In a complex world, a new approach to asset tracing is needed

Andrew Wordsworth

It is increasingly difficult to enforce awards and judgements in a world where respondents’ assets are structured by sophisticated financial advisors and scattered across countries with different legal frameworks. This is especially true in Ukraine and elsewhere in the CIS, where barriers to traditional asset tracing are mounting. A new approach is needed.

The answer lies in closer alignment between litigators and investigators, and the education of investigators in the range of legal mechanisms that can unlock information that traditional information gathering tools cannot. Unfortunately, most investigations firms have only a fleeting understanding of these mechanisms.

The crux of the problem is the fact that confirming beneficial ownership of many asset types is difficult and becoming more so. The tendency among businesspeople from the CIS to use nominees, trusts or companies registered offshore is creating what appear to be unsurmountable barriers. Using open source techniques, surveillance, interviews and witness statements, traditional investigators can attempt to identify a beneficiary, but other than finding an ‘inside’ source the only option may be to apply to a court for assistance by way of a disclosure order.

Investigators and litigators working closely together can overcome such problems. But doing so requires looking beyond the classic ‘enquiry agent’ model whereby litigators ask for data and investigators retrieve it. Today each advisor needs to understand the options available to the other and develop strategy jointly. The combination of investigative product and legal process can be used to powerful effect to establish beneficial ownership.

Two disclosure instruments which demonstrate the need for close cooperation between investigators and litigators are the Norwich Pharmacal Order (NPO) in English Common Law jurisdictions and Section 1782 in the United States.

A precedent set in 1974, the NPO is typically filed against a third party who possesses information which may help shine light on a concealed beneficiary’s asset profile, such as financial institutions, real estate companies, accountancy firms and so forth. This is especially useful where normal disclosure orders are not feasible and is even proving to be a potent lever in offshore jurisdictions. The NPO is unique among disclosure orders in that it can be sought at any stage of the litigation process, and has successfully been put to use in a number of disputes involving the exposure and seizure of illicit funds originating from the CIS. However to be successful, there must be a strong arguable case that a third party is either complicit or inadvertently involved in a transgression, and that it possesses the relevant information. The burden of proof falls to investigators without which the NPO may not be granted.

Section 1782 (§1782) likewise provides broad and permissive discovery in the United States in support of litigation overseas. The order has been used to authorise federal district courts to compel testimonies of witnesses and gather material evidence, from corporate documents to banking records and even DNA samples. It has the additional advantage of applying to the US which is both a favorable enforcement jurisdiction and a nexus of many multi-national businesses and HNW individuals. Few substantial businesses can avoid trading in US dollars.

Here again however an investigator needs to identify the opportunity in hints of a US nexus and then gather sufficient data to support the application. If he or she is unaware of such mechanisms, or litigators do not que them to look, a valuable opportunity might be missed. Where it can be made to work, the §1782 is transformative in uncovering related parties and activities in jurisdictions hitherto unknown.

For mechanisms like these to be effective, litigators and investigators must work together more closely and investigators need to be trained to identify opportunities and supporting data. Only by joining traditional investigative methods with legal process are we likely to keep pace with the ever more complex structures of the commercial world.

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