Effective Planning For Asset Recovery
By: Paul Richard Brown
The information below is an excerpt from the January 2016 edition of “The Receiver,” a newsletter created and distributed by the National Association of Federal Equity Receivers (“NAFER”). Learn more about this organization at www.nafer.org.
This article is intended to be a summary identifying the general procedure for successful offshore asset recovery, particularly in cases where fraud and concealment are at issue. It is not intended to be a comprehensive and exhaustive analysis of this complex and multilayered matter.
International asset recovery requires planning, persistence, and patience. Your adversary may have had a head start in designing and implementing a plan to conceal, obscure, and pre-position assets and possibly even change their character from cash to precious metal to rare gems and back again. It will take time to find and follow the branches of an asset trail and there may well be false starts and intentional misdirection along the way. Untangling a sophisticated web of money-laundering or other asset movement takes time and skill particularly in foreign jurisdictions. These issues are best managed by a well-conceived, three phased approach including: (1) understanding the scheme and initial movement of assets offshore and identifying specific assets in particular institutions or locations; (2) assessment and execution of sovereign laws affecting discovery and recovery; and (3) liquidation and/or repatriation of assets for the benefit of creditors.
Typically, these matters involve some form of financial fraud. Fraud factors to examine include the following: (a) significant related-party transactions; (b) inadequate segregation of duties; (c) management by single person or small group; (d) reliance on investment by word-of-mouth; (e) use by promoters of small cap stocks; and (f) simply hiding assets from legitimate and lawful creditors, such as an ex-spouse, business partner, or third party investor.
As noted above, the three phased process for successful offshore asset recovery generally entails the following:
1. Understanding Scheme and Movement of Assets: this task includes the evaluation of assets and misappropriated funds; identification of concealment techniques and accounts or instruments used to hold and move assets; discovery of potential third-party facilitators (including determining if they are insured); and ascertaining bank secrecy and legally-imposed confidentially requirements of particular foreign jurisdictions. There are no uniform rules on confidentiality. Some courts base what law applies upon the substantial relationship with the jurisdiction where the claim arose.
2. Assessment of Issues Affecting Discovery and Recovery: for this part of the process, lawyers should take the following steps to determine if there are common tools to obtain verifiable evidence; analyze jurisdictions involved and examine if those jurisdictions are favorable to recovery; evaluate issues of legal reciprocity and mutual assistance agreements; where appropriate, use Letters Rogatory and Norwich Pharmacal (case law discussed below) to collect verifiable evidence; further exam the potential utilization of jurisdictions’ Financial Fraud or Investigative Units; and examine if Mutual Legal Assistance Treaties can be useful to obtain financial records.
3. Liquidation/Repatriation of Assets: the lawful creditor (legal title holder of the assets) is entitled to assets when debtor’s transfer or concealment was an attempt to conceal, hinder, delay or defraud creditors. The creditor obtains an attachment order prohibiting debtor from disposing of assets and requiring repatriation.
General International Discovery Procedures (available to US parties with foreign counsel assistance)
A. Letters Rogatory
The Letter of Request Procedure is the main means of evidence gathering under the Hague Convention. It is the Hague Evidence Convention. It defines methods for foreign discovery for 49 countries that have adopted the Convention. It allows judicial authorities for one signatory country to obtain evidence located in another signatory country. This process begins with a request made to the domestic court where the action is pending to issue a Letter of Request seeking the production of specified documents or the taking of testimony from a particular witness. The court transmits the Letter of Request to the central authority, a governmental agency responsible for receiving and overseeing execution of Letters of Request, which then transmits the Letter of Request to the court in the jurisdiction where the evidence is located. The foreign court then conducts an evidentiary proceeding and sends the results directly back to the court that issued the Letter of Request.
B. Mutual Legal Assistance Treaty
A Mutual Legal Assistance Treaty (MLAT) is a treaty which creates a binding obligation on treaty partners to give assistance to each other in criminal investigations including fraud and certain civil and administrative matters. The treaty typically provides for a direct exchange of information between two “central authorities” — the U.S. Department of Justice and its foreign counterpart, bypassing the involvement of a U.S. court, but not necessarily a foreign court. Legal assistance covers the freezing of assets, the summoning of witnesses, the taking of testimony, the compelling the production of documents and other evidence, the issuance of search warrants and the service of process.
C. Norwich Pharmacal
To discover otherwise private or protected information, English law offers a remedy based on the case of Norwich Pharmacal Company v. Commissioner of Custom and Excise. The US has entered into MLAT treaties with more than 45 countries, including many islands in the Caribbean that are known tax havens. The discovery method known as Norwich Pharmacal, coupled with a gag order, offers a means to obtain information by court order without the threat of violating a duty of confidentiality owed by a third party and without notifying the target of the inquiry. This is very helpful in bank-secrecy jurisdictions. Norwich Pharmacal decision was in 1973 and has been developed by English common law or adopted in some occasions statutorily in countries. It enables the discovery of bank account information, correspondence, company and trust information and corporate records with an eye on secrecy.
D. Anton Piller – English Law
Anton Piller allows for limited discovery prior to commencement of an action. Anton Pillar was decided in 1976. It applies in English common law countries. The party who is a beneficiary of an Anton Piller order has the right to seize and secure evidence on certain terms. The evidence is held so that the process of the court is no rendered useless. To obtain an Anton Piller order, the victim must show that he or she had a business relationship with the defendant, and that the defendant is likely to be in possession of documents that can help prove the claim, such as bank account statements, letters to and from the victim, and internal memos.
E. Freezing Orders – Mareva Injunction
Once assets are discovered, efforts must be focused on freezing and seizing them. Through relief known as a Mareva injunction, courts have issued injunctions to freeze assets in the possession of third parties in foreign countries. Mareva case decided in 1980. To obtain a Mareva injunction, an applicant must show a good arguable case and serious risk that the respondent will either remove assets from the jurisdiction or dissipate them so as to frustrate any judgment ultimately obtained. Since its inception two decades ago, the Mareva injunction has become an important and widely used tool in civil litigation. A Mareva injunction enables the seizure of assets so as to preserve them for the benefit of the creditor, but not to give a charge in favor of any particular creditor.
Utilizing the above three phased approach and discovery provides a thought out purposeful methodology for successful pursuit of assets offshore. Indeed, proper and timely execution is paramount to success. Understanding the varied legal terrain and political nuances still has its challenges to success, which ultimately is lawfully seizing assets.
About Paul Brown and Karr Tuttle Campbell
Paul Richard Brown has extensive experience in asset recovery and financial fraud matters, including recovering assets that have been moved outside of the United States. He has secured assets by working with local counsel and an international team of investigators in 20 U.S. states and 20 foreign jurisdictions, including Belize, Isle of Man, Switzerland, Panama, France, Portugal, North America, and the Caribbean.
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