International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Sunday, July 15, 2018

Court Imposes Maximum Fine on Sinovel Wind Group for Theft of Trade Secrets

A manufacturer and exporter of wind turbines based in the People’s Republic of China was sentenced for stealing trade secrets from AMSC, a U.S.-based company formerly known as American Superconductor Inc., announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and U.S. Attorney Scott C. Blader for the Western District of Wisconsin. 

The Court found that AMSC’s losses from the theft exceeded $550 million, and imposed the maximum statutory fine in the amount of $1.5 million on Sinovel Wind Group LLC.  The Court found that the parties settled the restitution amount, and imposed a year of probation until Sinovel pays the full restitution amount.  Sinovel has paid $32.5 million to AMSC this week and will pay $25 million within its year of probation.  Sinovel will also pay $850,000 to additional victims within its year of probation.  Sinovel was convicted of conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud on Jan. 24 following an 11-day jury trial in Madison, Wisconsin.

“Rather than pay AMSC for more than $800 million in products and services it had agreed to purchase, Sinovel instead hatched a scheme to brazenly steal AMSC’s proprietary wind turbine technology, causing the loss of almost 700 jobs and more than $1 billion in shareholder equity at AMSC,”  said Acting Assistant Attorney General Cronan.  “As demonstrated by this prosecution, intellectual property theft poses a serious threat to American companies, and the Department of Justice is committed to aggressively investigating and prosecuting individuals and corporations who undermine American competitiveness by stealing what they did not themselves create.”

“This case is about protecting American ideas and ingenuity,” said U.S. Attorney Blader.  “My office is committed to prosecuting the theft of intellectual property to ensure an open and fair marketplace.  The devastation Sinovel’s illegal actions caused to AMSC and its employees will not be tolerated.”   

As proven at trial, Sinovel stole proprietary wind turbine technology from AMSC in order to produce its own turbines powered by the stolen intellectual property.  AMSC developed the technology – software that regulates the flow of electricity from wind turbines to electrical grids – in Wisconsin and elsewhere.  At the time of the theft in March 2011, Sinovel had contracted with AMSC for more than $800 million in products and services to be used for the wind turbines that Sinovel manufactured, sold, and serviced. 

Sinovel was charged on June 27, 2013, along with Su Liying, the deputy director of Sinovel’s Research and Development Department; Zhao Haichun, a technology manager for Sinovel; and Dejan Karabasevic, a former employee of AMSC Windtec Gmbh, a wholly-owned subsidiary of AMSC.  The evidence presented at trial showed that Sinovel conspired with the other defendants to obtain AMSC’s copyrighted information and trade secrets in order to produce wind turbines and to retrofit existing wind turbines with AMSC technology without paying AMSC the more than $800 million it was owed and promised.  Through Su and Zhao, Sinovel convinced Karabasevic, who was head of AMSC Windtec’s automation engineering department in Klagenfurt, Austria, to leave AMSC Windtec, to join Sinovel, and to steal intellectual property from the AMSC computer system by secretly downloading source code on March 7, 2011, from an AMSC computer in Wisconsin to a computer in Klagenfurt.  Sinovel then commissioned several wind turbines in Massachusetts and copied into the turbines software compiled from the source code stolen from AMSC.  The U.S.-based builders of these Massachusetts turbines helped bring Sinovel to justice.  Su and Zhao are Chinese nationals living in China, and Karabasevic is a Serbian national who lived in Austria, but now lives in Serbia.    

According to evidence presented at trial, following the theft, AMSC suffered severe financial hardship.  It lost more than $1 billion in shareholder equity and almost 700 jobs, over half its global workforce.

The case was investigated by the FBI’s Madison Resident Agency, Milwaukee Field Office, and the FBI’s Boston Field Office; this investigation was supported by an international team of FBI personnel, including agents and analysts stationed at FBI Legal Attaché Offices in Vienna, Austria and Beijing, China; and the FBI’s Intellectual Property Rights program within the Criminal Investigative Division; the Bundeskriminalamt (Federal Criminal Intelligence Service) and the Bundesministerium Fuer Justiz (Federal Ministry of Justice) in Austria; the Landeskriminalamt - Klagenfurt and the Staatsanwaltschaft - Klagenfurt (Criminal Investigative Police and State Prosecutor’s Office – Klagenfurt, Austria); and with the assistance of the Justice Department’s Office of International Affairs and the Cybercrime Laboratory of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS). 

Senior Counsel Brian L. Levine of CCIPS and Assistant U.S. Attorneys Timothy M. O’Shea and Darren C. Halverson for the Western District of Wisconsin prosecuted the case, with substantial assistance from CCIPS Trial Attorney Joss Nichols and the CCIPS Cybercrime Lab, particularly Digital Investigative Analyst Laura Peterson. 

The Department of Justice’s Task Force on Intellectual Property (IP Task Force) contributed to this case.  The IP Task Force is led by the Deputy Attorney General to combat the growing number of domestic and intellectual property crimes, to protect the health and safety of American consumers, and to safeguard the nation’s economic security against those who seek to profit illegally from American creativity, innovation, and hard work.  To learn more about the IP Task Force, go to .  

July 15, 2018 in AML | Permalink | Comments (0)

Friday, July 13, 2018

Vacation rental scams are (almost) worse than a sunburn

The FCPA blog reports on a new scam that is impacting thousands of Americans and foreign tourists:  "The scammers -- now taking advantage of the summer vacation season -- post rentals and take the money.  "But, when you show up for the vacation, you have no place to stay and your money is gone,"

read the FCPA blog here


July 13, 2018 in AML | Permalink | Comments (0)

Thursday, July 12, 2018

Credit Suisse’s Investment Bank in Hong Kong Agrees to Pay $47 Million Criminal Penalty for Corrupt Hiring Scheme that Violated the FCPA

Credit Suisse (Hong Kong) Limited (CSHK), a Hong Kong-based subsidiary of Credit Suisse Group AG (CSAG), a Swiss-based issuer of publicly traded securities in the United States, reached a resolution with the Department of Justice and agreed to pay a $47 million criminal penalty for its role in a scheme to corruptly win banking business by awarding employment to friends and family of Chinese officials.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue of the Eastern District of New York and Assistant Director-in-Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement.

“Credit Suisse (Hong Kong) Limited engaged in a corrupt scheme to win business with Chinese state-owned entities by hiring friends and family of Chinese government officials, generating the bank at least $46 million in profits,” said Acting Assistant Attorney General Cronan. “These ‘relationship hires’ often lacked necessary technical skills, and offered fewer qualifications and significantly less relevant banking experience than other candidates for the jobs.  The Department of Justice remains steadfast in our commitment to combatting bribery and corruption in all its many forms, including where companies engage in corrupt hiring practices to gain the favor of foreign officials to generate improper business advantages and increase profits.”

“Credit Suisse Hong Kong’s practice of employing friends and family members of Chinese government officials as a quid pro quo for lucrative business opportunities was both profitable and corrupt and now the company will pay the price for that corruption,” said U.S. Attorney Donoghue.  “This Office is committed to holding companies that conduct business in the United States accountable when they or their subsidiaries corruptly influence foreign government officials for financial gain.”

“In the banking industry, not every undertaking is fair game,” said Assistant Director-in-Charge Sweeney.  “Trading employment opportunities for less-than-qualified individuals in exchange for lucrative business deals is an example of nepotism at its finest. The criminal penalty imposed today provides explicit insight into the level of corruption that took place at the hands of Credit Suisse Group AG’s Hong Kong-based subsidiary.”

According to CSHK’s admissions, between 2007 and 2013, several senior CSHK managers in the Asia Pacific (APAC) region engaged in a practice to hire, promote and retain candidates referred by or related to government officials and executives of clients that were state-owned entities (SOEs).  The employment of these “relationship hires” or “referral hires” was part of a quid pro quo with the officials who referred the candidates for employment, whereby CSHK bankers sought to and did win business from the referral sources.  Employees of other subsidiaries of CSAG were aware of the referral hires and facilitated the conduct. 

According to admissions made in connection with the resolution, CSHK bankers discussed and approved the hiring of close friends and family of Chinese officials in order to secure business for CSHK.  For example, one SOE executive emailed a senior CSHK banker to refer a candidate who had a “very good and close relationship” with senior management at the SOE, and wrote that hiring the referral hire would “bring [CSHK] the big surprise in the near future if [CSHK] could … arrange a position in CS team in Beijing.”  The senior CSHK banker later told a colleague about an impending deal that the SOE was pursuing and explained that the referring SOE official “was focused on having us make a relationship hire and said it was very important for us to win future business with [the SOE].”  In another email to colleagues, a CSHK employee explained that “[r]elationship hires have to translate to $” or “the relationship is worthless to our organization.”

CSHK further admitted that referral hires were less qualified than other employees hired at the same level, they were less stringently vetted and they were given benefits throughout the course of their employment due to the provision of business to CSHK by their referral sources.  For example, in relation to the interview process for one referral hire, a senior CSHK banker cautioned colleagues “not too many interviews,” as this referral hire was “a princess [who was] not used to too many rounds of interview.”  CSHK employees also noted that they had to “be a bit ‘creative’ in filling” in this referral hire’s resume, before sending it to other CSHK employees.  In another example, when a CSHK banker asked a high-ranking executive of a client SOE to “push for [CSHK’s] incentive,” the high-ranking executive “reminded [the CSHK banker] that [CSHK] need[ed] to pay [the SOE’s] relationship hire … well at the year-end bonus.” 

The corrupt scheme netted CSHK at least $46 million in profits from business mandates with Chinese SOEs, CSHK admitted.

The Department and CSHK entered into a non-prosecution agreement, and CSHK agreed to pay a criminal penalty of $47,029,916 to resolve the matter.  As part of the agreement, CSHK and its parent company Credit Suisse AG also agreed to continue to cooperate with the Department in any ongoing investigations and prosecutions relating to the conduct, to enhance their compliance programs and to report to the Department on the implementation of their enhanced compliance programs.   The Department reached this resolution based on a number of factors, including that CSHK did not voluntarily and timely disclose the conduct at issue.  CSHK received partial credit for its and its parent company’s cooperation with the criminal investigation, including making foreign-based employees available for interviews in the United States and producing documents to the government from foreign countries in ways that did not implicate foreign data privacy laws.  However, CSHK did not receive additional cooperation credit because its cooperation was reactive and not proactive.  Additionally, CSHK did not receive full credit for remediation because it failed to sufficiently discipline employees who were involved in the misconduct.  Based on these considerations, the company received a non-prosecution agreement and an aggregate discount of 15 percent off the bottom of the U.S. Sentencing Guidelines fine range.

In related proceedings, Credit Suisse Group AG also settled with the U.S. Securities and Exchange Commission (SEC).  Under the terms of its resolution with the SEC, Credit Suisse Group AG agreed to pay a total of $24,989,843 in disgorgement of profits and $4,833,961 in prejudgment interest.

The FBI’s New York Field Office investigated the case.  Trial Attorney Katherine Nielsen and former Trial Attorney Allison Westfahl-Kong of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Alicyn Cooley, Alixandra Smith and James P. McDonald of the Eastern District of New York’s Business and Securities Fraud Section prosecuted the case.  The Fraud Section and U.S. Attorney’s Office appreciate the significant cooperation and assistance provided by the SEC in this matter.

July 12, 2018 in AML | Permalink | Comments (0)

Wednesday, July 11, 2018

Implementation and enforcement of the OECD Anti-Bribery Convention

Over the past 19 years, monitoring by the OECD Working Group on Bribery has established the Convention as the most rigorously enforced international anti-corruption instrument. New reports on implementation and enforcement have been issued for Germany and Norway.
» Germany
» Norway
» All country reports on implementation

July 11, 2018 in AML, OECD, OFAC | Permalink | Comments (0)

Tuesday, July 10, 2018

Delaware Supports Bill to End its Status as Tax Haven

The Organized Crime and Corruption Reporting Project reports that: The population of Delaware is under one million and has 1.3 million entities registered. According to multiple studies, it is easier to set up a company in the US than it is to purchase a library card.

read its full analysis about the Delaware beneficial ownership Congressional proposal here


July 10, 2018 in AML | Permalink | Comments (0)

Monday, July 9, 2018

Former ICE Chief Counsel Sentenced to Four Years in Prison for Wire Fraud and Aggravated Identity Theft Scheme

Former Chief Counsel Raphael A. Sanchez of the U.S. Immigration and Customs Enforcement’s (ICE) Office of Principal Legal Advisor (OPLA) was sentenced to 48 months in prison for a wire fraud and aggravated identity theft scheme involving the identities of numerous aliens, announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and ICE Principal Legal Advisor Tracy Short.

Sanchez, 44, of Seattle, Washington, pleaded guilty on Feb. 24, to one count of wire fraud and one count of aggravated identity theft.  In addition to the prison term, U.S. District Court Judge Robert S. Lasnik of the Western District of Washington ordered Sanchez to pay $190,345.63 in restitution.

“Raphael Sanchez was entrusted with overseeing the honest enforcement of our country’s immigration laws,” said Acting Assistant Attorney General Cronan.  “Instead, Sanchez abused that trust, and capitalized on his position at ICE to exploit his victims and line his own pockets.”

“ICE employees are required to ensure honest enforcement of more than 400 laws,” said ICE Principal Legal Advisor Short.  “We cannot let one bad actor detract from the work the agency’s dedicated employees in Seattle and across the world are doing to ensure our national security and uphold public safety. Our employees are held to the highest standards of professional conduct. Individuals who violate the public’s trust will face consequences for their actions, as Mr. Sanchez did in this case. Corruption will not be tolerated.”

Sanchez, who was responsible for immigration removal proceedings in Alaska, Oregon and Washington, admitted in his plea agreement that he intentionally devised a scheme to defraud aliens in various stages of immigration removal proceedings with ICE.  Sanchez used the personally identifiable information of those aliens to open lines of credit and personal loans in their names, manipulate their credit bureau files, transfer funds to himself and to purchase goods for himself using credit cards issued in their names. 

Sanchez admitted that he obtained personally identifiable information of the victim aliens by using ICE’s official computer database systems and by accessing their official, hard-copy immigration A-files.  He then used his work computer to forge identification documents, including Social Security cards and Washington State driver’s licenses, in the victims’ names.  Sanchez used these forged documents to open credit card and bank accounts subject to his own control in the names of the aliens.

To further the scheme, Sanchez listed his residence as the aliens’ home addresses on account paperwork.  In some cases, he created public utility account statements in their names to provide the necessary proof of residence to open lines of credit in their names or to conceal the scheme.  He also opened e-mail and online financial accounts in the names of several aliens, and manufactured a false earnings-and-leave statement in the name of an alien and registered a car in her name. 

Once the accounts were approved and opened, Sanchez made charges or drew payments totaling more than $190,000 in the names of aliens to himself or entities that he controlled, often using PayPal and mobile point-of-sale devices from Amazon, Square, Venmo and Coin to process the fraudulent transactions.  In a number of cases, Sanchez purchased goods online in the names of aliens and had them shipped to his residence.  Sanchez also employed credit-monitoring services and corresponded with credit bureaus in the names of aliens to conceal his fraud scheme.  Sanchez also claimed three aliens as relative dependents on his tax returns for 2014, 2015, and 2016.

ICE’s Office of Professional Responsibility, the FBI, and the U.S. Postal Inspection Service investigated the case.  Trial Attorneys Luke Cass and Jessica C. Harvey of the Criminal Division’s Public Integrity Section prosecuted the case.

July 9, 2018 in AML | Permalink | Comments (0)

Saturday, July 7, 2018

Former Chief Financial Officer of Bankrate Inc. Pleads Guilty to Orchestrating Complex $25 Million Accounting and Securities Fraud Scheme

The former chief financial officer of Bankrate Inc., a publicly traded financial services and marketing company formerly headquartered in North Palm Beach, Florida, pleaded guilty  for his role in orchestrating an accounting and securities fraud scheme that caused more than $25 million in shareholder losses.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Benjamin Greenberg of the Southern District of Florida and Criminal Investigations Group Inspector in Charge Daniel Adame of the U.S. Postal Inspection Service made the announcement.        

Edward J. DiMaria, 53, of Fairfield County, Connecticut, pleaded guilty to one count of conspiracy to make false statements to a public company’s accountants, falsify a public company’s books, records and accounts, and commit securities fraud; and one count of making materially false statements to the Securities and Exchange Commission (SEC).   DiMaria pleaded guilty before U.S. Magistrate Judge Simonton of the Southern District of Florida.  DiMaria is scheduled to be sentenced on Sept. 11. 

“Edward DiMaria used his position as Bankrate’s CFO to inflate the company’s earnings and mislead shareholders, auditors, and the SEC, resulting in over $25 million in losses to innocent investors,” said Acting Assistant Attorney General Cronan.  “DiMaria’s conviction and the restitution in this case will hopefully provide some solace to Bankrate’s shareholders, while also reminding potential bad actors of the Department’s commitment to hold individuals accountable for their involvement in complex accounting and securities fraud schemes that harm investors and undermine our markets.”

“The consequences of this type of financial fraud scheme are far reaching, affecting not only the economy in the United States, but also the world’s financial markets,” said Inspector in Charge Adame.  “Those who engage in this type of abuse of power while in positions of authority should know they cannot escape detection. They will be found and they will be held accountable for their actions. The U.S. Postal Inspection Service has a long history of investigating complex financial fraud schemes, like this one, in order to protect investors and the integrity of the financial marketplace.”

As part of his guilty plea, DiMaria admitted that between 2010 and 2014, he directed and conspired to commit a complex scheme to artificially inflate Bankrate’s earnings through so-called “cookie jar” or “cushion” accounting, where millions of dollars in unsupported expense accruals were purposefully left on Bankrate’s books and then selectively reversed in later quarters to boost earnings.  In addition, DiMaria admitted that he conspired with other Bankrate employees to misrepresent certain company expenses as “deal costs” in order to artificially inflate publicly reported adjusted earnings metrics.  DiMaria also admitted that he made materially false statements to Bankrate’s independent auditors to conceal the improper accounting entries, and that he caused Bankrate’s financial statements filed with the SEC to be materially misstated. 

DiMaria further admitted that the scheme caused more than $25 million in losses to Bankrate’s shareholders.  Pursuant to the terms of the plea agreement, DiMaria is required to pay approximately $21 million in restitution to Bankrate’s shareholders.

Hyunjin Lerner, Bankrate’s former vice president of finance, previously pleaded guilty for his role in the conspiracy.  Lerner was sentenced earlier this year to 60 months in prison by U.S. District Court Judge K. Michael Moore of the Southern District of Florida. 

The U.S. Postal Inspection Service’s National Headquarters Fraud Team investigated the case.  Assistant Chief Henry Van Dyck and Trial Attorneys Emily Scruggs and Jason Covert of the Criminal Division’s Fraud Section are prosecuting the case with assistance from the U.S Attorney’s Office for the Southern District of Florida.  The SEC also provided assistance in this matter.

July 7, 2018 in AML | Permalink | Comments (0)

Malaysia's Najib charged with corruption, weeks after stunning election defeat

Reuters reports: Just eight weeks after losing an election, former Malaysian prime minister Najib Razak was charged on Wednesday with abuse of power and criminal breach of trust in an investigation over billions of dollars missing from a state fund. read the Reuters analysis here

July 7, 2018 in AML | Permalink | Comments (0)

Thursday, July 5, 2018

Aruban Telecommunications Purchasing Official Sentenced to Prison in Money Laundering Conspiracy Involving Violations of the Foreign Corrupt Practices Act

An Aruban official residing in Florida was sentenced to 36 months in prison today for money laundering charges in connection with his role in a scheme to arrange and receive corrupt payments to influence the awarding of contracts with an Aruban state-owned telecommunications corporation.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Benjamin G. Greenberg of the Southern District of Florida and Assistant Special Agent in Charge Paul Keenan of the FBI’s Miami, Florida Field Office made the announcement.

Egbert Yvan Ferdinand Koolman, 49, a Dutch citizen residing in Miami, was sentenced by U.S. District Judge Federico A. Moreno of the Southern District of Florida, who also ordered Koolman to serve three years of supervised release following his prison sentence and to pay over $1.3 million in restitution.  Koolman was an official of Servicio di Telecommunicacion di Aruba N.V. (Setar), an instrumentality of the Aruban government.  He pleaded guilty on April 13, before Judge Moreno to one count of conspiracy to commit money laundering.   

According to admissions made as part of his plea agreement, between 2005 and 2016, Koolman operated a money laundering conspiracy from his position as Setar’s product manager.  Koolman admitted that, as part of the scheme, he conspired with Parker and others to transmit funds from Florida and elsewhere in the United States to Aruba and Panama with the intent to promote a wire fraud scheme and a corrupt scheme that violated the Foreign Corrupt Practices Act (FCPA).  Koolman was promised and received bribes from individuals and companies located in the United States and abroad in exchange for using his position at Setar to award lucrative mobile phone and accessory contracts.  He received the corrupt payments via wire transfer from banks located in the United States, in cash during meetings in Miami and in Aruba, and by withdrawing cash in Aruba using a bank card that drew money from a U.S.-based bank account.  In exchange for the more than $1.3 million in corrupt payments that he received, Koolman also admittedly provided favored vendors with Setar’s confidential information.

In connection with the scheme, Lawrence W. Parker, Jr., 42, of Miami, pleaded guilty on Dec. 28, 2017 before U.S. District Judge Cecilia M. Altonaga of the Southern District of Florida to one count of conspiracy to violate the FCPA and to commit wire fraud.  He was sentenced on April 30, to serve 35 months in prison and was ordered to pay $701,750 in restitution. 

The FBI’s International Corruption Unit in Miami is investigating the case.  Trial Attorneys Jonathan Robell and Vanessa Snyder of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Lois Foster-Steers of the Southern District of Florida are prosecuting the case.  The Criminal Division’s Office of International Affairs, as well as law enforcement colleagues in Aruba and Panama, provided significant assistance in this matter. 

July 5, 2018 in AML | Permalink | Comments (0)

Tuesday, July 3, 2018

The Dubai Leaks: Searchable Database

A major leak of property and residency records has revealed the owners of hundreds of luxury properties in the secretive Emirate of Dubai - It contains about 54,000 addresses with 129,000 owners from 181 countries.

Read and explore the database here: Finance Uncovered has explored the records as part of a team of investigative journalists assembled by the Organized Crime and Corruption Reporting Project (OCCRP) to dig into the data, first obtained by the US non-profit C4ADS.

July 3, 2018 in AML | Permalink | Comments (0)

Monday, July 2, 2018

FinCEN Issues Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and Their Financial Facilitators

The Financial Crimes Enforcement Network (FinCEN) issued an advisory to U.S. financial institutions to highlight the connection between corrupt senior foreign political figures and their enabling of human rights abuses. The use of financial facilitators is one way that corrupt senior foreign political figures access the U.S. and international financial systems to move or hide illicit proceeds and evade U.S. and global sanctions. These corrupt senior foreign political figures and facilitators often contribute directly or indirectly to human rights abuses, which have a devastating impact on individual citizens, societies, and economic development.

“Treasury takes very seriously its mission to protect the international financial system from illicit national security threats, including exploitation by human rights abusers, corrupt actors, and others who prey on vulnerable populations for personal profit. FinCEN is issuing this advisory to warn financial institutions about the use of financial facilitators, shell companies, and other schemes corrupt actors and human rights abusers use to move and hide their illicit proceeds and evade sanctions,” said Treasury Undersecretary Sigal Mandelker. “Treasury is sharing information with financial institutions, foreign counterparts, and non-governmental organizations on evolving tactics and typologies across the globe, particularly in regions susceptible to abuse. We must put an end to the long-standing business of government leaders and their financial facilitators in devastated areas profiting off of the backs of the innocent.  Financial institutions worldwide are a critical part of that effort.”

“Theft and other bad acts committed by corrupt senior foreign political figures undermine democratic institutions, destabilize economies, and erode societal foundations,” said FinCEN Director Kenneth A. Blanco. “FinCEN is committed to continuing its fight against corruption and those who use the U.S. financial system to further their nefarious activities at the expense of innocent people.”

U.S. financial institutions may expose themselves to risks by holding the accounts of these corrupt individuals directly or indirectly through correspondent banking relationships. The advisory reminds financial institutions of their obligations under the Bank Secrecy Act to report suspected illicit activity by these facilitators. It also highlights the activities of those who have been subject to sanctions for providing facilitation services to human rights abusers and others engaged in corruption. 

Facilitators may access the financial system to obscure and launder the illicit proceeds of high-level political corruption by using shell companies, misappropriating state assets, and exploiting the real estate sector. Consistent with existing regulatory obligations, financial institutions should take reasonable, risk-based steps to identify and limit exposure they may have to funds and other assets associated with individuals and entities providing financial facilitation for corrupt senior foreign political figures. The advisory also reminds financial institutions of their obligations regarding the filing of Suspicious Activity Reports (SARs) related to facilitators of corrupt senior foreign political officials.

When filing a SAR, financial institutions should provide all pertinent available information in the SAR form and narrative. FinCEN further requests that financial institutions select SAR field 35(l) and reference the advisory by including the key term “Financial Facilitator FIN-2018-A003” in the SAR narrative and in SAR field 35(z) to indicate a connection between the suspicious activity being reported and the persons and activities highlighted in the advisory. 

July 2, 2018 in AML | Permalink | Comments (0)

Sunday, July 1, 2018

New charges in SFO’s Unaoil investigation in relation to US$733 million contract

The Serious Fraud Office has brought further charges against two individuals facing trial in relation to the Unaoil investigation.

Basil Al Jarah and Ziad Akle have both been charged with conspiracy to give corrupt payments to secure the award of a contract worth US$733 million to Leighton Contractors Singapore PTE Ltd for a project to build two oil pipelines in southern Iraq.

Basil Al Jarah was charged on 15 May 2018 with two offences of conspiracy to give corrupt payments, contrary to section (1) of the Criminal Law Act 1977.
Ziad Akle was charged on 16 May 2018 with one offence of conspiracy to give corrupt payments, contrary to section (1) of the Criminal Law Act 1977.
Basil Al Jarah and Ziad Akle will appear before Westminster Magistrates’ Court on 23 May 2018.

The SFO would like to thank the Australian Federal Police for the assistance it provided in connection with our investigation.

The investigation is ongoing.

Notes to editors:

The SFO opened its investigation into Unaoil in March 2016.
Basil Al Jarah (68) was Unaoil’s Iraq partner and resides in Hull.
Ziad Akle (43) was Unaoil’s territory manager for Iraq and resides in London.
Basil Al Jarah is represented by Brown Rudnick.
Ziad Akle is represented by White & Case.
Details of other charges in relation to this investigation can be found here.
The strict liability rule in the Contempt of Court Act 1981 applies.

July 1, 2018 in AML | Permalink | Comments (0)

Saturday, June 30, 2018

Eight Arrested in Africa-Based Cybercrime and Business Email Compromise Conspiracy

In accordance with the Justice Department’s recent efforts to disrupt business email compromise (BEC) schemes that are designed to intercept and hijack wire transfers from businesses and individuals, including many senior citizens, the Department announced Operation Keyboard Warrior, an effort coordinated by United States and international law enforcement to disrupt online frauds perpetrated from Africa.  Eight individuals have been arrested for their roles in a widespread, Africa-based cyber conspiracy that allegedly defrauded U.S. companies and citizens of approximately $15 million since at least 2012.

Five individuals were arrested in the United States for their roles in the conspiracy including Javier Luis Ramos Alonso, 28, a Mexican citizen residing in Seaside, California; James Dean, 65, of Plainfield, Indiana; Dana Brady, 61, of Auburn, Washington; Rashid Abdulai, 24, a Ghanaian citizen residing in the Bronx, New York, who has been charged in a separate indictment; and Olufolajimi Abegunde, 31, a Nigerian citizen residing in Atlanta, Georgia. Maxwell Atugba Abayeta aka Maxwell Peter, 26, and Babatunde Martins, 62, of Ghana and Benard Emurhowhoariogho Okorhi, 39, a Nigerian citizen who resides in Ghana, have been arrested overseas and are pending extradition proceedings to face charges filed in the Western District of Tennessee. 

The indictment also charges Sumaila Hardi Wumpini, 29; Dennis Miah, 34; Ayodeji Olumide Ojo, 35, and Victor Daniel Fortune Okorhi, 35, all of whom remain at large. Abegunde had his detention hearing today before U.S. District Court Judge Sheryl H. Lipman of the Western District of Tennessee, who ordered him detained pending trial, which has been set for Oct. 9.

“The defendants allegedly unleashed a barrage of international fraud schemes that targeted U.S. businesses and individuals, robbing them to the tune of approximately $15 million,” said Acting Assistant Attorney General Cronan. “The Department of Justice will continue to work with our international partners to aggressively disrupt and dismantle criminal enterprises that victimize our citizens and businesses.”

“Today, the FBI and our partners are announcing indictments as part of Operation Keyboard Warrior,” said FBI Executive Assistant Director Resch.  “Following the success of Operation WireWire in early June, these indictments continue to demonstrate the FBI’s commitment to working with our partners around the globe to disrupt and dismantle criminal enterprises that target Americans and their businesses.  This should stand as a warning that our work is not over, and we will continue to work together with our law enforcement partners to put an end to these fraud schemes. I want to thank all the agents and analysts at the FBI, our partners at the Department of Justice, and our Ghanaian partners at the Economic and Organised Crime Office for all their tireless work to continue to pursue this issue at every turn.”

The indictment was returned by a grand jury in the U.S. District Court for the Western District of Tennessee on Aug. 23, 2017, and charges the defendants with conspiracy to commit wire fraud, wire fraud, conspiracy to commit money laundering, conspiracy to commit computer fraud, and aggravated identity fraud.

The indictment alleges that the Africa-based coconspirators committed, or caused to be committed, a series of intrusions into the servers and email systems of a Memphis-based real estate company in June and July 2016.  Using sophisticated anonymization techniques, including the use of spoofed email addresses and Virtual Private Networks, the coconspirators identified large financial transactions, initiated fraudulent email correspondence with relevant business parties, and then redirected closing funds through a network of U.S.-based money mules to final destinations in Africa.  Commonly referred to as business email compromise, or BEC, this aspect of the scheme caused hundreds of thousands in loss to companies and individuals in Memphis.

In addition to BEC, some of the Africa-based defendants are also charged with perpetrating, or causing to be perpetrated, various romance scams, fraudulent-check scams, gold-buying scams, advance-fee scams, and credit card scams.  The indictment alleges that the proceeds of these criminal activities, both money and goods, were shipped and/or transferred from the United States to locations in Ghana, Nigeria, and South Africa through a complex network of both complicit and unwitting individuals that had been recruited through the various Internet scams.  Some of the defendants are also charged with concealing their conduct by, among other means, stealing or fraudulently obtaining personal identification information (PII) and using that information to create fake online profiles and personas.  Through all their various schemes, the defendants are believed to have caused millions in loss to victims across the globe.

An indictment is merely an allegation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI led the investigation.  The FBI’s Transnational Organized Crime of the Eastern Hemisphere Section of the Criminal Investigative Division, Major Cyber Crimes Unit of the Cyber Division, the Legal Attaché in Accra, and International Organized Crime Intelligence and Operations Center all provided significant support in this case, as did the Ghanaian Economic and Organised Crime Office, INTERPOL Washington, the U.S. Marshals Service, and the U.S. Attorney’s Offices of the Northern District of Georgia, Western District of Washington, Central District of California, Southern District of New York, and the Northern District of Illinois.

Senior Trial Attorney Timothy C. Flowers of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Debra L. Ireland of the U.S. Attorney’s Office for the Western District of Tennessee are prosecuting the case, with significant assistance from the Department of Justice’s Office of International Affairs.  

June 30, 2018 in AML | Permalink | Comments (0)

Friday, June 29, 2018

New Panama Papers Leak Reveals Firm’s Chaotic Scramble To Identify Clients, Save Business Amid Global Fallout

ICIJ new report: "Over the year, newly leaked documents show, Mossack Fonseca employees frantically emailed bankers, accountants and lawyers – the professionals who had hired the firm to set up shell companies for wealthy clients who wanted to remain anonymous – in an attempt to close the gaps in its recordkeeping. Those intermediaries responded with panic and fury."

“THE CLIENT DISAPPEARED! I CAN NOT FIND HIM ANYMORE!!!!!!!,” Nicole Didi, a Swiss wealth management adviser, wrote in March 2017. A long-time intermediary of Mossack Fonseca, she acted for 80 companies set up by the firm.  Read the full story at ICIJ.

June 29, 2018 in AML | Permalink | Comments (0)

Former State Street Executive Convicted in Scheme to Defraud Clients Through Secret Trading Commissions on Billions of Dollars of Securities Trades

A former executive vice president of State Street Bank & Trust was convicted by a federal jury in Boston in connection with engaging in a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades. 

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Andrew E. Lelling of the District of Massachusetts and Special Agent in Charge Harold H. Shaw of the FBI’s Boston Field Division made the announcement.

After a three-week trial, Ross McLellan, 47, of Hingham, Massachusetts, was convicted of one count of conspiracy to commit securities fraud and wire fraud, two counts of securities fraud and two counts of wire fraud.  U.S. District Court Judge Leo T. Sorokin of the District of Massachusetts, who presided over the trial, scheduled sentencing for Oct. 10.

“State Street’s clients, including institutional investors managing pensions for retirees, entrusted McLellan and his subordinates to transition billions of dollars in assets,” said Acting Assistant Attorney General John Cronan.  “Rather than living up to the responsibility to act in their clients’ best interests, McLellan and his coconspirators stole from these victims by charging hidden commissions and then lying about the scheme to cover their tracks.  This conviction is a testament to the dedication of the FBI and prosecutors in the Criminal Division and U.S. Attorney’s Office to protecting innocent investors by investigating and prosecuting complex financial crimes.”

“Mr. McLellan defrauded State Street clients, violating his fiduciary duties and abusing his clients’ trust along the way,” said U.S. Attorney Lelling.  “With systematic precision, Mr. McLellan and his conspirators added secret commissions to securities trades and took steps to conceal the scheme.  In doing so, beyond directly defrauding institutional investors, Mr. McLellan chipped away at the savings of thousands of retirees whose pensions he was supposed to safeguard.  After only five hours of deliberations, a jury found Mr. McLellan guilty of five of six counts in the indictment.” 

“Motivated by sheer greed, Mr. McLellan devised an elaborate bait and switch scheme to defraud State Street’s clients out of millions of dollars, and now he’s finally being held accountable for his actions,” said FBI Special Agent in Charge Shaw.  “This case should serve as a warning to others, the FBI and our law enforcement partners will aggressively pursue and bring to justice those who undermine our financial markets.”

In April 2016, McLellan, a former executive vice president of State Street who served as global head of its Portfolio Solutions Group and president of its U.S. broker-dealer, was indicted with Edward Pennings, 47, of Surrey, England, a former senior managing director of State Street and the head of its Portfolio Solutions Group for Europe, the Middle East and Africa.  

As established by the evidence at trial, between February 2010 and September 2011, McLellan, Pennings and Richard Boomgaardt, 44, of Sevenoaks, England, a former managing director of State Street, conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s “transition management” business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios.  The commissions were charged on top of fees the clients had agreed to pay the bank, and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions.  McLellan, Pennings and Boomgaardt took steps to hide the commissions from the clients and others within the bank, including by directing that the commissions not be broken out in post-trade reports. 

For example,

  • In a telephone call in March 2010, Pennings instructed Boomgaardt not to talk about the plans to charge hidden commissions on one transaction “with anyone . . . because it’s not going to help our story.  Don’t even share it with the rest of the team, to be honest.”
  • In June 2010, McLellan and Boomgaardt requested that the bank’s traders provide them with the reported daily high and low prices of securities the bank had traded for the client so that they could determine the amount of the commissions to be applied to each security without attracting the client’s attention.
  • In March 2011, McLellan instructed a U.S. fixed income trader to charge a commission of one basis point (0.01 percent) of yield to each trade conducted for another client – notwithstanding that the written trading instructions for the transaction said to charge zero commissions – and subsequently instructed the trader to delete any reference to the commissions from the trading results he sent to the transition manager assigned to the project.

In June 2011, when one of the affected clients inquired about whether it had, in fact, been charged commissions in breach of its agreement with the bank, Pennings initially denied that any commissions had been charged.  Later – at McLellan’s direction – Pennings acknowledged only that “inadvertent commissions” had been applied to securities traded in the United States, but did not disclose that they had, in fact, been intentionally charged in both the United States and in Europe.  McLellan and Pennings sought to mislead the bank’s compliance staff into believing that the commissions had been charged in error and that the amount of the overcharges was limited to the commissions applied on U.S. securities, the evidence showed.

In June 2017, Pennings pleaded guilty and is scheduled to be sentenced on July 18.  Boomgaardt was charged separately and pleaded guilty in July 2017 to one count of conspiracy to commit securities fraud and wire fraud.  Boomgaardt is scheduled to be sentenced on July 31.

The case was investigated by the FBI.  Trial Attorney William Johnston of the Criminal Division’s Fraud Section and Assistant U.S. Attorney/Economic Crimes Chief Stephen E. Frank of the District of Massachusetts are prosecuting the case.  Valuable assistance was provided by the Securities & Exchange Commission and the Justice Department’s Office of International Affairs.

June 29, 2018 in AML | Permalink | Comments (0)

Strengthening the fight against crime and terrorism: Commission welcomes agreement on the confiscation of assets across borders

The provisional political agreement reached by the European Parliament and Council on the Commission's proposal for an EU regulation on the freezing and confiscation of assets across borders was confirmed by Member States. The proposal was adopted as part of the Action Plan to strengthen the fight against terrorist financing and contributes to completing the Security Union.

Vĕra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “I welcome the political agreement on new rules to facilitate confiscation of assets across borders. At the moment, 99% of criminal proceeds remain in the hands of criminals and terrorists. The current EU legislation on mutual recognition of orders to confiscate or freeze assets across borders is outdated and prone to loopholes. Member States must cooperate better and much faster. Our new set of rules will directly apply in Member States, with standard documents, clear deadlines and better communication between national authorities."

The new regulation will set a deadline of 48 hours to recognise and execute freezing orders. It will widen the scope of current rules on cross-border recognition: criminals can be deprived of criminal assets, even when the assets belong to their relatives. Finally, in cases of cross-border execution of confiscation orders, the victim's right to compensation will have priority over States' claims. Following this political agreement, the text of the Directive will have to be formally approved by the European Parliament and the Council.

June 29, 2018 in AML | Permalink | Comments (0)

Thursday, June 28, 2018

Commission adopts stronger rules to fight terrorism financing

The European Commission has adopted a package of measures to strengthen the EU's capacity to fight the financing of terrorism and organised crime, delivering on the commitments made in the Action Plan against terrorist financing from February 2016. The proposals being presented by the Commission will complete and reinforce the EU's legal framework in the areas of money laundering, illicit cash flows and the freezing and confiscation of assets. Presented alongside the third Progress Report on the Security Union, today's proposals will ensure a strong and coordinated European response in the fight against terrorism financing, bringing the EU one step closer towards an effective and genuine Security Union.

The proposals were prepared by a project team led by First Vice-President Frans Timmermans and Vice-President Valdis Dombrovskis, working with Commissioners Dimitris Avramopoulos, Pierre Moscovici, Věra Jourová and Julian King.

First Vice-President Frans Timmermans stated: "With today's proposals, we strengthen our legal means to disrupt and cut off the financial sources of criminals and terrorists. We must ensure we have the right tools in place to detect and stop suspicious financial flows and to support better cooperation between law enforcement authorities so that we can better protect the security of European citizens."

Vice-President Valdis Dombrovskis said: "Terrorism remains a major threat to our safety. We must stay a step ahead to stop terrorists in their tracks and the fight against terrorism financing is part of it. That's why today we are proposing that money laundering be subject to effective criminal sanctions right across the EU. We are proposing cross-border freezing and confiscation of criminal assets within the EU, and putting an end to criminals circumventing cash controls at the EU's external borders."

With today's proposals, as highlighted in the third Progress Report towards an effective and genuine Security Union, the European Commission is strengthening the capacity of the EU to fight terrorism and organised crime, making it harder for terrorists and criminals to finance their activities whilst making it easier for the authorities to detect and stop their financial movements. Detecting suspicious financial flows and cutting off the sources of financing is one of the most effective ways to stop potential terrorist attacks and criminal activities. The tracking of financial flows can also provide police and law enforcement authorities with crucial information and effective tools for their investigations.

Ensuring the criminalisation of money laundering

The Commission is today proposing a new Directive to criminalise money laundering and to provide competent authorities with adequate criminal law provisions to prosecute criminals and terrorists and put them behind bars. The proposed measures will:

  • Establish minimum rules concerning the definition of criminal offences and sanctions related to money laundering, closing gaps to prevent criminals from exploiting differences between different national rules.
  • Remove obstacles to cross-border judicial and police cooperation by setting common provisions to improve the investigation of offences related to money laundering;
  • Bring the EU norms in line with the international obligations in this area, as set out in the Council of Europe Warsaw Convention and Financial Action Task Force recommendations.

Putting tighter controls on large cash flows

In order to provide competent authorities with the adequate tools to detect terrorists and those who support them financially, thenewRegulation on cash controls presented today will:

  • Tighten cash controls on people entering or leaving the EU with €10,000 or morein cash;
  • Enable authorities to act on amounts lower than the customs declaration threshold of €10,000, where there are suspicions of criminal activity, and
  • Improve the exchange of information between authorities and Member States;
  • Extend customs checks to cash sent in postal parcels or freight shipments and to precious commodities such as gold, and to prepaid payment cards which are currently not covered by the standard customs declaration.

Freezing terrorists' financial resources and confiscating their assets

Freezing or confiscating financial assets quickly across borders will prevent terrorists from using their funds to commit further attacks. Theproposed Regulation on mutual recognition of criminal asset freezing and confiscation orders will:

  • Offer one single legal instrument for the recognition of both freezing and confiscation orders in other EU countries, simplifying the current legal framework. The Regulation would apply immediately in all Member States;
  • Widen the scope of the current rules on cross-border recognition, to include confiscation from other people connected to the criminal, and would cover confiscation in the case the criminal is not being convicted for example due to escape or death;
  • Improve the speed and efficiency of freezing or confiscation orders thanks to a standard document and an obligation on the part of competent authorities to communicate with each other. The rules set cleardeadlines, including shorter deadlines for freezing orders;
  • Ensure victims' rights to compensation and restitution are respected. In cases of cross-border execution of confiscation orders, the victim's right has priority over the executing and issuing States' interest.


Security has been a constant theme since the beginning of the Juncker Commission's mandate – from President Juncker's Political Guidelinesof July 2014 to the latest State of the Union address in September 2016.

Building on the European Agenda on Security adopted in April 2015, which underlined the need for measures to address terrorist financing in a more effective and comprehensive manner, in February 2016 the European Commission set out an Action Plan against terrorist financing to ensure that Member States have the necessary tools at their disposal to address new threats.

In April 2016, the Commission identified the cutting of terrorists' access to funds as one of the priority actions to be taken to complete an efficient and sustainable EU Security Union. The creation by President Juncker of a specific Commissioner portfolio for the Security Union in August 2016 shows the importance the Commission has attached to stepping up its response to the terrorist threat.

As set out in the Action Plan against terrorist financing, and as reported in today's third Progress Report on the Security Union, the Commission will introduce a proposal to reinforce the powers of customs authorities to address terrorism financing through trade in goods in 2017. The Commission will also extend the scope of the current legislation addressing illicit trade in cultural goods to a wider number of countries. In the Progress report, the Commission also encourages the co-legislators to find an agreement on the revised 4th Anti-Money Laundering Directive in the weeks to come.

For more information

Factsheet on the state of play of the Action Plan against terrorist financing

Factsheet on the state of play of the European Agenda on Security

MEMO - Proposal for a Directive on countering money laundering by criminal law

MEMO - Update of EU rules on cash controls

MEMO - Regulation on the mutual recognition of freezing and confiscation orders

Proposal - Directive on countering money laundering by criminal law

Proposal - Regulation on cash controls

Proposal - Regulation to strengthen the mutual recognition of criminal asset freezing and confiscation orders

Third Progress Report towards an effective and genuine Security Union

Communication: Delivering on the European Agenda on Security to fight against terrorism and pave the way towards an effective and genuine Security Union

European Agenda on Security

June 28, 2018 in AML | Permalink | Comments (0)

Wednesday, June 27, 2018

Regulation on the mutual recognition of freezing and confiscation orders

The European Commission adopted a proposal on the recognition of freezing and confiscation orders across borders.  This proposal is part of the Action Plan to strengthen the fight against terrorist financing presented in February 2016.  Questions and Answers

Why adopt a new regulation on freezing and confiscation orders?

Confiscating assets generated by criminal activities is a very efficient tool to fight crime and terrorism, as it deprives criminals from the proceeds of their illegal activities and terrorists from organising an attack. At the moment, 98.9% of estimated criminal profits are not confiscated and remain at the disposal of criminals.

The recognition of a confiscation and freezing order from one EU country to the other is still too slow, allowing criminals to keep their assets or move them across Europe. The 2015 and 2016 terror attacks showed the need for stronger and seamless judicial cooperation throughout the EU.

The proposed Regulation will facilitate cross-border recovery of criminal assets and lead to more efficient freezing and confiscation of funds from illicit origin in the EU without cumbersome formalities. Recovered assets will be used for the compensation of victims, where national legislation allows it. It also provides additional funds to invest back into law enforcement activities or other crime prevention initiatives or it can be used for other public interest or social purposes.

What are confiscation and freezing orders? 

Freezing order

A freezing order is a judicial decision issued to freeze an asset or funds in order to provisionally prevent the destruction, transformation, moving, transfer or disposal of property. The freezing order can be followed by a confiscation.

For instance, someone is arrested for terrorism and the judge suspects that he is planning an attack with other people. The judge can decide to issue a freezing order to freeze his bank account. 

Confiscation order

A confiscation order is a judicial decision resulting in the confiscation of property.

There are different types of confiscation orders:

  • Classic confiscation order: following a criminal conviction the direct proceed of a crime is confiscated. For example: the confiscation of a car from a person convicted for car theft.
  • Extended confiscation order: following a criminal conviction, the authority can issue a confiscation order on a criminal asset which is not the direct proceeds of the crime for which the person was convicted. For example: the confiscation of a large villa bought with money from drug trafficking.
  • Third party confiscation order: to deprive someone else than the offender (person or company) from criminal property transferred to him by the offender. For instance, a criminal who buys a house under the name of his wife or another family member.
  • Non-conviction based order: confiscation measure taken in the absence of a conviction and directed against an asset from illicit origin/ Example: the suspect is not convicted, because he is sick or has escaped.

What rules already exist at EU level to facilitate freezing and confiscation?

The current EU legal framework sets out common minimum rules for freezing and confiscation orders. It is based on the 2014 Directive on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union and the Framework Decision on confiscation of crime-related proceeds.

Rules for mutual recognition of freezing and confiscation orders enabling national orders to be executed in the territory of other EU Member States are based on two instruments: the Framework Decision on mutual recognition of freezing orders and the Framework Decision on mutual recognition of confiscation orders.

However, the current EU legislation on mutual recognition is outdated and is no longer aligned with the latest national and EU rules on freezing and confiscation. This creates loopholes that are exploited by criminals.

Whereas the 2014 Directive on the freezing and confiscation makes it easier for authorities to seize and take away assets at national level, today's proposal aims at improving the cross-border enforcement of freezing and confiscation orders. Together the Directive and the proposed Regulation will create a more effective asset recovery system in the European Union. 

What is the principle of mutual recognition of judicial decisions?

The mutual recognition principle means that a judicial decision taken in one EU Member State is recognised, and where necessary, enforced by another EU Member State without being assessed again. Mutual recognition is based on mutual trust between Member States' authorities.

The regulation sets out a limited number of reasons on which recognition and execution can be refused. Common EU certificates, annexed to the Regulation, contain all necessary information for the executing State to facilitate the recognition.

There are several EU laws on judicial cooperation in criminal matters that are based on the principle of mutual recognition, such as the European Arrest Warrant.

How will the Regulation work?

The proposed Regulation will improve co-operation between authorities to ensure that they can swiftly and efficiently freeze and confiscate assets across the EU.

Whenever a competent authority in one EU country decides to freeze or confiscate property in another Member State, it can request the other Member State to do so by filling in a standard form for freezing order or a standard certificate for the confiscation order. The authority in the other Member State must recognise the request and execute the freezing or confiscation order within short time limits. It can only refuse to recognise and execute such orders on the basis of a limited number of reasons, set out in the regulation.

What would the new rules cover?

The proposed Regulation will cover mutual recognition of all types of freezing and confiscation orders for which common minimum rules are set by the 2014 Directive on the freezing and confiscation of instrumentalities and proceeds of crime.

In addition, it will cover all orders for non-conviction based confiscation issued during a criminal procedure, for example in the following cases:

  • the perpetrator of an offence died or could not be identified;
  • the suspect enjoys immunity;
  • in case of prescription of a criminal offence;
  • when a criminal court can confiscate an asset without conviction because the court has decided that such an asset is the proceeds of a crime. This requires the court to establish that an advantage was derived from a criminal offence.

In order to be included in the scope of the Regulation, these types of confiscation orders must be issued within the framework of criminal proceedings. It does not include confiscation or freezing orders issued in civil or administrative proceedings.

All safeguards applicable to criminal proceedings will have to be ensured in the issuing State.

What benefits will the new proposal bring?

This proposed Regulation improves the current legal framework for the mutual recognition of freezing and confiscation orders by bringing the following benefits:

  • Widening the scope of freezing and confiscation orders types covered compared to the current mutual recognition laws

The proposal covers mutual recognition of all types of freezing and confiscation orders issued during criminal proceedings. It includes classic, extended and third party confiscation as well as non-conviction based confiscation decided by a criminal court.

  • A directly applicable single law for both freezing and confiscation orders

One single law for mutual recognition of both freezing and confiscation orders will replace the Framework Decisions on mutual recognition for freezing and confiscation orders. Member States will be bound by the regulation. This will ensure uniformity in the application of this instrument and avoid problems due to late or incorrect transposition by Member States. This will be the first Regulation proposed by the Commission in the field of mutual recognition in criminal matters since the entry into force of the Lisbon Treaty.

  • Clear deadlines for freezing and confiscation orders

Freezing as a precautionary measure needs to be carried out quickly, short deadlines are therefore set for the recognition and execution of freezing orders. The execution of confiscation orders can take place within a longer time period, however clear deadlines are also set to ensure efficient cross-border procedures.

  • A standard certificate and a standard form

A standard certificate for mutual recognition of confiscation orders and a standard form for freezing orders will allow for speedy and efficient action.

They contain all the relevant information on the order, which will help the executing authority to reach the targeted property and will facilitate the recognition and enforcement of the foreign order by the competent national authorities. The freezing order will be issued in a standard form to simplify the mutual recognition procedure and will not be accompanied by a domestic freezing order.

  • Efficient communication between the competent authorities

To allow smooth and swift recognition and execution of freezing and confiscation orders the competent authorities have to communicate whenever necessary at all stages of the procedure. For instance, before applying one of the grounds for refusal, a consultation has to take place between the executing and issuing authorities.  

  • Victims' rights

The proposal also aims at improving the protection of victims of crime in cross-border cases. It addresses victims' needs to get compensation for damages or to get stolen assets restituted from the State where the property was confiscated. A possibility to receive a decision on compensation or restitution during criminal proceedings exists in several Member States but there is currently no specific provision which takes into account such a decision in cross border confiscation cases. The proposal addresses this issue. In cases where the victim has been granted a decision on compensation or restitution and the assets have been confiscated in another State following the mutual recognition procedure, the victim's right to compensation or restitution will have priority over the issuing and executing State's interests.

What are the deadlines for the freezing and confiscation orders? 

Deadline for confiscation orders

Different time limits are set separately for the decision on the recognition and for the execution of the confiscation order. Firstly, the executing authority must take the decision on the recognition and execution of the confiscation order as soon as possible, at the latest 30 days after the receipt of the confiscation order. Secondly, the executing authority must carry out the confiscation without delay and not later than 30 days after taking the decision to recognise and execute the confiscation order.

Deadline for freezing orders

Three different time limits are set separately for the decision on the recognition, for the execution of the freezing order and for the reporting back to the issuing authority.

Firstly, the executing authority must take the decision on the recognition and execution of the freezing order as soon as possible and at the latest within 24 hours after the receipt of the freezing order.

Secondly, the executing authority must carry out the freezing without delay and not later than 24 hours after taking the decision to recognise and execute the freezing order and it must communicate its decision without delay to the issuing authority.

In addition to these deadlines, the regulation requires the executing authority to report to the issuing one about the measures taken within 3 days.

What happens with the confiscated funds and assets?

If the confiscation order is accompanied by a decision to compensate the victim, this person should recover the assets or funds.

Otherwise, when a confiscation order is executed in another country, both countries split the amount between themselves, if it is above 10,000 euros. Under this threshold, the executing State will keep this money. Countries can also agree otherwise on the disposal of assets.

How are fundamental rights safeguarded?

Safeguards are included in the proposed Regulation to ensure that the mutual recognition of freezing or confiscation orders is in line with fundamental rights protected by the EU Charter of Fundamental Rights (the Charter) and the European Convention on Human Rights (ECHR).

For instance, the Regulation includes grounds for refusal when the rules on the right to be present at the trial (‘in absentia') or when the rights of third parties "in good faith" ('bona fide') are not respected. There is an obligation to inform interested parties of the execution of a freezing order, including of the reasons why it is carried out and the legal remedies available. There is also an obligation for Member States to provide for legal remedies in the executing State.

All applicable criminal law procedural safeguards should be ensured by the Member States. Furthermore, for those orders falling within the scope of Directive 2014/42/EU on the freezing and confiscation of instrumentalities and proceeds of crime, Article 8 of the Directive also includes a list of safeguards that need to be ensured by the issuing Member States, andArticles 47 and 48 of the Charter apply.

Applicable criminal law standards also include the relevant legislation at EU level on procedural rights in criminal proceedings: Directive on the right to interpretation and translation, the Directive on the right to information, Directive on the right of access to a lawyer,Directive on the presumption of innocence and the right to be present at the trialDirective on the procedural safeguards for children and Directive on legal aid.

For more information:




June 27, 2018 in AML | Permalink | Comments (0)

Two Colorado Financial Services Executives Sentenced in Multimillion-Dollar Fraud Scheme

A former CEO and a former corporate counsel of a Colorado financial services company were sentenced in Denver, Colorado for their participation in a multimillion-dollar investment scheme in which they falsely told investors that they could access substantial financing, including hundreds of millions in cash in an overseas bank account, in exchange for up-front fees.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Inspector in Charge Craig Goldberg of the U.S. Postal Inspection Service’s Denver Division, and Acting Inspector in Charge Bill Hedrick of the U.S. Postal Inspection Service’s Chicago Division, made the announcement.

Brian G. Elrod, 59, of Buffalo Creek, Colorado, formerly the CEO of a financial services company known as Compass Financial Solutions Ltd. (CFS), was sentenced to serve 38 months in prison, followed by three years of supervised release.  Additionally, Elrod was ordered to pay restitution in the amount of $2,440,051.29. William E. Dawn, 80, who was CFS’s corporate counsel, was sentenced to time served.  U.S. District Judge William J. Martinez handed down the sentence for Elrod, and U.S. District Judge Robert E. Blackburn sentenced Dawn and ordered him to pay restitution in the amount of $366,752.01. 

Elrod pleaded guilty on Feb. 19, 2015, in the District of Colorado to one count of conspiracy to commit mail fraud and wire fraud.  As part of his plea agreement, Elrod admitted that from approximately 2005 to 2011, while he served as the CEO of CFS, he marketed and sold to investors promissory notes that were purportedly guaranteed by CFS and others.  With respect to the notes that were guaranteed by CFS, Elrod promised investors high returns through monthly interest payments and represented to investors that the proceeds from the notes would be used to operate CFS.  However, Elrod instead used the investors’ funds for, among other things, payments to other investors and to himself.  After Elrod defaulted on the notes, he conspired with Kenneth Brewington, who purported to be a wealthy financier, and told investors that Brewington would assume CFS’s obligations on these notes.  To induce CFS’s investors to sign these assumption agreements, Elrod showed investors fraudulent documents that falsely claimed Brewington had 500 million euros in an overseas bank account.  Elrod also sold additional promissory notes that were guaranteed by Brewington personally.  To induce investors to purchase the notes guaranteed by Brewington, Elrod again showed investors similar fraudulent documents purporting to show Brewington’s wealth and told some of the investors that their investments would be used to release Brewington’s money overseas.  Elrod acknowledged that his scheme resulted in over $2.5 million in losses to investors.

Dawn pleaded guilty on Feb. 25, 2015, in the District of Colorado, to one count of conspiracy to commit mail fraud and wire fraud.  As part of his plea agreement, Dawn admitted that from approximately 2002 to 2010, he served as in-house counsel at CFS.  Dawn also admitted that he drafted promissory notes sold by Elrod and Brewington in order to solicit investor funds.  In doing so, Dawn knew that the proceeds from these notes were going to be used by CFS to make payments to other investors, which had not been disclosed to the purchasers of these notes.  To disguise from investors the fact that the proceeds from the notes were not in fact going to be used to release the millions of euros supposedly held by Brewington overseas, the defendant allowed his attorney-client trust account to be used to receive the investors’ money.  Dawn acknowledged that his scheme resulted in over $200,000 in losses to investors.  He also acknowledged that he owes $366,752.01 in restitution.        

Brewington, 55, of Corona, California, was convicted on multiple counts of fraud and money laundering on May 18, in the District of Colorado, following a two-week jury trial.  Brewington’s sentencing is set for Aug. 17, before U.S. District Court Judge Philip A. Brimmer, who presided over the trial of the case.

The investigation was led by the U.S. Postal Inspection Service.  The U.S. Attorney’s Office for the District of Colorado and the U.S. Securities and Exchange Commission also provided substantial assistance in this matter.  Trial Attorneys Anna G. Kaminska, Kyle C. Hankey, and Jennifer G. Ballantyne, as well as Assistant Chief Henry P. Van Dyck of the Criminal Division’s Fraud Section prosecuted the case. 

June 27, 2018 in AML | Permalink | Comments (0)

Monday, June 25, 2018

Joshua Adam Schulte Charged with the Unauthorized Disclosure of Classified Information and Other Offenses Relating to the Theft of Classified Material from the Central Intelligence Agency

John C. Demers, Assistant Attorney General for National Security, Geoffrey S. Berman, United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that Joshua Adam Schulte was charged in a 13-count Superseding Indictment (the “Indictment”) in connection with his alleged theft of classified national defense information from the Central Intelligence Agency (“CIA”) and the transmission of that material to an organization that purports to publicly disseminate classified, sensitive, and confidential information (“Organization-1”).  The Indictment also charges Schulte with the receipt, possession, and transportation of child pornography, as well as criminal copyright infringement.  Schulte, who is presently detained on the child pornography charges, will be arraigned by U.S. District Judge Paul A. Crotty.

“Leaks of classified information pose a danger to the security of all Americans,” said Assistant Attorney General Demers.  “It adds insult to injury when, as alleged here, the leaks come from former government officials in whom Americans placed their sacred trust. The National Security Division, alongside our partners in the Intelligence Community, will not waver in our commitment to pursue and hold accountable these officials, and I commend all those at the Department of Justice and the FBI who have worked diligently to investigate this matter and bring these charges.”

"Joshua Schulte, a former employee of the CIA, allegedly used his access at the agency to transmit classified material to an outside organization,” said Manhattan U.S. Attorney Geoffrey S. Berman. “During the course of this investigation, federal agents also discovered alleged child pornography in Schulte’s New York City residence.  We and our law enforcement partners are committed to protecting national security information and ensuring that those trusted to handle it honor their important responsibilities.  Unlawful disclosure of classified intelligence can pose a grave threat to our national security, potentially endangering the safety of Americans.”

“As alleged, Schulte utterly betrayed this nation and downright violated his victims. As an employee of the CIA, Schulte took an oath to protect this country, but he blatantly endangered it by the transmission of Classified Information.” said Assistant Director-in-Charge William F. Sweeney, Jr. “To further endanger those around him, Schulte allegedly received, possessed, and transmitted thousands of child pornographic photos and videos. In an effort to protect this nation against crimes such as these, the FBI's Counterintelligence Division in New York will continue to keep our mission at the forefront of our investigations in protecting the American public."

According to the Indictment, other court filings, and statements made during court proceedings:

On March 7, 2017, Organization-1 released on the Internet classified national defense material belonging to the CIA (the “Classified Information”).  In 2016, Schulte, who was then employed by the CIA, stole the Classified Information from a computer network at the CIA and later transmitted it to Organization-1.  Schulte also intentionally caused damage without authorization to a CIA computer system by granting himself unauthorized access to the system, deleting records of his activities, and denying others access to the system.  Schulte subsequently made material false statements to FBI agents concerning his conduct at the CIA. 

Schulte was previously arrested on August 24, 2017, on charges relating to his receipt, possession, and transportation of approximately ten thousand images and videos of child pornography.  In March 2017, members of the FBI had searched Schulte’s residence in New York, New York, pursuant to a search warrant and recovered, among other things, multiple computers, servers, and other portable electronic storage devices, including Schulte’s personal desktop computer (the “Personal Computer”).  On the Personal Computer, FBI agents found an encrypted container (the “Encrypted Container”), which held over 10,000 images and videos of child pornography.  The Encrypted Container with the child pornography files was identified by FBI computer scientists beneath three layers of password protection on the Personal Computer.  Each layer, including the Encrypted Container, was unlocked using passwords previously used by Schulte on one of his cellphones.  Moreover, FBI agents identified Internet chat logs in which Schulte and others discussed their receipt and distribution of child pornography.  FBI agents also identified a series of Google searches conducted by Schulte in which he searched the Internet for child pornography.

Schulte, 29, of New York, New York, is charged with one count each of (i) illegal gathering of national defense information, (ii) illegal transmission of lawfully possessed national defense information, (iii) illegal transmission of unlawfully possessed national defense information, (iv) unauthorized access to a computer to obtain classified information, (v) theft of Government property, (vi) unauthorized access of a computer to obtain information from a Department or Agency of the United States, (vii) causing transmission of a harmful computer program, information, code, or command, (viii) making material false statements to representatives of the FBI, (ix) obstruction of justice, (x) receipt of child pornography, (xi) possession of child pornography, (xii) transportation of child pornography, and (xiii) copyright infringement.  A chart containing the charges and maximum penalties is below.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Berman praised the outstanding investigative efforts of the FBI. 

The prosecution of this case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Sidhardha Kamaraju and Matthew Laroche are in charge of the prosecution, with assistance from Trial Attorney Scott McCulloch of the National Security Division’s Counterintelligence and Export Control Section.

June 25, 2018 in AML | Permalink | Comments (0)