Specified Unlawful Activity

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DOJ Employs Money Laundering Statute to Prosecute Venezuelan Oilmen for Foreign Bribery

By Evan W. Krick on February 14, 2018

Posted in 18 USC 1956, Bribery, Conspiracy, Criminal Enforcement, Extraterritorial Application of US Law, Foreign Corrupt Practices Act (FCPA), Real Estate, Specified Unlawful Activity

As forecasted in a blog post last summer, the United States Department of Justice (“DOJ”) has again used the money laundering statute to accomplish the otherwise elusive goal of prosecuting foreign officials who allegedly receive bribes. On Monday, DOJ unsealed its Indictment against five Venezuelans employed by or closely connected to Petroleos de Venezuela S.A. (“PDVSA”), the Venezuelan state-owned and state-controlled oil company.

The unsealing of the charges against these five Venezuelan individuals marks the latest development in a multi-year effort by DOJ to investigate and prosecute bribery at PDVSA. As DOJ’s press release notes, ten individuals have already pleaded guilty in the investigation thus far. Key among these individuals are Roberto Enrique Rincon Fernandez and Abraham Jose Shiera Bastidas, two American businessmen who pleaded guilty in 2016 to violating the Foreign Corrupt Practices Act of 1977 (the “FCPA”) for paying bribes to PDVSA. In connection with their pleas, the two admitted to paying PDVSA bribes in order to win lucrative energy contracts and to be given payment priority over other PDVSA vendors during a time when PDVSA faced a liquidity crisis.

Last October, more than one year after these guilty pleas, Spanish police announced the arrests of four of the five individuals named in Monday’s Indictment. The arrests were described as “part of a months-long sting ordered by the U.S. Department of Homeland Security.” Currently, three of the defendants remain in Spain pending extradition, the fourth was extradited to the United States and made his initial appearance last Friday, and the fifth remains at large.

As noted above, the Indictment is notable for using the money laundering statute to accomplish what the FCPA statute cannot—bringing charges against a foreign official. Last summer, we blogged about the conviction and sentencing of Guinea’s former Minister of Mines and Geology. There, we noted the FCPA generally prohibits individuals and businesses from paying bribes to foreign officials to assist in obtaining or retaining business. However, “foreign officials” cannot be charged under the FCPA or with conspiracy to violate it. Therefore, a foreign official could not be prosecuted for his conduct in soliciting or receiving bribes under the FCPA.
Continue Reading DOJ Employs Money Laundering Statute to Prosecute Venezuelan Oilmen for Foreign Bribery

Marijuana Enforcement: DOJ Cole Memo Up in Smoke

By Peter D. Hardy & Terence M. Grugan on January 4, 2018

Posted in 18 USC 1956, Criminal Enforcement, Department of Justice (DOJ), Financial Crimes Enforcement Network (FinCEN), Marijuana Industry, Specified Unlawful Activity, State Enforcement

Attorney General Sessions Announces Rescission of Obama Administration Policies on Marijuana Enforcement; Financial Institutions Lose Grounds to Permit Financial Transactions with Marijuana Businesses

In a single-page memorandum issued today, Attorney General Sessions tersely rescinded a string of DOJ enforcement policies announced during the Obama Administration — chief among them the “Cole Memo,” described below — which collectively had indicated that although marijuana was still illegal under federal drug laws and the DOJ would continue its enforcement of those laws, the DOJ also would defer to state governments that had developed regulatory regimes legalizing marijuana under defined circumstances. Although Attorney General Sessions is well known for his personal distaste for marijuana-related activity, he previously had not been entirely clear as to exactly what position his DOJ would take in regards to the Cole Memo and related enforcement.

Although this policy change has many potential implications, its primary relevance to Anti-Money Laundering (“AML”), the Bank Secrecy Act (“BSA”), and money laundering issues is that the Cole Memo had provided the support for the federal government to issue guidance that, under very defined circumstances, financial institutions could provide services to state-licensed marijuana businesses.
Continue Reading Marijuana Enforcement: DOJ Cole Memo Up in Smoke

Manafort Indictment Alleges High-End International Money Laundering and Tax Fraud Involving Offshore Accounts

By Peter D. Hardy & Marjorie J. Peerce on October 31, 2017

Posted in 18 USC 1956, Bank Secrecy Act (BSA), Conspiracy, Criminal Enforcement, Department of Justice (DOJ), FBAR, Intent to Conceal, Intent to Promote, Internal Revenue Service (IRS), International Tax Evasion, Offshore Account, Proceeds, Real Estate, Report of Foreign Bank and Financial Accounts, Specified Unlawful Activity

Stretch limo parked beside airplane 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.

Continue Reading Manafort Indictment Alleges High-End International Money Laundering and Tax Fraud Involving Offshore Accounts

Proposed Bill Seeks to Transform International Tax Evasion into Money Laundering

By Peter D. Hardy & Alicia M. Went on June 13, 2017

Posted in 18 USC 1956, Criminal Enforcement, International Tax Evasion, Offshore Account, Specified Unlawful Activity

Part II of the Analysis of the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017

As we recently blogged, Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017. As we previously noted, the Panama Papers scandal presumably motivated much of S. 1241, which also may be seeking to respond to international criticism that the U.S. has become a haven for tax cheats and money launderers.

This post focuses on Section 11 of the bill, which seeks to amend 18 U.S.C. § 1956(a)(2), the “international” prong of the “transactional” money laundering statute. This amendment, if passed, would have a significant impact on any individual or company seeking to evade U.S. taxes through a cross-border transfer of funds. This is important because pursuing the use of undisclosed foreign accounts, and related efforts to evade taxes through the use of offshore instruments, has been the centerpiece of U.S. tax fraud enforcement for almost a decade.

The most commonly enforced section of the “transactional” money laundering statute, Section 1956(a)(1), requires the proceeds involved in the transaction at issue to in fact represent the proceeds of “specified unlawful activity” (“SUA”), a defined statutory term which broadly includes many types of criminal conduct. One of the few offenses not included is tax fraud: Congress has defined “SUA” so as to not include tax crimes under Title 26, the Internal Revenue Code. Indeed, and as we note below, DOJ currently has a general policy against trying to base money laundering charges on the proceeds of tax fraud.

In contrast, Section 1956(a)(2), the “international” prong, does not necessarily require the funds at issue to in fact represent “specified unlawful activity” proceeds. In fact, the proposed amendment in Section 11 of S. 1241 appears to transform any cross-border transfer of funds done with the intent to commit U.S. tax evasion or the filing of a false U.S. tax return into an actual money laundering violation, including transfers involving entirely clean funds.
Continue Reading Proposed Bill Seeks to Transform International Tax Evasion into Money Laundering

2016 Year End Review: Part Two

By Peter D. Hardy, Marjorie J. Peerce, Beth Moskow-Schnoll & Brad Gershel on February 5, 2017

Posted in Anti-Money Laundering (AML), Bank, Bank Secrecy Act (BSA), Correspondent Bank Accounts, Criminal Enforcement, Currency Transaction Report (CTR), Customer Due Diligence, De-Risking, Department of Justice (DOJ), Forfeiture, Intent to Evade a Reporting Requirement, Proceeds, Specified Unlawful Activity, Structuring, Virtual Currency

In part two of our review of the 2016 developments in Anti-Money Laundering (AML), the Bank Secrecy Act, (BSA), the criminal money laundering statutes, forfeiture, and related issues, we discuss four additional key topics:

Federal banking regulators’ efforts to ease industry concerns about overly aggressive Anti-Money Laundering (AML)/Bank Secrecy Act (BSA) enforcement and limit the

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2016 Year End Review: Money Laundering Opinions of Note

By Peter D. Hardy on February 5, 2017

Posted in 31 USC 5324, Anti-Money Laundering (AML), Bank, Bank Secrecy Act (BSA), Conspiracy, Criminal Enforcement, Currency Transaction Report (CTR), Department of Justice (DOJ), Forfeiture, Intent to Conceal, Intent to Evade a Reporting Requirement, Intent to Promote, Proceeds, Specified Unlawful Activity, Structuring

The federal courts continued in 2016 to produce a stream of cases pertaining to money laundering. We focus on three below because they involve analysis of basic issues that frequently arise in money laundering litigation.

Justitia, a monument in Frankfurt, Germany

The first case tests the money laundering statute’s reach in prosecution of an alleged international fraud perpetrated primarily outside of the United States—an increasingly common fact pattern as cross-border cases proliferate and the U.S. Department of Justice (DOJ) prosecutes more conduct occurring largely overseas. The other two cases involve defense victories that focus on critical issues of mental state: the question of specific intent under the BSA, and the question, under the money laundering statutes, of knowledge by a third party that a transaction involved proceeds of another person’s crime. The issue of third-party knowledge is often crucial in prosecutions of professionals.
Continue Reading 2016 Year End Review: Money Laundering Opinions of Note

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