Fraudsters’ criminal empires can be undone by ‘pulling the thread’ of outbound transactions

From corrupt politically exposed persons (PEPs) to the common tax-cheat, financial crime efforts can benefit from the outside-the-box analysis of wire transfers, credit card payments, electronic funds transfers and ACH payments – collectively referred to as “outbound transactions.”
Between 1994 and 1997, Ukrainian Prime Minister Pavel Lazarenko used his position to funnel millions of dollars in government contracts to businesses he owned. It was unlikely that he would ever be brought to justice in his home country because of its permissive attitude toward public corruption.
But among his many international business dealings Lazarenko routed transactions through the United States. FBI investigators and the US Department of Justice were able to make their case not by complex and expensive forward tracking methods, but by using Lazarenko’s remitted wire payments as breadcrumbs that led to larger targets – including eight-figure Swiss bank accounts and expensive properties around the world. It was only after seeking political asylum in the US that he was arrested, but thanks to the outgoing wire payments to cover costs associated with maintaining his assets the US already had a clear map to Lazarenko’s holdings.
His once-flush accounts drained, Lazarenko now spends his days in a federal prison in Dublin, Calif., serving a nine-year sentence.
Lazarenko was not the first fraudster to be undone by the trails left in financial outflows – outbound transactions such as wire transfers, electronic transfers of funds and Automated Clearing House (ACH) payments – and he won’t be the last.
What goes in must come out – and lead somewhere
A financial crime professional is not always given a direct route from target to assets. Often, investigators will look not at the dollar volume of outbound transactions but at what the transactions were for.
“A $100 charge on their debit card might not be much, but if it’s for a marine radio, that brings up some questions,” said Mike McDonald, a Miami-based private investigator and retired IRS-Criminal Investigation (CI) special agent. “First and foremost, what do they need a marine radio for? It’s a good bet, if you follow that lead, you’ll find a boat on the other end of that $100 transaction.”
These transactions can be evidence of constructive income and, perhaps, tax evasion. In this context, according to McDonald, an investigator can use outbound transactions to prove that something is amiss.
“If you can only prove that they have so much income, but their expenditures through outbound transactions are significantly greater, you might be able to introduce tax evasion charges as a means to recover the assets,” he said.
Tracing money more easily through transfers
While wire transfers make money easy for fraudsters to move, they also make assets easy to track for investigators. “Wire transfers will normally record all identifying account and bank information from the sending as well as the receiving financial institution,” said Jose Marrero, partner at the MRW Consulting Group in Fort Lauderdale, Fla. Marrero spent a career investigating tax cheats for the IRS-CI, where he retired as deputy director. “Therefore, whenever possible, it is critical you obtain information regarding the wire.”
For instance, details of the wire transfers helped the Swiss government recover more than $6 million from Lazarenko after his arrest.
Many times, the details of outbound transactions can fill in the blanks for asset hunters. Once a record is found implicating one financial institution, research can be conducted to determine if the receiving bank has a correspondent relationship with a domestic bank from which important information can be learned, according to Marrero.
McDonald said that today, more often than not, these payments are made electronically.
“Where we once went through canceled checks, now investigators have to sift through electronic payment receipts,” he said.
‘Does this make sense?’
And the progressions go further than ever before. Now, an electronic payment record can lead to an unsecured credit card, which could lead to a cell phone bill, which in turn can yield investigative gold in the form of data usage and call details.
“For example, why do ACH transactions appear in Lima, Peru, when the subject has no business, family or vacation reasons for being there?” Marrero said.
“You have to always be asking yourself, ‘Does this make sense?’ ” McDonald added.
Marrero said that his best practices in analyzing outbound transactions include:
  • Remembering to track activity in local banks, which are sometimes overlooked
  • Periodically reviewing personal and business bank statements
  • Identifying payments made to legal firms in foreign countries, since this might indicate asset ownership in other countries (most countries require local counsel for filings or registrations)
Public vs. private
While some resources needed to track outbound transactions – such as banking records – are not available to private sector professionals, these investigators do have recourse.
“Non-law enforcement should use leads [they get] from interrogatories, depositions, or subpoenas to obtain additional information or documentation,” Marrero said.
Those in the law enforcement community should remember that all the information they uncover by tracking outbound financials should be included in any requests made under Mutual Legal Assistance Treaties, since that information can help paint a clearer picture for foreign courts that are weighing such requests.
“These types of leads are just that: leads,” McDonald said. “They might not crack the case, but they’ll lead you to something that can.”