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

As partly suggested by the list of statutes at my post, "An Asset Search, Tax Fraud & Divorce", hiding assets may lead to a variety of white-collar crimes.  Perhaps attorney Stephen Yagman's June 22, 2007 conviction on one count of tax evasion, one count of bankruptcy fraud, and seventeen counts of money laundering, best demonstrates that the foregoing is true. 

Between 1994 through 1997, Mr. Yagman accumulated a $158,000 tax liability for the underpayment of his personal income tax and also failed to pay some payroll tax owed by his law firm.  To avoid Internal Revenue Service collection proceedings, he hid hundreds of thousands in nominee bank and brokerage accounts maintained by his girlfriend.  Mr. Yagman then concealed these assets when he filed for personal and corporate bankruptcy.

Depending on the circumstances, foreign money laundering laws could also possibly be violated when assets are hidden in an offshore bank account.  Finally, if assets have actually been hidden offshore, it may be necessary to consider the kind of legal remedies and / or forced collection proceedings described at "An Asset Search In Geneva".

Copyright 2007-2010 Fred L. Abrams   

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:

Copyright 2009 Fred L. Abrams

Tax fraud is sometimes discovered when a divorce case is filed, a business dispute arises, a bankruptcy occurs, etc.  One statute applicable to many federal tax fraud prosecutions is 26 U.S.C. § 7201.  An example of such a prosecution is the indictment unsealed in the Southern District of Florida on September 10, 2007 in the case of Jorge Alberto Valdes.  There are however a number of other general tax fraud statues which may also be relevant to a tax fraud case.  According to the Internal Revenue Service, the following can be indications of tax fraud:

• Deliberately underreporting or omitting income.
• Overstating deductions.
• Keeping multiple sets of books.
• Making false entries in books and records.
• Claiming personal expenses as business expenses.
• Claiming false deductions.
• Hiding or transferring assets or income.

As of December 20, 2006, rewards for confidentially reporting the above kinds of tax violations may be increased by the IRS Whistleblower Office to 15%-30% of the total proceeds the IRS collects.  26 U.S.C. § 7623 (b) {5} & {6} however, require that: the tax fraud or underpayment involve taxes, interest, and payments greater than $2 million; the tax violator's annual income exceeds $200,000; and that the confidential tip be submitted to the IRS under the penalty of perjury.  According to both the "Whistleblower-Informant Award" webpage and a December 19, 2007 press release, a Form 211 must also be submitted to the IRS in order to qualify as an IRS whistleblower.


Furthermore, if a person can not satisfy all of the above requirements for a 20%-30% whistleblower reward, he or she might still be able to collect another kind of reward.  As explained by Publication 733 and 26 CFR 301.7623-1, the IRS sometimes pays discretionary rewards of up to 15%, (excluding interest), from what it collects because of confidential tips.  Pursuant to 31 CFR 103.62 the U.S. Treasury Secretary may also pay a reward of up to $150,000 where information about Bank Secrecy Act violations leads to the recovery of a civil penalty, criminal fine, or forfeiture over $50,000.  The Director of the FBI has similar authority to pay awards of compensation as mentioned by 28 CFR 8.3.


Finally, there are a number of ways to report a suspected tax fraud.  For example, one can provide a confidential tip to the IRS by submitting a Form 211 or by calling the Tax Fraud Hotline to report a return preparer fraud at 1-800-829-0433.  One can also send a letter or Information Referral (Form 3949-A) as outlined in "How Do You Report Suspected Tax Fraud Activity?".  Before providing a confidential tip about a tax fraud, it is however always best to first consult with an attorney.  Perhaps most important is that a person providing such a tip need not proceed before the IRS or other agencies alone and unprotected when reporting a tax fraud or other violations. This is true because one may participate in the Whistleblower or other reward programs while represented by an attorney of his or her own choosing.


Copyright 2007-2008 Fred L. Abrams

According to the Federal Bureau of Investigation, the concealment of bankruptcy estate assets is: "[t]he most committed offense in relationship to bankruptcy fraud investigations. Fraudulent filers understate the value of their assets so they can keep more of what they have amassed."  As the United States Trustee Manual further recognizes, there can be a number of red flags when bankruptcy fraud occurs.  There are also many different asset concealment schemes which are considered to be common bankruptcy frauds.  

For example, was a bankruptcy used as part of a bustout, in which a business acquired goods on credit without the intent of ever paying for them?  Were a debtor's assets omitted from bankruptcy schedules, as supposedly occurred in the case described at  "Bankruptcy Estate Property Allegedly Concealed By A Cop"?  Have insiders depleted business assets long-term as in the case of a bleedout or has a pyramid scheme / investor fraud occurred?  Was a sham creditor concocted to file a proof of claim in the bankruptcy?  Could the debtor have fabricated other kinds of debt to make him / herself appear penniless throughout a bankruptcy proceeding?


A creditor trying to recover assets from a bankruptcy debtor should always ask the foregoing kinds of questions while pursuing the kinds of measures mentioned by "An Asset Search In A Chapter 7 Bankruptcy Case".  Ordinary measures can however, fail against a determined bankruptcy debtor who might use foreign bank accounts to conceal bankruptcy estate assets, as is described at "Bankruptcy Fraud, Money Laundering & Hidden Assets".  Such a determined debtor may  use a nominee as a bank signatory and also take advantage of strong foreign bank secrecy laws.  

Even when a debtor uses a nominee bank account at a foreign bank to hide bankruptcy estate assets, a creditor might still prevail.  This is true because once a foreign bank account is located, (among other things),.the creditor can seek a court order directing the nominee bank signatory to execute and supply an "authorization form" for the release of the debtor's foreign bank records.  By presenting this executed "authorization form" to the relevant foreign bank, the creditor would then conceivably gain access to the records for the debtor's bank account.  


It may also be advisable to seek a letter rogatory / legal assistance request (i.e. a court ordered asset search prosecuted in a foreign jurisdiction), where a debtor has hidden assets in an offshore tax haven.  Furthermore, on rare occasions a defrauded creditor might succeed against a bankrupt debtor by filing a civil RICO lawsuit for "lost debt injury" pursuant to Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105 (2nd Cir 1988).


While some debtors try to hide bankruptcy estate assets in foreign jurisdictions, others may conceal assets by instead relying on domestic bank accounts or businesses.  Such was the case of Mr. Jimmy Quan, convicted May 23, 2007 of: conspiracy to conceal assets,(18 U.S.C. § 371); bankruptcy fraud, (18 U.S.C. § 157); fraudulent pre-petition transfers or concealment, (18 U.S.C. § 152 {7}); false declarations, (18 U.S.C. § 152 {3}); and money laundering, (18 U.S.C. § 1956 {a} {1} {B} {i}). 

According to the Department of Justice, Mr. Quan's bankruptcy creditors lost over $5 million because he had: diverted revenue from one of his companies to a business controlled by a family member; diverted revenue from yet another of his companies to businesses controlled by both he and his wife; and also laundered money through his child's personal bank account. 




Copyright 2007-2009 Fred L. Abrams

Money laundering typically involves disguising the true beneficial ownership of funds or other assets which are the proceeds of crime.  Because money laundering often extends beyond just one nation's borders, over 170 jurisdictions worldwide have adopted the anti-money laundering policies of the Financial Action Task Force.  Some nations also follow the anti-money laundering recommendations and/or policies of the Wolfsberg Group of Banks, the Basel Committee on Banking Supervision,  the Egmont Group, the European Union, or the United Nations.


Laundering circuits are sometimes used by: individuals protecting assets from lawsuits; spouses hiding marital property during a divorce; tax evaders hiding assets; debtors in bankruptcy concealing assets from creditors; terrorists financing their activities; or other kinds of criminals hiding profits.  Any of the above activities could violate 18 U.S.C. §1956 (Laundering of Monetary Instruments); and / or 18 U.S.C. §1957 (Engaging in monetary transactions in property derived from specified unlawful activity); and / or 18 U.S.C § 1961 (Racketeer Influenced and Corrupt Organizations Act), along with other U.S. laws.


Money laundering is often described as occurring through placement, layering, and integration. Illegally obtained money is first placed into a financial system.  Layering then occurs as laundering links help disguise who the true beneficial owner of the money really is.  As the laundering "link chart" from a financial intelligence unit based in Canada partly demonstrates: bank accounts, shell corporations, and nominees may all be used as laundering links which act as the protective layers of a money laundering circuit.  Many times laundering links are located in a Major Money Laundering Country and / or a tax haven where strong bank secrecy laws make them difficult to detect.  In its final stage, money in a laundering circuit is integrated into the financial system in the U.S. or elsewhere, after it has been washed by a series of transfers between the laundering links.


Although a back-to-back loan is one of the ways money is sometimes washed, some banks like Griffon Bank openly advertise them.  A back-to-back loan is a loan which appears to be arm's-length and for example originate in Amsterdam, but is actually fully collateralized by an earlier cash deposit in say a Curacao bank. Because of strict compartmentalization, (i.e. first the depositing of the money in Curacao and then the loan disbursement in Amsterdam), one can not see the fact that the borrower in Amsterdam is also the lender in Curacao.


Although some of the details below have been changed for privacy reasons, the following accurately depicts how "True Beneficial Owner" used a Liberian shell corporation, offshore bank accounts, and a back-to-back loan to disguise the origin of U.S. funds:

                                                                                                                                       
Copyright 2007-2009 Fred L. Abrams