In the rainforests of Guatemala, Honduras and Nicaragua, the fires often start when drug traffickers try to clear large swaths of land. Due to the dry bush and lack of rainfall, the flames often spread out of control, but in the end, the result is the same: oaks, palms, acacia and mahogany trees are replaced
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
Professional Banker Described as “Door Opener” for Private Banking Clients and Alleged Co-Conspirators
As we have blogged, the United States Attorney’s Office for the Southern District of Florida is pursuing charges against eight individuals for allegedly conspiring to launder $1.2 billion embezzled from a Venezuelan state-owned oil company and other unlawfully-derived funds. On August 22, 2018, Matthias Krull, the first of those co-defendants, pled guilty for his role in the charged conspiracy. Krull, a German national and former high-ranking executive at Swiss bank Julius Baer who was based in Panama at the time of the alleged scheme, faces up to 10 years in prison according to the terms of the Plea Agreement but, due to his potential cooperation with authorities as reflected by paragraphs 10 to 12 of the Plea Agreement, may serve less. The conduct of Krull illustrates the potentially key role of professionals in elaborate money laundering schemes.
Continue Reading Update: First Defendant Pleads and Agrees to Cooperate in $1.2 Billion Alleged Venezuelan Laundering Scheme
Complaint Describes an Elaborate Money Laundering Cocktail of Venezuelan Oil, Shell Companies, Currency Exchange Rate Manipulation, Undercover Recordings, Offshore Accounts and Miami High-End Real Estate
On July 24, 2018, the United States Attorney’s Office for the Southern District of Florida unsealed a criminal complaint (the “Complaint”) charging eight individuals with conspiracy to commit money laundering under 18 U.S.C. § 1956(h) and 1956(a)(2) and interstate and foreign travel in aid of racketeering enterprises under 18 U.S.C. § 1952 for their alleged involvement in a sprawling, highly sophisticated $1.2 billion international money laundering conspiracy. Among those charged were four Venezuelan nationals with assorted connections to Venezuelan public officials and the country’s state-owned oil company; a Columbian national and American citizen with ties to American financial firms; a Portuguese national and purported “professional money launderer”; a German national described by the government as a “high-level banker at a large Swiss bank”; and a Uruguayan national with ownership interest in at least one American bank known to the government to facilitate money laundering. The Complaint also identifies nine unnamed co-conspirators and implicates numerous unnamed American and international financial institutions.
The Complaint — the product of a joint investigation by the Department of Justice and Immigration and Customs Enforcement’s Homeland Security Investigations — sets forth allegations of conduct designed to embezzle $1.2 billion from a Venezuelan oil company and launder that money through fraudulent transactions involving the sale of false securities and high-end real estate and through fraudulent contractual relationships in the United States and Europe. The defendants are described as “sophisticated operators with respect to the international banking system [who] are aware of banks’ general due diligence and anti-money laundering practices, including know-your-customer (KYC) requirements.” The Complaint sets forth an elaborate tale which encompasses a litany of current “hot” topics in money laundering and on which we have blogged, including alleged corruption in the Venezuelan oil industry; moving the proceeds of official corruption through the international financial system; the potential laundering of foreign assets through high-end real estate in the United States, and the misuse of shell companies to hide the true beneficial owners.
Continue Reading 8 Charged With Highly Sophisticated $1.2 Billion International Money Laundering Conspiracy
Earlier this month, the District Court for the Central District of California imposed a prison sentence of one year and a day, with three years of supervised release, on defendant Theresa Lynn Tetley, who had pleaded guilty to: (i) the unlicensed operation of a digital currency exchange due to failure register with the Financial Crimes Enforcement Network (“FinCEN”), in violation of 18 U.S.C. § 1960(a) and (b)(1)(B), and (ii) a money laundering charge, in violation of 18 U.S.C. § 1956(a)(3)(B), arising out of an undercover “sting” operation run by the Drug Enforcement Agency and Internal Revenue Service-Criminal Investigation involving the attempt to conceal proceeds supposedly obtained by selling drugs. Tetley also was ordered to pay a $20,000 fine and forfeit 40 Bitcoin, $292,264 in cash, and 25 gold bars that were the alleged proceeds of her illegal activity.
The Court imposed a sentence significantly lower than the sentence of 30 months requested by the government, a recommendation which already was lower than the advisory sentencing range recommended by the Federal Sentencing Guidelines (“Guidelines”) of 46 to 57 months in prison, as calculated by the U.S. Probation Office.
Tetley, a 50 year old woman living in Southern California, is a former stockbroker and real estate investor. She operated her digital currency exchange under the alias “Bitcoin Maven” for over three years, running an unregistered Bitcoin for cash exchange service. According to the government, her service “fueled a black-market financial system” that “purposely and deliberately existed outside the regulated bank industry” and which catered to an alleged major darknet vendor of illegal narcotics. According to the defense, however, the defendant “departed from a lifetime of integrity and good deeds and showed terrible judgment by failing to comply with federal registration requirements and buying bitcoins from individuals who represented themselves as engaged in criminal activity.”
In this post, we will drill into this sentencing and the parties’ respective positions, which provide a window into the prosecution and sentencing of alleged crimes involving both digital currency and undercover money laundering operations — and into the process for the sentencing of federal crimes in general, and how other factors which are entirely unrelated to the facts of the specific offense can be important. Further, the Tetley case is interesting in part because it represents a sort of “hybrid” case — seen from time to time in money laundering cases involving professionals — which straddles both the typically very different realms of “pure” financial crime cases and illegal narcotics cases. The government sentencing memorandum is here; the defense sentencing memorandum is here.…
Continue Reading Unlicensed Bit Coin Exchange Operator Sentenced to One Year and a Day for Attempted Money Laundering in Undercover Sting Operation and Failure to Register with FinCEN
As the world now knows, an indictment against Paul Manafort, Jr., a former campaign chairperson for now-President Donald Trump, and Manafort’s associate, Richard Gates III, was unsealed yesterday. Brought by Special Counsel Robert S. Mueller, the indictment alleges that Manafort and Gates, while working as political consultants and lobbyists, acted as agents of the Government of Ukraine and other foreign entities; failed to properly register and report as such agents; generated tens of millions of dollars from this work; laundered these earnings through various U.S. and foreign entities and bank accounts; and hid these same earnings from the Internal Revenue Service (“IRS”) and the Financial Crimes Enforcement Network (“FinCEN”).
This post will discuss some legal aspects of the specific charges. This post will not delve into any potential political ramifications of the indictment, or speculate as to what the indictment may or may not supposedly reveal regarding the work of the Special Counsel in general. Standing alone, the indictment is a fascinating document for those interested in money laundering and international tax evasion issues, and highlights the potentially powerful overlap of money laundering charges, tax fraud charges, and alleged violations of the Bank Secrecy Act (“BSA”).
In particular, we will discuss:
- The charges involving the “international” prong of the money laundering statute, a rarely used charge;
- The charges under the BSA alleging failures to file Reports of Foreign Bank and Financial Account, or FBARs – a charge which has become a staple in the government’s decade-long enforcement campaign against international tax evasion and undisclosed foreign accounts held by all sorts of U.S. taxpayers; and
- How the indictment’s allegations conform with the recent regulatory emphasis on the alleged use of high-end real estate in the U.S. to launder illicit funds earned abroad.
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.