Micro‐ and macro‐economic effects: secreting assets to evade non‐business (private) obligations and responsibilities

Publication Date01 Apr 2003
AuthorEllen Harshman,Muhammed Islam,Camille A. Nelson,Henry M. Ordower
SubjectAccounting & finance
Journal of Financial Crime Ð Vol. 10 No. 2
Micro- and Macro-Economic Eects: Secreting
Assets to Evade Non-Business (Private)
Obligations and Responsibilities
Ellen Harshman, Muhammed Islam, Camille A. Nelson and Henry M. Ordower
There is extensive research and discussion in and
among academic, law enforcement, and government
regulatory circles focusing on issues of bank secrecy,
money laundering, tax fraud, bribery and secreting of
wealth. Of great concern is the public side of hiding
assets. This includes examining the eorts of govern-
ments and their regulatory and policing agencies to
limit these activities, identifying and exploring the
ecacy of the various means to combat money laun-
dering through greater transparency in the ®nancial
services sectors of the economy, enhanced investiga-
tory tools for regulators, and increased obligations
on participants in the ®nancial markets, including
professional advisors, to report suspicious ®nancial
activities and movements of funds. However, there
is a conspicuous absence of discussion of the broad
human impacts wrought by the secretion of assets.
There is little doubt in the international commu-
nity that the 11th September, 2001 terrorist attacks
in the USA required the movement of substantial
sums in international commerce in order to train
the terrorists and provide them the resources with
which to carry out their attacks. The human cost of
those attacks was massive. Yet, it is not only instances
of catastrophic proportions that should engender
eorts to control and interdict the hiding of wealth.
There is also a private side to hiding assets that has
contributed to the impoverishment of women and
children in the USA (and possibly in other nations
as well). Impoverishment has far reaching societal
and economic impacts even in developed, wealthy
nations, and this paper will explore some of those
impacts. Many small-scale events that impact on
only a narrow group of individuals may be devastat-
ing to the members of that narrow group, whether a
family, a community or the employees of a single
business. The adverse eects on the narrow group
may reverberate through the broader community.
This paper investigates the eect on the family and
the society when a US business owner hides his
wealth from creditors and family members. The
paper oers a simple case study in which the business
owner secretes assets oshore. The oshore element is
consistent with the nature of the business but is not
essential to the example, as there are opportunities
to hide wealth without transporting it oshore. The
paper will present the case facts ®rst. It will then iden-
tify some ethical issues that arise when explicit and
implicit promises are not honoured. Next, it will
examine direct economic impacts on spouses and
children as the primary provider disappears with his
hidden wealth and includes discussion of additional
stresses that taxing authorities place on those who
remain behind. Finally, the paper seeks to integrate
the economic impact on the single family with its
broader economic impacts as hidden assets sometimes
burden the family and local and national economies.
The case of Susan and Robert Jones
Susan and Robert Jones married in 1985. Their son
David was born in 1988 and daughter Abigail in
1991. Robert built up a freight transfer and forward-
ing business with a sta of seven US employees.
Susan helped in the business while raising the chil-
dren. Susan was responsible for paying the business's
bills, including payroll Ð but followed Robert's
instructions as to which bills to pay and when to
pay them. Robert prepared joint US income tax
returns for the couple and both signed the returns
each year. Susan and Robert enjoyed a trusting
relationship and a high lifestyle.
Robert received payments in cash from many of
the business's customers and, early in 1995, began
channelling most of the cash into bank accounts in
jurisdictions that had strong bank secrecy laws and
protected the anonymity of their customers. Some
of Robert's customers made payments into the
same accounts by wire and electronic transfers. In
1997 Robert stopped instructing Susan to pay social
security taxes and tax withholding amounts to the
US government. While Susan thought it odd that
the payments stopped and questioned Robert, his
Page 166
Journal of Financial Crime
Vol.10,No. 2, 2002,pp.166 ±183
#HenryStewart Publications
ISSN 1359-0790
reassurance that there was nothing to worry about
suced to calm her concerns.
In September 2000, Robert disappeared. Susan had
a small amount of money in the couple's joint bank
accounts, their house encumbered by an 85 per cent
mortgage, credit card debt and car loans. Without
Robert, the business could not continue. While it is
unclear whether or not Susan was a co-owner of
the business, employees to whom ®nal pay cheques
were due threatened to sue Susan. Rumour has it
that Robert is living in grand style with a friend in
one of the islands from the substantial unreported
sums he derived from the business.
At the time Robert disappeared, the Internal
Revenue Service (IRS) had commenced an audit of
the couple's federal income tax returns for the years
1995 through 1998. A disgruntled employee who
found some computer ®les relating to shipments of
questionable content and wire transfer instructions
triggered the audit by alerting the Internal Revenue
Service that there was evidence of unreported
The ethic of responsibility
The case above describes a husband and father,
Robert, who has abandoned his family, and a busi-
ness owner who has abandoned his business. In
doing so, Robert has undermined the ®nancial
well-being of those he has left behind, has committed
crimes for which, in some instances, he has left others
to account, and he has ensured that those he deserted
will experience stress and emotional upheaval.
Robert's failure to uphold his promises and com-
mitments, familial and business, raise a number of
ethical issues. This section of the paper will focus on
the ethical implications of failing to keep promises
and explore the origins of ethical duties associated
with promise making.
It is clear that Robert may be guilty of committing
a number of wrongs that, in the US legal system,
could result in civil and criminal charges. However,
the question this section of the paper seeks to explore
is broader: speci®cally, is Robert's conduct morally
wrong and did it breach ethical standards? To address
that question, generally acceptable norms of ethical
conduct have to be present and violations of those
norms have to be established. With regard to norms
of ethical conduct, the paper will focus on the com-
mitments and responsibilities arising from the roles
in which the actors were engaged: Robert as a
father and a business owner, and Susan as a possible
partner in the business. Robert is the main object of
our attention; however, at times the spotlight may
turn on Susan as well.
The philosophical underpinnings of commitment
and the consequent generation of responsibilities
have been discussed by many. Using terms such as
`commitment', `integrity', `responsibility', `obliga-
tion', and `promise keeping' in referring to essentially
synonymous concepts, several writers have examined
the ethical and moral issues associated with promises
and the obligations arising from those promises.
credits Max Weber with developing an ethic
of responsibility, wherein an individual is called to
be concerned with how other people and relation-
ships are likely to be aected by his or her actions.
®nds that an individual's deepest sense of
moral commitment comes from the sense of self,
through which an individual becomes personally
invested in a group. The shared commitments
among members of that group contribute to what
May terms solidarity. Solidarity, socialisation, and
role-based moral authority operate on an individual's
consciousness from which feelings of obligation are
May also recognises that institutions and
traditions of a particular community contribute to
the development of obligations. Building on
Weber, May posits an `ethic of responsibility'
which includes the following:
(1) a responsiveness to those whom we could help,
especially those who are in relationships with
us or toward whom we have taken on a certain
(2) a sensitivity to the peculiarities of a person's
concrete circumstances and contexts;
(3) a motivation to respond to another that grows
out of the needs of others, especially those who
depend on us;
(4) a wide discretion concerning what is required
to be a reasonable person, rather than an
emphasis on keeping an abstract commandment
or rule;
(5) a respect for the legitimacy of emotions as a
source of moral knowledge and especially for
the feelings of guilt, shame and remorse that
are central to people's actual experiences;
(6) a sense of what it means to be a responsible
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Secreting Assets to Evade Non-Business Obligations and Responsibilities

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