March 30, 2022
While details are still emerging regarding the REPO Task Force, DOJ’s announcement regarding Task Force KleptoCapture provides insights into DOJ’s criminal enforcement strategy. Not surprisingly, Task Force KleptoCapture personnel have experience in topics such as sanctions enforcement and anti-money laundering. DOJ has a history of prosecuting entities and individuals outside the U.S. for criminal violations of sanctions and related money laundering crimes where there is a nexus to the U.S. For example, DOJ is prosecuting Halkbank, a Turkish state-owned bank, for an alleged scheme to evade sanctions against Iran and launder proceeds relating to Iranian oil, gold, and other commodities. As in many cases before it, DOJ alleges that Halkbank is subject to U.S. jurisdiction because, among other reasons, millions of dollars were routed through U.S. correspondent accounts at unwitting U.S. banks.
Task Force KleptoCapture also includes prosecutors with expertise in asset forfeiture and national security matters. Efforts to combine those skillsets are reflected in DOJ’s civil asset forfeiture actions, in 2019 and 2021, against the Wise Honest and Courageous—commercial shipping vessels used to illicitly ship coal and oil products to North Korea in violation of U.S. sanctions against the DPRK. Press releases related to both seizures describe involvement of DOJ’s National Security Division, and transactions in furtherance of both schemes were routed through the U.S. Task Force KleptoCapture personnel could pursue similar civil forfeiture cases targeting assets linked to sanctioned parties, even where those parties are not subject to arrest or extradition.
Echoing concerns expressed by other U.S. officials, public statements relating to Task Force KleptoCapture indicate that it will investigate efforts to use cryptocurrency to evade U.S. sanctions. The prosecution of U.S. citizen Virgil Griffith provides a roadmap for what such a case could look like. In 2021, Griffith pleaded guilty to illegally providing services to the DPRK, in violation of U.S. sanctions. Prosecutors argued that Griffith’s criminal conduct included attending a 2019 conference in Pyongyang where Griffith and co-conspirators provided instructions on how to use blockchain and cryptocurrency technology to launder money and evade sanctions.
On March 11, a senior DOJ official further warned that Task Force KleptoCapture will scrutinize anti-money laundering policies at banks and other firms, including Virtual Asset Service Providers. DOJ relied on that type of theory in the prosecution of executives from the Bitcoin Mercantile Exchange (BitMEX), a cryptocurrency derivatives exchange, for failing to maintain an adequate anti-money laundering program under the Bank Secrecy Act. In that case, DOJ alleged that BitMEX was subject to U.S. jurisdiction based on its U.S. operations, such as serving U.S.-based customers.
Consistent with other U.S. criminal and regulatory initiatives, DOJ’s Task Force KleptoCapture announcement indicates that investigators will rely on cryptocurrency tracing and other sophisticated investigative techniques coordinated with the private sector. The U.S. government’s increasing proficiency with these tools is reflected in public filings relating to the arrests of Ilya Lichtenstein and Heather Morgan based on allegations that they conspired to launder $4.5 billion in cryptocurrency stolen in connection with the 2016 hack of Bitfinex. During the investigation, a U.S. judge issued opinion finding that private cryptocurrency tracing software products produce reliable evidence that U.S. investigators can rely on to develop criminal cases.
Lastly, on March 2, DOJ emphasized that Task Force KleptoCapture will coordinate with foreign partners and rely on foreign evidence collection and foreign intelligence sources. The March 17 announcement of the REPO Task Force, with participation from eight countries as well as E.U. components, underscores the international commitment to sanctions enforcement. Brazil is not a member of the REPO Task Force, but U.S. and Brazilian authorities developed a strong foundation of cooperation during numerous FCPA and foreign corruption cases arising out of “Operation Car Wash.” That cooperation is further reflected in, for example, the SEC’s expression of gratitude to Brazil’s Comissão de Valores Mobilários in a September 2021 press release relating to the $19.2 million FCPA settlement with London-based WPP plc.
Brazilian companies outside of agribusiness have also faced challenging circumstances. On March 4, Brazilian aircraft manufacturer Embraer S.A. announced that it would stop providing parts and maintenance services to Russian companies. Brazil is a net exporter of oil, mainly to China and the E.U. On March 12, Brazilian state-owned oil company Petrobras announced that it would increase gasoline and diesel prices in Brazil despite calls from Brazilian officials to maintain a discounted price for domestic consumers.
Brazilian financial institutions reportedly have loaned less than $10 million to Russian firms, as compared to over approximately $16 billion from U.S. firms, which will mitigate to some extent the impact in Brazil of U.S. sanctions restricting Russia’s access to the global financial system. More than 10 million Brazilians participate in cryptocurrency markets, to some extent as a hedge against inflation of the Brazilian Real, and there are several large crypto exchanges in Brazil such as Mercado Bitcoin.
In light of the new sanctions against Russia and the related enforcement, reputational, and business risks discussed below, Brazilian entities and individuals should review and strengthen anti-money laundering (AML) and related transactional diligence polices such as “Know your customer” (KYC) procedures. For Brazilian companies potentially subject to the U.S. Bank Secrecy Act, the BitMEX case shows that DOJ will pursue charges where companies fail to implement appropriate AML controls and, as a result, do not timely report suspicious financial activities to U.S. regulators. Even for companies not subject to U.S. jurisdiction, establishing a track record of diligence with respect to customers, counterparties, and customers’ counterparties is an important compliance risk-mitigation approach.
DOJ's Task Force KleptoCapture, the International REPO Task Force, and Related Developments in Brazil
This article originally appeared in Migalhas on March 30, 2022.
On March 2, 2022, the U.S. Department of Justice (DOJ) announced the formation of Task Force KleptoCapture, an interagency effort designed to enforce measures imposed by the U.S. government in response to Russia’s invasion of Ukraine. On March 17, the U.S. Treasury Department and others announced the formation of the multi-nation Russian Elites, Proxies, and Oligarchs (REPO) Task Force, which includes DOJ, to coordinate international efforts targeting assets of sanctioned Russian parties.
This alert, co-authored by Emil Bove of CSG Law in New York,i Pedro Beretta of Höfling Advogados in São Paulo,ii and Eduardo Lemos of Rigueira, Amorim, Caribé, Caúla & Leitão in Recife and Brasília,iii offers guidance for Brazilian companies and individuals by providing examples of the types of U.S. criminal cases these Task Forces could pursue.
I. Emerging Russian Sanctions Task Forces
While details are still emerging regarding the REPO Task Force, DOJ’s announcement regarding Task Force KleptoCapture provides insights into DOJ’s criminal enforcement strategy. Not surprisingly, Task Force KleptoCapture personnel have experience in topics such as sanctions enforcement and anti-money laundering. DOJ has a history of prosecuting entities and individuals outside the U.S. for criminal violations of sanctions and related money laundering crimes where there is a nexus to the U.S. For example, DOJ is prosecuting Halkbank, a Turkish state-owned bank, for an alleged scheme to evade sanctions against Iran and launder proceeds relating to Iranian oil, gold, and other commodities. As in many cases before it, DOJ alleges that Halkbank is subject to U.S. jurisdiction because, among other reasons, millions of dollars were routed through U.S. correspondent accounts at unwitting U.S. banks.
Task Force KleptoCapture also includes prosecutors with expertise in asset forfeiture and national security matters. Efforts to combine those skillsets are reflected in DOJ’s civil asset forfeiture actions, in 2019 and 2021, against the Wise Honest and Courageous—commercial shipping vessels used to illicitly ship coal and oil products to North Korea in violation of U.S. sanctions against the DPRK. Press releases related to both seizures describe involvement of DOJ’s National Security Division, and transactions in furtherance of both schemes were routed through the U.S. Task Force KleptoCapture personnel could pursue similar civil forfeiture cases targeting assets linked to sanctioned parties, even where those parties are not subject to arrest or extradition.
Echoing concerns expressed by other U.S. officials, public statements relating to Task Force KleptoCapture indicate that it will investigate efforts to use cryptocurrency to evade U.S. sanctions. The prosecution of U.S. citizen Virgil Griffith provides a roadmap for what such a case could look like. In 2021, Griffith pleaded guilty to illegally providing services to the DPRK, in violation of U.S. sanctions. Prosecutors argued that Griffith’s criminal conduct included attending a 2019 conference in Pyongyang where Griffith and co-conspirators provided instructions on how to use blockchain and cryptocurrency technology to launder money and evade sanctions.
On March 11, a senior DOJ official further warned that Task Force KleptoCapture will scrutinize anti-money laundering policies at banks and other firms, including Virtual Asset Service Providers. DOJ relied on that type of theory in the prosecution of executives from the Bitcoin Mercantile Exchange (BitMEX), a cryptocurrency derivatives exchange, for failing to maintain an adequate anti-money laundering program under the Bank Secrecy Act. In that case, DOJ alleged that BitMEX was subject to U.S. jurisdiction based on its U.S. operations, such as serving U.S.-based customers.
Consistent with other U.S. criminal and regulatory initiatives, DOJ’s Task Force KleptoCapture announcement indicates that investigators will rely on cryptocurrency tracing and other sophisticated investigative techniques coordinated with the private sector. The U.S. government’s increasing proficiency with these tools is reflected in public filings relating to the arrests of Ilya Lichtenstein and Heather Morgan based on allegations that they conspired to launder $4.5 billion in cryptocurrency stolen in connection with the 2016 hack of Bitfinex. During the investigation, a U.S. judge issued opinion finding that private cryptocurrency tracing software products produce reliable evidence that U.S. investigators can rely on to develop criminal cases.
Lastly, on March 2, DOJ emphasized that Task Force KleptoCapture will coordinate with foreign partners and rely on foreign evidence collection and foreign intelligence sources. The March 17 announcement of the REPO Task Force, with participation from eight countries as well as E.U. components, underscores the international commitment to sanctions enforcement. Brazil is not a member of the REPO Task Force, but U.S. and Brazilian authorities developed a strong foundation of cooperation during numerous FCPA and foreign corruption cases arising out of “Operation Car Wash.” That cooperation is further reflected in, for example, the SEC’s expression of gratitude to Brazil’s Comissão de Valores Mobilários in a September 2021 press release relating to the $19.2 million FCPA settlement with London-based WPP plc.
II. Russia-Related Developments in Brazil
Brazilian President Jair Bolsonaro has not condemned the Russian invasion. Brazil’s ambassador to the U.N. voted in favor of a General Assembly resolution reprimanding Russia and calling for a cease-fire. But he also issued a statement shortly after the vote expressing concern about collateral consequences from the sanctions. As one example, due to its large agricultural sector and heavy reliance on Russian fertilizer products, Brazil has sought to leverage support from MERCOSUR and other South American countries to propose that fertilizer be excluded from sanctions against Russia.
Brazilian President Jair Bolsonaro has not condemned the Russian invasion. Brazil’s ambassador to the U.N. voted in favor of a General Assembly resolution reprimanding Russia and calling for a cease-fire. But he also issued a statement shortly after the vote expressing concern about collateral consequences from the sanctions. As one example, due to its large agricultural sector and heavy reliance on Russian fertilizer products, Brazil has sought to leverage support from MERCOSUR and other South American countries to propose that fertilizer be excluded from sanctions against Russia.
Brazilian companies outside of agribusiness have also faced challenging circumstances. On March 4, Brazilian aircraft manufacturer Embraer S.A. announced that it would stop providing parts and maintenance services to Russian companies. Brazil is a net exporter of oil, mainly to China and the E.U. On March 12, Brazilian state-owned oil company Petrobras announced that it would increase gasoline and diesel prices in Brazil despite calls from Brazilian officials to maintain a discounted price for domestic consumers.
Brazilian financial institutions reportedly have loaned less than $10 million to Russian firms, as compared to over approximately $16 billion from U.S. firms, which will mitigate to some extent the impact in Brazil of U.S. sanctions restricting Russia’s access to the global financial system. More than 10 million Brazilians participate in cryptocurrency markets, to some extent as a hedge against inflation of the Brazilian Real, and there are several large crypto exchanges in Brazil such as Mercado Bitcoin.
III. Guidance for Brazilian Entities and Individuals
In light of the new sanctions against Russia and the related enforcement, reputational, and business risks discussed below, Brazilian entities and individuals should review and strengthen anti-money laundering (AML) and related transactional diligence polices such as “Know your customer” (KYC) procedures. For Brazilian companies potentially subject to the U.S. Bank Secrecy Act, the BitMEX case shows that DOJ will pursue charges where companies fail to implement appropriate AML controls and, as a result, do not timely report suspicious financial activities to U.S. regulators. Even for companies not subject to U.S. jurisdiction, establishing a track record of diligence with respect to customers, counterparties, and customers’ counterparties is an important compliance risk-mitigation approach.
1. Business and Brazilian Enforcement Risks. Notwithstanding President Bolsonaro’s position regarding the invasion, and as evidenced by Embraer’s decision to distance itself from the Russian market, transactions with direct or indirect links to Russia or Russian oligarchs present significant reputational risks and are likely to be scrutinized more carefully by Brazilian regulators and others around the world.
2. U.S.-Brazil Cooperation. DOJ’s Task Force KleptoCapture and the international REPO Task Force represent focused efforts by the U.S. to enforce sanctions, export controls, and other measures imposed on Russia in response to the invasion. Brazilian companies and individuals with any U.S.-facing activities, such as even limited U.S. operations or U.S.-dollar correspondent banking relationships, could be subject to investigation by these Task Forces. While the authority of the U.S. to conduct investigations in foreign countries is limited in some respects, the track record of cooperation between the U.S. and Brazil suggests that Task Force personnel will have ample access to Brazil-based evidence in connection with their investigations.
2. U.S.-Brazil Cooperation. DOJ’s Task Force KleptoCapture and the international REPO Task Force represent focused efforts by the U.S. to enforce sanctions, export controls, and other measures imposed on Russia in response to the invasion. Brazilian companies and individuals with any U.S.-facing activities, such as even limited U.S. operations or U.S.-dollar correspondent banking relationships, could be subject to investigation by these Task Forces. While the authority of the U.S. to conduct investigations in foreign countries is limited in some respects, the track record of cooperation between the U.S. and Brazil suggests that Task Force personnel will have ample access to Brazil-based evidence in connection with their investigations.
3. Civil Forfeiture. As a practical matter, the Task Force’s emphasis on U.S. civil forfeiture laws, combined with the intricacies of U.S. money laundering provisions, means that property and funds in Brazil “involved in a transaction or attempted transaction” that violates the sanctions could be subject to seizure proceedings—similar to the above-described cases involving the Wise Honest and the Courageous. Where a sufficient U.S. nexus exists, the U.S. members of the Task Forces could rely on the cooperative relationship with Brazil in connection with civil forfeiture and seizure efforts targeting, for example, aircraft, vessels, and related funds belonging to sanctioned oligarchs.
4. Prohibited Services. The U.S. laws used to impose sanctions on Russia generally prohibit not only financial transactions with sanctioned parties, but also efforts to provide others types of services to the targets of the sanctions. On March 3, for example, DOJ charged Jack Hanick with criminal violations of U.S. sanctions targeting Russian Specially Designated National Konstantin Malofeyev based on the theory that Hanick provided services to Malofeyev by working for him on media-related projects.
5. Prohibited Evasion. U.S. law also prohibits efforts to evade U.S. sanctions in many situations, including by using VASPs. U.S. prohibitions on sanctions evasion merit careful attention should situations arise where Russian parties, lacking access to the SWIFT system and U.S. correspondent accounts, seek other means of accessing the global financial system, such as cryptocurrency markets or SWIFT alternatives like Russia’s SPFS and China’s CIPS.
i Emil Bove is a member of CSG Law’s White Collar Criminal Defense, Government Investigations, and Cybersecurity Groups. Prior to joining the firm, Emil was a co-chief of the national security unit at the U.S. Attorney’s Office for the Southern District of New York, where he worked for nearly a decade. Emil has extensive experience in cross-border matters involving money laundering, corruption and bribery, economic sanctions, espionage, terrorism, and international drug trafficking.
ii Pedro Beretta is a partner at Höfling Advogados, with offices in São Paulo. Pedro’s practice focuses on white collar criminal defense. Pedro speaks regularly regarding white collar matters. He is an associate of the Institute for Defense of the Right to Defense (IDDD) and part of the Criminal Committee of the Center for Studies of the Society of Lawyers (CESA). Pedro was previously an assistant professor of criminal law and criminal enforcement at the Pontifical Catholic University (PUC) in São Paulo. Eduardo is admitted to the Brazilian Bar Association and speaks Portuguese and English.
iii Eduardo Lemos is a partner at Rigueira, Amorim, Caribé, Caúla & Leitão, with offices in Recife and Brasília. Currently an LLM candidate at New York University Law School, Eduardo is a white collar crime litigator and compliance & investigations expert with more than 10 years of practical legal experience. Eduardo is admitted to the Brazilian Bar Association and speaks Portuguese, English, and Spanish.
ii Pedro Beretta is a partner at Höfling Advogados, with offices in São Paulo. Pedro’s practice focuses on white collar criminal defense. Pedro speaks regularly regarding white collar matters. He is an associate of the Institute for Defense of the Right to Defense (IDDD) and part of the Criminal Committee of the Center for Studies of the Society of Lawyers (CESA). Pedro was previously an assistant professor of criminal law and criminal enforcement at the Pontifical Catholic University (PUC) in São Paulo. Eduardo is admitted to the Brazilian Bar Association and speaks Portuguese and English.
iii Eduardo Lemos is a partner at Rigueira, Amorim, Caribé, Caúla & Leitão, with offices in Recife and Brasília. Currently an LLM candidate at New York University Law School, Eduardo is a white collar crime litigator and compliance & investigations expert with more than 10 years of practical legal experience. Eduardo is admitted to the Brazilian Bar Association and speaks Portuguese, English, and Spanish.
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