2018 Review of our Financial Crime Blog

By Christine Duhaime | February 16th, 2019

Every year, we review the analytics of the Financial Crime Blog at year end, and share the results of what countries visit the site; what stories attract them to it; and what sorts of financial crime information people are looking for. Here is our review, below.

For 2018, the number of hits to our website exceeded 1 million views, which is consistent with our normal range, however, many of those are bots and crawlers which scrape websites daily and so our readership is significantly less when crawlers and bots are factored in.

Number of countries that read our Financial Crime Blog in 2018: 

  • 185

Top 10 countries that read our Blog regularly by order of readership: 

  • Canada
  • United States
  • UK
  • China
  • India
  • Australia
  • France
  • Hong Kong
  • Singapore
  • Germany

Top 5 articles read on our Blog in 2018:

Number of cities where readers came from in 2018:

  • 3,835

Fun facts from 2018:

  • US federal law enforcement agencies mostly read up about Canada’s money laundering issues and money movements from China to Vancouver, as well as story 4, above, about the Canadian investor jailed in the Dominican Republic, as well as all things Bitcoin or Iran-related and the fentanyl crisis.
  • Iran, which ranked 25th in terms of countries reading our Blog, came to read about what the US says about their developments in the digital currency space, they also came to learn about AML law, and about the convicted Iranian in Toronto who left Iran with billions of dollars allegedly stolen from a bank and was given Canadian citizenship.
  • Globally, there was a marked shift towards readers who were from institutional investment firms, Fortune 500 companies and senior agencies and organizations such as the OECD, World Bank, EU Parliament, several agencies of the UN and such.
  • There was also a shift to increased readership of articles that address risks of digital currencies and money laundering, terrorist financing, tax evasion or sanctions avoidance and movements of money from China illegally to places like Vancouver.
  • Mostly just readers from the US came to read about the fentanyl crisis, even though per capita, it has killed more people in Vancouver than in any US city.
  • In terms of banks, way more US correspondent banks and bank regulators in the US visited our Blog this year, and they read stories about money laundering in Canada, digital currencies and how money is moved from China to Vancouver.
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Vancouver, Venezuela, Crypto

By Christine Duhaime | February 15th, 2019

According to this article in Vancouver, a Vancouver based charity called GiveCrypto.org, is sending, transferring or donating (perhaps all 3), digital currencies from the US (via Coinbase, a digital currency exchange) to people in Venezuela. The article does not say who receives the digital currencies in Venezuela, how they receive it or how much they receive. Is it via an exchange in Venezuela? Does that exchange trade the sanctioned Petrocoin? Are any persons on sanctions lists in Canada or the US receiving the digital currency? So many issues – so few answers.

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How artificial intelligence is changing investigations, policing and law enforcement

By Christine Duhaime | February 13th, 2019

Artificial intelligence is having a significant positive impact on the ability of law enforcement to identify criminals and to detect and investigate crime.  In the process, it is changing the face of policing.

Early AI in Money Laundering

AI in law enforcement is not new. Two areas where AI was used early on in law enforcement were for border control and anti-money laundering law in the US.

The US Customs and Border Protection Agency created an AI system using rule-based reasoning to identify suspiciousness for immigration purposes in the mid-1980s.

And in 1993, FinCEN developed a system called the FinCEN Artificial Intelligence System, which links and evaluates financial transactions for indications of suspicious transactions characteristic of money laundering or terrorist financing to identify unknown, high value leads for investigation and, if warranted, prosecution.  In its first two years, FinCEN’s AI System identified over US$1 billion in potential laundered funds that humans alone could not detect.

AI systems are changing investigations.  They allow investigators to detect criminality in ways not before possible of transactional data to be processed and linked to identify patterns and connections.  AI systems can process big data rapidly, reducing the amount of time investigators would otherwise spend manually combing through large data sets for leads and patterns in financial crime. In financial crime law especially, investigations are often hampered by manpower shortages.  Mining and processing by data solve manpower shortage problems and accelerates pattern detection to identify anomalous behaviour and detect criminal actors.

This is especially useful for transnational criminal organizations.  They usually involve repetitive patterned behaviour in select areas of criminality, such as drug trafficking, extortion, cybercrime and money laundering.  They also involve multiple offenders connected through various relationships such as family, friendship or business associates.  In terms of behaviour, they typically travel and dine together. Learning and linking associations between members of criminal organizations and their business enterprises is a critical part of how anti-money laundering legal experts and law enforcement uncover criminal activities and criminal networks.  Combining AI and traditional link analysis in investigations is enabling the public and private sector to have deeper intelligence.

At FinCEN, because specialized money laundering and terrorist financing expertise is distributed among FinCEN agents, the system incorporates a wide range of shared knowledge.  The design of the suspiciousness evaluation modules, with individual rule sets addressing specific money laundering indicators, facilitates the incorporation of additional indicators and improves accuracy of findings. Using AI technology, an organization like FinCEN can identify multiple businesses linked to certain financial transactions to detect money laundering activities, criminal associations to support enforcement.

Facial Recognition

Facial recognition is undergoing a renaissance with AI and changing policing.  Facial recognition was developed in the late 1980s by the Central Intelligence Agency.  Back then, the CIA’s facial recognition system combined image analysis technology with collateral information tied to a database that was used to identify people.  Since then, facial recognition technology has played a role in law enforcement since the mid-1990s.  For example, border agencies at airports in China and Japan have deployed facial recognition systems for years to control immigration and in the process, built two of the world’s largest facial recognition databases.  China’s federal facial recognition database is tied to national identity cards and intelligence agencies.

The Jiao Tong University has built a facial recognition system that can identify criminals with 89.5% accuracy rate using machine vision algorithms based on examinations of photographic records of known criminals and non-criminals.

The FBI has facial recognition systems as well that access and scan over 411 million photos in state and federal databases.

US Customs and Border Patrol is developing drones with sensors, cameras and facial recognition capabilities to allow it to film persons near borders to see if they are matched in law enforcement databases using remote drones, including matching from the IDENT database which has more than 170 million facial images collected from foreign nationals as they enter the US.

The UAE has built police robots whose primary function is to scan faces using facial recognition programs for enforcement.

In the private sector, Google and Facebook apply facial recognition on photographs voluntarily uploaded by users on their platforms, and they group photographs of people together, informing their AI systems to associate photographs with the same person automatically.  However, such automatic linking of a person by tech companies raises privacy law issues in respect of the collection, retention and use of the likeness of a person, and issues of informed consent.

Also in the private sector, organizations such as casinos, use facial recognition programs to take images of the public and extrapolate certain information for compliance and enforcement purposes to detect if a person is to be prohibited from gambling for any number of reasons, including if they are a member of organized crime.

CCTVs in public places operate the same as in casinos in the sense that facial recognition systems work with machine learning systems to scan faces and inform law enforcement of suspicious activities, such as when the same people appear at the same locations more often than statistically probable.

For example, facial recognition and machine learning tech can detect if the same person interacts on the same street corner frequently and the system may then predict that the person is selling illegal drugs or will record a person entering a high end hotel at the same time frequently and predict that they are selling prostitution services.

There are obvious concerns with such judgement calls.  In the example above, the person who interacts at the street corner frequently could be a girl selling Girl Guide cookies and not a drug trafficker.

For a response to be sufficient to justify reasonable grounds to suspect and justify a search or seizure or reporting, it must be accurate and be based on an understanding of the law.  Systems are only as good as the coding and if that coding involves criminal prosecutions and is not done with lawyers, it may fail constitutional thresholds.

Predictive AI

Another area where AI is changing investigations and law enforcement is predictive AI.

Predictive AI is expected to become embedded in policing to predict and stop crimes before they happen.  In the future, it is highly probable that a machine will identify criminals all on its own and alert law enforcement on how and where to locate a suspect, with the evidence detailing the crime packaged by systems for arrest and prosecution.

Chicago is already evaluating predictive AI with the use of public data, such as social media data, and other sources to identify people likely to be criminals before they commit crimes.  The research is controversial because it assumes criminality can be predicted.

Automating the process cuts down on the time a human would take to identity the data and come to the same conclusion.  The advantage of using data vacuumed from a social media account is that it can pick up repeat information (such as the hashtag #drugs), correlations among social media posts, repeat locations, connections and references to other people that a human could not detect without years of analysis.

Moreover, using social media as the collateral information allows financial crime investigators to detect, within seconds, things that are out of pattern – for example, if a person has geo-tagged frequent visits to expensive resorts or restaurants that are inconsistent with their salary, that may be indicative of possession of proceeds of crime.

Today, we can identify criminal actors in organized crime before there is sufficient evidence to prove criminal conduct but that is markedly different from predicting criminality of an individual.  With respect to the former, identity is based on the fact that members of criminal organizations and gangs are part of the same circles and networks.  Statistically speaking, they are likely to so-called infect each other with criminal interests.

It sounds great in theory that we can predict criminality but there are risks because machines are not infallible and neither are humans.  Often humans make bad judgment calls in their life decisions, or lack the maturity, intellect or education to comprehend the consequences of what they post online for the world to see and how it is being used. People who are unaware of data vacuuming may be harmed by the storing of their social media in a permanent database when it is later used for criminal predictability.

Borg Collective?

Accessing big data and undertaking data vacuuming and then applying machine learning to that data may lead to a form of constructive knowledge, legally speaking, allowing for law enforcement to have constructive awareness of predictions of criminality, ignoring the individual reasonable suspicion requirements.  One scholar has suggested that this would turn our police agencies into something like the “Hive Mind” that collects and processes data from millions of datasources, CCTVs and drones, similar to the Borg Collective in Star Trek allowing police agencies in the future to rely on global real-time updated databases in respect of individuals for law enforcement.

Other AI in Law Enforcement

In other contexts, securities commissions, including the US Securities Exchange Commission and the Australian Securities and Investments Commission, use AI to detect rogue market behaviour among traders and brokers. Nasdaq is looking at developing AI software to use machine intelligence to understand the language used by traders and identify key indicators of fraud or criminal activities when they happen.

In the same vein, autonomous boats equipped with sonar AI capabilities are used to detect and report illegal fishing in oceans and other illegal activities, such as drug trafficking off coastal waters.

AI is also being used to create safer cities.  Students at Berkeley University developed an app that brings real-time crime incident information to users, using historic and location data to identify safe navigation paths and alerts.  The app features a dynamic crime map, notifications about nearby crimes and automated reporting of incidents.  It draws upon various data sources, including police dispatch data, crowd-sourced information and historic data.

The world is rapidly changing with AI and policing is no different.

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Listed terrorist organization asks for Bitcoin

By Christine Duhaime | January 30th, 2019

According to an article in CCN today, a person who may be a supporter of HAMAS, a listed terrorist organization, allegedly took to social media – in particular Twitter – to solicit financial support with Bitcoin. The Twitter account is still operational even though, if the story is accurate, the tweet constitutes an attempt at terrorist financing given that HAMAS is a listed terrorist organization. There is no way provided in the tweet to send Bitcoin except that the tweet contains a photo of the Shehab News Agency. The US government and others believe HAMAS is materially funded by Iran, although there continue to be debates about their closeness.

The article on CCN mentions the foray of Iran and other states into digital currencies, a topic that we covered in the past here, here and here. There is a concern that Bitcoin and other digital currencies, as well as currencies derived from mining, can be used for financial crimes, including sanctions avoidance and terrorist financing without visibility on the part of the banking partners or law enforcement agencies.

That is because digital currency exchanges, to the extent they are used, are largely unsophisticated in financial crime and in on-boarding at the standard we use at financial institutions; and even if a few have competent AML/CTF procedures in place that are operational, they have no control over the actual control of external wallets which hold digital currencies.

With respect to mining, they cannot know who is mining what where when or how, or where the digital currencies mined are sent. Added to which, several countries are creating initial coin offerings to engage in sanctions avoidance and a Vancouver digital currency currency is known to have listed and traded a digital currency called the NEM, whose platform the Venezuela government said it was using for sanctions avoidance, which opens it up to similarly listing and conducting financial transactions for the Venezuela Petra coin. Now just that, the Vancouver digital currency exchange transacted not just in any NEM, but stolen NEM that was proceeds of crime.

A number of Bitcoin people are relocating to Malta because it is ICO-friendly and has extremely relaxed money laundering controls, as well as at least one solid banking connection to Iran and Venezuela – not unsurprisingly, the two countries working feverishly on sanctions avoidance strategies with digital currencies.

Digital currency exchanges and banks that bank them should refresh their memory in respect of what I call crystal ball liability when it comes to terrorist financing, namely that if you provide banking or digital currency exchange services and the resulting funds in the hands of the recipient are used to harm US citizens in another continent during a terrorist attack, you are liable. And for triple damages. I’ve heard Canadian banks and often their external lawyers say for years that crystal ball liability does not apply to them because they are not US banks but it matters not – correspondent banking law makes Canadian banks subject to crystal ball liability.

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World’s first bi-national government issued digital currency launched in Middle East

By Christine Duhaime | January 20th, 2019

Saudi Arabia and the United Arab Emirates announced yesterday in Abu Dhabi that they have created and launched a joint new bi-national digital currency. The name of the coin has not been released, not the type, not the amount issued, nor its price per coin. According to the governments of both nations, the new Saudi / UAE coin will be used by partnering banks so that those two governments can obtain an understanding of how Blockchain functions. The central banks of both countries are also participating in the coin issuance and its operation. The creation of a bi-national government issued digital currency is the first in the world.

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Dark Overlord hacks into US law firm systems and obtains 9/11 files

By Christine Duhaime | January 6th, 2019

According to news media, the hacking group Dark Overlord has hacked the systems of a large law firm in the US and obtained privileged and confidential records that were published online at Pastebin. The files are allegedly encrypted and the group is seeking payment in Bitcoin, failing which they will make all the documents available. Some documents were published in a preview on Twitter on an account since deactivated. Dark Overlord is the group that hacked over 50 targets, including Netflix and the computer systems of a plastic surgeon in London where they obtained ‘before and after’ photos of celebrities.

Dark Overlord allegedly sent a ransom note to professional firms involved in 9/11 litigation to “pay the fuck up” in Bitcoin. They are allegedly seeking compensation from banks, law firms, insurance companies and law enforcement agencies that were involved in 9/11 settlements.

In a podcast on Motherboard, a reporter who communicated with Dark Overlord, explains that they go where other hackers won’t go, but interestingly, says that all they actually care about is the acquisition of Bitcoin. The Motherboard reporter published a voice message of a sample demand for payment from Dark Overlord in which the person asks for Bitcoin with a UK accent.

So far, the affected US law firm has not sought a Court Order to prevent the disclosure of privileged and confidential documents and surprisingly, neither have their clients apparently demanded that they do so.

In addition to being media savvy, Dark Overlord allegedly asks victims to sign releases when payments of Bitcoin are made, although such releases are not legally enforceable.

The Bitcoin address to pay ransom in Bitcoin for the law firm hack is 192ZobzfZxAkacLGmg9oY4M9y8MVTPxh7U. Dark Overload is seeking 3.27 BTC as an initial payment. You can have a look and see if payments have come through on the Explorer. So far, one wallet address paid $11,830.09 in Bitcoin to Dark Overlord at 1 am on January 4, 2019.

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Former DEA Agent says they were caught off guard on “deep infiltration” of Mexican cartel drug trafficking operation in Canada

By Christine Duhaime | January 1st, 2019

Notorious Sinaloa cartel

Andrew Hogan, a former agent of the Drug Enforcement Agency (DEA), who, as part of a multi-agency task force that included Homeland Security Investigations, successfully hunted and located the most wanted cartel leader in the world, El Chapo Guzman, says that when monitoring the Sinaloa’s activities, they [the DEA] were most surprised by the extent of El Chapo’s operations in Canada.

El Chapo was the head of the Sinaloa cartel in Mexico and the Sinaloa cartel was the most powerful drug cartel under his tenure.

Hunting El Chapo

In his bookHunting El Chapo“, Hogan describes how he and his colleagues monitored and traced cell phone records to locate El Chapo, and during that process, they learned how the Sinaloa was expanding to the Philippines, the UK, and the Netherlands, searching for commercial properties with refrigeration capabilities for drug trafficking purposes.

[Transnational criminal organizations seek refrigeration services because drugs are often trafficked internationally in bulk food shipments - steaks, vegetables. For example, the Montreal mafia are allegedly known to send drugs from the Dominican Republic to Canada hidden in refrigerated food products such as eggplants or green peppers.]

El Chapo’s “deep infiltration of Canada”

But Hogan writes: “We were caught off guard by his [El Chapo's] deep infiltration of Canada.” Keep in mind, this was late 2015 – not that long ago.

He writes: “In terms of profit, Chapo was doing more cocaine business in Canada than in the United States [... because retail cocaine in the United States is less profitable than in Canada].”

“His key cartel  lieutenants could exploit weaknesses in the Canadian system – the top heavy structure of the Royal Canadian Mounted Police hampered law enforcement efforts for even the most routine drug arrest and prosecution. It was a perfect match for Chapo – hindered law enforcement and an insatiable Canadian appetite for high grade coke,” writes Hogan.

Not surprising, most of what Hogan writes about Mexican drug cartel activities in Canada are connected only to Vancouver.

Mexican cartel helped by Iranians in Vancouver to traffic drugs

He describes how Iranians in Vancouver are in bed with the Sinaloa cartel and El Chapo, and work on the importation of drugs into Canada for the cartel.

He writes: “The Sinaloa cartel had built a formidable distribution structure, smuggling loads of cocaine across the Arizona border and hauling them to stash pads and warehouses in Tucson and Phoenix before they were driven by car to the Washington border where the loads would be thrown into private helicopters. The helicopters would jump the border and drop the coke out among the tall lodge pole pines of British Columbia. Chapo’s men had connections with Iranians in Canada.”

He describes how Canadian Iranians working for the cartel buy airplanes and smart phones for the cartel. Once the drugs are in Vancouver, it appears that the Iranians pass the drugs to the Hells Angels who are in charge of moving the drugs across Canada.

Fake Bananas Filled with Cocaine Shipped to Vancouver

In his book, Hogan describes how as they got deep into Sinaloa and cartel land in Mexico, nearing in on the capture of El Chapo, they came across a warehouse of green bananas and remnants of cocaine-cutting agents. The green bananas were plastic, used for international shipments. A single fake banana holds half a kilo of cocaine and Hogan writes: “Immediately I remembered how Hondo in British Columbia was constantly looking for a warehouse large enough to store fruit deliveries for the ‘Boss’. These fake bananas were most likely going directly to Vancouver to be unloaded then shipped out to cities all across Canada.”

Sinaloa cartel sends Mexican cartel member to live in Vancouver and launder their drug money

In “Hunting El Chapo,” Andrew Hogan also describes how the Sinaloa cartel sent one of their people to Vancouver, 22-year-old Jesus Esperanza, to run the money laundering and drug distribution operation for the cartel.

Esperanza’s front was to register as a student at a school called Columbia College in Vancouver. In actuality his job was to collect the proceeds of crime across Canada for El Chapo and arrange to launder it back to Mexico. Hogan describes how Esperanza sent reports to El Chapo providing a daily status report about the cartel’s business in Canada, which the DEA would read, such as:

  • Vancouver – Day X – Collected $560,000 [in proceeds of crime] and sold 95 kilos of cocaine in Vancouver;
  • Winnipeg – Day X – Collected $275,000 [in proceeds of crime] and sold 48 kilos of cocaine in Winnipeg; and
  • Toronto – Day X – Collected $2,000,000[ in proceeds of crime] and sold 150 kilos of cocaine in Toronto.

Over $1 billion annually from Canada in Mexican cartel proceeds of crime

As you can see, El Chapo pulled in $2,835,000 in cocaine sales on one day’s report in just three cities in Canada. Since drugs sales are 24/7, the annual take for El Chapo in Canada on an annual basis can probably be estimated to be $1,040,250,000, or slightly over $1 billion, which would have to be laundered back to Mexico from his lieutenants in Vancouver through financial intermediaries. You can read here how El Chapo and Sinaloa cartel members sent cocaine and fentanyl to Buffalo disguised as, or hidden in, food imports using private companies, and laundered the proceeds of crime through US banks.

El Chapo was captured on January 8, 2016, in Mexico, extradited to the US and is now on trial in New York for drug trafficking, money laundering and organized criminal activities.

In “Hunting El Chapo”, Hogan describes how officials at the Canadian phone manufacturer, Blackberry, provided intelligence related to the cellular phone use of El Chapo and other cartel members to the DEA and in the book, says that such information was provided quickly due to relationships forged with Blackberry. It is the intelligence from the use of Blackberry phones by El Chapo and the Sinaloa cartel, and the interception of Blackberry PIN messages and the pinging of Blackberry phones that led to the location and capture of El Chapo.

Columbian cartel in the mix in Canada

Hogan also makes passing reference to a Blackberry user named “Panchito”, who he believes was Hildebrando Alex Cifuentes-Villa, a member of the Columbia drug trafficking cartel Cifuentes-Villa, who worked with the Sinaloa cartel in Mexico. According to the cellular records analyzed by Hogan, members of the Sinaloa cartel sent “command and control messages” to Panchito “mostly about El Chapo’s Canada operations”, which seems to suggest that the Cifuentes-Villa family in Medellin, Columbia, was also involved in drug trafficking in Canada for El Chapo. The brother of Panchito is testifying in the trial of El Chapo in New York.

Well-known cartel leader obtains Canadian passport

Since El Chapo’s arrest, it is believed that the Cartel Jalisco Nueva Generacion (CJNG) led by former police officer El Mencho, whose real name is Nemesio Oseguera-Cervantes, is now Mexico’s most powerful cartel. The US government is offering a $10 million reward for the arrest of El Mencho.

The brother in law of El Mencho, Abigael Gonzalez Valencia, despite being a well-known cartel leader and international drug kingpin and on the US OFAC list [which prohibits anyone from providing financial or other services to him], was somehow able to obtain a Canadian passport (passport no. JX755855), which if not a fake passport, means that he acquired Canadian citizenship. He was indicted in the US in 2014 and is in jail. He has several other aliases on identity products including aliases Paul Jonathan Tak Toledo, Luis Angel Gomez Flores and Luis Angel Gonzalez Valencia and several dates of birth on his identity products ranging from October 1972 to 1979.

Abigael Gonzalez Valencia is also the brother of El Mencho’s wife, Rosalinda González Valencia. She is believed to be in charge of laundering all the proceeds of crime for the global operations of the CJNG. She was just released from jail on bail in Mexico. It is not known if El Mencho’s wife, the sister of the drug kingpin with the Canadian passport, Abigael Gonzalez Valencia, also obtained a Canadian passport or if El Mencho was able to obtain a Canadian passport as well.

The US Department of Justice considers the CJNG to be one of the five most dangerous transnational criminal organizations in the world.

One more Vancouver connection? Guiseppe Bugge, the Vancouver man who operated a digital currency exchange selling Bitcoin, and who police say was associated with organized crime, was gunned down at a shopping mall in CJNG-controlled territory in August 2018 in a cartel-style hit with over 140 bullets from machine guns.

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Two US lawmakers introduce bills to prevent Iran from developing an ICO

By Christine Duhaime | December 27th, 2018

Two US lawmakers introduced bills to prevent Iran from being able to grow its planned government issued sovereign initial coin offering, or its own digital currency. Both bills add criminal liability to persons, financial institutions, correspondent banks and digital currency exchanges that facilitate transactions involving an Iranian digital currency. That criminal liability is in addition to existing liability for sanctions avoidance.

The US has expressed concern because the Iranian government has suddenly realized that digital currencies are ideal for sanctions avoidance and two Iranian government agencies recently made public statements for advancing the development of a sovereign ICO for several purposes, including sanctions avoidance.

The first, Bill HR 7321, introduced by Michael Gallagher in the House of Representatives, called the Blocking Iran Illicit Finance Act:

  • Would prohibit all transactions, financial and digital, related to Iran’s sovereign ICO in or through (e.g., correspondent banks) the US;
  • Would require the Secretary of the Treasury to report to Congress on the status of Iran’s ICO, and the involvement of the Central Bank of Iran, and in that report, to describe the technical assistance that China, Venezuela and Turkey are providing to develop the sovereign ICO, as well as how an ICO by Iran could be used for sanctions avoidance;
  • Would permit the US government to impose sanctions against persons or companies that assist Iran develop its sovereign ICO, including Blockchain development, or that list or re-sell the ICO or allow financial transactions to occur through a digital currency exchange or financial institution;
  • And with respect to foreign persons, companies and digital currency exchanges assisting Iran to list or re-sell its sovereign ICO, would include provisions prohibiting correspondent banks from opening, using or transferring digital currency assets associated with Iran’s sovereign ICO; blocking the transfer of sanctions digital currency assets from entering the US; and visa banning foreign persons who assist Iran with respect to its sovereign ICO, from entering the US;

The Bill describes a digital currency exchange expansively to include persons who sell or purchase, or facilitate the sale or purchase of digital currencies, even if not incorporated and as such would include employees of digital currency exchanges conducting, or approving trades.

The second, Bill S.3758, introduced by Ted Cruz, of the same name, is the same as HR 7321.

Iran has lax money laundering and terrorist financial laws and more relaxed implementation of what little law there is. For example, in this interview, the owner of an Iranian digital currency exchange that provided services to Iranians wanted for SamSam computer intrusions and Bitcoin ransoms, describes his compliance with AML and CTF law as follows for on-boarding customers –> they obtain a selfie with a bank card and the national ID card plus a telephone number of the customer. That’s it – no verification of ID, no third party confirmation, no verification of whether the photo is fake. And he goes on to explain that in Iran, once you “KYC” a person, “there’s no reason to be suspicious.”

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Iranian hacking group targets financial crime government organizations over sanctions

By Christine Duhaime | December 17th, 2018

The Charming Kitten hacking group from Iran (see original report here) has launched a new phishing attack to collect information from public officials connected with the imposition or enforcement of sanctions against Iran. The phishing program relies on untrained security experts at organizations who use 2 factor authentication (2FA) of GMail accounts by SMS, which is not secure. The hackers, believed to be tied to the IRGC, started  hacking US banks in connection with sanctions and have since moved on to journalists, think tank executives and political figures who are viewed as being against the Iranian regime.

According to this report, Charming Kitten has spent the last month trying to hack into the private emails 13 US Treasury officials and also targeted Honeywell International Inc., and Science Applications International Corp. to access information on tech break throughs. The campaign also targeted FinCEN.

Cybersecurity experts tied the hackers to sympathizers of the Iranian regime including nuclear officials in Pakistan, Jordan and Syria.

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Q & A on the arrest of Huawei’s Meng Wanzhou in Canada

By Christine Duhaime | December 7th, 2018

Who is Meng Wanzhou?

Meng Wanzhou is the daughter of the founder of Huawei Technologies Co., one of the largest technology companies in the world based in China. Huawei is one of the largest companies in the world in artificial intelligence (“AI“). Wanzhou leads its AI development and she is the most powerful woman in the world in AI, bar none. She is also the most powerful woman in the world in tech. That’s because Huawei is the major 5G player in the world at the moment, even though Huawei has been effectively shut out of the US market over security concerns that the government of China would have a back door to access user data. On the AML side, she is a significant politically exposed person. She is believed to own expensive real estate in Vancouver, and may therefore be a permanent resident of Canada.

Where was she arrested? 

She was arrested at the Vancouver International Airport entering Canada.

Who arrested her? 

She was arrested by Canada, specifically Canadian law enforcement officials who acted on instructions from their Canadian superiors. Likely, officers from the FBI or other US law enforcement were on hand because this is their file.

Why was she arrested? 

She was arrested allegedly pursuant to an indictment obtained by the US Attorney from the Eastern District of New York (“EDNY“). According to US news reports, the indictment alleges that Huawei violated US sanctions laws involving Iran, Syria and Sudan. She is a senior officer of Huawei and was arrested in that capacity.

Was she incarcerated? 


Were her cell phones and laptop seized? 

Yes – its standard procedure.

Is she charged with an offence in Canada?


How was her arrest authorized? 

The US government would have to have sought the advance permission and assistance from the Canadian government for her arrest. That is because it occurred on Canadian soil and the use of Canadian law enforcement officials was needed for the arrest. It would also have involved officials from the US consulate office in Vancouver, who has jurisdiction over the file for the EDNY for the Canadian proceedings.

What level of approval was sought from Canadian officials for her arrest?

Its hard to say but one can speculate that a combination of facts suggests the highest levels must have approved the arrest – those facts are that: it involved the arrest of the most powerful woman in AI; it involved the largest technology company in the world; it happened at the time Montreal was hosting a G7 conference on AI; it would make international news for years to come; it would cause Canada to enter a deep freeze with China’s President Xi; it would impair Canada’s prospects for trade with China; and it would leave unanswered questions for China as to how come Canada will not return Chinese foreign nationals in Vancouver wanted for financial crimes in China but it will arrest, at the request of a foreign government, a globally high profile woman for similarly alleged financial crimes. In addition, the Extradition Act requires political approval for extradition arrests (see below).

How did they know she was flying to Canada?

International flight records are shared with law enforcement so they knew immediately when she booked a flight that she was landing in Canada and therefore, the wheels were put in motion for her arrest by the US government and the permission and assistance from Canada was then sought and obtained. They may have worked on it for weeks, or mere days depending upon how much in advance she booked her flight.

Is the arrest a surprise?

In some ways, no it is not unexpected. For two years, Huawei was aware that the US government was investigating it for sanctions avoidance involving Iran, Syria and the Sudan.  In April 2017, the US media reported that Huawei was subpoenaed two years ago from the US Treasury Department allegedly in respect of US sanctions law. Since it was widely reported in the international press, Huawei was aware of its potential exposure. The Company had US counsel in New York and Wanzhou, as the most visible person in the Company, would have been advised by US counsel of the risks of international travel to Canada when a sanctions investigation was in the works.

What are the allegations?

It is not known what the allegations are but they are believed to involve sanctions avoidance involving Iran. What that means is that the EDNY alleges that Huawei violated US sanctions law against Iran by either conducting financial transactions with Iran or Iranian foreign nationals, or supplying prohibited technology to Iran or Iranian foreign nationals. Sanctions avoidance is a financial crime. Wanzhou, as a senior officer of Huawei, would be one of several officers potentially exposed if there were sanctions violations.

What are sanctions? 

You can read more about US sanctions here. Sanctions avoidance involves several crimes, including usually deceptive practices so that correspondent banks in the US are not aware of Iranian transactions and unwittingly process wires, laundering the proceeds of crime from sanctions avoidance and other serious predicate offences.

Does Canada have sanctions? 

Yes, but they are not the same sanctions. Each country has its own sanctions program. Canada has more relaxed sanctions as against Iran, but in practice that does not matter because Canadian banks and financial institutions must make use of what are called correspondent banks, which are a handful of large US banks that provide US banking services to all of the banks in the world, and as a result of correspondent banking law, every Canadian bank is subject to US sanctions law when they process wires, domestic or foreign.

The US wants Wanzhou extradited – how does Canada’s extradition process work?

The Extradition Act authorizes the extradition of foreign nationals and Canadians from Canada.  In order to successfully extradite a person from Canada, several conditions must be met as follows:

  • the requesting country must have an extradition agreement with Canada;
  • the request must be for prosecuting or sentencing the person;
  • the alleged offence must carry a term of imprisonment of at least two years in the requesting country; and
  • the alleged conduct must be an offence in Canada (referred to as “dual criminality”) punishable in Canada by a term of imprisonment of at least two years.

The first step in extradition is the receipt of a request by the US. (completed)

Upon receipt of the request, the Minister of Justice issues an authority to proceed to the Attorney General for the committal of the person if the Minister is satisfied that extradition is permitted under the Extradition Act. (completed)

The Attorney General then arranges for the arrest of the person if the person is not already in custody.  (completed)

Once a person is arrested (completed), an extradition hearing is held to determine whether the person can be extradited.

There may be a bail hearing first to determine the flight risks of permitting the person to be released from prison. (in progress today).

At the extradition hearing, the judge must be satisfied that there is sufficient evidence to establish a prima facie case that an extraditable crime has been committed.  Subsequent to an extradition hearing, the person is either discharged, or committed to the Minister for physical removal.

As you can see from the above, the arrest of Wanzhou had to be authorized by two Canadian political ministries pursuant to the Extradition Act before she ever boarded an airplane and left China. Politically speaking, that will cause a deep freeze between Canada and China because that decision is a political one under the Extradition Act and Canada could have elected to decline to arrest Meng Wenzhou for political, judicial or other reasons.

What will be determinative at the extradition hearing?

The issue of dual criminality may be the determinative issue, as will financial crime. Wanzhou will likely argue that Huawei did not engage in financial transactions involving Iran and ergo did not commit sanctions avoidance and launder the proceeds of that crime through the international banking system. She may also argue in the alternative, that if the US can prove that financial transactions with Iran occurred in violation of US sanctions, the alleged criminal conduct is not an offence in Canada and will focus on Iranian sanctions law in Canada, assuming that the allegations involve Iranian sanctions. Whether the hearing involves money laundering allegations remains to be seen. Sanctions avoidance is a money laundering offence, and it is often pleaded because extradition is facilitated for financial crimes. On the other hand, Canadian courts and lawyers are not used to money laundering cases, or sanctions law, and it means that the outcome Wanzhou’s extradition case, either way, is hard to predict and will likely result in a significant settlement with the EDNY.

What sort of evidence does the US have?

Long before Wanzhou was arrested, the FBI and likely DHS would have obtained substantial financial records of wires from banks, as well as email records to build a case. They would have prepared affidavits of that evidence for an indictment.

Why is there a publication ban in Canada? 

It is not known why there is a publication ban on the litigation in British Columbia. There are no obvious legal reasons why a publication ban would have been granted and it is not constitutional – no one is at risk of harm in this case and in any event, the public interest in an open Court proceeding and the public’s right to know, outweigh any potential harm that could arise.

Will it cost Canada with China? 

Canadian government officials know that Wanzhou is the leading woman in AI in the world, and is important to China. Arresting her is like arresting Mark Zuckerberg – Canadian officials would have weighed the advantages and disadvantages of arresting her and decided that there were more advantages to Canada with arresting her. No question, it will seriously harm Canada’s relationship with China but Canada must have determined it was worth it for reasons that no doubt make sense to experienced people in politics.

Why is Wanzhou so important in the world?

Wanzhou is important because Huawei is the global leader in 5G technology, which we need if AI, big data and machine learning are to progress. While Huawei is the world’s no. 2 smartphone marker, it is the leader in telecommunications equipment, such as the hardware goes into cellular towers, Internet networks and infrastructure that enables modern communication. For self-driving cars and the Internet of Things to progress to power our cars, our appliances, our pace makers, our hospitals, our airplanes, our farm equipment, our crops and everything else, we need 5G.  We also need it to collect big data for machine learning. In essence, Huawei controls the data and information that runs through the 5G networks and whoever control the data, can access it, use it or manipulate it, which is the concern of US intelligence officials. Most importantly, whoever controls the data and the networks, essentially controls the world. And that person, until this week, was going to be the heir to the Huawei dynasty – Meng Wanzhou.

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