Happy New Year! But while 2018 is still (just barely) with us, let’s take a look back.
2018 has been a very busy year in the world of money laundering and AML/BSA. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined this year.
The U.S. Department of Justice (“DOJ”) continues to pursue Venezuelan nationals through high-dollar and high-profile money laundering and foreign bribery charges. The latest development in this ongoing saga is the recent sentencing of the former national treasurer of Venezuela, Alejandro Andrade Cedeno (“Andrade”), by the Southern District of Florida to a decade in prison, after Andrade pleaded guilty last year to a single-count information charging him with conspiracy to commit money laundering (specifically, a conspiracy to violation 18 U.S.C. § 1957, the so-called “spending” money laundering provision, which requires transactions involving over $10,000 in criminal proceeds, but no specific intent) in an alleged sprawling bribery and money laundering scheme. His plea agreement (the “Plea”) was one of several connected proceedings unsealed on November 20, most notable of which is the grand jury indictment (the “Indictment”) of fugitive Raúl Gorrín Belisario (“Gorrín”), the owner of Venezuelan cable news network Globovision, erstwhile resident of Miami, and alleged architect of the money laundering conspiracy.
Although he retired to Florida after having served as the head of the Venezuelan treasury, Andrade did not begin his career in the world of high finance. Rather, his climb to power and wealth began when he used to serve as the bodyguard for the President of Venezuela, Hugo Chavez.
As we will discuss, there is more to come. Aside from telling a lurid tale of corruption rewarded through high-end bribes involving aircraft, real estate (widely acknowledged as a major vehicle for laundering) and thoroughbred horses, Andrade’s plea agreement contains cooperation language, and his counsel has stated publically that Andrade has been cooperating with the DOJ for some time. Notably, Andrade was charged only with a single count of Section 1957, which has a statutory maximum sentence of 10 years – exactly the sentence imposed on Andrade, whose advisory Federal Sentencing Guidelines range was presumably much, much higher. It is fair to assume that Andrade will be pursuing a second sentencing hearing at which his sentence could be reduced based on his cooperation with the government.
Andrade’s case is part of a steady stream of money laundering and bribery charges recently brought by the DOJ which relate to Venezuela, which is reeling from massive inflation and a near-existential economic crisis that is inflicting widespread suffering. His case also represents another instance of the DOJ’s increasing tactic of using the money laundering statutes to charge foreign officials who cannot be charged directly under the Foreign Corrupt Practices Act (“FCPA”).
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The Treasury Inspector General for Tax Administration, or TIGTA, issued last month a Report, entitled The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance, which sets forth a decidedly dim view of the utility and effectiveness of the current Bank Secrecy Act (“BSA”) compliance efforts by the Internal Revenue Service (“IRS”). The primary conclusions of the detailed Report are that (i) referrals by the IRS to the Financial Crimes Enforcement Network (“FinCEN”) for potential Title 31 penalty cases suffer lengthy delays and have little impact on BSA compliance; (ii) the IRS BSA Program spent approximately $97 million to assess approximately $39 million in penalties for Fiscal Years (FYs) 2014 to 2016; and (iii) although referrals regarding BSA violations were made to IRS Criminal Investigation (“IRS CI”), most investigations were declined and very few ultimately were accepted by the Department of Justice for prosecution.
Arguably, the most striking claim by the Report is that “Title 31 compliance reviews [by the IRS] have minimal impact on Bank Secrecy Act compliance because negligent violation penalties are not assessed.”
A primary take-away from the Report is that an examination program lacking actual enforcement power is, unsurprisingly, not very effective. The Report also highlights some potential problems which beset the IRS BSA Program, which include lack of staffing, lack of planning and coordination, and delay. Although the Report’s findings clearly suggest that what the IRS BSA Program really needs are resources and enhanced enforcement power, the repeated allusions in the Report to a certain purposelessness of the current BSA examination regime nonetheless might help fuel the current debate regarding possible AML/BSA reform, with an eye towards curbing regulatory burden.
The Report made five specific recommendations to the IRS for remedial steps. We will focus on four of those recommendations, and the findings upon which they rest:
On October 17, the U.S. Attorney for the Southern District of New York (“SDNY”) announced the arrest of a senior employee at the Financial Crimes Enforcement Network (“FinCEN”). That employee, Natalie Mayflower Sours Edwards, has been charged with unlawfully disclosing Suspicious Activity Reports
A recent decision out of the United States District Court for the Eastern District of Virginia adjudicating a seemingly straight-forward alleged fraud and money laundering scheme reminds us that money laundering charges still require the government to establish elements which can be difficult to prove, including, importantly, specific intent.
United States v. Millender involved an investment fraud scheme charged against a husband and wife and their associate. Terry and Brenda Millender were, respectively, the founder and pastor, and the “First Lady” of the Victorious Life Church (“VLC”) in Alexandria, Virginia. The evidence at trial established that Mr. Millender conceived of and founded Micro-Enterprise Management Group (“MEMG”), purportedly for the purpose of helping the poor in developing countries by making small, short-term loans to entrepreneurs who wished to start or expand existing businesses. Mrs. Millender was the co-founder, registered agent, and signatory of MEMG. To fund the enterprise, MEMG solicited “loans” from VLC congregants and other private lenders. MEMG promised its investors high rates of return through profits on the entrepreneur loans and assured them that the loans were securely backed by MEMG assets. Moreover, written materials soliciting investment represented that MEMG had a successful history of making micro-loans in Africa and had established relationships with on-going projects. Later, Mr. Milliner founded a second entity, Kingdom Commodities Unlimited (“KCU”), purportedly for the purpose of brokering Nigerian oil deals, and promising investors substantial returns on what they claimed were short term loans. The defendants solicited over $600,000 from investors from 2008 until 2015.
The Millender opinion reflects the complexity of the different prongs of the money laundering statutes, and their somewhat overlapping and competing requirements. The opinion is particularly noteworthy because of its procedural posture: despite jury verdicts finding guilt, the district court nonetheless found at least as to some counts that there was insufficient evidence as a matter of law of knowledge and specific intent.
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Superseding Indictment Alleges an International Web of Tax and Money Laundering Schemes, Facilitated by Professionals and Pierced by an Undercover AgentThe Department of Justice (“DOJ”) has secured its first conviction ever under the Foreign Account Tax Compliance Act, or FATCA, through the guilty plea of Adrian Baron, a former executive of Loyal Bank Ltd., a bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines.
FATCA, passed in 2010, generally requires that foreign financial institutions identify their U.S. customers and report information on the foreign assets held by their U.S. account holders, either directly or through a foreign entity, or be subject to withholding payments. FATCA has become an important tool in the government’s ability to collect information and pursue its enforcement campaign against U.S. taxpayers with undeclared offshore assets. Now, FATCA has demonstrated its utility in enforcing U.S. law against foreign bankers who allegedly may be complicit in attempting to assist U.S. taxpayers hide their assets.
Baron, a citizen of the U.K. and Saint Vincent and the Grenadines who was extradited from Hungary, had been charged in a very detailed Superseding Indictment with assisting an undercover law enforcement agent with attempting to hide the supposed proceeds of fraudulent stock schemes in foreign corporate bank accounts which the undercover agent could control but which could not be traced to him, and which he could use to pay future kickbacks to U.S. brokers involved in other supposed schemes. The Superseding Indictment also charges Loyal Bank itself; a now-insolvent broker-dealer and investment management company located in London, U.K., Beaufort Securities Ltd.; and six individuals, including Baron.
Because the primary goal of FATCA, which we describe in more detail herein, is to deter the direct or indirect use of foreign accounts to facilitate the commission of U.S. tax offenses, it also has a potentially strong and related role in deterring potential money laundering offenses, given the role of foreign shell companies in masking beneficial ownership. Indeed, Baron’s co-defendant, Arvinsingh Canaye, who previously worked as the general manager of Beaufort Management Services Ltd., an entity related to Beaufort Securities but located in Ebene, Mauritius, pleaded guilty on July 26, 2018 to a related charge of conspiring to launder money. This case also highlights once again the potentially pernicious role which professionals can play in facilitating criminal schemes.
As we have blogged, the United States Attorney’s Office for the Southern District of Florida is pursuing charges against eight individuals for allegedly conspiring to launder $1.2 billion embezzled from a Venezuelan state-owned oil company and other unlawfully-derived funds. On August 22, 2018, Matthias Krull, the first of those co-defendants, pled guilty for his role in the charged conspiracy. Krull, a German national and former high-ranking executive at Swiss bank Julius Baer who was based in Panama at the time of the alleged scheme, faces up to 10 years in prison according to the terms of the Plea Agreement but, due to his potential cooperation with authorities as reflected by paragraphs 10 to 12 of the Plea Agreement, may serve less. The conduct of Krull illustrates the potentially key role of professionals in elaborate money laundering schemes.
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New York State Encourages Banking for State-Licensed Medical Marijuana Businesses – Whereas a Maine Company Runs Into Trouble, Despite State Law Legalizing Medical MarijuanaTo state the obvious, growing and dispensing marijuana is still illegal under federal law. As a result, being involved in even a state-licensed marijuana business can be risky. Moreover, obtaining financial services for such a business is sometimes impossible, primarily due to the federal anti-money laundering (“AML”) obligations imposed upon financial institutions by the Bank Secrecy Act (as we have blogged).
This post discusses two recent developments related to state-licensed medical marijuana operations, which serve as contrasting bookends to the spectrum of potential risks and opportunities presented by such businesses. On the risk-end of the spectrum, we discuss the recent difficulties encountered by a Maine business, and how dubious the seeming safe harbor of state legalization of marijuana can be in some cases. On the opportunity-end of the spectrum, we discuss recent guidance issued by the New York Department of Financial Services, which has declared its support and encouragement of state-chartered banks and credit unions to offer banking services to medical marijuana related businesses licensed by New York State.
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The Financial Action Task Force (“FATF”) recently released a special report on professional money launderers (“PMLs”) who provide money laundering expertise and services to their crime-committing clients. The Report describes the functions and characteristics of a PML and the services they provide. Although the FATF has issued many reports on potential vulnerabilities in anti-money laundering efforts, this Report focuses on the affirmative threats posed by money laundering regimes.
The Report is primarily descriptive, and contains examples of enforcement actions involving PMLs across the globe. A non-public version of the Report, available to Members of the FATF and the FATF Global Network, sets forth practical recommendations for the detection, investigation, prosecution, and prevention of PML-related laundering, including “appropriate regulation,” law enforcement coordination, and international co-operation and information exchange. Presumably, the Report will provide additional fuel to efforts across the world to close perceived regulatory gaps involving the collection of beneficial ownership information, and the potential role of professionals, including lawyers, in assisting others to launder illicit funds.
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On July 24, 2018, the United States Attorney’s Office for the Southern District of Florida unsealed a criminal complaint (the “Complaint”) charging eight individuals with conspiracy to commit money laundering under 18 U.S.C. § 1956(h) and 1956(a)(2) and interstate and foreign travel in aid of racketeering enterprises under 18 U.S.C. § 1952 for their alleged involvement in a sprawling, highly sophisticated $1.2 billion international money laundering conspiracy. Among those charged were four Venezuelan nationals with assorted connections to Venezuelan public officials and the country’s state-owned oil company; a Columbian national and American citizen with ties to American financial firms; a Portuguese national and purported “professional money launderer”; a German national described by the government as a “high-level banker at a large Swiss bank”; and a Uruguayan national with ownership interest in at least one American bank known to the government to facilitate money laundering. The Complaint also identifies nine unnamed co-conspirators and implicates numerous unnamed American and international financial institutions.
The Complaint — the product of a joint investigation by the Department of Justice and Immigration and Customs Enforcement’s Homeland Security Investigations — sets forth allegations of conduct designed to embezzle $1.2 billion from a Venezuelan oil company and launder that money through fraudulent transactions involving the sale of false securities and high-end real estate and through fraudulent contractual relationships in the United States and Europe. The defendants are described as “sophisticated operators with respect to the international banking system [who] are aware of banks’ general due diligence and anti-money laundering practices, including know-your-customer (KYC) requirements.” The Complaint sets forth an elaborate tale which encompasses a litany of current “hot” topics in money laundering and on which we have blogged, including alleged corruption in the Venezuelan oil industry; moving the proceeds of official corruption through the international financial system; the potential laundering of foreign assets through high-end real estate in the United States, and the misuse of shell companies to hide the true beneficial owners.
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