Legal Era recently published an article by Michael Harrington and Ian Casewell discussing money laundering, litigation funding and what happens when major debtors crash. The article is included below, and you can view the piece in Legal Era here.
Today, it’s possible to raise capital from investors to fund litigation just as you would to expand or acquire a company which removes a formidable barrier to filing asset recovery litigation.
Where in the world is Raj? He’s that handsome, charming man who just a few months ago was revered as India’s latest and greatest genius billionaire. Now he’s gone missing and bankers are desperate to find him. They extended Raj massive amounts of credit based on his companies’ profits and sky-high valuation. Those numbers, however, weren’t real, and with the added stress of the pandemic, the whole business empire just collapsed.
Raj is fictional, but as anyone who’s watched the Netflix series Bad Boy Billionaires: India can tell you, the scenario is quite real. India’s economic boom spawned many charismatic entrepreneurs and promoters, flaunting their unimaginable riches.
There are often red flags that bankers and executives overlook in their zeal to close a deal. For example, Raj had frequently travelled by private jet to London and Dubai, common locales for fraudsters to park their wealth, and was fond of opaque corporate structures and related-party transfers. He entertained lavishly at his spectacular homes in India and abroad, sometimes bringing along financiers and journalists to party with him overseas.
When a major debtor like Raj crashes, lawyers and investigators go to work. We are among those investigators, heading the London and Mumbai offices of the Mintz Group, a global firm providing asset-tracing and other investigation services.
The otherwise disastrous year of 2020 began with good news for creditors: India announced in January last year that it added the United Arab Emirates as a “reciprocating territory.” This change makes it easier to enforce judgments across borders—previously a nearly impossible task. Other reciprocating territories include the United Kingdom, Hong Kong, Singapore, Malaysia, New Zealand, Trinidad & Tobago, Fiji, Papua New Guinea and Bangladesh.
Global cooperation is a game-changer for creditors tracing assets in India and the other reciprocating countries. As Covid has spread with a vengeance, we have found that new deals are down, litigation is up and asset recovery is through the roof—in India and the world over.
Meanwhile, third-party litigation funding is becoming more prevalent, offering another innovative means for asset recovery. Funders are also forming Asset Recovery Consortiums with investigators, lawyers, forensic accountants and other professionals that can serve as a one-stop shop for aggrieved creditors.
Given all these developments, we think it is a good time to share our thoughts on recovering assets.
Investigate Before You Sue
When it comes to litigation, the focus needs to be on recoverability of money, not just the merits of your case. Litigation is both costly and uncertain, especially in multi-jurisdictional cases, and winning is no guarantee of collecting a single penny. Investigation, therefore, is crucial before deciding where and against which entities to litigate. Locating assets, and proving their ownership, is key.
During litigation, you need investigators to gather evidence to support the claim. It’s equally important to keep an eagle eye on assets during lengthy court cases; otherwise malefactors will inevitably dissipate those assets.
Finally, once you have prevailed in court, you need “boots on the ground” to seize assets, whether they’re bank deposits, commodities, property, yachts or aircraft.
Knowing Your Adversary is Key
Litigation is akin to a game of chess with the beginning, middle and end game. Indians invented the early forms of chess around the 6th Century CE, so the analogy is apt. Both chess and litigation require strategic thinking and maneuvering to outwit your opponent.
Our investigative teams will understand the adversary’s past behavior, such as corporate structures, jurisdictions of choice, banking and advisory relationships. The wealthy and powerful trust a small circle of family, friends and advisors. In bad times, some of those formerly close people become estranged, and may prove useful witnesses and sources.
The middle game encompasses learning where your adversary has travelled for business and on holiday, their ongoing commercial ventures and upcoming milestone events.
The end game means predicting your opponent’s response to litigation and pre-empting their attempts to move assets or to flee. It also includes a strategy for circumventing the creditor queue to recover assets before they are completely depleted.
Flaunting the Wealth Is Likely to Leave a Trail
The leisure trappings of wealth reveal themselves in property, art, vehicles, jewelry and other lavish lifestyle expenditures. London, New York and Dubai are particularly popular playgrounds for Indian wealth, and the Mintz Group has significant experience tracing assets in these locations.
Our investigators map corporate structures and jurisdiction footprints, and identify asset classes such as fixed assets, machinery, cash, shareholdings, transportation fleets, commodities and trade receivables.
Mauritius is Suspicious
In May 2020, the European Commission listed Mauritius as a “high risk third country with strategic deficiencies in its Anti Money-Laundering and Counter Financing Terrorism (AML/CFT/) regime.” In 2015, the EU placed the island among 30 tax blacklist nations, and the 2018 Financial Secrecy Index gave it a 72.3 score out of 100 for allowing questionable tax maneuvers.
The New Role of Litigation Funding
Today it’s possible to raise capital from investors to fund litigation, just as one would to expand or acquire a company. This removes a formidable barrier to initiating asset recovery litigation. Potential investors, however, will require a detailed explanation of the case as well as one’s strategy for recovering against the judgment. Having the right investigative resources on the team is essential.
We find that asset tracing efforts gain momentum around the world each year as creditors find new paths to recovery. As we look forward to vaccines, gatherings and in-person court appearances, Raj might want to try to remain socially distant.