Hide and Go Seek: Outwitting Holders of Hidden Assets

By Kent Perkins

Outwitting Holders of Hidden AssetsWith costs of litigation added to losses suffered which gave rise to the initial lawsuit, Plaintiffs can spend “good money after bad” and end up holding only worthless judgment paperwork when unscrupulous Defendants successfully hide money offshore.

Sadly, most other countries totally ignore United States judgments and refuse to help creditors attempting to locate hidden assets.   The Cook Islands, for instance, long ago recognized they could gain financially by being a haven for hidden assets.   Not content trading in just cocoanuts and mother-of-pearl, they structured specific, elaborately constructed banking laws to provide shelter to those seeking to hide assets.   Other countries have done the same, and well-paid consultants specialize in tucking assets away, hiding them from creditors, using these friendly nations and favorable privacy laws for sanctuary.

Those who hide ill-gotten gain learn to divide their assets into small units and disperse them in as many directions as possible.  Of course, they’re fully aware people are looking for their bank accounts, stock certificates, and other assets, so they put nothing in their own names.  They hire expensive lawyers, keep stealthy low profiles, and use numbered bank accounts, no-name “bearer” accounts which can be opened with no identification, and avoid attachable assets like expensive cars, business jets, yachts and fancy homes unless these can be titled to entities with virtually total anonymity.

Uncovering the assets of judgment debtors is more difficult, time consuming, and costly today than ever before in history, largely due to specialists such as Asset Protection Corp, which uses every available legal means to help clients hide property.   Careful to avoid advising anyone on how to cheat on taxes or hide assets from the IRS, they extract carefully worded assurances from clients that 100% of the taxes on funds they help conceal have been dutifully paid.   United States citizens must any and all report income from any source anywhere in the world, and qualified asset protection experts know advising clients otherwise would place them, too, in jeopardy of prosecution.   However, there are some crafty and legal ways to get around these laws.

People can to set up non-profit entities to hold the assets offshore, with greatly reduced reporting requirements pursuant to United States law, for instance.  The ownership of bank accounts can be controlled by passwords and “bearer books” so the true owners, who open such accounts through attorneys under the “attorney client privilege,” may never actually even see the “book” to which an account is tied, and are therefore often distanced from the assets in ways almost impenetrable by creditors.

As hopeless as the situation may seem, however, a judgment creditor still has a good chance at recovering hidden assets when working with competent legal counsel and an investigation firm with the qualifications, commitment, and energy to unravel the mystery of “where’d the money go?”

Several years ago we were approached by the attorney for a large Asian corporation with a $3.9 million judgment against a former executive who had embezzled funds.   Reluctant to put him in jail or even fire him (it’s a cultural thing, and you’d have to understand old traditional Japanese business culture to fully appreciate the reasoning), they simply gave their executive a diminished title with no business responsibilities, cut his salary to almost nothing, and obtained a swift judgment in the amount of the embezzled funds and associated legal costs.

The man lived rather simply in a quiet, nice neighborhood in Orange County, California.  His children attended private school, he drove a newer Lexus automobile (leased) and belonged to a prestigious golf club.   However, during his interrogatories and debtor statements, he claimed very few assets, leaving his employer without a clue as to the location of the stolen funds.   A trust account in his wife’s name, predicated on her own pre-marital inheritance, apparently paid the bills and sheltered enough money to maintain their rather nice lifestyle.  It couldn’t be touched by the judgment.

We immediately began surveillance on the debtor, and cautiously watched his every movement for several weeks.   We followed him from Orange County to Hollywood, where he picked up a date and went to a musical concert at Hollywood Bowl.    The date was identified as his former female assistant at our client firm, someone from whom he could have obtained high-level inside information about his own case.    This information was very valuable to the client.

We did everything legal to obtain data from every available source, down to even collecting the garbage on Tuesdays and Fridays at the curb in front on his house, switching his real garbage for black plastic bags of the approximate same size, stuffed with old newspapers.

In our lab, we examined every scrap of paper, translated hand-written Japanese notes, and constructed a profile of the debtor’s activities.   Among the grocery lists, notes to the gardener and other discarded refuse, we found telephone numbers, credit card vouchers and business cards linking him to a tax-sheltered island, offshore.   We discovered a consulting group, lawyer and banker with whom he was in frequent touch.   Discarded cellular telephone bills revealed contacts abroad and in the United States, including people inside our client firm with whom he was communicating regularly.  Our biggest break, though, came when the debtor discarded 20 or so film canisters, each containing a roll of undeveloped color film, with indelibly marked labels such as “our cars” and “the Bermuda vacation” and “our plane.”

When we developed the rolls of negatives, we had pictures of our debtor standing in front of beautiful Ferrari and Bentley motorcars, license plates revealed.   The foreign tags showed ownership by a foreign corporation, a name familiar to our client; this was a company with which the debtor had done extensive business during his tenure as President of North American Operations for the client company.   One of the canisters of film was labeled with an address in London, soon revealed to have been a very expensive Sloan Square flat, owned by the same “shell” corporation.

A private aircraft with British registration numbers was pictured with the debtor and his family proudly standing at the portal, beaming as they disembarked at Aruba.  The aircraft’s registry revealed still another corporation with which the debtor had done business.  The attorney for both corporations was identified as the same lawyer, an English business advocate whose home telephone number appeared on notes recovered by our field investigators several weeks prior.

As the mystery unraveled, it was determined the debtor had set up both paper corporations in an elaborate scheme to defraud his employer; payments sent to both companies for “consulting fees” and “commissions” were nothing more than additional embezzlement, heretofore undiscovered by our victim client company.

The judgment was eventually upgraded to include the additionally-discovered losses.  Our client sought and recovered more than $3 million in assets held in the names of the fraudulent business entities, and they changed their policy regarding termination of executives: the crooked debtor was finally fired.

Other client matters included a large metal plating firm with a judgment against a former manager who sold company materials to a plating company in Mexico; our surveillance and research eventually proved the Mexican company was fully aware of the international purchase of stolen materials, and they were forced to disgorge the funds.

Another client recovered almost a million dollars without even filing a judgment against a deceased former employee’s estate.  Involved in receiving hundreds of thousands of dollars in kickbacks over the past seventeen years from three sellers of product, one of which was offshore, the main buyer for our client’s firm died the day before she was to have been interviewed regarding the commercial bribery violations.    The client’s attorney allowed us to take over the purchasing department of the firm long enough to deal directly with the vendors involved.   One such company forgave more than $300,000 in invoices rather than forcing us to open an international fraud investigation; another vendor who had paid monthly kickbacks for seventeen years agreed to pay our client a similar amount when shown evidence Federal law was violated in mailing “kickback” checks from Arizona to California.   The remaining losses attributable to the decedent’s actions were recovered from her estate: she’d invested well in California real estate when she was alive and stealing from our client.  Her heirs agreed to sign over ownership to a classic Thunderbird, a Hummer, and eight choice acres of land in the hills of Hacienda Heights to settle the matter.   One of the heirs, brother of the deceased, was on felony probation at the time, and had participated in the “kickback” operation.   Our client recovered all the illegally obtained funds from their former employee and her Partners in crime” within months after her death, and were compensated for all their attorney and investigative fees.

Our research, like that of many other competent PI firms, includes every legal means possible to gather information and locate assets in this country and abroad.   The power of the subpoena, the availability of Internet and other resources, banking laws and privacy regulations offer the very same opportunities, obstacles, constraints and challenges to all who seek to find and recover well-hidden assets.

What makes us unique is our extra effort: our inventiveness, intuitiveness and willingness to accept nothing short of the best possible results for our clients.

About the Author:
Kent Perkins is managing partner and senior executive investigator with the firm of Diversified Risk Management, Inc. (DRM), a licensed, nationwide investigation firm. He has over 30 years of experience in conducting workplace investigations throughout North America. The firm offers a broad range of specialized risk management and corporate investigation services that are designed to minimize exposure. Mr. Perkins assists corporations and law firms in identifying, mitigating, and responding to risks through a comprehensive suite of professional service offerings. Mr. Perkins can be reached at 800.810.9508 or by e-mail.

 

Posted in Corporate Investigations, Covert Surveillance, Investigations, Legal Support, Workplace.

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