Department of Justice (DOJ)

Enforcement Trends, Gaming, Crypto — and More

I am very pleased to co-chair again the Practicing Law Institute’s 2024 Anti-Money Laundering Conference on May 23, 2024, starting at 9 a.m. in New York City (the event also will be virtual). 

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

Last week, the United States Attorney’s Office for the Southern District of New York unsealed an indictment against global cryptocurrency exchange KuCoin and two of its founders, Chun Gan and Ke Tang, for allegedly conspiring to operate an unlicensed money transmitting business and conspiring to violate the Bank Secrecy Act (“BSA”) by willfully failing to maintain an adequate anti-money laundering (“AML”) program.  KuCoin also was charged with operating an unlicensed money transmitting business and a substantive violation of the BSA. Further, the Commodity Futures Trading Commission (the “CFTC”) filed a complaint on the same day in the United States District Court for the Southern District of New York alleging that KuCoin violated the Commodity Exchange Act (the “CEA”) and related regulations.

The indictment alleges that KuCoin failed to design and implement procedures to prevent it from being used for money laundering and terrorist financing, failed to maintain reasonable procedures for verifying the identity of customers, and failed to file any Suspicious Activity Reports.  When distilled, the indictment alleges that KuCoin had no real BSA/AML compliance program at all, because it pretended to not have any U.S. customers.  This allegation is familiar theme in similar U.S. enforcement actions, including those against Binance.

The CFTC civil complaint specifically alleges that KuCoin illegally dealt in off-exchange commodity futures transactions; solicited and accepted orders for commodity futures and swaps, and leveraged, margined, or financed retail commodity transactions without registering with the CFTC as a Futures Commission Merchant (“FCM”); failed to diligently supervise its FCM activities; operated a facility for the trading or processing of swaps without registering with the CFTC as a swap execution facility or designated contract market; and failed to implement an effective customer identification program.

Continue Reading  KuCoin and Founders Charged with Operating Illegally as Money Transmitter and Futures Commission Merchant

We previously have blogged on actions taken by the DOJ’s “Task Force KleptoCapture,” an interagency law enforcement task force with a mandate to target sanctioned Russian and pro-Russian oligarchs. While explicitly launched in May 2022 as a direct response to Russia’s full-scale invasion of Ukraine, the task force’s mission is consistent with the U.S. government’s characterization of Russia as a kleptocratic regime (see our post here) and the Biden Administration’s promotion of anti-corruption as a “core United States national security interest” (see our posts here and here).

This week, DOJ announced (via both a press release and a filmed podium announcement by Attorney General Merrick Garland) a series of enforcement actions in five separate federal cases in districts up and down the East Coast, dealing with money laundering and evasion of sanctions, in several cases centered on quintessentially oligarchic luxury goods: high-end real estate and superyachts.  The enforcement actions also emphasize the continuing themes in these cases of the use of shell companies, proxies and lawyers to allegedly evade sanctions.

Continue Reading  The American Front in Russia’s War on Ukraine: DOJ’s “Task Force KleptoCapture” Continues Focus on Operations of Sanctioned Oligarchs

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

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