International Financial Law Prof Blog

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

Monday, August 31, 2020

BEA News: Gross Domestic Product, 2nd Quarter 2020 (Second Estimate); Corporate Profits, 2nd Quarter 2020 (Preliminary Estimate)

Real gross domestic product (GDP) decreased at an annual rate of 31.7 percent in the second quarter of 2020 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the decrease in real GDP was 32.9 percent. With the second estimate, private inventory investment and personal consumption expenditures (PCE) decreased less than previously estimated (see "Updates to GDP" on page 2).

Real GDP: Percent change from preceding quarter
Coronavirus (COVID-19) Impact on the Second-Quarter 2020 GDP Estimate
The decline in second quarter GDP reflected the response to COVID-19, as “stay-at-home” orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the second quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note.

The decrease in real GDP reflected decreases in PCE, exports, nonresidential fixed investment, private inventory investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased (table 2).

The decrease in PCE reflected decreases in services (led by health care) and goods (led by clothing and footwear). The decrease in exports primarily reflected a decrease in goods (led by capital goods). The decrease in nonresidential fixed investment primarily reflected a decrease in equipment (led by transportation equipment). The decrease in private inventory investment primarily reflected a decrease in retail (led by motor vehicle dealers). The decrease in residential investment primarily reflected a decrease in new single-family housing.

Real gross domestic income (GDI) decreased 33.1 percent in the second quarter, compared with a decrease of 2.5 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, decreased 32.4 percent in the second quarter, compared with a decrease of 3.7 percent in the first quarter (table 1).

Current-dollar GDP decreased 33.3 percent, or $2.07 trillion, in the second quarter to a level of $19.49 trillion. In the first quarter, GDP decreased 3.4 percent, or $186.3 billion (table 1 and table 3).

The price index for gross domestic purchases decreased 1.5 percent in the second quarter, in contrast to an increase of 1.4 percent in the first quarter (table 4). The PCE price index decreased 1.8 percent, in contrast to an increase of 1.3 percent. Excluding food and energy prices, the PCE price index decreased 1.0 percent, in contrast to an increase of 1.6 percent.

More information on the source data that underlie the estimates is available in the "Key Source Data and Assumptions" file on BEA’s website.

Updates to GDP

In the second estimate, real GDP decreased 31.7 percent in the second quarter, an upward revision of 1.2 percentage points from the previous estimate issued last month. The revision primarily reflected upward revisions to private inventory investment and PCE. For more information, see the Technical Note. For information on updates to GDP, see the "Additional Information" section that follows.

 
Advance Estimate Second Estimate
(Percent change from preceding quarter)
Real GDP -32.9 -31.7
Current-dollar GDP -34.3 -33.3
Real GDI -33.1
Average of Real GDP and Real GDI -32.4
Gross domestic purchases price index -1.5 -1.5
PCE price index -1.9 -1.8
PCE price index excluding food and energy -1.1 -1.0

Updates to First-Quarter Wages and Salaries

In addition to presenting updated estimates for the second quarter, today's release presents revised estimates of first-quarter wages and salaries, personal taxes, and contributions for government social insurance, based on updated data from the BLS Quarterly Census of Employment and Wages program. Wages and salaries are now estimated to have increased $103.6 billion in the first quarter of 2020, a downward revision of $3.4 billion. Real GDI decreased 2.5 percent in the first quarter, unrevised from the previously published estimate.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $226.9 billion in the second quarter, compared with a decrease of $276.2 billion in the first quarter (table 10).

Profits of domestic financial corporations increased $39.5 billion in the second quarter, in contrast to a decrease of $42.2 billion in the first quarter. Profits of domestic nonfinancial corporations decreased $170.1 billion, compared with a decrease of $190.5 billion. Rest-of-the-world profits decreased $96.2 billion, compared with a decrease of $43.5 billion. In the second quarter, receipts decreased $139.7 billion, and payments decreased $43.4 billion.

August 31, 2020 in Economics | Permalink | Comments (0)

Friday, August 28, 2020

EXIM Board Votes to Notify Congress of Two Potential Transactions Totaling $400 Million to Support an Estimated 1,700 U.S. Jobs, and American Small Business Exports

Transactions Could Support Jobs in California, Colorado, Connecticut, Georgia, Illinois, Iowa, Louisiana, Minnesota, Oklahoma, Pennsylvania, and Texas in the Oil and Gas Equipment and Services Industry  The Export-Import Bank of the United States (EXIM) Board of Directors today unanimously voted to notify the U.S. Congress, pursuant to the law, of its consideration of two transactions that would facilitate the authorization of a $350 million general facility and $50 million small business facility (SBF) for Petroleos Mexicanos (Pemex). If approved, the combined $400 million financing facilities would support an estimated 1,700 jobs in California, Colorado, Connecticut, Georgia, Illinois, Iowa, Louisiana, Minnesota, Oklahoma, Pennsylvania, and Texas in the oilfield services industry, which has faced difficulties as a result of the COVID-19 pandemic. EXIM received the applications from PEMEX for the facilities in March 2020.

The 2015-2019 lapse in EXIM’s Board quorum suspended the agency’s 76-year association with Pemex, Mexico’s state-owned oil company that conducts exploration, production, industrial processing and refining, logistics, and marketing. During the four-year absence of a Board quorum at EXIM, China sought to step into the breach to grow its influence in the region and pursued closer ties with Pemex, notwithstanding the company’s previous financings with EXIM.

These transactions will help fill in private sector financing gaps and provide certainty to an industry suffering in the current economic climate because of the global pandemic shutdown, as well as provide a valuable alternative to Chinese offerings. EXIM financing under these transactions also will facilitate the purchase of U.S. oil and gas equipment and services provided to approximately 21 oil and gas field projects.

“With today’s unanimous Board action to notify Congress of these potential transactions, EXIM is taking a step toward supporting more American jobs and small business exports and furthering our nation’s prosperity and security. In addition to being our neighbor, Mexico is the United States’ second-largest export market and third-largest trading market,” said EXIM President and Chairman of the Board Kimberly A. Reed. “In addition to supporting an estimated 1,700 jobs in 11 states across the United States, these authorizations would help counter financing competition from foreign export credit agencies, including from China, and reinforce to our allies and partners around the globe—including Mexico—that EXIM is open for business.”

“The EXIM Board of Directors has taken important steps to support American workers by voting to notify Congress of these transactions that would support 1,700 jobs nationwide,” said EXIM Board Member Spencer T. Bachus, III. “EXIM is fulfilling its purpose of by providing access to liquidity when commercial lenders are unable or unwilling to assume the risk.”

ABOUT EXIM:

EXIM is an independent federal agency that promotes and supports American jobs by providing competitive and necessary export credit to support sales of U.S. goods and services to international buyers. A robust EXIM can level the global playing field for U.S. exporters when they compete against foreign companies that receive support from their governments. EXIM also contributes to U.S. economic growth by helping to create and sustain hundreds of thousands of jobs in exporting businesses and their supply chains across the United States. In recent years, approximately 90 percent of the total number of the agency’s authorizations has directly supported small businesses. Since 1992, EXIM has generated more than $9 billion for the U.S. Treasury for repayment of U.S. debt.

August 28, 2020 in Economics | Permalink | Comments (0)

Monday, August 24, 2020

Activities of U.S. Multinational Enterprises, 2018

Worldwide employment by U.S. multinational enterprises (MNEs) increased 1.4 percent to 43.0 million workers in 2018 from 42.4 million in 2017, according to statistics released by the Bureau of Economic Analysis on the operations and finances of U.S. parent companies and their foreign affiliates.

Employment in the United States by U.S. parents increased 2.1 percent to 28.6 million workers in 2018. U.S. parents accounted for 66.5 percent of worldwide employment by U.S. MNEs, up from 66.1 percent in 2017. Employment abroad by majority-owned foreign affiliates (MOFAs) of U.S. MNEs was nearly unchanged at 14.4 million workers and accounted for 33.5 percent of employment by U.S. MNEs worldwide.

Employment by U.S. MNEs 2018

U.S. parents accounted for 22.0 percent of total private industry employment in the United States. Employment by U.S. parents was largest in manufacturing and retail trade. Employment abroad by MOFAs was largest in China, the United Kingdom, Mexico, India, and Canada.

Worldwide current-dollar value added of U.S. MNEs increased 6.8 percent to $5.7 trillion. Value added by U.S. parents, a measure of their direct contribution to U.S. gross domestic product, increased 7.8 percent to $4.2 trillion, representing 23.3 percent of total U.S. private-industry value added. MOFA value added increased 4.1 percent to $1.5 trillion. Value added by MOFAs was largest in the United Kingdom, Canada, and Ireland.

Worldwide expenditures for property, plant, and equipment of U.S. MNEs increased 6.6 percent to $912.1 billion. Expenditures by U.S. parents accounted for $721.6 billion and MOFA expenditures for $190.4 billion.

Worldwide research and development expenditures of U.S. MNEs increased 6.9 percent to $381.4 billion. U.S. parents accounted for expenditures of $323.1 billion and MOFAs for $58.2 billion.

Activities of U.S. MNEs

Additional statistics on the activities of U.S. parent companies and their foreign affiliates including sales, balance sheet and income statement items, compensation of employees, trade in goods, and more are available on BEA’s website. More industry detail for U.S. parents and more industry and country detail for foreign affiliates are also available on the website.

U.S. MNE Activities in the First Year After the Tax Cuts and Jobs Act (TCJA)

The TCJA generally eliminated taxes on dividends, or repatriated earnings, to U.S. multinationals from their foreign affiliates and changed the nominal U.S. domestic corporate tax rate from 35 percent to 21 percent beginning on January 1, 2018. BEA’s statistics cannot separate the effects of the TCJA from other prevalent economic conditions and company-specific factors in 2018, however, the statistics on the Activities of U.S. MNEs for 2018 in this release provide a first look at U.S. MNE activities in the year after the TCJA took effect.

U.S. parents grew faster than MOFAs in 2018 for several measures of their activities, including employment, value added, expenditures for property, plant, and equipment (PP&E), and research and development expenditures (R&D). This contrasts with the long-term trend of MOFA activities growth outpacing that of U.S. parents. In 2018, U.S. parents experienced above-average growth rates for these measures, while MOFAs grew at below-average rates.

Annual Percent Change in Activities of U.S. MNEs

U.S. Parents 2018
MOFAs 2018
U.S. Bureau of Economic Analysis
*1998-2018, rates for benchmark years (1999, 2004, 2009, and 2014) not included

In addition to the measures of MNE activities featured in this release, BEA’s U.S. MNE statistics include U.S. income taxes paid by U.S. parents. According to the statistics, U.S. income taxes paid by U.S. parents decreased 6.4 percent to $218.9 billion in 2018 (see Table I. P1). The effective U.S. income tax rate paid by U.S. parents decreased to 13.1 percent in 2018, following an effective rate of 15.4 percent in 2017 and between 18.4 and 22.3 percent for the five previous years.

August 24, 2020 in Economics | Permalink | Comments (0)

Sunday, August 23, 2020

Minnesota Man Charged with COVID-Relief PPP Fraud and Money Laundering

A Minnesota man was charged in an indictment unsealed today for allegedly fraudulently obtaining approximately $841,000 from the Paycheck Protection Program (PPP).

Acting Assistant Attorney General Brian Rabbitt of the Justice Department’s Criminal Division, U.S. Attorney Erica H. MacDonald of the District of Minnesota, Acting Special Agent in Charge Aubree M.  Schwartz of the FBI’s Minneapolis Field Office, Special Agent in Charge Kathy A. Enstrom of the IRS-Criminal Investigation (IRS-CI), Special Agent in Charge Justin R. Bundy of the FDIC’s Office of the Inspector General (FDIC-OIG), and Acting Special Agent in Charge Brian Sullivan of the Small Business Administration Office of Inspector General (SBA-OIG), Central Region made the announcement.

Kyle William Brenizer, 32, of St. Paul, Minnesota, was charged in a criminal indictment in the District of Minnesota with wire fraud and money laundering.  He made his initial appearance this afternoon before U.S. Magistrate Judge Becky R. Thorson of the District of Minnesota and remains in custody.  He will appear for a detention hearing on Aug. 26.

The indictment alleges Brenizer was the owner and manager of True-Cut Construction LLC (True-Cut), a contracting and construction company located in Brooklyn Park, Minnesota.  In August 2018, True-Cut and Brenizer were ordered by the Minnesota Department of Labor and Industry to cease and desist from doing business and in December 2019, True-Cut’s contractor license expired and was never renewed.

Brenizer allegedly submitted a false and misleading PPP application in the name of True-Cut seeking approximately $841,000, but the application was denied.  On May 12, 2020, Brenizer again submitted a false and misleading PPP application in the name of True-Cut seeking approximately $841,000 in PPP funds.  This time, in order to conceal his involvement, Brenizer allegedly submitted the application under the name of another individual. 

Brenizer falsely stated that True-Cut’s average monthly payroll was over $330,000 for approximately 30 employees.  In addition, Brenizer falsely certified that he was not subject to any pending criminal charges even though he was allegedly named in multiple felony charges pending in the State of Minnesota for such charges as check forgery, identify theft, and theft by swindle.  Due to these various misrepresentations and omissions, on May 13, 2020, Brenizer’s second application was approved, and he received $841,000 in PPP funds.

According to the allegations in the indictment, instead of using the PPP funds for permissible business expenses, Brenizer transferred approximately $650,000 to a bank account unrelated to True-Cut and made a $29,000 payment to purchase a Harley-Davidson motorcycle, spent over $1,000 on golf expenses, among other retail and entertainment expenditures for his personal benefit.

The CARES Act is a federal law enacted March 29.  It is designed to provide emergency financial assistance to millions of Americans who are suffering the economic effects resulting from the COVID-19 pandemic.  One source of relief provided by the CARES Act is the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses through the PPP.  In April 2020, Congress authorized over $300 billion in additional PPP funding.

The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent.  Businesses must use PPP loan proceeds for payroll costs, interest on mortgages, rent and utilities.  The PPP allows the interest and principal to be forgiven if businesses spend the proceeds on these expenses within a set time period and use at least a certain percentage of the loan towards payroll expenses.

The FBI, IRS-CI, FDIC-OIG and SBA-OIG investigated the case.  Assistant Chief L. Rush Atkinson of the Department of Justice’s Criminal Division’s Fraud Section and Assistant U.S. Attorneys Matthew S. Ebert and Allison K. Ethen of the U.S. Attorney’s Office for the District of Minnesota are prosecuting the case.     

August 23, 2020 in AML | Permalink | Comments (0)

Thursday, August 20, 2020

Iranian National and U.A.E. Business Organization Charged with Criminal Conspiracy to Violate Iranian Sanctions

Amin Mahdavi, 53, an Iranian national living in the United Arab Emirates (UAE), and Parthia Cargo LLC, a freight forwarding company located in the UAE, were charged in the U.S. District Court for the District of Columbia with participating in a criminal conspiracy to violate U.S. export laws and sanctions against Iran.

“Iran evades the U.S. embargo resulting from their malicious activities with the collaboration of those who pose as innocent buyers, but who are ready to send the products on to their forbidden destination,” said Assistant Attorney General for National Security John C. Demers.  “These charges against Parthia Cargo LLC and its managing director should put on notice all freight forwarders and others who facilitate illicit transshipments to Iran that their conduct will not be tolerated.”

“We will not abide individuals or business organizations that seek to harm our national security by providing coveted U.S. goods to Iran, and we will pursue these wrongdoers no matter where they are located in the world,” said Acting U.S. Attorney Michael R. Sherwin for the District of Columbia.

“Amin Mahdavi defiantly conspired and violated U.S. sanctions to benefit his company and Iran,” said James A. Dawson, Acting Assistant Director in Charge of the FBI Washington Field Office.  “Today’s charges are another example of the dedicated and unrelenting efforts of the FBI and the U.S. Attorney's Office to pursue those who violate our nation's sanctions and put our national security at risk.  The FBI is charged with protecting our nation's security and intellectual property from being used to benefit our foreign adversaries.”

“The actions today are a result of the ongoing coordination and collaborative counterproliferation efforts by the Office of Export Enforcement and the FBI,” said P. Lee Smith, of BIS.  “The Boston Field Office of the Office of Export Enforcement will continue to vigorously pursue violators with all law enforcement partners to interdict illicit trade that threatens U.S. national security and undermines U.S. foreign policy.”

Mahdavi and Parthia Cargo LLC were charged in a criminal complaint with conspiring to defraud the United States and to violate the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSRs).

The affidavit in support of the criminal complaint alleges that Mahdavi was the Managing Director of Parthia Cargo LLC, a business organization that facilitated the illegal shipment to Iran of goods manufactured in the United States.  Mahdavi acknowledged to U.S. government officials in 2017 that he understood a U.S. government license was necessary to lawfully ship U.S. commercial aircraft parts to Iran.  But Mahdavi nonetheless agreed to help ship a U.S.-origin commercial aircraft part to an Iranian air transport company, utilizing the freight forwarding services of Parthia Cargo LLC and without obtaining a license.  Mahdavi and Parthia Cargo LLC conspired with individuals and business organizations located outside the United States as part of the criminal scheme, which included falsely stating to a U.S.-based aircraft parts supplier that the goods would not be shipped to Iran unless authorized by the U.S. government.

A concurrent action was filed by the Department of the Treasury, sanctioning Mahdavi and Parthia Cargo LLC, as well as a related UAE business organization, Delta Parts Supply FZC.

If convicted, Mahdavi would face up to five years of imprisonment and a fine of up to $250,000, and Parthia Cargo LLC would face a fine of up to $500,000.  The criminal charge in the complaint is an allegation, and Mahdavi and Parthia Cargo LLC are presumed innocent until proven guilty beyond a reasonable doubt.

The investigation was conducted by the FBI’s Washington Field Office and the BIS’s Boston Field Office.  Assistant U.S. Attorney Michael J. Friedman and National Security Division Trial Attorney Jennifer Kennedy Gellie are representing the United States.

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

Wednesday, August 19, 2020

The Bank of Nova Scotia Agrees To Pay $60.4 Million in Connection with Commodities Price Manipulation Scheme

The Bank of Nova Scotia (Scotiabank), a Toronto, Canada-based global banking and financial services firm, has entered into a resolution with the Department of Justice to resolve criminal charges related to a price manipulation scheme involving thousands of episodes of unlawful trading activity by four traders in the precious metals futures contracts markets. 

Scotiabank entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed today in the District of New Jersey charging the company with one count of wire fraud and one count of attempted price manipulation.  Under the terms of the DPA, Scotiabank has agreed to the imposition of an independent compliance monitor, and will pay over $60.4 million in a criminal monetary penalty, criminal disgorgement, and victim compensation, with part of the criminal monetary penalty credited against payments made to the Commodity Futures Trading Commission (CFTC) under a separate agreement with the CFTC being announced today.

“For over eight years, Scotiabank traders placed thousands of orders for precious metals futures contracts in an attempt to manipulate prices for their own and the bank’s benefit and to deceive other market participants,” said Chief Robert A. Zink of the Justice Department’s Criminal Division, Fraud Section.  “This deferred prosecution agreement—which includes a criminal monetary penalty at the top of the United States Sentencing Guidelines range, money to compensate victims, and an independent compliance monitor—reflects the seriousness of the offense and the state of Scotiabank’s compliance program, and further helps to promote the integrity of our public markets.”

“For the markets to work fairly, everyone needs to be able to make trading decisions with consistent, accurate information,” said U.S. Attorney Craig Carpenito for the District of New Jersey.  “In the conduct described here, four Scotiabank traders attempted to rig precious metals futures prices in their favor by placing thousands of orders they knew they would cancel before the trades were executed. In this way, they sought to illegally manipulate the market to their own advantage, and to the disadvantage of other traders. The resolution announced requires Scotiabank to pay a substantial penalty and places them under watch by an independent compliance monitor.”

“Today, Scotiabank has admitted to their role in a massive price manipulation scheme aimed at falsely manufacturing the prices of precious metals futures contracts to serve the bank’s best interests,” said Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.  “The bank’s actions were designed to lead others to trade in ways they never would have without what was believed to be legitimate market activity.  Scotiabank’s agreement to surrender more than $60 million in criminal fines, disgorgement and victim compensation underscores the severe penalties that can be levied against those who wish to engage in similar, illegal business tactics.”

“The consequences of the actions of these traders are far reaching, affecting not only the economy of the United States, but also the world’s financial markets,” said Inspector in Charge Delany De Leon-Colon of the U.S. Postal Inspection Service’s (USPIS) Criminal Investigations Group.  “Anyone who thinks that manipulating trading markets to benefit their own bank accounts should see today’s announcement as a significant warning. The U.S. Postal Inspection Service has an extensive history of investigating complex financial fraud schemes in order to protect investors as well as the integrity of the financial marketplace.”  

According to admissions and court documents,  between approximately January 2008 and July 2016, four precious metals traders located in New York, London and Hong Kong engaged in fraudulent and manipulative trading practices in the markets for gold, silver, platinum, and palladium futures contracts (collectively, precious metals futures contracts) that traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by the CME Group, Inc.  One of the traders, Corey Flaum, 42, of Delray Beach, Florida, pleaded guilty on July 25, 2019, to one count of attempted price manipulation in connection with his precious metals futures contracts trading at Scotiabank and another financial services firm, and his sentencing is scheduled for Jan. 27, 2021, before U.S. District Judge Brian M. Cogan of the Eastern District of New York.

As part of the DPA, Scotiabank has agreed to, among other things, continue to cooperate with the department in any ongoing investigations and prosecutions relating to the underlying misconduct, to modify its compliance program where necessary and appropriate, and to retain an independent compliance monitor for a period of three years.

A number of relevant considerations contributed to the department’s criminal resolution with Scotiabank, including the nature and seriousness of the offense, the state of Scotiabank’s compliance program, and Scotiabank’s failure to fully and voluntarily self-disclose the offense conduct to the department.

As Scotiabank admitted in the DPA, Flaum and the three other traders, collectively, placed thousands of orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution.  By placing these orders, the traders intended to artificially move the prices of precious metals futures contracts in a direction that was favorable to them, and to inject false and misleading information into the precious metals futures markets in order to deceive other market participants into believing something untrue, namely that the market reflected legitimate supply and demand.  This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling futures contracts at quantities, prices, and times that they otherwise likely would not have traded.

As set forth in the DPA, Scotiabank’s compliance function failed to detect or prevent the four traders’ unlawful trading practices.  Moreover, between August 2013 and February 2016, three Scotiabank compliance officers possessed information regarding unlawful trading by one of the traders other than Flaum but failed to prevent further unlawful conduct by this same trader. These facts were significant considerations that counseled for the imposition of a criminal monetary penalty at the high end of the applicable United States Sentencing Guidelines range under the DPA.

Since the time of the underlying offense conduct, Scotiabank has made significant investments to improve its compliance technology and trade surveillance tools, has nearly doubled its annual compliance operating budget, has added more than 200 full-time equivalent compliance positions, and is in the process of winding down its precious metals business.  The department ultimately determined, however, that an independent compliance monitor was necessary because Scotiabank’s remedial improvements to its compliance and ethics program have yet not been fully implemented and tested to demonstrate that they would be effective in detecting and preventing similar misconduct in the future.

Scotiabank did not receive voluntary disclosure credit because it did not voluntarily and timely disclose the offense conduct to the department.  In 2016, after one of its futures commission merchants flagged trading by Flaum for possible spoofing, Scotiabank made a voluntary disclosure regarding Flaum to the CFTC.  As a result of recordkeeping failures, however, Scotiabank’s disclosure to the CFTC was materially incomplete.  As a result, the CFTC was impaired in its ability to fully investigate Flaum’s unlawful trading and discover the true extent of the misconduct. The CFTC, relying on Scotiabank’s incomplete and, ultimately, inaccurate disclosure, entered into a resolution with Scotiabank in 2018 that did not reflect the full extent of Flaum’s conduct (2018 CFTC Resolution).  In the 2018 CFTC resolution, Scotiabank received a substantially reduced penalty in recognition of, among other things, its purported self-reporting.

CFTC Orders The Bank of Nova Scotia to Pay Record $77.4 Million for Spoofing and Making False Statements

Today, the CFTC announced two separate settlements with Scotiabank in connection with related, parallel proceedings.  One of Scotiabank’s resolutions with the CFTC relates to unlawful trading by Flaum and the three other traders that Scotiabank did not fully disclose to the CFTC in connection with the CFTC’s prior investigation that resulted in the 2018 CFTC Resolution, discussed above.  Under the terms of the new agreement between Scotiabank and the CFTC, Scotiabank agreed to pay approximately $60.4 million, which includes a civil monetary penalty of $42 million, as well as restitution and disgorgement that will be credited to any such payments made to the department.  The second resolution between Scotiabank and the CFTC relates to certain false statements that Scotiabank made to the CFTC (including in connection with the investigation that resulted in the 2018 CFTC Resolution), the COMEX, and the National Futures Association.  Under the terms of this agreement, Scotiabank has agreed to pay a civil monetary penalty of approximately $17 million.

The Commodity Futures Trading Commission today issued two orders filing and settling charges against The Bank of Nova Scotia (BNS), a provisionally registered swap dealer, arising from manipulative and deceptive conduct, spanning more than eight years and involving thousands of occasions of attempted manipulation and spoofing in gold and silver futures contracts traded on the Commodity Exchange, Inc. (COMEX). The combined orders require BNS to pay a total of $77.4 million in penalties and equitable relief, including a record-setting $17 million for making false and misleading statements to CFTC staff during the CFTC’s first investigation into the bank’s spoofing (False Statements Order), and a total of $60.4 million for spoofing and attempted manipulation (Spoofing Order). In addition to monetary sanctions, the Spoofing Order requires BNS to retain an independent compliance monitor.

Today’s orders come approximately two years after the CFTC first sanctioned BNS for spoofing in the gold and silver futures markets. [See CFTC Press Release No. 7818-18]. That order required BNS to pay an $800,000 penalty for spoofing engaged in by traders on the bank’s New York precious metals desk from June 2013 through June 2016. In that order, the CFTC expressly recognized and credited BNS for self-reporting and cooperation, in the form of a substantially reduced penalty.

As explained in today’s orders, however, multiple statements that BNS made during the CFTC’s investigation about the order entry operator identifiers (Tag50s) that its traders used to trade futures contracts—on which the CFTC predicated its findings and sanctions—were false. Today’s orders address those false statements and the true scope and nature of BNS’s wrongdoing.

Related Criminal Action

In a separate action, the Department of Justice’s Fraud Section today announced entry of a Deferred Prosecution Agreement with BNS in a parallel matter, deferring criminal prosecution of BNS on charges of attempted manipulation and wire fraud. Under the terms of the agreement, BNS has agreed, among other things, to pay $60.4 million, which represents the combined appropriate criminal fine, forfeiture, and restitution amounts in that matter, and to comply with certain obligations in connection with its corporate compliance program, including retaining an independent compliance monitor.

Case Background

The False Statements Order requires BNS to pay a $17 million civil monetary penalty for making false or misleading statements to CFTC staff. Specifically, the order finds that during the course of the CFTC’s prior investigation into BNS, the bank made multiple false and misleading statements of material fact to CFTC staff, and omitted material facts regarding the universe of BNS’s precious metal futures accounts, traders, and the Tag50s its traders used. According to the order, BNS knew or reasonably should have known that its statements were false or misleading because it possessed the information in its records and reported it to COMEX. The order also finds that BNS made multiple false statements to COMEX regarding the bank’s failure to maintain a central repository of Tag50s, and to the National Futures Association concerning BNS’s purported use of software to monitor manipulative or deceptive trading practices, including spoofing.

The Spoofing Order requires BNS to pay a total of $60.4 million, consisting of $6,622,190 in restitution, $11,828,912 in disgorgement, and a $42 million civil monetary penalty arising from manipulative and deceptive conduct, spanning more than eight years and involving thousands of occasions of spoofing and attempted manipulation. Specifically, the order finds that on thousands of occasions between approximately January 2008 and July 2016, BNS, by and through certain traders based in New York and overseas, placed orders to buy or sell gold and silver futures contracts with the intent to cancel those orders prior to execution. According to the order, the traders engaged in this unlawful conduct with the intent to manipulate prices by sending false signals of supply or demand designed to deceive market participants into executing against other orders the traders wanted executed. 

The Spoofing Order also finds that BNS’s compliance function failed to detect and deter the unlawful trading practices and that BNS’s compliance staff failed to act to stop the misconduct when they became aware of it. According to the order, on at least two occasions, senior members of BNS’s compliance group had substantial information regarding unlawful trading by one of the traders but did not take appropriate action to stop the behavior.

The Spoofing Order provides for offsets for certain payments made pursuant to the Department of Justice’s parallel criminal action.

The CFTC acknowledges and thanks the staff of the Department of Justice Fraud Section’s Commodities Fraud Group, the staff of the U.S. Attorney’s Office for the District of New Jersey, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation for their assistance.

This case is brought in connection with the Division of Enforcement’s Spoofing Task Force, and the staff members responsible for this case are Jonah E. McCarthy, Jennifer Blakley, Dmitriy Vilenskiy, Hillary Van Tassel, A. Daniel Ullman II, and Paul G. Hayeck.

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

Monday, August 17, 2020

Puerto Rico Legislator Indicted for Theft, Bribery, and Fraud

A federal grand jury in the District of Puerto Rico returned a 13-count indictment against legislator María Milagros Charbonier-Laureano (Charbonier), aka “Tata,” a member of the Puerto Rico House of Representatives, as well as her husband Orlando Montes-Rivera (Montes), their son Orlando Gabriel Montes-Charbonier, and her assistant Frances Acevedo-Ceballos (Acevedo), for their alleged participation in a years-long theft, bribery, and kickback conspiracy.

The indictment charges Charbonier, Montes, Montes-Charbonier, and Acevedo with conspiracy; theft, bribery, and kickbacks concerning programs receiving federal funds; and honest services wire fraud.  Charbonier, Montes, and Montes-Charbonier are facing two counts of money laundering.  The indictment also charges Charbonier with obstruction of justice for destroying data on her cell phone.

According to the allegations in the indictment, from early 2017 until July 2020, Charbonier, Montes, Montes-Charbonier, and Acevedo executed a scheme to defraud the Commonwealth of Puerto Rico by engaging in a theft, bribery, and kickback scheme.  In early 2017, Charbonier inflated her assistant Acevedo’s salary from $800 on a bi-weekly, after-tax basis to $2,100; this amount increased to nearly $2,900 by September 2019.  Out of every inflated paycheck, it was agreed that Acevedo would keep a portion, and kick back between $1,000 and $1,500 to Charbonier, Montes, and Montes-Charbonier.

“Puerto Rico legislator María Milagros Charbonier-Laureano, her family, and her associates allegedly carried out a brazen scheme to defraud the Commonwealth of Puerto Rico through bribery, kickbacks, theft, and fraud,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “When elected officials betray the people's trust in order to enrich themselves at the public’s expense, the Justice Department will hold them accountable.”

“I encourage those who have information of public officials involved in criminal acts to come forward.  We will continue investigating and prosecuting elected officials whose criminal conduct enriches themselves at the expense of the government and their constituents,” said U.S. Attorney Muldrow for the District of Puerto Rico.  “I commend our partners from the FBI for their tremendous efforts investigating this matter, particularly during the pandemic.  I would also like to recognize the Public Integrity Section attorneys who supported this investigation and traveled to Puerto Rico in order to work with our District to present this case to the Grand Jury.”

“Most of the work we do takes place behind the scenes.  Quality investigative work requires time and patience,” said Special Agent in Charge Rafael Riviere Vázquez of the FBI’s San Juan Field Office.  “It is my hope that the people of Puerto Rico never doubt that we are doing the work that we have been entrusted to do.  Public Corruption is FBI San Juan's priority and it will continue to be a priority. Puerto Rico belongs to each and every one of us, and together we can take it back.”

The indictment further alleges that the defendants used a variety of means to transfer the kickbacks from Acevedo to Charbonier and her family.  Allegedly, Acevedo would sometimes transfer cash by hand to Montes, Montes-Charbonier, and other individuals connected to Charbonier; Acevedo would sometimes transfer kickbacks in approximately $500 increments to Montes or to Montes-Charbonier using ATH Móvil, a mobile phone application that allows individuals who bank at certain financial institutions to send money to each other through an interface on their cell phones; and, at times, Acevedo left cash kickbacks in a pre-determined location, such as Charbonier’s purse or inside of a vehicle, for Charbonier to later collect.

The money laundering counts against Charbonier, her husband and son involve the secretive maneuvers that the Charbonier family used to move their illegally derived cash among themselves in a manner designed to conceal and disguise the nature, location, source, ownership, and control of that cash.

The indictment also charges Charbonier with obstruction of justice.  After learning of the existence of the investigation into illegal activities in her office and after learning that a warrant had been obtained for one of her phones, Charbonier allegedly proceeded to delete certain data on the phone. In particular, Charbonier deleted nearly the entire call log, nearly all WhatsApp messages, and nearly all iMessages associated with this phone, the indictment alleges.

The indictment is the result of an ongoing investigation by the FBI and is being prosecuted by Trial Attorney Jonathan E. Jacobson of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney María L. Montañez Concepción from the U.S. Attorney’s Office for the District of Puerto Rico.

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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

Wednesday, August 12, 2020

Former CEO and Founder of Technology Company Charged in Investment Fraud Scheme

The CEO and co-founder of Trustify Inc. (Trustify), a privately-held technology company founded in 2015 and based in Arlington, Virginia, was charged in an indictment unsealed for his alleged role in a fraud scheme resulting in millions of dollars of losses to investors. 

Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division, U.S. Attorney G. Zachary Terwilliger for the Eastern District of Virginia, and Assistant Director in Charge Timothy R. Slater of the FBI’s Washington Field Office made the announcement.

Daniel Boice, 41, of Alexandria, Virginia, was charged with five counts of wire fraud, one count of securities fraud, and two counts of money laundering.

The indictment alleges that, beginning in 2015, Boice fraudulently solicited investments in Trustify, a privately-held technology start-up company that connected customers with private investigators.  Boice allegedly raised approximately $18.5 million from over 90 investors by, among other things, falsely overstating Trustify’s financial performance.  The indictment also alleges that Boice made false statements to investors about the amount of investor funds that he would personally receive, while diverting a substantial amount of the investor money to his own benefit. 

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

The FBI’s Washington Field Office is investigating the case.  The U.S. Securities and Exchange Commission provided assistance and is also filing a civil complaint against the defendant for related conduct.  Trial Attorney Blake Goebel of the Criminal Division’s Fraud Section and Special Assistant U.S. Attorney Russell Carlberg of the Eastern District of Virginia are prosecuting the case.  The department would also like to thank the Virginia State Corporation Commission for its assistance.   

Download Boice Indictment

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

Six Charged in Transnational Money Laundering Operation Involving Elder Fraud

U.S. Attorney Stephen J. Cox announced today that six individuals have been arrested pursuant to a federal indictment alleging money laundering violations.

            “The threat posed by transnational organized crime is continuing to increase,” said U.S. Attorney Stephen J. Cox.  “Of particular concern to us is the financial exploitation of older Americans by foreign-based crime rings.  These villains are located thousands of miles away, but they can target seniors here at home through believable scams designed to rob them of hard-earned savings.  Our district will be relentless in the fight against not only these transnational criminal organizations, but also their extensive networks of associates and money mules laundering the stolen funds.  We also plan to develop a new initiative with our law enforcement partners to ramp up our enforcement efforts on this front.”

            A federal grand jury returned the two-count indictment on June 18, 2020, charging a money laundering conspiracy and operation of an unlicensed money transmitting business.  The individuals charged include:

            Jeremy Christopher Jones, 45, of Kansas City, Kansas;

            John Arthur Fuss, 69, of Wartrace, Tennessee;

            Perry Lewis Crenshaw, Jr., 26, of Pensacola, Florida;

            Mary Elizabeth Booth, a/k/a Mary Beaman, 39, of Hammond, Louisiana;

            Ronnie Duane Booth, 37, of Hammond, Louisiana; and

            Tracey Lynn Brookshier, 51, of Tyler, Texas.

            All six defendants were arrested in other districts and then later made court appearances in the Eastern District of Texas.  Jones was arrested in the District of Kansas on June 29, 2020, and arraigned on July 29, 2020.  Fuss was arrested on July 1, 2020, in the Eastern District of Tennessee and arraigned on July 23, 2020.  Crenshaw was arrested in the Northern District of Florida on June 30, 2020, and arraigned on July 21, 2020.  Beaman, Booth, and Brookshire were all arrested on July 6, 2020, in the Eastern District of Louisiana and arraigned on July 22, 2020.

            According to the indictment, the defendants engaged in a money laundering conspiracy from July 2012 to September 2019.  As part of the operation, co-conspirators allegedly employed by call centers fraudulently induced victims, some of whom were located in the Eastern District of Texas, to transfer funds to the defendants and other co-conspirators.  These callers allegedly made unsolicited calls to individuals in the United States and employed various schemes that directly targeted or predominantly affected elder victims. 

            The indictment alleges that the schemes included impersonation of Social Security Administration and IRS/Department of Treasury officials.  Callers allegedly claimed that the victim’s Social Security number had been suspended because of suspicious activity and could be reactivated by payment of some amount.  Other callers allegedly claimed that victims owed back taxes and were required to satisfy the fictional debt to avoid threatened legal action.  Some callers allegedly posed as employees of mortgage companies.  Victims, who included borrowers with mortgages backed by the U.S. Department of Housing and Urban Development Federal Housing Administration, were promised lower rates through fictitious loan modifications and, in some instances, threatened with foreclosure if they did not agree to pay for the loan modification.

            The indictment further alleges that victims wired funds through money services businesses to locations in the Eastern District of Texas and elsewhere.  The indictment charges that the defendants’ money laundering conspiracy involved more than 4,000 victim wire transfers that totaled over $3.2 million.  The defendants and co-conspirators receiving these illicit proceeds are alleged to have retained a percentage of the victim funds for their services. 

            The indictment also charges that the defendants created fictitious companies and then deposited victim funds into bank accounts opened in the names of these fictitious companies.  The defendants are alleged to have made cash withdrawals of the fraudulently-obtained money and transferred some of the proceeds to other accounts, some of which were located outside of the United States.

            Jvones, Beaman, Booth, and Brookshier were separately charged with operation of an unlicensed money transmitting business in the State of Texas.

            “I’m very proud of my IRS service and I take these impersonation scams very personally.  I am disgusted by attempts to impersonate IRS employees and steal money from the taxpaying public,” stated Brian Payne, Special Agent in Charge of the Tampa Field Office of IRS Criminal Investigation. “Our office will continue to use the full force of the financial skills of our agents to identify and investigate these impactful crimes with our law enforcement partners in order to improve confidence in the taxpayers’ contacts with the IRS and its public servants.”

            “Over the last several years, American taxpayers have been subjected to unprecedented attempts to fraudulently obtain money by individuals impersonating IRS employees,” said J. Russell George, the Treasury Inspector General for Tax Administration.  “TIGTA and our law enforcement partners will do everything within our power to ensure that those involved in the impersonation of IRS employees are prosecuted to the fullest extent of the law.”

            “Creating a scheme that enriches the defendants while defrauding distressed and vulnerable HUD insured borrowers jeopardizes the many legitimate processes in place to protect a person’s mortgage,” said HUD Office of Inspector General, Special Agent in Charge, Nick Nelson.  “I want to thank the tireless efforts of our law enforcement partners and the U. S. Attorney’s Office, whose collaboration made these charges possible.  The HUD Office of Inspector General will continue to aggressively prosecute these type of cases.”

            “As reflected by the indictment, the United States Secret Service in Indianapolis -- along with our federal, state and local partners across America -- remains dedicated to the pursuit and apprehension of those fraudsters who seek to cheat their way to riches by preying upon some of our most vulnerable citizens,” said Eric Reed, Special Agent in Charge of the Indianapolis Field Office.  “I commend the excellent work of all the prosecutors and agents who have worked on this matter, and I am especially appreciative of the successful teamwork demonstrated by the many different law enforcement agencies who contributed to this investigation.  The Secret Service will continue to prioritize cases that have economic impact to the community and those that involve such ruthless schemes.”

If convicted, the defendants face up to 20 years in federal prison on the money laundering conspiracy charge and up to 5 years on the charge of operating an unlicensed money transmitting business.  Any proceeds are also subject to forfeiture.

            In October 2017, President Trump signed the bipartisan Elder Abuse Prevention and Prosecution Act (EAPPA) into law.  The EAPPA’s purpose is to increase the federal government’s focus on preventing elder abuse and exploitation.  Subsequently, the Department of Justice launched the Elder Justice Initiative (EJI).  Through the EJI, the Department has participated in hundreds of criminal and civil enforcement actions involving misconduct that targeted vulnerable seniors.  This past March, the Department announced the largest elder fraud enforcement action in American history, charging more than 400 defendants in a nationwide sweep.  The Department has likewise conducted hundreds of trainings and outreach sessions across the country.  The EJI website contains useful information, including educational resources about prevalent financial scams so you can guard against them.

            If you or someone you know is age 60 or older and has been a victim of financial fraud, help is standing by at the National Elder Fraud Hotline: 1-833-FRAUD-11 (1-833-372-8311).  This U.S. Department of Justice hotline, managed by the Office for Victims of Crime, is staffed by experienced professionals who provide personalized support to callers by assessing the needs of the victim, and identifying relevant next steps.  Case managers will identify appropriate reporting agencies, provide information to callers to assist them in reporting, connect callers directly with appropriate agencies, and provide resources and referrals, on a case-by-case basis.  Reporting is the first step.  Reporting can help authorities identify those who commit fraud and reporting certain financial losses due to fraud as soon as possible can increase the likelihood of recovering losses.  The hotline is staffed 7 days a week from 6:00 a.m. to 11:00 p.m. eastern time. English, Spanish and other languages are available.

            This case is being investigated by the Internal Revenue Service – Criminal Investigations, the Treasury Inspector General for Tax Administration, the U.S. Department of Housing and Urban Development Office of Inspector General, and the United States Secret Service.  The case is being prosecuted by Assistant U.S. Attorney Frank Coan.

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

Monday, August 10, 2020

Joint Press Statement from U.S. Secretary of Commerce Wilbur Ross and European Commissioner for Justice Didier Reynders

The U.S. Department of Commerce and the European Commission have initiated discussions to evaluate the potential for an enhanced EU-U.S. Privacy Shield framework to comply with the July 16 judgment of the Court of Justice of the European Union in the Schrems II case. This judgment declared that this framework is no longer a valid mechanism to transfer personal data from the European Union to the United States.  See EU General Court of Justice invalidates the adequacy of the protection provided by the EU-US Data Protection Shield

The European Union and the United States recognize the vital importance of data protection and the significance of cross-border data transfers to our citizens and economies. We share a commitment to privacy and the rule of law, and to further deepening our economic relationship, and have collaborated on these matters for several decades.  

As we face new challenges together, including the recovery of the global economy after the COVID-19 pandemic, our partnership will strengthen data protection and promote greater prosperity for our nearly 800 million citizens on both sides of the Atlantic.

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

Malware Author Pleads Guilty for Role in Transnational Cybercrime Organization Responsible for more than $568 Million in Losses

Cybercrime Organization Victimized Millions in all 50 States and Worldwide in One of the Largest Cyberfraud Enterprises Ever Prosecuted by the Department of Justice

An author of malicious computer software and a member of the Infraud Organization pleaded guilty today to RICO conspiracy, announced Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division. 

Valerian Chiochiu, aka “Onassis,” “Flagler,” “Socrate,” and “Eclessiastes,” 30, pleaded guilty before U.S. District Court Judge James C. Mahan in the District of Nevada.  Chiochiu is a national of the Republic of Moldova, but resided in the United States during the period of the conspiracy.  His plea came just over a month after the co-founder and administrator of Infraud, Sergey Medvedev of Russia, separately pleaded guilty on June 26.  Sentencing for Chiochiu has been scheduled for Dec. 11.

Infraud was an Internet-based cybercriminal enterprise engaged in the large-scale acquisition, sale, and dissemination of stolen identities, compromised debit and credit cards, personally identifiable information, financial and banking information, computer malware, and other contraband.

“Over the course of seven years, Infraud and its alleged conspirators created a sophisticated cybercriminal racketeering scheme that victimized individuals, merchants, and financial institutions to the tune of over half a billion dollars in losses,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “The Justice Department is committed to unmasking cyber criminals and their criminal organizations that use the internet for fraudulent schemes.”

“HSI and our partners are at the forefront of combating financial crimes and illicit activities spread on the Internet,” said Special Agent in Charge Francisco Burrola for the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Las Vegas Office.  “While criminal operators may continue to grow the reach of their criminal activity, ultimately they do not escape the reach of law enforcement. We continue to investigate, disrupt, and dismantle hidden illegal networks that pose a threat in cyberspace.”

According to the indictment, the Infraud Organization was created in October 2010 by Medvedev and Svyatoslav Bondarenko, aka “Obnon,” “Rector,” and “Helkern,” 34, of Ukraine, to promote and grow interest in the Infraud Organization as the premier destination for “carding” —purchasing retail items with counterfeit or stolen credit card information — on the Internet.  Under the slogan, “In Fraud We Trust,” the organization directed traffic and potential purchasers to the automated vending sites of its members, which served as online conduits to traffic in stolen means of identification, stolen financial and banking information, malware, and other illicit goods.  It also provided an escrow service to facilitate illicit digital currency transactions among its members and employed screening protocols that purported to ensure only high quality vendors of stolen cards, personally identifiable information, and other contraband were permitted to advertise to members.  In March 2017, there were 10,901 registered members of the Infraud Organization.

Bondarenko currently remains a fugitive.  

According to the indictment, Chiochiu provided guidance to other Infraud members on the development, deployment, and use of malware as a means of harvesting stolen data.  As part of his plea agreement, Chiochiu admitted to authoring a strain of malware known to the computer security community as “FastPOS”.

During the course of its seven-year history, the Infraud Organization inflicted approximately $2.2 billion in intended losses, and more than $568 million in actual losses, on a wide swath of financial institutions, merchants, and private individuals, and would have continued to do so for the foreseeable future if left unchecked. 

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

Friday, August 7, 2020

American Darknet Vendor and Costa Rican Pharmacist Charged with Narcotics and Money Laundering Violations

Co-conspirators Sold Hundreds of Thousands of Opioid Pills worth Millions of Dollars in Bitcoin on Multiple Darknet Markets

A dual U.S.-Costa Rican citizen and a Costa Rican citizen, both of whom reside in Costa Rica, were indicted by a federal grand jury in the District of Columbia for their illegal sales of opioids on the darknet.

The seven-count indictment charged David Brian Pate, 44, a U.S. and Costa Rican citizen, and Jose Luis Fung Hou, 38, a Costa Rican citizen, with counts of conspiring with persons to distribute controlled substances, distribution of controlled substances, conspiring with persons to import controlled substances, conspiring to launder money, and laundering of monetary instruments.

“As alleged in the indictment, the defendants helped fuel our deadly opioid drug epidemic by hiding behind the darknet and cryptocurrency to profit from the sale of illicit opioids into the United States,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “Fortunately, by working with our law enforcement partners across the United States and overseas, we were able to uncover this darknet opioid market and bring to justice those responsible.”

“These charges are a warning to drug traffickers worldwide that neither the shroud of the darknet or of virtual currency can hide their illegal activities from the vigilance of U.S. law enforcement,” said Acting U.S. Attorney Michael Sherwin for the District of Columbia.  “We are firmly committed to combatting the problem of opioid abuse and breaking through sophisticated cyber-enabled barriers employed by criminals to hide their activities.” 

“The opioid epidemic is a crisis crippling many families in this country,” said Special Agent in Charge Kelly R. Jackson of the IRS Criminal Investigation (CI) Washington D.C. Field Office.  “This international group profited off of people’s addictions, revictimizing them when they were already vulnerable. This group purposely distributed opioids that did not contain a safety additive and prevented inhalation of the drug.  Years ago when drug dealers and traffickers moved to the darknet and started using virtual currency to conceal and expand their network, CI also moved our playing field to the darknet to bring groups like this to justice.”

“Today’s case is a great example of how the DEA has infiltrated the darknet and, together with our law enforcement partners, proven that every criminal attempting to sell these deadly drugs is within the reach of the law,” said Special Agent in Charge Jesse R. Fong of the U.S. Drug Enforcement Administration’s (DEA) Washington Field Division. 

The indictment alleges that Pate illegally purchased narcotics, including OxyContin and morphine pills, primarily from Fung, a pharmacist in Costa Rica.  Pate would launder payments to Fung to purchase narcotics.  Pate then sold these narcotics on numerous darknet markets, including Silk Road and AlphaBay, in exchange for bitcoin.  Pate utilized various online monikers including “buyersclub” on darknet markets, online forums, and bitcoin exchanges.  Pate advertised that he was selling the “old formula” of OxyContin, which did not contain tamper-resistant features such as a crush-proof feature that prevented a user from inhaling or injecting the pills after pulverizing them. 

The indictment further alleges that Pate’s darknet sales involved him sending bulk shipments of narcotics in pill form from Costa Rica, often concealed in tourist souvenirs such as maracas, to co-conspirator re-shippers in the United States.  Pate would then send the re-shippers a list of customer orders, which included customer’s names, the customer’s shipping address, and the quantity of pills they purchased.  The re-shippers created smaller packages of pills, which they then mailed to the customer.  Once the shipments were received by the customer, the darknet market would release funds in bitcoin, which were held in escrow until the transaction was completed, into Pate’s account on the darknet market.  Customers paid Pate over 23,903 bitcoin for these darknet market sales.  The co-conspirators also laundered payments in the form of bitcoin and international wire transfers. 

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

IRS-CI Cyber Crimes Unit, DEA, and the U.S. Postal Inspection Service investigated this case.  The Justice Department’s Office of International Affairs and Costa Rican authorities provided assistance.

Download Pate Indictment

August 7, 2020 in AML | Permalink | Comments (0)

Thursday, August 6, 2020

BEA News: U.S. International Trade in Goods and Services, June 2020

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced yesterday that the goods and services deficit was $50.7 billion in June, down $4.1 billion from $54.8 billion in May, revised.

U.S. International Trade in Goods and Services Deficit
Deficit: $50.7 Billion -7.5%°
Exports: $158.3 Billion +9.4%°
Imports: $208.9 Billion +4.7%°

Next release: September 3, 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, August 5, 2020

Goods and Services Trade Deficit: Seasonally adjusted
Coronavirus (COVID-19) Impact on May 2020 International Trade in Goods and Services

Exports and imports increased in June following monthly declines since March that were, in part, due to the impact of COVID-19, as many businesses were operating at limited capacity or ceased operations completely, and the movement of travelers across borders was restricted. The full economic effects of the COVID-19 pandemic cannot be quantified in the trade statistics for June because the impacts are generally embedded in source data and cannot be separately identified. The Census Bureau and the Bureau of Economic Analysis have monitored data quality and determined estimates in this release meet publication standards. For more information on the impact of COVID-19 on the statistics, see the frequently asked questions on goods from the Census Bureau and on services from BEA.

Exports, Imports, and Balance (exhibit 1)

June exports were $158.3 billion, $13.6 billion more than May exports. June imports were $208.9 billion, $9.5 billion more than May imports.

The June decrease in the goods and services deficit reflected a decrease in the goods deficit of $4.0 billion to $72.2 billion and an increase in the services surplus of $0.1 billion to $21.5 billion.

Year-to-date, the goods and services deficit decreased $23.1 billion, or 7.8 percent, from the same period in 2019. Exports decreased $199.1 billion or 15.7 percent. Imports decreased $222.3 billion or 14.2 percent.

Three-Month Moving Averages (exhibit 2)

The average goods and services deficit increased $2.8 billion to $51.8 billion for the three months ending in June.

  • Average exports decreased $10.6 billion to $151.4 billion in June.
  • Average imports decreased $7.9 billion to $203.1 billion in June.

Year-over-year, the average goods and services deficit increased $1.0 billion from the three months ending in June 2019.

  • Average exports decreased $59.1 billion from June 2019.
  • Average imports decreased $58.1 billion from June 2019.

Exports (exhibits 3, 6, and 7)

Exports of goods increased $13.0 billion to $102.9 billion in June.

  Exports of goods on a Census basis increased $12.9 billion.

  • Automotive vehicles, parts, and engines increased $4.9 billion.
    • Automotive parts and accessories increased $1.8 billion.
    • Passenger cars increased $1.7 billion.
  • Capital goods increased $3.8 billion.
    • Civilian aircraft increased $0.6 billion.
    • Other industrial machinery increased $0.6 billion
    • Telecommunications equipment increased $0.5 billion.
    • Electric apparatus increased $0.5 billion.
  • Industrial supplies and materials increased $2.8 billion.
    • Fuel oil increased $0.8 billion.
    • Other petroleum products increased $0.5 billion.
    • Crude oil increased $0.4 billion.

  Net balance of payments adjustments increased $0.1 billion.

Exports of services increased $0.6 billion to $55.4 billion in June.

  • Transport increased $0.4 billion.
  • Other business services increased $0.1 billion.

Imports (exhibits 4, 6, and 8)

Imports of goods increased $9.0 billion to $175.0 billion in June.

  Imports of goods on a Census basis increased $8.5 billion.

  • Automotive vehicles, parts, and engines increased $9.7 billion.
    • Passenger cars increased $4.1 billion.
    • Automotive parts and accessories increased $2.7 billion.
    • Trucks, buses, and special purpose vehicles increased $2.1 billion.
  • Consumer goods increased $4.7 billion.
    • Cell phones and other household goods increased $1.1 billion.
    • Gem diamonds increased $0.7 billion.
    • Cotton apparel and household goods increased $0.5 billion.
    • Artwork and other collectibles increased $0.5 billion.
  • Capital goods increased $2.2 billion.
    • Computers increased $0.8 billion.
    • Telecommunications equipment increased $0.4 billion.
    • Electric apparatus increased $0.4 billion.
  • Industrial supplies and materials decreased $8.3 billion.
    • Nonmonetary gold decreased $5.9 billion.
    • Finished metal shapes decreased $2.9 billion.

  Net balance of payments adjustments increased $0.5 billion.

Imports of services increased $0.5 billion to $33.9 billion in June.

  • Transport increased $0.3 billion.
  • Other business services increased $0.1 billion.
  • Charges for the use of intellectual property increased $0.1 billion.

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

The real goods deficit decreased $5.2 billion to $81.0 billion in June.

  • Real exports of goods increased $13.1 billion to $120.0 billion.
  • Real imports of goods increased $7.8 billion to $201.0 billion.

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

The June figures show surpluses, in billions of dollars, with South and Central America ($1.8), United Kingdom ($1.3), Hong Kong ($1.0), OPEC ($0.5), and Brazil ($0.4). Deficits were recorded, in billions of dollars, with China ($26.7), European Union ($13.1), Mexico ($9.0), Germany ($3.8), Taiwan ($2.4), Italy ($2.1), South Korea ($1.9), Japan ($1.8), India ($1.7), France ($1.0), Saudi Arabia ($0.7), Singapore ($0.2), and Canada ($0.1).

  • The deficit with Japan decreased $1.4 billion to $1.8 billion in June. Exports increased $0.2 billion to $4.9 billion and imports decreased $1.3 billion to $6.6 billion.
  • The deficit with Singapore decreased $1.4 billion to $0.2 billion in June. Exports increased $0.3 billion to $2.1 billion and imports decreased $1.1 billion to $2.2 billion.
  • The deficit with Mexico increased $4.8 billion to $9.0 billion in June. Exports increased $4.8 billion to $15.5 billion and imports increased $9.6 billion to $24.5 billion.

August 6, 2020 in Economics | Permalink | Comments (0)