The U.S. Department of Justice (“DOJ”) continues to pursue Venezuelan nationals through high-dollar and high-profile money laundering and foreign bribery charges. The latest development in this ongoing saga is the recent sentencing of the former national treasurer of Venezuela, Alejandro Andrade Cedeno (“Andrade”), by the Southern District of Florida to a decade in prison, after Andrade pleaded guilty last year to a single-count information charging him with conspiracy to commit money laundering (specifically, a conspiracy to violation 18 U.S.C. § 1957, the so-called “spending” money laundering provision, which requires transactions involving over $10,000 in criminal proceeds, but no specific intent) in an alleged sprawling bribery and money laundering scheme. His plea agreement (the “Plea”) was one of several connected proceedings unsealed on November 20, most notable of which is the grand jury indictment (the “Indictment”) of fugitive Raúl Gorrín Belisario (“Gorrín”), the owner of Venezuelan cable news network Globovision, erstwhile resident of Miami, and alleged architect of the money laundering conspiracy.

Although he retired to Florida after having served as the head of the Venezuelan treasury, Andrade did not begin his career in the world of high finance. Rather, his climb to power and wealth began when he used to serve as the bodyguard for the President of Venezuela, Hugo Chavez.

As we will discuss, there is more to come. Aside from telling a lurid tale of corruption rewarded through high-end bribes involving aircraft, real estate (widely acknowledged as a major vehicle for laundering) and thoroughbred horses, Andrade’s plea agreement contains cooperation language, and his counsel has stated publically that Andrade has been cooperating with the DOJ for some time. Notably, Andrade was charged only with a single count of Section 1957, which has a statutory maximum sentence of 10 years – exactly the sentence imposed on Andrade, whose advisory Federal Sentencing Guidelines range was presumably much, much higher. It is fair to assume that Andrade will be pursuing a second sentencing hearing at which his sentence could be reduced based on his cooperation with the government.

Andrade’s case is part of a steady stream of money laundering and bribery charges recently brought by the DOJ which relate to Venezuela, which is reeling from massive inflation and a near-existential economic crisis that is inflicting widespread suffering. His case also represents another instance of the DOJ’s increasing tactic of using the money laundering statutes to charge foreign officials who cannot be charged directly under the Foreign Corrupt Practices Act (“FCPA”). Continue Reading Another Sprawling Money Laundering and Bribery Scheme Involving Venezuela: Currency Exchange Rate Manipulation, Rewarded By Aircraft, Real Estate, and Thoroughbred Horses

The Treasury Inspector General for Tax Administration, or TIGTA, issued last month a Report, entitled The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance, which sets forth a decidedly dim view of the utility and effectiveness of the current Bank Secrecy Act (“BSA”) compliance efforts by the Internal Revenue Service (“IRS”).  The primary conclusions of the detailed Report are that (i) referrals by the IRS to the Financial Crimes Enforcement Network (“FinCEN”) for potential Title 31 penalty cases suffer lengthy delays and have little impact on BSA compliance; (ii) the IRS BSA Program spent approximately $97 million to assess approximately $39 million in penalties for Fiscal Years (FYs) 2014 to 2016; and (iii) although referrals regarding BSA violations were made to IRS Criminal Investigation (“IRS CI”), most investigations were declined and very few ultimately were accepted by the Department of Justice for prosecution.

Arguably, the most striking claim by the Report is that “Title 31 compliance reviews [by the IRS] have minimal impact on Bank Secrecy Act compliance because negligent violation penalties are not assessed.”

A primary take-away from the Report is that an examination program lacking actual enforcement power is, unsurprisingly, not very effective.  The Report also highlights some potential problems which beset the IRS BSA Program, which include lack of staffing, lack of planning and coordination, and delay. Although the Report’s findings clearly suggest that what the IRS BSA Program really needs are resources and enhanced enforcement power, the repeated allusions in the Report to a certain purposelessness of the current BSA examination regime nonetheless might help fuel the current debate regarding possible AML/BSA reform, with an eye towards curbing regulatory burden.

The Report made five specific recommendations to the IRS for remedial steps. We will focus on four of those recommendations, and the findings upon which they rest:

  • Coordinate with FINCEN on the authority to assert Title 31 penalties, or reprioritize BSA Program resources to more productive work;
  • Leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy;
  • Evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and
  • Improve the process for referrals to IRS CI.

Continue Reading U.S. Treasury Report: IRS BSA Program “Has Minimal Impact on Compliance”

Charges Represent First Criminal Case Based Solely on Alleged Unauthorized SAR Disclosure

On October 17, the U.S. Attorney for the Southern District of New York (“SDNY”) announced the arrest of a senior employee at the Financial Crimes Enforcement Network (“FinCEN”). That employee, Natalie Mayflower Sours Edwards, has been charged with unlawfully disclosing Suspicious Activity Reports (“SARs”) to a member of the media, in violation of 31 U.S.C. § 5322 and 18 U.S.C. § 371, both of which carry a maximum sentence of five years in prison.

The Bank Secrecy Act (“BSA”) requires certain financial institutions, including banks, to file a SAR with FinCEN when they detect a known or suspected violation of federal law or regulation, or suspicious activity relating to money laundering, terrorist financing or other illicit activity. The BSA imposes strict confidentiality requirements as to the disclosure of information relating to a SAR, including the very existence of one. For instance, the statute prohibits any current or former officer or employee of, or contractor for, federal or state governments, as well as local, tribal or territorial governments from disclosing to any person involved in a suspicious transaction that the transaction has been reported, “other than as necessary to fulfill the official duties of such officer or employee.” The BSA also contains a similar prohibition applicable to the reporting financial institution and its agents, and the regulations more broadly prohibit the disclosure of “a SAR or any information that would reveal the existence of a SAR” by government officers or employees, or by the reporting institution. The relevant regulation also states that any covered financial institution, or its agent, which receives a subpoena or is otherwise requested to disclose a “SAR or any information that would reveal the existence of a SAR, shall decline to produce the SAR or such information[.]”

The government’s decision to charge Ms. Edwards is significant in numerous respects. For one, this appears to be the first criminal case based solely upon an unauthorized disclosure of a SAR. To be sure, there are at least two prior prosecutions involving the unauthorized disclosure of a SAR, but those cases also involved other, related charges. Specifically, in 2011, former bank employee Frank Mendoza was convicted of an illegal SAR disclosure. The government charged that Mr. Mendoza approached the subject of a SAR filed by Mr. Mendoza’s bank and solicited a bribe in exchange for Mr. Mendoza’s assistance with the bank. In this conversation, he disclosed the filing of the SAR by the bank and advised the subject that a federal criminal investigation was imminent. The subject of the SAR immediately reported the bribery solicitation to the FBI and Mr. Mendoza was arrested. Following a one-week trial, a federal jury in the Central District of California found Mr. Mendoza guilty of disclosing the existence of a SAR and accepting a bribe. He was sentenced to six months imprisonment, and was further assessed a civil monetary penalty of $25,000 by FinCEN. Likewise, the SDNY charged Robert Lustyik, a former Special Agent with the FBI, in 2013 with an unauthorized disclosure of a SAR in violation of 31 U.S.C. § 5322(a). Mr. Lustyik’s case also centered on a purported bribery scheme, during which he allegedly sold SARs and other confidential law enforcement information in exchange for personal payments.

In contrast, Ms. Edwards purportedly disclosed SARs (and other materials) via encrypted email to a reporter, the substance of which related to matters under investigation by the U.S. Office of the Special Counsel, including the investigation of Paul Manafort, Jr., the President’s former campaign manager. The complaint alleges that this information subsequently was published, over the course of numerous news articles, by the same organization that employed the reporter. In that regard, the complaint against Ms. Edwards contains an interesting allegation, albeit one limited to a footnote: Ms. Edwards told investigators she considered herself a “whistleblower,” and the government acknowledges that Ms. Edwards had in fact filed a whistleblower complaint within the Treasury Department. The complaint also alleges that Ms. Edwards initially concealed from investigators her contacts with the reporter at issue. Also of note is that, unlike the cases against Mr. Mendoza and Mr. Lustyik, the government has charged Ms. Edwards with a conspiracy to defraud the United States.

Although the potential political circumstances surrounding the complaint filed against Ms. Edwards may be difficult to ignore, this action nonetheless serves to underscore the basic need to comply with the BSA’s confidentiality rules, and the potentially severe consequences of failing to do so. Although Ms. Edwards is a government employee, the rules which she allegedly violated apply with equal force to financial institutions and their employees.

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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

New York State Encourages Banking for State-Licensed Medical Marijuana Businesses – Whereas a Maine Company Runs Into Trouble, Despite State Law Legalizing Medical Marijuana

To state the obvious, growing and dispensing marijuana is still illegal under federal law.  As a result, being involved in even a state-licensed marijuana business can be risky. Moreover, obtaining financial services for such a business is sometimes impossible, primarily due to the federal anti-money laundering (“AML”) obligations imposed upon financial institutions by the Bank Secrecy Act (as we have blogged).

This post discusses two recent developments related to state-licensed medical marijuana operations, which serve as contrasting bookends to the spectrum of potential risks and opportunities presented by such businesses.  On the risk-end of the spectrum, we discuss the recent difficulties encountered by a Maine business, and how dubious the seeming safe harbor of state legalization of marijuana can be in some cases. On the opportunity-end of the spectrum, we discuss recent guidance issued by the New York Department of Financial Services, which has declared its support and encouragement of state-chartered banks and credit unions to offer banking services to medical marijuana related businesses licensed by New York State. Continue Reading The Medical Marijuana Industry and AML: Opportunities and Risks

The Financial Action Task Force (“FATF”) recently released a special report on professional money launderers (“PMLs”) who provide money laundering expertise and services to their crime-committing clients. The Report describes the functions and characteristics of a PML and the services they provide. Although the FATF has issued many reports on potential vulnerabilities in anti-money laundering efforts, this Report focuses on the affirmative threats posed by money laundering regimes.

The Report is primarily descriptive, and contains examples of enforcement actions involving PMLs across the globe. A non-public version of the Report, available to Members of the FATF and the FATF Global Network, sets forth practical recommendations for the detection, investigation, prosecution, and prevention of PML-related laundering, including “appropriate regulation,” law enforcement coordination, and international co-operation and information exchange. Presumably, the Report will provide additional fuel to efforts across the world to close perceived regulatory gaps involving the collection of beneficial ownership information, and the potential role of professionals, including lawyers, in assisting others to launder illicit funds. Continue Reading FATF Report: Professional Money Laundering and Related Threats

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