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Is a Bank Receipt of Deposit Reliable Proof of the Existence and/or Ownership of a Bank Account?

Sat, 03 Jun 2017 23:22:29 GMT

While a bank deposit receipt may be a good indicator of the existence of an account or the identity of the account holder, it is not completely reliable as “proof” by itself.

This article examines the question of whether a bank receipt of deposit is dependable proof of the existence of a bank account and its actual account holder. Answer: In today’s world, the answer is far from clear.

Please note that Cachet International and its principals do not provide legal advice. We are asset investigators, not lawyers. However, in this article we will share with you a few of our observations regarding attempts by clients, investigators and lawyers to use a simple tactic to obtain proof of the actual beneficiary of a bank account. The point of this article is to show that the resultant “evidence” may not be as reliable as it may appear.

In recent years, we have seen an increasing number of investigators or sometimes “proactive” clients claiming that they have “concrete proof” of the existence of a bank account and/or the actual account holder. All too often this “proof” is a bank receipt of deposit. However, that “proof” is all too often misleading.

When we began asset tracing in our private practice almost 20 years ago, many investigators sought to obtain returned checks or deposit receipts to use as evidence that the target of their investigation was the owner or at least beneficiary of a bank account. However, as time passed, this whole issue has become significantly more complex.

In short, this technique involved sending a token payment (e.g., US $50 to $500) by check to an account – preferably addressed to the alleged account holder of interest – and receive a bank receipt of deposit or an endorsed check. This provided the sender with the signature of the account holder or his representative on the back of the check (proof of receipt), and it was believed to be solid evidence. That method worked if you could send a check to the target who accepted the check, signed it and deposited it into his account. While that is still good evidence, the issue of bank deposit receipts has become more ambiguous.

As bank transactions have become more global and digital in nature, wire transfers are now the most common means of transferring funds – especially on an international level. Digital transfers are faster, cheaper, easier to manage and provide for almost immediate payment. However, there is a variety of issues regarding the confirmation of the receipt of funds by the intended beneficiary.

To ensure that we are “talking the same language,” below is a review of a few key terms that are used for electronic payments or “wire transfers.”

A wire transfer is an electronic transfer of funds, such as one that is made over the Federal Reserve Wire Network or the Clearing House Interbank Payments System, among others. A wire transfer involves the movement of funds from one account to another.
A debit advice is also called a “debit memorandum,” “debit note” or “debit.” A banker sends a debit note to customers to inform them of deductions from their accounts. In other words, a debit refers to a decrease in a deposit account balance, such as a check posted to the account. These notices are now received almost in real time but show only that the customer’s account was debited, not that the funds were delivered to the addressee.
A notification advice or credit advice is a bank-generated confirmation notice of a received incoming wire transfer. The notification advice identifies the amount sent, date sent, and confirmation number. The advice may not identify the sender or the customer/recipient.
SWIFT is first and foremost a secure private network between financial institutions. A SWIFT copy or document is an extract of the electronic payment document sent to the correspondent bank or beneficiary bank. It acts as a confirmation of payment made from your bank and informs the beneficiary of the value date of transaction. Therefore, a SWIFT confirmation is merely a confirmation receipt that the message has been delivered to the network and passed basic format checks. At this stage, there is no guarantee that the message has been delivered to the beneficiary bank.

(NOTE: While a SWIFT copy or document is an extract of the electronic payment document sent to the correspondent bank or beneficiary bank, it also provides information on the date and amount of the transaction and contains details regarding the beneficiary. A debit advice provides confirmation that a payment instruction has been processed by the originating bank, but it will normally lack details regarding the beneficiary.)

When a client or another investigator brings us “proof” in the form of a debit advice or SWIFT document, we have to advise them that neither is an absolute guarantee that funds have been deposited to a specific account or account holder. Further, both the debit advice and SWIFT document are normally just automated responses and are of very little evidentiary value.

Incidentally, the most effective means to obtain “proof” of deposit with a specific account is what is known as a “trace wire.” A trace wire is a request that is sent to the receiving bank to confirm that the incoming wire was credited to the beneficiary's account.

The following examples illustrate some of the additional issues that are involved in arriving at real “proof” of deposit.

Even if the deposit is sent correctly, more sophisticated account holders and banks may not accept it. Sophisticated account holders and banks often put restrictions on deposits into the accounts, particularly when the accounts belong to high net worth persons who value their privacy and seek to avoid simple methods to confirm their ownership and/or control of a bank account.
In recent years, we have seen many cases in which investigators or even proactive clients have made token deposits (e.g., US $500) and the banks refused the deposits, following their confidential instructions from their clients. In several of these cases, further discovery showed that the bank accounts did exist and were controlled by the target beneficiaries, but their precautions had given the initial false impression to the contrary. As an aside, such restrictive instructions are completely legal. For example, we have seen such account holders give instructions to their banks such as “do not accept deposits less than X amount in value.” (We saw this once for a “sweep account” whereby deposits of less than US $500,000 were not to be accepted unless they came from designated accounts). We have also seen occasions in which banks were instructed not to accept deposits except from a list of “approved” depositors. In one case, an account holder insisted on personally approving or rejecting all depositors in advance, if they were not on such a list of approved depositors.
As the number of daily transactions has increased exponentially in recent years, banks have largely automated the “deposit receipt” process. We have seen dozens of cases in which investigators or proactive clients made token deposits and immediately received a debit advice or SWIFT document. However, when they attempted to use these receipts as “evidence,” the beneficiary banks stated that the deposits were accepted by mistake. The banks further claim that internal audits eventually detect these errors, but often the original depositors cannot be identified, and the banks simply keep the money.
In recent years, we had one client present us with copies of his debit advice documents and SWIFT documents for some large transfers from his own account. The client claimed to have received these documents from his own banks. However, after painstaking research, we determined that the funds traveled over completely different routes than shown on the documents, and the ultimate beneficiary accounts were two continents away from what the documents showed.

In other words, a debit advice or SWIFT document is not necessarily proof that the funds were deposited into a specific beneficiary account.

If this seems hard to accept, simple “Google” the term “problems with deposit receipts” and see how many “hits” you get. In addition, you might be interested to know that the website of the U.S. Office of the Comptroller of the Currency (OCC) states that a “deposit receipt is not conclusive evidence that you deposited the funds.” If the deposited item was a check, you will need to contact the party that provided the check to you and obtain a copy of the front and back of the check. If the deposited item was cash, and the bank does not agree to honor the receipt, you will need to consult with legal counsel about your rights.

(NOTE: The OCC is an independent bureau, within the U.S. Department of the Treasury, that serves to charter, regulate, and supervise all national banks and thrift institutions and the federal branches and agencies of foreign banks in the United States.)

A major international bank in the U.K. has the following notice at the bottom of each of its “payment debit advice” documents:

“This notification is not confirmation of receipt of the funds by the beneficiary – the Bank does not accept any liability whatsoever for any loss or damage arising in any way for the use of or reliance on the information.”

In another example, one of our colleagues deposited US $30,000 in cash into a major U.S. bank and received a bank deposit receipt directly from the bank. However, the bank bookkeeping system registered this deposit as withdrawal, and that matter took almost three weeks for the bank to correct - after it was notified of the error.

In short, as you can see, the bank deposit system is not completely reliable. While a bank deposit receipt may be a good indicator of the existence of an account or the identity of the account holder, it is not completely reliable as “proof” by itself.

Asset Recovery: Would a Bank Lie?

Mon, 17 Oct 2016 23:21:37 GMT

A look at basic evasion tactics that some banks use to foil the efforts of asset recovery lawyers

This is part one of a fascinating and controversial three-part series of articles examining a question that is central to successful asset recovery: “Would a bank lie?” This installment is focused on the simple but effective evasion tactics some banks use in concealing their clients’ accounts.

To be clear, Cachet International and its two principals do not provide legal advice. We are asset investigators, not lawyers. However, in this article we will share with you a few of our observations regarding the behaviors of some banks when approached by asset recovery lawyers seeking to freeze and seize financial assets. At the same time, we want to make it clear that we are not suggesting that all banks follow deceptive practices such as those described below.

We have frequently seen lawyers and their employees approach banks on the branch level to seek the confirmation of financial accounts, as well as their freezing and seizure. In too many cases, the banks respond – at least initially – that they have no record of such an account, the account numbers are not correct, or they have never heard of such a person. Often this happens even though precise and accurate information regarding these accounts has been developed. Which leads to the previously posed question, “Would a bank lie?”

We will outline some basic suggestions for dealing with banks in demanding account information. While our suggestions carry no guarantee of success, they reflect our experiences and observations over two decades of keeping a watch on bank interactions. We leave it to you to decide whether banks lie.

BASIC EVASION TACTICS

One major U.S. bank – which, after being found to be in league with major drug cartels, was closed and bought by a larger bank – employed several basic evasion tactics that many other banks have adopted as their evasion method of choice. The following suggestions are offered as a way of defeating those tactics.

First of all, it is not a good idea to make an “informal” approach or send “advance notice” of intent to confirm, freeze and/or seize an account. As this is not a formal request by the courts, many banks believe they are within their legal rights to alert the account holder, move the account and, occasionally, destroy or “misfile” the bank records. In such cases, it is reasonable to assume an absence of “fair play.”

Second, instead of taking an informal approach, it is advisable to make a formal legal request at the bank’s corporate headquarters . Many bank branches have standing instructions that they are not to confirm any accounts or account holders – even in response to a court order. Rather, a court order must be provided to the legal department at the bank’s corporate headquarters. (Note: We frequently hear the lament, “I went to the branch where the subject account was reportedly held, and they denied knowing about it.” In the bank’s view, it did not lie. In fact, this is now so common that it is literally cliché. Approaches to bank branches normally reduce chances of success and frequently lead to accounts being moved.)

Third, a legal request to the bank must include not only the name of the account holder but also all of its variations , as well as the birthdate and any possible identifying numbers. The now-defunct bank to which we alluded above would insist on opening accounts in a variation of the account holder’s name. For example, John Quincy Citizen would have an account opened under, for example, “J. Quincy Citizen,” “J.Q. Citizen,” “Quincy Citizen,” etc. Therefore, unless these variations were specified, the bank would not “recognize” the account holder. That same bank also made a habit of “accidentally” changing the month and/or year of birth, so that bank, if pressed, could even say, “We found the same name, but the birthday appeared to be different and, therefore, we could not confirm the ownership of the accounts.”

We should point out that some banks will have slight “typographical” errors in the names of the account holders. Clearly, for example, Slavic, Chinese and Arabic names have a variety of ways of being transliterated into “English.” Therefore, the bank can claim that it was “transliteration error.” For English names, during registration it is common to omit an “e” from the account holder’s family name. In some cases, we have seen that the name on the printed checks or the signature did not match the relevant bank’s records. However, the routing and account numbers on the checks were correct, and the checks were routinely cashed.

In this same vein, we notice that many successful asset recovery lawyers ask for any and all accounts owned or related by the subject, in all variants of their names. Case in point, asking for only one singular account by identification number can be perilous if the bank has some “challenges” in their bookkeeping system.

Fourth, be prepared for missing taxpayer numbers on accounts held by business entities. While some small businesses have accounts listed under the individual owner’s Social Security number (SSN), most use the IRS-issued employer identification number (EIN). However, it is not unusual to find that there is no listed EIN for a company, which makes finding it in the bank’s database very difficult. While it is a legal requirement in most U.S. states to have such a number when opening a bank account, bank employees will often accept excuses such as “I forgot to bring it with me today,” “I am about to apply for it but need the account in a hurry,” etc. In each case, the account holder promises to furnish the EIN in the near future but never does.

This “oversight” often goes on for years and, oddly enough, most bank software seems to “overlook” this deficiency. Critics claim that bank employees do this for “good customers” in order to help them increase the secrecy of the account (and avoid taxes). While that may seem hard to believe, we have a colleague who, in his former position at the U.S. Treasury Department, issued hundreds of warnings to banks and sent 16 senior bank officials to jail over a five-year period. Those 16 officials made it a regular practice to open accounts for domestic and foreign account holders without requesting and receiving their Social Security numbers and/or U.S. tax identification numbers (EIN). In other words, the absence of a Social Security number or, for companies, EINs is not an unusual problem to encounter when trying to identify an account.

Further, in some states, such as California, banks will allow accounts to be opened with only a passport and do not have to require a SSN or EIN. In short, account searches by EIN and SSN are far from fool-proof.

Fifth, in recent years, we have seen an increasing number of cases in which some banks claim that they cannot locate target accounts – even if furnished the account numbers – and that is another obstacle that should be anticipated. This is most common with “investment accounts” or “brokerage accounts” in which the account holder has a Relationship Manager (RM). Some banks claim that only the RMs have the details of these accounts, in which cases they do not seem to show up in the bank’s central database. Further, the RMs sometimes use “internal routing numbers” when accessing these accounts. When these critical internal routing numbers are added to the account numbers, the banks often claim that they do not have any accounts that match these numbers and, in fact, do not even have account numbers that have the same number of digits. In a sense, they are telling the truth, but they are also concealing the existence of accounts that they actually know to exist.

In other words, many banks are looking for excuses not to identify their account holders or their assets.

BANKS’ MOTIVATIONS

Lawyers new to asset recovery ask the question, “Why would a bank do this?” or “Why would a bank take such a risk for relatively small accounts?”

Three of the most common reasons heard over the years are as follows:

First of all, “small” account holders add up, and, for many banks, those accounts are their lifeblood. Banks not only want to keep individual account holders, but have a reputation for “confidentiality” that encourages new account holders and retains the current ones.

Second, the chances of someone pursuing the bank and convicting them of obstructing justice or another offense are rather small. Bankers rarely go to jail and, even though many banks pay billions of dollars in fines every year, they still have higher profits than losses. Further, most persons seeking to recover funds are not willing to pay out the large legal fees to prove that the banks intentionally sought to obstruct justice. Even then, the banks have lawyers on retainer and a multitude of ready excuses to claim that the “error was unintentional.”

Third, many of the legal demands on the bank are not drafted thoroughly and encompassing enough to deny the bank a variety of methods to attempt avoiding compliance.

Therefore, we continue to note that, in asset recovery, “experience counts.” Obtaining expert legal assistance from experienced asset recover lawyers in drafting demand letters and approaching financial institutions is a cost-saving measure.

Hidden Assets, Nominee Directors and Ultimate Beneficial Owners (UBOs)

Wed, 20 Jul 2016 00:44:09 GMT

Despite their concealment efforts, UBOs can often be identified through painstaking investigative research, potentially leading to the location and identification of their valuable hidden assets.

We frequently receive questions about how nominee directors, nominee shareholders, ultimate beneficial owners, offshore companies (aka IBCs, shell companies, anonymous companies and exempt companies, to name a few) and hidden assets are related and what they are about.

First off, while not everyone who opens an offshore company is involved in illegal activities, most have one thing in common: They want to conceal their involvement. Therefore, they choose a location that provides secrecy. This secrecy is normally provided by an offshore financial center or “tax haven.” A “secrecy location” keeps the names of the actual owners of an offshore company hidden from the public, and local business laws guarantee the secrecy of company ownership. In many locations, it is the country’s number-one revenue generator – a virtual ATM machine.

POPULAR OFFSHORE JURISDICTIONS

According to a 2013 report by the Tax Justice Network (TJN), the five most popular places chosen by those who want to conceal their company ownership and assets are, in order of popularity:

the United States,
the British Virgin Islands,
the Bahamas,
Panama and
Liechtenstein.

The United States, with Delaware, Wyoming, the Dakotas and certain other states, is an attractive offshore location for citizens from countries other than the U.S

(NOTE: From our professional experience, we would venture to add that the Cayman Islands pose stiff competition with the jurisdictions mentioned above, as the Caymans’ public records do not even reveal the names of a shell company’s registered agent. All six of these popular secrecy jurisdictions are included in Cachet International’s 160-country investigative network .)

CREATING THE OFFSHORE COMPANY

After selecting an offshore jurisdiction, the person or persons seeking to conceal their involvement and funds open an “offshore company.” This can be an LTD or LLC (or a series of them) which will ostensibly own the assets of the ultimate beneficial owner (UBO). These assets can be tangible and intangible in nature. The company can open a bank account, buy a yacht or a mansion, and wire money around the world on behalf of the actual beneficial owner (UBO). Most important, it is immensely difficult to link the offshore company back to the actual (beneficial) owner. This makes it an attractive venue for hiding, moving and using money or other assets, hidden from public sight.

It is quick, easy and cheap to create an offshore company. In offshore (secrecy) locations, there is no public information available on the actual (beneficial) shareholders of an offshore company, because it is the offshore jurisdictions’ principal goal to provide hidden ownership to those who seek it – generating huge amounts of revenue along the way. Case in point, 20,000 companies are registered in the offshore location of the Cayman Islands alone, while its capital city Georgetown has only little more than 28,000 inhabitants. Another 80,000 are registered elsewhere on the British Overseas Territories.

Even in countries that do make shareholder and director information public, it is still easy to create an anonymous company. This can be done either by listing another company as the ostensible owner or director (and making sure that the company is registered somewhere that does not make such information public), or by registering the company in someone else’s name, even that of a total stranger. Astonishingly, it is entirely legal to do this in the majority of countries, and there is an entire profession dedicated to providing such “nominee” services.

When founding off-shore companies, there are two key types of company persons: (a) nominees and (b) ultimate beneficial owners (UBOs)

NOMINEE DIRECTORS AND NOMINEE SHAREHOLDERS

The purpose of these “nominees” is to protect the identity of the actual ultimate beneficial owner (UBO) of the offshore company. Further, in most venues, only the names of the “nominee directors” are published, and the identities of the actual owners are protected by local law. Therefore, in an investigation into the activities, ownership or assets of an offshore company, the nominees who act as ostensible owners are of no value, as they are simply front men or women with no control over and no liability for the offshore company.

A nominee director is a person or company that acts on behalf of the UBO of an offshore entity to provide an extra level of secrecy. A nominee director acts on behalf of the company on paper but exercises no authority over its activities.

A nominee shareholder is a person who is listed as the ostensible shareholder on a company’s documents but has no power over the company or claim to its assets.

When the company is initially registered with the local government in an offshore location, “nominee directors” are listed. The nominee director or directors are usually employees of the law firm or company formation service that formed and registered the offshore company of interest. The nominees allow their names to appear on official records, usually for a small fee – in many cases, less than $300 per year. The nominee director has no legal responsibilities in or control over the company. The nominee directors have no idea who the actual owners of the company are, and this is so on purpose. (NOTE: We frequently see “nominees” who are holding directorships in over 2,000 different companies.)

Basically, the nominee will be the director (in an LTD) or manager (in an LLC) on public records for the newly formed offshore company, and any public incorporation documents will be signed by the nominees, protecting the UBO’s identity from inquiring persons and entities.

In addition, a nominee director can open one or more bank accounts for the UBO and will operate the accounts at the UBO’s instructions. However, most UBOs prefer not to lose control of their funds. Indemnity agreements will be signed for the protection of all parties, and due diligence must be completed.

(NOTE: A UBO can have a bank account for his offshore company in that company’s name or the name of yet another offshore company that the UBO secretly owns. However, there is little reason for concern, as no international offshore bank would survive for long if it divulged to a third party any confidential information about its account holders. Such information is supplied wholly or in part only if there is a criminal inquiry, and even then only after due legal process in the country where the bank account has been opened. Criminal investigations conducted by foreign governments have shown that the offshore banks will resist as vigorously and as long as possible before divulging a client’s account information.)

ULTIMATE BENEFICIAL OWNERS (UBOs)

The UBO of an offshore company enjoys the benefits of actual ownership of the company, while the public ownership of the company is kept in the name of a nominee director. The true identity of the UBO is normally known only to the owner of the law firm or company formation service that set up the shell company.

The UBO normally maintains control over his offshore company by holding “bearer shares.” Bearer shares are wholly owned by whoever holds the physical stock certificate. These bearer shares stock certificates have no name on them, and the holder of the shares certificate is the actual owner of the company. This ensures that the ultimate beneficial owner is the one who controls the company, has the legal responsibility for this company, and controls the assets of the company.

In some cases, the UBO of an offshore company can also be another company, trust or foundation that is owned by yet another UBO. In other words, some persons seeking to conceal their involvement in a company will use several additional companies as buffers to provide for multiple layers of protection. We have seen cases where more than 100 companies in the same number of different jurisdictions provided the additional layers of protection for one single offshore company.

THE VALUE OF INVESTIGATIVE RESEARCH

However, in spite of all the layers put in place and concealment efforts described in this article, UBOs can nonetheless be identified through painstaking investigative research, potentially leading to the location and identification of their valuable hidden assets .

Converting Intelligence into Court-Admissible Evidence

Sun, 12 Jun 2016 00:54:50 GMT

Despite their concealment efforts, UBOs can often be identified through painstaking investigative research, potentially leading to the location and identification of their valuable hidden assets.

In our first installment of this two-part article, “ Asset Investigations: How ’Intelligence’ Can Be More Valuable than Evidence ,” we stated that “The use of intelligence is essential in most asset investigations.” More often than not, however, intelligence is not admissible as evidence in court. Why? Most human source intelligence is obtained from individuals who will either not agree to testify or whose information will not survive challenges in court. However, human source intelligence is often the only practical way to uncover sophisticated asset concealment schemes and, once converted to evidence, to efficiently pursue a recovery action in court. (“Evidence” is generally defined as “proof of fact(s) presented at a judicial hearing such as a trial.”)

What then is the value of the intelligence? How can you convert non-admissible intelligence into court-admissible evidence, now that your investigator has delivered to you the intelligence about the location of a target’s secret bank accounts in offshore tax havens?

SPECIALIZED LEGAL EXPERTISE IS ESSENTIAL

Untying that Gordian knot will primarily depend upon the skill set of a great asset recovery lawyer who specializes in asset recovery. He or she should be in charge of bringing your case. Asset recovery is a highly specialized and complex field, and it is for this reason that we recommend either choosing an experienced asset recovery lawyer from the very start or engaging the adjunct services of such a specialty lawyer.

To be clear, Cachet International and its two principals do NOT provide legal advice. We are asset investigators and not lawyers. However, below we would like to share with you some of the methodology that we have seen successfully employed by asset recovery lawyers.

WHY GATHER INTELLIGENCE, IF IT IS NOT COURT-ADMISSIBLE?

Traditionally, gathering intelligence from human sources has been best employed to first provide an assessment of the target’s assets to determine whether a lawyer’s effort to prepare a contemplated recovery action is justified and economically viable. This is particularly true if third-party financing for the recovery effort is being sought. Also, by knowing the location of litigation targets and their assets, the cost versus expected recovery ratio can be more accurately estimated. Once this intelligence has been unearthed by the investigators, the lawyers — on behalf of their clients — can better determine whether going after a target’s assets is within the client’s time and budget constraints.

Second, intelligence provides the “road map” for planning and conducting investigative actions and legal discovery efforts.

Often, these additional investigative actions will uncover the first actual court-admissible evidence. For example, if you know that the target has accounts in a secret offshore jurisdiction such as in the Caribbean or a European tax haven, then you can begin looking for the target’s travels and connections to these geographic areas. Travel, accommodation and communication records can be subpoenaed and studied for further leads. Interviewing those who are privy to the target’s travels and connections can supplement and expand on such information, thus providing leads to different jurisdictions — information that can be vital to establish jurisdiction. It is hard to believe, but many individuals traveling to exotic islands in order to hide their money and beneficial ownership in shell companies, forget that their social media postings and pictures can place them in these locales and even provide dates and a time line. Needless to say, social media mining is a growth area in asset and beneficial ownership investigations.

Business and banking records can also be examined in a more focused and precise manner. If you know what you are looking for in advance, you can better focus your efforts to finding public records, former employees, counterparties, litigants and even participants in the concealment of these assets who in turn can provide court-admissible evidence.

The advantage here is that the legal discovery of documents and depositions can continue to focus on this information. As seen in our earlier article, once the target individual (husband) had given depositions, claiming to be bankrupt, the discovery of his overseas assets placed him in much greater legal jeopardy than before, increasing the pressure for him to settl e.

CONFRONTING THE DEBTOR WITH UNCORROBORATED INTELLIGENCE

This is not a good idea, and here is why. Asking the target directly in depositions about offshore accounts, located by investigators through intelligence but not yet confirmed with evidence, is a delicate and rather dangerous tactic that can fatally damage the entire case. After all, now knowing that his assets are being investigated, the deposed target can then notify his offshore bank to move and/or close his accounts. If that happens, there are a multitude of banks which, when subsequently served with seizure orders, will claim that the accounts had never existed. (If you do not believe that banks will lie to the courts and regulators, we suggest you do some simple Google searches of some famous international banks).

In other words, you absolutely need to gather the most powerful possible evidence in advance of directly approaching the target or the holder of his assets: the hosting bank.

THE MAGNIFICENT FOUR (OF MANY OTHER METHODS)

There are, of course, many methods out there that can be employed for turning intelligence into evidence, but here are four rather new powerful tools for generating ironclad court-admissible evidence, and we like to call them the “Magnificent Four.”

One method is to convince a local or federal prosecutor to initiate a criminal case against the target and/or his/her associates. Reason: The prosecutor has much broader discretion in using his discovery and his investigative tools, as well as his access to foreign law enforce ment and regulatory authorities. The intelligence that you and your investigator previously collected on the target may come in very handy and may be just the information that the prosecutor needs to start a criminal case. Now that you have convinced the prosecutor to initiate a criminal case against your target, you can happily “slipstream” or “ride along” with the criminal case and use the evidence that they uncover for introduction into a civil court to support your very own recovery action.
The second method is a variation on the “law enforcement” methodology used by prosecutors to “turn” or “flip” a participant in a crime into a witness, thus securing cooperation from insiders to provide crucial hard evidence. There are firms that specialize in developing information on persons who were involved with the target in concealing funds or similar actions that caused client harm. The goal is to find a reasonable basis for eventually bringing civil suit against the target’s fellow participant — unless he or she agrees to cooperate and be a witness against your target. This methodology has been employed by asset recovery lawyers with great success and is extremely effective in court.
The third method is a relatively new concept, available only in the U.S. This method is known as “intermediary bank discovery.” This is how it works. All U.S. dollar denominated wire transfers from anyone to anyone in the world, “clear” (are being processed) by intermediary banks located in New York. Intermediary banks are obligated to, and in fact do, maintain records of all wire transfers they process. From these bank records, it is possible to recreate the financial history of any person or company in the world that does business in U.S. dollars. These records can be obtained by a lawyer using a properly issued U.S. subpoena, any time a subpoena can be legally issued. Discovery in itself can be a sufficient reason to proceed with this process, and foreign judgments within certain circumstances can be recognized in the U.S. As these bank records include vital information, such as wire transfer information, they also identify the purpose of the transactions, the sender and recipient of the transaction, and, of course, the relevant bank account numbers — a veritable treasure chest for the lawyer and his client! In many cases, foreign judgments can also be pursued in U.S. courts. Perhaps best of all, this method not only circumvents foreign banking secrecy laws, but the banks’ customers have NO standing to object to subpoenas for these financial records. (NOTE: This method is applicable only to transactions denominated in U.S. dollars.)
The fourth method is the global attachment order, which is New York State’s answer to the Mareva injunction, which is not permitted in the U.S. The use of a global attachment order is exemplified in a February 2016 New York case, BTG Pactual et al v. SunEdison. In that arbitration proceeding, claimants successfully obtained a global attachment order and a temporary restraining order, preventi ng SunEdison from transferring assets to avoid collection on any potential award. (At the time we prepared our article, the claimants had not obtained a judgment on their underlying arbitration claim but only recently initiated the arbitration process.

The English common law Mareva ruling is not available in U.S. federal courts, due to the unique origin of the U.S. federal court system and the limit on remedies available in federal courts. However, U.S. state courts have the inherent power to grant remedies in the form of a global attachment order. It appears that some foreign plaintiffs may qualify to seek redress in New York courts using a global attachment order.

Note: A Mareva injunction is an English Court order preventing a defendant from transferring assets until the outcome of the associated law suit is decided. Named after a 1975 English case, Mareva Compania Naviera S.A. vs. International Bulk Carriers S.A., it is now called a freezing injunction or freezing order.

CONCLUSION

We hope our observations on additional concepts in pursuing effective asset investigations demonstrate how intelligence can be used effectively in order to take a case from investigation to the actual asset recovery. An experienced and highly skilled asset recovery lawyer will be the best ally in the process.

This short summary should not be considered to be all-inclusive of the methods available in converting intelligence into court-admissible evidence. We emphasize that there are many other effective methods available outside the U. S.

Asset Investigations: How “Intelligence” Can Be More Valuable than Evidence

Thu, 24 Mar 2016 01:06:20 GMT

A fascinating case study illustrates how inadmissible intelligence helped unravel a complicated and apparently bullet-proof scheme to hide assets.

See Part 2 of this article: “ Converting Intelligence into Court-Admissible Evidence ”

The use of intelligence is essential in most asset investigations. While often not admissible as evidence, as most human source intelligence is obtained from individuals who will not agree to testify or whose information will not survive challenges in court, human source intelligence is often the only practical way to uncover sophisticated asset concealment schemes.

Following is an actual example of how such intelligence played a key role solving a complicated and apparently unsolvable case.

A prominent international lawyer, skilled in opening offshore companies and bank accounts for his clients, was divorcing his U.S. wife. Although Wife believed that Husband had tens of millions of dollars, Husband claimed to have lost his money in “bad international investments” and to be bankrupt, a claim to which he swore in depositions and in court.

Clearly, Husband was an expert in concealing assets. Forensic accountants had found nothing useful other than the fact that he had not filed income tax returns in the U.S. for several years, instead allowing the IRS to assess him for estimated income. In short, he did not perjure himself to the U.S. government. Searches of the few documents that were found were also unhelpful, as was a search for his U.S. bank accounts. Depositions and standard investigations had proved fruitless.

Penniless, having borrowed money from friends to pay for her lawyer and standard investigations and accountants, Wife came to Cachet International as a last resort.

In our investigation, first we found a human source who told us about waiting for Husband to take some money out of his account in a foreign country “for traveling” – while the human source waited in a nearby cafe. That eventually led us to a successful search for nearby banks in that foreign country, where Husband was found to have an undeclared overseas account. That account was then traced to other related offshore accounts.

We then found another human source who had inadvertently taken a telephone call for Husband, in which the caller stated that his long back-ordered custom luxury car would soon be available in a foreign country. We eventually turned up exact information on the car that was ordered, and on yet another of Husband’s undeclared overseas accounts that had been charged for the car. The car cost over $400,000 USD.

This intelligence gave Wife the critical information to obtain the court-admissible proof of the overseas accounts and Husband’s considerable wealth. The latter also supported a perjury charge for claiming bankruptcy in the U.S. and falsely answering during deposition.

KEY STEPS BEFORE INITIATING ASSET RECOVERY EFFORTS

The preceding story is one of many cases in which intelligence was the key to a successful asset tracing investigation and eventual recovery action, when traditional investigative methods were unsuccessful.

However, sometimes the value of intelligence is rooted in its ability to reveal the futility of costly legal action. (Some experts have estimated that over 80% of judgments in the U.S., and even more worldwide, are never collected.) In advance of launching a hidden asset investigation, it is critical to know the following:

whether the assets of an opposing party justify the costs of litigation;
what resources an opposing party has to spend on litigation;
whether to believe an opponent’s claims of poverty or other representations made during negotiations;
whether an opponent is shielding assets by transferring them to associates or associated companies; and
how to best enforce a monetary judgment, including identifying the best jurisdictions to pursue assets.

We have become accustomed to “gatekeepers,” frequently profiting from professional confidentiality (fiduciary companies and business formation companies), that set up complex structures and shell corporations. On behalf of their clients, these gatekeepers register corporations in “secret” jurisdictions, where the company register is either not public or contains no shred of relevant information about the actual beneficial owners. International business corporations (IBCs) that are shell companies registered in offshore tax havens are then used to open bank accounts at locations where customer due diligence is not up to world standards, and where the likelihood of mutual legal assistance is slim or outright absent. Such structures can create a dense smoke screen – and that is precisely their purpose.

Persons concealing assets, particularly in offshore locales, have most of the advantages afforded to them by strict local business secrecy laws. Starting off with little or no information will result in encountering daunting and indeterminable legal and investigative fees. Further, if a claimant is seeking financing of his recovery effort, approval is unlikely to come without some specific advance intelligence about the financial resources of the opposing party.

The first task is normally to confirm the existence of assets to which the target can be linked or that the target owns or controls. If, for example, the target has lost or spent the assets in question, can the cost of the eventual legal action be recovered?

A second key element is to look for other assets (bank accounts, real estate, investment accounts, safe deposit boxes, related persons, etc.) and/or related businesses in which the target has equity. “Piercing the veil” to find the ultimate beneficial owner (UBO) in an offshore locale is a formidable but critical task to be accomplished before embarking on the asset recovery effort.

Intelligence can provide a rather detailed roadmap as to where to focus traditional investigations, depositions, forensic accountants, seizures, letters rogatory[1], Mareva injunctions[2], ex parte [3] judgments, etc. Good intelligence will make the process much more efficient and cost effective .

SUMMARY

There is a place for traditional asset tracing techniques, when obtaining relevant court orders is important.

Based on our experience, the speed of reaction often necessitates an alternative approach and different techniques.

Intelligence can not only save time but cut costs by determining whether legal action is worthwhile and, if so, how to make it more efficient and cost effective.

In today’s environment one thing is certain: An effective asset identification strategy will provide a greater chance of success and allow the claimant and his lawyers to make an educated decision of whether to move forward on a case.

Good intelligence can be the key to this success.

[1] Requests from courts in one country to the courts of another country to perform an act which, if done without the sanction of the foreign court, could constitute a violation of that country’s sovereignty.

[2] A court order which freezes assets so that a defendant to an action cannot dissipate their assets from beyond the jurisdiction of a court so as to frustrate a judgment.

[3] The Latin term ex parte is used in law to refer to court proceedings for the benefit of one party to a controversy, without the other being present .

How Bitcoins Are Used to Conceal Assets and Launder Money

Tue, 16 Feb 2016 01:17:53 GMT

Bitcoin transactions are currently quite difficult to trace, which is why Bitcoin has been associated with illicit activity.

Although most people have heard of Bitcoin software, very few understand how it works. We will explain what Bitcoin is and how it works. However, you should be aware from the outset that – despite its myth of anonymity – in most cases Bitcoin wallets (accounts) can be identified by experienced asset investigators, and transactions can be traced from origin to destination.

Note: Generally, Bitcoin with a capital “B” means the software and the system; bitcoin with a lowercase “b” means the actual money.

A BRIEF GLANCE BACK IN TIME

The first recognized “medium of exchange” (money) was Anatolian obsidian as a raw material for stone-age tools. It was distributed and used for payments as early as 12,000 B.C. As trade increased, the need for coins with intrinsic value emerged. This led eventually to the use of copper and silver as the content of early coins, beginning in the third millennium. Paper money was initially backed by gold but later came to have its value largely based on public confidence in the government issuing the currency.

THE APPEAL OF CRYPTOCURRENCY

With the increase in “digital transactions,” the indispensable role of the banks also meant that they had information on the persons/entities involved with these transactions. The banks also charged service fees and kept records of these transactions, which impacted the account holder’s anonymity. In other words, banks bring with them various costs and prevented absolute anonymity for holding or transferring currency. Increased secrecy and lowered bank fees became the goal. The concept of cryptocurrency was born.

IT ALL STARTED WITH SATOSHI

Bitcoin is the world’s biggest cryptocurrency. Bitcoin is a digital asset and a payment system invented by cryptology experts using the pseudonym “Satoshi Nakamoto.” They published their invention in 2008 and released it as open-source software in 2009. (Note: Sathoshi Nakamoto’s true identity has never been confirmed.)

THE BITCOIN PROTOCOL

At its core, Bitcoin is a cryptographic protocol, “cryptocurrency.” The protocol creates unique pieces of digital property that can be transferred from one person to another. Bitcoin is a virtual medium of exchange. It is not issued by, backed by or tied to any particular nation or government. As such, the value of bitcoins can rapidly and widely vary in value. It is the longest standing, best-known and most widely traded cryptocurrency.

In essence, all Bitcoin account holders, wallets and transactions (i.e., deposits, transfers and debits) are simply individual, randomly generated numbers that become the key or “password” for that item or activity. Each key or password is thought to be totally unique and anonymous, and the owner of that key becomes the “owner” of that account, wallet or transaction

ABSOLUTE PRIVACY – ALMOST

The Bitcoin system functions peer-to-peer; users can transact directly without an intermediary. Transactions are verified by network nodes and recorded in a publicly distributed “ledger,” called the blockchain, which uses virtual bitcoins as its unit of account. The system works without a central repository or single administrator, which has led the U.S. Treasury to categorize bitcoin as a decentralized virtual currency. Bitcoin is the first decentralized digital currency and the largest of its kind in terms of total market value.

BLOCKCHAINS: WHO NEEDS BANKS ANYHOW?

The blockchain automatically tells one party that the other party in the transaction is legitimately paying for a good or service. There are no third parties involved. The system is literally monitored by everyone. Each person who takes part in cryptocurrency commerce has the same ability to oversee the operation. The blockchain is the cornerstone of Bitcoin and is constantly updated in real time.

All confirmed transactions are included in the blockchain. This way, Bitcoin wallets (accounts) can calculate their spendable balance. New transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography.

BITCOINS: WHAT FOR?

Bitcoins can be created as a reward for payment processing work in which users offer their computers to become part of the Bitcoin system. They verify and record payments into a public ledger or blockchain. This activity is called “mining,” and “miners” are rewarded with transaction fees and newly created bitcoins. In addition to being obtained by mining, bitcoins can be exchanged for other currencies, products and services. Users can send and receive bitcoins for an optional transaction fee.

WALLETS, SEEDS, KEYS AND MINING

A transaction is a transfer of value, between Bitcoin wallets, that gets included in the blockchain. Bitcoin wallets keep a secret piece of data called a private key, or “seed,” that is used to sign transactions. The key or seed provides a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called “mining.” Basically, “mining” occurs when a computer or a network of computers runs Bitcoin software. That software creates new entries in Bitcoin’s blockchains.

BITCOIN SOFTWARE: IS IT FREE?

Because anyone can download and install the Bitcoin software for free, the payment processing and record-keeping for Bitcoin is done in a widely distributed way, rather than on one particular server. When blockchains are created, so are new bitcoins. Each bitcoin is defined by a public address and a private key, which are long strings of numbers and letters that give each a specific identity. This means that the bitcoin itself is not only a token of value but also a method for transferring that value. Buying a bitcoin can be thought of as buying a spot in the blockchain, which then records your purchase publicly and permanently.

HOW MANY BITCOINS ARE THERE IN THE WORLD TODAY?

Bitcoin estimates that the final bitcoin will be mined in the year 2140, bringing the permanent circulation to just under 21 million. (Currently, there are roughly 12.4 million bitcoins in the world.)

SECURE WALLETS: HOW DO THEY WORK?

You save bitcoins in a wallet (account). The “wallet” stores the public and private keys needed to identify the bitcoins and execute a transaction. They can be digital wallets that exist in secure cloud environments or on a computer. However, they can also take physical form. If a wallet is hacked or you lose your private Bitcoin key, you no longer have access to that Bitcoin. The possession of the public address and private key amounts to possession of the bitcoin(s). You could physically pass your Bitcoin wallet on a flash drive or electronically to another person as an anonymous form of payment.

WHERE CAN I USE BITCOINS AND WHAT FOR?

Bitcoins can either be used to buy things online from merchants and organizations that accept Bitcoin, or cashed out through an exchange, broker or direct buyer.

THE BITCOIN VEIL

People primarily buy and sell bitcoins through online exchanges. The public address and private keys are both required to trade, sell and spend bitcoins. Since transactions are done using the public keys, the identities of the buyers and sellers are veiled to each other and to the public, even though the transaction is recorded publicly.

BITCOIN EXCHANGES: MORE THAN 100

There are over 100 bitcoin exchanges in existence today. To mention just a few of these exchanges, they are available as BTC China, Bitcoin.de (Germany), VirtEx (Canada), Bitstamp (Slovenia), BTC-e (Bulgaria), CampBX (U.S.), and Bitcurex (Poland). There are also fixed-rate exchanges and brokers, such as Coinbase.

HOW IS A BITCOIN WALLET BEING SET UP?

Once an individual has settled on a broker or exchange, he/she creates an account with a user name and password and links his/her bank account. Most exchanges ask for personal information and a photographic scan of a driver’s license, passport or national ID card. Some exchanges, such as Coinbase, ask for your phone number, and some exchanges even require a recent utility bill to confirm your identity and location.

BITCOIN AND ILLICIT ACTIVITY

People often say Bitcoin is anonymous, but “pseudonymous” is more accurate. Transactions are currently quite difficult to trace, which is why Bitcoin has been associated with illicit activity, such as buying and selling drugs on the now-defunct Silk Road market.

PROS AND CONS OF USING BITCOINS

Bitcoin as a form of payment for products and services has grown, and merchants have had an incentive to accept it because fees were generally lower than the 2% to 3% typically imposed by credit card processors. Unlike credit cards, any fees are paid by the purchaser, not the vendor. It should be noted that Bitcoin users are not protected by refund rights or chargebacks.

WHO ACCEPTS PAYMENTS BY BITCOIN?

Hundreds of companies now accept bitcoins, including Amazon, CVS, eBay, Home Depot, Kmart, Sears, Subway, Target, Victoria’s Secret and Zynga. Even recent Presidential candidate Rand Paul accepted bitcoins for campaign contributions.

REGULATING BITCOIN: IS IT AT ALL POSSIBLE?

U.S. Federal Reserve Chair Janet Yellen has testified that the Fed has no potential for regulating Bitcoin. She testified that Bitcoin is “a payment innovation that’s taking place outside the banking industry,” and “to the best of my knowledge there’s no intersection at all, in any way, between Bitcoin and banks that the Federal Reserve has the ability to supervise and regulate. So the Fed doesn’t have authority to supervise or regulate Bitcoin in any way.”

HOW STABLE IS BITCOIN AS A CURRENCY?

Bitcoin continues to have issues with stability. In 2013 alone, Bitcoin went from lows of $10 to $1,200 per Bitcoin. It surpassed the value of gold at its peak before crashing down to $500. Today, it fluctuates between $380 and $682 on different exchanges. However, Bitcoin is becoming more stable and legitimate, and mainstream adoption seems possible.

Bitcoin is primarily used as a vehicle to transfer funds with anonymity. As of mid-February 2016, a bitcoin is worth US $396.61. At this same time in 2015, a bitcoin was worth over US $600. Shifts of over $90 per month are not unusual. Therefore, due to the volatility of bitcoins, the Bitcoin system is most commonly used solely as a transfer vehicle and not to “store” money.

BITCOIN AND FRAUD

Caution should be practiced when placing our trust and our money: Bitcoin exchanges are not meaningfully regulated. While this is part of Bitcoin’s appeal, it does make it easier to get defrauded.

Mt. Gox was one of the largest Bitcoin exchanges in the world. It was based in Tokyo starting in July 2010, and by 2013 it was handling 70% to 85 % of all Bitcoin transactions. In February 2014, the Mt. Gox company suspended trading, closed its website and exchange service, and filed for a form of bankruptcy protection. In April 2014, the company began liquidation proceedings. It was announced that around 850,000 Bitcoins belonging to customers and the company were missing and likely stolen. Later on, that amount was valued at more than $450 million. Subsequently, 200,000 Bitcoins were “found.”

New evidence presented in April 2015 by WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox wallet over time, beginning in late 2011."

The Use of Dissolved Companies to Conceal Assets

Mon, 01 Feb 2016 01:09:52 GMT

A “dead” corporation can continue to acquire assets for years after it becomes legally defunct.

As there are so many complicated and “high tech” methods to conceal assets, many investigators often overlook the more simple method – i.e., the need to also search for assets in the name of “dormant” or “dissolved” corporations.

Such entities are great places to hide assets, and here is why: When most people see that a corporate name is on the “dead list” at the Secretary of State or company registrar’s office, they put it out of their minds. However, assets acquired during the term of that corporation may be very much alive. Further, a dead corporation can continue to acquire assets for years after it becomes legally defunct.

These “dead corporations” of interest can have existed for many years before becoming dormant or being dissolved. However, with increasing frequency, we have found that persons often open a company, keeping it open just long enough to obtain the foundation papers and tax registration number, only to close it shortly afterward. In the short time that the company is active, the subject opens one or more “company accounts” by providing the banks with the necessary documentation to show that they are dealing with a “legitimate” company.

However, once the company is dissolved, the accounts are left open, and the banks do not ask for any additional proof that the company is still active. Thereafter, these “company accounts” can be used to “park” funds or act as “transfer points” for funds that the subject is seeking to conceal. In these dead corporations we have frequently found significant amounts of funds (i.e., in the tens of millions), art, antique vehicles, yachts, aircraft and real estate. Because these companies have been dissolved, most lawyers and investigators do not bother searching for assets under dead companies’ names.

A search for hidden assets should also include bank accounts under the name of dissolved companies with which the subject was involved. Our standard practice is to include property searches, vehicle searches, and searches for other assets in the name of any discovered dormant or dissolved corporations. You may turn up significant assets.

The cost of these additional searches is relatively small when you consider the potential gain. Never underestimate a debtor’s resourcefulness!