A beneficial owner’s transfer of funds through banks in multiple jurisdictions, can be a red flag that assets have been secreted.  Purchasing large amounts of portable valuable commodities, hoarding cash, forming a shell company, etc, can also be red flags as mentioned by “Asset Search Indicia for Divorce, Debt Collection & Bankruptcy”.  The weight given to these red flags should meanwhile, depend on the facts and circumstances in a particular case.

It is also true that the ability to recognize red flags can be critical to a broad range of litigants searching for assets hidden via fraud or other illicit activity.  Such a litigant could for example, use red flags at a deposition to develop a line of questions about assets, liabilities and net worth.

As the list below also indicates, Financial Intelligence Units, U.S. Trustees, the IRS and U.S. banks, all rely on red flags to help uncover / interdict hidden assets:

1.  Financial Intelligence Units across the globe use red flags to detect assets hidden via money laundering, as more fully set forth by my above-mentioned post “Asset Search Indicia For Divorce, Debt Collection & Bankruptcy “.

2.  U.S. Trustees look for red flags to detect a debtor’s bankruptcy fraud / the concealment of bankruptcy estate assets.  These specific red flags are described in the U.S. Trustee Manual at 5-10.7.2 Red Flags/Common Characteristics in Cases of Concealment and False Statements.

3. The IRS uses red flags to search for undeclared revenue and hidden assets.  The IRS Manual describes the same at 25.1.2.3 (01-01-2003), Indicators of Fraud.

4.  U.S. Banks are required to look for red flags as part of their Bank Secrecy Act anti-money laundering programs, as mentioned by the Federal Financial Institutions Examination Council’s BSA / AML Examination Manual.

 (Edited October 12, 2011)

Copyright 2008-2011 Fred L. Abrams

This Asset Search News Roundup discusses: hiding assets through International Business Corporations; the continued restraint of Dennis Kozlowski’s assets; and the guilty verdict against Senator Ted Stevens for concealing his home renovations and other gifts:

  • A private investigator recently asked me how International Business Corporations and / or offshore credit cards may be used to hide assets during a tax fraud.  In "What are some of the Most Common Abusive Tax Schemes?", the IRS provides three examples of tax fraud schemes involving International Business Corporations.  As I explained at "High-Risk Locations & An Asset Search", the IRS also implemented its Offshore Credit Card Program to identify offshore cardholders and make them an "audit priority".
  • Senator Ted Stevens was convicted this past Monday of  lying about / concealing his home renovations and gifts from a wealthy oil contractor.  The Senator’s July 29, 2008 indictment specifically alleged that the Senator had violated 18 U.S.C. §1001 by making false statements in financial disclosure forms.  According to "Sen. Ted Stevens found guilty in corruption case", the Senator had testified for three days during his monthlong public corruption trial.

Copyright 2008 Fred L. Abrams

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

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

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

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

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

Copyright 2008 Fred L. Abrams

Some people commit identity theft or aggravated identity theft and then hide their illicit gains by laundering them.  This Asset Search News Roundup is therefore about both identity theft and money laundering:

  • Former Drexel student Jocelyn Kirsch was sentenced on October 17th to five years in prison for aggravated identity theft, money laundering and criminal conspiracy.  A criminal information filed against Ms. Kirsch and her co-conspirator Edward Anderton, had accused the two of laundering the proceeds from identity thefts through bank and PayPal accounts.
  • As explained at the October 21st article "ID theft: money laundering case", Australian authorities arrested a 29-year old who had allegedly belonged to an identity theft gang and laundered over $280,000.  The 29-year old was the 21st person criminally charged because of Operation Hickey, which was commenced in  Australia in 2006 to investigate identity theft.
  • "Criminals look for fall guys in identity theft scam", mentioned how an identity theft scam in the U.K. uses unsuspecting money mules to launder money.  The U.K. trade association APACS, issued a September 25 press release about such recruitment of money mules in the UK.  A recent WalesOnline article also briefly described the case of a British student who was solicited by e-mail to became a money mule.

Copyright 2008 Fred L. Abrams

Based on a March 2003 FinCEN Advisory, informal banking systems, (a.k.a. informal value transfer or alternative remittance systems), have been around since 5800 BC.  Such systems are abused by terrorists to transfer their funds, as more fully described by a presentation from the Organization for Security and Co-operation In Europe.  According to said presentation, the following are some informal banking systems from jurisdictions all over the world:

  1. hawala;
  2. hundi;
  3. hui kuan / fei-chien (a.k.a. “fei chi ien”);
  4. poey kuan (a.k.a. “phoe kuan”);
  5. hui.

While the above and other informal banking systems like the Mexican or Columbian Black Market Peso Exchange are most active in offshore geographical locations, they still of course continue to operate in the U.S.  In the U.S. for example, ordinary people sometimes send funds back home to their families through informal banking systems. Informal banking systems can however, additionally be used by an adversary to dissipate funds the subject of a divorce, bankruptcy, or other court proceeding.

Such an adversary might for example, use an informal banking system to conceal any marital, bankruptcy estate, or other kinds of assets.  An adversary may make his / her financial transfers via an informal banking system especially because the same could easily go undetected in the pre-trial phase of a trial or the computer-based research described at “A Low-Cost Asset Search“.

Transferring funds through an informal banking system might however, lead to the kind of criminal prosecution which occurred in “Operation Cash-Out”.  As a press release explained, Operation Cash-Out involved 46 defendants in multiple jurisdictions including the U.S., Spain, Canada and Belgium.  One of those defendants was Mr. Mohammad Ahsan, who was recently prosecuted in U.S.A. v. Ahsan, et. al.  As mentioned by the Department of Justice, Mr. Ahsan was sentenced on September 22, 2008, to three years in prison because he had conspired to launder money through a hawala.

Copyright 2008-2011 Fred L. Abrams

At "Asset Search Indicia For Divorce, Debt Collection & Bankruptcy ", I described a number of common asset concealment methods.  Three of these methods, (i.e. cash, portable valuable commodities and nominees), are explored by this week’s "Asset Search News Roundup":

a)  As I suggested to Forbes Magazine in its March 13, 2008 article "Cash Is King, cash remains hard to trace and can be used to hide one’s assets.  This very point was partly demonstrated by "Stash of Cash in Escambia County", which explained that a recent drug raid discovered hundreds of thousands of dollars at one Florida home, hidden in book bags, air conditioning ducts, etc.

 

b)  The October 2008 article "UBS and the Diamond Smuggler" mentioned how portable valuable commodities like diamonds may be used to hide assets.  The article disclosed that UBS banker Bradley Birkenfeld had hidden assets from the IRS by transporting diamonds in a tube of toothpaste at Swiss and U.S. border crossings.  Mr. Birkenfeld’s other asset concealment methods were discussed at my post, "Offering Offshore Asset Protection To Tax Cheats".

 

c)  Hareetz.com reported in "Police list reveals Abergil family assets", that wives and several others may have essentially been used as nominees to conceal the assets of a suspected Israeli criminal cartel.  Identified by Israeli authorities as early as 2004, some of these alleged illicit assets include: dozens of vehicles, 37 companies and 48 apartments.

Copyright 2008 Fred L. Abrams

One way a debtor may frustrate an asset search or delay forced collection proceedings is to dissipate assets through an excessive divorce settlement.  According to "Tyco gets OK to freeze Kozlowski’s assets" for example, ex-Tyco chief executive Dennis Kozlowski may be using his divorce settlement to delay his creditors.  At In Re: Tyco International, Ltd., Securities Litigation, 02-md-1335-B, Tyco therefore filed the following motion to enjoin Mr. Kozlowski from transferring his assets:

1) Main Document, 11 pages
2) Memorandum of Law, 16 pages
3) Exhibit (Affidavit) Declaration of Matthew R.A. Heiman, 6 pages
4) Exhibit A to Declaration of Heiman, 38 pages
5) Exhibit B to Declaration of Heiman, 8 pages
6) Exhibit C to Declaration of Heiman, 4 pages
7) Exhibit D to Declaration of Heiman, 4 pages
8) Exhibit E to Declaration of Heiman, 3 pages
9) Exhibit F to Declaration of Heiman, 5 pages
10) Proposed Order for Preliminary Injunction, 2 pages
11) Proposed Order Temporary Restraining Order, 2 pages

As its memorandum of law indicates, Tyco is seeking injunctive relief because it is a creditor with a $325 million dollar claim against Mr. Kozlowski.  Tyco’s memorandum describes how Mr. Kozlowski is in prison for looting Tyco and that Tyco had filed an amended complaint against him for: breach of fiduciary duty, fraud, conversion and breach of contract.  The memorandum also alleges that Mr. Kozlowski’s divorce settlement could be part of his scheme as a debtor to prevent Tyco from collecting on its $325 million dollar claim. 

At Exhibit "E" of the motion, Tyco additionally requests expedited discovery from Mr. Kozlowski, about his assets and divorce settlement.  Tyco may hope that such discovery pursuant to Fed. R. Civ. P. 26, 33 & 34, would prove that Mr. Kozlowski’s divorce settlement is part of a fraudulent conveyance to his wife.  Tyco might be able to use expedited discovery from Mr. Kozlowski to ultimately argue that his divorce settlement was excessive since he had only a childless five year marriage.  Based upon the foregoing, the Court issued its Order restraining Mr. Kozlowski from transferring assets up through October 17, 2008, while the litigation continues.

Copyright 2008 Fred L. Abrams

Covered by this "Asset Search News Roundup" are: a German student arrested for hiding $15 million in his luggage; Sir Ian Blair’s resignation amidst a public corruption claim; and the financial fraud investigation of AIG Insurance Company.

  • German customs officials made their largest cash seizure ever from an individual, after finding euros valued at $15 million hidden in a student’s luggage.  As mentioned by the Sydney Morning Herald, the 29- year-old German student was at Frankfurt Airport waiting to board a flight to the Middle East.  The student was likely a courier hiding / smuggling cash and is under investigation for suspected money laundering.
  • When Sir Ian Blair issued an October 2 statement explaining his resignation as London’s 24th Metropolitan Police Commissioner, Transparency International issued a statement of its own. Based on Transparency International’s statement, Sir Ian Blair’s resignation is related to public corruption allegations.  As the Daily Mail mentioned, Sir Ian Blair was accused of improperly giving more than £3million in Metropolitan Police contracts to his friend of 30 years, Andy  Miller. 
  • As was widely reported, AIG Insurance Company accepted an $85 billion federal government rescue loan and then spent hundreds of thousands on a lavish business event which included $23,000 in spa charges.  Although AIG’s spa charges did not involve criminal wrongdoing, AIG is already the subject of an ongoing financial fraud investigation.  

Copyright 2008 Fred L. Abrams

Perhaps most challenging, are asset searches and / or investigations seeking to uncover Nazi-looted art.  Such searches can ultimately end up in the filing of a Holocaust-related art restitution case.  As suggested at the article "Thousands of Nazi-Looted Works Are Held by Museums, Survey Says", lawyers, auction houses, genealogists and art detectives, may all have roles in these cases.  Even with all of the foregoing, parties to a Holocaust-related art restitution case still face a difficult litigation.

The Plaintiff in Bakalar v. Vavra, Index No. 05-CV-3037 (S.D.N.Y.) for example, essentially claimed that he had purchased Egon Schiele’s drawing "Seated Woman With Bent Left Leg (Torso)", in good faith.  According to Plaintiff, the Schiele drawing once belonged to Austrian-Jewish entertainer Fritz Grunbaum.  Fritz Grunbaum’s sister-in-law Mathilde Lukacs, had supposedly sold the drawing in 1956 to art dealer Eberhard Kornfeld at Galerie Gutekunst & Klipstein.  That very same year, Galerie Gutekunst & Klipstein next sold it to New York’s Galerie St. Etienne— where it was finally purchased by Plaintiff in 1963.  Stated differently, Plaintiff argued that the Schiele drawing was lawfully purchased and had never been stolen by the Nazis. 

Defendants contrarily argued that the drawing was Nazi-looted art which had been ransacked from the Vienna art collection of their long-deceased relative, Fritz Grunbaum.  Defendants specifically alleged that Eberhard Kornfeld had never acquired the Schiele drawing from Mathilde Luckas and that they were therefore entitled to contest its provenance.  Defendants made these and many other arguments in their closing statement, which they presented via PowerPoint at trial.  The Court’s September 2, 2008 Opinion and Order however, ruled against Defendants’ art restitution claim by concluding that Plaintiff held lawful title to the Schiele drawing.

Copyright 2008 Fred L. Abrams

Given the fact that some beneficial owners conceal funds in bank accounts used as money laundering "links", this "Asset Search News Roundup" describes money laundering news from around the world:

1. Australia: The Australian Institute of Criminology, has released its September report, "Money laundering risks of prepaid stored value cards".  Said report explains money laundering through the abuse of plastic cards, ("prepaid stored value cards"), which store value electronically.

 

2.  Switzerland: According to Swissinfo.ch, the Swiss Federal Prosecutor’s Office confirmed that ten affiliates of the People’s Mujahideen Organisation of Iran ("PMOI"), were just arrested by the authorities for money laundering.  PMOI remains banned by the European Union because PMOI is a known terrorist group.  The U.S. Treasury Department similarly lists PMOI at page 218 of its Specially Designated Nationals List, dated September 30, 2008.

 

3.  United States: Examiner.com reported this week, that Mr. Juan Solano was sentenced to 15 months for money laundering and harboring illegal aliens via his Maryland "El Pollo Rico" restaurant.  According to a Department of Justice press release, Mr. Solano and his sister Consuelo Solano were also ordered to hand over a total of $7.2 million in assets, because of the government’s asset forfeiture claim.

 

Copyright 2008 Fred L. Abrams