Category: News

ICC FraudNet members talk about working for victims in the world of complex fraud, asset tracing and asset recovery.

Stéphane Bonifassi

The biggest misconception people have about complex fraud is

People believe that the criminal justice system is in a position to arrest the villains and from there to give the money back to the victims. It simply doesn’t work this way. Whether fraudsters are caught or not, this is not the way victims are going to obtain redress. If victims want to obtain redress they will have to address the issue themselves with the help of lawyers and professionals who specialize in asset tracing and recovery.

The biggest misconception government officials have about complex fraud is

Often, government officials believe that states can obtain redress (should it be for tax fraud or corruption or embezzlement) with the help of States where the funds are located through mutual assistance requests.  This is not an efficient way to proceed. Victimized states have to organize a task force dedicated to recovering assets. And success stories often happen when external lawyers, receivers and forensic consultants are hired.

The greatest challenges in asset tracing and recovery in my part of the world are

In France and, generally in continental Europe, there are no efficient discovery/disclosure mechanisms. This makes our work difficult but there are ways to circumvent this issue. In addition, liquidators/receivers are a small and protected profession which doesn’t allow bankruptcy mechanisms to efficiently bring victims together to obtain redress. Finally, the judiciary is insufficiently aware of these hurdles and as such, is too protective of the privacy of potential fraudsters.

The greatest challenges worldwide are

Fraudsters take advantage of various loopholes in various jurisdictions where they hide the stolen assets. This is what makes asset recovery difficult, and this explains the importance of being able to build a team of specialized asset recovery lawyers and professionals worldwide.

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Stéphane Bonifassi, of Lebray & Associés, specializes in representing victims of fraud, and is the executive director of ICC FraudNet, an international network of independent lawyers who are leading civil asset recovery specialists in each country. He is the former president of the criminal law commission of the International Association of Lawyers (UIA) and the former chair of the business crime committee of the International Bar Association (IBA). Bonifassi regularly speaks and writes about issues including corruption, fraud, asset recovery and mutual legal assistance. He contributed to the book, Asset Tracing & Recovery: the FraudNet World Compendium, and his article The Long Arm of the Law – Obtaining Jurisdiction and Evidence in France, was published in International Legal Practitioner.

ICC FraudNet is an international network of independent lawyers who are leading civil asset recovery specialists in each country. Our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit. FraudNet has been recognized by Chambers Global as the world’s leading asset recovery legal network.

Business and financial laws with dull sounding names may not be interesting to the average hard-working citizen of any country. However, criminals looking to literally get away with $1 billion, find them fascinating. Case in point, the discovery last November that three leading banks in the former Soviet republic of Moldova, the poorest nation in Europe, had been virtually cleaned out. A large scale international fraud scam made off with $1 billion, estimated to be about 15 percent of the country’s GDP.

Based on an investigation and report by international private investigation firm Kroll, lax Limited Partnership Laws in Scotland, specifically the Limited Partnerships Act of 1907, helped make it possible for criminals to carry out the crimes, thanks to the absence of tax reporting obligation and lack of sufficient controls by the Scottish treasury. Growth of limited partnerships in Scotland has been explosive over the past five years, and law enforcement estimates that many of these are shell companies used for money laundering.

In complicated crimes like this one, other factors also play a role. Accusations of wrong- doing including money laundering have followed Moldova’s business and political leaders for years, and this recent scandal resulted in the resignation of former Prime Minister Chiril Gaburici after citizens took to the streets in May to protest the scandal following release of the Kroll report.

 

The report found that individuals and legal entities linked to Ilan Shor, a 28-year-old millionaire businessman, took control of the banks. Shor recently denied involvement in an interview with the BBC, but the report found that financial trails in several countries all lead back to Shor.

First, the ownership structure of these banks (Unibank, Banca de Economii and Banca Sociala) was modified through the integration of new shareholders. The shareholders’ companies were incorporated shortly before the purchase of the banks’ shares. These companies acquired the shares through limited partnerships in the UK and Latvia, but most significantly in Scotland.

While the spotlight may be on Scotland, laws in other countries and cities around the world, have been unwitting accomplices to fraud, as criminals took advantage of loopholes to the detriment of victims.

As executive director of  ICC FraudNet, I, along with our members regularly see the aftermath of various laws thwarted in country after country by financial criminals. ICC FraudNet is an international network of independent lawyers who are the leading civil asset recovery specialists in each country. While Scotland is in the spotlight today, it could be your country and government tomorrow.

We have also seen and participated in cases where assets were found and returned. For those who will be instructed by Moldova to recover these assets, it will be an uphill battle to obtain information and analyse it in order to be able to freeze, attach and eventually recover the assets. While some of Moldova’s assets are no doubt gone forever, some can be returned with expert help.

This will have to be done in a coordinated way with the help of lawyers, forensic accountants and investigators in various jurisdictions. FraudNet attorneys have seen the effectiveness of this coordinated global strategy in their work on high-profile cases, including the recovery for Nigeria of assets stolen by General Sani Abacha, the dictator who embezzled billions during his five year reign of terror and the recovery of assets in the case of Allen Stanford, whose investment company was the vehicle for the second largest Ponzi scheme in American history.

The government of the former Soviet Republic of Moldova is still reeling from a billion dollar bank fraud discovered last November, that cleaned out three of its banks — the equivalent of 15 percent of the country’s GDP.  Already the poorest nation in Europe, Moldova plunged into a recession, as a massive bailout rescued the banks at a cost of half the country’s annual budget.

After almost a year and a lengthy investigation, the questions remain for Moldova and its citizens, the real victims in this colossal fraud. Where is Moldova’s money, and can these assets ever be recovered?

What we’ve learned from other complicated large scale fraud cases is that while the process can be arduous, asset recovery is possible for victims. Sadly, efforts rarely  retrieve all the funds they are owed. Many victims are still waiting for payouts from complex international cases. However, when the losses are enormous, recovery of large sums of money is more than worth the effort. We also know that the best chance for success requires utilizing key strategies the bad guys use in order to help victims regain their money and some sense of control over their financial lives.

The Criminal Strategy

A report by international private investigation firm Kroll found that individuals and legal entities linked to Ilan Shor, a 28-year-old millionaire businessman, took control of the banks. Shor recently denied involvement in an interview with the BBC, but the report found that financial trails in several countries all lead back to Shor. First, the ownership structure of these banks (Unibank, Banca de Economii and Banca Sociala) was modified through the integration of new shareholders. The shareholders’ companies were incorporated shortly before the purchase of the banks’ shares. These companies acquired the shares through limited partnerships in the UK and Latvia, but most significantly in Scotland. The Shor Group was then able to place at the head of the three banks people that authorized fraudulent financial transactions such as loans for companies within the Shor Group. These funds were then transferred on to offshore entities. Shor took over as chairman of Banca de Economii in April 2014, and is also mayor of a small town in Moldova.

Recovering Moldova’s Assets

The Moldovan government, which is still attempting to find and prosecute the perpetrators, can choose between two asset recovery strategies, and time is of the essence.  It can work with enforcement authorities in jurisdictions where the assets could be traced. Experience shows that this approach is hardly effective, because it lacks the level of cross-border coordination and expertise required. While some funds may be recovered, it is always a small percentage of the losses.

Whoever was the mastermind behind this large cross-border fraud put together an international network of various companies and individuals with specific skills to implement the scheme. In order to retrieve Moldova’s assets, the government must employ a similar strategy. Not only logical, this strategy has also proven to be effective. In the relatively small number of success stories, a team approach has worked.

A case of this magnitude and international reach requires an international network of professionals (respected lawyers in the field, accountants and asset tracing and recovery specialists), experts primed to work together and with law enforcement to track and retrieve stolen assets.

Lawyers who understand asset recovery and have experience in complex cases know how to foster effective collaboration with enforcement authorities in the countries involved.

Instituting the proper legal protocols can ensure efficient gathering and use of the information needed to recover the assets or to make claims against entities or individuals who have taken part in the fraud. Accountants and asset tracing specialists work with attorneys to follow the money in complex cases where the assets and the criminals have scattered across the world.

I am the executive director of ICC FraudNet, an international network of independent lawyers who are leading civil asset recovery specialists in each country. Its membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit. FraudNet has been recognized by Chambers Global as the world’s leading asset recovery legal network.

Prevention is key, and this fraud shows that in Moldova and in other countries involved in the fraud, flaws in the regulations allowed the crime to occur. Moldova was ripe for picking, and the criminals knew it. However, even with stronger regulation, fraudsters will continue to develop new schemes to go around the checks and controls in place. Therefore, it is important to understand that the work of asset recovery specialists must be part of any strategy. Enforcement authorities and the judiciary are not sufficiently equipped to handle such large scale complex transnational cases in which fraudsters exploit the weaknesses of each jurisdiction to make off with millions. When it takes a network to perpetrate a complex international fraud, an experienced network has the best chance of recovering the assets.

ICC FraudNet’s FraudTalk is a thought leadership platform to share ideas and solutions to combat international fraud through civil asset tracing and recovery tactics.

ABOUT THE AUTHOR

Stéphane Bonifassi, of Lebray & Associés, specializes in representing victims of fraud, and is the executive director of ICC FraudNet, an international network of independent lawyers who are leading civil asset recovery specialists in each country. He is the former president of the criminal law commission of the International Association of Lawyers (UIA) and the former chair of the business crime committee of the International Bar Association (IBA). Bonifassi regularly speaks and writes about issues including corruption, fraud, asset recovery and mutual legal assistance. He contributed to the book, Asset Tracing & Recovery: the FraudNet World Compendium, and his article The Long Arm of the Law – Obtaining Jurisdiction and Evidence in France, was published in International Legal Practitioner.