IELR Blog

Venezuelan Regime Frees Dozens of Political Activists in Apparent Gesture of Good Will

June 4, 2018 by Zarine Kharazian Leave a Comment

The government of Venezuelan president Nicholas Maduro claims to have released 40 political activists on Saturday in a gesture of apparent political good will, the New York Times reports. The Saturday releases follow the alleged release of 39 activists on Friday. The regime originally jailed the activists for participating in political protests in 2014 and 2017 against the government, which had turned violent, resulting in 170 deaths.

Human rights groups allege that the number of activists the government claims to have released are inflated, and put the true number closer to a total of 40 over the two days. Among those released are Daniel Ceballos, the former mayor of San Cristobal, and Angel Vivas, a retired general. Both men are vocal critics of the Maduro regime. Maduro’s most prominent critic, Leopoldo Lopez, however, was not among the released.

Venezuela’s Descent

Oil-rich Venezuela had once been one of the most prosperous countries in South America. Up until the early 1980s, Venezuela was designated by the World Bank as an upper-middle income country – one of only four countries in Latin America to achieve that designation. It also boasted a stable, center-left democracy. Venezuela’s prosperity at the time was largely buoyed by high oil prices – the country has the largest known petroleum reserves in the world.

The Venezuelan economy contracted dramatically in the early 1980s, when global oil prices dipped. As a result, the country experienced massive inflation and shortages. Oil prices soared again in 2000, months after Hugo Chavez took office. Chavez’s far-left socialist economic policies consolidated and extended the government’s control over oil wealth. The Chavez government weakened private businesses and institutions on one hand, while simultaneously managing the distribution of the country’s oil wealth among the Venezuelan people. This strategy further increased the Venezuelan people’s dependence on the government, and made the economy even more vulnerable to external shock from fluctuating global oil prices.

Now, petroleum revenue accounts for roughly 95% of the country’s exports and 50% of its GDP. The effects of the country’s heavy reliance on and mismanagement of oil revenue have proven devastating. Between 2015 and 2016, a startling two thirds of Venezuelans now report involuntary weight loss due to hunger.

The current crisis began in 2014 with a series of protests against the government of Nicolas Maduro, Chavez’s successor and former vice president. Maduro has continued many of the economic policies of his predecessor, but lacks Chavez’s political charisma and savvy. The rupture in this political cult of personality, coupled with some economic bad fortune — oil prices tanked just as Maduro took office – have rendered the current Venezuelan president a widely unpopular leader. Maduro has responded to his critics by employing increasingly authoritarian tactics, including arbitrarily arresting and killing political dissenters.

Response of the International Community

The international community has taken some steps to pressure the Maduro regime to step down, but has stopped short of a unified response. The Trump administration has wisely avoided widespread economic sanctions that would punish the poor, instead opting for more narrow sanctions targeting Maduro administration officials and elites. The United States also recommended today that Venezuela be removed from the Organization of American States (OAS).

In February of this year, International Criminal Court prosecutor Fatou Bensouda announced that her office would be opening a preliminary examination into widespread human rights violations committed by the Maduro regime. The ICC’s preliminary examination period tends to be arduous, however, and may take several years.

Perhaps the most effective strategy would be for the U.S. to partner with regional allies, such as Brazil, Chile, and Mexico, to politically isolate Maduro and force his hand. The Trump administration’s bellicose posture toward many of the Central and South American governments, however, makes significant regional diplomatic cooperation less likely.

Bill Browder, Self-Proclaimed Enemy of Putin, Briefly Arrested by Interpol in Spain

June 1, 2018 by Madeline Henshaw-Greene Leave a Comment

On May 30, British financier Bill Browder was arrested and detained by Spanish police due to a request from Russia to Interpol. Browder live-tweeted the experience, and was released a few hours later on orders from Interpol’s general secretary. Browder, once one of the largest foreign investors in the Russian stock market, has been persona non grata in Russia since 2013, when he was convicted of tax fraud in absentia and sentenced to nine years in prison. Since then, Russia has tried numerous times to apprehend him through what is known as a red notice, a request a member of Interpol can make to a member in another country to detain and extradite a wanted individual. Browder claims that this is the sixth time that Russian officials have attempted to arrest him using a red notice, and has expressed concern that “‘Interpol is incapable of stopping Russian abuse of their systems.’”

Bill Browder is known for founding Hermitage Capital Management. One of the company’s tax lawyers was Sergei Magnitsky, a whistle-blower on Russian government corruption and mismanagement who was arrested and died in a Moscow detention center. Since then, Browder has led a global campaign calling for sanctions against those involved in Magnitsky’s death, and pushed the United States government to adopt and enact the Magnitsky Act in 2012. As a result, the Russian government convicted him of tax fraud and have been trying to apprehend him ever since. In 2015, Browder published a book about the Russian government’s attempts to arrest him called “Red Notice: A True Story of High Finance, Murder, and One Man’s Fight for Justice.”

Browder was in Madrid to testify in a corruption case involving Russian officials, and was on his way to court when he was apprehended by Spanish police and taken into custody. Spanish law enforcement claimed that he had been brought in because of an arrest warrant for tax evasion that had been issued by Russian authorities. They were forced to let him go upon discovering that the warrant was invalid, since it had expired and Interpol had failed to delete it from their system. Browder disagrees, insisting that the arrest was the result of a red notice and that he was released on the orders of Interpol’s general secretary. If so, it would not be the first time that Interpol has refused to comply with a Russian request for Browder’s arrest. In 2013, Interpol put out a rare statement rebuking the Russian government’s request, stating that its attempt to arrest Browder “‘was of a predominately political nature.’”

Fighting Back Against Transnational Criminal Organizations

June 1, 2018 by Max Raileanu Leave a Comment

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

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

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

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

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

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

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

U.S. and Brazil Start Permanent Forum on Security

May 23, 2018 by Bruce Zagaris Leave a Comment

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

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

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

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

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

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

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

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

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

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

Treasury Department Imposes Sanctions on Iranian Bank Officials with Ties to Hezbollah

May 17, 2018 by Madeline Henshaw-Greene Leave a Comment

On May 15^th, the Treasury Department placed sanctions on an Iranian bank, three bank officials, and a key Hezbollah official, in the Trump administration’s first step towards re-imposing economic pressures on Iran since President Trump pulled out of the Iran deal earlier this month. The individuals were also designated as Specially Designated Global Terrorists, pursuant to Executive Order 13224, which President George W. Bush signed as a response to the 9/11 attacks. The Treasury Department accused the sanctioned bank officials of abusing the U.S. and regional financial systems in order to funnel millions of dollars to the Lebanese militia, Hezbollah, which the U.S. has designated as a terror group. Treasury Secretary Steven Mnuchin said that the United States would no longer “permit Iran’s increasingly brazen abuse of the international financial system” as a means to “provide financial support to its terrorist proxies”.

The Office of Foreign Assets Control (OFAC) designated Valiollah Seif, the governor of Iran’s Central Bank, as well as the bank’s assistant director of the international department, Ali Tarzali, and subjected them to sanctions that prohibit them from “opening or maintaining in the United States of a correspondent account…by a foreign financial institution” that is known to serve as a vessel for financial support “in connection with Iran’s support for international terrorism”. The department also singled out Aras Habib, the chief executive of Al-Bilad Islamic Bank, as well as the bank itself, and subjected them to similar sanctions. Finally, OFAC designated a key Hezbollah official, Muhammad Qasir, and subjected him to sanctions prohibiting him from using or opening a United States account for the purposes of facilitating transactions to Hezbollah or anyone connected with the group.

The sanctions have geopolitical consequences as well as economic ones. Iran gives money to Hezbollah so that the militia can act as its proxy in the Syria conflict and provide Iranian support to Bashar al-Assad. The Iranians have also supplied Hezbollah with missiles and other weapons in the past. The Trump administration will use these sanctions as a means to draw Iranian support out of the conflict, but it has yet to take military action against Iranian-backed militias in the region. These sanctions do not currently extend to the Central Bank of Iran, however Secretary Mnuchin noted that the Central Bank will once again be under sanctions for certain transactions, including “on the purchase or acquisition of U.S. dollars banknotes by the Government of Iran”. These sanctions, as well as additional sanctions on specific individuals, will be re-imposed later this year now that the United States will no longer participate in the Iran deal and is reverting to economic sanctions until President Trump can negotiate a better one.

For more on this:

Michael R. Gordon, U.S. Sanctions Iran’s Central Bank Governor, Alleges Hezbollah Ties, The Wall Street Journal, https://www.wsj.com/articles/u-s-sanctions-irans-central-bank-governor-alleges-hezbollah-ties-1526413596

DC Circuit Appeals Court Rules that U.S. Government Cannot Forcibly Transfer U.S. ISIS Suspect

May 11, 2018 by Zarine Kharazian Leave a Comment

On May 7, 2018, the United States Court of Appeals for the District of Columbia Circuit ruled that the United States cannot forcibly transfer an American ISIS suspect being held in Iraq to another country without first proving that he is an enemy combatant. The decision has significant implications for wartime presidential power, as well as for individual citizenship rights. The case is Doe v. Mattis.

The suspect, a “John Doe,” is a U.S. and Saudi Arabian dual citizen currently in the custody of the U.S. military in Iraq. The U.S. government argues that it has the authority to forcibly transfer Doe to another country and relies on two lines of reasoning to support that claim. In the first line of reasoning, the government marshals Supreme Court precedent from Munaf v. Green and Wilson v. Girard to suggest that, once a citizen leaves U.S. territory, the Executive can forcibly transfer him to any country that possesses a “legitimate sovereign interest” in him. In the second line of reasoning, the government notes that executive power generally expands during time of war, and thus the executive is afforded greater discretion in the war-time prosecution of enemy combatants.

While the D.C. Circuit acknowledges that the Executive is afforded broader deference in war-time prosecution, it notes that Doe’s status as an American citizen complicates matters. The D.C. Circuit’s opinion relies primarily on the Supreme Court ruling in Hamdi v. Rumsfeld (2004). In Hamdi, the Supreme Court ruled that, before the Executive can forcibly transfer a U.S. citizen as an enemy combatant, it must give him the opportunity to contest the government’s assertion that he is an enemy combatant before a neutral arbiter. “The Hamdi Court believed it ‘unlikely’ that its decision would have a “dire impact on the central functions of warmaking.” 542 U.S. at 534. At the same time, the Court thought it ‘vital’ that it ‘not give short shrift to the values that this country holds dear or to the privilege that is American citizenship,’” the D.C. circuit’s opinion reads. “We follow the Court’s guidance today.”

See the opinion below.

Unsealed_opinion_barring_transfer_5.9.18

UK Parliament Votes to Crack down On Anonymous Offshore Companies

May 2, 2018 by Zarine Kharazian Leave a Comment

On Tuesday, the British parliament voted to add an amendment to the UK Sanctions and Anti-Money Laundering Bill to require 14 overseas territories, among them the Cayman Islands and the British Virgin Islands, to implement public ownership registers by 2020.

The bipartisan amendment was introduced by the Labour Party’s Margaret Hodge and the Conservative Party’s Andrew Mitchell. The Hodge-Mitchell Amendment is an effort to fight corruption and money laundering in the U.K.’s offshore territories.

The amendment is part of a renewed push at both the E.U. and national levels to increase transparency of beneficial ownership information. On the E.U. level, the recently-adopted 5^th Anti-Money Laundering Directive requires that member states establish registers of beneficial ownership information and make that information accessible shortly after the entry into force of the directive.

Experts have speculated about how member states will transpose the 5^th AMLD into domestic law. With Brexit looming, the U.K. has been particularly subject to such scrutiny. The passage of the Hodge-Mitchell amendment suggests that the U.K. is committed to ensuring cross-border cooperation and harmonization of AML laws with its E.U. counterparts.

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

May 1, 2018 by Bruce Zagaris Leave a Comment

by Bruce Zagaris

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

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

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

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

TI makes the following recommendations:

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

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

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

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

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

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

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

21st Annual IBA Transnational Crime Conference

April 25, 2018 by Zarine Kharazian Leave a Comment

16-18 May 2018, Sheraton Grand, Krakow, Poland

A conference presented by the IBA Criminal Law Committee and the IBA Business Crime Committee

This event will cover some of the hottest criminal and anti-corruption topics facing lawyers in a digital age, including exploration of current legal disputes and new issues for the future.

The conference offered you unparalleled networking opportunities with criminal defence and regulatory practitioners, prosecutors, in-house counsel, international business crime lawyers, compliance officers and law enforcement officials from around the world.

TOPICS INCLUDE:

Deferred Prosecution Agreements and other negotiated settlements: Protecting the rights of corporations and individuals
Anti-corruption developments around the globe
Double jeopardy in transnational crime
A new era for attorney-client privilege
How to react to cybercrime
Managing compliance monitors
Sanctions
Asset seizure
Developments in Criminal Tax

Find more information and register online here.

U.S. Supreme Court Rules 5-4 that the Alien Tort Statute Cannot Be Used To Sue Foreign Corporations

April 24, 2018 by Zarine Kharazian Leave a Comment

In a 5-4 ruling, the U.S. Supreme Court ruled today that the Alien Tort Statute cannot be used to sue foreign corporations. With Justice Kennedy writing for the majority, the Court affirmed the Second Circuit’s decision to dismiss a lawsuit against Arab Bank PLC, a Jordanian financial institution with a New York branch. The litigants claimed that the bank had facilitated transactions that had benefited terrorists that had committed attacks in Israel and the Palestinian territories. Kennedy was joined in his opinion by the four other conservative justices on the Court.

Ensconced in the Judiciary Act of 1789, the ATS reads: “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” Kennedy notes that the ATS was relatively obscure and only enacted sparingly over its first 190 years; after the horrors of World War II and the ensuing Nuremberg trials, however, the courts “began to give some redress for violations of international human-rights protections that are clear and unambiguous.” (9)

The petitioners in the Arab Bank case are plaintiffs in five lawsuits suits filed against Arab Bank in the U.S. District Court for the Eastern District of New York. The majority of plaintiffs are foreign nationals, and the majority of accusations they levy against the bank involved actions that occurred entirely overseas. In particular, the plaintiffs allege that the bank maintained accounts for terrorist and militant groups, notably Hamas, and their front groups, as well as that the bank allowed the funds to be used to compensate the families of suicide bombers. The only allegation that involves actions committed on U.S. soil relates to the claim that the bank used its New York branch to clear dollar transactions that ultimately benefited terrorists.

Up until now, there had been a circuit split on whether the ATS applies to foreign corporations. While the Fourth, Seven, Ninth, and D.C. Circuits have all ruled that the ATS does apply to foreign corporations, the Second had ruled that the Supreme Court should decide the question. The Supreme Court, in ruling in favor of Arab Bank, ultimately concluded that the ATS does not extend liability, whether it be criminal or civil, for international human rights violations to foreign corporations.

The case is Jesner v. Arab Bank. For the full opinion of the Court, see here. There will be more analysis of the full opinion in the April issue of the International Enforcement Law Reporter.