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Panama Papers show it is time to overhaul the judgment enforcement mechanism

Daniel Hall of litigation funder Burford Capital considers a little discussed aspect of the Panama Papers scandal.

Dmytro Sukharevskyy

Eleven million leaked documents, one law firm, a web of intrigue and a plethora of unanswered questions around tax avoidance and evasion.  The legacy of the Panama Papers is still being written—and the unfolding political impact includes David Cameron’s welcome announcement of plans to lift the veil on anonymous shell companies that buy British real estate. Undoubtedly, time and further revelations from the Panama Papers will create momentum for much-needed reforms.

Despite the huge ramifications, the detail which has been exposed is really only the tip of the iceberg.

And while the tax affairs of the rich and famous have been the main headline grabbers, the saga has actually shone a light on something which is commonplace around the world: the ease with which fraudsters and judgment debtors can manipulate the system.

It is a commonly held misconception that every defendant who has court judgments or arbitral awards against them instantly pays up and conforms to handed down orders. Sadly, that is not the case.

On too many occasions, they disappear—and then use every power they have available to them to hide assets and put their wealth out of the reach of those who should be paid. The current system makes it all too easy for fraudsters to skip around offshore jurisdictions setting up networks of shell companies and accounts into which they pour ill-gotten gains and hide assets. It allows too many judgment debtors to treat the world like their personal playground, there for their personal use while they evade and ignore their legal obligations.

Not surprisingly, then, 58 percent of in-house lawyers surveyed by The Lawyer Research Service for Burford’s 2016 Judgment Enforcement Survey said that their corporations have not been paid the full face value of judgments secured in the last five years—and 60 percent of surveyed lawyers have had clients whose judgments or awards could not be satisfied because assets were hidden in offshore jurisdictions.

For claimants, this behaviour leaves them with what effectively becomes a very expensive piece of legal paper: a judgment that cannot be enforced without further effort and expense. Claimants are often exhausted both financially and psychologically after the lengthy legal processes that lead up to their “wins” and thus have neither the will nor funds to chase, find and then seize the assets of those who owe them millions of pounds.

Judgment evaders show the same disregard if the judgment is from London, New York or Hong Kong—so it would be a mistake to assume that judgments handed down in the world’s leading legal jurisdictions are immune to this type of treatment. Even well-known fraudsters are able to set up and register new business structures in order to fluidly move wealth and assets.

What is to be done? Certainly, as the findings of Burford’s survey show, this is a much more common problem than is commonly understood, and therefore in-house counsel and other corporate leaders must be far more proactive in assessing enforcement risk and ensuring that they have the right partners in place at the outset of litigation – quite often, millions of pounds are at risk.

Additionally, the Panama Papers revealed to the world that there are professional enablers who facilitate this type of behaviour. Clearly, this is a multi-jurisdictional problem which needs to be addressed by policy. Government has a role to play, as the UK’s clampdown on the secret owners of expensive real estate has shown.  There also needs to be multilateral effort. The current process of enforcing national judgments in a global financial world is outmoded.

The leak of documents from Mossack Fonseca provides ample proof that a radical overhaul is needed – to better serve those whom the justice system has already shown to have been wronged, rather than to continue enabling the bad behaviours of those who seek to evade it.

Daniel Hall is a director of judgment enforcement at litigation funder Burford Capital

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05 July 2016

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