Asset tracing – a beginner’s guide

Mark BallamyOctober 2015

www.ballamy.co.uk

It is the process of identifying assets which

represent those which were initially

misappropriated as a result of fraud.

What is asset tracing?

the rules of common law (which recognises

legal title)

the rules of equity (which recognises

beneficial interests)

English law contains two sets of rules:

Perpetrators

Accessories

Recipients of the proceeds of fraud

Who may a victim of fraud sue?

Electronic payments

Mixed funds

Limitations of tracing money at common law

• it was the victim’s money to start with, and

• the defendant received the same money.

Tracing money in equity I

the mixed fund rule

the rule in Re Hallett’s Estate

the rule in Re Oatway

the lowest intermediate balance rule

the overdraft rule

the rule in Clayton’s case

Tracing money in equity II

£100

Day 1

Victim’s bank account

Straightforward transaction

Fraudster’s bank account

£100

Day 1

Mixed fund

Victim’s bank account Fraudster’s bank account

£80

£70

£50

£100

£50

Day 1

Day 3

Re Hallett’s

Day 2 £70 – Living

Expenses

£80 – Asset

Victim’s bank account Fraudster’s bank account

£100

£50

Day 1

Day 3

Re Oatway

Day 2

£70 – Living

Expenses

£80 – Asset

Victim’s bank account Fraudster’s bank account

£100

Day 1

The lowest intermediate balance rule

Day 2 £70 – Living

Expenses

£50

£50

Victim’s bank account Fraudster’s bank account

Day 4£110 – Asset

£30

£30

£100

£50

Fraudster’s own money

Day 3£50

£100

£30

Day 1

The Overdraft Rule

Fraudster’s bank account

£50

Overdrawn

Day 3

Victim’s bank account

£100

Fraudster’s own money

Day 2

£30

£80 – Asset

Victim 1

Victim 1 -

£100

£100

£50

Rule in Clayton’s case I

£20

£40

Victim 2

Victim 3

Victim 4

Victim 2 -

£50

Victim 3 -

£20

Victim 4 -

£40

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

£70 – Living

Expenses

£100 – Asset

£40 – Living

Expenses

Fraudster’s bank account

Total

Victims’ bank accounts

£210

Victim 1 = £30

Victim 2 = £50

Victim 3 = £20

Victim 4 = £0

Total = £100

Victim 1

Victim 1 -

£100

£100

£50

Rule in Clayton’s case II

£20

£40

Victim 2

Victim 3

Victim 4

Victim 2 -

£50

Victim 3 -

£20

Victim 4 -

£40

Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

£70 – Living

Expenses

£100 – Asset

£40 – Living

Expenses

Fraudster’s bank account

Total

Victim 1 = £0

Victim 2 = £40

Victim 3 = £20

Victim 4 = £40

Total = £100

Victims’ bank accounts

£210

• The sequence of transactions

• Pre-existing credit balances

• Clearance of overdrawn balances

• Amalgamation of balances

• Certificates of deposit

• Continuing evolution

• Clarity is crucial

• Hawala

Some further considerations

…speedy and effective interaction between lawyers and

forensic accountants is vital to

obtain promptly banking documents which evidence

the onward payments of trust money

ensure that freezing and restraint orders are

obtained at the earliest possible opportunity

and finally…