International Financial Law Prof Blog

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

Monday, September 16, 2019

Current and Former Precious Metals Traders Charged with Multi-Year Market Manipulation Racketeering Conspiracy

Two current precious metals traders and one former trader in the New York offices of a U.S. bank (Bank A) were charged in an indictment unsealed today for their alleged participation in a racketeering conspiracy and other federal crimes in connection with the manipulation of the markets for precious metals futures contracts, which spanned over eight years and involved thousands of unlawful trading sequences.

Charged in the indictment are:

  • Gregg Smith, 55, of Scarsdale, New York.  Smith was an executive director and trader on Bank A’s precious metals desk in New York.  He joined Bank A in May 2008 after it acquired another U.S. bank (Bank B).
  • Michael Nowak, 45, of Montclair, New Jersey.  Nowak was a managing director and ran Bank A’s global precious metals desk.  He joined Bank A in July 1996.
  • Christopher Jordan, 47, of Mountainside, New Jersey.  Jordan joined Bank A in March 2006 and was an executive director and trader on Bank A’s precious metals desk in New York.  Jordan left Bank A in December 2009 and worked as a precious metals trader at a Swiss bank (Bank C) in New York from March 2010 until August 2010.  From June 2011 until October 2011, Jordan traded precious metals futures contracts as an employee of a financial service company (Company D) in New York.

“The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants,” said Assistant Attorney General Brian A. Benczkowski.  “These charges should leave no doubt that the Department is committed to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets.”

“Smith, Nowak, Jordan, and their co-conspirators allegedly engaged in a complex scheme to trade precious metals in a way that negatively affected the natural balance of supply-and-demand,” said FBI Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office. “Not only did their alleged behavior affect the markets for precious metals, but also correlated markets and the clients of the bank they represented. For as long as we continue to see this type of illegal activity in the marketplace, we’ll remain dedicated to investigating and bringing to justice those who perpetrate these crimes.”  

Each of the three defendants was charged with one count of conspiracy to conduct the affairs of an enterprise involved in interstate or foreign commerce through a pattern of racketeering activity (more commonly referred to as RICO conspiracy); one count of conspiracy to commit wire fraud affecting a financial institution, bank fraud, commodities fraud, price manipulation and spoofing; one count of bank fraud and one count of wire fraud affecting a financial institution.  In addition, Smith and Nowak were each charged with one count of attempted price manipulation, one count of commodities fraud and one count of spoofing.

Smith is expected to make an initial appearance in the Southern District of New York before U.S. Magistrate Judge Judith C. McCarthy, and Nowak and Jordan are expected to make their initial appearances in the District of New Jersey before U.S. Magistrate Judge Michael A. Hammer.  The case was indicted in the Northern District of Illinois and has been assigned to U.S. District Judge Edmond E. Chang.

As alleged in the indictment, between approximately May 2008 and August 2016, the defendants and their co-conspirators were members of Bank A’s global precious metals trading desk in New York, London and Singapore with varying degrees of seniority and supervisory responsibility over others on the desk.  As it relates to the RICO conspiracy, the defendants and their co-conspirators were allegedly members of an enterprise—namely, the precious metals desk at Bank A—and conducted the affairs of the desk through a pattern of racketeering activity, specifically, wire fraud affecting a financial institution and bank fraud.

The indictment alleges that the defendants engaged in widespread spoofing, market manipulation and fraud while working on the precious metals desk at Bank A through the placement of orders they intended to cancel before execution (Deceptive Orders) in an effort to create liquidity and drive prices toward orders they wanted to execute on the opposite side of the market.  In thousands of sequences, the defendants and their co-conspirators allegedly placed Deceptive Orders for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.  By placing Deceptive Orders, the defendants and their co-conspirators allegedly intended to inject false and misleading information about the genuine supply and demand for precious metals futures contracts into the markets, and to deceive other participants in those markets into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand.  This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling precious metals futures contracts at quantities, prices and times that they otherwise likely would not have traded, the indictment alleges.

As also alleged in the indictment, the defendants and their co-conspirators defrauded Bank A’s clients who had bought or sold “barrier options” by trading precious metals futures contracts in a manner that attempted to push the price towards a price level at which Bank A would make money on the option (barrier-running), or away from a price level at which Bank A would lose money on the option (barrier-defending).  Namely, when barrier-running, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately trigger the barrier option held by Bank A.  Conversely, when barrier-defending, the defendants and their co-conspirators would allegedly place orders for precious metals futures contracts in a way that was intended to deliberately avoid triggering the barrier option held by clients of Bank A.

The indictment also identifies two former Bank A precious metals traders, John Edmonds and Christian Trunz, as being among the defendant’s co-conspirators.  Edmonds worked at Bank A from 2004 to 2017 and was a trader on Bank A’s precious metals desk, leaving as a vice president.  On Oct. 9, 2018, Edmonds pleaded guilty in the District of Connecticut to an information charging him with one count of commodities fraud and one count of conspiracy to commit wire fraud, commodities fraud, price manipulation and spoofing.  Trunz is a former precious metals trader at Bank A who worked at the bank from 2007 to August 20, 2019, leaving as an executive director.  On Aug. 20, 2019, Trunz pleaded guilty in the Eastern District of New York to an information charging him with one count of conspiracy to engage in spoofing and one count of spoofing.

This case is the result of an ongoing investigation by the FBI’s New York Field Office. The Commodity Futures Trading Commission’s Division of Enforcement provided assistance in this case.  Trial Attorneys Avi Perry and Matthew F. Sullivan of the Criminal Division’s Fraud Section are prosecuting the case.

September 16, 2019 in AML | Permalink | Comments (0)

Tuesday, August 27, 2019

Orthodontist Indicted for Bribery and Fraud Scheme with Former Arkansas State Senator

An orthodontist who owned several businesses that operated orthodontic clinics in Arkansas was indicted for perpetrating a bribery and fraud scheme involving former Arkansas State Senator Jeremy Hutchinson, announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and U.S. Attorney Duane "DAK" Kees for the Western District of Arkansas. Download Burris Indictment

Benjamin Gray Burris, 47, of Windermere, Florida, was charged today in the Western District of Arkansas with 14 counts of honest services wire fraud and one count of conspiracy to commit honest services wire fraud.  Burris’s arraignment will be scheduled at a later date.

As alleged in the indictment, beginning in or about February 2014, Burris and Hutchinson devised a scheme in which Burris hired and retained Hutchinson as an attorney and paid Hutchinson retainer payments in exchange in part for Hutchinson to take official action as an Arkansas legislator to benefit Burris and his orthodontic companies.  Between February 2014 and November 2016, Burris paid Hutchinson, through Hutchinson’s law firm, approximately $157,500 and provided Hutchinson with gifts including free orthodontic services for his family and the use of a private plane to travel to a college football game.  Hutchinson, in return, used his official position as a state senator to draft and file legislation to amend a law restricting dental practices that Burris wanted to change.  In addition, Hutchinson advised and influenced members of the Arkansas Department of Human Services to expedite the approval of Medicaid applications for physician employees of Burris’s clinics.

On June 25, 2019, Hutchinson, 45, of Little Rock, Arkansas, pleaded guilty to one count of conspiracy to commit federal program bribery in the Eastern District of Arkansas, before U.S. District Judge Kristine G. Baker, for his role in this scheme.  Hutchinson’s sentencing has not yet been scheduled.

August 27, 2019 in AML | Permalink | Comments (0)

Monday, August 26, 2019

University of Kansas Researcher Indicted for Fraud for Failing to Disclose Conflict of Interest with Chinese University

A researcher at the University of Kansas (KU) was indicted today on federal charges of hiding the fact he was working full time for a Chinese university while doing research at KU funded by the U.S. government. 

 

Feng “Franklin” Tao, 47, of Lawrence, Kansas, an associate professor at KU’s Center for Environmentally Beneficial Catalysis (CEBC), is charged with one count of wire fraud and three counts of program fraud.  He was employed since August 2014 by the CEBC, whose mission is to conduct research on sustainable technology to conserve natural resources and energy.

“Tao is alleged to have defrauded the U.S. government by unlawfully receiving federal grant money at the same time that he was employed and paid by a Chinese research university — a fact that he hid from his university and federal agencies,” said Assistant Attorney General Demers for National Security.  “Any potential conflicts of commitment by a researcher must be disclosed as required by law and university policies.  The Department will continue to pursue any unlawful failure to do so.”

The indictment alleges that in May 2018 Tao signed a five-year contract with Fuzhou University in China that designated him as a Changjiang Scholar Distinguished Professor.  The contract required him to be a full time employee of the Chinese university.  While Tao was under contract with Fuzhou University, he was conducting research at KU that was funded through two U.S. Department of Energy contracts and four National Science Foundation contracts.

Kansas Board of Regents’ policy requires staff to file an annual conflict of interest report.  In Tao’s reports to KU, he falsely claimed to have no conflicts of interest.  The indictment alleges that he fraudulently received more than $37,000 in salary paid for by the Department of Energy and the National Science Foundation.

If convicted, he faces up to 20 years in federal prison and a fine up to $250,000 on the wire fraud count, and up to 10 years and a fine up to $250,000 on each of the program fraud counts.

August 26, 2019 in AML | Permalink | Comments (0)

Friday, August 23, 2019

‘Moustache,’ ‘Little Pillow’ Among Odebrecht Code Names Revealed in New Testimony

In dramatic testimony, former executives of the disgraced multinational Odebrecht revealed to Peruvian prosecutors yesterday code names the company used to mask secret payments to high-ranking local officials.

read all about it on the ICIJ Panama Papers website here

August 23, 2019 in AML | Permalink | Comments (0)

Thursday, August 22, 2019

former head of banking giant HSBC’s private Swiss unit pleads guilty in France to helping wealthy clients hide $1.8 billion

Peter Braunwalder, who led HSBC Private Bank (Switzerland) from 2000 until his retirement in 2008, was fined $560,000 and received a one-year suspended sentence,

read all about it at ICIJ Panama Papers website here

August 22, 2019 in AML | Permalink | Comments (0)

Wednesday, August 21, 2019

Trial Date Set for US Panama Papers Case

The first people charged with crimes in the United States arising from the Panama Papers investigation will face trial in January 2020, according to new court filings.

Read all about it on ICIJ Panama Papers Leaks website here

August 21, 2019 in AML | Permalink | Comments (0)

Tuesday, August 20, 2019

Toledo man indicted for allegedly trying to launder drug profits at casino

A Toledo man was indicted on charges that he attempted to for attempting to launder more than $138,000 in drug profits at the Hollywood Casino. Todd A. Brown, 40, was indicted on 15 counts of concealment money laundering.  According to the indictment:

Brown, on 15 different occasions between March 2016 and June 217, went to the Hollywood Casino in Toledo, where he “fast fed” currency into gaming machines. “Fast feeding” is a practice of taking large sums of cash to casino, inserting the cash into a slot machine, playing the slot machine for a brief period of time, then receiving a cash-out ticket for the unused currency and redeeming the ticket. Fast feeding is often used to make cash obtained from unlawful activity appear to be casino winnings.

Brown took proceeds from drug trafficking and fast-fed the cash to gaming machines at the Hollywood Casino in Toledo. He fast-fed approximately $138,843 at the casino in an effort to launder the money, according to the indictment.

________

The good news is that the casino reported it as a suspicious activity report (SAR)  because it was clearly suspicious in the context of this man, and the casino has a legal obligation to report suspicious activities. Casinos also has currency transaction reports (CTRs) to file just like a bank if you deposit cash. See https://www.fincen.gov/frequently-asked-questions-casino-recordkeeping-reporting-and-compliance-program-requirements-0

Fast feeding is simply putting a lot of credits unto a slot machine.  Older machines still allow real coins, albeit extremely cumbersome, but one can feed, by example, one-thousands of dollars of quarters into a machine, the machine will read $1,000 in credits.  Vegas casino machines accept $100 bills so one can put a lot of credit on the machine.   The money launderer plays $100 of pulls at the lever (ok, it's just a button push nowadays).  With $900 remaining, the money launderer decides not to play anymore, so pushes to receive a refund the remaining credits. A ticket pops out.  Money launderer cashes out ticket at casino cage (the banker's window).  Sounds easy to spot - someone comes up to the window seeking $150,000 in credit refunds? File an SAR, right?

But check out China Medical Technologies, Inc. (in liquidation) & CMED Technologies Ltd vs Wu Xiaodong & Bi Xiaoqiong (https://www.borrelliwalsh.com/wp-content/uploads/2018/09/Binder3.pdf).  The husband / wife founders stole about $600 million from the IPO and credit lines (at least, it could not be accounted for on the corporate books), pushing the corporation into insolvency and leaving many USA investors and vendors out of pocket all that money.  Hard to imagine but the wife Bi Xiaoqiong fast fed $60 million over 4 years, about $15 million a year, just through Bellagio (Vegas) slots.  That's a lot of hundred dollars bills.  Vegas sports $5,000 a pull slot machines now though - each pull.  Not that she played a $5,000 pull.  But those high roller machines allow a lot of credit, so the best opportunity for fast feeding.  Still, to pull the money out requires a claim ticket and a claim ticket for a significant amount, certainly $25,000 or more, is going to lead to a casino check which is exactly what the money launderer wants.  A clean bill of health casino check to deposit into a legitimate financial institution.   But casinos do file CTRs and SARs, as I mentioned above, albeit just alerts to a FinCEN database (U.S. government database run by the Financial Crimes Enforcement Network see here:   https://www.fincen.gov/resources/financial-institutions/casinos) So if a US federal agency, or even state agency, is investigating a person, example FBI, eventually if the casinos are doing their required compliance, the trail can be tracked.  The casinos are collecting and tracking this type of information for security and for client marketing reasons anyway. 

Zhenli Ye Gon’s, Mexico's amphetamine king, famously spent $175 million in Vegas casinos, about $75 million in less than 2 years of that at the Venetian.  Venetian did not file a SAR.  Venetian was fined $47 million  https://www.justice.gov/usao-cdca/pr/operator-venetian-resort-las-vegas-agrees-return-over-47-million-after-receiving-money  

The Bi Xiaoqiong and the Zhenli Ye Gon cases woke Vegas.  Especially because The Sands had to stop all management bonuses the year it paid the fine.  

August 20, 2019 in AML | Permalink | Comments (0)

Thursday, August 15, 2019

Financial Conduct Authority (FCA) provides clarity on current cryptoassets regulation

The FCA is today publishing Final Guidance which sets out the cryptoasset activities it regulates. This is in response to the FCA’s consultation published earlier this year.

The Guidance will help firms understand whether their cryptoasset activities fall under FCA regulation. This will allow firms to have a better understanding of whether they need to be authorised and what they need to do to ensure they are compliant.

Christopher Woolard, executive director of Strategy and Competition at the FCA, commented:

'This is a small, complex and evolving market covering a broad range of activities. Today’s guidance will help clarify which cryptoasset activities fall inside our regulatory perimeter.'

The majority of respondents supported the proposals outlined in the consultation. The FCA is therefore publishing the Final Guidance as consulted on with some amendments to provide greater clarity on what is and isn’t regulated. This includes making the important distinction as to which cryptoassets fall inside the regulatory perimeter clearer.

Consumers should be mindful of the absence of certain regulatory protections when considering purchasing unregulated cryptoassets. Unregulated cryptoassets (e.g. Bitcoin, Ether, XRP etc.) are not covered by the Financial Services Compensation Scheme and consumers do not have recourse to the Financial Ombudsman Service.

Consumers should be cautious when investing in such cryptoassets and should ensure they understand and can bear the risks involved with assets that have no intrinsic value.

Notes to editors

  1. PS19/22: Guidance on Cryptoassets
  2. CP19/3: Guidance on Cryptoassets
  3. This consultation follows the Cryptoasset Taskforce report(link is external) published in October 2018 that laid out a broad overview of the benefits and risks of cryptoassets and distributed ledger technology (DLT), as well as the UK’s policy and regulatory approach. The Taskforce report committed the FCA to consult on guidance in relation to existing regulatory perimeter.
  4. Find out more information about the FCA.

August 15, 2019 in AML | Permalink | Comments (0)

Sunday, August 11, 2019

Lebanese Businessman Tied by Treasury Department to Hezbollah is Sentenced to Prison for Money Laundering Scheme Involving the Evasion of U.S. Sanctions

The operator of a network of businesses in Lebanon and Africa whom the U.S. Department of the Treasury designated as a financier of  Hezbollah, the Lebanon-based terrorist group, was sentenced to five years in prison and ordered to forfeit $50 million by U.S. District Judge Reggie B. Walton of the District of Columbia.

Kassim Tajideen, 63, had previously pleaded guilty to one count of conspiracy to launder monetary instruments in furtherance of violating the International Emergency Economic Powers Act (IEEPA).  In 2009, the U.S. Department of the Treasury designated Tajideen as a Specially Designated Global Terrorist based on his tens of millions of dollars of financial support of Hezbollah.  The designation prohibited Tajideen from being involved in, or benefiting from, transactions involving U.S. persons or companies without a license from the Department of the Treasury.

“This defendant knowingly violated sanctions and put our nation’s security at risk,” said Assistant Attorney General Brian A. Benczkowski of the Criminal Division.  “His sentencing and the $50 million forfeiture in this case are just the latest public examples of the Department of Justice’s ongoing efforts to disrupt and dismantle Hezbollah and its support networks.”

“Today’s sentencing highlights our efforts to prosecute those who violate sanctions meant to stem the flow of money to terrorists groups,” said U.S. Attorney Jessie K. Liu for the District of Columbia. “Our message to those who violate sanctions is that you will be found, and you will be prosecuted to the full extent of the law.”

“This is the latest example of DEA’s success against Hezbollah’s global criminal support network and our commitment to interagency collaboration in combatting the overall threat posed by this transnational criminal organization,” said Acting Special Agent in Charge of DEA’s Special Operations Division Michael J. Machak.

According to the statement of facts signed by Tajideen in conjunction with his plea, after his designation, Tajideen conspired with at least five other persons to conduct over $50 million in transactions with U.S. businesses that violated these prohibitions.  In addition, Tajideen and his co-conspirators knowingly engaged in transactions outside of the United States, which involved transmissions of as much as $1 billion through the United States financial system from places outside the United States.

Tajideen’s case falls under DEA’s Project Cassandra, which targets Hezbollah’s global criminal support network, which operates as a logistics, procurement and financing arm for Hezbollah.  This investigation and others are part of the Department of Justice’s Hezbollah Financing and Narcoterrorism Team (HFNT).  The HFNT was formed in January 2018 to ensure an aggressive and coordinated approach to prosecutions and investigations, including Project Cassandra cases, targeting the individuals and networks supporting Hezbollah.  Comprised of experienced international narcotics trafficking, terrorism, organized crime, and money laundering prosecutors and investigators, the HFNT works closely with partners like the DEA, the Department of the Treasury, and the FBI, among others, to advance and facilitate prosecutions of Hezbollah and its support network in appropriate cases.

This case was investigated by DEA SOD’s Counter Narcoterrorism Operations Center (CNTOC) and the DEA New Jersey Field Division, with support from the CPB’s National Targeting Center/Counter Network Division, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the Criminal Division’s Office of International Affairs, and the Counterintelligence and Export Control Section of the National Security Division.

August 11, 2019 in AML | Permalink | Comments (0)

Saturday, August 10, 2019

Former CEO of Israeli Company Found Guilty of Orchestrating $145 Million Binary Options Fraud Scheme

The former CEO of the Israel-based company Yukom Communications, a purported sales and marketing company, was found guilty yesterday for orchestrating a scheme to defraud investors in the United States and worldwide by fraudulently marketing approximately $145 million in financial instruments known as “binary options.”

Lee Elbaz, 38, a citizen of Israel, was found guilty after a three-week jury trial of one count of conspiracy to commit wire fraud and three counts of wire fraud.  Sentencing is scheduled for Dec. 9, 2019, before U.S. District Judge Theodore D. Chuang of the District of Maryland, who presided over the trial.  Elbaz was arrested on a criminal complaint in September 2017 and indicted in March 2018.

“This verdict demonstrates that the Department will hold accountable those who deceive American investors with false claims and rates of returns,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “We are committed to prosecuting financial fraud, even when perpetrated from abroad.”

“I would like to commend the FBI agents, analysts and our DOJ colleagues for their hard work to seek justice for the victims of Lee Elbaz’s fraud,” said Acting Assistant Director in Charge of the FBI's Washington Field Office, John P. Selleck.   “We would not be successful in our work if not for our partners around the world; and this investigation demonstrates that no matter where fraudsters and criminals try to hide, we will work tirelessly to locate them.”

According to the evidence presented at trial, the defendant and her co-conspirators fraudulently sold and marketed binary options to investors located in the United States and throughout the world through two websites, known as BinaryBook and BigOption.  The evidence showed that in her role as CEO of Yukom, Elbaz, along with her co-conspirators and subordinates, misled investors using BinaryBook and BigOption by falsely claiming to represent the interests of investors when, in fact, the owners of BinaryBook and BigOption profited when investors lost money; by misrepresenting the suitability of and expected return on investments through BinaryBook and BigOption; by providing investors with false names and qualifications and falsely claiming to be working from London; and by misrepresenting whether and how investors could withdraw funds from their accounts.  Representatives of BinaryBook and BigOption, working under Elbaz’s supervision, misrepresented the terms of so-called “bonuses,” “risk free trades” and “insured trades,” and deceptively used these supposed benefits in a manner that in fact harmed investors, the evidence showed.  

August 10, 2019 in AML | Permalink | Comments (0)

Friday, August 9, 2019

Justice Department Announces Resolution with LLB Verwaltung (Switzerland) AG

Assistance to U.S. Taxpayers to Commit Tax Evasion Results in $10.6 Million Penalty

LLB Verwaltung (Switzerland) AG, formerly known as “Liechtensteinische Landesbank (Schweiz) AG” (LLB-Switzerland), a Swiss-based private bank, reached a resolution with the United States Department of Justice, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division today. As part of the agreement, LLB-Switzerland will pay a penalty of $10,680,554.64 to the United States.

“This resolution is another step forward in the Department of Justice’s pursuit of tax evaders, who use foreign bank accounts to commit criminal activity, and those institutions, who enable such criminal tax activity,” said Principal Deputy Assistant Attorney General Zuckerman. “The Department is dedicated to holding both financial institutions and individual offenders accountable for tax evasion.”

According to the terms of the non-prosecution agreement, in addition to paying a penalty, LLB-Switzerland has agreed to cooperate in any related criminal or civil proceedings in return for the Department’s agreement not to prosecute the company for tax-related criminal offenses committed by LLB-Switzerland.

According to the statement of facts agreed to by the parties, LLB-Switzerland and some of its employees, including members of the bank’s management, conspired with a Swiss asset manager and U.S. clients to conceal those U.S. clients’ assets and income from the Internal Revenue Service (IRS) through various means, including using Swiss bank secrecy protections and nominee companies set up in tax haven jurisdictions. At its peak, LLB-Switzerland had approximately one hundred U.S. clients holding nearly $200 million in assets. The majority of those accounts were in the names of nominee entities.

In 1997, Liechtensteinische Landesbank AG (LLB-Vaduz), a bank headquartered in Liechtenstein, acquired LLB-Switzerland (LLB-Vaduz reached a separate agreement with the Justice Department in 2013 that excluded LLB-Switzerland from the resolution). At that time, LLB-Switzerland provided banking and asset management services to individuals and entities, including citizens and residents of the United States, principally through private bankers based in Zurich, Geneva and Lugano, Switzerland. LLB-Switzerland also acted as a custodian of assets managed by third-party external investment advisers.

In 2003, LLB-Switzerland began a relationship with a Swiss asset manager. The asset manager offered to create nominee structures, including corporations, foundations, and trusts, to conceal accounts owned by his U.S. clients at Swiss financial institutions. LLB-Switzerland delegated to the Swiss asset manager the authority to prepare account opening and “know your customer” (KYC) documents. 

The Swiss asset manager provided prospective customers with a sales letter, pitching his ability to conceal a client’s assets and income from taxing authorities through the use of multiple layers of sham offshore entities and nominee directors in countries or regions that the Swiss asset manager thought would resist requests for information and assistance from foreign law enforcement, including law enforcement in the United States. LLB-Switzerland and its management knew that the Swiss asset manager was marketing structures to clients as a means of tax evasion as the bank kept a copy of the manager’s sales letter in the bank’s files.

In 2008, after it became publicly known that UBS AG, Switzerland’s largest bank, was the target of a U.S. criminal investigation focusing on tax and other violations, the amounts that LLB-Switzerland held for U.S. clients swelled. At the end of 2007, the Bank had 72 U.S. clients with almost $80 million in assets. By the end of the next year, the number of U.S. clients increased to 107, but the assets more than doubled to over $176 million. LLB-Switzerland’s management knew that many of the U.S. clients coming to LLB‑Switzerland were bringing undeclared funds with them. 

Although LLB-Switzerland’s management monitored the United States’ investigation of UBS, LLB-Switzerland failed to take actions to cease assisting U.S. taxpayers to evade their taxes. While in August 2008, LLB-Vaduz prohibited U.S. persons from becoming clients of the Liechtenstein bank, LLB-Switzerland did not implement a similar policy. Despite press reports, indicating the Swiss asset manager was under investigation for helping clients evade U.S. taxes, LLB-Switzerland waited two years – until a grand jury had indicted the Swiss asset manager - to close the accounts he managed. 

LLB-Switzerland’s remediation efforts since 2012 have been comprehensive. It halted and terminated all U.S. cross-border business with U.S. clients. All of LLB-Switzerland’s U.S. clients and its relationship with the Swiss asset manager ended. It also dismissed its managers and employees implicated in the Department’s investigation of the bank’s U.S. cross-border business, and LLB-Vaduz has shut down the operations of LLB-Switzerland. In 2013, LLB-Vaduz closed LLB-Switzerland and returned LLB-Switzerland’s banking license to the Swiss Financial Market Supervisory Authority.

Principal Deputy Assistant Attorney General Zuckerman thanked Senior Litigation Counsel Mark F. Daly and Assistant Chief Jason Poole of the Tax Division, who served as counsel on this matter. Zuckerman also thanked the Internal Revenue Service for its assistance.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

August 9, 2019 in AML | Permalink | Comments (0)

Wednesday, August 7, 2019

Latest Artefact Trafficking Sting Seizes 18,000 Items, Arrests 59

Authorities in 29 countries joined forces and seized 18,000 items and arrested 59 people involved in the trafficking of cultural goods, Europol said on Monday.

Read the investigative news story at Organized Crime and Corruption Reporting Project (OCCRP)

August 7, 2019 in AML | Permalink | Comments (0)

Tuesday, August 6, 2019

Micronesian Government Official Sentenced to Prison for Role in Money Laundering Scheme Involving FCPA Violations

A Micronesian government official was sentenced to 18 months in prison followed by three years of supervised release yesterday for his participation in a money-laundering scheme involving bribes made to corruptly secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM), in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Special Agent in Charge Eli S. Miranda of the FBI’s Honolulu Field Office.

Master Halbert, 44, a Micronesian citizen, was sentenced in Honolulu by U.S. District Judge Susan O. Mollway of the District of Hawaii.  Halbert pleaded guilty on April 2 to a one-count information filed in the District of Hawaii charging him with conspiracy to commit money laundering. 

According to admissions made as part of his plea agreement, Halbert was a government official in the FSM Department of Transportation, Communications and Infrastructure who administered FSM’s aviation programs, including the management of its airports.  Halbert admitted that between 2006 and 2016, a Hawaii-based engineering and consulting company owned by Frank James Lyon paid bribes to FSM officials, including Halbert, to obtain and retain contracts with the FSM government valued at nearly $8 million, in violation of the FCPA.  Lyon and Halbert agreed that these bribe payments would be transported from the United States to the FSM.

Lyon, 53, of Honolulu, Hawaii, pleaded guilty on Jan. 22 to a one-count information filed in the District of Hawaii charging him with conspiracy to violate the anti-bribery provisions of the FCPA and to commit federal program fraud.  Lyon was sentenced to serve 30 months in prison on May 13. 

August 6, 2019 in AML | Permalink | Comments (0)

Saturday, August 3, 2019

Two Colombian Businessmen Charged With Money Laundering in Connection With Venezuela Bribery Scheme

Two Colombian businessmen were charged in an indictment returned today for their alleged roles in laundering the proceeds of violations of the Foreign Corrupt Practices Act (FCPA) in connection with a scheme to pay bribes to take advantage of Venezuela’s government-controlled exchange rate. Download Saab and Pulido Indictment Alex Nain Saab Moran (Saab), 47, and Alvaro Pulido Vargas (Pulido) 55, both citizens of Colombia, were each charged in an eight-count indictment returned in the Southern District of Florida with one count of conspiracy to commit money laundering and seven counts of money laundering.  The indictment also alleges and seeks forfeiture in excess of $350 million representing the amount of funds involved in the violation.

The indictment alleges that beginning in or around November 2011 and continuing until at least September 2015, Saab and Pulido conspired with others to launder the proceeds of an illegal bribery scheme from bank accounts located in Venezuela to and through bank accounts located in the United States.  According to the indictment, Saab and Pulido obtained a contract with the Venezuelan government in November 2011 to build low-income housing units.  The defendants and their co-conspirators then allegedly took advantage of Venezuela’s government-controlled exchange rate, under which U.S. dollars could be obtained at a favorable rate, by submitting false and fraudulent import documents for goods and materials that were never imported into Venezuela and bribing Venezuelan government officials to approve those documents.  The indictment alleges that the unlawful activity was a bribery scheme that violated the FCPA and involved bribery offenses against Venezuela.  It also alleges that meetings in furtherance of the bribe payments occurred in Miami and that Saab and Pulido wired money related to the scheme to bank accounts in the Southern District of Florida.  As a result of the scheme, Saab and Pulido transferred approximately $350 million out of Venezuela, through the United States, to overseas accounts they owned or controlled, the indictment alleges.

August 3, 2019 in AML | Permalink | Comments (0)

Thursday, August 1, 2019

Cryptocurrency Criminal Tax Cases of Coinbase Customers Coming Soon, announces Caplin & Drysdale

IRS Criminal Investigation Chief Don Fort recently announced that details on new criminal tax cases involving cryptocurrency will be publicized soon. This news should come as no surprise to those following cryptocurrency developments since Coinbase informed approximately 13,000 of its customers in February 2018 that it was providing the IRS with their taxpayer ID, name, birthdate, address, and historical transaction records during 2013-2015. The production of Coinbase client information to the IRS is the result of an IRS "John Doe" summons that was served on Coinbase in 2016.

read Caplin & Drysdale's analysis of the forthcoming criminal IRS prosecutions of Coinbase clients.

Caplin & Drysdale's attorneys Scott Michel and Zhana Ziering are authors for Lexis' Guide for FATCA and CRS Compliance.   

August 1, 2019 in AML | Permalink | Comments (0)

Sunday, July 28, 2019

Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions

A federal grand jury has charged four Chinese nationals and a Chinese company with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and defraud the United States; conspiracy to violate, evade and avoid restrictions imposed under the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); and conspiracy to launder monetary instruments.

The indictment returned yesterday by a federal grand jury in Newark, New Jersey charges Ma Xiaohong (Ma); her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID); and three of DHID’s top executives – general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo) – with violating IEEPA, conspiracy to violate IEEPA and to defraud the United States and conspiracy to launder monetary instruments. Download us_v._dhid_et_al._indictment.pdf

“Through the use of more than 20 front companies, the defendants are alleged to have sought to obscure illicit financial dealings on behalf of sanctioned North Korean entities that were involved in the proliferation of weapons of mass destruction,” said Assistant Attorney General John Demers.  “But through the tireless efforts of federal law enforcement, we were able to shine a light on their lawless conduct and take the first step in bringing them to justice.”

“Any Chinese company conspiring to do business with sanctioned WMD proliferators through the U.S. banking system should think twice,” said Assistant Attorney General Benczkowski. “This indictment shows the Department’s resolve to use every tool of criminal prosecution to detect illicit financial transactions and enforce U.S. sanctions.”

“Ma, her company, and her employees tried to defraud the United States by evading sanctions restrictions and doing business with proliferators of weapons of mass destruction,” said U.S. Attorney Carpenito.  “We will continue to work closely with our partners in the National Security and Criminal Divisions in order to identify and prosecute defendants like these, in order to preserve a safer and more fair environment for all.”

According to the indictment, DHID was a Chinese company whose core business was trade with North Korea.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Beginning after the designation of KKBC as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions. The indictment alleges that from December 2009 to September 2015, the defendants established front companies in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts held in the names of the front companies at banks in China that maintained correspondent accounts in the United States.  The defendants used these accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea. These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment.  As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.

Ma, Zhou, Hong and Luo face a statutory maximum sentence of 20 years in prison and a $1 million fine on the charge of violating IEEPA, a maximum of five years in prison and a $250,000 fine on conspiracy to violate IEEPA and to defraud the United States, and a maximum of 20 years in prison and a $500,000 fine on the charge of conspiracy to launder monetary instruments.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. 

July 28, 2019 in AML | Permalink | Comments (0)

Friday, July 26, 2019

Hungary Subsidiary of Microsoft Corporation Agrees to Pay $8.7 Million in Criminal Penalties to Resolve Foreign Bribery Case

Microsoft Magyarország Számítástechnikai Szolgáltató és Kereskedelmi Kft. (Microsoft Hungary), a wholly-owned subsidiary of Microsoft Corporation, has agreed to pay a criminal penalty of more than $8.7 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) arising out of a bid-rigging and bribery scheme in connection with the sale of Microsoft software licenses to Hungarian government agencies. Download Non-Prosecution Agreement & Statement of Facts

According to Microsoft Hungary’s admissions, beginning by at least 2013 and continuing until at least 2015, a senior executive and other employees of Microsoft Hungary participated in a scheme to inflate margins in the Microsoft sales channel in connection with the sale of Microsoft software licenses to Hungarian government agencies.  In furtherance of that scheme, Microsoft Hungary executives and employees falsely represented to Microsoft that steep discounts were necessary to conclude deals with resellers who bid for the opportunity to sell Microsoft licenses to government customers.  In actuality, the savings were not passed on to the government customers, but instead were used for corrupt purposes and were falsely recorded as “discounts” and stored in various tools and databases on Microsoft servers in the United States in violation of the Foreign Corrupt Practices Act. 

Microsoft Hungary entered into a nonprosecution agreement and agreed to pay a criminal penalty of $8,751,795 to resolve the matter.  The Department reached this resolution based on several factors.  Although Microsoft Hungary did not voluntarily self-disclose the misconduct, Microsoft Hungary received credit for its and Microsoft Corporation’s substantial cooperation with the Department’s investigation and for taking extensive remedial measures.  For example, Microsoft Hungary terminated four licensing partners and Microsoft Corporation has implemented an enhanced system of compliance and internal controls, company-wide, to address and mitigate corruption risks.  Accordingly, the criminal penalty reflects a 25 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range for the company’s full cooperation and remediation.

In a related matter with the Securities and Exchange Commission (SEC), Microsoft Corporation agreed to pay to the SEC disgorgement and prejudgment interest totaling approximately $16,565,151 for conduct in Hungary.

July 26, 2019 in AML | Permalink | Comments (0)

Father and Son Sentenced to Prison in Multimillion-Dollar Investment Fraud Scheme

A father and son who ran a complex investment fraud scheme by which they stole more than $10 million over the course of seven years were sentenced today to 60 months and 27 months in prison, respectively.

Donald Watkins Sr., 70, of Atlanta, Georgia, and Donald Watkins Jr., 47, of Birmingham, Alabama, were sentenced by U.S. District Judge Karon O. Bowdre of the Northern District of Alabama.  Judge Bowdre also ordered Donald Watkins Sr. to serve five years of supervised release and to pay restitution in the amount of $14,000,100.00 and ordered Donald Watkins Jr. to serve three years of supervised release and to pay restitution jointly with his father in the amount of $13,850,000.

The father and son co-defendants were convicted on March 8, 2019, following a jury trial that lasted over two weeks.  Donald Watkins Sr. was convicted of seven counts of wire fraud, two counts of bank fraud and one count of conspiracy.  Donald Watkins Jr. was convicted of one count of wire fraud and one count of conspiracy. 

According to evidence presented at trial, between approximately 2007 and 2013, Donald Watkins Sr. sold “economic participations” and promissory notes connected with Masada Resource Group, a company that he ran as manager and CEO.  Investors paid more than $10 million dollars after Donald Watkins Sr. and Donald Watkins Jr. falsely represented that the money would be used to grow Masada, which Donald Watkins Sr. described as a “pre-revenue” company that supposedly had technology that could convert garbage into ethanol.  Instead of investing the money into Masada, however, Donald Watkins Sr. and Donald Watkins Jr. diverted funds to pay personal bills and the debts of their other business ventures, the evidence showed.  Victim money was used to pay for Donald Watkins Sr.’s alimony, hundreds of thousands of dollars in back taxes, personal loan payments, a private jet and clothing purchased by Donald Watkins Jr. and his wife.  Emails introduced at trial also showed that Donald Watkins Sr. and Donald Watkins Jr. planned to obtain millions of dollars for these purposes from one victim on multiple occasions, when they knew that this victim and other victims trusted them to put their money to use in growing Masada. 

Donald Watkins Sr. also was convicted of defrauding Alamerica Bank, an entity in which Donald Watkins Sr. held a controlling interest through his ownership of Alamerica Bank Corp stock, the evidence showed.  In order to pay hundreds of thousands of dollars in litigation expenses associated with another one of Donald Watkins Sr.’s business ventures, Donald Watkins Sr. executed a plan to use a straw borrower to take out money from Alamerica Bank and use those funds to pay the defendant’s litigation expenses.  This straw borrower—Donald Watkins Sr.’s long-time mentor and a prominent figure in the Birmingham community—took over $900,000 in loans from Alamerica Bank and then immediately permitted Donald Watkins Sr. to use those funds for his personal benefit, the evidence showed. 

July 26, 2019 in AML | Permalink | Comments (0)

Thursday, July 25, 2019

Export Company Executive Pleads Guilty to Violating U.S. Sanctions against Iran

Mahin Mojtahedzadeh (Mahin), age 74, a citizen of Iran, pleaded guilty today to conspiring to unlawfully export gas turbine parts from the United States to Iran.

Mahin pleaded guilty to one count of conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations.  She admitted that she was the President and Managing Director of ETCO-FZC (ETCO), an export company with an office in Dubai in the United Arab Emirates.  ETCO is a supplier of spare and replacement turbine parts for power generation companies in the Middle East, including Iran.

Mahin admitted that from 2013 through 2017, she worked with companies in Canada and Germany to violate and evade U.S. sanctions against Iran, by having these companies first acquire more than $3 million dollars’ worth of turbine parts from two distributors in Saratoga County, New York. 

When the U.S. parts arrived in Canada and Germany, respectively, these companies and Mahin then arranged for the parts to be re-shipped to ETCO’s customers in Iran.  At all times, U.S. law prohibited the export and re-export of U.S.-origin turbine parts to Iran without a license from the U.S. Office of Foreign Assets Control (OFAC), which neither Mahin nor her co-conspirators possessed.

“By supplying Iran with millions of dollars’ worth of illegally exported turbine machinery, the defendant provided equipment that is critically important for Iran’s infrastructure,” said Assistant Attorney General Demers.  “This sort of sanctions violation allows the Iranian government to withstand the pressure of U.S. sanctions – pressure that is intended to end Iran’s malign behavior.  We will continue to hold to account those who aid Iran in evading the United States’ comprehensive embargo.”

“Mahin Mojtahedzadeh worked for years to illegally acquire gas turbine parts for power plants in Iran,” said U.S. Attorney Jaquith.  “She will now be punished for undermining the efficacy of economic sanctions that are intended to protect the national security of the United States.”

“The proliferation of sensitive U.S. technologies to Iran remains a clear threat to our national security,” said Special Agent in Charge Hendricks.  “The FBI, along with our interagency partners, will continue to identify, investigate, and eliminate proliferation efforts aimed at circumventing our export control laws and economic sanctions to illegally obtain sensitive technologies”

 “HSI's export enforcement initiatives safeguard national security and protect our interests across the world,” said HSI Special Agent in Charge Kevin Kelly.  “The defendant’s admission of willful attempts to thwart these efforts is inexcusable and her guilty plea is an example of the significant repercussions for such actions.”

“We will fully and aggressively enforce our nation’s restrictions on exports to Iran.  Controls on exports to Iran help apply maximum pressure on Iran to end its promotion of instability and terrorism worldwide,” said Special Agent in Charge Jonathan Carson, of U.S. Department of Commerce, Office of Export Enforcement.  “The Office of Export Enforcement will continue to leverage our unique authorities to pursue violators wherever they are, worldwide.  We will continue to work with our law enforcement partners to achieve this goal.”

Mahin faces up to 20 years in prison, as well as a fine of up to $1 million, when she is sentenced on Nov. 12, 2019 by United States District Judge Mae A. D’Agostino.  A defendant’s sentence is imposed by a judge based on the particular statute the defendant is charged with violating, the U.S. Sentencing Guidelines and other factors.

Two of Mahin’s co-conspirators have previously pleaded guilty.

Olaf Tepper, age 52, and a citizen of Germany, pleaded guilty to conspiring to violate IEEPA.  On Aug. 3, 2018, Judge D’Agostino sentenced him to 24 months in prison, and to pay a $5,000 fine.  Tepper was the founder and Managing Director of Energy Republic GmbH (Energy Republic), based in Cologne, Germany, which re-exported U.S.-origin turbine parts to Iran, as part of a conspiracy with Mahin.

Mojtaba Biria, age 68, and a citizen of Germany, also pleaded guilty to conspiring to violate IEEPA, and is scheduled to be sentenced on Aug. 14, 2019.  Biria was Energy Republic’s Technical Managing Director. 

These cases are the result of a joint investigation by FBI, HSI and BIS, and are being prosecuted by Assistant U.S. Attorneys Rick Bellis and Michael Barnett, with assistance from Trial Attorney Scott A. Claffee of the National Security Division’s Counterintelligence & Export Control Section.

July 25, 2019 in AML | Permalink | Comments (0)

Thursday, July 18, 2019

U.S. Extradites Former Colombian Minister of Agriculture Convicted of Embezzlement and Illegal Government Contracting

The United States today extradited Andres Felipe Arias Leiva, who served as Colombia’s Minister of Agriculture and Rural Development from 2005 to 2009, to face a prison sentence in that country based on a 2014 conviction by the Supreme Court of Colombia for two offenses committed while Arias served in public office.

Assistant Attorney General Brian A. Benczkowski of the U.S. Department of Justice’s Criminal Division and U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida made the announcement.

“Andres Arias’s extradition is a testament to the United States’ commitment to our extradition treaty obligations and the strength of our law enforcement partnership with Colombia,” said Assistant Attorney General Benczkowski.  “I thank the team from the Office of International Affairs and the U.S. Attorney’s Office for the Southern District of Florida for their tireless, years-long efforts to ensure that Arias serves his prison sentence in Colombia.”

“Assistant U.S. Attorneys for the Southern District of Florida, alongside attorneys for the Department’s Office of International Affairs, have worked hard to ensure that former Colombian government official Andres Arias would be extradited back to his home country to serve a sentence imposed by that nation’s highest court,” said U.S. Attorney Fajardo Orshan.  “We are grateful to the dedication of Assistant U.S. Attorney Robert J. Emery and Associate Director Christopher J. Smith and Trial Attorney Rebecca A. Haciski of the Criminal Division’s Office of International Affairs of the U.S. Department of Justice for their work in making this possible. Our Office is committed to upholding the rule of law and ensuring that justice is appropriately carried out for all parties.”

Arias, a citizen of Colombia who entered the United States in 2014 and was residing in Weston, Florida, was convicted on July 16, 2014, by the Criminal Cassation Division of the Supreme Court of Colombia on two offenses, Embezzlement for Third Parties, in violation of Article 397 of the Colombian Criminal Code, and Conclusion of Contract Without Fulfilling Legal Requirements, in violation of Article 410 of the same code.  Arias was present and represented by counsel at his trial in Colombia, and following his conviction, the Colombian court sentenced him to serve 209 months in prison.  As detailed in the 193-page decision issued by the Supreme Court of Colombia, Arias’s criminal conduct related to the diversion of funds within the Colombian government’s Argo Ingreso Seguro program, which he was responsible for implementing during his term as Minister of Agriculture and Rural Development, a cabinet-level position in Colombia’s executive branch, from 2005 to 2009.  

The United States acted on a request for Arias’s extradition submitted by the Republic of Colombia, which Arias vigorously contested in both the Southern District of Florida and the U.S. Court of Appeals for the Eleventh Circuit.  On Sept. 28, 2017, a U.S. magistrate judge in the Southern District of Florida ruled that Arias could be extradited to Colombia to serve the sentence based on his conviction.  Arias then filed a petition for a writ of habeas corpus, which the district court for the Southern District of Florida denied on Oct. 5, 2018.  Arias appealed that decision to the Eleventh Circuit.  Following extensive briefing and argument, the litigation culminated on July 8, 2019, when the court of appeals rejected Arias’s arguments against extradition.  Consistent with the views of the U.S. Department of State and 40 years of extradition practice between the United States and Colombia, the court of appeals affirmed that the extradition treaty between the two countries remains in full force and effect.

Following a thorough review of Arias’s case, the Department of State issued a warrant ordering Arias’s surrender to Colombian authorities.  Today, the U.S. Marshals Service executed that warrant, transported Arias to Colombia, and delivered him to the custody of Colombian authorities.  Arias’s extradition is now complete.

July 18, 2019 in AML | Permalink | Comments (0)