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The Triple-whammy Approach To Offshore Asset Searches, Recovery And Managing Frozen Assets In Light Of Recent Sanctions: Investigation, Forensic Accounting And Insolvency

Posted: 25th May 2022 14:15

By Angela Barkhouse & Jamie Roberts

Recent global political events have put a renewed spotlight on offshore and cross-border held assets. The Russian invasion of Ukraine, and the subsequent raft of international sanctions, have re-highlighted matters pertaining to offshore transparency. While it’s difficult to put a value to assets held offshore, it has been suggested that $1 trillion of such assets are owned by Russians.  This demonstrates the potential scale of offshore assets held more widely by wealthy individuals and entities across the globe. 
 
The practice of holding assets via offshore vehicles is not an exclusive tool engaged by the wealthy, or indeed the sanctioned. A ‘typical’ example of an offshore asset ownership structure is whereby individuals, corporations or trust vehicles incorporate an entity in an offshore jurisdiction. The purpose and function of this offshore incorporated entity could be to acquire property assets, or to make and hold investments. The respective assets are held in the name of the offshore incorporated entity, therefore creating a veil between the ultimate beneficial owner and the asset. The physical property/assets may be located anywhere in the world. This, in itself, is not an illegitimate practice. It is a means of asset ownership that is available to anyone. It has typically attracted privacy-seekers or those seeking to benefit from offshore tax arrangements. 
 
Controlling parties of vehicles held offshore are not typically exposed via publicly accessible registers. This affords parties a high degree of privacy. It is this factor that makes offshore ownership subject to abuse by privacy-seeking parties with illicit intentions, including tax evasion, fraud, corruption, money laundering and terrorist financing. Thus there is a multitude of reasons to investigate and identify who or what is behind the company. The level of privacy achieved by owning assets through offshore structures can make it difficult to investigate these activities and identify both facets of i) where assets are held, and ii) the offshore entities controlled by such individuals. 
 
In the current global context, sanctions compliance is just one reason financial institutions need to identify ownership and control. Further examples range from parties seeking to enforce judgment debts, or those investigating and exploring the potential reward in pursuing particular litigation strategies for victims of fraud or other wrongdoing, as well as the recovery of assets fraudulently squirrelled away by rogue actors at a corporate entity or nation-state level.
 
Yet, it is not impossible for assets held offshore to be investigated, exposed and recovered. This begs the question of what can be done when investigating whether an asset is controlled or owned by a particular person or entity. 
 
Forensic accountants and investigators identify leads into offshore ownership structures and connected parties from both a combined top-down and bottom-up investigation approaches. This typically starts from identifying as much information as possible about the target subject who is believed to be in possession or control of offshore wealth. In some cases, investigations into sources of wealth and profiling of international corporate and personal interests are warranted.
 
Targeted investigations will seek to identify jurisdictional footprints attended by the target subject (or close connected parties, such as relatives or known business partners). This can be achieved through the deployment of geolocation tools and entity mapping to identify travel history, business interests and jurisdictional footprints. Further, more aggressive searches into identifying banking relationships will also yield insights into where the liquid assets of the target subject(s) may be held.

It’s then possible to leverage this intelligence to reverse engineer property and corporate ownership registries for leads into underlying physical assets held in the names of established known entities. This step is what has allowed investigative journalists to publicly expose and report on London/UK properties owned or controlled by sanctioned parties. This has been achieved despite such properties being owned predominantly in the name of BVI-registered or other types of offshore vehicles.
 
It is worth noting that the work performed by investigative journalists can also be incredibly helpful in generating leads and identifying assets. Searches of leaked information databases and transparency platforms can also further elaborate and elicit useful pieces of intelligence.
 
Much of the steps described are supported by the investigator’s plethora of curated business and open source intelligence tools. This helps not only obtain insights from a multitude of sources but also allows for the accurate maintenance of intelligence. The aggregated intelligence may then be used to inform and perform targeted source enquiries, and even conduct further work in locating movable assets such as private planes or yachts.
 
A nuance of conducting such investigations offshore is that some of these steps will most likely preclude various interim injunctions which may be sought, such as disclosure orders. This contrasts somewhat slightly with asset searches in lesser ‘private’ jurisdictions. In particular, jurisdictions with higher levels of transparency around property and asset ownership may allow for the value of recovery being sought to be more easily and readily identified, mitigating potentially costly steps towards obtaining disclosure. Offshore investigations do not typically have such an advantage, and also tend to give rise to a higher likelihood of identifying assets and business footprints in multiple jurisdictions that span the globe.
 
Forensic accountants and investigators are best placed to support ongoing litigation with qualifications in financial analysis and tracing, equipped with the tools to match. These teams develop tracing leads and provide financial analysis generated from obtained evidence. As new information comes to light at various stages of the litigation process, this can be cross-referenced against existing intelligence by investigation professionals in real-time, who have continuous regard for matters that may give rise to litigation and asset recovery advantages, especially in time-sensitive scenarios (this may include anything from potentially identifying previously unknown assets and additional intelligence that may be leveraged in court, or at the settlement negotiation table). These same tools can be applied in a sanctions environment.
 
A further compounding strategy for effective offshore asset recovery is the use of insolvency professionals who, through court applications, may be appointed over entities to protect the interests of creditors or victims of fraud. This allows the insolvency professional to investigate asset dissipation, pursue further investigations or wind up the entity. Insolvency can be a particularly useful tool as the insolvency practitioner stands in the shoes of the company and is then able to compel third parties including registered agents, banks and professional service providers to provide information to them, identifying interests and individuals previously unknown. Any assets identified and recovered can then be distributed by the liquidator under court sanction.
 
Whilst insolvency is not a word normally connected to sanctioned entities, it can play a significant role in cases of seized, frozen or sanctioned assets. By seeking court-appointed receiverships, the preservation and administration of assets (such as marine, aviation and real estate assets) to be protected by the independent receiver. A Receiver will prevent distributions from being made to sanctioned individuals that own such assets or companies, but ensure that assets are properly administered and dividends or other financial proceeds are paid over to escrow accounts while asset restrictions are in place, thus protecting innocent parties who have found themselves entangled in a sanctions nightmare and exposed to potential sanctions risk. This also grants such parties the prospect of offsetting risks associated with sanctions exposure.
 
Conclusion
Careful selection of qualified professionals when pursuing offshore litigation or managing frozen assets is a critical factor in any asset recovery or seizure exercise. Combined skillset firms will assist in providing the proper level of support required to navigate the offshore-asset world, whether this is for asset searches, source of wealth investigations, recovery exercises, seizures, business intelligence gathering or due diligence. The renewed focus on assets held offshore, particularly those held or controlled by sanctioned parties, gives further rise to a focus on the combined strengths of forensic accountants, investigators and insolvency professionals who are poised to support institutions seeking maximum value recovery or to de-risk. These parties can provide a “cradle to grave” solution, in achieving positive outcomes in multiple stages of investigation, litigation and sanctions risk.
 
Quantuma is an independent business advisory firm delivering stakeholders, corporations and their representatives solutions through times of success and distress. The authors are based in Quantuma’s Cayman Island office and work closely with clients and colleagues across the globe. Angela Barkhouse leads Quantuma’s Cross‑Border Asset Recovery group providing project management and litigation support to locate and repatriate the proceeds of fraud and corruption hidden in foreign jurisdictions. Jamie Roberts is a lead Forensic Accountant and Investigator in Quantuma’s Cayman Islands office, supporting global clients seeking to maximise litigation value recovery, obtain business intelligence insights and receive forensic accounting and financial technical analysis.
 
 
Contact Details:
Angela Barkhouse
Mobile: +1 (345) 326 1790
Email: angela.barkhouse@quantuma.com
 
Jamie Roberts
Mobile: +1 (345) 525 2371
Email: jamie.roberts@quanutma.com
 

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