The Department of Justice (DOJ) “KleptoCapture” Task Force (the “Task Force”), launched shortly after Russia’s invasion of Ukraine earlier this year, is characterized by DOJ as a key part of the current Administration’s broader anti-corruption initiative. The role of the Task Force is to support the enforcement of sanctions and export control restrictions imposed against Russia in response to the conflict. Earlier this month, Andrew Adams, the Task Force’s director, discussed its work to date, expected future developments, and implications for private sector companies.[1] Highlights of his remarks are summarized below, along with our comments on key points addressed.
The Importance of Private-Sector (Willing or Unwilling) “Facilitators”
The Task Force’s scope goes beyond specific persons who were either designated by the Treasury Department or added to the Commerce Department’s export control lists. It also focuses on private-sector actors who facilitate others’ evasion of US economic sanctions and export controls, acting as so-called “facilitators.” Generally speaking, according to Director Adams, there are three types of facilitators: those who are actively facilitating; those who are knowingly being exploited; and those who are being victimized.
Director Adams indicated that cooperation by private-sector actors is a critical component of the Task Force’s enforcement efforts. In building its cases, the Task Force regularly engages with companies and individuals in the banking, insurance, maritime, and aviation services sectors because these actors often end up serving as facilitators.
“Success is not defined solely by DOJ outcomes” – Multilateral and US Inter-Agency Cooperation
Director Adams emphasized that recent enforcement actions brought by the Task Force have involved a substantial amount of foreign cooperation. The countries that have provided support include not only those that have traditionally cooperated with the DOJ but also other “fairly far flung” jurisdictions that are now committed to enforcing sanctions around the world.
US inter-agency cooperation is also a core part of the Task Force’s strategy. The Task Force has at least weekly interactions with the Russian Elites, Proxies, and Oligarchs Task Force (REPO), a joint task force established by the DOJ and the Department of Treasury to accelerate oligarch asset forfeiture efforts. At these meetings, the Task Force and REPO discuss updates on foreign laws and enforcement related to the seizure of assets.
As a result of this enforcement coordination with local and foreign counterparts, what the Task Force views as a successful action has changed. Now, director Adams indicated, success is not defined solely by actions brought by the Task Force itself but also through assisting the initiation of actions of other counterparts, including local agencies and foreign partners.
Data Privacy Laws Not a Significant Barrier
Director Adams also indicated that data privacy laws or other data-related policies of foreign jurisdictions have not hindered the Task Force’s ability to obtain information when public or private actors are cooperating with the US Government. If a company is cooperative, the Task Force has found ways to allow the company to share information while complying with applicable foreign law. In fact, there has been what he terms a “sea change” in terms of obtaining information from foreign governments. With foreign governments imposing sanctions that are similar to the US regime, the Task Force confronts fewer data privacy barriers because most data sharing agreements include a “dual criminality” provision, in which information related to misconduct can be shared if it relates to conduct criminalized in both the US and the foreign jurisdiction.
“The Forfeiture Hammer”
The Task Force’s approach, according to director Adams, is to use all potential authorities to bring any charge against either specifically designated persons or facilitators, or to seize their assets. To do so, the Task Force uses a wide variety of statutes. In general, the most common charges are sanctions evasion and money laundering. In addition, the Task Force has brought charges under wire fraud, bank fraud, visa fraud, and narcotics trafficking statutes, as well as the Foreign Agents Registration Act and conspiracy and aiding and abetting under Sections 371 and 2, respectively.
The possibility of bringing charges under the Racketeer Influenced and Corrupt Organizations (RICO) Act is also being carefully considered as a tool for prosecuting sanctions evasion and export control violations. The goal would be to use RICO’s powerful scope to prosecute not only individual persons, but the entire criminal “network” as a racketeering enterprise. This presents a challenge because, while most of the violations listed by director Adams above are among the predicate crimes that can trigger racketeering liability under the RICO statute (money laundering, wire fraud, bank fraud, visa fraud, and narcotics trafficking), export and sanctions violations are not. As a result, director Adams reported that he has participated in Congressional hearings on behalf of the Task Force, requesting that violations of the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act (ECRA) be added to the list of crimes that constitute racketeering activity within the meaning of the RICO Act.
What that would mean for the government’s forfeiture efforts is less clear. From the day the Task Force was announced in March 2022, asset forfeiture was its primary focus. Indeed, DOJ officials made clear that a leading goal of the Task Force was to use civil asset forfeiture authority to seize and forfeit luxury assets of designated foreign nationals who were beyond the reach of US criminal jurisdiction. It is easy to see why using RICO would be attractive to prosecutors. Director Adams’ description of RICO’s “forfeiture hammer” is an apt one in the sense that the RICO forfeiture provisions are extremely broad in scope and reach. However, they are also available only in federal criminal RICO prosecutions that result in convictions of one or more persons who own the assets the government seeks. As Director Adams noted, one of the historically unique features of the US forfeiture regime is its expansive civil asset forfeiture authority. That balance appears to be shifting, however since the conflict in Ukraine, with members of the European Union in particular evaluating and working on expanding their civil asset forfeiture capacity. The seizures announced by the Task Force so far have relied on civil forfeiture authority, which permits the seizure and forfeiture of property anywhere in the world, even in the absence of criminal charges. As an action against the property itself, civil forfeiture requires only that the government prove (by the relaxed civil standard of preponderance of the evidence rather than the criminal standard of beyond a reasonable doubt) that the property sought has a statutorily-defined nexus to a qualifying criminal offense. Moreover, if the owner of the property receives proper notice of a judicial civil forfeiture action and fails to appear to defend against it in a US court, the property will be forfeited by default.
The same is not true of criminal forfeiture, even under RICO, where if the person indicted in the underlying case is located in a jurisdiction where he or she is not subject to arrest or extradition, the forfeiture cannot be accomplished. For property of those persons, such as the sanctioned Russian foreign nationals that have been the main targets of the Task Force to date, Congressional expansion of the scope of racketeering activity to include IEEPA and ECRA violations is unlikely to be of any practical value to the government, at least insofar as forfeiture is concerned.
Nevertheless, the shift in focus away from individual assets like yachts and airplanes to persons and entities acting as facilitators is important because it may signal recognition that the Task Force overestimated its ability to use US civil forfeiture law to accomplish this goal. Despite the extraterritorial nature of the regime, many forfeiture experts were skeptical of the legal theories on which the government relied in obtaining the seizure warrants for the $90 million yacht Tango, seized in April 2022 in Spain, and the $300 million Amadea, seized in May 2022 in Fiji, which the government purported were beneficially owned by, respectively, Viktor Vekselberg and Suleiman Kerimov. The Tango remains in a Spanish port, and the Amadea was piloted into San Diego Harbor several months ago under a US flag, but the DOJ has yet to take any steps to perfect the forfeiture (that is, the extinguishing of other ownership interests and vesting of title in the government) of either of them.
Relatedly, the DOJ issued a press release in June 2022 announcing that it had obtained a seizure warrant for two airplanes allegedly owned by Roman Abramovich, who has not been designated by the United States, citing violations of US export controls. But there have been no publicly-reported efforts by the government to effect the seizure of either of the planes, a necessary precursor to formal civil forfeiture proceedings. The government will eventually have to either release or file a civil judicial forfeiture case against each of the Tango and the Amadea. And yet, director Adams’ statement that “success is not defined solely by DOJ outcomes” suggests that the Task Force has reconsidered whether US civil forfeiture is the right tool for this particular job. The government’s lack of pre- and post-seizure action and the new statement of intent to rely on foreign cooperation, combined with the growing acceptance of civil forfeiture referenced above, may indicate a desire to hand these matters off to like-minded allies with less restrictive forfeiture laws and procedures. In the meantime, the government and its allied government partners will be obliged to maintain all assets seized under US law to preserve their value, an expensive proposition considering that the annual maintenance cost of a luxury yacht is generally about ten percent of its value.
Corporate Transparency Act
The Corporate Transparency Act (CTA) was enacted in 2021 to protect the US financial system from being used for illicit activities, especially money laundering. The CTA requires entities to, among other things, file a beneficial ownership information report with the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN), identifying the individuals behind these entities.
In September 2022, FinCEN issued its Final Rule to implement the CTA, which establishes further details on this CTA reporting, including when the reports have to be filed and by whom, what information has to be shared, and when updates are necessary. The effective date of the rule is January 1, 2024. The reports will be kept in a non-public database, with access limited primarily to law enforcement agencies.
Director Adams considers the CTA to be an important tool for the Task Force because it requires that the private sector know its counterparties. In addition, based on the information contained in the required filings, the Task Force will be able to identify “slip-ups down the line” as time goes on. In the future, in investigating a sanctions violation, the Task Force will be able to look back at an earlier report and piece together a beneficial ownership that, later in time, violators were trying to hide.
Cryptocurrency Exchanges
Centralized cryptocurrency exchanges subject to US jurisdiction qualify as financial institutions under the Bank Secrecy Act, and also have to comply with the Russia sanctions regime. In that context, Director Adams confirmed that the Task Force is monitoring financial institutions, including non-traditional ones such as cryptocurrency exchanges, to identify weak points in the US government’s sanctions enforcement. In these cases, the Task Force will partner with either the appropriate US Attorney’s office or the national cryptocurrency enforcement team to the extent that the jurisdictions of these agencies overlap.
Maritime, Aviation, and Energy Industries Face Enforcement Risk
The sanctions and export control restrictions imposed by the United States against Russia have resulted in novel risk factors for companies in certain industries. Director Adams emphasized that even companies in industries that have not yet been the focus of the current US sanctions and export controls enforcement should consider enhancing their compliance programs to address the risk factors related to such regime. Key examples are maritime services, aviation services, and energy, as well as any company doing business in jurisdictions adjacent to Russia.
Companies can leverage publicly available information related to cases brought by the Task Force to identify problematic jurisdictions, typical fact patterns, and common control failures. That information, along with a sound risk assessment and gap analysis, can be critical areas for improvements in export- and sanctions-related compliance policies and procedures.
[1] Director Adams’ comments were made in the context of the American Conference Institute’s 39th Annual Conference on the Foreign Corrupt Practices Act (FCPA) held on November 30-December 1 in Washington, DC.