In the first of four posts on asset recovery in fraud claims, Arun Chauhan and Elizabeth Rhodes look at the early stage considerations of asset tracing.
When we receive that first contact with or introduction to a potential client who considers that they have been a victim of fraud, whether it is an individual or a corporate entity, there are a number of important matters that need to be considered at the pre-action stage of a case. The client will often be focused on the loss and the events leading up to it, and will not necessarily give any immediate thoughts to how that loss can be recovered, and from where. However, it is important at the outset to not only look at the nature of the complaint, but also to identify who can be pursued and, critically, whether they are worth pursuing financially. To that end, asset tracing is a fundamental consideration at the beginning of a fraud claim, not just at the enforcement stage.
Piercing the corporate veil
Put simply, asset tracing is the identification and recovery of funds or other property misappropriated through crime. However, the purpose of asset tracing is wider than that, as it includes identifying assets owned directly or indirectly by the potential defendants, whether derived from the alleged fraud or otherwise.
Where a company that has caused the loss either has no substantial assets or is insolvent, as often seems to be the case in certain fraud claims such as investment fraud claims, it is important to consider the client’s causes of action and explore whether they have any direct claims against individuals. In addition, pursuing individuals creates greater personal pressure on a defendant than pursuit of their company. In fraud claims, it is possible to pierce the corporate veil in order to target directors that managed a company that caused loss. Therefore, you should consider who can your client pursue and what are they worth.
Legal vs beneficial ownership
It is also important to establish whether such individuals are connected to any assets and what type of ownership they have – legal or beneficial. An individual perpetrator will often conceal their assets of crime by arranging for a third party to hold them, for example via a trust or as a nominee. Are there any assets in the name of a third party where evidence exists to infer that the perpetrator beneficially owns them? As the challenge of proving beneficial ownership, freezing such assets and enforcing against them is more time consuming and costly and adds a further layer of evidence that needs to be produced to the court, such factors can adversely affect the recoverability of assets and whether, in fact, it is financially worth the victim commencing a civil fraud claim. If, for example, your client is looking to fund their case through third party litigation funding, funders will be particularly interested in the recoverability of assets, as this will determine their likely return on investment and the timescale for such recovery.
International assets
Another factor that should be considered is the difference between domestic and international assets. Globalisation and modern communication has made it easier for individual perpetrators to transfer their illicit proceeds around the world, making it that much more difficult for victims to trace and recover their stolen funds and assets. This topic is outside of the scope of this first post, but will be considered in more detail in other posts in this series.
Sources of information
Where do you start with asset tracing, then? The process of tracing and identifying assets involves obtaining information on their ownership and location, which can be done using a variety of methods. One way is to access public registers or databases, sometimes referred to as open source data.
In the UK, we have a number of useful public domains that can be used to trace assets. These are a good starting point and the information obtained from such sites often steers the path you then follow to trace other assets. The following public databases are a non-exhaustive list of sources that could be checked:
Land Registry: You can search for information on the ownership of property on the Land Registry website. Even if you do not know the address of the property in question, you can request a search of the index of proprietors’ names (IOPN), which includes the names of companies and trusts and identifies any properties owned by them. In respect of an individual, the ability to search the IOPN is limited. A non-party disclosure order from a court is usually required for this purpose. Such orders will be discussed in subsequent posts.
Companies House: If you know that the individual perpetrator is a director/shareholder of a company, you can request a company search from Companies House, which may reveal the individual’s residential address and the financial position of the company, including any dividends that may have been paid out. In this way, it is possible to identify a target defendant as being linked to companies that may be repositories for their assets, which could be a target for enforcement.
Social media sites: Individuals (rightly or wrongly) put a lot of information about themselves on social media sites such as Facebook, Twitter and LinkedIn. Such sites can give a good indication of an individual’s lifestyle and family connections and may provide information in respect of other assets that could be traced. Conversations via social media platforms can also help to identify useful information.
Critically, remember that potentially one of the most important sources of information may be the client, who may not even realise the relevance of information they hold about assets. For example, they may recollect the perpetrator mentioning a holiday home, the cars that they drive or information about their family.
Our following posts on this topic will focus on the challenges of asset tracing, particularly data security/protection, the difficulties with identifying international assets and the use of enquiry agents. We will also look at identifying assets through the court, and will include a post on tracing and proprietary claims and the practical challenges that these types of remedies often generate.
