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Third of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

As we have blogged, the Department of Justice (“DOJ”) has been busy lately in regards to money laundering and Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) prosecutions.

In our first blog post in this three-part series, we discussed a significant prosecution of an individual, and two related corporate non-prosecution agreements involving the gaming industry.  In our second blog post, we discussed two unusual prosecutions involving, respectively, an executive of a bank and an alleged AML specialist working with small financial institutions.

In our final post of this series, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the massive fraud and money laundering scheme perpetrated by his cryptocurrency client.  Specifically, on January 25, lawyer Mark Scott (“Scott”) was sentenced to 10 years in prison for allegedly laundering approximately $400 million in connection with a fraudulent cryptocurrency scheme known as “OneCoin.”  Scott was a former partner at the international law firm of Locke Lord.  Although the alleged facts and circumstances of this case are both extreme and lurid, it nonetheless reminds lawyers of the need to be careful about getting too involved in the businesses of their clients, particularly in the presence of multiple red flags.

Continue Reading  Former Big Law Lawyer Sentenced to 10 Years in Prison for Allegedly Laundering $400 Million in Crypto Client Funds

First of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”). 

In this first blog post, we will discuss a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry. 

In the next related post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

Although these cases are all unique and interesting in their own way, they are also all united in certain ways – particularly in regards to the need for institutions to perform sufficient due diligence regarding the conduct and source of funds of high- or higher-risk customers, and the related need for institutions to ensure that their own employees are not undermining the institutions’ AML compliance programs.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Casinos

Earlier this month, John Can Unsalan, the president of a steel-making company with ties to Russian oligarchs, pled guilty to one count of conspiracy to commit money laundering, based on financial transactions committed with the alleged intent to promote U.S. sanctions violations.

Unsalan’s company, known as Metalhouse LLC, was formed in Florida in 2014. According to the plea agreement, between 2018 and 2021 Unsalan facilitated transactions through Metalhouse with companies controlled by Sergey Kurchenko, a Russian oligarch who has been on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List since 2015 (Kurchenko was initially put on the SDN List for allegedly misappropriating state funds belonging to Ukraine). It is generally illegal for U.S. persons to directly or indirectly conduct business with individuals or entities on the SDN List – although the U.S. government is able to grant exceptions on a case-by-case basis.

According to the factual basis supporting the plea agreement, Unsalan knowingly participated in a scheme with Kurchenko to evade sanctions through Metalhouse transactions, which totaled around $157 million over the relevant three-year period. The scheme involved two shell companies – one formed in Hong Kong and one in Cyprus – controlled by Kurchenko. Unsalan and his associate at Metalhouse met with Kurchenko in person and subsequently contracted with Kurchenko’s companies to order steel and other raw materials and to pay for the materials using offshore bank accounts. Ultimately, Unsalan and Metalhouse received a total of over $160 million from reselling those materials to third parties – and although most of that money went to Kurchenko to pay for additional raw materials, the factual basis supporting the plea agreement alleged that Unsalan kept millions in profits for his own personal use.

Continue Reading  Steel Company President with Ties to Russian Oligarch Pleads Guilty to Money Laundering Conspiracy Involving Alleged Sanctions Violations

Complex Civil and Criminal Cases Converge

On August 17, 2023, Judge Robert Pitman of the federal district court for the Western District of Texas issued an Order granting summary judgment for the U.S. Treasury Department (“Treasury”) in a lawsuit brought by six individuals, and denying the cross-motion for summary judgment filed by the individuals. The lawsuit alleged that Treasury overstepped its authority by imposing sanctions on the coin mixing service Tornado Cash.  Deciding for the government, Judge Pitman determined that Tornado Cash is a “person” that may be designated by OFAC sanctions.  Specifically, the regulatory definition of “person” includes an “association,” and Tornado Cash is an “association” within its ordinary meaning.

Shortly thereafter, on August 23, 2023, the U.S. Department of Justice (“DOJ”) unsealed an indictment returned in the Southern District of New York against the alleged developers of Tornado Cash, Roman Storm (“Storm”), a naturalized citizen residing in the U.S., and Roman Semenov (“Semenov”), a Russian citizen.  The indictment charges them with conspiring to commit money laundering, operate an unlicensed money transmitting business, and commit sanctions violations involving the International Emergency Economic Powers Act, or IEEPA.  When the indictment was unsealed, Storm was arrested and then released pending trial.  Treasury simultaneously sanctioned Semenov, who remains outside of the U.S., adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List.

These are very complicated cases raising complicated issues.  They are separate but obviously related.  As we will discuss, the factual and legal issues tend to blend together, and how a party characterizes an issue says a lot about their desired outcome:  has the government taken incoherent action against a technology, or has it pursued a group of people attempting to hide behind tech?

Continue Reading  All Roads Lead to Roman: Alleged Tornado Cash Co-Founders Roman Storm Arrested and Roman Semenov Sanctioned, Days After Treasury Defeats Lawsuit Challenging OFAC

Opinion Offers Narrow View of “Safe Harbor” Provision for Defense Attorneys Accepting Tainted Funds from Clients

Second in Series of Two Blog Posts Pertaining to Attorneys Convicted of Money Laundering

On April 25, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of Baltimore defense attorney Kenneth Ravenell (“Ravenell”) for money laundering conspiracy, in violation of 18 U.S.C. § 1956(h).  Ravenell had proceeded to trial and had been acquitted of six charges, including conspiracy to distribute narcotics.  However, he was convicted on the single count of money laundering conspiracy, based on his alleged assistance to two drug dealer clients, and received a sentence of 57 months of imprisonment.

The Ravenell opinion (“Opinion”) involves a splintered set of findings across the three-judge panel.  It involves findings on important technical issues pertaining to the statute of limitations and the use of the conscious avoidance/willful blindness theory of prosecution, which is often critical in cases involving third-party professionals such as lawyers, accountants, and real estate agents.  But, more importantly, it involves a discussion of when defense attorneys may accept illegally-obtained proceeds from their clients as payment for legal representation, and if such funds ever may be provided through third parties.  As we will discuss, the Fourth Circuit interpreted very narrowly a “safe harbor” provision under 18 U.S.C. § 1957(f) for defense attorneys – and did so in a case in which the evidence, if accepted, made clear that the safe harbor did not apply.  Stated otherwise, bad facts may have resulted in inappropriately broad language applicable to other cases.

As we just blogged, the U.S. Attorney’s Office for the Southern District of New York also announced on April 25 that Robert Wise (“Wise”), a New York attorney, had pled guilty to a single count of conspiring to commit money laundering, in violation of 18 U.S.C. § 371.  This case arose out of the indictment of Vladimir Voronchenko, who has been charged in connection with a scheme to make payments to maintain multiple properties in New York and Florida owned by his friend and associate, sanctioned Russian oligarch Viktor Vekselberg.  

These two cases are very different.  But they both illustrate how attorneys – either business attorneys, or criminal defense attorneys – can get caught up in the problems of their own clients, particularly given the ability of the government to pursue a theory of willful blindness.

Continue Reading  Fourth Circuit Upholds Money Laundering Conspiracy Conviction of Baltimore Defense Attorney

First of Two Blog Posts in a Series Pertaining to Attorneys Convicted of Money Laundering

In February, we blogged on the indictment of Vladimir Voronchenko (“Voronchenko”) in the Southern District of New York (“SDNY”), who was charged in connection with a scheme to make payments to maintain multiple properties in New York and Florida owned by his friend and associate, sanctioned Russian oligarch Viktor Vekselberg (“Vekselberg”).  The February indictment also contained allegations that Voronchenko had retained a then unnamed U.S.-based attorney to help carry out those alleged money laundering activities.

On April 25, the U.S. Attorney’s Office for the SDNY announced that Robert Wise (“Wise”), a New York attorney, had pled guilty to a single count of conspiring to commit money laundering, in violation of 18 U.S.C. § 371.  The substantive offense that was the object of the conspiracy was 18 U.S.C. § 1956(a)(2)(A), which criminalizes the act of transferring monetary instruments or funds into or outside of the United States with the intent to promote the carrying on of specified unlawful activity.  Interestingly, the superseding information charges Wise with violating the general criminal conspiracy statute, Section 371 (which carries a statutory maximum sentence of “only” five years), rather than violating the specific money laundering conspiracy provision, 18 U.S.C. § 1956(h) (which carries a statutory maximum sentence of 20 years).  It is unclear whether Wise is cooperating with investigators.

In our next post, we will discuss the Fourth Circuit’s affirmation of attorney Kenneth Ravenell’s conviction at trial for money laundering conspiracy, in violation of Section 1956(h).

Continue Reading  New York Attorney Pleads Guilty to Conspiring to Commit Money Laundering in Connection with Indicted Russian Oligarch

On March 15, 2023, the United States Attorney for the Southern District of New York unsealed a twelve-count Indictment that charges Ho Wan Kwok (“Kwok”) and his financier, Kin Ming Je (“Je”), with various sprawling schemes – including one involving cryptocurrency – in which the defendants solicited investments in several entities and other programs via fraudulent misrepresentations to hundreds of thousands of Kwok’s online followers. Moreover, the Indictment alleges that Kwok and Je misappropriated hundreds of millions of dollars in fraudulently obtained funds during the conspiracy.

Specifically, the Indictment charges Kwok with conspiracy to commit wire fraud, securities fraud, bank fraud, and money laundering. He was also charged with the underlying acts of wire fraud, securities fraud, international “promotional” money laundering (in violation of 18 U.S.C. § 1956(a)(2)(A)), international “concealment” money laundering (in violation of 18 U.S.C. § 1956(a)(2)(B)(i)), and “spending” money laundering (in violation of 18 U.S.C. § 1957), with the last charge resting on a single $100 million wire transfer. Je was also charged with these crimes, in addition to obstruction of justice.

In regards to the money laundering schemes, the Indictment alleges that the defendants attempted to conceal the source of their illicit proceeds by transferring “money into and through more than approximately 500 accounts held in the names of at least 80 different entities or individuals[,]” through bank accounts in the U.S., the Bahamas, and the United Arab Emirates (“UAE”).  Further, the Indictment alleges that the defendants used over $300 million of fraudulent proceeds for the benefit of themselves and their family members.  The Indictment therefore contains a detailed notice of forfeiture, listing numerous assets that allegedly constituted or were derived from proceeds traceable to the charged offenses.  These assets include numerous bank account balances collectively amounting to hundreds of millions of dollars, as well as a luxurious mansion in New Jersey, several extremely high-end automobiles, and a 46-meter “superyacht.”  The government’s press release includes photos of some of these assets, included in the visual above.

Continue Reading  Indictment Alleges Investor Fraud of Over $1 Billion – And Elaborate Money Laundering and Lavish Spending

The U.S. Department of Justice (“DOJ”) announced on March 15, 2023 that in a coordinated effort between U.S. Federal Bureau of Investigations, Europol, and German police, the darknet cryptocurrency mixing service ChipMixer has been shut down.  The operation involved the U.S. government’s court-authorized seizure of two domains that directed users to the ChipMixer service and one Github account.  In addition, German authorities seized $46 million in cryptocurrency, as well as ChipMixer’s back-end servers used to run the site. 

Further, the U.S. Attorney’s Office for the Eastern District of Pennsylvania filed a criminal complaint against ChipMixer’s suspected founder, Vietnamese national, Minh Quoc Nguyen (“Nguyen”), alleging that Nguyen openly flouted financial regulations and instructed users how to use ChipMixer to evade reporting requirements while obscuring his true name under a series of stolen and fictitious identities. The complaint also alleges that ChipMixer, described as a popular platform for laundering illicit funds gained from unlawful activities like drug trafficking, ransomware attacks (according to Europol, ransomware actors Zeppelin, SunCrypt, Mamba, Dharma, Lockbit have used ChipMixer), and payment card fraud, was used to launder more than $3 billion in cryptocurrency since 2017.  Nguyen has been charged with money laundering, operating an unlicensed money transmitting business, and identity theft in connection with the operation of ChipMixer. 

Continue Reading  Darkweb Cryptocurrency Mixer ChipMixer Shut Down for Allegedly Laundering $3 Billion Worth of Crypto

Rodeo Drive

Indictment Alleges Use of Shell Companies, Nominees, Foreign Bank Accounts and Real Estate

On December 7, 2022, the United States Attorney’s Office for the Eastern District of New York (“DOJ”) unsealed a seven-count indictment against Andrii Derkach.  In the corresponding press release, Derkach is described as a “Kremlin-backed Ukrainian politician and oligarch” who attempted to “influence the 2020 U.S. Presidential election on behalf of the Russian Intelligence Services.”  Derkach was charged with conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”), bank fraud conspiracy, money laundering conspiracy, and four counts of money laundering.  His wife, Oksana Terekhova, is alleged to be a co-conspirator and is referred to as “Co-Conspirator 1” in the indictment.  The investigation was “coordinated through the Justice Department’s Task Force KleptoCapture, an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export controls, and economic countermeasures that the United States . . . has imposed in response to Russia’s unprovoked military invasion of Ukraine.”

In connection with the indictment, the DOJ is requesting both criminal forfeiture of two Beverly Hills condominiums at issue in the indictment, as well as civil forfeiture in a parallel proceeding.  If successful, the DOJ would seize both the condominiums and proceeds in an investment and banking account held by Derkach’s alleged business entity.  Derkach remains at large.

This appears to be another in the long line of actions and sanctions brought against alleged Russian oligarchs and Russian agents, especially those with close connections to Russian Intelligence Services, in response to Russia’s invasion of Ukraine (of which we have blogged about here and here).  As long as Russia remains active in Ukraine, it is likely that federal law enforcement will continue to focus on the actions and assets of high-profile Russian oligarchs and agents in the U.S.  Financial institutions should continue to remain vigilant, as we have blogged about here, in rooting out attempts to evade sanctions.

Continue Reading  Russian Agent’s Beverly Hills Condominiums Subject to Forfeiture Based on Alleged Violations of Bank Fraud, Money Laundering, and U.S. Sanctions Statutes

On Friday, the Department of Justice (“DOJ”) announced two developments:  First, the release of a 66-page report, The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets (the “Report”), issued under President Biden’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets.  Second, the establishment of the Digital Asset Coordinator (“DAC”) Network, a nationwide group of prosecutors designated as legal and technical experts in digital asset cases.

We focus here on the regulatory and legislative recommendations of the Report, which seek to expand significantly the ability of the DOJ to investigate and prosecute offenses involving digital assets. The recommendations include increasing criminal penalties, extending statutes of limitations, expanding venue provisions, enhancing the government’s forfeiture powers, and prohibiting virtual asset service providers from “tipping off” the subjects of grand jury subpoenas received by the providers.  The recommendations also include making clear that the federal criminal law against maintaining an unlicensed money transmitter applies to peer-to-peer platforms that purportedly do not take custody or assume control over the digital asset being exchanged; ensuring that the Financial Crimes Enforcement Network (“FinCEN”) issues a final rule expanding the application of the Travel Rule under the Bank Secrecy Act (“BSA”) to digital asset transfers; and expanding or arguably clarifying that the BSA applies to platforms dealing in non-fungible tokens, or NFTs, including online auction houses and digital art galleries.

Continue Reading  DOJ Issues Report on Digital Asset Law Enforcement Seeking Expansive New Powers, and Launches New Crypto Prosecutor Network