Tracing stolen and concealed assets across borders

Although global economy growth has remained stagnant amid Covid-19, the volume of fraudsters, ponzi schemers and their ilk carries on rising. Our criminal and civil practitioners are usually called to join hands when there is a high-value fraud and the proceeds of the fraud may be on the move. This article seeks to provide an overview highlighting some of the issues in relation to asset tracing and recovery.

Preservation of assets

Quite often when assets have been stolen but the claim has not yet resulted in a judgment, banks and third-party intermediaries which are in receipt of funds may refuse to provide any details on grounds of confidentiality. Firstly, the victim has the option of reporting the crime. Upon receiving the report, the police will investigate the matter and may issue a “no consent” letter in an attempt to discourage the bank from dealing with the account any further.

In cases of urgency, there is also a need to consider whether an injunction is necessary to preserve assets. Three types of injunctions are highlighted below:-

– Proprietary injunction: similar to a Mareva injunction but aims at preserving particular assets over which a plaintiff (i.e. the defrauded party) has a proprietary claim.

– Mareva injunction: also known as a freezing order, restrains a party from disposing of or dissipating its assets in Hong Kong pending judgment.

– Worldwide Marvea injunction: restrains a party from disposing of or dissipating its assets located both locally and abroad pending judgment.

The victim must, amongst other things, establish that the balance of convenience is in favour of granting the application and there is a serious issue to be tried. For a Mareva injunction (domestic or worldwide), a further threshold is that the defrauded party must also demonstrate that there is a real risk that the fraudster will dissipate the assets.

Disclosure from third parties

Prior to recovering assets, the victim may need more information and evidence about the identity of fraudsters or the location of the assets. The defrauded party may apply to court for an order that a third party give discovery of documents. The relevant reliefs include:-

– Norwich Pharmacal order: requires a third party to disclose documents and information which allows the victim to identify the wrongdoers.

– Bankers’ records/books order under section 21 of the Evidence Ordinance (Cap. 8): directs a bank to allow the victim to inspect and take copies of its records or books for the purposes of asset recovery.

If it is discovered that the fraudster has transferred property or funds onwards to a second or even third layer recipients, the defrauded party will need to consider whether to apply for an injunction together with a disclosure order against those recipients.

A common misunderstanding is that the criminal proceedings must take precedent over the civil proceedings. However, the two can run in parallel. Law enforcement agencies and the Department of Justice have powers to gather evidence and freeze assets by way of a restraint order and/or a charging order under the Organised and Serious Crimes Ordinance (Cap. 455).

Cross-border challenges

Most, if not all, fraudsters and affiliates now have an international footprint and Hong Kong courts may not necessarily have jurisdiction or is the proper forum to grant relief to the innocent party, depending on the manner and the location the crime was committed. The question of where to initiate proceedings is crucial and can influence the victim’s strategic recovery plan.

Assuming proceedings have been commenced abroad but evidence is located in Hong Kong, the victim may still be required to apply to the Hong Kong courts for a discovery order (as discussed above).

Another hurdle that the defrauded party may face is enforcement of judgements granted abroad. The rules governing cross-bored enforcement varies depending on where the judgment was granted. There are a number of countries with which Hong Kong has reciprocal enforcement agreements under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319). Judgments from mainland China are governed by the Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597).

Our Services

Haldanes, as a Hong Kong law firm, can provide timely and practical legal advice on litigation. Our criminal and civil team often get involved before litigation is commenced. Close coordination between our teams is essential to furthering civil proceedings in parallel with, or in advance of, criminal proceedings. We also work with forensic accountants and cyber investigation firms to trace assets and develop a post-judgment enforcement strategy.

In particular, we have recently acted for a multinational company headquartered outside of Hong Kong to recover stolen properties arising from an embezzlement. We assisted the company from the early stage of obtaining a Mareva injunction through to tracing multi-layer fraudulent transfers and enforcing the final judgment by way of garnishee and charging orders.

All information available on this site are for general informational purposes only and does not constitute legal advice. There is no guarantees of completeness, accuracy or timeliness. Readers should obtain proper legal advice in the relevant jurisdiction with respect to any particular legal matter.

For further information about our service, please click here: Criminal Defence, Civil Litigation & Dispute Resolution

Written by: Nathan Wong, Partner