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

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

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

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

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

Copyright 2008 Fred L. Abrams  

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

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

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

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

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

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

Copyright 2008 Fred L. Abrams

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

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

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

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

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

Copyright 2008 Fred L. Abrams

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

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

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

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

Copyright 2008 Fred L. Abrams

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

As part of my asset search of the husband, (and to learn even more about this suspected tax fraud), I contacted Brian.  Brian was a former high-ranking official at the Treasury Department's Financial Crimes Enforcement Network and had earlier been an IRS Special Agent.  Brian was going to lead our interview of the husband's business associate, who we were about to meet for the very first time.  Right before the interview, Brian identified some of the federal statutes relevant to many tax fraud investigations:

• 26 U.S.C. § 6050I, large cash reporting requirements for trades & businesses (including attorneys).
• 26 U.S.C. § 7201, most commonly applied tax evasion statute (however requires proof of a tax liability).
• 26 U.S.C. § 7203, failure to file a timely tax return.
• 26 U.S.C. § 7206 (1), perjury on a return / false statements, (unlike 26 U.S.C. § 7201,  proof of a tax liability is unnecessary).
  
• 26 U.S.C. § 7206 (2), perjury on a return / false statements, but primarily used against tax return preparers such as accountants and attorneys.
• 18 U.S.C. § 371, conspiracy to commit offense / defraud the United States.
  
• 18 U.S.C. § 1001, false statements made to the federal government (can apply to any material verbal or written statement, even if unsworn).
  
• 18 U.S.C. § 1956, money laundering.
• 18 U.S.C. § 1957, money laundering involving property derived from specified unlawful activity.
• 18 U.S.C. § 1961, Racketeer Influenced & Corrupt Organizations ("RICO").
• 31 U.S.C. § 5311 et. seq., the Bank Secrecy Act.

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

Copyright 2008 Fred L. Abrams

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

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

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

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

Copyright 2007 Fred L. Abrams

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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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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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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 violate Art. 305bis Swiss Criminal Code: Money Laundering (English Translation).  The nominee might therefore also be prone to a Swiss prosecution under Art. 305bis as a security risk, assuming ties to organized crime could be shown.  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).  
  

As the foregoing suggests, a number of different legal strategies could be used in connection with the divorcing husband's assets hidden in Switzerland.  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; are however just some of the tools which may be part of an effective asset search in Switzerland.

Copyright 2007-2008 Fred L. Abrams

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When the divorcing husband admitted in his affidavit that he had not paid taxes, the judge in Hashimoto v. De La Rosa, 2004 slip op. 51081(Sup. Ct. N.Y. County, June 23, 2004) reported him to the I.R.S.  In Beth M. v. Joseph M., 2006 slip op. 51490 (Sup. Ct. Nassau County, July 25, 2006), the judge similarly reported a husband who testified during divorce / child support proceedings that he had not filed tax returns for the years 1997 through 2001 and other times.  The admissions made by these two divorcing spouses could possibly have led to tax fraud charges pursuant to 26 U.S.C. § 7201.

Like the presiding judges in Beth M. and Hashimoto, parties to divorce or child support cases sometimes report tax fraud to the I.R.S.  Some tip the I.R.S. by calling its tax fraud hotline at 1-800-829-0433.  Others send an Information Referral (Form 3949-A) or letter as mentioned by "How Do You Report Suspected Tax Fraud Activity?".  No matter how one ultimately communicates with the I.R.S., it is important to first consider eligibility for the Whistleblower or other reward programs described in my separate post, "Reporting Tax Fraud".  As "Reporting Tax Fraud" further explains, the kinds of activities typically reported to the IRS include: hiding or transferring assets or income;  keeping multiple sets of books; claiming personal expenses as business ones; etc. 

In some cases where there has been a tax fraud and spouses have filed joint tax returns, it may also be advisable to seek innocent spouse tax relief  as more fully described by I.R.S. Publication 971.  To examine this very issue, (and to ensure that providing a particular tip to the IRS is appropriate), a party to a divorce or child support case should always seek the advise of a knowledgeable attorney.

Copyright 2007 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 pages 19-23 and 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 grounds 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.
• False Invoicing In A Trade Or Business.
• Offshore Asset Protection Services.
• Foreign Bank Accounts.
• Multiple Jurisdictions.
• Fraudulent Conveyances / Transfers.
• Shell Companies.
• Sham Trusts.
• Bearer Instruments (like Bearer Shares).
• Hiding Or Smuggling Cash.
• Nominees.
• Offshore Credit Cards.
• Gambling Activities.
• Misuse Of Businesses (i.e. Commingling Personal With Business Assets).
• Large Amounts Of Portable Commodities (Gold / Diamonds).
• Alternate Remittance Systems (Hawala, the Black Peso Exchange, etc.).
• Structuring Bank Deposits, (a.k.a." Smurfing").

Copyright 2007 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 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 successfully protected his assets from 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
Although it was not financially feasible for the above ex-wife, a Request for Legal Assistance / Letter Rogatory might have helped her situation many years ago.  Such legal assistance requests can often be effective against a divorcing spouse or non-custodial parent who has hidden assets in a foreign country.  By prosecuting a request for legal assistance, evidence of assets may be elicited for a local valuation / equitable distribution hearing or for a forced collection proceeding abroad.  When a request for legal assistance is granted by a foreign court, it may direct a bank or other witness in its jurisdiction to respond to written questions about assets.  As the changed / sanitized legal assistance request to the District Court of Amsterdam however partly demonstrates, some foreign courts direct that an oral examination of a witness instead be taken.  A request for legal assistance may also have to be translated from English into another language used by a foreign court.  Many times a legal assistance request is prosecuted through the 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
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.  Non-parties hiding assets can be: business entities; family members; attorneys; financial advisers; etc.  A non-party can sometimes abuse trusts; bank accounts; or shell companies to hide assets as the nominee of a divorcing spouse or non-custodial parent.  Legal authority for suing a non-party for fraudulently hiding assets, (and/or pursuant to New York State's version of the Fraudulent Conveyance Act codified at N.Y. Debt. & Cred. Law  §§270-281), is provided by 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 case 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 demonstrated 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 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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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, (Bayshore Bank & Trust in Barbados), alleges that the “Key Benefits of Trusts” are tax reduction and protection from lawsuits.  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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