Documents make up the bulk of evidence used in nancial investigations.
ey are also the building blocks of discovery or the pieces of the jigsaw
puzzle that result in completing the picture of the subject’s nancial activi-
ties. ere are several rules and procedures that need to be followed in deter-
mining how and from whom documents are acquired. ese rules have to be
followed if the investigator hopes to use the documents as evidence.
e purpose of the investigation is the driving force as to what documen-
tary evidence is collected, how it is collected, and from whom. An informal
investigation (consisting of internal business monitoring or systems security
control for petty pilfering or the) can determine that there is a problem and
identify the process or procedural changes to correct the situation. ere are
no requirements for the acceptance of the results of the investigation because
everything is handled internally. e documentation is reviewed, and the
results are used to confront any employee involved or to correct operational
procedures to close the gap on a potential problem.
Other investigations are performed to verify information provided to one
party by a second party for use in making future nancial transactions with
the second party. Examples would include debt settlement oers and busi-
ness evaluations for acquisitions or mergers. Since the records in these situ-
ations are collected primarily for information purposes and are not needed
for presentation in legal actions, there is no formal procedure required in
gathering the documentation.
In the majority of nancial cases, there will be the anticipation of some
future legal action. e documentation and the analysis of records in these
cases need to be handled in the same manner as any other evidence used in
civil or criminal litigation. ere are specic rules on what evidence is needed,
and its relevance and materiality; the competency of the witness who will
introduce the documentation; and the security, handling, and preservation of
the evidence to be used. ese rules are contained in the rules of procedure
and rules of evidence for the jurisdiction in which the case is to be heard.
64 Criminal Financial Investigations
Although each state may have its own version of rules for these proceed-
ings, all will incorporate or adopt the Federal Rules of Evidence as their for-
mat. For our purposes, we will discuss the Federal Rules of Evidence keeping
in mind that some jurisdictions may have variations in these rules. Under
these rules, there are three general requirements that must be met for an item,
document, or testimony to be accepted in the matter being heard: relevance,
materiality, and competency.
e following are Article IV, Rules 401 and 402 of the Federal Rules of
Rule 401. Denition of “Relevant Evidence”
“Relevant evidence” means evidence having any tendency to make the exis-
tence of any fact that is of consequence to the determination of the action
more probable or less probable than it would be without that evidence.
Rule 402. Relevant Evidence Generally Admissible; Irrelevant Evidence
All relevant evidence is admissible, except as otherwise provided by the
Constitution of the United States, by Act of Congress, by these rules, or by
other rules prescribed by the Supreme Court pursuant to statutory authority.
Evidence which is not relevant is not admissible.
In a nancial investigation, the relevancy of documents related to nan-
cial transactions for the purpose of determining the probability of a specic
individual (the respondent to the charges) is broad in scope. Legal prec-
edents have set the requirements and parameters for using indirect meth-
ods of proof based primarily on circumstantial evidence. As an example,
the Supreme Court ruled that the government was required to establish the
“starting point,” or foundational nancial condition of the defendant, to allo-
cate the amounts of unreported income in subsequent years in a tax evasion
case in Holland v. United States. is meant that transactions prior to the
years investigated became relevant in determining the defendant’s net worth
before he actually began cheating on his taxes. e statute of limitations,
investigative eciency, or other factors may aect the choice of a starting
point in a nancial, indirect method investigation. ese factors will be dis-
cussed in greater detail in the sections on indirect methods of proof. Because
indirect methods of proof are based on cash ow transactions, documents
reecting a $50,000.00 increase in the value of a stock purchased in prior