As widely reported, the Spanish police raided last year the Madrid offices of the Chinese state-run Industrial and Commercial Bank of China (“ICBC”), the world’s biggest bank by assets. In the nearly 18 months following that raid and the numerous arrests made at that time, very little information about this money laundering investigation became known publically. That is, until Reuters recently published a lengthy article resulting from its review of “thousands of pages of confidential case submissions” and its “interviews with investigators and former ICBC employees.” The article raises numerous questions regarding the enforcement of European money laundering laws against Chinese banks operating abroad, as well as certain unique political and diplomatic considerations that may exist in those enforcement efforts. Below, we will compare these efforts with similar U.S. enforcement efforts, which are potentially gaining steam. Continue Reading High-Profile Spanish Money Laundering Investigation of Chinese Bank Raises Questions About Future of Similar U.S. Enforcement
On July 26, FinCEN, in coordination with the U.S. Attorney’s Office for the Northern District of California (“NDCA USAO”), assessed a $110,003,314 civil money penalty against BTC-e a/k/a Canton Business Corporation (“BTC-e”) for willfully violating the Bank Secrecy Act (“BSA”), and a $12 million penalty against Alexander Vinnik, a Russian national who is one of the alleged operators of BTC-e, for his role in the violations. FinCEN’s press release indicates that this is the first enforcement action it has taken against a foreign-located money services business (“MSB”) doing business in the United States. As we previously have blogged, FinCEN released interpretive guidance in March 2013 stating that an administrator or exchanger of virtual currency is an MSB under the BSA unless a limitation or exemption applies.
In a parallel criminal investigation, Vinnik was arrested and detained in Greece and charged in a 21-count superseding indictment brought by the NDCA USAO and DOJ’s Computer Crime and Intellectual Property Section. The superseding indictment alleges that Vinnik and BTC-e operated an unlicensed MSB doing business in the U.S., in violation of 18 U.S.C. § 1960, and committed money laundering, in violation of 18 U.S.C. §§ 1956 and 1957, by facilitating virtual currency transactions involving various crimes, including computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking. The superseding indictment also provides some clues to the fate of the collapsed virtual currency exchange Mt. Gox, once reportedly the largest such exchange in the world. Continue Reading FinCEN Takes First Action Against Foreign-Located MSB—“The Virtual Currency Exchange of Choice for Criminals”—For Willfully Violating U.S. AML Laws
On Friday, the Department of Justice (“DOJ”) filed a civil forfeiture complaint in the Southern District of Texas seeking recovery of approximately $144 million in assets that allegedly represent the proceeds of foreign corruption and which were laundered in and through the U.S. The complaint’s narrative focuses on Diezani Alison-Madueke, who is Nigeria’s former Minister for Petroleum Resources. The 52-page complaint, which contains additional attachments, is very detailed – but nonetheless interesting reading – so we will discuss here only three salient points:
- The most eye-catching property subject to forfeiture, the spectacular yacht Galactica Star (which you can inspect here), apparently has no discernible nexus to the U.S. – except that the funds used to acquire the yacht allegedly were transferred through correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through the U.S.
- The complaint emphasizes the continued enforcement focus on high-end U.S. real estate as a potential vehicle for money laundering from abroad.
- The complaint purports to quote a recording of a conversation allegedly made by Ms. Alison-Madueke herself, in which she allegedly offers a co-schemer some critiques on his approach to laundering illicit funds.
Two days after North Korea’s successful long-range ballistic missile test, the U.S. District Court for the District of Columbia unsealed a memorandum opinion which granted the Department of Justice “damming” warrants to seize all funds in bank accounts belonging to five Chinese companies which allegedly were used to hide transactions with North Korea using U.S. currency in violation of U.S. sanctions and money laundering laws. The underlying conduct allegedly resulted in over $700 million of prohibited transactions being processed by eight international banks. The opinion is noteworthy not only because it demonstrates the important relationship between money laundering laws and foreign policy, but also for the government’s use of anticipatory warrants to seize the assets upon arrival to the targeted accounts, and to prevent those assets from exiting.
Part Three of a Three-Part Series
In the third and final part of this series on marijuana-related businesses (“MRBs”), we explore how the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) have commenced actions against MRBs and operators for allegedly fraudulent and deceptive securities practices. The sample of such actions which we discuss here serve to demonstrate not only the risks the investing public may face in investing in MRBs, but also as a reminder to MRBs seeking to capitalize on the industry’s explosive growth of the exacting standards of the securities laws and the government’s commitment to enforcing them in this industry.
Although the cases we discuss here are not tied specifically to AML/BSA enforcement cases, but rather to traditional allegations of securities violations, the practical point is that anyone who is considering wading into this industry should remember that there are multiple federal agencies which may pursue their own enforcement agendas relating to MRBs. Although we previously have noted during this series that the Financial Criminal Enforcement Network issued guidelines giving banks the go-ahead to work with MRBs, and although the 2013 DOJ Cole Memo seems to suggest that financial institutions can serve MRBs under certain circumstances, our discussion here reflects that there still are other government agencies which may have their own notions regarding what is acceptable conduct by a MRB. As to the SEC specifically, these actions also are consistent with the recent trend of the SEC inserting itself into AML-related enforcement. Continue Reading The Marijuana Industry and the Securities Laws
Part Two of a Three-Part Series
In the second part of this series, we explore the practical effects of the FinCEN and DOJ guidance documents on industries attempting to serve marijuana related business (“MRBs”). On June 27, 2017, the Tenth Circuit issued an interesting and divided opinion showing us how difficult it can be to square the prohibitions in the federal Controlled Substances Act (“CSA”) and money laundering statutes with state legislation legalizing certain MRB activity and the seemingly permissive nature of the FinCEN and DOJ guidance documents. Continue Reading Continued and Unexpected Roadblocks to Serving the Marijuana Industry: Fourth Corner Credit Union v. Federal Reserve Bank
Part One of a Three-Part Series
We begin this week with a three-part series on banking and the marijuana industry. States continue to pass medical and recreational use marijuana legislation despite that the fact that the substance remains classified as a Schedule I drug subject to the federal Controlled Substances Act. Thus, the medical and recreational marijuana industries continue to struggle with access to banking and credit, and those who attempt to serve these industries find themselves subject to the Bank Secrecy Act (“BSA”) and the criminal money laundering provisions. As we will detail this week, the struggle for financial institutions attempting to service the marijuana industry comes not only from the BSA and AML provisions, but in other forms. We start this week with an overview of the guidance documents issued by the federal government which identify the enforcement priorities and also potential windows for financial institutions to service the marijuana industry. We will follow up with a discussion of a recent federal court decision illustrating the practical difficulties of squaring the prohibitions of the federal drug laws with permissive state laws and the federal guidance documents. We will conclude with an exploration of how federal agencies beyond the Department of Justice (“DOJ”) and the Financial Crimes Enforcement Network (“FinCEN”), such as the Securities and Exchange Commission (“SEC”), can further muddy these waters by staking out their own regulatory and enforcement priorities. –Priya Roy Continue Reading Banking and the Marijuana Industry
Settlement of FinCEN Action Against Former AML Chief Compliance Officer Serves as Possible Bellwether of Future Cases
This post discusses individual liability in AML/BSA enforcement, which is an area of increasing attention. Indeed, according to public statements by the government, individual liability is the focus of enhanced scrutiny across the enforcement table.
Although the raw number of enforcement actions against individuals in the AML/BSA realm (or even in the broader realm of general financial crime) has not climbed dramatically, even a few enforcement actions can have a profound effect on an industry – and that appears to be occurring in the AML realm. We begin our discussion here with a recent settlement of a high-profile enforcement action against a former AML compliance officer, and how it highlights potential individual liability. Ironically, special scrutiny can apply to the very people specifically tasked with maximizing compliance at a corporation, and such scrutiny can end up pitting them against a company’s management and board. Continue Reading Individual Accountability in AML Cases
In this post, we consider the Department of Justice’s (DOJ) Office of the Inspector General report (OIG Report), released on March 29, 2017, evaluating the DOJ’s oversight of its cash seizure and forfeiture operations. This post is a companion to yesterday’s piece addressing the Treasury Inspector General for Tax Administration (TIGTA)’s recent report on IRS civil forfeiture for structuring violations. Read in tandem, the OIG and TIGTA Reports suggest that many forfeitures occur without conclusive information about the details of the potential underlying crime, or even whether an underlying crime was involved at all. The OIG Report concludes that more robust investigations and data collection on forfeitures would both allow DOJ monitor the effectiveness of its forfeiture efforts and increase public confidence in the forfeiture process. Improved investigations and data collection also may lead to greater enforcement opportunities by tying forfeitures to ongoing investigations or initiating new enforcement actions based on findings in forfeiture investigations.
This OIG Report is the latest in a series of recent OIG evaluations of DOJ forfeiture initiatives which respond, at least in part, to civil liberties concerns raised by forfeiture reform advocates. (See OIG’s January 2015 report on so-called “cold” consent encounters at mass transit facilities, and its September 2012 investigation of forfeiture enforcement by a local Florida police department). Both of those investigations concluded that more data analysis was needed to ensure that forfeiture operations were serving legitimate law enforcement interests.
The most recent report continues with the same theme, finding that the DOJ and its investigative components do not collect or use sufficient data to properly oversee seizure operations, or to determine whether those operations relate to or benefit criminal investigations. The OIG report focuses on three main topics: (1) the lack of data assessing the relationship between seizure and forfeiture activities and investigative outcomes; (2) in the absence of such data, the OIG itself sampled 100 DEA cash seizures that had characteristics OIG believed made them “particularly susceptible to civil liberties concerns”; and (3) the DOJ’s relationship to state and local law enforcement, through both training and equitable sharing arrangements. This post addresses topics (1) and (2). As we have previously written, equitable sharing arrangements raise their own issues of balancing individual property rights against law enforcement objectives, which are conceptually distinct from the issues addressed here. Continue Reading Civil Forfeiture Under Fire – Part II
On March 24, 2017, the U.S. Department of Justice unsealed an indictment charging Kassim Tajideen, an alleged prominent financial supporter of the Hizballah terror organization, with evading U.S. sanctions and conspiring to commit money laundering. Tajideen, of Beirut, Lebanon, was arrested in Morocco earlier this month and has made his initial appearance in federal court in Washington, D.C.
According to the government, Tajideen, through his multi-billion dollar network of businesses based in Lebanon and Africa, contributed tens of millions of dollars to Hizballah. For this reason, in May 2009, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated Tajidden as a Specially Designated Global Terrorist (“SDGT”). This designation makes it illegal for U.S. companies to do business with Tajideen or any entity that he controls. More broadly, it is illegal for U.S. companies to transact business with any entities or individuals on OFAC’s blacklists.
The indictment charges Tajideen with one count of conspiracy to evade U.S. sanctions, specifically the International Emergency Economic Powers Act (“IEEPA”) and the Global Terrorism Sanctions Regulations, by transacting business with three U.S. businesses, referred to only as Business A, Business B and Business C, and by concealing from OFAC that he was benefitting from these transactions. Tajideen is also charged with seven counts of unlawful transactions with a SDGT, and one count of conspiracy to commit money laundering.
According to the indictment, Tajideen heads a large-scale commodity distribution business based primarily in Lebanon, the United Arab Emirates and Angola, but which operates throughout the world, including in the U.S. The business utilized what the government says was “a web of vertically integrated companies, partnerships and trade names.” The indictment further alleges that Tajideen and others engaged in a scheme to do business with U.S. companies while concealing Tajideen’s involvement. As part of that scheme, between approximately July 2013 and the present, Tajideen, his employee, codefendant Imad Hassoun, and other unnamed co-conspirators illegally caused at least 47 wire transfers totaling over $27 million to be sent to entities in the U.S. for the purchase of frozen poultry and other items. These payments caused the U.S. entities to illegally ship goods from the U.S. without obtaining the proper licenses from the U.S. Department of the Treasury. The count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), charges that Tajideen and others conspired to both promote and conceal the conspirators’ illegal business transactions with U.S. persons through numerous wire transfers from bank accounts held by Tajideen’s companies in the United Arab Emirates to bank accounts held within the U.S. in order to pay for transactions involving Businesses A, B and C.
It has been reported that the investigation is continuing. Specifically, the government wants to determine whether Businesses A, B or C knowingly did business with Tajideen after he was designated a SDGT. Tajideen is alleged to have restructured his business empire after the designation and to have created new trade names in order to evade the sanctions and continue doing business with U.S. companies. But Tajideen’s alleged deception may not save Businesses A, B and C from the government’s crosshairs. Companies are responsible for conducting due diligence to determine whether entities and individuals with whom they do business – including middlemen, corporate shells and newly formed firms – are linked to individuals or entities on OFAC’s blacklists. So while this indictment shows that the U.S. is taking aggressive action against Hizballah, it also underscores the need for U.S. companies to have robust export control compliance programs so that they can ensure they are not doing business with terrorists.