Transnat'l Organized Crime, Cybercrime, Narcotics Archives | Page 6 of 8

OFAC Sanctions Additional Russian Operatives For Cyber Influence Campaign

December 21, 2018 by Zarine Kharazian Leave a Comment

The Treasury Department’s Office of Foreign Assets Control announced on Wednesday that it would be imposing a fresh crop of sanctions on Russian operatives for recent cyber-enabled interference. Specifically, OFAC sanctioned the following individuals and entities:

Victor Alekseyevich Boyarkin, a former GRU officer who led negotiations on behalf of Russian oligarch Oleg Deripaska. Deripaska has business ties to Paul Manafort and was designated earlier in the year;
Project Lakhta, a Russian covert influence campaign designed to interfere in electoral systems worldwide (encompasses the Internet Research Agency);
Viktor Borisovich Netyksho (Netyksho), Boris Alekseyevich Antonov (Antonov), Ivan Sergeyevich Yermakov (Yermakov), Aleksey Viktorovich Lukashev (Lukashev), Nikolay Yuryevich Kozachek (Kozachek), Artem Andreyevich Malyshev (Malyshev), Aleksandr Vladimirovich Osadchuk (Osadchuk), Aleksey Aleksandrovich Potemkin (Potemkin), and Anatoliy Sergeyevich Kovalev (Kovalev), all GRU officers implicated computer hacking operations related to the 2016 U.S. presidential election; designated purusant to CAATSA Section 224;
Aleksei Morenets (Morenets),Evgenii Serebriakov (Serebriakov), Oleg Sotnikov (Sotnikov), and Alexey Minin (Minin), Russian intelligence officers who targeted the World Anti-Doping Agency (WADA), the Organization for the Prohibition of Chemical Weapons, and other international organizations; and
Alexander Petrov (Petrov) and Ruslan Boshirov (Boshirov), the GRU officers deemed responsible for carrying out the Novichok nerve agent attack on Sergei and Yulia Skripal.

In a concurrent action, the State Department added a dozen of the designated entities to the List of Specified Persons. Any person deemed to “knowingly engage in a significant transaction” with the any of the dozen individuals will risk CAATSA Section 231 sanctions.

See OFAC’s press release here.

U.S. Indicts 2 Chinese Hackers Associated with the Chinese Government for Global Campaigns to Steal Intellectual Property and Confidential Business Information

December 20, 2018 by Bruce Zagaris Leave a Comment

Today Deputy Attorney General Rod J. Rosenstein and other high-level U.S. officials announced the unsealing of an indictment charging Zhu Hua (朱华), aka Afwar, aka CVNX, aka Alayos, aka Godkiller; and Zhang Shilong (张士龙), aka Baobeilong, aka Zhang Jianguo, aka Atreexp, both nationals of the People’s Republic of China (China), with conspiracy to commit computer intrusions, conspiracy to commit wire fraud, and aggravated identity theft.

Zhu and Zhang allegedly belong to a hacking group operating in China known within the cyber security community as Advanced Persistent Threat 10 (the APT10 Group). The defendants worked for a company in China called Huaying Haitai Science and Technology Development Company (Huaying Haitai) and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau.

From at least in or about 2006 up to and including in or about 2018, members of the APT10 Group, including Zhu and Zhang, conducted extensive campaigns of intrusions into computer systems around the world. The APT10 Group used some of the same online facilities to initiate, facilitate and execute its campaigns during the conspiracy.

Starting at least in or about 2014, members of the APT10 Group, including Zhu and Zhang, obtained unauthorized access to the computers and computer networks of Managed Service Providers (MSPs0 for businesses and governments around the world (the MSP Theft Campaign). MSPs are firms that other companies trust to store, process, and protect commercial data, including intellectual property and other confidential business information. When hackers gain access to MSPs, they can steal sensitive business information that gives competitors an unfair advantage.

The APT10 Group targeted MSPs in order to leverage the MSPs’ networks to gain unauthorized access to the computers and computer networks of the MSPs’ clients and to steal, among other data, intellectual property and confidential business data on a global scale. For example, through the MSP Theft Campaign, the APT10 Group obtained unauthorized access to the computers of an MSP that had offices in the Southern District of New York and compromised the data of that MSP and certain of its clients involved in banking and finance, telecommunications and consumer electronics, medical equipment, packaging, manufacturing, consulting, healthcare, biotechnology, automotive, oil and gas exploration, and mining.

Earlier, starting in or about 2006, members of the APT10 Group, including Zhu and Zhang, engaged in an intrusion campaign to obtain unauthorized access to the computers and computer networks of more than 45 technology companies and U.S. government agencies, in order to steal information and data concerning a number of technologies (the Technology Theft Campaign). Through the Technology Theft Campaign, the APT10 Group stole hundreds of gigabytes of sensitive data and targeted the computers of victim companies involved in aviation, space and satellite technology, manufacturing technology, pharmaceutical technology, oil and gas exploration and production technology, communications technology, computer processor technology, and maritime technology.

In furtherance of the APT10 Group’s intrusion campaigns, Zhu and Zhang, among other things, registered malicious domains and infrastructure. In addition, Zhu, a penetration tester, engaged in hacking operations on behalf of the APT10 Group and recruited other individuals to the APT10 Group, and Zhang developed and tested malware for the APT10 Group.

The MSP Theft Campaign

Zhu, Zhang, and their co-conspirators in the APT10 Group engaged in the following criminal conduct:

First, after the APT10 Group gained unauthorized access into the computers of an MSP, the APT10 Group installed multiple variants of malware on MSP computers around the world. To avoid antivirus detection, the malware was installed using malicious files that masqueraded as legitimate files associated with the victim computer’s operating system. Such malware enabled members of the APT10 Group to monitor victims’ computers remotely and steal user credentials.

Second, after stealing administrative credentials from computers of an MSP, the APT10 Group employed those stolen credentials to connect to other systems within an MSP and its clients’ networks. The APT10 Group then moved laterally through an MSP’s network and its clients’ networks and to compromise victim computers that were not yet infected with malware.

Third, after identifying data of interest on a compromised computer and packaging it for exfiltration using encrypted archives, the APT10 Group employed stolen credentials to move the data of an MSP client to one or more other compromised computers of the MSP or its other clients’ networks before exfiltrating the data to other computers controlled by the APT10 Group.

During the MSP Theft Campaign, Zhu, Zhang, and their co-conspirators in the APT10 Group successfully obtained unauthorized access to computers providing services to or belonging to victim companies located in at least 12 countries, including Brazil, Canada, Finland, France, Germany, India, Japan, Sweden, Switzerland, the UAE, the UK, and the US. The victim companies included at least the following: a global financial institution, three telecommunications and/or consumer electronics companies; three companies involved in commercial or industrial manufacturing; two consulting companies; a healthcare company; a biotechnology company; a mining company; an automotive supplier company; and a drilling company.

The Technology Theft Campaign

During the course of the Technology Theft Campaign, which started in or about 2006, Zhu, Zhang, and their coconspirators in the APT10 Group successfully obtained unauthorized access to the computers of more than 45 technology companies and U.S. Government agencies based in at least 12 states, including Arizona, California, Connecticut, Florida, Maryland, New York, Ohio, Pennsylvania, Texas, Utah, Virginia and Wisconsin. The APT10 Group stole hundreds of gigabytes of sensitive data and information from the victims’ computer systems, including from at least the following victims: seven companies involved in aviation, space and/or satellite technology; three companies involved in communications technology; three companies involved in manufacturing advanced electronic systems and/or laboratory analytical instruments; a company involved in maritime technology; a company involved in oil and gas drilling, production, and processing; and the NASA Goddard Space Center and Jet Propulsion Laboratory. In addition to those victims who had information stolen, Zhu, Zhang, and their co-conspirators successfully obtained unauthorized access to computers belonging to more than 25 other technology-related companies involved in, among other things, industrial factory automation, radar technology, oil exploration, information technology services, pharmaceutical manufacturing, and computer processor technology, as well as the U.S. Department of Energy’s Lawrence Berkeley National Laboratory.

Zhu and Zhang are each charged with one count of conspiracy to commit computer intrusions, which carries a maximum sentence of five years in prison; one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison.

Finally, the APT10 Group compromised more than 40 computers in order to steal sensitive data belonging to the Navy, including the names, Social Security numbers, and dates of birth, salary information, personal phone numbers, and email addresses of more than 100,000 Navy personnel.

According to Deputy A.G. Rosenstein, “(t)oday’s charges mark an important step in revealing to the world China’s continued practice of stealing commercial data. Responding to that conduct requires a strategic approach to the threats that China poses. That is why the Department of Justice recently announced an initiative to address the full range of threats. One tactic is to increase our enforcement efforts. Another is to conduct foreign investment reviews to protect against China improperly acquiring sensitive information. A third is to find ways to better protect our telecommunications networks.”

U.S. Unseals Criminal Complaint against North Korean Programmer for Cyber Attacks and Intruders

September 7, 2018 by Bruce Zagaris 1 Comment

On September 6, 2018, the U.S. government announced the unsealing of a criminal complaint filed in the U.S. District Court Central District of California (Los Angeles) charging Park Jin Hyok (aka Jin Hyok Park and Pak Jin Hek), a North Korean citizen, for his participation in a conspiracy to conduct multiple destructive cyberattacks around the world resulting in damage to massive amounts of computer hardware, and the significant loss of data, money and other resources.

According to the complaint Park participated in a government-sponsored hacking team known as the “Lazarus Group” and worked for a North Korean government front company, Chosun Expo Joint Venture (aka Korea Expo Joint Venture or “KEJV”), to support the DPRK government’s malicious cyber actions.

The conspiracy’s malicious activities include the establishment of the malware used in the 2017 WannaCry 2.0 global ransomware attack; the 2016 theft of $81 million from Bangladesh Bank; the 2014 attack on Sony Pictures Entertainment (SPE); and various other attacks or intrusions on the entertainment, financial services, defense, technology, and virtual currency industries, academia, and electric utilities.

Simultaneously, Treasury Secretary Steven Mnuchin announced that the Treasury’s Office of Foreign Assets Control (OFAC) designated Park and KEJV under Executive Order 13722 based on the malicious cyber and cyber-enabled activity alleged in the criminal complaint.

The complaint charges Park with one count of conspiracy to commit computer fraud and abuse, for which there is a maximum sentence of five years in prison, and one count of conspiracy to commit wire fraud, for which there is a maximum sentence of 20 years in prison.

ark was a computer programmer and worked for more than a decade for KEJV, which had offices in China and N. Korea. It is affiliated with Lab 110, a part of the N. Korean military intelligence. The conspiracy also engaged in malicious cyber activities, utilizing spear-phishing campaigns, destructive malware attacks, exfiltration of data, theft of funds from bank accounts, ransomware extortion, and propagating “worm” viruses to create botnets.

The complaint describes several of the conspiracy’s alleged malicious cyber activities, both successful and unsuccessful, and in the U.S. and abroad, focusing in particular on four specific examples as follows: in November 2014, the destructive attack on Sony Pictures Entertainment (SPE) in retaliation for the movie “The Interview”, a farcical comedy that depicted the assassination of the N. Korean leader; in February 2016, the conspiracy stole $81 million from Bangladesh Bank, accessing the bank’s computer terminals that interfaced with the SWIFT communication system and then sent fraudulently authenticated SWIFT messages directing the Federal Reserve Bank of NY to transfer funds from Bangladesh to accounts in other Asian countries; in 2016 and 2017, the conspiracy targeted various U.S. defense contractors, including Lockheed Martin, with spear-phishing emails; and in May 2017 a ransomware attack known as WannaCry 2.0 infected hundreds of thousands of computers around the work, causing extensive damage, including significantly impacting the UK’s National Health Service.

In connection with the unsealing of the criminal complaint, the FBI and prosecutors furnished cybersecurity providers and other private sector partners detailed information on accounts used by the conspiracy in order to help these partners in their own independent investigative activities and disruptive efforts.

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

U.S. Issues Sanctions Risks for Businesses with N. Korean Supply Chain Links

July 24, 2018 by Bruce Zagaris Leave a Comment

On July 23, 2018, the U.S. Department of State, with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Homeland Security’s (DHS) Customs and Border Protection (CBP) and immigration and Customs Enforcement (ICE), issued an advisory to high sanctions evasions tactics used by North Korea that could expose businesses – including manufacturers, buyers, and service providers – to sanctions compliance risks under U.S. and/or U.N. sanctions authorities. The advisory also helps businesses in complying with the requirements under Title III, the Korean Interdiction and Modernization of Sanctions Act of the Countering America’s Adversaries through Sanctions Act (CAATSA). The advisory warns businesses to be aware of deceptive practices employed by North Korea in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chains.

Multiple U.S. and U.N. sanctions impose restrictions on trade with North Korea and the use of North Korean labor. Annex 1 to the advisory sets forth a more detailed description of the North Korean sanctions prohibitions related to supply chains. The two primary risks are: (1) inadvertent sourcing of goods, services, or technology from North Korea; and (2) the presence of North Korean citizens or nationals in companies’ supply chains, whose labor generates revenue for the North Korean government. The advisory also provides due diligence references for businesses.

The heightened risk for and potential indicators of goods, services, and technology with a North Korean nexus includes:

Sub-contracting/consignment firms [e.g., third country suppliers (Chinese) shift manufacturing or sub-contracting work to a North Korean factory without informing the customer or relevant parties);

Mislabeled Good/Services/Technology: N. Korean exporters disguise the origin of goods produced in N. Korea by affixing country-of-origin labels that identify a third country.

Joint Ventures: North Korean firms have established hundreds of joint ventures with partners from China and other countries in various industries, such as apparel, construction, small electronics, hospitality, minerals, precious metals, seafood and textiles (see Annex 2 of the advisory for a list of known North Kean joint ventures).

Raw Materials or goods provided with Artificially Low Prices: North Korean exporters sell goods and raw materials well below market prices to intermediaries and other traders.

Information Technology (IT) Services: North Korea sells a range of IT services and products abroad, including website and app development, security software, and biometric identification software that have military and law enforcement applications.

The advisory also discusses heightened risk for North Korean overseas labor producing revenue for the government of North Korea. The North Korean government exports large numbers of laborers to meet a single contract in various industries, including but not limited to apparel, construction, footwear manufacturing, hospitality, IT services, logging, medical, pharmaceuticals, restaurant, seafood processing, textiles, and shipbuilding. China and Russia continue to host more North Korean laborers than all other countries and jurisdictions combined. The advisory lists 42 jurisdictions hosting North Korean laborers.

The advisory sets forth potential indicators of North Korean overseas labor.

The advisory gives due diligence best practices, namely those businesses closely examine their entire supply chain(s) for North Korean laborers and goods, services or technology, and adopt appropriate due diligence best practices. This especially applies to those businesses with operations in high-risk countries, or who operate in high-risk industries. Well-documented due diligence policies and practices may be considered mitigating factors when the U.S. government determines the appropriate enforcement response.

The advisory reminds businesses of the penalties on individuals and entities for violations of sanctions and enforcement actions and activities that could result in designation by OFAC. The advisory also provides where interested individuals can find additional information on OFAC sanctions.

During the second week of July the U.S. complained to the Security Council North Korea sanctions committee that as of May 30, North Korea had made 89 illicit ship-to-ship transfers of refined petroleum products. The U.S. asked the committee to notify all U.N. member states of the violations of a refined petroleum cap of 500,000 barrels a year – imposed by the council in December – and order an immediate halt to all transfers. On July 19, 2018, China and Russia delayed a U.S. effort for a U.N. Security Council committee to order a ban on refined petroleum exports to North Korea. China and Russia requested more detail on a U.S. accusation that Pyongyang breached sanctions.

In the coming weeks the U.S. will try to both unilaterally and multilaterally strengthen North Korean sanctions unless and until North Korea starts implementing the June 12 “denuclearization agreement” or joint statements to the satisfaction of the U.S. government.

The next issue of the IELR will have additional information on the North Korean sanctions.

CARICOM HEADS ISSUE COMMUNIQUÉ ON SECURITY, MARIJUANA LEGALIZATION AND OTHER ENFORCEMENT INITIATIVES

July 9, 2018 by Bruce Zagaris Leave a Comment

At 39^th meeting of the heads of government of the Caribbean Community in Montego Bay, Jamaica on July 4-6, 2018, several significant actions occurred on international enforcement and security cooperation, as shown by the Communique.

Jamaica signed the CARICOM arrest warrant treaty, which enables Jamaica and CARICOM countries to more easily surrender individuals without need to extradite them.

After receiving an update on current and emerging Crime and Security issues in the region, the Heads mandated the Regional Security Agencies to work closely with the National Security Heads to address the various challenges emphasizing the need to strengthen the network of security head in the region to promote further information and intelligence sharing.

The Heads underscored the importance of strengthening the use of information and Communications technology in the fight against illicit trafficking in narcotics and firearms, trans-border criminal activities and cyber attacks. They emphasized the importance of working more closely with their international development partners to help the region in this regard.

CARICOM Members were encouraged to urgently update all legal instruments to combat crime and enhance regional security.

The Heads observed with great concern the amendment approved by the UK House of Commons to the Sanctions and Anti-Money Laundering Bill requiring the UK Government to ensure that the British Overseas Territories, but not Crown Dependencies, establish public registers of beneficial ownership information by no later than December 31, 2020.

They expressed solidarity with the territories “adversely affected by this unfair and unilateral action to legislate in areas of domestic policy constitutionally devolved to the territories without the consent of the people. Moreover, the action ran counter to an alternative arrangement to public registers earlier negotiated and agreed with the UK government and put in place at great cost to the overseas territories.”

According to the Heads, this they view as similar to the “unfair, unilateral and punitive extraterritorial measures such as blacklisting and de-risking taken against their own countries financial services sector, also a critical aspect of their economies, despite their best efforts at transparency and compliance.”

The Heads welcomed the report of the Regional Commission on Marijuana, which reviewed information and studies pertaining to marijuana legislation regulating its use and classification, findings related to research conducted on the medicinal use of marijuana as well as the economic and social impact and its implications for the region.

The Heads accepted in principle the need for changes in the classification of the drug which will make it more available for medicinal purposes and research. The acknowledged the region must intensify its lobbying at the international level to facilitate reclassification.

The Communiqué shows that the Caribbean Single Market Economy continues to facilitate streamlined procedure to enforcement cooperation, such as the CARICOM arrest warrant treaty. They continue to try to develop common approaches and policies to transnational criminal threats, such as illicit trafficking in narcotics and firearms, trans-border criminal activities and cyber attacks.

The Heads are also developing common approaches to efforts by extraregional actors to impose tax transparency and money laundering/counter-terrorism financial regulatory and enforcement policies on them. They are especially supportive of the overseas territories because the same policies, e.g., the requirement to have corporate public registers, will undoubtedly be imposed on them, even as they continue losing their financial service markets to other jurisdictions, especially to states in the U.S. which do not even have any private registers and the Trump Administration has not prioritized or pledged to meet international standards in tax transparency or anti-money laundering.

CARICOM has developed a number of regional enforcement and security mechanisms, including CARICOM Implementing Agency for Crime and Security (IMPACS), the Association of Caribbean Commissioners of Police, and subregional enforcement mechanisms, such as the Organization of East Caribbean States (OECS) Regional Security System.

Five Countries Form Joint Chiefs of Global Tax Enforcement (J5) Alliance

July 2, 2018 by Bruce Zagaris 2 Comments

On July 2, 2018, Her Majesty’s Revenue and Customs announced an alliance on tax enforcement between the United Kingdom, Canada, the Netherlands, the United States and Australia to combat international tax crime and money laundering. Members include the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACAC) and the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

The group will build on existing international cooperation by sharing intelligence and expertise, and will cooperate on joint operations to investigate persons who are enablers of tax crime.

At their first meeting, the J5 brought leading experts in tax and other financial crimes from each of the five member countries to develop tactical plans and identify opportunities to pursue cyber criminals and enablers of international tax crime.

According to HMRC, the new alliance will help to build on work that has obtained more than £ 2.8 billion from offshore tax evaders since 2010.

The J5 was formed in response to a call to action from the OECD for countries to do more to tackle the enablers of tax crime. All five countries have similar threats: organized crime groups and wealthy offshore tax evaders who are well resourced and have access to professional enablers to hide income and assets using the global financial system.

According to IRS Criminal Investigation division chief Don Fort, the J5 will have three areas of focus: professional enablers, cybercrimes and cryptocurrencies, and increased use of data analytics and new investigation technology. (Nathan J. Richman, Enforcement Collaboration to Focus on Emerging Tax Issues, 2018 Worldwide Tax Daily 126-1, June 29, 2018).

The J5 has similarities to the Joint International Tax Shelter Information and Collaboration (JITSIC). On October 24, 2014, 38 countries, meeting in Dublin, Ireland for the 9th meeting of the Forum on Tax Administration (FTA), agreed to establish the JITSIC. The JITSIC Network focuses specifically on cross border tax avoidance. JITSIC has the goal to deter the promotion of, and investment in, abusive tax schemes by: increasing the community’s awareness of the potential risks of promoting and investing in tax schemes; sharing ideas on how to identify and address abusive tax schemes; enhancing compliance and enforcement efforts through coordinated ‘real-time’ exchanges of information; developing new internet searches and other techniques for the early identification of promoters and investors involved in abusive tax schemes; and identifying emerging trends and patterns to anticipate new abusive tax schemes, and improving knowledge of techniques used to promote cross-border abusive tax schemes.

The J5, unlike JITSIC, will actually engage in joint tax investigations and use increased data analytics and investigation technology in its work.

There will be a more comprehensive article in the July 2018 issue of the International Enforcement Law Reporter.

Fighting Back Against Transnational Criminal Organizations

June 1, 2018 by Max Raileanu Leave a Comment

How to stop the relentless wave of transnational criminal organizations (“TCOs”)? This was the question discussed at the Hudson Institute event “Dismantling Russian Transnational Crime Organizations: A conversation with José Grinda Gonzalez” on May 25, 2018. Judge Grinda is a Spanish special prosecutor for Spain’s Attorney General’s Office who is at the forefront of combating Kremlin-linked transnational criminal organizations in Europe. His office has the power to investigate money laundering, among other things, and is divided into a judicial office, a tax ministry unit, and a general intervention unit.

Transnational criminal organizations are not simple gangs operating in one or two fields of crime. These are highly sophisticated and effectively run businesses that span continents. The U.S. National Security Strategy stated that, “TCOs weaken our allies and partners by corrupting and undermining democratic institutions”, and that “some state adversaries use TCOs as instruments of national power.”

Judge Grinda explains that these organizations must legitimize themselves to become successful. He identifies four legitimacies that are vital to a TCO’s business. The first being economic. The more money TCOs can make, the more power and influence they will have within the local government. The second is achieving societal legitimacy. This entails having a presence within the community to be accepted by the public. One major way the TCO can do this is to buy a soccer team. The third legitimacy is politics. If TCOs are able to bribe and influence politicians to speak on their behalf, or change laws that benefit the TCO, then it can utilize those changes to increase profits and obtain power. For instance, Spain’s defense ministers discovered evidence of Russian involvement in Catalonia’s illegal separatist movement. The final legitimacy deals with money laundering. TCOs use law firms, banks, and institutions to defend themselves against criminal charges and hide their criminal activity. In Barcelona, the former head of police in charge of 16,000 officers was charged with having ties to a Russian TCO. This is clearly a complex system and reveals how difficult it can be to prosecute TCO members.

But progress has been made. In a Spanish case that dates back to 2008, a Russian MP and 17 other suspects have been tried earlier this year for their involvement with the Tambovskaya-Malyshevskaya gang based in St. Petersburg. This gang has money laundered more than $62 million of Russian mafia money and is led by Gennady Petrov. Petrov has deep ties to the Russian government, and he partnered with former Russian Defense Minister Anatoly Serdiukov to expand his empire. The two were friends and engaged in lucrative business deals and other organized criminal activities. Petrov also had contacts with a Russian Deputy Prime Minister, multiple cabinet ministers, legislators, oligarchs, the minister of health, and prominent businessmen. Spanish authorities arrested Petrov in 2008, but he later escaped and is considered at large in Russia.

Combating TCOs is difficult, but there are a few available ways of doing so in the U.S. and abroad. First, as discussed by the panel, the Foreign Agents Registration Act (“FARA”) must be enforced. This Act requires all U.S. lobbyists working with foreign governments or political entities to register with the Department of Justice (“DOJ”) and disclose the government’s activities. However, a FARA exemption allows lobbyists to file under the Lobbying Disclosure Act, and thus decreases enforcement of FARA, and increases the chances of foreign governments influencing U.S. lobbyists. Another option proposed by Ben Judah, a Hudson Institute Research Fellow, is ending U.S. anonymous companies that Russian kleptocrats use to circumvent law enforcement and bring billions of dollars into the U.S. Lastly, counter-kleptocracy initiatives can be adopted by Congress, NATO, and the European Union.

Regardless of the particular initiative, steps must be taken to abolish TCOs and either expel or arrest their members. As Judge Grinda stated, “just because we have a democracy does not mean we are immune to corruption.”

Max Raileanu is a legal intern at Berliner, Corcoran & Rowe LLP and a rising 3L at American University School of Law.

U.S. and Brazil Start Permanent Forum on Security

May 23, 2018 by Bruce Zagaris Leave a Comment

On May 22, 2018, the United States and Brazilian governments issued a joint statement following the start of the U.S.-Brazil Permanent Forum on Security.

The initiative arose during a meeting in Brasilia at which U.S. Deputy Secretary of State John J. Sullivan was accompanied by the Assistant Secretary for Economic and Business Affairs Manisha Singh and Acting Assistant Secretary for Western Hemisphere Affairs Francisco Palmieri.

The Acting Minister of Foreign Affairs, Secretary General Marcos Garvão hosted the U.S. delegation in a working lunch and a meeting where they discussed several aspects of the U.S.-Brazil partnership.

The start of the Permanent Forum on Security arises from “consistent cooperation between the United States and Brazil on fighting transnational crime, and based upon the strengthening of collaboration of law enforcement and security agencies in both countries.”[1]

The Brazilian Ministry of Foreign Affairs and the U.S. State Department will coordinate the Forum, which aims to facilitate interagency teamwork and design operating strategies in six pre-defined areas: drug trafficking, arms trafficking, cybercrime, money laundering and financial crimes, terrorism, and institutional cooperation.

The first working meeting of the Forum will occur later this year in Washington, D.C.

During the visit, the two sides also issues related to criminal cooperation, such as space cooperation and defense. They discussed the recent exchange of diplomatic notes completing the process for the U.S.-Brazil Open Skies Aviation Agreement and welcomed the resumption of negotiations on a Technology Safeguards Agreement. They exchanged ideas on regional issues, including the region’s response to the political, economic, and humanitarian crisis in Venezuela.

According to the remarks of Deputy Secretary Sullivan, the U.S.-Brazilian security cooperation has included the Summer Olympics in Rio de Janeiro.

A future IELR article will include a more comprehensive discussion of the Forum, its scope and some of the implications.

[1] State Department, Western Hemisphere: U.S.-Brazil Bilateral Cooperation, May 22, 2018

Transparency Int’l Critiques G20’s Unmet Promises on Ending Anonymous Companies

May 1, 2018 by Bruce Zagaris Leave a Comment

by Bruce Zagaris

On April 19, 2018, Transparency International issued a report G20 Leaders or Laggards? Review G20 promises on ending anonymous companies.

The TI report discusses how the major cross-border “grand corruption” scandals have tarnished the Group of 20 (G20) countries in recent years. It cites the fact that in 2017 Odebrecht the Brazilian engineering company, was assessed a US$2.6 billion fine for bribery after being charged with paying US$788 million in bribes. In the “Russian Laundromat” scandal, exposed in 2017, a group of individuals in G20 member Russia allegedly established 21 shell companies, which then moved and laundered illegal proceeds out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil. Increasingly, anonymous companies hide the identity of the person at the source of the funds either to launder and transfer stolen money, or to operationalize corrupt deals, using companies and offshore accounts to pay bribes or buy influence.

The report makes 5 major findings and then recommendations as follows:

G20 Countries are starting to tackle anonymous company ownership – but progress is slow. Some 3 years after the G20 adopted their High-Level Beneficial Ownership Principles at the Brisbane G20 Summit, the number of countries with weak or average frameworks has dropped from 15 to 11, but still major weaknesses exist across the principles.
The majority of countries still do not know who owns and controls companies in their territories and do not keep current information on them. The 20 Principles encouraged legal entities to require beneficial ownership information when recording information about their shareholders. Legal entities are now expected to understand their ownership and control structure and monitor individuals who have an interest in a company but are presented through nominee shareholders or other legal entities. However, the great majority of countries evaluated still do not require legal entities to maintain beneficial ownership information themselves. Central beneficial ownership registers improve collection of beneficial ownership information and access to law enforcement, supports domestic and international cooperation between authorities and permits them to do their job more quickly. Six assessed countries now have central beneficial ownership registers.
Verification of information is weak across the board. This undermines the ability of competent authorities to investigate suspicious cases, and the ability of banks and businesses to carry out proper due diligence. All 23 countries analyzed now require financial institutions to identify the beneficial ownership of customers. Unfortunately, in high-risk cases, only 8 G20 countries required financial institutions to use independent and reliable sources to verify the beneficial owner of their customers. Finally, no register authority in any G20 or guest country verifies information collection in company registers.
Rhetoric does not always translate into action. Government are frequently aware of the weaknesses in their system. However, in many cases they fail to implement key measures they know will help mitigate those problems.
Gatekeepers such as lawyers, accountants, real estate agents, and trusts and company service providers remain money laundering weak spots.

TI makes the following recommendations:

— Governments should establish a central register of beneficial ownership information and make it publicly available in open data format.

— Governments should resource and establish mechanisms to ensure that at least some verification of beneficial ownership information occurs, such as cross-checking the data against other government and tax databases, or conducting random inspections.

— Financial institutions or DNFBPs should not be permitted to proceed with transactions if the beneficial owner of their customer cannot be identified.

— Governments should undertake national money laundering risk assessments on a regular basis. These should include an analysis of the risks posed by domestic and foreign legal entities and arrangements. Key stakeholders, including obliged entities and civil society organizations should be consulted. The results of the assessment should be published online.

— Governments should consider prohibiting nominee shareholders. If they are permitted, they should be required to disclose their status upon the registration of the company and registered as nominees. Nominees should be licensed and subject to strict anti-money laundering obligations.

— Governments should require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries), and the real individuals behind them should be recorded.

The report illustrates how civil society plays an important role in shaping and implementing commitments by governments and international organizations to transparency and anti-corruption. They invest significant resources before the G20 meetings to develop precise commitments and then lobby the governments to support them. Thereafter, civil society continues to monitor the performance of the governments against the commitments and produce reports, exposing gaps. They also work with other organizations, such as the International Consortium for Investigative Journalists (ICIJ). The current issue of the IELR will have a more comprehensive discussion of the TI report.

VIII Summit of the Americas Commitment on anti-Corruption

April 24, 2018 by Bruce Zagaris Leave a Comment

On April 14, 2018, during the VIII Summit of the Americas, the heads of government agreed to the Lima Commitment with respect to “Democratic Governance against Corruption.”

The commitment includes provisions to reinforce democratic governance, including” the strengthening of democratic institutions for the prevention of and fight against corruption in the Hemisphere.” It comes at a time when many of the governments in the hemisphere, such as Honduras, Venezuela, and Brazil are undergoing a crisis of stability largely due to corruption issues.

The commitment has a section on “transparency, access to information, protection of whistleblowers, and human rights, including freedom of expression.” The section commits to increasing national anti-corruption measures or systems and strengthening conditions for the effective participation of civil society, social organizations, academia, the private sector, citizens, and other social actors in monitoring government performance, including the development of prevention mechanisms, channels for reporting possible acts of corruption and facilitating the work of watchdogs including other citizen oversight mechanisms, and incentivizing the adoption of digital means of participation.” One of the initiatives is to promote the establishment of an Inter-American Data Program within the OAS in order to strengthen open information policies and increase the capacity of governments and citizens to prevent and fight corruption.

A section concerns “financing of political organizations and election campaigns.”

A section on the “prevention of corruption in public works and public procurement and contracting.” One element is to request that the Joint Summit Working Group (JSWG), together with other relevant regional and international bodies, develop an infrastructure platform to facilitate the exchange of experiences, training and cooperation programs for project monitoring and development, feasibility and risk analysis studies, transparent bidding procedures, and government procurement.”

A section focuses on “international legal cooperation: the fight against bribery, international corruption, organized crime, and money laundering; and asset recovery.” Among the action agreed is continuing to implement, prior to the IX Summit of the Americas, the applicable recommendations from the specific rounds of the Implementation Review Mechanism of the United Nations Convention against Corruption (UNCAC) as well as the recommendations from the successive rounds of the Mechanism for Follow-Up on the Implementation of the Inter-American Convention against Corruption (MESICIC).

A section focuses on “strengthening of Inter-American Anti-Corruption Mechanisms.” One action item is to identify resources to strengthen its operations with a view to more efficiently address the new challenges that corruption poses in the Hemisphere. The document contains a series of recommendations, such as calling on MESICIC to promote instruments for the exchange and dissemination of best practices, technical capacities, and measures to strengthen legal and institutional frameworks to prevent and combat corruption that will contribute to the implementation of its recommendations.

The final section concerns “follow-up and reports.” The Lima Commitment requests the Joint Summit Work Group (JSWG) to help States with resources and technical capacity-building, so that they can implement the commitments undertaken at the Summit in the area of strengthening democratic governance and anti-corruption efforts. The section calls upon the private sector in general to adopt similar initiatives as those in the “Private Sector Commitment to Transparency” of the American Business Dialogue presented at the III CEO Summit of the America.

The challenges for the stakeholders in the VIII Summit of the Americas will be to garner sufficient resources, implementation, and enforcement mechanisms, so that the lofty commitments can come to fruition. In particular, the Organization of American States, which provided much of the organizational work for the Summits of the Americas, has limited resources. In addition, the JSWG has limited resources and authority to implement the provisions of the commitment. The Summits of the Americas illustrate an effort by governments, the private sector, and civil society to develop government networks. In the VIII Summit of the Americas, the prioritization is on anti-corruption. It is quite appropriate since the prosecutions in Operation Car Wash and especially of heads of government (Dilma Rousseff) and former heads of government (Lula da Silva) have generated an agreement to cooperate in the enforcement of the Oderbrecht case and has triggered investigations and resignations of high-level officials in Ecuador and Peru, as well as a proliferation of prosecutions and civil cases for corruption. There will be a more comprehensive look at the Lima Commitment in the current issue of the IELR journal.