Category Archives: Asset Recovery

Basic Cash Concealment Strategies

One of the topics in which readers of this blog have expressed consistent interest over the years regards the many strategies of cash asset concealment employed by fraudsters; especially by embezzlers of relatively small sums from employers, who seem particularly creative at such manipulations.  Regardless of the method used to hide ill-gotten assets, one fact remains constant; proceeds from illicit activities must be disguised in some way to avoid being discovered. Those the ACFE dubs ‘asset hiders’ have developed many sophisticated techniques for working the system and accomplishing the goal of concealing their gains; in attempting to track down and recover secret stores of cash, the fraud examiner is presented with a true challenge, and the first step in meeting this challenge is to understand how asset hiders work. This post will concentrate on the concealment of raw cash.

There are three primary ways to hide cash assets. They are:

— Currency hoards;
— Cashier’s checks and traveler’s checks;
— Deposits to financial institutions.

The most basic method for hiding cash is the currency hoard, in which a person simply stores cash in a hidden location, usually in his or her home or on her property. This is the proverbial ‘cash under the mattress’ technique. In a typical home, hiding places for currency or other valuables can range from the obvious to the ingenious.

For example, precious metals and jewelry can easily be hidden in a layer of cooking grease at the bottom of a pot. The space beneath the bottom drawer of bureaus, chests, and cabinets is also a commonly used hiding place. Loose bricks in the wall or fireplace can disguise small spaces for hiding things. A more complex scheme is to build a false ceiling below the original ceiling and then use the space between the two as a hiding place.

Another place to hoard currency is in furniture. The hollow spaces of upholstered furniture make these pieces a good hiding place. Many people find false bottoms in drawers or inside stereo speakers useful places for hiding cash.

The basic structure of the home itself provides many opportunities for creating hiding places. One of the most common spots for hiding objects is in the walls. Cunning hiders may construct false walls in closets or pantries, or they may build large cavities into a wall, which is then covered with a mirror or a painting. Installing false light switch plates and electrical outlets provides easy access to spaces between walls and generally appear quite normal, although amateurs often leave tell-tale marks on the plate screws. These marks often provide searchers with signs of tampering and can lead to the discovery of a cache. An even simpler method is to hide currency inside the electrical boxes behind real electrical plates. If a larger space is needed, hiders sometimes remove the box from the wall and build a shelf below it. Significant amounts of currency can be hidden in these spaces. Currency hoards can also be hidden above ceiling light boxes in the space below the attic.

The plumbing system provides other natural hiding places. For example, many bathrooms have access holes under the sink, which are usually covered with a removable chrome disk. These access holes are designed so a cleaning ‘snake’ can be inserted into the main drain when the lines are clogged. This space is easily utilized as a hiding space. Floor drains are also used for hiding currency. Excellent hiding places can be created by installing false pipes that appear to be part of the home’s plumbing. Some individuals hide objects and money in shower curtain rods. Other places frequently used for hiding are air ducts, doors, and stairways. Heating and cooling system ducts are generally easy to access and have plenty of empty space. Hollow core doors are easily rigged for hiding. The top surface of the door can simply be cut away, allowing access to the natural secret compartment inside. Enclosed staircases have dead space underneath that is accessible. If the staircase is not enclosed, there may be usable space for small objects behind each of the risers. Stairs can be hinged, creating a hidden compartment underneath.

Cashier’s and traveler’s checks are another method used to hide assets. These instruments are useful for several reasons:

–They allow asset hiders to easily disguise their financial dealings from asset seekers like law enforcement, CFEs and forensic accountants;
–They help disguise the asset hider’s financial dealings and reduce the amount of currency physically carried;
–Cashier’s checks or traveler’s checks in denominations of less than $10,000 are negotiable financial instruments that can be exchanged almost any place in the world.

Whilst efforts to control the use of wire transfers for money laundering have traditionally been focused on banks, examiners also need to be aware that there are non-bank money transmitters that fraudsters often use to conceal cash assets.  These non-bank transmitters specialize in money transfers for individuals rather than businesses. In addition to other services, most non-bank transmitters sell money orders and traveler’s checks. These companies range from large international enterprises like Western Union to small mom-and-pop neighborhood check cashing businesses.

There are several reasons fraudsters like using non-bank transmitters. First, non-bank transmitters allow individuals to cash personal checks or wire money to family members nationally or in other countries. Check cashing companies and other sellers of money orders, such as convenience stores and grocery stores, provide a much-needed service to people without bank accounts. Second, non-bank transmitters allow individuals to obtain many individual traveler’s checks and money orders in amounts less than $10,000 each. Most states regulate check cashing and the sale of money orders with licensing and bonding requirements. The Money Laundering Suppression Act of 1994 required all money transmitters to register with the U.S. Department of Treasury. Furthermore, like other financial institutions, these businesses are required to file currency transaction reports (CTRs) for transactions of $10,000 or more in currency and coins, and they are required to file Suspicious Activity Reports (SARs) with the Treasury Department for certain classes of suspect transactions.

Check cashing companies have been known to receive illegally earned or stolen currency and use it to cash legitimate checks for their customers, thus avoiding CTRs or to structure transmittals by issuing multiple traveler’s checks and money orders for less than $10,000 each. Third, the transactions of non-bank transmitters will not trigger a mechanism for identifying unreported cash. Although money transmitters are classified as financial institutions, they are not depository institutions but operate through accounts with commercial banks. And, unlike bank accounts, which contain copies of deposits and canceled checks used in locating assets, non-bank money transmitters do not maintain copies of deposits and canceled checks. Unless the money order or traveler’s check appears in the financial records of the asset hider, it will likely go undetected since there is no place for the investigator to begin a search. However, once a money order or traveler’s check has been specifically identified, it can be traced back like any other financial instrument.

Banks and other financial institutions are frequently utilized by secrecy seekers as vehicles for hiding or disguising currency. The methods used may be as simple as renting a safe-deposit box and storing currency or valuables inside.  Searching the safe-deposit box of a suspected embezzler for evidence is not easily accomplished. It requires a court order. But; even if access to the box is denied, the investigator in a hidden asset case can often make educated guesses as to the contents by observing the movements of the hider. For instance, if the subject makes a visit to her safe-deposit box after attending an antique jewelry collector’s exposition, the examiner could surmise a collection of jewelry items is stored therein. Trips made to a safe-deposit box before foreign travel may indicate that the hider is moving money from his or her native country to a foreign location.

The banking system is, without question, the most important vehicle of both lawful and unlawful financial transactions. While most bankers are not active participants in asset hiding, it can be extremely difficult to distinguish between legitimate transactions and those conducted by secrecy seekers. Some bankers even prefer to close their eyes to the sources of their deposits and, in doing so, knowingly accept tainted funds. It’s important to understand how secrecy seekers use bank deposits and funds transfers to hide assets.  For the examiner, it’s important to know that most large banks have computer programs that can retrieve a specific wire transfer record. Many medium-sized banks cannot electronically retrieve specific wire data more than a month old, and some banks would have to search manually for records. However, even small banks usually send their international money transfers through one of the large Money Center banks, thus creating a record. Many large banks have enhanced their record-keeping systems to assure themselves and bank regulators that they are in full compliance with the Bank Secrecy Act. Some institutions have systems that monitor the wire transfer activity of certain accounts and generate periodic reports highlighting the consolidation of incoming wires followed by an outgoing wire transfer. Most of these systems are designed to monitor only customer accounts and do not record funds transfer services provided for non-depositors for which the bank serves only as an intermediary.

To conduct a successful wire transfer search, the examiner should have as much information as possible relating to the transfer in question when contacting the appropriate entity. Having the following information on hand will help make the search much more efficient:

— Date of transfer
— Amount of transfer
— Names of sending and receiving institutions
— Routing numbers of sending and receiving institutions
— Identity of sender and designated receiver
— Input sequence and/or output sequence

While most banks do not actively participate in fraudulent transfers, some signs for the examiner that could indicate collusion between a bank and its customer are:
— Allowing clients whose funds are not of foreign origin to make investments limited to foreigners;
— Acting without power of attorney to allow clients to manage investments or to transmit funds
on behalf of foreign-registered companies or local companies acting as laundries;
— Participating in sequential transactions that fall under the government reporting thresholds;
–Allowing telephone transfers of funds without written authorization and failing to keep a record of such transfers;
— Entering false foreign account number designations with regard to wire transfers.

Making It Right

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Congratulations!  You and your investigative team did all the hard work over many months and your client company has obtained a conviction of the bad guy.  What happens next?  The restitution phase of your examination, of course!  Client’s counsel has probably already told you (if you didn’t know it before) that the primary goal of a criminal statute is punishment of the convicted defendant, and for the most part criminal procedure does not concern itself with compensation or reparation of your client, the defendant’s victim. However, there are some opportunities to pursue recovery of losses caused by criminal conduct after the defendant’s conviction of which you should be aware.  So, according to the ACFE, what are some of the main issues involved with restitution?

Where the court suspends part or all of the defendant’s jail time and substitutes instead a term of probation, the court has the authority – either by statute or by its inherent powers – to specify the conditions of that probation, including an order to make restitution to the victim or otherwise to cooperate in the victim’s efforts to recover money or property. Restitution as a condition of probation can be ordered against both individual and corporate defendants, and may include a provision for installment payments over time to the victim. Usually the court will take the defendant’s ability to pay into account in ordering restitution, so that the defendant has a reasonable chance of meeting the restitution condition.  These and all terms of probation are supervised by the defendant’s probation officer who reports any failure of the defendant to obey or comply with probation conditions to the court. Restitution and other probationary terms are enforced by the threat of withdrawing probation and returning the defendant to jail to serve out his sentence if he fails to comply with one or more conditions of probation.

The court-designated probation officer usually makes sentencing recommendations – including any special probationary terms – to the court, so you should present any request to include a term of restitution to the probation officer as early in the pre-sentence investigation/evaluation process as possible. A request from the prosecuting attorney to include restitution as a term of probation also carries weight with the probation officer and with the court, so try to cultivate the prosecutor and familiarize her with your claim and supporting evidence. Cooperation with the prosecutor and police during the criminal prosecution can pay dividends in their willingness after conviction to persuade the court to impose a term of probation with an order of restitution.

Federal law (18 USC §§3663A and 3664) and an increasing number of state statutes direct or permit judges to order convicted defendants to make restitution to victims of their crimes as part of their punishment after conviction. These restitution orders are in addition to any other penalties provided by law for the defendant’s crimes. Unlike Victim’s Compensation Funds, these statutes apply to all crimes, including purely economic crimes. They also apply to defendants who do not receive probation as part of their sentence. Typically, statutory criminal restitution orders direct the return of the victim’s property, or its monetary equivalent if the property cannot be returned. Value may be calculated as of the date of loss or the date of sentencing, whichever is greater, according to some statutes. They also may direct the return of the fruits of the crime or the victim’s actual out-of-pocket expense caused by the crime.

A criminal restitution order may not apply, or be available, for a loss for which the victim has received, or will receive, compensation from another source, e.g. insurance (although the insurer may become subrogated to the victim’s rights and a court may enter the restitution order in favor of the insurer or other representative of the victim). Some statutes set a limit to the amount of restitution that can be ordered against a defendant who did not receive probation (although the limit usually does not apply to an order to return the victim’s property or its equivalent value) and/or direct the judge to take the defendant’s ability to pay into account. The federal statute and other state statutes direct that full restitution be ordered, although the court may take the defendant’s ability to pay into consideration in creating a payment schedule.

Unlike restitution that is ordered as a condition of conditional release (probation), a criminal restitution order can be enforced against the defendant even after his discharge from probation or his release from prison. The federal statute (and some state statutes) provide that a criminal restitution order may be enforced as a civil judgment by the victim against the defendant. Restitution orders also typically survive the death of the victim and may be enforced by his heirs or representatives. Criminal restitution orders are cumulative remedies and do not preclude the victim’s separate civil lawsuit against the defendant for the same conduct for which he was criminally convicted. However, any property or money received by the victim under a criminal restitution order will be credited against any civil judgment or restitution order.

The federal courts, and an increasing number of state courts, use legislatively mandated sentencing guidelines for convicted defendants. Besides the crime itself, and attendant facts and circumstances, these guidelines consider other factors that would allow a court to depart from the guidelines to enhance or reduce a sentence. One such factor is the defendant’s voluntary restitution before trial of the fruits of the crime or other compensation of the victim(s). This is not so much a remedy for the victim as encouragement for the wrongdoer to voluntarily make restitution before trial. Keep this fact in mind when negotiating with a criminal defendant for his cooperation during your fraud recovery effort.

Finally, be aware that many states maintain funds for the compensation of crime victims. These usually are funded, in part, by surcharges or fines assessed against the criminally convicted defendants. However, by the statutory terms and definitions, these funds typically are available only for crime victims who suffer physical injury or death from the defendant’s crime. However, it never hurts to look up the law in the relevant jurisdiction to see if reimbursement in whole or part for financial loss from fraudulent criminal conduct is available.