international regimes Archives | Page 3 of 4

U.S. Appropriations Bill Carries More Sanctions and Asset Recovery on the Maduro Regime

December 17, 2019 by Bruce Zagaris Leave a Comment

By Bruce Zagaris and Dale Eppler

The House-Senate Appropriations bill, which is expected to pass this week, has several provisions on Venezuela (at around page 1270 in the 1783 page text), including a new requirements on asset recovery and coordination of economic sanctions with other countries. In April, Senator Robert Menendez (D-N.J.) introduced the “Venezuela Emergency Relief, Democracy Assistance, and Development (VERDAD) Act of 2019 with broad bipartisan support. It directs a new strategy for Venezuela in coordination with Congress, and earmarks substantial funds to support it. We understand there also were very high level meetings in the Executive branch during the past week on Venezuela but, thus far, no word from the White House on any change in the direction of U.S. policy.

The language in the bill is as follows:

Subtitle E—Supporting the 8 Reconstruction of Venezuela

SEC. 151. RECOVERING ASSETS STOLEN FROM THE VENEZUELAN PEOPLE.

(a) RECOVERING ASSETS. —The President, acting through the Secretary of State and in consultation with the Secretary of the Treasury, shall advance a coordinated international effort—

(1) to work with foreign governments—

(A) to share financial investigations intelligence, as appropriate;

(B) to block the assets identified pursuant to paragraph (2); and

(C) to provide technical assistance to help governments establish the necessary legal framework to carry out asset forfeitures; and

(2) to carry out special financial investigations to identify and track assets taken from the people and institutions of Venezuela through theft, corruption, money laundering, or other illicit means.

(b) STRATEGY REQUIREMENT.—

(1) IN GENERAL.—Not later than 180 days after the date of the enactment of this Act, the President, acting through the Secretary of State and in consultation with the Secretary of the Treasury, shall submit a strategy for carrying out the activities described in subsection (a) to Congress.

(2) ADDITIONAL ELEMENTS.—The strategy required under paragraph (1) shall—

(A) assess whether the United States or another member of the international community should establish a managed fund to hold the assets identified pursuant to subsection (a)(2) that could be returned to a future democratic government in Venezuela; and

(B) include such recommendations as the President and the Secretary of State consider appropriate for legislative or administrative action in the United States that would be needed to establish and manage the fund described in subparagraph (A).

Subtitle F—Restoring the Rule of Law in Venezuela

SEC. 161. DEVELOPING AND IMPLEMENTING A COORDINATED SANCTIONS STRATEGY WITH PARTNERS IN THE WESTERN HEMISPHERE AND THE EUROPEAN UNION.

(a) STRENGTHENING SANCTIONS CAPACITY IN LATIN AMERICA AND THE CARIBBEAN.—The Secretary of State, in consultation with the Secretary of the Treasury, shall offer to provide technical assistance to partner governments in Latin America and the Caribbean to assist such governments in establishing the legislative and regulatory frameworks needed to impose targeted sanctions on officials of the Maduro regime who—

(1) are responsible for human rights abuses;

(2) have engaged in public corruption; or

(3) are undermining democratic institutions and 18 processes in Venezuela.

(b) COORDINATING INTERNATIONAL SANCTIONS.

— The Secretary of State, in consultation with the Secretary of the Treasury, shall engage in diplomatic efforts with partner governments, including the Government of Canada, governments in the European Union, and governments in Latin America and the Caribbean, to impose targeted sanctions on the Maduro regime officials described in subsection (a).

(c) STRATEGY REQUIREMENT.—Not later than 90 days after the date of the enactment of this Act, the Secretary of State, in consultation with the Secretary of the Treasury, shall submit a strategy for carrying out the activities described in subsection (a) to: (1) the Committee on Foreign Relations of the Senate; (2) the Committee on Appropriations of the Senate; (3) the Committee on Banking, Housing, and Urban Affairs of the Senate; (4) the Committee on Foreign Affairs of the House of Representatives; (5) the Committee on Appropriations of the House of Representatives; and (6) the Committee on Financial Services of the House of Representatives.

It is not clear yet how the executive branch, working with Congress, will implement the proposed sanctions and asset recovery program. We expect Treasury and State will lead the coordination with other governments. Presumably, the U.S. and its partners will furnish technical assistance to smaller jurisdictions in the region that are willing to help them find, freeze, and even forfeit assets that are the proceeds of crime. Until now, one potential challenge is that some small jurisdictions, especially those that have maintained friendly relations with Chavez and Maduro, and that benefited from PetroCaribe, do not want to take steps inimical to the Maduro regime. Another problem is that governments are much better at freezing accounts than they are at identifying and tracking the proceeds of corruption.

The next issue of the IELR will have a more comprehensive discussion of the provisions.

FATF Issues Best Practices Report on Beneficial Ownership

October 28, 2019 by Bruce Zagaris Leave a Comment

On October 24, 2019, the Financial Action Task Force (FATF) issued a best practice paper, seeking to provide suggested solutions, supported by cases and examples of best practices for beneficial ownership from delegations. The paper responded to challenges faced by delegations in implementing FATF Recommendation. The results of FATF Mutual Evaluation Reports (MERs) indicate that jurisdictions find it challenging to achieve a satisfactory level of transparency regarding the beneficial ownership (BO) of legal persons.

At present FATF is conducting the fourth round of mutual evaluations of the implementation of the FATF standards on anti-money laundering (AML). FATF mutual evaluations show that jurisdictions using a single approach is less effective in making sure that competent authority can obtain accurate and up-to-date BO information to in a timely manner. Instead, a multi-pronged approach using several sources of information is often more effective in preventing the misuse of legal persons for criminal purposes and implementing measures that make the beneficial ownership of legal persons sufficiently transparent. The variety and availability of sources increases transparency and access to information, and helps mitigate accuracy problems with particular sources.

FATF R.24 requires countries take measures to prevent the misuse of legal persons for ML/TF. Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.

Through a multi-pronged approach, competent authorities can obtain access to information on beneficial ownership through different sources. They can also ensure the accuracy of information by cross-checking. Key stakeholders, (including companies, directors, shareholders, obliged parties such as FIs and DNFBPs), can more easily identify incorrect beneficial ownership information in their database by reviewing different registers or requesting information from different sources. This will then trigger the obliged party to seek clarifications from the companies, and if necessary, report suspicious activities to competent authorities. Therefore, this approach encourages key stakeholders to fulfil their obligations through peer interaction and supervision.

As stated in Interpretative Note to R.24, countries should use one or more of mechanisms

the Registry Approach, which calls for company registries to obtain and update BO information;
the Company Approach, which requires companies to obtain and hold updated data on their shareholders; and
the Existing Information Approach, which uses existing data sources, such as tax authorities, financial institutions and Designated Non-Financial Business or Professionals (DNFBPs), information held by other competent authorities on the legal and BO of

companies, and available information on companies listed on a stock exchange, where

disclosure requirements ensure adequate transparency of beneficial

ownership.

The FATF best practices papers calls on stakeholders to ensure that information on the beneficial ownership of a company is obtained by that company and available at a specified location in their country; or can be otherwise determined in a timely manner by a competent authority.

The FATF has identified some specific obstacles in the following areas to effective implementation , including: a) risk assessment; b) adequacy, accuracy and timeliness of information on beneficial ownership; c) access by competent authorities; d) bearer shares and nominee shareholder arrangements; e) fines and sanctions; and f) international co-operation.

The FATF paper on best practices in obtaining, maintaining and using beneficial ownership will help jurisdictions whose regime falls below the FATF standards, as enumerated in the MERs, take action to upgrade the quality of their implementation practices.

The current issue of the IELR will have an article discussing in more detail the FATF report.

Updated Executive Order Provides Enhanced Counterterrorism Sanctions and Targets Foreign Financial Institutions

September 11, 2019 by Bruce Zagaris Leave a Comment

On September 10, 2019, President Donald Trump issued a revised Executive Order 13224, furnishing the Treasury and State Departments new mechanisms permitting the U.S. Government to better identify and designate perpetrators of terrorism worldwide, especially ones involved in terrorism financing. Also on September 10, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) used the new authorities in E.O. 13324 to designate a series of terrorist leaders, facilitators, and entities.

Treasury designated 15 leaders, individuals, and entities affiliated with terrorist groups. The action targets entities affiliated with HAMAS, the Islamic State of Iraq and Syria (ISIS), al-Qa’ida, and the Islamic Revolutionary Guard Corps-Qods-Force (IRGC-QF), and combined with actions taken by the State Department amounts to some of the furthest reaching designations of terrorists and their supporters in the past 15 years.

The President’s revised E.O. and Treasury’s announcement of new designations came just one day before the eighteenth anniversary of 9/11 attacks that occurred on September 11, 2001. The purpose of the original E.O. 13224 was to disrupt the financial infrastructure of terrorist groups worldwide. Treasury’s press release states that E.O. 13224 has helped to dismantle networks supporting a broad range of terrorist groups from al-Qa’ida and ISIS to Iranian-backed groups like Hizballah and HAMAS. The E.O. also is an important mechanism in the U.S. Government’s efforts to drain the financial resources of the Iranian regime’s bad actors including the IRGC, and its foreign expeditionary arm, the Qods Force (IRGC-QF).

Revised E.O. 13324 and New CounterTerrorism Tools

The revised E.O. 13224 gives the Treasury and State Departments new tools that permit the U.S. Government to better identify and designate terrorist perpetrators worldwide. In particular, the E.O.:

Has new designation criteria that permits the U.S. Government to more efficiently target leaders or officials of terrorists groups as well as individuals who participate in terrorist training;
Provides for secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated significant financial transactions on behalf of any person sanctioned pursuant to E.O. 13224;
Authorizes Treasury to prohibit a foreign financial institution that has knowingly conducted or facilitated a significant transaction with any Specially Designated Global Terrorist (SDGT) from opening or maintaining a correspondent or payable-through account in the United States; and
Consolidates U.S. counterterrorism authorities under a single sanctions program by eliminating E.O. 12497 and combining that authority’s goal of defending the Middle East Peace Process with E.O. 13224’s global remit and expanded authorities.
The new authority warns foreign financial institutions that enabling terrorists and their financial backers to rely upon the international financial system to facilitate their malign activities will have consequences.

New Targets of Treasury’s Sanctions under E.O. 13224

Treasury has sanctioned a broad away of persons. Among them is the Turkish-based Redin Exchange for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to, HAMAS. As of March 2019, the Redin Exchange and Treasury-designated financial facilitator Muhammad Sarur as having been involved in a $10 million dollar transfer to HAMAS’s operational arm, the Izz-Al-Din Al-Qassam Brigades. As of mid-2018, Redin Exchange was identified as a key part of the infrastructure used to transfer money to HAMAS. Throughout 2017, tens of millions of dollars was transferred to HAMAS with the assistance of Redin Exchange.

Treasury sanctioned Marwan Mahdi Salah Al-Rawi as Redin Exchange’s Chief Executive Officer, and Ismael Tash, as its Redin Exchange’s Deputy CEO and in charge of its foreign relations.

Treasury sanctioned Lebanon-based Muhammad Sa’id Izadi as a leader or official of the IRGC-QF who has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, HAMAS.

The Turkey-based Zaher Jabarin was sanctioned as the head of HAMAS’s Finance Office. He allegedly manages HAMAS’s yearly budget amounting to tens of millions of dollars, is in charge of HAMAS’s income from around the world, and seeks to obtain add additional sources of funding for HAMAS.

Treasury has sanctioned SMART Ithalat Ihracat Dis Ticaret Limited Sirketi. Ismael Tash is also newly sanctioned. He is the owner of SMART, which is an import/export company and possible front company associated with Redin. Both SMART and Redin Exchange share the same Istanbul –based address.

Saksouk Company for Exchange and Money Transfer (Saksouk) was sanctioned for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, ISIS. In late 2018, Saksouk handled fund transfers on behalf of Syria-based ISIS members.

Treasury has sanctioned Mohamed Ahmed Elsayed Ahmed Ibrahim, a Brazil-based member of al-Qa’ida, who provided facilitation support to al-Qa’ida members and material support to al-Qa’ida.

Treasury has sanctioned Almaida Marani Salvin for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, ISIS-Philippines. In April 2019, Philippine authorities arrested Salvin in Zamboanga City, Philippines, based on her being suspected of unlawful manufacture, sale, acquisition, disposition, importation, or possession of an explosive or incendiary device.

Maldives-based Mohamad Ameen was sanctioned for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, ISIS-Khorasan (ISIS-K). He is allegedly an ISIS-K recruiter who encouraged people to join ISIS-Khorasan.

Treasury has sanctioned Al-Hebo Jewelry Company for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to ISIS. As of late 2017, al-Hebo’s location in Gaziantep, Turkey allegedly participated in an ISIS scheme to convert gold into cash to more efficiently and secretly send funds via hawalas in Turkey to ISIS sleeper cells in Iraq and Syria.

Analysis

A significant new tool in the revised E.O. 13224 is the provision of secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated significant financial transactions on behalf of any person sanctioned pursuant to E.O. 13224. Treasury will be able to force people to choose between using foreign financial institutions under the threat of the secondary sanctions. The ability of Treasury to prohibit a foreign financial institution that has knowingly conducted or facilitated a significant transaction with any Specially Designated Global Terrorist (SDGT) from opening or maintaining a correspondent or payable-through account in the U.S. is also an important sanction.

The new persons sanctioned show the diversity of types of occupations sanctions (e.g., recruiters, financial institutions, jewelers, import-export businesses, CEOs and Deputy-CEOs of financial institutions).

The persons are located worldwide (e.g., Turkey, Lebanon, Maldives, Brazil, Syria, and the Philippines).

The current issue of the IELR will have a more comprehensive discussion of the revised E.O. and the new sanctions.

EIA’s Reports on Ghana’s Illicit Rosewood Trade Triggers Action from Ghana Government

September 4, 2019 by Bruce Zagaris Leave a Comment

On September 4, 2019, the Environmental Investigation Agency welcomed two investigations recently started in Chana with respect to the illegal rosewood trade from Ghana to China.

The EIA announced plans to release data every month showing the value and volume of rosewood declared as imported to China from Ghana.

Ghanaian Government Investigations

On August 26, 2019, the Ghanaian Minister for Lands and Natural Resources announced the establishment of the “Committee to investigate Allegation of Corruption in Rosewood Trade in Ghana.” The Committee will thoroughly investigate the rosewood sector and propose remedial actions.

EIA also welcomed the decision of the Office of the Special Prosecutor to investigate ongoing corruption and collusion in the rosewood sector in Ghana. EIA said it can provide video, audio, and photographic evidence to the Special Prosecutor to aid the investigation.

EIA said it is willing to help the Committee and Special Prosecutor to examine what appears to be large scale and systemic misdeclaration of timber exported by Ghana. In this regard, in 2017, the United Nations Comtrade Database shows China reports the import of 146,122 cubic meters of timber for a value of US$91.3 million from Chana, while Ghana reported the export of only 14,627 cubic meters of timber for a value of US14.6 million to China.

EIA Report on the Illegal Rosewood Trade in Ghana

The decision by the Ghanaian government to start investigations results from the publication on July 30 by EIA of BAN-BOOZLED: How Corruption and Collusion Fuel Illegal Rosewood Trade in Ghana. The report finds powerful Chinese and Ghanaian traffickers, with the help of ruling party members and complicity at all levels of the government, have established an institutionalized scheme, fueled by bribes, to conceal the illegal harvest, transport, export, and CITES-licensing of the timber.

The EIA report concludes fraudulent use of “salvage permits,” misdeclaration of timber species, use of “escorts” to deal with control points, forging of official documents, and retrospective issuance of CITES permits, are among the mechanisms used to conduct the illegal timber harvesting and trade.

According to the EIA report, Ghana is about to become the first African country and the second in the world, to issue Forest Law Enforcement Governance and Trade (FLEGT) timber licenses under its Voluntary Partnership Agreement (VPA) with the European Union (EU). This will enable timber with a FLEGT license to automatically be considered compliant with the EU Timber Regulation (EUTR) and allowed into the EU market without the due diligence usually required from importers.

Although Ghana has imposed a ban on the harvest of rosewood, intermittent suspensions of the ban have occurred allegedly to permit a few companies to “salvage” abandoned, already logged rosewood. In practice, the suspensions have allowed the illegal harvest and export to continue unabated.

EIA has used undercover investigators who have talked to traders, loggers and agents. EIA learned that the bribes paid to government officials enable the illegal transporting of rosewood through the issuance by local Forestry Commission offices of “conveyance certificates.”

According to the EIA report, Ghana is about to receive up to $50 million in payments for verified emission reductions, following the recent conclusion of an Emission Reductions Payment Agreement (ERPA) with the World Bank under the Forest Carbon Partnership Facility (FCPF).

EIA Recommendations

EIA recommends:

“1. A thorough investigation into corruption and collusion in the government, the Forest Commission and customs administration, and dismantling of the institutionalized illegal logging and trade networks;

Deployment of strict enforcement cooperation between Chinese and Ghanaian authorities to implement the export ban and the CITES regulations, with the direct involvement of the CITES Secretariat;
Regional adoption of a zero export quota for Pterocarpus erinaceus by West African range States until the CITES Appendix II requirements for legal and sustainable trade are met and publicly available;
Immediate inclusion of effective public transparency mechanisms in the timber sector with the participation of Ghanaian civil society and monitoring by a body fully independent of the Forestry Commission.

The report also calls into question whether the EU and World Bank have sufficient accountability and compliance mechanisms to ensure Ghana meets the standards for which the EU is providing access to its market and for which the World Bank is about to provide financing and positive recognition to Ghana for supposedly conforming to reducing emissions from deforestation and forest degradation, forest carbon stock conservation, the sustainable management of forests, and the enhancement of forest carbon stocks in developing countries (activities commonly referred to as REDD+).

The current issue of the IELR will have a more comprehensive article on developments in Ghana.

OECD and IBA Issue Report on Proper Roles of Lawyers and International Commercial Structures

June 26, 2019 by Bruce Zagaris Leave a Comment

On May 31, 2019, the International Bar Association and the Secretariat of the Organization for Economic Co-operation and Development published a Report of the Task Force on the Role of Lawyers and International Commercial Structures.

The Report observes that lawyers’ professional obligations and clients’ rights are regulated by domestic laws and regulations, and/or ethical and deontological codes. The Task Force states that there are certain key principles that should apply in this context in order to balance between the rights of, and duties to, the client on the one hand and a lawyer’s other professional or legal duties on the other. The Report sets forth seven principles without prejudice to the rule of law and related legal conventions, a lawyer’s duty of confidence and laws relating to privilege.

The Task Force recommends the Statement of Principles to national bar associations and law societies with a view to encouraging them to adopt the principles and engage with their governments to explain the role of the principles in ensuring the proper administration of justice and in upholding the rule of law. The sponsors also published an executive summary of the report

The Task Force advocates that, where the Principles are adopted and become part of domestic law and/or professional regulations, their disregard should result in the application of proportionate disciplinary measures, including, where appropriate, disbarment, recognized also in foreign jurisdictions.

Principle 1: Non-facilitation of illegal conduct – Although a lawyer may be unwittingly associated with illegal conduct, including financial crimes, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.

Principle 2: Misuse of the duty of confidence and privilege. Notwithstanding the lawyer’s duty of confidence to a client and the concept of legal professional privilege, a lawyer should not use the confidential nature of the lawyer-client relationship or the principles of legal professional privilege to shield wrongdoers. A lawyer should give due and proper consideration to refraining from acting for a client if the lawyer is aware of, or has reasonable grounds to believe, that the primary purpose of the retainer is to permit the client to be able to rely on the confidential nature of the lawyer-client relationship or privileged communication) so as to permit or encourage the client to engage in illegal conduct.

Principle 3: Client due diligence. A lawyer should undertake and document all reasonable and proportionate inquiries in order to identify and verify a client, as well as identify any ultimate beneficiary of the conduct or transaction, the origin of the funds for the transaction (consistent with applicable anti-money laundering or counterterrorism financing legislation), the substantive nature of the conduct or transaction (including expected revenue and taxation consequence of the transaction) and, subject to Principle 5, be satisfied that the conduct and/or transaction is legal in the lawyer’s jurisdictions.

Principle 4: Action where client conduct is may be or becomes illegal. When the conduct of a client is, may be, or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions. If the client persists in the conduct, the lawyer should give due and proper consideration to ceasing to act, and terminate the retainer.

Principle 5: Multijurisdictional risk. Where a transaction involves conduct by a client, agents or representatives of a client in more than jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction. If such advice has not been obtained and the client wants to proceed with the transaction, the lawyer should recommend that such advice be obtained (at the cost of the client). If the client declines to obtain such advice and persists in the conduct, then the lawyer should give due and proper consideration to ceasing to act and terminate the retainer.

Principle 6: Use of illegal obtained information. Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegally obtained evince, which of itself may constitute a criminal offense in many jurisdictions. To facilitate this, legal frameworks should be consistent across jurisdictions as much as possible, since it is often through cross-border conduct that confidential or secret information in country A is accessed (without the consent of the owner of the information) and then disclosed to a person in country B. An independent court should, where necessary, resolve the question as to what use can be made of such information, based on the applicable domestic framework.

Principle 7: Disclosure of beneficial ownership. A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s clients. Domestic laws should provide for the disclosure of ultimate beneficial ownership of any corporation, trustor other legal entity formed within that country’s jurisdiction. Beneficial ownership information should be available to state regulators, investigators and enforcement agencies. Governments must address whether it needs to be publicly available.

Principle 8: Advertising by lawyers on international commercial structures. Any advertising by lawyers should be transparent, accurate, and truthful. Domestic regulation, bar associations, and law societies should ensure the lawyer advertising is accurate and truthful.

The Report does not seek to duplicate existing international or other national guides for the legal profession in terms how a lawyer should act or not act in certain circumstance. The Report does not seek to cover the many anti-money laundering and counterterrorism financing laws, obligations and disclosure duties that exist in many countries. Instead, it focuses on high-level issues of principle that should assist governments in policy formulation and in guiding lawyers as to how they should conduct themselves, consistent with a lawyer’s underlying domestic legal and ethical obligations.

The Report also sets form the minimum good practice required when a lawyer proposes to accept instructions in a cross-border commercial matter, especially, but not exclusively, from a new client or a client with whom the lawyer has not worked for at least 12 months.

The Report provides detailed guidance for the eight above-mentioned principles with citations to guide legal professionals.

Annex B contains existing guidance concerning the role of lawyers with regard to international commercial structures.

The July issue of the IELR will have a more comprehensive discussion of the Report.

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.

The US Takes Action against North Korea over Alleged International Sanctions Violations, Seizing a Shipping Vessel

May 16, 2019 by Evan Schleicher Leave a Comment

On May 9^th, the United States seized a North Korean shipping vessel, the Wise Honest. Supporting this action, the FBI’s New York Field Office and the Attorney General’s office filed a civil forfeiture complaint against the ship, citing violations of international sanctions and international law. According to a press release by the US Department of Justice, from approximately November 2016 through April 2018, the Wise Honest was used by Korea Songi Shipping Company, an affiliate of Korea Songi General Trading Corporation (a.k.a. “Songi Trading Company”), to export coal from North Korea to foreign purchasers and to import machinery to North Korea in clear violation of US and UN sanctions regimes. North Korea responded to these claims on May 14th with a statement calling the seizure of Wise Honest a “flagrant act of robbery” that violated the informal agreement reached by President Trump and Kim Jong Un last year.

There are a number of complicating political, economic, and social factors in this case, but, for the purposes of clarity, this post will look exclusively at the legal aspects of the ship seizure. Specifically, it will try to establish whether the US has a legitimate legal basis to seize North Korean property or whether this is, in fact, a “flagrant act of robbery”.

The first potential complicating factor in determining the legality of US actions is the fact that the ship was interdicted by Indonesian authorities and then transferred to American Samoa by US authorities. Given the cooperation of the Indonesian government in handing the ship over, this is actually not a terribly complicating factor. The only sovereignty issue arises from the seizure of a North Korean vessel without Democratic People’s Republic of Korea (DPRK) permission, but this point is moot if there is a proven violation of international sanctions. This is so because 28 U.S. Code § 1355(b)(2) allows district courts within the United States the authority to bring an action or proceeding for forfeiture of vessels or cargo held in foreign countries if those vessels or cargo enter a “port of entry closed by the President in pursuance of law”. Because there is clear evidence that this ship helped to violate the international sanctions regime by exporting coal to foreign ports of entry “closed by the President”, this section of US code applies, giving the US government the authority to interdict Wise Honest, despite DPRK protestations.

Next, the tactics used by the US government are not unique to international sanctions enforcement and are commonly used in connection with unilateral sanctions regimes. In fact, the use of civil asset forfeiture complaints to enforce sanctions regimes has been common in US policy, though this situation represents the first time that a physical asset has been seized from the DPRK. However, despite the commonality of this approach in such cases, application of civil asset forfeiture complaints to sanctions violations remains extremely complex, given that US law on civil forfeiture specifies that complaints filed in the United States must be based on some underlying crime that violates specifically enumerated US laws. The question becomes: have US laws been violated?

To answer this question it must first be noted that the US has imposed unilateral sanctions which are often stricter than those imposed by the UN Security Council, making it very likely that DPRK actions violated US-specific laws and codes, in addition to those imposed by the international system. Three American banks were complicit in transmitting payments around the world for maintenance, equipment, and improvement of the Wise Honest, and thus assisted in the violation of sanctions. According to the Justice Department, such transfers constitute a specific provision of services by U.S. banks and longstanding U.S. law prohibits banks from providing such services to North Korean parties. The specific sections of US code that restrict services to North Korean parties can be found in the North Korean Sanctions and Policy Enhancement Act of 2016 and in the Countering America’s Adversaries Through Sanctions Act of 2017. Given that there is a direct connection between these US institutions, the Wise Honest, and the violation of sanctions, there is certainly standing both to seize the ship and to hold these financial institutions legally accountable, although they were “unwitting” actors.

In conclusion, despite the obviously political nature of the US government’s move to interdict the Wise Honest, it is important to note that there is a strong legal basis for the action. However, there is a looming danger that the overlap between legal and political realities could easily lead to the misuse of legal systems in pursuit of broader political aims. Specifically, there are already murmurings from within the US government that have indicated a desire to seize many other ships and assets, which could lead to increasingly dubious legal arguments being used to attack DPRK assets. In the coming months, as this story develops, it will be important for those interested in international legal issues to keep an eye on this situation to ensure that legal standards are upheld and that the legal system is not hijacked in the name of a political agenda.

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.

___

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. Indictment Charges Professionals and U.S. Taxpayer for Tax and Related Offenses Arising From Panama Papers

December 5, 2018 by Bruce Zagaris Leave a Comment

On December 4, 2018, U.S. law enforcement announced the unsealing an indictment in the U.S. District Court for the Southern District of New York, charging four individuals with wire fraud, tax fraud, money laundering, and other crimes for their alleged roles in a decades-long criminal scheme perpetrated by Mossack Fonseca & Co. (“Mossack Fonseca”), a Panamanian-based international law firm, and related entities.

The 11-count indictment charges Ramses Owens, 50, a Panamanian citizen; Dirk Brauer, 54, a German citizen; Richard Gaffey, a U.S. citizen, of Medfield, Massachusetts; and Harald Joachim Von Der Goltz, 81, a German citizen. Owens, Gaffey and Von Der Goltz are charged with one count of conspiracy to commit tax evasion, one count of wire fraud, and one count of money laundering conspiracy. Owens and Brauer are charged with one count of conspiracy to defraud the U.S. and one count of conspiracy to commit wire fraud. Gaffey and Von Der Goltz are also charged with four counts of willful failure to file an FBAR. In addition, Von Der Goltz is charged with two counts of making false statements.

On November 15, 2018, French authorities arrested Brauer, who worked as an investment manager for Mossfon Asset Management, S.A., an asset management company closely affiliated with Mossack Fonseca, in Paris, France. On December 3, 2018, British authorities arrested Von Der Goltz, a former U.S. resident and taxpayer in London, England. On December 4, U.S. authorities arrested Gaffey, a U.S.-based accountant in Boston, Massachusetts. Owens, a Panamanian attorney who worked for Mossack Fonseca, remains at large.

The indictment alleges that, from at least in or about 2000 through in or about 2017, Owens and Brauer conspired with others to help U.S. taxpayer clients of Mossack Fonseca hide assets and investments, and the income generated by those assets and investments, from the IRS through fraudulent, deceitful and dishonest means. Owens and Brauer allegedly worked to establish and manage opaque offshore trusts and undeclared bank accounts on behalf of U.S. taxpayers who were clients of Mossack Fonseca. Owens and Brauer allegedly marketed, created, and serviced sham foundations and shell companies formed under the laws of countries, such as Panama, Hong Kong, and the British Virgin Islands, to conceal from the IRS and others the ownership by U.S. taxpayers of accounts established at overseas banks, as well as the income generated in those accounts. Typically the sham foundations “owned” the shell companies that nominally held the undeclared assets on behalf of the U.S. taxpayer clients of Mossack Fonseca.

In exchange for additional fees, Owens and Brauer allegedly helped clients who had bought the sham foundations and related shell companies by preparing corporate meeting minutes, resolutions, mail forwarding, and signature services. Owens and Brauder are also alleged to have intentionally established the bank accounts in jurisdictions with strict bank secrecy laws, thereby impeding the ability of the U.S. to obtain bank records for the accounts. Additionally, Owens and Brauer allegedly instructed U.S. taxpayer clients of Mossack Fonseca about how to repatriate funds to the U.S. from their offshore bank accounts in a manner designed to keep the undeclared bank accounts concealed. Among other things, Owens and Brauer instructed clients to use debit cards and fictitious sales to repatriate their funds covertly.

Von Der Goltz was allegedly one of Mossack Fonseca’s U.S. taxpayer clients. Von Der Goltz was a U.S. resident and was subject to U.S. tax laws, requiring him to report and pay income tax on worldwide income, including income and capital gains generated in domestic and foreign bank accounts. As a U.S. taxpayer, Von Der Goltz was required to file a Report of Foreign Bank and Financial Accounts (FBAR). Von Der Goltz allegedly evaded his tax reporting obligations by establishing a series of shell companies and bank accounts, and hiding his beneficial ownership of the shell companies and bank accounts from the IRS. These shell companies and bank accounts allegedly made investments worth tens of millions of dollars. Owens and Gaffey, a partner at a U.S.-based accounting firm, helped Van Der Goltz in this scheme. Van Der Goltz, Gaffey, and Owens allegedly falsely claimed that Von Der Goltz’s elderly mother was the sole beneficial owner of the shell companies and bank accounts at issue because, at all relevant times, she was a Guatemalan citizen and resident, and, unlike Von Der Goltz, was not a U.S. taxpayer.

The indictment alleges Gaffey, besides helping Von Der Goltz evade U.S. income taxes and reporting requirements, also worked closely with Owens to help another U.S. taxpayer client (Client-1) of Mossack Fonseca defraud the IRS. Client-1 allegedly maintained a series of offshore bank accounts, which Mossack Fonseca helped Client-1 conceal from the IRS for years. The indictment also alleges that, on the advice of Owens and Gaffey, Client-1 covertly repatriated approximately $3 million of Client-1’s offshore money to the U.S. by falsely stating on Client-1’s federal tax return that the money represented proceeds from the sale of a company. After Client-1 repatriated approximately $3 million in this way, approximately $1 million still remained in Client-1’s offshore account, the existence of which remained hidden from the IRS.

The indictment illustrates the trend by U.S. and law enforcement around the world to investigate and prosecute law firms, asset managers, accountants, and other enablers for their key roles in the global financial system. Assistant Attorney General Benczkowski said “the charges…demonstrate our commitment to prosecute professionals who facilitate financial crime across international borders and the tax cheats who utilize their services.” IRS-Criminal Investigations Chief Don Fort said the indictments send a message that “more investigations are on the way.”

With respect to prosecuting tax enablers, on July 2, 2018 the heads of tax crime and senior tax officials of the U.S., U.K., Canada, the Netherlands, and Australia announced an alliance on tax enforcement cooperation. At their first meeting they agreed to develop tactical plans and identify opportunities to pursue enablers of international tax crime. This new indictment shows a tangible result.

The indictment also is the latest of many indictments brought by tax authorities and prosecutors arising out of the publication on April 3, 2016 by the International Consortium of Investigative Journalists (ICIJ) of the Panama Papers investigation. As of December 1, 2016, governments in more than 70 countries have started over 150 investigations, inquiries, audits and probes into the affairs of thousands of people and corporations linked to Panama Papers.