This 14th post in the “Divorce & Hidden Money” series focuses on an ex-husband who lived offshore and had not paid child support or spousal maintenance for decades. In such situations, letters rogatory might be filed to help gather evidence about any assets hidden offshore. If assets are hidden offshore, another remedy may be filing a lawsuit alleging assets have been fraudulently transferred.
For thirty years the ex-husband in Janet O. v. James O., slip op. 51985 (Sup. Ct. N.Y. County, October 17, 2006) had not made one single child or spousal maintenance support payment. By living in places like Barbados, the Dominican Republic and Mexico, the ex-husband had offshore asset protection and could hinder enforcement proceedings brought for his ex-wife &/or their three sons. After the divorce, the ex-husband remarried and adopted his new wife’s two daughters. Meanwhile, his ex-wife and three sons were relegated to a life of hardship, poverty and public assistance.
One of their sons even had to quit college to become a construction worker to support the ex-wife. Likely to have little practical effect on the absconding ex-husband were: the seizure of New York bank accounts, income tax refunds and lottery winnings; the denial of new and renewed passports; driving license restrictions and the referral of cases for criminal prosecution. See generallyN.Y. Dom. Rel. §§ 244; 244 (a) – (d) & 245, Family Court Act §§454, 458-a, 458-b & N.Y. Civ. Prac. L & R § 5241. Given the ex-husband’s default for decades, the Janet O. Court did however, indicate it would seek the ex-husband’s extradition.
Based In Basel & Zürich, Switzerland, UBS is “recognized as the largest and fastest-growing large-scale wealth manager in the world.” Source: UBS Annual Review 2013, p. 12.
The International Consortium of Investigative Journalists’ Swiss Leaks project, (“the Project”), arises out of whistleblower tips from Mr. Hervé Falciani who worked as a software technician at HSBC in Geneva. During 2008, Mr. Falciani reportedly supplied the French government with the Swiss bank account information of more than 100,000 HSBC customers from over 200 countries. The true beneficial owners of these accounts range from foreign dictators to American actors.
The Project is outlined by the article “HSBC Scandal Heightens Calls for Tougher Bank Oversight.” The article mentions “[t]he use of secret accounts and shell corporations to hide cash and its account holders is hardly confined to HSBC. Another banking giant caught engaging in this was Switzerland’s UBS. And there have been others.” According to reports published today by the Guardian, CNN &/or the BBC, Swiss police raided HSBC offices in Geneva, Switzerland. The police raids could be based on suspected violations of Art. 305bis Swiss Criminal Code: Money Laundering (English Translation) & other anti-money laundering laws.
The police raids and the Project bring to the fore the problem of money laundering through Swiss bank accounts. There are however, some Swiss reforms in this area. The reforms are outlined at an e-mail Swiss counsel sent me last week. The e-mail emphasizes there are “fundamental changes affecting the Swiss financial markets” and says “the business model of the banks is changing towards more transparency on tax matters.” Part of the e-mail is reproduced below and its key points are: Continue Reading
The City of Zürich depicted above, has a webpage that says “[a]s the largest city in Switzerland, Zürich is the economic motor of the surrounding region and indeed the whole country.” This 13th post in the “Divorce & Hidden Money” series examines what a divorcing spouse might do if marital assets are concealed in a Zürich bank account or elsewhere in Switzerland. The post was first published at The Asset Search Blog during 2008 and the post still provides up-to-date information. The post analyzes ways one can interdict bank accounts & other assets hidden in Switzerland. It quotes Swiss counsel who describes using criminal law tools; attaching (i.e. freezing) assets; seeking letters rogatory; & tipping the Swiss Money Laundering Reporting Office (“MROS”):
“As you probably know, Switzerland does not follow the common law doctrine. We do not adhere to the institution of discovery. The usual tools available to a claimant are therefore the filing of a criminal complaint, which is actually the most efficient way to get past the banking secrecy. Access to the information will be granted only if someone can be indicted. In exceptional circumstances a broader access to the information collected within the frame of the criminal investigation can be granted on a discretionary basis.
If the claimant does not wish to resort to the criminal law tools, he has the option to file an attachment. In order to obtain an attachment, the claimant must show that his case presents a close enough connection to Switzerland. He must establish that the assets are located in Switzerland and he must make a summary statement of his claim.
It is usually required that a guarantee equivalent to 10% of the claim be filed; in certain circumstances, the payment of a guarantee requirement may be avoided especially where the claimant initially filed a criminal complaint under which the same assets have been attached by the criminal judge. The combination of a criminal and civil attachment is recommended in some instances.Continue Reading
In addition to hiding real estate through his nominee, prosecutors accused Mr. Memmott of embezzling hundreds of thousands of dollars from law firm clients and friends. One of Mr. Memmott’s victims was Merrill Osmond, lead singer of the world famous Osmond family. Mr. Memmott is believed to have embezzled $60,000 from Mr. Osmond. Another victim was Ms. Ranelle Wallace, who was left homeless by Mr. Memmott because he reportedly embezzled $37,000 from her. Prosecutors claimed Mr. Memmott hid these and other funds he embezzled, in business bank accounts belonging to his nominees. Mr. Memmott’s suspected use of nominees to conceal assets, was just one red flag of fraud in his case. Other red flags were: Mr. Memmott’s claim at his June 9, 2005 IRS Form 433-A, that he had no bank accounts; Mr. Memmott’s alleged use of back-dated promissory notes; and Mr. Memmott’s suspected use of a business bank account instead of a trust account.
B) Mr. Memmott’s June 9th 433-A Form
Click Here for the June 9th 433-A Form¹
When the IRS determined that Mr. Memmott owed about $655,555 in unpaid personal federal income taxes for years 1993-1999, it assigned IRS Revenue Officer Miller to search for Mr. Memmott’s assets. On June 9, 2005 Officer Miller had Mr. Memmott execute an IRS Form 433-A, Collection Information Statement. At this June 9th Form, Mr. Memmott indicated he had no personal bank accounts. This was a red flag for Officer Miller who testified at Mr. Memmott’s trial that: “I just found it very odd that the defendant was an attorney, a businessman, he was receiving Social Security, but he had no personal bank accounts. So that was kind of an indicator of fraud for me because it just was so out of the ordinary to have someone of that stature not have a personal bank account.”Continue Reading
I first published this post on December 14, 2007 and it is now the 12th post in the “Divorce & Hidden Money” series. As shown below, a divorcing spouse’s effort to valuate marital assets occasionally raises tax fraud or other criminal law issues. Furthermore, assets and income can be concealed by pocketing cash; using a business bank account to pay personal expenses; and cashing checks instead of depositing them into a bank account:
As my post “Divorce, Child Support & Reporting Tax Fraud” mentioned, divorcing spouses sometimes tip the IRS about a suspected tax fraud. Mrs. Benjamin for example, tipped the IRS because she thought that her divorcing husband had underreported revenue from his commercial maintenance and landscaping business. She specifically provided the IRS with the business documents Mr. Benjamin had produced during the pretrial discovery phase of their divorce case. These documents included payment summary records from Mr. Benjamin’s customers like Wal-Mart. As part of her tip to the IRS, Mrs. Benjamin also turned over joint tax returns which Mr. Benjamin had supposedly filed for the years 1998 and 1999.
A records check at the IRS however demonstrated that the 1998 and 1999 joint tax returns had never actually been filed by Mr. Benjamin. The IRS also learned that from 1997 through 2001, Mr. Benjamin had neither paid income tax nor filed state or federal income tax returns. IRS Special Agents then received false information from Mr. Benjamin when they interviewed him at his home on June 26, 2002. The IRS also reviewed Mr. Benjamin’s bank accounts and conferred with Wal-Mart along with Mr. Benjamin’s other customers. As a consequence of its asset search and tax fraud investigation, the IRS finally determined that Mr. Benjamin’s total gross receipts or sales between 1998 and 2001 had actually been about $1,139,470.18; and that Mr. Benjamin had a $129,396.91 tax liability.
The IRS further recognized that Mr. Benjamin had hidden assets and income by: pocketing cash payments from customers; paying personal expenses from a business bank account; and cashing customers’ checks instead of depositing them into his bank account. During its investigation, the IRS additionally discovered that Mr. Benjamin had defrauded Wal-Mart through a false invoicing scheme. By seeking payment for services he had never performed, (and faxing Wal-Mart twenty-two phony invoices between February 2001 and January 2002), Mr. Benjamin had duped Wal-Mart out of $417,583.
The IRS criminal investigation started by Mrs. Benjamin’s tax fraud tip eventually led to Mr. Benjamin’s 58 count indictment on July 27, 2005 in U.S.A. v. Benjamin, Index # 05-Cr-00348, U.S. District Court, District of Colorado. Pursuant to his January 5, 2006 plea agreement, Mr. Benjamin pleaded guilty to violating 26 U.S.C. § 7201 (tax evasion) and 18 U.S.C. § 1343 (wire fraud). Because of his white collar crimes, Mr. Benjamin was sentenced on June 16, 2006 to serve two years in prison followed by three years of supervised release. As Mr. Benjamin’s sentence and criminal judgment both mentioned, he was also directed to start making restitution payments to Wal-Mart after his release from prison.
In the Breaking Bad television series, Walter White hid profits from his illegal manufacture of methamphetamine. He hid illicit drug profits in a crawl space under his house, as the video above partly reveals. Walter and his wife Skyler also laundered money through the A1A Car Wash. Walter’s partner in crime, (Breaking Bad’s Jesse Pinkman), purchased real property with illicit cash and drug kingpin Gustavo Fring opened 12 secret Swiss bank accounts. These asset concealment schemes were described by my post “How Walter White Could Take His Money To A Swiss Bank .” My post also mentioned Walter could have concealed his illicit profits by using diamonds, as set forth at “Secreting Assets Without A Border Trace.”
“Secreting Assets Without A Border Trace” discussed the fact pattern of a Ponzi schemer who might have travelled to Luxembourg and then concealed Ponzi scheme proceeds in a secret bank account there. Besides the above-mentioned asset concealment schemes, there are countless others. The following posts also describe what conceivably could have been fact patterns involving asset concealment schemes.
Your divorcing husband/wife may try to cheat you out of your fair share of marital assets by employing the following tactics in anticipation of a valuation, equitable distribution or other court hearing:
NOMINEES: Paramours, friends, family members or business entities might secretly purchase real estate, automobiles and other valuables on behalf of a divorcing spouse, as nominees (i.e. intermediaries). A divorcing spouse may also utilize nominees to open bank accounts which the divorcing spouse then transfers his/her cash to. Some additionally conceal these nominee bank accounts by hiring a third party to be the signatory on the accounts, as discussed at this webpage offering a nominee bank signatory service.
FRAUDULENT TRANSFERS: When fraudulent transfers are used to hide assets the subject of a divorce, the Court looks for suspicious circumstances known as badges of fraud. For example, the Court in Dempster v. Overview Equities, Inc., 773 N.Y.S.2d 71 (2d Dept 2004), commented that a divorcing husband’s transfer of his residence to a Delaware corporation was ‘replete with badges of fraud.’ This transfer occurred during the divorce just before the valuation trial of the husband’s business interests. The Delaware corporation also operated from the same address as the husband’s other businesses and was formed only two days before the residence was transferred to it.
ALTERED RECORDS:Mr. Harold Hamm’s $17 billion ownership interest in Continental Resources, Inc. was at stake in his divorce from Ms. Sue Ann Arnall. A September 24th Reuters article suggests Continental could conceivably have altered its website and a U.S. Securities Exchange Commission filing, to diminish Continental’s accomplishments under Mr. Hamm’s leadership. Since Ms. Arnall reportedly argued that Mr. Hamm’s labor enhanced Continental’s value, the altered records had the potential to reduce Mr. Hamm’s divorce payout to Ms. Arnall. Meanwhile, Mr. Hamm is believed to have basically asserted that the altered records at Continental’s website were revisions to inaccuracies. Furthermore, the Daily Mail reports the couple recently reached a divorce settlement which is the 2nd largest in U.S. history.
This is the 2nd post in my series about private investigators & what they can & cannot do legally when searching for assets. It is also the 10th post in my Divorce & Hidden Money series. The Huffington Post article “Uncovering Hidden Assets In Divorce Litigation” observes that information obtained by “surreptitious means” might be used by one divorcing spouse against the other. Obtaining information through a surreptitious search can be critical to recovering assets in a broad range of criminal & civil cases. Depending on the circumstances, surreptitious searches might involve wiretaps; bank searches; law enforcement databases; and physical surveillance. These surreptitious means have however, sometimes been abused by private investigators, attorneys & others in the following ways:
WIRETAPS- As stated in testimony at a 1967 U.S. Senate hearing ‘private bugging in this country can be divided into two broad categories, commercial espionage and marital litigation.’ ¹Former attorney Mary Nolan handled divorce & family law matters for nearly 30 years before pleading guilty to the wiretapping & tax fraud charges at counts 1-4 &/or 6 of her 2012 criminal indictment. An amended judgment showed Ms. Nolan was sentenced to serve 24 months in prison, 3 years of supervised release, etc. Ms. Nolan’s sentencing memorandum said her cases frequently involved allegations that husbands were hiding assets. The prosecutor’s sentencing memorandum meanwhile, claimed Ms. Nolan had employed a private investigator “to install eavesdropping devices in cars used by her clients’ spouses for use in their divorce proceedings.”
How can one detect assets one is unaware of? Sometimes by putting tipsters to work and collecting their tips. These tips may be gathered in a variety of ways. “An Asset Search, Tax Fraud & Divorce” describes a private investigation in which a prospective tipster was interviewed by “Brian”, an ex-IRS Special Agent and former high-ranking official at FinCEN.
Meanwhile, the whistleblower programs at the U.S. Internal Revenue Service and the U.S. Securities Exchange Commission, (“the Commission”), also collect tips. The two programs respectively sniff out tips about assets hidden in tax or securities frauds. The article “What Happens To An SEC Whistleblower Tip?” available below, gives an insider’s view of the Commission’s whistleblower program. One of the article’s authors is Jordan A. Thomas, a former assistant director in the Commission’s Enforcement Division. Mr. Thomas had a leadership role in developing the Commission’s whistleblower program and he is now a partner and chair of the Whistleblower Representation Practice at Labaton Sucharow LLP.
What Happens To An SEC Whistleblower Tip?¹
One of the questions we’re frequently asked by clients and prospective clients is “what happens to a whistleblower tip once it’s submitted to the SEC, and how does the SEC determine which tips to actively investigate?” These are crucial questions for any potential whistleblower, especially given that the SEC receives approximately 30,000 tips, complaints and referral each year – 3,200 of which were whistleblower tips in 2013 – but can only conduct about 700 active enforcement investigations each year. Continue Reading
This is the first post in my new series about what private investigators can & cannot do legally when searching for hidden assets. Divorcing spouses, creditors bringing forced collection proceedings, etc., may search for assets by hiring private investigators and/or information brokers who try to detect secret bank accounts. The post asks: what standards should be followed when investigating bank accounts at U.S. financial institutions? At the conclusion it discusses some best practices. The post’s talking points are:
I. HIRING A PRIVATE INVESTIGATOR FOR A $249.00 BANK ACCOUNT SEARCH?
Virginia private investigator Arcanum Investigations, Inc. apparently offers bank account searches through the Docusearch.com, (“Docusearch”), website. For $249.00 plus $50 for each open bank account detected, Docusearch says it “[i]dentifies all bank accounts,” “[b]ank name and address,” “[a]ccount titles, where available“, “[a]ccount type” and “[a]pproximate account balance, where available.” The website states that Docusearch “will continue to search all major banks…”:
“We will not stop searching once an account is located. We will continue to search all major banks and credit unions nationwide and locality of the subject. No account numbers will be returned. Your attorney may subpoena all bank records (directly) from the bank once account(s) have been identified.”
The Docusearch “How To Find Hidden Bank Accounts” video asserts “our licensed private investigators specialize in finding hidden assets, secret bank accounts and other financial information that people work so hard to hide.” The video says “[o]ur licensed private investigators and asset search specialists have access to protected information that’s usually reserved just for law enforcement…plus you can rest easy knowing all of our work is done in compliance with all bank privacy laws.”: