An investigation of a high-risk geographical location can sometimes uncover assets which have been hidden through: nominees; shell companies; cash couriers; wire transfers; credit cards; informal banking systems, etc.  For example, one way the IRS focuses on high-risk locations like tax havens, is to compare the banking information it receives from the Financial Crimes Enforcement Network with the foreign bank disclosure taxpayers make pursuant to their Form 90-22.1, the Foreign Bank and Financial Account Report.  The IRS also makes U.S. residents with offshore credit / debit cards an audit priority pursuant to its Offshore Credit Card Program.

The State Department is similarly concerned with high-risk offshore locations as demonstrated by part of its International Narcotics Control Strategy Report, Major Money Laundering Countries.  U.S. banks too make geographic location a risk factor in their anti-money laundering programs.  As explained at page 25 of the Bank Secrecy Act / Anti-Money Laundering Examination Manual: “U.S. banks should understand and evaluate the specific risks associated with doing business in, opening accounts for customers from, or facilitating transactions involving certain geographic locations.”

The Financial Crimes Enforcement Network also deems seven U.S. regions to be High Intensity Financial Crimes Areas because of their extraordinary vulnerability to money laundering.  Law enforcement may even commit additional resources to scrutinize financial transactions in such regions or in a High-Intensity Drug Trafficking Area.  As my post “Domestic Shell Companies & An Asset Search” further suggests, jurisdictions like Delaware, Nevada, Wyoming, and Oregon are additionally considered to be high-risk because assets are so easily concealed through shell companies formed there.

The isolated fact that a financial transaction has a nexus to a high-risk location does not however necessarily support the conclusion that assets have been concealed.  A judgment debtor, divorcing spouse, etc. should still be thoroughly investigated to ensure that an offshore or domestic high-risk location has not been used to hide assets.

(Last Edited August 22, 2010)

Copyright 2007-2010 Fred L. Abrams

Sometimes information from passports, phone records, or the documents found in one’s home can be a red flag that a divorcing spouse has hidden assets in an offshore bank.  One divorcing wife recently explained to me that her absconding husband had left a box full of Internet research about offshore banks in their basement.  These documents could have been passed on as a tip to foreign investigators to help the wife narrow her asset search.  They might possibly have also been used as impeachment material at the divorcing husband’s upcoming deposition about his assets / net worth.

Documents relating to offshore bank accounts are also routinely used by federal agents along with other facts to apply for search / arrest warrants in white-collar crime cases.  In the bribery and money laundering case against Major John Cockerham for example, a Special Agent’s affidavit alleged at pages 11-12 ¶ 25, that the following were seized from Major Cockerham’s residence: Internet research about opening offshore bank accounts; a document entitled “Bulletproof Asset Protection”; a handwritten note mentioning two books about hiding assets offshore; account opening documents from an offshore bank; etc.

If a New York divorcing spouse similarly hides marital assets in offshore bank accounts, then he / she may be penalized at the time of an equitable distribution award under N.Y. DRL § 236 (B) (5) (d) (11) for “wasteful dissipation”.  In Maharam v. Maharam, 245 AD2d 94, 95 (1997) for example, the Court increased a divorcing wife’s equitable distribution award from 55% to 65% because her husband had among other things, secreted assets at an offshore bank.  As a review of N.Y. DRL § 236 (B) (5) (d) however demonstrates, “wasteful dissipation” is one of many factors the Court considers when awarding equitable distribution in a New York divorce-

In determining an equitable disposition of property under paragraph c, the court shall consider:

(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action;

(2) the duration of the marriage and the age and health of both parties;

(3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects;

(4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of dissolution;

(5) any award of maintenance under subdivision six of this part;

(6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party;

(7) the liquid or non-liquid character of all marital property;

(8) the probable future financial circumstances of each party;

(9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party;

(10) the tax consequences to each party;

(11) the wasteful dissipation of assets by either spouse;

(12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration;

(13) any other factor which the court shall expressly find to be just and proper.

Copyright 2007 Fred L. Abrams

With the lawsuit ending in a large money judgment in favor of the Judgment Creditor, the Debtor filed for bankruptcy in order to protect his personal assets.  To collect on its judgment against the Debtor, the Judgment Creditor then filed a proof of claim as an unsecured creditor in the bankruptcy.  The Judgment Creditor thought that it would eventually receive the proceeds of the bankruptcy estate with the Debtor’s assets, upon its liquidation by the bankruptcy court.

An investigation however, suggested that in order to cheat the Judgment Creditor out of its fair share of these proceeds, the Debtor had earlier mortgaged and given liens on all his property in favor of an offshore lender, Sham Creditor.  The Debtor had agreed to these mortgages and liens in consideration of phony loans which he had defaulted on.  Because of these phony loans and mortgages, Sham Creditor filed a secured proof of claim for millions in the Debtor’s bankruptcy.

Nobody knew at the time Sham Creditor filed its secured proof of claim that, (in anticipation of his bankruptcy), the Debtor had transferred millions prepetition to Sham Creditor through offshore bank accounts and a nominee.  Nor did anyone initially know that Sham Creditor was just a shell corporation controlled by the Debtor through bearer shares, like the attached sanitized copy.

In fact, the Debtor pretended throughout his bankruptcy that his phony loans, mortgages and liens were all legitimate and that Sham Creditor was an ordinary arm’s-length lender.  The Judgment Creditor soon realized that it would not be able to successfully compete with Sham Creditor for the limited assets in the bankruptcy estate.  This was true because Sham Creditor had filed a secured proof of claim, (unlike the Judgment Creditor), and therefore had priority over the Debtor’s assets in the bankruptcy estate. 

The Judgment Creditor finally accepted a settlement offer from the Debtor, who had agreed to pay just a small amount of the large money judgment / unsecured proof of claim.  The Judgment Creditor had thrown in the towel because it lacked legally sufficient evidence that the Debtor had essentially filed Sham Creditor’s proof of claim by using: bearer shares, phony loans, a shell corporation and a nominee.

Copyright 2007-2008 Fred L. Abrams

I. NOMINEE BANK ACCOUNTS

Beneficial owners can try to use a nominee, (i.e. intermediary/straw owner), to hide money with complete anonymity in a bank account. Through websites like Offshore-Protection.com beneficial owners may purchase a shell company and retain a nominee director for the shell company.  The beneficial owner may then title a bank account in the shell company’s name. This kind of bank account is known as a “nominee bank account”. The beneficial owner can even hire a third party to to act as a bank signatory for this bank account.

By using a shell company, nominee director and third party as a bank signatory, a beneficial owner may be able to maintain a secret bank account.  Businesses which help their customers establish shell companies and open nominee bank accounts are called nominee incorporation services. According to page 64 of the 2007 National Money Laundering Strategy, nominee incorporation services that arranged U.S. bank accounts and shell companies were believed to annually launder as much as $36 billion just from the former Soviet Union.

II. FRIENDS OR RELATIVES AS NOMINEES

Instead of retaining a nominee incorporation service, some beneficial owners hide assets by using friends or relatives as nominees.  According to his twenty-one count forty-four page July 26, 2005 indictment, Mr. Edwards for example, had stolen insurance premiums and then concealed them in nominee financial accounts in the names of his wife and two shell companies.  Mr. Edwards had also used his wife as the nominee purchaser of his mountain chalet and a  “palatial” home– both of which were bought with stolen insurance premiums.

All of the foregoing had been part of Mr. Edward’s insurance and tax fraud scheme which lasted from about January, 1999 through April 30, 2001.  Via his indictment, Mr. Edwards was charged with: mail fraud (18 U.S.C. § 1341 & 18 U.S.C. § 1342); wire fraud ( 18 U.S.C. § 1343); making false statements to a  financial institution (18 U.S.C. § 1014);  theft from a health care benefit program (18 U.S.C. § 669); money laundering (18 U.S.C.§ 1957 [a] & [b]); and tax evasion (26 U.S.C. § 7201).

Mr. Edwards was accused of collecting insurance premiums from various employers while unlicensed to do so.  Instead of providing thousands of employees with workers’ compensation insurance, he converted their insurance premiums for his own use.  Between January 1, 2000 and April 30, 2001 Mr. Edwards also allegedly stole $2.5 million from his company Fidelity Group, Inc., which was a health care benefit group as mentioned by 18 U.S.C. § 24 (b).  Furthermore, when Mr. Edwards actually did apply for some workers’ compensation insurance coverage, he allegedly understated payroll and the type / number of employees to fraudulently secure lower insurance premiums.

When Mr. Edwards administered an employer’s self-insured health insurance plan, he also allegedly delayed or wrongfully denied medical benefits the employees were entitled to.  Mr. Edwards indictment additionally alleged that he had filed a false joint Income tax return for 1999, by underreporting taxable income.  In 2000, Mr. Edwards had supposedly underreported income in a false joint tax return and paid just $724 in taxes.  He was similarly accused of failing to file any tax return for the year 2001.

As the Court’s June 26, 2006 Judgment demonstrated, Mr. Edwards ultimately pleaded guilty to four of the twenty-one counts mentioned by his indictment: two counts of mail fraud; one count of theft from a health care benefit program; and one count of tax fraud.  Pursuant  to his plea agreement, Mr. Edwards was sentenced to serve 150 months in prison and ordered to pay fines, make restitution, etc.

(Edited July 24, 2018)
Copyright 2007-2018 Fred L. Abrams

“I’m out of the asset forfeiture business and Title-III wiretaps too”, Donnie remarked as we discussed the Drug Enforcement Administration’s on-going effort to find hidden assets related to drug trafficking and other crime.  Donnie had retired from the DEA after serving twenty-one years as a Special Agent.  Now he was deployed to the Green Zone in Iraq to teach Iraqi police through the International Criminal Investigative Training Assistance Program of the Department of Justice.

Special Agents like Donnie often develop a great deal of expertise in conducting an asset search since asset forfeiture allows them to seize the proceeds of drug trafficking, money laundering, or organized crime.  For example, while Donnie had been stationed in El Paso Texas in 1988, (and also worked in Bolivia), he, another Special Agent, and the Mexican Federal Police seized $6-8 million in drug money.  By following the money trail, Donnie and his co-agent forfeited the $6-8 million because of its relation to their earlier seizure of 21 tons of cocaine in Sylmar, California.

My discussion with Donnie quickly drifted toward Zhenli Ye Gon’s arrest in Maryland on July 23, 2007 on methamphetamine drug and money laundering charges. Ye Gon was accused of supplying chemicals used to manufacture methamphetamine through his pharmaceutical wholesale business based in Mexico City, Mexico.  According to a Special Agent’s affidavit, the more than $207 million seized from Ye Gon’s Mexico City residence was “hidden in various compartments, false walls, suitcases, and closets.”  Also seized from Ye Gon’s Mexico City corporate headquarters were $111,000 dollars; documents regarding domestic and offshore bank accounts; and wire transfer confirmations from Mexican money exchange houses to various banks.  As Ye Gon’s criminal indictment In the U.S. District Court for the District of Columbia further indicated, the government sought to forfeit his money and other assets pursuant to 21 U.S.C. §§ 853 and 970.

Given all of the above, Donnie finally said: “Because of its impact on organized crime, asset forfeiture is one of the things that can stop those who supply pseudophedrine to the meth super labs and Mexican cartels.  Asset forfeiture works so well that it has even become a kind of gold rush”.  I then thought about the $ 1,143,341,308 in net deposits for 2006 made into the Department of Justice’s Assets Forfeiture Fund– which is a repository for just some of the federal agencies that forfeit assets.

Copyright 2007 Fred L. Abrams

A former Criminal Intelligence Specialist at Scotland Yard confirmed that the divorcing husband was hiding millions from his wife by using bank accounts in Switzerland.  The husband’s true beneficial ownership of these funds had been concealed by a nominee (i.e. intermediary).  This nominee had opened the Swiss bank accounts in the names of shell corporations.  The evidence suggested that the nominee had additionally engaged in money laundering for the husband, maybe on behalf of organized crime.

The above information could possibly be used during the 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 “Filing Letters Rogatory & Lawsuits Over Offshore Assets.”

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:

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 financial investigators like the above-mentioned former Criminal Intelligence Specialist; retaining local counsel in Switzerland; and prosecuting letters rogatory / legal assistance requests.

(Last Edited April 26, 2015)

Copyright 2007-2017 Fred L. Abrams

When the divorcing husband admitted in his affidavit that he had not paid taxes, the judge in Hashimoto v. De La Rosa, 2004 slip op. 51081(Sup. Ct. N.Y. County, June 23, 2004) reported him to the I.R.S.  In Beth M. v. Joseph M., 2006 slip op. 51490 (Sup. Ct. Nassau County, July 25, 2006), the judge similarly reported a husband who testified during divorce / child support proceedings that he had not filed tax returns for the years 1997 through 2001 and other times.  The admissions made by these two divorcing spouses could possibly have led to tax fraud charges pursuant to 26 U.S.C. § 7201.

Like the presiding judges in Beth M. and Hashimoto, parties to divorce or child support cases sometimes report tax fraud to the I.R.S.  Some tip the I.R.S. by sending an Information Referral (Form 3949-A) or letter as mentioned by “How Do You Report Suspected Tax Fraud Activity?”  No matter how one ultimately communicates with the I.R.S., it is important to first consider eligibility for the Whistleblower or other reward programs.  The kinds of activities typically reported to the IRS include: hiding or transferring assets or income;  keeping multiple sets of books; claiming personal expenses as business ones; etc.

In some cases where there has been a tax fraud and spouses have filed joint tax returns, it may also be advisable to seek innocent spouse tax relief  as more fully described by I.R.S. Publication 971.  To examine this very issue, (and to ensure that providing a particular tip to the IRS is appropriate), a party to a divorce or child support case should always seek the advise of a knowledgeable attorney.

Copyright 2007-2015 Fred L. Abrams

People don’t typically think of the common money laundering indicia when searching for hidden assets the subject of a: divorce; bankruptcy; commercial collection or other legal proceeding.  Such indicia can be effectively used as part of an asset search / recovery effort even in situations where there is no money laundering.  In the United States, the indicia or red flags of money laundering are described at Appendix “F” of the Bank Secrecy Act / Anti-Money Laundering Examination Manual.  They are also described in Money Laundering Prevention, A Money Services Business Guide, at pages 16-24.

Money laundering indicia are sometimes used outside of the United States.  For example, India’s Financial Intelligence Unit relies on “broad categories of reason for suspicion“; the Belgian Financial Intelligence Unit (“CTIF-CFI”) uses Money Laundering Indicators; the Swiss Federal Banking Commission has the Schedule: Indicators of Money Laundering ; and the Asia / Pacific Group on Money Laundering also uses such a list.  Recognizing the following money laundering indicia may however, lead to the discovery of assets concealed in a divorce, commercial collection, bankruptcy or other legal case:

(Last Edited 10/12/11)

Copyright 2007- 2013 Fred L. Abrams

In the United States, the Financial Crimes Enforcement Network regulates the customer identification procedures, (a.k.a  “know your customer rules”), at banks.  In order to clarify these procedures, the Financial Crimes Enforcement Network issued guidance in January 2004.  These customer identification procedures codified at 31 C.F.R Part 103.121, demonstrate  that there is no discretion as to what information is needed when a new bank customer opens an account.  In the case of a customer who is a U.S. person for example, the minimum requisite information includes: a taxpayer identification number issued by the Internal Revenue Service (i.e. social security or employer identification number); date of birth; residential or business street address; etc.  After obtaining this kind of information, a U.S. bank must then verify it based on a “risk-based” approach.

The United Kingdom similarly has rules for checking the identities of its bank customers.  For example, the regulatory body for the financial services industry in the United Kingdom, (the Financial Services Authority or “FSA”), has published its know your customer rules in Discussion Paper 22, at pages 9-13.  This past July, the FSA also published a consumer leaflet mentioning these rules, “Just the facts about proving your identity“.  The FSA’s leaflet explains that UK law requires an identity check when a new customer opens a bank account and that checking identities helps prevent money laundering, identity theft and terrorist financing.  It further advises that: “Neither the FSA nor the law sets out how firms should check identity.  In most cases firms will follow guidance produced by an independent industry body, the Joint Money Laundering Steering Group”.  According to the Joint Money Laundering Steering Group, a number of different documents can be used to prove identity such as a: passport; photo-style driver’s license; letter from a social worker or care home manager verifying identity; etc.  As of August 31, 2006, the FSA had also replaced its Money Laundering Sourcebook with the guidance now found in its Senior Management, Systems and Controls Sourcebook, at SYSC 3.2.6 et. seq.

There will however soon be regulatory change with respect to how a bank identifies its customers in the United Kingdom. This is true because the United Kingdom’s new Money Laundering Regulations 2007* come into effect on December 15, 2007.  These regulations obligate banks to apply a standard of due diligence, (as determined by a risk-based approach), when they check a new customer’s identity.  In many cases, banks will also be required to identify the true beneficial owner of funds.  Since the United Kingdom’s rules for identifying bank customers are about to change, I wanted an expert’s opinion.  I then called “Mr. London”, who has vast experience in the methods used to hide assets as a former vice president of a major global bank in the United Kingdom.  Mr. London knew all about how banks checked their customers’ identities, especially because he had been responsible for his bank’s financial fraud and money laundering investigations.

During our phone conversation Mr. London expressed his belief that, (despite the prospective change in regulation), money laundering, terrorist financing and other financial fraud would likely continue to increase throughout the United Kingdom.  He also suggested that there was little standing in the way of a determined criminal because of the “complicity or misfeasance” of many banks and the use of nominees to open bank accounts.

*Money Laundering Regulations 2007, is reproduced under the terms of Crown Copyright Policy Guidance issued by HMSO

Copyright 2007 Fred L. Abrams

According to page nine of the 2005 U.S. Trustee’s Annual Report:  "Every year since 1996, more than one million individuals and businesses have filed bankruptcy, making  the bankruptcy caseload the largest in the federal court system".  Since it detects and combats bankruptcy fraud, the U.S. Trustee Program is a critical part of the bankruptcy court system.  According to its June 2007 Report to Congress, the U.S. Trustee Program referred 925 criminal cases for prosecution in 2006.  This was a 24 percent increase from the 744 criminal referrals made by the Trustee Program in 2005. 

One kind of  fraud the Trustee Program is concerned with occurred when husband and wife Terry and Susan Brunning hid assets and laundered money the subject of their 2002 Chapter 7 bankruptcy case.  As their June 3, 2003 indictment explains, the Brunnings were suppose to disclose all their assets at the time of their Chapter 7 bankruptcy so that the bankruptcy court trustee could then liquidate the same for the benefit of creditors.  The Brunnings however instead hid over $1 million dollars in accounts at: San Diego National Bank; Abbey National Treasury Limited in the Isle of Man, Great Britain; and at Lloyds Bank, PLC in London.  The Brunnings had also concealed a $155,000 promissory note; a 1981 Rolls Royce; a 1990 Jaguar; and their 57-foot sailing yacht.  According to their indictment, the Brunnings had even concocted the fictitious creditor "Donna Kerns", in an effort to falsely claim the monies from the bankruptcy trustee’s sale of their $155,000 promissory note.

On October 23, 2006, Terry Bruninng was finally sentenced to thirty-three months in prison plus three years supervised release after pleading guilty to two counts of 18 U.S.C. § 152 (Concealment of assets; false oaths and claims; bribery), and one count of 18 U.S.C §157 (Bankruptcy fraud).  At that same time, Susan Brunning similarly pleaded guilty to one count of 18 U.S.C § 152, and was sentenced to a prison term of six months plus three years of supervised release.

Copyright 2007 Fred L. Abrams