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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

Couple Appears to Be Cooperating with DOJ

In February 2022, we blogged on the seizure of a record $3.6 billion in stolen Bitcoin (“BTC”) and an accompanying criminal complaint, charging husband and wife Ilya “Dutch” Lichtenstein and Heather “Razzlekhan” Morgan with conspiracy to commit money laundering and conspiracy to defraud the United States.  Last week, the couple pleaded guilty, pursuant to plea agreements with the government, with sentencing to follow. 

As we discuss below, both of their plea agreements contemplate attempting to reduce their sentences via cooperation with the Department of Justice (“DOJ”).  As we also discuss, this case presents a cautionary tale for financial institutions and the need to not “tip off,” unwittingly or otherwise, the recipients of grand jury subpoenas.…

Continue Reading  Crypto Couple Plead Guilty to Money Laundering Conspiracy

Notice Also Stresses New BSA Whistleblower Provisions

On July 26, the Department of Commerce, the Department of the Treasury, and the Department of Justice released a joint compliance notice (the “Compliance Notice”) updating and summarizing each agency’s position regarding the voluntary self-disclosure by businesses of potential violations of sanctions, export controls, and other national security laws.

Asserting that voluntary self-disclosure can provide many benefits to a reporting business – potentially providing for a non-prosecution agreement or a 50 percent decrease in “base penalties” – the Compliance Notice provides each entity’s current position as to voluntary self-disclosure.  The Compliance Notice also references the still-evolving whistleblower program under the Bank Secrecy Act (“BSA”), which now pertains to not only potential BSA violations, but also potential violations of sanctions law.…

Continue Reading  “Tri-Seal” Compliance Notice: U.S. Authorities Release Joint Guidance on Voluntary Self-Disclosure of Potential Sanctions and Export Control Violations

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Finance Monitor podcast series, A Look at the Treasury Department’s April 2023 Report on Decentralized Finance or “DeFi.” 

In this episode, we follow up and expand upon our blog post regarding the U.S. Department of the Treasury’s April 6, 2023 report examining vulnerabilities…

In January, we blogged on the Southern District of New York sentencing of Danske Bank to three years of probation and a forfeiture of $2.059 billion. As we noted at the time, the bank was charged with bank fraud, rather than violation of the Bank Secrecy Act (“BSA”), even though the “heart of the criminal case” was Danske Bank’s concealment (now acknowledged via plea) of its own AML failures in its dealings with three U.S. banks, thus impacting their own compliance with the BSA.

This was, of course, not the first time that the Department of Justice (“DOJ”) has used bank fraud charges instead of proceeding under the BSA in dealing with a foreign bank.  Indeed, the pending case against Turkish bank Halkbank involves in part bank fraud charges.

But DOJ may be forced to reconsider tactics soon: The Supreme Court’s decision earlier this month in Ciminelli v. United States, et al., which addressed and ultimately voided the Second Circuit’s longstanding “right to control” theory of fraud as a basis for liability under the federal wire fraud statute, could have ramifications for DOJ’s approach using the similarly structured bank fraud statute.…

Continue Reading  Will Ciminelli’s Impact on Wire Fraud Cases Ripple Out to Bank Fraud?

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

Enforcement Trends, Crypto, Regulatory Developments — and More

I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual). 

I am also really fortunate to be working with co-chair Elizabeth (Liz) Boison…

But Court Gives Turkish Bank Another Chance to Avoid Charges Under Common-Law Sovereign Immunity

On April 19, 2023, the United States Supreme Court issued a highly-anticipated decision in the case of Turkiye Halk Bankasi A.S., aka Halkbank v. United States.  The court ruled that Turkish state-owned Halkbank remained subject to criminal prosecution in U.S. courts under the Foreign Sovereign Immunities Act (“FSIA”) for fraud, money laundering and sanctions-related charges related to the bank’s alleged participation in a multi-billion dollar scheme to evade U.S. sanctions involving Iran.  Specifically, in a seven to two decision, the Court held that the FSIA does not provide foreign states and their instrumentalities with immunity from U.S. criminal proceedings.  However, the Court remanded the case back to the Court of Appeals for the Second Circuit to determine whether Halkbank still can claim sovereign immunity under common law principles.  The Court’s opinion clearly extends beyond just financial institutions owned by foreign governments, and instead implicates any number of foreign state-owned entities.…

Continue Reading  Supreme Court Rules Halkbank is Not Immune from Prosecution Under FSIA

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