Feds accuse three Wyoming restaurants of involvement in drug money laundering scheme

By Shane Sanderson

Three Wyoming restaurants participated in a multistate drug money laundering scheme, authorities allege in a 50-page civil complaint filed Friday in federal court.

The filings state that Mexican fast food restaurants in Colorado and Wyoming — including Rodolfo’s Mexican Grill in Cheyenne, Rolando’s Mexican Grill in Cheyenne and Almanza’s Mexican Food in Laramie — were involved in a scheme to use falsified invoices to transfer hundreds of thousands of dollars in concert with a Colorado Springs food distributor. When law enforcement raided the Colorado Springs facility, they found more than $35,000 cash. No cash registers or prices for food items were found in the facility, according to the filings.

The bank accounts associated with Almanza’s Mexican Food and Rolando’s Mexican Grill were closed before law enforcement began investigating the case, the documents state.

By Monday evening, defense attorneys had not responded to the prosecution’s latest filing, but in earlier filings they largely denied the allegations.

The man who ran the distribution business, which is known as El Potosino Foods, has connections with a Mexican drug cartel, the documents state. The phone number for Jose Aguilar-Martinez, who owns El Potosino, turned up in previous investigations of Ismael “El Mayo” Zambada and Joaquín “El Chapo” Guzmán, although the documents do not specify the investigations or the phone number’s connection to them.

Authorities have said Zambada is a leader of the Sinaloa cartel, which has smuggled billions of dollars worth of cocaine, heroin, meth and marijuana into the United States.

Earlier this month, a jury convicted Guzmán, another Sinaloa cartel leader, of various federal crimes, including engaging in a continuing criminal enterprise, conspiracy to launder drug proceeds and international drug distribution. His lawyers have said he will seek a new trial following a Vice News report alleging juror misconduct during the case.

The allegations implicating one of the Wyoming restaurants were reported by the Star-Tribune in January. The report drew from responses to a sealed civil complaint filed in November.

In their responses, defendants laid out some of the government’s allegations, including that bank accounts belonging to Hilario Montejano-Aleman, the owner of Rodolfo’s Mexican Grill in Cheyenne, were used in drug money laundering.

Rather than filing documents under seal, prosecutors partially redacted, and on Friday filed publicly, their amended complaint. It revealed more details of the case, which does not bring any criminal action against the alleged money launderers. Instead, the filings seek to require the forfeiture of $1.5 million spread across 15 bank accounts and two safe deposit boxes alleged to be used in the scheme.

The bank safe deposit boxes alone contained more than $800,000 linked to drug trafficking, according to the documents. One of those boxes was filled to capacity with hundreds of thousands of dollar bills that investigators say are tied to drug trafficking. A woman accessed the box at a Colorado Springs bank 16 times over the course of nine years. Every time she appeared pregnant. “Or, in retrospect, carrying the cash inside of a false belly,” prosecutors wrote.

Although the allegations span multiple states and businesses, the investigation began in Wyoming.

Law enforcement began investigating the case in Cheyenne in July 2016 after receiving a report of a suspicious vehicle purchase. That purchase was among multiple turned up by investigators in which purchasers put down $10,000 or more in cash, the documents state. Among those vehicles were a 2007 Cadillac Escalade for which a cook at the Laramie restaurant put down $14,000 cash.

The case also has a Casper connection, although the extent of that connection is not clear. According to prosecutors, a phone number associated with Rodolfo’s called a Casper number that the DEA is investigating in a different case.

Swiss pond fishers give new meaning to concept of ‘money laundering’

In a bid to earn a little extra pocket money, three young women in Lucerne decided to fish out coins left in the pond by the city’s famous Lion Monument.

The monument – a tribute to the Swiss Guards killed in 1792 during the French revolution – is a popular tourist sight with many visitors throwing small change into the surrounding pond.

The women expected to come away with just a few coins. Instead, they found around 400 francs the first time they collected the money. This amount then rose to 600 francs on another occasion when they used snorkel masks and plastic bags to collect their spoils, according to regional daily Luzerner Zeitung.

The women separated the money they collected into two boxes – one for foreign currency and one for Swiss francs, which they went on to spend.

But as the coins they retrieved were covered in algae, the fishers were forced to mix them up with other change to make them less conspicuous.

Then the group came up with the novel idea of using vending machines to “wash the money”. They would use as many coins as possible to buy the cheapest possible products and would obtain “laundered” coins as change.

The three women have since given up their fishing trips and have gone on to become teachers, according to Luzerner Zeitung.

Meanwhile, police told the newspaper the practice was not illegal. A spokesperson for the force said anyone who threw money into a pond gave up ownership rights.

The city of Lucerne clears out the Lion Monument twice a year at which point city gardeners collect any coins they find. These are then donated to charity.

 

US Political Activist Linked to Russian Agent Charged with Money Laundering, Fraud

Reuters

A conservative U.S. political activist romantically linked to admitted Russian agent Maria Butina has been indicted by a federal grand jury on wire fraud and money laundering charges, the U.S. Attorney’s Office in South Dakota said on Wednesday.

Paul Erickson, 56, was indicted on 11 counts of wire fraud and money laundering on Tuesday and pleaded not guilty to the charges in an appearance before U.S. Magistrate Judge Mark Moreno, the office said in a statement. Erickson’s attorney did not immediately respond to a request for comment.

Erickson is a well-known figure in Republican and conservative circles and was a senior official in Pat Buchanan’s 1992 Republican presidential campaign.

He was romantically linked to Butina, a 30-year-old native of Siberia, who pleaded guilty in December to conspiracy.

Butina admitted working with a top Russian official to infiltrate the powerful National Rifle Association gun rights group and to make inroads with American conservatives and the Republican Party as an agent for Moscow.

Butina, a former graduate student at American University in Washington, had publicly advocated for gun rights. She was the first Russian to be convicted of working to influence U.S. policy during the 2016 presidential race.

Erickson’s indictment did not specifically refer to Butina by name, but it indicates he made a payment of $8,000 to an “M.B.” in June 2015 and another payment of $1,000 to “M.B.” in March 2017. The indictment also indicates he paid American University $20,472.09 in June 2017.

The indictment against Erickson alleges that between 1996 and 2018, Erickson made “false and fraudulent representations” to people in South Dakota and elsewhere about his business schemes in an effort to convince potential investors to give him money, the U.S. Attorney’s Office said.

Erickson owned and operated Compass Care Inc, Investing with Dignity LLC, and an unnamed venture to develop land in the Bakken oilfields in North Dakota, the U.S. Attorney’s Office said.

He faces a maximum penalty of 20 years in prison on each count as well as possible fines, the U.S. Attorney’s Office. He was released on bond, and no date has been set for a trial.

San Antonio man due in court Tuesday in money laundering case involving luxury cars

By Guillermo Contreras

One of two defendants charged in a money laundering case involving more than 100 exotic and luxury cars that were seized is scheduled for hearings Tuesday to determine whether law officers had enough probable cause to arrest him, and whether he qualifies for bail.

Jose Luis Magallon Jr., 28, is accused of laundering more than $200,000 in a series of undercover law enforcement sting operations.

Magallon is the owner of Magallon Enterprises LLC, an exotic and luxury used auto dealership in San Antonio, but court records accuse him of being a launderer for a drug trafficking organization from Michoacán, Mexico.

Magallon allegedly dealt with an undercover agent who posed as a transporter of large amounts of drug cash, and flashed several high-end cars that were part of Magallon’s money laundering operation, a criminal complaint affidavit said. The affidavit also alleges that other people helped Magallon disguise his money laundering under layers of fronts.

Agents did not raid Magallon’s business, but used him to get to a co-defendant, Karen Mgerian, who was willing to launder larger amounts, according to court records. Mgerian, 40, allegedly laundered $575,000 for undercover agents acting as drug cartel operatives, and was in negotiations to launder another $4.7 million, according to court records.

Agents last Thursday raided Mgerian’s car lot, MGM Auto, near Rittiman and Interstate 35, and an auto body location he allegedly controlled called Odadi Auto near Stahl Road. They also raided his home in Stone Oak and a home Magallon rented near Perrin-Beitel and Loop 410.

Mgerian initially had been scheduled to have his bail hearing Tuesday but it has been rescheduled to Feb. 13, records show.

Cryptocurrency Money Laundering: Alarming New Trends

By Nick Holland

Despite the value of cryptocurrency plummeting since 2017, cybercriminals and rogue nations are still using it to launder funds. One new scheme is “crypto dusting,” according to CipherTrace founder and CEO, Dave Jevans, who discusses the results of the company’s latest Cryptocurrency Anti-Money Laundering Report.

“This is when the bad guys, who typically operate money laundering operations and crypto, want to disable the ability of anti-money laundering and investigation tools,” Jevans explains in an interview with Information Security Media Group. “So what they’re doing is sending tens of thousands of people a week very small amounts of cryptocurrency that has obviously gone through money laundering services … so that everyone active in crypto is getting a negative reputation. Therefore tools that use reputation scoring don’t work anymore.”

In this interview (see audio link below photo), Jevans also discusses:

  • Cryptocurrency money laundering by nation-states, including Iran and Venezuela, to avoid economic sanctions;
  • The rise of cryptocurrency heists in 2018 despite a significant decrease in the value of many currencies;
  • The potential impact regulations could have on cracking down on cryptocurrency money laundering schemes.

Jevans is the founder and CEO of CipherTrace, which specializes in blockchain security and anti-money laundering compliance. He has 20 years of experience in the security and payments markets. He holds 17 U.S. patents in cybersecurity and has founded and sold three cybersecurity startups. He also serves as the chairman of the Anti-Phishing Working Group, a consortium of more than 1,500 government agencies, financial services companies, ISPs, law enforcement agencies and technology vendors.

U.S. charges top Chinese cellphone maker Huawei with money laundering, fraud

By Pete Williams and Ken Dilanian

WASHINGTON — The Trump administration announced criminal charges against one of China’s largest telecommunications companies Monday, a dramatic move that promises to ratchet up tensions on the eve of trade talks this week between the two countries.

Acting Attorney General Matthew Whitaker told reporters in Washington a pair of indictments had been unsealed in two separate cases. A Brooklyn grand jury charged Huawei as a company, and its chief financial officer, Wanzhou Meng, with money laundering, bank fraud, wire fraud and conspiracy. Huawei also was charged with conspiracy to obstruct justice.

A separate indictment accuses Huawei of stealing trade secrets from U.S. telecom firm T-Mobile. Those charges stem from a civil lawsuit filed by T-Mobile in 2014 over a robot called “Tappy,” which was used in testing smartphones.

“Huawei intentionally conspired to steal intellectual property from an American company in an attempt to undermine the free and fair marketplace,” the Justice Department said in a statement.

Meng, who was arrested in Canada in December, is accused of orchestrating a scheme to violate U.S. sanctions on Iran.

The Brooklyn indictment says Huawei used a Hong Kong shell company to sell equipment in Iran in violation of U.S. sanctions. Meng misled U.S. banks into believing that Hawei had no interest in the Hong Kong company, called Skycom, according to the Justice Department.

The indictment also charges Huawei with conspiracy to obstruct justice by destroying evidence and moving employees out of the U.S. so they could not be called as witnesses.

Meng is a daughter of Huawei’s founder, Ren Zhengfei, who served as an engineer in the People’s Liberation Army from 1974 to 1983. The U.S. is seeking her extradition.

“For over a decade, Huawei employed a strategy of lies and deceit to conduct and grow its business,” said Richard Donoghue, U.S. attorney for the Eastern District of New York.

FBI Director Christopher Wray said the charges “lay bare Huawei’s alleged blatant disregard for the laws of our country and standard global business practices.”

Huawei (pronounced “Wah-way”) is second only to Samsung as the world’s largest supplier of smartphones and has been heavily involved around the world in building the next generation of cellphone networks, known as 5G. The Trump administration has been pushing other countries to exclude the firm from that work, citing security risks.

Last year, six different U.S. intelligence agencies urged Americans not to buy Huawei phones — which are virtually unavailable in the U.S. And President Donald Trump signed a law blocking federal government agencies from using most of the company’s products.

The indictment against a leading Chinese company — and the harsh language senior Trump administration officials used to characterize its conduct — mark a sea change from the Obama administration, which was careful in how it characterized Chinese behavior, even as it secretly saw Chinese hackers siphoning U.S. intellectual property.

Separately, The Wall Street Journal reported on Jan. 16 that federal prosecutors are pursuing a criminal investigation of Huawei for allegedly stealing trade secrets from U.S. business partners, including technology used by T-Mobile to test smartphones.

The investigation grew in part out of civil lawsuits against Huawei, the Journal reported, including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from T-Mobile’s lab in Bellevue, Washington.

In 2012, the House intelligence committee published an investigation concluding that Huawei and another Chinese telecom giant, ZTE, posed a threat to U.S. national security. The firms are essentially arms of the Chinese government, the House concluded, which aid and abet Chinese espionage and could implant spyware that could allow the Chinese government to easily intercept communications or mount cyberattacks on critical infrastructure, such as nuclear plants and power grids.

The companies deny spying for China.

American intelligence officials have long been concerned that Chinese firms insert “back doors” in telecommunications equipment that facilitates eavesdropping. If Chinese companies dominate the construction of 5G networks worldwide, officials fear Chinese spies won’t need back doors — they will have direct access to global telecommunications.

Still, U.S. officials have not put forward hard evidence linking Huawei to spying, and critics have pointed out that American spy agencies vacuum large swaths of private information — with court orders — from U.S. technology companies.

Talks aimed at resolving disputes over Chinese technology and trade policies are due to resume in Washington on Wednesday, led by the U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He.

https://www.nbcnews.com/politics/national-security/u-s-charges-top-chinese-cellphone-maker-huawei-money-laundering-n963646

4 South Korean Crypto Exchanges Team Up to Tackle Money Laundering

By Yogita Khatri

Four major cryptocurrency exchanges in South Korea have partnered on an initiative to combat potential money laundering, as well as schemes that might harm users.

Bithumb, Coinone, Korbit, and Upbit jointly announced Friday that they will create a hotline to share real-time wallet information on suspicious crypto trades. They aim to identify trades with suspected links to phishing, predatory lending, pyramid schemes and other illegal activities and share related information via the hotline, the exchanges said.

The exchanges will also operate a shared database of suspicious wallet addresses that would, for example, be able to help them identify and halt scammers looking to use different exchanges to move a large quantity of cryptocurrency to the same wallet.

The four firms are planning to encourage other crypto exchanges to join the initiative.

The news comes a month after CoinDesk Korea organized a forum with the country’s lawmakers on know-your-customer (KYC) and anti-money laundering (AML) initiatives. Seven crypto exchanges at the time signed an agreement to ensure user protection.

Back in November, the Korean Bar Association, the body governing South Korean lawyers, called on the government to hasten the introduction of blockchain regulations and “prevent side effects involving cryptocurrencies.”

And last June, South Korea’s financial regulator amended the anti-money laundering rules that apply to cryptocurrency exchanges in the country, requiring domestic banks to tighten up monitoring of related bank accounts.

Deutsche Bank Faces Growing U.S Scrutiny Over Money Laundering

By Bloomberg

Deutsche Bank AG is facing broadening U.S. scrutiny as a leading Republican lawmaker joined Democratic colleagues in questioning the company’s steps to combat money-laundering amid reports that its U.S. unit may have been a key conduit for dirty cash.

Representative Patrick McHenry, the top Republican on the House Financial Services Committee, sent a letter Thursday to CEO Christian Sewing, seeking documents that outline what internal and independent reviews have turned up about how the bank shields against illicit transactions.

The North Carolina lawmaker’s move comes as the bank acknowledged that it has received an inquiry from House Democrats who are coordinating efforts to probe the Frankfurt-based lender and as the Federal Reserve looks into the company’s involvement with a scandal-plagued Danish bank.

“It is critically important for the American public to have confidence Deutsche Bank is adequately addressing the vulnerabilities that allowed billions of dollars tied to criminal activities to move through the international banking system,” McHenry said in his letter, which set a Feb. 7 deadline for a response from the bank.

McHenry highlighted Deutsche Bank’s involvement in scandals ranging from “mirror trading” to how its U.S. unit handled billions of dollars in tainted transactions from Danske Bank A/S. Bloomberg reported Wednesday that the Fed is looking into the Danske transactions, adding to the international authorities, including the U.S. Department of Justice, pursuing investigations on those interactions.

In response to the probes, the bank has launched internal reviews and been required to bring in outside firms to investigate its conduct and controls. McHenry requested that findings from those reviews be provided to the committee, even though the reports haven’t been made public.

“We remain committed to providing appropriate information to all authorized investigations,” the bank said Thursday in a statement responding to a request for comment. Deutsche Bank acknowledged earlier Thursday that it is engaged in “productive dialogue” with the House Financial Services and Intelligence Committees, whose leaders have said they will work together on oversight of the company.

Representatives Maxine Waters of California, who leads the financial services panel, and Adam Schiff of California, who leads the intelligence group, have said they’d jointly pursue information on the bank’s dealings with the real estate business of President Donald Trump.

The Democrats, who ascended to chairmanships when their party took control of the House this year, have long been interested in the bank’s ties to the Trump Organization, but previously lacked authority to call witnesses or issue subpoenas for other material.

“The House Financial Services and Intelligence Committees are engaged in productive discussions with Deutsche Bank, and look forward to continued cooperation,” Waters and Schiff said in a statement.

Senate Democrats Elizabeth Warren of Massachusetts and Chris Van Hollen of Maryland last month urged Banking Committee Chairman Mike Crapo to probe the company’s correspondent banking business for vulnerabilities to money laundering.

The German lender has been sanctioned before by the Fed, its primary U.S. regulator. In 2017, the company agreed to pay $41 million to settle allegations its U.S. business failed to keep up sufficient money-laundering protections.

The bank’s faulty monitoring involved billions of dollars in “potentially suspicious transactions” processed from 2011 through 2015, the Fed said, adding that the transactions involved affiliates in Europe that failed to provide “accurate and complete information.”

In corruption-plagued Chicago, high-level shakedown charges loom over mayoral race, candidates

By Aamer Madhani

CHICAGO – Over the last four decades, federal prosecutors have racked up more than 1,700 corruption convictions of elected officials, government employees and contractors, a whopping toll of graft and malfeasance that’s left longtime Chicagoans accustomed to the sight of public servants taking perp walks on the evening news.

Former Illinois Gov. Rod Blagojevichex-Rep. Jesse Jackson Jr. and disgraced public schools chief Barbara Byrd-Bennett are among the many who in recent years have done or are still doing time in the federal penitentiary for using their office to enrich themselves.

More than 30 Chicago aldermen – members of the City Council – have been convicted of political corruption since 1973. Another, Willie Cochran, heads to trial in June to answer charges of wire fraud, bribery, and extortion. Federal authorities say the retired police officer solicited a bribe from a local business owner and made off with $30,000 he collected to help people in his ward.

But the latest political scandal unveiled by federal prosecutors this month has shocked even hardened veterans of Chicago’s political scene – and cast a shadow over next month’s mayoral election.

Authorities say Democratic Alderman Ed Burke, a 50-year veteran of the City Council and chairman of its powerful finance committee, tried to shake down officials of a company that operates dozens of Burger King franchises in Illinois.

The 14-candidate mayoral race already was shaping up to the city’s most competitive in decades. In the weeks since charges of attempted extortion against Burke were unsealed Jan. 3, political corruption has become the dominant topic in the campaign.

“Chicago is still America’s most corrupt city,” said former Alderman Dick Simpson, a political scientist at the University of Illinois at Chicago.

Simpson co-authored a study last year that showed Chicago had tallied more convictions for political corruption than any other U.S. city between 1976 and 2016.

“There is still a patronage problem left over,” Simpson told USA TODAY. “The bold corruption isn’t as rampant as it once was. But as we saw in Alderman Burke’s criminal charge, the old-style politics of shaking down businessmen for illegal bribes or campaign contributions still continues.”

Burke, who is running for re-election to the City Council next month, said he’s “not guilty of anything.”

“I have not done anything wrong,” Burke said. “And I’m sure that once it gets to court it will be clear.”

The nation’s third-largest city abounds with thorny challengesPersistent gun violence terrorizes pockets of the city, taxpayers face $27 billion in unfunded pension obligationsfor city workers, and an ongoing exodus of residents from Chicago complicates nearly all facets of governing.

Mayor Rahm Emanuel, who has served as Chicago’s mayor for nearly eight years, announced in September that he would not seek a third term.

Now, the city’s long-simmering problem with corruption has moved to the forefront.

The four top-funded candidates to succeed him – Cook County Board President Toni Preckwinkle, Illinois Comptroller Susana Mendoza, former Chicago Board of Education President Gery Chico and former U.S. Commerce Secretary Bill Daley – have all found themselves under scrutiny for longstanding ties to Burke.

Preckwinkle, who was endorsed by the powerful Chicago Teachers Union, says she has returned $116,000 in political donations she collected at a fundraiser at Burke’s home last year.

She’s also faced questions about why her administration hired Burke’s son, Edward Burke Jr., in 2014 to serve as the training and exercise manager for the Cook County Homeland Security and Emergency Management Department. The younger Burke left the job last year.

Mendoza was married at Burke’s home in a ceremony officiated by the alderman’s wife, Illinois Supreme Court Justice Anne Burke.

When Mendoza announced she was running for city clerk in 2010, she called Ed Burke her “true champion,” and told supporters the alderman was “primarily the reason why I stand before you today.”

Burke endorsed Chico, who worked as an aide to the alderman 30 years ago and in recent years partnered in a law firm that has earned millions lobbying at City Hall on behalf of Cisco Systems, Exelon Generation and Clear Channel and other companies.

Burke said “there’s probably nobody more qualified” in the mayoral race than Chico.

Daley, commerce secretary under Bill Clinton and chief of staff to Barack Obama, is the son and brother of Chicago’s two most famous mayors – Richard J. and Richard M. Daley.

Burke has given the Daley family at least $30,000 in political contributions over the years, according to the Chicago Tribune. But the Daleys and Burke have also been rivals: Richard M. Daley beat Burke in the 1980 race for the Cook County State’s Attorney’s office.

Former Obama strategist David Axelrod, director of the Institute of Politics at the University of Chicago, said the Burke case “already has had an impact in that there is more focus on ethics than there has been in previous elections.”

“Elections are often turned by things you never anticipate,” he told USA TODAY. “This certainly fits that.”

The four candidates with ties to Burke are working mightily now to distance themselves. Some are trying to use the moment to tout ethics reform plans they say will purge city from the pay-to-play and kickback schemes that have bedeviled the political scene.

Preckwinkle has called on Burke to resign from City Council. She has proposed prohibiting council members from holding outside employment.

Bill Daley has also called for banning outside employment, shrinking the size of the council from 50 to 15 and imposing term limits.

Chico has also backed term limits and called for a ban on most outside income for aldermen.

He also wants to do away with aldermanic prerogative – the Chicago practice, dating back to the 1930s, that gives council members wide latitude over permits, zoning changes and parking and liquor licenses within their wards.

“The time has come to end this old-school practice,” Chico said. “No one deserves this much power.”

Daley says any politician who has been active in Chicago over the last half-century has inevitably had contact with Burke. Still, he said, his three rivals’ ties to Burke should be more concerning to voters than his own.

He said he’s had an “arms-length political relationship with Burke.

“You have to get along for political reasons,” Daley told USA TODAY. “The others have business, and really strong personal or political (ties) with Burke.

I have yet to have someone do a fundraiser of $110,000. … That is a big fundraiser. Getting married in someone’s home is more than just showing up at a political event. Having your law business be very focused on City Hall – where Ed Burke is a force – is a different thing than engaging him around politics every four years when there is a campaign.”

Preckwinkle has also tried to play down her connections to Burke while spotlighting her rival’s connection to the powerful alderman.

“I won’t have my name dragged through the mud over the alleged criminal conduct of Susana Mendoza’s mentor, Gery Chico’s best friend and Bill Daley’s long-time political ally,” she said in a statement.

Mendoza has attempted to turn the spotlight on her rivals without addressing her own connections to Burke.

In a statement to USA TODAY, she said there is a “stark contrast to Bill Daley, who won’t release his tax returns and has chosen instead to hide his conflicts of interest, Toni Preckwinkle, who has a history of lying until she gets caught, and Gery Chico, who spent years lobbying Ed Burke at City Hall and is Ed Burke’s endorsed candidate in this race.”

Some candidates untouched by the Burke scandal question whether any candidate who has long been part of Chicago’s political establishment has the will or ability to bring meaningful change.

Former federal prosecutor Lori Lightfoot, ex-chairwoman of a city police accountability task force, began pushing ethics reform as key to solving other issues soon after she announced her candidacy last year.

She says voters should question the credibility of candidates who waited until the Burke charges landed to talk about corruption.

“If we’re going to truly have a new day in city government where we put people first, then we have to start attacking the elephant in the room,” Lightfoot said. “In some ways, we’re rotting from the inside out. We’re losing population, we’re losing our tax base, and the gap between the haves and have-nots continues to grow. I think there is a moral imperative to do something about it.”

Amara Enyia, a community organizer and municipal consultant running for mayor, said the Burke scandal seems to be spurring voters to consider how corruption connects to the other ails of a cash-strapped city that has seen the closure of dozens of schools in African-American neighborhoods, the shuttering of mental health clinics and disproportionate levels of poverty in black and Latino neighborhoods.

“Voters don’t want business as usual,” Enyia said. “They want someone who does not carry the baggage of corruption.

Burke, who was forced to give up his role as chairman of the finance committee after he was charged, has faced a federal investigation before.

In February 2012, a federal grand jury subpoenaed finance committee records related to the city’s workers compensation program.

Burke denied wrongdoing and vowed to cooperate with authorities. No charges were brought.

In the alleged Burger King shakedown, Burke first applied a light touch on operators of Tri City Foods Inc., the second-largest franchisee of Burger King restaurants with stores in six Midwest states.

Federal prosecutors say in court papers that Burke told the company’s owner that he had been holding up permits to renovate one of its Burger King restaurants in his wardbecause constituents expressed concerns about trucks parking there overnight.

Prosecutors say the company promised to address the matter.

Prosecutors say Burke told owner Shoukat Dhanani and another Tri City official that he was a partner in a law firm that works with clients on property tax appeals.

Dhanani told the FBI that he “read between the lines” that Burke was suggesting he’d smooth the permits in exchange for their business, prosecutors say. Dhanani said he told Burke that his company already had legal representation.

Less than two weeks later, prosecutors say, another official with the restaurant group called to give Burke an update on steps they had taken to address concerns about the trucks parking at the restaurant.

This time, prosecutors say, Burke was more direct.

“Good,” Burke said, in a conversation the FBI says was wiretapped. “And, um, we were going to talk about the real estate tax representation and you were going to have somebody get in touch with me so we can expedite your permits.”

Dhanani and others working for the restaurant group said Burke pressed them to give his law firm their business, prosecutors say. The FBI surveillance also picked up talk from the alderman that suggested he wanted the company as a client, they say.

Burke slow-walked the permitting process for months, prosecutors say, causing the Burger King franchise to lose 40 to 50 percent in sales because it couldn’t open an unfinished dining room to customers.

Dhanani told the FBI he eventually relented and informed Burke his company would hire his law firm, prosecutors say, but he never followed through.

Dhanani also told the FBI that he made a $10,000 political donation to Preckwinkle at the urging of Burke, prosecutors say.

Preckwinkle said her campaign returned the contribution to the donor because it exceeded the $5,600 contribution limit for individual contributions.

Former federal prosecutor Patrick Cotter, a white-collar defense attorney in Chicago, said an alarming number of city politicians have been caught committing graft and stealing taxpayer money.

Still, he said, it’s important to keep in perspective that Chicago is hardly alone in having to deal with political corruption.

Federal prosecutors in Los Angeles tallied more than 1,500 convictions for public corruption between 1976 and 2016, according to Simpson’s study. Federal prosecutors in New York counted more than 1,300 convictions during those years.

“The problems here are not because every once in a while an alderman gets caught doing something crooked,” Cotter said. “It is a bad thing, and it’s important to prosecute. But it’s not why the schools are not good. It’s not why we have a homeless issue in this city that’s insane. It’s not why we have the pension problem that is going to make life hard for every Chicagoan’s kids and their grandkids.

“There are basic structural problems in this city, and solving corruption alone is not going to bring an end to these big issues.”

https://www.usatoday.com/story/news/2019/01/23/chicago-federal-political-corruption-scandal-mayor-election-alderman-ed-burke/2581411002/

 

Why Aren’t Hedge Funds Required to Fight Money Laundering?

By Heather Vogell

For many years, the federal government has required banks, brokerages and even casinos to take steps to stop customers from using them to clean dirty money.

Yet one major part of the financial system has remained stubbornly exempt, despite experts’ repeated warnings that it is vulnerable to criminal manipulation. Investment companies such as hedge funds and private equity firms have escaped multiple efforts to subject them to rules meant to combat money laundering.

The latest attempt, which began in 2015, appears to have ground to a halt, according to sources familiar with the process.

“You’ve got several trillion dollars, the management of which nobody is required to ask any questions about where that money is coming from,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency Coalition. “This is very problematic.”

The Financial Action Task Force, an intergovernmental organization that seeks to combat money laundering around the world, characterized the lack of anti-money laundering rules for investment advisers, such as those who manage hedge funds and private equity funds, as one of the United States’ most significant lapses in a report two years ago.

The push to regulate hedge funds and similar investment firms took off after the Sept. 11 attacks, when Congress passed the Patriot Act. Among other things, the law required federal agencies to take new steps to keep illicit money out of the U.S. financial system. The Treasury Department exempted investment firms at the time, planning to return to them after tackling other sectors. “Eighteen years ago, the Patriot Act required investment companies to install their own AML [anti-money laundering] programs,” said Elise Bean, a former staff director of the U.S. Senate investigations subcommittee who supports the proposed rule. “But Treasury has yet to enforce the law,” she said.

The Treasury Department, through its Financial Crimes Enforcement Network, or FinCEN, initially proposed rules in 2002 and 2003 requiring firms like hedge funds and their investment advisers to adopt anti-money laundering measures. That attempt languished as FinCEN waited for the Securities and Exchange Commission to retool its approach, said Alma Angotti, who wrote the original proposal while at FinCEN and is now co-head of global investigations for the consulting firm Navigant. So much time passed that FinCEN withdrew the proposed rules in 2008. FinCEN then launched its second attempt to impose such regulations seven years later.

That second attempt is the one that has now crawled to a virtual stop. “It’s the kind of thing that should have taken two to three years, not 17,” said Joshua Kirschenbaum, senior fellow focusing on illicit finance at the nonpartisan think tank the German Marshall Fund and a former supervisor in FinCEN’s enforcement division.

Hedge funds and private equity funds can be attractive to big-dollar launderers who prize the funds’ anonymity, the variety of investments they offer and, in some cases, their use of off-shore tax and secrecy havens, experts say. After 2001, the number of annual hedge fund launches surged more than threefold, according to one report, and investments by high net worth individuals exceeded those of institutional investors.

“They’re a black box to everyone involved,” Kirschenbaum said. “They’re sophisticated and can justify moving hundreds of billions.”

Money launderers seek to hide illicit proceeds by making it appear they come from legal sources. Laundering hides crimes as diverse as drug dealing, tax evasion and political corruption. Experts say the massive, untracked streams of cash it creates can fuel more illegal activity, including terrorism.

That’s one reason banks are required to implement protocols aimed at identifying and reporting dodgy transactions to authorities, and verifying that customers are who they say they are.

FinCEN’s latest proposed rule targets investment advisers who manage funds for clients such as hedge funds. The rule would apply primarily to the largest advisers with $100 million or more in assets under management, who are required to register with the SEC.

“As long as investment advisers are not subject to AML program and suspicious activity reporting requirements, money launderers may see them as a low-risk way to enter the U.S. financial system,” the proposed rule states, noting that in 2014, 11,235 advisers registered with the SEC reported roughly $61.9 trillion in assets for their clients.

Foreign political corruption is one of the money laundering risks for investment advisers, Angotti said. Instead of needing quick access to their money, the ultra-wealthy involved in such graft often want to park their illicit profits somewhere safe, making them more tolerant of fund rules that can delay withdrawals for a year or more.

Having federal anti-money laundering protocols is no panacea. Regulators periodically conclude that certain banks and brokerages are not abiding by various aspects of the rules. Last year, for example, regulators announced more than $2 billion in penalties against Morgan Stanley Smith Barney, Charles Schwab & Co., UBS Financial Services, CapitalOne Bank and others, according to a company that tracks such enforcement. (The companies neither admitted nor denied the allegations against them.)

Experts say it’s impossible to quantify how much money may be laundered through hedge funds. And prosecutors retain the right to charge such a fund if it is proven to have participated in money laundering; but without the FinCEN rules, regulators cannot fine the fund’s managers for, say, not taking steps to prevent abuse.

There are multiple reasons the attempts to adopt rules have bogged down. The principal ones include the financial industry’s cascade of requests for modifications to the rule and inertia among federal bureaucracies, according to people familiar with the process.

The industry has tended to proclaim that it favors the principle of anti-money laundering rules — while simultaneously contesting many of the specifics. Several industry groups contend that the proposed rule overstates the risk that private equity funds will be used for illicit finance.

“We’re very supportive of having an aggressive AML regime,” said Jason Mulvihill, general counsel of the American Investment Council, which represents private equity funds. But, he added, “if you were trying to launder money, the last place you’d want to put it is in a private equity fund” because of the industry’s standard practice of requiring investors to leave their investments in place for 10 years. And, he added, most private equity firms already have some anti-money laundering policies in place, just in case.

Mulvihill’s organization has proposed that FinCEN exclude advisers who require investors to hold their investment for more than two years — a carve-out included in the original FinCEN proposal — which effectively would allow most private equity funds to remain exempt from the anti-money laundering rule.

The Investment Adviser Association also supports the goal of the regulations, said Karen Barr, the group’s president and CEO. But it worries that some advisers will need to implement costly changes that aren’t warranted. Those include advisers who also have clients for whom they provide recommendations, not money management. “We think investment advisers are a low risk because they don’t hold assets,” she added. More than half have 10 employees or fewer, she said, and “the sort of cumulative effect of all these regulations on small shops is really burdensome.”

In response to a request for an interview, a spokesman for the Managed Funds Association, which represents hedge funds, referred to a letter the group sent FinCEN in 2015, in which it stated that it “strongly supports adoption of the Proposed Rule.” The letter also included 25 pages of “background,” suggestions and requests for clarification.

Industry concerns were not the only reason for the rule’s stasis, said former FinCEN employees who spoke with ProPublica. They said staffing, competing agency priorities and other factors also contributed. The Trump administration’s general slowdown in rule-making added to delays, they said.

The rule’s implementation would also require coordination with the SEC, whose job it would be to make sure investment advisers are complying. Policing advisers has not been a major priority for the agency, which five years ago examined only 8 percent of registered advisers. The agency increased the number to 15 percent in 2017.

FinCEN and Treasury spokespeople did not return calls or provide answers to questions about the proposed rule that ProPublica sent by email. Many Treasury employees are not working because of the government shutdown. A spokesman for the SEC said the agency could not answer questions about the rule until the shutdown ended.

Seeing the rule flounder is vexing for Angotti. Some firms may be effectively executing their own anti-money laundering measures, she said. But without more scrutiny, she said, “who knows?” Such steps are expensive “and it requires them to turn away business,” Angotti said. “Without strong enforcement, it’s hard to get businesses to do this stuff.”

https://www.propublica.org/article/why-arent-hedge-funds-required-to-fight-money-laundering