Note to Government Personnel: Don’t Disclose SARs

This week, major developments unfolded in the cases against two former federal government employees for their respective roles in disclosing Suspicious Activity Reports (“SARs”) in violation of the Bank Secrecy Act (“BSA”).

Historically, prosecutions pertaining to improper SAR disclosures have been supremely rare, so the fact that two court hearings involving this issue occurred in a single week is particularly notable. Both involve defendants allegedly acting on their own perceived sense of duty – perceptions which ran afoul of the law.

First, Natalie Mayflower Sours Edwards, a former senior advisor at the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), pleaded guilty to one felony count of conspiring to unlawfully disclose SARs related to Paul Manafort, Richard Gates, Maria Butina, Prevezon Alexander, and the Russian Embassy to a reporter. Second, John C. Fry, a former employee of the Internal Revenue Service (“IRS”), was sentenced to five years of supervised probation and ordered to pay a $5,000 fine after similarly pleading guilty to his role in disclosing SARs to embattled attorney Michael Avenatti that related to likewise-embattled attorney Michael Cohen. Both prosecutions underscore the seriousness with which federal authorities view such disclosures. Likewise, they reflect that potentially subjective good intentions – of course – still don’t excuse violations of the carefully-crafted prohibitions in the BSA against the disclosure of SARs.

Continue Reading Key Developments in the Prosecutions for Leaks by Government Personnel of SARs Related to Michael Cohen, Paul Manafort, Richard Gates, and Others

Happy New Year! And, happy birthday to Money Laundering Watch, which is entering its fourth year.

Let’s look back.  2019 has been yet another busy year in the world of money laundering and BSA/AML. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined during the past year — massive bank scandals; beneficial ownership; potential AML reform; virtual currency; cannabis and financial institutions; counter terrorism financing; money laundering prosecutions; and broad policy and social questions implicated by AML concerns.

We want to thank our many readers around the world who continue to make this blog such a success. The feedback we receive from financial industry professionals, compliance officers, in-house and external lawyers, BSA/AML consultants, government personnel, journalists, and others interested in this field is invaluable, and we hope you will continue to share your perspectives with us.  We pride ourselves on providing in-depth discussions of the important developments in this ever-evolving area.

We also would like to thank the other platforms that host our blog: Digital Currency & Ledger Defense Coalition, Money Laundering Bulletin, and Federal Tax Crimes.

We look forward to continuing to keep you informed in 2020.  If you would like to subscribe to Money Laundering Watch, please click here. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

AMA Details Components of a Strong AML/BSA Program for the Gaming Industry

Earlier this month, the American Gaming Association (“AGA”) released an updated Best Practices for Anti-Money Laundering (“AML”) Compliance (“Best Practices Guidance”) reflecting a heightened focus on risk assessment as well as Know Your Customer/Customer Due Diligence measures for the gaming industry.  This update amends the industry’s first set of comprehensive best practices for AML compliance, issued in 2014.  At the time, the best practices were well-received by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  These updated Best Practices have drawn from recent FinCEN guidance and enforcement actions, the Treasury Department’s National Money Laundering Risk Assessment, and the Office of Foreign Assets Control’s (“OFAC”) updated compliance guidelines and provide detailed guidance regarding how the industry can continue to be “a leader in compliance.”

Continue Reading AMA Updates AML Best Practices for AML Compliance

Court Rejects Attempt by Halkbank to Enter “Special Appearance” Contesting Jurisdiction

Turkish state-owned bank Halkbank’s efforts to avoid appearing in U.S. federal court for arraignment were squashed recently in a twenty-seven-page opinion issued by the Honorable Richard M. Berman of the U.S. District Court in the Southern District of New York. The Court made clear that for a foreign entity to challenge personal jurisdiction in a criminal case, it must first accept service of the indictment against it, appear in court, and enter a plea.  This outcome differs from civil cases, in which defendants challenging personal jurisdiction can and in fact must enter a “special appearance” challenging (only) personal jurisdiction, lest they be deemed as potentially having waived the issue and accepted the jurisdiction of the court.

As we previously blogged, on October 15, 2019, the U.S. Attorney for the Southern District of New York charged Halkbank with money laundering, bank fraud, and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions regarding Iran. This indictment follows the 2018 conviction of its former Deputy General Manager for International Banking after a lengthy jury trial that also implicated other senior-level officials at Halkbank. The Court then issued a summons directing Halkbank to appear for arraignment on October 22, 2019, and served the summons on the law firm that had represented Halkbank in connection with the DOJ investigation of the bank.

As we will discuss, the Court’s opinion is strongly worded, and sends a definite message to foreign defendants with limited nexus to the U.S. that they still will have to appear in U.S. court to litigate jurisdiction and their claimed lack of ties to the U.S.  As we have blogged, the Department of Justice is charging foreign defendants with increasing frequency based on alleged misconduct occurring entirely outside of the U.S. — often predicating jurisdiction upon incidental financial transactions flowing through New York, often through correspondent bank accounts.  Further, the consequences of the ruling against Halkbank might be felt more keenly by some individual defendants, who — unlike entities — are subject to pretrial detention once they physically appear in the U.S. Continue Reading Federal Court Makes Clear That International Financial Institution Must Appear for Arraignment in Criminal Action

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.