First published in CDR: Essential Intelligence - Fraud, Asset Tracing and Recovery 2022

The COVID-19 pandemic has brought unprecedented challenges to health and human suffering, requiring rapid responses from governments to limit the rates of infection. At its onset, the extreme and sudden nature of the pandemic led governments to enforce nationwide lockdowns, which caused an immediate impact on the economy.

Whilst governments were compelled to act for the health and safety of their citizens to obtain crucial resources such as medicines and medical equipment, the Financial Action Task Force ("FATF") identified that, as a result of government funds or international financial assistance, there were increased risks of illicit finance and corruption from the misdirection of those funds (FATF Webinars on Money Laundering and Terrorist Financing and COVID-19, 30 July 2020). Indeed, it seems that the pandemic provided opportunities for the corruption and misappropriation of public funds, and the large-scale abuse of emergency procurement processes for private benefit.

In the UK, the government's response was to create economic packages to meet the urgent needs of its citizens and corporations, leading to an unprecedented fiscal bail-out in the form of the Bounce Back Loan Scheme ("BBLS"), Coronavirus Business Interruption Loan Scheme ("CBILS") and a similar loan scheme for larger businesses ("CLBILS"). Under normal circumstances, banks intent on protecting their finances would usually apply stringent checks to help mitigate the risk of fraud and ensure customers can repay their loans. However, amid pressures from the Treasury to speed up loan distribution, there was a relaxation of the usual processes and guarantees required by lenders. In the case of BBLS, credit checks were dispensed with altogether.

It then transpired that companies which were incorporated soon after the fiscal assistance was announced, and companies that had already been dissolved, were applying for these loans. Moreover, organised criminal gangs were taking advantage of the lack of due diligence. In the space of 15 months, from March 2020, the three main coronavirus loan schemes – BBLS, CBILS and CLBILS – handed out nearly £80 billion to businesses. The National Audit Office, which scrutinises public-sector spending, currently estimates that around £4.9 billion of the loan claims had been fraudulent.

Early reviews of the impact of COVID-19 on money laundering and terrorist financing by the FATF highlighted misuse of government stimulus funds as the third most prevalent COVID-related crime after fraud and cybercrime (FATF Webinars on Money Laundering and Terrorist Financing and COVID-19, 30 July 2020). The early warning signs were already there.

In the UK, the government has reportedly written off almost £9 billion spent on personal protective equipment ("PPE") during the pandemic; Health Minister Edward Agar said £2.6 billion worth of PPE kit bought for frontline NHS workers during the year to the end of March 2021 – equivalent to one in 10 of all items ordered – “may not be suitable for use within the health and social care sectors” (see Hyperlink).

The Department of Health and Social Care ("DHSC") has also admitted that a risk of fraud increased as contracts worth tens of millions were handed to companies placed in a "VIP Lane". The government set up a "High Priority Lane" in March 2020 as Britain scrambled to secure PPE supplies amid the pandemic. It came alongside a loosening of procurement rules to allow contracts to be awarded without direct competition, and it was reported that many contracts were awarded to contacts of the Conservative Party with no credible history of dealing with health equipment or health-related contracts.

For example, some 50 million masks the UK purchased as part of a US$326 million contract could not be used by the NHS due to fear of defects. The contract was between the British government and provider Ayanda Capital Limited, described as "a 'family office' owned through a tax haven in Mauritius". It is alleged the company has ties to a prominent member of the Conservative Party (Source: David Klein, 14 August 2020, available at Hyperlink).

Following a case brought by the Good Law Project and EveryDoctor, the High Court said it had been "established that operation of the High Priority Lane was in breach of the obligation of equal treatment" and noted that the "illegality" of the set-up was "marked by this judgement".

The response

Whilst lenders are required to make reasonable efforts to chase down the debts, a state guarantee means that the UK taxpayer will foot between 80-100% of losses linked to defaults or fraudulent applications. Finding funds to do so will require raising taxes and attracting foreign investment. However, both will be difficult to promote if the government has a lackadaisical response to fraud, cronyism and corruption. UK citizens are now facing an increase in living costs from rising energy bills, fuel prices and cost of goods. Adding tax hikes in an effort to haul in cash for the government, when it has led to criticism and resignations by its own ministers for its "woeful efforts" to tackle COVID-related fraud, must be particularly difficult to swallow (see Hyperlink).

It is a truism that whilst COVID-19 has changed the world in many respects, what remains the same is the law. What will define our response to corruption in the pandemic will be our selective use of the law to choose the quickest route in recovering stolen government and development funds. We must include a swift reactive as well as proactive response and follow through on pronouncements to deter fraud and corruption, by implementing and not just threatening redress, and by turning to other civil remedies that are available if criminal sanctions are lacking in their timely response. Indeed, curbing fraud and public corruption will be imperative and, to be effective, must also include an element of deterrence, and that inevitably means prosecution and recovering the spoils of those frauds.

As such, asset recovery and civil recovery must play a bigger part in the response to COVID-related fraud. The tracking of financial flows, publicising complaints, investigation, prosecution and asset recovery must take on a more significant role. But asset recovery – the process of tracing, freezing, and returning illegally acquired assets – requires tenacity and willpower.

One of the biggest problems in recovering assets using criminal law across borders is that criminal procedures have more stringent requirements for the manner in which evidence is obtained, and how it may be used in the requesting jurisdiction, whereas using civil claims to recover the money has the undoubted advantage of requiring a less strict burden of proof than is required in applying criminal law, and claims can be brought in commercial courts. In England and many common law countries, criminal allegations must be proved "beyond a reasonable doubt", while allegations in civil cases must be proved on the "balance of probabilities".

Thus, if a criminal prosecution appears unlikely, perhaps due to lack of evidence, the restitution via civil remedies should be sought, whether that ultimately results in a civil claim for breach of contract or financial misfeasance, or indeed a simple debt claim. I am a strong proponent of justice. However, justice takes many forms and stripping a fraudster of the spoils and returning assets to their rightful place is surely the most satisfying.

The key to achieving this is through a mix of intelligence, financial investigation and understanding the legal steps to undertake, to maximise the possibility of a recovery.

In many of our cases, cross-border insolvency and recognition principles have provided significant advantages if there is a debt owed, particularly in cases of fraud. It can be quite simple; a company that has received loans through fraudulent means can be wound up and actions taken against its directors and shareholders for financial misconduct, breach of fiduciary duty and misfeasance.

Many fraud and corruption schemes involve the creation and use of domestic or overseas companies for the purpose of receiving or paying bribes, transferring misappropriated assets or holding embezzled funds, which is why using civil remedies may well be the most expedient way to restrain and recover those assets. Indeed, we have used insolvency proceedings against either the entity that committed or assisted in the corruption. However, in jurisdictions such as the Cayman Islands and the British Virgin Islands (BVI), it is possible to obtain a winding-up or receivership of a legal entity based on a "just and equitable" application, which could provide additional discovery powers regarding its assets. The basis of a J&E winding-up can be based upon evidence that the company was used as a vehicle for fraud or that assets may be dissipated.

For example, in one case on which I advised, the UK firm had entered into high-value contracts with two offshore companies for the provision of PPE masks, which never arrived. The company was incorporated in the BVI. Months of prevarications ensued before the UK customer came to the realisation that the funds had never been used to purchase PPE masks but instead were highly likely to have gone into the pockets of fraudsters.

Despite the shareholders, directors and assets (which totalled tens of millions of pounds) residing outside of the BVI, it was possible to enter a simple debt claim against the company for unpaid services or goods seeking a winding-up to recover debts owed and then installing a liquidator who, under Statute, could compel the receipt of banking information from its professional service providers, including its bank.

The use of insolvency processes and/or the court appointment of a receiver or liquidator (particularly in jurisdictions that follow common law) in this case was particularly advantageous in investigating cases of fraud. Seeking a debt judgment against a company which may have provided substandard goods or has not supplied goods is appropriate for both insolvent and solvent companies. In the case of a solvent company, it would be considered in the public interest for the company in question to be wound up, having been complicit in, or used as a vehicle for, fraudulent misconduct.

But what of cases when it is the high-ranking public official who has directly or indirectly taken advantage of the urgent roll-out of government schemes to create high-value contracts, or to procure goods for themselves at the risk of endangering public services and the lives they are meant to protect as public servants?

Several cases worldwide have been documented (see Hyperlink), including:

  • Brazil: A São Paulo governor is under investigation for a US$100 million contract to purchase 3,000 ventilators at 10 times the usual price from a Chinese company (source: Brenno Grillo, 11 May 2020, Hyperlink).
  • Mexico: The son of a Mexican government official was awarded a government contract worth US$1.3 million to provide 20 ventilators – costing US$65,000 each. According to an investigation by Mexicans against Corruption and Impunity, the ventilators cost 85% more than the cheapest models previously purchased by the government (see Hyperlink).
  • Zimbabwe: The Health Minister faces corruption charges relating to a US$20 million contract awarded to a firm incorporated in Hungary only two months earlier. The award is alleged not to have gone through the Zimbabwean procurement registration authority. This follows a suspicious US$2 million payment made to the firm in March, which has been flagged as suspicious by Hungarian authorities (see Hyperlink).

It is hard not to believe the argument often made in critical criminological literature that "the less powerful typically find themselves on the receiving end of the process of law-enforcement, while the wealthier and privileged are better able to evade punishment and criminalisation" (Box 1983; Reiman 1979; Whyte and Wiegratz 2016, cited Chistyakova, Y., Wall, D.S. & Bonino, S. The Back-Door Governance of Crime: Confiscating Criminal Assets in the UK. Eur J Crim Policy Res (2019)).

Fortunately, the same simplified mechanisms can be used to strip the corrupt of their assets. A good example of using insolvency to recover assets in a corruption scheme is that of the former mayor of São Paulo, Brazil, who stole approximately 20% of funds intended for the construction of a highway around the city. A large amount of the cash had been deposited into bank accounts overseas and transferred into the control of two private companies incorporated in the BVI. After uncovering the scheme, the governments of Brazil and São Paulo successfully sued the two companies in the BVI. Brazil and São Paulo then applied for creditors' rights in a BVI court, so that insolvency representatives would be appointed. The BVI court agreed, and appointed insolvency representatives to take control of the companies. They immediately gained access to records and witnesses, enabling them to piece together the remaining assets from that which had been stolen, to be returned to the taxpayers in Brazil (see Hyperlink

In a case I am currently engaged in, my appointment, on a just and equitable basis over an entity which received funds from a fraudulent investment scheme regarding state funds, led to the discovery that it was owned by the former Prime Minister of a country. Due to my appointment, I was able to obtain banking records in relation to that entity, which provided for the ability to determine a direct tracing claim from the corrupt act, through to the individual and their assets, leading to recovery sanctions.

Recovery and reinvestment: a unique opportunity

We face a unique opportunity to fundamentally rethink anti-corruption policies and prioritise the recovery of stolen government and development funds, which can be reinvested into healthcare, education and welfare to support those who need it most in the global recession, without relying on citizens to foot the bill in order to trawl in funds from elsewhere. States lose significant resources through illicit financial outflows, affecting their capacity to fulfil their obligation to maximise available resources for the realisation of economic, social and cultural rights and to fulfil the right to development.

Governments should make firm commitments on taking decisive action to significantly improve asset recovery and return, in particular pursuing corrupt officials, and fraudsters, that have taken advantage of the pandemic to plunder state coffers.


This article constitutes general advice and should not be acted upon without taking specific advice. Neither the authors nor Quantuma International Advisory Limited accept responsibility for any actions based upon this general advice.