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

Securities fraudster Trevor Cook, assets that might have been misappropriated from former East Germany, and over $2 million is interdicted at a U.S.-Mexican border crossing:
 

• Ex-Minneapolis money manager and securities fraudster Trevor Cook was sentenced a week ago to serve twenty-five years in prison for violating 18 U.S.C. §1341 (mail fraud) and 26 U.S.C. §7201 (tax fraud).  As Mr. Cook's sentencing memorandum reveals, he had earlier argued that the Court should impose just a twenty-year sentence. 
  
   
• Swiss banking documents that might memorialize the misappropriation of assets by parties and people's organizations from former East Germany, were turned over to the German Embassy in Bern on July 14th.  A July 15th media release issued by the Swiss Federal Department of Foreign Affairs reported that: "Germany had previously asked Switzerland for the documents in order to obtain further information about illegal financial movements before and after the fall of the Berlin Wall."
   

• Federal agents for the Calexico downtown port of entry at the U.S.-Mexican border interdicted more than $2 million dollars which possibly belongs to narco-traffickers.  The $2 million pictured below, was uncovered on August 8th during a vehicle inspection that included the use of  a currency-firearm detector dog.  A press release asserts that the $2 million had been hidden in luggage, a duffle bag and a plastic tub that were placed inside a vehicle.
   

Photo: U.S. Customs and Border Protection

Copyright 2010 Fred L. Abrams

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"The Americans & Swiss Target The Kleptocrats" contains an article discussing the Swiss “Federal Act on the restitution of politically exposed persons’ assets".  This act could be passed next month by the Swiss Parliament.  It would be used to freeze bribery proceeds or looted assets which some dictators and other politically exposed persons might transfer from a foreign state into Swiss bank accounts.

Even if a foreign state fails to make a mutual legal assistance treaty request to forfeit any illicit assets owned by a politically exposed person, said assets could still be frozen pursuant to the act.  As local Swiss counsel practicing in Zurich recently advised, "Basically the act provides that if, in the context of a failed state, the country in question can no longer make proper legal assistance requests, money seized in Switzerland from former rulers of that country can be returned anyway, if necessary by being given to some relief organisation." 

The act's sixth article creates a presumption that a politically exposed person possesses illicit assets based on the assertion that the same has sudden unexplained wealth and lives in a state believed to be corrupt:

 Art. 6 Presumption of illicit origin

<¹>The illicit origin of the assets is presumed when the following requirements are met:

a. The assets of the person who has the power of disposal of the assets is subject to a significant increase in comparison to the public function exercised by the politically exposed person, and
b. The level of corruption in the State of origin or of the concerned politically exposed person was manifestly high during the period in which the public function was performed.

<²>The presumption is reversed if evidence of lawful acquisition of the assets is demonstrated with preponderant plausibility.

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American and Swiss officials are ramping up their efforts to recover assets hidden by corrupt foreign politically exposed persons commonly referred to as kleptocrats.  A few of my thoughts about this are included at MoneyLaundering.com's August 6th article "U.S., Swiss Initiatives to Recover Looted Assets Likely to Bring Banks More Subpoenas, Regulatory Scrutiny ":  

         

"U.S., Swiss Initiatives to Recover Looted Assets Likely to Bring Banks More Subpoenas, Regulatory Scrutiny", Copyright 2010 Alert Global Media, reprinted with permission.

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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"Using Foreign Computer Evidence Against An Accused Hacker" explained that U.S. prosecutors accessed a Latvian computer server and other foreign computer evidence, where an identity thief was accused of storing stolen U.S. credit card information across international borders.  "Money Laundering, Marital Assets & Divorce" outlined the different fact pattern of a U.S. divorcing spouse who had first hidden undeclared revenue in a Swiss bank and next "washed" it through a bank in Germany. 

Private sector litigants aggrieved by such asset concealment schemes might elicit evidence from offshore banks or other necessary foreign witnesses through letters rogatory, as described by "A Primer For Gathering Financial Intelligence".  Governmental authorities can often additionally pursue Mutual Legal Assistance Treaty relief to help them elicit financial evidence from foreign witnesses.

Besides using Mutual Legal Assistance Treaties, governmental authorities might obtain foreign financial evidence through the methods mentioned at a March 2007 "USA Bulletin" article:

 

"Obtaining Foreign Evidence Outside of The Mutual Legal Assistance Treaty Process", is published by the Executive Office for United States Attorneys.

Copyright 2010 Fred L. Abrams

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A frequently asked questions Web page published by the Financial Action Task Force discusses multilateral initiatives and states: "Large-scale money laundering schemes invariably contain cross-border elements."  The Trevor Cook receiver undoubtedly recognizes the foregoing because he is tracking receivership estate assets across international borders, on behalf of investors damaged by Ponzi schemer and securities fraudster Trevor Cook.

Among other things, the Cook receiver is trying to interdict assets which may have been laundered through Mr. Cook's purchase of real property in Canada and Panama and by Mr. Cook's transfer of funds into Swiss bank accounts.  Swiss authorities have already frozen a one million dollar bank account at UBS AG connected to Mr. Cook, on the ground of suspected money laundering.

Swiss authorities probably froze this bank account by relying on anti-money laundering legislation including Art. 305bis of the Swiss Criminal Code.  Art. 305bis says in part:   

“Whoever commits an act suited to frustrate the determination of the origin, the discovery or the confiscation of assets that he knows or should know derive from a crime, shall be punished with imprisonment or a fine"

The Cook receiver is also using local Swiss counsel to provide Swiss banks with authorization forms, releases and powers of attorney executed by Mr. Cook.  These forms might persuade the Swiss banks to turnover any assets they maintain for Mr. Cook.  They might too be used to convince the Swiss banks to release Mr. Cook's banking information, which would ordinarily be kept confidential under Swiss professional secrecy laws. 

 

A sanitized / changed copy of one of these types of forms, is reproduced below.  It was prepared with the assistance of counsel from Zurich during one of my efforts to elicit evidence from bank witness residing in Switzerland.  Finally, "An Asset Search In Geneva", lists additional Swiss legal remedies available to the victims of a securities fraud.  

 

 

 Copyright 2010 Fred L. Abrams

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The financial fraud investigation connected to Minneapolis money manager Trevor Cook is thought to have widened; Andrew B. Silva is sentenced in Virginia for tax fraud; and the delay in disclosing the names of some UBS AG bank customers:

• "FBI now is investigating Trevor Cook's associates" reports that governmental authorities have broadened their financial fraud investigation of Trevor Cook's Ponzi scheme.  I earlier wrote about Mr. Cook's 33 minute plea hearing at the April 14, 2010 "Asset Search News Roundup".
   
• Bloomberg.com's article "Surgeon Avoids Prison for Plotting to Hide HSBC Cash" supplied the details of the June 11th sentencing of Andrew B. Silva in Virginia federal court.  As I wrote at A Doctor, A Lawyer & Bricks Of Cash In Switzerland, Andrew B. Silva had smuggled cash in packages containing less than $10,000 during his abusive offshore tax avoidance scheme.
   
• The August 23, 2009 Asset Search News Roundup referred to the settlement of the UBS "John Doe" summons case pursuant to U.S.-Swiss tax treaties.  "Swiss Parliament Passes UBS Bill, But the IRS Doesn’t Yet Have Names" too mentioned that settlement.  It explained that there has been a delay implementing the settlement, in disclosing the UBS AG bank customers who are suspected U.S. tax cheats.

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.

"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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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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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 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.

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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 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": 

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

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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: 

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:

 

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: 

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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Today's "Asset Search News Roundup" discusses yesterday's arrest and indictment of Mr. Allen Stanford, who was the subject of my very last blog post.  Just as Bernard Madoff was accused of money laundering, so is Mr. Stanford.  Mr. Stanford has among other things, been indicted pursuant to 18 U.S.C. §1956 (h) (Conspiracy to commit money laundering).  (Stanford Indictment, at pp. 45-48). 

Mr. Stanford's indictment claims that Mr. Stanford hid assets by laundering them through foreign bank accounts. (Id.).  In connection with Mr. Stanford's alleged crimes, U.S. authorities are also seeking the asset forfeiture of bank accounts in the United Kingdom, Canada and in Switzerland, including Geneva. (Id. at pp. 49-57). 

Assuming illicit assets were actually hidden by Mr. Stanford in Geneva, then Swiss statutes like Art. 305bis Swiss Criminal Code: Money Laundering (English Translation), might be relevant.  Finally, "An Asset Search In Geneva", explains some of the legal remedies which could apply to the asset forfeiture / seizure of any Stanford bank accounts maintained in Switzerland.

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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Forced collection proceedings against a fraudster like Mr. Bernard Madoff can involve an extraordinary number of prospective plaintiffs with competing interests in the fraudster's assets.  In Mr. Madoff's case, some of these plaintiffs competing over assets might even include foreign governmental authorities seeking asset forfeiture because of Mr. Madoff's money laundering in the United Kingdom or perhaps elsewhere.

Another prospective plaintiff in Mr. Madoff's case, is Irving H. Picard, Trustee for the liquidation of Mr. Madoff's assets on behalf of thousands of victims, pursuant to the Securities Investor Protection Act and the Court's Order.  As "Madoff Trustee Seeks to Recover Assets in Gibraltar" reported, Mr. Picard just made a bankruptcy court filing seeking to retain special counsel to recover property in Gibraltar which belongs to Madoff.

Given all of the foregoing, I asked Swiss counsel to examine some of the complexities in pursuing forced collection proceedings against a fraudster like Mr. Madoff.  My discussion with Swiss counsel was based on the hypothetical that someone similar to Mr. Madoff had hidden assets in banks in Switzerland.  Swiss counsel's comments are as follows:

"Complex forced collection proceedings may combine several competing recovery actions involving civil, criminal and administrative recovery remedies. To add to the complexity, these actions may be originated in various jurisdictions.

To take a concrete example, I am currently representing a client who was the victim of a fraud perpetrated in a far-eastern country. A criminal action against the perpetrator of the fraud was conducted in this country. The proceeds of the crime were transferred by the fraudster to the US where the fraudster managed to escape.

The fraudster was arrested at the request of the far-eastern country and sat in jail for three years for extradition purposes. Ultimately, he was extradited to that country and has now been sentenced to several years’ imprisonment.

The defrauded client chose to file a complaint for fraud, intentional misrepresentation, active concealment and several other counts including a RICO action against the fraudster in a Californian court.

The US attorney sought from a district court, an arrest warrant in rem of several assets in the US and also of funds deposited in a bank in Geneva.

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When assets are hidden in a foreign bank account or are otherwise offshore, domestic authorities might be able to seek asset forfeiture, discovery or other relief pursuant to a Mutual Legal Assistance Treaty ("MLAT").  Depending on the circumstances, MLAT's can particularly help domestic authorities trying to locate, (and then possibly forfeit), criminal proceeds which have been parked offshore.    

The United Nations Office on Drugs and Crime even offers a "Mutual Legal Assistance Request Writer Tool", which is depicted in the attached chart.  The first page of the U4 Anti-Corruption Resource Centre's publication "Mutual legal assistance treaties and money laundering", also describes the use of MLAT's.  Said publication mentions that MLAT's are important because  "corruption and money laundering cases are often and increasingly transnational".  The Internal Revenue Manual from the I.R.S. similarly discusses MLAT's at 9.7.10.2.1 (05-22-2006) Bilateral Treaties and the I.R.S. clearly relies on MLAT's as part of its fight against tax fraud.

Pursuing asset forfeiture, discovery or other relief pursuant to a MLAT can however, be challenging.  To cite just one example, Swiss counsel in Geneva and I just discussed difficulties the Swiss can face when seeking asset forfeiture / MLAT relief through the U.S. Department of Justice.  The problem arises from the fact that Swiss legal standards for showing the origin of criminal funds in an asset forfeiture case are less stringent, compared to those in the U.S. 

Some Swiss MLAT requests in asset forfeiture cases have in fact, been denied by the U.S. Department of Justice because these requests failed to sufficiently demonstrate under U.S. law, that the funds to be forfeited had criminal origins.  From a Swiss perspective meanwhile, those same asset forfeiture / MLAT requests were legally sufficient and entirely necessary under Swiss law.

(Edited July 10, 2010)

Copyright 2009-2010 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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The Asia / Pacific Group on Money Laundering explains on its typologies webpage, that one way to hide assets is by purchasing portable valuable commodities like diamonds.  The typologies webpage further gives the example of a beneficial owner concealing assets by transferring diamonds to another jurisdiction.  One man who may have tried this kind of asset concealment method is Bernard L. Madoff.  As reported in "U.S. Government to New York Judge: Jail Madoff Without Bail", Mr. Madoff is alleged to have dissipated assets by mailing $1million dollars in jewelry to relatives and friends vacationing in Florida.

Another man believed to have hidden assets by using portable valuable commodities was recently discovered upon his arrival at N.Y.C's J.F.K. Airport from Tel Aviv.  A press release states that the 54-year-old U.S. resident employed by the jewelry industry, had concealed three diamonds worth more than $1.2 million in his pocket.  U.S. authorities had first found jewelry receipts in the man's baggage, then interviewed him and finally interdicted the concealed diamonds during a pat-down.  These diamonds pictured below, were seized pursuant to 19 U.S.C. §1497, (Penalties for failure to declare) and 19 U.S.C. §1595a (c) (1) (A), (Merchandise introduced contrary to law):

                                 Photo Courtesy of U.S. Customs and Border Protection

My October 15, 2008 "Asset Search News Roundup" similarly mentioned that UBS banker Stanley Birkenfeld had hidden diamonds in a tube of toothpaste while an airline passenger at Swiss-U.S. border crossings.  As more fully set forth by "UBS and the Diamond Smuggler", Mr. Birkenfeld had assisted UBS bank customers like billionaire Igor Olenicoff hide assets and / or evade U.S. taxes.  Besides using diamonds, Mr. Birkenfeld hid assets by using phony loans and purchasing artwork with secret Swiss funds. 

Copyright 2009 Fred L. Abrams

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This "Asset Search News Roundup" highlights shell companies which can be used to conceal bankruptcy estate, marital, probate or other assets.  As "Bank Melli Accused Of Hiding Its Fifth Avenue Assets" mentions, the asset forfeiture case against New York's ASSA CORP. is perhaps a good example of a domestic shell company suspected of concealing assets via money laundering.

According to the article "New Wyoming business laws aimed at fighting fraud", Wyoming is trying to prevent such criminal misuse of its shell companies.  The article mentions among other things, that Wyoming has made filing false company information a felony punishable up to two years in prison.  The article additionally states that, (according to Wyoming's Secretary of State Max Maxfield), Wyoming could now be a less attractive venue for some criminals.

Foreign shell companies are however, also commonly used to hide assets. A Department of Justice press release and / or Boston Globe article explain that stolen paintings had been concealed through the Panamanian shell company Erie International Trading Co.  Retired Massachusetts attorney Robert Mardirosian had used Erie International Trading Co., offshore lawyers and a Swiss bank, to hide Paul Cezanne's Bouilloire et Fruits for twenty years.  Furthermore, he had hidden another six stolen paintings for thirty years the very same way. 

Copyright 2009 Fred L. Abrams

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My father attended Far Rockaway High School at the same time as Mr. Bernard Madoff and in fact, they were in the same graduating class.  He remembers from his high school yearbook "The Dolphin", that Mr. Madoff had lived in the Rockaways and was an ardent swimmer.  My father even showed me "The Dolphin", which contains a picture of Mr. Madoff in his youth.  The Far Rockaway of Mr. Madoff's youth however, has little in common with the offshore high-risk geographical locations Mr. Madoff might have concealed assets in.

As I briefly indicated in the most recent New York Times article "Madoff Spotlight Turns To Role  Of Offshore Funds", enormous sums of money may be hidden by using multiple jurisdictions and nominees.  This same conclusion is partly reached by the Financial Action Task Force, whose "Money Laundering FAQ" webpage states that: "Large-scale money laundering schemes invariably contain cross-border elements."   According to "Madoff Spotlight Turns To Role Of Offshore Funds", cross-border elements in Mr. Madoff's case might include offshore locations such as: the Cayman Islands, Bermuda, Ireland, Singapore and banks in Switzerland.

To interdict illicit assets possibly hidden by Mr. Madoff in these offshore locations, governmental authorities could be turning to U.S. Treasury Department's FinCen and other Financial Intelligence Units.  These Financial Intelligence Units may be using red flags to follow a money trail left by Mr. Madoff or his suspected nominees.  By recognizing red flags, Financial Intelligence Units or other governmental authorities might ultimately locate and forfeit assets beneficially owned by Mr. Madoff, which arise from his alleged $50 billion dollar Ponzi scheme.

(Edited January 15, 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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The victims of a securities fraud, divorcing spouses, post-judgment creditors, etc. can have several remedies available to them if they need to recover assets hidden offshore.  One might even pursue an asset search or debt collection proceeding in the various offshore tax havens.  This is particularly true when a bank is used as a laundering “link” to hide funds in a money laundering circuit or assets have otherwise been hidden during a financial fraud. 

To cite just one example, I have previously filed letters rogatory / legal assistance requests with the Court in Geneva, (“the “Parquet du Procureuer général), because of suspected money laundering at two Swiss banks.  As mentioned at "An Asset Search With Letters Rogatory", these kinds of legal remedies can sometimes be used to elicit financial information from bank witnesses. 

Other forms of relief for those seeking to recover funds hidden offshore, can range from attaching a bank account to alerting a financial intelligence unit.  Local counsel in Geneva has explained these legal remedies which are available in Switzerland:

"As you probably know, Switzerland does not follow the common law doctrine. We do not adhere to the institution of discovery. The usual tools available to a claimant are therefore the filing of a criminal complaint, which is actually the most efficient way to get past the banking secrecy. Access to the information will be granted only if someone can be indicted. In exceptional circumstances a broader access to the information collected within the frame of the criminal investigation can be granted on a discretionary basis. 

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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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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:

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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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A former Criminal Intelligence Specialist at Scotland Yard confirmed that the divorcing husband was hiding millions from his wife by using nominee bank accounts in Switzerland, among other things.  The husband's true beneficial ownership of these funds had been concealed by a nominee who had used shell corporations.  The evidence suggested that the nominee had engaged in money laundering for the husband.  The nominee might have also laundered organized crime monies.
 

The above information could possibly be used during a divorce to impeach the husband at a deposition about his alleged net worth and assets.  The Swiss bank information could also be used to frame a line of questions at a subpoenaed deposition of the nominee.  As partly demonstrated by the example of a changed / sanitized letter rogatory to Obergericht des Kantons Zürich, evidence might too be elicited from bank witnesses in Switzerland.  Such letters rogatory / legal assistance requests can sometimes play an important role in an asset search, as mentioned at "Asset Search Tips For Divorce & Child Support Cases".


As my local Swiss counsel advises, making a business of parking assets in Switzerland and concealing their beneficial ownership could possibly violate Art. 305bis Swiss Criminal Code: Money Laundering (English Translation).  In addition to 305bis, some of the Swiss laws relevant  to money laundering and / or hiding assets include:

• the Federal Act on Combating Money Laundering in the Financial Sector: Anti-Money Laundering Act, AMLA (English Translation).

• Art. 305ter Swiss Criminal Code: Insufficient Diligence In Financial Transactions and Right to Report (English Translation).

• Art. 260ter Swiss Criminal Code: Criminal Organizations (English Translation).

• Art. 260quinquies Swiss Criminal Code: Financing Terrorism (English Translation).

• Art. 69 to 72 Swiss Criminal Code: Confiscation (English Translation).

• Art. 102 and 102a Swiss Criminal Code: Corporate Criminal Responsibility (English Translation).  

Given all of the foregoing, there are a number of legal strategies that might be used in connection with the divorcing husband's assets hidden in Switzerland.  Among other things these strategies could include: enlisting the help of foreign investigators like the above-mentioned former Criminal Intelligence Specialist; retaining local counsel in Switzerland; and prosecuting letters rogatory / legal assistance requests.

(Edited February 1, 2010)

Copyright 2007-2010 Fred L. Abrams

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Money laundering circuits sometimes operate in the U.S. through domestic bank accounts used as "laundering links".  It is also true that money laundering circuits washing vast sums of money, will typically do so through offshore bank accounts located in tax havens like Switzerland, Luxembourg, the Cayman Islands, etc.  Such was the case of one divorcing husband, (the depiction of whom is altered below for privacy reasons), who laundered his U.S. money between Switzerland and Germany.

Prior to the valuation / equitable distribution hearing in his divorce case, the husband alleged that he had a liability of $29 million owed to a prime bank in Germany because of an arm's length business loan.  An investigation however revealed that his loan was back-to-back , (i.e. a fully collateralized loan in which the borrower and the lender are one and the same).  The husband had first secretly deposited $30 million into a Swiss bank account and next used that same $30 million to collateralize a Swiss bank guarantee for $29 million.  By then using that Swiss bank guarantee as full collateral, the husband persuaded a German bank to issue a personal bank loan to him for $29 million to be disbursed in Germany.


After the loan principal was disbursed to him in Germany, the husband intentionally failed to repay his $29 million debt due and owing to the German bank.  The husband's loan default meant that the German bank would collect $29 million transferred from Switzerland pursuant to the Swiss bank guarantee which had served as loan collateral.  As the link chart below suggests, the loan default in Germany was actually the very means used to wash the money the husband had earlier deposited in Switzerland:

 

(Click On The Link Chart To Enlarge)

The husband's financial transfers shown above had no economic benefit, as is usually the case where a back-to-back loan is used to hide assets.  Back-to-back loans however, are not only sometimes used to conceal marital assets during a divorce. They can also regrettably be used in a tax fraud to hide assets and income; by a debtor hiding assets from a creditor; or as a means to disguise monies which are the proceeds of a white-collar or other crime.

 

(Edited January 22, 2010)

Copyright 2007-2010 Fred L. Abrams

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