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

A Van Gogh goes missing; articles about asset recovery basics; and Barclay's Bank:

1. Egyptian authorities are trying to recover a Van Gogh that went missing on Saturday after it was stolen from the Mohamed Mahmoud Khalil Museum.  The museum houses a fine art collection worth at least $1.2 billion and the the Van Gogh's theft is described at "Van Gogh $55 Million `Poppy Flowers' Theft in Cairo Blamed on Lax Security".
   
    
2. Divorcing spouses, judgment creditors, domestic tax authorities, etc. can all be claimants relegated to an asset search / an asset recovery effort against beneficial owners fraudulently concealing assets.  Articles I have published regarding asset recovery basics include: "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy"; "Recognizing Hidden Assets, The Red Flags"; "An Asset Search In Geneva"; & "A Primer For Gathering Financial Intelligence".
   
    
3. Barclays Bank PLC has agreed to forfeit $298 million according to U.S. Treasury's Office of Foreign Assets Control and the U.S. Department of Justice.  At paragraphs 5 & 6 of the settlement agreement available here, Barclays admits it sometimes concealed the identities of bank customers who were subject to U.S. sanction programs.  Barclay's investment banking division had meanwhile, recently been the financial advisor, the restructuring agent and sole bookrunner for FDIC's $233 million dollar sale of commercial mortgage-backed notes, as explained by a press release.

 

Copyright 2010 Fred L. Abrams

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"A Tax Fraud & Identity Theft From Miami" & "Bearer Shares & An Asset Search" described money laundering schemes partly facilitated through Cayman Islands' bank accounts.  On the one hand, some financial investigators report to me that during 2010 the Cayman Islands continue to be an extraordinary money laundering risk. 

 

Cayman Islands' lawyers and bankers on the other hand have told me that anti-money laundering efforts have changed things there.  New York attorney and private investigator Richard Horowitz has lectured in seventeen countries about money laundering, terrorist financing, etc.  He gives his perspective on money laundering in the Cayman Islands, at the following article:   

 

(Click On The Article To Read It)

 

  

"Money laundering and financial crime: The Cayman Islands in a global perspective", Copyright © 2010 Cayman Free Press Ltd., reprinted with permission.

Copyright 2010 Fred L. Abrams

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The August 14th "Asset Search News Roundup" mentions money laundering:

1. So far this summer the Financial Action Task Force published evaluations of the anti-money laundering efforts undertaken by Brazil, India and Saudi Arabia.  The Financial Action Task Force is a leading anti-money laundering organization, as described at "Anti-Money Laundering Bellwether Seeks Transparency Across The Globe".
    
2. Britian's Financial Services Agency has issued an August 2nd "Decision Notice" fining the Royal Bank of Scotland Group £5.6 million, (i.e. $8.9 million dollars), for acting in derogation of the 2007 Money Laundering Regulation.*  The Royal Bank of Scotland Group was accused of failing to identify bank customers subject to the UK's terrorist sanction list.  Reuters wrote about the fine and more information about it is available here.
    
3. The link chart below supplied by U.S. Treasury's Office of Foreign Assets Control, shows the alleged Zambada Financial Network.  The chart and its accompanying press release raise the question of whether suspected Sinaloa drug cartel leader Ismael Zambada-Garcia laundered assets through two companies believed to be his nominees, Mexico Arte y Diseno de Culiacan S.A. de C.V. and Autotransportes JYM S.A. de C.V.

 

 (Click Chart For Hi-Res)**

  

 

*Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO.

**Chart: U.S. Treasury's Office of Foreign Assets Control

Copyright 2010 Fred L. Abrams

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This "Asset Search News Roundup" features France's richest woman; a retired Orlando police officer; and actor Wesley Snipes:
 

1. "Police question French heiress over scandal" reports that France's richest woman, L'Oreal heiress Liliane Bettencourt, is suspected of hiding assets from French tax authorities.  Among other things, French authorities are believed to be investigating whether the heiress could have concealed as much as $100 million by laundering through two Swiss bank accounts.
    
2. Retired Orlando, Florida police officer Amy Bretches was convicted on July 21st of money laundering.  Her indictment alleged that she unlawfully acquired FEMA monies, hiding them via financial accounts / a certificate of deposit.  The jury's July 21st verdict sheet filed in Ms. Bretches' case, shows she was acquitted of one money laundering charge and found guilty of two.
    
3. Hollywood actor Wesley Snipes lost his appeal this month when his tax fraud conviction was upheld.  Mr. Snipes had been convicted in 2008 of violating 26 U.S.C. § 7203 by failing to file tax returns for the years 1999, 2000 and 2001.  He faces thirty-six months in prison, as discussed by a decision from the Eleventh Circuit Court of Appeals.
   
    
(Click On The Image To Read The Court of Appeals Decision)

 

  

 Copyright 2010 Fred L. Abrams

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My July 11th "Asset Search News Roundup" mentioned that U.S. prosecutors were investigating HSBC since some U.S. taxpayers were suspected of using foreign HSBC bank accounts to facilitate tax frauds.  Swiss prosecutors meanwhile, are separately investigating whether former HSBC employees Hervé Falciani and Georgina Mikhael had illegally accessed bank customer information at HSBC in Geneva.   

 

According to a July 9th Bloomberg.com article, the two former HSBC employees may have violated Swiss bank secrecy laws by allegedly trying to sell confidential HSBC bank customer information.  This information reportedly included the names of thousands of HSBC customers who might have used foreign HSBC bank accounts to hide assets from domestic tax authorities across the globe. 

 

Furthermore, approximately 1500 of these HSBC customers may have hidden assets from the IRS in their foreign HSBC accounts.  What might the IRS do to elicit financial evidence from HSBC, regarding these 1500 suspected tax cheats?  As explained at "Concentrating On Assets Concealed By Cross-Border Elements", one way the IRS can try to gather foreign evidence is by serving a "John Doe" summons. 

 

If the IRS does serve HSBC with a "John Doe" summons, the IRS would conceivably gather financial evidence about the 1500 and other suspected tax cheats.  The IRS has relied heavily on "John Doe" summonses as a countermeasure against tax frauds with cross-border elements.  As of December 2008, the IRS had issued more than 150 "John Doe" summonses in connection with its Offshore Credit Card Program.

 

Copyright 2010 Fred L. Abrams

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Today's "Asset Search News Roundup" examines the criminal investigation into HSBC and the SEC's case against Kenneth Wayne McLeod's estate:

 

• "U.S. Widens Tax Inquiry Into HSBC" reports that prosecutors are "ramping up their criminal investigation" of HSBC after U.S. taxpayers allegedly used foreign HSBC accounts to hide undeclared assets.  My April 21, 2010 "Asset Search News Roundup" mentioned these same U.S. taxpayers, who were accused of using foreign HSBC accounts to conceal assets from the IRS. 

 

• "Hundreds of Federal Agents Fall Victim to Ponzi Scheme" essentially describes the June 24, 2010 securities fraud case brought by the SEC against the estate of recently deceased Kenneth Wayne McLeod.  Mr. McLeod died from a self-inflicted gunshot wound on June 22nd in Jacksonville, Fla.  He allegedly ran a 22-year Ponzi scheme at his retirement benefits consulting firm and is thought to have defrauded agents from the FBI, ICE and DEA and others, out of $34 million dollars.  The securities fraud complaint filed by the SEC against Mr. McLeod's estate is available here:

 

 (Click On The Complaint To Read It)
   

 

  

 Copyright 2010 Fred L. Abrams

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"If A Judge Can See Your Assets, He Can Seize Them", mentioned that shell companies formed in Nevada, Wyoming or Delaware especially lacked transparency because in these states there are virtually no reporting requirements about company managers, shareholders, etc. 

 

Some beneficial owners therefore anonymously establish Nevada, Wyoming, or Delaware shell companies and then use them to open nominee bank accounts through which assets can be laundered or otherwise concealed.  My May 5, 2010 "Weekly Asset Search News Roundup" additionally described "Asset Managing Group, Inc.", which offers anonymity by registering yachts and aircraft via Delaware formed companies.

 

The Levin-Grassley-McCaskill Incorporation Transparency and Law Enforcement Assistance Act addresses the above situations.  This proposed legislation has already been the subject of a November 5, 2009 hearing by the Committee on Homeland Security and Governmental Affairs.  If this bill became U.S. law, it would require a company's true beneficial owner to be identified / disclosed:

 

  (Click Below To Read The Entire Bill)

 

 

Copyright 2010 Fred L. Abrams

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A financial investigator did "trash pulls" at an attorney's home to elicit financial intelligence about the attorney's client.  During one of these trash pulls an envelope bearing the name of a climate-controlled art storage facility was discovered. 

 

This discovery then led to the interdiction of a valuable painting hidden by the attorney's client at the art storage facility.  A second financial investigator was able to detect an adversary's foreign bank account by acquiring financial intelligence from an offshore check printing company. 

 

A third investigator gathered financial intelligence by searching for leads provided by an adversary's: passport, airline frequent flyer statements, country club membership, credit cards, phone bills and other records.  In addition to the foregoing, garnering financial intelligence may involve a wide variety of human intelligence and / or discovery devices.

 

Human Intelligence

"An Asset Search, Tax Fraud & Divorce" described an effort to access financial information via human intelligence.  It outlined how "Brian", (a former high-ranking official at the Financial Crimes Enforcement Network, who had earlier been an IRS special agent), and I sought human intelligence by interviewing a business associate of a divorcing husband.  Furthermore, some sophisticated asset concealment schemes like the one described at "Bearer Shares & An Asset Search", are ultimately only uncovered because of human intelligence.

 

Discovery Devices

Another way to elicit financial intelligence can be to physically inspect an adversary's home or place of business.  This is precisely what the court-appointed receiver in the case of Ponzi schemer Trevor Cook had done.  The Cook receiver had for instance, successfully argued in court that among other things, Fed. R. Civ. P. 45(a)(1)(c) & Fed. R. Civ. P. 34(a)(2) provided for an inspection of Mr. Cook's Apple Valley, Minnesota home.  At the time of the Apple Valley inspection, receivership estate assets including three automobiles and 31 watches were seized. 

 

Likely more significant, was the Cook receiver's recovery of over sixty computers and other electronic media.  These were eventually forensically examined in an attempt to access additional financial information.  That receiver had also issued more than 250 domestic subpoenas, which too might have provided financial intelligence. 

 

If cross-border elements / multiple jurisdictions are however used to conceal assets, then letters rogatory can be issued pursuant to the Hague Evidence Convention (20: Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters Hague Convention). 

 

Letters rogatory, (a.k.a. "letters of request" or "legal assistance requests"), may help access financial intelligence possessed by foreign bank or other foreign witnesses, as explained at "An Asset Search With Letters Rogatory".  They are sometimes even available in jurisdictions where there are strong bank secrecy laws, as this sanitized / changed copy of a Swiss letter rogatory indicates:

 

 

 

 

(Click Above To Read The Complete Letter Rogatory)

 

 (Edited June 8, 2010)

Copyright 2010 Fred L. Abrams

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Bank secrecy laws enable bank customers to entrust their confidential financial information to banks across the globe, as the OECD explains at page 19, ¶ 29 of "Improving Access To Bank Information For Tax Purposes". 

 

By obligating banks to protect a bank customer's confidential information, the Gramm-Leach-Bliley Act at 15 U.S.C. § 6801 (b) provides bank secrecy in the United States:

(b) Financial institutions safeguards

In furtherance of the policy in subsection (a) of this section, each agency or authority described in section 6805(a) of this title shall establish appropriate standards for the financial institutions subject to their jurisdiction relating to administrative, technical, and physical safeguards -

(1) to insure the security and confidentiality of customer records and information;

(2) to protect against any anticipated threats or hazards to the security or integrity of such records; and

(3) to protect against unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any customer.

 

Despite the existence of the above-cited bank secrecy law, some still try to illegally access U.S. bank customer information.  The fact pattern I described at "Violating Federal Law In An Asset Search" could be such a case.  It mentioned how a bank employee or "insider" may have accessed a bank's computer system to illegally search for financial intelligence about a divorcing spouse.

 

According to the Court in Chapman v. U.S.A., 346 F.2d 383 (9th Cir. 1965) physically stealing a bank customer's file might possibly constitute a theft of bank property under 18 U.S.C. § 2113 (b).  If bank customer information is accessed through false pretenses by pretext calls or by a false writing, then other federal crimes may too have occurred.

 

Identity theft charges might also be brought in certain cases, for illegally accessing bank customer information.  Depending on the circumstances, the following are some of the federal statutes that might apply when U.S. bank customer information is illegally accessed:

 

1. 18 U.S.C. § 2 (Principals, {aiding and abetting});
    
2. 18 U.S.C. § 371 (Conspiracy);
    
3. 18 U.S.C. § 2113 {b} (Federal Bank Robbery Act, theft of bank property);
    
4. 18 U.S.C. § 1030 (Fraud and related activity in connection with computers);
    
5. 18 U.S.C. § 1343 (Wire fraud);
    
6. 18 U.S.C. § 1349 (Conspiracy to commit wire fraud);
    
7. 18 U.S.C. § 1341 (Frauds and swindles, {mail fraud});
    
8. 18 U.S.C. § 1028 (Fraud and related activity in connection with identification documents, authentication features, and information, {identity theft});
    
9. 15 U.S.C. § 6801 et. seq. (the Gramm-Leach-Bliley Act, prohibits pretext phone calls and / or the use of false documents to obtain non-public bank customer information).

 

Copyright 2010 Fred L. Abrams

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"How To Minimize Your Assets" published at a webpage belonging to Assetprotection.com, indicates that a judgment debtor can mitigate the risk of forced collection proceedings "[b]y becoming a smaller target".  The Assetprotection.com website is also replete with asset protection diagrams.  In cases that illicit proceeds are being hidden, some of these same diagrams could actually be laundering "link charts".

 

The third chart displayed from the top of its "Domestic Asset Protection Strategies" webpage, suggests that nominees, shell companies, bearer shares and loan agreements may all be effectively used to hide a true beneficial owner's assets.  These components meanwhile, can be abused by money launderers seeking to wash their monies via "back-to-back" loans from financial institutions.

 

As partly shown below and more fully described at "Laundered Assets", a back-to-back loan appears at first glance to be an arm's length transaction but conceals the fact that the borrower and lender are one and the same:

 

 

 

 Copyright 2010 Fred L. Abrams

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The IRS is concentrating on tax fraud schemes in which assets are concealed by cross-border elements.  A recent Reuters' article and a Department of Justice press release discussed such tax frauds, which the IRS refers to as abusive offshore tax avoidance schemes.  To try to detect these schemes, the IRS has used methods ranging from an Offshore Voluntary Compliance Initiative to its criminal prosecution of suspected tax cheats.

 

The IRS had also served a "John Doe" summons on UBS AG to uncover bank customers who were U.S. taxpayers with secret foreign financial accounts.  Under the settlement of that particular UBS case, the IRS withdrew its summons and UBS identified U.S. bank customers pursuant to the U.S.-Swiss tax treaties mentioned at my August 23rd "Asset Search News Roundup".  As briefly described at a May 25th "News Roundup", the IRS similarly issued a "John Doe" summons upon First Data Corporation:

 

 

 

(Click On The Above Image To Read The Entire Summons)

 

  Copyright 2010 Fred L. Abrams

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The now-defunct website of Capital Asset, Inc., (formerly at www.bulletproofasset.com), had claimed that establishing companies in Nevada, or Wyoming, or Delaware was preferable because: "Do you know that partnerships, corporations, LLCs in most states make you completely visible? If a judge can see your assets, he can seize them." 

 

Capital Asset, Inc. recommended establishing companies in Nevada, Wyoming or Delaware because in these states there are little or no reporting requirements about a company's shareholders, managers, etc.  As many prosecutors and financial investigators already know, the kind of corporate formation services once offered by Capital Asset, Inc. could have easily been used by criminals determined to hide their illicit assets. 

 

This lack of transparency in Nevada, Wyoming and Delaware can be an enormous money laundering risk, as these states may be a haven for those who would form a shell company and then use the same to open a nominee bank account.  Once such a nominee bank account is opened, beneficially owned funds can be maintained in it with complete anonymity.  Wyomingcorporations.us is one of the countless corporate formation businesses that seem to be trying to cash in on this lack of corporate transparency. 
 

It advises that a Wyoming company's "Members are not reported!" and also offers the Wyoming "virtual office", where for $400 dollars one can easily establish a supposed Wyoming office address, with a virtual office phone and fax number.  Perhaps even worse is the comment at the Wyomingcorporatons.us website that: “Now accounts for Wyoming corporations can be formed anywhere, and the brick-and-mortar type bank isn’t a necessity. Internet banks are a fine solution.”

 

(Last Edited August 15, 2010)

Copyright 2010 Fred L. Abrams

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Concealing assets through yachts / aircraft and the 2010 Bank Secrecy Act / Anti-Money Laundering Examination Manual are on the radar in this "Asset Search News Roundup":

 

• Beneficial owners sometimes fraudulently conceal their assets by secretly purchasing a valuable yacht or aircraft.  They may then establish a Delaware or other shell company and use a nominee director to register the yacht or aircraft with anonymity.  Asset Managing Group, Inc. offers a yacht / aircraft registration service via Delaware corporations with nominee directors.
   
• The Federal Financial Institutions Examination Council has released the 2010 edition of the Bank Secrecy Act / Anti-Money Laundering Examination Manual.  Its indicia or "red flags" of money laundering are listed at Appendix F:
   

 

Click On The Manual To Read It

 

Copyright 2010 Fred L. Abrams

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My article "Wachovia Bank & Its Bank Secrecy Act Issues" said that Ponzi scheme victims do not possess a cognizable claim against financial institutions under the Bank Secrecy Act.  Concurring and quoting me was Moneylaundering.com's "Florida Court Unlikely to Find Wachovia, Mastercard Civilly Liable for Missing Ponzi Scheme":

 

 

 (Click On The Image Above To Continue Reading)

 

 

*"Florida Court Unlikely to Find Wachovia, Mastercard Civilly Liable for Missing Ponzi Scheme", Copyright 2010 Alert Global Media, reprinted with permission.

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This "Asset Search News Roundup" concentrates on an alleged $45 million dollar tax fraud and the conviction of Mr. Dennis Hecker's girlfriend, Christi Michele Rowan:

 

• An April 15th press release explained that property developers Mauricio Cohen Assor and his son, Leon Cohen-Levy are accused of hiding $45 million from the IRS by using nominees to maintain domestic and foreign bank accounts.  "2 Charged in International Tax Evasion Scheme Said To Involve HSBC" discussed the two but wrote that their supposed scheme was thought to have been aided by Swiss lawyers, shell companies and foreign accounts at HSBC.  "A Doctor, A Lawyer & Bricks Of Cash In Switzerland" reported on another case in which assets may have been hidden at HSBC during a tax fraud.

 

• I brought up Mr. Dennis Hecker at my January 9th and February 14th "Asset Search News Roundups" & in "Has Auto Magnate Dennis Hecker Hidden His Assets?"   An April 21, 2010 Minneapolis Star Tribune article advised that Mr. Hecker's girlfriend Christi Michele Rowan, pleaded guilty to bankruptcy fraud and bank fraud charges.   Ms. Rowan was specifically convicted of making false statements in Mr. Hecker's bankruptcy case and for lying on a federal loan application for a 2008 Land Rover vehicle.  The underlying information filed in her criminal case is shown below and can be completely viewed by clicking here.
   

 

 

 

 

 Copyright 2010 Fred L. Abrams

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The guilty plea of Minneapolis money manager Trevor Cook and the Court's dismissal of a Wisconsin lawsuit against Associated Bank, are mentioned by today's "Asset Search News Roundup":

 

* At a plea hearing that took 33 minutes yesterday, Trevor Cook pleaded guilty to counts one and two of his of his criminal information.  At that time, Mr. Cook was convicted of violating 18 U.S.C. §1341 (mail fraud) and 26 U.S.C. §7201 (tax fraud.).  A press release described Mr. Cook's plea agreement and the securities fraud / Ponzi scheme he had caused.

 

* "Associated Bank Sued For Supposedly Ignoring Red Flags" examined a Wisconsin lawsuit claiming anti-money laundering regulations had been violated.  That same lawsuit was dismissed one week ago, as reported by "Judge dismisses lawsuit against Associated Bank".  My April 10, 2010 post was about a similar lawsuit brought against Wachovia.   

 

 Copyright 2010 Fred L. Abrams

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Wachovia, one of the world's largest international banks, is still defending itself against the Florida civil complaint described at my post "Lawsuit Claims Wachovia Bank Facilitated Alleged Ponzi Scheme".  The complaint essentially claims that Wachovia's anti-money laundering program under the Bank Secrecy Act had failed to detect money laundering.  It was brought by the apparent victims of a Ponzi-like securities fraud.

 

Although the complaint could conceivably be the subject of a trial, the Court might soon dismiss at least part of it.  This might happen since there is no private right of action under the Bank Secrecy Act for alleged anti-money laundering program violations.  Only governmental authorities can seek monetary damages for Bank Secrecy Act violations, as suggested by pages 77-78 of the August 26, 2009 opinion in Armstrong v. American Pallet Leasing, Inc.: 

 

 

 

(CLICK ON THE IMAGE ABOVE TO READ THE OPINION) 

 

Wachovia in the meantime, agreed last month to forfeit $110 million and pay an additional $50 million dollars to governmental authorities.  The payment was to settle the government's claim that Wachovia had numerous lapses in its anti-money laundering program under the Bank Secrecy Act.  E.g. 31 U.S.C. §§5318 (h) (1) (requiring anti-money laundering programs) & 5322 (a) (criminal penalties).  The FinCen Financial Intelligence Unit outlined these alleged lapses in its March 12, 2010 "Assessment Of Civil Money Penalty". 

 

According to the March 12th assessment, Wachovia had been accused of failing to: make suspicious activity reports pursuant to 31 U.S.C. §5318 (g), file currency transaction reports, monitor bulk cash deposits, etc.   Subsequent to the assessment, Wachovia entered into the deferred prosecution agreement mentioned by the U.S. Department of Justice in its March 17, 2010 press release. 

 

This deferred prosecution agreement included a "factual statement" which explained at Page 6:  "The violations at Wachovia were serious and systemic and allowed certain Wachovia customers to launder millions of dollars of proceeds from the sale of illegal narcotics through Wachovia accounts over an extended time period."

 

 

Copyright 2010 Fred L. Abrams

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Bank customers sometimes hide their assets offshore in nominee bank accounts located in high-risk geographical locations like Switzerland.  One such bank customer was ex-watch manufacturer Jack Barouh of Golden Beach, Florida.  As a February 4, 2010 press release basically explained, Mr. Barouh was accused of hiding undeclared revenue from the IRS during an abusive offshore tax avoidance scheme at UBS AG and other foreign banks.  

 

Mr. Barouh's scheme could have stared in 1976 when he first transferred skimmed monies from his U.S. watch businesses to foreign accounts at UBS of Switzerland.  He reportedly carried out his scheme with the help of two Swiss money managers and a Swiss attorney.  One of these Swiss money managers had even supposedly misappropriated some of Mr. Barouh's undeclared revenue, although Mr. Barouh may have eventually recovered this revenue via a settlement.

 

The Swiss attorney and money managers are believed to have opened Mr. Barouh's nominee bank accounts and / or had been directors of Mr. Barouh's foreign companies.  These foreign companies were formed in Panama, the British Virgin Islands and Hong Kong and had reportedly been used to open Mr. Barouh's nominee bank accounts in Switzerland or Hong Kong.  Despite all of the foregoing, the IRS was able to detect Mr. Barouh's undeclared revenue in his nominee bank accounts.

 

Mr. Barouh's scheme was susceptible to IRS detection because he had executed UBS declarations of beneficial ownership (commonly referred to as "Form A's") which UBS apparently disclosed to the IRS.  As mentioned at p. 2 of the "Statement of Facts" filed in U.S.A. v. Barouh, 10-cr-20034, Mr. Barouh had executed UBS "Form A's" on September 1 & 6, 2004:

 

  (Click On The Statement Of Facts To Read It) 

 

Consistent with the Swiss banking practices described at "Customer Identification At UBS AG And Some Other Banks", Mr. Barouh had presumably executed the UBS "Form A's" at the time he opened his Swiss bank accounts.  His "Form A's" seem to have been disclosed to the IRS as a result of the tax information exchange agreements expressly mentioned by the settlement in The "John Doe" Summons Case. 

 

Under these tax information exchange agreements, (available at my August 23, 2009 post), UBS supplied the IRS with account information belonging to 4,450 bank customers who were suspected U.S. tax cheats.  My comments about this particular UBS disclosure were published at MoneyLaundering.com's article "Nearly a Year into Bank Secrecy Crack Down, Little Progress Seen".+

 

+"Nearly a Year into Bank Secrecy Crack Down, Little Progress Seen", Copyright 2010 Alert Global Media, reprinted with permission.

Copyright 2010 Fred L. Abrams

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"Smuggling Cash Across Iraq's Borders" mentioned Donnie the former DEA agent who had trained Iraqi border personnel to interdict bulk-cash smugglers.  To help detect these smugglers, governmental authorities also use declaration forms to track the cross-border movement of cash and monetary instruments. 

 

As mentioned by my April 13, 2009 "Asset Search News Roundup", one such declaration form is the "FinCen 105".  It generally requires disclosure to the Bureau of Customs and Border Protection, when individuals physically transport, mail or ship more than $10,000 in cash or monetary instruments into the U.S.:

 

(To View The Complete Form, Click On The Image)

 

 

To avoid triggering the mandatory filing of a FinCen 105, Virginia medical doctor Andrew Silva had illegally structured cash by smuggling it in packages containing less than $10,000.  During an abusive offshore tax avoidance scheme, Dr. Silva mailed these packages of cash from Switzerland into the U.S., as outlined by his "statement of facts" filed in U.S.A. v. Andrew B. Silva.

 

Dr. Silva's tax fraud scheme is alleged to have been facilitated through an attorney working at a law firm located in Zurich, Switzerland.  Dr. Silva's criminal information identified the attorney as an "unindicted co-conspirator" who was a member of the New York bar and had earned law degrees from the University of Zurich and New York University. 

 

Court documents and "Case Is Said to Link HSBC to U.S. Tax Evasion Inquiry", mentioned that Dr. Silva had inherited $250,000 in 1997.  Dr. Silva hid this money from the IRS by maintaining it in Switzerland in a nominee bank account held by a sham trust.  The sham trust was allegedly formed in Liechtenstein by the attorney in Zurich, who also reportedly managed the Swiss bank account. 

 

Said attorney is believed to have disbursed cash from the Swiss account by providing Dr. Silva with a wrapped brick of $100,000 in cash and a separate bundle of $20,000.00 in cash.  A Swiss banker may have similarly provided Dr. Silva with monies from the Swiss account via a brick of $100,000 in cash and a bundle with $15,000 in cash. 

 

Dr. Silva smuggled about $210,000 of the above-described cash by mailing it in approximately 25 packages from Switzerland into the U.S.  He is also believed to have smuggled about $18, 000 in cash while an airline passenger at Swiss-U.S. border crossings.  As Dr. Silva's plea agreement explained, he was convicted of violating 18 U.S.C §371 (Conspiracy) and 18 U.S.C. §1001 (False Statement).  His sentencing is scheduled for May 7, 2010 in Virginia before U.S. District Judge Liam O'Grady. 

 

Copyright 2010 Fred L. Abrams

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This "Asset Search News Roundup" contains a copy of the indictment filed against Minneapolis auto magnate Dennis Hecker.  It also discusses the securities fraud complaints pending in New York against Bank of America.
 

1. A press release from the U.S. Department of Justice announced that Mr. Hecker was indicted last Wednesday for allegedly hiding his assets.  "Has Auto Magnate Dennis Hecker Hidden His Assets?"  had described a few of Mr. Hecker's supposed fraudulent financial transfers and explained that Mr. Hecker had reportedly been under criminal investigation.
   
   Mr. Hecker's seven-count indictment accused him of concealing assets through money laundering in violation of 18 U.S.C. §1957.  The indictment additionally charged Mr. Hecker with allegedly violating 18 U.S.C. §1343 (wire fraud) and 18 U.S.C. §1349 (conspiracy to commit wire fraud).
   
    
2. As an October 19, 2009 Amended Complaint and a January 12, 2010 Complaint demonstrate, the SEC had filed securities fraud complaints in New York against Bank of America.  These complaints were over alleged non-disclosure about Bank of America's merger with Merrill Lynch and / or year-end bonuses paid to Merrill Lynch employees.
   
   The February 12th article "Fork It Over: Rakoff Wants the Scoop on Why Bank of America Fired Its GC " reported that the Court is contemplating a settlement of these SEC complaints.  Said article explained that Bank of America was also just sued in connection with its Merrill Lynch merger, by New York Attorney General Andrew Cuomo.  The New York Attorney General's securities fraud suit can be viewed here. 

 

Copyright 2010 Fred L. Abrams

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The Wall Street Journal's February 4, 2010 article "Switzerland Freezes Freed Duvalier Assets", is about alleged illicit assets blocked in Switzerland.  The blocked assets have been maintained in Swiss bank accounts and are believed to originate from Haiti's public coffers.  These public coffers were reportedly looted by former politically exposed person Jean-Claude "Baby Doc" Duvalier, who fled Haiti in 1986. 

   

The Wall Street Journal article claims that foreign dictators no longer favor hiding assets at Swiss banks because of "tough" Swiss laws requiring banks to know the source of funds.  The Swiss laws the article seems to refer to are commonly called "customer identification" or "know your customer" rules.  Rules requiring banks to identify their customers have been adopted across the globe and are in effect in the United States, the United Kingdom, etc. 

 

Swiss banks specifically follow customer identification rules by requiring their customers to execute a "declaration of beneficial ownership" which is also known as a "Form A".  Swiss banks also routinely monitor customer accounts, consistent with international anti-money laundering standards.  A former Yale Law School visiting scholar discusses the use of "Form A's" and shares some of his views on Swiss banking, at "Customer Identification At UBS AG And Some Other Banks". 

 

 Copyright 2010 Fred L. Abrams

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By using customer identification or "know your customer" rules, banks try to prevent money laundering and other financial frauds.  This use of customer identification rules by banks is contemplated at the Fifth Recommendation of the Financial Action Task Force.  The Fifth Recommendation urges banks to diligently verify a customer's identity and to record the true beneficial ownership of bank accounts.

 

As reported at "Fighting Financial Fraud At UK Banks", the UK changed its banks' "know your customer" rules on December 15, 2007, by codifying them at Money Laundering Regulations 2007*.  U.S. banks too verify customer identities, but do so pursuant to 31 C.F.R Part 103.121.  Lawsuits alleging that two U.S. banks had failed to sufficiently identify their bank customers, are respectively described at: "Associated Bank Sued For Supposedly Ignoring Red Flags" and "Lawsuit Claims Wachovia Bank Facilitated Alleged Ponzi Scheme".

 

UBS AG and other Swiss banks also require customer identification at the time a bank account is opened.  The customers of Swiss banks execute a declaration of beneficial ownership, commonly referred to as a "Form A".  A July 13, 2001 "Form A" was used in the U.S. tax fraud case brought against Florida yacht broker Robert Moran.  According to the Plea Agreement in Mr. Moran's case, the July 13th "Form A" helped demonstrate that Mr. Moran had violated 26 U.S.C. § 7206 (1), (perjury on a return / false statements). 

 

A comparison between Mr. Moran's individual tax returns for the years 2001 through 2007 and his "Form A", revealed that Mr. Moran had maintained secret Swiss bank accounts at UBS AG.  These Swiss accounts were kept in the name of the Panamanian corporation Winter Drive Investments S.A.  (Page 2, Statement of Facts, attached to Plea Agreement). 

 

The legal memo reproduced below discusses the required use of "Form A's" at Swiss banks.  It was supplied by Swiss counsel who is a doctor of laws from Zurich University, has practiced in Zurich, New York & Hong Kong and was a visiting scholar at Yale Law School.  The legal memo shows how a bank customer falsifying beneficial ownership in a "Form A", could violate Swiss criminal law:   

 

  (To Read The Entire Legal Memo, Click On It Above)

 

 

Swiss counsel additionally made the following critical comments which relate to the memo and give a glimpse of the current legal climate in Switzerland:

 

 "1) Due in part to the current upheavals concerning the activities of major Swiss banks in the US, the law on financial regulation in Switzerland is somewhat uncertain. Though this is against Swiss legal tradition, the anti-money laundering rules in Switzerland follow what I believe is international practice in deliberately using a degree if vagueness about the exact standards to be applied so as to induce a "chilling effect". This uncertainty is rendered more acute by the difficulty of assessing the interaction between the laws of various nations.

 

Note also that the rules and regulations have created a web of disclosures and of duties to investigate. It will be a brave person who in search of fiscal relief will navigate through this web without fear of having to make any misleading or materially wrong declaration (thus doing more than mere non-disclosure).

 

One practical result of the current problems with the US is that banks and Financial Intermediaries in Switzerland (and elsewhere in Europe) have simply stopped dealing with US nationals or US residents (except possibly through US based "on shore subsidiaries" of foreign banks), to the extent of closing long standing business relationships even in the absence of any specific allegation of wrongdoing, fiscal or otherwise. Thus while the law may not have changed, the climate in which the law operates has.

2) In step with this development, the required standard of care expected of a Financial Intermediary (including a bank) is much higher and increasing continuously. Today quite sophisticated profiling and automatic monitoring of all transactions is routine. The effect of this is the same as mentioned above, the law has not fundamentally changed but the loopholes have become very small in practice. Mere "non disclosure" is only effective if nobody asks. Note also that current practice requires on-ongoing checks, not merely checks at the opening of the account bur also during its operation. "

 

  

*Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO.

Copyright 2010 Fred L. Abrams

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The securities fraud complaint in Nesbeth v. USMIO, Docket No: 09−cv−62042−WJZ, alleges that Wachovia Bank caused damage to the supposed victims of a Ponzi scheme. This complaint, (referred to hereinafter as "the Florida Complaint"), also asserts claims against: MasterCard Worldwide, Mr. David Smith of Jamaica, Overseas Locket Corporation formed in Jamaica, Former Premier Michael Misick of the Turks and Caicos Islands, etc.

 

The Florida Complaint alleges that Mr. David Smith had operated a Ponzi scheme which reportedly involved six thousand victims from the Jamaican community and might have caused $220 million in losses. Florida Complaint at  ¶¶31, 37 & 38.  The suspected illicit proceeds of the scheme may have been used to invest in businesses and possibly pay for: real property, a lavish cruise, valuable watches (i.e. portable valuable commodities), ornamental furniture and exotic automobiles.  Florida Complaint at ¶52. 

 

According to the Florida Complaint at ¶49, proceeds from the scheme had additionally been laundered through bank accounts, including one maintained at Wachovia.  Like the Wisconsin Complaint earlier provided at "Associated Bank Sued For Supposedly Ignoring Red Flags", the Florida Complaint essentially claims that a bank's anti-money laundering program / Customer Identification Program pursuant to 31 CFR 103.121 ¶ (b) (2) (i), failed.

 

The Florida Complaint for example, alleges that Wachovia had "engaged in facilitating David Smith's Ponzi scheme by receiving and forwarding monies using the Federal wire transfer system."  Florida Complaint at ¶4.  Wachovia had also allegedly failed to: "sufficiently verify the identity of customers...in violation of the Bank Secrecy Act and applicable regulations."  Florida Complaint at ¶83. 

 

Given all of the foregoing, the Florida Complaint may be trying to assert a negligence per se claim based on U.S. anti-money laundering laws and / or the Bank Secrecy Act.  This particular kind of claim is typically not recognized in the U.S by its federal courts.  The Florida Complaint also claims elsewhere, that the supposed Ponzi scheme included cross-border elements in: the United States; the British Virgin Islands; the Turks and Caicos Islands; Jamaica; etc.  The alleged Florida Secretary of State filing below, is one of many exhibits attached to the Florida Complaint.

 

Click On The Above Images To Enlarge Them

 

 (Edited April 6, 2010)

Copyright 2010 Fred L. Abrams

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Governmental authorities sometimes use data mining and money laundering typologies to detect financial fraud trends.  An earlier financial fraud trend we will undoubtedly see in 2010, is beneficial owners hiding assets through nominee bank accounts.  Another likely continuing trend for 2010, is the use of Delaware-based shell companies to facilitate money laundering in some cases.

 

Financial investigators around the world know that beneficial owners may try to hide their assets by  using relatives, money managers, etc. as bank signatories on nominee bank accounts.  Beneficial owners may even use a "nominee incorporation service" to supply a bank signatory in order to circumvent customer identification rules at banks.  At "Fighting Financial Fraud At UK Banks", I mentioned this form of bank account abuse.

 

Shell companies which lack transparency and are based in Delaware, could also play significant roles in some financial frauds carried out in 2010.  As "Domestic Shell Companies & An Asset Search" indicated, Delaware-based shell companies can particularly pose a money laundering risk.  My article "Following The Money Trail From Poland To Delaware", provided the details of three different financial fraud investigations which focused on possible shell companies in Delaware.

 

Copyright 2010 Fred L. Abrams

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The Association of Certified Anti-Money Laundering Specialists is a private sector anti-money laundering credentialing organization and Colby Adams is a reporter affiliated with it.  Mr. Adams telephoned me this week to discuss my thoughts about abusive offshore tax avoidance schemes and The "John Doe" Summons Case, which was settled with UBS AG.

 

My comments on The "John Doe" Summons Case have just been published by MoneyLaundering.com / ComplianceAdvantage.com, as part of Mr. Adams' article, "Nearly a Year into Bank Secrecy Crack Down, Little Progress Seen": 

 

(Click On The Image Below, To Read Mr. Adams' Article)*

 

 

 

*"Nearly a Year into Bank Secrecy Crack Down, Little Progress Seen", Copyright 2010 Alert Global Media, reprinted with permission.

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The "Asset Search News Roundup: January 26, 2009 " mentioned that Heartland Payment Systems was subjected to what might have been the biggest credit / debit card information theft in the U.S.  Mr. Albert Gonzalez was ultimately indicted for that privacy law violation / computer intrusion and other ones.  In fact, Mr. Gonzalez pleaded guilty to criminal charges respectively brought in New Jersey, New York and Massachusetts. 

 

As "Using Foreign Computer Evidence Against An Accused Hacker" indicated, Mr. Gonzalez had initially been accused of using multiple jurisdictions / cross-border elements to facilitate computer hacking, identity theft and money laundering.  A December 29th Department of Justice press release also apparently indicated that Mr. Gonzalez had used cross-border elements to commit his crimes. 

 

According to the December 29th press release, Mr. Gonzalez was an "international hacker" convicted because of "coordination across....geographical lines".  Page 7 paragraph (1) (c) of a November 20, 2009 plea agreement additionally suggests that Mr. Gonzalez used cross-border elements in his crimes.  It stated that he had leased or controlled computer servers in Latvia and Ukraine:

 

  (To Read The Plea Agreement, Click On It)

 

 

Copyright 2010 Fred L. Abrams

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My article "Money Laundering By Minneapolis Money Managers?" reports that a lawsuit against Patrick Kiley, Trevor Cook and other money managers, had raised the question of whether Associated Bank breached a duty to prevent suspected money laundering.  As I mentioned in that article, Associated Bank could have conceivably failed to follow a written Customer Identification Program under 31 CFR 103.121 ¶ (b) (2) (i).

 

After I wrote "Money Laundering By Minneapolis Money Managers?", two lawsuits were filed against Associated Bank raising these same issues.  The gravamen of said lawsuits, was that Associated Bank had supposedly been negligent in allowing suspected securities fraudsters to open and maintain a nominee bank account in the name of Crown Forex LLC.  Crown Forex LLC was reportedly a sham business entity and its Associated Bank account was possibly used as a laundering link to wash some of the proceeds of a suspected securities fraud.

 

The first of these lawsuits was briefly filed in Minneapolis federal court via a November 4, 2009, third amended complaint.  That Minneapolis lawsuit against Associated Bank, was soon voluntarily dismissed pursuant to a December 9, 2009 filing and the Court's December 10, 2009, Order.  The second lawsuit against Associated Bank, (Herman Grad vs. Associated Bank NA, Brown County Case #2009-CV-002949), is however, still pending in Wisconsin. 

 

According to the the complaint in the Wisconsin lawsuit depicted below, Associated Bank allegedly ignored the money laundering red flags while opening and / or permitting the Crown Forex LLC account. (See, Complaint at p. 6 ¶¶ 22-23).  As described by "Recognizing Hidden Assets, The Red Flags", financial intelligence units, bankruptcy trustees, tax authorities and banks, can use red flags to recognize when assets have been fraudulently concealed.

 

 (Click On The Following Image To Read The Wisconsin Lawsuit / Complaint)

 

 

 

(Edited December 30, 2009)

Copyright 2009 Fred L. Abrams

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Today"s "Asset Search News Roundup" highlights hiding / smuggling cash at U.S.-Mexican border crossings and describes how fraudsters might select bank accounts to facilitate their financial frauds:

 

• On December 14, 2009 federal agents reportedly seized $300,000 in undeclared currency at a U.S.- Mexican border crossing in Arizona.  The $300,000 was allegedly hidden / smuggled in a suitcase in a vehicle occupied by two residents from Sonora, Mexico.
  
  The previous day, federal agents at a different border crossing in Arizona had seized $70,000 dollars possessed by another person from Sonora, Mexico.  According to a U.S. Customs and Border Patrol press release, the $70,000 was hidden in this spare tire of a 2008 Chevrolet Cheyenne: 

 

Photo: Courtesy of U.S. Customs and Border Protection

   

• "Concealing Cash By Laundering In Lithuania", mentioned two international gang members who were the subject of the Baltic Times article "Money Laundering Gang Detained".  These gang members had supposedly targeted bank accounts with no financial activity and then allegedly hijacked them for use as laundering links in a money laundering circuit.
  
  Others facilitate their financial frauds by contrarily selecting bank accounts which have lots of financial activity.  A December 15, 2009 press release explains that Lone Star National Bank former vice president Emma Vigil was convicted of bank fraud for her embezzlement.  Ms. Vigil had concealed the embezzlement at Lone Star National Bank by targeting customers who had "high balance and high activity accounts". 
   

Copyright 2009 Fred L. Abrams

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This "Asset Search News Roundup" mentions the sentence of a former Louisiana congressman and the 14,700 U.S. taxpayers who sought partial amnesty from the IRS:

 

• A November 13th FBI press release explained that Former Louisiana Congressman William Jefferson was sentenced to thirteen years in prison for public corruption and other crimes.  As I discussed at the August 11th "Asset Search News Roundup", the former congressman was found guilty of soliciting bribes and then hiding them through money laundering.  He was also convicted of honest services wire fraud, racketeering and conspiracy.

 

• Ms. Lynnley Browning's article "14,700 Disclosed Offshore Accounts", reported that a number of U.S. taxpayers have voluntarily disclosed their secret foreign bank accounts as part of an IRS partial amnesty program.  As I wrote at "Some Abusive Offshore Tax Avoidance Schemes At UBS", U.S. taxpayers who own a foreign bank account with assets in excess of $10,000 are required to disclose the same at Schedule B, Part III of their U.S. Individual Tax Return Form 1040. They must also separately file a TDF 90-22.1, (a.k.a. a "FBAR" form).

 

"14,700 Disclosed Offshore Accounts" indicated that the disclosing taxpayers will be treated with leniency despite their failure to make the above-mentioned filings.  It also stated that the taxpayers may have been prompted to make their disclosures because of the settlement of U.S.A. v. UBS AG, 1:09-cv-20423.  In that case, the IRS tried to compel UBS to supply foreign bank account information belonging to suspected U.S. tax cheats.  As fully described by "UBS & Its 'John Doe' Summons", the IRS sought this information by serving the John Doe Summons depicted below: 

 

 (Click On Images To Enlarge)

 

Copyright 2009 Fred L. Abrams

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A tax filing at the "Financials Page" of its website reveals that the Alavi Foundation had assets in 2007 with a fair market value of nearly $88 million.  Federal prosecutors meanwhile, filed an amended complaint last Thursday against The Alavi Foundation.  It sought asset forfeiture, as reported by Reuters, The New York Times and an FBI press release.

 

According to these news accounts, the gravamen of the amended complaint is that the nonprofit Alavi Foundation allegedly concealed the Iranian Government's true beneficial ownership of a N.Y.C. Fifth Avenue building. The Alavi Foundation may have done this along with Bank Melli and ASSA CO. LTD and ASSA CORP. 

 

As described at  "Bank Melli Accused Of Hiding Its Fifth Avenue Assets", Bank Melli, ASSA Co. LTD. and ASSA CORP. have all been linked to terrorist financing.  All three are currently the subject of Weapons of Mass Destruction sanctions programs and U.S. economic sanctions.

 

After the filing of the amended complaint, the Court also acted pursuant to 18 U.S.C. §981 and issued a Warrant of Seizure for Alavi Foundation monies maintained at Sterling National Bank:

 

 

 

 (Click On The Warrant For A Better View)

 

Copyright 2009 Fred L. Abrams

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The Financial Action Task Force ("FATF"), is the bellwether for the fight against global money laundering and terrorist financing.  Its leading role is recognized by U.S. lawmakers in the Bank Secrecy Act at  31 U.S.C. §5311, which states:  

"FATF’s Forty Recommendations on Money Laundering and the ... Special Recommendations on Terrorist Financing are the recognized global standards for fighting money laundering and terrorist financing. The FATF has engaged in an assessment process for jurisdictions based on their compliance with these standards." 

 

By following the FATF's Forty Recommendations and Special Recommendations, governmental entities try to detect assets hidden by money launderers, identity thieves and other financial fraudsters.  Consistent with these Recommendations, the FATF just made its October 30th statement calling for greater transparency.  A higher degree of transparency could help uncover assets fraudulently concealed in financial institutions across the globe.

 

The FATF explained in its statement, that enhanced transparency was needed at financial institutions regarding customer due diligence; beneficial ownership; legal persons / legal arrangements (i.e. nominees); secrecy laws and cross-border exchange of information.

 

A few "Asset Search Blog" articles exploring these sort of topics are:

1. "Concealing Assets By Circumventing Customer Identification Rules"
    
2. "Beneficial Owners Concealing Their Foreign Bank Accounts"
    
3. "Nominees & Hidden Assets"
    
4. "Financial Discovery & Foreign Bank Secrecy Laws"
    
5. "Asset Search News Roundup: September 23, 2009"

 

Copyright 2009 Fred L. Abrams

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The October 22, 2008 "Asset Search News Roundup" mentioned the problem of money launderers concealing assets through money mules.  The Federal Deposit Insurance Corporation issued its own alert last week about this same use of money mules:

 

Click Here For A Complete View Of Last Week's Alert

 

A money mule making a wire transfer can however, be especially vulnerable to detection.  This is true because at the time of a wire transfer, financial institutions and governmental authorities can search for "red flags".  Thirteen of these red flags are identified by "Money Laundering Red Flags, Wire Transfers", which is from the BSA / AML Examination Manual published by the U.S. government's Federal Financial Institutions Examination Council.

 

Copyright 2009 Fred L. Abrams

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As a countermeasure against those bank customers who would use their bank accounts to fraudulently conceal assets, government regulators commonly require that banks apply customer identification or "know your customer" rules.  These rules are often geared toward identifying the true beneficial owner of a bank account and are analyzed at my articles "Beneficial Owners Concealing Their Foreign Bank Accounts" and "Fighting Financial Fraud At UK Banks".

 

Despite the use of customer identification / "know your customer" rules at banks, some bank customers still try to conceal their beneficial ownership of assets parked in bank accounts.  As outlined by "Nominees & Hidden Assets", beneficial owners sometimes misuse existing business entities like shell companies, to open financial accounts and circumvent a bank's customer identification procedures.

 

The Egmont Group of financial intelligence units, describes this very situation at one of its money laundering typologies, labeled as reference no. 08014.  It explains how "Mr. B" essentially used existing businesses in the form of shell companies, to "wash" assets through North American and European bank accounts used in a money laundering circuit.  My September 20, 2009 article "Money Laundering By Minneapolis Money Managers?" also discussed what might have been the use of a fictitious business entity to circumvent the U.S. customer identification rules codified at 31 CFR 103.121 ¶ (b) (2) (i). 

 

As more fully set forth in that article, a civil complaint in Minneapolis alleges among other things, that a bank account maintained by the "non-existent, non-registered [business] entity" called Crown Forex LLC, could have transferred the proceeds of a securities fraud.  Some of the allegations in that complaint are also believed to be the subject of a federal grand jury proceeding, according to the Minneapolis Star Tribune at: "Twin Cities investment advisers focus of probe".

 

 

Copyright 2009 Fred L. Abrams

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Five Minnesota money managers and a dozen business entities including The Oxford Private Client Group of the Van Dusen mansion in Minneapolis, have been sued by 57 investors for alleged securities fraud.  The Minneapolis Star Tribune wrote about the lawsuit in "Investment fraud suit grows more complex" and earlier on July 12, 2009. 

 

The investors' second amended complaint at part 1 and part 2 herein, pleaded causes of action for: fraud, conversion, civil theft, negligent misrepresentation, civil conspiracy, deceptive trade practices, breach of contract, and breach of fiduciary duty.  It asserted that the money managers had converted about $16 million belonging to the investors by inducing the investors to place monies in a foreign currency arbitrage program. 

 

This second amended complaint specifically claimed that some of the money managers had aired radio broadcasts to solicit investments for the foreign currency arbitrage program.  One money manager reportedly described this arbitrage program to two investors, by drawing what might be nothing more than a meaningless link chart:   

 

(Click On The Link Chart To Enlarge It)

 

 

 

The second amended complaint also specifically identifies three bank accounts through which $190 million was allegedly transferred to the money managers over the last two years.  (Second Amended Complaint, at pp.132-133 ¶¶ 615-616).  One of these accounts is alleged to have been maintained in the name of Crown Forex LLC at Associated Bank, which has more than one million bank customers in Wisconsin, Illinois and Minnesota. 

 

As a July 23, 2009 letter partly reveals, the bank signatories for the Crown Forex LLC account at Associated Bank, are believed to be money manager Patrick Kiley and his assistant Julia A. Smith:   
  

 

(To Enlarge The Letter, Click On It)

 

 

The second amended complaint meanwhile alleges that Crown Forex LLC is a  "non-existent, non-registered entity" located in Minneapolis at 5413 Nicollet Avenue, Suite 14-- which is a supposed fictitious address.  (Second Amended Complaint, at p. 135 ¶ 635 & p. 18 ¶ 61). 

 

If true, these allegations could raise the question: Whether Associated Bank followed a written Customer Identification Program and the customer verification procedures mandated by 31 CFR 103.121 ¶ (b) (2) (i), when Crown Forex LLC opened its bank account?  Such allegations might too raise another question: Whether the Crown Forex LLC account was a nominee bank account at Associated Bank, used by the money managers for money laundering?

 

 

Images: U.S. District Court File

(Edited January 8,2010)

Copyright 2009 Fred L. Abrams

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Today's article is based on an ongoing investigation, the facts of which are changed below for privacy reasons:

 

Ralph claimed in his New Jersey divorce that he had a low net worth, although he was a medical doctor who once had a thriving private practice.  Ralph's claim made his divorcing wife Nancy believe that Ralph had hidden marital assets.  Nancy therefore gathered up copies of documents she obtained during the pretrial discovery phase of the divorce and before.  

 

These documents included Ralph's: passport, statements for airline frequent flyer miles, phone bills and financial records.  Nancy gave them to Mike, who was a licensed private investigator she had retained to perform an asset search regarding Ralph.  After conducting research for more than a month, Mike told Nancy that Ralph had hidden monies in foreign bank accounts and in Miami. 

 

Mike asserted that Ralph had secretly maintained about $2.5 million dollars in foreign banks located in high-risk geographical locations known for money laundering.  Ralph had also supposedly hidden another $85,000 dollars in a Miami bank account.  Mike then explained that he could perform the necessary "bank account searches" which would identify all of Ralph's secret accounts.

 

As of the writing of this article, Nancy paid Mike over $28,000 dollars for the bank account searches and Mike had provided Nancy with a report summarizing his search results.  The report identified the foreign bank accounts Ralph is believed to have hidden the $2.5 million dollars in.  It also disclosed all the confidential details of Ralph's supposed $85,000 dollar Miami bank account.  

 

When Nancy next complained to Mike, (that the report did not explain the source of Mike's information), Mike wrote her a letter.  Mike's letter said that his report was completely reliable and that a trusted colleague had supplied Ralph's foreign banking information.  It also stated that Mike had obtained Ralph's Miami bank account information from an "insider" who worked for the Miami bank.  According to Mike's letter, the insider had used the bank's computer system to sneak a peek at Ralph's $85,000 dollar bank account.

 

Assuming that the statements in Mike's letter to Nancy are true, then both the insider and Mike may have violated federal privacy and other laws.  The two for example, may have conspired to access Ralph's Miami bank account information in derogation of  18 U.S.C. §1030  (Fraud and related activity in connection with computers).  Another recent case involving an insider at a bank is U.S.A. v. Feliciano, 2:09−cr−00197−NS.  The March 2009 indictment filed in Feliciano, alleged that a bank teller had stolen confidential customer information as part of a bank fraud / identity theft scheme.

 

(Edited 10/14/2009)

Copyright 2009 Fred L. Abrams

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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:

 

Click On The Above Letters For A Better View

  

 

Copyright 2009 Fred L. Abrams

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My August 17th "Asset Search News Roundup" referred to the settlement of the case over the "John Doe" summons served on UBS in Miami.  As more fully discussed at "UBS & Its John Doe Summons", the IRS had brought the case to identify U.S. tax cheats who concealed their UBS bank accounts in abusive offshore tax avoidance schemes. 

 

The agreements settling the case are: the U.S. & Swiss Government Settlement, dated August 19, 2009 and the UBS Settlement With Consent To Public Disclosure.  Pursuant to the settlement, UBS is expected to supply the IRS with bank customer information belonging to about 4,450 suspected U.S. tax cheats.  UBS will also send the 4,450, (all of whom are believed to have secret Swiss bank accounts), this notice:

 

(Click On The  Images Below To Enlarge Them) 

 

 

 

 

 

Furthermore, UBS is producing the customer information only under its tax treaties with the U.S., rather than the "John Doe" summons it was served with in Miami.  The first of these controlling agreements, is the October 2, 1996 "Avoidance of Double Taxation Treaty", described here.  The second is the January 23, 2003 Mutual Agreement, which clarified the earlier October 2, 1996 agreement.  These 1996 and 2003 tax treaties are examples of governmental authorities using formal cross-border cooperation, as described by my article: "Eliciting Evidence From Foreign Bank Witnesses".

 

 (Edited May 15, 2010)

Copyright 2009-2010 Fred L. Abrams

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U.S. taxpayers who beneficially own a foreign bank account with assets in excess of $10,000, are required to disclose the same at Schedule B, Part III of their U.S. Individual Tax Return Form 1040.  These taxpayers must also separately file a TDF 90-22.1, (a.k.a. a "FBAR" form), the first page of which is shown here:

 

Click On The TDF 90-22.1 To Enlarge It 

 

I previously discussed these reporting requirements at "Beneficial Owners Concealing Their Foreign Bank Accounts".  One Florida resident who failed to follow said requirements as part of his abusive offshore tax avoidance scheme, was Mr. Steven Michael Rubinstein.  Mr. Rubinstein  worked in the yacht industry and recently pleaded guilty to violating 26 U.S.C. § 7206 (1) (perjury on a return / false statements).  According to his Factual Proffer Statement, Mr. Rubinstein had concealed his assets from the IRS by parking them in Switzerland.  He had hidden assets through his nominee British Virgin Island corporation, which secretly held a UBS financial account in Switzerland. 

 

My May 25, 2009 "Asset Search News Roundup" similarly mentioned the abusive offshore tax avoidance scheme facilitated by Florida yacht broker Robert Moran.  Like Mr. Rubinstein, Mr. Moran had hidden assets from the IRS by using a financial account at UBS in Switzerland.  He too pleaded guilty to filing a false tax return in violation of 26 U.S.C. § 7206 (1).  Mr. Moran had specifically used a nominee Panamanian corporation to maintain his hidden financial account at UBS Switzerland. 

 

Copyright 2009 Fred L. Abrams 

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"A Domestic Subpoena / Summons In An Offshore Asset Search" describes how the IRS and U.S. Department of Justice were granted court permission to serve a "John Doe" summons on UBS AG.  This summons was supposed to help the IRS identify assets and / or undeclared revenue hidden by any U.S. taxpayers who were maintaining offshore bank accounts at UBS.

 

A July 1, 2008 Order had specifically permitted the IRS to serve UBS with the "John Doe" summons which is reproduced below without its attachments: 

 

 (Click On Images To Enlarge)

 

The IRS has however, argued in U.S.A. v. UBS AG, 1:09-cv-20423, that UBS has not fully complied with the summons.  In UBS AG, the IRS claims that UBS has disclosed under the summons, just 300 bank accounts out of an estimated 52,000 belonging to U.S. taxpayers who could be tax cheats. 

 

As I stated in my February 27, 2009 "Asset Search News Roundup", UBS must consider Swiss bank secrecy laws, (a.k.a. professional secrecy laws), when supplying the IRS with account information pursuant to the summons.  UBS highlighted the very issue of bank secrecy laws just yesterday, when it filed its "Supplemental Declaration of Professor Isabelle Romy On Swiss Law".  It had also earlier raised this issue via the "Declaration of Professor Isabelle Romy On Swiss Law", filed April 30, 2009. 

 

Through these declarations, UBS argued that it would be violating Swiss bank secrecy laws if it fully complied with the summons.  The IRS meanwhile, claimed that UBS should be compelled to fully comply with the summons because UBS allegedly violated its Qualified Intermediary Agreement with the IRS, for the withholding of taxes.  (Declaration of Barry B. Shott, filed February 19, 2009).  U.S.A. v. UBS AG, is next scheduled for hearings on July 13, 2009.

 

Copyright 2009 Fred L. Abrams

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U.S. persons can be obligated to disclose their beneficial ownership of foreign bank accounts in Schedule B, Part III of their individual tax returns and by filing a Form TDF90-22.1.  Some U.S. persons however, still engage in schemes to conceal their foreign bank accounts, as occurred in the case described by my post "Bearer Shares & An Asset Search". 

 

That particular case involved a divorcing spouse and his business partners who had hidden undeclared revenue by using money laundering along with bearer shares.  As is demonstrated by the following diagram, (which is more fully explained at "Bearer Shares & An Asset Search"), the divorcing spouse had hidden his beneficial ownership of a Cayman Island bank account:  

It is perhaps because these kinds of schemes do actually occur, that the Financial Action Task Force  promulgated Recommendation 5.  Recommendation 5 counsels banks to verify the beneficial ownership of a customer's bank account.  As "Fighting Financial Fraud at UK Banks" indicates, UK banks are required to identify beneficial owners, as mentioned by the Money Laundering Regulations 2007*.  (See also Notice MLR8, Crown Copyright 2008, at page 18 §7.8).  Bankers in Switzerland meanwhile, have their customers execute a declaration of beneficial ownership upon the opening of a bank account.  This declaration is commonly referred to as a "Form A".

 

The tax fraud prosecution of Florida yacht broker Robert Moran mentioned in my May 25, 2009 Asset Search News Roundup, involved such a "Form A".  According to page 2 of the Statement of Facts part of Mr. Moran's plea agreement, prosecutors had acquired Mr. Moran's "Form A".  It apparently revealed that Mr. Moran was the beneficial owner of monies hidden in Swiss bank accounts.  Mr. Moran had maintained his Swiss account in the name of a nominee-- the Panamanian corporation Winter Drive Investments S.A.  

 

 

* The Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO.

Copyright 2009 Fred L. Abrams 

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The "Asset Search News Roundup" for this week explores the vital role financial institutions have in detecting assets concealed through money laundering.  This kind of  issue arose in a most recent phone conversation I had with an investigator who works for a Financial Intelligence Unit located offshore.  The investigator had read one of my articles herein and decided to contact me for additional information about that article. 

 

During our telephone conversation we ended up talking about one specific case which had involved a financial institution residing in the investigator's jurisdiction. In that case, the financial institution had been used as a repository for the illicit proceeds of a financial fraud involving multiple jurisdictions.  The financial institution had "washed" the illicit proceeds as a "laundering link" in a money laundering circuit.

 

The investigator mentioned that once the money laundering scheme was finally uncovered, employees of that particular financial institution had to be given additional training-- presumably on spotting money laundering "red flags", reporting suspicious activity, etc.  All of this highlights the critically important role employees at financial institutions have in detecting and / or preventing money laundering.  I also examined this same role of some financial institutions in money laundering schemes, in the following articles:

1. "A Tax Fraud & Identity Theft From Miami"
2. "Concealing Cash By Laundering In Lithuania"
3. "Fighting Financial Fraud At UK Banks"

 

Copyright 2009 Fred L. Abrams

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This week's "Asset Search News Roundup" is about bank secrecy laws which can be exploited by tax cheats or other individuals fraudulently concealing their assets.  As the OECD explained at page 19, ¶¶ 29 & 30 of "Improving Access To Bank Information For Tax Purposes", bank secrecy laws play a critically important role in a country's banking system.  Without these laws, few bank customers would likely entrust their private financial affairs to a bank. 

 

Meanwhile, the case by U.S. authorities to compel UBS to disclose all of its bank customers who are suspected U.S. tax cheats, continues in Miami federal court.  Although UBS has already made some disclosure, it must undoubtedly consider Swiss bank secrecy laws, (a.k.a. professional secrecy laws). 

 

As I mentioned in "Financial Discovery & Foreign Bank Secrecy Laws ", using a domestic court to elicit evidence from a bank witness like UBS, can involve the foreign bank secrecy laws of an offshore tax haven.  News reports which mention the Miami litigation against UBS and / or  Swiss bank secrecy laws, include:

1. "U.S. Wants More Client Names From UBS"
2. "UBS Revealed Far Less Than U.S. Sought in Tax Case"
3. "IRS unlocks UBS vault hiding Americans evading taxes"
4. "Bank secrecy faces coordinated global assault"
5. "Swiss franc weaker vs dollar on bank secrecy woes"
6. "UBS Forced to Lift Secrecy Skirt for Peek by IRS"

 

Copyright 2009 Fred L. Abrams

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U.S. authorities are seeking the sanction of asset forfeiture in connection with a 36-story Fifth Avenue N.Y.C. building, alleged to be partly owned by Iran's Bank Melli.   "Assets Seized at Company Suspected of Funneling Money to Iran" and / or a U.S. Treasury Department press release, also report that Bank Melli is accused of concealing its 40% beneficial ownership of 650 Fifth Avenue.  Bank Melli and its related entities ASSA CO. LTD and ASSA CORP., have further been linked to terrorist financing and are named in the attached list of those subject to Weapons of Mass Destruction sanctions programs.

 

Bank Melli may have additionally disguised Iranian funds as construction "loans" for 650 Fifth Avenue and supposedly transferred rent monies to Iran, which were collected from 650 Fifth Avenue.  Based upon the above-mentioned articles and press release, Bank Melli possibly used the following money laundering methods in connection with 650 Fifth Avenue:  

 

i)  operating the parent corporation ASSA CO. LTD from the Channel Islands, a high-risk geographical location;

 

ii)  forming the domestic shell company ASSA CORP. as the New York subsidiary of ASSA CO. LTD.;

 

iii) using ASSA CORP. as the nominee purchaser of 40% of 650 Fifth Avenue;

 

iv) disguising Bank Melli monies as construction "loans" for 650 Fifth Avenue-- perhaps through "back-to-back" or other types of sham loans.

 

v)  transferring rent collected from tenants at 650 Fifth Avenue through multiple jurisdictions, including New York City, the Channel Islands and Iran. 

 

Copyright 2008 Fred L. Abrams

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O.J. Simpson's  Pro Football Hall of Fame ring; a report that Minnesota could even suffer because of Bernard Madoff's suspected $50 billion Ponzi scheme; and Liechtenstein's new Tax Information Exchange Agreement; are the focus of this "Asset Search News Roundup":

 

• By interdicting O.J. Simpson's diamond encrusted Pro Football Hall of Fame ring, Judgment Creditor Fred Goldman hopes to satisfy part of his $33.5 million judgment arising from the slaying of his son, Ron Goldman.  "O.J. Simpson victim denies he has Hall of Fame ring", reports that memorabilia dealer Alfred Beardsley specifically claims he does not possess the ring.  According to an Associated Press article, Mr. Beardsley further alleged during forced collection proceedings, that O.J. Simpson may have "lost the ring on a golf course years ago".

 

• "Minn. budget may be victim of Madoff fraud", speculates that Minnesota could possibly suffer losses in state income tax revenue as a result of Bernard Madoff's alleged $50 billion Ponzi scheme.  Mr. Madoff now faces a federal criminal complaint; a Securities and Exchange Commission complaint and is the subject of a temporary restraining order freezing his assets.  The attached Department of Justice press release also discusses the arrest of the 70-year-old Mr. Madoff. 

 

• "Offshore Bank Accounts In Liechtenstein" mentions that the German-Liechtenstein border has been a popular land crossing for hiding / smuggling cash destined for Liechtenstein's banks.  Liechtenstein however, might possibly be leaning toward greater transparency at its banks.  A recent press release for example, indicates that the attached Tax Information Exchange Agreement could lead U.S. tax authorities to assets hidden in Liechtenstein.

 

Copyright 2008 Fred L. Abrams

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A foreign bank witness located in an offshore tax haven will likely rely on bank secrecy laws to resist discovery about a bank customer's financial information.  A foreign court located where this foreign bank witness resides could however, apply an exception to bank secrecy law.  If this happens, the foreign court might then end up directing the foreign bank witness to disclose bank customer information.  This whole process may happen via Letters Rogatory, as suggested by "Foreign Bank Secrecy Laws & An Asset Search". 

 

Foreign bank secrecy laws can also play a significant role when a domestic court exercises in personam jurisdiction over a foreign witness in possession of a bank customer's financial information.  To determine whether such a foreign witness is subject to domestic disclosure, a domestic court might analyze foreign bank secrecy laws along with the following factors mentioned in Old Ladder Litigation Co. LLC. v. Investcorp Bank B.S.C, et. al. No. 08-CV-00876 (S.D.N.Y. May 29, 2008):

 

1. the competing interests of the nations whose laws are in conflict;
    
2. the hardship of compliance on the party or witness from whom discovery is sought;
    
3. the importance to the litigation of the information sought and whether there are alternative means to secure the information;
    
4. the good faith of the party resisting discovery;
    
5. whether the information originated in the United States; and
    
6. the specificity of the request."  (Id. at 10-11).

 

(Edited November 12, 2009)

Copyright 2008 Fred L. Abrams

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Assets hidden in an offshore tax haven which are  the subject of a divorce, forced collection proceeding, etc., can sometimes be uncovered by eliciting evidence from a bank witness residing in that offshore tax haven.  This is true because letters rogatory or other legal proceedings can usually be brought against an offshore bank  witness in tax havens like Switzerland, as mentioned by "An Asset Search In Geneva". 

 

The success of  these kinds of "offshore asset searches" however, often depends on whether exceptions to bank secrecy, (a.k.a. professional secrecy), laws are applicable to the particular situation.  To cite just one example, a Swiss bank witness can be compelled in Swiss court to disclose marital assets hidden by a U.S. or other divorcing spouse.  This critical point is emphasized by local Swiss counsel, who wrote to me the following:

 

 "I notice that you are also active in divorce matters. It sometimes happens that spouses try to hide their assets in Switzerland. This is to no avail since article 170 of the Swiss Civil Code provides that each spouse may request from the other information on his or her income, assets and debts. Upon request, the Judge may obligate the other spouse or third parties (including banks) to provide the required information and produce the necessary documents. This provision is enforceable even if the divorce takes place in the US or any other foreign jurisdiction in application of article 10 of the Swiss Code on Conflict of Laws which provides that the Swiss judicial or administrative authorities may order provisional measures even if they have no jurisdiction to render a decision on the merits.

These provisions often ignored by foreign lawyers provide efficient tools to obtain information, which in other circumstances would be strictly covered by the Swiss banking secrecy"

 

Copyright 2008 Fred L. Abrams

 

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If assets are hidden in multiple jurisdictions, it can be necessary to conduct asset searches of foreign banks or other witnesses residing offshore.  Such  "offshore asset searches" typically involve Letters Rogatory, (a.k.a  Legal Assistance Requests), which may be used to compel foreign banks or other witnesses residing offshore to give:

1. Details about a financial account / sub-account in various currencies and for all purposes including investments, savings, or bank guarantees;
2. Account opening papers;
3. Names of beneficial owners from the time an account was opened;
4. Names of bank signatories;
5. The date each bank signatory was registered or added to an account.

 

In the limited circumstance of a domestic court  exercising in personam jurisdiction over a witness  residing offshore, evidence of hidden assets might also possibly be elicited thorough a domestic subpoena served on said witness.  In First American Corp. v. Price Waterhouse, 154 F.3d 16 (2d Cir. 1998), for example, a domestic subpoena was successfully used against an offshore accounting firm that conducted partnership business in N.Y., as mentioned by N.Y. Civ. Prac. L. & R. 310.

 

Both the IRS and U.S. Department of Justice have similarly used a domestic "John Doe" summons to uncover evidence about assets hidden offshore by suspected U.S. tax cheats.  As a  June 30, 2008 Department of Justice press release and ABC news article both indicate, a John Doe  Summons was sought in federal court in Miami against UBS AG headquartered in Zurich.  In that case, the federal court in Miami issued a July 1, 2008 Order approving service of the John Doe Summons.  After that Order, UBS AG then provided U.S. authorities with the financial information of seventy UBS account holders.  UBS AG however, did not supply U.S. authorities with any 'Swiss-based client data",  according to "Indictments expected in UBS inquiry".

 

Copyright 2008 Fred L. Abrams

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Hiding assets in offshore or foreign bank accounts, is the focus of this "Asset Search News Roundup".  As I explained in "Using Multiple Jurisdictions To Launder Money", a common method of hiding assets is "putting assets offshore in one jurisdiction and exercising control over them through another".  Those using multiple jurisdictions to hide assets however, often also maintain offshore bank accounts as part of their schemes:

• On November 21, 2008 hotel executive Stanley S. Tollman pleaded guilty to tax fraud charges.  Mr. Tollman had allegedly used offshore bank accounts from 1994 to 1999 in order to hide assets and income from the IRS.  According to "Hotel Executive to Pay $105 Million in Fraud Case", Mr. Tollman received a sentence of only one day of probation, but agreed to pay the U.S. Government $105 million as part of a plea agreement.

• in "Key UBS exec indicted in tax scheme", The Miami Herald reported about the indictment of UBS executive Raoul Weil .  Prosecutors allege that Mr. Weil helped about 20,000 U.S. taxpayers conceal approximately $20 billion offshore during the years 2002 through 2007.  The November 24 article "UBS Clients Seek Amnesty on U.S. Taxes", also mentioned Mr. Weil's indictment.  It further indicated that, (because of anticipated tax fraud investigations), some UBS clients hiding assets offshore have approached the IRS hoping for amnesty.

• The Reuter's article: "FACTBOX: Status of bank secrecy protection in Europe" stated that U.S. President-elect Barack Obama "will open up a a new front in a growing campaign against Swiss banking secrecy".  It essentially reported that France and Germany are calling for greater scrutiny of offshore banking in high-risk geographical locations, such as Switzerland or other tax havens.

 

Copyright 2008 Fred L. Abrams

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The Bank of Lithuania, (i.e. the central bank of Lithuania), announced its recent anti-money laundering measures at a May 15, 2008 board meeting.  The Bank's focus on money laundering might already be paying off.  The Financial Intelligence Unit for Lithuania for example, recently detained two international gang members for suspected money laundering.

 

According to a Baltic Times' article, these gang members had laundered over 10.43 million euros in illicit assets through multiple jurisdictions including Lithuania and Latvia.  They had allegedly concealed their 10.43 euros in bank accounts belonging to bank customers that were Latvian corporations. Based on said article, the gang members also controlled the bank accounts by sending twelve forged authorization letters. 

 

While a vice president at a global bank, "Mr. London" investigated countless financial crimes.  He has a high degree of knowledge about asset searches and financial fraud investigations.  When I asked Mr. London about the Baltic Times article, he explained:

 

"The article is very unclear.  I suppose they could have opened new accounts in the name of the companies at banks where the companies were previously unknown, and then utilised them.  The issue there is that in obtaining copy company documents in some locations (UK included) you get ALL the details of the directors, including dob addresses and SIGNATURES, thus facilitating impersonation.  I know that UK Companies House is re thinking the situation so to guard against such incidents by making some details less accessible (many Registries already block personal information from prying eyes)....

How they got away with it (for a short time at least) in Lithuania, i.e. by submission of forged authorities granting them signing rights was a well used route. ( BUT I was always wary here in similar situations of possible staff collusion, for how would they know what accounts to utilise?) Mail intercept maybe, but that is a long shot and criminals prefer something more definite to provide a result."

 

Copyright 2008 Fred L. Abrams

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At "Asset Search vs. Offshore Asset Protection", I wrote that offshore asset protection services were being used to conceal assets from IRS revenue officers and others.  The Senate's Permanent Subcommittee On Investigations, just issued a 114-page report examining this same issue.  The Report entitled, Tax Haven Banks And U.S. Tax Compliance, explains how U.S. tax cheats hid assets from the IRS by using the asset protection services of Liechtenstein's LGT Group and Switzerland's UBS.


Page 2 of the Report for example, mentioned that the IRS had learned this past February of about 100 suspected tax cheats with offshore accounts at LGT Group.  The 100 were part of a group of 1400 who had allegedly opened offshore accounts at LGT to hide assets from tax authorities around the world.  As more fully described by "Offshore Bank Accounts In Liechtenstein", the suspected tax cheats were discovered because an LGT employee had sold a stolen LGT customer list.  The stolen customer list was eventually disseminated to the IRS and other tax authorities.


The Report also discussed former UBS banker Bradley Birkenfeld, who had cooperated with Senate Subcommittee investigators as mentioned by a July 17, Bloomberg.com article.  Mr. Birkenfeld pleaded guilty last month to helping billionaire California real estate developer Igor Olenicoff evade U.S. taxes.  According to Mr. Birkenfeld's indictment, he had conspired to hide assets from the IRS through: nominees; offshore credit cards; shell companies; bank accounts in high-risk locations / tax havens like Liechtenstein and Switzerland; etc. Among other things, Mr. Birkenfeld also violated various IRS reporting requirements and participated in the filing of false IRS income tax returns.


Finally, in a July 17, 2008 press release about the Report, Ranking Minority Member Norm Coleman (R-Minn), summed up the problem of banks that offered offshore asset protection:

"By exploiting gaping loopholes, these foreign banks are enabling felony tax evasion. Simply put, foreign banks should not be Al Capone safe-houses for evading taxes. Closing these loopholes means we must strengthen reporting requirements, broaden the scope of the audit program, and extend the amount of time the IRS has to investigate cases involving an offshore tax haven."

Copyright 2008 Fred L. Abrams

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Privacy and other federal laws generally prohibit pretexting, (the use of false pretenses), when contacting a U.S. bank, phone company or government agency for confidential information.  One example of pretexting would be using a false identity while phoning a bank to elicit a bank customer's personal account information.  If an information broker, private investigator, etc. pretexts during an asset search, some of the following federal statutes might possibly apply:

• 15 U.S.C. § 45 (Unfair methods of competition unlawful; prevention by Commission):  By relying on both 15 U.S.C. §45 and 15 U.SC. § 53 (False advertisements; injunctions and restraining orders), the Federal Trade Commission can sue pretexters for fraudulent, deceptive and unfair business practices.

• 15 U.S.C. § 6801 et. seq. (the Gramm-Leach-Bliley Act): makes it illegal to access private information by making pretext phone calls to a financial institution or its customers.  As my post "The Gramm-Leach-Bliley Act & An Asset Search" further explains, 15 U.S.C. § 6821 also prohibits the use of false documents to obtain private customer information.

• H.R. 4709, 109th Congress (2006) (Telephone Records and Privacy Protection Act of 2006):  This statute generally prohibits telephone record pretexting and the sale of illegally acquired telephone records.

• 18 U.S.C. § 1028 (Fraud and related activity in connection with identification documents, authentication features, and information):  Both this statute & 18 U.S.C. §1028A. (Aggravated identity theft), prohibit a broad range of frauds in connection with identification documents.

• 18 U.S.C. § 1341 (Frauds and swindles): Covers frauds which use U.S. mail.  It and 18 U.S.C. § 1343 (Fraud by wire, radio, or television), are the ubiquitous federal fraud statutes.

• 26 U.S.C. § 7213 (Unauthorized disclosure of information): Prohibits the unauthorized inspection or disclosure of U.S. tax returns or return information.   Subsection (a) (4), entitled "Solicitation", expressly covers the illegal sale and /or illegal receipt of tax return information.

• 42 U.S.C. § 1307 (Penalty for fraud): Among other things, covers misconduct like eliciting social security numbers through pretext calls to the U.S. Social Security Administration.

•  47 U.S.C. § 222 (The Telecommunications Act of 1996):  Section (c) (2) of this Act generally prohibits telephone record disclosure absent  "...affirmative written request by the customer, to any person designated by the customer".

One who pretexts in violation of the foregoing statutes, may face a Federal Trade Commission lawsuit or even criminal indictment.  In Federal Trade Commission v. Action Research Group, Inc. et. al. for example, information brokers ended up stipulating to a final order which permanently enjoined them from telephone record pretexting.  In Federal Trade Commission v. Victor L. Guzzeta d/b/a Smart Data Systems, yet another information broker stipulated to a final judgment, which similarly enjoined him from financial record pretexting.


In the U.S. District Court in Tacoma however, Mr. and Mrs. Torrella are being criminally prosecuted for their pretext calls to the I.R.S., Social Security Administration, pharmacies, medical offices and various state labor departments.  According to their indictment, the Torrellas made the pretext calls while performing asset searches and other services for the private investigators who are their co-defendants. 


The Torrellas and /or their co-defendants are charged with Conspiracy and violating many of the above-cited federal statutes: 18 U.S.C. § 1343 (Wire Fraud); 42 U.S.C. § 1307 (Penalty for Fraud); 26 U.S.C. § 7213 (Unauthorized  Disclosure of Information); and 18 U.S.C. §1028A (Aggravated Identity Theft).  Based on their May 20, 2008 plea agreements, both Mr. and Mrs. Torrella await sentencing.  According to a September 3, 2008 entry in their docket report, said sentencing has been scheduled by U.S. District Court Judge Ronald B. Leighton for February 13, 2009.

(Last Edited 11/3/08)

Copyright 2008 Fred L. Abrams

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As the Anti Money Laundering Blog mentioned on April 1, 2008, the U.S. State Department has listed the United Kingdom as a Major Money Laundering Country in 2008.  The State Department however, had also previously listed the United Kingdom as a Major Money Laundering Country in 2007.


The State Department releases its list of Major Money Laundering Countries as part of its annual International Control Narcotics Strategy Report.  At its Country Reports, the 2008 International Control Narcotics Strategy Report mentions that, among other things: 

"The UK should develop legislation and clearly enforceable implementing regulations to ensure that beneficial owners are identified and verified and that customer due diligence is required and ongoing, regardless of an already established relationship with the client."

In my October 8, 2007 post, "Fighting Financial Fraud At U.K. Banks", I too raised the issue of the effectiveness of some of the anti-money laundering regulation in the United Kingdom.  That particular post was partly based on a discussion I had with "Mr. London", who had investigated money laundering in the United Kingdom as a former vice president of a global bank.  Mr. London had suggested during our discussion, that money laundering would likely increase in the United Kingdom because of the "complicity  or misfeasance" of banks and the use of nominees to open bank accounts.   

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 2008-2010 Fred  L. Abrams

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The Organisation for Economic Co-operation and Development has disseminated a list with about 1400 suspected tax cheats on it, all of whom maintained offshore bank accounts through Liechtenstein's LGT Group.  As the CNBC article"Europe Tax Evasion Probe Going Global" mentioned, an LGT employee stole the list in 2002 and eventually sold it to Germany's foreign intelligence agency.


"Europe Tax Evasion Probe Going Global" also indicates that the 1400 on the list may have hidden assets and / or income from the domestic tax authorities of Germany, the U.S., Britain, Australia, Italy, France, Sweden, Canada and others.  Although LGT's February 24, 2008 press release, refuted the idea that all 1400 on the list were tax cheats, some of them may soon find themselves indicted for tax fraud in the U.S.  This could be true because the IRS announced in its February 26, 2008 press release, that it was "initiating enforcement action involving more than 100 U.S. taxpayers" on the list.


Last week a national newspaper telephoned me about the list of 1400 suspected tax cheats.  The newspaper wondered if it could retain me to somehow acquire a copy of the list.  Although I was unable to assist the newspaper, I contacted "Roger", the former intelligence officer mentioned in my post "Following The Money Trail In Zürich".  


"I have no interest in helping reporters, but if you want, maybe I could make a few calls", Roger said during our conversation about the list.  When I told Roger that as many as 600 on the list may have been Germans, he added:  "Because the German border is next to Liechtenstein, people would sometimes try to smuggle cash across it in the trunks of their cars.  Once in Liechtenstein, a suitcase full of cash could easily be deposited.  That's one reason Liechtenstein was a haven for hiding organized crime monies.  Liechtenstein has been the back pocket of Germany for years."

 

(Edited June 1, 2009)

Copyright Fred L. Abrams 2008

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The Gramm-Leach-Bliley Act (GLBA) at 15 U.S.C. § 6801 et. seq., protects the privacy of customers who provide information to U.S. financial institutions.  Although there are some important exceptions mentioned at 15 U.S.C. §6821(c) - (g), GLBA restricts access to  "nonpublic personal information" like bank account numbers, account balances, etc.  In some cases, GLBA can therefore act as a bar to an asset search at a financial institution.


At 15 U.S.C. §6821, GLBA specifically protects personal information at U.S. financial institutions by outlawing pretexting.  This means for example, that it is illegal to make false statements to a bank customer or a bank in order to access protected personal information.   Submitting false documents to a bank, (to obtain the protected information), is also illegal pursuant to 15 U.S.C. § 6821.  Soliciting a person to use false pretenses to access the protected information at a bank, is also prohibited.


Violating GLBA is punishable pursuant to 15 U.S.C. § 6823 by a criminal fine or imprisonment of up to five years.  In aggravated cases, fines may also be doubled and imprisonment can be for up to ten years.  As NXIVM Corp. vs. Rick Ross, U.S. District Court, District of New Jersey, Index # 06-CV-01051 demonstrates, a GLBA violation can however, also be alleged in a civil court case.  Although the NXIVM case was commenced as a trademark / copyright violation claim against Mr. Rick Ross, Mr. Ross filed a Verified Counterclaim alleging that NXVIM had illegally obtained his bank and other private information by hiring Mr. Juval Aviv of the Interfor private investigation firm.


According to allegations at page 8, paragraph 27of the Verified Counterclaim, Mr. Aviv had bribed a Fleet Bank employee to access Mr. Ross's personal bank information.  The Counterclaim alternatively alleged that Mr.Aviv had engaged in pretexting to illegally acquire the Fleet Bank information.  Mr. Aviv however, has denied any wrongdoing In his November 7, 2007 Reply filed with the Court.  As of the time of this writing, the foregoing claims have not yet been fully adjudicated by the Court.


Copyright 2008 Fred L. Abrams

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Mr. Nathan Vardi is an associate editor at Forbes Magazine and his news beat is money laundering.  His articles describe how drug dealers have sometimes used American Express, BankAtlantic, Union Bank of California / UnionBanCal and other U.S. financial institutions to launder money:

• "Drug Problem"
• "Dirty Dineros"
• "UnionBanCal's Drug Money Problem"
• "Blood Money"
• "Banking On Drugs"

To help prevent the very kind of money laundering Mr. Vardi's articles discuss, U.S. financial institutions are required to report suspicious financial activity.  As discussed by my post "Terrorist Financing, Money Laundering & Financial Intelligence Units ", Suspicious Activity Reports must be filed with the Financial Crimes Enforcement Network pursuant to 31 C.F.R. Part 103.18 and 31 U.S.C. §5318 {g}.  U.S. financial institutions must additionally have an effective anti-money laundering program under 31 U.S.C. §5318 (h) (1) and 31 C.F.R. Part 103.120.


As Mr. Vardi's articles also explain, American Express, BankAtlantic, Union Bank of California and others were investigated  or fined because of shortcomings in their anti-money laundering programs.  American Express for example, was fined $25 million on August 3, 2007 by the Financial Crimes Enforcement Network for inadequately reporting suspicious activity and lacking an anti-money laundering program.  American Express however, ultimately ended up forfeiting or paying a total of $65 million as a government fine in a deferred prosecution agreement announced August 6, 2007.  Meanwhile, BankAtlantic paid a total of $10 million in fines pursuant to its own deferred prosecution agreement announced April 26, 2006.  As a related Financial Crimes Enforcement Network Decision also explained, the $10 million was assessed because BankAtlantic had failed to properly report suspicious activity and maintain its anti-money laundering program.
 

Pursuant to a deferred prosecution agreement mentioned by a September 17, 2007 press release, Union Bank of California similarly forfeited / paid a total of  $31.6 million to settle claims that it too had violated anti-money laundering laws.  Included in said settlement was a $10 million fine imposed by a September 14, 2007 Decision from the Financial Crimes Enforcement Network.  According to the September 14 Decision, Union Bank of California had failed to maintain internal controls regarding its Suspicious Activity Reports. As the Summary at page 2 of that Decision also explains, Union Bank of California had ignored critically important money laundering indicia: 

"Union Bank failed to implement an adequate anti-money laundering program reasonably designed to identify and report transactions that exhibited indicia of money laundering, or other suspicious activity, considering the types of  products and services offered by the Bank, the volume of its business, and the nature of its customers."

As more fully set forth by my post "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy", the money laundering indicia are described at pages 19-23 and Appendix "F" of the Bank Secrecy Act / Anti-Money Laundering Examination Manual, and by several other authorities.

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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.  The Financial Action Task Force additionally 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, 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:

 

(Click On The Image To Enlarge It)

 

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.

(Edited January 10, 2010)

Copyright 2008-2010 Fred L. Abrams

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While "Roger" and I were walking near Bahnhofstrasse Street, Zurich, Roger suddenly stopped and had us duck into a corner shop. Once inside the shop Roger appeared to be looking for a particular item displayed in the shop's front window, although he was really scrutinizing the outside street.  He explained afterwards how it was necessary to check if we were being followed: "But first you must choose a side street or a main street where there are not many pedestrians or traffic, not a busy thoroughfare. You take mental pictures of everyone you think could be potential followers or surveillance cars as you continue along, before entering a store with windows which will permit you to survey the street".


Roger had a knack for locating offshore financial information because of his former work as an intelligence officer.  He and I were in Zurich on our way to meet my local Swiss counsel.  We were following the money trail of a financial fraudster who pretended in his U.S. court case to have a negative net worth.  Roger had brought with him the details of the fraudster's finances, which demonstrated that the fraudster had hidden tens of millions of dollars by money laundering through Switzerland.  Roger was about to share this information with me for the first time, at our meeting with the Swiss counsel.


In some cases, offshore financial information discovered during an asset search suggests that a foreign criminal law has been violated.  In Switzerland for example, one might conceivably violate criminal laws by lying about the beneficial ownership of a bank account, as mentioned in this legal memo from Swiss counsel:

  

 (To Read The Legal Memo, Click On The Image Above)

 

 

Swiss counsel has however, made the following important comments which relate to the information in the legal memo:

 

 "1)  Due in part to the current upheavals concerning the activities of major Swiss banks in the US, the law on financial regulation in Switzerland is somewhat uncertain. Though this is against Swiss legal tradition, the anti-money laundering rules in Switzerland follow what I believe is international practice in deliberately using a degree if vagueness about the exact standards to be applied so as to induce a "chilling effect". This uncertainty is rendered more acute by the difficulty of assessing the interaction between the laws of various nations. 

 

Note also that the rules and regulations have created a web of disclosures and of duties to investigate. It will be a brave person who in search of fiscal relief will navigate through this web without fear of having to make any misleading or materially wrong declaration (thus doing more than mere non-disclosure).

 

One practical result of the current problems with the US is that banks and Financial Intermediaries in Switzerland (and elsewhere in Europe) have simply stopped dealing with US nationals or US residents (except possibly through US based "on shore subsidiaries" of foreign banks), to the extent of closing long standing business relationships even in the absence of any specific allegation of wrongdoing, fiscal or otherwise. Thus while the law may not have changed, the climate in which the law operates has.

 

2)  In step with this development, the required standard of care expected of a Financial Intermediary (including a bank) is much higher and increasing continuously. Today quite sophisticated profiling and automatic monitoring of all transactions is routine. The effect of this is the same as mentioned above, the law has not fundamentally changed but the loopholes have become very small in practice.  Mere "non disclosure" is only effective if nobody asks.  Note also that current practice requires on-ongoing checks, not merely checks at the opening of the account bur also during its operation."          

 

 

 

(Edited February 1, 2010)

Copyright 2007-2010 Fred L. Abrams

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Parking assets offshore in one jurisdiction and then exercising control over them through another, sometimes indicates money laundering.  One example of how multiple jurisdictions were used to facilitate money laundering, is the case of  U.S.A. v. Proceeds of Crime Transferred to Certain Domestic Financial Accounts, Index # 07-CV-21791, U.S. District Court for the Southern District of Florida.  As mentioned by a July 16, 2007 press release, the Government commenced  the U.S.A. case in order to forfeit $110 million which had been part of a tainted $400 million court award in Italy.  According to both the foregoing press release and Reuters, the $400 million was tainted because the Italian Court awarded it after an interested party, (Mr. Angelo "Nino" Rovelli), had bribed its judges.


As an amended complaint in U.S.A alleged, Mr. Rovelli's wife Primarosa Battistella, had used Swiss bank accounts and three prominent lawyers, (Attilio Pacifico, Giovanni Acampora and Cesare Previti), to pay the bribes.  After Mr. Rovelli died in 1990, Ms. Battistella finally inherited the tainted $400 million in January 1994.  According to the amended complaint, she then had her accountant Mr. Pierfrancesco Munari, launder a substantial amount of it.  Mr. Munari had allegedly placed the tainted money in financial institutions and /or business entities which acted as laundering links in: the United States; the British Virgin Islands; the Cayman Islands; Guernsey; Jersey; Switzerland; Luxembourg; Liechtenstein; Singapore; the Cook Islands and Costa Rica. 


Some of the money laundered by Mr. Munari had allegedly been hidden in Florida via nineteen financial accounts. The government therefore asserted in U.S.A., that forfeiture was appropriate pursuant to the following:

• 18 U.S.C. §981 (a) (1) (A), (B) & (C)-- Asset forfeiture because of money laundering;

• 18 U.S.C. §984-- Asset forfeiture of identical property within one year of a laundering offense, etc;

• 18 U.S.C. §1956-- Money Laundering;

• 18 U.S.C. §1957-- Money Laundering of property from specified unlawful activity;

• 18 U.S.C. §2314-- Interstate or foreign transfer of property obtained by fraud;

• 28 U.S.C. §1345-- U.S. District Court jurisdiction where the Government is plaintiff;

• 28 U.S.C. §1355 (a)-- U.S. District Court jurisdiction over forfeiture proceedings;   

• Italian Criminal Code Articles 319ter and 321, Bribery in judicial acts.

After the judge in U.S.A. froze / restrained numerous financial accounts in July 2007, Ms. Battistella and other Rovelli family members eventually executed a settlement agreement consenting to the forfeiture of thirteen accounts.  As Mr. Munari's own settlement agreement further demonstrates, he too consented to forfeit an additional four accounts.  Although on November 21, 2007 the Court issued a Final Judgment of Forfeiture regarding the total of seventeen financial accounts, there may still be some unresolved issues.  According to Forbes.Com, a grand jury has been convened in Florida to examine whether Mr. Munari's money laundering scheme criminally involved: Wachovia; Citigroup; Merrill Lynch; Morgan Stanley; Lazard and others. 


Copyright 2007-2008 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; informal banking systems, 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 2010 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 25 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.

(Last Edited August 22, 2010)

Copyright 2007-2010 Fred L. Abrams

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A beneficial owner can try to use a nominee (i.e. representative) to hide money with complete anonymity in a bank account.  As the website of www.offshoresimple.com essentially explains, a beneficial owner may hire a nominee incorporation service to supply a bank signatory for a nominee bank account.  This suggests that a beneficial owner may 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 might 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 allegedly delayed or wrongfully denied medical benefits the employees were entitled to.  Mr. Edwards indictment additionally alleged that he had filed a false joint Income tax return for 1999, by underreporting taxable income.  In 2000, Mr. Edwards had supposedly underreported income in a false joint tax return and paid just $724 in taxes.  He was similarly accused of failing to file any tax return for the year 2001. 


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.

(Edited March 28, 2010)
Copyright 2007-2010 Fred L. Abrams

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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 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.
• Large Amounts Of Portable Valuable Commodities (Gold, Diamonds, etc.).
• False Invoicing In A Trade Or Business.
• Offshore Asset Protection Services.
• Offshore / Foreign Bank Accounts.
• Multiple Jurisdictions.
• Fraudulent Conveyances / Transfers.
• Shell Companies.
• Sham Trusts.
• Nominees.
• Bearer Instruments like Bearer Shares.
• Informal Banking Systems, (Hawala, Hui Kuan, etc.).
• Hiding Or Smuggling Cash.
• Offshore Credit Cards.
• Gambling Activities.
• Misuse Of Businesses (i.e. Commingling Personal With Business Assets).
• Structuring Bank Deposits, (a.k.a. "Smurfing").

(Last Edited 5/4/10)

Copyright 2007- 2010 Fred L. Abrams

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In the United States, the Financial Crimes Enforcement Network regulates the customer identification procedures, (a.k.a  "know your customer rules"), at banks.  In order to clarify these procedures, the Financial Crimes Enforcement Network issued guidance in January 2004.  These customer identification procedures codified at 31 C.F.R Part 103.121, demonstrate  that there is no discretion as to what information is needed when a new bank customer opens an account.  In the case of a customer who is a U.S. person for example, the minimum requisite information includes: a taxpayer identification number issued by the Internal Revenue Service (i.e. social security or employer identification number); date of birth; residential or business street address; etc.  After obtaining this kind of information, a U.S. bank must then verify it based on a "risk-based" approach.

 

The United Kingdom similarly has rules for checking the identities of its bank customers.  For example, the regulatory body for the financial services industry in the United Kingdom, (the Financial Services Authority or "FSA"), has published its know your customer rules in Discussion Paper 22, at pages 9-13.  This past July, the FSA also published a consumer leaflet mentioning these rules, "Just the facts about proving your identity".  The FSA's leaflet explains that UK law requires an identity check when a new customer opens a bank account and that checking identities helps prevent money laundering, identity theft and terrorist financing.  It further advises that: "Neither the FSA nor the law sets out how firms should check identity.  In most cases firms will follow guidance produced by an independent industry body, the Joint Money Laundering Steering Group".  According to the Joint Money Laundering Steering Group, a number of different documents can be used to prove identity such as a: passport; photo-style driver's license; letter from a social worker or care home manager verifying identity; etc.  As of August 31, 2006, the FSA had also replaced its Money Laundering Sourcebook with the guidance now found in its Senior Management, Systems and Controls Sourcebook, at SYSC 3.2.6 et. seq. 

 

There will however soon be regulatory change with respect to how a bank identifies its customers in the United Kingdom. This is true because the United Kingdom's new Money Laundering Regulations 2007* come into effect on December 15, 2007.  These regulations obligate banks to apply a standard of due diligence, (as determined by a risk-based approach), when they check a new customer's identity.  In many cases, banks will also be required to identify the true beneficial owner of funds.  Since the United Kingdom's rules for identifying bank customers are about to change, I wanted an expert's opinion.  I then called "Mr. London", who has vast experience in the methods used to hide assets as a former vice president of a major global bank in the United Kingdom.  Mr. London knew all about how banks checked their customers' identities, especially because he had been responsible for his bank's financial fraud and money laundering investigations.

 

During our phone conversation Mr. London expressed his belief that, (despite the prospective change in regulation), money laundering, terrorist financing and other financial fraud would likely continue to increase throughout the United Kingdom.  He also suggested that there was little standing in the way of a determined criminal because of the "complicity or misfeasance" of many banks and the use of nominees to open bank accounts.  Since crimes like money laundering and terrorist  financing often extend beyond just one nation's borders, I was left to wonder just what this meant for all of us.

 

 

*Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO

Copyright 2007 Fred L. Abrams

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The Financial Intelligence Units of the different jurisdictions in the Egmont Group, exchange information worldwide to track terrorist financing and fight crimes like money laundering.  Their exchange of information occurs pursuant to the Egmont Group's Principles for Information Exchange (June 2001) and Best Practices for the Exchange of Information (updated June 2004).  Sometimes Financial Intelligence Units ("FIU's") share information from a suspicious activity or suspicious transaction report filed by a bank or other entity.  This can happen especially because FIU's are the repository of the suspicious activity/transaction reports filed in their respective jurisdictions.  


As the World Bank's 2004 report "Financial Intelligence Units: An Overview" mentions, various jurisdictions define suspicious activity differently.  In the United States however, there are extensive rules about filing a Suspicious Activity Report.  Banks in the United States for example, are required by both 31U.S.C. §5318 (g) and 31 C.F.R Part 103.18 to file a Suspicious Activity Report with the FIU known as the Financial Crimes Enforcement Network.  As 31 C.F.R. Part 103.18 explains, a bank is generally required to file a Suspicious Activity Report within thirty days of a transaction which amounts to at least $5000 and: involves funds derived from crime; or disguises criminal activity; or evades reporting requirements; or has no apparent lawful purpose.  According to Guidance on Preparing A Complete & Sufficient Suspicious Activity Report Narrative, remembering the five "W's", (i.e. who, what, where, when, & why), is particularly helpful when supplying information in a Suspicious Activity Report to a FIU.
  

FIU's also study the methods used to launder money and then develop laundering "typologies" about them.  One such typology, Egmont Group Case Ref: 06058, shows how information about two suspicious trusts collected by the FIU of one country was passed on as a tip to a different country.  Yet another typology, Egmont Group Case Ref: 06063, demonstrates how a FIU analyzed wire transfers from Europe in order to spot two suspected members of a terrorist group involved in the 9/11 tragedy.  Finally, FIU typologies are used by law enforcement and regulators to track emerging criminal trends and develop countermeasures to financial crimes like money laundering. 

(Edited January 8, 2010)
Copyright 2007 Fred L. Abrams

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