IELR Blog

Official Blog of the International Enforcement Law Reporter

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.

EU Commission Proposes Major Revisions for Countering Money Laundering and Terrorism Financing

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On July 20, 2021, the European Commission presented a significant set of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules.  The proposal will establish a new EU authority to combat money laundering.  The proposals aim to improve the detection of suspicious transactions and activities, and to shut the loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.

The proposals improve the existing EU framework by responding to emerging challenges linked to technological innovation.  They take into account virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organizations.  The proposals bring convergence in the AML/CFT rules and establish a more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active in cross-border transactions.

The Four Legislative Proposals

The initiatives consist of four legislative proposals:

New EU AML Authority (AMLA) Proposed

The initiatives will establish a new EU Authority (AMLA) to transform AML/CFT supervision in the EU and improve cooperation among Financial Intelligence Units (FIUs).  The AMLA will serve as the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules.  AMLA will also furnish support to FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.

The AMLA will:

  • create a single integrated system of AML/CFT supervision throughout the EU, based on common supervisory methods and convergence of high supervisory standards;
  • directly supervise some of the riskiest financial institutions that operate in a large number of EU Members or require immediate action to respond to imminent risks;
  • monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
  • support cooperation among national FIUs and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.

One EU Rulebook for AML/CFT

The Single EU Rulebook for AML/CFT will harmonize AML/CFT rules across the EU, including, for instance, more detailed rules on Customer Due Diligence, Beneficial Ownership and the authorities and task of supervisors and FIUs.  The initiatives will connect existing national registers of bank accounts, furnishing faster access for FIUs to information on bank accounts and safe deposit boxes.  The Commission will also supply law enforcement authorities with access to this system, accelerating financial investigations and the recovery of criminal assets in cross-border cases.  Access to financial information will be subject to strong safeguards in Directive (EU) 2019/1153 on exchange of information.

Extending AML/CFT Rules to the Crypto Sector

Currently EU AML/CFT rules apply to only certain types of crypto-asset service providers.  The proposed initiatives will extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers.  The proposals will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will permit prevention and detection of their possible use for money laundering or terrorism financing.   Additionally, the proposals will fully apply EU AML/CFT rules to the crypto sector and prohibit anonymous crypto asset wallets.

Limit Cash Payments to € 10,000

The Commission has proposed an EU-wide limit of €0,000 on large cash payments.  The limit is high enough not to question the euro as legal tender and recognizes the important role of cash.  In about two-thirds of EU Members limits already exist, but the amounts vary.  National limits under  € 10,000 can remain in place.  Limiting large cash payments makes it more difficult for criminals to launder money.  Additionally, the proposes forbid anonymous  crypto-asset wallets, similar to the prohibition of anonymous bank accounts.

“Black-Lists” and “Grey-lists” for Third Countries

The EU will continue to use a “black-list” and a “grey-list.”  In addition to using the FATF list for its own listing, the EU will have its own list based on an autonomous assessment.

Future

The Commission proposals are in the hands of the European Parliament and Council.  The future AML Authority should be operational in 2024 and will start its work of direct supervision slightly later, once the Directive has been transposed and the new regulatory framework starts to apply.

Analysis

The AMLA with direct authority over institutions with cross-border activities or institutions with problems will contribute significantly to stronger compliance.   The AMLA will help establish a single integrated system of AML/CFT through common supervisory methods and convergence of high supervisory standards.  It will also facilitate cooperation among FIUs and more convergence with respect to their operation.

The extension of AML/CFT rules to crypto-asset service providers and prohibition of anonymous crypto asset wallets will plug a gap in the use of virtual currency to circumvent AML/CFT regulation.

The connecting of existing national registers of bank accounts along with the national beneficial ownership registers for companies and trusts will facilitate financial investigations and asset recovery.

Unfortunately, the use of its own grey and black lists will contribute to the proliferation of such lists internationally, causing more limits and closures of correspondent bank accounts and financial exclusion for persons in small jurisdictions.

For additional information see Questions and Answers:  AntiMoney Laundering and Countering Financing of Terrorism (AML/CFT)  and Factsheet: Stronger EU rules to fight financial crime, Anti-money laundering and countering the financing of terrorism legislative package, and Proposal on centralised bank account registeries.

The next issue (August) of the IELR will have a more comprehensive discussion of the EU Commission’s AML/CFT initiatives.

ABA CJS Int’l Comte Meeting on US-Brazil Jt Settlements et al

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The ABA Crim. Just. Sec. Int’l Comte, which I co-chair, will meet on Thurs. Aug. 5 from 2:00-3:00 pm E.S.T. via Zoom as part of the ABA Hybrid Annual Meeting. Everyone is welcome to attend, including non-members.

Join Zoom Meeting
americanbar.zoom.us/j/…

Meeting ID: 977 9733 8444
Passcode: 264266

Find your local number: https://lnkd.in/d2aAsEz

Guest Speakers
Antenor Madruga and Ana Belotto, both of Feldens Madruga, in Brazil, will join us to discuss “US-Brazilian Joint Criminal Settlements: Trends and Implications for Stakeholders”
The panelists will discuss recent joint settlements between the U.S. , Brazil and other countries, including the Amec Foster Wheeler settlements (June 25 in the US and July 2 in the UK), Rolls-Royce, and others. They will discuss the trends and implications for stakeholders of joint settlements and other developments in international criminal cooperation.
Antenor Madruga has a PhD in international Law, is the founding partner at the FeldensMadruga law firm in Brazil. He is recognized as a leading Brazilian lawyer in complex litigations and negotiations involving government criminal and administrative proceedings, particularly in multijurisdictional cases.
Ana Belotto coordinates the Compliance practice at FeldensMadruga with a special focus on AML and anti-corruption matters. Has participated in the negotiation of complex multijurisdictional leniency agreements involving criminal, civil and administrative matters. She is a member of the New York Bar and is a registered Solicitor at the Law Society of England and Wales

Other Agenda Items
The Committee will also discuss other developments in the field and Committee business, such as the proposed resolution on joint settlements, and its recent webinar on “Abusing Interpol’s Resources to Persecute Expatriate Dissidents” on July 14. 

Video Conferencing, Web Conferencing, Online Meetings, Screen Sharing – Zoom

U.S. and EU Progress on Several International Enforcement issues at Justice & Home Affairs Ministerial Meeting in Lisbon

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On June 22, 2021, the Portuguese Presidency of the Council of the European Union hosted the EU-U.S. Ministerial Meeting on Justice and Home Affairs in Lisbon and made progress on count-terrorism, violent extremism, Passenger Name Record (PNR) data exchange.  They also discussed developing bilateral and multilateral instruments to combat cybercrime, using artificial intelligence,  and developing well-managed and humane migration policies.

Overview

They underscored the need to cooperate against terrorism, including prevention, permanent vigilance, adaptation, and resilience from all relevant actors.

The U.S. and EU underscored their strong concern with the rise of violent extremism.  They cited crimes inspired by hate speech, racism and xenophobia both in Europe and the U.S.  Violent extremism constitutes a direct threat to democratic societies.  It requires renewed attention by law enforcement, judicial authorities, the private sector and civil society.  The U.S. and EU pledged to expand their information exchanges on violent extremist groups, especially those with transnational linkages.

The U.S. and EU underscored the importance of the Passenger Name Record (PNR) data exchange to prevent, detect, investigate and prosecute terrorism, combat serious crime, including child exploitation, and protect the safety of citizens.

Digital Aspects and Cybercrimes

The U.S. and EU discussed the need to cooperate to shape a digital future based on their shared democratic values.  They acknowledged the potential benefits and risks of suing Artificial Intelligence technologies for law enforcement and the judiciary.  They discussed the need to develop and use such technologies in a trustworthy way in conformity with human rights obligations.

They discussed current and upcoming EU efforts on combating illegal content online, including  the need to improve the cooperation between the authorities and online platforms to detect ongoing criminal activity.  The U.S. and  EU pledged to continue cooperating to most effectively exercise their lawful authorities to combat  serious crime both online and offline.

The two sides will focus on combating ransomware, including through law enforcement action, raising public awareness on how to protect networks, the risks of paying criminals responsible, and encouraging those states that have not cooperated to arrest and extradite or effectively prosecute criminals on their territory.

Concerning bilateral and multilateral instruments to combat cybercrime, the U.S. and EU reinforced their commitment to negotiate as soon as possible an Eu-U.S. agreement facilitating access to e-evidence to cooperate in criminal matters.  They welcomed the recent approval by the Committee of State Parties to the Budapest Convention of the draft text of the Second Additional Protocol of the Budapest Convention, which is the main instrument for international cooperation on cybercrime.   They observed the framework of negotiations on a possible future United Nations international legal instrument on cybercrime and committed to continue to closely coordinate their respective positions.

Migration and Travel

The two sides underscored the importance of well-managed and humane migration and discussed their respective efforts to develop comprehensive and enduring migration and asylum policies.  Humanitarian protection should be available to qualifying persons.  Unmeritorious claims must be detected quickly, including through information sharing and modern identity management techniques.  Unmeritorious claims must be prevented from overwhelming migration systems or public confidence in them.

The agenda requires cooperation with third countries of origin, transit and destination.  These jurisdiction also have a responsibility to discourage people from enlisting smugglers and traffickers and endangering  the lives of migrants who take dangerous, irregular journeys.  Both sides reaffirmed their interest in expanding the transatlantic dialogue on migration and mobility, focusing on sharing lessons learned, exploring complementary pathways to migration, addressing the root causes of migration, improving the return and readmission of irregular migrants and enhancing cooperation in and combatting migrant smuggling.

The U.S. and EU continued to endorse safe and secure mobility and the exchange of information on their respective measures towards the gradual resumption of non-essential international travel.  Both sides pledged to restart secure travel between the U.S. and EU as soon as possible, based on the principles of mutual cooperation, efficient operation of the international travel system and scientific evidence.

Analysis

The initial meeting of the Justice and Home Affairs Ministers of the two sides during the Biden Administration went quite well.  Clearly, the priority of the Biden Administration for bilateral and multilateral cooperation contrasted with the America 1st unilateral approach of the Trump Administration.  The visit of President to the NATO meeting and the EU itself as well as his removal of tariffs and support for the minimum global taxation and other initiatives of the OECD and EU were well received.

The threats of terrorism, organized crime, extremist and hate groups, cybercrime, and illegal migration are common to both sides.

The current issue of the IELR will have a more in depth discussion of the implications of the meeting.

 

 

The Gupta Brothers’ Corruption Scandal Invokes the Ratification of a New Mutual Legal Assistance and Extradition Treaty Between South Africa and the United Arab Emirates

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by Jamie Jang[1]

In 2018, the economic and political stability of South Africa was upended when the Gupta brothers – Ajay, Atul, and Rajesh Gupta – and government officials were caught conspiring together.[2] The Gupta brothers, Indian-born South African businessmen, owned a tectonic empire across South Africa and wielded a great degree of political power.[3] After a government official testified against the Guptas, it was revealed that they had been involved in a longstanding scheme with members of the South African government, including President Jacob Zuma, to siphon millions of dollars from state-owned firms and the national treasury.[4] President Zuma was forced to resign and the Gupta brothers fled to Dubai, leaving their enterprises in South Africa bankrupt.[5] This scandal “offers a case study in a new, systematic form of graft known as ‘state capture.’ [. . .] It demonstrates how an entire country can fall to foreign influences without a single shot being fired”.[6]

The Gupta brothers have yet to face the charges brought against them for fraud and money laundering as they remain hidden in the United Arab Emirates.[7] For over three years, South Africa has requested full cooperation from the United Arab Emirates to extradite the Gupta brothers so they may be prosecuted in the country where they committed their crimes.[8]

UAE and S. Africa Ratify a New MLAT and Extradition Treaty

In response to the scandal, a new mutual legal assistance and extradition agreement between South Africa and the United Arab Emirates was ratified by both countries.[9] A statement issued by United Arab Emirates ambassador to South Africa, Mahash Alhameli reads, “These agreements have been and remain key to the UAE in promoting judicial and legal cooperation with South Africa and strengthening bilateral relations between law enforcement institutions and partners on both sides”.[10] While the treaty agreement was intended to mend the relationship between both countries, it appears that South Africa remains unsatisfied with the United Arab Emirates’ efforts.[11] National Director of Public Prosecutions (NDPP) Shamila Batohi states, “As I expressed to the ambassador yesterday, we will only accept that there is full cooperation when we receive the necessary information that we have been requesting now for over three years without success”.[12]

S. Africa Expresses Frustration over Inability to Obtain Custody of the Guptas and Request Interpol Red Notice

The NDPP is not the only one expressing frustration over the inability to obtain cooperation from the United Arab Emirates.[13] Civil society organizations, namely the Ahmed Kathrada Foundation and the Defend Our Democracy movement protested outside the United Arab Emirates embassy.[14] A statement from the Ahmed Kathrada Foundation reads, “The Guptas must be brought from the UAE, where they currently reside, to SA to account for the litany of allegations of state capture and corruption that they face”.[15]

The National Prosecuting Authority’s (NPA) Investigating Directorate (ID) head, Hermione Cronje has asked Interpol to circulate an international red notice to have the Gupta brothers deported back to South Africa.[16] The ID intends to try the Guptas for the R25 million spent on a feasibility study to determine the viability of the failed Estina dairy farm in South Africa.[17] The ID asserts that “the department paid Nulane the R25 million for the feasibility study. However, after receiving the money, Nulane appointed and paid Deloitte Consulting R1.5 million to conduct the study. The rest of the money was allegedly laundered through a series of accounts, ending in Gateway Limited, a Gupta-owned company in the UAE”.[18] After three years of unsuccessful efforts to extradite the Gupta brothers, help from Interpol for an international arrest warrant appears to be another mechanism for South Africa to try to gain custody of the Guptas. .

The case demonstrates how difficult it can be sometimes for prosecutors to obtain effective international enforcement cooperation.

[1]              B.A., Rhodes College.

[2]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[3]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[4]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[5]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[6]                 “State Capture”: How the Gupta Brothers Hijacked South Africa Using Bribes Instead of Bullets. Vanity Fair. March, 2019.

[7]                 Masondo, Sipho. “NPA asks Interpol to help arrest, deport Guptas to SA”. June 3, 2021.

[8]                 Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11,          2021.

[9]                 Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[10]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[11]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[12]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[13]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[14]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[15]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[16]                Chabalala, Jeanette. “Gupta extradition: SA has been requesting information from UAE for over three years without success”. June 11, 2021.

[17]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

[18]                Chabalala, Jeanette. “Gupta extradition: UAE confirms signing agreement on mutual legal assistance”. June 9, 2021.

G7 Vows to Act on Corruption, Ransomware, Forced Labor, and Illicit Financing

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On June 13, 2021, at the conclusion of its meeting the G7 announced in its Communiqué joint action against several criminal and international enforcement matters.

Corruption, Illicit Financial Activities, and Misuse of Shell Companies

The Communique recognizes “the need action on corruption, including by sharing information on illicit financial activities, tacking the misuse of shell companies, and curtailing the ability of illicit actors to hide wealth.”

As part of its G7 Fact Sheet the Biden Administration underscored how on June 3, 2021 President Biden declared efforts to combat corruption a “core U.S. National interest,” and issued a National Security Student Memorandum on the Fight Against Corruption to elevate this effort.

The G7 Fact Sheet states the U.S. will tackle “the misuse of shell companies, limiting the ability of bad actors to launder dirty money in real estate purchases, improving corruption-related information sharing, and reforming foreign assistance to focus on anticorruption as a cross-cutting priority.” [1] The Fact Sheet says the U.S. welcomes the G7 commitment to take collection action in combatting corruption.

Ransomware

The Communique states the G7 reiterates its interest in stable and predictable relations with Russia.  In that regard, it states that it will “identify, disrupt, and hold to account those within its borders who conduct ransomware attacks, abuse virtual currency to launder ransoms, and other cybercrimes.”[2]   The Biden Administration’s G7 Fact Sheet states the transnational criminal enterprises committing ransomware leverage infrastructure, virtual currency, and money laundering networks.  They target victims worldwide, often operating “from geographic locations that offer a permissive environment for carrying out such malicious cyber activities.”

The G7 Fact Sheet states the international community –both governments and private sector actors – must cooperate to ensure that “malicious cyber activity is investigated and prosecuted, that we bolster our collective cyber defenses, and that States address the criminal activity taking place within their borders.”

Removing Forced Labor from Global Supply Chains

The Communique expresses concern about the use of all forms of forced labor in global supply chains, including state-sponsored forced labor of vulnerable groups and minorities and supply chains of the agricultural, solar, and garment sectors – the main supply chains of concern in Xinjiang, China.

G7 leaders agreed to uphold human rights and international labor standards, and protecting individuals from forced labor.  Hence, they commit to ensuring all global supply chains are free from the use of forced labor.  They propose to identify areas for increased cooperation and collective efforts to eradicate the use of all forms of forced labor in global supply chains, in accordance with international and national law.[3]

International Human Rights Concerns

The Communique mentions concerns about international human rights violations in Russia, Belarus, Myanmar, and Ethiopia’s Tigray region.

Analysis

The commitments in the G7 Communique to stronger international enforcement initiative are importance for setting and reinforcing international enforcement cooperation.  The nature of the G7 meetings and communiques limit the commitments to broad policy statements.  The follow up comes from action by international organizations, such as the EU, the OECD, the World Bank Group, and national governments. The limits of the Communiques are inability to implement the broad policy decisions, including when governments and policies change from time to time.

 

[1]   G7 Communique, paragr. 48.

[2]   G7 Communique, paragr. 51.

[3]    G7 Communique, paragr. 29.

Cryptocurrency Creates Potential Opportunity for both Ransomware Attacks and Agency Seizures

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By Austin Max Scherer[1]

On June 7, the Justice Department seized much of the ransom that a major U.S. pipeline operator had paid last month to a Russian hacking collective.[2]  This resulted from investigators tracing more than 75 Bitcoins worth as the money moved through a “maze” of at least 23 different electronic accounts belonging to DarkSide, the hacking group.[3]  DarkSide operated by providing ransomware to affiliates.  Iin exchange, DarkSide reaped a cut of the affiliates’ profits.[4]  DarkSide began as an affiliate for another Russian hacking group called REvil, the group that recently used ransomware to try to extort money from JBS, one of the world’s largest meat processors.[5]  Law enforcers viewed this seizure as a warning to cybercriminals that the United States would go after the hackers’ profits, which typically derive from cryptocurrencies.[6]  In addition, law enforcement now hope this recent action will encourage victims of ransomware attacks to notify the authorities to help recover ransoms.[7]  The Federal Bureau of Investigation (FBI) actively discourages ransom payments; however, ransom payments are still legal and they are even tax deductible![8]

Seizure of Ransom Payments

Law enforcement  has found a breakthrough due to the fact that, “bitcoin transactions are available on a publicly distributed ledger, in many cases law enforcement can trace bitcoin payments and track stolen funds.”[9]  Furthermore, the FBI was able to obtain the private key for the hackers’ accounts, the key essentially serves as a password which enabled the FBI to move bitcoin out of the wallet.[10]  The seizure itself yielded $2.3 million worth of bitcoin.[11]  The Special Prosecutions Section and Asset Forfeiture Unit of the U.S. Attorney’s Office for the Northern District of California  is handling the seizure, with significant assistance from the Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section and Computer Crime and Intellectual Property Section.[12]  The task force stated they would prioritize the disruption, investigation, and prosecution of ransomware and digital extortion.[13]  Conversely, the ransomware attacks are generally unsophisticated.[14]  “Hackers often use phishing and send employees emails containing suspicious links or attachments.”[15]

This coincided with President Biden’s first foreign trip, as he is expected to discuss the issue with Russian President Vladimir Putin.[16]  Senior Biden administration officials deemed ransomware, as a national threat.  Secretary of State, Antony Blinken stated the following, “states cannot be in the business of harboring those who are engaged in these kinds of attacks.”[17]  FBI Director Christopher Wray further emphasized this complaint by stating, “if the Russian government wants to show that it’s serious about the issue, there’s a lot of room for them to demonstrate some real progress that we’re not seeing.”[18] Antony Blinken and Christopher Wray’s concerns are supported by the fact that, according to Chainalysis, a firm that tracks cryptocurrency payments, victims paid at least $412 million in cyber ransom attacks last year.[19]

Biden Administration Responses

In response to the series of ransomware incidents, the Biden administration, “announced that it would require pipeline companies to report significant cyberattacks that the government would create 24 hour emergency centers to handle serious hackings.”[20]  However, even these efforts may not be enough as the FBI emphasized that all government agencies, private sectors, and, “even the average American.”[21]  It would be quite the optimistic approach for the government to believe that all players in the cryptocurrency world will partake in dismantling these ransomware attacks, so a wait and see approach is best suited for now.

Several government officials have called for action against the ransomware attackers and the foreign states that harbor these attackers.  Senator Mark Warner stated the following, “We must make clear to Russia-and any other adversaries-that they will face consequences for this and any other malicious cyberactivity.”[22]  In addition, Microsoft reported, “the goal of the hackers was not to go after the aid agency itself, instead, its motivation appeared to be to use emails purporting to be from the U.S. government to get inside groups that have revealed Russian disinformation campaigns, anti-corruption groups and those who have protested the poisoning, conviction and jailing of Russia’s best-known opposition leader, Alexie A. Navalny.”[23]  Furthermore,  government officials have taken the position that the U.S. response to SolarWinds, a software supply, should have been harsher.   The question then becomes, how does the U.S. implement a harsher response, and with sanctions applied to Russia already substantial, how much of a role can sanction play?  One answer is that to be effective, sanctions must be multilateral and well-coordinated.  The last four years the U.S. has not coordinated its sanctions. President Biden’s trip to Europe should provide some insight to these inquiries.  Another response to ransomware attacks and cybercrimes has been prosecution of the perpetrators.

The current issue of the IELR will have a more comprehensive discussion of the ransomware attacks, the seizure, and implications.

 

 

[1] Rising third year law student, Washington College of Law, American University; M.S., Finance, American Univ; B.A., George Washington Univ.

[2] Katie Benner and Nicole Perlroth, Seizing Money, U.S. Retaliates For Cybercrime, N.Y. Times, Jun. 8, 2021, at A1.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Sadie Gurman, David Uberti, and Dustin Volz, Pipeline Ransom Money Seized By U.S., Wall St. J., Jun. 6, 2021, at A1.

[10] Ellen Nakashima, Authorities recover about $2 million paid in ransom to pipeline hackers, Wash. Post, Jun. 8, 2021, at A18.

[11] Id.

[12] For Immediate Release: Department of Justice Seizes $2.3 Million in Cryptocurrency Paid to the Ransomware Extortionists Darkside, Dept. of Justice, Jun. 7, 2021, https://www.justice.gov/opa/pr/department-justice-seizes-23-million-cryptocurrency-paid-ransomware-extortionists-darkside (last visited Jun. 10, 2021).

[13] Id.

[14] Rachel Lerman, Meat supplier JBS paid $11 million in ransom after hackers targeted plants, Wash. Post, Jun. 10, 2021, at A22.

[15] Id.

[16] Nakashima, supra note 10.

[17] Benner and Perlroth, supra note 2.

[18] Id.

[19] Nakashima, supra note 10.

[20] Benner and Perlroth, supra note 2.

[21] Id.

[22] Nicole Perlroth and David E. Sanger, Calls for Action Against Russia for Cyberattack, N.Y. Times, May. 29, 2021, at A1.

[23] Id.

ANOM: A global covert investigation conducted through an encrypted app trap

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Sara Kaufman[1]

On June 8, 2021, the Federal Bureau of Investigation (FBI) and Australia’s Federal Police (AFP) publicly announced the arrests of more than 800 individuals utilizing a FBI-controlled encrypted platform to facilitate their criminal activities.[2]  ANOM, a highly popular encryption platform amongst criminals worldwide, was secretly used as a surveillance tool in an investigation known as “Operation Trojan Shield” in order to discreetly observe and curtail the criminal activities in Australia and beyond.[3]

As technology has grown over the years, criminals have utilized hardened encrypted devices as a tool to obstruct any federal investigations against them.  Encrypted devices are tools that both send and retrieve encrypted electronic communications, allowing criminals to openly discuss their activities with confidence that their contents will remain secure.[4]  For many years, contents in encrypted devices did in fact remain secure; communication was often limited to a self-selected group of individuals using the same encryption platform.  Law enforcement agents therefore would be unable to collect evidence regarding the conversations that criminals were having on their encrypted devices.

Companies that provided these encrypted devices were generally aware that their target audience is utilizing their products for criminal activity; in March 2018, the CEO of Phantom Secure, Vincent Ramos, and four other principals of the company were indicted for aiding and abetting the distribution of cocaine.  During his plea hearing in October 2018, Ramos admitted that Phantom Secure laundered drug trafficking proceeds, as well as aided and abetted the importation, exportation, and distribution of illegal substances across international borders.[5]  Phantom Secure was not the first, nor would it be the last, of the many encrypted devices to appear on the black market to plan and executive criminal activity.

 

Operation Trojan Shield

While the FBI previously dismantled hardened encryption companies utilized amongst criminals to communicate – such as Phantom Secure – new platforms would emerge as substitutes for their predecessors.  In “Operation Trojan Shield,” various European law enforcement agencies, the FBI and AFP collaborated with a confidential source to construct, market, and upkeep the next encrypted communication platform to arise on the black market.[6]

The devices themselves were encrypted but the FBI, AFP, and the confidential source collaborated to build a master key into the existing encryption system.[7]  This allowed law enforcement to decrypt and store messages as they were transmitted.  For devices located outside of the U.S., an encrypted “BCC” of each sent message is routed to an “iBot” server located outside of the U.S.  The message is then decrypted with the master key and then immediately re-encrypted with the FBI encryption code.  The newly encrypted message is then passed to a second FBI-owned iBot server to be decrypted for viewing within the U.S.[8]  Given the high level of technical care and expertise needed to set up this master key process, the collaboration between the FBI, AFP, confidant, and other European law enforcement agencies was needed to ensure that ANOM could be launched effectively and discreetly within criminal networks.

ANOM could only be used on devices sold within the black market and were stripped of the ability to make calls or send emails.  In order to get a hold of an ANOM-encrypted device, each criminal had to be green-lighted by another criminal who was already using the software.[9]  Each ANOM user was identified by a Jabber Identification – similar to a smartphone PIN – was chosen by each user to identify themselves as opposed to using their real names.[10]  The high level of exclusivity and security behind ANOM increased the confidence that users that their communications would remain private.

Results of the investigation

As high-profile criminals such as Hakan Ayik praised ANOM and encouraged its use to their associates, thousands of criminals worldwide began utilizing ANOM devices to openly discuss their activities.  Between October 2019 and May 2021, a total of 11,800 ANOM devices were registered in over 90 countries, with the highest number of users based in Germany, the Netherlands, Spain, Australia, and Serbia.[11]

Considering the strong reputation that ANOM had amongst criminals, plans to import, export, or distribute drugs were sent between encrypted devices without the use of coded language.[12]  Text messages shown in a search warrant affidavit filed May 18, 2021, display open conversation regarding cocaine hidden in French diplomatic packages or underneath layers of bananas in shipping trucks.[13]

Through the surveillance of ANOM users, law enforcement agencies from the U.S., Australia, and the European Union were able to seize numerous tons of drugs and millions of dollars in cash.[14]  Australian police officers also claim to have acted on 20 “threats to kill,” thereby protecting many innocent civilians who may have otherwise lost their lives.[15]

Although the criminals that utilized ANOM encrypted devices strongly advocated for their high level of security, this could not be further from the truth.  The review of messages sent on ANOM devices has opened numerous high-level public corruption cases internationally, as well as investigations of distributors for money laundering, international drug trafficking, and obstruction of justice.[16]

While new encrypted platforms used to emerge once their predecessors were taken down by the FBI, Operation Trojan Shield severely damages the trusted foundation of encrypted devices for communications amongst criminal actors.  Though the use of new technology such as encryption devices has allowed discreet criminal activity to go undetected, law enforcement across the globe has proven that, with joint efforts, they can utilize the same tools for their benefit.

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

[1] Legal assistant, Berliner Corcoran & Rowe LLP; B.A., Amherst College.

[2] Rachel Pannett and Michael Birnbaum, FBI-controlled ANOM app ensnares scores of alleged criminals in global police sting, The Washington Post, June 7, 2021, https://www.washingtonpost.com/world/2021/06/08/fbi-app-arrests-australia-crime.

[3] Cheviron Aff. ¶ 14, May 18, 2021. https://www.justice.gov/usao-sdca/press-release/file/1402426/download.

[4] Cheviron Aff. ¶ 9, supra.

[5] Cheviron Aff. ¶ 10, supra.

[6] Ben Westcott, For years, the underworld thought its phones were safe. They fell for an encrypted app trap, CNN, June 9, 2021, https://www.cnn.com/2021/06/08/australia/afp-fbi-ANOM-app-operation-ironside/index.html.

[7] Cheviron Aff. ¶ 13, supra.

[8] Id.

[9] Ben Westcott, supra.

[10] Cheviron Aff. ¶ 14, supra.

[11] Cheviron Aff. ¶ 19, supra.

[12] Cheviron Aff. ¶ 29, supra.

[13] Cheviron Aff. ¶ 14, supra.

[14] Ben Westcott, supra.

[15] ANOM: Hundreds arrested in massive global crime sting using messaging app, BBC.COM, June 8, 2021, https://www.bbc.com/news/world-57394831.

[16] Cheviron Aff. ¶ 20, supra.

Biden Administration Declares Anti-Corruption a “Core U.S. National Security Interest”

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On June 3, 2021, the Biden Administration released a memorandum establishing combating corruption as a core United States national security interest, thereby stimulating several international anti-corruption initiatives.

The memorandum promises to make the fight against corruption a core U.S. national security interest.  The Biden Administration promises to “lead efforts to promote good governance; bring transparency to the United States and global financial systems; prevent and combat corruption at home and abroad; and make it increasingly difficult for corrupt actors to shield their activities.”

The memorandum directs Assistant to the President and National Security Advisor, in coordination with the Assistant to the President for Economic Policy and the Assistant to the President for Domestic Policy, to conduct an interagency review process.  The interagency review process will include the Office of the Vice President and fourteen agencies.

Strategy Components

The above-mentioned persons and agencies are directed to develop a Presidential strategy.  The strategy is to modernize, increase, coordinate, resource and improve the ability of key agencies to promote good governance and prevent and combat corruption, including, as required, by proposing relevant legislation to the Congress.

Another component of the strategy is to combat all forms of illicit finance in the U.S. and international financial systems, including by robustly implementing Federal law requiring U.S. companies to report their beneficial owner or owners to the Treasury Department; reducing offshore financial secrecy; improving information sharing; and, as necessary, identifying the need for new reforms.

The strategy will hold accountable corrupt individuals, transnational criminal organizations, and their facilitators, including by identifying, freezing, and recovering stolen assets through increased information sharing and intelligence collection and analysis, criminal or civil enforcement actions, advisories, and sanctions or other authorities , and where possible and appropriate, returning recovered assets for the benefit of the citizens harmed by corruption.

According to the memorandum, the strategy participants must strengthen the capacity of domestic and international institutions and multilateral bodies focused on establishing global anti-corruption norms, asset recovery, promoting financial transparency, encouraging open government, strengthening financial institutions’ frameworks to prevent corruption in development finance projects, and combating money laundering, illicit finance, and bribery, including, where possible, addressing the demand side of bribery.

A goal is to support and enhance the capacity of civil society, media, and other oversight and accountability actors to conduct research and analysis on corruption trends, advocate for preventative measures, investigate and uncover corruption, hold leaders accountable, and inform and support government accountability and reform efforts, and provide those actors a safe and open operating environment domestically and internationally.

The strategy will work with international partners to counteract strategic corruption by foreign leaders, foreign state-owned or affiliated enterprises, transnational criminal organizations, and other foreign actors and their domestic collaborators, including, by closing loopholes exploited by these actors to interfere with democratic processes in the U.S. and abroad.

Increasing efforts to quickly and flexibly enhance U.S. and partner resources of investigative, financial, technical, political, and other assistance to foreign countries that indicate the will to reduce corruption are part of the strategy.

The strategy will help and enhance the capacity of domestic, including State and local, authorities and institutions, as well as partner and other foreign governments at all levels, to implement transparency, oversight, and accountability measures, which will counter corruption and provide their citizens with accessible and usable information concerning government programs, policies, and spending.

A goal is to promote partnerships with the private sector and civil society to advocate for anti-corruption measures and act to prevent corruption.

A final priority is to develop best practices and enforcement mechanisms such that foreign assistance and security cooperation activities have built-in corruption prevention measures.

Analysis

The Memorandum states that, by effectively preventing and combating corruption and showing the advantages of transparent and accountable governance, the U.S. government can obtain a critical advantage for the U.S. and other democracies.   In his recent speeches President Biden has set as a challenge for the U.S. its battle with autocracies and dictatorships.

The Memorandum mentions the possibility of the inter-agency group supporting new legislation when appropriate.  In this regard, on February 4, 2021, U.S. Senators Ben Cardin (D-MD) and Roger Wicker (R-MS) introduced legislation to create a global anti-corruption action fund at the State Department to strengthen  the rule of law abroad and counter transnational corruption. The Countering Russian and Other Overseas Kleptocracy (CROOK) Act (S.158) – would fund programs by utilizing large  fines imposed under the Foreign Corrupt Practices Act against U.S. and foreign companies caught bribing foreign officials. In January 2021, Representatives Bill Keating (D-MA) and Brian Fitzpatrick (R-PA) introduced a companion draft (H.R.402) in the House.

The Memorandum prioritizes combating all forms of illicit finance in the U.S. and implementing Federal law requiring U.S. companies to report their beneficial ownership to the Treasury Department.  In this regard, the Corporate Transparency Act, enacted as part of the Anti-Money Laundering Act of 2020, requires the reporting of beneficial ownership information to Treasury’s FinCEN.  Although FinCEN has issued an Advance Notice of Proposed Rule-making, it may be 2023-24 before the regulations become effective.

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

Americas Ministers of Justice and Attorneys General Approve Recommendations to Use Information Technologies for International Cooperation

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On May 18 and 19, 2021, the Ministers of Justice and Attorneys General of the member states of the Organization of American States (OAS) participated in the Eleventh Meeting of Ministers of Justice, or Other Ministers, or Attorneys General of the Americas (REMJA – XI).  Ecuador hosted the virtual meeting.  The Ecuadorian Attorney General, Dr. Diana Salazar, hosted the meeting.

During the meeting, the States made detailed recommendations on the use of information technologies (ICTs) in their justice systems and in international cooperation.  The Justice Studies Center of the Americas (JSCA), the REMJA Working Group on Legal Cooperation in Criminal Matters, and the REMJA Working Group on Legal Cooperation against Cybercrime made presentations on the present state of affairs in the region and on their role in supporting the modernization of justice systems by, among other things, training prosecutors and judges, promoting international legal cooperation, and developing such instruments as proposed treaties, model laws, and guides to best practices.

International legal Cooperation in the Americas

REMJA XI recommends that the OAS members who have not yet become a member of the five regional cooperation agreements, do so promptly.

The meeting recommends that the Working Group on Legal Cooperation on Criminal Matters updates and considers the proposed “Protocol to the Inter-American Convention on Mutual Assistance in Criminal Matters regarding Joint Investigation Teams” (PENAL/doc.42/18). The Working Group should evaluate incorporating in it the use of ICTs, as appropriate, and that the OAS members study the possibility of initiating formalities with the appropriate bodies so that in the future, consideration may be given to its adoption.

Legal Cooperation Against Cybercrime

REMJA-XI urges the Chair of the REMJA Working Group to convene its Tenth Meeting in the first quarter of 2022, to develop effective and inclusive strategic approaches to fight cybercrime, bearing in mind the relevance of the Budapest Convention on Cybercrime in this regard; to develop national and regional cybercrime coordination, cooperation and training strategies and policies in OAS countries; and, to develop key principles for mainstreaming gender and inclusion into cybercrime capacity building efforts.

The meeting recommends that the OAS members that have not yet done so, consider evaluating to accede to the Council of Europe’s Convention on Cybercrime, and adopt the legal and other measures required for its implementation.

The meeting recommends fortifying, through the REMJA Working Group, four aspects of international cooperation:  (i) capacity building, (ii) cybercrime evidence gathering, (iii) legal cooperation in cybercrime, and (iv) legislative developments.

Justice Studies Center of the Americas (JSCA)

REMJA-Xi congratulates the JSCA on the work since REMJA X in evaluating criminal justice reform processes; providing technical support for the implementation of reformed criminal justice systems in Mexico, Guatemala, El Salvador, Costa Rica, Panama, Colombia, Ecuador, Peru, Brazil, Paraguay, Uruguay, Chile, and Argentina, promoting new models for the management of prosecutors’ offices with the development of capacities for criminal analysis and strategic criminal prosecution; identifying and disseminating best practices in the investigation of complex crimes; fostering the improvement of criminal defense standards; promoting pre-trial services; and developing skills for criminal litigation, for the conduct of hearings, and for appraising evidence, together with court and case management models.

The meeting    congratulates the JSCA and the U.S. Government on the agreement through the Bureau of International narcotics and Law Enforcement Affairs (INL) of the U.S. State Department to collaborate on the project Technical Support for the Implementation of the New Adversarial Criminal Justice System in Argentina’s Federal Justice System through the program Training Program on Criminal Investigation and Litigation in an Accusatory System for Justice Officials.  Project implementation started in 2018 and has been extended to 2023.

Strengthening the REMJA

The meeting discusses steps to strengthen the REMJA, including that the annual OAS Regular Fund consider providing the necessary resources for holding the meetings that are to be organized within the REMJA process.

The meeting also recommends the establishment of a voluntary contribution fund into which states can make voluntary contributions to finance programs and projects in the areas covered by the REMJA process.

The current issue of the IELR (June) will discuss in more detail the decisions and implications of the decisions of REMJA-XI.

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