Converting Intelligence into Court-Admissible Evidence

Despite their concealment efforts, UBOs can often be identified through painstaking investigative research, potentially leading to the location and identification of their valuable hidden assets.

In our first installment of this two-part article, “Asset Investigations: How ’Intelligence’ Can Be More Valuable than Evidence,” we stated that “The use of intelligence is essential in most asset investigations.” More often than not, however, intelligence is not admissible as evidence in court. Why? Most human source intelligence is obtained from individuals who will either not agree to testify or whose information will not survive challenges in court. However, human source intelligence is often the only practical way to uncover sophisticated asset concealment schemes and, once converted to evidence, to efficiently pursue a recovery action in court. (“Evidence” is generally defined as “proof of fact(s) presented at a judicial hearing such as a trial.”)

What then is the value of the intelligence? How can you convert non-admissible intelligence into court-admissible evidence, now that your investigator has delivered to you the intelligence about the location of a target’s secret bank accounts in offshore tax havens?

SPECIALIZED LEGAL EXPERTISE IS ESSENTIAL

Untying that Gordian knot will primarily depend upon the skill set of a great asset recovery lawyer who specializes in asset recovery. He or she should be in charge of bringing your case. Asset recovery is a highly specialized and complex field, and it is for this reason that we recommend either choosing an experienced asset recovery lawyer from the very start or engaging the adjunct services of such a specialty lawyer.

To be clear, Cachet International and its two principals do NOT provide legal advice. We are asset investigators and not lawyers. However, below we would like to share with you some of the methodology that we have seen successfully employed by asset recovery lawyers.

WHY GATHER INTELLIGENCE, IF IT IS NOT COURT-ADMISSIBLE?

Traditionally, gathering intelligence from human sources has been best employed to first provide an assessment of the target’s assets to determine whether a lawyer’s effort to prepare a contemplated recovery action is justified and economically viable. This is particularly true if third-party financing for the recovery effort is being sought. Also, by knowing the location of litigation targets and their assets, the cost versus expected recovery ratio can be more accurately estimated. Once this intelligence has been unearthed by the investigators, the lawyers — on behalf of their clients — can better determine whether going after a target’s assets is within the client’s time and budget constraints.

Second, intelligence provides the “road map” for planning and conducting investigative actions and legal discovery efforts.

Often, these additional investigative actions will uncover the first actual court-admissible evidence. For example, if you know that the target has accounts in a secret offshore jurisdiction such as in the Caribbean or a European tax haven, then you can begin looking for the target’s travels and connections to these geographic areas. Travel, accommodation and communication records can be subpoenaed and studied for further leads. Interviewing those who are privy to the target’s travels and connections can supplement and expand on such information, thus providing leads to different jurisdictions — information that can be vital to establish jurisdiction. It is hard to believe, but many individuals traveling to exotic islands in order to hide their money and beneficial ownership in shell companies, forget that their social media postings and pictures can place them in these locales and even provide dates and a time line. Needless to say, social media mining is a growth area in asset and beneficial ownership investigations.

Business and banking records can also be examined in a more focused and precise manner. If you know what you are looking for in advance, you can better focus your efforts to finding public records, former employees, counterparties, litigants and even participants in the concealment of these assets who in turn can provide court-admissible evidence.

The advantage here is that the legal discovery of documents and depositions can continue to focus on this information. As seen in our earlier article, once the target individual (husband) had given depositions, claiming to be bankrupt, the discovery of his overseas assets placed him in much greater legal jeopardy than before, increasing the pressure for him to settle.

CONFRONTING THE DEBTOR WITH UNCORROBORATED INTELLIGENCE

This is not a good idea, and here is why. Asking the target directly in depositions about offshore accounts, located by investigators through intelligence but not yet confirmed with evidence, is a delicate and rather dangerous tactic that can fatally damage the entire case. After all, now knowing that his assets are being investigated, the deposed target can then notify his offshore bank to move and/or close his accounts. If that happens, there are a multitude of banks which, when subsequently served with seizure orders, will claim that the accounts had never existed. (If you do not believe that banks will lie to the courts and regulators, we suggest you do some simple Google searches of some famous international banks).

In other words, you absolutely need to gather the most powerful possible evidence in advance of directly approaching the target or the holder of his assets: the hosting bank.

THE MAGNIFICENT FOUR (OF MANY OTHER METHODS)

There are, of course, many methods out there that can be employed for turning intelligence into evidence, but here are four rather new powerful tools for generating ironclad court-admissible evidence, and we like to call them the “Magnificent Four.”

1. One method is to convince a local or federal prosecutor to initiate a criminal case against the target and/or his/her associates. Reason: The prosecutor has much broader discretion in using his discovery and his investigative tools, as well as his access to foreign law enforcement and regulatory authorities. The intelligence that you and your investigator previously collected on the target may come in very handy and may be just the information that the prosecutor needs to start a criminal case. Now that you have convinced the prosecutor to initiate a criminal case against your target, you can happily “slipstream” or “ride along” with the criminal case and use the evidence that they uncover for introduction into a civil court to support your very own recovery action.
2. The second method is a variation on the “law enforcement” methodology used by prosecutors to “turn” or “flip” a participant in a crime into a witness, thus securing cooperation from insiders to provide crucial hard evidence. There are firms that specialize in developing information on persons who were involved with the target in concealing funds or similar actions that caused client harm. The goal is to find a reasonable basis for eventually bringing civil suit against the target’s fellow participant — unless he or she agrees to cooperate and be a witness against your target. This methodology has been employed by asset recovery lawyers with great success and is extremely effective in court.
3. The third method is a relatively new concept, available only in the U.S. This method is known as “intermediary bank discovery.” This is how it works. All U.S. dollar denominated wire transfers from anyone to anyone in the world, “clear” (are being processed) by intermediary banks located in New York. Intermediary banks are obligated to, and in fact do, maintain records of all wire transfers they process. From these bank records, it is possible to recreate the financial history of any person or company in the world that does business in U.S. dollars. These records can be obtained by a lawyer using a properly issued U.S. subpoena, any time a subpoena can be legally issued. Discovery in itself can be a sufficient reason to proceed with this process, and foreign judgments within certain circumstances can be recognized in the U.S. As these bank records include vital information, such as wire transfer information, they also identify the purpose of the transactions, the sender and recipient of the transaction, and, of course, the relevant bank account numbers — a veritable treasure chest for the lawyer and his client! In many cases, foreign judgments can also be pursued in U.S. courts. Perhaps best of all, this method not only circumvents foreign banking secrecy laws, but the banks’ customers have NO standing to object to subpoenas for these financial records. (NOTE: This method is applicable only to transactions denominated in U.S. dollars.)
4. The fourth method is the global attachment order, which is New York State’s answer to the Mareva injunction, which is not permitted in the U.S. The use of a global attachment order is exemplified in a February 2016 New York case, BTG Pactual et al v. SunEdison. In that arbitration proceeding, claimants successfully obtained a global attachment order and a temporary restraining order, preventing SunEdison from transferring assets to avoid collection on any potential award. (At the time we prepared our article, the claimants had not obtained a judgment on their underlying arbitration claim but only recently initiated the arbitration process.

The English common law Mareva ruling is not available in U.S. federal courts, due to the unique origin of the U.S. federal court system and the limit on remedies available in federal courts. However, U.S. state courts have the inherent power to grant remedies in the form of a global attachment order. It appears that some foreign plaintiffs may qualify to seek redress in New York courts using a global attachment order.

Note: A Mareva injunction is an English Court order preventing a defendant from transferring assets until the outcome of the associated law suit is decided. Named after a 1975 English case, Mareva Compania Naviera S.A. vs. International Bulk Carriers S.A., it is now called a freezing injunction or freezing order.

CONCLUSION

We hope our observations on additional concepts in pursuing effective asset investigations demonstrate how intelligence can be used effectively in order to take a case from investigation to the actual asset recovery. An experienced and highly skilled asset recovery lawyer will be the best ally in the process.

This short summary should not be considered to be all-inclusive of the methods available in converting intelligence into court-admissible evidence. We emphasize that there are many other effective methods available outside the U.S.