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The art of asset recovery

By Roddy Allan
Illustration: Gary Taxali
THE KEY TO TRACING AND RETRIEVING MISAPPROPRIATED ASSETS IS INGENUITY
AND EXPERIENCE ON THE PART OF AN INVESTIGATOR
The financial institution agreed to a client's request for special treatment because the client was the
son of a well-known wealthy Canadian family. For two years he had been trading through the
institution from his home in the Cayman Islands, regularly sending cheques by courier to pay for his
trades. So when he asked that the institution recognize his cheques at full value as soon as it
received them instead of waiting for them to clear, the institution complied. (It typically takes 30 to
40 days for cheques from the Cayman Islands to clear.)
Within 18 months, the playboy client had sent the institution 1,596 cheques for a total of US$720
million, but he never had more than $100 of his own money in his Cayman account. He would send
a cheque for US$90 million, for example, instruct the institution to leave US$30 million in his
Canadian account to cover trades and wire US$60 million to his Cayman bank account which it
did. Fortunately, a diligent compliance officer uncovered the scheme when the bank was on the
hook for only US- $5 million (usually the bank's exposure was US$20 million).
The bank retained Irish-based international asset-recovery firm Interclaim to help recover its
money. Interclaim engaged a former CIA agent who went to the Caymans posing as an investor.
Over many drinks, the investigator, who was wired, got the man to boast about his cheque-kiting
scheme. The evidence was used to obtain a Mareva Injunction and Anton Piller Order (see
"Following orders," on this page) in New York and Florida (where the client had assets) and in the
Caymans. Consequently, the client flew to Canada and repaid the institution. "Because the
institution had the courage to spend the resources, we were able to get full recovery within 120
days," says Martin S. Kenney, a Canadian-born lawyer who founded Interclaim in 1997.
Odds for recovery
When fraudsters hide misappropriated assets (such as funds, physical goods, and securities), it can
be very difficult to locate and retrieve them especially in an electronic age when funds can be
moved around the world in a matter of seconds but not impossible. And it is rarely a
straightforward or inexpensive process (finding $100,000 can be just as costly as finding $10
million). Although some cases are easily resolved, an international asset tracing and recovery
assignment is among the most challenging for a forensic accountant. In many such engagements,
success requires the additional skills of legal counsel.
Victims do not always choose to take action. Many feel that the odds are against a successful
recovery. Why throw good money after bad, they argue? And there is merit to that. According to a
2001 PricewaterhouseCoopers Fraud Survey, only one in five victims recovered more than 50% of
lost assets. Ernst & Young's 2000 Fraud Survey discovered that victims of a substantial fraud had
recovered only 29% of funds within a year. But the prospects of recovery are not necessarily bleak.
If fraud victims are aware of the many investigative options and legal remedies that can assist them,
the potential for recovery can be much higher. In short, a successful recovery effort requires
investigative and legal cunning as well as an innovative strategy and, occasionally, some luck.
Time is a critical factor. In almost any investigation where losses are sustained, quick consideration
should be given to recovery. The element of surprise and prompt action in asset recovery should not
be underestimated. The plethora of asset protection mechanisms and the ease with which funds can
be moved can confound and add frustration to even the most diligent recovery effort.

Any investigation should remain confidential as long as possible. Only those who need to know
should be informed. If the target becomes aware an investigation is being conducted, assets may be
moved out of the jurisdiction to impede the victim's recovery efforts for months or years.
In most cases, recovery efforts are conducted on a prejudgment basis. However, if the creditor has a
judgment in hand, this can be a major factor in determining an appropriate strategy to identify and
secure assets. Freezing available assets before the fraudster knows what is happening is a priority.
Not only are the assets preserved, but the fraudster's ability to mount a lengthy defence is thwarted.
Post judgment, debtors know they are under review. While they can be examined as to the existence
and location of their assets, sufficient time may have passed for them to organize their affairs to
give the impression they are impecunious.
Following orders
There are several legal mechanisms that can help in asset recovery work.
Application for and use of these orders require the expertise of experienced legal counsel, as
missteps in the applications for or use of such orders can result in penalties against the plaintiff.
Mareva Injunction restrains a defendant from disposing of assets before there has been an
opportunity to adjudicate the plaintiff's claim.
Anton Piller Order provides the plaintiff with supervised access to otherwise private premises to
inspect or remove items, typically documents and other evidence over which the plaintiff asserts a
proprietary claim.
Norwich Pharmacia & Bankers Trust Orders, named after two famous cases, can give plaintiffs the
right to secretly obtain information, such as a fraudster's banking records, that normally would not
be available to investigators.
Know your adversary
Initially, a key task is to profile the suspected fraudster. A significant amount of valuable
information may be generated from the investigation of the fraud itself. Among the questions to
consider:
Where is the fraudster likely to be?
If missing, does the fraudster have personal or business connections in other domestic or foreign
locations?
How sophisticated is the fraudster?
Is there evidence to suggest that the stolen funds are more likely to be here or overseas?
Does the person's particular lifestyle (a gambling habit, for example) offer any clues as to where he
or she might disperse or hide assets?
Are there individuals who worked with/ know the fraudster who could provide information on a
confidential basis?
Are there any easy asset "hits" that can be recovered to fund a broader, more ambitious
investigation?
If assets are offshore and a judgment can be obtained in one jurisdiction, can it be enforced easily
where the assets are located?
How will a criminal proceeding influence the fraudster and the outcome?
It is critical to understand the personality and character of the fraudster. Often, successful recovery
work involves applying pressure to which the fraudster is susceptible. For example, the limited
involvement in the fraud of other members of the fraudster's family can be exploited if they are sued
as part of the initial recovery effort.

At the same time, the nature of the alleged fraud must be determined, as legal proceedings to
recover assets will require compelling evidence of the underlying fraud and losses suffered by the
victim.
Concealment methods
Any forensic accountant on the trail of the ill-gotten gains should be familiar with techniques
fraudsters use to conceal assets. Some of the more straightforward ones include:
laundering money through local and international banks;
transfers to corporations, family members or other individuals under their control or influence;
transfers to discretionary trusts where the beneficiaries include the fraudster's children or other
family members and the trustee is influenced by the fraudster;
payments into insurance policies;
mortgage paydowns on assets held by other family members;
purchase of cashiers or travelers' cheques to redeposit in other locales;
safety deposit boxes.
In more sophisticated cases, assets may be concealed in tax havens and jurisdictions with secrecy
laws and relatively sophisticated banking systems. These often include very small but rapidly
developing countries or principalities Nauru anyone? Some have legal mechanisms or
deficiencies that are to the fraudster's advantage. Devices such as walking trusts (which can be
immediately moved to other juridictions in response to investigative inquiries) can be a major
impediment to recovery.
Discovering where funds or assets may have been secreted requires use of the investigative
mentality. Put yourself in the shoes of the fraudster: based on what is known, where could you hide
the assets? The following may be indicators of assets in offshore locations:
transfers or receipts of funds to/from offshore accounts;
consultations with offshore counsel or tax advisers;
conversion of funds into nontraceable forms that are easily exchanged (for instance, gems);
unusual patterns of travel by the fraudster to known tax havens;
purchase of unusual securities or large volumes of travelers' cheques.
It is comforting to know that Canada and the US are among the most creditor-friendly jurisdictions.
Asset-related information is more readibly retrievable and available in North America than in any
place in the world. As both Canada and the US are technologically advanced societies and open
cultures, an unparalleled amount of information on individuals and businesses is available from
government records and electronic databases.
A vast amount of information is online, if you know where to look and how to interpret the data.
Available information (depending on the jurisdiction) includes judgments, liens and bankruptcy
filings; property records; business registrations (cross-referenced in various ways); oil and gas
partnerships; motor vehicle and driver licence registrations; regulatory proceedings and filings;
thoroughbred horse ownership; lists of all former addresses; property tax rolls; information relating
to divorce proceedings; and details of boat or plane ownership.
However, asset searching of this kind usually reveals only the tip of the iceberg and more
sophisticated methods must be used to give the victim confidence that all possible assets held by or
under the control of the fraudster have been identified.
As well as searching public records and databases, methods can be employed to develop
intelligence for focusing the recovery effort. Interviews with friendly and unfriendly parties can be

very useful. A former spouse, for example, may provide valuable information about the suspect's
personal and business dealings.
One ultimate strategy can sometimes break the case: a direct discussion with the suspect, if he or
she is available.The objective is to obtain valuable clues as to the use and location of the
misappropriated funds. Also, the results from investigations conducted prior to the meeting can
provide significant leverage, if used properly.
In today's world, the reality is that an experienced fraudster has many methods to conceal
misappropriated assets and keep one step ahead of his or her victims. In many cases, even a
relatively straightforward asset concealment strategy can prevent or, at the very least, significantly
delay recovery efforts.
At the same time, however, the tracing and locating of defalcated assets has become an increasingly
sophisticated business. Developments in technology and communications have given victims and
their investigators considerably more information to work with than used to be the case, even 10
years ago.
While there can be no guarantees that victims will regain their assets, there have been some
spectacular successes in notorious asset recovery cases. The key to success lies in the ingenuity and
experience of the investigator and the determination and persistence of the creditor.

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