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Official Blog of the International Enforcement Law Reporter

SPANISH AUTHORITIES ARREST ALLEGED CHINESE MONEY LAUNDERING GANG MEMBERS

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A Europol-Backed Joint Law Enforcement Investigation Leads To Five Arrests

By Kaila Hall

 

On July 5, 2024, Europol announced1 that five alleged members of a Chinese money laundering gang had been arrested in Spain, following extensive French and Spanish police searches. Europol supported this joint law enforcement investigation into the criminal network that is believed to have smuggled over €1 million a day. Among those arrested is the alleged leader of the gang.

From July 2 and 3, approximately one hundred Spanish National Police officers searched homes, restaurants, warehouses, and company headquarters, with the assistance of French Judicial Customs and Europol. These searches occurred in Madrid, Valencia, Alicante, and Barcelona, and led to nearly €160,000 in cash seized. Spanish police also arrested2 two owners of Chinese restaurants in Valencia who were alleged gang members. Spanish authorities suspect that the arrested businessmen are private lenders who help launder significant sums of money across Europe. Additionally, the Spanish National Police searched two ships in Crevillent near Valencia. Several counterfeit articles of clothing, cash, and fraudulent documentation were obtained. The European Multidisciplinary Platform Against Criminal Threats3 (EMPACT) funded the arrest operation.

In February 2021, the French National Anti-Fraud Office (ONAF) began investigating the criminal network after French customs at Perpignan seized over €500,000 in cash in a car near the French-Spanish border.4 With the guidance of the specialized interregional jurisdiction (JIRS) of Marseille, the ONAF identified an alleged Chinese money laundering network leader who lived in Spain. The ONAF believes that the gang has been trafficking counterfeit goods, has been implicated in prostitution, and has been committing tax and customs fraud across Europe since 2019. For several years, the gang has utilized a vast network of criminals across all European Union states to transfer cash.

Following the ONAF investigation, French authorities alerted the Spanish National Police. Subsequently, the Spanish Drugs and Organized Crime Unit (UDYCO) and the Central Economic and Fiscal Crime Unit (UDEF) launched an investigation into the Chinese money laundering network. With the help of French authorities and Europol, the Seventh Court of First Instance and Instruction in Parla, Spain coordinated the operation to dismantle the crime network.

 

Kaila Hall is an intern at IELR. She is a rising senior at Cornell University.

[1] “French and Spanish Authorities Crack down on Chinese Money Laundering Gang.” Europol, www.europol.europa.eu/media-press/newsroom/news/french-and-spanish-authorities-crack-down-chinese-money-laundering-gang#empact.

[2] ‌Martínez, Javier. “Cae Una Mafia China Que Tenía Capacidad Para Blanquear Un Millón de Euros al Día.” Las Provincias, 5 July 2024, www.lasprovincias.es/sucesos/golpe-policial-mafia-china-blanqueaba-dinero-valencia-20240705094541-nt.html?ref=https%3A%2F%2Fwww.lasprovincias.es%2Fsucesos%2Fgolpe-policial-mafia-china-blanqueaba-dinero-valencia-20240705094541-nt.html.

[3] “EU Policy Cycle – EMPACT.” Europol, www.europol.europa.eu/crime-areas-and-statistics/empact.

[4] “Individual Arrested in Barcelona for Being Part of Chinese Group Capable of Money Laundering €1m Daily.” Www.catalannews.com, 5 July 2024, www.catalannews.com/society-science/item/individual-arrested-in-barcelona-for-being-part-of-chinese-group-capable-of-money-laundering-1m-daily.

 

 

MOLDOVA ARRESTS OFFICIALS OBSTRUCTING RED NOTICES

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Interpol Launches Anti-Corruption Operation in Moldova

By Kaila Hall

 

On June 6, 2024, Moldova arrested1 four interior ministry employees who allegedly allowed criminals to escape Red Notice arrest warrants by the International Criminal Police Organization (INTERPOL). Moldova’s Interpol Chief has also been detained2 and indicted on a corruption charge. The officials are believed to have ties to an international criminal conspiracy with connections to cybercriminals in Russia, Ukraine, and Belarus. Evidence3 suggests that the officials have accepted multi-million U.S. dollar bribes to harbor criminals in Moldova and protect them from Red Notices. The Anti-Corruption Prosecution Office ordered raids on 33 locations with the assistance of federal authorities in the United States, United Kingdom, France, and Spain. Law enforcement seized mobile phones, laptops, computers, and documents. These items will be examined during the criminal investigation. Further information will be provided surrounding these arrests, pending an additional criminal investigation.

The Anti-Corruption Chief Veronica Dragalin explained that the detained officials had “paid intermediaries and public figures in Moldova to inform wanted criminals of (their) Red Notice status.” She stated that the officials assisted wanted criminals to “obtain asylum or refugee status” in Moldova and elsewhere “with the aim of blocking and deleting” the notices by bribing public officials.4

On April 2, 2024, the Anti-Corruption Prosecution Office opened a criminal case regarding this scandal, following an initial investigation from the French National Financial Prosecutor’s Office. Prior to the case’s opening, INTERPOL provided information to French law enforcement regarding this matter.  On June 4, 2024, Moldova’s Anti-Corruption Prosecution Office executed search warrants.5

According to INTERPOL’s Secretary General, Jürgen Stock, “over 70,000 people are subject to INTERPOL Red Notices.” Currently, there are nearly 7,000 Red Notices6 in circulation. INTERPOL releases Red Notice alerts to its 196 member states, requesting that “law enforcement worldwide locate and provisionally arrest a person pending extradition, surrender, or similar legal action.” It should be noted that a Red Notice is not an international arrest warrant. The individuals are wanted by the requesting member country or international tribunal. Member states apply their laws when deciding whether to arrest a person.

INTERPOL Red Notices have received criticism7 in recent years. In 2018, French journalist Mathieu Martiniere and his colleague Robert Schmidt published an investigation into Interpol. They told AFP that “[INTERPOL’s] situation has improved, but more than a hundred innocent people still slip through the net every year and can be extradited and then imprisoned.” The Red Notice system has also been frequently accused of “being misused by member states to hunt down political dissidents.” This prompted Secretary General Jürgen Stock to create a task force, in 2014, of around 40 experts to validate notices prior to publication. In 2022, 1,465 of the nearly 71,000 notices were canceled before publication. The organization has faced additional controversy, especially with the election of Ahmed Naser al-Raisi as the President of INTERPOL in 2021. The Emirati general is currently under investigation8 in France for complicity in torture.

[1] “Moldova Arrests Officials for Helping Criminals Bypass Interpol Red Notices.” Www.occrp.org, www.occrp.org/en/daily/18785-moldova-arrests-officials-for-helping-criminals-bypass-interpol-red-notices.‌

[2] “Moldova’s Interpol Chief Charged with Corruption.” Www.euractiv.com, 8 June 2024, www.euractiv.com/section/enlargement/news/moldovas-interpol-chief-charged-with-corruption/. ‌

[3] “Search Warrants Executed by the Anti-Corruption Prosecution Office in an International Joint Investigation | Procuratura Anticoruptie a Republicii Moldova.” Procuratura.md, 11 June 2024, procuratura.md/anticoruptie/comunicate/comunicate-de-presa/search-warrants-executed-anti-corruption-prosecution-office. ‌

[4] “Interpol and FBI Break up a Cyber Scheme in Moldova to Get Asylum for Wanted Criminals.” AP News, 4 June 2024, apnews.com/article/interpol-fbi-moldova-red-notice-08755a95baae8edac2f9ccc9c4ad1775.

[5] “INTERPOL Action Leads to Anti-Corruption Operation in Moldova.” Www.interpol.int, www.interpol.int/en/News-and-Events/News/2024/INTERPOL-action-leads-to-anti-corruption-operation-in-Moldova.‌

[6] “View Red Notices.” Www.interpol.int, www.interpol.int/en/How-we-work/Notices/Red-Notices/View-Red-Notices.

[7] “Interpol Focuses on Abuse of Famous Red Notices as It Marks 100 Years.” France 24, 29 Nov. 2023, www.france24.com/en/live-news/20231129-interpol-fights-crime-and-controversial-image-100-years-on.‌

[8] “Emirati General Accused of Torture Appointed Head of Interpol.” France 24, 25 Nov. 2021, www.france24.com/en/live-news/20211125-emirati-general-accused-of-torture-appointed-head-of-interpol-police-agency.‌

 

U.S. Treasury Publishes 2024 National Strategy for Combating Terrorist and Other Illicit Financing

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By Kaila Hall

On May 16, 2024, the U.S. Department of the Treasury published the 2024 National Strategy for Combating Terrorist and Other Illicit Financing1 (2024 Strategy). The report addresses the key threats included in the 2024 National Money Laundering, Terrorist Financing, and Proliferation Financing Risk Assessments2 from February 2024 (2024 National Risk Assessments). This latter report identified illicit financial threats resulting from fraudulent schemes, ransomware attacks, the ongoing opioid epidemic, foreign and domestic terrorist attacks, corruption, and the exploitation of technological advancement in financial products and services.

Amid the recent rise of international conflicts and wars, the American financial system remains at risk. Terrorist organizations are implementing new fundraising methods, while drug and human traffickers are evading U.S. surveillance mechanisms, cybercriminals are conducting extensive fraud campaigns, and nation-states are utilizing ransomware and further financing weapons of mass destruction. The 2024 National Risk Assessments determined the most significant illicit finance vulnerabilities as being the misuse of cash, the misuse of financial products and services, the ease of formation of and limited information required to create legal entities, inadequate global anti-money laundering & countering the financing of terrorism (AML/CFT) regulation, supervision, and enforcement, AML/CFT compliance deficiencies, complicit professionals facilitating illicit finance, among several others.

Consequently, the 2024 Strategy seeks to eliminate the pathways that illicit actors exploit and increase enforcement mechanisms. The U.S. Treasury has four priorities and 15 supporting actions to implement between now and the 2026 Strategy. Priorities include (1) assessing and addressing legal and regulatory vulnerabilities in the U.S. AML/CFT regime, (2) promoting a risk-focused and effective AML/CFT regulatory framework for financial institutions, (3) enhancing operational effectiveness in combating illicit finance, and (4) supporting responsible technological innovation and harnessing technology to mitigate illicit finance risks.

The supporting actions include (1) implementing the Corporate Transparency Act, providing authorized access to the Beneficial Ownership Information registry, protecting data, and promoting compliance, (2) bringing greater transparency to real estate transactions, (3) assessing the need for additional action on sectors not subject to comprehensive AML/CFT measures, (4) considering updates to the regulatory requirements and supervisory framework for virtual asset activities, (5) assessing the potential need to revise recordkeeping and reporting requirements and thresholds, and (6) enhancing risk-focused supervision and enforcement. Additionally, the Treasury will (7) appropriately resource AML/CFT supervision and enforcement for certain non-bank financial institutions, (8) regularly update and communicate illicit finance risks and national AML/CFT priorities, (9) prioritize targeted measures and interagency and multilateral coordination to disrupt illicit finance activity, (10) expand and enhance public-private information sharing, (11) strengthen implementation of global AML/CFT standards, (12) implement the Treasury’s strategy to combat de-risking and improve financial inclusion, (13) support U.S. leadership in financial and payments technology, (14) encourage private sector use of technology to improve AML/CFT programs and compliance, and (15) continue to enhance use of al, data analytics, and additional technological innovations in government efforts to combat illicit finance.

More specifically, recent AML/CFT precautions include the U.S. Treasury operationalizing the Beneficial Ownership Information E-Filing System on January 1, 2024. This constituted a historic step to increase transparency.

With regard to fraud, the U.S. Treasury plans to continue to prioritize investigations, prosecutions, and convictions of fraudsters and fraud facilitators. It also will consider expanding or enhancing fraud reporting reward programs and work with non-traditional partners to identify complicit professionals. Lastly, it plans on expanding the use of administrative authorities and awareness-raising campaigns to assist the public in identifying sources of fraud for law enforcement agencies.

Concerning drug trafficking, the U.S. Treasury will consider the need for further guidance to financial institutions on how to detect financing related to precursors and equipment linked to fentanyl and other synthetic opioids. Additionally, it intends to continue to engage bilaterally with key jurisdictions, including Mexico, the PRC, and Canada.

In terms of ransomware and related money laundering, it will continue investigating, prosecuting, and otherwise disrupting ransomware and digital extortion activity by identifying and imposing consequences on cybercriminals and the money launderers that support them. It expects to take civil or criminal enforcement and regulatory actions, including sanctions-related enforcement actions, against Virtual asset service providers (VASPs) illicitly facilitating ransomware activity and money laundering.

With reference to human trafficking, the U.S. Treasury will enhance training on the financial aspects of human trafficking investigations and will leverage financial intelligence and anti-money laundering expertise to strengthen investigations and prosecutions of transnational human trafficking enterprises.

Regarding corruption, it hopes to continue to target the proceeds of foreign corruption that are used to purchase U.S. assets or that transit through the U.S. financial system. It also intends to enhance the use of anti-corruption sanctions, particularly prioritizing designations of financial facilitators and private enablers of public corruption.

Concerning international terrorism with U.S.-based supporters of Al-Qaeda, ISIS, and Iran proxies such as Hamas and Hezbollah, the Treasury will coordinate and share information with foreign partners on the financing of terrorist groups and their affiliates. It also aims to disrupt financial facilitators and supporters of international terrorism through targeted designations.

For more information on the four priorities, Annexes 1 and 2 respectively include a summary of the illicit finance threats and vulnerabilities, while Annex 3 pertains to progress on priorities and supporting actions. The 2024 National Strategy for Combating Terrorist and Other Illicit Financing be viewed here: https://home.treasury.gov/system/files/136/2024-Illicit-Finance-Strategy.pdf

The Treasury strategies on money laundering, terrorist financing, and other illicit financing are useful for the regulated community since they use these reports in determining the overall risks and then assessing their own risks and developing risk-based due diligence.

Kaila Hall is an intern at IELR. She is a rising senior at Cornell University.

Bibliography:

[1] “Treasury Announces 2024 National Illicit Finance Strategy.” U.S. Department of the Treasury, 16 May 2024, home.treasury.gov/news/press-releases/jy2346. ‌

[2] “Treasury Publishes 2024 National Risk Assessments for Money Laundering, Terrorist Financing, and Proliferation Financing.” U.S. Department of the Treasury, 7 February 2024, home.treasury.gov/news/press-releases/jy2080.

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ADDRESSING GENDER BASED VIOLENCE AND ENVIRONMENTAL CRIMES IN WEST PAPUA

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American Bar Association Presentation of the International Criminal Law Committee

By Kaila Hall

 

On May 28, 2024, the American Bar Association hosted a webinar1 on “Addressing Gender Based Violence and Environmental Crimes in West Papua.” This event was co-sponsored by the South Asia, Oceania, and India Committee in co-operation with the International Association of Genocide Scholars. The panel featured Szilvia Csevár, Lecturer and Researcher of Public International Law at The Hague University of Applied Sciences, as well as Fadjar Schouten-Korwa, a human rights lawyer in the Netherlands, and David Whyte, Professor of Climate Justice at Queen Mary University of London. Bruce Zagaris, Partner at Berliner Corcoran & Rowe LLP in Washington, D.C. moderated the event.

Located on the western half of the island of New Guinea, West Papua’s indigenous population consists of nearly 51% of the island. It has a unique biodiversity and is the world’s third-largest rainforest after the Amazon and Congo. Throughout its tumultuous history, West Papua has been subject to colonial rule. In 1526, the Portuguese arrived and instituted control over New Guinea. In the aftermath of World War II, a period of decolonization globally ensued. Indonesia received its independence from the Netherlands in 1961. In the following year, the United States mediated negotiations between the Dutch and the UN in what became known as the New York Agreement2. However, in 1963, Indonesia invaded West Papua and eventually formalized its rule in 1969 with the Act of Free Choice3 referendum. West Papuans refer to this as the “Act of No Choice4.” Today, due to the island’s rich natural resources, foreign interference, mining, and extraction ​​efforts have remained routine. Consequently, this has exacerbated tensions between the indigenous population, Indonesia, and other foreign entities, contributing to numerous human rights violations. At the ABA webinar, panelists provided key insight on gender-based violence, genocide, and climate crimes that are taking place in West Papua and the possible solutions to end the commission of international crimes.

Fadjar Schouten-Korwa began by discussing the continued repression of the indigenous Papuan population through environmental crime. Approximately 60,000 women and children have been displaced5 to date with no access to food, healthcare, and education. She highlighted the clear link between repression by the Indonesian government and the extensive exploration of natural resources. Her primary area of focus is advocating against human rights violations and environmental crimes in West Papua from an indigenous perspective. In her presentation, she particularly noted the involvement of the US-owned company Freeport-McMoRan which has been extracting gold from the Grasberg mine since 1967. Today, there are daily discharges of 200,000 tonnes of toxic tailings6 due to ongoing mining, leading to a multitude of environmental issues, such as deforestation and the poisoning of local rivers. Schouten-Korwa also noted the role of palm oil and timber extraction in causing environmental harm. Additionally, she observed that despite legal protections for indigenous populations enshrined in the UN Declaration on the Rights of Indigenous Peoples7, the Indonesian Constitution8, and the Special Autonomy Law for West Papua9, indigenous rights have continued to be trampled on by the Indonesian government. Ultimately, she argued that these human rights abuses and lack of self-determination are inextricably linked to the unfinished decolonization of the island.

Next, Szilvia Csevár presented her research on patterns of gender-based violence as well as the environmental factors that have driven this marginalization in West Papua. Csevár argued that the long-term colonization of the island through extensive resource extraction and exploitation has contributed to climate change and violence against indigenous women in particular. She reiterated that the ongoing political conflict is propelled by the Grasberg mine extractions of palm oil. Indonesia is the world’s largest exporter of palm oil with 58% of the global market share10. She argued that the Indonesian government has weaponized the role of the military to oppress the indigenous population and deny their human rights. Through sexual violence and abuse, the Indonesian military has committed crimes against indigenous women who have tried to defend their land around the mine, resulting in their displacement and increased tensions within the local community. By committing these abuses, the Indonesian military spreads fear and contributes to the victimization of women and young girls in the local community. Through this displacement, the Indonesian government has seized their land and has furthered their natural resource extraction. Since the Indonesian government prevents investigative bodies from entering West Papua, there is a major crackdown on information surrounding these incidents.

In the last presentation, David Whtye connected what he labeled the “predatory extractivism form of industrial development” with the ongoing human rights violations as well as gender and racial violence in West Papua. The Indonesian government has attempted to legitimize its actions under the pretext of racial stereotypes. Whyte cited a recent protest at the Indonesian Supreme Court in which activists from the local community demanded that the development of palm oil be suspended. Previously, a moratorium was implemented, but it has since been lifted. The speaker further addressed

climate crime, primarily underlining the effects of the new Wabu Block gold mine and the Trans-Papua Highway. An Amnesty International study11 found that between 2020 and 2021, 12 people had been killed unlawfully as a result of these conditions in Indonesia. In recent years, the Indonesian military has also regularly conducted drone and rocket strikes on villages, increasing displacement levels.

Additionally, Whyte mentioned that the palm oil expansion results in the loss of forestry12, leading to soil erosion, the destruction of the island’s unique biodiversity, as well as the loss of the carbon sink.

The speaker pivoted to a discussion on additional involvement by foreign entities. He noted that British Petroleum (BP) and a Chinese national oil company currently invest in West Papua’s gas industry at the Tangguh LNG liquified natural gas plant in the Bay of Boni. Consequently, these companies’ actions disrupt ancestral grounds and engender further offenses. This particular conflict reached a boiling point in 2011 when the BP-funded Security Forces conducted Operation Sweep and Crush13 in which over 140 people were detained and seven people were executed in extrajudicial killings. Although the definition of climate crimes does not encompass these human rights abuses, Whyte ultimately argued that the international law community should broaden its understanding of climate crimes.

In the final section of the webinar, panelists brainstormed potential legal responses by non-governmental organizations to the situation in West Papua. Fadjar Schouten-Korwa indicated that the primary obstacle to defending the indigenous Papuan population is their lack of political power. She also emphasized the necessity of incorporating indigenous knowledge in counteracting environmental degradation. Szilvia Csevár added that decolonization never fully occurred, as the “Act of Free Choice” violated the Indonesian Constitution. Although the UN Declaration on the Rights of Indigenous Peoples constituted a significant historical achievement, it remains a “soft instrument” to end the human rights abuses in West Papua because it lacks enforcement power contrary to a treaty. David Whyte identified the crucial role of environmental defenders in advocating for Papuan rights. By empowering these activists and adhering to the Aarhus Convention14, Whyte believed the increased transparency around environmental information would make these Indigenous struggles visible. He reiterated international law’s major lack of enforceability under its current terms. Additionally, despite recent European trends of bringing class action lawsuits against multinational corporations involved in committing atrocities, this is not the case for West Papua. However, Whyte cited the European Union, OECD, G20, and G7 as possible actors that could intervene as they have previously regarding carbon and conflict minerals. In concluding the panel discussion, Csevár and Whyte emphasized the importance of a popular movement in terminating gender-based violence and climate crimes in West Papua. A recording of the webinar can be viewed here: https://www.youtube.com/watch?v=PmSDoty1gtg&feature=youtu.be

 

Kaila Hall is an intern at IELR. She is a rising senior at Cornell University.

[1] ABA International. “Addressing Gender Based Violence and Environmental Crimes in West Papua”, 28 May 2024,  https://www.youtube.com/watch?v=PmSDoty1gtg&feature=youtu.be

[2] United Nations. “No. 6311 INDONESIA and NETHERLANDS.” United Nations Treaty Collection, United Nations, 15 Aug. 1962, treaties.un.org/.

[3] “Act of Free Choice.” International Parliamentarians for West Papua, www.ipwp.org/background/act-of-free-choice/.

‌[4] Free West Papua Campaign. “48 Years since the Act of No Choice.” Free West Papua Campaign, 2 Aug. 2017, www.freewestpapua.org/2017/08/02/56-years-since-the-act-of-no-choice/.

[5] “In West Papua, Thousands upon Thousands of Displaced People Lack Basic Life-Giving Services.” World Council of Churches, www.oikoumene.org/news/in-west-papua-thousands-upon-thousands-of-displaced-people-lack-basic-life-giving-services.

‌[6] Richard. “Death and Destruction Caused by Mining in West Papua, but Rio Tinto Denies Responsibility.” London Mining Network, 11 Apr. 2018, londonminingnetwork.org/2018/04/death-and-destruction-caused-by-mining-in-west-papua-but-rio-tinto-denies-responsibility/.

[7] United Nations. “United Nations Declaration on the Rights of Indigenous Peoples.” Human Rights Quarterly, vol. 33, no. 3, 2007, www.un.org/development/desa/indigenouspeoples/wp-content/uploads/sites/19/2018/11/UNDRIP_E_web.pdf, https://doi.org/10.1353/hrq.2011.0040.

‌[8] “Indonesian Constitution (1945, Consolidated) – Asian Human Rights Commission.” Asian Human Rights Commission, 2021, www.humanrights.asia/indonesian-constitution-1945-consolidated/.

‌[9] Bynum, Sindy Ajara, Laura Sorica, Elliott. “Papuan Independence and Political Disorder in Indonesia.” ACLED, 5 Oct. 2022, acleddata.com/2022/10/05/papuan-independence-and-political-disorder-in-indonesia/.

[10] Gardner, Toby, and Ylva Rylander. “Indonesia Makes Progress towards Zero Palm Oil Deforestation – but Gains in Forest Protection Are Fragile.” SEI, 15 Sept. 2022, www.sei.org/features/zero-palm-oil-deforestation/.

‌[11] Amnesty International. “GOLD RUSH” INDONESIA’S MINING PLANS RISK FUELING ABUSES in PAPUA. 2022, https://www.amnesty.org/es/wp-content/uploads/2022/03/ASA2152572022ENGLISH.pdf

[12] Jahic, Naida. “Forest Conservation for Food Security in West Papua.” The Borgen Project, 17 May 2023, borgenproject.org/food-security-in-west-papua/.

‌[13] Grimston, Eben Kirksey and Jack. “Indonesian Troops for BP Gas Project.” Www.thetimes.co.uk, 1 June 2024, www.thetimes.co.uk/article/indonesian-troops-for-bp-gas-project-30cfrwq7gh3. Accessed 1 June 2024.

‌[14] United Nations Economic Commission for Europe. “CONVENTION ON ACCESS TO INFORMATION, PUBLIC PARTICIPATION IN DECISION-MAKING AND ACCESS TO JUSTICE IN ENVIRONMENTAL MATTERS,” 25 June 1998, unece.org/DAM/env/pp/documents/cep43e.pdf.

U.S. District Court in Arizona Allows Mexico to Continue Suit against Gun Dealers

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On March 25, 2024, a U.S. District Court in Arizona denied the motion to dismiss by five gun dealers. It ruled that the Government of Mexico could continue its lawsuit to hold the gun dealers liable for allegedly facilitating gun trafficking from the U.S. into Mexico and causing substantial gun violence in Mexico.

Mexico brought the complaint on October 10, 2022.  On February 22, 2024, U.S. District Court Judge Rosemary Márquez held that Mexico could proceed with its claims of negligence, negligent entrustment, gross negligence, unjust enrichment, and demand for punitive damages.  The court dismissed the public nuisance, RICO and consumer fraud claims.

In Mexico v Diamondback Shooting Sports, et al, Judge Márquez ruled that the Protection of Lawful Commerce and Arms Act (PLCCA) does not prohibit the lawsuit, seeking to make the dealers accountable.

Judge Márquez ruled that PLCCA  and its immunity can apply to crimes committed outside of the U.S.  However, she observed that several exceptions apply to the immunity.  In particular, she noted that one exception is suits “in which a manufacturer or seller of a qualified product knowingly violated a state or federal statute applicable to the sale or marketing of the product, and the violation was a proximate cause of the harm for which relief is sought.”

According to Judge, Mexico alleges that the gun dealers aided and abetted the buyers who make false statements on the federal form required when a licensed dealer sells a gun.  The statement requires identifying information on the buyer and an affidavit that the buyer is eligible to have a firearm.  Mexico alleges a link between the actions of the gun dealers and the harm allegedly suffered in Mexico.

The opinion observes that Mexico argues it can show that weapons seized in Mexico can be traced to the dealers who are being sued.

The opinion rejects the claims by the dealers that the Second Amendment of the U.S. Constitution protects their sales.  The opinion also rejects the arguments by the dealers that a state law specifically designed to shield gun manufacturers, distributors, dealers and importers of firearms from lawsuits protects their activities.  The opinion reasons that the law “is intended to protect from liability businesses engaged in the lawful, rather than the unlawful, sale of firearms.”

The fact that Mexico can present its case for punitive damages means that the potential liability at risk for the gun dealers is enormous.

The Government of Mexico also won its appeal on January 22 when the U.S. Court of Appeals for the First Circuit, holding that Mexico’s lawsuit against several gun manufacturers can proceed.[1]

The April issue of the IELR will have additional discussion and analysis of the decision.

[1]Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc. et al, U.S. Court of Appeals for the First Circuit, No. 22-1823, Memorandum Opinion,  Jan. 22, 2024.  See also Bruce Zagaris, 1st Circuit Overturns District Court to Allow Mexico’s Lawsuit against U.S. Gunmakers, 40 Int’l Enforcement L. Rep. 48 (Feb. 2024).

U.S. District Court in Alabama Rules CTA Unconstitutional

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On March 1, 2024, Judge Liles C. Burke, U.S. District Court for the Northern District of Alabama (Northeastern Division) issued a 53-page memorandum opinion, declaring that the Corporate Transparency Act (CTA) “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” Judge Burke  granted plaintiffs’ National Small Business United (NSBA) and Issac Winkles, an NSBA member and owner of two small businesses, motion for summary judgment.  [Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448-LCB (N.D. Ala. 2022)].

Judge Burke finds that the U.S. government’s arguments that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations are not supported by precedent.

The opinion does not reach the plaintiffs’ arguments that the CTA violates the First, Fourth, and Fifth Amendments of the U.S. Constitution.

In his decision Judge Burke observes that civil and criminal penalties apply to violations.  He notes that the CTA applies to 32.6 million currently existing entities and 5 million new entities formed each year from 2025 to 2034.

The opinion finds that the plaintiffs have standing as Winkles is a regulated party and as a member of the NSBA, and that the NSBA has associational standing as a result.

Congress’ Power over Foreign Affairs and National Security

The CTA is not a proper use of the Congress’ power over foreign affairs and national security. The opinion states the CTA “convert[s] an astonishing  amount of traditionally local … conduct into a matter for federal enforcement, and involve[s} a substantial extension of federal police resources.  Accordingly, Judge Burke reasons that compliance with international standards may be good policy, but it is not enough to make the CTA “necessary” or “proper.”

The opinion finds that the Congress’ foreign affairs powers do not authorize the CTA. Those powers do not extend to purely internal affairs, especially in an arena traditionally left to the States (the authority to incorporate).

Commerce Clause

The opinion rules that the CTA does not regulate commerce on its face, have a jurisdictional hook, or serve as an essential part of a comprehensive regulatory scheme.   Hence, the CTA is outside Congress’ power to regulate non-commercial, intrastate activity.  In particular, the opinion underscores that the act of incorporation is not enough to invoke the Commerce power.  “The plain text of the CTA does not regulate the  quintessentially economic activities the Government asserts or require entities to engage in those activities to be regulated.”

Taxing Power & Necessary and Proper Clause

The opinion rules that although the relationship between disclosure provisions and the taxing power is “well recognized,” the cases on which the Government relies  show that giving access to the CTA’s database for tax administration purposes is not sufficient to establish a close enough relationship here.

Analysis

The decision by Judge Burke will certainly not be the last word. The Court has permanently enjoined the government from enforcing the CTA against the named plaintiffs and ordered a further hearing on the award of costs of litigation.  As a result, enforcement of the CTA is likely to be paused for now, but only against those plaintiffs.  The March issue of the International Enforcement Law Reporter will have a more comprehensive discussion of the decision and its implications.

 

 

Latest Developments in INTERPOL’s and its Member Countries’ Approach to Transnational Repression

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Yesterday it was an honor to moderate the webinar of the ABA International Law Section’s National Security Committee on the “Latest Developments in INTERPOL’s and its Member Countries’ Approach to Transnational Repression.”

The recording is available here: https://americanbar.zoom.us/rec/share/E55XMmwLdq3YbjSy2KjzHvGERvqFQ8ZCe_FDnQ_a9FvRiSWJHevq98m1rCYwrCuP.fjt3XdhwYQWMFbe7

The ABA ILS’s National Security Committee has organized a series of webinars on this issue.

I thank Yuriy Nemets for his efforts in organizing the webinar.

New Book Discusses Modern Cross-Border Criminal Threats and Impact on Security and Sovereignty in the Caribbean

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Professor Ivelaw Lloyd Griffith, a Guyanese-American who has as served in several academic leadership roles, including as Vice Chancellor (president) of the University of Guyana, has written the latest of a series of books on the topic of crime and security in the Caribbean.

His latest book, Challenged Sovereignty: The Impact of Drugs, crime, Terrorism, and Cyber Threats in the Caribbean (344 pages, U. of Illinois Press) is about to be released.

The books covers the drug trade, crime, terrorism and cyber threats in the Caribbean.  These cross-border issues have significantly impacted the small countries.  The author combines case studies with regional analyses to capture the cross-border problems that have undermined the governments’ basic goal of protecting their people against military threats, subversion and the erosion of political, economic, and social values.  The author points out that seeking solutions to these multidimensional threats requires addressing both traditional and non-traditional security and sovereignty issues.  The author focuses on clashes between Cross-border problems and the state from warring drug gangs in Jamaica, to Trinidad and Tobago’s one-time status as a center for terrorism-related activities, to the political resurgence of drug trafficker Desi Bouterse in Suriname, and the growing cyber threats across the region.

Among the author’s prior books on these topics are: The Quest for Security in the Caribbean (M.E. Sharpe), Drugs and Security in the Caribbean (Penn State University Press), The Political Economy of Drugs in the Caribbean (Palgrave Macmillan), and Caribbean Security in the Age of Terror (Ian Randle Publishers).

U.S. Treasury Publishes Final Rule on Reporting Beneficial Ownership Information

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On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) reporting provisions.

Rule Brings U.S. Closer to Comply with the International Rules on Entity Transparency

In 2006 and 2016, the Financial Action Task Force Mutual Evaluations found the U.S. non-compliant with entity transparency standards.

The final rule will help bring the U.S. closer  to complying with the international rules on entity transparency.  However, the rules do not take effect until January 1, 2024. Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports. The rules do not take effect until January 1, 2024. Reporting companies created or registered before January 1, 2024 must submit an initial report within one year of the effective date, the same as in the proposed rule.   The rules do not take effect until January 1, 2024. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. The proposed rule required filing the initial report within 14 days of their creation or registration.

By then the international standards will have moved further.  For instance, unlike the U.S., the EU and many countries include in their entity transparency standards reporting on common law trusts.  In any addition, the EU and the international standard is to have public registries, allowing a broad segment of the public to view the BOI so that they can verify it and/or report discrepancies.

Access to the Beneficial Ownership Information and FinCEN Resource Issues

In the U.S. even proposed regulations on access to beneficial ownership information is not yet available.  It is likely that the information on beneficial owners is kept by FinCEN and only can be accessed by financial regulators and law enforcement from federal, state, Indian tribes, and foreign governments and banks to verify Customer Due Diligence.  All will likely have to request access and then await processing by FinCEN.  FinCEN is already behind on releasing the other regulations on access and a revised CDD rule.  FinCEN is seriously underresourced, especially in view of all the new regulatory projects.  The OECD in 2018 downgraded the U.S. for timeliness in responding to requests for information and in the qualify of the information exchanged.  The penalties for any misuse of the information are so harsh that banks receiving information will have to restrict it, so that they can protect themselves from any penalties.

Concessions to Formation Agents and the Business Community

The final rule has made concessions to the business community and formation agents.    The rule defines a company applicant to be only two persons: the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States;  and the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. The proposed rule stated that anyone in the chain of working on formation was considered a company applicant.

The rule, however, does not require reporting companies existing or registered at the time of the effective date of the rule to identify and report on their company applicants, as the proposed rule did. In addition, reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information, as the proposed rule did.

Analysis

As I stated in my remarks on Sept. 22 at the STEP/LATAMCaribbean conference in Panama in a talk on Will the U.S. Remain the Jurisdiction of Choice for Latin Americans in the aftermath of the Enactment of the CTA, the U.S. will remain the jurisdiction of choice for both legitimate and illegitimate investors.

The current (October) issue of the IELR will have a more comprehensive discussion of the CTA BOI final rules.

Meeting of Mexican and U.S. Heads of States Results in Enforcement Cooperation Promises

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On July 12, 2022, the meeting between Mexico President Andrés Manuel López Obrador and U.S. President Joseph Biden resulted in a joint statement, containing some promises of cross-border law enforcement cooperation.

Drug Trafficking, Arms Trafficking, Human Smuggling, and Transnational Criminal Organizations

Through the Bicentennial Framework for Security, Public Health, and Safe Communities, the two leaders  reaffirmed their commitment to cooperate  to address major security issues affecting the two nations, including the challenges of fentanyl, arms trafficking, and human smuggling, and to reduce levels of drug abuse and addiction.

They committed to deepen their cooperation to combat transnational criminal organizations.  They reaffirmed the robust operational efforts between law enforcement agencies to address these security efforts.  They pledged to establish a U.S.-Mexico operational task force to disrupt the flow of fentanyl into their countries.

Migration Issues

The two leaders referred to the tragic deaths of 51 migrants on June 27 at the hands of human smugglers in San Antonio.  The incident further strengthens their “determination to go after the multi-billion-dollar criminal smuggling industry preying on migrants and increase our efforts to address the root causes of migration.”  The Departments of Justice (DOJ) and Homeland Security (DHS) and Mexico’s Attorney General’s Office have coordinated to arrest and prosecute those who endanger the lives of vulnerable migrants.”  In doing so, they will, among other things,  work  through Joint Task Force Alpha and its Mexican partners.

Joint Task Force Alpha is a law enforcement task force. It will marshal the investigative and prosecutorial resources of the DOJ, in partnership with the DHS, to enhance U.S. enforcement efforts against the most prolific and dangerous human smuggling and trafficking groups operating in Mexico and the Northern Triangle countries of Guatemala, El Salvador, and Honduras.

The Joint Task Force is composed of federal prosecutors from U.S. Attorney’s Offices along the Southwest Border (District of Arizona, Southern District of California, Southern District of Texas, and Western District of Texas), from the Criminal Division and the Civil Rights Division.  Also participating are law enforcement agents and analysts from DHS’s Immigration and Customs Enforcement and Customs and Border Patrol. The FBI and the Drug Enforcement Administration are also part of the Task Force. It works closely with Operation Sentinel, a recently announced DHS operation focused on countering transnational criminal organizations affiliated with migrant smuggling.

The two leaders pledged to build on the commitments at the Summit of the Americas made by twenty-one countries in the hemisphere pursuant to the Los Angeles Declaration on Migration and Protection, they said they are taking immediate and coordinated steps to manage the flows of migrants arriving into their countries.  They have joined efforts to address the underlying economic and security drivers of migration. Recognizing that development must be at the center of all migration policies, they will accelerate and expand international cooperation programs focused on the most marginalized communities. At the same time, they will maintain strong border enforcement policies while ensuring full protection of human rights.

Analysis

Perhaps the most concrete development is pledged to establish a U.S.-Mexico operational task force to disrupt the flow of fentanyl.  Some of the ingredients tend to originate in China and are brought into Mexico, where they are further processed for export to the U.S.

The most difficult pledge is to have strong border enforcement policies while ensuring full protection of human rights.  The U.S. border situation suffers from the failure of the U.S. Congress to enact modernize legislation, the lack of resources at the border to process the number of aliens, the failure to invest in resources to adjudicate the number of asylum applicants, policies of U.S. state governments which sometimes do not complement and even work at cross-purposes with U.S. immigration and human rights policies, and the lack of consistent border and immigration policies when administrations change.

A limitation of the Los Angels Declaration on Migration and Protection is that some of the most countries that are the sources (e.g., Cuba) and intermediary locations (e.g., Nicaragua) have not joined the Declaration.

The Bicentennial Framework provides at least a detailed framework for cross-border enforcement cooperation between the two countries.  In addition, the U.S.-Mexico-Canada Free Trade Agreement has strengthened enforcement provisions, especially for labor and the environment.  Those provisions also enable the two governments and other stakeholders to ensure enforcement cooperation occurs with respect to the issues covered in the agreement.  These provisions also extend to intellectual property enforcement.

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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