Financial advisors do a lot to protect their clients from being fleeced. But clients don't always tell advisors about every move they make. Where can an advisor turn if a client is victimized by the latest Madoff wannabe or an embezzling family office CFO who squirrels away the money in an offshore secrecy jurisdiction?
Welcome to the exclusive realm of international asset recovery, where hot-shot lawyers and investigators race to track down and recover crime proceeds before the funds vanish, perhaps permanently. Victims need specialized assistance because modern criminals use the speed of the Internet, bank secrecy laws and the victim's inexperience or inability to act quickly to their advantage. Moreover, certain funds allow investors ways to cash in on these asset recovery effforts.
"Today's frauds happen in the blink of an eye," says Joe Wielebinski, a partner in Dallas-based law firm Munsch Hardt Kopf & Harr, who represents victims of financial fraud, embezzlement and other white-collar crimes. "A fraudster can move money to Switzerland or Lichtenstein this afternoon and from there, he can move it to Cyprus or the Cook Islands tomorrow morning." Other favorite offshore havens for hiding stolen assets include the Channel Islands, the Caribbean, Costa Rica, Mauritius, Panama and Hong Kong.
Stolen funds follow what Wielebinski calls "a flight to quality." Remote jurisdictions with a strong rule of law and a stable banking system can appeal to some crooks who want to avoid being fleeced by thieves even more wily than themselves. Wielebinski says he worked on one case where a thief made the mistake of investing some of the stolen proceeds in a company run by another criminal. "It was unfortunate for the victims because we had to go and chase yet another fraudster. It was proof positive of the old adage that there's no honor among thieves."
Catch Me If You Can
Besides helping victims of fraud committed by Ponzi schemers and embezzlers, asset recovery experts also work with individuals who've experienced asset dispersal events such as divorce, inheritance or other family and business legal disputes where parties go to great lengths to hide asset ownership, shelter assets from creditors and minimize value.
Working in specialized teams, asset recovery professionals frequently conduct their investigations and obtain documentary evidence in secret to avoid alerting criminals that they are being pursued. Attorneys can often obtain pre-judgment asset freezes to prevent crooks from transferring funds out of reach of the courts before a final civil judgment is issued. In certain jurisdictions, attorneys can contact banks to put them on notice that they are holding ill-gotten gains and may be liable for improperly releasing the funds. They can also work with law enforcement agencies to slow down or stop the transfer of assets.
Other team members typically include forensic accountants and fraud examiners who piece together complicated transfers of money and other assets. Computer analysts help recover deleted files that may provide clues about a fraudster's contacts and whereabouts. Private investigators trail flimflammers, dig through their garbage and in some cases befriend them or their family members in an effort to ascertain where assets are hidden.
The cost of a multi-jurisdictional investigation could easily exceed $1 million. In some very complicated, cross-border cases the cost can be $5 million to $10 million to trace assets and execute a recovery plan. It can also take years for asset recovery teams to comb the globe in search of stolen assets cached in bank accounts, asset protection trusts and sham corporations, not to mention the proceeds from converting liquid assets to gold, jewels, art, mansions, yachts and private jets for the fraudsters.
Once an advisor realizes a client has been scammed, quick action is essential. "Gather up the documents and get help as promptly as possible because the fraudsters know that any delay is to their advantage. People tend to forget and documents tend to disappear," says Wielebinski.
Wielebinski also serves as executive director of FraudNet, a global network of lawyers who assist individuals, businesses and governments bitten by financial crime and corruption. The International Chamber of Commerce created FraudNet in 2004 to combat the increasing number of sophisticated frauds. FraudNet's 61 members in 54 jurisdictions are experts in unraveling complex transactions and recovering assets conveyed across international borders.
Without expert assistance, a client's chances of recouping pilfered funds are dismal. According to the 2012 Global Fraud Study by the Association of Certified Fraud Examiners (ACFE), half of all organizations that are victims of fraud do not recover any of the losses they incur. The lucky ones that do reclaim their money may not get back all that was taken.
And victims can't necessarily rely on government agencies. "Their resources are limited," says Wielebinski. Moreover, the priority for law enforcement agencies is to catch the perpetrator so he or she cannot commit additional crimes. For asset recovery experts, the top priority is finding and recovering client money. Wielebinski says he and his colleagues have good relationships with foreign law enforcement agencies and often share information with them, but his focus is on making his clients whole, or as whole as possible under the circumstances.
The Art Of The Steal
Baltimore-based private equity veteran Jim Little, who runs a fund that raises money to underwrite the cost of finding, seizing and recovering stolen assets, says that about 40% of the institutions and wealthy people he's talked to have lost money to fraud. "Sophisticated investors get hit too. They're chasing alpha and that comes with risk. They invest based on trust," he says.
The ACFE's 2012 study estimated that the average organization loses 5% of its revenues per year to fraud. Advisors who serve business owners and family offices might want to encourage their clients to conduct periodic fraud audits.
To avoid fraudsters, advisors may want to suggest that clients do more business with women. The ACFE says men account for about two-thirds of all fraud cases. The association also reports a strong correlation between a crook's level of authority and the significance of the losses. Owners and executives are responsible for losses about three times greater than managers. Managers cause losses about three times higher than employees. The longer a fraudster works for an organization, the larger the losses tend to be.
About 54% of all perpetrators are between the ages of 31 and 45. However, the magnitude of the loss rises with the age of the fraudster. Those over 60 are responsible for the highest losses.
The ACFE's findings comport with other studies indicating that male executives over 60, with graduate degrees (especially in accounting and finance), have a distinct advantage when it comes to committing and concealing large-scale financial crimes. Wielebinski says he's "amazed at how bright some of the fraudsters are. They have to not only understand how business, banking, finance and accounting work, they [also] have to lead a double life where they remember all the things they've done illegally and keep track of it all. They or their accomplices can be quite intelligent."