Adriana Sanford will be addressing the International Committee of the Senior Lawyers Division of the American Bar Association.
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.
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.
On March 22, 2022, the OECD issued a public consultation document involving a new world tax transparency framework to furnish the reporting and exchange of information with regard to crypto-assets and proposed amendments to the Common Reporting Standard (CRS) for the automatic exchange of financial account information between countries. The consultation has the goal to inform the decisions of policy makers on the potential adoption of any such framework and its related components.
A challenge to tax and financial regulators is that a person can transfer and hold crypto-assets without intervention of traditional financial intermediaries and without any central administrator being able to watch either the transactions or the crypto-asset holdings. In addition, the Crypto-Asset market has resulted in a new set of intermediaries, such as Crypto-Asset exchanges and wallet providers, which may currently only be subject to limited regulatory oversight. Crypto-Asset exchanges typically facilitate the purchase, sale, and exchange of Crypto-Assets for other Crypto-Assets or fiat currencies. As a result, individuals can exploit crypto-assets to evade international tax transparency initiatives, such as the CRS.
Crypto-Asset Reporting Framework (CARF)
As a result of the potential to circumvent tax transparency initiatives, the G20 has asked the OECD to develop a framework for the automatic exchange of information on crypto-assets (Crypto-Asset Reporting Framework or CARF). The new framework establishes mechanisms for the collection and exchange of tax-relevant information between tax administrations, with respect to persons engaging in certain transactions in crypto-assets. The framework includes crypto-assets that a person can hold and transfer in a decentralized way, without the intervention of traditional financial intermediaries, as well as asset classes utilizing similar technology that may exist in the future. The framework requires businesses that furnish services to exchange crypto-assets against other crypto-assets or fiat currencies.
Proposed CRS Amendments
In addition to the CARF, the OECD has developed proposals, as part of the first comprehensive review of the CRS, to improve the operation of the CRS, based on the experience of governments and businesses since its adoption in July 2014. The proposal broadens the scope of the CRS to cover electronic money products and the Central Bank Digital Currencies. As a result of the development of the CARF, the proposals also embrace changes to cover indirect investments in crypto-assets through Investment Entities and derivatives. Simultaneously, the proposal has new provisions to achieve an efficient interaction between the CRS and the CARF, including ways to avoid duplicative reporting. The amended CRS endeavors to strengthen the due diligence procedures and reporting outcomes in order to improve the usability of CRS information for tax administrations and limiting burdens on financial institutions.
The OECD is requesting public comments on its proposals. Interested persons should send their comments no later than April 29, 2022 by email (in Word format) to firstname.lastname@example.org. Additional information on the CARF, the amended CRS, or to comment on the public consultation draft should view the public consultation document. All written comments received will be made publicly available on the OECD website. Comments submitted in response to this invitation will be posted on the OECD website.
The OECD will hold a public consultation meeting at the end of May 2022. Speakers and other participants at the upcoming public consultation meeting will be selected from among those providing timely written comments.
Once it receives and digests the input received through the public consultation, the OECD will make final the rules and commentary to the CARF and the amended CRS. The OECD will also develop the exchange instruments and technical solutions needed to support reporting and exchanges pursuant to the CARF and the amended CRS. The OECD intends to report on the CARF and the amended CRS under the Indonesian Presidency of the G20 for its October 2022 meeting.
The public consultation documents explains that the CARF and amended CRS responds to dynamics of the Crypto-Asset market, including both the Crypto-Assets offered, as well as the intermediaries involved. These developments pose a significant risk that recent gains in global tax transparency will be gradually eroded.
Clearly, the Crypto-Asset market and the intermediaries involved are different from the usual information providers in third-party tax reporting regimes, such as the Common Reporting Standard (CRS), to a new set of intermediaries, which only recently became subject to financial regulation and are frequently not subject to tax reporting requirements with respect to their clients. Perhaps, more importantly, the public consultation responds to the ability of individuals to hold Crypto-Assets in wallets unaffiliated with any service provider and transfer such Crypto-Assets across jurisdictions. The ability of persons to hold and transfer Crypto-Assets pose a risk that Crypto-Assets will be used for illicit activities or to evade tax obligations. The potential for persons to possess and transfer Crypto-Assets unaffiliated with any service provider has reduced tax administrations’ visibility on tax-relevant activities carried out within the sector, increasing the difficulty of verifying whether associated tax liabilities are appropriately reported and assessed.
The OECD public consultation complements the work of the J5 countries. On March 25, 2021, the Joint Chiefs of Global Tax Enforcement (J5) assembled investigators, cryptocurrency experts and data scientists in a coordinated push to track down individuals and organizations perpetrating tax crimes around the world. Without having in place an effective framework and reporting mechanisms, the J5 and other tax authorities are limited in their compliance and enforcement abilities.
The public consultation follows closely the U.S. Department of Justice announcement of its first director of National Cryptocurrency Enforcement and President Biden signing an Executive Order (titled “Ensuring Responsible Development of Digital Assets” and issued with an accompanying Fact Sheet) regarding the U.S. government’s strategy for digital assets. The Executive Order orders federal agencies to issue various reports that will set forth future U.S. policy toward digital assets, including the potential launch of a federally issue digital dollar.
Hence, the international and national compliance and enforcement framework for Crypto-assets are changing dynamically.
The current issue of the IELR will discuss in more detail the public consultation and its implications.
DIPLOMATIC DIALOGUE – ‘The Role of the Caribbean Financial Action Task Force in Anti-Money Laundering/Countering the Financing of Terrorism/Countering Proliferation Financing Compliance’
Thursday 10th February, 2022 | 1:00 – 3:00 p.m. Atlantic Standard Time
Jessica Byron-Reid Jessica.Byron-Reid@sta.uwi.edu
Welcome Remarks Professor Jessica Byron Director, Institute of International Relations (IIR)
Introduction of Guest Speaker Dr. Dave Seerattan Lecturer, IIR
Feature Presentation Ms. Dawne Spicer Director, Caribbean Financial Action Task Force (CFATF)
Commentary Ms. Alicia Nicholls Junior Research Fellow (Trade), Shridath Ramphal Centre, The UWI, Cavehill
Question and Answer Session
Vote of Thanks Ms. Zaynab Nakhid Postgraduate Diploma Student, IIR
GAO Publishes Report on Trafficking and Money Laundering Required by Corporate Transparency Act
On December 23, 2021, the General Accountability Office (GAO) published Report on Trafficking and Money Laundering Strategies Used by Criminal Groups and Terrorists and Federal Efforts to Combat Them (GAO-22-104807 53 pp.).
The GAO reviewed how transnational criminal organizations and terrorist groups traffic goods such as illegal drugs, engage in human trafficking, and launder money.
Reasons for and Goals of the Report
Congress included a provision in the Money Laundering Act of 2020, which was part of the National Defense Authorization Act for Fiscal Year 2021, for the GAO to review trafficking and related money laundering and create federal efforts to combat them.
The goals of the report are to describe what is known about the money laundering strategies of transnational criminal organizations and terrorists and information-sharing efforts among federal agencies to combat trafficking.
Findings- Money Laundering Techniques
Federal agencies, international organizations, and other commentators, such as non-governmental organizations, have reported that money laundering strategies used by transnational criminal organizations and terrorist groups include sophisticated techniques such as phony trade transactions or purchase and resale of real estate or art.
The techniques can involve the services of professional money laundering networks or service providers in legitimate professions, such as law and accounting. For example, lawyers or accountants can create shell companies (entities with no business operations) to help criminals launder illicit proceeds. Transnational criminal organizations and terrorist groups also continue to smuggle cash in bulk or transmit money electronically across borders. The report also mentions the role of real estate agents, company service providers, and art and antiquities dealers.
Federal Efforts to Combat Trafficking and Money Laundering
Federal efforts to combat trafficking and money laundering incorporate multiple collaborative and information-sharing mechanisms and include the private sector.
- Law enforcement agencies cooperate through task forces in which they share information and analytical resources to aid in the investigation and prosecution of drug and other trafficking-related crimes.
- Federal agencies share intelligence with foreign counterparts. In particular, the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, shares information with more than 160 international financial intelligence agencies.
- FinCEN collaborates with law enforcement agencies to share information with financial institutions on “red flags” for trafficking, which institutions can use to identify and report suspicious transactions.
- Under Sec. 314(b) of the USAPATRIOT Act, FinCEN also coordinates a voluntary program that allows financial institutions to share information with one another to better identify and report suspicious activities that may be related to money laundering or other illicit financing.
Efforts of the Federal Government to Improve Institution Reporting and Enhance Data Analysis
The report discusses efforts by federal agencies to undertake initiatives to make information from financial institutions more available or more useful for trafficking-related investigations, and to enhance agencies’ ability to analyze such information.
FinCEN Advisories – FinCEN attempts to improve the quality of the SAR data it receives from financial institutions by issuing advisories, which include descriptions of trafficking strategies, “red flag” indicators, and other guidance developed in collaboration with law enforcement agencies. The advisories are designed to help institutions better understand what transactions or customer activities to report to law enforcement.
Information sharing between federal agencies and financial institutions.
FinCEN and law enforcement agencies have programs to share details about how financial institutions could better identify and report data for disrupting money laundering, terrorist financing, and other financial crimes. However, the information generally is shared among limited audiences. For example, in 2017, FinCEN created the FinCEN Exchange. This is a public-private program to enhance information sharing with financial institutions so that FinCEN and law enforcement agencies can receive information that will help them disrupt money laundering and other financial crimes.
Information sharing among financial institutions.
FinCEN coordinates a voluntary program for financial institutions to share information with each other. The goal of the sharing is to help financial institutions better identify and report activities they suspect may involve money laundering or terrorist activities. The program, which is authorized by Section 314(b) of the USA PATRIOT Act, allows financial institutions to share normally private information about customers or transactions when the institutions suspect money laundering or terrorist financing.
The GAO Report does not provide analysis or recommendations, but furnishes an opportunity to reflect on the recently enacted Corporate Transparency Act. While it proffers a positive way forward to start catching up with international standards, it obviously falls below in several ways.
The collection of data is limited to those entities which must file with the Secretary of State. As a result, it will miss private trusts and other entities that do not need to file with the Secretary of State.
It remains to be seen whether the way in which FinCEN obtains and maintains the information will be in a standard format internationally so that it can be easily shared with other law enforcement and regulators.
The proposed beneficial ownership regulations under the CTA does not require verification of the information. In addition, contrary to the EU and other systems, the information is not accessible to the public. The lack of verification requirement and the inability of watch-dog non-government organizations and investigating journalists to access the information will deprive the data of a high degree of accuracy. Law of accuracy will diminish its utility.
Even without the analysis and recommendations, the GAO is especially useful in showing how U.S. law enforcement collaborates to scrutinize Suspicious Activity Reports and other data of a beneficial ownership nature to develop criminal investigations and prosecutions.
 For a useful survey of the beneficial ownership best practices of six countries and their implications, see Kathy Nicolaou-Manias and Yuchen Wu, Beneficial Ownership and Transparency: Learning from Best Practices, 2021 TNTI 248-11, Dec. 29, 2021.
We at the IELR send you the best wishes for a warm and joyous holiday season. 2021 was momentous for the international enforcement community, and we are grateful to have had you following along with our coverage during our 37th year of discussing international enforcement developments.
We are grateful for the continuing long partnership with Professor Michael Plachta and for contributions from practitioners and professors, including Dr. Ted Bromund, Frederick T. Davis, Michele Estlund, Dr. Scott MacDonald, Dennis Boyle, Konstantinos Magliveras, Yuriy Nemets, Spencer A. Hill, Peter D. Hardy, Kateryna Boguslavska, Matteo Formaggi, and Linda Friedman Ramirez. Miranda Bannister finished her tenure as assistant editor in February. Marwah Adhoob, who specialized in criminology as an undergrad, energetically replaced her. Our legal assistants Sara Kaufman and Emma Byrne ably contributed articles. Our interns, Mitchell Beebe, Elena Botts, Kayla DeAlto, Austin Max Scherer, Teddy David, Jamie Jang, Kenneth Boggess, and Julia V. Brock, contributed some great pieces.
The following is a highlight of some of the articles we covered.
International Criminal Court
The International Criminal Court was prominent in our coverage. Plachta discussed the territorial jurisdiction of the ICC in the Palestine/Israel Case as well as the ICC Prosecutor closing a preliminary examination in Colombia and concluding an agreement with the Colombian government. K. DeAlto discussed the Central African Republic’s surrender of Said Abdel Kani to the ICC. M. Beebe and Zagaris wrote articles about the U.S. District Courts’ blocking President Trump’s executive order, sanctioning ICC officials. Zagaris discussed President Biden’s revocation of the Trump executive order.
War Crimes and Crimes against Humanity
On war crimes and crimes against humanity, Brock discussed the reversal by the South Korean court of the 2018 on “comfort women” and ordered Japan to pay reparations to the families of 12 women forced to work as sex slaves. Plachta discussed the ECHR’s decision on German responsibility for an air strike in Afghanistan. David and Kaufman respectively discussed German courts’ convictions of a former Syrian secret police officer and a Syrian military doctor for crimes against humanity and Adhoob discussed a German court’s conviction of a woman for crimes against humanity in the death of a Yazdi girl in Syria. Likewise, Adhoob detailed the enforcement actions of the UN with regards to genocide, such as UN’s opening of an inquiry into Sri Lanka’s alleged war crimes during its civil war as well as the UN investigation team’s conclusion that ISIL’s crimes against Yazidis constitute genocide. Adhoob discussed a report by a U.S. law firm, finding France responsible for the Rwandan genocide. Zagaris and Adhoob wrote about the UN Human Rights Council’s adoption of a resolution to start a Commission of Inquiry on the latest Israel-Palestine conduct. Jang discussed the African Union’s starting of a Commission of Inquiry on the war in Ethiopia. David wrote about the conviction in a Swiss court of a Liberian warlord, putting the spotlight on universal jurisdiction and Liberian accountability. Zagaris covered the French Supreme Court’s overturning of the dismissal of complicity for crimes against humanity against multinational enterprise Lafarge for its conduct in Syria. Boggess discussed the UN Human Rights Council’s Independent Fact-Finding Mission renewing its mandate as a UN report warns of war crimes and crimes against humanity. Ramirez wrote about a judgment of the Inter-American Court of Human Rights, finding Colombia responsible for a journalist’s abduction twenty years before.
Tax transparency and Enforcement
With respect to tax transparency and enforcement, Zagaris wrote about the EU Parliament’s adoption of a resolution to toughen the tax haven blacklist, the OECD’s call for action to disrupt, prevent, and prosecute criminal conduct by professional enablers, the OECD’s new edition of fight tax crime, and the many cases against tax enablers, including the cum-ex dividend fraud cases, as well as a federal court’s approval of a John Doe Summons for a Panamanian law firm dealing with U.S. clients. Scherer also wrote about how charges against professionals illustrate the shifting legal landscape for professional enablers. Zagaris also discussed the U.S. Tax Court decision against a constitutional challenge to passport denial for delinquent taxpayers and about a founder of a Russian bank pleading guilty to tax fraud, including falsifying his expatriation statement. Zagaris discussed the Nigerian government’s start of voluntary offshore assets London declaration facilities and its application to foreign enablers. Zagaris wrote about a CJEU decision mandating enforcement of tax information request even without the taxpayer’s specific name and identity.
Money Laundering, Bank Secrecy and Transparency
On money laundering, bank secrecy and transparency, Boguslavska discussed how the 10th Basel AML index highlights four worrying gaps in global AML efforts. Zagaris wrote several articles on the Anti-Money Laundering Act of 2020, as well as FinCEN’s proposed regulations on beneficial ownership and the ANPRM on beneficial information on real estate purchases. MacDonald wrote about Suriname’s corruption and money laundering challenges. Adhoob and Zagaris wrote about the FinCEN notice informing financial institutions of money laundering dangers from illicit art and antiquities trade. Plachta discussed the Council of Europe’s adoption of a resolution and recommendation on strengthening FIUs. Zagaris discussed the Cayman AML regulator’s crack down after the FATF greylisting. Scherer discussed how the Xizhi Li conviction showed an application of money laundering techniques for laundering drug proceeds on behalf of foreign drug-trafficking organizations. Zagaris discussed the implications of the Pandora Papers and the proposed new enforcement actions of the European Parliament in the wake of the Pandora Papers.
Counter-terrorism, Economic Sanctions and Human Rights
Counter-terrorism, economic sanctions and human rights were continuing topics. Plachta discussed the adoption by the European Commission of a new counter-terrorism agenda and a proposal for amending Europol regulation. Adhoob discussed the ACLU’s suit on alleged discrimination by the U.S. “no-fly list” against Arabs and Muslims. Zagaris covered China’s adoption of blocking legislation and counter-sanctions. Bannister covered the Biden Administration’s countering the Trump Administration’s sanctions against the Houthi rebels in Yemen. Zagaris discussed the ruling of the EU Advocate General that a German telecom cannot cancel a contract with an Iranian bank without showing the cancellation was not due to U.S. sanctions.
On counter-terrorism financing, Adhoob discussed U.S. prosecution of a woman extradited by the Dutch for terrorist financing through a charity. Zagaris wrote about a French donor’s financial contributions to the U.S. alt-right before the capitol assault and the need to apply counter-terrorism financial enforcement tools as well as a meeting between G7 and EU Security ministers on cooperation on countering racially and ethnically motivated extremism.
Transnational Corruption and Asset Forfeiture
With respect to transnational corruption and asset forfeiture, Zagaris discussed the Justice Department’s civil forfeiture suit against two alleged Ukrainian kleptocrats, a settlement by Deutsche bank of an FCPA and commodities case. Bannister and Adhoob covered in separate articles the fishrot scandal in Namibia, where Icelandic Samherji employees allegedly paid bribes to Namibian government officials for rights to fish for horse-maskerel. Boyle discussed the Biden Administration’s policy toward Central America and the challenges posed by corruption. Zagaris contributed a piece on U.S.-N. Triangle Enhanced Engagement Act setting the stage for new U.S. policy. Zagaris discussed the British Commission on Inquiry’s investigation of alleged corruption in the BVI as well as the Biden memorandum declaring anti-corruption a core U.S. national security interest. Zagaris wrote about the Dutch court’s agreement with a report calling the Santos-linked Angolan energy deal corrupt. Zagaris discussed the Amec Foster Wheeler’s global corruption settlement with the U.S., U.K., and Brazil. Zagaris discussed the return by the U.S. government of an additional $452 million in forfeited 1MDB funds to Malaysia as well as the DOJ’s return of over $32m in forfeited funds to FIFA victims.
Illegal Production and Use of Weapons
With respect to the illegal production and use of weapons, Zagaris discussed a suit by the Mexican government against U.S. arms manufacturers for illicit trafficking in arms as well as the guilty plea in the U.S. in the first successful prosecution of exportation and manufacturing of firearms to the Mexican Cartels. Adhoob discussed the U.K. and U.S. sanctions on seven Russian agents and entities over the Alexi Navalny poisoning. Zagaris discussed a ECtHR’s decision finding Russia responsible for the assassination of Litvinenko and Britain naming a third Russian suspect in the poisoning of Skripal.
Extraterritorial jurisdiction remained controversial. Fred Davis discussed the Second Circuit’s decision, opening the door a bit to non-citizen defendants challenging a court’s jurisdiction in criminal cases and also the partial clarification by the Second Circuit of the procedures applicable to prosecution of foreign sovereign owned enterprises. Zagaris discussed Bahrain’s return of a U.S. citizen to the U.S. to face charges of murdering his mother in Bahrain as well as an Italian court’s ordering four Egyptians to stand trial in the kidnapping and killing of an Italian student in Egypt. Zagaris wrote about a Spanish court’s ordering Banco de Chile to set aside $103 million for its role in money laundering from the Pinochet expropriations and about the EU Commission proposals for major revisions in its AML/CFT laws.
Recovery and Return of Cultural Property
On the recovery and return of cultural property, Zagaris discussed the German-Nigeria agreement on the return of Benin bronzes as well as the DOJ forfeiture action for 10th century statute looted from Cambodia, and the return by U.S. Homeland Security of hundreds of looted artifacts to Mali. Adhoob covered the U.S. return of looted artifacts to Iraq stolen after the U.S. invasion as well as the discussion between Met officials and U.S. investigators of returning to Cambodia artifacts stolen from ancient sites.
Transnational Organized Crime
On transnational organized crime, Plachta discussed the consequences and prospects for the UN (Palermo) Convention against Transnational Organized Crime on its 20th anniversary. Adhoob discussed the arrest by Italian police of suspected Black Axe members for fraud and other serious crimes. Boggess covered the international dark web bust operation DarkHunTOR following the dark market seizure by U.S. and EU law enforcement.
On international narcotics enforcement, transnational organized crime and corruption, Zagaris wrote about Mexico exonerating its ex-defense chief and enacting a law pausing enforcement cooperation with the U.S. Bannister wrote about the UN Commission on Narcotic Drugs’ vote to remove cannabis from the list of Schedule IV narcotics. Zagaris wrote about the U.S. detention of the wife of “El Chapo” and the guilty plea to violating the Kingpin Act by the daughter of the head of the Cartel Jalisco Nueva Generación. Hill and Hardy discussed a UN report targeting corruption and illicit cross-border finance. Kaufman covered ANOM, a global covert investigation conducted by law enforcement worldwide through an encrypted App, yielding 800 arrests. Zagaris wrote about Mexico’s suit in U.S. court in Florida to recover assets from former security chief linked to the Sinaloa cartel. Adhoob discussed the Italian police’s dismantlement of an international drug trafficking ring operated by the ‘Ndrangheta mafia clan.
International Environmental Enforcement
With respect to international environmental enforcement, Zagaris covered Kenya’s extradition of its citizen for trafficking rhino horns, elephant ivory, and heroin. Byrne discussed illicit ivory trafficking from Angola to Vietnam. Adhoob wrote about the S. African arrest of a hunter for illegal possession of rhino horns. Zagaris discussed how U.S. prosecutions of three wildlife trafficking violations show the rising incidence of these crimes.
Migration enforcement received significant focus. Byrne discussed the INTERPOL operation targeting human trafficking and migrant smuggling in approximately 24 countries. Adhoob covered the U.S. State Department’s 2021 trafficking in persons report and the impact of misinformation and Covid-19 on human trafficking. Adhoob also discussed a State Department’s lawyer’s resignation due to a Biden Administration policy on asylum Kaufman discussed the 5th Circuit’s decision rejecting the Biden Administration’s efforts to end Migration Protections Protocols. Plachta wrote about the EU’s responses to human smuggling in the Belarus border crisis.
International human rights and enforcement,
With respect to international human rights and enforcement, Plachta discussed the EU adoption of Magnitsky-type global human rights sanctions regime. Magliveras discussed the first application of sanctions under the EU’S Magnitsky Act on Russia. Zagaris wrote about Turkey’s arrest of an Iranian dissident’s coinciding with Freedom House’s transnational repression report as well as about the signing by 58 nations of a declaration against arbitrary detention of foreign and dual nationals. Botts wrote about OFAC’s naming three Bulgarians under the Global Magnitsky Act for corruption. Kaufman discussed how events in Haiti and C.A.R. show the threats posed by mercenaries to international peacekeeping. Adhoob covered ECOWAS’ demanding answers in the alleged detention of Mali’s former interim leaders as well as Qatar’s imprisoning a Kenyan for blogging about low-income Kenyan migrants work conditions in Qatar.
Extradition and Extradition Alternatives
Developments on extradition and extradition alternatives remained critical. Ramirez and Boggess wrote articles about the extradition of Venezuelan diplomat Alex Saab to the U.S., notwithstanding his claims of diplomatic immunity. Zagaris wrote several articles about the Assange extradition decisions by U.K. courts and the U.S. extradition of the father and son for helping Carlos Ghosn escape from Japan. Zagaris covered the S. African court’s overruling the Justice Minister in ruling the former Mozambique Finance Minister will be extradited to the U.S. rather than Mozambique.
Nemets discussed how the U.S. Immigration court’s handling of INTERPOL Red Notices and diffusions suggests a uniform approach. Estlund and Bromund summarized and assessed the 2019 changes in INTERPOL’s rules on the processing of data. Zagaris discussed the CJEU decision against detention for INTERPOL Red Notice due to ne bis in idem (dual criminality).
International Evidence Gathering
With respect to international evidence gathering, Jang discussed how the Gupta brothers’ corruption scandal invoked the ratification of a new mutual legal assistance and extradition treaty between S. Africa and the UAE. Adhoob covered the Netherlands’ funding the Iraq UNITAD witness protection program to promote accountability for crimes committed by ISIL.
Economic Integration and International Enforcement
Plachta contributed many articles on economic integration and international enforcement, including the European Parliament’s call for improvement of implement and application of the European Arrest Warrant (EAW), and the EU Court of Justice’s rejection of “automatic refusal” of EAWs issued by Polish authorities. Zagaris discussed the Eurojust’s new funding initiative for joint investigation teams. Scherer discussed the EU whistleblower protection directive the Jonathan Taylor extradition. Plachta covered the adoption by the Council of Europe of a resolution on political responsibility for corruption as well as the European Commission releases of three proposals to strengthen and enhance police cooperation across the EU.
On maritime piracy, Scherer discussed the shipping industry task force initiative against maritime piracy in the Gulf of Guinea. Adhoob discussed the Nigerian high court’s sentencing of 10 pirates for the hijack of a Chinese vessel.
With respect to international tribunals, Zagaris discussed the affirmation by the Appeals Chamber of the International Residual Mechanism for Criminal Tribunals of the conviction of Ratko Mladić’ for genocide, crimes against humanity and war crimes, as well as the closure of the Special Tribunal for Lebanon and how the closure raises questions about international tribunals.
International Sex Trafficking
Mr. Zagaris contributed articles on international sex trafficking, especially the U.S. and Canadian charges against the Canadian fashion tycoon Peter J. Nygard.
Online Child Sex Exploitation Abuse
With respect to online child sex exploitation abuse, Zagaris covered U.S. indictments and INTERPOL’s pursuit of international enterprises and individuals involved in online sexual exploitation. He wrote about the EU Justice & Home Affairs Council initiatives on the digital dimension of child sexual abuse.
Cybercrime continued to grow exponentially. Zagaris discussed cooperation between the EU and eight countries in taking down dangerous the malware EMOTET, the DOJ’s participation in global disruption of NetWalker ransomware, and Australia’s extradition of two defendants in an auto-subscribing cyber fraud scheme. Zagaris discussed the U.S. indictment against three N. Korean military hackers. Adhoob discussed the imposition by the Biden Administration of sanctions against Russia for alleged election interference and SolarWinds cyber hacks as well as the guilty plea of a crypto expert to assisting N. Korea evade sanctions. Zagaris covered U.S. sanctions against a Russian-owned crypto-exchange for ransomware activities as well as the U.S. indictment and sanctions against Iranians for cyber-enabled disinformation regarding the 2020 Presidential Campaign. Scherer wrote about cases involving the seizing illicit proceeds of and combating ransomware attacks. Zagaris covered the guilty plea by the director and promoter of BitConnect for its participative in a massive fraud conspiracy. Formaggi discussed China’s declaration of all cryptocurrency transactions illegal while the U.S. and EU prepared further crypto regulation. Zagaris discussed the arrests and seizures by 17 countries of alleged ransomware extortionists. Plachta covered the adoption by the Council of Europe of the Second Protocol to the Cybercrime (“Budapest”) Convention.
International Anti-trust Enforcement Cooperation
On international anti-trust enforcement cooperation, Zagaris discussed the DOJ’s Antitrust Division summary of its 2020 international achievements.
Export Control and Economic Sanctions
With respect to export control and economic sanctions, Boggess discussed the CEO quitting after the U.S. Commerce Department blacklisted Israeli spyware firm NSO Group. Zagaris wrote about the Mashreqbank settlement with OFAC, the Federal Reserve and NYDFS for violating the Sudan sanctions.
Illegal, Unregulated, and Unreported Fishing
With respect to illegal, unregulated, and unreported fishing, Adhoob wrote about Bolivia’s signing an MOU to strengthen compliance/transparency in the fishing industry.
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.
On September 27, 2021, the U.S. District Court in Manhattan announced that a U.S. citizen pled guilty to conspiring to aid Democratic People’s Republic of Korea (North Korea) evade economic sanctions through the use of financial technology to hide illegal transactions.
Crypto expert, Virgil Griffith, 38, pled guilty to conspiracy to violate the International Emergency Economic Powers Act and Executive Order 13466, a law that prohibits U.S. citizens from “exporting any goods, services, or technology to the DPRK without a license from the Department of the Treasury, Office of Foreign Assets Control (“OFAC”).” Griffith allegedly violated that law by engaging with North Korean officials, advising them on how to evade sanctions.
Virgil Griffith’s Aid to North Korea
Griffith alleged interactions with North Korea dates back to 2018 when he developed and funded cryptocurrency channels. He allegedly was aware that these platforms could financially help North Korea by dodging U.S. sanctions and funding illegal activities such as nuclear weapon development programs.
Then in April 2019, Griffith traveled to North Korea, even though the State Department did not give him permission to do, to give a presentation on blockchain and cryptocurrency at the “Pyongyang Blockchain and Cryptocurrency Conference” (the “DPRK Cryptocurrency Conference”). The presentation focused on how to use these services to evade sanctions and launder money. He mainly focused on “how blockchain technology such as ‘smart contracts’ could be used to benefit the DPRK, including in nuclear weapons negotiations with the United States.” Griffith and his co-conspirator allegedly answered questions and gave advice on the subject matter.
Even after the conference, Griffith continued to engage with North Korea. He aided in a cryptocurrency exchange between North Korea and South Korea – with full knowledge that such actions would violate the sanctions against South Korea. His actions were not authorized under the OFAC requirements.
The authorities caught up with Griffith in November 2019 and arrested him in Singapore.
Griffith’s sentencing hearing is set for January 2022; his charge carries a maximum of 20 years in prison.
Audrey Strauss, the United States Attorney for the Southern District of New York, praised the work of the Federal Bureau of Investigation and its New York Field Office, Counterintelligence Division, and thanked the U.S. Department of State’s Diplomatic Security Service, the Department of Justice’s National Security Division, Counterintelligence and Export Control Section, the Department of Justice’s Office of International Affairs, and the Singapore Police Force for their assistance.”
The use of crypto assets has been one of the main mechanisms by which North Korea has tried to circumvent the United Nations and U.S. sanctions. Griffith’s actions in speaking at a conference and then helping the North Korean government in a crypto currency exchange platform clearly were prohibited without a license, for which Griffith did not apply. The plea and the facts indicate how difficult it is to implement effectively and enforce sanctions.
On September 21, 2021, the U.S. Department of Treasury sanctioned SUEX, a crypto currency exchange owned by a Russian and incorporated in the Czech Republic, which was allegedly processing ransomware payments. The U.S. and G7 governments have identified crypto exchange exchanges as one of the elements of the ecosystem of ransomware operatives, so prosecuting a person who has helped the North Korean government use crypto assets and crypto currency exchanges fits within that strategy.
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.
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.
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.
On August 10, 2021, BitMEX, a cryptocurrency exchange platform, agreed to pay $100 million for not abiding by U.S. laws while permitting U.S. residents to use the platform and not implementing an anti-money laundering program.
Last year, the Commodity Futures Trading Commission (CFTC) sued BitMEX and named the three founders as defendants in the case. The three founders, Arthur Hayes, Benjamin Delo, and Samuel Reed, were separately charged for a count of conspiracy and for a violation of the Banking Secrecy Act. The settlement on Tuesday pertained to only the case against BitMEX and not the separate charges against the three founders.
From approximately November 2014 through October 1, 2020, BitMEX, at the time, operated as a joint enterprise and made available cryptocurrency on its platform that was accessible to consumers in the U.S. and globally, and the founders were aware of this fact. The CFTC press statement stated that “customers in the U.S. placed orders directly through BitMEX’s user interfaces, and that BitMEX acted as counterparty to certain transactions. Thus, the order finds that BitMEX violated the CEA by operating a facility to trade or process swaps without being approved as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).”
BitMEX also violated the Commodity Exchange Act (CEA) as they were technically considered as Futures Commission Merchant but did not hold a CFTC registration and additional violation includes “accepting bitcoin to margin digital asset derivative transactions and acting as counterparty to leveraged retail commodity transactions,” the CFTC press statement stated. BitMEX also violated CFTC regulations as they did not establish a Customer Information Program or CIP, Know-Your-Customer (KYC), and an effective anti-money laundering program. And between 2014 and 2020, BitMEX only asked users for emails and no other means of identification.
A FinCEN press release stated that BitMEX’s illegal actions placed financial institutions in vulnerable positions that expose them to money launderers, terrorist financiers, ransomware attacks, and potentially the threats of the darknet marketplace. The FinCEN press release also stated that BitMEX engaged in darknet markets or risky money service organizations worth more than $200 million. “BitMEX also conducted transactions involving high-risk jurisdictions and alleged fraud schemes. BitMEX failed to file a Suspicious Activity Report (SAR) on at least 588 specific suspicious transactions,” the press release continued.
“This case reinforces the expectation that the digital assets industry, as it continues to touch a broader pool of market participants, takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance,” said Acting Chairman Rostin Behnam in the CFTC press statement.
BitMEX remained neutral on the allegations and said that it would not allow U.S. residents to use or access the trading platform, according to the CFTC press statement.
Per the consent order requirements, BitMEX has established an anti-money laundering program and implemented a system to verify its users.
A BitMEX representative remains optimistic, and as an organization, they hope to stay committed to being a regulated exchange and are “looking to set the benchmarks in this new era for crypto,” according to the Wall Street Journal reporting.
The current issue of the IELR will have a more comprehensive article on this case.