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If you are a divorcing spouse, judgment creditor or anyone else who believes they may need to do a bank search to locate hidden assets parked offshore, read this post to see how individuals sometimes hide their assets.  It covers the legal remedies that may be available to you in your asset search for offshore bank accounts.  This post was first published in 2013 and was called “Hidden Assets Offshore & A Bank Search To Find Them.”

Beneficial owners around the world are able to secretly transfer assets across international borders into offshore bank accounts.  The beneficial owners sometimes do this by money laundering through multiple jurisdictions; bulk-cash smuggling; back-to-back loans; shell companies; nominee incorporation services & gatekeepers like lawyers.  Legal remedies are however, usually available for finding hidden assets transferred offshore.  These remedies may even include seeking a court order directing a Swiss or other offshore bank to perform a bank search and disclose bank customer information.

MONEY LAUNDERING

The link chart below describes how one divorcing husband concealed both undeclared revenue and marital assets via multiple jurisdictions.¹  The husband laundered millions from the U.S., through a Swiss bank and a German one.  Prior to the equitable distribution hearing in his divorce, the husband alleged he had a liability of $29 million owed to a prime bank in Germany because of an arm’s length business loan.  As this link chart reveals, the supposed arm’s length loan was back-to-back , (i.e. a fully collateralized loan in which the borrower and the lender are one and the same):

(Click On The Link Chart To Enlarge)

Through bulk-cash smuggling/illicit cash couriers, the husband transferred offshore the $30 million he secretly accumulated in the U.S.  The husband then deposited the $30 million into his secret Swiss bank account which is depicted above as “Laundering Link# 1”.  The husband next discretely used that same $30 million to collateralize a Swiss bank guarantee for $29 million.  By utilizing that Swiss bank guarantee as full collateral, the husband then persuaded a German bank, (“Laundering Link #2”), to issue him a personal bank loan for $29 million to be disbursed in Germany.

After the German bank disbursed the loan principal to the husband 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.  Stated differently, the loan default in Germany was actually the means used to launder the U.S. money the husband had earlier deposited in Switzerland.

During the divorce, the husband claimed he had lost the $29 million German loan principal in various international business deals; and that his default on the arm’s length German loan left him insolvent.  According to the husband, there was virtually no divorce property left in the marital estate and the Court could distribute little to the wife.

Meanwhile, the husband lied to the Court throughout the divorce.  The husband concealed the existence of the $29 million dollar bank guarantee.  He concealed that he was the true beneficial owner of  the $30 million dollar secret Swiss bank account.  The husband also committed tax fraud by failing to disclose this Swiss bank account at Schedule B, Part III of his individual tax return; and the husband never reported the Swiss bank account to the U.S. Treasury by filing the required FinCen Form 114.

NOMINEE INCORPORATION SERVICES

Beneficial owners may additionally hide their assets by using readily available nominee incorporation services.  OffshoreSimple Inc. is one example of the countless providers of these kinds of services.  As its website essentially explains, a beneficial owner may hire a nominee incorporation service to supply a bank signatory for a nominee bank account.  Through the bank signatory service offered by OffshoreSimple Inc., a beneficial owner might 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.

Once a nominee account is opened, a beneficial owner’s funds can be maintained in it with complete anonymity.  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 help establish U.S. bank accounts and shell companies are believed to annually launder as much as $36 billion just from the former Soviet Union.  An August 1, 2006 report on offshore tax haven abuses by the U.S. Senate Permanent Subcommittee on Investigations similarly highlights the problem of assets being hidden with the the help of gatekeepers which include: “lawyers, brokers, bankers, offshore service providers, and others.”

 AN ASSET SEARCH FOR OFFSHORE BANK ACCOUNTS 

As partly suggested at “An Asset Search, Tax Fraud & Divorce”, concealing assets via multiple jurisdictions, nominee incorporation services, etc., sometimes results in a criminal law violation.  In some of these situations, you might submit a whistleblower tip and seek a reward from the IRS &/or SEC whistleblower programs.

You may even be able to pursue an asset search in Switzerland and in the many other offshore tax havens.  This is true when a bank is used as a money laundering “link” to hide assets or assets have otherwise been hidden during a financial fraud.  For example, I have previously filed letters rogatory / legal assistance requests with the Court in Geneva, (the Parquet du Procureuer général), because of suspected money laundering at two Swiss banks.

A letter rogatory may be used to seek a court order compelling an offshore bank to assist you with your asset search for secret bank accounts.  A letter rogatory can ask a bank to search for a bank customer’s account opening documents; monthly bank account statements & bank account signatory records.  Local counsel in Geneva has analyzed this and the other legal remedies which can generally be available in Switzerland and many other offshore jurisdictions:

“As you probably know, Switzerland does not follow the common law doctrine. We do not adhere to the institution of discovery. The usual tools available to a claimant are therefore the filing of a criminal complaint, which is actually the most efficient way to get past the banking secrecy. Access to the information will be granted only if someone can be indicted. In exceptional circumstances a broader access to the information collected within the frame of the criminal investigation can be granted on a discretionary basis.  If the claimant does not wish to resort to the criminal law tools, he has the option to file an attachment. In order to obtain an attachment, the claimant must show that his case presents a close enough connection to Switzerland.  He must establish that the assets are located in Switzerland and he must make a summary statement of his claim.

 

It is usually required that a guarantee equivalent to 10% of the claim be filed; in certain circumstances, the payment of a guarantee requirement may be avoided especially where the claimant initially filed a criminal complaint under which the same assets have been attached by the criminal judge.  The combination of a criminal and civil attachment is recommended in some instances.  The administrative tools relate to money laundering regulations.

 

A financial intermediary knowing or having reason to suspect that any assets entrusted to his custody or management are of criminal origin has a duty to report his suspicion to MROS, which is the competent authority that launches investigations in matters of money laundering.  If MROS finds that there is enough evidence of criminal activity, it usually refers the matter to the competent criminal authorities who will investigate the case.  If your client already holds judgements against the defendants, he may seek to enforce the judgement on assets located in Switzerland.  Furthermore, if criminal investigations have been conducted in a foreign jurisdiction, the foreign investigating magistrate can seek judicial assistance from Switzerland. This is granted very liberally.

 

Finally, I wish to draw your attention to the possibility of obtaining evidence [via legal assistance requests / letters rogatory] from the Hague Convention of 1970 on the obtaining of evidence in civil and commercial matters abroad, which enables to a limited extent the enforcement of pre-trial discovery requests in Switzerland.  All these remedies briefly outlined may be combined depending on each particular case.”

¹This fact pattern has been sanitized &/or changed for privacy reasons.

First Image: Gallimaufry/Shutterstock.com

Copyright 2013-2015 Fred L. Abrams