by Greg Hallahan, Ralph Stobwasser, Arnold Castillo

The tension among regulators between the push for increased transparency and the need to protect individual privacy is always apparent in asset searching exercises. This tension is a global phenomenon, central to the ongoing debate surrounding registering beneficial ownership information.

On one hand, legislation such as the UK’s Economic Crime and Corporate Transparency Act 2023 (ECCTA) and the US’s Corporate Transparency Act (CTA) is being introduced in numerous countries to enhance transparency and make it more challenging to conceal assets. These acts aim to shed light on the owners of companies and assets, a move welcomed by those seeking to combat financial crime and tax evasion.

However, the initiatives behind these acts clash with shifts on data privacy and protecting Personal Identifiable Information in many jurisdictions worldwide. Greater accessibility of beneficial ownership information raises concerns about potential misuse and abuse of this data, which creates a challenging balancing act for legislators and regulators worldwide. How to ensure the information is available to combat financial crime while safeguarding individual privacy rights?

This fundamental conflict is further complicated by the proliferation of digital assets and sophisticated concealment techniques. To navigate this shifting terrain, professionals must adopt strategies that are not only just reactive but also forward-looking.

Early Investigation: A Proactive Approach

The most effective asset searching approach is to initiate the investigation early on, ideally at the outset of a transaction. This proactive strategy allows investigators to delve into the counterparty’s financial landscape while the latter is more likely to be cooperative and transparent. By obtaining financial statements and asset information as part of the initial diligence exercise, you also establish an assets snapshot that you can use for future comparison, which is particularly helpful for identifying the dissipation of assets in the interim.

Coordination: How to Work with Counsel

To maximize the effectiveness of any asset searching investigation, counsel should provide the investigator with as much start-up information as possible, ideally including the results of any initial due diligence undertaken, detailed personal identifiers, and any geographic clues (including through anecdotal comments obtained from informal conversations with the counterparty) as they may provide valuable leads.

Given the ever-increasing sophistication of open-source intelligence resources, a counterparty’s digital footprint can be a goldmine of valuable data points. Reviewing archived corporate websites, scrutinizing social media profiles (including of individuals adjacent to the counterparty), utilizing leaked/breach data, and employing advanced deep web searches can uncover obfuscated financial information, historical assets, luxury items, travel patterns, property ownership, and undisclosed affiliations. Specific AI tools should also be gradually woven into many facets of checks.

In addition to online tools, investigators can leverage human intelligence gathered from discreet interviews with well-placed local sources. Such sources often provide practical insights that lead to new avenues of open-source research, which may have remained unknown and undiscovered otherwise. This is particularly helpful when dealing with opaque corporate structures and/or jurisdictions.

Close collaboration between counsel and investigators throughout the exercise is essential to develop effective legal strategies. Steps will include, but not be limited to:

• Collectively focusing on assets in jurisdictions with favorable enforcement laws.
• Understanding which assets may have outsized leverage in negotiations will improve the client’s chances of a successful outcome (for example, those with sentimental value for individuals or particular strategic importance for corporates).
• Identifying and assessing any encumbrances on identified assets and reviewing the influence and priorities of other creditors.
• Determining whether dissipation or fraudulent conveyance has occurred.
• Prioritizing and sequencing recovery actions.

Keys to Success: Essential Characteristics of an Effective Asset Searching Team

The ideal team should demonstrate the following key characteristics:

1. Open-Source Intelligence Capabilities: The ability to creatively leverage open-source information, not only public records, press, and social media but also deep and dark web scraping tools, leaked/breach data, archived information and obscure filings, to uncover valuable leads.
2. Knowledge of and Access to Proprietary Information: Having access to and an expert understanding of proprietary, specialist databases and data sources. Your team should be able to access data sources that provide sufficient global coverage, both onshore and offshore, to ensure a competitive advantage. 
3. Experienced Local Knowledge: Your team should demonstrate a nuanced understanding of local laws and know where to obtain pertinent asset information (often at a granular level), which is essential for effectively navigating the complexities of different jurisdictions.
4. Source Networks: Local knowledge should also include a network of well-placed, discreet sources who can provide invaluable insight into where you might find a counterparty’s assets.
5. Strategic Thinking and Tactical Execution: Extensive experience working with counsels over many previous exercises to practically identify potential leverage points and help tailor practical, enforcement strategies to achieve optimal results.

By combining these capabilities with a proactive and collaborative approach, asset-searching professionals can significantly enhance their ability to uncover and recover hidden assets. The dynamic nature of today’s global financial systems demands an agile and informed response to stay ahead of those employing increasingly sophisticated means to obscure wealth.