Panama Papers 4 18 16 PostLast Wednesday, prosecutors in Panama seized dozens of computer servers belonging to the Panama Papers law firm, Mossack Fonseca. The prosecutors might be investigating whether Mossack Fonseca violated money laundering laws when it supposedly helped clients hide assets offshore. A U.S. State Department report published last month analyzed how money is laundered in Panama. The report said:

Money is laundered via bulk cash and trade by exploiting vulnerabilities at the airport, using commercial cover and free trade zones (FTZs), and exploiting the lack of regulatory monitoring in many sectors of the economy. The protection of client secrecy is often stronger than authorities’ ability to pierce the corporate veil to pursue an investigation. (U.S. Department of State International Narcotics Control Strategy Report for Panama, March 2016)

Money can also be laundered in Panama by putting shell companies to work, the same way shell companies are used to launder money in other parts of the world. Assets may be secretly transferred to a shell company &/or a shell company may be used to open a secret offshore bank account. In these situations, the shell companies may act as laundering links which wash assets in a money laundering circuit.

Mossack Fonseca was apparently in the business of establishing shell companies. Businesses that establish shell companies are usually called “nominee incorporation services,” as mentioned by the November 9, 2006 advisory from U.S. Treasury’s Financial Crimes Enforcement Network. The advisory essentially reveals that shell companies & nominee incorporation services can be a money laundering risk. The webpages of Panama Offshore Worldwide demonstrate the way one nominee incorporation service works.

At “Anonymous Panama Corporation” &/or “Panama Bank Secrecy,” Panama Offshore Worldwide seems to describe how you can open a secret offshore bank account by titling the account in the name of a Panamanian shell company. Panama Offshore Worldwide indicates that if you want additional anonymity, you should staff your Panama corporation with nominee directors (i.e. stand-ins/intermediaries):

We provide nominee directors for the corporation, so your name is not actually registered in the government’s documents and therefore cannot be traced back to you.  The corporation is controlled with shares, which are registered by date at a notary and not accessible online like the directors of a corporation. (Panama Offshore Worldwide’s “Panama Bank Secrecy” Webpage. Web. April 16, 2016.)

Image: leolintang/Shutterstock.com

Copyright Fred L. Abrams 2016

Image For Article About Panama Papers

2008 was the first time I wrote an article mentioning hiding assets via a lawyer in Panama. The article was called “Bearer Shares & An Asset Search.” Although the facts at the article were sanitized & changed for privacy reasons, it described a divorcing husband in the U.S hiding assets from both his wife & the I.R.S. through: a Panamanian lawyer, bearer shares, a shell company & other offshore elements.

Meanwhile, there have been many articles this week discussing the Mossack Fonseca Law Firm headquartered in Panama City, Panama. These articles arise out of the investigation of Mossack Fonseca which is detailed at the “Panama Papers” website published by the International Consortium of Investigative Journalists. Among other things, the website has a page of graphs, with one graph called “The hunt for bearer shares.” This particular graph seems to suggest that Mossack Fonseca employed bearer shares to help clients hide assets offshore.

At its own website, Mossack Fonseca says they are “Offshore Specialists since 1977.”  In this role, Mossack Fonseca is thought to have helped a large number of law-abiding clients transfer assets offshore for legitimate purposes. Mossack Fonseca could however, have also helped a large number of criminals seeking to conceal illicit assets. These criminals might have been tax cheats hiding undeclared revenue; corrupt government officials; & others seeking to conceal money by laundering it offshore.

Any criminals hiding assets through Mossack Fonseca will soon become known, since over 11 million documents at Mossack Fonseca were apparently hacked & leaked to the press. I suspect the hacked documents will show that assets were hidden offshore through elements commonly used to wash vast sums of money. Some of these elements are listed below & they should always be considered by anyone searching for valuable assets hidden from them.

Panama Papers Image: catwalker/Shutterstock.com

Copyright 2016 Fred L. Abrams

Compartments 1

How do you hamper an asset search while hiding vast sums of money across the globe? You may be able to do this by compartmentalizing your actions. Using compartmentalization to fly under the radar is nothing new. For example, terrorists in Paris compartmentalized what they did before their heinous November 13, 2015 attack. This is discussed by former FBI Special Agent Steve Cocco, at “Paris Attackers Displayed Strict OpSec, Planning and Compartmentalization.”

Ponzi schemers; high net worth divorcing spouses; money launderers; tax fraudsters & others can similarly compartmentalize their actions in schemes for hiding assets. The schemes can be as basic as parking money in a secret offshore bank account & directing the offshore bank to mail monthly bank account statements to an offshore post office box. By keeping the money & its monthly bank account statements offshore, they are compartmentalized & out of the spotlight. This makes it harder for domestic tax authorities; a divorcing spouse; a judgment creditor; & anyone else to detect the hidden money.

At earlier Asset Search Blog posts I wrote about the sham loan depicted by the link chart featured below.¹ I mention the loan again because it shows how strict compartmentalization can be employed to hide assets. As set forth at Money Laundering, Marital Assets & Divorce, the loan was used by a divorcing husband to launder both marital assets and undeclared revenue. Prior to the equitable distribution hearing in his divorce proceeding, the husband alleged he had a liability of $29 million owed to a prime bank in Germany because of an arm’s length business loan.

According to the husband, he was indebted to the German bank & had defaulted/failed to repay the loan. The supposed arm’s length loan was however, back-to-back , (i.e. a fully collateralized loan in which the borrower and the lender are one and the same). As a consequence of strict compartmentalization, the divorcing wife would not ordinarily be able to recognize that the divorcing husband was both the borrower and lender of the loan:

(Click On The Link Chart To Enlarge)

 

¹For privacy reasons, some of the facts at the link chart have been changed from the original legal matter.

Copyright 2007-2016 Fred L. Abrams

 

A trailer for the “Better Call Saul” show features the dry cleaner used by TV’s money laundering lawyer Saul Goodman. For me, the trailer highlights the fact that some lawyers hide their clients’ money by washing it via laundering links in a money laundering circuit.  When lawyers wash large sums of money, the laundering links can be trusts; foreign or domestic bank accounts; shell companies; valuable real estate; etc. If a lawyer helps your adversary hide assets from you, there are basic measures for detecting assets which may help. The measures to search for these assets can include using: informants’ tips; forensic accountants; private investigators & pretrial discovery tools like the production request discussed here.

Furthermore, some Courts will order a lawyer concealing assets, to disclose those assets. As suggested at “An Asset Search Of A Lawyer Employed To Conceal Cash,” the Court might issue such an order even if the lawyer is hiding assets for a client who asserts the attorney-client privilege.  The fact pattern at the bottom of this post, (Case Ref: 06078), is from the Egmont Group of Financial Intelligence Units.  It describes how one lawyer/financial gatekeeper, laundered client monies. The following Asset Search Blog posts outline additional cases in which lawyers were thought to have hidden money:

 

06078

 

Video: Courtesy of AMC Network Entertainment, LLC.

Case Ref. 06078 Courtesy of The Egmont Group of Financial Intelligence Units

Copyright 2016 Fred L. Abrams

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.

Image: jesadaphorn/Shutterstock.com

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.

Image:  eelnosiva/Shutterstock.com

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.

Image of man digging: JrCasas/Shutterstock.com

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.)

Image: Irina Mos/Shutterstock.com

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