The U.S. Attorney’s Office for the Southern District of New York announced the unsealing of a superseding indictment charging Jennifer Shah and another person for conspiring to commit wire fraud and money laundering. Shah, described in promotional materials as having an “extravagant personality and sharp tongue,” is a star on the reality television series The
Fourth Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime
As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”), contains major changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors. In this post, we explore the AMLA’s significant expansion of the U.S. government’s authority to subpoena information from foreign financial institutions that maintain correspondent banking relationships with U.S. banks.…
Continue Reading AMLA Expands DOJ Grand Jury Subpoena Power Over Correspondent Bank Accounts and Foreign Banks
On February 24, the Department of Justice’s (“DOJ”) Criminal Division Fraud Section released its 2020 Year In Review (“the Report”) touting its white-collar enforcement successes. Among them: four cases in which the DOJ wielded the United States’ money laundering statutes to pursue alleged overseas bribery recipients who are beyond the reach of the Foreign Corrupt Practices Act (“FCPA”). This is a pattern we have covered previously (here, here, here, here, here, here and here). While the FCPA imposes liability on American citizens and entities that bribe foreign officials, it does not impose liability on the foreign officials receiving the bribe. Enter 18 U.S.C. §§ 1956 and 1957. As illustrated in the Report’s cases, 2020 marked a continuation of the DOJ’s willingness to use the money laundering statutes to pursue corrupt foreign activity that uses U.S. financial institutions, however tangentially.…
Continue Reading DOJ Fraud Section 2020 Year in Review: Money Laundering Statute Remains an Overseas Enforcement Tool
On November 25, 2020, Natalino D’Amato (“D’Amato”), a Venezuelan executive, was charged in an 11-count indictment with allegedly laundering $160 million between 2013 and 2017. The indictment, filed in the Southern District of Florida, includes one count of conspiracy to commit money laundering, four counts of international money laundering, three counts of promotional money laundering, and three counts of engaging in transactions involving criminally derived property. It is the latest episode in the enforcement campaign of the U.S. Department of Justice (“DOJ”) against alleged corruption involving Venezuela in general, and Venezuela’s state-owned and controlled energy company Petróleos de Venezuela S.A. (“PDVSA”) in particular.…
Continue Reading (Another) Venezuelan Executive Indicted in a $160 Million Money-Laundering and Corruption Scheme
DOJ Charges a U.S. Billionaire, an Alleged International Drug Conspiracy Using Chinese Bank Accounts and a Guatemalan Casino, and a Former Top Mexican Official in the “War on Drugs”
The term “October Surprise” garnered new meaning this year among money laundering enthusiasts with the announcement of three major indictments. All three announcements came on October 15 – at the midpoint of a month of news cycles otherwise dominated by the upcoming United States presidential election. Although these three indictments are all very different from one another in many ways, they all share a core element: the cross-border transfer of allegedly dirty money.
“Largest Ever U.S. Criminal Tax Charge” Bring Money Laundering Charges as Well
The Department of Justice (“DOJ”) unsealed a 39-count indictment returned by a federal grand jury in San Francisco, California, charging billionaire Robert T. Brockman, the Chief Executive Officer of Ohio-based software company Reynolds & Reynolds, with conspiring to defraud the United States, tax evasion, wire fraud, money laundering, failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”), evidence tampering and destruction of evidence. The charges involve an alleged scheme to conceal approximately $2 billion in income from the Internal Revenue Service (“IRS”), which law enforcement officials have said is the largest ever tax charge in the United States. The wire fraud charges do not attempt to “bootstrap” the false tax returns at the heart of the tax evasion scheme into a wire fraud scheme, but rather rest on an alleged scheme to defraud investors in the software company’s debt securities. Still, Brockman’s indictment is yet another example of the potentially powerful overlap of money laundering and tax fraud charges, both of which often implicate the issue of beneficial ownership and the use of shell companies.…
Continue Reading Criminal Enforcement Round Up: October Yields a Trio of High-Profile Money Laundering Charges With International Focus
Incorporating in the Seychelles but Allegedly Operating in the U.S. Spells Trouble for Company and its Founders
The Bitcoin Mercantile Exchange, or BitMEX, is a large and well-known online trading platform dealing in futures contracts and other derivative products tied to the value of cryptocurrencies. Recently, the Commodity Futures Trading Commission (“CFTC”) filed a civil complaint against the holding companies that own and operate BitMEX, incorporated in the Seychelles, and three individual co-founders and co-owners of BitMEX for allegedly failing to register with the CFTC and violating various laws and regulations under the Commodity Exchange Act (“CEA”). The 40-page complaint alleges in part that the defendants operated BitMEX as an unregistered future commission merchant and seeks monetary penalties and injunction relief.
In a one-two punch, the U.S. Attorney’s Office for the Southern District of New York on the same day unsealed an indictment against the same three individuals, as well as a fourth individual who allegedly served various roles at BitMEX, including as its Head of Business Development. The indictment charges the defendants with violating, and conspiring to violate, the requirement under 31 U.S.C. § 5318(h) of the Bank Secrecy Act (“BSA”) that certain financial institutions – including futures commissions merchants – maintain an adequate anti-money laundering (“AML”) program.
Both documents are detailed and unusual. This appears to be only the second contested civil complaint filed by the CFTC based on the failure to register under the CEA in connection with the alleged illegal trading of digital assets (other than those for which settlement orders were entered into with the CFTC). The first such complaint was filed only a week prior against Latino Group Limited (doing business as PaxForex), but the BitMEX complaint has garnered more attention in light of BitMEX’s reputation and size. Most of the CFTC’s prior actions against digital asset companies involved claims for fraud or misrepresentation in the solicitation of customers. This complaint, against a relatively mature and large digital asset company, demonstrates that the CFTC continues to actively pursue trading platforms and exchanges that solicit orders in the United States without proper registration. In addition to failing to register, the complaint alleges that the defendants failed to comply with the regulation under the CEA, 17 C.F.R. § 42.2, which incorporates BSA requirements such as an adequate AML program.
The indictment is unusual because it charges a rare criminal violation of Section 5318(h) – the general requirement to maintain an adequate AML program. Although indictments against defendants involved in digital assets are increasingly common, this also appears to be the first indictment combining allegations involving the BSA, digital assets, and alleged futures commissions merchants.
The complaint and the indictment share the common theme that the defendants attempted to avoid U.S. law and regulation by incorporating in the Seychelles but nonetheless operating in the United States. The opening lines of the CFTC complaint declare that “BitMEX touts itself as the world’s largest cryptocurrency derivatives platform in the world with billions of dollars’ worth of trading each day. Much of this trading volume and its profitability derives from its extensive access to United States markets and customers.” Meanwhile, the indictment alleges that defendant Arthur Hayes – a Fortune “40 Under 40” listee – “bragged . . . that the Seychelles was a more friendly jurisdiction for BitMEX because it cost less to bribe Seychellois authorities – just “a coconut” – than it would cost to bribe regulators in the United States and elsewhere.”…
Continue Reading CFTC and DOJ Charge BitMEX and Executives With Illegally Trading in Digital Assets and Ignoring BSA/AML Requirements
“Front” Seafood Businesses Allegedly Hid the Proceeds From Smuggled Shark Fins and Marijuana Distribution
Last week, the U.S. Attorney’s Office for the Southern District of Georgia unsealed an indictment returned in July, charging twelve defendants and two businesses with wire and mail fraud conspiracy, drug trafficking conspiracy, and money laundering conspiracy. The indictment describes a transnational criminal organization that allegedly began as early as 2010 and spanned multiple locations including, Georgia, District of Columbia, California, Florida, Michigan, Arizona, Hong Kong, Mexico, and Canada. The indictment accuses the defendants of submitting false applications for import/export licenses to the U.S. Fish and Wildlife Services, and using two seafood businesses and dozens of bank accounts to hide the proceeds of illegal activities.
According to the indictment, the criminal organization engaged in an international wildlife trafficking scheme involving shark finning—where a shark is caught at sea, its fins are removed, and the remainder of the living shark is discarded and left to die in the ocean. According to the indictment, shark finning supports the demand for shark fin soup, an Asian delicacy. Shark finning is among many illegal wildlife trade practices.…
Continue Reading DOJ and Multi-Agency Task Force Charge International Money Laundering, Drug Trafficking, and Illegal Wildlife Trade Scheme
Can BSA/AML Requirements Lead to Deemed Knowledge of Borrower Fraud?
The first two weeks of August brought a milestone of sorts in the ongoing recovery from the economic downturn brought on by the COVID-19 pandemic. The Paycheck Protection Program (“PPP”) ended its enrollment period on August 8, 2020 and the window for borrowers to apply to have their PPP loans forgiven opened on August 10, 2020.
The PPP was a centerpiece of the over $2 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) that, according to a study by the Massachusetts Institute of Technology published on July 22, 2020 had to that point saved between 1.4 and 3.2 million jobs. Less formally observed but possibly more widely agreed, the PPP caused at least as many headaches with its rocky initial rollout and the ongoing uncertainty over applicable loan forgiveness standards. But, whereas implementing the PPP poses challenges to lenders now, due to the rampant fraud in the program (which, along with all COVID-19-related enforcement actions and policy statements, we track here) and its funding mechanics, it creates substantial downstream enforcement risk through the False Claims Act (“FCA”) for participating financial institutions.
Numerous districts already have charged borrowers with PPP-related fraud. To date, cases generally involve one of these scenarios:
- Borrowers submitted fraudulent loan applications and supporting documents to seek PPP funds for businesses that either already had failed pre-pandemic or that they did not actually own.
- Borrowers lied about amount, or even existence, of employees and payroll. These schemes involve inflated numbers of employees for companies, or even completely fake companies.
- Borrowers certified that they would use loan funds to support payroll expenses or other allowable expenses, but in fact used all or most loan funds to pay personal and non-business expenses.
The prosecutions to date have all centered on relatively obvious fraud by borrowers, not lenders. But, wider-reaching investigations are occurring and though we are very much at the beginning of the enforcement phase, the magnitude of fraud in these programs is coming into focus. On September 1, 2020, the House Select Committee on the Coronavirus Crisis released a preliminary analysis finding, among other things, over $1 billion in fraudulent PPP loans were issued and identifying red flags with respect to an additional $2.98 billion in loans made to 11,000 borrowers.
And, as we discuss, the anti-money laundering (“AML”) requirements of lenders imposed under the Bank Secrecy Act (“BSA”) may expose lenders to greater risk under the FCA, which can impose civil liability for the reduced mental state of reckless disregard. Many lenders have extended PPP loans to previously-existing customers. This is a rational business decision, given typically lower business risks presented by existing customers and lower compliance costs, because existing customers do not need to provide beneficial ownership information under the Customer Due Diligence (“CDD”) rule of the BSA. However, because lenders also are required under the BSA to understand to a degree the historical and current activities of its customers, lenders may be deemed in future FCA actions to have “known” about red flags generated by fraudulent borrowers because of information obtained by the lenders properly executing their AML programs. That is, compliance with the BSA ironically may generate evidence for downstream FCA enforcement actions based on deemed “knowledge” by the lender of borrower malfeasance. This irony may be exacerbated by any disconnect in real time between the AML compliance staff at financial institutions and the front-line business people extending loans, particularly given the incredible speed with which institutions have extended PPP loans, at the government’s urging.
The point here is not that PPP lenders will face direct regulatory liability for alleged BSA/AML failures – although they may. Rather, the point is that PPP lenders may face enhanced FCA liability due to borrower information obtained through an entirely functional BSA/AML program. This phenomenon highlights the need for the “front” and “back” offices at lenders to communicate.…
Continue Reading PPP Lenders and Fraudulent Borrowers: False Claims Act Liability and AML Risk
High Profile Corruption, High End Real Estate, Shell Companies . . . and Fine Art
Second of Two Posts on Evolving Issues Regarding Real Estate and Money Laundering
In our last post, we blogged on a major regulatory tool to combat the use of real estate as a potential vehicle for money laundering: the real estate Geographic Targeting Orders (“GTOs”) issued by the Financial Crimes Enforcement Network. Today we explore a major enforcement tool in action: civil forfeiture of real estate by the U.S. Department of Justice (“DOJ”).
This summer, the International Unit of the DOJ’s Money Laundering and Asset Recovery Section (MLARS) filed numerous complaints for civil forfeiture for real estate and other assets. This blog post will highlight a few – but not all – of these interesting and high-profile cases. Some of these cases may have been informed by data and leads obtained through the GTOs.
We explore here a trio of civil forfeiture actions pertaining, respectively, to alleged public corruption cases arising out of Gambia, Nigeria, and Malaysia. All of these cases involve foreign public officials who allegedly obtained wealth through corruption schemes committed abroad and laundered that money through shell companies to purchase real estate and other assets – sometimes located in the U.S., but sometimes not. Although the officials’ alleged initial crimes – the “specified unlawful activity,” or SUAs, as underlying crimes are defined under the federal money laundering statutes – took place overseas, the U.S. money laundering statutes provide that foreign misappropriation, embezzlements, and theft of public funds to benefit a public official constitute SUAs, thereby allowing the U.S. government to pursue civil forfeiture claims against assets located in the U.S. or abroad which are linked to the funds from underlying crimes committed primarily or even outside of the U.S.
This is the “civil forfeiture version” of a tactic used with increasing frequency by DOJ on which we repeatedly have blogged: the use of the criminal money laundering statutes to prosecute foreign officials for spending the fruits of entirely foreign crimes, when some of the financial transfers involved in the subsequent money laundering transactions occurred in the U.S.
Finally, another theme running throughout the allegations in these civil forfeiture actions is the unfortunate connection between money laundering and corruption and human rights abuses.…
Continue Reading Civil Forfeiture of Real Estate to Fight Money Laundering: A Round-Up