International Financial Law Prof Blog

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

Wednesday, January 31, 2018

Pennsylvania Biofuel Company Owners Charged with Fraudulently Claiming Fuel Tax Credits

Two owners of a Pennsylvania biofuel company were charged in a superseding indictment with conspiring to defraud the Internal Revenue Service (IRS) and aiding and assisting in the preparation of a fraudulent fuel tax credit refund claim, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division, Acting Assistant Attorney General Jeffrey H. Wood of the Justice Department’s Environment and Natural Resources Division and U.S. Attorney David J. Freed for the Middle District of Pennsylvania.

 Download Wootton and Miner Indictment

According to the superseding indictment, Ben Wootton, of Pennsylvania, and Race Miner, of Colorado owned and operated Keystone Biofuels Inc., located in Shiremanstown, Pennsylvania, and later in Camp Hill, Pennsylvania. Wootton, serving as President, and Miner, serving as Chief Executive Officer, are alleged to have participated in a conspiracy to defraud the IRS by, among other things, fraudulently claiming tax refunds based on the Biodiesel Mixture Credit – a federal excise tax credit for persons or businesses who mix biodiesel with diesel fuel and use or sell the mixture as a fuel.  Biodiesel is a type of renewable fuel that meets a set of specific requirements.   

According to the superseding indictment, the Biodiesel Mixture Credit was available only on fuel meeting those requirements that the claimant had mixed with diesel fuel.  Wootton and Miner allegedly caused Keystone to fraudulently seek tax refunds from the IRS by claiming the credit based on non-qualifying and, in at least some instances, non-existent or non-mixed fuel.  The indictment further alleges that Wootton and Miner created false books and records and supporting documents to account for the nonexistent fuel; engaged in a series of sham financial transactions to give the false books and records the appearance of legitimacy; and sought to obstruct an ongoing IRS investigation by providing false documentation to an IRS Special Agent. 

These charges are in addition to those previously lodged against Wootton and Miner. In a May 2017 indictment, both men, along with Keystone Biofuels Inc., were charged with conspiring to make false statements to the Environmental Protection Agency (EPA) and making false statements to the EPA. 

If convicted, Wootton and Miner face a statutory maximum sentence of five years in prison for conspiracy and three years in prison for aiding and assisting in the filing of a false refund claim.  They also face a period of supervised release, restitution, and monetary penalties. 

An indictment merely alleges that crimes have been comitted.  The defendants are presumed innocent until proven guilty beyond a reasonable doubt.

 Principal Deputy Assistant Attorney General Zuckerman, Acting Assistant Attorney General Wood, and U.S. Attorney Freed praised special agents of IRS Criminal Investigation and the Environmental Protection Agency Criminal Investigation Division, who conducted the investigation, and Assistant U.S. Attorney Geoffrey MacArthur, Special Assistant U.S. Attorney David Lastra, Trial Attorneys Mark Kotila and Kimberly Ang of the Justice Department’s Tax Division and Senior Litigation Counsel Howard P. Stewart of the Justice Department’s Environmental and Natural Resources Division, Environmental Crimes Section, who are prosecuting the case.

January 31, 2018 in AML | Permalink | Comments (0)

Former Missouri Elected Official and His Chief of Staff Plead Guilty to defraud political campaign funds

The former County Executive for Jackson County, Missouri and his former chief of staff pleaded guilty to conspiracy to defraud political campaign funds, announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division.

 Michael Sanders, 50, of Independence, Missouri, and Calvin Williford, 60, of St. Joseph, Missouri, each pleaded guilty to one count of conspiracy to commit wire fraud before U.S. District Judge Roseann A. Ketchmark of the Western District of Missouri. 

 According to admissions made in connection with their pleas, Sanders was the elected County Executive for Jackson County from January 2007 until December 2015.  Prior to serving as County Executive, Sanders was the elected Prosecuting Attorney for Jackson County.  Williford was a senior staff member for Sanders, and then later chief of staff, in the Office of the County Executive from 2007 to December 2015.  Prior to then, Williford served as Sanders’s Director of Public Affairs at the Jackson County Prosecuting Attorney’s Office.  Sanders and Williford defrauded political committees with which Sanders was affiliated by converting campaign contributions for their personal use.  Sanders and Williford misappropriated the money by directing the political committees to issue checks to certain individuals who performed little or no campaign-related work.  Instead, the individuals cashed the checks and then returned a portion of the money to Sanders or Williford, who used the cash at times to pay for personal expenses.   

January 31, 2018 in AML | Permalink | Comments (0)

Tuesday, January 30, 2018

Eight Financial Traders, Five of Big Banks, Charged With Spoofing (Fake Orders) To Rip Off U.S. Commodities Markets

Eight individuals who allegedly engaged in various deceptive trading practices on commodities markets in the United States have been publicly charged with federal crimes.  Seven of the eight individuals were charged with the crime of spoofing, an illegal trading practice that can be used to manipulate the commodities markets.  Spoofing refers to the illegal practice of placing an order for a futures contract that the trader never intended to be executed in the first place.  These spoofed orders are often canceled almost immediately after they are placed – frequently within seconds – and therefore are never filled.  Spoofed orders alter the appearance of supply and demand, and manipulate otherwise efficient markets. The intended effect of spoofing is to entice other traders to base their investment decisions on that false perception of supply and demand.  The Department and its law enforcement partners have developed the ability to identify spoofing patterns through sophisticated analysis of market-level data.  Other than the individuals identified in these cases, only three other individuals have ever been publicly charged with the crime of spoofing.  Of those identified, five were traders employed by global financial institutions, two were traders at large commodities trading firms, and one was the owner of a technology consulting firm. 

How Spoofing Can Work - Spoofer, Fake Orders, Futures Exchange, Fake Orders, Victims Defrauded, Victim Investors Buy or Sell at manipulated Prices, Victims' Orders Spoofer Profits from Trades

The enforcement actions were announced by Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, Deputy Assistant Director Chris Hacker of the FBI’s Criminal Investigative Division and Director James McDonald of the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Enforcement.

The charges announced aggressively target, among other things, the practice of spoofing, which was allegedly employed in various forms by these defendants and/or their co-conspirators to manipulate the market for futures contracts traded on the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), and the Commodity Exchange Inc. (COMEX).  The defendants and their co-conspirators are alleged to have defrauded market participants and manipulated these markets by placing hundreds, and in some cases, thousands of orders that they did not intend to trade, or “spoof orders,” to create the appearance of substantial false supply and demand and to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded.  According to the charging documents, the spoof orders often had the effect of artificially depressing or artificially inflating the prices of futures contracts traded on CME, CBOT, and COMEX.  In order to take advantage of the artificial price levels created by their spoof orders, the defendants and/or their co-conspirators are alleged to have executed real, genuine orders to buy (at the artificially low prices) or to sell (at the artificially high prices) in order to generate trading profits or to illicitly mitigate other trading losses.        

“As alleged, the defendants in these cases engaged in sophisticated schemes or trading practices aimed at defrauding individuals and entities trading on U.S. futures exchanges,” said Acting Assistant Attorney General Cronan.  “Conduct like this poses significant risk of eroding confidence in U.S. markets and creates an uneven playing field for legitimate traders and investors.  The Department and our law enforcement partners will use all of the tools at our disposal, including cutting-edge data analysis, to detect these types of schemes and to bring those who engage in them to justice.  Protecting the integrity of our markets remains a significant priority in our fight against economic crime.”

“The FBI has taken enforcement action against multiple commodities traders who, for their own personal gain, were spoofing trades through electronic trading platforms,” said Deputy Assistant Director Chris Hacker.  “Their deceptive trading artificially affected the perception of supply and demand in the market and took away a level playing field for investors.  We ask for those who observe indicators of this type of fraud to come forward to law enforcement so that we can stop those who attempt to exploit our financial system.” 

“Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology,” said Director McDonald.  “The technological developments that enabled electronic and algorithmic trading have created new opportunities in our markets.  At the CFTC, we are committed to facilitating these market-enhancing developments.  But at the same time, we recognize that these new developments also present new opportunities for bad actors.  We are equally committed to identifying and punishing these bad actors.  The CFTC’s enforcement program is built around the twin goals of holding wrongdoers accountable and deterring future misconduct.  We believe these goals are best achieved when we hold accountable not just companies, but also the individuals involved.  As these cases show, we will work hard to identify and prosecute the individual traders who engage in spoofing, but we will also seek to find and hold accountable those who teach others how to spoof, who build the tools designed to spoof, or who otherwise aid and abet the wrongdoing.  These cases should send a strong signal that we at the CFTC are committed to identifying individuals responsible for unlawful activity and holding them accountable.”            

Northern District of Illinois

Six individuals have been charged in four cases with spoofing and/or manipulative conduct charged in the Northern District of Illinois including:

  • James Vorley, 37, of the United Kingdom, and Cedric Chanu, 39, a French citizen, are charged in a criminal complaint with conspiracy, wire fraud, commodities fraud, and spoofing offenses in connection with executing a scheme to defraud involving both solo and coordinated spoofing on the COMEX while they were employed as precious metals traders at a leading global financial institution.  Vorley was based in London, United Kingdom and Chanu was based in London, and the Republic of Singapore.
  • Edward Bases, 55, of New Canaan, Connecticut, and John Pacilio, 53, of Southport, Connecticut, are charged in a criminal complaint with commodities fraud in connection with an alleged scheme to engage in both solo and coordinated spoofing on the COMEX when they were employed as precious metals traders at a leading global financial institution.  Bases is also charged with spoofing offenses.  Bases and Pacilio were based in New York City.    
  • Jitesh Thakkar, 41, of Naperville, Illinois, is charged in a criminal complaint with conspiracy and spoofing offenses alleging that Thakkar developed a software program that was used by Thakkar’s co-conspirator to engage in spoofing through the placement of thousands of orders on the CME when Thakkar was the founder and principal of Edge Financial Technologies Inc. (“Edge”), an information technology consulting firm located in Chicago, Illinois.
  • Jiongsheng (“Jim”) Zhao, 30, of Australia, is charged in a criminal complaint with wire fraud, commodities fraud, making false statements to the CME, and spoofing offenses when he was a trader at a proprietary trading firm located in Sydney, Australia.  According to the complaint, data analysis identified hundreds of instances of spoofing by Zhao on the CME between approximately July 2012 and March 2016.  Additionally, the complaint alleges that Zhao made false written statements to the CME after being confronted with allegations of his disruptive trading practices.       

District of Connecticut

  • Andre Flotron, 53, a Swiss national currently residing in Wayne, New Jersey, has been charged in an indictment in the District of Connecticut with conspiracy to commit spoofing, wire fraud, and commodities fraud when he was a UBS AG precious metals trader at UBS’s trading desks in Stamford, Connecticut and Zurich, Switzerland.  The indictment also alleges that Flotron trained and instructed another UBS trader in the practice of using spoof orders.

Southern District of Texas

  • Krishna Mohan, 33, of New York, New York, is charged in a criminal complaint filed in the Southern District of Texas with commodities fraud and spoofing offenses when he was employed as a programmer and trader at a proprietary trading firm in Chicago, Illinois.  According to the complaint, data analysis identified that Mohan engaged in a pattern of spoofing over a thousand times in a two-month period. 

The enforcement actions were led and coordinated by the Criminal Division Fraud Section’s Securities and Financial Fraud Unit and the U.S. Attorney’s Office for the District of Connecticut, in conjunction with special agents from FBI Offices in New York, Chicago, Connecticut, and Houston, and with invaluable assistance from the Fraud Section’s partners at the U.S. Attorney’s Office for the Northern District of Illinois, the U.S. Attorney’s Office for the Southern District of Texas, the U.S. Postal Inspection Service and the CFTC’s Division of Enforcement.  The cases are being prosecuted by Assistant Chiefs Nicholas Surmacz and Carol Sipperly and Trial Attorneys Michael O’Neill, Matthew Sullivan, Jeffrey Le Riche, Michael Rinaldi, Cory Jacobs, and Mark Cipolletti of the Fraud Section’s Securities and Financial Fraud Unit, along with Assistant U.S. Attorney Avi Perry of the U.S. Attorney’s Office for the District of Connecticut.

How Does Spoofing of the Financial Markets by Criminals Work?

Acting Assistant Attorney General John P. Cronan stated that this is largest futures market criminal enforcement action in Department history. In six cases across three federal districts, we have charged eight individuals in connection with their alleged roles in manipulating futures markets for precious metals, as well as futures markets for S&P 500, Dow Jones Industrial Average, and NASDAQ E-mini futures contracts.  He continued:

The alleged conduct in these cases once again reflects a disturbing and reckless trend of individuals and companies seeking to put illicit gains and profits above honest and law abiding conduct – and by doing so, harming innocent investors and putting the very integrity of our financial markets at risk.  


Spoofing refers to the illegal practice of placing an order for a futures contract that the trader never intended to be executed in the first place.  These spoofed orders are often cancelled almost immediately after they are placed – frequently within seconds – and therefore are never filled.  

Spoofed orders alter the appearance of supply and demand, and manipulate otherwise efficient markets.  The intended effect of spoofing is to entice other traders to base their investment decisions on that false perception of supply and demand.  

The alleged conduct in the cases announced today was identified and investigated through a variety of methods, including traditional law enforcement techniques, cooperation by relevant corporate actors, and, importantly, data analysis.  

Let me say a word about that data analysis.  The Department and its law enforcement partners have developed the ability to identify spoofing patterns through sophisticated analysis of market-level data.  

Going forward, we expect to use data analysis to an even greater degree in order to identify fraudulent and manipulative conduct in our financial markets.  

The Criminal Division’s message is clear.  We are watching.  We are closely monitoring the markets.  And we will leave no stone unturned in our efforts to combat and eradicate illegal, fraudulent, and manipulative market conduct.

Our country’s markets are trusted globally, attracting investors from throughout the United States and around the world – and they must remain trusted.  If investors lose trust and faith in our markets, our country suffers.

I will now briefly discuss the criminal prosecutions announced today.  The first four I will mention were filed in the Northern District of Illinois.

The first case alleges that two precious metals traders – James Vorley of the United Kingdom and Cedric Chanu, a French citizen – participated in a scheme to commit spoofing, wire fraud, and commodities fraud by placing thousands of orders in connection with over one hundred instances of coordinated spoofing between approximately 2008 and 2015.  

The second case charges Jitesh Thakkar with spoofing offenses involving the market for E-mini futures contracts.  

An E-Mini futures contract is a stock market index contract that represents an agreement to buy or sell the future cash value of the S&P 500, NASDAQ, or Dow – depending on which E-Mini futures product is being traded.  

As alleged in the criminal complaint, Thakkar is the founder and principal of Edge Financial Technologies, Inc., a Chicago-based information technology consulting firm that specialized in creating custom computer programs for sophisticated commodities traders.  

Thakkar allegedly was involved in creating a software program that was used by his co-conspirator to engage in spoofing through the placement of thousands of S&P 500 E-mini futures contract orders.  This automated trading program was allegedly designed to prevent certain spoof orders from actually being executed by automatically moving the spoof orders to the back of the order queue.

The third case charges Jiongshen Zhao with various spoofing and fraud offenses, along with making false statements to a registered entity, the Chicago Mercantile Exchange.  

As alleged, Zhao – a trader at a proprietary trading firm located in Sydney, Australia – manipulated the S&P 500 E-Mini futures market in hundreds of individual episodes between approximately 2012 and 2016, by employing an illegal spoofing strategy.  

The fourth case charges Edward Bases and John Pacilio with substantive commodities fraud offenses, and Bases with substantive spoofing offenses, involving the precious metals futures markets.  

According to electronic chats cited in the criminal complaint, both defendants allegedly bragged about their ability to “manipulate” and “spoof” the market to their illicit advantage.

We also are announcing today charges that were previously filed in the District of Connecticut against an alleged precious metals futures trader for UBS AG named Andre Flotron.  Flotron allegedly conspired with other UBS precious metal traders to engage in spoofing between approximately 2008 and 2013.

Lastly, Krishna Mohan, allegedly a commodities trader at a proprietary electronic trading firm with locations around the world, was charged in the Southern District of Texas with commodities fraud and spoofing offenses.  

Mohan allegedly engaged in manipulating Dow and NASDAQ E-Mini futures in hundreds of episodes by employing an illegal spoofing strategy that involved placing orders on both sides of the market.

January 30, 2018 in AML, Financial Regulation | Permalink | Comments (0)

Former Contractor at Military Sealift Command Pleads Guilty to Conspiracy, Bribery, and Honest Services Fraud

A former contractor at the Military Sealift Command (MSC) pleaded guilty for accepting bribes totaling approximately $2.8 million in the course of a bribery and fraud scheme that lasted more than a decade. 

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division; U.S. Attorney Dana Boente for the Eastern District of Virginia; Special Agent in Charge Martin Culbreth of the FBI’s Norfolk Field Office; Special Agent in Charge Robert E. Craig, Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Special Agent in Charge Clifton J. Everton, III of the Naval Criminal Investigative Service (NCIS)’s Norfolk Field Office, made the announcement.

Scott B. Miserendino, Sr., 58, formerly of Stafford, Virginia, pleaded guilty before U.S. Magistrate Judge Lawrence R. Leonard of the Eastern District of Virginia to an indictment charging him with one count of conspiracy, one count of bribery, and three counts of honest services mail fraud.  Sentencing has been scheduled for May 8 before Chief District Court Judge Rebecca Beach Smith.

For more than a decade, Miserendino was a contractor at the MSC, an entity of the U.S. Department of the Navy that supports and supplies the Navy and other U.S. military forces in their global warfighting and disaster relief missions.  According to the plea agreement, Miserendino and Joseph P. Allen, the owner of a government contracting company, conspired 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 help Allen obtain and expand commission arrangements with a telecommunications company from which MSC purchased maritime satellite communications services.  Through these arrangements, Allen received a commission based on the amount of services that MSC purchased from the telecommunications company.  For more than a decade, Miserendino then used his position and influence at MSC to perform official acts to benefit the telecommunications company, which through the commission agreement also benefitted Allen and his company.

Unknown to MSC or the telecommunications company, throughout the scheme, Allen paid half of the commissions he received from the telecommunications company to Miserendino as bribes.  In total, Miserendino received almost $3 million in bribes from Allen between 1999 and 2014. 

For his role in the scheme, Allen, 56, formerly of Panama City, Florida, pleaded guilty to one count of conspiracy to commit bribery in April 2017, and was sentenced on July 28, 2017, to five years in prison by U.S. District Judge Arenda L. Wright Allen, in Norfolk.

The FBI, DCIS and NCIS are investigating the case.  Trial Attorneys Sean Mulryne and Molly Gaston of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney Steve Haynie for the Eastern District of Virginia are prosecuting the case. 

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

Monday, January 29, 2018

Major step forward in international tax co-operation as additional countries sign landmark agreement to strengthen tax treaties

Ministers and high-level officials from Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia have today signed the BEPS Multilateral Convention bringing the total number of signatories to 78. This Convention updates the existing network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises. 

In addition to those signing today, Algeria, Kazakhstan, Oman and Swaziland have expressed their intent to sign the Convention, and a number of other jurisdictions are actively working towards signature by June 2018. So far, four jurisdictions – Austria, the Isle of Man, Jersey and Poland – have ratified the Convention, which will enter into force three months after a fifth jurisdiction deposits its instrument of ratification. The Convention is the first multilateral treaty of its kind, allowing jurisdictions to integrate results from the OECD/G20 BEPS Project into their existing networks of bilateral tax treaties.

“Today’s signing of the multilateral convention is another major step towards updating the international tax rules through the swift implementation of the BEPS package,” said OECD Secretary-General Angel Gurría.

“Beyond saving signatories from the burden of re-negotiating thousands of tax treaties bilaterally, the convention results in more certainty and predictability for businesses, and a better functioning international tax system for the benefit of our citizens.”

The OECD/G20 BEPS Project delivers solutions for governments to close the gaps in existing international rules that allow corporate profits to « disappear » or be artificially shifted to low or no tax environments, where companies have little or no economic activity. Revenue losses from BEPS are conservatively estimated at up to USD 240 billion annually, or the equivalent of up to 10% of global corporate income tax revenues. Almost 100 countries and jurisdictions are currently working in the Inclusive Framework on BEPS to implement BEPS measures in their domestic legislation and bilateral tax treaties. The sheer number of bilateral treaties makes updates to the treaty network on a bilateral basis burdensome and time-consuming.

The Convention, developed through inclusive negotiations involving more than 100 countries and jurisdictions under a mandate delivered by G20 Finance Ministers and Central Bank Governors, solves this problem. It will modify existing bilateral tax treaties to swiftly implement the tax treaty measures developed in the course of the OECD/G20 BEPS Project. Treaty measures that are included in the Convention include those on hybrid mismatch arrangementstreaty abuse and permanent establishment, and dispute resolution, including an optional provision on mandatory binding arbitration, which has been taken up by 28 jurisdictions.

The OECD is the depositary of the Convention and is supporting governments in the process of signature, ratification and implementation.

The text of the Convention, the explanatory statement, background information, database, and position of each signatory are available at

January 29, 2018 in OECD | Permalink | Comments (0)

Texas Man Sentenced for Conspiring to Illegally Export Radiation Hardened Integrated Circuits to Russia and China

Peter Zuccarelli, 62, of Plano, Texas was sentenced to 46 months in prison for conspiring to smuggle and illegally export from the U.S. in violation of the International Emergency Economic Powers Act (IEEPA), radiation hardened integrated circuits (RHICs) for use in the space programs of China and Russia.  Zuccarelli was also sentenced to three years supervised release and a $50,000 fine.

Acting Assistant Attorney General for National Security Dana J. Boente and U.S. Attorney for the Eastern District of Texas Alan R. Jackson made the announcement after Zuccarelli was sentenced by U.S. District Judge Amos Mazzant. 

According to the plea agreement, between approximately June 2015 and March 2016, Zuccarelli and his co-conspirators agreed to illegally export RHICs to China and Russia.  RHICs have military and space applications, and their export is strictly controlled.  In furtherance of the conspiracy, Zuccarelli’s co-conspirator received purchase orders from customers seeking to purchase RHICs for use in China’s and Russia’s space programs.  Zuccarelli received these orders from his co-conspirator, as well as payment of approximately $1.5 million to purchase the RHICs for the Chinese and Russian customers.  Zuccarelli placed orders with U.S. suppliers, and used the money received from his co-conspirator to pay the U.S. suppliers.  In communications with the U.S. suppliers, Zuccarelli certified that his company, American Coating Technologies, was the end user of the RHICs, knowing that this was false.  Zuccarelli received the RHICs he ordered from U.S. suppliers, removed them from their original packaging, repackaged them, falsely declared them as “touch screen parts,” and shipped them out of the U.S. without the required licenses.  He also attempted to export what he believed to be RHICs.  In an attempt to hide the conspiracy from the U.S. government, he created false paperwork and made false statements.

This case was investigated by the Dallas and Denver Offices of the Department of Homeland Security, Homeland Security Investigations; the FBI; the Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement; the Department of Defense, Defense Criminal Investigative Service; and the U.S. Postal Inspection Service.  This case was prosecuted by the U.S. Attorney’s Office for the Eastern District of Texas and the Counterintelligence and Export Control Section of the Justice Department’s National Security Division.

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

Five Members of International Organized Criminal Enterprise Indicted in More Than $9.5 Million Counterfeit Documents Fraud Scheme

Five of six alleged members of an international criminal conspiracy were arrested and appeared before the Court in Dallas, Texas on charges related to their alleged roles in an international fraud scheme that has used counterfeit driver’s licenses and counterfeit money orders to obtain monies from victim bank accounts around the United States.

The arrests and charges were announced by Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division; U.S. Attorney Erin Nealy Cox for the Northern District of Texas; and Inspector in Charge Regina Faulkerson of the U.S. Postal Inspection Service, Criminal Investigations Group.

John Lewis Davis II, 43, and Rasheed Wriden, 34, both of Dallas; Valandus Javon Gibson, 28 of Chicago, Illinois; Ralph Deon Taylor, 47, of Long Beach, California; and Craig Allen, 70, of Phoenix, Arizona, were all charged in a 14-count indictment unsealed on Thursday.

Davis, Gibson, Taylor, Allen, and Wriden are charged with conspiracy to commit wire fraud and mail fraud, and conspiracy to launder monetary instruments.

Davis, Gibson, and Allen, are charged with conspiracy to commit bank fraud.

Davis, Allen, and Wriden are charged with mail fraud.

Davis, Taylor, Allen, and Wriden are charged with possession and transmission of counterfeit money orders.

Davis, Taylor, and Allen are charged with transferring counterfeit driver’s licenses.

The indictment alleges that from about April 2013 to December 2017, the defendants conspired with each other and individuals in other countries including Nigeria to obtain money through various acts of fraud.  This included posting misleading advertisements of detailed descriptions of job opportunities, such as for mystery shopper positions, that were not valid job opportunities.  The defendants are alleged to have conspired to pose as employers of these fraudulent job opportunities to lure victims, who resided throughout the United States and Canada. 

The defendants are alleged to have conspired to obtain counterfeited driver’s licenses and money orders, which were shipped into the United States.  The counterfeited money orders were shipped to co-conspirators, who then mailed them to unwitting victims who were under the mistaken belief that they were fulfilling the job duties of mystery shopper positions.  The victims were instructed to deposit the counterfeit money orders and securities, mailed as payment for the mystery shopper jobs, into personal bank accounts and send a portion of the monies via money transfer businesses, to individuals known and unknown in the United States and elsewhere.  After the unwitting victims cashed the counterfeited money orders and wired money to co-conspirators, the co-conspirators are alleged to have retrieved the wire transfers with the use of a counterfeited driver’s license.

According to the indictment, the purpose of the conspiracy was to fraudulently obtain monies from counterfeited U.S. Postal money orders and counterfeit checks, by sending and receiving them through the U.S. Postal Service and commercial carriers to other individuals, who would then negotiate the money orders and checks and wire the funds to the defendants using money service businesses.

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The case was investigated by the U.S. Postal Inspection Service, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and the Rowlett Police Department.

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

150 Pages of comments on new tax rules requiring disclosure of CRS avoidance arrangements and offshore structures

On 11 December 2017, interested parties were invited to provide comments on a discussion draft on model mandatory disclosure rules. The model rules are intended to target promoters and service providers with a material involvement in the design, marketing or implementation of CRS avoidance arrangements or offshore structures. The proposed rules would require such intermediaries to disclose information on the scheme to their national tax authority. The rules contemplate that information on those schemes (including the identity of any user or beneficial owner) would then be made available to other tax authorities in accordance with the requirements of the applicable information exchange agreement.

Download Public-comments-mandatory-disclosure-rules-for-CRS-avoidance-arrangements-offshore-structures

January 29, 2018 in OECD | Permalink | Comments (0)

Sunday, January 28, 2018

Leader Pleads Guilty of Fraud Light-Emitting Devices as Treatment for Medical Disorders

Defendant Violated Court Injunctions to Stop Selling Light-Emitting Devices as Treatment for Scores of Medical Disorders

A South Dakota man pleaded guilty today in connection with a scheme to defraud consumers by selling light-emitting devices known as the “QLaser System” as a treatment for more than 200 different diseases and disorders, the Department of Justice announced today. Today’s guilty plea capped a three-year effort by the Justice Department and the U.S. Postal Inspection Service to stop distribution of the fraudulent devices to consumers.

Robert “Larry” Lytle, 82, of Rapid City, pleaded guilty in the District of South Dakota to one count of conspiracy to introduce misbranded medical devices into interstate commerce with the intent to defraud and mislead, and one count of criminal contempt. Both the criminal charges and Lytle’s guilty plea were pursuant to a plea agreement. Two of Lytle’s co-conspirators in the scheme, Irina Kossovskaia and Ronald D. Weir, Jr., previously pleaded guilty for their roles in the fraud. The government agreed to dismiss criminal contempt charges against a fourth individual, Fredretta Eason.  

According to documents filed with the court, Lytle and his co-conspirators — including Kossovskaia and Weir — marketed and distributed QLaser devices to consumers, many of whom were elderly, across the United States.  The conspirators falsely claimed that the devices could safely and effectively treat a panoply of medical conditions at home, including cancer, emphysema, diabetes, autism, HIV, and heart disease.  Lytle created misleading product labeling designed to create the false impression that scientific evidence supported claims about the QLaser device’s effects. In truth, no published clinical or scientific studies supported the use of QLaser devices to treat the listed or other serious conditions, and the U.S. Food and Drug Administration (FDA) never approved the devices for such uses. To lend credibility to his claims, the potential QLaser purchasers were told “Dr. Lytle” was a “retired” dentist and medical laser expert while omitting the fact that his license to practice dentistry had been permanently revoked for defrauding and materially deceiving consumers.

Lytle and his co-conspirators forged ahead with their fraud even after a federal court ordered them to stop selling and refund all QLaser purchasers in a series of 2015 injunctions. In violation of the injunctions, Lytle made false statements to the court and FDA investigators, sent dunning letters to QLaser purchasers rather than pay them court-ordered restitution, smuggled hundreds devices out of South Dakota to upstate New York to prevent their seizure, and received a steady stream of income from continued QLaser sales made by Kossovskaia, Weir, and others.

As part of his plea agreement, Lytle admitted that, beginning in 2005, he entered into an agreement with others to market medical devices with false and misleading labeling to defraud consumers, and that he continued to do so in violation of a federal court order. He also acknowledged that he obtained at least $16,669,015 over the course of the scheme.

“Victimizing the elderly and those suffering from serious illnesses are among the most detestable of crimes,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division, “and to persist with the QLaser fraud even after being ordered to stop by a federal court is even more abhorrent. The Justice Department is committed to protecting Americans from elder abuse and medical frauds.”

“Reprehensible scams using ineffective and useless medical implements victimize suffering people who are already burdened with long-term, often crippling ailments and diseases.  The U.S. Postal Inspection Service puts the highest priority on investigating these kinds of crimes and bringing these criminals to justice,” said Dana Carter, the U.S. Postal Inspector in Charge of the Denver Division, which covers multiple states including South Dakota. 

U.S. District Judge Karen E. Schreier presided at the plea hearing.  In addition to fines, Lytle faces a maximum statutory sentence of five years’ imprisonment on the conspiracy charge. Congress has not established a maximum sentence for the crime of contempt.  Sentencing has been set for April 20.

The U.S. Postal Inspection Service investigated this case.  Trial Attorney Ross S. Goldstein of the Justice Department’s Consumer Protection Branch and Assistant U.S. Attorney Kevin Koliner of the U.S. Attorney’s Office for the District of South Dakota are prosecuting the case. 

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

Saturday, January 27, 2018

New Mexico Man Pleads Guilty to Directing Computer Attacks Against Websites of Dozens of Victims

A New Mexico man pleaded guilty to engaging in and directing distributed denial of service (DDoS) attacks against the websites of his prior employers, business competitors and public services, as well as felon-in-possession charges.  Acting Assistant Attorney General John P. Cronan of the Department of Justice’s Criminal Division, U.S. Attorney Gregory G. Brooker of the District of Minnesota and Special Agent in Charge Richard T. Thornton of the FBI’s Minneapolis Field Office made the announcement.

John Kelsey Gammell pleaded guilty to one count of conspiracy to commit intentional damage to a protected computer and two counts of being a felon-in-possession of a firearm before District Judge Wilhelmina M. Wright of the District of Minnesota.  He will be sentenced at a later date.

According to admissions made in connection with his plea, from at least in or about July 2015 through in or about March 2017, Gammell engaged in a campaign of DDoS attacks on websites throughout the United States.  A DDoS attack is a malicious attempt to disable or interrupt service to a computer or website, usually by causing large amounts of internet traffic to be directed to the computer or website.  Gammell directed DDoS attacks at a number of victims’ websites, including websites operated by companies he used to work for, companies that declined to hire him, competitors of his business, and websites for law enforcement agencies and courts, among others. 

Gammell admitted that he caused DDoS attacks by using computer programs on his own computers, as well as by directing “DDoS-for-hire” companies from which he purchased services to launch the DDoS attacks.  Gammell purchased subscriptions to multiple DDoS-for-hire companies, including VDoS, CStress, Inboot, and IPStresser.  He initiated attacks using these DDoS-for-hire companies against dozens of victims, including but not limited to Washburn Computer Group, the Minnesota State Courts, Dakota County Technical College, Minneapolis Community and Technical College, the Hennepin County Sheriff’s Office and others.  Gammell took a variety of steps to avoid detection and circumvent his victims’ DDoS attack mitigation efforts, such as using IP address anonymization services to mask his identity and location, using cryptocurrency in payment for DDoS-for-hire services, using multiple DDoS-for-hire services at once to amplify his attacks, using spoofed emails to conceal his conduct, and using encryption and drive-cleaning tools to conceal digital evidence of his conduct on his computers.

Gammell, who is prohibited from possessing firearms or ammunition based on prior felony convictions, also admitted that he possessed parts for use in the building of AR-15 assault rifles, upper and lower receivers, a pistol grip, a trigger guard, 15 high-capacity magazines, a buttstock, a buffer tube and 420 rounds of 5.56 x 45mm full metal jacket rifle ammunition in Colorado, where he worked.  He further admitted that he possessed a Heckler & Koch P2000 handgun, and a Springfield Armory model 1911-A1, .45 caliber handgun, as well as hundreds of rounds of ammunition in New Mexico, where he resided.

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

Friday, January 26, 2018

Colombian National Sentenced to Prison for Conspiracy to Bribe Federal Agent to Dismiss Indictment Against Colombian Narcotics Kingpin

A Colombian national was sentenced to 27 months in prison for his participation in a conspiracy and bribery scheme that resulted in the dismissal of a drug trafficking indictment filed against a Colombia-based drug kingpin, announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division.           

According to admissions in his plea agreement, Juan Carlos Velasco Cano, 49, acted as an intermediary between U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations Special Agent Christopher V. Ciccione II, 52, of Phoenixville, Pennsylvania, and Colombian national Jose Bayron Piedrahita Ceballos, 58, to use Ciccione’s official position to cause a drug trafficking indictment against Piedrahita to be dismissed and to obtain official authorization for Piedrahita to enter the United States.

Velasco admitted that Piedrahita gave Ciccione approximately $20,000 in cash, dinner, drinks and prostitution during an extended hotel stay in Bogota, Colombia in exchange for Ciccione using his official position to obtain the dismissal of the indictment against Piedrahita.  In furtherance of the scheme, Velasco arranged for a meeting of the conspirators in Bogota; facilitated communications between Piedrahita and Ciccione; and received confidential law enforcement information from Ciccione about himself and others, including the names of a confidential source and cooperating witnesses.

Velasco was sentenced by U.S. District Judge Robert N. Scola, Jr. of the Southern District of Florida.  Ciccione will be sentenced on Feb. 9 and Piedrahita is currently incarcerated in the Republic of Colombia. 

The U.S. Department of the Treasury’s Office of Foreign Assets Control designated Piedrahita as a Specially Designated Narcotics Trafficker pursuant to the Foreign Narcotics Kingpin Designation Act on May 3, 2016.


January 26, 2018 in AML | Permalink | Comments (0)

Thursday, January 25, 2018

2 Men Charged With Conspiring to Illegally Obtain Technology and Computer Chips That Were Sent to China

Federal authorities arrested Yi-Chi Shih, 62, and Kiet Ahn Mai, 63, on Jan. 19, on federal charges that allege a scheme to illegally obtain technology and integrated circuits with military applications that were exported to a Chinese company without the required export license.

The announcement was made by Acting Assistant Attorney General for National Security Dana J. Boente; U.S. Attorney Nicola T. Hanna for the Northern District of California; Assistant Director in Charge Paul Delacourt of the FBI’s Los Angeles Field Office; Special Agent in Charge R. Damon Rowe of IRS Criminal Investigation; Special Agent in Charge Richard Weir of the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement, Los Angeles Field Office.

“According to the complaint, the defendants allegedly schemed to illegally export semiconductors having military and civilian applications to a Chinese company,” said Acting Assistant Attorney General Boente.  “Protecting this type of technology and preventing its illegal acquisition by our adversaries remains a key priority in preserving our national security.”

“This case outlines a scheme to secure proprietary technology, some of which was allegedly sent to China, where it could be used to provide companies there with significant advantages that would compromise U.S. business interests,” said U.S. Attorney Hanna.  “The very sensitive information would also benefit foreign adversaries who could use the technology to further or develop military applications that would be detrimental to our national security.”

“The FBI, working jointly with our law enforcement partners, remains committed to bringing to justice those who seek to illegally export some of our nation’s most sensitive technologies to the detriment of our national security and hard-working United States companies,” said Assistant Director in Charge Delacourt.  “Rest assured, the FBI will continue to diligently pursue any and all leads that involve the illegal exportation of U.S. technology which will cause harm to our long-term national security interests.”

“Today’s actions serve as a reminder that the government will hold individuals accountable who fraudulently procure and export unlawfully protected United States technology and attempt to conceal their criminal activity through international money laundering,” said Special Agent in Charge Rowe.  “The IRS plays an important role in tracing illicit funds through both domestic and international financial intuitions. The IRS is proud to partner with the FBI and Department of Commerce and share its world-renowned financial investigative expertise in this investigation.”

“Today’s arrests demonstrate the Office of Export Enforcement’s strong commitment to enforcing our nation’s export control and public safety laws,” said Special Agent in Charge Weir.  “We will continue to work with our law enforcement partners to identify, deter, and keep the most sensitive U.S. origin goods and technology out of the most dangerous hands.”

Shih, an electrical engineer who is a part-time Los Angeles resident and a naturalized U.S. citizen originally from Taiwan, and Mai who resides in Pasadena, California and is a naturalized U.S. citizen originally from Vietnam, were arrested on Jan. 19, without incident by federal agents.

Shih and Mai, who previously worked together at two different companies, are named in a criminal complaint unsealed on Jan. 19, that charges them with conspiracy.  Shih is also charged with violating the International Emergency Economic Powers Act (IEEPA), a federal law that makes illegal, among other things, certain unauthorized exports.

The complaint alleges that Shih and Mai conspired to illegally provide Shih with unauthorized access to a protected computer of a U.S. company that manufactured specialized, high-speed computer chips known as monolithic microwave integrated circuits (MMICs).  The conspiracy count also alleges that the two men engaged in mail fraud, wire fraud and international money laundering to further the scheme.

According to the affidavit in support of the criminal complaint, Shih and Mai executed a scheme to defraud the U.S. company out of its proprietary, export-controlled items, including technology associated with its design services for MMICs.  As part of the scheme, Shih and Mai accessed the victim company’s computer systems via its web portal after Mai obtained that access by posing as a domestic customer seeking to obtain custom-designed MMICs that would be used solely in the United States.  Shih and Mail allegedly concealed Shih’s true intent to transfer the U.S. company’s technology and products to the People’s Republic of China.

The victim company’s proprietary semiconductor technology has a number of commercial and military applications, and its customers include the Air Force, Navy and the Defense Advanced Research Projects Agency.  MMICs are used in electronic warfare, electronic warfare countermeasures and radar applications.

The computer chips at the heart of this case allegedly were shipped to Chengdu GaStone Technology Company (CGTC), a Chinese company that established a MMIC manufacturing facility in Chengdu.  Shih was the president of CGTC, which in 2014 was placed on the Commerce Department’s Entity List, according to the affidavit, “due to its involvement in activities contrary to the national security and foreign policy interest of the United States – specifically, that it had been involved in the illicit procurement of commodities and technologies for unauthorized military end use in China.”  Because it was on the Entity List, a license from the Commerce Department was required to export U.S.-origin MMICs to CGTC, and there was a “presumption of denial” of a license.

The complaint outlines a scheme in which Shih used a Los Angeles-based company he controlled – Pullman Lane Productions, LLC – to funnel funds provided by Chinese entities to finance the manufacturing of MMICs by the victim company.  The complaint affidavit alleges that Pullman Lane received financing from a Beijing-based company that was placed on the Entity List the same day as CGTC “on the basis of its involvement in activities contrary to the national security and foreign policy interests of the United States.”

Mai acted as the middleman by using his Los Angeles company – MicroEx Engineering – to pose as a legitimate domestic customer that ordered and paid for the manufacturing of MMICs that Shih illegally exported to CGTC in China, according to the complaint.  It is the export of the MMICs that forms the basis of the IEEPA violation alleged against Shih.  The specific exported MMICs also required a license from the Commerce Department before being exported to China, and a license was never sought or obtained for this export.

Shih and Mai are expected to made their first court appearances on Jan. 19, in U.S. District Court in downtown Los Angeles.

The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.  If convicted, Mai faces a maximum sentence of five years in prison, and Shih faces a maximum sentence of 25 years in prison.  The maximum statutory sentences are prescribed by Congress and are provided here for informational purposes. If convicted of any offense, the sentencing of the defendants will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

This case is being investigated by the FBI; the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement; and IRS Criminal Investigation.

This case is being prosecuted by Assistant U.S. Attorneys Judith A. Heinz, Melanie Sartoris and Khaldoun Shobaki of the Northern District of California, and Trial Attorney Matthew Walczewski of the National Security Division Counterintelligence and Export Control Section.

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

Wednesday, January 24, 2018

HSBC Holdings Plc Agrees to Pay More Than $100 Million to Resolve Fraud Charges

United Kingdom-based global financial services company HSBC Holdings plc (HSBC) entered into a deferred prosecution agreement (DPA) and agreed to pay a $63.1 million criminal penalty and $38.4 million in disgorgement and restitution to resolve charges that it engaged in a scheme to defraud two bank clients through a multi-million dollar scheme commonly referred to as “front-running.”  The DPA, which was filed in connection with a two-count criminal information charging wire fraud in the United States District Court for the Eastern District of New York, is pending review by the Court.   

“HSBC’s admissions in connection with this resolution confirm that the company misused confidential client information for its own profit on more than one occasion,” said Acting HSBC.svgAssistant Attorney General Cronan.  “This sort of misconduct not only harmed their clients, costing the victims money, but it also ran a serious risk of undermining the public’s confidence in our financial markets.  The Department of Justice takes these types of cases seriously and will hold to account financial institutions and individuals that circumvent the rule of law in favor of illicit profits.”

“Today’s agreement represents that the financial services company, HSBC Holdings, is responsible for the conduct of its employees, and that it must not be permitted to benefit from the fraud committed by bank personnel,” said Inspector General Lerner.  “Such financial crimes violated the trusted relationships between HSBC and its clients, and therefore, we are pleased to join our law enforcement partners in combating this misconduct.”

"HSBC defrauded two bank clients in a front-running scheme that enabled them to acquire millions of dollars to benefit their institution and harm their clients," said Special Agent in Charge Slater.  "The FBI remains dedicated to ensuring the integrity is upheld in the financial services industry, and prosecuting those who engage in illegal business practices."

According to HSBC’s admissions, on two separate occasions in 2010 and 2011, traders on its foreign exchange desk misused confidential information provided to them by clients that hired HSBC to execute multi-billion dollar foreign exchange transactions involving the British Pound Sterling.  After executing confidentiality agreements with its clients that required the bank to keep the details of their planned transactions confidential, traders on HSBC’s foreign exchange desk transacted in the Pound Sterling for the traders and HSBC’s own benefit in their HSBC “proprietary” accounts.  HSBC traders then caused the large transactions to be executed in a manner designed to drive the price of the Pound Sterling in a direction that benefited HSBC, and harmed their clients.  HSBC also made misrepresentations to one of the clients, Cairn Energy, to conceal the self-serving nature of its actions.  In total, HSBC admitted to making profits of approximately $38.4 million on the first transaction in March 2010, and approximately $8 million on the Cairn Energy transaction in December 2011.     

Pursuant to its agreement with the Justice Department, HSBC agreed to pay a criminal penalty of $63.1 million. HSBC also agreed to continue to cooperate with the department and with foreign authorities in any ongoing investigations and prosecutions relating to the conduct (including of individuals), to enhance its compliance program, and to pay $38.4 million in disgorgement and restitution for its conduct related to one of the two victim companies.  HSBC previously settled with the other victim company, Cairn Energy, for approximately $8 million, which the Department credited as full restitution for Cairn. 

The Department reached this resolution based on a number of factors, including the approximately $46.4 million that HSBC gained from the offense; the bank’s remedial measures to date, including dedicating significant resources to improving its systems and controls and terminating the employment of employees involved in wrongdoing; and the bank’s commitment to continuing to enhance its compliance program and internal controls.  HSBC did not receive credit for voluntarily disclosing the misconduct.  HSBC received substantial cooperation credit because, although as detailed in the DPA, the bank’s initial cooperation with the government’s investigation was deficient in certain respects, after being notified of the Department’s concerns, HSBC changed course and its cooperation improved substantially.  

In connection with the government’s investigation, Mark Johnson was charged on Aug. 16, 2016 with one count of conspiracy to commit wire fraud as well as 10 counts of wire fraud stemming from the Cairn Energy transaction.  Johnson, the former head of foreign exchange cash trading at HSBC, was found guilty on Oct. 23, 2017 of one count of conspiracy and eight counts of wire fraud after a four-week jury trial in Brooklyn, New York.  His sentencing is scheduled for Feb. 15.  

The investigation was conducted by the FDIC’s Office of Inspector General and the FBI’s Washington Field Office.  Assistant Chiefs Carol Sipperly and Brian Young and Trial Attorney Blake Goebel of the Criminal Division’s Fraud Section are prosecuting the case.  The U.S. Attorney’s Office for the Eastern District of New York and the Criminal Division’s Office of International Affairs provided significant support.  

January 24, 2018 in AML | Permalink | Comments (0)

Tuesday, January 23, 2018

Two Top Leaders in Italy and Five Us Residents Indicted for Racketeering, Health Care Fraud and Drug Trafficking Conspiracies to Distribute Opioids Resulting in Deaths Involving “Pill Mills” Operating in Tennessee and Florida

A federal grand jury in Knoxville, Tennessee returned a 14-count superseding indictment unsealed January 19 charging seven individuals for their roles in a Racketeer Influenced and Corrupt Organization (RICO) conspiracy and drug trafficking conspiracy to distribute and dispense oxycodone, oxymorphone and morphine outside the scope of professional practice and not for a legitimate medical purpose and resulting in deaths, maintenance of drug-involved premises, distribution of oxycodone resulting in death, conspiracy to defraud the United States through the solicitation and receipt of illegal healthcare kickbacks and money laundering.

“Throughout this country, and certainly in Tennessee and Florida, the illegal and unconscionable mass-distribution of prescription opioids through the operation of illegal pain clinics Hidta-map-sm_2017 has taken a heavy toll on our citizens, families and communities,” said Attorney General Sessions.  “This sort of profiteering effectively trades human lives for financial riches.  The U.S. Department of Justice is determined to stamp out the operation of illegal pain clinics by all legal means, including finding and arresting those responsible wherever they may be in the world.” 

“The Eastern District of Tennessee has been at the forefront in the battle against illegal pain clinics and mass-prescribing of opioids for years,” said U.S. Attorney Overbey.  “Now, under the leadership of Attorney General Sessions, additional resources have been made available through recent Department of Justice initiatives, including the Opioid Fraud and Abuse Task Force.  This latest indictment is a real and tangible result of all of those combined efforts.  The citizens of East Tennessee can be assured that we are committed to ridding our district of illegal pill mills.” 

Luca Sartini, 58, of Rome, Italy, and Miami; Luigi Palma aka Jimmy Palma, 51, of Rome, Italy, and Miami; Benjamin Rodriguez, 42, of Delray Beach, Florida; Sylvia Hofstetter, 53, of Knoxville; Courtney Newman, 42, of Knoxville; Cynthia Clemons, 45, of Knoxville; and Holli Womack aka Holli Carmichael, 44, of Knoxville, are charged in a third superseding indictment filed in the Eastern District of Tennessee. 

On Jan. 19, Sartini and Palma were arrested in the Rome, Italy-area by Italian authorities.  Extradition is being sought by the United States.  Rodriguez is set to self-surrender.  All other defendants were previously charged in prior indictments.  The case has been assigned to Chief U.S. District Court Judge Thomas A. Varlan in Knoxville.

According to the indictment, Sartini, Palma, Rodriguez, Hofstetter and a co-conspirator charged in another indictment, from about April 2009 to March 2015, ran the Urgent Care & Surgery Center Enterprise (UCSC), which operated opioid based pain management clinics, “pill mills,” in Florida and Tennessee, where powerful narcotics were prescribed and/or dispensed.  The defendants are alleged to have hired medical providers with DEA registration numbers, which would allow the providers to prescribe controlled substances. The prescriptions were primarily large doses of highly addictive and potentially deadly controlled substances. As alleged in the indictment, individuals seeking prescriptions would often travel long distances purporting to suffer from severe chronic pain.   

The superseding indictment alleges the defendants distributed quantities of oxycodone, oxymorphone and morphine sufficient to generate clinic revenue of at least $21 million.  As per the indictment, the clinics did not accept insurance, received gross fees and ordered unnecessary drug screenings defrauding Medicare.  Shell companies were set up to launder the proceeds. 

As alleged in the indictment, approximately 700 UCSC enterprise patients are now dead and a significant percentage of those deaths, directly or indirectly, were the result of overdosing on narcotics prescribed by the USSC Enterprise. As alleged in the indictment, the narcotics prescribed by the UCSC enterprise contributed to the deaths of another significant percentage of those patients. 

The indictment further alleges that many patients arrived in groups, who were sponsored by drug dealers who paid for the pain clinic visits and prescriptions to obtain all or part of the opioids and other narcotics prescribed to the purported pain patients. In return, drug addicted patients would receive a portion of prescribed narcotics for free from the sponsor. 

To date, as a result of this investigation, approximately 30 narcotics traffickers have been charged and convicted federally, and approximately 80 to 90 smaller narcotic distributers have also been charged and convicted.  Today’s superseding indictment is among 35 related indictments charging approximately 140 individuals, including medical providers who worked at the pill mills, with various crimes. 

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The superseding indictment is the result of an investigation conducted by the U.S. Attorney’s Office for the Eastern District of Tennessee, Criminal Division’s Organized Crime and Gang Section, and the FBI High Intensity Drug Trafficking Area (HIDTA) which is comprised of investigators assigned to the task force by the Loudon County Sheriff’s Office, Knoxville Police Department, Blount County Sheriff’s Office, Roane County Sheriff’s Office, Harriman Police Department and Clinton Police Department.  Other agencies provided invaluable assistance, including the Rome Attaché of the Justice Department’s Office of International Affairs; the FBI’s liaison in Rome; the FBI Miami Health Care Fraud Strike Force; the Hollywood, Florida Police Department; the U.S. Department of Health and Human Services; the Tennessee Department of Health; and the DEA’s Knoxville Diversion Group.  The Department of Justice extends its gratitude to Interpol and the Italian Financial Police (Guardia di Finanza) for their assistance in locating and apprehending the defendants.

January 23, 2018 | Permalink | Comments (0)

Monday, January 22, 2018

Chinese National Sentenced for Economic Espionage and Theft of a Trade Secret From U.S. Company

Xu Jiaqiang, 31, formerly of Beijing, China, was sentenced yesterday to five years in prison, for economic espionage and theft of a trade secret in connection with Xu’s theft of DOJ_National_Security_Division_logo.svgproprietary source code from Xu’s former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China.  Xu previously pleaded guilty to all six counts with which he was charged. 

Acting Assistant Attorney General for National Security Dana J. Boente and U.S. Attorney Geoffrey S. Berman for the Southern District of New York made the announcement.  The sentence was imposed by U.S. District Judge Kenneth M. Karas in White Plains, New York federal court. 

“Xu, a Chinese national, is being held accountable for engaging in economic espionage against an American company,” said Acting Assistant Attorney General Boente. “Xu not only stole high tech trade secrets from his U.S. employer – a federal crime – he did so both for his own profit and intending to benefit the Chinese government.  Xu’s sentence clearly demonstrates that the National Security Division will not hesitate to pursue and prosecute those who steal from American businesses.  I thank the many people who worked hard to bring this result.”

“As he previously admitted in federal court, Xu Jiaqiang stole high-tech trade secrets from a U.S. employer, intending to benefit the Chinese government,” said U.S. Attorney Berman.  “The laws governing economic espionage and trade secrets exist, in part, to protect the sanctity of American ingenuity and property.  Xu’s prison sentence should be a red flag for anyone attempting to illegally peddle American expertize and intellectual property to foreign bidders.”

According to the allegations contained in the Complaint and the Superseding Indictment filed against Xu, as well as statements made in related court filings and proceedings:

From November 2010 to May 2014, Xu worked as a developer for a particular U.S. company (the Victim Company).  As a developer, Xu enjoyed access to certain proprietary software (the Proprietary Software), as well as that software’s underlying source code (the Proprietary Source Code).  The Proprietary Software is a clustered file system developed and marketed by the Victim Company in the United States and other countries.  A clustered file system facilitates faster computer performance by coordinating work among multiple servers.  The Victim Company takes significant precautions to protect the Proprietary Source Code as a trade secret.  Among other things, the Proprietary Source Code is stored behind a company firewall and can be accessed only by a small subset of the Victim Company’s employees.  Before receiving Proprietary Source Code access, Victim Company employees must first request and receive approval from a particular Victim Company official.  Victim Company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information.  The Victim Company takes these and other precautions in part because the Proprietary Software and the Proprietary Source Code are economically valuable, which value depends in part on the Proprietary Source Code’s secrecy.                                                                                                

In May 2014, Xu voluntarily resigned from the Victim Company.  Xu subsequently communicated with one undercover law enforcement officer (UC-1), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (UC-2), who posed as a project manager, working for UC-1.  In these communications, Xu discussed his past experience with the Victim Company and indicated that he had experience with the Proprietary Software and the Proprietary Source Code.  On March 6, 2015, Xu sent UC-1 and UC-2 a code, which Xu stated was a sample of Xu’s prior work with the Victim Company.  A Victim Company employee (Employee-1) later confirmed that the code sent by Xu included proprietary Victim Company material that related to the Proprietary Source Code.           

Xu subsequently informed UC-2 that Xu was willing to consider providing UC-2’s company with the Proprietary Source Code as a platform for UC-2’s company to facilitate the development of its own data storage system.  Xu informed UC-2 that if UC-2 set up several computers as a small network, then Xu would remotely install the Proprietary Software so that UC-1 and UC-2 could test it and confirm its functionality.

In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with Xu’s specifications.  Files were then remotely uploaded to the FBI-arranged computer network (the Xu Upload).  Thereafter, on or about Aug. 26, 2015, Xu and UC-2 confirmed that UC-2 had received the Xu Upload.  In September 2015, the FBI made the Xu Upload available to a Victim Company employee who has expertise regarding the Proprietary Software and the Proprietary Source Code (Employee-2).  Based on Employee-2’s analysis of technical features of the Xu Upload, it appeared to Employee-2 that the Xu Upload contained a functioning copy of the Proprietary Software.  It further appeared to Employee-2 that the Xu Upload had been built by someone with access to the Proprietary Source Code who was not working within the Victim Company or otherwise at the Victim Company’s direction.

On Dec. 7, 2015, Xu met with UC-2 at a hotel in White Plains, New York (the Hotel).  Xu stated, in sum and substance, that Xu had used the Proprietary Source Code to make software to sell to customers, that Xu knew the Proprietary Source Code to be the product of decades of work on the part of the Victim Company, and that Xu had used the Proprietary Source Code to build a copy of the Proprietary Software, which Xu had uploaded and installed on the UC Network (i.e., the Xu Upload).  Xu also indicated that Xu knew the copy of the Proprietary Software that Xu had installed on the UC Network contained information identifying the Proprietary Software as the Victim Company’s property, which could reveal the fact that the Proprietary Software had been built with the Proprietary Source Code without the Victim Company’s authorization.  Xu told UC-2 that Xu could take steps to prevent detection of the Proprietary Software’s origins – i.e., that it had been built with stolen Proprietary Source Code – including writing computer scripts that would modify the Proprietary Source Code to conceal its origins. 

Later on Dec. 7, 2015, Xu met with UC-1 and UC-2 at the Hotel.  During that meeting, Xu showed UC-2 a copy of what Xu represented to be the Proprietary Source Code on Xu’s laptop.  Xu noted to UC-2 a portion of the code that indicated it originated with the Victim Company as well as the date on which it had been copyrighted.  Xu also stated that Xu had previously modified the Proprietary Source Code’s command interface to conceal the fact that the Proprietary Source Code originated with the Victim Company and identified multiple specific customers to whom Xu had previously provided the Proprietary Software using Xu’s stolen copy of the Proprietary Source Code.  

 Mr. Boente and Mr. Berman praised the FBI’s outstanding investigative efforts.  Mr. Berman also thanked the U.S. Department of Justice’s National Security Division. 

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

Friday, January 19, 2018

Bassett Mirror Company Agrees to Pay $10.5 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties

Virginia-based home furnishings company, Bassett Mirror Company, has agreed to pay the United States $10.5 million to resolve allegations that it violated the False Claims Act by knowingly making false statements on customs declarations to avoid paying antidumping duties on wooden bedroom furniture imported from the People’s Republic of China (PRC), the Justice Department announced.          

The United States alleged that between January 2009 and February 2014, Bassett Mirror evaded antidumping duties owed on wooden bedroom furniture that the company imported from the PRC by knowingly misclassifying the furniture as non-bedroom furniture on its official import documents.  Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost.  The Department of Commerce assesses, and the Department of Homeland Security’s Customs and Border Protection collects, these duties to protect U.S. businesses and level the playing field for domestic products.  Imports of PRC-made wooden bedroom furniture have been subject to antidumping duties since 2004.  At the time of the alleged conduct in this case, wooden bedroom furniture from the PRC was subject to a 216 percent antidumping duty; non-bedroom furniture was not subject to an antidumping duty.

“Those who import and sell foreign-made goods in the United States must comply with the laws meant to protect domestic companies and American workers from illegal foreign trade practices,” said Acting Assistant Attorney General Chad A. Readler for the Justice Department’s Civil Division.  “The Department of Justice will pursue those who seek an unfair advantage in U.S. markets by evading the duties owed on goods imported into this country.”

“This Office will not tolerate anyone who seeks to stack the deck against American workers and products,” said U.S. Attorney Bobby L. Christine for the Southern District of Georgia.  “We will continue to work with our law enforcement partners, as well as our colleagues in the Civil Division, to pursue those who believe that their own profit justifies evasion of federal antidumping duties.”

“CBP is appreciative of information received from the public regarding fraudulent trade activity.  This type of blatant disregard for trade laws and regulations severely impacts the US economy by giving these bad actors an unfair advantage over legitimate importers,” said Donald F. Yando Director of Field Operations for the U.S. Customs and Border Protection Atlanta Field Office. “CBP is committed to working with our partners both inside and outside the government to help bolster the US economy by putting an end to this type of illegal activity.”

The settlement with Bassett Mirror resolves a lawsuit filed under the whistleblower provision of the False Claims Act, which permits private parties to file suit on behalf of the United States for false claims and share in a portion of the government’s recovery.  The civil lawsuit was filed in the Southern District of Georgia and is captioned United States ex rel. Wells v. Bassett Mirror Company, Inc. et al., Civil Action No. 4:13-CV-000165.  As part of today’s resolution, Ms. Wells will receive approximately $1.9 million.

January 19, 2018 in Tax Compliance | Permalink | Comments (0)

Thursday, January 18, 2018

Former CIA Officer Arrested for Retaining Classified Information

Jerry Chun Shing Lee, aka Zhen Cheng Li, 53, a former Central Intelligence Agency (CIA) officer, was arrested last night on charges of unlawful retention of national defense CIAinformation.  Download 18 01 16 Lee Complaint Affidavit

Dana J. Boente, Acting Assistant Attorney General for National Security and U.S. Attorney for the Eastern District of Virginia, and Andrew W. Vale, Assistant Director in Charge of the FBI’s Washington Field Office, made the announcement.

Lee was arrested after arriving at John F. Kennedy International Airport in Queens, New York.  Lee is a naturalized U.S. citizen, currently residing in Hong Kong, China.  According to court documents, Lee began working for the CIA as a case officer in 1994, maintained a Top Secret clearance and signed numerous non-disclosure agreements during his tenure at CIA.

According to court documents, in August 2012, Lee and his family left Hong Kong to return to the United States to live in northern Virginia. While traveling back to the United States, Lee and his family had hotel stays in Hawaii and Virginia.  During each of the hotel stays, FBI agents conducted court-authorized searches of Lee’s room and luggage, and found that Lee was in unauthorized possession of materials relating to the national defense.  Specifically, agents found two small books containing handwritten notes that contained classified information, including but not limited to, true names and phone numbers of assets and covert CIA employees, operational notes from asset meetings, operational meeting locations and locations of covert facilities.

Lee made his initial appearance this afternoon in the Eastern District of New York.  He is charged with unlawful retention of national defense information and faces a maximum penalty of 10 years in prison, if convicted.  The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes. If convicted of any offense, the sentencing of the defendant will be determined by the court after considering the advisory Sentencing Guidelines and other statutory factors.  A criminal complaint contains allegations that a defendant has committed a crime.  Every defendant is presumed to be innocent until and unless proven guilty in court.

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

Wednesday, January 17, 2018

IRS Begins Withholding Passports For People Owing $51,000 of Unpaid Tax

The Internal Revenue Service strongly encouraged taxpayers who are seriously behind on their taxes to pay what they owe or enter into a payment agreement with the IRS to avoid putting their passports in jeopardy.

This month, the IRS will begin implementation of new procedures affecting individuals with “seriously delinquent tax debts.” These new procedures implement provisions of the Irs_logoFixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt. See Notice 2018-1. The FAST Act also requires the State Department to deny their passport application or deny renewal of their passport. In some cases, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt.  A taxpayer with a seriously delinquent tax debt is generally someone who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired or the IRS has issued a levy.

There are several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt. They include the following:

  • Paying the tax debt in full
  • Paying the tax debt timely under an approved installment agreement,
  • Paying the tax debt timely under an accepted offer in compromise,
  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
  • Having requested or have a pending collection due process appeal with a levy, or
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

A passport won’t be at risk under this program for any taxpayer: 

  • Who is in bankruptcy
  • Who is identified by the IRS as a victim of tax-related identity theft
  • Whose account the IRS has determined is currently not collectible due to hardship
  • Who is located within a federally declared disaster area
  • Who has a request pending with the IRS for an installment agreement
  • Who has a pending offer in compromise with the IRS
  • Who has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

In general, taxpayers behind on their tax obligations should come forward and pay what they owe or enter into a payment plan with the IRS. Frequently, taxpayers qualify for one of several relief programs, including the following:

  • Taxpayers can request a payment agreement with the IRS by filing Form 9465. Taxpayers can download this form from and mail it along with a tax return, bill or notice. Some taxpayers can use the online payment agreement to set up a monthly payment agreement for up to 72 months.
  • Some financially distressed taxpayers may qualify for an offer in compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on

January 17, 2018 in GATCA | Permalink | Comments (0)

Tuesday, January 16, 2018

Israel Executes 1st Foreign Bribery Indictment

The FCPA blog reports that:

"Monday marked the beginning of a new phase in Israel's fight against overseas graft. For the first time, a charging sheet was filed by the Tel Aviv District Prosecutor's office against an Israeli company for violating Israel's Bribery of Foreign Public Officials statutes."

Read the full story at the FCPA blog

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

Monday, January 15, 2018

Russia Uranium Investigation For Activities During Obama Administration Leads to 11 Count Indictment for Bribery and Money Laundering

Executive Allegedly Paid Bribes to a Russian Official So His Company Could Win Highly Sensitive Nuclear Fuel Transportation Contracts

An indictment against a former co-president of a Maryland-based transportation company that provides services for the transportation of nuclear materials to customers in the United States and abroad, was unsealed for his alleged role in a scheme that involved the bribery of an official at a subsidiary of Russia’s State Atomic Energy Corporation. 

Thomson Reuters reports that:

"The uranium investigation drew increased public attention last year after an informant involved in the probe claimed to have evidence tying the former Obama Administration to Russian influence peddling, a charge former administration officials have denied.  In 2015, a Maryland judge sentenced the Russian official named in the case, Vadim Mikerin, a former director at state-owned Rosatom, to four years for laundering money connected to the bribes. Lambert's former co-president Daren Condrey pleaded guilty to bribery and wire fraud charges in 2015 and is awaiting sentencing."

Mark Lambert, 54, of Mount Airy, Maryland, was charged in an 11-count indictment with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud, seven counts of violating the FCPA, two counts of wire fraud and one count of international promotion money laundering.  The charges stem from an alleged scheme to bribe Vadim Mikerin, a Russian official at JSC Techsnabexport (TENEX), a subsidiary of Russia’s State Atomic Energy Corporation and the sole supplier and exporter of Russian Federation uranium and uranium enrichment services to nuclear power companies worldwide, in order to secure contracts with TENEX. 

The case against Lambert is assigned to U.S. District Court Judge Theodore D. Chuang of the District of Maryland. 

According to the indictment, beginning at least as early as 2009 and continuing until October 2014, Lambert conspired with others at “Transportation Corporation A” to make corrupt and fraudulent bribery and kickback payments to offshore bank accounts associated with shell companies, at the direction of, and for the benefit of, a Russian official, Vadim Mikerin, in order to secure improper business advantages and obtain and retain business with TENEX.   In order to effectuate and conceal the corrupt and fraudulent bribe payments, Lambert and others allegedly caused fake invoices to be prepared, purportedly from TENEX to Transportation Corporation A, that described services that were never provided, and then Lambert and others caused Transportation Corporation A to wire the corrupt payments for those purported services to shell companies in Latvia, Cyprus and Switzerland.  Lambert and others also allegedly used code words like “lucky figures,” “LF,” “lucky numbers,” and “cake” to describe the payments in emails to the Russian official at his personal email account.  The indictment also alleges that Lambert and others caused Transportation Corporation A to overbill TENEX by building the cost of the corrupt payments into their invoices, and TENEX thus overpaid for Transportation Corporation A’s services. 

In June 2015, Lambert’s former co-president, Daren Condrey, pleaded guilty to conspiracy to violate the FCPA and commit wire fraud, and Vadim Mikerin pleaded guilty to conspiracy to commit money laundering involving violations of the FCPA.  Mikerin is currently serving a sentence of 48 months in prison and Condrey is awaiting sentencing.  The indictment includes allegations against Lambert based on his role in effectuating the criminal scheme with Condrey, Mikerin, and others. 

The charges in the indictment are merely allegations, and the defendant is presumed innocent unless proven guilty beyond a reasonable doubt in a court of law.

The case is being investigated by DOE-OIG and the FBI.  Assistant Chiefs Ephraim Wernick and Christopher J. Cestaro and Trial Attorney Derek J. Ettinger of the Criminal Division’s Fraud Section, as well as Assistant U.S. Attorneys David I. Salem and Michael T. Packard of the District of Maryland, are prosecuting the case.

The Criminal Division’s Office of International Affairs has provided significant assistance in this matter.  The Department also thanks its law enforcement colleagues in Switzerland, Latvia and Cyprus for providing valuable assistance with the investigation and prosecution of the case.

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