Narcotics Financing

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On March 1, 2022, the U.S. Department of the Treasury (“Treasury”) published its National Risk Assessment for Money Laundering, Terrorist Financing, and Proliferation Financing (the “NMLRA”), identifying the national threats, vulnerabilities, and risks facing the U.S. financial system.  The NMLRA is 74 pages long and comprehensively covers many different perceived threats and vulnerabilities, including the misuse of legal entities, virtual assets, real estate, investment advisors, and casinos.  This post therefore selects three key issues for closer analyses.

First, cybercrime (a topic we cover frequently) in the form of ransomware received the dubious honor of representing “a larger and growing share of the overall money laundering threat in the United States.”  Second, professional money laundering organizations (“PMLOs”) continue to peddle their illicit services internationally to launder the proceeds of cybercrime, narcotics trafficking, and other schemes on behalf of organized criminal enterprises.  Third, merchants and professionals, such as lawyers, real estate professionals, and financial services employees, continue to perform – knowingly or unknowingly – critical functions in support of money laundering schemes and obfuscating the source of ill-gotten gains.
Continue Reading  U.S. Treasury Identifies Ongoing and Emergent Money Laundering Risks and Vulnerabilities

The U.S. Government Accountability Office (“GAO”) recently issued a public version of a more detailed and confidential report previously sent to Congress summarizing the GAO’s review of the use of virtual currencies to facilitate human and drug trafficking.  The GAO’s report, Additional Information Could Improve Federal Agency Efforts to Counter Human and Drug Trafficking, (“the Report”) is lengthy.  The GAO examined two issues:  (1) U.S. agencies’ collection of data on the use of virtual currencies for human and drug trafficking; and (2) the steps taken and challenges faced by U.S. agencies to counter human and drug trafficking facilitated by virtual currencies.  In this post, we will describe the Report at a high level, but will focus on the emerging trends identified in the Report and the GAO’s recommendations to counter the use of virtual currency in facilitating human and drug trafficking by amending BSA/AML regulation of virtual currency kiosks, otherwise known as virtual currency ATMs, so as to identify specific locations.
Continue Reading  GAO Publishes Report on Nexus Between Virtual Currencies and Human and Drug Trafficking Financing

Global environmental crime—the third largest illicit activity in the world, according to a report by the FATF—is estimated to generate hundreds of billions in illicit proceeds annually.  This criminal activity harms human health, the climate, and natural resources.  To help address the threat presented by environmental crimes, the Financial Crimes Enforcement Network (FinCEN) issued an environmental crimes and associated illicit financial activity notice (Notice) on November 18, 2021.  The FinCEN Notice states that environmental crime and related illicit financial activity are associated strongly with corruption and transnational criminal organizations, both of which FinCEN has identified as national anti-money laundering and countering the financing of terrorism (AML/CFT) priorities for financial institutions to detect and report.

We have blogged with increasing frequency (see here, here, here and here) on the nexus between environmental crime and illicit financial flows, and how these money laundering risks are often overlooked and are especially difficult for financial institutions to monitor.  Environmental offenses are also receiving more attention in the U.S., in part because of the growing interest by investors, companies and regulators in ESG (Environmental, Social and Governance) concerns.

The Notice includes an appendix that describes five categories of environmental crimes and the illicit financial activity related to them: wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking.  The Notice also includes new suspicious activity report (SAR) filing instructions in order to enhance analysis and reporting of illicit financial flows related to environmental crime.
Continue Reading  FinCEN Issues Notice on Environmental Crimes and Illicit Financial Activity

Last week, the Southern District of California partially unsealed a superseding indictment (the “Indictment”) revealing allegations against 29 alleged members of an international money laundering organization (“MLO”) tied to some of the largest and most powerful drug trafficking organizations in Mexico, and who allegedly laundered over $32 million in drug proceeds from the United States…

On October 6, the Department of Justice (“DOJ”) announced the creation of a National Cryptocurrency Enforcement Team (“NCET”).  The DOJ press release is set forth in part below, without further commentary, other than to observe that the NCET’s stated goals are to address issues on which we repeatedly have blogged:  crypto exchangers and their AML…

Third Post in a Series on the FATF Plenary Outcomes

This blog is the third post on the Financial Action Task Force (“FATF”) fourth Plenary, an event where delegates were invited from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas.  Among the several strategic initiatives identified by FATF was Ethnic or Race Motivated Terrorist Financing (“EoRMTF”), on which FATF issued a report detailing its implications for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) (the “Report”).

Similar to FATF’s first-time report regarding environmental crime and money laundering, the Report marks the first time FATF has looked at the financing of ethnically or racially motivated terrorism. The Report highlights how very difficult it can be to identify and trace EoRMTF, including because of the following factors: the major role of so-called “lone wolf” actors; competing legal regimes in different countries; growing transnational links between extreme right wing (“ERW”) groups; limited information on ERW groups; and the fact that some ERW groups are not considered illegal or have not been listed as groups to monitor.  The Report also notes the irony that ERW groups often use legal – not illicit – funds to promote their efforts, and that “ERW groups appear to be less concerned with concealing their transactions than in other forms of [terrorist financing]” – but that “many jurisdictions also reported that ERW actors are becoming increasing operationally sophisticated in how they move [and conceal] their funds.”…
Continue Reading  FATF Report Stresses Challenges in Combatting Ethnically- and Racially-Motivated Terrorism

Last week, the law enforcement agencies across the globe executed a historic two-day takedown of hundreds of alleged criminals who used securely encrypted communication devices to further their criminal enterprises.  The operation, dubbed “Operation Trojan Shield,” involved over 9,000 law enforcement officers deployed worldwide to search more than 700 locations, which resulted in more than 800 arrests.  Their secret weapon? The encrypted communication devices used by these criminal organizations were manufactured and distributed by a company called ANOM, which just happens to be owned and operated by the Federal Bureau of Investigation (“FBI”).

To date, government press releases throughout the world have focused on the arrests and the seizures of contraband:  more than eight tons of cocaine; 22 tons of marijuana; two tons of methamphetamine/amphetamine; six tons of precursor chemicals; 250 firearms; and more than $48 million in various worldwide currencies and cryptocurrencies.  However, law enforcement agencies also have been clear that, of course, spin-off investigations are in the works.  As we discuss, money laundering already is a focus, and presumably numerous money laundering charges will be forthcoming over the years as a result of this operation, including as to any third parties or professionals knowingly involved in helping to move the massive amount of illicit proceeds.
Continue Reading  The Ultimate Inside Job: FBI-Owned Encrypted Communication Devices Take Down Criminal Syndicates Worldwide – With Money Laundering Cases Across the Globe to Follow

“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