• Martin Kenney took part in an online debate on corruption and international arbitration
• Debate took part on the OGEMID listserv, dedicated to arbitration matters
• See more OGEMID seminars here

OGEMID Symposium on Corruption in/on International Arbitration – Asset Recovery Component

1. Introduction

1. • For the last 33 of my 40 years of legal professional practice, I have acted as a lawyer for creditors and victims of fraud or corruption in order to attempt to marshal out recoveries of value to their account. 

1. • The following elements ordinarily characterise the cases that I have worked on:

• High value and complexity
• Facts and legal issues crossing multiple national frontiers; and
• Sophisticated methods of taking, laundering and concealing substantial sums of value.

1. • My work frequently involves the representation of arbitration award creditors or the holders of final money judgments based on an underlying arbitral award. 

2. Opening observations on the subject of corruption in/on international arbitration proceedings 

1. 1. The learned contributors to other elements of this online symposium have provided a series of insightful comments concerning the subject of corruption ‘on/in’ cross-border arbitral proceedings:

• • Many of the contributions have concentrated, quite understandably, on the jurisdictional, practical and legal limitations on arbitral tribunals to ferret out, investigate or act upon incidents of suspected corruption. Most usually, suspected corruption or fraud is to be found by means of a critical examination of the underlying facts in dispute between the parties to a dispute.  Some of the contributors have considered whether an arbitral tribunal has a legal or perhaps ethical obligation to refer acts of suspected corruption by one of the parties to a set of arbitral proceedings to law enforcement.

• • Some contributors have also directed their submissions on the vexing issue of suspected corruption from within an arbitral tribunal itself.

• • Unlike an investigating criminal magistrate within a civil law jurisdiction like France – arbitral tribunals do not have independent powers of investigation with which to gather facts and evidence either in support of, or which are exculpatory in respect of, allegations of corruption – whether within or without a tribunal.

2. 2. As an asset recovery lawyer, I have many years of experience in investigating suspected acts of bribery, corruption, dishonest breach of the fiduciary duty of loyalty, serious fraud and other forms of iniquity.

2. 3. From my perspective, there are three primary risks that attend the just resolution of any civil or private dispute – whether the tribunal be judicial or arbitral in nature:

1. • 1. • ‘L’ – for the risks associated with the question of liability. In each instance, a tribunal (whether judicial or arbitral) is invited by a claimant to consider its allegations that a respondent is liable to pay damages or to provide some other form of remedy to answer for an actionable wrong. In what are arguably the majority of disputes, most of the energy and resources of the parties and of the adjudicative tribunal are directed to resolving the question of whether a respondent is liable under applicable law to a claimant and must remediate their wrong.

1. • 1. • ‘Q’ – for the risks that attend quantifying loss. In many disputes, the primary or secondary question involves issues of causation, proximity and the measure of the loss suffered by a claimant at the hands of a defendant found liable for a wrong.

1. • 1. • ‘C’ – for the collection risk.  In cases involving fraud or corruption of a serious nature perpetrated by a defendant on a claimant – the collection risk can be the most confounding one. If a party is willing to commit acts of dishonesty to either procure or retain value that it has not honestly come by or should not retain – as night follows day the proceeds of such unworthy activity will be laundered and concealed in heavily fortified, vertically-stacked legal structures in multiple jurisdictions when substantial sums of value are involved. An aggrieved claimant before an arbitral tribunal who faces an underlying factual matrix involving dishonesty on the part of the respondent will almost inevitably be faced with an extreme form of collection risk. Millions of dollars may be spent on a cross-border arbitration proceeding in costs by a claimant leading to a final award. In the claimant’s search for justice, they may then face a daunting gauntlet to traverse to realise value sufficient to satisfy their award. Management of this area of risk – ‘C’ for collection – is the work of asset recovery professionals.

2. 4. The balance of this note is devoted to setting out some of the primary methods used in the current day to manage the risk of ‘C’ – collection – where arbitral award creditors face the risk that they may, at the end of the day, receive no value and therefore no justice.

3.0       What are the most important tools in the tool chest of an asset recovery team when seeking to enforce an international arbitral award?

3.1       Preamble. My comments on this subject do not attempt to address the legal issues that are peculiar to the recognition and enforcement of foreign arbitral awards under the New York Convention; the Washington Convention for ICSID awards; and the like. Moreover, my comments do not address the highly complex issues of sovereign immunity as to liability; or execution, immunity against non-commercial activity assets of a sovereign arbitral award debtor. Those issues would require their own symposium to identify and reveal potential solutions for, coherently. 

2. 2. Introduction.  I now will concentrate on the over-arching strategy and tactical tools used by asset recovery professionals in the current day when seeking to recover substantial value in order to satisfy an, inter alia, final international arbitral award against a recalcitrant or dishonest award debtor who poses an asset flight risk or otherwise will likely seek to evade an award.

2. 3. The fable of the tortoise seeking to catch the hare.  Asset recovery professionals are slow and lumbering. We are akin to a tortoise – who is tasked with the unenviable mission of:

1. • 1. • Discovering the location and manner of holding of concealed assets; and
        • To do so under circumstances where the hare (a recalcitrant award debtor) will take evasive action at the earliest sign of an asset recovery team undertaking its work.

2. 4. Strategically, it is not possible for the tortoise to catch the hare (or the hare’s illicitly concealed pools of value) unless the tortoise’s work is done under the protection of utmost secrecy. I will revert back to this over-arching strategic requirement below.

2. 5. Where to start?  An asset recovery team is best composed on the basis of a multi-disciplinary and multi-jurisdictional model. Comparative pre-emptive remedy lawyers; forensic accountants and former law enforcement detectives or investigators are typically weaved together into a composite team in all relevant jurisdictions to undertake a complex asset recovery mission successfully.

2. 6. Experienced leadership of such a team is of crucial moment. 

2. 7. Many complex asset recovery cases reach a successful result by reason of a careful and forensic examination of all information relevant to an award debtor held by the award creditor and its team. If a case involves an underlying dishonest act in the taking of value from the award creditor as well as in respect of its onward concealment; we must start from the point of origin of the wrong – or where and how value was wrongfully taken or retained. This will allow the team to commence a ‘following’ exercise – or to trace the movement of value from the point of the scene of a fraud or wrong into an asset laundering and concealment matrix. This is called a forward trace.

2. 8. In his 2013 book styled ‘Rethinking Money Laundering & Financing of Terrorism in International Law – Towards a New Global Legal Order’ (Martinus Nijhoff Publishers), Dr Roberto Durrieu of Argentina posits the theory that money laundering investigations should concentrate at the point of ultimate destination of illicit value – or at the point of either the consumption or the expression of dominion or control over the same.

2. 9. Dr Durrieu’s thesis is that it is highly laborious, overly expensive and oftentimes impossible to develop and prove a pure trace – or to connect value from the point of it being taken illicitly to the point of its ultimate destination. Monies can be transferred through banks in Belarus; Mongolia; or Beijing making it a great challenge to obtain disclosure of bank records in jurisdictions of that kind to develop the Holy Grail of asset recovery – a pure trace.

2. 10. I advocate the use of dual-directional tracing – to follow money in a forward direction from the point of taking and, concurrently, in reverse from the point of destination or consumption of the fructus sceleris (or the fruits of fraud).

2. 11. OSINT.  At the beginning of each asset tracing and recovery case, an asset recovery team should undertake an open-source intelligence (“OSINT”) data gathering and analytic piece of work. There are specialist firms which produce OSINT reports based on deep-web data scraping technology together with sophisticated AI search algorithms to ferret out data relevant to a delinquent debtor or obligor; and all companies or persons related to a debtor that can be identified as possible asset holding vehicles or nominees. The typical cost of such a product ranges between $5,000 and $10,000 per subject.

2. 12. GreyList Trace.  This is a firm in the UK that was established by a number of computer scientists and mathematicians to assist asset recovery teams. They have developed an algorithm that lawfully permits a search to be undertaken on the internet to detect whether the subject of an asset recovery inquiry has been in email contact with one or more of the approximately 220,000 bank branches in the world. Essentially, this firm takes the known email addresses of a subject and sends electronic probes to all of the 220,000 (+-) bank branches in the world to their customer service servers – to discern whether the email addresses of a subject have been ‘white-listed’ by the spam filters  of a bank’s customer service email server (meaning that they are recognised as being that of a person permitted to gain entry into a bank’s email server). Within approximately four weeks and at a cost of £2,500, a report is generated showing all bank branches in the world that a subject’s email address has been in contact with. This modern electronic investigative product does not solve a complex asset recovery case; but it does help to accelerate an investigation.

2. 13. Intermediary bank discovery (“IBD”).  Nearly all foreign or domestic US dollar wire transfers are settled (or netted out) in New York among 13 money centre banks and The Clearing House Payments Company LLC (“CHIPS”).   When seeking to enforce a foreign arbitral award, an award creditor can ordinarily seek recognition of their award in a New York court. Once recognised, an award becomes a New York State or Federal money judgment. As such, discovery of information which may lead to assets of a debtor may be undertaken on foot of such a judgment (including intermediary bank discovery (“IBD”)).            IBD involves serving a subpoena on each of the approximately 13 money centre banks in New York and CHIPS compelling the disclosure of what are typically Excel spreadsheets loaded with US dollar electronic funds transfer data showing all US dollar wire transfers settled amongst these banks or CHIPS over a specified period of time (upwards of 10 or more years). Such payment data shows (a) the name of the sender of a wire, (b) the bank account number of the sender, (c) the name and address of the sender’s bank, (d)  the sender’s bank’s New York correspondent bank, (e) the  bank used by the beneficiary of a wire, (f) the name of the beneficiary and its account number at its bank, (g) the name of the New York correspondent bank for the beneficiary’s foreign or domestic bank and (h) the ostensible purpose of the wire. This information can hyper- accelerate the pace and accuracy of a global asset recovery effort. Bank accounts of offshore or onshore companies linked to an award debtor are revealed in jurisdictions as far flung as Singapore, Dubai, Switzerland, Brazil – virtually anywhere. When dealing with award debtors that trade in US dollars, IBD is an imperative tool to uncover substantial concealed assets as well as corporate or other holding structures. It can take approximately 4 months to obtain the USD EFT data relevant to a debtor; analyse it and begin to act upon it. 

2. 14. Norwich Pharmacal / Bankers Trust document disclosure orders wrapped in seals and gags. In England & Wales as well as most of the British Commonwealth, there exists an exception to the common law mere witness rule styled, in the 18^th century, as an equitable bill of discovery. In Norwich Pharmacal v HM Customs and Excise [1974] AC 133, Lord Reid of the English House of Lords ‘rediscovered’ the equitable bill of discovery. Although at common law a mere witness has no obligation to come to the assistance of a wronged party; at equity an innocent facilitator of a wrong does. Thus, for example, a company formation agent forming a company in the service of a fraudster comes under a duty at equity under this principle to lend assistance to the victim of the fraud by disclosing full information concerning the formation of the company; its ownership; or its directorships. Equally, a bank, when receiving value illicitly obtained through a fraud comes under a similar obligation to ‘unlatch the banker’s door’ and to allow the victim to see what happened to its funds. This latter principle can be discerned from Lord Denning’s judgment in Bankers Trust v Shapira [1980] 1 WLR 1274. Today, Norwich Pharmacal / Bankers Trust disclosure orders are used, in many asset recovery cases, and on multiple occasions, to trace; define the manner of holding; and to objectively document the whereabouts of   value wrongfully concealed either from an award creditor or the victim of some other form of iniquity.

2. 15. In keeping with the over-arching strategy of conducting asset recovery investigations under the protection of utmost secrecy; Norwich Pharmacal / Bankers’ Trust (“NP/BT”) disclosure orders can be made covert by seeking ex parte ancillary secrecy orders consisting of:

1. • • An order sealing the court’s file such that members of the public will be unable to inspect the record of an NP/BT application for disclosure; 
     • An order of anonymisation directing the court’s registry to identify the case on its cause list as, for example, A v C;
     • A gagging injunction enjoining a third-party NP/BT disclosure respondent (such as a bank; accounting firm; law firm; or company formation agent or trust company) from tipping off their underlying customer – or from disclosing any information concerning the disclosure proceedings or the fact of the respondent’s compliance with a disclosure order; and
     • An order directing that all hearings concerning the disclosure proceedings be held in camera (or secretly).

2. 16. Of all of the tools available to an asset recovery team, this package of secrecy relief can have a profoundly positive effect on any attempt at recovering value to meet an obligation presented by, for instance, an international arbitration award. These secrecy orders allow a tortoise to catch a hare’s concealed assets. 

2. 17. In one high value international arbitral award enforcement matter, my firm obtained an NP/BT disclosure order protected by ancillary secrecy relief from the High Court of the British Virgin Islands in order to prove a theory that a British Virgin Islands corporate structure was ultimately beneficially owned by the award debtor. This application was successful. It also led to follow-on secret NP/BT disclosure order applications in the high courts of Singapore, Hong Kong, the Isle of Man and Jersey. Thousands of confidential asset and company ownership records were obtained under the protection of utmost secrecy sanctioned by multiple courts, accordingly. This allowed the award creditor to pre-emptively freeze substantial value in multiple jurisdictions on the same day – leading to a significant recovery.

2. 18. The discovery of concealed assets in civil law jurisdictions.  Commencing in 2010, and working with Brazilian insolvency counsel, our team exported the concept of judicial secrecy cloaking asset discovery orders before the Bankruptcy Court in Sao Paulo, Brazil. Today, there are a number of appellate authorities in Brazil which have sanctioned the use of judicial secrecy as a measure to meaningfully discover, freeze and recover concealed assets in favour of creditors.

2. 19. In Switzerland, we frequently file local criminal money laundering complaints when we have developed a reasonable basis to allege that assets representing the proceeds of a fraud or of a wrongful attempt to fraudulently evade an obligation – can result in the victim of an iniquity to obtain standing in local criminal proceedings; access to bank records of Swiss financial institutions, asset freezing relief and restitution.

2. 20. Search orders.  Under the principles articulated in the English Court of Appeal judgment of Anton Piller K.G. v. Manufacturing Processes Ltd., [1976] Ch. 55 (C.A.), a claimant may apply for an order requiring a defendant to permit a search to be carried out in its office or residential premises in search for documents relevant to a dispute which are subject to a risk of destruction or concealment.  Frequently, asset recovery lawyers use this private search jurisdiction as an instrument in aid of the discovery of concealed assets (or documents leading to the same). It is a pre-emptive remedy available in England & Wales and most of the British Commonwealth. Lord Justice Jeffery Donaldson once referred to it as the ‘nuclear bomb’ of civil justice.

2. 21. Pre-emptive freezing orders/ the Mareva injunction. Under the judgment of the English Court of Appeal in Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213, English courts developed a pre-emptive remedy to secretly freeze assets of a defendant or debtor – whether pre-action, pending a proceeding or post judgment – and where:

a) The claimant can show a good arguable case on the merits of its claim. Once a final arbitral award or judgment has been obtained, this requisite element will have been met; and 

b) The presence of a demonstrated asset flight risk on the part of the award debtor or defendant.

2. 22. The Mareva Injunction is no longer called that in England – it is now simply referred to as a freezing order. Today in many common law jurisdictions there is a statutory basis to obtain a satellite freezing order in aid of civil proceedings abroad. Moreover, many domestic Arbitration Acts contain provisions conferring a power on local courts to provide a satellite freezing order in aid of a foreign arbitral claim where the requisite elements of a freezing injunction can be met. 

2. 23. Ancillary civil liability damages claims against deep pocketed defendants. Traditional asset recovery involves dual directional forward and reverse tracing of assets of an award debtor or other obligor for the purpose of freezing and recovering the same. Non-traditional asset recovery is embodied in identifying and suing third party facilitators of wrongdoing including banks; accounting firms; law firms; or trust companies which may cross a line of accountability sounded in negligence; recklessness; knowing assistance in the breach of a fiduciary duty; aiding and abetting the breach of a fiduciary duty; or civil conspiracy.  When tracing concealed value around the globe, an asset recovery team will identify third party facilitators who are ripe for suit and to be held accountable in damages to an award creditor or other wronged party.

4.0       Conclusion.

4.1       The purpose of this note is to provide the reader with some insight into the modern-day approach to complex asset recovery – with a view to providing economic justice to a wide spectrum of claimants, creditors, victims and the like. Many international arbitration awards are held by award creditors who are confounded by complex corporate or trust asset protection models used to conceal and protect value in order to evade the rights of a creditor. 

4.2       The strategies and tactics identified above represent but a part of the arsenal of remedies available to asset recovery professionals today. Hopefully, this note will provide the reader with some insight into this growing and dynamic field. Thirty years ago, there was no such thing as an ‘asset recovery lawyer’. That has changed substantially since.

7 February 2024 / Martin Kenney

Martin Kenney is Founder and Head of Firm at Martin Kenney & Co (MKS)