Special Counsel Robert Mueller and his all-star team of lawyers and investigators sure do move quick. In less than five months, the team has flipped a foreign policy advisor of Donald Trump to take a guilty plea and handed out an indictment leveling charges of money laundering against former Trump campaign advisor and lobbyist, Paul Manafort, and his business partner, Rick Gates.
How, you may say, could I possibly link this wild indictment to a professional athlete’s finances? The evidence laid out by Mueller presents a perfect example of how athletes can identify wrongdoing in their accounts: follow the money.
---> the $$$
Prior to BrightLights, I spent over three years on FINRA’s Anti-Money Laundering Investigative Unit, a national team that was created to make sure broker-dealers complied with anti-money laundering rules1. As it turned out, many of these broker-dealers failed to comply with these rules; therefore, our team was able to bring more than $50 million in fines from our cases and slowly shift the industry in a better direction.
We had some unbelievable cases where firms were facilitating millions of dollars being moved through the financial system for some very bad actors, including drug cartels, ponzi schemers, penny stock manipulators, and terrorist financiers (if not outright terrorists). These stories would make for an interesting book!
Throughout it all, our team’s mantra was the same as Mueller’s: follow the money. When people ask how I identify fraud by a trusted advisor in a professional athlete’s account, the answer is the same: follow the money. The answer is the same to an athlete who asks me what to do if he thinks something is amiss. The athlete usually receives his income into one account. The money then may be disbursed in a number of ways from there, but as long as you know the source of funds, you can trace where the money goes from there and how the money was spent or saved.
Let’s look at the case against Manafort and Gates to show what Mueller and his team2 focused on and how their investigation can help a pro athlete’s mindset for reviewing his finances.
32 Incorporated Entities, a Partridge, and a Nominee
Manafort and Gates owned or controlled a total of 32 incorporated entities: 17 domestic entities, 12 entities in known offshore tax-haven Cyprus, two offshore entities in Grenadine, and one offshore entity in the United Kingdom. The indictment listed them all:
These offshore entities were known as “nominee accounts,” meaning that although Manafort and Gates owned these accounts and the money therein, the accounts were setup in the name of the nominee acting on behalf of Manafort or Gates in order to conceal Manafort or Gates ownership. Typically, you won’t be able to identify the ultimate owner of a nominee account. It’s not stated in the indictment what specific documents identified Manafort or Gates as the ultimate owner of the accounts, but there appeared to be enough sources cooperating (accountants, lobbyists, and other vendors) to help Mueller out.
Why would Manafort and Gates conceal their ownership in an account? The indictment charges them with acting as unregistered foreign agents of the Pro-Russian Ukrainian Government, generating tens of millions of dollars in income for their work. The answer is presumably two-fold: they didn’t want to pay taxes on their income and they did not want to register as foreign agents of the Ukrainian Government.
Therefore, when nominee Joe LeBlow, resident of Cyprus, receives $3 million from the Ukrainian government, this guy doesn’t have to pay taxes to the IRS since he’s not a United States citizen.
Why this is important to athletes: It is incredibly easy for someone to open a nominee account, either offshore or here in the states, so please be aware of any money being wired from your account to any unknown entity. If money is sent offshore from the United States illegally, you will probably not see that money again.
Show Me the Manafort Money
Manafort’s huge mistake came when he decided that it would be a great idea to wire millions of dollars to pay for personal expenses in the United States. Once the money comes into the United States, there’s now a paper trail of these offshore entities Manafort and Gates owned.
The indictment went to painstaking detail to list (on my count) 215 expenses from 2008 to 2013 that Manfort paid by wires from offshore entities. These expenses included the purchase of three homes, three Range Rovers, one Mercedes Benz, $800k in landscaping, $500k in clothes, $600k in antiques, and so on.
It’s staggering to review the whole list of wires sent for personal expenses, but here's a snippet:
Yes, he spent $1,034,350 on rugs. Nothing to see here.
Each personal expense was traced back to the name of the originating nominee account holder which was ultimately determined by Mueller’s team to be owned by Manafort or Gates.
Why this is important to athletes: By following the movement of your money, you can identify where and how your money is being used. Athletes are not doing this as much as they should be, one of the many reasons I started BrightLights. Athletes have every right to access their account statements and understand what’s going on with their money, sometimes they just have to ask.
You Don't Need Mueller, You Got You
While I don’t think too many athletes have to worry about their money being held in 32 different named entities (then again, Johnny Depp sued his business managers for fraud, and the complaint stated they opened 32 accounts for him), a review of the inflows and outflows of their money will help them understand their finances and reduce potential fraud by those managing their finances. For example, if you see payments to a Range Rover Auto Dealership but don’t own a Range Rover, it might be time to ask whose car you’re paying for.
With the rise of online payment processors like Venmo and the ease to move money anywhere someone wants with little, if any, paperwork, the risks continue to pile up for athletes who do not properly review their activity. Fidelity, for example, allows up to $100,000 withdrawal per day via electronic funds transfer from a Fidelity account to an outside bank account without any paperwork other than what you submitted to setup the transfer between the two accounts. If someone else has power of attorney or control of your bank accounts, that is a lot of money in their hands to move around. And guess who’s getting the texts if a problem occurs?
If you do not have the time to follow the money, BrightLights has the experience to help.
Contact BrightLights for a free risk assessment.
1 - Broker-dealer’s anti-money laundering compliance requirements essentially say that they must have an adequate system in place to monitor, detect, and report potentially suspicious activity that occurs at their firm. When a firm has billions of dollars moving through its accounts, and its compliance systems are installed by third-party vendors like Actimize who are usually the ones who understand the system, the firm then has a system that is installed but does not adequately do the job it is supposed to because the ones operating it have no real idea how to optimize the system. Therefore, a lot of potentially suspicious activity occurs that is not adequately monitored and therefore detected and reviewed. Or in the case of one big Wall Street broker-dealer we dealt with, they just turned their AML monitoring system off for six months.
In the case the system is optimized and tuned to monitor, detect, and report suspicious activity, guess what happens? It generates a ton of alerts because there’s billions of dollars going through the firm, much of which is to international locations, some of which is sent to and received from high-risk jurisdictions. Upper management of a firm then fails to provide the needed resources to actually investigate all the alerts that identify potentially suspicious activity (because some executives view regulation as a profit taker not a profit maker - a short term mindset that fails to account for regulatory risk, reputational risk, litigation risk, etc.), and the alert analysts are left to copy and paste the dispositions for alerts that have nothing to do with the current alert because they don’t have the time to review every alert. The copy and pasted disposition then gives the firm’s lawyers an excuse to say that all the alerts were in fact investigated since the analysts did technically dispose of the alert. That then makes the lawyers on the regulatory side scared to litigate because the case is no longer black and white, it’s more grey yet there's still some really crazy activity going on through the firm. Then the broker-dealer wins because the regulators drop the case due to our lack of resources and willingness to take a risk on something that isn't a slam dunk. Which, I guess, does remove litigation risk for the firms.
2 - It’s important to note that Mueller is working in an adversarial role against Manafort and Gates. He’s trying to prove they committed crimes. My role at BrightLights is to work on behalf of the client and ensure that no crimes of fraud have been committed. The cooperative environment that I work in with clients makes following the money much easier because the documents should all be in within my client’s control. If they are not, we have another problem.
3 - Since Manafort now owned a bunch of houses paid by his offshore money, he is alleged to have taken out mortgages on these properties in order “to have the benefits of liquid income without paying taxes on it.” The indictment states Manafort even defrauded the banks that loaned him the money by making false claims about the use of his house so he could receive the mortgages at lower rates.