Money Laundering & Bank Secrecy Archives | Page 8 of 9

Indonesian Officials Seize 1MDB-linked Yacht; Prepare to Hand It Over to FBI

March 13, 2018 by Zarine Kharazian Leave a Comment

Acting on a request from the FBI made in late February, Indonesian officials have seized the luxury yacht Equanimity at Benoa Harbor in Bali, Indonesia. Investigators suspect the yacht was bought with the proceeds of embezzlement from 1Malaysia Development Berhad (1MDB), a Malaysian government-owned investment company. The yacht was allegedly bought to launder money during the 1MDB scheme.

U.S. court documents reveal that Equanimity is registered in the Cayman Islands and was purchased by Malaysian businessman Jho Low. While Lo did not hold any official position in the Malaysian government, he is purported to have acted in a senior advising capacity, and to have made high-level financial decisions with regards to 1MDB.

There were reportedly 29 crew members aboard the yacht when Indonesian officials seized it. While none of the crew members have been arrested as of yet, officials have questioned them as part of the investigation.

According to documents obtained by Asian Correspondent from a DOJ spokeswoman, the DOJ filed a letter of complaint on June 15, 2017 seeking the seizure of a list of valuable assets implicated in the 1MDB probe, among them the Equanimity and the ownership rights to several blockbuster Hollywood movies, such as The Wolf of Wall Street. On June 16, a judge for the United States District Court for the Central District of California had issued a warrant of arrest “in rem” (meaning the warrant is issued against an object rather than an individual) for Equanimity. Indonesian officials later received a request on February 21 to help with executing the warrant. An Indonesian national police senior detective, Daniel Silitonga, has told press that the handing over of the yacht, valued at about $250 million USD, is “in the process of being done.”

The International Enforcement Law Reporter has covered the 1MDB scandal in depth. For more of our coverage on 1MDB, see here.

Rick Gates Pleads Guilty After New Fraud Indictments, Manafort Maintains Innocence

February 23, 2018 by Madeline Henshaw-Greene Leave a Comment

On February 22, the investigative team led by special counsel Robert Mueller unsealed a series of new indictments against former Trump campaign manager Paul Manafort, as well as his protégé Rick Gates. The documents, bringing the total number of charges up to 32, mainly concern crimes such as bank or tax fraud, as well as suspicious connections to the Ukrainian government. In the document, Mr. Mueller reveals that both Manafort and Gates “acted as unregistered agents of a foreign government and foreign political parties”, specifically pro-Russian Ukrainian president Victor Yanukovych. Manafort and Gates reportedly earned tens of millions of dollars as a result of their political work in Ukraine, which they then hid from U.S. authorities by failing “to pay taxes on this income by disguising it as alleged ‘loans’ from nominee offshore corporate entities”.

Once President Yanukovych was removed from power and fled to Russia, Manafort and Gates turned to U.S. real estate as a means of adding to their already exorbitant wealth. As the court document details, the two men used Manafort’s multiple properties across the Eastern seaboard as collateral in order to acquire loans from various financial institutions. Furthermore, on several occasions Paul Manafort lied to U.S. officials about his ownership of foreign companies and bank accounts in a multitude of countries, such as the Seychelles and Cyprus. The document goes on to include a comprehensive list of both domestic and foreign entities that Manafort and Gates controlled as part of their schemes, as well as details on financial transactions and income they repeatedly failed to disclose to U.S. authorities.

Manafort has so far resisted the investigation, even attempting to sue Robert Mueller for charging him with crimes unrelated to the Russia investigation. According to the New York Times, he “asked a federal judge to reject Mr. Mueller’s appointment as overly broad and to dismiss the indictment against him”. Rick Gates, on the other hand, pled guilty to fraud and lying to the investigators on the afternoon of February 23^rd, in a clear sign that he is willing to cooperate with the investigation in exchange for a plea deal. Mr. Gates follows in the footsteps of two more former Trump campaign officials who have buckled under pressure from Mueller’s investigation, Michael Flynn and George Papadopoulos. Although Mr. Manafort continues to plead innocence, his protégé could reveal further first-hand details about the crimes charged against them. This would, as the Times reports, constitute “a potential blow to [Manafort’s] defense strategy”. Either way, Robert Mueller doesn’t appear to be slowing down.

For more on this:

The New York Times, “Rick Gates, Trump Campaign Aide, Pleads Guilty in Mueller Inquiry and Will Cooperate”, https://www.nytimes.com/2018/02/23/us/politics/rick-gates-guilty-plea-mueller-investigation.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=a-lede-package-region&region=top-news&WT.nav=top-news

The New York Times, “Mueller Files New Fraud Charges Against Paul Manafort and Rick Gates”, https://www.nytimes.com/2018/02/22/us/politics/paul-manafort-new-charges-mueller.html

U.S. Senate Holds Hearing on Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency

February 6, 2018 by Bruce Zagaris Leave a Comment

On February 6, 2018, the Senate Judiciary Committee held a hearing on “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency.” The hearing and testimony are available on the Committee’s website. The hearing was the latest in a series of Congressional hearings on the issue of anonymous corporations.

Sen Chuck Grassley (R-Iowa and Chair of the Committee), opened the hearing by expressing his disappointment that no Treasury witness has appeared despite the Committee’s invitation. He underscored that beneficial ownership is a huge problem, as confirmed by the Panama Papers and the Treasury’s 2015 Money Laundering Assessment report. On November 2017, Congress held a hearing on S.1241, the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, concerning cross border money laundering.. Bad actors from all over the world have come to the U.S. as their financial safe haven Victor Bout, convicted of arms trafficking, used six shell companies in the U.S. to launder his money.

Kleptocracy is a threat to U.S. national security and that U.S. secrecy contributes to this. The asset forfeiture case, such as the one against Mr. Teodoro Obiang, the son of the President of Equatorial Guinea, illustrates the problem. Obiang agreed to relinquish $30 million in assets in settlement of the suit brought by DOJ.

The problem plays out in the purchase of U.S. real estate, where shell companies are used. Lawyers for kleptocrats are complicit as the Global Witness undercover sting, which was shown on Sixty Minutes, illustrates. Even the former President of the ABA participated.

Sheldon Whitehouse (D-Rhode Island and ranking minority member on the Committee, said the Panama and Paradise Papers show the wide use by criminals of money laundering. The U.S. is a facilitator and target. Fraudsters, kleptocrats, and tax cheats all use shell companies, which are used to own real estate and other assets secretly. It affects and warps the U.S. housing markets. The answer to shell companies is to require private U.S. companies to report and update beneficial ownership information of U.S. entities.

Testifying in support of S. 1454, the True Incorporation Transparency for Law Enforcement (TITLE) Act, the proposed legislation was Panel I – Mr. Kendall Day, Acting Assistant Attorney General and head of the Anti-Money Laundering and Asset Forfeiture Unit, Criminal Division, U.S. Department of Justice, Washington , D.C.

Testifying in support of S. 1454 on Panel 2 were Mr. Gary Kalman, FACT Coalition, Washington , DC; and Mr. Chip Poncy, Financial Integrity Network, Washington, D.C. Poncy provided a ten-point plan to responding to the problem of anonymous companies. He called for a centralized data base with access to U.S. and other law enforcement agencies.

Mr. Brian O’Shea, Senior Director, Center For Capital Markets Competitiveness, U.S. Chamber of Commerce, Washington, DC, testified that S. 1454 does not properly balance privacy and law enforcement requirements. It would subject small and medium businesses to excessive bureaucracy and unnecessary expense.

As Congress continues to hold hearings on entity transparency, two of the main bills are S.1454 and the Corporate Transparency Act (H.R.3089/S.1717). They both have similar definitions of beneficial ownership. Similarly, they both make the information easily available to law enforcement and financial institutions. Both bills make $40 million available to states for transitional costs from the Treasury and Justice Departments’ asset forfeiture funds.

Both bills exempt publicly-traded companies. Similarly, each bill also exempts companies that have a physical presence in the U.S., more than $5 million in annual revenues, and at least 20 employees in the U.S., so that it narrowly targets those shell entities most likely to be abused by money launderers. In the Q & A period, the rationale for the thresholds was discussed.

In the next issue of the IELR, the differences of the bill and the high points of the debate in the hearing will be discussed.

Treasury Issues CAATSA Reports on Russian Senior Foreign Political Figures and Oligarchs

January 30, 2018 by Bruce Zagaris Leave a Comment

On January 29, 2018, the U.S. Department of the Treasury, pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), delivered five reports to the designated Congressional committees:

Sec. 241: Report on Senior Foreign Political Figures and Oligarchs in the Russian Federal;

Sec. 104(e): Report on Contributions to Iran’s Ballistic Missile Program:

Sec. 242: Report on Effects of Expanding Sanctions to Include Sovereign Debt and Derivative Products;

Sec. 273: Examining the Counter-Terror Financing Role of the Department of the Treasury in Embassies; and,

Sec. 311(d): Designation of Additional Persons Related to North Korea.

Section 241 of CAATSA required Treasury, in consultation with the Department of State and the Director of National Intelligence, to provide a report regarding senior political figures and oligarchs in the Russian Federation and Russian parastatal entities.

The names of senior political figures and oligarchs in the unclassified version of the report were selected based on objective criteria drawn from publicly available sources.

Senior political figures: The report included individuals who are: i) senior members of the Russian Presidential Administration; ii) members of the Russian Cabinet, Cabinet-rank ministers, and heads of other major executive agencies; iii) other senior political leaders, including the leadership of the State Duma and Federation Council, other members of the Russian Security Council, and senior executives at state-owned enterprises.
Oligarchs: The report included Russian individuals with an estimated net worth of $1 billion or more.
Parastatals: The report analyzed entities that are at least 25% owned by the Government of Russia and that had about $2 billion or more in revenues in 2016.

Treasury’s press release states the report is not a sanctions list. The inclusion of individuals or entities in any portion of the report does not impose sanctions on those individuals or entities. Nor does it create any other restrictions, prohibitions, or limitations on dealings with such persons by either U.S. or foreign persons. Treasury states that inclusion in the report does not constitute the determination by any agency that any of the individuals or entities meet the criteria for designation under the sanctions program.

The law is designed to punish Russia for its alleged interference in the 2016 U.S. elections and its actions in Ukraine.

The unclassified sections has 210 https://www.cnn.com/2018/01/30/politics/full-us-list-of-russian-oligarchs-with-putin-ties-intl/index.html names, 114 senior political figures and 96 oligarchs.

On Jan. 30, 2018, the Trump administration said it will not implement Russia-related sanctions mandated by Congress last year because the threat itself is acting as a “deterrent.”

Although inclusion on the so-called “Putin” list does not mean the persons have been sanctioned, the consequences are potentially significant; (1) financial institutions who subscribe to anti-money laundering and international enforcement watch lists will now encounter their names and some compliance officers will likely determine that the individuals are “high-risk” persons, requiring financial institutions to either close their accounts or pay enhanced due diligence; (2) some of the listed individuals may encounter problems when they travel internationally; and (3) some of the listed persons will likely have trouble doing business, because of the potential negative taint of doing business with listed persons, especially due to the risk that the may be sanctioned in the future.

A more comprehensive discussion will appear in the February issue of the IELR.

OECD Issues Mandatory Disclosure Rules to Combat CRS Avoidance and Offshore Structures

January 10, 2018 by Bruce Zagaris Leave a Comment

In December, the OECD issued a public consultation document, requiring mandatory disclosure rules to combat CRS avoidance and offshore structures. Comments are due January 15, 2018.

The consultation document is prepared in response to the Bari Declaration, issued by the G7 Finance Ministers on 13 May, 2017. It calls on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures.”

The Declaration states that these discussions should include consideration of “model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report.” The consultation document sets forth at the end of the document model legislation.

The reason for the consultation document is that the International Consortium for Investigative Journalists (ICIJ) has shown, especially through the publication of the Panama Papers and the Paradise Papers, certain professional advisers continue to design, market, or assist in the implementation of offshore structures and arrangements that can be used by non-compliant taxpayers to circumvent the correct reporting of relevant information to the tax administration of their jurisdiction of residence.

Due to these continuing offshore structures and arrangements and in response to the mandate from the G7 Finance Ministers, the OECD is currently considering a range of approaches that could be taken to address arrangements designed to circumvent or attempt to circumvent the CRS (“CRS Avoidance Arrangements”) and the use of non-transparent offshore structures to conceal actual beneficial ownership (“Offshore Structures”). Such approaches include measures focussed on improving intelligence for tax administrations within the existing information exchange and legislative framework (e.g. improved collaboration through JITSIC,as well as the use of group requests and spontaneous exchanges of information), as well as policy measures, such as additional regulatory intervention or additional disclosure obligation.

The proposed model rules contained in the consultation require an Intermediary (or taxpayer) to disclose certain relevant information to its tax administration regarding CRS Avoidance Arrangements an d Opaque Offshore Structures. Disclosures of such information can assist tax administrations in gathering intelligence on schemes that are being used or marketed to taxpayers in their respective jurisdictions. In addition, the model rules were designed to facilitate the spontaneous exchange of information where the information provided by Intermediaries relates to one or more specific Reportable Taxpayers.

It is contemplated that such information would be spontaneously exchanged with the tax administration(s) of the jurisdictions in which the concerned Reportable Taxpayer is resident for tax purposes pursuant to the applicable international legal instruments. The modalities, timing and form of the information to be spontaneously exchanged will be further defined in an operational agreement.

A mandatory disclosure regime contains five key elements:

(a) A description of the arrangements that are required to be disclosed (i.e. the hallmarks of a disclosable scheme).

(b) A description of the persons required to disclose such arrangements (i.e. the Intermediaries that are subject to reporting obligations under the rules);

(c) A trigger for the imposition of a disclosure obligation (i.e. the point in time when an obligation to disclose crystallises under the rules)

(d) A description of what information is required to be reported (including any exceptions from reporting).

(e) Appropriate penalties for non-compliance.

The hallmarks are very broadly worded.

In some cases the requirement to report is retroactive to July 15, 2014, the date the CRS became effective.

The consultation paper says the requirements respect legal professional privacy, but it appears narrowly defined.

Because the model law has penal provisions, the consultation paper has important potential consequences.

A fuller discussion of the consultation paper will appear in the January 2018 issue of the International Enforcement Law Reporter.

U.S. Private Investigative Firm Kroll Releases 2nd Report on the 2014 Moldovan Bank Scandal

January 3, 2018 by Zarine Kharazian Leave a Comment

On December 22, U.S. private investigative firm Kroll published its second report on the 2014 Moldovan bank fraud scandal. This blog post provides background on the scandal, as well as commentary on the contents of the report.

Background: The 2014 Moldovan Bank Scandal and the First Kroll Report

In November 2014, more than $750 million disappeared from three Moldovan banks over just two days. The three banks – Banca de Economii, Unibank and Banca Socială – declared bankruptcy that month, prompting the National Bank of Moldova to bail them out with $870 billion in loans. The bailout reportedly created a government deficit equivalent to roughly one-eighth of the entire country’s GDP.

In January 2015, the National Bank of Moldova commissioned the U.S. investigative firm Kroll to conduct a confidential investigation of the fraud. The Kroll report, which the speaker of the Moldovan Parliament, Andrian Candu, leaked to the public in May 2015, revealed what investigators believed to be a “co-ordinated effort within the banks to deliberately disguise” the nearly billion dollars’ worth of transactions and their beneficiaries. The investigators tie nearly all of the transactions to Ilan Shor, a Moldovan millionaire businessman and politician, or companies either directly owned by or connected to him.

According to the first Kroll Report, between 2012 and 2014, the three banks paid out more than three billion dollars in loans to companies linked to Shor. The funds were funneled through a convoluted international money laundering scheme that primarily involved using UK limited partnerships with Latvian bank accounts as “shell” companies.

The Second Kroll Report

In their second report, Kroll investigators provide more details on the profiles of the scheme’s beneficiaries. They report that at least 77 companies make up what they term the “Shor Group:” a group of companies linked to Ilan Shor all of which documentary evidence suggests participated to some degree the coordinated fraud effort.

Over a period of two years, the companies reportedly increased their ownership stake in the three banks, thereby increasing their control over the loan approval process within each bank. Loans are approved by the Board of Directors of each bank. Kroll reported that its investigators contacted two government-appointed members of the board for one of the banks, BEM, and both members stated that had not been invited to any board meetings in November 2015, and were not informed of any loans granted during that month.

In November 2014, the companies comprising the Shor Group concentrated their loan exposure, which had up until then been spread across the three banks, into one bank – BEM. According to the Kroll report, this move “allowed the Three Moldovan Banks to pool their liquidity into BEM and enabled BEM to increase lending.”

The Core Laundering Mechanism

A series of companies were then established. These companies held a total of 81 bank accounts at two Latvian banks. The majority of the accounts were held either by UK limited partnerships or offshore companies registered in offshore tax jurisdictions, such as Belize and Panama. Investigators believe most of these accounts were established solely for the purpose of laundering money. The report describes the primary laundering mechanism in detail:

The laundering mechanisms included the frequent transfer of funds between linked accounts, the splitting of funds and layering through other accounts, simultaneous issuing and repaying of an overdraft by two linked companies to disguise the onward flow and the frequent and apparently arbitrary switching of currencies between accounts.

The investigators consider both the complexity as well as timing of the laundering mechanism to be indicative of a “highly coordinated professional laundering operation.” At one point, they point to “numerous examples” in the operation where money “flowed through a series of accounts within seconds.”

Fore more commentary on the 2nd Kroll report, see the upcoming January 2018 issue of the International Enforcement Law Reporter.

Commonwealth Bank Money Laundering Probe Uncovers Drug Trafficking, Possible Terrorism Financing Through Intelligent Deposit Machines

August 28, 2017 by Zarine Kharazian 1 Comment

Three weeks ago, Australia’s chief financial intelligence agency, the Australian Transaction Reports and Analysis Center (AUSTRAC), launched civil penalty proceedings against the country’s largest bank, Commonwealth Bank, for allegedly violating the 2006 Anti-Money Laundering and Counterterrorism Financing Act.

In its August 3 filing, AUSTRAC alleges that the bank racked up over 53,700 violations of the AML/CTF Act since May 2012. In May 2012, Commonwealth Bank introduced a fleet of Intelligent Deposit Machines (IDMs) at its branches. These “smart ATMS” allow users to deposit cash and checks without interacting with a teller, and have the funds instantly credited to their account as well as made available for both domestic and international transfers. AUSTRAC claims that Commonwealth Bank neglected to implement appropriate fraud controls following the introduction of the IDMs. The bank’s IDM can accept up to 200 notes – or up to $20,000 in cash – per deposit, with no limit on the number of transactions a customer makes per day.

The main violations detailed in the filing include:

Failure to carry out a Money Laundering/Terrorism Financing risk assessment, despite an “exponential rise in cash deposits through IDMS” as well as alerts from internal monitoring systems;
Failure to report 53,506 “threshold transactions” (TTRs), or transactions that involve the transfer of $10,000 ore in physical currency), to AUSTRAC within 10 business days of the transactions; and
Failure to file suspicious matter reports (SMRs), despite internally identifying a pattern of “structured” cash deposits designed to avoid triggering the bank’s TTR reporting obligation.

As a result of these violations, AUSTRAC claims that at least four money laundering syndicates, three of which engaged in drug trafficking, used the IDMs for roughly $77 million worth of suspicious transactions, all of which went either entirely unreported or only partially reported to law enforcement in a timely manner.

On August 17, AUSTRAC CEO Peter Clark reported to the Australian parliament’s Senate Estimates Committee that “Six of those (in the transactions listed in the statement of claims) relate to cash transactions by five customers in whom the bank has assessed a potential link to terrorism or terrorism financing.”

The bank issued a statement earlier in the month implying that the “vast majority” of breaches were the result of a “coding error” in a 2012 software update to the IDMs that went undetected until 2015.

I will be following this developing story. For more updates and analysis, see the upcoming September issue (Vol. 33, Issue 9) of the International Enforcement Law Reporter.

Reuters Publishes Report Detailing Investigations into 2012 ICBC-Madrid Bank Money Laundering Probe

August 8, 2017 by Zarine Kharazian 1 Comment

In February of last year, Spanish authorities raided the Madrid subsidiary of the world’s largest bank by assets: the Industrial and Commercial Bank of China (ICBC). They arrested seven of the bank’s directors for their alleged involvement in large-scale money laundering operations. News outlets widely covered the raid and the ensuing arrests at the time, but Spanish authorities kept developments concerning the subsequent investigation confidential.

Nearly 18 months after the initial raid, Reuters has published the first detailed account of the investigation — a two-part exposé based on the review of “thousands of pages of confidential case submissions” as well as “interviews with investigators and former ICBC employees.”

The Reuters account reveals that, according to phone communications intercepted by Spanish law enforcement and court filings, ICBC sustained a privileged relationship with a cohort of the Chinese business community residing in Spain that had allegedly accumulated large sums of cash as a result of avoiding import sales taxes on goods from China. Bank staff allegedly accepted forged documents, failed to report suspicious transactions, and solicited money transfers from individuals under Spanish police surveillance.

The collusion between the bank and Chinese money laundering networks extended into the upper levels of ICBC management. Transcripts of phone conversations wiretapped by Spanish law enforcement include at least 30 conversations between bank managers and individuals under police surveillance for suspected laundering. In a particularly incriminating conversation dated August 8, 2012, Wang Jing, a senior executive of ICBC’s Madrid branch, says to Xu Kai, an alleged senior member of a transnational money laundering network: “You have to look out for yourself and make sure these people are obedient.” From assessing the transcript of the call, officials have concluded that Wang is instructing Kai on how to avoid detection of his money laundering operation by ensuring that the individuals involved remain fully committed to the scheme.

What does the ICBC investigation tell us about the future of anti-money laundering (AML) compliance enforcement against Chinese banks?

One possibility is that Europe and the United States diverge in their approaches to this enforcement issue, with the United States pursuing a more aggressive enforcement stance, despite the risk of political fallout with Beijing. As Evan W. Krick notes in his post on the Money Laundering Watch blog, the United States’ recent slew of harsher enforcement actions against Chinese based-banks suggest that the United States “may take an increasingly aggressive path” in the near future.

As for Europe, the Reuters report notes that the 2016 raid on the Madrid ICBC branch “ignited a behind-the-scenes diplomatic spat” between Madrid and Beijing officials, and it is possible that the concern over additional diplomatic fallout may temper Spain’s as well as Europe’s enforcement efforts toward ICBC’s European branches. At present, despite the mounting evidence, provided by wiretapped communications as well as cash flow records obtained by Spanish law enforcement, that officials at ICBC facilitated large-scale money laundering operations, not a single suspect identified during the investigation has been formally charged.

For the past several months, European branches of major international banks have been gearing up for the launch of the Fourth Anti-Money-Laundering Directive. According to a European Commission press release, the EU-wide directive takes measures to strengthen existing anti-money laundering and terrorism financing rules in member states, and also “improves transparency to prevent tax avoidance.” The directive was supposed to take effect across the EU on June 26, but thus far as many as 17 member countries are reported to have failed to fully implement the rules of the directive.

WannaCry Ransomware Hero Charged For Banking Malware “Conspiracy”

August 4, 2017 by Zarine Kharazian 2 Comments

On August 2, authorities arrested British cybersecurity researcher Marcus Hutchins, 22, at the Las Vegas airport. Hutchins, who works for the cybersecurity firm Kryptos Logic, was in Las Vegas attending the Black Hat and Defcon security conferences for the week.

The Department of Justice unsealed an indictment against Hutchins upon his arrest that alleges the security researcher was part of a conspiracy to create and distribute the Kronos banking Trojan, a widespread malware attack that security experts believe was created in early 2014 and distributed through the cryptocurrency marketplace AlphaBay, whose servers the DOJ seized just last month. For his alleged involvement in the Kronos scheme, the indictment charges Hutchins with “one count of conspiracy to commit computer fraud and abuse, three counts of distributing and advertising an electronic communication interception device, one count of endeavoring to intercept electronic communications, and one count of attempting to access a computer without authorization.”

Hutchins is hailed as somewhat of a hero in the cybersecurity community for his role in single-handedly crippling the worldwide WannaCry ransomware attack. Three months ago, he discovered a kill switch in the WannaCry code that immediately halted the spread of the bug. His arrest thus comes as a shock to members of the cybersecurity community, many of whom have taken to social media to voice their skepticism regarding the charges.

Treasury Department’s FinCEN Fines Russian-run BTC-e Virtual Currency Exchange $110 Million for Money Laundering Violations

July 27, 2017 by Zarine Kharazian 1 Comment

On July 26, 2017, the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Treasury Department, levied a $110 million civil penalty against BTC-e Virtual Currency Exchange and a $12 million penalty against its suspected operator, Russian national Alexander Vinnik, for willfully violating the Bank Secrecy Act. The Bank Secrecy Act requires financial institutions to assist the United States government in reporting and preventing suspected money laundering.

A FinCEN assessment alleges that senior leadership at BTC-e willfully failed to implement basic internal controls designed to prevent a money services business from facilitating money laundering. BTC-e failed to collect and verify customer verification information, as well as to implement procedures to identify and report suspicious transactions to authorities. The assessment claims that as a result of these violations the cryptocurrency exchange “attracted and maintained a customer base that consisted largely of criminals who desired to conceal proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.”

Vinnik was arrested on Tuesday in northern Greece and indicted on Wednesday before a grand jury in Northern California. The recently unsealed indictment charges BTC-e and Vinnik with 21 counts, including one count of operation of an unlicensed money service business, one count of conspiracy to commit money laundering, seventeen counts of money laundering, and two counts of engaging in unlawful monetary transactions.

The $110 million fine marks the Treasury Department’s first penalty levied against a foreign-located money services business. According to a Department of Justice press release, Acting FinCEN Director Jamal El-Hindi stated that the FinCEN bureau “will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. AML laws.”