Sometimes the financial evidence is direct, but often it is indirect. Consider a case of alleged tax fraud, in which the government is trying to prove that a person or business had unreported income. The evidence may be large unexplained deposits to a bank account. If the source of the funds is unknown, the government may consider the deposits indirect evidence of unreported taxable income. Making such assumptions is often necessary when investigating financial frauds, as those committing fraud deliberately try to hide the true sources and uses of funds.
In cases of alleged money laundering, bribery, kickbacks, Foreign Corrupt Practices Act (FCPA) violations, and securities fraud, it is also important to understand the financial analysis done by the government. Properly defending such cases requires expert financial analysis on behalf of the defense if there is to be any chance of proving these calculations and estimates to be false or inaccurate.
Tracing the Funds
The primary source of data in a white collar investigation is often banking records. This includes not only bank account data, but also information from brokerage accounts, credit card accounts, and the like. Government investigators seek this information because it is usually kept by a third party who is unrelated to the subject of the investigation. This makes the records more reliable than any records kept by the subject.
Money will be traced through these accounts to determine the sources and uses of funds. This analysis sounds simple, but it can get complicated quickly. Imagine a subject with two hundred bank accounts. It is important to follow each and every transaction through and between these accounts to accurately analyze the flow of funds. However, it is often difficult to track hundreds of accounts and ensure that all data is captured.
Follow the Money, Find the Fraud
Once the data from these accounts is captured, it will be analyzed by the investigator to determine who was giving and getting money. Statistical analysis may be performed to find anomalies in the data, possibly pointing to fraudulent activities.
The investigator will analyze individual transactions, segregating legitimate business or personal expenses. It is easy to identify common, legitimate expenses paid, such as rent, utilities, property taxes, meals and more. Items for which no legitimate business or personal purpose can be identified will be likewise segregated for further analysis. The investigator will attempt to determine the other parties involved in the transactions, which may give clues to the purpose of the transactions.
Following the money can be a complicated process because of the number of accounts, individuals, and transactions involved. For example, in a money laundering scheme, it is common to use multiple bank accounts and many small transactions to disguise the source and use of funds. The higher the volume of transactions, the more difficult it becomes to trace the funds through the system.
Fight Fire With Fire
The government will have highly trained financial investigators on a white collar crime case to follow the trail of money. Defending a case of securities fraud, money laundering, or tax fraud requires an expert with equal training and experience in investigating financial crimes.
The proper defense of a white collar crime case must include a recalculation of the indirect methods of proof, including the specific items method, the bank deposits and cash expenditures method, and the net worth and expenditures method.
In addition, your expert must also be able to manage large volumes of documents and data. It is also likely that law enforcement will be using technology to their advantage to analyze the numbers and documents. The defense should be prepared to engage an expert with equal (or better) technology to level the playing field.
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