Asset Recovery: Leaders in the field and trends for 2014

Hong Kong law firm Tanner De Witt  is proud to see its co-heads of Restructuring and Insolvency, Ian De Witt and Robin Darton, and consultant Jeff Lane named in the global industry guide for Asset Recovery – Who’s Who Legal Asset Recovery: 2014 .

“Our research has revealed 373 practitioners in 66 jurisdictions who can truly be considered leaders in the [asset recovery] field,” said Who’s Who Legal at the time of publication.

The following article detailing research, trends and conclusions for the global asset recovery sector appeared in the 2014 publication:

For this third edition, Who’s Who Legal has called upon hundreds of hours of interviews with asset recovery specialists around the world discussing activity in the sector and emerging trends. In this section we draw on our findings to provide a global outlook of the latest developments in the marketplace.

There are no two ways about it: asset recovery is a slog. Combining the skills of lawyers, forensic accountants, investigators and digital experts; the process entails thousands of hours spent identifying and freezing assets that have been misappropriated, stolen or lost, on the premise that some, if not all, can be recovered. It requires a thorough knowledge of international law and cuts across criminal, civil and administrative justice. A successful recovery also relies largely on the willingness of countries and agencies to share information and act quickly so as not to allow assets to be placed further out of reach. With this in mind, selecting the right counsel can be the difference between success and failure.

We first instigated a study of the asset recovery legal marketplace in 2012, when the practice was becoming an increasingly specialist area.

In the wake of the global financial crisis, fraudulent and corrupt activity came under close scrutiny and agencies throughout the world stepped up enforcement exposing large-scale frauds such as the Madoff and Stanford Ponzi schemes. Specialist knowledge of the civil and criminal recovery mechanisms was in high demand and many law firms aimed to fill a gap in the market by marketing their “asset recovery” services. The result was a rapid increase in the number of lawyers and firms competing for work in the field. But what was once viewed as a burgeoning field of work is today providing few opportunities and lawyers are asking themselves: does the level of activity justify the growth in the size of the legal market?

From our discussions with experts throughout the world, it became apparent that while specialist expertise is still in demand, levels of activity have decreased and competition is subsequently fierce. As the economy has gradually improved, allegations of fraud have declined. This is not to say that fewer frauds are taking place, but rather they are less easily detected. Moreover, some of the larger worldwide recovery efforts that kept lawyers busy for years have now reached a conclusion. There was a widespread consensus among those we spoke to that the global law firms with large numbers of lawyers dedicated to ensuring no stone is left unturned, and also the specialist firms that possess great depths of experience and expertise in the field, are continuing to perform well. Yet for those treading the middle path, future success is less certain. This observation is borne out in our research: the leading firms, those fielding the highest number of lawyers to this edition, are a mixture of global and specialist firms – that is to say, those focused on fraud or niche areas of the market, such as offshore work.

The topic of client fee pressure was also never far from our discussions. Costs in asset recovery cases can quickly escalate and recovery is never certain. With this in mind, clients are frequently requesting early discovery efforts and a cost analysis from their lawyers before weighing up the decision of whether or not to pursue a case. Fixed fees or conditional fee arrangements are also being demanded on an increasingly regular basis. While certain firms we spoke to have a strict policy not to operate under these arrangements, some were trialling them on a case-by-case basis and others saw it as an inevitable change in the lawyer-client relationship. On the subject of third-party funding, however, there was far more consensus – the uncertainty surrounding the success of an asset recovery case means investors are unlikely to take them on; when they are willing to fund a case, the large portion they take of the recovered assets makes it an unattractive proposition to most claimants. The majority of lawyers we spoke to did not expect third-party funding to take off in this area as it has for other areas of commercial litigation.

The cost of litigating in London was also cited as a factor in the decreasing volume of cases going to trial, with some lawyers expressing concern that the capital is at risk of pricing itself out of the market. As one lawyer said, “London is renowned for being a specialist fraud centre but with this comes a price tag.” For example, cases where the range of recoverable assets is £10 million or less are deemed not cost-effective, as the litigation fees will outweigh any potential sums to be recovered. That said, London remains an attractive jurisdiction for international clients due to the powerful interim remedies available, the expertise of its lawyers and judges, its neutrality and its strong rule of law. What is more likely to dissuade potential claimants from bringing a case in London is the decision of the Supreme Court in VTB Capital Plc v Nutritek International Corp and others, which has made it more difficult for foreign parties to establish jurisdiction before the English courts. This decision, along with clients weighing up whether or not to pursue a case, has led to a decline in the number of instructions to barristers – although it is worth mentioning that the cases being brought to trial are better thought-out and prepared due to solicitors undertaking further discovery.

With many cases historically being brought in London, local lawyers have long enjoyed the enviable position of acting as lead coordinators of worldwide recovery efforts. However, recent trends in the marketplace indicate that this might be set to change. Lawyers throughout the world are seeing an increasing number of China-related cases – and following advertising by financial institutions in Hong Kong, the British Virgin Islands has long been their offshore jurisdiction of choice. According to leaked financial documents published by the International Consortium of Investigative Journalists in January 2014, more than 21,000 clients from mainland China and Hong Kong have made use of offshore havens in the Caribbean, and estimates show between $1 trillion and $4 trillion in untraced assets have left China since 2000. Unsurprisingly, some of these accounts are now the centre of legal disputes and many more cases are predicted in the near future. This, along with the establishment of the BVI Commercial Court in late 2009, has seen litigation in the BVI increase considerably in recent years and local firms are steadily expanding their teams and resources. In turn, BVI lawyers are finding themselves instructed as lead counsel with increasing frequency and the market is seeing a power shift from London to the BVI. This is having a marked impact on English barristers who are realigning their marketing efforts and focusing on the offshore jurisdiction with increased attention.

The upsurge in BVI activity has been matched by a downturn in litigation involving the Cayman Islands, as the jurisdiction has fallen slightly out of favour with the ultra-rich. Many lawyers were unconcerned by this trend, attributing it to the “latest fashion” of where to place one’s assets – this will undoubtedly change once again. The chart below shows the jurisdictions with the highest number of leading lawyers included in this edition. While the Cayman Islands’ contingent has dropped from 20 in 2013 to 16, the number of recommended experts in the BVI has increased from 10 in 2013 to 13. Interestingly, the number of recommended experts in England has also decreased although it is still home to more recognised specialists than any other jurisdiction by a wide margin. Lawyers also reported an increasing number of cases involving jurisdictions on the fringes of the Caribbean or places such as the Seychelles. However, as fraudsters search for more secretive locations, it was observed that lawyers and tracing experts are becoming much braver in attempting recovery in jurisdictions that previously they would have avoided.

What can asset recovery lawyers expect of the next 12 months?

While 2013 and the first half of 2014 have been fairly quiet for asset recovery lawyers, in terms of future work many are looking to the crisis in Ukraine, which saw president Viktor Yanukovych ousted in February 2014, as a potential source. Britain and the US jointly held a two-day asset recovery forum in London in April to focus on finding and recovering assets believed to have been stolen by the former regime. The event led to much conversation among private practitioners as to whether the recovery attempts will lead to potential work. Corruption has been a continual theme in the asset recovery legal market in recent years, with recovery attempts following the Arab Spring and a programme in the Turks and Caicos Islands keeping certain law firms and barristers particularly busy. Many of those we spoke to were optimistic that the Ukraine crisis would create a similar level of work with some high-net worth individuals also seeking recovery.

The original article was published by Who’s Who Legal in August 2014 and can be found here.