We can learn how to search for assets by studying tax frauds. I say this because tax fraud cases show us the methods people use to conceal their assets. When we study tax fraud cases, we learn to recognize these asset concealment methods. Once we can recognize the methods, we know to look for them each time we perform an search. This is why studying tax fraud cases can help us learn how to search for assets. The suspected tax fraud cases discussed below highlight these methods for hiding assets: cryptocurrency, going offshore and nominees.

I. CRYPTOCURRENCY

The federal court in U.S.A. v. John Does, Index No. 2:22-cv-05715 issued its August 15, 2022 Order allowing the IRS to serve its John Doe summons upon SFOX a.k.a. “OxLabs Inc.” SFOX is a cryptocurrency dealer headquartered in Los Angeles. Although prosecutors do not accuse SFOX of any misconduct, the John Doe summons may help the IRS identify any taxpayers hiding assets through cryptocurrency transactions at SFOX.  One court filing in U.S.A v. John Doe, is the July 20, 2022 declaration of IRS Senior Revenue Agent Seng Tchong Lee. Pages 35-44, ¶¶ 93-102 at the July 20th declaration, describe 10 taxpayers with SFOX accounts, who may have used cryptocurrency / virtual currency to commit tax fraud.

II. GOING OFFSHORE

Billionaire Robert F. Smith allegedly used offshore bank accounts & / or offshore trusts to conceal assets from the IRS.  This is mentioned at the August 17, 2022 NY Post article “Tax cheat Robert F. Smith bought ranch, ski condos, nightclub with hidden money: report.” Moreover, the article mentions that Mr. Smith reportedly hid his money offshore with the help of Mr. Carlos E. Kepke.  Mr. Kepke was a Houston-based tax attorney. Mr. Kepke and Mr. Smith allegedly hid about $225 million from the IRS.  In furtherance of this suspected tax fraud scheme, Mr. Kepke supposedly formed a business entity in Nevis and a Belizean trust.  Foreign bank accounts in Switzerland and the British Virgin Islands were also reportedly used in the alleged scheme.  On April 15, 2021 Mr. Kepke was indicted for his suspected role in this scheme. Mr. Kepke’s trial is currently set down for November 28, 2022, according to Mr. Kepke’s docket report at entry no. 34.

III. NOMINEES (a.k.a. “INTERMEDIARIES)

In U.S.A. v. Baiense, Index No. 22-cr-10148, prosecutors essentially allege between April 2013 through December 2017, Mr. Mauricio Barobosa Baiense committed tax fraud by using subcontractors as his nominees. Mr. Baiense who owned Contract Framing Builders, Inc. (“CFB”), allegedly issued CFB checks worth $11 million to the subcontractors. After the subcontractors reportedly cashed the checks at a check-cashing business, Mr. Baiense may have secretly collected this cash. Then, Mr. Baiense allegedly used the cash as an off-the-books cash payroll to pay wages owed to CFB employees.  Consequently, Mr. Baiense’s July 28, 2022 superseding indictment accuses Mr. Baiense of: conspiracy to defraud the United States (18 U.S.C. § 371); failure to collect and pay over taxes (26 U.S.C. § 7202); aiding and assisting the preparation of a false tax return (26 U.S.C. § 7206(2)); and false statements (18 U.S.C. § 1001(a)(2)).

Copyright 2022 Fred L. Abrams

If you are in a high net worth divorce, you might hire a forensic computer expert to access your divorcing spouse’s computer. You might hire this expert to try to detect community property your divorcing spouse hid from you. Meanwhile, if you are going to access your divorcing spouse’s computer, make sure your access does not violate the federal anti-hacking statute and / or other laws. Additionally, before your forensic computer expert examines your spouse’s computer, use interrogatories during your divorce to collect background information about the computer.

I. ACCESS YOUR SPOUSE’S COMPUTER LEGALLY

You, your matrimonial lawyer and your forensic computer expert must use legal methods to access your spouse’s computer. This means you may need to apply for a court order authorizing you to forensically examine / access your spouse’s computer. Even if you share a computer with your spouse in your marital residence, you still might need a court order to legally access your spouse’s information at the shared computer.  This is especially true if you need to access your spouse’s password protected information at this computer. If you illegally access your spouse’s information at a computer, you could be civilly & / or criminally liable under the federal anti-hacking statute, the Computer Fraud and Abuse Act (18 U.S.C. § 1030). Illegally accessing your spouse’s computer could also be a violation of your state’s law.  

II. USE INTERROGATORIES TO COLLECT INFORMATION ABOUT YOUR SPOUSE’S COMPUTER

Furthermore, before your forensic computer expert examines your spouse’s computer, learn background information about this computer or other computers your spouse uses.  You might elicit this background information from your spouse by using interrogatories during the pretrial discovery phase of your divorce.  At your interrogatories, here are just some of the things you can ask your spouse about: 

  • Does your spouse use multiple computers and if so, where are they located?
  • Has your spouse’s computer been “wiped clean” / has a data destruction application been used at the computer?
  • What backup sets exist of your spouse’s computer and what is the current location of these backups?

Using interrogatories to collect this kind of information from your spouse, increases the odds your forensic computer examination will detect any community property your spouse hid from you.  For more interrogatories related to a prospective forensic computer examination, visit the webpage available here.

 

If your spouse is a highly paid key employee, your spouse may participate in a nonqualified deferred compensation plan offered by an employer. By using this kind of plan, your high net worth spouse might reduce taxes by deferring an employer’s payment of salary, stock share certificates, cash or other assets. The YouTube video above explains why some employers offer key employees a nonqualified deferred compensation plan.  An Investopedia webpage also talks about what a NQDCA is.

I. IS YOUR SPOUSE HIDING COMMUNITY PROPERTY AT A NONQUALIFIED DEFERRED COMPENSATION PLAN?

If you are in a high net worth divorce and your spouse is a highly paid key employee, your spouse might use a nonqualified deferred compensation plan, (hereinafter “NQDC”), to hide community property from you.  Your spouse can do this during your divorce by failing to disclose a NQDC to you. Then, after your divorce is over, your spouse might be able to collect the compensation / assets due under the NQDC from an employer.  Meanwhile, assets distributed to your spouse under a NQDC, can be community property / can be part of your marital estate. This means when your spouse hides a NQDC, your spouse could be cheating you out of community property the Court would have distributed to you because of your divorce.

II. COLLECTING EVIDENCE ABOUT A NQDC

Accordingly, you should elicit evidence during your high net worth divorce about any NQDC your spouse might have as a highly paid key employee. You should be able to collect this evidence by using legal tools available to you during the pretrial discovery phase of your divorce. These tools may include a subpoenaed deposition of your spouse’s employer, & / or an oral deposition of your spouse, & /or requests for the production of documents, etc. You would use these legal tools to ask detailed questions about whether your high net worth spouse had a NQDC. Here is an example of just four of the kinds of questions you can ask:

1.    Did the Employer directly or indirectly maintain any nonqualified deferred compensation, (hereinafter “NQDC”), arrangements for “Mr. XYZ,” including but not limited to any trusts, escrows, or separate accounts? If so, provide the details.  For instance, regarding “Mr. XYZ,” did the Employer maintain any of the following:

a.    Salary Reduction Arrangements (i.e. which defer the receipt of otherwise currently includible compensation by allowing the participant to defer receipt of a portion of his or her salary).

b.    Bonus Deferral Plans (i.e. resemble salary reduction arrangements; except they enable participants to defer receipt of bonuses).

c.     Top-Hat Plans also known as Supplemental Executive Retirement Plans or SERPs (i.e. NQDC plans maintained primarily for a select group of management or highly compensated employees).

d.    Excess Benefit Plans (i.e. NQDC plans that provide benefits solely to employees whose benefits under the employer’s qualified plan are limited by IRC§ 415).

2.    To the extent not already disclosed by the Employer herein, did the Employer provide a compensation plan for “Mr. XYZ” which used any of the agreements / plans /trusts listed below at (a)-(d)? If so, provide the details.

a.    Salary or bonus deferral agreements

b.    Phantom Stock Plans

c.     Restricted Stock Plan

d.    Offshore Rabbi Trusts, Springing Rabbi Trusts, and/or Rabbi Trusts funded for the benefit of company executives.

3.    Were there any written communications between the Employer and “Mr. XYZ” that set forth “benefits,” “perks,” “savings,” “severance plans,” or “retirement arrangements”? If so, please identify each of these written communications.

4.     If the Employer directly or indirectly maintained NQDC plans, (or any NQDC arrangement involving trusts, escrows, or separate accounts), for or on behalf of “Mr. XYZ”, identify all documents the Employer possesses regarding the same. This includes but is not limited to the following:

  • Copies of each NQDC plan/arrangement “Mr. XYZ” participated in, including all attachments, amendments, restatements, etc.
  • “Mr. XYZ’s” deferral election forms and any amended or changed election forms.
  • Ledger accounts/account statements concerning “Mr. XYZ”, noting deferrals, distributions, and loans.
  • All other documents created by the administrator of each NQDC plan/arrangement “Mr. XYZ” participated in.

Copyright 2022 Fred L. Abrams

This chart shows how dentist Glenn E. Lockwood allegedly hid assets by structuring cash withdrawals.¹
The First Scheme To Hide Assets

Prosecutors in U.S.A. v. Lockwood, allege Alaska dentist Glenn Lockwood hid assets twice from the IRS.  During Mr. Lockwood’s first scheme, Mr. Lockwood supposedly hid $575,000 in federal income taxes for years 2000-2003.  Mr. Lockwood is thought to have hidden the $575,000 through these common concealment tools:

As a consequence of his first scheme, Mr. Lockwood was convicted of tax evasion in violation of 26 U.S.C. § 7201.  He was sentenced to 60 months in prison followed by 3 years of supervised release.

The Second Suspected Scheme

Mr. Lockwood’s second scheme to hide assets allegedly spans from 2013 to the present.  It supposedly involves Mr. Lockwood’s effort to evade more than $3.5 million in taxes. Within weeks of Mr. Lockwood’s release from imprisonment for his first scheme, Mr. Lockwood allegedly started his second scheme to hide assets.  First, Mr. Lockwood is thought to have used LegalZoom to form a shell company in Wyoming called Strategic Innovations LLC. Next, Mr. Lockwood allegedly hid a bank account and other assets by titling them in the name of Strategic Innovations LLC. When bank accounts are hidden this way they are referred to as “nominee bank accounts”.

As part of his alleged second scheme, Mr. Lockwood also reportedly engaged in structuring. Structuring occurs when a bank customer structures cash deposits or cash withdraws so they are less than the $10,000 threshold for the bank to create a Currency Transaction Report.  Prosecutors say over a five-week period, Mr. Lockwood and his wife deposited $164,000 into the Strategic Innovations LLC. Then, Mr. Lockwood and his wife are thought to have “structured nearly all of the money out of the Strategic Innovations account [emphasis added]”.  Prosecutor’s May 2, 2022 Motion for Detention Hearing, at p.18.

Additionally, Mr. Lockwood and his wife are suspected of filing for bankruptcy and then concealing assets belonging to their bankruptcy estate. As a result of the alleged second scheme, Prosecutors have charged Mr. Lockwood and his wife with: tax evasion, conspiring to defraud the United States, bankruptcy fraud, wire fraud, money laundering and other federal crimes. To learn more about Mr. & Mrs. Lockwood’s suspected crimes, read their  April 20, 2022 indictment available here.

Copyright 2022 Fred L. Abrams

By using forensic computer experts in your divorce, you might identify a money trail leading to community property your spouse hid from you. In fact, you may be able to ask the Court to appoint a forensic computer expert to act as special master in your case. This special master would examine your spouse’s computer for any evidence showing your spouse hid community property.  As part of this examination, the special master would copy the computer’s hard drive. Then, the special master could search the copy by using keywords based on the facts in your case. To cite one example, if you suspected your spouse hid assets at a bank in Luxembourg, the special master could use “Luxembourg” as a search query.

At the time of your divorce, you might use forensic computer experts for reasons other than just tracking community property. In Stein v. Needle the Court appointed Special Counsel, Inc., as special master in connection with a civil lawsuit Dr. Stein filed against Mrs. Stein.  Among other things, Special Counsel, Inc. offers forensic computer examinations. At the civil lawsuit, Dr. Stein alleged Mrs.Stein hacked into Dr. Stein’s computer database during the couple’s divorce.  Meanwhile, Mrs. Stein claimed she only accessed Dr. Stein’s database to preserve evidence reportedly showing Dr. Stein was hiding community property. To read about Special Counsel, Inc’s forensic computer examination in Stein v. Needle, click on the image below.

Copyright 2022 Fred L. Abrams

I.  Are Secret Swiss Bank Accounts Still A Viable Concealment Tool?

The number of secret Swiss bank accounts held by U.S. citizens has decreased in recent years. This is due to FATCA; and Qualified Intermediary Withholding Agreements with the IRS; and the U.S. Government’s Swiss Bank Program. According to my counsel in Switzerland, many Swiss banks refuse to open bank accounts for U.S. citizens because of reporting requirements the banks have to the IRS. Meanwhile, “Roger” the former foreign intelligence officer featured at some of my blog posts, had a different view.  Roger told me if Swiss bankers already knew you, some of them would still help you hide your assets.

II.  Common Concealment Methods & Swiss Life Holding AG

As the IRS started to focus on tax evaders hiding assets at Swiss banks, many of the tax evaders hid assets in other ways. Some of these tax evaders started hiding assets with the help of the insurance company, Swiss Life Holding AG and 3 of its subsidiaries (referred to collectively as “Swiss Life”). At their information filed May 14, 2021, prosecutors in the U.S. accused Swiss Life of conspiring from 2005 to 2014 with tax evaders.  During those years Swiss Life had reportedly helped tax evaders hide assets and income in offshore accounts. However, on or about May 14, 2021, prosecutors also made a deferred prosecution agreement with Swiss Life. The agreement’s Statement of Facts suggests Swiss Life used these concealment methods to assist the tax evaders:

III.  How To Search For Hidden Money At Offshore Banks

If your adversary has hidden money from you offshore, consider using private investigators and letters rogatory (a.k.a. letters of request or requests for legal assistance).  Private investigators may be able to collect a tip from an informant who knows about your adversary’s financial affairs and dislikes your adversary / has an axe to grind.  Informants can be ex-wives, paramours, disgruntled employees, former business partners, etc.  If your adversary does actually have a secret offshore bank account, a tip from an informant could conceivably help you locate this account.

You might also apply to the Court for letters rogatory. A letter rogatory is a court order directing a witness in a foreign country to supply evidence. Court’s typically issue letters rogatory pursuant to The Hague Convention of March 18, 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters. You might be able to use a letter rogatory to gather your adversary’s bank account information from a Swiss bank or other offshore bank witness. Below is a letter rogatory from the Family Court in Ankara, Turkey.  The letter rogatory was authorized last month by a federal court in the State of Delaware.  It seeks bank account information from Bank of America in the U.S., about 4 individuals because of a probate matter in Turkey. The Family Court in Turkey issued the letter rogatory since it considers Bank of America in the United States, to be a witness located in a foreign country.

Click On The Image To Read The Turkish Family Court’s Letter Rogatory 

Copyright 2022 Fred L. Abrams

I. Alleged Hidden Marital Assets At A Bahamian Trust

Mrs. Jennifer Stein suspected her anesthesiologist husband Dr. Barry D. Stein, had hidden marital assets during their divorce.  According to Mrs. Stein, Dr. Stein transferred assets to a Bahamian trust to place them out of Mrs. Stein’s reach. Dr. Stein allegedly manipulated the family finances, Mrs. Stein said. Therefore, Mrs. Stein claims she needed to preserve evidence at the computer she shared with Dr. Stein in their marital home, (“the home computer”). Meanwhile, Dr. Stein used the home computer to access a database with patient medical records, employment records and additional data. Since federal and state laws required Dr. Stein to keep the medical records private, Dr. Stein’s database was password protected at the home computer.

Although Dr. Stein had his own password to access the database, Mrs. Stein is believed to have discovered what Dr. Stein’s password was. On April 2, 2018, Mrs. Stein might have used Dr. Stein’s password at the home computer, without Dr. Stein’s permission. At that time, Mrs. Stein may have copied Dr. Stein’s database to an external USB hard drive even though the database had patient medical records and other confidential data. A paralegal who worked for Mrs. Stein’s divorce lawyers the Needle Cuda Firm & / or the Law Offices of Melissa Needle, LLC, may have helped Mrs. Stein copy Dr. Stein’s database.

II. Dr. Stein Sues Mrs. Stein Under The Computer Fraud And Abuse Act

In Stein v. Needle, 19-cv-01634, Dr. Stein and 2 business entities, (which Dr. Stein owned & / or was a partner of), sued Mrs. Stein, the Needle Cuda Firm and others under the Computer Fraud and Abuse Act at 18 U.S.C. § 1030 (“the Act”). Under the Act, prosecutors can bring criminal charges against hackers. The Act also allows victims to bring civil lawsuits in federal court against hackers. In the lawsuits, the victims can sue hackers for compensatory damages, injunctive relief or other equitable relief.

At its March 29, 2021 Decision, the Court refused to dismiss Dr. Stein’s lawsuit. The Court indicated under the Act, it was irrelevant whether or not the home computer was marital property. Nor did it matter under the Act, that the home computer was shared by Dr. & Mrs. Stein in their marital home. Page 23 of the Court’s Decision explained what mattered under the Act, was that Dr. Stein’s lawsuit alleged “enough facts to show that at the very least Mrs. Stein exceeded authorized access by entering a password to Dr. Stein’s subaccount without permission to do so.”

Copyright 2022 Fred L. Abrams

Today’s post mentions indicators your divorcing spouse could have hidden marital property. It also asks: will the Court exclude evidence showing your spouse hid marital property, if your private investigator illegally obtained this evidence?

A) Indicators Your Spouse May Be Hiding Marital Property

As soon as your high-net-worth spouse filed for divorce in New York, your spouse claims his / her businesses had fallen on hard times. Therefore, your spouse took large loans from offshore lenders. Then, your spouse failed to repay these loans and was in default. Consequently, your spouse alleges in your divorce a net worth of “0”. Meanwhile, these events only first happened when your spouse filed for divorce. As American sports legend Yogi Berra said: “That’s too coincidental to be coincidental”.

Furthermore, when your spouse filed for divorce, your spouse left New York with your spouse’s paramour, (“the paramour”). These two were now living in a $3 million home in California the paramour had supposedly purchased. However, you suspect the paramour was your spouse’s intermediary and that your spouse had actually purchased the California home.  Stated differently, you believe your spouse used the paramour as the nominee purchaser of the California home.  Like your spouse’s “0” net worth claim, your spouse’s suspected use of a nominee purchaser is an indicator your spouse could be hiding marital property / community property.

B) The Investigation Of Your Spouse

Since there are indicators your spouse is hiding marital property, you hire a private investigator licensed in New York. Your investigator will track your spouse’s assets and seek evidence showing your spouse owned the $3 million home rather than the paramour. Three months after you hired the private investigator, your investigator says the following: Continue Reading Your Spouse Hid Marital Property & Your PI Obtains Evidence Illegally

Bulk Cash Smuggling

On February 2, 2021 Mr. Vincent DelGiudice pleaded guilty in his federal case to concealing assets by money laundering and conducting an illegal gambling operation in Illinois. During 1996, a Cook County Illinois court also reportedly convicted Mr. DelGiudice of keeping a gambling place. Meanwhile, Mr. DelGiudice’s federal case gives us a glimpse of 4 ways people conceal assets: bulk cash smuggling; portable valuable commodities, purchasing real estate; & employing offshore elements.

I.               Bulk Cash Smuggling & Portable Valuable Commodities
When federal agents in Mr. DelGiudice’s federal case raided Mr. DelGiudice’s home in April 2019, they found over $1 million in cash. The federal agents would have likely considered this cash to be an indicator that Mr. DelGiudice had concealed assets by bulk cash smuggling.  During their April 2019 raid of Mr. DelGuidice’s home, the federal agents also found coins worth $92,623 and $347,895 in silver bars and jewelry. The federal agents probably viewed the coins, silver bars and jewelry, as indicators that Mr. DelGiudice had used portable valuable commodities to conceal assets.

II.              Real Estate & Cross Border Elements
Mr. DelGiudice is also thought to have hidden money he earned from his gambling operation by using this money to purchase real estate like his Orland Park, Illinois home.  Therefore, at Mr. DelGuidice’s plea agreement in his federal case, Mr. DelGiudice agreed to the government’s forfeiture of the home.  Additionally, Mr. DelGiudice is believed to have used offshore elements to conceal his earnings from his gambling operation. This is shown by Mr. DelGiudice’s employment of an offshore company in Costa Rica which handled the accounting and website management of Mr. DelGiudice’s Illinois-based gambling operation.

Copyright 2022 Fred L. Abrams

Concealing AssetsIn USA v. Allen, Pennsylvania anesthesiologist Mr. James G. Allen Jr. pleaded guilty to tax fraud on June 4, 2019. Mr. Allen’s plan for concealing assets from the IRS seemingly relied on two common concealment methods. These two methods were abusing an offshore bank account and misusing a nominee, (i.e. intermediary). Mr. Allen is thought to have put the two methods to work to conceal more than $3 million in income both he and his wife had earned as anesthesiologists.

TWO COMMON METHODS FOR CONCEALING ASSETS

Prosecutors in USA v. Allen said Mr. Allen had hidden money in an offshore bank account located in the Baliwick of Jersey.  Additionally, prosecutors indicated Mr. Allen had been concealing his car and house by titling them in the name of a nominee—the Kenpo Unification Church. Prosecutors also alleged Mr. Allen concealed some of his and his wife’s earnings as anesthesiologists, by transferring the earnings through the Kenpo Unification Church. Prosecutors said the Kenpo Unification Church was a sham religious entity Mr. Allen had formed. Mr. Allen is thought to have selected the name Kenpo Unification Church because Mr. Allen had been a black belt candidate in the martial art of American Kenpo.

MR. ALLEN BLAMES THE BOOK “CRACKING THE CODE”

Furthermore, the judge presiding over Mr. Allen’s January 16, 2020 sentencing hearing said Mr. Allen had not accepted responsibility for his tax fraud. The judge said this after Mr. Allen read his statement at the sentencing hearing. Among other things, Mr. Allen’s statement blamed his tax fraud on a book Mr. Allen started reading in 2009.  This book, called “Cracking The Code” was written by Peter Hendrickson. Rejecting Mr. Allen’s claim that “Cracking the Code” somehow caused Mr. Allen to commit tax fraud, the Judge sentenced Mr. Allen to 30 months of prison.  The Judge also directed Mr. Allen to pay restitution in the amount of $1,084,658.52.

Copyright 2021 Fred L. Abrams