Five Identifiable Cracks in the Nominee Facade
An asset trace report has been commissioned and a third-party researcher has been engaged to sift through public records across several jurisdictions. At this stage, optimism prevails that a series of properties registered under an individual’s name will be identified and ultimately change hands after litigation. But what happens if the initial search turns up…not much of anything?
A recent court case in Spain provides a blow-by-blow account of the steps taken by a wealthy defendant to shield his assets through the creation of a network of companies owned and operated by close family members and associates acting on his behalf as nominee directors and shareholders.
For years, the scheme based on multiple company incorporations and rapid transfer of ownership between members of the network was successful in concealing the defendant’s assets. That was until the Spanish police mounted an operation to pierce the network by gathering evidence through covert surveillance, bank records and telephone interceptions on the individuals in the network and ultimately dismantling it.
From an investigative perspective, the court transcripts offer a fascinating case study on the strategies and methods used to illegally conceal wealth from creditors and the police. At the same time, the transcripts also reveal a number of errors and missteps committed by the defendant and the group members acting as nominees which left a digital paper trail and which may have been detected by an experienced open-source investigator working on compiling an asset trace report.
Keeping it in the family
The use of ‘nominee arrangements,’ where the ownership of an asset is transferred to a third party, is a standard strategy for individuals seeking to conceal their wealth. Using formal means, this can be facilitated by specialist trust and company service providers (TCSPs). Alternatively, individuals can turn to informal agreements where control is transferred to family members or close associates without any paper record.
Returning to the aforementioned court case, Spanish prosecutors allege the defendant was behind a sophisticated network of companies holding assets on his behalf, including luxury properties in Madrid and extensive land holdings on the outskirts of the capital. In each case, the companies were owned or managed by the defendant’s wife, his girlfriend, members of his extended family and several closely linked associates.
Piercing the nominee facade
Reading the evidence against the defendant from an investigative perspective reveals a number of entry points that could have been exploited by an experienced open-source investigator working on compiling an asset trace report. While this kind of investigative hindsight risks creating a simplified view of the evidence trail, it is nevertheless possible that the connections could have been identified.
Five such mistakes which could have left an opening for an investigator with knowledge of Spain’s business and property registers included:
1. Company incorporation documents containing the beneficial owner’s details
Previously, the defendant had incorporated a company under his own name and paid up the share capital in full – details of which were included in the company’s incorporation documents. The company remained inactive for several years before ownership was transferred to an associate and then used to conceal ownership of a luxury property. This connection could have been identified from the original incorporation documents.
2. Several front companies registered at the same address
Several companies identified by prosecutors had, at one point, been registered to a residential address in Madrid that had not previously been used for business registrations. During court proceedings, it was revealed that the address belonged to the mother of one of the defendant’s associates. This address, functioning as a ‘hub’ for the network, could have been identified by searching for businesses linked to the individual who controlled the company mentioned in the previous section.
3. Redistribution of share capital among co-owners
Ownership of one network company was originally divided equally among its five members, with each individual holding 20% of the shares. The shareholdings were later redistributed among the four co-owners to remove the defendant from formal ownership. Subsequent filings at the business register may have revealed the change to the ownership structure.
4. Simulated sale of a luxury property
A company within the network purchased a luxury property from another network company at a price significantly lower than its true market value. The court described the transaction as a “simulated sale,” where the real value of the asset was concealed and the property was effectively transferred under the guise of a legitimate business deal. The real purpose of this transaction may have been identified by contrasting the value of the actual sale with the estimated value of the property, both contained on land registry documents.
5. Nominee directors with no clear professional background
None of the individuals acting as nominee directors or shareholders had any discernible business experience or expertise in the industries that the companies they nominally owned were purported to represent.
In sum, these transactions could have provided an entry point for an investigator to gather critical intelligence relevant for an asset trace report. Sophisticated nominee structures of this nature are difficult to break down but are almost never without weaknesses. In this case incorporation documents, inconsistent addresses, manipulated shareholdings, undervalued asset transactions, and the use of nominee shareholders with no clear professional background all represented cracks in the nominee facade.
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