IELR Blog

Official Blog of the International Enforcement Law Reporter

U.S. District Court in Alabama Rules CTA Unconstitutional

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On March 1, 2024, Judge Liles C. Burke, U.S. District Court for the Northern District of Alabama (Northeastern Division) issued a 53-page memorandum opinion, declaring that the Corporate Transparency Act (CTA) “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” Judge Burke  granted plaintiffs’ National Small Business United (NSBA) and Issac Winkles, an NSBA member and owner of two small businesses, motion for summary judgment.  [Nat’l Small Bus. United v. Yellen, No. 5:22-cv-01448-LCB (N.D. Ala. 2022)].

Judge Burke finds that the U.S. government’s arguments that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations are not supported by precedent.

The opinion does not reach the plaintiffs’ arguments that the CTA violates the First, Fourth, and Fifth Amendments of the U.S. Constitution.

In his decision Judge Burke observes that civil and criminal penalties apply to violations.  He notes that the CTA applies to 32.6 million currently existing entities and 5 million new entities formed each year from 2025 to 2034.

The opinion finds that the plaintiffs have standing as Winkles is a regulated party and as a member of the NSBA, and that the NSBA has associational standing as a result.

Congress’ Power over Foreign Affairs and National Security

The CTA is not a proper use of the Congress’ power over foreign affairs and national security. The opinion states the CTA “convert[s] an astonishing  amount of traditionally local … conduct into a matter for federal enforcement, and involve[s} a substantial extension of federal police resources.  Accordingly, Judge Burke reasons that compliance with international standards may be good policy, but it is not enough to make the CTA “necessary” or “proper.”

The opinion finds that the Congress’ foreign affairs powers do not authorize the CTA. Those powers do not extend to purely internal affairs, especially in an arena traditionally left to the States (the authority to incorporate).

Commerce Clause

The opinion rules that the CTA does not regulate commerce on its face, have a jurisdictional hook, or serve as an essential part of a comprehensive regulatory scheme.   Hence, the CTA is outside Congress’ power to regulate non-commercial, intrastate activity.  In particular, the opinion underscores that the act of incorporation is not enough to invoke the Commerce power.  “The plain text of the CTA does not regulate the  quintessentially economic activities the Government asserts or require entities to engage in those activities to be regulated.”

Taxing Power & Necessary and Proper Clause

The opinion rules that although the relationship between disclosure provisions and the taxing power is “well recognized,” the cases on which the Government relies  show that giving access to the CTA’s database for tax administration purposes is not sufficient to establish a close enough relationship here.

Analysis

The decision by Judge Burke will certainly not be the last word. The Court has permanently enjoined the government from enforcing the CTA against the named plaintiffs and ordered a further hearing on the award of costs of litigation.  As a result, enforcement of the CTA is likely to be paused for now, but only against those plaintiffs.  The March issue of the International Enforcement Law Reporter will have a more comprehensive discussion of the decision and its implications.

 

 

Latest Developments in INTERPOL’s and its Member Countries’ Approach to Transnational Repression

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Yesterday it was an honor to moderate the webinar of the ABA International Law Section’s National Security Committee on the “Latest Developments in INTERPOL’s and its Member Countries’ Approach to Transnational Repression.”

The recording is available here: https://americanbar.zoom.us/rec/share/E55XMmwLdq3YbjSy2KjzHvGERvqFQ8ZCe_FDnQ_a9FvRiSWJHevq98m1rCYwrCuP.fjt3XdhwYQWMFbe7

The ABA ILS’s National Security Committee has organized a series of webinars on this issue.

I thank Yuriy Nemets for his efforts in organizing the webinar.

New Book Discusses Modern Cross-Border Criminal Threats and Impact on Security and Sovereignty in the Caribbean

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Professor Ivelaw Lloyd Griffith, a Guyanese-American who has as served in several academic leadership roles, including as Vice Chancellor (president) of the University of Guyana, has written the latest of a series of books on the topic of crime and security in the Caribbean.

His latest book, Challenged Sovereignty: The Impact of Drugs, crime, Terrorism, and Cyber Threats in the Caribbean (344 pages, U. of Illinois Press) is about to be released.

The books covers the drug trade, crime, terrorism and cyber threats in the Caribbean.  These cross-border issues have significantly impacted the small countries.  The author combines case studies with regional analyses to capture the cross-border problems that have undermined the governments’ basic goal of protecting their people against military threats, subversion and the erosion of political, economic, and social values.  The author points out that seeking solutions to these multidimensional threats requires addressing both traditional and non-traditional security and sovereignty issues.  The author focuses on clashes between Cross-border problems and the state from warring drug gangs in Jamaica, to Trinidad and Tobago’s one-time status as a center for terrorism-related activities, to the political resurgence of drug trafficker Desi Bouterse in Suriname, and the growing cyber threats across the region.

Among the author’s prior books on these topics are: The Quest for Security in the Caribbean (M.E. Sharpe), Drugs and Security in the Caribbean (Penn State University Press), The Political Economy of Drugs in the Caribbean (Palgrave Macmillan), and Caribbean Security in the Age of Terror (Ian Randle Publishers).

Meeting of Mexican and U.S. Heads of States Results in Enforcement Cooperation Promises

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On July 12, 2022, the meeting between Mexico President Andrés Manuel López Obrador and U.S. President Joseph Biden resulted in a joint statement, containing some promises of cross-border law enforcement cooperation.

Drug Trafficking, Arms Trafficking, Human Smuggling, and Transnational Criminal Organizations

Through the Bicentennial Framework for Security, Public Health, and Safe Communities, the two leaders  reaffirmed their commitment to cooperate  to address major security issues affecting the two nations, including the challenges of fentanyl, arms trafficking, and human smuggling, and to reduce levels of drug abuse and addiction.

They committed to deepen their cooperation to combat transnational criminal organizations.  They reaffirmed the robust operational efforts between law enforcement agencies to address these security efforts.  They pledged to establish a U.S.-Mexico operational task force to disrupt the flow of fentanyl into their countries.

Migration Issues

The two leaders referred to the tragic deaths of 51 migrants on June 27 at the hands of human smugglers in San Antonio.  The incident further strengthens their “determination to go after the multi-billion-dollar criminal smuggling industry preying on migrants and increase our efforts to address the root causes of migration.”  The Departments of Justice (DOJ) and Homeland Security (DHS) and Mexico’s Attorney General’s Office have coordinated to arrest and prosecute those who endanger the lives of vulnerable migrants.”  In doing so, they will, among other things,  work  through Joint Task Force Alpha and its Mexican partners.

Joint Task Force Alpha is a law enforcement task force. It will marshal the investigative and prosecutorial resources of the DOJ, in partnership with the DHS, to enhance U.S. enforcement efforts against the most prolific and dangerous human smuggling and trafficking groups operating in Mexico and the Northern Triangle countries of Guatemala, El Salvador, and Honduras.

The Joint Task Force is composed of federal prosecutors from U.S. Attorney’s Offices along the Southwest Border (District of Arizona, Southern District of California, Southern District of Texas, and Western District of Texas), from the Criminal Division and the Civil Rights Division.  Also participating are law enforcement agents and analysts from DHS’s Immigration and Customs Enforcement and Customs and Border Patrol. The FBI and the Drug Enforcement Administration are also part of the Task Force. It works closely with Operation Sentinel, a recently announced DHS operation focused on countering transnational criminal organizations affiliated with migrant smuggling.

The two leaders pledged to build on the commitments at the Summit of the Americas made by twenty-one countries in the hemisphere pursuant to the Los Angeles Declaration on Migration and Protection, they said they are taking immediate and coordinated steps to manage the flows of migrants arriving into their countries.  They have joined efforts to address the underlying economic and security drivers of migration. Recognizing that development must be at the center of all migration policies, they will accelerate and expand international cooperation programs focused on the most marginalized communities. At the same time, they will maintain strong border enforcement policies while ensuring full protection of human rights.

Analysis

Perhaps the most concrete development is pledged to establish a U.S.-Mexico operational task force to disrupt the flow of fentanyl.  Some of the ingredients tend to originate in China and are brought into Mexico, where they are further processed for export to the U.S.

The most difficult pledge is to have strong border enforcement policies while ensuring full protection of human rights.  The U.S. border situation suffers from the failure of the U.S. Congress to enact modernize legislation, the lack of resources at the border to process the number of aliens, the failure to invest in resources to adjudicate the number of asylum applicants, policies of U.S. state governments which sometimes do not complement and even work at cross-purposes with U.S. immigration and human rights policies, and the lack of consistent border and immigration policies when administrations change.

A limitation of the Los Angels Declaration on Migration and Protection is that some of the most countries that are the sources (e.g., Cuba) and intermediary locations (e.g., Nicaragua) have not joined the Declaration.

The Bicentennial Framework provides at least a detailed framework for cross-border enforcement cooperation between the two countries.  In addition, the U.S.-Mexico-Canada Free Trade Agreement has strengthened enforcement provisions, especially for labor and the environment.  Those provisions also enable the two governments and other stakeholders to ensure enforcement cooperation occurs with respect to the issues covered in the agreement.  These provisions also extend to intellectual property enforcement.

DOJ Brings Civil Enforcement Action to Compel Steve Wynn to Register under FARA

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On May 17, 2022, the United States Department of Justice filed a civil enforcement action in the U.S. District Court for the District of Columbia, in order to force Stephen A. Wynn, the former CEO of Wynn Resorts, to register under the Foreign Agents Registration Act (FARA) as agent of the People’s Republic of China (PRC) and a senior official of the PRC’s Ministry of Public Security (MPS).  The DOJ allegedly advised Wynn on three occasions to register as an agent, but he declined to do so.

The DOJ has said the complaint is the first affirmative civil lawsuit under FARA in more than 30 years, a signed of increased enforcement efforts under FARA.

The Complaint’s Allegations

The complaint alleges that, from at least June 2017 through at least August 2017, Wynn communicated with the then-President Donald Trump and members of his administration to transmit the PRC’s request to cancel the visa or otherwise remove from the U.S. a Chinese businessperson who left in China, was later charged with corruption by the PRC, and applied for political asylum in the U.S.  Allegedly at the request of Sun Lijun, then-Vice Minister of the MPS, Wynn communicated the request directly to President Trump over dinner and telephonically.  He also had multiple discussions with President Trump and senior officials at the White House and National Security Council about organizing a meeting with Sun and other PRC government officials.

During the time in which Wynn allegedly engaged in this conduct, his company owned and operated casinos in Macau, a special administrative region in the PS.  According to the DOJ, Wynn acted at the request of the PRC in order to protect his business interests in Macau.[1]  In 2016, shortly before engaging in the alleged lobbying, the Macau government restricted the number of gaming tables and machines that the Defendant’s casino could operate.  Public reporting showed that Wynn was scheduled to renegotiate his licenses to operate casinos in Macau in 2019.[2]

The DOJ alleges it notified Wynn of the obligation to register under FARA in letters dated May 16, 2018, October 27, 2021, and April 13, 2022.  However, Wynn refused to register.[3]

According to the complaint, “(i)n approximately May 2017, during a meeting coordinated by foreign national Low Taek Jho, Sun asked businessperson and former finance chair of the Republican National Committee (“RNC”) Elliot Broidy, hip-hop artist Prakazrel Michel, and businessperson Nickie Lum Davis to lobby then-President Trump and the Trump Administration to convey the PRC’s request to cancel the visa of or otherwise remove from the United States a PRC businessperson…”[4]

In approximately June 2017, Broidy, on behalf of Sun, solicited Wynn’s assistance in the lobbying effort.  Wynn served as the RNC finance chair from January 2017 through January 2018 and met Broidy through that work.  Broidy believed that Wynn’s RNC experience and his business dealings in the PRC and friendship with then-President Trump, would be useful in obtaining access to Trump Administration officials.[5]

Analysis

On October 20, 2020, Broidy pleaded guilty of violating FARA.  One of the charges concerned the same case as the Complaint charges Wynn with lobbying.[6]

The Complaint illustrates the fact that the DOJ has strengthened its efforts to enforce FARA.  Most likely, the DOJ will use the investigative evidence collected against Broidy and endeavor to obtain his cooperation in the Complaint against Wynn.

The Complaint and the guilty plea of Broidy also illustrate the terrible state of enforcement cooperation between the U.S. and the PRC, since the PRC is employing lobbyists to communicate with the DOJ concerning enforcement cases.  Normally, the counterparts of the DOJ do this directly with the DOJ on a regular basis.

 

[1]    Complaint, paragr. 18

[2]    Id., paragr. 29.

[3]    Id. paragr. 4.

[4]    Id., paragr. 16.

[5]    Id., paragr. 17.

[6]    DOJ, Elliott Broidy Pleads Guilty for Back-Channel Lobbying Campaign to Drop 1MDB Investigation and Remove a Chinese Foreign National, Oct. 20, 2020.

U.S. Justice Department Starts Task Force to Enforce Russian Sanctions against Russian Oligarchs

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On March 2, 2022, U.S. Attorney General Merrick B. Garland announced the start of Task Force KleptoCapture to enforce sanctions, export restrictions, and economic countermeausres the U.S. has issued, in coordination with U.S. allies, in response to Russia’s military invasion of Ukraine.  Task Force KleptoCapture will aim to enforce these actions that are designed to isolate Russia from global markets.  In particular, the U.S. restrictions target the crimes of Russian officials, government-aligned elites, and persons who help or conceal their unlawful conduct.

Andrew C. Adams, co-chief of the Money Laundering and Transnational Criminal Enterprise Unit in the Office of the U.S. Attorney for the Central District of New York, will manage the Task Force.[1] The Task force leadership will include Deputy Directors from both the National Security and Criminal Divisions, and more than a dozen attorneys from these divisions, as well as the Tax Division, Civil Division, and U.S. Attorneys’ Offices across the country. It will be staffed with prosecutors, agents, analysts, and professional staff across the Department of Justice who are experts in sanctions and export control enforcement, anti-corruption, asset forfeiture, anti-money laundering, tax enforcement, national security investigations, and foreign evidence collection.  The Task force will strengthen DOJ’s abilities and authorities against efforts to evade or undermine the restrictions the U.S. government has imposed in response to Russian military aggression.[2]

The Task Force’s mission will include the following:  investigating and prosecuting violations of new and future sanctions imposed in response to the Ukraine invasion, and sanctions imposed for prior instances of Russian aggression and corruption; combating unlawful efforts to subvert restrictions imposed on Russian financial institutions, including the prosecution of persons who attempt to evade know-your-customer and anti-money laundering measures; targeting efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. response to Russian military aggression; and using civil and criminal asset forfeiture authorities to seize assets belonging to sanctioned individuals or assets identified as the proceeds of unlawful conduct.[3]

The Task Force will be able to use the most cutting-edge investigative techniques, including data analytics, cryptocurrency tracing, foreign intelligence sources, and information from financial regulators and private sector partners, to identify sanctions evasion and related criminal misconduct.[4]

In addition to arrests and prosecution, the Task Force will employ asset seizures and civil forfeitures of unlawful proceeds, including personal real estate, financial, and commercial assets to deny resources that enable Russian aggression.  When appropriate, the Task Force will share information obtained in its investigations with interagency and foreign partners to help the identification of assets that are covered by the sanctions and new economic countermeasures.

The Task Force KleptoCapture will complement the work of the transatlantic task force under President Biden and leaders of the European Commission, France, Germany, Italy, the United Kingdom, and Canada on February 26.  The transatlantic task force has a mission to identify and seize the assets of sanctioned individuals and companies around the world.[5]

The Task Force will involve agents and analysts from various law enforcement agencies, including the FBI; U.S. Marshal Service; U.S. Secret Service; Department of Homeland Security; IRS-Criminal Investigation; and the U.S. Postal Inspection Service.

Meanwhile, on March 2 the Independent Commission for the Reform of International Corporate Taxation (ICRICT) issued a statement in support of the call by Italian Prime Minister Mario Draghi’s for an international public register of wealth for Russian oligarchs with more than €10 million in assets.

Analysis

If the US Task Force and the law enforcement authorities of its allies cooperate in terms of intelligence, evidence gathering, and extradition, they will exert pressure on the oligarchs.  President Biden announced the creation of the Task Force in his state of the union speech on March 1.  The initial one-third of the address dealt with the response by the U.S. and its allies to the Russian invasion.  President Biden said:

“Tonight, I say to the Russian oligarchs and the corrupt leaders who’ve bilked billions of dollars off this violent regime: No more.

The United States — I mean it. The United States Department of Justice is assembling a dedicated task force to go after the crimes of the Russian oligarchs.

We’re joining with European Allies to find and seize their yachts, their luxury apartments, their private jets. We’re coming for your ill-begotten gains.”

To some extent the Biden speech and the Garland announcement mix  persons who violate past, current and future sanctions against Russia with persons who have or are laundering proceeds of foreign corruption or U.S. responses to Russian military moves, such as export control and other restrictions.  In particular, the announcement of the Task Force mentions false statements to a financial institution, bank fraud, tax offenses, and money laundering.  In addition, as demonstrated by the non-compliant assessment in FATF’s 2006 and 2016 evaluation of the U.S. and the recent comments to the proposed CTA regulations, U.S. gatekeepers do not meet international standards and remain opposed to complying with the new regulations.    As a result, notwithstanding the Task Force KleptoCapture, U.S. law and culture prevent proactive law enforcement cooperation.

Whether the Russian oligarchs will have any influence on Vladimir Putin remains to be seen.  However, the sanctions and the emphasis on enforcement follow a recent trend of the U.S. since the Obama Administration: the emphasis on criminal and quasi-criminal enforcement of U.S. sanctions.  The rest of world is following this trend.  Actual close collaboration among law enforcement authorities and international organizations, informal groups (i.e., G7), and non-governmental organizations will help make sanctions enforcement more effective.

On March 1, Putin signed a decree that prohibits taking more than $10,000 worth of foreign currency in cash and “monetary instruments” out of Russia.  The move responds to the sanctions imposed on Russia over its invasion of Ukraine.

As the U.S. is trying to adopt regulations to make its Corporate Transparency Act operational, increasingly the European legislative and executive branches are debating making their corporate and trust registries more publicly accessible without cost and broadening the registries to include not only beneficial ownership of companies and trusts, but diverse assets, such as art, real property, crypto assets, and linking the registries, so that regulators and law enforcement have easy access.   One gap is that, since the U.S. has not yet implemented the Corporate Transparency Act, does not fully reciprocate on information exchange pursuant to FATCA Intergovernmental Agreements and does not participate in the Common Reporting Standard, wealth structures have moved to the U.S. both for anonymity and to take advantage of the lucrative U.S. economic market.

[1]    Katie Banner, Justice Department Announces Task Force to Go After Russian Oligarchs, N.Y. Times, Mar. 3, 2022.

[2]    DOJ, Attorney General Merrick B. Garland Announces Launch of Task Force KleptoCapture, Press Rel. 22-179, Mar. 2, 2022.

[3]    Id.

[4]    Id.

[5]   Id.

Honduras Detains Former President on US. Extradition Warrant

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On February 15, 2022, Honduran law enforcement authorities arrested former President Juan Orlando Hernández on an extradition warrant from the United States.  The extradition warrant alleges he participated in a “violent drug-trafficking conspiracy.”[1]

Local television stations broadcast a video of Hernandez as police escorted him from his house with his hands and feet in chains.

The extradition request alleges that through 2019, Hernández obtained bribes from Geovanny Fuentes Ramïrez.  The prior week a U.S. federal court in the Southern District of New York sentenced Fuentes Ramïrez to life in prison for cocaine trafficking.  The extradition warrant alleges the bribes were left at the presidential residence.[2]

Hernandez promised to cooperate with Honduran justice authorities.  In an audio message on Twitter he said he was “ready to collaborate and to come voluntarily.”  He also said he would “confront this situation and defend myself.”[3]

In March 2021, former Honduran congressman Tony Hernández, the brother of the former President, received a sentence of life in prison in the U.S. for drug trafficking.  Testimony at the trial was that his brother when he was president received millions of dollars from drug traffickers for protection, including from Mexican narco kingpin Joaquin “Chapo” Guzman.[4]

On February 7, 2022, U.S. Secretary of State Anthony J. Blinken announced the U.S. had included the former president on the U.S.’ Corrupt and Undemocratic Actions list, under Section 353 of the United States-Northern Triangle Enhanced Engagement Act (NTEEA), as amended.[5]

Hermes Ramirez, counsel for the former president, said his client had immunity from prosecution as a member of the Guatemala-based Central American parliament, Parlacen.  On January 27, Hernández became a member of Parlacen hours after leaving office.[6]

Analysis

On the one hand, Honduras has never denied a U.S. extradition request.  In addition, Honduras depends heavily on U.S. assistance.    The Biden Administration has emphasize anti-corruption in the Northern Triangle.  On the other hand, the Supreme Court judge who will hear the extradition case is affiliated with the former president’s party and has a history of absolving suspects in corruption cases. [7]  Notwithstanding the dependence of Honduras on U.S. assistance, the PRC is angling to increase its influence in Honduras, as it has done in El Salvador and most of Central America. As a result, the Hernández case is unique and warrants monitoring.

The current issue of the IELR will have a more comprehensive discussion of the case and its implications.

Footnotes

[1]    Joan Suazo and Anatoly Kurmanaev, Former Honduras President Detained after a U.S. Extradition Request, N.Y. Times, Feb. 15, 2022.

[2]    Kevin Sieff, Former Honduras president Juan Orlando Hernández arrested:  U.S. seeks extradition on drug trafficking charges, Wash. Post, Feb. 16, 2022.

[3]    Former Honduran president arrest as US seeks extradition on drug charges, France24.com, Feb. 4, 2022.

[4]    Id.

[5]    U.S. Department of State, U.S. Actions against Former Honduran President Juan Orlando Hernandez for Corruption, Feb. 7, 2022.  Bruce Zagaris, U.S. Places Former Honduran President on List of Corrupt Officials and He Agrees to “Collaborate” on Extradition, 38 Int’l Enforcement L. Rep. 52 (2022).

[6]   Former Honduran president arrest as US seeks extradition on drug charges, supra.

[7]   Suazo and Kurmanaev, supra.

A Former Kansas Teacher is now on Trial for Materially Supporting ISIS

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On January 31st, 2022, former Kansas school teacher and resident, Allison Elizabeth Fluke-Ekren, made her first court appearance in Alexandria, Virginia after being charged with plotting multiple bomb attacks in the United States and training an all-female battalion for the Islamic State (ISIS), as well as her involvement in another terror group in Libya.[1]

Fluke-Ekren left the U.S. for Egypt in 2008 where stayed for three years until moving to Libya.  In 2012, a witness told the court she was smuggled into Syria because she allegedly wanted to engage in violent Jihad on behalf of ISIS.  Between 2014 and 2017, Fluke-Ekren allegedly engaged in terrorism related activities, including planning attacks in her home country.

Overview

To avenge an airstrike on a market area near al-Bab, Syria, Fluke-Ekren allegedly planned to drop off a backpack filled with explosives on a U.S. college campus with approved funding from former ISIS leader Abu Bakr al-Baghdadi.

Additionally, Fluke-Ekren allegedly explained to another witness that she could pack a vehicle with explosives, park it at the base of shopping mall, and detonate the bomb with a cell phone.  Her plans were thwarted after her husband, another ISIS militant, objected.[2]

Fluke-Ekren and her husband brought $15,000 to Syria to buy AK-47s, grenades, and other military-style rifle items.  In their statements to authorities, witnesses were surprised by how many assault rifles were in her home and how her children, as young as five or six, were seen holding a machine gun.

Root Causes and Prosecution Issues

The desire to defect from developed western developed nations to terrorist cells usually abounds from a feeling of resentment and displacement within immigrant communities.  Policies in the UK, France, Ireland, and Australia dictate that those accused of involvement with ISIS are to be stripped of their citizenship.  This has lent the feeling that those with immigrant backgrounds are second class citizens, constantly under the suspicion of terrorist sympathies.  These defendants are then deported to their “countries of origin,” usually nations with which they have little or no relationship with, and are then tried in those new nations.  Typically, these new nations are not fully apprised of all the evidence used to deport them from the old nation, which makes successful prosecution less likely.[3]

Cases involving suspected terrorists captured overseas can pose difficulties for prosecutors because witnesses and evidence usually reside in war zones.  In early 2018, the FBI recovered several pages of handwritten English documents resembling an ISIS Sharia law exam. The exam showed that its creator was “Umm Mohammed al-Amriki” now known to be one of the aliases of Fluke-Ekren.  After comparing the exam with handwriting samples provided by Fluke-Ekren’s family, authorities were able to confirm her authorship and role as a mentor.[4]

Conclusion

Overall, the topic of repatriation and the approach of deradicalization is a fraught topic.  Many commentators have noted that the idea of repatriation for foreign fighters is political suicide, while human rights experts maintain that that rehabilitation and prosecution in developed legal regimes is the most effective path toward justice.  It appears that after over 20 years since its conception, the fundamental questions of how to win the War on Terror have not been sufficiently answered. Ideas about which enactments of violence for political means are legitimate and illegitimate have not, and probably will never, be satisfactory to everyone on the globe.

The current issue of the IELR will contain a more comprehensive discussion about Fluke-Ekren and general disagreements about how to prosecute foreign terror fighters.

[1] Jansen, Bart and Meyer, Josh, DOJ: Former Kansas teacher charged with plotting US attacks appears in court, ordered detained, USA Today, January 31, 2022.

[2] Id.

[3] Mironova, Vera, The Challenges of Foreign Fighters Repatriating and Prosecuting ISIS Detainees, Mei Policy Center, January 2021 https://www.mei.edu/sites/default/files/2021-01/The%20Challenge%20of%20Foreign%20Fighters.pdf.

[4] U.S. v. Allison Elizabeth Fluke-Ekren, United States District Court for the Eastern District of Virginia, 5/15/2019.

GAO Publishes Report on Trafficking and Money Laundering Required by Corporate Transparency Act

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GAO Publishes Report on Trafficking and Money Laundering Required by Corporate Transparency Act

On December 23, 2021, the General Accountability Office (GAO) published  Report on Trafficking and Money Laundering Strategies Used by Criminal Groups and Terrorists and Federal Efforts to Combat Them (GAO-22-104807 53 pp.).

The GAO reviewed how transnational criminal organizations and terrorist groups traffic goods such as illegal drugs, engage in human trafficking, and launder money.

Reasons for and Goals of the Report

Congress  included a  provision  in  the  Money Laundering Act of 2020, which was part of the National  Defense Authorization  Act  for  Fiscal  Year  2021, for the  GAO  to  review  trafficking and related  money  laundering  and  create federal efforts  to  combat  them.

The goals of the report are to describe  what  is  known  about  the money  laundering  strategies  of transnational  criminal  organizations and  terrorists  and  information-sharing efforts  among  federal  agencies  to combat  trafficking.

Findings- Money Laundering Techniques

Federal agencies, international organizations, and other commentators, such as non-governmental organizations, have reported that money laundering strategies used by transnational criminal organizations and terrorist groups include sophisticated techniques such as phony trade transactions or purchase and resale of real estate or art.

The techniques can involve the services of professional money laundering networks or service providers in legitimate professions, such as law and accounting. For example, lawyers or accountants can create shell companies (entities with no business operations) to help criminals launder illicit proceeds. Transnational criminal organizations and terrorist groups also continue to smuggle cash in bulk or transmit money electronically across borders.  The report also mentions the role of real estate agents, company service providers, and art and antiquities dealers.

Federal Efforts to Combat Trafficking and Money Laundering

Federal  efforts  to  combat  trafficking  and  money  laundering  incorporate  multiple collaborative  and  information-sharing  mechanisms  and  include  the  private  sector.

  • Law enforcement  agencies  cooperate  through  task  forces  in  which  they share  information  and  analytical  resources  to  aid  in  the  investigation  and prosecution  of  drug  and  other  trafficking-related  crimes.
  • Federal  agencies  share  intelligence  with  foreign  counterparts.  In particular, the  Financial  Crimes  Enforcement  Network  (FinCEN),  a  bureau  of  the Department  of  the  Treasury,  shares  information  with  more  than  160 international  financial  intelligence  agencies.
  • FinCEN collaborates  with  law  enforcement  agencies  to  share  information with  financial  institutions  on  “red  flags”  for  trafficking,  which  institutions  can use  to  identify  and  report  suspicious  transactions.
  • Under Sec. 314(b) of the USAPATRIOT Act, FinCEN also  coordinates  a  voluntary  program  that  allows  financial  institutions to  share  information  with  one  another  to  better  identify  and  report  suspicious activities  that  may  be  related to  money  laundering  or  other  illicit  financing.

Efforts of the Federal Government to Improve Institution Reporting and Enhance Data Analysis

The report discusses efforts by federal  agencies to undertake initiatives  to  make information from financial  institutions  more available  or  more useful  for  trafficking-related investigations, and to enhance agencies’  ability  to analyze such information.

FinCEN Advisories –  FinCEN  attempts to improve the quality  of the SAR data it receives  from  financial  institutions  by  issuing advisories, which include descriptions  of trafficking  strategies, “red  flag”  indicators, and other  guidance developed in collaboration with law  enforcement agencies. The advisories are designed to help institutions better understand  what transactions  or customer activities to report to law enforcement.

Information sharing between  federal agencies and financial institutions.

FinCEN and law enforcement agencies  have programs  to share details  about how  financial  institutions  could better  identify  and report data for  disrupting  money  laundering, terrorist financing, and other financial  crimes.  However, the information generally is shared among limited audiences.  For example, in 2017, FinCEN created the FinCEN Exchange.  This is a public-private program to enhance information sharing with financial institutions so that FinCEN and law enforcement agencies can receive information that will help them disrupt money laundering and other financial crimes.

Information sharing among financial institutions.

FinCEN coordinates a voluntary program for financial institutions  to  share information with each other. The goal of the sharing is  to help financial institutions  better  identify  and report activities  they  suspect may  involve money  laundering or  terrorist activities. The program, which is  authorized by  Section 314(b)  of the USA  PATRIOT Act, allows  financial  institutions  to share normally  private information about customers  or  transactions  when the institutions  suspect  money  laundering or  terrorist financing.

Analysis

The GAO Report does not provide analysis or recommendations, but furnishes an opportunity to reflect on the recently enacted Corporate Transparency Act.  While it proffers a positive way forward to start catching up with international standards, it obviously falls below in several ways.

The collection of data is limited to those entities which must file with the Secretary of State.  As a result, it will miss private trusts and other entities that do not need to file with the Secretary of State.

It remains to be seen whether the way in which FinCEN obtains and maintains the information will be in a standard format internationally so that it can be easily shared with other law enforcement and regulators.

The proposed beneficial ownership regulations under the CTA does not require verification of the information.  In addition, contrary to the EU and other systems, the information is not accessible to the public.  The lack of verification requirement and the inability of watch-dog non-government organizations and investigating journalists to access the information will deprive the data of a high degree of accuracy.[1]  Law of accuracy will diminish its utility.

Even without the analysis and recommendations, the GAO is especially useful in showing how U.S. law enforcement collaborates to scrutinize Suspicious Activity Reports and other data of a beneficial ownership nature to develop criminal investigations and prosecutions.

 

 

 

[1]    For a useful survey of the beneficial ownership best practices of six countries and their implications, see Kathy Nicolaou-Manias and Yuchen Wu, Beneficial Ownership and Transparency: Learning from Best Practices, 2021 TNTI 248-11, Dec. 29, 2021.

 

Treasury Initiative Targets Anonymous Real Estate Purchases and Proceeds of Corruption

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On December 7, 2021, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) with respect to soliciting public comments on potential requirements under the Bank Secrecy Act (BSA) for certain persons involved in real estate transactions to collect, report, and retain information.

FinCEN’s ANPRM expressed concern about the systemic money laundering vulnerabilities in the U.S. real estate sector.  It observed that the ability of illicit actors to launder criminal proceeds through the purchase of real estate threatens U.S. national security and the integrity of the U.S. financial system.  As a result, FinCEN will start the rulemaking process to address such vulnerabilities.  As the initial step in this rulemaking process, FinCEN is issuing the ANPRM to seek initial public comment on questions that will assist FinCEN in the consideration and preparation of a proposed rule.

FinCEN is considering how best to focus its regulatory attention on residential and commercial real estate transactions.  FinCEN observes that money laundering risks arise from transactions in both the commercial and residential real estate sectors.  Hence, both merit appropriate regulatory treatment.  Simultaneously, FinCEN recognizes that a repetitious approach may be required due to the complexities and differences between different market sectors and the potential burdens that new reporting and recordkeeping requirements may have for businesses.

FinCEN is considering to initially focus on residential real estate, followed by later issuing regulations covering the commercial real estate sector, as well as any other regulatory gaps that may exist with money laundering vulnerabilities concerning real estate.

Areas for Which Comments Are Requested

FinCEN seeks comment to help it in preparing a potential proposed rule that would seek to impose nationwide recordkeeping and reporting requirements on certain persons participating in transactions involving non-financed purchases of real estate.  Until now, FinCEN has not imposed the BSA’s general recordkeeping and reporting requirements on businesses involved in non-financed real estate transactions.  However, FinCEN has imposed more specific transaction reporting requirements on title insurance companies in the form of time-limited Geographic Targeting Orders under 31 U.S.C. 5326(a).  The ANPRM requests public comment on whether FinCEN should impose a similar, ongoing, and expanded reporting requirement through regulations, specifically under 31 U.S.C. § 5318(g)(1) and related program requirements under 31 CFR 5318(h) .

In particular, FinCEN requests comment on the potential scope of any such regulations, including, among other things, (1) the persons who should be subject to the requirements; (2) which types of real estate purchases should be covered; (3) what information should be reported and retained; (4) the geographic scope of such a requirement; and (5) the appropriate reporting dollar-value threshold.

Analysis

The ANPRM coincides with the organizing and hosting of President Biden’s Summit for Democracy on December 9, in which representatives of more than 100 countries will gather virtually.  Combating corruption abroad starts with combating at home.  Hence, the ANPRM aims to expose the owners of shell companies and other illicit funds.  The initiative complements the Corporate Transparency Act, enacted as part of the Anti Money Laundering Act of 2020.

The current issue of the IELR will have a more comprehensive discussion of the implications of the ANPRM.

Disclaimer

Nothing in this blog constitutes or is intended to constitute legal advice. Neither transmission nor receipt of such materials creates an attorney-client relationship. Blog readers and subscribers should consult with an attorney. This blog may be considered attorney advertising under the rules of some states. The hiring of an attorney is an important decision that should not be based solely upon advertisements. Prior results do not guarantee similar outcomes.

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