DOJ Assistant AG Caldwell Delivers Remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies

Today, Assistant Attorney General Leslie Caldwell delivered remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies. Speaking on the DOJ Criminal Division’s approach to the developing landscape of virtual currency, Caldwell acknowledged the legitimate uses of virtual currencies, such as having the ability to lower costs for brick and mortar businesses and its potential to promote a more efficient online marketplace, while also addressing the Department’s concern for the criminal activity surrounding  virtual currencies, noting, “virtual currency facilitates a wide range of traditional criminal activities as well as sophisticated cybercrime schemes.” Citing recent actions against various individuals and groups involved in criminal activities that “sought to exploit decentralized systems such as Bitcoin” – specifically, Silk Road and Ross Ulbricht; and Carl Force and Shaun Bridges, both involved in the Baltimore Silk Road Task Force – Caldwell stressed that there are “many exchanges that don’t concern themselves with following the law.” She explained that the primary legal bases for enforcement are money services business, money transmission, and anti-money laundering statutes, as well as state money transmitter licensing laws and, in some states like New York, virtual-currency specific licensing requirements. Caldwell also noted the Department’s partnership with FinCEN, summarizing its involvement in the Ripple Labs resolution to show that “compliance and remediation can lead to a more favorable resolution of criminal investigations.”  Further, Caldwell observed that while there is no “one-size-fits-all” compliance program, the adherence to regulations and state licensing laws by those involved in virtual currency businesses will reduce liability and complying with anti-money laundering guidelines will allow “the legitimate use of virtual currency to grow and be responsive to infiltration and abuse by criminal elements.”

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Alleged Ringleader of Global Cybercrimes Extradited to United States to Face Charges

Today, the DOJ unsealed an eighteen-count indictment in Brooklyn, New York charging a Turkish citizen (Defendant) with organizing worldwide cyberattacks against at least three U.S. payment processors’ computer networks. The Defendant’s organization allegedly used “sophisticated intrusion techniques” to hack the computer systems, stealing prepaid debit card data and subsequently using the stolen data to make ATM withdrawals in which standard withdrawal limits were manipulated to allow for greater withdrawals. According to the indictment, the Defendant managed a group of co-conspirators responsible for distributing the stolen card information to “cashing crews” around the world, who then used the information to conduct tens of thousands of fraudulent ATM withdrawals and fraudulent purchases. Within two days – February 27 and 28, 2011 – the DOJ alleges that the “cashing crews withdrew approximately $10 million through approximately 15,000 fraudulent ATM withdrawals in at least 18 countries.” The remaining two operations, occurring in late 2012 and early 2013, resulted in ATM withdrawals of roughly $5 million and $40 million, respectively. The Defendant, along with other high-ranking members of the conspiracy, received the funds from the fraudulent operations via wire transfer, electronic currency, and personal delivery of U.S. and foreign currency. The Defendant was arrested in Germany on December 18, 2013, and was extradited to the United States on June 23, 2015. The charges against the Defendant follow previous charges against members of the conspiracy, including the arrest of a member of the New York cashing crew.

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FIFA Investigation Updates: Plea Agreement with American FIFA Official Unsealed

On June 15, the U.S. District Court for the Southern District of New York unsealed a 2013 plea agreement under which American FIFA Executive Committee Member Chuck Blazer secretly pleaded guilty to ten charges related to corruption in the soccer organization. Mr. Blazer agreed to forfeit more than $1.9 million, and to pay back-taxes and penalties on more than $11 million in unreported income.

According to the plea agreement, Mr. Blazer began cooperating with the DOJ’s investigation in December of 2011, even agreeing to work undercover making secret recordings. The unsealing of the plea agreement is the latest development in the ongoing fallout from the racketeering, wire fraud, and money laundering indictments announced three weeks ago by the DOJ against soccer executives at FIFA and others tied to the organization. Mr. Blazer’s testimony at his plea hearing in November 2013 was unsealed two weeks ago.

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DOJ Reaches Agreement with Government Contracting Company and Former VP over Alleged Bribery

On June 16, the DOJ entered into a non-prosecution agreement with a Florida-based defense and government contracting company to resolve allegations that it conspired to bribe Kuwaiti officials for the purpose of securing a government contract. In connection with his alleged involvement in the bribery scheme, the company’s former vice president (VP) also pleaded guilty to one count of conspiracy to violate anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). In 2004, Kuwait’s Ministry of the Interior initiated the Kuwait Security Program, a homeland security project intended to “provide nationwide surveillance for several Kuwaiti government agencies, primarily through the use of closed-circuit television cameras.” The program was divided into two phases: (i) the planning and feasibility period; and (ii) the installment of equipment, methods, and programs suggested during the first phase. According to the non-prosecution agreement, the company and its former VP schemed to ensure that the company won both the Phase I and II contracts. Specifically, the company, its former VP, and other senior employees established a shell company to bid on Phase I, giving the company an advantage in the Phase II bidding, which contained the more lucrative revenues. The shell company secured the Phase I contract for approximately $4 million, and half of those funds were allegedly diverted to a consultant who bribed Kuwaiti officials to assist the government contracting company in obtaining the Phase II contract. Admitting to the DOJ Criminal Division’s charges and cooperating with the federal investigation, the company has agreed to (i) pay a $7.1 million penalty; (ii) conduct a review of its current internal controls, policies, and procedures, and make any necessary changes to ensure that its record keeping and anti-corruption compliance program are sufficient; and (iii) report annually to the Criminal Division and the U.S. Attorney’s Office of the Eastern District of Virginia on the remediation and implementation of its compliance program and internal controls, policies, and procedures.

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Silk Road Operator Sentenced to Life in Prison

On May 29, US District Judge Katherine Forrest sentenced Ross Ulbricht – operator of the online dark market known as Silk Road – to life in prison without the possibility of parole. As previously reported, Ulbricht was found guilty by a federal jury on February 4, 2015 for his alleged creation, ownership, and operation of a website where activities included narcotics distribution, computer hacking, and conspiracy. In addition to a life in prison sentence, Ulbricht has been ordered to pay over $180 million to the federal government. During the year and a half-long legal process of convicting and sentencing Ulbricht, the DOJ also charged two former federal agents with wire fraud and money laundering of digital currency, and held several government auctions to sell bitcoins seized during its investigation of Silk Road.

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FIFA Investigation Updates: President Resigns Amidst Corruption Probe; Interpol Issues Red Notices For Six

On June 2, continuing the fallout from the racketeering, wire fraud, and money laundering indictments announced last week by DOJ against soccer executives at FIFA and others tied to the organization, FIFA President Sepp Blatter announced his resignation, less than a week after being re-elected to lead soccer’s governing body.  It has been reported that Mr. Blatter is the focus of the same federal corruption investigation. Blatter’s announcement was a reversal from his remarks after winning re-election, stating then “Why would I step down?  … That would mean I recognize that I did wrong.”

One day after Blatter’s announcement, Interpol issued Red Notices for six individuals linked to the FIFA corruption investigation, including for two former FIFA officials. The two former FIFA executives, Jack Warner, a Trinidad & Tobago national and former FIFA vice president and executive committee member, and Nicolás Leoz, a Paraguayan national and former FIFA executive committee member, have been arrested in their home countries. The other four Red Notices, which alert Interpol’s member nations that arrest warrants have been issued by a judicial authority (here, the United States) and seek the location and arrest of wanted persons with a view to extradition, were issued for four South American nationals and corporate executives.

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Three Acquitted In UK Trial For Alleged Nigerian Corruption

On May 27, a London jury found three employees of Swift Technical Solutions Ltd (Swift) not guilty of corruption charges in connection with alleged corrupt payments to tax officials in Nigeria.  The SFO announced the verdict on June 2.  As to one defendant, the jury was unable to reach a verdict on one count and was discharged; the SFO informed the Southwark Crown Court that it would not seek to retry that defendant on that count and the court entered a verdict of not guilty.

The SFO brought the corruption charges in late 2012 after  a two-year investigation related to the tax affairs of a Swift Nigerian subsidiary. The SFO alleged that the Swift employees paid bribes totaling approximately £180,000 in 2008 and 2009 to Nigerian tax officials to avoid, reduce, or delay paying tax on behalf of workers placed by Swift.  The alleged bribes occurred before the enactment of the U.K. Bribery Act and allegedly went to agents of two Nigerian Boards of Internal Revenue – the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue.  The SFO did not charge Swift with any criminal offense, citing its cooperation with the agency.

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DOJ Indicts 14 In Global FIFA Corruption Crackdown, Announces 6 Guilty Pleas

The DOJ on May 27 unveiled indictments in one of the most sprawling, long-running alleged corruption rings in recent decades, charging nine executives of FIFA or related soccer governing bodies, as well as five sports marketing or broadcast executives, with racketeering, wire fraud, and money laundering.  The defendants were charged with offering and accepting over $150 million in bribes and kickbacks over a 24-year period related to the media and marketing rights for soccer tournaments.  In addition, the DOJ unsealed guilty pleas previously entered by four individual and two corporate defendants.

Seven of the defendants were arrested in Switzerland as a result of U.S. arrest warrants, pending extradition, continuing the trend of international cooperation between U.S. and foreign anti-corruption enforcement agencies.  Continuing a different trend, one of the individuals who pleaded guilty was a former FIFA executive who acted as an informer for the DOJ, including by taping key conversations.

While the indictment mainly concerned media and marketing rights, at least one reference was made to alleged bribes related to voting for World Cup host countries, and the Swiss government announced an inquiry into the awarding of the 2018 and 2022 World Cups.  Additional charges appear likely to be brought in the future, whether by the U.S. or other jurisdictions.  The U.S.’s jurisdiction to bring the charges is also likely to be challenged.

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DOJ Announces Plea Agreements with Five Major Banks for Manipulating Foreign Currency Exchange Markets

On May 20, the DOJ announced plea agreements with five major banks relating to manipulations of foreign currency exchange markets. Four of the banks pled guilty to felony charges of “conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market.” These four banks agreed to pay criminal fines totaling more than $2.5 billion and to a three-year period of “corporate probation,” which will be “overseen by the court and require regular reporting to authorities as well as cessation of all criminal activities.” A fifth bank pled guilty to manipulating benchmark interest rates, including LIBOR, and to violating a prior non-prosecution agreement arising out of the DOJ’s LIBOR investigation. That bank agreed to pay a $203 million criminal penalty. The DOJ emphasized that these were “parent-level guilty pleas” to felony charges and that it would continue to investigate potentially culpable individuals. The five banks also agreed to various additional fines and settlements with other regulators, including the Federal Reserve, the CFTC, NYDFS, and the U.K. Financial Conduct Authority. Combined with previous payments arising out of the FX investigations, the five banks have paid nearly $9 billion in fines and penalties.

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FinCEN Names Jamal El-Hindi as New Deputy Director

On May 21, FinCEN announced Jamal El-Hindi as its new Deputy Director. Since January 2015, El-Hindi has been serving as the agency’s acting Deputy Director, and previously served as Associate Deputy Director for the Policy Division. Prior to joining FinCEN in June 2006, El-Hindi oversaw OFAC’s Compliance Outreach Division, Licensing and Policy Division as the Associate Director for Program Policy and Implementation, and was an Attorney-Advisor in the Office of Chief Counsel (Foreign Assets Control) within Treasury’s Office of General Counsel, serving on economic sanctions programs as a legal advisor. In his role as FinCEN’s Deputy Director, El-Hindi will work alongside law enforcement, intelligence, financial, and regulatory communities “to ensure the effective coordination of anti-money laundering and anti-terrorist financing initiatives.”

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FinCEN Recognizes Law Enforcement Agencies For Use of BSA Data, Holds First-Ever Law Enforcement Awards Ceremony

On May 12, FinCEN held its first-ever Law Enforcement Awards, recognizing law enforcement agencies that made effective use of BSA data in criminal investigations which lead to a successful prosecution. The awards were presented in six different categories: (i) SAR Review/Task Force; (ii) Third Party Money Launderers; (iii) Transnational Organized Crime; (iv) Cyber Threats; (v) Significant Fraud; and (vi) Transnational Security Threats. In prepared remarks, FinCEN Director Jennifer Shasky Calvery noted the importance of BSA data to the financial industry, stating that the data is used to confront serious threats to the U.S. financial system including massive fraud schemes, cyberthreats, foreign corruption, drug trafficking, and terrorist organizations.

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FinCEN Resolves First Enforcement Action Against Virtual Currency Exchange

On May 5, a virtual currency company and its subsidiary agreed to pay a $700,000 civil money penalty for violating multiple provisions of the Bank Secrecy Act (BSA), in which both companies acted as a money service business and seller of virtual currency without properly registering with FinCEN, as well as, failed to implement and maintain an adequate anti-money laundering (AML) program. Furthermore, according to a Statement of Facts and Violations, FinCEN also charged the subsidiary for not filing or untimely filing suspicious activity reports related to several financial transactions. In addition to the civil money penalty, terms of the agreement require both companies to, among other things, (i) engage in remedial steps to ensure future compliance with AML statutory obligations; and (ii) enhance their current internal measures for compliance with the BSA. In a separate DOJ announcement, both companies entered into a settlement agreement to resolve potential criminal charges with the U.S. Attorney’s Office in the Northern District of California. Under terms of the DOJ settlement, both companies agreed to forfeit a total of $450,000, which will be credited to satisfy FinCEN’s $700,000 penalty, in exchange for the government not criminally prosecuting the companies for the aforementioned conduct.

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DOJ and International Investment Bank Enter Into Plea Agreement to Resolve LIBOR Manipulation Claims, Bank Agrees to Pay $2.5 Billion Penalty

On April 23, the DOJ announced that an international investment bank and its subsidiary agreed to plead guilty to wire fraud for its alleged conduct, spanning from 2003 through 2011, in manipulating the London Interbank Offered Rate (LIBOR), which is used to set interest rates on various financial products. In addition, the DOJ announced that the bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust claims for manipulating both the U.S. Dollar LIBOR and Yen LIBOR. Under terms of the agreement, the $2.5 billion in penalties will be divided among U.S. and U.K. authorities – $800 million to the Commodity Futures Trading Commission, $775 million to the DOJ, $600 million to the New York Department Financial Services, and roughly $340 million to the U.K.’s Financial Conduct Authority. The authorities also ordered the bank to install an independent compliance monitor.

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Former Export-Import Bank Loan Officer Pleads Guilty to DOJ Charges of Accepting Bribes

The DOJ released a statement regarding a plea agreement made with a former loan officer of the Export-Import Bank. According to the DOJ, the former loan officer accepted bribes totaling over $78,000 in exchange for providing favorable action on loan applications. From June 2006 through December 2013, the former loan officer managed the review of credit underwriting for companies and lenders submitting financing applications to the Export-Import Bank and admitted to recommending the approval of unqualified loan applicants on 19 different occasions. In addition, the former loan officer also pleaded guilty to improperly expediting the process of certain applications. The sentencing hearing is scheduled for July 20, 2015.

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U.S. Senate Confirms Lynch As Next Attorney General

On April 23, the U.S. Senate confirmed Loretta Lynch to be the next U.S. Attorney General with a 56-43 majority vote, succeeding current Attorney General Eric Holder. With the confirmation, Lynch, who currently serves as the U.S. Attorney for the Eastern District of New York, becomes the first African-American woman to lead the DOJ.

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