| The following is an announcement of a Helsinki Commission hearing (TOOLS OF TRANSNATIONAL REPRESSION: How Autocrats Punish Dissent Overseas) on September 12, 2019, that should be of interest to followers of international enforcement cooperation — especially the role of INTERPOL. |
| WASHINGTON—The Commission on Security and Cooperation in Europe, also known as the Helsinki Commission, today announced the following hearing:
TOOLS OF TRANSNATIONAL REPRESSION How Autocrats Punish Dissent Overseas
Thursday, September 12, 2019 10:00 a.m. – 12:00 p.m. Cannon House Office Building Room 210
Live Webcast: www.youtube.com/HelsinkiCommission
As modern technology has allowed political dissidents and human rights defenders to operate from almost anywhere on the planet, repressive regimes have searched for opportunities to reach those who threaten their rule from afar. To silence dissent from abroad, autocrats often turn to the International Criminal Police Organization, known as INTERPOL, to file bogus criminal claims seeking the arrest and extradition of their political targets. This abuse of INTERPOL Red Notices and Diffusions enables autocratic governments to harass and intimidate their opponents thousands of miles away, even within free and democratic societies. The U.S. Helsinki Commission will convene an expert panel to highlight how autocrats today use INTERPOL and other means such as surveillance, abduction, and assassination to punish dissent overseas. Witnesses will suggest how the United States and other democratic nations can defend against these threats to the rule of law domestically and internationally. The following witnesses are scheduled to participate:
Additional witnesses may be added. |
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### The Commission on Security and Cooperation in Europe, also known as the U.S. Helsinki Commission, is an independent commission of the U.S. Government charged with monitoring compliance with the Helsinki Accords and advancing comprehensive security through promotion of human rights, democracy, and economic, environmental, and military cooperation in 57 countries. The Commission consists of nine members from the U.S. Senate, nine from the House of Representatives, and one member each from the Departments of State, Defense, and Commerce. |
EIA’s Reports on Ghana’s Illicit Rosewood Trade Triggers Action from Ghana Government
On September 4, 2019, the Environmental Investigation Agency welcomed two investigations recently started in Chana with respect to the illegal rosewood trade from Ghana to China.
The EIA announced plans to release data every month showing the value and volume of rosewood declared as imported to China from Ghana.
Ghanaian Government Investigations
On August 26, 2019, the Ghanaian Minister for Lands and Natural Resources announced the establishment of the “Committee to investigate Allegation of Corruption in Rosewood Trade in Ghana.” The Committee will thoroughly investigate the rosewood sector and propose remedial actions.
EIA also welcomed the decision of the Office of the Special Prosecutor to investigate ongoing corruption and collusion in the rosewood sector in Ghana. EIA said it can provide video, audio, and photographic evidence to the Special Prosecutor to aid the investigation.
EIA said it is willing to help the Committee and Special Prosecutor to examine what appears to be large scale and systemic misdeclaration of timber exported by Ghana. In this regard, in 2017, the United Nations Comtrade Database shows China reports the import of 146,122 cubic meters of timber for a value of US$91.3 million from Chana, while Ghana reported the export of only 14,627 cubic meters of timber for a value of US14.6 million to China.
EIA Report on the Illegal Rosewood Trade in Ghana
The decision by the Ghanaian government to start investigations results from the publication on July 30 by EIA of BAN-BOOZLED: How Corruption and Collusion Fuel Illegal Rosewood Trade in Ghana. The report finds powerful Chinese and Ghanaian traffickers, with the help of ruling party members and complicity at all levels of the government, have established an institutionalized scheme, fueled by bribes, to conceal the illegal harvest, transport, export, and CITES-licensing of the timber.
The EIA report concludes fraudulent use of “salvage permits,” misdeclaration of timber species, use of “escorts” to deal with control points, forging of official documents, and retrospective issuance of CITES permits, are among the mechanisms used to conduct the illegal timber harvesting and trade.
According to the EIA report, Ghana is about to become the first African country and the second in the world, to issue Forest Law Enforcement Governance and Trade (FLEGT) timber licenses under its Voluntary Partnership Agreement (VPA) with the European Union (EU). This will enable timber with a FLEGT license to automatically be considered compliant with the EU Timber Regulation (EUTR) and allowed into the EU market without the due diligence usually required from importers.
Although Ghana has imposed a ban on the harvest of rosewood, intermittent suspensions of the ban have occurred allegedly to permit a few companies to “salvage” abandoned, already logged rosewood. In practice, the suspensions have allowed the illegal harvest and export to continue unabated.
EIA has used undercover investigators who have talked to traders, loggers and agents. EIA learned that the bribes paid to government officials enable the illegal transporting of rosewood through the issuance by local Forestry Commission offices of “conveyance certificates.”
According to the EIA report, Ghana is about to receive up to $50 million in payments for verified emission reductions, following the recent conclusion of an Emission Reductions Payment Agreement (ERPA) with the World Bank under the Forest Carbon Partnership Facility (FCPF).
EIA Recommendations
EIA recommends:
“1. A thorough investigation into corruption and collusion in the government, the Forest Commission and customs administration, and dismantling of the institutionalized illegal logging and trade networks;
- Deployment of strict enforcement cooperation between Chinese and Ghanaian authorities to implement the export ban and the CITES regulations, with the direct involvement of the CITES Secretariat;
- Regional adoption of a zero export quota for Pterocarpus erinaceus by West African range States until the CITES Appendix II requirements for legal and sustainable trade are met and publicly available;
- Immediate inclusion of effective public transparency mechanisms in the timber sector with the participation of Ghanaian civil society and monitoring by a body fully independent of the Forestry Commission.
The report also calls into question whether the EU and World Bank have sufficient accountability and compliance mechanisms to ensure Ghana meets the standards for which the EU is providing access to its market and for which the World Bank is about to provide financing and positive recognition to Ghana for supposedly conforming to reducing emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks in developing countries (activities commonly referred to as REDD+).
The current issue of the IELR will have a more comprehensive article on developments in Ghana.
FinCEN Starts Global Investigations Division
On August 28, 2019, the Financial Crimes Enforcement Network (FinCEN) announced the start of its Global Investigations Division (GID), which will have responsibility to implement targeted investigation strategies based on FinCEN’s unique authorities under the Bank Secrecy Act (BSA) to combat illicit finance threats and related crimes, both domestically and internationally.[
FinCEN Director Kenneth A. Blanco announced that Matthew Stiglitz, a former Principal Deputy Chief in the United States Department of Justice’s Criminal Division with 24 years as a state and Federal prosecutor, will head GID.
According to the press release, GID will leverage FinCEN’s BSA authorities, including Section 311 of the USA PATRIOT Act, to investigate and target terrorist finance and money laundering threats. GID will work more closely with foreign counterparts to coordinate actions against such threats when appropriate.
Before the creation of GID, the former Office of Special Measures (OSM), which was previously a part of FinCEN’s Enforcement Division, provided the investigative resources. In recent years FinCEN’s strategic use of its Section 311 authority as well as its other information collection authorities, such as the geographic targeting order and foreign financial agency regulation authorities, have significantly grown in recent years. Now FinCEN will have one division that concentrates on achieving these goals.
GID will use FinCEN’s authorities to detect and deter a broad range of potential threats to the United States national security and financial system, including ones that are connected to the proliferation of weapons of mass destruction, rogue state actors, transnational organized crime, international narcotics trafficking, and terrorism.
Just at the end of August, FinCEN and OFAC have focused on Dominican Republic narcotics kingpins and Chinese importers of fentanyl. In addition, FinCEN has issued an advisory to financial institutions on illicit financial schemes and methods related to the trafficking of fentanyl and other synthetic opioids.
FinCEN is focused on stopping the proliferation of weapons of mass destruction, especially as North Korea and Iran.
Until now, FinCEN has utilized its power to designate foreign financial institutions as being “of primary money laundering concern” judiciously. However, when banks and financial institutions in the European Union countries of Latvia, Cyprus, and Andorra, have been involved in illicit finance threat activities, FinCEN has investigated and subjected them to Sec. 311 while the EU has not had the capacity to act.
The increase of FinCEN international authority comes at a time when the OECD has downgraded the U.S. on exchange of information, transparency of entity, and regulation of gatekeepers. The downgrades have diminished the capacity of the U.S. Department of Justice and Treasury to respond to foreign requests. In addition, the increased capacity of FinCEN’s international authority occurs at a time of disengagement by the United States government with the United Nations, the G7 and G20. However, since the press release states GID “will work more closely with foreign counterparts to coordinate actions against such threats when appropriate,” foreign law enforcement authorities and international organizations will certainly welcome such an outreach, although some may wonder and test the condition of “when appropriate”.
Anti-Corruption Compliance Practice Area
Background on anti-corruption compliance programs
Increasingly as international corruption conventions have covered the world, governments throughout the world have legislated to require effective anti-corruption due diligence programs. The regimes include, inter alia, the Foreign Corrupt Practices Act (FCPA) in the United States, the UK Bribery Act, Canada’s Corruption of Foreign Public Officials Act (CFPOA), Australia’s Criminal Code, and Brazil’s Clean Company Act.
In addition, led by the World Bank Group, multilateral development banks require companies bidding on their procurement to have anti-corruption due diligence programs (also known as Integrity Control Programs).
When something goes wrong in a project, as occurs whenever you have businesses operated by human beings for profit motives, prosecutors and regulators decide where the blame lies and what, if any, criminal and/or other penalties should be imposed, review whether the business(es) involved have effective cutting-edge anti-corruption programs. The business may try to persuade the prosecutor or regulator that if any wrongdoing occurred, it was not the fault of the entity, but of one or more rogue employees. Seasoned prosecutors and regulators will scrutinize the anti-bribery compliance program and ascertain if the compliance program was comprehensive and based on the risks of the business, actually trained the key employees and third-parties involved in any incident, and whether the business has documented its program properly, and whether it has regularly updated and evolved its program. In this regard, the prosecutor or regulator will want to see what action, if any, the business took in the past when irregular activity or wrongdoing occurred. Did the business entity have an effective system to detect and investigate irregular conduct and payments and take disciplinary action for improper conduct?
The landmark decision In re Caremark International Inc. Derivative Litigation[1] held that corporate boards should ensure that reasonably designed systems exist to provide senior management and the board with “timely, accurate information sufficient to allow management and the board, each within its scope, to reach informed judgments concerning both the corporation’s compliance with law and its business performance.” Otherwise, officers and directors may incur civil liability for failing to make a good-faith effort to make sure that their business has an effective compliance program.
In addition, the U.S. Securities and Exchange Commission (SEC) has found that “if an officer or director knows or should know that his or her company’s statements concerning particular issues are inadequate or incomplete, he or she has an obligation to correct that failure.”[2] An entity’s effective anti-bribery compliance program must evaluate and detect its business risks and address the potential risks in a timely matter.
Even when a business has an anti-bribery compliance program, it must “regularly review and improve [its] compliance programs and not allow them to become stale.[3] The review should include adjusting to changing needs and ways in which compliance policies and procedures can be simplified and made more efficient. The nature and frequency of monitoring depends on the size and complexity of an entity. The goals are continuous improvement and sustainability.
BCR helps businesses to prepare and monitor anti-bribery compliance programs. BCR becomes involved when irregular activity is detected and, if necessary, conducts internal investigations and helps the board determine in some cases whether a voluntary disclosure should be made. BCR also represents businesses and officers and third parties when prosecutors become involved and charge the business and/or its officials and/or third parties.
Why anti-corruption compliance programs
Large and small companies are increasingly becoming sensitive to the risks of corruption, collusion, and bribery in domestic and, especially in, international transactions. Companies doing business internationally may have incorporated measures into their policies to prevent violations of the Foreign Corrupt Practices Act, although usually there is insufficient attention until it is too late and a violation has occurred. BCR has been hired to prepare comprehensive anti-corruption compliance programs.
Not every size fits all
These programs are tailored to the needs of each particular company, depending on the size of the company, the countries where it does business, the industry in which it operates and other factors affecting the nature of the risk. We approach the development of an anti-corruption program in several stages.
Assessing the business risks
We analyze the key business issues pertinent to the corruption risk for the company. The major areas of concern include business contracts; business partners and third parties; dealing with government officials and state-owned enterprises; conflicts of interest; facilitating payments; lobbyists; and country risk.
Assessing the corruptions risks
In the next stage, we assess the corruption risks that may affect the company. Certain areas may present red flags such as unusual payment patterns or financial arrangements; unusually high commissions; lack of transparency in expenses and accounting records; and lack of qualifications of a local joint venture partner.
Preparing an anti-corruption program
An anti-corruption program is sometimes integrated into an employee manual, but we prefer a stand-alone program that complements other programs. The anti-corruption, which may also be called an integrity compliance program, addresses various aspects of the company’s business such as travel and entertainment; gifts; facilitation payments; and internal controls.
Implementation of program
The final stage includes training and communicating the program to the company’s employees and the third parties with which the company works. This stage generally includes training sessions and may include internal or external monitoring.
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[1] In re Caremark International Inc. Derivative Litigation, 698 A.2d 959, 970 (1996). See also Stone v. Ritter, 911 A.2d 362, 370 (2006).
[2] Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Concerning the Conduct of Certain Former Officers and Directors of W.R. Grace &Co., Exchange Act Release No. 39, 157 (Sept. 30, 1997), https://www.sec.gov/litigation/investreport/34-39157.txt.
[3] U.S. Department of Justice & U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Act 62 (2015 update).
Gregory Craig Wins Dismissal of One FARA Charge, But Must Go to Trial on the Other
On August 6, 2019, United States District Judge Amy Berman of the District of Columbia dismissed one of two felony counts against Gregory Craig. In her 57-page memorandum opinion, she found that an October 11, 2013 letter Craig sent to the Foreign Agents Registration Act (FARA) Unit was not part of any formal FARA filing. Hence, the prosecution could not charge him for making false submissions.
Judge Jackson rejected Craig’s defense that pursuant to jurisprudence in United States v. Safavian, 528 F.3d 957 (D.C. Cir. 2008) that he was not under a legal duty to disclose and therefore there was no concealment offense in violation of 18 U.S.C. § 1001(a)(1).
Instead the opinion explained that FARA creates the duty and puts individuals on notice of their specific disclosure obligations. Agents are required to register, disclosing their activities and who paid for them. Hence, the allegations the indictment alleging that Craig carried out a scheme to conceal his potential status as a foreign agent, by making a series of false or misleading statements and omissions allegedly obscuring the true timing and full nature of his public relations activities on behalf of Ukraine, states an offense under 18 U.S.C. § 1001(a)(a). It fulfills Circuit precedent and the Constitution’s due process clause.
The opinion observes that, after the FARA Unit informed Craig of its decision that he and his firm had to register, he embarked on an active effort to persuade the agency to change its position.
At present, Craig will face a jury trial next week on the false-statement charge that remains.
Craig is charged with helping prepare and plan media strategy on a 1986-page report commissioned by Ukraine’s Ministry of Justice through U.S. political consultant Paul Manafort and predominantly paid for through a Cyprus bank account by Ukrainian steel magnate, Viktor Pinchuk.
Craig, who was White House counsel in the Obama Administration, has denied the charges.
The dismissal of one charge illustrates why many experts have called for amending and clarifying FARA.
The current issue of the IELR will cover this case in more detail.
IRS Targets Former OVDP Applicants, Expatriates, and HNWIs
On July 19, 2019, the IRS Large Business and International Division (LB&I) announced the approval of additional compliance campaigns, including ones on taxpayers who participated in the Offshore Voluntary Disclosure Program (OVDP) and United States taxpayers who expatriated.
With respect to Post-OVDP Compliance, John Cardone, director of Withholding & International Individual Compliance, is in charge. The campaign observes that U.S. persons are subject to tax on worldwide income. This campaign addresses tax noncompliance related to former OVDP taxpayers’ failure to remain compliant with their foreign income and asset reporting requirements. The Internal Revenue Service (IRS) has a list of all the participants in the OVDP. The IRS will address tax noncompliance through soft letters and examinations.
A second area are persons who have expatriated or surrendered their U.S. citizenship or residency. Cardone is also in charge of this campaign. The announcement notes that U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The IRS will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.[1]
The IRS intends to find taxpayers who used the OVDP, but have since fallen out of compliance. The agency will use its audit-based tools in order to bring them back into compliance. Since the IRS has the communication points for the taxpayers who participated in the OVDP, the IRS should not have difficulty communicating with them.
Since the taxpayers had to admit wrongdoing in order to participate in the OVDP and pledged to be compliant in the future, any audits done by the IRS would have potentially significant risks for taxpayers who are found to not be in compliance again. The IRS may conclude that the post-OVDP non-compliance arises from some sort of willful intent to evade taxes or report obligations.
Another risk is that, while the penalties of the prior OVDPs kept increasing, now taxpayers not in compliance no longer have potential to resort to the lower penalties of the OVDPs.
Another category targeted is High Income Non-filers. Cardone is also in charge of this project. The project description notes U.S. citizens and resident aliens are subject to tax on worldwide income. Taxpayers must file and pay worldwide tax on income, whether or not they receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return), or its foreign equivalents. Through an examination treatment stream, this campaign will focus on bringing those taxpayers who have not filed tax returns into compliance.[2]
The current issue of the IELR will have a more comprehensive discussion of this matter.
U.S. Court of Appeals Affirms Contempt Order Against 3 Chinese Banks for Subpoena Noncompliance
By Bruce Zagaris
On July 30, 2019, the United States Court of Appeals for the D.C. Circuit unanimously affirmed a contempt order against three Chinese banks that failed to comply with subpoenas from the U.S. Department of Justice (DOJ).
On April 30, 2019, the U.S. District Court for the D.C. Circuit unsealed an opinion issued on March 18, 2019, by Chief Judge Beryl A. Howell enforcing grand jury subpoenas and an administrative subpoena against three Chinese banks for records of transactions for a now-defunct Hong Kong-based front company for North Korea’s state-operated company.
While the banks involved are not named in court papers, they were previously reported to be the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank (SPD).
In a unanimous ruling, which is under seal, the circuit panel rejected the banks’ arguments that Chinese banking privacy rules and other laws require that requests for customer records in U.S. criminal inquiries be made through a legal assistance agreement between the two countries.
The case grew out of an investigation by the U.S. Department of Justice into Mingzheng International trading Limited, a Hong-Kong entity that allegedly moved $105 million to FTB, a sanctioned North Korean bank, between 2012 and 2015.
In 2017, a U.S. civil forfeiture action contended that Mingzheng used accounts at the three Chinese banks to transmit the money in violation of sanctions on North Korea. In 2017, the U.S. Treasury sanctioned Mingzheng.
Chinese bank regulatory officials have informed the banks that the only way the banks could comply under Chinese law was through the process established under the bilateral China-U.S. June 19, 2000 Mutual Legal Assistance Agreement (MLAA). The banks have informed the U.S. courts that the Chinese government has ordered them not to provide the requested records. The DOJ visited China in April and August 2018 to discuss China’s repeated failure to respond to MLAA requests, which required the U.S. to proceed through unilateral subpoenas. The DOJ informed the district court that China is unresponsive or much delayed in responding to MLAA requests.
Judge Howell has fined the three Chinese banks $50,000 a day, although the fines were stayed pending the appeal. In addition, SPD, China’s ninth-largest bank by assets risks losing access to U.S. dollars.
The case constitutes the first known instance in which a U.S. court has upheld subpoenas to a Chinese bank in a sanctions investigation. The affirmance by the appellate court will increase the tension between the U.S. and China over sanctions. Already, the U.S. and China are in a contest over the extradition of Meng Wanzhou from Canada, the CFO and Vice President of Huawei, for allegedly making false statements in connection with Huawei’s transactions and business with Iranian entities in violation of U.S. sanctions. Criminal and civil cases are pending in the U.S. against Huawei for, inter alia, stealing intellectual property of U.S. firms. The U.S. is pressuring countries around the world not to use Huawei for developing 5G technology.
Meanwhile, as North Korea has taken diplomatic initiatives to break out of its isolation and UN and U.S. sanctions, the U.S. – through enforcement actions against Mingzheng – has tried to maintain the pressure against North Korea. The next issue of the IELR will report further on this case.
The Dejia Case Shows the Important Roles for NGOs and Data Analytics in Stopping Forest Crime*
In the aftermath of the Environmental Investigation Agency’s (EIA) report and video on illegal logging and export of wood covered by the Convention on International Trade in Endangered Species (CITES), Dejia has denied wrongdoing. The EIA has responded.
This blog post also notes the various enforcement actions brought in the U.S. to prevent the importation of wood imported in contravention of CITES and the Lacey Act, some with the help of environmental non-governmental organizations, using data analytics, another action with the help of the bilateral customs enforcement agreement. It also describes a recent call for consultation requested by the United States Trade Representative to raise with Peru the apparent violation of the United States – Peru Trade Promotion Agreement (PTPA) by compromising the independence of the agency charged with policing illegal logging and export of illegally harvested wood. Finally, the blog post mentions the role of environmental protection and enforcement in free trade agreements, such as the Trans-Pacific Partnership (TPP).
In response, EIA has released two “raw intelligence” videos about the Dejia case following the release of the report that corroborating its allegations:
https://eia-global.org/blog-posts/20190514_Raw_Intelligence_Dejia_Group_Blog
https://eia-global.org/blog-posts/20190522-raw-intelligence-wcts-blog
Other cases in which the U.S. Department of Justice (DOJ) has prosecuted violations of the U.S. Lacey Act, which implements CITES, is in February 1, 2016, when Lumber Liquidators Inc. agreed to pay more than $13 million in criminal fines and forfeitures to resolve a DOJ investigation into the import of wood. Much of its illegal importation of hardwood flooring was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world. Lumber Liquidators also agreed to a five-year term of organizational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits.[1]
The illegal cutting of Mongolian oak in far eastern Russia is of major issue because those forests are home to the last 450 wild Siberian tigers, Panthera tigris altaica. Illegal logging is the primary risk to the tigers’ survival, because they depend on intact forests for hunting and because Mongolian oak acorns are a chief food source for the tigers’ prey species. Mongolian oak forests are also home to the highly endangered Amur leopard, Panthera pardus orientalis, of which fewer than 50 remained in the wild in 2016. In June 2014, in response to illegal logging and the decline in tiger populations, Mongolian oak was added to the CITES Appendix III.
The EIA has shown the use of data analytics in investigating and showing the illicit trade in wood and timber.
For many years EIA’s investigative work focused on reconstructing the routes that timber takes from the Amazon to the warehouses of U.S. importers, through use of official information obtained under Peru’s Transparency and Access to Public Information Law. The links in this chain are willfully obscured to perpetuate confusion about the origins of almost all timber traded in Peru. EIA was able to reconstruct the chain of custody for trade in cedar (Cedrela odorata) and bigleaf mahogany (Swietenia macrophylla) only because both species are protected under the CITES and hence require specific export permit documents. For how EIA penetrated the chain of illegal exports, see the Laundering Machine: How Fraud and Corruption in Peru’s Concession System Are Destroying the Future of its Forests https://content.eia-global.org/assets/2012/04/The_Laundering_Machine_ENG.pdf.
In 2018, EIA released a new report titled “Moment of Truth”: https://eia-global.org/reports/momentoftruth
EIA’s new report describes important advances since 2012 in Peru’s fight against illegal logging, timber laundering, and its associated international trade – as well as the backlash against these new approaches.
The evidence of persistent illegal logging, systemic corruption, laundering, and illegal timber in Peru’s exports remains overwhelming. While the U.S. has begun to crack down on illegal Peruvian timber, major importing countries like China and Mexico are turning a blind eye.
An analysis of hundreds of pages of official documents shows systematic exports of illegal and high-risk timber from Peru’s main port of Callao during 2015, by dozens of companies and to 18 countries. However, due to revelations of wrongdoing, the analysis for 2016 or 2017 cannot occur, since the Peruvian forest authority has stopped making available the necessary data.
On January 18, 2017 the DOJ announced that 24 pallets of timber seized by the U.S. Department of Homeland Security, Homeland Security Investigations (HSI) on December 20, 2015, at the Port of Houston, Texas for violation of the Lacey Act and customs law were destroyed in accordance with a settlement agreement reached by the United States and the importer of the timber, Oregon-based Popp Forest Products Inc. The agreement prevented the timber that was allegedly harvested in violation of Peruvian law would not enter the U.S. stream of commerce.[2] The allegations were based on a report HSI obtained from the Peruvian government under a Customs Mutual Assistance Agreement, providing the results of an inspection carried out in the areas in which the timber was allegedly harvested. The report showed the timber could not be the species authorized for harvest. The U.S. Forest Service’s Forest Products Laboratory tested samples and corroborated the finding that samples taken from the shipment were not the species authorized for harvest.[3]
On January 4, 2019, the Office of the U.S. Trade Representative (USTR) requested consultations with Peru under the Environment Chapter of the United States – Peru Trade Promotion Agreement (PTPA). Through these environment consultations, the U.S. and Peru will discuss and try to resolve concerns regarding a recent Peruvian action to move the Agency for the Supervision of Forest Resources and Wildlife (OSINFOR) from its position as a separate and independent agency to a subordinate position within Peru’s Ministry of Environment (MINAM). This is the first request for consultations made under the PTPA.[4]
According to the PTPA’s Annex on Forest Sector Governance, “OSINFOR shall be an independent and separate agency and its mandate shall include supervision of verification of all timber concessions and permits.” Peru’s Supreme Decree 122-2018-PCM, published on December 14, 2018, seems to conflict with this provision.
Ambassador Robert Lighthizer, head of USTR, said that by requesting consultations, the Trump Administration is showing that “it takes monitoring and enforcement of U.S. trade agreements seriously, including obligations to strengthen forest sector governance.” According to Lighthizer, “(s)ince its creation in 2008, OSINFOR has played a critical role in Peru detecting and combatting illegal logging, and we are gravely concerned that its independence is threatened.”[5]
On April 10, 2019, in a dramatic reversal of its position, the Peruvian government published a decree that restores the independence of OSINFOR.[6]
Chapter 20 of the Trans Pacific Partnership refers to Multilateral Environmental Agreements (MEAs), but only requires Parties to “adopt, maintain, and implement” CITES rather that the seven MEAs listed for FTA inclusion in the May 2007 bipartisan agreement[7] and in accordance with “fast track” procedures.[8] In spite of these obligations, the MEA commitments do not contained in the text of the TPP.[9] The TPP has two potential enforcement mechanisms in its Environment Chapter: a dispute settlement process available for Parties to the agreement and a framework for what may become a citizen suit provision.[10] While environmental groups have properly criticized the environmental provisions of the TPP, these provisions offer the Parties and their citizens, including environmental groups, mechanisms to use in order to raise illegal logging and wood trade. The fact that the Trump Administration decided not to join the TPP means that it has no provisions with many of the parties to the TPP to raise these issues. The Canadian government explains that the enforcement of the Environment Chapter through the TPP’s dispute settlement mechanism is a first for Canada. In addition, the TPP Environment Chapter also establishes a framework for cooperation in areas of mutual interest in support of the Chapter’s commitments. This includes, for example, working together to address illegal trade in wood and climate change.[11]
The work by environmental NGOs working with data analytics, reviewing customs and trade documentation, and using sophisticated undercover techniques can result in persuading law enforcement agencies and prosecutors to investigate and prosecute illegal trade in wood, especially in violation of CITES. As EIA has shown in the Dejia case, usually illegal wood harvesting and international trade involves multiple criminal violations, such as bribery in obtaining the license to log, false customs declaration, tax crimes in falsely declaring to governments the value of the logs, and money laundering arising from the movement of proceeds of crime and efforts to conceal the same. In addition, wire and mail fraud, predicates to money laundering, are often implicated.
EIA’s use of customs and trade data illustrates the successful use of data analytics to stop illegal wood trade. Three types of data analytics are predictive modeling; outlier detection; and network analytics.
Predictive modeling can generate a profile of a bad actor. The computer can use prior audit cases of customs declarants or taxpayers to ascertain which characteristics of the customs declaration or tax return were the most highly correlated with a successful audit (i.e., geographical region, industry, corporate structure, income bracket). The resulting list of characteristics is called a model. The model can then be used to evaluate customs declarations or tax returns for likelihood of customs or tax evasion.[12]
Outlier detection occurs when the computer is used for customs declarants and taxpayers by like characteristics and looks at customs declarations and tax returns that fall outside the normal. It can be helpful to find new segments to audit that were previously ignored. It may show an inordinately low level of valuation of the wood on the customs declaration or very high level of deductions on the tax return from the prior year. In some cases officials may be able to ascertain outlier characteristics by comparing customs and tax data.[13]
Network analytics (connections) are built on the implicit relationships between individual companies (i.e., people who share addresses, phone numbers or bank accounts). An example is the data from the Panama Papers and/or the Paradise Papers.[14] Investigators can easily detect and visualize corporate structure, the complex flow of financial transactions. Investigators can identify structures and transaction flows as “high risk.” Network analytics is especially useful for complex cross border activities or corporate structures such as pass through entities.[15]
In the coming months and years, if the U.S. and the world are going to come to grips with climate control, environmental NGOs, citizen groups, journalists, law enforcement, and prosecutors will need to cooperate in preventing forest crimes. In this effort, data analytics will play a key role.
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*This article is a follow-up to a piece published in the May 2019 edition of the IELR titled: “EIA Releases Report Showing Illegal Logging and Wood Trade by Chinese Company in Congo and Gabon.” You can read the original piece here: https://bit.ly/2LyjVWr.
[1] U.S. Department of Justice, Lumber Liquidators Inc. Sentenced for Illegal Importation of Hardwood and Related Environmental Crimes, Press Rel. 16-116, Feb. 1, 2016 https://www.justice.gov/opa/pr/lumber-liquidators-inc-sentenced-illegal-importation-hardwood-and-related-environmental
[2] DOJ, Justice Department Reaches Agreement to Ensure Destruction of Timber Believed to Have Been Harvested in Violation of Peruvian Law, Press Rel. 17-093,January 18, 2017 https://www.justice.gov/opa/pr/justice-department-reaches-agreement-ensure-destruction-timber-believed-have-been-harvested
[3] Id.
[4] Office of the U.S. Trade Representative, USTR Requests First-Ever Environment Consultations Under the U.S.-Peru Trade Promotion Agreement (PTPA), Jan. 4, 2019 https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/january/ustr-requests-first-ever.
[5] Id.
[6] Global Witness, The Forest Avengers, Jan. 17, 2019 https://www.globalwitness.org/en/campaigns/forests/forest-avengers/ (accessed June 17, 2019).
[7] Office of the United States Trade Representative, Trade Facts: Bipartisan Agreement on Trade Policy 2 (May 2007), https://ustr.gov/sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf. Additionally, the exclusion of the six MEAs is noteworthy, given that all Parties to the TPP are also party to at least two of these MEAs left out of the agreement. Sierra Club TPP Text Analysis at 3.
[8] 19 U.S.C. § 4201(b) (10) (A).
[9] Center for International Environmental Law, The Trans-Pacific Partnership and the Environment:
An Assessment of Commitments and Trade Agreement Enforcement 2 (Nov. 2015) https://www.ciel.org/wp-content/uploads/2015/11/TPP-Enforcement-Analysis-Nov2015.pdf
[10] Id. at 3, citing 5 See TPP Article 20.9 (describing the “Public Submission” process); see also TPP Articles 20.20-20.23 (describing “Environmental Consultations,” “Senior Representative Consultations,” “Ministerial Consultations,” and “Dispute Resolution,” respectively).
[11] Government of Canada, What does the CPTPP mean for the environment sector? ps://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/sectors-secteurs/environment-environnement.aspx?lang=eng.
[12] Predictive Modeling: The Only Guide You’ll Need, MircroStrategy, (last accessed June 17, 2019), https://bit.ly/2ZsWMrR.
[13] Sergio Santoyo, A Brief Overview of Outlier Detection Techniques, Towards Data Science, (Sept. 11, 2017), https://bit.ly/2H1eCgx.
[14] ICIJ, The Panama Papers: Exposing the Rogue Offshore Financial Industry https://www.icij.org/investigations/panama-papers.
[15] Alienor, Network Analytics: What It Is, How Its Used, and Who Benefits the Most, Plixer, (Oct. 26, 2018), https://bit.ly/2Imiecw.
OECD and IBA Issue Report on Proper Roles of Lawyers and International Commercial Structures
On May 31, 2019, the International Bar Association and the Secretariat of the Organization for Economic Co-operation and Development published a Report of the Task Force on the Role of Lawyers and International Commercial Structures.
The Report observes that lawyers’ professional obligations and clients’ rights are regulated by domestic laws and regulations, and/or ethical and deontological codes. The Task Force states that there are certain key principles that should apply in this context in order to balance between the rights of, and duties to, the client on the one hand and a lawyer’s other professional or legal duties on the other. The Report sets forth seven principles without prejudice to the rule of law and related legal conventions, a lawyer’s duty of confidence and laws relating to privilege.
The Task Force recommends the Statement of Principles to national bar associations and law societies with a view to encouraging them to adopt the principles and engage with their governments to explain the role of the principles in ensuring the proper administration of justice and in upholding the rule of law. The sponsors also published an executive summary of the report
The Task Force advocates that, where the Principles are adopted and become part of domestic law and/or professional regulations, their disregard should result in the application of proportionate disciplinary measures, including, where appropriate, disbarment, recognized also in foreign jurisdictions.
Principle 1: Non-facilitation of illegal conduct – Although a lawyer may be unwittingly associated with illegal conduct, including financial crimes, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.
Principle 2: Misuse of the duty of confidence and privilege. Notwithstanding the lawyer’s duty of confidence to a client and the concept of legal professional privilege, a lawyer should not use the confidential nature of the lawyer-client relationship or the principles of legal professional privilege to shield wrongdoers. A lawyer should give due and proper consideration to refraining from acting for a client if the lawyer is aware of, or has reasonable grounds to believe, that the primary purpose of the retainer is to permit the client to be able to rely on the confidential nature of the lawyer-client relationship or privileged communication) so as to permit or encourage the client to engage in illegal conduct.
Principle 3: Client due diligence. A lawyer should undertake and document all reasonable and proportionate inquiries in order to identify and verify a client, as well as identify any ultimate beneficiary of the conduct or transaction, the origin of the funds for the transaction (consistent with applicable anti-money laundering or counterterrorism financing legislation), the substantive nature of the conduct or transaction (including expected revenue and taxation consequence of the transaction) and, subject to Principle 5, be satisfied that the conduct and/or transaction is legal in the lawyer’s jurisdictions.
Principle 4: Action where client conduct is may be or becomes illegal. When the conduct of a client is, may be, or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions. If the client persists in the conduct, the lawyer should give due and proper consideration to ceasing to act, and terminate the retainer.
Principle 5: Multijurisdictional risk. Where a transaction involves conduct by a client, agents or representatives of a client in more than jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction. If such advice has not been obtained and the client wants to proceed with the transaction, the lawyer should recommend that such advice be obtained (at the cost of the client). If the client declines to obtain such advice and persists in the conduct, then the lawyer should give due and proper consideration to ceasing to act and terminate the retainer.
Principle 6: Use of illegal obtained information. Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegally obtained evince, which of itself may constitute a criminal offense in many jurisdictions. To facilitate this, legal frameworks should be consistent across jurisdictions as much as possible, since it is often through cross-border conduct that confidential or secret information in country A is accessed (without the consent of the owner of the information) and then disclosed to a person in country B. An independent court should, where necessary, resolve the question as to what use can be made of such information, based on the applicable domestic framework.
Principle 7: Disclosure of beneficial ownership. A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s clients. Domestic laws should provide for the disclosure of ultimate beneficial ownership of any corporation, trustor other legal entity formed within that country’s jurisdiction. Beneficial ownership information should be available to state regulators, investigators and enforcement agencies. Governments must address whether it needs to be publicly available.
Principle 8: Advertising by lawyers on international commercial structures. Any advertising by lawyers should be transparent, accurate, and truthful. Domestic regulation, bar associations, and law societies should ensure the lawyer advertising is accurate and truthful.
The Report does not seek to duplicate existing international or other national guides for the legal profession in terms how a lawyer should act or not act in certain circumstance. The Report does not seek to cover the many anti-money laundering and counterterrorism financing laws, obligations and disclosure duties that exist in many countries. Instead, it focuses on high-level issues of principle that should assist governments in policy formulation and in guiding lawyers as to how they should conduct themselves, consistent with a lawyer’s underlying domestic legal and ethical obligations.
The Report also sets form the minimum good practice required when a lawyer proposes to accept instructions in a cross-border commercial matter, especially, but not exclusively, from a new client or a client with whom the lawyer has not worked for at least 12 months.
The Report provides detailed guidance for the eight above-mentioned principles with citations to guide legal professionals.
Annex B contains existing guidance concerning the role of lawyers with regard to international commercial structures.
The July issue of the IELR will have a more comprehensive discussion of the Report.
U.S. Treasury and Commerce Increase Cuba Sanctions Rules
Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC)issued amendments to the Cuban Assets Control Regulations (CACR) to further implement the President’s foreign policy on Cuba. These amendments complement changes to the Department of Commerce’s Bureau of Industry and Security (BIS) Export Administration Regulations (EAR), which Commerce is also unveiling today. These regulatory changes were announced on April 17, 2019 and include restrictions on non-family travel to Cuba.
These actions continue to strengthen sanctions against Cuba in the implementation of the National Security Presidential Memorandum (NSPM) signed by the President on June 16, 2017 titled “Strengthening the Policy of the United States Toward Cuba.” These policies continue to work to channel economic activities away from the Cuban military, intelligence, and security services. The Treasury changes will take effect on June 5, 2019 when the regulations are published in the Federal Register.
The Treasury regulations, which can be found at 31 Code of Federal Regulations (CFR) part 515, are here.
The State Department also issued a press release on the new sanctions.
The Commerce regulations, which can be found at 15 CFR parts 730-774, are here.
Major elements of the changes in the revised regulations include:
ENDING GROUP PEOPLE-TO-PEOPLE TRAVEL
OFAC is amending the regulations to remove the authorization for group people-to-people educational travel hat was conducted under the auspices of an organization that is subject to U.S. jurisdiction and that sponsors such exchanges to promote people-to-people.
There is a “grandfathering” provision, which provides that certain group people-to-people educational travel that previously was authorized will continue to be authorized where the traveler had already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to June 5, 2019.
Travel-related transactions continue to be permitted by general licenses for certain categories of travel and certain authorized export transactions. For more on authorized travel to Cuba, please click here.
A general license permits travel-related transactions for certain travel related to the following activities, subject to the criteria and conditions in each general license: family visits; official business of the U.S. government, foreign governments, and certain intergovernmental organizations; journalistic activity; professional research and professional meetings; educational activities; religious activities; public performances, clinics, workshops, athletic and other competitions, and exhibitions; support for the Cuban people; humanitarian projects; activities of private foundations or research or educational institutes; exportation, importation, or transmission of information or information materials; and certain authorized export transactions.
In accordance with the NSPM, OFAC is adding a new prohibition to restrict certain direct financial transactions with entities and subentities identified on the State Department’s Cuba regulations.
ENDING EXPORTS OF PASSENGER VESSELS, RECREATIONAL VESSELS, AND PRIVATE AIRCRAFT
BIS, in coordination with OFAC, is amending the EAR to make passenger and recreational vessels and private and corporate aircraft ineligible for a license exception and to establish a general policy of denial for license applications involving those vessels and aircraft.
ANALYSIS
The new sanctions will eliminate most of the travel authorized by the Obama Administration. Since the Obama administration had authorized 12 general categories of travel, a new travel industry has arisen in the U.S. for persons wanting to travel to Cuba, including direct flights from various U.S. cities by various airlines, passenger ferries, and a number of boutique travel groups mainly offering trips about Cuban culture. Although it purports to target the Cuban government, it will hurt the middle-class Cubans who sponsored many of the people-to-people exchanges through hosting U.S. travelers in bed- and -breakfasts from converted homes and participated in U.S. tourism.
The sanctions will further isolate the U.S. government in the Western Hemisphere, since opposition to U.S. unilateral sanctions against Cuba have been the most important policy matter in the region.
It will increase opposition in much of the world, especially Western Europe to U.S. unilateral sanctions.
Coming only a few days after the threatened tariffs on Mexico for immigration reasons, the raised sanctions further undermine trade and investment in the Western Hemisphere. Since the sanctions take effect June 5, essentially immediately although with a grandfather for people who have already put into place certain travel by air, the new regulations will disrupt and cause losses for airlines, cruise lines, and travel industry persons who have invested substantially in Cuba travel. The lack of a transition for the sanctions is a blow to this part of the U.S. economy. Yesterday Goldman Sachs downgraded their Q2 2019 economic growth forecasts for the U.S. due to risks stemming from trade conflicts with China and Mexico. JP Morgan said the probability of a U.S. recession in the second half of this year had risen to 40% from 25% a month ago.
The next issue of the IELR will discuss the developments further.
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