In a landmark judgment on 3 August 2015, the Judicial Committee of the Privy Council (the Privy Council) expanded the doctrine of “tracing” to allow “backwards tracing”.
In circumstances where an asset is stolen and changed into a different asset (for example, if stolen money is used to buy a house), “tracing” allows the victim of theft or fraud to claim proprietary rights over the substituted asset. “Backwards tracing”, on the other hand, involves tracing into property which the alleged criminal already owned prior to the misappropriation.
The Privy Council was considering a case on appeal from the Court of Appeal of Jersey, involving an attempt by the state of Brazil and the municipality of Sao Paulo to recover money, held in accounts in Jersey, which represented bribes paid to the former mayor of Sao Paulo in connection with a major road building contract.
The Privy Council confirmed that, in principle, backwards tracing is possible. It noted that “[t]he development of increasingly sophisticated and elaborate methods of money laundering, often involving a web of credits and debits between intermediaries, makes it particularly important that a court should not allow a camouflage of interconnected transactions to obscure its vision of their true overall purpose and effect”.
While the judgment was that of the Privy Council, it will constitute highly persuasive authority in English law, not least because all members of the presiding judicial committee are serving justices of the Supreme Court of the United Kingdom. As such, the decision should provide victims of theft or fraud with a wider range of options when seeking to follow their stolen property.