4-year sentence caps off 18-year-old New Orleans money-laundering case

By: Ramon Antonio Vargas

A dual citizen of the United States and Nicaragua who evaded authorities for nearly two decades received a four-year prison sentence Wednesday after previously pleading guilty in New Orleans to his role in a plot to launder drug money, capping off a case that also involved a disgraced Italian coffee importer and the brother of a famous local mob boss.

U.S. District Judge Sarah Vance additionally ordered Erwin Mierisch, 49, to spend three years under federal supervision.

The case against Mierisch, himself a coffee businessman, dates back to 1999, when a grand jury indicted him in a money-laundering and drug-trafficking scheme. The federal probe led to the conviction of Roberto Gambini, a New Orleans businessman who made a name for himself as the city became the nation’s busiest coffee-importing port.

Charges were also filed against Mierisch’s uncle, Jose Esteban McEwan, who died years ago without ever going to court. A fourth suspect in the case, Joseph Marcello Jr., was the brother of notorious New Orleans mob boss Carlos Marcello, but he died before charges in the case were finalized.

Led by Assistant U.S. Attorney Michael McMahon, the case against Mierisch languished for years as he remained in Nicaragua, which refused to extradite him to the United States. It was revived after Mierisch was captured in Mexico City late last year while in transit between Nicaragua and Tokyo.

He was eventually transferred to New Orleans, where he pleaded guilty, sparing federal prosecutors the challenge of going to trial on an 18-year-old case depending on aged evidence and witnesses who have scattered.

An FBI informant turned authorities onto Mierisch, Gambini and McEwan by introducing an undercover customs agent to Gambini after May 1998, according to a formal admission signed by Mierisch as part of his guilty plea.

The informant told Gambini that the undercover agent had large amounts of drug money needing to be “cleaned up,” and Gambini said he could be of assistance as he had done that kind of thing in the past.

Gambini falsified invoices documenting the wholesale purchase and transfer of coffee, and the list price matched the amount of money that was laundered.

In return for the fake documents, Gambini accepted cash from the undercover customs agent, the “factual basis” filed in court said. Federal officials paid Gambini $45,000 the first time, then returned several more times with similar requests to launder money, according to Mierisch’s factual basis.

Twice, Gambini wired what he thought was drug money to the bank account of a Nicaraguan business using his and Mierisch’s surnames, authorities said.

Meanwhile, Mierisch spoke numerous times with an undercover FBI agent about how he, Gambini and McEwan could supply cocaine. At one point, the agent received 99 grams of cocaine as a sample of the available product, the factual basis said.

Mierisch also acknowledged he paid $20,000 to the agent to arrange an attack on the spouse of an unidentified person who had filed a lawsuit against one of Gambini’s associates.

In the end, Gambini pleaded guilty in 1999 to laundering $900,000 in what he thought was drug money. He was deported to Italy after receiving a prison sentence of 5½ years.

Gambini also admitted he paid undercover agents to incinerate a Miami warehouse full of coffee beans to collect insurance money, and authorities seized an arsenal of more than two dozen guns from his home.

Many were stunned by the fall of Gambini, who arrived in New Orleans in 1990 and would take over more than 200 old grain silos at the Nashville Street wharf, refurbishing them to process and store coffee, according to an account at the time in The Times-Picayune.

Mierisch’s uncle, McEwan, remained on his coffee plantation in Nicaragua and sought to defend himself from the charges remotely.

But McMahon thwarted McEwan’s efforts by arguing that he shouldn’t be able to challenge the indictment in a country where U.S. officials wouldn’t be able to enforce any judgment he might receive against him.

In other cases handled by Acting U.S. Attorney Duane Evans’ office:

• U.S. District Judge Kurt Engelhardt ordered Lionel “Lot” Allen, 23, to spend the rest of his life in prison — and 35 more years after that — for convictions of murder, firearms conspiracy and racketeering following a trial centering around the violent Young Melph Mafia gang, Evans’ office said Wednesday.

The trial resulting in the convictions of Allen and several other defendants was largely shadowed by the 2012 murder of Briana Allen at a birthday party in Central City. Lionel Allen was the target of the gunfire that killed Briana as well as a passing motorist named Shawanna Pierce.

Other defendants had pleaded guilty without going to trial.

Allen’s convictions involved participating in the April 22, 2012, shooting death of Vennie Smith as well as the deadly shooting of Deshawn Hartford later that year. He also found to have been an aider and abettor in the shooting death of Travis Thomas on Interstate 10 on May 6, 2013, Evans’ office said.

• Vance sentenced Angie Cambre of LaPlace to 2 years, 9 months in prison after she previously pleaded guilty to embezzling more than $940,000 from a New Orleans commercial printing company that employed her as a bookkeeper and accountant between November 2011 and June 2016, Evans’ office said Wednesday.

Cambre was also told to pay restitution in the amount stolen as well as spend three years under federal supervision following her release.

• Jarvis Wheeler, 29, of New Orleans, pleaded guilty Wednesday to plotting to alter U.S. Postal money orders, Evans’ office said.

Evans’ office said that Wheeler acknowledged he worked with unidentified co-conspirators to buy U.S. Postal money orders worth $1 or other small amounts and then sent them out of state, where they were amended to higher amounts.

Wheeler said he and the others then deposited the modified money orders to local bank accounts, from which the funds were withdrawn and split up once they cleared.

Wheeler faces up to five years in prison as well as a maximum fine of $250,000.


Port Authority explosion suspect: What we know about Akayed Ullah

By Kaitlyn Schallhorn

An attempted suicide bomber who set off a rush-hour explosion at the nation’s busiest bus terminal is a Bangladeshi national living in Brooklyn who was inspired by ISIS, law enforcement officials said.

The suspect in Monday morning’s blast at Port Authority in midtown Manhattan was identified as Akayed Ullah, 27. Ullah strapped a pipe bomb to his body with Velcro and zip ties, and it detonated in a subway corridor, police said.

What do we know about the suspect?

Ullah lived in Brooklyn, but he immigrated from Bangladesh nearly seven years ago, federal law enforcement sources confirmed to Fox News. A person briefed on the probe said Ullah came to the U.S. on an F-4 visa, a preferential visa available for those with family in the U.S. who are citizens.

Law enforcement officials said Ullah was inspired by ISIS but didn’t appear to have direct contact with the group and likely acted alone.

Ullah was a licensed cab driver from March 2012 to March 2015, the New York City Taxi and Limousine Commission confirmed to Fox News. His TLC For-Hire Vehicle Driver’s License was not renewed after 2015.

The TLC spokesperson did not confirm “whether he drove for any particular base, or whether he simply got the license but didn’t drive at all.” He did say Ullah was not licensed to drive a yellow taxi.

An Uber spokeswoman confirmed to Fox News that the ride-sharing company has no record of Ullah being “connected to the Uber platform.” Lyft also does not “have any records” that Ullah worked for it, a spokesperson told Fox News.

What else do we know about the attack?

The suspect allegedly packed a 5-inch metal pipe bomb and battery pack into the right side of his jacket, according to The New York Post. Ullah told police he made the bomb at his work, law enforcement sources told Fox News.

The Post reported that he worked for an electrical company.

The device was an “effectively low-tech device,” New York Gov. Andrew Cuomo said Monday. Officials said they are investigating whether the suspect detonated the bomb intentionally or if it went off prematurely.

The explosion occurred just before 7:30 a.m. near 42nd Street between Seventh and Eighth avenues, law enforcement officials said. The explosion triggered a massive emergency response by police and fire both above and below ground, tangling subway and bus service at Port Authority.

The device was an “effectively low-tech device,” New York Gov. Andrew Cuomo said Monday. Officials said they are investigating whether the suspect detonated the bomb intentionally or if it went off prematurely.

The explosion occurred just before 7:30 a.m. near 42nd Street between Seventh and Eighth avenues, law enforcement officials said. The explosion triggered a massive emergency response by police and fire both above and below ground, tangling subway and bus service at Port Authority.

Fox News’ Jake Gibson, Rick Leventhal and The Associated Press contributed to this report.




The term “money mule” is commonly seen and heard throughout the financial services sector, specifically in recent years as financial institutions and federal regulators alike have aimed to halt the seemingly endless trend that is money laundering. A money mule is defined as a person who transfers money acquired illegally in person, through a courier service, or electronically, on behalf of others. These individuals have become a significant tool for criminals to use in the process of cashing out on their potentially compromised bank accounts. In the past, these schemes have targeted unknowing participants with personal and/or financial issues, offering them seemingly legitimate employment opportunities for distinguished positions such as “money transfer agent” or “payment processing agent.” Another common strategy has been the work-from-home (WFH) schemes, which have been “used by fraudsters and mule herders to entice witting or unwitting individuals into providing bank account details for the purpose of receiving an Automated Clearing House (ACH) deposit or counterfeit check. They are then instructed to electronically transfer funds to a third party, often in another country”, through money-service businesses in the form of wire transfers (Charles, 2017). These often utilize job search websites, social networking sites, and automated emails, where WFH offers are disguised to appear as a job opportunity from a legitimate company. In many cases these schemes can be difficult to detect, especially when widely-recognized trademarks and logos are used to help create the illusion of legitimacy. While each of these stunts has had success in their own right in years past, the international public has in large part grown wary of the typical means by which financial criminals have targeted potential mules in the past. However, criminals have turned to a new, more sustainable method that has already seen great success in 2017, and could continue to grow in the years to come.

The money mule trend has re-emerged as a hot-button issue today, as new reports from prominent global law enforcement agencies have shown that children and young-adults have now become the primary targets of criminals looking to move their dirty money. The article “New data reveals stark increase in young people acting as ‘money mules’”, cited in BSA News Now on November 28th, discusses recently released data from the United Kingdom’s fraud prevention service, Cifas, tying the growth of bank account misuse to younger populations. According to the report, there has been a “75 per cent rise in the misuse of bank accounts by 18 to 24 year olds in the past year, with 8,652 cases seen between January and September 2017” as compared to the same period in 2016 (WBWire, 2017). The most common trend in the misuse pattern has seen these youths acting as the aforementioned “money mules” – allowing their bank account(s) to be used to facilitate the movement of illicit funds. Experts believe that this latest development has capitalized on young and relatively naïve individuals, including students, who often have little to no cash flow.

Cifas, working alongside Financial Fraud Action UK (FFA UK), has begun a campaign titled “Don’t Be Fooled” to both educate and discourage younger generations from engaging in activity of this nature. One of the tactics most commonly employed by criminals to exploit this specific demographic is similar to those that were previously discussed. In these new cases, criminals approach students and young-adults with “what looks like a genuine job offer, asking them to receive money into their bank account and transfer it onto someone else, while keeping some of the cash for themselves” (WBWire, 2017). This offer seems like easy money for unknowing youths, requiring them to do little more than visit their local money transfer agency or perform a few clicks of a mouse. However, the repercussions of this activity can be severe, and can impact the futures of the individuals involved for years to come.

Statistics have also shown that money mule fraud has increased profoundly over the past five years alone, as cases involving 18-24 year olds have nearly tripled since 2013. This trend represents a significant threat to the general public in the areas where these tactics are being used, as the proceeds of this form of financial crime are often used in drug and human trafficking, large-scale money laundering and terror financing. One of the key points Cifas and FFA UK have made in their attempts to deter youths from engaging in this activity through their campaign is informing them that if they act as money mules, either wittingly or unwittingly, they are essentially involved in money laundering, albeit often at a small scale. They have also made sure to highlight the fact that it is very likely that this activity will be discovered given the wealth of new, sophisticated regulatory technologies continuing to emerge throughout the financial sector. If unearthed, their financial accounts will undoubtedly be closed, sending them in a downward spiral where they will likely face difficulties in opening accounts elsewhere, while also potentially impacting their ability to “obtain student loans, mobile phone contracts or other financial products” (WBWire, 2017). The groups have also made sure to touch on the most frightening reality involved with being a money mule – that is, a person convicted of money laundering could face up to 14 years in prison.

While the opportunity for a quick and easy payout can be enticing for individuals of any age, the repercussions of such activity could be catastrophic. As part of the “Don’t Be Fooled” campaign, Cifas and FFA UK have published a list of ways to avoid becoming a money mule. The 5 simple steps go as follows:

  • Do not give bank details to anyone you do not know or trust
  • Be wary of job offers where all interactions and transactions are done online
  • Be cautious of unsolicited offers of easy money
  • Research any company that makes you a job offer
  • Be wary of job offers written in poor English with grammatical errors or spelling mistakes






The European law enforcement agency Europol recently had a successful crackdown on the “money mules” discussed in this week’s feature article. Europol reportedly “uncovered $36 million in illicit money transfers and made 159 arrests in less than a week” over the week of Thanksgiving, and found that “Around 90 percent of 1,719 illegal transactions identified during the short campaign were linked to cyber crime, with cryptocurrencies like Bitcoin playing an increasing role in money laundering schemes” (Rumney, 2017). The latest campaign is the third relatively recent effort by law enforcement agencies and banks to combat mule operations and money laundering in Europe, with these entities now beginning to target the organizers and recruiters of these ploys, making their efforts much more effective.

The overall number of money mule cases in Britain increased by nearly 50% overall between 2016 and 2017, making the need for group coordination and cross-border cooperation to hinder this activity vital for the well-being of the financial industry in Europe and across the globe. That collaboration was evident in this latest effort, as “law enforcement agencies from 26 countries spanning the European Union, eastern Europe and the United States participated in the Nov. 20-24 campaign, along with 257 banks and private-sector partners, Europol, judicial cooperation agency Eurojust and the European Banking Federation” (Rumney, 2017).




An under-the-radar program undertaken during the presidency of Barack Obama re-emerged on the national stage recently, as the U.S. Department of Justice (DOJ) recently announced its plans to continue its enhancement of international cooperation and financial security. Enacted in early-2016, this program was designed to “encourage companies to voluntarily disclose paying bribes to foreign officials”, and swore to reduce penalties to both domestic and foreign companies that disclose information of this variety and cooperate with the Justice Department. Earlier this week Deputy Attorney General Rod Rosenstein proclaimed that a revised version of the policy will be incorporated to make the legislation permanent, making the program yet another potent tool in the global fight against corporate crime.

The goal of the program is to aid in the enforcement of the Foreign Corrupt Practices Act (FCPA), which made it unlawful for certain individuals/entities to make payments to foreign government officials to assist in obtaining or retaining business. The incentive-based system has promised companies listed on U.S. stock exchanges the chance to receive a 50% reduction in fines if they meet the current self-disclosure guidelines for reporting. Enforcement of the FCPA is likely to receive a significant boost following the announcement, although the program has already  been rather successful. The DOJ has indicated that “Since 2016, they have “obtained criminal resolutions in 17 corporate-related FCPA cases, resulting in penalties and forfeitures of $1.6 billion” (Farivar, 2017).




Unhappy with the recent string of scandals and crime seen across the Australian banking sector, Australia’s Prime Minister Malcolm Turnbull has called for a “wide-ranging” public inquiry to address the growing issue. In a formal address on the topic, Turnbull stated “the yearlong royal commission will examine the conduct of the nation’s banks, insurers, financial services providers and pension funds, and consider whether regulators have enough power to tackle misconduct” (Scott & Cadman, 2017). Although several of the country’s major banks had opposed an inquiry of this nature – due in large part to the potential ramifications that could ensue given the potential downturn of investor confidence – the banks eventually gave in in order to keep Australia’s sterling reputation as one of the world’s top financial systems intact.

Australia has been riddled with cases of AML law breaches and other improper financial activity in recent years. In fact, Australia’s four largest banks –  Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp. and National Australia Bank Ltd – which are “responsible for 80 percent of the nation’s loans, have been hit by allegations they gave poor financial advice, failed to honor insurance claims, mistreated small business owners and that some attempted to manipulate benchmark interest rates” (Scott & Cadman, 2017). Although he had been criticized for his over-tolerance in regards to these rather serious issues, Turnbull hopes his latest efforts will further ensure that Australia’s “financial system is working efficiently and effectively” (Scott & Cadman, 2017).

Crackdown On Bitcoin In UK Over Money Laundering, Tax Evasion

The Treasury of the UK has announced plans to strongly regulate the transfer of cryptocurrencieswith a view to cracking down on money laundering and tax evasion. The regulations have not been stipulated with specificity, but will certainly include anti-money laundering (AML) and know your customer (KYC) details.

The regulation is intended to take force before the end of 2017, or just at the beginning of 2018. The increased regulations, in line with the directives in the EU, are intended to limit the amount of anonymity possible for cryptocurrency traders. According to John Mann, one of the Treasury committee:

“These new forms of exchange are expanding rapidly and we’ve got to make sure we don’t get left behind – that’s particularly important in terms of money-laundering, terrorism or pure theft. I’m not convinced that the regulatory authorities are keeping up to speed. I would be surprised if the committee doesn’t have an inquiry next year. It would be timely to have a proper look at what this means. It may be that we want to speed up our use of these kinds of thing in this country, but that makes it all the more important that we don’t have a regulatory lag.”

Other regulations

Other regulations have been threatened around the world, as Bitcoin price soars. With adoption exploding, and massive influx of institutional capital via futures and other contracts, Bitcoin is becoming far more of a financial reality that it has ever been before. China, Russia, and other countries have made it clear that the digital currency will be off-limits, while other countries like Switzerland and Malta are seemingly far more open.

Turkish gold trader details money laundering scheme for Iran

Brendan Pierson

NEW YORK (Reuters) – A Turkish-Iranian gold trader described in a U.S. court on Wednesday how he ran a sprawling international money laundering scheme aimed at helping Iran get around U.S. sanctions and spend its oil and gas revenues abroad.

Reza Zarrab, who has pleaded guilty and is cooperating with U.S. prosecutors in the criminal trial of a Turkish bank executive, told jurors in federal court in Manhattan that he helped Iran use funds deposited in Turkey’s state-owned Halkbank to buy gold, which was smuggled to Dubai and sold for cash.

The testimony, given through Turkish interpreters, came on the second day of the trial of Halkbank executive Mehmet Hakan Atilla, who has pleaded not guilty.

U.S. prosecutors have charged nine people in the case, although only Zarrab, 34, and Atilla, 47, have been arrested by U.S. authorities. Prosecutors have said the defendants took part in a scheme that involved gold trades and fake purchases of food to give Iran access to international markets, violating U.S. sanctions.

The case has fueled tensions between the United States and Turkey, which are NATO allies. Turkish President Tayyip Erdogan’s government has said the case was fabricated for political reasons.

Standing before the jury in tan prison garb on Wednesday, Zarrab drew a multicolored diagram to illustrate the complex series of transactions he said he used to avoid scrutiny of U.S. banks and regulators. He explained how he falsified customs documents to make it appear that gold was bound for Iran, rather than Dubai.

Zarrab said Atilla was “the most knowledgeable person about the sanction rules” at Halkbank, and that he helped develop the scheme. He said Atilla and Halkbank’s then-general manager, Suleyman Aslan, instructed him how to carry it out.

“He made sure that the system and method worked,” Zarrab said of Atilla.

Zarrab said he began working with Halkbank on the scheme in 2012, after bribing Zafer Caglayan, then Turkey’s economy minister, to broker a deal with Aslan. He said Aslan had initially refused to work with Zarrab because he was too well known.

Zarrab said he paid Caglayan bribes amounting to more than $50 million.

Caglayan and Suleyman have also both been charged in the case. Turkey’s government has previously said that Caglayan acted within Turkish and international law. Halkbank has said that all of its transactions fully complied with national and international regulations.

Zarrab testified that before working with Halkbank, he handled Iranian transactions through Turkey’s Aktif Bank. He said the bank initially refused to let him open an account, but relented after Zarrab asked Egemen Bagis, then Turkey’s minister of European Union affairs, for help.

 Zarrab said Bagis set up a meeting between him and Aktif Bank’s general manager and that he was then allowed to open an account. However, Aktif Bank later shut down the account after receiving a warning from the United States, Zarrab said.

Reuters was not immediately able to reach anyone at Aktif Bank for comment after working hours on Wednesday.

Zarrab is expected to continue testifying on Thursday.

The Manafort money laundering charges: What’s in store?

By Stefan D. Cassella and Michael Zeldin

(CNN)Paul Manafort and Richard Gates are under a multicount indictment with each facing lengthy prison terms, if convicted. Money laundering is the most serious crime charged and is premised on Manafort’s and Gates’ alleged failure to register with the Justice Department as foreign agents.

While a money laundering case based on a failure to register as a foreign agent is not common, the allegations in the indictment, if proven, would appear to satisfy the requirements of the money laundering statute.
If convicted, not only would Manafort and Gates face the possibility of prison time, but they also could be required to forfeit any property, real or personal, involved in the offense or traced to it. (In Manafort’s case, this could reach up to $18 million.) How strong a case special counsel Robert Mueller has will be determined at their trial, currently scheduled to begin May 7, 2018. Both have pleaded not guilty to the charges.
It is, therefore, not surprising that Manafort’s lawyers have begun pushing back.
In their motion to modify the conditions of Manafort’s release pending trial, they have asserted that the money laundering charge is “based on an extremely novel reading of the money laundering statute.” Their argument appears to be that a money laundering case cannot be premised on a violation of the Foreign Agent Registration Act (FARA).

Two kinds of money laundering

The money laundering count alleges that Manafort and Gates conspired to violate two relevant provisions of the money laundering statute — the provision that prohibits international money laundering and the one that prohibits domestic money laundering.
Citing the international money laundering provision, the indictment alleges that Manafort and Gates conspired to transfer money into or out of the United States with the intent to promote the crime of failing to register as a foreign agent.
Citing the domestic money laundering provision, it alleges that Manafort and Gates conspired to conduct transactions involving the proceeds of the FARA violation with knowledge that the transactions were designed either to conceal or disguise the source of the money or to evade taxes.
The domestic and international money laundering provisions operate differently. Whereas the domestic provision looks rearward — focusing on the source of the money being laundered, in other words, the proceeds of illegal activity (otherwise known as “dirty money”) — the international one looks forward, making it an offense to use money derived from any source, legal or illegal, to promote a specified crime in the future.
Under the international provision, the money can be perfectly “clean;” the crime is in using it to break the law down the road.
For example, under the domestic money laundering provision, it would be a crime to launder drug proceeds by running the money through a complex series of bank accounts and shell companies with the aim of concealing the source of the money or the defendant’s connection to it. In contrast, under the international money laundering provision, it would be an offense to send untainted money from the United States to Mexico for the purpose of paying for a shipment of illegal drugs.
The Manafort and Gates indictment accuses the former Trump campaign officials of conspiring to commit both types of money laundering. With respect to the international money laundering allegation, it alleges that the defendants transferred money to the United States for the purpose of “promoting” their criminal act of failing to register as foreign agents for Ukraine. (“Promotion” is defined in the law as doing something that constitutes a step in the commission of a crime, or that facilitates a crime by making it easier to commit or harder to detect.)

What it takes to get a conviction

Accordingly, to obtain a conviction on the charge of conspiracy to commit international money laundering, the prosecutors would have to prove that the defendants entered into an agreement to bring money into the United States for the purpose of promoting the FARA violation — for instance, to pay for lobbying services on behalf of the government of Ukraine that would have required Manafort and Gates to register as foreign agents.
The prosecutors would not have to show that the money that they brought into the United States was derived from any earlier crime.
The international money laundering transactions listed in the indictment that Manafort allegedly conducted were from Cyprus, and to a lesser extent, from the Grenadines and the United Kingdom, to the United States. These transactions allegedly occurred over a period of several years and enabled Manafort and Gates to purchase millions of dollars worth of luxury goods, personal services and real estate.
On the other hand, the domestic money laundering statute does require the Government to prove that the money the defendants conspired to launder was the proceeds of a crime. Because the indictment alleges that the defendants conspired to launder the proceeds derived from their failure to register as foreign agents, the prosecutors would have to prove the following to obtain a conviction for the domestic money laundering conspiracy:
First, they would have to show that Manafort and Gates committed or intended to violate FARA and that this offense generated or was intended to generate some proceeds. (“Proceeds” is defined as money (or other property) that the defendants obtained as a consequence of the offense, or that they would not have been able to retain but for having committed the offense.)
For example, the prosecutors might argue that the consulting fees that Manafort and Gates earned were criminal proceeds because Manafort and Gates would not have been able to continue to earn them except for their continued evasion of the requirement to register as foreign agents.
Second, the prosecutors would have to show that the defendants agreed to conduct financial transactions that involved the proceeds derived from their failure to register as foreign agents.
Finally, the government would have to show that the defendants agreed to conduct the financial transactions knowing that they were designed to conceal or disguise the illegal source of the money or their connection to it, for example, through the use of shell companies and offshore accounts, or to evade taxes.
Whether the government can prove the allegations against Manafort and Gates will be determined at trial. Meanwhile, the two men remain under house arrest and are required to wear GPS monitoring devices.

Anti-Money Laundering Update: FinCEN Makes Small Texas Bank Pay Big Fine

This post at a glance.

  • FinCEN imposes $2 million penalty against community bank
  • Bank failed to conduct appropriate due diligence related to Mexican customer
  • Small banks, other financial institutions need to recognize obligations under Bank Secrecy Act

On October 27, 2017, the U.S. Financial Crimes Enforcement Network (FinCEN) announced a $2 million fine against Lone Star National Bank, an independent community bank in Texas, for “willfully violating” anti-money laundering (AML) requirements of the Bank Secrecy Act (BSA). FinCEN, which is part of the U.S. Treasury Department, has a primary role in safeguarding the U.S. financial system against money laundering and other illicit uses.

FinCEN: Lack of Due Diligence Leads to Bank Secrecy Act Violations

According to FinCEN, Lone Star accepted a Mexican bank as a customer without conducting any significant due diligence on the bank or its owner. FinCEN asserted that, if diligence had been conducted, Lone Star would have discovered the owner’s alleged involvement in securities fraud. FinCEN also determined that Lone Star had opened and operated other high-risk accounts without conducting appropriate due diligence.

This is a problem under the BSA. Under the regulations issued to implement the BSA, U.S. financial institutions must perform due diligence and, in some cases, enhanced due diligence, with regard to correspondent accounts established or maintained for non-U.S. financial institutions and private banking accounts established or maintained for non-U.S. persons.

Bank Secrecy Act Compliance Necessitates Policies to Avoid Money Laundering Activities

According to FinCEN, the Mexican bank moved hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system in less than two years. FinCEN asserted that the movement of such large amounts of money should have alerted Lone Star of the need for greater scrutiny. Yet according to FinCEN, Lone Star never verified the accuracy of the Mexican bank’s assertions as to the source of funds, account purpose, or anticipated activity.

The BSA implicitly acknowledges that huge amounts of money flow through the U.S. financial system every day. Correspondingly, financial institutions are required to establish appropriate, risk-based policies designed to enable them to detect and report known or suspected money laundering activities. According to FinCEN, Lone Star failed to ask even obvious diligence questions to the Mexican bank and did not follow up on inconsistencies in the answers to the few questions it did ask.

Lone Star has apparently gotten the message. In announcing the penalty, FinCEN acknowledged that Lone Star has now ended its problematic correspondent banking activities. FinCEN also highlighted the fact that Lone Star has engaged outside consultants to conduct independent testing and to focus on customer due diligence and reviews of suspicious activity.

Key Takeaway #1: Size Does NOT Excuse Financial Institutions from Complying with the Bank Secrecy Act

Especially for community and other local banks, the Lone Star matter serves as a valuable reminder that small size is not a defense to financial crimes under the BSA or other U.S. laws. FinCEN specifically stressed that Lone Star’s size did not excuse its failure to comply with the BSA.

The action against Lone Star is also a useful reminder to those financial institutions that are covered by the BSA but are not banks. For example, certain broker dealers and commodities traders are considered to be “covered financial institutions” under the BSA, and thus, have the same diligence obligations as Lone Star.

Key Takeaway #2: Maintain Robust Policies and Procedures to Avoid BSA and other AML Violations

This action provides more evidence that the U.S. government is continuing to aggressively enforce its AML and other financial crimes laws. (See here for another penalty FinCEN announced earlier this year.) There is no indication this enforcement initiative will change any time soon. Banks and other financial institutions need to act accordingly, and ensure their policies and processes are adequate to meet BSA standards and protect against money laundering.

At least 26 killed in mass shooting at Texas church

At least 26 people were killed and 20 wounded in Texas after a gunman dressed in tactical gear opened fire at a church outside San Antonio on Sunday, investigators confirmed.

Multiple sources speaking to Fox News identified the gunman as 26-year-old Devin Patrick Kelley. The mass shooting unfolded around 11:30 a.m. at First Baptist Church of Sutherland Springs, which is about 30 miles southeast of San Antonio.

Investigators said at a news conference Sunday evening that the victims ranged in age from 5 to 72 years old. One official said about 20 people were hospitalized with injuries ranging from minor to “very severe.”

Sunday’s massacre is the deadliest church shooting in modern U.S. history. It is also, according to Gov. Greg Abbott, the deadliest mass shooting in Texas history.

A possible motive was unclear. Kelley lived in a suburb of San Antonio and didn’t appear to be linked to organized terrorist groups, a U.S. official told The Associated Press. The official said investigators were looking at social media posts Kelley may have made in the days before Sunday’s attack, including one that appeared to show a semiautomatic weapon.

A spokesperson with the U.S. Air Force confirmed to Fox News that Kelley served in the military branch at Holloman Air Force Base in New Mexico from 2010 until a bad conduct discharge in 2014.

He was court-martialed in 2012 for assaulting his wife and child, and when he was discharged received 12 months of confinement and a reduction in military rank.

“It is horrible,” Wilson County Commissioner Larry Wiley told Fox News of the massacre. “It appears someone walked in and started shooting.”

Around 11:20 a.m., Kelley arrived at a Valero gas station across from the First Baptist Church dressed in black tactical gear and a ballistic vest. He crossed the street and started firing a Ruger AR rifle at the church, officials said. He entered the building and kept shooting.

He was confronted by an armed nearby resident who chased after him. Kelley was later found dead, roughly five miles away in Guadalupe County, according to Wiley. It’s unclear whether Kelley was killed by police or the armed resident, or from a self-inflicted gunshot wound.

“We have accepted a multiple number of patients from the shooting,” Megan Posey, a spokeswoman for Connally Memorial Medical Center in Floresville, 15 miles from the church, told Fox News.

Some victims were transported to Brooke Army Medical Center in San Antonio, KSAT reported.

Officials said 23 people were found deceased in First Baptist Church, while two were found dead outside. One person who was transported to a hospital later died.

One of those killed was 14-year-old Annabelle Pomeroy, the church pastor’s daughter.

The FBI is investigating the shooting, in addition to multiple other agencies, including the Bureau of Alcohol, Tobacco, Firearms and Explosives. The San Antonio Express-News reported police were checking the gunman’s home for explosives following the shooting.

The church’s layout would’ve made it difficult for churchgoers to flee a shooter who came through the front door, according to a congregant attending a vigil at the church Sunday night.

The church was described as having only small exits on the side and in the back, according to Hunter Green. He said if a gunman came through the front door, people “wouldn’t have had anywhere to go.”

Neighbors of Kelley’s told The Associated Press they heard gunfire coming from his direction in recent days.

“It’s really loud,” 16-year-old Ryan Albers said. “It was someone using automatic weapon fire.”

Another neighbor, who argued hearing gunfire in the area is not uncommon, said they had heard gunfire coming from across the street, but couldn’t be sure if it was from Kelley’s property.

Attorney General Paxton told Fox News that “people never think” a shooting like this can “happen in their communities.”

“In a small town … I can imagine that these people are devastated. And everyone in the community is going to … have some type of close relationship” to those either killed or injured at the First Baptist Church. He added it’s “hard to justify why anyone would do this.”

“This is horrific for our tiny little tight-knit town,” Alena Berlanga, who lives 10 minutes outside of Sutherland Springs told The Associated Press. “Everybody’s going to be affected and everybody knows someone who’s affected.”

President Trump, speaking from Tokyo during his trip to Asia, called the shooting an “act of evil,” and added: “Through the tears and through the sadness, we stand strong.”

Earlier, he tweeted: “May God be w/ the people of Sutherland Springs, Texas. The FBI & law enforcement are on the scene. I am monitoring the situation from Japan.”

Gov. Abbott said in a statement that “While the details of this horrific act are still under investigation, Cecilia and I want to send our sincerest thoughts and prayers to all those who have been affected by this evil act.”

“I want to thank law enforcement for their response and ask that all Texans pray for the Sutherland Springs community during this time of mourning and loss,” the statement read.

Sutherland Springs has a population of about 400 residents.

Sunday’s shooting comes just over a month after 58 people were killed and hundreds injured on Oct. 1 after a gunman opened fire on a country music festival in Las Vegas.

Fox News’ Robert Gearty, Jake Gibson, Rick Leventhal, Lucas Tomlinson and The Associated Press contributed to this report.

Russian firm that promised to pay US millions after money-laundering settlement misses deadline

(CNN)-There’s a curious new twist in the international money-laundering case which first propelled Natalia Veselnitskaya, the Russian lawyer who met with senior members of the Trump campaign in June 2016, into the American spotlight.

The Russian company that became widely known after disclosure of the Trump Tower meeting declared that it would have to miss the deadline this week for paying the US government nearly $6 million dollars in a civil settlement because it is now under investigation by Dutch authorities.
Word of Prevezon Holdings Ltd’s professed inability to meet the deadline for payment came in a court filing in New York’s Southern District. The Cyprus-registered company had been accused in a civil asset forfeiture case by the US Justice Department of having laundered millions in stolen Russian taxpayer money through the Manhattan real estate market. Shortly before the case was to go to trial, Prevezon settled with the government and agreed to pay $5.9 million without admitting guilt. The deadline for that payment was October 31, 2017.
 Prevezon, which has been represented by Veselnitskaya in its case with the US government, has claimed that its refusal to pay on time is related to a hold placed on its funds held in the Netherlands in connection with a separate money laundering complaint filed in that country.
According to a letter from US Attorney Joon H. Kim to Judge William H. Pauley III, the US government had agreed to request that the government of the Netherlands allow payment of a debt, amounting to 3,068,946 Euros, or about $3.6 million dollars, owed to Prevezon by AFI Europe, a Netherlands-registered company.
The Dutch authorities had originally frozen that transaction as part of the US civil litigation. Upon relinquishment of the funds to Prevezon, as per the settlement, the company was granted 15 days to remit the full $5.9 million to Uncle Sam.
While the Netherlands complied with the Justice Department’s request to unfreeze the debt in relation to the New York case on October 10, that same day, Kim writes, “Netherlands authorities seized the AFI Europe Debt based on their own independent investigation of Prevezon for money laundering, which relates to similar subject matter to this case …The [US] Government did not request this seizure, the Netherlands authorities did not seek, or require, the Government’s approval, and it is not part of or dependent on this action or the previous US-requested restraint, which has been fully released.”
The letter continues that Prevezon has “advised the [US] Government that, in light of the seizure, it may refuse to make the required payment as due, and has requested extra time for its owner to ‘consider his options,’ including a possible motion to relieve Prevezon of its payment obligation.” If that deadline is missed, letter said, the US Attorney intends to “file a motion seeking enforcement — including appropriate relief for late payment.”
This is the first documentary evidence that Natalia Veselnitskaya’s client is not quite free and clear of its legal troubles. The US alleged that Prevezon was the beneficiary of some of the funds acquired in a 2007 tax fraud perpetrated by a Russian state-backed transnational criminal organization known as the Klyuev Group.
Prevezon, which is owned by Denis Katsyv, the son of Pyotr Katsyv, a powerful Russian government official, has maintained that it was never the recipient of any purloined money. But rather than take the money laundering case to trial, it settled out of court in May.
Veselnitskaya hasn’t just represented her client faithfully in the New York legal system; she has tirelessly lobbied US Congress and also the then Trump campaign to do away with a US sanctions law named after Sergei Magnitsky, the Russian whistleblower who uncovered the alleged 2007 tax fraud.
Magnitsky’s findings of a criminal conspiracy, which he argued was abetted by agents of the Russian interior and tax ministries, constituted the foundation upon which the Justice Department’s case was constructed. (Magnitsky himself was arrested for tax evasion by the very authorities he implicated in this conspiracy; he died in Moscow pre-trial detention in 2009. In spite of a Russian presidential human rights council finding that Magnitsky had been physically abused in prison and denied urgent medical care, the Kremlin has maintained that his cause of death was “heart failure.”)
As part of her legal counsel for Prevezon, Veselnitskaya helped retain the services of Fusion GPS, the Washington private intelligence firm, to conduct research aimed at strengthening Prevezon’s defense, a rather awkward business arrangement, in light of the ongoing controversy over the Fusion-retailed Trump “dossier,” as I noted last week in this space. Veselnitskaya has been particularly outspoken about the primary campaigner for the Magnitsky Act, the dead lawyer’s former client William Browder, the CEO of Hermitage Capital Management, a hedge fund whose properties were allegedly stolen and used in perpetrating the 2007 tax fraud.
According to a response letter written to Judge Pauley, written by Faith Gay of the New York-based law firm Quinn Emanuel Urquhart & Sullivan, Prevezon’s other counsel, the Netherlands complaint was filed by Hermitage Capital Management, “the same William Browder-managed entity that instigated this action,” referring to the US civil asset forfeiture case.
Browder confirmed with me that Hermitage did indeed bring the case to the Dutch authorities’ attention, which he says is criminal in nature, as opposed to the civil litigation pursued by the US. He insisted, however, that a decision to pursue the investigation was solely up to the authorities themselves. Marieke van der Molen, a media officer in the anti-money laundering unit of the Netherlands public prosecutor’s office, did not return my request for comment on the case in time for publication.
Veselnitskaya has previously celebrated the resolution of the Prevezon case in the US as vindication of her client’s innocence, even though that innocence was not technically established under the terms of the settlement.
On May 15, she posted on her personal Facebook page the following in Russian: “Just now, an almost 4-year battle of the American state with a Russian citizen is over. On the terms of the Russians. The deal in the case that was initiated four years ago by a fugitive tax fraudster has been approved today by Judge Pauley. The United States abandoned Browder and did the right thing. The thief should be in prison, and not walk around the corridors of Congress.”
Veselnitskaya still represents Prevezon. Her name is also mentioned in Faith Gay’s letter to Judge Pauley, seeking to “direct the [US] Government to seek immigration parole (or any other necessary temporary immigration status)” to permit her, as the defendant’s Russian counsel, to attend further court proceedings in the New York Southern District.
A spokesman for the press office at the Southern District’s Civil Division declined comment for this story.

Banks are staying away from bitcoin ‘bubble’ due to money laundering, Credit Suisse CEO says

  • Banks are reluctant to get involved with bitcoin due to fears of a bubble and illicit activity associated with it, Tidjane Thiam said Thursday
  • The banking executive’s comments came as the digital currency surpassed $7,000 for the first time
  • ING CFO Koos Timmermans also weighed in on cryptocurrencies, saying that the bank is not recommending clients to invest in digital assets

Banks have “little or no appetite” to get involved with bitcoin and cryptocurrencies due to fears of a bubble and illicit activity associated with it, the chief executive of Credit Suisse said Thursday.

“I think most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges,” Tidjane Thiam said at a news conference, according to Reuters.

The banking executive’s comments came as the digital currency surpassed $7,000 for the first time.

 Thiam added that investors were only buying into the digital asset “to make money,” and described it as “the very definition of speculation and the very definition of a bubble.”

The chief financial officer of ING also weighed in on cryptocurrency worries Thursday, saying that, although digital assets are an effective means of exchange, the bank was not advising clients to in invest in them.

“Well, we are quite careful on this part, so if you ask, ‘Are we advising our clients to invest in this?’ the answer is no,” Koos Timmermans told CNBC Thursday.

“We see the superiority of cryptocurrencies in terms of a means of exchange, so that part is fine. But if you then say, ‘Can you easily attach future value to it?’ — and that’s one of the main functions of currency — that is rather difficult because you still don’t know how much the supply of this currency is connected to the demand, we don’t know what the interest rates are.”

But analysts believe that more institutional investors will begin to get involved with cryptocurrencies, after CME Group said it would introduce bitcoin futures contracts.

“Futures from an incumbent exchange bring bitcoin and cryptocurrencies into the regulatory fold,” Charles Hayter, CEO of cryptocurrency comparison website Crypto Compare, told CNBC in an email Thursday.

“This allows more complex financial products to be created and will eventually open the doors to institutional money.”

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