Advanced Techniques in Asset Investigation and Debt Enforcement

Transcription

1 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) Advanced Techniques in Asset Investigation and Debt Enforcement Miami May 3, 2016 Presented to: Offshore Alert Conference Warren E. Gluck Holland & Knight New York Daniel Hall Burford Capital, London

2 Topics For Today Important Investigation and Legal Terminology and Concepts Maximize your chance of success: really know your opponent, its weaknesses, obtain crucial evidence from witnesses and insiders help, use all the tools available Initial Decisions re Funding Building a War Chest Versus the Blitzkrieg Approach An Update Concerning International Asset Tracing and Intermediary Bank Discovery Cutting Through the Maze How To Navigate Complex Structures and Pierce the Corporate Veil Emerging Global Attachments 2

3 Investigation Concepts and Terminology Admissible Evidence/Inadmissible Leads Bank Account Tracing/Location/Identification UBO Identification Witness identification and location Nominal defendant cooperation and witness flipping On-the-ground investigation and intelligence 3

4 Real World Impact 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) The usual need to play the man, as well as the ball Understand the decision makers within your counterparty Understand the current concerns of those individuals Ensure that any recovery strategy maximizes pressure in addition to freezing assets How will your actions affect your counterparty generally Commercial proportionality vs winning and/or revenge E.g. enforcement v Govt of Georgia 4

5 Georgia Enforcement 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) 5

6 Jurisdictional Arbitrage 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) Understand what you can do and where; don t let your enforcement strategy be totally led by the debtor Where to go for evidence, where to go for enforcement, where to avoid Evidence: The US European criminal investigations and Financial Intelligence Units Private Prosecutions Sources : former employees, counterparties, litigants Records: what is available and where 6

7 Enforcement 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) Where is best for enforcement: Common law v civil law: where can you apply helpful precedents / learn useful lessons? Do you want to / can you use criminal processes? What legal doctrines / remedies are available: e.g. alter ego doctrines, piercing the corporate veil, insolvency, pre-judgment attachments, etc Differentiate the corporate structure from the actual assets; pick your battles Examples from Venezuela, Austria, Brazil and South Africa 7

8 SUN TZU Attack when they are unprepared, make your move when they do not expect it. At first you provide food, after that you feed off the enemy. Each pound of food taken from the enemy is equivalent to twenty pounds you provide yourself. DO NOT stop an army on its way home. Under these circumstances, an opponent will fight to the death. A surrounded army must be given a way out. Show them a way to life so that they will not be in the mood to fight to the death. Take from a man that which he cherishes and he will follow your way. 8

9 The Argentine Debt Settlement 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) 9

10 Opening Shots 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) Building a Litigation War Chest and Low Hanging Fruit Still relevant? Stealth Investigations and Gag Orders Toward Global Assault Obtaining Adverse Witness Cooperation Release Moral vindication Credibility 10

11 International Discovery and Recovery: the Essential Collaborative Toolkit 28 USC 1782 Norwich Pharmacal Judgment Enforcement, Turnover and Contempt Regimes Receivership Liquidation Cross Border Insolvency Statutes/Chapter 15 Forensic Accountants 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) 11

12 Tracing Assets and Business Using Intermediary Bank Discovery All U.S. dollar-denominated wire transfers from anyone or any company in the world to anyone or any company in the world clear (are processed by) intermediary banks in New York. Intermediary banks are obligated to and do maintain records of wire transfers they process. It is possible to recreate the financial history of any person or company in the world that does business in U.S. dollars. The Records are clearly relevant in debt enforcement and cross-border insolvency cases and are available via properly issued subpoena any time a subpoena can be issued. AQ Asset Management v. Levine, 974 N.Y.S.2d 332 (1 st Dep t 2013) (financial records are the banks records; customers have no standing to object to subpoenas for financial records). 12

13 When Can Intermediary Bank Discovery Be Utilized? Any Foreign Court proceeding where the information will be of assistance (via 28 U.S.C. 1782). Chapter 15: Discovery is, by itself, sufficient reason to file a Chapter 15 - In re Fairfield Sentry Ltd., 2010 WL (Bankr. S.D.N.Y. July 22, 2010). But, now must meet 11 U.S.C. 109 requirements. In re Barnet, 737 F.3d 238 (2d Cir. 2013) Any U.S. Litigation, including recognition of foreign judgments, even where the defendant is not subject to jurisdiction. Fourth Department, New York Lenchysin v. Pelko Electric, Inc., 281 A.D.2d 42 (4 th Dep t 2001) (Foreign Money Judgments Recognized Without Jurisdiction). Award Washing --Converting Foreign Arbitrations Awards to Judgments to Take Advantage of the Fourth Department. New York arbitrations (non-judicial subpoenas). Non-New York arbitrations: recent precedent has been unhelpful 13

14 Most Significant Uses A Lawful Way Around Foreign Bank Secrecy Laws Discover every one of a target s bank accounts that originates or receives U.S. dollar wire transfers, worldwide. Trace Money from Transferee to Transferee The technique allows for multiple rounds and follow-up, so it is possible to follow the money. Cost and time effective method for piecing together financial history Identify Fraudulent and Preferential Transfers in the context of International Insolvency. Discover Intra-Corporate or Related-Party Transfers and Secret Shell Entities to Pierce the Corporate Veil. Reveal Counterparties and Business Contacts List / Seize Receivables and Establish Jurisdictional Predicates. Dispute Allegations/Catch lies. 14

15 Recent Applications Reveal Worldwide Counterparty and Bank Account List of Chinese Major, Contributing to mid-8-figure Settlement Reveal worldwide bank accounts and towards enforcement of $200M+ judgment Reveal And Trace Approximately $75M In Fraudulent Transfers From Defunct BVI Entities Through Numerous Shell Entities - Obtain Confidential Recovery Obtain Directed Verdict After Demonstrating Sworn Denials of United States Contacts to Be Materially False. Reveal Counterparty Fraud and Perpetual Insolvency asset shifting schemes, including $1b in suspect transfers, and obtain substantial settlement Trace $600M in Assets Hidden Through 40+ Shell Entities in High Profile Divorce Reveal Bankruptcy fraud resulting in trial verdict veil the corporate veil on $60M award Trace proceeds of West Virginia Energy Fraud through numerous jurisdictions and obtain recovery and trial evidence Trace assets of Middle Eastern Billionaire to enforce $60M arbitral award, reveal 25% of company transfers made for personal use. 15

16 Headwinds and Solutions 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) Limited 1782 IBD Resistance from New York s District Courts. The copycat problem. Thus far restricted to contemplated security proceedings in respect of to-be-filed arbitrations the outer bound of the speculative spectrum. Pre-Litigation Discovery is expressly allowed in the bankruptcy context. The new jurisdictional battle: Daimler AG v. Bauman, 134 S. Ct. 746 (2014) (a foreign corporation is only subject to general personal jurisdiction in the place properly regarded as its home) But specific jurisdiction exists for intermediary bank discovery. 16

17 Cutting Through The Maze Complex entity and trust structures are perfectly lawful and acceptable. However, they are sometimes utilized to commit fraud or to wrongfully avoid debts. Recent Cases combine the techniques just described and have generated significant returns to creditors/fraud victims. Narrative and Forensic Expertise as a Dual Focus of Veil-Piercing and Fraudulent Transfer Cases 17

18 Badges of Fraud 1. Lack of consideration for the conveyance 2. Transfer of the debtors entire estate 3. Relationship between the transferor and transferee 4. Pendency or threat of litigation 5. Secrecy or hurried transaction 6. Insolvency or indebtedness of transferor 7. Departure from usual method of business 8. Retention by debtor of possession 9. Reservation of benefits to the transferor 18

19 Global Attachments from New York s Courts, Now Florida? (and the evolution of the? ) Creditors Rights Are Expanding in New York. Back-to-Back Decision by the New York Court of Appeals. Florida is now considering the question. Global Seizures and Turnovers Are Being Ordered. New York s Answer to the Mareva Injunction? Big Idea: What is the nature and location of property in the 21 st Century? What does this mean for the interplay between national sovereignty, judicial power, and the corporate form? U.S. Bankruptcy Courts have long exercised (or purported to exercise) global authority. 19

20 Basic Concepts Prejudgment (attachment/injunction) versus Post-Judgment (turnover/ execution) Prejudgment Attachments and Injunctions are Critical to Success Third Party Orders: Attachment/Injunction/Turnover/Execution orders directed at third party garnishees (holders of defendant or debtors property). Direct Defendant Orders: Attachment/Injunction/Turnover/Execution orders directed at defendants or judgment debtors. -- target must ultimately obey US Court orders for concept to work. Personal Jurisdiction: Required for direct defendant orders; sometimes required for third party orders. (Specific versus General jurisdiction). 20

21 The Legal Premise 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) A court with personal jurisdiction over a nondomiciliary present in New York has jurisdiction over that individual [or entity s] tangible or intangible property, even if the situs of the property is outside New York. Hotel 71, 14 N.Y.3d at 312. Quoted by Mishcon de Reya v. Grail Semiconductor Inc., No. 11- cv-04971, 2011 WL *1, *5-6 (S.D.N.Y. Dec. 28, 2011) (New York order of attachment granted over California defendant s interest in patent nominally located in California). 21

22 Four Offshore Entities Have Already Been Targeted Case 1: BVI Company doing business in Venezuela. Breach of long term contract, dispute subject to NY arbitration. BVI Company claims breach is for cause, global attachment in claim amount will end BVI Company. Outcome: Emergency Global TRO issued but Global attachment order denied after evidentiary hearing because plaintiff could not demonstrate probability of success on merits or need for attachment. Case 2: BVI and Bahamas Companies doing business in Hong Kong. Breach of longer term contract, dispute subject to London arbitration. Personal jurisdiction due to consent (NY business registration). Outcome: Settlement (defendants liability under contract never decided, powerful weapon) Case 3: Last week BVI entities targeted with global attachment orders; pre-existing, duly registered security interests honored. Takeaways: All parties and Courts believe orders had global effect when issued. Whether orders will be upheld requires years of litigation through at least two layers of appeal courts. No challenge on global basis 22

23 Preliminary Outcomes in Florida Florida Courts seem to be drawing a distinction between tangible and intangible property, with the latter being subject to global restraint/turnover Wells Fargo v. Barber (Feb. 4, 2015) (M.D.Fla) (intangible interests in LLC s) Sargeant v Al Saleh (no extraterritorial turnover as to tangible property) 23

24 Distinct from Koehler v. Bank of Bermuda Post Judgment Turnover Orders Against Third Parties Affirmed principal of New York law that where a court has personal jurisdiction over a third party garnishee, that third party garnishee may be ordered to turnover a judgment debtor s assets regardless of where those assets are located. Great tool for all third party garnishees aside from banks. Case misnomer -- special procedural history made separate entity rule a non-issue. Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce (2013) (New York must have jurisdiction of the precise that holds a debtor s property). Motorola Credit Corp. v. Standard Chartered Bank, N.Y. 3d, 2014 WL (Oct. 23, 2014) (separate entity rule stands). The Daimler and Gucci cases will pose significant jurisdictional impediments to turnover orders from non-bank, foreign based entities. 24

25 Segregated Trust Account Attachments As a general rule, once funds are deposited in a bank account, the account holder is presumed to have title to and control over those funds. However, the presumption of ownership may be rebutted by evidence that another person actually owns the property, either by showing that he effectively exercises control over the property or that the ostensible owner holds the property for his benefit. Karaha Bodas Co., LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 86 (2d Cir.2002). 25

26 InterBank Attachment? 14th Annual OffshoreAlert Conference (May 1-3, 2016, The Ritz-Carlton, South Beach, Miami Beach, FL) The Concept of Foreign USD Accounts is a Myth. All US Dollar Credits are Located in the United States Foreign Banks House Foreign Customers USD Credits in Correspondent Accounts. Bank Credits Are Regarded as Both Debts and a Res Where Convenient - Akin to Photo/Wave Particle Duality The United States Government Currently engaged in correspondent bank attachment in terrorism/weapons/drugs/money laundering cases. 26

27 The Current Correspondent Bank Attachment Landscape The US Government Currently Utilizes Correspondent Bank Attachment Pursuant to a Federal Statute Authorization. 18 U.S.C. 981(k) the Civil Forfeiture Statute. the term interbank account means an account held by one financial institution at another financial institution primarily for the purpose of facilitating customer transactions. 18 U.S.C. 984(a)(2)(B). Customers foreign USD accounts where credits are located in an interbank bank account are deemed to be in the United States and subject to forfeiture. Some leeway allowed for foreign relations. 27

28 The InterBank Forfeiture Statute is Merely Codification of a Truism Is civil inter-bank attachment possible? Cargill Fin. Serv. Int'l, Inc. v. Bank Financial and Credit Ltd., 70 A.D. 3d 456 (1 st Dep't 2010) (upholding the trial court's decision to vacate the attachment because it agreed with the trial court's findings, made after significant discovery and an evidentiary hearing, that "the bank accounts are correspondent accounts maintained by a foreign bank (the defendant) for the benefit of its clients as well as for its own benefit. The bulk, if not all, of the funds restrained were the funds of the defendant's customers") 28