International asset tracing and multi-jurisdictional vistas

Philosophically, asset tracing and esoterism have precious little in common. The former is a relatively straightforward concept. The demonstrative verb, tracing, implies a finding, re-discovery upon a search, and tracking, of a proactive nature. As deployed in this context, the inference is one of a criminal, deceptive, fraudulent, infernal or suspicious nature or a hybrid thereof. What, after all, is the point of tracing an asset with a legitimate provenance even if tucked away in a spacecraft on the moon? Pointless!

Another school of thought is that which accords with ideologically pure libertarianism, emphasising minimalist state intervention and maximising individual rights. The premise therein, is that it is no one’s business where a person situates his assets so long as no law is broken. However, the lacuna in the libertarian contention is that because society has, and continues to, evolve, so do laws, regulations and global cooperation.

Plus, the rule of law is, and intended to be, binding on all. Therefore, corruption, cybercrime, corporate espionage; fraud, global and local terrorism, and terrorist financing; kleptocracy; misappropriation of taxpayers’ and shareholders’ funds by pernicious officials, business owners and individuals; to the detriment of some of the most deprived communities, investors and poorest people in the world; or a hybrid thereof; are commanding reasons for the generic adoption of effective asset tracing policies around the world.

The logic is incontestable: to identify criminal and/or suspicious assets, and/or the subject of litigation, the owners thereof, secure prosecutions and convictions; and return those assets to the rightful countries /owners. The mechanics of asset-tracing often entail diligently identifying financial assets, property or valuables via painstaking analysis, intelligence and research. For instance, it could be for national security reasons and enhancing public safety, by disrupting terrorist activities or acts preparatory to terrorism.

It may also extend to combating money laundering, intelligence gathering; pre-litigation evidence gathering and preservation; fraud prevention and detection; combating tax irregularities, apprehending criminals and mandatory financial legal proceedings. It can also be used to assess the configuration of the subject’s asset profile, the extent to which the assets can set off debts and liabilities; whether a subject’s lifestyle is objectively compatible with his legitimate earnings and, therefore, a more thorough apprehension of the subject’s activities and associates.

By its very nature, asset tracing is complex on multiple levels. For one, the target, which may be a natural or corporeal person, seeks to conceal his or its activities so as not to trigger any suspicion by investigative authorities. Two, the authorities must undertake their investigations discreetly and diligently to ensure they gather evidence which is admissible before a court of law, without arousing the target’s suspicions. Three, the latter must be undertaken in a manner which does not compromise national security and public safety nor bring investigation and prosecution authorities into disrepute; whilst upholding the rule of law. Four, assets and targets move frequently across jurisdictions with often conflicting legal systems. That factor alone often imperils investigations. In a hypothetical country A, where target, B; was domiciled and had the assets being investigated; the assets of which have been moved to country C. Justifiably, scenarios like these invoke the necessity for international cooperation in asset tracing cases to prevent and combat criminality and safeguard global financial stability.

The following examples, engaging multiple jurisdictions, and the U.S. Department of Justice (DoJ), emphasise the point. On September 3, 2014, the DoJ announced that it had seized approximately USD 500,000 in assets traceable to corruption proceeds accumulated by Chun Doo Hwan, the former dictator/president of South Korea. The seizure was yet another portion of over USD 1.2 million corruption proceeds traced to Hwan.

On October 30, 2019, the DoJ announced a settlement of its civil forfeiture cases acquired against Low Taek Jho (Jho Low) a businessman and his family; to recover over USD700 million in assets allegedly misappropriated from the Malaysian Sovereign Wealth Fund, 1Malaysia Development Berhad (1MDB); and laundered via financial institutions in multiple jurisdictions notably Luxembourg, Singapore, Switzerland and the USA. At the time, that quantum represented the largest recovery ever concluded by the Justice Department’s Kleptocracy Asset Recovery Initiative (KARI).

Little wonder, the former U.S. Assistant Attorney-General (Criminal Division), Brian A. Benczkowski, remarked that: “this settlement agreement forces Low and his family to relinquish hundreds of millions of dollars in ill-gotten gains that were intended for the benefit of the Malaysian people, and it sends a signal that the United States will not be used as a safe haven for the proceeds of crime.”

Furthermore, the American government on Tuesday, August 23, 2022, announced that it was returning over USD23 million taken by Nigeria’s former military leader, Sani Abacha. Mary Beth Leonard, the U.S. Ambassador to Nigeria, confirmed that the cash was in UK accounts but was traced and frozen by U.S. officials. She stated that in addition to the latest announcements, the USA had concurred to repatriate over USD 334.7 million to Nigeria traced to the former dictator with specific instructions on its mode of disbursement.
Clearly therefore, asset tracing cannot be pigeonholed within a unipolar definition. Rather, the pragmatic characterisation adopted for this purpose is that articulated by Columbia Law School’s Centre for the Advancement of Public Integrity in the 2016 paper – A Primer on “Following the Money” for Integrity Practitioners and Policymakers; as the process by which investigators “follow the money.” The inference is that investigators trace assets by conducting financial investigations, during which they determine a subject’s assets, examine the revenue generated by criminal activity, and follow its trail. Asset tracing also encompasses civil disputes for instance debt recovery, divorce proceedings, insolvency etc.

Given its perplexity, asset tracing exceeds the investigative and prosecutorial capacity of anyone organisation in any single province. This reality invokes the justification for interoperability across divergent legal systems, international cooperation, intelligence gathering and sharing, collaborative partnerships with law enforcement, counter-insurgency, financial institutions, public authorities in a manner which does not breach the rule of law. Achieving such a fine balancing act, even in the most economically developed G7 Ccountries: Canada, France, Germany, Italy, Japan, UK and the USA, is a tough call.

A common, yet significant, challenge often encountered in asset tracing is that of the conflict of laws. For instance, a subject of interest, S, domiciled in country X; is sought by Ccountry Y over allegedly fraudulent corporate multi-million-dollar insider dealings at the latter. S, in turn, claims to be a victim of political persecution by a new administration. X and Y do not have extradition treaties. Should the absence of an extradition treaty between both countries, automatically vitiate criminal investigations against S? What precedent might that set for a rules-based global order? Does that scenario not highlight a green light for bad actors and infringe the necessity for international financial stability and combating crime in all its ramifications?

The answers lie, in part, on global cooperation, relative harmonisation of legal systems, and intentionality by nation states to tackle criminality, and the opprobrium of stolen assets, which impoverish poorer nation states and yields unintended consequences – often of a problematic nature. Positioning this contextually, if there were genuinely functioning democracies, with visionary leaders (not kleptocrats who’ve spirited their nation’s resources offshore, which in turn invokes the asset tracing necessity!); transformational economic growth, the crystallization of the rule of law, in swathes of sub-Saharan Africa, Latin-America and eastern Europe; what is the likely propensity of adults and children, risking their lives in dinghies on the dangerous Florida straits, the Mediterranean or the English Channel almost daily to desperately enter the USA, Europe or UK?!

And this is where the harmonisation of legal systems chimes. The extant locus classicus here is the United Nations Convention Against Corruption (UNCAC). Because it is the only legally binding universal anti-corruption framework, its far reaching and mandatory model enhances its appeal as a key instrument in framing a robust response to an international problem. It was adopted by the UN General Assembly on October 31, 2003 pursuant to Resolution 58/4, and entered into force 14 December 2005 via article 68 (1).

As of December 2021, the Convention had 189 contracting parties (nation states). By virtue of Article 1 (a), (b) and (c), the Convention aims to: promote and strengthen measures to prevent and combat corruption more effectively and efficiently; facilitate international cooperation in the prevention of and the fight against corruption; and asset recovery; and seeks to advance integrity, accountability and proper management of public affairs and public property.
In the USA, the Sarbannes Oxley Act 2002, a U.S. federal law defines and mandates specific financial reporting and record keeping protocols on all public company corporations and, private companies in certain instances; with a view to safeguarding shareholders’ funds and the integrity of the financial system, whilst imposing stiff penalties for wilful destruction of asset-tracing and related evidence. Likewise, the Uniform Fraudulent Transfer Act (UFTA) 1984, as amended, aims to prevent debtors from putting assets beyond the reach of creditors and allows creditors to trace, and retrieve, the asset fraudulently transferred from third parties. Under the UFTA, when transfers are made without fair consideration that render the debtor insolvent or undercapitalised, they are considered constructively fraudulent and can be unbundled.

There are a variety of cross-cutting statutes in Nigeria impinging on asset-tracing, financial crimes, corruption and criminality. These include, inter alia: the 1999 Constitution (as amended); Corrupt Practices & Related Offences Act 2000; Criminal Code Act 2004; Economic and Financial Crimes Commission Act 2004; Money Laundering (Prevention and Prohibition) Act 2022. The latter at Section (1) aims to: (a) provide for an effective and comprehensive legal and institutional framework for the prevention, prohibition, detection, prosecution and punishment of money laundering and other related offences in Nigeria; (b) strengthen the existing system for combating money laundering and related offences; (c) make adequate provisions to prohibit money laundering; (d) expand the scope of money laundering offences and provide appropriate penalties; and (e) establish the Special Control Unit Against Money Laundering under the Economic and Financial Crimes Commission for effective implementation of the money laundering provisions of the Act in relation to the designated non-financial businesses and professions.

Relevant UK statutory frameworks and policy guidelines in this context include the; Terrorism Act 2000; Proceeds of Crime Act 2002 (POCA); Fraud Act 2006; Bribery Act 2010; Criminal Finances Act 2017 (CFA); the Money Laundering Regulations 2017 and Unexplained Wealth Orders (UWOs). Created pursuant to sections (1) and (2) of the CFA, UWOs are regulated by sections (362A) through (362T) of Part 8 of POCA. Essentially, UWOs are unique orders granted by British courts, which compel the subject of an asset tracing, or other investigation, widely defined, to explain the provenance of his unexplained wealth. A successful explanation results in non-forfeiture of an asset whilst an unsuccessful rationale renders the asset liable to forfeiture to the government.

Closing, to a greater or lesser degree, the above Statutes reinforce the aims of UNCAC, whilst seeking to prevent and/or combat criminality, including, but not limited to, corruption, high misdemeanours, kleptocracy; maladministration, money laundering, terrorist financing et al – all of which trigger asset-tracing. Is the international asset tracing regime perfect? No! Nothing is! However, with closer and deeper cross-boundary cooperation with, organisations like Interpol, U.S. Department of Justice, the Financial Action Task Force and others, legitimate international asset tracing can be sustained to impede and combat money laundering and terrorist financing and related crimes. Patently, that implies the will to do so especially in those nations with weak institutions.

Ojumu is Principal Partner at Balliol Myers LP, a firm of legal practitioners in Lagos, Nigeria.