International Financial Law Prof Blog

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

Wednesday, August 16, 2017

SEC Charges KPMG with Audit Failures

The Securities and Exchange Commission announced that KPMG has agreed to pay more than $6.2 million to settle charges that it failed to properly audit the financial statements of an oil and gas company, resulting in investors being misinformed about the energy company’s value.  KPMG’s engagement partner in charge of the audit also agreed to settle charges against him.

According to the SEC’s order, KPMG was hired as the outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite grossly overstated values for SECkey oil and gas assets.  KPMG and the engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year.  Among other audit failures, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company’s valuation, and they failed to detect that certain fixed assets were double-counted in the company’s valuation. 

“Auditing firms must fully comprehend the industries of their clients.  KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million were worth a half-billion dollars,” said Walter E. Jospin, Director of the SEC’s Atlanta Regional Office.

The SEC’s order finds that KPMG and Riordan engaged in improper professional conduct and caused Miller Energy’s violation of Section 13(a) of the Securities Exchange Act and Rules 13a-1 and 13a-13.  Without admitting or denying the findings, KPMG agreed to be censured and pay $4,675,680 in disgorgement of all the audit fees received from Miller Energy plus $558,319 in interest and a $1 million penalty.  KPMG also agreed to significant undertakings designed to improve its system of quality control.  Riordan agreed, without admitting or denying the findings, to pay a $25,000 penalty and be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies.  The SEC’s order permits Riordan to apply for reinstatement after two years.

Miller Energy was charged with accounting fraud in 2015 and later settled the charges.

The SEC’s investigation was conducted by William M. Uptegrove and John Nemeth, and the case was supervised by Peter J. Diskin and Aaron W. Lipson of the Atlanta office.

August 16, 2017 in AML | Permalink | Comments (0)

Friday, August 11, 2017

FTC Files Charges Against Independent Sales Organization and Sales Agents

The Federal Trade Commission has charged 12 defendants with laundering millions of dollars in credit card charges through fraudulent merchant 1024px-US-FederalTradeCommission-Seal.svgaccounts. According to the complaint filed by the FTC, the defendants arranged for a deceptive operation known as Money Now Funding (MNF) to obtain and maintain merchant accounts that allowed it to process almost $6 million through the credit card networks.

In September 2013, the FTC charged MNF with running a deceptive business opportunity scheme that promised consumers they would make thousands of dollars helping small businesses get loans. The court in the MNF matter determined that MNF’s promises were false.

Today’s case alleges that the defendants – an Independent Sales Organization (ISO), sales agents, and their principals – provided the MNF scheme access to the credit card networks  by submitting and approving fraudulent applications in the names of more than 40 fictitious MNF companies. According to the FTC’s complaint, the defendants did so despite obvious signs that the companies were likely fictitious and being used to conceal the true identity of the underlying merchant. By processing the fraudulent MNF scheme’s transactions through merchant accounts opened in the names of fictitious companies, the ISO defendants allegedly also evaded the anti-fraud monitoring efforts of the credit card networks.

In the case announced today, the defendants are charged with violating the FTC Act and the FTC’s Telemarketing Sales Rule.

The ISO defendants are Electronic Payment Systems LLC, Electronic Payment Transfer LLC, John Dorsey, Thomas McCann and Michael Peterson. The sales agent defendants are Electronic Payment Solutions of America Inc., Electronic Payment Services Inc., KMA Merchant Services LLC, Dynasty Merchants LLC, Jay Wigdore, Michael Abdelmesseh, also known as Michael Stewart, and Nikolas Mihilli.

The Commission vote authorizing the staff to file the complaint was 2-0. It was filed in the U.S. District Court for the District of Arizona.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

Eighteen elusive marketers who cheated American and Canadian consumers out of more than $7 million are banned from selling business or work-at-home opportunities under court orders obtained by the Federal Trade Commission.

These orders, along with court orders against 14 other people and companies named in the FTC’s lawsuit, resolve charges that the defendants conned consumers into thinking they could make money by referring merchants in their area to a non-existent money-lending service. Many victims affected by this scam were seniors with limited income and savings.

“The defendants tricked people into purchasing worthless ‘business opportunities,’ and manipulated the credit card system to hide their tracks,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We’re pleased the court stopped this deception, which harmed many older people just trying to make a living.”

The defendants, who began operating as “Money Now Funding,” tried to avoid detection by law enforcement by changing product names, office locations, and merchant identities. They falsely claimed consumers would earn up to $3,000 per month by referring small businesses to the defendants to obtain loans. After consumers paid up to $499 to buy the business opportunity, the defendants told them that, to succeed, they had to buy sales leads that cost tens of thousands of dollars but turned out to be worthless.

Today’s announcement describes the court’s summary judgment orders against three defendants (the court found the facts of the case indisputable), settlements with six defendants, and default judgment against 23 defendants who did not respond to charges made against them.

The various judgments and settlements impose a ban on selling business or work-at-home opportunities on Lukeroy K. Rose, Leary Darling, Solana DePaola, Lance Himes, Cordell Bess, Cynthia Miller, Clinton Rackley, and Richard Frost, and 10 corporate defendants: Money Now Funding LLC, Rose Marketing LLC, DePaola Marketing LLC, Affiliate Marketing Group LLC, Affinity Technologies LLC, Global Network Marketing LLC, Precise Payroll Services LLC, Strategic Media Advertising LLC, Legal Doxs LLC, and US Doc Assist LLC. Some defendants are also banned from telemarketing. In addition, the judgments and settlements include provisions that apply specifically to certain defendants, prohibiting them from engaging in the types of misconduct alleged by the FTC.

The judgments and settlements also impose monetary judgments of $7.3 million against 12 defendants, and smaller judgments against others. The judgments against some defendants are suspended due to their inability to pay and, in some cases, pending the transfer of assets frozen by the court or held in receivership. The full judgments will become due immediately if the defendants are found to have misrepresented their financial condition.

The Commission votes authorizing the staff to file the proposed stipulated final orders against DePaola, Himes, Claspell, Beckman, Duckett and Hobbs were 5-0. The orders were entered by the U.S. District Court for the District of Arizona on June 3 and June 24. The court entered summary judgment orders against defendants Rose, Darling, and Rackley on June 3, and against the default defendants between July 15 and 20.

August 11, 2017 in AML | Permalink | Comments (0)

Thursday, August 10, 2017

Deputy Attorney General Rod Rosenstein Delivers Remarks at the International Association for Identification Annual Conference

Thank you, Governor Deal, for that kind introduction. I am grateful to the International Association for Identification for giving me the opportunity to participate in your Annual Conference.

It is an honor to address such a talented group of forensic examiners. I am excited to share with you what the Department of Justice is doing to advance the reliability of forensic science.

One of the keys to using forensic analysis appropriately is understanding the limitations of the evidence. You need to know what it means, and what it does not mean.

I recently handled a criminal appeal. The evidence showed that the defendant’s telephone had connected with particular cell towers. One of the disputed issues was the testimony of a telecommunications company employee. He testified that the cell tower range was about three miles, and digital records established that the phone had connected with a particular tower. The telecommunications provider routinely relied on these records in the normal course of business. It was hard evidence that required no analysis. A witness with no specialized knowledge could introduce it simply as the custodian of the company’s records.

Knowing what factors influence the range of a tower, on the other hand, requires special expertise. The range generally is imprecise, and therefore the exact location of the phone is difficult to determine from those records.

Given these limitations, we argued only that the records provided direct evidence that the defendant’s phone was in the neighborhood, and circumstantial evidence that the defendant himself was there.

Our case did not rely solely on that evidence. But it was relevant, it was true, and it was properly explained.

I have worked as a prosecutor for 27 years. I understand the critical role that forensic analysis can play in our criminal justice system. I know how forensics can be used to exonerate the innocent and convict the guilty.

Supervising the law enforcement components of the Department of Justice is now one of my responsibilities. This job gives me an even deeper appreciation of the Department’s work in advancing forensic science.

At the Department of Justice, we practice forensic science through our crime labs and digital analysis centers. We fund forensic science through grant programs at the Office of Justice Programs and elsewhere. And we are clients of forensic science in tens of thousands of cases we investigate every year. Given the Department’s deep reliance on forensic science to carry out our mission, we strive to set the standard for excellence.

The Attorney General has made it the Department’s top priority to reduce violent crime and improve public safety. The effective and proper use of forensic science advances that goal.

I am inspired by the outstanding work of the forensic examiners I’ve met, by the expertise they bring to the job, and by their dedication to justice.

FBI forensic examiners recently undertook an initiative to reexamine old fingerprint evidence. They used the FBI’s Next Generation Identification System to generate leads, identify missing persons, and solve crimes.

In 1992, Los Angeles experienced one of the deadliest riots in U.S. history. More than 50 people lost their lives. One of the victims was “John Doe No. 80.” His body was found in a store that had been set on fire. He was so badly burned that investigators were left with only a few clues as to his identity: Some teeth and a partial print from his left middle finger.

For nearly 25 years, John Doe No. 80 remained unidentified. But then an FBI latent print examiner had an innovative idea: use the FBI’s new NextGen technology to run the fingerprints of unidentified individuals. It relies on a sophisticated algorithm that increases the accuracy and the likelihood of an identification. Even where the FBI had already run someone’s fingerprints, the FBI Latent Print Unit believed this new technology could produce new leads. They were right.

After 25 years, John Doe No. 80 finally has a name. Thanks to hard work and ingenuity, we know that John Doe No. 80 is Armando Ortiz Hernandez.

The success story does not stop with the identification of one individual. The FBI Latent Print Unit partnered with a program funded by the National Institute of Justice. The National Missing and Unidentified Persons System stores information about thousands of deceased, missing, and unidentified individuals. The staff of the FBI Latent Print Unit worked to run the prints of approximately 1,500 unidentified people.

As a result of that hard work, the FBI identified 195 deceased individuals, including 55 suspected homicide victims. One of them was a Virginia native named Andrea Kuiper. Andrea disappeared 27 years ago. Through the new program, the FBI identified her as a woman who was killed in a car accident in California in 1990. After almost three decades, Andrea’s family finally knows what happened to her. Hundreds of other families were also able to experience closure, because of the FBI’s impressive latent print examiners.

Armando’s story and Andrea’s story are just the beginning. You are developing new ways to use technology to advance forensic science, and benefit the criminal justice system.

Last year, FBI lab personnel worked with database experts at the FBI’s Criminal Justice Information Services to re-examine 42,000 prints from unsolved crimes, including bank robberies, arson, and violent crimes. The prints had been examined previously, but FBI examiners thought that they may be able to generate additional identifications with the improved Next Gen system.

Running that many fingerprints required the FBI to develop a new interface to search large quantities of prints. And it paid off. The FBI generated leads about more than one thousand suspects in unsolved crimes.

Now, the FBI is working to make the bulk searching interface available to all law enforcement agencies nationwide. With this new technology in the hands of our law enforcement partners, many open cases can now be solved. Criminals will be brought to justice. Future crimes will be prevented. People will not become victims.

None of this would be possible without forensic analysis. Without the creativity and hard work of professionals like many of you, there would be thousands more unsolved cases. And thousands more victims waiting for justice.

Dedication to finding the truth is the mission of our criminal justice system. That is why it troubles me when people unfairly question the integrity of fingerprint examiners, and other legitimate forensic experts.

The practice of forensic science relies on human interpretation of scientific tests and examinations. This is not new. Almost every applied science relies on human interpretation. That includes medicine, computer science, and engineering. A doctor who testifies about the cause of a victim’s death bases that judgment on expert analysis. The same is true of forensic psychologists, entomologists, anthropologists, fire investigators, accident reconstruction experts, and a host of other trusted forensic disciplines. They use their scientific knowledge and training to analyze particular facts and data, apply judgment, and come to a reasoned conclusion. Those disciplines have been around for a long time. When subjected to informed cross examination, expert testimony can be tremendously probative and helpful to the jury.

Nevertheless, some critics have sought to limit the forensic evidence and testimony that can be presented in court. These critics suggest that unless a forensic discipline has a “known error rate,” evidence derived from that discipline should not be admitted in court. Under that standard, trusted and reliable forensic evidence would be excluded simply because the discipline is not susceptible to an easy-to-calculate error rate.

The folly of that approach is clear when critics question fingerprint analysis. They admit that it usually works. Their objection is that it requires judgment.

Those attacks are based on a mistaken view of the role of expert witnesses in the justice system. The bedrock principle of evidence law is that relevant evidence is generally admissible. Evidence is relevant if it tends to make a material fact more or less probable than it would be without the evidence. It is not necessary for the evidence to be indisputable.

For example, a shoeprint with irregular edges and unique wear on the outsole found at the scene of a burglary is likely relevant and admissible. Both the prosecution and the defense can use the evidence to help the jury decide whether to believe a defendant was at the scene of the crime.

Physical evidence may be more helpful to a jury if an expert can explain the evidence and place it in context. The jury may benefit from expert testimony in interpreting how probative the shoe print is. Is it the same size as the defendant’s foot? Does it match a shoe found in the defendant’s closet? Answers to those questions may determine whether the physical evidence is incriminating or exculpatory. If the testimony were excluded, the search for truth would be impeded. The jury would have no assistance in determining what to conclude about the discovery of the shoeprint.

Forensic evidence can be extremely important. But we also need to recognize that it can be abused and misused, as is true of every discipline. There have been instances in which people have operated in bad faith, masquerading as reliable experts when they lacked sufficient knowledge or failed to perform appropriate tests. In other instances, people have testified in good faith but used language that may have suggested more confidence than was warranted.

When the judicial system functions as intended, justice is advanced. Our adversarial system is based on the principle that the truth is most likely to emerge when opposing parties have the opportunity to cross-examine each other’s witnesses, and each party is able to call its own witnesses and introduce conflicting evidence.

Our criminal justice system provides important procedural protections for defendants. For example, a federal defendant is entitled to a written summary of the testimony of the government’s forensic expert. That allows the defendant to know in advance what the government’s expert plans to say, and to rebut it with his own expert testimony. The defendant also has the right to examine and challenge the results of any scientific test.

The search for truth benefits from those protections. But most of all, the quest for truth benefits from prepared legal practitioners and trained forensic examiners. When courts exclude useful evidence, it undermines the cause of justice.

The Department of Justice has undertaken unprecedented efforts to examine and strengthen the reliability of forensic science and its use in the courtroom. We are committed to improving forensic science.

With that goal in mind, the National Institute of Justice has provided $125 million over the past 6 years for grants dedicated to research and innovation. It will provide millions more this upcoming fiscal year as we continue to support the forensic community. We hope that this money will lead to the development of accurate, reliable, cost-effective, and rapid methods for the identification, analysis, and interpretation of physical evidence. Federal funding has been key to earlier advances in forensic science, such as the Ames black box study of ballistics.

Many state and local labs rely on funding from the Department through our grant programs. We are dedicated to ensuring our partners are able to access grant funds to conduct high quality, reliable, and probative forensic examinations.

The Department is also committed to ensuring that our own forensic experts testify only in ways that are supported by available research. Justice is not advanced if an expert exaggerates in describing the significance of the evidence.

To achieve that goal, I am announcing today the creation of a new Forensic Science Working Group. The first order of business will be to resume work on the Uniform Language for Testimony and Reports.

The Uniform Language project started in 2016. It was paused earlier this year. After discussions with Department components, I concluded that the project will help in setting the bounds of what examiners should say in court. Prosecutors and forensic examiners at the federal, state, and local level support the project. Accordingly, I have instructed the Working Group to finalize the Uniform Language program so we can implement it in the near future. We will rely on input from outside stakeholders, including defense attorneys, academic scientists, and statisticians, as well as forensic science practitioners.

Our efforts will not end with implementation of the Uniform Language program. I am also directing the Working Group to establish a process to continually monitor the accuracy of courtroom testimony by federal expert witnesses. The FBI already implemented a monitoring program to help ensure that its experts testify accurately about the results of their forensic examinations. A new Department-wide monitoring program will ensure that all examiners give testimony consistent with scientific principles.

The working group will be directed by our new Senior Advisor on Forensics. I am pleased to announce that the Attorney General has appointed Ted Hunt as Senior Advisor. Ted is a teaching faculty member for a number of organizations that train legal practitioners, law enforcement, and laboratory analysts. He was previously a supervisory prosecutor in Kansas City, Missouri. Ted is also a member of several forensic science commissions and organizations.

Some of you know Ted from his service on the National Commission of Forensic Science. Appointing Ted to serve in this new position demonstrates the Attorney General’s commitment to improving forensic science.

Ted will coordinate closely with federal, state, local, and tribal forensic science practitioners and identify ways to conduct ongoing outreach to those stakeholders.

We are taking other steps to improve forensic science. In April, we announced a “Needs Assessment of Forensic Laboratories.” We plan to examine workload, backlog, personnel and equipment needs of public crime laboratories, and the education and training needs of forensic science practitioners.

As part of the needs assessment, we will first collect and review existing data sources. We already started reviewing materials to assess what data and information exist, and to identify what else we need to collect. The next phase of implementation is outreach to forensic science practitioners. We welcome input from the forensic science practitioner community about where additional resources are needed.

We plan to establish a needs assessment steering committee of crime lab directors. We expect to convene the steering committee this fall and conduct listening sessions with the committee and other forensic science stakeholders. The listening sessions will explore forensic needs and ideas to increase efficiency.

The Department also will conduct an internal needs assessment. The needs assessment is an opportunity for us to develop comprehensive strategies about how best to improve the quality, reliability, and efficiency of forensic science processes.

I encourage you to participate in this process of data collection to advance our shared mission of using forensic science to improve public safety.

In April, the Department published an Issue for Comment in the Federal Register seeking broad stakeholder input about how the Department can best support the advancement of forensic science. That Notice closed on June 9. We received more than 250 comments, including one from International Association for Identification. We will use those comments to help develop a path forward.

Thanks to the diligent work of federal, state, and local leaders, there has been meaningful progress in advancing forensic science and employing it in the legal system.

We must use forensic analysis carefully. But we must continue to use it. We should not exclude reliable forensic analysis—or any reliable expert testimony—simply because it is based on human judgment.

Has anyone seen the movie My Cousin Vinny? In the film, a young woman takes the witness stand and surprises everyone by demonstrating her expertise about automobiles. It does not necessarily take a Ph.D. scientist to be an expert witness and to provide information that will be helpful to a jury. And it certainly does not require proof of a known error rate. Many factors may influence the weight of the evidence – how much the jury should rely on it – but we could rely on juries to make those decisions as long as the witness is competent and responsible, and the judge gives appropriate instructions about how to evaluate the testimony.

We face many law enforcement challenges – new challenges spawned by the internet and modern technology, old challenges like combatting violent gangs, and evolving challenges such as the unprecedented surge in drug overdose deaths from synthetic chemicals. The President has tasked the Department of Justice to address those challenges. The Attorney General strongly believes that forensic analysis can help us find solutions.

Our uniform language initiative, and continuous monitoring program, will provide assurance that forensic analysis is used correctly. That will advance the search for truth in federal courtrooms.

In closing, I want to thank you all for your commitment to responsible forensic analysis. I look forward to working collaboratively with you to ensure that reliable forensic evidence is available for use in court by all parties.

The truth is out there. Working together, we will help judges and juries find it. And make America safer in the process.

August 10, 2017 in AML | Permalink | Comments (0)

Monday, August 7, 2017

Former Government Contractor Sentenced to 60 Months for His Participation in Bribery Conspiracy

Joseph P. Allen, a former owner of a government contracting company that serviced the Military Sealift Command (MSC) was sentenced to 60 months in prison, and to pay a $15,000 fine, for his participation in a bribery conspiracy from approximately 1999 to 2014, in which he provided a contracting official at MSC with almost $3 million in bribes.  U.S. District Judge Arenda L. Wright Allen today sentenced Joseph P. Allen, 56, of Panama City, Florida, following his guilty plea on April 19, to one count of conspiracy to commit bribery.

According to the statement of facts included in Allen’s guilty plea, Allen conspired with a government contracting official, Scott B. Miserendino, Sr., 58, formerly of Stafford, Virginia, to use Miserendino’s position at MSC to enrich themselves through bribery.  Specifically, beginning in about 1999, Miserendino used his position and influence at MSC to facilitate and expand Allen’s company’s commission agreement with a third-party telecommunications company that sold maritime satellite services to MSC.  Unknown to MSC or the telecommunications company, throughout the scheme, Allen paid half of the commissions he received from that telecommunications company to Miserendino as bribes.

For his role in the scheme, Miserendino was charged in a five-count indictment on May 4, with one count of conspiracy to commit bribery and honest services mail fraud, one count of bribery, and three counts of honest services mail fraud.  His trial is currently scheduled for October 31, before U.S. District Court Judge Rebecca Beach Smith.  The charges and allegations against Miserendino contained in the indictment are merely accusations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.   

August 7, 2017 in AML | Permalink | Comments (0)

Sunday, August 6, 2017

Halliburton Paying $29.2 Million to Settle FCPA Violations

The Securities and Exchange Commission charged Halliburton Company with violating the books and records and internal accounting controls SECprovisions of the Foreign Corrupt Practices Act (FCPA) while selecting and making payments to a local company in Angola in the course of winning lucrative oilfield services contracts.

Halliburton, which profited by approximately $14 million from the deals, has agreed to pay more than $29.2 million to settle the SEC’s case.  The company also agreed to obtain an independent compliance consultant to oversee its anti-corruption policies and procedures in Africa.  Halliburton’s former vice president Jeannot Lorenz has agreed to pay a $75,000 penalty for causing the company’s violations, circumventing internal accounting controls, and falsifying books and records.

According to the SEC’s order, officials at Angola’s state oil company Sonangol advised Halliburton management in 2008 that it was required to partner with more local Angolan-owned businesses to satisfy local content regulations for foreign firms operating in Angola.  Halliburton tasked Lorenz to spearhead these efforts.  When a new round of oil company projects came up for bid, Lorenz began a lengthy effort to retain a local Angolan company owned by a former Halliburton employee who was a friend and neighbor of the Sonangol official who would ultimately approve the award of the contracts.  It took three attempts but Halliburton ultimately outsourced more than $13 million worth of business to the local Angolan company.

The SEC’s order finds that Halliburton entered into contracts with the local Angolan company that were intended to meet local content requirements rather than the stated scope of work.  Lorenz violated Halliburton’s internal accounting controls by starting with the local Angolan company and then backing into a list of contract services rather than first determining the services and then selecting an appropriate supplier.  Lorenz also failed to conduct competitive bidding or substantiate the need for a single source of supply, and he avoided an internal accounting control that required contracts of more than $10,000 in countries like Angola with high corruption risks to be reviewed and approved by a special committee within Halliburton.  The company eventually paid $3.705 million to the local Angolan firm, and Sonangol approved the award of seven lucrative subcontracts to Halliburton.

“Halliburton committed to using a particular supplier that posed significant FCPA risks and a company vice president circumvented important internal accounting controls to get the deal done quickly,” said Antonia Chion, Associate Director in the SEC’s Enforcement Division.  “Companies and their executives must comply with these internal accounting controls that help ensure the integrity of corporate transactions.”

Without admitting or denying the findings, Halliburton and Lorenz consented to the order requiring them to cease and desist from committing or causing any violations or any future violations of the books and records and internal accounting controls provisions of the FCPA.  Halliburton agreed to pay $14 million in disgorgement plus $1.2 million in prejudgment interest and a $14 million penalty.  Halliburton must retain an independent compliance consultant for 18 months to review and evaluate its anti-corruption policies and procedures, particularly in regard to local content obligations for business operations in Africa. 

August 6, 2017 in AML | Permalink | Comments (0)

Saturday, August 5, 2017

Honda Finance Settles OFAC Violations of the Cuban Assets Control Regulations

American Honda Finance Corporation Settles Potential Liability for Apparent Violations of the Cuban Assets Control Regulations: American Honda OFAC Finance Corporation (AHFC), a motor vehicle finance company headquartered in California that specializes in various forms of financing in the United States for purchasers, lessees, and authorized independent dealers of Honda and Acura products, has agreed to remit $87,255 to settle its potential civil liability for 13 apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. part 515 (CACR) (the “Alleged Violations”).

Between February 2011 and March 2014, Honda Canada Finance, Inc. (HCFI) — a majorityowned subsidiary of AHFC located in Canada — approved and financed 13 lease agreements between an unaffiliated Honda dealership in Ottawa, Canada and the Embassy of Cuba in connection with the Cuban Embassy’s leasing of several Honda vehicles. The Cuban entity had the word “Cuba” in its name and provided documentation to HCFI demonstrating it was a Government of Cuba entity. Although AHFC and HCFI had policies and procedures in place to review transactions against OFAC’s List of Specially Designated Nationals and Blocked Persons for compliance with U.S. economic sanctions laws, they did not include the names of countries subject to OFAC-administered comprehensive sanctions in their screening system. AHFC and HCFI were not involved in the business of exporting vehicles internationally.

Overall, between February 28, 2011 and March 3, 2014, HCFI approved the financing of 13 lease agreements with the Cuban entity totaling $276,999. Three of the lease agreements, totaling $58,281, were initiated and/or approved by HCFI on or about March 3, 2014 — approximately two months after AHFC submitted its initial voluntary self-disclosure to OFAC regarding similar apparent violations. The total base penalty amount for the 13 Alleged Violations was $138,500. OFAC has determined that AHFC voluntarily self-disclosed the Alleged Violations to OFAC, and that the Alleged Violations constitute a non-egregious case.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors: AHFC had reason to know of the conduct that led to the Alleged Violations, particularly the transactions that occurred after AHFC had filed its initial voluntary self-disclosure with OFAC; HCFI personnel appear to have had actual knowledge of the Cuban Embassy’s involvement in the lease agreements in question; the Alleged Violations resulted in harm to U.S. sanctions program objectives at the time they occurred; and AHFC is a large and commercially sophisticated financial institution. OFAC considered the following to be mitigating factors: AHFC has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Alleged Violations; AHFC took remedial action in response to the Alleged Violations, including by implementing a new policy governing its OFAC policies and proprietary systems; AHFC cooperated with OFAC’s investigation by voluntarily self-disclosing the Alleged Violations, providing detailed and well-organized information in a timely and efficient manner, and by signing and extending a statute of limitations tolling agreement; and while the transactions described above constitute apparent violations of the CACR, OFAC issued a specific license to AHFC in June 2015 regarding the subject leases.

August 5, 2017 in AML | Permalink | Comments (0)

Thursday, August 3, 2017

UK's FCA seeks views regarding the Office for Professional Body Anti-Money Laundering Supervision

The Financial Conduct Authority (FCA) has launched a consultation regarding the government-proposed Office for Professional Body AML Supervision (OPBAS).

The consultation sets out draft expectations about how professional body supervisors can meet their obligations in relation to AML supervision.

In March 2017, the government announced its intention to create OPBAS as a new function within the FCA. The government has proposed that OPBAS oversees the adequacy of the anti-money laundering supervisory arrangements of 22 professional bodies. On 20 July 2017, the government published draft regulations that will give powers and responsibilities to OPBAS.

Megan Butler, Executive Director of Supervision – Investment, Wholesale and Specialists Division at the FCA, said:

“The government asked the FCA to be responsible for reviewing the quality of AML supervision carried out by professional body supervisors. The aim of OPBAS will be to ensure consistency and quality and to drive up standards across all professional body AML supervisors in the UK.”

OPBAS’s approach will be to:

  • Develop a sound understanding of the workings of the different bodies and sectors they supervise
  • Adopt a risk-based approach that concentrates its supervisory resources where the risk is greatest
  • Liaise with other bodies with oversight roles for the professions to share good practice and avoid supervisory conflicts

The FCA expects OPBAS to be up and running by the beginning of 2018 and for it to operate within the FCA’s existing governance arrangements. It will charge professional body supervisors a fee to recover its running costs. The FCA will consult on an approach to levying fees as part of the FCA’s annual consultation on fees in due course.

Notes to editors

  1. The 22 professional bodies are: 

    Association of Accounting Technicians
    Association of Chartered Certified Accountants
    Association of International Accountants
    Association of Taxation Technicians
    Chartered Institute of Legal Executives
    Chartered Institute of Management Accountants
    Chartered Institute of Taxation
    Council for Licensed Conveyancers
    Faculty of Advocates
    Faculty Office of the Archbishop of Canterbury
    General Council of the Bar / Bar Standards Board
    General Council of the Bar of Northern Ireland
    Insolvency Practitioners Association
    Institute of Certified Bookkeepers
    Institute of Chartered Accountants in England and Wales    
    Institute of Chartered Accountants in Ireland
    Institute of Chartered Accountants of Scotland
    Institute of Financial Accountants
    International Association of Bookkeepers
    Law Society / Solicitors Regulation Authority
    Law Society of Northern Ireland
    Law Society of Scotland

  2. The FCA’s consultation on a sourcebook for professional body supervisors on anti-money laundering supervision.

  3. The government’s OPBAS draft regulations and consultation(link is external).

  4. The government’s original announcement that it will create OPBAS(link is external).

August 3, 2017 in AML | Permalink | Comments (0)

Wednesday, August 2, 2017

AIG Settles Potential Liability for Apparent Violations of Multiple Sanctions Programs:

American International Group, Inc. (AIG) of New York, NY, an international insurance and financial services organization incorporated in Delaware and headquartered in New York, has agreed to remit $148,698 to settle its potential civil liability for 555 apparent violations of the following OFAC sanctions programs: the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR); the Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR); and the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR), (collectively, the “Apparent Violations”).

OFAC has determined that AIG did voluntarily self-disclose the Apparent Violations, and that the Apparent Violations constitute a non-egregious case. The total base penalty amount for the apparent violations was $198,266.

This enforcement action highlights the important role that properly executed exclusionary clauses and robust compliance controls play in the global OFAC insurance industry’s efforts to comply with U.S. economic sanctions programs. As outlined in OFAC’s Frequently Asked Questions regarding Compliance for the Insurance Industry, the best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions laws.

From on or about November 20, 2007, to on or about September 3, 2012, AIG engaged in a total of 555 transactions totaling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba, and/or that involved a blocked person. While most of the Apparent Violations occurred under global insurance policies, dozens of apparent violations occurred under single shipment policies. OFAC identified 455 apparent violations totaling $274,463.64 in which AIG extended insurance coverage to parties that were engaging in a voyage, shipment, or transshipment to, from, or through Iran, and/or accepted premium payments or paid claims arising from that insurance coverage, in apparent violation of § 560.204 of ITSR. In addition, OFAC identified 38 apparent violations of § 538.205 of the SSR, all of which pertained to global insurance policies that provided insurance coverage for shipments going to or from Sudan, with premiums received totaling $13,321.44. Moreover, OFAC identified 33 apparent violations of § 544.201 of the WMDPSR, all of which involved shipments aboard blocked Islamic Republic of Iran Shipping Lines vessels, with premiums received totaling $105,065.94. Finally, OFAC identified 29 apparent violations of § 515.201 of the CACR, all of which pertained to AIG’s provision of insurance coverage in connection with shipments to or from Cuba, or its processing of premiums or claims arising from this coverage or that involved a Cuban entity, with premiums received totaling $3,679.

AIG’s OFAC compliance program in place at the time of the Apparent Violations included recommendations for when to use exclusion clauses in the policies it issued regarding coverage or claims that implicated U.S. economic sanctions. While a majority of the policies were issued with exclusionary clauses, most were too narrow in their scope and application to be effective. In addition, some of the policies were issued without such clauses. Separately, some insureds, mindful of existing exclusionary clauses in their open cargo or worldwide master policies, sought single shipment policies that had no exclusionary clauses.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A. The following were considered aggravating factors: AIG engaged in a pattern or practice that spanned multiple years in which it issued and maintained insurance policies and processed claims and premium payments in apparent violation of multiple U.S. sanctions programs; AIG issued policies and insurance certificates, and/or processed claims and other insurance-related transactions, that conferred economic benefit to sanctioned countries or persons and undermined the policy objectives of several U.S. economic sanctions programs; and AIG is a large and commercially sophisticated financial institution.

The following were considered mitigating factors: AIG has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; AIG had an OFAC compliance program in place at the time of the Apparent Violations that included, in most instances, the use of sanctions exclusion clauses to try to prevent the company from issuing policies or processing claims that implicated U.S. economic sanctions; AIG took remedial action in response to the apparent violations; and AIG cooperated with OFAC’s investigation, including by voluntarily self-disclosing the Apparent Violations, submitting detailed and well-organized information to OFAC, and signing tolling agreements that tolled the statute of limitations.



August 2, 2017 in AML | Permalink | Comments (0)

Tuesday, August 1, 2017

ExxonMobil Corporation Assessed a Penalty for Violating the Ukraine-Related Sanctions Regulations

ExxonMobil Corp., of Irving, Texas, including its U.S. subsidiaries ExxonMobil Development Company and ExxonMobil Oil Corp. (collectively, OFAC"ExxonMobil"), has been assessed a civil monetary penalty of $2,000,000 for violations of the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589 (Ukraine-Related Sanctions Regulations). Between on or about May 14, 2014 and on or about May 23, 2014, ExxonMobil violated§ 589.201 of the Ukraine-related Sanctions Regulations when the presidents of its U.S. subsidiaries dealt in services of an individual whose property and interests in property were blocked, namely, by signing eight legal documents related to oil and gas projects in Russia with Igor Sechin, the President of Rosneft OAO, 1 and an individual identified on OF AC's List of Specially Designated Nationals and Blocked Persons (the "SDN List") (referred to hereinafter as an "SDN").

On March 16, 2014, the President issued Executive Order 13661, "Blocking Property of Additional Persons Contributing to the Situation in Ukraine," 79 Fed. Reg. 15,535 (Mar. 19, 2014) ("E.O. 13661"). E.O. 13661, among other things, granted the Secretary of the Treasury the authority to designate officials of the Russian Government, and blocked any property and interests in property, and prohibited any dealing in any property and interests in property, of a person so designated. Section 4(b) ofE.O. 13661 expressly states that U.S. persons are prohibited from the receipt of any contribution or provision of funds, goods, or services from the designated person. In response to multiple media inquiries from March to April 2014, the White House issued press guidance or held press calls in which Senior Administration officials stated that the focus of sanctions against high-level Russian cronies at the time was to identify individuals and target their assets instead of the companies they manage and that U.S. persons are prohibited from doing business with persons who had been designated under E.O. 13661.

On April 28, 2014, OFAC designated Igor Sechin pursuant to E.O. 13661 and added him to its SDN List. The Department of the Treasury stated in a press release announcing the action that "[a]s a result of today's action ... transactions by U.S. persons or within the United States involving the individuals and entities designated today are generally prohibited."

On May 8, 2014, before ExxonMobil signed the legal documents, but after the above-referenced White House statements were made, OF AC issued the Ukraine-Related Sanctions Regulations that included definitions of "property" and "property interest" that, along with the prohibitions in E.O. 13661 and the public statements made by the White House and the Department of the Treasury, made clear U.S. persons may not deal with any persons designated pursuant to E.O. 13361, including Igor Sechin or receive, deal in, or benefit from any service a designated person might provide.

Despite these prohibitions and ExxonMobil's global market and sophistication, ExxonMobil moved forward with signing the legal documents with designated person Igor Sechin between on or about May 14, 2014 and on or about May 23, 2014.

Warning Signs That the Conduct at Issue Constituted a Violation of OFAC Regulations

ExxonMobil claims that it interpreted press statements as establishing a distinction between Sechin's "professional" and "personal" capacity, in part citing to a news article published in April 2014 that quoted a Department of the Treasury representative as saying that a U.S. person would not be prohibited from participating in a meeting of Rosneft' s board of directors. However, that brief statement did not address the conduct in this case.

Furthermore, the plain language of the Ukraine-Related Sanctions Regulations (which were issued after the Executive branch statements) and E.O. 13661 do not contain a "personal" versus "professional" distinction, and OF AC has neither interpreted its Regulations in that manner nor endorsed such a distinction. The press release statements provided context for the policy rationale surrounding the targeted approach during the early days of the Ukraine crisis, which was to isolate designated individuals who were targeted as a result of the crisis in Ukraine, rather than imposing blocking sanctions on the large companies that they managed. No materials issued by the White House or the Department of the Treasury asserted an exception or carve-out for the professional conduct of designated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals.

Separately, there was a Frequently Asked Question (FAQ) publicly available on the OF AC website at the time of the violations that specifically spoke to the conduct at issue in this case, though framed in the context of the Burma sanctions program. FAQ #285, which OFAC issued in 2013 and was publicly available on OFAC's website at the time ofExxonMobil's violations, stated that U.S. parties should "be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN." In rebuttal to this guidance, ExxonMobil has pointed out that OFAC's regulations state that different interpretations may exist among and between the sanctions programs that it administers, but FAQ #285 clearly signaled that OF AC had, in a sanctions program also involving SDNs, viewed the signing of a contract with an SDN as prohibited, even ifthe entity on whose behalf the SDN signed was not sanctioned. OFAC acted consistently with that approach in this case.

The issuance ofE.O. 13661 and the publication of the Ukraine-Related Sanctions Regulations prior to the violations at issue here; press statements by the White House and the Department of the Treasury regarding prohibited transactions with persons designated under E.O. 13661; and previous OFAC precedent published in 2013 and available on OFAC's website at the time of the violations all clearly put ExxonMobil on notice that OF AC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.

OFAC Determinations and Analysis

OFAC determined that ExxonMobil did not voluntarily self-disclose the violations to OF AC and that the violations constitute an egregious case. Both the base civil monetary penalty and the statutory maximum civil monetary penalty amounts for the violations were $2,000,000. OF AC thoroughly considered the arguments ExxonMobil set forth in its submissions to OF AC, and the penalty amount reflects OFAC's consideration of the following facts and circumstances, pursuant to the General Factors under OF AC' s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.

OFAC considered the following to be aggravating factors: (1) ExxonMobil demonstrated reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN; (2) ExxonMobil's senior-most executives knew of Sechin' s status as an SDN when they dealt in the blocked services of Sechin; (3) ExxonMobil caused significant harm to the Ukraine-related sanctions program objectives by engaging the services of an SDN designated on the basis that he is an official of the Government of the Russian Federation contributing to the crisis in Ukraine; and (4) ExxonMobil is a sophisticated and experienced oil and gas company that has global operations and routinely deals in goods, services, and technology subject to U.S economic sanctions and U.S. export controls.

OFAC considered the following to be a mitigating factor: ExxonMobil has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the date of the first transaction giving rise to the violations.

August 1, 2017 in AML | Permalink | Comments (0)

Monday, July 31, 2017

Treasury’s Acts Against a Foreign-Located Virtual Currency Money Services Business

The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California, assessed a $110,003,314 civil money penalty today against BTC-e a/k/a Canton Business Corporation (BTC-e) for willfully violating U.S. anti-money laundering (AML) laws.  Russian national Alexander Vinnik, one of the operators of BTC-e, was arrested in Greece this week, and FinCEN assessed a $12 million penalty against him for his role in the violations.

Since 2011, BTC-e has served approximately 700,000 customers worldwide and is associated with bitcoin wallet addresses that have received over 9.4 million bitcoin.  Customers located within the United States used BTC-e to conduct at least 21,000 bitcoin transactions worth over $296,000,000 and tens of thousands of transactions in other convertible virtual currencies. The transactions included funds sent from customers located within the United States to recipients who were also located within the United States. For example, from November 14, 2013 through July 21, 2015, BTC-e processed over 1,000 transactions for the unregistered U.S.-based virtual currency exchange Coin.MX. Coin.MX’s operator, Anthony R. Murgio, pled guilty to charges that included conspiracy to operate an unlicensed money transmitting business. Coin.MX processed over $10 million in bitcoin transactions derived from illegal activity throughout its operations, including a substantial number that involved funds from ransomware extortion payments. 

Criminals, and cybercriminals in particular, used BTC-e to process the proceeds of their illicit activity. This was particularly the case for some of the largest ransomware purveyors,  which used BTC-e as a means of storing, distributing, and laundering their criminal proceeds. FinCEN has identified at least $800,000 worth of transactions facilitated by BTC-e tied to the ransomware known as “Cryptolocker,” which affected computers in 2013 and 2014. Further, over 40 percent of all bitcoin transactions, over 6,500 bitcoin, associated with the ransomware scheme known as “Locky” were sent through BTC-e. Despite readily available, public information identifying the bitcoin addresses associated with Locky, BTC-e failed to conduct any due diligence on the recipients of the funds and failed to file SARs.

BTC-e also failed to file SARs on transactions that involved the money laundering website Liberty Reserve. Liberty Reserve was a Costa Rica-based administrator of virtual currency  that laundered approximately $6 billion in criminal proceeds. Liberty Reserve’s website was seized by the U.S. government and shut down when its owner and six other individuals were charged with conspiracy to commit money laundering and operating an unlicensed money transmitting business.

Download Assessment for BTCeVinnik FINAL SignDate 07.26.17

BTC-e is an internet-based, foreign-located money transmitter that exchanges fiat currency as well as the convertible virtual currencies Bitcoin, Litecoin, Namecoin, Novacoin, FINCEN 2Peercoin, Ethereum, and Dash.  It is one of the largest virtual currency exchanges by volume in the world.  BTC-e facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. anti-money laundering laws,” said Jamal El-Hindi, Acting Director for FinCEN.  “This action should be a strong deterrent to anyone who thinks that they can facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtual currency.  Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards.” 

FinCEN acted in coordination with law enforcement’s seizure of BTC-e and Vinnik’s arrest.  The Internal Revenue Service-Criminal Investigation Division, Federal Bureau of Investigation, United States Secret Service, and Homeland Security Investigations conducted the criminal investigation.

Among other violations, BTC-e failed to obtain required information from customers beyond a username, a password, and an e-mail address.  Instead of acting to prevent money laundering, BTC-e and its operators embraced the pervasive criminal activity conducted at the exchange.  Users openly and explicitly discussed criminal activity on BTC-e’s user chat.  BTC-e’s customer service representatives offered advice on how to process and access money obtained from illegal drug sales on dark net markets like Silk Road, Hansa Market, and AlphaBay. 

BTC-e also processed transactions involving funds stolen between 2011 and 2014 from one of the world’s largest bitcoin exchanges, Mt. Gox.  BTC-e processed over 300,000 bitcoin in transactions traceable to the theft.  FinCEN has also identified at least $3 million of facilitated transactions tied to ransomware attacks such as “Cryptolocker” and “Locky.”  Further, BTC-e shared customers and conducted transactions with the now-defunct money laundering website Liberty Reserve.  FinCEN previously issued a finding under Section 311 of the USA PATRIOT Act that identified Liberty Reserve as a financial institution of primary money laundering concern.  

BTC-e has conducted over $296 million in transactions of bitcoin alone and tens of thousands of transactions in other convertible virtual currencies.  The transactions included funds sent from customers located within the United States to recipients who were also located within the United States.  BTC-e also concealed its geographic location and its ownership.  Regardless of its ownership or location, the company was required to comply with U.S. AML laws and regulations as a foreign-located MSB including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements.  This is the second supervisory enforcement action FinCEN has taken against a business that operates as an exchanger of virtual currency, and the first it has taken against a foreign-located MSB doing business in the United States.

July 31, 2017 in AML | Permalink | Comments (0)

Singapore Based CSE Global Limited and CSE TransTel Pte. Ltd. Fined $12 Million by OFAC For Iranian Transactions and Sanctions Regulations.

CSE TransTel Pte. Ltd. (“TransTel”), a wholly owned subsidiary of the international technology group CSE Global Limited (“CSE Global”), both of OFACwhich are located in Singapore, has agreed to pay $12,027,066 to settle its potential civil liability for 104 apparent violations of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). For more information regarding the conduct that led to the apparent violations, please see the Settlement Agreement between OFAC and CSE Global and TransTel here.

Specifically, from on or about June 4, 2012 to on or about March 27, 2013, TransTel appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR by causing at least six separate financial institutions to engage in the unauthorized exportation or re-exportation of financial services from the United States to Iran, a prohibition of § 560.204 of the ITSR.  OFAC determined that TransTel did not voluntarily self-disclose the apparent violations to
OFAC, and that the apparent violations constitute an egregious case. Both the statutory maximum and base penalty civil monetary penalty amounts for the apparent violations were $38,181,161.

Between August 25, 2010 and November 5, 2011, TransTel entered into contracts with, and received purchase orders from, multiple Iranian companies to deliver and install telecommunications equipment for several energy projects in Iran and/or Iranian territorial waters. TransTel hired and engaged a number of different third-party vendors – including several Iranian companies – to provide goods and services on its behalf in connection with the above-referenced contracts and purchase orders. 

Prior and subsequent to entering into the above-referenced contracts, CSE Global and TransTel separately maintained individual U.S. Dollar (USD) and Singaporean Dollar accounts with a non-U.S. financial institution located in Singapore (the “Bank”). In a letter entitled “Sanctions – Letter of Undertaking,” dated April 20, 2012 and signed by TransTel’s then-Managing Director and CSE Global’s then-Group Chief Executive Officer (referred to hereafter as the “Letter of Undertaking”), TransTel made the following statement to the Bank: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.” TransTel continued to receive banking services from the Bank after execution and delivery of its Letter of Undertaking. 

Despite the written attestation that TransTel and CSE Global provided to the Bank, TransTel appears to have begun originating USD funds transfers from its USD-denominated account with the Bank that were related to its Iranian business beginning no later than June 2012 – less than two months after TransTel’s and CSE Global’s management signed and submitted the Letter of Undertaking.

From on or about June 4, 2012 to on or about March 27, 2013, TransTel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it originated 104 USD wire transfers totaling more than $11,111,000 involving Iran. TransTel initiated the wire transfers from its account with the Bank. The transactions were destined for multiple third-party vendors (including several Iranian parties) that supplied goods or services to or for the above-referenced energy projects in Iran, and all of the funds transfers were processed through the United States. None of the transactions contained references to Iran, the Iranian projects, or any Iranian parties.

OFAC considered the following to be aggravating factors: (1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months; (2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations; (3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and (4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

OFAC considered the following to be mitigating factors: (1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations; (2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and (3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion

July 31, 2017 in AML | Permalink | Comments (0)

Wednesday, July 26, 2017

Treasury Sanctions 13 Current and Former Senior Officials of Venezuela

Specially Designated Nationals List Update

The following individuals have been added to OFAC's SDN List
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 13 current or former senior officials of the Venezuelan Government pursuant to Executive OFAC Order (E.O.) 13692, which authorizes sanctions against officials of the Government of Venezuela and others undermining democracy there.  The sanctions come ahead of the planned July 30, 2017 election orchestrated by Venezuelan President Nicolas Maduro of a National Constituent Assembly (Asamblea Nacional Constituyente, or ANC) that will have the power to rewrite the Venezuelan constitution and may choose to dissolve Venezuelan state institutions.  A flawed ANC election process all but guarantees that a majority of the Assembly’s members will represent the interests of President Maduro’s government.  In a “popular consultation” organized by the opposition and held on July 16, 2017, Venezuelans overwhelmingly opposed the ANC process. 
“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,” said Treasury Secretary Steven T. Mnuchin.  “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.”
Today’s designations focus on current and former officials of Venezuelan Government agencies associated with the elections or the undermining of democracy, as well as the government’s rampant violence against opposition protesters and its corruption.  As a result of today’s actions, all assets of these individuals subject to U.S. jurisdiction are frozen, and U.S. persons are prohibited from dealing with them.
OFAC today designated four senior officials of Venezuelan Government agencies that are actively pursuing the Constituent Assembly elections or otherwise undermining democracy or human rights in Venezuela:
·         Tibisay Lucena Ramirez is the President of the Maduro-controlled National Electoral Council (Consejo Nacional Electoral, or CNE) and President of Venezuela’s National Board of Elections.
·         Elias Jose Jaua Milano is the head of the Presidential Commission for the National Constituent Assembly responsible for forming and operating the ANC process.  He is also the Minister of Education, the Sectoral Vice President of Social Development and the Revolution of Missions, and the former Executive Vice President of Venezuela.
·         Tarek William Saab Halabi is Venezuela’s Ombudsman and President of Venezuela’s Republican Moral Council.  As the “People’s Defender,” it is ostensibly his role to stand up for human rights in Venezuela.
·         Maria Iris Varela Rangel is a Member of Venezuela’s Presidential Commission for the National Constituent Assembly and the former Minister of the Penitentiary Service.
The Government’s undermining of democracy in Venezuela has driven the people of Venezuela into the streets in protest, and the Maduro government has responded with repression and violence.  The Venezuelan opposition estimates that up to 15,000 civilians have been wounded in recent protests, with over 3,000 people arrested and 431 political prisoners in detention without fair and transparent judicial process.  Arbitrary arrests are rampant, as is physical abuse against detainees; alleged instances of torture and other violations and abuses of human rights are perpetrated by the Bolivarian National Guard, the Bolivarian National Police, and other security services. 
OFAC today has sanctioned five current and former senior officials of those Venezuelan Government agencies responsible for the violence and repression:
·         Nestor Luis Reverol Torres is Venezuela’s Minister of Interior, Justice, and Peace. He is also the former Commander General of the Bolivarian National Guard and the former Director of Venezuela’s Anti-Narcotics Agency.  In 2016, the U.S. Department of Justice unsealed an indictment against Reverol for his participation in an international cocaine distribution conspiracy.
·         Carlos Alfredo Perez Ampueda is the National Director of Venezuela’s Bolivarian National Police and former Commander of the Carabobo Zone for Venezuela’s Bolivarian National Guard.
·         Sergio Jose Rivero Marcano is the Commander General of Venezuela’s Bolivarian National Guard and the former Commander of the East Integral Strategic Defense Region of Venezuela’s National Armed Forces.
·         Jesus Rafael Suarez Chourio is the General Commander of Venezuela’s Bolivarian Army and the former Commander of Venezuela’s Central Integral Strategic Defense Region of Venezuela’s National Armed Forces.  In addition, Suarez was formerly the leader of the Venezuelan President’s Protection and Security Unit.
·         Franklin Horacio Garcia Duque is the former National Director of the Bolivarian National Police and the former Commander of the West Integral Strategic Defense Region of Venezuela’s National Armed Forces.
Finally, Venezuelan Government corruption is associated heavily – but by no means exclusively – with two government entities.  The first of these is Venezuela’s state-owned oil company, Petroleos de Venezuela, S.A. (PDVSA), from which approximately $11 billion went missing between 2004 and 2014, according to news accounts of a report by a Venezuelan congressional commission.  Another significant engine of corruption in Venezuela involves the black market surrounding the official exchange rate regime set by the National Center for Foreign Commerce (Centro Nacional de Comercio Exterior, or CENCOEX). 
OFAC today designated four current or former officials of these entities:
·         Rocco Albisinni Serrano is the President of CENCOEX.
·         Alejandro Antonio Fleming Cabrera is the Vice Minister for Europe of Venezuela’s Ministry of Foreign Affairs and the former President of CENCOEX.
·         Simon Alejandro Zerpa Delgado is the Vice President of Finance for PDVSA and the President of Venezuela’s Economic and Social Development Bank (BANDES), and the President of Venezuela’s National Development Fund (FONDEN).  He is the former Vice Minister of Investment for Development of Venezuela’s Ministry of Economy and Finance and the current or former Presidential Commissioner to the Joint Chinese Venezuelan Fund.
·         Carlos Erik Malpica Flores is the former National Treasurer and former Vice President of Finance for PDVSA. 
The following individuals have been added to OFAC's SDN List:
ALBISINNI SERRANO, Rocco, Miranda, Guarico, Venezuela; DOB 06 Mar 1982; Gender Male; Cedula No. 15481927 (Venezuela); President of Venezuela's National Center for Foreign Commerce (CENCOEX); Former Vice Minister of the State and Socialist Economy of Venezuela's Ministry of Economy and Finance; Current or Former Principal Director of Venezuela's National Development Fund (FONDEN) (individual) [VENEZUELA].
FLEMING CABRERA, Alejandro Antonio, Caracas, Capital District, Venezuela; DOB 03 Oct 1973; Gender Male; Cedula No. 11953485 (Venezuela); Vice Minister for Europe of Venezuela's Ministry of Foreign Affairs; Former Vice Minister for North America of Venezuela's Ministry of Foreign Affairs; Former President of Venezuela's National Center for Foreign Commerce (CENCOEX); Former President for Suministros Venezolanos Industriales, C.A. (SUVINCA) of Venezuela's Ministry of Commerce; Former Ambassador of Venezuela to Luxembourg and Chief Ambassador of the Venezuelan Mission to the European Union (individual) [VENEZUELA].
GARCIA DUQUE, Franklin Horacio (Latin: GARCÍA DUQUE, Franklin Horacio), Miranda, Venezuela; DOB 19 Aug 1963; citizen Venezuela; Gender Male; Cedula No. 9125430 (Venezuela); Former National Director of Venezuela's Bolivarian National Police; Former Commander of the West Integral Strategic Defense Region of Venezuela's National Armed Forces (individual) [VENEZUELA].
JAUA MILANO, Elias Jose (Latin: JAUA MILANO, Elías José), Miranda, Venezuela; DOB 16 Dec 1969; POB Caucagua, Miranda, Venezuela; citizen Venezuela; Gender Male; Cedula No. 10096662 (Venezuela); Head of Venezuela's Presidential Commission for the Constituent Assembly; Venezuela's Minister of Education; Venezuela's Sectoral Vice President of Social Development and the Revolution of Missions; Former Executive Vice President of Venezuela (individual) [VENEZUELA].
LUCENA RAMIREZ, Tibisay (Latin: LUCENA RAMÍREZ, Tibisay), El Recreo, Libertador, Capital District, Venezuela; DOB 26 Apr 1959; POB Barquisimeto, Lara, Venezuela; citizen Venezuela; Gender Female; Cedula No. 5224732 (Venezuela); Passport 3802006 (Venezuela); President of Venezuela's National Electoral Council; President of Venezuela's National Board of Elections (individual) [VENEZUELA].
MALPICA FLORES, Carlos Erik, Naguanagua, Carabobo, Venezuela; DOB 17 Sep 1972; Gender Male; Cedula No. 11810943; Former National Treasurer of Venezuela; Former Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA); Former Presidential Commissioner for Economic and Financial Affairs (individual) [VENEZUELA].
PEREZ AMPUEDA, Carlos Alfredo (Latin: PÉREZ AMPUEDA, Carlos Alfredo), Caracas, Capital District, Venezuela; DOB 13 Dec 1966; citizen Venezuela; Gender Male; Cedula No. 9871452 (Venezuela); National Director of Venezuela's Bolivarian National Police; Former Commander of Carabobo Zone for Venezuela's Bolivarian National Guard (individual) [VENEZUELA].
REVEROL TORRES, Nestor Luis (Latin: REVEROL TORRES, Néstor Luis), Zulia, Venezuela; El Valle, Libertador, Caracas, Capital District, Venezuela; DOB 28 Oct 1964; citizen Venezuela; Gender Male; Cedula No. 7844507 (Venezuela); Passport A0186449 (Venezuela); Venezuela's Minister of Interior, Justice, and Peace; Former Commander General of Venezuela's Bolivarian National Guard; Former Director of Venezuela's Anti-Narcotics Agency (individual) [VENEZUELA].
RIVERO MARCANO, Sergio Jose (Latin: RIVERO MARCANO, Sergio José), Caracas, Captial District, Venezuela; DOB 08 Nov 1964; citizen Venezuela; Gender Male; Cedula No. 6893454 (Venezuela); Commander General of Venezuela's Bolivarian National Guard; Former Commander of the East Integral Strategic Defense Region of Venezuela's National Armed Forces (individual) [VENEZUELA].
SAAB HALABI, Tarek William, Anzoategui, Venezuela; DOB 10 Sep 1962; citizen Venezuela; Gender Male; Cedula No. 8459301 (Venezuela); Passport 5532000 (Venezuela); Venezuela's Ombudsman; President of Venezuela's Republican Moral Council (individual) [VENEZUELA].
SUAREZ CHOURIO, Jesus Rafael (Latin: SUÁREZ CHOURIO, Jesús Rafael), Aragua, Venezuela; Caracas, Venezuela; DOB 19 Jul 1962; citizen Venezuela; Gender Male; Cedula No. 9195336 (Venezuela); General Commander of Venezuela's Bolivarian Army; Former Commander of Venezuela's Central Integral Strategic Defense Region of Venezuela's National Armed Forces; Former Commander of Venezuela's Aragua Integrated Defense Zone of Venezuela's National Armed Forces; Former Leader of the Venezuelan President's Protection and Security Unit (individual) [VENEZUELA].
VARELA RANGEL, Maria Iris (Latin: VARELA RANGEL, María Iris), Caracas, Capital District, Venezuela; DOB 09 Mar 1967; POB San Cristobal, Tachira, Venezuela; citizen Venezuela; Gender Female; Cedula No. 9242760 (Venezuela); Passport 8882000 (Venezuela); Member of Venezuela's Presidential Commission for the Constituent Assembly; Venezuela's Former Minister of the Penitentiary Service (individual) [VENEZUELA].
ZERPA DELGADO, Simon Alejandro (Latin: ZERPA DELGADO, Simón Alejandro), Sucre, Miranda, Venezuela; DOB 28 Aug 1983; Gender Male; Cedula No. 16544324 (Venezuela); Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA) ; President of Venezuela's Economic and Social Development Bank (BANDES); President of Venezuela's National Development Fund (FONDEN); Vice Minister of Investment for Development  of Venezuela's Ministry of Economy and Finance; Principal Director of Venezuela's Foreign Trade Bank (BANCOEX); Principal Director of Venezuela's National Telephone Company (CANTV); Current or Former Presidential Commissioner to the Joint Chinese Venezuelan Fund; Current or Former Principal Board Member of Venezuela's National Electric Corporation (CORPOELEC); Former Executive Secretary of Venezuela's National Development Fund (FONDEN) (individual) [VENEZUELA].

One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

book cover Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. – See more at:

July 26, 2017 in AML | Permalink | Comments (0)

SEC Announces $2.5 Million Whistleblower Award

The Securities and Exchange Commission announced an award of nearly $2.5 million to an employee of a domestic government agency whose whistleblower tip helped launch an SEC SEC investigation and whose continued assistance enabled the SEC to address a company's misconduct.  Claimant, an employee of a domestic government agency, had become aware of certain improper conduct by a company. Claimant then reported these suspicions to the Commission, and provided supporting documentation, which caused the Commission to open an investigation. Claimant then continued to provide the Commission with specific, timely, and credible information, helpful documents, significant ongoing assistance, and relevant testimony that accelerated the pace of the investigation.   Download SEC's Whistleblower Award

''Whistleblowers can provide a wealth of information and ongoing assistance that helps our agency bring enforcement actions quicker and more efficiently,'' said Jane Norberg, Chief of the SEC's Office of the Whistleblower.  ''This whistleblower not only helped us open the case, but also provided timely ongoing assistance along with critical documents and testimony that accelerated the pace of our enforcement action.''

Approximately $156 million has now been awarded to 45 whistleblowers who voluntarily provided the SEC with original and useful information that led to a successful enforcement action.  No money has been taken or withheld from harmed investors to pay whistleblower awards.

By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower's identity.  Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.  All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.

For more information about the whistleblower program and how to report a tip, visit

July 26, 2017 in AML | Permalink | Comments (0)

Monday, July 24, 2017

AlphaBay, the Largest Online 'Dark Market,' Shut Down

‘Dark Net’ Site Was Major Source of Fentanyl and Heroin, Linked to Overdose Deaths, and Used By Hundreds of Thousands of People to Buy and Sell FBISeal (1) Illegal Goods and Services Anonymously over the Internet

The Justice Department today announced the seizure of the largest criminal marketplace on the Internet, AlphaBay, which operated for over two years on the dark web and was used to sell deadly illegal drugs, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals throughout the world.  The international operation to seize AlphaBay’s infrastructure was led by the United States and involved cooperation and efforts by law enforcement authorities in Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, and France, as well as the European law enforcement agency Europol.

On July 5, Alexandre Cazes aka Alpha02 and Admin, 25, a Canadian citizen residing in Thailand, was arrested by Thai authorities on behalf of the United States for his role as the creator and administrator of AlphaBay.  On July 12, Cazes apparently took his own life while in custody in Thailand.  Cazes was charged in an indictment (1:17-CR-00144-LJO), filed in the Eastern District of California on June 1, with one count of conspiracy to engage in racketeering, one count of conspiracy to distribute narcotics, six counts of distribution of narcotics, one count of conspiracy to commit identity theft, four counts of unlawful transfer of false identification documents, one count of conspiracy to commit access device fraud, one count of trafficking in device making equipment, and one count of money laundering conspiracy.  Law enforcement authorities in the United States worked with numerous foreign partners to freeze and preserve millions of dollars’ worth of cryptocurrencies that were the subject of forfeiture counts in the indictment, and that represent the proceeds of the AlphaBay organization’s illegal activities. 

On July 19, the U.S. Attorney’s Office for the Eastern District of California filed a civil forfeiture complaint against Alexandre Cazes and his wife's assets located throughout the world, including in Thailand, Cyprus, Lichtenstein, and Antigua & Barbuda. Cazes and his wife amassed numerous high value assets, including luxury vehicles, residences and a hotel in Thailand. Cazes also possessed millions of dollars in cryptocurrency, which has been seized by the FBI and the Drug Enforcement Administration (DEA).

According to publicly available information on AlphaBay prior to its takedown, one AlphaBay staff member claimed that it serviced over 200,000 users and 40,000 vendors.  Around the time of takedown, there were over 250,000 listings for illegal drugs and toxic chemicals on AlphaBay, and over 100,000 listings for stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms and fraudulent services. Comparatively, the Silk Road dark web marketplace, which was seized by law enforcement in November 2013, had reportedly approximately 14,000 listings for illicit goods and services at the time of seizure and was the largest dark web marketplace at the time.

“This is likely one of the most important criminal investigations of the year – taking down the largest dark net marketplace in history,” said Attorney General Jeff Sessions. “Make no mistake, the forces of law and justice face a new challenge from the criminals and transnational criminal organizations who think they can commit their crimes with impunity using the dark net.  The dark net is not a place to hide. The Department will continue to find, arrest, prosecute, convict, and incarcerate criminals, drug traffickers and their enablers wherever they are. We will use every tool we have to stop criminals from exploiting vulnerable people and sending so many Americans to an early grave. I believe that because of this operation, the American people are safer – safer from the threat of identity fraud and malware, and safer from deadly drugs.”

“Transnational organized crime poses a serious threat to our national and economic security,” said Acting Director Andrew McCabe of the FBI. “Whether they operate in broad daylight or on the dark net, we will never stop working to find and stop these criminal syndicates.  We want to thank our international partners and those at the Department of Justice, the DEA and the IRS-CI for their hard work in demonstrating what we can do when we stand together.”

“The so-called anonymity of the dark web is illusory,” said Acting Administrator Chuck Rosenberg of the DEA. “We will find and prosecute drug traffickers who set up shop there, and this case is a great example of our commitment to doing exactly that. More to come.”

“AlphaBay was the world’s largest underground marketplace of the dark net, providing an avenue for criminals to conduct business anonymously and without repercussions,” said Chief Don Fort of IRS-CI. “Working with our law enforcement partners – both domestically and abroad – IRS-CI used its unique financial and cyber expertise to help shine a bright light on the accounts and customers of this shadowy black marketplace, and we intend to continue pursuing these kinds of criminals no matter where they hide.”

“This ranks as one of the most successful coordinated takedowns against cybercrime in recent years,” said Executive Director Rob Wainwright of Europol. “Concerted action by law enforcement authorities in the United States and Europe, with the support of Europol, has delivered a massive blow to the underground criminal economy and sends a clear message that the dark web is not a safe area for criminals. I pay tribute to the excellent work of the United States and European authorities for the imaginative and resourceful way they combined their efforts in this case.”

AlphaBay operated as a hidden service on the “Tor” network, and utilized cryptocurrencies including Bitcoin, Monero and Ethereum in order to hide the locations of its underlying servers and the identities of its administrators, moderators, and users. Based on law enforcement’s investigation of AlphaBay, authorities believe the site was also used to launder hundreds of millions of dollars deriving from illegal transactions on the website. 

An investigation conducted by FBI Atlanta and the U.S. Attorney’s Office in the Northern District of Georgia identified an AlphaBay staffer living in the United States. That investigation is ongoing.

The investigation into AlphaBay revealed that numerous vendors sold fentanyl and heroin, and there have been multiple overdose deaths across the country attributed to purchases on the site.   

According to a complaint affidavit filed in the District of South Carolina against Theodore Vitality Khleborod and Ana Milena Barrero, an investigation into an overdose death on February 16, in Portland, Oregon, involving U-47700, a synthetic opioid, revealed that the drugs were purchased on AlphaBay from Khelborod and Barrero. According to another complaint affidavit filed in the Middle District of Florida against Jeremy Achey, an investigation into a fentanyl overdose death in Orange County, Florida, on February 27, revealed that the lethal substance was purchased on AlphaBay from Achey.

Charges contained in an indictment and/or complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

This operation to seize the AlphaBay site coincides with efforts by Dutch law enforcement to investigate and take down the Hansa Market, another prominent dark web market. Like AlphaBay, Hansa Market was used to facilitate the sale of illegal drugs, toxic chemicals, malware, counterfeit identification documents, and illegal services. The administrators of Hansa Market, along with its thousands of vendors and users, also attempted to mask their identities to avoid prosecution through the use of Tor and digital currency. Further information on the operation against the Hansa Market can be obtained from Dutch authorities.

The operation to seize AlphaBay’s servers was announced by Attorney General Jeff Sessions; Deputy Attorney General Rod Rosenstein; Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division; U.S. Attorney Phillip A. Talbert for the Eastern District of California; Acting Director Andrew G. McCabe of the FBI, Acting Administrator Chuck Rosenberg of the DEA and Europol Executive Director Robert Mark Wainwright.

The case is being investigated by the FBI including FBI Sacramento Field Office and DEA, with substantial assistance from the IRS-CI. U.S. Immigration and Customs Enforcement’s Homeland Security Investigations also assisted in the investigation. The case against Cazes was prosecuted by Assistant U.S. Attorneys Paul A. Hemesath and Grant B. Rabenn of the U.S. Attorney’s Office for the Eastern District of California, and Trial Attorneys Louisa K. Marion and C. Alden Pelker of the Criminal Division’s Computer Crime and Intellectual Property Section. Substantial assistance was provided by the Department of Justice’s Office of International Affairs and Special Operations Division.  Additionally, the following foreign law enforcement agencies provided substantial assistance in the operation to seize AlphaBay’s infrastructure: Royal Thai Police, Dutch National Police, Lithuanian Criminal Police Bureau (LCPB), Royal Canadian Mounted Police, United Kingdom’s National Crime Agency, Europol, and French National Police. 

Attorney General Jeff Sessions Delivers Remarks at Press Conference Announcing AlphaBay Takedown

Among other challenges, our great country is currently in the midst of the deadliest drug crisis in our history. One American now dies of a drug overdose every 11 minutes and more than 2 million Americans are addicted to prescription painkillers. Every day, as a result of drug abuse, American families are being bankrupted, friendships broken and promising lives cut short.

And drug addiction is causing more and more crime and violence in communities across our country. And while law enforcement, first responders, and medical professionals across this country have been doing their part to stop this crisis from growing, drug traffickers and others have chosen to exploit this epidemic of addiction.

And today, some of the most prolific drug suppliers use what’s called the dark web —which is a collection of hidden websites that you can only access if you mask your identity and your location. And it’s called dark not just because these sites are intentionally hidden. It’s also dark because of what’s sold on many of them: illegal weapons, stolen identities, child pornography and large amounts of deadly drugs.

Today the Department of Justice announces the takedown of the dark web market AlphaBay. This is the largest dark net marketplace takedown in history.

An AlphaBay staff member claimed that it serviced more than 40,000 illegal vendors for more than 200,000 customers.

By far, most of this activity was in illegal drugs, pouring fuel on the fire of the national drug epidemic. Around the time of takedown of the site, there were more than 250,000 listings for illegal drugs and toxic chemicals on AlphaBay — more than two-thirds of all listings on AlphaBay.

As of earlier this year, 122 vendors advertised fentanyl and 238 advertised heroin, and we know of several Americans who were killed by drugs sold on Alpha Bay.

One victim was just 18 years old when, in February, she overdosed on a powerful synthetic opioid, which she had bought on AlphaBay. The drug was shipped right to her house through the mail.

A little more than a week after her death, a victim in Orange County, Florida, died of an overdose from a drug bought on AlphaBay.

And then there was Grant Seaver. He was only 13 years old and a student at Treasure Mountain Junior High in Park City, Utah when he passed away after overdosing on a synthetic opioid that had been purchased by a classmate on AlphaBay.

The ability of these drugs to so instantaneously end these promising lives is a reminder to us all of just how incredibly dangerous these synthetic opioids are — especially when they are purchased anonymously from the darkest places on the internet.

This is likely one of the most important criminal case of the year. Make no mistake, the forces of law and justice face a new challenge from the criminals and transnational criminal organizations who think they can commit their crimes with impunity by ‘going dark.’ This case, pursued by dedicated agents and prosecutors, says you are not safe.  You cannot hide. We will find you, dismantle your organization and network.  And we will prosecute you.

I believe that because of this operation, the American people are safer — safer from the threat of identity fraud and malware, and safer from deadly drugs.

But the Department’s work is not finished.  We will continue to find, arrest, prosecute, convict and incarcerate criminals, drug traffickers and their enablers, wherever they are. The dark net is not a place to hide. We will use every tool we have to stop criminals from exploiting vulnerable people and sending so many Americans to an early grave.

I want to thank our international partners at Europol and in Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, Canada, France and Germany who worked closely with us to takedown this criminal enterprise.

July 24, 2017 in AML | Permalink | Comments (0)

Sunday, July 23, 2017

Canadian Man Pleads Guilty to Conspiring to Defraud U.S. With Fake Tax Refunds

A Canadian man pleaded guilty today in Rochester, New York to conspiring to defraud the United States and stealing Irs_logogovernment funds, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney James P. Kennedy Jr. for the Western District of New York.

According to documents filed with the court, Jose Compuesto, 52, of Mississauga, Ontario, Canada, along with other Canadian citizens, participated in a scheme to file fraudulent claims for refund with the Internal Revenue Service (IRS). In January 2010, Compuesto filed a fraudulent nonresident alien income tax return seeking a refund of $383,155.46. On this return, Compuesto falsely claimed that the requested refund represented the amount of income taxes that had been withheld and paid to the IRS on his behalf. After the IRS issued the refund to Compuesto, he entered the United States and opened a bank account in Kenmore, New York to deposit the fraudulently obtained check. In April 2010, Compuesto caused the funds to be transferred from this account to bank accounts in the United States and Canada in the name of one of his co-conspirators.

U.S. District Judge Frank P. Geraci Jr. of the Western District of New York scheduled sentencing for Oct. 17. Compuesto faces a statutory maximum sentence of five years in prison, a period of supervised release and monetary penalties. As part of his plea agreement, Compuesto agreed to pay restitution to the IRS in the amount of $383,155.46 plus interest.

Compuesto is the fourth Canadian citizen to be convicted for his role in this scheme. In January 2016, Kevin Cyster of Burlington, Ontario, was sentenced to 135 months in prison after a jury convicted him of conspiring to defraud the United States and steal government funds, making a false claim against the United States and transferring stolen money in foreign commerce. In June 2014, Renee Jarvis, also of Ontario, pleaded guilty to conspiring to defraud the United States and steal government funds. Last month, Timothy Johnston of Calgary, Alberta also pleaded guilty to conspiring to defraud the United States and steal government funds. Jarvis and Johnston are both awaiting sentencing.

July 23, 2017 in AML | Permalink | Comments (0)

Saturday, July 22, 2017

Don’t Take the Bait: Be Alert to Account Takeover Tactics

The IRS, state tax agencies and the tax industry today warned tax professionals that account takeovers by cybercriminals are Irs_logo on the rise and practitioners increasingly are the targets.

Account takeovers occur when a thief manages to steal or guess the username and password of a tax professional, enabling access of their computers or their other online accounts. With these credentials, thieves can, for example, access a tax professional’s IRS e-Services account to steal their Electronic Filing Identification Number (EFINor access tax pro software account to obtain critical taxpayer information.

“We urge tax professionals to be on the lookout for the warning signs of these schemes and many others that can contribute to data loss and identity theft,” said IRS Commissioner John Koskinen. “A few simple steps can protect tax professionals as well as their clients.”

Increasing awareness about account takeovers is part of the “Don’t Take the Bait” campaign aimed at tax professionals. This is the second part of a special 10-week series aimed at increasing security awareness in the tax community. It is part of the Protect Your Clients; Protect Yourself effort. The IRS, state tax agencies and the tax industry, working together as the Security Summit, urge practitioners to learn to protect themselves from account takeovers.

Tax professionals and taxpayers are among a larger set of groups that face increased threats from account takeovers.

Javelin Strategy and Research conducts an annual identity fraud report. In 2017, it reported a surge in account takeover incidents nationwide – generally aimed at financial accounts – after years of decline. There was a 31 percent increase in the number of incidents for 2016 from 2015.

Account takeovers are a common source of data breaches of taxpayer data, leading to fraudulent tax filings for individuals and for businesses. Account takeovers are often the result of spear phishing emails specifically targeting the tax community. See last week’s “Don’t Take the Bait” news releasefor information about spear phishing.

Here’s how account takeovers work: Thieves do their homework; perusing web sites and social media for clues about tax preparer’s email addresses and business activities. Then, they pose as a familiar organization, for example, IRS e-Services or a private-sector tax pro software provider by sending a spear phishing email that appears similar to the IRS or the software provider. They may even pose as another tax professional, a familiar bank or, increasingly, a cloud-based storage provider.

Often, the email seems urgent with descriptions like: “Avoid Account Shutdown” or “Unlock Your Account Now.” The email includes a disguised link that may take users to a page that looks like the login pages for IRS e-Services or a tax preparation software provider.

Alternatively, the email link or attachment may load malware onto computers to capture keystrokes, eventually giving the thieves access to user credentials when users log into their accounts. The thieves may pose as a potential client, emailing an attachment that claims to contain tax information but is really infected with keystroke logging malware. Here’s an example of a fake IRS e-Services email:

example of a fake IRS e-Services email

The email claims to be from “IRS E Services,” slightly off from the official IRS e-Services name. Also, IRS e-Services does not send emails except through the Quick Alerts system. Note the “Account Closure Now!” subject line to instill urgency, as does the “update now” link.

Tax professionals should hover their cursors over a suspicious link to see the destination, which may be a URL like:;; or, as opposed to an actual URL. The suspicious link takes the practitioner to a website designed to appear as the actual e-Services login page. Here’s one example of a fake web page:

example of a fake web page

Once a thief obtains a tax pro’s credentials, they immediately can access accounts and steal EFIN, which they can use either to file fraudulent tax returns or sell to other criminals who could file fraudulent tax returns. They may also use a Power of Attorney and Centralized Authorization File (CAF) number, allowing them to access clients’ transcripts. Those who reuse usernames and passwords for multiple online accounts -- as many people do – may find the thief has accessed those accounts as well.

Protecting Clients and Businesses from Account Takeovers

Identity thieves have many schemes to steal login credentials. A common tactic is to use a spear phishing email that targets tax professionals. Here are a few steps to protect clients and business accounts:

  • Educate all employees about the dangers of spear phishing and account takeovers. It only takes one employee to open a link to give cybercriminals access the entire system.
  • Use strong, unique passwords. Better yet, use a phrase instead of a word. Use different passwords for each account. Use a mix of letters, numbers and special characters. Longer is better, but a minimum of eight to 10 characters. Use a password manager if necessary to help remember these unique credentials.
  • Use the strongest encryption software available. Encrypt and password protect all sensitive data, using unique passwords for each document.
  • Use strong malware/phishing software protection. Good software can help detect and stop malware or warn users when they are going to a suspected phishing site. A periodic deep scan also may help uncover embedded malware lurking in systems.
  • Use two-factor authentication whenever possible – This practice helps protect accounts by requiring two steps for access. For example, the IRS Secure Access process requires credentials (username and password) plus a security code that is sent as a text to a mobile phone that is registered with the IRS. Account takeovers are one reason the IRS is moving to protect e-Services with this more rigorous process. Many banks and social media outlets are moving to two-factor authentication, either by using a code sent to an email address or phone. Use the two-factor option whenever possible.
  • Check EFIN counts weekly. Access the application via e-Services and select “Check EFIN Status.” If someone is using the EFIN without your knowledge, a higher number of returns filed under that number will result. Call the Help Desk immediately.
  • Report phishing emails. Fraudulent phishing or malicious email can be sent to  For more information, see Report Phishing.
  • Report security incidents. The IRS considers these examples to be security incidents: a user clicked on a phishing link and entered their email credentials; a user clicked on a malicious URL that infected the computer; or someone created a domain like the user’s domain and used that to send phishing emails to other preparers.  Publication 4557, Safeguarding Taxpayer Data, provides guidance to report incidents. If the incident was an IRS-related scam, report it to the Treasury Inspector General for Tax Administration (TIGTA).

July 22, 2017 in AML | Permalink | Comments (0)

Friday, July 21, 2017

Director of South Korea's Earthquake Research Center Convicted of Money Laundering in Million Dollar Bribe Scheme

The Director of South Korea’s Earthquake Research Center at the Korea Institute of Geoscience and Mineral Resources FBISeal (1)(KIGAM) was convicted yesterday following a four-day jury trial of laundering bribes that he received from two seismological companies based in California and England through the U.S. banking system. Sentencing is scheduled to occur before the Honorable John F. Walter of the U.S. District Court for the Central District of California, on October 2.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Sandra R. Brown for the Central District of California and Assistant Director in Charge Deirdre Fike of the FBI’s Los Angeles Field Office, announced the conviction.

Heon-Cheol Chi (Chi), 59, of South Korea, was convicted of one count of transacting in criminally derived property, in violation of 18 U.S.C. § 1957. According to the charges, the funds that he laundered were proceeds derived through violations of South Korea’s bribery law, Article 129 of South Korea’s Criminal Code.

“International corruption undermines the rule of law, threatens our national security, and harms honest companies who are playing by the rules,” said Acting Assistant Attorney General Blanco. “As this case demonstrates, the Criminal Division will hold responsible the companies and individuals who are paying bribes to foreign government officials, and the foreign government officials themselves.  For the second time in recent months, the Criminal Division has convicted a foreign official who solicited bribes and then laundered the illicit proceeds in the United States. We will continue to hold such individuals responsible and accountable.”

“The American financial system is not to be used as a storehouse for the proceeds of corrupt activity,” said Acting U.S. Attorney Brown. “This defendant used a bank account here in Southern California to conceal over one million dollars in bribe money obtained through the abuse of his public position. This conviction sends a message that should be heard around the world.”

“Defendant Chi exploited the U.S. banking system to enrich himself and to conceal his corrupt practices,” said Assistant Director in Charge Fike. “The FBI and our partners will continue to hold accountable international offenders who gain the advantage on the global playing field by breaking U.S. law.”

According to the evidence presented at trial, between at least 2009 and 2015, Chi abused his official position at KIGAM to demand and receive over $1 million in bribes from two seismological companies in exchange for providing them with unfair business advantages in the South Korean seismological market. In particular, the trial evidence showed that Chi advocated the purchase and use of equipment from these two companies by KIGAM and other South Korean customers, and he provided these companies with market intelligence and inside information, including confidential information about their competitors and the KIGAM bidding process. The evidence also showed that Chi directed that his bribe payments be paid in cash or wired to his personal bank account in Glendora, California. From that account, Chi transferred approximately half of those bribe payments to an investment account he held in New York City and spent approximately 70 percent of the remaining funds back in South Korea, where he resided and worked, according to the evidence.

In addition to his use of cash payments and the U.S. banking system, the trial evidence showed that Chi took a number of steps to conceal his bribery scheme, including instructing representatives of the companies to delete or not respond to his emails, requesting that these company representatives not inform his colleagues at KIGAM of his illegal arrangements with these companies, and by sending fictitious invoices listing a false address in New Jersey. As Chi acknowledged in an email to one of the companies in 2005, “Usually I deleted almost all e-mail or papers related to [payments from these companies] because I am the director of earthquake research center and I am not allowed to be involved in it.”

The evidence at trial included numerous additional emails in which Chi admitted that he was acting illegally. For example, Chi wrote to a company representative in 2014, “I am a governmental officer and I should not have any contact with [a] private company. Moreover, it is illegal to assist any company related to the test.”

According to the trial evidence, the total of the bribe payments to Chi exceeded his legitimate income from KIGAM by a substantial margin and, during the relevant time period, Chi was paid more in bribes than in KIGAM salary.

The case is being investigated by the FBI’s International Corruption Squad in Los Angeles. Trial Attorneys David Fuhr and Anna Kaminska of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Poonam Kumar of the Central District of California are prosecuting the case. The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter. 

The Department is grateful to the government of South Korea for providing substantial assistance in gathering evidence during this investigation. The Department also thanks its law enforcement colleagues in the United Kingdom for their assistance in the Department’s investigation.

July 21, 2017 in AML | Permalink | Comments (0)

Thursday, July 20, 2017

Mallinckrodt Agrees to Pay Record $35 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs and for Recordkeeping Violations

Mallinckrodt LLC, a pharmaceutical manufacturer and one of the largest manufacturers of generic oxycodone, agreed to pay $35 million to settle DEA badge allegations that it violated certain provisions of the Controlled Substances Act (CSA) that are subject to civil penalties, Attorney General Jeff Sessions of the Justice Department and Acting Administrator Chuck Rosenberg of the Drug Enforcement Administration (DEA) announced today.

 This is the first settlement of its magnitude with a manufacturer of pharmaceuticals resolving nationwide claims that the company did not meet its obligations to detect and notify DEA of suspicious orders of controlled substances such as oxycodone, the abuse of which is part of the current opioid epidemic. These suspicious order monitoring requirements exist to prevent excessive sales of controlled substances, like oxycodone in Florida and elsewhere. The settlement also addressed violations in the company’s manufacturing batch records at its plant in Hobart, New York. Both sets of alleged violations impact accountability for controlled substances, and the compliance terms going forward are designed to help protect against diversion of these substances at critical links in the controlled substance supply chain.

 “In the midst of one of the worst drug abuse crises in American history, the Department of Justice has the responsibility to ensure that our drug laws are being enforced and to protect the American people,” said Attorney General Sessions. “Part of that mission is holding drug manufacturers accountable for their actions. Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street. Thanks to the hard work of our attorneys and law enforcement, Mallinckrodt has agreed to do everything they can to help us identify suspicious orders in the future. And as a result of today's settlement, we are sending a clear message to drug companies: this Department of Justice will hold you accountable for your legal obligations and we will enforce our laws. I believe that will prevent drug abuse, prevent new addictions from starting, and ultimately save lives.”

“Manufacturers and distributors have a crucial responsibility to ensure that controlled substances do not get into the wrong hands,” said DEA Acting Administrator Chuck Rosenberg. “When they violate their legal obligations, we will hold them accountable.”

The government alleged that Mallinckrodt failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances – orders that are unusual in their frequency, size, or other patterns. From 2008 until 2011, the U.S. alleged, Mallinckrodt supplied distributors, and the distributors then supplied various U.S. pharmacies and pain clinics, an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders. Through its investigation, the government learned that manufacturers of pharmaceuticals offer discounts, known as “chargebacks,” based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. The groundbreaking nature of the settlement involves requiring a manufacturer to utilize chargeback and similar data to monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.


The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York. Among other things, these violations created discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records. Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain.

In addition to the significant monetary penalty, this settlement includes a groundbreaking parallel agreement with the DEA, as a result of which the company will analyze data it collects on orders from customers down the supply chain to identify suspicious sales. The resolution advances the DEA’s position that controlled substance manufacturers need to go beyond “know your customer” to use otherwise available company data to “know your customer’s customer” to protect these potentially dangerous pharmaceuticals from getting into the wrong hands. DEA’s Memorandum of Agreement with Mallinckrodt also sets forth specific procedures it will undertake to ensure the accuracy of batch records and protect loss of raw product in the manufacturing process.

By entering into these agreements, elements of which Mallinckrodt is already implementing, the company is becoming part of the solution to this public health epidemic.

This lengthy investigation was led by DEA’s Detroit Field Division on the suspicious order issues and the New York Field Division on the manufacturing record keeping issues.

July 20, 2017 in AML | Permalink | Comments (0)

Wednesday, July 19, 2017

Four More Members of ATM Skimming Conspiracy Targeting Multiple New Jersey Bank Locations Plead Guilty

Four members of a scheme that used secret card-reading devices and pinhole cameras on PNC and Bank of America ATMs to steal at least $428,581 ICE logopleaded guilty today in Newark federal court.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division; Acting U.S. Attorney William E. Fitzpatrick of the District of New Jersey; and Acting Special Agent in Charge Brian A. Michael of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Newark Division made the announcement.

Marcel Peckham, 43, of Little Neck, New York; Catalin Mihai Dragomir, 33, of Glendale, New York; Eduard Vasilica Ticu, 32, of Glendale; and Silvester Florentin Papp, 25, of Ridgewood, New York, pleaded guilty before U.S. District Judge Esther Salas to separate informations charging them each with one count of conspiracy to commit bank fraud.

According to documents filed in this case and statements made in court:

Peckham, Dragomir, Ticu, Papp, and others sought to defraud financial institutions and their customers by illegally obtaining customer account information, including account numbers and personal identification numbers. Peckham admitted providing counterfeit ATM cards to other conspirators, knowing that they were going to use them to withdraw cash from compromised bank accounts at ATMs in New Jersey. Dragomir, Ticu, and Papp each admitted that between March 2015 and July 2016, they made unauthorized cash withdrawals using the counterfeit ATM cards.

The conspiracy to commit bank fraud charge carries a maximum potential penalty of 30 years in prison and a $1 million fine. Sentencing for all four defendents is set for Oct. 23, 2017.

Joel Abel Garcia, Victor A. Hanganu, and Radu Bogdan Marin also pleaded guilty to their roles in the scheme and await sentencing. To date, seven of the 13 defendants charged in this matter have been convicted.

July 19, 2017 in AML | Permalink | Comments (0)

Thursday, July 13, 2017

Former President Lula of Brazil Found Guilty, Sentenced to Nearly 10 Years for Corruption. Will Lula Cut A Deal for Duma and Temer?