To find hidden assets, family lawyers have to adopt the mindset of someone who is intentionally trying to make themselves invisible.
By Barry Sziklay, Forensic Accounting and Valuation Expert
To be able to follow a divorcing spouse’s tracks and discover the source and disposition of their funds, family lawyers and forensic accountants first need to know how to become invisible.
In other words, you have to put yourself in the shoes of someone who is trying to make themselves invisible in order to follow the money. In my experience, the only limit on the ability of a divorce litigant to conceal their assets and/or income is their imagination.
How To Become Invisible (and Hide Assets)
Levels of Invisibility
In How To Be Invisible (St. Martin’s Press, 3rd Ed., 2012), author J.J. Luna identifies four levels of “invisibility” (or going “off-grid”):
- Level 1 – economical, relatively easy ways to conceal your identity (e.g., using a trading-as name as opposed to a corporate name; using a “c/o” address).
- Level 2 – Using alternate names to conceal your true identity.
- Level 3 – Using shell corporations, single member limited liability companies (“SMLLC”) owned by other SMLLCs or corporate members, or various trust and/or trust-like structures, both on and offshore, to conceal your true identity. Note: the rich, famous, and those whose professions could make them the target of lawsuits may use these as legitimate asset protection strategies.
- Level 4 – “Witness Protection Program”: a complete change in location and identity to conceal your true location and identity. This extreme level of invisibility and is generally employed by those who are being hunted by other people or organizations.
As you move up the levels it becomes increasingly difficult to find you – and your assets. As Luna points out, it takes an awful lot of money to find assets when an individual has reached Level 4 invisibility. In a divorce context, you may hire a private investigator to try to find your client’s Level 1 to 3 invisible spouse and assets, and former government agents to locate level 4 individuals and assets. These investigators must be hired by an attorney – not a forensic accountant or a client – in order to maintain attorney-client privilege and/or the attorney’s right to confidentiality pursuant to the work-product doctrine.
Levels of Invisibility in Divorce
In divorce, we rarely encounter Level 4. With sophisticated clients, we often deal with Levels 1 to 3; the more sophisticated the client and/or their spouse, the more likely you will be dealing with Level 3.
To keep their whereabouts secret, Level 3 individuals often have mail delivered to a P.O. box or mail drop – sometimes under a different name. They will not have anything delivered to their home addresses; they will use false names and pick up deliveries from courier service locations. Sometimes, they lease ghost addresses to use on their tax returns, licenses, and all forms of picture identification to keep their true address secret.
You can obtain valuable information about someone from their trash, so those in Levels 3 and 4 generally take their trash to dumps rather than leave it for pickup outside their homes.
Frequently, people in Level 3 will put their assets in entities such as SMLLCs, including S corporations, limited partnerships with S corporation general partners, limited liability companies (“LLC”) in which the members are other LLCs or S corporations, domestic and offshore trusts and trust-like structures, and tenancies-in-common. All of these are designed to make it difficult to identify the owner(s), and some may also provide a liability shield.
In NYC, many high-end cooperative and condominium apartments are owned in entity names to protect the anonymity of the buyers. NYC restricts condo and co-op buyers who use an LLC from getting a partial real estate tax abatement – but under a proposed amendment, condo and co-op owners could apply for a waiver if they can prove they used a corporate name for security reasons. This gives you some idea of how prevalent the use of entity names is in the acquisition of luxury NYC apartments.
Using a VPN to Hide
To conceal their physical location while online and/or sending email, a divorcing spouse can subscribe to a Virtual Private Network (“VPN”). For example, a company called InvinciBull allows you to route your email through any of their 76 servers worldwide – only 12 of which are in the U.S. This VPN encrypts data using military-grade AES 256-bit encryption (see www.bestvpnrating.com/review/invincibull-vpn). InvinciBull acknowledges that it keeps some logs and credit card information on file, so if you know which VPN an invisible spouse is using, you could serve a subpoena on the service to get some information.
Top10VPN.com lists “the best” VPNs for the USA on this page: www.top10vpn.com/best-vpn-for-usa. One such service, ExpressVPN, “hides your IP address and encrypts your network data so no one can see what you’re doing.” This company boasts servers in 160 locations in 94 countries.
If someone wants to become invisible, they can easily take the step of obtaining a VPN for a small monthly charge, which can be prepaid annually with a bank check or money order to further obfuscate the paper trail. Aside from cash, no payment method is completely untraceable – but using a money order paid for with cash, for example, is difficult to trace.
People in Level 3 or Level 4 may very well use one or more private VPNs, varying VPN usage each time to make it extremely difficult to find and access their email. If you don’t have their cell phone, tablet, or computer, their Internet Service Provider (“ISP”) might be able to help. Of course, the best means of protecting communication is to communicate face-to-face, but that is often unfeasible – particularly when communicating internationally.
Telephones can be tapped; known cell phones can be tracked (hence the need for “burner phones”); regular email is relatively easy to trace and can be accessed via a subpoena; computers leave a trail of metadata; and payment services such as PayPal can be subpoenaed. Using PayPal generates an email to the recipient of a payment; therefore, if subpoenaed, PayPal would have a copy of that email. The same applies to other payment services.
Use an Informal Value Transfer System (“IVTF”) to Hide Assets
Terrorists often use an Informal Value Transfer System (“IVTF”) to transfer funds via a network of people who receive money then make the funds or an equivalent value payable to a third party in another geographic location.
An “informal value transfer system” refers to any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form. The transfers generally take place outside of the conventional banking system through non-bank financial institutions or other business entities whose primary business activity may not be the transmission of money.
The IVTS transactions occasionally interconnect with formal banking systems (for example, through the use of bank accounts held by the IVTS operator.) IVTS, including so-called alternative remittance and underground banking systems, pre-date western banking systems and existed as far back as 5800 BC. The systems were established originally on the Indian subcontinent in Asia as a means of settling accounts within villages. Their use as global networks for financial transactions spread as expatriates from the original countries settled abroad. Today, IVTS operations are found in most countries. Depending on the ethnic group, IVTS are called by a variety of names including, for example, “hawala” (Middle East, Afghanistan, Pakistan); “hundi” (India); “fei ch’ien” (China); “phoe kuan” (Thailand); and “Black Market Peso Exchange” (South America).1
People in Level 4 may use IVTS because it is almost impossible to trace. Although not as good as IVTS, another approach to concealing money transfers is to establish a system of U.S. compensating balance bank account arrangements with related foreign branch credit lines outside the U.S. A good forensic accountant can identify the extension of credit outside the U.S., but it is not easy to do so because it requires “connecting the dots.” What appears as a foreign loan turns out to be a source of money without a U.S. bank actually having to transmit the cash. Nothing moves through the SWIFT system2 so there is no trail there; however, the bank itself would undoubtedly have some sort of record of the draw of funds; however, it will be very difficult to locate it.
A compensating balance (a minimum balance kept by a financial institution to support a loan) can help you connect the dots – but first, you must discover that a bank balance is serving as a compensating balance. The take-away is that when you send out your discovery request and/or subpoena, you must specifically ask the litigant or financial institution to identify any financial account that serves as a “compensating balance” – regardless of whether the financial institution designates it as such – and what and where is the related credit account.
How To Become Invisible: Get Off the Grid
In addition to concealing assets and concealing the transfer of funds, people who go “off-grid” and become financially anonymous still need to communicate with others: their children, paramour, accountant, lawyer, banker, etc. But how can they communicate and still maintain anonymity? Here are some answers.
1. To Become Invisible, Use a Burner Phone.
The first easy answer is to use what’s called a burner phone, which you throw away after using it. A burner phone can only be traced to wherever it has been used, so someone could not use it at a hidden residence. Of course, that person would pay cash for the phone and the telecommunication charges to minimize any trail.
2. To Become (Almost) Untraceable, Use Self-Destructive Message Apps Instead of Phones
People in Level 3 or Level 4 might use “self-destructive message apps” instead of phones.
These apps function such that the electronic communication self-destructs after a certain limited period of time. While there may be no trace of the communication to be found on the computers or other electronic devices on both ends of the communication, the communication itself goes through the internet; thus, there is some record of the communication on some unknown server which could be located anywhere in the world.
These apps include:
- Snapchat – message lasts for 24 hours;
- Telegram – “secret chat” option employs end-to-end encryption and has a self-destruct option;
- Wicr – military-grade encryption, sender can control view time;
- BurnChat – claims to be screen-shot proof and untraceable; masks sender’s identity; messages self-destruct as you slide to the next one; unread messages are deleted;
- Stealthchat – advanced encryption of phone calls and chat messages; uses burn timer to determine message deletion);
- CoverMe – can send texts to any number from private new number; can make secure private calls; immediate read-message notification followed by immediate deletion;
- Secret for iMessage – messages self-destruct from all devices;
- DatChat – can “Un-Send” a message anytime and “Nuke” to eradicate the conversation;
- Confide – confidential messenger with end-to-end encryption; and
- Dust – erases almost every record of a call from a recipient’s phone).
To learn more about these self-destructive message apps, see “10 Best Self Destructing Message Apps for iPhone” or “7 Free Self Destructing Message Apps for Android Phone.”
1 FinCEN Advisory Issue 33, March 2003; internal footnote citation omitted. Also, see Monograph on Terrorist Financing (National Commission on Terrorist Attacks upon the United States), Ch. 2, “Al Qaeda’s Means and Methods to Raise, Move, and Use Money,” p. 25, for a discussion of Hawalas used by al Qaeda.
2 Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) codes are used for international money transfers.
Barry Sziklay (CPA, ABV, CFF, PFS) is the Partner-In-Charge of Friedman LLP’s Forensic Accounting, Litigation Support, and Valuation Services. He is a nationally recognized valuation and litigation support practitioner with over 40 years of experience in a broad range of CPA firms as well as within the investment banking industry. www.friedmanllp.com
This article has been condensed from a seminar Barry Sziklay presented at the 2019 AAML/BVR National Divorce Conference. To learn about or to register for the 2020 National Divorce Conference, go to www.bvresources.com/events/national-divorce-conference-2020
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