover their funds.

At what stage should lawyers first call in the investigators and why? 

I think there is now a greater understanding of what investigators can offer in terms of asset recovery and a willingness from lawyers to engage with them early in the process. There are broadly three stages of a case where investigators can be introduced: pre-litigation, mid-case and post-judgment.

Before launching a legal case there is often merit in identifying your potential adversary’s assets, or indications of assets that may be confirmed through further investigative work or legal discovery. An investigator’s report at this stage can help you to assess how complex the other side’s asset holdings are and how well prepared their defences are. For example, it may be found that your opponent holds most of their assets in less enforcement friendly jurisdictions, or that they tend to use offshore entities to mask their interests. This can be crucial intelligence for developing your legal strategy. An investigator’s report at this stage can also help in obtaining funding for the case, and we often work with law firms to provide them with an initial report or asset map that forms part of their submission to funders.

When legal cases are underway, investigators can assist in further identification of assets, but also importantly monitoring known assets for evidence of dissipation. Good investigators know what to check for in such instances, looking for the movement of assets into more complex structures, the names of proxies, or other approaches such as “sham” divorces designed to thwart creditors. Investigators can also provide verification of asset disclosures during proceedings – the discovery of false or misleading information can be a powerful weapon for lawyers.

In a post judgment scenario, you may find that the other side is reluctant to pay. The debtor may be protected in a jurisdiction which is unwilling to recognise your judgment. In this instance, investigators can help bring about speedy resolutions by identifying assets that will create leverage. For example, a private jet owned by the subject may be found to have landed in an enforcement friendly jurisdiction. Seizure may create embarrassment and an impediment to daily life or business operations that brings the other side to the negotiating table.

What are the first stages in an investigator’s response?

In most cases, clients approach investigators with a set of predetermined requirements which they believe will assist them in resolving an issue or in advancing their legal claim. This will often include a demand to focus only on certain jurisdictions, which can be challenging for investigators as while the underlying asset, such as property, may be in one jurisdiction, the corporate structure through which this property is owned can often cross multiple jurisdictions.

The first job is to receive the full context on the client’s issue, and to fully understand what the client is looking to achieve. We seek to obtain all the information already gathered by the client and prepare a bespoke strategy, weighing up the costs versus the benefits of any proposed approach and consult the client on the most cost-efficient way to achieve desired outcomes. In addition to advising clients on the best course of action, it is critical to be candid with clients in advising against certain actions, which would likely be ineffective or even counterproductive.

In most matters, the best outcomes for clients are achieved through investigators and lawyers working closely together to develop, or support, a clear legal strategy. We need to be well versed in working across a range of jurisdictions, understand that investigations can evolve rapidly, and have the experience and know-how to be able to revise strategies and meet changing requirements at any point of an investigation.

Which are the most useful tools or technology available to maximise the chances of success? 

There are a range of proprietary databases and AI technology that are becoming increasingly advanced and intuitive. This technology is an essential tool for investigators to streamline and automate open source and public record research. However, even with access to an array of high-quality databases and records repositories, human input is still paramount to draw out all relevant connections and to maximise the effectiveness of open-source research.

For example, investigators can automate searches across online corporate records archives, significantly cutting down time needed to map a subject’s corporate footprint. However, completing and validating this research often requires the subsequent retrieval of the original corporate filings from the official source.

In one previous case, we were instructed by a client to identify the global asset footprint of a public official believed to have acquired substantial assets outside of their home country through bribery and corrupt schemes. We were ultimately able to connect the subject to ill-gotten assets – a global portfolio of high value real estate – through in-depth analysis of social media profiles belonging to the subject’s family. Initial analysis and connection mapping was made easier by the technology at our disposal. Then, through further analysis we were able to identify a network of nominees used by the subject to hold the real estate on their behalf, obfuscating the connection between the subject and these high-value assets. The link between the subject and these properties did not exist in official records and it needed an investigator to build on the information provided by the technology.

Beyond the technology, having experts in-house is critical to our approach. You cannot attend a conference on asset recovery now without the word ‘crypto’ being mentioned. As we have seen with drug taking in sport, criminals are often at the forefront of innovation and a couple of steps ahead of the authorities, leaving investigators, lawyers and law enforcement playing catch up, even when it comes to legislation. At K2, we now have crypto professionals in-house. This capability and true understanding of the technology and ways it can be used are critical to our investigations.

What challenges can occur when seeking or obtaining information about assets and enforcing their recovery? 

One of the biggest hurdles we face as investigators can be proving that the subject of any set of legal proceedings is the true beneficiary of the assets that we have identified. It may be the case that we have multiple pieces of information pointing to ownership by the subject, but legally speaking that person may not be the “paper” owner of the asset. Individuals can go to great lengths to obfuscate their links to assets. Common strategies here include using proxies to hold assets on trust, employing nominee shareholders and directors and also relying on the secrecy that surrounds ownership of entities registered in offshore jurisdictions. Only in recent years, a small number of corporate registries in these jurisdictions have begun releasing the details of company directors.

However, this is as far as most offshore jurisdictions will go. Details of corporate ownership typically remains opaque, despite various governmental efforts to improve this. For instance, if an overseas company owns property in the UK, there is now an obligation for those companies to register details of their UBOs with Companies House. This can be a powerful tool, but often companies are able to declare trustees or further offshore companies as their UBOs. As such, experienced investigators are still required for creative strategies to unravel counterparties’ attempts to hide their assets.

How should investigators overcome the jurisdictional issues that are often associated with asset tracing?  

Asset tracing is generally a global exercise. We rarely see cases where a subject has all their assets located in one jurisdiction. It therefore becomes a challenge to litigate against a subject in one place, knowing that they have valuable assets elsewhere. As investigators, we will always seek to attain a holistic picture of a subject’s asset portfolio. Limiting research and resources to the jurisdiction where legal proceedings are being brought is counterproductive as there is no guarantee any assets will be found there, or that we will identify sufficient assets to cover the quantum sought.

Thus, we undertake global asset tracing investigations followed by an assessment of those assets which will typically focus on jurisdiction, type of asset and asset value. Thereafter, deciding which assets to pursue depends on where the proceedings are taking place, the location of assets and the strategy of the legal team. There are some jurisdictions where recognising legal proceedings from a foreign court is more straightforward than others. Assets in those places may be more attractive prospects to pursue for recovery. There are also some jurisdictions where statute dictates how domestic courts can assist with information requests from foreign proceedings, for example Section 1782 of Title 28 of the United States Code (Assistance to foreign and international tribunals and to litigants before such tribunals). It remains the case that there will always be jurisdictional challenges when it comes to asset tracing, but that fundamentally all good asset recovery strategies rely on a close working relationship between creative investigators and savvy legal teams.

Can you discuss any recent examples or case studies in which K2 Integrity assisted a corporation? 

We have worked on a lot of challenging corporate disputes over the past year but two good examples of wide-ranging investigations spring to mind. In the first case, we were engaged by a European telecommunications company to investigate several people who had received payments resulting from a multimillion Euro fraud undertaken against our client. Through analysis of public records including property documents, planning applications, company filings and genealogical information, we were able to establish that the beneficiaries of the fraud were part of a complex network of family members and associates who had a long history of conducting similar frauds. Our evidence was crucial in demonstrating the conspiracy between people and assisting with the liquidation of entities involved in the fraud.

In another recent matter, we assisted a Middle Eastern investment group by tracing the global assets of two people to support the enforcement of a multimillion-dollar legal judgment. We successfully uncovered approximately USD 65 million of assets controlled by the subjects including offshore entities that held shares in public companies, valuable European properties, and a family office with substantial investments. In one instance, we located a well-hidden apartment owned by one of the subjects through examination of historical French phone books. Our findings greatly helped our client with their enforcement strategy and led to several referrals for further investigations.

What does a successful outcome look like, what are the biggest hurdles you face to a successful outcome, and how can they be mitigated? 

In asset tracing, success mainly involves the presentation to our client of well-evidenced control of assets by the subject of our investigation, as well as an indication of the value and any encumbrances of those assets. Ideally, this allows our client to freeze assets, enforce a judgment or apply pressure to bring parties to the negotiating table. Where control of assets is not immediately clear, we may be able to provide intelligence regarding where assets may be uncovered through either further investigation or targeted legal actions such as disclosure. This could include, for example, obtaining commentary by a former associate of the subject that they often boasted about having money stashed in offshore bank accounts, or surveillance showing frequent visits to a particular accountancy firm.

Often one of the biggest hurdles we face is that our clients may be reticent to risk “throwing good money after bad” by commissioning an investigation when they have already experienced a financial loss, or the successful outcome of their legal proceedings is not guaranteed. To mitigate this, we often propose a step-by-step approach where we provide investigative phases with individual budgets. An initial phase may reveal that there are assets which are actually or potentially available, or it may reveal that the subject is being sued by several other parties, is struggling financially, and any assets are likely to be in unfavourable jurisdictions. By taking this phased approach, we help our clients control costs and help them avoid committing to large budgets at the outset. We maintain open dialogues with our clients throughout investigations and hold discussions at the end of each phase, where potential strategies for next steps can be decided or concluding that further investigation or starting costly litigation is not worthwhile.

About Tom and K2 Integrity:

My name is Tom Stanley and I head the asset tracing practice at K2 Integrity. This practice, headquartered in London, consists of a specialist team who work solely on asset tracing projects. We believe that having a core, experienced team of senior investigators is crucial in understanding the mechanisms through which people hide assets and gives our clients the best chance of efficient recovery.

Jules Kroll, our founder and chairman, built the company on major asset tracing investigations, and is the father of the modern investigations industry. He carried out corruption investigations and asset searches against major figures including Saddam Hussein, Ferdinand Marcos, “Baby Doc” Duvalier and Arap Moi, amongst others. Our modern asset tracing practice follows this legacy, working for a variety of sovereign states, major corporations, law firms, and high-net-worth individuals.

We build investigative teams around each case with support from our in-house experts around the world. These include jurisdictional experts, former prosecutors, lawyers, senior government advisors, regulators, law enforcement and intelligence professionals, forensic accountants, investigative journalists and technology and crypto experts. 

Tom Stanley
Managing Director, K2 Integrity
5th Floor, Cunard House, 15 Regent Street St. James’s, London SW1Y 4LR
Tel: +44 (20) 7016-4215
Email: tstanley@k2integrity.com
www.k2integrity.com

Published by: www.lawyer-monthly.com

5 March 2024 at 13:10