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.
Continue Reading

Guest Post by Darpana Sheth of the Institute of Justice

We are pleased to present this guest blog by Darpana Sheth, who is a senior attorney with the Institute for Justice (“IJ”).  As Ms. Sheth explains, the U.S. Supreme Court will hear argument later this Fall in Timbs v. State of Indiana, one of the most anticipated cases this term, and which will test severely civil forfeiture laws.  As Ms. Sheth notes, Mr. Timbs lost a “$42,000 vehicle for selling less than $400 worth of drugs.”  Civil forfeiture is a unique issue on which traditional rivals across the political spectrum can agree, because it can unite individual and property right interests.

Ms. Sheth serves as Director of IJ’s Nationwide Initiative to End Forfeiture Abuse. Currently, she is lead counsel in an unprecedented federal class action against the City of Philadelphia, the Philadelphia District Attorney’s Office, and state court judges for their egregious civil-forfeiture practices. Although the following is subject to approval by the Court, this class action has secured an extremely favorable settlement agreement.

Previously, Ms. Sheth represented the State of New York as an Assistant Attorney General, worked as a litigator at Chadbourne & Parke, LLP, and clerked for the Honorable Jerome A. Holmes of the U.S. Court of Appeals for the Tenth Circuit.  We hope that you enjoy this discussion by Ms. Sheth of these important issues. -Peter Hardy

This fall, the U.S. Supreme Court will hear argument in Timbs v. State of Indiana, one of the most anticipated cases this term. At issue is whether the Eighth Amendment’s prohibition against excessive fines applies to state and local governments just as it has applied to the federal government since 1791. (Or, using the technical term, whether the Eighth Amendment’s Excessive Fines Clause is incorporated against the States.)

The case involves the civil forfeiture of a $42,000 vehicle for selling less than $400 worth of drugs. As recounted in a video news release, Tyson Timbs was prescribed opioids for foot pain. In an all-too-familiar tale of opioid addiction, Timbs turned to heroin when his prescription ran out. When police arrested him and seized his vehicle during a drug sting, Timbs pleaded guilty and was sentenced to six years—one year on home detention (with his aunt) and five years on probation, including a court-supervised addiction-treatment program. The court also assessed Timbs more than $1,200 in criminal court costs and fees.
Continue Reading

On August 29, the Wall Street Journal reported (paywall) a story that other news outlets later have picked up: the Department of Justice (“DOJ”) is investigating whether Jho Low, a Malaysian businessman at the center of the alleged embezzlement of $4.5 billion from 1Malaysia Development Bhd (“1MDB”), is paying – via two intermediaries – his U.S.-based lawyers with allegedly tainted funds. The report states that there is no indication at this time that the U.S. attorneys were aware that the funds could have originated from money Mr. Low allegedly siphoned off from 1MDB. Rather, the investigation centers on Low’s potential use of intermediaries to facilitate the payments. The DOJ already has filed civil forfeiture complaints seeking to recover almost $1.7 billion in various high-end assets from Mr. Low and others allegedly bought with the embezzled funds, and it reportedly is investigating Mr. Low individually for potential criminal charges.

In light of this report, and the growing attention paid to the potential money laundering risks faced by third-party professionals and lawyers in particular (on which we have blogged: see here, here, here, here, here, here and here), now is a good time to consider how U.S. money laundering and forfeiture laws may apply to attorneys for their work when they receive potentially tainted fees from clients. As we discuss, the criminal and civil forfeiture laws have a potentially broad reach, even in regards to legal payments.
Continue Reading

PANA Issues Recommendations to European Parliament: Tougher Enforcement, Greater Transparency, Improved Information Sharing and Prohibitions Against Outsourcing of Customer Due Diligence

In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.

European parliament in Brussels, Belgium.

A few themes emerged from the PANA report:

  • the European Union (“EU”) has strong law, but lacks vigorous enforcement;
  • the EU’s many regulators are stymied by a severe lack of communication, both within nations and between countries;
  • beneficial owners (“BOs”) are mostly unknown because regulated entities are not fulfilling their reporting obligations and the BO register is not robust, accessible, or standardized;
  • intermediaries, like banks, lawyers, accountants, wealth managers, and other financial institutions, are not living up to their obligations because they are engaging in “creative compliance” and leaving compliance responsibility to third parties.

Based on these findings, PANA recommends:

  • uniform definitions and punishments for money laundering and tax-related infractions,
  • “automatic exchange of information,” reciprocity, and “Common Reporting Standards” between regulators to facilitate better information sharing,
  • the creation of a “publically accessible,” standardized BO register that includes the ultimate beneficial owner (“UBO”),
  • the EP pass legislation to “make it illegal to outsource [customer due diligence (“CDD”)] procedures to third parties,”
  • adoption of stronger forfeiture laws that allow cross-border confiscation of illegally obtained assets,
  • stronger sanctions against banks and other intermediaries that “are knowingly, willfully, and systematically implicated in illegal tax schemes,”
  • lawyers should no longer be able to hide behind the attorney-client privilege to escape reporting requirements, like suspicious transaction reports (“STRs”),
  • countries devote more resources to fighting money laundering and tax evasion,
  • the EP vest more oversight powers in PANA.


Continue Reading

On Friday, the Department of Justice (“DOJ”) filed a civil forfeiture complaint in the Southern District of Texas seeking recovery of approximately $144 million in assets that allegedly represent the proceeds of foreign corruption and which were laundered in and through the U.S. The complaint’s narrative focuses on Diezani Alison-Madueke, who is Nigeria’s former Minister for Petroleum Resources.  The 52-page complaint, which contains additional attachments, is very detailed – but nonetheless interesting reading – so we will discuss here only three salient points:

  • The most eye-catching property subject to forfeiture, the spectacular yacht Galactica Star (which you can inspect here), apparently has no discernible nexus to the U.S. – except that the funds used to acquire the yacht allegedly were transferred through correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through the U.S.
  • The complaint emphasizes the continued enforcement focus on high-end U.S. real estate as a potential vehicle for money laundering from abroad.
  • The complaint purports to quote a recording of a conversation allegedly made by Ms. Alison-Madueke herself, in which she allegedly offers a co-schemer some critiques on his approach to laundering illicit funds.


Continue Reading

Two days after North Korea’s successful long-range ballistic missile test, the U.S. District Court for the District of Columbia unsealed a memorandum opinion which granted the Department of Justice “damming” warrants to seize all funds in bank accounts belonging to five Chinese companies which allegedly were used to hide transactions with North Korea using U.S. currency in violation of U.S. sanctions and money laundering laws. The underlying conduct allegedly resulted in over $700 million of prohibited transactions being processed by eight international banks. The opinion is noteworthy not only because it demonstrates the important relationship between money laundering laws and foreign policy, but also for the government’s use of anticipatory warrants to seize the assets upon arrival to the targeted accounts, and to prevent those assets from exiting.


Continue Reading

On June 29, dual trial verdicts in the Southern District of New York paved the way for the government to seize 650 Fifth Avenue, a 36-story building in Manhattan valued at up to $1 billion (“the Property”). The defendants, representing New York entities that trace their roots to Iran, were convicted of violating U.S. sanctions and money laundering. With this decision, the government can lay claim to the largest terrorism-related civil forfeiture in U.S. history and, as promised, provide the sale’s proceeds to terror victims who had previously won $5 billion in judgments against Iran for terror-related activity.


Continue Reading

On June 5th, the United States Supreme Court held in Honeycutt v. United States that a criminal defendant is not jointly and severally liable for property his co-conspirator derived from the crime, and that he only can be ordered to forfeit property he actually obtained from the crime.  Although the decision was unanimous (with Justice Gorsuch abstaining), the outcome was far from preordained.

Until 2015, courts applying the forfeiture statute, 21 U.S.C. § 853, had uniformly held that co-conspirators are jointly and severally liable for amounts received pursuant to the conspiracy.  That rule was adopted by nine circuits.  However, in 2015, the D.C. Circuit split with its sister circuits in United States v. Cano Flores, rejecting joint and several liability for co-conspirators.    The district court in Honeycutt sided with the D.C. Circuit, but the Sixth Circuit reversed, following the overwhelming majority view of the other Courts of Appeal.

The result in Honeycutt, and the underlying analysis and related policy arguments, may have implications in other government enforcement contexts, including in securities cases. Further, the result appears to obligate the government to perform some degree of a tracing analysis to tie individual defendants to specific tainted funds – an analysis which might be difficult in complex fact patterns involving multiple defendants and the use of multiple entities or financial accounts.
Continue Reading

Gavel on sounding block

Ballard Spahr LLP Legal Team Obtains Key Court Victory

It is with great pleasure that I introduce the following post by our colleague and fellow blogger Joanna Kunz.  She was part of a team of Ballard Spahr lawyers who, working pro bono, recently obtained a landmark victory for their client — and for property owners throughout Pennsylvania — when the Pennsylvania State Supreme Court unanimously affirmed a lower court decision defining the parameters of civil forfeiture and arming Pennsylvanians involved in such cases with robust constitutional and statutory protections.  The team also included Jessica Anthony, who argued the case before the Supreme Court, and Jason Leckerman. — Peter D. Hardy

Elizabeth Young is a 72-year-old grandmother whose home and car the government sought to forfeit based on several relatively minor drug sales her adult son conducted out of the house and car. Young fought the forfeiture and lost at the trial level. However, last week the Pennsylvania Supreme Court affirmed the Commonwealth Court’s en banc reversal of that decision. Its 73-page opinion ends years of uncertainty in the law regarding the constitutional limits on civil forfeiture where the property owner often is not charged with any crime.
Continue Reading

Proposed Settlement Comes After Court Issues Rulings on Extraterritorial Application of U.S. Criminal Law, Evidence of Intent to Conceal and Tracing of Money Laundering Proceeds

On the eve of trial this past Friday, the government announced an agreement to settle, subject to court approval, a major civil forfeiture action in the Southern District of New York.  In the case, United States v. Prevezon Holdings, Ltd. et al., the government alleged an elaborate scheme involving money laundering and other offenses committed in Russia, Cyprus, and Manhattan. The case gained some notoriety in the press due to lurid allegations of the suspicious death while in pretrial detention in Moscow of a Russian lawyer who had uncovered the tax refund fraud scheme, and the alleged defenestration earlier this year of a lawyer working for the decedent’s family. Although the civil forfeiture complaint filed in 2013 sought to forfeit at least $230 million worth of assets, the parties settled for approximately $5.9 million. In the wake of this settlement, both the defense and the government now appear to be claiming victory.

The buildings located on the Red Square: Kremlin wall (at left) and Saint Basil's Cathedral (at right), Moscow, Russia. UNESCO World Heritage Site

This post will analyze an opinion issued by the court in this case last week, prior to the settlement, denying summary judgment to the defense.  The legal rulings contained therein are perhaps not as suitable for a Hollywood-style thriller as some of the content of the government’s press releases and pleadings, but nonetheless represent important issues in the field of money laundering and forfeiture.  Primarily, we analyze an increasingly common and key question: when can U.S. law apply to conduct occurring primarily overseas?  This question has broad implications for federal criminal law enforcement in general, including for RICO and tax fraud prosecutions, as well as for potential civil lawsuits brought by shareholders or other plaintiffs.
Continue Reading