This article was first published in the Juy 2012 Irish edition of Accounting and Business magazine.
Tracing, tracking and locating hidden and fraudulently acquired assets is not a new phenomenon. Up until recent years, most instructions would typically arise from divorce cases and fraud cases. However, it is now a growing area for many accountants and an area where banks and other financial institutions are engaging accountants more and more often.
The engagement is generally as a result of some sort of break down in communication between the bank and the individual ('the target') in relation to distressed loan agreements. However, this is not always the case and, on some occasions, the bank may be merely verifying the reliability of information received from the target.
The financial institution will often have some detailed knowledge of the assets held by the target, based, possibly, on previously received statements of affairs or loan applications. The information may be limited to jurisdictions where they believe the target holds assets or they may have specific regions and, in some cases, they will have specific addresses of properties held. In general terms, the more information you can obtain, prior to taking on the assignment, the easier the task will be and, ultimately, the higher the likelihood of it being a successful asset tracing exercise.
Some jurisdictions, for example Ireland and the US, have publicly available databases where you can establish property ownership and directorships on someone with just their name. Other jurisdictions, e.g. the UK, require the written consent of the target to carry out property searches. There are some powerful databases in the US that only allow access to licensed private investigators.
We would normally request the following information in order to carry out our work:
- Name of the target.
- Date of birth of target.
- Most recent address of target.
- All known addresses of the previous 10 years.
- Details of all assets that the bank is aware the target holds.
- All known phone numbers.
- All known email addresses.
- Brief background on the target, career to-date, companies they are involved with, etc.
- Spouses name and date of birth, if known.
- Children's names and dates of birth, if known.
In terms of legal framework, there is a vast amount of legislation that an accountant should be familiar with in terms of advising financial institutions on what steps they may take to enforce judgments. The following briefly sets out the legislation that covers one aspect of asset tracing, being the reversal of previous asset transfers:
- Conveyancing Act Ireland 1634;
- Bankruptcy Acts 1988 to 2011;
- National Asset Management Act 2009;
- Land and Conveyancing Law Reform Act 2009; and,
- Companies Acts 1963 ‚Äì 2009.
Some people believe that, if an asset transfer to, say, a spouse, took place more than two years ago, it cannot be reversed. However, this is not the case. Under the 1988 Bankruptcy Act, an asset transfer within the previous two years of being adjudicated a bankrupt is automatically reversed. If an asset transfer took place between three and five years prior to bankruptcy, and it can be proved that the party that transferred the asset was insolvent at the time, then that asset transfer can also be reversed.
- Another key piece of legislation affecting asset tracing are the Data Protection Acts. In summary, the Data Protection Acts state that:
- Any processing of information by private investigators must be undertaken in full compliance with the Data Protection Acts.
- The private investigator shall be expected to comply at all times with the Data Protection Acts.
- Any unauthorised processing, use or disclosure of personal data by the private investigator is strictly prohibited.
Accountancy firms do engage private investigators in some cases, and they can prove useful. However, there are many instances where they may add little, if any, value to a case. A good lifestyle report on a target from a private investigator may take up to four weeks, which can delay finalising the asset tracing report to the client. Cost/ benefit must also be taken into account prior to engaging a private investigator. They are quick to recommend surveillance on a target. However, this will prove costly and is not often adjudged to produce useful results. Such surveillance was probably more useful in a pre-IT age, when a target might have suggested the existence of a bank account by walking into a certain bank branch. However, given the pervasiveness of internet banking, such leads are less common today.
Asset tracing is useful in some cases, and we can get good results for a client. However, it is sometimes more beneficial and cost effective for the financial institution to have the debtor examined in the District Court or the High Court, as it forces the debtor to be truthful and forthcoming with information in relation to possible hidden assets, and obliges him to release bank statements, etc. Having direct access to bank statements and tax returns is much more productive. The area of asset tracing is a growing one and one that is sure to continue to grow as financial institutions seek to make recoveries on distressed loans.
Jim Stafford is a partner in Friel Stafford Corporate Recovery.