Exterior of the Robert F. Kennedy U.S. Department of Justice Building in Washington, D.C.

In a highly anticipated speech to the New York City Bar White Collar Crime Institute this morning, Deputy Attorney General Rod Rosenstein announced two new Department of Justice (“DOJ”) policies: first, a directive encouraging “coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct,” and second, the establishment of a new Working Group on Corporate Enforcement and Accountability designed to foster consistency in DOJ outcomes surrounding white collar crime and corporate compliance.

Although Deputy A.G. Rosenstein did not discuss specifically enforcement actions involving money laundering or violations of the Bank Secrecy Act (“BSA”), his remarks and guidance clearly will apply to such actions, because they will apply  to all corporate investigations and prosecutions. Indeed, the high-profile actions against financial institutions involving alleged AML/BSA and/or OFAC violations which we have seen over the years invariably involve numerous enforcement agencies, including but not necessarily limited to DOJ, FBI, IRS, FinCEN, the OCC, and/or state agencies — with each agency looking to assert its own particular role and agenda, sometimes to the bewilderment and detriment of the company.

This is an important development for institutions undergoing government scrutiny. I and my colleagues Hank Hockeimer, Jr. and Thomas Burke therefore discuss Deputy A.G. Rosenstein’s speech in detail here.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

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

Mexico City’s downtown and Palacio de Bellas Artes building at twilight

Last week, the Financial Action Task Force (“FATF”) issued a report concluding that Mexico needs to “step up efforts in pursuing money launderers.” The report, which summarized the FATF’s findings from its on-site assessment in early 2017, identified three particularly weak areas in Mexico’s AML regime:  preventative measures; investigation and prosecution; and confiscation.  This post summarizes the report’s findings, and observes that Mexico is not the only nation needing to “step up” its efforts.  Further, given the strong financial and geographic ties between Mexico and the U.S., the AML challenges of Mexico can be the challenges of the U.S. Continue Reading Mexico’s AML Regime Evaluated by the FATF: Systemic Improvement, but Suspicious Transaction Reporting and Law Enforcement Efforts Continue to Struggle

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

U.K. Think Tank Report Criticizes International AML Reporting Regimes

First in a Three-Part Series of Blog Posts

The Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — regarding the reporting of suspicious transactions, money laundering, and terrorist financing.  The Study is a critique of current approaches to AML reporting.

In this first blog post on the Study, we will describe some of the criticisms set forth by the Study regarding the general effectiveness of suspicious activity reporting. Some of these criticisms will ring true with U.S. financial institutions, and echo in part criticisms previously raised by a detailed paper published by The Clearing House, a banking association and payments company. That paper, titled A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement (“The New Paradigm”), analyzes the effectiveness of the current AML and Combatting the Financing of Terrorism (CFT) regime in the U.S., identifies problems with that regime, and proposes reforms.  As we previously have blogged, The New Paradigm has argued that the regime for filing SARs is outdated, that “the combined data set [from filed SARs] has massive amounts of noise and little information of use to law enforcement,” and that “the SAR database includes no feedback loop [and] . . . . there is no mechanism for law enforcement to provide feedback on whether a given SAR produced a lead or was never utilized.”  These same criticisms are repeated in the Study, which looked at AML systems in the U.S, the U.K, Hong Kong, Singapore, Australia, and Canada.  Although suspicious activity reporting is generally considered to be the engine which drives AML and money laundering enforcement by the government, the Study asserts: “Interviews with past and present {Financial Intelligence Units] heads as part of this project consistently raised figures of between 80% and 90% of [such reporting] being of no operational value to active law enforcement investigations.” Continue Reading Suspicious Activity Reports Rarely Provide “Operational Value” to Law Enforcement Investigations

Most individuals convicted of federal money laundering charges face prison time. These prison sentences are often increased by the judge’s determination that certain sentencing enhancements unique to this crime apply.  This post looks at two of those enhancements—those relating to defendants engaged in the “business of laundering funds” and those involved in “sophisticated laundering”—with a brief review of the relevant statutory guidance followed by analysis of recent cases addressing them. The importance of sentencing issues in money laundering cases is underscored by recent developments. Earlier this year, the United States Attorney General released a memorandum establishing the Department of Justice’s policy for charging and sentencing.  In this memorandum, Attorney General Sessions placed renewed emphasis on sentencing and disclosure to the sentencing court of “all facts that impact the sentencing guidelines.”  Even before this memorandum, however, sentencing data from the U.S. Sentencing Commission shows that in 2016, 78.6% of the individuals convicted of money laundering as their “primary offense” were incarcerated—a figure higher than the previous two years (see 2015 data here and 2014 data here).  The mean prison sentence for these individuals was 41 monthsContinue Reading Unique Issues in Sentencing for Money Laundering Convictions: The “Business of Laundering Funds” and “Sophisticated Laundering” Enhancements

U.S. Money Laundering Charges Stemmed from Foreign Bribes to Foreign Official by Foreign Companies

On August 25, a U.S. District Court Judge for the Southern District of New York sentenced former Guinea Minister of Mines and Geology, Mahmoud Thiam, to seven years in prison, followed by three years of supervised probations, for laundering $8.5 million bribes paid to him by China Sonangol International Ltd. and China International Fun, SA (CIF).  The judge also entered an order for the forfeiture of the full of $8.5 million of laundered funds.  The sentence followed Thiam’s conviction by a jury in May 2017 of money laundering.

Although the alleged money laundering transactions charged in the indictment involved wire transfers from foreign banks to bank accounts held in New York City, all of the bribery which produced the illicit proceeds at issue in the money laundering charges occurred entirely overseas. As we will discuss, this case serves as a reminder that the offense of money laundering centers on a discrete financial transaction, not the underlying illegal activity. This case also illustrates the willingness of the U.S. Department of Justice (“DOJ”) to pursue cases primarily involving conduct which occurred abroad, and also how the DOJ may use the money laundering statutes – assuming that there is a U.S. jurisdictional hook – to pursue certain individuals who would be untouchable under the Foreign Corrupt Practices Act: the foreign officials themselves who are receiving the bribes. Continue Reading Former Guinean Minister of Mines Sentenced to Seven Years in Prison for Laundering $8.5 Million in Bribes Paid by Chinese Companies in Exchange for Mining Rights

As digital currency continues to evolve, it continues to pose unfolding compliance, regulatory and criminal law challenges.  We will present two webinars on this topic in September, in which we will discuss issues posed under the Bank Secrecy Act and the money laundering and federal securities laws, among other issues.

The first webinar, “Current Trends in Criminal Law:  The Mechanics of Virtual Currency, from Legitimate Use to Misuse,” will be presented through Lawline, on September 7 at 11:30 am ET.

The second webinar, “Eye on Virtual Currency and Blockchain Technology,” will be presented through Ballard Spahr LLP, on September 19 at 12:00 pm ET.  Our colleague Odia Kagan also will participate in this free webinar, which also will discuss some of the data privacy issues posed by digital currency.

We hope that you join us.  You may review the webinars and register through the links provided above.  The innovative blockchain technology that is at the heart of digital currency likely will be embraced increasingly by more “traditional” financial institutions, so these issues have broad relevance.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.

Describing him as a “longtime Mexican Drug Kingpin,” the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury has designated Raul Flores Hernandez and the “Flores Drug Trafficking Organization,” or  “Flores DTO,” as a Specially Designated Narcotics Trafficker under the Foreign Narcotics Kingpin Designation Act (Kingpin Act).  OFAC also has used the Act to designate 21 other Mexican nationals and 42 entities, including a casino, a soccer club, a music production company, and various bars and restaurants, for allegedly supporting or being controlled by Flores and the Flores DTO. According to the government’s press release, Flores “has operated for decades because of his longstanding relationships with other drug cartels and his use of financial front persons to mask his investments of illegal drug proceeds[.]”

Although Mr. Flores may not be well known outside of Mexico, other individuals designated by OFAC certainly are. OFAC designated soccer superstar Rafael “Rafa” Márquez Alvarez, who plays defense for the Atlas Fútbol Club in Guadalajara, Mexico, and who served as captain of the Mexican team in four FIFA World Cups from 2002 to 2014.  Mr. Márquez is not necessarily beloved throughout the United States, where he is remembered for having head-butted a U.S. player during the 2002 World Cup quarterfinals.  OFAC also designated Norteño singer Julio Cesar Alvarez Montelongo, better known as Latin Grammy-nominated musician Julion Alvarez. According to OFAC, “[b]oth men have longstanding relationships with Flores Hernandez, and have acted as front persons for him and his DTO and held assets on their behalf.”  As for the rest of the Flores DTO, OFAC asserts that it is comprised of “a significant number of Flores Hernandez’s family members and trusted associates, upon whom he heavily relies to further his drug trafficking and money laundering activities and to maintain assets on his behalf.” Continue Reading OFAC Targets Alleged Mexican Drug Boss and “His Vast Network,” Including International Soccer Superstar