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Cyber Monday Subscription Deal – 30% off individual subscription and group deal!

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The International Enforcement Law Report is having a special Cyber Monday deal! Get more than 100 dollars off our yearly subscription!!

 

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ABA CJS Meeting Features Discussion of Current and Emerging Anti-Corruption Trends in the Caribbean on Nov. 20

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Below is an announcement/invitation to the meeting of the Committee on International Criminal Law, Criminal Justice Section, ABA on Nov. 20, where Lemarque Campbell, Program Director, AntiCorruption and Media Freedom, International Lawyers Project, will discuss “Current and Emerging Anti-CorruptionTrends in the Caribbean.” You need to register (free) to attend in person or you can dial-in.

Bruce Zagaris, Committee co-chair

Below please find the dial in for the International committee meeting: Saturday, November 20, 2021, at 11:15 AM-12:45 PM Eastern Time.

The Madison Hotel

1177 15th Street NW

Washington, DC  20005

Montpelier A Room

Please RSVP to Regina.ashmon@americanbar.org If you plan to attend in person.

Due to the ongoing COVID pandemic, meeting attendees are now required to provide proof of full vaccination as defined by the CDC, or proof of a negative viral COVID test administered by a healthcare professional taken within 3-days of the meeting arrival date, to attend in person. These requirements impact guests of attendees as well.   This change in policy was set forth by the ABA Board of Governors on 10/4/21.

If you are attending a committee meeting (in-person) scheduled during the fall institute, it’s imperative to register for the Fall CLE Institute by clicking the link below.  https://cvent.me/YPzzz0  This link includes time sensitive COVID related questions.

Dial by your location:

        888 475 4499 US Toll-free

        877 853 5257 US Toll-free

Meeting ID: 981 4789 2653

Passcode: 256374

Regina Ashmon

Committee Specialist, Criminal Justice

American Bar Association

1050 Connecticut Avenue, NW, Suite 400

Washington, DC 20036

T: (202) 662-1512

F: (202) 662-1501

Regina.Ashmon@americanbar.org

Follow CJS on facebook and twitter.

www.americanbar.org/crimjust

MEETING AGENDA 

  1. Introduction and opening remarks
  2. Lemarque Campbell, Program Director, Anti-Corruption and Media Freedom, International Lawyers Project, Current and Emerging Trends for Combating Corruption in the Caribbean.
  3. Committee Newsletter & Membership
  4. Future CLE Events
  5. Other Busines

Lemarque Campbell will discuss current and prospective anti-corruption efforts that transcend national boundaries when it comes to generating and operationalizing anti-corruption policies and measures within the Commonwealth Caribbean, a region with limited research conducted on anti-corruption topics overall.  In particular, he will discuss some of the efforts by the Commonwealth Secretariat to establish and support regional anti-corruption efforts among prosecutors and other agencies.  He will also discuss ongoing efforts in various countries to strengthen anti-corruption laws, such as the disclosure regime for public officials.

Lemarque Campbell is an international anti-corruption specialist, currently based in Washington, D.C. He has advised governments, international organizations, private entities and civil society organizations on laws and policies that address international anti-bribery, corruption and fraud; transparency and accountability; governance, risk, integrity and ethics; and private and public sector compliance. Previously, he practiced law at a leading corporate law firm in The Bahamas. He also led the accreditation process for the Transparency International (TI) Contact in The Bahamas. Additionally, he has lived in the former Soviet Republic of Georgia for two years, where he worked as a legal analyst for TI Georgia. He also served as an anti-corruption consultant to various organizations such as the U.S. Department of State, the Commonwealth Secretariat, the International Development Law Organization (IDLO) and TI-Secretariat. Some of his publications on the Caribbean region include the first Bahamas Corruption Barometer Report, which is based on the TI Global Corruption Barometer series; a report on The Bahamas’s progress towards achieving the United Nations Sustainable Development Goal 16; and a chapter in a forthcoming Commonwealth Secretariat publication on anti-corruption successes in the Commonwealth Caribbean. Lemarque is admitted as a lawyer to both the Bar of England & Wales and The Bahamas Bar. He holds a master’s degree in Law from the University of Bristol, UK and a master’s degree in Anti-Corruption Studies from the International Anti-Corruption Academy (IACA), Austria.

 

Frank Vogl’s Book on Enablers Underscores the Link between Corruption and Democracy

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The Enablers: How the West Supports Kleptocrats and Corruption – Endangering Our Democracy (Roman & Littlefield, 2021, ISBN-13: 978-1538162828, ISBN-10: 1538162822)

Frank Vogl, the co-founder and former vice-chairman of the leading global organization fighting corruption, Transparency International, and the chairman of another, the Partnership for Transparency Fund,  discusses the role of enablers in facilitating corruption, especially cross-border corruption.  He discusses the key  roles the enablers play in serving kleptocrats in many countries, including Russia, China, Iran, Egypt, Hungary, and Nigeria.  He describes the enormous sums of government funds that have been stolen and laundered on a rapidly rising scale into investments in the wealthiest Western nations with the help of firms like Goldman Sachs, Deutsche Bank, BNP-Paribas, and HSBC, alongside leading law firms, auditors, real estate brokers based in the world’s major financial centers.

Vogl, who served for 20 years as the international communications advisor to the Institute of International Finance (IIF), the leading association of the world’s largest banks, and who also served as the communications advisor to the Group of 30 (the association of former finance ministers and central bank governors), uses  first-hand experiences to tell the stories that demonstrate  that the leaders of our financial system are failing to work in the public interest – too many of their activities add wealth, and inevitably power, to Putin and his cronies in Russia, and to other leaders who work  to undermine Western democracy and challenge its security. According to Vogl, greed and short-term profit maximization dominate banking culture today with dangerous consequences.

Vogl develops examples from across the world to call for far-reaching reforms: from reforming banking and the sovereign bond markets, to enacting new anti-corruption laws, and, most importantly, substantially increasing law enforcement. He argues that the chairmen and CEOs of major banks that are caught laundering billions of dollars should be held accountable. According to Vogl, EU authorities should step up financial regulation. He underscores the need to expose and counteract the excessive influence of the City of London’s leaders on preventing serious investigations and prosecutions of their entanglements with foreign kleptocratic clients.

Vogl argues that, if President Biden is to be credible in his strategy to strengthen democracy and contain authoritarianism, then he must not only increase U.S. leadership in fighting corruption abroad, but he must also act urgently to contain the enablers at home. This book explains why and how  several reforms can obtain powerful bi-partisan political support.

Vogl calls for the need for political leadership and multilateral action in the G20 and other international networks and formal international organizations.

On November 15, 2021, Global Financial Integrity hosted a webinar was held on the book.  Participating were: Frank Vogl; Tom Cardamone President and CEO, Global Financial Integrity, moderator; Raymond Baker Founder, Global Financial Integrity; Zoë Reiter Director of Civic Engagement, Project on Government Oversight; and Alexandra Gillies Advisor, Natural Resource Governance Institute.  One of the themes of the webinar was the need to underscore and reform the erosion of transparency plaguing the United States government.

Vogl in his book and during the webinar underscore the potential importance of the Summit on Democracy.  On December 9-10, 2021, President Biden will host the first of two Summits for Democracy, which will bring together leaders from government, civil society, and the private sector to set forth an affirmative agenda for democratic renewal and to tackle the greatest threats faced by democracies today through collective action.

They underscored the need for a transnational approach and discussed the interplay of corruption, financial regulation, and climate control.  Global witness has issued several blog posts on the role of finance and climate control.  See, e.g., https://www.globalwitness.org/en/blog/our-verdict-cop26-compromise-catastrophe.

For persons interested in the contemporary links in the United States and internationally between corruption and reform efforts, especially related to the financial aspects, this book provides some incisive perspectives and solutions.

International Finance Corporation Advertises for Tax Transparency Position

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The International Finance Corporation (IFC), which is part of the World Bank Group, has posted a job vacancy as follows:

https://worldbankgroup.csod.com/ats/careersite/JobDetails.aspx?id=13205&site=1

“International Tax Specialist

Nearly four years ago, IFC’s Business Risk and Compliance Department (CBR) established a small dedicated International Tax team (International Tax Office) to develop and maintain IFC’s international tax policies and better address the financial, legal, and reputational risks that may arise from international tax issues in IFC projects.  The International Tax Office does this against the backdrop of a rapidly changing international tax environment, including initiatives such as:

…   a small dedicated International Tax team (International Tax Office) to develop and maintain IFC’s international tax policies and better address the financial, legal, and reputational risks that may arise from international tax issues in IFC projects.  The International Tax Office does this against the backdrop of a rapidly changing international tax environment, including initiatives such as:

  • The OECD Base Erosion and Profit Shifting (BEPS) project
  • The Global Forum Exchange of Information on Request (EOIR), and
  • The Global Forum Automatic Exchange of Information (AEOI).

We are looking for a qualified and motivated candidate to join the team in our International Tax Office, to oversee the provision of tax-related support for IFC’s operations as well as for Management and the Board, including analysis and advice on tax policy matters, and to represent IFC in the international tax area, collaborating with peer institutions and raising the International Tax Office’s profile.  The position will be based in Washington DC and will report to the Deputy Chief Compliance Officer.”

The duties of the position are as follows:

Duties and Accountabilities

Lead Tax Unit and Supervise IFC’s tax program:

  • Lead the small team of international tax experts in IFC’s International Tax Office.
  • Design a program to address tax risk in IFC private sector investments, including:

o Analysis of complex international tax-related risks and structuring of IFC investee companies, clients and partners.

o Advice on challenging cross-border tax issues, including tax treaties, transfer pricing and international tax structuring.

o Addressing tax structuring issues specific to product or client type (e.g., private equity funds, infrastructure project finance, etc.).

o Provision of creative recommendations to manage and mitigate the financial, legal, and reputational risk to IFC resulting from the tax practices of IFC investee companies, clients and partners, and

o Contribution to the advancement of IFC’s tax-related policies and procedures.

  • Steer the roll-out of an effective tax training program for staff, including the development of practical written guidance and the provision of engaging training sessions.
  • Manage relationships with outside counsel and consulting firms, including advising on selection and monitoring.
  • Provide CBR Management with a single point of contact on tax-related issues arising in IFC’s transactions.

Technical project-related work, reporting and analytics:

  • Advise IFC project teams on the application and use of IFC’s international tax policies in IFC investment transactions.
  • Perform tax due diligence (TDD) to analyze tax-related risks in IFC investment projects.

o Assess IFC’s TDD pilots, currently being tested in Latin America, Africa and the Middle East.

o Implement TDD pilots in Asia and Eastern Europe.

o Graduate TDD from regional pilots to an established ‘mainstreamed’ program.

  • Draft TDD disclosures for Board Papers, as needed.
  • Participate in bilateral meetings with Executive Directors in preparation for Board meetings and Board consideration of projects, and assist IFC project teams responding to Board and Audit-Committee tax-related questions and concerns.
  • Prepare quarterly reporting to the IFC Audit Committee on tax and intermediate jurisdiction matters.

Monitoring World Bank Group Private Sector Tax Policy (Tax Policy):

  • Ensure the updated Tax Policy incorporates international tax best practices in a manner that best supports IFC’s mission and operations.
  • Support the implementation of the Tax Policy and the ongoing review, in collaboration with CBR Management, IFC Senior Management and the Board of Directors.
  • Work with CBR Management in obtaining consensus on tax policy issues amongst IFC’s 180+ member countries and 25 voting constituencies, particularly in relation to intermediate jurisdiction usage in IFC financed transactions.

Team management:

  • Oversee day-to-day activities of Tax team to ensure timely provision of high-quality advice.
  • Monitor workflow, volume of work deliverables and the delivery of work by Tax team.
  • Ensure the efficient and fair assignment of Tax-related project and policy work.
  • Lead weekly Tax team meetings and determine priorities of Tax-related projects.
  • Foster team-building and knowledge-sharing across Tax team.

Collaboration/profile raising:

  • Collaborate with other international organizations to potentially influence policies.
  • Collaborate with the World Bank and International Monetary Fund Tax teams to provide private sector insights into international tax issues.
  • Participate as observers in the OECD BEPS Inclusive Framework meetings to advise IFC business teams on how outcomes might impact IFC projects.
  • Help IFC maintain its leadership on international tax issues amongst other development institutions and advance best tax practices in emerging markets by:

o Leading monthly development finance institution calls on tax issues, and

o Identifying areas of collaboration.

  • Maintain profile of IFC’s tax function in speaking engagements on tax, tax and development and responsible tax.”

Analysis

The advertisement for the post indicates how important tax transparency has become.  The IFC is the private sector arm of the World Bank Group.  It has more than 60 years of experience in unlocking private investment, creating markets and opportunities where they’re needed most. Since 1956, IFC has leveraged $2.6 billion in capital to deliver more than $285 billion in financing for businesses in developing countries.

One of its jobs is investment.  Its financial products enable companies to manage risk and expand their access to foreign and domestic capital markets. The IFC operates on a commercial basis. It invests exclusively in for-profit projects in developing countries, and we charge market rates for our products and services.

Another core task of the IFC is providing advice in order to create markets and mobilize private investment. Through this work, we help establish the necessary conditions that will attract the most private capital, enabling the private sector to grow.

Another core function of the IFC is mobilizing private capital for development—which will be essential to achieve the Sustainable Development Goal.

In performing its core functions, the IFC’s international tax office will advise its client, which can be governments, foreign sovereign, and private companies about the importance of and the need to take into account tax transparency on its projects.

U.S. Sanctions Russian-Owned Crypto-Exchange for Ransomware Activities

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On September 21, 2021, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the first virtual currency exchange for laundering cyber ransoms and updated its ransomware advisory to encourage reporting of incident and ransomware payment to both Treasury and law enforcement.

Rationale for Designating Virtual Currency Exchanges

OFAC explained that some virtual currency exchanges play a critical role in the ransomware ecosystem, since virtual currency is the main way of facilitating ransomware payments and associated money laundering activities.  In this regard, the Financial Crimes Enforcement Network (FinCEN) has issued guidance concerning the application of the Bank Secrecy Act rules in this area in 2013 and 2019.  FinCEN has also taken enforcement action against non-compliant virtual currency money transmitters facilitating ransomware payments.  In 2017, it acted against BTC-e and in 2020 against the virtual currency mixing service Helix.

FinCEN is especially targeting “nested” exchanges, such as SUEX, that piggyback off large crypto platforms; peer-to-peer platforms that permit direct confidential transactions between parties; and mixers, whose exchange services make tracking transactions more difficult.  Virtual currencies facilitate illicit activities for their own profits.  Treasury will continue to employ its authorities against malicious cyber actors in cooperation with other U.S. law enforcement agencies, as well as with its foreign partners.  The goal is to disrupt financial nodes connected to ransomware payments and cyber-attacks.

Designation of SUEX

SUEX OTC, S.R.O. (SUEX), a virtual currency exchange, is designated due to its facilitation of financial transactions for ransomware actors.  SUEX has alleged facilitated transactions involving illicit proceeds from at least eight ransomware variants.  Over 40% of SUEX’s known transaction history is with illicit actors.  OFAC is designating SUEX pursuant to Executive Order 13694, as amended, for providing material support to the threat posed by criminal ransomware actors.

SUEX is believed to have facilitated ransomware attacks, which help fund additional cybercriminal activity.  Treasury has promised to continue to disrupt and hold accountable entities, such as SUEX, to reduce the incentive for cybercriminals to continue to conduct these attacks.

The designation of SUEX is the first sanctions designation against a virtual currency exchange.  The Federal Bureau of Investigation assisted in the designation.

Sanctions Implications

The designation of SUEX means that all property and interests in property of SUEX that are subject to U.S. jurisdiction are blocked.  U.S. persons are generally prohibited from engaging in transactions with them.  In addition, any entities 50% or more owned by one or more designated persons are also blocked.  Additionally, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities and individuals can expose themselves to sanctions and/or enforcement actions, especially for money laundering.

OFAC Updates Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments.

OFAC issued an Updated Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments.  The Advisory underscores that the U.S. government continues to strongly discourage the payment of cyber ransom or extortion demands.  It recognizes the importance of cyber hygiene in preventing or mitigating such attacks.

The updated advisory underscores the importance of improving cybersecurity practices and reporting to, and cooperating with, appropriate U.S. government agencies in the event of a ransomware attack. The reporting is critical for U.S. government agencies, including law enforcement, to understand and counter ransomware attacks and malicious cyber actors.  For instance, law enforcement has knowledge of payment right after it occurs, it can more easily trace and seize the money.

International Cooperation on AML/CFT Measures for Virtual Currencies and Service Providers

The international cooperation against ransomware is quite dynamic.  The G7 heads of state agreed to act and had statements in the communique after their June meeting in England.  They committed to cooperate to urgently address the increasing threat from criminal ransomware networks.  The G7 Expert Group (CEG), co-chaired by the U.S. treasury and the Bank of England, met on September 1 and September 14, 2021, to discuss ransomware.  They explored ways to improve overall security and resilience against malicious cyber activity.  At the September 8-9 meeting of the G7 ministers of security and INTERPOL, the participants agreed to hold an Extraordinary Senior Officials Forum on ransomware by the end of 2021.

In June 2019, the Financial Action Task Force (FATF) revised its standards to require all countries to regulate and supervise virtual asset service providers (VASPs), including exchanges, and to mitigate against such risks when engaging in virtual asset transactions.  For instance, countries must impose customer due diligence (CDD) requirements and suspicious transaction reporting obligations across Virtual Asset Service Providers (VASPs).  The due diligence will inhibit cybercriminals’ exploitation of virtual assets and support investigations into the illicit finance activities.

Analysis

The designation of SUEX is likely the first of a series of designations by the U.S. and G7 countries of virtual currency exchanges and platforms deemed to be servicing ransomware attacks.  Meanwhile, the G7, G20, and FATF continue to strengthen the standards for applying AML/CFT and financial regulation to crypto-assets.

VASPs and crypto platforms will want to review with an eye to upgrading their AML/CFT due diligence standards as the regulatory requirements will continue to be dynamic.

The next issue of the IELR will have a more comprehensive discussion of this matter.

French Supreme Court Overturns Dismissal of Complicity for Crimes against Humanity against Lafarge in Syria

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On September 7, 2021, the French Supreme Court (Court of Cassation) overturned the decision of the Paris Court of Appeal, dismissing a charge of complicity in crimes against humanity against Lafarge, now part of Switzerland-listed Holcim.  After an internal investigation, Lafarge admitted that its Syrian subsidiary paid armed groups to protect its workers at its Syrian plant.

In 2019, a French appellate court dismissed the crimes against humanity charge.  It reasoned that Lafarge did not deliberately associate itself with those crimes.[1]

The French Supreme Court remanded the case so that magistrates can re-examine Lafarge’s request to dismiss the case.  Until now, French courts have not tried any French entity for crimes against humanity even though French courts have jurisdiction over such offenses.[2]   The  French  Criminal  Code  of  Procedure  (CCP) establishes  universal jurisdiction  over  specified  offenses  emanating  from  international  conventions ratified  by  France.[3]

Under  French  law,  crimes  against  humanity  are  generally  defined  according  to the  Rome  Statute, with some  difference.  For instance, the CCP  requires  that  a crime against  humanity  be  part  of  a concerted plan.[4]

The French prosecution accuses Lafarge of paying close to $15.3 million to jihadist groups, including the Islamic State (IS).[5]

In October 2016, the prosecution started after the French Ministry of Economy and Finance brought a complaint against Lafarge.

Thereafter, Lafarge started an internal investigation.  It learned that the Syrian subsidiary gave funds to third parties to arrange deals with various armed groups.[6]

In 2019, the Court of Appeal dismissed the crimes against humanity charge.  It reasoned that it accepted that the payments were not to help IS’s agenda of executions and torture.  Nevertheless, it ruled that the prosecutor could proceed on three other charges: financing terrorism, violating an EU embargo, and endangering the lives of others.[7]

In its decision the French Supreme Court explained “one can be complicit in crimes against humanity even if one doesn’t have the intention of being associated with the crimes committed.”

The Court reasoned that “Knowingly paying several million dollars to an organization whose sole purpose was exclusively criminal suffices to constitute complicity, regardless of whether the party concerned was acting to pursue a commercial activity.” [8]

Analysis

The significance of the Lafarge prosecution concerns two important issues: accountability of multinational enterprises operating in conflict zones for contributing financially to the perpetration of atrocities by terrorist groups or other entities;[9] and the responsibility of parent companies for the illegal activities of their subsidiaries abroad.[10]

In this regard, in 2017, France enacted the first “duty of vigilance” law in Europe.  It requires companies to prevent human rights abuses in their supply chains worldwide.  It obligates them to pay damages if they fail to do so.[11]

The case is also important for its illustration of how universal jurisdiction applies with respect to crimes against humanity.

Additional issues facing Lafarge are investigations in the United States.  The U.S. has imposed sanctions on Syria during the last ten years.  They include the regime of Syrian President Bashar a-Assad and terrorist groups, such as IS.   The internal investigation suggests the risks for U.S. sanctions are limited, partly since the improper payments were in cash and did not, to the company’s knowledge, enter the U.S. banking system.  Normally, multinational enterprises violating U.S. sanctions send U.S. dollars that are cleared in the U.S.[12]

The current issue of the IELR will have a more comprehensive discussion of the Lafarge case.

[1]    Sarah White, Court blocks Lafarge bid to scrap Syria crime against humanity charge, Reuters, Sept. 7, 2021.

[2]    Id.

[3]    Open Society Justice Initiative, Universal Jurisdiction  Law and Practice in France 4 (February, 2019), citing French Criminal Code,  Article 689.

[4]    Open Society Justice Initiative, supra, at 5.

[5]    AFP, French firm Lafarge loses bid to dismiss ‘crimes against humanity’ case in Syria, Sept. 7, 2021. www.france24.com.

[6]    AP, Lafarge charges of crime against humanity dropped on appeal but others remain, July 11, 2019, https://www.france24.om.

[7]    AFP, supra.

[8]    Id.

[9]    Madeline Young, Lafarge’s Case Cemented:  Holding Corporations Liable for Crimes against Humanity, Emory Int’l L. Review: Recent Developments, 1 (2021), citing Claire Tixeire et al, Holding Transnational Corporations Accountable for International Crimes in Syria:  Update on the developments in the Lafarge Case (Part II), Opinio Juris (July 27, 2020).

[10]   Young, supra.

[11]  Id., citing Tixeire et al, supra.

[12]  David Keohane and Ralph Atkins, Syrian operation: Lafarge faces probe over Isis payments, Financial Times, Mar. 7, 2018.

Saudi Arabia Cracks Down on Anti-Corruption Efforts

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By Marwah Adhoob

On August 9, 2021, the Saudi Arabian Anti-Corruption sector, Nazaha, confirmed the arrest of 207 persons for corruption-related charges, including bribery, forgery, and abuse of power in official positions.

The named suspects include individuals that were government employees in the Defense, Interior, Justice, Health, and Education departments. The press release did not name specific individuals and merely listed the departments. The arrests involved investigations into more than 400 individuals that allegedly engaged in criminal and administrative offenses.

The Nazaha said in a statement that the legal proceedings are pending in preparation for court referral.

Corruption has long been an issue in Saudi Arabia, and these arrests were a part of a more extensive campaign to target corrupt entities. In 2017, Prince Mohammed specifically targeted officials in high power capacity, such as princes, businesspersons, public figures, and other elite persons, for their involvement in facilitating corruption in the country.

Previously, in April 2021, the Nazaha also made a sweeping arrest of more than a hundred public officials for alleged corruption involvement and charges.

According to the Organized Crime and Corruption Reporting Project, “The probe recovered over US$100 billion, and resulted in the arrest of 56 members of the royal family.”

Potential Human Rights Concerns

The Human Rights Watch pointed out that Saudi Arabia’s rampant arrests should be done with adequate due process rights and protections. In 2020, Human Rights Watch urged the Saudi authorities to “reveal the legal and evidentiary basis for each person’s detention” and that the detainees should have access to adequate due process rights.

The Deputy Director of the Human Rights Watch in the Middle East, Michael Page, said that the “The fight against corruption is no excuse for flagrant due process violations and preventing people from mounting an adequate defense.” And “Given their track record of abuse, the Saudi authorities should make fundamental reforms to the justice system to ensure that the accused will not be railroaded in unfair legal proceedings,” he continued.

In the 2017 and 2018 arrests, media reports indicated that the Saudi authorities allegedly used physical abuse to compel suspects to turn over assets. Some detainees were in critical condition due to the physical abuse.

U.S. Returns Additional $452 Million in Forfeited 1MDB Funds to Malaysia

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On August 5, 2021, the United States Department of Justice announced it has returned an additional $452 million in embezzled 1Malaysia Development Berhad (1MDB) funds it has forfeited to the people of Malaysia.  The U.S. has now returned over $1.2 billion in forfeited 1MDB funds.[1]

Court documents show the funds from 1MDB, formerly Malaysia’s investment development fund were laundered through major financial institutions worldwide, including in the U.S., Switzerland, Singapore, and Luxembourg.

DOJ Civil Forfeiture Actions

Starting in 2016, the Money Laundering and Asset Recovery Section (MLARS) of the Justice Department’s (DOJ) Criminal Division and U.S. Attorneys’ Office filed 41 civil forfeiture actions in the U.S. District Court for the Central District of California and one in the U.S. District Court for the District of Columbia.  The suits led to the seizure of over $1.7 billion in stolen assets.  This recovery is the largest to date under the DOJ’s Kleptocracy Asset Recovery Initiative.  The funds include both funds finally forfeited and funds the DOJ helped in recovering and returning.  The DOJ continues to litigate actions against additional assets allegedly linked to this scheme.

Forfeiture Allegations

The civil forfeiture complaints allege that, from 2009 through 2015, high-level officials of 1MDB  and their associates, and Low Taek Jho (aka Jho Low), allegedly misappropriated more than $4.5 billion in funds belonging to 1MDB through a criminal conspiracy involving international money laundering and embezzlement.  The forfeiture complaints allege some of the embezzlement proceeds were used to pay bribes.

While the Malaysian government established 1MDB to promote economic development in Malaysia through global partnerships and foreign direct investment, instead the funds held by 1MDB and proceeds of bonds issued for and on behalf of 1MDB.  The funds were taken and used to buy various extravagant items, including luxury homes and properties in Beverly Hills, New York, and London; a 300-foot superyacht; and fine art by Monet and Van Gogh.  The funds were invested into numerous businesses, including a boutique hotel in Beverly Hills, a movie company that made “The Wolf of Wall Street” while the embezzlement scheme    transpired.  The scheme also invested in the redevelopment of the Park Lane Hotel in Manhattan and shares in EMI, the largest private music-rights holder.

Analysis

In March, U.S. District Judge Dale Fischer in Los Angeles denied the DOJ’s efforts to seize $325 million from an oil exploration joint-venture linked to the 1MDB scandal.  Judge Fischer granted Petrosaudi’s request to dismiss the DOJ’s forfeiture claim on the basis that the government had failed to make an adequate allegation between the money and any criminal offense.[2]

U.S. firms were involved in the 1MDB scandal.  Goldman Sachs entered into corruption-related settlements in both the U.S. and Malaysia for its role in raising funds.  Large U.S. law firms were involved in helping the alleged embezzlers make investments in the U.S.

[1]    U.S. Department of Justice, Over $1 Billion in Misappropriated 1MDB Funds Now Repatriated to Malaysia, Press Rel. 21-740, Aug. 5, 2021.

[2]    Hugo Miller and Jonathan Browning, 1MDB Case Hits Setback as Judge Rules Against U.S. Justice Department, Bloomberg, March 25, 2021,

Spanish Court Advises Banco de Chile to Set Aside $103M for Money Laundering from Pinochet Expropriations

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On July 29, 2021, the Seventh Court of Guarantee of Santiago (El Séptimo Juzgado de Garantía de Santiago) reopened an investigation into whether the Banco de Chile helped the former dictator Augusto Pinochet launder money.  It notified the Supreme Court of Chile of the reopening of the case and advised the bank, whose ownership in related to the Pinochet family, to set aside $103 million.[1]

The Spanish Court’s Decision

The plaintiffs are led by the President Allende Foundation, named after the former President Salvador Allende, whom Pinochet overthrew in a coup.  The Foundation represents more than 20,000 victims of the Pinochet dictatorship.  The plaintiffs allege the funds were obtained by illegal expropriations by General Pinochet and his associates and transferred to personal offshore accounts.  The complaints allege that the transfers constituted acts of tax evasion and money laundering, which the Banco de Chile assisted.[2]

In 1998, Spanish judge Baltasar Garzon ordered Pinochet detained for crimes against humanity.  Spain requested Pinochet’s extradition from England.  Although the English courts ordered him extradited, the British Home Office ordered that he not be extradited due to humanitarian considerations, namely his age and failing health.  General Pinochet died under house arrest in Chile in 2006 without being tried.

Banco de Chile, the Alleged Enabler, and the Luksić Family

Banco de Chile successfully claimed for years that Chile rather than Spain has jurisdiction to investigate the allegations.  In 2013, the Chilean judiciary closed a money laundering investigation without charging the general or anyone else.  A study commissioned by the Chilean Supreme Court stated only $2 million of the $21 million identified as Pinochet’s personal wealth could be considered clean.

In 2018, Chile’s Supreme Court ordered the return of $1.6 million of Pinochet’s assets.  It convicted three of his former generals for fraud connected to public money.  Banco de Chile paid Chilean authorities $3.1 million in 2009 for administrative irregularities concerning General Pinochet’s money.  However, the bank was never indicted.[3]

Although the court told Banco de Chile it should set aside $103 million to cover potential payments to the victims, it has not yet ordered it to do so.  Banco de Chile has deposits in around ten countries, six in the European Union.

Quiñenco is the majority owner of the Banco de Chile.  The Luksić family has Quiñenco as its holding company.  Vladimir Luksić was the brother-in-law of Augusto Pinochet.

Prosecutor José Morales has also charged Anita María Pinochet Ribbeck, the spouse of former army general, Juan Miguel Fuente-Alba, and Fuente-Alba, with money laundering.[4]

Morales claims that a report of the Financial Intelligence Agency shows the pair increased their wealth more than 280% between 2010 and 2016 by hiding and falsify the illegal source of their funds.  The defendants, represented by Cuatrecasas, one of the largest Spanish firms specializing in tax and money laundering, tried unsuccessfully to dismiss the case.[5]

Analysis

Spain has extraterritorial jurisdiction for Spanish victims.  Already the Spanish courts imposed a penalty against Riggs Banks for alerting General Pinochet’s to move the money in his accounts in London ahead of Garzon’s request that Britain to freeze his accounts.[6]

This case should be watched for its efforts to hold accountable Banco de Chile, the alleged enabler, almost 23 years after the initial charges in Spain.

Spain’s wide-ranging tax collection and enforcement and mutual assistance agreements with the EU countries may play an important role in this case.

The case illustrates the use of extraterritorial jurisdiction when a court believes a foreign court, although exercising jurisdiction, have not properly adjudicated the case.

The current issue of the IELR will have a more comprehensive discussion of the case.

[1]    Raphael Minder, Spain Reopens Pinochet Inquiry Into Tax Evasion and Laundering, N.Y. Times, July 31, 2021, at A7, col.1.

[2]    Spanish court targets Chilean bank linked to Pinochet, July 30, 2021 https://www.hebergementwebs.com/europe/spanish-court-targets-chilean-bank-linked-to-pinochet.

[3]    Id.

[4]    They Decide on a Bond for Ana Maria Pinochet, spouse of the Former General Fuente-Alba, after the Money Laundering Charges (Decretan arraigo para Ana María Pinochet, esposa del ex general Fuente-Alba, tras ser formalizada por lavado de dinero, El Mercurio, July 29, 2021).

[5]    Id.

[6]    Spanish court targets Chilean bank linked to Pinochet, supra.

EU Commission Proposes Major Revisions for Countering Money Laundering and Terrorism Financing

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On July 20, 2021, the European Commission presented a significant set of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules.  The proposal will establish a new EU authority to combat money laundering.  The proposals aim to improve the detection of suspicious transactions and activities, and to shut the loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.

The proposals improve the existing EU framework by responding to emerging challenges linked to technological innovation.  They take into account virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organizations.  The proposals bring convergence in the AML/CFT rules and establish a more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active in cross-border transactions.

The Four Legislative Proposals

The initiatives consist of four legislative proposals:

New EU AML Authority (AMLA) Proposed

The initiatives will establish a new EU Authority (AMLA) to transform AML/CFT supervision in the EU and improve cooperation among Financial Intelligence Units (FIUs).  The AMLA will serve as the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules.  AMLA will also furnish support to FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.

The AMLA will:

  • create a single integrated system of AML/CFT supervision throughout the EU, based on common supervisory methods and convergence of high supervisory standards;
  • directly supervise some of the riskiest financial institutions that operate in a large number of EU Members or require immediate action to respond to imminent risks;
  • monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
  • support cooperation among national FIUs and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.

One EU Rulebook for AML/CFT

The Single EU Rulebook for AML/CFT will harmonize AML/CFT rules across the EU, including, for instance, more detailed rules on Customer Due Diligence, Beneficial Ownership and the authorities and task of supervisors and FIUs.  The initiatives will connect existing national registers of bank accounts, furnishing faster access for FIUs to information on bank accounts and safe deposit boxes.  The Commission will also supply law enforcement authorities with access to this system, accelerating financial investigations and the recovery of criminal assets in cross-border cases.  Access to financial information will be subject to strong safeguards in Directive (EU) 2019/1153 on exchange of information.

Extending AML/CFT Rules to the Crypto Sector

Currently EU AML/CFT rules apply to only certain types of crypto-asset service providers.  The proposed initiatives will extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers.  The proposals will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will permit prevention and detection of their possible use for money laundering or terrorism financing.   Additionally, the proposals will fully apply EU AML/CFT rules to the crypto sector and prohibit anonymous crypto asset wallets.

Limit Cash Payments to € 10,000

The Commission has proposed an EU-wide limit of €0,000 on large cash payments.  The limit is high enough not to question the euro as legal tender and recognizes the important role of cash.  In about two-thirds of EU Members limits already exist, but the amounts vary.  National limits under  € 10,000 can remain in place.  Limiting large cash payments makes it more difficult for criminals to launder money.  Additionally, the proposes forbid anonymous  crypto-asset wallets, similar to the prohibition of anonymous bank accounts.

“Black-Lists” and “Grey-lists” for Third Countries

The EU will continue to use a “black-list” and a “grey-list.”  In addition to using the FATF list for its own listing, the EU will have its own list based on an autonomous assessment.

Future

The Commission proposals are in the hands of the European Parliament and Council.  The future AML Authority should be operational in 2024 and will start its work of direct supervision slightly later, once the Directive has been transposed and the new regulatory framework starts to apply.

Analysis

The AMLA with direct authority over institutions with cross-border activities or institutions with problems will contribute significantly to stronger compliance.   The AMLA will help establish a single integrated system of AML/CFT through common supervisory methods and convergence of high supervisory standards.  It will also facilitate cooperation among FIUs and more convergence with respect to their operation.

The extension of AML/CFT rules to crypto-asset service providers and prohibition of anonymous crypto asset wallets will plug a gap in the use of virtual currency to circumvent AML/CFT regulation.

The connecting of existing national registers of bank accounts along with the national beneficial ownership registers for companies and trusts will facilitate financial investigations and asset recovery.

Unfortunately, the use of its own grey and black lists will contribute to the proliferation of such lists internationally, causing more limits and closures of correspondent bank accounts and financial exclusion for persons in small jurisdictions.

For additional information see Questions and Answers:  AntiMoney Laundering and Countering Financing of Terrorism (AML/CFT)  and Factsheet: Stronger EU rules to fight financial crime, Anti-money laundering and countering the financing of terrorism legislative package, and Proposal on centralised bank account registeries.

The next issue (August) of the IELR will have a more comprehensive discussion of the EU Commission’s AML/CFT initiatives.

Disclaimer

Nothing in this blog constitutes or is intended to constitute legal advice. Neither transmission nor receipt of such materials creates an attorney-client relationship. Blog readers and subscribers should consult with an attorney. This blog may be considered attorney advertising under the rules of some states. The hiring of an attorney is an important decision that should not be based solely upon advertisements. Prior results do not guarantee similar outcomes.

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