Home MLAT Banking Secrecy


Although much has been discussed about the new Patriot Act of 2003 and tracking terrorist’s monies overseas, there has long been a new and growing market related to the bankruptcy area. It is called Mutual Legal Assistance Treaty and more and it is being used and expanded and developed for federal bankruptcy cases.

Moreover, the good news is that the way it is designed it is a perfect vehicle not only to locale and recover assets in bankruptcies but it is perfect for trustees to manage and direct. The not so good news is that American attorneys are playing catch-up to their British cousins who have used it for years and recovered hundreds of millions in the process. Not only have British lawyers used il to great advantage, they often believe British law follows money better in the banking secret havens of the world. Not any longer under MLAT (the abbreviation for the Mutual Legal Assistance Treaty), American attorneys are expanding its use to recover assets overseas.

What is MLAT

The Mutual Legal Assistance Treaty (MLAT) and other agreements the United Stales has expanded usually first referred to cases involving criminal matters. These were the first uses of MLAT and usually applied to cases of embezzlement or financial fraud. Then MLAT’ s were expanded to corporate fraud cases and then to even civil divorce cases where fraud was believed as a result of spouses lying in depositions regarding overseas bank accounts. More and more of these actions recently have been expanded to federal and even stale bankruptcy filings where there has been a strong belief of fraud or the secretion of assets in foreign venues. This was in particular cases where suspicions of private trusts were used in offshore protection trusts.

MLAT’s seek to improve the effectiveness of judicial assistance and to regularize and facilitate its procedures. Each country designates a central authority, generally two Justice department lawyers for regular and direct communication. The treaties include the power to summon witnesses, to compel the production of documents and other evidence, to issue search warrants and to serve process and here is the best part—- to pierce through banking secrecy havens and freeze or seize assets pending the outcome of an investigation, not even a prosecution or a judgment. Enforcement is not a problem as bank accounts are seized or frozen immediately.

The remedies are only available generally to prosecutors but civil attorneys and their actions can now be tagged along. Although MLAT applies to most countries of the world and was first used against money launderers, drug traffickers and the likes of the Russian mafia or the Medellin drug cartel, it is now used in divorce cases, corporate bankruptcies and in most bankruptcies wherever there is a hint of lying or fraud or deception.

Although many counties are signatories of the MLAT treaty, lets face it, most money is hidden in these venues: Bahamas, Caymans. Guernsey the Isle of Jeresy, the Cook Islands. Switzerland, Lichtenstein and Luxembourg and also Bermuda, Turks and Caicos, Monte Carlo, Cyprus, the Isle of Mann and a few other banking secret havens. Money hidden in a Bermuda Insurance Trust, a Guernsey Discretionary Trusts, Cayman bank accounts, Swiss Management Portfolio accounts or regular savings and checking accounts often protected by asset management accounts, trusts or offshore trusts all are targets of an MLAT action.

Even in Lichtenstein and Luxembourg, while not signatories of MLAT, there are extra legal methods the justice Department has and justice Department lawyers that put pressure on these countries to cooperate in criminal cases.

The US SEC. Treasury Justice Department and Dept. of State can all use MLAT in seeking information about funds deposited in the above venues. The SEC in particular being victimized by increasing number of corporate bankruptcies has developed informal case by case understandings that facilitate the location of monies that have gone missing due to corporate fraud and bankruptcies that were designed to steal investors' monies.

Thus, if a trustee has a "SEC" case, he does not need to be bogged down waiting for settlements or final judgments. He can use MLAT to move along his case.

How Does MLAT Work ?

MLAT works in the following manner. First a local stale or federal prosecutor (usually an Assistant US Attorney) makes a simple two paragraph request to the justice Department lawyer in Washington—-the US has scores of attorneys assigned to every country, island and banking secret haven. The request usually stales: first, that there is a belief that there is fraud and second, and most important, where the monies rest.

I have found the lawyers in the justice Department, especially those assigned to countries that are regarded as banking secrecy havens, are the sharpest attorneys around and are usually good friends with their foreign Justice Department counterparts i.e., they travel to their countries frequently, attend the same conferences and know how to locate and freeze assets. These friendships with their MLAT counterparts helps in understanding the law, individual cases, the criteria of a fraud case and the mechanisms and practical ways of seizing the monies.

Case Criteria

Although there is no overall specific written criteria for a case, I have found that the more money that is in a resting place, the more governments are willing to cooperate and move forward. If one is looking for $500,000, it is a relatively small sum to be acted upon. If the case is important and say the victims are elderly, a MLAT could be issued. However, since the amounts of fraud in many bankruptcies are often in the millions, the more money one can find and prove is in a banking secret haven, the more attention it will get from a justice Department MLAT attorney. In one case I called an AUSA in West Palm Beach and I excitedly told him I had "a 1 million dollar MLAT counterfeiting of luxury goods case". He somewhat chuckled and said, "John, come on, I have a 15 million dollar drug case." So the amount is important, victims are important and the circumstances of the fraud are important. In many new cases, prosecutors are looking at lawyers who go out of their way to give advice on hiding illegal monies—the penalties against the lawyer are severe and this catalyst often helps in issuing an MLAT.

After the request is made, the Justice Department's attorney sends over a request to freeze the accounts on behalf of either the US government or the victim. A local constable goes out to the bank or financial institution in his country and freezes the accounts. Bank officers are usually terrified by the action and comply immediately and if the money is an a investment account, liquid bank account or private banking fund, no one dares to tip off the account holder and banking secrecy be damned. Banks and their officers face severe penalties that are issued and enforced. However, it is best that the trustee, his investigator and office staff, keep secrecy in place until the accounts are frozen. A freeze is holding the account until the prosecution is complete; a seizure is one that has a judgment or a prosecution has found parties guilty. In bankruptcy cases either can be employed.

The Trustee as Team Leader

One of the principal ways is to have a team working on the case. An investigator, forensic accountant, local counsel (in the host country where the money rests) and even a database operator, can make up a team. The team leader always should be the bankruptcy trustee. Only this person can properly interact with both the prosecutor who makes the initial request, the Justice Department lawyer in DC and then employ local counsel (if needed) on the ground in, say, Switzerland or Caymans. He should also direct the forensic accountant (not obligatory) to issue a report measuring the bankruptcy claim, amounts to be seized or indicate the fraud. The investigator likewise has to work directly for the trustee because of attorney work product and to both protect sources and also to not violate banking secrecy of the country. The trustee must direct, issue instructions and control both the investigator and forensic accountant. The trustee must direct the investigator to locate the assets and to obtain documents substantiating the investigators intelligence information on where monies rest. Some of the documents needed are : wire transfer logs or reports. banking statements, trust papers, IRS statements, customer service correspondence, travel documents, and investment account statements. Even civil depositions whereby the target is believed lo have lied can be used. Profit and Loss and balance sheets may also be used. Most important is how the money arrived in the account and the source of the money. If a judgment has been issued, the source may not be important. If the case has not been adjudicated, one may need to prove to the host country that the money in the account originated from the fraud. It depends on the host country - even through most banking secret havens have banking secrecy laws that are similar, there are differences, for example, regarding the source of the money. In Switzerland they may not demand to know the source, whereas in Guernsey they may, in fact, request that proof be given that the money in a specific account originated from the fraud. A forensic accounting report measuring the fraud can assist in this. Also, clarification can be given by the Justice Department lawyer who knows the foreign countries criteria and regulations. This is but another reason the trustee must be the team leader in the exercise.

The Trustee acting on behalf of the victims and as a member and officer of the court then has control of the monies involved, knows the monies missing, and can control the monies seized.

Reasonable legal fees, interest and investigative and accounting fees can be added to what is actually recovered.

If there is no competition from the IRS, say on back taxes, the money is repatriated to the USA, placed in a Justice Department escrow-type of account or US Treasury account and then released to the trustee after about 90 days.

The Trustees Role

The main job the trustee has is to keep everything secret and compartmentalized so there are no leaks so the bad guys do not move the money before the MLAT goes into effect, meaning the constable or foreign venue attorney serving papers to freeze or seize. Since a criminal case is involved the account holders can hire local counsel but the chances of getting an MLAT taken off are like the survival of a snowball in Hades or even longer. The great thing about MLAT is that you do not need a judgment, just a strong suspicion of fraud and secreting assets. If one has a judgment, even better. Civil judgments where targets have been deposed, have lied or been held in contempt or even less than honest, can also be attached to your request. The prosecutor can then file an MLAT request.    What is really needed is not only suspicion or proof of fraud but good intelligence and documents to substantiate that the money is in the place you say it is. Justice Department lawyers do not like to go in with a blanket request hitting twenty banks without good information. This is why the trustee and his investigator must have good intelligence and a great working relationship. The criteria is NOT to violate banking secret laws in the host country, and to protect sources who supply information. Most foreign judges who look at the MLAT's never question the work of investigators or how they obtained their intelligence but want to make sure that the money is where the trustee states it is. In addition the justice Department lawyers that make the request don't want to have egg on their face from their foreign counter-parts. The trustee also wants to communicate that the money that is in the banking secret haven originated from the fraud.

Questions about banking secrecy very seldom come up because the foreign country's lawyers take it for granted their US justice Department counter-parts are giving them correct information without violating the host countries laws. As an investigator, I have seen recoveries in bank frauds, corporate frauds, bankruptcies, divorce settlements and money laundering cases. The key is accuracy of information, some documents to support your claim and a good working relationship with a local prosecutor or US Attorney and the justice Department lawyers. MLAT is another tool to help victims recover monies in what used to be called "the banking secret havens".

Asset Location and recovery international Inc.
160  W.Camino Real Suite 119, Boca Raton, Florida USA 33432
phone: 561-325-0101   Fax: (561) 417-0099 mobile: 561-305-0349
E-mail:  irgglobal@aol.com