Brazil arrests 2 bank employees for AML compliance failures that allowed $249 million to be laundered and says its considering suing the bank for not stopping money laundering

By Christine Duhaime | June 2nd, 2019

Two bank employees arrested over AML failures

Brazil’s chief prosecutor, Eduardo El Hage, who is in charge of Operation Car Wash, obtained an order from Brazil’s federal court for the arrest of two bank employees with Banco Bradesco SA this week, arguing that they were lax on applying anti-money laundering law. Their alleged AML compliance failures, the prosecutor says, contributed to a vast money laundering scheme where proceeds of corruption flowed through the banks and the financial system.

The two employees, Tânia Maria Aragão de Souza Fonseca and Robson Luiz Cunha Silva, are described as co-conspirators who helped former governor of the state of Rio, Sérgio Cabral, launder the proceeds of corruption through that bank. Cabral is serving a jail sentence of 100 years for money laundering and state corruption. Yes, 100 years.

Ex-governor was paid $249 million from infrastructure firms

Ex-governor, Sergio Cabral, serving a 100 year jail sentence for financial crime, on his way to Federal Court in Brazil.

Cabral’s bribes were for large infrastructure projects and were from asset managers and construction companies who paid for infrastructure deals while he was governor. Cabral was a politically exposed person (PEP) at the bank, which meant in additional to all the other AML requirements, he was to be flagged for high risk for money laundering. Cabral fit the typology of many AML red flags – his lifestyle far exceeded his salary – for example, despite earning less than $100,000 per year, he had an 80-foot luxury yacht, six fast luxury cars, six expensive watches from Cartier, Bulgari and Tag Heuer, a beach-front mansion, five upscale apartments and a jet ski.

By turning a blind eye to shell companies and financial crime, the bank employees are alleged to have helped him launder $249 million. One such payment was from a billionaire in Brazil, Eike Batista, also a PEP, who gave Cabral a $16 million bribe. Batista was given a 30 year sentence for bribery.

The prosecutor said: “The evidence doesn’t leave any doubt that financial institutions did not apply compliance standards.”

Brazil may sue bank for society’s losses from AML failures

Earlier in the week, the prosecutor said he was considering launching a separate lawsuit against the bank for damages, over its AML compliance failures generally because it did not prevent money laundering, and he said that he believes that banks should have detected money laundering from the proceeds of corruption in Cabral’s case.

This may be the first case where a bank is sued by a government over AML failures that harmed society. The harm was, inter alia, that the financial system was harmed, Brazil’s reputation was harmed, the public was ripped off due to the additional costs of building Olympic infrastructure in Brazil much of which is now falling apart and the public was also ripped off because state funds went to the governor instead of to the people. Brazil was also harmed by the fact that the costs of lending is higher because of the risks of financial crime. The bank, meanwhile, charged fees for providing services that included, perhaps unbeknownst to it, money laundering services and did not perform its gate-keeping function.

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TD Bank sued over $7 million in diamonds stolen during a bank heist from a safety deposit box

By Christine Duhaime | June 1st, 2019

While not a new case, this litigation is interesting for the fact that it discusses the practice of safety deposit box swaps to transfer assets anonymously, and the holding that there is no requirement that safety deposit boxes contain lawfully obtained property. IOW, under the common law, a safety deposit box can contain stolen items and proceeds of crime.

The litigation involves an action by the family of a woman who stashed $7 million in diamonds in a safety deposit box at the TD Bank in New York City that was looted during a bank heist, to recover the value of the loss property.

On August 2015, a company named BAT LLC sued TD Bank, alleging breach of contract and negligence over $7 million worth of diamonds that disappeared.

The diamonds were owned by Abraham Sieger, who assigned them to BAT, which entered into a safety deposit box contract with TD Bank. After the contract was entered into, the diamonds were placed in the safety deposit box for safekeeping.

In August 2012, TD Bank suffered a bank heist. Robbers drilled a hole in the ceiling of the bank vault at TD Bank, crawled through the hole, and opened many of the safety deposit boxes, including the box rented by BAT. The robbers were never identified or located, and the TD Bank did not recover any of the assets stolen during the heist.

The diamonds were initially bought in 2008 by Helen Sieger. Ms. Sieger was indicted and arrested in New York on theft charges for unrelated business activities. She jumped bail and moved to Miami and lived under a fake name. While in Miami, she allegedly instructed a Mr. Greisman to open a safety deposit box at the TD Bank and to take possession of the contents of an existing safety deposit box at the same branch. He was to take possession of the unknown contents of the safety deposit box from an unidentified woman.

Allegedly, Mr. Greisman asked his daughter, and her husband, to open the safety deposit box at TD Bank, which they did. Ms. Sieger then asked him to show up at the bank on June 15, 2010 and do a box-swap with the unidentified woman. The box-swap involved asking TD Bank for both parties to access the vault at the same time; asking TD Bank to use its key to open both boxes at the same time; and once TD Bank staff left, the parties swapped the contents of one box for the contents of the other, meaning they placed the wrong box behind the wrong safety deposit box number. No one opened the safety deposit boxes themselves.

Ms. Sieger was later arrested in Miami for unrelated matters, returned to New York, where she died at Rikers Island.

In June 2011, Mr. Greisman and his children, met their lawyer at the TD Bank with a gem appraiser and opened the safety deposit box. The gem appraiser appraised the diamonds in the safety deposit box at $7 million.

A year later, the bank heist occurred and the diamonds disappeared. The plaintiffs sued for the value of the diamonds. TD Bank argued, inter alia, that they were not liable because the contract was fraudulently entered into and the box was used to hold diamonds that were unlawfully obtained and held to defeat claims by authorities. Surprisingly, the Court held that there is no implied covenant that a safety deposit box contain lawfully obtained items and, not surprising, no obligation of a customer to disclose the contents of a safety deposit box to a bank. The TD Bank has no knowledge of whether or not the diamonds were unlawfully obtained. Only Mrs. Sieger, now deceased, knew how she came to own $7 million in diamonds, and whether they were a gift, a trade, purchased or borrowed.

The litigation is still ongoing.

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Study in China identifies areas in China where most money launderers originate and finds that the number of suspicious activity reports filed does not improve regulatory effectiveness

By Christine Duhaime | May 31st, 2019

According to money laundering law empirical research from China, a person from Fujian (Triad land) is most likely to be a money launderer, and the study also found that the filing of voluminous numbers of suspicious activity reports (“SAR”), does not lead to improved anti-money laundering results across any sector or in the economy.

Filing SARs

Researchers looked at millions of reports and found, after comparing six years’ worth of data, that China submits 187 times more SARs than the UK and 32 times more than the US, but that when it came to money laundering prosecutions, the UK had 5 times more prosecutions from SARs than China, and ten times that of the US.  The reason for the lack of a correlation to the filing of SARs and prosecutorial results in China, as compared to the UK or the US, was based on the fact that China, unlike the US and UK, has a prescriptive or rules-based reporting regime.

A rules-based reporting regime requires reporting irrespective of identified risks. In contrast, risk-based reporting regimes require reporting based on a risk assessment. Canada has a semi-hybrid model where a risk assessment is required to assess risks of the incidents of the occurrence of a money laundering or terrorist financing risk occurring and steps to mitigate such risks, but a reporting regime unconnected to a risk assessment that like China, is 100% rules based.

An example of an AML law regime that is risk based would be, for example, laws that accommodate financial inclusion and require obtaining and verifying the identity of an account holder on the basis of the risk they pose consistent with the FATF Recommendations. In contrast, a rules based  regime in AML law requires treating every account holder exactly the same, irrespective of the risks they pose to the financial system.

Predicate offences most often committed in China 

The researchers then looked at 221 money laundering cases in China and made some conclusions about risks of financial transactions in China based on geography, and that exit out to other countries, including Canada. China has far fewer predicate offences under the federal Criminal Law of China, than Canada or the US, and thus with respect to underlying predicate offences to a money laundering offence, no comparisons could be determined.

The predicate offences most likely to occur in China were corruption involving government officials (42%), drugs (8%), smuggling (8%) and tax evasion (5.8%).

Geographical areas most high risk for money launderers in China

The researcher’s geographical risk assessment of China concluded that the risks for money laundering were higher in coastal provinces and were correlated to higher levels of economic development and foreign trade. In terms of pure domestic high risk areas, researchers found that the areas most at high risk for money laundering were Fujian, Zhejiang, Guangdong, Jiangsu, Shandong and Chongqing.

When it comes to provinces with international exposure in China, the high risk areas for money laundering activities were:

  • Guizhou
  • Gansu
  • Hainan
  • Tibet
  • Yunnan
  • Sichuan
  • Guangxi

The provinces with the lowest propensity for money laundering activities were:

  • Tianjin
  • Liaoning
  • Shanghai
  • Jiangsu
  • Guangdong

Fuzhou, home of the Triads and most money launderers

Fujian scored high as an area for money laundering likely because Fuzhou, its main city, is the birthplace and epi-centre of the Triads, one of the world’s oldest and most dangerous organized crime gangs. The Triads date back to the first of the seven dynasties. In China, the Triads are considered to be a black society, or a black group – in Mandarin, hei shehui. Black societies have a small group of administrative leaders insulated from political and police pressures by a large number of soldiers who have an extensive infiltration into all levels of police and political organs, which allows them to operate without risk of arrest and/or investigation. Immigrants to Canada that are accepted through the Quebec investor immigration program have been known to be from Fuzhou and Xiamen – two Triad cities in Fujian with high rankings for financial crime. Triads grew and grow their organizational power no matter where they are – Fujian, Hong Kong or Canada – from gambling, forced sexual trafficking of women, and extortion. Pictures of Triads here.

PEPs most at risk for being money launderers in China

With respect to risks arising from type of customer, the researchers found that politically exposed persons pose the greatest statistical risk of being money launderers in China. Second was persons in financial services (banks or securities brokers) because they have access and ability to defraud banks and crucially, to exit proceeds of corruption out of China. Researchers noted the fact that the Bank of China was defrauded by many of its politically exposed executives who exited RMB 3 billion and “escaped to Vancouver” with the proceeds of crime. The third most high risk occupation to be a money launderer in China was owners of private companies who transfer, using companies that are often fake, vast fortunes out of China to foreign countries.

Researchers looked at the use of underground banks to exit money illegally from China to other countries and found that more than 50% of those cases involved government officials who had proceeds of corruption they exited out without detection.

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The publication of secretly taped political corruption video of Austrian vice chancellor violates the law and may be criminal, says German data privacy chief

By Christine Duhaime | May 26th, 2019

Privacy violation vs public interest

One of Germany’s heads of data protection and privacy agencies says the publication by newspapers of the secretly-filmed video of Austrian politician Heinz-Christian Strache discussing potential bribes for contracts while on vacation, violates privacy law and may be criminal, as well as harmful to political culture.  The video, filmed in a house  rented by Strache in Ibiza in 2017 while he was on vacation, contains footage of Strache discussing offering government contracts in exchange for political support in the media. The discussion was with a Russian woman who posed as a fake foreign investor, allegedly looking to invest in Austria.

At that time, Strache was one of the leaders of the political party called the Freedom Party (“FPÖ“).

In the video, he is told that the Russian woman negotiated to buy a newspaper called Kronen Zeitung and that she would use the newspaper to promote the FPÖ during the elections. Strache was not aware he was being recorded. When the secret video was leaked two years later, he resigned as vice chancellor of Austria. Austrian Chancellor Sebastian Kurz, also of the FPÖ, called an election after Strache resigned. Kronen Zeitung stated that is had never held discussions to sell the newspaper and that the story was made up.

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US Treasury designates what may be first Canadian company as part of a significant “money laundering organization” and “drug trafficking organization” under the Kingpin Act

By Christine Duhaime | May 24th, 2019

Canada now has its first official drug kingpin and its a company in Ontario.

The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) yesterday designated a Canadian company as part of a significant foreign money laundering organization and drug trafficking organization.

The Kingpin Act is used for the most serious of designations and includes the most powerful TCOs in the world, the ‘Ndrangheta, as well as the most powerful Mexican cartel, the CJNG, as well as the Sinaloa Cartel and Los Zetas. Both El Mencho and El Chapo are designated drug kingpins.

The Canadian company which joins their ranks, Smile Technologies Canada Ltd., is registered in Ontario. This is believed to be the first time the US has designated a Canadian company as part of a network of a significant money laundering organization and a significant drug trafficking organization pursuant to the Foreign Narcotics Kingpin Designation Act.

The Canadian company is part of a designation of a network of individuals and companies identified by OFAC as the Goldpharma Drug Trafficking Organization (“DTO”) and Money Laundering Organization (“MLO”). The network, originating in Argentina, is alleged to have sold narcotics and opioids such as oxycodone and hydrocodone online to users in the US and Canada through websites, and to have helped fuel the opioide crisis in Canada and in the US.

According to OFAC, Smile Technologies Canada Ltd. funnelled the proceeds of crime from illegal narcotics trafficking from Canada back to Argentina.

Smile Technologies Ltd. was registered with Canada’s FIU, FINTRAC, as a money services business. The US Treasury has said that the network, including the Canadian entity, demonstrates the sophisticated tactics money launderers use.

It has three offices in Mississauga and three websites operating from Ontario. Its not clear why it was registered as a money services business with FINTRAC and whether it actually operated as a money services business in Canada. It also appears to have operated a payments FinTech of some type and to have been in the crypto space, issuing Bitcoin cards which are reloadable anonymous pre-paid access cards loaded with a certain amount of Bitcoin.

Eight individuals were designated as part of the Goldpharma MLO and DTO, as well as eight other companies. The two individuals designated for money laundering and tied to Ontario-based Smile Technologies Canada Ltd. are Sergio David Ferrari and Roberto Javier Perez Santoro. Five of their partners in the Goldpharma network were indicted in the US in 2018 for narcotics trafficking.

In making its announcement, OFAC noted for one of the first times, that the penalties (for banks, accountants, trustees and such) to not freeze the assets of the sanctioned persons and entities carry civil penalties of up to US$1.4 million per violation, criminal penalties of up to US$10 million and terms of incarceration of up to 30 years.

Pursuant to sanctions law, all property and interests in property of the designated persons in the US or in the possession or control of US persons must be frozen and reported to OFAC. Designations by OFAC under the Kingpin Act are intended to deny significant international narcotics traffickers access to the financial system.

A significant amount of work by US law enforcement agents would have gone into what we call unpeeling the layers of corporate beneficial ownership in many countries to uncover the network’s players and pursuant to the OFAC notice, the information in respect of the Canadian entity’s controllers is not confirmed. The reason for this is that in Canada, beneficial ownership law is complex. Among other things, information in respect of beneficial ownership of private companies is obtainable only if the articles of the company permit the disclosure of such information.

In the past, another Canadian company based in Vancouver, PacNet, was listed by OFAC as a “significant transnational criminal organization” under different legislation, namely Executive Order 13581 which deals with unusual and extraordinary threats to national security, foreign policy or the economy of the US under the authority of the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq.) and the National Emergencies Act (50 U.S.C. §§ 1601 et seq.).

And before that, another Canadian company, the Lebanese Canadian Bank was listed by OFAC as a “primary money laundering concern” under the US Patriot Act because it facilitated the laundering of money from drug trafficking and trade-based money laundering. The Bank had an office in Montréal and maintained extensive correspondent accounts with banks worldwide.

@2019, Christine Duhaime.

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Several agencies take down Bitcoin mixing & anonymizing service

By Christine Duhaime | May 24th, 2019

Working with Europol, several law enforcement agencies shut down a Bitcoin mixing and anonymizing service called Bestmixer, which was one of the largest mixing services for digital currencies.

Mixing and anonymizing services or anonymizing exchanges process digital currencies on behalf of customers in order to make it difficult to trace them. The purpose of preventing tracing is to defeat the administration of justice and the rule of law by preventing the tracing of financial transactions so that neither law enforcement agencies nor civil private parties can pursue justice, regardless of the purposes – whether it be for taxes, to pursue investigations for theft, fraud, divorce or to recover assets. Mixing is also called tumbling or Bitcoin laundering.

In exchange for mixing digital currencies, the services take a commission ranging from 1% to 5% of the value of the digital currencies being mixed. Mixers funnel digital currencies through hundreds of wallets and split them up so that tracing is difficult and time consuming.

Many darknet marketplaces that sell illegal drugs, weapons, fake ID, child pornography and murders-for-hire services payable with Bitcoin have mixers built into the service in order to make it hard for law enforcement to obtain the transactors behind the transactions.

Law enforcement conducing the investigation of Bestmixer, said that many of the users of this particular service had a criminal origin or criminal destination and the mixer was used to launder proceeds of crime.

Mixers and tumblers are not actually anonymous because the service has all the data from every customer, on what wallet address was the entry point and to what wallet address or addresses, it exited to. For example, we did a digital currency tracing in support of a law enforcement file of several digital currencies that used an anonymizing service. Law enforcement believed the wallet holder was involved in organized crime. The anonymizing service, on request and as part of the financial crime investigation we were assisting with, was able to provide the data on the exit addresses the digital currencies exited to after being tumbled through the anonymizing service. From that exit point, we were able to trace the digital currencies to a digital currency exchange.

Legality of Mixers?

There is a lack of clarity on whether mixers, tumblers and anonymizing services are illegal but in most countries, financial transactions designed to defeat the rule of law, to obstruct justice or to defeat the fulfilment of a civil claim, is illegal. If mixing or tumbling digital currencies defeats or inhibits private investigators working for civil asset recovery or law enforcement from tracing financial transactions, arguably it is not legal. No Court has yet ruled on the issue but arguably, using a mixer, tumbler or anonymizing service could be a fraudulent conveyance where the purpose is to avoid liability civilly or criminally.

As a matter of equity, as well, such services, where they defeat the discovery or recovery of assets, could be forced to de-anonymize in civil litigation matters. That’s because it is the province of equity to supply the defects of the common law and it is also the province of equity to mitigate the rigours of the common law, irrespective of the fusion of law and equity.

Mixers, tumblers and anonymizing services who purport to claim their services are not designed to defeat the rule of law may be estopped from arguing a different set of facts to avoid de-anonymizing transactions as part of an investigation.

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OFAC designates a judge and former state governor as Mexican cartel drug kingpins

By Christine Duhaime | May 21st, 2019

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC“) designated several people associated with the most powerful drug cartel in Mexico, the Cartel Jalisco Nueva Generación (meaning the new generation cartel of Jalisco), as drug kingpins.

 Added to the drug kingpin sanctions list is a Mexican Judge, Isidro Avelar Gutierrez, who is believed to have accepted bribes from the CJNG and determined justice according to how he was bribed.

The former governor of the Mexican state of Nayarit, Roberto Sandoval Castaneda, and his three children, were also designated by OFAC for allegedly misappropriating state assets and accepting bribes from the CJNG (in the case of the governor) and living off the avails of the proceeds of crime and corruption (in the case of the children). This designation was pursuant to Executive Order 13818, Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption (the Global Magnitsky Human Rights Accountability Act). 

Also designated were three women, including two alleged significant money launderers, Lilliana Rosas Camba, the wife of Gonzalo Mendoza Gaytan and Ana Paulina Barajas Sahd, who allegedly launder the proceeds of international drug trafficking activities for the CJNG.

The leader of the CJNG is Nemesio Oseguera Cervantes, also known as El Mencho. El Mencho was a former state police officer. He is now the most wanted drug kingpin in the world with a bounty of US$10 million for his capture.

The CJNG is alleged to have amassed a fortune of US$20 billion. 

The CJNG focusses on the production and export of synthetic drugs and have the lion’s share of the meth trade, with drug trafficking routes in several countries on six continents, controlling half of Mexico, including both coasts and both borders.

The CJNG is known for being extra violent and, for example, stewing the bodies of murdered people in acid to eliminate identity evidence.

Jalisco has the highest number of disappearances in Mexico — topping 3,000 per year. There were 11,241 murders linked to transnational criminal organizations in Mexico in the first half of 2018.

In 2015, the CJNG was listed by OFAC as a Specially Designated Narcotics Trafficker pursuant to the Foreign Narcotics Kingpin Designation Act. The listing designation means that all the assets of the CJNG and its members (such as bank accounts, investments, homes, etc.) in the US or under the control of US persons or entities (such as accounts opened by Canadian banks that have a US presence, or Canadian entities operating in the US or that have US bank accounts) are frozen, and such persons and entities are prohibited from engaging in financial transactions with the CJNG or their members.

Penalties for violations of sanctions include fines of up to US$5 million and imprisonment of up to 30 years.

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FATF to finalize interpretation of virtual assets, digital currency exchanges and ICOs to require they be FIU-registered and supervised for AML compliance

By Christine Duhaime | May 21st, 2019

In furtherance of the US approach to responsible innovation, the Financial Action Task Force (“FATF“)’s private sector consultation in Vienna two weeks ago, will help drive changes to FATF Recommendation 15 to bring digital currencies, ICOs, and digital currency exchanges more fully into the AML requirements in June 2019.

The Vienna change will take effect by adoption of an Interpretive Note and new Guidance to the Recommendations and will require, inter alia, that digital currency companies be FIU-registered, that their owners and senior management pass an investigation to be registered, that digital currency companies be supervised and monitored to ensure AML compliance, and that investigators have the power to compel documents from them. The constitutional right against unreasonable search and seizure for electronic and other records, would not apply to digital currency companies. As a result of the fact that it has emerged that some ICOs, digital currency exchanges and darknet marketplace operations accepting digital currency payments have connections to organized crime, have been launched by owners with criminal records or who have affiliations with illegal drug trafficking, FIU registration is expected to be similar to the New York BitLicence where registration will be denied where there is an integrity concern. This could result in what happened in the online gambling sector where organizations shed owners, executives and employees with criminal records or who were ever subject to court orders that speak to integrity.

Vienna Interpretative Note

The Vienna Interpretative Note and new Guidance will cause a trickle down effect in most countries which will have to amend federal legislation to adopt digital currency assets and transactions as part of their AML requirements to protect the financial system.

The Vienna Interpretive Note and new Guidance adds to previous amendments to Recommendation 15 and such changes will require crypto companies, except wallet holding companies, ICOs, digital currency exchanges and such that provide financial transactions to:

  1. obtain and verify the identity of their customers when they open an account (and not when they move money);
  2. understand what predicate offences are;
  3. undertake risk assessments to mitigate risks;
  4. monitor suspicious transactions;
  5. report suspicious transactions;
  6. report transactions above prescribed thresholds;
  7. have procedures in place for PEPs;
  8. register with a federal FIU;
  9. have no criminality attached to the organization (because they will not be able to be FIU registered);
  10. draft and implement compliance programs and policies based the results of a risk assessment;
  11. hire independent auditors to audit internal controls;
  12. be subject to compliance reviews;
  13. retain appropriate records of customers and financial transactions; and
  14. conduct training to train staff on AML.

Criminal sanctions against exchanges and their officers

An interesting addition in the Interpretive Note is the requirement that countries impose a range of civil, criminal or administration offences that are effective and act as a deterrent against digital currency companies and other crypto service providers that fail to register with a FIU or to comply with the requirements under AML legislation, as well as against their directors and senior management.

Supervision of exchanges for AML purposes

The FATF recommends that digital currency exchanges and other virtual asset issuers, be subject to supervision and be monitored to ensure they comply with AML law and the FATF recommends that that the supervision be by a competent authority (and not by a self-governing body of crypto people), and that the supervisory body be able to compel evidence and information, as well as to impose criminal and other sanctions.

No jurisdiction-hopping to avoid the law

Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence at the US Department of the Treasury, mentioned the FATF changes affecting digital currency exchanges and virtual assets at a talk she gave in New York on May 13, 2019 at Consensus. She remarked that AML compliance should not be viewed as a chore but rather should be viewed a a duty serving national security. The US and British Columbia are on the same page on that issue as this is precisely what the RCMP financial crime lead in Vancouver, Canada, said to bankers, credit unions, payments companies, FinTechs and digital currency executives and innovators during a FinTech conference we convened three years ago on responsible innovation. The Under Secretary also said, importantly, that the FATF changes coming in June 2019 will create a level playing field and ensure that crypto companies do not, as some currently do, jurisdiction-hop to avoid being tied to any one country to avoid financial regulation.

A draft of the Interpretive Note is here.

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Q & A on White House sanctions over technology from foreign adversaries

By Christine Duhaime | May 21st, 2019

Last Wednesday, the White House issued an executive order (the “Order“) under the International Emergency Economic Powers Act, 50 U.S.C. 1701, the National Emergencies Act, 50 U.S.C. 1601, and §301 of Title 3 of the United States Code, prohibiting transactions of hardware, software or other products or services that enable information processing, data processing, data storage, data retrieval or electronic communications to foreign adversaries.

Who does it apply to? 

The Order applies to all US citizens and residents, as well as US companies and companies resident in the US, or companies with US shareholders above the threshold.

The Order prohibits transactions and under correspondent banking law, the Order applies to any entity, any bank, and any person who avails itself of a US correspondent bank for a prohibited transaction involving Prohibited Tech with a foreign adversary.

What and who does it target? 

The Order targets financial and contractual transactions and specifically those involving communications and data technology associated with foreign adversaries, which means a foreign government engaged in serious conduct (or long-term patterned conduct) adverse to the national security of the US or to the security or safety of a US person (a natural and legal person).

It also targets a foreign person (legal or natural person) who is not part of a foreign government who engages in serious conduct adverse to the national security of the US or to the security or safety of a US person.

A foreign adversary can be any person or any company from any country that is not the US – what is targeted is the conduct by any non-US person or company from any country, as well as known foreign adversaries to the US (e.g., Iran, Korea) whose contractual dealings or transactions pose an undue risk to US security or tech resiliency.

Continue reading

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Canadian Member of Parliament Introduces Bill to Allow for Crypto Capital Gains Donations to Charities

By Christine Duhaime | May 17th, 2019

Canadian Parliamentarian Dan Albas, has introduced Bill C-452 in Parliament today which would allow holders of cryptocurrency to make charitable donations in crypto to Canadian charities and get a tax credit for their donations.

The short but powerful amendment to the Income Tax Act, amends §38(a.1) to include crypto as an approved category for the purposes of calculating capital gains and allowable capital losses. This means that crypto will be recognized for capital gains purposes for donations to charities for income tax purposes in the same way as shares are.

Currently the Income Tax Act in Canada allows shares, mutual fund units and such to qualify for the purposes of a disposition of gifts to qualified donees but it does not treat digital currencies in the same way as other assets like shares. If Bill C-452 passes, digital currencies like Bitcoin can be gifted to charities in the same way as shares for capital gains purposes.

In essence, the amendment, if passed, means that those Canadians who hold approved digital currencies can support Canadian charities with donations of crypto and take advantage of the Income Tax Act for their generosity.

Bill C-452 went through first reading today when it was released.

Not all digital currencies will be eligible — the government, if the Bill is passed, will list those digital currencies that qualify for gifts to charities for capital gains purposes and it will likely not approve ICOs or digital currencies where there are issues attached to the digital currency, or to the persons behind it to mitigate financial crime concerns.

Dan Albas is the Member of Parliament from British Columbia (Central Okanagan – Similkameen – Nicola) and is the shadow minister for Innovation, Science and Economic Development.

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