International Financial Law Prof Blog

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

Saturday, March 6, 2021

Cracking down on the Professionals who enable Tax and White Collar Crimes

Countries should increase efforts to better deter, detect and disrupt the activities of professionals who enable tax evasion and other financial crimes, according to a new OECD report.

Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes explores the different strategies and actions that countries can take against those professional service providers who play a crucial part in the planning and pursuit of criminal activity, referred to in the report as “professional enablers.” White collar crimes like tax evasion, bribery and corruption are often hidden through complex legal structures and financial transactions facilitated by lawyers, notaries, accountants, financial institutions and other professional enablers.  

The report notes that the majority of professional service providers are law-abiding, and play an important role in assisting businesses and individuals understand and comply with the law. The aim of the new OECD report is to assist countries in dealing with the small subset that use their specialised skills and knowledge to enable clients to defraud the government and evade their tax obligations.  

Professional enablers often play a critical role in the concealment of the commission of tax and other financial crimes perpetrated by their clients. Those who facilitate the concealment of such crimes undermine the rule of law and public confidence in the legal and financial system, as well as the level playing field between compliant and non-compliant taxpayers. Highly publicised recent tax scandals have highlighted the cross-border nature of these practices, further undermining public trust in the integrity of the tax system.

“Professional enablers often hold the key to the successful commission of white collar crimes like tax evasion, bribery and corruption, which depend on ensuring anonymity and hiding the financial trail,” said Grace-Perez Navarro, Deputy Director of the OECD’s Centre of Tax Policy and Administration. “Professional enablers help criminals conceal their identities and activities through shell companies, complex legal structures and financial transactions, relying on their specialised knowledge and veneer of legitimacy. Our ongoing work is intended to help countries develop and strengthen national strategies and international co-operation to crack down on the so-called professionals, whose actions are undermining government revenue, public confidence and economic growth.”

The report calls on countries to establish or strengthen national strategies to deal with professional enablers more effectively. Such strategies should:

  • ensure that tax crime investigators are equipped to identify the types of professional enablers operating in their jurisdiction, and to understand the risks posed by how they devise, market, implement and conceal tax crime and financial crimes;
  • ensure the law provides investigators and prosecutors with sufficient authority to identify, prosecute and sanction professional enablers, both to deter and penalise;  
  • implement multi-disciplinary prevention and disruption strategies, notably through engagement with supervisory, industry and professional bodies, to prevent abusive behaviour, incentivise early disclosure and whistle-blowing and take a strong approach to enforcement;
  • ensure relevant authorities proactively maximise the availability of information, intelligence and investigatory powers held by other domestic and international agencies to tackle sophisticated professional enablers operating across borders;
  • appoint a lead person and agency in the jurisdiction with responsibility for overseeing the implementation of the professional enablers strategy, undertake a review of its effectiveness over time and devise further changes as necessary.

March 6, 2021 in AML | Permalink | Comments (0)

Friday, March 5, 2021

Cryptocurrency Fraudster Pleads Guilty to Securities Fraud and Money Laundering Charges in Multi-Million Dollar Investment Scheme

A citizen of Sweden pleaded guilty to securities fraud, wire fraud, and money laundering charges that defrauded more than 3,500 victims of more than $16 million.

Roger Nils-Jonas Karlsson, 47, and his company, Eastern Metal Securities (EMS), was charged in a criminal complaint filed March 4, 2019, with crimes involving a scheme to defraud victims of more than $16 million. Karlsson, also known by several aliases including Steve Heyden, Euclid Deodoris, Joshua Millard, Lars Georgsson, Paramon Larasoft, and Kenth Westerberg, was arrested on June 17, 2019, in Thailand and was extradited to the United States to face the charges. A federal grand jury indicted Karlsson and EMS on July 25, 2019. Karlsson pleaded guilty to all the charges pending against him. EMS has ceased to exist.

The indictment and a factual basis filed by the government describe a long-running scheme by which Karlsson and EMS used a website to commit wire fraud against thousands of victims.  Specifically, the indictment explains that from Nov. 27, 2012, through June 19, 2019, Karlsson and EMS used www.easternmetalsecurities.com to make fraudulent representations and convince victims to send funds using a virtual currency exchange. During the same period, Karlsson and EMS used deceptive “devices and contrivances” to sell securities and then tried to conceal the proceeds of the wire fraud and securities fraud. 

During the proceedings, Karlsson admitted that he used the website to invite potential investors to purchase shares of the plan for less than $100 per share, promising an eventual payout of 1.15 kilograms of gold per share, an amount of gold which as of Jan. 2, 2019,  was worth more than $45,000. Karlsson advised investors that, in the unlikely event that the gold payout did not happen, he guaranteed to them 97% of the amount they invested. Karlsson admitted he had no way to pay off the investors. Instead, the funds provided by victims were transferred to Karlsson’s personal bank accounts and he then used proceeds to purchase expensive homes and a resort in Thailand.

As the government has alleged, Karlsson also used a second website, www.hci25.com, to make multiple false communications to potential investors. Karlsson brought the investors in HCI25 together with the investors in the “Pre Funded Reversed Pension Plan” (PFRPP) and posted multiple communications to delay the moment investors would realize there would be no payout.  For example, on one occasion, Karlsson explained that a payout had not occurred because releasing so much money all at once could cause a negative effect on financial systems throughout the world.  Karlsson also falsely represented that EMS was working with the U.S. Securities and Exchange Commission to prepare the way for a payout.

Karlsson directed his victims to make investments using virtual currencies, such as Bitcoin.  Karlsson admitted he defrauded no less than 3,575 victims of more than $16 million. 

Karlsson faces a maximum sentence of 20 years in prison and a maximum $250,000 fine for the wire fraud and securities fraud charges, and 20 years in prison and a $500,000 maximum fine for the money laundering charge. In addition, the court also may order an additional term of supervised release, fines or other assessments, and restitution, if appropriate. However, any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence.

Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division; Acting U.S. Attorney Stephanie Hinds of the Northern District of California; and Special Agent in Charge Kelly R. Jackson of the IRS Criminal Investigation (IRS-CI) Washington, D.C. Field Office made the announcement.  

Trial Attorney Catherine Alden Pelker of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney William Frentzen are prosecuting this case.  Assistant U.S. Attorney Karen Beausey of the Asset Forfeiture Unit of the U.S. Attorney’s Office is prosecuting the forfeiture proceedings. 

March 5, 2021 in AML | Permalink | Comments (0)

Tuesday, March 2, 2021

Two Men Charged in Ecuadorian Bribery and Money Laundering Scheme

Criminal complaints have been unsealed charging two Ecuadorian citizens for their alleged roles in a bribery and money laundering scheme involving Ecuador’s public police pension fund (ISSPOL).

John Luzuriaga Aguinaga, 52, and Jorge Cherrez Miño, 46, were each charged with one count of conspiracy to commit money laundering in complaints filed in the Southern District of Florida on Feb. 10 and Feb. 19, respectively. Luzuriaga was arrested Feb. 26 and had his initial appearance Monday. An arrest warrant has been issued for Cherrez who is believed to be in Mexico.

As alleged in the complaints, between approximately 2014 and 2020, Cherrez, an investment advisor, paid more than $2.6 million in bribes to ISSPOL officials, including at least approximately $1,397,066 to Luzuriaga, ISSPOL’s Risk Director and a member of ISSPOL’s Investment Committee, in order to obtain and retain investment business from ISSPOL. Cherrez allegedly obtained approximately $65 million in profits from one aspect of the scheme. 

According to the complaint, Cherrez received payments from the ISSPOL investment business in an account in the United States, used Florida-based companies and bank accounts to pay the bribes, and took acts in furtherance of the bribery scheme while in the Southern District of Florida.  Further, to conceal and promote the bribery scheme, Cherrez and Luzuriaga allegedly laundered the corrupt proceeds through Florida-based companies and bank accounts, including numerous U.S. investment fund companies incorporated in Florida with Cherrez as an officer or director.

Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division, Special Agent in Charge Kelly Jackson of the IRS-Criminal Investigation’s (IRS-CI) Washington, D.C. office, and Special Agent in Charge Anthony Salisbury of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) Miami office made the announcement.

This case is being investigated by HSI and IRS-CI, jointly under the auspices of the Global Illicit Financial Team. Trial Attorneys Katherine Raut and Alexander Kramer of the Criminal Division’s Fraud Section are prosecuting the case.  Southern District of Florida Assistant United States Attorney Annika Miranda is handling asset forfeiture.

The Justice Department’s Office of International Affairs has provided significant assistance in this case.

The Fraud Section is responsible for investigating and prosecuting all Foreign Corrupt Practices Act (FCPA) matters.  Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

To learn more about the government’s FCPA enforcement efforts, go to www.justice.gov/criminal/fraud/fcpa.

March 2, 2021 in AML | Permalink | Comments (0)

Monday, March 1, 2021

Eight Individuals Indicted for $350 million of Transnational Drug Trafficking and Money Laundering

A federal grand jury in the Eastern District of Texas has returned an indictment charging eight individuals with various federal violations related to a complex international drug trafficking conspiracy, announced Acting U.S. Attorney Nicholas J. Ganjei today.

Debbie Mercer, 58, and Kayleigh Moffett, 33, both of Oklahoma City; Federico Machado, 53, of Florida; Carlos Villaurrutia, 40, of McAllen, Texas; and four others were named in an indictment charging them with conspiracy to manufacture and distribute cocaine, conspiracy to commit money laundering, conspiracy to commit wire fraud, conspiracy to commit export violations, and conspiracy to commit federal registration violations involving aircraft.  The indictment details approximately $350 million in alleged criminal activity since 2016.  The seven-count superseding indictment was returned by a federal grand jury earlier this week and unsealed today.  The defendants have already been arrested and will be arraigned in federal court next week.

“The threat posed by transnational crime cannot be overstated,” said Acting U.S. Attorney Nicholas J. Ganjei.  “The use of United States-registered aircraft by these criminal organizations and their networks of associates poses a clear and present danger to the security of our nation.  The American public can expect EDTX to be relentless in its fight against the sometimes invisible, but always dangerous, threat of transnational organized crime.”

“The indictments resulting from this highly complex investigation showcases HSI’s unique and far-reaching authorities, serving as an example of what the global law enforcement community can accomplish when we work together,” said Ryan L. Spradlin, Special Agent in Charge, HSI Dallas.  “We were able to deliver a significant blow to the transnational criminal organizations around the world by exposing a money laundering and drug trafficking scheme perpetuated by sophisticated drug cartels.”

“As this case demonstrates, we will aggressively investigate the illegal exportation of aircraft contrary to U.S. national security interests,” said Trey McClish, Special Agent in Charge of the U.S. Department of Commerce, Bureau of Industry and Security – Office of Export Enforcement’s Dallas Field Office.  “Alongside our Federal and State partners, OEE will leverage its unique criminal and administrative enforcement powers to detect and disrupt serious criminal schemes that violate U.S. export control law.”

“The indictment in this case demonstrate that individuals who choose to circumvent Federal regulations pertaining to aircraft registration and ownership will be pursued to the fullest extent of the law,” said Todd Damiani, Special Agent-In-Charge, Southern Region, U.S. Department of Transportation Office of Inspector General (DOT-OIG). “The collaborative nature of this investigation is representative of the ongoing investigative work DOT-OIG performs to ensure aviation safety and maintain national security interests in order to prevent the nefarious acts these defendants are being charged with from occurring.”

According to unsealed court documents, the defendants allegedly purchased and illegally registered aircraft under foreign corporations and other individuals for export to other countries.  The indictment specifically alleges that Mercer and Moffett, through their company Aircraft Guarantee Corporation (AGC), registered thousands of aircraft in Onalaska, Texas, an east Texas town without an airport.

According to the indictment, several of the illegally registered and exported aircraft were used by transnational criminal organizations in Colombia, Venezuela, Ecuador, Belize, Honduras, Guatemala, and Mexico to smuggle large quantities of cocaine destined for the United States.  The indictment further alleges that illicit proceeds from the subsequent drug sales were then transported as bulk cash from the United States to Mexico and used to buy more aircraft and cocaine. According to the indictment, aircraft purchases were typically completed by wiring funds from casa de cambios and/or banks in Mexico to shell corporations operating in the United States as aircraft sellers/brokers. 

The indictment describes that foreign governments seized United States-registered aircraft containing multi-ton shipments of cocaine.  According to the indictment, the aircraft were held in trust by AGC for the benefit of foreign corporations or individuals. The indictment identifies Federico Machado, through his company South Aviation, and Carlos Villaurrutia, who used his companies TEXTON, TWA International, and Ford Electric, as aircraft sellers/brokers operating in the United States.

The indictment separately charges Mercer, Moffett, and Machado with engaging in a fraud scheme related to the acquisition of aircraft. According to the indictment, Machado recruited investors to invest in aircraft purchase deposits for sales transactions that never took place. Investors allegedly placed their funds in an escrow account held by Wright Brothers Title Company, which was owned and managed by Mercer and Moffett.  Machado then allegedly used these funds for purposes other than the purchase of aircraft. 

If convicted, the defendants face a minimum of 10 years and up to life in federal prison for the drug conspiracy charges and up to 20 years for the money laundering, export and wire fraud violations. 

This is an Organized Crime Drug Enforcement Task Force (OCDETF) case and is being investigated by Homeland Security Investigations (Dallas, Brownsville and Laredo offices); Department of Commerce, Bureau of Industry and Security (Dallas and Houston offices);  Department of Transportation Office of Inspector General (DOT-OIG); Polk County Constable Precinct 1; Southeast Texas Export Investigations Group; Internal Revenue Service; and Federal Aviation Administration (FAA).  This case is being prosecuted by Assistant U.S. Attorneys Ernest Gonzalez, Colleen Bloss and Robert Wells.  OCDETF is the largest anti-crime task force in the country and its mission is to disrupt and dismantle the most significant drug trafficking and transnational criminal organizations that threaten the United States. The prosecutor-led, intelligence-driven, multi-agency task forces leverage the authorities and expertise of federal, state, and local law enforcement.

March 1, 2021 in AML | Permalink | Comments (0)