British Virgin Islands: Inverting The Fraud Paradigm: Redefinition of the Victim

Last Updated: 10 November 2008
Article by Martin Kenney

Key to the success of any fraud recovery plan is tied to the accuracy and completeness of our understanding of the fraudster himself – or of his characteristics, habits and modus operandi. So what has that to do with redefining the victim?

The widely understood definition of 'victim' suggests a weak, perhaps gormless survivor of a calamity, susceptible to further attack and prone to casualty. But these are subjective terms. Anyone can become a victim, not necessarily because of something they are or have done, but simply because the victimizer makes a choice. So why are we suggesting that we must understand the pathos of the fraudster to help redefine the victim? Because the prey must know his hunter in order that (a) he may guard against further attack, and (b) to develop a plan to redress the victimization (such that – where something of value has been taken, it is recovered).

The most obvious way for a victim to obtain a remedy is for it to bring the victimizer to justice, whether that be through civil or criminal avenues. In order to do this the victim must learn something about the protagonist – i.e., how, why, where and when he operates. Immersion into the actor's world does not have to involve infecting the victim as such. Much can be learned from observation and analysis of key facts. Imagination and thinking are crucial tools.

The ability to step into the shoes of the sophisticated criminal, and to absorb his surrounding circumstances, proves invaluable to the person who would seek to curtail his activities.

Fraud can shatter the world of the victim. Victims of fraud can suffer for many years after the fact. Professionals who represent victims need to be sensitive to the consequences for the client, whether it is an institution or an individual. These consequences can be serious, and can go beyond the clinical notion of economic loss. In the experience of the writers, one of the benefits of re-defining the victim is that it is normally a liberating and worthy change of perspective for them to have, in contrast to doing nothing meaningful to confront the problem.

The Path to Meaningful Remedy.

The formulation of any plan requires an answer to the questions – 'what is to be achieved?' – and 'how might such end be realized?' This necessarily requires an evaluation of the considerations at play, whether they be environmental, political, economic or social in nature, or indeed a mixture of all four. In constructing a plan of asset recovery the questions are no different, and the considerations likewise. Embarking upon any plan of recovery will necessarily involve an investigation, as key to the success of any plan is access to the right information.

Any complex asset recovery investigation in the present day will almost invariably reach across international boundaries. As individual countries have moved to tackle the problem presented by fraud within the confines of their own boundaries, the experienced fraudster has recognised the need for expansion beyond these boundaries. This expansion, combined with the near free and immediate movement of value across borders, has presented bad faith actors with the opportunity to fragment their conduct across territorial lines and limits. A crime is committed in country 'A' from country 'B' – while the illicit proceeds are put into country 'C.' The local police are left piecing together the facts and evidence with limited resources and powers. The actor can spend enormous sums on complex suppression of evidence litigation and extradition proceedings. Thus, Mutual Legal Assistance Treaty requests for the collection of evidence from country 'A' to countries 'B' and 'C' get bogged-down in years of disputes. Moreover, attempts to extradite the accused from country 'B' to country 'A' are spun along. Accordingly, to avoid detection and meaningful attempts at criminal prosecution, ne'er do wells are drawn to conduct a fraudulent business multi-jurisdictionally. These phenomena have increased the internationalization of white-collar crime exponentially. In order to be able to tackle this often-formidable opponent, commitment of both financial and experienced human capital is essential.

In any asset recovery project the initial planning phase is the most critical. The first and most important consideration must be to prioritise tactical objectives. Bearing in mind the fact that in any civil recovery effort, the over-arching goal is the recovery of assets, a number of key questions must be considered. Do you have a strong case either for damages or against misappropriated assets? Which jurisdictions are involved and are they favorable to you? And, finally, where and what are the accessible assets and where are they located in relation to your principal legal action?

It is important to remember when considering the above questions that the jurisdictions involved can be separated into two broad categories – those where the assets are currently situate or through which they have passed, and those where the misappropriation or wrongs were committed. In considering the most appropriate jurisdiction to institute the main, or spearhead, proceedings, critical consideration must be given to the availability of extraordinary relief and remedies within such jurisdiction. While many jurisdictions have made commendable inroads in recent years to improve their ability to fight laundering activity, there is yet a number of jurisdictions (nine to be precise) which merit the nomenclature, 'Non-Cooperative Countries and Territories'.1

The Team.

Any effective civil recovery plan will require the employment of a serious, professional recovery team which is comprised of not just investigative professionals, but also an appropriate mix of forensic accountants, multi-jurisdictional pre-emptive remedy lawyers, information technology experts, and fraud experts. These people ought to have an in-depth knowledge and understanding of the experienced fraudster, his traits, his modus operandi and ideally his weak spots.

Inverting the Fraud Paradigm.

It must be understood that the career fraudster has access to a wealth of information and professional advice concerning the obscuring and so called "legitimisation" of ill-gotten gains. They and their professional advisors are aware of the indicia or signals which prompt scrutiny from the revenue and law enforcement authorities. They study new and emerging money laundering opportunities so that they might remain one step ahead. Both they and their professional advisors are thus well informed and have identified the loopholes and exploit them accordingly.

Having recognised the strengths of the fraudster, consider what he might think and do. The victim must build an understanding of the fraudster's goals and modus operandi. He must anticipate events. The pooling of information from all sectors of the financial market can serve to increase the understanding of transactions often used in the laundering process and their inherent attraction. Advisors such as tax consultants, lawyers and financial professionals can often provide a wealth of information drawn from personal experience. It must be remembered that, very often, the techniques and devices employed by the money launderer are similar, if not identical, to those used by the wealthy, law abiding citizen, whose objective is the reduction of tax liability or more effective estate management. The recognition and understanding of these facts are core to the ability to deal with the fraudster and the paper trails he creates.

Application of de Bono's Lateral Approach.

The application of Edward de Bono's lateral approach to thinking2 involves approaching problems, puzzles or complex questions from a different perspective to that which might initially suggest itself. A lateral approach involves taking a step back and viewing the problems presented from a variety of angles. The general human tendency is to jump in and either suggest the answer or solution that is immediately apparent, or to do so in accordance with the strict rules of logic – where each step has to rest squarely on the validity of the preceding one.

The term 'lateral thinking' was used by de Bono to describe what he had originally referred to in his writings as the "other sort of thinking", meaning, thinking which was not linear, sequential or logical. The most efficient way to describe lateral thinking is to contrast it with what might be called 'vertical thinking'. Vertical thinking is the traditional, accepted way of thinking.3

The purpose of lateral thinking is said to be one of 'movement' – movement from one concept to another – or one way of looking at things to another. In complete contrast, the purpose of vertical (or logical) thinking is to prove the truth of a conclusion. Thus, implicitly, logic suggests that there can only be one correct approach. Lateral thinking does not impose any requirement of proof or truth. Its purpose is as a creator or font of new ideas – and not as a method of testing their validity. It is thus not constrained:

"Lateral thinking is not a method for decision over action. Once the ideas have been generated, one has to satisfy oneself of their usefulness before putting them into action. To do this, one can use the full rigour of vertical thinking. But you do need to have the ideas first before you can examine them." 4

Lateral and vertical thinking can be used to complement one another. Again, the former method of thought can be used to generate new ideas – which can be tested and further developed by the use of logic.

De Bono's theory has had particular success in its application in the areas of marketing and advertising as well as in industrial relations. Moreover, according to de Bono himself:

"The area in which concept changing has the most striking effect is the legal area... Laws are set-up to deal not with things but with concepts. A law which forbids a certain concept becomes inoperative if that concept is changed...The legal area is an artificial situation where a change of concept allows one to proceed in an entirely different way." 5

Similarly, the identification or discovery of concealed assets represents fertile ground for unrestrained and varied perspectives. When, in the middle of a major inquiry, information and leads appear to have been exhausted, the use of lateral thinking to constantly provide alternatives and new perspectives cannot be underestimated. According to Professor Simon Majaro, Co-Director of the Centre for Creativity at the Cranfield School of Management, "Creative thinking is the raw material of innovation."

From an asset recovery perspective, taking a lateral approach will invariably involve contemplating or imagining how assets might have been hidden, taking into account the means used to misappropriate them in the first place, as well as what is known about the protagonist and his advisors. Patterns can be detected from what would appear to be a chaotic or random construction of facts. Lateral thinking can help us to attempt to rebuild the hypothetical asset fortress, bearing in mind methods and techniques currently available, or available within a particular sphere or jurisdiction, and an analysis of how the asset secretor has acted in the past. It is interesting to note that while a fraudster may have used a particular asset-hiding device before, that does not necessarily mean that he will not use it again for fear of being caught. Once a technique has proved successful on prior occasions, bad faith actors are loath to abandon such methods, in spite of the fact that, to an experienced asset recovery professional, such past dealing may provide a prompt to possible future conduct.

When an innovative and lateral approach suggests a new perspective, it is born from an in-depth experience and understanding of the classic dishonest obligor and his key traits. Surprisingly, as indicated above, serious fraudsmen seem to possess many common traits and follow similar patterns and modes of operation. Thus, we can anticipate the type of behaviour we may be dealing with, and the means and methods at the disposal of the actor under consideration, to hide assets.

An inventory of assets, known and suspected, should be prepared, along with a set of hypothetical income statements and balance sheets to help in estimating the quantum of assets that are missing. A map should be drawn showing the location of known and suspected assets – should they be spread across multiple jurisdictions. Having noted the means used to hide the assets, patterns usually emerge. In some cases it may even be possible to exhibit this on a graph or some other form of visual representation. (See, section 14.0 below captioned 'Link Analysis Diagramming').

In many cases, knowledge of where and how the fraudster has learned his trade, or where he obtains his professional advice, can be indicators of what means of concealing value may have been, or will be, employed in the future. Professional advisors, particularly within the asset protection world, usually employ recognized devices. These professionals are often known for the devices they employ, and indeed in many cases advertise themselves on the strength of the success of such devices. Information can be obtained from analyzing the marketing data offered by many such professional advisors. Such materials may boast about ways in which they can assist you, the reader, in hiding your assets or avoiding your creditors. In the case of Marc Harris, an American citizen who was based in Panama for several years, and who is now in custody awaiting trial in Miami for U.S. federal money laundering charges, clients could avail of what he referred to openly as 'black holes' and other devices that were explicitly described in his sales literature, to conceal wealth.

There can be no substitute for the experience that comes from many years of observing the personalities involved with fraud, their core traits and tendencies, and the means they commonly employ. Arguably, however, the introduction of new minds can provide a different perspective. The classic difficulty that arises in cases of complex fraud is that the wealth of information and evidence available can commonly result in the asset recovery professional being 'unable to see the wood for the trees'. In such circumstances, having a new or outside opinion, permits the development of an approach which is unshackled by the constraints of information overload.

Conclusion.

In any asset recovery exercise, the unexpected must be expected. Approaching problems from a restricted intellectual standpoint can often result in the unfortunate suppression of the far more innovative and effective solutions available.

One of the key benefits of redefining the victim is the element of surprise. The key traits of the fraudster include arrogance and supremacy. As a corollary, they rarely, if ever, expect to be taken to task for their actions. They certainly do not expect their victims to rise up and confront them at their own game. By following an unconventional approach, the advantage of surprise is heightened and maintained. The fraudster is then forced to anticipate the victim's next move, with the result that he is driven to take evasive action. In a well thought out and orchestrated plan of recovery, the elements of surprise, innovation and creativity will mean that the fraudster does not know from where the next pre-emptive strike will come.

Footnotes

1. This is a designation attributed by the FATF which continues to monitor the progress of specific jurisdictions in combating money laundering, and more recently, terrorist financing. The FATF is an independent international body whose secretariat is housed at the OECD. The 29 member countries and governments of the FATF are Argentina; Australia; Austria; Belgium; Brazil; Canada; Denmark; Finland; France; Germany; Greece; Hong Kong; China; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; The Kingdom of the Netherlands; New Zealand; Norway; Portugal; Singapore; Spain; Sweden; Switzerland; Turkey; United Kingdom and the United States. Two international organisations are also members of the FATF, the European Commission and the Gulf Cooperation Council. The current list of non-cooperative countries and territories includes the Cook Islands; Egypt; Guatemala; Indonesia; Myanmar; Nauru; Nigeria; Philippines; and the Ukraine. (See, the FATF's Annual Review of Non-Cooperative Countries or Territories, 20 June 2003 (www.oecd.org/fatf/NCCT_en.htm ).

2. The term 'lateral thinking' was coined by Edward de Bono in the late 1960's. See, de Bono, E., de Bono's Thinking Course (Ariel Books 1985).

3. Vertical thinking involves a thought process which is grounded in logic. The vertical thinking process is therefore a linear one. Our experience forms certain concepts, patterns and organisations. In fact, initially this is a two-stage process. At first we form 'perceptions'. This is an almost unconscious step, affected only by chance, circumstance, experiment or mistake. At the second stage we process these perceptions. It is at this point where our logical thought pattern takes shape. The thought pattern is the basis of the vertical thinking approach. Each step rests upon the preceding step and progress depends on the correctness of each step. The very basis of vertical thinking is you cannot afford to be wrong at any stage. Progress depends on success in two respects – that the pattern we have chosen is the most effective or appropriate one, and, failing this, our ability to revise our pattern in order to pursue the correct path.

4. de Bono, E., Serious Creativity – Using the Power of Lateral Thinking to Create new Ideas (Harper Collins, 1992).

5. Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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