ABA Tax Fraud Panel to Discuss IRS CI and Crypto Criminals

The Internal Revenue Service – Criminal Investigation (IRS CI) has made it clear that it is focusing on the abuse of digital currencies to further tax evasion, money laundering, and other offenses. IRS-CI also has made it clear that this is an international effort, and that it is trying to partner with law enforcement agencies across the globe in order to coordinate and share investigative leads.

This is a hot topic, and we are honored that Ballard Spahr will be moderating a panel on these very same issues, at the ABA’s annual Tax Fraud/Tax Controversy Conference in Las Vegas on December 12, entitled Charging Cryptocurrency Violations—Tax Crimes or Money Laundering.  We are pleased to be joined by our wonderful panelists, Evan J. Davis, Betty J. Williams, and Ian M. Comiskey.  This is a unique conference, and we invite you to attend if you are interested in the fascinating cross-section of tax evasion and money laundering.

This blog will discuss the recent efforts by IRS-CI to “up its game” in investigating cross-border offenses committed through cryptocurrency, such as its participation in the international Joint Chiefs of Global Tax Enforcement task force. We then will discuss a recent high-profile case which exemplifies these two goals of fighting crypto-related crime and collaborating with foreign law enforcement officials to do so: the notorious “Welcome to Video” case, which led to a global takedown of a darkweb child pornography website, its administrator, and its customers. The Welcome to Video investigation, led by IRS-CI, also illustrates a key point we will discuss at the ABA conference: that cryptocurrency is only “pseudo-anonymous,” and that its protections can yield to a determined combination of modern digital forensics and old-fashioned investigative techniques. Continue Reading IRS CI Highlights International Efforts to Tackle Cryptocurrency Abuse, Money Laundering and Tax Evasion

Organization Excels at Niche Branding but Stumbles in Avoiding Enforcement

The first paragraph of the press release sums it up:

Today the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) took action against Evil Corp, the Russia-based cybercriminal organization responsible for the development and distribution of the Dridex malware.  Evil Corp has used the Dridex malware to infect computers and harvest login credentials from hundreds of banks and financial institutions in over 40 countries, causing more than $100 million in theft.  This malicious software has caused millions of dollars of damage to U.S. and international financial institutions and their customers.  Concurrent with OFAC’s action, the Department of Justice charged two of Evil Corp’s members with criminal violations, and the Department of State announced a reward for information up to $5 million leading to the capture or conviction of Evil Corp’s leader.  These U.S. actions were carried out in close coordination with the United Kingdom’s National Crime Agency (NCA).  Additionally, based on information obtained by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) released previously unreported indicators of compromise associated with the Dridex malware and its use against the financial services sector.

The Department of Treasury press release is extremely detailed.  Summarized very broadly, it observes that OFAC’s designation targets 17 individuals and seven entities, including Evil Corp, its “core cyber operators, multiple businesses associated with a group member, and financial facilitators utilized by the group.”  The designation means that all property and interests in property of these persons subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited in engaging in transactions with them.

As noted below, the U.S. government is alleging that these cyber criminals are working with the Russian government.  FinCEN and the Cybersecurity and Infrastructure Security Agency (CISA) of the Department of Homeland Security also have issued an Alert to financial institutions regarding how to try to detect, mitigate and report the presence of the pernicious Dridex malware. Continue Reading U.S. Treasury and DOJ Target “Evil Corp”

Hudson Valley, New York: Rows of hemp plants in a cultivated field.

On December 3, 2019, four federal agencies – the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the Financial Crimes Enforcement Network (“FinCEN”), and the Office of the Comptroller of the Currency (“OCC”) – along with the Conference of State Bank Supervisors, released a statement (the “Statement”) “to provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act and its implementing regulations.” The Statement represents the next step in the normalization of hemp growth and cultivation following its legalization under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) and was, predictably, applauded by those in the banking community, including the American Banking Association. Continue Reading Banking Regulators Ease SAR Reporting Requirements Applied to Hemp-Related Businesses

Bank Accused of Being Asleep at the AML-CTF Switch

On November 20, 2019, AUSTRAC, Australia’s anti money-laundering (“AML”) and counter-terrorism financing (“CTF”) regulator, initiated an action in the Federal Court of Australia seeking civil penalty orders against Westpac Banking Corporation (“Westpac”), Australia’s second largest retail bank, alleging systemic failures to comply with Australia’s AML-CTF laws.  Specifically, AUSTRAC alleges over 23 million breaches of those laws, including activity involving potential child exploitation. As we will discuss, the bank has taken, and continues to take, several steps to try to mitigate and contain the scandal’s consequences.

The Allegations

AUSTRAC’s Statement of Claim focuses on Westpac’s correspondent banking relationships with financial institutions in other countries. Correspondent banking relationships require increased due diligence efforts because of the inherent money laundering and terrorism financing risks associated with cross border movement of funds; dealing with banks in high risk jurisdictions, doing business with banks who themselves do business in, or with, sanctioned or high risk countries; and the limited information about the identity and source of funds of customers of the correspondent banks. Continue Reading Westpac Banking Corporation Faces Money Laundering Scandal in the Land Down Under

Arrest is Culmination of Elaborate FBI Sting Targeting Banker Who Allegedly Catered to Drug Dealers

On November 12, 2019, the U.S. Attorney for the Southern District of Florida announced two key money-laundering developments concerning high-profile Guatemalans: the arrest of Alvaro Estuardo Cobar Bustamante, the director of a national Guatemalan bank, and the unsealing of a case against and guilty plea of Manuel Antonio Baldizon Mendez, a former presidential candidate in Guatemala who cooperated in the FBI and DEA sting operation against Cobar.

The government’s press release, coupled with its charging documents discussed below, underscore Guatemala’s strategic importance to drug traffickers and, by extension, money launderers. These developments likewise emphasize: (1) the increasing degree of international coordination often required to root out and prosecute both crimes; and (2) the United States’ willingness to prosecute alleged bad actors abusing the financial system, of which we have blogged about here.

Guatemala’s Strategic Importance to Central and South American Drug Trafficking Organizations

Since at least as early as 2013, the FBI and DEA have conducted extensive and numerous investigations into Drug Trafficking Organizations (“DTOs”) in Guatemala. Both agencies have emphasized the strategic importance of Guatemala for large-scale DTOs because it is a key transportation hub in the cocaine trafficking pipeline that begins in Colombia and moves through Central America and Mexico before branching off into various locations in the United States. Colombian and Mexican DTOs, seeking to avoid detection from U.S. law enforcement, often buy and sell multi-ton quantities of cocaine in Guatemala which, in turn, creates a plethora of opportunities for Guatemalan DTOs to serve as intermediaries receiving and re-selling cocaine. Continue Reading International Efforts to Combat Guatemalan Money Laundering Schemes Nets High-Profile Arrest and Guilty Plea

A Textbook Case of Alleged Money Laundering?

On November 18, 2019, the U.S. Attorney for the Southern District of New York announced the arrest and unsealed the indictment of Bruce Bagley – a 73-year-old college professor whose scholarship focuses on U.S.-Latin American relations, with an emphasis on drug trafficking and security issues. He has been charged with two substantive counts of money laundering and one count of conspiracy to launder money. If convicted, Dr. Bagley faces up to twenty years’ incarceration.

Dr. Bagley, a now-suspended professor at the University of Miami in South Florida, is chair of the school’s Department of International Studies. Before that, he served as the associate dean of UM’s Graduate School of International Studies, and taught Latin American Studies at the prestigious School of Advanced International Studies (SAIS) of the John Hopkins University in Bologna, Italy. Dr. Bagley’s scholarship includes the books Drug Trafficking in the Americas (1994), Drug Trafficking Research in the Americas (1997), and International Relations in Latin America (2013).

As alleged, from November 2017 through April 2019, Dr. Bagley used domestic banks to launder $3 million in proceeds from an alleged Venezuelan corruption and bribery scheme connected with public works projects. Dr. Bagley used a shell company (“Company-1” in the indictment) to open a bank account in Weston, Florida and receive the funds. Dr. Bagley received the funds from foreign bank accounts, held by a “purported food company” as well as a wealth management firm, in UAE and Swiss banks. Prosecutors contend that Dr. Bagley took 10% of the funds for himself, and transferred the rest to an unidentified co-conspirator. In October 2018, the bank closed the account for suspicious activity, but two months later, Dr. Bagley opened a new account, through which he received additional funds. Allegedly, Dr. Bagley also “entered into multiple sham contracts purporting to justify the transfer of money.”

The conspiracy charge, under 18 U.S.C. § 1956(h), pertains to the entire time period at issue and involves the full amount of the alleged $3 million in bribery proceeds. Interestingly, however, the two substantive counts have been charged under the “sting” provision of the criminal money laundering statutes, 18 U.S.C. § 1956(a)(3)(B). These counts rest on two bank transactions involving $250,000 and $224,000 in funds “believed [by the defendant] to be the proceeds of specified unlawful activity” and occurring in January and February of 2019, respectively – shortly after the first bank account was shut down for suspicious activity. According to the indictment, “Individual-1,” who typically accompanied Dr. Bagley when he made withdrawals from the bank, “represented to” Dr. Bagley that the $250,000 was derived from the corruption scheme; a law enforcement officer made similar representations to Dr. Bagley as to the $224,000 sum. Thus, it appears from the indictment that “Individual-1” was cooperating with the government, which had set up an undercover investigation of Dr. Bagley near the end of the alleged scheme.

Dr. Bagley’s attorney wrote to Bloomberg: “The arrest came as a complete surprise to everyone and we are just now reviewing the indictment. Based on my extensive knowledge of Dr. Bagley, both professionally and personally, I am confident he will be vindicated at the end of the day.” Dr. Bagley himself told a local news station, “I’m feeling just fine. Not guilty. That’s how I’m feeling. They’ve got it all wrong.” As we have blogged, it is sometimes difficult for the government to prove a specific intent to conceal in money laundering offenses.

Conversely, the S.D.N.Y. U.S. Attorney quipped: “About the only lesson to be learned from Professor Bagley today is that involving oneself in public corruption, bribery, and embezzlement schemes is going to lead to an indictment.”

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On November 12, 2019, FinCEN issued its latest Advisory on the Financial Action Task Force-Identified Jurisdictions with Anti-Money Laundering and Combatting the Financing of Terrorism Deficiencies and Relevant Actions by the United States Government. The Financial Action Task Force (FATF) is a 39-member intergovernmental body, including the United States, that establishes international standards to combat money laundering, the financing of terrorism and proliferation of weapons of mass destruction (WMDs). As part of its listing and monitoring process to ensure compliance with its international Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) standards, the FATF identifies certain jurisdictions as having “strategic deficiencies” in their AML/CFT regimes.

In its latest Advisory, FinCEN notes the changes in the FATF-named jurisdictions and directs financial institutions to consider these changes when reviewing their obligations and risk-based policies, procedures and practices relating to the named jurisdictions. We will discuss these changes and suggest some practical takeaways for U.S. financial institutions seeking to ensure compliance with these changes in their AML programs. Continue Reading FinCEN Issues Advisory on Foreign Jurisdictions with AML Deficiencies

On November 8, 2019, the Financial Crimes Enforcement Network (“FinCEN”) reissued its Geographic Targeting Orders (“GTOs”) requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  The monetary threshold remains at $300,000, and the nine districts remain the same.  The GTOs cover purchases involving virtual currency as well as “fiat” currency, wires, personal or business checks, cashier’s checks, certified checks, traveler’s checks, a money order in any form, or a funds transfer.

No new jurisdictions were added to the previously existing coverage of the GTOs:

  • California: San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara Counties
  • Florida: Miami-Dade, Broward and Palm Beach Counties
  • Hawaii: City and County of Honolulu
  • Illinois: Cook County
  • Massachusetts: Suffolk and Middlesex Counties
  • Nevada: Clark County
  • New York: Boroughs of Brooklyn, Queens, Bronx, Staten Island and Manhattan
  • Texas: Bexar, Tarrant and Dallas counties
  • Washington: King County

The reissuance was identical to the May 2019 GTOs with one exception:

The new GTOs will not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.  Real estate purchases by such entities are identifiable through other business filings.

The exception will presumably relieve some reporting burden on title insurance companies, but it will also likely diminish the number of reports the FinCEN itself reads and analyzes.  If nothing else, this exception confirms what FinCEN has said over and over again – that it uses the data produced as a result of the GTO regulations.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Settlement Applies to $700 Million in Luxury Assets; Law Firms Obtain a Carve-Out

Last week, the Justice Department announced a massive settlement in the 1Malaysia Development Berhad (“1MDB”) case, a matter implicating numerous money laundering and FCPA concerns and one about which we previously blogged here.

The DOJ announced a blanket settlement of all pending civil forfeiture cases against assets acquired by fugitive Malaysian financier Low Taek Jho (“Jho Low”) and various members of his family. The assets, consisting of both cash and real property, are currently located in the United States, United Kingdom, and Switzerland, and exceed $700 million. When combined with prior dispositions, this means the United States government has now recovered over $1 billion associated with the 1MDB scheme. The current settlement constitutes not only the largest recovery by the Department’s recently formed “Kleptocracy Asset Recovery Initiative,” but the largest DOJ civil forfeiture on record.

The assets subject to the agreement represent an eye-catching list of high-end baubles, including a jet aircraft; luxurious properties in New York, Los Angeles, Beverly Hills, and London; stock; and rights to music royalties. The agreement further notes that, although not specifically part of the settlement because they already have been resolved, other related forfeiture cases – including the forfeiture of a gigantic yacht – have been “considered” as part of this global resolution. Continue Reading DOJ Announces Historic Civil Forfeiture Settlement in 1MDB Case

Second Post in a Two-Post Series

As we blogged yesterday, the issue of the beneficial ownership of entities and the potentially pernicious role of shell companies in perpetuating money laundering is the primary anti-money laundering (“AML”) concern across the globe for both enforcement officials and the financial industry.  Consistent with this concern, the Financial Action Task Force (“FATF”), an international and intergovernmental AML watchdog group, has issued a document entitled “Best Practices on Beneficial Ownership for Legal Persons,” (“Best Practices Guidance”) which urges countries to use multiple methods to identify accurately and timely the beneficial owners of legal entities, and sets forth some high-level recommendations.  Meanwhile, and as we just blogged, the U.S. House passed H.R. 2513, a two-part Act which sets forth in its initial section the Corporate Transparency Act, or CTA. If enacted, the CTA would require certain, defined U.S. companies to report identifying information regarding their beneficial owners to the Treasury Department – so that such information would be available to both the government and financial institutions carrying out their own AML duties.

However, it has been difficult to implement in practice beneficial ownership requirements in countries that already create repositiories of such information for law enforcement to access — as envisioned by the CTA.  The FAFT Best Practices Guidance represents an evaluation of historical efforts by the member countries’ approaches to the collection and maintenance of beneficial ownership information, followed by certain recommendations for going forward. Continue Reading FATF Issues Best Practices Guidance on Beneficial Ownership Information