New York Asset Search : Lawyer & Attorney : Fred Abrams Law Firm : Financial Fraud, Debt Collection : New York, NY

The divorcing spouse was suspected of hiding marital assets, and his / her personal computer may have contained undisclosed financial information.  The divorcing spouse had even removed the personal computer from the marital residence in anticipation of the divorce.  In the foregoing situation, a forensic examination of the divorcing spouse's computer might possibly help.

Yesterday, I spoke with Peter J. Theobald, who is a forensic computer examiner with Klein Liebman & Gresen, LLC.  Mr. Theobald explained that he could search a computer for active data, archived data and deleted data.  He further stated that once given physical access to a computer, he might find stored information about:

• Personal & Business Finances
• Purchases
• Appointments, Calendars & Contacts
• Communications
• Relationships

This means that a forensic computer examiner could elicit information about suspected hidden assets, such as bank account numbers or the names of nominees, high-risk geographical locations, shell companies, etc.  If such information were discovered, it might then be used to impeach an opposing party at a deposition or trial.  It could also be provided to investigators as the leads to be followed in an asset search.

Fed. R. Civ. P. 26 (a) (1) (A) (ii) & (b) (2) (B), cover the circumstances electronically stored information may be disclosed / forensically examined during federal litigation.  Pursuant to Federal Rule 26, a litigant may also seek the stored information in an opposing party's digital camera, cell phone, personal digital assistant or global positioning system.  Electronically stored information might also sometimes be "material and necessary" under New York law, and therefore disclosed pursuant to N.Y. Civ. Prac. L. & R. § 3101:

"§ 3101. Scope of disclosure. (a) Generally. There shall be full
disclosure of all matter material and necessary in the prosecution or
defense of an action, regardless of the burden of proof, by:
(1) a party, or the officer, director, member, agent or employee of a
party;..."

      
In  Etzion v. Etzion 2008 NY Slip Op 50475(U) (Nassau Sup. Ct. 2008) however, the Court mentioned N.Y. Civ. Prac. L. & R. § 3101(a), but then denied an ex-wife plaintiff electronic discovery of her ex-husband's computers.  Although the Court denied the ex-wife's discovery request under the particular facts of Etzion,  the Etzion decision provides an example of the kind of computer information a litigant might ideally seek from an opposing party.

Copyright 2008 Fred L. Abrams

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The following occurred over a four month period during 2002, and has been supplied by an investigator I have worked with.  Some of it has been changed / sanitized for privacy reasons: 
 
The Tax Fraud
As part of his tax fraud, Mr. Wallace contacted a Cayman Island bank by mail in order to open a personal account with it.  He mailed account opening documents to it which included a copy of his U.S. passport and also supplied the names of references. According to these documents, Mr. Wallace lived in Miami and was a real estate developer.  Based upon all of the foregoing, the Cayman Island bank opened Mr. Wallace's personal account with a "O" balance.  Just six days later however, bank "X" in Panama wired $6.3 million to Mr. Wallace's Cayman account without any mention of the remitter. 

Mr. Wallace then went on a business trip to Central America for several months; so he rented his Miami home to "Chuck".  Although Mr. Wallace hadn't known at the time, Chuck was a small-time crook.  In fact, soon after Chuck took possession of Mr. Wallace's home, Chuck started stealing Mr. Wallace's mail.  One of the letters Chuck had stolen was written by "Bob", a personal banker from the Cayman Island Bank where Mr. Wallace maintained his account.  Bob had written to Mr. Wallace about a lucrative investment opportunity.

The Identity Theft
Surmising from Bob's letter that Mr. Wallace had a sizable bank account, Chuck wrote to Bob pretending to be Mr. Wallace.  As the sanitized copy of Chuck's First Letter can only partly demonstrate, Chuck had assumed Mr. Wallace's identity in that particular letter by forging Mr. Wallace's signature.  To comfort Bob, Chuck's First Letter had also asked Bob for the minimum balance required to keep Mr. Wallace's account open. Chuck's "softening up" letter further suggested to Bob that Mr. Wallace's funds might soon be needed "at very short notice" for an alleged real estate deal in Mexico.  In the sanitized copy of Chuck's Second Letter, Chuck again pretended to be Mr. Wallace as he wrote to Bob at the Cayman Island Bank.  In his Second Letter, Chuck directed the wire transfer of Mr. Wallace's funds from the Cayman Island Bank to Chuck's own bank account in Mexico.

When Mr. Wallace next unexpectedly arrived at the Cayman Island Bank to make a cash withdrawal, he was shocked to learn that his account had been drained.  The Bank then showed Mr. Wallace "his" letters and explained that it had remitted his funds to Mexico just two days earlier because of "his" instructions.  Concluding that his identity had been taken over by Chuck, Mr. Wallace apologized for his error and immediately booked a flight bound for Miami.  Shortly thereafter, Mr. Wallace was arrested while fleeing from his Miami home after having killed Chuck there.

The Investigation
Investigators from the U.S. next paid a visit to the Cayman Island Bank.  Although they had first thought that Chuck had been the true beneficial owner of the Cayman Island account, they discovered that Mr. Wallace was.  Investigators also learned that Mr. Wallace was not just simply a real estate developer involved in a tax fraud / abusive offshore tax avoidance scheme.  Instead, Mr. Wallace was actually a major illegal narcotics trafficker hiding the proceeds of his drug crimes through money laundering.  Investigators finally concluded that much of the foregoing had happened because the Cayman Island Bank had among many other things:

1. Inadequate customer identification procedures / know your customer rules;
2. Permitted Mr. Wallace's account to be opened by mail & also with a  "0" balance;
   
3. Neglected to contact a single reference mentioned in Mr. Wallace's account opening documents;
4. Failed to recognize suspicious activities like the wire transfer of the $6.3 million from Panama or Chuck's "softening up" letter.

Copyright 2008 Fred  L. Abrams

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As the CNBC article"Europe Tax Evasion Probe Going Global" mentioned, the Organisation for Economic Co-operation and Development has disseminated a list with about 1400 suspected tax cheats on it, all of whom maintained offshore bank accounts through Liechtenstein's LGT Group.  According to the article, an LGT employee stole the list in 2002 and eventually sold it to Germany's foreign intelligence agency.

"Europe Tax Evasion Probe Going Global" also indicates that the 1400 on the list may have hidden assets and / or income from the domestic tax authorities of Germany, the U.S., Britain, Australia, Italy, France, Sweden, Canada and others.  Although LGT's February 24, 2008 press release, refuted the idea that all 1400 on the list were tax cheats, some of them may soon find themselves indicted for tax fraud in the U.S.  This could be true because the IRS announced in its February 26, 2008 press release, that it was "initiating enforcement action involving more than 100 U.S. taxpayers" on the list.

Last week a national newspaper telephoned me about the list of 1400 suspected tax cheats.  The newspaper wondered if it could retain me to somehow acquire a copy of the list.  Although I was unable to assist the newspaper, I contacted "Roger", the former intelligence officer mentioned in my post "Following The Money Trail In Zürich".  

"I have no interest in helping reporters, but if you want, maybe I could make a few calls", Roger said during our conversation about the list.  When I told Roger that as many as 600 on the list may have been Germans, he added:  "Because the German border is next to Liechtenstein, people would sometimes try to smuggle cash across it in the trunks of their cars.  Once in Liechtenstein, a suitcase full of cash could easily be deposited.  That's one reason Liechtenstein was a haven for hiding organized crime monies.  Liechtenstein has been the back pocket of Germany for years."

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Nathan Vardi's Forbes.com article "Cash Is King", describes some of the ways funds can be transferred during money laundering:

• Wire Transfers
• Credit Cards
• Prepaid Cards
• Digital Currency (i.e. E-Gold)
• Cash

"Cash Is King", also mentions that cash is hard to trace.  In some cases illicit cash can of course still be detected.  This is particularly true at border crossings, where the cash smuggler may pretend to be just an ordinary airline passenger or motorist.  Law enforcement use a variety of methods to detect cash smugglers, as set forth by the Financial Action Task Force in its February 12, 2005 report, "Detecting And Preventing The Cross-Border Transportation Of Cash By Terrorists And Other Criminals (Copyright © FATF/OECD. All rights reserved)". 

As the Financial Action Task Force report mentions, law enforcement can detect smuggling through: canine units, personal interviews, declaration forms, x-ray and other screening methods.  The Financial Action Task Force also has its IX Recommendation, which describes the countermeasures effective against cash smugglers. Perhaps most surprising however, is the extraordinary amount of illicit cash which is sometimes hidden and subject to detection. 

For example, in my November 1, 2007 post "Forfeiture  &  The DEA's Asset Search", I described a conversation I had with a DEA retiree about the Zhenli Ye Gon case.  "Forfeiture & The DEA's Asset Search" explained how Ye Gon had been suspected of concealing over $207 million dollars of drug proceeds in his Mexico City home.  Based on paragraph 20 of the attached Special Agent's affidavit, that November post mentioned that Ye Gon had been accused of hiding over $200 million in compartments, false walls, closets and suitcases.

Copyright 2008  Fred L. Abrams

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A licensed private investigator from Arizona advised that he had a good track record in finding  hidden assets and / or locating bank accounts.  He however, contacted me wanting to know the best way to learn more about money laundering (18 U.S.C. §§1956 & 1957) and structuring / smurfing (31 U.S.C. § 5324).  One good way to learn about money laundering and other white-collar crimes, is to read money laundering typologies.  

As explained at the end of my post Terrorist Financing, Money Laundering & Financial Intelligence Units, money laundering typologies are sometimes used by law enforcement and regulators to develop countermeasures against emerging criminal trends.  Although"100 Cases from the Egmont Group" arises from data collected by the Egmont Group from the 1990's, it is still relevant today.  In "100 Cases from the Egmont Group" there are for example, descriptions of the following laundering methods:

• Concealment within existing business structures
• Misuse of legitimate businesses
• Use of false identities, documents or straw men
• Exploiting international jurisdictional issues
• Use of anonymous asset types

The Financial Action Task Force also publishes money laundering typologies.  Its February 29, 2008 Terrorist Financing Typologies Report, (Copyright © FATF/OECD. All rights reserved), explains some of the methods terrorists use to raise and then transfer illicit funds. In addition to the foregoing, the Egmont Group and the Financial Action Task Force publish many money laundering typologies at their websites.

Copyright 2008 Fred L. Abrams

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On February 28, 2008, I posted about RICO lawsuits which had been filed against those suspected of hiding assets related to divorce.  Those suing over hidden marital assets however, more typically file lawsuits pursuant to the Uniform Fraudulent Conveyance Act, rather than RICO. In New York, those filing such suits proceed under the local codified version of the Uniform Fraudulent Conveyance Act, N.Y. Debt. Cred. Law. §§ 270 - 281.

One example of how the N.Y. Debt. Cred. Law can be used to sue those suspected of hiding marital assets, is Bloomfield v. Bloomfield, 721 N.Y.S. 2d 15 (1st Dept 2001).  In Bloomfield, the plaintiff filed suit pursuant to N.Y. Debt. Cred. Law §§  273 & 276 against both her estranged husband (defendant Marshall Bloomfield), and his brother (defendant Matthew Bloomfield).  Plaintiff's complaint essentially alleged that the defendants had frustrated her effort to valuate the marital estate by hiding marital assets at the time of her divorce from defendant Marshall Bloomfield.

  
Courts however, may also sometimes use N.Y.Civ. Prac. L. & R § 1001(a) to join a person or business entity, (suspected of fraudulently transferring marital assets), to an already existing divorce case:

§ 1001. Necessary joinder of parties. (a) Parties who should be joined.  Persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants.  When a person who should join as a plaintiff refuses to do so he may be made a defendant.

As discussed by Solomon v. Solomon, 136 A.D. 2d 697 (2d Dept 1988) and Schmidt v. Schmidt, 99 A.D. 2d 775 (2d Dept 1984), Courts can apply N.Y.Civ. Prac. L. & R § 1001 to those who are the  transferees of marital property.  Furthermore, according to dictum by the Court in Jackson v. Brinkman, 2006 slip op 50015; 814 N.Y.S.2d 561 (Sup. Ct. Kings County, January 6, 2006), a divorcing spouse can lose the right to recover a marital asset if he / she neglects to join a wrongful transferee of marital property to a pending divorce.

Given all of the foregoing, one might possibly proceed against those suspected of hiding marital assets just like the  plaintiff had in Bloomfield-- by filing suit pursuant to the NY. Debt. Cred. Law.  Yet another option might instead be to join those hiding assets to a pending divorce, as the transferees of marital property pursuant to N.Y.Civ. Prac. L. & R § 1001(a); Solomon; and Schmidt. 

Copyright 2008 Fred L. Abrams

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When an asset search uncovers that a divorcing spouse or ex-husband may be fraudulently hiding assets, it can lead to a civil RICO case.  Plaintiff Christa Ritter's asset search of her ex-husband for example, ended in the filing of such a RICO case in Ritter v. Klisivitch et. al., Index # 2:06 CV 05511, U.S. District Court for the Eastern District of New York.  Although Plaintiff Ritter's RICO case is currently the subject of Defendants' pending dismissal motions, the Court may ultimately permit her to proceed via the following Proposed Complaint:

• Table of Contents
  
• Pages  "1" to "20"
• Pages "21 to "40"
• Pages "41" to 60"
• Pages "61" to "80"
  
• Pages "81" to "100"
• Pages "101" to "118"

Plaintiff Ritter's Proposed Complaint alleges that Defendant Klisivitch had violated RICO laws (18 U.S.C. §1961 et. seq.), through mail, wire and bank fraud (18 U.S.C. §§ 1341, 1343, 1344); obstruction of justice (18 U.S.C. §1503); money laundering (18 U.S.C. § 1956);  tax fraud (26 U.S.C. §§ 7201, 7202, 7206); and bankruptcy fraud (18 U.S.C. § 152).  Also according to the Plaintiff, the foregoing had occurred because Defendant had tried to protect his assets from judgments against him arising from the Plaintiff's and Defendant's divorce.

Via the Proposed Complaint, Plaintiff alleges some of the common money laundering indicia.  Plaintiff for example, essentially claims that Defendant had transferred money through nominee bank accounts and / or holding companies.  Among other things, the Proposed Complaint further alleges that Defendant had purchased real property through a nominee.

As Klisivitch partly suggests, a civil RICO complaint can sometimes be used as a countermeasure against those suspected of hiding assets related to a divorce.  Another N.Y. litigant for example, (in Ostashko v. Ostashko, No. 00 CV 7162; 2002 U.S. Dist. LEXIS 27015 at *50-*82 {E.D.N.Y. Dec. 10, 2002}), used a RICO complaint to set aside her divorcing husband's fraudulent confession of judgment.  This happened because the Ostashko Court found that the divorcing husband had used his confession of judgment to fraudulently conceal marital assets offshore, in Russia.

Copyright 2008 Fred L. Abrams

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As the Philadelphia Inquirer reported on January 18, 2008, ex-Philadelphia lawmaker German Quiles, his wife and daughter, were recently convicted of money laundering in U.S. District Court.   According to a July 13, 2007 Department of Justice press release, the Quiles' family had earlier been indicted for laundering about $175,900 dollars between Philadelphia and Aruba.  While under investigation by the U.S. Bureau of Immigration & Customs Enforcement (ICE), the Quiles had laundered what they believed were drug proceeds.  They had used their Money Service Businesses (which cashed checks, wire transferred money and sold traveler's checks), as a laundering link to wash money.  

According to the Quiles' indictment, ICE had heavily relied on a confidential informant during its investigation.  Other facts mentioned by the Quiles' indictment support the conclusion that ICE had also likely recognized a number of money laundering indicia.  In the Quiles' case, these inidica may have included the use of:

• a high-risk geographical location to transfer funds (i.e. Aruba).
• multiple jurisdictions, such as Philadelphia and Aruba.
  
• offshore wire transfers.
• traveler's checks to convert cash.
• structured transactions to avoid Bank Secrecy Act reporting requirements.
• false identification.

In addition to using a confidential informant and recognizing money laundering indicia, ICE also would have scrutinized phone records belonging  to the Quiles.  Any relevant government filings about the Quiles, (like Suspicious Activity Reports filed by U.S. financial institutions), would too most likely have been examined by ICE.  As the website of  Visual Analytics Inc. suggests, law enforcement  agencies like ICE may also sometimes detect money laundering / other crimes by using "data mining" to analyze phone calls or Suspicious Activity Reports.

Copyright 2008 Fred L. Abrams

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The Gramm-Leach-Bliley Act (GLBA) at 15 U.S.C. § 6801 et. seq., protects the privacy of customers who provide information to U.S. financial institutions.  Although there are some important exceptions mentioned at 15 U.S.C. §6821(c) - (g), GLBA restricts access to  "nonpublic personal information" like bank account numbers, account balances, etc.  In some cases, GLBA can therefore act as a bar to an asset search at a financial institution.

At 15 U.S.C. §6821, GLBA specifically protects personal information at U.S. financial institutions by outlawing pretexting.  This means for example, that it is illegal to make false statements to a bank customer or a bank in order to access protected personal information.   Submitting false documents to a bank, (to obtain the protected information), is also illegal pursuant to 15 U.S.C. § 6821.  Soliciting a person to use false pretenses to access the protected information at a bank, is also prohibited.

Violating GLBA is punishable pursuant to 15 U.S.C. § 6823 by a criminal fine or imprisonment of up to five years.  In aggravated cases, fines may also be doubled and imprisonment can be for up to ten years.  As NXIVM Corp. vs. Rick Ross, U.S. District Court, District of New Jersey, Index # 06-CV-01051 demonstrates, a GLBA violation can however, also be alleged in a civil court case.  Although the NXIVM case was commenced as a trademark / copyright violation claim against Mr. Rick Ross, Mr. Ross filed a Verified Counterclaim alleging that NXVIM had illegally obtained his bank and other private information by hiring Mr. Juval Aviv of the Interfor private investigation firm.

According to allegations at page 8, paragraph 27of the Verified Counterclaim, Mr. Aviv had bribed a Fleet Bank employee to access Mr. Ross's personal bank information.  The Counterclaim alternatively alleged that Mr.Aviv had engaged in pretexting to illegally acquire the Fleet Bank information.  Mr. Aviv however, has denied any wrongdoing In his November 7, 2007 Reply filed with the Court.  As of the time of this writing, the foregoing claims have not yet been fully adjudicated by the Court.

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