Asset tracing and recovery in the Asia-Pacific region

March 2019  |  FEATURE  |  FRAUD & CORRUPTION

Financier Worldwide Magazine

March 2019 Issue

Globalisation has had transformative effect on criminal activity. Today, criminals that go to great lengths to conceal the location and source of their misappropriated assets are able to exploit all markets. Logistically, it has become very difficult to identify and recover assets that have been spread across multiple jurisdictions, and the Asia-Pacific region is no exception.

The demand for asset tracing and recovery has been influenced by a number of factors, according to Simon Bai, a partner at Grandall Law Firm. The growth of e-commerce, the integration of domestic and international markets for trade, and the emergence of telecommunication and online payment technology are some of the most prominent drivers. E-commerce in particular is booming in Asia-Pacific, and, unfortunately, one in five consumers in the region fall victim to fraud, according to Experian.

While most governments in Asia-Pacific are actively working to stamp it out, fraud and corruption persist. Whether this is based on pre-existing cultural norms, the development of the local economy or myriad other factors, it is an unfortunate reality of operating in Asia-Pacific. These factors can make asset recovery in the region a challenge, particularly in China where many struggling state-owned and private companies are being wound-up or are going bankrupt as the economy slows down. Worsening economic conditions can be a fertile environment for fraud and corruption. In recent years, demands for insolvency-related asset tracing and recovery services have risen.

When tracing asset in the region there are a number of issues to consider. “First of all, what is the value of the assets involved?” asks Mr Bai. “It is only if the potential benefits exceed the cost that asset tracing may be worthwhile. Second, is the opposing party still solvent and operational? In many cases, it is difficult to recover assets if the fraudulent party is bankrupt or closed down. Third, if solvent, how much will it cost and how long will it take to initiate a legal proceeding and enforcement afterward? In the meantime, it is advisable to investigate whether there are and how many other creditors exist. When seeking civil legal remedies by initiating civil litigation or arbitration in China, the victims of fraud may apply to the competent Chinese court for preservation of the perpetrator’s assets. Generally, Chinese courts will require claimants to provide security for an asset preservation application.”

According to Wendy Lin, a partner at WongPartnership LLP, parties should consider the likelihood of them requiring court assistance to obtain further information, for example bank account information from banks, if the defendant refuses to comply with a disclosure order made against him, and if so, the chances and speed of them getting such assistance in the relevant jurisdictions. “In my experience, asset tracing can be done quite accurately if one is able to obtain the relevant information,” she says. “Thus, if parties are able to obtain such information, whether with the assistance of the relevant courts or otherwise, and with relative speed, I would recommend that they go ahead to do so, particularly if the quantum involved justifies the costs of the investigators and lawyers.”

In India, a preliminary understanding of whether there are any assets located in the country should be another important consideration, notes Anirudh Krishnan, a partner at AK Law Chambers.  “The Ministry of Corporate Affairs will have the details of the assets owned by a company. If it is an individual whose assets are sought to be traced, the sub-registrar’s office will contain the records of the assets of the person. It is only after making this preliminary assessment that parties should seek the services of an asset tracing firm.”

Asset tracing also becomes much more challenging when it relates to cross-border fraud or corruption. In such instances, stolen or misappropriated money is often transferred or hidden very quickly, making it difficult to track. Without seeking the assistance of the police or law enforcement agencies, individual victims will find it virtually impossible to trace such movement. Regardless, asset tracing in India may be a time-consuming exercise, and thus parties will find it difficult to adhere to the strict timelines mentioned in local legislation, such as the Prevention of Money Laundering Act, 2002, the Insolvency and Bankruptcy Code, 2016 and the Fugitive Economic Offenders Act, 2018.

Cooperation in asset tracing and recovery is key. The 2013 formation of the Asset Recovery Interagency Network Asia Pacific was a step in the right direction. The network, which consists of experts in the field of asset tracing, freezing and confiscation, allows practioners across the region to come together to share case examples and regional experiences in developing an effective asset recovery system, as well as a strategy for the effective recovery of criminal assets. It is through this form of cross-regional cooperation that tracing will become easier and recovery – likely at the end of a lengthy, expensive and litigious process – achievable.

© Financier Worldwide

BY

Richard Summerfield