Asset Search Blog : Asset Search & Hidden Assets : Lawyer & Attorney Fred Abrams : Tax Fraud, Asset Investigations

"The Americans & Swiss Target The Kleptocrats" contains an article discussing the Swiss “Federal Act on the restitution of politically exposed persons’ assets".  This act could be passed next month by the Swiss Parliament.  It would be used to freeze bribery proceeds or looted assets which some dictators and other politically exposed persons might transfer from a foreign state into Swiss bank accounts.

 

Even if a foreign state fails to make a mutual legal assistance treaty request to forfeit any illicit assets owned by a politically exposed person, said assets could still be frozen pursuant to the act.  As local Swiss counsel practicing in Zurich recently advised, "Basically the act provides that if, in the context of a failed state, the country in question can no longer make proper legal assistance requests, money seized in Switzerland from former rulers of that country can be returned anyway, if necessary by being given to some relief organisation." 

 

The act's sixth article creates a presumption that a politically exposed person possesses illicit assets based on the assertion that the same has sudden unexplained wealth and lives in a state believed to be corrupt:

 Art. 6 Presumption of illicit origin

<¹>The illicit origin of the assets is presumed when the following requirements are met:

a. The assets of the person who has the power of disposal of the assets is subject to a significant increase in comparison to the public function exercised by the politically exposed person, and
b. The level of corruption in the State of origin or of the concerned politically exposed person was manifestly high during the period in which the public function was performed.

<²>The presumption is reversed if evidence of lawful acquisition of the assets is demonstrated with preponderant plausibility.

 

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"A Tax Fraud & Identity Theft From Miami" & "Bearer Shares & An Asset Search" described money laundering schemes partly facilitated through Cayman Islands' bank accounts.  On the one hand, some financial investigators report to me that during 2010 the Cayman Islands continue to be an extraordinary money laundering risk. 

 

Cayman Islands' lawyers and bankers on the other hand have told me that anti-money laundering efforts have changed things there.  New York attorney and private investigator Richard Horowitz has lectured in seventeen countries about money laundering, terrorist financing, etc.  He gives his perspective on money laundering in the Cayman Islands, at the following article:   

 

(Click On The Article To Read It)

 

  

"Money laundering and financial crime: The Cayman Islands in a global perspective", Copyright © 2010 Cayman Free Press Ltd., reprinted with permission.

Copyright 2010 Fred L. Abrams

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American and Swiss officials are ramping up their efforts to recover assets hidden by corrupt foreign politically exposed persons commonly referred to as kleptocrats.  A few of my thoughts about this are included at MoneyLaundering.com's August 6th article "U.S., Swiss Initiatives to Recover Looted Assets Likely to Bring Banks More Subpoenas, Regulatory Scrutiny ":  

 

(Click On The Image To Read The Entire August 6th Article)           

 

 

"U.S., Swiss Initiatives to Recover Looted Assets Likely to Bring Banks More Subpoenas, Regulatory Scrutiny", Copyright 2010 Alert Global Media, reprinted with permission.

 

Copyright 2010 Fred L. Abrams

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"$20 million airline-ticket fraud aided by hotel workers, prosecutors say" mentioned that suspected identity thieves and their supposed co-conspirators were indicted for allegedly using stolen credit card information to purchase airline tickets.  These tickets are believed to have been sold on the U.S. black market at steep discounts to airline passengers. 

 

A July 9th press release describing the indictments quoted a U.S. prosecutor as saying: 'What began as a local law enforcement investigation ultimately exposed an extensive nationwide black market for airline tickets.'  The U.S. black market is of course not the only way airline passengers might acquire tickets connected to alleged credit card frauds. 

 

Jamaican authorities for example, are investigating Montego Bay, Jamaica resident Andrew Hemmings, about his possible acquisition of Spirit Airlines' tickets during a suspected credit card fraud.  To obtain evidence about this alleged fraud originating in Jamaica, Jamaican authorities issued the following legal assistance request / letter rogatory:
 

 

(Click On The Legal Assistance Request To Read It)

 

 

Copyright 2010 Fred L. Abrams

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My July 11th "Asset Search News Roundup" mentioned that U.S. prosecutors were investigating HSBC since some U.S. taxpayers were suspected of using foreign HSBC bank accounts to facilitate tax frauds.  Swiss prosecutors meanwhile, are separately investigating whether former HSBC employees Hervé Falciani and Georgina Mikhael had illegally accessed bank customer information at HSBC in Geneva.   

 

According to a July 9th Bloomberg.com article, the two former HSBC employees may have violated Swiss bank secrecy laws by allegedly trying to sell confidential HSBC bank customer information.  This information reportedly included the names of thousands of HSBC customers who might have used foreign HSBC bank accounts to hide assets from domestic tax authorities across the globe. 

 

Furthermore, approximately 1500 of these HSBC customers may have hidden assets from the IRS in their foreign HSBC accounts.  What might the IRS do to elicit financial evidence from HSBC, regarding these 1500 suspected tax cheats?  As explained at "Concentrating On Assets Concealed By Cross-Border Elements", one way the IRS can try to gather foreign evidence is by serving a "John Doe" summons. 

 

If the IRS does serve HSBC with a "John Doe" summons, the IRS would conceivably gather financial evidence about the 1500 and other suspected tax cheats.  The IRS has relied heavily on "John Doe" summonses as a countermeasure against tax frauds with cross-border elements.  As of December 2008, the IRS had issued more than 150 "John Doe" summonses in connection with its Offshore Credit Card Program.

 

Copyright 2010 Fred L. Abrams

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"Forced Collections Against A Fraudster Like Madoff" & "Competing Over Mr. Allen Stanford's Assets" described the problem of competing claimants trying to recover from a limited pool of funds.  This same problem has been encountered by the plaintiffs in The Lautenberg Foundation v. Madoff, 09-Civ-00816, whose lawsuit I mentioned at "Suing Peter Madoff For Bernard Madoff's Securities Fraud".

 

The Lautenberg plaintiffs are damaged investors of Bernard Madoff's Ponzi scheme and their lawsuit alleges they were injured by Bernard's younger brother Peter.  As mentioned by their lawsuit, Peter Madoff is allegedly liable for his supposed tortious conduct while working as a "control person" at Bernard L. Madoff Investment Securities LLC  ("BLMIS").

 

While the Lautenberg plaintiffs argue that Peter Madoff is liable to them, a complaint filed in an adversary proceeding claims that the Lautenberg lawsuit tries to wrongly recover BLMIS assets from Peter Madoff.  This May 27, 2010 adversary complaint filed by Bernard Madoff Trustee Irving Picard, asserts that the Launtenberg plaintiffs were participants in Trustee Picard's claims process for damaged investors.

 

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"Using Foreign Computer Evidence Against An Accused Hacker" explained that U.S. prosecutors accessed a Latvian computer server and other foreign computer evidence, where an identity thief was accused of storing stolen U.S. credit card information across international borders.  "Money Laundering, Marital Assets & Divorce" outlined the different fact pattern of a U.S. divorcing spouse who had first hidden undeclared revenue in a Swiss bank and next "washed" it through a bank in Germany. 

 

Private sector litigants aggrieved by such asset concealment schemes might elicit evidence from offshore banks or other necessary foreign witnesses through letters rogatory, as described by "A Primer For Gathering Financial Intelligence".  Governmental authorities can often additionally pursue Mutual Legal Assistance Treaty relief to help them elicit financial evidence from foreign witnesses.

 

Besides using Mutual Legal Assistance Treaties, governmental authorities might obtain foreign financial evidence through the methods mentioned at a March 2007 "USA Bulletin" article:

 
 (Click On The Image To Read The Entire Article)

 

 

"Obtaining Foreign Evidence Outside of The Mutual Legal Assistance Treaty Process", is published by the Executive Office for United States Attorneys.

 

Copyright 2010 Fred L. Abrams

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A frequently asked questions Web page published by the Financial Action Task Force discusses multilateral initiatives and states: "Large-scale money laundering schemes invariably contain cross-border elements."  The Trevor Cook receiver undoubtedly recognizes the foregoing because he is tracking receivership estate assets across international borders, on behalf of investors damaged by Ponzi schemer and securities fraudster Trevor Cook.

 

Among other things, the Cook receiver is trying to interdict assets which may have been laundered through Mr. Cook's purchase of real property in Canada and Panama and by Mr. Cook's transfer of funds into Swiss bank accounts.  Swiss authorities have already frozen a one million dollar bank account at UBS AG connected to Mr. Cook, on the ground of suspected money laundering.

 

Swiss authorities probably froze this bank account by relying on anti-money laundering legislation including Art. 305bis of the Swiss Criminal Code.  Art. 305bis says in part:   

 

“Whoever commits an act suited to frustrate the determination of the origin, the discovery or the confiscation of assets that he knows or should know derive from a crime, shall be punished with imprisonment or a fine"

 

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Forensic scientist Richard T. Picciochi is a questioned document examiner who can establish genuineness by identifying handwriting, machine printing, paper, writing instruments and inks.  As Mr. Picciochi's website advises, he was formerly an NYPD detective.  Mr. Picciochi learned questioned document examination through on-the-job apprenticeship at the NYPD and via training by the FBI and Secret Service. 

 

Before retiring from the NYPD, he participated in cases which included the assassination of Rabbi Meir Kahane (the founder of the JDL); the terrorist attack on the World Trade Center in 1993; the abduction of Harvey Weinstein who was buried alive for almost two weeks; and the homicide of Manhattan socialite Irene Silverman.  Mr. Piccochi additionally testified at the criminal trial of the Zodiac serial killer in NYC who left behind cryptic notes like this one:

 

 

 

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During his marriage to actress LisaRaye McCoy, ex-Turks and Caicos premier Michael Misick was investigated for public corruption by the Turks and Caicos Islands Commission of Inquiry.  The ex-premier's suspicious activities were believed to be so harmful, they contributed to the UK Government decision to suspend parts of the 2006 Turks Caicos Island Constitution.++

 

With this August 14, 2009 constitutional suspension, the right to a jury trial was revoked, the Cabinet abolished and the House of Assembly dissolved.  As my article "The Former Premier's Nexus To Hip Hop Weekly Magazine" reported, the ex-premier's suspicious activities had included his possible transfer of funds through the My Way Productions 2 company to the U.S. based Hip Hop Weekly Magazine.  

 

Not covered by my article, was how Ms. McCoy might possess probative evidence regarding the ex-premier's relationship to Hip Hop Weekly and My Way Productions 2.  Perhaps as a director of My Way Productions 2, Ms. McCoy may even have executed a March 30, 2007 "Unanimous Written Consent" agreement about Hip Hop Weekly: 

 

(FIRST EXCERPT MARCH 30th CONSENT AGREEMENT)

    

(SECOND EXCERPT MARCH 30th CONSENT AGREEMENT)
 

 

 (To Read The Entire Agreement, Click On The Excerpt Above)

 

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A financial investigator did "trash pulls" at an attorney's home to elicit financial intelligence about the attorney's client.  During one of these trash pulls an envelope bearing the name of a climate-controlled art storage facility was discovered. 

 

This discovery then led to the interdiction of a valuable painting hidden by the attorney's client at the art storage facility.  A second financial investigator was able to detect an adversary's foreign bank account by acquiring financial intelligence from an offshore check printing company. 

 

A third investigator gathered financial intelligence by searching for leads provided by an adversary's: passport, airline frequent flyer statements, country club membership, credit cards, phone bills and other records.  In addition to the foregoing, garnering financial intelligence may involve a wide variety of human intelligence and / or discovery devices.

 

Human Intelligence

"An Asset Search, Tax Fraud & Divorce" described an effort to access financial information via human intelligence.  It outlined how "Brian", (a former high-ranking official at the Financial Crimes Enforcement Network, who had earlier been an IRS special agent), and I sought human intelligence by interviewing a business associate of a divorcing husband.  Furthermore, some sophisticated asset concealment schemes like the one described at "Bearer Shares & An Asset Search", are ultimately only uncovered because of human intelligence.

 

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Bank secrecy laws enable bank customers to entrust their confidential financial information to banks across the globe, as the OECD explains at page 19, ¶ 29 of "Improving Access To Bank Information For Tax Purposes". 

 

By obligating banks to protect a bank customer's confidential information, the Gramm-Leach-Bliley Act at 15 U.S.C. § 6801 (b) provides bank secrecy in the United States:

(b) Financial institutions safeguards

In furtherance of the policy in subsection (a) of this section, each agency or authority described in section 6805(a) of this title shall establish appropriate standards for the financial institutions subject to their jurisdiction relating to administrative, technical, and physical safeguards -

(1) to insure the security and confidentiality of customer records and information;

(2) to protect against any anticipated threats or hazards to the security or integrity of such records; and

(3) to protect against unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any customer.

 

Despite the existence of the above-cited bank secrecy law, some still try to illegally access U.S. bank customer information.  The fact pattern I described at "Violating Federal Law In An Asset Search" could be such a case.  It mentioned how a bank employee or "insider" may have accessed a bank's computer system to illegally search for financial intelligence about a divorcing spouse.

 

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"How To Minimize Your Assets" published at a webpage belonging to Assetprotection.com, indicates that a judgment debtor can mitigate the risk of forced collection proceedings "[b]y becoming a smaller target".  The Assetprotection.com website is also replete with asset protection diagrams.  In cases that illicit proceeds are being hidden, some of these same diagrams could actually be laundering "link charts".

 

The third chart displayed from the top of its "Domestic Asset Protection Strategies" webpage, suggests that nominees, shell companies, bearer shares and loan agreements may all be effectively used to hide a true beneficial owner's assets.  These components meanwhile, can be abused by money launderers seeking to wash their monies via "back-to-back" loans from financial institutions.

 

As partly shown below and more fully described at "Laundered Assets", a back-to-back loan appears at first glance to be an arm's length transaction but conceals the fact that the borrower and lender are one and the same:

 

 

 

 Copyright 2010 Fred L. Abrams

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The IRS is concentrating on tax fraud schemes in which assets are concealed by cross-border elements.  A recent Reuters' article and a Department of Justice press release discussed such tax frauds, which the IRS refers to as abusive offshore tax avoidance schemes.  To try to detect these schemes, the IRS has used methods ranging from an Offshore Voluntary Compliance Initiative to its criminal prosecution of suspected tax cheats.

 

The IRS had also served a "John Doe" summons on UBS AG to uncover bank customers who were U.S. taxpayers with secret foreign financial accounts.  Under the settlement of that particular UBS case, the IRS withdrew its summons and UBS identified U.S. bank customers pursuant to the U.S.-Swiss tax treaties mentioned at my August 23rd "Asset Search News Roundup".  As briefly described at a May 25th "News Roundup", the IRS similarly issued a "John Doe" summons upon First Data Corporation:

 

 

 

(Click On The Above Image To Read The Entire Summons)

 

  Copyright 2010 Fred L. Abrams

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The now-defunct website of Capital Asset, Inc., (formerly at www.bulletproofasset.com), had claimed that establishing companies in Nevada, or Wyoming, or Delaware was preferable because: "Do you know that partnerships, corporations, LLCs in most states make you completely visible? If a judge can see your assets, he can seize them." 

 

Capital Asset, Inc. recommended establishing companies in Nevada, Wyoming or Delaware because in these states there are little or no reporting requirements about a company's shareholders, managers, etc.  As many prosecutors and financial investigators already know, the kind of corporate formation services once offered by Capital Asset, Inc. could have easily been used by criminals determined to hide their illicit assets. 

 

This lack of transparency in Nevada, Wyoming and Delaware can be an enormous money laundering risk, as these states may be a haven for those who would form a shell company and then use the same to open a nominee bank account.  Once such a nominee bank account is opened, beneficially owned funds can be maintained in it with complete anonymity.  Wyomingcorporations.us is one of the countless corporate formation businesses that seem to be trying to cash in on this lack of corporate transparency. 
 

It advises that a Wyoming company's "Members are not reported!" and also offers the Wyoming "virtual office", where for $400 dollars one can easily establish a supposed Wyoming office address, with a virtual office phone and fax number.  Perhaps even worse is the comment at the Wyomingcorporatons.us website that: “Now accounts for Wyoming corporations can be formed anywhere, and the brick-and-mortar type bank isn’t a necessity. Internet banks are a fine solution.”

 

(Last Edited August 15, 2010)

Copyright 2010 Fred L. Abrams

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My article "Wachovia Bank & Its Bank Secrecy Act Issues" said that Ponzi scheme victims do not possess a cognizable claim against financial institutions under the Bank Secrecy Act.  Concurring and quoting me was Moneylaundering.com's "Florida Court Unlikely to Find Wachovia, Mastercard Civilly Liable for Missing Ponzi Scheme":

 

 

 (Click On The Image Above To Continue Reading)

 

 

*"Florida Court Unlikely to Find Wachovia, Mastercard Civilly Liable for Missing Ponzi Scheme", Copyright 2010 Alert Global Media, reprinted with permission.

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U.S. Sen. Frank Lautenberg's family foundation is one of three plaintiffs in The Lautenberg Foundation v. Madoff, 09-Civ-00816.  The Lautenberg Plaintiffs had reportedly invested approximately $8.9 million in Bernard Madoff's Ponzi scheme.  They seek to recover losses through their February 24, 2009 complaint against Bernard Madoff's younger brother, Peter.  Although part of the complaint was dismissed by the Court's September 9, 2009 Order and Opinion, four causes of action remain against Peter Madoff.   

 

These remaining causes of action are for Peter Madoff's alleged: breach of a fiduciary duty; aiding and abetting a breach of fiduciary duty; negligence; and a supposed violation of Section 20(a) of the Securities Exchange Act of 1934.  Via their March 12, 2010 notice of motion, memorandum of law, statement of facts, etc., the Plaintiff's moved under Fed. R. Civ. P. 56 for summary judgment on their Securities Exchange Act cause of action.  In the above-mentioned statement of facts, Plaintiffs asserted they sustained nearly $6.5 million in actual losses.

 

According to the Plaintiffs, a "Uniform Application For Investment Adviser Registration" filed with the SEC shows that both Peter and Bernard Madoff had been "control persons" at Bernard L. Madoff Investment Securities LLC ("BMIS").  As the highlighted excerpt from page twenty of this registration form could indicate, Peter Madoff might have been such a "control person" since 1969:

 

(Click On The Image To Read The Entire Registration Form)

 

 

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My most recent "Asset Search News Roundup" reported about the April 13, 2010 plea agreement executed by securities fraudster and Ponzi schemer Trevor Cook.  In this plea deal, Mr. Cook pleaded guilty to tax and mail fraud charges, agreed to make restitution and is supposed to fully disclose his assets to prosecutors. 

 

Mr. Cook must also cooperate with Receiver R.J. Zayed, who seeks to recover Receivership assets for the benefit of Mr. Cook's Ponzi scheme victims.  Before the plea agreement happened, the Receiver made his March 29th statement.  It expressed "shared concern & frustration" over the asset recovery effort launched against Mr. Cook.  In this statement, the Receiver acknowledged that his efforts targeting Mr. Cook, have been criticized:

 

 (Click On The Following Image To Read The Complete Statement)

 

 

 

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Wachovia, one of the world's largest international banks, is still defending itself against the Florida civil complaint described at my post "Lawsuit Claims Wachovia Bank Facilitated Alleged Ponzi Scheme".  The complaint essentially claims that Wachovia's anti-money laundering program under the Bank Secrecy Act had failed to detect money laundering.  It was brought by the apparent victims of a Ponzi-like securities fraud.

 

Although the complaint could conceivably be the subject of a trial, the Court might soon dismiss at least part of it.  This might happen since there is no private right of action under the Bank Secrecy Act for alleged anti-money laundering program violations.  Only governmental authorities can seek monetary damages for Bank Secrecy Act violations, as suggested by pages 77-78 of the August 26, 2009 opinion in Armstrong v. American Pallet Leasing, Inc.: 

 

 

 

(CLICK ON THE IMAGE ABOVE TO READ THE OPINION) 

 

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My November 1, 2009 article highlighted the Chapter 7 bankruptcy case of real estate developer Michael R. Mastro.  At "Trustee in Mastro bankruptcy goes after four new targets", the Seattle Times too commented on Mr. Mastro and wrote about one of the latest lawsuits filed to recover Mr. Mastro's bankruptcy estate assets.

 

The lawsuit was commenced by Mastro Trustee James F. Rigby, Jr. on March 9, 2010 and is actually an adversary proceeding within Mr. Mastro's bankruptcy case.  Trustee Rigby's complaint in this adversary proceeding claimed that Mr. Mastro had made fraudulent and / or preferential asset transfers which the Court should set aside.  E.g. 11 U.S.C. §§544, 547 & 548. 

 

The complaint alleged that Mr. Mastro had conspired with others "to achieve the unlawful objective of hindering, delaying, or defrauding Mastro’s creditors".  It claimed that Mr. Mastro wrongfully transferred promissory notes of more than $50 million to his business partner John Mastandrea.  The transfer of these promissory notes was memorialized by a June 24, 2009 agreement: 

 

 ,(Click On The June 24th Agreement For A Complete View) 

 

 

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Bank customers sometimes hide their assets offshore in nominee bank accounts located in high-risk geographical locations like Switzerland.  One such bank customer was ex-watch manufacturer Jack Barouh of Golden Beach, Florida.  As a February 4, 2010 press release basically explained, Mr. Barouh was accused of hiding undeclared revenue from the IRS during an abusive offshore tax avoidance scheme at UBS AG and other foreign banks.  

 

Mr. Barouh's scheme could have stared in 1976 when he first transferred skimmed monies from his U.S. watch businesses to foreign accounts at UBS of Switzerland.  He reportedly carried out his scheme with the help of two Swiss money managers and a Swiss attorney.  One of these Swiss money managers had even supposedly misappropriated some of Mr. Barouh's undeclared revenue, although Mr. Barouh may have eventually recovered this revenue via a settlement.

 

The Swiss attorney and money managers are believed to have opened Mr. Barouh's nominee bank accounts and / or had been directors of Mr. Barouh's foreign companies.  These foreign companies were formed in Panama, the British Virgin Islands and Hong Kong and had reportedly been used to open Mr. Barouh's nominee bank accounts in Switzerland or Hong Kong.  Despite all of the foregoing, the IRS was able to detect Mr. Barouh's undeclared revenue in his nominee bank accounts.

 

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After I wrote my November 28th, 2009 "Asset Search News Roundup" about Minneapolis money manager Trevor Cook, he was incarcerated on January 25, 2010 for civil contempt of court.  As the Court stated in its January 25, 2010 Opinion, the Securities and Exchange Commission and the Commodity Futures Trading Commission previously filed for injunctive relief against Mr. Cook. 

 

They sought injunctive relief because Mr. Cook had allegedly participated in a Ponzi-like securities fraud which might have involved at least $190 million taken from 1000 or more victims.  Also according to the January 25th Opinion, Mr. Cook violated a November 23, 2009 asset freeze by dissipating assets.  The Court therefore remanded Mr. Cook to jail until "he purges himself of the contempt" by turning over:

• $27,061,728.35 in foreign accounts;
• $670,000 in cash;
• $62,000 transferred to Mr. Cook's brother;
• $6,141,470 paid to preferred persons;
• $2,005,857.88 in domestic accounts;
• $53,000 from the sale of a Maserati & Hummer;
• a computer and documents formerly possessed by Mr. Cook's assistant;
• a houseboat & a submarine;
• his BMW, Lexus 430 & Lexus SUV;
• his Bon Jovi tickets purchased in 2009;
• and his collections of Faberge eggs and watches;

 

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At "Target Of Corruption Probe Sues Hip-Hoppers For Supposed Fraud", I first mentioned the nexus between former Turks & Caicos premier Michael Misick and Hip Hop Weekly Magazine.  The Forbes article "The Premier And The Hip-Hop Magazine" discussed the same thing and also quoted me. 

 

This article specifically examined the Former Premier's alleged investment in Hip Hop Weekly Magazine through My Way Productions 2.  The Forbes article additionally described Sir Robin Auld's public corruption investigation of the Former Premier and asked at page 1:

 

 "How did My Way Productions 2 get its funding? According to the investigation carried out by Sir Robin Auld, Misick supplied a document that showed $300,000 was transferred to My Way Productions 2 in 2007 from a company called Windsor Investment Group. Misick claimed the money was a dividend from that company, which he and his brother partially owned."

 

The supposed transfer of $300,000 dollars into My Way Productions 2 had been expressly mentioned at page 146 ¶¶4.75 & 4.76 of Sir Robin's "Final Report to the Governor of the Turks and Caicos Islands".*  The $300,000 dollars was also apparently discussed at pages 51, 53, & 54 of a transcript from the Former Premier 's January 14, 2009 public corruption hearing.  Besides all of the foregoing, assertions made by New Jersey lawyer David J. Finkler might too shed light on the Former Premier's connection to Hip Hop Weekly Magazine.

 

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"Smuggling Cash Across Iraq's Borders" mentioned Donnie the former DEA agent who had trained Iraqi border personnel to interdict bulk-cash smugglers.  To help detect these smugglers, governmental authorities also use declaration forms to track the cross-border movement of cash and monetary instruments. 

 

As mentioned by my April 13, 2009 "Asset Search News Roundup", one such declaration form is the "FinCen 105".  It generally requires disclosure to the Bureau of Customs and Border Protection, when individuals physically transport, mail or ship more than $10,000 in cash or monetary instruments into the U.S.:

 

(To View The Complete Form, Click On The Image)

 

 

To avoid triggering the mandatory filing of a FinCen 105, Virginia medical doctor Andrew Silva had illegally structured cash by smuggling it in packages containing less than $10,000.  During an abusive offshore tax avoidance scheme, Dr. Silva mailed these packages of cash from Switzerland into the U.S., as outlined by his "statement of facts" filed in U.S.A. v. Andrew B. Silva.

 

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The plaintiffs' complaint in Grosz v. The Museum of Modern Art had alleged that The Museum of Modern Art (MoMA") was the wrongful transferee of three Holocaust-era paintings.  The Court's Order dismissed this contested provenance complaint last month on the ground that the complaint was barred by the statute of limitations. 

 

Since the Grosz complaint was dismissed, attorney Raymond Dowd filed a Notice of Appeal on behalf of the plaintiffs.  Mr. Dowd will also be lecturing on March 24, 2010 at Sotheby's Institute of Art where he will present "Egon Schiele's Dead City: Current Issues in Nazi Art Looting and Recovery".

 

Perhaps more interesting than the dismissal of the Grosz complaint, are the historical letters discussed by Grosz.  The following letters for example, were respectively mentioned during Grosz, at ¶¶39 & 48 of plaintiffs' June 23, 2009 Declaration of Jonathan G. Petropoulos:  

 

 

 

 

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"High Risk Locations & An Asset Search" and "Domestic Shell Companies & An Asset Search" explain that Delaware-based shell companies can especially pose a money laundering risk.  My other articles related to this same subject are:

• Following The Money Trail From Poland To Delaware

• Warsaw Prosecutors Eye Possible Money Laundering At 50 Platowcowa Street
  

• Breach Of Trust By A Former Red Cross Secretary-General?
   
• Financial Fraud Trends For The Year 2010
   

Last month MoneyLaundering.com called me and expressed its interest in some of the foregoing.  It then wrote "Polish Investigations into Delaware Companies Highlight Vulnerabilities to Laundering",* which I am quoted in:

  

(Click On The Article Above To Fully Read It)

 

 

*Polish Investigations into Delaware Companies Highlight Vulnerabilities to Laundering, Copyright 2010 Alert Global Media, reprinted with permission.

(Edited February 14, 2010)

Copyright 2010 Fred L. Abrams

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The Court announced yesterday that there had been a settlement in the New Jersey case involving Former Premier Michael Misick of the Turks and Caicos Islands.  The settlement is mentioned at the Court's Order of Dismissal and by the current docket report. 

 

According to various court filings, the Former Premier could have been a beneficial owner of Hip Hop Weekly Magazine through his alleged interests in: My Way Productions 2 LTD. ("My Way"), Z & M Media LLC ("Z & M"), and the holding company for Hip Hop Weekly Magazine, Hip Hop Global  Media, LLC ("HHG"). (Cf. Defendants' Answer, Counterclaim and Third-Party Complaint at p. 26 ¶ 7) (claim that the Former Premier and his ex-wife LisaRaye McCoy were "real parties in interest").

 

The Verified Amended Complaint in the New Jersey case meanwhile, indicated at ¶¶7, 57, 75, 78, 80 and Exhibit "H",  that My Way or Z & M or HHG, might have been involved in making substantial capital contributions:

1. $798, 647. 57 capital contribution from My Way into Z & M;
2. $10,000.00 capital contribution from My Way into HHG;
3. $833,334.00 capital contribution from My Way into HHG and Z & M;
4. $260,000.00 capital contribution from Z & M to fund Hip Hop Weekly Magazine.
    

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By using customer identification or "know your customer" rules, banks try to prevent money laundering and other financial frauds.  This use of customer identification rules by banks is contemplated at the Fifth Recommendation of the Financial Action Task Force.  The Fifth Recommendation urges banks to diligently verify a customer's identity and to record the true beneficial ownership of bank accounts.

 

As reported at "Fighting Financial Fraud At UK Banks", the UK changed its banks' "know your customer" rules on December 15, 2007, by codifying them at Money Laundering Regulations 2007*.  U.S. banks too verify customer identities, but do so pursuant to 31 C.F.R Part 103.121.  Lawsuits alleging that two U.S. banks had failed to sufficiently identify their bank customers, are respectively described at: "Associated Bank Sued For Supposedly Ignoring Red Flags" and "Lawsuit Claims Wachovia Bank Facilitated Alleged Ponzi Scheme".

 

UBS AG and other Swiss banks also require customer identification at the time a bank account is opened.  The customers of Swiss banks execute a declaration of beneficial ownership, commonly referred to as a "Form A".  A July 13, 2001 "Form A" was used in the U.S. tax fraud case brought against Florida yacht broker Robert Moran.  According to the Plea Agreement in Mr. Moran's case, the July 13th "Form A" helped demonstrate that Mr. Moran had violated 26 U.S.C. § 7206 (1), (perjury on a return / false statements). 

 

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The securities fraud complaint in Nesbeth v. USMIO, Docket No: 09−cv−62042−WJZ, alleges that Wachovia Bank caused damage to the supposed victims of a Ponzi scheme. This complaint, (referred to hereinafter as "the Florida Complaint"), also asserts claims against: MasterCard Worldwide, Mr. David Smith of Jamaica, Overseas Locket Corporation formed in Jamaica, Former Premier Michael Misick of the Turks and Caicos Islands, etc.

 

The Florida Complaint alleges that Mr. David Smith had operated a Ponzi scheme which reportedly involved six thousand victims from the Jamaican community and might have caused $220 million in losses. Florida Complaint at  ¶¶31, 37 & 38.  The suspected illicit proceeds of the scheme may have been used to invest in businesses and possibly pay for: real property, a lavish cruise, valuable watches (i.e. portable valuable commodities), ornamental furniture and exotic automobiles.  Florida Complaint at ¶52. 

 

According to the Florida Complaint at ¶49, proceeds from the scheme had additionally been laundered through bank accounts, including one maintained at Wachovia.  Like the Wisconsin Complaint earlier provided at "Associated Bank Sued For Supposedly Ignoring Red Flags", the Florida Complaint essentially claims that a bank's anti-money laundering program / Customer Identification Program pursuant to 31 CFR 103.121 ¶ (b) (2) (i), failed.

 

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Governmental authorities sometimes use data mining and money laundering typologies to detect financial fraud trends.  An earlier financial fraud trend we will undoubtedly see in 2010, is beneficial owners hiding assets through nominee bank accounts.  Another likely continuing trend for 2010, is the use of Delaware-based shell companies to facilitate money laundering in some cases.

 

Financial investigators around the world know that beneficial owners may try to hide their assets by  using relatives, money managers, etc. as bank signatories on nominee bank accounts.  Beneficial owners may even use a "nominee incorporation service" to supply a bank signatory in order to circumvent customer identification rules at banks.  At "Fighting Financial Fraud At UK Banks", I mentioned this form of bank account abuse.

 

Shell companies which lack transparency and are based in Delaware, could also play significant roles in some financial frauds carried out in 2010.  As "Domestic Shell Companies & An Asset Search" indicated, Delaware-based shell companies can particularly pose a money laundering risk.  My article "Following The Money Trail From Poland To Delaware", provided the details of three different financial fraud investigations which focused on possible shell companies in Delaware.

 

Copyright 2010 Fred L. Abrams

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The January 6th article "Three in al Qaeda drug case plead not guilty in NY" discussed suspected terrorist financing by some West African men.  According to a December 18, 2009 press release, the criminal case against these men involved the alleged transnational funding of Al Qaeda terrorists through narco-trafficking.

 

"Terrorist Financing, Money Laundering & Financial Intelligence Units" referred to another case of suspected terrorist funding.  It mentioned the Egmont Group's money laundering typology case numbered 06063:

 

 

 (Above Case# 06063: Courtesy of The Egmont Group)

 

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At first glance, there was nothing unusual about the lawsuit filed in New Jersey involving Former Premier Michael Misick of the Turks and Caicos Islands. The complaint in the lawsuit executed by the Former Premier, claimed that Hip Hop Weekly Magazine founders David Mays and Raymond Scott had misappropriated the magazine's cash.  

 

Mr. Mays and Mr. Scott separately alleged in their answer, counterclaim and third-party complaint, that the Former Premier had been an investor in the magazine and was basically one of its owners.  On March 23, 2010, there was a status and settlement conference scheduled in the lawsuit, as mentioned by the Court's docket entry:  

 

(Click On The Above Image To View The Docket Report)

 

"Target Of Corruption Probe Sues Hip-Hoppers For Supposed Fraud" meanwhile, explained that the Former Premier had been the subject of a public corruption probe by the Turks and Caicos Islands Commission of Inquiry.  The Inquiry issued its Redacted Final Report, which had once been available here.   This Final Report asserted that the Former Premier was known to have enjoyed a "Hollywood lifestyle" beyond his salary and allowances as a politician.  It also raised the critical questions: Had the Former Premier been a party to public corruption and could he have taken illicit monies?

 

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The Polish power and telecommunications company Elektrim SA has been in bankruptcy proceedings since 2007.  It still controls, (and owns an estimated 47% of),  Zespol Elektrowni Patnow-Adamow-Konin SA ("ZE PAK").  ZE PAK generates about 8.5% of all of Poland's electricity, as was just mentioned by "Enea, ‘Several’ Others Bid for Polish Power Group PAK (Update2)". 

 

Elektrim is also the subject of a criminal investigation by Warsaw prosecutors who have uncovered alleged irregularities believed to have occurred between 1999 and 2002.  They claim that Elektrim may have failed to perform trade agreements and conceivably caused property loss in violation of Article 296 paragraphs 1 & 3 of Poland's Criminal Code.  

 

These same prosecutors additionally appear to be focused on U.S. businesswoman Barbara J. Lundberg, who had been Elektrim's president from 1999 until she was fired in 2001.  Time Magazine's "Mrs. Big's Big Deals" published in 2000, had characterized Ms. Lundberg as "one of Warsaw's most influential executives".  The Warsaw prosecutors meanwhile claimed via their March 21, 2006 letter rogatory pictured below, that there were "changes in the existing profile of the company's business" after Ms. Lundberg became Elektrim's president:

 

 

 (To Read The Letter Rogatory Click On The Image Above)

 

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My article "Money Laundering By Minneapolis Money Managers?" reports that a lawsuit against Patrick Kiley, Trevor Cook and other money managers, had raised the question of whether Associated Bank breached a duty to prevent suspected money laundering.  As I mentioned in that article, Associated Bank could have conceivably failed to follow a written Customer Identification Program under 31 CFR 103.121 ¶ (b) (2) (i).

 

After I wrote "Money Laundering By Minneapolis Money Managers?", two lawsuits were filed against Associated Bank raising these same issues.  The gravamen of said lawsuits, was that Associated Bank had supposedly been negligent in allowing suspected securities fraudsters to open and maintain a nominee bank account in the name of Crown Forex LLC.  Crown Forex LLC was reportedly a sham business entity and its Associated Bank account was possibly used as a laundering link to wash some of the proceeds of a suspected securities fraud.

 

The first of these lawsuits was briefly filed in Minneapolis federal court via a November 4, 2009, third amended complaint.  That Minneapolis lawsuit against Associated Bank, was soon voluntarily dismissed pursuant to a December 9, 2009 filing and the Court's December 10, 2009, Order.  The second lawsuit against Associated Bank, (Herman Grad vs. Associated Bank NA, Brown County Case #2009-CV-002949), is however, still pending in Wisconsin. 

 

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By claiming that proceeds of a judicial bribery scheme had been laundered from Italy into nineteen U.S. bank accounts, prosecutors sought asset forfeiture as described at "Using Multiple Jurisdictions To Launder Money".  That forfeiture case was mostly based on U.S. anti-money laundering laws which included 18 U.S.C. §1956 (Money Laundering) and 18 U.S.C. §1957 (Money Laundering of property from specified unlawful activity).

            

In two of the cases mentioned at "Following The Money Trail From Poland To Delaware", prosecutors from Warsaw and Koszalin had asserted that they too suspected money laundering.  In those cases the prosecutors sought the issuance of letters rogatory in Delaware by claiming that laundering could have occurred in violation off Article 299 of Poland's penal law.

 

Like the foregoing prosecutors, litigants in the private sector may also allege that an adversary has fraudulently concealed assets in violation of U.S. and / or foreign money laundering laws.  To cite just one example, the RICO plaintiff more fully described at "Divorce, RICO & An Asset Search", claimed that her ex-husband had laundered money in violation of 18 U.S.C. §1956.

 

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"Warsaw Prosecutors Eye Possible Money Laundering At 50 Platowcowa Street ", mentioned that a tip letter led prosecutors from Poland to seek a letter rogatory via the U.S. Attorney in Delaware on October 14, 2009.  The Warsaw prosecutors used this particular letter rogatory to try to elicit evidence about Prime Invest L.L.C. in Delaware and the purchase of the former "Evita" mineral water plant in Biskupiec. 

 

These prosecutors were investigating a possible violation of an anti-money laundering law codified at Article 299 of Poland's penal law.  Prosecutors from Koszalin, Poland also recently sought their own letter rogatory through a November 23, 2009 application by the Delaware U.S. Attorney.  Like the prosecutors in Warsaw, they too had presumably followed the money trail to detect assets which might be concealed by money laundering in violation of Article 299. 

 

According to their letter rogatory, the Koszalin prosecutors were apparently investigating Vlad Vladyslav Hubenko for a possible tax fraud and suspected laundering scheme.  Their letter rogatory mentioned a business entity known as "Hunter Universal LLC", which reportedly resides in Delaware:

 

(Click On The Letter Rogatory To Read It)

  

  

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The humanitarian non-profit Slovenian Red Cross operates in 12 regions with 916 local Red Cross organizations.  Its former Secretary-General Mirko Jelenic however, is suspected of involvement  in a criminal "breach of trust", as mentioned by Slovenian law.  He might have used Slovenian Red Cross monies in a phony real estate sale agreed to in the year 2000. 

 

GNN Inc., of 2316 Baynard Blvd.,Wilmington, could possibly also have been used as a nominee corporation to facilitate the supposed phony sale.  The Delaware U.S. Attorney on behalf of prosecutors in Slovenia, therefore filed a motion on October 14, 2009 seeking the issuance of a letter rogatory about GNN Inc. The Court then issued its October 22, 2009 Order which permitted discovery via a letter rogatory about GNN Inc. in Delaware: 

  

   (Click On The Letter Rogatory Above To Read It)

 

On October 14, 2009 the Delaware U.S. Attorney had additionally sought the issuance of a different letter rogatory for prosecutors in Poland.  As discussed at "Warsaw Prosecutors Eye Possible Money Laundering At 50 Platowcowa Street", the prosecutors in Poland too needed information from witnesses residing in Delaware, for a criminal investigation.

 

Letters rogatory are sometimes also an available legal remedy for: divorcing spouses, judgment creditors, etc. This is especially true if a divorcing spouse, judgment creditor, etc. is searching for assets that have been laundered through multiple jurisdictions and / or are hidden by cross-border elements.  

 

(Edited December 10, 2009)

Copyright 2009 Fred L. Abrams

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A list of asset concealment red flags is available at "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy".  This list includes a beneficial owner's use of shell companies, foreign bank accounts, etc.

 

Even yet another red flag of asset concealment can be the transfer of assets without any economic benefit, as may happen when there has been a "back-to-back" loan.  As set forth in greater detail at "Laundered Assets", a loan is "back-to-back" when it is secretly fully collateralized and the borrower and the lender are one and the same.

   

The link chart below also published at "Laundered Assets", is replete with red flags.  Although it has been changed for privacy reasons, this link chart shows how one true beneficial owner hid his / her assets by using: a Liberian shell company; a foreign bank account in Curacao and a "back-to-back" loan disbursed in Amsterdam:   

 

(To Enlarge, Click On The Link Chart)

 

Copyright 2007-2009 Fred L. Abrams

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The General Inspector of Financial Control in Poland received an anonymous tip letter about alleged suspicious activity.  This tip ultimately related to Ukraine resident Sergly Savchuk;  Prime Invest L.L.C. of Florida and the Sesa Polska & Tecza Mazur limited liability companies of 50 Platowcowa Street, Warsaw:

 

 

The Warsaw Circuit Prosecutor's Office next started their financial fraud investigation of Sesa Polska and Tecza Mazur at 50 Platowcowa Street.  These Warsaw prosecutors presumably wanted to determine whether the Platowcowa Street companies, Prime Invest LLC and Mr. Savchuk, had laundered money in violation of Article 299 of Poland's penal law.

 

It soon became apparent that Prime Invest L.L.C was a suspected shell company that had maintained a bank account in Poland.  Mr. Savchuk might have also beneficially owned Prime Invest L.L.C. and had possibly used it in 2004 for the nominee purchase of the former "Evita" mineral water plant in Biskupiec. 

 

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A complaint verified by Former Premier Michael Misick of the Turks and Caicos Islands, claims hip- hop pioneers David Mays and Raymond Scott breached the Z & M Media LLC operating agreement, at Exhibit "A".  The Former Premier, Mr. Mays, Mr. Scott and others, are believed to hold ownership interests in Z & M Media, which is the operating company for the biweekly  "Hip Hop Weekly Magazine". 

 

The complaint additionally seeks damages for more than a million dollars from Mr. Mays and Mr. Scott because of an alleged fraud / embezzlement scheme. Amended Complaint at ¶¶ 161-164.  It asserts that Mr. Mays and Mr. Scott might have misappropriated cash from Z & M Media. Id. at ¶¶ 33-44. 

 

In responding to the complaint, Mr. Mays denied any wrongdoing via his opposing affidavit.  He also stated that Hip Hop Weekly was "the bible of the hip hop industry" with an estimated readership of one million. Opposing Affidavit ¶4.  Since February 2009, the magazine has been sold by the "CVS" chain and at many other retailers throughout the U.S., according to a letter from its distributor:

 

Click On The Letter To Enlarge It)

 

On April 20, 2009 the Court issued a temporary restraining order against Mr. Mays and Mr. Scott, which prohibited any violation of the above-mentioned operating agreement.  This restraint was continued by the Court's Order dated May 19, 2009.  Via their July 14, 2009 answer, counterclaim and third-party complaint, Mr. Mays and Mr. Scott however, alleged that the Former Premier had unjustifiably brought the complaint to gain complete control of Z & M Media.  The Former Premier would then supposedly sell Z & M Media and its assets to fund his defense against a "likely criminal prosecution by the British government". (Answer, Counterclaim & Third-Party Complaint, at pp. 23-24, ¶3).

 

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The Financial Action Task Force ("FATF"), is the bellwether for the fight against global money laundering and terrorist financing.  Its leading role is recognized by U.S. lawmakers in the Bank Secrecy Act at  31 U.S.C. §5311, which states:  

"FATF’s Forty Recommendations on Money Laundering and the ... Special Recommendations on Terrorist Financing are the recognized global standards for fighting money laundering and terrorist financing. The FATF has engaged in an assessment process for jurisdictions based on their compliance with these standards." 

 

By following the FATF's Forty Recommendations and Special Recommendations, governmental entities try to detect assets hidden by money launderers, identity thieves and other financial fraudsters.  Consistent with these Recommendations, the FATF just made its October 30th statement calling for greater transparency.  A higher degree of transparency could help uncover assets fraudulently concealed in financial institutions across the globe.

 

The FATF explained in its statement, that enhanced transparency was needed at financial institutions regarding customer due diligence; beneficial ownership; legal persons / legal arrangements (i.e. nominees); secrecy laws and cross-border exchange of information.

 

A few "Asset Search Blog" articles exploring these sort of topics are:

1. "Concealing Assets By Circumventing Customer Identification Rules"
    
2. "Beneficial Owners Concealing Their Foreign Bank Accounts"
    
3. "Nominees & Hidden Assets"
    
4. "Financial Discovery & Foreign Bank Secrecy Laws"
    
5. "Asset Search News Roundup: September 23, 2009"

 

Copyright 2009 Fred L. Abrams

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In "Forfeiture & The DEA's Asset Search" Donnie the former DEA Special Agent spoke about the effectiveness of asset forfeiture.  In that article, Donnie said: 'asset forfeiture... can stop those who supply pseudophedrine to the meth super labs and Mexican cartels'.  "A Strategy Of Seizing Sinaloa Drug Cartel Assets" also recently explained that asset forfeiture was a vital tool in the fight against the Mexican drug cartels.

 

Notwithstanding the benefits of an ethical asset forfeiture program, there can be occasional abuses.  Eight plaintiffs raise the issue of supposed improper seizure or asset forfeiture in James Morrow et. al. v. City of Tenaha Deputy City Marshal Barry Washington et. al., U.S. District Court for the Eastern District of Texas, Index No. 2:08-CV-288.  These plaintiffs claim in their civil rights lawsuit pursuant to 42 U.S.C §1983, that some law enforcement officers in or near Tenaha Texas, had essentially seized assets in a racial profiling scheme. 

 

Furthermore, an August 20, 2009 Memorandum Decision & Order reveals that the presiding judge intends to certify the plaintiffs' case as a class action lawsuit under Fed. R. Civ. P. 23(b)(2).  The plaintiffs who are African-Americans, assert they were driving in Tenaha Texas or on nearby state Highway 59.  They allege they were subjected to unconstitutional traffic stops and cash seizures based on their race or ethnicity. 

 

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"Bankruptcy Fraud, Money Laundering & Hidden Assets" outlines how a Chapter 7 debtor hid his Porsche and Rolls Royce and other assets.  That debtor eventually pleaded guilty to violating 18 U.S.C. §152 (Concealment of assets; false oaths and claims; bribery) and one count of 18 U.S.C §157 (Bankruptcy fraud).  "An Asset Search For Automobiles" similarly highlights how a Chapter 7 debtor concealed his $113,000 Porsche 911, by fraudulently transferring it out of state and registering it in the name of his brother.

 

A September 29, 2009 adversary complaint filed against 84-year-old Chapter 7 bankruptcy debtor Michael R. Mastro too claims that a valuable automobile was fraudulently transferred.  As part of this suspected fraudulent transfer, Mr. Mastro's wife Linda, could have assigned Mr. Mastro's $400,000 Rolls Royce to "LCY LLC Series Automobiles".  The "Gift Statement" she reportedly executed, states that the Rolls was transferred without any exchange of consideration: 

 

 

 

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As I previously mentioned at the December 5, 2008 "Asset Search News Roundup", former NYPD Police Commissioner Bernard Kerik is alleged to have been involved in a public corruption scheme and tax fraud.  Mr. Kerik's superseding indictment in U.S.A. v. Bernard B. Kerik, 07-cr-1027, accuses him of trying to secure city contracts for a New Jersey company which had supposedly paid him illegally through apartment renovations.

 

Mr. Kerik could have accepted some of this alleged illegal payment after being sworn in as New York City's 40th police commissioner.  He is also accused of concealing the same by failing to report it as taxable income and may have taken false deductions in a tax fraud.  Sup. Indict. ¶¶ 20 (c) & 28-31.  

 

Although Mr. Kerik had been freed because of the $500,000 bail package mentioned at "Former NYC police chief Kerik jailed before trial", he was remanded by an October 20, 2009 Order revoking the conditions of his supervised release.  Before issuing this Order, the Court presumably considered the Government's October 14, 2009 letter:

 

(To Read The Above Letter, Click On It)

 

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As a high-profile Twin Cities auto magnate, Mr. Hecker had been one of Minnesota's largest car dealers.  During April 2008, he sought a divorce from his wife of about fifteen years in Hennepin County Family Court, Case No. 27-FA-08-2731.  Mr. and Mrs. Hecker however, stipulated to dismiss said divorce case during October 2008. 

 

At that time, Mr. Hecker had business difficulties which later culminated in the entry of a nearly $477 million dollar judgment against him in Chrysler Financial Services Americas LLC v. Dennis E. Hecker, Hennepin County Civil Court, Case No. 27-CV-09-2152.  Given the fact of this $477 million dollar debt, Mr. Hecker filed a Chapter 7 bankruptcy petition on June 4, 2009. 

 

Mrs. Hecker meantime, applied to the Family Court for a monthly award of interim spousal maintenance and child support.  Similar to what I discussed at "Recovering Marital Assets Through A Domestic Court", page 4 ¶14 of her September 28, 2009 supporting affidavit asked the Court to "impute income" to Mr. Hecker:

 

Click On The Affidavit To Read It

 

  

 

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Before leaving New York, the divorcing husband referred to in Skiff-Murray v. Murray, 2005 slip op. 02911(N.Y. App. Div. 3d Dept, June 22, 2005); 17 A.D.3d 807; 793 N.Y.S.2d 243 had fraudulently conveyed his business and former marital residence to his newly created Nevada corporation which was possibly a shell company. 

 

Violating a restraining order, he next transferred this residence from his Nevada corporation to his aunt and uncle, who then mortgaged it to a third party.  According to the court in Skiff-Murray, the divorcing husband had "...made it impossible for plaintiff to enforce her judgments for child support arrears or obtain the maintenance, distribution of marital property and counsel fees awarded in the judgment of divorce."


Although recovering assets or bringing forced collection proceedings can be challenging in the foregoing type of situation, an aggrieved divorcing spouse might still succeed in it.  Domestic courts can be extremely effective if family members, business entities including shell companies, etc. were used as nominees to hide assets in a divorce.  One might file a fraud lawsuit against any nominees who were used to hide marital or other assets, as occurred in Bloomfield v. Bloomfield, 721 N.Y.S. 2d 15 (1st Dept 2001).  

 

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As a countermeasure against those bank customers who would use their bank accounts to fraudulently conceal assets, government regulators commonly require that banks apply customer identification or "know your customer" rules.  These rules are often geared toward identifying the true beneficial owner of a bank account and are analyzed at my articles "Beneficial Owners Concealing Their Foreign Bank Accounts" and "Fighting Financial Fraud At UK Banks".

 

Despite the use of customer identification / "know your customer" rules at banks, some bank customers still try to conceal their beneficial ownership of assets parked in bank accounts.  As outlined by "Nominees & Hidden Assets", beneficial owners sometimes misuse existing business entities like shell companies, to open financial accounts and circumvent a bank's customer identification procedures.

 

The Egmont Group of financial intelligence units, describes this very situation at one of its money laundering typologies, labeled as reference no. 08014.  It explains how "Mr. B" essentially used existing businesses in the form of shell companies, to "wash" assets through North American and European bank accounts used in a money laundering circuit.  My September 20, 2009 article "Money Laundering By Minneapolis Money Managers?" also discussed what might have been the use of a fictitious business entity to circumvent the U.S. customer identification rules codified at 31 CFR 103.121 ¶ (b) (2) (i). 

 

As more fully set forth in that article, a civil complaint in Minneapolis alleges among other things, that a bank account maintained by the "non-existent, non-registered [business] entity" called Crown Forex LLC, could have transferred the proceeds of a securities fraud.  Some of the allegations in that complaint are also believed to be the subject of a federal grand jury proceeding, according to the Minneapolis Star Tribune at: "Twin Cities investment advisers focus of probe".

 

 

Copyright 2009 Fred L. Abrams

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An "Asset Search In A Chapter 7 Bankruptcy Case" talks about researching a debtor's bankruptcy petition and other court filings to help determine whether there is any fraudulently concealed bankruptcy estate property.  This type of research recently resulted in the filing of a bankruptcy fraud complaint against Kelvin Daniels, who is a New York City cop. 

 

Mr. Daniels is accused in U.S.A. v. Daniels 7:09−mj−02103, of fraudulently concealing bankruptcy estate property during his New York bankruptcy in the summer of 2005.  A Department of Justice press release claims that Mr. Daniels failed to schedule and otherwise disclose his deeded property on Third Street in Newburgh, New York. 

 

A bankruptcy debtor who conceals an asset, fails to list an asset on schedules, undervalues an asset or provides a misleading description of an asset, may violate 18 U.S.C. §152 (1) Fraudulent Concealment (punishable fine up to $500,000 for corporations and $250,000 for individuals and /or imprisonment up to five years).

 

Other bankruptcy fraud statutes which commonly relate to asset concealment include:

1. 18 U.S.C. §152 (2) (False oath or account);
2. 18 U.S.C. §152 (3) (False declarations);
3. 18 U.S.C. §152 (7) (Fraudulent pre-petition transfers or concealment);
4. 18 U.S.C. §157 (Bankruptcy fraud).

 

Copyright 2009 Fred L. Abrams

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Five Minnesota money managers and a dozen business entities including The Oxford Private Client Group of the Van Dusen mansion in Minneapolis, have been sued by 57 investors for alleged securities fraud.  The Minneapolis Star Tribune wrote about the lawsuit in "Investment fraud suit grows more complex" and earlier on July 12, 2009. 

 

The investors' second amended complaint at part 1 and part 2 herein, pleaded causes of action for: fraud, conversion, civil theft, negligent misrepresentation, civil conspiracy, deceptive trade practices, breach of contract, and breach of fiduciary duty.  It asserted that the money managers had converted about $16 million belonging to the investors by inducing the investors to place monies in a foreign currency arbitrage program. 

 

This second amended complaint specifically claimed that some of the money managers had aired radio broadcasts to solicit investments for the foreign currency arbitrage program.  One money manager reportedly described this arbitrage program to two investors, by drawing what might be nothing more than a meaningless link chart:   

 

(Click On The Link Chart To Enlarge It)

 

 

 

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Today's article is based on an ongoing investigation, the facts of which are changed below for privacy reasons:

 

Ralph claimed in his New Jersey divorce that he had a low net worth, although he was a medical doctor who once had a thriving private practice.  Ralph's claim made his divorcing wife Nancy believe that Ralph had hidden marital assets.  Nancy therefore gathered up copies of documents she obtained during the pretrial discovery phase of the divorce and before.  

 

These documents included Ralph's: passport, statements for airline frequent flyer miles, phone bills and financial records.  Nancy gave them to Mike, who was a licensed private investigator she had retained to perform an asset search regarding Ralph.  After conducting research for more than a month, Mike told Nancy that Ralph had hidden monies in foreign bank accounts and in Miami. 

 

Mike asserted that Ralph had secretly maintained about $2.5 million dollars in foreign banks located in high-risk geographical locations known for money laundering.  Ralph had also supposedly hidden another $85,000 dollars in a Miami bank account.  Mike then explained that he could perform the necessary "bank account searches" which would identify all of Ralph's secret accounts.

 

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The U.S. Department of Justice believes that seizing assets from Mexican drug cartels can generally help combat cross-border murder, kidnapping, robbery, etc.  Through the person of the Criminal Division's Assistant Attorney General Lanny A. Breuer, the Department of Justice reiterated its desire to seize the illicit assets of illegal narco-traffickers.

 

Assistant Attorney General Breuer stated at a July 22, 2009 conference, that U.S. asset forfeiture and money laundering laws gave authorities the necessary tools to trace and then seize illicit drug-related assets.  He stressed the importance of disrupting the finances of narco-traffickers because their existence was fueled by large sums of cash.  The Assistant Attorney General also said that prosecutors should conduct financial investigations and add asset forfeiture claims to indictments in their criminal cases. 

 

He additionally stated in a July 9, 2009 hearing before a committee of the U.S.House of Representatives, that: "... seizing the financial infrastructure of the cartels undermines their very existence".  During the Assistant Attorney General's July 9 and July 22 statements, he specifically mentioned Operation Xcellerator, which had targeted the Sinaloa drug cartel.  A May 17, 2007 news release also discussed Sinaloa narco-trafficking.  It.claimed that Ismael Zambada Garcia, (as a supposed Sinaloa trafficker), had laundered drug monies via the following financial network:

 

 (To Fully View This Image, Click On It) 

  

Image: U.S. Treasury's Office of Foreign Assets Control

 

 

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An August 25 Newsweek article mentioned that Federal Reserve Chairman Ben Bernanke had fallen prey to identity thieves after Mr. Bernanke's wife had her purse stolen.  One of the people believed to have been responsible for that identity theft is Clyde Austin Gray, Jr.  Mr. Gray had conspired to commit identity theft nationwide, according to the single-count criminal information in U.S.A. v. Gray, Index No. l:09-CR-00326.  A July 22, 2009 factual statement shows that Mr. Gray was a ringleader who had stolen over 2.1 million dollars from at least ten financial institutions such as SunTrust Bank of Atlanta and M & T Trust in Buffalo. 

 

He and other identity thieves had acquired bank account numbers, credit cards, driver's licenses and other identifying information through pick pocketing, mail theft, the use of "insiders" at professional offices, etc.  The August 25th Newsweek article additionally mentioned that Mr. Gray pleaded guilty in July to conspiracy to commit bank fraud (18 U.S.C. §1349).  The Newsweek article also observed that identity thieves can victimize both the "mighty and powerful" and "hapless consumers".  

 

In a completely different identity theft case I have written about, a major illegal narcotics trafficker lost the $6.3 million he had hidden in a Cayman Island bank account.  As set forth in "A Tax Fraud & Identity Theft From Miami", that trafficker's $6.3 million was transferred by an identity thief from the Cayman Island bank account to Mexico.  The identity thief had accomplished this transfer by impersonating the trafficker in two letters to the Cayman Island bank.

 

The trafficker however, soon learned that he had lost his millions because of the identity thief's letters and then killed the identity thief.  Sanitized copies of these letters used by the identity thief to impersonate the trafficker, are reproduced below:

 

Click On The Above Letters For A Better View

  

 

Copyright 2009 Fred L. Abrams

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In "Nominees & Hidden Assets" I emphasize the fact that some beneficial owners hide their assets through nominees (i.e. representatives).   I wrote "Nominees & Hidden Assets" because recognizing a beneficial owner's use of nominees can be critical to a successful asset search, debt collection proceeding, etc.  Other articles I have written separately show that people from a broad range of backgrounds might possibly use nominees to hide assets. 

 

"Three African Heads of State Sued For Hiding Assets" discusses President Denis Sassou-Nguesso, President Obiang Nguema and late President Bongo, all of whom had been accused of using nominees to hide assets in France.  "Laundering Holocaust-Era Art?" raises the issue of whether a former vice president and director of MoMA had used N.Y. art gallery owner Curt Valentin in 1939, as the nominee purchaser of Nazi-looted art transferred in Switzerland.

 

"A Divorce & Trade-Based Tax Fraud / Money Laundering" is about the trade-based tax fraud and money laundering scheme formerly facilitated through CNC Associates, Inc.--  which had been a nominee of California industrialist Mr. Gene Haas.  My August 11, 2009 "Asset Search News Roundup" additionally reports that former congressman William Jefferson had likely used various companies as nominees, in connection with his particular crimes. 

 

Finally, although I have mentioned the link chart below in my previous articles, I do so once again.  I now refer to it because the same highlights how one divorcing husband hid marital assets by using a nominee shell company along with "bearer shares".  Said link chart and the divorcing husband's formation of that nominee company, are more fully discussed at: "Bearer Shares & An Asset Search".

 

(Click On The Link Chart To Enlarge It)

 

 

 

Copyright 2009 Fred L. Abrams

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Albert Gonzalez was arrested in the Southern District of Florida on May 8, 2008 pursuant to this warrant:

Click On The Arrest Warrant To Enlarge It

 

The arrest arose out of Mr. Gonzalez's alleged computer hacking / identity theft scheme which was later outlined in a May 14, 2008 New York superseding indictment.  This superseding indictment in U.S.A. v. Yastremskiy, et. al., 08-cr-00160, claimed that Mr. Gonzalez and his co-defendants had stolen credit card information through computer intrusions at Dave & Busters, Inc. restaurants.  Mr. Gonzalez and / or his co-defendants were accused of violating federal laws including but not limited to: conspiracy (18 U.S.C. §371); fraud related to computers (18 U.S.C. §1030); wire fraud (18 U.S.C. §1343 ); access device fraud (18 U.S.C. §1029); aggravated identity theft (18 U.S.C. §1028A); etc.  

 

Almost three months after the superseding indictment was filed against him in New York, Mr. Gonzalez was next indicted in Massachusetts.  According to the August 5, 2008 Massachusetts indictment in U.S.A. v. Albert Gonzalez, 08-cr-10233, Mr. Gonzalez had hacked computers which stored credit card information for BJ's Wholesale Club, DSW, OfficeMax, Boston Market and others.

 

Like the New York superseding indictment, the Massachusetts indictment accused Mr. Gonzalez of: conspiracy (18 U.S.C. §371); fraud related to computers (18 U.S.C. §1030); wire fraud (18 U.S.C. §1343 ); access device fraud (18 U.S.C.§1029); and aggravated identity theft (18 U.S.C. §1028A).  The Massachusetts indictment also essentially asserted that Mr. Gonzalez had hidden the proceeds of his hacking / identity theft scheme by money laundering through multiple jurisdictions.

 

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Some post-judgment creditors, divorcing spouses and other private litigants use a domestic summons / subpoena to elicit an adversary's bank account information from a foreign bank witness.  Under limited circumstances, these private litigants might serve a domestic summons / subpoena, as set forth by the Court in First American Corp. v. Price Waterhouse, 154 F.3d 16 (2d Cir. 1998). 

 

Assuming that a subpoenaed foreign bank witness refused to comply with a domestic summons / subpoena because of bank secrecy laws, then the issues raised by Old Ladder Litigation Co. LLC. v. Investcorp Bank B.S.C, et. al., No. 08-CV-00876 (S.D.N.Y. May 29, 2008), can be relevant.  U.S. authorities also sometimes elicit bank account information by serving a domestic summons on a foreign bank witness. 

 

The IRS for example, served a domestic summons on UBS AG, headquartered in Zurich, as discussed in "UBS & Its 'John Doe' Summons" & "A Domestic Subpoena / Summons In An Offshore Asset Search".  U.S authorities might also serve a subpoena on a foreign bank witness by relying on In Re Grand Jury Proceedings (Bank of Nova Scotia), 740 F.2d 817 (11th Cir.), cert. denied, 469 U.S. 1106 (1985).   Other methods used to elicit evidence from a foreign bank witness, (besides domestic summonses / subpoenas), often rely on cross-border cooperation. 

 

Formal methods using cross-border cooperation can involve: letters rogatory (a.k.a. legal assistance requests); executive orders; mutual legal assistance or other treaties like tax information exchange agreements.  The formal methods of obtaining evidence from foreign witnesses are generally discussed in Section 274 of the United States Attorneys' Manual.  At 9.7.10.2 (07-28-2003), Obtaining International Cooperation, the IRS Manual additionally mentions some of them, in connection with international asset forfeiture.

 

Copyright 2009 Fred L. Abrams

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"Goering Hoards Nudes, Jingles Emeralds in Catalog of Looted Art", quotes Reichsmarschall Hermann Goering as having said: "During a war everybody loots a little bit".  The May 28, 1945 Time Magazine article "Art: Goring's Beauties", valued Goering's collection of Nazi-looted art at $200,000,000. 

 

Here is a June 9, 1945 photograph of part of that art collection recovered from Goering, as it was being cataloged and temporarily stored near Berchtesgaden in the German Bavarian Alps:  

 

  Photo: National Archives and Records Administration

  

Since more than 20% of Europe's art is believed to have been looted by the Nazis, it is no surprise that Holocaust-era art restitution cases continue to this day.  Articles I have written about these cases include:

 

*Searching For Nazi-Looted Art

*Mr. Curt Valentin's Nazi-Looted Art

*Holocaust-Era Art Restitution Revisited

*Laundering Holocaust-Era Loot?

*Asset Search News Roundup: June 25, 2009

 

Copyright 2009 Fred L. Abrams

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A true beneficial owner may try to hide his / her assets by smuggling cash across a country's border, into another jurisdiction.  My July 27th article, "A Yola, A Police Sergeant & A Restauranteur", mentioned the issue of smuggled cash.  "Smuggling Cash Across Iraq's Border" and "Offshore Bank Accounts In Liechtenstein", also raised this issue. 

 

According to a July 21, 2009 press release, nearly $100,000 was recently seized as it was allegedly smuggled in a box of laundry detergent at a Laredo, Texas port of entry.  This too essentially happened on March 1, 2009 in Hldalgo, Texas, when a box of laundry detergent and a spare tire were reportedly used in an attempt to smuggle the $561,132.00 pictured below.  

 

 

 

 Images: U.S. Customs and Border Protection

  

Copyright 2009 Fred L. Abrams

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After an at-sea interdiction, U.S. prosecutors are seeking asset forfeiture of a 26- foot yola (boat) and the nearly $1.7 million on board alleged to be undeclared currency hidden in two suitcases and a small bag.  The captain of the yola was Sergeant Juan Quinones-Rosario of the Police of Puerto Rico and its crew member was an Aguada, Puerto Rico restauranteur, Raul Bosques-Caro. 

 

The sergeant and restauranteur were reportedly on one of two yolas traveling on July 20, 2009, towards the Dominican Republic from Aguada, Puerto Rico.  The yolas had been spotted in international waters by patrol aircraft and were ultimately searched by federal agents.  Given the discovery of the alleged undeclared cash on the yola, the sergeant and restauranteur are both facing prosecution in U.S.A. v. Bosques-Caro, et. al. 3:09-cr-00246. 

 

Their three-count indictment in Bosques-Caro, alleges violations of 31 U.S.C. §§5316(a) (1) (A) (Reports on exporting and importing monetary instruments); 5332 (a) & (b) (Bulk cash smuggling into or out of the United States); and 18 U.S.C. §2 (Principals).  Asset forfeiture of $1,694,139.00 and the yola, is now being sought under 31 U.S.C. §§5317 (c) (1) (Search and forfeiture of monetary instruments) and 5332 (b) (2).  Along with a criminal complaint, a Special Agent's supporting affidavit had also been initially filed in the case.

 

Copyright 2009 Fred L. Abrams

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Financial intelligence units, local law enforcement, prosecutors, etc. can visually analyze data through "link charts" like the one used by U.S. Treasury's Office Of Foreign Assets Control to depict the drug trafficking network of Medellin-based Francisco Antonio Florez Upegui:

 

(To Enlarge, Click On Image)

Chart: U.S. Treasury Office Of Foreign Assets Control

  

Governmental authorities use link charts to help discover associations or patterns in voluminous data.  Depending on the kind of investigation, a governmental authority may use a link chart to analyze: medical prescriptions, telephone toll records, cash deposits, border crossings and other things. 

 

Software with link charting features can even be used to help a government search for and forfeit illicit assets.  GoAML / goATR, is asset tracking software with this charting ability and is briefly mentioned at "Asset Forfeiture Goes Global".  Link charts may additionally be used in court to corroborate an aggrieved party's claim that an adversary has dissipated or hidden: marital, probate, business, or other assets. 

 

I relied heavily on link charts in one particular court filing to support my contention that a divorcing husband had concealed marital assets from his wife.  The divorcing husband in that case had hidden marital assets by laundering them through a "back-to-back" loan (i.e. a fully collateralized loan in which the borrower and the lender are one and the same).  He is also mentioned in my post, "Money Laundering, Marital Assets & Divorce".                           

 

Copyright 2009 Fred L. Abrams

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U.S. taxpayers who beneficially own a foreign bank account with assets in excess of $10,000, are required to disclose the same at Schedule B, Part III of their U.S. Individual Tax Return Form 1040.  These taxpayers must also separately file a TDF 90-22.1, (a.k.a. a "FBAR" form), the first page of which is shown here:

 

Click On The TDF 90-22.1 To Enlarge It 

 

I previously discussed these reporting requirements at "Beneficial Owners Concealing Their Foreign Bank Accounts".  One Florida resident who failed to follow said requirements as part of his abusive offshore tax avoidance scheme, was Mr. Steven Michael Rubinstein.  Mr. Rubinstein  worked in the yacht industry and recently pleaded guilty to violating 26 U.S.C. § 7206 (1) (perjury on a return / false statements).  According to his Factual Proffer Statement, Mr. Rubinstein had concealed his assets from the IRS by parking them in Switzerland.  He had hidden assets through his nominee British Virgin Island corporation, which secretly held a UBS financial account in Switzerland. 

 

My May 25, 2009 "Asset Search News Roundup" similarly mentioned the abusive offshore tax avoidance scheme facilitated by Florida yacht broker Robert Moran.  Like Mr. Rubinstein, Mr. Moran had hidden assets from the IRS by using a financial account at UBS in Switzerland.  He too pleaded guilty to filing a false tax return in violation of 26 U.S.C. § 7206 (1).  Mr. Moran had specifically used a nominee Panamanian corporation to maintain his hidden financial account at UBS Switzerland. 

 

Copyright 2009 Fred L. Abrams 

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"A Domestic Subpoena / Summons In An Offshore Asset Search" describes how the IRS and U.S. Department of Justice were granted court permission to serve a "John Doe" summons on UBS AG.  This summons was supposed to help the IRS identify assets and / or undeclared revenue hidden by any U.S. taxpayers who were maintaining offshore bank accounts at UBS.

 

A July 1, 2008 Order had specifically permitted the IRS to serve UBS with the "John Doe" summons which is reproduced below without its attachments: 

 

 (Click On Images To Enlarge)

 

The IRS has however, argued in U.S.A. v. UBS AG, 1:09-cv-20423, that UBS has not fully complied with the summons.  In UBS AG, the IRS claims that UBS has disclosed under the summons, just 300 bank accounts out of an estimated 52,000 belonging to U.S. taxpayers who could be tax cheats. 

 

As I stated in my February 27, 2009 "Asset Search News Roundup", UBS must consider Swiss bank secrecy laws, (a.k.a. professional secrecy laws), when supplying the IRS with account information pursuant to the summons.  UBS highlighted the very issue of bank secrecy laws just yesterday, when it filed its "Supplemental Declaration of Professor Isabelle Romy On Swiss Law".  It had also earlier raised this issue via the "Declaration of Professor Isabelle Romy On Swiss Law", filed April 30, 2009. 

 

Through these declarations, UBS argued that it would be violating Swiss bank secrecy laws if it fully complied with the summons.  The IRS meanwhile, claimed that UBS should be compelled to fully comply with the summons because UBS allegedly violated its Qualified Intermediary Agreement with the IRS, for the withholding of taxes.  (Declaration of Barry B. Shott, filed February 19, 2009).  U.S.A. v. UBS AG, is next scheduled for hearings on July 13, 2009.

 

Copyright 2009 Fred L. Abrams

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Politically exposed persons who are involved in public corruption schemes, sometimes use money laundering to hide bribes or other illicit proceeds.  Although not accused of money laundering, former Detroit city councilwoman Monica Conyers, was a politically exposed person suspected of accepting bribes.  Monica Conyers is also the wife of House Judiciary Committee Chairman John Conyers. 

 

The Detroit News and others reported earlier that Monica Conyers was under investigation for supposedly accepting jewelry and cash.  As was also widely reported, she recently pleaded guilty to a charge of conspiracy to commit bribery.  This bribery conspiracy was outlined in a second superseding information filed June 26, 2009.  According to Monica Conyers' plea agreement, her bribe-taking involved a wastewater treatment contract between Synagro Technologies Inc. and the City of Detroit. 

 

Unlike Monica Conyers, former Massachusetts state senator Dianne Wilkerson has pleaded not guilty to public corruption charges.  I first wrote about Diane Wilkerson in my November  5, 2008 "Asset Search  News Roundup".  As a second superseding indictment in U.S.A. v. Wilkerson, 1:08-cr-10345 mentions, Dianne Wilkerson is accused of violating 18 U.S.C. §1951 ("the Hobbs Act") and other federal laws.  The government is also seeking the forfeiture of Ms. Wilkerson's assets, pursuant to 18 U.S.C. §981 (a) (1) (C) and 28 U.S.C. §2461 (c).      

 

Furthermore, an FBI Special Agent's Affidavit relies on surveillance video / still photos to support the government's contention that Diane Wilkerson had taken bribes related to a state liquor license.  The government's still photos were highly publicized and one of them supposedly showed Diane Wilkerson on June 18, 2007 hiding a $1000 bribe in her bra.  The Special Agent's Affidavit at pp. 6-7, ¶ 15,  referred to some of these still photos as Exhibits "C" and "D":

 

 

 

 

 

 Photos: U.S. District Court File, U.S.A. v. Wilkerson

 

 

Copyright 2009 Fred L. Abrams

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As a Reuters article suggests, the Court made a June 26 Order which directed Mr. Madoff to forfeit $170 billion in assets.  The U.S. Attorney's Office is also no longer seeking forfeiture of all of the assets of Bernard Madoff's wife, Ruth.  It is Instead permitting Mrs. Madoff to retain $2.5 million of her assets since she has relinquished her claims to Madoff owned property under U.S. asset forfeiture laws.  

 

The foregoing is mentioned in a stipulation with has been filed in Court.  This stipulation explains that $2.5 million will be turned over to Mrs. Madoff once she vacates real property and surrenders her personal property.  (Stipulation, at  pp. 7-8  ¶3).  Despite exempting the $2.5 million from asset forfeiture, Mrs. Madoff may not necessarily get to keep this money.  This is true because the stipulation: 

... does not preclude any other department or agency of the United States or any other person or entity, including but not limited to the United States Securities and Exchange Commission, Irving H. Picard, Esq. as trustee for the liquidation of business of defendant Bernard L. Madoff Investment Securities LLC... from seeking to recover the funds from RUTH MADOFF.  (Stipulation, at page 8, ¶ 3).

  

Mrs. Madoff is therefore still subject to any claims possessed by Madoff trustee Irving Picard and many others.  These claims could arise out of Mrs. Madoff's alleged role as a wrongful transferee of funds related to Mr. Madoff's Ponzi scheme.  Mrs. Madoff for example, might have transferred millions to herself in anticipation of Mr. Madoff's arrest, as mentioned by: "Bernard Madoff & The Badges Of Fraud". 

 

She is also alleged to be among the beneficiaries of a corporate American Express credit card that may have been used to dissipate assets related to Mr. Madoff's Ponzi scheme.  Documents which might help show this suspected asset dissipation were attached as "Exhibit 25" to a May 5 affidavit filed for trustee Picard.  One of these documents was included in a Huffington Post article and is reproduced below. 

 

 

Click On Image To Enlarge

 

Copyright 2009 Fred L. Abrams

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Ernst & Ernst Collector's Gallery owner Donald Dean Seybold, might forfeit 2000 pieces of fine art which include: paintings, prints, sculptures, plates and books.  Mr. Seybold could also end up forfeiting: a Las Vegas time share, a jeep, a sports utility vehicle and $3.2 million dollars. 

 

Federal prosecutors are seeking asset forfeiture of these items pursuant to 18 U.S.C. §§981 & 982; 21 U.S.C.  §853(p) and 28 U.S.C. §2461(c). This is happening because Mr. Seybold is accused of defrauding art investors in a Ponzi scheme.  Mr. Seybold's indictment claims that he made false representations to investors, that they could profit from the purchase and resale of certain art and art packages. 

 

The relevant art, art packages and art buyers are however, believed to have all been fictitious. (Indictment, at ¶3).  Mr. Seybold is suspected of violating 18 U.S.C. §1343, (wire fraud), by: "fraudulently us[ing] money obtained from later investors to pay off earlier investors."  (Id., at ¶¶6).  The docket report in U.S.A. v. Seybold, additionally reveals that Mr. Seybold made a June 1, 2009 pretrial discovery request to elicit information from prosecutors, about their case against him.

 

Copyright 2009 Fred L. Abrams

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Suspected Ponzi schemer Allen Stanford may have facilitated one of the largest financial frauds known to date.  Any receivers, investors or other stakeholders with claims against Mr. Stanford under bankruptcy or other laws, are of course trying to interdict Stanford's assets.  As I mentioned in my "March 25, 2009 Asset Search News Roundup", these competing interests of numerous stakeholders / plaintiffs can be a significant problem. 

 

Some of these problems are highlighted by S.E.C. receiver Ralph Janvey's April 23, 2009 Report in S.E.C. v. Stanford International Bank Ltd et. al., Index No.: 3-09-CV-0298.  The April 23rd Report explains that receiver Janvey lacked standing to intervene in proceedings related to Mr. Stanford's assets in Antigua, according to the Antiguan Court.  (Report of the Receiver, dated April 23, 2009, at page 19).  The report also stated that despite an April 1, 2009 meeting, there was no "concrete cooperation agreement" between receiver Janvey and Antiguan liquidators searching for Stanford's assets. 

 

As was also reported, Mr. Stanford seeks to disqualify opposing counsel Baker Botts L.L.P. -- which is one of the law firms working for receiver Janvey.  Through his motion and / or accompanying brief, Mr. Stanford claimed that Baker Botts was his attorney and that it set up the very business entities / bank involved in Stanford's alleged fraud. (Accompanying Brief, at pp. 2-4).  Mr. Stanford additionally argued that Baker Botts: "turn[ed] on its former client to dismantle and disembowel the very corporate structures and product lines the law firm created, likely using privileged information in the process.  (Id. at p. 4).

 

Adding to the above-mentioned complexities, is the fact that about 400 individuals or entities, (possibly defrauded out of more than $100 million by Mr. Stanford), had earlier filed their own intervenor motion and supporting paper, in S.E.C. v. Stanford International Bank Ltd. et. al.  Difficulties caused by competing interests in a different fraud case, are described by my local Swiss counsel in: "Forced Collections Against A Fraudster Like Madoff".

 

Copyright 2009 Fred L. Abrams

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Like diamonds, art can be used as a portable valuable commodity to illicitly transfer value to another jurisdiction.  The following seven Egyptian artifacts were for instance, stolen from the Bijbels Museum in Amsterdam on July 29, 2007 and then ultimately transferred to a New York City auction house: 

 

Image: U.S. Immigration and Customs Enforcement

 

The seven artifacts depicted above were however, recovered by U.S. Immigration and Customs Enforcement ("ICE"), according to a May 27 press release.  ICE recovered them by working with the New York office of the Art Loss Register.  ICE similarly worked with the Art Loss Register to interdict a Pompeii wall panel fresco on June 1.  In another case resolved by ICE on June 1, Corinthian pottery was recovered.  The fresco and pottery had been separately stolen in Italy and were then transferred to New York City.  Both items are respectively pictured below:

     

 

Images: U.S. Immigration and Customs Enforcement

 

Copyright 2009 Fred L. Abrams

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U.S. persons can be obligated to disclose their beneficial ownership of foreign bank accounts in Schedule B, Part III of their individual tax returns and by filing a Form TDF90-22.1.  Some U.S. persons however, still engage in schemes to conceal their foreign bank accounts, as occurred in the case described by my post "Bearer Shares & An Asset Search". 

 

That particular case involved a divorcing spouse and his business partners who had hidden undeclared revenue by using money laundering along with bearer shares.  As is demonstrated by the following diagram, (which is more fully explained at "Bearer Shares & An Asset Search"), the divorcing spouse had hidden his beneficial ownership of a Cayman Island bank account:  

It is perhaps because these kinds of schemes do actually occur, that the Financial Action Task Force  promulgated Recommendation 5.  Recommendation 5 counsels banks to verify the beneficial ownership of a customer's bank account.  As "Fighting Financial Fraud at UK Banks" indicates, UK banks are required to identify beneficial owners, as mentioned by the Money Laundering Regulations 2007*.  (See also Notice MLR8, Crown Copyright 2008, at page 18 §7.8).  Bankers in Switzerland meanwhile, have their customers execute a declaration of beneficial ownership upon the opening of a bank account.  This declaration is commonly referred to as a "Form A".

 

The tax fraud prosecution of Florida yacht broker Robert Moran mentioned in my May 25, 2009 Asset Search News Roundup, involved such a "Form A".  According to page 2 of the Statement of Facts part of Mr. Moran's plea agreement, prosecutors had acquired Mr. Moran's "Form A".  It apparently revealed that Mr. Moran was the beneficial owner of monies hidden in Swiss bank accounts.  Mr. Moran had maintained his Swiss account in the name of a nominee-- the Panamanian corporation Winter Drive Investments S.A.  

 

 

* The Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO.

Copyright 2009 Fred L. Abrams 

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Identity theft can play a role in white-collar crimes ranging from money laundering to tax fraud.  Perhaps most interesting are the schemes which share identity theft and money laundering as common elements, like the one mentioned at "A Tax Fraud & Identity Theft From Miami".  Identity theft and money laundering are similarly alleged to have occurred in the case of U.S.A. v. Renee Gill Pratt, et. al. Criminal No. 2:08-cr-00140. 

 

The May 22, 2009 superseding indictment in Pratt, alleges that former Louisiana state representative and New Orleans city councilwoman Renee Gill Pratt participated in a RICO criminal enterprise which misappropriated government funds and concealed assets.  Said superceding indictment contains a total of thirty-four counts alleging money laundering, aggravated identity theft and other crimes, as mentioned by an FBI press release.

 

Identity theft is of course, not just limited to cases involving money laundering.  In U.S.A. vs. Torrella et. al. 3:07-cr-05775 for example, data brokers Emilio and Brandy Torrella pleaded guilty on May 20, 2008 to violating 18 U.S.C. §1028A (aggravated identity theft), among other things.  As my post "Pretexting During An Asset Search" explained, the Torrellas were accused with private detectives, of illegally obtaining confidential information from the I.R.S., Social Security Administration, pharmacies, medical offices and various state labor departments. 

 

The Torrellas had violated people's privacy rights and committed aggravated identity theft by making pretext calls, (i.e. eliciting information by using false identities / false pretenses in telephone calls).  They are now scheduled for sentencing before the Court on July 10, 2009. 

    

Copyright 2009 Fred L. Abrams  

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During an asset search, subpoenas or other court-related discovery can be used to access an adversary's e-mail.  This access to electronically stored information like e-mail, may be authorized by Fed. R. Civ. P. 26 (a) (1) (A) (ii) & (b) (2) (B) and additional discovery rules, as is more fully set forth in my post "Computer Forensics & An Asset Search".  Besides using discovery rules to elicit evidence about an adversary's e-mail account, e-mail is sometimes accessed in other ways. 

 

The divorcing wife in Gurevich v. Gurevich, Slip. Op. 29191(Sup. Ct. Kings County, May 5, 2009), had for example, somehow accessed her estranged husband's e-mail stored in his e-mail account.  According to the wife, her husband's e-mails implicated him in a scheme to hide his income via his former business associates and an accountant.  The wife also claimed that she had only gained access to the e-mail by using an authorized password provided by her husband. 

 

The husband meanwhile, alleged that the divorcing wife had acquired his e-mails through eavesdropping in violation of N.Y. Penal Law §250.05.  The Court however, ultimately found that the e-mails in Gurevich, had not been obtained via eavesdropping.  This was true because the wife did not intercept the stored e-mails while they had been in transit, as is contemplated by  N.Y. Penal Law §250.05. The Court therefore, ruled that N.Y. Civ. Prac. L & R. §4506, (which bars the use of evidence obtained from illegal eavesdropping), did not apply.

 

Separate from whether "stored" e-mails are subject to N.Y. Penal Law §250.05 and N.Y. Civ. Prac. L & R. § 4506, is the general issue of computer hacking.  If an adversary's e-mail account is hacked as part of an asset search or otherwise, there could be a violation of 18 U.S.C. §1030 (Fraud and related activity in connection with computers), under some fact-patterns.  Examples of indictments alleging 18 U.S.C. §1030 violations can be found at my post "Computer Intrusions That Violate Privacy Laws".

(Edited January 1, 2010)

(Copyright 2009 Fred L. Abrams

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In Grosz v. The Museum of Modern Art, the plaintiffs allege that The Museum of Modern Art (MoMA") acquired three Holocaust-era paintings which had been stolen from expressionist and Dadist painter George Grosz.  These particular paintings have been possessed by MoMA since the 1940's or 1950's and are: "Republican Automatons", "Self-Portrait with a Model" and "Portrait of the Poet" a.k.a. The Poet Max Herrmann-Neisse.  The collective value of these paintings could be as much as $10 million, according to "German painter's heirs suing MoMA". 

 

The complaint in Grosz alleges that George Grosz was the first artist designated as an 'enemy of the state' by the Nazis. (Complaint at p. 3 ¶ 7).  Subsequent to their confiscation, some of his paintings had even been displayed in Munich at the Nazi's infamous 1937 "Degenerate Art" exhibition.  The complaint also essentially claims that George Grosz had been the victim of both Nazi persecution and unscrupulous art dealers who had laundered the title of  "Republican Automatons", "Self-Portrait with a Model" and "Portrait of the Poet". (Id., at p. 6  ¶ 13)  (paintings' true beneficial ownership obscured by sham transfers, "multilayered" deceptions, etc.).

 

The complaint for example, alleges that Dutch art dealer Carel van Lier, had stolen Grosz's "Self-Portrait with a Model" and "Republican Automatons" and had "sanitize[d]" (i.e. laundered) their title via a 1938 sham transfer to himself.  (Id., at p. 28 ¶138 & p. 6 ¶12).  The complaint similarly claims that "Portrait of a Poet" was stolen by the Nazis and then "flipped" to MoMA via N.Y. art dealer Curt Valentin.  (Id., at p.17 ¶76).  Allegations at page 13 ¶¶54 & 55 of the complaint also suggest that Mr. Valentin was possibly used by MoMA's then vice president and director Alfred H. Barr, Jr., as the nominee purchaser of Nazi-looted art at Galerie Fischer in Lucerne, Switzerland in 1939. 

 

MoMA is next expected to file its response to the Grosz complaint by June 4, 2009.  As my post "Holocaust-Era Art Restitution Revisited" however recently indicated, Mr. Valentin had in fact transferred Nazi-looted art to MoMA.  A June 30, 1942 letter from MoMA to U.S. authorities additionally suggests that MoMA had an especially good relationship with Mr. Valentin.  In this letter, MoMA / Aflred H. Barr, Jr. asserted that Mr. Valentin was loyal to the U.S. and "devoted to democratic ideals": 

  

 

For An Enlargement, Click Here

 

Copyright 2009 Fred L. Abrams

(Last Edited October 10, 2009)

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"Germany Rejects Call for End to Restitution of Nazi-Looted Art" and "An End to Restitution of Nazi Looted Art?", raise the issue of Holocaust-era art restitution.  The upcoming "Holocaust Era Assets Conference" in Prague on June 26-30 2009, will of course also deal with the very same thing. 

 

Furthermore, Holocaust-era art restitution cases often focus on documents that help explain how artwork may have been transferred or alienated from its owner.  One such document was included in a link at my post "Mr. Curt Valentin's Nazi-Looted Art ".  This particular document revealed that former N.Y. 57th Street art gallery owner Curt Valentin was permitted by Nazis to transfer Holocaust-era artwork.  Said document is reproduced below: 

  

To enlarge this document & view its English translation, click here.

 

As "Mr. Curt Valentin's Nazi-Looted Art" also mentioned, Mr. Valentin had undeniably provided Nazi-looted art to The Museum of Modern Art ("MOMA") on April 13, 1939.  This particular transfer of loot is demonstrated by the webpages of MOMA's own "Provenance Research Project".  These webpages indicate that Mr. Valentin's April 13, 1939 transfer of Nazi loot involved: Andre Derain's "Valley of the Lot at Vers"; E. L. Kirchner's "Street, Berlin"; Paul Klee's "Around the Fish"; and Henri Matisse's "Blue Window".

 

MOMA meanwhile, filed a complaint along with The Solomon R. Guggenheim Museum over other Holocaust-era artwork, in Schoeps v. The Museum of Modern Art, et. al., Index No. 1-07-CV-11074. In Schoeps, the museums asserted their complaint for declaratory relief against the heir of the original owner of  the two Picassos, “Boy Leading a Horse” & “Le Moulin de la Galette”.  Based on the complaint, this particular heir had no valid claim to the Picassos, which the museums respectively possessed.  This was allegedly true because a February 8, 1935 German will mentioned that the Picassos' original owner had given the PIcassos as a wedding gift to his wife in 1927. 

 

Mr. Schoeps contrarily asserted via his amended counterclaim attached hereto at part 1, part 2 & part 3, that the original Jewish owner had never actually made a 1927 gift of the Picassos.  The amended counterclaim alleged that the Nazi-era provenance of the Picassos was highly suspect.  As an heir of the Picasso's original owner, Mr. Schoeps argued that he was entitled to restitution of the Picassos.  As a museum press release and Bloomberg.com however mentioned, the case was settled and Mr. Schoeps agreed to permit the two museums to keep the Picassos.

 

(Last edited February 19, 2010)

 Copyright 2009 Fred L. Abrams

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Narco-traffickers who conduct their illicit activities across the U.S.-Mexican border may fall under the Foreign Narcotics Kingpin Designation Act (21 U.S.C. § 1901-1908, 8 U.S.C. § 1182) and Executive Order 12978 of October 21, 1995.  Assets are frozen under the Foreign Narcotics Kingpin Designation Act ("the Kingpin Act"), if they are subject to U.S. jurisdiction and belong to persons or entities designated as Specially Designated Narcotics Traffickers on the "Specially Designated Nationals and Blocked Persons" list.

 

This list was just changed on April 15, 2009 to reflect the Kingpin Act designation of the Mexican: Sinaloa drug cartel, Familia Michoacana and “Los Zetas".  The Amezcua Contreras Organization of Mexico is also on the Specially Designated Nationals and Blocked Persons list and was put there as early as December 2000.  According to an October 2, 2008 press release, the Amezcua Contreras Organization supplied precursor materials for methamphetamine production.  The Amezcua Contreras Organization is portrayed below:

  

 

Click here to enlarge the foregoing image

 

Like those in the above image, Zhenli Ye Gon was accused of providing precursor materials for the manufacture of methamphetamine.  As mentioned by my post "Forfeiture & The DEA's Asset Search", Ye Gon had been arrested in Maryland on July 23, 2007 on methamphetamine drug and money laundering charges.  He had hidden $207 million in his Mexico City residence until law enforcement interdicted it on March 20, 2007.  The discovery of these monies was the "[l]argest cash drug seizure the world has ever seen", according to p. 166, Drug Enforcement Administration, 2003-2008.  Said $207 million is pictured below:    

  

 

 

  Copyright 2009 Fred L. Abrams

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My post "An Asset Search In Geneva" describes different ways one might search for or recover assets even when they are hidden in an offshore jurisdiction such as Switzerland.  Just as in the case of  assets hidden in a Swiss bank, a letter rogatory / legal assistance request could be used to elicit evidence about assets in a bank in the Netherlands. The attached copy of a legal assistance request, (changed for privacy reasons and filed in the District Court of Amsterdam), is one example. 

 

Along with using letters rogatory / legal assistance requests, an individual might also try to freeze assets concealed in the Netherlands.  Given the worldwide focus on Bernard Madoff's Ponzi scheme, I asked local counsel in the Netherlands, the following hypothetical: How would a defrauded Madoff investor try to freeze Madoff assets, if any were hidden in the Netherlands?  Local counsel then explained that pursuant to Dutch civil law, an investor might freeze Madoff assets on the ground that there had been a contract with Mr. Madoff. 

 

If a defrauded investor had executed a New York contract to invest with Mr. Madoff, that investor could file the "main" legal action against Mr. Madoff, in New York.  Said investor might next bring a related legal action in the Netherlands to freeze any Madoff assets secreted there.  If an investor had however, made a contract with Mr. Madoff in the Netherlands, (or contracted with a resident of the Netherlands), then the "main" legal action to freeze assets, might be filed in the Netherlands.

 

Reproduced below are comments about the foregoing issues from various e-mails written by local counsel in the Netherlands:

 

"[I]t is in this case also possible to block / freeze assets in Holland according to Dutch (civil) law.  Theoretically an individual victim could start a procedure stating that he/she has a claim on the basis of the committed fraud by [Bernard Madoff]. A defrauded investor could also block / freeze assets found in Amsterdam; according to Dutch law.

 

[O]n the main procedure American/English [law] will be applicable such depending on the place where the contract was signed or the other party lives.  To start the main procedure in Holland (according to Dutch law) is only possible if the contract sees to a Dutch situation or if one of the parties lives in Holland.

It’s also possible that other parties intervene in this procedure; If other 'interested parties' intervene in a Dutch procedure it can affect the position of the [original] parties, because if the claim of the intervening parties is accepted by the Court, the value of the blocked assets has to be divided between all the parties."

 

Copyright 2009 Fred L. Abrams

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Image: Steve Hillebrand / U.S. Fish and Wildlife Service

 

Investors who profited because of Allen B. Stanford's suspected securities fraud / Ponzi scheme may face clawback lawsuits under the Bankruptcy Code, according to Bloomberg.Com's "Stanford Receiver May Need a Decade to Pay Victims".  Investors who collected profits from Bernard Madoff's Ponzi scheme could too face clawback because of litigation by Madoff trustee Irving Picard.

 

The articles "Madoff Victims May Have to Return Profits, Principal" and "Lessons For Madoff Investors From The Bayou Fund Ponzi Scheme" both mention the idea that Madoff investors could be subject to clawback under In re: Bayou Group LLC, et. al. 396 B.R. 810 (Bkrtcy S.D.N.Y. 2008) via its October 16, 2008 Decision.  Among other things, the October 16 Decision permitted clawback from some investors in a securities fraud, by applying 11 U.S.C. § 548 (a) (1) (A) and local N.Y. law regarding fraudulent transfers. 

 

The October 16 Decision viewed funds paid-out to investors before a Ponzi scheme was discovered, as presumptively fraudulent transfers. The Decision placed the burden on these particular investors to show that their funds were received in good faith and for value, as more fully set forth in the K & L Gates article: "The Madoff Dissolution: A Consideration of the Bayou Precedent and Possible Next Steps". 

 

Furthermore, "Madoff's Investors Redemptions: Subject to Clawback", more recently asserted that Mr. Madoff's guilty plea might especially expose investors to clawback litigation as Mr. Madoff's plea demonstrates his actual intent to commit fraud.  This means that a clawback claim against an investor could be strengthened, as actual intent is one of the factors addressed by the Bayou Court's October 16 Decision.

 

Finally, (as I mentioned at my September 4, 2009 "Asset Search News" Roundup"), the clawback complaints reproduced below have been filed by Madoff trustee Irving Picard against some former Madoff investors:

 

 

(Click On Each Image To View The Clawback Complaints)

 

 

 

Copyright 2009 Fred L. Abrams

(Edited October 11, 2009)

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Forced collection proceedings against a fraudster like Mr. Bernard Madoff can involve an extraordinary number of prospective plaintiffs with competing interests in the fraudster's assets.  In Mr. Madoff's case, some of these plaintiffs competing over assets might even include foreign governmental authorities seeking asset forfeiture because of Mr. Madoff's money laundering in the United Kingdom or perhaps elsewhere.

 

Another prospective plaintiff in Mr. Madoff's case, is Irving H. Picard, Trustee for the liquidation of Mr. Madoff's assets on behalf of thousands of victims, pursuant to the Securities Investor Protection Act and the Court's Order.  As "Madoff Trustee Seeks to Recover Assets in Gibraltar" reported, Mr. Picard just made a bankruptcy court filing seeking to retain special counsel to recover property in Gibraltar which belongs to Madoff.

 

Given all of the foregoing, I asked Swiss counsel to examine some of the complexities in pursuing forced collection proceedings against a fraudster like Mr. Madoff.  My discussion with Swiss counsel was based on the hypothetical that someone similar to Mr. Madoff had hidden assets in banks in Switzerland.  Swiss counsel's comments are as follows:

 

"Complex forced collection proceedings may combine several competing recovery actions involving civil, criminal and administrative recovery remedies. To add to the complexity, these actions may be originated in various jurisdictions.

 

To take a concrete example, I am currently representing a client who was the victim of a fraud perpetrated in a far-eastern country. A criminal action against the perpetrator of the fraud was conducted in this country. The proceeds of the crime were transferred by the fraudster to the US where the fraudster managed to escape.

 

The fraudster was arrested at the request of the far-eastern country and sat in jail for three years for extradition purposes. Ultimately, he was extradited to that country and has now been sentenced to several years’ imprisonment.

 

The defrauded client chose to file a complaint for fraud, intentional misrepresentation, active concealment and several other counts including a RICO action against the fraudster in a Californian court.

 

The US attorney sought from a district court, an arrest warrant in rem of several assets in the US and also of funds deposited in a bank in Geneva.

 

Continue Reading...

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The Wall Street Journal article "Madoff Used U.K. Office in Cash Ploy, Filing Says", states that Bernard Madoff is expected to plead guilty today to 11 felony counts arising out of his alleged Ponzi scheme.  That article also mentions that Mr. Madoff is accused of concealing assets by money laundering in the U.K.  Other recent reports about Bernard Madoff have been about whether he or his wife tried to hide / dissipate assets by transferring them.  Mr. Madoff for instance, may have tried to conceal some assets by mailing $1 million dollars in jewelry from New York to Florida, as mentioned by "Hiding Assets Through Portable Valuable Commodities". 

 

Meanwhile, Mr. Madoff's wife Ruth, might have also tried to conceal Mr. Madoff's assets by transferring some of them to herself.  According to a New York Times piece, Mrs. Madoff withdrew $15.5 million from a company partly owned by Mr. Madoff.  The withdrawal was actually in the form of two wire transfers to Mrs. Madoff, on November 25 & December 10, 2008.  The December 10 wire transfer had even occurred just one day before Mr. Madoff was arrested for his alleged Ponzi scheme.  These same wire transfers are specifically memorialized by the two documents below:

  Click here to enlarge image

Click here to enlarge image

 

The N.Y. Times piece also mentions Mr. Madoff''s claim, that a N.Y.C. penthouse and another $62 million supposedly belong to Mrs. Madoff and are arguably not subject to governmental seizure.  "In Madoff asset search, wife's worth adds intrigue", similarly raises the question of whether Mr. Madoff is actually the true beneficial owner of these same assets allegedly belonging to Mrs. Madoff.  A beneficial owner anticipating seizure / forced collection proceedings may of course, make a fraudulent transfer to a spouse or ex-spouse, as described by Concealing Assets By Conveying Them and "Using Divorce To Dissipate Assets & Delay Creditors".

 

Depending on the circumstances, the Court could end up analyzing whether Mrs. Madoff was a wrongful transferee / involved in fraudulent transfers with Mr. Madoff.  In doing so, the Court might consider whether the November and December wire transfers to Mrs. Madoff were marked by "the badges of fraud".  As more fully set forth in "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy", the badges include: knowledge of a creditor's claim; whether there was inadequate consideration; etc.  

 

Copyright 2009 Fred L. Abrams

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When assets are hidden in a foreign bank account or are otherwise offshore, domestic authorities might be able to seek asset forfeiture, discovery or other relief pursuant to a Mutual Legal Assistance Treaty ("MLAT").  Depending on the circumstances, MLAT's can particularly help domestic authorities trying to locate, (and then possibly forfeit), criminal proceeds which have been parked offshore.    

 

The United Nations Office on Drugs and Crime even offers a "Mutual Legal Assistance Request Writer Tool", which is depicted in the attached chart.  The first page of the U4 Anti-Corruption Resource Centre's publication "Mutual legal assistance treaties and money laundering", also describes the use of MLAT's.  Said publication mentions that MLAT's are important because  "corruption and money laundering cases are often and increasingly transnational".  The Internal Revenue Manual from the I.R.S. similarly discusses MLAT's at 9.7.10.2.1 (05-22-2006) Bilateral Treaties and the I.R.S. clearly relies on MLAT's as part of its fight against tax fraud.

 

Pursuing asset forfeiture, discovery or other relief pursuant to a MLAT can however, be challenging.  To cite just one example, Swiss counsel in Geneva and I just discussed difficulties the Swiss can face when seeking asset forfeiture / MLAT relief through the U.S. Department of Justice.  The problem arises from the fact that Swiss legal standards for showing the origin of criminal funds in an asset forfeiture case are less stringent, compared to those in the U.S. 

 

Some Swiss MLAT requests in asset forfeiture cases have in fact, been denied by the U.S. Department of Justice because these requests failed to sufficiently demonstrate under U.S. law, that the funds to be forfeited had criminal origins.  From a Swiss perspective meanwhile, those same asset forfeiture / MLAT requests were legally sufficient and entirely necessary under Swiss law.

 

(Edited July 10, 2010)

Copyright 2009-2010 Fred L. Abrams

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My post "Domestic Shell Companies & An Asset Search" explained that assets are sometimes concealed by shell companies used in a variety of financial frauds.  In fact, states like Nevada and Delaware are especially prone to the formation of shell companies lacking transparency.  Once such shell companies are established in Nevada, Delaware or elsewhere, they can be a means to open nominee bank accounts for a beneficial owner to hide his / her assets in.

 

Two federal cases pending in the he U.S. District Court for the Northern District of California, perhaps highlight how domestic shell companies might possibly be misused.  In the first of these cases, a December 18, 2008 criminal complaint was filed against Mr. AUSAF UMAR SIDDIQUI, alleging money laundering (18 U.S.C. §1957) from January 2005 to November 2008. 

 

Although Mr. SIDDIQUI had reportedly earned an annual salary of about $225,000 as Vice President of Merchandising and Operations at Fry's Electronics, Inc., he still supposedly defrauded Fry's out of tens of millions of dollars.  As a review of the criminal complaint against Mr. SIDDIQUI reveals, Mr. SIDDIQUI was accused of laundering kickbacks he received from Fry's Electronics' vendors.  Paragraphs "8" & "23" of the complaint, claimed that Mr. SIDDIQUI concealed his kickbacks through the shell company PCI INTERNATIONAL, LLC-- which Mr. SIDDIQUI allegedly operated from his residence. 

 

A San Francisco Chronicle article and Yahoo.Com news story from December 2008, both reported that Mr. SIDDIQUI had hidden about $65 million through a shell company.  The docket report in Mr. SIDDIQUI's case additionally reveals that Mr. SIDDIQUI was indicted on January 6, 2009 and charged with five counts of wire fraud (18 U.S.C. §1343) along with four counts of money laundering (18 U.S.C. § 1957 {a}).  The government is also seeking asset forfeiture under 18 U.S.C. §981(Civil Forfeiture), 18 U.S.C. §982 (Criminal Forfeiture), & 28 U.S.C. §2461(Mode of Recovery), as is fully set forth in Mr. SIDDIQUI's indictment.

 

According to the unproven allegations in a second Northern District of California case, (i.e. Eclectic Properties East, LLC et. al. v. The Marcus & Millichap Company), real estate giant Marcus & Millichap Compay may too have misused domestic shell companies. Plaintiffs' civil RICO complaint in that case alleges a fraudulent scheme involving 22 commercial properties in 4 states, which could have caused the loss of tens of millions of dollars.  According to that RICO complaint, the Defendants had sold properties after "artificially inflat[ing]" their value by using among other things, shell companies formed in Nevada and Delaware. (Plaintiffs' Complaint, at ¶¶ 2, 5, 56-64, 69, 83, 85 & 86) (allegation of fraud via "dummy" or shell companies).

 

Plaintiffs' RICO Complaint filed February 4, 2009, can be viewed below:

• Pages "1" - "51"

• Pages "52" - "112"

• Pages "113" - "176" (with supporting exhibits)

 

 Copyright 2009 Fred L. Abrams

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Financial Intelligence Units or other government agencies throughout the world have a keen interest in searching for illicit assets and then forfeiting them.  This global interest in asset forfeiture is perhaps marked by the growth of  "goAML" software from The United Nations Office on Drugs and Crime.  "GoAML" even includes "goATR", which is asset tracking software designed to help government agencies search for and forfeit laundered assets.

 

The extent a given government agency may go to search for or forfeit illicit assets however, can very much depend on the money laundering or other laws within its jurisdiction.  A Swiss federal authorities webpage for instance, cites the following criminal laws which are generally relevant to both Swiss money laundering and asset forfeiture:

1. Art. 305bis, Swiss Criminal Code (Money Laundering).

2. Art. 305ter, Swiss Criminal Code (Insufficient Diligence in Financial Transactions and Right to Report).

3. Art. 260ter,  Swiss Criminal Code (Criminal Organisations).

4. Art. 260quinquies, Swiss Criminal Code (Financing Terrorism).

5. Art. 69 to 72, Swiss Criminal Code (Confiscation).

6. Art. 102 and 102a, Swiss Criminal Code (Corporate Criminal Responsibility).

 

U.S. government agencies like the Department of Justice can of course similarly seize and / or forfeit illicit assets hidden through money laundering or otherwise.  Furthermore, the U.S. Department of Justice reported that property deposited during 2008 into The Assets Forfeiture Fund repository of seized assets, was valued at $1,327,604,903. 

 

Some asset forfeiture laws used by the U.S. Department of Justice to interdict assets are listed in my article,"Using Multiple Jurisdictions To Launder Money".  Said article describes the particular case of a judicial bribery scheme which originated in Italy and concealed assets in the U.S., among other places.   As "Using Multiple Jurisdictions To Launder Money" reveals, the U.S. Department of Justice sought asset forfeiture regarding that judicial bribery scheme, because of both U.S. and Italian laws:

• 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.

 

Copyright 2009 Fred L. Abrams

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My September 26, 2008 Asset Search News Roundup mentioned that public corruption crimes can involve concealing bribe payments or other illicit assets.  This is perhaps why financial institutions sometimes check lists of "Politically Exposed Persons", (i.e. individuals holding high foreign public office, a.k.a. "PEPs"), in an anti-money laundering program.  These lists of "Politically Exposed Persons" are commercially available from World-Check's PEP Database, WorldCompliance's Global PEP List, etc.

 

The Wolfsberg Group and the Financial Action Task Force's "6th Recommendation" consider Politically Exposed Persons to be money laundering risks.  Page 10 of the Basel Committee's October 2001 publication "Customer due diligence for banks", similarly describes the problem of Politically Exposed Persons hiding assets through money laundering. 

 

Furthermore, according to an Associated Press article, ("Davos: Don't let crisis breed more corruption"), the Annual Meeting of the World Economic Forum just warned that the global financial crisis could lead to even more public corruption.  We may therefore experience an increased risk of Politically Exposed Persons using money laundering to hide bribe payments and / or other criminal proceeds.  

(Edited January 5, 2010)

Copyright 2009 Fred L. Abrams

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A "Misappropriated Public Assets" civil petition in France claims that the presidents of Gabon, Congo Brazzaville and Equatorial Guinea are likely hiding assets.  The "Misappropriated Public Assets" petition against the three heads of state was filed December 2, 2008 by both Transparency International (France) and the Sherpa Association. 

 

The assets at issue in France might possibly originate from public funds stolen by President Bongo, President Denis Sassou-Nguesso and President Obiang Nguema.  As a December 2, 2008 press release partly mentions, all three presidents may be using their relatives as nominees to hide valuable real estate and automobiles in France.  President Bongo and President Denis Sassou-Nguesso could also be hiding assets in France through offshore bank accounts opened there.

 

President Bongo is suspected of hiding 39 Apartments, 70 bank accounts and 9 automobiles.  President Denis Sassou-Nguesso might similarly be concealing 18 apartments, 112 bank accounts and 1 vehicle.  Meanwhile, President Obiang Nguema may be hiding 1 apartment and 8 automobiles.  These particular assets were uncovered during a 2007 police investigation and had been the subject of earlier legal proceedings. 

 

Copyright 2009 Fred L. Abrams

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My post "Pretexting During An Asset Search" explained that using false pretenses may violate privacy laws during an asset search.  "Attorney Christensen's Wiretap Conviction" additionally mentioned the case of a California attorney who violated privacy laws by conspiring to wiretap a divorcing spouse's phone. 

 

Privacy laws however, don't just criminalize certain types of pretexting or wiretapping.  They also prohibit the computer intrusions mentioned at 18 U.S.C. §1030 (Fraud and related activity in connection with computers).  Indicted under 18 U.S.C. §1030 in U.S.A. v. David C. Kernell, was the alleged hacker of Governor Palin's e-mail account.  The hacker(s) of 33 celebrity Twitter accounts described in "Following The Twitter Hack Trail To DigitalGangster" might similarly be indicted for a suspected violation of 18 U.S.C. §1030.  

 

Minneapolis Police Officer Michael David Roberts was also indicted pursuant to 18 U.S.C. §1030 for allegedly accessing a police computer system to sell nonpublic information related to a Minnesota license plate.  Meanwhile, former State Department Intelligence Analyst Lawrence C. Yontz entered a plea agreement this past September after he was accused of violating 18 U.S.C. §1030.  Page 4 of Mr. Yontz's "Factual Basis For Plea" explained that he had accessed a State Department computer out of "idle curiosity" and:

"...viewed the passport applications of nearly 200 celebrities, athletes, actors, politicians and their immediate families, musicians, game show contestants,members of the media corps, prominent business professionals, colleagues, associates, neighbors,and individuals identified in the press." (Id. at page 4).

 

 

Copyright 2009 Fred L. Abrams

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A search for hidden assets is sometimes actually a quest for greater transparency.  A financial transfer lacking transparency may delay investigators trying to unravel a fraud.  A lack of transparency can also multiply forced collection or asset forfeiture proceedings. This is so because such a financial transfer can obscure the true source or beneficial ownership of funds.  Furthermore, a financial transfer lacking transparency is not always improper, but may naturally come under greater scrutiny.  

 

Chicago Tribune reporter Andrew Zajac's January 13, 2009 article "Undelivered Bill Clinton speech perks up curiosity", essentially asks whether a particular $500,000 donation to the William J. Clinton Foundation lacked transparency.  Mr. Zajac's article identifies Sakura Capital Management as having transferred $500,000 to former President Bill Clinton in 2003, which is: "the highest cash fee he has yet to receive for a speech, for a talk he never delivered."  Mr. Zajac additionally reports that Mr. Clinton then donated said $500,000 to his William J. Clinton Foundation. 

 

He also writes that $64 million dollar judgment debtor Theoddor Tsuru had been involved with Sakura Capital Management and that a Mr. Tanaka in Tokyo, was alleged to be a source of funds.  According to Mr. Zajac, Sakura Capital Management however, was not named in a list of 208,000 donors released by the former president's William J. Clinton Foundation.  As the Minneapolis Star Tribune earlier reported, the 2,922-page list was released because of an agreement with President-elect Obama. Apparently, disclosure of the list became necessary for the former president's wife, Senator Hillary Clinton, to be nominated for Secretary of State. 

 

Knowing that I had represented a co-defendant of Mr. Tsuru in some well known litigation, Mr. Zajac called me before publishing "Undelivered Bill Clinton speech perks up curiosity", hoping I might provide information regarding Mr. Tsuru.  One thing Mr. Zajac asked me, was whether I could locate  Mr. Tsuru.  Given all of the foregoing, I contacted a confidential informant to inquire about Mr. Tsuru.  The confidential informant then advised: "Mr. Tsuru is a ghost, but he is sometimes in and out of New York".

 

Copyright 2009 Fred L. Abrams

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The Asia / Pacific Group on Money Laundering explains on its typologies webpage, that one way to hide assets is by purchasing portable valuable commodities like diamonds.  The typologies webpage further gives the example of a beneficial owner concealing assets by transferring diamonds to another jurisdiction.  One man who may have tried this kind of asset concealment method is Bernard L. Madoff.  As reported in "U.S. Government to New York Judge: Jail Madoff Without Bail", Mr. Madoff is alleged to have dissipated assets by mailing $1million dollars in jewelry to relatives and friends vacationing in Florida.

 

Another man believed to have hidden assets by using portable valuable commodities was recently discovered upon his arrival at N.Y.C's J.F.K. Airport from Tel Aviv.  A press release states that the 54-year-old U.S. resident employed by the jewelry industry, had concealed three diamonds worth more than $1.2 million in his pocket.  U.S. authorities had first found jewelry receipts in the man's baggage, then interviewed him and finally interdicted the concealed diamonds during a pat-down.  These diamonds pictured below, were seized pursuant to 19 U.S.C. §1497, (Penalties for failure to declare) and 19 U.S.C. §1595a (c) (1) (A), (Merchandise introduced contrary to law):

 

                                     

                                 Photo Courtesy of U.S. Customs and Border Protection

 

My October 15, 2008 "Asset Search News Roundup" similarly mentioned that UBS banker Stanley Birkenfeld had hidden diamonds in a tube of toothpaste while an airline passenger at Swiss-U.S. border crossings.  As more fully set forth by "UBS and the Diamond Smuggler", Mr. Birkenfeld had assisted UBS bank customers like billionaire Igor Olenicoff hide assets and / or evade U.S. taxes.  Besides using diamonds, Mr. Birkenfeld hid assets by using phony loans and purchasing artwork with secret Swiss funds. 

 

Copyright 2009 Fred L. Abrams

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My father attended Far Rockaway High School at the same time as Mr. Bernard Madoff and in fact, they were in the same graduating class.  He remembers from his high school yearbook "The Dolphin", that Mr. Madoff had lived in the Rockaways and was an ardent swimmer.  My father even showed me "The Dolphin", which contains a picture of Mr. Madoff in his youth.  The Far Rockaway of Mr. Madoff's youth however, has little in common with the offshore high-risk geographical locations Mr. Madoff might have concealed assets in.

 

As I briefly indicated in the most recent New York Times article "Madoff Spotlight Turns To Role  Of Offshore Funds", enormous sums of money may be hidden by using multiple jurisdictions and nominees.  This same conclusion is partly reached by the Financial Action Task Force, whose "Money Laundering FAQ" webpage states that: "Large-scale money laundering schemes invariably contain cross-border elements."   According to "Madoff Spotlight Turns To Role Of Offshore Funds", cross-border elements in Mr. Madoff's case might include offshore locations such as: the Cayman Islands, Bermuda, Ireland, Singapore and banks in Switzerland.

 

To interdict illicit assets possibly hidden by Mr. Madoff in these offshore locations, governmental authorities could be turning to U.S. Treasury Department's FinCen and other Financial Intelligence Units.  These Financial Intelligence Units may be using red flags to follow a money trail left by Mr. Madoff or his suspected nominees.  By recognizing red flags, Financial Intelligence Units or other governmental authorities might ultimately locate and forfeit assets beneficially owned by Mr. Madoff, which arise from his alleged $50 billion dollar Ponzi scheme.

 

(Edited January 15, 2009) 

Copyright 2008 Fred L. Abrams

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U.S. authorities are seeking the sanction of asset forfeiture in connection with a 36-story Fifth Avenue N.Y.C. building, alleged to be partly owned by Iran's Bank Melli.   "Assets Seized at Company Suspected of Funneling Money to Iran" and / or a U.S. Treasury Department press release, also report that Bank Melli is accused of concealing its 40% beneficial ownership of 650 Fifth Avenue.  Bank Melli and its related entities ASSA CO. LTD and ASSA CORP., have further been linked to terrorist financing and are named in the attached list of those subject to Weapons of Mass Destruction sanctions programs.

 

Bank Melli may have additionally disguised Iranian funds as construction "loans" for 650 Fifth Avenue and supposedly transferred rent monies to Iran, which were collected from 650 Fifth Avenue.  Based upon the above-mentioned articles and press release, Bank Melli possibly used the following money laundering methods in connection with 650 Fifth Avenue:  

 

i)  operating the parent corporation ASSA CO. LTD from the Channel Islands, a high-risk geographical location;

 

ii)  forming the domestic shell company ASSA CORP. as the New York subsidiary of ASSA CO. LTD.;

 

iii) using ASSA CORP. as the nominee purchaser of 40% of 650 Fifth Avenue;

 

iv) disguising Bank Melli monies as construction "loans" for 650 Fifth Avenue-- perhaps through "back-to-back" or other types of sham loans.

 

v)  transferring rent collected from tenants at 650 Fifth Avenue through multiple jurisdictions, including New York City, the Channel Islands and Iran. 

 

Copyright 2008 Fred L. Abrams

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A foreign bank witness located in an offshore tax haven will likely rely on bank secrecy laws to resist discovery about a bank customer's financial information.  A foreign court located where this foreign bank witness resides could however, apply an exception to bank secrecy law.  If this happens, the foreign court might then end up directing the foreign bank witness to disclose bank customer information.  This whole process may happen via Letters Rogatory, as suggested by "Foreign Bank Secrecy Laws & An Asset Search". 

 

Foreign bank secrecy laws can also play a significant role when a domestic court exercises in personam jurisdiction over a foreign witness in possession of a bank customer's financial information.  To determine whether such a foreign witness is subject to domestic disclosure, a domestic court might analyze foreign bank secrecy laws along with the following factors mentioned in Old Ladder Litigation Co. LLC. v. Investcorp Bank B.S.C, et. al. No. 08-CV-00876 (S.D.N.Y. May 29, 2008):

 

1. the competing interests of the nations whose laws are in conflict;
    
2. the hardship of compliance on the party or witness from whom discovery is sought;
    
3. the importance to the litigation of the information sought and whether there are alternative means to secure the information;
    
4. the good faith of the party resisting discovery;
    
5. whether the information originated in the United States; and
    
6. the specificity of the request."  (Id. at 10-11).

 

(Edited November 12, 2009)

Copyright 2008 Fred L. Abrams

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Assets hidden in an offshore tax haven which are  the subject of a divorce, forced collection proceeding, etc., can sometimes be uncovered by eliciting evidence from a bank witness residing in that offshore tax haven.  This is true because letters rogatory or other legal proceedings can usually be brought against an offshore bank  witness in tax havens like Switzerland, as mentioned by "An Asset Search In Geneva". 

 

The success of  these kinds of "offshore asset searches" however, often depends on whether exceptions to bank secrecy, (a.k.a. professional secrecy), laws are applicable to the particular situation.  To cite just one example, a Swiss bank witness can be compelled in Swiss court to disclose marital assets hidden by a U.S. or other divorcing spouse.  This critical point is emphasized by local Swiss counsel, who wrote to me the following:

 

 "I notice that you are also active in divorce matters. It sometimes happens that spouses try to hide their assets in Switzerland. This is to no avail since article 170 of the Swiss Civil Code provides that each spouse may request from the other information on his or her income, assets and debts. Upon request, the Judge may obligate the other spouse or third parties (including banks) to provide the required information and produce the necessary documents. This provision is enforceable even if the divorce takes place in the US or any other foreign jurisdiction in application of article 10 of the Swiss Code on Conflict of Laws which provides that the Swiss judicial or administrative authorities may order provisional measures even if they have no jurisdiction to render a decision on the merits.

These provisions often ignored by foreign lawyers provide efficient tools to obtain information, which in other circumstances would be strictly covered by the Swiss banking secrecy"

 

Copyright 2008 Fred L. Abrams

 

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If assets are hidden in multiple jurisdictions, it can be necessary to conduct asset searches of foreign banks or other witnesses residing offshore.  Such  "offshore asset searches" typically involve Letters Rogatory, (a.k.a  Legal Assistance Requests), which may be used to compel foreign banks or other witnesses residing offshore to give:

1. Details about a financial account / sub-account in various currencies and for all purposes including investments, savings, or bank guarantees;
2. Account opening papers;
3. Names of beneficial owners from the time an account was opened;
4. Names of bank signatories;
5. The date each bank signatory was registered or added to an account.

 

In the limited circumstance of a domestic court  exercising in personam jurisdiction over a witness  residing offshore, evidence of hidden assets might also possibly be elicited thorough a domestic subpoena served on said witness.  In First American Corp. v. Price Waterhouse, 154 F.3d 16 (2d Cir. 1998), for example, a domestic subpoena was successfully used against an offshore accounting firm that conducted partnership business in N.Y., as mentioned by N.Y. Civ. Prac. L. & R. 310.

 

Both the IRS and U.S. Department of Justice have similarly used a domestic "John Doe" summons to uncover evidence about assets hidden offshore by suspected U.S. tax cheats.  As a  June 30, 2008 Department of Justice press release and ABC news article both indicate, a John Doe  Summons was sought in federal court in Miami against UBS AG headquartered in Zurich.  In that case, the federal court in Miami issued a July 1, 2008 Order approving service of the John Doe Summons.  After that Order, UBS AG then provided U.S. authorities with the financial information of seventy UBS account holders.  UBS AG however, did not supply U.S. authorities with any 'Swiss-based client data",  according to "Indictments expected in UBS inquiry".

 

Copyright 2008 Fred L. Abrams

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The victims of a securities fraud, divorcing spouses, post-judgment creditors, etc. can have several remedies available to them if they need to recover assets hidden offshore.  One might even pursue an asset search or debt collection proceeding in the various offshore tax havens.  This is particularly true when a bank is used as a laundering “link” to hide funds in a money laundering circuit or assets have otherwise been hidden during a financial fraud. 

 

To cite just one 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.  As mentioned at "An Asset Search With Letters Rogatory", these kinds of legal remedies can sometimes be used to elicit financial information from bank witnesses. 

 

Other forms of relief for those seeking to recover funds hidden offshore, can range from attaching a bank account to alerting a financial intelligence unit.  Local counsel in Geneva has explained these legal remedies which are available in Switzerland:

 

"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. 

 

Continue Reading...

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Mr. Lattuga's lawsuit against his wife is next scheduled for trial on Wednesday, November 19, 2008.  Mr. Lattuga claimed in it, that he had given his wife $784,822 because she had agreed to buy her father's car dealerships for the two of them.  Mr. Lattuga specifically alleged that his wife had given the $784,822 to her father toward her $1.5 million purchase of C.D. Autos, Inc.  As part of the purchase, her father had even transferred all of C.D. Autos' outstanding stock shares to her on January 2, 2001.


Mr. Lattuga's lawsuit further alleged that his wife had intentionally defaulted / failed to pay her father the outstanding balance owed on C.D. Auto's $1.5 million purchase price.  Mr. Lattuga also claimed that on June 29, 2004, his wife had transferred all of C. D. Autos' stock shares back to her father because of her default.  On January 5, 2005, Mr. Lattuga's wife finally filed for divorce.  She then argued during their divorce proceeding, that C.D. Autos, (and her father's other car dealerships), were exempt from equitable distribution because she did not own them. 


Suspecting that his wife had fraudulently conveyed her stock in C.D. Autos, Inc. back to her father on June 29, 2004, Mr. Lattuga filed his above-mentioned lawsuit.  Based on Mr. Lattuga's version of the facts, his wife's June 29, 2004 stock conveyance had occurred without any consideration.  Furthermore, said stock may have been marital property subject to equitable distribution in the divorce.


While the Court dismissed part of Mr. Lattuga's lawsuit in a February 26, 2008 decision, it still permitted him to proceed with some of his claims against his wife.  The Court found that Mr. Lattuga had pleaded a legally sufficient claim for both a constructive trust and a fraudulent conveyance under N.Y. Debtor and Creditor Law §276.  The Court reasoned that the wife's alleged share transfer of June 29, 2004, could have "badges of fraud".  This was particularly true if Mr. Lattuga ultimately demonstrated that the share transfer was: without consideration; made in anticipation of the divorce; etc.

  
In its discussion of "badges of fraud", the Court relied on Wall Street Associates v. Brodsky, 257 A.D.2d 526, 529 (1st Dept 1999) and AMP Servs. Ltd. v. Walanpatrias Found., 2006 slip op. 7985 ; 34 A.D.3d 231; 824 N.Y.S.2d 37 (1st Dept, 2006).  These are the very same cases more fully described at my post "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy".  As that post explained, the "badges of fraud" can sometimes be used to demonstrate that assets have been transferred with actual intent to defraud.

Copyright 2008 Fred L. Abrams

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As I mention at "Searching For Nazi-Looted Art", the most challenging asset searches / investigations can be those in a Holocaust-related art restitution case.  The October 30, 2008, Minneapolis Star Tribune article "MIA sends Nazi 'loot' home to Paris", suggests the very same thing.  It explains that the Minneapolis Institute of Arts engaged in ten years of detective work about Fernand Leger’s “Smoke Over Rooftops".  The Star Tribune article advises that "Smoke Over Rooftops" was recently returned to its claimants in Paris, as Nazi-looted art.  Also according to the article, "Smoke Over Rooftops" was purchased in 1951 from New York art dealer Mr. Curt Valentin and his Bucholz Gallery.

 

Although Mr. Valentin passed away in August 1954, he is portrayed in a number of different ways.  The above-mentioned Star Tribune article reports that Mr. Valentin's "role in the transfer of modern art out of Europe is ambiguous at best".  A biographical note at the Museum of Modern Art's "Curt Valentin Papers" meanwhile, states that Mr. Valentin was "widely respected as one of the most astute dealers in modern art...".  Time Magazine even published "Domesticated Chisels" on January 13, 1941, which was about Mr. Valentin's Bucholz Gallery formerly on 57th Street in Manhattan.  In it, Mr. Valentin said: 'Gallery business is sometimes fun, but I hate having to make money'. 

 

The 1994 New York Times letter to the editor "Nazi Loot Found Its Way to New York's Modern Museum", however, alleges that MOMA concealed its direct purchase of five antiquities at a Nazi auction in Lucerne, by using Mr. Valentin / the Bucholz gallery as a middleman.  Of these five antiquities, MOMA's Provenance Research Project identifies four of them as Nazi-looted art which was acquired on April 13, 1939, from Mr. Valentin's Bucholz Gallery: 

1. Andre Derain's "Valley of the Lot at Vers";
2. E. L. Kirchner's "Street Scene";
3. Paul Klee's "Around the Fish";
4. Henri Matisse's "Blue Window". 

 

During one Holocaust-related art restitution case, I too learned all about Mr. Valentin.  In that particular case, documentary evidence demonstrated that Mr. Valentin was granted Nazi permission to sell art in America.  Among the attached documents for example, is a translated copy of a November 14, 1936, Nazi permission letter sent to Mr. Valentin.  U.S. authorities also acted in 1944 pursuant to the Trading With The Enemy Act and seized art  belonging to Mr. Valentin's Bucholz Gallery.  Said art was seized on the ground that it was beneficially owned by a German enemy national.

 

Copyright 2008 Fred L. Abrams

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A beneficial owner's transfer of funds through banks in multiple jurisdictions, can be a red flag that assets have been hidden.  Purchasing large amounts of portable valuable commodities, hoarding cash, forming a shell company, etc, can also be red flags as mentioned by "Asset Search Indicia for Divorce, Debt Collection & Bankruptcy".  The weight that should be given to these red flags however, depends on the facts and circumstances in a particular case.

 

It is also true that the ability to recognize red flags can be critical to a post-judgment creditor, divorcing spouse, bankruptcy creditor, or other litigant searching for hidden assets.  Such a litigant could for example, use red flags at a deposition to develop a line of questions about assets, liabilities and net worth.  By recognizing red flags, a litigant might even more efficiently use the computer-based research described at "A Low Cost Asset Search".

 

As the list below also indicates, Financial Intelligence Units, U.S. Trustees, the IRS and U.S. banks, all rely on red flags to help uncover / interdict hidden assets:

1.  Financial Intelligence Units across the globe use red flags to detect assets hidden via money laundering, as more fully set forth by my above-mentioned post "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy ".

 

2.  U.S. Trustees look for red flags to detect a debtor's bankruptcy fraud / the concealment of bankruptcy estate assets.  These specific red flags are described in the U.S. Trustee Manual at 5-10.7.2 Red Flags/Common Characteristics in Cases of Concealment and False Statements.

 

3. The IRS uses red flags to search for undeclared revenue and hidden assets.  The IRS Manual describes the same at 25.1.2.3 (01-01-2003), Indicators of Fraud.

 

4.  U.S. Banks are required to look for red flags as part of their anti-money laundering programs as mentioned by the Federal Financial Institutions Examination Council's BSA / AML Examination Manual.

 

Copyright 2008-2010 Fred L. Abrams

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The Bank of Lithuania, (i.e. the central bank of Lithuania), announced its recent anti-money laundering measures at a May 15, 2008 board meeting.  The Bank's focus on money laundering might already be paying off.  The Financial Intelligence Unit for Lithuania for example, recently detained two international gang members for suspected money laundering.

 

According to a Baltic Times' article, these gang members had laundered over 10.43 million euros in illicit assets through multiple jurisdictions including Lithuania and Latvia.  They had allegedly concealed their 10.43 euros in bank accounts belonging to bank customers that were Latvian corporations. Based on said article, the gang members also controlled the bank accounts by sending twelve forged authorization letters. 

 

While a vice president at a global bank, "Mr. London" investigated countless financial crimes.  He has a high degree of knowledge about asset searches and financial fraud investigations.  When I asked Mr. London about the Baltic Times article, he explained:

 

"The article is very unclear.  I suppose they could have opened new accounts in the name of the companies at banks where the companies were previously unknown, and then utilised them.  The issue there is that in obtaining copy company documents in some locations (UK included) you get ALL the details of the directors, including dob addresses and SIGNATURES, thus facilitating impersonation.  I know that UK Companies House is re thinking the situation so to guard against such incidents by making some details less accessible (many Registries already block personal information from prying eyes)....

How they got away with it (for a short time at least) in Lithuania, i.e. by submission of forged authorities granting them signing rights was a well used route. ( BUT I was always wary here in similar situations of possible staff collusion, for how would they know what accounts to utilise?) Mail intercept maybe, but that is a long shot and criminals prefer something more definite to provide a result."

 

Copyright 2008 Fred L. Abrams

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Based on a March 2003 FinCEN Advisory, informal banking systems, (a.k.a. informal value transfer or alternative remittance systems), have been around since 5800 BC.  Such systems are abused by terrorists to transfer their funds, as more fully described by a presentation from the Organization for Security and Co-operation In Europe.  According to said presentation, the following are some informal banking systems from jurisdictions all over the world: 

1. hawala;
2. hundi;
3. hui kuan / fei-chien (a.k.a. "fei chi ien");
4. poey kuan (a.k.a. "phoe kuan");
5. hui.

While the above and other informal banking systems like the Mexican or Columbian Black Market Peso Exchange are most active in offshore geographical locations, they still of course continue to operate in the U.S.  In the U.S. for example, ordinary people sometimes send funds back home to their families through informal banking systems. Informal banking systems can however, additionally be used by an adversary to dissipate funds the subject of a divorce, bankruptcy, or other court proceeding. 

 

Such an adversary might for example, use an informal banking system to conceal any marital, bankruptcy estate, or other kinds of assets.  An adversary may make his / her financial transfers via an informal banking system especially because the same could easily go undetected in the pre-trial phase of a trial or the computer-based research described at "A Low-Cost Asset Search".

 

Transferring funds through an informal banking system might however, lead to the kind of criminal prosecution which occurred in "Operation Cash-Out".  As a press release explained, Operation Cash-Out involved 46 defendants in multiple jurisdictions including the U.S., Spain, Canada and Belgium.  One of those defendants was Mr. Mohammad Ahsan, who was recently prosecuted in U.S.A. v. Ahsan, et. al.  As mentioned by the Department of Justice, Mr. Ahsan was sentenced on September 22, 2008, to three years in prison because he had conspired to launder money through a hawala.

 

Copyright 2008 Fred L. Abrams

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One way a debtor may frustrate an asset search or delay forced collection proceedings is to dissipate assets through an excessive divorce settlement.  According to "Tyco gets OK to freeze Kozlowski's assets" for example, ex-Tyco chief executive Dennis Kozlowski may be using his divorce settlement to delay his creditors.  At In Re: Tyco International, Ltd., Securities Litigation, 02-md-1335-B, Tyco therefore filed the following motion to enjoin Mr. Kozlowski from transferring his assets:

1) Main Document, 11 pages
2) Memorandum of Law, 16 pages
3) Exhibit (Affidavit) Declaration of Matthew R.A. Heiman, 6 pages
4) Exhibit A to Declaration of Heiman, 38 pages
5) Exhibit B to Declaration of Heiman, 8 pages
6) Exhibit C to Declaration of Heiman, 4 pages
7) Exhibit D to Declaration of Heiman, 4 pages
8) Exhibit E to Declaration of Heiman, 3 pages
9) Exhibit F to Declaration of Heiman, 5 pages
10) Proposed Order for Preliminary Injunction, 2 pages
11) Proposed Order Temporary Restraining Order, 2 pages

 

As its memorandum of law indicates, Tyco is seeking injunctive relief because it is a creditor with a $325 million dollar claim against Mr. Kozlowski.  Tyco's memorandum describes how Mr. Kozlowski is in prison for looting Tyco and that Tyco had filed an amended complaint against him for: breach of fiduciary duty, fraud, conversion and breach of contract.  The memorandum also alleges that Mr. Kozlowski's divorce settlement could be part of his scheme as a debtor to prevent Tyco from collecting on its $325 million dollar claim. 

 

At Exhibit "E" of the motion, Tyco additionally requests expedited discovery from Mr. Kozlowski, about his assets and divorce settlement.  Tyco may hope that such discovery pursuant to Fed. R. Civ. P. 26, 33 & 34, would prove that Mr. Kozlowski's divorce settlement is part of a fraudulent conveyance to his wife.  Tyco might be able to use expedited discovery from Mr. Kozlowski to ultimately argue that his divorce settlement was excessive since he had only a childless five year marriage.  Based upon the foregoing, the Court issued its Order restraining Mr. Kozlowski from transferring assets up through October 17, 2008, while the litigation continues.

 

Copyright 2008 Fred L. Abrams

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Perhaps most challenging, are asset searches and / or investigations seeking to uncover Nazi-looted art.  Such searches can ultimately end up in the filing of a Holocaust-related art restitution case.  As suggested at the article "Thousands of Nazi-Looted Works Are Held by Museums, Survey Says", lawyers, auction houses, genealogists and art detectives, may all have roles in these cases.  Even with all of the foregoing, parties to a Holocaust-related art restitution case still face a difficult litigation.

 

The Plaintiff in Bakalar v. Vavra, Index No. 05-CV-3037 (S.D.N.Y.) for example, essentially claimed that he had purchased Egon Schiele's drawing "Seated Woman With Bent Left Leg (Torso)", in good faith.  According to Plaintiff, the Schiele drawing once belonged to Austrian-Jewish entertainer Fritz Grunbaum.  Fritz Grunbaum's sister-in-law Mathilde Lukacs, had supposedly sold the drawing in 1956 to art dealer Eberhard Kornfeld at Galerie Gutekunst & Klipstein.  That very same year, Galerie Gutekunst & Klipstein next sold it to New York's Galerie St. Etienne-- where it was finally purchased by Plaintiff in 1963.  Stated differently, Plaintiff argued that the Schiele drawing was lawfully purchased and had never been stolen by the Nazis. 

 

Defendants contrarily argued that the drawing was Nazi-looted art which had been ransacked from the Vienna art collection of their long-deceased relative, Fritz Grunbaum.  Defendants specifically alleged that Eberhard Kornfeld had never acquired the Schiele drawing from Mathilde Luckas and that they were therefore entitled to contest its provenance.  Defendants made these and many other arguments in their closing statement, which they presented via PowerPoint at trial.  The Court's September 2, 2008 Opinion and Order however, ruled against Defendants' art restitution claim by concluding that Plaintiff held lawful title to the Schiele drawing.

 

Copyright 2008 Fred L. Abrams

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An asset search for any bankruptcy estate property hidden during a Chapter 7 bankruptcy, usually begins with an investigation of the debtor's court filings.  For example, the following court filings may contain red flags that a debtor has concealed assets / property:

• the petition;
• schedules;
• statement of financial affairs;
• tax returns.

 

Critical to an asset search for concealed bankruptcy estate property, is the creditors' meeting required by 11 U.S.C. §341.  This is true because the creditors' meeting may be used by the Chapter 7 Trustee to examine the debtor about financial issues.  At such a meeting, creditors are also permitted to similarly question a bankruptcy debtor.  Among other things, an asset search for concealed bankruptcy estate property may also include the research described at "A Low-Cost Asset Search".

 

A debtor caught concealing bankruptcy estate property could face bankruptcy fraud charges like those filed against  Michael Wamsley and Charles Wamsley, Jr. of Hendricks in Tucker County, West Virginia.  According to InterMountain.Com, the Wamsleys were charged with bankruptcy fraud and / or  making false statements.  As more fully described by their indictment , the Wamsleys allegedly concealed real property and farm equipment during bankruptcy proceedings.  According to the Court's docket, the Wamsleys were scheduled for their initial court appearance and arraignment on September 10, 2008, in Clarksburg, West Virginia.

 

Copyright 2008 Fred L. Abrams

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Data mining predicts patterns through electronic data base technologies like statistical analysis and modeling.  Some U.S. law enforcement agencies data mine to predict the criminal patterns of money launderers, terrorist financiers or other criminals.  The U.S. Department of Homeland Security for example, mentioned the following four data mining programs in its February 11, 2008 Letter Report to Congress:

• "ATS": Automated Targeting System Inbound and Outbound Cargo Analysis, at Customs and Border Protection;

• "DARTTS": Data Analysis and Research for Trade Transparency System, at Immigration and Customs Enforcement;

• "FAS": Freight Assessment System, at the Transportation Security Administration;

• "NETLEADS": Law Enforcement Analysis Data System, at Immigration and Customs Enforcement.

 

Financial Intelligence Units such as U.S. Treasury's FinCEN, also specifically use data mining to combat financial crimes.  As mentioned as early as the May 2000 article "Treasury’s mining for crooks", FinCen has worked on data mining projects with the help of the following companies: Oracle Corp.; SPSS, Inc.; SGI; Visual Analytics Inc.; and Nautilus Systems, Inc.  FinCEN has also expressed its continued interest in data mining at pages 52 & 62 of its FY2007 Annual Report.

 

Among other things, data mining helps Financial Intelligence Units and government asset recovery agencies conduct asset searches / interdict illegal assets.  One way Financial Intelligence Units can interdict illicit assets, is to use goATR / goAML asset recovery software.  This kind of software analyzes financial transactions and may detect illicit assets subject to asset forfeiture proceedings.

 

Copyright 2008 Fred L. Abrams

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Attorney Terry Christensen was convicted along with private investigator Anthony Pellicano on August 29, 2008, as reported by The New York Times and The Wall Street Journal Law Blog.  According  to the criminal minutes from his trial, Mr. Christensen had been found guilty of his two-count indictment for violating 18 U.S.C. 371 (Conspiracy) and 18 U.S.C. 2511 (1) {a}  & {d} (Interception of Wire Communications). 

 

While representing billionaire investor Mr. Kirk Kerkorian in a child support case, Mr. Christensen had used an illegal wiretap to undermine Mr. Kerkorian's adversary-- Ms. Lisa Bonder Kerkorian.  As fully described at pages 15-17 of the government's Trial Memorandum, Mr. Christensen had telephoned Mr. Pellicano on March 18, 2002 and authorized the illegal wiretapping of Ms. Kerkorian's phone.  The wiretap ended on or about May 16, 2002 and had enabled Mr. Christensen to even eavesdrop on Ms. Kerkorian's privileged conversations with her attorneys.

 

Mr. Christensen's wiretap conviction could change how some attorneys interact with private investigators who perform background checks; asset searches; or other tasks.  As suggested by The Los Angeles Times article "Wiretap trial sheds light on lawyers' work with private eyes", Mr. Christensen's conviction might make attorneys more cautious in their dealings with private investigators.  In discussing Mr. Christensen's conviction, an FBI spokesperson also said in a press release: "This case uncovered corruption by the wealthy and influential and today's guilty verdicts render assurance that the justice system cannot be bought by those with money and power." 

 

Copyright 2008 Fred L. Abrams

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I first wrote about Donnie in my post,"Forfeiture & The DEA's Asset Search".  In that post, I mentioned that Donnie was a former Special Agent with the Drug Enforcement Administration who had gone to Iraq to train Iraqi Police.  Donnie recently left the Numaniyah National Police Training Academy to travel about an hour's drive southeast of Baghdad on a military convoy to Al Kut ( Camp Delta).  He had gone to Al Kut to work through a contracting company on a new job, similar to that of a Border Police Advisor. 


As part of his new job, Donnie will be sent to the Basrah Training Academy where temperatures can reach up to 140-150 degrees in August.  He will advise the Iraqi Department of Border Enforcement about its training course for recruits.  According to a Multi-National Force press release, the Department of Border Enforcement "training course is an eight-week course that involves instruction in military training, border patrols, checkpoint set up, vehicle searches, and detecting narcotic and human smuggling".


In addition to covering the above subjects, Donnie will teach how to interdict bulk-cash smugglers / illicit cash couriers, during border inspections.  As INTERPOL's First International Conference on Illicit Cash Couriers suggested, training border personnel to detect cash smuggling is critically  important.  This is true because criminals like money launderers and terrorists often use couriers to conceal and transfer cash through airports or other border crossings.  FOXNews.com reported on July 29 for example, that terrorists smuggle cash across Iraq's borders to help finance al-Qaida's operating budget in Iraq.

 
Copyright 2008 Fred L. Abrams

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Ndubuisi Joseph Okafor, M.D., had practiced primary care medicine through the Okafor Group in the Washington D.C. metropolitan area.  He was however, sentenced in U.S.A. v. Okafor, to 65 months in prison followed by three years of supervised release for health insurance fraud and tax evasion.  He was also ordered to pay restitution in the amount of $769,192 to tax authorities and $33,060 to Medicare.


As partly described by his July 18, 2008 criminal judgment, Dr. Okafor had entered a plea agreement for violating 18 U.S.C. §1347 (Healthcare Fraud) along with 26 U.S.C. §§7201 (Tax Evasion) & 7206 {2} (False Income Tax Returns).  According to a press release about Dr. Okafor's plea agreement, Dr. Okafor had: submitted phony bills to Medicare and other health care providers; filed false tax returns; and diverted business revenue by using a corporate checking account to pay for personal expenses. 


Based on that same press release, Dr. Okafor had also engaged in an abusive offshore tax avoidance scheme.  This was true because Dr. Okafor had used his two offshore shell companies formed in the Bahamas to transfer undeclared revenue from his Washington D.C. Okafor Group.  As suggested by "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy", the use of shell companies and a high-risk geographical location like the Bahamas, is a red flag that assets may have been hidden.


Copyright 2008 Fred L. Abrams

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In "Army Major Arrested For Money Laundering", I described how Major John Cockerham and his wife Melissa Cockerham were prosecuted for a bribery / money laundering scheme.  According to their indictment, Major Cockerham had taken bribes as an Army Contracting Officer in Kuwait while awarding contracts for bottled water, etc.  Since their indictment, Major Cockerham pleaded guilty to conspiracy, bribery and money laundering conspiracy, and his wife pleaded guilty to money laundering conspiracy.  Although a recent docket report reflects that Major Cockerham and his wife await sentencing on October 22, 2008, Major Cockerham's sister Carolyn Blake, is still scheduled for trial in connection with their case. 

 

A second Army Major however, also awaits sentencing because of the separate bribery scheme described by the three-count Information filed in U.S.A. v. James Momon, Jr.  Major Momon, (who in 2005 took over Major Cockerham's job as a Contracting Officer in Kuwait), pleaded guilty on August 13 to conspiracy and bribery charges.  A press release about the guilty plea, mentions that Major Momon began taking bribes in 2005, while awarding bottled water and other Army contracts. 

 

Just as Major Cockerham hid bribe monies by using offshore bank accounts in high-risk locations such as Kuwait and Dubai, Major Momon similarly hid his bribes in bank accounts in the Philippines.  Furthermore, both Major Cockerham and Major Momon had each used shell companies as a means to conceal the bribes they had received.

 

Copyright 2008 Fred L. Abrams

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A litigant demonstrating that an adversary has hidden assets offshore, bears the burden of proof in court under Federal Rule of Evidence 301 or other evidentiary  rules.  Such a litigant may be able to satisfy this burden with admissible evidence like authenticated copies of an adversary's offshore bank account records.  Evidence like admissible copies of offshore bank account records is however, often located out of the U.S. or otherwise difficult to obtain.


My post "Bearer Shares & An Asset Search" for example, explained how one divorcing spouse and his business partners used a variety of methods to minimize any evidence left in the U.S. by their assets parked in an offshore bank.  In the foregoing kind of situation, a Letter Rogatory, (a.k.a " A Request For Legal Assistance" or "Letter of Request"), can play a vital role in a litigant's offshore asset search.  This is true because a Letter Rogatory may possibly be used to elicit legally sufficient evidence from an offshore bank or other foreign witness.


A Letter Rogatory can sometimes be filed as mentioned by the Hague Evidence Convention (20: Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters Hague Convention).  Examples of some of the kinds of Letters Rogatory I have filed can be found at my posts: "An Asset Search In Israel", "An Asset Search In Switzerland" and "Asset Search Tips For Divorce & Child Support Cases".


A variety of factors ordinarily determine how effective a Letter Rogatory will be in eliciting evidence from a foreign bank or other foreign witness.  Some of these factors may include:

• Whether the Letter Rogatory is filed pursuant to any foreign law exceptions to bank secrecy / professional secrecy laws;

• Whether competent foreign counsel has been retained to help draft and then further prosecute the Letter Rogatory;

• And whether the Court perceives a Letter Rogatory to be a fishing expedition because it is overly broad.

 

Copyright 2008 Fred L. Abrams

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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

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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.

• 15 U.S.C. § 6801 et. seq. (the Gramm-Leach-Bliley Act): makes it illegal to access private information by making pretext phone calls to a financial institution or its customers.  As my post "The Gramm-Leach-Bliley Act & An Asset Search" further explains, 15 U.S.C. § 6821 also prohibits the use of false documents to obtain private customer information.

• 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 Torrellas 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.  According to a September 3, 2008 entry in their docket report, said sentencing has been scheduled by U.S. District Court Judge Ronald B. Leighton for February 13, 2009.

(Last Edited 11/3/08)

Copyright 2008 Fred L. Abrams

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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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Financial 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/corps/' 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: LexisNexis offers "SmartLinx" which is a fee-based service for attorneys, government authorities, etc. that can be used to search domestic public records.  Records regarding real property, motor vehicles, telephone numbers, can often be accessed.  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 sometimes 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 computer-based 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 2008-2010 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 2008-2010 Fred  L. Abrams

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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.  As the CNBC article"Europe Tax Evasion Probe Going Global" mentioned, 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."

 

(Edited June 1, 2009)

Copyright Fred L. Abrams 2008

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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 briefly quotes me and mentions that cash is hard to trace.  Illicit cash can of course still be detected, particularly 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 19, 2010 report, "Detecting And Preventing The Illicit Cross-Border Transportation Of Cash And Bearer Negotiable Instruments (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.

(Edited February 25, 2010)

Copyright 2008-2010 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.

 

 

"100 Cases From The Egmont Group" provided by The Egmont Group's Website.

Copyright 2008 Fred L. Abrams

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On February 28, 2008, I posted about filing RICO lawsuits 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.  The Financial Action Task Force additionally 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, 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:

 

(Click On The Image To Enlarge It)

 

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.

(Edited January 10, 2010)

Copyright 2008-2010 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, Zurich, 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 Zurich on our way to meet my local Swiss counsel.  We were following the money trail of a financial fraudster who pretended in his U.S. court case to have a negative net worth.  Roger had brought with him the details of the fraudster's finances, which demonstrated that the fraudster had hidden tens of millions of dollars 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.  In Switzerland for example, one might conceivably violate criminal laws by lying about the beneficial ownership of a bank account, as mentioned in this legal memo from Swiss counsel:

  

 (To Read The Legal Memo, Click On The Image Above)

 

 

Continue Reading...

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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; informal banking systems, 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 2010 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 25 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.

(Last Edited August 22, 2010)

Copyright 2007-2010 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 can try to use a nominee (i.e. representative) to hide money with complete anonymity in a bank account.  As the website of www.offshoresimple.com essentially explains, a beneficial owner may hire a nominee incorporation service to supply a bank signatory for a nominee bank account.  This suggests that a beneficial owner may 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 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.

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 allegedly delayed or wrongfully denied medical benefits the employees were entitled to.  Mr. Edwards indictment additionally alleged that he had filed a false joint Income tax return for 1999, by underreporting taxable income.  In 2000, Mr. Edwards had supposedly underreported income in a false joint tax return and paid just $724 in taxes.  He was similarly accused of failing to file any tax return for the year 2001. 


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.

(Edited March 28, 2010)
Copyright 2007-2010 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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A former Criminal Intelligence Specialist at Scotland Yard confirmed that the divorcing husband was hiding millions from his wife by using nominee bank accounts in Switzerland, among other things.  The husband's true beneficial ownership of these funds had been concealed by a nominee who had used shell corporations.  The evidence suggested that the nominee had engaged in money laundering for the husband.  The nominee might have also laundered organized crime monies.
 

The above information could possibly be used during a divorce to impeach the husband at a deposition about his alleged net worth and assets.  The Swiss bank information could also be used to frame a line of questions at a subpoenaed deposition of the nominee.  As partly demonstrated by the example of a changed / sanitized letter rogatory to Obergericht des Kantons Zürich, evidence might too be elicited from bank witnesses in Switzerland.  Such letters rogatory / legal assistance requests can sometimes play an important role in an asset search, as mentioned at "Asset Search Tips For Divorce & Child Support Cases".


As my local Swiss counsel advises, making a business of parking assets in Switzerland and concealing their beneficial ownership could possibly violate Art. 305bis Swiss Criminal Code: Money Laundering (English Translation).  In addition to 305bis, some of the Swiss laws relevant  to money laundering and / or hiding assets include:

 

• the Federal Act on Combating Money Laundering in the Financial Sector: Anti-Money Laundering Act, AMLA (English Translation).

• Art. 305ter Swiss Criminal Code: Insufficient Diligence In Financial Transactions and Right to Report (English Translation).

• Art. 260ter Swiss Criminal Code: Criminal Organizations (English Translation).

• Art. 260quinquies Swiss Criminal Code: Financing Terrorism (English Translation).

• Art. 69 to 72 Swiss Criminal Code: Confiscation (English Translation).

• Art. 102 and 102a Swiss Criminal Code: Corporate Criminal Responsibility (English Translation).  

Given all of the foregoing, there are a number of legal strategies that might be used in connection with the divorcing husband's assets hidden in Switzerland.  Among other things these strategies could include: enlisting the help of foreign investigators like the above-mentioned former Criminal Intelligence Specialist; retaining local counsel in Switzerland; and prosecuting letters rogatory / legal assistance requests.

(Edited February 1, 2010)

Copyright 2007-2010 Fred L. Abrams

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People don't typically think of the money laundering indicia when searching for hidden assets the subject of a: divorce; bankruptcy; commercial collection or other legal proceeding.  Such indicia can however be effectively used as part of an asset search even in situations where there is no money laundering.  In the United States, the indicia or red flags of money laundering are described at Appendix "F" of the Bank Secrecy Act / Anti-Money Laundering Examination Manual.  They are also described in Money Laundering Prevention, A Money Services Business Guide, at pages 16-24. 


Money laundering indicia are sometimes used outside of the United States.  For example, India's Financial Intelligence Unit relies on "broad categories of reason for suspicion"; the Belgian Financial Intelligence Unit ("CTIF-CFI") uses Money Laundering Indicators; the Swiss Federal Banking Commission has the Schedule: Indicators of Money Laundering ; and the Asia / Pacific Group on Money Laundering also uses such a list.  Recognizing the following money laundering indicia however, may lead to the discovery of assets concealed in a divorce, commercial collection or bankruptcy case:

• Domestic Or Foreign High-Risk Geographical Locations.
• Large Amounts Of Portable Valuable Commodities (Gold, Diamonds, etc.).
• False Invoicing In A Trade Or Business.
• Offshore Asset Protection Services.
• Offshore / Foreign Bank Accounts.
• Multiple Jurisdictions.
• Fraudulent Conveyances / Transfers.
• Shell Companies.
• Sham Trusts.
• Nominees.
• Bearer Instruments like Bearer Shares.
• Informal Banking Systems, (Hawala, Hui Kuan, etc.).
• Hiding Or Smuggling Cash.
• Offshore Credit Cards.
• Gambling Activities.
• Misuse Of Businesses (i.e. Commingling Personal With Business Assets).
• Structuring Bank Deposits, (a.k.a. "Smurfing").

(Last Edited 5/4/10)

Copyright 2007- 2010 Fred L. Abrams

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An asset search covering a number of countries is sometimes necessary if monies the subject of a divorce, bankruptcy, or debt collection proceeding are hidden in a money laundering circuit.  This can be true because  "Large-scale money laundering schemes invariably contain cross-border elements", as is recognized by the Financial Action Task Force-- an international organization against money laundering and terrorist  financing.

 

Domestic companies without active business or significant assets, ("shell companies"), however should also be considered part of the money laundering landscape.  According to the Financial Action Task Force's June 23, 2006 summary of its Mutual Evaluation Report, ownership information about these kinds of companies in Nevada and Delaware "...may not, in most instances, be adequate, accurate or available on a timely basis.  This is a vulnerability for the U.S. AML/CFT [anti-money laundering/counter-terrorist financing] system." 

 

The Internal Revenue Service also recognizes in its 2007 Dirty Dozen Tax Scams, that: " Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity."  Meanwhile, a Financial Crimes Enforcement Network November 9, 2006 advisory demonstrates that it too is aware of the misuse of shell companies to hide assets/launder money.  Besides its November advisory, the Financial Crimes Enforcement Network issued a November 2006 report explaining that Delaware, Nevada, Oregon, and Wyoming may be "...attractive to those persons seeking to hide illicit activity within the framework of shell corporations." 

 

That same report also mentions that only Alabama, Alaska, Arizona, and Kansas require a limited liability company to supply ownership information while, (depending on the structure of a limited liability company), 47 other U.S. jurisdictions do not.  The misuse of shell companies is however not just confined to money laundering.  For example, in Dempster v. Overview Equities, Inc., 2004 slip op. 01149 ; 4 A.D.3d 495; 773 N.Y.S.2d 71 (2d Dept 2004) a divorcing husband fraudulently transferred the title of a residence to his newly created company in Delaware, which was most likely a shell corporation.  The husband made the property transfer to his Delaware corporation without valid consideration within weeks of the equitable distribution hearing in his divorce.  Given all of the foregoing, extra diligence should be exercised during an asset search in order to determine whether a divorcing spouse, judgment debtor, etc. has misused a shell company to hide assets.


Copyright 2007-2010 Fred L. Abrams

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For thirty years the ex-husband in Janet O. v. James O., slip op. 51985 (Sup. Ct. N.Y. County, October 17, 2006) had not made one single child or spousal maintenance support payment.  By living in places like Barbados, the Dominican Republic, and Mexico, he had offshore asset protection and the ability to hinder any enforcement proceedings on behalf of his ex-wife or their three sons.  After the divorce, the ex-husband remarried and adopted his new wife's two daughters.  Meanwhile, his ex-wife and three sons were relegated to a life of hardship, poverty, and public assistance. 

 

One of their sons even had to quit college to become a construction worker to support the ex-wife.  Likely to have little practical effect on the absconding ex-husband were: the seizure of New York bank accounts, income tax refunds and lottery winnings; the denial of new and renewed passports; driving license restrictions; and the referral of cases for criminal prosecution as mentioned by New York City's Office of Child Support Enforcement and pursuant to N.Y. Dom. Rel. §§ 244; 244 (a) - (d); & 245 or N.Y. Civ. Prac. L & R §§ 5241 & 5242.  Given the ex-husband's default for decades, the Janet O. Court did however indicate it would seek the ex-husband's extradition.

 

Letters Rogatory In Foreign Jurisdictions

Although it was not financially feasible for the above ex-wife, a Letter Rogatory / Legal Assistance Request might have helped her situation many years ago.  Letters Rogatory can often be effective against a divorcing spouse or non-custodial parent who has hidden assets by cross-border money laundering or otherwise parked them offshore.  By prosecuting a Letter Rogatory pursuant to exceptions to bank secrecy laws, evidence of assets hidden in a foreign jurisdiction may be elicited from bank witnesses or others.  This is true because a foreign court granting a request for a Letter Rogatory, might ultimately compel a foreign witness to respond to written questions about assets. 

 

As the changed and sanitized Letter Rogatory / Legal Assistance Request to  The District Court of  Amsterdam partly demonstrates, some foreign courts direct that an oral examination of a witness instead be taken.  A request for a Letter Rogatory may also have to be translated from English into another language used by a foreign court.  Many times a Letter Rogatory is sought pursuant  to The Hague Convention, Taking of Evidence (1970) No. 20, as a  "letter of request".  Furthermore, a New York Court may issue such a request  to a foreign court as mentioned by Fed. R. Civ. P. 28 (b);  Fed. R. Civ. P. 4(f)(2)(B); and/or the N.Y. Civ. Prac. L & R:  

Rule 3108. Written questions; when permitted. A deposition may be taken on written questions when the examining party and the deponent so stipulate or when the testimony is to be taken without the state. A commission or letters rogatory may be issued where necessary or convenient for the taking of a deposition outside of the state.

 

Suing Non-Parties Domestically

Suing a non-party to a pending divorce or child support case may also become a critically important part of an asset search or recovery.  Business entities; family members; attorneys; financial advisers; etc., can all be non-parties hiding assets.  These non-parties sometimes abuse foreign bank accounts; trusts; or shell companies to hide assets as the nominee of a divorcing spouse or non-custodial parent.  They can be sued for fraudulently hiding assets pursuant to New York State's version of the Fraudulent Conveyance Act codified at N.Y. Debt. & Cred. Law  §§270-281) and or cases like Bloomfield v. Bloomfield, 721 N.Y.S. 2d 15 (1st Dept 2001). 

 

Joining those hiding marital assets as "necessary parties" to a pending divorce as described by "Suing When Marital Assets Are Hidden In Divorce", may also be possible pursuant to Schmidt v. Schmidt, 99 A.D.2d 775 (2d Dept 1984) and Solomon v. Solomon, 136 A.D. 2d 697 (2d Dept 1988).  Suing a non-party can too be necessary to prevent the dissipation or transfer of marital assets, as discussed by Panish v. Panish, slip op 50881(N.Y. Sup. Ct. Suffolk County, April 15, 2005).  Furthermore, if a non-party hiding assets is not sued at the time of a divorce, then the right to recover an asset might be permanently lost. 

 

Such was the case in Jackson v. Brinkman, 2006 slip op 50015; 814 N.Y.S.2d 561(Sup. Ct. Kings County, January 6, 2006), where an ex-husband alleged that title to a marital residence had been fraudulently conveyed to his former mother-in-law.  The Court in Jackson, ultimately found that the ex-husband was barred on res judicata grounds from seeking a recovery because he had neglected to sue his former mother-in-law as part of his earlier divorce.


Copyright 2007-2009 Fred L. Abrams

 

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When financial transactions hide assets the subject of a debt collection, divorce, or bankruptcy case, the Court looks for badges of fraud.  As explained in Wall Street Associates v. Brodsky, 257 A.D.2d 526, 529 (1st Dept 1999), the badges of  fraud for fraudulent asset transfers are: 

• A Close Relationship Between The Parties
• A Transfer Outside The Ordinary Scope Of Business
• Inadequate Consideration
• Knowledge Of A Creditor’s Claim
• Retention Of Control Of The Property

For example, in AMP Servs. Ltd. v. Walanpatrias Found. a.k.a. Doraw, 2006 slip op. 7985 ; 34 A.D.3d 231; 824 N.Y.S.2d 37 (1st Dept,  2006), the Appellate Division upheld an injunction against a debtor dodging a debt collection proceeding.  In applying New York Debtor and Creditor Law, the Appellate Division ruled that the debtor could not transfer a stock portfolio offshore to Europe because there were badges of fraud as mentioned by Wall Street Associates, 257 A.D.2d 526.


In another Appellate Division case, Dempster v. Overview Equities, Inc., 2004 slip op. 01149 ; 4 A.D.3d 495; 773 N.Y.S.2d 71 (2d Dept 2004), a divorcing husband transferred his residence to a Delaware corporation just before his valuation/equitable distribution hearing.  Since the Delaware corporation had filed for bankruptcy, the residence was eventually sold by the bankruptcy court as a corporate asset.  The husband in Dempster had also diminished his net worth by alleging he had a $1,473,362.74 debt because of two confessions of judgments from construction loans.


Since the the above transfer happened just two weeks before the valuation hearing, the Appellate Division found it "replete with badges of fraud".  The Appellate Division further stated that the Delaware corporation had been created only two days before the residence was transferred to it and that the corporation had operated from the very same address as the husband's other businesses.  According to the Appellate Division, the husband's residential transfer and construction loans also violated New York Debtor and Creditor Law because they had occurred without any monies ever being paid, (i.e. without "fair consideration").


In Allan J. Bentkofsky, Trustee v. Ralph J. Malandra, et. al., United States Bankruptcy Court, N.D.N.Y.,  Adv. Pro. No. 00-80221, the Court also found there were badges of fraud when a husband and wife transferred their residence to their children.  Despite the transfer, the husband and wife continued to live at the residence because they had retained a life estate interest.  Since the couple had filed a Chapter 7 bankruptcy petition, the Bankruptcy Court analyzed the residential transfer only to discover that it had occurred without any payment of money/was without "fair consideration".  The couple had also made the transfer at a time they had been insolvent.  Given these facts, the Court found there were badges of fraud and set aside the transfer as it violated New York Debtor and Creditor Law.


Finally, badges of fraud can sometimes be used in debt collection, divorce, or bankruptcy cases to demonstrate that an opposing party has hidden assets or removed property with "actual intent" to defraud.  Robert M. Morgenthau v. A.J. Travis Ltd., 708 N.Y.S.2d 827, 842 (N.Y. Sup. Ct. 2000); Wall Street Associates, 257 A.D.2d at 529.  The badges can also become important in court because a concurrence of several badges always makes a strong case for fraud. Gafco Inc. v. H.D.S. Mercantile, 47 Misc. 2d 661, 665 (N.Y. Civ. Ct. 1965).


Copyright 2007 Fred L. Abrams

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In its "Abusive Trust Tax Evasion Schemes - Facts", the Internal Revenue Service estimates that trusts will account for much of the $4.8 trillion to be inherited or transferred between the generations by 2015.  According to that same publication's Talking Points, trusts are now sometimes fraudulently used: 

• To depreciate personal assets (such as a home);
• To deduct personal expenses;
• To split income over multiple entities, often filed in multiple locations;
• To underreport income;
• To avoid filing returns;
• To wire income overseas and fail to report it; and
• To attempt to protect transactions through bank secrecy laws in tax haven countries.

Insurance salesman Denny Patridge's June 30, 2005 conviction for tax evasion, wire fraud, and money laundering, is one example of how trusts can be used to hide assets and commit tax fraud.  At page four of its Enforcement Results, the Department of Justice's Tax Division mentions that Patridge was fined $100,000 and sentenced to sixty months because he had used: a trust to conceal assets; a false lien on his home; nominee bank accounts; and offshore accounts in Belize and Antigua.


Unlike Mr. Patridge's scheme, some abusive trusts are entirely based on domestic financial transactions.  Such was the case of Marvin Swanson, sued in February 2004, by  the U.S. Justice Department for offering asset protection/tax evasion services.  According to the November 15, 2006 permanent injunction issued pursuant to 26 U.S.C. § 7402 against him, Mr. Swanson had sold phony trusts called "unincorporated business trust organizations" through his manual and website.  As the November 15, 2006 injunction explains, Mr. Swanson had established corporations in Nevada in order to provide his clients with anonymity and hide their assets from the Internal Revenue Service.
  

The January 11, 2007, Complaint for an injunction against Victor Carlysle Sullivan alleges that Mr. Sullivan as a CPA had an asset protection service that hid monies first through a domestic trust known as the Tuxedo Trust and then in two offshore trusts called Blackshear and Bulldog.  Also according to the Complaint, Mr. Sullivan had cost the U.S. Government an estimated $5 - $10 million by underreporting the taxes of at least 53 of his clients in his sham-trust scheme started in 1998.  On March 22, 2007, Mr. Sullivan did however agree to his Stipulated Permanent Injunction, which bars further illegal conduct and essentially obligated him to provide the Government with his client list for the past ten years.   


Given all of the above, the Internal Revenue Service has ranked trust misuse as eighth in its 2007 Top Dirty Dozen Tax Scams.  To educate the public about abusive trusts, It also published "Should Your Financial Portfolio Include Too Good To Be True Trusts?".  Furthermore, when the medical community was  targeted by asset protection service providers, the Internal Revenue Service published a February 2002 bulletin to especially address the issue.  Fraudulent trusts however, are not just limited to tax evasion as they can also play a role in schemes to hide assets during a divorce, bankruptcy, debt collection proceeding, etc.


Copyright 2007 Fred L. Abrams

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A divorcing spouse seeking hidden marital assets; a creditor pursuing the payment of a debt; or an IRS revenue officer collecting a delinquent tax; may sometimes be looking for assets hidden by those offering offshore asset protection services.


According to Equity Development Group's "Why Go Offshore" link-page, placing bank accounts offshore protects them from "predatory attorneys", ex-spouses, disgruntled employees, etc.  Another asset protection service, (Offshore Services Inc. of Belize), alleges that “A Belize Offshore Trust” offers tax reduction, protection from lawsuits and other benefits.  The website of Dominion Investments (Nassau) Ltd. similarly offered "international tax planning, asset protection, and other wealth preservation techniques" until the January 20, 2006 arrest of its proprietor during a federal undercover sting operation for money laundering.


As the Internal Revenue Service's Offshore Credit Card Program recognizes, an asset protection scheme can be as basic as first parking monies in an offshore bank account and then using a credit or debit card drawn on that same account in order to make domestic purchases.  Offshore asset protection schemes involving tax evasion are referred to as Abusive Offshore Tax Avoidance Schemes by the Internal Revenue Service.  According to the Internal Revenue Service, such schemes typically involve:

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