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86th INTERPOL General Assembly Underway in Beijing

September 28, 2017 by Zarine Kharazian 2 Comments

Opening of the 86th General Assembly on September 26, in Beijing | Source: www.interpol.int

Today marks the third day of the 86^th International Criminal Police Organization (INTERPOL) Generally Assembly in Beijing, China. The General Assembly, composed of delegates from 190 member countries, is the supreme governing body of the organization. The GA meets annually for a four- day conference, at which they adopt Resolutions regarding finances, resources for international cooperation, and general policy by a simple majority.

Here are some of the highlights from the 86^th General Assembly thus far:

Chinese President Xi Jinping delivered the opening remarks. President Xi underscored the need for cooperation. “China has actively participated in global law-enforcement cooperation and global security governance, resolutely supported international fight against terrorism, joined global cooperation in combating cyber crimes, worked with other countries in fugitive repatriation, fighting against telecom fraud and other crimes,” President Xi remarked.
Meng Hongwai, the current president of INTERPOL, also delivered remarks. President Hongwai stressed that “INTERPOL in the new age should be an INTERPOL that faces the future.” For Hongwai, a forward-facing INTERPOL would “participate in the discussions” and “take a stance” on global security issues, as well as excel in “supplying technical services” and providing a “platform for cooperation among… countries, international organizations, private entities and civil society.” Read the full transcript of President Hongwai’s speech here.
The GA voted to admit Palestine and the Solomon Islands as member countries. The decision to admit Palestine was met with ire by Israeli officials – Israel’s Deputy Minister for Diplomacy, Michael Oren, wrote on Twitter that “[b]y admitting ‘Palestine’, which praises terrorists of the past and refuses to condemn those of today, Interpol makes the world less safe.”

Look for more updates and analysis on the 86^th General Assembly in the next issue of the International Enforcement Law Reporter.

Building the Border Wall: Updates

September 21, 2017 by Zarine Kharazian Leave a Comment

Amid Recording-Setting Year for Drug Seizures at Sea, Trump Administration Considers Cuts to Coast Guard to Fund Border Wall

At an event in San Diego on Wednesday, the Coast Guard announced a record-breaking year in cocaine seizures at sea. The service has seized more than 455,000 pounds of cocaine so far in the fiscal year, which will end in October 1, breaking last year’s record of 433,790 pounds. In addition, the Coast Guard has detained at least 681 individuals suspected of smuggling throughout this year.

Attorney General Jeff Sessions held a joint press conference with Coast Guard officials in San Diego, and lauded the Coast Guard’s enforcement of drug laws. “By preventing overdoses and stopping new addictions before they start, enforcing our drug laws saves lives,” Sessions said. “This record-breaking year by our Coast Guard saw the arrest of more than 600 suspected drug traffickers and kept nearly half a million pounds of dangerous drugs from getting to our streets — and ultimately to our neighbors, friends, and families.”

Sessions’ praise for the Coast Guard’s historic year for drug seizures comes as the Trump administration eyes cuts to the Coast Guard budget to generate funding for the proposed US-Mexico border wall. A draft budget circulated in March proposed slashing billions of dollars of funding for federal disaster relief agencies and programs, including cutting 11 percent each of the TSA and FEMA budgets and 14 percent of the Coast Guard’s budget, while increasing funding for ICE and Customs and Border Protection by 36 percent and 27 percent, respectively.

The proposed budget cuts to federal disaster relief have encountered renewed criticism in the wake of several powerful hurricanes that devastated parts of Texas, Florida, and the Caribbean islands this season.

California Sues Trump Administration over Wall, Citing Environmental Concerns

Later on Wednesday, the state of California filed a lawsuit against the Trump administration to stop construction of the border wall. The complaint, filed in the U.S. District Court for the Southern District of California, alleges that the Trump administration and Department of Homeland Security are “in violation of NEPA [the National Environmental Policy Act] because they failed to prepare an EIS [Environmental Impact Statement] concerning a construction project that will span hundreds of miles in four states and in areas that either contain or are adjacent to environmentally sensitive natural resources.”

Furthermore, in failing to submit “a timely consistency determination,” the complaint alleges that the DHS has violated the Coastal Zone Management Act (CZMA) with respect to the wall’s construction in San Diego County.

The suit also alleges that the project “is not authorized by Section 102 of IIRIRA because it fails to distinguish between different areas of the border and whether a particular area is an area of high illegal entry into the United States.” In addition, the suit claims that DHS failed to include the San Diego and Calexico project areas “as part of its obligation to identify and construct necessary barriers in Priority Areas prior to the December 31, 2008, deadline.”

To read the entire complaint, see here.

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

August 28, 2017 by Zarine Kharazian 1 Comment

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

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

The main violations detailed in the filing include:

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

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

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

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

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

WannaCry Ransomware Hero Charged For Banking Malware “Conspiracy”

August 4, 2017 by Zarine Kharazian 2 Comments

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

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

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

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

July 27, 2017 by Zarine Kharazian 1 Comment

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

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

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

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

Florida Passes Law Criminalizing the Use of Bitcoin in Money Laundering

May 8, 2017 by Jacob Rasch Leave a Comment

On Friday, May 5, 2017, the legislature of the U.S. state of Florida passed legislation designed to criminalize the use of Bitcoin and other cryptocurrencies in laundering money. The bill, which passed both the Florida House and Senate and now awaits the approval of Governor Rick Scott, adds “virtual currency” to the definition of “monetary instruments” covered under Florida’s Money Laundering Act, which would then be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.”

The bill was crafted in response to a Florida court case from 2016, in which a criminal case against Floridian Michel Espinoza, who had used Bitcoin to facilitate the online purchase of stolen credit card information, was dismissed after the defense successfully argued that Bitcoin was not a currency under Florida law. The defense likened Bitcoin transactions not to money exchanges, but to “poker chips that people are willing to buy from you” — a trade for something with perceived monetary value, or property.

Circuit Judge Teresa Mary Pooler, in dismissing the case, stated that “this court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.”

Cryptocurrency advocates and others concerned about this legislation have warned that this definition of money could lead to other items with solely representative value — “coat checks, tickets to Disney World, and discount coupons” in the words of Barry University economist Charles Evans — eventually defined as money. Like those items, cryptocurrencies are not backed by any government; their value is set by the marketplace. In fact, the IRS classifies Bitcoin and other cryptocurrencies as commodities. However, Bitcoin is often used to facilitate purchases in the same way that a more conventional currency would be, and because of its globally universal value and digital nature, is often used to facilitate illicit transactions such as drug and human trafficking.

Another U.S. state, West Virginia, recently passed similar legislation. The West Virginia law was signed by Governor Jim Justice on April 26, 2017, and will go into law on July 7. That legislation can be found here: http://www.legis.state.wv.us/Bill_Text_HTML/2017_SESSIONS/RS/bills/hb2585%20intr.pdf.

More information about the Florida legislation can be found here: https://www.myfloridahouse.gov/Sections/Bills/billsdetail.aspx?BillId=59472

U.S. Takes Down Russian Botnet after Operator Arrested in Spain

April 11, 2017 by Jacob Rasch Leave a Comment

On April 10, 2017, the U.S. Department of Justice announced that the U.S. government was in the process of taking steps to dismantle a Russian botnet responsible for infecting tens of thousands of computers to facilitate criminal activities. The Kelihos botnet, announced by Acting Assistant Attorney General Kenneth A. Blanco, was responsible for, “distributing hundreds of millions of fraudulent e-mails per year, intercepting the credentials to online and financial accounts belonging to thousands of Americans, and spreading ransomware throughout our networks.” The FBI announced that it had, as of April 8, 2017, begun what FBI Special Agent in Charge Marlin Ritzman described as the “extraordinary task” of blocking malicious domains associated with the Kelihos botnet, preventing those domains from being accessed in the United States, and thus protecting American citizens from further harm.

The Department of Justice announcement comes as, over the preceding weekend, Spanish officials arrested and detained 36-year old Russian national Peter Levashov in response to an FBI request. Levashov is suspected of being the operator of the Kelihos botnet, who works under the alias Peter Severa. Levashov has been indicted in the U.S. twice previously on computer crime-related charges, and is number 6 on the list of the World’s Ten Worst Spammers, a list maintained by the anti-spam organization Spamhaus.

The arrest is the result of years of concerted effort by U.S. agents, who had been monitoring Levashov since at least 2006. When Levashov took a vacation to Barcelona, the FBI saw an opportunity, contacting the Spanish police, who entered Levashov’s hotel on Friday, April 7, and made the arrest.

Levashov, according to the complaint, had gained unauthorized access to a network of over 100,000 computers, and used those computers to engage in the lucrative practice of spam campaigns. According to a New York Times report, the cost of a Kelihos spam campaign “ranged from $200 to $500 per one million email messages, … [and] Mr. Levashov charged more to target American computers, an indication that these were a higher priority.”

Mr. Levashov also used his spam campaigns for political purposes, though he is not accused of having any involvement in the plot to influence the 2016 U.S. Presidential election. In 2012, Levashov’s botnet sent emails intended to discredit the leading challenger to Russian President Vladimir Putin ahead of that year’s Russian federal election. The emails contained links to fake news stories which alleged that the challenger, businessman Mikhail Prokhorov, had come out as gay.

The civil complaint can be found here: https://www.justice.gov/opa/press-release/file/956506/download

The press release announcing the actions against the Kelihos botnet can be found here: https://www.justice.gov/opa/press-release/file/956506/download

Justice Department Announces Indictments of Russian Hackers in Yahoo Hacks

March 15, 2017 by Jacob Rasch Leave a Comment

On March 15, 2017, the U.S. Department of Justice announced that it had indicted four Russian nationals, including two members of the FSB, the Russian spy agency, in connection with the hacking of the servers of American web giant Yahoo in 2014. The charges include hacking, wire fraud, trade secret theft and economic espionage, and are part of the largest hacking case ever brought by the United States.

The indicted FSB officers are Dmitry Dokuchaev and Igor Sushchin, his superior, both of whom worked for the arm of the FSB that investigates cyber crimes. Dokuchaev, who had reportedly agreed to work for the FSB as part of an agreement to avoid prosecution for fraud, was arrested and charged with treason in Moscow in January amid allegations that he had provided information to the CIA. The two non-government-affiliated hackers indicted in the case are Alexsey Belan, a notorious cyber-criminal who has been charged by the U.S. twice before in relation to separate incidents, and Karim Baratov, a Kazakh-born Canadian citizen arrested in Canada on Tuesday.

The 2014 hack, which at the time was considered the largest in Yahoo history, involved 500 million Yahoo user accounts, giving the hackers access to Yahoo email accounts as well as access to other Yahoo web services such as photo-sharing site Flickr and blogging service Tumblr. The FSB likely orchestrated the hack in order to gain information about Yahoo users, which could include high-value targets including U.S. government officials.

The U.S. does not have an extradition treaty with Russia, who would regardless be unlikely to cooperate with an investigation that implicates their own government. Thus, Dokuchaev, Sushchin, and Baratov, all in Russia as of now, are unlikely to be extradited to the U.S. barring their travel to a jurisdiction more willing to cooperate with a U.S. extradition request. However, indictments for state-sponsored criminal action can be used as a tool to curb said state-sponsored criminal action. This is not the first time the U.S. has responded to state-sponsored hacking with criminal indictments; in 2014, the U.S. indicted 5 members of the Chinese People’s Liberation Army for trying to steal trade secrets from U.S. private enterprise.

While these indictments are unrelated to the allegations that state-sponsored Russian hackers interfered in the U.S. election, they may provide a road map for a U.S. response to such allegations.

This press release announcing the indictments can be found here: https://www.justice.gov/opa/pr/us-charges-russian-fsb-officers-and-their-criminal-conspirators-hacking-yahoo-and-millions.