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.

 

Continue Reading Forced Collections Against A Fraudster Like Madoff

USA v. Madoff, is the topic of this "Asset Search News Roundup" because it illustrates how asset forfeiture can be used to help fight money laundering and other crimes.  Prosecutors specifically mentioned their asset forfeiture claims against Bernard Madoff at pages 23 – 25 of the Information they filed on March 10, 2009.

Among other things, the eleven-count Information charged Mr. Madoff with concealing assets through "international" and / or other money laundering.  (Information, at Counts 5, 6 & 7).  Paragraph 23 at pages 12-13 of the Information, suggested that Mr. Madoff used multiple jurisdictions and foreign bank accounts to launder monies.  Paragraph 23 for instance, explained that Mr. Madoff had laundered funds between financial accounts in New York and London.

After Mr. Madoff pleaded guilty to all eleven counts in the Information, prosecutors filed their Pimentel letter (i.e. a letter setting forth their position on the application of Federal Sentencing Guidelines to Mr. Madoff’s case). See United States v. Pimentel, 932 F.2d 1029, 1034 (2d Cir. 1991).  Both the Pimentel letter and Information cited the following statutes relevant to forfeiting assets: 18 U.S.C. §§981 (a) (1) (C) & 982;  21 U.S.C. § 853 (p);  and 28 U.S.C. § 2461.  As the "Notice of Intent To Seek Forfeiture" filed on March 15, 2009 also reveals, prosecutors are targeting assets possessed by both Mr. Madoff and his wife, Ruth.

Copyright 2009 Fred L. Abrams

The Wall Street Journal article "Madoff Used U.K. Office in Cash Ploy, Filing Says", states that Bernard Madoff is expected to plead guilty today to 11 felony counts arising out of his alleged Ponzi scheme.  That article also mentions that Mr. Madoff is accused of concealing assets by money laundering in the U.K.  Other recent reports about Bernard Madoff have been about whether he or his wife tried to hide / dissipate assets by transferring them.  Mr. Madoff for instance, may have tried to conceal some assets by mailing $1 million dollars in jewelry from New York to Florida, as mentioned by "Hiding Assets Through Portable Valuable Commodities". 

Meanwhile, Mr. Madoff’s wife Ruth, might have also tried to conceal Mr. Madoff’s assets by transferring some of them to herself.  According to a New York Times piece, Mrs. Madoff withdrew $15.5 million from a company partly owned by Mr. Madoff.  The withdrawal was actually in the form of two wire transfers to Mrs. Madoff, on November 25 & December 10, 2008.  The December 10 wire transfer had even occurred just one day before Mr. Madoff was arrested for his alleged Ponzi scheme.  These same wire transfers are specifically memorialized by the two documents below:

  Click here to enlarge image

Click here to enlarge image

The N.Y. Times piece also mentions Mr. Madoff”s claim, that a N.Y.C. penthouse and another $62 million supposedly belong to Mrs. Madoff and are arguably not subject to governmental seizure.  "In Madoff asset search, wife’s worth adds intrigue", similarly raises the question of whether Mr. Madoff is actually the true beneficial owner of these same assets allegedly belonging to Mrs. Madoff.  A beneficial owner anticipating seizure / forced collection proceedings may of course, make a fraudulent transfer to a spouse or ex-spouse, as described by Concealing Assets By Conveying Them and "Using Divorce To Dissipate Assets & Delay Creditors".

Depending on the circumstances, the Court could end up analyzing whether Mrs. Madoff was a wrongful transferee / involved in fraudulent transfers with Mr. Madoff.  In doing so, the Court might consider whether the November and December wire transfers to Mrs. Madoff were marked by "the badges of fraud".  As more fully set forth in "Badges Of Fraud In Debt Collection, Divorce & Bankruptcy", the badges include: knowledge of a creditor’s claim; whether there was inadequate consideration; etc.  

Copyright 2009 Fred L. Abrams

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

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

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

My post “Domestic Shell Companies & An Asset Search” explained that assets are sometimes concealed by shell companies used in a variety of financial frauds.  In fact, states like Nevada and Delaware are especially prone to the formation of shell companies lacking transparency.  Once such shell companies are established in Nevada, Delaware or elsewhere, they can be a means to open nominee bank accounts for a beneficial owner to hide his / her assets in.

Two federal cases pending in the he U.S. District Court for the Northern District of California, perhaps highlight how domestic shell companies might possibly be misused.  In the first of these cases, a December 18, 2008 criminal complaint was filed against Mr. AUSAF UMAR SIDDIQUI, alleging money laundering (18 U.S.C. §1957) from January 2005 to November 2008.

Although Mr. SIDDIQUI had reportedly earned an annual salary of about $225,000 as Vice President of Merchandising and Operations at Fry’s Electronics, Inc., he still supposedly defrauded Fry’s out of tens of millions of dollars.  As a review of the criminal complaint against Mr. SIDDIQUI reveals, Mr. SIDDIQUI was accused of laundering kickbacks he received from Fry’s Electronics’ vendors.  Paragraphs “8” & “23” of the complaint, claimed that Mr. SIDDIQUI concealed his kickbacks through the shell company PCI INTERNATIONAL, LLC– which Mr. SIDDIQUI allegedly operated from his residence.

A San Francisco Chronicle article from December 2008, reported that Mr. SIDDIQUI had hidden about $65 million through a shell company.  The docket report in Mr. SIDDIQUI’s case additionally reveals that Mr. SIDDIQUI was indicted on January 6, 2009 and charged with five counts of wire fraud (18 U.S.C. §1343) along with four counts of money laundering (18 U.S.C. § 1957 {a}).  The government is also seeking asset forfeiture under 18 U.S.C. §981(Civil Forfeiture), 18 U.S.C. §982 (Criminal Forfeiture), & 28 U.S.C. §2461(Mode of Recovery), as is fully set forth in Mr. SIDDIQUI’s indictment.

According to the unproven allegations in a second Northern District of California case, (i.e. Eclectic Properties East, LLC et. al. v. The Marcus & Millichap Company), real estate giant Marcus & Millichap Compay may too have misused domestic shell companies. Plaintiffs’ civil RICO complaint in that case alleges a fraudulent scheme involving 22 commercial properties in 4 states, which could have caused the loss of tens of millions of dollars.  According to that RICO complaint, the Defendants had sold properties after “artificially inflat[ing]” their value by using among other things, shell companies formed in Nevada and Delaware. (Plaintiffs’ Complaint, at ¶¶ 2, 5, 56-64, 69, 83, 85 & 86) (allegation of fraud via “dummy” or shell companies).

Plaintiffs’ RICO Complaint filed February 4, 2009, can be viewed below:

Copyright 2009-2019 Fred L. Abrams

In this "Asset Search News Roundup", I discuss the money laundering case against N.Y.P.D Officer Yaniris Balbuena– who is accused of hiding drug monies in nine bank accounts.  I also mention the money laundering investigation just commenced against Houston billionaire R. Allen Stanford.

 *Although Officer Yaniris Balbuena is almost a nine year veteran of the N.Y.P.D., she was arrested on February 13th for a suspected violation of 18 U.S.C.§ 1956 (h) (conspiracy to commit money laundering).  The New York Times and a U.S. Immigration and Customs Enforcement press release each explained that Officer Balbuena could have parked over $230,000 in drug monies in nine bank accounts.  The source of the $230,000 is believed to be Officer Balbuena’s former companion, an alleged Bronx narcotics trafficker killed in a drug-related homicide.  As reflected by the attached docket report, the money laundering case against Officer Balbuena is pending in the U.S. District Court for the Southern District of New York. 

**The February 16, 2009, SEC civil complaint against Houston billionaire R. Allen Stanford alleges that Mr. Stanford may have committed an $8 billion dollar fraud.  "Accused Financier Under Federal Drug Investigation" and Bloomberg.Com however, report that federal agents are additionally launching a money laundering investigation concerning Mr. Stanford.  Among other things, the investigation is reportedly focusing on whether Mr. Stanford could have washed monies on behalf of the narco-trafficking Gulf Cartel, whose kingpin Osiel Cardenas-Guillen, is pictured below:

 

Photo: U.S. Drug Enforcement Administration 

Copyright 2009 Fred L. Abrams

Financial Intelligence Units or other government agencies throughout the world have a keen interest in searching for illicit assets and then forfeiting them.  This global interest in asset forfeiture is perhaps marked by the growth of  “goAML” software from The United Nations Office on Drugs and Crime.  “GoAML” even includes “goATR”, which is asset tracking software designed to help government agencies search for and forfeit laundered assets.

The extent a given government agency may go to search for or forfeit illicit assets however, can very much depend on the money laundering or other laws within its jurisdiction.  A Swiss federal authorities webpage for instance, cites the following criminal laws which are generally relevant to both Swiss money laundering and asset forfeiture:

1. Art. 305bis, Swiss Criminal Code (Money Laundering).

2. Art. 305ter, Swiss Criminal Code (Insufficient Diligence in Financial Transactions and Right to Report).

3. Art. 260ter,  Swiss Criminal Code (Criminal Organisations).

4. Art. 260quinquies, Swiss Criminal Code (Financing Terrorism).

5. Art. 69 to 72, Swiss Criminal Code (Confiscation).

6. Art. 102 and 102a, Swiss Criminal Code (Corporate Criminal Responsibility).

U.S. government agencies like the Department of Justice can of course similarly seize and / or forfeit illicit assets hidden through money laundering or otherwise.  Furthermore, the U.S. Department of Justice reported that property deposited during 2008 into The Assets Forfeiture Fund repository of seized assets, was valued at $1,327,604,903.

Some asset forfeiture laws used by the U.S. Department of Justice to interdict assets are listed in my article,”Using Multiple Jurisdictions To Launder Money“.  Said article describes the particular case of a judicial bribery scheme which originated in Italy and concealed assets in the U.S., among other places.   As “Using Multiple Jurisdictions To Launder Money” reveals, the U.S. Department of Justice sought asset forfeiture regarding that judicial bribery scheme, because of both U.S. and Italian laws:

  • 18 U.S.C. §984— Asset forfeiture of identical property within one year of a laundering offense, etc;
  • 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;
  • Italian Criminal Code Articles 319ter and 321, Bribery in judicial acts.

Copyright 2009-2018 Fred L. Abrams

The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is the focus of this “Asset Search News Roundup”.  OFAC administers economic and trade sanctions against international drug traffickers, terrorists and certain countries under Presidential national emergency powers or federal laws.  In order to impose such economic sanctions, OFAC or other governmental authorities search for assets owned by those on the Specially Designated Nationals and Blocked Persons list.

OFAC for example, recently designated pharmaceutical company AQUILEA, S.A. and plastic bag manufacturer MEGAPLAST, S.A., as Specially Designated Narcotics Traffickers pursuant to Executive Order 12978.  As a U.S. Treasury Department press release explained, this designation freezes any assets subject to U.S. jurisdiction, which belong to MEGAPLAST or AQUILEA.

Said press release also suggests that the true beneficial ownership of MEGAPLAST and AQUILEA, (by drug kingpins Miguel Rodriguez Orejuela and Gilberto Rodriguez Orejuela), may have been concealed.  Furthermore, the following OFAC chart indicates that these drug kingpins might have concealed their MEGAPLAST and AQUILEA assets through family members used as nominees:

Click here to enlarge photo

Image: U.S. Treasury’s Office of Foreign Assets Control

Copyright 2009 Fred L. Abrams