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U.S. Court of Appeals Affirms Contempt Order Against 3 Chinese Banks for Subpoena Noncompliance

July 31, 2019 by Bruce Zagaris Leave a Comment

By Bruce Zagaris

On July 30, 2019, the United States Court of Appeals for the D.C. Circuit unanimously affirmed a contempt order against three Chinese banks that failed to comply with subpoenas from the U.S. Department of Justice (DOJ).

On April 30, 2019, the U.S. District Court for the D.C. Circuit unsealed an opinion issued on March 18, 2019, by Chief Judge Beryl A. Howell enforcing grand jury subpoenas and an administrative subpoena against three Chinese banks for records of transactions for a now-defunct Hong Kong-based front company for North Korea’s state-operated company.

While the banks involved are not named in court papers, they were previously reported to be the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank (SPD).

In a unanimous ruling, which is under seal, the circuit panel rejected the banks’ arguments that Chinese banking privacy rules and other laws require that requests for customer records in U.S. criminal inquiries be made through a legal assistance agreement between the two countries.

The case grew out of an investigation by the U.S. Department of Justice into Mingzheng International trading Limited, a Hong-Kong entity that allegedly moved $105 million to FTB, a sanctioned North Korean bank, between 2012 and 2015.

In 2017, a U.S. civil forfeiture action contended that Mingzheng used accounts at the three Chinese banks to transmit the money in violation of sanctions on North Korea. In 2017, the U.S. Treasury sanctioned Mingzheng.

Chinese bank regulatory officials have informed the banks that the only way the banks could comply under Chinese law was through the process established under the bilateral China-U.S. June 19, 2000 Mutual Legal Assistance Agreement (MLAA). The banks have informed the U.S. courts that the Chinese government has ordered them not to provide the requested records. The DOJ visited China in April and August 2018 to discuss China’s repeated failure to respond to MLAA requests, which required the U.S. to proceed through unilateral subpoenas. The DOJ informed the district court that China is unresponsive or much delayed in responding to MLAA requests.

Judge Howell has fined the three Chinese banks $50,000 a day, although the fines were stayed pending the appeal. In addition, SPD, China’s ninth-largest bank by assets risks losing access to U.S. dollars.

The case constitutes the first known instance in which a U.S. court has upheld subpoenas to a Chinese bank in a sanctions investigation. The affirmance by the appellate court will increase the tension between the U.S. and China over sanctions. Already, the U.S. and China are in a contest over the extradition of Meng Wanzhou from Canada, the CFO and Vice President of Huawei, for allegedly making false statements in connection with Huawei’s transactions and business with Iranian entities in violation of U.S. sanctions. Criminal and civil cases are pending in the U.S. against Huawei for, inter alia, stealing intellectual property of U.S. firms. The U.S. is pressuring countries around the world not to use Huawei for developing 5G technology.

Meanwhile, as North Korea has taken diplomatic initiatives to break out of its isolation and UN and U.S. sanctions, the U.S. – through enforcement actions against Mingzheng – has tried to maintain the pressure against North Korea. The next issue of the IELR will report further on this case.

U.S. Attorney General Announces Continued U.S. Funding of Law Enforcement Efforts at 3rd Ministerial of Northern Triangle Attorneys General, as Guatemala Prepares to Abolish Anti-Corruption Prosecutor

May 19, 2019 by Bruce Zagaris Leave a Comment

On May 16, 2019, U.S. Attorney General William P. Barr, during the 3^rd Ministerial of the Northern Triangle Attorneys General announced that, as part of a coordinated law enforcement action known as Operation Regional Shield,President Trump has approved continued funding for law enforcement efforts between the U.S. and the Northern Triangle countries (El Salvador, Guatemala, and Honduras).

In particular Barr said the U.S. will continue fund law enforcement efforts, through the ongoing work of the project’s law enforcement efforts, through the continuing work of the U.S. Office of Overseas Prosecutorial Development Assistance and Training (OPDAT) Resident Legal Advisors in each of the three countries, through the FBI’s Transnational Anti-Gang teams, through the Drug Enforcement Administration’s Sensitive Investigative Units, and through Homeland Security’s (HSI) work to counter human smuggling and trafficking.

Barr said the meeting has reaffirmed his belief that the safety of the citizens of the U.S. and Northern Triangle is interdependent and together they will not only confront but will defeat the criminal gangs.

Inconsistency of U.S. Enforcement Policy with Northern Triangle Countries

In recent months the Trump Administration’s policy in terms of cooperation with the Northern Triangle has not been consistent. For instance, on March 28, 2019, then Secretary of Homeland Security Kirstjen M. Nielsen signed, on behalf of the United States, a Memorandum of Cooperation (MOC) on border security cooperation in Central America. Almost simultaneously, U.S. President Donald Trump said that he was planning on cutting U.S. assistance to the three countries and has threatened to close the border with Mexico.

The initiatives of the U.S. and other governments against transnational organized crime in Central America can be classified in eight areas: whole-of-government solutions; interdiction of criminal flows; targeting of transnational criminal organization leaders; use of the military in a domestic law enforcement; institutional reform within law enforcement; targeting the financial flows and resources of organized criminal groups; prison control and reform; and binational and multinational cooperation against organized crime. (See R. Evan Ellis, Transnational Organized Crime in Latin America and the Caribbean 103-4 (2018).

During his trip Barr highlighted DOJ priorities, including interdicting illegal narcotics, dismantling MS-13, the 18th Street Gang and other transnational criminal organizations, and combatting illegal migration and human trafficking. While in El Salvador, the Attorney General visited the International Law Enforcement Academy.

Effort of Guatemalan Morales Administration to End the Work of the International Commission against Impunty (CICIG)

One setback for the fight against anti-corruption is the effort by the current Guatemala Administration of Jimmy Morales to terminate the work of the International Commission against Impunty (CICIG), which the United Nations established to strength the efforts against organized crime and corruption after Guatemala’s 36-year civil war. See Elisabeth Malkin, Latin America Risks Losing Potential Weapon Against Corruption, N.Y. Times, May 19, 2009, at 10, col. 1.

On May 15, the Guatemala high court rejected the appeal of Thelma Aldana, a crusading former prosecutor, to participate in Guatemala’s presidential election. As a result, at least two of the top three candidates, according to polls, will not be able to run in the election. The decision on Aldana seemed to arise from fears over her zealous prosecutions of corruption in politics and business. Aldana has been denied the right to participate in the election because she lacked a document accrediting that she did not have any outstanding accounts after she was responsible for public funds during her serving as from her time as a former prosecutor.

The Trump Administration has not supported the CICIG, as prior U.S. Administrations have. As a result Morales’ announcement to not renew the CICIG’s two-year mandate in September 2019 and his denial of Ivan Velázquez, the Colombian head of the Commission, in September 2018, mean that, notwithstanding its strong record of prosecuting corruption and transnational organized crime, the lack of independent prosecutors in the Guatemalan government, and the importance of strong and independent prosecutors to better stabilize the security situation in Guatemala, the CICIG may well expire in September. Indeed the enormous security problems due to the proliferation of gangs, gun violence, and corruption fuel migration from Guatemala.

U.S. Court Authorizes John Doe Summonses about Finnish Residents Using 3 U.S. Bank Payment Cards Linked to Non-Finnish Bank Accounts

May 1, 2019 by Bruce Zagaris Leave a Comment

On May 1, 2019, the U.S. Department of Justice announced that a U.S. Court in North Carolina authorized the Internal Revenue Service to serve John Doe summonses on Bank of America, Charles Schwab, and TD Bank in an order that was unsealed on April 30. The John Doe summonses seek information about persons residing in Finland that have Bank of America, Charles Schwab, or TD Bank payment cards linked to bank accounts located outside of Finland. The summonses are known as “John Doe” summonses because the IRS does not know the identity of the persons under investigation.

The U.S. petitioned the U.S. District Court for the Western District of North Carolina to authorize the summons at the request of the Finnish government under the tax treaty between Finland and the U.S. The treaty permits the two countries to cooperate in exchanging information that is required to carry out each country’s tax laws. The IRS summons requests the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the so that the Finnish tax authority can determine if those persons have complied with Finnish tax laws. Finland has told the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland.

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts.

Finnish Foreign Payment Project

The request is part of a foreign payment project that Finnish Tax Administration (FTA) . The FTA uses information on the use of payment cards issued by foreign financial institutions to identify non-compliant Finnish taxpayers. Prior FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar way have resulted in high rates of tax non-compliance, as explained in the U.S. government’s memorandum in support of the petition. It indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income.

Analysis

The court order in this case authorizing the enforcement action is part of ongoing international efforts by the U.S. and its treaty partners to stop persons from using foreign financial accounts to evade taxes. U.S. courts have previously approved John Doe summons allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summons to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations, such as those in the Netherlands and Norway.

The current matter also shows an increase in efforts by foreign tax authorities to bring request assistance from the IRS and directly bring enforcement actions in the U.S.

The current issue of the IELR will have additional discussion of the case.

ICC Rejection of Prosecutors Call to Investigate US Service Members for Alleged War Crimes Reveals The Role of Political Power in International Legal Frameworks

April 13, 2019 by Evan Schleicher Leave a Comment

On Friday, April 12^th, the International Criminal Court’s pre-trial judges unanimously rejected a request by the court’s chief prosecutor to investigate alleged war crimes and crimes against humanity committed in Afghanistan. This was about a week after the US revoked ICC prosecutor Fatou Bensouda’s visa over her continuing push to investigate alleged war crimes and crimes against humanity, particularly pertaining to actions taken by US armed forces and the CIA between 2003 and 2004. For more background on this, please see a recent blog post we have written on this topic.

In their decision on a potential investigation, the judges focused on a lack of cooperation received by the prosecutor and the changing political landscape and instability in Afghanistan, suggesting that these conditions are likely to persist. The central issue at play is one briefly mentioned in our last piece: From an international enforcement perspective, the controversy concerns whether a powerful state can assert its power to give impunity to its nationals when they are under investigation for war crimes.

Article 27 of the Rome Statute was included to avoid this manipulation by powerful actors and to produce equal justice across the world and society. It reads:

This Statute shall apply equally to all persons without any distinction based on official capacity. In particular, official capacity as a Head of State or Government, a member of a Government or parliament, an elected representative or a government official shall in no case exempt a person from criminal responsibility under this Statute, nor shall it, in and of itself, constitute a ground for reduction of sentence.

Amnesty International has criticized the ICC for failing to hold the line on these standards and for too often giving into state demands. The ICC giving into the political influence of states is clearly an issue in the Afghanistan example, given that the investigation was halted due to a lack of support from the United States. This is a general trend between the ICC and powerful states, as these states have continued to exert their authority in the face of ICC attempts at investigation and prosecution. To begin, although the Rome statute, which set up the court, came into force in 2002, and 123 states are party to it, the US, Russia, China, India and others such as Israel have either not ratified or have rejected the treaty. South African efforts to withdraw from the Rome Statute reveals that even the strongest supporters of the ICC can be fickle when their geopolitical interests are affected by the Court’s activities. The US has been particularly aggressive in threatening ICC officials, with National Security Adviser John Bolton threatening sanctions against ICC officials if they pursue cases against US citizens. Due to the ability of these powerful countries to avoid prosecution, virtually all its cases were in Africa, which has strained the Court’s political base as accusations have emerged of anti-African bias.

This row over ICC authority to investigate American service members and CIA officers has also created an interesting jurisdictional question, as the US objects to the ICC’s jurisdiction over nationals of non-member countries, absent a referral to the court by the United Nations Security Council. However, ICC prosecutors have argued that because Afghanistan is an ICC member country, they have the authority to investigate and prosecute crimes which were committed within Afghan borders. Precedent in the international system might favor the latter interpretation, given that national governments already have the legal authority to investigate and prosecute foreign individuals who commit crimes within their borders. The geography of the crime remains an important factor in determining the jurisdictional limits of different organizations and states and, in the context of the ICC, geographic jurisdiction can be overcome de imperio by the Security Council (with permanent member agreement). The US seems to have generally accepted this premise at a level short of war crimes, given that the State Department website advises that they cannot get US citizens out of jail, state to a court that anyone is guilty or innocent, provide legal advice, or serve as officials interpreters or translators.

The ICC’s lack of capacity to hold powerful states accountable will likely force it to continue to focus its investigations on poorer, less politically powerful countries. Despite attempts by international legal authorities to promote equal justice over the world, investigations and prosecutions coming out of the ICC will continue to promote a culture of immunity within powerful countries and will continue to over focus on African and other politically peripheral countries within the international system.

The current issue of the IELR will carry a more in-depth discussion of the decision by Professor Michael Plachta.

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Evan Schleicher is an Editorial Intern with the International Enforcement Law Reporter. He is also an MA candidate in Security Policy Studies at George Washington University’s Elliott School of International Affairs.

U.S. Department of Justice Publishes White Paper on the Cloud Act

April 12, 2019 by Bruce Zagaris Leave a Comment

On April 10, 2019 the U.S. Department of Justice announced the public release of a white paper on the Clarifying Lawful Overseas Use of Data Act (CLOUD Act). Enacted in March 2018, the Act updates the legal framework for how law enforcement authorities may request electronic evidence required to protect public safety from service providers while respecting privacy and foreign sovereignty.

Deputy Attorney General Rod Rosenstein promises the DOJ will be proactive in working, both in the U.S. and abroad, to promote greater understanding and appreciation of what the CLOUD Act does.

The CLOUD Act has two distinct parts. First, the Act authorizes the U.S. to enter into bilateral agreements to facilitate the ability of trusted foreign partners to obtain the electronic evidence they required to fight serious crime. To qualify under the Act, a partner country must adhere to baseline rule-of-law, privacy, and civil liberties protections. Through bilateral agreements, each country would agree to lower the legal barriers that prevent their communication service providers from complying with qualifying lawful orders for electronic data issued by the other country. By lowering legal barriers, each country could serve its legal process, such as search warrants, directly on the providers of the other country, significantly increasing the speed and efficiency compared with existing methods of transferring electronic evidence.

Second, the CLOUD Act sets forth in U.S. law the principle – longstanding in both the U.S. and in many foreign countries, that a company subject to U.S. jurisdiction can be required to produce data within its custody and control, regardless of where it chooses to store that data at any point in time. This was a key issue in United States v. Microsoft Corporation, No. 17-2, a case argued before the Supreme Court on February 27, 2018 This provision simply codified what had been the law and practice prior to the 2016 Microsoft decision by a court of appeals, and ensured that the U.S. continued to be in compliance with its obligations under the Budapest Cybercrime Convention, which requires all member states to have the power to compel providers in their territory to disclose electronic data in their control, no matter where stored. The CLOUD Act provision did not change whether or not a provider is subject to U.S> jurisdiction, nor did it provide U.S. law enforcement any new authority to acquire data.

The Act formalizes the process for companies to challenge a law enforcement request. The Act imposes certain limits and restrictions on law enforcement requests to address privacy and civil liberty concerns.

The DOJ compiled the white paper with the input of components cross the DOJ, including attorneys from the Criminal Division and the National Security Division. The white paper discusses the interests and concerns that prompted the enactment of the CLOUD Act and provides a distillation of the effect, scope, and implications of the Act, as well as answers to frequently asked questions.

On April 5, 2019, Deputy Assistant Attorney General Richard W. Downing delivered remarks at the Academy of European Law Conference on “Prospects for Transatlantic Cooperation on the Transfer of Electronic Evidence to Promote Public Safety” in London, United Kingdom He said at the start of his remarks that, since it was enacted last March 2018, the CLOUD Act has, unfortunately, been the subject of many misconceptions, and is viewed by some with suspicion. That may not be surprising, given the complexity and technicality of some of the issues involved. Downing continued that “one particularly inaccurate statement about the Act being made in some circles is that it is a U.S.-centric law designed solely to serve U.S. interests and U.S. needs. “ Downing said that in fact the impetus for the CLOUD Act came from our foreign law enforcement partners, who expressed a need for increased speed in obtaining evidence held by U.S. providers – evidence which is normally obtained through the Mutual Legal Assistance Treaty – or “MLA” – process.

The current issue of the IELR will have additional discussion of the white paper on the CLOUD Act and its implications.

U.S. Court of Appeals Affirms Contempt Order Against 3 Chinese Banks for Subpoena Noncompliance

U.S. Attorney General Announces Continued U.S. Funding of Law Enforcement Efforts at 3rd Ministerial of Northern Triangle Attorneys General, as Guatemala Prepares to Abolish Anti-Corruption Prosecutor

U.S. Court Authorizes John Doe Summonses about Finnish Residents Using 3 U.S. Bank Payment Cards Linked to Non-Finnish Bank Accounts

ICC Rejection of Prosecutors Call to Investigate US Service Members for Alleged War Crimes Reveals The Role of Political Power in International Legal Frameworks

U.S. Department of Justice Publishes White Paper on the Cloud Act

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