One of the frustrating things in divorce cases for victims of divorce, lawyers that represent divorcing couples, forensic accountants and even marriage counselors is how to locate and even more important, how to recover hidden assets in overseas secret bank accounts and financial institutions. Relief may be on its way.
By John Quirk
In a typical divorce case––liquid assets––money––and to a lesser degree property or other assets, are often the subject of increased disagreement and adversarial tactics in family law cases. If a spouse suspects that his or her spouse has been secreting assets overseas it is often difficult to either gather information or worse, enforce good intelligence on location of assets---especially with secret overseas bank accounts.
Need for Secrecy
While spouses during a divorce suspect that their spouse has overseas assets and discuss with their legal counsel their suspicions, lawyers and forensic accountants are often at the mercy of the court system. The tools that lawyers use––depositions, subpoenas and negotiations are often limited by how swift judges approve these efforts. The verification of truth in depositions by the spouse hiding assets is also of course important.
Forensic accountants can only issue reports based on the paperwork given to them. Their job is not only to assess total assets but can also be employed to “measure” whether there is fraud by the spouse. Lying about assets, hiding assets or using a domestic divorce case and its system to hide an offshore asset in a bank or financial institution (e.g. in Switzerland, Caymans, Bermuda, Bahamas) or the myriad of banking havens located outside the United States and Canada is increasing.
Even when hard working attorneys and brilliant accountants issue reports and make their cases before a judge, a judge often has little basis in law or enforcement methods to enforce a judgment or action against a foreign country’s bank secrecy laws.
The worst scenario is when a lawyer goes before a civil divorce judge and states for example, “We believe the spouse has money in Switzerland at Credit Suisse Bank.” This action can be a catalyst for the opposing spouse to move the money –– often electronically in minutes of realizing the lawyer is on the trail of hidden assets. Moreover, the spouse in question managing the offshore account may put his own lawyer in a bad position on whether or not to move the money.
Thus, both the client and the lawyer have to be careful not to “leak” information as to where they know money rests. Telling a judge can be the worse for all parties. First, the judge cannot usually enforce action on an overseas bank account. Second, “a leak” can move the money in minutes ––usually to another banking haven!
That, of course, supersedes the concept of locating monies overseas as well as obtaining documents to prove to a judge where the money is. Even if this happens most judges have little or no institutional enforcement knowledge of securing assets in a foreign venue.
In case after case the spouse has to accept the final divorce settlement and accept the final divorce degree with its judgment for alimony or other details–—all without landing on substantial offshore monies the spouse had hidden.
It’s just the way the system has historically functioned.
The Mutual Legal Assistance Treaty
Now there seems to be an area of relief. It’s called MLAT, an acronym for the Mutual Legal Assistance Treaty, a treaty signed by over 100 of the world’s countries. The USA and Canada are the flagship countries for cases in this area and are being aggressively followed by MLATS from France, Italy, Korea, Japan Germany, Mexico, and several Latin American countries.
The British have had a version of this called Anton Pilar orders or Mareva injunction and sometimes are used by savvy American lawyers. MLATs however can be slam dunks for recovering assets overseas. There are a high percentage of successful recoveries even ahead of traditional British techniques –– mostly in the civil area.
MLATs are an unusual technique and being employed more and more by attorneys in fraud cases and family law lawyers seeking overseas liquid assets of spouses that lie in depositions, or in court or use tactics to avoid admitting to having overseas bank accounts!
The Mutual Legal Assistance Treaty has expanded in divorce cases. These treaties between countries were first written with the idea of landing on drug money or seizing monies in money laundering cases, and soon expanded to cases involving fraud, investment fraud and various forms of financial fraud. Today, lawyers and others are expanding its use to recover assets overseas.
MLATs are perfect vehicles to not only locate monies overseas, but to recover assets for a victim of fraud in divorce cases.
The history of MLATs started with cases involving drugs, embezzlement and financial fraud and were expanded to corporate fraud cases and bankruptcy frauds or mortgage frauds where the targets had moved monies oversees to an offshore banking haven. But as more and more spouses lie about assets in civil court, and where fraud can be proven, MLAT may work. It may not be for every case but if there are indications of fraud it could be a useful tool to secure rightfully owned assets hidden by a spouse.
The remedies for recovery were traditionally available to prosecutors but now civil attorneys and their actions can be added. Enforcement is not a problem because bank accounts can be frozen or seized by an MLAT order.
The country targets of MLATs are these venues:
Bahamas, Antigua, Switzerland, Guernsey, Isle of Man, Gibraltar, Jersey, Caymans, Cyprus, Hong Kong, the Cook Islands, Monaco, Turks and Caicos islands, and a few other new so-called banking secrecy havens. Although Lichtenstein and Luxembourg are not signatories, egregious cases can be achieved by a form of MLAT or cooperation between e.g. Lichtenstein and Luxembourg with the USA and Canada. Lichtenstein is the most difficult, but a hybrid version of an MLAT with an Anton Pilar order or Mareva is sometimes effective depending on the circumstances of the case.
The MLAT treaties include the power to summon witnesses, and to compel production of documents and other evidence. Enforcement is not a problem using this technique as bank accounts are seized or frozen immediately. Supporting the MLATs are new and tough laws–– in some cases draconian money laundering laws passed by the European Union members.
Although there is no specific dollar or euro amount for a case, the more money in a hidden bank account the more likely an MLAT will be acted upon. Or if the case is important and a victim is elderly or disabled, the more likely a case will be prosecuted. Prosecutors are also looking at lawyers and fiduciaries that have given advice to a divorcing spouse to “hide” assets. These professionals can be targeted as well during a criminal prosecution. Thus, the divorce situation in many cases involves ”criminally” hiding monies. The penalties against fiduciaries, lawyers and accountants can be severe, and this can be the catalyst that often helps in issuing an MLAT.
Moreover, professional asset advisors are constantly coming up with either new countries or new vehicles to hide assets. They often recommend trusts, family trusts, and Swiss management investment accounts, large syndicated trusts where monies are intermingled, or even traditional checking accounts usually established in private banks subsidiaries of larger banks. Monies can also be hidden in brokerage accounts, investment vehicles, or insurance accounts.
The Team Approach
One of the best ways to achieve a seizure is to have a team working on the case: an investigator, forensic accountant, the attorney who handled the divorce, sometimes local counsel, but not usually necessary, and even a database operator/researcher can make up the team. The team leader should be the lawyer. He can interact with all parties and direct the investigator and forensic accountant. The database operator or researchers can collect information to bolster confidence that everyone is on the same page as the MLAT guidelines, and laws of the host country where the money rests. The investigators work has to be protected under the attorney-client privilege. The report of the forensic account can not only estimate what the victim is entitled to, but buttress the measurement of the fraud for the federal authorities. This report can be as an add-on, but is very important to substantiating the value of the seizure.
Other documents such as depositions, travel documents, airline boarding passes, bank statements and IRS statements can all be added to reports of the investigator or forensic accountant. It’s not the amount of documents, but specific “smoking gun” documents to prove the movement of monies and exposing the accounts.
Reasonable fees for the team can be added to the seizure of funds actually recovered. If there is no IRS competition, say on back taxes to the USA or Canada, monies are repatriated to a federal Justice Department or Treasury Department account, and then eventually released to the victim or victim’s attorney.
A Case Approach
MLATs in divorce cases work this way:
1. The divorce case should be coming to a conclusion or settlement. And after what seems like a drawn-out case of a spouses lying, hiding assets, delaying tactics, and not fulfilling a subpoena or lying in a deposition, the client’s lawyer can start a case this way:
2. Locate assets in a foreign venue. Specify what type of vehicle the spouse has put money in: a bank, a Swiss Management account, a private bank, a trust, or another syndicated trust. (Sometimes a lawyer can ask questions in a trap line approach to elect intelligence without tipping off the opposing lawyer or spouse that they are on the trail of overseas assets. It’s a tricky process.)
3. Once a bank account, the account number, balance and type of account is found, as well as the address of the bank, one should obtain from a good investigator or other document acquisition process the name, address of the account, signature cards, wire logs, customer service letters, and other bank documents etc. This is an area that needs good investigative work, for judges want to see “evidence” not just intelligence in a report.
4. The lawyer, investigator, forensic account and client do the following: write a narrative, include biographies of the spouse, any witnesses, such as those that have helped move monies––a bookkeeper, or accountant, or current or former employee, circumstances of the case, and any documents to have a reviewer and analyst understand the case before an MLAT starts. Details about the divorce is not necessary or recommended. The report can mention this but one must focus on “the Fraud”.
5. The fraud can start by the following: lying in the deposition, a contempt citation, and this can be then supported by a money-laundering claim. All of these may violate federal statutes or state statutes for criminal complaint. Since money laundering is involved, mail and wire fraud can be usually added by the authorities as well as other possible violations-investment fraud, IRS income violations, and specific federal criminal statutes.
6. In a number of cases spouses often are originally added to a company’s incorporation and have stock issues, which inevitably, the offending spouse sometimes forges a signature or removes a spouse from corporate ownership without the spouse's authority. These issues of forgery, removal of corporate ownership and directorship pop up more and more, and sometimes can be the catalyst for fraud and conspiracy.
7. These fraud charges have to be solid with evidence before the feds will take an MLAT case. If, however, the movement of monies precludes a divorce case, a prosecutor will themselves seek more criminal charges in addition to what “we believe and what we may not know” when the case starts.
In summary, a well written narrative accompanied by background checks and due diligence of the spouse with good documentation will help the prosecutor take the case, and eventually seize monies overseas.
A lawyer is also needed to make the agreement with the prosecutor that the money is, for example, in a Swiss bank account and monies in the account rightfully belong to the victimized spouse. It’s best to get this letter from the Justice Department so the feds don’t forget or change their minds seeking approval from higher-ups in Treasury or Justice.
Trust, but verify in writing is a good tactic.
One also needs a forensic accountant and possibly a business evaluator to value what a victim is entitled to. It has been my experience if the victim gets too greedy that no seizure will take place. The feds want to see a forensic report, and even if the target has 15 million dollars in an account the victim may only be entitled to six million. By this time forget litigation or negotiation––the monies are seized secretly by the government. Leaks can also destroy the government’s case, so one must be quiet about actions.
Questions about the country’s banking secrecy very seldom come up because the foreign country’s lawyers take it for granted their Justice Department counterparts are giving them correct information without violating their country’s laws. As an investigator and consultant I have seen recoveries in bank frauds, corporate frauds, bankruptcies, and an increase in divorce cases and money laundering cases. The key is secrecy, accuracy of information, documents to support your claim, and a good working relationship with the prosecutor. MLAT is another tool to help victims recover monies on what used to be called “the secret banking havens”.
John Quirk is the author of ten books on intelligence and national security. As President of Asset Location and Recovery International he has located and recovered monies in the world’s entire secret banking havens. He has written several articles on banking secrecy and the Mutual Legal Assistance Treaty. He has taught asset location and recovery techniques for the California Bar Assn. He is a Professor of National Security at the Centre for Diplomatic and Strategic Studies in Paris.