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Third of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

As we have blogged, the Department of Justice (“DOJ”) has been busy lately in regards to money laundering and Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) prosecutions.

In our first blog post in this three-part series, we discussed a significant prosecution of an individual, and two related corporate non-prosecution agreements involving the gaming industry.  In our second blog post, we discussed two unusual prosecutions involving, respectively, an executive of a bank and an alleged AML specialist working with small financial institutions.

In our final post of this series, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the massive fraud and money laundering scheme perpetrated by his cryptocurrency client.  Specifically, on January 25, lawyer Mark Scott (“Scott”) was sentenced to 10 years in prison for allegedly laundering approximately $400 million in connection with a fraudulent cryptocurrency scheme known as “OneCoin.”  Scott was a former partner at the international law firm of Locke Lord.  Although the alleged facts and circumstances of this case are both extreme and lurid, it nonetheless reminds lawyers of the need to be careful about getting too involved in the businesses of their clients, particularly in the presence of multiple red flags.

Continue Reading  Former Big Law Lawyer Sentenced to 10 Years in Prison for Allegedly Laundering $400 Million in Crypto Client Funds

Second of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”).  

In the first blog post in this series, we discussed a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry.  In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

In this second post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

As we previously noted, all of these cases, although all unique, are also united in certain ways – particularly in regards to the need for institutions and professionals to perform sufficient due diligence regarding the conduct and source of funds of high-risk clients and customers.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Financial Institution Officers

Farewell to 2023, and welcome 2024.  As we do every year, let’s look back.

We highlight 10 of our most-read blog posts from 2023, which address many of the key issues we’ve examined during the past year: criminal money laundering enforcement; compliance risks with third-party fintech relationships; the scope of authority of bank regulators; sanctions…

A Huge Monetary Penalty for Sprawling Allegations – But Will Zhao Receive a Prison Sentence?

As the world now knows, Binance Holdings Limited, doing business as Binance.com (“Binance” or the “Company”), has entered into a plea agreement with the U.S. Department of Justice (“DOJ”).  

Binance is registered in the Cayman Islands and regarded as the world’s largest virtual currency exchange. It agreed to plead guilty to conspiring to willfully violating the Bank Secrecy Act (“BSA”) by failing to implement and maintain an effective anti-money laundering (“AML”) program; knowingly failing to register as a money services business (“MSB”); and willfully causing violations of U.S. economic sanctions issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). Despite the plea agreement, Binance will continue to operate.

Changpeng Zhao, also known as “CZ,” also pleaded guilty to violating the BSA by failing to implement and maintain an effective AML program. Zhao is Binance’s primary founder, majority owner, and – until now – CEO. As part of his plea agreement, Zhao has stepped down as the CEO, although he apparently will keep his shares in Binance.

As part of its plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total criminal penalty of $4,316,126,163. Binance also entered into related civil consent orders with the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Office of Foreign Assets Controls (“OFAC”). Zhao also entered into a consent order with the CFTC.

The allegations are vast and detailed, and much digital ink already has been spilled regarding this matter. Our discussion therefore will be relatively high-level. Distilled, the government alleges that Binance – under the direction of Zhao – tried to hide the fact that it operated in the U.S., purposefully avoided any meaningful AML compliance, and consequently laundered many millions of dollars’ worth of cryptocurrency involving extremely serious criminal conduct, including terrorism, child pornography, and U.S. sanctions evasion.

As for Zhao, and as we will discuss, whether he will go to prison – and if so, for how long – is an open and very interesting question. His sentencing currently is scheduled for February 23, 2024.

Continue Reading  Binance Settles Criminal and Civil AML and Sanctions Enforcement Actions for Multiple Billions – While its Founder, Owner and Former CEO Zhao Pleads Guilty to Single AML Crime

Earlier this month, John Can Unsalan, the president of a steel-making company with ties to Russian oligarchs, pled guilty to one count of conspiracy to commit money laundering, based on financial transactions committed with the alleged intent to promote U.S. sanctions violations.

Unsalan’s company, known as Metalhouse LLC, was formed in Florida in 2014. According to the plea agreement, between 2018 and 2021 Unsalan facilitated transactions through Metalhouse with companies controlled by Sergey Kurchenko, a Russian oligarch who has been on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List since 2015 (Kurchenko was initially put on the SDN List for allegedly misappropriating state funds belonging to Ukraine). It is generally illegal for U.S. persons to directly or indirectly conduct business with individuals or entities on the SDN List – although the U.S. government is able to grant exceptions on a case-by-case basis.

According to the factual basis supporting the plea agreement, Unsalan knowingly participated in a scheme with Kurchenko to evade sanctions through Metalhouse transactions, which totaled around $157 million over the relevant three-year period. The scheme involved two shell companies – one formed in Hong Kong and one in Cyprus – controlled by Kurchenko. Unsalan and his associate at Metalhouse met with Kurchenko in person and subsequently contracted with Kurchenko’s companies to order steel and other raw materials and to pay for the materials using offshore bank accounts. Ultimately, Unsalan and Metalhouse received a total of over $160 million from reselling those materials to third parties – and although most of that money went to Kurchenko to pay for additional raw materials, the factual basis supporting the plea agreement alleged that Unsalan kept millions in profits for his own personal use.

Continue Reading  Steel Company President with Ties to Russian Oligarch Pleads Guilty to Money Laundering Conspiracy Involving Alleged Sanctions Violations

Couple Appears to Be Cooperating with DOJ

In February 2022, we blogged on the seizure of a record $3.6 billion in stolen Bitcoin (“BTC”) and an accompanying criminal complaint, charging husband and wife Ilya “Dutch” Lichtenstein and Heather “Razzlekhan” Morgan with conspiracy to commit money laundering and conspiracy to defraud the United States.  Last week, the couple pleaded guilty, pursuant to plea agreements with the government, with sentencing to follow. 

As we discuss below, both of their plea agreements contemplate attempting to reduce their sentences via cooperation with the Department of Justice (“DOJ”).  As we also discuss, this case presents a cautionary tale for financial institutions and the need to not “tip off,” unwittingly or otherwise, the recipients of grand jury subpoenas.

Continue Reading  Crypto Couple Plead Guilty to Money Laundering Conspiracy

Factual Statement Is a Tale of Whistleblowing, High-Risk Customers, and Misleading U.S. Banks

Earlier this month, Danske Bank was sentenced in the Southern District of New York to three years of probation and forfeiture of $2.059 billion.  The sentencing capped a tumultuous and global scandal that became public several years ago, as the enormous scope of the bank’s anti-money laundering (“AML”) compliance problems emerge:  several hundred billion in suspicious transactions allegedly were processed over time at the bank’s former Estonian branch.  As a result of the sentencing, Danske Bank was ordered to make an actual payment of $1,209,062,646; the bank received credit for the rest of the forfeiture amount on the basis of a $178.6 million payment to the Securities and Exchange Commission and a $672.3 million payment to Denmark authorities.

Danske Bank was charged not with violating the Bank Secrecy Act (“BSA”), but rather with bank fraud.  According to the press release issued in December 2022  by the Department of Justice (“DOJ”) at the time of the bank’s plea, the bank had “defrauded U.S. banks regarding Danske Bank Estonia’s customers and [AML] controls to facilitate access to the U.S. financial system for Danske Bank Estonia’s high-risk customers, who resided outside of Estonia – including in Russia.”  The DOJ’s choice to charge bank fraud presumably was predicated upon issues relating to U.S. jurisdiction and the actual applicability of the BSA to Danske Bank and activities in Estonia – but the heart of the criminal case is that Danske Bank allegedly hid its own AML failures from three U.S. banks, thereby thwarting the U.S. banks’ own AML programs and compliance with the BSA.

The plea agreement contains a lengthy statement of facts full of eye-catching allegations.  As we describe, it sets forth a tale of intentional and sometimes brazen misconduct by Estonian branch employees, coupled with lax oversight and implicit approval, or at least tolerance, of such conduct by some people in upper management.  Further, it involves another example of a financial institution, in the eyes of law enforcement and regulators, over-valuing profit and under-valuing compliance systems.  The case also highlights, again, the potential risks associated with correspondent bank accounts held by non-U.S. banks, the importance of having fully integrated and coordinated monitoring systems, and the potential role of whistleblowers.

Finally, this saga is not necessarily over entirely.  Danske Bank is subject to three years of probation.  The plea agreement requires numerous compliance commitments by the bank, including signed certificates of compliance and self-reporting of potential AML failures.  Danske Bank’s troubles also have involved lawsuits brought by investors claiming to have been defrauded, although the bank has had success in fending off these actions (see here, here and here).

Continue Reading  SDNY Sentences Danske Bank in Massive AML Scandal

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

Hefty Monetary Penalties – Accompanied by the Possibility of No Prison Time

The legal saga involving the civil and criminal cases against the entity and former individual owners of the Bitcoin Mercantile Exchange, or BitMEX—a large and well-known online trading platform dealing in futures contracts and other derivative products tied to the value of cryptocurrencies (see here, here, and here)—continues unabated. 

Most recently, BitMEX co-founder and former CEO, Arthur Hayes, a high-profile leader in the cryptocurrency industry, settled his civil charges with the CFTC and pleaded guilty to criminal charges brought by the DOJ.  He now faces sentencing in the criminal case, currently scheduled for the end of this week.  As we will discuss, Hayes and the government take very different views regarding his appropriate sentence.

These cases emerged publicly in October 2020 when: (1) the Commodity Futures Trading Commission (“CFTC”) filed a civil complaint against the entities operating the BitMEX trading platform and its three individual owners for allegedly failing to register with the CFTC and violating various laws and regulations under the Commodity Exchange Act (“CEA”); and (2) the Department of Justice obtained an indictment against the three individual owners and another individual, including Hayes, charging each with violating, and conspiring to violate, the Bank Secrecy Act (“BSA”) by failing to maintain an adequate anti-money laundering (“AML”) program.

The cases have raised novel legal questions concerning which, if any regulatory regimes, apply to participants in the cryptocurrency market.  Moreover, Hayes’ upcoming sentencing raises the question of whether an offense is so novel that it can merit probation, despite the high dollar value of the alleged scheme at issue.

Continue Reading  BitMEX Co-Founder and Owner Settles with CFTC and Now Faces Criminal Sentencing

Sentencing is a critical stage in the federal criminal process, particularly given the incredibly high rate of guilty pleas in federal court.  There is a very strong argument that sentencing far eclipses the importance of the increasingly rare trial in the federal criminal system.  If a federal criminal investigation cannot be “killed,” then in many cases – particularly in “white collar” cases – the focus early on for both the defense and the prosecution is the sentencing hearing, and how to maximize one’s position, because a federal charge often produces a conviction via plea, or less often, via trial.  Stated otherwise, federal criminal defense is often all about sentencing.

At sentencing, sometimes defendants – and, less often, the prosecution – will make arguments regarding “similarly situated” defendants, and the sentences that they received.  Sometimes these arguments resonate with the sentencing court; sometimes not.  Regardless, these arguments can be tricky because reliable “statistics” are elusive, and it’s not always clear that justifiable comparisons are being drawn by either side.  We therefore were interested when the U.S. Sentencing Commission (“the Commission”) recently issued the Judiciary Sentencing Information (“JSIN”) platform.  Although it is difficult to draw clear conclusions from the JSIN platform, the data is nonetheless fascinating, and we discuss in this blog potential insights into sentences for money laundering and Bank Secrecy Act (“BSA”) offenses.

We have reviewed the data and created summary charts for your consideration.  Because the Commission has invited federal judges to use the JSIN platform when sentencing, it by definition is relevant to defense attorneys and prosecutors.
Continue Reading  U.S. Sentencing Commission Data on Money Laundering and BSA-Related Offenses Reveals:  Courts Often Sentence Below the Guidelines Range