Nathan Vardi's News Beat, Money Laundering

Posted on January 30, 2008 by Fred Abrams
Mr. Nathan Vardi is an associate editor at Forbes Magazine and his news beat is money laundering.  His articles describe how drug dealers have sometimes used American Express, BankAtlantic, Union Bank of California / UnionBanCal and other U.S. financial institutions to launder money:
To help prevent the very kind of money laundering Mr. Vardi's articles discuss, U.S. financial institutions are required to report suspicious financial activity.  As discussed by my post "Terrorist Financing, Money Laundering & Financial Intelligence Units ", Suspicious Activity Reports must be filed with the Financial Crimes Enforcement Network pursuant to 31 C.F.R. Part 103.18 and 31 U.S.C. §5318 {g}.  U.S. financial institutions must additionally have an effective anti-money laundering program under 31 U.S.C. §5318 (h) (1) and 31 C.F.R. Part 103.120.


As Mr. Vardi's articles also explain, American Express, BankAtlantic, Union Bank of California and others were investigated  or fined because of shortcomings in their anti-money laundering programs.  American Express for example, was fined $25 million on August 3, 2007 by the Financial Crimes Enforcement Network for inadequately reporting suspicious activity and lacking an anti-money laundering program.  American Express however, ultimately ended up forfeiting or paying a total of $65 million as a government fine in a deferred prosecution agreement announced August 6, 2007.  Meanwhile, BankAtlantic paid a total of $10 million in fines pursuant to its own deferred prosecution agreement announced April 26, 2006.  As a related Financial Crimes Enforcement Network Decision also explained, the $10 million was assessed because BankAtlantic had failed to properly report suspicious activity and maintain its anti-money laundering program.
 

Pursuant to a deferred prosecution agreement mentioned by a September 17, 2007 press release, Union Bank of California similarly forfeited / paid a total of  $31.6 million to settle claims that it too had violated anti-money laundering laws.  Included in said settlement was a $10 million fine imposed by a September 14, 2007 Decision from the Financial Crimes Enforcement Network.  According to the September 14 Decision, Union Bank of California had failed to maintain internal controls regarding its Suspicious Activity Reports. As the Summary at page 2 of that Decision also explains, Union Bank of California had ignored critically important money laundering indicia: 

"Union Bank failed to implement an adequate anti-money laundering program reasonably designed to identify and report transactions that exhibited indicia of money laundering, or other suspicious activity, considering the types of  products and services offered by the Bank, the volume of its business, and the nature of its customers."

As more fully set forth by my post "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy", the money laundering indicia are described at pages 19-23 and Appendix "F" of the Bank Secrecy Act / Anti-Money Laundering Examination Manual, and by several other authorities.



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Bearer Shares & An Asset Search

Posted on January 23, 2008 by Fred Abrams

As the attached sanitized bearer share certificate suggests, bearer shares allow for anonymous share ownership.  A corporation that issues bearer shares has no central registry of their ownership.  As the Financial Action Task Force further explains, bearer shares are: "negotiable instruments that accord ownership in a corporation to the person who possesses the bearer share certificate".  Via its 33rd Recommendation and Chapter 4, pages 15-16 of its Report on Money Laundering Typologies 2001-2002, Copyright © FATF/OECD. All rights reserved, the Financial Action Task Force also warns that bearer shares can be used to launder money.

I too have seen how bearer shares had likely been used to launder marital assets and evade U.S. taxes.  In that particular case, (the facts of which have been changed below for privacy reasons), the divorcing husband and his business partners had accumulated $18 Million in undeclared revenue while residing in the U.S.  The husband and his partners then secretly formed a shell corporation in Curacao, the Dutch Antilles, which they jointly owned through bearer shares. 


To prevent the interdiction of their bearer shares by domestic authorities, the husband and his partners retained a Dutch lawyer to hold the bearer shares in a trust.  As their trustee, the Dutch lawyer deposited the bearer shares into a stock custody account at a Rotterdam bank.  As the following diagram demonstrates, the husband and his partners finally deposited their $18 million in undeclared revenue in a Cayman Island bank account in the name of their Curacao shell company:



As described above, the husband and his partners hid their $18 million from the United States by using multiple jurisdictions which included Curacao, Rotterdam and the Cayman Islands.  The husband and his partners also concealed their beneficial ownership of the $18 million by using protective layers consisting of: bearer shares; a nominee shell company from Curacao; and an offshore bank account in the Cayman Islands.  Such layering is characteristic of money laundering and sometimes ends in the kind of tax fraud case filed by the U.S. Department of Justice against Mr. Walter Anderson.  As my post  "A $365 Million Dollar Tax Fraud" mentioned, Mr. Anderson used bearer share certificates and shell companies to conceal the undeclared revenue he had parked offshore.


Copyright 2008 Fred L. Abrams

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An Asset Search, Tax Fraud & Divorce

Posted on January 16, 2008 by Fred Abrams
The financial information supplied by foreign private investigators, suggested that the divorcing husband had hidden marital assets offshore.  Other evidence elicited during the divorce, also suggested that the husband might have committed a tax fraud in hiding the marital assets.  


As part of my asset search of the husband, (and to learn even more about this suspected tax fraud), I contacted Brian.  Brian was a former high-ranking official at the Treasury Department's Financial Crimes Enforcement Network and had earlier been an IRS Special Agent.  Brian was going to lead our interview of the husband's business associate, who we were about to meet for the very first time.  Right before the interview, Brian identified some of the federal statutes relevant to many tax fraud investigations:
  • 26 U.S.C. § 6050I, large cash reporting requirements for trades & businesses (including attorneys).
  • 26 U.S.C. § 7201, most commonly applied tax evasion statute (however requires proof of a tax liability).
  • 26 U.S.C. § 7203, failure to file a timely tax return.
  • 26 U.S.C. § 7206 (1), perjury on a return / false statements, (unlike 26 U.S.C. § 7201,  proof of a tax liability is unnecessary).
  • 26 U.S.C. § 7206 (2), perjury on a return / false statements, but primarily used against tax return preparers such as accountants and attorneys.
  • 18 U.S.C. § 371, conspiracy to commit offense / defraud the United States.
  • 18 U.S.C. § 1001, false statements made to the federal government (can apply to any material verbal or written statement, even if unsworn).
  • 18 U.S.C. § 1956, money laundering.
  • 18 U.S.C. § 1957, money laundering involving property derived from specified unlawful activity.
  • 18 U.S.C. § 1961, Racketeer Influenced & Corrupt Organizations ("RICO").
  • 31 U.S.C. § 5311 et. seq., the Bank Secrecy Act.

I hoped that Brian and I would learn what the business associate knew about the divorcing husband's hidden assets / suspected tax fraud.  As Brian started the business associate's interview he warned: "Once a tax fraud investigation starts rolling along, nobody knows where it may end up".


Copyright 2008 Fred L. Abrams
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A Debt Collection In N.Y.

Posted on January 10, 2008 by Fred Abrams
During forced collection / attachment proceedings, the Debtor alleged that he could not pay the Creditor because of an arm's-length business loan from Offshore Lender in the millions.  The Debtor further claimed that he had collateralized his business loan with mortgages, promissory notes and U.C.C. liens, on nearly all of his property. 

 
Through subpoenas and depositions during the enforcement / attachment proceedings, the Creditor learned that the Debtor's Lawyer had:
  • Introduced the Debtor to Offshore Lender.
  • Jointly represented both the Debtor and Offshore Lender in the making of the loan.
  • Prepared all the loan documents, such as the mortgages, promissory notes, etc.
  • Not perfected a U.C.C. lien required by the loan, (although it would have secured millions / was a material condition of the loan).
The Creditor additionally discovered that Offshore Lender had never verified or evaluated the Debtor's collateral for the loan, or even sought the Debtor's financial statements as the loan required.  Nor were there any negative consequences, although the Debtor made no interest payments for a number of years. 


When faced with the above kind of facts, alleging the "badges of fraud" may be critically important to the overall success of a Creditor's forced collection proceeding.  As mentioned at "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy", the badges include: a close relationship between the parties; a transfer outside the ordinary scope of business; inadequate consideration; knowledge of a creditor's claim; and retention of control of property.


Copyright 2008 Fred L. Abrams
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A Diplomat & His Offshore Bank Account

Posted on January 4, 2008 by Fred Abrams
Mr. Vladimir Kuznetsov 's October 19, 2007 criminal judgment mentions his $73,671 fine and prison sentence of 51 months for violating 18 U.S.C. § 1956 (h), conspiracy to commit money laundering.  According to a press release, Mr. Kuznetsov had conspired with Mr. Alexander Yakovlev-- a United Nations' procurement officer who was taking bribes.  The press release further explains that Mr. Kuznetsov had laundered money while he was the highest ranking Russian diplomat at the United Nations.  According to his superseding indictment, Mr. Kuznetsov had been a member of the Advisory Committee on Administrative and Budgetary Questions, which advises the United Nations' General Assembly. 


As part of Mr. Kuznetsov's laundering scheme, he had received $32,000 from Antigua via two New York financial accounts.  Most significant however, was his use of an offshore bank account at Antigua Overseas Bank Ltd. as the repository of hundreds of thousands of dollars in bribery proceeds.  Mr. Kuznetsov had opened this account in the name of his offshore company Nikal Ltd.,  which he had formed in or about 2000.  Although Mr. Kuznetsov was not finally convicted of it, his indictment had also alleged that he had structured bank deposits in violation of  31 U.S.C. § 5324.


Structuring bank deposits, (a.k.a "smurfing"), indicates an attempt  to avoid bank reporting requirements and can be a red flag of money laundering.  Other red flags of money laundering in Mr. Kuznetsov's case included his use of the offshore corporation Nikal Ltd. to open his Antigua Overseas Bank Ltd. account.  The transfer of the $32,000 from Antigua to Mr. Kuznetsov in New York was also a red flag, especially because Antigua is a tax haven / high-risk location vulnerable to money laundering.  Structuring bank deposits, forming offshore corporations, and using offshore bank accounts, are however just some of the methods used to hide assets / hinder an asset search.


Copyright 2008 Fred L. Abrams
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