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Second 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 the first blog post in this series, we discussed a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry.  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.

In this second 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.  

As we previously noted, all of these cases, although all unique, are also united in certain ways – particularly in regards to the need for institutions and professionals to perform sufficient due diligence regarding the conduct and source of funds of high-risk clients and customers.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Financial Institution Officers

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

Farewell to 2023, and welcome 2024.  As we do every year, let’s look back.

We highlight 10 of our most-read blog posts from 2023, which address many of the key issues we’ve examined during the past year: criminal money laundering enforcement; compliance risks with third-party fintech relationships; the scope of authority of bank regulators; sanctions…

A Huge Monetary Penalty for Sprawling Allegations – But Will Zhao Receive a Prison Sentence?

As the world now knows, Binance Holdings Limited, doing business as Binance.com (“Binance” or the “Company”), has entered into a plea agreement with the U.S. Department of Justice (“DOJ”).  

Binance is registered in the Cayman Islands and regarded as the world’s largest virtual currency exchange. It agreed to plead guilty to conspiring to willfully violating the Bank Secrecy Act (“BSA”) by failing to implement and maintain an effective anti-money laundering (“AML”) program; knowingly failing to register as a money services business (“MSB”); and willfully causing violations of U.S. economic sanctions issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). Despite the plea agreement, Binance will continue to operate.

Changpeng Zhao, also known as “CZ,” also pleaded guilty to violating the BSA by failing to implement and maintain an effective AML program. Zhao is Binance’s primary founder, majority owner, and – until now – CEO. As part of his plea agreement, Zhao has stepped down as the CEO, although he apparently will keep his shares in Binance.

As part of its plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total criminal penalty of $4,316,126,163. Binance also entered into related civil consent orders with the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Office of Foreign Assets Controls (“OFAC”). Zhao also entered into a consent order with the CFTC.

The allegations are vast and detailed, and much digital ink already has been spilled regarding this matter. Our discussion therefore will be relatively high-level. Distilled, the government alleges that Binance – under the direction of Zhao – tried to hide the fact that it operated in the U.S., purposefully avoided any meaningful AML compliance, and consequently laundered many millions of dollars’ worth of cryptocurrency involving extremely serious criminal conduct, including terrorism, child pornography, and U.S. sanctions evasion.

As for Zhao, and as we will discuss, whether he will go to prison – and if so, for how long – is an open and very interesting question. His sentencing currently is scheduled for February 23, 2024.

Continue Reading  Binance Settles Criminal and Civil AML and Sanctions Enforcement Actions for Multiple Billions – While its Founder, Owner and Former CEO Zhao Pleads Guilty to Single AML Crime

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

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?