IELR Blog

Official Blog of the International Enforcement Law Reporter

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.

The UK and US sanction Russian Agents and Entities Over Alexei Navalny Poisoning

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On August 20, 2021, the United Kingdom imposed sanctions on seven Russian agents for their involvement in poisoning Alexei Navalny, a Russian political oppositionist and anti-corruption activist. These sanctions come on the anniversary of Navalny’s poisoning on August 20, 2020. He was poisoned with  Novichok, a nerve agent, that left him hospitalized and in critical condition.

In a joint statement with the U.S., the U.K. imposed sanctions against  7 Russian nationals alleged to have poisoned Navalny with a nerve agent. “The sanctioned individuals are directly responsible for planning or carrying out the attack on Mr. Navalny in Tomsk on [August 20, 2021],” the U.K. press release stated.

The U.K. sanctions include names of members of the FSB Security Service that were implicitly or explicitly involved in the posing. The names include Alexey Alexandrov, Vladimir Bogdanov Ivan Osipov, Kirill Vasilyev, Stanislav Makshakov and Alexei Sedov, and Vladimir Panyaev.

The sanctions include an asset freeze and travel bans against the agents and are included in the UK Autonomous Chemical Weapons sanctions regime. The UK Foreign Secretary Dominic Raab said that “through our chemical weapons sanctions regime and at the Organisation for the Prohibition of Chemical Weapons, we are sending a clear message that any use of chemical weapons by the Russian state violates international law, and a transparent criminal investigation must be held.”

The recent sanctions are not the first time the UK imposed sanctions against Russia. In October 2020, UK slapped sanctions against six personnel and an entity for their alleged involvement in masterminding the poison operation against Navalny.

The U.S. Sanctions

The U.S. also imposed sanctions on two separate individuals and four Russian entities allegedly involved in the assassination plan against Navalny.

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) released a press statement that stated that “OFAC is designating nine Russian individuals and two Russian entities involved in Navalny’s poisoning or Russia’s chemical weapons program.” The sanctions make the third time the Treasury department issues sanctions in response to the Novichok poisoning or Russia’s chemical program.

The U.S. Department of State also sanctioned two entities, specifically the Russian Ministry of Defense scientific laboratories, involved in producing chemical weapons for Russia. The sanctions are consistent per the U.S. Chemical and Biological Control and Warfare Elimination Act of 1991.

The Office of Foreign Assets Control Director Andrea Gacki stated in a press statement that the U.S. stands with the U.K. allies to “again condemn the Kremlin’s use of a chemical weapon to target one of Russia’s most prominent opposition leaders.” Gacki continued and said that the Navalny assentation attempt is a “shocking violation of international norms against the use of chemical weapons and was part of an ongoing campaign to silence voices of dissent in Russia.”

Russia denies their U.S. and U.K. claims and said that the sanctions are simply a smear campaign.

With respect to Global Magnitsky sanctions, the U.S., U.K., European Union, and other countries, such as Canada and Australia, are coordinating their sanctions.

The G-7 Communique from the London meeting referred to the G7 joint statement of January 26 on the arrest, sentencing and detention on politically-motivated charges of Alexey Navalny.

Master in Anti-Corruption and Diplomacy

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Master in Anti-Corruption and Diplomacy

The International Anti-Corruption Academy (IACA) and the United Nations Institute for Training and Research (UNITAR) have launched an 18-month-long joint Master Programme in Anti-Corruption and Diplomacy which is a great mixture of campus-based and online classes! The programme is designed for those who intend to avail an opportunity to study in a participatory international environment, and within a group of motivated and committed individuals in order to deepen their understanding of anti-corruption and diplomacy, and hence adding greater value to their respective organizations and societies. It includes subjects and cross–cutting themes relating to economics, behavioral science, ethics, law, compliance, diplomacy, international law, digital and cyber diplomacy, as well as essential skills for an international career such as negotiations, leadership, effective writing, public speaking, and stakeholder coordination & engagement. The programme utilizes lectures, case studies, interactive sessions, group work, and stakeholder discussions to identify best practices in anti-corruption and diplomacy.

By joining this programme, you will attain a unique chance to study in an excellent academic environment with international fellow students and learn from the world-renowned experts in the field of anti-corruption and diplomacy!

 

Executive Diploma in Anti-Corruption and Diplomacy

 

This programme is delivered remotely part-time over the course of 6 months, jointly by UNITAR and the International Anti-Corruption Academy (IACA). Designed as an in-career programme, the Executive Diploma has a compact structure and offers a series of interdisciplinary modules which concentrate on concepts and practical tools for preventing and countering corruption, and diplomacy. The Diploma combines IACA’s expertise in anti-corruption, and UNITAR’s expertise in diplomatic skills to train participants to work effectively in various multicultural contexts, while equipping them the state-of-the-art knowledge in the field of anti-corruption and constitutes an excellent opportunity for participants from all sectors across the globe to enlarge their network.

 

Don’t miss your chance to apply for the next intake!

More information: https://www.iaca.int/iaca-programmes/academic-programmes/master-in-anti-corruption-and-diplomacy.html

Contact us: studies@iaca.int

 

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.

ABA CJS Int’l Comte Meeting on US-Brazil Jt Settlements et al

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The ABA Crim. Just. Sec. Int’l Comte, which I co-chair, will meet on Thurs. Aug. 5 from 2:00-3:00 pm E.S.T. via Zoom as part of the ABA Hybrid Annual Meeting. Everyone is welcome to attend, including non-members.

Join Zoom Meeting
americanbar.zoom.us/j/…

Meeting ID: 977 9733 8444
Passcode: 264266

Find your local number: https://lnkd.in/d2aAsEz

Guest Speakers
Antenor Madruga and Ana Belotto, both of Feldens Madruga, in Brazil, will join us to discuss “US-Brazilian Joint Criminal Settlements: Trends and Implications for Stakeholders”
The panelists will discuss recent joint settlements between the U.S. , Brazil and other countries, including the Amec Foster Wheeler settlements (June 25 in the US and July 2 in the UK), Rolls-Royce, and others. They will discuss the trends and implications for stakeholders of joint settlements and other developments in international criminal cooperation.
Antenor Madruga has a PhD in international Law, is the founding partner at the FeldensMadruga law firm in Brazil. He is recognized as a leading Brazilian lawyer in complex litigations and negotiations involving government criminal and administrative proceedings, particularly in multijurisdictional cases.
Ana Belotto coordinates the Compliance practice at FeldensMadruga with a special focus on AML and anti-corruption matters. Has participated in the negotiation of complex multijurisdictional leniency agreements involving criminal, civil and administrative matters. She is a member of the New York Bar and is a registered Solicitor at the Law Society of England and Wales

Other Agenda Items
The Committee will also discuss other developments in the field and Committee business, such as the proposed resolution on joint settlements, and its recent webinar on “Abusing Interpol’s Resources to Persecute Expatriate Dissidents” on July 14. 

Video Conferencing, Web Conferencing, Online Meetings, Screen Sharing – Zoom

Arnold & Porter Lawyer Faces Litigation by Denmark Over Tax Controversy

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Recently, Denmark claimed Michael Ben-Jacob, an Arnold & Porter partner, designed a scheme that defrauded the country of around $260 million.[1]  The scheme involved setting up sham pension plans to apply for refunds in Denmark and the complaint was filed in the Southern District of New York (S.D.N.Y.).[2]  Denmark’s customs and tax authority (SKAT) stated that the plans submitted at least 364 fraudulent applications involving 630 dividends issued by 13 Danish companies. This blog post will discuss in further detail the scheme and briefly touch on the change of legal climate in relation to enablers in fraud schemes.

The Scheme

Michael Ben-Jacob’s clients are mainly high net-worth individuals, family offices, and “closely held” businesses.[3]  The activity allegedly started around 2011 and ended in August 2015 after Denmark received a tip from a whistleblower and a foreign government.  Ben-Jacob designed a partnership structure that allowed the principles of Argre, a New York-based business, to recruit friends, family members, and colleagues to set up additional plans to submit refund applications.[4]  The partnership structure enabled the principals to retain control of the plans that the recruits agreed to set up and take 90% to 95% of the proceeds that these additional plans obtained from Denmark, after payments to others in the scheme.[5]  Finally, recruits signed the papers necessary to set up one or more allegedly sham companies and allegedly sham pension plans, and appoint one of the principals as the plans’ authorized representative.[6]

The S.D.N.Y. recently ruled against Michael Ben-Jacob a motion on the revenue rule, “a common law principle that prohibits courts from hearing actions by foreign nations to enforce their foreign tax laws, whether directly or indirectly.”[7]  This further adds to the mountainous amount of litigation Ben-Jacob will need to deal with, as Ben-Jacob is already a defendant in 39 actions.[8]

Potential Changes for Enablers

The recent development in this case provides a potential for change for future enablers in fraud schemes.  In this case, associate defendants initially claimed privilege over their communications with Ben-Jacob.  Now, the defendants “announced that they were asserting a reliance-on-counsel defense, waived the claim of privilege and, in January 2021, began producing communications with Ben-Jacob that they had previously withheld.”[9]  As a result, these communications revealed Ben-Jacob’s role in the scheme to defraud SKAT.

SKAT’s allegations against Ben-Jacob’s will definitely put a lot of people on notice.  Enablers of fraud can be found in many forms: accountants, attorneys, bankers, and others.  Potential liability of Ben-Jacob could lead to further investigations and new interpretations by tax authorities and courts alike as to what kind of responsibilities do enablers have in their role in assisting those in fraud schemes.  This topic will be explored in a larger article for the International Enforcement Law Reporter.

 

[1] Bruce Love, Arnold & Porter Partner Faces More Litigation By Denmark Over Tax Controversy, LAW.COM, https://www.law.com/newyorklawjournal/2021/06/17/arnold-porter-partner-faces-more-litigation-by-denmark-over-tax-controversy/, Jun. 17, 2021 (last visited Jul. 16, 2021).

[2] Id.

[3] Love, supra.

[4] SKAT v. Ben-Jacob, 1:21-cv-05339 **at 3 (S.D.N.Y. Jun. 16, 2021).

[5] Id.

[6] Id.

[7] In re SKAT, 356 F. Supp. 3d 300 (S.D.N.Y. 2019).

[8] 1:21-cv-05339 at 4.

[9] Love, supra.

U.S. and EU Progress on Several International Enforcement issues at Justice & Home Affairs Ministerial Meeting in Lisbon

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On June 22, 2021, the Portuguese Presidency of the Council of the European Union hosted the EU-U.S. Ministerial Meeting on Justice and Home Affairs in Lisbon and made progress on count-terrorism, violent extremism, Passenger Name Record (PNR) data exchange.  They also discussed developing bilateral and multilateral instruments to combat cybercrime, using artificial intelligence,  and developing well-managed and humane migration policies.

Overview

They underscored the need to cooperate against terrorism, including prevention, permanent vigilance, adaptation, and resilience from all relevant actors.

The U.S. and EU underscored their strong concern with the rise of violent extremism.  They cited crimes inspired by hate speech, racism and xenophobia both in Europe and the U.S.  Violent extremism constitutes a direct threat to democratic societies.  It requires renewed attention by law enforcement, judicial authorities, the private sector and civil society.  The U.S. and EU pledged to expand their information exchanges on violent extremist groups, especially those with transnational linkages.

The U.S. and EU underscored the importance of the Passenger Name Record (PNR) data exchange to prevent, detect, investigate and prosecute terrorism, combat serious crime, including child exploitation, and protect the safety of citizens.

Digital Aspects and Cybercrimes

The U.S. and EU discussed the need to cooperate to shape a digital future based on their shared democratic values.  They acknowledged the potential benefits and risks of suing Artificial Intelligence technologies for law enforcement and the judiciary.  They discussed the need to develop and use such technologies in a trustworthy way in conformity with human rights obligations.

They discussed current and upcoming EU efforts on combating illegal content online, including  the need to improve the cooperation between the authorities and online platforms to detect ongoing criminal activity.  The U.S. and  EU pledged to continue cooperating to most effectively exercise their lawful authorities to combat  serious crime both online and offline.

The two sides will focus on combating ransomware, including through law enforcement action, raising public awareness on how to protect networks, the risks of paying criminals responsible, and encouraging those states that have not cooperated to arrest and extradite or effectively prosecute criminals on their territory.

Concerning bilateral and multilateral instruments to combat cybercrime, the U.S. and EU reinforced their commitment to negotiate as soon as possible an Eu-U.S. agreement facilitating access to e-evidence to cooperate in criminal matters.  They welcomed the recent approval by the Committee of State Parties to the Budapest Convention of the draft text of the Second Additional Protocol of the Budapest Convention, which is the main instrument for international cooperation on cybercrime.   They observed the framework of negotiations on a possible future United Nations international legal instrument on cybercrime and committed to continue to closely coordinate their respective positions.

Migration and Travel

The two sides underscored the importance of well-managed and humane migration and discussed their respective efforts to develop comprehensive and enduring migration and asylum policies.  Humanitarian protection should be available to qualifying persons.  Unmeritorious claims must be detected quickly, including through information sharing and modern identity management techniques.  Unmeritorious claims must be prevented from overwhelming migration systems or public confidence in them.

The agenda requires cooperation with third countries of origin, transit and destination.  These jurisdiction also have a responsibility to discourage people from enlisting smugglers and traffickers and endangering  the lives of migrants who take dangerous, irregular journeys.  Both sides reaffirmed their interest in expanding the transatlantic dialogue on migration and mobility, focusing on sharing lessons learned, exploring complementary pathways to migration, addressing the root causes of migration, improving the return and readmission of irregular migrants and enhancing cooperation in and combatting migrant smuggling.

The U.S. and EU continued to endorse safe and secure mobility and the exchange of information on their respective measures towards the gradual resumption of non-essential international travel.  Both sides pledged to restart secure travel between the U.S. and EU as soon as possible, based on the principles of mutual cooperation, efficient operation of the international travel system and scientific evidence.

Analysis

The initial meeting of the Justice and Home Affairs Ministers of the two sides during the Biden Administration went quite well.  Clearly, the priority of the Biden Administration for bilateral and multilateral cooperation contrasted with the America 1st unilateral approach of the Trump Administration.  The visit of President to the NATO meeting and the EU itself as well as his removal of tariffs and support for the minimum global taxation and other initiatives of the OECD and EU were well received.

The threats of terrorism, organized crime, extremist and hate groups, cybercrime, and illegal migration are common to both sides.

The current issue of the IELR will have a more in depth discussion of the implications of the meeting.

 

 

The Gupta Brothers’ Corruption Scandal Invokes the Ratification of a New Mutual Legal Assistance and Extradition Treaty Between South Africa and the United Arab Emirates

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by Jamie Jang[1]

In 2018, the economic and political stability of South Africa was upended when the Gupta brothers – Ajay, Atul, and Rajesh Gupta – and government officials were caught conspiring together.[2] The Gupta brothers, Indian-born South African businessmen, owned a tectonic empire across South Africa and wielded a great degree of political power.[3] After a government official testified against the Guptas, it was revealed that they had been involved in a longstanding scheme with members of the South African government, including President Jacob Zuma, to siphon millions of dollars from state-owned firms and the national treasury.[4] President Zuma was forced to resign and the Gupta brothers fled to Dubai, leaving their enterprises in South Africa bankrupt.[5] This scandal “offers a case study in a new, systematic form of graft known as ‘state capture.’ [. . .] It demonstrates how an entire country can fall to foreign influences without a single shot being fired”.[6]

The Gupta brothers have yet to face the charges brought against them for fraud and money laundering as they remain hidden in the United Arab Emirates.[7] For over three years, South Africa has requested full cooperation from the United Arab Emirates to extradite the Gupta brothers so they may be prosecuted in the country where they committed their crimes.[8]

UAE and S. Africa Ratify a New MLAT and Extradition Treaty

In response to the scandal, a new mutual legal assistance and extradition agreement between South Africa and the United Arab Emirates was ratified by both countries.[9] A statement issued by United Arab Emirates ambassador to South Africa, Mahash Alhameli reads, “These agreements have been and remain key to the UAE in promoting judicial and legal cooperation with South Africa and strengthening bilateral relations between law enforcement institutions and partners on both sides”.[10] While the treaty agreement was intended to mend the relationship between both countries, it appears that South Africa remains unsatisfied with the United Arab Emirates’ efforts.[11] National Director of Public Prosecutions (NDPP) Shamila Batohi states, “As I expressed to the ambassador yesterday, we will only accept that there is full cooperation when we receive the necessary information that we have been requesting now for over three years without success”.[12]

S. Africa Expresses Frustration over Inability to Obtain Custody of the Guptas and Request Interpol Red Notice

The NDPP is not the only one expressing frustration over the inability to obtain cooperation from the United Arab Emirates.[13] Civil society organizations, namely the Ahmed Kathrada Foundation and the Defend Our Democracy movement protested outside the United Arab Emirates embassy.[14] A statement from the Ahmed Kathrada Foundation reads, “The Guptas must be brought from the UAE, where they currently reside, to SA to account for the litany of allegations of state capture and corruption that they face”.[15]

The National Prosecuting Authority’s (NPA) Investigating Directorate (ID) head, Hermione Cronje has asked Interpol to circulate an international red notice to have the Gupta brothers deported back to South Africa.[16] The ID intends to try the Guptas for the R25 million spent on a feasibility study to determine the viability of the failed Estina dairy farm in South Africa.[17] The ID asserts that “the department paid Nulane the R25 million for the feasibility study. However, after receiving the money, Nulane appointed and paid Deloitte Consulting R1.5 million to conduct the study. The rest of the money was allegedly laundered through a series of accounts, ending in Gateway Limited, a Gupta-owned company in the UAE”.[18] After three years of unsuccessful efforts to extradite the Gupta brothers, help from Interpol for an international arrest warrant appears to be another mechanism for South Africa to try to gain custody of the Guptas. .

The case demonstrates how difficult it can be sometimes for prosecutors to obtain effective international enforcement cooperation.

[1]              B.A., Rhodes College.

[2]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[3]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[4]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[5]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[6]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[7]                 Masondo, Sipho. “NPA asks Interpol to help arrest, deport Guptas to SA”. June 3, 2021.

[8]                 Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11,          2021.

[9]                 Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[10]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[11]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[12]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[13]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[14]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[15]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[16]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[17]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[18]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

G7 Vows to Act on Corruption, Ransomware, Forced Labor, and Illicit Financing

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On June 13, 2021, at the conclusion of its meeting the G7 announced in its Communiqué joint action against several criminal and international enforcement matters.

Corruption, Illicit Financial Activities, and Misuse of Shell Companies

The Communique recognizes “the need action on corruption, including by sharing information on illicit financial activities, tacking the misuse of shell companies, and curtailing the ability of illicit actors to hide wealth.”

As part of its G7 Fact Sheet the Biden Administration underscored how on June 3, 2021 President Biden declared efforts to combat corruption a “core U.S. National interest,” and issued a National Security Student Memorandum on the Fight Against Corruption to elevate this effort.

The G7 Fact Sheet states the U.S. will tackle “the misuse of shell companies, limiting the ability of bad actors to launder dirty money in real estate purchases, improving corruption-related information sharing, and reforming foreign assistance to focus on anticorruption as a cross-cutting priority.” [1] The Fact Sheet says the U.S. welcomes the G7 commitment to take collection action in combatting corruption.

Ransomware

The Communique states the G7 reiterates its interest in stable and predictable relations with Russia.  In that regard, it states that it will “identify, disrupt, and hold to account those within its borders who conduct ransomware attacks, abuse virtual currency to launder ransoms, and other cybercrimes.”[2]   The Biden Administration’s G7 Fact Sheet states the transnational criminal enterprises committing ransomware leverage infrastructure, virtual currency, and money laundering networks.  They target victims worldwide, often operating “from geographic locations that offer a permissive environment for carrying out such malicious cyber activities.”

The G7 Fact Sheet states the international community –both governments and private sector actors – must cooperate to ensure that “malicious cyber activity is investigated and prosecuted, that we bolster our collective cyber defenses, and that States address the criminal activity taking place within their borders.”

Removing Forced Labor from Global Supply Chains

The Communique expresses concern about the use of all forms of forced labor in global supply chains, including state-sponsored forced labor of vulnerable groups and minorities and supply chains of the agricultural, solar, and garment sectors – the main supply chains of concern in Xinjiang, China.

G7 leaders agreed to uphold human rights and international labor standards, and protecting individuals from forced labor.  Hence, they commit to ensuring all global supply chains are free from the use of forced labor.  They propose to identify areas for increased cooperation and collective efforts to eradicate the use of all forms of forced labor in global supply chains, in accordance with international and national law.[3]

International Human Rights Concerns

The Communique mentions concerns about international human rights violations in Russia, Belarus, Myanmar, and Ethiopia’s Tigray region.

Analysis

The commitments in the G7 Communique to stronger international enforcement initiative are importance for setting and reinforcing international enforcement cooperation.  The nature of the G7 meetings and communiques limit the commitments to broad policy statements.  The follow up comes from action by international organizations, such as the EU, the OECD, the World Bank Group, and national governments. The limits of the Communiques are inability to implement the broad policy decisions, including when governments and policies change from time to time.

 

[1]   G7 Communique, paragr. 48.

[2]   G7 Communique, paragr. 51.

[3]    G7 Communique, paragr. 29.

ANOM: A global covert investigation conducted through an encrypted app trap

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Sara Kaufman[1]

On June 8, 2021, the Federal Bureau of Investigation (FBI) and Australia’s Federal Police (AFP) publicly announced the arrests of more than 800 individuals utilizing a FBI-controlled encrypted platform to facilitate their criminal activities.[2]  ANOM, a highly popular encryption platform amongst criminals worldwide, was secretly used as a surveillance tool in an investigation known as “Operation Trojan Shield” in order to discreetly observe and curtail the criminal activities in Australia and beyond.[3]

As technology has grown over the years, criminals have utilized hardened encrypted devices as a tool to obstruct any federal investigations against them.  Encrypted devices are tools that both send and retrieve encrypted electronic communications, allowing criminals to openly discuss their activities with confidence that their contents will remain secure.[4]  For many years, contents in encrypted devices did in fact remain secure; communication was often limited to a self-selected group of individuals using the same encryption platform.  Law enforcement agents therefore would be unable to collect evidence regarding the conversations that criminals were having on their encrypted devices.

Companies that provided these encrypted devices were generally aware that their target audience is utilizing their products for criminal activity; in March 2018, the CEO of Phantom Secure, Vincent Ramos, and four other principals of the company were indicted for aiding and abetting the distribution of cocaine.  During his plea hearing in October 2018, Ramos admitted that Phantom Secure laundered drug trafficking proceeds, as well as aided and abetted the importation, exportation, and distribution of illegal substances across international borders.[5]  Phantom Secure was not the first, nor would it be the last, of the many encrypted devices to appear on the black market to plan and executive criminal activity.

 

Operation Trojan Shield

While the FBI previously dismantled hardened encryption companies utilized amongst criminals to communicate – such as Phantom Secure – new platforms would emerge as substitutes for their predecessors.  In “Operation Trojan Shield,” various European law enforcement agencies, the FBI and AFP collaborated with a confidential source to construct, market, and upkeep the next encrypted communication platform to arise on the black market.[6]

The devices themselves were encrypted but the FBI, AFP, and the confidential source collaborated to build a master key into the existing encryption system.[7]  This allowed law enforcement to decrypt and store messages as they were transmitted.  For devices located outside of the U.S., an encrypted “BCC” of each sent message is routed to an “iBot” server located outside of the U.S.  The message is then decrypted with the master key and then immediately re-encrypted with the FBI encryption code.  The newly encrypted message is then passed to a second FBI-owned iBot server to be decrypted for viewing within the U.S.[8]  Given the high level of technical care and expertise needed to set up this master key process, the collaboration between the FBI, AFP, confidant, and other European law enforcement agencies was needed to ensure that ANOM could be launched effectively and discreetly within criminal networks.

ANOM could only be used on devices sold within the black market and were stripped of the ability to make calls or send emails.  In order to get a hold of an ANOM-encrypted device, each criminal had to be green-lighted by another criminal who was already using the software.[9]  Each ANOM user was identified by a Jabber Identification – similar to a smartphone PIN – was chosen by each user to identify themselves as opposed to using their real names.[10]  The high level of exclusivity and security behind ANOM increased the confidence that users that their communications would remain private.

Results of the investigation

As high-profile criminals such as Hakan Ayik praised ANOM and encouraged its use to their associates, thousands of criminals worldwide began utilizing ANOM devices to openly discuss their activities.  Between October 2019 and May 2021, a total of 11,800 ANOM devices were registered in over 90 countries, with the highest number of users based in Germany, the Netherlands, Spain, Australia, and Serbia.[11]

Considering the strong reputation that ANOM had amongst criminals, plans to import, export, or distribute drugs were sent between encrypted devices without the use of coded language.[12]  Text messages shown in a search warrant affidavit filed May 18, 2021, display open conversation regarding cocaine hidden in French diplomatic packages or underneath layers of bananas in shipping trucks.[13]

Through the surveillance of ANOM users, law enforcement agencies from the U.S., Australia, and the European Union were able to seize numerous tons of drugs and millions of dollars in cash.[14]  Australian police officers also claim to have acted on 20 “threats to kill,” thereby protecting many innocent civilians who may have otherwise lost their lives.[15]

Although the criminals that utilized ANOM encrypted devices strongly advocated for their high level of security, this could not be further from the truth.  The review of messages sent on ANOM devices has opened numerous high-level public corruption cases internationally, as well as investigations of distributors for money laundering, international drug trafficking, and obstruction of justice.[16]

While new encrypted platforms used to emerge once their predecessors were taken down by the FBI, Operation Trojan Shield severely damages the trusted foundation of encrypted devices for communications amongst criminal actors.  Though the use of new technology such as encryption devices has allowed discreet criminal activity to go undetected, law enforcement across the globe has proven that, with joint efforts, they can utilize the same tools for their benefit.

The current issue of the IELR will have a more comprehensive discussion of the law enforcement initiative and its implications.

[1] Legal assistant, Berliner Corcoran & Rowe LLP; B.A., Amherst College.

[2] Rachel Pannett and Michael Birnbaum, FBI-controlled ANOM app ensnares scores of alleged criminals in global police sting, The Washington Post, June 7, 2021, https://www.washingtonpost.com/world/2021/06/08/fbi-app-arrests-australia-crime.

[3] Cheviron Aff. ¶ 14, May 18, 2021. https://www.justice.gov/usao-sdca/press-release/file/1402426/download.

[4] Cheviron Aff. ¶ 9, supra.

[5] Cheviron Aff. ¶ 10, supra.

[6] Ben Westcott, For years, the underworld thought its phones were safe. They fell for an encrypted app trap, CNN, June 9, 2021, https://www.cnn.com/2021/06/08/australia/afp-fbi-ANOM-app-operation-ironside/index.html.

[7] Cheviron Aff. ¶ 13, supra.

[8] Id.

[9] Ben Westcott, supra.

[10] Cheviron Aff. ¶ 14, supra.

[11] Cheviron Aff. ¶ 19, supra.

[12] Cheviron Aff. ¶ 29, supra.

[13] Cheviron Aff. ¶ 14, supra.

[14] Ben Westcott, supra.

[15] ANOM: Hundreds arrested in massive global crime sting using messaging app, BBC.COM, June 8, 2021, https://www.bbc.com/news/world-57394831.

[16] Cheviron Aff. ¶ 20, supra.

Disclaimer

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