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

An investigation of a high-risk geographical location can sometimes uncover assets which have been hidden through: nominees; shell companies; cash couriers; wire transfers; credit cards; underground bank or remittance systems like hawala, etc.  For example, one way the IRS focuses on high-risk locations like tax havens, is to compare the banking information it receives from the Financial Crimes Enforcement Network with the foreign bank disclosure taxpayers make pursuant to their Form 90-22.1, the Foreign Bank and Financial Account Report.  The IRS also makes U.S. residents with offshore credit / debit cards an audit priority pursuant to its Offshore Credit Card Program.


The State Department is similarly concerned with high-risk offshore locations as demonstrated by part of its 2007 International Narcotics Control Strategy Report, Major Money Laundering Countries.  U.S. banks too make geographic location a risk factor in their anti-money laundering programs.  As explained at page 21 of the Bank Secrecy Act / Anti-Money Laundering Examination Manual: "U.S. banks should understand and evaluate the specific risks associated with doing business in, opening accounts for customers from, or facilitating transactions involving certain geographic locations."


The Financial Crimes Enforcement Network also deems seven U.S. regions to be High Intensity Financial Crimes Areas because of their extraordinary vulnerability to money laundering.  Law enforcement may even commit additional resources to scrutinize financial transactions in such regions or in a High-Intensity Drug Trafficking Area.  As my post "Domestic Shell Companies & An Asset Search" further suggests, jurisdictions like Delaware, Nevada, Wyoming, and Oregon are additionally considered to be high-risk because assets are so easily concealed through shell companies formed there.


The isolated fact that a financial transaction has a nexus to a high-risk location does not however necessarily support the conclusion that assets have been concealed.  A judgment debtor, divorcing spouse, etc. should still be thoroughly investigated to ensure that an offshore or domestic high-risk location has not been used to hide assets.


Copyright 2007 Fred L. Abrams

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Sometimes information from passports, phone records, or the documents found in one's home can be a red flag that a divorcing spouse has hidden assets in an offshore bank.  One divorcing wife recently explained to me that her absconding husband had left a box full of Internet research about offshore banks in their basement.  These documents could have been passed on as a tip to foreign investigators to help the wife narrow her asset search.  They might possibly have also been used as impeachment material at the divorcing husband's upcoming deposition about his assets / net worth.


Documents relating to offshore bank accounts are also routinely used by federal agents along with other facts to apply for search / arrest warrants in white-collar crime cases.  In the bribery and money laundering case against Major John Cockerham for example, a Special Agent's affidavit alleged at pages 11-12 ¶ 25, that the following were seized from Major Cockerham's residence: Internet research about opening offshore bank accounts; a document entitled "Bulletproof Asset Protection"; a handwritten note mentioning two books about hiding assets offshore; account opening documents from an offshore bank; etc.
 

If a New York divorcing spouse similarly hides marital assets in offshore bank accounts, then he / she may be penalized at the time of an equitable distribution award under N.Y. DRL § 236 (B) (5) (d) (11) for "wasteful dissipation".  In Maharam v. Maharam, 245 AD2d 94, 95 (1997) for example, the Court increased a divorcing wife's equitable distribution award from 55% to 65% because her husband had among other things, secreted assets at an offshore bank.  As a review of N.Y. DRL § 236 (B) (5) (d) however demonstrates, "wasteful dissipation" is one of many factors the Court considers when awarding equitable distribution in a New York divorce:     

"In determining an equitable disposition of property under paragraph c, the court shall consider:

(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action;

(2) the duration of the marriage and the age and health of both parties;

(3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects;

(4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution;

(5) any award of maintenance under subdivision six of this part;

(6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;

(7) the liquid or non-liquid character of all marital property;

(8) the probable future financial circumstances of each party;

(9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party;

(10) the tax consequences to each party;

(11) the wasteful dissipation of assets by either spouse;

(12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;

(13) any other factor which the court shall expressly find to be just and proper."

Copyright 2007 Fred L. Abrams

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Although the divorcing husband was wealthy, he offered his wife only a meager settlement. The husband also threatened that he was "judgment proof" and that his wife might collect nothing after the divorce despite their longtime marriage.  The husband however, had ample marital assets and he and several of his business associates had likely hidden them in a trade-based tax fraud / laundering scheme similar to the one Mr. Gene Haas was arrested for on  June 19, 2006. 


Given his fraudulent tax scheme, Mr. Haas was sentenced on November 5, 2007 to two years in prison for violating 18 U.S.C § 371, as mentioned by his August 24, 2007 plea agreement.  He also ended up paying a $5 million dollar fine and over $70 million dollars in back taxes owed for 2000 and 2001.  According to "Attachment A" of Mr. Haas' plea agreement, the Enmark Aerospace and Supermill companies had provided Mr. Haas with invoices for fictitious purchases.  Pursuant to these phony invoices, Mr. Haas paid Enmark  & Supermill about $35 million and then took business deductions for "cost of goods sold".  Enmark and Supermill next returned the $35 million (less a 2% kick back fee) to Mr. Haas through his nominee, CNC Associates, Inc. 


As demonstrated by the twelve case studies found at pp. 9-20 of the Financial Action Task Force's June 23, 2006 report "Trade-Based Money Laundering, Copyright © FATF/OECD. All rights reserved.", there are a wide variety of ways to conceal assets in a trade-based fraud.  According to p. 4 of "Trade-Based Money Laundering", such schemes may involve: the over or under-invoicing of goods or services; the over or under-shipping of goods; falsely describing goods or services; or multiple invoicing.  There are however several indicia which can sometimes help one recognize that assets have been concealed in a trade-based tax fraud or laundering scheme.  As more fully set forth at page 24 of "Trade-Based Money Laundering", these asset search indicia may include:

• a disparity between a shipped commodity's bill of lading and its invoice.
• a disparity between a commodity's value as recorded on its invoice and fair market value.
• the shipping of goods although there is no profit / economic benefit.
• a shipment with a nexus to shell companies.
• letters of credit related to a shipment that have been amended or extended repeatedly.
• the type of shipped commodity is inconsistent with the importer's / exporter's ordinary business activities.
  
• shipping to or from a high-risk geographical location (i.e. a jurisdiction especially vulnerable to money laundering).

Copyright 2007-2008 Fred L. Abrams

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With the lawsuit ending in a large money judgment in favor of the Judgment Creditor, the Debtor filed for bankruptcy in order to protect his personal assets.  To collect on its judgment against the Debtor, the Judgment Creditor then filed a proof of claim as an unsecured creditor in the bankruptcy.  The Judgment Creditor thought that it would eventually receive the proceeds of the bankruptcy estate with the Debtor's assets, upon its liquidation by the bankruptcy court.


An investigation however, suggested that in order to cheat the Judgment Creditor out of its fair share of these proceeds, the Debtor had earlier mortgaged and given liens on all his property in favor of an offshore lender, Sham Creditor.  The Debtor had agreed to these mortgages and liens in consideration of phony loans which he had defaulted on.  Because of these phony loans and mortgages, Sham Creditor filed a secured proof of claim for millions in the Debtor's bankruptcy.


Nobody knew at the time Sham Creditor filed its secured proof of claim that, (in anticipation of his bankruptcy), the Debtor had transferred millions prepetition to Sham Creditor through offshore bank accounts and a nominee.  Nor did anyone initially know that Sham Creditor was just a shell corporation controlled by the Debtor through bearer shares, like the attached sanitized copy.
 

In fact, the Debtor pretended throughout his bankruptcy that his phony loans, mortgages and liens were all legitimate and that Sham Creditor was an ordinary arm's-length lender.  The Judgment Creditor soon realized that it would not be able to successfully compete with Sham Creditor for the limited assets in the bankruptcy estate.  This was true because Sham Creditor had filed a secured proof of claim, (unlike the Judgment Creditor), and therefore had priority over the Debtor's assets in the bankruptcy estate. 


The Judgment Creditor finally accepted a settlement offer from the Debtor, who had agreed to pay just a small amount of the large money judgment / unsecured proof of claim.  The Judgment Creditor had thrown in the towel because it lacked legally sufficient evidence that the Debtor had essentially filed Sham Creditor's proof of claim by using: bearer shares, phony loans, a shell corporation and a nominee.


Copyright 2007-2008 Fred L. Abrams

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A beneficial owner will sometimes use a nominee (i.e. representative) to hide money with complete anonymity in a bank account.  As the website of www.offshoresimple.com explains, a beneficial owner may hire a nominee incorporation service to supply a bank signatory.   This suggests that a beneficial owner can use a nominee to circumvent the know your customer / customer identification procedures at a bank.  For example, through the bank signatory service offered by www.offshoresimple.com, a beneficial owner can use a nominee to:      

• Open / manage an offshore bank account.
• Act as an account's bank signatory.
• Supply a bank with the necessary customer identification documents.
• Execute the incorporation documents needed to form an offshore corporation.

The above-described use of nominee incorporation services is widespread.  As page 64 of the 2007 National Money Laundering Strategy mentions, nominee incorporation services that arrange U.S. bank accounts and shell companies are believed to annually launder as much as $36 billion just from the former Soviet Union.

Instead of retaining a nominee incorporation service, some beneficial owners hide assets by using friends or relatives as nominees.  According to his twenty-one count forty-four page July 26, 2005 indictment, Mr. Edwards for example, had stolen insurance premiums and then concealed them in nominee financial accounts in the names of his wife and two shell companies.  Mr. Edwards had also used his wife as the nominee purchaser of his mountain chalet and a  "palatial" home-- both of which were bought with stolen insurance premiums.


All of the foregoing had been part of Mr. Edward's insurance and tax fraud scheme which lasted from about January, 1999 through April 30, 2001.  Via his indictment, Mr. Edwards was charged with: mail fraud (18 U.S.C. § 1341 & 18 U.S.C. § 1342); wire fraud ( 18 U.S.C. § 1343); making false statements to a  financial institution (18 U.S.C. § 1014);  theft from a health care benefit program (18 U.S.C. § 669); money laundering (18 U.S.C.§ 1957 [a] & [b]); and tax evasion (26 U.S.C. § 7201). 

 
Mr. Edwards was specifically accused of collecting insurance premiums from various employers while unlicensed to do so.  Instead of providing thousands of employees with workers' compensation insurance, he converted their insurance premiums for his own use.  Between January 1, 2000 and April 30, 2001 Mr. Edwards also allegedly stole $2.5 million from his company Fidelity Group, Inc., which was a health care benefit group as mentioned by 18 U.S.C. § 24 (b).  Furthermore, when Mr. Edwards actually did apply for some workers' compensation insurance coverage, he allegedly understated payroll and the type / number of employees to fraudulently secure lower insurance premiums.


When Mr. Edwards administered an employer's self-insured health insurance plan, he also had  allegedly delayed or denied medical benefits the employees were entitled to.  Mr. Edwards indictment also alleged that he had filed a false joint Income tax return for 1999, by underreporting taxable income.  In 2000, Mr. Edwards also supposedly filed a false joint tax return by underreporting taxable income and paying just $724 in taxes.  He was additionally accused of failing to file any tax return for 2001, as was required. 


As the Court's June 26, 2006 Judgment demonstrates, Mr. Edwards ultimately pleaded guilty to four of the twenty-one counts mentioned by his indictment: two counts of mail fraud; one count of theft from a health care benefit program; and one count of tax fraud.  Pursuant  to his plea agreement, Mr. Edwards was sentenced to serve 150 months in prison and ordered to pay fines, make restitution, etc.  As Mr. Edwards' motion executed on August 13, 2007 however indicates, he seeks to vacate his guilty plea / sentence pursuant to 28 U.S.C. § 2255 by alleging ineffective assistance of counsel among other things.


Copyright 2007 Fred L. Abrams

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"I'm out of the asset forfeiture business and Title-III wiretaps too", Donnie remarked as we discussed the Drug Enforcement Administration's on-going effort to find hidden assets related to drug trafficking and other crime.  Donnie had retired from the DEA after serving twenty-one years as a Special Agent.  Now he was deployed to the Green Zone in Iraq to teach Iraqi police through the International Criminal Investigative Training Assistance Program of the Department of Justice.


Special Agents like Donnie often develop a great deal of expertise in conducting an asset search since asset forfeiture allows them to seize the proceeds of drug trafficking, money laundering, or organized crime.  For example, while Donnie had been stationed in El Paso Texas in 1988, (and also worked in Bolivia), he, another Special Agent, and the Mexican Federal Police seized $6-8 million in drug money.  By following the money trail, Donnie and his co-agent forfeited the $6-8 million because of its relation to their earlier seizure of 21 tons of cocaine in Sylmar, California.


My discussion with Donnie quickly drifted toward Zhenli Ye Gon's arrest in Maryland on July 23, 2007 on methamphetamine drug and money laundering charges. Ye Gon was accused of supplying chemicals used to manufacture methamphetamine through his pharmaceutical wholesale business based in Mexico City, Mexico.  According to a Special Agent's affidavit, the more than $207 million seized from Ye Gon's Mexico City residence was "hidden in various compartments, false walls, suitcases, and closets."  Also seized from Ye Gon's Mexico City corporate headquarters were $111,000 dollars; documents regarding domestic and offshore bank accounts; and wire transfer confirmations from Mexican money exchange houses to various banks.  As Ye Gon's criminal indictment In the U.S. District Court for the District of Columbia further indicated, the government sought to forfeit his money and other assets pursuant to 21 U.S.C. §§ 853 and 970.


Given all of the above, Donnie finally said: "Because of its impact on organized crime, asset forfeiture is one of the things that can stop those who supply pseudophedrine to the meth super labs and Mexican cartels.  Asset forfeiture works so well that it has even become a kind of gold rush".  I then thought about the $ 1,143,341,308 in net deposits for 2006 made into the Department of Justice's Assets Forfeiture Fund-- which is a repository for just some of the federal agencies that forfeit assets.


Copyright 2007 Fred L. Abrams

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