Financial

Investigation
Techniques
Fin Investigation
 A probe into financial affairs of persons,
entities, criminal groups and organisations
to prove an offence.
 Following the money
Spectrum
 Sources: Criminal enterprises
 Movement Channels: Modes of transfer
 Destination: Fruits of labour (Crime)
Intelligence input
 Human Sources
 Agent Recruitment
 Surveillance
 Monitoring
 Open Sources
FIU
 FATF recommendation
 AML Act 2010
 Executive & General Committee
 Powers & Functions of FMU
 STRs/CTRS
 Investigation Agencies
 Issues
 Investigating Financial Crimes
Seven Basic Investigative Techniques
 Interviewing and Interrogation
 Surveillance
Collection/analysis of physical evidence

7

 Informants
 Undercover investigation
 Electronic surveillance/wiretapping
 Financial investigation
Investigation Process
 Finding an asset
 Proving a transaction
 Proving the predicate offence
 Investigating Financial Crimes
Financial Investigative Techniques

 Analysis of financial records

 Identifying financial transactions
 Linking assets to the criminal
 Justifying forfeiture or criminal charges
 Investigating Financial Crimes
Financial Investigative Techniques
Obtaining financial records
 From Subject,
 From government,
 From third-party
Using Financial Records to Locate Hidden Assets

 Types of financial records

 Obtaining financial records
 Financial account information to request
 Reviewing financial records
 Types of Financial Records
 Account-opening documents
 Intra-bank transfer records
 Electronic payment records
 Accounting records
 Exchange instruments
 Types of Financial Records
 Account statements
 Negotiated checks
 Deposit tickets
 Stock brokerage records
 Loan records
 Wire transfer records
 Types of Financial Records
 Mortgage loan files
 Credit card records
 Prepaid access card records
 Safe deposit box records
 Financial intelligence unit (FIU) documents
and reports:
 Currency Transaction Reports (CTRs)
 Suspicious Activity Reports (SARs)
 Types of Financial Records
 Foreign Bank and Financial Account Reports
(FBARs)
 Currency or Monetary Instrument Reports
(CMIRs)
 IRS/FinCEN Form
 Types of Financial Records
 Purchase and sale documents
 SEC filings
 Investment information
 Obtaining Financial Records
 Financial records are not available to the
public and might be difficult to obtain.
 Methods for obtaining financial records:
 The customer’s consent
 Subpoenas or other legal processes
 Search warrants
 Demand as a condition of continued business
 Audit clause rights
 Financial Account Information to
Request
 When gathering financial account file
information, request:
 The account holder’s identification information
 Letters authorizing the opening of the account,
if applicable
 References
 Signature cards
 Financial Account Information to
Request
 When gathering account statement
information, request information pertaining
to the:
 Deposits
 Checks
 Memo items
 Wire transfers
 Internal transfers
 Reviewing Financial Records
 Once you begin
collecting financial
records, start reviewing
them for leads, patterns,
unusual transactions, or red flags.
 Using Financial Records to Locate
Assets
 Use financial records to:
 Develop a financial profile.
 Develop a behavioral profile.
 Trace assets using direct and indirect methods.
 Analyze the information to locate hidden assets.
Two Approaches to Tracing Assets

 Direct approach: The examiner traces funds

the subject used to purchase assets or make
deposits back to their source.
 Indirect approach: Indirect methods analyze
the relationship between a suspect’s receipt
and subsequent disposition of funds.
Investigating Financial Crimes

Direct vs. Indirect Proof

 Investigating Financial Crimes
Direct Proof:
 Evidence directly linking subject to:
 Income
 Assets
 Transactions
 “Specific items” (specific transaction &
illegal gain)
• Advantages:
▫ Easy to prove and understand
▫ Hard to defend
▫ Helps prove the predicate crime
 Investigating Financial Crimes

Indirect Proof:
 Use when direct evidence is:
 Unavailable
 Incomplete

• Factors to consider:
▫ Harder to prove and understand
▫ Provides an explanation for wealth
▫ Must be approved by a court
 Investigating Financial Crimes
MONEY LAUNDERING
 Two-track strategy

Investigate Investigate
the the
Predicate Financial
Offence Activity
Investigating Financial Crimes
MONEY LAUNDERING
 The financial track

Investigate
the
Financial
Activity
 Investigating Financial Crimes
MONEY LAUNDERING
 The financial track

Direct proof • Subject records

• 3rd party records
• Witness statements
• Other evidence
 Investigating Financial Crimes
MONEY LAUNDERING
 The financial track

Indirect proof
• Indirect methods of
proving income or
activity
 Net Worth Theory
 Balance sheet formula
Assets – Liabilities = Net
Worth
 Change in net worth from
period to period
 Increase MUST mean
income
 Net Worth Calculation
 Net worth increase implies
INCOME
 The calculation tells us how much
 It does not tell us –
 Source of the funds
Net Worth – Key Points
 Must have a clearly defined starting
point
 Living expenses are added to the net
worth calculation
 Works best when subject has assets
Some important considerations when
preparing a Net Worth Method analysis

 The time period selected does not have to be a

calendar year. Longer or shorter time periods can
be employed as the assignment dictates.
 When computing the beginning and ending net
worth, always remember to value assets at cost,
not fair market or depreciated value.
Some important considerations when
preparing a Net Worth Method analysis
 Give as much attention to the beginning net worth
as you give ending net worth. Getting the target to
stipulate as to these assets can avoid a “hoarding”
defense at trial.
 The hoarding defense is when the target claims
that he had significant amounts of cash at the
beginning of the period of investigation that was
not included in the computation.
Some important considerations when
preparing a Net Worth Method analysis

 Estimating income and expenses is acceptable.

 After completing the Net Worth Method calculation,
an attempt should be made to interview the target
to negate any defenses that may be used at a later
date.
 Again, getting the target to stipulate to certain facts,
such as gifts or loans given/received during the year,
can limit the opportunity for these issues to surface
at trial.
The most common defenses to the Net
Worth Method

 The calculation included assets recorded at

fair market value, and not the cost. This
could account for a larger increase in the
ending net worth that is not attributable to
unreported income.
 Investigating Financial Crimes
• OTHER METHODS:
▫ Expenditures Method (spending on
consumables; not on assets)
▫ Cash Method (cash expenses exceed known cash
sources)
▫ Bank Deposits Method
▫ Unit and Volume Method (Applying price/profit
to known quantities)
▫ Percentage Markup Method (Applying industry
average)
Develop a Financial Profile of the
Subject
Step 1: Identify assets.

Step 2: Identify significant liabilities.

Step 3: Identify income sources.

Step 4: Identify expenses.

Step 5: Calculate the subject’s net worth.

 Step 1: Identify Assets
 
Typical Assets
• Cash on hand  
• Insurance
• Bank accounts • Annuities
• Investments • Business interests
• Real property • Jewelry
• Vehicles • Clothing
• Boats • Collectibles
• Aircraft • Home furnishings
 Step 1: Identify Assets
For each asset, determine:
• When was it acquired, and from whom?
• How much did it cost?
• How was it paid for (currency, check, cashier’s
check)?
• What source of funds was used to acquire it?
• What documentation exists for the purchase, and
where is it?
 Step 2: Identify Significant
Liabilities
Typical Liabilities
• Mortgage(s)
• Other loans
• Lines of credit
• Credit cards
• Installment purchases
• Accounts payable
• Taxes and other bills
• Alimony and child support
 Step 2: Identify Significant
Liabilities
For each liability, determine:
• What was the original amount of the liability?
• What is the present balance due?
• When was the liability incurred?
• What was the purpose for the loan?
• How were the proceeds used, and where were they deposited?
• What collateral, if any, was given for the debt?
• What documentation exists, and where is it?
• Was the debt written off as a bad loan for tax purposes?
• Who was the creditor or lender?
 Step 3: Identify Income Sources
Typical Income Sources
• Salary • Commissions and fees
• Spouse’s income • Gifts
• Investment and interest • Inheritances
income • Insurance proceeds
• Sale of assets • Disability payments
• Loan proceeds
 Step 3: Identify Income Sources
For each income source, determine:
• What was the total amount during a given period?
• What was the source?
• Where was it deposited?
• How was it spent?
• How was it paid for (currency, check, or other means)?
• When were the funds received?
• What documentation exists (e.g., W-2 or 1099 form), and where
is it?
 Step 4: Identify Expenses
Typical Expenditures
• Living expenses • Travel and
• Rent entertainment
• Utilities • Hobbies and
collectibles
• Food
• Alimony
• Health costs
• Clothing
• Insurance
 Step 4: Identify Expenses

For each expenditure, determine:

• What was the total amount spent?
• How was it paid for?
• Where were the funds obtained to pay the
expense?
• What documentation exists, and where is it?
• When was the payment made?
 Step 5: Calculate Net Worth

Net worth = assets – liabilities

Develop a Behavioral Profile for the
Subject
 The behavioral profile comprises outside
pieces of information that can support
estimates and fill in information gaps.
 The behavioral profile contains information
about the suspect’s personal characteristics.
 Analyze Information to Locate
Assets
 Look for unexplained changes in the
subject’s income, expenses, lifestyle, and
behavior to determine whether the subject
has hidden assets.
 Methods:
 The asset method
 The sources and application of funds
(expenditures) method
 The bank deposit analysis
 Asset Method
 Method of proving unreported income
circumstantially:
 Involves showing that the subject’s assets
for a given period exceed those that can be
accounted for from known or admitted
sources of income
 Asset Method
 Special considerations:
 Need 2+ periods (years) of data, preferably
starting when the scheme began
 Value everything at cost (not fair-market value)
 Cash on hand: currency in possession
 Legitimate sources of funds estimated generously
 Expenses estimated conservatively
 Asset Method Formula
Asset Method Formula
 
Assets

– Liabilities

= Net worth

– Prior year’s net worth

= Net worth increase (decrease)

+ Known expenses

= Total net worth increase

– Funds from known sources

= Funds from unknown sources

 The Sources and Applications of Funds
(Expenditures) Method

 Compares known expenditures and known

sources of funds during one period
 
Expenditures Method Formula

 
Expenditures (application of funds)

Funds from known sources

–

Funds from unknown sources

=
 Bank Deposit Analysis
 Variation of expenditures method
 Deposits compared to legitimate income
 Considerations:
 Only actual deposits (and cash on hand)
 Transfers and redeposits must be
considered
 Cash expenditures = total outlay of funds –
net bank disbursements
 Bank Deposit Method Formula
Bank Deposit Method Formula
 

 
Total deposits to all accounts

– Transfers and redeposits

= Net deposits to all accounts
+ Cash expenditures
= Total receipts from all sources
- Funds from known expenses
= Funds from unknown sources
THANKS