Duhaime's Financial Crime and Anti-Money Laundering Law

Suspicious activity reports in U.S. show increase in terrorist financing

By Christine Duhaime | October 12th, 2010

FinCEN has released its latest SAR Activity Review, a compilation of suspicious activity reports (called suspicious transaction reports in Canada) filed by depository institutions, money services businesses, casinos and card clubs and segments of the securities industry and insurance industry. In 2009, the number of SARs filed dropped in all segments except the casinos and the securities industry. Slightly over 8 million SARs were filed in 2009. Some other key findings of the Review are as follows:

depository institutions reports connected to terrorist finance increased 8%;
casinos continue to report structuring as the most cited type of suspicious activity and reported a 5% increase in that activity over 2008; and
reports of cheque fraud from casinos and card clubs increased 47%.

You can read the SAR Activity Review here.

Lawyers and money laundering – some case studies

By Christine Duhaime | October 11th, 2010

Case Studies on Lawyers & Money Laundering

Scott Rothstein
The 50-year prison sentence imposed on Scott Rothstein in July of this year for running a US$1.2 billion Ponzi scheme from his Florida law firm, money laundering and stealing client trust funds, is the latest in a series of high-profile money laundering cases involving lawyers in the U.S., Canada and Europe that have raised renewed questions about the role of lawyers and the effectiveness of anti-money laundering laws.

At the time of his arrest, Rothstein owned more than a dozen luxury homes, 21 exotic cars, a 87-foot yacht, and a handful of restaurants. Seven years ago, he was worth less than US$200,000. The incredible fortune amassed by Rothstein in such a short period of time was derived illicitly, and much of it from firm clients.

Rothstein had two types of novel schemes. He solicited clients and investors to purchase hundreds of millions of dollars of structured settlements at discount prices that would be repaid at face value over time. He also fabricated court orders, forging the signatures of federal court judges, that showed that his clients had been awarded large sums of money in lawsuits. Clients were told that defendants had transferred funds to the Cayman Islands and in order to recover, they had to post bonds worth millions of dollars with his firm.

Rothstein is now in jail but what U.S. District Judge James Cohn called the tsunami left in his wake is far from over.

Rothstein’s 70 lawyer firm is bankrupt and 35 of its former lawyers are being investigated, the TD Bank, N.A.is being sued by an investor for allegedly facilitating Rothstein’s laundering activities, former associates and employees of the firm are being asked to repay lavish bonuses and gifts (that sometimes included houses and cars) from their boss by the firm’s receiver, and the firm’s COO Debra Villegas was recently received a 10-year term in prison after pleading guilty to conspiracy to launder money at the firm.

Marc Dreier

Rothstein’s case is not unique. Earlier this year, 59-year-old Marc Dreier, a Harvard and Yale educated New York lawyer, was sentenced to 20 years in prison after pleading guilty to money laundering and securities fraud. U.S. prosecutors called Dreier’s conduct one of colossal criminality. He sold more than US$700 million worth of fictitious securities purportedly issued by his clients to hedge funds, and misappropriated client trust funds held by his firm, Dreier LLP.

He was arrested in Toronto for impersonating an employee of the Ontario Teachers Pension Plan during an attempt to sell bogus notes to an investor. One of the first phone calls he made from prison in Toronto was to his firm to direct the transfer of US$10 million from the firm’s escrow account to a personal account offshore. At sentencing, one victim said that Dreier used his law licence rather than a ski mask and a gun to steal from victims.

Before embarking on his colossal criminality, Dreier was legitimately earning US$400,000 a year as a lawyer, a sum he said was not enough.

Dreier used funds he acquired illicitly to maintain an extraordinarily lavish lifestyle that included a US$40 million art collection, a US$18 million yacht, two beachfront Hamptons homes, a luxury apartment in Manhattan, a property in Anguilla, a beachfront apartment in Santa Monica and several exotic cars. Like Rothstein, Dreier’s wealth accumulated quickly and no one asked questions. And like Rothstein, Dreier ran his scheme from his posh law firm office.

Stephen Rondos

Also earlier this year, Steven Rondos, a Canadian-born New Jersey lawyer, was indicted for money laundering, grand larceny and fraud. Rondos was a court-appointed legal guardian in charge of supervising the guardianship accounts of clients who were incapacitated. He stole over US$4 million from 23 clients, including US$1 million from a quadriplegic with cerebral palsy. Rondos used guardianship funds to buy a US$1.4 million home and a US$31,000 plasma screen TV. He pleaded guilty to grand larceny and money laundering and began serving a 15 year sentence in May.

Stanko Grmovsek

Another Canadian lawyer, Stanko Grmovsek, was sentenced to 39 months in prison in January of this year after pleading guilty to fraud, money laundering and insider trading in Ontario. Grmovsek’s law school friend, Gil Cornblum tipped undisclosed material information about pending transactions involving firm clients to Grmovsek that Grmovsek used to trade, generating $10 million in illegal profits. Cornblum committed suicide the day before he was scheduled to plead guilty in Toronto.

Fernando Del Valle

In Spain, a Chilean-born lawyer named Fernando Del Valle, is on trial for allegedly laundering $12 million of illicit proceeds from prostitution and drug trafficking through his law firm on behalf of clients, and facilitating money laundering through the establishment of trust and corporate vehicles that were used to conceal the origin and ownership of illicit funds. If convicted, Del Valle faces a 15-year term of imprisonment and a fine of $37 million. Like Rothstein, Del Valle’s wealth accumulated quickly. In a few short years, his little known real estate law firm became one of the best known in Marbella.

Hans Bodmer

Swiss lawyer Hans Bodmer, indicted in the US in 2003 on charges of conspiracy to violate the Foreign Corrupt Practices Act and money laundering, was one of Switzerland’s top corporate lawyers. According to the indictment, Bodmer is alleged to have washed US$150 million for clients, and is alleged to have chartered private jets for the delivery of over US$40 million cash to Azerbijan that was ultimately paid to bribe officials. Bodmer pleaded guilty to conspiracy to launder money and is expected to be sentenced in the U.S.

4 U.K. men facing nine years in jail if they don’t pay £800,000 laundered in casinos

By Christine Duhaime | October 9th, 2010

A U.K. professional gambler, Harvinder “Micky Singh” Batth, and three co-defendants must come up with £800,000 in restitution in the next six months or spend more time in jail.

Batth was a member of a U.K. group that laundered millions of pounds at casinos on behalf of crime bosses. He was a well-known professional gambler in that country’s casino circuit who was accorded casino VIP treatment.

The Financial Action Task Force has cautioned casinos about their approach to high-spenders and VIPs because of the tendency for increased money laundering risks. According to the FATF, casinos often relax AML procedures for VIP customers instead of conducting enhanced due diligence.

In 2008, Batth was convicted of money laundering conspiracy and VAT fraud and sentenced to nine years in prison. Batth and his co-defendants transferred large amounts of money from the proceeds of crime to a bank in Dubai so that it could be withdrawn and used by their associates. Funds were laundered at U.K. casinos by depositing vast sums at casinos and withdrawing most of it the next day after some gambling activity had occurred.

Law firm COO gets 10 year sentence for money laundering in Ponzi scheme

By Christine Duhaime | October 8th, 2010

Debra Villegas, former chief operating officer of the now-defunct Fort Lauderdale law firm run by Scott Rothstein, was sentenced to a term of imprisonment of 10 years and ordered to pay US$363 million in restitution today in Florida. Villegas forged signatures on fabricated legal settlements that were sold to wealthy investors. Earlier this year, she pleaded guilty to money laundering for her part in the US$1.2 billion Ponzi scheme operated by Rothstein through his firm, Rothstein Rosenfeldt Adler. Last summer, Rothstein was sentenced to 50 years in prison on money laundering, racketeering and other charges.

FINTRAC participating in FATF study on new payment methods

By Christine Duhaime | October 8th, 2010

According to this article in the Toronto Star, FINTRAC is working with the FATF to evaluate money laundering and terrorist financing risks associated with prepaid cards, mobile payment services and Internet based payment services.

The FATF will be collating information from cases where mobile and Internet based payment services were used to launder funds or support terrorism and assess the risks associated with those payment methods. In the past, the FATF has identified the unregulated Internet gambling industry as a source of money laundering originating from mobile and Internet payment services.

Earlier this year, the U.S. federal regulatory agency FinCEN, released proposed new regulations to the Bank Secrecy Act to regulate prepaid cards, plastic cards, mobile phones, electronic serial numbers, key fobs and similar mechanisms that provide a portal for funds that have been prepaid and are retrievable and transferable. Canada is expected to follow suit within a few years with similar regulations.

HSBC told to improve anti-money laundering controls

By Christine Duhaime | October 7th, 2010

HSBC Bank USA, N.A. has been ordered to improve its compliance with U.S. anti-money laundering laws. Under a Consent Order entered into with the U.S. Office of the Comptroller of the Currency (OCC) and the Federal Reserve, HSBC must correct anti-money laundering problems identified by the OCC and bring itself into compliance with the Bank Secrecy Act (BSA) and other U.S. anti-money laundering measures. The OCC found that HSBC’s compliance program had deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessments involving politically exposed persons.

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Canada’s report on organized crime highlights criminal trends

By Christine Duhaime | October 3rd, 2010

The 2010 Report on Organized Crime published last month by the Criminal Intelligence Service Canada highlights current criminal markets operating in Canada. In any criminal market, the proceeds of the underlying criminal activity are laundered to conceal the origin of the funds. According to the report, the main criminal markets in Canada are:

counterfeit goods smuggled into Canada from Asia and the U.S.;
sale of illicit drugs originating from the U.S.;
theft and traffic of illicit pharmaceuticals such as valium, klonopin, ativan, ritalin and oxycontin. Pharmaceuticals are obtained illicitly through armed robberies, employee theft and the diversion of pharmaceuticals from domestic distribution channels;
trafficking in arms and weapons into Canada from the U.S.;
mortgage fraud in which mortgage industry insiders (identified in the report as vendors, mortgage brokers, real estate agents, lawyers and title insurers) cooperate in or facilitate the fraud; and
securities fraud in which social media vehicles, such as Facebook, Craigslist and Kijiji, play an increasingly important role for criminals to lure and defraud investors.

CISC collects intelligence from provincial counterparts and police agencies and analyzes developments and trends in criminal markets in Canada.

Spanish authorities arrest 41 over money laundering allegations

By Christine Duhaime | October 2nd, 2010

Spanish authorities today announced the arrest of 41 people in Spain as part of a 200 million Euro money laundering investigation involving proceeds from an alleged drug trafficking ring linked to the Revolutionary Armed Forces of Columbia, also known as FARC. Spanish authorities say they were able to track money transferred from the sale of narcotics across Europe to Columbia and Ecuador. The Spanish have been systematically cracking down on money laundering activities – earlier this year, dozens of people were arrested across Europe as part of a major money laundering investigation led by Spanish authorities involving alleged members of the Eastern European mafia.

U.S. introduces new anti-terrorism reporting regulations for cross-border transactions

By Christine Duhaime | September 27th, 2010

The U.S. Financial Crimes Enforcement Network (FinCEN), has published proposed regulations that would require banks and money services businesses to report cross-border electronic transfers of funds (called CBETFs).

Banks would have to report all CBETFs of any amount to FinCEN within five days. Money services businesses would be required to report amounts of US$1,000 or more to FinCEN. Reporting would be on a first-in and last-out basis, which means that an institution must report a transaction when it is the last financial institution to handle the transaction before it leaves the U.S. or if it is the first institution to handle it as it enters the U.S.

The proposed regulations would also require banks to annually file with FinCEN a list of the taxpayer identification numbers of its customers who sent or received a CBETF.

The regulations will also authorize the establishment of a centralized database for the collection and analysis of the cross-border data that will be used for the detection and prosecution of money laundering, terrorist financing and tax evasion offenses. You can read the proposed regulations from FinCEN here.

FINTRAC fines two money services businesses for anti-money laundering failures

By Christine Duhaime | September 22nd, 2010

FINTRAC, Canada’s financial intelligence unit, has assessed relatively minor penalties against two money services businesses. Sutlej Foreign Exchange Inc., an Ontario-based money services business, was fined $8,450 for failing to: have a written compliance plan; undertake a risk assessment for a compliance plan; train employees on anti-money laundering; report electronic funds transfers to FINTRAC; and keep records.

Manny Foreign Exchange Inc., an Alberta-based money services business, was fined $7,370 for failing to: complete forms properly; report a large cash transaction to FINTRAC; report electronic funds transfers to FINTRAC; complete a risk assessment; and develop a written compliance plan. Money services businesses in Canada are required to register with FINTRAC, retain anti-money laundering records, and report certain transactions to FINTRAC.