Thursday, October 31, 2019
United States Reaches Settlement to Recover More Than $700 Million in Assets Allegedly Traceable to Corruption Involving Malaysian Sovereign Wealth Fund
The Department of Justice has reached a settlement of its civil forfeiture cases against assets acquired by Low Taek Jho, aka Jho Low, and his family using funds allegedly misappropriated from 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund, and laundered through financial institutions in several jurisdictions, including the United States, Switzerland, Singapore and Luxembourg.
These assets, located in the United States, the United Kingdom and Switzerland, are estimated to be worth more than $700 million. With the conclusion of this settlement, together with the prior disposition of other related forfeiture cases, the United States will have recovered or assisted in the recovery of more than $1 billion in assets associated with the 1MDB international money laundering and bribery scheme. This represents the largest recovery to date under the Department’s Kleptocracy Asset Recovery Initiative and the largest civil forfeiture ever concluded by the Justice Department.
“As alleged in the complaints, Jho Low and others, including officials in Malaysia and the United Arab Emirates, engaged in a brazen multi-year conspiracy to launder money embezzled or otherwise misappropriated from 1MDB, and he used those funds, among other things, to engage in extravagant spending sprees, acquiring one-of-kind artwork and luxury real estate, gambling freely at casinos, and propping up his lavish lifestyle,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “This settlement agreement forces Low and his family to relinquish hundreds of millions of dollars in ill-gotten gains that were intended to be used for the benefit of the Malaysian people, and it sends a signal that the United States will not be a safe haven for the proceeds of corruption.”
“A staggering amount of money embezzled from 1MDB at the expense of the people of Malaysia was laundered through the purchase of big-ticket assets in the U.S. and other nations. Thanks to this settlement, one of the men allegedly at the center of this massive scheme will lose all access to hundreds of millions of dollars,” said U.S. Attorney Nicola T. Hanna of the Central District of California. “The message in this case is simple: the United States is not a safe haven for pilfered funds. Our strict anti-money laundering controls are effective, and we will seize assets used by criminals to conceal ill-gotten gains.”
“Today's settlement with Jho Low demonstrates the continued commitment of the FBI to root out the fraud and selfishness of the corrupt individuals who conspired to pay bribes and launder funds which belong to the Malaysian people,” said FBI Assistant Director Terry Wade of the Criminal Investigative Division. “The FBI's dedicated International Corruption Squads will continue to combat foreign corruption which reaches our shores. We will not allow criminals, foreign or domestic, to use the United States in furtherance of their criminal activities.”
“The action announced today will allow the United States government to deny Mr. Low the use of the assets purchased with this extraordinarily large sum of money he allegedly misappropriated from 1MDB and the people of Malaysia,” said Chief Don Fort of IRS Criminal Investigations (IRS-CI). “Mr. Low allegedly attempted to launder these funds through multiple international jurisdictions and a web of shell corporations, but his greed finally caught up with him. This case is a model for international cooperation in significant cross-border money laundering investigations”
According to the civil forfeiture complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates, including Low, through a criminal conspiracy involving international money laundering and bribery. 1MDB was created by the government of Malaysia to promote economic development in Malaysia through global partnerships and foreign direct investment, and its funds were intended to be used for improving the well-being of the Malaysian people.
Under the terms of the settlement, Low, his family members, and FFP, a Cayman Islands entity serving as the trustees overseeing the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest. The trustees are also required to cooperate and assist the Justice Department in the orderly transfer, management and disposition of the relevant assets. From the assets formerly managed by FFP, the United States will release $15 million to Low’s counsel to pay for legal fees and costs. Under the agreement, none of those fees may be returned to Low or his family members. The assets subject to the settlement agreement include high-end real estate in Beverly Hills, New York and London; a luxury boutique hotel in Beverly Hills; and tens of millions of dollars in business investments that Low allegedly made with funds traceable to misappropriated 1MDB monies.
Low separately faces charges in the Eastern District of New York for conspiring to launder billions of dollars embezzled from 1MDB and for conspiring to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes to various Malaysian and Emirati officials, and in the District of Columbia for conspiring to make and conceal foreign and conduit campaign contributions during the United States presidential election in 2012. The charges in the indictments are merely allegations, and defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. This agreement does not release any entity or individual from filed or potential criminal charges.
The assets being forfeited subject to this settlement are in addition to the nearly $140 million in assets the U.S. previously forfeited in connection with Low’s investment in a business entity related to the Park Lane Hotel in New York, as well as a super-yacht, valued at over $120 million, seized by law enforcement authorities in Indonesia at the request of the Justice Department and recovered by Malaysian authorities directly from Indonesia. Following conclusion of today’s settlement, several civil forfeiture complaints arising out of the 1MDB criminal conspiracy remain pending against assets associated with other alleged co-conspirators.
The FBI’s International Corruption Squads in New York City and Los Angeles and the IRS-CI are investigating the case. Deputy Chief Woo S. Lee and Trial Attorneys Kyle R. Freeny, Joshua L. Sohn, Barbara Levy and Jonathan Baum of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys John Kucera, Michael R. Sew Hoy and Steven R. Welk of the Central District of California are prosecuting the case. The Criminal Division’s Office of International Affairs is providing substantial assistance.
The Department also appreciates the significant assistance provided by the Attorney General’s Chambers of Malaysia, the Royal Malaysian Police, the Malaysian Anti-Corruption Commission, the Attorney General’s Chambers of Singapore, the Singapore Police Force-Commercial Affairs Division, the Office of the Attorney General and the Federal Office of Justice of Switzerland, the judicial investigating authority of the Grand Duchy of Luxembourg and the Criminal Investigation Department of the Grand-Ducal Police of Luxembourg.
The Kleptocracy Asset Recovery Initiative is led by a team of dedicated prosecutors in the Criminal Division’s Money Laundering and Asset Recovery Section, in partnership with federal law enforcement agencies, and often with U.S. Attorney’s Offices, to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered assets to benefit the people harmed by these acts of corruption and abuse of office. In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption. Individuals with information about possible proceeds of foreign corruption located in or laundered through the U.S. should contact federal law enforcement or send an email to email@example.com (link sends e-mail) or https://tips.fbi.gov/.
Friday, October 25, 2019
Francis Alvarez, owner of a large freight forwarding company, pleaded guilty to an antitrust charge for her role in a multi-year, nationwide conspiracy to fix prices for international freight forwarding services, the Department of Justice announced today.
According to a one-count felony charge filed in the Southern District of Florida in Miami, Florida, Alvarez and her co-conspirators agreed to fix, raise and maintain prices for freight forwarding services provided in the United States and elsewhere from at least as early as September 2010 until at least August 2014. Alvarez is president and owner of a Houston-based freight forwarding company.
In addition to admitting to participating in this conspiracy, Alvarez has agreed to pay a criminal fine and cooperate with the ongoing investigation. The terms of the plea agreement are subject to approval of the court. Alvarez will be sentenced at a later date.
Alvarez is the third individual to face charges for participating in this conspiracy. Two of Alvarez’s co-conspirators, Roberto Dip and Jason Handal, were charged and pleaded guilty in November 2018. In June 2019, Dip and Handal were sentenced to eighteen- and fifteen-month prison terms, respectively, for their roles in the scheme.
“Alvarez and her co-conspirators cheated American consumers shipping goods to Honduras by conspiring to raise prices and pocket the proceeds of their illegal scheme,” said Assistant Attorney General Makan Delrahim of the Justice Department's Antitrust Division. “The Antitrust Division is committed to working with our law enforcement partners to protect those consumers and restore integrity to this market.”
“This is an example of businesses and their executives manipulating commerce and deceiving the American public for their own financial gain,” said Special Agent in Charge Bryan A. Vorndran of the FBI’s New Orleans Office. “Francis Alvarez and her co-conspirators violated U.S. antitrust laws. Using their knowledge and experience in the freight-forwarding trade, they exploited consumers through an elaborate price-fixing scheme. The FBI, along with our partners at the Department of Justice Antitrust Division, remain committed to upholding the Constitution and protecting consumers against fraud, deceit and illegal activity.”
Freight forwarders arrange for and manage the shipment of goods, including by receiving, packaging and otherwise preparing cargo destined for international ocean shipment.
Alvarez is charged with price fixing in violation of the Sherman Act, which carries a maximum sentence of 10 years in prison and a $1 million fine for individuals. The maximum fine for an individual may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
The ongoing investigation into price fixing in the international freight forwarding industry is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s New Orleans Field Office. Anyone with information in connection with this investigation is urged to call the Antitrust Division’s Washington Criminal I Section at 202-307-6694, visit www.justice.gov/atr/contact/newcase.html or call the FBI tip line at 415-553-7400.
Tuesday, October 15, 2019
Miami-Based Financial Advisor Pleads Guilty for Conspiring to Launder Money Relating To FCPA and Ecuadorian Bribery Law Violations
A financial advisor based in Miami, Florida, pleaded guilty to a money-laundering conspiracy for his role in using the U.S. financial system to launder money to promote violations of the Foreign Corrupt Practices Act (FCPA) and Ecuadorian bribery law violations and to conceal and disguise the true nature of those illegal bribe payments. Specifically, this conspiracy related to a scheme to pay bribes to officials of Ecuador’s state-owned and state-controlled oil company, Empresa Pública de Hidrocarburos del Ecuador (PetroEcuador).
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Special Agent in Charge Kelly Jackson of the IRS-Criminal Investigation’s (IRS-CI) Washington, D.C. office, Special Agent in Charge Raymond Villanueva of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Washington, D.C., office, and Special Agent in Charge George Piro of the FBI’s Miami Field Office made the announcement.
Frank Roberto Chatburn Ripalda (Chatburn), 42, a dual U.S. and Ecuadorian citizen, pleaded guilty in federal district court in Miami before the Honorable Marcia G. Cooke to one count of conspiracy to commit money laundering, which carries a 20-year statutory maximum sentence. Chatburn is scheduled to be sentenced by Judge Cooke on Dec. 18.
According to his admissions at the plea hearing, Chatburn conspired with an oil services contractor to pay nearly $3 million in bribes to Ecuadorian government officials in an effort to obtain and retain contracts with PetroEcuador. As a financial advisor to the contractor, Chatburn agreed to make bribe payments for the benefit of several then-PetroEcuador officials through the use of shell companies and bank accounts in the United States, Panama, the Cayman Islands, Curacao and Switzerland. To conceal the bribe payments and to promote the scheme, Chatburn established Panamanian shell companies with Swiss bank accounts on behalf of two then-PetroEcuador officials.
Chatburn further admitted that he conspired with another Ecuadorian government official to conceal bribe payments intended for the official from Odebrecht S.A., the Brazilian construction conglomerate. Chatburn facilitated hiding these bribe payments by conducting the transactions through several shell companies and bank accounts in multiple jurisdictions, including in the United States. Odebrecht S.A. pleaded guilty on Dec. 21, 2016, in the Eastern District of New York to conspiring to violate the anti-bribery provisions of the FCPA in connection with a broader scheme to pay nearly $800 million in bribes to public officials in twelve countries, including Angola, Argentina, Brazil, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico, Mozambique, Panama, Peru and Venezuela.
To date, 10 individuals, including former Ecuadorian government officials, oil services contractors and financial advisors, have pleaded guilty to criminal charges in U.S. courts for their involvement in the PetroEcuador bribery and money laundering schemes.
This case was investigated by HSI and IRS-CI, jointly under the auspices of the Global Illicit Financial Team, and by the FBI’s International Corruption Squad in Miami. Deputy Chief Brian Young, Assistant Chiefs David Fuhr and Lorinda Laryea, Trial Attorney Katherine Raut of the Criminal Division’s Fraud Section, and Trial Attorneys Randall Warden and Mary Ann McCarthy of the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) are prosecuting the case.
The U.S. Marshals Service and the Criminal Division’s Office of International Affairs have provided significant assistance by obtaining evidence in this case, as have public authorities in, among other countries, Ecuador, Panama and the Cayman Islands.
MLARS’s Bank Integrity Unit investigates and prosecutes banks and other financial institutions, including their officers, managers and employees, whose actions threaten the integrity of the individual institution or the wider financial system.
Monday, October 14, 2019
A former University of Georgia undergraduate student pleaded guilty today for his role in a $1 million Ponzi scheme that targeted investors, including his fellow students.
Syed Arham Arbab, 22, of Augusta, Georgia, pleaded guilty to a one-count information charging him with securities fraud before U.S. District Judge C. Ashley Royal of the Middle District of Georgia. Arbab further admitted that he spent investor funds on personal expenses, including clothing, shoes, retail purchases, fine dining, alcoholic beverages, adult entertainment and interstate travel, including spending thousands of dollars gambling during three trips to Las Vegas in 2018 and 2019.
As part of his guilty plea, Arbab admitted that from May 2018 through May 2019, while enrolled as an undergraduate student at the University of Georgia campus in Athens, Georgia, he solicited investors, many of whom were his fellow students, to invest in his entities, Artis Proficio Capital Management and Artis Proficio Capital Investments (collectively, APC), which he told investors were “hedge funds.” Arbab admitted that he convinced approximately 117 investors in Georgia and other states to invest funds with him and APC.
Arbab admitted that he made a number of misrepresentations in order to persuade victims to invest with him, including misrepresenting the funds’ returns, the number of investors, the total funds invested and the nature of the investment plays being made. He also admitted fabricating account statements. Victims invested approximately $1 million with Arbab in the course of his scheme, with Arbab falsely promising rates of returns as high as 22 percent or 56 percent, when his overall returns were nowhere near these amounts. Arbab offered some investors a seemingly risk-free “guarantee” on the first $15,000 invested, and the majority of investors, especially those who were students or younger professionals, invested less than this amount, believing that even if Arbab’s investment choices proved unsound or the market behaved unpredictably, they would still be paid back their entire principal investment.
Arbab admitted that knew he did not have the liquid capital to make good on these guarantees when he made them, but he did not disclose this to his investors. Further, when Arbab learned that some prospective investors were UGA football fans, he told them that a famous NFL player and UGA alumnus was an investor in the fund, when in fact the football player had never invested with APC. Arbab also misrepresented that he was an MBA candidate at UGA’s Terry College of Business. In fact, ARBAB had applied to and been rejected by UGA’s MBA program and was operating the fund primarily from his fraternity house as an undergraduate.
Arbab is also the subject of a previously filed civil complaint by the SEC alleging a Ponzi scheme and offering fraud.
Thursday, October 10, 2019
An employee of the Defense Intelligence Agency (DIA) was arrested yesterday on charges related to his alleged disclosure of classified national defense information (NDI) to two journalists in 2018 and 2019.
“As laid out in today’s indictment, Frese was caught red-handed disclosing sensitive national security information for personal gain,” said Assistant Attorney General for National Security John C. Demers. “Frese betrayed the trust placed in him by the American people—a betrayal that risked harming the national security of this country. This is one of six unauthorized disclosure cases the Department has charged in just over two years, and we will continue in our efforts to punish and deter this behavior.”
Henry Kyle Frese, 30, of Alexandria, is a DIA employee and holds a Top Secret//Sensitive Compartmented Information U.S. government security clearance. According to court documents, between mid-April and early May 2018, Frese allegedly accessed classified intelligence reports, some of which were unrelated to his job duties, and provided TOP SECRET information regarding a foreign country’s weapons systems to a journalist (Journalist 1). According to court documents, Frese and Journalist 1 had the same residential address from August 2017 through August 2018 and, based on reviews of Frese’s and Journalist 1’s public social media pages, it appears that they were involved in a romantic relationship for some or all of that period of time. The unauthorized disclosure of TOP SECRET information could reasonably be expected to cause exceptionally grave harm to the national security of the United States.
According to the indictment, a week after Frese accessed one of the intelligence reports (Intelligence Report 1) for the second time, Journalist 1 wrote to Frese on April 27, 2018, and asked whether he would be willing to speak with another journalist (Journalist 2). Frese stated that he was “down” to help Journalist 2 if it helped Journalist 1 because he wanted to see Journalist 1 “progress.”
As alleged, in that same communication, Frese and Journalist 1 also discussed a story that Journalist 1 was working on, the subject matter of which was the topic of Intelligence Report 1. Several days after that communication, Frese searched on a classified United States government computer system for terms related to the topics contained in Intelligence Report 1. According to the indictment, in the hours after searching for terms related to the topic of Intelligence Report 1, Frese spoke by telephone with both Journalist 1 (twice) and Journalist 2, and within approximately a half hour after Frese’s conversations with the two journalists, Journalist 1 published an article (Article 1) through News Outlet 1, which contained NDI from Intelligence Report 1 classified at the TOP SECRET//SCI level.
In addition, as alleged in the indictment, on Sept. 24, 2019, Frese was captured on court-authorized surveillance of his cell phone orally transmitting classified NDI to Journalist 2. These disclosures contained NDI classified at the SECRET level, meaning that the unauthorized disclosure of the information could reasonably be expected to cause serious harm to the national security of the United States.
“Henry Kyle Frese was entrusted with TOP SECRET information related to the national defense of our country,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia. “Frese allegedly violated that trust, the oath he swore to uphold, and is charged with engaging in dastardly and felonious conduct at the expense of our country. This indictment should serve as a clear reminder to all of those similarly entrusted with National Defense Information that unilaterally disclosing such information for personal gain, or that of others, is not selfless or heroic, it is criminal.”
"Mr. Frese allegedly disclosed highly classified national defense information, which puts our country and people at risk," said Alan E. Kohler Jr., Special Agent in Charge of the FBI's Washington Field Office Counterintelligence Division. "He violated his oath to serve and protect the United States. The men and women of the FBI work hard every day to protect the American people and uphold the Constitution - we will not stand by while trusted government employees violate that trust in such an egregious way."
A federal grand jury returned an indictment yesterday charging Frese with two counts of willful transmission of national defense information to persons not entitled to receive it. If convicted, he faces a maximum penalty of 10 years in prison on each count. Actual sentences for federal crimes are typically less than the maximum penalties. A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.
Assistant U.S. Attorney Danya E. Atiyeh and Trial Attorney Jennifer Kennedy Gellie of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.
Wednesday, October 9, 2019
Drexel University Admits Department Chair Used $189,062 of Federal Grants for Stripper Clubs and Sports Bars
Drexel University has agreed to pay the United States $189,062 to resolve potential liability under the False Claims Act for a former professor’s use of grant funds towards “gentlemen’s clubs” and other improper purchases. For ten years, the head of Drexel’s Department of Electrical and Computer Engineering, Dr. Chikaodinaka D. Nwankpa, submitted improper charges against federal grants. The majority of the charges were made to gentlemen’s clubs and sports bars in the Philadelphia area.
The government’s investigation began in 2017 after Drexel voluntarily disclosed the improper charges to eight federal grants for energy and naval technology related research that it received from the Department of the Navy, the Department of Energy, and the National Science Foundation. After an internal audit in 2017, Drexel discovered that between July 2007 through April 2017, Dr. Nwankpa submitted improper charges against the federal grants for items such as personal iTunes purchases and for “goods and services” provided by Cheerleaders, Club Risque, and Tacony Club.
Drexel disclosed Dr. Nwankpa’s conduct to the government and cooperated with the investigation to identify the full scope of the misconduct. Dr. Nwankpa repaid $53,328 to Drexel, resigned his position in lieu of termination, and was debarred from federal government contracting for a period of six months. Drexel has implemented changes to prevent similar misconduct in the future, such as improvements to its charge approval and auditing policies.
“This is an example of flagrant and audacious fraud, and a shameful misuse of public funds.” said U.S. Attorney McSwain. “The agencies providing these grant funds expect them to be used towards advancements in energy and naval technology for public benefit, not for personal entertainment.”
U.S. Attorney McSwain continued, “We appreciate Drexel’s self-disclosure and cooperation in this matter. At the same time, we are disappointed that Dr. Nwankpa’s conduct went unnoticed for so long, but Drexel’s strengthening of its charge approval process is certainly a step in the right direction.”
NCIS Northeast Field Office Special Agent in Charge Leo S. Lamont stated: "Fraud is never a victimless crime. In this case, the flagrant and wrongful misuse of American taxpayers’ funds not only eroded the public trust, but jeopardized the Department of Navy’s efforts to obtain the best technology and research for our brave men and women in uniform. NCIS will continue to battle fraud in all forms and tirelessly pursue all those who seek to cheat, steal, defraud, or harm the American Public and the Department of the Navy.”
Tuesday, October 8, 2019
Remarks delivered (see transcript here)
Over the past two years, the Criminal Division has pursued white collar criminal prosecutions aggressively, and with some degree of success.
In fact, in 2018, our Fraud Section prosecuted significant numbers of white-collar cases in category after category:
- We charged 406 individuals – a 33 percent increase from the prior year -- and convicted 40 percent more individuals at trial.
- We brought 10 corporate enforcement actions.
- We recovered more than $1 billion in corporate U.S. criminal fines, penalties, restitution and forfeiture, as part of resolutions that returned $3 billion globally.
- And I am pleased to say that we are on track to surpass these benchmarks in 2019.
Our prosecutors and federal law enforcement partners have much to be proud of. As the numbers show, we are intensely focused on holding both culpable individuals and corporations accountable.
We bring to justice those who defraud and cheat, so that those among us who abide by the laws may compete on a level playing field.
But effective crime prevention requires more than simply holding criminals accountable. Our goal – as it should be – is to not just punish corporate crime, but to deter it as well.
The best way to deter white-collar crime is to provide the proper incentives for law-abiding businesses to prevent misconduct before it occurs and foster the types of ethical corporate behavior that benefits all of us.
To that end, over the past two years, the Criminal Division has instituted a variety of new policies and guidance geared towards enhancing transparency. We in the Criminal Division often talk of the importance of transparency – and I want to unpack this concept a bit further today.
Internally, at the Department of Justice, transparency helps define and refine the criteria prosecutors will apply to key decisions.
Prosecutors build cases around well-defined statutory elements and evidentiary rules. But they also make charging decisions based upon both mandatory and discretionary standards.
Having internal guidance that is both clear and clearly memorialized helps to ensure consistency and predictability in how those standards are applied within the Department.
Whether that be in deciding whether a monitor should be recommended as part of a resolution, evaluating the adequacy of a corporate compliance program, or determining whether a resolution is appropriate at all, consistency and predictability in these decisions ensures as much as possible that similar behavior in similar cases is treated consistently and fairly across the board.
Externally, it is equally important to convey to the bar and the business community the standards we as prosecutors will apply when making key decisions. Some might joke that this is akin to handing defense lawyers a toolkit they can use to make prosecutors’ work that much more difficult.
But in fact, we want lawyers on the other side of the table to be well-prepared and base their advocacy on the very criteria that our prosecutors find relevant to their decisions. It makes the process that much more efficient and productive for both sides.
It makes you work a little harder, but it makes our trial attorneys work that much harder, too. And I think the result, at least I hope the result, will be outcomes that are fairer and more just.
Transparency about the types of corporate practices and programs that the Department of Justice values has the additional benefit of reinforcing real-world outcomes that we desire as an institution.
By demystifying the considerations commonly confronted by white-collar prosecutors, our hope is that companies will have the information and security they need to invest fully in compliance on the front end, and to make good decisions in the face of misconduct on the back end.
* * *
Over the past few months, we have taken a hard look at areas of white-collar criminal enforcement where we can bring, and benefit from, greater transparency.
One such area is the criteria by which prosecutors evaluate “inability to pay” claims. As you know, companies sometimes claim that they are unable to pay a proposed criminal fine or monetary penalty.
And although the U.S. Sentencing Guidelines and the sentencing provisions of Title 18 address this issue in certain respects, they do not provide specific guidance for how such claims are considered.
To that end, I am pleased to announce that today I am issuing a memorandum to all Criminal Division prosecutors that will provide greater guidance in how they will evaluate and address inability to pay claims.
The memorandum and its accompanying questionnaire – which will be published today on the Department’s website – provide an analytical framework for evaluating assertions by a business organization that it cannot pay a criminal fine or monetary penalty that it would otherwise concede is appropriate based on the law and the facts.
As the memo makes clear, where legitimate questions exist regarding a company’s inability to pay, the government will consider a range of factors.
The factors include the company’s ability to raise capital, the circumstances giving rise to the organization’s current financial condition, the significant and likely collateral consequences of the fine or penalty to the company, and whether the proposed fine or penalty will impair the ability to pay restitution to victims.
The memo further clarifies that where a company is in fact unable to pay the appropriate fine or penalty, Criminal Division attorneys should recommend an adjustment to that amount. But the amount should be adjusted only to the extent necessary to avoid threatening the organization’s viability or impairing its ability to make restitution to victims.
Meanwhile, the accompanying questionnaire helps flesh out the company’s full financial picture – requiring information about recent cash flow projections and operating budgets to acquisition or divestiture plans and encumbered assets.
Responses to those questions and supporting documentation from companies will be used by prosecutors and the government’s accounting experts to determine the company’s current assets and liabilities, as well as to compare current and anticipated cash flows against working capital needs, all with a view towards making a fully-informed, rational, and fair decision about a company’s ability to pay.
At bottom, these materials promote transparency – both inside and outside the Department. They help ensure that prosecutors stick to a more uniform set of considerations, and also that companies looking to resolve matters have greater insight into how prosecutors think.
We want you to know what we consider to be a legitimate inability to pay argument, but also the facts and arguments that won’t be given credence.
This inability-to-pay guidance comes on the heels of the Criminal Division’s April 2019 guidance on how to evaluate corporate compliance programs. That guidance underscores the importance we have long placed on companies employing risk-based, fit-for-purpose compliance programs. And it spells out in more rigorous detail the factors we use to evaluate the adequacy of compliance programs.
To harmonize the guidance with other Department policies, the relevant considerations have been reorganized around three questions that go to the heart of every compliance matter:
First, is the compliance program well designed? Second, is the program being implemented effectively and in good faith? And third, does the compliance program work in practice?
The guidance thus describes the hallmarks of a well-designed compliance program – from the requisite company policies and procedures to training and communications.
It details the features of effective implementation – from commitment by senior and middle management to incentives and disciplinary measures. And it lays out the metrics to be used in determining whether a program is in fact operating effectively in practice – from periodic testing to the investigation and remediation of misconduct.
By publishing this guidance for all to see, the Criminal Division again sought to promote transparency.
And as a retooling of a prior iteration of the guidance from 2017, it also makes clear that our transparency initiative is ongoing. Just as compliance programs must evolve over time, so too should our policies and practices in order to remain clear, comprehensive, and current.
That brings us to the Criminal Division memorandum on corporate monitorships that we issued last October. Like many of you, I had seen the numbers and knew that monitors are plainly the exception, not the rule.
That basic principle was the premise of our new policy, which supplemented prior guidance: that monitors should be approved only in cases where there is a demonstrable need for one, with clear benefits to be derived. Monitorships should never be punitive.
And those benefits must always be weighed against the projected costs and burdens that a monitor will impose on a business’s operations.
The new policy clarifies that, in deciding whether to impose monitors, Criminal Division attorneys should consider pragmatic factors, including the type of misconduct, the pervasiveness of the conduct, and whether it involved senior management.
They are also to look at any investments and improvements a company has made to its corporate compliance program and internal control systems, and whether the misconduct took place in an inadequate compliance environment that no longer exists.
And the new policy further clarifies that demonstrable changes to a compliance program and culture can suffice to protect against future misconduct, and eliminate the need for a monitor.
All of these initiatives – on inability to pay, compliance, and monitorships – are part and parcel of our broader mission at the Criminal Division to establish more predictable guideposts by which companies can gauge expectations, conform their conduct, and act as responsible corporate citizens.
Our aim is for companies to work diligently to deter criminal wrongdoing before it ever needs the attention of the Department of Justice, but also to make wise decisions about how to approach us when things do go wrong.
That is, after all, the vision behind the FCPA Corporate Enforcement Policy, which lays out concrete incentives for companies to voluntarily self-disclose, fully cooperate, and engage in timely and appropriate remediation.
And it is the same vision that lies behind the Criminal Division’s recent practice of publishing declination letters on our website, which help further convey to the private sector the specific actions that were favorably credited or penalized.
These are all different threads of a singular collective push: to incentivize companies to prevent on the front end the very problems we would have to prosecute on the back end.
* * *
In keeping with the theme of transparency, the Criminal Division has also been busy examining our own structures to ensure that our prosecutors are as focused as possible on our defined missions. We fully recognize that our message to the public has to match our mission.
For many years, the Securities and Financial Fraud Unit within the Fraud Section has investigated and prosecuted some of the largest and most complex criminal fraud cases in the Department.
For example, in a 2017 case, Takata Corporation, one of the world’s largest suppliers of automotive safety-related equipment, pleaded guilty to one count of wire fraud and was sentenced to pay a total of $1 billion in criminal penalties, stemming from the company’s conduct regarding sales of defective airbag inflators.
But as Takata highlights, many of the Unit’s cases were neither securities fraud, nor financial fraud cases. The Unit’s mission has expanded beyond its stated message and moniker.
So we rethought the structure of that Unit, and I am excited to announce that going forward, the Unit will be renamed the Market Integrity and Major Frauds Unit, to capture the broad range of fraud enforcement work that its prosecutors actually perform.
The new name, of course, is only part of the story. More importantly, the Unit will also reorganize internally to hone in on five well-defined missions, each with dedicated teams: 1) Securities Fraud, 2) Commodities Fraud, 3) Government Procurement Fraud, 4) Fraud on Financial Institutions, and, finally, 5) Consumer Fraud, Regulatory Deceit, and Investor Schemes.
Each of these types of fraud are identified and investigated differently. Securities and commodities fraud often can be identified using data analytics, whereas procurement fraud typically is identified and investigated by our law enforcement partners in the inspector general community.
Each of these types of fraud, moreover, involve different types of victims. We believe the increased specialization and mission-driven focus of this reorganization will put us on better footing to pursue cases and vindicate the interests of those particular victims.
* * *
As we move forward, the Criminal Division will continue to look for additional ways to promote clarity about what our prosecutors do, how they do it, and why. The interests of prosecutors and businesses are inextricably aligned when it comes to rooting out corporate crime.
We want to assist responsible companies in instituting effective and ethical practices. And we want them to trust that, if they respond appropriately to misconduct, they can be assured of fair and evenhanded treatment by the Department of Justice.
It has been the honor of my professional career to lead the Criminal Division, and the amazing men and women who have chosen careers dedicated to the cause of justice.
Whether it’s addressing the opioid epidemic, reducing violent crime by dismantling regional and national street gangs, battling transnational criminal organizations, or those who use the internet to harm children or victimize other vulnerable populations, or pursuing the best white collar policies that lead to fair and effective outcomes, I remain humbled every day by the depth and the breadth of the work, and the professionalism displayed by the team in the Criminal Division.
Monday, October 7, 2019
A contracting officer with the U.S. Department of State was convicted today of conspiracy, bribery, honest services wire fraud and making false statements. Zaldy N. Sabino, 60, of Fort Washington, Maryland, was convicted of 13 counts of conspiracy, bribery, honest services wire fraud and making false statements. Sentencing has been set for Feb. 14, 2020.
Sabino was indicted in April 2019. According to the indictment, between November 2012 and early 2017, Sabino and the owner of a Turkish construction firm allegedly engaged in a bribery and procurement fraud scheme in which Sabino received at least $239,300 in cash payments from the Turkish owner while Sabino supervised multi-million dollar construction contracts awarded to the Turkish owner’s business partners and while Sabino made over a half million dollars in structured cash deposits into his personal bank accounts. Sabino allegedly concealed his unlawful relationship by, among other things, making false statements on financial disclosure forms and during his background reinvestigation.
Saturday, October 5, 2019
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $54.9 billion in August, up $0.9 billion from $54.0 billion in July, revised.
Next release: November 5, 2019
(°) Statistical significance is not applicable or not measurable. Data adjusted for seasonality but not price changes
Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S. International Trade in Goods and Services, October 4, 2019
Exports, Imports, and Balance
August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports.
The August increase in the goods and services deficit reflected an increase in the goods deficit of $0.8 billion to $74.4 billion and a decrease in the services surplus of less than $0.1 billion to $19.5 billion.
Year-to-date, the goods and services deficit increased $28.3 billion, or 7.1 percent, from the same period in 2018. Exports decreased $3.2 billion or 0.2 percent. Imports increased $25.1 billion or 1.2 percent.
Three-Month Moving Averages
The average goods and services deficit decreased $0.3 billion to $54.8 billion for the three months ending in August.
- Average exports decreased $0.8 billion to $207.2 billion in August.
- Average imports decreased $1.1 billion to $262.0 billion in August.
Year-over-year, the average goods and services deficit increased $3.2 billion from the three months ending in August 2018.
- Average exports decreased $2.0 billion from August 2018.
- Average imports increased $1.2 billion from August 2018.
Exports of goods increased $0.4 billion to $138.6 billion in August.
Exports of goods on a Census basis increased $0.4 billion.
- Industrial supplies and materials increased $1.5 billion.
- Fuel oil increased $0.8 billion.
- Nonmonetary gold increased $0.4 billion.
- Foods, feeds, and beverages increased $0.5 billion.
- Soybeans increased $0.3 billion.
- Capital goods decreased $1.4 billion.
- Civilian aircraft decreased $1.3 billion.
Net balance of payments adjustments decreased $0.1 billion.
Exports of services increased $0.1 billion to $69.3 billion in August.
- Financial services increased $0.1 billion.
- Other business services increased $0.1 billion.
- Transport decreased $0.1 billion.
Imports of goods increased $1.2 billion to $213.0 billion in August.
Imports of goods on a Census basis increased $1.1 billion.
- Consumer goods increased $1.9 billion.
- Cell phones and other household goods increased $1.1 billion.
- Capital goods increased $1.9 billion.
- Semiconductors increased $0.8 billion.
- Other industrial machines increased $0.4 billion.
- Industrial supplies and materials decreased $1.5 billion.
- Other petroleum products decreased $0.7 billion.
- Crude oil decreased $0.5 billion.
Net balance of payments adjustments increased $0.1 billion.
Imports of services increased $0.1 billion to $49.8 billion in August.
- Insurance services increased $0.1 billion.
Real Goods in 2012 Dollars – Census Basis (exhibit 11)
The real goods deficit increased $0.3 billion to $85.7 billion in August.
- Real exports of goods increased $1.6 billion to $150.4 billion.
- Real imports of goods increased $1.9 billion to $236.1 billion.
Goods by Selected Countries and Areas: Monthly – Census Basis (exhibit 19)
The August figures show surpluses, in billions of dollars, with South and Central America ($5.0), Hong Kong ($2.2), Brazil ($1.4), OPEC ($0.8), Singapore ($0.7), United Kingdom ($0.6), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($28.9), European Union ($15.6), Mexico ($8.4), Germany ($6.9), Japan ($6.1), Italy ($2.6), India ($2.4), Taiwan ($2.3), South Korea ($2.1), Canada ($1.6), and France ($1.5).
- The deficit with Germany increased $0.7 billion to $6.9 billion in August. Exports increased $0.2 billion to $4.9 billion and imports increased $0.8 billion to $11.8 billion.
- The deficit with South Korea increased $0.5 billion to $2.1 billion in August. Exports increased $0.1 billion to $4.8 billion and imports increased $0.7 billion to $6.9 billion.
- The deficit with Canada decreased $1.4 billion to $1.6 billion in August. Exports increased $0.6 billion to $24.8 billion and imports decreased $0.8 billion to $26.4 billion.
* * *
Next release: November 5, 2019, at 8:30 A.M. EST
Friday, October 4, 2019
U.S. And UK Sign Landmark Cross-Border Data Access Agreement to Combat Criminals and Terrorists Online
The United States and the United Kingdom entered into the world’s first ever CLOUD Act Agreement that will allow American and British law enforcement agencies, with appropriate authorization, to demand electronic data regarding serious crime, including terrorism, child sexual abuse, and cybercrime, directly from tech companies based in the other country, without legal barriers.
The current legal assistance process can take up to two years, but the Agreement will reduce this time period considerably, while protecting privacy and enhancing civil liberties. The historic agreement was signed by U.S. Attorney General William P. Barr and UK Home Secretary Priti Patel at a ceremony at the British Ambassador’s residence in Washington, D.C.
Attorney General William Barr said: “This agreement will enhance the ability of the United States and the United Kingdom to fight serious crime -- including terrorism, transnational organized crime, and child exploitation -- by allowing more efficient and effective access to data needed for quick-moving investigations. Only by addressing the problem of timely access to electronic evidence of crime committed in one country that is stored in another, can we hope to keep pace with twenty-first century threats. This agreement will make the citizens of both countries safer, while at the same time assuring robust protections for privacy and civil liberties.”
Home Secretary Priti Patel said: “Terrorists and paedophiles continue to exploit the internet to spread their messages of hate, plan attacks on our citizens and target the most vulnerable. As Home Secretary I am determined to do everything in my power to stop them. This historic agreement will dramatically speed up investigations, allowing our law enforcement agencies to protect the public. This is just one example of the enduring security partnership we have with the United States and I look forward to continuing to work with them and global partners to tackle these heinous crimes.”
Both governments agreed to terms which broadly lift restrictions for a broad class of investigations, not targeting residents of the other country, and assure providers that disclosures through the Agreement are compatible with data protection laws. Each also committed to obtain permission from the other before using data gained through the agreement in prosecutions relating to a Party’s essential interest—specifically, death penalty prosecutions by the United States and UK cases implicating freedom of speech.
The novel US-UK Bilateral Data Access Agreement will dramatically speed up investigations by removing legal barriers to timely and effective collection of electronic evidence. Under its terms, law enforcement, when armed with appropriate court authorization, may go directly to tech companies based in the other country to access electronic data, rather than going through governments, which can take years. The current Mutual Legal Assistance (MLA) request process, which sees requests for electronic data from law enforcement and other agencies submitted and approved by central governments, can often take many months. Once in place, the Agreement will see the timeline obtaining evidence significantly reduced.
The Agreement will accelerate dozens of complex investigations into suspected terrorists and pedophiles, such as Matthew Falder who was convicted in 2018 in the UK of 137 offenses after an eight-year campaign of online child sexual abuse, blackmail, forced labor and sharing of indecent images, which highlighted the need to speed up these investigations.
The United States will have reciprocal access, under a U.S. court order, to data from UK communication service providers. All requests for access to data will be subject to independent judicial authorization or oversight.
In March 2018, Congress passed the CLOUD Act, which authorizes the United States to enter into bilateral executive agreements with rights-respecting partners that lift each party’s legal barriers to the other party’s access to electronic data for certain criminal investigations. The Agreement was facilitated by the UK’s Crime (Overseas Production Orders) Act 2019, which received Royal Assent in February this year. The Agreement will enter into force following a six-month Congressional review period mandated by the CLOUD Act, and the related review by UK’s Parliament.
We anticipate releasing a copy of the agreement in the near future following Congressional and Parliamentary notification.
For more information on the CLOUD Act, go to: https://www.justice.gov/dag/page/file/1153466/download and https://www.justice.gov/dag/cloudact.
Thursday, October 3, 2019
Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the second quarter of 2019 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.
The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was also 2.0 percent. Downward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports. Imports, which are a subtraction in the calculation of GDP, were revised down (see "Updates to GDP" on page 2).
The increase in real GDP in the second quarter reflected positive contributions from PCE, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment, and residential fixed investment (table 2).
The deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.
Real gross domestic income (GDI) increased 1.8 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.9 percent in the second quarter, compared with an increase of 3.2 percent in the first quarter (table 1).
Current-dollar GDP increased 4.7 percent, or $241.5 billion, in the second quarter to a level of $21.34 trillion. In the first quarter, current-dollar GDP increased 3.9 percent, or $201.0 billion (tables 1 and 3).
The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter (table 4). The PCE price index increased 2.4 percent, compared with an increase of 0.4 percent. Excluding food and energy prices, the PCE price index increased 1.9 percent, compared with an increase of 1.1 percent.
Updates to GDP
The second-quarter percent change in real GDP was the same as previously estimated. Downward revisions to PCE and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports, and a downward revision to imports. For more information, see the Technical Note. A detailed "Key Source Data and Assumptions" file is also posted for each release. For information on updates to GDP, see the "Additional Information" section that follows.
|Advance Estimate||Second Estimate||Third Estimate|
|(Percent change from preceding quarter)|
|Average of Real GDP and Real GDI||…||2.1||1.9|
|Gross domestic purchases price index||2.2||2.2||2.2|
|PCE price index||2.3||2.3||2.4|
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $75.8 billion in the second quarter, in contrast to a decrease of $78.7 billion in the first quarter (table 10).
Profits of domestic financial corporations increased $2.5 billion in the second quarter, compared with an increase of $22.2 billion in the first quarter. Profits of domestic nonfinancial corporations increased $34.7 billion, in contrast to a decrease of $108.2 billion. Rest-of-the-world profits increased $38.7 billion, compared with an increase of $7.3 billion. In the second quarter, receipts increased $25.3 billion, and payments decreased $13.4 billion.
Wednesday, October 2, 2019
IR-2019-160: The IRS issued a draft of the tax year 2019 Form 1065, U.S. Return of Partnership Income (PDF), and its Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc (PDF). The changes to the form and schedule aim to improve the quality of the information reported by partnerships both to the IRS and the partners of such entities.
For example, among the changes is the addition of a checkbox that allows a taxpayer to indicate if certain grouping or aggregation elections have been made. The changes also reflect updates consistent with changes resulting from the Tax Cuts and Jobs Act.
The additional information requested in the draft Form 1065 and Schedule K-1 is intended to aid the IRS in assessing compliance risk and identifying potential noncompliance while ensuring that compliant taxpayers are less likely to be examined. The IRS believes these changes to Form 1065 and Schedule K-1 will improve tax administration in the partnership arena, an area of critical importance to the IRS.
In addition, certain similar changes can be found in the draft of the tax year 2019 Form 1120-S, U.S. Income Tax Return for an S Corporation (PDF), and its Schedule K-1 , Shareholder’s Share of Income, Deductions, Credits, etc.,(PDF) which were also released today.
Over the past decade and a half, tax filings by partnerships have seen an increase. For calendar year 2004, about 2.5 million partnerships filed Form 1065; by calendar year 2017, that number had risen to more than 4 million, an increase of 59 percent. The rise in filings by partnerships was considerably greater than the rise in filing by C-corporations and S-corporations, combined, which rose about 14 percent over the same timeframe. This increase in filings reinforces the IRS’s need to improve the data available for its compliance selection processes.
The draft 2019 Form 1065 and Schedule K-1, as well as the draft Form 1120-S and its Schedule K-1, are near-final forms. The drafts are intended to give tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated forms and schedules are released in December.
The IRS is now accepting comments until Oct 30 at IRS.gov/FormComments.
Tuesday, October 1, 2019
Former City Of Detroit Building Authority Official Sentenced For Bribery Conspiracy In Connection With Hardest Hit Fund Demolition Program In Detroit
Aradondo Haskins, 48, the former Field Operations Manager for the City of Detroit Building Authority overseeing the demolition program in Detroit, was sentenced to one year in prison after having pleaded guilty to charges of conspiracy to commit bribery and honest services fraud in connection with the Detroit Demolition Program.
The Honorable Victoria Roberts sentenced Haskins to serve one year in federal prison following his conviction for conspiracy to commit honest services fraud by taking bribes while he was employed at Adamo Group and at the City of Detroit. Following his release from prison, Haskins will serve a two year term of supervised release. The Court also ordered that Haskins pay a $5,000 fine and that Haskins forfeit $26,500 for the bribes that he took while employed by Adamo and by the City.
“Anti-competitive corruption by city officials that award contracts in the Hardest Hit Fund’s Blight Elimination Program will be met by justice and accountability,” said Special Inspector General Christy Goldsmith Romero. “Defendant Haskins started taking bribes from subcontractors when he worked for lead contractor Adamo and continued his crimes as a city official. I commend U.S. Attorney Matthew Schneider and Assistant Attorney General for Antitrust Makan Delrahim for standing united with SIGTARP in fighting corruption in this TARP program.”
The United States Treasury Department created the Blight Elimination Program, which focused on helping communities demolish vacant houses. The program was paid for through the Hardest Hit Fund (HHF), a housing support program intended to protect home values, preserve home ownership, and promote economic growth. The City of Detroit was one of the recipients of this HHF money. Approximately $258,656,459 in Hardest Hits Funds have been allocated to the City of Detroit since October 7, 2013.
As stated during Haskins’s guilty plea, from January 2013 through April 2015, Haskins was employed as an “estimator” with Adamo. Adamo is a private, “for profit,” company which provides demolition services throughout the United States and Canada, including the City of Detroit. Haskins’s responsibilities at Adamo included assembling bid packages in response to “Requests for Proposals” (RFPs) issued by the City of Detroit. Adamo responded to the RFPs by submitting bids to the City hoping to secure demolition contracts by being the lowest bidder. In assembling the bid packages, Haskins contacted various subcontractors requesting bids for work to be included in Adamo’s submissions. “Contractor A” was one of the subcontractors who received Haskins’s invitation to bid. On several occasions, Contractor A paid Haskins money for disclosing confidential information about bids from Contractor A’s competitors. In return for these payments, Haskins disclosed confidential information about the lowest competitor bid which allowed Contractor A to submit an even lower bid, ensuring that Contractor A was awarded lucrative contracts. Haskins accepted bribes on at least eight occasions while he worked at Adamo totaling approximately $14,000.00.
According to the plea, due in large part to his experience at Adamo, Haskins was hired by the City of Detroit Building Authority (DBA) as a “Field Operations Manager” for its demolition program. As an official of the City of Detroit, Haskins was the primary point of contact for demolition contractors and he opened and read bids contractors submitted in response to RFPs. Contractor A, knowing that Haskins was still in a position to influence the demolition contract bidding process, continued to pay Haskins to use his official authority to influence the awarding of demolition related contracts to Contractor A. Haskins accepted the cash bribe payments from Contractor A in exchange for providing Contractor A confidential information about bids submitted to the DBA. With the confidential information, Contractor A was able to submit bids low enough to ensure that Contractor A was awarded City of Detroit demolition related contracts. In total, Haskins accepted approximately $11,500 in bribes from Contractor A. After his employment with the City of Detroit, Haskins accepted an additional approximately $1,000 from Contractor A for information Contractor A received while Haskins was employed with the City.