DOJ seeks forfeiture of more than $1 billion allegedly laundered From Malaysian Sovereign Wealth Fund

The Department of Justice (DOJ) has filed a series of 16 civil forfeiture complaints in U.S. District Court in the Central District of California to recover more than $1 billion in assets linked to funds that were allegedly stolen from a Malaysian sovereign wealth fund, the 1Malaysia Development Berhard, or 1MDB. According to the complaints, high-level 1MDB officials and their associates – including the prime minister of Malaysia, who set up the fund in 2009 to boost the Malaysian economy – looted more than $3.5 billion from the fund and then laundered those funds through a series of shell companies with bank accounts in Singapore, Switzerland, Luxembourg and the United States. The funds were used to purchase interests in luxury assets in the United States, including The Wolf of Wall Street movie, artworks by Vincent Van Gogh, a Bombardier aircraft, and real estate in New York and Beverly Hills. The complaints also implicate the Malaysian prime minister’s son, who co-owns the production company that made The Wolf of Wall Street.

We can expect the lawsuits to be heavily litigated and showcase the many challenges that parties face in these types of cases. Tracing assets through multiple shell companies and multiple banks in multiple jurisdictions is notoriously difficult because it requires extensive documentation and bank records – records that many jurisdictions are loath to divulge. More difficult still may be the task of proving that the funds were stolen in the first place, as the proof of the Malaysian officials’ corruption may reside in the hands of the accused. Perhaps in recognition of these evidentiary difficulties, the government has elected to proceed with civil rather than criminal forfeiture. The government also currently seeks only forfeiture and does not seek to impose penalties under U.S. anti-money laundering laws 18 U.S.C. §§ 1956 and 1957. The failure to plead a violation under section 1956 is particularly striking because the case seems tailor-made for section 1956(c)(7)(B)(iv)’s prohibition of the laundering of the proceeds of official corruption. Continue Reading

Second Circuit Microsoft Decision May Change International Investigations and Cloud Computing Architecture, But Perhaps Not In the Way Many Think

information-technology-server-IT-iStock_000075750321_LargeThe Second Circuit’s recent decision in Microsoft Corporation v. United States, No. 14-2985 (2d Cir. July 14, 2016), is a game changer in more ways than one. In direct terms, it held that the government may not, as it has in the past, use a search warrant obtained under the Stored Communications Act, 18 U.S.C. §§ 2701 et seq. (“SCA”), to compel a provider of remote computing services (such as an internet service provider, or “ISP”) to collect and produce emails of its customers that are stored in a computer server located in a foreign country. That holding, if adopted more broadly, could inadvertently free the government to use less burdensome methods to obtain such records. Or, as most expect, it could do the opposite, requiring the government to use a cumbersome treaty process to obtain the records, or in some cases, preventing it from getting the records at all. That result in turn could lead many internet companies offering cloud computing services to move their digital operations offshore. And it may even lead the government to join the many digital privacy advocates seeking an overhaul of decades-old legislation that still governs the government’s policing of online communications.

The SCA is part of the Electronic Communications Privacy Act of 1986 (ECPA), which Congress enacted to extend restrictions on wiretaps of phone calls to cover computer-generated electronic communications, such as emails. While it remains unclear whether the Fourth Amendment applies directly to protect from government searches emails and other communications transmitted through third parties such as internet service providers, the SCA was designed to provide similar protections. Under the SCA, the government can obtain certain “non-content” information (such as the identity of an email account subscriber) via a subpoena, which does not require evidence of a crime or the approval of a judge. However, in order to obtain “content” information (such as emails) that has been in the account for 180 days or less, the government must obtain a search warrant through the usual warrant process, which requires that a judge find probable cause to believe a crime has occurred and that evidence of the crime will be found in the emails. Continue Reading

Can International Arbitrators Order a Country to Stop Criminal Proceedings?

58156458_thumbnailOn July 7, 2016, a UK judge said yes, suspending the extradition of two men to Albania in compliance with an order of a tribunal in an international arbitration those men had brought against the Albanian government. The Albanian government quickly relented, dropping its extradition request and effectively accepting the arbitrators’ dictate.

Hydro S.r.L. v. Albania is an international treaty arbitration brought before the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID). In that case, two Italian companies and their individual owners claim that Albania violated the Italy-Albania bilateral investment treaty by launching various abusive tax investigations and criminal proceedings against them. As with other ICSID arbitrations, the case is being heard by a tribunal of three international arbitrators – prominent international lawyers chosen by the parties and by ICSID. The tribunal’s jurisdiction is based on international treaties, in particular the investment treaty and the ICSID Convention, a multinational agreement of which Italy, Albania, and many other countries are members. Continue Reading