Our Intelligence & Investigations (I&I) Associate Phoebe Waters has previously provided insight into why asset tracing is like a Treasure Hunt, a game in which players search for hidden items of value by following a trail of sequential clues.
But if X marks the spot for the treasure, then we need to have an unshakable understanding of the other letters involved. In this short piece, the first in a series of articles shining light on the topic, our specialist investigator picks some of the key, basic definitions that an asset tracer should be all too familiar with.
So: An Asset Tracer’s Alphabet. Now, I am not talking about the fact that so many of us investigators battled with the Russian alphabet from scratch in the first week of university (slightly soothed by student union drink prices), or the continuous need to recruit graduate analysts who so impressively converse in an exotic plethora of languages. I am talking about a list of basic terms and doctrines that an investigator needs to fluently interact with in order to add value to a) their cases and b) their clients.
In exploring these key definitions, I also want to provide clarity on the processes, timings and complexities of asset tracing – not only for investigators. It is essential for lawyers, for example, to understand our capabilities because we can help assess, pre-litigation, the cost/benefit of proceeding against a bad actor. If litigation is already underway, investigators can still provide priceless intelligence to ensure the client achieves a commercially favourable outcome. Investigation results, comprising proof of assets and valuations, plus information that could pressurise the subject, may be enough to force settlement.
What follows is not an alphabet as you know it. After all, an asset tracer needs to be resilient in being thrown off course and following unusual patterns. I’ll be skimming across the alphabet, extracting the letters which begin our most fundamental terms in order to begin demystifying asset tracing. In true alphabet fashion, we’ll start with A.
A traceable asset: Let’s start right at the beginning. In order to trace, we need to have something to find – an asset. But what counts as an asset? An asset is anything owned by a business or individual. From movable assets such as cars or yachts, financial assets, like stocks, shares and accounts, to real estate, art and more recently – cryptoassets. Assets that are stolen, purchased, obfuscated, dissipated, traced (and hopefully recovered) are wide-ranging. Asset traces can be long and complex but, we are experts at ascertaining how and when the money was spent, on what, and where the assets are located.
Alter ego: We’re not talking about the Marvel universe, sadly, I’ll leave writing about Chris Hemsworth for another time. In the investigations world, we are often referring to whether a Sovereign State and its instrumentalities share the same identity. Clients seeking to identify and recover assets from a State, typically to satisfy a judgment or award, can worry about the likelihood of enforceability due to a suspected web of State-Owned Enterprises (SOEs) and offshore shell companies. Proving that an entity is an alter ego of the State is not quick work and can lead to months (and years) of detangling and legal wrangling. Nevertheless, investigators can identify and clarify beneficial ownership chains, and in support of counsel, understand whether the instrumentality is an arm of the state – or its alter ego. And because it can be evidenced that the SOE is in fact the State itself, its assets therefore belong to the Sovereign. This is important because an effective way of bringing the State to the table is by targeting flagship, high profile assets. Alter ego is key to understand now more than ever, because disputes involving States are rising. As one example of this: The International Centre for Settlement of Investment Disputes recorded 58 new cases in 2020 in comparison to an average of just under 50 cases each for 2015-2019.
Convertibility: When looking for assets, we need to ask ourselves how easy it is to convert them into cold hard cash. Of course, the ease (or difficulty) of converting physical assets into liquid assets will vary by asset type and jurisdiction. It should be more straightforward to sell (or ‘convert’) an Aston Martin in London, for example, than an oil tanker seized while docked in Panama.
Enforceability: Different assets provide a range of opportunities for enforcement, and strategy is very much dependent on what we are trying to enforce against. The bar for successful enforcement for assets belonging to a State, for example, remains phenomenally high. The legal framework of some jurisdictions may make it difficult – or even impossible – to seize certain asset classes, and even if on paper we can enforce, sometimes the judiciary is unwilling to comply. In the I&I team, we work closely with counsel to support their enforcement strategy as part of their asset recovery plan.
Leverage: Asset tracing is not just about the financial value – but tactical considerations and strategic value. As asset tracers, we’re looking for pressure points of a subject that can cause them to settle, and sometimes these cannot be equated to money but can still substantially encourage and/or support in negotiations. Take a multinational conglomerate: in addition to fixed or liquid assets, this company maintains a complex array of business and political relationships across the globe. These avenues not only provide further opportunities for investigation but can offer significant potential for commercial disruption and leverage.
Nominee: A nominee is another party – someone different to the person we’re investigating. A company may be run by a nominee director so that the identity of the company is in the shadows, or a nominee shareholder so ownership is fully concealed. A fraudster may purchase goods under the name of a nominee, who may be a family or friend. Using a nominee or nominee incorporation service creates more distance between the person and the asset and can therefore make the money more challenging to follow.
OSINT: Open source intelligence – this is information available to the public, that, with the right eye, anyone can find. I am not talking about surface level Google searches, but research on the ‘deep web’ – media archives; corporate and litigation records; land registries; social media; regulatory and financial databases; import and export databases; offshore data leaks (I could go on). We use OSINT hand in hand with HUMINT. Human intelligence may be able to point you in the direction of assets that it would not otherwise have been possible to identify.
Trust: A trust is a legal arrangement or entity which holds assets. Within a trust, we have a settlor, who sets up the trust, the trustees, who are the legal owners of the trust’s assets, and the beneficiaries, who have the right to enjoy these assets. Essentially, when we come across a trust, we have a situation where someone can benefit from assets without being the legal owner of them.
Sovereign Immunity: We know by now that Sovereign States present unique challenges. Unlike other recalcitrant debtors, States are afforded immunity protections from enforcement unless specifically waived which can therefore make assets inaccessible. During proceedings, the burden falls to claimants to distinguish between acts of a sovereign or those of a purely commercial nature. This hurdle, known as the commercial purpose test, can be made less painful by the support of asset tracers. We can conduct investigations to understand a State’s available asset profile (think hotel, not embassy), interrogate offshore filings, secure intelligence relating to the commercial purpose of transactions, and review Sovereigns’ patterns of behaviour.
We’re not just a law firm. We’re a multi-disciplinary team offering a holistic solution to issues of privacy, security and reputation, utilising intelligence and investigations, critical risk, digital communications and legal expertise.
Could asset tracing be part of your solution? Take a look at our Intelligence & Investigations capabilities.