International Fraud & Asset Tracing 2024

It is with great pleasure that we introduce this latest edition of the Chambers International Fraud & Asset Tracing guide. This publication provides the latest legal know-how in relation to civil law fraud, causes of action, litigation procedure, evidence gathering, asset preservation, third-party disclosure, damages principles and enforcement.

Strategies for Civil Law Fraud

Fraud litigation can be a very wide label covering a variety of disputes, but all fraud cases involve a few key areas.

First, there is the importance of identifying and securing assets – fraudsters tend to be sophisticated in hiding and moving assets, often through different forms, and without regard for borders (indeed, often deliberately through multiple jurisdictions to try to mask their trail). Unless action is taken at an early stage to lock down those assets, there may well not be anything to fight about through litigation. It is no good having a judgment but no assets to enforce against.

Second, there is the issue of identifying the right defendants. In cases where the identity of the wrongdoer is unknown, this could mean identifying them through, for example, a Norwich Pharmacal order. Such an order in England would require an innocent third party (such as a bank) that has been “mixed up” in the fraud to provide documents or information. Although there is also well-established jurisprudence for bringing claims against unknown persons, this is only useful if the assets have already been secured – otherwise, you are faced with a judgment against an unknown person and no hope of enforcing your judgment. Identifying the right defendants can also mean working out which other parties might be possible defendants: are there individuals or corporates who assisted in the fraud (for example, banks making payments, or accountants involved in a transaction)? Might there be arguments that the person who now has the assets holds them on trust for the victim of the fraud?

Finally, there is the gathering of evidence. This can involve the use of investigators or forensic accountants, but might also mean recourse to the courts – for example, through third-party disclosure orders, potentially in different jurisdictions to that where the fraud occurred.

Looking ahead, fraud litigators will face a number of new challenges.

Technology-Driven Growth in Cross-Border Fraud

With the use of artificial intelligence (AI) and large language models, the rise in cyberfraud originating overseas will likely continue. Crypto-assets will also continue to remain of importance in fraud claims, both as assets to be stolen and as a means for transferring the proceeds of fraudulent activity, due to the ease and speed with which they can be exchanged and moved internationally. Indeed, a recent assessment by INTERPOL on global financial fraud concluded that the increased use of technology has enabled organised crime groups to target victims around the world more effectively.

Domestic courts may be able to exercise jurisdiction if it is unknown where assets have been dissipated. English courts, for instance, can grant a claimant permission to serve proceedings out of the jurisdiction, but a claimant must demonstrate a good arguable case that the claim falls within one of the jurisdictional “gateways” (for permission to serve out) under the English civil procedural rules.

This was recently considered by the English High Court in Osbourne v (1) Persons Unknown Category A (2) Persons Unknown Category B (3) Thembani Dube [2023] EWHC 39 (KB), where certain NFTs were stolen from someone domiciled in England. The claimant sought to establish that its claim fell within jurisdictional gateways based on an argument that the relevant assets were within the jurisdiction when the cause of action accrued against the third and fourth defendants, being an individual and unknown persons who ultimately possessed the stolen NFTs.

However, it was uncertain whether the assets remained in the jurisdiction when the cause of action accrued against those defendants. Ultimately, the judge found that a relevant gateway was established on the basis that the claim was made against the defendants as a constructive trustee, where such claim is governed by the law of England and Wales. The judge considered that there was a strong arguable case that a constructive trust may allegedly have been created when hackers transferred the NFTs from the claimant’s wallet, and thus when the transfer occurred the third and fourth defendants became constructive trustees. The Court also gave permission to serve via alternative service by way of NFTs through the blockchain into the defendants’ wallets.

While this has raised doubts about crypto-asset recovery where the recipients of such stolen assets have a less-established connection to the jurisdiction than the person who stole them, the Court’s creativity in applying existing gateways, and the ability to serve via blockchain, demonstrates potential progress for new claims being brought.

Approaches in other jurisdictions will of course vary, and more cross-border collaboration is expected to continue as fraud schemes become increasingly co-ordinated across international borders.

Greater Regulation

Tackling fraud is also likely to be high on the regulatory agenda in multiple jurisdictions. The UK hosted the world’s first Global Fraud Summit in early 2024, with the aim of increasing collaboration between law enforcement agencies and the private sector across the world.

This increased focus on tackling fraud will likely continue to be reflected in legislative changes. The UK, for instance, recently introduced the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which stems from the government’s attempt to crack down on dirty money and corrupt corporate elites in the UK, addressing London’s reputation as a place where money laundering and fraud are commonplace. The introduction of the ECCTA has laid a potential minefield for corporates, with new offences (such as an offence of corporate liability for the failure to prevent) remaining in focus for 2024. Civil practitioners will be paying close attention to whether any proceedings or investigations could give rise to possible civil claims for vicarious liability.

Regulatory efforts targeting fraud and related offences have also intensified in other jurisdictions, including Australia, the USA and Europe.

Class Actions and ESG

More class actions involving financial fraud across multiple jurisdictions are also expected, a trend that has been continuing since the 2008 financial crisis.

Claims relating to environmental, social and governance (ESG) fraud will also be a key area to watch. ESG litigation has remained on the horizon for a number of years now, and with new rules from the UK’s Financial Conduct Authority attempting to tackle greenwashing, misrepresentation of green credentials and mis-selling of “green products”, there is a strong chance that 2024 could see a spike in fraud claims with an ESG element.

Further, we have seen an increase in the use of “crowdfunding” for claims in England. While this still remains very small, and has tended to be in the public interest sphere, it is easy to see how this could become a source of funding for ESG fraud claims.

Conclusion

It is the job of the fraud litigator to adapt to these new challenges and to pull all the elements of a claim together, and often to do so across a number of different jurisdictions and in a very compressed timeframe. For this reason, a guide such as this one will be of great value to practitioners in this space.