International Financial Law Prof Blog

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

Wednesday, April 8, 2020

Global Forum publishes new peer review reports and reveals compliance ratings for eight jurisdictions

The Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published today eight new peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR).

These reports evaluate jurisdictions against the updated standard which requires beneficial ownership information of all relevant legal entities and arrangements, in line with the definition used by the Financial Action Task Force Recommendations.

A peer review assessment of a jurisdiction’s legal and regulatory framework and its implementation in practice results in one of four distinct overall ratings (a rating is allocated to a jurisdiction once it has undergone a full peer review):

  • Compliant: The EOIR practice is effective. This rating can be granted even if recommendations were issued, but there should be no material deficiencies identified.

  • Largely Compliant: The standard is implemented to a large extent but improvements are needed. Deficiencies are material but have limited impact on EOIR.

  • Partially Compliant: The standard is only partly implemented. At least one material deficiency which has had, or is likely to have, a significant effect on EOIR in practice has been identified.

  • Non-Compliant: Fundamental deficiencies in the implementation of the standard have been revealed.

The eight new reports relate to jurisdictions with very diverse EOIR practice, from Liberia, which received only two requests, to Switzerland that received thousands from multiple partners during the three years of practice under review. The results are equally contrasted, with some jurisdictions struggling to implement their legislation on transparency.

Three jurisdictions – Brunei Darussalam, Macau (China) and Switzerland – received an overall rating of “Largely Compliant” for this second round of peer reviews. These ratings confirmed those issued after the first round of assessment (2010-16). Specific achievements and recommendations include:

  • Brunei Darussalam has taken significant steps to align with the international standard by abolishing the International Business Company (offshore) regime as well as expanding its network of EOIR relationships extensively by becoming a party to Multilateral Convention on Mutual Administrative Assistance on Tax Matters. Further improvements are required to ensure the availability of beneficial ownership and reliable accounting information in all cases.

  • Macau (China) has made a number of improvements since the previous review in 2013, including by abolishing bearer shares. The Multilateral Convention now applies in Macau, which greatly expands its number of EOI partners. The main deficiencies identified in the 2020 peer review concern the availability of ownership and accounting information.

  • Switzerland managed to address a number deficiencies identified in its last review in 2016, including improving its exchange of information process and doubling its staff working in the Exchange of Information Unit. Switzerland should now ensure that notification and appeal procedures do not unduly prevent or delay an effective exchange of information. The preservation of confidentiality of the information received when processing requests should also be further scrutinised. A total of 3 252 individual requests, 8 group requests and 16 bulk requests were dealt with during the assessment period.

The overall rating of Barbados and the Seychelles was downgraded from “Largely Compliant” to “Partially Compliant” since their last reviews, highlighting some significant deficiencies:

  • Barbados’ legal and regulatory framework is overall in line with the standard, including concerning the availability of beneficial ownership information. The practical implementation of the relevant rules remains however a challenge.

  • The main concerns identified for the Seychelles refer to the overall effectiveness of supervision and enforcement activities to ensure the availability and access to information in practice, especially in its offshore sector. Some 88% of the requests for accounting information and 62% of the requests for beneficial ownership information could not be answered in the three years reviewed. The report contains a number of recommendation to improve the legal framework and its practical implementation.

Three jurisdictions – Liberia, Peru and Tunisia – were undergoing their first full peer reviews as only their legal framework had been reviewed so far. The resulting reports rated Liberia as “Partially Compliant” while Peru and Tunisia both obtained a "Largely Compliant" rating:

  • Liberia’s progress in complying with the international standard despite an extremely challenging economic environment was duly noted. Important deficiencies in the supervision and enforcement of the newly introduced legal requirements of maintaining ownership and accounting information in line with the international standard were nevertheless highlighted. Liberia has had limited experience in handling requests so far, having received only two requests during the review period and sought information in three cases. The procedural handling of requests was not fully in line with the international standard on confidentiality. Despite recent rectifications to the procedure, a close monitoring will be necessary.

  • Peru’s review showed important progress in establishing the obligation for all relevant entities and arrangements to report beneficial ownership information to the country’s tax administration. It expanded considerably the number of jurisdictions with which it can exchange information by becoming party to the Multilateral Convention. The practical exchange of information on request is nevertheless still hindered by some delays.

  • Tunisia enhanced the availability of the information since the first review of its legal framework in 2016, in particular by establishing a National Register of Enterprises which includes a beneficial owner’s register, and by strengthening its Anti-Money Laundering law. These improvements are recent and should thus be monitored to ensure an effective implementation. Tunisia must also ensure the effectiveness of the new practical procedure for obtaining banking information. A total of 194 requests were answered during the three years period under review. Although progresses were made after the assessment period, recurrent issues with delays in answering were noted.

» Access an overview table of the ratings for all jurisdictions.

» Access all Global Forum reports published to date.

April 8, 2020 in AML | Permalink | Comments (0)

Tuesday, March 31, 2020

District Court Orders Injunctions against Two Telecom Carriers Who Facilitated Hundreds of Millions of Fraudulent Robocalls to Consumers in the United States

First of Their Kind Injunctions Obtained by Justice Department

The U.S. District Court for the Eastern District of New York entered orders in two separate civil actions, barring eight individuals and entities from continuing to facilitate the transmission of massive volumes of fraudulent robocalls to consumers in the United States, the Department of Justice announced today. 

In one of the matters, United States v. Nicholas Palumbo, et al., the District Court entered a preliminary injunction that bars two individuals and two entities from operating as intermediate voice-over-internet-protocol (VoIP) carriers during the pendency of the civil action.  In the other matter, United States v. John Kahen, et al., the District Court entered consent decrees that permanently bar an individual and three entities from operating as intermediate VoIP carriers conveying any telephone calls into the U.S. telephone system.

“These massive robocall fraud schemes target telephones of residents across our country, many of whom are elderly or are otherwise potentially vulnerable to such schemes,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “The department is committed to stopping this unlawful conduct and pursuing those who knowingly facilitate these schemes for their own financial gain.”

“This office will take all appropriate measures to stop fraudulent robocalling schemes responsible for causing catastrophic losses to victims, including seeking to permanently shut down the U.S.-based enablers of such schemes,” said United States Attorney Richad P. Donoghue for the Eastern District of New York.  “Protecting elderly and vulnerable individuals from being conned by foreign call center scammers remains a priority of this office and the Department of Justice.”

As alleged in the complaints, the defendants in both cases operated as VoIP carriers, receiving internet-based calls from other entities, often located abroad, and transmitting those calls first to other carriers within the United States and, ultimately, to the phones of individuals.  Numerous foreign-based call centers are alleged to have used the defendants’ VoIP carrier services to pass fraudulent government- and business-imposter robocalls to victims in the United States.  The defendants also sold U.S. phone numbers to foreign entities, which were used as victim call-back numbers as part of massive robocalling fraud schemes.

As also alleged, the defendants were warned numerous times that they were carrying fraudulent robocalls — including calls impersonating government agencies, such as the Social Security Administration, the IRS, and legitimate businesses, such as Microsoft — and yet continued to carry those calls and facilitate fraud schemes targeting individuals in the United States.  Many of the robocalls were made by foreign fraudsters impersonating government investigators and conveying alarming messages, such as: the recipient’s social security number or other personal information has been compromised or otherwise connected to criminal activity; the recipient faces imminent arrest; the recipient’s assets are being frozen; the recipient’s bank and credit accounts have suspect activity; the recipient’s benefits are being stopped; the recipient faces imminent deportation; or combinations of these threats.  Each of these claims was a lie, designed to scare the call recipient into paying large sums of money.  These calls led to massive financial losses to elderly and other vulnerable victims throughout the United States.

“The court’s decision sends a clear message to gateway carriers who knowingly do business with scammers targeting Americans from overseas,” said Gail S. Ennis, Inspector General for the Social Security Administration.  “We will continue to pursue those who facilitate these scam calls by allowing them into the U.S. telephone network.  I want to thank the Department of Justice for its support throughout this investigation and its commitment to protecting Americans from this insidious form of fraud and theft.”

United States v. Nicholas Palumbo, et al.

In the first case, the District Court issued a preliminary injunction against spouses Nicholas and Natasha Palumbo of Scottsdale, Arizona, and the Arizona companies they own and operate, Ecommerce National LLC d/b/a TollFreeDeals.com and SIP Retail d/b/a sipretail.com.  The District Court held, in a written opinion, that the evidence presented by the United States demonstrated probable cause to conclude that the defendants were engaged in “widespread patterns of telecommunications fraud, intended to deprive call recipients in the Eastern District of New York and elsewhere of money and property.”

The preliminary injunction issued by the court bars those defendants from carrying any VoIP calls destined for phones in the United States and providing any U.S. telephone numbers (often used as call-back numbers in the fraudulent robocalling schemes) to any individuals or entities during the pendency of this litigation.  The court noted that though defendants had been warned more than 100 times of specific instances of fraudulent calls being transmitted through their network, they never severed their business relationship with any entity they learned was associated with fraudulent call traffic, prior to the United States’ filing of its lawsuit.  The court further noted that “the telecommunications ‘intermediary’ industry is set up perfectly to allow fraudulent operators to rotate telephone numbers endlessly and blame other parties for the fraudulent call traffic they carry,” that the United States “demonstrat[ed] probable cause to conclude that defendants’ business is permeated with fraud,” that “multiple individual victims in the United States suffered significant fraud losses,” and that “[e]very day that the defendants’ actions in this vein continue, the public is at risk of harm in the form of additional high-dollar fraud losses.”

The claims in the United States v. Nicholas Palumboet al. matter are allegations only, and there has not been any final determination of liability or wrongdoing.

United States v. John Kahen, et al.

In the second case, the District Court entered consent decrees permanently resolving the matter against five individuals and entities who were also operating intermediary VoIP carriers.  The court entered a consent decree on March 2, 2020 against Jon Kahen, a/k/a Jon Kaen of New York, and New York corporations Global Voicecom Inc. and Global Telecommunication Services Inc., permanently barring those defendants from, among other things, using the U.S. telephone system to: deliver prerecorded messages through automatic means, carry calls to the United States from foreign locations, and provide calling and toll-free services for calls originating in the United States.  In addition, the defendants are permanently barred from serving as employees, agents, or consultants to any person or entity engaged in these activities.  In a second consent decree, entered on March 24, 2020, the District Court barred KAT Telecom Inc., a New York corporation, from conveying or causing any other person or entity from conveying fraudulent telephone calls, fraudulent recordings, and unauthorized “spoofed” telephone calls.  In the event that KAT Telecom, Inc. resumes operations, it must also implement strong anti-fraud measures, including anti-fraud monitoring, mitigation, and know-your-customer measures.

March 31, 2020 in AML | Permalink | Comments (0)

Friday, March 27, 2020

Nicolás Maduro Moros and 14 Current and Former Venezuelan Officials Charged with Narco-Terrorism, Corruption, Drug Trafficking and Other Criminal Charges

Maduro and Other High Ranking Venezuelan Officials Allegedly Partnered With the FARC to Use Cocaine as a Weapon to “Flood” the United States

Former President of Venezuela Nicolás Maduro Moros, Venezuela’s vice president for the economy, Venezuela’s Minister of Defense, and Venezuela’s Chief Supreme Court Justice are among those charged in New York City; Washington, DC; and Miami, along with current and former Venezuelan government officials as well as two Fuerzas Armadas Revolucionarias de Colombia (FARC) leaders, announced U.S. Attorney General William P. Barr, U.S. Attorney Geoffrey S. Berman of the Southern District of New York, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida, Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Acting Administrator Uttam Dhillon of the U.S. Drug Enforcement Administration (DEA) and Acting Executive Associate Director Alysa D. Erichs of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI).

“The Venezuelan regime, once led by Nicolás Maduro Moros, remains plagued by criminality and corruption,” said Attorney General Barr.  “For more than 20 years, Maduro and a number of high-ranking colleagues allegedly conspired with the FARC, causing tons of cocaine to enter and devastate American communities.  Today’s announcement is focused on rooting out the extensive corruption within the Venezuelan government – a system constructed and controlled to enrich those at the highest levels of the government.  The United States will not allow these corrupt Venezuelan officials to use the U.S. banking system to move their illicit proceeds from South America nor further their criminal schemes.” 

“Today we announce criminal charges against Nicolás Maduro Moros for running, together with his top lieutenants, a narco-terrorism partnership with the FARC for the past 20 years,” said U.S. Attorney Geoffrey S. Berman.  “The scope and magnitude of the drug trafficking alleged was made possible only because Maduro and others corrupted the institutions of Venezuela and provided political and military protection for the rampant narco-terrorism crimes described in our charges.  As alleged, Maduro and the other defendants expressly intended to flood the United States with cocaine in order to undermine the health and wellbeing of our nation.  Maduro very deliberately deployed cocaine as a weapon.  While Maduro and other cartel members held lofty titles in Venezuela’s political and military leadership, the conduct described in the Indictment wasn’t statecraft or service to the Venezuelan people.  As alleged, the defendants betrayed the Venezuelan people and corrupted Venezuelan institutions to line their pockets with drug money.”

“Over the last decade, corrupt Venezuelan government officials have systematically looted Venezuela of billions of dollars,” said U.S. Attorney Ariana Fajardo Orshan.  “Far too often, these corrupt officials and their co-conspirators have used South Florida banks and real estate to conceal and perpetuate their illegal activity.  As the recent charges show, Venezuelan corruption and money laundering in South Florida extends to even the highest levels of Venezuela’s judicial system.  In the last couple of years, the US Attorney’s Office in South Florida and its federal law enforcement partners have united to bring dozens of criminal charges against high-level regime officials and co-conspirators resulting in seizures of approximately $450 million dollars.”  

“These indictments expose the devastating systemic corruption at the highest levels of Nicolas Maduro’s regime,” said DEA Acting Administrator Uttam Dhillon.  “These officials repeatedly and knowingly betrayed the people of Venezuela, conspiring, for personal gain, with drug traffickers and designated foreign terrorist organizations like the FARC.  Today’s actions send a clear message to corrupt officials everywhere that no one is above the law or beyond the reach of U.S. law enforcement.  The Department of Justice and the Drug Enforcement Administration will continue to protect the American people from ruthless drug traffickers – no matter who they are or where they live.”

“The collaborative nature of this investigation is representative of the ongoing work HSI and international law enforcement agencies perform each day, often behind the scenes and unknown to the public, to make our communities safer and free from corruption,” said HSI’s Acting Executive Associate Director Alysa D. Erichs.  “Today’s announcement highlights HSI’s global reach and commitment to aggressively identify, target and investigate individuals who violate U.S. laws, exploit financial systems, and hide behind cryptocurrency to further their illicit criminal activity.  Let this indictment be a reminder that no one is above the law - not even powerful political officials.”

A four-count superseding indictment unsealed today in the Southern District of New York (SDNY) charges Nicolás Maduro Moros, 57; Diosdado Cabello Rondón, 56, head of Venezuela’s National Constituent Assembly; Hugo Armando Carvajal Barrios aka “El Pollo,” 59, former director of military intelligence; Clíver Antonio Alcalá Cordones, 58, former General in the Venezuelan armed forces; Luciano Marín Arango aka “Ivan Marquez,” 64, a member of the FARC’s Secretariat, which is the FARC’s highest leadership body; and Seuxis Paucis Hernández Solarte aka “Jesús Santrich,” 53, a member of the FARC’s Central High Command, which is the FARC’s second-highest leadership body.  The case is pending before U.S. District Judge Alvin K. Hellerstein.

The U.S. Department of State, through its Narcotics Rewards Program, is offering rewards of up to $15 million for information leading to the arrest and/or conviction of Maduro Moros, up to $10 million for information leading to the arrest and/or conviction of Cabello Rondón, Carvajal Barrios, and Alcalá Cordones, and up to $5 million for information leading to the arrest and/or conviction of Marín Arango.

Maduro Moros, Cabello Rondón, Carvajal Barrios, Alcalá Cordones, Marín Arango, and Hernández Solarte have each been charged with: (1) participating in a narco-terrorism conspiracy, which carries a 20-year mandatory minimum sentence and a maximum of life in prison; (2) conspiring to import cocaine into the United States, which carries a 10-year mandatory minimum sentence and a maximum of life in prison; (3) using and carrying machine guns and destructive devices during and in relation to, and possessing machine guns and destructive devices in furtherance of, the narco-terrorism and cocaine-importation conspiracies, which carries a 30-year mandatory minimum sentence and a maximum of life in prison; and (4) conspiring to use and carry machine guns and destructive devices during and in relation to, and to possess machine guns and destructive devices in furtherance of, the narco-terrorism and cocaine-importation conspiracies, which carries a maximum sentence of life in prison.  The potential mandatory minimum and maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

According to the allegations contained in the superseding indictment, other court filings, and statements made during court proceedings:

Since at least 1999, Maduro Moros, Cabello Rondón, Carvajal Barrios and Alcalá Cordones, acted as leaders and managers of the Cártel de Los Soles, or “Cartel of the Suns.”  The Cartel’s name refers to the sun insignias affixed to the uniforms of high-ranking Venezuelan military officials.  Maduro Moros and the other charged Cartel members abused the Venezuelan people and corrupted the legitimate institutions of Venezuela—including parts of the military, intelligence apparatus, legislature, and the judiciary—to facilitate the importation of tons of cocaine into the United States.  The Cártel de Los Soles sought to not only enrich its members and enhance their power, but also to “flood” the United States with cocaine and inflict the drug’s harmful and addictive effects on users in the United States.

Marín Arango and Hernández Solarte are leaders of the FARC.  Beginning in approximately 1999, while the FARC was purporting to negotiate toward peace with the Colombian government, FARC leaders agreed with leaders of the Cártel de Los Soles to relocate some of the FARC’s operations to Venezuela under the protection of the Cartel.  Thereafter, the FARC and the Cártel de Los Soles dispatched processed cocaine from Venezuela to the United States via transshipment points in the Caribbean and Central America, such as Honduras.  By approximately 2004, the U.S. Department of State estimated that 250 or more tons of cocaine were transiting Venezuela per year.  The maritime shipments were shipped north from Venezuela’s coastline using go-fast vessels, fishing boats, and container ships.  Air shipments were often dispatched from clandestine airstrips, typically made of dirt or grass, concentrated in the Apure State. According to the U.S. Department of State, approximately 75 unauthorized flights suspected of drug-trafficking activities entered Honduran airspace in 2010 alone, using what is known as the “air bridge” cocaine route between Venezuela and Honduras.

In his role as a leader of the Cártel de Los Soles, Maduro Moros negotiated multi-ton shipments of FARC-produced cocaine; directed that the Cártel de Los Soles provide military-grade weapons to the FARC; coordinated foreign affairs with Honduras and other countries to facilitate large-scale drug trafficking; and solicited assistance from FARC leadership in training an unsanctioned militia group that functioned, in essence, as an armed forces unit for the Cártel de Los Soles.

DEA’s Special Operations Division Bilateral Investigations Unit, New York Strike Force, and Miami Field Division conducted the investigation.  This case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Amanda L. Houle, Matthew J. Laroche, Jason A. Richman, and Kyle A. Wirshba are in charge of the prosecution.

*                *                *

An indictment unsealed today in the District of Columbia charges Vladimir Padrino Lopez, 56, Minister of Defense of Venezuela. The indictment alleges that from March 2014 until May 2019, Padrino Lopez conspired with others to distribute cocaine on board an aircraft registered in the United States. 

Padrino Lopez, who holds the rank of General in the Venezuelan armed forces, held the authority for interdicting aircraft, many of which are registered in the United States, suspected of being used to traffic drugs from Venezuela to countries in Central America.  On numerous occasions, Padrino Lopez ordered or authorized the Venezuelan military to force suspected trafficking aircraft to land or to shoot down the aircraft.  However, Padrino Lopez allowed for other aircraft whose drug trafficking coordinators paid bribes to him to safely transit Venezuelan airspace. 

On Sept. 25, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) included Padrino Lopez on its Specially Designated Nationals List.  Pursuant to the Foreign Narcotics Kingpin Designation Act, this means that his assets are blocked and U.S. persons are generally prohibited from having financial transactions with him. 

The DEA Orlando District Office led the investigation, which was supported by the Organized Crime Drug Enforcement Task Force program and the Criminal Division’s Office of Enforcement Operations. Acting Deputy Chief Charles Miracle and Trial Attorneys Michael Christin and Kirt Marsh of the Criminal Division’s Narcotic and Dangerous Drug Section are prosecuting the case.

*                *                *

Maikel Jose Moreno Perez, 54, current Chief Justice of the Venezuelan Supreme Court, was charged via a criminal complaint in the Southern District of Florida with conspiracy to commit money laundering and money laundering in connection with the alleged corrupt receipt or intended receipt of tens of millions of dollars and bribes to illegally fix dozens of civil and criminal cases in Venezuela.  

The complaint alleges, for example, that the defendant authorized a seizure and sale of a General Motors auto plant with an estimated value of $100 million in exchange for a personal percentage of the proceeds.  Similarly, the complaint alleges that the defendant received bribes to authorize the dismissal of charges or release against Venezuelans, including one charged in a multibillion-dollar fraud scheme against the Venezuelan state-owned oil company.

According to the criminal complaint, in or around October 2014, Moreno Perez told U.S. authorities in a visa application that he earned the equivalent of about $12,000 per year from his work in Venezuela. From 2012 to 2016, the defendant’s U.S. bank records show approximately $3 million in inflows to the defendant’s accounts, primarily from large round-dollar transfers from shell corporations with foreign bank accounts linked to Co-Conspirator 1, who is a former criminal defense attorney in Venezuela that currently controls a media company in Venezuela.

As set out in the criminal complaint, the defendant’s bank records allegedly show that from 2012 to 2016, the defendant spent approximately $3 million, primarily in the geographical area of South Florida. For example, bank records allegedly show that Moreno Perez spent about $1 million for a private aircraft and private pilot, more than $600,000 in credit or debit card purchases at stores primarily in South Florida (including tens of thousands of dollars at luxury stores in Bal Harbor, such as Prada and Salvatore Ferragamo), about $50,000 in payments to a luxury watch repair store in Aventura, and approximately $40,000 in payments to a Venezuelan beauty pageant director.

HSI’s Miami Field Office conducted the investigation.  Assistant U.S. Attorney Michael N. Berger of the Southern District of Florida is in charge of the prosecution.

*                *                *

A separate superseding indictment unsealed today in the Southern District of New York charges Tareck Zaidan El Aissami Maddah, 45, Venezuela’s vice president for the economy, Joselit Ramirez Camacho, 33, Venezuela’s superintendent of cryptocurrency (Sunacrip), and Samark Lopez Bello, 45, a Venezuelan businessman, with a series of crimes relating to efforts to evade sanctions imposed by OFAC against Maduro Moros, El Aissami Maddah, and Lopez Bello.  

The indictment alleges that from February 2017 until March 2019, El Aissami Maddah and Ramirez Camacho worked with U.S. persons and U.S.-based entities to provide private flight services for the benefit of Maduro’s 2018 presidential campaign, in violation of OFAC’s sanctions targeting Maduro after he organized elections for the illegitimate National Constituent Assembly that Cabello Rondon now leads.  

The U.S. Department of State, through its Narcotics Rewards Program, is offering a reward of up to $10 million for information leading to the arrest and/or conviction of El Aissami Maddah.

HSI’s New York Field Office conducted the investigation.  This case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Sam Adelsberg and Amanda L. Houle are in charge of the prosecution.

*                *                *

Other individuals charged in separate indictments include:

  • Luis Motta Dominguez, 67, Former Minister of Energy, was charged in the Southern District of Florida for his alleged role in laundering the proceeds of violations of the Foreign Corrupt Practices Act (FCPA) in connection with his alleged receipt of bribes to award Corpoelec business to U.S.-based companies;
  • Nestor Reverol Torres, 55, former General Director of Venezuela’s La Oficina Nacional Antidrogas (ONA) and former commander of Venezuela’s National Guard and Edylberto Jose Molina Molina, 57, former Sub-Director of Venezuela’s ONA and currently Venezuela’s military attaché to Germany, were charged in the Eastern District of New York with participating in an international cocaine distribution conspiracy where they allegedly assisted narcotics traffickers in importing cocaine into the United States;
  • Vassyly Kotosky Villarroel Ramirez aka “Mauro” and “Angel,” 47, a former captain in the Venezuelan Guardia Nacional, was charged in a third superseding indictment in the Eastern District of New York with participating in an international cocaine distribution conspiracy between Jan. 1, 2004, and Dec. 1, 2009;
  • Rafael Antonio Villasana Fernandez, 48, a former officer in the Venezuelan Guardia Nacional, was charged in the Eastern District of New York with participating in an international cocaine distribution conspiracy between Jan. 1, 2004, and Dec. 1, 2009. According to court documents, Kotosky and Villasana allegedly used official government vehicles to transport more than seven metric tons of cocaine from the Colombian border to various airports and seaports in Venezuela for ultimate importation into the United States;
  • Nervis Gerardo Villalobos Cardenas, 52, former Vice Minister of Energy of Venezuela, was charged in a 20-count indictment in the Southern District of Texas with conspiracy to commit money laundering, money laundering and conspiracy to violate the Foreign Corrupt Practices Act (FCPA) for his alleged role in an international money laundering scheme involving bribes paid by the owners of U.S.-based companies to Venezuelan government officials to corruptly secure energy contracts and payment priority on outstanding invoices; and
  • Oscar Rafael Colmenarez Villalobos, 51, former Venezuelan Air Force Officer, charged in the District of Arizona with violations of the Arms Export Control Act. He allegedly conspired with others, including individuals associated with an aviation company in Arizona, to smuggle from the United States to Venezuela T-76 military aircraft engines used on OV-10 Bronco aircraft to individuals in Venezuela and allegedly made false and misleading statements on shipping and export control documents to conceal the prohibited activities and transactions from detection of the U.S. government.

Court Documents

District of Arizona

District of Columbia

Southern District of Florida

Eastern District of New York

Southern District of New York

Southern District of Texas

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

Thursday, March 19, 2020

Azerbaijani Laundromat Launders US$2.9 Billion

OCCRP reports: From 2012 to 2014, even as the Azerbaijani government arrested activists and journalists wholesale, members of the country’s ruling elite were using a secret slush fund to pay off European politicians, buy luxury goods, launder money, and otherwise benefit themselves.

Read the full investigation here

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

Friday, March 13, 2020

Whistle-blower Exposes Massive Global Boiler Room 'Milton Group' from Ukraine, Leader Calls Himself “the Wolf of Kiev”,

OCCRP reports Those worst affected were preyed upon by the call center’s “retention” desk, whose job was to conjure up new ways to extract more money, often through brutal psychological pressure. Some were harassed into taking out huge loans, threatened by forged letters from UK financial regulators demanding taxes, or contacted by fake lawyers offering to help get their money back — for yet another fee. In the most extreme cases, Milton Group’s retention specialists would convince victims to install software on their computers that allowed the scammers to control them remotely, and steal more money in the process. Some lost more than $200,000. Read the full investigative story here

March 13, 2020 in AML | Permalink | Comments (0)

Thursday, March 12, 2020

Former West Virginia University Professor Pleads Guilty to Fraud That Enabled Him to Participate in the People’s Republic of China’s “Thousand Talents Plan”

Dr. James Patrick Lewis, of Fairview, West Virginia, has admitted to a fraud charge involving West Virginia University, the Department of Justice announced.

Lewis, age 54, pleaded guilty to a one-count information charging him with “Federal Program Fraud.” From 2006 to August 2019, Lewis was a tenured professor at West Virginia University in the physics department, specializing in molecular reactions used in coal conversion technologies. In July 2017, Lewis entered into a contract of employment with the People’s Republic of China through its “Global Experts 1000 Talents Plan.” China’s Thousand Talents Plan is one of the most prominent Chinese Talent recruit plans that are designed to attract, recruit, and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity and national security. These talent programs seek to lure overseas talent and foreign experts to bring their knowledge and experience to China and reward individuals for stealing proprietary information.

“Lewis defrauded a public university into giving him leave, so that he could satisfy his competing obligations to a Chinese institution, which he hid from the school,” said Assistant Attorney General for National Security John C. Demers.  “I applaud the increased focus of the academic community to detect conflicts of interest and conflicts of commitment.  Only with more transparency will we stem the tide of covert ties to Chinese institutions and programs, ties meant by the Chinese government to result in the transfer of intellectual property from the United States."

“This case represents an attempt to serve China to the detriment of West Virginia University and the United States. Academia is a prime target for these activities and we will remain committed to prosecuting such fraud wherever it is found. I want to thank the FBI, the IRS and our prosecution team for a job well done,” said U.S Attorney Bill Powell, Northern District of West Virginia.

“The FBI knows the Chinese government intentionally targets the advanced technologies and technical expertise developed in the U.S. to give itself a competitive advantage in the world marketplace,” said FBI Pittsburgh Special Agent in Charge Robert Jones. “Participation in a talent plan like the one Dr. Lewis was part of is not illegal. But FBI investigations have revealed participants are often incentivized to transfer proprietary information or research conducted in the U.S. to China. This remains a significant threat and a high priority threat for the FBI. We are dedicated to making sure foreign governments know U.S. trade secrets cannot and will not be bought.”

According to Lewis’s contract, the Chinese Academy of Sciences agreed to employ Lewis as a professor for at least three years. In return, Lewis agreed to maintain an active research program that yielded publications in high quality, peer-reviewed journals, and to provide research training and experience for Chinese Academy of Sciences students.

As a part of the program, Lewis was promised benefits, including a living subsidy of 1 million Yuan (approximately $143,000), a research subsidy of 4 million Yuan (approximately $573,000), and a salary of 600,000 Yuan (approximately $86,000). To receive the benefits, Lewis would have to work full time in China for three consecutive years, for no less than nine months per year, and would have to begin work no later than Aug. 8, 2018.

In March 2018, Lewis submitted a request to WVU for an alternate/parental work assignment, requesting to be released from his teaching duties for the fall 2018 semester in order to serve as the primary caregiver for a child he and his wife were expecting in June 2018. In fact, however, Lewis knew this request was fraudulent. Rather than caring for his newborn child, Lewis planned to work in China during the fall 2018 semester as a part of his agreement with the “1000 Talents Plan.” Based on the false justification Lewis offered, WVU granted his request.

In the fall of 2018, Lewis spent all but three weeks of the semester in China while his newborn child remained in the United States. During this period, Lewis received his full salary from WVU pursuant to his alternate/parental work assignment. Lewis’s scheme allowed him to fraudulently obtain $20,189 from WVU.

As a part of the plea agreement, Lewis has agreed to pay restitution in the amount of $20,189 in full to WVU.  Lewis is no longer employed by WVU, having resigned in August 2019.

Lewis faces up to 10 years incarceration and a fine of up to $250,000. Under the Federal Sentencing Guidelines, the actual sentence imposed will be based upon the seriousness of the offenses and the prior criminal history, if any, of the defendant.

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

Wednesday, March 11, 2020

Department of Justice Begins First Distribution of Funds Recovered Through Asset Forfeiture to Compensate Victims of Western Union Fraud Scheme

The Department of Justice announced that the Western Union Remission Fund began its first distribution of approximately $153 million in funds forfeited to the U.S. government from the Western Union Company (Western Union) to over 109,000 victims located in the United States and abroad. These victims, many of whom were elderly victims of consumer fraud and abuse, will be recovering the full amount of their losses.

“The $153 million distribution announced today brings some measure of justice for the elderly and other victims who were financially harmed by the fraudulent schemes in this case,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “The department remains resolute in its efforts to not only prevent fraud from occurring in the first place, but also to find and return ill-gotten gains.”

“Money Transfer Businesses such as Western Union are particularly susceptible to misuse by scammers,” said U.S. Attorney David J. Freed for the Middle District of Pennsylvania.  “In nearly every case of this nature that we have encountered in the Middle District of Pennsylvania, money transfer businesses are used to facilitate the crimes.  Working together with MLARS and the skilled and dedicated investigators of the Postal Inspection Service, we have achieved outstanding results – bringing fraudsters to justice and holding businesses such as Western Union accountable.  In addition to increased fraud detection and protections, an integral part of that accountability involves Western Union making victims whole.  $153 Million is a good start.”

“The losses and the number of victims in this case are staggering.  This initial disbursement will provide relief to more than 100,000 individuals, who lost $153 million,” said Assistant Postal Inspector in Charge John Walker of the U.S. Postal Inspection Service’s Philadelphia Division.  “Some lost their life’s savings as a result of these scammers.  Postal Inspectors continue to be out front when it comes to investigating these con men and in protecting American citizens from them.  Today, we are happy to play a third role — returning money to those who were scammed.  Delivering justice, and in this case, delivering restitution.”

“Western Union turned a blind eye to the fraudulent payments made through its money transfer system,” said Andrew Smith, Director of the Federal Trade Commission’s Bureau of Consumer Protection.  “We’re glad to be returning money to those consumers who were ripped off by fraudsters exploiting the Western Union system, and we will not tolerate Western Union or other payments companies facilitating fraud.”   

In 2017, Western Union entered into a deferred prosecution agreement (DPA) with the United States.  Pursuant to the DPA, Western Union acknowledged responsibility for its criminal conduct, which included violations of the Bank Secrecy Act and aiding and abetting wire fraud, and agreed to forfeit $586 million, which has been made available to compensate victims of the international consumer fraud scheme through the remission process. Western Union simultaneously resolved a parallel civil investigation with the Federal Trade Commission. 

In this case, fraudsters specifically targeted seniors through primarily three distinct scams.  First, in grandparent scams, the fraudster would pose as the victim’s relative, usually a grandchild, in need of immediate money to avoid personal harm such as a payment for medical expenses or ambulatory transportation.  Second, in lottery or sweepstakes scams, victims received phone calls telling them that they had won large cash prizes but had to pay fees such as taxes to claim the prize.  Many of these victims were re-victimized several times, as they were told to transfer large sums of money in multiple transactions on the promise that they would receive their prizes.  Third, romance scams preyed on seniors searching for love or companionship on the internet.  These victims were lulled into believing that their online love interest needed funds for a visit to the United States or some other purpose.

Certain owners, operators or employees of Western Union agent locations were complicit in the schemes.  Western Union aided and abetted the fraud scheme by failing to suspend or terminate complicit agents and by allowing them to continue to process fraud-induced monetary transactions.  Western Union had fulfilled its obligations under the DPA and the government has filed a motion to dismiss the information, which the court granted today.  

This first round of payments is one of several expected to occur in the Western Union remission.  The Department of Justice sent petitions for remission to over 500,000 potential victims of the Western Union fraud and anticipates authorizing compensation for many more victims in the coming months. 

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

Saturday, March 7, 2020

Federal Jury Convicts Founder and Chairman of a Multinational Investment Company and a Company Consultant of Public Corruption and Bribery Charges

Former North Carolina State Political Party Chairman Previously Pleaded Guilty to Lying to the FBI in Connection with the Bribery Scheme

A federal jury sitting in Charlotte, North Carolina, has convicted the founder and chairman of a multinational investment company and a company consultant of public corruption and bribery charges, for orchestrating a bribery scheme involving independent expenditure accounts and improper campaign contributions. 

Greg E. Lindberg, 49, of Durham, North Carolina, the founder and chairman of Eli Global LLC (Eli Global) and the owner of Global Bankers Insurance Group (GBIG), and Lindberg’s consultant, John D. Gray, 69, of Chapel Hill, North Carolina, were convicted of conspiracy to commit honest services wire fraud and bribery concerning programs receiving federal funds after an approximately three-week trial.  A third co-defendant, Eli Global executive John V. Palermo, 64, of Pittsboro, North Carolina, was acquitted by the jury.  A fourth co-defendant, Robert Cannon Hayes, 74, of Concord, North Carolina, previously pleaded guilty to making false statements to the FBI.

“Greg Lindberg and John Gray undermined public confidence in our government by promising millions of dollars in campaign contributions in exchange for government decisions to benefit Lindberg’s business interests,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “The department is grateful for the assistance of the law-abiding public officials who reported the attempted bribes in this case, which allowed us to use all the tools at our disposal to investigate and root out this pernicious and greedy effort to corrupt North Carolina state government.”

“The defendants devised an elaborate plan to make a hefty campaign contribution to an elected official to secure favorable action.  This was not a lapse in judgment.  It was a deliberate bribery attempt and a clear violation of federal law,” said U.S. Attorney Andrew Murray for the Western District of North Carolina.  “Public corruption is a threat to our way of life and if left unchecked it can tear apart the very fabric of our country. My office will continue to diligently ferret out public corruption schemes to protect the public and hold bad actors like these unscrupulous defendants accountable.”

“Greg Lindberg and John Gray plowed across the line from legal political donations to felonious bribery,” said Special Agent in Charge John Strong of the FBI’s Charlotte Field Office.  “These men thought they could buy changes to North Carolina Department of Insurance personnel, policies, and procedures to benefit Lindberg's businesses.  The FBI will work tirelessly to root out any and all forms of public corruption.”

According to filed court documents, witness testimony and evidence presented at trial, in January 2018, the elected Commissioner of Insurance (Commissioner) of the North Carolina Department of Insurance (NCDOI) reported concerns to the FBI about political contributions and other requests made by Lindberg and Gray, and agreed to cooperate with the federal investigation that was initiated. 

The evidence established that from April 2017 to August 2018, Lindberg, Gray and Hayes engaged in a bribery scheme involving independent expenditure accounts and improper campaign contributions for the purpose of causing the Commissioner to take official action favorable to Lindberg’s company, GBIG.  Trial evidence further established that Lindberg and Gray gave, offered, and promised the Commissioner millions of dollars in campaign contributions and other things of value, in exchange for the removal of NCDOI’s Senior Deputy Commissioner, who was responsible for overseeing regulation and the periodic examination of GBIG. 

According to trial evidence, Lindberg, Gray and the Commissioner held numerous in-person meetings at different locations, including in Statesville, North Carolina, and had telephonic and other communications with each other, and with Hayes, to discuss Lindberg’s request for the personnel change in exchange for millions of dollars, and to devise a plan on how to funnel campaign contributions to the Commissioner anonymously.  In order to conceal the bribery scheme, at the direction of Lindberg, two corporate entities were set-up to form an independent expenditure committee with the purpose of supporting the Commissioner’s re-election campaign, and Lindberg funded the entities with $1.5 million as promised to the Commissioner.  In addition, at Lindberg and Gray’s direction, Hayes caused the transfer of $250,000 from monies Lindberg had previously contributed to a North Carolina state party of which Hayes was chairman, to the Commissioner’s re-election campaign.

According to admissions Hayes made in connection with his guilty plea, on or about Aug. 28, 2018, Hayes falsely stated to FBI agents that he had never spoken with the NCDOI Commissioner about personnel or personnel problems at NCDOI, or about Lindberg or Gray.  Hayes further admitted that, at the time he made the materially false statements, Hayes knew that it was unlawful to lie to the FBI, and knew that his statements were false because Hayes had in fact spoken with the NCDOI Commissioner about Lindberg and Gray, and about Lindberg’s request that the Commissioner move certain personnel within NCDOI.  

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

Friday, March 6, 2020

Two Chinese Nationals Charged with Laundering Over $100 Million in Cryptocurrency From Exchange Hack

Forfeiture Complaint Details Over $250 Million Stolen by North Korean Actors

Two Chinese nationals were charged with laundering over $100 million worth of cryptocurrency from a hack of a cryptocurrency exchange.  The funds were stolen by North Korean actors in 2018.

In the two-count indictment unsealed today in the District of Columbia, 田寅寅 aka Tian Yinyin, and 李家东aka Li Jiadong, were charged with money laundering conspiracy and operating an unlicensed money transmitting business.

“These defendants allegedly laundered over a hundred million dollars worth of stolen cryptocurrency to obscure transactions for the benefit of actors based in North Korea,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “Today's actions underscore that the Department will pierce the veil of anonymity provided by cryptocurrencies to hold criminals accountable, no matter where they are located.” 

“Today, we are publicly exposing a criminal network’s valuable support to North Korea’s cyber heist program and seizing the fruits of its crimes,” said Assistant Attorney General John C. Demers of the Justice Department’s National Security Division.  “This case exemplifies the commitment of the United States government to work with foreign partners and the worldwide financial services industry to disrupt this blended threat.”

“The hacking of virtual currency exchanges and related money laundering for the benefit of North Korean actors poses a grave threat to the security and integrity of the global financial system,” said U.S. Attorney Timothy J. Shea of the District of Columbia.  “These charges should serve as a reminder that law enforcement, through its partnerships and collaboration, will uncover illegal activity here and abroad, and charge those responsible for unlawful acts and seize illicit funds even when in the form of virtual currency.”

“North Korea continues to attack the growing worldwide ecosystem of virtual currency as a means to bypass the sanctions imposed on it by the United States and the United Nations Security Council.  IRS-CI is committed to combatting the means and methods used by foreign and domestic adversaries to finance operations and activities that pose a threat to U.S. national security,” said Internal Revenue Service-Criminal Investigation (IRS-CI) Chief Don Fort.  “We will continue to push our agency to the forefront of complex cyber investigations and work collaboratively with our law enforcement partners to ensure these nefarious criminals are stopped and that the integrity of the United States financial system is preserved.”

“The FBI will continue to actively work with our domestic and international law enforcement partners to identify and mitigate illicit movement of currency,” said Assistant Director Calvin Shivers of the FBI’s Criminal Investigative Division.  “Today’s indictment and sanctions send a strong message that the United States will not relent in holding accountable bad actors attempting to evade sanctions and undermine our financial system.”

“This case shows how important robust partnerships across the U.S. Government are in disrupting criminal actors,” said Acting Assistant Director Robert Wells of the FBI’s Counterintelligence Division.

“This indictment shows what can be accomplished when international law enforcement agencies work together to uncover complex cross-border crimes,” said Acting Executive Associate Director Alysa Erichs of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI).  “HSI is committed to upholding the rule of law and investigating those that would steal cryptocurrency for their illicit purposes.”

According to the pleadings, in 2018, North Korean co-conspirators hacked into a virtual currency exchange and stole nearly $250 million worth of virtual currency.  The funds were then laundered through hundreds of automated cryptocurrency transactions aimed at preventing law enforcement from tracing the funds.  The North Korean co-conspirators circumvented multiple virtual currency exchanges’ know-your-customer controls by submitting doctored photographs and falsified identification documentation.  A portion of the laundered funds was used to pay for infrastructure used in North Korean hacking campaigns against the financial industry.

The pleadings further allege that between December 2017 and April 2019, Yinyin and Jiadong laundered over $100 million worth of virtual currency, which primarily came from virtual currency exchange hacks.  The defendants operated through independent as well as linked accounts and provided virtual currency transmission services for a fee for customers.  The defendants conducted business in the United States but at no time registered with the Financial Crimes Enforcement Network (FinCEN).

The pleadings further allege that the North Korean co-conspirators are tied to the theft of approximately $48.5 million worth of virtual currency from a South Korea-based virtual currency exchange in November 2019.  As with the prior campaign, the North Korean co-conspirators are alleged to have laundered the stolen funds through hundreds of automated transactions and submitted doctored photographs and falsified identification documentation.  The pleadings identify how the North Korean co-conspirators used infrastructure in North Korea as part of this campaign.

The civil forfeiture complaint specifically names 113 virtual currency accounts and addresses that were used by the defendants and unnamed co-conspirators to launder funds.  The forfeiture complaint seeks to recover the funds, a portion of which has already been seized.   

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

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) also imposed sanctions on Yinyin, Liadong, and numerous cryptocurrency addresses related to their involvement in activities facilitating North Korean sanctions evasion based on their services and support for malicious cyber enabled activities linked to North Korean actors.

The investigation was led by the IRS-CI, the FBI, and HSI.  The Korean National Police of the Republic of Korea provided assistance and coordinated with their parallel investigation.

 
 

March 6, 2020 in AML | Permalink | Comments (0)

Thursday, March 5, 2020

Former DEA Agent and His Wife Indicted for Alleged Roles in Scheme to Divert Drug Proceeds from Undercover Money Laundering Investigations

A 19-count indictment in Tampa, Florida, was unsealed against a former Drug Enforcement Administration (DEA) special agent and his wife for their alleged roles to divert drug proceeds from undercover money-laundering investigations into bank accounts they, along with family members and criminal associates, controlled.   

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Byung J. Pak of the Northern District of Georgia, Special Agent in Charge James F. Boyersmith of the Justice Department’s Office of the Inspector General Miami Field Office, Special Agent in Charge Michael F. McPherson of the FBI’s Tampa Field Office and Special Agent in Charge Mary E. Hammond of IRS-Criminal Investigation (CI) and Acting Special Agent in Charge Kevin Sibley of U.S. Immigration and Customs Enforcement's Homeland Security Investigations (HSI) Tampa made the announcement.

The FBI arrested Jose I. Irizarry, 46, and Nathalia Gomez-Irizarry (Gomez), 36, this morning at their residence near San Juan, Puerto Rico. Irizarry and Gomez made their first appearance in U.S. District Court in San Juan today and were released on bond.  Their next court appearance is scheduled for Feb. 26.

The indictment alleges that while working as an agent for the DEA in Miami and Cartagena, Colombia, Irizarry engaged in an illegal scheme to divert drug proceeds from undercover money laundering investigations into bank accounts controlled by himself and Gomez, their family members, and their criminal associates.  To carry out the plot, Irizarry and his criminal associates are alleged to have opened a bank account with a stolen identity and then utilized the account to secretly send and receive drug proceeds from active DEA investigations.

The indictment further alleges that Irizarry and Gomez used drug proceeds to purchase jewelry, a home and multiple luxury vehicles for themselves and their family.  As alleged,  Irizarry was in personal bankruptcy proceedings for nearly the duration of this criminal conduct and failed to disclose any of his illicit income to the U.S. Bankruptcy Court.

Irizarry is charged with conspiracy to launder monetary instruments, honest services wire fraud, bank fraud, conspiracy to commit bank fraud, conspiracy to commit identity theft and aggravated identity theft.  Gomez is charged with conspiracy to launder monetary instruments.

March 5, 2020 in AML | Permalink | Comments (0)

Wednesday, March 4, 2020

Texas Businessman Sentenced to 70 Months in Prison for Role in Venezuela Bribery Scheme and Obstruction of Justice

A former procurement officer of Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA), was sentenced to 70 months in prison followed by three years of supervised release for laundering the proceeds of a corrupt scheme to secure contracts from PDVSA through bribery, underreporting income on his tax return and obstructing the government’s investigation into bribes paid by the owner of U.S.-based companies to Venezuelan government officials in exchange for securing additional business with Citgo Petroleum Corporation, a Houston-based PDVSA subsidiary. 

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ryan K. Patrick of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) in Houston made the announcement.

Alfonzo Eliezer Gravina Munoz (Gravina), 57, of Katy, Texas, was sentenced by U.S. District Judge Gray H. Miller of the Southern District of Texas.  Judge Miller also ordered Gravina to pay restitution to the IRS in the amount of $214,849.21.  Judge Miller previously entered a final order of forfeiture on May 17, 2017, after Gravina forfeited $590,446 in connection with this case.  Gravina pleaded guilty on Dec. 10, 2015, to one count of conspiracy to commit money laundering and one count of making false statements in connection with a tax return.  Based on his actions after entry of his guilty plea in 2015, Gravina was indicted on Nov. 15, 2018, on one count of conspiracy to obstruct an official proceeding, to which he pleaded guilty on Dec. 10, 2018.

According to admissions made in connection with Gravina’s December 2015 plea, Gravina accepted bribes from U.S.-based businessmen Abraham Jose Shiera Bastidas (Shiera) and Roberto Enrique Rincon Fernandez (Rincon) while employed as a purchasing manager at PDVSA.  This ensured that Shiera’s and Rincon’s companies were placed on PDVSA bidding panels, which enabled the companies to win lucrative energy contracts with PDVSA.  Gravina admitted that he accepted over $590,000 in bribes from 2007 to 2014.  In order to conceal the corrupt payments, Rincon and Shiera transferred funds to Gravina from accounts they controlled outside of the United States to accounts in the names of Gravina’s associates and relatives.  Gravina admitted that he did not report the bribe payments he received from Rincon, Shiera and others as income on his 2010 tax return, thus underreporting his income.  Rincon and Shiera have also pleaded guilty and await sentencing.

After his plea in December 2015, Gravina met periodically with HSI agents to provide information regarding corruption at PDVSA.  Gravina admitted that, during interviews with the government, he concealed facts about bribe payments to officials at Citgo Petroleum Corporation and, at the same time, he provided details about the government’s investigation to a subject of the investigation, including about the topics discussed during Gravina’s meetings with the government.  This passing of information led to the destruction of evidence and to the subject’s attempt to flee the United States in July 2018.

Gravina is the seventh defendant to be sentenced by Judge Miller as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA.  Including Gravina, Rincon and Shiera, to date, the Justice Department has announced charges against 26 individuals, 20 of whom have pleaded guilty in connection with the investigation.

March 4, 2020 in AML | Permalink | Comments (0)

Tuesday, March 3, 2020

Former Alstom Executives and Marubeni Executive Charged with Bribing Indonesian Officials

Two former executives of the Indonesian subsidiary of the French power and transportation company Alstom S.A. and a former executive of the Japanese trading company Marubeni Corporation have been charged in a superseding indictment unsealed today for their alleged participation in a scheme to pay bribes to foreign government officials in Indonesia.

Download kusunoki et al superseding indictment.pdf

Reza Moenaf, 63, the former president of Alstom’s subsidiary in Indonesia; Eko Sulianto, 63, the former director of sales of Alstom’s subsidiary in Indonesia; and Junji Kusunoki, 57, the former deputy general manager of Marubeni’s Overseas Power Project Department, were each charged with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit money laundering.  Kusunoki was charged with six counts of violating the FCPA and four counts of money laundering, and Sulianto and Moenaf were each charged with two counts of violating the FCPA and one count of money laundering. 

According to the indictment, the defendants, together with others, paid bribes to officials in Indonesia – including, among others, a high-ranking member of the Indonesian Parliament and the president of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company in Indonesia – in exchange for assistance in securing a $118 million contract, known as the Tarahan project, for Alstom’s subsidiaries in Connecticut and Indonesia and for Marubeni to provide power-related services for the citizens of Indonesia.  To conceal the bribes, the defendants allegedly retained two so-called “consultants” purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the Tarahan project.  The indictment, however, alleges that the primary purpose for hiring the consultants was to use the consultants to pay bribes to Indonesian officials.

The first consultant retained by the defendants allegedly received hundreds of thousands of dollars in his Maryland bank account to be used to bribe the member of Parliament.  The consultant then allegedly transferred the bribe money to a bank account in Indonesia for the benefit of the official.  According to court documents, emails between the defendants and their co-conspirators discussed in detail the use of the first consultant to funnel bribes to the member of Parliament and the influence that the member of Parliament could exert over the Tarahan project.

The superseding indictment alleges that in the fall of 2003, the defendants and their co-conspirators determined that the first consultant was not effectively bribing key officials at PLN.  One email between Moenaf, Sulianto and their co-conspirators described PLN officials’ “concern that if we have won the job, whether their rewards will still be satisfactory or this agent only give them pocket money and disappear.”  In another email, Moenaf asserted that the consultant “has no grip on the PLN Tender team at all” and “is more or less similar to [a] cashier which I feel we pay too much.”  As a result, the co-conspirators allegedly retained a second consultant to more effectively bribe PLN officials.  The defendants and their co-conspirators were successful in securing the Tarahan project and subsequently made payments to the consultants for the alleged purpose of bribing the Indonesian officials, the indictment alleges.

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

The charges against Moenaf, Sulianto, and Kusunoki are part of a wide-ranging investigation into alleged corrupt practices by employees of Alstom and Marubeni.  Five other individuals, as well as Alstom and Marubeni, have pleaded guilty in the case so far, and Lawrence Hoskins, a former senior vice president at Alstom, was found guilty on Nov. 6, 2019, following a jury trial, of 11 counts of conspiracy, violating the FCPA, and money laundering. 

The FBI’s Los Angeles Field Office is investigating the case with assistance from the FBI’s Meriden, Connecticut, Resident Agency.  The Criminal Division’s Office of International Affairs assisted in the investigation.  Senior Deputy Chief Daniel S. Kahn and Assistant Chief Lorinda Laryea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney David E. Novick of the District of Connecticut are prosecuting the case.

The department appreciates the significant cooperation provided by its law enforcement colleagues in Indonesia, Switzerland's Office of the Attorney General, as well as authorities in the United Kingdom, France, Germany, Italy, Singapore and Taiwan.

March 3, 2020 in AML | Permalink | Comments (0)

Monday, March 2, 2020

Cayman Islands Completes National Assessment of Terrorism Financing Risk

The Cayman Islands has achieved another milestone in improving its understanding of how the jurisdiction can be misused for possible illicit purposes.

In response to recommendations made by the Caribbean Financial Action Task Force (CFATF) in the Mutual Evaluation Report of the Cayman Islands, published in March 2019, the Cayman Islands undertook and completed a National Assessment on Terrorism Financing Risk.

When geography and demographics are taken into consideration, the risk of funds for terrorist financing purposes being collected or used in the jurisdiction was judged to be low. At the same time, given the size and prominence of the Cayman Islands’ financial sector, the likelihood of funds connected to terrorist purposes moving through the jurisdiction was found to be a mere medium risk.

Indeed, prosecution and intelligence reports from foreign agencies relating to potential movement of funds through the Cayman Islands are limited. Yet, because of the challenges involved in detecting terrorist financing it must be assumed that the jurisdiction, like many others, is potentially vulnerable to misuse for terrorist financing.

The Cayman Islands had previously assessed the risks of terrorist financing in the jurisdiction as low in 2015. Using the new FATF Terrorist Financing Risk Assessment Guidance, the terrorist financing threats and vulnerabilities to the Cayman Islands as an International Financial Centre were again assessed.   The slightly revised rating in the 2019 National Risk Assessment of Terrorism Financing, therefore, comes as a result of the new methodology and more precise data on the flows of funds.

This Risk Assessment was prepared by the Anti-Money Laundering Steering Group with input from several government agencies that have roles in combatting terrorist financing. These assessments enable the government agencies to better understand their risks and they can prioritise resources according to the level of risk. It will help the public and private sector understand the methods that can be used in the Cayman Islands, the threats and vulnerabilities and the risks that these activities can pose to the security of the Cayman Islands’ financial system. It will also help the private sector to better mitigate their terrorism financing risks.

March 2, 2020 in AML | Permalink | Comments (0)

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

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

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)