Introduction
An investigation into fraud, bribery or corruption is without a doubt complex and burdensome. It is all too easy for companies to get distracted by the investigative outcome, rather than considering where the money went or how to recover associated losses. Yet, in our experience, planning asset recovery sooner rather than later gives companies a better chance of minimising and reclaiming financial losses. In doing so, companies should consider the legal mechanisms available to them and the strategic objectives they wish to achieve in the short mid and long term before initiating an asset recovery plan.
Initial decision-making
The decision to engage in any form of financial recovery should not be taken lightly. Good legal advice is essential for companies throughout the recovery process. We always advise our clients to consult closely with their lawyers before making such decisions. Recent cases on which we have worked have shown how effective use of both legal and investigative resources can maximise the chances of an effective outcome and provide guidance on the potential implications for the company throughout the process. Companies can often commence their asset recovery strategy as soon as they have engaged with legal teams. In our experience, this can further expedite the recovery process. For example, a company that has been subject to fraud may not realise the value of gathering information from sources within its organisation to obtain potential intelligence connected to the offender’s assets. A recent case proved this approach can be useful in initial asset recovery planning. The company was able to identify not only UK assets held by the main offender, but also those in other jurisdictions, solely through its company network.
In addition, companies can make good use of their investigative resources by undertaking public records research to begin to either establish or verify assets held by the perpetrator(s). These assets can then be compared with the quantified loss as a result of the fraud. Furthermore, investigators can conduct analysis of any corporate assets to establish the financial standing of that particular asset. These elements can help to inform the company of the best approach to its overall asset recovery strategy, and can also support the legal team in prioritising freezing injunctions.
Civil vs. criminal proceedings
UK-based companies have an obligation to report acts of bribery to law enforcement in line with guidance under the UK Bribery Act 2010. Such reports can result in proceedings by law enforcement or regulatory bodies. Where a fraud has occurred within an organisation, companies are not obliged to report offences to the police. However, many do because company directors often see a criminal prosecution as the desired outcome.
Nonetheless, although criminal proceedings come at no cost to the victim, they are typically less predictable in terms of outcome. Meanwhile, compensation orders (for victims) can only be granted post-conviction, which may not always be sought by prosecutors[1]. The compensation granted is also subject to the court’s considerations as to the outcome of any civil proceedings, whether a sentence of imprisonment has been handed down, and the funds available to the defendant.[2] This process can be frustrating and risky for a company waiting to retrieve its financial losses if pursuing criminal prosecution alone. Meanwhile, a criminal prosecution also relies on meeting the criminal burden of proof. Prosecutors may amend the charges to encourage defendants to enter guilty pleas, thereby avoiding a lengthy and costly trial. This in turn may affect the value of compensation awarded.
In most cases, companies will opt for civil proceedings instead of or in parallel with criminal proceedings if recovering losses is a high priority. However, although quicker, this comes at a price, and is a costly avenue for companies to pursue. Nevertheless, the company will have more control over civil proceedings, which focus more on compensation for damages[3]. Neither system takes precedence over the other, except in cases where the perpetrator(s) may face risk of prejudice from either or both proceedings.[4]
Once civil proceedings are under way, the disclosure process may assist in identifying further assets owned by the perpetrator(s). Disclosed financial documentation can also be used as the basis for an asset trace, again working with investigators, where money illegally facilitated or stolen by the perpetrator can be tracked to their assets. This may be a more suitable strategy for a company wanting to know exactly where its money has ended up. This can be especially useful when dealing with cases of long-term fraud or where multiple perpetrators have been involved.
Understanding the differences in legal proceedings is a key consideration for victim companies when deciding on the legal avenues available. We have observed this in recent investigations where assets have been disposed of in the time it took for our clients to make this decision which in turn impacted the retrieval of losses they had suffered.
Conclusion
There are substantial advantages in pursuing civil proceedings either instead of or in conjunction with criminal proceedings if asset recovery is a desired outcome for the company. Through a better understanding of the legal impact on objectives after the fraud, companies can maintain better control of the situation and are more likely to be successful in achieving effective asset recovery. It is key for companies to be aware of the legal mechanisms and investigative preparations to inform their asset recovery strategy early on, while working harmoniously with their civil legal teams, investigators and, if applicable, law enforcement during the process itself.
[2] Section 130 – 134, Powers of Criminal Courts (Sentencing) Act 2000
[3] ‘The criminal and civil justice systems in England and Wales’, (Fraud Advisory Panel, 2015)
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