The District of Connecticut recently vacated a defendant’s convictions at trial for violating the Foreign Corrupt Practices Act (“FCPA”) — but declined to similarly vacate his related money laundering convictions.  This case provides another example of how the money laundering statutes can be a particularly powerful and flexible tool for federal prosecutors, and how they can yield convictions even if the underlying offenses do not (and perhaps are not even charged).

The case involves Lawrence Hoskins, a British citizen who had been employed by Alstom UK Limited but worked primarily for a French subsidiary of Alstom, the parent company.  Hoskins allegedly participated in a corruption scheme involving a project in Indonesia.  The bidding process for the project also involved Alstom Power Inc. (“API”), another subsidiary of Alstom that is based in Windsor, Connecticut.  According to the government, Alstom hired two consultants, Sharafi and Aulia, who bribed Indonesian officials to secure the contract for the project.

Much ink has been spilled by the media and legal commentators regarding the district court’s decision (which the government is appealing) to vacate the defendant’s FCPA convictions, on the grounds that he did not qualify as an “agent” of API for the purposes of the FCPA statute.  We will not focus on that issue here. Rather,  we of course will focus on the fact that the defendant’s convictions for money laundering, and conspiring to launder money, nonetheless survived.  Importantly for the money laundering charges, the district court did not find that there in fact was no underlying corruption scheme.  Rather, the court found that the defendant could not be convicted under the FCPA for allegedly participating in this scheme.  Thus, there was still a “specified unlawful activity,” or SUA, which produced “proceeds” to generate money laundering transactions.

The case also reminds us that, as we have blogged, it is relatively easy for the U.S. government to prosecute foreign individuals for conduct occurring almost entirely overseas, because the nexus between the offense conduct and the U.S. does not need to be robust for U.S. jurisdiction to exist.
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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

The Hagia Sophia Church in Istanbul, Turkey

Indictment Alleges that Bank and its Officers Used Front Companies to Evade Prohibitions on Iran’s Access to the U.S. Financial System

The U.S. Attorney for the Southern District of New York has charged Turkish state-owned bank Halkbank (formally known as Türkiye Halk Bankasi A.S.) 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 on Iran. As alleged in the six-count indictment, senior officials at Halkbank designed and executed the Bank’s systemic and illicit movement of Iranian oil revenue moving through the Bank to give Iran access to the funds. This case is an extension of prosecutions initiated in late 2017 against nine individual defendants in the scheme, including bank employees and the former Turkish Minister of the Economy.
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A Modest Proposal

The European Union (“EU”) recently has grappled with a series of massive money laundering scandals and strategized about how to more effectively combat international money laundering and corruption. Generally, the EU has continued to issue a series of reports identifying systemic vulnerabilities to money laundering and suggest process-based recommendations for how to address future threats. These recommendations typically mirror the same range of process-based improvements set forth in earlier reports: from enhancing cross-border information sharing to increasing resources for adequate implementation and enforcement of anti-money laundering (“AML”) and counter financing of terrorism (“CFT”) policies implemented by EU member states and financial institutions. Noticeably absent from these recommendations is one of the most powerful deterrents available – and a distinctly American approach – prosecuting the bad actors.

Although many of the recent EU money laundering scandals rest on conduct occurring years ago, the recurring waves of scandals strongly suggest that the EU – like the U.S. – has a serious problem with money laundering that is not going away any time soon. They likewise indicate that the EU’s financial system will continue to be abused by bad actors who appear to be unfazed by any potential consequences. The EU therefore should consider emulating – at least in part – the American approach of more aggressively investigating and prosecuting individuals, including the corrupt politicians, kleptocrats, drug dealers, fraudsters, and other criminals from around the globe who are laundering sometimes massive amounts of funds through European financial institutions.

Very recently, in a different but related context, the Chairman of the U.S. Securities and Exchange Commission (“SEC”), Jay Clayton, delivered a speech during which he bemoaned his perception that his foreign counterparts failed to rigorously enforce their own anti-corruption laws. Specifically, Chairman Clayton asserted the following:

Corruption is corrosive. We see examples where corruption leads to poverty, exploitation and conflict. Yet, we must face the fact that, in many areas of the world, our work may not be having the desired effect. Why? In significant part, because many other countries, including those that have long had similar offshore anti-corruption laws on their books, do not enforce those laws.

Granted, the above comments pertained specifically to enforcement of the Foreign Corrupt Practices Act (“FCPA”), and arguably the comments were in furtherance of a pro-American message regarding international competition between countries. The comments nonetheless exemplifies a certain American perception: the U.S. aggressively prosecutes individuals, whereas Europe does not. Obviously, this issue entails a lot of cultural baggage on both sides.

Although there are viable criticisms of the U.S. approach (both in theory and in practice), and although the EU’s strong focus on process and institutions’ AML and CFT systems is critical, any government’s enforcement “tool bag” must include targeted prosecutions of the people responsible for the laundering violations. Otherwise, few bad actors around the world will think twice about continuing to turn to EU institutions for their laundering needs. This blog post explores this idea.
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Today we are very pleased to welcome guest bloggers Gretta Fenner and Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”). The Basel Institute recently issued its Basel AML Index for 2019. As they explain below, this data-rich and fascinating Index, on which we blogged last year, is one of several online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  The Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Gretta Fenner is the Managing Director of the Basel Institute, where she also holds the position of Director of the Institute’s International Centre for Asset Recovery. She is a political scientist by training and holds bachelor’s and master’s degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science (Sciences Po), France. She also holds an MBA from the Curtin University Graduate School of Business, Australia.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post takes the form of a Q & A session, in which Ms. Fenner and Dr. Boguslavska respond to several questions posed by Money Laundering Watch about the Basel AML Index 2019. We hope you enjoy this discussion of global money laundering risks — which addresses AML compliance vs. actual effectiveness, kleptocracy, transparency, de-risking, and more. –Peter Hardy
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Last week, a grand jury in the Southern District of Florida indicted two former Venezuelan officials, charging them with seven counts of money laundering and one count of money-laundering conspiracy. The charges relate to bribes and kickbacks provided to the officials who headed the country’s energy department and state-owned electricity company, Corporacion Electrica Nacional, S.A. (“Corpoelec”). The former officials allegedly received cash payments and received wire transfers, including from a bank in the Southern District of Florida.

As we have blogged about here, here, here, the U.S. Department of Justice (“DOJ”) has been pursuing Venezuelan nationals through high-dollar, high profile money laundering and foreign bribery charges. We also have previously discussed how the DOJ has been utlizing the money laundering statutes as a way to accomplish what the Foreign Corrupt Practices Act (“FCPA”) cannot accomplish directly – the bringing of charges against a foreign official.
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Proposed Legislation Creates Rewards Program for Whistleblowers of Foreign Government Corruption

Third Post in a Three-Post Series

Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.

In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. The first two proposed bills are discussed here and here.

In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.
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On April 2nd, the New Directions in Anti-Kleptocracy Forum, organized by the Harriman Institute at Columbia University, will identify emerging issue areas relating to kleptocracy. I am excited to be serving as a co-panelist on the forum’s Art Market as a Node of Kleptocracy panel, which will discuss beneficial ownership and the luxury

In recognition of the significance South America has played in recent FCPA enforcement, yesterday the FBI announced that it will establish a team of agents in Miami focused on FCPA cases in Miami and South America. Leslie Backschies, the Chief of the FBI’s international corruption unit, told reporters on March 4, 2019, that the new

Former Bankers Allegedly Concealed “Master of Kickbacks” from Internal Compliance Department

Sculpture on top of Credit Suisse headquarters in Zürich, Switzerland

A detailed indictment unsealed on January 3 in the Eastern District of New York alleges that former Credit Suisse bankers, a Lebanese businessman, and former top officials in Mozambique, including the former Minister of Finance, participated in a $2 billion corruption, fraud and money laundering scheme (“the Indictment”).

The defendants, including three former members of Credit Suisse’s Global Financing Group, face charges of conspiracy to commit money laundering, wire fraud, securities fraud, and Foreign Corrupt Practices Act (“FCPA”) violations. As we will discuss, the former bankers are alleged to have thwarted Credit Suisse’s compliance department by circumventing internal controls and hiding information in order to convince the bank to fund the illicit investment projects at issue.

The Indictment represents another example of DOJ using the money laundering statutes to enforce the FCPA, as we have blogged repeatedly: defendant Manuel Chang, the former Minister of Finance of Mozambique, has been charged with conspiracy to launder the proceeds of FCPA violations, but not with violating the FCPA itself – because the FCPA provides that it cannot be used to directly charge foreign officials themselves. The Indictment is also another example of the DOJ using the money laundering and FCPA statutes to prosecute conduct, however reprehensible if proven, committed entirely by non-U.S. citizens operating in foreign countries and involving alleged corruption by foreign officials, with an arguably incidental connection to the U.S. Although the Indictment alleges that certain illicit loans were sold in part to investors located in the U.S., the Indictment again recites now-familiar allegations that the illegal monetary transactions at issue, including bribe and kickback payments, in part flowed through U.S. correspondent bank accounts as the money traveled from one foreign country to another.

Ultimately, the alleged scheme highlights the bribery, kickback, and money laundering risks that financial institutions must consider when vetting and funding international projects. And, it starkly illustrates that internal controls may not always be sufficient to protect institutions from fraud when internal bad actors conspire to circumvent the processes.
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