A treasure hunt: the process of tracing assets

When is asset tracing required?

Asset tracing is usually undertaken for the purposes of recovery, often as part of formal insolvency processes or in support of ongoing litigation or fraud investigations.

When people think of tracing, they generally think its applications are synonymous with fraud.  However, there are many circumstances where asset tracing can be of great assistance:

The process of tracing

Asset Tracing involves a complex analysis to identify assets and the flow of funds, requiring a combined skillset of forensic accounting, investigation and technology.

We perform detailed searches of publicly available information, from both a corporate and property perspective, to locate any relevant assets that may assist clients with their proceedings.

Using a sophisticated set of tools and resources, financial records, bank statements, documents and emails are analysed to reconstruct financial records and find out where the money has gone, across multiple jurisdictions.

However, tracing can often be complex and difficult due to:

• Lack of access to financial records
• Often only one side of the transaction is available
• Inability to identify counterparties
• Volume of data and transactions
• The period of review
• Number of bank accounts and bank statements
• Financial records do not match the bank statements
• Contradictory legal advice

Further complexity in the rules of tracing

The rules of tracing are used to follow a series of transactions, often through a significant number of intermediary accounts, and identify a causal link between the transactions.

The complex apportionment and priority rules that apply when tracing include:

• The lowest intermediate balance rule
• Tracing through mixed funds
• Pro-rata distribution
• Tracing into an overdrawn or loan account
• Tracing backwards

As outlined by Justice James Edelman in his preeminent article ‘Understanding Tracing Rules’, for some time the tracing rule adopted in cases which permitted tracing through a mixing of funds was ‘first in first out’. This rule was based on a misunderstanding of Clayton’s case which wasn’t a case about tracing at all. We now see this rule being rejected in many cases in Australia.^[1] 

So, what does this all mean?

Engaging forensic accountants with specific expertise in asset tracing can make a substantial difference in what misappropriated assets are recovered and exactly how much. Our team of specialist forensic accountants and investigators have extensive experience in tracing assets and the flow of funds.

As part of our global network of 62,000 people across 750 offices, we have specialist resources focused solely on asset tracing and recovery for parties who have suffered a financial loss. We frequently combine these abilities with wide-ranging discovery tools available to Liquidators and Receivers, maximising our investigative powers across multiple jurisdictions.

Contact our team of experts today.