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

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

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

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

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

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

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

Copyright 2008 Fred  L. Abrams

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As the 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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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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According to a press release, Mr. Walter Anderson's tax fraud resulted in the "largest personal income tax evasion case brought by the Department of Justice".  Pursuant to his September 8, 2006 plea agreement, telecommunications entrepreneur Walter Anderson pleaded guilty to violating two counts of 26 U.S.C. § 7201 (Attempt to evade or defeat tax), and one count of Title 22 District of Columbia Code § 3221 {a}, (Fraud in the first degree).  The Court sentenced Mr. Anderson on March 27, 2007 to nine years of prison for his failure to report about $365 million in income between 1995 and 1999; and also ordered him to pay the District of Columbia restitution in the amount of $22,809,032.

The superseding indictment filed on September 30, 2005 essentially alleged that Mr. Anderson had hidden his undeclared revenue through offshore shell companies and bearer shares, (i.e. negotiable stocks filled out in the name of the "bearer", for which no register of ownership is kept).  According to the specific allegations in his indictment, Mr. Anderson had hired Arias, Fabrega & Fabrega Trust Co. (BVI) to first secretly incorporate a nominee shell company for him known as Gold & Appel Transfer, S.A.  He then used Gold & Appel in connection with his ownership of other shell companies, as partly demonstrated by the attached stock certificate from Aurora Telecommunications Limited.  For example, by owning the bearer shares of a shell company called Iceberg Transport, S.A., (which in turn owned the stock of Gold & Appel), Mr. Anderson concealed the hundreds of millions he beneficially owned via Gold & Appel.

Given the hundreds of millions hidden by Mr. Anderson, I thought about the tax gap. The tax gap is the difference between the overall amount of tax revenue the Internal Revenue Service receives compared to what it estimates it is actually owed. The latest figures published in "Reducing The Federal Tax Gap" dated August 2, 2007, indicate that the tax gap was estimated to be $345 billion in 2001.  That amount however has since been reduced to $290 billion because of Internal Revenue Service enforcement efforts and its receipt of late payments.  I then wondered how many there were that still remained, who were just like Walter Anderson.

Copyright 2007 Fred L. Abrams

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With more than 90 national chapters / chapters-in-formation since its founding in 1993, Transparency International is a lead group in the fight against the global white-collar crime of public corruption.  Transparency International publishes an annual "Corruption Perception Index" which ranks countries on a scale of "1" to "10" based on the perceptions of businessman and analysts.   A country ranked as a "10" would be considered to be "highly clean"; while a rank of  "1" would indicate a "highly corrupt" country.   For example, Transparency International's 2007 Corruption Perception Index ranked Myanmar and Somalia at the very bottom of its list with a score of only "1.4".  Denmark, Finland, and New Zealand however had the highest score of "9.4".  Meanwhile, the United States was assigned a score of "7.2".

 
The Transparency International website additionally explains that corruption is "the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority."  Its website also describes the two distinct kinds of corruption, "according to rule" and "against the rule".   When a bribe is paid for services the bribe recipient is required by law to provide, then "according to rule" corruption has occurred.  "Against the rule" corruption has occurred when a bribe is paid for services the bribe recipient is prohibited from providing.

As has been widely reported, a corruption case was recently brought against Bernard Kerik, who formerly led the largest police department in America as New York City's 40th Police Commissioner.  According to both the U.S. Attorney and Mr. Kerik's sixteen count indictment, Mr. Kerik was the secret beneficiary of $250,000 in apartment renovations paid for by the principals of construction and waste management companies who sought contracts from New York City.  In consideration of said renovation payments, Kerik allegedly lobbied officials to award the sought after contracts.  Some of these payments are claimed to have been made even after Kerik had been sworn in as the Police Commissioner.  According to a government tax fraud chart, the U.S. Attorney has further alleged that Mr. Kerik also committed tax frauds involving at least $667,222.

As a review of Mr. Kerik's indictment reveals, Mr. Kerik is essentially charged with committing the following white-collar crimes:

• 18 U.S.C. §1014, False statements on a loan application.
• 18 U.S.C. §1001, False statements to the federal government.
• 18 U.S.C. §1341, Mail fraud.
  
• 18 U.S.C. §1343, Wire fraud.
• 18 U.S.C. §1349, Conspiracy.
  
• 26 U.S.C. § 7212 (a), Attempts to interfere with administration of internal revenue laws.
• 26 U.S.C. §7206 (1), Perjury / false statements in a tax return.
• 26 U.S.C. §7206 (2), Aiding the making of false statements in a tax return.

Copyright 2007 Fred L. Abrams

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An investigation of a high-risk geographical location can sometimes uncover assets which have been hidden through: nominees; shell companies; cash couriers; wire transfers; credit cards; underground bank or remittance systems like hawala, etc.  For example, one way the IRS focuses on high-risk locations like tax havens, is to compare the banking information it receives from the Financial Crimes Enforcement Network with the foreign bank disclosure taxpayers make pursuant to their Form 90-22.1, the Foreign Bank and Financial Account Report.  The IRS also makes U.S. residents with offshore credit / debit cards an audit priority pursuant to its Offshore Credit Card Program.

The State Department is similarly concerned with high-risk offshore locations as demonstrated by part of its 2007 International Narcotics Control Strategy Report, Major Money Laundering Countries.  U.S. banks too make geographic location a risk factor in their anti-money laundering programs.  As explained at page 21 of the Bank Secrecy Act / Anti-Money Laundering Examination Manual: "U.S. banks should understand and evaluate the specific risks associated with doing business in, opening accounts for customers from, or facilitating transactions involving certain geographic locations."

The Financial Crimes Enforcement Network also deems seven U.S. regions to be High Intensity Financial Crimes Areas because of their extraordinary vulnerability to money laundering.  Law enforcement may even commit additional resources to scrutinize financial transactions in such regions or in a High-Intensity Drug Trafficking Area.  As my post "Domestic Shell Companies & An Asset Search" further suggests, jurisdictions like Delaware, Nevada, Wyoming, and Oregon are additionally considered to be high-risk because assets are so easily concealed through shell companies formed there.

The isolated fact that a financial transaction has a nexus to a high-risk location does not however necessarily support the conclusion that assets have been concealed.  A judgment debtor, divorcing spouse, etc. should still be thoroughly investigated to ensure that an offshore or domestic high-risk location has not been used to hide assets.

Copyright 2007 Fred L. Abrams

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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 beneficial owner will sometimes use a nominee (i.e. representative) to hide money with complete anonymity in a bank account.  As the website of www.offshoresimple.com explains, a beneficial owner may hire a nominee incorporation service to supply a bank signatory.   This suggests that a beneficial owner can use a nominee to circumvent the know your customer / customer identification procedures at a bank.  For example, through the bank signatory service offered by www.offshoresimple.com, a beneficial owner can use a nominee to:      

• Open / manage an offshore bank account.
• Act as an account's bank signatory.
• Supply a bank with the necessary customer identification documents.
• Execute the incorporation documents needed to form an offshore corporation.

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

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.

Copyright 2007 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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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, (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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