Department of Justice (DOJ)

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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?

Opinion Offers Narrow View of “Safe Harbor” Provision for Defense Attorneys Accepting Tainted Funds from Clients

Second in Series of Two Blog Posts Pertaining to Attorneys Convicted of Money Laundering

On April 25, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of Baltimore defense attorney Kenneth Ravenell (“Ravenell”) for money laundering conspiracy, in violation of 18 U.S.C. § 1956(h).  Ravenell had proceeded to trial and had been acquitted of six charges, including conspiracy to distribute narcotics.  However, he was convicted on the single count of money laundering conspiracy, based on his alleged assistance to two drug dealer clients, and received a sentence of 57 months of imprisonment.

The Ravenell opinion (“Opinion”) involves a splintered set of findings across the three-judge panel.  It involves findings on important technical issues pertaining to the statute of limitations and the use of the conscious avoidance/willful blindness theory of prosecution, which is often critical in cases involving third-party professionals such as lawyers, accountants, and real estate agents.  But, more importantly, it involves a discussion of when defense attorneys may accept illegally-obtained proceeds from their clients as payment for legal representation, and if such funds ever may be provided through third parties.  As we will discuss, the Fourth Circuit interpreted very narrowly a “safe harbor” provision under 18 U.S.C. § 1957(f) for defense attorneys – and did so in a case in which the evidence, if accepted, made clear that the safe harbor did not apply.  Stated otherwise, bad facts may have resulted in inappropriately broad language applicable to other cases.

As we just blogged, the U.S. Attorney’s Office for the Southern District of New York also announced on April 25 that Robert Wise (“Wise”), a New York attorney, had pled guilty to a single count of conspiring to commit money laundering, in violation of 18 U.S.C. § 371.  This case arose out of the indictment of Vladimir Voronchenko, who has been charged in connection with a scheme to make payments to maintain multiple properties in New York and Florida owned by his friend and associate, sanctioned Russian oligarch Viktor Vekselberg.  

These two cases are very different.  But they both illustrate how attorneys – either business attorneys, or criminal defense attorneys – can get caught up in the problems of their own clients, particularly given the ability of the government to pursue a theory of willful blindness.…

Continue Reading  Fourth Circuit Upholds Money Laundering Conspiracy Conviction of Baltimore Defense Attorney

Enforcement Trends, Crypto, Regulatory Developments — and More

I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual). 

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

On March 15, 2023, the United States Attorney for the Southern District of New York unsealed a twelve-count Indictment that charges Ho Wan Kwok (“Kwok”) and his financier, Kin Ming Je (“Je”), with various sprawling schemes – including one involving cryptocurrency – in which the defendants solicited investments in several entities and other programs via fraudulent misrepresentations to hundreds of thousands of Kwok’s online followers. Moreover, the Indictment alleges that Kwok and Je misappropriated hundreds of millions of dollars in fraudulently obtained funds during the conspiracy.

Specifically, the Indictment charges Kwok with conspiracy to commit wire fraud, securities fraud, bank fraud, and money laundering. He was also charged with the underlying acts of wire fraud, securities fraud, international “promotional” money laundering (in violation of 18 U.S.C. § 1956(a)(2)(A)), international “concealment” money laundering (in violation of 18 U.S.C. § 1956(a)(2)(B)(i)), and “spending” money laundering (in violation of 18 U.S.C. § 1957), with the last charge resting on a single $100 million wire transfer. Je was also charged with these crimes, in addition to obstruction of justice.

In regards to the money laundering schemes, the Indictment alleges that the defendants attempted to conceal the source of their illicit proceeds by transferring “money into and through more than approximately 500 accounts held in the names of at least 80 different entities or individuals[,]” through bank accounts in the U.S., the Bahamas, and the United Arab Emirates (“UAE”).  Further, the Indictment alleges that the defendants used over $300 million of fraudulent proceeds for the benefit of themselves and their family members.  The Indictment therefore contains a detailed notice of forfeiture, listing numerous assets that allegedly constituted or were derived from proceeds traceable to the charged offenses.  These assets include numerous bank account balances collectively amounting to hundreds of millions of dollars, as well as a luxurious mansion in New Jersey, several extremely high-end automobiles, and a 46-meter “superyacht.”  The government’s press release includes photos of some of these assets, included in the visual above.…

Continue Reading  Indictment Alleges Investor Fraud of Over $1 Billion – And Elaborate Money Laundering and Lavish Spending

The U.S. Attorney’s Office for the Southern District of New York recently unsealed an indictment of Charles McGonigal (“McGonigal”), a former high-ranking FBI official, who has been accused of helping Russian oligarch Oleg Deripaska (“Deripaska”) avoid U.S. sanctions. Last Thursday, Chairmen of the Senate and House Judiciary Committees wrote letters to U.S. Attorney General, Merrick Garland, and FBI Director, Christopher Wray demanding information.

We discuss here the letters, which are extremely pointed.  But first, it’s worth examining the allegations in the indictment, which paint a dramatic tale of abuse of office, concealment through shell companies, and a former high-level law enforcement officer allegedly engaging in the same of behavior that, until very recently, he was sworn to detect, investigate and prevent.…

Continue Reading  Senate and House Judiciary Committees Demand Answers Regarding Indictment of Former High-Ranking FBI Official for Sanctions Conspiracy

In its first use of Section 9714(a) of the Combating Russian Money Laundering Act, the Financial Crimes Enforcement Network (“FinCEN”) issued a notice of enforcement order (the “Order”) on January 18, 2023 against the cryptocurrency exchange Bitzlato Limited (“Bitzlato”), which has operated globally and is registered in Hong Kong.  The Order was issued in conjunction with the Department of Justice’s (“DOJ”) arrest of Bitzlato’s founder, Russian national Anatoly Legkodymov.  Bitzlato has processed over four billion dollars in cryptocurrency transactions since 2018.  According to the government, a substantial portion of those transactions involved criminal proceeds.

Legkodymov, who resided in China until his arrest in the United States, has been charged initially, via complaint and warrant, with conducting an unlicensed money-transmitting business under 18 U.S.C. § 1960, although the allegations against Bitzlato appear to extend far beyond mere unlicensed money transmission. Both the Order and the lengthy affidavit in support of the complaint stress that Bitzlato openly touted its intentional lack of any sort of real anti-money laundering (“AML”) program.  For example, “Bitzlato’s website advertised for years (and as recently as March 31, 2022) that the site offered ‘Simple Registration without KYC.  Neither selfies nor passports required.  Only your email needed.’  Similarly, a blog post on Bitzlato’s website stated:  ‘On Bitzlato no KYC is required for you to trade.’”

This post will focus on FinCEN’s Order, which identifies Bitzlato as a “primary money laundering concern,” and prohibits certain money transmission involving Bitzlato by covered financial institutions.  The Order also highlights the threats posed to U.S. national security and the integrity of the U.S. financial sector by Bitzlato’s active facilitation of laundering of Russian illicit finance. However, FinCEN’s press release makes clear that Bitzlato is just one part of a larger ecosystem of Russian cybercriminals, including ransomware attackers, operating with impunity in Russia.…

Continue Reading  FinCEN Issues Enforcement Order Against Crypto Exchange Bitzlato in First-Time Use of Section 9714(a)

Factual Statement Is a Tale of Whistleblowing, High-Risk Customers, and Misleading U.S. Banks

Earlier this month, Danske Bank was sentenced in the Southern District of New York to three years of probation and forfeiture of $2.059 billion.  The sentencing capped a tumultuous and global scandal that became public several years ago, as the enormous scope of the bank’s anti-money laundering (“AML”) compliance problems emerge:  several hundred billion in suspicious transactions allegedly were processed over time at the bank’s former Estonian branch.  As a result of the sentencing, Danske Bank was ordered to make an actual payment of $1,209,062,646; the bank received credit for the rest of the forfeiture amount on the basis of a $178.6 million payment to the Securities and Exchange Commission and a $672.3 million payment to Denmark authorities.

Danske Bank was charged not with violating the Bank Secrecy Act (“BSA”), but rather with bank fraud.  According to the press release issued in December 2022  by the Department of Justice (“DOJ”) at the time of the bank’s plea, the bank had “defrauded U.S. banks regarding Danske Bank Estonia’s customers and [AML] controls to facilitate access to the U.S. financial system for Danske Bank Estonia’s high-risk customers, who resided outside of Estonia – including in Russia.”  The DOJ’s choice to charge bank fraud presumably was predicated upon issues relating to U.S. jurisdiction and the actual applicability of the BSA to Danske Bank and activities in Estonia – but the heart of the criminal case is that Danske Bank allegedly hid its own AML failures from three U.S. banks, thereby thwarting the U.S. banks’ own AML programs and compliance with the BSA.

The plea agreement contains a lengthy statement of facts full of eye-catching allegations.  As we describe, it sets forth a tale of intentional and sometimes brazen misconduct by Estonian branch employees, coupled with lax oversight and implicit approval, or at least tolerance, of such conduct by some people in upper management.  Further, it involves another example of a financial institution, in the eyes of law enforcement and regulators, over-valuing profit and under-valuing compliance systems.  The case also highlights, again, the potential risks associated with correspondent bank accounts held by non-U.S. banks, the importance of having fully integrated and coordinated monitoring systems, and the potential role of whistleblowers.

Finally, this saga is not necessarily over entirely.  Danske Bank is subject to three years of probation.  The plea agreement requires numerous compliance commitments by the bank, including signed certificates of compliance and self-reporting of potential AML failures.  Danske Bank’s troubles also have involved lawsuits brought by investors claiming to have been defrauded, although the bank has had success in fending off these actions (see here, here and here).…

Continue Reading  SDNY Sentences Danske Bank in Massive AML Scandal

Rodeo Drive

Indictment Alleges Use of Shell Companies, Nominees, Foreign Bank Accounts and Real Estate

On December 7, 2022, the United States Attorney’s Office for the Eastern District of New York (“DOJ”) unsealed a seven-count indictment against Andrii Derkach.  In the corresponding press release, Derkach is described as a “Kremlin-backed Ukrainian politician and oligarch” who attempted to “influence the 2020 U.S. Presidential election on behalf of the Russian Intelligence Services.”  Derkach was charged with conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”), bank fraud conspiracy, money laundering conspiracy, and four counts of money laundering.  His wife, Oksana Terekhova, is alleged to be a co-conspirator and is referred to as “Co-Conspirator 1” in the indictment.  The investigation was “coordinated through the Justice Department’s Task Force KleptoCapture, an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export controls, and economic countermeasures that the United States . . . has imposed in response to Russia’s unprovoked military invasion of Ukraine.”

In connection with the indictment, the DOJ is requesting both criminal forfeiture of two Beverly Hills condominiums at issue in the indictment, as well as civil forfeiture in a parallel proceeding.  If successful, the DOJ would seize both the condominiums and proceeds in an investment and banking account held by Derkach’s alleged business entity.  Derkach remains at large.

This appears to be another in the long line of actions and sanctions brought against alleged Russian oligarchs and Russian agents, especially those with close connections to Russian Intelligence Services, in response to Russia’s invasion of Ukraine (of which we have blogged about here and here).  As long as Russia remains active in Ukraine, it is likely that federal law enforcement will continue to focus on the actions and assets of high-profile Russian oligarchs and agents in the U.S.  Financial institutions should continue to remain vigilant, as we have blogged about here, in rooting out attempts to evade sanctions.…

Continue Reading  Russian Agent’s Beverly Hills Condominiums Subject to Forfeiture Based on Alleged Violations of Bank Fraud, Money Laundering, and U.S. Sanctions Statutes

On October 19, 2022, the U.S. Attorney’s Office for D.C., on behalf of the Financial Crimes Enforcement Network (“FinCEN”), filed a civil complaint against Larry Dean Harmon (“Harmon”), seeking $60 million in civil penalties for alleged violations of the Bank Secrecy Act (“BSA”) in connection with Harmon’s involvement in now-defunct cryptocurrency services Helix and Coin Ninja LLC.  The complaint seeks to obtain a judgment on FinCEN’s 2020 Assessment of Civil Money Penalty against Harmon (“Assessment”), which is attached to the complaint and includes a detailed statement of facts.

As we have blogged, Harmon previously pled guilty to operating an unlicensed money transmitter business.  Harmon’s sentencing hearing in the criminal case has been continued, and he reportedly has been attempting to cooperate with the government.  It appears that the civil complaint may represent something of a formality:  it seeks to reduce the assessment against Harmon to an actual civil judgment, upon which the government can collect in theory, in anticipation of Harmon’s criminal sentencing and any potential additional matters in which he may attempt to cooperate.

According to the complaint, starting in 2014, Harmon operated Helix, a bitcoin “mixing” service, which Harmon allegedly advertised explicitly as a way for customers to conceal their identities from the government.  The statement of facts attached to the Assessment alleged that Harmon “publicly advertised Helix on Reddit forums dedicated to darknet marketplaces, actively seeking out and facilitating high-risk transactions directly through customer service and feedback.”  Such “mixing” services – designed to maximize anonymity – increasingly have drawn the ire of the government, as reflected by the recent and controversial action by the Office of Foreign Assets Control to sanction virtual currency “mixer” – or passive technology – Tornado Cash.  …

Continue Reading  DOJ Files Lawsuit for $60 Million in Civil Penalties for Alleged BSA Violations by Crypto “Mixer”

With Guest Speaker Matthew Haslinger of M&T Bank

We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act…