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CHAPTER 4 THE APPLICATION OF THE NET WORTH METHOD AS INVESTIGATION TECHNIQUE
INTRODUCTION
The researcher’s own experience and observations as a financial crime investigator have made him aware that some allegations of suspect criminal conduct are so vague and unspecific that the exact crime that the subject may be guilty of perpetrating is not identifiable. As a starting point for initiating an investigation, investigators conduct an investigation into the lifestyle, financial position and financial transactions of the subject under investigation in the hope of finding proof of criminal conduct for which the subject can be held criminally liable.
In some instances, investigators can determine from surveillance that a subject suspected of involvement in crime exhibits an exorbitant and lavish lifestyle, yet they are unable to find any direct evidence of income obtained through illegal sources.
There appear to be similarities between the conduct and methods used by criminals to disguise the proceeds of crime and the methods and conduct used by criminals and tax evaders alike to conceal taxable income from detection by the tax authorities.
The challenge facing investigators is that, once they have determined that the subject under investigation, for whatever crime, does exhibit a lifestyle beyond their known sources of income, the investigators need to find evidence that will support their assumption that the funds which support that lifestyle are from unknown (illicit) sources. How do they determine what the amount of income is from unknown (illicit) sources in the absence of direct evidence? Will a lifestyle beyond their known sources of income be sufficient evidence to prove that question in a court?
The investigators will have to find some way of determining circumstantially or indirectly what the amount of income is from unknown sources.
This chapter examines the application of the Net Worth Method as a technique for quantifying income from unknown sources circumstantially and discusses whether this method is able to provide sufficient proof of income and its quantity in a court.
THE CONCEPT ‘EVIDENCE’
The existence of direct and indirect evidence (circumstantial evidence) in any investigation will determine whether the investigation and ultimately the prosecution are successful or not (Clark, 1998:3). (See appendix 6) In Rex v Swartz 1946 GWLD 57, Judge Krause concluded that evidence is usually divided into two classes, being:
- Direct or best evidence; and
- Circumstantial evidence or indirect evidence.
There is a distinction between direct and circumstantial evidence (Schmidt and Rademeyer, 2003:1-5).
Van Rooyen (2008:17) states that evidence may be given verbally by a witness or in writing by means of such documents that are admissible. It may be complemented further with presumptions, judicial notice and admissions (Van Rooyen, 2008:17). Van Rooyen (2008:17) asserts that all this evidence forms the proof from which the court must reach a conclusion.
In the broader sense, evidence is anything perceptible by the five senses and any form of species of proof, such as testimony of witnesses, records, documents, facts, data or concrete objects, legally presented at a trial to prove a contention (dispute), and includes a belief in the minds of the court (Van Rooyen, 2008:17).
De Villiers (1999:3) asserts that evidence is simply that which enables an investigator to get to the truth of a matter under investigation.
Schmidt and Rademeyer (2003:1-5) define evidence as:
the most important means of proof. The term is not always used in the same sense. Its common meaning is that of all the information given in a court to enable it to decide a factual issue, so that it not only includes the testimony given by witnesses but also documents and objects brought forth to be viewed by the court.
Using a content analysis for interpreting the response to the question ‘What is evidence?’, certain themes emerged from the participants’ answers. These themes are presented in the frequency table below. As can be seen from the themes quoted in Table 11, more than one respondent could have provided the same answer or more than one answer in their response to the question.
An analysis of the answers provided by the participants shows that they related to the meaning of evidence in the broad sense (36% frequency or nine times) and referred to its nature (28% frequency or seven times).
The sample stated that evidence consists of verbal evidence, testimony, statements or objects which are admissible in court (12% frequency or three times). This response accords with the general meaning of evidence provided in the literature.
In this regard the participants are aware that evidence relates to proof.
The following responses obtained from the sample correspond with the literature, with specific reference to the common meaning of evidence as provided by Schmidt and Rademeyer (2003:1-5):
- Evidence is relevant facts (4% frequency or one time)
- Evidence is the true facts about a crime or incident (4% frequency or one time)
- Evidence can provide proof of or disprove a fact in dispute (4% frequency or one time)
- Evidence is that which can be considered in a court of law (4% frequency or one time)
- Evidence is something used to prove a fact in court (12% frequency or three times)
- Evidence is something used to prove or disprove an allegation (8% frequency or two times)
- Evidence can be anything that contributes to a finding (by a court) regarding a fact or a crime (4% frequency or one time)
- Evidence is that which can be considered by a court of law (4% frequency or one time)
In the literature, reference is made to the concept ‘proof’ to describe evidence. In the response from the sample a similar feature is evident, which shows that evidence in the minds of practitioners and theorists alike relates to proof.
THE CONCEPT ‘DIRECT EVIDENCE’
Cross (1958:8), regarding the meaning of ‘direct evidence’, states that in the first sense it is testimony in contrast with hearsay and may therefore be defined as an assertion made by a witness in court offered as proof of the truth of any fact asserted by him. In its second sense ‘direct evidence’ means a statement by a witness that he perceived a fact in dispute (issue) with one of his five senses.
In Rex v Swartz 1946 GWLD 57, Judge Krause concluded that direct, or best, evidence means evidence of witnesses who come before the court and testify to what they themselves have seen or what they have heard.
Schwikkard and Van der Merwe (2002:210) assert that evidence is direct when a fact in dispute is proved directly by such evidence; for example, where a witness testifies that he saw the accused stab the deceased.
Using a content analysis for interpreting the response to the question ‘What is direct evidence?’, certain themes were identified in the participants’ answers and are presented in the frequency table below. As can be seen from the themes quoted in the Table 12, more than one respondent could have provided the same answer or more than one answer in their response to the question.
PREFACE
VOORWOORD
ACKNOWLEDGEMENTS
STATEMENT BY CANDIDATE
SUMMARY
CONFIRMATION OF LANGUAGE EDITING
CHAPTER 1 GENERAL ORIENTATION
1.1 INTRODUCTION
1.2 AIM OF THE RESEARCH
1.3 PURPOSE OF THE RESEARCH
1.4 RESEARCH QUESTIONS UNDER INVESTIGATION
1.5 KEY THEORETICAL CONCEPTS
1.6 RESEARCH DESIGN AND APPROACH
1.7 POPULATION
1.8 SAMPLING
1.9 DATA COLLECTION
1.10 DATA ANALYSIS
1.11 METHODS TAKEN TO ENSURE VALIDITY (CREDIBILITY)
1.12 METHODS TAKEN TO ENSURE RELIABILITY (DEPENDABILITY)
1.13 ETHICAL CONSIDERATIONS
1.14 RESEARCH STRUCTURE
CHAPTER 2 FINANCIAL CRIME
2.1 INTRODUCTION
2.2 THE CONCEPT ‘CRIME’
2.3 THE CONCEPT ‘FINANCIAL CRIME’
2.4 SPECIFIC FINANCIAL CRIMES
2.5 SUMMARY
CHAPTER 3 NET WORTH METHOD AS INVESTIGATION TECHNIQUE
3.1 INTRODUCTION
3.2 THE CONCEPT ‘FORENSIC INVESTIGATION’
3.3 THE CONCEPT ‘CRIMINAL INVESTIGATION’
3.4 THE OBJECTIVES OF INVESTIGATION
3.5 FINANCIAL INVESTIGATION OF CRIME
3.6 DIRECT METHODS TO QUANTIFY INCOME
3.7 INDIRECT METHODS TO QUANTIFY INCOME
3.8 THE NET WORTH METHOD
3.9 SUMMARY
CHAPTER 4 THE APPLICATION OF THE NET WORTH METHOD AS INVESTIGATION TECHNIQUE
4.1 INTRODUCTION
4.2 THE CONCEPT ‘EVIDENCE’.
4.3 THE CONCEPT ‘DIRECT EVIDENCE’
4.4 THE CONCEPT ‘INDIRECT EVIDENCE’
4.5 APPLICATION OF THE NET WORTH METHOD TO PROVE INCOME CIRCUMSTANTIALLY
4.6 LEGAL ACCEPTANCE OF THE NET WORTH METHOD TO PROVE INCOME
4.7 SUMMARY
CHAPTER 5 FINDINGS AND RECOMMENDATIONS
5.1 INTRODUCTION
5.2 FINDINGS
5.3 RECOMMENDATIONS
5.4 CONCLUSION
LIST OF REFERENCES
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THE NET WORTH METHOD AS TECHNIQUE TO QUANTIFY INCOME DURING INVESTIGATION OF FINANCIAL CRIME
