Undercover Investigations
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By Peter D. Hardy, Alicia M. Went & Shauna Pierson on December 9, 2019
Posted in Criminal Enforcement, Cybersecurity, Extraterritorial Application of US Law, Internal Revenue Service (IRS), International Tax Evasion, Tracing, Undercover Investigations, Virtual Currency
ABA Tax Fraud Panel to Discuss IRS CI and Crypto Criminals
The Internal Revenue Service – Criminal Investigation (IRS CI) has made it clear that it is focusing on the abuse of digital currencies to further tax evasion, money laundering, and other offenses. IRS-CI also has made it clear that this is an international effort, and that it is trying to partner with law enforcement agencies across the globe in order to coordinate and share investigative leads.
This is a hot topic, and we are honored that Ballard Spahr will be moderating a panel on these very same issues, at the ABA's annual Tax Fraud/Tax Controversy Conference in Las Vegas on December 12, entitled Charging Cryptocurrency Violations—Tax Crimes or Money Laundering. We are pleased to be joined by our wonderful panelists, Evan J. Davis, Betty J. Williams, and Ian M. Comiskey. This is a unique conference, and we invite you to attend if you are interested in the fascinating cross-section of tax evasion and money laundering.
This blog will discuss the recent efforts by IRS-CI to "up its game" in investigating cross-border offenses committed through cryptocurrency, such as its participation in the international Joint Chiefs of Global Tax Enforcement task force. We then will discuss a recent high-profile case which exemplifies these two goals of fighting crypto-related crime and collaborating with foreign law enforcement officials to do so: the notorious "Welcome to Video" case, which led to a global takedown of a darkweb child pornography website, its administrator, and its customers. The Welcome to Video investigation, led by IRS-CI, also illustrates a key point we will discuss at the ABA conference: that cryptocurrency is only "pseudo-anonymous," and that its protections can yield to a determined combination of modern digital forensics and old-fashioned investigative techniques.…
By Henry E. Hockeimer, Jr. & Juliana B. Carter on November 20, 2019
Posted in 18 USC 1956, Bribery, Conspiracy, Criminal Enforcement, Department of Justice (DOJ), Intent to Conceal, Undercover Investigations
A Textbook Case of Alleged Money Laundering?
On November 18, 2019, the U.S. Attorney for the Southern District of New York announced the arrest and unsealed the indictment of Bruce Bagley – a 73-year-old college professor whose scholarship focuses on U.S.-Latin American relations, with an emphasis on drug trafficking and security issues. He has been…
By Peter D. Hardy & Alicia M. Went on September 17, 2018
Posted in Beneficial Ownership, Broker Dealer, Criminal Enforcement, Department of Justice (DOJ), Foreign Account Tax Compliance Act (FATCA), Internal Revenue Service (IRS), International Tax Evasion, Offshore Account, Undercover Investigations
Superseding Indictment Alleges an International Web of Tax and Money Laundering Schemes, Facilitated by Professionals and Pierced by an Undercover Agent
The Department of Justice ("DOJ") has secured its first conviction ever under the Foreign Account Tax Compliance Act, or FATCA, through the guilty plea of Adrian Baron, a former executive of Loyal Bank Ltd., a bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines.
FATCA, passed in 2010, generally requires that foreign financial institutions identify their U.S. customers and report information on the foreign assets held by their U.S. account holders, either directly or through a foreign entity, or be subject to withholding payments. FATCA has become an important tool in the government's ability to collect information and pursue its enforcement campaign against U.S. taxpayers with undeclared offshore assets. Now, FATCA has demonstrated its utility in enforcing U.S. law against foreign bankers who allegedly may be complicit in attempting to assist U.S. taxpayers hide their assets.
Baron, a citizen of the U.K. and Saint Vincent and the Grenadines who was extradited from Hungary, had been charged in a very detailed Superseding Indictment with assisting an undercover law enforcement agent with attempting to hide the supposed proceeds of fraudulent stock schemes in foreign corporate bank accounts which the undercover agent could control but which could not be traced to him, and which he could use to pay future kickbacks to U.S. brokers involved in other supposed schemes. The Superseding Indictment also charges Loyal Bank itself; a now-insolvent broker-dealer and investment management company located in London, U.K., Beaufort Securities Ltd.; and six individuals, including Baron.
Because the primary goal of FATCA, which we describe in more detail herein, is to deter the direct or indirect use of foreign accounts to facilitate the commission of U.S. tax offenses, it also has a potentially strong and related role in deterring potential money laundering offenses, given the role of foreign shell companies in masking beneficial ownership. Indeed, Baron's co-defendant, Arvinsingh Canaye, who previously worked as the general manager of Beaufort Management Services Ltd., an entity related to Beaufort Securities but located in Ebene, Mauritius, pleaded guilty on July 26, 2018 to a related charge of conspiring to launder money. This case also highlights once again the potentially pernicious role which professionals can play in facilitating criminal schemes.
By Terence M. Grugan on August 2, 2018
Posted in 18 USC 1956, Bribery, Conspiracy, Criminal Enforcement, Department of Justice (DOJ), Intent to Conceal, Offshore Account, Proceeds, Real Estate, Undercover Investigations
Complaint Describes an Elaborate Money Laundering Cocktail of Venezuelan Oil, Shell Companies, Currency Exchange Rate Manipulation, Undercover Recordings, Offshore Accounts and Miami High-End Real Estate
On July 24, 2018, the United States Attorney's Office for the Southern District of Florida unsealed a criminal complaint (the "Complaint") charging eight individuals with conspiracy to commit money laundering under 18 U.S.C. § 1956(h) and 1956(a)(2) and interstate and foreign travel in aid of racketeering enterprises under 18 U.S.C. § 1952 for their alleged involvement in a sprawling, highly sophisticated $1.2 billion international money laundering conspiracy. Among those charged were four Venezuelan nationals with assorted connections to Venezuelan public officials and the country's state-owned oil company; a Columbian national and American citizen with ties to American financial firms; a Portuguese national and purported "professional money launderer"; a German national described by the government as a "high-level banker at a large Swiss bank"; and a Uruguayan national with ownership interest in at least one American bank known to the government to facilitate money laundering. The Complaint also identifies nine unnamed co-conspirators and implicates numerous unnamed American and international financial institutions.
The Complaint — the product of a joint investigation by the Department of Justice and Immigration and Customs Enforcement's Homeland Security Investigations — sets forth allegations of conduct designed to embezzle $1.2 billion from a Venezuelan oil company and launder that money through fraudulent transactions involving the sale of false securities and high-end real estate and through fraudulent contractual relationships in the United States and Europe. The defendants are described as "sophisticated operators with respect to the international banking system [who] are aware of banks' general due diligence and anti-money laundering practices, including know-your-customer (KYC) requirements." The Complaint sets forth an elaborate tale which encompasses a litany of current "hot" topics in money laundering and on which we have blogged, including alleged corruption in the Venezuelan oil industry; moving the proceeds of official corruption through the international financial system; the potential laundering of foreign assets through high-end real estate in the United States, and the misuse of shell companies to hide the true beneficial owners.…
By Jessica C. Watt & Peter D. Hardy on July 23, 2018
Posted in 18 USC 1956, Criminal Enforcement, Financial Crimes Enforcement Network (FinCEN), Intent to Conceal, Money Services Business, Sentencing, Specified Unlawful Activity, Undercover Investigations, Virtual Currency
Earlier this month, the District Court for the Central District of California imposed a prison sentence of one year and a day, with three years of supervised release, on defendant Theresa Lynn Tetley, who had pleaded guilty to: (i) the unlicensed operation of a digital currency exchange due to failure register with the Financial Crimes Enforcement Network ("FinCEN"), in violation of 18 U.S.C. § 1960(a) and (b)(1)(B), and (ii) a money laundering charge, in violation of 18 U.S.C. § 1956(a)(3)(B), arising out of an undercover "sting" operation run by the Drug Enforcement Agency and Internal Revenue Service-Criminal Investigation involving the attempt to conceal proceeds supposedly obtained by selling drugs. Tetley also was ordered to pay a $20,000 fine and forfeit 40 Bitcoin, $292,264 in cash, and 25 gold bars that were the alleged proceeds of her illegal activity.
The Court imposed a sentence significantly lower than the sentence of 30 months requested by the government, a recommendation which already was lower than the advisory sentencing range recommended by the Federal Sentencing Guidelines ("Guidelines") of 46 to 57 months in prison, as calculated by the U.S. Probation Office.
Tetley, a 50 year old woman living in Southern California, is a former stockbroker and real estate investor. She operated her digital currency exchange under the alias "Bitcoin Maven" for over three years, running an unregistered Bitcoin for cash exchange service. According to the government, her service "fueled a black-market financial system" that "purposely and deliberately existed outside the regulated bank industry" and which catered to an alleged major darknet vendor of illegal narcotics. According to the defense, however, the defendant "departed from a lifetime of integrity and good deeds and showed terrible judgment by failing to comply with federal registration requirements and buying bitcoins from individuals who represented themselves as engaged in criminal activity."
In this post, we will drill into this sentencing and the parties' respective positions, which provide a window into the prosecution and sentencing of alleged crimes involving both digital currency and undercover money laundering operations — and into the process for the sentencing of federal crimes in general, and how other factors which are entirely unrelated to the facts of the specific offense can be important. Further, the Tetley case is interesting in part because it represents a sort of "hybrid" case — seen from time to time in money laundering cases involving professionals — which straddles both the typically very different realms of "pure" financial crime cases and illegal narcotics cases. The government sentencing memorandum is here; the defense sentencing memorandum is here.…
AML Due Diligence Standards for U.S. Lawyers
By Peter D. Hardy on July 4, 2017
Posted in Anti-Money Laundering (AML), Attorney Client Privilege, Attorney Liability, Beneficial Ownership, Customer Due Diligence, Financial Action Task Force (FATF), International Tax Evasion, Organization for Economic Cooperation and Development (OECD), Undercover Investigations
A Guest Blog by Bruce Zagaris, Esq.
Today we are very pleased to welcome guest blogger Bruce Zagaris, who is a Partner at the Washington, D.C. law firm of Berliner, Corcoran & Rowe. He is the editor of the International Enforcement Law Reporter; the author of International White Collar Crime: Cases and Materials; and an Adjunct Professor at the Texas A & M University School of Law. Mr. Zagaris also is a member of the Task Force on the Gatekeeper and the Profession of the American Bar Association ("ABA").
As Mr. Zagaris explains immediately below, growing international trends have led the ABA Task Force to consider a new Model Rule of Professional Conduct that would impose basic "client due diligence" requirements on U.S. lawyers to determine whether their clients are engaging in money laundering or terrorist financing. This development relates directly to issues about which we previously have blogged, including European perceptions of lawyers as potential gatekeepers and of the United States as a haven for money laundering and tax evasion. The possible new Model Rule potentially would represent a significant shift in how the U.S. legal profession regards itself and its relationship to its clients. We hope that you enjoy this discussion by Mr. Zagaris of these important issues. -Peter Hardy
Increasingly, international bodies are calling for higher standards for gatekeepers, known in the parlance of the Financial Action Task Force ("FATF") as "designated non-financial businesses and professions" ("DNFBPs"). DNFBPs include lawyers, accountants, real estate agents, and trust and company service providers (other than trust companies). In particular, in the United States, lawyers play a key role in areas that give rise to potential money laundering: company formation; real estate transactions; business planning; tax planning; wealth management; trust and estate work; and formation and operation of charities, including transnational philanthropy.
In 2006 and again in 2016, the FATF, an intergovernmental body in charge of making and overseeing compliance with international money laundering standards, performed Mutual Evaluation Reports ("MERs") to assess compliance by the United States with international standards. While the FATF gave the U.S. high marks generally, both MERs found the U.S. "non-compliant" in gatekeepers and entity transparency.
As a result of this international trend, the ABA's Task Force on the Gatekeeper and the Profession has prepared and discussed a new ABA Model Rule of Professional Conduct that would impose basic "client due diligence" requirement on lawyers. We discuss this potential new model rule, and the developments which have led to its consideration, below. Clearly, due diligence for lawyers will increasingly be on the radars of banks, financial institutions, and law firms.…
"Sting" Money Laundering Scheme and Cooperating Client Ensnares Attorney
By Peter D. Hardy on June 18, 2017
Posted in 18 USC 1956, Attorney Liability, Criminal Enforcement, Proceeds, Undercover Investigations
The District Court for the Eastern District of New York has denied motions for acquittal and new trial by a Florida attorney convicted at trial of assisting in an undercover money laundering "sting" operation.
Although the sting operation was orchestrated by an undercover FBI agent, it was modeled on a similar, uncharged and actual scheme to launder the proceeds of fake stock certificates in which the attorney allegedly had participated previously, and which had been run by the defendant's former client – who introduced the attorney to the undercover FBI agent. As is typical for money laundering prosecutions of third-party professionals, the key issue was knowledge.…
Indictments Spotlight Broad Extraterritorial Reach of U.S. Money Laundering Statutes
By Peter D. Hardy on March 6, 2017
Posted in 18 USC 1956, 18 USC 1957, Criminal Enforcement, Department of Justice (DOJ), Extraterritorial Application of US Law, Undercover Investigations
The U.S. money laundering statutes have a broad global reach and may be used to prosecute cases involving alleged schemes perpetrated almost entirely outside of the United States. These types of allegations seem to be an increasingly common fact pattern as cross-border cases proliferate and U.S. prosecutions more often involve conduct occurring largely overseas. A recent indictment fits squarely within this trend.
The U.S. Department of Justice (DOJ) recently announced the unsealing of four related and complex indictments returned in the District of Columbia; according to the DOJ press release, 19 people were charged "with taking part in various international fraud and money laundering conspiracies that led to more than $13 million in losses[.]" The press release credited a broad array of law enforcement agencies, including Interpol. Again emphasizing the international aspect of the indictments, the press release stated that "[s]ixteen of the 19 defendants were arrested . . . . in New York and Los Angeles, as well as Hungary, Bulgaria, Germany, and Israel[,]" and that "[t]he arrests followed a multi-year investigative effort by federal and international law enforcement agencies to target multimillion-dollar fraud and money laundering schemes perpetrated by a transnational organized crime network."
The four indictments are lengthy and we will discuss only one of them, in order to focus on the potentially broad jurisdictional reach of the "international" money laundering provision under 18 U.S.C. § 1956(a)(2).…