In my earlier years I worked in audit, and was seconded onto forensic projects out of need for resource. I developed a knack for it, and have since worked on a lot of high profile cases (including some of theBanks and multi billionaires).
I’ve seen the evidence the forensic accountants get, how they analyse the data in front of them and how the whole process fits into a court case. Therefore I’m well placed to provide a few tips of how to defend yourself in such a case. This isn’t legal advice, your lawyers do that, it’s the accountant advice. It's also pretty long. Sorry about that.
To explain this properly, you need to understand the whole process and how it fits in under the legal system. So with a short run through of a typical process, with the reasoning behind it: You receive a letter from her legal team informing you of the legal proceedings against you, sometimes with an amount for an out of court settlement.
1. A court date is agreed, and one of 2 things happens. For the divorce, her legal team will appoint a bunch of forensic accountants to go through all your finances (yes you will have to declare “everything”) for them to go through. This court date will be requested based on her account of how complicated your finances are. If she says you just have a current account, savings account and some investments held at a bank, they will not need to ask for extra time to prepare their case.
2. Her lawyers need to build their case by the court date, but they have no evidence or facts. The forensic accountants are the ones that do that. So the forensic accountant minions need to trawl through the evidence, and collect it together into a summary of evidence, which the partner will then write in a report to either give to the lawyers, OR have to present in court himself (if he’s been hired as an expert witness).
3. The lawyers collect this report, integrate it with their own resourced information (her account), cherry picking the facts from it to best support their argument and will present it by the court date. The/jury will hear the case and make a decision based on this.
4. They will make a ruling which has the authority to transfer assets from one party to the other. The accountants do not.
A pretty bleak picture. But there is hope. Let’s look at the incentivisation structure of accountants, and the risk vs. Reward model of them. Bear with me, this will all make sense in the end.
a) First thing you’ll notice is bonuses are low, often lower than 10% of salary. Part of the ethical structure of accountancy firms forbids high bonuses, from their audit side. Remuneration is echoed across departments to stop mass exodus. This pay structure attracts people that are risk averse.
b) Secondly, what you won’t appreciate, is how few staff these departments have (even the massive ones). For cost reasons, they will have a low number of core staff, and when work comes in, they contract in new people for the duration, based on what they need, and tell them to go home afterwards.
c) Their value is their brand. (e.g. Arthur Andersen). If their name is no longer worth anything, then they lose everything. They will not risk their brand it for anything. They will only put their name to either certainties, or within certain parameters defined in their audit reports, hence the “from what we have seen” style lines you see in company filings.
d) Appraisal process is influenced heavily by costs and towing the line. We are encouraged to charge fewer hours, to increase the projects alleged profitability.
How can you use this to your advantage?
Ok your goal to avoid an amputation of assets is to disrupt the above sequence 1-4, by putting as many spanners in the processes that revolve around a-c, in any and every way legally possible.
Remember they’re unincentivised and paid the same regardless of the outcome of the case (they’re clever like that), so they either don’t care what their report shows or they won’t risk their brand on inconclusive evidence.
Also, any contract workers they bring in are paid by the hour, and are therefore incentivised for the job to go on for longer than it otherwise should.
Now to start being helpful.
Stop them having a full report by the court date:
It’s really the oldest trick in the book. You have to hand over all the information you have regarding your accounts/assets. I’m sure you’d love to comply. Hand over everything. EVERYTHING, at least twice, as late as possible.
On a recent case, the evidence we received from the other side, was in pdf format. It was a scan of every document this guy had relating to his accounts. 19 Pdf’s in total, each about 13-17,000 pages long The files were a few GB in size, take 2-5 minutes to open, will frequently cause programmes (Word/) to crash on company laptops (they won’t buy new ones in just for a one off job), cannot be emailed, can’t be worked on from home or remotely (since they don’t let temporary staff take data offsite). No coherent order, no page numbers, not even the right way up in a lot of cases, huge amounts of duplicates and about 80% of them were in Russian. (Documents in a different alphabet are really hard to identify conclusively as duplicates, having triplicates for these can give the impression you have more Russian accounts than you actually have, leading to them over hiring soviets and be under resourced in other departments).
The above is a stroke of genius on many levels. Firstly, the way that this information is entered into a computer system is, you guessed it, manually (because accountancy firms are technophobes, I was ordered not to use macros to generate over 200 pivot tables). While it isn’t typed up word for word, these documents are given a unique identifier by the lawyers, and then a spreadsheet or similar is drawn up to give a keyword summary search if you want to look for bank account numbers etc. Now if parts of this are in Russian, and some are in English, to understand them (and I mean to enable the English speaking lawyers to understand them), you need bilinguals. They will need to be hired in, by the accountancy firm. To keep costs down this will be done sparingly and cheaply, very unincentivised staff and quality control will be next to nonexistent. Additionally, anyone that has worked with a Russian translator, will know that if you give the same document to 3 different translators, you get 3 different translations back. This slows the whole process down, creating inaccuracies in their data set and gives them fewer days between then and the court date to work with.
If I were to improve on the above steps, I would use more banks, in more languages, in different date format zones. Liechtenstein, Cyprus, Switzerland all mix things up. You’d be amazed at the havoc dd/mm/yy can cause in a mm/dd/yy spreadsheet, especially when a trained unincentivised chimpanzee is doing the typing. Again, polluting the data set. One date wrong in a series of transactions and they have to start over again on the tracing process, with extra low morale and one angry manager.
So you have your set of holding companies across the globe. Of course they need funding. So you need to borrow money. From yourself. How do you do that? Well the best trick, that creates amazing amounts of paperwork is this:
You own entity A and C, that bank with D and F banks respectively.
Entity A wants to borrow $100 dollars. He agrees with the bank to borrow that money. But how does it get this 0% interest loan? Entity C will guarantee it, 100% and set aside the funds for it do to this in another account.
The agreements get drawn up, A borrows the money from D, while C transfer the money from its account in F to D. This $100 is now in D’s account. The bank does not have to disclose this to any court order, and never will. Therefore the link to this is now lost. ‘A’ instantly defaults on its’ loan repayments, and D claims the $100 from A. Money is transferred successfully, but there is no paper trail for the forensics to PROVE this (since to complete the transaction it will need access to Bank F’s statements, which the court order will not permit).
Additionally, they will need to dig up the following documents relating to this transaction: The loan agreement, the guarantee agreement AND the bank statements for both companies. Quite a bit longer than finding 1 bank statement from either company. It goes without saying the contract reference numbers for each of these should be very typoable. Imagine sifting through a dataset of the following reference styles using ctrl F to find it: 101110110101, 1Il (thats one “i and L”) 1o0 (ten zero, and 101 one hundred and one). This works best when crossing currencies, so bank F receives in it’s GBP account, and sends out in its $ account, registering different account numbers on the statements, extra fun confusion.
So if I create a new account for my amazing new holding company, entity B, transfer $100 into it from entity A, use that $100 to buy 1 share of a real company that actually does something, at $100, the accountants can easily conclude that I bought $100 worth of shares for entity A. What about if the account already had $1000 in it? What if that $1000 came from a loan from entity C which was an account funded by entity Z? Didn’t even know what entity Z is? Oh it’s in an Icelandic Bank (paper statements, obviously)? Time to call up the recruitment agency and find an Icelandic translator. They all add up to another few days killed off before the court deadline.
Teamwork: So you have a friend, Mr X. You transfer $100 to a join account you operate, and that account buys the $100 of the same shares above. The account was funded 80:20 by Mr X. Did you pay for that share or did he? Obviously his requires a friend you can trust that way.
Ultimately, the accountancy firm will need to sign a report, with their name on it, that states what they believe is the financial position at a specified date. The only person that knows the actual position is you, and you’ll only prove them wrong if they go too high. They get paid the same regardless of what they conclude, so will opt for the one that incurs the least cost and risk. Therefore they will be conservative, and only conclude on items they can trace completely within the time frame. Keep that as low as possible.
I’m probably your biggest nightmare on this, the smart ass who’s solid with numbers and technology. Number patterns, and account numbers, amounts, dates etc. will stick around in my head for a while. How best to render me useless? Language barriers, date formats, decimals and commas, cross currency transactions.
If I’m looking for a transaction that went out in dollars and came back in Turkish Lira, I have to go and check the exchange rate traded at, and the numbers don’t spring out as fast. Interrupt my work flow and add effort to the mental load, slow me down. It all adds to the stress in the environment, and just saying insufficient data to conclude is really tempting with no overtime or bonus even if it isn’t quite true. Noone checks for lack of evidence, they only check your evidence shows what you say it shows.
If we had infinite resource and time and cooperation, we’d get there in the end, however we don’t. Don’t even contemplate not handing everything over. The court will react badly to you being uncooperative and possibly land you with contempt of court.. The accountants won’t say “we saw a systematic trail of transactions deliberately designed to hide assets”, since that’s something they can’t back up with evidence, even though it’s obvious.
Disclaimer: For those with ethical concerns of a guide on how to deceive the financial world, the bad guys know the above, and more. This is purely for the cynically minded of you who despise your nation’s divorce settlements, and can’t/won’t get a prenup that the courts take seriously. Plus, when she gets feedback from her accountants that they haven’t found anything, and the fees are nearing a few hundred thousand, that out of court settlement looks really tempting, just on your terms, not hers.