Berliner, Corcoran & Rowe has issued a Sanctions Alert detailing the newest U.S. sanctions imposed by the Trump administration on Russia, Iran, and North Korea.
Reuters Publishes Report Detailing Investigations into 2012 ICBC-Madrid Bank Money Laundering Probe
In February of last year, Spanish authorities raided the Madrid subsidiary of the world’s largest bank by assets: the Industrial and Commercial Bank of China (ICBC). They arrested seven of the bank’s directors for their alleged involvement in large-scale money laundering operations. News outlets widely covered the raid and the ensuing arrests at the time, but Spanish authorities kept developments concerning the subsequent investigation confidential.
Nearly 18 months after the initial raid, Reuters has published the first detailed account of the investigation — a two-part exposé based on the review of “thousands of pages of confidential case submissions” as well as “interviews with investigators and former ICBC employees.”
The Reuters account reveals that, according to phone communications intercepted by Spanish law enforcement and court filings, ICBC sustained a privileged relationship with a cohort of the Chinese business community residing in Spain that had allegedly accumulated large sums of cash as a result of avoiding import sales taxes on goods from China. Bank staff allegedly accepted forged documents, failed to report suspicious transactions, and solicited money transfers from individuals under Spanish police surveillance.
The collusion between the bank and Chinese money laundering networks extended into the upper levels of ICBC management. Transcripts of phone conversations wiretapped by Spanish law enforcement include at least 30 conversations between bank managers and individuals under police surveillance for suspected laundering. In a particularly incriminating conversation dated August 8, 2012, Wang Jing, a senior executive of ICBC’s Madrid branch, says to Xu Kai, an alleged senior member of a transnational money laundering network: “You have to look out for yourself and make sure these people are obedient.” From assessing the transcript of the call, officials have concluded that Wang is instructing Kai on how to avoid detection of his money laundering operation by ensuring that the individuals involved remain fully committed to the scheme.
What does the ICBC investigation tell us about the future of anti-money laundering (AML) compliance enforcement against Chinese banks?
One possibility is that Europe and the United States diverge in their approaches to this enforcement issue, with the United States pursuing a more aggressive enforcement stance, despite the risk of political fallout with Beijing. As Evan W. Krick notes in his post on the Money Laundering Watch blog, the United States’ recent slew of harsher enforcement actions against Chinese based-banks suggest that the United States “may take an increasingly aggressive path” in the near future.
As for Europe, the Reuters report notes that the 2016 raid on the Madrid ICBC branch “ignited a behind-the-scenes diplomatic spat” between Madrid and Beijing officials, and it is possible that the concern over additional diplomatic fallout may temper Spain’s as well as Europe’s enforcement efforts toward ICBC’s European branches. At present, despite the mounting evidence, provided by wiretapped communications as well as cash flow records obtained by Spanish law enforcement, that officials at ICBC facilitated large-scale money laundering operations, not a single suspect identified during the investigation has been formally charged.
For the past several months, European branches of major international banks have been gearing up for the launch of the Fourth Anti-Money-Laundering Directive. According to a European Commission press release, the EU-wide directive takes measures to strengthen existing anti-money laundering and terrorism financing rules in member states, and also “improves transparency to prevent tax avoidance.” The directive was supposed to take effect across the EU on June 26, but thus far as many as 17 member countries are reported to have failed to fully implement the rules of the directive.
WannaCry Ransomware Hero Charged For Banking Malware “Conspiracy”
On August 2, authorities arrested British cybersecurity researcher Marcus Hutchins, 22, at the Las Vegas airport. Hutchins, who works for the cybersecurity firm Kryptos Logic, was in Las Vegas attending the Black Hat and Defcon security conferences for the week.
The Department of Justice unsealed an indictment against Hutchins upon his arrest that alleges the security researcher was part of a conspiracy to create and distribute the Kronos banking Trojan, a widespread malware attack that security experts believe was created in early 2014 and distributed through the cryptocurrency marketplace AlphaBay, whose servers the DOJ seized just last month. For his alleged involvement in the Kronos scheme, the indictment charges Hutchins with “one count of conspiracy to commit computer fraud and abuse, three counts of distributing and advertising an electronic communication interception device, one count of endeavoring to intercept electronic communications, and one count of attempting to access a computer without authorization.”
Hutchins is hailed as somewhat of a hero in the cybersecurity community for his role in single-handedly crippling the worldwide WannaCry ransomware attack. Three months ago, he discovered a kill switch in the WannaCry code that immediately halted the spread of the bug. His arrest thus comes as a shock to members of the cybersecurity community, many of whom have taken to social media to voice their skepticism regarding the charges.
OFAC Adds 13 Venezuelan Nationals to SDN List
On July 26, 2017, the U.S. Treasury Department’s Office of Foreign Assets Control announced that it had placed 13 Venezuelan nationals on the list of Specially Designated Nationals with whom U.S. persons are forbidden from doing business. The people added to the list are high-ranking officials in buisnesspeople well-connected to the administration of Venezuelan President Nicolas Maduro, including Venezuelan interior minister Reverol Torres.
The sanctions come as Maduro has called for a national vote to elect a constituent assembly to re-write his country’s constitution, a move which critics including the Trump administration have derided as a power grab. The new constitution seems likely to be written in a way to solidify Maduro’s power by weakening democratic institutions, even as his approval ratings fall below 20% amidst an economic crisis which has caused widespread poverty and protest in the nation.
Treasury Secretary Steve Mnuchin, in the statement announcing the sanctions, explicitly stated that they were in response to the Maduro regime’s actions: “As President Trump has made clear, the United States will not ignore the Maduro regime’s ongoing efforts to undermine democracy, freedom and the rule of law. As our sanctions demonstrate, the United States is standing by the Venezuelan people in their quest to restore their country to a full and prosperous democracy.”
“Anyone elected to the National Constituent Assembly should know that their role in undermining democratic processes and institutions in Venezuela could expose them to potential U.S. sanctions,” Mr. Mnuchin added in his statement.
Among the names included on this round of sanctions includes Simón Zerpa, vice president of finance at Petróleos de Venezuela, known as Pdvsa, the state-run oil company. Mnuchin also mentioned in a conference call after the announcement that further sanctions could additionally target the state oil sector. Venezuela currently exports 700,000 barrels of crude oil a day into the U.S., and imports 100,000 barrels a day of refined oil from the U.S.; more expansive sanctions limiting that trade would further cripple the nation’s oil-reliant economy (an economy which has already suffered as oil prices have declined globally).
The full list of sanctioned individuals can be found here: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170726.aspx
Treasury Department’s FinCEN Fines Russian-run BTC-e Virtual Currency Exchange $110 Million for Money Laundering Violations
On July 26, 2017, the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Treasury Department, levied a $110 million civil penalty against BTC-e Virtual Currency Exchange and a $12 million penalty against its suspected operator, Russian national Alexander Vinnik, for willfully violating the Bank Secrecy Act. The Bank Secrecy Act requires financial institutions to assist the United States government in reporting and preventing suspected money laundering.
A FinCEN assessment alleges that senior leadership at BTC-e willfully failed to implement basic internal controls designed to prevent a money services business from facilitating money laundering. BTC-e failed to collect and verify customer verification information, as well as to implement procedures to identify and report suspicious transactions to authorities. The assessment claims that as a result of these violations the cryptocurrency exchange “attracted and maintained a customer base that consisted largely of criminals who desired to conceal proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.”
Vinnik was arrested on Tuesday in northern Greece and indicted on Wednesday before a grand jury in Northern California. The recently unsealed indictment charges BTC-e and Vinnik with 21 counts, including one count of operation of an unlicensed money service business, one count of conspiracy to commit money laundering, seventeen counts of money laundering, and two counts of engaging in unlawful monetary transactions.
The $110 million fine marks the Treasury Department’s first penalty levied against a foreign-located money services business. According to a Department of Justice press release, Acting FinCEN Director Jamal El-Hindi stated that the FinCEN bureau “will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. AML laws.”
ABA and World Community Celebrate International Criminal Justice Day
Yesterday, the American Bar Association (ABA) and the international community celebrated International Criminal Justice Day. https://www.americanbar.org/news/abanews/aba-news-archives/2017/07/statement_of_abapre.html
In particular, the ABA and the international community recognized that 15 years ago the International Criminal Court (ICC) was created. Today depending on your perspective the ICC has accomplished significant victories in bringing prosecutions and holding trials that have been judged to meet international standards of fairness. However, the ICC suffers from a shortage of resources and inability to implement its orders. Its reliance on other countries to carry out arrest warrants and requests for witnesses to testify mean that in a number of cases countries do not comply. Just as in national courts many cases are politicized. Many , if not most defendants, have significant resources and utilize criminalized power structures to resist indictment or prosecution by the ICC.
As some of the key powers, such as the China, United States, and Russia are not members of the ICC, the Court often lacks the ability to carry out its mandates.
As the production and distribution of arms, including sophisticated weapons like drones, increasingly become available to both state and non-state actors, the ability of persons in international and internal conflicts to perpetrate mass destruction becomes easier and the growth of international atrocities outpaces the ability of the ICC and the international community to stop such conflicts and adjudicate the violations of the laws of war.
Increasingly, one of the values of the ICC is to help other ad hoc criminal tribunals as the latter try to develop and implement norms to meet best standards of operation.
World Bank Announces Debarment of AECOM
On July 14, 2017, the World Bank Group announced that it had debarred two subsidiaries of American multinational engineering firm AECOM for malfeasance involving the misrepresentation of consultants. As part of two separate Negotiated Resolution Agreements (NRA), AECOM Asia Company Limited has been suspended for 18 months, and AECOM New Zealand Limited has been suspended for 6 months.
The AECOM Asia Company Limited suspension comes after a World Bank investigation revealed that AECOM Asia’s predecessor, Metcalf & Eddy Limited, had “failed to disclose a conflict of interest in its proposal for the Bengbu Integrated Environment Improvement Project.” The company also “misrepresented the input of key staff during implementation of its contract under the Tai Basin Urban Environment Project.” These violations constituted sanctionable practices, according to the World Bank press release announcing the debarment. In addition to the 18 month suspension, AECOM Asia will be required to adopt a Corporate Compliance Program consistent with the standards of the World Bank Group’s Integrity Compliance Guidelines.
AECOM New Zealand faces suspension after it “submitted documents that misrepresented the availability and experience of certain experts in its proposal for the Trung Son Hydropower Project in Vietnam.” In addition to creating a compliance program, both companies are required to cooperate fully with the investigations of the World Bank Integrity Vice Presidency.
The debarment of AECOM Asia Company Limited qualifies for cross-debarment by other Multilateral Development Banks under the 2010 Agreement of Mutual Recognition of Debarments.
In addition to the World Bank, parties to the cross-debarment agreement are the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the African Development Bank.
The press release announcing the debarment can be found here: http://www.worldbank.org/en/news/press-release/2017/07/14/world-bank-debars-aecom-asia-company-limited-and-aecom-new-zealand-limited
After Supreme Court Ruling, Limited Travel Ban Goes Into Effect
On June 29th, 2017, after a U.S. Supreme Court ruling partially lifted the stay on the executive action, the Trump administration enacted a revised, limited version of its controversial travel ban into effect. The Supreme Court ruling places limitations on the ban, forcing the Trump administration to make revisions to comport with the decision, and opening the door to possible further litigation regarding whether or not the revisions actually satisfy those limitations.
The per curiam order in Donald Trump v. the International Refugee Assistance Project and Donald Trump v. Hawaii both partially stays the preliminary injunction placed on the Executive Order by a district court judge in Hawaii (and upheld by the 9th Circuit Court of Appeals) and grants a writ of certiorari to review the case and make a final ruling on the order’s ultimate legality. The qualified stay of the injunction is careful to explain that it is not a decision on the ultimate legality of the executive order. The order explains that an injunction is intended to provide “interim relief” to the affected parties to the suits; in this case, a plaintiff going by John Doe who is a permanent resident in the U.S. and whose Iranian wife is seeking entry to the U.S., Dr. Ismail Elshikh, an American citizen whose Syrian mother-in-law is seeking entry into this country, and the state of Hawaii, whose standing is derived in part from the fact that students who had been accepted to the University of Hawaii would be adversely impacted by the travel ban.
The order thus seeks to provide interim injunctive relief to the affected parties, but limits this relief to those “foreign nationals with a credible claim of a bona fide relationship with a person or entity in the United States”. The Court reasons that the injunction previously issued and affirmed, which bar enforcement of the Executive Order “against foreign nationals abroad who have no connection to the United States at all” provided relief to harm not imparted on the plaintiffs, and are thus too broad.
In response to this ruling, the State Department has taken to defining what constitutes a “bona fide relationship” to the U.S. The relatives deemed sufficiently close family members to exempt people from the travel ban, whether as visitors or refugees, are: a parent, spouse, child, an adult son or daughter, son-in-law, daughter-in-law or sibling, as well as their stepfamily counterparts. The administration’s new rules do not allow grandparents, grandchildren, uncles, aunts, cousins and fiances.
Lawyers for the state of Hawaii have once again petitioned the court to injoin the government from enforcing the ban, reasoning that the government has taken far too narrow a definition of what constitutes a “bona fide relationship”. “The Government does not have discretion to ignore the Court’s injunction as it sees fit,” the lawyers wrote. “The State of Hawaii is entitled to the enforcement of the injunction that it has successfully defended, in large part, up to the Supreme Court — one that protects the State’s residents and their loved ones from an illegal and unconstitutional Executive Order.”
The Supreme Court order can be found here, in its entirety: https://www.supremecourt.gov/opinions/16pdf/16-1436_l6hc.pdf
A Washington Post article explaining the government’s revisions to the ban in response to the Court order is linked to here: https://www.washingtonpost.com/world/national-security/travel-ban-to-take-effect-as-state-department-defines-close-family/2017/06/29/03eb8a8e-eba6-4749-9fa2-79117be89884_story.html
Landmark Supreme Court Case Rules Bush Officials Cannot Be Sued for Post 9/11 Actions
On June 19, 2017, the Supreme Court issued a landmark decision in Ziglar v. Abbasi likely to have ramification in both domestic law enforcement and international affairs. In a 4-2 decision, with two justices recusing themselves and another having not yet joined the court at the time the case was heard, the Court ruled that there was no personal civil liability or cause of action against top officials in the Bush administration for their actions immediately following the September 11, 2001 terror attacks.
In writing for the majority, Associate Justice Anthony Kennedy acknowledged the cruel treatment inflicted on the plaintiffs, a group of mostly Muslim immigrants who had been detained, beaten and unreasonably searched at the Metropolitan Detention Center in Brooklyn immediately following the attacks. Justice Kennedy stated that, “if the facts alleged in the complaint are true, then what happened to the respondents in the days following September 11 was tragic.” However, Kennedy wrote that in times of a national security crisis, a civil action against policy-makers is not a proper way to address improper conduct.
The case runs counter to longstanding Supreme Court precedent deriving from the 1971 case of Bivens v. Six Unknown Named Agents, in which the Court held that a civil right of action created by Congress against state and local officials was implicitly guaranteed by the Constitution against federal officials. While the Court has since severely restricted this right of action in the years since Bivens, this decision represents the most direct break from the precedent set in that case. In those cases, the Court held that Bivens did not apply to so-called “new contexts” — in this case, it ruled that the circumstances behind the mistreatment (a terror attack) constituted a “new context”, even though the actions taken by law enforcement (improper detention, unreasonable searches, assault) were context previously covered by Bivens.
Justice Stephen Breyer, in a dissent read from the bench, starkly disagreed with the majority’s logic, writing that “history tells us of far too many instances where the executive or legislative branch took actions during a time of war that, on later examination, turned out to be unnecessarily and unreasonably to have deprived American citizens of basic constitutional rights.” Breyer argued that civil actions — referred to informally as Bivens actions or 1983 actions (after 42 U.S. Code § 1983, where the statute is located) — were an appropriate remedy for such malfeasance.
In addition to the constitutional questions raised, the case could have ramifications for the U.S. in international affairs. Countries who had previously been loathe to allow their citizens to file civil actions against U.S. officials in their home countries may now reconsider, as there is no longer an avenue for those cases to be filed in the U.S. This could expose U.S. officials to civil lawsuits in numerous foreign jurisdictions, which could obviously be a source of international conflict.
Florida Passes Law Criminalizing the Use of Bitcoin in Money Laundering
On Friday, May 5, 2017, the legislature of the U.S. state of Florida passed legislation designed to criminalize the use of Bitcoin and other cryptocurrencies in laundering money. The bill, which passed both the Florida House and Senate and now awaits the approval of Governor Rick Scott, adds “virtual currency” to the definition of “monetary instruments” covered under Florida’s Money Laundering Act, which would then be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.”
The bill was crafted in response to a Florida court case from 2016, in which a criminal case against Floridian Michel Espinoza, who had used Bitcoin to facilitate the online purchase of stolen credit card information, was dismissed after the defense successfully argued that Bitcoin was not a currency under Florida law. The defense likened Bitcoin transactions not to money exchanges, but to “poker chips that people are willing to buy from you” — a trade for something with perceived monetary value, or property.
Circuit Judge Teresa Mary Pooler, in dismissing the case, stated that “this court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.”
Cryptocurrency advocates and others concerned about this legislation have warned that this definition of money could lead to other items with solely representative value — “coat checks, tickets to Disney World, and discount coupons” in the words of Barry University economist Charles Evans — eventually defined as money. Like those items, cryptocurrencies are not backed by any government; their value is set by the marketplace. In fact, the IRS classifies Bitcoin and other cryptocurrencies as commodities. However, Bitcoin is often used to facilitate purchases in the same way that a more conventional currency would be, and because of its globally universal value and digital nature, is often used to facilitate illicit transactions such as drug and human trafficking.
Another U.S. state, West Virginia, recently passed similar legislation. The West Virginia law was signed by Governor Jim Justice on April 26, 2017, and will go into law on July 7. That legislation can be found here: http://www.legis.state.wv.us/Bill_Text_HTML/2017_SESSIONS/RS/bills/hb2585%20intr.pdf.
More information about the Florida legislation can be found here: https://www.myfloridahouse.gov/Sections/Bills/billsdetail.aspx?BillId=59472
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