Needle in a Haystack: Detecting Straw Ownership Schemes

February 2016

IN THIS ISSUE

— Straw Ownership: Using Legitimate Intermediaries for Illegitimate Ends
— Detecting Straw Buyer Fraud

GREETINGS!

Welcome to the February 2016 edition of our newsletter! In this issue, we’ll examine different types of straw ownership schemes, and offer ways to investigate them.

STRAW OWNERSHIP: USING LEGITIMATE INTERMEDIARIES FOR ILLEGITIMATE ENDS

Straw ownership is a fraud that can serve many purposes: in order for an unlicensed physician to open up a clinic; for a criminal individual to be able to buy property; or to further various other money laundering enterprises where a veneer of legitimacy is required. With respect to real estate, the prevalence of short sales in recent years has also created an increased use of straw buyers to obtain homes for sale in that way.

Although the methods of fraud vary somewhat, the object is the same in each instance: use an associate whose credibility and reputation exceed that of the perpetrator, in order to present the appearance of legitimacy for ill-gotten gains or other illegitimate purposes.

DETECTING STRAW BUYER FRAUD

Although often difficult to detect before a transaction occurs, there are steps which can be taken to develop a straw buyer case after suspicions have been raised. If the purported owner of a venture or piece of real estate knows little to nothing about their supposed area of expertise neighborhood, etc., this may indicate a straw ownership scheme. In that instance, a public records analysis to determine who the straw buyer’s known associates are — including reviews of their education, business affiliations and also litigation — could help identify the true owner, or at least the circle in which the straw buyer operates.

In some instances, such as “flipping” real estate, the straw buyer will quickly convey the questionably obtained asset to the intended owner, either personally or to a company acting on the true owner’s behalf. If the true nature of the scheme does not become readily apparent, as in when a medical clinic is opened by licensed professionals acting for unlicensed ones, surveillance and interviews of neighbors or customers could help uncover the true nature of the operation. While not as straightforward as some other frauds, straw buyer fraud can be detected and, while often not preventable, a case can be built to nullify the purported and actual ownership of the assets in dispute.