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

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  

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Harold is an asset recovery agent, ("repo man"), who works in New England.  He sometimes lives out of his tow truck for a couple of days while searching for a particular debtor's automobile.  When I recently called Harold on his cell phone, he said: "Until I put the GPS in my tow truck, I had boxes and boxes of road maps.  I've also been doing most of my skip-tracing from the truck, right on my laptop.  I am in the middle of a repo right now and a lady is running out of her house into the street.  She is yelling at me, can I call you right back?"

Harold does Internet research on his laptop via the website of IRB, at www.irbsearch.com.  IRB is a comprehensive search service similar to SmartLinx and DEBTORDiscovery, which were mentioned at my post "A Low-Cost Asset Search".  Harold often uses IRB to identify the name and address of a relative, friend or neighbor who may be hiding an automobile as a debtor's nominee.  Some debtors, divorcing spouses, etc. however, do not just simply use a nominee to conceal their automobiles.  In some debt collection, divorce or bankruptcy proceedings, an automobile may even be registered in or moved through multiple jurisdictions in order to conceal it.

In U.S.A. v. Henry, U.S. District Court for the District of Columbia, Index No. 1:06 Cr 00079, Mr. Henry for example, was accused of concealing his $113,000 dollar Porsche 911 during his Chapter 7 bankruptcy.  According to pages 11-14 of his Second Superseding Indictment, (and other documents), Mr. Henry had concealed his Porsche by temporarily registering / insuring it out of the District of Columbia in the name of a nominee-- his brother in New York. 

The Second Superseding Indictment further alleged that Mr. Henry had engaged in a health care fraud scheme, and had  purchased his Porsche with illicit proceeds from the same.  He was also accused of using his purchase of the Porsche as a means to launder money from his health care fraud.  Mr. Henry ultimately pleaded guilty to charges of health care fraud and agreed to forfeit his Porsche, as mentioned by paragraph "7" of the Government's plea offer.  As the Court's December 13, 2007 Judgment mentioned, Mr. Henry was sentenced to twenty months of prison.

Copyright 2008 Fred L. Abrams

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Private investigators, bankruptcy trustees, judgment creditors, etc., sometimes research**  the following kinds of records / databases as part of a low-cost asset search: 

• Real Estate Searches: Some government databases provide for free real property searches, like New York City's Automated City Register System ("ACRIS") at "http://www.nyc.gov/html/dof/html/jump/acris.shtml".  ACRIS permits one to search for real property owners in New York City by a party's name, parcel identifiers (such as borough, block and lot numbers), etc. 

• Lawsuits: A beneficial owner's assets held in the form of personal injury or other type of legal claim, (if any), can sometimes be uncovered via court databases.

• Local Courts: Although limited to New York State courts, "eCourts" is a free database at "http://iapps.courts.state.ny.us/webcivil/ecourtsMain".

• Federal Courts: After signing up for an access code, "http://pacer.uspci.uscourts.gov/" enables one to conduct low-cost searches of federal courts nationwide. 

• Corporate & U.C.C. Searches: Free government websites such as New York's "http://www.dos.state.ny.us/corp/corpwww.html", sometimes provide beneficial ownership or other useful information about duly licensed businesses / corporations.

• United States Patent & Trademark Office:  Patents and trademarks can be researched for free at "http://www.uspto.gov/patft/".
  

• Comprehensive Searches: At "http://global.lexisnexis.com/",  LexisNexis offers a fee-based service called "SmartLinx", which searches public records nationwide.  Records regarding real property, motor vehicles, telephone numbers, can be accessed.  ChoicePoint offers a similar service called DEBTORDiscovery at  "http://www.debtordiscovery.com/ ".  Yet another comprehensive search service is available at IRB's website, "http://www.irbsearch.com/".  These services may provide the names of business associates, neighbors, relatives, etc., and can therefore possibly be used to identify nominees hiding a beneficial owner's assets.   
  

Researching real estate, lawsuits or other similar records in some cases may uncover assets concealed by a judgment debtor, bankruptcy debtor or divorcing spouse.  When conducting such research, one should however, always consider the red flags or indicia mentioned at  "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy".

**L.L. Jones, Concealing Assets In Bankruptcy: What Are the Consequences And How Do Trustees Find The Assets?, Association of the Bar of the City of New York (Presentation: April 24, 2008).

Copyright 2008 Fred L. Abrams

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Mr. Reinaldo Cestero is a private investigator and a retired Chief Deputy United States Marshal, who works in Puerto Rico.  I asked Mr. Cestero about the superseding indictment filed in U.S.A. v. Acevedo-Vila, et. al., which charged Puerto Rico's Governor Anibal Acevedo Vila, (and /or twelve co-defendants), with: conspiracy; false statements; wire fraud; federal program fraud; and filing false tax returns. 

When I inquired whether there was a prevailing view in San Juan about the Governor's indictment, Mr. Cestero answered: "The trial is supposed to start in February.  The public is split down the middle.  About half think that the Governor has been falsely accused as a result of a conspiracy between the Blue Party [Partido Nuevo Progresista] and the United States.  The other half are disgusted, and  think that the Governor is guilty of public corruption." 

The Governor's above-mentioned indictment arises from allegations that he had several businessman pay off large unreported campaign debt, in violation of 2 U.S.C. §431 et. seq., the Federal Election Campaign Act.  The first count of the superseding indictment specifically charged violations of 18 U.S.C. §371 (conspiracy);  2 U.S.C. §441a et. seq. (limitations on contributions /  expenditures); and 18 U.S.C. §§1001 (a) (1) & (a) (2) (false statements).  According to the first count, about sixteen collaborators had made illegal off-the-book campaign contributions to the Governor's political campaign committee.  The collaborators had allegedly paid false invoices issued by a media / public relations company.  The indictment further alleged that said company ultimately applied the paid invoices as credit against debt owed by the Governor's political campaign committee. 

The first count also essentially alleged that the Governor had used his family, staff and others as nominees or "conduits", to illegally make campaign contributions.  These "conduit contributions" were even sometimes allegedly made with funds from the Governor.  Count one additionally claimed that the Governor, (and/ or one of his associates), had contacted the Office of Management and Budget, the Puerto Rico Housing Department and the Puerto Rico Pension Fund, to promote the business interests of some of the conduit contributors.  Perhaps most interesting however, is that an April 28, 2008 Daily News' article indicates that the Governor is still running for re-election in Puerto Rico's November gubernatorial race-- despite the fact of his indictment.

Copyright 2008 Fred L. Abrams

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At "An Asset Search, Tax Fraud & Divorce ", I described a conversation I had with Brian-- a former IRS Special Agent who had also once been a high-ranking official at the Financial Crimes Enforcement Network.  In that conversation, Brian suggested that a broad range of criminal statutes were sometimes relevant to a tax fraud investigation.

Such was the case in the IRS tax fraud investigation of Wisconsin businessman Ronald Miserendino, which ended in Mr. Miserendino's indictment on a variety of charges in U.S.A. v. Miserendino .  As the superseding indictment returned against him indicated, Mr. Miserendino was charged with violating 18 U.S.C. 1344 (bank fraud); 18 U.S.C. 1341 (mail fraud); 26 U.S.C. 7201 (tax evasion); and 18 U.S.C. 1956 (h) (conspiracy to commit money laundering).

According to his plea agreement, Mr. Miserendino had illegally concealed assets and was guilty of tax evasion and conspiracy to commit money laundering.  Mr. Miserendino had started concealing assets in 2001 because his wife had filed for a Wisconsin divorce and sought the division of their marital property.  He had therefore used safe deposit boxes and nominees to hide and / or launder assets in multiple jurisdictions, like Australia, Oregon and Hawaii.  Mr. Miserendino had also dissipated his ownership of a Wisconsin real estate development and rental company, by transferring 49 percent of its stock to his son from a prior marriage.  As the Court's April 21,2008 sentencing minutes and criminal judgment reflect, Mr. Miserendino finally received a sentence of 48 months in prison.

Copyright 2008 Fred L. Abrams

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The divorcing spouse was suspected of hiding marital assets, and his / her personal computer may have contained undisclosed financial information.  The divorcing spouse had even removed the personal computer from the marital residence in anticipation of the divorce.  In the foregoing situation, a forensic examination of the divorcing spouse's computer might possibly help.

Yesterday, I spoke with Peter J. Theobald, who is a forensic computer examiner with Klein Liebman & Gresen, LLC.  Mr. Theobald explained that he could search a computer for active data, archived data and deleted data.  He further stated that once given physical access to a computer, he might find stored information about:

• Personal & Business Finances
• Purchases
• Appointments, Calendars & Contacts
• Communications
• Relationships

This means that a forensic computer examiner could elicit information about suspected hidden assets, such as bank account numbers or the names of nominees, high-risk geographical locations, shell companies, etc.  If such information were discovered, it might then be used to impeach an opposing party at a deposition or trial.  It could also be provided to investigators as the leads to be followed in an asset search.

Fed. R. Civ. P. 26 (a) (1) (A) (ii) & (b) (2) (B), cover the circumstances electronically stored information may be disclosed / forensically examined during federal litigation.  Pursuant to Federal Rule 26, a litigant may also seek the stored information in an opposing party's digital camera, cell phone, personal digital assistant or global positioning system.  Electronically stored information might also sometimes be "material and necessary" under New York law, and therefore disclosed pursuant to N.Y. Civ. Prac. L. & R. § 3101:

"§ 3101. Scope of disclosure. (a) Generally. There shall be full
disclosure of all matter material and necessary in the prosecution or
defense of an action, regardless of the burden of proof, by:
(1) a party, or the officer, director, member, agent or employee of a
party;..."

      
In  Etzion v. Etzion 2008 NY Slip Op 50475(U) (Nassau Sup. Ct. 2008) however, the Court mentioned N.Y. Civ. Prac. L. & R. § 3101(a), but then denied an ex-wife plaintiff electronic discovery of her ex-husband's computers.  Although the Court denied the ex-wife's discovery request under the particular facts of Etzion,  the Etzion decision provides an example of the kind of computer information a litigant might ideally seek from an opposing party.

Copyright 2008 Fred L. Abrams

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The following occurred over a four month period during 2002, and has been supplied by an investigator I have worked with.  Some of it has been changed / sanitized for privacy reasons: 
 
The Tax Fraud
As part of his tax fraud, Mr. Wallace contacted a Cayman Island bank by mail in order to open a personal account with it.  He mailed account opening documents to it which included a copy of his U.S. passport and also supplied the names of references. According to these documents, Mr. Wallace lived in Miami and was a real estate developer.  Based upon all of the foregoing, the Cayman Island bank opened Mr. Wallace's personal account with a "O" balance.  Just six days later however, bank "X" in Panama wired $6.3 million to Mr. Wallace's Cayman account without any mention of the remitter. 

Mr. Wallace then went on a business trip to Central America for several months; so he rented his Miami home to "Chuck".  Although Mr. Wallace hadn't known at the time, Chuck was a small-time crook.  In fact, soon after Chuck took possession of Mr. Wallace's home, Chuck started stealing Mr. Wallace's mail.  One of the letters Chuck had stolen was written by "Bob", a personal banker from the Cayman Island Bank where Mr. Wallace maintained his account.  Bob had written to Mr. Wallace about a lucrative investment opportunity.

The Identity Theft
Surmising from Bob's letter that Mr. Wallace had a sizable bank account, Chuck wrote to Bob pretending to be Mr. Wallace.  As the sanitized copy of Chuck's First Letter can only partly demonstrate, Chuck had assumed Mr. Wallace's identity in that particular letter by forging Mr. Wallace's signature.  To comfort Bob, Chuck's First Letter had also asked Bob for the minimum balance required to keep Mr. Wallace's account open. Chuck's "softening up" letter further suggested to Bob that Mr. Wallace's funds might soon be needed "at very short notice" for an alleged real estate deal in Mexico.  In the sanitized copy of Chuck's Second Letter, Chuck again pretended to be Mr. Wallace as he wrote to Bob at the Cayman Island Bank.  In his Second Letter, Chuck directed the wire transfer of Mr. Wallace's funds from the Cayman Island Bank to Chuck's own bank account in Mexico.

When Mr. Wallace next unexpectedly arrived at the Cayman Island Bank to make a cash withdrawal, he was shocked to learn that his account had been drained.  The Bank then showed Mr. Wallace "his" letters and explained that it had remitted his funds to Mexico just two days earlier because of "his" instructions.  Concluding that his identity had been taken over by Chuck, Mr. Wallace apologized for his error and immediately booked a flight bound for Miami.  Shortly thereafter, Mr. Wallace was arrested while fleeing from his Miami home after having killed Chuck there.

The Investigation
Investigators from the U.S. next paid a visit to the Cayman Island Bank.  Although they had first thought that Chuck had been the true beneficial owner of the Cayman Island account, they discovered that Mr. Wallace was.  Investigators also learned that Mr. Wallace was not just simply a real estate developer involved in a tax fraud / abusive offshore tax avoidance scheme.  Instead, Mr. Wallace was actually a major illegal narcotics trafficker hiding the proceeds of his drug crimes through money laundering.  Investigators finally concluded that much of the foregoing had happened because the Cayman Island Bank had among many other things:

1. Inadequate customer identification procedures / know your customer rules;
2. Permitted Mr. Wallace's account to be opened by mail & also with a  "0" balance;
   
3. Neglected to contact a single reference mentioned in Mr. Wallace's account opening documents;
4. Failed to recognize suspicious activities like the wire transfer of the $6.3 million from Panama or Chuck's "softening up" letter.

Copyright 2008 Fred  L. Abrams

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As the CNBC article"Europe Tax Evasion Probe Going Global" mentioned, the Organisation for Economic Co-operation and Development has disseminated a list with about 1400 suspected tax cheats on it, all of whom maintained offshore bank accounts through Liechtenstein's LGT Group.  According to the article, an LGT employee stole the list in 2002 and eventually sold it to Germany's foreign intelligence agency.

"Europe Tax Evasion Probe Going Global" also indicates that the 1400 on the list may have hidden assets and / or income from the domestic tax authorities of Germany, the U.S., Britain, Australia, Italy, France, Sweden, Canada and others.  Although LGT's February 24, 2008 press release, refuted the idea that all 1400 on the list were tax cheats, some of them may soon find themselves indicted for tax fraud in the U.S.  This could be true because the IRS announced in its February 26, 2008 press release, that it was "initiating enforcement action involving more than 100 U.S. taxpayers" on the list.

Last week a national newspaper telephoned me about the list of 1400 suspected tax cheats.  The newspaper wondered if it could retain me to somehow acquire a copy of the list.  Although I was unable to assist the newspaper, I contacted "Roger", the former intelligence officer mentioned in my post "Following The Money Trail In Zürich".  

"I have no interest in helping reporters, but if you want, maybe I could make a few calls", Roger said during our conversation about the list.  When I told Roger that as many as 600 on the list may have been Germans, he added:  "Because the German border is next to Liechtenstein, people would sometimes try to smuggle cash across it in the trunks of their cars.  Once in Liechtenstein, a suitcase full of cash could easily be deposited.  That's one reason Liechtenstein was a haven for hiding organized crime monies.  Liechtenstein has been the back pocket of Germany for years."

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Nathan Vardi's Forbes.com article "Cash Is King", describes some of the ways funds can be transferred during money laundering:

• Wire Transfers
• Credit Cards
• Prepaid Cards
• Digital Currency (i.e. E-Gold)
• Cash

"Cash Is King", also mentions that cash is hard to trace.  In some cases illicit cash can of course still be detected.  This is particularly true at border crossings, where the cash smuggler may pretend to be just an ordinary airline passenger or motorist.  Law enforcement use a variety of methods to detect cash smugglers, as set forth by the Financial Action Task Force in its February 12, 2005 report, "Detecting And Preventing The Cross-Border Transportation Of Cash By Terrorists And Other Criminals (Copyright © FATF/OECD. All rights reserved)". 

As the Financial Action Task Force report mentions, law enforcement can detect smuggling through: canine units, personal interviews, declaration forms, x-ray and other screening methods.  The Financial Action Task Force also has its IX Recommendation, which describes the countermeasures effective against cash smugglers. Perhaps most surprising however, is the extraordinary amount of illicit cash which is sometimes hidden and subject to detection. 

For example, in my November 1, 2007 post "Forfeiture  &  The DEA's Asset Search", I described a conversation I had with a DEA retiree about the Zhenli Ye Gon case.  "Forfeiture & The DEA's Asset Search" explained how Ye Gon had been suspected of concealing over $207 million dollars of drug proceeds in his Mexico City home.  Based on paragraph 20 of the attached Special Agent's affidavit, that November post mentioned that Ye Gon had been accused of hiding over $200 million in compartments, false walls, closets and suitcases.

Copyright 2008  Fred L. Abrams

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A licensed private investigator from Arizona advised that he had a good track record in finding  hidden assets and / or locating bank accounts.  He however, contacted me wanting to know the best way to learn more about money laundering (18 U.S.C. §§1956 & 1957) and structuring / smurfing (31 U.S.C. § 5324).  One good way to learn about money laundering and other white-collar crimes, is to read money laundering typologies.  

As explained at the end of my post Terrorist Financing, Money Laundering & Financial Intelligence Units, money laundering typologies are sometimes used by law enforcement and regulators to develop countermeasures against emerging criminal trends.  Although"100 Cases from the Egmont Group" arises from data collected by the Egmont Group from the 1990's, it is still relevant today.  In "100 Cases from the Egmont Group" there are for example, descriptions of the following laundering methods:

• Concealment within existing business structures
• Misuse of legitimate businesses
• Use of false identities, documents or straw men
• Exploiting international jurisdictional issues
• Use of anonymous asset types

The Financial Action Task Force also publishes money laundering typologies.  Its February 29, 2008 Terrorist Financing Typologies Report, (Copyright © FATF/OECD. All rights reserved), explains some of the methods terrorists use to raise and then transfer illicit funds. In addition to the foregoing, the Egmont Group and the Financial Action Task Force publish many money laundering typologies at their websites.

Copyright 2008 Fred L. Abrams

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On February 28, 2008, I posted about RICO lawsuits which had been filed against those suspected of hiding assets related to divorce.  Those suing over hidden marital assets however, more typically file lawsuits pursuant to the Uniform Fraudulent Conveyance Act, rather than RICO. In New York, those filing such suits proceed under the local codified version of the Uniform Fraudulent Conveyance Act, N.Y. Debt. Cred. Law. §§ 270 - 281.

One example of how the N.Y. Debt. Cred. Law can be used to sue those suspected of hiding marital assets, is Bloomfield v. Bloomfield, 721 N.Y.S. 2d 15 (1st Dept 2001).  In Bloomfield, the plaintiff filed suit pursuant to N.Y. Debt. Cred. Law §§  273 & 276 against both her estranged husband (defendant Marshall Bloomfield), and his brother (defendant Matthew Bloomfield).  Plaintiff's complaint essentially alleged that the defendants had frustrated her effort to valuate the marital estate by hiding marital assets at the time of her divorce from defendant Marshall Bloomfield.

  
Courts however, may also sometimes use N.Y.Civ. Prac. L. & R § 1001(a) to join a person or business entity, (suspected of fraudulently transferring marital assets), to an already existing divorce case:

§ 1001. Necessary joinder of parties. (a) Parties who should be joined.  Persons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action shall be made plaintiffs or defendants.  When a person who should join as a plaintiff refuses to do so he may be made a defendant.

As discussed by Solomon v. Solomon, 136 A.D. 2d 697 (2d Dept 1988) and Schmidt v. Schmidt, 99 A.D. 2d 775 (2d Dept 1984), Courts can apply N.Y.Civ. Prac. L. & R § 1001 to those who are the  transferees of marital property.  Furthermore, according to dictum by the Court in Jackson v. Brinkman, 2006 slip op 50015; 814 N.Y.S.2d 561 (Sup. Ct. Kings County, January 6, 2006), a divorcing spouse can lose the right to recover a marital asset if he / she neglects to join a wrongful transferee of marital property to a pending divorce.

Given all of the foregoing, one might possibly proceed against those suspected of hiding marital assets just like the  plaintiff had in Bloomfield-- by filing suit pursuant to the NY. Debt. Cred. Law.  Yet another option might instead be to join those hiding assets to a pending divorce, as the transferees of marital property pursuant to N.Y.Civ. Prac. L. & R § 1001(a); Solomon; and Schmidt. 

Copyright 2008 Fred L. Abrams

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When an asset search uncovers that a divorcing spouse or ex-husband may be fraudulently hiding assets, it can lead to a civil RICO case.  Plaintiff Christa Ritter's asset search of her ex-husband for example, ended in the filing of such a RICO case in Ritter v. Klisivitch et. al., Index # 2:06 CV 05511, U.S. District Court for the Eastern District of New York.  Although Plaintiff Ritter's RICO case is currently the subject of Defendants' pending dismissal motions, the Court may ultimately permit her to proceed via the following Proposed Complaint:

• Table of Contents
  
• Pages  "1" to "20"
• Pages "21 to "40"
• Pages "41" to 60"
• Pages "61" to "80"
  
• Pages "81" to "100"
• Pages "101" to "118"

Plaintiff Ritter's Proposed Complaint alleges that Defendant Klisivitch had violated RICO laws (18 U.S.C. §1961 et. seq.), through mail, wire and bank fraud (18 U.S.C. §§ 1341, 1343, 1344); obstruction of justice (18 U.S.C. §1503); money laundering (18 U.S.C. § 1956);  tax fraud (26 U.S.C. §§ 7201, 7202, 7206); and bankruptcy fraud (18 U.S.C. § 152).  Also according to the Plaintiff, the foregoing had occurred because Defendant had tried to protect his assets from judgments against him arising from the Plaintiff's and Defendant's divorce.

Via the Proposed Complaint, Plaintiff alleges some of the common money laundering indicia.  Plaintiff for example, essentially claims that Defendant had transferred money through nominee bank accounts and / or holding companies.  Among other things, the Proposed Complaint further alleges that Defendant had purchased real property through a nominee.

As Klisivitch partly suggests, a civil RICO complaint can sometimes be used as a countermeasure against those suspected of hiding assets related to a divorce.  Another N.Y. litigant for example, (in Ostashko v. Ostashko, No. 00 CV 7162; 2002 U.S. Dist. LEXIS 27015 at *50-*82 {E.D.N.Y. Dec. 10, 2002}), used a RICO complaint to set aside her divorcing husband's fraudulent confession of judgment.  This happened because the Ostashko Court found that the divorcing husband had used his confession of judgment to fraudulently conceal marital assets offshore, in Russia.

Copyright 2008 Fred L. Abrams

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The Gramm-Leach-Bliley Act (GLBA) at 15 U.S.C. § 6801 et. seq., protects the privacy of customers who provide information to U.S. financial institutions.  Although there are some important exceptions mentioned at 15 U.S.C. §6821(c) - (g), GLBA restricts access to  "nonpublic personal information" like bank account numbers, account balances, etc.  In some cases, GLBA can therefore act as a bar to an asset search at a financial institution.

At 15 U.S.C. §6821, GLBA specifically protects personal information at U.S. financial institutions by outlawing pretexting.  This means for example, that it is illegal to make false statements to a bank customer or a bank in order to access protected personal information.   Submitting false documents to a bank, (to obtain the protected information), is also illegal pursuant to 15 U.S.C. § 6821.  Soliciting a person to use false pretenses to access the protected information at a bank, is also prohibited.

Violating GLBA is punishable pursuant to 15 U.S.C. § 6823 by a criminal fine or imprisonment of up to five years.  In aggravated cases, fines may also be doubled and imprisonment can be for up to ten years.  As NXIVM Corp. vs. Rick Ross, U.S. District Court, District of New Jersey, Index # 06-CV-01051 demonstrates, a GLBA violation can however, also be alleged in a civil court case.  Although the NXIVM case was commenced as a trademark / copyright violation claim against Mr. Rick Ross, Mr. Ross filed a Verified Counterclaim alleging that NXVIM had illegally obtained his bank and other private information by hiring Mr. Juval Aviv of the Interfor private investigation firm.

According to allegations at page 8, paragraph 27of the Verified Counterclaim, Mr. Aviv had bribed a Fleet Bank employee to access Mr. Ross's personal bank information.  The Counterclaim alternatively alleged that Mr.Aviv had engaged in pretexting to illegally acquire the Fleet Bank information.  Mr. Aviv however, has denied any wrongdoing In his November 7, 2007 Reply filed with the Court.  As of the time of this writing, the foregoing claims have not yet been fully adjudicated by the Court.

Copyright 2008 Fred L. Abrams

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Given news reports like the September 27, 2007 Reuters' article about money laundering in Israel, I am never surprised when an asset search reveals that a bankruptcy debtor, a divorcing spouse or other person has washed money through Israel.  In one case for example, (the facts of which have been sanitized / changed herein), the defendant in a civil case had laundered millions via an offshore bank account concealed in Israel.  The defendant had used an Israeli bank account as a laundering link to wash money after it had been transferred through several Major Money Laundering Countries.  The defendant had also hidden assets by purchasing real property in Israel in the name of a shell company which had been secretly formed.

Despite the fact of the real property hidden in Israel, (and the millions the defendant had laundered), the defendant repeatedly told the plaintiff in the civil case, things like: "I don't have the money you think I have".  The defendant then threatened during settlement discussions that: "If we don't settle now and we have to go to trial, you might never see a dime". 

   
In the above case, the plaintiff might have considered filing a Request For Legal Assistance / Letter Rogatory to elicit financial evidence from bank and other witnesses in Israel.  Prosecuting a Request For Legal Assistance, (like the attached sanitized / changed copy), can sometimes be critically important to the successful outcome of a civil litigation.  As my local counsel in Tel Aviv also has advised, a Request For Legal Assistance may also uncover violations of the Prohibition on Money Laundering Law 5760-2000 or other Israeli laws.

Copyright 2008 Fred L. Abrams

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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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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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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:

• Used a personal N.Y. bank account to disburse millions in loan principal to the Debtor, instead of an attorney escrow account as required by DR-1200.46 Joint Rules Of The Appellate Divisions.

• 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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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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While "Roger" and I were walking near Bahnhofstrasse Street, Zürich, Roger suddenly stopped and had us duck into a corner shop. Once inside the shop Roger appeared to be looking for a particular item displayed in the shop's front window, although he was really scrutinizing the outside street.  He explained afterwards how it was necessary to check if we were being followed: "But first you must choose a side street or a main street where there are not many pedestrians or traffic, not a busy thoroughfare. You take mental pictures of everyone you think could be potential followers or surveillance cars as you continue along, before entering a store with windows which will permit you to survey the street".

Roger had a knack for locating offshore financial information because of his former work as an intelligence officer. He and I were in Zürich on our way to meet my local Swiss counsel.  We were following the money trail of a husband who pretended in his divorce case to have a negative net worth. Roger had brought details of the husband's offshore finances with him, which demonstrated that the husband had hidden millions by money laundering through Switzerland.  Roger was about to share this information with me for the first time, at our meeting with the Swiss counsel.

In some cases, offshore financial information discovered during an asset search suggests that a foreign criminal law has been violated.  Sometimes in Switzerland for example, one can be criminally prosecuted for lying about the beneficial ownership of a bank account as mentioned in the attached  Swiss law memo and in "An Asset Search In Switzerland".  The concealment  of a bank account's beneficial ownership however, more often indicates a violation of U.S. criminal law through a tax fraud or money laundering.

The very existence of an offshore bank account may also persuade a domestic court to issue Letters Rogatory / Legal Assistance Requests.  As more fully described by my posts "An Asset Search In Switzerland" and "Asset Search Tips for Divorce & Child Support Cases", Letters Rogatory are sometimes necessary in order to elicit evidence about hidden assets from foreign bank or other witnesses.

Copyright 2007 Fred L. Abrams

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Parking assets offshore in one jurisdiction and then exercising control over them through another, sometimes indicates money laundering.  One example of how multiple jurisdictions were used to facilitate money laundering, is the case of  U.S.A. v. Proceeds of Crime Transferred to Certain Domestic Financial Accounts, Index # 07-CV-21791, U.S. District Court for the Southern District of Florida.  As mentioned by a July 16, 2007 press release, the Government commenced  the U.S.A. case in order to forfeit $110 million which had been part of a tainted $400 million court award in Italy.  According to both the foregoing press release and Reuters, the $400 million was tainted because the Italian Court awarded it after an interested party, (Mr. Angelo "Nino" Rovelli), had bribed its judges.

As an amended complaint in U.S.A alleged, Mr. Rovelli's wife Primarosa Battistella, had used Swiss bank accounts and three prominent lawyers, (Attilio Pacifico, Giovanni Acampora and Cesare Previti), to pay the bribes.  After Mr. Rovelli died in 1990, Ms. Battistella finally inherited the tainted $400 million in January 1994.  According to the amended complaint, she then had her accountant Mr. Pierfrancesco Munari, launder a substantial amount of it.  Mr. Munari had allegedly placed the tainted money in financial institutions and /or business entities which acted as laundering links in: the United States; the British Virgin Islands; the Cayman Islands; Guernsey; Jersey; Switzerland; Luxembourg; Liechtenstein; Singapore; the Cook Islands and Costa Rica. 

Some of the money laundered by Mr. Munari had allegedly been hidden in Florida via nineteen financial accounts. The government therefore asserted in U.S.A., that forfeiture was appropriate pursuant to the following:

• 18 U.S.C. §981 (a) (1) (A), (B) & (C)-- Asset forfeiture because of money laundering;

• 18 U.S.C. §984-- Asset forfeiture of identical property within one year of a laundering offense, etc;

• 18 U.S.C. §1956-- Money Laundering;
  

• 18 U.S.C. §1957-- Money Laundering of property from specified unlawful activity;
  

• 18 U.S.C. §2314-- Interstate or foreign transfer of property obtained by fraud;

• 28 U.S.C. §1345-- U.S. District Court jurisdiction where the Government is plaintiff;

• 28 U.S.C. §1355 (a)-- U.S. District Court jurisdiction over forfeiture proceedings;   
  

• Italian Criminal Code Articles 319ter and 321, Bribery in judicial acts.

After the judge in U.S.A. froze / restrained numerous financial accounts in July 2007, Ms. Battistella and other Rovelli family members eventually executed a settlement agreement consenting to the forfeiture of thirteen accounts.  As Mr. Munari's own settlement agreement further demonstrates, he too consented to forfeit an additional four accounts.  Although on November 21, 2007 the Court issued a Final Judgment of Forfeiture regarding the total of seventeen financial accounts, there may still be some unresolved issues.  According to Forbes.Com, a grand jury has been convened in Florida to examine whether Mr. Munari's money laundering scheme criminally involved: Wachovia; Citigroup; Merrill Lynch; Morgan Stanley; Lazard and others. 

Copyright 2007-2008 Fred L. Abrams

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As my post  "Divorce, Child Support & Reporting Tax Fraud" mentioned, divorcing spouses sometimes tip the IRS about a suspected tax fraud.  Mrs. Benjamin for example, tipped the IRS because she thought that her divorcing husband had underreported revenue from his commercial maintenance and landscaping business.  She specifically provided the IRS with the business documents Mr. Benjamin had produced during the pre-trial discovery phase of their divorce case.  These documents included payment summary records from Mr. Benjamin's customers like Wal-Mart.  As part of her tip to the IRS, Mrs. Benjamin also turned over joint tax returns which Mr. Benjamin had supposedly filed for the years 1998 and 1999. 

A records check at the IRS however demonstrated that the 1998 and 1999 joint tax returns had never actually been filed by Mr. Benjamin.  The IRS also learned that from 1997 through 2001, Mr. Benjamin had neither paid income tax nor filed state or federal income tax returns.  IRS Special Agents then received false information from Mr. Benjamin when they interviewed him at his home on June 26, 2002.  The IRS also reviewed Mr. Benjamin's bank accounts and conferred with Wal-Mart along with Mr. Benjamin's other customers.  As a consequence of its asset search and tax fraud investigation, the IRS finally determined that Mr. Benjamin's total gross receipts or sales between 1998 and 2001 had actually been about $1,139,470.18; and that Mr. Benjamin had a $129,396.91 tax liability.
 

The IRS further recognized that Mr. Benjamin had hidden assets and income by: pocketing cash payments from customers; paying personal expenses from a business bank account; and cashing customers' checks instead of depositing them into his bank account.  During its investigation, the IRS additionally discovered that Mr. Benjamin had defrauded Wal-Mart through a false invoicing scheme.  By seeking payment for services he had never performed, (and faxing Wal-Mart twenty-two phony invoices between February 2001 and January 2002), Mr. Benjamin had duped Wal-Mart out of $417,583.

The IRS criminal investigation started by Mrs. Benjamin's tax fraud tip eventually led to Mr. Benjamin's fifty eight count indictment on July 27, 2005 in U.S.A. v. Benjamin, Index # 05-Cr-00348, U.S. District Court, District of Colorado.  Pursuant to his January 5, 2006 plea agreement, Mr. Benjamin pleaded guilty to violating 26 U.S.C. § 7201 (tax evasion) and 18 U.S.C. § 1343 (wire fraud).  Because of his white-collar crimes, Mr. Benjamin was sentenced on June 16, 2006 to serve two years in prison followed by three years of supervised release.  As Mr. Benjamin's sentence and criminal judgment both mentioned, he was also directed to pay a $200 special assessment and to start making restitution payments to Wal-Mart after his release from prison.

Copyright 2007 Fred L. Abrams

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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