Navigating Recoveries of World-Wide Frauds
Written by: Rick Rein
Schwartz Cooper Chartered; Chicago
The wrongdoer has absconded with millions of dollars. Bad news – your defendant is out of the country, you don’t know where or whether there are assets. In today’s global business environment, this situation is becoming increasingly common. As a result, you must learn how to assess the likelihood of recovery from foreign defendants or foreign assets and either (1) implement strategies to recover these assets or (2) explain to the client why a particular cause of action, however tantalizing, is really illusory and should be left alone. The tangled state of international jurisprudence makes this a challenge that can, however, be overcome.
Recovery Focus
A fraudster’s goal is to create hurdles to locating assets and to convince the victim not to spend good money after bad. In understanding this goal, a recovery strategy must:
· Not rush to file suit or obtain judgment. Claims are flexible. Judgments may restrict your recovery efforts because in foreign jurisdictions they may be more strictly construed and inhibit one from expanding the recovery effort.
· Not solely focus on tracing assets. The assets of those complicit in the fraud should also be tracked. You are not limited to only recover fraudulently procured assets.
· Focus on evidence gathering. The key to recovery is through supportable, verifiable evidence.
· Not depend on the cooperation of the fraudster. The goals of fraudsters are delay and deception. Never expect full and complete honesty.
· Seek to locate, freeze and seize assets. Once assets are frozen, the cooperation of defendants is certainly more easily procured.
An effective strategy must be cost effective, access the likelihood of recovery and complement a strategy to realize on assets. To successfully achieve recovery, you need to:
· Identify the jurisdictions involved.
· Identify the targets of recovery.
· Determine what evidence gathering is needed.
· Determine where asset recovery could occur.
· Determine how different country laws interact in order to decide where litigation should be instituted.
Planning, patience, and persistence are essential components of any international fraud recovery effort. As the United States Supreme Court has recognized, cases involving international defendants require “[g]reat care.” Asahi Metal Indus. Co., Ltd. v. Superior Court of California, Solano County, 480 U.S. 102, 115 (1987) (quoting United States v. First Nat’l City Bank, 379 U.S. 378, 404 (1965) (Harlan, J., dissenting)).
Determine Collectibility
When confronted with a fraud, it is the conventional approach to litigation that a claimant move as quickly as possible to obtain a judgment. In many cases, this may be a satisfactory approach, especially where collectibility is not an issue. However, where collectibility is questionable, then more often than not, pursuing litigation without determining the likelihood of collecting is a recipe for disaster.
The critical issues are who can be held responsible, what is the nature of the claims to be pursued, who in the pool of liability has assets and where do you sue. In other words -- who has money, should be sued, and on what basis? To determine collectibility, information is needed. If the assets are in the United States, your job will be easier; if they’re abroad, your work will be cut out for you. If you can’t be reasonably certain that assets exist in a place where you can find them, you may wish to save your time and money.
Gather Evidence of Assets
However, you may want to consider pre-action discovery vehicles. In the United States and in English common law countries (where the fraudsters commonly operate), there are actions that can be commenced to gather information to identify the wrongdoers. If you can locate assets, then your plan must include a way to freeze and seize those assets before judgment. Seizure is the best way to achieve recovery from the fraudsters. It holds their feet to the fire; it forces them to cooperate with you, where they would not otherwise do so.
Determine Jurisdiction in Which to Sue
You must determine whether you’ll be able to enforce a United States judgment in a foreign country, or whether you’d be more successful with a lawsuit in the foreign country to both establish liability and recover damages. This question is critical because at this time no mechanism exists for making civil U.S. judgments effective across international borders. As of this writing, “there is no bilateral treaty or multilateral international convention in force between the United States and any other country on reciprocal recognition and enforcement of judgments.” United States Department of State, Bureau of Consular Affairs, Enforcement of Judgments, (visited Mar. 14, 2006) <http://travel.state.gov/law/info/judicial/ judical_691.html>. Nor is this position likely to change. As a result, whether a U.S. judgment is recognized and enforced in a foreign country depends on that country’s internal laws and procedures.
International fraud cases must be approached with a systematized and calculated focus toward recovering the loss. With this focus, you bring together all the key elements for a successful recovery. By not rushing to a judgment in the jurisdiction where it is not going to have any effect, but is easy and convenient to do so, you do not spend money that could otherwise be used for the recovery effort, nor do you lose time in developing the facts and legal underpinnings for the recovery.
Recovery Goal
By advancing information gathering plans that are not dependent on the fraudster group, such as using compulsory pre-action proceedings in places where the information (often confidential banking information) is held, you focus on gathering evidence that is accurate and verified, and not scripted or corrupted by the fraudster group.
With the information that you obtain, you have a clear and accurate idea who has facilitated the fraud and may be liable, and where the verified assets are located or where they have been sent. These circumstances make for a meaningful recovery strategy.