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

Harold is an asset recovery agent, ("repo man"), who works in New England.  He sometimes lives out of his tow truck for a couple of days while searching for a particular debtor's automobile.  When I recently called Harold on his cell phone, he said: "Until I put the GPS in my tow truck, I had boxes and boxes of road maps.  I've also been doing most of my skip-tracing from the truck, right on my laptop.  I am in the middle of a repo right now and a lady is running out of her house into the street.  She is yelling at me, can I call you right back?"


Harold does Internet research on his laptop via the website of IRB, at www.irbsearch.com.  IRB is a comprehensive search service similar to SmartLinx and DEBTORDiscovery, which were mentioned at my post "A Low-Cost Asset Search".  Harold often uses IRB to identify the name and address of a relative, friend or neighbor who may be hiding an automobile as a debtor's nominee.  Some debtors, divorcing spouses, etc. however, do not just simply use a nominee to conceal their automobiles.  In some debt collection, divorce or bankruptcy proceedings, an automobile may even be registered in or moved through multiple jurisdictions in order to conceal it.


In U.S.A. v. Henry, U.S. District Court for the District of Columbia, Index No. 1:06 Cr 00079, Mr. Henry for example, was accused of concealing his $113,000 dollar Porsche 911 during his Chapter 7 bankruptcy.  According to pages 11-14 of his Second Superseding Indictment, (and other documents), Mr. Henry had concealed his Porsche by temporarily registering / insuring it out of the District of Columbia in the name of a nominee-- his brother in New York. 


The Second Superseding Indictment further alleged that Mr. Henry had engaged in a health care fraud scheme, and had  purchased his Porsche with illicit proceeds from the same.  He was also accused of using his purchase of the Porsche as a means to launder money from his health care fraud.  Mr. Henry ultimately pleaded guilty to charges of health care fraud and agreed to forfeit his Porsche, as mentioned by paragraph "7" of the Government's plea offer.  As the Court's December 13, 2007 Judgment mentioned, Mr. Henry was sentenced to twenty months of prison.


Copyright 2008 Fred L. Abrams

• Email This
• Print
• Comments
• Trackbacks

During forced collection / attachment proceedings, the Debtor alleged that he could not pay the Creditor because of an arm's-length business loan from Offshore Lender in the millions.  The Debtor further claimed that he had collateralized his business loan with mortgages, promissory notes and U.C.C. liens, on nearly all of his property. 

 
Through subpoenas and depositions during the enforcement / attachment proceedings, the Creditor learned that the Debtor's Lawyer had:

• Used a personal N.Y. bank account to disburse millions in loan principal to the Debtor, instead of an attorney escrow account as required by DR-1200.46 Joint Rules Of The Appellate Divisions.

• Introduced the Debtor to Offshore Lender.

• Jointly represented both the Debtor and Offshore Lender in the making of the loan.

• Prepared all the loan documents, such as the mortgages, promissory notes, etc.

• Not perfected a U.C.C. lien required by the loan, (although it would have secured millions / was a material condition of the loan).

The Creditor additionally discovered that Offshore Lender had never verified or evaluated the Debtor's collateral for the loan, or even sought the Debtor's financial statements as the loan required.  Nor were there any negative consequences, although the Debtor made no interest payments for a number of years. 


When faced with the above kind of facts, alleging the "badges of fraud" may be critically important to the overall success of a Creditor's forced collection proceeding.  As mentioned at "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy", the badges include: a close relationship between the parties; a transfer outside the ordinary scope of business; inadequate consideration; knowledge of a creditor's claim; and retention of control of property.


Copyright 2008 Fred L. Abrams

• Email This
• Print
• Comments
• Trackbacks

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

• Email This
• Print
• Comments
• Trackbacks

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

• Email This
• Print
• Comments
• Trackbacks

People don't typically think of the money laundering indicia when searching for hidden assets the subject of a: divorce; bankruptcy; commercial collection or other legal proceeding.  Such indicia can however be effectively used as part of an asset search even in situations where there is no money laundering.  In the United States, the indicia or red flags of money laundering are described at pages 19-23 and Appendix "F" of the Bank Secrecy Act / Anti-Money Laundering Examination Manual.  They are also described in Money Laundering Prevention, A Money Services Business Guide, at pages 16-24. 


Money laundering indicia are sometimes used outside of the United States.  For example, India's Financial Intelligence Unit relies on "broad categories of reason for suspicion"; the Belgian Financial Intelligence Unit ("CTIF-CFI") uses Money Laundering Indicators; the Swiss Federal Banking Commission has the Schedule: Indicators of Money Laundering ; and the Asia / Pacific Group on Money Laundering also uses such a list.  Recognizing the following money laundering indicia however, may lead to the discovery of assets concealed in a divorce, commercial collection or bankruptcy case:

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

Copyright 2007 Fred L. Abrams

• Email This
• Print
• Comments
• Trackbacks

An asset search covering a number of countries is sometimes necessary if monies the subject of a divorce, bankruptcy, or debt collection proceeding are hidden in a money laundering circuit.  This can be true because  "Large-scale money laundering schemes invariably contain cross-border elements", as is recognized by the Financial Action Task Force-- an international organization against money laundering and terrorist  financing.  Domestic companies without active business or significant assets, ("shell companies"), however should also be considered part of the money laundering landscape.  According to the Financial Action Task Force's June 23, 2006 summary of its Mutual Evaluation Report, ownership information about these kinds of companies in Nevada and Delaware "...may not, in most instances, be adequate, accurate or available on a timely basis.  This is a vulnerability for the U.S. AML/CFT [anti-money laundering/counter-terrorist financing] system." 


The Internal Revenue Service also recognizes in its 2007 Dirty Dozen Tax Scams, that: " Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity."  Meanwhile, a Financial Crimes Enforcement Network November 9, 2006 advisory demonstrates that it too is aware of the misuse of shell companies to hide assets/launder money.  Besides its November advisory, the Financial Crimes Enforcement Network issued a November 2006 report explaining that Delaware, Nevada, Oregon, and Wyoming may be "...attractive to those persons seeking to hide illicit activity within the framework of shell corporations."  That same report also mentions that only Alabama, Alaska, Arizona, and Kansas require a limited liability company to supply ownership information while, (depending on the structure of a limited liability company), 47 other U.S. jurisdictions do not.


The misuse of shell companies is however not just confined to money laundering.  For example, in Dempster v. Overview Equities, Inc., 2004 slip op. 01149 ; 4 A.D.3d 495; 773 N.Y.S.2d 71 (2d Dept 2004) a divorcing husband fraudulently transferred the title of a residence to his newly created company in Delaware, which was most likely a shell corporation.  The husband made the property transfer to his Delaware corporation without valid consideration within weeks of the equitable distribution hearing in his divorce.  Given all of the foregoing, extra diligence should be exercised during an asset search in order to determine whether a divorcing spouse, judgment debtor, etc. has misused a shell company to hide assets.


Copyright 2007 Fred L. Abrams

• Email This
• Print
• Comments
• Trackbacks

When financial transactions hide assets the subject of a debt collection, divorce, or bankruptcy case, the Court looks for badges of fraud.  As explained in Wall Street Associates v. Brodsky, 257 A.D.2d 526, 529 (1st Dept 1999), the badges of  fraud for fraudulent asset transfers are: 

• A Close Relationship Between The Parties
  
• A Transfer Outside The Ordinary Scope Of Business
• Inadequate Consideration
• Knowledge Of A Creditor’s Claim
• Retention Of Control Of The Property
  

For example, in AMP Servs. Ltd. v. Walanpatrias Found. a.k.a. Doraw, 2006 slip op. 7985 ; 34 A.D.3d 231; 824 N.Y.S.2d 37 (1st Dept,  2006), the Appellate Division upheld an injunction against a debtor dodging a debt collection proceeding.  In applying New York Debtor and Creditor Law, the Appellate Division ruled that the debtor could not transfer a stock portfolio offshore to Europe because there were badges of fraud as mentioned by Wall Street Associates, 257 A.D.2d 526.


In another Appellate Division case, Dempster v. Overview Equities, Inc., 2004 slip op. 01149 ; 4 A.D.3d 495; 773 N.Y.S.2d 71 (2d Dept 2004), a divorcing husband transferred his residence to a Delaware corporation just before his valuation/equitable distribution hearing.  Since the Delaware corporation had filed for bankruptcy, the residence was eventually sold by the bankruptcy court as a corporate asset.  The husband in Dempster had also diminished his net worth by alleging he had a $1,473,362.74 debt because of two confessions of judgments from construction loans.


Since the the above transfer happened just two weeks before the valuation hearing, the Appellate Division found it "replete with badges of fraud".  The Appellate Division further stated that the Delaware corporation had been created only two days before the residence was transferred to it and that the corporation had operated from the very same address as the husband's other businesses.  According to the Appellate Division, the husband's residential transfer and construction loans also violated New York Debtor and Creditor Law because they had occurred without any monies ever being paid, (i.e. without "fair consideration").


In Allan J. Bentkofsky, Trustee v. Ralph J. Malandra, et. al., United States Bankruptcy Court, N.D.N.Y.,  Adv. Pro. No. 00-80221, the Court also found there were badges of fraud when a husband and wife transferred their residence to their children.  Despite the transfer, the husband and wife continued to live at the residence because they had retained a life estate interest.  Since the couple had filed a Chapter 7 bankruptcy petition, the Bankruptcy Court analyzed the residential transfer only to discover that it had occurred without any payment of money/was without "fair consideration".  The couple had also made the transfer at a time they had been insolvent.  Given these facts, the Court found there were badges of fraud and set aside the transfer as it violated New York Debtor and Creditor Law.


Finally, badges of fraud can sometimes be used in debt collection, divorce, or bankruptcy cases to demonstrate that an opposing party has hidden assets or removed property with "actual intent" to defraud.  Robert M. Morgenthau v. A.J. Travis Ltd., 708 N.Y.S.2d 827, 842 (N.Y. Sup. Ct. 2000); Wall Street Associates, 257 A.D.2d at 529.  The badges can also become important in court because a concurrence of several badges always makes a strong case for fraud. Gafco Inc. v. H.D.S. Mercantile, 47 Misc. 2d 661, 665 (N.Y. Civ. Ct. 1965).


Copyright 2007 Fred L. Abrams

• Email This
• Print
• Comments
• Trackbacks

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, (Offshore Services Inc. of Belize), alleges that “A Belize Offshore Trust” offers tax reduction, protection from lawsuits and other benefits.  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:

• Email This
• Print
• Comments
• Trackbacks