Let’s say you just learned that the guy who made off with your life savings owns his own large business. You know he is living in the U.S.A., and that he transacts big ticket business in our country. And let’s say he has about $154,000 of your money. Let’s do something about that.

Who Ya Gonna Call? 

You call Pitorri and Associates, LLC to order some record searches.  (Or rather, you have your attorney call us, because we do business only with law firms and business firms.) To start, we recommend a Bank and Debtor Locator report and a Two-Bureau Credit Header report. (This is not a Consumer Credit Report.) These will give you loads of general  information about his financial condition. You can order an Employment Verification, as well. This could give you details regarding his position, his earnings, his tenure, etc.  Yes, even though he is the employer, you might be able to obtain this information. In the eyes of the IRS, there are only two ways to work for a company: either employer or employee (in addition to a 1099 contractor, but that’s another story). The business probably pays him a salary, plus bonuses, etc.  And yes, your lawyer could attach his salary (through court-ordered garnishment). 

          On the other hand, we recommend to lawyers and business firms that they go right for the throat: Have us conduct an Asset Search to identify attachable assets — like bank accounts. As well, you could order a Personal Property Report: cars, boats, airplanes. You could order a Real Property Report: Identify all real property that he owns, either solely or with another. In fact, you could order a Real Property Sale Alert report. This monitors the Realtors Multiple Listing Service, flagging the property in question if it is put on the market. You would just tell your attorney that the bozo has placed his house on the market, and let the lawyer take it from there.

          [This goes to the topic of fraudulent transfer: If he tries to sell (convert) real property into cash, with the intent to then launder the cash, the courts could see this as a violation of the Uniform Fraudulent Transfers Act (executed a little differently by each state). But you would not want to get imbroiled in a Federal prosecution, because that would be counter-productive.]

          By the way, even if he owns a house with another person, your lawyer could probably attach (place a lien on)  the house. That would make it impossible for them to sell it without satisfying the lien. Many attorneys are reluctant to do this, lest they be perceived as victimizing an innocent third party, but check with the lawyer anyway.

Now, On To the Business

While Consumer Credit Reports are protected by law, business credit reports are in the public domain. You could run several of the latter yourself — if you know how, and where to look. Otherwise, you call us, and we will offer you a variety of business reports, including, but not limited to the following:  Business Profile – a comprehensive profile of a company’s credit history;  Business Information Report – provides financial information about the business; Business Background Report – a business credit report.

          We may learn that your target is on the boards of several corporations. Then the questions would be, Is the target (AKA the bozo) compensated for these other services? If so, what are the amounts of the compensation, and how are the funds disbursed? If they go directly to an overseas account, you could still reach them, but the effort would cost a bundle.

      All of these searches take about two weeks to turn around. You and your lawyer would need to be a little patient waiting for the returns.

Secrets of a Successful Criminal

If the criminal could remain entirely within the cash transaction system, where there are no paper trails, he would probably be safe from law enforcement scrutiny for his entire career. If he stayed away from criminal associates, he would not make himself vulnerable.

But no one gets rich in solitude. You must have help. And criminals, you will recall, are driven by greed; they always want more money. And no, most of the rich ones are not stupid. That’s why they survive as long as they do. They manipulate other people. But when criminals seek to make their money work for them by investing in business transactions, they enter into the world of paper trails.

          The solution, I suspect, is to scam enough neurosurgeons and consumers to live comfortably for many years, and hide one’s cash in many places offshore, [or in the closet], leaving it untouched except to spend — no investments, no real estate transactions, no stable of expensive cars, and so on. But this is not the way of greed; greedy criminals must always acquire more riches. Without getting caught. Here are some of the ways they do this.

Look Back a Bit

I mentioned earlier in this series that the most difficult part of a business money laudering operation is injecting the illicitly gained cash into the business. There are two popular ways to do this: (1) Overstatement of reported revenue  (2) Overstatement of reported expenses. This is called “income statement laundering.”  Earlier, you read about these methods ever so briefly. Now let’s look closer.

Pssst! Wanna Buy a Great Used Car?

Big Deal Motors, a used car dealership, sells as many as 30 cars a month. It maintains three service bays, servicing all makes of cars. BDM offers deep discounts for cash payment for their cars, as well as for their service jobs. The invoices do not reflect the discounts (as much as 25 percent) “for competitive reasons”.  At year end, BDM has now sold 300 cars at an average official invoice price of $5,000 each. But the actual cash received from car sales alone is much less than $1,500,000; it could be short by almost 25 percent. That difference of $325,000 is made up from dirty money, so that the deposits balance with the invoiced charges of one point five million.

          Not a bad deal, except for that pesky IRS thing. Now the criminal is going to pay tax on his laundered funds! Bummer. Now what does he do? He just has to reduce the increased tax exposure….

Overstatement of Reported Expenses

Remember those three service bays? We would expect three mechanics, a helper, a state inspector, and maybe a service manager. Six employees require a sizeable payroll, what with salary, Worker Compensation, state withholding, FICA, Federal Withholding, and health benefits. Routinely, benefits and taxes may cost a business thirty-seven percent of salary to keep each person on payroll. But not here, in BDM.

          Six names are filed for payroll purposes, each with a stated salary. Five of those people do not exist. Payroll for those five ghosts can amount to almost $250,000 a year, not including commissions. These payroll and commission expenses now avoid taxes on that $325,000 of laundered money.

          In another strategy, the service department buys lubricants and other supplies from a co-conspirator supplier who agrees to inflate invoices by 30 percent, keeping fifteen for himself. So on $50,000 of real purchases of expendables per year, BDM reports expenses of $65,000, an inflation and reduced tax exposure of $15,000.

Take It Off!

Here’s one you may not have thought about: Entertainment. People who perform in small bars, nightclubs, strip joints, and the like are happy for whatever payment they can get in cash. Most of the time, the clubs will pay off the acts at the end of their booking. Sometimes the proprietor who books the act will finagle the fees for a cash bonus. (“Instead of 300 a night for 5 nights, how about $1,000 cash, with a guaranteed $500 if you stay for Saturday night?”  Half of that money will be dirty cash.) This leaves no audit trail for the club, with no entries in accounts payable.

          Can you imagine a stripper with an accounts receivable department?

Next time: What to do about it?