Offering Offshore Asset Protection To Tax Cheats

Posted on July 23, 2008 by Fred Abrams
At "Asset Search vs. Offshore Asset Protection", I wrote that offshore asset protection services were being used to conceal assets from IRS revenue officers and others.  The Senate's Permanent Subcommittee On Investigations, just issued a 114-page report examining this same issue.  The Report entitled, Tax Haven Banks And U.S. Tax Compliance, explains how U.S. tax cheats hid assets from the IRS by using the asset protection services of Liechtenstein's LGT Group and Switzerland's UBS.


Page 2 of the Report for example, mentioned that the IRS had learned this past February of about 100 suspected tax cheats with offshore accounts at LGT Group.  The 100 were part of a group of 1400 who had allegedly opened offshore accounts at LGT to hide assets from tax authorities around the world.  As more fully described by "Offshore Bank Accounts In Liechtenstein", the suspected tax cheats were discovered because an LGT employee had sold a stolen LGT customer list.  The stolen customer list was eventually disseminated to the IRS and other tax authorities.


The Report also discussed former UBS banker Bradley Birkenfeld, who had cooperated with Senate Subcommittee investigators as mentioned by a July 17, Bloomberg.com article.  Mr. Birkenfeld pleaded guilty last month to helping billionaire California real estate developer Igor Olenicoff evade U.S. taxes.  According to Mr. Birkenfeld's indictment, he had conspired to hide assets from the IRS through: nominees; offshore credit cards; shell companies; bank accounts in high-risk locations / tax havens like Liechtenstein and Switzerland; etc. Among other things, Mr. Birkenfeld also violated various IRS reporting requirements and participated in the filing of false IRS income tax returns.


Finally, in a July 17, 2008 press release about the Report, Ranking Minority Member Norm Coleman (R-Minn), summed up the problem of banks that offered offshore asset protection:

"By exploiting gaping loopholes, these foreign banks are enabling felony tax evasion. Simply put, foreign banks should not be Al Capone safe-houses for evading taxes. Closing these loopholes means we must strengthen reporting requirements, broaden the scope of the audit program, and extend the amount of time the IRS has to investigate cases involving an offshore tax haven."

Copyright 2008 Fred L. Abrams
Tags: , ,

Pretexting During An Asset Search

Posted on July 12, 2008 by Fred Abrams
Privacy and other federal laws generally prohibit pretexting, (the use of false pretenses), when contacting a U.S. bank, phone company or government agency for confidential information.  One example of pretexting would be using a false identity while phoning a bank to elicit a bank customer's personal account information.  If an information broker, private investigator, etc. pretexts during an asset search, some of the following federal statutes might possibly apply:
  • 15 U.S.C. § 45 (Unfair methods of competition unlawful; prevention by Commission):  By relying on both 15 U.S.C. §45 and 15 U.SC. § 53 (False advertisements; injunctions and restraining orders), the Federal Trade Commission can sue pretexters for fraudulent, deceptive and unfair business practices.
  • H.R. 4709, 109th Congress (2006) (Telephone Records and Privacy Protection Act of 2006):  This statute generally prohibits telephone record pretexting and the sale of illegally acquired telephone records.
  • 18 U.S.C. § 1028 (Fraud and related activity in connection with identification documents, authentication features, and information):  Both this statute & 18 U.S.C. §1028A. (Aggravated identity theft), prohibit a broad range of frauds in connection with identification documents.
  • 18 U.S.C. § 1341 (Frauds and swindles): Covers frauds which use U.S. mail.  It and 18 U.S.C. § 1343 (Fraud by wire, radio, or television), are the ubiquitous federal fraud statutes.
  • 26 U.S.C. § 7213 (Unauthorized disclosure of information): Prohibits the unauthorized inspection or disclosure of U.S. tax returns or return information.   Subsection (a) (4), entitled "Solicitation", expressly covers the illegal sale and /or illegal receipt of tax return information.
  • 42 U.S.C. § 1307 (Penalty for fraud): Among other things, covers misconduct like eliciting social security numbers through pretext calls to the U.S. Social Security Administration.
  •  47 U.S.C. § 222 (The Telecommunications Act of 1996):  Section (c) (2) of this Act generally prohibits telephone record disclosure absent  "...affirmative written request by the customer, to any person designated by the customer".
One who pretexts in violation of the foregoing statutes, may face a Federal Trade Commission lawsuit or even criminal indictment.  In Federal Trade Commission v. Action Research Group, Inc. et. al. for example, information brokers ended up stipulating to a final order which permanently enjoined them from telephone record pretexting.  In Federal Trade Commission v. Victor L. Guzzeta d/b/a Smart Data Systems, yet another information broker stipulated to a final judgment, which similarly enjoined him from financial record pretexting.


In the U.S. District Court in Tacoma however, Mr. and Mrs. Torrella are being criminally prosecuted for their pretext calls to the I.R.S., Social Security Administration, pharmacies, medical offices and various state labor departments.  According to their indictment, the Torellas made the pretext calls while performing asset searches and other services for the private investigators who are their co-defendants. 


The Torrellas and /or their co-defendants are charged with Conspiracy and violating many of the above-cited federal statutes: 18 U.S.C. § 1343 (Wire Fraud); 42 U.S.C. § 1307 (Penalty for Fraud); 26 U.S.C. § 7213 (Unauthorized  Disclosure of Information); and 18 U.S.C. §1028A (Aggravated Identity Theft).  Based on their May 20, 2008 plea agreements, both Mr. and Mrs. Torrella await sentencing. Two of their co-defendants also pleaded guilty and await sentencing, while the remaining six are scheduled for trial on September 22, 2008.


Copyright 2008 Fred L. Abrams
Tags: , ,

Concealing Assets By Conveying Them

Posted on July 2, 2008 by Fred Abrams
According to Kohl v. Kohl, the Manhattan District Attorney had investigated N.Y.C. contractor Ted Kohl in 1995 for alleged money laundering, larceny and tax evasion.  Mr. Kohl had also been the subject of an asset forfeiture claim because of the District Attorney's investigation.  As a countermeasure to the forfeiture claim, Mr. Kohl conveyed assets to his spouse, Mrs. Kohl.  Mr. Kohl then accepted a plea deal consisting of probation and a fine of about $2,750,000, during his 1997 money laundering, larceny and tax evasion trial. 


Since the District Attorney had relinquished its asset forfeiture claim via the plea deal, Mr. Kohl's earlier conveyance to Mrs. Kohl was ultimately a non-issue.  All of the foregoing however, suggested that Mr. Kohl's conveyance may have been fraudulent. This was true because, as mentioned at "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy", fraudulent conveyances typically occur between related parties, in anticipation of a creditor's claim, etc.  Mr. Kohl for example, had conveyed assets to a related party, his spouse Mrs. Kohl.  He had also conveyed assets because of the District Attorney's pending forfeiture claim. 


Since fraudulent conveyances are one way assets can be hidden, I asked former New York State Supreme Court Justice Herbert Posner (Retired) what he thought about Mr. Kohl's conveyance.  During our discussion, former Judge Posner described a particular fraudulent conveyance he had seen.  As he explained: "The divorcing husband had fraudulently induced his wife to transfer her share of their marital residence.  He told his wife to sign some documents, which were supposedly insignificant and just related to operating his business.  The wife eventually learned that by signing those documents, she had actually transferred her interest in the marital residence to the husband's family."


Said wife ended up suing both her husband and his family for fraudulently conveying the marital residence.  In doing so, she likely relied on the Uniform Fraudulent Conveyance Act, codified in New York at N.Y. Debt. Cred. Law. §§ 270 - 281.  As more fully discussed by "Suing When Marital Assets Are Hidden In Divorce", bringing such a suit may be advisable when marital assets are fraudulently hidden / transferred away from a divorcing spouse.


Copyright 2008 Fred L. Abrams  
Tags: , ,