International Financial Law Prof Blog

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

Friday, February 28, 2020

CFTC Orders Florida Resident and His Company to Pay Over $1 Million for Fraud

he Commodity Futures Trading Commission issued an order simultaneously filing and settling charges against Matthew R. White and M.W. Global Futures LLC (MWGF), both of Florida, for fraudulently soliciting approximately $1.2 million for a pooled investment vehicle trading commodity futures contracts, misappropriating over $280,000 in pool participants’ funds to pay for personal expenses, and operating without registration as required. The order requires White and MWGF to pay a $200,000 civil monetary penalty and $883,974 in restitution, of which $602,003 has already been paid. The order also requires White and MWGF to cease and desist from further violations of the Commodity Exchange Act, as charged. 

The order finds that from at least February 2014 to July 2018, White and MWGF solicited and received funds from at least six individuals (pool participants) residing in Florida and Washington state, for the purpose of trading commodity futures contracts. White pooled the participants’ funds in his personal bank and trading accounts and deposited only a portion of the pooled funds into commodity interest trading accounts. From 2014 to 2018, White traded pool participants’ funds in two commodity interest accounts, both in his own name. In the first account, there were at least 31 months in which no trading occurred, and the account was closed with a total cumulative loss of $687. In the second account, opened in April 2018, trading occurred in only one month and ended with a cumulative loss of $308.

White made false or misleading statements and omitted material facts regarding the profitability of his commodity futures trading to prospective and current pool participants. For example, White failed to disclose that his trading had actually resulted in a net loss and that the highest monthly profit he had earned was roughly $934. Additionally, White created and delivered monthly account statements to at least two pool participants, which falsely represented that he engaged in trading every month, that his trading was profitable, and that participants were earning positive returns on their deposits.

The order further finds that White misappropriated $281,970 of pool participants’ funds, diverting most of it for personal expenses, including credit card, auto loan, and rent payments. This amount was far greater than any commissions that White and MWGF could have claimed on the minor, sporadic profits generated by his trading.

Of the approximately $1.2 million collected from pool participants, MWGF and White initially repaid more than $400,000, and during the CFTC’s investigation, White repaid an additional $602,003 to pool participants.

The order also finds that in soliciting and holding funds for a pooled investment vehicle trading commodity futures contracts, White and MWGF illegally operated as unregistered commodity pool operators and White illegally acted as an unregistered associated person of MWGF.

The order recognizes White’s cooperation, which expedited the investigation of this matter, in the form of a reduced civil monetary penalty.

Related Criminal Action

In a separate action brought by the U.S. Attorney’s Office for the Western District of Washington, White pleaded guilty to one count of wire fraud in connection with fraudulent solicitation and misappropriation of funds from investors. USA v. White, CR19-253 RSL (W.D.Wash. ECF No. 16). White is scheduled to be sentenced on April 10, 2020.

The CFTC appreciates the assistance of the U.S. Attorney’s Office for the Western District of Washington and the Federal Bureau of Investigation. 

The Division of Enforcement staff members responsible for this case are Dmitriy Vilenskiy, Julia Colarusso, Christine Ryall, and Paul G. Hayeck, as well as former staff member Greta Gao.

CFTC’s Fraud Advisories

The CFTC has issued several customer protection Fraud Advisories including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud involving individuals and firms, often unregistered, offering investments in commodity pools.

February 28, 2020 in AML | Permalink | Comments (0)

Thursday, February 27, 2020

South Carolina seeking Visitor Law Professor

THE UNIVERSITY OF SOUTH CAROLINA SCHOOL OF LAW seeks applications for the Robert W. Foster Distinguished Professor visiting professorship. This position is reserved for distinguished visiting faculty with national prominence. Candidates should have a juris doctorate degree and a record of excellence as a teacher and scholar. The School of Law is interested in candidates who are available to teach Professional Responsibility in the Spring 2021 semester. Interested persons are encouraged to send a cover letter and curriculum vitae to Associate Dean Eboni Nelson at nelsones@law.sc.edu by March 2, 2020.

Please feel free to distribute this message and attached advertisement to your networks.

Eboni S. Nelson Associate Dean for Academic Affairs Professor of Law University of South Carolina School of Law 1525 Senate Street Columbia, SC 29208 803.777.5011 nelsones@law.sc.edu

 

February 27, 2020 in Academia | Permalink | Comments (0)

MONEYVAL publishes follow-up report on Hungary

As a result of Hungary’s progress in strengthening its framework to tackle money laundering and terrorist financing since the adoption of its mutual evaluation report in September 2016, MONEYVAL has re-rated the country with one Recommendation of the Financial Action Task Force (FATF) originally rated as “partially compliant”.

Hungary was placed in an enhanced follow-up process, following the adoption of its mutual evaluation report, which assessed the effectiveness of its anti-money laundering and counter-terrorist financing (AML/CFT) measures and their compliance with the FATF Recommendations. In line with MONEYVAL’s rules of procedure, the country has reported back to MONEYVAL on the progress it has made to strengthen its AML/CFT framework.

This follow-up report analyses Hungary’s progress in addressing the technical compliance deficiencies identified in the mutual evaluation report.

To reflect this progress, MONEYVAL has re-rated Hungary on Recommendation 33 (statistics). This Recommendation is now re-rated as “largely compliant”.

The follow-up report also looks at progress made in the implementation of new requirements relating to Recommendation 2 (national cooperation and coordination) which has changed since Hungary’s last follow-up report was adopted. The rating for Recommendation 2 (rated as “largely compliant”) remains unchanged.

Hungary remains “compliant” on six of the 40 FATF Recommendations and “largely compliant” on twenty-eight of them. It remains “partially compliant” on six of the 40 FATF Recommendations.

MONEYVAL decided that Hungary will remain in the enhanced follow-up process and will continue to report back to MONEYVAL on further progress to strengthen its implementation of AML/CFT measures.

February 27, 2020 in AML | Permalink | Comments (0)

Wednesday, February 26, 2020

Penn State Dickinson Law hiring 2 tenure-track positions and 1 visitor

Penn State Dickinson Law in Carlisle, Pennsylvania is seeking applicants for the three positions listed below:

  1. Assistant/Associate Professor of Lawyering Skills, a 36-week, tenure-track position, teaching legal writing, reasoning, and analysis courses.  Visit the full job posting for details and to apply.
  1. Director of Academic Success and Bar Passage, a 48-week, tenure-track position, involving teaching and administrative responsibilities.  The Director will hold the rank of Assistant/Associate Professor of Lawyering Skills.  Visit the full job posting for details and to apply. 
  1. Visiting Professor of Law, a one-semester appointment teaching Federal Courts and Administrative Law.  Visit the full job posting for details and to apply.  

Apply by March 11th.  The postings will close from March 12th to 23rd and reopen in a new applicant portal/system.  The faculty appointments committee and our Dean are hoping to run the searches on an efficiently brisk timeframe. 

Please do not hesitate to contact Prof. Amy Gaudion to learn more about any of the positions. Amy C. Gaudion Associate Dean for Academic Affairs Penn State University | Dickinson Law Lewis Katz Hall 150 S. College Street Carlisle, Pennsylvania 17013 717-240-5216 acg14@psu.edu

February 26, 2020 in Academia | Permalink | Comments (0)

The Russian Federation's measures to combat money laundering and terrorist financing

The Russian Federation (Russia) has an in-depth understanding of its money laundering and terrorist financing risks and has established policies and laws to address these risks, but it should enhance its approach to supervision and prioritise the investigation and prosecution of complex money laundering cases, especially concerning money being laundered abroad.

The Financial Action Task Force (FATF), the Eurasian Group and MONEYVAL, assessed Russia’s anti-money laundering and counter terrorist financing (AML/CFT) system. The assessment is a comprehensive review of the effectiveness of Russia’s measures and their compliance with the FATF Recommendations. This includes an assessment of its actions to address the risks emanating from UN and domestically designated terrorists and terrorist organisations. The report does not address the justification that led to the domestic designation of an entity as a terrorist or terrorist group or organisation.

Russia recognises that it faces significant money laundering risks as a result of the proceeds of crimes committed within the country, in particular those related to corruption and its role as both a transit and destination country for narcotics trafficking. A national risk assessment, complemented by in-depth knowledge of relevant law enforcement agencies, has allowed the country to identify and understand its risks, including terrorist financing risks. Russia’s legal framework appropriately addresses these risks and the country has formal policies in place, supported by strong domestic co-ordination and co-operation, to combat money laundering and terrorist financing. However, the country needs to address gaps in its ability to freeze, without delay, assets linked to terrorism, financing of terrorism and proliferation of weapons of mass destruction, and ensure that this freezing obligation extends to all natural and legal persons.

In general, Russia cooperates with foreign counterparts, including through more than 100 international co-operation agreements with its financial intelligence unit, Rosfmonitoring. Authorities make excellent use of financial intelligence, based on a wealth of collected data and analysed with sophisticated technologies to contribute to money laundering and terrorist financing investigations. While the country has prioritised getting money back for the victims of crimes – around EUR 816 million per year – it needs to focus more on the investigation and prosecution of complex money laundering cases, especially concerning money being laundered abroad.

Russia has strengthened its oversight of the banking sector and has now mitigated the risks of criminals being the owners or controllers of financial institutions. However, deficiencies in licensing remain and the sanctions for banks that do not comply with AML/CFT requirements are not effective or dissuasive.

In general, financial and certain non-financial entities such as accountants and auditors, have a good understanding of how their services could be used to launder the proceeds of criminal activity or terrorist financing, but given that Russia is a significant centre for mining precious metals and stones, this sector’s understanding of risk is not in line with the country’s risk assessment.  

Since its last assessment in 2008, Russia has strengthened its understanding of the money laundering and terrorist financing risks it faces and has developed a robust legal framework to address them. The country has taken a number of actions that have delivered concrete results. But, the country needs to address the areas of weakness this report has identified. 

The FATF adopted this report at its October 2019 Plenary meeting. MONEYVAL endorsed this report at its 59th Plenary meeting (2-6 December 2019).

February 26, 2020 in AML | Permalink | Comments (0)

Tuesday, February 25, 2020

MONEYVAL publishes follow-up report on Andorra

As a result of Andorra’s progress in strengthening its framework to tackle money laundering and terrorist financing since adoption of its mutual evaluation report in September 2017, MONEYVAL has re-rated the country with three Recommendations of the Financial Action Task Force (FATF) originally rated as “partially compliant”.

Andorra was placed in an enhanced follow-up process, following the adoption of its mutual evaluation report, which assessed the effectiveness of its anti-money laundering and counter-terrorist financing (AML/CFT) measures and their compliance with the FATF Recommendations. In line with MONEYVAL’s rules of procedure, the country has reported back to MONEYVAL on the progress it has made to strengthen its AML/CFT framework.

This follow-up report analyses Andorra’s progress in addressing the technical compliance deficiencies identified in the mutual evaluation report.

To reflect this progress, MONEYVAL has re-rated Andorra on Recommendations 25 (transparency and beneficial ownership of legal arrangements), 26 (regulation and supervision of financial institutions) and 28 (regulation and supervision of DNFBPs). These Recommendations are now re-rated as “largely compliant”.

The follow-up report also looks at progress made in the implementation of new requirements relating to Recommendation 2 (national cooperation and coordination) which has changed since Andorra’s last follow-up report was adopted. The rating for Recommendation 2 (rated as “largely compliant”) remains “compliant”.

Andorra is now “compliant” on ten of the 40 FATF Recommendations and “largely compliant” on twenty-seven of them. It remains “partially compliant” on three of the 40 FATF Recommendations.

MONEYVAL decided that Andorra will remain in the enhanced follow-up process and will continue to report back to MONEYVAL on further progress to strengthen its implementation of AML/CFT measures.

February 25, 2020 in AML | Permalink | Comments (0)

Monday, February 24, 2020

Cyprus should pursue money laundering from criminal proceeds generated outside of the country more aggressively

In a report published today, the Council of Europe’s anti-money laundering body MONEYVAL calls on the Cypriot authorities to pursue more aggressively money laundering from criminal proceeds generated outside of Cyprus, and take a more proactive approach to the freezing and confiscation of foreign proceeds.

The report makes a comprehensive assessment of the effectiveness of Cyprus's anti-money laundering and countering the financing of terrorism (AML/CFT) system and its level of compliance with the Recommendations of the Financial Action Task Force (FATF).

It concludes that Cyprus understands the money laundering and terrorist financing risks that it faces to a large extent, albeit the understanding of terrorist financing risk is less comprehensive.

MONEYVAL noted that in various aspects major improvements are necessary for the effectiveness of the Cypriot AML/CFT regime. The competent authorities are not yet sufficiently pursuing money laundering from criminal proceeds generated outside of Cyprus, which pose the highest threat to the Cypriot financial system. Moreover, they have not been very proactive at freezing and confiscating foreign criminal proceeds at their own initiative, although they have been instrumental in assisting other countries.

Cyprus has not yet conducted a formal assessment of risks posed by legal persons, despite having a developed company formation and administration sector. This has reduced the authorities’ ability to implement more targeted mitigating measures to ensure the transparency of legal persons.

There are weaknesses in the implementation of preventive measures by the trust and corporate services sector as a whole. This has major implications for the availability of beneficial ownership information of legal persons and arrangements registered in Cyprus and the reporting of suspicious transactions. While significant strides have been made by Cyprus to implement a comprehensive supervisory framework for trust and corporate services providers, further progress is required, with certain areas requiring major improvement.

The risk in the real estate sector has increased exponentially since it has become the preferred choice of investment to acquire citizenship under the Cyprus Investment Programme. As this risk has not been properly mitigated, the report recommends that supervision of the real estate sector should be significantly enhanced and that measures should be taken to increase the level of compliance with preventive measures by real estate agents.

The risks related to the Cyprus Investment Programme have not been assessed comprehensively, and the report recommends that Cyprus should conduct a comprehensive money laundering and terrorist financing risk assessment of this programme.

Trust and corporate service providers did not demonstrate a uniform level of understanding of the risks of evasion of targeted financial sanctions for terrorist financing and the proliferation of weapons of mass destruction. Given the role played by these service providers as gatekeepers, this shortcoming constitutes a significant vulnerability.

On the other hand, several measures have been deployed to mitigate some of the main risks effectively. There is a good level of domestic co-operation and co-ordination between the competent authorities, for example, both on policy issues and at an operational level. The banking sector has become more effective in mitigating risks. This is largely due to the increasingly sound supervisory practices of the Central Bank of Cyprus.

The report also notes positively that the authorities investigate the financial aspects where there is a terrorism investigation/prosecution, that they have carried out a number of terrorist financing investigations in the review period and that they have taken steps to increase awareness of terrorist financing risks.

The Financial Intelligence Unit (FIU) has the ability to support the operational needs of competent authorities through its analysis and dissemination functions. The country has developed mechanisms which are capable of delivering constructive and timely assistance to other countries both on a formal and informal basis.

The evaluation of Cyprus’ anti-money laundering and combating financing of terrorism system was based on the 2012 Financial Action Task Force Recommendations and was prepared using the 2013 Methodology.

Based on the results of its evaluation, MONEYVAL decided to apply its enhanced follow-up procedure and invited Cyprus to report back at its first plenary in 2021.

February 24, 2020 in AML | Permalink | Comments (0)

Friday, February 21, 2020

Gibraltar needs to invest more efforts in identifying, investigating and prosecuting money laundering and in confiscation of proceeds of crime

In a report published today, the Council of Europe’s anti-money laundering body MONEYVAL calls on the authorities of the British Overseas Territory of Gibraltar to better use the tools and mechanisms they have in place to combat money laundering and financing of terrorism.

The report makes a comprehensive assessment of the effectiveness of Gibraltar's anti money laundering and countering the financing of terrorism system and its level of compliance with the Recommendations of the Financial Action Task Force (FATF).

MONEYVAL acknowledges that the authorities have a varied understanding of money laundering and financing of terrorism risks. Whilst the key supervisors have a robust understanding of risks at sectoral level, the jurisdiction’s overall understanding of the money laundering and financing of terrorism risks is affected by several shortcomings related to the National Risk Assessment and in particular by insufficient analysis of the cross-border threat which Gibraltar faces as an international financial centre.

The Financial Intelligence Unit (FIU) has increased its capacity in recent years and has extended cooperation with the law enforcement and supervisory authorities. However, the FIU’s analytical products were used only to a limited extent and therefore did not have a significant impact upon developing investigations into money laundering and predicate offences.

The report recognises improvements in the legal framework which now provides a solid basis for the authorities to detect, investigate and prosecute money laundering and financing of terrorism. Whereas improvements were also acknowledged in relation to inter-agency cooperation, Gibraltar did not demonstrate effective investigation and prosecution of money laundering offences. Whilst there were several convictions for self-laundering involving domestic predicate offences, there were no successful third-party and stand-alone money laundering prosecutions or convictions. This does not appear to be in line with the jurisdiction’s risk profile. Fundamental improvements are also needed with regard to the confiscation of proceeds of crime from money laundering and associated predicate offences.

Law enforcement authorities demonstrated a good understanding of potential financing of terrorism that may occur in an international financial centre such as Gibraltar. However, the relative lack of suspicious transactions reports related to the financing of terrorism - considered against the backdrop of transactions that the financial institutions carried out with conflict zones and high-risk jurisdictions - raises concerns as to whether the absence of any prosecutions for terrorist financing is in line with the jurisdiction’s risk profile.

Through legislation enacted prior to the MONEYVAL on-site visit, Gibraltar ensures the implementation of the United Nations targeted financial sanctions regimes on terrorist financing and the financing of proliferation of weapons of mass destruction without delay. Overall, the reporting entities’ awareness of the obligations they have vis-à-vis targeted financial sanctions for terrorist financing appears to be higher than those concerning the financing of proliferation.

The report also reflects that obligations are being implemented to some extent by reporting entities such as financial institutions and designated non-financial businesses and professions (DNFBPs). Their understanding of the money laundering risk is overall satisfactory but differs across and within the sectors. Unlike the money laundering risk, the financing of terrorism risk is not properly understood. The quality of reporting of suspicious transactions remains a concern.

MONEYVAL noted that the supervisory authorities apply licencing and screening measures to prevent criminals and their associates from abusing financial institutions and DNFBPs. Although the competent authorities apply a risk-based approach in carrying out their supervision, further improvements are needed in this area. Sanctions for non-compliance with anti-money laundering and counter-terrorist financing requirements are not considered proportionate and dissuasive.

Gibraltar has taken a number of measures to prevent the misuse of legal persons and arrangements for money laundering and financing of terrorism purposes, including the establishment of a Register of Ultimate Beneficial Owners. Whilst the competent authorities are able to obtain beneficial ownership information - both directly from reporting entities and through the Register - the risk of these entities’ misuse for money laundering and financing of terrorism purposes is understood only to some extent.

Finally, the report notes that Gibraltar legislation sets out a comprehensive framework for international co-operation, which enables the authorities to provide assistance, with generally positive feedback from international partners

Based on the results of its evaluation, MONEYVAL decided to apply its enhanced follow-up procedure and invited Gibraltar to report back at its first plenary in 2021.

February 21, 2020 in AML | Permalink | Comments (0)

Thursday, February 20, 2020

American Businessman Who Ran Houston-Based Subsidiary of Chinese Company Sentenced to Prison for Theft of Trade Secrets

The head of a Houston-based company that was the subsidiary of a Chinese company that developed stolen trade secrets was sentenced to 16 months in prison and ordered to forfeit more than $330,000 by U.S. District Judge Christopher R. Cooper of the District of Columbia.

Shan Shi, 55, of Houston, Texas, had previously been found guilty of conspiracy to steal trade secrets by a jury on July 29, 2019.  Evidence admitted during a three-week trial showed that Shi had signed an agreement with Taizhou CBM Future New Material Science and Technology Co. Ltd (CBMF), to develop the manufacture of syntactic foam, which is a buoyancy material that aids in offshore oil and gas drilling.  The defendant specifically pledged to “digest/absorb” the relevant technology in the United States.  The defendant then set up a U.S.-based corporation, CBM International Inc., (CBMI) and hired ex-employees of a victim company that manufactured syntactic foam, located in Houston, Texas.  These employees had access to trade secrets developed by the victim company, and the defendant was aware that they had signed agreements with the victim company not to disclose proprietary information.  The other employees then transferred proprietary information to CBMI and the defendant, who used the information to create a syntactic foam manufacturing process in China.

The defendant was arrested along with five other individuals in the United States after he and CBMI attempted to market related-technology in the District of Columbia.  An additional Chinese national living in China, Hui Huang, was also charged. The trial was solely of defendant Shi. 

“The Department of Justice is committed to protecting the intellectual property of American companies, particularly against Chinese malign economic aggression,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “As Shan Shi’s prosecution demonstrates, we will steadfastly defend the right of U.S. entrepreneurs to reap the benefits of their innovations.” 

“Yesterday’s sentencing underscores our determination to prosecute those who would steal trade secrets from American businesses and further misuse them for their own research and development,” said U.S. Attorney Timothy J. Shea for the District of Columbia.  “The Court made clear that the defendant knew or intended that the offense would benefit the People’s Republic of China.  To those who would steal proprietary information from U.S. companies and provide it to a foreign government, our message is that you will be prosecuted to the fullest extent of the law.”

“Shan Shi will now pay the consequences in prison for stealing trade secrets from a U.S. company for the benefit of China, while he himself also profited from that theft. This is just another example of the serious and growing threat the Chinese government poses to the United States and our industries,” said Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Office. “Just as the People’s Republic of China is determined to steal from the United States, the FBI and DOJ is determined to protect America's national and economic security and intellectual property from unscrupulous foreign adversaries.”

The FBI’s Houston Field Office, Commerce’s Bureau of Industry and Security Office of Export Enforcement and IRS-Criminal Investigation investigated the case.

Senior Counsel Matthew R. Walczewski of the Criminal Division’s Computer Crime and Intellectual Property Section, Trial Attorney David Recker of the National Security Division’s Counterintelligence and Export Control Section, Assistant U.S. Attorneys Jeff Pearlman, Luke Jones and Zia Faruqui of the District of Columbia, and former Special Assistant U.S. Attorney W. Joss Nichols prosecuted the case. 

February 20, 2020 in AML | Permalink | Comments (0)

Wednesday, February 19, 2020

Four Texans, One New Yorker Arrested for Conspiracy to Sell Sanctioned Iranian Oil to Refinery in China for Huge Profit

The Department of Justice announced that the following defendants were arrested and charged by Complaint on charges of conspiracy and violating the International Emergency Economic Powers Act (IEEPA) based on their attempt to transact in sanctioned Iranian oil:

  • Nicholas Hovan, 33, of New York, NY;
  • Zhenyu Wang, a/k/a “Bill Wang,” 39, of Dallas, TX;
  • Robert Thwaites, 30, of Dallas, TX;
  • Nicholas James Fuchs, 26, of Dallas, TX; and
  • Daniel Ray Lane, 38, of McKinney, TX.

The defendants are each charged with one count of conspiracy and one count of violating IEEPA, based on allegations that from July 2019 to February 2020 they conspired in Philadelphia and elsewhere to arrange for the purchase of oil from the Islamic Republic of Iran, in violation of United States economic sanctions imposed on Iran, for sale to a refinery in China. 

The Complaint alleges that defendants Nicholas Hovan, James Fuchs, Robert Thwaites, and Daniel Ray Lane arranged to purchase the oil and sell it to a refinery in China represented by defendant Zhenyu Wang, a/k/a “Bill Wang.”

According to the Complaint, defendant Lane offered to further the conspiracy by laundering money through his company, STACK Royalties.  The charges further allege that the defendants agreed to use a Polish shell corporation as a straw seller of the illicit oil, and that they planned two shipments of oil per month going forward, all for great profit.  In addition, the charges allege that defendants Fuchs and Thwaites agreed to apply for foreign passports in order to set up offshore accounts that would not be reported to U.S. authorities.  

“With the goal of illegally enriching themselves, the defendants conspired for over eight months to devise a scheme to violate U.S. sanctions imposed on Iran, particularly the ban on foreign oil sales,” said Assistant Attorney General for National Security John C. Demers.  “The sale of oil is the lifeblood of the Iranian economy.  At the same time the United States was increasing its sanctions in order to pressure Iran to stop its malign activities, these defendants put greed ahead of country.  I commend the efforts of the agents and prosecutors who investigated and uncovered this brazen evasion of U.S. law.”

“The defendants in this case allegedly committed serious federal crimes that flew in direct contradiction to the United States’ national security interests,” said U.S. Attorney McSwain for the Eastern District of Pennsylvannia.  “By devising a scheme to purchase oil from Iran, conceal its origins via a refinery in China and make tremendous profits, the defendants were also directly financially benefitting the nation of Iran in its quest to become a nuclear power, thus jeopardizing the safety and security of the United States and our allies.  These five defendants will be prosecuted to the fullest extent of the law in order to send the message that this type of subversion of U.S. policy and law will not be tolerated.”

If convicted, the defendants each face a maximum possible sentence of 25 years’ incarceration, as well as a maximum possible fine of $1.25 million.

The case was investigated by the FBI and is being prosecuted by Assistant United States Attorney Michael Rinaldi and First Assistant United States Attorney Jennifer Arbittier Williams, in partnership with Trial Attorney David Recker of the Department of Justice’s National Security Division, Counterintelligence and Export Control Section.

February 19, 2020 in AML | Permalink | Comments (0)

Tuesday, February 18, 2020

CFTC Charges Company and its Principal in $33 Million Fraudulent Digital Asset Scheme

The Commodity Futures Trading Commission filed a civil enforcement action against defendants Q3 Holdings, LLC and Q3 I, LP and their principal, Michael Ackerman. The complaint charges the defendants with fraudulently soliciting over $33 million to purportedly trade digital assets and misappropriating a substantial portion of that total. filing here

“This case underscores, once again, that the Commission will continue working with our regulatory partners to ensure the integrity of our markets, including those involving digital assets,” said CFTC Director of Enforcement James McDonald. “Rooting out misconduct is essential to furthering the responsible development of these innovative financial products.”

The complaint specifically alleges that from at least August 2017 through December 2019 defendants operated a fraudulent scheme in which they solicited funds to purportedly trade digital assets and then misappropriated those funds. The defendants engaged in numerous misrepresentations that included making claims of (i) earning customers .5% in daily trading profits and roughly 15% per month, (ii) using algorithms that generated winning trades 75% of the time, and (iii) utilizing security measures that made it impossible for any principal to transfer or withdraw customer funds.

In reality, the defendants sent only a small portion of the customers’ funds to digital asset trading accounts, did not earn the trading profits they claimed, and misappropriated funds. To conceal the fraud, the defendants provided customers with false accounting statements, newsletters containing false trading returns, and fictitious screenshots reflecting the amount of money under Q3’s management.

Related Criminal and Civil Actions

Today, in separate actions, the U.S. Attorney’s Office for the Southern District of New York announced the arrest of Ackerman on one count of wire fraud and the Securities and Exchange Commission announced the filing of a multi-count complaint against Ackerman and Q3 alleging securities fraud and misappropriation.

The Division of Enforcement acknowledges and thanks the staff of the U.S. Attorney’s Office for the Southern District of New York, Homeland Security Investigations’ El Dorado Task Force, the Federal Bureau of Investigation, and the Securities and Exchange Commission for their assistance.

The Division of Enforcement staff members responsible for this case are Dmitriy Vilenskiy, Luke Marsh, Jason Gizzarelli, and Paul Hayeck.

February 18, 2020 in AML | Permalink | Comments (0)

Monday, February 17, 2020

Jersey fines bank for non-compliance with Money Laundering Order

On 5 February 2020, the Royal Court sentenced Abu Dhabi Commercial Bank PJSC, Jersey Branch (ADCBJ) to a fine of £475,000, and awarded costs of £25,000, for failing to comply with the requirements of Money Laundering (Jersey) Order 2008.

This is the first time since 2005 that a corporate offender has been convicted and sentenced for failures to comply with the Money Laundering Order under the Proceeds of Crime (Jersey) Law 1999.

ADCBJ pleaded guilty to failing to have appropriate or consistent policies and procedures in respect of transaction monitoring and risk management in the case of two of its Middle Eastern customers. The bank allowed these customers to operate their accounts for a number of years in ways which were not in line with expected behaviour.

This included both customers withdrawing large sums of cash, in some instances in the hundreds of thousands of dollars, over the counter in the UAE without ADCBJ knowing what the customers were using the cash for. The total sum withdrawn over a five year period from 2013 to 2018 was approximately $1.2m.

This presented a clear risk of money laundering or terrorism financing taking place by customers of ADCBJ without ADCBJ being aware that it was going on. It is not alleged that either of these customers were definitely engaged in criminal activity, only that ADCBJ failed to have adequate systems in place to counter the risk of money laundering or terrorism financing.

Jersey’s Solicitor General and Attorney General Designate, Mark Temple QC, said: “I welcome the sentence handed down by the Court which shows that Jersey, in its position as a global finance centre, is committed to combatting financial crime and ensuring that financial service providers are held to account when offences of this kind are committed.

"The sentencing today represents the culmination of a long-running investigation into the activity of Abu Dhabi Commercial Bank PJSC Jersey Branch by the Law Officers’ Department’s Economic Crime and Confiscation Unit.”

February 17, 2020 in AML | Permalink | Comments (0)

Friday, February 14, 2020

Flooring Executive Charged in Antitrust and Money Laundering Conspiracies

Carter Brett, an account executive for a large flooring manufacturer, has been charged for conspiring to rig bids and fix prices for commercial flooring products and services, and for his role in a money laundering conspiracy involving kickbacks, the Department of Justice announced.  Download Information

“The bid-rigging and money laundering schemes charged cheated a state-funded school out of competitive bids and lined the defendant’s pockets with kickbacks,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “This latest charge in the ongoing investigation demonstrates the Antitrust Division’s commitment to bringing to justice those in the commercial flooring industry who have victimized Chicago-area schools, hospitals, charities, and businesses.”

“When businesses rig bids to increase their own profits illegally, it is our citizens who suffer,” said Special Agent in Charge Emmerson Buie Jr. of the FBI’s Chicago Field Division. “Today’s charges illustrate our ongoing efforts to protect Americans from price fixing and other dishonest business practices.”

According to a two-count felony charge filed today in U.S. District Court in Chicago, Illinois, Brett engaged in a conspiracy to suppress and eliminate competition in the commercial flooring market by initiating and orchestrating a bid rotation conspiracy among three commercial flooring installation companies so that the designated company would win the bidding for jobs at a suburban community college. According to the charge, Brett and his co-conspirators carried out the conspiracy from at least as early as 2013 until as late as June 22, 2017.

The second count filed today charges Brett with engaging in a money laundering conspiracy wherein Brett solicited and accepted kickbacks from his co-conspirators in exchange for offering those co-conspirators unlawfully low pricing. The charge alleges that Brett established a shell corporation for the sole purpose of receiving the illegal kickback payments. According to the charge, Brett and his co-conspirators carried out this conspiracy from at least as early as 2013 until late 2017.

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. The maximum fine 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.

Conspiring to commit money laundering carries maximum penalties of a $500,000 criminal fine and 20 years in prison. The maximum fine may be increased to twice the value of the property involved in the money laundering transactions, if that amount is greater than the statutory maximum fine.

The information charging Brett is merely an accusation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt.

The charges are the result of an ongoing federal antitrust investigation into bid rigging, price fixing, and other anticompetitive conduct in the commercial flooring industry, conducted by the Antitrust Division’s Chicago Office and the FBI’s Chicago Field Division. Brett is the fifth individual to be charged in the investigation; one corporation has also been charged to date.

Anyone with information on bid rigging, price fixing, or other anticompetitive conduct related to the commercial flooring industry should contact the Antitrust Division’s Chicago Office at 312-984-7200, contact the Antitrust Division’s Citizen Complaint Center at 888-647-3258, or visit http://www.justice.gov/atr/report-violations.

February 14, 2020 in AML | Permalink | Comments (0)

Chinese Telecommunications Conglomerate Huawei and Subsidiaries Charged in Racketeering Conspiracy and Conspiracy to Steal Trade Secrets

Charges also Reveal Huawei’s Business in North Korea and Assistance to the Government of Iran in Performing Domestic Surveillance

A superseding indictment was returned yesterday in federal court in Brooklyn, New York, charging Huawei Technologies Co. Ltd. (Huawei), the world’s largest telecommunications equipment manufacturer, and two U.S. subsidiaries with conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (RICO).

Brian A. Benczkowski, Assistant Attorney General of the Justice Department’s Criminal Division; John C. Demers, Assistant Attorney General of the Justice Department’s National Security Division; Richard P. Donoghue, U.S. Attorney for the Eastern District of New York and Christopher A. Wray, Director, FBI, announced the charges.

The 16-count superseding indictment also adds a charge of conspiracy to steal trade secrets stemming from the China-based company’s alleged long-running practice of using fraud and deception to misappropriate sophisticated technology from U.S. counterparts.

The indicted defendants include Huawei and four official and unofficial subsidiaries — Huawei Device Co. Ltd. (Huawei Device), Huawei Device USA Inc. (Huawei USA), Futurewei Technologies Inc. (Futurewei) and Skycom Tech Co. Ltd. (Skycom) — as well as Huawei’s Chief Financial Officer (CFO) Wanzhou Meng (Meng).  The new superseding indictment also contains the charges from the prior superseding indictment, which was unsealed in January 2019.

As revealed by the government’s independent investigation and review of court filings, the new charges in this case relate to the alleged decades-long efforts by Huawei, and several of its subsidiaries, both in the U.S. and in the People’s Republic of China, to misappropriate intellectual property, including from six U.S. technology companies, in an effort to grow and operate Huawei’s business.  The misappropriated intellectual property included trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology and robot testing technology.  Huawei, Huawei USA and Futurewei agreed to reinvest the proceeds of this alleged racketeering activity in Huawei’s worldwide business, including in the United States.

The means and methods of the alleged misappropriation included entering into confidentiality agreements with the owners of the intellectual property and then violating the terms of the agreements by misappropriating the intellectual property for the defendants’ own commercial use, recruiting employees of other companies and directing them to misappropriate their former employers’ intellectual property, and using proxies such as professors working at research institutions to obtain and provide the technology to the defendants.  As part of the scheme, Huawei allegedly launched a policy instituting a bonus program to reward employees who obtained confidential information from competitors.  The policy made clear that employees who provided valuable information were to be financially rewarded.

Huawei’s efforts to steal trade secrets and other sophisticated U.S. technology were successful.  Through the methods of deception described above, the defendants obtained nonpublic intellectual property relating to internet router source code, cellular antenna technology and robotics.  As a consequence of its campaign to steal this technology and intellectual property, Huawei was able to drastically cut its research and development costs and associated delays, giving the company a significant and unfair competitive advantage.  

When confronted with evidence of wrongdoing, the defendants allegedly made repeated misstatements to U.S. officials, including FBI agents and representatives from the U.S. House Permanent Select Committee on Intelligence, regarding their efforts to misappropriate trade secrets.  Similarly, the defendants engaged in obstructive conduct to minimize litigation risk and the potential for criminal investigations, including the very investigation that led to this prosecution.

The superseding indictment also includes new allegations about Huawei and its subsidiaries’ involvement in business and technology projects in countries subject to U.S., E.U. and/or U.N. sanctions, such as Iran and North Korea – as well as the company’s efforts to conceal the full scope of that involvement.  The defendants’ activities, which included arranging for shipment of Huawei goods and services to end users in sanctioned countries, were typically conducted through local affiliates in the sanctioned countries.  Reflecting the inherent sensitivity of conducting business in jurisdictions subject to sanctions, internal Huawei documents allegedly referred to such jurisdictions with code names.  For example, the code “A2” referred to Iran, and “A9” referred to North Korea. 

Huawei employees also allegedly lied about Huawei’s relationship to Skycom, falsely asserting it was not a subsidiary of Huawei.  The company further claimed that Huawei had only limited operations in Iran and that Huawei did not violate U.S. or other laws or regulations related to Iran.  In fact, the indictment alleges Skycom was Huawei’s unofficial subsidiary that, among other services, assisted the Government of Iran in performing domestic surveillance, including during the demonstrations in Tehran in 2009.

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

The government’s investigation is ongoing.  Individuals with knowledge of misconduct by Huawei, its subsidiaries, employees or agents should contact the FBI’s New York Field Office at 1-800-CALL-FBI.

The FBI’s New York Field Office, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations’ (HSI) New York Field Office, U.S. Department of Commerce Office of Export Enforcement’s (OEE) New York Field Office and the Defense Criminal Investigative Service’s (DCIS) Southwest and Northeast Field Offices are jointly conducting the investigation.  Agents from the FBI, HSI and OEE offices in Dallas provided significant support and assistance.  The government’s case is being handled by the U.S. Attorney’s Office for the Eastern District of New York, the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) and the National Security Division’s Counterintelligence and Export Control Section (CES). 

Assistant U.S. Attorneys Alexander A. Solomon, Julia Nestor, David K. Kessler and Sarah Evans, MLARS Trial Attorneys Laura Billings and Christian Nauvel and CES Trial Attorneys Thea D. R. Kendler and David Lim are in charge of the prosecution, with assistance provided by Assistant U.S. Attorney Brendan G. King of the Civil Division of the U.S. Attorney’s Office for the Eastern District of New York and Trial Attorneys Margaret O’Malley and John Riesenberg of the Criminal Division’s Office of International Affairs.  Additional Criminal Division and National Security Division Trial Attorneys and Assistant U.S. Attorneys within U.S. Attorney’s Offices for the Northern District of Texas, the Northern District of Illinois, the Eastern District of Texas, the Western District of Washington and the Northern District of California have provided valuable assistance with various aspects of this investigation.

Download Huawei et al Third Superseding Indictment

February 14, 2020 in AML | Permalink | Comments (0)

Thursday, February 13, 2020

U.S. International Trade in Goods and Services, December 2019 & Annual Summary for 2019

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $48.9 billion in December, up $5.2 billion from $43.7 billion in November, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $48.9 Billion +11.9%°
Exports: $209.6 Billion +0.8%°
Imports: $258.5 Billion +2.7%°

Next release: March 6, 2020

(°) 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, February 5, 2020

Goods and Services Trade Deficit, December 2019

Exports, Imports, and Balance (exhibit 1)

December exports were $209.6 billion, $1.6 billion more than November exports. December imports were $258.5 billion, $6.8 billion more than November imports.

The December increase in the goods and services deficit reflected an increase in the goods deficit of $5.1 billion to $69.7 billion and a decrease in the services surplus of $0.1 billion to $20.8 billion.

For 2019, the goods and services deficit decreased $10.9 billion, or 1.7 percent, from 2018. Exports decreased $1.5 billion or 0.1 percent. Imports decreased $12.5 billion or 0.4 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit decreased $0.9 billion to $46.6 billion for the three months ending in December.

  • Average exports increased $0.9 billion to $208.2 billion in December.
  • Average imports decreased less than $0.1 billion to $254.8 billion in December.

Year-over-year, the average goods and services deficit decreased $10.4 billion from the three months ending in December 2018.

  • Average exports increased $0.2 billion from December 2018.
  • Average imports decreased $10.2 billion from December 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods increased $1.3 billion to $137.7 billion in December.

  Exports of goods on a Census basis increased $1.3 billion.

  • Industrial supplies and materials increased $1.7 billion.
    • Crude oil increased $1.5 billion.
  • Other goods increased $1.0 billion.
  • Automotive vehicles, parts, and engines decreased $1.0 billion.
    • Passenger cars decreased $0.6 billion.

  Net balance of payments adjustments increased less than $0.1 billion.

Exports of services increased $0.3 billion to $71.9 billion in December.

  • Travel increased $0.2 billion.
  • Other business services increased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods increased $6.4 billion to $207.5 billion in December.

  Imports of goods on a Census basis increased $6.2 billion.

  • Industrial supplies and materials increased $4.0 billion.
    • Crude oil increased $1.7 billion.
    • Nonmonetary gold increased $0.9 billion.
    • Other petroleum products increased $0.6 billion.
  • Other goods increased $1.2 billion.

  Net balance of payments adjustments increased $0.1 billion.

Imports of services increased $0.4 billion to $51.1 billion in December.

  • Travel increased $0.2 billion.
  • Transport increased $0.1 billion.

Real Goods in 2012 Dollars – Census Basis (exhibit 11)

The real goods deficit increased $4.3 billion to $80.5 billion in December.

  • Real exports of goods increased $1.5 billion to $149.3 billion.
  • Real imports of goods increased $5.8 billion to $229.8 billion.

Revisions

In addition to revisions to source data for the November statistics, the seasonally adjusted goods data were revised for January through November so that the totals of the seasonally adjusted months equal the annual totals.

Revisions to November exports

  • Exports of goods were revised down $0.7 billion.
  • Exports of services were revised up $0.1 billion.

Revisions to November imports

  • Imports of goods were revised up less than $0.1 billion.
  • Imports of services were revised up less than $0.1 billion.

Goods by Selected Countries and Areas: Monthly – Census Basis (exhibit 19)

The December figures show surpluses, in billions of dollars, with South and Central America ($4.6), Hong Kong ($1.9), Brazil ($0.9), OPEC ($0.7), United Kingdom ($0.6), Singapore ($0.5), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($25.7), European Union ($14.0), Mexico ($9.4), Germany ($5.5), Japan ($4.4), Canada ($4.4), Italy ($2.9), Taiwan ($2.4), South Korea ($1.9), India ($1.7), and France ($0.3).

  • The deficit with Canada increased $2.4 billion to $4.4 billion in December. Exports increased $0.1 billion to $23.9 billion and imports increased $2.5 billion to $28.2 billion.
  • The deficit with Mexico increased $0.9 billion to $9.4 billion in December. Exports decreased $0.6 billion to $20.2 billion and imports increased $0.3 billion to $29.6 billion.
  • The deficit with Japan decreased $1.3 billion to $4.4 billion in December. Exports increased $0.9 billion to $6.7 billion and imports decreased $0.4 billion to $11.1 billion.

Annual Summary for 2019

Exports, Imports, and Balance (exhibit 1)

For 2019, the goods and services deficit was $616.8 billion, down $10.9 billion from $627.7 billion in 2018. Exports were $2,499.8 billion, down $1.5 billion from 2018. Imports were $3,116.5 billion, down $12.5 billion from 2018.

U.S. International Trade in Goods and Services, Annual 2019

The 2019 decrease in the goods and services deficit reflected a decrease in the goods deficit of $21.4 billion, or 2.4 percent, to $866.0 billion and a decrease in the services surplus of $10.4 billion, or 4.0 percent, to $249.2 billion.

As a percentage of U.S. gross domestic product, the goods and services deficit was 2.9 percent in 2019, down from 3.0 percent in 2018.

Exports (exhibits 3, 6, and 7)

Exports of goods decreased $21.3 billion to $1,653.0 billion in 2019.

  Exports of goods on a Census basis decreased $20.5 billion.

  • Capital goods decreased $15.8 billion.
    • Civilian aircraft decreased $12.6 billion.
  • Industrial supplies and materials decreased $11.1 billion.
    • Other petroleum products decreased $7.6 billion.
  • Other goods increased $5.1 billion.

  Net balance of payments adjustments decreased $0.8 billion.

Exports of services increased $19.7 billion to $846.7 billion in 2019.

  • Other business services increased $13.7 billion.
  • Telecommunications, computer, and information services increased $4.8 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods decreased $42.6 billion to $2,519.0 billion in 2019.

  Imports of goods on a Census basis decreased $42.3 billion.

  • Industrial supplies and materials decreased $53.6 billion.
    • Crude oil decreased $30.3 billion.
  • Capital goods decreased $14.4 billion.
    • Computer accessories decreased $11.6 billion.
    • Telecommunications equipment decreased $11.6 billion.
    • Civilian aircraft engines increased $4.5 billion.
  • Other goods increased $11.6 billion.
  • Consumer goods increased $7.1 billion.
    • Pharmaceutical preparations increased $16.0 billion.
    • Gem diamonds decreased $4.1 billion.

  Net balance of payments adjustments decreased $0.3 billion.

Imports of services increased $30.2 billion to $597.5 billion in 2019.

  • Travel increased $7.8 billion.
  • Insurance services increased $7.1 billion.
  • Other business services increased $5.6 billion.

Goods by Selected Countries and Areas – Census Basis (exhibits 14 and 14a)

The 2019 figures show surpluses, in billions of dollars, with South and Central America ($53.7), Hong Kong ($26.1), Netherlands ($21.5), Australia ($15.2), Belgium ($14.6), Brazil ($12.2), and United Kingdom ($6.0). Deficits were recorded, in billions of dollars, with China ($345.6), European Union ($177.9), Mexico ($101.8), Japan ($69.0), Germany ($67.2), Ireland ($52.7), Italy ($33.4), Malaysia ($27.4), Canada ($27.0), Switzerland ($26.7), India ($23.3), Taiwan ($23.0), South Korea ($20.6), Thailand ($20.2), France ($19.7), Russia ($16.5), and Indonesia ($12.4).

  • The deficit with China decreased $73.9 billion to $345.6 billion in 2019. Exports decreased $13.5 billion to $106.6 billion and imports decreased $87.4 billion to $452.2 billion.
  • The surplus with South and Central America increased $11.7 billion to $53.7 billion in 2019. Exports decreased $1.6 billion to $162.6 billion and imports decreased $13.3 billion to $108.9 billion.
  • The deficit with Mexico increased $21.1 billion to $101.8 billion in 2019. Exports decreased $9.1 billion to $256.4 billion and imports increased $12.0 billion to $358.1 billion.

February 13, 2020 in Economics | Permalink | Comments (0)

Wednesday, February 12, 2020

Montana Broker Found Guilty in Multimillion-Dollar Fraud Scheme

A federal jury found a Montana man guilty for his role as a broker for a Swiss company involved in a multimillion-dollar international fraud scheme.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Nicholas A. Trutanich of the District of Nevada and Special Agent in Charge Aaron C. Rouse of the FBI’s Las Vegas Field Office made the announcement. 

Following a five-day trial, Sean Finn, 51, of Whitefish, Montana, was found guilty of one count of conspiracy to commit wire fraud and securities fraud, four counts of wire fraud and four counts of securities fraud.  He was acquitted of one count of wire fraud.  Sentencing has been scheduled for May 12, 2020, before U.S. District Judge Kent J. Dawson of the District of Nevada, who presided over the trial.   

According to the evidence presented at trial, Finn conspired with others in the United States and Switzerland to promote investments and loan instruments that he knew to be fictitious.  Finn and his co-conspirators told victims that, for an up-front payment ranging from $100,000 to $1 million, a Swiss company known as Malom Group AG (Malom), whose name stood for “Make A Lot Of Money,” would provide access to lucrative investment opportunities and substantial cash loans.  The evidence showed that to effectuate this scheme, the defendant and his co-conspirators provided victims with fabricated bank documents purporting to show that Malom held hundreds of millions of dollars in overseas bank accounts, as well as documents falsely stating that Malom had previously closed similar deals.  The evidence showed that when victims wired their money into an escrow account controlled by the co-conspirators, the money was released and disbursed to, among others, Finn for his own personal use.  The evidence further showed that shortly before he was indicted in 2013, Finn fled to Canada, where he was arrested in 2014 and ultimately extradited back to the United States in 2018.  According to the evidence presented at trial, losses to the victims from the scheme totaled approximately $4 million.        

Finn was charged together with five other defendants.  Two of these defendants, Anthony Brandel and James Warras, were found guilty of conspiracy and multiple counts of wire fraud and securities fraud following a jury trial in 2015.  Brandel and Warras were each sentenced to 87 months in prison, followed by three years of supervised release, on Aug. 3, 2016.  A third defendant, Joseph Micelli, pleaded guilty to conspiracy to commit wire fraud and securities fraud in 2015 and was sentenced to 60 months in prison, followed by three years of supervised release, on Feb. 23, 2016.  The other two defendants, Martin Schlaepfer and Hans-Jurg Lips, remain at large outside the United States.  All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The FBI’s Las Vegas Field Office investigated the case.  Assistant Deputy Chief Anna G. Kaminska and Trial Attorney Blake C. Goebel of the Criminal Division’s Fraud Section prosecuted the case with assistance from the Criminal Division’s Office of International Affairs and the U.S. Attorney’s Office for the District of Nevada.  Deputy Chief Brian Young of the Fraud Section previously handled the prosecution.  The Securities and Exchange Commission’s Enforcement Division, which conducted a parallel civil-enforcement investigation, as well as the Royal Canadian Mounted Police, also provided valuable assistance.  

February 12, 2020 in AML | Permalink | Comments (0)

Tuesday, February 11, 2020

Final OECD Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10

The report is significant because it is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions, which will contribute to consistency in the interpretation of the arm’s length principle and help avoid transfer pricing disputes and double taxation.

The guidance in this report describes the transfer pricing aspects of financial transactions. It also includes a number of examples to illustrate the principles discussed in the report. Section B provides guidance on the application of the principles contained in Section D.1 of Chapter I of the OECD Transfer Pricing Guidelines to financial transactions. In particular, Section B.1 of this report elaborates on how the accurate delineation analysis under Chapter I applies to the capital structure of an MNE within an MNE group. It also clarifies that the guidance included in that section does not prevent countries from implementing approaches to address capital structure and interest deductibility under their domestic legislation. Section B.2 outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions. Sections C, D and E address specific issues related to the pricing of financial transactions (e.g. treasury functions, intra-group loans, cash pooling, hedging, guarantees and captive insurance). This analysis elaborates on both the accurate delineation and the pricing of the controlled financial transactions. Finally, Section F provides guidance on how to determine a risk-free rate of return and a risk-adjusted rate of return.

Sections A to E of this report are included in the Guidelines as Chapter X. Section F is added to Section D.1.2.1 in Chapter I of the Guidelines, immediately following paragraph 1.106. The guidance describes the transfer pricing aspects of financial transactions and includes a number of examples to illustrate the principles discussed in this report. 

Download Transfer-pricing-guidance-on-financial-transactions-inclusive-framework-on-beps-actions-4-8-10

February 11, 2020 in BEPS, OECD | Permalink | Comments (0)

Iranian National Charged with Bank Fraud and Lying to Federal Agents in Connection with a Scheme to Use the U.S. Financial System to Send More Than $115 Million to Iranian Individuals and Entities

The Department of Justice announced that Bahram Karimi was charged with conspiring to commit bank fraud, bank fraud, and making false statements in connection with his involvement in a joint project initiated by the Governments of Iran and Venezuela in which more than $115 million was illegally funneled through the U.S. financial system for the benefit of various Iranian individuals and entities.  

“Karimi allegedly conspired in an infrastructure project initiated by the Governments of Iran and Venezuela,” said Assistant Attorney General for National Security John C. Demers. “He then lied to banks about Iranian involvement and took advantage of the U.S. financial system to benefit Iranian parties.  The Department of Justice will continue to prosecute those who misuse our financial system in violation of U.S. sanctions.”

“As alleged, Bahram Karimi knowingly and willfully facilitated the circumventing of sanctions against Iran, and then lied about it to FBI agents,” said U.S. Attorney Geoffrey S. Berman for the Southern District of New York. “Karimi allegedly enabled the concealed transfer through U.S. banks of more than $100 million from a Venezuelan state-owned company to an Iranian construction firm, and when questioned, told the agents he didn’t know that was prohibited by the sanctions.”

“At the end of the day, these charges reflect the use of our financial system to generate U.S. dollars for Iranians and Iranian entities.  That’s why our government has robust sanctions in place against Iran and Iranian entities who seek to use the U.S. banking system for their own benefit,” said Assistant Director-in-Charge William F. Sweeney, Jr of the New York Field Office of the Federal Bureau of Investigation (FBI).

As alleged in the Superseding Indictment and statements made in court filings and proceedings:

In August 2004, the Governments of Iran and Venezuela entered into a Cooperation Framework Agreement, whereby they agreed to cooperate in certain areas of common interest.  The following year, both governments supplemented the Cooperation Framework Agreement by entering into a Memorandum of Understanding regarding an infrastructure project in Venezuela (the “Project”), which was to involve the construction of thousands of housing units in Venezuela. 

The Project was led by Stratus Group, an Iranian conglomerate with international business operations in the construction, banking, and oil industries.  In December 2006, Stratus Group incorporated a company in Tehran, which was then known as the Iranian International Housing Corporation (IIHC).  IIHC was responsible for construction for the Project.  Thereafter, IIHC entered into a contract with a subsidiary of a Venezuelan state-owned energy company (the VE Company), which called for IIHC to build approximately 7,000 housing units in Venezuela in exchange for approximately $475,734,000.  Stratus Group created the Venezuela Project Executive Committee to oversee the execution of the Project.  Karimi was a member of the committee and was responsible for managing the Project in Venezuela.

In connection with his role on the Project, Karimi worked with others to defraud U.S. banks by concealing the role of Iranian parties in U.S. dollar payments sent through the U.S. banking system.  Specifically, between April 2011 and November 2013, the VE Company made approximately 15 payments to IIHC through two front companies, which were created to conceal the Iranian nexus to the payments, in violation of U.S. economic sanctions.  These 15 payments totaled approximately $115 million. 

In January 2020, Karimi was interviewed by, among other people, two FBI agents.  During that interview, Karimi falsely stated that, during the course of the Project, he believed that international sanctions against Iran did not apply to Iranian companies or persons.

Karimi, 53, of Canada, is charged with (1) conspiring to commit bank fraud, which carries a maximum sentence of 30 years in prison; (2) bank fraud, which carries a maximum sentence of 30 years in prison; and (3) making false statements, which carries a maximum sentence of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Demers and Mr. Berman praised the outstanding investigative efforts of the New York County District Attorney’s Office and the FBI.  Mr. Berman also thanked the New York County District Attorney’s Office for their ongoing assistance in this investigation.

The prosecution of this case is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorneys Jane Kim, Michael Krouse, and Stephanie Lake, and Special Assistant U.S. Attorney Garrett Lynch, Deputy Chief of the Major Economic Crimes Bureau at the New York County District Attorney’s Office, are in charge of the prosecution, with assistance from Trial Attorney Scott Claffee of the National Security Division’s Counterintelligence and Export Control Section.

February 11, 2020 in AML | Permalink | Comments (0)

Monday, February 10, 2020

Attorney General William P. Barr Announces Indictment of Four Members of China’s Military for Hacking into Equifax

Good morning.  I am here to announce the indictment of Chinese military hackers – specifically, four members of the Chinese People’s Liberation Army – for breaking into the computer systems of the credit-reporting agency Equifax, and for stealing the sensitive personal information of nearly half of all American citizens, and also Equifax’s hard-earned intellectual property.

This was one of the largest data breaches in history.  It came to light in the summer of 2017, when Equifax announced the theft.  The scale of the theft was staggering.  As alleged in the indictment, the hackers obtained the names, birth dates, and social security numbers of nearly 150 million Americans, and the driver’s license numbers of at least 10 million Americans.  This theft not only caused significant financial damage to Equifax, but invaded the privacy of many millions of Americans, and imposed substantial costs and burdens on them as they have had to take measures to protect against identity theft.

As described in the indictment, the hackers broke into Equifax’s network through a vulnerability in the company’s dispute resolution website.  Once in the network, the hackers spent weeks conducting reconnaissance, uploading malicious software, and stealing login credentials, all to set the stage to steal vast amounts of data from Equifax’s systems.  While doing this, the hackers also stole Equifax’s trade secrets, embodied by the compiled data and complex database designs used to store the personal information.  Those trade secrets were the product of decades of investment and hard work by the company.

Today’s announcement comes after two years of investigation.  According to the nine-count indictment handed down by a grand jury in Atlanta, four members of the Chinese People’s Liberation Army, or PLA – Wang Qian, Wu Zhiyong, Xu Ke, and Liu Lei – are alleged to have conspired to hack Equifax’s computer systems and commit economic espionage.  In doing so, they are alleged to have damaged Equifax’s computer systems and to have committed wire fraud.

This kind of attack on American industry is of a piece with other Chinese illegal acquisitions of sensitive personal data.  For years, we have witnessed China’s voracious appetite for the personal data of Americans, including the theft of personnel records from the U.S. Office of Personnel Management, the intrusion into Marriott hotels, and Anthem health insurance company, and now the wholesale theft of credit and other information from Equifax.  This data has economic value, and these thefts can feed China’s development of artificial intelligence tools as well as the creation of intelligence targeting packages. 

In addition to thefts of sensitive personal data, our cases reveal a pattern of state-sponsored computer intrusions and thefts by China targeting trade secrets and confidential business information: hacks by a group known as APT 10, which worked in association with the Chinese Ministry of State Security, or MSS, to target managed service providers and their clients worldwide across industries; hacks by MSS intelligence officers who sought to steal intellectual property related to turbofan engines by using both insiders and computer operations, and; hacks by PLA officers who targeted victims in the nuclear power, metals, and solar products industries for the economic benefit of Chinese companies.  Indeed, about 80 percent of our economic espionage prosecutions have implicated the Chinese government, and about 60 percent of all trade secret theft cases in recent years involved some connection to China.

We do not normally bring criminal charges against the members of another country’s military or intelligence services outside the United States.  In general, traditional military and intelligence activity is a separate sphere of conduct that ought not be subject to domestic criminal law.  There are exceptions to this rule, of course.  For instance, we have brought charges against intelligence officers operating undercover in the United States.  And more recently, we have charged state-sponsored actors for computer intrusions into the United States for the purpose of intellectual property theft for the use of their private sector, bank robbery, and interfering with our democratic elections.  Like those cases, the deliberate, indiscriminate theft of vast amounts of sensitive personal data of civilians, as occurred here, cannot be countenanced.   

The United States, like other nations, has gathered intelligence throughout its history to ensure that national security and foreign policy decisionmakers have access to timely, accurate, and insightful information.  But we collect information only for legitimate national security purposes; we do not indiscriminately violate the privacy of ordinary civilians. 

 Today’s indictment would not have been possible without the hard work of a dedicated team of FBI agents and federal prosecutors in Atlanta and here in Washington, D.C.  In addition, the Department’s Office of International Affairs provided valuable assistance in working with other nations to secure evidence located overseas.  Notably, Equifax cooperation throughout the investigation was critical to our development of the case.

February 10, 2020 in AML | Permalink | Comments (0)

Chinese Military Personnel Charged with Computer Fraud, Economic Espionage and Wire Fraud for Hacking into Credit Reporting Agency Equifax

Indictment Alleges Four Members of China’s People’s Liberation Army Engaged in a Three-Month Long Campaign to Steal Sensitive Personal Information of Nearly 150 Million Americans

A federal grand jury in Atlanta returned an indictment last week charging four members of the Chinese People’s Liberation Army (PLA) with hacking into the computer systems of the credit reporting agency Equifax and stealing Americans’ personal data and Equifax’s valuable trade secrets.  Download Wu Zhiyong Indictment

The nine-count indictment alleges that Wu Zhiyong (吴志勇), Wang Qian (王乾), Xu Ke (许可) and Liu Lei (刘磊) were members of the PLA’s 54th Research Institute, a component of the Chinese military.  They allegedly conspired with each other to hack into Equifax’s computer networks, maintain unauthorized access to those computers, and steal sensitive, personally identifiable information of approximately 145 million American victims.

“This was a deliberate and sweeping intrusion into the private information of the American people,” said Attorney General William P. Barr, who made the announcement. “Today, we hold PLA hackers accountable for their criminal actions, and we remind the Chinese government that we have the capability to remove the Internet’s cloak of anonymity and find the hackers that nation repeatedly deploys against us. Unfortunately, the Equifax hack fits a disturbing and unacceptable pattern of state-sponsored computer intrusions and thefts by China and its citizens that have targeted personally identifiable information, trade secrets, and other confidential information.”

According to the indictment, the defendants exploited a vulnerability in the Apache Struts Web Framework software used by Equifax’s online dispute portal.  They used this access to conduct reconnaissance of Equifax’s online dispute portal and to obtain login credentials that could be used to further navigate Equifax’s network.  The defendants spent several weeks running queries to identify Equifax’s database structure and searching for sensitive, personally identifiable information within Equifax’s system.  Once they accessed files of interest, the conspirators then stored the stolen information in temporary output files, compressed and divided the files, and ultimately were able to download and exfiltrate the data from Equifax’s network to computers outside the United States. In total, the attackers ran approximately 9,000 queries on Equifax’s system, obtaining names, birth dates and social security numbers for nearly half of all American citizens.

The indictment also charges the defendants with stealing trade secret information, namely Equifax’s data compilations and database designs.  “In short, this was an organized and remarkably brazen criminal heist of sensitive information of nearly half of all Americans, as well as the hard work and intellectual property of an American company, by a unit of the Chinese military,” said Barr.

The defendants took steps to evade detection throughout the intrusion, as alleged in the indictment.  They routed traffic through approximately 34 servers located in nearly 20 countries to obfuscate their true location, used encrypted communication channels within Equifax’s network to blend in with normal network activity, and deleted compressed files and wiped log files on a daily basis in an effort to eliminate records of their activity.

“Today’s announcement of these indictments further highlights our commitment to imposing consequences on cybercriminals no matter who they are, where they are, or what country’s uniform they wear,” said FBI Deputy Director David Bowdich.  “The size and scope of this investigation — affecting nearly half of the U.S. population, demonstrates the importance of the FBI’s mission and our enduring partnerships with the Justice Department and the U.S. Attorney’s Office.  This is not the end of our investigation; to all who seek to disrupt the safety, security and confidence of the global citizenry in this digitally connected world, this is a day of reckoning.”

The defendants are charged with three counts of conspiracy to commit computer fraud, conspiracy to commit economic espionage, and conspiracy to commit wire fraud.  The defendants are also charged with two counts of unauthorized access and intentional damage to a protected computer, one count of economic espionage, and three counts of wire fraud. 

The investigation was conducted jointly by the U.S. Attorney’s Office for the Northern District of Georgia, the Criminal and National Security Divisions of the Department of Justice, and the FBI’s Atlanta Field Office.  The FBI’s Cyber Division also provided support.  Equifax cooperated fully and provided valuable assistance in the investigation.

Assistant U.S. Attorneys Nathan Kitchens, Samir Kaushal, and Thomas Krepp of the Northern District of Georgia; Senior Counsel Benjamin Fitzpatrick of the Criminal Division’s Computer Crime and Intellectual Property Section; and Trial Attorney Scott McCulloch of the National Security Division’s Counterintelligence and Export Control Section are prosecuting this case.  Attorneys with the Office of International Affairs provided critical assistance in obtaining evidence from overseas.  

February 10, 2020 in AML | Permalink | Comments (0)