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OECD and IBA Issue Report on Proper Roles of Lawyers and International Commercial Structures

June 26, 2019 by Bruce Zagaris Leave a Comment

On May 31, 2019, the International Bar Association and the Secretariat of the Organization for Economic Co-operation and Development published a Report of the Task Force on the Role of Lawyers and International Commercial Structures.

The Report observes that lawyers’ professional obligations and clients’ rights are regulated by domestic laws and regulations, and/or ethical and deontological codes. The Task Force states that there are certain key principles that should apply in this context in order to balance between the rights of, and duties to, the client on the one hand and a lawyer’s other professional or legal duties on the other. The Report sets forth seven principles without prejudice to the rule of law and related legal conventions, a lawyer’s duty of confidence and laws relating to privilege.

The Task Force recommends the Statement of Principles to national bar associations and law societies with a view to encouraging them to adopt the principles and engage with their governments to explain the role of the principles in ensuring the proper administration of justice and in upholding the rule of law. The sponsors also published an executive summary of the report

The Task Force advocates that, where the Principles are adopted and become part of domestic law and/or professional regulations, their disregard should result in the application of proportionate disciplinary measures, including, where appropriate, disbarment, recognized also in foreign jurisdictions.

Principle 1: Non-facilitation of illegal conduct – Although a lawyer may be unwittingly associated with illegal conduct, including financial crimes, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.

Principle 2: Misuse of the duty of confidence and privilege. Notwithstanding the lawyer’s duty of confidence to a client and the concept of legal professional privilege, a lawyer should not use the confidential nature of the lawyer-client relationship or the principles of legal professional privilege to shield wrongdoers. A lawyer should give due and proper consideration to refraining from acting for a client if the lawyer is aware of, or has reasonable grounds to believe, that the primary purpose of the retainer is to permit the client to be able to rely on the confidential nature of the lawyer-client relationship or privileged communication) so as to permit or encourage the client to engage in illegal conduct.

Principle 3: Client due diligence. A lawyer should undertake and document all reasonable and proportionate inquiries in order to identify and verify a client, as well as identify any ultimate beneficiary of the conduct or transaction, the origin of the funds for the transaction (consistent with applicable anti-money laundering or counterterrorism financing legislation), the substantive nature of the conduct or transaction (including expected revenue and taxation consequence of the transaction) and, subject to Principle 5, be satisfied that the conduct and/or transaction is legal in the lawyer’s jurisdictions.

Principle 4: Action where client conduct is may be or becomes illegal. When the conduct of a client is, may be, or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions. If the client persists in the conduct, the lawyer should give due and proper consideration to ceasing to act, and terminate the retainer.

Principle 5: Multijurisdictional risk. Where a transaction involves conduct by a client, agents or representatives of a client in more than jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction. If such advice has not been obtained and the client wants to proceed with the transaction, the lawyer should recommend that such advice be obtained (at the cost of the client). If the client declines to obtain such advice and persists in the conduct, then the lawyer should give due and proper consideration to ceasing to act and terminate the retainer.

Principle 6: Use of illegal obtained information. Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegally obtained evince, which of itself may constitute a criminal offense in many jurisdictions. To facilitate this, legal frameworks should be consistent across jurisdictions as much as possible, since it is often through cross-border conduct that confidential or secret information in country A is accessed (without the consent of the owner of the information) and then disclosed to a person in country B. An independent court should, where necessary, resolve the question as to what use can be made of such information, based on the applicable domestic framework.

Principle 7: Disclosure of beneficial ownership. A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s clients. Domestic laws should provide for the disclosure of ultimate beneficial ownership of any corporation, trustor other legal entity formed within that country’s jurisdiction. Beneficial ownership information should be available to state regulators, investigators and enforcement agencies. Governments must address whether it needs to be publicly available.

Principle 8: Advertising by lawyers on international commercial structures. Any advertising by lawyers should be transparent, accurate, and truthful. Domestic regulation, bar associations, and law societies should ensure the lawyer advertising is accurate and truthful.

The Report does not seek to duplicate existing international or other national guides for the legal profession in terms how a lawyer should act or not act in certain circumstance. The Report does not seek to cover the many anti-money laundering and counterterrorism financing laws, obligations and disclosure duties that exist in many countries. Instead, it focuses on high-level issues of principle that should assist governments in policy formulation and in guiding lawyers as to how they should conduct themselves, consistent with a lawyer’s underlying domestic legal and ethical obligations.

The Report also sets form the minimum good practice required when a lawyer proposes to accept instructions in a cross-border commercial matter, especially, but not exclusively, from a new client or a client with whom the lawyer has not worked for at least 12 months.

The Report provides detailed guidance for the eight above-mentioned principles with citations to guide legal professionals.

Annex B contains existing guidance concerning the role of lawyers with regard to international commercial structures.

The July issue of the IELR will have a more comprehensive discussion of the Report.

U.S. Attorney General Announces Continued U.S. Funding of Law Enforcement Efforts at 3rd Ministerial of Northern Triangle Attorneys General, as Guatemala Prepares to Abolish Anti-Corruption Prosecutor

May 19, 2019 by Bruce Zagaris Leave a Comment

On May 16, 2019, U.S. Attorney General William P. Barr, during the 3^rd Ministerial of the Northern Triangle Attorneys General announced that, as part of a coordinated law enforcement action known as Operation Regional Shield,President Trump has approved continued funding for law enforcement efforts between the U.S. and the Northern Triangle countries (El Salvador, Guatemala, and Honduras).

In particular Barr said the U.S. will continue fund law enforcement efforts, through the ongoing work of the project’s law enforcement efforts, through the continuing work of the U.S. Office of Overseas Prosecutorial Development Assistance and Training (OPDAT) Resident Legal Advisors in each of the three countries, through the FBI’s Transnational Anti-Gang teams, through the Drug Enforcement Administration’s Sensitive Investigative Units, and through Homeland Security’s (HSI) work to counter human smuggling and trafficking.

Barr said the meeting has reaffirmed his belief that the safety of the citizens of the U.S. and Northern Triangle is interdependent and together they will not only confront but will defeat the criminal gangs.

Inconsistency of U.S. Enforcement Policy with Northern Triangle Countries

In recent months the Trump Administration’s policy in terms of cooperation with the Northern Triangle has not been consistent. For instance, on March 28, 2019, then Secretary of Homeland Security Kirstjen M. Nielsen signed, on behalf of the United States, a Memorandum of Cooperation (MOC) on border security cooperation in Central America. Almost simultaneously, U.S. President Donald Trump said that he was planning on cutting U.S. assistance to the three countries and has threatened to close the border with Mexico.

The initiatives of the U.S. and other governments against transnational organized crime in Central America can be classified in eight areas: whole-of-government solutions; interdiction of criminal flows; targeting of transnational criminal organization leaders; use of the military in a domestic law enforcement; institutional reform within law enforcement; targeting the financial flows and resources of organized criminal groups; prison control and reform; and binational and multinational cooperation against organized crime. (See R. Evan Ellis, Transnational Organized Crime in Latin America and the Caribbean 103-4 (2018).

During his trip Barr highlighted DOJ priorities, including interdicting illegal narcotics, dismantling MS-13, the 18th Street Gang and other transnational criminal organizations, and combatting illegal migration and human trafficking. While in El Salvador, the Attorney General visited the International Law Enforcement Academy.

Effort of Guatemalan Morales Administration to End the Work of the International Commission against Impunty (CICIG)

One setback for the fight against anti-corruption is the effort by the current Guatemala Administration of Jimmy Morales to terminate the work of the International Commission against Impunty (CICIG), which the United Nations established to strength the efforts against organized crime and corruption after Guatemala’s 36-year civil war. See Elisabeth Malkin, Latin America Risks Losing Potential Weapon Against Corruption, N.Y. Times, May 19, 2009, at 10, col. 1.

On May 15, the Guatemala high court rejected the appeal of Thelma Aldana, a crusading former prosecutor, to participate in Guatemala’s presidential election. As a result, at least two of the top three candidates, according to polls, will not be able to run in the election. The decision on Aldana seemed to arise from fears over her zealous prosecutions of corruption in politics and business. Aldana has been denied the right to participate in the election because she lacked a document accrediting that she did not have any outstanding accounts after she was responsible for public funds during her serving as from her time as a former prosecutor.

The Trump Administration has not supported the CICIG, as prior U.S. Administrations have. As a result Morales’ announcement to not renew the CICIG’s two-year mandate in September 2019 and his denial of Ivan Velázquez, the Colombian head of the Commission, in September 2018, mean that, notwithstanding its strong record of prosecuting corruption and transnational organized crime, the lack of independent prosecutors in the Guatemalan government, and the importance of strong and independent prosecutors to better stabilize the security situation in Guatemala, the CICIG may well expire in September. Indeed the enormous security problems due to the proliferation of gangs, gun violence, and corruption fuel migration from Guatemala.

Former Manager for International Airline Pleads Guilty to Acting as an Agent of the Chinese Government without Notifying the Attorney General

April 19, 2019 by Bruce Zagaris Leave a Comment

On April 17, 2019, Ying Lin pleaded guilty in the U.S. District Court in Brooklyn, New York to serving as an agent for the People’s Republic of China without notifying the Attorney General, by working at the direction and control of military officers assigned to the Permanent Mission of the PRC to the United Nations. Lin, a former manager with an international air carrier headquartered in the PRC (the Air Carrier) improperly facilitated the transport of packages from John F. Kennedy International Airport to the PRC aboard Air Carrier flights as the behest of the PRC military officers and in violation of Transportation Security Administration (TSA) regulations.

The defendant’s actions helped Chinese military officers to evade U.S. law enforcement scrutiny of packages that they sent from New York to Beijing.

Charges

Lin, 48, worked for the Air Carrier from 2002 through Fall 2015 as a counter agent at JFK Airport and from Fall 2015 through April 2016 as the station manager at Newark Liberty International Airport. During her employment with Air Carrier, Lin accepted packages from PRC military officers, and placed those packages aboard Air Carrier flights to the PRC as unaccompanied luggage or checked the packages under the names of other passengers on those flights. Since the PRC military officers did not travel on those flights, Lin’s actions violated TSA regulations, requiring that checked baggage be accepted only from ticketed passengers. In addition, Lin encouraged other Air Carrier employees to assist the PRC military officers, instructing them that because the Air Carrier was a PRC company, their primary lo loyalty should be to the PRC.

For her illegal acts, Lin obtained benefits from the PRC Mission and PRC Consulate in New York. The benefits included tax-exempt purchases of liquor, cigarettes and electronic devices worth tens of thousands of dollars, and free contracting work at her two residences in Queens, by PRC construction workers who were allowed under the terms of their visas to work only on PRC government facilities.

Sentences and Law

When sentenced, Lin faces up to 10 years’ imprisonment. As part of the guilty plea, Lin agreed to forfeit approximately $25,000 as well as an additional $145,000 in connection with her resolution of the government’s forfeiture verdict in United States v. Zhong, No. 16-CR-614 (AMD).

In particular, Lin is charged with violating 18 U.S.C. § 951(a). The statute requires a person who is, other than a diplomatic or consular officer or attaché, when she acts in the U.S. as an agent of a foreign government to first notify the Attorney General. The law excludes duly accredited diplomats and consuls and persons engaged in a legal commercial transaction.

Analysis

The indictment and plea illustrate increased prosecution for lack of transparency, namely persons representing foreign principals and governments who fail to register under the Foreign Agents Registration Act or in this case fail to notify the Attorney General.

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

Former White House Counsel Indicted for FARA Violations Relating to Ukraine and Manafort

April 12, 2019 by Bruce Zagaris 1 Comment

On April 11, 2019, a federal grand jury in the U.S. District Court for the District of Columbia returned an indictment charging Gregory B. Craig, a Washington-based lawyer, with making false statements and concealing material information about his activities on behalf of Ukraine from the Department of Justice, National Security Division’s Foreign Agents Registration Act Unit (FARA Unit).

Craig, 74, of Washington, D.C., was indicted for willfully falsifying and concealing material facts from the FARA Unit, in violation of Title 18, United States Code, Section 1001(a)(1), and for making false and misleading statements to the FARA Unit, in violation Title 22, United States Code, Section 618(a)(2).

The maximum penalties for the charged offenses are, respectively, five years’ imprisonment and a $250,000 fine, and five years’ imprisonment and a $10,000 fine.

The indictment details various emails allegedly sent by Craig prior to his firm’s engagement, in which Craig indicated he did not want to register as an agent for the Government of Ukraine, in part because he believed doing so could prevent him or others at the law firm from taking positions in the federal government in the future.

In addition, registration would have required Craig to disclose that a third party had paid his firm, Skadden Arps, Slate, Meagher & Flom LLP (hereafter Skadden) more than $4 million for preparing a report, and that Skadden had a parallel engagement with Ukraine to assist in the prosecution of Tymoshenko on additional charges. These disclosures, as well as the fact of registration itself, would have undermined the report and Craig’s perceived independence.

The indictment details various communications between Craig and his colleagues at Skadden. On January 17, 2019, Skadden entered into a settlement agreement with the U.S. Department of Justice, resolving its liability for violations of the Foreign Agents Registration Act (FARA).

The agreement evidences that Skadden acted as an agent of the Government of Ukraine within the meaning of FARA, 22 U.S.C. § 611 et seq., by participating in a public relations campaign directed at select members of the U.S. news media in 2012. In 2012 and 2013, in response to multiple inquiries from the Justice Department’s FARA Registration Unit about its role in that campaign, a partner then at Skadden made false and misleading statements to the FARA Unit. Thereafter, the FARA Unit concluded in 2013 that the firm did not have to register. In fact, Skadden was active in the public relations aspects of the report, but mislead the FARA Registration Unit in that regard. For instance, Gregory Craig, then the lead Skadden partner on the case, arranged for David E. Sanger of the New York Times to receive a copy of the report, then discussed the report with him. When more facts were known, Skadden was required to register in 2012. Skadden has agreed to register retroactively.

Skadden has agreed under the settlement to pay the U.S. Treasury more than $4.6 million, which it received in fees and expenses for its work with Ukraine, and to ensure that it has formal, robust procedures for responding to inquiries concerning its conduct from any federal government entity and ensuring FARA compliance as to its engagements on behalf of foreign clients.

The money that Craig and Skadden eventually received from a third party was arranged by Paul Manafort and came through a Cyprus bank account.

The settlement and Craig indictment may well cause other law firms and organizations with significant international practices to modify their client intake and training procedures.

The current issue of the IELR will report in more detail on the Craig indictment and its implications, including the announcement by the DOJ FARA Unit that they will no longer treat violations of FARA as routine administrative matters.

EU Adds 9 Jurisdictions to Tax Haven Blacklist

March 13, 2019 by Bruce Zagaris 1 Comment

On March 12, 2019, the EU Finance Ministers updated the EU list of non-cooperative tax jurisdictions. The list now has 15 countries and is part of the EU’s fair taxation initiative.^[1]

The Commission explained that it assessed 92 countries based on three criteria: tax transparency, good governance and real economic activity, and the existence of a zero corporate tax rate. As a result of the assessment and pressure to avoid the blacklist, 60 countries acted and eliminated over 100 harmful regimes.

The Ministers blacklisted 15 countries. 5 have taken no commitments since the first blacklist adopted in 2017: American Samoa, Guam, Samoa, Trinidad and Tobago, and the U.S. Virgin Islands. 3 others were on the 2017 list, but were moved into the grey list following commitments they had taken. However. They have been blacklisted again for not following up: Barbados, the United Arab Emirates and the Marshall Islands.

7 additional countries were moved from the grey list to the blacklist for the same reason: Aruba, Belize, Bermuda, Fiji, Oman, Vanuatu, and Dominica. Another 34 countries will continue to undergo monitoring in 2019 (grey list), while 25 countries from the original screening process have been cleared.^[2]

The EU members have agreed on a set of countermeasures against listed countries. They can choose to apply them, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The Commission will continue to support EU members’ work to develop a more coordinated approach to sanctions for the EU list in 2019. Additionally, new provisions in EU law forbid EU funds from being channeled or transited through entities in countries on the tax blacklist.

The EU will send a letter to all jurisdictions on the EU list, explaining the decision and what they can do to be de-listed. The Commission and Member States (Code of Conduct Group) will continue to monitor the jurisdictions that have until the end of 2019/2020 to deliver, and assess whether any other countries should be included in the EU listing process. The Commission will continue the dialogue and engagement with the jurisdictions concerned, to provide technical support and clarifications whenever needed and to discuss any tax matters of mutual concern.^[3]

Some of the targeted countries sent letters or made press releases, protesting their listing.

Approximately one week ago pressure from the U.S., Saudi Arabia and Panama prompted EU governments last week to block another blacklist of countries that show deficiencies in countering money laundering and terrorism financing.^[4]

A criticism of the EU listing initiative is that is does not include the many EU countries with international financial services, such as Ireland, Luxembourg, the Netherlands, Cyprus, Austria, Hungary, and the U.K. A continuing criticism is that, notwithstanding the EU’s statements of open and vigorous engagement, the targeted countries complain about ever-shifting and obscure standards and insufficient communication over the standards and the expectations from the EU. A continuing complaint is about the overlapping standards of the EU and OECD.

The March issue of the IELR will have a more comprehensive article on the new listing, including the responses of the targeted countries. See also EU Q & As on the list

[1] European Commission, Fair Taxation: EU updates list of non-cooperative tax jurisdictions, IP/19/1606, March 12, 2019.

[2] Id.

[3] European Commission, Fair Taxation: EU updates list of non-cooperative tax jurisdictions, supra.

[4] Id.

Levin Center Provides Accountability Training to Foreign Governments

March 1, 2019 by Alex Psilakis Leave a Comment

In 2018, Elise J. Bean released her newest work titled Financial Exposure: Carl Levin’s Senate Investigations into Finance and Tax Abuse. Bean, who served as Senator Levin’s (D-MI) staff director and chief counsel on the Permanent Subcommittee on Investigations (PSI), intimately details how the former senator partnered with his Republican colleagues to investigate money laundering, accounting fraud, and high-risk trades by some of the world’s largest financial institutions.

While Bean’s book details her past work with PSI, she is continuing the fight for good governance and accountability today, alongside others. She currently serves as the Washington Co-Director of the Levin Center at Wayne State University Law Center. The Levin Center trains attorneys, leaders, and public figures to promote government transparency, while holding public and private institutions to high ethical standards. To carry out this effort, the Center takes a variety of actions, including offering academic coursework, training programs, and symposia, reaching individuals and groups from around the world. In addition to Bean, the Center hosts a deeply experienced staff that is dedicated to promoting ethics and effectiveness in government. Robert Ackerman, Director of the Levin Center, was the Wayne Law School Dean from 2008-2012, before which he served as a Professor at Penn State University’s School of Law. Linda Gustitus is currently acting as the Washington Co-Director alongside Bean. Gustitus worked on Sen. Levin’s staff for 24 years, eventually becoming his Chief of Staff in 2001. She pioneered oversight investigations into the Social Security Disability Program, IRS seizure policy, and gasoline pricing.

Since its foundation in 2015, the Levin Center has acted both domestically and internationally to train public officials, government figures, and others on the elements key to implementing and upholding government transparency.

In December 2015, the Levin Center traveled to Kiev, Ukraine for their first foreign training session. The Levin Center partnered with the Ukrainian Parliament’s Committee on Corruption Prevention, as well as the Anti-Corruption Action Center – a Ukrainian NGO – to offer Ukrainian Parliamentary staffers guidance on how to carry out oversight investigations. The session offered in-depth guidance on elements key to conducting an oversight investigation, stressing the facts-based, multi-party approach that staffers must take in their efforts. Alongside the training workshop, Bean gave two presentations in Kiev. Her first, which focused on driving change through oversight investigations, took place at the Open University of Reforms. The latter, which emphasized combatting corruption, occurred at the America House and received the U.S. Embassy’s sponsorship. The State Department not only sponsored one of Bean’s presentations – they provided funding for the workshop, emphasizing the importance with which they viewed the effort.

In October 2016, the Levin Center carried out a two-day training session at the European Parliament in Brussels, Belgium. The Center spoke to more than 55 Members and their staff, all of whom came from the Parliament’s “Committee of Inquiry to investigate alleged contraventions and maladministration in the application of Union law in relation to money laundering, tax avoidance, and tax evasion.” The committee was formed to investigate the release of the Panama Papers. Attendees came from seven of the Parliament’s eight political parties, signifying the Center’s bipartisan reach. The workshop analyzed the four stages of a committee investigation: investigating facts, collecting results, holding a hearing, and confronting identified problems. The Levin Center eventually split the attendees into multi-party teams, where they tested their ability to execute the four stages of an investigation. As a result, the workshop not only educated staffers on how to effectively conduct an investigation, but provided them a space to practice working together, improving their ability to do both in the future.

Since then, the Levin Center has hosted a variety of events that focused on promoting governmental transparency. In March 2018, the Center held a Symposium titled “Congressional Oversight in the 21^st Century,” which united scholars from across the country to consider the relationship between oversight and the judicial branch. That June, in light of the Inspectors General Act’s 40^th anniversary, they hosted a panel to discuss role of the Inspectors General in oversight efforts. The Levin Center has multiple events planned for the near future as well, all of which will consider government oversight from a unique perspective.

After serving in the Senate for 36 years, Carl Levin best exemplified how policy makers in the U.S. and around the world may tackle financial crimes like money laundering, tax abuse, and accountability fraud. Furthermore, his dedication to acting in a bipartisan manner, continually crossing party lines to create change through compromise, should serve as an inspiration to those seeking to drive change now. The Levin Center is helping to foster that change. By partnering with government workers, public figures, academics, and students, the Levin Center constantly strives to promote the importance of open, honest, and transparent government to the generations of today and tomorrow. The work that Sen. Levin began over 40 years ago upon his election to the Senate continues today through the Levin Center. The training of parliamentary officials in Ukraine and Brussels illustrates how other foreign officials are accessing good practices in accountability

Danske Bank Closes Operations in Russia and Baltics After Estonia Orders Its Closure

February 20, 2019 by Bruce Zagaris Leave a Comment

On February 19, 2019, Estonian Financial Supervision Authority (the Estonian FSA) gave Danske Bank 20 days to submit an action plan to close its local branch within eight months. In December, Estonian authorities detained 10 former Danske Bank employees on suspicion they had facilitated money laundering through non-resident clients, including many Russians.

This week the European Banking Authority announced it was opening a formal investigation into a possible violation of EU laws by the FSA and its Danish counterpart Finanstilsynet over the case.

On February 19, 2019, Danske Bank announced that, following the investigation of suspicious transactions in Estonia during the period of 2007 to 2015, the Estonian FSA has ordered Danske Bank to cease banking operations in Estonia, which Danske Bank has agreed to do.

Danske Bank also announced it is closing operations in Latvia, Lithuania, and Russia.

Danske Bank’s press release announced that, independently of the Estonian FSA’s notification, Danske Bank has decided to close all its activities in the Baltics and Russia.

In the future Danske Bank will serve only subsidiaries of Danske Bank’s Nordic customers and global companies with a significant Nordic footprint. It has transferred all other banking activities to its non-core unit to be wound up or divested.

Analysis

The decision by the Estonian FSA to order the Danske Bank branch to close and the decision of Danske Bank to also close its operations in Latvia, Lithuania and Russia, along with the pending criminal investigations of Danske Bank in France, the United Kingdom and the United States, the investigation of the European Banking Authority, and the detention of 10 former Danske Bank employees in Estonia, illustrate the financial and reputational loss that accompanies inadequate attention to financial regulatory matters, especially relating to transnational corruption and money laundering. In the onslaught of investigations Danske Bank is struggling to survive. In this context its trimming of its operations is essential to its survival.

US Unseals 2 Indictments against Huawei Corporate Entities – One for Money Laundering, Obstruction of Justice and Sanctions Violations and Another for Theft of Trade Secrets, Wire Fraud et al

January 29, 2019 by Bruce Zagaris Leave a Comment

On January 28, 2019, the U.S. Department of Justice unsealed two indictments against Huawei corporate entities and the Huawei Chief Financial Officer Wanzhou Meng.

In the U.S. Court Eastern District of New York, a 13-count indictment was unsealed, charging four defendants, including Huawei Technologies Co. Ltd. (Huawei), and two Huawei affiliates – Huawei Device USA Inc. (Huawei USA) and Skycom Tech Co. Ltd. (Skycom) as well as Meng.

The indictment alleges that starting in 2007, Huawei employees lied about Huawei’s relationship to a company in Iran called Skycom, and falsely asserting it was not an affiliate of Huawei. The company allegedly claimed that Huawei had only limited operations in Iran and that Huawei did not violate U.S. or other laws or regulations concerning Iran. Even after the media reported in late 2012 and 2013 disclosed that Huawei operated Skycom as an unofficial affiliate in Iran and that Meng had served on the board of directors of Skycom, Huawei employees, and especially Meng, falsely claimed that Huawei had sold its interest in Skycom to an unrelated third party in 2007 and that Skycom was only Huawei’s local business partner in Iran. In reality, the indictment alleges Skycom was Huawei’s longstanding Iranian affiliate, and Huawei initiated the 2007 sale to appear as an arm’s length transaction between two unrelated parties, when Huawei actually controlled the company that bought Skycom.

The indictment charges that, in reliance of Huawei’s misrepresentation, U.S. banks continued their banking relationships with Huawei in violation of the Iran sanctions. One bank cleared more than $100 million worth of Skycom-related transactions through the U.S. between 2010 and 2014.

The indictment charges that Huawei and its principals repeatedly lied to U.S. government authorities on Huawei’s business in Iran.

In 2017, when Huawei became aware of the government’s investigation, Huawei and Huawei USA allegedly tried to obstruct the investigation by moving witnesses with knowledge about Huawei’s Iran-based business to the PRC, and by concealing and destroying evidence of Huawei’s Iran-based business that was located in the U.S.

In December 2018, Canadian authorities detained Meng in Vancouver pursuant to a provisional arrest warrant issued under Canadian law. The U.S. government is seeking Meng’s extradition to the U.S.

Indictment against Huawei Corporate Entities for Stealing Trade Secret Technology

On January 28, 2019, a 10-count indictment was unsealed in the U.S. District Court for the Western District of Washington, charging Huawei Device Co., Ltd. and Huawei Device Co. USA with theft of trade secrets conspiracy, attempted theft of trade secrets, seven counts of wire fraud, and one count of obstruction of justice. On January 16, a grand jury returned the indictment, detailing Huawei’s efforts to steal trade secrets from Bellevue, Washington based T-Mobile USA and then obstruct justice when T-Mobile threatened to sue Huawei in U.S. District Court in Seattle. The alleged conduct occurred from 2012 to 2014, and includes an internal Huawei announcement that the company was offering bonuses to employees who succeeded in stealing confidential information from other companies.

The FBI obtained emails revealing that in July 2013, Huawei offered bonuses to employees based on the value of information they stole from other companies around the world, and provided to Huawei through an encrypted email address.

The unsealing of the indictments occurs at a critical time, since the U.S. had until January 30 to send to Canada its formal extradition request for Meng. The unsealing of the indictments occurs during intensive trade negotiations between the U.S. and China over tariffs. Among the controversial issues are U.S. complaints about China’s theft of trade secrets and violations of U.S. sanctions.

Skadden Agrees to Civil Settlement with DOJ over FARA Violations

January 23, 2019 by Bruce Zagaris Leave a Comment

On January 17, 2019, U.S. Assistant Attorney General for National Security John Demerks announced Skadden, Arps, Slate, Meagher & Flom LLP entered into a settlement agreement with the U.S. Department of Justice, resolving its liability for violations of the Foreign Agents Registration Act (FARA).

Skadden has agreed under the settlement to pay the U.S. treasury more than $4.6 million, which it received in fees and expenses for its work with Ukraine, and will ensure that it has formal, robust procedures for responding to inquiries concerning its conduct from any federal government entity and ensuring FARA compliance as to its engagements on behalf of foreign clients.

In the spring of 2012, the Ministry of Justice (MOJ) for Ukraine, with the help of Paul Manafort, hired Skadden to write a report on the evidence and procedures used during the 2011 prosecution and trial of former Prime Minister Yulia Tymoshenko and discuss questions concerning its fairness. Skadden also agreed to advise Ukraine concerning a second, potential future prosecution of Tymoshenko. According to the engagement letter between Skadden and the MOJ, the latter would pay Skadden only 95,000 Ukrainian hryvynas (approximately $12,000). Skadden understood that a Ukrainian business person would pay its fees. Eventually, the money came from a Cypriot bank account of an entity named Black Sea View Ltd., which Manafort controlled. Eventually Skadden received $4,657.578.91 for this work. The arrangements with the Ukrainian business person, the amounts paid, and advice on a second criminal prosecution of Tymoshenko were not disclosed in connection with the issuance of the report.

After it started work for the MOJ and realized that Ukraine intended to use the report as part of a public relations campaign to influence U.S. policy and public opinion toward Ukraine, Skadden’s lead partner for the Ukraine engagement, advanced the public relations campaign.

Skadden is the first large organization to be ensnared with FARA enforcement problems. The media has reported that the Skadden partner on the project who made false and misleading statements to the DOJ FARA unit is Gregory Craig, a former White House counsel under President Barack Obama. He may yet have legal exposure. (see e.g., Kenneth P. Vogel and Matthew Goldstein, Law Firm Settles Inquiry Into Work It Did for Manafort, N.Y. Times, Jan. 18, 2019, at A13, col. 1; Greg Farrell and Christian Berthelsen, Skadden Settlement for Manafort Work Suggests Ex-Partner’s Peril, Bloomberg BNA, Jan. 17, 2019).

The case illustrates that the DOJ is continuing to increase enforcement of FARA. The February 2019 issue of the IELR will carry a more comprehensive discussion of the settlement and its implications