Mortgage Fraud Trends

The Financial Crimes Enforcement Network (FinCEN) reports mortgage fraud trends based upon Suspicious Activity Reports (SARs) filed by money service businesses, like banks. Money Service Businesses must file a SAR when it knows or suspects that funds came from illegal activity, a particular transaction is structured in such a way to evade reporting requirements or appears to serve no lawful purpose, or the money service business is being used to facilitate criminal activity. FinCEN analyzes SARs data and uses it to identify vulnerabilities in financial systems, like the mortgage industry.

Currently, FinCEN targets the following trends in mortgage fraud:

1. Mortgage brokers initiating fraudulent loan practices.
2. Fraudulent appraisals being used as a basis for flipping.
3. Licensed appraiser identity theft.
4. Cashing out of refinance loans.
5. Fraudulent statements of income, including low or no document loans.
6. Home equity lines of credit.

The specific types of activities that "red flagged" and prompted the SAR filing included:

1. Misrepresentation of income/assets/debts.
2. Forged/fraudulent documents.
3. Occupancy fraud.
4. Appraisal fraud.
5. ID fraud.
6. Straw buyers.
7. ID theft.
8. Flipping.

Participants in the suspected fraud included appraisers, borrowers, builders, correspondent lenders, inside loan officers, investors, mortgage brokers, realtors, sellers, and those who provide settlement services, including attorneys and notaries.

While money service businesses file thousands of SARs a year, federal investigator follow up is minimal. One SARs filer reported that in all his years of filing SARs, he's only seen the government follow up on SARs five to ten times. He suggests that prosecutions resulting from SARs are minimal when compared to the large numbers of suspicious activities being reported every year.

The poor follow up on SARs filings demonstrates another reason why those with direct knowledge of fraud should report that information via a whistleblower claim. The government, even when it receives a report of suspicious activity, is unlikely to ensure the fraud is stopped.

IRS Will Get 4450 Names From UBS

Swiss newspapers report that the IRS will get up to 4,450 names of UBS clients as a result of the settlement of the legal battle between the United States, Switzerland, and UBS, the Swiss banking company. At stake were the secret identities of 52,000 US citizens who held deposits in UBS. Some commentators are pronouncing the deal as "the beginning of the end" of the famous Swiss secret accounting system.

More than 47,000 American citizens will remain undisclosed and could continue to hold deposits in UBS. Some predict that wealthy clients will move their Swiss accounts to new tax havens, like Singapore, because of the breach in the secret Swiss banking system.

Earlier this year, UBS faced criminal charges in the United States for assisting in tax evasion and disclosed 250 client identities as part of a settlement. The additional 4,450 names to be disclosed are linked to accounts in which Americans are believed to have hidden as much as $18 billion in income from the IRS. Swiss newspapers report that US clients face up to $3.7 billion in back taxes and penalties.

Switzerland today sold its investment in UBS and earned 1.2 billion Swiss francs for its citizenry. Switzerland said yesterday that UBS's recent gains and the US tax deal have helped stabilize the bank enough for the Swiss government to withdraw. Switzerland, like several other European nations, was forced to take partial ownership in the bank during Europe's recent financial crisis. The Swiss government reported it earned a return of 30% annually on the UBS investment.

47,000 Potential Claims? Only 5000 UBS Names to be Released

Two Swiss newspapers are reporting that UBS has agreed to release 4500 to 5000 names of its US clients in the recent settlement agreement between the United States and the Swiss bank. The United States had gone to federal court seeking to force UBS to identify its 52,000 United States citizens, many of whom are thought to be committing tax fraud by hiding assets in secret accounts.

NZZ am Sonntag, one of the weekly newspapers, reports that the agreement was grounded on a 1996 US/Swiss tax agreement, allowing the Swiss cabinet to sign off on the deal without having to seek approval through the Swiss parliament. The 1996 agreement obliges Switzerland to provide the US with assistance in criminal prosecutions for tax evasion. NZZ says small accounts would not be reported, and account holders threatened with disclosure would have the right to challenge disclosure in Swiss courts.

Under another agreement earlier this year, UBS paid $780 million to settle criminal charges in the US, and it disclosed information on 250 United States clients. The fourth prosecution of a UBS client ended with a guilty plea on Friday, August 14. Malibu businessman John McCarthy admitted that he transferred at least one million dollars into secret UBS accounts over a five year period to avoid paying US taxes.

Earlier reports stated that the IRS would consider the UBS litigation a failure if UBS did not disclose at least 10,000 names; unofficially, now, all parties are describing the agreement as a success.

Approximately 47,000 United States citizens will continue to enjoy secret Swiss accounts. Whistleblowers should work to identify which of these account holders are hiding their assets to reduce their tax obligations. If you know of a United States citizen who is hiding assets in UBS, or elsewhere, call for a free tax fraud consultation today.