If you are going to squirrel ill-gotten money in an offshore tax haven, you need the mental acuity and swiftness of a mountain lion -- not a squirrel, or in the case of a married San Diego couple, an opossum.
Terry and Susan Brunning now repose in a Mexico City prison, fighting extradition to the U.S. They face a criminal indictment in San Diego on 15 counts of bankruptcy fraud, money laundering, criminal forfeiture, and conspiracy.
But could the stumbling Brunnings pull off a conspiracy? "They do seem to keep shooting themselves in the feet," says Leslie Gladstone, trustee of the Brunnings' Chapter 7 bankruptcy filing, which fell apart when she and government investigators realized the couple had massively concealed assets belonging to the bankruptcy estate, including a bit more than $1 million they had stashed in the offshore tax-and-secrecy haven of the Isle of Man, an island in the Irish Sea where hush-hush banking accounts for more than 40 percent of the economy.
Often in the U.S., a shady lawyer, specializing in tax havens, plots an offshore stashfest for clients -- and also, occasionally, a Chapter 7 bankruptcy that gets creditors off the stashers' backs. But the Brunnings committed so many blunders that "it appears as though they did it on their own," says Faith A. Devine, assistant U.S. attorney, who is prosecuting the criminal case in San Diego.
"I don't know if they had attorneys, but if they did, they were not well counseled. They have not acted wisely," says Gladstone.
The Brunnings owned two Postal Annex Plus franchises -- one on Shelter Island Drive, the other on West Point Loma Boulevard. They did not have significant criminal records, although Terry Brunning had been convicted of a misdemeanor almost two decades ago, according to Devine.
The couple had problems at Postal Annex. "We did not have the smoothest relationship with them," says Patrick Edd, executive vice president of the company. "There were back monies owed us. They had not kept up with royalties and advertising fees. They were having landlord problems" and also had unhappy suppliers, he says. "We didn't force them to sell; they came to that conclusion by themselves."
The pair lived on their 57-foot sailing yacht, the Windsong, which was located at Shelter Pointe Hotel & Marina on Shelter Island. "They just seemed like ordinary folks. They paid their bills," says Steve Carr, who manages the marina.
Both Edd and Carr have been interviewed by federal agents. The Internal Revenue Service, Department of Homeland Security, and Bureau of Immigration and Customs Enforcement investigated the matter.
According to the indictment, the Brunnings stashed $1 million and another $58,000 at two Isle of Man institutions between mid-2000 and mid-2002. In early 2002, they sold the Postal Annex franchises for $75,000 in cash and a promissory note for $155,000.
In August of 2002, they filed for Chapter 7, or liquidation bankruptcy, "to discharge their outstanding debts to financial institutions, government agencies, and other third parties, while maintaining control over and access to property of the bankruptcy estate by means of fraud, concealment, and misrepresentations," according to the indictment. In other words, the Brunnings wanted to dump their debts, emerge as virgins, but fraudulently keep the assets that by law belong to the bankruptcy estate under control of the trustee. And by keeping their nest egg offshore, they would dodge taxes.
They filed the bankruptcy in pro per -- that is, they had no lawyer assist them. Now get this: The Brunnings, under penalty of perjury, swore that they had no boat, even though they lived on one. They solemnly swore they had no cars; they had a Jaguar and a Rolls-Royce. They said they had no accounts receivable, even though the promissory note for $155,000 was known by the franchise buyers and lawyers. The Brunnings swore they had no offshore financial accounts, despite the $1 million-plus on the Isle of Man.
A San Diego lawyer tipped off Gladstone to the $155,000 promissory note. Gladstone told them to turn it over immediately. Soon, "A woman called my office to find out the procedure for filing a claim. She said she was owed $300,000 by the Brunnings," says Gladstone.
Next came a claim from one Donna Kerns, wanting the proceeds from the trustee's sale of the promissory note. Donna Kerns, investigators learned, is a fictitious person.
Now hear this: On October 27, Terry Brunning sent a letter to the trustee under the phony name of Donna Kerns, asserting a claim against the bankruptcy estate. On October 30, Susan Brunning also sent a letter under the fictitious name of Donna Kerns, making the same claim. Both Brunnings, three days apart, attempted to forge the handwriting of the same nonexistent person. That certainly made it easier for handwriting experts. In my 40 years of following dubious characters, I can't remember an occasion when two different people, married, tried to forge the same handwriting a few days apart.
Terry Brunning, himself a notary, also forged a notary's signature, according to Devine.
In their bankruptcy filing, the Brunnings said they had assets of $0 to $50,000 (obviously not true) and debts of $100,000. Actually, "The debts are close to $2 million, primarily owed the Internal Revenue Service for penalties," says Gladstone. Hmmm.
In late October of 2002, the Brunnings left the U.S. for an extended sailing trip to Mexico aboard Windsong. Then they asked an Isle of Man bank to transfer $1 million to a Mexican bank. Obviously, the Brunnings had not kept up with post-9/11 offshore-banking practices. Many offshore institutions, including those in the Isle of Man, have pledged to monitor and report suspected money laundering, although many people question whether such promises are sincere.
"It is not unheard of for an offshore bank to report a transfer of funds to keep the funds domiciled locally" on the pretense of cooperating with anti-money-laundering laws, says Jay Adkisson, an Orange County-based expert on offshore banking. He doesn't know the specifics of this case.
The Brunnings' bank reported the attempted transfer to anti-laundering authorities on the island, and when those authorities learned that the Brunnings had filed for bankruptcy in the U.S., the island's court slapped on a restraining order banning any funds transfer.