One objective at the outset of, and throughout, a civil case to recover the proceeds of corruption is to obtain evidence to strengthen the claim and identify other illegitimate assets.
The civil courts of England (and many other jurisdictions) can require defendants and third parties to disclose documents relevant to a claim. These powers can be of great assistance to states seeking to recover the proceeds of corruption, provided that sufficient evidence exists to commence claims.
Disclosure orders against third parties
Applications can be made for disclosure of relevant documents held by third parties1. The documents must be likely to support the state’s claim or adversely affect the case of the defendant, or assist to identify and trace the proceeds of corruption. Third party disclosure can be a powerful mechanism for identifying further assets and obtaining helpful evidence. Disclosure can be sought, for example, from banks, financial advisers, or even solicitors used by the defendant.
Applications for third party disclosure orders are often made at the outset of a case together with applications for freezing injunctions to secure known assets.
The following banking documents are often particularly helpful:
- The "know your customer" file and account opening documents. These should contain the documents generated by, and given to, the bank to comply with money laundering and other regulatory requirements. The beneficial owner of an account (or of companies or trusts holding an account) should be identified. The documents should also contain contemporaneous explanations for the alleged source of the customer's wealth and funds, or the alleged business activities of companies holding accounts.
- Due diligence. Did the bank conduct due diligence checks on politically exposed persons? What did they reveal?
- Bank statements (and credit and debit notes). These documents should demonstrate the source and destination of funds, the identity of payors and recipients, and often other assets obtained corruptly.
- Notes of meetings and calls with the client, or his representatives. These may contain (purported) explanations for significant transactions and sources of wealth and funds, and details of further assets.
Some documents on a solicitors’ file will be legally privileged, and not subject to disclosure. However, important categories of documents will not be privileged, merely confidential, and a third party disclosure order overrides confidentiality. Indeed, privilege may not even apply in circumstances where it can be demonstrated that the solicitor, wittingly or unwittingly, has been used by a corrupt defendant to further criminal acts.
The files of solicitors should reveal the beneficial owner of companies or trusts holding corruptly acquired assets, the identity of the person that paid for a property, the identity of the person providing instructions to the solicitors, the source of funds used to acquire the property, and the explanation given for the defendant’s wealth and the source of the funds held by or passing through the solicitor's account. Solicitors may also have generated suspicious transaction reports to the authorities as part of money laundering obligations.
It is also worth considering whether law enforcement agencies have obtained relevant documents during their own criminal investigations and prosecutions. It may be possible to obtain court orders for disclosure of documents from the authorities, as the Court will order disclosure where it is in the public interest to do so, although this may be precluded because of the risk of prejudice to criminal investigations.
No-say (gagging) orders
Disclosure orders obtained at the outset of a case are often combined with "no-say" orders (gagging orders) preventing those making disclosure from informing the intended defendant of the proceedings. This is particularly useful when it is believed that disclosure of banking or other documents may identify previously undiscovered assets that can be secured by a freezing injunction before a defendant is alerted to the proceedings and seeks to conceal his assets. When combined with a freezing injunction, this can give a measure of control over assets for a short period whilst disclosure is made.
Disclosure during proceedings
Disclosure of relevant documents usually forms an integral part of civil proceedings in England and Wales, and in other common law jurisdictions.
Whilst disclosure is not automatic, in asset recovery cases it will almost certainly be required by the Court. The likely form of disclosure order is “standard disclosure”2. This requires parties to disclose the documents on which they rely and, critically, documents that adversely affect their own case or support the other party’s case. Specific disclosure applications can be made for documents that should exist, but which are not produced during standard disclosure.
The duty of standard disclosure is broad, extending to all documents within the parties' control. A party also has to disclose the existence of documents which used to be under its control. It will include documents that parties have or have had a right to inspect, for example, documents held by representatives and advisers. The duty of disclosure continues until the dispute is concluded.
The definition of documents that might need to be disclosed is also broad. It includes hard-copy and electronic documents such as emails or text messages. In short, any item which records information should be considered. It can even include the metadata associated with an electronic document showing, for example, when the document was created, altered or deleted, and by whom.
When undertaking a disclosure exercise the disclosing party must undertake a "reasonable" search. What is "reasonable" is dependent on a number of factors including the number of documents involved, the nature and complexity of the case, the ease and expense of retrieval of any particular document and the significance of any document which is likely to be located during a particular search.
The Courts place great importance on disclosure obligations. Solicitors are required to ensure that their clients are fully aware of their disclosure obligations at the outset of a case.
Parties must produce a disclosure statement setting out the extent of the search undertaken, certifying that they understand the nature of their disclosure obligations and that they have complied with it. Proceedings may be brought for contempt of court against a party if it makes a false disclosure statement without an honest belief in its truth.
The English Courts have power to order “pre-action disclosure”, that is disclosure from a likely defendant before proceedings have commenced. The Court must consider whether disclosure before proceedings have started is desirable in order to dispose fairly of the anticipated proceedings, assist the dispute to be resolved without proceedings, or to save costs.
Pre-action disclosure is a useful tool for a potential claimant. It allows the claimant to better assess the likely success of a claim and will sometimes provide the claimant with the evidence needed on which to base a claim. It is unlikely to be used by a state against corrupt defendants themselves, as this will tip them off that proceedings are contemplated before assets have been secured through a freezing injunction. It may be a useful tool when contemplating claims against those that have assisted a public official with corruption, or the laundering of its proceeds (where the potential defendants are individuals or entities that would not be expected to conceal assets to avoid a claim). It could even be used against public officials when their assets have already been secured, for example, by criminal retaining orders obtained by a foreign state.
Disclosure in asset recovery cases
Of course, states should not expect corrupt defendants to comply with their disclosure obligations. Experience shows they will instead pick and choose what documents to disclose, deny the existence of unhelpful documents and destroy evidence. They may even fabricate documents to help their case.
But their failure to comply with their disclosure obligations will invariably strengthen a state’s case. Legitimate business and financial dealings explaining the source of wealth and funds should be evidenced by documents. Public officials tend to offer explanations for the source of wealth and funds that would be expected to generate documentary evidence if true. Wealth may be said, for example, to have come from legitimate business dealings, property transactions or bequests. Inferences can be drawn that these explanations are untrue if no supporting documents are produced. Documents that are produced by defendants often conflict with evidence obtained from third parties, or previous explanations given to banks, the media and others about the source of wealth and funds. Those discrepancies will also tend to support a state’s case that assets have been obtained corruptly.
A failure to comply with disclosure obligations may even lead to a defence being struck-out and judgment entered without the need for a trial. This has happened in corruption and other fraud cases in England where defendants have refused properly to comply with their disclosure obligations, or orders requiring them to provide information, despite being given several opportunities to do so. In these circumstances, the Court is usually asked to make an order requiring compliance by a final deadline, failing which a defence will be struck-out. In addition, a failure to comply with a court order can amount to contempt of court, leading in serious cases to seizure of assets, fines, arrest warrants or imprisonment.
The disclosure obligations can therefore make civil proceedings very difficult indeed for a dishonest defendant.
In the context of asset recovery proceedings, disclosure is usually an invaluable tool to strengthen a case and apply significant pressure to a dishonest defendant asserting that wealth and funds have a legitimate source. Failure to comply with disclosure obligations has also led, in some cases, to a defence being struck-out and judgment in favour of victim states, and even orders for contempt of court with imprisonment being ordered against the defendant.