Month: March 2023

Source: United States Department of Justice 2

The Justice Department announced today that it filed statements of interest in Espin et al. v. Citibank, N.A. and Padao v. American Express National Bank, two lawsuits currently pending in the U.S. District Court for the Eastern District of North Carolina, to address the right of the nation’s servicemembers to bring and participate in class action litigation under the Servicemembers Civil Relief Act (SCRA) instead of being forced into privatized arbitration proceedings on their own.

The SCRA provides special legal protections to servicemembers to enable them to focus on their jobs defending the nation. For example, it allows servicemembers to reduce the interest rates on certain loans to 6% while on active duty. In Espin and Padao, the plaintiffs allege that Citibank and American Express, respectively, violated the SCRA by imposing interest rates in excess of 6% on qualified servicemembers.

The plaintiffs are seeking to bring class actions against the banks on behalf of themselves and other servicemembers who may have been affected. In response, Citibank and American Express are seeking to have the cases dismissed and to require every servicemember to bring their own individual claim in private arbitration. The department’s statements of interest urge the court to deny the defendants’ motions and to allow the plaintiffs’ SCRA class claims to proceed.

“The Justice Department is committed to robust enforcement of the Servicemembers Civil Relief Act, both through actions brought by the Attorney General and through servicemembers seeking to vindicate their own rights and the rights of others in federal court,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division.

“Our troops put their lives on the line to secure our freedom, and they should be able to effectively vindicate their rights,” said U.S. Attorney Michael Easley for the Eastern District of North Carolina. “Our troops fight for our freedom abroad, and we will zealously fight for their rights here at home. Limiting the rights of members of our military is unacceptable, especially in North Carolina, one of the most military-friendly states in the nation. We stand with our troops and insist that they be treated with the respect they deserve.”

The department’s statements of interest address specific language in the SCRA that permits plaintiffs in a civil action to be a representative party on behalf of members of a class or be a member of a class despite any previous agreement to the contrary. As explained in the statements of interest, this provision allows servicemembers to participate in class actions in federal court alleging SCRA violations even where, as in Espin and Padao, defendants seek to enforce an agreement requiring individual arbitration. The motions to compel arbitration in both cases are currently pending before the court.

Since 2011, the department has obtained over $481 million in monetary relief for over 123,000 servicemembers through its enforcement of the SCRA. For more information about the department’s enforcement efforts under the SCRA and other laws that protect the rights of servicemembers, please visit www.servicemembers.gov.

Servicemembers and their dependents who believe that their rights under the SCRA have been violated should contact the nearest Armed Forces Legal Assistance Program Office. Office locations may be found at http://legalassistance.law.af.mil.

Source: United States Department of Justice 2

Two Kansas men were arrested today on charges related to a years-long scheme to circumvent U.S. export laws that included the illegal export of aviation-related technology to Russia after Russia’s unprovoked invasion of Ukraine on Feb. 24, 2022, and the imposition of stricter restrictions on exports to Russia.

According to the indictment, Cyril Gregory Buyanovsky, 59, of Lawrence, and Douglas Robertson, 55, of Olathe, owned and operated KanRus Trading Company, which supplied Western avionics equipment (i.e., electronics installed in aircraft) to Russian companies and provided repair services for equipment used in Russian-manufactured aircraft. Since 2020, the defendants conspired to evade U.S. export laws by concealing and misstating the true end users, value and end destinations of their exports and by transshipping items through third-party countries. For example, between November 2020 and February 2021, the defendants received avionics equipment, including a computer processor bearing a sticker identifying Russia’s Federal Security Services (FSB), from a Russian company for repair in the United States. The defendants concealed the true end user and end destination by providing a fraudulent invoice to the shipment company identifying the end destination as Germany.

As further alleged, on Feb. 28, 2022, the defendants attempted to export avionics to Russia. U.S. authorities detained the shipment, and the U.S. Department of Commerce informed the defendants that a license was required to export the equipment to Russia. In an April 2022 communication, Robertson expressed to a Russia-based customer that “things are complicated in the USA” and that “[t]his is NOT the right time for [more paperwork and visibility].” Subsequently, in May, June and July 2022, the defendants illegally transshipped avionics through Armenia and Cyprus to Russia without obtaining the required licenses.

The defendants are charged with conspiracy, exporting controlled goods without a license, falsifying and failing to file electronic export information, and smuggling goods contrary to U.S. law. If convicted, they face a maximum penalty of 20 years in prison for each count of exporting controlled goods without a license; up to 10 years in prison for each count of smuggling; and up to five years in prison for each count of conspiracy and falsifying export information. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Task Force KleptoCapture Director Andrew C. Adams, U.S. Attorney Duston J. Slinkard for the District of Kansas, Assistant Director Alan E. Kohler Jr. of the FBI Counterintelligence Division, Special Agent in Charge Charles Dayoub of the FBI Kansas City Field Office, and Special Agent in Charge Aaron Tambrini of the U.S. Department of Commerce Office of Export Enforcement, Chicago Field Office made the announcement.

The FBI and the U.S. Department of Commerce, Office of Export Enforcement are investigating the case.

Assistant U.S. Attorneys Scott Rask and Ryan Huschka for the District of Kansas and Trial Attorney Adam Barry of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

The investigation was coordinated through the Justice Department’s Task Force KleptoCapture, an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export controls and economic countermeasures that the United States, along with its foreign allies and partners, has imposed in response to Russia’s unprovoked military invasion of Ukraine. Announced by the Attorney General on March 2, 2022 and under the leadership of the Office of the Deputy Attorney General, the task force will continue to leverage all of the department’s tools and authorities to combat efforts to evade or undermine the collective actions taken by the U.S. government in response to Russian military aggression.

An indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Source: United States Department of Justice News

SAN JUAN, Puerto Rico – Margarita Botti-Nieves was sentenced by United States District Court Senior Judge Francisco A. Besosa to serve 24 months in prison followed by a supervised release term of three years, announced United States Attorney W. Stephen Muldrow. On October 11, 2022, Botti-Nieves was indicted and pleaded guilty to misappropriation of funds, tax evasion, and obstruction of a tax investigation.

Defendant Margarita Botti-Nieves was an employee, accountant, and agent of Programa de Apoyo y Enlace Comunitario, Inc. (“PAEC”). PAEC was a non-profit corporation organized in Puerto Rico which received and administered benefits under various Federal programs involving grants, contracts, and Federal assistance. According to court documents, from in or about September 2016 and continuing until June 2019, the defendant did willfully evade the payment of a substantial portion of the employment taxes owed by PAEC to the United States of America, by committing the following affirmative acts among others:

a. Caused submission of false statements to the IRS;

b. Provided false information and fraudulent documentation to PAEC for purported payments to the IRS which were never made;

c. Caused the preparation of false tax documents that misreported PAEC employees’ tax witholdings;

d. Caused funds to be transferred from PAEC bank account to different accounts defendant controlled in order to divert funds to be used for personal expenses.

e. Caused the tax returns to be filed with the IRS in an attempt to evade and defeat the payment of employment taxes due and owing by PAEC to the United States.

“Convictions such as this send a loud and clear message that those who defy our nation’s tax laws will be investigated and prosecuted to the fullest extent of the law,” said U.S. Attorney Muldrow.

“The Treasury Inspector General for Tax Administration will continue to aggressively pursue those who attempt to defraud the Federal tax system and undermine the integrity of the Internal Revenue Service,” stated J. Russell George, Treasury Inspector General of Tax Administration. “We appreciate the efforts of our law enforcement partners and the United States Attorney’s Office to ensure this criminal activity is held to account.”

Assistant U.S. Attorney María L. Montañez prosecuted the case.  The case was investigated by the Treasury Inspector General for Tax Administration; the Internal Revenue Service, Office of Criminal Investigations; United States Department of Health & Human Services Office of Inspector General; AmeriCorps-The Corporation for National and Community Service; Department of Justice Office of Inspector General.

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Source: United States Department of Justice News

The Justice Department announced today that it has secured an agreement to resolve a lawsuit alleging that landlord Darrell Jones of Muskegon, Michigan, violated the Fair Housing Act by sexually harassing female tenants. The settlement also resolves claims against Fatima Jones and Jones Investing, LLC, which, along with Jones, owned the properties where the alleged harassment occurred.

“The Fair Housing Act protects the rights of tenants to live in peace and security without the fear that their housing provider will sexually harass them,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “The Justice Department is committed to holding housing providers accountable for their unlawful behavior and seeking relief for survivors.”

“The sexual harassment of tenants is an intolerable abuse of power that violates federal civil rights laws,” said U.S. Attorney Mark A. Totten for the Western District of Michigan. “No one should have to endure harassment and discrimination, especially in their own homes. My office is committed to protecting the rights of vulnerable tenants and will continue to vigorously enforce the Fair Housing Act to combat discrimination and secure justice for victims.”

Under the agreement, which still must be approved by the U.S. District Court for the Western District of Michigan, defendants are required to pay $155,000 to compensate individuals harmed by the harassment and pay a $10,000 civil penalty to the United States. The consent order also requires the defendants to:

• Retain an independent property manager to manage their rental properties for the duration of the order;
• Obtain fair housing training; and
• Implement non-discrimination policies and complaint procedures to prevent sexual harassment at their properties in the future.

The lawsuit, filed in June 2020, alleged that since at least 2008, Jones subjected female tenants to harassment that included making repeated and unwelcome sexual comments, touching tenants’ bodies without their consent, demanding sexual activity in exchange for rent and housing-related benefits and taking adverse actions against tenants who resisted his sexual advances or complained about the harassment.

This case was referred to the Justice Department by the Fair Housing Center of West Michigan and was litigated by attorneys in the department’s Civil Rights Division and the U.S. Attorney’s Office for the Western District of Michigan.

The Justice Department’s Sexual Harassment in Housing Initiative is led by the Civil Rights Division, in coordination with U.S. Attorney’s Offices across the country. The goal of the department’s initiative is to address and raise awareness about sexual harassment by landlords, property managers, maintenance workers, loan officers, or other people who have control over housing. Since launching the initiative in October 2017, the department has filed 28 lawsuits alleging sexual harassment in housing and recovered more than $9.8 million for victims of such harassment.

The Justice Department’s Civil Rights Division enforces the Fair Housing Act, which prohibits discrimination in housing based on race, color, religion, national origin, sex, disability and familial status. More information about the Civil Rights Division and the laws it enforces is available at http://www.justice.gov/crt. Individuals may report sexual harassment or other forms of housing discrimination by calling the Justice Department’s Housing Discrimination Tip Line at 1-833-591-0291, or submitting a report online. Individuals may also report such discrimination by contacting HUD at 1-800-669-9777 or by filing a complaint online

Source: United States Department of Justice News

Remarks as Prepared for Delivery

Thank you so much, Ray. It’s great to be here. It’s nice to see so many friends in the audience and to be back with you, although actually with you this time and not beaming in.

I’m really pleased my friend Leslie Caldwell has agreed to moderate a little discussion afterwards.

It’s a pleasure to be here to talk to you about an enduring Department of Justice priority: advancing the fight against corporate crime.

Corporate crime, as we all know, jeopardizes jobs, savings, our economic security, and increasingly, our national security.

Since returning to the department, the Attorney General and I have prioritized battling corporate crime in order to uphold the rule of law, to strengthen financial markets, and to reassure the public that no person and no company is above the law.

Now, as Ray mentioned, two years ago in October of 2021, I directed some immediate policy changes to invigorate corporate criminal enforcement, and I did so based on a few fundamental principles: preventing misconduct before it happens; holding individual wrongdoers accountable; and deterring and punishing recidivism.

Now, at the same time, we launched the Corporate Crime Advisory Group to recommend more advances, based on input, and this is important, input from outside as well as inside the department.

And based on that input, last fall I announced department-wide policy changes focused on promoting cultures of corporate compliance, while also ensuring consistency and predictability in the way the government treats corporate crime.

Our goal is to empower companies to do the right thing, by investing in compliance, in culture and in good corporate citizenship — while at the same time empowering our prosecutors to hold accountable those who don’t follow the law.

Now, many of the policies I announced last September required action across the Department of Justice — from the Criminal Division to the divisions that concentrate on tax and antitrust and environmental and national security crimes, to each of the 94 U.S. Attorneys’ Offices.

And today, I’ll update you on our progress we’ve made, including our work to cement a firm foundation for corporate criminal enforcement and reward investments in corporate compliance.

And I’ll also address the additional resources we are bringing to bear to confront emerging risks.

Because in today’s complex and uncertain geopolitical – very uncertain quite frankly – geopolitical environment, corporate crime and national security are overlapping to a degree never seen before, and the department is retooling to meet that challenge.

Our National Security Division will be elevating its attention to corporate crime through an infusion of personnel and expertise.

And we’re doubling down on the successful strategies we have deployed to attack cyber and crypto crime, to harness all tools across government to pursue prevention, deterrence and accountability.

Inspiring a Culture of Compliance

Now, last September, I emphasized the department’s commitment to finding the right incentives to promote and support a culture of corporate compliance.

And I noted two new areas of particular focus: a cross-department approach to promoting voluntary self-disclosure and how compensation structures can foster responsible corporate behavior.

We want companies to step up and own up when they discover misconduct and to use compensation systems to align their executives’ financial interests with the company’s interest in good corporate citizenship.

And since then, the department has been doing the hard work of turning principles into policy.

Voluntary Self-Disclosure Programs 

Now, with respect to voluntary self-disclosure, I am pleased to report that, for the first time, every U.S. Attorney’s Office now has, and every component I should say, that prosecutes corporate crime, now has in place an operative, predictable and transparent voluntary self-disclosure program.

These policies share a common principle: absent aggravating factors, no department component will seek a guilty plea where a company has voluntarily self-disclosed, cooperated and remediated the misconduct.

Now, we recognize that companies and counsel rely on the department to apply its policies transparently and consistently throughout the country.

By adopting one policy for all U.S. Attorneys’ Offices, we are eliminating geographic disparities and uncertainties; the same policy applies whether a company voluntarily self-discloses to the U.S. Attorney’s Office in Alaska or right here in Miami.

Now, these are not rigid, cookie-cutter policies. Each component thoughtfully tailored its policy to its specific mission.

Potential aggravating factors are different for the National Security Division than they are for the Environment and Natural Resources Division.

And even the Criminal Division — which pioneered this concept and already had a model policy from which components drew — the Criminal Division revised its policy to provide clearer assurances and increased incentives for companies that come forward and self-report.

Let me be very very clear. I want every general counsel, every executive and board member to take this message to heart: where your company discovers criminal misconduct, the pathway to the best resolution will involve prompt voluntary self-disclosure to the Department of Justice.

And the department is practicing what it preaches.

For example, the Criminal Division recently entered into a deferred prosecution agreement (DPA) with ABB Limited – a Swiss multinational engineering company — and this was a DPA for FCPA crimes that it attempted to voluntarily self-disclose to the government.

Now, this was not the company’s first DPA, and the department carefully scrutinizes this type of recidivism.

But weighing the company’s efforts disclose, its extensive cooperation, its compliance program overhaul and other key considerations – like facilitating overseas employee interviews and engaging in extensive remediation – the Criminal Division concluded — and we agreed — that a DPA was appropriate.  

What this shows is that even a company with a significant history of misconduct has a powerful incentive to make a timely self-disclosure; had ABB not promptly come forward, the result would have been drastically different.

Promoting Compliance through Compensation and Clawback Programs

The second new policy to drive compliance-promoting behavior involves innovative approaches to compensation and the use of clawbacks.

Now, ast September, I announced that the department would examine corporate compensation programs, to shift the burden of corporate malfeasance away from uninvolved shareholders onto those more directly responsible.

Companies should ensure that executives and employees are personally invested in promoting compliance. And nothing grabs attention or demands personal investment like having skin in the game, through direct and tangible financial incentives.

So, at my direction, the Criminal Division studied this issue. I asked them to talk to practitioners, to consult with regulators and to develop guidance, guidance on how to reward corporations with compliance-promoting compensation programs. 

As Assistant Attorney General Kenneth Polite will talk about in greater detail tomorrow, we are now ready to launch the department’s first-ever Pilot Program on Compensation Incentives and Clawbacks.

Now, the program has two parts.

First, every corporate resolution involving the Criminal Division will now include a requirement that the resolving company develop compliance-promoting criteria within its compensation and bonus system.

This is something we have already debuted in recent Criminal Division cases, with criteria that are tailored to fit the company’s existing compensation program.

For example, as part of its plea agreement in December and in addition to forfeiting $2 billion, Danske, the largest bank in Denmark, agreed to revise its performance review and bonus system to include criteria related to compliance.

So now, Danske executives with a failing score for compliance will also fail to secure a bonus.

Second, under the pilot program, the Criminal Division will provide fine reductions to companies who seek to claw back compensation from corporate wrongdoers.

At the outset of a criminal resolution, the resolving company will pay the applicable fine, minus a reserved credit equaling the amount of compensation the company is attempting to claw back from culpable executives and employees.

If the company succeeds and recoups compensation from a responsible employee, the company gets to keep that clawback money — and also doesn’t have to pay the amount it recovered.  

And because we heard from stakeholders about how challenging and how expensive the pursuit of clawbacks can be, the pilot program will also ensure that those who pursue clawbacks in good faith but are unsuccessful are still eligible to receive a fine reduction.

Our goal is simple: to shift the burden of corporate wrongdoing away from shareholders, who frequently play no role in the misconduct, onto those directly responsible.

We intend this program to encourage companies who do not already factor compliance into compensation to retool their programs and get ahead of the curve.

Tomorrow, we will release this new policy, and Assistant Attorney General Polite will provide more details about the program.

We believe the best way to combat corporate crime is to prevent it, or barring that, to surface it and address it head on.

Now, these policies empower general counsels and compliance officers to make the case to company management, to make the case in the boardroom that investment in a robust compliance program, including a forward-leaning compensation system, is money well spent.

Resource Commitments to Corporate Criminal Enforcement

Now, since I returned to the department, I’ve also looked for ways to expand the resources available to the department’s prosecutors to address the evolution of corporate crime. And last year, we stood up the National Cryptocurrency Enforcement Team (NCET) and the FBI’s Virtual Asset Unit (VAU). 

Now, these investments have already been paying off — whether you look at the over $5 billion in cryptocurrency recovered last year or the prosecutions we have brought against dozens of crypto criminals.

Today, I am pleased to announce a similar surge of resources to address a troubling trend: the intersection of corporate crime and national security.

Companies are on the front lines of today’s geopolitical and national security challenges. Increasingly, corporate criminal investigations carry profound national security implications. 

Last October, the department secured the first-ever corporate guilty plea to material support for terrorism. This was from multinational construction company LaFarge, S.A., for a scheme in which executives brazenly paid millions to terrorist groups like ISIS, in exchange for permission to operate a cement plant in Syria. LaFarge was sentenced to pay financial penalties of more than $750 million. 

And last week, just last week, the world marked one year since Russia’s unprovoked invasion of Ukraine. That invasion sparked a global response from governments and companies alike, and it elevated the importance of sanctions and export control enforcement.

What was once a technical area of concern for select businesses should now be at the top of every company’s risk compliance chart.

As I’ve said before, in today’s world, sanctions are the new FCPA. And across the department and indeed across the globe, we are handling corporate investigations that involve sanctions evasion — in industries as varied as transportation, fin tech, banking, defense and agriculture. 

And to address the increasing intersection of corporate crime and national security, the department is today announcing significant restructuring and resource commitments within the National Security Division. That division, of course, is overseen by Assistant Attorney General Matt Olsen.

We will add more than 25 new prosecutors who will investigate and prosecute sanctions evasion, export control violations and similar economic crimes.

Now, those new hires will include the National Security Division’s first-ever Chief Counsel for Corporate Enforcement.

And starting today, the division will issue joint advisories with the Commerce and Treasury Departments — akin to the FCPA guidance we have for years published jointly with the SEC — to inform the private sector about enforcement trends and to convey the department’s expectations as to national security-related compliance.

As Matt Olsen will talk about in more detail a little bit later today, these actions demonstrate the breadth of the department’s commitment to combatting corporate crime, particularly where it places our collective security at risk.

As the National Security Division expands its capacity to investigate and prosecute corporate sanctions violations, they will work closely with U.S. Attorneys’ Offices and the Criminal Division to apply enforcement strategies that have proven their worth in other areas of the department.

And I am pleased to announce that we will also be making a substantial investment in the Bank Integrity Unit (BIU) in the Criminal Division’s Money Laundering and Asset Recovery Section.

As many of you know, BIU has a significant track record of prosecuting global financial institutions for sanctions violations, and these additional resources will allow it to build upon that record and be a strong partner to NSD.

Finally, stay tuned for some significant announcements in some significant cases in the coming weeks that implicate this very troubling trend.

Accountability

Let me close on what will always remain the most important priority in corporate enforcement: individual accountability.

Over the last two years, that focus on individual accountability has paid off.

Recent charges – like those against Sam Bankman-Fried and Carlos Watson – and convictions – like those of Elizabeth Holmes and Sunny Balwani – demonstrate the department’s resolve to take on the most challenging cases.   

But even more importantly, we have shown that we are serious about taking individual wrongdoers to trial. The Criminal Division’s Fraud Section, for example, secured more individual convictions at trial last year than in any of the previous five years.  

So, our message is clear: the department will zealously pursue corporate crime in any industry, and we will hold wrongdoers accountable, no matter how prominent or powerful they are.

And to that end, I will close with this, an ounce of prevention is worth a pound of cure. Investing now in a robust compliance program is good for business, and it is good for our collective economic and national security.

Thank you so much for having me today. I look forward to the discussion.