The NEWS (Monrovia)
Theo Dekonty Joseph
16 April 2008
opinion
Monrovia — Theo. Dekonty Joseph, CPA, CFE, FCPA
Introduction
Hiding assets is as old a tradition as the beginning of time. For as long as people have understood the abstract notion of wealth, people have also understood the need and / or desire to hide their wealth from the reach of others. One may hide assets / wealth from taxing authorities, neighbors, thieves, spouses, children, parents, friends, business partners and so on.
Various crude methods of hiding wealth have been used hundreds of years ago. Cavemen have used hollows or under loose stones in their caves. People over the years have used hollows in tree trunks, holes in the ground, top branches of trees. More recently people use their mattresses, dig hollows in the middle of their bedrooms or living rooms, use their ceilings etc. in their bid to provide crude means to protect their valued possessions.
Today, the hiding of wealth is much more sophisticated. Hiding assets today - mostly involve Investments, Banks and Complex Overseas Financial Transactions. Forensic Accountants and Fraud Investigators must understand how assets are hidden and funds are laundered if they are to keep up with the criminals who commit these offenses.
Hiding of assets and money laundering are associated with the operations of the Underground Economy. The operation of the underground economy can be explained as a group of concealed and / illegal transactions that will create financial values, but are carried out with the intention of evading something - such as discovery of bribes / kickbacks, evading taxes and /or Government Regulations, Exchange Controls or Criminal Prosecution.
People who hide assets and money launderers carry out their illegal activities within the underground economy with the aim of evading their legal and social obligations to Society and Government.
The illegal activity of hiding wealth is generally done with the aim of:
* Evading the Payment of Taxes;
* Avoiding Personal Liability; and
* Cover-up of Illegal Activity.
Tax Evasion
Tax Evasion is an illegal means of avoiding the payment of legitimate taxes due the Government - by understating Income earned and overstating Expenses and Tax Exemptions. In the world at large, Tax Evasion is the most common cause for hiding Income.
In countries where tax burdens are high, incentives are created by these high tax burdens for people to attempt to evade their tax paying obligations by hiding part or all of their earnings. In a system such as ours (Liberia) - where gross income is taxed at 2% or 4% as estimated advance taxes and 35% on net Income (using the advance payment as a credit), a tax evader may think that he can earn a 35% return on any money he successfully shields from the taxing authorities. With this rate of return, it is not difficult to see why some businesses are tempted to engage in this form of illegal activity.
Avoiding Personal Liability
In most instances, people do hide assets to avoid payment of liabilities to their bankers and other creditors. People do also hide assets to avoid the payment of a civil judgment or to reduce the value of personal wealth in a marital estate or divorce proceedings or in cases where the Corporate Veil is pierced to get to the personal wealth of shareholders in settlement of excess liabilities of a corporation and / attaching the personal assets of Partners in a Partnership arrangement. For instance in divorce proceedings and in bankruptcy cases, individuals may fraudulently transfer part or some of their assets to their children, wife, other relatives, friends or business associates - to protect their assets from creditors
There are many methods by which assets are hidden to avoid personal liabilities. Regardless of the method used to hide assets, the aim is that the proceeds from illegal activities must be presented and disguised in such a manner as to avoid being discovered.
Hoarding Cash (cash under mattress technique)
The most common means of hiding cash is Hoarding. Hoarding is the method by which an individual stores and accumulates cash in a hidden location, usually in the home.
Cash, precious metals and jewelries can be hidden in plumbing fixtures, furniture, electronic speakers, electrical outlets, false ceilings, air conditioning systems, staircases, hollows dug in the floor of home. In one reported case in the USA, an individual hid valuable jewelry in a layer of cooking grease at the bottom of a pot - in another incidence, a Legislator was nabbed with huge amount of frozen cash in his refrigerator. Sometimes, fraudsters may build secret rooms in their homes to hide their valuables from being attached for personal liabilities.
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