Banking Secrecy and Trustees
by John Patrick Quirk
The term bank secrecy is something of a misnomer. True banking secrecy is becoming rarer all the time. Ironically, as secrecy per se among bank and financial institutions in the United States is getting tougher and becoming more enforced, banking secrecy in so called offshore asset protection trusts and overseas bank accounts is becoming less secret and in fact more open.
The United States
Historically, banking secrecy was taken for granted when an individual and especially a corporation opened a bank account. This secrecy and respect for confidentiality among bankers lasted from almost the lime that the Bank of the United Stales opened up in Philadelphia and then later in New York. It continued when the Federal Reserve had offices in New York, Washington, D.C. and in Philadelphia - the only banking centers of post American revolutionary days. As the United Slates expanded, major banks and financial institutions were established. They too offered customers strict confidentially for accounts, safe deposit boxes and later investment accounts.
Before the age of the computer, account names, account numbers and balances were written on index cards. These were cached in safes and vaults, insuring confidentiality. This practice continued for about one hundred eighty years until the age of Sperry Rand, IBM and computerized records.
Until the age of computers, the only way to locate a bank account was through an investigation, sometimes by using informants and then following up with a court order and/or subpoena.
Even then many records were not turned over: many bankers honored secrecy for their clients. Later with the age of both the 'mainframe,' the PC and the internet, records were stored in computer files; mile-long paper sheets and then eventually microfiche. Sometimes a subpoena would be served on a bank in California, but the records were held in microfiche in Texas. The specific requests made by subpoena were not often carefully stated, and many available records escaped production. Practically, banking records were secret, but still penetrable with a good investigator armed with informal ion about where a criminal or debtor kept his monies. The principle of secrecy remained, in many cases because delving into the finances of another was something "gentlemen" just did not do.
In the 1980s computers and databases began to proliferate. Over fifteen hundred database companies in the United States had information about specific bank accounts, the specific balance and the account number. A good investigator could use a pretext (or lie) to obtain this information. With such contacts, "chatting up" bank personnel to obtain other information, such as banking statements, wire transfer logs, customer service records, accounts in corporate names and accounts in relatives' names was often possible. Even where not successful to this extent, an investigator could at least develop leads to offshore banks from bank records of banks in the United Stales, i.e., wires going offshore or recommendations by a bank officer to an offshore bank officer.
Abuses of the banking and privacy laws grew as did recoveries from bank account assets. In the 1980s and 1990s investigators made a lot of money serving attorneys and locating bank accounts. This financial intelligence helped lawyers catch offenders in lies, locale monies in the U.S. and obtain civil judgments galore. Very few that lied about insolvency to hide monies from spouses or creditors were able to survive with their assets fully intact. Thus, the rush to set up offshore asset protection trusts. Then something dramatic happened - William Jefferson Clinton became President of the United States.
Clinton supported laws that protected debtor rights under the mask of "privacy." First, the Congress passed a sweeping banking privacy law. It protected debtors. It forbade the access of databases to obtain the account number and address and balance of the bank account holder. Prior to this legislation most database groups would supply the balance and the name, but the new legislation made merely accessing this information illegal.
Second, the legislation outlawed "pretexting"; the verbal communication by a non-account holder to obtain banking information. Although pretexting had been permitted by the Supreme Court, i.e. creating a false name or company to gain information in criminal cases, such rulings did not apply to civil cases. It was now deemed an "invasion of privacy."
It was now a felony... if caught and prosecuted. Most of the hundreds of database firms supplying financial and banking information closed. Investigators who attempted pretexting in this new environment were quickly advised of the felony statutes. Today only a few - at their own risk - survive. Sometimes they may provide information to federal authorities, but under the law even federal agents acting without a subpoena could be engaging in illegal conduct. The banking and privacy acts passed during the Clinton administration that were designed to protect the debtor changed the legal landscape.
Today, one can obtain an account holder name, address and account balance, but not the account number. This last item is the most important information for the Trustee trying to locate assets.
Relying on depositions alone often is again becoming ineffective. The key to successful investigation, and record review is largely illegal. Even finding that information might exist through pretexts is against the law. Obtaining a credit report without a release, or obtaining banking information is a felony.
Skilled investigators still engage in these practices. A few database companies are still operating, and supply information, but they and their users are at risk. There have been few prosecutions of violation of privacy laws by United States Attorneys, but it is believed that enforcement against rogue investigators and lawyers is looming.
Trustees should also be careful when looking at internet investigative sites that claim they can obtain banking information- most of the account information is old - sometimes three years old. Using this information may violate banking laws and the Central Computer Crimes Act if access to protected financial information is obtained.
Ironically, the Clinton Administration passed these laws to protect small debtors being pursued on credit card bills. It was not intended to protect those hiding millions of dollars. Nevertheless, the effect of this legislation has been to protect fraudsters as well as small debtors.
As an investigator who has looked for loopholes, my experience is that in civil cases, it is nearly impossible to find an edge. In criminal cases, the odds improve if you work with law enforcement and agree to share everything yon obtain while supplying the client with the same banking information. It's a very fine line. Many attorneys don't want to become entangled with law enforcement efforts, particularly if there is no practical benefit for their clients.
There remains some banking database that have relocated offshore. They still locate monies in the United States, but it is often difficult for a lawyer lo locate these small firms. Several are based in Europe, as well.
The role of investigators has also changed. Most now rely on leads from depositions and documents obtained during depositions. While not impossible to locate monies in the United States, the effort is more labor intensive.
Even without direct threat of prosecution, if a judge or an opposing attorney questions the source of protected information some squirming can be expected. Now, the 'how' of obtaining banking information is as important as the what. Information lawfully gained , through a deposition or request for documents is problem free. Use of the shortcuts of surreptitious methods - illegal database access and pretexting, can create jeopardy.
Offshore Bank Accounts
Most of us are familiar with the idea of offshore asset protection trusts or offshore bank accounts. People hide monies overseas to protect their liquid assets from being liened upon and/or seized due to judgments, restitution orders or other court actions.
This practice became more common in the 1960's in he USA. It has accelerated dramatically through the 1980s and remains serious today. It has become a huge industry. Increased prosperity and an increased ability to secret assets has become in vogue for all kinds of people; the ordinary businessman or woman, real fraudsters, criminals with ill-gotten gains, spouses, and ostensibly bankrupt individuals and corporations. All have set up trusts, bank accounts and insurance accounts as part of schemes to hide money, move money, launder money, secret money and invest money outside the United States and in nations adhering to traditional western styled banking norms.
The first names that come to mind are Switzerland and Caymans, then followed by Bahamas, Lichtenstein and now Guernsey, Jersey, Luxembourg, Isle of Mann, the Cook Islands and the new Russian hiding places of Cyprus, Malta and Monte Carlo. Lets not forget Panama, Antigua, Curacao and the Turks and Caicos Islands. All have specialty vehicles, those 'type' of accounts to hide monies. In Guernsey one has the Guernsey Discretionary Trust; the Bahamas did have the IBC (The International Banking Corporation) now abandoned, Bermuda has the Bermuda Insurance Trust; Switzerland has the Swiss Management Portfolio Account; the Cook Islands has a bank account and trust vehicles; The Isle of Mann uses a bank account; Lichtenstein has several vehicles, the trust, the bank account and the investments account, all capable of being used to move money from place to place. Most of the worlds liquid assets, profits from corporations, drugs, terrorism, organized crime, as well as profits from companies, inheritances, rest in these banking secret havens. The numbers are not in the billions but in the trillions. All the money laundering laws and treaties in the world will not stop monies from flowing into these areas. But the reason for the effort, to obtain secrecy is a mirage. Paying attention to breaking the secrecy can result in recovery of these monies.
Originally accounts were setup to be secret. Countries passed draconian laws to protect their secrets, but few if any were actually secret. Much of the original secrecy was both fact and myth. In the early days of money laundering through exotic locales, few people actually traveled to these remote places. The famed secrecy of Swiss banking has faded as survivors of the Holocaust, aided by the efforts of former Senator D'Amato pursued assets withheld from their true owners. The new reality is that the Swiss, now, do everything to "know their customer." But cheats still look for new places to hide their money. . Substantial amounts have now fled to Bermuda, Lichtenstein, Luxembourg, the Jersey Islands, Cyprus, the Cook Islands, and The Isle of Mann. Switzerland has competition also from the Bahamas, Antigua and the Caymans.
Cracks in the wall of banking secrecy are primarily due to the Mutual Legal Assistance Treaty (MLAT) and as a result of Western countries putting pressure on banking havens to unlock banking secrecy. A good trustee and investigator can find monies and recover them almost anywhere, in some cases it is easier to find assets abroad than in the United States.
Banking secrecy is not what it used to be. Good intelligence and documents remain the key to successful outcomes. Using local counsel is key. Local counsel is also part of a major asset chase. They can explain not only the local law, but the strategies for breaking through not a wall of secrecy, the complexity of regulation that now appears. There are strategies to use to successfully pursue assets even in the greatest of the so-called banking 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