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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 Friday, the Department of Justice (“DOJ”) announced two developments:  First, the release of a 66-page report, The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets (the “Report”), issued under President Biden’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets.  Second, the establishment of the Digital Asset Coordinator (“DAC”) Network, a nationwide group of prosecutors designated as legal and technical experts in digital asset cases.

We focus here on the regulatory and legislative recommendations of the Report, which seek to expand significantly the ability of the DOJ to investigate and prosecute offenses involving digital assets. The recommendations include increasing criminal penalties, extending statutes of limitations, expanding venue provisions, enhancing the government’s forfeiture powers, and prohibiting virtual asset service providers from “tipping off” the subjects of grand jury subpoenas received by the providers.  The recommendations also include making clear that the federal criminal law against maintaining an unlicensed money transmitter applies to peer-to-peer platforms that purportedly do not take custody or assume control over the digital asset being exchanged; ensuring that the Financial Crimes Enforcement Network (“FinCEN”) issues a final rule expanding the application of the Travel Rule under the Bank Secrecy Act (“BSA”) to digital asset transfers; and expanding or arguably clarifying that the BSA applies to platforms dealing in non-fungible tokens, or NFTs, including online auction houses and digital art galleries.

Continue Reading  DOJ Issues Report on Digital Asset Law Enforcement Seeking Expansive New Powers, and Launches New Crypto Prosecutor Network

On June 6, Attorney General Merrick Garland (“AG”) issued a report titled “How to Strengthen International Law Enforcement Cooperation For Detecting, Investigating And Prosecuting Criminal Activity Related To Digital Assets” (the “Report). Led by the Department of Justice, the Report represents a collaborative effort with feedback from the Department of State, Department of Treasury, Department of Homeland Security, Securities and Exchange Commission, and Commodities Future Trading Commission (“CFTC”). The Report also comes as U.S. senators Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y. recently introduced a sweeping bipartisan bill to bring clarity to cryptocurrency regulation by defining most digital assets as commodities (to be regulated primarily by the CFTC) and enacting rules governing stablecoins.

The Report was required by President Biden’s March 9, 2022 Executive Order, Ensuring Responsible Development of Digital Assets, on which we previously blogged.  The Executive Order addressed concerns about the growing role of digital assets in money laundering crimes and sanctions evasion, and called for a report to be published by the AG for the purpose of strengthening international law enforcement cooperation.  The resultant Report stresses the pragmatic problems facing cross-border investigations – particularly the reluctance or sheer inability of foreign jurisdictions to tackle such investigations independently – and makes three basic recommendations, all of which relate to improved funding, communication and standards.

Continue Reading  DOJ Report Calls For International Cooperation to Fight Digital Asset Crime

Enforcement Trends, Crypto, the AML Act — and More

We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always. …

Case Highlights the Role of Correspondent Bank Accounts and Circumvention of AML Programs

Court Order Describes Seizure as a “Reckoning” for Atrocities in the Ukraine

On April 4, 2022, Magistrate Judge Zia M. Faruqui of the United States District Court for the District of Columbia granted the government’s Application for Warrant to Seize Property Subject to Forfeiture, finding that there was probable cause to believe that the yacht Tango, a 255-foot luxury yacht allegedly owned by sanctioned Russian oligarch Viktor Vekselberg, was subject to forfeiture based on alleged violations of U.S. bank fraud, money laundering, and sanction statutes.  The Tango is located in a shipyard on the Spanish island of Mallorca, and the warrant and subsequent seizure by the United States and its allies was part of Task Force KleptoCapture, an interagency law enforcement task force designed to help deploy U.S. prosecutorial and law enforcement resources to identify sanctions evasion and related criminal conduct.

Sanctions were imposed on Vekselberg and the company he founded, the Renova Group, in April 2018 by the Treasury Department. Following Russia’s invasion of Ukraine, Vekselberg was hit with new penalties by the U.S. government on March 11, 2022.  These sanctions were pursuant to various Executive Orders under the International Emergency Economic Powers Act (“IEEPA”) imposed against persons responsible for or complicit in certain activities with respect to Ukraine.
Continue Reading  Russian Oligarch’s Yacht Subject to Forfeiture Based on Alleged Violations of Bank Fraud, Money Laundering, and U.S. Sanction Statutes

On February 8, 2022, the Department of Justice announced the seizure of a record $3.6 billion in stolen BTC it alleges was tied to the 2016 hack of Bitfinex, a virtual currency exchange.  A husband-wife duo, Ilya “Dutch” Lichtenstein and Heather Morgan of New York, New York were arrested the same day and charged via a criminal complaint with conspiracy to commit money laundering and conspiracy to defraud the United States.  Lichtenstein and Morgan are being held on $5 million and $3 million in bail, respectively, and will be on house arrest pending trial.

The Statement of Facts by the government in support of the criminal complaint filed against the defendants reveals a vast and complicated web of transactions that allegedly permitted Lichtenstein and Morgan to transfer approximately 25,000 of the 119,754 BTC stolen by hackers—valued at “only” $71 million at the time of the theft but now worth about $4.5 billion—to various virtual currency exchangers.  According to the Statement of Facts, the stolen BTC was shuttled to an unhosted wallet (i.e., a cryptocurrency wallet not controlled by a third-party but by the user) with over 2,000 BTC addresses, then to various accounts at the “darknet market AlphaBay,” later to a number of accounts at four different virtual currency exchangers, then to more unhosted BTC wallets, and finally to accounts at six more virtual currency exchangers where it was converted into fiat currency, gift cards, and precious metals.  The defendants further allegedly liquidated BTC through a BTC ATM and purchasing non-fungible tokens.

As if the sheer volume and layers of accounts was not enough, the duo allegedly:

  • Moved the funds in a “series of small amounts, totaling thousands of transactions”;
  • Used software to “automate transactions” which allowed for “many transactions to take place in a short period of time”;
  • “Layered” transactions by depositing and withdrawing the BTC through many accounts to obfuscate the trail, including through extensive layering activity that employed the “peel” chain technique; and
  • “Chain hopped” by converting BTC to anonymity-enhanced virtual currency to cut and disguise the blockchain trail.

Continue Reading  A Record $3.6 Billion Seizure and the Twisting Paths of Money Laundering in the Digital World

Case Presages Mandatory BSA Obligations for Antiquities Dealers under the AML Act

Exhibit A to the Amended Forfeiture Complaint: The Dream Tablet

In the midst of the invasion of Iraq and the subsequent civil instability, thousands of cultural artifacts were stolen from the National Museum of Iraq.  Among them: the Dream Tablet of Gilgamesh (the “Dream Tablet”), a clay tablet at least 3,000 years old, inscribed with part of the oldest works of narrative poetry in the world, the Epic of Gilgamesh.

The Dream Tablet illegally wound its way to the United States in 2003, and Hobby Lobby purchased it in 2014 for $1.67 million.  Now, it is returning to Iraq.  Per a July 27, 2021 Department of Justice (“DOJ”) press release, the Eastern District of New York ordered Hobby Lobby to forfeit the Dream Tablet because its importation violated the United States’ ban on the importation of Iraqi archaeological and ethnological materials.

Although this is not a pure money laundering case, this forfeiture action implicates the intersection of the antiquities and art trades and anti-money laundering (“AML”) concerns, a subject we cover frequently, including in a recent guest post by on potential AML regulations for the antiquities and art market.  Of course, the Anti-Money Laundering Act of 2020 (“AML Act”) in part imposes Bank Secrecy Act (“BSA”) obligations on antiquities dealers by defining a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities” as a “financial institution” covered by the BSA.  The Dream Tablet case illustrates the issues that antiquities dealers will have to face under a mandatory BSA/AML regime, including the filing of Suspicious Activity Reports (“SARs”).
Continue Reading  DOJ Obtains Forfeiture of the Dream Tablet of Gilgamesh

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

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