Recover and Return: Asset Tracing as a Tool Against Corruption

Serious wealth, serious wrongdoing

From the elegant terraces of Belgravia to the palatial mansions of so-called Billionaire’s Row, London is famously the home of the some of the world’s most expensive real estate. Unfortunately, dirty money often hides behind these freshly painted exteriors. Indeed, major western cities – London, New York, Toronto, Paris and beyond – remain attractive investment destinations for high net worth individuals (corrupt businesspeople and politicians among them). What often goes underappreciated, however, is the tradition of jurisprudence in these countries that provides opportunities to hold bad actors to account. 

As an example, under so-called Magnitsky legislation, jurisdictions such as the US, the UK, Canada and the EU have legal frameworks in place to sanction individuals and bodies responsible for corruption and human rights violations. These may result in travel bans or asset freezes, thus preventing the perpetrators of wrongdoing from accessing their wealth. Unlike broader economic sanctions against a country, these sanctions should not disproportionately impact the lives of blameless ordinary citizens – but there is a risk that they will remain symbolic without further action.

More tactically, there is a way to hold wrongdoers to account which goes beyond sanctions and the associated asset freezes and travel bans: actively recovering illicitly acquired assets and redistributing the funds to help the victims. But how can this be done, how is it effective, and how can investigators help? Allow us to explain.

Recovery, not freezes – case studies

Our first example focuses on Libya, which has recovered misappropriated assets through civil litigation filed directly in its own name. After Muammar Gaddafi – whose regime embezzled state funds and violated human rights – was deposed as Libya’s leader in 2011, the Libyan government set its sights on (among other things) a USD 16 million house in London’s Hampstead district, around the corner from Billionaire’s Row. The Libyan state subsequently filed a claim against the BVI-registered owner of said property in the English High Court. In 2012, it demonstrated that the property had been acquired with misappropriated state funds and that Gaddafi’s son Saadi was its UBO. Global Witness highlighted this as ‘the first successful asset recovery case brought by a country involved in the Arab Spring’. However, with Gaddafi-looted funds estimated to total around USD 100 billion, there is a huge amount still to be recuperated – efforts to do so are ongoing. Further, Libya remains the owner of Saadi Gaddafi’s former house, underlining the risk that ordinary people may see no benefit if recovered assets are not liquidated and the proceeds repatriated (of course in a way which safeguards them and ensures that they cannot be misappropriated again).

Another route to recovery is via cooperation with the foreign state where the assets are located, as we can see in the example of Gulnara Karimova, the daughter of Uzbekistan’s former president. While Karimova is currently imprisoned in her home country for money laundering and sanctioned under the US’s Global Magnitsky Human Rights Accountability Act, these actions alone will not see the recovery of her ill-gotten gains. However, in 2022, Uzbekistan and Switzerland signed an agreement on the return of over USD 130 million in assets which were confiscated in Swiss criminal proceedings against Karimova. A UN-managed trust fund is helping allocate the funds to sustainable development initiatives in Uzbekistan as part of the agreement. We highlight that the UK’s Serious Fraud Office seized Karimova’s real estate (including apartments in London’s Belgravia) in 2023 under the UK’s Proceeds of Crime Act after linking them to the proceeds of corruption. However, at this stage it is unclear if and how the Uzbek people might stand to benefit from the recovery. The UK may wish to follow the positive steps taken by Switzerland – or adopt a mechanism similar to France’s, which we will discuss in our third case study.

Consider the case of Rifaat al-Assad – the uncle of Syrian president Bashar al-Assad who is also called the ‘Butcher of Hama’ for his role in a brutal military campaign, for which the Swiss attorney general recently charged him with torture and ordering murder. Rifaat al-Assad lived in France for decades and illegitimately amassed significant wealth. His high-value assets comprised USD 97 million of French real estate (including a mansion near the Arc de Triomphe), as well as a USD 32.5 million home in London and various properties in Marbella, Spain. In 2022, a French court sentenced Rifaat al-Assad in absentia to four years’ imprisonment and confiscated his assets with the intention of restoring approximately USD 97 million to the Syrian people. This was under a mechanism which France adopted in 2021 to recover ‘ill-gotten gains’ and return them ‘as close as possible to the population of the foreign state in question’ to fund cooperation and development initiatives. This might take place via the French Development Agency, local or international NGOs, or international organisations such as the World Bank (or, in some cases, even directly with the relevant country).

Investigation matters

There are two crucial factors to consider when seeking to recover and return illicitly acquired assets: first, showing an asset’s ultimate beneficial ownership; and second, demonstrating the origin of the funds used to purchase them. This is where investigative expertise is critical.

It was not difficult to establish that Saadi Gaddafi was the UBO of his Hampstead home: a UK Treasury sanctions list described him as such. However, doing so can be much harder when the beneficiaries of misappropriated assets use proxies or shell companies incorporated in secrecy jurisdictions to conceal their wealth. In the case of Rifaat al-Assad, it took investigations by transparency campaigners, human rights groups and law enforcement to prove his control of the assets via a network of offshore companies. While this can be challenging, as outlined in our previous commentary, it is possible.

Although corporate filings from offshore jurisdictions seldom state outright who owns an asset, they can contain helpful details such as director names or the names of bankers or lawyers who have advised on certain transactions – and who might be known to work for the purported UBO. A skilled investigator might then combine such nuggets with other information, for example the signature of the apparent UBO on a planning application, or photographs of their family at the property posted to social media. This can in turn form the basis of a freezing injunction or disclosure or discovery applications to obtain non-public information about the asset’s beneficial ownership. On a recent matter, we used similar methods to unravel a network of offshore companies, trusts and nominees to demonstrate compelling evidence of a subject’s beneficial ownership of a high-value mansion in the UK. Our findings were sufficient for the English High Court to place an interim charging order over the property.

Demonstrating that funds misappropriated from a foreign state have been used to acquire assets abroad can be even more difficult. However, as we have previously discussed, in 2023 a US federal judge attached four Maryland properties after it had been ‘reasonably demonstrated’ that their owners had acquired them with funds embezzled from the Democratic Republic of the Congo (DRC). Evidence provided by witnesses and received via discovery from financial institutions was key to demonstrating the flow of funds from DRC state institutions to the US trust which the UBOs used to purchase the properties. Expert investigators can work closely with legal counsel and use a similar creative, in-depth methodology – e.g. by finding and interviewing witnesses, or identifying targets for disclosure or discovery applications and reviewing the resultant information – to aid a state’s efforts to recover misappropriated funds.

In conclusion…

Asset tracing has important uses beyond everyday commercial debt recovery. It can help the fight against corruption and restore funds to countries which need them (it was estimated in 2022 that developing countries had lost USD 20-40 billion to corruption), in turn potentially achieving more equity for underserved populations than sanctions alone. To ensure they are spent appropriately, the funds might be repatriated via international organisations or with the assistance of NGOs.

While the recovery process can be lengthy and complicated, credible investigative expertise can help overcome challenges such as proving beneficial ownership of an asset or the origin of the funds used to acquire it. The right team of investigators can bring the research skills (i.e. knowing where – and how – to look for relevant information, including beyond the public domain), along with language knowledge and a network of sources able to provide often critical non-public intelligence to deliver meaningful results. When the appropriate recovery mechanisms are in place (as seen in the case of Rifaat al-Assad in France), this can in turn help do more than just freeze an asset – it can remove it from the hands of the wrongdoer and support the redistribution of funds to those who suffered harm. We therefore encourage states where bad actors seek to park their ill-gotten wealth to seek a more holistic approach, ensuring they adopt appropriate processes for restitution rather than focusing solely on sanctions. We hope that, in time, recovery and return can become the standard rather than the exception.