We previously have observed that financial institutions face an increasing risk that alleged Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) violations will lead to follow-on allegations of securities law violations – allegations brought not only by the government, but also by investor class action suits (see here and here).

This phenomenon of AML law and securities law converging is not limited to the United States, as reflected by a recent class action lawsuit filed against one of the biggest banks in Australia – Commonwealth Bank – which arises out of claims by the Australian government that the bank failed to act adequately on indications that drug rings were using its network of “intelligent” deposit machines to launder tens of millions of dollars. Continue Reading Investor Class Action Lawsuit Targets Australian Bank for Alleged AML Failures and Use of “Intelligent” Machines for Anonymous Cash Deposits

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

Department_of_Justice_Office_of_the_Inspector_General_seal_svgIn 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

The Philippines has been identified by the U.S. as a “major money-laundering country” in the 2017 International Narcotics Control Strategy Report (“Report”), published this month. The country now joins 87 others as one “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.” See 22 U.S.C. § 2291(e)(7).

By way of background, the Report is a legislatively mandated, annual assessment of the efforts of foreign governments to reduce illicit narcotics production, trafficking and use, as well as their efforts to combat money laundering and terrorist financing. Each year, U.S. officials from agencies with AML responsibilities assess the pervasiveness of money laundering in these countries, which includes steps taken (or not taken) to address financial crime and money laundering, and measures to strengthen law enforcement and prosecutorial capabilities.

In regard to the Philippines, the Report concludes that “[m]oney laundering is a serious concern due to [the] international narcotics trade, high degree of corruption among government officials, trafficking in persons, and the high volume of remittances from Filipinos living abroad … [c]riminal groups use the Philippine banking system, commercial enterprises, and particularly casinos, to transfer drug and other illicit proceeds from the Philippines to offshore accounts.”

As support for the heightened designation, the Report cites to the Philippines’ “significant gaps” in its efforts to combat money laundering. For one, the country’s bank secrecy provisions “are among the World’s strictest.” In most cases, Filipino investigators must first obtain a court order to access bank records; such an order is dependent upon a sufficient showing of an ongoing “predicate crime” and neither cybercrime nor tax evasion is classified as such. Despite the country’s effort to centralize AML efforts via the Anti-Money Laundering Council (“AMCL”), since its founding in 2001, cooperation among law enforcement agencies remains “insufficient” and to date, only 49 money laundering cases have been filed. Indeed, Reuters reports that the number of prosecutions and convictions stemming from the 49 has been “virtually nil.”

The Report’s conclusions are an unwelcome development for the Philippines. Though any outcome remains to be seen, their label as a major money-laundering hub may serve as a catalyst for offshore firms to “de-risk” by cutting its ties with local banks and intermediaries.

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