Following A Money Trail

High net worth divorcing spouses, kleptocrats, bankruptcy debtors, judgment debtors, etc., can easily conceal their beneficially owned assets by utilizing Nominee Incorporation Services (“NIS”). Pages 63-64 of “The 2007 National Money Laundering Strategy” essentially explained that individuals may use NIS in schemes to hide assets through money laundering. Individuals sometimes hire a NIS to open secret bank accounts & form non-transparent shell companies. Page 64 of The 2007 National Money Laundering Strategy said “[t]he FBI believes that U.S. shell companies and bank accounts arranged by certain NIS firms are being used to launder as much as $36 billion a year from the former Soviet Union. It is not clear whether these NIS firms are complicit in the money laundering abuse.

An apparent NIS is Capital Asset, Inc. One of its webpages recommends forming companies in Nevada, Wyoming or Delaware. It presumably makes this recommendation because Nevada, Wyoming & Delaware have little or no reporting requirements concerning a company’s shareholders, managers, etc. Someone who wants to hide assets can form a non-transparent shell company in these states & use the shell company to open a bank account at a financial institution in an offshore tax haven. During a bank or asset search, this bank account may be especially difficult to detect because it is titled in the name of the non-transparent shell company.

Another Capital Asset, Inc. wepage asserts:

We use encrypted software, mobile memory sticks, and we back up any information in countries outside the U.S.  There are no paper statements, no debit cards, and all of the accounts are in the names of an IBC [International Business Corporation], just exactly the way Microsoft does it. We imitate in every detail what multinational companies do when they open an offshore account.  Most of our clients use a nominee- they are not officers, directors, or shareholders of the IBC. However, as signatory or beneficial owner of an offshore account, you need to understand there are heavy tax reporting requirements.

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Copyright 2012-2016 Fred L. Abrams

Look Before Leap Image
Look before you leap into your asset search by taking a multifaceted approach.

Red Flags For An Asset Search” lists the common methods for concealing assets including the use of shell companies; offshore bank accounts; sham trusts; etc. To successfully search for assets hidden by these methods, a multifaceted approach is often necessary. You may need to determine beneficial ownership; & look for laundered assets; & employ letters rogatory; & follow the other suggestions outlined by “7 Tips For A Successful Asset Search.”  If you rely on just one of these approaches, you might not gather enough evidence to demonstrate to a court that assets were hidden from you. For example, “7 Tips For A Successful Asset Search” says you might use letters rogatory¹ to collect information from witnesses residing offshore.

Under certain conditions, a letter rogatory can be invaluable in a search for evidence of a secret offshore bank account. Since letters rogatory do not work 100% of the time, it is best to take a multifaceted approach in your asset search.  One letter rogatory which apparently did not work, was filed at In re Application of Victor Mikhaylovich Pinchuk, U.S. District Court for the District of Wyoming, Docket No. 13-cv-00251.  Ukrainian billionaire Mr. Pinchuk used the letter rogatory to try to get documentary evidence about assets owned by Ferrost LLC (“Ferrost“), a business entity in Wyoming. Mr. Pinchuk’s court papers claimed he needed this evidence because his business partners had allegedly misappropriated assets. The court papers also alleged “Pinchuk should have been offered an opportunity to participate in [the ownership of] Ferrost or its assets…

Mr. Pinchuk intended to use any evidence obtained about Ferrost, at a London arbitration & at legal proceedings in Cypress. On May 7, 2014, the federal court in Wyoming issued an Order directing Ferrost to comply with Mr. Pinchuk’s subpoena. The subpoena requested documents relating to: assets owned by Ferrost; how Ferrost was capitalized; the identities of Ferrost’s shareholders; etc. At a May 20, 2014 affidavit, Ferrost alleged it possessed no business records in the United States. Ferrost therefore only supplied Mr. Pinchuk with organizational documents Ferrost had filed with the Wyoming Secretary of State. Despite Mr. Pinchuk’s letter rogatory & the Court’s May 7, 2014 Order, Mr. Pinchuk was apparently unable to gather information about assets owned by Ferrost.

¹”Preparation of Letters Rogatory” courtesy of U.S. Department of State.

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Copyright 2016 Fred L. Abrams

Man Digging

Locating hidden assets can be especially difficult if underground banks/informal banking systems like hawala have been utilized. “The Hawala Alternative Remittance System and its Role in Money Laundering”¹ explains that hawaladars, (a.k.a hawala operators), secretly transfer funds to financial accounts maintained in Switzerland, Dubai, the United Kingdom &/or other international financial centers.  The money laundering typology² shown below describes how one hawaladar secretly transferred money in a possible terrorist financing scheme. Governmental authorities can search for these assets by focusing on wire transfers & suspicious activity at foreign bank accounts:

¹The Hawala Alternative Remittance System and its Role in Money Laundering, Courtesy of FinCEN.

²Money Laundering Typology / Case Ref: 06060, Courtesy of The Egmont Group.

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Copyright 2013-2016 Fred L. Abrams

Image Offshore Assets

The following can help you detect money concealed in an offshore bank account:

I.  DETECT A MONEY TRAIL

When an adversary hides funds at an offshore bank there is always an electronic trace. The trace occurs because the bank stores electronic information comprised of: bank account opening documents; bank signature cards; monthly bank statements; etc.  In addition to an electronic trace, there are usually other signs of a money trail to spot.  As “Secreting Assets Without A Border Trace” reveals, you may be able to detect the money trail by “concentrat[ing] on foreign hotels, payment information, telephone records and on credit card expenses for details of physical movements and lifestyle.”

II.  DEPOSE YOUR ADVERSARY’S LAWYERS

A complex scheme to hide assets is sometimes facilitated by a lawyer, as described at “Striking Out During Your Asset Search? Don’t Forget To Look At The Lawyers” & “Hiding Assets Through Gatekeepers With Accounts Across The Globe.” A lawyer may have opened your adversary’s offshore bank account &/or withdrawn money from it. By bringing legal proceedings, you can sometimes depose this lawyer/serve the lawyer with discovery demands, as described at “A Debt Collection In New York.” “An Asset Search Of A Lawyer Employed To Conceal Cash” also shows how these discovery demands might lead you to a secret bank account.

III.  LOOK FOR THE THE BADGES OF FRAUD

Money Laundering, Marital Assets & Divorce” mentions a divorcing husband who transferred money, (i.e. black capital), originating in the U.S., into a secret Swiss bank account.  Through financial transactions including a back-to-back loan, the husband laundered the money he transferred offshore.  Individuals like the husband can secretly transfer money into an offshore bank account via bulk-cash smuggling; phony invoicing schemes; disguised wire transfers; & numerous other ways.  You might be able to detect this suspicious transfer of money by looking for badges of fraud. According to the Court in Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574 (2d Cir. 1983), the badges of a fraudulent asset transfer are:

  1. the lack or inadequacy of consideration;
  2. family, friendship or close associate relationship between the parties;
  3. the retention of possession, benefit or use of the property in question;
  4. the financial condition of the party sought to be charged both before and after the transaction in question;
  5. the existence or cumulative effect of a pattern, or series of transactions, or course of conduct, after a debt, the onset of financial difficulties or pendency or threat of suits by creditors;
  6. & the general chronology of the events and transactions under inquiry. (Id.)

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Copyright 2016 Fred L. Abrams

This January 18th video depicts three 250 pound GBU-39 bombs dropped by B-1 or F-18 aircraft, in rapid succession on the same spot of the roof of an ISIS cash depot near Mosul, Iraq. As of last week, it was the ninth ISIS cash depot US-led forces had destroyed in Iraq &/or Syria. ISIS uses cash depots to store assets it accumulates from oil operations, kidnappings, looting & taxes.  ISIS loots banks; art assets & cultural heritage property; & it taxes Iraqi government officials in Mosul & businesses in Syria & Iraq. ISIS also places a protection tax on Christians & other non-Muslims.

A FORCE MULTIPLIER

Since ISIS can not sustain itself without vast sums of money, searching for & then destroying its money is a force multiplier for US-led forces & Western nations fighting ISIS. At “U.S. Drops Bombs Not Just on ISIS, but on Its Cash, Too,” Army Colonel Steven Warren makes the point: “[a] combination of taking away their ability to earn money by striking oil and taking away the money that they have on hand by striking the Daesh[ISIS] cash really puts the squeeze on them [emphasis added].”

THE SEARCH FOR ISIS ASSETS & FOREIGN TERRORIST FIGHTERS

Besides destroying cash depots & other assets ISIS possesses in Iraq or Syria, US-led forces &/or Western nations are searching for assets ISIS hides across the globe. These assets hidden offshore & laundered by ISIS, include: foreign bank accounts; valuable real estate; plundered antiquities; etc. One way Western nations try to search for & interdict these assets is through the Egmont Group of Financial Intelligence Units.

As set forth at “Searching For Assets Used To Carry Out Terrorist Attacks,” the Egmont Group uses money laundering indicators as part of its effort to locate assets washed & hidden by ISIS. The Egmont Group has also developed operational intelligence for law enforcement & intelligence agencies about Foreign Terrorist Fighters who travel to Iraq & Syria to join ISIS. This endeavor is discussed at the December 23, 2015 Egmont Group Communiqué available by clicking here.

January 18, 2016 video: U.S. Department of Defense.

Copyright 2016 Fred L. Abams

7402945976_8ca11c5515_qThis is the 9th post in my series discussing private investigators.  It highlights former private investigators Elaine White & Cullen Johnson who were convicted of a money laundering conspiracy.  The conspiracy involved bogus asset searches Ms. White & Mr. Johnson apparently performed for their clients.  Mr. Johnson seemed to blame the bogus searches on ‘the fog of information.’ As also set forth below, Ms. White recently petitioned for a writ of habeas corpus arguing she should be resentenced in her criminal case.  

From about 2006-2012 ex-Toronto private investigator Elaine White &/or her husband ex-police detective Cullen Johnson, offered asset searches including a search for bank accounts.  Ms. White’s & Mr. Johnson’s clients were licensed private investigators, divorcing spouses & others seeking assets hidden from them.  Ms. White &/or Mr. Johnson however, supplied their clients with phony financial data/spurious bank account information.  As reported at “Island-hopping private eyes indicted on fraud, money laundering charges,” police criminally charged Ms. White & Mr. Johnson for frauds related to clients in Canada.

Ms. White & Mr. Johnson then fled to the Bahamas & the Turks & Caicos Islands.  Next, they were extradited from the Turks & Caicos Islands to face criminal charges in Newport News, Virginia in USA v. White, et al. Docket No. 4:13-cr-00047.  An August 23, 2012 Affidavit In Support Of Criminal Complaint And Arrest Warrant described the criminal case against Ms. White & Mr. Johnson.  Ms. White’s & Mr. Johnson’s April 10, 2013 indictment also said they had “operated a purported asset locator business for clients.”  During September 2013, Mr. Johnson pleaded guilty to Count Two of the indictment (i.e. conspiracy to commit money laundering).  On October 7, 2013 the Court also accepted Ms. White’s guilty plea to Count Two.

The Statement of Facts at Ms. White’s plea agreement showed that Ms. White had provided her clients with “false and fraudulent data and fabricated bank records…”  Mr. Johnson also wrote a December 24, 2013 letter discussing the bogus private investigations.  According to the letter available here, Mr. Johnson’s ‘misjudgments’ in the investigations were due to the ‘fog of information’:

IF THE EXPRESSION THE “FOG OF WAR” IS DEEMED TO BE ACCEPTABLE AND RECOGNIZED AS BASIS FOR EXPLAINING TRAGIC MISJUDGEMENTS AND ERRORS IN MILITARY SITUATIONS, THE EXPRESSION THE “FOG OF INFORMATION” SHOULD BE DEEMED TO BE AN ACCEPTABLE AND RECOGNIZED BASIS FOR EXPLAINING OTHERWISE IRRATIONAL MISJUDGEMENTS AND ERRORS IN INVESTIGATION SITUATIONS.¹

On January 16, 2014 Ms. White & Mr. Johnson were both sentenced to 66 months in prison, 3 years of supervised release and ordered to pay $1,021,738 in restitution.  Ms. White is reportedly serving this sentence at the low-security federal prison in Aliceville, Alabama.  While there, Ms. White drafted her December 21, 2015 Petition For A Writ of Habeas Corpus Under 28 U.S.C. § 2255.  At the Petition, Ms. White alleges she had ineffective assistance of counsel during her criminal case & that she is entitled to a resentencing.

¹ Page numbered “17” at Cullen Johnson’s December 24, 2013 letter, (Docket Entry 76), U.S.A. v. White et al., United States District Court, Eastern District of Virginia, Docket No. 4:13-cr-00047.

Image courtesy of Flickr (Licensed) by Tsahi Levent-Levi.

Copyright 2016 Fred L. Abrams

Schemes to hide assets can involve bulk-cash smuggling combined with other methods.
A scheme to hide assets from you may be carried out by combining bulk-cash smuggling with other concealment methods.

A divorcing spouse; judgment debtor; tax cheat; etc. may use several methods to conceal assets. “Red Flags For An Asset Search” listed 18 of these methods.  The methods for hiding assets included: bulk-cash smuggling; shell companies; multiple jurisdictions; foreign bank accounts; & nominees.  These methods might have been combined by Mr. Victor Lipukhin to conceal more than $10 million dollars in secret Swiss bank accounts. The press release “Former President of Russian Steel Producer’s U.S. Subsidiary Indicted for Hiding Assets in Secret Swiss Bank Accounts,” talked about Mr. Lipukhin’s alleged scheme to hide assets from the IRS.

Mr. Lipukhin was indicted on 3/20/2014 because of the suspected scheme.  The indictment suggests Mr. Lipukhin may have employed bulk-cash smuggling; multiple jurisdictions; shell companies; & other methods to conceal his alleged beneficial ownership of Swiss bank accounts. Mr. Lipukhin is thought to have initially formed shell companies in the Bahamas which he allegedly used to open the Swiss bank accounts. Mr. Lipukhin might have hired a nominee director for the shell companies, who could have acted as a bank signatory on the Swiss bank accounts.

If Mr. Lipukhin used a nominee director, it would have helped hide his suspected beneficial ownership of the Swiss accounts. According to the indictment, Mr. Lipukhin supposedly relied on real estate transactions; mortgages & a Canadian lawyer to hide assets.  Mr. Lipukhin also reportedly bought an automobile by paying approximately $24,539 in cash.  Although the seller of the automobile was required to notify the IRS by filing a Form 8300, Mr. Lipukhin allegedly tried to persuade the seller to keep quiet about the sale.  If this actually happened, it would have been a red flag that Mr. Lipukhin might have engaged in bulk-cash smuggling or money laundering.  The criminal case against Mr. Lipukhin is still pending at the prosecutor’s office, as the Court’s docket report reveals.

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Copyright 2016 Fred L. Abrams

ISIS-inspired terrorists Syed Farook and Tashfeen Malik reportedly spent about $4,500 on pipe bombs; guns & additional items for their December 2nd terrorist attack in San Bernadino, California.

The December 2nd terrorist attack in San Bernadino, California was a relatively low-cost terrorist operation.  An NBC article reported that terrorists Syed Farook & Tashfeen Malik spent approximately $4,500 to carry out the December 2nd attack.  Lone wolf or small cell terrorist attacks like the one on December 2nd are often low cost operations.  The low cost of similar terrorist operations is discussed at pp. 10-11 of “Emerging Terrorist Financing Risks,” published by the Financial Action Task Force anti-money laundering group.

Page 10 of “Emerging Terrorist Financing Risks” cites a Norwegian report on small cell terrorist networks.  It cites the Norwegian report for the proposition that ‘roughly 75% of the 40 violent extremist terrorist plots in Europe (between 1994 and 2013) it studied, cost less than the equivalent of USD 10 000.’  Page 11 of “Emerging Terrorist Financing Risks” also details the terrorist financing of the Charlie Hebdo & kosher grocery store terrorist attacks in Paris.  Page 11 says:

The Charlie Hebdo and kosher store attacks, which were perpetrated with weapons, did not require a substantial amount of funds. As the three terrorists involved did not have a regular job at the time of attacks, the following sources of funding may have been used:

  • A EUR 6 000 consumer loan, obtained with forged documents and cashed out.
  • The proceeds of the overseas sale of a used car.
  • Cash transfers linked to the sale of counterfeit goods.

Financial investigators/operational experts part of the Egmont Group of Financial Intelligence Units try to detect this kind of terrorist financing & additional ones.  Among other things, these experts use indicators to search for terrorist assets across the globe:¹

Egmont Group Indicators

First Image: Niyazz/Shutterstock.com

¹Indicators courtesy of: “FIUs & Terrorist Financing Analysis Report” published by The Egmont Group of Financial Intelligence Units

Copyright 2015 Fred L. Abrams

realestatearticle

Searching For Assets Laundered Through Real Estate” shows how one divorcing husband washed & hid assets during his divorce.  The following is a sanitized case study from the Egmont Group of Financial Intelligence Units.  It is about “O” & “R” who may have similarly employed real estate in a scheme to hide assets.  O & R might have been narcotraffickers washing their illicit proceeds by purchasing real estate in Europe:

 

08011

Photo: Gemenacom/Shutterstock.com

Case Ref. 08011: courtesy of the Egmont Group of Financial Intelligence Units

Copyright 2015 Fred L. Abrams

Corruption Proceeds Illustration

Transparency International leads the fight against public corruption which includes bribery & theft by government officials.  It basically says that corruption proceeds are transferred offshore & are one of the sources of illicit financial flows.  How do financial investigators across the globe search for these illicit assets?  One way they search is by looking for money laundering red flags.  The following discusses red flags in the case of Vladimir Kuznetsov, a former Russian diplomat at the United Nations.  These red flags were structuring bank deposits; forming an offshore corporation; & using an offshore bank account to hide assets/hinder an asset search:

Mr. Vladimir Kuznetsov ‘s October 19, 2007 criminal judgment mentions his $73,671 fine and prison sentence of 51 months for violating 18 U.S.C. § 1956 (h), conspiracy to commit money laundering.  According to a press release, Mr. Kuznetsov had conspired with Mr. Alexander Yakovlev– a United Nations’ procurement officer who was taking bribes.  The press release explains that Mr. Kuznetsov had laundered money while he was the highest ranking Russian diplomat at the United Nations.  According to his superseding indictment, Mr. Kuznetsov had been a member of the Advisory Committee on Administrative and Budgetary Questions, which advises the United Nations’ General Assembly.

As part of Mr. Kuznetsov’s laundering scheme, he had received $32,000 from Antigua via two New York financial accounts.  Most significant however, was his use of an offshore bank account at Antigua Overseas Bank Ltd. as the repository of hundreds of thousands of dollars in bribery proceeds.  Mr. Kuznetsov had opened this account in the name of his offshore company Nikal Ltd.,  which he had formed in about 2000.  Although Mr. Kuznetsov was not finally convicted of it, his indictment had also alleged that he had structured bank deposits in violation of  31 U.S.C. § 5324.

Structuring bank deposits, (a.k.a “smurfing”), indicates an attempt to avoid bank reporting requirements and can be a red flag of money laundering.  Other red flags of money laundering in Mr. Kuznetsov’s case included his use of the offshore corporation Nikal Ltd. to open his Antigua Overseas Bank Ltd. account.  The transfer of the $32,000 from Antigua to Mr. Kuznetsov in New York was also a red flag, especially because Antigua is a tax haven/high-risk location vulnerable to money laundering.

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Copyright 2008-2015 Fred L. Abrams