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Ever sailing close to the wind
by
Sally Ramage
21 July 2006
Serious
transnational organized criminals are always on the alert for prospective
places to hide and secure their proceeds. Offshore havens have been the harbour
of choice for these criminals, as well as for businesspersons who evade taxes.
Analysis of several case studies of grand-scale fraud, smaller scale frauds2
and other crimes concludes that there are many complex weaves of the social
networks that facilitated these schemes.
Process of investigating offshore tax evasion and Money Laundering.
Morgenthau’s3
findings incisively demonstrated what is now common knowledge that serious
transnational organized criminals are always on the alert for prospective
places to hide and to secure their proceeds. Offshore havens have long been the
harbour of choice for these criminals, as well as for legitimate
business-persons who evade taxes Studies of such crimes use law enforcement
intelligence files, court records, and other primary source documents. It is
necessary to detail the many conspiracies and social networks so as to explain
the enduring qualities of these fraudulent schemes and to illustrate the point
that successful legal artifices exist to thwart investigators, regulators, and
prosecutors.
Academics
and other investigators find it very difficult to understand grand-scale
organized offending.
Example one -Castle Bank in the Bahamas
Castle Bank & Trust was a
notorious Bahamian bank. Castle Bank & Trust had two major shareholders who
were secret directors. These two major shareholders were both attorneys. One
was Helliwell, he was involved with the CIA, and was
a well-known political lawyer serving as a key organizer for the Republican
Party in Florida. The other major shareholder of Castle Bank was Kanter, an attorney educated at the University of Chicago.He was a teaching associate at the University of
Indiana Law School, then worked at David Altman firm in Chicago, a firm which
specialised in federal taxation, estate planning, wills, and trusts.
The Mercantile Bank
Castle Bank
was formed in the Bahamas in 1964, and placed on the shelf for a few years,
ready to be used at the appropriate time. The Castle Bank 1965 Annual Return
showed some minor personnel changes, and showed a connection to the Mercantile
Bank & Trust which owned one of the five shares of Castle stock.
In 1965,
Paul Helliwell, attorney, became a mercantile
director, making Castle Bank part of a Helliwell
offshore banking complex. The complex included Bank of the Caribbean Ltd.,
registered in the Bahamas in 1963. Kanter and Helliwell used Mercantile to establish accounts for many of
their associates. Mercantile Bank and Castle Bank ran parallel operations. This
lasted until 1972 and then Mercantile Bank & Trust was in financial
trouble. It was forced to move certain accounts out of Mercantile Bank and
Trust and into Castle Bank to avoiding these monies going to creditors.. Morris
Kleinman, a known organized criminal was the holder
of one such account.
Taxation and Castle Bank
In 1972,
the Internal Revenue began to investigate Allan George Palmer, a known
manufacturer and distributor of illicit drugs; he held an account in Castle
Bank. Several cheques that were drawn by Castle on an account it maintained at
the American National Bank and Trust Company of Chicago were found in Palmer’s
possession. IRS intelligence located the Castle account at American National
and the signature card on file. There were nine names, including P. L. E. Helliwell and B. W. Kanter, attorneys.
It was the
amount of money in the account that aroused attention to it. One $70,000
cashier’s cheque was issued to a Mr. Yale Cohen, a known gambler who received
this $70,000 while he was the manager of the Stardust Casino in Las Vegas.
There were many money transfers between Castle Bank and a Chicago investment
firm. Intelligence thought that this was money laundering for Tony Accardo, an organised crime leader from Chicago.
The Kleinman material found in the Castle Bank investigation
revealed his partnership in a company called Karat Inc., which operated the
Stardust Casino. Kleinman’s attorneys were Kanter and Helliwell. This is an
example of a complex network.
Share Frauds Kanter and Pace
Kanter’s dealt with
Pace, known penny-share fraudster. Kanter created
Walnut Capital Corporation in 1985 and in 1986,Walnut Capital Corporation
loaned Pace the sum of $2 million in an arrangement which gave Walnut Capital
Corporation the right to "designate half the directors of the
company". At that same time the SEC had prosecuted Pace on charges of
producing fraudulent statements and his sentence was suspended for 3 months.
The following year he was charged with market manipulation and received a
sentence suspended for 9 months after which he was expelled from the securities
industry.
Later, Pace
took secret control of several penny-share firms such as the Sterling Foster
& Company , VTR Capital and Investors Associates. In 1998, Pace was
indicted on the charge ‘masterminding a $100 million fraud’ and he later faced
federal charges of being the principal player in a conspiracy with three
brokerage firms, manipulating eleven companies and creating illicit gains of
$200 million.
However,
Pace continued to direct VTR Capital and VTR Capital . He was ordered to pay $300,000
in restitution and to pay interest to around 150 customers in 30 states of the
US. In 1998, VTR Capital merged with IAR Securities and this merger created
Fairchild Financial Group Inc. which merged with Olde
Discount, a firm which was fined $1 million in 1999 by the Securities and
Exchange Commission (SEC).
Another
company that Pace directed was Dune Holdings, which promoted the shares of a
complicated Kanter involving SportsTrac
Inc. However NASDAQ denied its application for listing on the NASDAQ SmallCap Market. SportsTrac then
became SportsTrac Systems, Inc., which appointed
Fairchild Financial Group as its managing underwriter. Another part of this
complex network.
American bank of Antigua
Bruce Rappaport, founder of the Inter-Maritime Bank, and Marvin
Warner, former U.S. ambassador to Switzerland created a Panamanian holding
company called Swiss American, which then formed two banks in Antigua. One was
a local unit called Swiss American Bank of Antigua, the other was an offshore
business called Swiss American National Bank Ltd. These two men also created
the Antigua International Trust Ltd. and Kanter
became a director.
Kanter then had a
new vehicle for his complex financial transactions. Kantor established St.
Johns Trust and made the beneficiaries members of his family. Next, he borrowed
$700,000 from Swiss American Bank Ltd. and from Ulster Investments, Ltd., a
company in which he was the major shareholder. St. Johns Trust was the owner of
Ulster Investments. He then appointed Antigua International Trust Limited as
the trustee for St. Johns, making the network even more complex.
The SEC
began an investigation of Kanter’s tax-evading
activities in 1997. Ulster Investments was created solely for the purchase of
the unregistered common shares of Site Holdings, Inc. formerly Site-Based
Media, Inc. and seven million shares were moved by Kanter
to Hibbard, Brown&Co., a NewYork
a broker-dealer, convicted of penny-share frauds. Hibbard, Brown & Co was
expelled by the SEC.
United States v. Swiss American
The Swiss
American Bank entities were used to launder drug money for Boston-area
organized criminals who were subsequently charged with racketeering and money laundering.The principals charged were Murray, Cardone, and Fitzgerald. Fitzgerald had set up Halcyon Days
Investments Ltd. in St.Lucia. Millions of dollars was
sent by this route to banks in the Caribbean, including Swiss banks in Antigua
and Anguilla. In 1994, Murray pleaded guilty to the money-laundering scheme.
The Swiss
American Holding Company in Panama, and Inter Maritime Bank in Geneva were
indicted with laundering $7 million for the Murrays’ drug operation4
Similar Frauds In The United Kingsdom
Stephen Jupe was sentenced to five years in prison for defrauding
investors and creditors through his four million pounds yearly turnover of his
investment scheme in bonded single malt whisky and champagne. He set up
Securitised Syndicated Investments Ltd in 1992. It traded as Marshall Wineries,
offering investments to the general public in young single malt scotch whiskey
to be held in bond until maturity under his label Grandtully
Single Malt Whisky. He also marketed investment opportunities in champagne. Jupe was the controller of the business. He devised the
marketing strategy, he dealt with the whisky and the champagne suppliers, he
hired and instructed the staff, and he controlled the finances. The activities
of the company and the director’s use of company funds came under Department of
Trade and Industry’s scrutiny and they closed down the business in November
1996. Jupe attempted to resurrect the business
through the creation of a ‘phoenix’ company using a similar name so as to
disguise from suppliers and clients that anything was wrong. Investors and
creditors were the victims. Jupe was charged with
fraudulent trading contrary to section 458 of the Companies Act 1985. Jupe was also charged with using a prohibited company name
contrary to section 216(4) of the Insolvency Act 1986.
Other Professional Frauds
In the UK,
beneficiaries have millions of pounds stolen from them, stolen by their
solicitors. The Royal National Institute for the Blind, RNIB, have been a
victim of probate fraud and they estimate that such fraud costs them £150
million each year. The principal of RNIB legal services said that the
perpetrators tend to be very skilled . Probate fraud is often committed by
solicitors and other legal advisors who are appointed to wind up an estate.
They have access to all the deceased property and paperwork. There is no
control over solicitors when they are drafting wills or administering estates.
The means of deception are varied and frequently ingenious. They use means that
include bogus wills, mythical credit-card invoices, and hidden bank accounts.
For instance, Nicolas Furr and Paul Flint ran Legacies
(Wills and Probate Services) in Brentwood, Essex. These two persons misapplied
more than four million pounds in funds from the families of the recently
deceased. They provided will-writing services and they administered estates.
In another
case, a solicitor failed to mention the deceased person’s Swiss Bank Account
worth £34,000.
Robinson
Solicitors was a firm of solicitors in Cheltenham, UK, in which 29 members of
Robinsons’ Solicitors were charged with fraud on the UK Legal Aid system. The
conspirators of Robinsons Solicitors systematically defrauded the then Legal
Aid Board, now the Legal Services Commission., by dishonestly claiming from the
legal aid fund for work not in fact done.
In the case
of Guinness plc v Saunders and another5 , Ward was the
director of Guinness PLC, which had made a takeover bid for another company.
MAC, a Jersey company, submitted an invoice for £5.2 million for services
connected with the bid and this sum was duly paid. Guinness PLC applied for
summary judgement to recover the £5.2 million unlawfully received by Thomas J.Ward. Ward admitted that the payment to MAC was received
for and on behalf of Ward himself in return for his professional services in
connection with the takeover bid. Guinness plc denied that such an agreement
existed and even if it did, this was in breach of Ward’s duty as a director
because it was undisclosed, thus breaching section 317 Companies Act 1985.
There was no evidence provided to the court that such disclosure existed and
Guinness plc won the case6
Implications
Studies of
organized and white-collar crime have concluded with suggestions for more
criminal prosecutions, more law enforcement resources generally directed at the
threat of transnational crimes, more punitive sentences and greater use of
technologies to identify and track threats and activities of transnational
criminals.
However,
common sense dictates that targeting the social networks will bring results in
smashing these criminal networks of professionals.
Turn to the
noteworthy case IRS v Jaffe [1974] when the Internal Revenue Service
(IRS) put Operation Tradewinds into motion, the first
serious undercover work in the Bahamas. The Tradewinds
investigation shed light on why network analysis of this sort assists serious
fraud investigation.
Operation Tradewinds targeted the corrupt U.S. lawyer who established
and directed a bank and numerous low-profile companies in a foreign country and
then used this set-up to commit money-laundering offences. Sophisticated money
launderers who are lawyers are rarely picked up in general audits because they
have skilfully hidden their interests and assets in an offshore tax haven. Only
a continuing look at the actions of companies in places such as the Bahamas
might reveal such sophisticated criminals.
Investigators
of such sophisticated lawyer criminals have to know the company law, land
registries workings and the significant legislation dealing with banks and
trusts in every country where such money laundering is carried out.. Such
intelligence would spot correlated activities such as those related to
large-scale monetary manipulations, bank frauds involving subsidiary banks and
companies involved in Company Law violations.
Conclusion
The gravity
of financial crimes cannot be underestimated. The complex ties of perpetrators
include attorneys, bankers, securities firms, organized criminals, politicians
and sometimes corrupt police. One of the most important components of the
serious crime is private banks established in offshore locations, set up by a law
firm in which the principal partners arrange a series of trusts for themselves
and their clients, some of whom are traditional organized criminals.
The primary
purposes of such banks are tax evasion, money laundering, and financial frauds,
false bankruptcies, and bribery schemes. Payoffs are often handled through an
offshore bank. 7
Large-scale
transnational crimes that have been studied seem to show extensive planning and
coordination among numerous criminal entrepreneurs. Furthermore, intelligent
professional individuals as these are mindful they may need one of the other
parties to assist them in a future criminal endeavour, and also that
authorities could be monitoring their activity, which is why these schemes
require the talent possessed by lawyers and accountants, the corruption of
authorities and the intimidation of witnesses. Tax evasion, fraud, and money
laundering are their ‘fait accompli’.
Footnotes
1. A vessel
which is sailing close to the wind will sail slower and runs the risk of being
put about on the wrong tack by the slightest wind shift.
2. Which,
were they not caught, would almost certainly lead to grand-scale frauds.
3. District
Attorney Robert M Morgenthau
4. [Massachusetts
v. Swiss American Bank, Ltd., Swiss American National Bank, Swiss American
Holding Company S. A. of Panama, and Inter Maritime Bank, Geneva, 1997]
5. [1988]
BCLC 43
6. Many
other solicitors have been convicted in the United Kingdom. In the past ten
years there have been the following solicitor convictions:- Rv
Ian Macfarlane[2006]; R v Philip John Lewis [2006]; R v Richard Dawson [2006];
Rv Simon
Rutledge [2006]; Rv Timothy Miles [2006]; R v Brian Dougan [2006]; Rv Stephen Puleston Williams [2006]; Rv
Angela Baillie [2006]; R v Stephen Pulston [2006]; R
v John Martin [2005]; Rv Michael Fielding [2005];
Rv
Christopher Savage [2005]; R v Calum Blyth [2005]; Rv Nicholas Pounder [2005]; R v Philip Huxtable
[2005];
Rv Carsten Iversen [2005]; R v Susan
Davies [2005]; Rv Marylena Shuti [2005] ; R v Chris Christodoulides
[2005]
R v John
Ingram [2005]; Rv Ricardo Nardi
[2005]; Rv David Andrew Gatherer [2005]; R v Ricardo Nardi [2005]
Rv Gary
Beales [2005]; Rv Nicholas Pounder [2005]; Rv Christopher Savage [2005]; R v Donald Halling [2005]
R v Haydn
James Dodge [2004]; R v Timothy Robinson [2004]; R v Richard Deighton [2004]; R v Douglas Allan [2004]; R v Gavin David McCartan [2004]; Rv Richard McAnulty [2004]; R v Rohan George
Skea [2004];
R v Andrew
Erskine [2004]; R v Michael Lee [2004]; R v Ricardo Nardi
[2004]; R v Andrew Nicholls [2004]
R v John
Greenwood [2004]; R v Peter Lyle Sharp [2004]; R v Michael Wilson-Smith, R v
Peter Barnett, R v Ruperella [2004]; R v Harjit Sangha [2004]; R v Timothy
Farrant [2004]; R v Jennifer Hampton [2004]
R v Paul
Winter Morris [2004]; R v Jeremy Cave [2003]; R v Shirley Harrison [2003]; Rv Jill Radford [2003]
R v John
Tate [2003]; R v Yasin Mohamed [2002]; R v Louis Glatt [2001]; R v Miles McNulty [2001]
R v Donald
Pirie [2001]; R v Michael James Palmer [1999].
Not to
mention those who were processed only via the Tribunal route and thereby
quietly struck off the respective barrister and solicitors registers.
7. Journal
of Contemporary Criminal Justice ,November 2002