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Official Blog of the International Enforcement Law Reporter

OECD Announces Public Consultation on Tax Transparency for Crypto-Assets

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

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

Crypto-Asset Reporting Framework (CARF)

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

Proposed CRS Amendments

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Analysis

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

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

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

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

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

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

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

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

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

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

[3]    Id.

[4]    Id.

[5]   Id.

Honduras Detains Former President on US. Extradition Warrant

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

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

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

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

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

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

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

Analysis

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

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

Footnotes

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

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

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

[4]    Id.

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

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

[7]   Suazo and Kurmanaev, supra.

DIPLOMATIC DIALOGUE – ‘The Role of the Caribbean Financial Action Task Force in Anti-Money Laundering/Countering the Financing of Terrorism/Countering Proliferation Financing Compliance’

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DIPLOMATIC DIALOGUE – ‘The Role of the Caribbean Financial Action Task Force in Anti-Money Laundering/Countering the Financing of Terrorism/Countering Proliferation Financing Compliance’

Thursday 10th February, 2022 | 1:00 – 3:00 p.m. Atlantic Standard Time

 

https://uwi.zoom.us/webinar/register/WN_I0gBP0QBReeZCbf0F8pBuQ

 

Jessica Byron-Reid Jessica.Byron-Reid@sta.uwi.edu

 

 

PROGRAMME

 

Welcome Remarks Professor Jessica Byron Director, Institute of International Relations (IIR)

 

Introduction of Guest Speaker Dr. Dave Seerattan Lecturer, IIR

 

Feature Presentation Ms. Dawne Spicer Director, Caribbean Financial Action Task Force (CFATF)

 

Commentary Ms. Alicia Nicholls Junior Research Fellow (Trade), Shridath Ramphal Centre, The UWI, Cavehill

 

Question and Answer Session

 

Vote of Thanks Ms. Zaynab Nakhid Postgraduate Diploma Student, IIR

ABA CJS Meeting Features Discussion of Current and Emerging Anti-Corruption Trends in the Caribbean on Nov. 20

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Below is an announcement/invitation to the meeting of the Committee on International Criminal Law, Criminal Justice Section, ABA on Nov. 20, where Lemarque Campbell, Program Director, AntiCorruption and Media Freedom, International Lawyers Project, will discuss “Current and Emerging Anti-CorruptionTrends in the Caribbean.” You need to register (free) to attend in person or you can dial-in.

Bruce Zagaris, Committee co-chair

Below please find the dial in for the International committee meeting: Saturday, November 20, 2021, at 11:15 AM-12:45 PM Eastern Time.

The Madison Hotel

1177 15th Street NW

Washington, DC  20005

Montpelier A Room

Please RSVP to Regina.ashmon@americanbar.org If you plan to attend in person.

Due to the ongoing COVID pandemic, meeting attendees are now required to provide proof of full vaccination as defined by the CDC, or proof of a negative viral COVID test administered by a healthcare professional taken within 3-days of the meeting arrival date, to attend in person. These requirements impact guests of attendees as well.   This change in policy was set forth by the ABA Board of Governors on 10/4/21.

If you are attending a committee meeting (in-person) scheduled during the fall institute, it’s imperative to register for the Fall CLE Institute by clicking the link below.  https://cvent.me/YPzzz0  This link includes time sensitive COVID related questions.

Dial by your location:

        888 475 4499 US Toll-free

        877 853 5257 US Toll-free

Meeting ID: 981 4789 2653

Passcode: 256374

Regina Ashmon

Committee Specialist, Criminal Justice

American Bar Association

1050 Connecticut Avenue, NW, Suite 400

Washington, DC 20036

T: (202) 662-1512

F: (202) 662-1501

Regina.Ashmon@americanbar.org

Follow CJS on facebook and twitter.

www.americanbar.org/crimjust

MEETING AGENDA 

  1. Introduction and opening remarks
  2. Lemarque Campbell, Program Director, Anti-Corruption and Media Freedom, International Lawyers Project, Current and Emerging Trends for Combating Corruption in the Caribbean.
  3. Committee Newsletter & Membership
  4. Future CLE Events
  5. Other Busines

Lemarque Campbell will discuss current and prospective anti-corruption efforts that transcend national boundaries when it comes to generating and operationalizing anti-corruption policies and measures within the Commonwealth Caribbean, a region with limited research conducted on anti-corruption topics overall.  In particular, he will discuss some of the efforts by the Commonwealth Secretariat to establish and support regional anti-corruption efforts among prosecutors and other agencies.  He will also discuss ongoing efforts in various countries to strengthen anti-corruption laws, such as the disclosure regime for public officials.

Lemarque Campbell is an international anti-corruption specialist, currently based in Washington, D.C. He has advised governments, international organizations, private entities and civil society organizations on laws and policies that address international anti-bribery, corruption and fraud; transparency and accountability; governance, risk, integrity and ethics; and private and public sector compliance. Previously, he practiced law at a leading corporate law firm in The Bahamas. He also led the accreditation process for the Transparency International (TI) Contact in The Bahamas. Additionally, he has lived in the former Soviet Republic of Georgia for two years, where he worked as a legal analyst for TI Georgia. He also served as an anti-corruption consultant to various organizations such as the U.S. Department of State, the Commonwealth Secretariat, the International Development Law Organization (IDLO) and TI-Secretariat. Some of his publications on the Caribbean region include the first Bahamas Corruption Barometer Report, which is based on the TI Global Corruption Barometer series; a report on The Bahamas’s progress towards achieving the United Nations Sustainable Development Goal 16; and a chapter in a forthcoming Commonwealth Secretariat publication on anti-corruption successes in the Commonwealth Caribbean. Lemarque is admitted as a lawyer to both the Bar of England & Wales and The Bahamas Bar. He holds a master’s degree in Law from the University of Bristol, UK and a master’s degree in Anti-Corruption Studies from the International Anti-Corruption Academy (IACA), Austria.

 

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

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

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

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

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

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

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

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

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

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

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

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.

INTERPOL Claims Immunity, Escapes Judicial Review of Lack of Due Process

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by Yuriy L. Nemets[1]

 

For many years, repressive political regimes have used INTERPOL as a powerful tool in politically motivated and otherwise corrupt prosecutions. INTERPOL has established a redress mechanism for victims of such abuse. The mechanism, however, lacks due process and is full of loopholes that allow the abuse to continue. Despite numerous calls over the years from advocacy organizations, human rights activists and politicians to carry out all the necessary reforms, INTERPOL has given no indication that it is willing to do so. After all, as a recent decision by a U.S. federal court shows, what incentive does INTERPOL have to fight non-democratic countries if democratic countries are willing to protect it from their own courts?

The El Omari Decision

On May 13 of this year, the District Court for the Eastern District of New York dismissed a lawsuit filed by Oussama El Omari against INTERPOL due to the immunity that the latter enjoys under the International Organizations Immunities Act (IOIA). The plaintiff, a U.S. citizen, argued that INTERPOL’s issuance and refusal to delete from its databases a Red Notice, a request to locate and provisionally arrest him for the purposes of his extradition, constituted negligent infliction of emotional distress and violated his due process rights under the New York State Constitution. INTERPOL issued the Red Notice at the request of the United Arab Emirates where the plaintiff had been convicted for embezzlement and abuse of power. Prior to filing the lawsuit, El Omari submitted a complaint to INTERPOL requesting that the Red Notice be deleted and a hearing at which he intended to appear with his counsel and an expert witness be scheduled. INTERPOL denied both of El Omari’s requests as well as his subsequent request to reconsider.

IOIA guarantees international organizations “immunity from suit and every form of judicial process as is enjoyed by foreign governments.” It defines an “international organization” as a “public international organization in which the United States participates pursuant to any treaty or under the authority of any Act of Congress authorizing such participation or making an appropriation for such participation, and which shall have been designated by the President through appropriate Executive order as being entitled to enjoy the privileges, exemptions, and immunities provided in this subchapter.” The District Court concluded that INTERPOL falls under this definition.

In 1983, President Reagan, by executive order, granted INTERPOL the privileges, exemptions and immunities recognized under IOIA with the exception of inviolability of archives and immunity from search and confiscation of property and assets, customs duties, certain federal taxes and social security payments. In 1995, President Clinton partially reversed that order and granted INTERPOL immunity from customs duties and federal importation taxes. In 2009, President Obama removed the remaining limitations imposed by President Reagan.

The District Court in El Omari v. INTERPOL explained that it “lacks subject matter jurisdiction and must dismiss a claim where defendant organization is immune from suit.” IOIA guarantees international organizations immunity from lawsuits and courts unless expressly waived “for the purpose of any proceedings or by the terms of any contract.” No such waiver existed in this case, the District Court concluded.

Implications of the Decision and Inability of Applicants to Obtain Hearing at INTERPOL

It is no surprise that INTERPOL denied El Omari’s complaint without holding a hearing.  Under INTERPOL’s rules, it adjudicates complaints based on the parties’ written submissions; a hearing is held only if INTERPOL considers it necessary. To this day, more than a decade since the rule was adopted, there seems to be no known case in which INTERPOL held a hearing. Individuals who challenge government abuse of INTERPOL’s channels through its redress mechanism also lack both the right to examine evidence produced against them and the right to appeal INTERPOL’s decisions denying them relief. Moreover, by INTERPOL’s own admission, there have been cases in which governments already found to be in violation of its Red Notice rules were able to use its resources against the same individuals, either by disseminating new requests to seek their arrest or by issuing false alerts that these individuals’ travel documents were lost or stolen. Thus, not only does INTERPOL fail to guarantee individuals due process when it considers their complaints, it also lacks comprehensive enforcement of its own decisions against governments that abuse its channels.

INTERPOL does not seem to be willing to punish governments that violate its rules either. The best known case is Turkey. In 2017, the government of President Erdoğan reportedly tried to put 60,000 individuals it accused of affiliation with the Fethullah Gülen opposition movement on the INTERPOL wanted list, an unprecedented and brazen attempt to abuse the organization’s channels for political purposes. INTERPOL denied reports that it sanctioned Turkey for its conduct. Moreover, this November, Turkey will host INTERPOL’s 89th General Assembly, the “supreme governing body” for the organization.  This General Assembly will elect new members of the Commission for the Control of INTERPOL’s Files, which has exclusive jurisdiction to adjudicate complaints against government abuse of the organization’s channels. Members of the Commission are elected for a term of five years and can be reelected for an additional three years.

In the meantime, the number of Red Notices and other government requests disseminated via INTERPOL continues to grow while victims of INTERPOL abuse are trapped in a vicious circle – autocracies grow ever more confident that they can abuse the organization with impunity, the latter refuses to reform itself, and democratic governments not only fail to exert any real pressure on INTERPOL but instead shield it from liability, thereby denying victims any recourse.

[1]    Managing Member at NEMETS, Washington, D.C.  Founder of Red Notice Abuse Report – RedNoticeAbuse.com @rednoticeabuse.

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.

FATF Starts New Project to Study and Mitigate the Unintended Consequences from Incorrect Implementation of Standards and Announces More Jurisdictions on its Black and Grey Lists

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On March 17, 2021, the Financial Action Task Force announced the start of a new project “to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards.

Mitigation Project

The project started in February 2021 and will examine the following four areas

  • “De-risking, or the loss or limitation of access to financial services. This practice has affected non-profit organizations (NPOs), money value transfer service providers, and correspondent banking relationships, in particular;
  • Financial exclusion, a phenomenon whereby individuals are excluded from the formal financial system and denied access to basic financial services;
  • Suppression of NPOs or the NPO sector as a wholethrough non-implementation of the FATF’s risk-based approach;
  • Threats to fundamental human rightsstemming from the misuse of the FATF Standards or AML/CFT assessment processes to enact, justify, or implement laws, which may violate rights such as due process or the right to a fair trial.”

The FATF will conduct the project in two phases:

Phase One: research and engagement. The project will analyze these unintended consequences resulting from the misuse of the FATF’s Standards on preventing and combating money laundering and the financing of terrorism. This work will rely on the knowledge and experiences of members of the FATF’s Global Network of 205 jurisdictions, its observers, and outside stakeholders.

Phase Two: solutions. The second phase will develop options the FATF could consider to prevent and mitigate these unintended consequences.

According the announcement, the FATF welcomes input to inform this project, including scholarly research; industry and civil society perspectives; and documented instances of unintended consequences. Information may be sent to pscf@fatf-gafi.org.

The announcement states the project is an opportunity to study trends and propose solutions. Any information provided to the FATF Secretariat will be shared with the project team and the source will be identified.

New Lists of High-Risk Jurisdictions and Jurisdictions in Need of Increased Monitoring

On February 25, 2021, the FATF announced its list of High-Risk Jurisdictions (also commonly referred to as its “blacklist”) subject to a Call for Action (Iran and North Korea) and jurisdictions in need of increased monitoring (commonly referred to as its “grey list”).  The list has the following jurisdictions: Albania, Barbados, Botswana, Burkina Faso, Cambodia, Cayman Islands, Ghana, Jamaica, Mauritius, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Senegal, Syria, Uganda, Yemen, and Zimbabwe.

One of the problems with the list of high-risk jurisdictions is that they’ve been on the list now for many years and they are also on international and national sanctions list.  As a result, many banks and financial institutions will not process transactions, even ones that are for genuine humanitarian purposes due to the risk of large penalties.

Another practical problem is that jurisdictions on either list tend to also land on the European Union list of high-risk jurisdictions for money laundering (commonly referred to as its AML/CFT blacklist).

Although the FATF does not mandate the application of enhanced due diligence measures for jurisdictions under increased monitoring, it encourages member jurisdictions to take the listing into account when undertake their risk analysis. The measures to be applied will vary, but may result in: (a) a requirement to perform more comprehensive due diligence on the customer’s source of funds and source of wealth and/ or (b) increased internal controls on business acceptance and ongoing monitoring.

Practically speaking, regulators around the world take into account the listing as do the electronic databases used by financial institutions and intermediaries when they are on-boarding and reviewing clients for customer due diligence.  As a result, banks and financial institutions from the metropole tend to limit or terminate correspondent bank relationships (de-risking) and withdraw from having branches or subsidiaries in the jurisdictions, especially because the listed jurisdictions tend to be small jurisdictions.  The result is that persons and businesses in these jurisdictions increase higher costs to bank, especially internationally.  Ultimately, the listings lead to financial exclusion of the small jurisdictions and their inhabitants, even though many already experience a high degree of lack of access to formal financial markets.

The current issue of the IELR will have a more comprehensive discussion of the issues raised in this post.

Disclaimer

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

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