Forensics Journal - Stevenson University 2012 | Page 34

STEVENSON UNIVERSITY

sion, 1998, p. 10). Employers and co-workers may notice changes in
the target’s behavior. All of these records contain information that can
be used as leads in any criminal investigation.

trafficking. They used legitimate businesses in more complex industries to hide the gains from their illegal activities (Manning, 2005, p.
201). The more complex the organization’s crimes became, the more
sophisticated investigative techniques were needed to identify information about associates, assets, criminal proceeds, relationships, and
other evidence to use in their investigations. These techniques include
anti-money laundering records and programs, the net worth method
and its derivative, the expenditure theory. The net worth method,
expenditure theory, and anti-money laundering programs identify
information available in financial records and activities that can be
analyzed to identify abnormal transactions and changes in behavioral
patterns.

Anti-money laundering records provide information about the
financial activity of individuals and companies. Congress enacted
the Bank Secrecy Act, 18 USC Sections 5311-5332, in 1970, to help
control and track money laundering activities. The Bank Secrecy Act
mandated banks and financial institutions maintain records for certain deposit and withdrawal transactions that might indicate money
laundering activity (Sinason, Pacini, & Hillison, 2003, p. 18). Currency Transaction Reports and Suspicious Activity Reports contain
the address and identification (such as a passport or driver’s license
number) for the account holder, the address and identification for
the individual conducting the transaction, the account number, bank
branch address where the transaction took place, the amount of the
transaction, and a description of the activity (United States Department of Justice 29). Casinos and businesses are required to file similar
documents (the CTR for Casinos and the Form 8300) containing the
same information for cash transactions over $10,000. The Uniting
and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism (USA Patriot) Act expanded
the definition of financial institutions subject to the Bank Secrecy
Act requirements to include credit card companies, precious metal
dealers, insurance companies, vehicle, boat, and aircraft dealers, real
estate agents, pawn brokers, and travel agents. The USA Patriot Act
also required each of these business entities to develop “know your
customer” programs and provide training in identifying “suspicious”
transactions for employees (Sinason, Pacini, & Hillison, 2003, p. 19).
Forensic accountants are familiar with the information that could
be obtained from a review of these records and programs and could
use the information to identify leads and persons of interest in nonfinancial investigations.

The net worth method and expenditure theory were first used by the
Internal Revenue Bureau, now known as the Internal Revenue Service, in the U.S. Government’s pursuit of Alfonse Capone in 1931.
The Internal Revenue Bureau used the method to prove Capone had
unreported taxable income. In 1970, Congress enacted the Racketeer
Influenced Corrupt Organization Act to fight organized crime, 18
USC Sections 1961-1968. The Racketeer Influenced Corrupt Organization Act included the ability for law enforcement agencies to
use the net worth method and expenditure theory to identify assets
acquired by organized crime figures and organizations with proceeds
from illegal activity (Manning, 2005, p. 97-99). The investigator
must identify every substantial asset, liability, income and expense the
target owns to analyze a target’s net worth and spending habits.
Financial forensic investigators are aware information contained in
the documents obtained to authenticate each asset and liability for
the net worth method, and income and expense for the expenditure
theory can provide leads to unknown associates and relationships.
Financial documents show the name and address of the party paying property taxes, can identify cosigners or beneficiaries, previously
unknown associates and family members, former and current employers and can show increases or decreases in payments (United States
Department of Justice, Criminal Division, 1998, p. 14-31). Correspondence with lien holders could reveal evidence of a target’s state
of mind at a particular date and time; and a loan application could
reveal additional bank accounts, the target’s federal tax returns, or
the target’s credit history. Copies of cancelled checks will contain the
endorsement signature of the person or business cashing the check,
and the date and branch where