Given news reports like the September 27, 2007 Reuters’ article about money laundering in Israel, I am never surprised when an asset search reveals that a bankruptcy debtor, a divorcing spouse or other person has washed money through Israel.  In one case for example, (the facts of which have been sanitized / changed herein), the defendant in a civil case had laundered millions via an offshore bank account concealed in Israel.  The defendant had used an Israeli bank account as a laundering link to wash money after it had been transferred through several Major Money Laundering Countries.  The defendant had also hidden assets by purchasing real property in Israel in the name of a shell company which had been secretly formed.

Despite the fact of the real property hidden in Israel, (and the millions the defendant had laundered), the defendant repeatedly told the plaintiff in the civil case, things like: "I don’t have the money you think I have".  The defendant then threatened during settlement discussions that: "If we don’t settle now and we have to go to trial, you might never see a dime". 

   
In the above case, the plaintiff might have considered filing a Request For Legal Assistance / Letter Rogatory to elicit financial evidence from bank and other witnesses in Israel.  Prosecuting a Request For Legal Assistance, (like the attached sanitized / changed copy), can sometimes be critically important to the successful outcome of a civil litigation.  As my local counsel in Tel Aviv also has advised, a Request For Legal Assistance may also uncover violations of the Prohibition on Money Laundering Law 5760-2000 or other Israeli laws.

Copyright 2008 Fred L. Abrams

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

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

As Mr. Vardi’s articles also explain, American Express, BankAtlantic, Union Bank of California and others were investigated  or fined because of shortcomings in their anti-money laundering programs.  American Express for example, was fined $25 million on August 3, 2007 by the Financial Crimes Enforcement Network for inadequately reporting suspicious activity and lacking an anti-money laundering program.  American Express however, ultimately ended up forfeiting or paying a total of $65 million as a government fine in a deferred prosecution agreement announced August 6, 2007.  Meanwhile, BankAtlantic paid a total of $10 million in fines pursuant to its own deferred prosecution agreement announced April 26, 2006.  As a related Financial Crimes Enforcement Network Decision also explained, the $10 million was assessed because BankAtlantic had failed to properly report suspicious activity and maintain its anti-money laundering program.
Pursuant to a deferred prosecution agreement mentioned by a September 17, 2007 press release, Union Bank of California similarly forfeited / paid a total of  $31.6 million to settle claims that it too had violated anti-money laundering laws.  Included in said settlement was a $10 million fine imposed by a September 14, 2007 Decision from the Financial Crimes Enforcement Network.  According to the September 14 Decision, Union Bank of California had failed to maintain internal controls regarding its Suspicious Activity Reports. As the Summary at page 2 of that Decision also explains, Union Bank of California had ignored critically important money laundering indicia:

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

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

In the recent past, bearer shares especially allowed for anonymous corporate ownership.  A corporation that issued bearer shares had no central registry of the bearer share ownership.  As a glossary from the The Financial Action Task Force explains, “[b]earer shares refers to negotiable instruments that accord ownership in a legal person to the person who possesses the bearer share certificate”.  Via its 24th Recommendation “Transparency and beneficial ownership of legal persons,” the Financial Action Task Force also warns that bearer shares can be used to launder money.

I too have seen how bearer shares had likely been used to conceal marital assets and evade U.S. taxes.  In that particular case, (the facts of which have been changed herein for privacy reasons), the divorcing husband and his business partners accumulated $18 million in suspected undeclared revenue in the U.S.  The husband and his partners then secretly formed a shell corporation in the Republic of Panama.  They jointly owned and controlled this corporation through the issuance of bearer shares.

To prevent the interdiction of their bearer shares by domestic authorities, the husband and his partners retained a lawyer in Panama to hold the bearer shares in a trust.  As their trustee, the Panamanian lawyer deposited the bearer shares into a stock custody account at a bank in Panama.  As the following diagram demonstrates, the husband and his partners finally deposited their $18 million in suspected undeclared revenue, in a Cayman Island bank account in the name of their Panamanian shell company:

As described above, the husband and his partners hid their $18 million from the United States by employing multiple jurisdictions including Panama and the Cayman Islands.  They concealed their beneficial ownership of the $18 million through their use of protective layers consisting of: bearer shares; a nominee shell company established in Panama; a trust formed by a foreign gatekeeper (i.e. the Panamanian lawyer);  and an offshore bank account in the Cayman Islands.

Such layering is characteristic of money laundering and sometimes ends in the kind of tax fraud case filed by the U.S. Department of Justice against Mr. Walter Anderson, who is discussed  at my post “A $365 Million Dollar Tax Fraud“.  As that post mentioned, Mr. Anderson used bearer share stock certificates and shell companies to conceal the undeclared revenue he had parked offshore.

 

Copyright 2008-2021 Fred L. Abrams

The information supplied by foreign financial investigators indicated the divorcing husband had hidden marital assets offshore.  Evidence gathered during the divorce also suggested that the husband might have committed a tax fraud in hiding the marital assets.

To try to detect any additional assets hidden by the husband, I contacted Brian.  Brian was a former high-ranking official at the Treasury Department’s Financial Crimes Enforcement Network and he had earlier been an IRS Special Agent.  Brian was going to lead our interview of the husband’s business associate, who we were about to meet for the very first time.  Right before the interview, Brian identified some of the federal statutes relevant to many tax fraud investigations:

  • 26 U.S.C. § 6050I, large cash reporting requirements for trades & businesses (including attorneys).
  • 26 U.S.C. § 7201, most commonly applied tax evasion statute (however requires proof of a tax liability).
  • 26 U.S.C. § 7203, failure to file a timely tax return.
  • 26 U.S.C. § 7206 (1), perjury on a return / false statements, (unlike 26 U.S.C. § 7201,  proof of a tax liability is unnecessary).
  • 26 U.S.C. § 7206 (2), perjury on a return / false statements, but primarily used against tax return preparers such as accountants and attorneys.
  • 18 U.S.C. § 371, conspiracy to commit offense / defraud the United States.
  • 18 U.S.C. § 1001, false statements made to the federal government (can apply to any material verbal or written statement, even if unsworn).
  • 18 U.S.C. § 1956, money laundering.
  • 18 U.S.C. § 1957, money laundering involving property derived from specified unlawful activity.
  • 18 U.S.C. § 1961, Racketeer Influenced & Corrupt Organizations (“RICO”).
  • 31 U.S.C. § 5324, structuring bank deposits.

I hoped that Brian and I would learn what the business associate knew about the divorcing husband’s hidden money and suspected tax fraud.  As Brian started the interview, he told the business associate: “Once a tax fraud investigation starts rolling along, nobody knows where it may end up”.

Copyright 2008-2015 Fred L. Abrams

Edited February 8, 2014

During forced collection / attachment proceedings, the Debtor alleged that he could not pay the Creditor because of an arm’s length business loan from “Offshore Lender” in the millions.  The Debtor further claimed that he had collateralized his business loan with mortgages, promissory notes and U.C.C. liens, on nearly all of his property.

Through subpoenas and depositions during the enforcement/attachment proceedings, the Creditor learned that the Debtor’s Lawyer had:

  • Introduced the Debtor to Offshore Lender.
  • Jointly represented both the Debtor and Offshore Lender in the making of the loan.
  • Prepared all the loan documents, such as the mortgages, promissory notes, etc.
  • Not perfected a U.C.C. lien required by the loan, (although it would have secured millions / was a material condition of the loan).

The Creditor additionally discovered that Offshore Lender had never verified or evaluated the Debtor’s collateral for the loan, or even sought the Debtor’s financial statements as the loan required.  Nor were there any negative consequences, although the Debtor made no interest payments for a number of years.

When faced with the above kind of facts, alleging the “badges of fraud” may be critically important to the overall success of a Creditor’s forced collection proceeding.  As mentioned at “Badges Of Fraud In Debt Collection, Divorce & Bankruptcy“, the badges include: a close relationship between the parties; a transfer outside the ordinary scope of business; inadequate consideration; knowledge of a creditor’s claim; and retention of control of property.

Copyright 2008 Fred L. Abrams

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

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

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

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

Continue Reading Following The Money Trail In Zurich

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

A forfeiture complaint alleged that 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 supposed tainted $400 million in January 1994.  According to the forfeiture complaint, Ms. Battistella then had accountant 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 thought to be laundered by Mr. Munari, had allegedly been hidden in Florida via nineteen financial accounts. The government therefore asserted that forfeiture was appropriate pursuant to the following:

  • 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.

After the court froze / restrained numerous financial accounts in July 2007, Ms. Battistella and other Rovelli family members executed a settlement agreement consenting to the forfeiture of thirteen accounts.  As Mr. Munari’s own settlement agreement demonstrates, he too consented to forfeit four accounts.  Although on November 21, 2007 the Court issued a Final Judgment of Forfeiture regarding a 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 suspected money laundering scheme criminally involved: Wachovia; Citigroup; Merrill Lynch; Morgan Stanley; Lazard and others.

 

Copyright 2007-2019 Fred L. Abrams

As my post  “Divorce, Child Support & Reporting Tax Fraud” mentioned, divorcing spouses sometimes tip the IRS about a suspected tax fraud.  Mrs. Benjamin for example, tipped the IRS because she thought that her divorcing husband had underreported revenue from his commercial maintenance and landscaping business.  She specifically provided the IRS with the business documents Mr. Benjamin had produced during the pretrial discovery phase of their divorce case.  These documents included payment summary records from Mr. Benjamin’s customers like Wal-Mart.  As part of her tip to the IRS, Mrs. Benjamin also turned over joint tax returns which Mr. Benjamin had supposedly filed for the years 1998 and 1999.

A records check at the IRS however demonstrated that the 1998 and 1999 joint tax returns had never actually been filed by Mr. Benjamin.  The IRS also learned that from 1997 through 2001, Mr. Benjamin had neither paid income tax nor filed state or federal income tax returns.  IRS Special Agents then received false information from Mr. Benjamin when they interviewed him at his home on June 26, 2002.  The IRS also reviewed Mr. Benjamin’s bank accounts and conferred with Wal-Mart along with Mr. Benjamin’s other customers.  As a consequence of its asset search and tax fraud investigation, the IRS finally determined that Mr. Benjamin’s total gross receipts or sales between 1998 and 2001 had actually been about $1,139,470.18; and that Mr. Benjamin had a $129,396.91 tax liability.

The IRS further recognized that Mr. Benjamin had hidden assets and income by: pocketing cash payments from customers; paying personal expenses from a business bank account; and cashing customers’ checks instead of depositing them into his bank account.  During its investigation, the IRS additionally discovered that Mr. Benjamin had defrauded Wal-Mart through a false invoicing scheme.  By seeking payment for services he had never performed, (and faxing Wal-Mart twenty-two phony invoices between February 2001 and January 2002), Mr. Benjamin had duped Wal-Mart out of $417,583.

The IRS criminal investigation started by Mrs. Benjamin’s tax fraud tip eventually led to Mr. Benjamin’s fifty eight count indictment on July 27, 2005 in U.S.A. v. Benjamin, Index # 05-Cr-00348, U.S. District Court, District of Colorado.  Pursuant to his January 5, 2006 plea agreement, Mr. Benjamin pleaded guilty to violating 26 U.S.C. § 7201 (tax evasion) and 18 U.S.C. § 1343 (wire fraud).  Because of his white-collar crimes, Mr. Benjamin was sentenced on June 16, 2006 to serve two years in prison followed by three years of supervised release.  As Mr. Benjamin’s sentence and criminal judgment both mentioned, he was also directed to pay a $200 special assessment and to start making restitution payments to Wal-Mart after his release from prison.

Copyright 2007-2015 Fred L. Abrams

According to a press release, Mr. Walter Anderson’s tax fraud resulted in the “largest personal income tax evasion case brought by the Department of Justice”.  Pursuant to his September 8, 2006 plea agreement, telecommunications entrepreneur Walter Anderson pleaded guilty to violating two counts of 26 U.S.C. § 7201 (Attempt to evade or defeat tax), and one count of Title 22 District of Columbia Code § 3221 {a}, (Fraud in the first degree).

The Court sentenced Mr. Anderson on March 27, 2007 to nine years of prison for his failure to report about $365 million in income between 1995 and 1999; and also ordered him to pay the District of Columbia restitution in the amount of $22,809,032 dollars.  The superseding indictment filed on September 30, 2005 essentially alleged that Mr. Anderson had hidden undeclared revenue through offshore shell companies and bearer shares, (i.e. negotiable stocks filled out in the name of the “bearer”, for which no register of ownership is kept).

According to the allegations in his indictment, Mr. Anderson had hired Arias, Fabrega & Fabrega Trust Co. (BVI) to secretly form the nominee shell company, Gold & Appel Transfer, S.A.  Mr. Anderson was accused of using it and other shell companies like Aurora Telecommunications Limited, to hide assets.  By possessing the bearer shares of shell company Iceberg Transport, S.A., (which in turn owned the stock of Gold & Appel), Mr. Anderson was apparently able to secretly control hundreds of millions of dollars.

(Edited May 27, 2012)

Copyright 2007-2012 Fred L. Abrams

With more than 90 national chapters / chapters-in-formation since its founding in 1993, Transparency International is a lead group in the fight against the global white-collar crime of public corruption.  Transparency International publishes an annual "Corruption Perception Index" which ranks countries on a scale of "1" to "10" based on the perceptions of businessman and analysts.   A country ranked as a "10" would be considered to be "highly clean"; while a rank of  "1" would indicate a "highly corrupt" country.   For example, Transparency International’s 2007 Corruption Perception Index ranked Myanmar and Somalia at the very bottom of its list with a score of only "1.4".  Denmark, Finland, and New Zealand however had the highest score of "9.4".  Meanwhile, the United States was assigned a score of "7.2".

 
The Transparency International website additionally explains that corruption is "the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority."  Its website also describes the two distinct kinds of corruption, "according to rule" and "against the rule".   When a bribe is paid for services the bribe recipient is required by law to provide, then "according to rule" corruption has occurred.  "Against the rule" corruption has occurred when a bribe is paid for services the bribe recipient is prohibited from providing.

As has been widely reported, a corruption case was recently brought against Bernard Kerik, who formerly led the largest police department in America as New York City’s 40th Police Commissioner.  According to both the U.S. Attorney and Mr. Kerik’s sixteen count indictment, Mr. Kerik was the secret beneficiary of $250,000 in apartment renovations paid for by the principals of construction and waste management companies who sought contracts from New York City.  In consideration of said renovation payments, Kerik allegedly lobbied officials to award the sought after contracts.  Some of these payments are claimed to have been made even after Kerik had been sworn in as the Police Commissioner.  According to a government tax fraud chart, the U.S. Attorney has further alleged that Mr. Kerik also committed tax frauds involving at least $667,222.

As a review of Mr. Kerik’s indictment reveals, Mr. Kerik is essentially charged with committing the following white-collar crimes:

Copyright 2007 Fred L. Abrams