International Financial Law Prof Blog

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

Saturday, September 22, 2018

Isle of Man Publishes Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Code 2018

The Anti-Money Laundering and Countering the Financing of Terrorism (Amendment) Code 2018 (‘the Amendment Code’) was signed on 13 September 2018 and came into effect on 14 September 2018.

This Amendment Code gives effect to recommendations made in the Mutual Evaluation Report issued by MONEYVAL following its Fifth Round Mutual Evaluation of the Isle of Man. 

The main additions to the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 contained within the Amendment Code are:

  • The introduction of requirements to establish, maintain and operate procedures in relation to sanctions screening;
  • The introduction of the need to consider whether the relevant person has met the customer in the course of business when conducting business and customer risk assessments;
  • The introduction of Paragraph 10A which places requirements on a relevant person to undertake certain considerations where an introducer is assisting with the customer due diligence process;
  • Expansion of the requirements of Paragraph 21 to address recommended actions from MONEYVAL; and,
  • Amendment of Paragraph 23 to ensure that it only deals with instances where a relevant person places reliance on an eligible introducer.

A copy of the Amendment Code can be found here. A tracked changes version of the full Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (as amended) and an updated version of Appendix A of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook are now available.

The Authority would like to thank everyone who participated in the consultation regarding the Amendment Code. Following comments received a number of changes were made to the draft Amendment Code with a view to providing further clarity of the new provisions. The responses received also indicated a number of areas were further guidance is required to assist firms in applying the new provisions to their business. This work has begun and an updated version of the Anti-Money Laundering and Countering the Financing of Terrorism Handbook will be issued in due course.

If you have any queries please contact the AML Unit by emailing aml@iomfsa.im

September 22, 2018 in AML | Permalink | Comments (0)

Friday, September 21, 2018

Former Arkansas State Representative, President of College and Consultant Sentenced for Bribery Scheme

A consultant along with his co-conspirators, the President of an Arkansas college and a former Arkansas State Representative, were sentenced in the past week for their roles in a bribery scheme in which state funds were directed to non-profit entities in exchange for kickbacks, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Duane “DAK” Kees for the Western District of Arkansas.

Randell G. Shelton Jr., 39, of Kemp, Texas, a consultant, was sentenced on Sept. 6 by U.S. District Judge Timothy L. Brooks to serve 72 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $660,698 and to forfeit $664,000.  Shelton was convicted by a federal jury on May 3 of 12 counts, including conspiracy and honest services wire and mail fraud. Also convicted in the scheme was former Arkansas State Senator Jonathan E. Woods, 41, of Springdale, Arkansas, of 15 counts, including conspiracy, honest services wire and mail fraud, and money laundering. 

Oren Paris III, 50, of Springdale, Arkansas, President of Ecclesia College, was sentenced yesterday to serve 36 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $621,500. Paris pleaded guilty before Judge Brooks to one count of honest services wire fraud on April 5. 

Micah Neal, 43, of Springdale, Arkansas, a former Arkansas State Representative was sentenced today to three years probation including the first year to be served as home confinement and the second and third years to include 300 hours of community service.  Neal was also ordered to pay restitution in the amount of $200,000 to the State of Arkansas and the Northwest Arkansas Economic Development District (NWAEDD).  Neal previously pleaded guilty before Judge Brooks to one count of conspiracy to commit honest services fraud. 

 According to admissions made in his plea agreement, Neal served as an Arkansas State Representative from 2013 to 2017.  Neal admitted, and evidence presented at trial for Woods and Shelton revealed, that between sometime in 2013 and January 2015, Neal conspired with Woods to use their official positions to appropriate and direct government money, known as General Improvement Funds (GIF), to two non-profit entities in exchange for bribes.  Specifically, Neal and Woods authorized and directed the NWAEDD, which was responsible for disbursing the GIF, to award a total of approximately $600,000 in GIF money to the two non-profit entities.  Pursuant to his plea agreement, Neal admitted that of the $600,000, he personally authorized and directed a total of $175,000 to the entities.  In return for his official actions, Neal received approximately $38,000 in bribes from the two non-profit entities.

Neal was the fourth defendant involved in this bribery scheme to be sentenced within the past week.  On Sept. 5, Woods was sentenced by Judge Brooks to serve 220 months in prison, followed by three years of supervised release, and was ordered to pay restitution in the amount of $1,621,500 and to forfeit $1,097,005. 

The FBI and IRS-Criminal Investigation investigated the case.  Trial Attorney Sean F. Mulryne of the Criminal Division’s Public Integrity Section and First Assistant U.S. Attorney Kenneth Elser and Assistant U.S. Attorneys Kyra Jenner and Aaron Jennen of the Western District of Arkansas prosecuted the case.

September 21, 2018 in AML | Permalink | Comments (0)

Financial Flows from Human Trafficking

In recent years, the number of victims of human trafficking and migrant smuggling has continued to grow significantly. In addition to the terrible human cost, the estimated proceeds that human trafficking generates have increased from USD 32 billion to over USD 150 billion since the FATF produced a comprehensive report on the laundering of the proceeds of these crimes in 2011. Since then, there is also a better understanding of how and where human trafficking is taking place, including the increasing prevalence of people being trafficked in the same country or region. 

A new FATF and Asia/Pacific Group on Money Laundering (APG) report aims to raise awareness about the type of financial information that can identify human trafficking for sexual exploitation or forced labour and to raise awareness about the potential for profit-generation from organ trafficking. The report also highlights potential links between human trafficking and terrorist financing.

Financial Flows from Human Trafficking Download pdf ( 1,289kb)

As human trafficking can happen in any country, it is important that countries assess how they are at risk of human trafficking and the laundering of the proceeds of this crime, share this information with stakeholders and make sure that it is understood. Countries should also build partnerships between public sector, private sector, civil society and non-profit communities to leverage expertise, capabilities and partnership. The private sector, and financial institutions in particular, are on the frontline.

Non-profit organisations also play a crucial role in tackling human trafficking and the financial flows that derive from it. In addition to the support to the victims of this crime, they can also ensure that essential information, including on who is profiting from the trafficking, reaches financial institutions and authorities as victims are often fearful of reaching out to the authorities themselves.

Innovative initiatives at the national or regional level have demonstrated how anti-money laundering and counter-terrorist financing measures, and those that implement them, can contribute to stopping this crime. However, globally, there has not been sufficient focus on how to use financial information to detect, disrupt and dismantle human trafficking networks. This report provides good practices (see Part three) to help countries develop measures to address money laundering and terrorist financing from human trafficking and includes red flag indicators (see Annex B) to help identify those who are laundering the proceeds of these heinous crimes.

The FATF acknowledges the support of several financial institutions and associations (Barclays, Standard Chartered, HSBC, Western Union, Ria Financial, the Wolfsberg Group, European and American Bankers’ Alliances and the Meekong Club,) and NGOs (Liberty Asia and Stop the Traffik) in developing this report.

More on:

Asia/Pacific Group on Money Laundering (APG)

Money Laundering Risks Arising from Trafficking of Human Beings and Smuggling of Migrants - July 2011

September 21, 2018 in AML | Permalink | Comments (0)

Thursday, September 20, 2018

Exceptive Relief from Beneficial Ownership Requirements for Legal Entity Customers of Rollovers, Renewals, Modifications, and Extensions of Certain Accounts

The Financial Crimes Enforcement Network (FinCEN) grants exceptive relief under the authority set forth in 31 U.S.C. § 5318(a)(7) and 31 CFR § 1010.970(a) to covered
financial institutions from the obligations of the Beneficial Ownership Requirements for Legal Entity Customers (Beneficial Ownership Rule) and its requirement to identify and verify the identity of the beneficial owner(s) when a legal entity customer opens a new account as a result of the following:

• A rollover of a certificate of deposit (CD) (as defined below);
• A renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;
• A renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and
• A renewal of a safe deposit box rental.

The exception only applies to the rollover, renewal, modification or extension of any of the types of accounts listed above occurring on or after May 11, 2018, and does not apply to the initial opening of such accounts.

Notwithstanding this exception, covered financial institutions must continue to comply with all other applicable anti-money laundering (AML) requirements under the Bank Secrecy Act (BSA) and its implementing regulations, including program, recordkeeping, and reporting requirements.

see FINCEN release:  Download Permanent Exceptive Relief Extension of Compliance Date CDs_final 508

1. 31 CFR §1010.230. “Covered financial institutions” are banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. 

2. Covered financial institutions are not excepted from the obligation to identify and verify the identity of the beneficial owner(s) of legal entity customers at the initial account opening for such accounts occurring on or after May 11, 2018.

 

September 20, 2018 in AML | Permalink | Comments (0)

Wednesday, September 19, 2018

Latvian National Sentenced to Prison for “Scareware” Hacking Scheme That Targeted Minneapolis Star Tribune Website

A Latvian man was sentenced in Minneapolis for participating in a lucrative “scareware” hacking scheme that targeted visitors to the Minneapolis Star Tribune’s website.  Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Erica H. MacDonald of the District of Minnesota and Special Agent in Charge Jill Sanborn of the FBI’s Minneapolis Field Office made the announcement.

Peteris Sahurovs aka “Piotrek” and “Sagade,” 29, was sentenced to 33 months in prison for conspiracy to commit wire fraud.  District Judge Ann D. Montgomery of the District of Minnesota imposed the sentence.  Sahurovs will be removed from the United States to Latvia following his prison sentence.  Sahurovs was arrested on a District of Minnesota indictment in Latvia in June 2011, but was released by a Latvian court and later fled.  In November 2016, Sahurovs was located in Poland and apprehended by Polish law enforcement and extradited to the United States in June 2017. Sahurovs was at one time the FBI’s fifth most wanted cybercriminal and a reward of up to $50,000 had been offered for information leading to his arrest and conviction.  He pleaded guilty before Judge Montgomery on Feb. 7.

According to admissions made in connection with his plea, from at least May 2009 to June 2011, Sahurovs operated a “bullet-proof” web hosting service in Latvia, through which he leased server space to customers seeking to carry out criminal schemes without being identified or taken offline.  The defendant admitted that he knew his customers were using his servers to perpetrate criminal schemes, including the transmission of malware, fake anti-virus software, spam, and botnets to unwitting victims, and he received notices from Internet governance entities (such as Spamhaus) that his servers were hosting malicious activity.  Nonetheless, Sahurovs admitted he took steps to protect the criminal schemes from being discovered or disrupted, and hosted them on his servers for financial gain.

Sahurovs admitted that from in or about February 2010 to in or about September 2010, he registered domain names, provided bullet-proof hosting services, and gave technical support to a “scareware” scheme targeting visitors to the Minneapolis Star Tribune’s website.  On Feb. 19, 2010, the Minneapolis Star Tribune began hosting an online advertisement, purporting to be for Best Western hotels, on its website, startribune.com.  Two days later, however, the advertisement began causing the computers of visitors to the website to be infected with malware.  This malware, also known as “scareware,” caused visitors to experience slow system performance, unwanted pop-ups and total system failure.  Website visitors also received a fake “Windows Security Alert” pop-up informing them that their computer had been infected with a virus and another pop-up that falsely represented that they needed to purchase the “Antivirus Soft” computer program to fix their security issues, at a price of $49.95.

Website visitors who clicked the “Antivirus Soft” window were presented with an online order form to purchase a purported security program called “Antivirus Soft.”  Users who purchased “Antivirus Soft” would receive a file download that “unfroze” their computers and stopped the pop-ups and security notifications.  However, the defendant admitted, the file was not a real anti-virus product and did not perform legitimate computer security functions, and merely caused malware that members of the conspiracy had previously installed to cease operating.  Meanwhile, the defendant admitted, victim users who did not choose to purchase “Antivirus Soft” became immediately inundated with so many pop-ups containing fraudulent “security alerts” that all information, data, and files on their computers were rendered inaccessible.  Members of the conspiracy defrauded victims out of substantial amounts of money as a result of the scheme.  The defendant admitted that as a result of his participation, he made between $150,000 and $250,000 U.S. dollars.

This case was investigated by the FBI’s Minneapolis Field Office.  The Criminal Division’s Office of International Affairs secured the extradition from Poland and the Polish National Police, the National Prosecutor’s Office, and the Ministry of Justice provided substantial assistance in this matter. Assistant U.S. Attorney Timothy C. Rank of the District of Minnesota and Trial Attorney Aaron R. Cooper of the Criminal Division’s Computer Crime and Intellectual Property Section prosecuted the case.

September 19, 2018 in AML | Permalink | Comments (0)

Tuesday, September 18, 2018

State of the European Union 2018 – Stronger anti-money laundering supervision for a stable banking and financial sector

The European Commission is proposing today to further strengthen the supervision of EU financial institutions to better address money-laundering and terrorist financing threats.  

While the EU has strong anti-money laundering rules in place, recent cases involving money laundering in some EU banks have raised concerns that those rules are not always supervised and enforced effectively across the EU. This not only creates risks for the integrity and reputation of the European financial sector, but may also have financial stability implications for specific banks. As part of the broader efforts to complete the Banking Union and the Capital Markets Union, the European Commission therefore proposes today to amend the Regulation establishing the European Banking Authority (EBA) in order to reinforce the role of the EBA in anti-money laundering supervision of the financial sector. This is part of an overall strategy to strengthen the EU framework for prudential and anti-money laundering supervision for financial institutions, which the Commission is setting out in a Communication. These measures will contribute to promoting the integrity of the EU's financial system, ensuring financial stability and protection from financial crime. 

Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: "Europe's Banking Union must be built on the highest standards of integrity. Anti-money laundering supervision has failed all too often in the EU. Today we are enabling the European Banking Authority to make sure that different supervisors cooperate and exchange information and that anti-money laundering rules are enforced effectively across EU countries. The EBA will also be entitled to request investigation into alleged breaches of the rules and will become Europe's phone number for cooperation with international partners on issues related to combatting money laundering in the financial sector." 

Commissioner for Justice, Gender Equality and Consumers, Vĕra Jourová, said: "Europe has the strongest anti-money laundering rules in the world. But recent cases in the banking sector showed that they are not always supervised and enforced with the same high standards everywhere across the EU. Our system is as strong as our weakest link. In times where money moves across borders at the click of a mouse, we must ensure supervision that is pro-active and fast. Today's changes will make sure the rules are evenly enforced throughout the EU.” 

Enhancing the role of the European Banking Authority  

The Commission is proposing to concentrate anti-money laundering powers in relation to the financial sector within the European Banking Authority and to strengthen its mandate to ensure that risks of money-laundering are effectively and consistently supervised by all relevant authorities and that the relevant authorities cooperate and share information. 

The amendedRegulation will:

  • ensure that breaches of anti-money laundering rules are consistently investigated: the EBA will be able to request national anti-money laundering supervisors to investigate potential material breaches and to request them to consider targeted actions - such as sanctions;

  • provide that the national anti-money laundering supervisors comply with EU rules and cooperate properly with prudential supervisors. The EBA's existing powers will be reinforced so that, as a last resort if national authorities do not act, the EBA will be able to address decisions directly to individual financial sector operators;

  • enhance the quality of supervision through common standards, periodic reviews of national supervisory authorities and risk-assessments;

  • enable the collection of information on anti-money laundering risks and trends and fostering exchange of such information between national supervisory authorities (so-called data hubs);

  • facilitate cooperation with non-EU countries on cross-border cases;

  • establish a new permanent committee that brings together national anti-money laundering supervisory authorities. 

Making full use of existing supervisory tools 

The Commission is also presenting a strategy to improve information exchange and cooperation between prudential and anti-money laundering authorities. It invites the European Supervisory Authorities, and in particular the EBA, to adopt guidancesupporting prudential supervisors in integrating anti-money laundering aspects into their various tools and ensuring supervisory convergence. 

The Commission also invites the European Central Bank to conclude with anti-money laundering supervisors a multilateral memorandum of understanding on exchange of information by 10 January 2019 – as required by the fifth Anti-Money Laundering Directive.

Next steps 

Today's proposal to strengthen the European Banking Authority's role will now be discussed by the European Parliament and Council. These targeted amendments will feed into the ongoing discussions of the Commission proposal to review the European Supervisory Authorities'(ESAs) Regulations, adopted by the Commission in September 2017, intending to strengthen the capacity to the ESAs to ensure convergent and effective financial supervision. The Commissions encourages the European Parliament and the Council to reach agreement on these proposals swiftly. 

Background 

The fight against money-laundering and terrorist financing is a priority for the Juncker Commission, and it is an integral part of the risk-reduction agenda pursued within the Banking Union and the Capital Markets Union. The adoption of the fourth – in force since June 2017- and the fifth Anti-Money Laundering Directives – in force since 9 July 2018 and to be transposed by January 2020 - has considerably strengthened the EU regulatory framework, including rules on cooperation between anti-money laundering and prudential supervisors. The Commission is closely following the correct implementation of the 4th Anti-Money Laundering Directive including through infringement procedures where necessary. 

Despite this strengthened legislative framework, some recent cases of money laundering in European banks have given rise to concerns on the articulation between the prudential and anti-money laundering rules for financial institutions. 

These concerns have been echoed by the Council, by Finance Ministers, most recently by Eurogroup President Centeno, in his letter of 25 June 2018 to the President of the European Council, Tusk. The Franco-German Meseberg declaration and roadmap issued on 19 June 2018 also highlights this issue. 

In May 2018, the European Commission set up a working group bringing together the European Supervisory Authorities, the European Central Bank and the Chair of the Anti-Money Laundering Committee, to reflect on possible actions to ensure seamless cooperation between anti-money laundering and prudential supervisors in the European Union

For more information 

MEMO

State of the Union 2018

Economy-related subpage

Communication on anti-money laundering

Targeted changes to the ESAs Regulations

September 18, 2018 in AML | Permalink | Comments (0)

Monday, September 17, 2018

Russian National Who Operated Kelihos Botnet Pleads Guilty to Fraud, Conspiracy, Computer Crime and Identity Theft Offenses

Peter Yuryevich Levashov, aka “Petr Levashov,” “Peter Severa,” “Petr Severa” and “Sergey Astakhov,” 38, of St. Petersburg, Russia, pleaded guilty in U.S. District Court in Hartford, Connecticut, to offenses stemming from his operation of the Kelihos botnet, which he used to facilitate malicious activities including harvesting login credentials, distributing bulk spam e-mails, and installing ransomware and other malicious software.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney John H. Durham of the District of Connecticut and Special Agent in Charge Brain C. Turner of the FBI’s New Haven Division made the announcement.

 “For over two decades, Peter Levashov operated botnets which enabled him to harvest personal information from infected computers, disseminate spam, and distribute malware used to facilitate multiple scams,” said Assistant Attorney General Benczkowski. “We are grateful to Spanish authorities for his previous arrest and extradition.  Today’s guilty plea demonstrates that the Department will collaborate with our international law enforcement partners to bring cybercriminals to justice, wherever they may be.”

“Mr. Levashov used the Kelihos botnet to distribute thousands of spam e-mails, harvest login credentials, and install malicious software on computers around the world,” said U.S. Attorney Durham.  “He also participated in online forums on which stolen identities, credit card information and cybercrime tools were traded and sold.  For years, Mr. Levashov lived quite comfortably while his criminal behavior disrupted the lives of thousands of computer users.  Thanks to the collaborative work of the FBI and our partners in law enforcement, private industry and academia, a prolific cybercriminal has been neutralized, and has now admitted his guilt in a U.S. courtroom.”

“Today justice has finally arrived for Peter Levashov, who is perhaps better known in the cyber community by his online identity, Peter Severa,” said FBI Special Agent in Charge Turner.  “The FBI’s New Haven Division has been engaged in a multiyear investigation of Levashov, with evidence gathered from a number of countries around the world.   Today’s guilty plea should serve as an unequivocal reminder to all those who use the internet for illicit purposes:  The FBI will pursue you regardless of what country you live in and the length of time it might take to secure your eventual arrest.  As we move forward, no cyber criminal should rest easy.  The men and women of the FBI’s New Haven Division, along with the members of our Cyber Task Force and our many other federal, state, local, and tribal partners across the state, will continue to employ the same dedication and hard work, which made this effort such a success, to the continued protection of the citizens of Connecticut and the nation as a whole.”

According to court documents and statements made in court, a botnet is a network of computers infected with malicious software that allows a third party to control the entire computer network without the knowledge or consent of the computer owners.  Since the late 1990s until his arrest in April 2017, Levashov controlled and operated multiple botnets, including the Storm, Waledac and Kelihos botnets, to harvest personal information and means of identification (including email addresses, usernames and logins, and passwords) from infected computers.  To further the scheme, Levashov disseminated spam and distributed other malware, such as banking Trojans and ransomware, and advertised the Kelihos botnet spam and malware services to others for purchase in order to enrich himself.  Over the course of his criminal career, Levashov participated in and moderated various online criminal forums on which stolen identities and credit cards, malware and other criminal tools of cybercrime were traded and sold.

Spanish authorities arrested Levashov in Barcelona on April 7, 2017, based upon a criminal complaint and arrest warrant issued in the District of Connecticut.  At the time of Levashov’s arrest, Kelihos infected at least 50,000 computers.

On April 10, 2017, the Justice Department announced that it had taken action to dismantle the Kelihos botnet.

On April 20, 2017, a grand jury in the District of Connecticut returned an indictment charging Levashov with multiple offenses related to this scheme.  Levashov was extradited to the United States in February.

Levashov pleaded guilty before U.S. District Judge Robert N. Chatigny to one count of causing intentional damage to a protected computer, one count of conspiracy, one count of wire fraud and one count of aggravated identity theft.

Judge Chatigny scheduled sentencing for Sept. 6, 2019.  Levashov is detained pending sentencing.

The FBI’s New Haven Division and Anchorage Division are investigating the case, with the assistance from the Spanish National Police.  Senior Trial Attorney Anthony Teelucksingh of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorneys Vanessa Richards and David Huang of the District of Connecticut are prosecuting the case.  The Criminal Division’s Office of International Affairs handled the extradition in this matter, with assistance from the U.S. Marshals Service.  The University of Alabama at Birmingham, ThreatStop, SpamHaus, Cisco, Cambridge University, and Cloudmark also provided invaluable assistance in the investigation and prosecution of Mr. Levashov.

September 17, 2018 in AML | Permalink | Comments (0)

Sunday, September 16, 2018

UK Court Considers Evidence Order Initiated in US in Dreymoor Fertilisers Overseas v. Eurochem Trading Gmbh and JSC MCC Eurochem

Dreymoor Fertilisers Overseas Pte Limited v. Eurochem Trading and JSC MCC Eurochem

The application

  1. This is an application by the claimant, Dreymoor Fertilisers Overseas Pte Ltd ("Dreymoor"), to continue an injunction to restrain the defendants from enforcing an order made by a court in the United States requiring Mr Sandeep Chauhan to disclose documents in his possession and to provide evidence by way of deposition. The order was made pursuant to section 1782 of the United States Code and was stated to be made for the purpose of providing evidence in proceedings taking place in the British Virgin Islands and Cyprus. However, the defendants make no secret of the fact that they intend also to use whatever information is obtained pursuant to the order in arbitrations between the parties in London. Dreymoor submits that this would constitute an unconscionable interference with the arbitral process which should be restrained by an injunction. I shall refer to the order of the United States court as "the 1782 Order".
  2. An interim injunction was granted by Bryan J at a without notice hearing on 27 July 2018. Dreymoor seeks now to continue that injunction until after the completion of disclosure in the arbitrations so far as production of documents is concerned and until after the conclusion of the evidentiary hearing in the arbitrations so far as the deposition is concerned. Its position is that it will produce as part of its disclosure in the arbitrations any material documents in Mr Chauhan's possession, thereby rendering the order for disclosure by Mr Chauhan unnecessary, and that it intends and expects to be able to produce a witness statement from Mr Chauhan and to make him available for cross-examination at the hearing, thereby rendering his deposition unnecessary.
  3. Thus Dreymoor does not seek to prevent enforcement of the 1782 Order for all time. It accepts that the defendants may seek disclosure of documents from Mr Chauhan and may depose him in the future – but only at a time when this will not affect its preparation in the arbitrations and when it will be too late for the defendants to use the fruits of the 1782 Order in the arbitrations.

September 16, 2018 in AML | Permalink | Comments (0)

Saturday, September 15, 2018

ALEXANDER VIK v DEUTSCHE BANK AG

 

ALEXANDER VIK v DEUTSCHE BANK AG

  1. This case highlights the tension which can exist between important interests: enforcing court orders on the one hand; keeping within the jurisdictional limits of the Court, especially as individual liberty is at risk, on the other. Both are indeed facets of the Rule of Law.
  2. The reality of the matter is that the Appellant ("Mr Vik"), as found by Teare J (in one of the judgments under appeal), "…is a man who will do what is necessary to prevent DB obtaining its judgment debt". That said, whatever the underlying "merits", the Respondent ("DB") is not entitled to succeed unless its submissions are justified in terms of the jurisdictional limits of this Court.
  3. The present proceedings arise out of DB's efforts to enforce a judgment debt, said now to amount to over US$320 million ("the judgment debt"), owed to DB by Sebastian Holdings. Inc. ("SHI"). Mr Vik, described by DB as "a Monaco domiciled ultra high net worth individual", was at all material times SHI's sole shareholder and director. Following a lengthy trial in the Commercial Court, Cooke J ordered SHI to pay DB the judgment debt in November 2013.

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

Friday, September 14, 2018

Stronger anti-money laundering EU Commission supervision for a stable banking and financial sector – Questions and Answers

What did the EU Commission propose today?

The Commission proposed today to further strengthen the supervision of EU financial institutions to better address money-laundering and terrorist financing threats. 

While the EU has strong anti-money laundering rules in place, recent cases involving money laundering in some EU banks have raised concerns that those rules are not always supervised and enforced effectively across the EU. This creates risks for the integrity and reputation of the European financial sector, but may also have financial stability implications for specific banks. 

As part of the broader efforts to complete Banking Union by risk reduction and risk sharing and develop Capital Markets Union, decisive action must be taken to ensure that anti-money laundering rules are effectively supervised across the EU, and different authorities cooperate closely with each other. 

Therefore, the European Commission proposes today to amend the Regulation on the European Banking Authority (EBA) in order to strengthen the EBA's role and give it the necessary tools and resources to ensure effective cooperation and convergence of supervisory standards. 

This is part of a broader strategy to strengthen the EU framework for prudential and anti-money laundering supervision for financial institutions, which the Commission is setting out in a Communication. It consists of legislative and non-legislative measures to make anti-money laundering supervision more effective and improve the cooperation between prudential and anti-money laundering supervisors. 

These measures will contribute to promoting the integrity of the EU's financial system, ensuring financial stability and protection from financial crime.

What are today's anti-money laundering rules and how do supervisory authorities manage associated risks? 

The EU has a strong legal framework for preventing and fighting money laundering and terrorist financing in place. Financial institutions as well as other entities are required to put in place internal systems to identify, assess and manage money-laundering risks related to their business. The supervisory framework for combating money laundering is based on the Anti-Money Laundering Directive, which also applies to a number of actors outside the financial services sector. While the rules are set at European level, their enforcement is carried out by national authorities. 

The fifth revision of the Anti-Money Laundering Directive is an important step forward towards a stronger supervision of money-laundering issues in the EU. The Directive sets up a system for better cooperation and exchange of information between money-laundering and prudential supervisors. It also provides for the conclusion of a Memorandum of Understanding between the money laundering supervisors and the European Central Bank for the exchange of information. 

Why is additional action on supervision required? 

Despite this strengthened legislative framework, several recent cases of money laundering in European banks have given rise to concerns about weaknesses and gaps in the implementation of the legislative framework by the EU's network of different supervisors, in relation to three issues in particular: 

  • Delayed and insufficient supervisory actions to tackle weaknesses in financial institutions' anti-money laundering risk management;

  • shortcomings with respect to cooperation and information sharing both at domestic level, between prudential and anti-money laundering authorities, and between authorities in different Member States;

  • lack of common arrangements for the cooperation with third countries in relation to the anti-money laundering supervision of financial institution. 

In the EU, the supervision of compliance with anti-money laundering legislation is carried out at national level.

In the Banking Union, the Single Supervisory Mechanism (SSM) is tasked with the direct supervision of significant banks. At the same time, for the prudential aspects relevant to money laundering supervision, it has to apply and rely on national legislation transposing EU Directives in the relevant Member State.

At EU level, the European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority) have the mandate to ensure that the Union's prudential and anti-money laundering rules are applied consistently, efficiently and effectively. However, this is just one of the many tasks these authorities have to carry out. In addition, supervisors are subject to differently transposed national rules, as prudential requirements in legislation have not been supplemented with harmonised guidance. 

What changes to the current anti-money laundering framework does the Commission propose? 

In order to address the shortcomings identified and further reduce risks in the EU financial system, the Commission proposes, updating its previous proposals on the European Supervisory Authorities, to introduce a set of targetedamendments to the existing legislation on prudential supervision and the regulatory framework of the European Supervisory Authorities.

To ensure high quality anti-money laundering supervision and effective coordination among different authorities across all Member States, anti-money laundering responsibilities in the financial sector will be entrusted specifically to one of the three European Supervisory Authorities, namely the European Banking Authority (EBA), as it is in the banking sector that money-laundering and terrorist financing risks are the most likely to have a systemic impact. 

The Commission proposes to clarify the EBA's mandate in the context of anti-money laundering in order to make it more explicit and more comprehensive, accompanied by a clear set of tasks, corresponding powers and adequate resources. 

What is the role of the European Banking Authority under the new rules? 

On the basis of existing tools and powers of the Authorities, as amended by the pending proposal to review the European Supervisory Authorities, the Commission proposes to give the European Banking Authority (EBA) a more explicit and comprehensive mandate to ensure that risks of money laundering and terrorist financing in the Union's financial system are effectively and consistently incorporated into the supervisory strategies and practices of all relevant authorities. 

The amended Regulation will:

  • ensure that breaches of anti-money laundering rules are consistently investigated: the EBA will be able to request national anti-money laundering supervisors to investigate potential material breaches and to request them to consider targeted actions - such as sanctions;

  • provide that the national anti-money laundering supervisors comply with EU rules and cooperate properly with prudential supervisors. The EBA's existing powers will be reinforced so that, as a last resort if national authorities do not act, the EBA will be able to address decisions directly to individual financial sector operators;

  • enhance the quality of supervision through common standards, periodic reviews of national supervisory authorities and risk-assessments;

  • enable the collection of information on anti-money laundering risks and trends and fostering exchange of such information between national supervisory authorities (so-called data hubs);

  • facilitate cooperation with non-EU countries on cross-border cases;

  • establish a new permanent committee that brings together national anti-money laundering supervisory authorities.

These amendments will bring major improvements to the supervisory framework of anti-money laundering risks and contribute to risk reduction in the financial sector.

Supervisory framework

How will the three European Supervisory Authorities cooperate on the fight against anti-money laundering and terrorist financing?

A dedicated committee will be established within the EBA to prepare decisions relating to money laundering and terrorist financing measures (comparable to the existing EBA bank resolution committee). It will be composed of heads of national supervisory authorities responsible for ensuring compliance with laws against money laundering and terrorist financing. The EBA will also cooperate closely with the ESMA and the EIOPA in the framework of the existing Joint Committee of the European Supervisory Authorities (ESAs). 

How did the Commission prepare this proposal? 

In May 2018, the Commission invited the Chairpersons of the European Supervisory Authorities, the Chairperson of the Anti-Money Laundering Committee of the European Supervisory Authorities and the Chairperson of the Supervisory Board of the European Central Bank, to establish a Joint Working Group to initiate a collective reflection on ways of improving the current framework for cooperation between anti-money laundering and prudential supervisors. 

How does this link to work on completing the Banking Union? 

Money laundering issues create risks for the integrity and reputation of the European financial sector and may have financial stability implications for specific banks. The European Parliament and the Council have therefore indicated that this is a matter for further work as the EU is completing its Banking Union by risk reduction and risk sharing and developing the Capital Markets Union. Anti-money laundering issues are part of the work on Banking Union mandated by the European Council until December, and the European Parliament has proposed relevant amendments in the context of the pending relevant legislative proposals, in particular the Banking Package, proposed by the Commission in November 2016. 

What are the next steps? 

The proposed legislative amendments should be considered immediately in the ongoing legislative negotiations on the Commission proposal to review the European Supervisory Authorities' (ESAs) Regulations, adopted by the Commission in September 2017. The Commissions encourages the European Parliament and the Council to reach agreement on these proposals swiftly.

September 14, 2018 in AML | Permalink | Comments (0)

KBR v SFO of UK on its bribery investigation

 

INTRODUCTION

    1. On this rolled up hearing the Claimant ("KBR Inc") seeks permission to apply for judicial review and, if permission is granted, the quashing of the Defendant's ("the SFO's") Notice, issued on behalf of the Director of the SFO ("the Director") on 25th July, 2017 ("the July Notice"), pursuant to s.2(3) of the Criminal Justice Act 1987 ("the CJA 1987"), requiring KBR Inc to produce documents held by it outside the United Kingdom ("the UK"), or declaratory relief to like effect. We grant permission.
    2. The KBR Inc challenge to the July Notice is advanced on three Grounds:

i) The July Notice was ultra vires as it requested material held outside the (UK) jurisdiction from a company (KBR Inc) incorporated in the United States of America ("the US"); ("Ground I: Jurisdiction");

ii) It was an error of law on the part of the Director to exercise his s.2 CJA 1987 powers despite his power to seek Mutual Legal Assistance ("MLA") from the US authorities; ("Ground II: Discretion");

iii) The July Notice was not effectively "served" by the SFO handing it to a "senior officer" of KBR Inc who was temporarily present within the jurisdiction; ("Ground III: 'Service'").

    1. KBR: KBR Inc is incorporated in the US but forms part of a multinational group of companies ("the KBR Group"), of which it is the ultimate parent, using a subsidiary structure. KBR Inc describes itself on its website as "a global provider of differentiated professional services and technologies…within the Government Services and Hydrocarbons sectors". According to the website, the KBR Group employs approximately 34,000 people worldwide (including joint ventures); it has customers in more than 80 countries and operations in 40 countries.
    2. KBR Inc does not have a fixed place of business in the UK and it was not contended before us that it (i.e., KBR Inc itself) carried on business in the UK.
    3. However, KBR Inc does have UK subsidiaries, including Kellogg Brown & Root Ltd ("KBR Ltd"). On 17th February, 2017, the SFO commenced a criminal investigation ("the KBR investigation") into, amongst others, KBR Ltd, concerning suspected offences of bribery and corruption. The KBR investigation continues; it arose initially out of the SFO's ongoing investigation into the suspected corrupt activities of the Unaoil Group ("Unaoil") with headquarters in Monaco, begun on 22nd March, 2016. (See, separately, R (Unaenergy Group Holding) v Serious Fraud Office [2017] EWHC 600 (Admin)[2017] 1 WLR 3302). According to the Witness Statement dated 12thMarch, 2018 of Mr Martin, a Case Controller and Solicitor at the SFO, Unaoil was engaged at various times by KBR's UK subsidiaries (including KBR Ltd) from 1996 onwards "…ostensibly to provide consultancy services in the oil and gas sectors in the Caspian region, primarily Kazakhstan and Azerbaijan".
    4. Separately from the SFO's KBR investigation, KBR Inc is under investigation by the US Department of Justice ("DoJ") and the US Securities and Exchange Commission ("SEC"). As summarised by Mr Martin, the DoJ and SEC investigation is confined to KBR's UK subsidiaries' relationship with Unaoil; by contrast, the (SFO's) KBR investigation extends to the activities of other commercial agents suspected to have been used by KBR's UK subsidiaries for corrupt purposes, focused on but not limited to, activities in the Caspian region.
    5. It is said by the SFO (on the basis of Mr Martin's evidence) that the KBR investigation has identified a large number of suspected corrupt payments made by KBR's UK subsidiaries to Unaoil, totalling in excess of US$23 million. Furthermore, from at least 2005 onwards, these payments appear to have required the express approval of KBR Inc and to have been processed by KBR Inc's treasury function based in the US. From around March 2010, the SFO contends that the approval of KBR's compliance function was also required before a payment could be released.
    6. "By way of example" Mr Martin details a Unaoil invoice dated 22nd December, 2010 requesting payment from KBR Ltd of a sum amounting to a little over US$1.1 million. The payment was said to be due under a consultancy agreement between KBR Ltd (in its former name) and Unaoil, dated 23rd October, 2002 (as amended) and in accordance with a Project Revenue Report covering the period 1st December, 2009 to 30th November, 2010. In response to the invoice, a "Payment Request" was prepared internally by KBR, requiring the approval of Ms Eileen Akerson (KBR Inc's Executive Vice President, General Counsel and Corporate Secretary) and Ms Symon (KBR Inc's Chief Compliance Officer), of whom more presently. Although the invoice was addressed to KBR Ltd, it appears to have been sent directly by Unaoil to the KBR Financial Controls Group in Houston and the approvals process was thereafter managed and verified by KBR Inc's Account Payment Managers, based in the US.
    7. The SFO: One of the recommendations of the Fraud Trials Committee appointed by the Lord Chancellor and Home Secretary in 1983, under the Chairmanship of Lord Roskill ("the Roskill Committee") was the need "for a new unified organisation responsible for all the functions of detection, investigation and prosecution of serious fraud cases…". That recommendation gave rise to the creation of the SFO in 1987. As its immediate past Director observed in 2014:
"…the SFO is not a regulator, an educator, an advisor, a confessor, or an apologist…the SFO is a law enforcement agency dealing with top end, well-heeled, well-lawyered crime. We enforce the law in our specialist field."
    1. S.1(1) of the CJA 1987 provided for the constitution of the SFO. The Director is appointed pursuant to s.1(2) and is given the power, by s.1(3), to "investigate any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud".
    2. For present purposes, as provided by s.2(1), the powers of the Director under s.2 "…shall be exercisable, but only for the purposes of an investigation under section 1 above…in any case in which it appears to him that there is good reason to do so for the purpose of investigating the affairs, or any aspect of the affairs, of any person". S.2(3) is central to the present dispute and is in these terms:
"The Director may by notice in writing require the person under investigation or any other person to produce….any specified documents which appear to the Director to relate to any matter relevant to the investigation or any documents of a specified description which appear to him so to relate…."

Any person who "without reasonable excuse" fails to comply with a requirement imposed on him by s.2, is exposed to criminal penalties and liable on summary conviction to imprisonment for a term not exceeding 6 months, or a fine, or both: s.2(13).

    1. The April Notice: On 4th April, 2017, a Notice under s.2(3) CJA 1987 was issued to KBR Ltd for the production of 21 separate categories of material ("the April Notice"). On any view there was, at least initially, a degree of cooperation from the KBR Group. Thus, on 2nd May, 2017, a letter from Mr Vitou of Pinsent Masons LLP, the solicitors acting for KBR Ltd and KBR Inc (in these proceedings), said this:
"As discussed the KBR Group, namely KBR Inc, including but not limited to, KBR Inc's UK subsidiaries ('KBR' or the 'Company') will fully cooperate with the SFO investigation.
Consequently, KBR's provision of information to the SFO is not limited to documents held by KBR UK – it extends to responsive documents from other KBR Group entities."
    1. Thereafter, in summary, it appears that the SFO was provided with information in three different ways:

i) By KBR Ltd in response to the April Notice in respect of responsive documents already under the custody or control of KBR Ltd, located in the UK prior to the issuing of the April Notice;

ii) By KBR Ltd in response to the April Notice in respect of responsive documents located outside the UK and sent to KBR Ltd at KBR Inc's direction to forward to the SFO;

iii) By KBR Inc on a "voluntary basis" in respect of documents located outside the UK which KBR Inc had disclosed to the DoJ and SEC as a result of their inquiries into Unaoil.

    1. The July Notice: Subsequently, especially from 21st June, 2017 onwards, the SFO became concerned that the KBR Group was seeking to draw a distinction between documents held by or under the control of KBR Ltd and documents outside of the jurisdiction and beyond KBR Ltd's control. In parallel, Mr Vitou for KBR was seeking a meeting with the SFO to discuss, inter alia, the progression of the KBR investigation. Mr Martin, on behalf of the SFO, was in favour of such a meeting, at least in part because he wished to voice his concerns as to the KBR Group's purported cooperation with the KBR investigation to date. Ultimately, a meeting was arranged for the 25thJuly and, at the insistence of the SFO, representatives of KBR Inc agreed to attend; in short, the SFO required "the clients" to be present, not simply the lawyers. In the event, those representatives were Ms Akerson and Ms Symon, both already mentioned.
    2. According to Mr Martin, on the morning of 25th July, 2017 and in advance of the meeting that day, a draft of the July Notice was prepared in case "it might be necessary to hand the Notice" to either Ms Akerson or Ms Symon "in the event that a satisfactory response was not received as to KBR Inc's willingness to provide the outstanding materials sought in the April Notice". In his Witness Statement, Mr Martin goes on to say this:
"The first 21 requests in the [July] Notice mirrored the 21 requests contained in the April Notice, with the exception that the references to material 'held by KBR UK' in the April Notice were amended to read 'held by KBR'. Six additional categories of material were also requested which I considered would assist the SFO's investigation… The resulting July Notice was addressed to 'KBR Inc'. "

It should be noted that the July Notice was prefaced by the wording that it sought the documents there set out "To the extent that such materials have not already been produced to the SFO by KBR UK".

    1. In the event, in the course of the 25th July meeting, Mr Martin asked whether the outstanding material requested in the April Notice, not yet provided to the SFO on the basis that it was located outside of the UK, would be provided. In response, the SFO was told that KBR Inc's Board required time to consider the position. At that point, Ms Akerson's name was inserted in the draft July Notice and, thus completed, it was handed to her.
    2. For extraneous reasons, including the impact of Hurricane Harvey on Houston, where KBR Inc had its headquarters, time for compliance with the July Notice was extended until 22nd September, 2017.
    3. On 20th September, 2017, however, Mr Vitou wrote to the SFO saying that KBR Inc did not consider the July Notice lawful. Furthermore, Mr Vitou's letter included the following statement:
" …if the July Notice was intended to require Ms Akerson, as an officer of KBR Inc or otherwise, to produce documents responsive to the July Notice on KBR Inc's behalf, KBR Inc has declined and resolved that it shall decline any request or demand made by Ms Akerson to be provided with material belonging to KBR Inc whose production the SFO seeks to compel from KBR Inc. "

September 14, 2018 in AML | Permalink | Comments (0)

Romanian National Pleads Guilty in Multi-State ATM Card Skimming Scheme

A Romanian man pleaded guilty today in U.S. District Court in Springfield, Massachusetts to conspiracy to commit bank fraud, bank fraud, and aggravated identity theft in connection with a multi-state card skimming scheme. 

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Andrew E. Lelling of the District of Massachusetts, Special Agent in Charge Stephen Marks of the U.S. Secret Service (USSS) Boston Field Division, Special Agent in Charge Peter C. Fitzhugh of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) New England Division, Medford Police Chief Leo Sacco and East Meadow, Massachusetts Police Chief Jeffrey Dalessio made the announcement today. 

Bogdan Viorel Rusu, 38, of Romania and formerly residing in Queens, New York, pleaded guilty to an Information that charged him with one count each of conspiracy to commit bank, bank fraud, and aggravated identity theft.  U.S. District Court Judge Mark G. Mastroianni scheduled sentencing for Dec. 11.  Rusu was arrested on Nov. 14 2016, and initially charged by complaint in the District of New Jersey and has been in custody since. 

According to the agreed-upon statement of facts in Rusu’s plea agreement, between approximately Aug. 3, 2014 until his arrest on Nov. 14, 2016, Rusu engaged in a widespread bank fraud conspiracy that targeted various banks in Massachusetts, New York, and New Jersey.  As set forth below, Rusu and his co-conspirators captured payment card account information from customers as they accessed their accounts through automatic teller machines (ATMs) and then used that information to steal money from the customers’ bank accounts.

Rusu admitted that to capture the account information, he and his co-conspirators installed electronic devices (i.e., “skimming devices”) that surreptitiously recorded customers’ bank account information on the banks’ card-readers at the vestibule door, the ATM machine, or both.  In addition, Rusu and his co-conspirators installed other devices (generally either pinhole cameras or keypad overlays) in order to record the keystrokes of bank customers as they entered their personal identification numbers to access their bank accounts.  After enough customers accessed the ATM machine, Rusu and/or his co-conspirators removed the skimming devices.  They then transferred the illegally obtained information from the skimming devices and pinhole cameras to counterfeit payment cards.  Finally, they visited other ATM machines with the counterfeit cards to obtain cash from the skimmed bank accounts before the bank or the customers became aware of their illicit conduct.

Pursuant to his plea agreement, Rusu admitted that he and his co-conspirators caused losses of $364,419 in Massachusetts and $75,715 in New York (totaling $440,134 from 531 individual accounts), in addition to losses in New Jersey of $428,581.

September 14, 2018 in AML | Permalink | Comments (0)

Thursday, September 13, 2018

Bahrain’s measures to fight money laundering and the financing of terrorism and proliferation

The Kingdom of Bahrain has the foundation for an effective regime to combat money laundering and terrorist finance, but needs to further develop its measures based on risk.

The FATF and the Middle East and North Africa Financial Action Task Force (MENAFATF) jointly conducted an assessment of Bahrain’s anti-money laundering and counter-terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of the country’s AML/CFT system and its level of compliance with the FATF Recommendations.

At the time of the on-site visit, Bahrain’s national risk assessment was ongoing. Although the country demonstrated a moderate level of understanding of its money laundering and terrorist financing risks, it should use the risk assessment, incorporating information from outside Bahrain, to further strengthen its measures. This includes amending the terrorism offence, which is currently inconsistent with the Terrorist Financing Convention, and pursuing both money laundering and terrorist financing in line with the country’s risk profile. 

Bahrain has identified a subset of non-profit organisations for potential terrorism abuse. However, the country currently applies restrictive obligations on all non-profit organisations operating in Bahrain. In line with the FATF’s requirements, the country should implement mitigation measures that are commensurate to the risks.

Banks, money value transfer services, insurance and securities sectors have a good understanding of money laundering and terrorist financing risks. Financial institutions are able to implement targeted financial sanctions without delay. However, designated non-financial businesses have a fragmented understanding of ML/TF risks and the majority do not implement targeted financial sanctions without delay.

Bahrain demonstrated a high level of domestic co-operation and information exchange. The country has also demonstrated that it co-operates well with counterparts in other countries, responding to formal requests for mutual legal assistance and informal requests for information.

FATF adopted this report at its Plenary meeting in June 2018.

Download the report: 

Mutual Evaluation Report of Bahrain - 2018

Mutual Evaluation Report of Bahrain - Executive Summary

Earlier report on Bahrain's measures to combat money laundering and terrorist financing

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

Wednesday, September 12, 2018

Financial Advisor Pleads Guilty to Money Laundering Charge in Connection With Bribery Scheme Involving Ecuadorian Officials

A U.S.-based financial advisor pleaded guilty for his role in an international money laundering conspiracy involving the proceeds of a scheme to pay bribes to officials of Ecuador’s state-owned and state-controlled energy company, Empresa Pública de Hidrocarburos del Ecuador (PetroEcuador).  

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Benjamin G. Greenberg of the Southern District of Florida and Acting Special Agent in Charge Kelly Jackson of IRS Criminal Investigation’s (IRS-CI) Washington, D.C. office made the announcement.

Jose Larrea, 40, a U.S. citizen who lives in Miami, Florida, pleaded guilty in Miami before U.S. District Judge Marcia G. Cooke of the Southern District of Florida to one count of conspiracy to commit money laundering.  He is scheduled to be sentenced on Nov. 14, by Judge Cooke.

According to his admissions at the plea hearing, Larrea conspired with his co-defendant, Frank Roberto Chatburn Ripalda (Chatburn), 40, a dual U.S. and Ecuadorian citizen who also lives in Miami, and others to conceal the proceeds of an unlawful scheme, namely to pay bribes to PetroEcuador officials.  Larrea admitted to participating in the money laundering scheme by wiring more than $1 million from his own U.S.-based bank account to several U.S.-based bank accounts.  Those wire transfers were made to conceal a bribery scheme involving an oil services contractor who made payments to PetroEcuador officials in an effort to retain existing contracts and win new business with PetroEcuador.  Larrea further admitted that he created false and back-dated documents on behalf of the oil services contractor.  

Larrea is the fourth individual to plead guilty in this case.  In addition to Larrea, two former officials of PetroEcuador who received bribe payments and the contractor described above have previously pleaded guilty to date in connection with the government’s ongoing investigations into the PetroEcuador bribery and money laundering schemes. 

Chatburn was charged in the same indictment on April 19, with one count of conspiring to violate the Foreign Corrupt Practices Act (FCPA), one count of violating the FCPA, one count of conspiring to commit money laundering and two counts of money laundering.  Chatburn has pleaded not guilty, and his trial is currently set for Oct. 15. 

All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI’s International Corruption Squad in Miami and IRS-CI are investigating the case.  Assistant Chief Lorinda Laryea and Trial Attorneys David Fuhr and Katherine Raut of the Criminal Division’s Fraud Section, Trial Attorneys Randall Warden and Mary Ann McCarthy of the Criminal Division’s Money Laundering and Asset Recovery Section, and Assistant U.S. Attorneys Karen Rochlin and Nalina Sombuntham of the Southern District of Florida are prosecuting the case. 

The U.S. Marshals Service and the Criminal Division’s Office of International Affairs has provided significant assistance by obtaining key evidence in this case, as have public authorities in, among other countries, Ecuador, Panama and the Cayman Islands.

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

Tuesday, September 11, 2018

Former Director of Detroit Technology Office Sentenced to Prison for Bribery

The former Director of the City of Detroit’s Office of Departmental Technology Services (DTS) was sentenced to 20 months in prison, to be followed by two years of supervised release, for accepting more than $29,500 in bribe payments from two information technology companies providing services and personnel to the City of Detroit.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Timothy R. Slater of the FBI’s Detroit Division made the announcement.

Charles L. Dodd, 48, of Canton, Michigan, previously pleaded guilty in the U.S. District Court for the Eastern District of Michigan to one count of federal program bribery.  U.S. District Judge Robert H. Cleland of the Eastern District of Michigan presided over the sentencing.

According to admissions made in connection with his plea, Dodd held numerous supervisory positions with the City of Detroit, culminating with his appointment as Director of DTS in 2014. In those positions, Dodd exercised supervisory authority over a staff of dozens of city employees and contractors, and held substantial influence over the administration of multi-million-dollar contracts between the City of Detroit and private information technology companies.

Dodd admitted that between 2009 and 2016, he accepted cash payments totaling more than $15,000 and a trip to North Carolina, among other things of value, from Parimal D. Mehta, 55, of Northville, Michigan, who was then the president and chief executive officer of an information technology company. During that same time period, Dodd also accepted more than $14,500 in cash payments from the chief executive officer and an employee of another information technology company. In return for these cash payments and other things of value, Dodd agreed to provide preferential treatment to the companies, he admitted.

September 11, 2018 in AML | Permalink | Comments (0)

Friday, September 7, 2018

New York Attorney Pleads Guilty to Tax Fraud Related to Multimillion-Dollar Embezzlement From Deceased Client’s Estate

A New York-licensed attorney and former partner at a New York law firm pleaded guilty today to conspiracy to defraud the United States and tax evasion arising from a scheme to embezzle millions of dollars from a deceased client’s estate, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Geoffrey S. Berman for the Southern District of New York.

“The fiduciary duty that a lawyer owes to a client is paramount to the practice of law,” said Principal Deputy Assistant Attorney General Zuckerman. “The Justice Department will prosecute and seek just punishment against any attorney who victimizes their clients for their own personal gain.”

“As he admitted in court today, Steven Etkind violated the law, the canons of his profession, and the trust of his client by stealing more than $3.5 million from the client’s estate,” said U.S. Attorney Berman. “Etkind now awaits sentencing for his crimes.”

According to court documents and statements made in court, Steven M. Etkind was a partner at a New York law firm’s tax, trusts and estates group and a Certified Public Accountant.  Etkind performed legal work for a successful entrepreneur client, who passed away in 2008, naming Etkind as the co-executor of his $35 million estate.

The client’s will directed the creation of two charitable trust private foundations, funded with assets from the client’s estate, for the sole purpose of donating to 501(c)(3) charitable organizations, including those aimed at assisting Jewish-sponsored organizations.  Etkind was named co-trustee of these trusts. 

Beginning in 2009, Etkind and his co-conspirator set up a phony charitable organization, the United Jewish Education Foundation (UJEF), and used it to steal more than $3.5 million from these charitable trusts.  As part of the conspiracy, Etkind directed that donations from the trusts be first made to legitimate Jewish charitable organizations in order to give the disbursements the appearance of legitimate donations.  Etkind and his co-conspirator then redirected the funds to accounts of UJEF, the phony charity that his co-conspirator controlled. 

Etkind subsequently directed his co-conspirator to write checks, totaling $327,500, to a bank account in the name of JE Capital Holding Corp., a nominee corporate entity that Etkind controlled exclusively.  Etkind further directed more than $3 million to be used in 2010 to purchase a 6,300 square-foot home with a swimming pool in Southampton, New York.  The Southampton property was purchased for the use and enjoyment of Etkind and his family.  Etkind later transferred title of the property to JE Trust, a nominee trust he controlled. 

To conceal his embezzlement, Etkind filed, and caused to be filed, fraudulent personal, corporate, and charitable trust returns with the Internal Revenue Service (IRS).  During the course of a subsequent audit of UJEF by the IRS Tax Exempt & Government Entities Division, Etkind and his co-conspirator made several false and misleading statements, including about the true ownership of the Southampton Property.         

United States District Judge John G. Koelt scheduled Etkind's sentencing for January 18, 2019.  Etkind faces a statutory maximum sentence of five years in prison on the conspiracy charge and five years in prison for tax evasion.  He also faces a period of supervised release, restitution, and monetary penalties. 

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Berman praised the outstanding efforts by special agents of IRS Criminal Investigation, who conducted the investigation, and Trial Attorneys Jorge Almonte and Jack A. Morgan of the Tax Division, who are prosecuting the case, as well as the IRS’s Tax Exempt & Government Entities Division for their assistance in the investigation.

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

Wednesday, September 5, 2018

MONEYVAL calls for actions to combat money laundering and terrorist financing in line with Latvia’s risk profile

In a report published today on Latvia, MONEYVAL acknowledges that large financial flows passing through the country pose a significant money laundering threat. Latvia is a regional financial centre, with a majority of its commercial banks focusing on servicing foreign customers, mainly from the Commonwealth of Independent States (CIS) countries. Hence one of Latvia’s key money laundering (ML) risks remains the vulnerability of CIS countries to economic crime, especially corruption. Latvia’s own level of corruption, vulnerability to international organised crime and significant shadow economy are also key factors of the overall ML risk faced by Latvia.

The report concludes that the overall appreciation of ML and financing of terrorism (FT) risk in the financial sector is not commensurate with the factual exposure of financial institutions in general, and banks in particular, to the risk of being misused for ML and FT. The general understanding of risks among designated non-financial businesses and professions is limited to risks relevant for their particular businesses and professions; it does not amount to an appropriate perception and awareness of ML/FT risks.

MONEYVAL underlines that certain authorities, such as the Office for the Prevention of Laundering of Proceeds Derived from Criminal Activity (financial intelligence unit) and the Financial Capital Market Commission (FCMC), demonstrated a rather broad understanding of the risks within the anti-money laundering and combating financing of terrorism (AML/CFT) system. However, there is uneven and overall inadequate appreciation of the potentially ML related cross-border flows of funds passing through Latvia.

The supervisors demonstrate widely varying views and knowledge about ML/FT risks. Despite the knowledgeable and persistent approach taken by the FCMC to the non-resident banking sector, change of risk-appetite in this sector remains slow.

The report acknowledges that since the last evaluation, Latvia has taken steps to improve its AML/CFT legal framework. At the same time the report states that Latvia’s legal basis for targeted financial sanctions in the area of FT and proliferation financing calls for urgent clarifications and improvements. It is unclear whether the competent authorities have taken sufficient steps and have the necessary means to mitigate targeted financial sanctions-evasion risks.

The Enterprise Register will be populated by beneficial ownership information obtained from all legal entities. However, this functionality was not up and running as of the time of the visit. When fully implemented, information contained in the Enterprise Register will be publicly accessible.

The report states that, until recently, the judicial system of Latvia did not appear to consider ML as a priority. ML was not investigated and prosecuted in line with its risk profile as a regional financial centre. While results from conviction-based confiscation are hampered by the modest number of ML-convictions, non-conviction based confiscation brought some encouraging first results, allowing Latvian authorities to confiscate considerable amounts in both domestic and international cases.

International cooperation constitutes a critical component of the country’s AML/CFT system. MONEYVAL praises Latvia for proactively cooperating with foreign counterparts, effectively providing and seeking not only mutual legal assistance, but also exchanging financial intelligence, and engaging in joint investigations and cooperation meetings with positive results.

Latvia is to report back to MONEYVAL at the last Plenary meeting in 2019 about the implementation of its recommendations under enhanced follow-up procedures.

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism - MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of their implementation, as well as with the task of making recommendations to national authorities in respect of necessary improvements to their systems.

The evaluation of Latvia’s anti-money laundering and combating financing of terrorism system was based on the 2012 Financial Action Task Force Recommendations, and was prepared using the 2013 Methodology. The evaluation summarises the anti-money laundering and combating financing of terrorism measures in place in Latvia as at the date of the onsite visit (30 October to 10 November 2017).

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

Sunday, September 2, 2018

Two Indicted for Making Corporate Contributions to U.S. Senate Campaign

The former president of a Kentucky-based corporation and a political consultant were both indicted today for using corporate funds to make contributions to the campaign of a candidate for U.S. Senate and for causing the concealment of these contributions from the Federal Election Commission (FEC). Download Lundergan and Emmons Indictment

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Robert M. Duncan Jr. for the Eastern District of Kentucky, and Special Agent in Charge Amy S. Hess of the FBI’s Louisville Field Office, made the announcement.

A federal grand jury in Lexington returned an indictment charging Gerald G. Lundergan, 71, of Lexington, Kentucky, with one count of conspiracy, one count of making corporate campaign contributions, four counts of causing the submission of false statements to the FEC, and four counts of causing the falsification of documents with the intent to obstruct and impede a matter within the FEC’s jurisdiction.  The indictment also charges Dale C. Emmons, 66, of Richmond, Kentucky, with one count of conspiracy, one count of making corporate campaign contributions, two counts of causing the submission of false statements, and two counts of causing the falsification of documents with the intent to obstruct and impede.        

The indictment alleges that Lundergan used the funds of S.R. Holding Company Inc. (“S.R. Holding”), a company he owned, to pay for services provided by consultants and vendors to a campaign for U.S. Senate in the 2014 election cycle.  The candidate for this seat was Lundergan’s family member.  The indictment alleges that Lundergan and another S.R. Holding employee issued a number of payments from S.R. Holding funds for services that included audio-video production, lighting, recorded telephone calls, and campaign consulting between July 2013 and December 2015.  The payments referenced in the indictment allegedly totaled $194,270.39 over time. 

According to the indictment, these payments included $119,145.45 paid from S.R. Holding to Emmons and his company during this period for services to the campaign.   Emmons also used the funds of his corporation, Emmons & Company Inc., to pay other vendors and a campaign worker for services rendered to the campaign.  Over time, according to the indictment, Emmons paid $38,603.80 to these vendors for recorded telephone calls, technological support services, and other campaign-related expenses. 

The indictment alleges that Lundergan and Emmons concealed these activities from other officials associated with the campaign.  Their concealments allegedly caused the campaign unwittingly to file false reports with the FEC, in that the reports failed to disclose the source and amount of the corporate contributions.  

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

Two Indicted for Making Corporate Contributions to U.S. Senate Campaign

The former president of a Kentucky-based corporation and a political consultant were both indicted today for using corporate funds to make contributions to the campaign of a candidate for U.S. Senate and for causing the concealment of these contributions from the Federal Election Commission (FEC). Download Lundergan and Emmons Indictment

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Robert M. Duncan Jr. for the Eastern District of Kentucky, and Special Agent in Charge Amy S. Hess of the FBI’s Louisville Field Office, made the announcement.

A federal grand jury in Lexington returned an indictment charging Gerald G. Lundergan, 71, of Lexington, Kentucky, with one count of conspiracy, one count of making corporate campaign contributions, four counts of causing the submission of false statements to the FEC, and four counts of causing the falsification of documents with the intent to obstruct and impede a matter within the FEC’s jurisdiction.  The indictment also charges Dale C. Emmons, 66, of Richmond, Kentucky, with one count of conspiracy, one count of making corporate campaign contributions, two counts of causing the submission of false statements, and two counts of causing the falsification of documents with the intent to obstruct and impede.        

The indictment alleges that Lundergan used the funds of S.R. Holding Company Inc. (“S.R. Holding”), a company he owned, to pay for services provided by consultants and vendors to a campaign for U.S. Senate in the 2014 election cycle.  The candidate for this seat was Lundergan’s family member.  The indictment alleges that Lundergan and another S.R. Holding employee issued a number of payments from S.R. Holding funds for services that included audio-video production, lighting, recorded telephone calls, and campaign consulting between July 2013 and December 2015.  The payments referenced in the indictment allegedly totaled $194,270.39 over time. 

According to the indictment, these payments included $119,145.45 paid from S.R. Holding to Emmons and his company during this period for services to the campaign.   Emmons also used the funds of his corporation, Emmons & Company Inc., to pay other vendors and a campaign worker for services rendered to the campaign.  Over time, according to the indictment, Emmons paid $38,603.80 to these vendors for recorded telephone calls, technological support services, and other campaign-related expenses. 

The indictment alleges that Lundergan and Emmons concealed these activities from other officials associated with the campaign.  Their concealments allegedly caused the campaign unwittingly to file false reports with the FEC, in that the reports failed to disclose the source and amount of the corporate contributions.  

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

Saturday, September 1, 2018

Arkansas State Senator Jeremy Hutchinson Indicted on Wire and Tax Fraud Charges

A federal grand jury in Little Rock, Arkansas indicted current Arkansas State Senator Jeremy Hutchinson for allegedly devising a scheme to steal thousands of dollars in campaign contributions—spending them on personal luxuries and expenses—and then falsifying state campaign finance reports and tax filings as part of the scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Cody Hiland for the Eastern District of Arkansas, Special Agent in Charge Diane Upchurch of the FBI Little Rock Field Office, and Special Agent in Charge Tamera Cantu of IRS Criminal Investigation (IRS–CI) Dallas Field Office, made the announcement.

Hutchinson, 44, of Little Rock, has been a State Senator since 2011 and first became involved in elected politics as a State Representative in 2000. The 12-count indictment charges Hutchinson with eight counts of wire fraud and four counts of filing false tax returns.  Hutchinson will appear before U.S. Magistrate Judge Patricia S. Harris on Sept. 18.

“Jeremy Hutchinson allegedly diverted contributions from his Arkansas State Senate campaigns to pay for an array of personal expenses,” said Assistant Attorney General Benczkowski. “The charges in this case demonstrate the commitment of the Department and our law enforcement partners to investigate and prosecute those involved in alleged campaign-related misconduct.”

“This indictment by the grand jury represents serious charges, and we look forward to preparing our case and presenting it to a jury of 12 people who we trust to do justice in this matter,” said U.S. Attorney Hiland.

“The indictment of Jeremy Hutchinson represents our commitment to vigorously investigate allegations of public corruption by elected officials,” said FBI Special Agent in Charge Upchurch. “We appreciate the efforts of the U.S. Attorney’s Offices for the Eastern and Western Districts of Arkansas, IRS-CI, FBI, and the Criminal Division of the Department of Justice’s Public Integrity Section.”          

“The grand jury’s indictment of Mr. Hutchinson demonstrates the collective resolve of IRS-CI to enforce our nation’s tax laws,” said IRS-CI Special Agent in Charge Cantu.

Counts one through eight of the indictment charge Hutchinson with wire fraud related to falsified state campaign finance reports and soliciting campaign donors with fraudulent intent. Counts nine through 12 charge Hutchinson with tax fraud for allegedly filing false tax returns from 2011 to 2014.

The investigation was conducted by the FBI and IRS-CI. The case is being prosecuted by Trial Attorney Marco Palmieri of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorneys Stephanie Mazzanti and Patrick Harris from the Eastern District of Arkansas and Ben Wulff from the Western District of Arkansas.

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