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U.S. Treasury Publishes 2024 National Strategy for Combating Terrorist and Other Illicit Financing

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By Kaila Hall

On May 16, 2024, the U.S. Department of the Treasury published the 2024 National Strategy for Combating Terrorist and Other Illicit Financing1 (2024 Strategy). The report addresses the key threats included in the 2024 National Money Laundering, Terrorist Financing, and Proliferation Financing Risk Assessments2 from February 2024 (2024 National Risk Assessments). This latter report identified illicit financial threats resulting from fraudulent schemes, ransomware attacks, the ongoing opioid epidemic, foreign and domestic terrorist attacks, corruption, and the exploitation of technological advancement in financial products and services.

Amid the recent rise of international conflicts and wars, the American financial system remains at risk. Terrorist organizations are implementing new fundraising methods, while drug and human traffickers are evading U.S. surveillance mechanisms, cybercriminals are conducting extensive fraud campaigns, and nation-states are utilizing ransomware and further financing weapons of mass destruction. The 2024 National Risk Assessments determined the most significant illicit finance vulnerabilities as being the misuse of cash, the misuse of financial products and services, the ease of formation of and limited information required to create legal entities, inadequate global anti-money laundering & countering the financing of terrorism (AML/CFT) regulation, supervision, and enforcement, AML/CFT compliance deficiencies, complicit professionals facilitating illicit finance, among several others.

Consequently, the 2024 Strategy seeks to eliminate the pathways that illicit actors exploit and increase enforcement mechanisms. The U.S. Treasury has four priorities and 15 supporting actions to implement between now and the 2026 Strategy. Priorities include (1) assessing and addressing legal and regulatory vulnerabilities in the U.S. AML/CFT regime, (2) promoting a risk-focused and effective AML/CFT regulatory framework for financial institutions, (3) enhancing operational effectiveness in combating illicit finance, and (4) supporting responsible technological innovation and harnessing technology to mitigate illicit finance risks.

The supporting actions include (1) implementing the Corporate Transparency Act, providing authorized access to the Beneficial Ownership Information registry, protecting data, and promoting compliance, (2) bringing greater transparency to real estate transactions, (3) assessing the need for additional action on sectors not subject to comprehensive AML/CFT measures, (4) considering updates to the regulatory requirements and supervisory framework for virtual asset activities, (5) assessing the potential need to revise recordkeeping and reporting requirements and thresholds, and (6) enhancing risk-focused supervision and enforcement. Additionally, the Treasury will (7) appropriately resource AML/CFT supervision and enforcement for certain non-bank financial institutions, (8) regularly update and communicate illicit finance risks and national AML/CFT priorities, (9) prioritize targeted measures and interagency and multilateral coordination to disrupt illicit finance activity, (10) expand and enhance public-private information sharing, (11) strengthen implementation of global AML/CFT standards, (12) implement the Treasury’s strategy to combat de-risking and improve financial inclusion, (13) support U.S. leadership in financial and payments technology, (14) encourage private sector use of technology to improve AML/CFT programs and compliance, and (15) continue to enhance use of al, data analytics, and additional technological innovations in government efforts to combat illicit finance.

More specifically, recent AML/CFT precautions include the U.S. Treasury operationalizing the Beneficial Ownership Information E-Filing System on January 1, 2024. This constituted a historic step to increase transparency.

With regard to fraud, the U.S. Treasury plans to continue to prioritize investigations, prosecutions, and convictions of fraudsters and fraud facilitators. It also will consider expanding or enhancing fraud reporting reward programs and work with non-traditional partners to identify complicit professionals. Lastly, it plans on expanding the use of administrative authorities and awareness-raising campaigns to assist the public in identifying sources of fraud for law enforcement agencies.

Concerning drug trafficking, the U.S. Treasury will consider the need for further guidance to financial institutions on how to detect financing related to precursors and equipment linked to fentanyl and other synthetic opioids. Additionally, it intends to continue to engage bilaterally with key jurisdictions, including Mexico, the PRC, and Canada.

In terms of ransomware and related money laundering, it will continue investigating, prosecuting, and otherwise disrupting ransomware and digital extortion activity by identifying and imposing consequences on cybercriminals and the money launderers that support them. It expects to take civil or criminal enforcement and regulatory actions, including sanctions-related enforcement actions, against Virtual asset service providers (VASPs) illicitly facilitating ransomware activity and money laundering.

With reference to human trafficking, the U.S. Treasury will enhance training on the financial aspects of human trafficking investigations and will leverage financial intelligence and anti-money laundering expertise to strengthen investigations and prosecutions of transnational human trafficking enterprises.

Regarding corruption, it hopes to continue to target the proceeds of foreign corruption that are used to purchase U.S. assets or that transit through the U.S. financial system. It also intends to enhance the use of anti-corruption sanctions, particularly prioritizing designations of financial facilitators and private enablers of public corruption.

Concerning international terrorism with U.S.-based supporters of Al-Qaeda, ISIS, and Iran proxies such as Hamas and Hezbollah, the Treasury will coordinate and share information with foreign partners on the financing of terrorist groups and their affiliates. It also aims to disrupt financial facilitators and supporters of international terrorism through targeted designations.

For more information on the four priorities, Annexes 1 and 2 respectively include a summary of the illicit finance threats and vulnerabilities, while Annex 3 pertains to progress on priorities and supporting actions. The 2024 National Strategy for Combating Terrorist and Other Illicit Financing be viewed here: https://home.treasury.gov/system/files/136/2024-Illicit-Finance-Strategy.pdf

The Treasury strategies on money laundering, terrorist financing, and other illicit financing are useful for the regulated community since they use these reports in determining the overall risks and then assessing their own risks and developing risk-based due diligence.

Kaila Hall is an intern at IELR. She is a rising senior at Cornell University.

Bibliography:

[1] “Treasury Announces 2024 National Illicit Finance Strategy.” U.S. Department of the Treasury, 16 May 2024, home.treasury.gov/news/press-releases/jy2346. ‌

[2] “Treasury Publishes 2024 National Risk Assessments for Money Laundering, Terrorist Financing, and Proliferation Financing.” U.S. Department of the Treasury, 7 February 2024, home.treasury.gov/news/press-releases/jy2080.

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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.

 

 

2023 Retrospective

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We at the IELR send you best wishes for a new year.  2023 was momentous for the international enforcement community, and we are grateful to have had you following along with our coverage during our 39th year of discussing international enforcement developments.

We are grateful for the continuing long partnership with Professor Michael Plachta and for contributions from practitioners and professors, including the Aljohrh Al Abdulsalam, Basel Institute, Kayla de Alto, Dr. Ted Bromund, Frederick T. Davis, Uttam Dhillon,  Meg Hobbins, Valentina Lana, Elisabeth Lees, Luz E. Nagle,  Konstantinos Magliveras, Gino Naldi, Yuri Nemets,  Linda Friedman Ramirez, Adriana Sanford, and Michel Sapin.  Alexander Mostaghimi finished his tenure as assistant editor in July and is now doing his first year at law school at Boston College.  Justin DePrado has capably served as assistant editor.   Other Berliner Corcoran & Rowe LLP interns, Jack Crovitz, Rachel Hage, Elena Maghsoodnia as well as legal assistants, such as Savannah Telfer and Regan Allen contributed articles.

We are also grateful for our partnerships with LexisNexis, WestLaw, EBSCO, and William Hein & Co. in our distribution of the IELR.

The following is a highlight of only some of the articles we covered.

Crimes against humanity and international human rights abuses had many articles: Mostaghimi discussed the sentencing by the Kosovo Specialist Chambers of a former KLA commander for war crimes as well as the trial against the former Kosovo head of state and 3 other leaders as well as the approval by a UN Committee of a resolution to establish a convention to prevent crimes against humanity.  Plachta discussed the decision of the Grand Chamber of the European Court of Human Rights allowing admissibility of the case of Ukraine and the Netherlands against Russia on the downing of the MH17 plane.  Mostaghimi discussed the suit in a U.S. court by a Syrian-American against the Syrian Government for torture in its detention centers. Hage discussed a French Supreme Court case clarifying “universal jurisdiction” standard for claims in France.  DePrado discussed a German court sentencing a German national for crimes committed abroad while in membership of the Islamic state.  Plachta discussed the ICJ order on provisional measures requested by Armenia against Azerbaijan over Nagorno-Karabakh on the basis of racial discrimination.  Zagaris covered the French arrest warrant issued for Assad and others for chemical attacks against civilians.

Concerning Genocide and War Crimes, Zagaris wrote about the enactment by the U.S. Congress of the Justice for Victims of War Crimes Act.  Mostaghimi covered a German court’s sentencing of a Syrian-Palestinian war criminal. Plachta covered the new Convention on International Cooperation in the Investigation and Prosecution of Serious International Crimes as well as the torture case brought by the Netherlands and Canada against Syria in the ICJ.  Maghsoodnia discussed the S. African authorities arrest of a Rwandan genocide suspect to stand trial in Rwanda.  Allen discussed Belgium and the Netherlands joining the EU-based joint investigation team to prosecute perpetrators of war crimes and crimes against humanity against the Yazidi people.

            With respect to international human rights enforcement, Mostaghimi covered the dismissal by a U.S. court of a lawsuit against the Saudi Crown Prince due to the Head-of-State immunity in the Khashoggi murder. At the same time, Hage discussed the suit brought by Khashoggi’s husband against NSO Group Technologies for the use of spyware Pegasus and allegedly hacking her phone. Telfer discussed the Inter-American Court of Human Rights decision holding Bolivia responsible for forced disappearances.  Telfer also discussed the verdict against a Haitian ex-mayor under the Victim & Torture Protection Act.  Zagaris discussed U.S. charges against 30 Chinese police officers for operating an illegal police station in the U.S. Plachta discussed the UN Special Rapporteur’s critical appraisal and recommendations following her visit to Guantanamo. Zagaris discussed the UN Working Group on Arbitrary Detention  report, demanding that the U.S. release Abu Zubaydah from Guantanamo.  Plachta covered the CoE’s demanding an investigation into PEGASUS spyware abuse, while Zagaris discussed the Government Accountability Office’s calls for better enforcement of U.S. laws against transnational repression in the U.S. Crovitz covered the settlement between a former Bolivian President and victims of 2003 extrajudicial killings after a civil trial in U.S. court.  Plachta covered the European Court of Human Rights judgment against Turkey for prosecution of individuals for the attempted coup in 2016.

International tax enforcement was prominent.  Zagaris wrote several articles about the cum-ex dividend scandal, including the extradition by the UAE of Shah to Denmark. Zagaris covered the deportation by Costa Rica of a U.S. tax fugitive. Ramirez discussed the European Court of Human Rights’ decision overturning the conviction of a whistleblower in Luxembourg. Zagaris discussed a U.S. court’s order to enforce a subpoena against Banco Santander concerning an Argentine tax dispute.  Zagaris discussed the Spanish tax authorities’ allegations of tax fraud against Shakira as well as the agreement by 48 countries to implement a global tax transparency framework for reporting and exchange of information for crypto assets. Zagaris covered the entering into a DPA by the Swiss private bank Pictet for tax crimes conspiracy as well as the Danish Supreme Court ruling a Danish law firm liable for advising a German bank on cum-ex dividend transactions.

International securities enforcement continues to receive attention.  Mostaghimi discussed IOSCO’s enactment of cryptocurrency regulation.

Transnational corruption, transparency, and international asset forfeiture loomed large in coverage.  Valentina Lana and Michel Sapin wrote about the impact of the Sapin II Act on the extraterritorial application of U.S. law and on cooperation between France and the U.S. in combating transnational corruption. Mostaghimi and Plachta wrote articles about Qatargate: a shock test to the EU’s transparency and accountability framework as well as one on the European Parliament’s recommendations and adoption of reforms arising out of Qatargate.  Zagaris covered Angola’s recovery of $5 billion of stolen and embezzled assets. Zagaris discussed LM Ericsson’s guilty plea for FCPA violations in a Deferred Prosecution Agreement.  Zagaris wrote about the U.S.’s decision to share funds forfeited from former Bayelsa governor with Nigeria.  Mostaghimi wrote about the seizure in S. Africa of assets of Equatorial Guinea’s Vice President to compensate damage awards to a torture victim.  Zagaris covered the first joint resolution between the U.S. and Colombia in the Odebrecht bribery case.

Human trafficking remained important.  Zagaris covered the international police operation, arresting the head of a human smuggling network in Sudan.

On Counterterrorism and International Human Rights, Plachta discussed the action of the Council of Europe (COE) on former foreign (ISIL) terrorist fighters returning to Europe as well as the COE’s adoption of a new counter-terrorism strategy for 2023-2027.  Zagaris covered the Canadian Prime Minister’s accusation of the Indian government’s involvement in the killing of a Sikh leader in Canada triggering diplomatic tension as well as the U.S. Government’s indictment of an Indian national after thwarting an alleged plot by Indian Government agents of a Sikh on U.S. territory.  Crovitz discussed ACLED’s release of the second-ever conflict index assessing global levels of political violence.

Cybercrime was on the rise.  Zagaris discussed the waiver by Bankman-Fried of extradition from the Bahamas to the U.S.  as well as  the U.S., Europol, and 12 countries taking down the hive ransomware infrastructure as well as the U.S. and Europol takedown of a darknet cryptocurrency mixer.  Zagaris covered the unsealing of an indictment against a Bulgarian woman extradited to the U.S. for her role in a crypto pyramid scheme.  Zagaris covered the CFTC administrative suit against Binance as well as the guilty pleas by Binance and its CEO as well as the disruption by the U.S. Justice Department and foreign governments of Russian malware.  Zagaris and Sanford discussed the imposition by the Irish Data Protection Commission of a U.S. $1.3 billion fine on Meta for GDPR violations.  Zagaris discussed INTERPOL’s Africa Cyber Surge II, which resulted in 14 arrests and disrupted thousands of illicit cyber networks.  Zagaris covered the U.S. indictment of the administrator of ‘bulletproof’ web hosting domain charged with facilitating Netwalker ransomware as well as the U.S. and allies’ disruption of Qakbot malware.

Concerning Child Sexual Exploitation, Zagaris discussed the arrest in Malaysia of a Bangladeshi national indicted in the U.S. for sextortion (operating a child exploitation enterprise).

On the Recovery and Return of Stolen Cultural Property, Zagaris discussed the settlement between the Latchford estate and the U.S. Attorney for the S.D.N.Y. on the civil forfeiture action on Southeastern Asian antiquities.  Telfer discussed the German bank returning a Kandinsky painting sold in1940 at auction back to Jewish heirs.  DePrado covered Illinois museum repatriating statues to Kenya.  Zagaris discussed the Manhattan D.A. seizing bronze antiquities from the Cleveland Museum on behalf of Turkey. Crovitz covered the seizure by Spain of Ukrainian artifacts after attempted trafficking to Spain and the U.S.

On International Environmental Enforcement and Illicit Financial Flows, Zagaris discussed a U.S. court in Amarillo sentencing a former Texas professor for wildlife trafficking. Plachta discussed the European Committee on Crime Problems’ actions on the environment.  Zagaris discussed China’s amendment of its wildlife protection law. Mostaghimi discussed the U.S. formation of a working group to address illicit international timber trade.  Nagle covered the catalytic converter theft fueling a thriving recycling black market.  Zagaris discussed India’s increasing investigation of an alleged kingpin of red sandalwood smuggling.  Crovitz discussed the U.S. DOJ’s and Fish and Wildlife Service’s indictment concerning enforcement of the international endangered species trafficking laws as well as South and Southeast Asian nations struggling to enforce an international anti-wildlife smuggling treaty.

With respect to Transnational Organized Crime (TOC), Zagaris wrote about the EU and U.S. exerting pressure on the Kinahan cartel and the U.A.E.  Mostaghimi discussed the designation by the U.S. Treasury of the Wagner Group as a TOC group.

On Money Laundering, Zagaris wrote several articles on the U.S. Corporate Transparency Act.  Elisabeth Lees, a Cayman practitioner, discussed regulatory enforcement developments in the Cayman Islands resulting from FATF pressure.  Zagaris covered FinCEN’s renewal and expansion of real estate Geographic Targeting Orders and FinCEN proposing a special rule under Sec. 311 for more transparency in virtual currency mixing.  The FATF consultation on enhanced transparency with respect to trusts was covered by Zagaris.  The Basel Institute highlighted the 12th Basel AML Index showing money laundering trends and concerns.  Abdulsalam discussed Saudi Arabia’s initiating financial compliance and enforcement initiatives.  Zagaris covered the FATF reporting on the misuse of citizenship and residency by investment.

There were multiple articles on Atrocity Crimes, especially in Ukraine, Plachta discussed the European Parliament resolution calling for the establishment of a tribunal on the crime of aggression against Ukraine.  Zagaris wrote about the U.S. arresting and charging British and Russian businessmen for sanctions evasion concerning an oligarch’s yacht. Zagaris discussed the Swiss prosecution of bankers for assisting Putin’s strawman.  Mostaghimi wrote about Swiss proceedings to confiscate assets linked to former Ukrainian President Yanukovych.  Plachta discussed the finding by the UN Commission of a wide range of war crimes by Russian forces in Ukraine.  Zagaris covered the arrest warrant the ICC issued for Russian President Vladimir Putin for the deportation of Ukrainian children.  Plachta discussed the UN Human Rights Council’s failure to extend a mandate to investigate  Ethiopia amid continuing atrocities.  Plachta discussed the reaction of the UN and EU to the terrorist attack on Israel and Israeli military actions.  Plachta discussed the ICJ’s order of provisional measures against Syria for torture and other cruel, inhuman, or degrading treatment or punishment.  Zagaris covered the U.S. indictment against 4 Russian soldiers for war crimes against a U.S. citizen.

With respect to International Narcotics Enforcement, Zagaris discussed the multiple prosecutions by the U.S. against the Sinaloa cartel. Zagaris discussed U.S. and Europol breaking up darknet trafficking of fentanyl and opioids. Zagaris discussed the U.S. indictments against China-based chemical manufacturing companies with respect to fentanyl trafficking.  Zagaris covered the Europol task force dismantling a multinational cocaine organization.

Extradition saw many articles.  Plachta discussed an EU Court of Justice decision, allowing the extradition of EU citizens to third countries to serve a sentence.  Zagaris discussed the U.S. obtaining custody of a Lockerbie suspect through an apparent abduction in Libya. Mostaghimi covered the extradition case in Italy of the son of the Russian Governor to the U.S.  Zagaris discussed an English High Court’s denial of the founder of Abraaj to stop his extradition to the U.S. for fraud.  Zagaris covered the UAE denial of S. African extradition request of the Gupta brothers for state capture.  Zagaris discussed Peru’s extradition of van der Sloot to the U.S. in an extortion and wire fraud case.  Mostaghimi discussed the U.S. extradition of ex-Peruvian President Alejandro Toledo on corruption charges.  Zagaris discussed the UK High Court’s denial of Assange’s latest effort to appeal against extradition to the U.S. as well as S. Africa extraditing former Mozambican Finance Minister to the U.S. in the tuna bond case. Zagaris covered Mexico’s extradition of El Chapo’s son to the U.S.  as well as the decisions by Germany and Ireland to deny extradition to Britain and Scotland due to British prison conditions.

With respect to Illegal Firearms Trafficking, Zagaris covered the suit filed by parents of the Parkland mass shooting victim against the U.S. in the Inter-American Human Rights Commission with respect to international human rights violations as well as the OAS Permanent Council’s consideration of how to tackle the surge of gang and gun violence.

Concerning Interpol Accountability, Yuri Nemets discussed seeking asylum while on the INTERPOL wanted list: the expert witness perspective.  Meg Hobbins and Ted R. Bromund discussed ICE’s issuance of INTERPOL Red Notices.

Concerning the International Criminal Court, Plachta discussed the Philippine government’s cutting contact with the ICC over the “war on drugs” investigation as well as the ICC Appeal Chamber authorizing the investigation on drug war killings in the Philippines. Maghsoodnia discussed the ICC’s addressing a new way to tackle war crimes with the DRC.  Plachta also covered the ICC authorizes the Prosecutor to resume the investigation in the situation of Venezuela.

With respect to Jurisdiction, Immunities of International Organizations, and Diplomats, Ramirez discussed the court ruling that no diplomatic immunity exists for extradited Maduro associate Alex Saab Moran.  Zagaris wrote several articles on Haiti transferring persons to the U.S. on charges of conspiring to kill former Haitian President Jovenel Moïse.  Davis discussed the U.S. Supreme Court Halkbank case and whether sovereign owned enterprises are immune from prosecution.

Concerning Migration Enforcement, Mostaghimi discussed the commitment by the U.S., Panama, and Colombia to a 60-day campaign to stem migration through the Darien Gap.

With respect to international evidence gathering, Zagaris reviewed the new edition of Ristau’s International Judicial Assistance:  A Practitioner’s Guide to International Civil and Commercial Litigation. Zagaris covered the release by Eurojust of a report on digital evidence gathering.

With respect to international enforcement cooperation, Zagaris discussed the U.S. and Cuba restarting law enforcement dialogue.

On sanctions enforcement, Zagaris covered the G7 statement on Ukraine, calling for widening sanctions and accountability mechanisms.  Magliveras discussed the regulations of ‘autonomous sanctions’ in Canadian legislation. Zagaris discussed OFAC’s delisting a Kiwi from the Russian sanctions list after he sued OFAC  as well as the French arrest of a sanctioned Russian oligarch.  Zagaris wrote about a civil forfeiture action brought by the U.S. against the $300 million superyacht of a Russian oligarch as well as the UN High Commissioner for Human Rights highlighting the harmful impact of unilateral sanctions.  Zagaris covered Cyprus inviting foreign experts to help with Russian sanction evasion investigations.

With respect to economic integration and enforcement cooperation, Plachta wrote several articles on EU and Council of Europe developments, such as the CoE’s European Committee on Crime Problems 83rd plenary session and the EU’s introduction of the European Production and Preservation Orders for electronic evidence in criminal matters.  Zagaris discussed the U.S.-EU Ministerial on Justice and Home Affairs making progress on Russia, counterterrorism, transnational organized crime, cybercrime, and migration.

Concerning the production and use of chemical weapons, Zagaris discussed the Conference of State Parties to the Chemical Weapons Convention’s action on Syrian violations.

 

OECD Announces Public Consultation on Tax Transparency for Crypto-Assets

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On March 22, 2022, the OECD issued a public consultation document involving a new world tax transparency framework to furnish the reporting and exchange of information with regard to crypto-assets and proposed amendments to the Common Reporting Standard (CRS) for the automatic exchange of financial account information between countries.  The consultation has the goal to inform the decisions of policy makers on the potential adoption of any such framework and its related components.

A challenge to tax and financial regulators is that a person can transfer and hold crypto-assets without intervention of traditional financial intermediaries and without any central administrator being able to watch either the transactions or the crypto-asset holdings.  In addition, the Crypto-Asset market has resulted in a new set of intermediaries, such as Crypto-Asset exchanges and wallet providers, which may currently only be subject to limited regulatory oversight. Crypto-Asset exchanges typically facilitate the purchase, sale, and exchange of Crypto-Assets for other Crypto-Assets or fiat currencies.  As a result, individuals can exploit crypto-assets to evade international tax transparency initiatives, such as the CRS.

Crypto-Asset Reporting Framework (CARF)

As a result of the potential to circumvent tax transparency initiatives, the G20 has asked the OECD to develop a framework for the automatic exchange of information on crypto-assets (Crypto-Asset Reporting Framework or CARF).  The new framework establishes mechanisms for the collection and exchange of tax-relevant information between tax administrations, with respect to persons engaging in certain transactions in crypto-assets.  The framework includes crypto-assets that a person can hold and transfer in a decentralized way, without the intervention of traditional financial intermediaries, as well as asset classes utilizing similar technology that may exist in the future.  The framework requires businesses that furnish services to exchange crypto-assets against other crypto-assets or  fiat currencies.

Proposed CRS Amendments

In addition to the CARF, the OECD has developed proposals, as part of the first comprehensive review of the CRS, to improve the operation of the CRS, based on the experience of governments and businesses since its adoption  in July 2014.   The proposal broadens the scope of the CRS to cover electronic money products and the Central Bank Digital Currencies.   As a result of the development of the CARF, the proposals also embrace changes to cover indirect investments in crypto-assets through Investment Entities and derivatives.  Simultaneously, the proposal has new provisions to achieve an efficient interaction between the CRS and the CARF, including ways to avoid duplicative reporting.       The amended CRS endeavors to strengthen the due diligence procedures and reporting outcomes  in order to improve the usability of CRS information for tax administrations and limiting burdens on financial institutions.

The OECD is requesting public comments on its proposals.  Interested persons should send their comments no later than April 29, 2022 by email (in Word format) to taxpublicconsultation@oecd.org.  Additional information on the CARF, the amended CRS, or to comment on the public consultation draft should view the public consultation document.   All written comments received will be made publicly available on the OECD website. Comments submitted in response to this invitation will be posted on the OECD website.

The OECD will hold a public consultation meeting at the end of May 2022.  Speakers and other participants at the upcoming public consultation meeting will be selected from among those providing timely written comments.

Once it receives and digests the input received through the public consultation, the OECD will make final the rules and commentary to the CARF and the amended CRS.  The OECD will also develop the exchange instruments and technical solutions needed to support reporting and exchanges pursuant to the CARF and the amended CRS.  The OECD intends to report on the CARF and the amended CRS under the Indonesian Presidency of the G20 for its October 2022 meeting.

Analysis

The public consultation documents explains that the CARF and amended CRS responds to dynamics of the Crypto-Asset market, including both the Crypto-Assets offered, as well as the intermediaries involved.  These developments pose a significant risk that recent gains in global tax transparency will be gradually eroded.

Clearly, the Crypto-Asset market and the intermediaries involved are different from the usual information providers in third-party tax reporting regimes, such as the Common Reporting Standard (CRS), to a new set of intermediaries, which only recently became subject to financial regulation and are frequently not subject to tax reporting requirements with respect to their clients.  Perhaps, more importantly, the public consultation responds to the ability of individuals to hold Crypto-Assets in wallets unaffiliated with any service provider and transfer such Crypto-Assets across jurisdictions.  The ability of persons to hold and transfer Crypto-Assets pose a risk that Crypto-Assets will be used for illicit activities or to evade tax obligations.  The potential for persons to possess and transfer Crypto-Assets unaffiliated with any service provider has reduced tax administrations’ visibility on tax-relevant activities carried out within the sector, increasing the difficulty of verifying whether associated tax liabilities are appropriately reported and assessed.

The OECD public consultation complements the work of the J5 countries.  On March 25, 2021, the Joint Chiefs of Global Tax Enforcement (J5) assembled investigators, cryptocurrency experts and data scientists in a coordinated push to track down individuals and organizations perpetrating tax crimes around the world.  Without having in place an effective framework and reporting mechanisms, the J5 and other tax authorities are limited in their compliance and enforcement abilities.

The public consultation follows closely  the U.S. Department of Justice announcement of its first director of National Cryptocurrency Enforcement and President Biden  signing an Executive Order (titled “Ensuring Responsible Development of Digital Assets” and issued with an accompanying Fact Sheet) regarding the U.S. government’s strategy for digital assets.  The Executive Order orders federal agencies to issue various reports that will set forth future U.S. policy toward digital assets, including the potential launch of a federally issue digital dollar.

Hence, the international and national compliance and enforcement framework for Crypto-assets are changing dynamically.

The current issue of the IELR will discuss in more detail the public consultation and its implications.

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.

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.

 

2021 Holiday Retrospective

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We at the IELR send you the best wishes for a warm and joyous holiday season.  2021 was momentous for the international enforcement community, and we are grateful to have had you following along with our coverage during our 37th year of discussing international enforcement developments.

Contributors

We are grateful for the continuing long partnership with Professor Michael Plachta and for contributions from practitioners and professors, including Dr. Ted Bromund, Frederick T. Davis, Michele Estlund, Dr. Scott MacDonald, Dennis Boyle, Konstantinos Magliveras, Yuriy Nemets, Spencer A. Hill, Peter D. Hardy, Kateryna Boguslavska, Matteo Formaggi, and Linda Friedman Ramirez. Miranda Bannister finished her tenure as assistant editor in February.  Marwah Adhoob, who specialized in criminology as an undergrad, energetically replaced her.  Our legal assistants Sara Kaufman and Emma Byrne ably contributed articles. Our interns, Mitchell Beebe, Elena Botts, Kayla DeAlto, Austin Max Scherer, Teddy David, Jamie Jang, Kenneth Boggess, and Julia V. Brock, contributed some great pieces.

The following is a highlight of some of the articles we covered.

International Criminal Court

The International Criminal Court was prominent in our coverage. Plachta discussed the territorial jurisdiction of the ICC in the Palestine/Israel Case as well as the ICC Prosecutor closing a preliminary examination in Colombia and concluding an agreement with the Colombian government. K. DeAlto discussed the Central African Republic’s surrender of Said Abdel Kani to the ICC.  M. Beebe and Zagaris wrote articles about the U.S. District Courts’ blocking President Trump’s executive order, sanctioning ICC officials. Zagaris discussed President Biden’s revocation of the Trump executive order.

War Crimes and Crimes against Humanity

On war crimes and crimes against humanity, Brock discussed the reversal by the South Korean court of the 2018 on “comfort women” and ordered Japan to pay reparations to the families of 12 women forced to work as sex slaves. Plachta discussed the ECHR’s decision on German responsibility for an air strike in Afghanistan.  David and Kaufman respectively discussed German courts’ convictions of a former Syrian secret police officer and a Syrian military doctor for crimes against humanity and Adhoob discussed a German court’s conviction of a woman for crimes against humanity in the death of a Yazdi girl in Syria.  Likewise, Adhoob detailed the enforcement actions of the UN with regards to genocide, such as UN’s opening of an inquiry into Sri Lanka’s alleged war crimes during its civil war as well as the UN investigation team’s conclusion that ISIL’s crimes against Yazidis constitute genocide.  Adhoob discussed a report by a U.S. law firm, finding France responsible for the Rwandan genocide.  Zagaris and Adhoob wrote about the UN Human Rights Council’s adoption of a resolution to start a Commission of Inquiry on the latest Israel-Palestine conduct. Jang discussed the African Union’s starting of a Commission of Inquiry on the war in Ethiopia. David wrote about the conviction in a Swiss court of a Liberian warlord, putting the spotlight on universal jurisdiction and Liberian accountability.  Zagaris covered the French Supreme Court’s overturning of the dismissal of complicity for crimes against humanity against multinational enterprise Lafarge for its conduct in Syria. Boggess discussed the UN Human Rights Council’s Independent Fact-Finding Mission renewing its mandate as a UN report warns of war crimes and crimes against humanity. Ramirez wrote about a judgment of the Inter-American Court of Human Rights, finding Colombia responsible for a journalist’s abduction twenty years before.

Tax transparency and Enforcement

With respect to tax transparency and enforcement, Zagaris wrote about the EU Parliament’s adoption of a resolution to toughen the tax haven blacklist, the OECD’s call for action to disrupt, prevent, and prosecute criminal conduct by professional enablers, the OECD’s new edition of fight tax crime, and the many cases against tax enablers, including the cum-ex dividend fraud cases, as well as a federal court’s approval of a John Doe Summons for a Panamanian law firm dealing with U.S. clients.  Scherer also wrote about how charges against professionals illustrate the shifting legal landscape for professional enablers. Zagaris also discussed the U.S. Tax Court decision against a constitutional challenge to passport denial for delinquent taxpayers and about a founder of a Russian bank pleading guilty to tax fraud, including falsifying his expatriation statement.  Zagaris discussed the Nigerian government’s start of voluntary offshore assets London declaration facilities and its application to foreign enablers.  Zagaris wrote about a CJEU decision mandating enforcement of tax information request even without the taxpayer’s specific name and identity.

Money Laundering, Bank Secrecy and Transparency

On money laundering, bank secrecy and transparency, Boguslavska discussed how the 10th Basel AML index highlights four worrying gaps in global AML efforts.  Zagaris wrote several articles on the Anti-Money Laundering Act of 2020, as well as FinCEN’s proposed regulations on beneficial ownership and the ANPRM on beneficial information on real estate purchases. MacDonald wrote about Suriname’s corruption and money laundering challenges.  Adhoob and Zagaris wrote about the FinCEN notice informing financial institutions of money laundering dangers from illicit art and antiquities trade. Plachta discussed the Council of Europe’s adoption of a resolution and recommendation on strengthening FIUs.  Zagaris discussed the Cayman AML regulator’s crack down after the FATF greylisting.   Scherer discussed how the Xizhi Li conviction showed an application of money laundering techniques for laundering drug proceeds on behalf of foreign drug-trafficking organizations. Zagaris discussed the implications of the Pandora Papers and the proposed new enforcement actions of the European Parliament in the wake of the Pandora Papers.

Counter-terrorism, Economic Sanctions and Human Rights

Counter-terrorism, economic sanctions and human rights were continuing topics.  Plachta discussed the adoption by the European Commission of a new counter-terrorism agenda and a proposal for amending Europol regulation.  Adhoob discussed the ACLU’s suit on alleged discrimination by the U.S. “no-fly list” against Arabs and Muslims.  Zagaris covered China’s adoption of blocking legislation and counter-sanctions. Bannister covered the Biden Administration’s countering the Trump Administration’s sanctions against the Houthi rebels in Yemen.  Zagaris discussed the ruling of the EU Advocate General that a German telecom cannot cancel a contract with an Iranian bank without showing the cancellation was not due to U.S. sanctions.

Counter-terrorism financing,

On counter-terrorism financing, Adhoob discussed U.S. prosecution of a woman extradited by the Dutch for terrorist financing through a charity.  Zagaris wrote about a French donor’s financial contributions to the U.S. alt-right before the capitol assault and the need to apply counter-terrorism financial enforcement tools as well as a meeting between G7 and EU Security ministers on cooperation on countering racially and ethnically motivated extremism.

Transnational Corruption and Asset Forfeiture

With respect to transnational corruption and asset forfeiture, Zagaris discussed the Justice Department’s civil forfeiture suit against two alleged Ukrainian kleptocrats, a settlement by Deutsche bank of an FCPA and commodities case.  Bannister and Adhoob covered in separate articles the fishrot scandal in Namibia, where Icelandic Samherji employees allegedly paid bribes to Namibian government officials for rights to fish for horse-maskerel. Boyle discussed the Biden Administration’s policy toward Central America and the challenges posed by corruption. Zagaris contributed a piece on U.S.-N. Triangle Enhanced Engagement Act setting the stage for new U.S. policy. Zagaris discussed the British Commission on Inquiry’s investigation of alleged corruption in the BVI as well as the Biden memorandum declaring anti-corruption a core U.S. national security interest.  Zagaris wrote about the Dutch court’s agreement with a report calling the Santos-linked Angolan energy deal corrupt.  Zagaris discussed the Amec Foster Wheeler’s global corruption settlement with the U.S., U.K., and Brazil.  Zagaris discussed the return by the U.S. government of an additional $452 million in forfeited 1MDB funds to Malaysia as well as the DOJ’s return of over $32m in forfeited funds to FIFA victims.

Illegal Production and Use of Weapons

With respect to the illegal production and use of weapons, Zagaris discussed a suit by the Mexican government against U.S. arms manufacturers for illicit trafficking in arms as well as the guilty plea in the U.S. in the first successful prosecution of exportation and manufacturing of firearms to the Mexican Cartels. Adhoob discussed the U.K. and U.S. sanctions on seven Russian agents and entities over the Alexi Navalny poisoning. Zagaris discussed a ECtHR’s decision finding Russia responsible for the assassination of Litvinenko and Britain naming a third Russian suspect in the poisoning of Skripal.

Extraterritorial Jurisdiction

Extraterritorial jurisdiction remained controversial.  Fred Davis discussed the Second Circuit’s decision, opening the door a bit to non-citizen defendants challenging a court’s jurisdiction in criminal cases and also the partial clarification by the Second Circuit of the procedures applicable to prosecution of foreign sovereign owned enterprises.  Zagaris discussed Bahrain’s return of a U.S. citizen to the U.S. to face charges of murdering his mother in Bahrain as well as an Italian court’s ordering four Egyptians to stand trial in the kidnapping and killing of an Italian student in Egypt. Zagaris wrote about a Spanish court’s ordering Banco de Chile to set aside $103 million for its role in money laundering from the Pinochet expropriations and about the EU Commission proposals for major revisions in its AML/CFT laws.

Recovery and Return of Cultural Property

On the recovery and return of cultural property, Zagaris discussed the German-Nigeria agreement on the return of Benin bronzes as well as the DOJ forfeiture action for 10th century statute looted from Cambodia, and the return by U.S. Homeland Security of hundreds of looted artifacts to Mali.  Adhoob covered the U.S. return of looted artifacts to Iraq stolen after the U.S. invasion as well as the discussion between Met officials and U.S. investigators of returning to Cambodia artifacts stolen from ancient sites.

Transnational Organized Crime

On transnational organized crime, Plachta discussed the consequences and prospects for the UN (Palermo) Convention against Transnational Organized Crime on its 20th anniversary.  Adhoob discussed the arrest by Italian police of suspected Black Axe members for fraud and other serious crimes.  Boggess covered the international dark web bust operation DarkHunTOR following the dark market seizure by U.S. and EU law enforcement.

On international narcotics enforcement, transnational organized crime and corruption, Zagaris wrote about Mexico exonerating its ex-defense chief and enacting a law pausing enforcement cooperation with the U.S.  Bannister wrote about the UN Commission on Narcotic Drugs’ vote to remove cannabis from the list of Schedule IV narcotics.  Zagaris wrote about the U.S. detention of the wife of “El Chapo” and the guilty plea to violating the Kingpin Act by the daughter of the head of the Cartel Jalisco Nueva Generación.  Hill and Hardy discussed a UN report targeting corruption and illicit cross-border finance.  Kaufman covered ANOM, a global covert investigation conducted by law enforcement worldwide through an encrypted App, yielding 800 arrests. Zagaris wrote about Mexico’s suit in U.S. court in Florida to recover assets from former security chief linked to the Sinaloa cartel.  Adhoob discussed the Italian police’s dismantlement of an international drug trafficking ring operated by the ‘Ndrangheta mafia clan.

International Environmental Enforcement

With respect to international environmental enforcement, Zagaris covered Kenya’s extradition of its citizen for trafficking rhino horns, elephant ivory, and heroin. Byrne discussed illicit ivory trafficking from Angola to Vietnam.  Adhoob wrote about the S. African arrest of a hunter for illegal possession of rhino horns.  Zagaris discussed how U.S. prosecutions of three wildlife trafficking violations show the rising incidence of these crimes.

Migration Enforcement

Migration enforcement received significant focus.  Byrne discussed the INTERPOL operation targeting human trafficking and migrant smuggling in approximately 24 countries.  Adhoob covered the U.S. State Department’s 2021 trafficking in persons report and the impact of misinformation and Covid-19 on human trafficking. Adhoob also discussed a State Department’s lawyer’s resignation due to a Biden Administration policy on asylum Kaufman discussed the 5th Circuit’s decision rejecting the Biden Administration’s efforts to end Migration Protections Protocols.  Plachta wrote about the EU’s responses to human smuggling in the Belarus border crisis.

International human rights and enforcement,

With respect to international human rights and enforcement, Plachta discussed the EU adoption of Magnitsky-type global human rights sanctions regime.  Magliveras discussed the first application of sanctions under the EU’S Magnitsky Act on Russia. Zagaris wrote about Turkey’s arrest of an Iranian dissident’s coinciding with Freedom House’s transnational repression report as well as about the signing by 58 nations of a declaration against arbitrary detention of foreign and dual nationals. Botts wrote about OFAC’s naming three Bulgarians under the Global Magnitsky Act for corruption.  Kaufman discussed how events in Haiti and C.A.R. show the threats posed by mercenaries to international peacekeeping.  Adhoob covered ECOWAS’ demanding answers in the alleged detention of Mali’s former interim leaders as well as Qatar’s imprisoning a Kenyan for blogging about low-income Kenyan migrants work conditions in Qatar.

Extradition and Extradition Alternatives

Developments on extradition and extradition alternatives remained critical.  Ramirez and Boggess wrote articles about the extradition of Venezuelan diplomat Alex Saab to the U.S., notwithstanding his claims of diplomatic immunity.  Zagaris wrote several articles about the Assange extradition decisions by U.K. courts and the U.S. extradition of the father and son for helping Carlos Ghosn escape from Japan.  Zagaris covered the S. African court’s overruling the Justice Minister in ruling the former Mozambique Finance Minister will be extradited to the U.S. rather than Mozambique.

Nemets discussed how the U.S. Immigration court’s handling of INTERPOL Red Notices and diffusions suggests a uniform approach.  Estlund and Bromund summarized and assessed the 2019 changes in INTERPOL’s rules on the processing of data.  Zagaris discussed the CJEU decision against detention for INTERPOL Red Notice due to ne bis in idem (dual criminality).

International Evidence Gathering

With respect to international evidence gathering, Jang discussed how the Gupta brothers’ corruption scandal invoked the ratification of a new mutual legal assistance and extradition treaty between S. Africa and the UAE.  Adhoob covered the Netherlands’ funding the Iraq UNITAD witness protection program to promote accountability for crimes committed by ISIL.

Economic Integration and International Enforcement

Plachta contributed many articles on economic integration and international enforcement, including the European Parliament’s call for improvement of implement and application of the European Arrest Warrant (EAW), and the EU Court of Justice’s rejection of “automatic refusal” of EAWs issued by Polish authorities. Zagaris discussed the Eurojust’s new funding initiative for joint investigation teams.  Scherer discussed the EU whistleblower protection directive the Jonathan Taylor extradition.  Plachta covered the adoption by the Council of Europe of a resolution on political responsibility for corruption as well as the European Commission releases of three proposals to strengthen and enhance police cooperation across the EU.

Maritime Piracy

On maritime piracy, Scherer discussed the shipping industry task force initiative against maritime piracy in the Gulf of Guinea. Adhoob discussed the Nigerian high court’s sentencing of 10 pirates for the hijack of a Chinese vessel.

International Tribunals

With respect to international tribunals, Zagaris discussed the affirmation by the Appeals Chamber of the International Residual Mechanism for Criminal Tribunals of the conviction of Ratko Mladić’ for genocide, crimes against humanity and war crimes, as well as the closure of the Special Tribunal for Lebanon and how the closure raises questions about international tribunals.

International Sex Trafficking

Mr. Zagaris contributed articles on international sex trafficking, especially the U.S. and Canadian charges against the Canadian fashion tycoon Peter J. Nygard.

Online Child Sex Exploitation Abuse

With respect to online child sex exploitation abuse, Zagaris covered U.S. indictments and INTERPOL’s pursuit of international enterprises and individuals involved in online sexual exploitation.  He wrote about the EU Justice & Home Affairs Council initiatives on the digital dimension of child sexual abuse.

Cybercrime

Cybercrime continued to grow exponentially. Zagaris discussed cooperation between the EU and eight countries in taking down dangerous the malware EMOTET, the DOJ’s participation in global disruption of NetWalker ransomware, and Australia’s extradition of two defendants in an auto-subscribing cyber fraud scheme.  Zagaris discussed the U.S. indictment against three N. Korean military hackers.  Adhoob discussed the imposition by the Biden Administration of sanctions against Russia for alleged election interference and SolarWinds cyber hacks as well as the guilty plea of a crypto expert to assisting N. Korea evade sanctions.  Zagaris covered U.S. sanctions against a Russian-owned crypto-exchange for ransomware activities as well as the U.S. indictment and sanctions against Iranians for cyber-enabled disinformation regarding the 2020 Presidential Campaign.  Scherer wrote about cases involving the seizing illicit proceeds of and combating ransomware attacks.  Zagaris covered the guilty plea by the director and promoter of BitConnect for its participative in a massive fraud conspiracy. Formaggi discussed China’s declaration of all cryptocurrency transactions illegal while the U.S. and EU prepared further crypto regulation.  Zagaris discussed the arrests and seizures by 17 countries of alleged ransomware extortionists.  Plachta covered the adoption by the Council of Europe of the Second Protocol to the Cybercrime (“Budapest”) Convention.

International Anti-trust Enforcement Cooperation

On international anti-trust enforcement cooperation, Zagaris discussed the DOJ’s Antitrust Division summary of its 2020 international achievements.

Export Control and Economic Sanctions

With respect to export control and economic sanctions, Boggess discussed the CEO quitting after the U.S. Commerce Department blacklisted Israeli spyware firm NSO Group. Zagaris wrote about the Mashreqbank settlement with OFAC, the Federal Reserve and NYDFS for violating the Sudan sanctions.

Illegal, Unregulated, and Unreported Fishing

With respect to illegal, unregulated, and unreported fishing, Adhoob wrote about Bolivia’s signing an MOU to strengthen compliance/transparency in the fishing industry.

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.

Frank Vogl’s Book on Enablers Underscores the Link between Corruption and Democracy

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The Enablers: How the West Supports Kleptocrats and Corruption – Endangering Our Democracy (Roman & Littlefield, 2021, ISBN-13: 978-1538162828, ISBN-10: 1538162822)

Frank Vogl, the co-founder and former vice-chairman of the leading global organization fighting corruption, Transparency International, and the chairman of another, the Partnership for Transparency Fund,  discusses the role of enablers in facilitating corruption, especially cross-border corruption.  He discusses the key  roles the enablers play in serving kleptocrats in many countries, including Russia, China, Iran, Egypt, Hungary, and Nigeria.  He describes the enormous sums of government funds that have been stolen and laundered on a rapidly rising scale into investments in the wealthiest Western nations with the help of firms like Goldman Sachs, Deutsche Bank, BNP-Paribas, and HSBC, alongside leading law firms, auditors, real estate brokers based in the world’s major financial centers.

Vogl, who served for 20 years as the international communications advisor to the Institute of International Finance (IIF), the leading association of the world’s largest banks, and who also served as the communications advisor to the Group of 30 (the association of former finance ministers and central bank governors), uses  first-hand experiences to tell the stories that demonstrate  that the leaders of our financial system are failing to work in the public interest – too many of their activities add wealth, and inevitably power, to Putin and his cronies in Russia, and to other leaders who work  to undermine Western democracy and challenge its security. According to Vogl, greed and short-term profit maximization dominate banking culture today with dangerous consequences.

Vogl develops examples from across the world to call for far-reaching reforms: from reforming banking and the sovereign bond markets, to enacting new anti-corruption laws, and, most importantly, substantially increasing law enforcement. He argues that the chairmen and CEOs of major banks that are caught laundering billions of dollars should be held accountable. According to Vogl, EU authorities should step up financial regulation. He underscores the need to expose and counteract the excessive influence of the City of London’s leaders on preventing serious investigations and prosecutions of their entanglements with foreign kleptocratic clients.

Vogl argues that, if President Biden is to be credible in his strategy to strengthen democracy and contain authoritarianism, then he must not only increase U.S. leadership in fighting corruption abroad, but he must also act urgently to contain the enablers at home. This book explains why and how  several reforms can obtain powerful bi-partisan political support.

Vogl calls for the need for political leadership and multilateral action in the G20 and other international networks and formal international organizations.

On November 15, 2021, Global Financial Integrity hosted a webinar was held on the book.  Participating were: Frank Vogl; Tom Cardamone President and CEO, Global Financial Integrity, moderator; Raymond Baker Founder, Global Financial Integrity; Zoë Reiter Director of Civic Engagement, Project on Government Oversight; and Alexandra Gillies Advisor, Natural Resource Governance Institute.  One of the themes of the webinar was the need to underscore and reform the erosion of transparency plaguing the United States government.

Vogl in his book and during the webinar underscore the potential importance of the Summit on Democracy.  On December 9-10, 2021, President Biden will host the first of two Summits for Democracy, which will bring together leaders from government, civil society, and the private sector to set forth an affirmative agenda for democratic renewal and to tackle the greatest threats faced by democracies today through collective action.

They underscored the need for a transnational approach and discussed the interplay of corruption, financial regulation, and climate control.  Global witness has issued several blog posts on the role of finance and climate control.  See, e.g., https://www.globalwitness.org/en/blog/our-verdict-cop26-compromise-catastrophe.

For persons interested in the contemporary links in the United States and internationally between corruption and reform efforts, especially related to the financial aspects, this book provides some incisive perspectives and solutions.

Spanish Court Advises Banco de Chile to Set Aside $103M for Money Laundering from Pinochet Expropriations

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On July 29, 2021, the Seventh Court of Guarantee of Santiago (El Séptimo Juzgado de Garantía de Santiago) reopened an investigation into whether the Banco de Chile helped the former dictator Augusto Pinochet launder money.  It notified the Supreme Court of Chile of the reopening of the case and advised the bank, whose ownership in related to the Pinochet family, to set aside $103 million.[1]

The Spanish Court’s Decision

The plaintiffs are led by the President Allende Foundation, named after the former President Salvador Allende, whom Pinochet overthrew in a coup.  The Foundation represents more than 20,000 victims of the Pinochet dictatorship.  The plaintiffs allege the funds were obtained by illegal expropriations by General Pinochet and his associates and transferred to personal offshore accounts.  The complaints allege that the transfers constituted acts of tax evasion and money laundering, which the Banco de Chile assisted.[2]

In 1998, Spanish judge Baltasar Garzon ordered Pinochet detained for crimes against humanity.  Spain requested Pinochet’s extradition from England.  Although the English courts ordered him extradited, the British Home Office ordered that he not be extradited due to humanitarian considerations, namely his age and failing health.  General Pinochet died under house arrest in Chile in 2006 without being tried.

Banco de Chile, the Alleged Enabler, and the Luksić Family

Banco de Chile successfully claimed for years that Chile rather than Spain has jurisdiction to investigate the allegations.  In 2013, the Chilean judiciary closed a money laundering investigation without charging the general or anyone else.  A study commissioned by the Chilean Supreme Court stated only $2 million of the $21 million identified as Pinochet’s personal wealth could be considered clean.

In 2018, Chile’s Supreme Court ordered the return of $1.6 million of Pinochet’s assets.  It convicted three of his former generals for fraud connected to public money.  Banco de Chile paid Chilean authorities $3.1 million in 2009 for administrative irregularities concerning General Pinochet’s money.  However, the bank was never indicted.[3]

Although the court told Banco de Chile it should set aside $103 million to cover potential payments to the victims, it has not yet ordered it to do so.  Banco de Chile has deposits in around ten countries, six in the European Union.

Quiñenco is the majority owner of the Banco de Chile.  The Luksić family has Quiñenco as its holding company.  Vladimir Luksić was the brother-in-law of Augusto Pinochet.

Prosecutor José Morales has also charged Anita María Pinochet Ribbeck, the spouse of former army general, Juan Miguel Fuente-Alba, and Fuente-Alba, with money laundering.[4]

Morales claims that a report of the Financial Intelligence Agency shows the pair increased their wealth more than 280% between 2010 and 2016 by hiding and falsify the illegal source of their funds.  The defendants, represented by Cuatrecasas, one of the largest Spanish firms specializing in tax and money laundering, tried unsuccessfully to dismiss the case.[5]

Analysis

Spain has extraterritorial jurisdiction for Spanish victims.  Already the Spanish courts imposed a penalty against Riggs Banks for alerting General Pinochet’s to move the money in his accounts in London ahead of Garzon’s request that Britain to freeze his accounts.[6]

This case should be watched for its efforts to hold accountable Banco de Chile, the alleged enabler, almost 23 years after the initial charges in Spain.

Spain’s wide-ranging tax collection and enforcement and mutual assistance agreements with the EU countries may play an important role in this case.

The case illustrates the use of extraterritorial jurisdiction when a court believes a foreign court, although exercising jurisdiction, have not properly adjudicated the case.

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

[1]    Raphael Minder, Spain Reopens Pinochet Inquiry Into Tax Evasion and Laundering, N.Y. Times, July 31, 2021, at A7, col.1.

[2]    Spanish court targets Chilean bank linked to Pinochet, July 30, 2021 https://www.hebergementwebs.com/europe/spanish-court-targets-chilean-bank-linked-to-pinochet.

[3]    Id.

[4]    They Decide on a Bond for Ana Maria Pinochet, spouse of the Former General Fuente-Alba, after the Money Laundering Charges (Decretan arraigo para Ana María Pinochet, esposa del ex general Fuente-Alba, tras ser formalizada por lavado de dinero, El Mercurio, July 29, 2021).

[5]    Id.

[6]    Spanish court targets Chilean bank linked to Pinochet, supra.

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