Friday, March 20, 2015
Wednesday, March 18, 2015
ASSISTANT AG CALDWELLS REMARKS AT ACAMS FINANCIAL CRIME CONFERENCE
FROM: U.S. JUSTICE DEPARTMENT
Assistant Attorney General Caldwell Remarks at the ACAMS Anti-Money Laundering & Financial Crime Conference
Hollywood, FLUnited States ~ Monday, March 16, 2015
Thank you for the kind introduction.
I am honored to open this important event, which commemorates the 20th year of ACAMS’s anti-money laundering conference, and serves as an opportunity for all of us – financial institution representatives, regulators, and law enforcement personnel – to reflect on the relationship between anti-money laundering efforts and the integrity of the worldwide financial system.
The health of the global economy depends on both creating access for a wide range of participants and preventing abuse and corruption. To accomplish these goals, banks and other financial institutions must maintain robust, effective anti-money laundering and other compliance programs that account for international business realities.
And the increasingly global nature of business means that corporate entities, including banks and other financial institutions, must be attuned to complying with the laws of all the countries in which they operate.
As cross-border crime continues to proliferate, prosecutors and other law enforcement must be prepared to find evidence and witnesses all over the world, and to work in coordination with our law enforcement partners abroad. The international law enforcement and regulatory communities must continue to work together to prevent, identify, punish and deter financial crime.
Today, I will speak about what we expect of businesses operating internationally, and how we are investigating and prosecuting crimes involving international conduct, particularly within and among financial institutions.
Since last May, I have had the tremendous pleasure of leading the Criminal Division of the Department of Justice. The Criminal Division includes approximately 600 attorneys who investigate and prosecute federal crimes, help develop criminal law and formulate law enforcement policy.
While the 93 U.S. Attorneys around the country focus on investigating and prosecuting crime in their respective districts, the Criminal Division tends to focus on issues that affect the nation as a whole and on investigations that are international in scope.
As a result, the Criminal Division currently has people stationed in more than 45 countries. Among other work, those folks facilitate collaboration and cooperation with our law enforcement partners in those locations.
In addition, the Criminal Division’s Office of International Affairs obtains foreign evidence needed in U.S. investigations, seeks extradition of people wanted for federal and state prosecution in the United States and responds to extradition and mutual legal assistance requests from foreign governments.
Among the sections and offices that make up the Criminal Division is the Asset Forfeiture and Money Laundering Section, known as AFMLS. AFMLS attorneys pursue criminal prosecutions and forfeiture actions against financial institutions and corporate officers engaged in money laundering, Bank Secrecy Act violations, and sanctions violations.
They also prosecute facilitators or third-party money launderers who move money for transnational criminal organizations.
In addition, AFMLS forfeits the proceeds of high-level foreign corruption through the Kleptocracy Asset Recovery Initiative, which seeks to recover ill-gotten gains from corrupt foreign officials. Once secured, the forfeited assets are used, whenever possible, for the benefit of the citizens of the victim country.
The increasingly global scope of the Criminal Division’s work – in particular the international nature of the investigations and prosecutions handled by AFMLS and our Fraud Section – is a direct product of the increasingly global nature of both U.S.-based and foreign-based entities, including financial institutions.
When U.S.-based corporate entities, including financial institutions, conduct business beyond our borders and, conversely, when foreign-based entities operate in the U.S., law enforcement must adapt.
The international nature of our work also is driven by the global reach of the Internet. Increasingly, we seek data such as email from companies’ operations all over the world and often have to navigate a thicket of data privacy rules that may vary greatly from country to country.
I am not here to discuss cyber threats, but I would be remiss if I did not note that the internet also has allowed foreign criminals to carry out crimes in the U.S., sometimes on a massive scale, without ever having to set foot in our country. And the victims of those crimes have included many financial institutions.
This is not just a U.S. problem, but a global one. And we are working closely with our foreign counterparts to try to thwart cyberattacks before they happen, as well as to catch and bring to justice cybercriminals.
Identifying and prosecuting overseas cybercriminals, however, is not easy, and companies must protect themselves.
If your companies have not already done so, you need to make state of the art cybersecurity a top priority, and compliance with cybersecurity policy, a major priority. Cybersecurity compliance is critical, because even a single human error, such as one person opening the wrong email and thereby allowing access to a company’s computer systems, can have devastating consequences.
Likewise, companies must protect themselves against violations of the law. Your institutions’ compliance teams are the first line of defense against money laundering and other financial crime. The importance of your work cannot be overstated.
Robust compliance programs are essential to preventing fraud and corruption. But they also are an important factor for prosecutors in determining whether to bring charges against a business entity that has engaged in some form of criminal misconduct.
Prosecutors look at “the existence and effectiveness of the corporation’s pre-existing compliance program”. We also look at what remedial measures were taken by the company once it became aware of the misconduct.
As all of you know, there is no “one size fits all” compliance program. Rather, effective anti-money laundering and other compliance programs are those that are tailored to the unique needs, risks and structure of each institution. But, in general, here are some hallmarks of effective compliance programs in our view:
• An institution must ensure that its directors and senior managers provide strong, explicit and visible support for its corporate compliance policies.
• The people who are responsible for compliance should have stature within the company. Compliance teams need adequate funding and access to necessary resources.
• An institution’s compliance policies should be clear and in writing. They should be easily understood by employees. That means that the policies must be translated into languages spoken in the countries in which the companies operate. That sounds simple, but it is important and sometimes is not done.
• An institution should ensure that its compliance policies are effectively communicated to all employees. The written policies should be easy for employees to find. And employees should have repeated training, which should include direction regarding what to do or with whom to consult when issues arise.
• An institution periodically should review its policies and practices to keep them up to date with evolving risks and circumstances. Especially if a U.S.-based entity acquires or merges with a foreign entity, all compliance policies should be reviewed and revised.
• There must be mechanisms to enforce compliance policies. Those include incentivizing compliance and disciplining violations. And any discipline must be even handed. The department does not look favorably on situations in which low-level employees who may have engaged in misconduct are terminated, but the more senior people who either directed or deliberately turned a blind eye to the conduct suffer no consequences. Such action sends the wrong message –to other employees, to the market and to the government – about the institution’s commitment to compliance.
• An institution should sensitize third parties like vendors, agents or consultants to the company’s expectation that its partners are also serious about compliance. This means more than including boilerplate language in a contract. It means taking action – including termination of a business relationship – if a partner demonstrates a lack of respect for laws and policies. And that attitude toward partner compliance must exist regardless of geographic location.
These are just some of the elements of a strong compliance program. When the Criminal Division evaluates a company’s compliance policy during an investigation, we look not only at how the policy reads “on paper,” but also on the messages conveyed to employees, including through in-person meetings, emails, telephone calls and compensation.
We look at whether, as a whole, a company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, the company chose profits.
In the anti-money laundering and sanctions contexts, in particular, effective compliance requires more. I’d like to highlight a few points.
First, of course, is “know your customer.” An institution must ensure that its anti-money laundering, sanctions and other compliance policies and practices are tailored to identify and mitigate the risks posed by its portfolio of customers, and that those customers are providing complete and accurate information.
Second, if a financial institution operates in the U.S. – whether it is a U.S.-based bank or a U.S. branch or component of a foreign bank – it must comply with U.S. laws. This may sound straightforward in principle, but we have seen that it is all too often not implemented in practice.
Part of that compliance is sharing information about potentially suspicious activity with other branches or offices. For example, if a foreign branch of a U.S. bank identifies suspicious activity related to an account held by a customer that also maintains an account with the bank in the U.S., compliance personnel in the U.S. should be alerted to the suspicious activity.
In our view, to effectuate these practices, financial institutions with a U.S. presence should give U.S. senior management a material role in implementing and maintaining a bank’s overall compliance framework.
Third, all regulated companies and, in particular, financial institutions, must be candid with regulators. When we investigate companies, we look closely at the information the companies provided to regulators about the violation. We look at whether the companies were forthcoming, or not.
The vast majority of financial institutions file Suspicious Activity Reports when they suspect that an account is connected to nefarious activity. But, in appropriate cases, we encourage those institutions to consider whether to take more action: specifically, to alert law enforcement authorities about the problem, who may be able to seize the funds, initiate an investigation, or take other proactive steps.
Some banks take more action by closing the suspicious account, but sometimes that may just prompt the criminals to move the illicit funds elsewhere. So, we encourage you to speak with regulators and law enforcement about particularly suspicious activity.
The department appreciates that the global economy, and the international nature of the banking and financial services industries, present a compliance challenge, and often institutions must bridge a cultural, as well as a geographic, divide. But such challenges do not justify non-compliance.
Overall, we expect financial institutions to take compliance risk as seriously as they take other business-related risks. Although compliance may not be a profit center, investment in compliance will pay off – and it’s the right thing to do.
The importance of global financial institutions having effective compliance programs – particularly policies that facilitate or mandate information sharing between foreign and domestic branches or components -- is evidenced by the global resolution reached just last week with Commerzbank AG, a global financial institution based on Frankfurt, Germany, and its New York branch Commerz New York.
The bank agreed to forfeit $563 million, pay a $79 million fine and enter into a Deferred Prosecution Agreement with the Department of Justice for violating the International Emergency Economic Powers Act and the Bank Secrecy Act. The bank also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control and the Board of Governors of the Federal Reserve System.
According to the resolution documents, from 2002 to 2008, Commerzbank knowingly and willfully moved approximately $263 million through the U.S. financial system on behalf of sanctioned entities in Iran and Sudan. To do so, Commerzbank used “cover payments,” which concealed the involvement of the sanctioned entities in transactions processed through Commerz New York and other financial institutions in the U.S. Internal bank emails show that Commerzbank knew that its practices violated U.S. law. Commerzbank’s senior management was warned about the violative payments and internal auditors “raised concerns,” but those concerns were not shared with their U.S. counterparts. Instead, Commerzbank intentionally hid from its New York branch that it was processing payments on behalf of Iranian clients. So the bank ignored warnings from the internal managers charged with ensuring compliance, then concealed the transactions from its own branch office.
In addition, according to court documents, from 2008 until 2013, Commerz New York violated the Bank Secrecy Act by failing to maintain adequate compliance policies and procedures both to detect and report suspicious activity. Specifically, Olympus, the Japanese camera maker, used Commerzbank and Commerz New York to conceal hundreds of millions of dollars in losses from auditors and investors. To perpetuate the fraud, Commerzbank, through its branch and affiliates in Singapore, loaned money to off-balance-sheet entities created by or for Olympus.
Although numerous bank executives and compliance officers expressed suspicion about the nature and structure of the Olympus transactions, Commerz New York failed to file Suspicious Activity Reports as required or to conduct adequate “know your customer” due diligence.
The potential consequences of having weak, or unenforced, compliance programs also are illustrated by the department’s recent, landmark criminal resolution with BNP Paribas (BNPP) – the fourth largest bank in the world.
Between 2004 and 2012, BNPP knowingly violated the IEEPA and the Trading with the Enemy Act by moving more than $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions. The majority of the transactions facilitated by BNPP were on behalf of entities in Sudan, which is subject to a U.S. embargo due to the Sudanese government’s role in facilitating terrorism and committing human rights abuses.
BNPP’s criminal conduct took place despite repeated warnings expressed by the bank’s own compliance officers and its outside counsel. In response to the concerns identified by compliance personnel, high-ranking BNPP officials explained that the questioned transactions had the “full support” of BNPP management in Paris. In short, VBPP expressly elected to favor profits over compliance.
Ultimately, BNPP pleaded guilty to conspiracy to violate IEEPA and TWEA, and agreed to pay record-setting financial penalties of over $8.9 billion. And the company admitted its misconduct – including its disregard of compliance advice – in a detailed statement of facts that was made public.
Those are just two examples of recent cases we have handled involving financial institutions and their international businesses. The Criminal Division has recently resolved financial fraud and sanctions violations investigations with several other major financial institutions, including Standard Chartered, HSBC, UBS, RBS and Barclays, just to name a few. In those cases, we have often entered into deferred prosecution agreements or non-prosecution agreements – known as DPAs and NPAs – with the banks.
DPAs and NPAs are useful enforcement tools in criminal cases. Through those agreements, we can often accomplish as much as, and sometimes even more than, we could from a criminal conviction. We can require improved compliance programs, remedial steps or the imposition of a monitor. We can require that the banks cooperate with our ongoing investigations, particularly in our investigations of individuals. We can require that such compliance programs and cooperation be implemented worldwide, rather than just in the United States. We can require periodic reporting to a court that oversees the agreement for its term. These agreements can enable banks to get back on the right track, under the watchful eye of the Criminal Division and sometimes a court.
And these agreements have teeth – not just because they are overseen by the Department of Justice and sometimes a court, but because of the potential penalties triggered by a breach.
Let me be clear: in the Criminal Division, we will hold banks and other entities that enter into DPAs and NPAs to the obligations imposed on them by those agreements. And where banks fail to live up to their commitments, we will hold them accountable.
Just like an individual on probation faces a range of potential consequences for a violation, so too does a bank that is subject to a DPA or NPA.
Under DPAs and NPAs, we have a range of tools at our disposal. We can extend the term of the agreement and the term of any monitor, while we investigate allegations of a breach, including allegations of new criminal conduct. Where a breach has occurred, we can impose an additional monetary penalty, or additional compliance or remedial measures. Most significantly, we can pursue charges based on the conduct covered by the agreement itself – the very conduct that the bank had tried to resolve through the DPA or NPA.
Make no mistake: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.
DPAs and NPAs are powerful tools. They can’t be ignored once they’re signed, and they can’t be followed partially but not completely. We will take action to ensure that banks are held accountable for DPA or NPA violations. And where a bank that violates a DPA or NPA is a repeat offender with a history of misconduct, or where a violating bank fails to cooperate with an investigation or drags its feet, that bank will face criminal consequences for its breach of the agreement.
Many of the cases we have handled with financial institutions involve coordination with regulators and other law enforcement around the world. To successfully investigate and prosecute cases involving global entities, including financial institutions, we work closely with our foreign law enforcement counterparts and foreign regulators. Cooperation and coordination with foreign authorities strengthens our collective ability to bring transnational criminals to justice – whether they are multi-national corporations, corporate executives, corrupt political officials, drug or human traffickers, terrorists or hackers behind computer screens.
In May 2013, the department announced charges against Liberty Reserve, a digital currency system that was incorporated in Costa Rica and created for the express purpose of assisting cybercriminals and others in anonymously laundering illicit proceeds through the U.S. and global financial systems.
At the time, Liberty Reserve had more than one million users worldwide who conducted transactions involving more than six billion in funds, which encompassed suspected proceeds of credit card fraud, identity theft, investment fraud, computer hacking, child pornography, narcotics trafficking and other crimes.
But, due to the coordinated efforts of law enforcement authorities in the U.S., Costa Rica, the Netherlands, Spain, Sweden and Switzerland, justice prevailed. Liberty Reserve permanently is out of business, and the government also charged seven individuals connected to Liberty Reserve, including its founder Arthur Budovsky, information technology manager Maxim Chukharev and chief technology officer Mark Marmilev.
To date, four defendants have pleaded guilty. In December 2014 and January 2015, Marmilev and Chukarev were sentenced to serve five years in prison and three years, respectively. Budovsky was extradited from Spain to the United States and will stand trial in November.
Our kleptocracy cases are other examples of our cooperation with international authorities to remediate fraud, abuse and corruption. Through the department’s Kleptocracy Asset Recovery Initiative, we work with law enforcement agencies to forfeit the proceeds of foreign official corruption and to use those recovered assets to benefit the people harmed by the acts of corruption and abuse of office.
One of our kleptocracy cases involves Chun Doo-Hwan, the former president of South Korea, who was convicted in 1997 of receiving more than $200 million in bribes from South Korean businesses and other companies. President Chun and his relatives laundered some of the corruption proceeds through a web of nominees and shell companies in the U.S. In coordination with South Korean law enforcement authorities, since 2013, the department has assisted in the recovery of over $27.5 million in corruption proceeds from Chun’s associates. Earlier this month, the department secured the forfeiture of another $1.2 million in assets in the U.S. traceable to corruption proceeds accumulated by Chun.
Also in connection with the Kleptocracy Asset Recovery Initiative, in October 2014, the department settled a civil forfeiture action against assets in the U.S. of the Second Vice President of the Republic of Equatorial Guinea Teodoro Obiang Mangue. Obiang looted his own government and solicited and received bribes and kickbacks from businesses to support a lavish lifestyle while his fellow citizens lived in extreme poverty. In all, Obiang amassed more than $300 million in assets through corruption and money laundering. Among the assets he purchased with corruption proceeds were a $30 million mansion in Malibu, California; a Ferrari and various items of Michael Jackson memorabilia. Under the terms of the settlement, Obiang was required to disgorge over $30 million, $10 million of which was to be forfeited, and another $20 million to be used to benefit the people of Equatorial Guinea through a charity.
There have been suggestions – perhaps by some in this room today – that the Department of Justice, in collaboration both with U.S. regulators and foreign law enforcement authorities, are unreasonably targeting financial institutions for investigation and prosecution. That is not the case.
Simply put, banks and other financial institutions continue to come up on our radar screens because they, and the individuals through which they act, continue to violate the law, maintain ineffective compliance programs or simply turn a blind eye to criminal conduct to preserve profit. If the government learns of such action (or inaction), it is our obligation to investigate and follow the evidence wherever it may lead. And we will prosecute banks and other financial institutions for willful failures to maintain effective anti-money laundering programs and for other financial crimes.
I strongly encourage the representatives of banks and other financial institutions participating in this conference to take the opportunity – both during the next few days and once you return to your respective offices – to reflect on whether your institutions have effective anti-money laundering programs and other compliance policies and practices to prevent or mitigate financial crime. The integrity and viability of the global financial system require that you do.
Thank you.
Tuesday, March 17, 2015
DOL FILES SUIT IN CASE INVOLVING DEFUNCT COMPANY AND 401K DISTRIBUTIONS
FROM: U.S. LABOR DEPARTMENT
US Labor Department files suit against Vic International Corp. in Knoxville, Tenn. to restore 401(k) contributions
Date of Action: Feb. 23, 2015
Type of Action: Complaint
Allegations: In 1996, Vic International Corp., based in Knoxville, Tennessee, established a 401(k) Profit Sharing Plan for its employees. During the course of an investigation by the U.S. Department of Labor's Employee Benefits Security Administration, the agency found that from Aug. 2011 to March 2012, Vic International, James Victor Green, Kelly Milligan, and Paul Kelley failed in their fiduciary responsibility to forward $21,688.60 in employee contributions to the plan and also allowed the funds to be commingled with general company assets. Additionally, the agency found that in October 2011, the defendants caused or allowed distributions from the plan to be made to defendant Kelly Milligan totaling $69,600 without documentation or record of repayment. Vic International Corp. ceased operations in March 2012 and since that time, defendants failed to make distributions of plan assets and terminate the plan in accordance with plan documents.
Resolution: The department is asking the court to order the defendants to restore to the plan all losses, including interest or lost opportunity costs, which occurred as a result of their breaches of fiduciary obligations or as a result of a co-fiduciary's breach; to permanently enjoin the defendants from serving as fiduciary, administrator, officer, trustee, custodian, agent, employee, representative, or having control over the assets of any employee benefit plan subject to Employee Retirement Income Security Act; to enjoin the defendants from engaging in any further action in violation of Title I of ERISA; to appoint a successor fiduciary or administrator to the plan at the defendants' expense; and to provide such other relief as may be just and equitable.
Court: United States District Court for the Eastern District of Tennessee, Knoxville Division
Docket Number: 3:15-cv-00079-PLR-CCS
Monday, March 16, 2015
DOJ ANNOUNCES INJUNCTION AGAINST PHARMACY AND SENIOR EXECUTIVES INVOLVING ADULTERATED, MISBRANDED DRUGS
FROM: U.S. JUSTICE DEPARTMENT
Wednesday, March 11, 2015
District Court Enters Permanent Injunction Against Texas Pharmacy and Senior Executives to Prevent Distribution of Adulterated and Misbranded Drugs
The U.S. District Court for the Western District of Texas entered a consent decree of permanent injunction against Specialty Compounding LLC, Raymond L. Solano III and William L. Swail to prevent the distribution of adulterated and misbranded drugs, the Department of Justice announced today.
The department filed a complaint in the U.S. District Court for the Western District of Texas on Feb. 23, at the request of the U.S. Food and Drug Administration (FDA). According to the complaint, Specialty Compounding manufactured both sterile and non-sterile drugs at a facility in Cedar Park, Texas, and distributed the company’s drugs to hospitals, surgery centers and health clinics in Texas and throughout the United States. As noted in the complaint, Solano is Specialty Compounding’s pharmacist-in-charge and co-owner, and Swail is Specialty Compounding’s Managing Partner and co-owner.
The complaint alleges that Specialty Compounding manufactured a sterile injectable drug product that tested positive for bacterial growth. In addition, according to the complaint, in August 2013, FDA received reports from two Texas hospitals that 17 patients had developed bacterial infections caused by Rhodococcus equi after receiving infusions of calcium gluconate manufactured by Specialty Compounding. Specialty Compounding ceased sterile drug manufacturing operations in August 2013, and recalled all lots of its unexpired sterile drug products distributed since Feb. 1, 2013.
“Specialty Compounding’s manufacturing practices posed a serious risk to the public health,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division. “The American public needs to have the confidence that pharmaceutical drugs on the market are safe and effective.”
In conjunction with the filing of the complaint, the defendants agreed to settle the litigation and be bound by a permanent injunction. As part of the settlement, the company and its owners have committed to implementing corrective actions before resuming production of sterile drugs. Specifically, the injunction prohibits Specialty Compounding and its owners from manufacturing, holding or distributing sterile drugs until they comply with the federal Food, Drug, and Cosmetic Act and its regulations. The permanent injunction also provides the defendants cannot resume distribution of sterile drug products until they receive written approval from the FDA that they are in compliance with the remedial provisions of the permanent injunction.
As described in the complaint, the FDA inspected Specialty Compounding’s Cedar Park facility in August and September 2013, and found insanitary conditions and numerous violations of the current good manufacturing practice requirements for drug products. Among other observations, the FDA found that the company was distributing some of their drugs without receiving a valid prescription for an identified individual patient and was introducing into interstate commerce unapproved new drugs and misbranded drugs. In addition, as alleged in the complaint, analyses of samples of a drug product collected by the FDA found bacterial contamination in one of the company’s drugs. The company initiated a recall of all injectable drugs on Aug. 9, 2013.
The government is represented by Trial Attorney Jessica Gunder of the Civil Division’s Consumer Protection Branch, with the assistance of Associate Chief Counsel Melissa Mendoza of the Department of Health and Human Services’ Office of General Counsel’s Food and Drug Division.
Sunday, March 15, 2015
OWNER OF TWO MEDICAL EQUIPMENT COMPANIES CONVICTED OF MEDICARE FRAUD
FROM: U.S. JUSTICE DEPARTMENT
Thursday, March 12, 2015
Houston-Area Owner of Medical Equipment Companies Convicted in a $3.4 Million Medicare Fraud Scheme
A federal jury in Houston yesterday convicted the owner of two Texas medical equipment companies for his role in a $3.4 million Medicare fraud scheme.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, Special Agent in Charge Mike Fields of the U.S. Department of Health & Human Services-Office of the Inspector General (HHS-OIG) Dallas Regional Office, Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Office and the Texas Attorney General’s Medicaid Fraud Control Unit made the announcement.
Huey P. Williams Jr., 45, who owned and operated Hermann Medical Supply of Katy, Texas, and Hermann Medical Supplies II of Houston, was convicted of one count of health care fraud, as charged in a Jan. 15, 2014, indictment. Sentencing will be scheduled at a later date, and will take place before U.S. District Judge Melinda Harmon of the Southern District of Texas.
According to the evidence submitted at trial, Williams submitted claims to Medicare through his two companies for durable medical equipment, including orthotic devices, which were medically unnecessary or never provided to the patients. Many of the orthotic devices were components of an “arthritis kit,” and were purported to be for the treatment of arthritis-related conditions. The evidence demonstrated that, from December 2006 through July 2010, Williams submitted approximately $3.4 million in fraudulent claims to Medicare, and Medicare paid approximately $1.9 million on those claims.
The case was investigated by the FBI, HHS-OIG and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office, and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas. The case is being prosecuted by Trial Attorneys Ashlee Caligone McFarlane and Jason Knutson of the Criminal Division’s Fraud Section.
Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged nearly 2,100 defendants who have collectively billed the Medicare program for more than $6.5 billion. In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.
Saturday, March 14, 2015
AUTO PARTS STORE RECEIVES BAD NEWS REGARDING ASBESTOS, MOLD HAZARDS
FROM: U.S. DEPARTMENT OF LABOR
Advance Auto Parts exposes workers to asbestos, mold hazards
Kansas City, Missouri, store receives 11 violations
KANSAS CITY, Mo. — A worker alleging the existence of asbestos, mold and hygiene hazards led to an inspection of an Advance Auto Parts store in Kansas City, where the U.S. Department of Labor's Occupational Safety and Health Administration found one repeated and 10 serious safety and health violations with fines of $60,000.
"Exposure to asbestos is a dangerous workplace issue that can cause loss of lung function and cancer, among other serious health effects. When Advance Auto uses an older building with presumed asbestos-containing material, such as floor tiles, it has a responsibility to conduct periodic air monitoring and must post warning signs for workers," said Barbara Theriot, OSHA's area director in Kansas City. "The company also has a responsibility to maintain the building in a sanitary and safe manner. OSHA found persistent flooding, which caused mold growth and created lower-level slip and fall hazards. This is unacceptable."
OSHA inspectors tested bulk samples of furnace room floor tiles and found they contained 3 percent chrysotile, a form of asbestos. Sample air monitoring did not detect asbestos fibers circulating in the heating and air conditioning system. However, particles could become airborne from deteriorating tiles and persistent flooding, a consistent issue throughout the building.
Asbestos is a naturally occurring mineral fiber used in some building materials before its health dangers were discovered. Asbestos fibers are invisible and can be inhaled into the lungs unknowingly. Inhaled fibers can then become embedded in the lungs.
Inspectors also found electrical safety violations and blocked exit routes at the store, resulting in the 10 serious violations. An OSHA violation is serious if death or serious physical harm could result from a hazard an employer knew or should have known exists.
OSHA also noted a repeated violation for failing to provide inspectors with injury and illness logs. Based in Roanoke, Virginia, Advance Auto Parts was previously cited for this violation in a Delaware, Ohio, store in 2010 and a Lakeland, Florida, store in 2011. OSHA issues repeated violations if an employer was cited previously for the same or a similar violation within the last five years.
Advance Auto Parts has 15 business days from receipt of its citations and penalties to comply, request an informal conference with OSHA's area director, or contest the findings before the independent Occupational Safety and Health Review Commission.
Friday, March 13, 2015
DOJ ANNOUNCES COMMERZBANK AG TO FORFEIT $563 MILLION AND PAY $79 MILLION FINE
FROM: U.S. JUSTICE DEPARTMENT
Thursday, March 12, 2015
Commerzbank AG Admits to Sanctions and Bank Secrecy Violations, Agrees to Forfeit $563 Million and Pay $79 Million Fine
Combined with Payments to Regulators, Commerzbank to Pay $1.45 Billion
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Ronald C. Machen Jr. of the District of Columbia, U.S. Attorney Preet Bharara of the Southern District of New York, Assistant Director in Charge Diego Rodriguez of the FBI’s New York Field Office, Chief Richard Weber of the Internal Revenue Service Criminal Investigation (IRS-CI) and District Attorney Cyrus R. Vance Jr. of New York County made the announcement.
In entering the deferred prosecution agreement, Commerzbank admitted and accepted responsibility for its criminal conduct in violation of IEEPA, and Commerz New York admitted its criminal conduct in violation of the BSA. Commerzbank further agreed to pay $263 million in forfeiture and a fine of $79 million for the IEEPA violations, and to pay $300 million in forfeiture in connection with the BSA violations, which will be remitted to the victims of a multi-billion dollar securities fraud scheme that was permitted to operate through Commerzbank. Commerzbank also agreed to implement rigorous internal controls and to cooperate fully with the Justice Department, including by reporting any criminal conduct by an employee.
A four-count felony criminal information was filed today in the District of Columbia charging Commerzbank with knowingly and willfully conspiring to commit violations of IEEPA and Commerz New York with three violations of the BSA for willfully failing to have an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent accounts, and willfully failing to file suspicious activity reports. Assuming the bank’s continued compliance with the deferred prosecution agreement, the government has agreed to defer prosecution for a period of three years, after which time, the government would seek to dismiss the charges.
The New York County District Attorney’s Office is also announcing today that Commerzbank has entered into a deferred prosecution agreement, and in the corresponding factual statement, Commerzbank admitted that it violated New York State law by falsifying the records of New York financial institutions. In addition, the Board of Governors of the Federal Reserve System is announcing that Commerzbank has agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations and to pay a civil monetary penalty of $200 million. The New York State Department of Financial Services (DFS) is announcing Commerzbank has agreed to, among other things, pay a monetary penalty to DFS of $610 million. The OFAC has also levied a fine of $258.6 million, which will be satisfied by payments made to the Justice Department. In total, Commerzbank will pay $1.45 billion in penalties.
“Commerzbank concealed hundreds of millions of dollars in transactions prohibited by U.S. sanctions laws on behalf of Iranian and Sudanese businesses,” said Assistant Attorney General Caldwell. “Commerzbank committed these crimes even though managers inside the bank raised red flags about its sanctions-violating practices. Financial institutions must heed this message: banks that operate in the United States must comply with our laws, and banks that ignore the warnings of those charged with compliance will pay a very steep price.”
“Sanctions laws are designed to protect the national security of the United States and promote our foreign policy interests,” said U.S. Attorney Machen. “Commerzbank undermined the integrity of our financial system and threatened our national security by hiding the business they were doing with entities in Iran and Sudan. The bank tried to skirt our laws by hiding its illegal business with Iranian banks from its own employees in the United States. Today’s resolution demonstrates that there will be consequences when global banks try to profit from the benefits of the U.S. financial system without respecting our laws.”
“Today, Commerzbank stands charged with Bank Secrecy Act criminal offenses for its acute, institutional anti-money laundering deficiencies that allowed over a billion dollars of the Olympus fraud to flow through its New York office,” said U.S. Attorney Bharara. “These criminal charges follow a multi-year investigation and a guilty plea by a former Commerzbank Singapore employee who helped set up the structure that allowed for the Olympus fraud. Institutions, not just individuals, have an obligation to follow the law, and anti-money laundering laws in particular are critical for financial institutions to follow. With today’s resolution, the bank, as part of a deferred prosecution agreement, has accepted responsibility in a detailed statement of facts, agreed to continue reforming its anti-money laundering practices, and will pay $300 million that will go to victims of the Olympus fraud.”
“Today’s deferred prosecution agreement is a significant milestone – on an international stage – that reaffirms our clear message to other global financial institutions,” said Chief Weber. “IRS-CI’s work in this investigation – as well as the prior sanction cases – has resulted in fundamental changes in the way banks operate worldwide. IRS-CI and our partners will continue to hold financial institutions accountable for international criminal violations.”
“Today, we announce more charges against yet another bank,” said Assistant Director in Charge Rodriguez. “Commerzbank violated the Bank Secrecy Act designed to prevent the movement of money, often with nefarious intent. Commerzbank enabled Olympus to evade detection for years. And worse yet, failed to create a process to prevent this criminal behavior. Management at banks and financial institutions should heed this warming: This behavior will be investigated, vigorously.”
“We have sanctions in place to prevent rogue nations and terrorists from accessing the U.S. financial system,” said District Attorney Vance. “In order to have teeth, sanctions need to be enforced and Manhattan financial institutions need to be protected from being unwittingly used by bad actors. Over the course of eight settlements, my office and our partners have sent a strong message of enforcement that has led to the transformation of compliance in this area.”
IEEPA Violations
According to admissions contained in the deferred prosecution agreement, from 2002 to 2008, Commerzbank knowingly and willfully moved $263 million through the U.S. financial system on behalf of Iranian and Sudanese entities subject to U.S. economic sanctions. Commerzbank engaged in this criminal conduct using numerous schemes designed to conceal the true nature of the illicit transactions from U.S. regulators.
For example, in the deferred prosecution agreement, Commerzbank acknowledged that it used non-transparent payment messages, known as cover payments, to conceal the involvement of sanctioned entities, and also removed information identifying sanctioned entities from payment messages, in transactions processed through Commerz New York and other financial institutions in the United States. Specifically, in 2003, Commerzbank designated a group of employees in the Frankfurt back office to review and amend Iranian payments so that the payments would not be stopped by U.S. sanctions filters. In doing so, Commerzbank ensured that Iranian payment messages did not mention the Iranian entity, as transactions may have otherwise been stopped pursuant to the U.S. sanctions.
Commerzbank admitted that it hid these practices from Commerz New York. For example, in 2003, when two state-owned Iranian banks wanted to begin routing their U.S. dollar clearing business through Commerzbank, a Commerzbank back office employee emailed other Commerzbank employees directing: “If for whatever reason CB New York inquires why our turnover has increase[d] so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks!!!!!!!!!!!!!.”
Commerzbank admitted that this conduct continued even though its senior management was warned that the bank’s practices for Iranian clients “raised concerns.” For example, in October 2003, the head of Commerzbank’s internal audit division stated in an email to a member of Commerzbank’s senior management that Iranian bank names in payment messages going to the United States were being “neutralized” and warned: “it raises concerns if we consciously reference the suppression of the ordering party in our work procedures in order to avoid difficulties in the processing of payments with the U.S.A.”
In another scheme designed to avoid U.S. sanctions, Commerzbank admitted that, in 2004, it agreed with an Iranian bank client that, rather than sending direct wire payments to the United States, the Iranian bank would pay U.S. beneficiaries with Commerzbank-issued checks listing only the Iranian bank’s account number and address in London with no mention of the Iranian bank’s name.
Additionally, Commerzbank admitted that in 2005, it created a “safe payment solution” for an Iranian shipping company client, which allowed the client to conduct transactions using the U.S. financial system. The safe payment solution involved routing payments through special purpose entities controlled by the Iranian company, which were incorporated outside of Iran and bore no obvious connection to the Iranian client. Commerzbank and its client switched use of such special purpose entities when Commerz New York’s sanctions compliance filters were updated to detect the use of a particular special purpose entity. Commerzbank continued to process payments on behalf the Iranian client even after the client had been designated by OFAC as an entity subject to U.S. sanctions for its involvement in weapons of mass destruction proliferation.
In addition, Commerzbank admitted that, from 2002 to 2007, it provided Sudanese sanctioned entities with access to the U.S. financial system by engaging in similar schemes to remove reference to Sudanese companies from the transaction records.
Olympus Accounting Fraud
Since 2008, and continuing until at least 2013, Commerz New York violated the BSA and its implementing regulations. Specifically, Commerz New York failed to maintain adequate policies, procedures and practices to ensure its compliance with U.S. law, including its obligation to detect and report suspicious activity. As a result of the wilful failure of Commerz New York to comply with U.S. law, a multibillion-dollar securities fraud was operated through Commerzbank and Commerz New York.
Olympus was a Japanese-based manufacturer of medical devices and cameras. Its common stock is listed on the Tokyo Stock Exchange, and its American Depository Receipts trade in the United States. From at least the late 1990s through 2011, Olympus perpetrated a massive accounting fraud designed to conceal from its auditors and investors hundreds of millions of dollars in losses. In September 2012, Olympus and three of its senior executives pleaded guilty in Japan to inflating the company’s net worth by approximately $1.7 billion.
Olympus used Commerzbank and Commerz New York to perpetrate its fraud. Commerzbank, through its branch and affiliates in Singapore, both loaned money to off-balance-sheet entities created by or for Olympus to perpetrate its fraud, and transacted more than $1.6 billion through Commerz New York in furtherance of the fraud.
Commerzbank and Commerz New York were used in furtherance of the Olympus fraud during two different time periods. From approximately 1999 through 2000, Olympus perpetrated its fraud primarily through Commerzbank and its Singapore branch and affiliates. Among other things, Olympus used special purpose vehicles to facilitate the fraud, some of which were created by Commerzbank – including several executives based in Singapore – at Olympus’s direction, using funding from Commerzbank. One of those Singapore-based executives, Chan Ming Fon, was involved in creating the Olympus structure in 1999 while at Commerzbank (Southeast Asia) Ltd., and later managed an Olympus-related entity in 2005-2010 on behalf of which he submitted false confirmations to Olympus’s auditors. In September 2013, Chan pleaded guilty in Manhattan federal court to conspiracy to commit wire fraud.
From 1999 through 2000, Olympus executives asked Commerzbank executives to provide certain false documents to Olympus’s auditors, which would have failed to disclose that certain Olympus assets were pledged as collateral for loans from a Commerzbank affiliate. Commerzbank obtained a legal opinion, which, in the words of one Commerzbank executive written to an Olympus executive, “ma[de] clear that our bank could be subject to both civil and criminal penalties if we are seen to be assisting or facilitating you in the non-disclosure.” Although Commerzbank ultimately declined to provide the false documents, its executives suggested a variety of ways Olympus could nonetheless fail to disclose the pledge.
In 2000, Olympus took its business away from Commerzbank and transferred it to another bank. In 2005, however, Olympus – and its fraud – returned to Commerzbank. From that point until at least 2010, Commerzbank executives expressed strong suspicions about the Olympus transactions and structure. One senior executive worried that Olympus would have to “write off [the] full amount” of the relevant transactions, and wondered about the effects on Commerzbank if “any negative news is splash[ed] on the front page.” A senior legal and compliance officer responsible for Commerzbank’s Singapore branch and affiliates wrote at the time that he was “concerned” about fraud, asset stripping, market manipulation and tax offenses, and that “[i]f the [Olympus] structure and transactions can not [be] explained we must file Suspicious Transaction report as a matter of law and [Commerzbank] policy.”
In March 2010, two wire transfers in the amounts of approximately $455 million and $67 million, respectively, related to the Olympus scheme were processed by Commerz New York through the correspondent account for the Singapore branch of Commerzbank. Those wires caused Commerz New York’s automated AML monitoring software to “alert.”
At the time, Commerz New York had conducted no due diligence on the Singapore branch and affiliates of Commerzbank, consistent with Commerzbank’s policy of not conducting due diligence on its own branches and affiliates. In response to the alerts, however, Commerz New York sent a request for information to Commerz Frankfurt and Commerzbank’s Singapore branch, inquiring about the transactions. The Singapore branch responded in a brief e-mail, dated April 20, 2010, referring to the Olympus-related entities involved in the wires:
GPA Investments Ltd. ist [sic] a Caymen Islands SPV, Creative Dragons SPC-Sub Fund E is a CITS administered fund both of which are part of an SPC structure to manage securities investments for an FATF country based MNC.
According to the Relationship Manager the payment reflects the proceeds from such securities investments to be reinvested.
Commerzbank’s Singapore branch did not relay any of the concerns about the Olympus-sponsored structures and transactions.
Based on its response, Commerz New York closed the alert without taking any further action other than to note that in March 2010 alone, GPA Investments had been involved in six transactions through Commerz New York totalling more than $522 million. In fact, between 1999 and 2010, a total of more than $1.6 billion in furtherance of the Olympus fraud was cleared through Commerz New York. Commerz New York failed to file a SAR in the United States concerning Olympus or any of the Olympus-related entities until November 2013 – more than two years after the Olympus accounting fraud was revealed.
Commerz New York had the same designated BSA Officer continuously from approximately 2003 until early 2014. Over those years, she raised concerns about AML compliance, both to her superiors at Commerz New York and with Commerz Frankfurt.
Under the BSA, a financial institution is required to detect and report suspicious activity. This is accomplished, in part, through conducting due diligence, and enhanced due diligence where appropriate, of the correspondent relationship – which Commerz New York failed to do – and by sending requests for further information to the correspondent bank when potentially suspicious transactions are detected. Commerz New York frequently had difficulties getting responses to requests for information generated in connection with automated transaction monitoring “alerts.” Because requests for information went unanswered for as much as eight months without SARs being filed, alerts were often closed without any response to the pending request. As a result of these deficiencies, Commerz New York cleared numerous AML “alerts” based on its own perfunctory Internet searches and searches of public source databases but without ever receiving responses to its requests for information.
On June 24, 2010, a Commerz New York-based compliance officer who had primary responsibility for automated transaction monitoring wrote in an e‑mail to the BSA Officer and the Head of Compliance in New York (who had previously served as the Head of Compliance in Asia) that “we currently have 90 alerts a day,” with “808 alerts outstanding,” which “could lead to a possible back log.” He continued, “I also wanted to make you aware that we have currently over 130 Frankfurt RFIs [i.e., requests for information] outstanding,” noting “a decrease in response to the RFIs” from Frankfurt. The following day, the Head of Compliance in New York forwarded the e‑mail to Commerz’s Global Head of Compliance, adding that “things are not getting better with regards to th[ose] findings. (see below). I will forward you the DRAFT memo on potential revision of staffing needs.” Although the Global Head of Compliance thereafter instituted new procedures designed to increase the speed of responses to RFIs from New York, problems persisted with the timely flow of information from business units outside the United States to compliance officers in New York.
Commerzbank and Commerz New York also failed to conduct adequate due diligence or to obtain “know your customer” information with respect to correspondent bank accounts for Commerzbank’s own foreign branches and affiliates. These systemic deficiencies reflected a failure to maintain adequate policies, procedures and controls to ensure compliance with the BSA and regulations prescribed thereunder and to guard against money laundering.
This case was investigated by the IRS-Criminal Investigation’s Washington D.C. Field Division and FBI’s New York Field Office. This case is being prosecuted by Trial Attorney Sarah Devlin of the Criminal Division’s Asset Forfeiture and Money Laundering Section, Assistant U.S. Attorneys Matt Graves, Maia Miller, Crystal Boodoo and Zia Faruqui of the District of Columbia, and Assistant U.S. Attorney Bonnie Jonas of the Southern District of New York.
The New York County District Attorney’s Office also conducted its own investigation in conjunction with the Justice Department. The Federal Reserve Bank of New York, DFS and OFAC provided substantial assistance with this investigation.
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