Ten golden rules to succeed at Asset Recovery.
An audio version is also available
Ten golden rules to succeed at Asset Recovery
Some people prefer audio to written articles, so I thought I would try out Substack’s audio tools for the first time on this, particularly well-received, post. I have simply read the article out loud and recorded it, so if you have already read it; it is more of the same. If you have a friend who prefers audio to the written word they might like this ve…
It’s early in the morning and the Accredited Financial Investigator is in the back of the command car with the Senior Investigating Officer, after all it is the financial intelligence that has identified the real home address, the lock-up and the company address that will all be raided shortly. There was some moaning earlier at the briefing, because it is an hour earlier than usual, to allow for the premises in Europe to be simultaneously raided. This is to catch the co-conspirators also identified by the financial connections. The AFI is mentally ticking off the preparations for the raid: the ‘raid bag’ contains evidence bags and forms assuming that cash will be found and seized; a useful money laundering clause was inserted in the wording of the search warrant that will effectively allow the searchers to look everywhere that a sheet of paper might be hidden, i.e. anywhere. The freezing order is also in the bag, for personal service on the target, once the guys in helmets have boshed the door. Another copy is on its way to the harbour, fifty miles away. The senior financial investigator has authorised lifting the yacht onto the hard standing (thereby incurring shipyard rental costs) and the purchase of a chain and padlock to secure the hatch. A reminder that securing assets costs money. The freezing order needs to be served in person so a luckless observation team have been up all night watching the front door, but it was a nice touch to be able to confirm to the SIO that the main target’s card had purchased a pizza delivery last night. The financial interview plan is also in the bag. They will probably ‘no comment’ the crime interview, but they will have to sing in the financial interview or risk losing the cash to forfeiture straight away. The radio confirms from the door-boshing team that “Premises are secured”, the AFI smiles to herself; it’s time to put the weeks of financial intelligence gathering into practice.
From 2002 onwards, following the Proceeds of Crime Act, I had the good fortune to be in operational command of AFIs involved this kind of work. I was also on the national implementation committee for ten years, steering the transition to routine and successful asset recovery in the UK. After that I gave consultancy advice to other countries on how to achieve successful asset recoveries.
It boils down to ten Golden Rules. If a country follows the Golden Rules than it should succeed. If even one of the Golden Rules is not followed then it will fail, either partially but probably completely. This may seem harsh, but failure is the global norm. If asset recovery was easy, we would all be doing it, celebrating it and poking fun at countries whose courts allow convicted criminals to keep the money they have made from crime. In the majority of countries judges and policy makers fail to protect their populations from crime by allowing it to pay. As the UK did, prior to 2002, lest we forget.
Most countries do not confiscate any proceeds of crime from the criminals who are convicted in their courts. Instead convicted criminals get to keep the money. ‘Most’ actually means 80% according to the Financial Action Task Force[1], the global standard-setter, and the only body which evaluates this activity. Even the remaining 20% do not publish any comparable statistics, so no-one actually knows the truth. Indeed, there is no study comparing even two countries to find out if any country is better or worse at confiscation than any other country. There are any number of comparative studies of confiscation legislation, but nothing about implementation or asset recovery results. Please correct me if I’m wrong.
The FATF does not explain why these grades are so low but many commentators attribute the failure to ‘lack of political will’. It may also be that policy makers don’t know what to do. Hence this suite of ‘Golden Rules’. These are my rules. I developed them from first-hand experience in multiple jurisdictions, including when I wrote the ‘Handbook for Financial Investigation’ for the European Union[2]. I would like to thank the hundreds of people from dozens of countries who helped me understand how their particular asset recovery regime worked.
My view is that confiscation does not happen because financial investigation doesn’t happen. This may be because of a lack of political will, but it may simply be that no-one has thought of doing it. This may seem a surprising thing to say, but in the 1990s in the UK, I was in the frontline against crime and the option of financial investigation was not considered important[3], indeed, it was hardly discussed at all. I wish I had known then, these Golden Rules.
These are the Golden Rules
1. What you seize is what you get (Wysiwyg). Cash is especially important and should be separately litigated at the civil standard of proof.
2. A financial investigation should always begin before an arrest
3. SARs should be sent to end-users NOT ‘made available to them’
4. The criminal investigator cannot also be the financial investigator
5. Frozen assets should not be available for legal defence costs
6. Confiscated monies should be recycled to the agencies that did the work.
7. Financial investigators are a separate profession.
8. National coordination of agencies is required in this dynamic operational area.
9. Good statistics underpin effective asset recovery.
10. Economic, financial or ‘white-collar’ crime is just crime.
Let’s just dig a bit deeper into each of these Rules.
Rule 1
What you seize is what you get (Wysiwyg).
Criminals want to keep their money and they try very hard to frustrate efforts to confiscate it. If assets are not secured by physical seizure or court order at the point of arrest they will not be there for confiscation. There are no exceptions to this rule.
Cash is a uniquely important category of asset. It is often simultaneously the instrument of future crime, working capital and the proceeds of previous crimes. There is rarely evidence that confirms beyond reasonable doubt which of these is true so its seizure as evidence can be legitimately challenged. The result is that most police in most countries do not seize cash, because they have no power to do so, they just leave it where they found it. For this reason, the cash should be separately seized and litigated at the civil standard of proof. This is common practice in the USA, Ireland and the UK.
Rule 2
A financial investigation should always begin before an arrest.
There are two reasons, firstly in order to follow Rule 1, assets need to identified in advance so that they can be secured at the point of intervention. ‘Arrest’ is shorthand for the point when the suspect knows that they are under investigation and can take action to conceal assets. Secondly a pre-arrest financial investigation is very likely to identify other assets, suspects, crime scenes and physical risks that may face arresting officers.
Rule 3
SARs should be sent to end-users NOT ‘made available to them’.
Financial information and especially Suspicious Activity Reports reveal the circulation of the lifeblood of crime and have been called the ‘modern DNA’. SAR data should be immediately sent to frontline intelligence units for inclusion in their databases. Anyone who understands intelligence knows that immediate, unrestricted access is best achieved by doing this. Failure to send SARs to law enforcement intelligence units without a compelling reason is, in my view, a neglect of a civic duty to prevent crime.
Rule 4
The criminal investigator cannot also be the financial investigator.
This is because it is humanly impossible. Asset tracing and recovery laws are so conceptually different from criminal investigation that each piece of information and evidence would need to be looked at twice, hence the utility of parallel investigation. The FATF correctly promulgates globally the concept of ‘parallel investigation’, meaning that criminal investigators gathering information and evidence to solve a crime, work in parallel with financial investigators tracing and seizing the proceeds of the crime (as well as providing financial information that helps solve the crime). Untrained, inexperienced or simply incompetent managers try and cut corners and try to get one investigator to do all the above tasks. It cannot be done, that’s why it's a Rule.
Rule 5
Frozen assets should not be available for legal defence costs.
It is morally wrong to spend the victims’ money on protecting the criminal. It is also a stupid affront to justice, any defendant would be content to expend all the victims’ money on spurious defences to try and escape conviction. This is especially so, in a working criminal justice system in which the money would be confiscated anyway.
Rule 6
Confiscated monies should be recycled to the agencies that did the work.
This should be done using the principles of additionality, subsidiarity, transparency and reinvestment in asset recovery activity. The policy change to recover assets from criminals instead of letting them keep the assets does require investment in training, extra staff and some equipment. Training is needed, particularly of police managers, specialist prosecutors and judges, but also financial investigators and financial intelligence officers. Parallel investigation (see Rule 4) involves training the best criminal investigators to undertake financial investigations and then deploying them away from criminal investigation to financial investigation. Much financial investigation can be done from a desktop computer, but these staff also need to travel to searches and interviews, some of which will be abroad. Some specialised software will also be needed.
All justice agencies can reasonably assert that they are resourced for what they do and any extra activity should warrant extra resources. Most will assert that they are under-resourced already. In due course asset recovery will, invariably, generate ‘profit’ and there will be multiple efficiencies from the fact that financial investigation is better, quicker and cheaper than other investigation techniques. For national policy makers, however, the promise of future money does help with need to invest in change management now. This was the logic that led to the incentive scheme in the UK (introduced in 2004). This increased asset recovery by a factor of ten or twenty (or more, depending which measures are used). This is suggested as good practice[4]. The UK experience was that, once the agencies were better resourced through asset recovery recycling, it became possible to support crime prevention charities in blighted communities.
Rule 7
Financial investigators are a separate profession.
It is obvious that a separate suite of laws for asset tracing and recovery requires specialisation. Less obviously the transition for the best criminal investigators to become financial investigators is quite smooth. However, switching back and forth is not easy, it takes experience to become a skilled financial investigator.
Financial investigators should be led by Senior Financial Investigators who understand how to safely deploy intrusive powers and ensure that staff are fully occupied. They should be deployed in teams with other financial investigators to minimise corruption and maximise efficiency. Mixed teams of financial investigators from different agencies are particularly effective, bringing diverse skillsets together and maximising experience of different types of crime. Equal terms and conditions across agencies, has the potential to create career path options and would encourage retention. Teams should be deployed as near to the frontline as possible, for example, in police stations to address local issues of burglary, robbery, public disorder and other crimes.
Rule 8
National coordination of agencies is required in this dynamic operational area.
Financial investigation can be deployed against all crimes, especially crimes ‘predicate’ to money laundering. The global Financial Action Task Force has a list of these and it is – correctly – all-encompassing; including every crime you can think of that generates money from simple theft to environmental pollution and from contract murder to human trafficking. For this reason, multiple agencies should be using asset recovery. Previous experience in the UK indicates that seventeen national law enforcement agencies use asset recovery as well as over three hundred local authorities. The financial sector is extremely dynamic, offering multiple products with financial investigation utility. It is quite hard for full-time operatives to keep up and organisationally, mere protocols or MoUs are insufficient; active financial investigation leadership is required.
Rule 9
Good statistics underpin effective asset recovery (and support Rules 6, 7 and 8).
If asset recovery is not measured it is not done. At a minimum, statistics should reflect the asset recovery of evidence separately from the asset recovery of the proceeds of crime. It is easy to dupe the FATF into reporting that the confiscation of assets is taking place when in fact it is just the routine disposal of evidence which happens to have a monetary value. Asset recovery statistics should be published as part of the normal publication of crime statistics, or they lack context. This will be especially important if staff promotion and transfer opportunities are determined by operational performance. Asset recovery is a significant deterrent, for this reason the number of people being litigated is more important than the monetary value recovered.
Rule 10
Economic, financial or ‘white-collar’ crime is just crime.
Many countries cripple their fight against crime of all types by putting their best intelligence and their most effective techniques in small ‘economic’, ‘financial’ or ‘white-collar’ crime units. This is a tragic policy mistake.
These Rules have been distilled from some of the thinking set out in last year’s book the ‘War on Dirty Money’ by me, Tristram Hicks and Dr Nick Gilmour.
[1] The FATF evaluates operation effectiveness in eleven areas and the observed immediate outcomes are graded ‘low’, ‘moderate’, ‘substantial’ and ‘high’. Only 20% of countries have grades above moderate.
[2] For clarity, I was the project manager of over 100 Subject Matter Experts from every EU state who contributed to the manual (now hosted by Europol) which I edited.
[3] My apologies to the handful of trailblazers in the police & Customs who tried extremely hard to make pre-POCA laws work, but POCA really did change a failed regime into a successful one.
[4] The UK Incentive Scheme has recently been criticised (with some justification) as no longer ‘incentivising’ better performance, but merely supporting existing work. With hindsight, the regime could have benefitted from a formal review system that ensured the scheme kept to sound principles.
Interesting post with which I generally agree. But:
a) Rule 0 should be: "don't allow anonymously owned/beneficial ownership of legal entities". Many more dirty assets are tied up in, for example, South Dakota trusts and New York private investment schemes than in cash.
b) Rule 1 on cash should be extended to automobiles, planes, and boats, all of which are worthwhile assets for collection.
c) There is nothing here on real estate, which seems a big omission. it will be interesting to see if the recent UK reforms on property seizures generate any actual progress, vs. the previous failed regime.
d) "Don't allow seized assets to be used for legal defence" comes too close to "guilty until proven innocent". Which by the way, is the U.S. standard on cash seizure, not the civil standard of proof. There are well-documented instances of U.S. lawmen acting as de facto highway robbers, particularly against non-white suspects. Maybe "only allow judge-approved expenditures from seized funds" or something similar, in order to allow a defence to be effectively mounted. Remember that these rules are used most avidly by dictators, not democracies.
e) Don't confuse the FATF Effectiveness regime with true effectiveness. My own research indicates that 80 per cent of the FATF score can be predicted by whether or not the jurisdiction under consideration is black majority, a small island state, or a white majority ex-British colony. Put simply: the FATF effectiveness ratings are racist and blatantly rigged, so the less attention we pay them, the better. By the way, the technical compliance regime is considerably better.
f) Regarding SARS, there is generally a legal requirement for reporting entities to file them at a central collection point. It's not the filing entity fault that SARS are slow in getting to who needs them. While on this topic: what is stopping us from creating a "fire alarm SAR" that entities can file when their normal processes identify a probable crime? These super-SARS should get urgent attention from the authorities, not be mixed in with millions of low value reports.
A lack of will that goes beyond politicians to pollute the minds of PCCs, senior police management and SIOs.
If only financial investigation could be given the value, I believe, it deserves. I often found it viewed with suspicion by SIOs and have personally been told a dismissive "go and do your...thing".
One aspect that has a negative impact is that the FI world is not a route to police promotion. In fact, the opposite. Tristram, you were one of the few senior officers in the UK who had an appreciation of the value of FI work, maybe a handful of others, but they remain rare. Even in the City of London Police we see senior positions in strategic Economic Crime roles being filled by people with no background as FIs.
I am pleased to see in Rule 7 that you consider career options. Some of the best financial investigators I worked with were not police officers but had a background in Customs, accountancy or local authority finance. An framework that allows FIs to move across agencies and progress would be invaluable. Otherwise, they will be enticed into the private sector.
Whilst in the police, I tried my best to impress on everyone the value of FI work and I know some found me tiresome. I have sat in intelligence briefings at Level 1 and 2 suggesting that we look at a drug dealer through the financial lens. That drug dealer is dishonest, something many officers refuse to acknowledge. If they have a house with a mortgage then they lied on their application, fraud (or false accounting in the old pre-2006 days) - a crime for you on a plate along with asset recovery of their house. If they put forward false income details in response then get the HMRC criminal team involved. Check if they ever made an insurance claim, at least 90% chance that will be dishonest. Let the criminal community learn that person has lost everything. Influence the thoughts of the 16 year old who looks to aspire to be that person. But no, the decision maker was too often influenced by officers who wanted to conduct expensive surveillance and speculative searches in the vain hope they might catch that person in a drugs deal, even knowing they were never 'hands-on'.
I recall Merseyside Police set up a team to target drug dealers and other disruptive criminals in a similar way. Possibly called Operation Oak? Pioneering a proactive use of FI - when I visited them they were riding high on success, but it did not last and I heard the team was disbanded.
Until asset recovery becomes a form of mainstream policing and forces, along with PCCs, have their performance measured by it then I fear it will never be taken seriously.