Money laundering circuits sometimes operate in the U.S. through domestic bank accounts used as “laundering links”. It is also true that money laundering circuits washing vast sums of money, will typically do so through offshore bank accounts located in tax havens like Switzerland, Luxembourg, the Cayman Islands, etc. Such was the case of one divorcing husband, (the depiction of whom is altered below for privacy reasons), who laundered martial assets / U.S. money between Switzerland and Germany.
Prior to the equitable distribution hearing in his divorce case, the husband alleged that he had a liability of $29 million owed to a prime bank in Germany because of an arm’s length business loan. An investigation however, revealed that his loan was back-to-back , (i.e. a fully collateralized loan in which the borrower and the lender are one and the same). The husband had first secretly deposited $30 million into a Swiss bank account and next used that same $30 million to collateralize a Swiss bank guarantee for $29 million. By then using that Swiss bank guarantee as full collateral, the husband persuaded a German bank to issue a personal bank loan to him for $29 million to be disbursed in Germany.
After the loan principal was disbursed to him in Germany, the husband intentionally failed to repay his $29 million debt due and owing to the German bank. The husband’s loan default meant that the German bank would collect $29 million transferred from Switzerland pursuant to the Swiss bank guarantee which had served as loan collateral. As the link chart below suggests, the loan default in Germany was actually the very means used to wash the money the husband had earlier deposited in Switzerland:
The husband’s financial transfers shown above had no economic benefit, as is usually the case where a back-to-back loan is used to hide assets. Back-to-back loans are however not only sometimes used to conceal marital assets during a divorce. They can also regrettably be used in a tax fraud to hide assets and income; by a debtor hiding assets from a creditor; or as a means to disguise monies which are the proceeds of a white-collar or other crime.
(Edited January 22, 2010)
Copyright 2007-2015 Fred L. Abrams