Sanctions involving Russia is a front-burner issue for all businesses, but particularly for financial institutions. As we previously blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on March 7 an alert calling for increased vigilance in the face of potential evasion of Russian sanctions. On March 16, FinCEN issued its second alert on the topic (the “Alert”), reiterating the need for increased vigilance and assisting financial institutions in detecting suspicious transactions involving high-value assets to evade sanctions.

We discuss here the Alert, which provides guidance to financial institutions on how to identify suspicious transactions relating to the use of certain high-value assets by Russian elites, their family members and their “proxies.” The Alert reminds financial institutions of the importance of quickly identifying suspicious activity related to the disposition of sanctioned Russian assets. The Alert also highlights the international and domestic task forces that were formed to effectuate the sanctions laws we describe below, emphasizing the need for cross-agency collaboration and information sharing to achieve the common goal of sanctioning Russia’s power players.  However, and as we discuss, the Alert unfortunately offers no guidance on how “proxies” should be identified or defined.
Continue Reading  Russian Sanctions Redux: FinCEN Issues Guidance on Suspicious Transactions and Evasion Using High-Value Assets

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

“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

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

A Textbook Case of Alleged Money Laundering?

On November 18, 2019, the U.S. Attorney for the Southern District of New York announced the arrest and unsealed the indictment of Bruce Bagley – a 73-year-old college professor whose scholarship focuses on U.S.-Latin American relations, with an emphasis on drug trafficking and security issues. He has been

Last week, a grand jury in the Southern District of Florida indicted two former Venezuelan officials, charging them with seven counts of money laundering and one count of money-laundering conspiracy. The charges relate to bribes and kickbacks provided to the officials who headed the country’s energy department and state-owned electricity company, Corporacion Electrica Nacional, S.A. (“Corpoelec”). The former officials allegedly received cash payments and received wire transfers, including from a bank in the Southern District of Florida.

As we have blogged about here, here, here, the U.S. Department of Justice (“DOJ”) has been pursuing Venezuelan nationals through high-dollar, high profile money laundering and foreign bribery charges. We also have previously discussed how the DOJ has been utlizing the money laundering statutes as a way to accomplish what the Foreign Corrupt Practices Act (“FCPA”) cannot accomplish directly – the bringing of charges against a foreign official.
Continue Reading  Two Former Venezuelan Officials and Energy Executives Indicted as DOJ Continues to Use Money Laundering Charges to Combat Foreign Corruption

Convictions to “Promote” Crime and “Conceal” Illegal Proceeds Vacated Due to Insufficient Evidence of Intent

A recent decision out of the United States District Court for the Eastern District of Virginia adjudicating a seemingly straight-forward alleged fraud and money laundering scheme reminds us that money laundering charges still require the government to establish elements which can be difficult to prove, including, importantly, specific intent.

United States v. Millender involved an investment fraud scheme charged against a husband and wife and their associate. Terry and Brenda Millender were, respectively, the founder and pastor, and the “First Lady” of the Victorious Life Church (“VLC”) in Alexandria, Virginia. The evidence at trial established that Mr. Millender conceived of and founded Micro-Enterprise Management Group (“MEMG”), purportedly for the purpose of helping the poor in developing countries by making small, short-term loans to entrepreneurs who wished to start or expand existing businesses. Mrs. Millender was the co-founder, registered agent, and signatory of MEMG. To fund the enterprise, MEMG solicited “loans” from VLC congregants and other private lenders. MEMG promised its investors high rates of return through profits on the entrepreneur loans and assured them that the loans were securely backed by MEMG assets. Moreover, written materials soliciting investment represented that MEMG had a successful history of making micro-loans in Africa and had established relationships with on-going projects. Later, Mr. Milliner founded a second entity, Kingdom Commodities Unlimited (“KCU”), purportedly for the purpose of brokering Nigerian oil deals, and promising investors substantial returns on what they claimed were short term loans. The defendants solicited over $600,000 from investors from 2008 until 2015.

The Millender opinion reflects the complexity of the different prongs of the money laundering statutes, and their somewhat overlapping and competing requirements. The opinion is particularly noteworthy because of its procedural posture: despite jury verdicts finding guilt, the district court nonetheless found at least as to some counts that there was insufficient evidence as a matter of law of knowledge and specific intent.
Continue Reading  Money Laundering and Specific Intent Can Be Difficult to Prove