fraud Archives | Page 2 of 2

FinCEN Starts Beneficial Ownership Regulation Comment Period and Announces Staff Changes

April 2, 2021 by Bruce Zagaris Leave a Comment

On April 1, 2021, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) to request public comment on a wide range of questions related to the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).

Advance Notice of Proposed Rulemaking

This ANPRM is the first in a series of regulatory actions that FinCEN will undertake to implement the CTA, which is included within the Anti-Money Laundering Act of 2020 (AML Act). The AML Act is part of the FY 2021 National Defense Authorization Act, which became law on January 1, 2021.

The CTA amended the Bank Secrecy Act. The CTA requires corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies). This new reporting requirement will enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people.

Pursuant to the CTA, FinCEN must maintain the reported beneficial ownership information in a confidential, secure, and non-public database. In addition, the CTA authorizes FinCEN to disclose beneficial ownership information subject to appropriate protocols and for specific purposes to several categories of recipients, such as federal law enforcement. Under the CTA, FinCEN must revise existing financial institution customer due diligence regulations concerning beneficial ownership to take into account the new direct reporting of beneficial ownership information.

FinCEN encourages all interested parties, particularly those that would be affected by the beneficial ownership information reporting provisions or would seek access to reported beneficial ownership information, to submit written comments. The comments can come from interested persons outside the U.S. Such written comments will help inform FinCEN’s implementation of all aspects of the beneficial ownership reporting rulemaking.

Comments should be submitted by May 5, 2021.

This ANPRM seeks comment on FinCEN’s implementation of certain provisions in Section 6403 of the CTA. Section 6403 requires reporting companies (corporations, limited liability companies (LLCs), and similar entities, subject to certain statutory exemptions) to submit to FinCEN specified information on their beneficial owners—the individual natural persons who own or control them—as well as specified information about the persons who form or register those reporting companies. Section 6403 further requires FinCEN to maintain this information in a confidential, secure, and non-public database, and it authorizes FinCEN to disclose the information to certain government agencies for certain purposes specified in the CTA, and to financial institutions to assist in meeting their customer due diligence obligations. In both cases, these disclosures are subject to appropriate protocols to protect confidentiality. This ANPRM seeks comment on numerous questions as FinCEN begins to develop proposed regulations implementing these provisions.

While only the regulations implementing the reporting requirements must be promulgated by January 1, 2022, with an effective date to be determined. FinCEN also requests comment on its implementation of the related database maintenance use and disclosure provisions. Section 6403 requires that the final rule on customer due diligence requirements for financial institutions be revised will be the subject of a separate rulemaking, about which the public will receive notice and opportunity to comment.

Staff Changes

Today, FinCEN announced a change in staff. Director Kenneth A. Blanco announced he will depart FinCEN on April 9, after serving as the organization’s director since December 2017. Michael Mosier, former FinCEN Deputy Director and current Counselor to the Deputy Secretary of the Treasury, will return to FinCEN as Acting Director. AnnaLou Tirol, former Associate Director of FinCEN’s Strategic Operations Division, is serving as FinCEN Deputy Director.

Mr. Mosier most recently served as Counselor to the Deputy Secretary of the Treasury, a role he assumed last month after serving as FinCEN’s Deputy Director and first Digital Innovation Officer. Mr. Mosier previously worked at the cryptocurrency analytics, compliance, and investigations firm Chainalysis, where he was Chief Technical Counsel. Prior to FinCEN and Chainalysis, Mr. Mosier was an Associate Director at Treasury’s Office of Foreign Assets Control. Mr. Mosier has also served as a Deputy Chief in the Department of Justice’s (DOJ’s) Money Laundering & Asset Recovery Section. He also served a tour at the White House National Security Council as Director for Transnational Organized Crime. Mr. Mosier began his public service as a prosecutor with the Manhattan District Attorney’s Office, and has served as an Adjunct Professor of Law at Georgetown University Law Center. He previously worked at a law firm representing technology, media, and financial services clients.

Ms. Tirol is now serving as Deputy Director. In this capacity, she assists in overseeing FinCEN’s wide-ranging work to enhance the national security of the United States. Ms. Tirol joined FinCEN in September 2019, serving as Associate Director of the Strategic Operations Division, where she worked extensively to promote FinCEN’s strategic partnerships with government and private industry stakeholders, both domestically and internationally. Ms. Tirol came to FinCEN after overseeing DOJ’s Public Integrity Section prosecuting public corruption matters. She began her public service as an Assistant U.S. Attorney in San Diego, and has served overseas tours for DOJ in Belgrade, Serbia, focusing on anti-corruption issues, and in Panama City, Panama, focusing on anti-money laundering and countering the financing of terrorism. Ms. Tirol is an Adjunct Professor of Law at Georgetown University Law Center.

Director Ken Blanco will depart on April 9th to Citi to lead Financial Crimes Compliance

FATF Starts New Project to Study and Mitigate the Unintended Consequences from Incorrect Implementation of Standards and Announces More Jurisdictions on its Black and Grey Lists

March 18, 2021 by Bruce Zagaris Leave a Comment

On March 17, 2021, the Financial Action Task Force announced the start of a new project “to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards.

Mitigation Project

The project started in February 2021 and will examine the following four areas

“De-risking, or the loss or limitation of access to financial services. This practice has affected non-profit organizations (NPOs), money value transfer service providers, and correspondent banking relationships, in particular;
Financial exclusion, a phenomenon whereby individuals are excluded from the formal financial system and denied access to basic financial services;
Suppression of NPOs or the NPO sector as a wholethrough non-implementation of the FATF’s risk-based approach;
Threats to fundamental human rightsstemming from the misuse of the FATF Standards or AML/CFT assessment processes to enact, justify, or implement laws, which may violate rights such as due process or the right to a fair trial.”

The FATF will conduct the project in two phases:

Phase One: research and engagement. The project will analyze these unintended consequences resulting from the misuse of the FATF’s Standards on preventing and combating money laundering and the financing of terrorism. This work will rely on the knowledge and experiences of members of the FATF’s Global Network of 205 jurisdictions, its observers, and outside stakeholders.

Phase Two: solutions. The second phase will develop options the FATF could consider to prevent and mitigate these unintended consequences.

According the announcement, the FATF welcomes input to inform this project, including scholarly research; industry and civil society perspectives; and documented instances of unintended consequences. Information may be sent to pscf@fatf-gafi.org.

The announcement states the project is an opportunity to study trends and propose solutions. Any information provided to the FATF Secretariat will be shared with the project team and the source will be identified.

New Lists of High-Risk Jurisdictions and Jurisdictions in Need of Increased Monitoring

On February 25, 2021, the FATF announced its list of High-Risk Jurisdictions (also commonly referred to as its “blacklist”) subject to a Call for Action (Iran and North Korea) and jurisdictions in need of increased monitoring (commonly referred to as its “grey list”). The list has the following jurisdictions: Albania, Barbados, Botswana, Burkina Faso, Cambodia, Cayman Islands, Ghana, Jamaica, Mauritius, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Senegal, Syria, Uganda, Yemen, and Zimbabwe.

One of the problems with the list of high-risk jurisdictions is that they’ve been on the list now for many years and they are also on international and national sanctions list. As a result, many banks and financial institutions will not process transactions, even ones that are for genuine humanitarian purposes due to the risk of large penalties.

Another practical problem is that jurisdictions on either list tend to also land on the European Union list of high-risk jurisdictions for money laundering (commonly referred to as its AML/CFT blacklist).

Although the FATF does not mandate the application of enhanced due diligence measures for jurisdictions under increased monitoring, it encourages member jurisdictions to take the listing into account when undertake their risk analysis. The measures to be applied will vary, but may result in: (a) a requirement to perform more comprehensive due diligence on the customer’s source of funds and source of wealth and/ or (b) increased internal controls on business acceptance and ongoing monitoring.

Practically speaking, regulators around the world take into account the listing as do the electronic databases used by financial institutions and intermediaries when they are on-boarding and reviewing clients for customer due diligence. As a result, banks and financial institutions from the metropole tend to limit or terminate correspondent bank relationships (de-risking) and withdraw from having branches or subsidiaries in the jurisdictions, especially because the listed jurisdictions tend to be small jurisdictions. The result is that persons and businesses in these jurisdictions increase higher costs to bank, especially internationally. Ultimately, the listings lead to financial exclusion of the small jurisdictions and their inhabitants, even though many already experience a high degree of lack of access to formal financial markets.

The current issue of the IELR will have a more comprehensive discussion of the issues raised in this post.

Congress Passes Anti-Money Laundering Act over President’s Veto

January 3, 2021 by Bruce Zagaris Leave a Comment

On January 1, 2020, the Senate voted to override President Trump’s veto of the annual military policy bill (the National Defense Authorization Act – NDAA). Division E of the Act is the Anti-Money Laundering Act of 2020 (the AMLA or Act), which contains a number of international enforcement elements. This post discusses selected international enforcement aspects, except for the beneficial owner/entity transparency provisions that were discussed in the December 2020 issue of the International Enforcement Law Reporter.

Increased Authority to Issue and Enforce Correspondent Account Subpoenas

The Act increases the ability of the Department of Justice (DOJ) and Treasury’s authority to issue and enforce correspondent account subpoenas under 31 U.S.C. § 5318(k). Before, the DOJ and Treasury could issue such subpoenas to any foreign bank with a correspondent account in the United States and could “request records related to such correspondent account.”[1] The Act widens this authority to permit DOJ to request “any records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the United States,” if the records are the subject of an investigation concerned a violation of U.S. criminal laws, a violation of the Bank Secrecy Act (BSA), a civil forfeiture action, or a Section 5318A investigation.[2]

If a foreign financial institution does not comply, the Act authorizes the Attorney General to seek contempt sanctions from a court, and the Attorney General or Secretary of the Treasury may direct covered U.S. financial institutions to end their correspondent relationships with the non-compliant foreign financial and impose penalties on those institutions that fail to do so.[3]

Pilot Project to Share SAR Information Internationally

FinCEN has promulgated guidance allowing sharing of Suspicious Activity Reports (SARs) information internationally with foreign parent organizations or U.S. affiliates in other countries.[4] The Act requires the Treasury within one year after the enactment of legislation to issue rules that establish a pilot program for financial institutions to share information related to SARS “with the institution’s foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks.”[5]

The Act allows the Secretary of the Treasury to prohibit sharing with certain jurisdictions, such as state sponsors of terrorism, states subject to sanctions imposed by the U.S. government, or those the Secretary has determined cannot reasonably protect the security and confidentiality of such information.[6]

Provisions on Cryptocurrency and Antiquities Dealers, Advisors, and Consultants

The Act adds to the definition of financial institution and money transmitting businesses under the BSA, which are subject to anti-money laundering due diligence, businesses engaged in the exchange of transmission of “value that substitutes for currency.” [7] The Act also expands the definition of financial institution to include antiquities dealers, advisors, and consultants.

The Act requires Treasury to prepare a study within one year that evaluates money laundering and terrorist financing through the art trade, including the markets that should be subject to regulation, the extent to which the regulations, if any, should target high-value trade in works of art, and “the need, if any, to identify persons who are dealers, advisors, consultants, or any other persons who engage as a business in the trade in works of art.”[8]

Foreign Financial Intelligence Unit Liaisons (FFIUL)

6108 of the Act requires the appointment of not more than six FFIULs, co-located in a U.S. embassy, U.S., or a foreign government facility, among other things, to facilitate capacity building and outreach on AML/CFT regulatory and analytical frameworks; and coordinate with representatives of the DOJ at US Embassies.[9]

International Coordination

6112 of the Act requires the Secretary of the Treasury to work with foreign counterparts, including bilateral contacts, the Financial Action Task Force, the IMF, the World Bank, the Egmont Group of FIUs, the OECD, the Basel Committee on Banking Supervision, and the UN, to promote stronger AML frameworks.

Financial Services De-Risking

6213 of the Act states Congress supports effective measures to stop the flow of illicit funds and promote AML/CFT and sanctions goals, and AML/CFT and sanctions policies that do not unduly hinder or delay the efforts of legitimate humanitarian organizations to fulfill the needs of humanitarian crisis, prevent or alleviate human suffering. § 6213(c) requires the GAO to conduct a de-risking analysis and evaluate the effect of AML/CFT on individuals and entities, including charities, embassy accounts, money-service businesses, and correspondent banks that have been subject to categorical de-risking by financial institutions operating in the U.S. and or otherwise have difficulty accessing or maintaining certain financial services in the U.S. and evaluate the consequences of financial institutions de-risking entire categories of relations with individuals and entities mentioned above in this section. The GAO should propose changes to those requirements resulting in de-risking.

GAO Study on Fighting Illicit Networks and Detecting Human Trafficking and Drug Trafficking

6504(c) of the Act requires the GAO to study how a range of payment systems and methods, including virtual currencies in online marketplaces, are employed to facilitate human trafficking and drug trafficking.

Treasury Study and Report on Trade-Based Money Laundering

6505 of the Act requires Treasury to conduct a conduct a study, in consultation with appropriate private sector stakeholders, academic and other international trade experts, and Federal agencies, on trade-based money laundering and proposed strategies to combat trade-based money laundering.

Treasury Study and Strategy on Money Laundering by the PRC

6506 of the Act requires the Treasury to conduct a study, relying substantially on information obtained through the trade-based money laundering analyses of the GAO, on, inter alia, the extent and effect of illicit finance risk relating to the PRC Government and Chinese firms, and a strategy to counter Chinese money laundering.

Treasury Study on Efforts of Authoritarian Regimes to Exploit the Financial System of the U.S.

6507 of the Act requires the Treasury Secretary and Attorney General, in consultation with the heads of other relevant national security, intelligence, and law enforcement agencies, to conduct a study for Congress on how authoritarian regimes in foreign countries and their proxies use the financial system of the U.S., inter alia, to: “(1) conduct political influence operations; (2) sustain kleptocratic methods of maintaining power; (3) export corruption; (4) fund nongovernmental organizations, media organizations, or academic initiatives in the United States to advance the interests of these regimes; and (5) otherwise undermine democratic governance in the United States and the partners and allies of the United States.” The study should make recommendations for legislative or regulatory action, or regulatory action, or steps to be taken by U.S. financial institutions that would address exploitation of the financial system of the U.S. by foreign authoritarian regimes.

Kleptocracy Assets Recovery Reward Act

§ 9701-03 of Division H of the NDAA establishes the Kleptocracy Asset Recovery Rewards Program in the Department of the Treasury, and authorizes appropriations for the purpose of paying rewards under the program.

Combating Russian Money Laundering

§ 9711-9714 of Division H of the NDAA requires a report if the Secretary of the Treasury determines that certain institutions, transactions, or money laundering activities require domestic financial institutions or domestic financial agencies to take special measures described in 31 U.S.C. § 5318A(b), and permit implementation of such special measures. These provisions would enable Treasury to impose special measures on transactions emanating from Russia, certain Russian financial institutions, and/or certain categories of transactions.

The current issue of the IELR will have a more comprehensive discussion of the AMLA and related provisions.

[1] 31 U.S.C. § 5318(k)(3)(A).

[2] AMLA, § 6308 (31 U.S.C. § 5318(k)(3)(A)(i) as revised).

[3] AMLA, § 6308 (31 U.S.C. §5318(k)(D), as revised).

[4] FinCEN, FIN-2010-G006, Sharing Suspicious Activity Reports by Depository Institutions with Certain U.S. Affiliates (Nov. 23, 2010), https://www.fincen.gov/sites/default/files/shared/fin-2010-g006.pdf. FinCEN, Interagency Guidance on Sharing Suspicious Activity Reports with Head Offices and Controlling Companies, January 20, 2006 https://www.fincen.gov/resources/statutes-regulations/guidance/interagency-guidance-sharing-suspicious-activity-reports.

[5] AMLA, § 6212 (adding 31 U.S.C. § 5318(g)(8)(B)(i).

[6] AMLA, §6212 (adding 31 U.S.C. § 5318(g)(8)(C).

[7] AMLA, § 6102(d).

[8] AMLA, § 6111(e).

[9] AMLA, § 6108, adding 31 U.S.C. § 310(h).

Conference: Indigenous Rights and Extractive Industries in the Amazon

September 25, 2020 by Bruce Zagaris Leave a Comment

With funding from the United States Embassy in Suriname and the sponsorship of the Youth Education and Leadership Foundation and Global Americans, we are pleased to present “Indigenous Rights and Extractive Industries in the Amazon,” a two-day virtual conference on human rights and environmental issues in the Amazon.

The conference will be broken up into two panels and hosted through Zoom. Although the first webinar occurred on Sept. 23, it was recorded and is available on the website with GlobalAmericans https://theglobalamericans.org

Moderator: Guy Mentel, Executive Director, Global Americans

Extractive Industries in the Amazon
September 30, 10:00 AM to 11:00 AM EDT

Speakers:
– Mark Pieth, Professor at the Basel Institute of Governance, former Chair of both UN Illegal Drug Trafficking and OECD Anti-Bribery Working Groups

Prof. Pieth will focus on the problem of the gold trade in the Amazon. He has recently authored a book on Gold laundering: the dirty secrets of the gold trade and how to clean it up amazon.com/Gold-Laundering-dirty-secrets-trade/dp/3906195953
– Luz Nagle, Professor at Stetson University Law School and former Judge in Medellín

Prof Nagle will focus on human trafficking, organized crime, and corruption in the illegal mining industries in the Amazon

– Bruce Zagaris, Partner with Berliner Corcoran & Rowe LLP & Founder of the International Enforcement Law Reporter

Mr. Zagaris will focus on the illegal timber trade.
– Julia Marisa Sekula, Climate Security Program Coordinator at Instituto Igarapé
Ms. Sekula will focus on the problems in the Amazon in Brazil.

Moderator: Guy Mentel, Executive Director, Global Americans

To register, go to https://docs.google.com/forms/d/e/1FAIpQLSeVkK3Ilu7jEAGBy-X77uLL9e1KGTumte-PhbrSNBhlrFbfgg/viewform

Indigenous Rights in the Amazon
September 23, 10:00 AM to 11:00 AM EDT

Speakers:
– Luis Gilberto Murillo, Colombia’s former Minister of Environment and Sustainable Development
– Ine Apapoe, Lecturer at the Anton De Kom University of Suriname
– Magda Monteza, Strategic Planning Specialist, Panamanian Ministry of Government
– Jorge Andrés Forero Gonzáles, Director of Peacebuilding, Al Centro (Colombia)

U.S. Brings Criminal Complaint and Imposes Sanctions against Russians for Election Interference

September 15, 2020 by Bruce Zagaris Leave a Comment

On September 10, 2020, the U.S. Attorney for the Eastern District Virginia brought a criminal complaint against a Russian national for his alleged role in a conspiracy to use the stolen identities of real U.S. persons to open fraudulent accounts at banking and cryptocurrency exchanges. Also on September 10, 2020, the U.S. Treasury Department imposed sanctions against Andriy Derkach. He is a member of the Ukrainian Parliament. Treasury says he has been “an active Russian agent for over a decade.” Treasury accuses him of disseminating “edited audiotapes” and “substantiated allegations against U.S. and international political figures.” The Treasury Department also imposed sanctions against three employees of the Internet Research Agency (IRA). IRA is a troll farm in Russia that disseminates disinformation on social media as part of the Russian election interference campaign in 2016.

Complaint against Russian Project Lakhta Member

The 111-page criminal complaint and affidavit allege Artem Mikhaylovich Lifshits, 27, of St. Petersburg, Russia, operates as a manager in “Project Lakhta.” The latter is based in Russia and engages in political and electoral interference activities. Since at least May 2014, Project Lakhta has tried to hide its conduct by acting through a number of entities, including IRA. Lifshits served as manager since approximately 2017 for the Translator Department, which is allegedly responsible for much of the Project’s ongoing influence operations.

Lifshits allegedly conspired with Project Lakhta members to secure means of identification of real U.S. persons. The conspirators then used these identities to open fraudulent accounts at banking and cryptocurrency exchanges in the victims’ names. Lifshits and the conspirators allegedly employed these fraudulently opened accounts to promote Project Lakhta’s influence operations and personal enrichment.

Treasury Sanctions

Treasury designated Andrii Derkach (Derkach) pursuant to Executive Order (E.O.) 13848 for his efforts to influence the 2020 U.S. presidential election. According to Treasury, “Derkach has directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in an attempt to undermine the upcoming 2020 U.S. presidential election.”

From at least late 2019 through mid-2020, Derkach conducted a covert influence campaign focused on creating false and unsubstantiated narratives concerning U.S. officials in the upcoming 2020 Presidential Election, spurring corruption investigations in both Ukraine and the U.S. designed to influence the U.S. Presidential election day. The Western media covered Derkach’s unsubstantiated narratives through coverage of press conferences and other news events, including interviews and statements.

Between May and July 2020, Derkach disseminated edited audio tapes and other unsupported information with the intent to discredit U.S. officials. He made unsubstantiated allegations against U.S. and international political figures. Derkach almost certainly targeted the U.S. voters, prominent U.S. persons, and members of the U.S. government, based on his reliance on U.S. platforms, English-language documents and videos, and pro-Russian lobbyists in the United States used to propagate his claims.

The Treasury sanction does not mention that Rudolph W. Giulani, President Trump’s personal attorney, met twice with Derkach since late last year and publicized Derkach’s claims on his podcast and elsewhere. Since late last year, Derkach has operated a campaign against Democratic Presidential candidate Joe Biden and former Ukrainian president Petro Poroshenko from Kyiv. The campaign has included an English-language website and YouTube channel, and a conspiratorial flowchart showing Biden and financier George Soros at the center. fn1

Treasury also designated three IRA actors pursuant to E.O. 13694, as amended by E.O. 13757, and E.O. 13848 for having acted or purported to act for or on behalf of, directly or indirectly, the IRA, an entity designated pursuant to E.O. 13694, as amended, and E.O. 13848. Russian nationals Artem Lifshits, Anton Andreyev, and Darya Aslanova, as employees of the IRA, supported the IRA’s cryptocurrency accounts.

Department of Homeland Security Whistleblower Complaint about Intelligence re Russian Election Interference

On September 9, 2020, Rep. Adam Schiff (D-CA), the Chairman of the House Permanent Select Committee on Intelligence, announced that, as part of its ongoing investigation into the Department of Homeland Security (DHS) and the Office of Intelligence and Analysis (I&A), the Committee received a whistleblower reprisal complaint alleging serious wrongdoing by officials at the Department and reprisal against former I&A Acting Under Secretary Brian Murphy for making protected disclosures. Mr. Murphy filed the whistleblower reprisal complaint on September 8, 2020 with the DHS Office of Inspector General.

Rep. Schiff released a statement that “Murphy’s allegations are serious — from senior officials suppressing intelligence reports on Russia’s election interference and making false statements to Congress about terrorism threats at our southern border, to modifying intelligence assessments to match the President’s rhetoric on Antifa and minimizing the threat posed by white supremacists. We have requested Mr. Murphy’s testimony before the Committee, pursuant to subpoena if necessary, alongside other already scheduled interviews with other DHS officials.”

Analysis

The criminal complaint, sanctions, and whistleblower complaint show that Russian interference in U.S. elections is continuing. The extent of the interference and the cooperation, if any, by members of the Republic National Committee and the Trump Administration are controverted. Depending on the results of the U.S. election, the U.S. sanctions against Russia are likely to deepen. The alleged interference is likely to generate additional sanctions by Europe and other countries. For European sanctions the case of Aleksei A. Navalny, the Russian opposition leader who is recovering from being poisoned, is important. He has spoken to a German prosecutor about the attempt on his life and says he plans to return to Russia as soon as he has recovered. The alleged poisoning of Navalny also potentially trigger sanctions under the the U.S. Global Magnitsky Act, which a number of countries have emulated. The current issue of the IELR will have more discussion on these matters in this blogpost.

FN 1 Paul Sonne, Josh Dawsey and Karoun Demirjian, Treasury penalizes Ukrainian it calls a ‘Russian agent’, Wash. Post, Sept. 11, 2020, at A10, col. 1.

Suriname Arrest Warrant Made for Missing Former Finance Minister on Corruption Charges

September 7, 2020 by Bruce Zagaris Leave a Comment

On August 12, 2020, the police in Suriname issued an arrest warrant for Gillmore Hoefdraad, the former Finance Minister. The warrant suspects him of 11 criminal offenses, including violations of the banking and anti-corruption laws, fraud and embezzlement.[1]

At the end of July the Suriname Attorney General Roy Baidjnath Panday forbade Hoefdraad from leaving the country.[2]

The investigation against Hoefdraad, 58 years of age, concern the irregularities at the Central Bank of Suriname (CBvS). In February, Surinamese authorities arrested former CBvS Governor Robert van Trikt. Suriname authorities discharged von Trikt for irregularities and misappropriations at the Central Bank. The alleged wrongdoing included the purchase of a custom-made $300,000 luxury Land Rover in the U.K., an armored Lexus vehicle, and his approval for the BvS to acquire several properties.[3]

Surinamese authorities suspect Hoefdraad’s participation in the alleged real estate swindle. Investigators have discovered documents indicating that in June and September 2019, while Van Trikt was governor, Hoefdraad sold 17 buildings to CBvS for €105 million. Surinamese authorities have also arrested Van Trikt’s business partner Ashween Angnoe and Faranaaz Alibaks Hausil, manager Legal, Compliance & International Affairs at the Central Bank.[4] Prior to his appointment as Minister of Finance, Hoefdraad was the governor of the Central Bank of Suriname.

In May Attorney General Baidjnath-Panday asked the National Assembly’s permission to initiate a criminal prosecution against then Minister Hoefdraad. However, the National Assembly did not grant the request due to ministerial immunity.[5]

The Surinamese media has reported Hoefdraad has brought summary proceedings against the Surinamese government because he thinks he is unfairly being prosecuted. His counsel argue that, since the National Assembly’s permission was required and was not granted, the initiation of criminal charges constitutes double jeopardy. After elections on May 25, 2020, the government has changed.

Improving anti-corruption and governance is a priority of the new administration of Chan Santokhi, a former chief of police.[6]

According to the Caribbean Financial Action Task Force 11^th Report on the Mutual Evaluation Report of Suriname for the annual period on which it reported, Suriname made no extradition requests. However, if Hoefdraad entered Guyana improperly, Guyana can deport or surrender him to Suriname without the need to extradite. On August 9, 2020, Albert Ramchand Ramdin, the new Minister of Foreign Affairs in Suriname, held a joint press conference with his Guyanese counterpart Hugh Todd in Guyana. They promised to cooperate a broad range of topics. The two ministers are meeting in September to develop a strategic agenda for the next high-level meeting of the ministers, which is likely to be in Paramaribo. The current issue of the IELR will have additional discussion of this matter.

[1] Suriname issues arrest warrant for former Finance Minister on corruption charges, https://www.kaieteurnewsonline.com, Aug. 12, 2020.

[2] Id. Implicated ex-minister may be hiding in Guyana, The Daily Herald, July 28, 2020.

[3] Implicated ex-minister may be hiding in Guyana, supra.

[4] Id.

[5] Id.

[6] For additional background on anti-corruption and governance issues in Suriname, see Bruce Zagaris, Legal aspects of helping Suriname achieve better anti-corruption and governance, GlobalAmericans, September 2, 2020 https://theglobalamericans.org/2020/09/legal-aspects-of-helping-suriname-achieve-better-anti-corruption-and-governance/; see also Dr. Scott MacDonald, Suriname and the Need for Good Governance, March 10, 2020, CSIS, https://www.csis.org/analysis/suriname-and-need-good-governance.

EUROPOL Starts European Financial and Economic Crime Center

June 9, 2020 by Bruce Zagaris Leave a Comment

On June 5, 2020, Europol started the new European Financial and Economic Crime Center (EFECC). The European Union Anti-money Laundering Action Report mentioned the start of the EFECC, partly in response to the various anti-money laundering scandals in the European Union (e.g., Danske Bank and Swedbank).

EFECC’s Goals and Operation

The EFECC will work within the current organization structure of Europol, which are already quite active and playing important roles in the EU response to financial and economic crime. It will be staffed with 65 international experts and analysts.

The Europol press release explains that money laundering and criminal finances serve as the engines of organized crime. Without them criminals cannot utilize the illicit profits they generate with the various serious and organized crime activities they conduct in the EU. Europol has reported that 98.9% of estimated criminal profits remain with criminals.

The COVID-19 pandemic in Europe has illustrated that criminals are quick to adapt their criminal schemes to changing conditions to take advantage of fears and vulnerabilities. Criminals are targeting economic stimuli proposed in the wake of the COVID-19 pandemic to defraud public funding. Law enforcement authorities must be able to follow the money trail as a regular part of their criminal investigations and seize criminal profits in order to effectively disrupt and deter criminals involved in serious organized crime.

According to Tim Adams, President and CEO of the Institute of International Finance, the industry has called for an intelligence-led approach to financial crime, and meaningful initiatives like EFECC are essential to improving outcomes.

Europol Strategic Report

On June 5, 2020, Europol published a strategic report . It gives an overview of the most menacing phenomena in the area of economic and financial crime, including various types of fraud, the production and distribution of counterfeit goods, money laundering, and others.

Missing trader intra-community (MTIC) fraud is the most commonly encountered type of value added tax (VAT) fraud in the EU. MTIC fraudsters often target countries with high VAT rates. Based on studies and cases supported at the EU level, Europol estimates between €40 to € 60 billion are lost each year to MTIC fraud schemes in the EU.

An increased risk of financial crime is that 58% of customers banking in the EU now regularly employ digital online solutions such as websites or applications to conduct transactions. Mobile banking alone had increased by 50% by the end of 2019. These banking methods, albeit convenient, present risks. Customers often lack technical knowledge and experience. As a result, they are vulnerable to attacks by cybercriminals using phishing techniques and malware solutions in order to access online accounts.

Increasing digitalization and less direct interaction with customers can also weaken Know Your Customer procedures. Weakened KYC procedures make financial services more vulnerable to use for various criminal activities, including online banking fraud.

Analysis

The start of the EFECC will increase financial intelligence for the EU and enable it to trace and seize money more often as well as uncover and investigate money laundering and financial crime schemes.

One thing to watch will be the interaction of EFECC with national law enforcement authorities, especially prosecutors.

The current issue of the IELR will have a more comprehensive story on the start of the EFECC and the strategic report behind its start.

U.S. Returns $300 Million to Malaysia from U.S. Forfeitures in 1MDB Case

April 16, 2020 by Bruce Zagaris Leave a Comment

On April 14, 2020, the U.S. Department of Justice announced that it has returned to the Malaysian government approximately $300 million in additional funds misappropriated from 1 Malaysia Development Berhad (1MDB), Malaysia’s investment development fund. The funds were apparently misappropriated and laundered through financial institutions in several jurisdictions including the U.S., Switzerland, Singapore and Luxembourg.

Together with the funds that the DOJ returned to Malaysia in May 2019, the U.S. has returned or helped Malaysia in recovering over $600 million of funds misappropriated from 1MDB. The DOJ says its efforts to recover funds misappropriate from 1MDB.

The first tranche of returned funds included: $57,036,688.68 from Red Granite Pictures, and stems from a March 2018 settlement in California courts. This amount has been received by Malaysia. Subsequently the DOJ returned $139,000,000 from the February 2019 sale of Manhattan’s Park Lane Hotel.

In 2019, the U.S. District Court for the Central District of California entered judgments forfeiting more than $700 million in assets obtained by Low Taek Jho, aka Jho Low, and his family in the U.S., U.K., and Switzerland. At present, DOJ has recovered or helped in the recovery of more than $1 billion in assets associated with the 1MDB international money laundering and bribery scheme. This represents the largest recovery under the DOJ’s Kleptocracy Asset Recovery Initiative and the largest civil forfeiture ever concluded by the Justice Department.

The civil forfeiture complaints allege that, from 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates, including Low, through a criminal conspiracy involving international money laundering and bribery. The government of Malaysia established 1MDB to promote economic development in Malaysia through global partnerships and foreign direct investment. The Malaysian government intended to use its funds to improve the well-being of the Malaysian people. The assets subject to the 2019 judgments included high-end real estate in Beverly Hills, New York and London; a luxury boutique hotel in Beverly Hills; and tens of millions of dollars in business investments that Low allegedly made with funds traceable to misappropriated 1MDB funds.

Under the terms of the 2019 settlement, Low, his family members, and FFP, a Cayman Islands entity serving as the trustees overseeing the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest. The trustees are also required to cooperate and assist the DOJ in the orderly transfer, management and disposition of the relevant assets. From the assets formerly managed by FFP, the United States will release $15 million to Low’s counsel to pay for legal fees and costs. Under the agreement, none of those fees may be returned to Low or his family members.

Low separately faces charges in the U.S. District Court for the Eastern District of New York for conspiring to launder billions of dollars embezzled from 1MDB and for conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to various Malaysian and Emirati officials, and in the U.S. District Court for the District of Columbia for conspiring to make and conceal foreign and conduit campaign contributions during the United States presidential election in 2012. Low is a fugitive and is believed to be in China.

The current issue of the IELR will have a more comprehensive discussion of the case, especially the AML issues for the U.S.

COVID-19 ADDS PRESSURE TO DETENTION, TAX CONTROVERSY, AND FACILITATES FRAUDULENT SCHEMES

April 8, 2020 by Bruce Zagaris Leave a Comment

Covid-19 has impacted several domestic and international enforcement efforts in the U.S. This piece discusses detention battles, the work of the IRS, and the Department of Justice, the latter in trying to stop the incidence of Covid-19 fraud

DETENTION BATTLES

As a result of the coronavirus, there is much litigation concerning pre-trial detention. In this regard, on March 19, 2020, U.S. Magistrate Judge Thomas S. Hixson, U.S. District Court N.D. Ca. issued a 4-page opinion, ordering the release of Alejandro Toledo Manrique, saying he was persuaded that the 74-year old former head of state was in serious risk of death or serious injury unless released. Peru has requested his extradition on corruption-related offenses. Toledo was detained in the San Mateo County jail. Magistrate Judge Hixson observed the absence of testing kits at the jail. Hixson imposed various conditions to mitigate the potential that Toledo may try to flee.

On April 3, 2020, the Attorney General, issued a “Increasing Use of Home Confinement at Institutions Most Affected by COVID-19”.

On March 26, 2020, the Attorney General, issued a memo “Prioritization of Home Confinement As Appropriate in Response to COVID-19 Pandemic”.

2. INTERNAL REVENUE SERVICE (IRS)

On April 3, 2020, due to the coronavirus pandemic, the IRS issued an evacuation notice directing that nearly all of its employees work from home on mandatory telework starting Monday, March 30. Only employees performing “mission-critical duties” will be permitted to come into the office. Access to IRS offices will be restricted, with employees allowed only to pick up work files and mail. Affected employees were instructed to take home whatever they needed to work remotely for the foreseeable future.

This may present a problem for tax confidentiality. Due to confidentiality, most IRS officials refuse to allow communication by email.

The IRS has not communicated about whether call centers would continue to be staffed, or whether mail sent to service centers would be opened and processed. Clearly communication with the IRS, already difficult even for practitioners, will become more challenging.

The IRS has already extended the filing deadline for income tax returns from April 15 to July 15.

The IRS is in charge of distributing economic impact payments. On March 30, the IRS announced it will start in the next three weeks and will be distributed automatically, with no action required for most individuals. However, some seniors and others who do not file returns will need to submit a simple tax return to receive the stimulus payment.

On March 23, The United States Tax Court issued a press release announcing that more trial sessions have been cancelled in light of the COVID-19 pandemic. The Court has cancelled all trial sessions through the end of June 2020.

The IRS will have difficulty making progress in its audits and enforcement cases. It already suffered due to the federal shutdown in January and now because of the need to prioritize its resources in sending economic impact payments.

3. DEPARTMENT OF JUSTICE

The DOJ has issued an alert about criminals trying to exploit COVID-19 worldwide through a variety of scams. There have been reports of:

“• Individuals and businesses selling fake cures for COVID-19 online and engaging in other forms of fraud.

Phishing emails from entities posing as the World Health Organization or the Centers for Disease Control and Prevention.
Malicious websites and apps that appear to share virus-related information to gain and lock access to your devices until payment is received.
Seeking donations fraudulently for illegitimate or non-existent charitable organizations.

Criminals will likely continue to use new methods to exploit COVID-19 worldwide.” https://www.justice.gov/coronavirus

AML experts are warning banks and financial institutions to exercise due diligence to not process suspicious payments that may reflect scams. Financial institutions must exercise more due diligence during the pandemic.