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Crime risks in the non-financial business and professional sectors

Those working in non-financial businesses and the professions can become involved in ML/TF in a variety of ways, although there are two areas of primary concern. First, they may be involved in the commission of financial crimes that generate funds that require laundering or that may be used to finance terrorist activities. They may then seek to launder those funds themselves. Conduct of this nature involves intentional criminality that would attract liability under the criminal law if proved. Second, they may become unwittingly involved in money laundering or the financing of terrorism by providing advice to their clients or customers that could be used in connection with the laundering of funds or the financing of terrorist activities (see He 2006).

The Director-General of the Swedish National Economic Crimes Bureau, Ms Gudrun Antemar, raised concerns about the involvement of professionals acting unwittingly as advisers and facilitators for money laundering in the keynote speech in the 2005 United Nations congress on crime prevention and criminal justice.

[T]he tracing and return of the proceeds of crime has become more complicated. International co-operation has to be enhanced in order to launch effective countermeasures. Especially the occurrence of shell corporations and offshore financial centres as safe havens for illicit funds must be addressed. The involvement of professionals such as lawyers and accountants acting as advisers and facilitators is also of great concern. Access to transaction records of banks and other financial institutions is also an important issue (UNAFEI 2006: 35).

In the same way that legitimate businesses will look at market forces and new opportunities, perpetrators of financially motivated crime and terrorism financiers will also seek new areas to exploit for ML/TF to maximise their illicitly gained profits and to evade the scrutiny of law enforcement agencies and regulators. Non-financial businesses and professions, in addition to financial services businesses, are at risk of becoming a conduit for the movement of illicit proceeds. The attractions of the criminal exploitation of these professions have been explained in the following way:

Regardless of the strength and effectiveness of AML/CFT controls, criminals will continue to attempt to move illicit funds undetected and will, from time to time, succeed. They are more likely to target the DNFBP sectors if other channels become more difficult. For this reason, DNFBPs, including dealers in precious metals and stones may be more or less vulnerable depending on the effectiveness of the AML/CFT procedures applied in other sectors. A risk-based approach allows DNFBPs, including dealers, to more efficiently and effectively adjust and adapt as new money laundering and terrorist financing methods are identified (FATF 2008c: 4).

Despite the lack of empirical evidence about the involvement of professionals acting unwittingly as advisers and facilitators of money laundering, the potential vulnerability of these individuals and businesses remains a concern to governments and regulators. Nelen (2008) suggested possible links between the real estate sector and organised crime groups by explaining how the former is attractive to organised crime groups for money laundering activities. Four incidents that happened between 2003 and 2005 in the Netherlands were cited as supporting evidence.

These four cases reflect both a symbiotic and a parasitic dimension of the relationship between organized crime and the real estate sector. The symbiotic element is reflected in the fact that people who render financial and legal services—like brokers and lawyers—may function as intermediates between legitimate markets and criminal entrepreneurs. Recently, at both national and international level, the compromising conduct of these facilitators has been increasingly at issue in public discussion, as have the possible measures that should be taken against such conduct. The parasitic element in the aforementioned cases is that co-operative relationships sometimes take a turn to the worse. Especially, in the second (Endstra’s) case, symbiosis may have turned into protection rackets and extortion. According to Endstra himself in secret testimonies to police intelligence officers shortly before he was killed, he was forced—along with other real estate dealers—to pay large sums of money to a group of criminals (Nelen 2008: 752).

In Australia, during the second reading of the Financial Transaction Reports Amendment (Transitional Arrangements) Bill 2008, it was asserted that:

Australian authorities also identified other methods that served as money-laundering vehicles. Examples include cash smuggling into and out of Australia and the use of legitimate business to mix proceeds of crime with legitimately earned incomes or profits. Law enforcement has also recognised a growing trend in the use of professional launderers and other third parties to launder criminal proceeds (House of Representatives 2008b: 4).

Publicly available evidence to support the involvement of professionals is limited, although the Australian Crime Commission (2011) has identified professionals as being facilitators for the creation and use of so-called ‘phoenix companies’ that are used in connection with the evasion of taxation.

There is evidence of links between phoenix activity and organised crime. Phoenix activity occurs when directors of a company that is about to be liquidated transfer assets to another company that they also control. This leaves no assets to pay creditors but enables the business to continue under the new company. Complaints concerning phoenix activity are increasing in Australia and the activity is being used to avoid tax and superannuation liabilities in a range of industries. Professional facilitators such as insolvency practitioners, solicitors and tax agents have been identified as assisting individuals to take part in phoenix activity (ACC 2011: 41).

Williams (2002: 66) noted that the accountancy profession:

provides a representative sample of the business community in that it is basically sound and populated by people of great skill and integrity, with isolated instances of fraud and impropriety being committed by a small minority of the profession driven by a mixture of greed and incompetence assisted by the presence of an environment in which inside knowledge is available of the client’s business affairs. Experience indicates that the risk is highest with sole practitioners due to lack of accountability and peer ‘supervision’, but again experience indicates that fraud and dishonesty can also be perpetrated in partnership situations where lack of proper controls can enable strong personalities or deviant personalities (sometimes one and the same) to abuse the system.

The degree of personal culpability involved in professional misconduct and crime may vary considerably (Smith forthcoming). The concept of dishonesty lies at the heart of most property offences and is a matter of fact for juries to determine in criminal cases. The Criminal Code Act 1995 (Cth) defines dishonest as ‘dishonest according to the standards of ordinary people; and known by the defendant to be dishonest according to the standards of ordinary people’ (s 130.3). Standards of honesty for the criminal prosecution of professionals are determined in the same way as for other accused persons. In professional disciplinary proceedings, however, standards of dishonesty are determined by the professional regulatory body in question who will consider whether the conduct ‘would reasonably be regarded as disgraceful or dishonourable’ by professionals in the same profession ‘of good repute and competency’ (Allinson v General Council of Medical Education and Registration of the United Kingdom [1894] 1 QB 750, 760–761).

Smith (forthcoming) has explored the ways in which professionals can become involved in acting illegally, either for their own benefit, or on behalf of their clients, by assessing the intentions behind their actions and the extent to which these are blameworthy. Prior research into financial crime by professionals has identified situations in which legal practitioners have unwittingly been involved in illegal activities conducted by their clients, as well as intentionally involved in fraud and money laundering (Smith 2004). An analysis of the differing levels of criminality and or misconduct in which professionals may be involved has been undertaken by Smith (forthcoming), who concluded that the vast majority of professionals will never encounter, or be involved in situations of money laundering during their careers and if they do, will act appropriately to report their suspicions officially to police and regulatory agencies. A small number will, however, act illegally themselves or facilitate money laundering by their clients and it is to this very small group of unprofessional individuals that effective preventive and disciplinary measures need to be directed. Arguably, the existing criminal law and disciplinary sanctions provide an acceptable response to intentional misconduct of this nature. The question remains whether unwitting involvement of professionals should be dealt with through the AML/CTF regime or conventional regulatory measures. Arguably, existing professional controls are not well suited to preventing unwitting involvement in money laundering, leaving the possibility that the AML/CTF regime may provide a more effective means of preventing and detecting unintentional conduct of this nature. What is needed is for the risk environment in which professionals practice to be publicised and for the dangers of involvement in money laundering to be illuminated and explained.

The nature of predicate offences

The relationship between money laundering and the commission of predicate offences was discussed in a speech by the director of the United States Department of the Treasury’s FinCEN, James H Freis Jr at the Florida Bankers Association Town Hall Meeting in Tampa, Florida in 2008:

And while they are often viewed as separate criminal enterprises, acts of fraud and acts of money laundering are interconnected: the financial gain of the fraudulent activity ultimately needs to be integrated into the financial system. Therefore, money laundering is often a malignant and pernicious product of fraud. By fighting fraud, you are fighting money laundering. And in turn, by identifying money laundering, you could be alerting law enforcement to a criminal attempting to mingle the proceeds of fraudulent activity committed against innocent victims (Fries 2008).

Historically money laundering activities were linked to narcotics trafficking and organised crime. An article reported that $13m was seized under the Western Australia’s proceeds of crime laws in financial year 2007

with more than $52 million having been seized from criminals and tipped into State [of Western Australia’s] coffers since 2000…Most money forfeited to the State has come from drug dealers who automatically lose their assets after being convicted. But the police and the Director of Public Prosecutions can also freeze assets suspected of being used to commit crimes, gained through illegal activity or believed to be unexplained wealth (Knowles 2008: np).

In Canada, lawyers have been convicted of laundering the proceeds of drug-related offences in two cases. In R v Root (2008 ONCA 869), the Ontario Court of Appeal ordered a former federal prosecutor to stand trial for a second time on allegations of money laundering that stemmed from a lengthy RCMP investigation. In 2006, the defendant was found not guilty on five charges relating to money laundering. However, the Crown successfully appealed the acquittals with respect to four of the five charges—conspiracy to commit an indictable offence of laundering proceeds of crime, conspiracy to commit an indictable offence of possession of proceeds of crime, attempting to launder proceeds of trafficking in cocaine and attempting to possess proceeds of crime. The Ontario Court of Appeal dismissed the appeal on the fifth charge of counselling a police officer to commit the offence of laundering proceeds of crime. In USA v Martin G. Chambers (Federal Circuits, 11th Cir. 24 June 2005), a Vancouver lawyer was sentenced to just over 15 years in a Florida state prison following his conviction in 2003 for laundering US$700,000 in purported cocaine trafficking money (IBA 2009).

The volume of possible predicate offences for money laundering has, however, increased considerably over time. Lewisch (2008) argues that the potential predicate offences, in most jurisdictions, include vaguely defined offences as well as tangible standard crimes against foreign property. A distinguishable primary offence is difficult to discern in some cases. Lewisch offers the example of dealing with the assets of a criminal or terrorist organisation that has been declared illegal. The illegality of the organisation determines the illegality of dealing with the assets of that organisation and of other ancillary activities (Lewisch 2008).

In Singapore, the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A) was amended in 2006 to expand the list of money laundering predicate offences from 189 to 297 offences (CAD 2007). The total number of money laundering predicate offences was increased to 362 (CAD 2007) in February 2008.

In the United States, the predominant predicate crime types observed are narcotics trafficking and trafficking in persons (see Table 22), while the ‘primary sources of laundered funds in Hong Kong are illegal gambling, fraud and financial crime, loan sharking and vice’ (FATF 2006: 5).

The second reading of the Financial Transaction Reports Amendment (Transitional Arrangements) Bill 2008 also noted that

[w]hile narcotics offences provide a substantial source of proceeds for crime in Australia, the majority of illegal proceeds are derived from fraud related offences. One Australian government estimate suggested that the amount of money laundered in this country ranges from $2b to $3b per year (House of Representatives 2008b: 4).

Although possible categories of predicate offences, as explained by Lewisch (2008: 407), are

not theoretically predetermined [and are] decided upon by the legislator according to its ‘political will’, some predicate crime types are more frequently associated with professionals than others.

Three predicate crime types commonly associated with those in the professions are as follows.

Taxation fraud

For regulatory agencies, such as the ATO, managing serious non-compliance and tax evasion has become progressively more complex over the last 10 years. Legal practitioners and/or accountants may be employed as advisers to develop bespoke schemes using complex tax laws to reduce or defer tax burdens (such as by transferring intangible assets to jurisdictions with a low tax rate and paying the overseas company for use of those assets in the jurisdiction of origin). On occasions, professional advisers may be involved in acts of deliberate wrongdoing, although in most cases they may be unaware of the illegal activities in which their clients are engaged and unwittingly provide advice that is used to facilitate taxation fraud. Jurisdictions with a strong banking secrecy regime may be exploited by criminals and corrupt professionals for tax fraud and avoidance and money laundering activities.

It is a criminal offence in Singapore, for example, for customer information to be disclosed by a bank in Singapore or any of its officers to any other person except as expressly provided in the Banking Act—see subsection 47(1), Banking Act (Cap 19). Subsection 47(5) of the Banking Act also states that:

Any person (including, where the person is a body corporate, an officer of the body corporate) who receives customer information referred to in Part II of the Third Schedule shall not, at any time, disclose the customer information or any part thereof to any other person, except as authorised under that Schedule or if required to do so by an order of court’. Any person who contravenes subsection 47(1) or 47(5) shall be guilty of an offence and shall be liable on conviction—

(a) in the case of an individual, to a fine not exceeding S$125,000 or to imprisonment for a term not exceeding 3 years or to both; or

(b) in any other case, to a fine not exceeding S$250,000.

Banking secrecy can, however, be exploited as explained by Hartung (2008: 28).

…when one potential client walked into a well-known private bank earlier this year to open an account, one of the first questions asked was whether he would report the funds. Not reporting the funds meant that taxes may not be assessed. The cases in Lichtenstein and at UBS highlight how the balance between secrecy, avoiding money laundering and cooperating in international tax investigations is a delicate dance. If banks here don’t determine how to balance client reporting with client confidentiality and consequently face allegations of protecting tax evaders or money launderers, Singapore, too, could come under pressure to disclose more information and lose some of its advantages.

Tax fraud and tax evasion perpetrated by professionals such as accountants and financial advisers are notoriously difficult for the ATO and law enforcement agencies to prevent and to detect. Such offenders are able to use their professional training and skills to devise elaborate schemes to defraud the revenue and to disguise their illegal conduct. The ATO estimated that ‘around $16b was sent directly to tax havens from Australia and approximately $18b was sent directly from tax havens to Australia’ (ATO 2008a: np) in the 2006–07 financial year alone.

Project Wickenby was formed in February 2006 to investigate suspected cases of widespread and systematic international tax avoidance and evasion. A number of government organisations, including the ATO, the Australian Crime Commission, the AFP, AUSTRAC, Commonwealth Department of Public Prosecutions and ASIC are involved in the task force.

From commencement in 2006 to 2012, Project Wickenby has raised over $1.3b in liabilities and over $600m in collections. This includes cash collected from compliance activity, as well as improved tax-compliance behaviour from taxpayers and their close associates. As at the end of May 2012, Project Wickenby had resulted in 26 convictions for indictable offences, with a further 69 people convicted of summary offences, as well as one extradition (ATO 2012). The CDPP has taken action to restrain property valued at approximately $25m in relation to a number of Wickenby matters (CDPP 2012).

Annual reports of the Commonwealth Department of Public Prosecutions provide details of a number of prosecutions arising from Wickenby investigations in which professional advisers have been unwittingly involved in offshore tax evasion by their clients (CDPP 2012, 2011). The details of one recent case prosecuted following a Wickenby investigation indicate the critical role that professional advisers can play in unwittingly facilitating the evasion of taxation by their clients (see Box 1). Proceedings have not been initiated against any of the professional advisers involved in the case reported in Box 1.

Two examples of deliberate, as opposed to unwitting, involvement in taxation-related crime by professionals have also received media attention. In one case, a Brisbane accountant was sentenced to three years and six months imprisonment with a non-parole period of eight months by the Brisbane District Court for submitting false goods and services tax (GST) claims worth $174,293. In another case, an Adelaide accountant was sentenced to three years and three months imprisonment, with a non-parole period of 12 months, by the District Court of South Australia for attempted GST fraud and forgery amounting to $4,560,007 (Bannon 2008).

In the United States, the Internal Revenue Service Criminal Investigation Division has reportedly undertaken 147 investigations involving promoters, clients and other individuals involved in abusive trust schemes (schemes that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions for the purpose of tax evasion) in the 2008 fiscal year. A total of 71 individuals were sentenced as a result of these investigations (IRS 2008).

In the United Kingdom, the House of Commons estimated the amount of tax lost at over £2b a year with the aid of more than two million people (HCCPA 2008). HM Revenue & Customs has reportedly

raised £27 million from investigating [suspicious activity reports] but expected to raise £74 million...[and the department] expected to use the [suspicious activity reports]made to the Serious Organised Crime Agency under the Money Laundering regulations, to detect significant numbers of people with undeclared income (HCCPA 2008: 6).

Mortgage fraud

Cases arising in the United States and other jurisdictions suggest that professionals in the real estate and legal sectors are at risk of being exploited as intermediaries where they fail to verify information submitted on loan applications or are actively involved in fraudulent activities themselves. FinCEN also remarked that ‘real estate and financial industry insiders were frequently named in mortgage loan fraud [Suspicious Activity Reports]’ (FinCEN 2009b: v).

The risks were recently highlighted in a report by FinCEN:

Mortgage loan fraud can be divided into two broad categories: fraud for housing and fraud for profit. Fraud for housing generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known. Fraud for housing is generally committed by home buyers attempting to purchase homes for their personal use. In contrast, the motivation behind fraud for profit is money. Fraud for profit involves the same misuse of information with the intent to deceive or mislead the lender into extending credit that the lender would likely not have offered if the true facts were known, but the perpetrators of the fraud abscond with the proceeds of the loan, with little or no intention to purchase or actually occupy the house. Suspicious activity reporting confirms that fraud for profit is often committed with the complicity of industry insiders such as mortgage brokers, real estate agents, property appraisers, and settlement agents (attorneys and title examiners) (FinCEN 2008: 4).

The risks highlighted by FinCEN are reflected in the volume of SARs linked to suspected mortgage frauds. US financial institutions filed 37,313 SARs that cited suspected mortgage loan fraud in the 2006 calendar year. This represented a 44 percent increase on the volume of comparable SARs filed in the preceding year when the overall increase in SARS was around seven percent (FinCEN 2008). The volume of mortgage fraud SARs filed by financial institutions rose to 46,717 in 2007 (FBI 2008e).

In 2008, mortgage brokers in the United States accounted for 62.07 percent of participants reported in SARs that described fraud for profit and 58.55 percent of participants reported in SARs that described fraud for housing. The 12 months to 30 June 2008 saw financial institutions filing 62,084 SARs that reported a suspected mortgage fraud. This represented a further 44 percent increase on the mortgage fraud reports received to 30 June 2007 and accounted for nine percent of all SARs filed by deposit taking institutions in 2007–08 (FinCEN 2009a).

One reason for the increase in mortgage fraud-related SARs (in the United States) may be that lenders are increasingly identifying suspected fraud prior to loan approval and reporting the activity (FinCEN 2008). Investigations undertaken by the FBI has reportedly resulted in

…462 mortgage fraud cases…in Fiscal Year 2007, up from 295 in 2003, and currently there are more than 1,400 pending cases nationwide (Bennett 2008: np)…US$595.9m in restitutions, US$21.8m in recoveries, and $1.7m in fines in Fiscal Year 2007 (FBI 2007a np).

The Department of Justice and FBI conducted ‘Operation Malicious Mortgage’ from 1 March 2008 to 18 June 2008. The targeted law enforcement operation resulted in 11 individuals being charged with, pleading guilty to, or sentenced in federal courts in connection with mortgage loan fraud schemes (FBI 2008a).

Accused persons A and B, former mortgage brokers, pleaded guilty to conspiracy to commit money laundering of the proceeds from their individual mortgage fraud schemes and were sentenced to serve 24 months in federal prison followed by 3 years of supervised release and 6 months in federal prison followed by 2 years of supervised release respectively. Accused person C, a former mortgage broker, pleaded guilty to conspiracy to commit wire fraud and four counts of wire fraud in connection with his role in a similar but separate mortgage fraud scheme. Accused person D, a former real estate developer, pleaded guilty to conspiracy to commit bank fraud, in connection with his scheme to defraud over 20 banks in Mississippi with fraudulent loans totalling approximately US$14.5m. Accused person E, the attorney of accused person D, and accused person F, the office manager of accused person D, were charged with conspiracy to commit bank fraud and misprision of a felony respectively (FBI 2008a: np).

In May 2008, a federal grand jury returned a 25-count indictment against accused person G, a former mortgage broker, and his daughter, accused person H, in connection with a mortgage loan fraud scheme (FBI 2008a: np).

There are other examples, outside of those generated by Operation Malicious Mortgage, of mortgage fraud cases implicating professionals in the United States.

McFarland, a legal practitioner that had acted for mortgage lenders and a title insurance company, was convicted 170 charges including money laundering, bank fraud and wire fraud. McFarland and several conspirators inflated the market value of more than 100 properties and used the inflated amounts to secure mortgages for straw buyers. McFarland wrote the title insurance and finalised the mortgages on the properties. The group divided the proceeds between them and the resulting loss to the lenders involved was more than US$10m (United States v. McFarland, 255 Fed. Appx. 462).

A certified public accountant (accused person A) and a church pastor (accused person B) were each convicted of one count of conspiracy to commit mail fraud, wire fraud and money laundering, and two counts of aiding and abetting mail fraud in a further US case. Accused person B and his wife were persuaded by accused person A to buy a new home instead of remodelling their home in 2002. The public accountant then introduced the couple to a mortgage broker. The mortgage broker later referred them to a real estate agent. The parties settled on a sale price of US$525,000 for a house sourced by the real estate agent. Accused person B, with the assistance of the mortgage broker, applied for a mortgage loan and listed the wife of accused person B as a co-borrower. Both accused persons are then alleged to have caused fraudulent tax returns to be submitted to the mortgage company in order to assist accused person B’s procurement of home loans (United States v Bullock, 243 Fed. Appx. 107).

More recently, in October 2008, a former Los Angeles-based real estate developer was sentenced to 14 years imprisonment for allegedly masterminding a US$50m mortgage fraud scheme (FBI 2008c) whereby the banks were deceived into funding inflated mortgages. The accused person, the seventh defendant to plead guilty in the scheme, was also ordered to pay US$42,676,269 in restitution to two of the defrauded banks.

A former real estate agent in Georgia, in a separate incident, was convicted of charges of conspiracy, bank fraud, wire fraud and money laundering connected to a multimillion dollar mortgage fraud scheme. The defendant allegedly used

his specialized knowledge of real estate and residential mortgage financing…[and] orchestrated a mortgage fraud scheme that has caused millions of dollars in losses to lenders and untold damage to neighbourhoods...Eleven other defendants have already been sentenced to prison terms in related cases, with sentences ranging from eight months to more than ten years in federal prison (FBI 2008d: np).

The real estate agent was sentenced to 14 years imprisonment, followed by five years of supervised release and ordered to pay US$11,194,300 in restitution.

In March 2009, 24 defendants—most of whom were professionals in the mortgage loan industry including mortgage brokers, loan officers, loan processors, attorneys, accountants, an appraiser and a banker—were charged with federal offenses related to mortgage frauds in the Chicago area (United States v Mohammed Ali Moallem and Bahidad Javid (09 CR 228), United States v Abe Karn, Donna Books, Hichem Julani and Daniel Lietz (09 CR 229), United States v Marwan Atieh and Ruwaida Dabbouseh (09 CR 230), United States v Ruwaida Dabbouseh and Khalil Qandil (09 CR 231), United States v Khaja Moinuddin, Mohammed Nasir and Ruwaida Dabbouseh (09 CR 232), United States v Louis L. Javell, Aysha M. Arroyo and Juan Gil (09 CR 233), United States v Michael Salem, Hakim A. Jaradat and Robert Goldberg (09 CR 234), United States v Hakim A. Jaradat, Oscar Paredes, Maryam Khan and Ruwaida Dabbouseh (09 CR 235), United States v Babajan Khoshabe, Sunil Kaushal and James Kotz (09 CR 236), United States v Siamak Safavi Fard, Sunil Kaushal and Noel Parmar (09 CR 247)). The defendants’ roles in the fraudulent transactions allegedly included preparing loan applications and other documents known to contain false identity, employment and income information, creating and providing advice on creating fraudulent banking information, fabricating income tax returns, creating fictitious documents verifying employment and rental income, creating false appraisals and submitting the falsified applications and supporting documents to the lenders (FBI 2009a: np).

Other cases suggest that more structured organised crimes groups may have worked with professions in the real estate sector to orchestrate mortgage fraud schemes. A documented member of an organised crime group (and alleged leader of a corrupt enterprise) and a licensed real estate broker were charged in April 2009, along with 22 other individuals

with using a corrupt enterprise to conduct a pattern of racketeering activity, namely, wire fraud, bank fraud, and money laundering. The charged racketeering activity all stems from an extensive mortgage fraud scheme based in San Diego, California, that involved 220 properties with a total sales price of more than $100m dollars (FBI 2009b: np).

The 24 defendants allegedly:

  • identified properties for sale throughout Southern California that had been on the market for an extended period of time and for which the original asking price had been reduced;
  • recruited straw buyers who were willing to allow their names and credit histories to be used to obtain mortgages and to become the identified purchaser of the properties on behalf of the racketeering enterprise;
  • prepared and submitted offers to purchase the identified properties that substantially exceeded the asking price for those properties;
  • hired real estate appraisers, including one of the co-defendants, to prepare inflated appraisals for the identified properties. The inflated appraisals were then used to fraudulently induce lenders to believe that the loans extended to the buyers would be fully secured by the value of the properties being purchased;
  • prepared and submitted false loan applications for the buyers in order to induce lenders to make loans to persons and at terms that the lenders otherwise would not have funded;
  • prepared and submitted false documents and information in response to lender verification inquiries, including ‘CPA letters’, verification of employment forms, verification of rent forms and ‘discrepancy letters’;
  • ensured that the buyers purchased the identified properties with mortgages amounting to 100 percent of the purchase price of the property, thus ensuring that the defendants did not have any money at risk in the fraudulent transactions;
  • arranged to have the amount of money that exceeded the asking price (the ‘kickback amount’) paid at the close of escrow to a shell construction company maintained by the racketeering enterprise; and
  • falsely informed the lenders that the ‘kickback amount’ would be used to pay for handicap access and upgrades to the identified properties, thereby falsely inducing the lenders to believe that the entire loan amount would be secured by the value of the identified properties.

The defendants’ shell construction firm allegedly did not make any alterations or improvements to any of the properties. The ‘kickback amount’ was allegedly disbursed to members and associates of the racketeering enterprise as payment for their participation in the scheme.

The buyers subsequently failed to make the required mortgage payments for the properties. The properties were foreclosed and the lenders’ suffered severe financial losses (FBI 2009b).

Financing fraud

Di Nicola and Zoffi (2005) argued that professionals may also be involved in usurious money lending schemes that can benefit them personally and also generate funds that may require laundering. Usury in Italy, for example

now acts through professionals who are ready to grant loans to individuals, families and small and large companies who find themselves in financial difficulties and therefore cannot borrow on the normal market. Usurers include a large number of professionals, among them legal practitioners, accountants and even notaries, who take advantage of friendships and connections in the financial, banking and judicial sectors, to systematically expropriate the companies belonging to the victims of usury (Di Nicola & Zoffi 2005: 203–204).

Finally, professional financial advisers may also be involved in dishonest investment scams through greed and a desire for personal advancement. Such cases often involve practitioners living beyond their means and trying to maintain an inappropriately extravagant lifestyle. Cases in this category often involve financial advisers who misappropriate client funds. Some of the largest and most complex instances of professional dishonesty in Australia’s history have involved financial planners and advisers, not all of whom have been qualified accountants. The largest investment fraud in Australia’s history was perpetrated by an accountant, David Gibson, who defrauded 600 clients of $43m in the 1980s, using managed investment funds and employing a Ponzi scheme in which early investors were paid dividends out of the investments of subsequent investors. Gibson was sentenced to 12 years’ imprisonment with a non-parole period of nine years (Brown 1998).

Last updated
3 November 2017