Department of Justice (DOJ)

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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Case Sheds Light on Latest Methods to Evade Detection: “Peeling” Chains

On March 2, the U.S. government sanctioned and indicted two Chinese nationals for helping North Korea launder nearly $100 million in stolen cryptocurrency. The indictment, filed in the District of Columbia, charges the defendants with conspiring to commit money laundering transactions designed to both “promote” and “conceal” the underlying crimes of wire fraud (the theft of the cryptocurrency via hacking) and operating as an unlicensed money transmitter — the latter of which is also charged in the indictment as an additional count.

According to the related and detailed civil forfeiture complaint, these funds were only a portion of those stolen in 2018 by state-sponsored hackers for North Korea from a South Korean exchange. These actions, notable in several respects, provide a glimpse at the latest methods of laundering cryptocurrency.

Anyone attempting to launder illicit cryptocurrency faces at least two big challenges. First, due to rigid know-your-customer rules, one cannot simply deposit large amounts of funds at an exchange without raising red flags. Second, because all cryptocurrency transactions are recorded on a blockchain, they can be traced.

To clear these hurdles, the complaint alleges that North Korean hackers used “peeling chains.” In a peeling chain, a single address begins with a relatively large amount of cryptocurrency. A smaller amount is then “peeled” off this larger amount, creating a transaction in which a small amount is transferred to one address, and the remainder is transferred to a one-time change address. This process is repeated – potentially hundreds or thousands of times – until the larger amount is pared down, at which point the amount remaining in the address might be aggregated with other such addresses to again yield a large amount in a single address, and the peeling process goes on.
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Government Suggests that Unusual Pleas are Just the Tip of an Iceberg

Chinese law generally prohibits its citizens from converting more than $50,000 in Chinese yuan into foreign currency in a year.  On Monday, two men living in Las Vegas pleaded guilty in federal district court in the Southern District of California to operating an unlicensed money transmitter business, in violation of 18 U.S.C. § 1960.  Allegedly, they ran a scheme in which they helped clients circumvent this Chinese law — as well as the anti-money laundering programs of U.S. financial institutions — by converting electronic funds in China into hard currency in the United States, which the clients then used to gamble at casinos.

The case reflects the continuing ingenuity employed by individuals to use expanding technologies to circumvent currency controls and money laundering laws.  The case is also interesting because the defendants allegedly ran their scheme with the help of insiders at the casinos, who provided assistance in exchange for a cut of the cash.
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Organization Excels at Niche Branding but Stumbles in Avoiding Enforcement

The first paragraph of the press release sums it up:

Today the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) took action against Evil Corp, the Russia-based cybercriminal organization responsible for the development and distribution of the Dridex malware.  Evil Corp has used the Dridex malware to infect computers and harvest login credentials from hundreds of banks and financial institutions in over 40 countries, causing more than $100 million in theft.  This malicious software has caused millions of dollars of damage to U.S. and international financial institutions and their customers.  Concurrent with OFAC’s action, the Department of Justice charged two of Evil Corp’s members with criminal violations, and the Department of State announced a reward for information up to $5 million leading to the capture or conviction of Evil Corp’s leader.  These U.S. actions were carried out in close coordination with the United Kingdom’s National Crime Agency (NCA).  Additionally, based on information obtained by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), the Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) released previously unreported indicators of compromise associated with the Dridex malware and its use against the financial services sector.

The Department of Treasury press release is extremely detailed.  Summarized very broadly, it observes that OFAC’s designation targets 17 individuals and seven entities, including Evil Corp, its “core cyber operators, multiple businesses associated with a group member, and financial facilitators utilized by the group.”  The designation means that all property and interests in property of these persons subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited in engaging in transactions with them.

As noted below, the U.S. government is alleging that these cyber criminals are working with the Russian government.  FinCEN and the Cybersecurity and Infrastructure Security Agency (CISA) of the Department of Homeland Security also have issued an Alert to financial institutions regarding how to try to detect, mitigate and report the presence of the pernicious Dridex malware.
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Arrest is Culmination of Elaborate FBI Sting Targeting Banker Who Allegedly Catered to Drug Dealers

On November 12, 2019, the U.S. Attorney for the Southern District of Florida announced two key money-laundering developments concerning high-profile Guatemalans: the arrest of Alvaro Estuardo Cobar Bustamante, the director of a national Guatemalan bank, and the unsealing of a case against and guilty plea of Manuel Antonio Baldizon Mendez, a former presidential candidate in Guatemala who cooperated in the FBI and DEA sting operation against Cobar.

The government’s press release, coupled with its charging documents discussed below, underscore Guatemala’s strategic importance to drug traffickers and, by extension, money launderers. These developments likewise emphasize: (1) the increasing degree of international coordination often required to root out and prosecute both crimes; and (2) the United States’ willingness to prosecute alleged bad actors abusing the financial system, of which we have blogged about here.

Guatemala’s Strategic Importance to Central and South American Drug Trafficking Organizations

Since at least as early as 2013, the FBI and DEA have conducted extensive and numerous investigations into Drug Trafficking Organizations (“DTOs”) in Guatemala. Both agencies have emphasized the strategic importance of Guatemala for large-scale DTOs because it is a key transportation hub in the cocaine trafficking pipeline that begins in Colombia and moves through Central America and Mexico before branching off into various locations in the United States. Colombian and Mexican DTOs, seeking to avoid detection from U.S. law enforcement, often buy and sell multi-ton quantities of cocaine in Guatemala which, in turn, creates a plethora of opportunities for Guatemalan DTOs to serve as intermediaries receiving and re-selling cocaine.
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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

Settlement Applies to $700 Million in Luxury Assets; Law Firms Obtain a Carve-Out

Last week, the Justice Department announced a massive settlement in the 1Malaysia Development Berhad (“1MDB”) case, a matter implicating numerous money laundering and FCPA concerns and one about which we previously blogged here.

The DOJ announced a blanket settlement of all pending civil forfeiture cases against assets acquired by fugitive Malaysian financier Low Taek Jho (“Jho Low”) and various members of his family. The assets, consisting of both cash and real property, are currently located in the United States, United Kingdom, and Switzerland, and exceed $700 million. When combined with prior dispositions, this means the United States government has now recovered over $1 billion associated with the 1MDB scheme. The current settlement constitutes not only the largest recovery by the Department’s recently formed “Kleptocracy Asset Recovery Initiative,” but the largest DOJ civil forfeiture on record.

The assets subject to the agreement represent an eye-catching list of high-end baubles, including a jet aircraft; luxurious properties in New York, Los Angeles, Beverly Hills, and London; stock; and rights to music royalties. The agreement further notes that, although not specifically part of the settlement because they already have been resolved, other related forfeiture cases – including the forfeiture of a gigantic yacht – have been “considered” as part of this global resolution.
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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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Opinion Allows DOJ Broad Access to Foreign Banks’ Correspondent Account Records Relating to Alleged Front Company Operating for North Korea

On August 6, the U.S. Court of Appeals for the District of Columbia kept in place $50,000-per-day fines on three Chinese banks—whose identities are redacted—for refusing to comply with subpoenas issued by the Department of Justice (“DOJ”) for records of a Hong Kong company (“Company”) that allegedly facilitated hundreds of millions of dollars of transactions for a North Korean state-owed entity (“NKE”), in violation of U.S. sanctions.

We will focus on the court’s ruling that a subpoena issued under a provision of the USA PATRIOT Act allows access to records held by foreign banks that use U.S. correspondent accounts, including records of transactions that do not themselves pass through a U.S. correspondent account, if those transactions were part of a larger scheme to access dollar funding through a U.S. correspondent account.

Background

According to the U.S. government, North Korea’s weapons programs pose “a grave and growing threat” to the security of the U.S. and—indeed—the world. In order to finance those programs, North Korea “uses state-owned entities and banks” to conduct financial transactions “in support” to finance its efforts. To impede those efforts, the U.S. maintains a robust sanctions regime against North Korea and the various entities it controls. Certain of those sanctions—enacted in 2013— are intended to cut off North Korea’s access to the U.S. financial system. But North Korea is said to evade those restrictions through, among other means, its use of front company transactions originating in foreign-based banks, which are in turn processed through correspondent bank accounts in the U.S.
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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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