Thrill of the trace
18 July 2011
4 October 2013
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7 May 2013
21 January 2013
12 July 2013
It’s important to get experts on board when it comes to tracking down and retrieving offshore assets
Asset tracing is a hot topic at the moment, and where there are assets to trace, there are typically offshore jurisdictions to navigate. One area that has received a lot of interest recently is the disclosure of certain documents or information, known as Norwich Pharmacal relief.
This form of relief can be a powerful and accessible tool for claimants. However, it is only of use if applied in such a way that there is a realistic prospect of acquiring helpful information. Otherwise it should be obvious that it will do little to help with the identification and retrieval of assets.
The issue of the applicability of Norwich Pharmacal relief against a company’s registered agent has recently arisen in the British Virgin Islands (BVI). Quite apart from the legal issues involved in the case there is the practical consideration of whether a registered agent is likely to hold useful information in his possession.
Assuming there is something to hide, and in the context of an asset tracing investigation there generally is, it is hard to imagine why anyone would hand over more information than they have to. The BVI Business Companies Act requires very few documents to be held by the company’s registered agent, and it therefore follows that the agent will commonly have very little.
The agent is required to hold the company’s memorandum and articles, its registers of directors and shareholders, copies of notices and any other documents the company has filed in the previous 10 years. It is not required to hold accounting, banking or any other financial records, and therefore the agent commonly does not.
In addition, the directors and shareholders listed in the registers are often nominees, as opposed to the company’s principals or beneficial owners. These may be corporations themselves, perhaps based in other parts of the world. They are therefore unlikely to be the controlling minds behind the company and will ordinarily act on the instructions of a middleman.
Contrary to popular belief, registered agents often do not hold due diligence on the company’s ultimate beneficial owner. There is a provision in anti-money laundering legislation that permits agents in certain circumstances to rely on the introducer of the business to have done the due diligence and hold that information themselves, and this is widely utilised.
Furthermore, in the event that you do eventually locate the due diligence information, whether from the registered agent or the introducer, it will commonly be with reference to a front man or a middleman, as opposed to the ’main man’ who would normally be the person of interest.
In any event, the chances are that what you really want to know is where the money has gone and although the act requires a company to keep records that show and explain its transactions and financial position, these do not have to be held by its agent.
So amid all this obfuscation is it to be concluded that disclosure orders have no bite? The answer is a resounding no, so long as they are used intelligently.
For example, disclosure orders were used with considerable success in Grupo Torras SA v Al Sabah (1999) following the first Gulf War. It was alleged that Sheikh Fahad, along with 21 other persons and corporations, conspired to defraud Grupo Torras by a series of transactions that appeared genuine, but in fact were not. Disclosure orders proved valuable in uncovering information that enabled the investigators to follow the money trail.
Furthermore, orders are currently being used in the Brazil v Citibank case in the Jersey courts, where connections are alleged with a prominent figure in Brazil who is the subject of criminal investigations concerning allegations of corruption, embezzlement of public funds and money laundering.
It is also highly likely that orders of this kind will be made - if they have not been already - in relation to regimes toppled in the Arab Spring uprisings.
These cases and others like them demonstrate the need for lawyers to work alongside those with experience in offshore jurisdictions to establish the most likely location of valuable information and subsequently to secure and analyse it.
The limited requirements placed on offshore companies and the ease with which due diligence can be offloaded makes the tracing and retrieval of assets a substantial task, often one that is beyond the remit and capabilities of those tasked with asset recovery. However, if professionals with first-hand experience of the practical difficulties inherent in these investigations are on board from the outset, the likelihood of a successful outcome is greatly increased.
Ian Thompson is managing director of the forensic and litigation consulting practice of FTI Consulting