Recent DOJ Forfeiture Action Against High-End Real Estate in Notorious Corruption Scheme Underscores Issues 

We are pleased to be presenting on Money Laundering and the Real Estate Industry on May 20 before the Real Estate Services Providers Council (RESPRO), a national non-profit trade association representing businesses before federal and state policy makers, and

A Court Ruling that May Resonate Across the Globe

The High Court in London recently struck down three “Unexplained Wealth Orders” that U.K. law enforcement had hoped would foil an alleged money laundering scheme by Kazakh political elites. Instead, the Court found that the government’s evidence was insufficient to compel family members of the former Kazakh President to explain how they acquired approximately £80 million worth of property in the U.K.

The Court’s Order is detailed, and it carefully parses through some potentially eyebrow-raising facts regarding the players and properties embroiled in this saga. Ultimately, the primary point of contention between the Court and the U.K. enforcement authorities comes down to a very basic question in all global money laundering enforcement: if corporate structures are complex and potentially opaque, is that necessarily a strong sign of underlying illegality? Here, the Court seemed to answer that question in the negative. This appears to be a classic story of suspicion versus persuasive proof, and how that dynamic can play out in a court of law in a concrete dispute. This outcome, and the language used by the Court, likely will resonate for some time.
Continue Reading U.K. Court Strikes Down “Unexplained Wealth Orders” By Parsing Facts and Making Value Judgments About Meaning of Corporate Complexity

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.
Continue Reading Two Chinese Nationals Charged with Money Laundering Over $100 Million in Cryptocurrency for North Korea

Report Focuses on Anonymity, Real Estate Transactions and Complicit Lawyers

Report Also Signals Upcoming AML Regulation for Certain Niche Institutions

Second Post in a Two-Post Series

In its 2020 National Strategy for Combating Terrorist and Other Illicit Financing (“2020 Strategy”), the U.S. Department of Treasury (“Treasury”) has laid out its AML and money laundering enforcement priorities. Last week, we blogged about the 2020 Strategy and focused on the document’s findings and recommendations for increased transparency into beneficial ownership; strengthening international regulation and coordination, and modernization of the BSA/AML regime in regards to technological innovation.

Here, we focus on the 2020 Strategy as it relates to combating money laundering relating to real estate transactions and gatekeeper professions in general, such as lawyers, real estate professionals and other financial professionals, including broker dealers. Importantly, the 2020 Strategy also notes that the Financial Crimes Enforcement Network (“FinCEN”) is working on a proposed regulation which would extend AML obligations for banks and other financial institutions not subject to a federal functional regulator; there are an estimated 669 such institutions in the U.S.
Continue Reading Treasury Report Targets Money Laundering Risks in Real Estate and Gatekeeper Professions

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 DOJ Announces Historic Civil Forfeiture Settlement in 1MDB Case

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 Must All 50 States Comply with the U.S. Constitution’s Prohibition Against Excessive Fines?

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 Use of Tainted Assets to Pay Attorney Fees: A Primer on the Pitfalls

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 Money Laundering Watchdog Criticizes Lax AML Enforcement and “Creative Compliance” in Wake of Panama Papers

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 Alleged Nigerian Oil Industry Corruption and Civil Forfeiture: More Extraterritorial Application of U.S. Law; More High-End Real Estate; and Advice on Laundering

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 Damming the Funding to North Korea: Anticipatory Seizure Warrants as a Tool to Enforce Sanctions and Thwart Money Laundering Transfers