IELR Blog

Official Blog of the International Enforcement Law Reporter

Bill Introduced to Counter Foreign Corruption and Promote Good Governance

by Leave a Comment

On February 4, 2021, U.S. Senator Ben Cardin (D-Md.) and Senator Roger Wicker (R-Miss), incoming Chair of the U.S. Helsinki Commission and Co-Chair, respectively, re-introduced legislation that would strengthen the U.S. Government’s anti-corruption initiatives.  S.158, the Countering Russian and Other Overseas Kleptocracy Act, or CROOK Act, would create an anti-corrupt action fund to furnish additional funding targeting reform in foreign countries and streamlining work supporting the rule of law abroad.

Substance of the CROOK Act

As explained by its authors, the anti-corruption fund established in the CROOK Act would help countries where U.S. assistance could significantly increase the opportunities of successfully transitioning to democracy, combating corruption, and establishing the rule.  For instance, in 2014, Ukraine established important reforms.  In 2018, Ethiopia made important reforms after the election of a new Prime Minister.  After the December 2018 parliamentary election, Armenia made reforms.  The fund would provide a mechanism to allocate aid and take advantage of new political will more quickly.  The financing for the fund would come from a $5 million surcharge to individual companies and entities that receive a $5 million criminal fines and penalties above $50 million for violating the Foreign Corrupt Practices Act (FCPA).

S. 158 would create several complementary mechanisms to have a whole-of-government approach to U.S. efforts to fortify the rule of law abroad. These include an interagency taskforce;[1] the designation of embassy anti-corruption points of contact to liaise with the task force; reporting requirements designed to combat corruption, kleptocracy, and illicit finance; and a consolidated online platform for easy access to anti-corruption reports and materials.

In its introduction, the CROOK Act mentions systematic corruption in both Russia and China, and their pernicious effects on the U.S. and the world.

The CROOK Act expressly mentions the work of technical assistance programs that combat  corruption and strengthen the rule of law.  The latter includes  through assistance provided by the Department of  State’s Bureau of International Narcotics and Law  Enforcement Affairs and the U.S. Agency for International Development, and through programs like the Department of Justice’s Office of  Overseas Prosecutorial Development, Assistance and  Training and the International Criminal Investigative Training Assistance Program.  These programs can have lasting  and significant impacts for both foreign and U.S. interests.

Quickly civil society organizations, such as Transparency International U.S., endorsed the bill.

Analysis

The bill will help bring a more whole-of-government approach to U.S. anti-corruption policy.  It seems strange that so much emphasis in the bill and its marketing is on systematic corruption in two countries that coincidentally are U.S. rivals – Russia and China.  It follows a legislative trend.  Sec. 5506 of the Anti-Money Laundering Act (AMLA) of 2020, which is part of the National Defense Authorization Act, calls for Treasury study and strategy on money laundering by China, especially on the extent and effect of illicit finance risk concerning China and Chinese firms.  The latter includes financial institutions, an assessment of the illicit finance risks emanating from China, and a strategy to counter these money laundering activities.  Sec. 5507 of the AMLA requires a  study and report to Congress on how authoritarian regimes in foreign countries and their proxies use the U.S. financial system to conduct political influence operations, sustain kleptocratic methods of maintaining power, export corruption, fund nongovernmental organizations, media organizations, or academic initiatives in the U.S., and undermine democratic governance in the U.S. and the partners and allies of the U.S.

[1]    The inter-agency task force will be composed of representatives appointed by  the President from appropriate departments and agencies,  including the State Department, U.S.A.I.D.,  the Treasury Department, the Justice Department, Homeland Security, the Defense Department, the Commerce  Department, the Millennium Challenge Corporation, and the intelligence community.

FinCEN Will Require Persons to Report Virtual Currency as Part of Foreign Bank and Financial Accounts and Will Require Recordkeeping for Transfers into Crypto Wallets

by Leave a Comment

FinCEN is moving rapidly for reporting crypto currency and assets.

Reporting Virtual Currency on FBARs

On December 31, 2020, the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in a notice stated it intends to propose to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR)  on IRS FinCEN Form 114 to include virtual currency as a type of reportable account under 31 C.F.R. § 1010.350.

At present, FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account.[1]  As a result, a person with a foreign account holding virtual currency need not report such as holding on the FBAR unless it is a reportable account under 31 C.F.R. § 1010.350 because it holds reportable assets in addition to virtual  currency.

It remains to be seen how virtual currency will be reported on the FBAR.  Because FBAR penalties may be as high as 50 percent of an account’s highest balance per violation, the stakes are high.

Meanwhile, the Internal Revenue Service 2019 Form 1040 Schedule 1 added a question, inquiring whether taxpayers received, sold, sent, exchanged, or acquired a financial interest in virtual currency.  The recordkeeping for tax purposes alone on virtual currency is very challenging.

On December 31, 2020, the IRS issued draft instructions  on what constitutes reportable virtual currency transactions.  The instructions provide more guidance than did the previous version released October 23, 2020.  However, many tax attorneys have criticized the new guidance.[2]

Recordkeeping on Crypto Wallets

FinCEN will propose to amend the regulations implementing the Bank Secrecy Act (BSA) concerning reports of  foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350.

On December 23, 2020,  FinCEN issued a notice of proposed rulemaking requesting public comments on a proposal to require banks and money service businesses (“MSBs”) to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (“CVC”) or digital assets with legal tender status (“legal tender digital assets” or “LTDA”) held in unhosted wallets  or held in wallets hosted in a jurisdiction identified by FinCEN. FinCEN is proposing to adopt these requirements pursuant to the Bank Secrecy Act (“BSA”).

FinCEN proposes to prescribe by regulation that CVC and LTDA are “monetary instruments” for purposes of the BSA. However, FinCEN does not propose  to change  the regulatory definition of “monetary instruments” or otherwise alter existing BSA regulatory requirements applicable to “monetary instruments” in FinCEN’s regulations, including the existing currency transaction reporting (“CTR”) requirement and the existing transportation of currency or monetary instruments reporting requirement.

FinCEN is providing a 15-day period for public comments with respect to this proposed rule.

Analysis

Although there are many important technical and procedural issues, including whether Treasury is affording sufficient time for comments on the new regulations, the bottom line is that Treasury and other law enforcement agencies believe significant amount of crime is occurring due to the lack of transparency surrounding virtual currencies and digital assets, especially in international transactions.

The current issue of the IELR will have a more comprehensive discussion of these two regulatory initiatives.

[1]    See 31 CFR 1010.350(c).

[2]    Kirstin Parillo, New Draft 1040 Instructions Add More Crypto Details, Tax Notes Today  Int’l 2021 TNTI 5-3, Jan. 8, 2020.

Congress Passes Anti-Money Laundering Act over President’s Veto

by Leave a Comment

On January 1, 2020, the Senate voted to override President Trump’s veto of the annual military policy bill (the National Defense Authorization Act – NDAA).  Division E of the Act is the Anti-Money Laundering Act of 2020 (the AMLA or Act), which contains a number of international enforcement elements.  This post discusses selected international enforcement aspects, except for the beneficial owner/entity transparency provisions that were discussed in the December 2020 issue of the International Enforcement Law Reporter.

Increased Authority to Issue and Enforce Correspondent Account Subpoenas

The Act increases the ability of the Department of Justice (DOJ) and Treasury’s authority to issue and enforce correspondent account subpoenas under 31 U.S.C. § 5318(k).  Before, the DOJ and Treasury could issue such subpoenas to any foreign bank with a correspondent account in the United States and could “request records related to such correspondent account.”[1]  The Act widens this authority to permit DOJ to request “any records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the United States,” if the records are the subject of an investigation concerned a violation of U.S. criminal laws, a violation of the Bank Secrecy Act (BSA), a civil forfeiture action, or a Section 5318A investigation.[2]

If a foreign financial institution does not comply, the Act authorizes the Attorney General to seek contempt sanctions from a court, and the Attorney General or Secretary of the Treasury may direct covered U.S. financial institutions to end their correspondent relationships with the non-compliant foreign financial and impose penalties on those institutions that fail to do so.[3]

Pilot Project to Share SAR Information Internationally

FinCEN has promulgated guidance allowing sharing of Suspicious Activity Reports (SARs) information internationally with foreign parent organizations or U.S. affiliates in other countries.[4]   The Act requires the Treasury within one year after the enactment of legislation to issue rules that establish a pilot program for financial institutions to share information related to SARS “with the institution’s foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks.”[5]

The Act allows the Secretary of the Treasury to prohibit sharing with certain jurisdictions, such as state sponsors of terrorism, states subject to sanctions imposed by the U.S. government, or those the Secretary has determined cannot reasonably protect the security and confidentiality of such  information.[6]

Provisions on Cryptocurrency and Antiquities Dealers, Advisors, and Consultants

The Act adds to the definition of financial institution and money transmitting businesses under the BSA, which are subject to anti-money laundering due diligence, businesses engaged in the exchange of transmission of “value that substitutes for currency.” [7]   The Act also expands the definition of financial institution to include antiquities dealers, advisors, and consultants.

The Act requires Treasury to prepare a study within one year that evaluates money laundering and terrorist financing through the art trade, including the markets that should be subject to regulation, the extent to which the regulations, if any, should target high-value trade in works of art, and “the need, if any, to identify persons who are dealers, advisors, consultants, or any other persons who engage as a business in the trade in works of art.”[8]

Foreign Financial Intelligence Unit Liaisons (FFIUL)

  • 6108 of the Act requires the appointment of not more than six FFIULs, co-located in a U.S. embassy, U.S., or a foreign government facility, among other things, to facilitate capacity building and outreach on AML/CFT regulatory and analytical frameworks; and coordinate with representatives of the DOJ at US Embassies.[9]

International Coordination

  • 6112 of the Act requires the Secretary of the Treasury to work with foreign counterparts, including bilateral contacts, the Financial Action Task Force, the IMF, the World Bank, the Egmont Group of FIUs, the OECD, the Basel Committee on Banking Supervision, and the UN, to promote stronger AML frameworks.

Financial Services De-Risking

  • 6213 of the Act states Congress supports effective measures to stop the flow of illicit funds and promote AML/CFT and sanctions goals, and AML/CFT and sanctions policies that do not unduly hinder or delay the efforts of legitimate humanitarian organizations to fulfill the needs of humanitarian crisis, prevent or alleviate human suffering. § 6213(c) requires the GAO to conduct a de-risking analysis and evaluate the effect of AML/CFT on individuals and entities, including charities, embassy accounts, money-service businesses, and correspondent banks that have been subject to categorical de-risking by financial institutions operating in the U.S. and or otherwise have difficulty accessing or maintaining certain financial services in the U.S. and evaluate the consequences of financial institutions de-risking entire categories of relations with individuals and entities mentioned above in this section. The GAO should propose changes to those requirements resulting in de-risking.

GAO Study on Fighting Illicit Networks and Detecting Human Trafficking and Drug Trafficking

  • 6504(c) of the Act requires the GAO to study how a range of payment systems and methods, including virtual currencies in online marketplaces, are employed to facilitate human trafficking and drug trafficking.

Treasury Study and Report on Trade-Based Money Laundering

  • 6505 of the Act requires Treasury to conduct a conduct a study, in consultation with appropriate private sector stakeholders, academic and other international trade experts, and Federal agencies, on trade-based money laundering and proposed strategies to combat trade-based money laundering.

Treasury Study and Strategy on Money Laundering by the PRC

  • 6506 of the Act requires the Treasury to conduct a study, relying substantially on information obtained through the trade-based money laundering analyses of the GAO, on, inter alia, the extent and effect of illicit finance risk relating to the PRC Government and Chinese firms, and a strategy to counter Chinese money laundering.

Treasury Study on Efforts of Authoritarian Regimes to Exploit the Financial System of the U.S.

  • 6507 of the Act requires the Treasury Secretary and Attorney General, in consultation with the heads of other relevant national security, intelligence, and law enforcement agencies, to conduct a study for Congress on how authoritarian regimes in foreign countries and their proxies use the financial system of the U.S., inter alia, to: “(1) conduct political influence operations; (2) sustain kleptocratic methods of maintaining power; (3) export corruption; (4) fund nongovernmental organizations, media organizations, or academic initiatives in the United States to advance the interests of these regimes; and (5) otherwise undermine democratic governance in the United States and the partners and allies of the United States.” The study should make recommendations for legislative or regulatory action, or regulatory action, or steps to be taken by U.S. financial institutions that would address exploitation of the financial system of the U.S. by foreign authoritarian regimes.

Kleptocracy Assets Recovery Reward Act

  • § 9701-03 of Division H of the NDAA establishes the Kleptocracy Asset Recovery Rewards Program in the Department of the Treasury, and authorizes appropriations for the purpose of paying rewards under the program.

Combating Russian Money Laundering

  • § 9711-9714 of Division H of the NDAA requires a report if the Secretary of the Treasury determines that certain institutions, transactions, or money laundering activities require domestic financial institutions or domestic financial agencies to take special measures described in 31 U.S.C. § 5318A(b), and permit implementation of such special measures.  These provisions would enable Treasury to impose special measures on transactions emanating from Russia, certain Russian financial institutions, and/or certain categories of transactions.

The current issue of the IELR will have a more comprehensive discussion of the AMLA and related provisions.

[1]    31 U.S.C. § 5318(k)(3)(A).

[2]    AMLA, § 6308 (31 U.S.C. § 5318(k)(3)(A)(i) as revised).

[3]    AMLA, § 6308 (31 U.S.C. §5318(k)(D), as revised).

[4]    FinCEN, FIN-2010-G006, Sharing Suspicious Activity Reports by Depository Institutions with Certain U.S. Affiliates (Nov. 23, 2010), https://www.fincen.gov/sites/default/files/shared/fin-2010-g006.pdf.  FinCEN, Interagency Guidance on Sharing Suspicious Activity Reports with Head Offices and Controlling Companies, January 20, 2006 https://www.fincen.gov/resources/statutes-regulations/guidance/interagency-guidance-sharing-suspicious-activity-reports.

[5]    AMLA, § 6212 (adding 31 U.S.C. § 5318(g)(8)(B)(i).

[6]    AMLA, §6212 (adding 31 U.S.C. § 5318(g)(8)(C).

[7]    AMLA, § 6102(d).

[8]    AMLA, § 6111(e).

[9]    AMLA, § 6108, adding  31 U.S.C. § 310(h).

U.S. and Mexico issue Joint Statement on Proposed Dismissal of Charges against Mexican General

by Leave a Comment

On November 17, 2020, the Attorney General of the United States William P. Barr and Fiscalía General of Mexico Alejandro Gertz Manero issued a joint statement.  The statement announced that the U.S. government has decided to seek dismissal of the U.S. criminal charges against former Mexican Secretary of National Defense General Salvador Cienfuegos Zepeda.

Statement

The U.S. government arrested Cienfuegos on October 15, 2020 in Los Angeles, California, on U.S. charges of conspiracy to manufacture, import, and distribute narcotics into the U.S. and money laundering.

The rationale for seeking dismissal was that the U.S. Department of Justice (DOJ), recognizing the strong law enforcement collaboration with Mexico, decided to dismiss U.S. criminal charges, so that Mexico can investigate and, if appropriate, charge him under Mexican law.

The statement explains that the DOJ, at the Fiscalía’s request and pursuant to the Mutual Assistance in Criminal Matters Treaty, has furnished Mexico evidence in this case and commits to continued cooperation to support the investigation by Mexican authorities.

Implementation and Implications

Judge Carol B. Amon of the U.S. District Court in Brooklyn, the presiding judge, ordered the acting U.S. attorney Seth DuCharme to personally attend a hearing before her on November 18.

The DOJ explained in a filing with the court to dismiss the case that it decided that its relationship with Mexico and important foreign policy considerations were more important than prosecuting the case.1

As soon as Cienfuegos was arrested, Mexican officials expressed surprise and anger at  the absence of disclosure by the U.S. government of its investigation and prosecution of Cienfuegos.   Apparently, Mexico was upset of the lack of cooperation on the case, especially since Mexico has extradited most of persons requested by the U.S.2

The upshot was that Mexico gave the U.S. government an ultimatum: the failure to dismiss charges would lead to a termination of Mexican criminal cooperation with the U.S.3

The current issue of the IELR will discuss this matter in more detail.

  1. Michael S. Schmidt and Natalie Kitroeff, U.S. to Repatriate Mexican Ex-Official, N.Y. Times, Nov. 18, 2020, at A19, col. 1.
  2. Id.
  3. Kevin Sief and May Beth Sheridan, U.S. agrees to return former Mexican official, Wash. Post, Nov. 18, 2020, at A19, col. 5.

Conference: Indigenous Rights and Extractive Industries in the Amazon

by Leave a Comment

With funding from the United States Embassy in Suriname and the sponsorship of the Youth Education and Leadership Foundation and Global Americans, we are pleased to present “Indigenous Rights and Extractive Industries in the Amazon,” a two-day virtual conference on human rights and environmental issues in the Amazon.

The conference will be broken up into two panels and hosted through Zoom.  Although the first webinar occurred on Sept. 23, it was recorded and is available on the website with GlobalAmericans https://theglobalamericans.org

Moderator: Guy Mentel, Executive Director, Global Americans

Extractive Industries in the Amazon
September 30, 10:00 AM to 11:00 AM EDT

Speakers:
– Mark Pieth, Professor at the Basel Institute of Governance, former Chair of both UN Illegal Drug Trafficking and OECD Anti-Bribery Working Groups

Prof. Pieth will focus on the problem of the gold trade in the Amazon. He has recently authored a book on Gold laundering: the dirty secrets of the gold trade and how to clean it up amazon.com/Gold-Laundering-dirty-secrets-trade/dp/3906195953
– Luz Nagle, Professor at Stetson University Law School and former Judge in Medellín

Prof Nagle will focus on human trafficking, organized crime, and corruption in the illegal mining industries in the Amazon

– Bruce Zagaris, Partner with Berliner Corcoran & Rowe LLP & Founder of the International Enforcement Law Reporter

Mr. Zagaris will focus on the illegal timber trade.
– Julia Marisa Sekula, Climate Security Program Coordinator at Instituto Igarapé
Ms. Sekula will focus on the problems in the Amazon in Brazil.

Moderator: Guy Mentel, Executive Director, Global Americans

To register, go to https://docs.google.com/forms/d/e/1FAIpQLSeVkK3Ilu7jEAGBy-X77uLL9e1KGTumte-PhbrSNBhlrFbfgg/viewform

 

Indigenous Rights in the Amazon
September 23, 10:00 AM to 11:00 AM EDT

Speakers:
– Luis Gilberto Murillo, Colombia’s former Minister of Environment and Sustainable Development
– Ine Apapoe, Lecturer at the Anton De Kom University of Suriname
– Magda Monteza, Strategic Planning Specialist, Panamanian Ministry of Government
– Jorge Andrés Forero Gonzáles, Director of Peacebuilding, Al Centro (Colombia)

Suriname Arrest Warrant Made for Missing Former Finance Minister on Corruption Charges

by Leave a Comment

On August 12, 2020, the police in Suriname issued an arrest warrant for Gillmore Hoefdraad, the former Finance Minister.  The warrant suspects him of 11 criminal offenses, including violations of the banking and anti-corruption laws, fraud and embezzlement.[1]

At the end of July the Suriname Attorney General Roy Baidjnath Panday forbade Hoefdraad from leaving the country.[2]

The investigation against Hoefdraad, 58 years of age, concern the irregularities at the Central Bank of Suriname (CBvS).  In February, Surinamese authorities arrested former CBvS Governor Robert van Trikt.  Suriname authorities discharged von Trikt for irregularities and misappropriations at the Central Bank. The alleged wrongdoing included the purchase of a custom-made $300,000 luxury Land Rover in the U.K., an armored Lexus vehicle, and his approval for the BvS to acquire several properties.[3]

Surinamese authorities suspect Hoefdraad’s participation in the alleged real estate swindle.  Investigators have discovered documents indicating that in June and September 2019, while Van Trikt was governor, Hoefdraad sold 17 buildings to CBvS for €105 million.  Surinamese authorities have also arrested Van Trikt’s business partner Ashween Angnoe and Faranaaz Alibaks Hausil, manager Legal, Compliance & International Affairs at the Central Bank.[4]  Prior to his appointment as Minister of Finance, Hoefdraad was the governor of the Central Bank of Suriname.

In May Attorney General Baidjnath-Panday asked the National Assembly’s permission to initiate a criminal prosecution against then Minister Hoefdraad.  However, the National Assembly did not grant the request due to ministerial immunity.[5]

The Surinamese media has reported Hoefdraad has brought summary proceedings against the Surinamese government because he thinks he is unfairly being prosecuted.  His counsel argue that, since the National Assembly’s permission was required and was not granted, the initiation of criminal charges constitutes double jeopardy.  After elections on May 25, 2020, the government has changed.

Improving anti-corruption and governance is a priority of the new administration of Chan Santokhi, a former chief of police.[6]

According to the Caribbean Financial Action Task Force 11th Report on the Mutual Evaluation Report of Suriname for the annual period on which it reported, Suriname made no extradition requests.  However, if Hoefdraad entered Guyana improperly, Guyana can deport or surrender him to Suriname without the need to extradite.  On August 9, 2020, Albert Ramchand Ramdin, the new Minister of Foreign Affairs in Suriname, held a joint press conference with his Guyanese counterpart Hugh Todd in Guyana.  They promised to cooperate a broad range of topics.  The two ministers are meeting in September to develop a strategic agenda for the next high-level meeting of the ministers, which is likely to be in Paramaribo.  The current issue of the IELR will have additional discussion of this matter.

 

[1]    Suriname issues arrest warrant for former Finance Minister on corruption charges, https://www.kaieteurnewsonline.com, Aug. 12, 2020.

[2]    Id.   Implicated ex-minister may be hiding in Guyana, The Daily Herald, July 28, 2020.

[3]   Implicated ex-minister may be hiding in Guyana, supra.

[4]   Id.

[5]   Id.

[6]   For additional background on anti-corruption and governance issues in Suriname, see Bruce Zagaris,  Legal aspects of helping Suriname achieve better anti-corruption and governance,   GlobalAmericans, September 2, 2020 https://theglobalamericans.org/2020/09/legal-aspects-of-helping-suriname-achieve-better-anti-corruption-and-governance/; see also Dr. Scott MacDonald, Suriname and the Need for Good Governance, March 10, 2020, CSIS, https://www.csis.org/analysis/suriname-and-need-good-governance.

 

 

 

 

Switzerland Freezes $900 Million from Former Head of Angolan Insurance Company

by Leave a Comment

On July 9, 2020, a Swiss criminal appellate court in the Canton of Geneva froze $900 million held in the accounts of Carlos Manuel de São Vicente, an Angolan businessman, as a result of a money laundering investigation.[1]

In December 2018, prosecutors froze $1.25 billion in accounts connected to São Vicente, his family and companies after they received on November 29, 2018 suspicious activity reports made by Swiss banks on a transfer of $212.9 million.[2]

São Vicente is a Portuguese-Angolan citizen who is the former chairman and CEO of AAA Seguros.  A 2001 presidential decree gave the company a monopoly to insure oil sector activity in Angola.  It continued until 2016.  In 2020, AAA Seguros was dissolved.[3]

Vicente is the spouse of Irene Alexandra da Silva Neto, a former member of parliament and vice-minister in the Jose Eduardo dos Santos administration.    The latter was President of Angola from 1979 to 2017.

Prosecutors contend that part of AAA Seguros’ funds transferred to Vicente’s account belonged to Sonangol, Angola’s state-owned oil company.  Sonangol owned 10% of AAA Seguros.[4]

Prosecutors became aware that Vicente was trying to transfer all of his personal account to Singapore.  Vicente says he ordered the transfer because he was dissatisfied with the bank’s management of his account.[5]

Vicente explained to Swiss authorities that the transfer of $213 million from AAA Seguros to him was a partial reimbursement for loans.[6]

In 2016, a presidential decree revoked AAA’s insurance role over the oil industry.  The decree explained AAA’s  “allegedly non-transparent management.”  Earlier this year the government revoked the company’s authorization to operate in Angola.[7]

In December 2018, Swiss public prosecutors froze seven accounts of Vicente and family members.  The court has  removed the freezing order on six of the accounts.[8]

The judgment illustrates the utility of suspicious transactions reports, since in this case it triggered action by the Swiss Financial Intelligence Unit and then the prosecutor.  The Swiss financial and judicial systems have been increasingly proactive in finding and taking action on apparent proceeds of crime, especially where corruption may be involved.

The Angolan administration of João Lourenço has prioritized combatting corruption.  On March 2020, the Swiss authorities received information and documentation in connection with the investigation.[9]

[1]    Carlos Manuel de São Vicente v. Le Ministère Public, Swiss criminal appellate court in the Canton of Geneva, Judgment, P/23676/2018; ACPR/480/2020, July 9, 2020 https://www.icij.org/investigations/luanda-leaks/switzerland-freezes-angolan-tycoons-900-million-fortune/

[2]    Id., paragr. b.e on p. 3.  See also Will Fitzgibbon, Switzerland freezes Angolan tycoon’s $900 million fortune, ICIJ, Aug. 28, 2020.

3]  Judgment, paragr. g.b. on p. 4 and Fitzgibbon, supra.

[4]  Fitzgibbon, supra.

[5]  Id. See Judgment, g.a on p. 4.

[6]  Fitzgibbon, supra.

[7]    Dmitry Zhdannikov and Noah Browning, Reuters, Switzerland Freezes $900M Belonging to Angolan Insurance Executive, https://www.insurancejournal.com/news/international/2020/09/03/581352.htm  Sept. 3, 2020.

[8]   Fitzgibbon, supra.

[9]   Judgment, parag.  l on pp. 6-7.

EUROPOL Starts European Financial and Economic Crime Center

by Leave a Comment

On June 5, 2020, Europol started the new European Financial and Economic Crime Center (EFECC).  The European Union Anti-money Laundering Action Report mentioned the start of the EFECC, partly in response to the various anti-money laundering scandals in the European Union (e.g., Danske Bank and Swedbank).

EFECC’s Goals and Operation

The EFECC will work within the current organization structure of Europol, which are already quite active and playing important roles in the EU response to financial and economic crime.  It will be staffed with 65 international experts and analysts.

The Europol press release explains that money laundering and criminal finances serve as the engines of organized crime.  Without them criminals cannot utilize the illicit profits they generate with the various serious and organized crime activities they conduct in the EU.  Europol has reported that 98.9% of estimated criminal profits remain with criminals.

The COVID-19 pandemic in Europe has illustrated that criminals are quick to adapt their criminal schemes to changing conditions to take advantage of fears and vulnerabilities.  Criminals are targeting economic stimuli proposed in the wake of the COVID-19 pandemic to defraud public funding.  Law enforcement authorities must be able to follow the money trail as a regular part of their criminal investigations and seize criminal profits in order to effectively disrupt and deter criminals involved in serious organized crime.

According to Tim Adams, President and CEO of the Institute of International Finance, the industry has called for an intelligence-led approach to financial crime, and meaningful initiatives like EFECC are essential to improving outcomes.

Europol Strategic Report

On June 5, 2020, Europol published a strategic report .  It gives an overview of the most menacing phenomena in the area of economic and financial crime, including various types of fraud, the production and distribution of counterfeit goods, money laundering, and others.

Missing trader intra-community (MTIC) fraud is the most commonly encountered type of value added tax (VAT) fraud in the EU.  MTIC fraudsters often target countries with high VAT rates.  Based on studies and cases supported at the EU level, Europol estimates between €40 to € 60 billion are lost each year to MTIC fraud schemes in the EU.

An increased risk of financial crime is that 58% of customers banking in the EU now regularly employ digital online solutions such as websites or applications to conduct transactions.  Mobile banking alone had increased by 50% by the end of 2019.  These banking methods, albeit convenient, present risks.  Customers often lack technical knowledge and experience.  As a result, they are vulnerable to attacks by cybercriminals using phishing techniques and malware solutions in order to access online accounts.

Increasing digitalization and less direct interaction with customers can also weaken Know Your Customer procedures.  Weakened KYC procedures make financial services more vulnerable to use for various criminal activities, including online banking fraud.

Analysis

The start of the EFECC will increase financial intelligence for the EU and enable it to trace and seize money more often as well as uncover and investigate money laundering and financial crime schemes.

One thing to watch will be the interaction of EFECC with national law enforcement authorities, especially prosecutors.

The current issue of the IELR will have a more comprehensive story on the start of the EFECC and the strategic report behind its start.

4th Circuit Court of Appeals Permits Emoluments Case against Trump to Continue

by Leave a Comment

On May 14, 2020, the United States Court of Appeals, sitting en banc, by a  9-6 decision, overturned the decision of a smaller panel of the court, to allow the case to continue.

The District of Columbia and the State of Maryland (“Respondents”) filed the action in the District of Maryland against the President in his official capacity.  They allege that the President is violating the Foreign and Domestic Emoluments Clauses of the U.S. Constitution by accepting prohibited “emoluments” from foreign and domestic governments. The Foreign Emoluments Clause provides:

“No Title of Nobility shall be granted by the United States: And no Person

holding any Office of Profit or Trust under them, shall, without the Consent

of the Congress, accept of any present, Emolument, Office, or Title, of any

kind whatever, from any King, Prince, or foreign State.”

U.S. Const. art. I, § 9, cl. 8. The Domestic Emoluments Clause provides:

“The President shall, at stated Times, receive for his Services, a

Compensation, which shall neither be encreased nor diminished during the

Period for which he shall have been elected, and he shall not receive within

that Period any other Emolument from the United States, or any of them.”

Id. art. II, § 1, cl. 7.

The district court granted the President’s motion to dismiss, except insofar as the complaint pertained to the Trump International Hotel three blocks from the White House.

The President moved for certification to take an interlocutory appeal pursuant to 28 U.S.C. § 1292(b), seeking appellate review of four questions: (1) the correct interpretation of the term “emolument”; (2) whether Respondents had an equitable cause of action to bring the suit; (3) whether Respondents had Article III standing; and (4) whether any court has the ability to issue equitable relief against the President in these circumstances.

The district court declined to certify an interlocutory appeal.

In response, the President petitioned this court for a writ of mandamus.  He asked the appellate court either to direct the district court to certify an interlocutory appeal or to order the district court to dismiss the complaint with prejudice. A panel of this court granted the President’s petition for a writ of mandamus and  found Respondents lacked standing and so “reverse[d] the district court’s orders” and “remand[ed] with instructions to dismiss the complaint with prejudice.” In re Trump, 928 F.3d 360, 364 (4th. Cir. 2019).

The entire Fourth Circuit  subsequently agreed to hear the case en banc, vacating the panel opinion. In re Trump, 780 F. App’x 36 (4th Cir. 2019).

In her decision for the majority , Judge Diana Gribbon Motz explained that a petitioner seeking mandamus relief bears the burden of showing that he has satisfied three requirements.  Judge Motz explained the Supreme Court gas repeatedly rejected contention that a naked error of law amounts to an abuse of discretion entitling a petitioner to mandamus relief.   In this regard, Judge Motz said  notwithstanding the President’s vigorous assertion that the court erred in its legal analysis, he does not contend that the district court denied certification for nonlegal reasons or in bad faith.  As a result, he is not entitled to a writ of mandamus compelling the district court to certify its orders for interlocutory review under § 1292(b).

The court rejected the President’s secondary argument.  The President contended that, even if the court  “conclude that the district court’s certification discretion under § 1292(b) was sufficiently broad that a writ of mandamus directing certification is unwarranted,” it “nevertheless should grant mandamus directing the district court to dismiss [Respondents’] complaint.”  Judge Motz ruled to obtain this relief, the President must establish that it is not merely likely, but “clear and indisputable,” that the entire action cannot lie. She found he has not done so.

Judge Motz did not agree with the President’s argument that “emoluments” indisputably include only “profit arising from office or employ” (that is, payment for services rendered in performance of a formal job) and explained courts have not ruled on whether emoluments include income from the President’s business (e.g., his lease on the D.C. hotel).

Judge Motz rejected the President’s argument that the court must issue a writ of mandamus because this suit subjects the Executive Branch to “intrusive discovery.”  Judge Motz explained that the discovery in the instant case  — business records as to hotel stays and restaurant expenses, sought from private third parties and low-level government employees — does not implicate Executive power. The court does not believe the requests pertaining to spending at a private restaurant and hotel threaten any Executive Branch prerogative.

Judge Motz disagreed with the President and dissenters over the fact that the separation of powers give the President discretion with respect to having to abide by the emoluments clause.  Rather than vesting the President with any duty to execute the law. they foreign emoluments clause impose  restraints on the President.    The dissents disagree, arguing that this duty is not only an official executive duty, but also one that encompasses the discretionary function of determining the meaning of “emolument.”

In response to the dissenters, Judge Motz explained the idea that the President is vested with unreviewable power to both execute and interpret the law is foreign to our system of government. The Framers dispersed the authority to enforce the law and the authority to interpret it. Otherwise, the President alone has the ultimate authority to interpret what the Constitution means. Allowing the President to be the final arbiter of both the interpretation and enforcement of the law — as the dissents would — would gravely offend separation of powers.

The dissenting opinions are more than three times as long as the majority’s and characterize their colleagues in the majority as “partisan warriors.”

A Department of Justice spokesman confirmed that the President would appeal the case to the Supreme Court.  If the Supreme Court accepts the case, the arguments may occur in the fall, at the height of the Presidential campaign.

In a separate case at the U.S. Court of Appeals for the D.C. Circuit, the court dismissed due to standing an action by the Democratic members of Congress. They have decided not to seek a rehearing by the full complement of judges.  They have until July to decide whether to ask the Supreme Court to review the appellate court’s decision.

EU Publishes AML/CFT Action Plan

by Leave a Comment

On May 7, 2020, the European Commission issued an Action Plan to provide concrete measures over the next 12 months. It will strengthen its enforcement, supervision and coordination of the EU’s rules to combat money laundering and terrorist financing.

The Commission issued what it characterized as a more transparent, refined methodology to identify high-risk third countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing  (AML/CFT) regimes.   The methodology is meant to enhance its engagement with third countries and bring more cooperation with the Financial Action Task Force (FATF).

The Commission also issued a new list of third countries with strategic deficiencies in their AML/CFT frameworks.

The Action Plan has six pillars.  Each is designed to improve the EU’s overall effort to combat ML and TF, and to strengthen the EU’s global role in this area.  The six pillars are intended to better harmonize and make  the EU regime more effective.

Six Pillars of the Action Plan

The six pillars are as follows:

  1. Effective application of EU rules: The Commission will continue to monitor closely the implementation of EU rules by EU Members to ensure that national rules are consistent with the highest possible standards.  The plan encourages the European Banking Authority (EBA) to use its new powers to combat money laundering and terrorist financing.  The timeline is ongoing.
  2. A single EU rulebook: The integration of the EU’s internal market and financial system should be matched by a single set of AML/CFT rules.   Diverging interpretations of the rules cause loopholes in its systems.  Criminals can exploit the loopholes. The Commission will propose rules in Q1 of 2021.
  3. EU-level supervision: In the first quarter of 2021, the Commission will propose to establish an EU-level supervisor. At present, each EU Member individually supervises EU AML/CFT rules.  The Commission will propose rules in Q1 of 2021.
  4. A coordination and support mechanism for EU Member Financial Intelligence Units (FIUs): FIUs in EU Members play a critical role in identifying transactions and activities that could be linked to criminal activities. The Commission will propose rules in Q1 of 2021.
  5. Enforcing EU-level criminal law provisions and information exchange: Rapid and trustworthy information-exchange is crucial.  EU rules facilitate cooperation and exchanges of information between law enforcement authorities.  The future Financial Crime Center of Europol will promote combating money laundering and terrorist financing.  The Commission will issue guidance on the role of public-private partnerships to clarify and enhance data sharing.  The Commission will issue guidance in Q1 of 2021.
  6. The EU’s global role: The EU is determined to increase its efforts to that it is a single global actor in the AML/CFT area.  The EU will adjust its approach to third countries with deficiencies in their regime concerning AML/CFT.  Pending  the application of its new methodology issued with its Action Plan, the updated EU list ensures better alignment with the latest FATF list.

The Commission initiated a public consultation when it issued its Action Plan.  Authorities, stakeholders and citizens have until July 29 to provide their feedback.

Updated List

The EU Anti-Money Laundering Directive requires the Commission to identify high-risk third countries with strategic deficiencies in their regime regarding AML/CFT.  The Commission issued a new list, The list is supposed to be better aligned with the lists published by the FATF.

Countries which have been listed are: The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe.

Countries which have been delisted are:  Bosnia-Herzegovina, Ethiopia, Guyana, Lao People’s Democratic Republic, Sri Lanka and Tunisia.

Background

The Commission’s Anti-Money Laundering Package of July 2019 underscored various weaknesses in the EU AML/CFT framework. The Package motivated the Action Plan.

Analysis

The EU announcement underscores a major problem with blacklists. On subjects such as AML/CFT there are multiple sources of listing.  They include informal groups, such as FATF, and even individual countries.  In addition, significant overlap exists in the subject matter of the OECD’s Global Forum on Tax Transparency and Exchange of Tax Information.   The OECD, FATF, the EU, the World Bank Group, and governments make small jurisdictions spend a disproportionate amount of time meeting their engagement and evaluation schemes.

Given the scandals and/other problems that have occurred recently with Danske Bank, Swedbank, Banca Privata d’Andorra, FBME in in Cyprus, conducting supervision at an EU-level makes sense.

The next (May) issue of the IELR will have a more comprehensive discussion of the Action Plan.

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.

Pages

Categories

Sign up for our mailing list!
Get the latest blog posts, and an exclusive discount offer for one year's subscription to the International Enforcement Law Reporter.
We respect your privacy.